UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
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|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 30, 2015
OR
☐ |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
Commission
File Number 1-10367
Advanced
Environmental Recycling Technologies, Inc.
(Exact
name of registrant as specified in its charter)
|
|
|
Delaware
(State or other jurisdiction
of
incorporation or
organization) |
|
71-0675758
(I.R.S. Employer
Identification No.) |
914 N. Jefferson Street
Springdale, Arkansas
(Address of principal
executive offices) |
|
72764
(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: þ
NO: ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES:
þ NO: ☐
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ |
Accelerated filer ☐ |
|
|
Non-accelerated filer ☐ |
Smaller reporting
company þ |
(Do not check if a smaller reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
Indicate the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date. As of October 30, 2015, 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 89,631,162.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES,
INC.
FORM 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES,
INC.
BALANCE SHEETS
(In thousands)
| |
September 30, 2015 | |
December 31, 2014 |
| |
(unaudited) | |
|
Assets | |
| |
|
Current assets: | |
| | | |
| | |
Cash | |
$ | 243 | | |
$ | 112 | |
Trade accounts receivable, net of allowance of $209 and $48 at September 30, 2015 and December 31, 2014, respectively | |
| 3,315 | | |
| 4,346 | |
Accounts receivable - related party | |
| 26 | | |
| 26 | |
Inventories | |
| 17,001 | | |
| 14,316 | |
Prepaid expenses | |
| 1,606 | | |
| 1,134 | |
Total current assets | |
| 22,191 | | |
| 19,934 | |
| |
| | | |
| | |
Land, buildings and equipment: | |
| | | |
| | |
Land | |
| 2,220 | | |
| 2,220 | |
Buildings and leasehold improvements | |
| 17,062 | | |
| 17,019 | |
Machinery and equipment | |
| 55,344 | | |
| 52,267 | |
Construction in progress | |
| 1,263 | | |
| 662 | |
Total land, buildings and equipment | |
| 75,889 | | |
| 72,168 | |
Less accumulated depreciation | |
| 48,064 | | |
| 45,080 | |
Net land, buildings and equipment | |
| 27,825 | | |
| 27,088 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Debt issuance costs, net of amortization | |
| 205 | | |
| 483 | |
Other assets, net of amortization | |
| 380 | | |
| 380 | |
Total other assets | |
| 585 | | |
| 863 | |
| |
| | | |
| | |
Total assets | |
$ | 50,601 | | |
$ | 47,885 | |
The accompanying notes are an integral part
of these financial statements.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES,
INC.
BALANCE SHEETS (continued)
(In thousands, except
share and per share data)
| |
September 30,
2015 | |
December 31,
2014 |
| |
(unaudited) | |
|
Liabilities and Stockholders' Deficit | |
| |
|
Current liabilities: | |
| | | |
| | |
Accounts payable – trade | |
$ | 6,480 | | |
$ | 4,559 | |
Accounts payable – related parties | |
| 90 | | |
| 25 | |
Current maturities of long-term debt | |
| 5,849 | | |
| 5,240 | |
Other accrued liabilities | |
| 4,214 | | |
| 3,865 | |
Working capital line of credit | |
| - | | |
| 3,625 | |
Total current liabilities | |
| 16,633 | | |
| 17,314 | |
| |
| | | |
| | |
Long-term debt, less current maturities | |
| 34,988 | | |
| 32,470 | |
| |
| | | |
| | |
Commitments and Contingencies (See Note 9) | |
| | | |
| | |
| |
| | | |
| | |
Series E cumulative convertible preferred stock, $0.01 par value; 30,000 shares authorized, 20,524 shares issued and outstanding at September 30, 2015 and December 31, 2014, including accrued unpaid dividends of $6,371 and $5,196 at September 30, 2015 and December 31, 2014, respectively | |
| 26,895 | | |
| 25,720 | |
| |
| | | |
| | |
Stockholders' deficit: | |
| | | |
| | |
Class A common stock, $.01 par value; 525,000,000 shares authorized; 89,631,162 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively | |
| 897 | | |
| 897 | |
Additional paid-in capital | |
| 53,660 | | |
| 53,660 | |
Accumulated deficit | |
| (82,472 | ) | |
| (82,176 | ) |
Total stockholders' deficit | |
| (27,915 | ) | |
| (27,619 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 50,601 | | |
$ | 47,885 | |
The accompanying notes are an integral part
of these financial statements.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES,
INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share
data)
| |
Three Months Ended | |
Nine Months Ended |
| |
September 30, 2015 | |
September 30, 2014 | |
September 30, 2015 | |
September 30, 2014 |
Net sales | |
$ | 21,843 | | |
$ | 20,724 | | |
$ | 65,564 | | |
$ | 61,961 | |
Cost of goods sold | |
| 16,503 | | |
| 15,639 | | |
| 52,249 | | |
| 48,682 | |
Gross margin | |
| 5,340 | | |
| 5,085 | | |
| 13,315 | | |
| 13,279 | |
| |
| | | |
| | | |
| | | |
| | |
Selling and administrative costs | |
| 3,318 | | |
| 3,027 | | |
| 9,825 | | |
| 9,037 | |
Gain from asset disposition | |
| - | | |
| (50 | ) | |
| (1 | ) | |
| (64 | ) |
Operating income | |
| 2,022 | | |
| 2,108 | | |
| 3,491 | | |
| 4,306 | |
| |
| | | |
| | | |
| | | |
| | |
Other income and expenses: | |
| | | |
| | | |
| | | |
| | |
Other income | |
| 2 | | |
| 12 | | |
| 12 | | |
| 11 | |
Gain (loss) from involuntary conversion of non-monetary assets due to fire | |
| - | | |
| (500 | ) | |
| - | | |
| 345 | |
Net interest expense | |
| (853 | ) | |
| (779 | ) | |
| (2,624 | ) | |
| (2,372 | ) |
Net income | |
| 1,171 | | |
| 841 | | |
| 879 | | |
| 2,290 | |
Dividends on preferred stock | |
| (398 | ) | |
| (375 | ) | |
| (1,175 | ) | |
| (1,107 | ) |
Net income (loss) applicable to common stock | |
$ | 773 | | |
$ | 466 | | |
$ | (296 | ) | |
$ | 1,183 | |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) per share of common stock (basic and diluted) | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | 0.00 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding (basic and diluted) | |
| 444,674,483 | | |
| 424,165,483 | | |
| 89,631,162 | | |
| 419,275,834 | |
The accompanying notes are an integral part
of these financial statements.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES,
INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| |
Nine months ended |
| |
September 30,
2015 | |
September 30,
2014 |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) applicable to common stock | |
$ | (296 | ) | |
$ | 1,183 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 3,734 | | |
| 3,070 | |
Dividends on preferred stock | |
| 1,175 | | |
| 1,107 | |
Accrued interest converted to long-term debt | |
| 2,100 | | |
| 1,917 | |
Gain from asset disposition | |
| (1 | ) | |
| (64 | ) |
Increase in accounts receivable allowance | |
| 161 | | |
| 2 | |
Gain from involuntary conversion of non-monetary assets due to fire | |
| - | | |
| (345 | ) |
Changes in other current assets and current liabilities | |
| 714 | | |
| 1,162 | |
Net cash provided by operating activities | |
| 7,587 | | |
| 8,032 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of land, buildings and equipment | |
| (1,723 | ) | |
| (1,587 | ) |
Proceeds from disposition of assets | |
| 4 | | |
| 71 | |
Insurance proceeds from involuntary conversion of non-monetary assets due to fire | |
| - | | |
| 418 | |
Net cash used in investing activities | |
| (1,719 | ) | |
| (1,098 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Payments on notes | |
| (2,112 | ) | |
| (1,346 | ) |
Net payments on line of credit | |
| (3,625 | ) | |
| (5,135 | ) |
Net cash used in financing activities | |
| (5,737 | ) | |
| (6,481 | ) |
| |
| | | |
| | |
Increase in cash | |
| 131 | | |
| 453 | |
Cash, beginning of period | |
| 112 | | |
| 124 | |
Cash, end of period | |
$ | 243 | | |
$ | 577 | |
The accompanying notes are an integral part
of these financial statements.
NOTES TO FINANCIAL STATEMENTS
Unaudited
Note 1: Unaudited Information
Advanced Environmental Recycling Technologies,
Inc. (the Company, AERT, we, our or us) 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, which are, in the opinion of the Company’s management, 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 of America (U.S. GAAP) 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. Interim reports, such as this one, however,
are not necessarily indicative of results to be obtained for the full year.
Note 2: Description of the Company
AERT, founded in 1988, develops and commercializes
technologies to recycle waste polyethylene plastics and develops, manufactures, and markets value-added, green building products.
The majority of our products are composite building materials that are a superior replacement for traditional wood or plastic products
for exterior applications in building and remodeling homes and for certain other industrial or commercial building purposes. Our
products are made primarily from approximately equal amounts of recycled polyethylene plastic and waste wood fiber, which have
been cleaned, sized and reprocessed utilizing our patented and proprietary technologies. Our products have been extensively tested,
and are sold by leading national companies such as Lowe’s Companies, Inc. (Lowe’s) and Therma-Tru Corporation. Our
products are primarily used in renovation and remodeling by consumers, homebuilders, and contractors as an exterior environmentally
responsible (“Green”) building alternative for decking, railing, and trim products.
AERT currently manufactures all of our composite
products at extrusion facilities in Springdale, Arkansas, and we operate a plastic recycling, blending and storage facility in
Lowell, Arkansas, where we also lease warehouses and land for inventory storage. We also operate a plastic recycling, cleaning,
and reformulation facility in Watts, Oklahoma.
Note 3: 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, are as follows (in thousands):
| |
Nine months ended |
| |
September 30,
2015 | |
September 30,
2014 |
Receivables | |
$ | 872 | | |
$ | (510 | ) |
Inventories | |
| (2,685 | ) | |
| 1,109 | |
Prepaid expenses | |
| 197 | | |
| 322 | |
Accounts payable - trade and related parties | |
| 1,982 | | |
| 330 | |
Accrued liabilities | |
| 348 | | |
| (89 | ) |
Change in current assets and liabilities | |
$ | 714 | | |
$ | 1,162 | |
Cash paid for interest | |
$ | 515 | | |
$ | 453 | |
Supplemental Disclosures of Non-Cash
Investing and Financing Activities (in thousands)
| |
Nine months ended |
| |
September 30,
2015 | |
September 30,
2014 |
| |
(unaudited) | |
(unaudited) |
Notes payable for financing manufacturing equipment | |
$ | 2,322 | | |
$ | - | |
Notes payable for financing insurance policies | |
$ | 817 | | |
$ | 994 | |
Note 4: Significant Accounting Policies
Revenue Recognition Policy
The Company recognizes revenue when the
title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, shipment has occurred or services
have been rendered, the sales price is determinable and collectability is reasonably assured. The Company typically recognizes
revenue at the time product is shipped or when segregated and billed under a bill and hold arrangement except sales to Lowe’s,
in which case we recognize revenue when the product is delivered to Lowe’s. The following table sets forth the amount of
discounts, rebates and returns for the periods indicated:
| |
(dollars in thousands) | |
|
Quarter ended September 30, | |
Nine months ended September 30, |
2015 | |
2014 | |
2015 | |
2014 |
$ | 811 | | |
$ | 785 | | |
$ | 2,804 | | |
$ | 2,568 | |
Estimates of expected sales discounts are
calculated by applying the appropriate sales discount rate to all unpaid invoices that are eligible for the discount. The Company’s
sales prices are determinable given that its sales discount rates are fixed and given the predictability with which customers take
sales discounts.
Shipping and Handling
The Company records shipping fees billed
to customers in net sales and records the related expenses in cost of goods sold.
Inventories
Inventories are stated at the lower of
cost (first-in, first-out method) or market. Material, labor, and
factory overhead necessary to produce the inventories are included at their cost. Inventories consisted of the following (in thousands):
| |
September 30,
2015 | |
December 31,
2014 |
Raw materials | |
$ | 6,010 | | |
$ | 5,083 | |
Work in process | |
| 2,299 | | |
| 1,827 | |
Finished goods | |
| 8,692 | | |
| 7,406 | |
Total inventory | |
$ | 17,001 | | |
$ | 14,316 | |
Accounts Receivable and Factoring
Accounts receivable are uncollateralized
customer obligations due under normal trade terms generally requiring payment within thirty days from the invoice date. Trade accounts
are stated at the amount management expects to collect from outstanding balances. Payments of accounts receivable are allocated
to the specific invoices identified on the customers’ remittance advice.
Accounts receivable are carried at original
invoice amounts less an estimated reserve provided for returns and discounts based on a review of historical rates of returns and
expected discounts. The carrying amount of accounts receivable is reduced, if needed, by a valuation allowance that reflects management’s
best estimate of the amounts that will not be collected. Management individually reviews all overdue accounts receivable balances
and, based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.
Management provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance account based
on its assessment of the current status of the individual accounts. Balances which remain outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable.
Recoveries of trade receivables previously written off are recorded when received.
On February 20, 2015, the Company entered
into an accounts receivable purchase agreement (Lowe’s Companies, Inc. Supply Chain Financing Program) with a third party
financial institution to sell selected accounts receivable from Lowe’s. The Company, at its sole option, may offer to sell
to the financial institution all or part of the Company’s accounts receivable from Lowe’s. The financial institution,
upon acceptance of the offer, advances to the Company 95% of the balance due within 15 days of the invoice date with the remaining
5% being paid under agreed upon terms. AERT pays interest on advanced amounts at an agreed-upon rate (1.09% per annum at September
30, 2015). The Lowe’s receivables are sold without recourse. The purchase agreement may be terminated by either party with
30-days’ notice. As of September 30, 2015, the amount due from factor was $0.3 million.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP 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 Risk
Credit Risk and Major Customers
The Company’s revenues are derived
principally from national and regional building products dealers and distributors. The Company extends unsecured credit to its
customers. The Company’s concentration in the building materials industry has the potential to impact its exposure to credit
risk because changes in economic or other conditions in the construction industry may similarly affect the Company’s customers.
The Company has significant customer concentration,
with one customer, Lowe’s, representing approximately 40% of our accounts receivable at September 30, 2015, as compared to
another customer, BlueLinx, which represented approximately 80% at December 31, 2014.
For the nine months ended September 30,
2015, Lowe’s represented approximately 50% of the Company’s revenue compared to less than 10% for the nine months ended
September 30, 2014. Our next largest customer, BlueLinx, accounted for approximately 15% of the Company’s revenue for the
nine months ended September 30, 2015 compared to approximately 60% for the nine months ended September 30, 2014. While, in prior
years, we sold ChoiceDek® to our distributor, BlueLinx, under a bill and hold agreement, in late 2014, we commenced selling
directly to Lowe’s.
Cash
The Company maintains bank accounts that
are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At times, cash balances may be in excess of the
FDIC limit. The Company believes no significant concentrations of risk exist with respect to its cash.
Note 5: Income Taxes
As of September 30, 2015, the Company had
net operating loss (NOL) carryforwards for federal and state income tax purposes of $52.0 million that are available to reduce
future taxable income. If not utilized, the NOL carryforwards will expire between 2017 and 2034.
In March 2011, H.I.G. AERT, LLC acquired
a controlling interest in the Company, which resulted in a significant restriction on the utilization of the Company’s NOL
carryforwards. It is estimated that the utilization of future NOL carryforwards will be limited per Section 382 of the Internal
Revenue Code of 1986, as amended (IRC 382), to approximately $0.8 million per year for the next 17 years. The impact of this limitation
is that approximately $27.3 million in NOLs will expire before the Company can use them. Of the remaining $24.7 million in NOLs,
$15.2 million is subject to the IRC 382 restriction and $10 million is available to reduce taxable income.
As there
is insufficient evidence that the Company will be able to generate adequate future taxable income to enable it to realize its NOL
carryforwards prior to expiration, the Company maintains a valuation allowance to recognize its deferred tax assets only to the
extent of its deferred tax liabilities. The estimated annual effective income tax rate for 2015 is 0% due to the change in the
valuation allowance.
Based upon a review of its income tax filing
positions, the Company believes that its positions would be sustained upon an audit and does not anticipate any adjustments that
would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been
recorded. The Company recognizes interest related to income taxes as interest expense and recognizes penalties as operating expense.
The Company is subject to routine audits by various taxing jurisdictions. The Company is no longer subject to income tax examinations
by taxing authorities for years before 2011, except in the States of California, Colorado and Texas, for which the 2010 tax year
is still subject to examination.
Note 6: Earnings per Share
The Company utilizes the two-class method
for computing and presenting earnings per share (EPS). The Company currently has one class of common stock (the Common Stock) and
one class of cumulative participating preferred stock, Series E (the Preferred Stock). Holders of the Preferred Stock are entitled
to receive per share dividends equal to 6% per annum of the stated value of $1,000 per share of the Preferred Stock when declared
by the Company’s Board of Directors. In addition, holders of the Preferred Stock are entitled to participate in any dividends
declared on shares of the Company’s Common Stock on an as-converted basis. Therefore, the Preferred Stock is considered a
participating security requiring the two-class method for the computation and presentation of net income per share – basic.
The two-class computation method for each
period segregates basic earnings per common and participating share into two categories: distributed earnings per share (i.e.,
the Preferred Stock stated dividend) and undistributed EPS, which allocates earnings after subtracting the Preferred Stock dividend
to the total of weighted average common shares outstanding plus equivalent converted common shares related to the Preferred Stock.
Basic earnings per common and participating share exclude the effect of Common Stock equivalents, and are computed using the two-class
computation method.
In computing diluted EPS, only potential
common shares that are dilutive—those that reduce EPS or increase loss per share—are included. The exercise of options
or conversion of convertible securities is not assumed if the result would be antidilutive, such as when a loss from continuing
operations is reported. As a result, if there is a loss from continuing operations, diluted EPS would be computed in the same manner
as basic EPS is computed, even if an entity has net income after adjusting for discontinued operations or the cumulative effect
of an accounting change.
The following presents the two-class method
for the three and nine months ended September 30, 2015 and 2014:
BASIC AND DILUTED EARNINGS PER SHARE
(in thousands, except share and per share data)
| |
Three Months Ended | |
Nine Months Ended |
| |
September 30,
2015 | |
September 30,
2014 | |
September 30,
2015 | |
September 30,
2014 |
Net income (loss) applicable to common stock | |
$ | 773 | | |
$ | 466 | | |
$ | (296 | ) | |
$ | 1,183 | |
Preferred stock dividend | |
| 398 | | |
| 375 | | |
| 1,175 | | |
| 1,107 | |
Income before dividends | |
$ | 1,171 | | |
$ | 841 | | |
$ | 879 | | |
$ | 2,290 | |
| |
| | | |
| | | |
| | | |
| | |
Per share information: | |
| | | |
| | | |
| | | |
| | |
Basic earnings (losses) per common and participating share: | |
| | | |
| | | |
| | | |
| | |
Distributed earnings per share: | |
| | | |
| | | |
| | | |
| | |
Common | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | |
Preferred | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | |
| |
| | | |
| | | |
| | | |
| | |
Earned, unpaid dividends per share: | |
| | | |
| | | |
| | | |
| | |
Preferred | |
$ | 19.39 | | |
$ | 18.27 | | |
$ | 57.24 | | |
$ | 53.93 | |
| |
| | | |
| | | |
| | | |
| | |
Undistributed earnings (losses) per share: | |
| | | |
| | | |
| | | |
| | |
Common | |
$ | 0.00 | | |
$ | - | | |
$ | (0.00 | ) | |
$ | 0.00 | |
Preferred | |
$ | 30.07 | | |
$ | 17.91 | | |
| - | | |
$ | 45.30 | |
| |
| | | |
| | | |
| | | |
| | |
Total basic earnings (losses) per common and participating share: | |
| | | |
| | | |
| | | |
| | |
Common | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | 0.00 | |
Preferred | |
$ | 49.46 | | |
$ | 36.18 | | |
$ | 57.24 | | |
$ | 99.23 | |
| |
| | | |
| | | |
| | | |
| | |
Basic weighted average common shares: | |
| | | |
| | | |
| | | |
| | |
Common weighted average number of shares | |
| 89,631,162 | | |
| 89,631,162 | | |
| 89,631,162 | | |
| 89,631,162 | |
Participating preferred shares - if converted | |
| 355,043,321 | | |
| 334,534,321 | | |
| - | | (1) |
| 329,644,672 | |
Total weighted average number of shares | |
| 444,674,483 | | |
| 424,165,483 | | |
| 89,631,162 | | |
| 419,275,834 | |
| |
| | | |
| | | |
| | | |
| | |
Total weighted average number of preferred shares | |
| 20,524 | | |
| 20,524 | | |
| 20,524 | | |
| 20,524 | |
(1)
Although not included in the basic EPS calculation under the two-class method due to a period of loss, the Company had 349,873,827
shares of common stock issuable upon conversion of the Preferred Stock outstanding at September 30, 2015. These financial
instruments would need to be included with future calculations of basic EPS under the two-class method in periods of income.
Note 7: Line of Credit
As of September 30, 2015, the Company had
an $8.0 million line of credit loan (AloStar Revolver Loan) with the AloStar Bank of Commerce (AloStar), subject to a reserve of
$1.0 million and the borrowing base set forth in the agreement governing the AloStar Revolver Loan (AloStar Borrowing Base). Interest
was assessed at 4.0% plus the greater of (a) 1.0%, or (b) the LIBOR rate as shown in the Wall Street Journal on such day
for United States dollar deposits for the one month delivery of funds in an amount approximately equal to the principal amount
of the AloStar Revolver Loan. If the LIBOR rate could not be determined, interest would be calculated using the prime lending rate
plus 2.0%. Because the LIBOR rate was less than 1.0% on September 30, 2015, the interest rate was determined to be 5.0%.
There were no outstanding borrowings on
the AloStar Revolver Loan at September 30, 2015. The amount available to draw down on the AloStar Revolver Loan at September 30,
2015 was $7.0 million. On October 30, 2015, AERT entered into a Credit and Financing Agreement (the WBCC Agreement) with Webster
Business Credit Corporation, a state banking institution organized under the laws of the State of Connecticut (WBCC). For further
information, see Note 11: Subsequent Event. Advances received from WBCC on October 30, 2015 were used to pay off and terminate
the AloStar Revolver Loan balance on October 30, 2015 of $3.4 million.
Note 8: Related Party Transactions
Advisory Services
The Company entered into an Advisory Services
Agreement with H.I.G. Capital, L.L.C. on March 18, 2011 that provides for an annual monitoring fee between $250,000 and $500,000
and reimbursement of all other out-of-pocket fees and expenses incurred by H.I.G. Capital, L.L.C. in connection with administration
of the agreement. For each of the quarters ended September 30, 2015 and 2014, we recorded an advisory fee expense of $63,000. For
the nine months ended September 30, 2015 and 2014, we recorded an advisory fee of $187,500.
Note 9: Commitments and Contingencies
AERT is involved from time to time in litigation
arising in the normal course of business that is not disclosed in its filings with the SEC. In management's opinion, the Company
is not involved in any litigation that is expected to materially impact the Company's results of operations or financial condition.
Financing Agreement
Banc of America Leasing & Capital, LLC (BOA)
In 2007, AERT entered into an operating
lease with the LaSalle National Leasing Company (presently BOA). The equipment leased was identified as “Schedule 1 Equipment”
and “Schedule 2 Equipment”. The operating lease contained a provision for a fair market value buy out at the end of
the lease. The lease for the Schedule 1 Equipment expired on December 31, 2014. On January 22, 2015, AERT entered into a new financing
agreement with BOA to finance the equipment buy out for the Schedule 1 Equipment. The terms of the financing agreement required
18 equal monthly payments of $39,000, which commenced on February 1, 2015 and were to continue until July 1, 2016. The stated interest
rate was 6%.
The Company’s lease obligation for
the Schedule 2 Equipment expired on March 31, 2015, at which time AERT entered into another financing agreement with BOA for the
buyout of this equipment with 16 equal monthly payments of $46,000 that commenced on April 1, 2015 and were to continue until July
1, 2016. The stated interest rate was 6%.
Advances under the WBCC Term Loan consummated
on October 30, 2015 were used to pay off the BOA loan balances of $0.8 million and to terminate the BOA financing agreements. See
Note 11: Subsequent Event for more information.
Note 10: New Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which
supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
U.S. GAAP.
The standard is effective for annual periods
beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients,
or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09
on our financial statements and have not yet determined the transition method we will utilize upon adoption of the standard.
On July 9, 2015, the FASB voted to defer
the effective date of ASU 2014-09 by one year to December 15, 2017 for interim and annual reporting periods beginning after that
date and permitted early adoption of the standard, but not before the original effective date.
Note 11: Subsequent Event
Webster Business Credit Corporation
On October 30, 2015, AERT entered into
the WBCC Agreement for an asset-based revolver loan capped at $8.5 million for the period June 1 to December 31 of each calendar
year and capped at $15.0 million for the five months ended May 31 of each calendar year (WBCC Revolver Loan), a $5.5 million machinery
and equipment loan (WBCC M&E Loan), a $7.2 million real estate loan (WBCC RE Loan), a $1.5 million asset-based loan (WBCC Term
Loan) and a $1.2 million capital expenditure loan (WBCC CAPEX Loan).
The purpose of the WBCC Agreement
is to refinance a portion of the Company’s senior and subordinated debt, to cover the costs and expenses associated
with the loan transactions and to provide working capital to fund business operations. The WBCC Agreement expires on October
30, 2020. The WBCC Agreement requires that WBCC hold first security interest on the majority of AERT’s property, plant,
equipment and real estate. The uses of the funds received under the WBCC Agreement at closing are as follows:
| |
(in thousands) |
AloStar Revolver Loan | |
$ | 7,538 | |
H.I.G. Series B Note (partial payoff) | |
| 11,000 | |
Banc of America Leasing & Capital LLC | |
| 755 | |
Deferred financing costs | |
| 1,119 | |
Total use of funds | |
$ | 20,412 | |
Payments on the principal portion of the
WBCC M&E Loan, WBCC RE Loan and WBCC Term Loan will commence on November 30, 2015 and will be made in 60 equal monthly installments
of $0.12 million plus interest. The final installment of $7.0 million is due and payable on October 30, 2020. AERT will borrow
on the WBCC Revolver Loan at the domestic base rate set forth in the WBCC Agreement (Domestic Base Rate), which at October 30,
2015 was 3.25% plus an applicable margin. At its option, the Company may convert advances on the WBCC Revolver Loan to a LIBOR
rate loan plus an applicable margin. Conversion of Domestic Base Rate advances to LIBOR rate loans must be made in increments of
$250,000. Only ten LIBOR rate loans may be outstanding at any time. Loan interest periods are available for one, two or three months.
The LIBOR rate on October 30, 2015 was 0.87%. The applicable margin for each loan is as follows:
Loan | |
Domestic
Rate | |
LIBOR
Rate |
WBCC Revolver Loan | |
| 1.00 | % | |
| 2.50 | % |
WBCC M&E Loan | |
| 1.25 | % | |
| 2.75 | % |
WBCC CAPEX Loan | |
| 1.25 | % | |
| 2.75 | % |
WBCC RE Loan | |
| 1.50 | % | |
| 3.00 | % |
WBCC Term Loan | |
| 2.25 | % | |
| 3.75 | % |
The WBCC Revolver Loan is secured by amounts
equal to 85% of the qualifying accounts receivable balance and 85% of the net orderly liquidation value of the inventory. The available
balance on the WBCC Revolver Loan at October 30, 2015 was $2.4 million.
Advances on the WBCC CAPEX Loan will be
subject to an amount equal to 80% of the hard cost of the equipment to be purchased. The total amount of all WBCC CAPEX Loans outstanding
cannot exceed the aggregate of the maximum WBCC CAPEX Loan amount of $1.2 million and any advance must be greater than $25,000.
Loans under the WBCC Agreement are subject
to the following debt covenants: (a) fixed charge coverage ratio of greater than 1.10:1.0, and (b) maximum capital expenditures
annually of $4.0 million.
Deferred financing costs of approximately
$1.0 million incurred in connection with negotiating and entering into the WBCC Agreement will be capitalized and amortized over
the five-year life of the WBCC Agreement.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Three Months Ended September 30, 2015 Compared to Three Months Ended September 30,
2014
The following table sets forth selected information from our statements
of operations (dollars in thousands):
| |
Three Months Ended |
| |
September 30, 2015 | |
September 30, 2014 | |
% Change |
| |
(unaudited) | |
(unaudited) | |
|
Net sales | |
$ | 21,843 | | |
$ | 20,724 | | |
| 5.4 | % |
Cost of goods sold | |
| 16,503 | | |
| 15,639 | | |
| 5.5 | % |
% of net sales | |
| 75.6 | % | |
| 75.5 | % | |
| | |
Gross margin | |
| 5,340 | | |
| 5,085 | | |
| 5.0 | % |
% of net sales | |
| 24.4 | % | |
| 24.5 | % | |
| | |
| |
| | | |
| | | |
| | |
Gain from asset disposition | |
| - | | |
| (50 | ) | |
| * | |
Selling and administrative costs | |
| 3,318 | | |
| 3,027 | | |
| 9.6 | % |
% of net sales | |
| 15.2 | % | |
| 14.6 | % | |
| | |
Operating income | |
| 2,022 | | |
| 2,108 | | |
| (4.1 | %) |
% of net sales | |
| 9.3 | % | |
| 10.2 | % | |
| | |
| |
| | | |
| | | |
| | |
Other income: | |
| | | |
| | | |
| | |
Other income | |
| 2 | | |
| 12 | | |
| (83.3 | %) |
Loss on involuntary conversion of non-monetary assets due to fire | |
| - | | |
| (500 | ) | |
| * | |
Net interest expense | |
| (853 | ) | |
| (779 | ) | |
| 9.5 | % |
Income before dividends | |
| 1,171 | | |
| 841 | | |
| 39.2 | % |
% of net sales | |
| 5.4 | % | |
| 4.1 | % | |
| | |
Dividends on preferred stock | |
| (398 | ) | |
| (375 | ) | |
| 6.1 | % |
Net income applicable to common stock | |
$ | 773 | | |
$ | 466 | | |
| 65.9 | % |
% of net sales | |
| 3.5 | % | |
| 2.2 | % | |
| | |
| |
| | | |
| | | |
| | |
*not meaningful as a percentage change |
| | |
Net Sales
Third quarter 2015 sales were up $1.1 million, or 5.4%, from the
same period in 2014 primarily as a result of increased MoistureShield® sales from the addition of a new customer.
Cost of Goods Sold and Gross Margin
The total cost of goods sold for the third quarter of 2015 increased
$0.9 million, or 5.5%, from the third quarter of 2014 primarily due to freight inclusive pricing for direct sales to Lowe’s,
increased sales volume and increased costs of raw materials. As a percentage of net sales, gross margin decreased 0.1 percentage
point.
Selling and Administrative Costs
Selling and administrative costs increased $0.3 million, or 9.6%,
for the third quarter of 2015 as compared to the third quarter of 2014. This increase was primarily due to increased market development
costs, a reserve for a doubtful account and increased insurance costs.
Earnings
Net income increased $0.3 million, or 65.9%, for the quarter ended
September 30, 2015 when compared to the same period in 2014. A $0.5 million expense relating to the involuntary conversion of non-monetary
assets due to the 2013 fire at the Lowell facility was recorded during the third quarter of 2014.
Interest costs increased $0.01 million, or 9.5%, in the third quarter
of 2015 compared to the third quarter of 2014 largely due to increased payment in kind (PIK) interest that is accrued and added
to the principal on the H.I.G. Series A and Series B notes quarterly.
Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014
The following table sets forth selected information from our statements
of operations (dollars in thousands):
| |
Nine Months Ended |
| |
September 30, 2015 | |
September 30, 2014 | |
% Change |
| |
(unaudited) | |
(unaudited) | |
|
Net sales | |
$ | 65,564 | | |
$ | 61,961 | | |
| 5.8 | % |
Cost of goods sold | |
| 52,249 | | |
| 48,682 | | |
| 7.3 | % |
% of net sales | |
| 79.7 | % | |
| 78.6 | % | |
| | |
Gross margin | |
| 13,315 | | |
| 13,279 | | |
| 0.3 | % |
% of net sales | |
| 20.3 | % | |
| 21.4 | % | |
| | |
| |
| | | |
| | | |
| | |
Gain from asset disposition | |
| - | | |
| (64 | ) | |
| * | |
Selling and administrative costs | |
| 9,825 | | |
| 9,037 | | |
| 8.7 | % |
% of net sales | |
| 15.0 | % | |
| 14.6 | % | |
| | |
Operating income | |
| 3,491 | | |
| 4,306 | | |
| (18.9 | %) |
% of net sales | |
| 5.3 | % | |
| 6.9 | % | |
| | |
| |
| | | |
| | | |
| | |
Other income: | |
| | | |
| | | |
| | |
Other income | |
| 12 | | |
| 11 | | |
| * | |
Gain on involuntary conversion of non-monetary assets due to fire | |
| - | | |
| 345 | | |
| * | |
Net interest expense | |
| (2,624 | ) | |
| (2,372 | ) | |
| 10.6 | % |
Income (loss) before dividends | |
| 879 | | |
| 2,290 | | |
| (61.6 | %) |
% of net sales | |
| 1.3 | % | |
| 3.7 | % | |
| | |
Dividends on preferred stock | |
| (1,175 | ) | |
| (1,107 | ) | |
| 6.1 | % |
Net income or (loss) applicable to common stock | |
$ | (296 | ) | |
$ | 1,183 | | |
| (125.0 | %) |
% of net sales | |
| (0.5 | %) | |
| 1.9 | % | |
| | |
| |
| | | |
| | | |
| | |
*not meaningful as a percentage change | |
| | | |
| | | |
| | |
Net Sales
Sales for the nine months ended September 30, 2015 were up $3.6
million, or 5.8%, from the same period in 2014. This increase is primarily due to including freight in the Lowe’s selling
prices for 2015, the addition of a new MoistureShield® customer in 2015 and increased sales of the new capstock product lines.
Cost of Goods Sold and Gross Margin
Total cost of goods sold for the first nine months of 2015 increased
$3.6 million, or 7.3%, over the same period in 2014. As a percentage of sales, the cost of goods sold increased 1.1 percentage
points. This increase is primarily due to freight costs associated with the direct to Lowe’s program and increased raw material
costs.
Selling and Administrative Costs
Selling and administrative costs were up $0.8 million, or 8.7%,
in the first nine months of 2015 compared to the first nine months of 2014. The increase was primarily due to the reserve for doubtful
accounts and increased selling expenses associated with growing the MoistureShield® sales line.
Earnings
Net income was down $1.5 million, or 125%, for the nine months
ended September 30, 2015 as compared to the same period in 2014. In 2014, a gain of $0.3 million from involuntary conversion of
non-monetary assets was recorded due to the fire at the Springdale plant in July 2013. Costs of goods sold increased due to freight
costs associated with the direct to Lowe’s program. Increased raw material costs, increased selling expenses associated with
the growing line of MoistureShield® products and increased interest expense were also factors in the decrease in net income.
Interest costs were up 10.6% primarily as a result of PIK interest on the H.I.G. Series A and B notes.
Liquidity and Capital Resources
Liquidity refers to the liquid financial assets
available to fund our business operations and pay for near-term obligations as well as unused borrowing capacity under our revolving
credit facility. Our cash requirements have historically been satisfied through a combination of cash flows from operations and
debt financings.
On October 30, 2015, we signed a new Credit and Security Agreement
with WBCC (the WBCC Agreement). This new arrangement will provide us with working capital to fund business operations. For further
information regarding the WBCC Agreement and the loan, see Note 11: Subsequent Event of the Notes to Financial Statements
included in Part I, Item I of this Quarterly Report on Form 10-Q.
The Company plans to structure its operations
to grow its business, improve its margins and generate future income in order to maximize shareholder value. We are currently working
to improve its liquidity by:
• |
Streamlining operations to increase efficiencies: We expect to make changes to certain operational processes in order to increase productivity. These changes include the installation of equipment to reduce process material handling costs and manufacturing equipment that will improve yields. We are evaluating its existing recycling processes and new technology. |
|
|
• |
Seeking additional sources of revenue: We are pursuing additional distribution of its current product lines with new distributors and is introducing new products, including deck lighting and aluminum railing systems, in order to increase its sales. |
Cash Flows
Cash Flows from Operations
Cash provided by operations for the first nine months of 2015 was
$7.6 million, a decrease of $0.4 million from the first nine months of 2014. This decrease was due to a change in current assets
and liabilities as a result of the following:
• |
Accounts receivable decreased $0.9 million in the first nine months of 2015 as compared to an increase of $0.5 million in the first nine months of 2014. This decrease is due primarily to the timing of sales. |
• |
In the first nine months of 2015 inventory levels increased $2.7 million as a result of increased production compared to a decrease of $1.1 million in the first nine months of 2014. Inventory increased in 2015 in anticipation of a strong Winter Buy program. Our Winter Buy program provides additional incentives for customers to purchase product when, due to seasonality, they may otherwise refrain from buying. |
• |
Accounts payable increased $2.0 million in the first nine months of 2015 compared to an increase of $0.3 million in the first nine months of 2014 due to increased purchases of raw materials. |
• |
Accrued liabilities increased $0.3 million in the first nine months of 2015 compared to a decrease of $0.1 million in the first nine months of 2014. This increase is primarily due to an accrual for Lowe’s Labor Day promotion. |
Cash Flows from Investing Activities
Cash used in investing activities in the first nine months of 2015
was $1.7 million compared to cash used in investing activities of $1.1 million for the same period in 2014. This change was primarily
due to increased purchases of capital assets needed for continuous improvements of air quality in our production facilities and
to decrease labor costs through automation.
Cash Flows from Financing Activities
Cash used in financing activities was $5.7 million for the first
nine months of 2015 compared to cash used in financing activities of $6.5 million for the same period in 2014. The change
was primarily due to payments on notes payable and the line of credit loan with AloStar (AloStar Revolver Loan).
Working Capital
At September 30, 2015, we had working capital of $5.6 million compared
to working capital of $2.6 million at December 31, 2014. The changes in working capital primarily consisted of an increase in inventory,
a decrease in borrowing on the AloStar Revolver Loan and an increase in accounts payable.
Buildings and Equipment
Property additions and betterments include construction costs and
property purchases. The depreciation of buildings and equipment is provided on a straight-line basis over the estimated useful
lives of the assets. Gains or losses on sales, or other dispositions of property, are credited or charged to income in the period
incurred. Repairs and maintenance costs are charged to income in the period incurred, unless it is determined that the useful life
of the respective asset has been extended.
For purposes of testing impairment, we group our long-lived assets
at the same level for which there are identifiable cash flows independent of other asset groups. Currently, there is only one level
of aggregation for our assets.
Recoverability of assets to be held and used in operations is measured
by a comparison of the carrying amount of our assets to the undiscounted future net cash flows expected to be generated by the
assets. The factors used to evaluate the future net cash flows, while reasonable, require a high degree of judgment and the results
could vary if the actual results are materially different than the forecasts. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs.
Buildings and equipment are stated at cost and depreciated over
the estimated useful life of each asset using the straight-line method. Estimated useful lives are: buildings — 15 to
30 years, leasehold improvements — 2 to 6 years, and machinery and equipment — 3 to 10 years.
We assess the impairment of long-lived assets,
consisting of property, plant, and equipment, whenever events or circumstances indicate that the carrying value may not be recoverable.
Examples of such events or circumstances include:
• |
an asset group's inability to continue to generate income from operations and positive cash flow in future periods; |
• |
loss of legal ownership or title to an asset; |
• |
significant changes in our strategic business objectives and utilization of the asset(s); and |
• |
the impact of significant negative industry or economic trends. |
We have determined that, as of September 30, 2015, there were no
events or circumstances indicating the carrying value may not be recoverable.
We also periodically review the useful lives assigned to our assets
to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from
the asset. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in
our reported results would increase.
We are constantly searching for improvements and efficiencies to
our production process and are exploring alternative recycling technologies at the Lowell facility. Although no changes have been
made or approved, any significant modifications to the process could potentially result in a future impairment of assets currently
used in operations if a new technology is successfully implemented.
Debt
Oklahoma Energy Program Loan
On July 14, 2010, we entered into a loan agreement with the Oklahoma
Department of Commerce (ODOC) under award number 14215 SSEP09, whereby ODOC agreed to a 15-year, $3.0 million loan to us at a fixed
interest rate of 3.0%. The balance on the loan at September 30, 2015 was $2.4 million.
H.I.G. Long Term Debt
In 2011, we consummated related recapitalization transactions with
H.I.G. AERT, LLC (H.I.G.), an affiliate of H.I.G. Capital L.L.C. H.I.G. exchanged secured debt in us for a combination of new debt
(Series A Note and Series B Note issued pursuant to that certain Credit Agreement dated March 18, 2011, between us, H.I.G. Capital
L.L.C., the lending party and H.I.G. as administrative agent (Credit Agreement) and equity. As a result, H.I.G. owns approximately
80% of our outstanding common equity securities on a fully diluted, as converted basis.
The Credit Agreement contains provisions requiring mandatory payments
upon the Series A Note and Series B Note equal to 50% of our “Excess Cash Flow” (as defined in the Credit Agreement)
and equal to 100% of proceeds from most non-ordinary course asset dispositions, additional debt issuances or equity issuances (subject
to certain exceptions in each case or as H.I.G. otherwise agrees), and contains covenant restrictions on the incurrence of additional
debt, liens, leases or equity issuances.
The Series A Note matures on March 17, 2017 and currently bears
cash interest at 8.0% per annum. Payment of cash interest, however, has been waived until November 17, 2015, and, in lieu of such
cash interest, PIK interest is accrued and added to the principal of the Series A Note quarterly.
The Series B Note matures on March 17, 2017 and, at our option,
either (i) bears cash interest at 10.0% per annum or (ii) bears cash interest at 4.0% per annum, plus a rate of interest equal
to 6.0% per annum PIK interest and added to the outstanding principal amount of the Series B Note. The Series B Note ranks equally
to the Series A Note. Payment of cash interest has been waived until November 17, 2015, and, in lieu of such cash interest, PIK
interest is accrued and added to the principal of the Series B Note quarterly. On October 30, 2015, we used the proceeds received
from WBCC from the WBCC Agreement to make an $11.0 million partial payment of the Series B Note. See Note 11: Subsequent Event
for further information.
AloStar Bank of Commerce Term Loan
On November 15, 2012, we entered into a $15.0 million Loan and Security
Agreement (Security Agreement) with AloStar Bank of Commerce (AloStar), which includes the AloStar Revolver Loan and a $7.0 million
asset-based loan (AloStar Term Loan). The AloStar Term Loan requires that AloStar hold first security interest to the majority
of our plant, property, and equipment and real estate. Payments on the principal portion of the AloStar Term Loan commenced on
December 1, 2012 and were to be made in 36 equal monthly installments of $0.08 million plus interest. The final installment $4.1
million was due and payable on the commitment termination date. Interest was calculated at 4.5% plus the greater of (a) 1.0% and
(b) the LIBOR rate as shown in the Wall Street Journal on such day for United States dollar deposits for the one month delivery
of funds in amounts approximately equal to the principal amount of the AloStar Term Loan for which such rate is being determined
or, if such day is not a business day, on the immediately preceding business day. Interest accrued on the principal balance of
the AloStar Term Loan was due and payable on the first day of each month, computed through the last day of the preceding month.
Interest, expressed in simple interest terms as of September 30, 2015, was 5.5%.
On October 30, 2015, we used proceeds of $7.1 million received from
WBCC under the WBCC Agreement to pay off the AloStar Term Loan and the AloStar Revolver Loan. For further information, see Note
11: Subsequent Event of the Notes to Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.
Debt Covenants
Debt covenants applicable to the AloStar Term Loan and the H.I.G.
Notes for the quarter ended September 30, 2015 are as follows.
|
|
September 30, 2015 |
|
Covenant |
|
Compliance |
AloStar |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
= |
$8.1M |
|
=>$6.0M |
|
Yes |
Fixed Charge Coverage Ratio |
= |
1.6 |
|
> 1.10:1.00 |
|
Yes |
Adjusted Consolidated EBITDA (as defined in the Security Agreement) |
|
|
|
|
|
|
/ Consolidated Fixed Charges |
|
|
|
|
|
|
Capital Expenditures*,** |
= |
$1.9M |
|
< $2.7M |
|
Yes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HIG: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA |
= |
$8.1M |
|
=>$10.0M |
|
No, Waived |
Fixed Charge Coverage Ratio |
= |
1.7 |
|
> 1.50:1.00 |
|
Yes |
Adjusted Consolidated EBITDA (as defined in the Credit Agreement) |
|
|
|
|
|
|
/ Consolidated Fixed Charges |
|
|
|
|
|
|
Leverage Ratio |
= |
5.03 |
|
= < 3.1:1.00 |
|
No, Waived |
Consolidated Indebtedness / Consolidated EBITDA |
|
|
|
|
|
|
Capital Expenditures** |
= |
$4.3M |
|
< $2.5M |
|
No, Waived |
|
|
|
|
|
|
|
*Adjusted for financed capital expenditures |
**Annual covenant for 2015 |
On October 9, 2015, H.I.G., waived the Specified Events of Default
(as defined in the waiver) as a result of our failure to attain the required EBITDA of $10.0 million and a leverage ratio of below
3.1 to 1.0 for the four fiscal quarters ending September 30, 2015. H.I.G. also waived the Specified Events of Default resulting
from our having exceeded the 2015 annual covenant for capital expenditures through November 17, 2015. In addition, on October 9,
2015, H.I.G., the holder of all of the issued and outstanding shares of our cumulative participating preferred stock, Series E
(Series E Preferred Stock) waived its right to deliver a Triggering Event Redemption Notice on the Series E Preferred Stock solely
as a result of the Specified Events of Default through November 17, 2015.
Uncertainties, Issues and Risks
There are many factors that could adversely affect our
business and results of operations. These factors include, but are not limited to, general economic conditions, decline in demand
for our products, business or industry changes, government rules and regulations, environmental concerns, litigation, new products
/ product transition, product obsolescence, competition, acts of war, terrorism, public health issues, concentration of customer
base, loss of a significant customer, availability of raw material (plastic) at a reasonable price, inability to obtain adequate
financing (i.e. working capital), equipment breakdowns, low stock price, and fluctuations in quarterly performance.
Forward-Looking Information
This Form 10-Q contains certain “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of
the Securities Exchange Act of 1934 (the “Exchange Act”) which statements include, but are not limited to statements
regarding streamlining operations to increase efficiencies and seeking new sources of revenue. Such forward-looking statements,
which are often identified by words such as “believes”, “anticipates”, “expects”, “estimates”,
“should”, “may”, “will” and similar expressions, represent our 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. While these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect management’s current judgment regarding the direction of the 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 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 us, our suppliers’ or our customers’
plants, machinery, or equipment; competition from products and services offered by other enterprises; our ability to refinance
short-term indebtedness; state and federal environmental, economic, safety and other policies and regulations, any changes therein,
and any legal or regulatory delays or other factors beyond our control; execution of planned capital projects; weather conditions
affecting our operations or the areas in which our products are marketed; adverse rulings, judgments, or settlements in litigation
or other legal matters. We undertake 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.
Item 4. Controls and Procedures.
Our Chief Executive Officer, Timothy D. Morrison, who is our principal
executive officer, and our Chief Financial Officer, J. R. Brian Hanna, who is our principal financial and accounting officer, have
reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of September 30, 2015. Based upon this evaluation, our Chief Executive Officer and our Chief Financial
Officer have concluded that, as of September 30, 2015, the end of the period covered by this report, AERT’s disclosure controls
and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be
disclosed by AERT in the reports that it files or submits under the Exchange Act and are effective in ensuring that information
required to be disclosed by AERT in the reports that it files or submits under the Exchange Act is accumulated and communicated
to AERT’s management, including AERT’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
During the nine months ended September 30, 2015, there have been
no changes in our internal controls over financial reporting that have materially affected, or that are reasonably likely to materially
affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the discussion under Part I, Item 1, Notes to Financial Statements, Note 9:
Commitments and Contingencies, which discussion is incorporated herein by reference.
Item 6. Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed
and incorporated by reference as part of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
ADVANCED ENVIRONMENTAL |
|
|
RECYCLING TECHNOLOGIES, INC. |
|
|
|
|
|
By: /s/ TIMOTHY D. MORRISON |
|
|
|
|
|
Timothy D. Morrison, |
|
|
Chief Executive Officer and Director |
|
|
(Principal Executive Officer) |
|
|
|
|
|
/s/ J. R. BRIAN HANNA |
|
|
|
|
|
J. R. Brian Hanna, |
|
|
Chief Financial Officer & Principal Financial Officer
and Principal Accounting Officer
|
|
November 16, 2015
INDEX TO EXHIBITS
10.1 |
|
Specified Events of Default Waiver dated October 9, 2015** |
|
|
|
10.2 |
|
Series A & B Term Loan Interest Waiver dated October 9, 2015** |
|
|
|
10.3 |
|
Triggering Event Redemption Notice Waiver per the Series E Convertible Preferred Stock Rights dated October 9, 2015** |
|
|
|
31.1 |
|
Certification per Sarbanes-Oxley Act of 2002 (Section 302) by the Company's chief executive and principal executive officer** |
|
|
|
31.2 |
|
Certification per Sarbanes-Oxley Act of 2002 (Section 302) by the Company’s chief financial and principal accounting officer ** |
|
|
|
32.1 |
|
Certification per Sarbanes-Oxley Act of 2002 (Section 906) by the Company's chief executive and principal executive officer** |
|
|
|
32.2 |
|
Certification per Sarbanes-Oxley Act of 2002 (Section 906) by the Company's chief financial and principal accounting officer** |
|
|
|
101.IN |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
** |
|
Filed herewith |
23
Exhibit 10.1
WAIVER
October 9, 2015
Advanced Environmental Recycling Technologies, Inc.
914 N. Jefferson
Springdale, Arkansas 72764
Attention: Chief Executive Officer
Ladies and Gentlemen:
Reference hereby is made to that certain Credit
Agreement, dated as of March 18, 2011, as amended by that certain First Amendment to Credit Agreement, dated as of May 23, 2011,
and as further amended by that certain Second Amendment to Credit Agreement, dated as of October 20, 2011 (as further amended,
restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”), by and among Advanced
Environmental Recycling Technologies, Inc., a Delaware corporation (“Borrower”), the lenders from time to time
parties hereto (the “Lenders”), H.I.G. AERT, LLC, as the administrative agent for the Lenders (in such capacity,
together with its successors and assigns in such capacity, “Agent”; and together with the Lenders, collectively,
the “Lender Group”). Capitalized terms used herein and not otherwise defined or limited herein shall have the
meanings ascribed to such terms in the Credit Agreement.
As you are aware, Borrower has failed to perform
obligations owed to the Lender Group under the terms and conditions of the Credit Agreement as a result of Borrower’s failure
to comply with Sections 6.10 and 6.11 of the Credit Agreement, which require Borrower to have (i) a Leverage Ratio of below
3.10 to 1.00, (ii) a Fixed Charge Coverage Ratio greater than 1.50, (iii) a Minimum EBITDA of $10 million, and (iv) Capital Expenditures
of less than $2.5 million for the current fiscal year, respectively (collectively, the “Specified Events of Default”)
for four Fiscal Quarters (as defined in the Credit Agreement) ending September 30, 2015. The Specified Events of Default represent
Events of Default under the Notes (as defined in the Company’s Certificate of Designations, Preferences and Rights of the
Series E Convertible Preferred Stock of Advanced Environmental Recycling Technologies, Inc. dated March 17, 2011 (the “Certificate
of Designation”)) resulting in the occurrence of a Triggering Event (as defined in the Certificate of Designation) under
Section 5(a)(ii) of the Certificate of Designation.
As a result of the Specified Events of Default,
Events of Default have occurred and are currently continuing under the Credit Agreement. You have requested that the Lender Group
waive the Specified Events of Default. This letter (this “Waiver”) is to advise you that the Lender Group hereby
waives the Specified Events of Default and their rights and remedies under the Credit Agreement arising as a result of the Specified
Events of Default.
Notwithstanding the foregoing, such waiver shall
not waive any other requirement or hinder, restrict or otherwise modify the rights and remedies of the Lender Group following the
occurrence of any other Event of Default under the Credit Agreement. Except as otherwise expressed herein, the text of the Credit
Agreement and the other Credit Documents shall remain in full force and effect, and the Lender Group hereby reserves its rights
to require strict compliance in the future with all terms and conditions of the Credit Agreement and the other Credit Documents.
Borrower hereby reaffirms its obligations under each Credit Document to which it is a party. Borrower hereby further ratifies and
reaffirms the validity and enforceability of all of the Liens heretofore granted, pursuant to and in connection with the Security
Agreement or any other Credit Document, to Agent, on behalf and for the benefit of each member of the Lender Group, as collateral
security for the Obligations under the Credit Documents in accordance with their respective terms, and acknowledges that all of
the Liens, and all Collateral heretofore pledged as security for the Obligations, continues to be and remain Collateral for the
Obligations from and after the date hereof. Borrower hereby restates, ratifies and reaffirms each and every term and condition
set forth in the Credit Agreement and the Credit Documents effective as of the date hereof.
This Waiver may be executed in multiple counterparts,
each of which (including any counterpart delivered by facsimile or other electronic method of transmission) shall be deemed to
be an original and all of which, taken together, shall constitute one and the same agreement, and this Waiver shall be deemed to
be made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. This Waiver shall
be effective as of the date set forth above when and only when, Agent shall have received a counterpart of this Waiver duly executed
by Borrower and the Lenders.
This Waiver shall constitute a Credit Document
for all purposes.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto
have caused this Waiver to be executed and delivered as of the date first above written.
|
H.I.G. AERT, LLC, |
|
as Administrative Agent and Lender |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Bobby Sheth |
|
|
|
Name: |
Bobby Sheth |
|
|
Title: |
Authorized Signatory |
Acknowledged and agreed to
as of the date first written above:
ADVANCED ENVIRONMENTAL
RECYCLING TECHNOLOGIES, INC.,
a Delaware corporation
By: |
/s/ J. R. Brian Hanna |
|
Name: |
J. R. Brian Hanna |
|
Title: |
Chief Financial Officer & Principal Accounting Officer |
Waiver (H.I.G. LOAN Agreement)
Exhibit 10.2
WAIVER
October 9, 2015
Advanced Environmental Recycling Technologies, Inc.
914 N. Jefferson
Springdale, Arkansas 72764
Attention: Chief Executive Officer
Ladies and Gentlemen:
Reference hereby is made to that certain Credit
Agreement, dated as of March 18, 2011, as amended by that certain First Amendment to Credit Agreement, dated as of May 23, 2011,
and as further amended by that certain Second Amendment to Credit Agreement, dated as of October 20, 2011 (as further amended,
restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”), by and among Advanced
Environmental Recycling Technologies, Inc., a Delaware corporation (“Borrower”), the lenders from time to time
parties hereto (the “Lenders”), H.I.G. AERT, LLC, as the administrative agent for the Lenders (in such capacity,
together with its successors and assigns in such capacity, “Agent”; and together with the Lenders, collectively,
the “Lender Group”). Capitalized terms used herein and not otherwise defined or limited herein shall have the
meanings ascribed to such terms in the Credit Agreement.
As you are aware, Borrower has failed to perform
obligations owed to the Lender Group under the terms and conditions of the Credit Agreement as a result of Borrower’s failure
to comply with Sections 2.12(a), 2.12(b) and 7.01(b) which requires Borrower to begin paying cash interest on the Series
A Term Loan beginning March 17, 2013, and cash interest on the Series B Term Loan respectively (collectively, the “Specified
Events of Default”).
As a result of the Specified Events of Default,
Events of Default have occurred and are currently continuing under the Credit Agreement. You have requested that the Lender Group
waive the Specified Events of Default until November 17, 2015, at which time all interest on the Series A Term Loan will bear cash
interest at 8.0% per annum (collectively, the “Series A Interest Rate”) and the Series B Term Loan will bear cash interest
at 4.0% per annum (collectively, the “Series B Interest Rate”). This letter (this “Waiver”) is to
advise you that the Lender Group hereby waives the Specified Events of Default and their rights and remedies under the Credit Agreement
arising as a result of the Specified Events of Default.
Notwithstanding the foregoing, such waiver shall
not waive any other requirement or hinder, restrict or otherwise modify the rights and remedies of the Lender Group following the
occurrence of any other Event of Default under the Credit Agreement. Except as otherwise expressed herein, the text of the Credit
Agreement and the other Credit Documents shall remain in full force and effect, and the Lender Group hereby reserves its rights
to require strict compliance in the future with all terms and conditions of the Credit Agreement and the other Credit Documents.
Borrower hereby reaffirms its obligations under each Credit Document to which it is a party. Borrower hereby further ratifies and
reaffirms the validity and enforceability of all of the Liens heretofore granted, pursuant to and in connection with the Security
Agreement or any other Credit Document, to Agent, on behalf and for the benefit of each member of the Lender Group, as collateral
security for the Obligations under the Credit Documents in accordance with their respective terms, and acknowledges that all of
the Liens, and all Collateral heretofore pledged as security for the Obligations, continues to be and remain Collateral for the
Obligations from and after the date hereof. Borrower hereby restates, ratifies and reaffirms each and every term and condition
set forth in the Credit Agreement and the Credit Documents effective as of the date hereof.
This Waiver may be executed in multiple counterparts,
each of which (including any counterpart delivered by facsimile or other electronic method of transmission) shall be deemed to
be an original and all of which, taken together, shall constitute one and the same agreement, and this Waiver shall be deemed to
be made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. This Waiver shall
be effective as of the date set forth above when and only when, Agent shall have received a counterpart of this Waiver duly executed
by Borrower and the Lenders.
This Waiver shall constitute a Credit Document
for all purposes.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto
have caused this Waiver to be executed and delivered as of the date first above written.
|
H.I.G. AERT, LLC, |
|
as Administrative Agent and Lender |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Bobby Sheth |
|
|
|
Name: |
Bobby Sheth |
|
|
Title: |
Authorized Signatory |
Acknowledged and agreed to
as of the date first written above:
ADVANCED ENVIRONMENTAL
RECYCLING TECHNOLOGIES, INC.,
a Delaware corporation
By: |
/s/ J. R. Brian Hanna |
|
|
Name: |
J. R. Brian Hanna |
|
|
Title: |
Chief Financial Officer |
Waiver (H.I.G. LOAN Agreement)
Exhibit 10.3
October 9, 2015
Advanced Environmental Recycling Technologies, Inc.
914 N. Jefferson
Springdale, Arkansas 72764
Attention: Chief Executive Officer
Ladies and Gentlemen:
The undersigned, being the holder of all of the issued and outstanding
shares of Series E Convertible Preferred Stock of Advanced Environmental Recycling Technologies, Inc., a Delaware corporation (the
“Company”), hereby acknowledges that the Company has failed to have (i) a Leverage Ratio (as defined in that
certain Credit Agreement, dated as of March 18, 2011, as amended by that certain First Amendment to Credit Agreement, dated as
of May 23, 2011, and as further amended by that certain Second Amendment to Credit Agreement, dated as of October 20, 2011 (as
further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by
and among the Company, the lenders from time to time parties thereto and H.I.G. AERT, LLC) of below 3.10 to 1.00, (ii) a Fixed
Charge Coverage Ratio greater than 1.50, (iii) a Minimum EBITDA of $10 million, and (iv) Capital Expenditures of less than $2.5
million for the current fiscal year, respectively (collectively, the “Specified Events of Default”) for four
Fiscal Quarters (as defined in the Credit Agreement) ending September 30, 2015. The Specified Events of Default represent Events
of Default under the Notes (as defined in the Company’s Certificate of Designations, Preferences and Rights of the Series
E Convertible Preferred Stock of Advanced Environmental Recycling Technologies, Inc. dated March 17, 2011 (the “Certificate
of Designation”)) resulting in the occurrence of a Triggering Event (as defined in the Certificate of Designation) under
Section 5(a)(ii) of the Certificate of Designation.
You have requested that the holders of the Company’s Series
E Convertible Preferred Stock waive their right to deliver a Triggering Event Redemption Notice (as defined in the Certificate
of Designation) as a result of the Specified Event of Default. This letter (this “Waiver”) is to advise you
that the holders of the Company’s Series E Convertible Preferred Stock hereby waive the right to deliver a Triggering Event
Redemption Notice solely as a result of the Specified Event of Default.
This Waiver shall not (i) constitute a waiver
of the right of the holders of Series E Convertible Preferred Stock to deliver one or more Triggering Event Redemption Notice upon
the occurrence of any Triggering Event other than the Triggering Event resulting from the Specified Event of Default and (ii) otherwise
hinder, restrict or modify the rights and remedies of the holders of Series E Convertible Preferred Stock under the Certificate
of Designation. The holders of Series E Convertible Preferred Stock hereby reserve the right to require strict compliance in the
future with all terms and conditions of, and to exercise any other rights or remedies provided for in, the Certificate of Designation.
This Waiver may be executed in multiple counterparts,
each of which (including any counterpart delivered by facsimile or other electronic method of transmission) shall be deemed to
be an original and all of which, taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto
have caused this Waiver to be executed and delivered as of the date first above written.
|
H.I.G. AERT, LLC, as the
holder of all of the |
|
issued and outstanding shares of Series E |
|
Convertible Preferred
Stock |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Bobby Sheth |
|
|
|
Name: |
Bobby Sheth |
|
|
Title: |
Authorized Signatory |
Acknowledged and agreed to
as of the date first written above:
ADVANCED ENVIRONMENTAL
RECYCLING TECHNOLOGIES, INC.,
a Delaware corporation
By: |
/s/ J. R. Brian Hanna |
|
Name: |
J. R. Brian Hanna |
|
Title: |
Chief Financial Officer & Principal Accounting Officer |
Waiver (Series E Preferred)
Exhibit 31.1
CERTIFICATION
I, Timothy D. Morrison, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Advanced Environmental Recycling Technologies, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 16, 2015
|
/s/ Timothy D. Morrison
|
|
TIMOTHY D. MORRISON |
|
Chief Executive Officer and Director
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, J. R. Brian Hanna, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Advanced Environmental Recycling Technologies, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 16, 2015
|
/s/ J. R. Brian Hanna |
|
J. R. BRIAN HANNA |
|
Chief Financial Officer
Principal Accounting Officer & Principal
Financial Officer |
Exhibit 32.1
OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Advanced Environmental Recycling Technologies,
Inc. (the “Company”) on Form 10-Q for the three months ended September 30, 2015, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Timothy D. Morrison, certify pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 16, 2015
|
/s/ Timothy D. Morrison |
|
TIMOTHY D. MORRISON |
|
Chief Executive Officer and Director |
|
(Principal Executive Officer) |
Exhibit 32.2
OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Advanced Environmental Recycling Technologies,
Inc. (the “Company”) on Form 10-Q for the three months ended September 30, 2015, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, J. R. Brian Hanna, certify pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 16, 2015
|
/s/ J. R. Brian Hanna |
|
J. R. BRIAN HANNA |
|
Chief Financial Officer
Principal Accounting Officer & Principal Financial Officer |