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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
COMMISSION FILE NUMBER 1-10367
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 71-0675758
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
914 N JEFFERSON STREET
SPRINGDALE, ARKANSAS 72764
(Address of Principal Executive Office) (Zip Code)
(479) 756-7400
(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:
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES: [ ] NO: [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of November 3, 2003, the
number of shares outstanding of the Registrant's Class A common stock, which is
the class registered under the Securities Exchange Act of 1934, was 28,600,326
and the number of shares outstanding of the Registrant's Class B Common Stock
was 1,465,530.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
Form 10-Q Index
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Balance Sheets, September 30, 2003 (unaudited)
and December 31, 2002 1-2
Statements of Operations, (unaudited)
Three Months and Nine Months Ended September 30,
2003 and 2002 3
Statements of Cash Flows, (unaudited)
Nine Months Ended September 30, 2003 and 2002 4
Notes to Financial Statements. 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12-18
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 18
Item 4. Control and Procedures. 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 20
Signatures. 22
Index to Exhibits. 23
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
----------- -----------
(UNAUDITED)
Current assets:
Cash $ 323,817 $ 504,365
Restricted bond escrow fund 16,528,389 16,565,549
Accounts receivable, net of allowance of $92,207
at September 30, 2003 and $98,207 at
December 31, 2002 2,697,693 2,635,960
Inventories 3,911,173 2,684,336
Prepaid expenses 690,079 343,409
----------- -----------
Total current assets 24,151,151 22,733,619
----------- -----------
Land, buildings and equipment:
Land 889,528 889,528
Buildings and leasehold improvements 2,806,613 1,615,288
Machinery and equipment 24,972,822 24,400,913
Transportation equipment 671,208 548,959
Office equipment 684,891 645,012
Construction in progress 1,870,382 1,649,937
----------- -----------
31,895,444 29,749,637
Less accumulated depreciation 13,900,878 15,223,727
----------- -----------
Net land, buildings and equipment 17,994,566 14,525,910
----------- -----------
Other assets, at cost less accumulated
amortization of $407,311 at September 30,
2003 and $385,881 at December 31, 2002 2,133,146 2,076,419
----------- -----------
$44,278,863 $39,335,948
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
2003 2002
----------- -----------
(UNAUDITED)
Current liabilities:
Accounts payable - trade $ 6,916,949 $ 4,663,220
Accounts payable - related parties 2,365,244 2,234,699
Current maturities of long-term debt 319,551 312,050
Accrued liabilities 1,908,236 1,678,286
Notes payable - related parties 1,418,833 1,928,833
Notes payable - other 2,405,024 1,974,474
Bonds payable 16,500,000 16,500,000
------------ ------------
Total current liabilities 31,833,837 29,291,562
------------ ------------
Long-term debt, less current maturities 3,936,734 4,068,210
------------ ------------
Accrued premium on convertible preferred stock 207,000 214,709
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value; 5,000,000 shares
authorized; 2,760 shares issued and outstanding 2,760 2,760
Class A common stock, $.01 par value; 75,000,000
shares authorized; 28,575,326 and 28,331,312
shares issued and outstanding at September 30,
2003 and December 31, 2002, respectively 285,753 283,313
Class B convertible common stock, $.01
par value; 7,500,000 shares authorized,
1,465,530 shares issued and outstanding 14,655 14,655
Warrants outstanding; 16,580,722 at September 30,
2003 and 16,590,122 at December 31, 2002 7,818,834 7,824,206
Additional paid-in capital 24,071,804 23,825,504
Accumulated deficit (23,892,514) (26,188,971)
------------ ------------
Total stockholders' equity 8,301,292 5,761,467
------------ ------------
$ 44,278,863 $ 39,335,948
============ ============
The accompanying notes are an integral part of these financial statements.
2
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $11,379,799 $11,045,046 $32,576,037 $30,616,774
Cost of goods sold 9,023,305 7,476,121 25,386,439 21,908,151
----------- ----------- ----------- -----------
Gross margin 2,356,494 3,568,925 7,189,598 8,708,623
Selling and administrative costs 2,411,873 2,368,930 6,739,384 5,944,323
Research and development 23,732 - 49,230 220,117
----------- ----------- ----------- -----------
Operating income (loss) (79,111) 1,199,995 400,984 2,544,183
Other income (expense)
Insurance proceeds related to lost income 248,013 - 1,072,312 -
Interest income 37,693 68,642 142,170 253,414
Interest expense (394,554) (329,142) (1,043,156) (1,096,185)
----------- ----------- ----------- -----------
(108,848) (260,500) 171,326 (842,771)
----------- ----------- ----------- -----------
Income (loss) before accrued premium on preferred
stock (187,959) 939,495 572,310 1,701,412
Accrued premium on preferred stock (69,000) (69,000) (207,000) (209,083)
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stock before extraordinary item (256,959) 870,495 365,310 1,492,329
Extraordinary gain on involuntary conversion
of non-monetary assets due to fire 52,926 - 1,931,147 -
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stock after extraordinary item $ (204,033) $ 870,495 $ 2,296,457 $ 1,492,329
=========== =========== =========== ===========
Income (loss) per share of common
stock before extraordinary item (Basic) $ (0.01) $ 0.03 $ 0.01 $ 0.05
=========== =========== =========== ===========
Income (loss) per share of common
stock before extraordinary item (Diluted) $ (0.01) $ 0.02 $ 0.01 $ 0.03
=========== =========== =========== ===========
Income (loss) per share of common
stock after extraordinary item (Basic) $ (0.01) $ 0.03 $ 0.08 $ 0.05
=========== =========== =========== ===========
Income (loss) per share of common
stock after extraordinary item (Diluted) $ (0.01) $ 0.02 $ 0.06 $ 0.03
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - Basic 30,005,619 29,791,653 29,893,298 29,415,338
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - Diluted 30,005,619 42,661,083 40,800,332 43,090,477
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2003 2002
---------- ----------
Cash flows from operating activities:
Net income applicable to common stock $2,296,457 $1,492,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,660,004 2,235,604
Premium accrued on preferred stock 207,000 209,083
Extraordinary gain or involuntary conversion of
non-monetary assets due to fire (1,931,147) --
(Increase) decrease in other assets 129,315 (56,825)
Changes in current assets and current liabilities 1,387,331 471,868
---------- ----------
Net cash provided by operating activities 6,680,107 4,352,059
---------- ----------
Cash flows from investing activities:
Purchases of land, buildings and equipment (5,400,140) (3,257,540)
Insurance proceeds from involuntary disposition of
property and equipment 2,876,159 --
---------- ----------
Net cash used in investing activities (2,523,981) (3,257,540)
Cash flows from financing activities:
Proceeds from issuance of notes - 250,000
Payments on notes (1,296,835) (557,421)
Increase (decrease) in outstanding advances on
factored receivables 15,942 (716,189)
Debt acquisition costs (207,472) (250,581)
Proceeds from exercise of stock options and
warrants, net 27,850 293,683
---------- ----------
Net cash used in financing activities (1,460,515) (980,508)
---------- ----------
Increase (decrease) in cash (180,548) 114,011
Cash, beginning of period 504,365 755,601
---------- ----------
Cash, end of period $323,817 $869,612
========== ==========
The accompanying notes are an integral part of these financial statements.
4
NOTES TO FINANCIAL STATEMENTS
NOTE 1: UNAUDITED INFORMATION
Advanced Environmental Recycling Technologies, Inc. ("AERT" or "the
Company") has prepared the financial statements included herein without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). However, all adjustments have been made to the accompanying financial
statements that are, in the opinion of the Company's management, of a normal
recurring nature and necessary for a fair presentation of the Company's
operating results. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented herein not
misleading. It is recommended that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. The Company has reclassified
certain prior period amounts to conform to the current period presentation.
NOTE 2: DESCRIPTION OF THE COMPANY
AERT manufactures a line of composite building materials from reclaimed
plastic and wood fiber waste for certain specialized applications in the
construction industry. The Company markets this material as a substitute for
wood and plastic filler materials for standard door components, windowsills,
brick mould, fascia board, decking and heavy industrial flooring. The Company is
comprised of four manufacturing facilities which are located in Junction, Texas,
Springdale and Lowell, Arkansas and Alexandria, Louisiana. The Company's
customers primarily consist of a number of regional and national door and window
manufacturers, industrial flooring companies and Weyerhaeuser, the Company's
primary decking customer.
NOTE 3: CURRENT OPERATIONS
On March 28, 2003, the Company had an accidental fire at the Junction,
Texas plant. The Company was given permission to begin demolition and the
rebuilding of a portion of the production facility on April 16, 2003. One
extrusion line in the plant, which was partially damaged, was repaired, the
electrical system for the production facility was replaced and a portion of the
building covering the extrusion area was replaced. The extrusion line was
rebuilt and became operational on May 20, 2003. Concurrently, the Company
installed another extrusion line in the Springdale, Arkansas plant, which became
operational on June 9, 2003. With the completion of these lines, the production
capacity is the same as before the fire. At this time, there has been minimal
disruption in meeting the customers' needs although several new product
introductions were delayed.
The rebuild of the second extrusion line and the raw material system at
the Junction, Texas facility is expected to be completed by the end of the first
quarter of 2004. This will complete the rebuilding of the Junction Plant. There
is no assurance as to the timing of the completion of the remaining extrusion
line. The Junction plant was, and is, fully insured for fire damage and business
interruption. As of September 30, 2003, we have received $4.5 million in
insurance proceeds related to this incident.
5
Due to the Junction facility fire, gross assets were written down by
approximately $4.91 million, along with the associated accumulated depreciation
on those assets in the amount of $3.96 million, resulting in a net book value
decrease in assets of about $950,000. At September 30, 2003, approximately $3
million had been invested in reconstructing the Junction facility. Insurance
proceeds received to reimburse costs incurred to reconstruct the facility have
resulted in a gain of $1,931,147 through September 30, 2003. Additionally, the
Company recorded $1,307,066 in business interruption insurance during the second
and third quarters of 2003, which consists of $1,072,312 to replace lost income
and $234,754 to cover fixed expenses. At September 30, 2003, approximately
$250,000 is included in accounts receivable for expected insurance
reimbursements.
NOTE 4: STATEMENTS OF CASH FLOWS
In order to determine net cash provided by operating activities, net
income has been adjusted by, among other things, changes in current assets and
current liabilities, excluding changes in cash, current maturities of long-term
debt and current notes payable. Those changes, shown as an (increase) decrease
in current assets and an increase (decrease) in current liabilities for the nine
months ended September 30, are as follows:
2003 2002
(UNAUDITED) (UNAUDITED)
----------- -----------
Receivables...................................................... $ (61,733) $ 507,006
Inventories...................................................... (1,226,837) (442,888)
Prepaid expenses and other....................................... 594,608 155,597
Accounts payable -
Trade and related parties...................................... 906,331 (584,420)
Accrued liabilities.............................................. 229,950 836,573
----------- ---------
$ 442,319 $ 471,868
=========== =========
Cash paid for interest........................................... $ 726,313 $ 881,030
=========== =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
2003 2002
(UNAUDITED) (UNAUDITED)
----------- -----------
Notes payable for financing of insurance policies................ $ 903,309 $346,619
Accounts / notes payable for equipment........................... 1,652,101 105,264
Accrued premium paid with Class A common stock................... 214,709 367,779
6
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION POLICY
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). Under
SAB 101, revenue is recognized when the title and risk of loss have passed to
the customer, there is persuasive evidence of an arrangement, delivery has
occurred or services have been rendered, the sales price is determinable and
collectibility is reasonably assured. The Company typically recognizes revenue
at time of shipment. Sales are recorded net of discounts, rebates and returns.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
2003 2002
(UNAUDITED)
----------- -----------
Raw materials...................................... $2,354,536 $2,090,807
Work in process.................................... 551,154 307,775
Finished goods..................................... 1,005,483 285,754
---------- ----------
$3,911,173 $2,684,336
========== ==========
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
RESEARCH AND DEVELOPMENT
Expenditures relating to the development of new products and processes,
including significant improvements to existing products, are expensed as
incurred.
STOCK-BASED COMPENSATION
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123).
7
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation for the quarter and nine months.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- ----------------------------------
2003 2002 2003 2002
------------------------ ---- ----------------------- ----
BEFORE AFTER BEFORE AFTER
EXTRA- EXTRA- EXTRA- EXTRA-
ORDINARY ORDINARY ORDINARY ORDINARY
ITEM ITEM ITEM ITEM
-------- -------- -------- --------
Net income (loss) applicable to
common stock, as reported......... $(256,959) $(204,033) $870,495 $365,310 $2,296,457 $1,492,329
Deduct: Total stock-based
compensation expense determined
under fair value based method for
all awards........................ 146,145 146,145 244,903 341,967 341,967 497,705
---------- ---------- -------- -------- ---------- ----------
Net income (loss) applicable to
common stock, pro forma...... $(403,104) $(350,178) $625,592 $ 23,343 $1,954,490 $ 994,624
Net income (loss) per share
of common stock:
Basic - as reported.............. $ (0.01) $ (0.01) $ 0.03 $ 0.01 $ 0.08 $ 0.05
Basic - pro forma................ $ (0.01) $ (0.01) $ 0.02 $ 0.00 $ 0.07 $ 0.03
Diluted - as reported............ $ (0.01) $ (0.01) $ 0.02 $ 0.01 $ 0.06 $ 0.03
Diluted - pro forma.............. $ (0.01) $ (0.01) $ 0.01 $ 0.00 $ 0.05 $ 0.02
NOTE 6: INCOME TAXES
No income tax provision was recorded for the nine months ended
September 30, 2003 and 2002, due to the realization of previously unrecognized
net operating loss carryforwards.
NOTE 7: SEGMENT INFORMATION
SFAS No. 131 Disclosures About Segments of an Enterprise and Related
Information (SFAS 131), establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. SFAS 131
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Reportable operating
segments are defined as a component of an enterprise:
o That engages in business activities from which it may earn
revenues and expenses;
o Whose operating results are regularly reviewed by the
enterprise's chief operating decision-maker; and
o For which discrete financial information is available.
8
As of September 30, 2003, the Company does not have available discrete
financial information to disclose gross margin by product line. All operating
expenses are allocated primarily on capacity. Corporate overhead is not
allocated by product line; neither are selected assets. Net sales segregated by
product line and gross margin by plant location are as follows:
NET SALES - THREE MONTHS ENDED SEPTEMBER 30, 2003 2002
- ------------------------------------------- ----------- -----------
Commercial and residential decking surface components $ 9,027,611 $ 8,779,200
Exterior door, window and housing trim components ... 2,239,356 2,164,246
Industrial flooring ................................. 112,832 101,600
----------- -----------
$11,379,799 $11,045,046
=========== ===========
NET SALES - NINE MONTHS ENDED SEPTEMBER 30, 2003 2002
- ------------------------------------------ ----------- -----------
Commercial and residential decking surface components $26,506,799 $24,718,731
Exterior door, window and housing trim components ... 5,744,443 5,646,114
Industrial flooring ................................. 324,795 251,929
----------- -----------
$32,576,037 $30,616,774
=========== ===========
GROSS MARGIN - THREE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------
2003 2002
----------------------- -----------------------
SPRINGDALE JUNCTION SPRINGDALE JUNCTION
---------- ---------- ---------- ----------
Net revenues ..... $9,203,768 $2,176,031 $7,130,885 $3,914,161
Cost of goods sold 7,254,456 1,768,849 4,695,148 2,780,973
---------- ---------- ---------- ----------
Gross margin ..... $1,949,312 $ 407,182 $2,435,737 $1,133,188
========== ========== ========== ==========
GROSS MARGIN - NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------
2003 2002
------------------------- -------------------------
SPRINGDALE JUNCTION SPRINGDALE JUNCTION
----------- ----------- ----------- -----------
Net revenues ..... $26,158,541 $ 6,417,496 $19,854,296 $10,762,478
Cost of goods sold 20,323,890 5,062,549 13,624,835 8,283,316
----------- ----------- ----------- -----------
Gross margin ..... $ 5,834,651 $ 1,354,947 $ 6,229,461 $ 2,479,162
=========== =========== =========== ===========
NOTE 8: EARNINGS PER SHARE
The Company calculates and discloses earnings per share (EPS) in
accordance with SFAS No. 128, Earnings Per Share (SFAS 128). SFAS 128 replaces
the presentation of Primary EPS with Basic EPS and requires dual presentation of
Basic and Diluted EPS on the face of the statements of operations and requires a
reconciliation of the numerator and denominator of the Basic EPS computation to
the numerator and denominator of the Diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue
9
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company.
Diluted EPS is computed similarly to Fully Diluted EPS pursuant to Accounting
Principles Board Opinion No. 15, Earnings Per Share.
In computing Diluted EPS, only potential common shares that are
dilutive--those that reduce earnings per share or increase loss per share--are
included. Exercise of options and warrants or conversion of convertible
securities is not assumed if the result would be antidilutive, such as when a
loss from continuing operations is reported. The "control number" for
determining whether including potential common shares in the Diluted EPS
computation would be antidilutive is income from continuing operations. As a
result, if there was a loss from continuing operations, Diluted EPS would be
computed in the same manner as Basic EPS is computed, even if an entity had net
income after adjusting for discontinued operations, an extraordinary item or the
cumulative effect of an accounting change. The Company incurred a loss from
continuing operations and a net loss for the quarter ended September 30, 2003.
Therefore, Basic EPS and Diluted EPS are computed in the same manner for that
quarter.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- ----------------------------------
2003 2002 2003 2002
------------------------ ---- ----------------------- ----
BEFORE AFTER BEFORE AFTER
EXTRA- EXTRA- EXTRA- EXTRA-
ORDINARY ORDINARY ORDINARY ORDINARY
ITEM ITEM ITEM ITEM
-------- -------- -------- --------
Net income (loss) (A) $ (256,959) $ (204,033) $ 870,495 $ 365,310 $ 2,296,457 $ 1,492,329
========== ========== =========== =========== =========== ===========
Assumed exercise of stock options and
warrants............. - - 20,837,319 20,817,819 20,817,819 21,037,319
Application of assumed proceeds
toward repurchase of
stock................................ - - (7,967,889) (9,910,785) (9,910,785) (7,362,180)
----------- ----------- ----------- -----------
Net additional shares issuable... - - 12,869,430 10,907,034 10,907,034 13,675,139
=========== =========== =========== ===========
Adjustment of shares outstanding:
Weighted average common shares
outstanding................. 30,005,619 30,005,619 29,791,653 29,893,298 29,893,298 29,415,338
Net additional shares issuable... - - 12,869,430 10,907,034 10,907,034 13,675,139
----------- ----------- ----------- ----------- ----------- -----------
Adjusted shares outstanding (B) 30,005,619 30,005,619 42,661,083 40,800,332 40,800,332 43,090,477
=========== =========== =========== =========== =========== ===========
Net income (loss) per common share -
Diluted (A) divided by (B) $ (0.01) $ (0.01) $ 0.02 $ 0.01 $ 0.06 $ 0.03
=========== =========== =========== =========== =========== ===========
The Company has additional options and warrants that were not included
in the calculation of diluted earnings per share (EPS). Those options (for
1,621,000; 1,125,000; and 925,000 shares) and warrants (for 2,333,933 shares)
were either antidilutive and/or not exercisable during the nine months ended
September 30, 2003, the quarter ended September 30,
10
2002, and the nine months ended September 30, 2002, respectively. Although the
above financial instruments were not included due to being antidilutive and/or
not exercisable, such financial instruments may become dilutive and would then
need to be included in future calculations of Diluted EPS.
NOTE 9. SUBSEQUENT EVENT - LONG-TERM FINANCING
On October 9, 2003, the Company finalized a long-term financing package
with the City of Springdale, Arkansas and Allstate Insurance Company that
resulted in the Company borrowing the funds previously in the restricted bond
escrow fund on a long-term basis and terminating such escrow agreement. The
package consists of $14.4 million tax-exempt industrial development bonds and
$2.6 million subordinated debt. Net proceeds from the financing were used to
repay short-term loans and pay down accounts payable incurred for purposes of
developing qualified solid waste disposal facilities, and to purchase the
Springdale, Arkansas extrusion facility, purchase the Lowell, Arkansas plastic
facility, pay issuance fees and provide limited capital for further expansion.
The obligations are secured by substantially all of the Company's real estate
assets and personal property, although provision is made for the Company to
incur additional working capital lines of credit (subject to compliance with
financial covenants) that would be secured by accounts receivable and inventory
on a basis senior to obligations. In addition, there is a $4 million personal
guarantee from a major shareholder.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
AERT develops, manufactures and markets composite building materials
that are used in place of traditional wood products for exterior applications in
building and remodeling homes. The Company's products are made from
approximately equal amounts of waste wood fiber and reclaimed polyethylene
plastics, have been extensively tested, and are sold by leading national
companies such as the Weyerhaeuser Company (Weyerhaeuser), Lowe's Companies,
Inc. (Lowe's) and Therma-Tru Corporation. The Company's products are marketed
under the trade names LifeCycle(R), MoistureShield(R), Weyerhaeuser ChoiceDek(R)
Classic, Weyerhaeuser ChoiceDek(R) Plus and Weyerhaeuser ChoiceDek(R) Premium.
PRODUCTS
Using the same basic material, the Company manufactures three product
lines:
o Commercial and residential decking planks and accessories such
as balusters and handrails (ChoiceDek);
o Exterior door, window and housing trim components
(MoistureShield); and
o Industrial flooring.
The wood fiber content of the Company's products gives them many
properties similar to all-wood products, but the Company believes the plastic
content makes the products superior to either all-wood or all-plastic
alternatives because:
o They are less subject to thermal contraction or expansion and
have greater dimensional stability than competing all-plastic
products;
12
o They are engineered for superior moisture-resistance and will
not swell or expand like wood;
o Unlike wood, they do not require preservatives or treatment
with toxic chemicals such as chromated copper arsenic (CCA),
nor do they require yearly water sealing or staining;
o They can be designed and extruded through dies to a desired
shape in accordance with customer specifications, which helps
the customer to minimize waste;
o They are less subject to rotting, cracking, warping,
splintering, insect infestation and water absorption than
conventional wood materials; and
o When combined with our unique tie coat primer, the life of
exterior paint can be greatly enhanced, thus creating a
low-maintenance non-wood trim and fascia system designed to
enhance and complement fiber cement siding.
The Company's composites manufacturing process involves proprietary
technologies, certain of which are patented. The Company also uses manufacturing
equipment that has been custom-built or modified to the Company's
specifications. The Company's composite building material became a patented
product in June 1998 under U.S. Patent No. 5,759,680.
MANUFACTURING
During 2003, the following developments with respect to the Company's
manufacturing facilities occurred:
o On March 28, 2003, the Company had an accidental fire at the
Junction, Texas plant. The Company was given permission to
begin demolition and the rebuilding of a portion of the
production facility on April 16, 2003. One extrusion line in
the plant, which was partially damaged, was repaired, the
electrical system for the production facility was replaced and
a portion of the building covering the extrusion area has been
replaced. The extrusion line was operational on May 20, 2003.
In the third quarter the building for the production facility
was completed and the extrusion line was finished. The rebuild
of the second extrusion line and the raw material system is
starting in the fourth quarter and is expected to be completed
by the end of the first quarter of 2004. This will complete
the rebuilding of the Junction Plant. There is no assurance as
to the timing of the completion of the remaining extrusion
line.
In order to lessen the impact of the rising cost of plastic, improve
plastic quality and provide additional internal plastic processing capacity, the
following was accomplished:
o The Company acquired a facility in Northwest Arkansas in late
2002, and began converting this facility into a plastic
recycling operation. Initially this facility was equipped to
blend and regrind finished plastic. During the third quarter,
the Company enhanced the processing capability with additional
processing equipment designed to process scrap plastic. This,
when fully operational, is intended to improve and increase
the Company's internal capacity to process plastic, reduce our
dependence on outside processors, reduce our costs and will
improve the quality and consistency of finished plastic
provided to our manufacturing facilities.
o The Company entered into a lease for plastic recycling
equipment and a facility in Alexandria, Louisiana on May 27,
2003, and commenced operations on June 23, 2003. This facility
has the capability of processing scrap plastic. Improvements,
additional equipment and upgrades are being made to increase
the throughput and quality of plastic processed. The upgrades
will allow for greater flexibility to process different types
of scrap plastic, and will provide better quality and
consistency in the finished plastic furnished to our
manufacturing
13
facilities. The Alexandria facility further adds to the
Company's internal plastic processing capability, provides
greater flexibility in sourcing scrap plastic and using
outside processors and will reduce our raw material costs.
o As stated above, the Company is constantly working to upgrade
and improve its facilities to maximize capacities and improve
efficiencies. Increasing internal plastic recycling capacity
at Lowell, Arkansas and Alexandria, Louisiana is a major
Company priority to improve quality and reduce and stabilize
raw material costs.
The Company continues to work on the road and bridge infrastructure on
an adjoining 18.8-acre tract that is south of the existing Springdale, Arkansas
facility. This effort will join the two properties into a larger complex. The
building on the south property will include manufacturing and warehousing and is
anticipated to be completed during the first half of 2004.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2003 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2002
Net sales were $11,379,799 for the quarter ended September 30, 2003,
which was an increase of $334,753 or 3% from the quarter ended September 30,
2002. The third quarter 2003 composite net sales consisted of decking product
(ChoiceDek) sales of $9,027,611; and door, window and housing trim component
(MoistureShield) and industrial flooring sales of $2,352,188. These figures
compare with third quarter 2002 ChoiceDek sales of $8,779,200 and MoistureShield
and industrial flooring sales of $2,265,846. The main reason for the lack of
sales growth in ChoiceDek is attributable to the fire at the Junction facility,
which produces primarily ChoiceDek and the diminished production capacity during
the third quarter. This unexpected event also delayed the Company's planned
introduction of colored decking products during the second quarter of 2003. The
Junction plant sold $1,656,789 less ChoiceDek in the third quarter of 2003 as
compared to the third quarter of 2002. The loss of this Junction revenue also
partially contributed to the increase in 2003 expense percentages when comparing
to expense data from 2002.
The Springdale plant reported composite net sales of $9,203,768 in the
third quarter of 2003, compared to $7,130,885 in the third quarter of 2002, a
29% increase. The Junction, Texas plant net sales were $2,176,031 in the third
quarter of 2003, a 44% decrease from $3,914,161 in the third quarter of 2002.
Cost of goods sold increased $1,547,184 from $7,476,121 for the quarter
ended September 30, 2002, to $9,023,305 in 2003. As a percentage of sales, cost
of goods sold increased 11% to 79% for the quarter ended September 30, 2003, as
compared to 68% for the same period in 2002. The major changes in cost of goods
sold were as follows: raw materials, as a percentage of sales, increased 6% to
30% in 2003 from 24% in the third quarter of 2002; direct
14
labor remained constant at 15%; and manufacturing overhead increased 6% as a
percentage of sales to 35% in 2003 from 29% for the third quarter of 2002. A
significant amount of the increase in manufacturing overhead was attributable to
the two plastic recycling facilities starting up and preparing to come online
during the third quarter. The Springdale plant cost of goods sold increased as a
percentage of sales by 13% to 79% in 2003, from 66% in 2002. The Texas plant
cost of goods sold increased 10% to 81% in 2003, from 71% in 2002. In order to
meet customer demand, we needed to supplement our raw material mix and
relatively expensive virgin plastic resin. At the start of the Iraq war, the
price of both virgin plastic and recycled plastic acquired from outside vendors
rose significantly and remains high. This, together with a general rise in
demand for such materials, has forced AERT's cost of raw materials to increase.
The manufacturing overhead increase, as a percentage of sales, was also the
result of the lost sales volume in Junction and an increase in depreciation (new
equipment), utilities, repair and maintenance and insurance costs.
Significant cost categories were as follows for the quarter ended
September 30:
2003 2002
---------- ----------
Payroll and payroll taxes.................. $2,556,071 $2,432,048
Depreciation................................ 885,973 706,269
Raw materials.............................. 3,422,359 2,621,623
Other......................................... 2,158,902 1,716,181
--------- ---------
Total....................................... $9,023,305 $7,476,121
========== ==========
Selling, general and administrative expenses increased slightly in the
third quarter of 2003 to $2,435,605 from $2,368,930 for 2002. As a percentage of
sales, selling and administrative expenses remained unchanged from the same
quarter last year. The increase in the costs is primarily due to the increase in
our sales staffing and related customer services expense.
The Company had a $79,111 operating loss in the third quarter of 2003
compared to operating income of $1,199,995 in 2002 - a decrease of $1,279,106.
Approximately $700,000 of the decrease resulted from lost sales caused by the
fire at our Junction, Texas plant in March. The Junction plant is now back up to
65% of its pre-fire capacity and will be fully restored in the first quarter of
2004. The Springdale plant's profitability decreased $550,000 due to the
increased raw material cost. As previously discussed, we are working to reduce
our raw material cost by increasing our internal plastic recycling capacity.
As is shown in the statement of operations after operating income there
is a contribution of $248,013 in business interruption insurance proceeds for
lost income, as a result of the Junction fire, to the third quarter net income.
The net loss before the extraordinary item for the quarter ended
September 30, 2003 was $256,959. This is an earnings decrease of $1,127,454 when
compared to the net income of $870,495 for the third quarter of 2002. The net
loss for the quarter ended September 30, 2003, after the extraordinary gain of
$52,926 was $204,033.
Due to the Junction facility fire, gross assets were written down by
approximately $4.91 million through September 30, 2003, along with the
associated accumulated depreciation on those assets in the amount of $3.96
million, resulting in a net book value decrease in assets of about $950,000. At
September 30, 2003, approximately $3 million had been invested in reconstructing
the Junction facility. Insurance proceeds received to reimburse costs incurred
to reconstruct the facility resulted in a gain of $52,926 in the third quarter
of 2003. The gain was not tax affected due to the existence of significant net
operating loss carryforwards. Additionally, the Company recorded $328,910 in
business interruption insurance during the third quarter of 2003, which consists
of $248,013 to replace lost income and $80,897 to cover fixed expenses. At
September 30, 2003, approximately $250,000 was included in accounts receivable
15
for expected insurance reimbursements.
There can be no assurance that the Company can attain its anticipated
continued operating improvements, that raw material costs will not further
increase, that sales price increases will be possible or that its additional
production efficiencies and resultant unit cost reductions required for
sustained profitability will occur.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002
Net sales increased to $32,576,037 for the nine months ended September
30, 2003, which represented an increase of $1,959,263 or 6% over the same period
a year ago. The nine months composite net sales consisted of decking product
(ChoiceDek) net sales of $26,506,799; and door, window and housing trim
components (MoistureShield) and industrial flooring net sales of $6,069,238.
These figures compare to the same period a year ago of ChoiceDek net sales of
$24,718,731 and MoistureShield and industrial flooring net sales of $5,898,043.
The main reason for slower growth in ChoiceDek sales was attributable
to the fire at Junction, whose major product is ChoiceDek. Junction sold
$4,493,740 less ChoiceDek in the first nine months of 2003 than in the
comparable nine months in 2002. The loss of the Junction revenue also partially
contributed to the increase in percentages when comparing data from 2002 to
2003.
The Springdale, Arkansas plant reported composite net sales of
$26,158,541 for the nine month period ended September 30, 2003, compared to
$19,854,296 for the same period a year ago, which was a 32% increase. The
Junction, Texas plant net sales decreased to $6,417,496 for the nine month
period ended September 30, 2003, from $10,762,478 for the same period a year
ago, a 40% decrease. The decrease in sales was attributed to a slow start at the
beginning of 2003, as operational improvements were being implemented, and the
fire in Junction on March 28, 2003.
Cost of goods sold increased $3,478,288 from $21,908,151 for the nine
month period ended September 30, 2002, to $25,386,439. As a percentage of sales,
cost of goods sold increased 6% to 78% for the nine month period ended September
30, 2003, as compared to 72% for the same period a year ago. The major reason
for the cost of goods sold increase was a 6% increase in raw material costs as a
percentage of sales. The Springdale plant cost of goods sold increased 9% as a
percentage of sales to 78% for the nine month period in 2003, from 69% for the
same period in 2002. The Junction plant cost of goods sold increased 2% for the
nine month period in 2003, from 77% for the same period in 2002. In order to
meet customer demand, we needed to supplement our raw material mix and
relatively expensive virgin plastic resin. At the start of the Iraq war, the
price of both virgin plastic and recycled plastic acquired from outside vendors
rose significantly and remains high. This, together with a general rise in
demand for such materials, has forced AERT's cost of raw materials to increase.
Significant cost categories were as follows for the nine months ended
September 30:
2003 2002
---------- ----------
Payroll and payroll taxes.................. $7,728,379 $7,177,392
Depreciation................................ 2,476,519 2,045,218
16
2003 2002
---------- ----------
Raw materials.............................. 9,108,412 6,797,922
Other......................................... 6,073,129 5,887,619
---------- ----------
Total.......................................... $25,386,439 $21,908,151
=========== ===========
Selling, general and administrative expenses increased $624,174 for the
nine month period ended September 30, 2003 to $6,788,614 when compared to
$6,164,440 for the same period in 2002. This was an increase of .7% as a
percentage of sales to 20.8% for the nine month period in 2003 from 20.1% for
the same period in 2002. The increase in the costs is primarily due to the
increase in our sales staffing and related customer services expense.
As is shown in the statement of operations, after operating income
there is a contribution of $1,072,312 in business interruption insurance
proceeds for lost income, as a result of the Junction fire, to the third quarter
net income.
Net income before the extraordinary item for the nine month period
ended September 30, 2003 was $365,310. This is an earnings decrease of
$1,127,019 when compared to net income of $1,492,329 for the same period in
2002. The net income for the nine months ended September 30, 2003 after the
extraordinary gain of $1,931,147 was $2,296,457.
Due to the Junction facility fire, gross assets were written down by
approximately $4.91 million through September 30, 2003, along with the
associated accumulated depreciation on those assets in the amount of $3.96
million, resulting in a net book value decrease in assets of about $950,000. At
September 30, 2003, approximately $3 million had been invested in reconstructing
the Junction facility. Insurance proceeds received to reimburse costs incurred
to reconstruct the facility have resulted in an extraordinary gain of $1,931,147
for the nine months ended September 30, 2003. The gain was not tax affected due
to the existence of significant net operating loss carryforwards. Additionally,
the Company recorded $1,307,066 in business interruption insurance during the
first nine months of 2003, which consists of $1,072,312 to replace lost income
and $234,754 to cover fixed expenses. At September 30, 2003, approximately
$250,000 was included in accounts receivable for expected insurance
reimbursements.
There can be no assurance that the Company can attain its anticipated
continued operating improvements, that the raw material costs will not increase
and that sales price increases will be possible, or that its additional
production efficiencies and resultant unit cost reductions required for
sustained profitability will occur.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, the Company had a working capital deficit of
$7.7 million compared to a working capital deficit of $6.6 million at December
31, 2002. The increase in the working capital deficit is primarily attributable
to expending capital for projects through cash flow. Excluding $1 million spent
to reconstruct the Junction facility, the Company expended approximately $1.1
million on capital projects during the quarter ended September 30, 2003. The
$7.7 million working capital deficit reflects management's decision to enter
into short-term
16
debt financing, while the Company has expanded, built and improved its
production and sales capacities to increase cash flows from operations. The
Company's plan was to issue short-term debt and refinance in the future, rather
than enter into what it felt would have been more expensive and dilutive equity
financing at that time. The Company generated sufficient cash flow to more than
cover debt service.
The Company closed a $16.5 million tax-exempt bond financing during the
fourth quarter of 1999, which was intended to refinance existing obligations,
shift construction and expansion expenditures; however, remarketing efforts to
find a long-term purchaser for such bonds were further delayed by market
disruptions attributable to the tragedy of September 11, 2001, and resulted in
substantially all of the proceeds of such 1999 bond issuance being held in
escrow through the end of the third fiscal quarter of 2003. On October 9, 2003,
the Company finalized a long-term financing package with the City of Springdale,
Arkansas and Allstate Insurance Company that resulted in the Company borrowing
the funds previously in the restricted bond escrow fund on a long-term basis and
terminating such escrow agreement. The package consists of $14.4 million
tax-exempt industrial development bonds and $2.6 million subordinated debt. Net
proceeds from the financing were used to repay short-term loans and pay down
accounts payable incurred for purposes of developing qualified solid waste
disposal facilities, and to purchase the Springdale, Arkansas extrusion
facility, purchase the Lowell, Arkansas plastic facility, pay issuance fees and
provide limited capital for further expansion. The obligations are secured by
substantially all of the Company's real estate assets and personal property,
although provision is made for the Company to incur additional working capital
lines of credit (subject to compliance with financial covenants) that would be
secured by accounts receivable and inventory on a basis senior to obligations.
In addition, there is a $4 million personal guarantee from a major shareholder.
Cash decreased $180,548 in the first nine months of 2003. Significant
components of that decrease were: (i) cash provided by operating activities of
$3,803,948, which consisted of the net income for the period of $2,296,457,
increased by depreciation and amortization of $2,660,004 and decreased by other
uses of cash of $1,152,513; (ii) cash used in investing activities of
$2,523,981, and (iii) cash used in financing activities of $1,460,515. Payments
on notes during the period were $1,296,835. At September 30, 2003, the Company
had bonds and notes payable in the amount of $24.6 million, of which $20.6
million was current bonds and notes payable and the current portion of long-term
debt. Of the current bonds and notes payable, $3.3 million or 16% was payable to
Marjorie S. Brooks, a major shareholder, and other investors closely associated
with the Company. The Company paid off all of its $1.96 million in bridge notes
in October 2003 upon completion of its financing arrangement discussed above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company has no material exposures relating to its long-term debt,
due to virtually all of the Company's long-term debt bearing interest at fixed
rates. The Company depends on the market for favorable long-term mortgage rates
to help generate sales of its product to its customers for use in the
residential construction industry. Should mortgage rates increase
18
substantially, the Company could be impacted by a reduction in the residential
construction industry. Important raw materials purchased by the Company are
recycled plastic and wood fiber, which are subject to price fluctuations. The
Company attempts to limit the impact of price increases on these materials by
negotiating with certain of its principal suppliers on a term basis. In
addition, in 2003 in order to meet customer demand, we needed to supplement our
raw material mix with relatively expensive virgin plastic resin. At the start of
the Iraq war, the price of both virgin plastic and recycled plastic acquired
from outside vendors rose significantly and remains high. This, together with a
general rise in demand for such materials, has forced AERT's cost of raw
materials to increase. In response, AERT has initiated a broad expansion of its
internal plastic recycling capacity. This includes building a 20,000 square foot
plastic recycling plant in Lowell, Arkansas and leasing/upgrading a 40,000
square foot plastic recycling plant in Alexandria, Louisiana. As these
facilities are starting up, manufacturing overhead has increased, but the plants
are still under development, so third quarter results do not reflect their full
economic potential. By first quarter 2004, we expect both plants to be fully
operational at which time AERT will be able to process in-house a much greater
proportion of its plastic needs. This will help to assure a predictable
quantity, quality, and lower cost of input materials.
FORWARD-LOOKING INFORMATION
The foregoing discussion contains certain estimates, predictions,
projections and other forward-looking statements (within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934) that involve various risks and uncertainties. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect the Company's current judgment regarding the
direction of its business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, or other future
performance suggested herein. Some important factors (but not necessarily all
factors) that could affect the Company's sales volumes, growth strategies,
future profitability and operating results, or that otherwise could cause actual
results to differ materially from those expressed in any forward-looking
statement include the following: market, political or other forces affecting the
pricing and availability of plastics and other raw materials; accidents or other
unscheduled shutdowns affecting the Company's, its suppliers' or its customers'
plants, machinery, or equipment; competition from products and services offered
by other enterprises; state and federal environmental, economic, safety and
other policies and regulations, any changes therein, and any legal or regulatory
delays or other factors beyond the Company's control; execution of planned
capital projects; weather conditions affecting the Company's operations or the
areas in which the Company's products are marketed; adverse rulings, judgments,
or settlements in litigation or other legal matters. The Company undertakes no
obligation to publicly release the result of any revisions to any such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
In addition, this Form 10-Q contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Such forward-looking statements, which are often
identified by words such as "believes," "anticipates," "expects", "estimates,"
"should," "may," "will" and similar expressions, represent the Company's
expectations or beliefs concerning future events. Numerous assumptions, risks
and uncertainties, could cause actual results to differ materially from the
results discussed in the forward-looking statements. Prospective purchasers of
the Shares should carefully consider the information contained herein or in the
documents incorporated herein by reference.
ITEM 4. CONTROL AND PROCEDURES.
Each of our Co-Chief Executive Officers, Joe G. Brooks and Stephen W.
Brooks, and our Chief Financial Officer, Edward J. Lysen, have reviewed and
evaluated the disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934) that we have in place
with respect to, among other things, the timely accumulation and communication
of information to management and the recording, processing, summarizing and
19
reporting thereof for the purpose of preparing and filing this quarterly report
on Form 10-Q. Such review was conducted as of the end of the period covered by
this Form 10-Q. Based upon their review, these executive officers have concluded
that we have an effective system of disclosure controls and procedures and an
effective means for timely communication of information required to be disclosed
in this Report. Subsequent to this evaluation, there have been no significant
changes in our internal controls or in other factors that could significantly
affect such controls.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company files herewith the following exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation, including Certificate of Amendment filed on June 12,
1989 (a), and Certificate of Amendment filed on August 22, 1989 (b).
3.2 Certificate of Designation of Class B common stock (a).
3.3 Certificate of Designation of Series A Preferred Convertible Stock (c).
3.4 Certificate of Designation of Series B Preferred Convertible Stock (c).
3.5 Certificate of Designation of Series C Preferred Convertible Stock (c).
3.6 Bylaws of Registrant (a).
10.41 Indenture of Trust between City of Springdale and Regions Bank, Trustee, as of October 1, 2003
10.42 Mortgage and Loan Agreement between City of Springdale and Company, as of October 1, 2003
10.43 Assignment of Mortgage and Loan Agreement between City of Springdale and Regions Bank
10.44 Note Purchase Agreement between Company and Allstate Insurance Company dated October 9, 2003
10.45 Promissory Note made by Company dated October 9, 2003
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, by the Company's chairman, co-chief executive officer and president
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, by the Company's co-chief executive officer
31.3 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, by the Company's chief financial officer
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, by the Company's chairman, co-chief executive officer and president
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
20
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
U.S.C. Section 1350, by the Company's co-chief executive officer
32.3 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, by the Company's chief financial officer
- -----------
(a) Contained in Exhibits to Registration Statement on Form S-1, No. 33-29595, filed June 28, 1989.
(b) Contained in Exhibits to Amendment No. 1 to Registration Statement on
Form S-1, No. 33-29595, filed August 24, 1989.
(c) Filed with Form 10-K for December 31, 1998.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
BY: /s/ Joe G. Brooks /s/ Edward J. Lysen
- ----------------------- -----------------------
JOE G. BROOKS EDWARD J. LYSEN
Chairman Chief Financial Officer
Date: November 14, 2003 Date: November 14, 2003
22
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation, including Certificate of Amendment filed on June 12, 1989
(a). and Certificate of Amendment filed on August 22, 1989 (b).
3.2 Certificate of Designation of Class B common stock (a).
3.3 Certificate of Designation of Series A Preferred Convertible Stock (c).
3.4 Certificate of Designation of Series B Preferred Convertible Stock (c).
3.5 Certificate of Designation of Series C Preferred Convertible Stock (c).
3.6 Bylaws of Registrant (a).
10.41 Indenture of Trust between City of Springdale and Regions Bank, Trustee, as of October 1, 2003
10.42 Mortgage and Loan Agreement between City of Springdale and Company, as of October 1, 2003
10.43 Assignment of Mortgage and Loan Agreement between City of Springdale and Regions Bank
10.44 Note Purchase Agreement between Company and Allstate Insurance Company dated October 9, 2003
10.45 Promissory Note made by Company dated October 9, 2003
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, by the
Company's chairman, co-chief executive officer and president
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, by the
Company's co-chief executive officer
31.3 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, by the
Company's chief financial officer
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, by the
Company's chairman, co-chief executive officer and president
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, by the
Company's co-chief executive officer
32.3 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, by the
Company's chief financial officer
- -------------
(a) Contained in Exhibits to Registration Statement on Form S-1, No.
33-29595, filed June 28, 1989.
(b) Contained in Exhibits to Amendment No. 1 to Registration Statement on
Form S-1, No. 33-29595, filed August 24, 1989.
(c) Filed with Form 10-K for December 31, 1998.
23