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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
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Commission File Number: 0-15241
NYTEST ENVIRONMENTAL INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2725582
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
60 Seaview Boulevard, Port Washington, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 625-5500
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
$.01 par value
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements by reference in Part III of this Form 10-KSB or any amendment to the
Form 10-KSB. [ ]
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 [ ]
As of March 22, 1996, the aggregate value of the registrant's voting
stock held by non-affiliates was approximately $3,219,984 (computed by
multiplying the last reported sale price on March 22, 1996 by the number of
shares of common stock held by persons other than officers, directors or by
record holders of 10% or more of the registrant's outstanding common stock. This
characterization of officers, directors and 10% or more beneficial owners as
affiliates is for purposes of computation only and is not an admission for any
purposes that such persons are affiliates of the registrant.
As of March 22, 1996, there were 6,705,230 shares of the registrant's
common stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Document Form 10-KSB Reference
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Portions of the Registrant's Proxy Statement
for its 1996 Annual Meeting (to be
filed in definitive form within 120 days
of the Registrant's Fiscal Year End) III
This is page 1 of ____
Exhibit index on page ____
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PART I
ITEM 1. BUSINESS
GENERAL
Nytest Environmental Inc. (the "Company"), a Delaware corporation
organized in 1985, provides specialized analytical services for the accurate
measurement of hazardous wastes. The Company's executive offices are located at
60 Seaview Boulevard, Port Washington, New York 11050 and its telephone number
is (516) 625-5500.
The Company, through newly formed wholly-owned subsidiaries, acquired
the assets of four environmental testing laboratories having approximately 178
full time employees.
Effective August 5, 1995, NEI of Pennsylvania, Inc. ("NEIP"), a wholly
owned subsidiary of the Company acquired certain assets of BCM Laboratory from
BCM Engineers, Inc., a subsidiary of Smith Environmental Technologies
Corporation ("Smith Environmental"). In exchange for the assets acquired, NEIP
sublet a portion of the premises which were occupied by BCM Laboratory in
Norristown, PA, sublet certain laboratory equipment and offered employment to
substantially all of the employees of the BCM Laboratory. The agreement with
Smith Environmental also contains a marketing plan and pricing schedule which
encourages Smith Environmental and its affiliates to use the services of the
Company, both at the Company facilities in Port Washington, NY and the
Norristown, PA facilities which were acquired.
Effective December 31, 1995, NEI/GTEL Environmental Laboratories, Inc.
("NEI/GTEL"), a wholly owned subsidiary of the Company acquired the business
and substantially all of the assets of GTEL Environmental Laboratories, Inc.
("GTEL"), a subsidiary of Groundwater Technologies Inc. ("Groundwater"). The
assets acquired include equipment, leasehold improvements, customer contracts
and other assets relating to the business of GTEL, except for real estate owned
in Wichita, Kansas, and certain GTEL assets located in Tempe, Arizona and
Concord, California, cash and accounts receivable. NEI/GTEL, as part of the
transaction, entered into a long-term lease for the use of the GTEL Wichita
facility and assignment and assumption agreements for the leases of GTEL
facilities in Tampa, Florida and Milford, New Hampshire. NEI/GTEL also hired all
of the active employees of GTEL as of the effective date of the transaction. In
exchange for the assets acquired, the NEI/GTEL paid $3.2 million in a
combination of cash, assumption of liabilities and the issuance of a secured
convertible note in the amount of approximately $1.1 million.
The Company's analytical services include obtaining and isolating
samples of industrial and other waste materials including potentially hazardous
wastes; analyzing samples by identifying and quantifying their toxic
components; and electronically archiving data. The Company advises its clients
as to whether regulatory limits are exceeded with respect to applicable federal
and state environmental regulations. The Company does not develop solutions for
the control of pollution. The public's awareness of environmental needs,
supported by legislation, has created
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a demand for services of the type performed by the Company from industrial
concerns and governmental agencies. The demand for the Company's services is
driven, in large part, by Federal and State regulations to preserve the
environment. See "Business - Government Regulation."
THE COMPANY'S SERVICES
The Company performs analyses which must be used by regulatory
authorities and site owners to report the risks posed by the potential or actual
presence or release of hazardous substances at any site. The Company performs an
analysis of the waste materials to determine the chemical compounds present,
organizes the data obtained and presents a comprehensive report of this data.
There may be a myriad of potentially harmful chemical compounds present in
wastes, and multiple tests may be required to determine the levels of
contaminants at a single site. Results obtained indicate only the amount of
contaminant at the time of the test. To assess the probability of future hazards
or the degree of correction of the pollutants requires several tests at
relatively constant intervals. There is also the possibility that the hazardous
waste may have migrated from its initial site. In such event, additional
analysis by the Company and remedial action by the client at other locations may
be required.
The first step in an analytical program is to define the goals of the
client. In so doing, the Company will ascertain the tests to be performed, as
well as advise the client of the proper procedures for collecting and storing
the samples to be tested.
Samples of the material to be tested are taken by either the Company's
clients or the Company's personnel and forwarded to the Company for analysis.
Where the client does the sampling, the Company provides a "Sample Pack,"
containing vials and bottles in which the samples to be tested are stored and
maintained at a constant temperature. The Company is required to establish the
authenticity of the test samples and therefore each "Sample Pack" is accompanied
by the Company's chain of custody form. The Company's technical staff utilizes
mobile sampling equipment and personnel for the sampling and testing of
hazardous waste sites, monitoring wells or industrial discharges.
Upon receipt of the testing samples, the Company prepares the samples
and performs one or more of the following tests:
Gas Chromatograph/Mass Spectrometry ("GC/MS") is utilized to aid in the
identification and quantification of toxic chemicals and complex organic
mixtures. Prior to the sample being introduced to the GC/MS system, it may be
extracted, concentrated and, where required, subjected to clean-up procedures
to eliminate extraneous compounds from the sample. The GC/MS testing itself
involves a three-step process. First, a test sample is introduced into the gas
chromatograph portion of the system which separates the individual chemical
compounds. The sepa rated compound then elutes into the mass spectrometer
portion of the system where it is bombarded by an electron beam. Each compound
gives off a unique mass spectral pattern which is then automatically compared
with known mass spectral data from within the system's NIST
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(National Institute of Science and Technology), NIH (National Institute of
Health) and EPA library of spectral patterns. If the system finds a match in its
data bank, it calculates the amount present and stores the information for
analysis and retrieval. GC/MS is highly complex and the results produced
typically require sophisticated analysis and interpretation to accurately
identify the compounds present. Interpretation is presently performed in
accordance with Data Evaluation as described below.
Gas Chromatography is used when specific organic compounds are sought
to be identified and quantified. It separates complex mixtures into individual
components. This is accomplished by utilizing specific detectors which include
flame ionization, electron capture, thermal conductivity or flame photometric
detectors.
High Pressure Liquid Chromatography is utilized to screen and quantify
polynuclear aromatics such as chrysene, anthracene, pyrene, and other EPA
priority pollutants.
Inductively Coupled Argon Plasma and Atomic Absorption
Spectrophotometry is utilized to analyze liquids and solids for trace metals
such as arsenic, mercury, and lead.
The Company performs additional tests which involve the classification
of the chemical and physical properties of waste samples, and which include
tests for reactivity, corrosivity, ignitability, chemical oxygen demand and
other similar tests.
The Company's equipment consists of GC/MS systems; chromatographs;
spectrophotometers; auto analyzers; a computer system; a laboratory, data
management and a business information system; associated laboratory equipment
and office furnishings. All of such equipment is in good condition and adequate
for present requirements.
All of the Company's assets are pledged to State Bank of Long Island as
security for its indebtedness to the bank. See Note D of the Notes to Financial
Statements and Item 6 "Management's Discussion and Analysis of Financial
Condition and Results of Operation." See also Notes E and H of the Notes to
Financial Statements regarding obligations by the Company under capital leasing
agreements and equipment notes secured by chattel liens.
Data Evaluation
The Company's computers enable it to quickly evaluate the data
generated by its laboratory instruments. This data can then be compared to
regulatory requirements or stored for future statistical or trend analysis.
Results are presented in a comprehensive, certified test report which details
test protocols, analytical data and accepted limits for each parameter, as
applicable. The Company's customers generally utilize the data obtained in
determining its impact with regard to applicable environmental laws. As part of
its analytical services, the Company makes its staff available to assist its
customers and authorized third parties to comprehend the test results.
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Laboratory Information Management System (L.I.M.S.)
Laboratory analysis generates substantial quantities of data,
especially where a client monitors for hazards created by discharges which may
not be readily discernible except over an extended period of time. Additionally,
large industrial clients with facilities in more than one state are often
subject to multiple regulatory requirements. The Company has a laboratory data
management and business system, which has appropriate security and data backup
procedures, to process, track and invoice samples, and the ability to store and
manage analytical data.
Quality Assurance
The Company maintains strict quality control in all facets of testing
and analysis to insure accuracy of results. Internal quality assurance
procedures, formulated within EPA guidelines, govern how samples and controls
are handled and are monitored daily. Standards are used to calibrate the
equipment on a daily basis.
Test samples are periodically issued by both the quality control
manager and various federal, state and local certifying licensing agencies, to
determine whether laboratory analytical results from such samples furnished by
the agencies fall within acceptable limits.
SALES AND MARKETING
The Company presently markets its services through its sales personnel,
and utilizes direct mail, trade exhibitions and promotional literature. The
Company's revenues in 1995 were realized from clients in the greater New York
and Philadelphia metropolitan regions as well as from the northeast and eastern
part of the United States. As part of the Company's acquisition, through
NEI/GTEL of assets from Groundwater Technology Inc., the Company acquired
operating laboratories in Milford, NH, Tampa, FL and Wichita, KS. This expansion
of the Company's laboratory network is expected to result in revenues from a
wider geographic area, although a majority of revenue will still be from clients
located in the eastern half of the United States.
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GOVERNMENT REGULATION
The United States Environmental Protection Agency ("EPA") is the
principal federal agency responsible for environmental matters, including the
disposal and discharge of hazardous substances. State and local governments are
involved in implementing environmental programs on a state and local level. EPA,
state and local policies can adversely affect the demand for the Company's
services by relaxing regulations requiring tests, by delaying the effective date
of regulations which require tests and by relaxing its enforcement efforts.
Furthermore, to the extent that the budgets of administrating agencies are
reduced, or funds not made available to them, the demand for the Company's
services can also be adversely affected. Applicable federal legislation includes
the Resource Conservation Recovery Act ("RCRA"), the Clean Water Act, the Safe
Drinking Water Act, the Clean Air Act, Toxic Substances Control Act, the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"),
and the Superfund Amendments and Reauthorization Act ("SARA") and the Technical
Standards and Corrective Action Requirements for Owners and Operators of
Underground Storage Tanks Act ("UST").
The Company's activities and its facilities are subject to regulation
under federal, state and local laws, ordinances and rules and regulations
relating to the environment, environmental quality and occupational health and
safety including RCRA, the federal Occupational Safety and Health Act ("OSHA")
and similar state laws and regulations promulgated thereunder. The Company
receives and uses various hazardous chemicals in its environmental testing
operations, and is licensed for these activities. While the Company believes
that its operations have at all times been conducted in compliance with all
federal, state and local environmental laws and regulations, any business
handling hazardous waste is subject to potential contingent liabilities under
certain of these laws. The full impact of applicable laws and regulations on the
Company is difficult to predict because of their complex nature and the
possibility of changes because of political and economic pressures. In
connection with the Company's business of waste analysis, the Company believes
it is acting in compliance with applicable environmental laws.
The Company has obtained certifications from all jurisdictions in which
it does business as required to conduct its laboratory testing business. The
Company is required to pass proficiency tests and evaluations which are given
on a periodic basis to retain its certification and to participate in contracts
under the Federal Superfund Program. The Company believes, but there can be no
assurances, that it will be able to obtain the required certifications and
approvals in all jurisdictions where it does business and plans to do business
in the future. The inability of the Company to retain present, or obtain new,
certifications or approvals where required would adversely affect its business.
INSURANCE
The Company currently carries an annual errors and omission insurance
policy with an aggregate limit of $5,000,000 (each claim and aggregate) on a
claims made basis. This insurance is provided by an insurance company rated as
A+IX (Superior, Adjusted Policyholder's Surplus between $100,000,000 and
$250,000,000) by Best's Insurance Reports but which is not licensed
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by the State of New York. The Company therefore is not protected in the event of
the insurer's insolvency by New York State Security Funds. The policy expires
May, 1996, with a retroactive date to January 1, 1985 with respect to the Port
Washington facility, August 5, 1995 with respect to the Norristown PA facility
and December 31, 1995 for operations acquired from Groundwater Technology, Inc.,
covering errors and omissions liability for environmental and material testing
and analysis with a $50,000 deductible for each claim. The policy contains
various exclusions including exclusions for the discharge of pollutants. The
Company also maintains comprehensive general liability insurance on an
occurrence basis which expires April, 1996, with an annual limit of $1,000,000,
including completed operations coverage. In addition, the Company maintains an
umbrella insurance policy of $5,000,000 (each claim and aggregate). The general
liability policy contains various exclusions, including (1) claims related to
the discharge of pollutants, (2) professional liability and (3) asbestos related
claims. The umbrella policy contains substantially the same exclusions as the
liability policy. The Company intends to maintain the same coverage, either by
renewal or by obtaining similar coverage. However, no assurances can be given
that the Company will be able to maintain any or all of the above described
policies of insurance which may also be canceled before expiration in accordance
with the terms of each policy. Further, while management believes this coverage
is adequate, there can be no assurance that a recovery or settlement of a
material claim will not exceed the Company's coverage.
BACKLOG
As of March 1, 1996, the Company had a backlog of orders it believed to
be firm of approximately $654,000 compared to approximately $284,000 as of March
1, 1995. All of the backlog as of March 1, 1996 is expected to be filled during
1996. In addition, the Company has entered into several contracts to provide,
upon request of several clients, laboratory services having a potential value of
up to $9,500,000 at fixed prices which are to be completed during 1996. The
actual dollar amount of laboratory services to be performed pursuant to these
contracts can not be accurately predicted at the present time and, accordingly,
has not been included in the of backlog above. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
There are many independent analytical testing laboratories which
compete for the environmental and hazardous waste testing business nationwide.
The Company believes that the principal competitive factors in the analytical
testing of environmental and hazardous waste are customer service, expertise,
data accuracy, turn-around time and price.
EMPLOYEES
As of December 31, 1995, the Company had 247 full time employees. Of
these employees 10 were executives, 35 were engaged in supervisory capacities,
15 in sales, 142 in technical laboratory activities and 45 were in
administrative and support functions. In addition, the Company employs 31
persons on a part-time basis.
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The Company is not subject to any collective bargaining agreement and
management believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company occupies office and laboratory facilities as follows:
<TABLE>
<CAPTION>
Approximate Size
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<S> <C>
Port Washington, NY 18,600 Sq. Ft. Leased
Milford, NH 25,400 Sq. Ft. Leased
Norristown, PA 18,000 Sq. Ft. Leased
Tampa, FL 10,000 Sq. Ft. Leased
Wichita, KS 16,000 Sq. Ft. Leased
</TABLE>
The leased space has generally been improved to suit the office or
laboratory needs of the Company. The Company occupies the facility in Norristown
as a subtenant of Smith Environmental Technologies, Inc. and the Company leases
its facility in Wichita, KS from Groundwater Technology, Inc.
In addition to the above, the Company occupies sales offices in
Concord, CA and Atlanta, GA.
The Company believes that its office and laboratory facilities are
adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS
The Company initially reported in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1987 that it was a third-party defendant to
an action commenced against it during February, 1988 and brought by Pebble Cove
Home Owners Association Inc. and Herbert Rubin in the Supreme Court of the State
of New York, County of Nassau against eight defendants. The Company's insurance
carriers are defending the case and a second related action. Management does not
anticipate liability because it believes that it has meritorious defenses to the
action and participated only to a limited extent in the matter. The Company
believes that its insurance will cover any liability, subject to provisions for
deductibility. Counsel defending the Company, appointed by the Company's
insurance carrier, has advised the Company that, based upon information
presently available to the firm, it believes both actions to be speculative and
unsubstantiated. Further, the matter has been inactive since 1990. Management
believes, although no assurances can be given, that in view of its insurance
coverage, this lawsuit will not have a material adverse effect upon the
Company's earnings or financial condition.
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The Company initially reported in its Annual Report on Form 10-K for
the year ended December 31, 1989 that the Company commenced suit in the Superior
Court of New Jersey, Law Division, Hudson County, against Standard Tank Cleaning
Corp. ("Standard Tank") and three (3) other defendants for nonpayment of testing
services performed in the sum of $35,713 and that Standard Tank had served a
counterclaim against the Company for $450,000 in damages alleged to have
resulted from penalties assessed against it. Standard Tank filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on September 18, 1990 and the
action has been inactive for several years. Management believes that the
counterclaim against the Company is without merit. Management also believes,
that due to its insurance coverage and subject to a $50,000 deductible, that the
counterclaim by Standard Tank will not have a material adverse effect upon the
Company's financial condition or earnings.
The Company is involved in litigation commenced in New York State Court
in July, 1991 by the lessor of space, a portion of which the Company previously
occupied as a subtenant. The lessor asserts causes of action seeking
compensatory damages in excess of $150,000 and punitive damages in an
unspecified amount incurred as a result of (i) damages to the property allegedly
sustained during defendants' occupancy and (ii) certain unpaid rent and taxes.
The claim includes the allegation that defendants caused certain "toxic waste"
to be discharged at the demised premises. The Company served an answer denying
the material allegations of the complaint and interposing affirmative defenses.
The matter has been inactive for several years. Management intends to vigorously
defend the action and, in management's opinion, these proceedings will not have
a material effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The principal market on which the registrant's common stock is traded
in the NASDAQ Small-Cap Market under the NASDAQ symbol "NYTS." The following
table sets forth the high and low bid prices of shares of the Company's Common
Stock as reported by NASDAQ for the calendar period indicated. The information
represents inter-dealer quotations, without retail mark-ups, mark-downs or
commissions, and does not necessarily represent actual quotations.
<TABLE>
<CAPTION>
High Low
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1995
- ----
<S> <C> <C>
First Quarter 25/64 1/4
Second Quarter 7/16 1/4
Third Quarter 1-1/2 15/32
Fourth Quarter 11/16 3/8
1994
- -----
First Quarter 1-1/8 1-1/8
Second Quarter 1-1/8 5/8
Third Quarter 5/8 1/4
Fourth Quarter 11/32 9/32
</TABLE>
The number of holders of record of the Company's common stock as of
March 22, 1996 was 407.
No dividends have been paid during the past two years. The Company has
no present intention of paying any cash dividends in the foreseeable future and
intends to retain future earnings to finance its growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the year ended December 31, 1995 were $6,808,779, an
increase of 13.9% compared to revenues of $5,977,421 for the year ended December
31, 1994. This increase was primarily due to the laboratory operations acquired
from Smith Environmental Technologies Corp. in August 1995. The overall
environmental laboratory industry, particularly in the latter part of 1995
experienced considerable price erosion which was not offset by higher unit
volume and was further adversely affected by the slowdown in Federal government
spending, particularly for remediation and regulatory enforcement.
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Cost of Operations
Reflecting the Company's continued efforts to reduce expenses and
control costs, cost of operations were 76.2% of revenues, as compared to 79.2%
of revenues for the prior year. Selling, general and administrative expenses
were 29.2% of revenues, as compared to 26.7% of revenues for the prior year.
This increase in selling, general and administrative expenses was due to the
transitional costs associated with the acquired laboratory operations as well as
the Company's efforts to expand its marketing staff.
The decrease in interest expense of $10,537 was a direct effect of the
cash management efforts of the Company which reduced the Company's borrowings
during the year. The Company's borrowings increased in the latter part of 1995,
to facilitate the acquisition of certain assets of GTEL Environmental
Laboratories, Inc., a wholly owned subsidiary of Groundwater Technology, Inc.
The income tax credit was 32.2% and 42.2% of the loss before income tax
credits, in 1995 and 1994, respectively. This lower rate for credits is
primarily due to the lack of availability of prior year taxes against which to
apply credits, particularly for state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operations
The Company's operations for the year ended December 31, 1995 provided
net cash of $248,658, as compared to $574,976 in the year ended December 31,
1994. This decrease of $326,318 was primarily due to increased sales in the
fourth quarter of 1995 which were not collected, and which were only partially
offset by an increase in accounts payable and accrued liabilities. The increase
in accounts receivable resulted principally from the acquisition of the
laboratory operations of Smith Environmental Technologies Corp.
Cash Flows from Investing Activities
The net cash used for investing activities in 1995 was $1,291,676 as
compared to $39,551 used for the comparable period in 1994. Cash of $1,255,000
was used for the December 31, 1995 purchase transaction of certain assets of
GTEL Environmental Laboratories, Inc., a wholly owned subsidiary of Groundwater
Technology, Inc. and the August 5, 1995 purchase of assets from Smith
Environmental Technologies Corp.
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Cash Flows from Financing Activities
The net cash provided by financing activities in 1995 of $908,326 was
$1,091,148 higher than 1994. This increase in financing resulted from increased
bank borrowings principally related to the acquisition of assets of GTEL
Environmental Laboratories, Inc., a wholly owned subsidiary of Groundwater
Technology, Inc.
In July 1995, the Company entered into a line-of-credit agreement with
a bank which provided for borrowings up to $2,000,000 to April 30, 1996.
On March 15, 1996, the Company accepted a commitment from a finance
company to replace the bank line-of-credit with a 3 year $7,000,000
line-of-credit, which contains a $2,606,000, 60 month sublimit for equipment
financing. The commitment is subject to a definitive loan agreement and certain
other contingencies, including no material adverse changes in the operations of
the Company or in the condition of the collateral, as represented in information
supplied to the lender. Advances under the line will be limited to no more than
80% of eligible accounts receivable. See Note D of the Notes to Financial
Statements.
The Company anticipates that the cash generated by operations along
with its borrowing capacity will be adequate to fund its operations in 1996.
ITEM 7. FINANCIAL STATEMENTS
See financial statements annexed hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
At the Company's Board of Directors meeting on May 31, 1994, the
Company did not renew the engagement with Griggs & Alcabes, CPAs. On June 14,
1994, the Company engaged the accounting firm of Cornick, Garber & Sandler,
L.L.P. as the Registrant's independent auditors. During the year ended December
31, 1993 and the interim period ended March 31, 1994, there were no
disagreements with Griggs & Alcabes, CPAs, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure or any reportable events. Griggs & Alcabes' reports on the financial
statements for the two years ended December 31, 1993 and December 31, 1992
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
Griggs & Alcabes furnished the Company with a letter addressed to the
Securities and Exchange Commission stating that it agrees with the above
statements. A copy of the letter from Griggs & Alcabes CPAs was filed as Exhibit
16 to the Company's Form 8-K Report dated June 21, 1994 and is incorporated
herein by reference.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers and directors of the
Company will be set forth in the Company's definitive proxy statement which is
expected to be filed within 120 days of December 31, 1995 and is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to executive compensation will be set forth in
the Company's definitive proxy statement which is expected to be filed within
120 days of December 31, 1995 and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to the ownership of the Company's securities
by certain persons will be set forth in the Company's definitive proxy statement
which is expected to be filed within 120 days of December 31, 1995 and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to transactions with management and others
will be set forth in the Company's definitive proxy statement which is expected
to be filed within 120 days of December 31, 1995 and is incorporated herein by
reference.
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PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed statement or
report such report is identified in parenthesis:
(3) Articles of Incorporation and By-laws:
(a) Certificate of incorporation of Nytest Environmental Inc.
dated January 15, 1985 (Exhibit 3(a) to the Company's Form S-1
registration statement, File No. 33-2047)
(b) Amendment to the certificate of incorporation of Nytest
Environmental Inc. dated July 21, 1987 (Exhibit 3.1 to the
Company's Form 10-K Report dated December 31, 1987)
(c) By-laws of Nytest Environmental Inc., as amended through
July 15, 1987 (Exhibit 3.2 to the Company Form 10-K Report
dated December 31, 1987)
(4) Instruments defining the rights of security holders:
(a) Specimen Common Stock Certificate (Exhibit 4(a) to the
Company's Form S-1 registration statement, File No. 33-2047)
(b) Form of Underwriter's Warrant issued to Royce Investment
Group, Inc. (Exhibit 4.4 to the Company's Form S-2
registration statement, File No. 33-40570)
(c) Subordinated Convertible Note of NEI/GTEL Environmental
Laboratories, Inc. dated December 31, 1995. (Exhibit 99.2 to
the Company's Form 8-K Report dated December 31, 1995)
(10) Material Contracts:
(a) Employment agreement between the Company and John Gaspari
dated January 1, 1989 (Exhibit 10.3 to the Company's Report on
Form 10-Q dated June 30, 1988)
(b) Amendment dated May 14, 1991 to employment agreement between
the Company and John Gaspari (Exhibit 10.8 to the Company's
Form S-2 Registration Statement, File No. 33-40570)
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(c) 1991 Executive Option Plan (Exhibit 10.12 to the Company's
Form S-2 Registration Statement, File No. 33-40570)
(d) Form of Option Agreement under the 1991 Executive Option Plan
(Exhibit 10.14 to Amendment No. 1 to the Company's Form S-2
Registration Statement, File No. 33-40570)
(e) Employment Agreement dated November 2, 1992 between the
Company and James W. Shearard, Jr. (Exhibit 10(i) to the
Company's Form 10-KSB dated December 31, 1994)
(f) Amendment to Employment Agreement dated January 18, 1993
between the Company and James W. Shearard, Jr. . (Exhibit
10(j) to the Company's Form 10-KSB dated December 31, 1994)
(g) 1992 Employee Stock Incentive Plan (Exhibit 10(k) to the
Company's Form 10-KSB dated December 31, 1994)
(h) Asset and Business Purchase Agreement dated August 3, 1995
between NEI of Pennsylvania, Inc. and BCM Engineers, Inc.
(Exhibit 2.1 to the Company's Form 8-K Report dated August 5,
1995)
(i) Sublease dated August 3, 1995 between NEI of Pennsylvania,
Inc. and BCM Engineers, Inc. concerning 1850 Gravers Road,
Norristown, PA (Exhibit 99.1 to the Company's Form 8-K Report
dated August 5, 1995)
(j) Equipment Subleases dated August 3, 1995 between BCM Engineers
and affiliates and NEI of Pennsylvania, Inc. (Exhibit 99.2 to
the Company's Form 8-K Report dated August 5, 1995)
(k) Guaranty dated August 3, 1995 by Smith Environmental
Technology Inc. in the form of NEI of Pennsylvania, Inc.
(Exhibit 99.3 to the Company's Form 8-K Report dated August
5, 1995)
(l) Guaranty dated August 3, 1995 by Nytest Environmental Inc. in
favor of BCM Engineers, Inc. (Exhibit 99.4 to the Company's
Form 8-K Report dated August 5, 1995)
(m) Asset and Business Purchase Agreement dated December 28, 1995
and effective as of December 31, 1995 between NEI/GTEL
Environmental Laboratories, Inc. and GTEL Environmental
Laboratories, Inc. (Exhibit 2.1 to the Company's Form 8-K
Report dated December 31, 1995)
15
<PAGE> 16
(n) Market and Supply Agreement dated December 31, 1995 between
NEI/GTEL Environmental Laboratories, Inc. and Groundwater
Technology, Inc. (Exhibit 99.1 to the Company's Form 8-K
Report dated December 31, 1995)
(o) Security Agreement dated December 31, 1995 among NEI/GTEL
Environmental Laboratories, Inc., GTEL Environmental
Laboratories, Inc. and Nytest Environmental Inc. (Exhibit
99.3 to the Company's Form 8-K Report dated December 31, 1995)
(p) Registration Rights Agreement dated December 28, 1995 between
Nytest Environmental Inc. and Groundwater Technology, Inc.
(Exhibit 99.4 to the Company's Form 8-K Report dated December
31, 1995)
(q) Guaranty of Nytest Environmental Inc. dated December 31, 1995
(Exhibit 99.5 to the Company's Form 8-K Report dated December
31, 1995)
(r) Lease of 4211 West May, Wichita, KS, dated December 31, 1995
(Exhibit 99.6 to the Company's Form 8-K Report dated December
31, 1995)
(s) Assignment of Patent Rights dated December 31, 1995 (Exhibit
99.7 to the Company's Form 8-K Report dated December 31,
1995)
(16) Letter re: change in certifying accountant
Letter of Griggs & Alcabes, CPAs dated June 20, 1994 (Exhibit 16 to
Form 8-K dated June 21, 1994)
(18) Letter on change in accounting principles
None
16
<PAGE> 17
(21) Subsidiaries of registrant
NEI of Pennsylvania, Inc. (Del.) 100% owned.
NEI/GTEL Environmental Laboratories, Inc. (Del.) 100% owned.
(23) Consents of experts and counsel
Consent of Cornick, Garber & Sandler LLP
(b) Reports of Form 8-K
Form 8-K Report dated December 31, 1995.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed by the
undersigned, thereunto duly authorized.
NYTEST ENVIRONMENTAL INC.
By: /s/ John Gaspari
--------------------------------
John Gaspari, President and
Dated: March 30, 1995 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ John Gaspari President, Chief Executive March 30, 1995
- ---------------------------- Officer and Director
John Gaspari (Principal Executive Officer)
/s/ James W. Shearard, Jr. Vice President - Marketing and March 30, 1995
- ---------------------------- Sales, Secretary and Director
James W. Shearard, Jr.
/s/ Elliot J. Laitman Treasurer, Chief Financial Officer March 30, 1995
- ---------------------------- (Principal Accounting and
Elliot J. Laitman Financial Officer)
/s/ Anthony P. Towell Director March 30, 1995
- -----------------------------
Anthony P. Towell
/s/ Thomas E. Lent Director March 30, 1995
- ----------------------------
Thomas E. Lent
</TABLE>
18
<PAGE> 19
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 20
[CORNICK, GARBER & SANDLER, LLP LETTERHEAD]
Independent Auditors' Report
Board of Directors and Shareholders
Nytest Environmental, Inc. and Subsidiaries
Port Washington, New York
We have audited the accompanying consolidated balance sheet of
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES as at December 31, 1995 and the
related consolidated statements of operations and cash flows for each of the
two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present
fairly, in all material respects, the consolidated financial position of Nytest
Environmental, Inc. and Subsidiaries as at December 31, 1995 and their
consolidated results of operations and cash flows for each of the two years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Cornick, Garber & Sandler, LLP
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Uniondale, New York
February 13, 1996
(Except for Note D for
which the date is
March 15, 1996)
<PAGE> 21
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 426,631
Accounts receivable, less $52,941 allowance
for doubtful accounts (Note J) 2,249,044
Laboratory supplies 63,468
Deferred income taxes (Notes A and G) 22,000
Prepaid expenses and other current assets 420,746
----------
Total current assets 3,181,889
Property and equipment - at cost, less
accumulated depreciation and amortization
(Notes A and C) 5,277,597
Other assets 314,837
----------
T O T A L $8,774,323
==========
LIABILITIES
Current liabilities:
Loans payable (Note D) $1,704,000
Installment notes payable - current portion (Note E) 38,824
Obligations under capital leases -
current portion (Note H) 231,039
Accounts payable 1,290,890
Accrued expenses 766,741
----------
Total current liabilities 4,031,494
Installment notes payable (Note E) 32,521
Subordinated convertible debt (Note F) 1,095,000
Obligations under capital leases (Note H) 200,228
Deferred income taxes payable (Notes A and G) 45,000
----------
Total liabilities 5,404,243
----------
Commitments and contingencies (Note H)
STOCKHOLDERS' EQUITY
(NOTE I)
Common stock $.01 par; authorized 10,000,000 shares,
issued and outstanding 6,705,230 shares 67,052
Additional paid-in capital 3,068,255
Retained earnings (statement attached) 234,773
----------
Total stockholders' equity 3,370,080
----------
T O T A L $8,774,323
==========
</TABLE>
The notes to financial statements are made a part hereof.
<PAGE> 22
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues (Note J) $ 6,808,779 $ 5,977,421
----------- -----------
Costs and expenses:
Cost of operations 5,191,524 4,732,293
Selling, general and
administrative expenses 1,987,758 1,596,185
----------- -----------
Total costs and expenses 7,179,282 6,328,478
----------- -----------
Operating (loss) (370,503) (351,057)
Interest expense 119,863 130,400
----------- -----------
(Loss) before income tax credits (490,366) (481,457)
Income tax credits (Note G) 158,000 202,800
----------- -----------
NET (LOSS) (332,366) (278,657)
Retained earnings - January 1 567,139 845,796
----------- -----------
RETAINED EARNINGS - DECEMBER 31
(TO BALANCE SHEET) $ 234,773 $ 567,139
=========== ===========
Net (loss) per share (Note A) $(.05) $(.04)
===== =====
Average number of shares
outstanding
6,705,230 6,705,230
========= =========
</TABLE>
The notes to financial statements are made a part hereof.
<PAGE> 23
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------
1995 1994
----------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net (loss) $ (332,366) $(278,657)
----------- ---------
Adjustments to reconcile results of operations
to net cash effect of operating activities:
Depreciation and amortization 577,800 467,595
Bad debt expense 22,183 10,176
Loss (gain) on disposal of fixed assets (1,500) 3,991
Deferred income taxes (105,800) (131,800)
Net changes in assets and liabilities (after
giving effect to acquisitions):
Accounts receivable (213,061) 526,701
Laboratory supplies (11,501) 211,103
Prepaid expenses (41,030) 26,344
Other assets (8,141) (85,765)
Accounts payable 168,431 (144,199)
Accrued liabilities 193,643 (30,513)
----------- ---------
Total adjustments 581,024 853,633
----------- ---------
Net cash provided by operating activities 248,658 574,976
----------- ---------
Cash flows from investing activities:
Payments for acquisitions (1,255,000)
Expenditures for fixed assets (38,176) (42,551)
Proceeds from sale of equipment 1,500 3,000
----------- ---------
Net cash used for investing activities (1,291,676) (39,551)
----------- ---------
Cash flows from financing activities:
Proceeds of bank borrowings 1,842,804 267,905
Repayments of bank borrowings (834,024) (321,403)
Repayments of capitalized lease obligations (92,954) (129,324)
Stock option plan registration cost (7,500)
----------- ---------
Net cash provided by (used for)
financing activities 908,326 (182,822)
----------- ---------
NET INCREASE (DECREASE) IN CASH (134,692) 352,603
Cash - January 1 561,323 208,720
----------- ---------
CASH - DECEMBER 31 $ 426,631 $ 561,323
=========== =========
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 138,573 $ 120,627
=========== =========
Income taxes $ 55,572 $ (76,870)
=========== =========
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1995, capital lease obligations of $163,000 were incurred when the
Company entered into leases for new equipment. For other noncash
investing and financing activities see Notes B and F.
The notes to financial statements are made a part hereof.
<PAGE> 24
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Summary of Significant Accounting Policies:
Operations:
The Company operates analytical laboratories in New York,
Pennsylvania, New Hampshire, Kansas and Florida that specialize
in the measurement of environmental hazardous materials based
upon samples of air, soil, water submitted for analysis.
The Company's revenues have been principally derived from clients
in the New York and, with the BCM acquisition (see Note B),
Philadelphia metropolitan regions, as well as from the northeast
and eastern part of the United States. With the GTEL acquisition
(see Note B), it is anticipated that revenues will be generated
from a wider geographic region, although the Company believes
that the majority of revenues will still be from clients in the
eastern half of the United States.
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries, which are wholly-owned. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Fair Value of Financial Instruments:
The carrying value at December 31, 1995 of the Company's
financial instruments approximated their fair value primarily due
to the short maturities of these instruments.
Revenue Recognition:
Revenue is recognized when substantially all sample testing is
completed. Where long-term contracts provide for the testing of
multiple samples at varying times, the revenue is recognized on
a per sample basis as testing is completed.
Depreciation and Amortization:
Depreciation is provided for financial accounting purposes on the
straight-line method at rates which are designed to write off the
assets over their estimated useful lives. Leasehold improvements
are amortized over the terms of their applicable leases or their
useful lives, whichever is less. For income tax purposes,
depreciation is computed substantially by use of accelerated
methods.
(Continued)
<PAGE> 25
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-2-
NOTE A - Summary of Significant Accounting Policies (Continued):
Income Taxes:
The Company accounts for income taxes utilizing the provisions of
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes ("SFAS 109"). Under SFAS 109, deferred tax
liabilities and assets are determined based on the difference
between financial statement carrying amounts and the tax bases of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
Per Share Amounts:
Loss per share amounts are computed utilizing the weighted
average number of common shares outstanding during each year.
Such computations do not include common stock equivalents (Note
I) because their inclusion would be antidilutive.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE B - Acquisitions:
BCM Acquisition:
On August 5, 1995, the Company acquired, in a purchase
transaction, substantially all the laboratory equipment and
fixtures and assumed certain capital lease obligations of the BCM
Laboratory Division of Smith Environmental Technologies
Corporation. The transaction was effected through a new
wholly-owned subsidiary, NEI of Pennsylvania, Inc. (NEIPA). The
assets acquired comprise an environmental testing laboratory in
Norristown, Pennsylvania. The purchase price of approximately
$405,000 is comprised of the assumption of approximately $315,000
in capitalized lease obligations, plus approximately $90,000 in
closing costs. The purchase price was allocated to the
laboratory equipment and fixtures, which are being depreciated
over the estimated remaining life of the assets. The results of
operations of NEIPA are included in the accompanying financial
statements from August 6, 1995.
(Continued)
<PAGE> 26
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-3-
NOTE B - Acquisitions (Continued):
GTEL Acquisition:
On December 31, 1995, the Company acquired, in a purchase
transaction, certain fixed and other assets (deposits, licenses,
etc.) and assumed certain liabilities of GTEL Environmental
Laboratories, Inc. (GTEL), a wholly-owned subsidiary of
Groundwater Technology, Inc. (GTI). The transaction was affected
through a new wholly-owned subsidiary, NEI/GTEL Environmental
Laboratories, Inc. (NEI/GTEL). The assets acquired comprise
three environmental testing laboratories in Milford, New
Hampshire, Wichita, Kansas and Tampa, Florida. The purchase
price of approximately $3,200,000 is comprised of approximately
$940,000 of liabilities assumed, a subordinated convertible note
of $1,095,000 (Note F) and the payment of $1,000,000 in cash,
plus approximately $165,000 in closing costs related to the
acquisition. The purchase price was allocated $3,071,000 to
fixed assets, $105,000 to current assets and $24,000 to other
assets based on their relative appraised values. No goodwill has
been recognized because the fair market value of the assets
acquired exceeded the purchase price.
In connection with this acquisition, the Company entered into a
four year marketing and supply agreement for laboratory services
to be rendered to GTI and its affiliates. The Company will
develop a marketing plan which GTI will promote to its employees
and affiliates to encourage the use of the Company's services.
In return, the Company and GTI will agree on pricing for
laboratory services at the beginning of each calendar year. GTI
is required to meet certain minimums, defined in the agreement,
for the year ending December 31, 1996 or reduce the amounts
payable under the subordinated convertible note payable.
Pro Forma Information:
The following table summarizes the unaudited pro forma results of
operations as if the foregoing acquisitions had occurred on
January 1st of each year. The pro forma information includes
NEIPA's and GTEL's historical results of operations adjusted for
the effects of the acquisitions. The pro forma amounts for NEIPA
are based on a calendar year, while the amounts for GTEL are
based on an October 31, 1995 year end for 1995 and the April 30,
1995 year end of its former owner for 1994. The pro forma
information does not purport to be indicative of the results of
operations that would have occurred had the transactions taken
place at the beginning of the periods presented, nor is it
indicative of the expected future results of operations.
(Continued)
<PAGE> 27
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-4-
NOTE B - Acquisitions (Continued):
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net sales $ 20,795,000 $ 23,033,000
------------ ------------
Net loss $ (751,000) $ (322,000)
------------ ------------
Loss per share $ (.11) $ (.05)
============ ============
</TABLE>
NOTE C - Property and Equipment:
Property and equipment at December 31, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
(Years)
-----------
<S> <C> <C>
Cost:
Laboratory equipment $7,174,760 5 - 12
Furniture and fixtures 259,757 5 - 10
Leasehold improvements 911,518 4 - 10
Automotive equipment 66,967 4
----------
Total 8,413,002
Less accumulated depreciation
and amortization 3,135,405
----------
Balance $5,277,597
==========
</TABLE>
(Continued)
<PAGE> 28
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-5-
NOTE D - Loans Payable:
In July 1995, the Company entered into a line-of-credit agreement
with a bank which provided for borrowings up to $2,000,000 to
April 30, 1996, with interest payable at 3/4% above the prime
rate. Borrowings were principally limited to 75% of eligible
accounts receivable. As part of this agreement, there is an
additional $300,000, with interest payable at 1% above the prime
rate, which can be used for the purchase of equipment. At
December 31, 1995, there were no outstanding borrowings for the
purchase of equipment. The borrowings were collateralized by all
the assets of the Company.
On March 15, 1996, the Company accepted a commitment from a
finance company to replace the bank line-of-credit with a 3 year
$7,000,000 line-of-credit, which contains a $2,606,000, 60 month
sublimit for equipment financing. The commitment is subject to a
definitive loan agreement and certain other contingencies,
including no material adverse changes in the operations of the
Company or in the condition of the collateral, as represented in
information supplied to the lender. Advances under the line will
be limited to no more than 80% of eligible accounts receivable,
as defined.
The initial advance for equipment is $1,856,000, plus up to an
additional $750,000 for equipment purchased after closing.
Advances for equipment will be limited to 80% of the appraised
value, as defined, and will be repayable over 60 months, subject
to adjustment for annual reappraisal at the lender's option.
Interest on the above advances is payable at 1 3/4% to 2% above
the prime rate. The Company will also be charged an annual
commitment fee of 1/2% of the credit facility and unused line
fees, a defined, of 1/2% a year if its average borrowings do not
exceed specified minimums. If the agreement is cancelled by the
Company, it will be required to pay a termination fee of 3% of
the line during the first year and 2% thereafter. The line will
be collateralized by substantially all the assets of the Company.
(Continued)
<PAGE> 29
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-6-
NOTE E - Installment Notes Payable:
Installment notes payable at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Equipment notes - payable in monthly
installments of $3,161, plus
interest at 6.8% to 11.5%, col-
lateralized by laboratory equip-
ment with a cost of approximately
$100,000 $62,936
Automobile notes - payable in
monthly installments of $1,140,
plus interest at 5.9% to 6.75%,
collateralized by automobiles
with a cost of approximately
$40,000 8,409
-------
Total long-term debt 71,345
Less current portion 38,824
-------
Noncurrent portion (due $29,933 in
1997 and $2,588 due in 1998) $32,521
=======
</TABLE>
NOTE F - Subordinated Convertible Note:
In connection with the GTEL acquisition (Note B), the Company
issued a subordinated convertible note for $1,095,000 which is
due on December 31, 1998. The note bears interest at 9.5% a year
and is payable quarterly. The note is convertible, at any time,
into the Company's common stock at $1.00 per share in amounts of
not less than $100,000 of principal. The stock has piggy-back
registration rights for one offering, if any, through the due
date of the note. The note may be reduced if certain revenue
commitments are not met (See Note B).
(Continued)
<PAGE> 30
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-7-
NOTE G - Income Taxes:
Income tax credits are comprised of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1995 1994
--------- --------
<S> <C> <C>
Currently refundable (payable):
Federal $ 64,000 $ 56,000
State (13,000) 15,000
--------- --------
Total 51,000 71,000
Net reduction in deferred
liabilities 107,000 131,800
--------- --------
Net income tax credit $ 158,000 $202,800
========= ========
</TABLE>
Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities as at December 31, 1995 are:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 22,000
Benefit of state net operating
loss carryforwards 56,000
Less valuation allowance (56,000)
---------
Net deferred tax assets $ 22,000
=========
Net deferred tax liabilities:
Accelerated versus straight-
line depreciation of fixed
assets $ 217,000
Alternative minimum tax
credit carryforwards (172,000)
---------
Net deferred tax liabilities $ 45,000
=========
</TABLE>
For state income tax purposes, the Company has approximately
$814,000 of net operating loss carryforwards which expire $64,000
in 1997 and $750,000 in 2009 and 2010.
(Continued)
<PAGE> 31
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-8-
NOTE G - Income Taxes (Continued):
The variation in the customary relationship between the income
tax credits and pretax loss at the federal statutory income tax
rate is as follows:
<TABLE>
<CAPTION>
Percentage of Pretax Loss
--------------------------
Year Ended December 31,
--------------------------
1995 1994
------ ------
<S> <C> <C>
Computed "expected" federal
income tax credit 34.0% 34.0%
State income tax credits
(charges), net of federal
income tax effect (1.5) 5.3
Nondeductible expenses (.9) (1.8)
Other items (net) .6 4.7
---- ----
Net income tax credit 32.2% 42.2%
==== ====
</TABLE>
NOTE H - Commitments and Contingencies:
Employment Agreement:
An employment agreement with an officer provides for a minimum
salary level adjusted annually and expires in July 1996. If the
Company has pre-tax income, the salary will be 110% of the prior
year's salary and if there is no pre-tax income, the increase is
based upon the increase in the consumer price index. The
agreement also provides for a bonus based upon the Company's
pre-tax income and for death and disability benefits and also
contains a provision for specified payments in the event of a
"change in control," as defined, of the Company.
In March 1994, the above officer took a 15% voluntary reduction in
salary. In addition, he did not accept the cost of living
increase due him as of January 1, 1994 and 1995.
Lease Commitments:
The Company rents its laboratory and office space and certain
laboratory and office equipment under operating leases expiring at
various dates through 2000. Minimum annual rentals under these
leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996 $ 940,000
1997 664,000
1998 526,000
1999 410,000
2000 239,000
----------
Total $2,779,000
==========
</TABLE>
(Continued)
<PAGE> 32
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-9-
NOTE H - Commitments and Contingencies (Continued):
Lease Commitments (Continued):
The Company has a purchase option expiring on March 30, 1996 on
the property where its Wichita, Kansas laboratory is situated.
The purchase price is $1,000,000 less the base rent ($13,359 per
month) paid to the closing date.
The Company also leases certain equipment and automobiles which
have been classified as capital leases. The $492,997 cost of such
assets has been included in property and equipment and the
remaining lease payments reflected as a liability on the balance
sheet.
Future minimum payments under these leases at December 31, 1995
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1996 $ 265,000
1997 119,000
1998 55,000
1999 48,000
2000 11,000
---------
Total 498,000
Less amount representing
interest at 9% to 13% (66,733)
---------
Present value of minimum
lease payments 431,267
Less current maturities 231,039
---------
Noncurrent portion $ 200,228
=========
</TABLE>
Concentration of Credit Risk:
The Company grants credit to customers, substantially all of whom
are related to the environmental industry. The majority of
customers are engineering firms which subcontract their testing
work to the Company.
Litigation:
The Company is involved in litigation commenced in New York State
Court in July 1991 by the lessor of space, a portion of which the
Company previously occupied as a subtenant. The lessor asserts
causes of action seeking compensatory damages in excess of
$150,000 and punitive damages against all defendants in an
unspecified amount incurred as a result of (i) damages to the
property allegedly sustained during defendants' occupancy and (ii)
certain unpaid rent and taxes. The claim includes the allegation
that defendants caused certain "toxic waste" to be discharged at
the demised premises. The Company served an answer denying the
allegations of the complaint and interposing affirmative defenses.
Management intends to vigorously defend the action and, in
management's opinion, the outcome of these proceedings will not
have a material adverse effect on the Company's financial position
or earnings. This case has been inactive for more than three
years.
(Continued)
<PAGE> 33
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-10-
NOTE H - Commitments and Contingencies (Continued):
Litigation (Continued):
Two other legal actions involving entities where the Company had
performed its testing services, include counterclaims against the
Company by a former customer, now in bankruptcy, and third party
defendant claims by a homeowners' association. Management
believes that the Company has no material exposure in either of
these matters because of its affirmative defenses and because, in
the event of an unfavorable outcome, a substantial portion of the
claimed losses should be covered by insurance.
NOTE I - Shareholders' Equity:
Additional Paid-In Capital:
In 1995, the Company filed a registration statement for the shares
issuable under its 1992 employee Stock Incentive Plan. The $7,500
cost of such filing has been charged to additional paid-in
capital.
Warrants:
In connection with a rights offering, in August 1991 an
underwriter received warrants to purchase 100,000 shares of common
stock at $1.25 a share. The warrants expire in August 1996. As
of December 31, 1995, no warrants have been exercised.
1988 Incentive Stock Option Plan:
The Company's 1988 incentive stock option plan provides for the
granting of options to key employees to purchase up to 350,000
shares of common stock at not less than fair market value at the
date of grant. Options may be exercised beginning one year from
the date of grant and may not exceed 10 years from the date of
grant. At December 31, 1995, options to purchase 132,500 shares
at $.84375 to $1.28 a share are outstanding. The balance of
previously issued options either expired or was cancelled by
mutual agreement.
1988 Stock Options:
In May 1988, the Company issued options to a Director of the
Company to purchase 70,000 shares of common stock at $1.11 per
share exercisable until he is no longer a Director of the Company.
At December 31, 1995, no options have been exercised.
(Continued)
<PAGE> 34
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-11-
NOTE I - Stockholders' Equity (Continued):
1991 Executive Stock Option Plan:
In May 1991, the Board of Directors approved a Plan to provide
certain executives with nonqualified options based upon the
Company meeting certain earnings per share targets, as defined,
during 1992 through 1996. If the target in any year is not met,
the options for that year may nevertheless vest if certain
cumulative earnings per share targets, are met. During 1995 and
1994 options to purchase 240,000 shares were cancelled by mutual
agreement and, at December 31, 1995, options to purchase 120,000
shares at $.80 per share are outstanding; no options have become
vested.
1992 Employee Stock Incentive Plan:
The Company's Employee Stock Incentive Plan ("Plan") provides for
the granting of stock options, stock appreciation rights,
restricted stock or deferred stock awards for up to 600,000 shares
of the Company's common stock. Officers, directors and other key
employees are eligible for awards under the Plan which permits the
granting of incentive stock options ("ISO") and nonqualified stock
options. The option price may not be less than 100% of the fair
market value on the date of grant. The terms of each option are
to be determined by the Stock Option Committee, but may not exceed
10 years for an ISO and 10 years and two days for a nonqualified
stock option. Nontransferable stock appreciation rights ("SARS")
may be granted in conjunction with options entitling the holder,
upon exercise, to receive cash and/or unrestricted common stock,
not greater than the increase since the date of grant of the
shares covered by such right. Restricted stock may be awarded by
the Stock Option Committee with conditions and restrictions as
they may determine. Deferred stock awards entitle the recipient
to receive common stock without any payment as determined by the
Stock Option Committee which may be conditioned upon such matters
as continued employment or performance goals. No SARS, restricted
or deferred stock have been issued. In the event of a "change in
control," as defined, unless otherwise determined by the Stock
Option Committee, all restrictions and deferral limitations will
lapse and the value of such options and awards will cash out at a
price determined by the Committee. During 1995 and 1994,
respectively, the Company issued stock options for 110,000 shares,
which are not exerciseable until May 30, 1996 and 73,900 shares
which are currently exercisable. Options for 65,000 and 10,000
shares were cancelled in 1995 and 1994, respectively. At December
31, 1995, stock options to purchase 238,900 shares at $.32 to
$1.38 a share are outstanding.
(Continued)
<PAGE> 35
NYTEST ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-12-
NOTE I - Stockholders' Equity (Continued):
1995 Stock Options:
In November 1995, an option to purchase 50,000 shares of common
stock exerciseable at $1.00 per share until November 2005 was
granted to an officer/director of the Company upon his
resignation. At December 31, 1995, no options have been
exercised.
NOTE J - Significant Customers:
For the year ended December 31, 1995, two customers accounted for
10.4% and 9.9% of consolidated revenues. No customer accounted
for more than 10% of revenues in 1994. Receivables from these
customers aggregated 13.6% of accounts receivable at December 31,
1995.
NOTE K - Employee Benefit Plan:
The Company has a Savings and Protection Plan ("the Plan") for
eligible employees pursuant to Section 401(K) of the Internal
Revenue Code. Employees may contribute not less than 2%, nor more
than 15%, of their salaries, not to exceed the statutory limit.
The Plan permits a matching contribution by the Company, at its
discretion, which will be allocated proportionately among the
participating employees' accounts based on their contributions.
The Company made no contributions to the Plan for 1995 and 1994.
<PAGE> 36
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
EX-23 Consent of Cornick, Garber & Sandler LLP
EX-27 Financial Data Schedule
<PAGE> 1
Exhibit 23
Consent of Independent Certified Public Accountants
---------------------------------------------------
We consent to the incorporation by reference in the Registration Statement of
Nytest Environmental Inc. and Subsidiaries on Form S-8/S-3 the use of our name
as experts and our report dated February 13, 1996 (except Note D for which the
date is March 15, 1996), on our audits of the consolidated financial statements
of Nytest Environmental Inc. and Subsidiaries as of December 31, 1995 and for
each of the two years ended December 31, 1995 and 1994, which report is
included in the Annual Report on Form 10-KSB.
/s/ Cornick, Garber & Sandler LLP
CORNICK, GARBER & SANDLER LLP
Certified Public Accountants
March 29, 1996
Uniondale, New York
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and the Consolidated Statement of Operations filed as
part of the annual report on Form 10-KSB and is qualified in its entirety by
reference to such annual report on Form 10-KSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 427
<SECURITIES> 0
<RECEIVABLES> 2,302
<ALLOWANCES> (53)
<INVENTORY> 63
<CURRENT-ASSETS> 3,187
<PP&E> 8,413
<DEPRECIATION> 3,135
<TOTAL-ASSETS> 8,774
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0
0
<COMMON> 67
<OTHER-SE> 3,303
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<SALES> 6,809
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<CGS> 5,191
<TOTAL-COSTS> 5,191
<OTHER-EXPENSES> 1,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> (490)
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