U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
For fiscal year ended May 31, 1995
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[No Fee Required]
Commission file number 1-10069
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
(formerly Peripheral Systems, Inc.)
Washington 93-0845837
(State of Incorporation) (IRS Employer ID No.)
7500 Perimeter Road South
Seattle, Washington 98108
(Address of Principal Executive Offices) (Zip Code)
(206) 763-1919
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ____ No __X__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $4,471,967.00
Aggregate market value of voting stock held by non-affiliates: $NONE
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
LAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes ______ No ___X___
The number of shares outstanding of each of the issuer's classes of common
equity, as of October 31, 1995: 1,481,315 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Format: Yes ______ No ___X___
PART I
Item 1 - Description of Business
GENERAL
Environmental Testing Technologies, Inc. ("ETT") (formerly Peripheral System,
Inc.) is a reincorporated Washington corporation which was originally organized
as an Oregon corporation in October, 1983. ETT was formed to conduct original
research and development projects designed to develop commercially realizable
products that could be sold for a profit. During the 1980's, ETT bought
interests in companies engaged in promising research and development projects.
During the year of operations ended May 31, 1994, X-Ray, Inc.,("X-Ray") was the
only active subsidiary of the Company producing revenue. During the year ended
May 31, 1995, TankTek, Inc. and Accu-Inspect, Inc. were additional revenue
producing subsidiaries of the Company. As discussed below, Accu-Inspect, Inc.
was sold in July 1995.
Bankruptcy Proceeding; Plan of Reorganization
ETT filed a voluntary petition in bankruptcy in the Federal Court, Seattle,
Washington in August 1993. The petition was filed because of the problem
caused by the debt, pending and threatening shareholder litigation, which
resulted from the Company's inability to complete the Nucell, Inc. battery
development program. With X-Ray, Inc., the only operating entity, having been
stripped of most of its assets to fight the actions mentioned above, the Company
had no ability to either fight or pay its obligations without a financial
restructuring, thus the voluntary petition in bankruptcy was filed. Under the
plan of reorganization, the Company refocused its interest to revenue producing
operations consisting of nondestructive testing.
Under the plan of reorganization, which was approved and put into place on
May 31, 1994, ETT's unsecured debts were converted into Redeemable Preferred
Stock at $.25 on the dollar payable out of future earnings with a minimum
annual redemption payment of $21,235. The preferred stock is convertible into
shares of common stock representing 51% of the Company's outstanding stock in
the event the Company fails to meet the mandatory redemption provisions. The
Company's common shares and outstanding warrants were canceled completely in
exchange for options to purchase new shares of Common Stock at $.05/share.
ETT raised $568,657 through the exercise of these options which expired June 1,
1994. In May 1995, the Company's Board of Directors authorized a 1 for 10
reverse stock split.
ETT elected not to make the first preferred stock redemption payment which
became due on August 31, 1995. Under terms of the preferred stock agreement,
upon 30 days notice the redeemable preferred stock is convertible into shares of
common stock representing 51% of the outstanding common stock of ETT. The
preferred stockholders have not excercised their right to convert the preferred
stock and management intends to make the required redemption payment when
cash is available.
X-Ray, Inc.
X-Ray performs nondestructive testing of metals and other materials for the
petrochemical, construction, aerospace, maritime and other industries.
X-Ray employs a variety of testing methods using radiographic, ultrasonic,
magnetic particle, liquid penetrant, eddy current and visual inspection
techniques. These services are generally performed on a bid basis and X-Ray
is qualified for major contracts with both the government and the private
sector. Inspections are performed on military projects and other government
projects for private contractors as well as the private sector itself.
X-Ray's revenues for the fiscal years ended May 31, 1995, and 1994 totaled
$2.194 million for 1995 and $2.338 million for 1994.
TankTek, Inc.
In May 1994, ETT activated a new subsidiary, TankTek, Inc. ("TankTek").
TankTek's business is providing engineering assessments and related testing
services to owners of aboveground storage tanks holding hazardous materials,
principally petroleum and chemical products. These services are marketed
nationally. X-Ray previously operated a division called TankTek that marketed
only nondestructive testing services. TankTek's business emphasis is on
providing engineering services which allow tank owners to continue using their
tanks in compliance with the American Petroleum Institute Standard 653
("API 653"). API 653 sets forth the industry standards for aboveground
storage tanks inspection, repair alteration and reconstruction needs. TankTek
employs certified API 653 inspectors which use standard industry equipment
manufactured by others to do the evaluation, plus TankTek has filed a patent
application on a high energy ultrasonic based floor scanner. TankTek has
one working scanner that does provide the accurate data required for engineers
to assess corrosion rates floor life expectations, but currently does not
acquire the data as fast as more conventional equipment. TankTek believes,
if this issue can be overcome, that the application of this floor inspection
technology will be the tank owners most reliable and complete means of
acquiring enough data to properly evaluate the corrosion rates, leak
detection possibilities and extent of repairs that may be required to bring
the tank into compliance and in turn back into service. The Company
has no current plans to continue research and development expenditures,
whether for engineering services or nondestructive testing. Expenditure for
research and development require funding for which the Company has no known
source of funding.
ETT spent no money on research and development in 1995 and $102,994.00 in
1994. The research and development expenditures led to the one working
scanner described above.
The need for these engineering evaluation services results from both API 653
and the United States Environmental Protection Agency ("EPA") underground
storage tanks ("UST") regulations which have not yet been applied to above-
ground storage tanks. Some states have already mandated that tank
owners comply with API 653, and more states are expected to mandate
compliance. The EPA may at sometime issue aboveground storage tank
regulations similar to underground storage tank regulations.
Accu-Inspect, Inc.
In August 1994, ETT acquired certain assets of Accu-Tech, Inc. a
nondestructive testing company with offices in two petroleum business
concentration centers: New Jersey and Northern California. The purpose of
the acquisition was to allow TankTek's access to Accu-Tech's customer base
with its API 653 certification program with a local base of operation.
TankTek, in turn, can market its newly acquired inspection services to its
existing customers in TankTek's market area. ETT formed a new subsidiary,
Accu-Inspect, Inc, ("Accu-Inspect") and acquired the customer base, the rights
to the Accu-Tech name, all equipment owned or leased by the seller in exchange
for issuance of 200,000 shares Convertible Preferred Class B valued at $1.00
a share, and the assumption of $238,962 in secured debt. The preferred stock
is convertible into Company stock over 8 years at conversion rates which range
from 10 to 1 shares of common stock for each share of preferred stock. The
preferred stock includes dividends of 2% for the first year and 6% thereafter.
The selling shareholders were also entitled to a 30% share of the pretax
profits from the assets of Accu-Inpsect through August 1999.
Accu-Inspect, Inc. revenues for the fiscal year ended May 31,1995, were
$1,317,114.00. In June 1995, ETT sold to one of the former owners of Accu-
Tech, Inc. all the operating assets of Accu-Inspect, Inc. in exchange for notes
and the return of 100,000 shares of convertible Preferred Class B Stock. ETT
recognized a gain of $43,000 on the sale in June and can realize as much as
$202,000 in additional gains as payments are received.
North American Inspection, Inc.
In April 1995, ETT agreed to merge with North American Inspection, Inc.
Pending completion of certain events by ETT, ETT provided North American
Inspection, Inc. with financial support until North American Inspection abruptly
terminated the merger in July 1995. All advances made by ETT have been repaid
and there is pending legal action against North American Inspection, Inc., its
officers and owners by ETT as Plaintiff seeking contractual damages associated
with the merger termination. The outcome of this litigation is unknown.
Patents, Licenses
TankTek, Inc. has an application pending on a patented ultrasonic floor scanner
device. The working system currently acquires the accurate data required for
engineers to access corrosion rates, but does not acquire the data in a cost
effective manner. The solution to this problem is known, but due to
funding limitations, the necessary action that would bring the system to full
utilization capability has been postponed. The Company has elected to use
more conventional means of data acquisition until this project is brought to
completion. TankTek signed an agreement with Millstrong,LTD of Great Britain
in 1995 granting TankTek exclusive distribution rights to the petrochemical
industry for Millstrong's patented equipment in exchange for a requirement to
purchase a certain number of units.
TankTek revised its basic business to include Millstrong equipment as a
principle technology advantage. Due to the complications of the North American
merger termination, TankTek was forced to abandon its exclusive relationship
with Millstrong in September 1995.
Business Strategy
As with most service-oriented business, local service is generally more
acceptable and less costly to the customer than long distance service calls.
Continued application of this strategy to the engineering/nondestructive
service business is ETT's basic business plan. ETT corporate objective is to
become the major provider of engineering services to the petro chemical
industry on a national and international scale in the specialized markets of
API 653 and API 570 Compliance. By having strategically located offices in
tank concentrated areas, ETT can become the most cost-effective supplier of
specialized services and hence the major provider.
The acquisitions of both Accu-Tech, Inc. and North American Inspection, Inc.
were directed at providing the local service concept described above using
acquisitions as the basis for growth.
As these two mergers did not achive the desired results, the company is
currently evaluating the best method for achieving these results - local
service. At this time internally generated new offices and strategic
acquisitions appear to be the best plan to achieve the objective. Currently
ETT operates only one office in Seattle, Washington.
Market Information
The market for non-destructive testing services is dominated by small regional
suppliers who compete with both price and service. Most work is acquired on
a time and material basis. The market for API-653 services is a growing
market with few suppliers and even fewer qualified suppliers. The competition
here is based upon quality service using qualified service personnel equipped
with advanced technology.
ETT's strategy is to provide unique API 653 services nationally and use the
natural relationship between nondestructive testing services and API 653 to
help penetrate the market.
This strategy is being executed in two ways - acquiring, training and retain-
ing personnel who can provide the services'and by keeping the Company's
technical capability on the leading edge.
ETT does not have a current customer that represents more than 10% of its
anticipated revenue.
Employees
ETT employs 26 technical, clerical, and managerial personnel, including 25
full time employees.
Item 2 - Description of Property
At May 31, 1995, ETT had the following properties under a long term lease:
Office and laboratory in Seattle, WA at annual rent of
$21,410.00 through 2001.
Management believes that the facility is adequate for the Company's needs.
Item 3 - Legal Proceedings
The Company is not a party to any material pending legal proceedings except
the litigation filed against North American Inspection, Inc., its Officers
and Owners.
Item 4 - Submission of Matters to a Vote of Security Holders
Since the vote required to approve the plan of reorganization (spring of 1994)
no matters have been submitted to the security holders for vote.
PART II
Item 5 - Market For Common Equity and Related Stockholder Matters
ETT Common Stock was quoted on NASDAQ under the symbol PSIX until
January 1992. ETT's stock trading was delisted at that time and the Company has
no knowledge of trading activities since that date.
The Company has never paid dividends on its Common Stock and does not
anticipate that it will do so in the foreseeable future. The future dividends
payments, if any, on the Common Stock is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. At October 31, 1995, there were
approximately 372 record holders of the Company's Common Stock.
Item 6 - Management's Discussion and Analysis or Plan of Operations
Overall Discussion.
As of May 31, 1995, the Company, composed of Environmental Testing
Technologies, Inc. and its three operating subsidiaries, was engaged in two
primary business segments: nondestructive testing and inspection of materials
and providing engineering condition assessment services to owners of aboveground
petrochemical storage tanks, piping and pressure vessels. During the year ended
May 31, 1994, the Company's only source of revenue was nondestructive testing
and engineering services provided through its principal subsidiary, X-Ray, Inc.
In May 1994, the Company formed a new subsidiary, TankTek, Inc., who's
primary business is providing engineering certification for aboveground
petrochemical tank owners in compliance with American Petroleum Institute
Standard 653. This new subsidiary began operations June 1, 1994. Prior to June
1, 1994, TankTek operated as a cost center of X-Ray, Inc. providing
nondestructive floor inspection services to the petrochemical industry using its
proprietary ultrasonic inspection equipment. During the year ended May 31,
1994, the Company abandoned the original ultrasonic scanner originally designed
by X-Ray, Inc. in favor of a newer design more closely related to the needs of
the petrochemical industry.
In September 1994, ETT acquired certain assets of Accu-Tech Evaluation
Services, Inc. ("Accu-Tech"). The purchase of this acquisition was to allow for
local service of API 653 services using Accu-Tech's customer base and TankTek's
advanced technological capabilities. This acquisition did not develop as
expected and resulted in the sale of Accu-Tech and its assets in June 1995. ETT
recognized a gain of $43,139 on the sale of the assets in June.
In April 1995, ETT entered into a merger agreement with North American
Inspection, Inc., on a common stock for common stock exchange basis, and
re-organized its management team to take advantage of the basic business
strategies and skill of the various people involved. In July 1995, North
American Inspection, Inc. terminated the merger agreement. ETT is the Plaintiff
in litigation against North American Inspection, Inc., seeking contractual
remedies,as per the merger agreement, available to ETT.
Both the Accu-Tech Services and North American Inspection mergers were
strategic alliances consistent with the Company's growth plans of establishing
base operations near petroleum industry centers of operation; while both mergers
resulted in failure, the basic business strategy remains managements' continuing
strategy.
The Company recognizes the need for new capital infusion and expects to actively
pursue additional sources of funding to further its corporate objectives as
explained in the Plan of Reorganization. See "Item 1 - Description of Business"
and Liquidity and Capital Resources following.
ETT filed a voluntary Chapter XI petition in Bankruptcy in the summer of 1993.
Pursuant to a plan of reorganization which was confirmed and became effective
May 31, 1994, all common stock issued and outstanding as well as outstanding
warrants for the purchase of common stock were canceled. Stockholders of record
were issued options to purchase 3,300,000 (after giving effect to the 10:1
reverse split authorized in May 1995) shares of new common stock for $.50 per
share. These options expired on June 1, 1994. A total of 1,353,315 shares of
common stock were issued, for $568,657 In addition, stockholders and certain
members of management were granted warrants for the purchase of 1,401,000
shares of common stock for $.50 per share which expired May 31, 1995. In
addition, unsecured debt was converted into 176,958 of mandatory redeemable
convertible preferred shares.
Results of Operations
FOR THE FISCAL YEAR ENDED 5/31/95 COMPARED TO FISCAL YEAR
ENDED 5/31/94.
OPERATING LOSS ANALYSIS
For the two years ended May 31, 1995 and 1994, operating losses were $140,058
and $30,224. The causes for the increase in losses are discussed separately by
the following comments under Revenue Analysis, Cost of Sales, Gross Profit
Analysis; Selling, General and Administrative Expenses; and Research and
Development Expense Analysis sections.
REVENUE ANALYSIS
Nondestructive testing is testing an object without destroying it. This allows
the item inspected to either pass or fail a given standard. The standard for
pass or fail is developed by the customers', management, engineering or
production departments.
Petroleum Engineering Services may use inspection data to evaluate pass or fail
tanks and piping, but is largely involved in making specific engineering
corrections or recommendations that allow the client to bring the tank or system
into compliance with the American Petroleum Institute Standards for its
continued use.
Revenues by lines of business for the years ended May 31, 1995 and 1994
consisted of the following.
Revenues 1995 1994
Nondestructive Testing $3,511,131 $1,967,030
Petroleum Engineering Services 960,836 371,293
TOTAL $4,471,967 $2,338,323
Nondestructive revenues increased from $1,967,030 in 1994 to $3,511,131 in
1995 for two principle reasons: X-Ray, Inc.'s 1995 revenues increased 6%
over 1994 levels and the revenues from Accu-Tech were $1,317,114 in 1995 and
none in 1994.Petroleum Engineering Services increased from $371,293 in 1994
to $960,836 in 1995. This increase was due to the marketing efforts by
TankTek and the operation's ability to provide services on an acceptable
basis to satisfied clients. This 259% increase was expected given the market
size and the local service capabilities acquired by ETT's acquisition of Accu-
Tech Evaluation Services, Inc. business in September 1994.
COST OF SALES/GROSS PROFIT ANALYSIS
Cost of sales and resulting gross profit for the year ended 5/31/95 were
$3,238,638 and $1,233,329, or a gross profit 28% of revenue. For the year
ended 5/31/94, cost of sales and the resulting gross profit were $1,533,078
and $805,245, or a gross profit of 34% on revenue.
The gross profit percentage loss of 6%, from 34% in 1994 to 28% in 1995, was
directly attributable to TankTek and Accu-Tech, as X-Ray's gross profit
increased from 34% in 1994 to 38% in 1995. TankTek's gross profit was 26% and
was low because TankTek absorbed significant travel expenses which would be
eliminated with a local service base. Accu-Inspect gross profit was 13% and
is directly attributable to a large contract that was completed on a negative
gross profit basis.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES ANALYSIS
Selling, general and administrative expenses increased from $732,475 in 1994
to $1,373,387 in 1995, and remained a consistent 31% of sales for both years.
For both years payroll and directly related costs amounted to 61% of the
selling general and administrative expenses with depreciation, insurance,
rent, utilities accounting for 23% and the balance 16% general operating costs.
All categories increased in 1995 when compared to 1994 in direct portion to
the sales increase as most of the costs are directly proportional to revenue.
RESEARCH AND DEVELOPMENT EXPENSES ANALYSIS
In 1994, all development funds were spent on development of a redefined floor
scanner instrument. In 1995, no funds were expended on research and
development activities.
OTHER EXPENSE ANALYSIS
Other operating expenses of $128,444 in 1994 increased 55% to $199,667 in 1995.
This increase was due principally to interest expense.
Interest expense increased significantly due to (1) increased sales volume
(2) new equipment purchases necessary to the growth plans the Company
entertains.
The Company has no knowledge of known trends, events, or uncertainties which
could reasonably be expected to adversely effect revenues, costs or profits
in the future except for the sale of Accu-Inspect assets. The sale of Accu-
Inspect reduces future revenues while increasing profits by elimination of
Accu-Inspects 1995 operating loss.
On a performa basis, assuming the Accu-Inspect, Inc. acquisition had not been
made in August 1995, the 1995 operations results would have changed
substantially as set forth in the following summary table:
1995 STATEMENT OF OPERATION
Actual Results Eliminate Proforma
Accu-Inspect Results
Sales $4,471,967 $(1,317,114) $3,154,853
Gross Margin 1,233,329 ( 169,539) 1,063,790
Selling, Gen
& Admin 1,373,387 ( 442,856) 930,531
Other Income
Expense 199,667 ( 7,271) 192,396
(Net Loss) 339,725 280,588 (59,137)
(Loss) per Share (.24) (.20) (.04)
CASH FLOW ANALYSIS
Net changes in cash provided (used) in operating activities were $150,177 in
1994 and ($34,534) in 1995. The most significant component of this $184,711
change was the increase of net loss from a $293,534 profit in 1994 to a net loss
of $339,725 in 1995. Additionally a gain on reorganization of the company of
$452,202 was recognized in 1994.
Net cash (used in) investing activities increased from ($105,094) in 1994 to
$(356,635) in 1995. The increase is due primarily to equipment acquisitions
associated with TankTek's business together with providing financing for the
defunct merger agreement with North American Inspection, Inc.
Net cash provided by financing activities were reduced from $267,413 in 1994
to $87,243 in 1995, with the reduction being principally attributable to
reduce sales of common stock in 1995 when compared to 1994. This was offset
by short term borrowing increases from $67,887 in 1994 to $366,799 in 1995.
This increase is directly attributable to volume increase and loans to North
American Inspection, Inc.
LIQUIDITY AND CAPITAL RESOURCES
The working capital position of the Company has been under heavy pressure for
several years. The working capital has been negative for each of the last two
years.
1995 1994
Current Assets 77,528 691,022
Current Liabilities 1,786,250 926,857
Negative Working Capital <1,012,722> <275,835>
As discussed in Note 1 to the consolidated financial statements, the Company
filed a voluntary petition of reorganization under Chapter 11 of the Federal
Bankruptcy Code in United States Bankruptcy Court on August 10, 1993. This
event and the resulting operating losses of $339,725 in 1995 and $158,668 in
1994 and as of May 31, 1995, a stockholders deficit of $549,118 and a working
capital deficit of $1,012,722 raises substantial doubt about the Company's
ability to continue as a going concern.
Although the Company's plan of reorganization was confirmed on April 16, 1994,
and became effective May 31, 1994, the continuation of the Company as a going
concern is contingent upon, among other things, the ability to achieve
satisfactory levels of future earnings and liquidity. Management has taken a
number of actions to expand the Company's services into the testing of above-
ground tank, primarily for the petroleum industry.
The Company's first two acquisitions were both failures and currently the
Company has curtailed its acquisition activities while continuing service
from its Seattle home base while assessing the best way to continue its
strategic plan for growth.
Management believes that the continued execution of its plans for strategic
acquisitions and internal growth will provide sufficient liquidity for the
Company to continue as a going concern. There are no assurances that these
objectives can be attained, or that the Company will be able to meet the
conditions of the plan for reorganization. Accordingly, the attached
consolidated financial statements do not include any adjustments related to
the recoverability that might be necessary should the Company be unable to
continue as a going concern.
The Company intends on seeking new capital, both from borrowings and new
equity securities issuances that will provide funds needed to fully implement
its business plan and objectives of providing API 653 engineering services
and non-destructive testing services to the national petrochemical industry.
The Company needs for new capital, working capital, and for equipment are
significant particularly to continue to develop the Petroleum engineering
services business contemplated in its business plan.
While the Company has shown substantial liquidity depletion over the past
year, the Company recognizes it needs additional funds to fully implement
its business plan and fully intends on securing new debt and equity financings.
If adequate capital is not available on a timely basis, the Company will not be
able to pursue its corporate objectives, and may be required to reduce its
operations.
Item 7 - Financial Statements
The consolidated financial statements for the years ended May 31, 1995 and
1994 are filed as part of this Annual Report on Form 10-KSB.
Item 8 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The following table sets forth certain information concerning the directors
and executive officers of ETT.
Principal Occupation
During Past Five Years
Name and Age Positions Held and Certain Other
Directors (3) Directorships
- -------------------------------------------------------------------------------
Gene Basile, 60 Director, ETT
Gene Basile became a director of ETT in January 1994, and chairman of the board
& CEO in May 1995. From 1992-1993, Mr. Basile served as Senior Consultant
for Professional Services Industries, Inc., as well as serving as Chairman of
the Board of Associated Testing from June 1992 through January 1994. Since
January 1994 Mr. Basile has also served on the Board of Directors of
Professional Engineering and Inspection Company, a materials inspection company.
Between 1971 - 1991, Mr. Basile held various positions with U.S Testing, Inc.,
including the position of CEO from 1987 - 1991. Each of these companies
performed nondestructive testing services similar to X-Ray, except on a national
basis. Mr. Basile achieved a BS and MBA degree in Engineering in 1960 and 1964,
respectively.
C. Rod Brashears, 38 Director, ETT
V.P. Operations, ETT
V.P. Operations, TankTek
C. Rod Brashears became a director and Vice President of Operations of ETT late
1993. He C. Rod Brashears became a director and Vice President of Operations
of ETT late 1993. He is also Vice-President of Operations for TankTek. Mr.
Brashears is API 653 certified and worked as a professional engineer for the
American Inspection Company, Inc. from 1991 - 1993 and for PSI/Jammal and
Associates Division from 1987 - 1991. Mr. Brashears resigned all positions with
ETT in August 1995.
Lee G. Connel, 70 Director, ETT
President/Director, X-Ray
Lee G. Connel was reappointed President of X-Ray in 1993. Prior to that time,
Mr. Connel held the office of Vice-President of X-Ray beginning 1991 and from
1965 to 1991 served as President of X-Ray. Mr. Connel also serves of the Board
of Directors of X-Ray. In addition to his position with X-Ray, Mr. Connel has
managed his own business as a professional consulting engineer from 1965 to the
present.
Michael B. LaVigne, 38 Director, ETT
Michael B. LaVigne has served as a Director of ETT since December 1991. From
April 1993 to the present, Mr. LaVigne served as President of Merchant Pacific
Capital, Inc. and investment banking company. From 1991 - 1993, Mr. LaVigne
was self-employed as a business consultant. During 1991, Mr. LaVigne was also
President of Cohig and Associates and from 1983 has served as President of the
securities broker-dealer firm Northwest, Inc.
Michael C. McPherson, 43 Director, ETT
Michael C McPherson has served as director of ETT since November 1991. From
1991 to the present, Mr. McPherson has served as a principal with The Investment
Co. in San Francisco, California, dealing in financial and investment
consultation. Prior to 1991, Mr. McPherson served as Senior Vice President and
member of the Executive Committee and Board of Director of Fidelity Investment
Corp.
George B. Maitland, 58 Vice-President/Director, ETT
Secretary/Treasurer/
George B. Maitland has served in the position of President, Chief Executive
Officer and Director of ETT since December 1991 to May 1995. In May 1995 Mr.
Maitland became the CFO for ETT and all its operating companies. Mr. Maitland
also holds the office of Treasurer, Director, X-Ray Secretary, as well as
serving on the Board of Directors of X-Ray. Prior to joining ETT, Mr. Maitland
owned and operated American Entertainment Centers.
___________
(3) Board of Directors
As set forth in the Bylaws of the Company, the Board consists of not
less than three (3) nor more than eleven members, the exact number to be
fixed by the Board of Directors. The Board currently consists of Six
(6) directors who will serve until the next annual meeting.
Item 10 - Executive Compensation
The following table sets forth a summary of certain information concerning
compensation awarded to or paid by ETT for services rendered in all capacities,
during the last three fiscal years, to the Chief Executive Officer. There were
no executive officers with compensation exceeding $100,000.00.
Summary Compensation Table
Annual Compensation
- -------------------------------------------------------------------------------
Name and
Principal Position Year Salary Bonus Compensation Options
- -------------------------------------------------------------------------------
Gene Basile, CEO - ETT 1995 $36,000 0 0 0
George B. Maitland, 1995 $60,000 0 0 0
V.P. Finance
(CEO - ETT thru May 1995) 1994 $55,000 0 0 0
================================================================================
Long-Term Compensation
- --------------------------------------------------------------------------------
Awards Payouts
---------------------
LTIP All Other
Name Year Options Payouts Compensation
- --------------------------------------------------------------------------------
Gene Basile, CEO - ETT 1995 0 0 0
George B. Maitland, 1995 0 0 0
V.P. Finance
(CEO - ETT thru May 1995)
================================================================================
Stock Options
The following table sets forth certain information concerning exercises of
stock options pursuant to ETT's stock option plans by the named executive
officers during the year ended May 31, 1995, and stock options held at year
end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<TABLE>
Number of Value of
Shares Unexercised Unexercised
Acquired on Value Options at Options at
Name Exercise Realized Year End Year End (1)
(1)(2) --------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene Basile 72,000 0 190,000 0 0 0
Lee G. Connel 0 0 300,000 0 0 0
C. Rod Brashears 0 0 300,000 0 0 0
Michael McPherson 0 0 20,000 0 0 0
Michael LaVigne 0 0 20,000 0 0 0
</TABLE>
(1) On May 31, 1995, the Company's Common Stock was not trading. For
purposes of the table, the value was considered the value of the Stock
Options of $.50 per share. As defined the Plan of Reorganization market
price the same value. (The shares reflects the 10:1 reverse split approved
in May 1995).
(2) The potential realizable value portion of the foregoing table represents
the difference between the shares sold at $.50 per share to all other
shareholders as part of the Plan of Reorganization and Mr. Maitland's
option price.
Employment Agreements
None
Compliance with Section 16(a) of the Securities Exchange Act
Under the federal securities laws, the Company's directors and executive
officers, and any persons holding more than 10% of the Company's Common Stock
are required to report their initial ownership of the Common Stock and any
subsequent changes in that ownership to the Securities and Exchange Commission
(the "Commission"). Specific due dates for these reports have been established
and the Company is required to disclose in this Annual Report on Form 10-KSB any
failure to file by these dates. To the Company's knowledge, none of the people
owning 10% or more of the Company's outstanding Common Stock have reported their
initial ownership of the Common Stock. The Company is not aware of any
subsequent changes in that ownership. The Company has informed each of the
following named individuals of their obligation to file the require report.
Mr. George B Maitland and Mr. Floyd Hambleton are the only shareholders with 10%
or more in actual ownership. Mr. Gene Basile, Mr. C Rod Brashears, Mr. Lee G.
Connel, and Mr. Raymond Hand could each own 10% or more of the outstanding
Common Stock if they exercise their stock options. In making these disclosures,
the Company has relied solely on written representations of its directors and
executive officers in copies of the reports that they have filed with the
Commission.
Item 11 - Security ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding ownership of Common
Stock of the Company as of October 31, 1995 by (i) each director of the Company,
(ii) each named executive officer, (iii) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock of the
Company, and (iv) all directors and executive officers as a group. Where
beneficial ownership was less than one percent the percentage is not
reflected in the table.
Share of Common Stock
and % of Class Beneficially
Directors Owned on October 31, 1995(1)(2)
- --------------------------------------------------------------------------------
George B. Maitland,
Director & Vice President
of Finance 403,620 (16.3%)
Gene Basile, Director and CEO 300,000 (12.1%)
Lee G. Connel, Director &
President, X-Ray, Inc. 400,000 (16.1%)
C. Rod Brashears, Director
& Vice President 300,000 (12.1%)
Michael LaVigne, Director 20,000 ( .8%)
Michael McPherson, Director 95,000 ( 3.8%)
5% Shareholders
Floyd Hambleton 140,000 ( 5.6%)
Raymond Hand 300,200 (12.1%)
All Directors and Officers as a Group 1,608,620 (64.9%)
(1) Unless otherwise indicated, beneficial ownership reflects sole voting power
and sale disposition power and options exercised within 60 days.
(2) Assumes all directors and executive officers options are exercised for a
total outstanding shares of 2,478,315.
Item 12 - Certain Relationships and Related Transactions
During 1991, the Company borrowed $250,000 from a stockholder. The note was
collateralized by the stock of X-Ray, bore interest at the prime rate plus 1%
and was due on demand. The note agreement granted the stockholder the option to
purchase 400,000 shares of an inactive subsidiary Nucell, Inc. which is 51%
owned by the Company at $.01 per share.
With the occurrence of certain events, the agreement further granted the
stockholder the right to require the Company to purchase that option for
$400,000. During 1992, those conditions were met, and accordingly, the Company
recorded a payable to the stockholder of $400,000.
In 1994, with the confirmation of the Plan, the payable was converted to
preferred stock. Additionally, the debt was converted to a term note which
bears interest at 9% and is payable at $3,000 per month plus accrued interest.
At May 31, 1995 the balance due on the stockholder note was $135,500.
Item 13 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.3 Asset Purchase Agreement dated 8/25/94, between
Environmental Testing Technologies, Inc. and Accu-Tech
Evaluation Services, Inc. and its shareholders.
10.4 Merger Agreement dated April 1995 between Environmental
Technologies, Inc. and North American Inspection, Inc.
(b) Reports on Form 8-K
No reports were filed during the last quarter of the period
covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 1 day of November 25, 1995.
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
By:______S/S GB MAITLAND__________________________
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
this 1 day of November 25, 1995.
Signature Title
Principal Financial Officer and _______S/S GB MAITLAND____________
Principal Accounting Officer: George B. Maitland [Chief Financial Officer]
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Consolidated Financial Statements
Years Ended May 31, 1995 and 1994
Environmental Testing
Technologies, Inc.
Contents
Page
Report of Independent Certified Public Accountants 19
Consolidated Balance Sheets 20-21
Consolidated Statements of Operations 22
Consolidated Statements of Stockholders' Deficit 23
Consolidated Statements of Cash Flows 24
Summary of Accounting Policies 25-26
Notes to Consolidated Financial Statements 27-35
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Environmental Testing Technologies, Inc.
(Formerly Peripheral Systems, Inc.)
Seattle, Washington
We have audited the accompanying consolidated balance sheets of
Environmental Testing Technologies, Inc., as of May 31, 1995 and 1994, and
the related statements of operations, stockholders' deficit and cash flows for
each of the two years in the period ended May 31, 1995. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Environmental
Testing Technologies, Inc. as of May 31, 1995 and 1994 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended May 31, 1995, in conformity with generally accepted accounting
principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1,
Environmental Testing Technologies, Inc. filed a voluntary petition of
reorganization under Chapter 11 of the Federal Bankruptcy Code in United
States Bankruptcy Court on August 10, 1993. This event and the net loss of
$339,725 for the year ended May 31, 1995 and as of that date a stockholders'
deficit of $549,118 and a working capital deficit of $1,012,722 raise
substantial doubt about the Company's ability to continue as a going concern.
The continuation of the Company as a going concern is contingent upon, among
other things, the ability to achieve satisfactory levels of future earnings and
liquidity. Management's plans concerning these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
BDO SEIDMAN, LLP
November 10, 1995
$11,000,000 - $100,000 - $11,000,000
May 31, 1995 1994
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $12,659 $316,585
Accounts receivable - trade,
net of allowances
for doubtful accounts of
$60,002 and $9,000 (Note 2) 535,299 351,773
Other receivables (Note 2) 186,413 --
Other current assets 39,157 22,664
===============================================================================
Total Current Assets 773,528 691,022
- -------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT (Note 3)
Leasehold improvements 126,178 115,912
Machinery and equipment 2,205,328 1,686,641
Vehicles and office trailers 325,943 244,212
Furniture and fixtures 86,112 60,405
- -------------------------------------------------------------------------------
2,743,561 2,107,170
Less accumulated depreciation
and amortization 1,735,668 1,500,645
Property, Plant and Equipment, net 1,007,893 606,525
- -------------------------------------------------------------------------------
DEPOSITS 30,058 18,141
===============================================================================
Total Assets $1,811,479 $1,315,688
ENVIRONMENTAL TESTING
TECHNOLOGIES, INC.
Consolidated Balance Sheets
May 31, 1995 1994
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Lines-of-credit (Note 2) $522,452 $155,653
Accounts payable 570,284 427,929
Accrued liabilities 164,473 99,863
Current portion of
long-term debt (Note 3) 529,041 243,412
===============================================================================
Total Current Liabilities 1,786,250 926,857
- -------------------------------------------------------------------------------
LONG-TERM DEBT (Note 3) 222,389 486,166
RESERVE FOR TAX ASSESSMENT (Note 4) 175,000 175,000
COMMITMENTS AND CONTINGENCIES -- --
===============================================================================
Total Liabilities 2,183,639 1,588,023
- -------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK (Notes 1 and 11) 176,958 176,958
- -------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT (Note 1)
Class B preferred stock,
1,800,000 shares authorized,
200,000 shares issued and
outstanding (Note 10) 200,000 --
Common stock; no par value;
10,000,000 shares authorized,
1,463,315 and 1,377,315 shares
issued and outstanding 608,557 568,657
Accumulated deficit (1,357,675) (1,017,950)
- -------------------------------------------------------------------------------
Total Stockholders' Deficit (549,118) (449,293)
- -------------------------------------------------------------------------------
Total Liabilities & Stockholders' Deficit $1,811,479 $1,315,688
- -------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
ENVIRONMENTAL TESTING
TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Deficit
Years Ended May 31, 1995 1994
- -------------------------------------------------------------------------------
SALES $4,471,967 $2,338,323
COST OF SALES 3,238,638 1,533,078
===============================================================================
Gross Profit 1,233,329 805,245
- -------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 1,373,387 732,475
Research and development -- 102,994
===============================================================================
Total Operating Expenses 1,373,387 835,469
- -------------------------------------------------------------------------------
OPERATING LOSS (140,058) (30,224)
- -------------------------------------------------------------------------------
OTHER EXPENSE
Interest expense (177,674) (99,649)
Other (21,993) (28,795)
===============================================================================
Total Other Expense (199,667) (128,444)
- -------------------------------------------------------------------------------
NET LOSS, before extraordinary item (339,725) (158,668)
EXTRAORDINARY ITEM
Gain on reorganization (Note 1) -- 452,202
===============================================================================
Net (Loss) Income $(339,725) $293,534
- -------------------------------------------------------------------------------
NET (LOSS) INCOME PER SHARE
Loss before extraordinary item $(.24) $(.07)
Extraordinary item -- .20
===============================================================================
Net (Loss) Income Per Share $(.24) $.13
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 1,416,148 2,271,653
See accompanying summary of accounting policies and notes to consolidated
financial statements.
ENVIRONMENTAL TESTING
TECHNOLOGIES, INC.
Consolidated Statements of
Stockholders' Deficit
Class B Additional Total
Preferred Stock Common Stock Paid In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
- --------------------------------------------------------------------------------
BALANCE,
June 1, 1993 -- -- 22,716,530 $13,078,790 $242,197 $(14,632,471) $(1,311,484)
Net income -- -- -- -- -- 293,534 293,534
REORGANIZATION ITEMS (Note 1)
Cancellation
of common
stock -- -- (22,716,530) (13,078,790) (242,197) 13,320,987
Sale of
common
stock -- -- 13,773,149 568,657 -- -- 568,657
- -------------------------------------------------------------------------------------------------------------
BALANCE,
May 31, 1994 -- -- 13,773,149 568,657 -- (1,017,950) (449,293)
10 for 1 reverse
stock split -- -- (12,395,834) -- -- -- --
Net loss -- -- -- -- -- (339,725) (339,725)
Issuance of
preferred
stock 200,000 200,000 -- -- -- -- 200,000
Issuance of
common stock -- -- 86,000 39,900 -- -- 39,900
- --------------------------------------------------------------------------------------------------------------
BALANCE,
05/31/95 200,000 200,000 1,463,315 608,557 -- (1,357,675) (549,118)
See accompanying summary of accounting policies and notes to consolidated
financial statements.
May 31, 1995 1994
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(339,725) $293,534
Adjustments to reconcile net (loss) income to
cash provided by (used in) operating activities:
Depreciation 262,183 161,758
Gain on reorganization -- (452,202)
Professional fees paid on
reorganization services -- (78,670)
Issuance of common stock for
consulting services 39,900 --
Change in assets and liabilities
Accounts receivable (183,526) 12,414
Other current assets (20,331) 20,869
Accounts payable 142,355 171,699
Accrued liabilities 64,610 20,775
- -------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (34,534) 150,177
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (170,222) (134,414)
(Increase) decrease in other receivables (186,413) 30,000
Increase in other assets -- (680)
- -------------------------------------------------------------------------------
Net Cash Used in Investing Activities (356,635) (105,094)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 105,000 --
Increase (decrease) in line-of-credit 366,799 (67,887)
Sale of common stock -- 568,657
Decrease in notes payable to stockholders (36,000) (36,000)
Payments on long-term debt (161,740) (82,353)
Payments on capital leases (186,816) (115,004)
- -------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 87,243 267,413
- -------------------------------------------------------------------------------
Increase (decrease) in Cash (303,926) 312,496
CASH, beginning of year 316,585 4,089
- -------------------------------------------------------------------------------
CASH, end of year $12,659 $316,585
See accompanying summary of accounting policies and notes to consolidated
financial statements.
NATURE OF BUSINESS
Environmental Testing Technologies, Inc. (formerly Peripheral
Systems, Inc.) ("ETT" or "the Company") is engaged in nondestructive testing
of materials for customers primarily in the aerospace, construction and
petrochemical industries and provides condition assessment services to owners
of aboveground petrochemical storage tanks, piping and pressure vessels. The
Company's services are marketed nationally.
As discussed further in Note 1 to the consolidated financial statements,
on August 10, 1993, the Company filed a voluntary petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code. The Company's plan of
reorganization became effective on May 31, 1994 and in conjunction with that
plan the Company changed its name to Environmental Testing Technologies, Inc.
and was reincorporated under the laws of the state of Washington.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, and
it's wholly-owned subsidiaries: X-Ray, Inc., Tanktek, Inc., and Accu-Inspect,
Inc. All intercompany accounts and transactions have been eliminated in
consolidation.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is depreciated using the
straight-line method over estimated useful lives of 5 to 10 years for
vehicles and equipment and 15 to 18 years for leasehold improvements.
Expenditures for repairs and maintenance which do not extend the useful life
of the related asset are expensed as incurred.
Included in property plant and equipment is $554,670 and $301,335 of
capitalized leased assets and $329,589 and $219,777 of related accumulated
amortization as of May 31, 1995 and 1994.
CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company performs credit evaluations of its customers and maintains
allowances for potential credit losses. Sales to a major customer were
$364,000 and $398,606 for the years ended May 31, 1995 and 1994,
respectively.
INCOME TAXES
Deferred taxes are provided for temporary differences in the
basis of assets and liabilities for book and income tax reporting purposes.
If it is more likely than not that some portion of a deferred tax asset will not
be realized, a valuation allowance is recognized. Since the Company cannot
determine that it is more likely than not that the deferred tax asset will be
realized, a 100% valuation allowance was recorded.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
COMMON STOCK
In May 1995, the Company's Board of Directors authorized a 1 for 10 reverse
stock split. This resulted in the cancellation of 12,395,834 common shares.
All per share and weighted average share amounts have been restated to reflect
this reverse stock split. NET (LOSS) INCOME PER SHARENet (loss) income per
share is computed by dividing net (loss) income by the weighted average number
of shares outstanding. The Company's outstanding options are not considered to
be common stock equivalents because their effect in net (loss) income per share
would be anti-dilutive.
NOTE 1:
Going Concern and Bankruptcy
The Company's financial statements have been presented on a going-concern
basis that contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The liquidity of the Company has
been adversely affected by significant losses from operations and the Company's
funding of research and development efforts, which have resulted in cash flow
difficulties.
The Company has reported a loss of $339,725 for the year ended May 31,
1995, and as of that date a stockholders' deficit of $549,118 and a working
capital deficit of $1,012,722. These conditions raise substantial doubt about
the Company's ability to continue as a going concern.
The Company filed a voluntary petition for reorganization under Chapter 11 of
the Federal Bankruptcy Code in United States Bankruptcy Court on August 10,
1993. Pursuant to a Plan of Reorganization (the Plan) which became effective
on May 31, 1994, all common stock issued and outstanding as well as
outstanding warrants for the purchase of common stock were canceled.
Stockholders of record as of May 31, 1994 were issued options to purchase
3,300,000 shares of new common stock for $.50 per share. The options
expired on June 1, 1994. A total of 977,315 shares of common stock were
issued for $478,657 and the Company's president received 400,000 shares in
exchange for equipment valued at $90,000. In addition, a stockholder and
certain members of management were granted warrants for the purchase of
1,401,000 shares of common stock for $.50 per share which expire on May 31,
1998.
Pursuant to the Plan, unsecured debt amounting to $707,830 was converted to
176,958 shares of nonvoting preferred stock. The preferred stock does not
provide for dividends, however, redemption at $1 per share at an annual rate
equal to the greater of 5% of the Company's annual net income or 12% of its
initial face value is required. The preferred stock is convertible into shares
of common stock representing 51% of the outstanding common stock of the
Company in the event that the Company fails to meet the mandatory
redemption provisions (see Note 11).
Management's plans are summarized as follows:
Management has taken a number of actions to expand the Company's services
into the testing of aboveground tanks, primarily for the petroleum industry.
Management intends to seek new capital, both from borrowings and new equity
securities issuances that will provide funds needed to make strategic
acquisitions or fund internal growth and fully implement its business plan of
providing API 653 engineering services and non-destructive testing services
primarily to the petrochemical industry. The Company's needs for new capital,
working capital, and equipment to continue to develop the petroleum
engineering services business contemplated in its business plan are significant.
Management believes that the continued execution of its plans for strategic
acquisitions and internal growth will provide sufficient liquidity for the
Company to continue as a going concern. There are no assurances that these
objectives can be attained or that the Company will be able to meet the
conditions of the Plan. Accordingly, the consolidated financial statements do
not include any adjustments that might be necessary should the Company be
unable to continue as a going concern.
NOTE 2:
Line-of-Credit
The Company has a revolving line-of-credit with a bank, with interest at 18%.
The agreement allows the Company to borrow up to the lesser of $750,000 or 80%
of eligible receivables. At May 31, 1995, $329,452 was outstanding and $80,000
was available under this agreement. The agreement is collateralized by accounts
receivable.
In addition, the Company has a revolving line-of-credit with a financing
company, with interest at 30%. The agreement allows the Company to borrow
up to the lesser of $500,000 or 75% of eligible receivables. At May 31, 1995,
$193,000 was outstanding and no borrowings were available under this
agreement. The agreement is collateralized by accounts receivable and a
personal guarantee by an officer of the Company. The agreement expired on
October 19, 1995 and was paid in full as of that date.
NOTE 3:
Long-term Debt
Long-term debt is as follows:
May 31, 1995 1994
- ------------------------------------------------------------------------------
Note payable to bank, collateralized by
equipment, due in monthly installments of
$6,863, including interest at prime
(9.25% at May 31, 1995) plus 1.50%, due
August 31, 1996. $96,079 $178,431
Capital lease obligations, collateralized
by equipment, various amounts payable
monthly plus imputed interest ranging
from 11.9% to 34.03%. 356,575 313,355
Other notes payable, various amounts
payable monthly plus interest ranging
from 10% to 12%. 3,276 11,292
Note payable to preferred stockholder,
collateralized by the stock of X-Ray,
due in monthly installments of $3,000
plus accrued interest at 9%. 135,500 171,500
Note payable to a financing company,
collateralized by equipment, due in 24
monthly installments of $2,432, including
interest at 16%, with the remainder
due in a balloon payment. 100,000 --
Note payable to a former officer,
unsecured and subordinated to the notes
payable to bank, due in monthly
installments of $2,500, including interest
at 10%, unsecured. 60,000 55,000
- -------------------------------------------------------------------------------
751,430 729,578
Less amount due within one year 529,041 243,412
- -------------------------------------------------------------------------------
$222,389 $486,166
Future scheduled principal payments on long-term debt and capital leases
during each of the years ending May 31, 1999 are as follows:
Year Ending Notes Capital
May 31, Payable Leases
- ---------------------------------------------------------------------
1996 $279,048 $279,462
1997 46,637 95,049
1998 69,170 16,196
1999 - 8,534
- ---------------------------------------------------------------------
Total minimum payments 394,855 399,241
Amount representing
imputed interest (42,666)
- ---------------------------------------------------------------------
Present value of net
minimum lease payments $356,575
The note payable to bank requires that the Company maintain certain net worth
and working capital amounts and ratios. As of May 31, 1995, the Company was not
in compliance with these covenants and was unable to obtain a bank waiver for
noncompliance, therefore the entire amount of this debt is classified as
current.
NOTE 4:
Reserve for
Tax Assessment
Reserve for tax assessment at May 31, 1995 and 1994 arises from an estimated
tax liability related to a tax shelter investment made by X-Ray prior to its
acquisition by the Company. The Company has been assessed taxes of
approximately $143,000 through May 31, 1994. The Company has accrued
$175,000 in taxes, penalties and interest related to this tax shelter and is in
process of negotiating a settlement of this assessment with the Internal Revenue
Service. Management believes that the ultimate settlement of this obligation
will not exceed the accrued amount.
NOTE 5:
Income Taxes
Deferred tax assets are comprised of the following:
1995 1994
- ----------------------------------------------------------------------
Reserve for bad debts $20,401 $3,060
Accrued vacation 19,162 13,300
Net operating loss
carryforwards 2,928,338 2,836,000
- ----------------------------------------------------------------------
2,967,901 2,852,360
Valuation allowance (2,967,901) (2,852,360)
- ----------------------------------------------------------------------
$ -- $ --
The Company has provided a 100% valuation allowance on deferred tax assets since
management could not determine that it was more likely than not that they would
be realized.
For 1994, the difference between the Company's effective income tax rate and
the federal statutory rate of 34% consists of the following:
1995 1994
- -----------------------------------------------------------------------
Tax (benefit) at statutory rate (115,507) 99,802
Utilization of net
operating loss carryforwards -- (99,972)
Increase in valuation allowance 115,541 --
Other (34) 170
- -----------------------------------------------------------------------
Tax at effective rate $ -- $ --
The Company has net operating loss carryforwards of approximately
$8,600,000 with expiration dates beginning in fiscal year 2000.
NOTE 6:
Warrants and Options
During 1995 and 1994 common stock purchase warrants consisted of the following:
- -------------------------------------------------------------------------------
BALANCE, June 1, 1993 275,600 $.10-20.00
Expiration of warrants (10,000) 20.00
Cancellation of warrants per
Plan of Reorganization (see Note 1) (265,600) .10-12.50
Issued pursuant to the Plan of
Reorganization 1,401,000 .50
- -------------------------------------------------------------------------------
BALANCE, May 31, 1994 1,401,000 .50
Cancellation of options (385,000)
Exercise of options (76,000) .50
Issued 25,000 2.00-5.00
- -------------------------------------------------------------------------------
BALANCE, May 31, 1995 965,000 .50-5.00
Pursuant to the Plan, effective May 31, 1994, warrants issued prior to
reorganization were cancelled and options to purchase 1,401,000 shares of the
Company's common stock at $.50 per share were granted. The options vest
immediately, are valued at the fair market value of the common stock as of the
date of grant and expire on May 31, 1998.
NOTE 7:
Employee Benefit Plan
X-Ray has a 401(k) employee benefit plan for those employees who meet the
eligibility requirements set forth in the plan. Eligible employees may
contribute up to 10% of their compensation to a maximum contribution of
$9,240. X-Ray provides a profit sharing contribution which is determined at the
option of the board of directors. An employee becomes fully vested with respect
to employer contributions after 5 years of service. There were no employer
contributions in 1995 and 1994.
NOTE 8:
Statement of Cash Flows
Supplemental disclosures of cash flows information:
1995 1994
- ------------------------------------------------------------------------------
Cash paid during the year for:
Interest $175,225 $98,050
Income taxes $ -- $ --
Non-cash investing and financing activities:
Equipment purchases financed
by capital lease obligations $253,335 $7,046
Assets of Accu-Inspect acquired through:
Issuance of class B preferred stock $200,000 $ --
Assumption of secured debt $238,962 $ --
Common stock issued in
exchange for consulting services $39,900 $ --
- ------------------------------------------------------------------------------
Pursuant to the Company's Plan of Reorganization, on May 31, 1994, accounts
payable of $707,830 was converted to preferred stock valued at $176,958 and a
gain of $452,202 was recognized.
NOTE 9:
Commitments and Contingencies
Future minimum rental payments which are required under an operating lease with
a remaining noncancelable lease term in excess of one year are $21,410 per year
through fiscal year 2001. Additionally, the Company leases warehouse space in
Washington under cancelable leases with month-to-month terms. Rent expense
related to these leases was $49,902 and $50,925 for 1995 and 1994, respectively.
During the normal course of business, matters arise which may ultimately subject
the Company to claims and litigation. Management believes that the resolutions
to these matters will not have a material adverse effect on the Company's
financial position.
NOTE 10:
Accu-Inspect, Inc.
In August 1994, the Company formed Accu-Inspect, Inc. to acquire certain assets
consisting primarily of equipment and the customer list of Accu-Tech, Inc., a
nondestructive testing company located in New Jersey. The assets were acquired
by issuing 200,000 shares of class B preferred stock valued at $1.00 per share
and the assumption of $238,962 of secured debt.
The preferred stock is convertible into common stock of the Company over 8 years
at conversion rates which range from 2 shares of common stock for each share
of preferred stock to 1 share of common stock for each share of preferred
stock. The preferred stock includes dividends of 2% for the first year and 6%
thereafter. In addition, the selling shareholders are entitled to 30% of the
pretax profits derived from the assets through August 1999.
In June 1995, the Company sold all of the assets of Accu-Inspect, Inc. to a
former owner of Accu-Tech, Inc. in exchange for 100,000 shares of class B
preferred stock issued to purchase the assets, $202,000 in notes receivable and
the assumption of $166,312 of accounts payable. The Company realized a gain
of approximately $44,000 on the sale.
If the assets of Accu-Tech, Inc. had not been acquired, for the year ended May
31, 1995, sales would have decreased by $1,317,114, net loss would have
decreased by $260,588 and net loss per share would have decreased by $.18.
NOTE 11:
Subsequent Event
In April 1995, the Company entered into a letter-of-intent to merge with North
American Inspection, Inc. (North American). Pending completion of the merger,
the Company obtained a $500,000 revolving line-of-credit using North American's
accounts receivable as collateral (see Note 3). North American terminated the
merger in July 1995 and subsequently all of the receivables were collected and
the credit line paid in full.ETT has commenced legal action against North
American and its officers and stockholders seeking contractual damages resulting
from the termination of the merger. The ultimate outcome of this litigation is
not known.
The Company elected not to make the first preferred stock redemption payment
amounting to $21,235 which became due on August 31, 1995 (see Note 1).
Under terms of the preferred stock agreement, upon 30 days notice the
redeemable preferred stock is convertible into shares of common stock
representing 51% of the outstanding common stock of the Company. The
preferred stockholders have not exercised their right to convert the preferred
stock and management intends to make the required redemption payment when
cash is available.
</TABLE>
ENVIRONMENTAL TESTING TECHNOLOGIES , INC.
and
NORTH AMERICAN INSPECTION, INC.
MERGER AGREEMENT
This merger agreement is made as of April 4, 1995 by and among
Environmental Testing Technologies, Inc. ("ETT"), a Washington corporation
and North American Inspection, Inc. ("NAII"), a Pennsylvania Corporation and
Robert K. Shumway, Carl Dichler, and Don Shumway as individuals
("Investors").
-- RECITALS --
A) ETT and NAII are merging to position the combined new operating
entity to provide more complete and locally focused engineering
and inspection services to the petrochemical industry.
B) ETT is duly authorized to issue Common Stock in exchange for all
issued and outstanding Common Stock of NAII.
C) ETT is a publicly owned corporation with approximately 375
shareholders and is subject to the Securities and Exchange rules and
regulations.
D) NAII is a privately owned corporation controlled by
Robert K. Shumway, an individual.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Stock Exchange
1.1 ETT will issue 7,000,000 shares of Common Stock in exchange for all
issued and outstanding shares of NAII. ETT shares are issued subject
to SEC Section 144 rules and regulation and bear will legends
accordingly.
1.2 NAII's shareholders will receive ETT Common Stock for their shares as
follows: Robert K. Shumway = 5,000,000 shares; Carl Dichler
= 1,000,000 shares; Don Shumway = 1,000,000 shares.
1.3 Employee stock options aggregating 3,000,000 of Common Stock will
be issued to Robert K. Shumway, Carl Dichler, and Don Shumway, these
options are priced at $.50/share exercisable beginning June 1, 1996 and
expiring May 31, 1999. The options issued are 1,000,000 to Robert K.
Shumway, 1,000,000 to Don Shumway, and 1,000,000 to Carl Dichler.
The stock options terms and conditions may be modified by the Board
of Directors.
These terms & condition adjustments possibility is under current review
and will be acted upon by the Board including the new Directors named
herein.
1.4 Closing
The exchange of stock will take place automatically upon completion of
the following events:
a) Receipt of a letter from Boston Financial and Equity Corporation
or equivalent that financing is available to fund NAII's current
operating needs. This funding is expected to come from Tanktek,
Inc.(Tanktek), a wholly owned subsidiary of ETT or another
equivalent ETT subsidiary..Plus..
b) ETT has replaced NAII's current financing arrangement with First
Valley Bank on terms & conditions satisfactory to ETT. NAII
will be satisfied as the current loan must be replaced in total.
1.5 ETT will place 7,000,000 shares of stock in Escrow as per 1.2
designation and NAII will place 2800 shares per designation 3.12. These
shares will be released from escrow to the respected parties upon
letters from ETT acknowledging 1.4 (a) & 1.4 (b) having occurred.
Should the joint venture agreement (item 1.6) be terminated for any
reason, all shares of stock will be returned to their original owners in
full.
1.6 Joint Venture Agreement
a) ETT will market NAII services exclusivity through its existing
subsidiary, Tanktek, Inc. or equivalent. NAII will cease to
market its services except as a subcontractor to Tanktek.
Tanktek agrees to subcontract all nondestructive examination
and related work exclusively to NAII. Tanktek will
continue to market for its own account API 653 & related
services. These services may or may not be subcontracted to
NAII.
b) In the event of cancellation of this agreement caused by NAII's
inability to perform its subcontract service obligations to
Tanktek, NAII agrees to pay Tanktek, Inc. or its assignee
$500,000.00 in cancellation penalties. This penalty is
acknowledged as reasonable and equitable by both parties given
the marketing effort required by Tanktek. This penalty is
secured by a security interest in all assets of NAII as included
by the Pennsylvania UCC filings.
This security interest protection shall terminate upon the
merger contemplated in the agreement.
2. Representations and Warranties of ETT
ETT hereby represents and warrants to the NAII shareholders, that:
2.1 Organization, Good Standing and Qualification.
ETT is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington and has all requisite
corporate power and authority to carry on its current or contemplated
business. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.
2.2 Authorized Capital. The number of shares of stock which the
corporation is authorized to issue is One Hundred Two Million
(102,000,000);of which One Hundred Million (100,000,000 shares will be
Common Stock ("Common Stock") with no par value per share, and Two
Million (2,000,000) shares will be Preferred Stock ("Preferred Stock").
2.3 Preferred Stock. The Preferred Stock of the corporation will be issued
as Class A Preferred Stock and Class B Preferred Stock with each class
having the preferences, limitations and relative rights set forth below.
2.3.1 Class A. Preferred Stock. The corporation will issue up to
200,000 of shares Preferred Stock which will be designated as
Class A Preferred Stock ("Class A Stock"). The Class A stock
will be issued at the direction of the Board of Directors of the
corporation for such purposes as the Board of Directors
considers appropriate and shall have such voting powers,
full or limited, and such designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions as the Board may
establish prior to the issuance of such shares.
2.3.2 Class B. Preferred Stock. The corporation shall issue up to 1.8
Million (1,800,000) shares of Preferred Stock which will be
designated as Class B Preferred Stock ("Class B Stock"). The
Class B Stock will be issued at the direction of the Board of
Directors, but will be issued only in connection with the
acquisition of existing companies or locations from which it can
operate its business of nondestructive testing of hazardous
material tanks. The Class B Stock shall have such voting
powers, full or limited, and such designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions as the Board my
establish prior to the issuance of such shares.
2.4 Subsidiaries. ETT owns three operating subsidiaries (X-Ray, Inc.,
Accu-Inspect, Inc., and TankTek, Inc.) and is the controlling
shareholder in a non-operating subsidiary (Nucell, Inc.).
2.5 Outstanding shares of Common and Preferred Stocks are disclosed in
the exhibits attached, meaning the financial statements dated 5/31/94
and the 10-QSB statements dated 8/31/94. There have been no material
changes since 8/31/94 or 5/31/94 disclosures in outstanding stocks
(common and preferred).
2.6 Authorization. All corporate action on the part of ETT, its officers,
directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and the other agreements and transactions
contemplated herein, the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance and delivery of
the Common Stock being transferred hereunder have been taken or will be
taken prior to the Closing, and this Agreement and the other agreements
contemplated herein constitute valid and legally binding obligations of
ETT, enforceable in accordance with it and their terms.
2.7 Valid Issuance of Common Stock. The Common Stock, when issued,
sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable and free of any liens or encumbrances created by
the Company.
2.8 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing
with, any federal, regional, state or local governmental authority on
the part of ETT is required in connection with the consummation of the
transactions contemplated by this Agreement, except for filings, if any,
required pursuant to applicable state securities laws, which filings
will be made within the required statutory period.
2.9 Litigation. There is no material action, suit, claim, proceeding or
investigation pending or currently threatened against the Company nor is
the Company aware that there is any basis for the foregoing. The
Company is not a party or subject to the provisions of any order, write,
injunction, judgment or decree of any court or government agency or
instrumentality that could have a material adverse effect on its
business or properties.
2.10 Investment Intent. NAII shareholders are acquiring shares of ETT
Common to be issued to Shareholder pursuant to this Agreement
(the "shares") for investment for Shareholder's own account and not with
a view to, or for resale in connection with, any distribution of the
Shares, nor with any present intention of distributing or selling the
Shares. Shareholders are not a party to any contract, undertaking,
agreement, or arrangement with any person to sell, transfer, or grant
participation to any such person or any third party with respect to the
Shares. No other person or entity not a signatory to this
Agreement has a beneficial interest in or a right to acquire the
Shares or any portion thereof.
2.11 Agreements and Due Diligence; Disclosure.
(a) ETT has fully provided NAII and its shareholders and their
counsel true and complete copies of or access to all documents
and information requested and such other information that the
shareholders have requested in connection with their decision to
merge into ETT.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) made any loans or
advances to any person, other than ordinary travel expenses in
connection with its business and reasonable moving
allowances for its employees, (iii) sold, exchanged or otherwise
disposed of any of its assets or rights, other than in the
ordinary course of business, (iv) redeemed or obligated itself
to redeem any of its capital stock.
(c) The Company is not a party to nor is it bound by any contract,
agreement, instrument, decree or administrative order, or
subject to any restriction under its Articles of Incorporation
or Bylaws, which materially and adversely affects its business
as now conducted or as proposed to be conducted, its properties
or its financial condition.
2.12 Title to Property and Assets. ETT owns its property and assets free and
clear of all mortgages, liens, loans and encumbrances, except liens
which arise in the ordinary course of business and do not materially
impair ETT's ownership or use of such property or assets. With respect
to the property and assets it leases, the Company is in compliance with
such leases in all material respects and holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.13 Licenses. ETT has all licenses and permits (federal, state, foreign and
local) necessary to conduct its business, and such licenses and permits
are in full force and effect. No violations are or have been recorded
in respect of such licenses or permits and no proceeding is pending or
threatened toward the revocation or limitation of any of such licenses
or permits. The Company has complied with all laws, rules, regulations
and orders applicable to its business.
2.14 The Financial Statements dated 5/31/94 and 11/30/94 in the form of the
11/30 10-Q are true and complete in all material respects.
2.15 Undisclosed Liabilities. Except as and to the extent reflected or
reserved against in the Statement of Financial Position, the Company did
not have, as of such date, any material debts, liabilities or
obligations of any nature, whether accrued, absolute, contingent or
otherwise and whether due or to become due, including, without
limitation, liabilities or obligations on account of taxes or other
governmental charges or penalties, interest or fines thereon or in
respect thereof. The Company does not know and does not have
any reasonable grounds to know of any basis for any assertion against
the Company of any material debt, liability or obligation of any nature
or in any amount not fully reflected or reserved against in the
Statement of Financial Position.
2.16 Changes. Since the date of the financial statements in 2.14 above,
there has not been:
(a) Any change in the condition (financial or other) or properties,
assets, liabilities, business or general economic or market
conditions or prospects of the Company, except changes in the
ordinary course of business, none of which has been materially
adverse, and all of which in the aggregate have not been
materially adverse, to ETT;
(b) Any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties,
assets or business of ETT;
(c) Any material increase in the compensation or rate of
compensation or commissions payable or to become payable by ETT
to any of its directors, officers salaried employees, sales
persons or agents, or any hiring of any employee at a salary in
excess of $75,000 per annum, or any material change in any then
existing bonus, profit-sharing, retirement or other similar
plan, agreement or arrangement or any adoption of or entry into
of any new bonus, profit-sharing, group life or health
insurance, or other similar plan, agreement or arrangement;
(d) Any material change in the accounting methods or practices
followed by ETT;
(e) Any material debt obligation or liability (whether absolute or
contingent) incurred by ETT (whether or not presently
outstanding) except (i) current liabilities incurred, and
obligations under agreements entered into, in the ordinary
course of business and (ii) obligations or liabilities entered
into or incurred in connection with the execution of this
Agreement;
(f) Any sales, lease, abandonment or other disposition by the
Company of any real property or, other than in the ordinary
course of business, of any equipment or other operating
properties or any sale, assignment, transfer license or other
disposition by ETT of any Intellectual Property or other
intangible asset; or
(g) Any labor trouble, strike or any other occurrence, event or
condition of any similar character that materially and adversely
affects or may materially and adversely affect the assets,
properties, business or prospects of
ETT.
2.17 Taxes. ETT has filed all tax returns (federal, state, foreign and
local) required to be filed by it, and, except as reflected on the
statement of Financial Position or Balance Sheet, all taxes shown to be
due and payable on such returns or on any assessments received by the
Company and all other taxes (federal, state, foreign and local) due and
payable by the Company on or before the date hereof have been paid.
There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the assessment of any tax or
deficiency against the Company, nor are there any actions, suits,
proceedings, investigations or claims now pending against the Company in
respect of any tax or assessment, or, to the Company's knowledge, any
matters under discussion within any federal, state, foreign or local
authority relating to any taxes or assessments, or any claims for
additional taxes or assessments asserted by any such authority. The
provisions made for taxes on the Statement of Financial Position, are
sufficient for the payment of all unpaid federal, state, foreign and
local taxes of ETT for all periods prior to such date. ETT's subsidiary
X-Ray, Inc. has been assessed $568,000 in taxes, interest and
penalties. This obligation is being contested by X-Ray, Inc. and X-Ray,
Inc. believes it will prevail in its "Offer in Compromise" dated 3/9/95.
2.18 Labor Agreements and Actions. ETT is not bound by or subject to any
written or oral, express or implied, contract, commitment or arrangement
with any employee or labor union, and no labor union has requested or,
to the knowledge of ETT, has sought to represent any of the employees,
representatives or agents of ETT.
2.19 Brokers or Finders. ETT has not incurred and will not incur, directly
or indirectly, any liability for brokers' or finders' fees, agents'
commissions or other similar charges in connection with this Agreement
or the transactions contemplated hereby.
2.20 Transactions with Principals. No employee, shareholder, officer or
director of the Company is indebted to the Company, nor is the Company
indebted (or committed to make loans or extend or guarantee credit) to
any of them in any material aspect, except Boston Financial & Equity has
a loan appliication pending which will require at least one personal
guarantee. The Company previously has furnished the Investors a copy of
each agreement, instrument or other writing constituting legal rights
and obligations to which both the Company and any founder, officer,
director or principal security holder or company or organization
directly or indirectly controlled by such persons are parties.
2.21 Insurance. ETT has fire and casualty insurance policies, with extended
coverage sufficient in amount to allow it to replace any of its
properties which may be damaged or destroyed.
2.22 Voting Agreement. ETT has no obligation or commitment with respect
to the election of any individual or individuals to the Board, and to
the best of ETT's knowledge, there is no voting agreement or other
agreement among its shareholders with respect to the election of any
individual or individuals to the Board. Robert K. Shumway and Don
Shumway, and Carl Dichler are to become appointed members of the ETT
Board and Robert K. Shumway is to become President and Chief Operating
Officer of ETT and Carl Dichler is to become an ETT Executive Vice
President.
2.23 Subsequent Event. ETT in a prudent and business-like manner will
immediately begin a search both to provide new borrowings to replace
First Valley Bank as soon as possible and new equity capital to continue
the planned growth program. Prior to the search, a forecast and a
budget must be prepared to support this effort.
3. Representations and Warranties of NAII and its shareholders
("Investors") NAII and its shareholders severally and jointly represent
and warrant that:
3.1 Authorization. All acts and conditions required by law to authorize the
execution and consummation of this Agreement by each Investor have been
duly performed and obtained, and this Agreement constitutes a valid and
legally binding obligation of the Investors, enforceable in accordance
with its terms. Each Investor has full power and authority to execute,
deliver and performed his, her or its obligations under this Agreement
and to own the ETT Common Stock. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by each Investor do not violate any provision of, or
constitute a material breach of or default under, any term, condition or
provision of any agreement, indenture or other instrument to which the
Investor is a party, or by which the Investor or the Investor's
properties or assets are bound, or of any order, judgment or
decree against or binding upon such Investor.
3.2 Purchase Entirely for Own Account. This Agreement is made with the
Investors in reliance upon each Investor's representation to ETT, which,
by such Investor's execution of this Agreement, such Investor hereby
confirms, that the Common Stock to be received by the Investors will be
acquired for investment for such Investors own account and not with a
view to the distribution of any part thereof, and that such Investor has
no present intention of selling, granting any participation in, or
otherwise distributing the same in a manner contrary to the Securities
Act of 1933, as amended (the "Act"), or applicable state securities
laws.
3.3 Due Diligence. Each Investor severally represents and acknowledges
that he or she has been solely responsible for his or her own "due
diligence" investigation of ETT and its management and business, for his
or her own analysis of the merits and risks of this investment, and for
his or her own analysis of the fairness and desirability of the terms of
the investment; that in taking any action or performing any role
relative to the arranging of the proposed investment, the Investor has
acted solely in his or her own interest, and the Investor has not acted
as an agent, employee, partner or fiduciary of any other person or as an
agent of ETT, or as an issuer, underwriter, broker, dealer or investment
advisor relative to any security involved in this investment. Each
Investor has been given the opportunity to ask questions of and receive
answers from ETT concerning the terms and conditions of the
Common Stock exchange and other matters pertaining to this investment.
The foregoing statements, however, do not limit or modify the
representations and warranties of ETT made herein.
3.4 Investment Experience. Each Investor is an investor in securities of
companies and acknowledges that the Securities are a speculative risk.
Each Investor is able to find for him/ her, or itself in the
transactions contemplated by this Agreement, can bear the economic risk
of his, her or its investment (including possible complete loss of such
investment) for an indefinite period of time and has such knowledge and
experience in financial or business matters that such Investor is
capable of evaluating the merits and risks of the investment in the
Securities. Each Investor understands that the Securities have
not been registered under the Act, or under the securities laws of any
jurisdiction, by reason of reliance upon certain exemptions, and that
the reliance of ETT on such exemptions is predicated upon the accuracy
of the Investors' representations and warranties in this Section 3.
Each Investor severally represents that he, she or it is an "accredited
investor" as defined by the Securities and Exchange Commission.
3.5 Restricted Securities. Each Investor understands that the Securities
are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances and in
accordance with the terms and conditions set forth in the legend
described in Section 3.6 below. In this connection, each Investor
represents severally that he, she or it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed
thereby and by the Act. Notwithstanding the provisions above, no
registration statement or opinion of counsel shall be necessary for a
transfer by an Investor to the estate of such Investor or the transfer
by gift, will or interstate succession of an Investor to his or her
spouse or lineal descendants or ancestors, if the transferee
agrees in writing to be subject to the terms hereof to the same extent
as if he or she were the original Investor hereunder.
3.6 Legend. It is understood that the certificates evidencing the
securities may bear the following legend:
The securities evidenced by this certificate have not been registered
under the securities act of 1933, as amended (the "Act"), or applicable
state law, and no interest therein may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (i) there is an
effective registration statement under the Act and applicable state
securities laws covering any such transaction involving said securities,
(ii) this corporation receives an opinion of legal counsel for the
holder of these securities satisfactory to this corporation stating
that such transaction is exempt from registration, or (iii) this
corporation otherwise satisfies itself that such transaction is exempt
from registration. At any date beginning 3 years from the date of
closing, this legend will be cancelled, and a certificate free from such
legend issued to the holder hereof upon compliance with the following
conditions: (a) surrender of this certificate to this corporation in
the manner and at the place designated for cancellation,
(b) a representation by the holder that it has beneficially held the
securities evidenced by this certificate for not less than three years,
and that it is not, and has not within the preceding 90 days been, an
"affiliate" (as that term is defined for purposes of rule 144 under the
Act or any successor rule) of this corporation, and (c) an understanding
that if at any time the holder shall again become an affiliate or
otherwise cease to enjoy free transferability of such
securities under rule 144 either by reason of change of circumstance or
amendment of rule 144, it shall forthwith surrender any unlegended
certificate(s) received by it in respect of the securities evidenced by
this certificate for imposition of any appropriate legend.
3.7 Residency. For purposes of the application of any relevant state
securities laws, the Investors are residents of the States of
Pennsylvania and Ohio.
3.8 NAII's Plan of Reorganization has been confirmed by the Federal
Bankruptcy Court. There are no known debts incurred prior to the
closing that have not been disclosed or accounted for in the Plan of
Reorganization or in the financial statements dated 1/31/95.
3.9 Changes. Since the date of the NAII financial statements (12/31/94)
there have not been:
(a) Any change in the condition (financial or other) or properties,
assets, liabilities, business or general economic or market
conditions or prospects of the Company, except changes in the
ordinary course of business, none of which has been materially
adverse, and all of which in the aggregate have not been
materially adverse, to NAII;
(b) Any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties,
assets or business of NAII;
(c) Any material increase in the compensation or rate of
compensation or commissions payable or to become payable by NAII
to any of its directors, officers, salaried employees, sales
persons or agents, or any hiring of any employee at a salary in
excess of $60,000 per annum, or any material change in any then
existing bonus, profit-sharing, retirement or other similar
plan, agreement or arrangement or any adoption of or entry into
of any new bonus, profit-sharing, group life or health
insurance, or other similar plan, agreement or arrangement;
(d) The compensation schedule for the officers, directors, and key
management personnel are as follows:
Annual Salary Other Compensations
- -------------------------------------------------------------------------------
Robert K. Shumway $90,000.00
Carl Dichler $75,000.00 Normal Company benefit program
Don Shumway $75,000.00 for employees applies to all
George Maitland $75,000.00 personnel.
C. Rod Brashears $75,000.00
- -------------------------------------------------------------------------------
(e) Any material change in the accounting methods or practices
followed by NAII;
(f) Any material debt obligation or liability (whether absolute or
contingent) incurred by NAII (whether or not presently
outstanding) except (i) current liabilities incurred, and
obligations under agreements entered into, in the ordinary
course of business and (ii) obligations or liabilities entered
into or incurred in connection with the execution of this
Agreement;
(g) Any sales, lease, abandonment or other disposition by the
Company of any real property or, other than in the ordinary
course of business, of any equipment or other operating
properties or any sale, assignment, transfer license or other
disposition by NAII of any Intellectual Property or other
intangible asset; or
(h) Any labor trouble, strike or any other occurrence, event or
condition of any similar character that materially and adversely
affects or may materially and adversely affect the assets,
properties, business or prospects of NAII.
3.10 All pre-petition debts to Carl Dichler or his Company and Don
Shumway have been exchanged for shares of Common Stock of NAII prior
to the date of closing.
3.11 The exhibit attached Schedule H is the complete and total agreement
between NAII's principal lender and NAII.
3.12 Capitalization. The authorized capital of NAII consists of 10,000
shares of Common Stock of which 2,800 shares are issued and
outstanding, fully paid and non-assessable. There are no stock options,
warrants or equivalent outstanding that could change the future
ownership of NAII as of the date of closing.
a) Robert K. Shumway, Don Shumway, and Carl Dichler own all
issued and outstanding shares in the amounts of 2,000 shares,
400 shares, and 400 shares respectively.
3.13 Tax Advice. Investors are relying solely on the advice of their own
tax advisor with respect to the tax treatment of this transaction and
specially is not relying on tax advice from ETT or its agents.
4. Miscellaneous.
4.1 This agreement shall be governed and construed in accordance with the
laws of the State of Washington.
4.2 The schedules and exhibits referred to in this agreement shall be the
scheduled listed below:
a) NAII amended Plan of Reorganization dated: 1-24-95.
b) NAII financial statement dated: 12-31-94.
c) NAII list of equipment.
d) NAII lease.
e) ETT financial statements dated: 5/31/94.
f) ETT financial statements dated: 11/30/94.
g) ETT Confirmed Plan of Reorganization dated: 4/16/94.
h) NAII loan agreement with First Valley Bank.
4.3 This agreement is the entire agreement of the parties and supersedes any
and all prior negotiations, correspondence, understandings and
agreements between the parties.
In witness thereof, the parties have executed this Agreement as of the date of
closing.
Environmental Testing
Technologies, Inc. ("ETT") by ___S/S G.B. MAITLAND________________
George B. Maitland, its President
by ___S/S C.R. BRASHEARS______________
C. Rod Brashears, Vice President
and Director
North American
Inspection, Inc. ("NAII") by ___S/S R.K. SHUMWAY________________
Robert K. Shumway, its President
by ____________________________________
, its Secretary
North American Inspection, Inc.
Shareholders ("Investors") by Robert K. Shumway
by Don B. Shumway
by Carl R. Dichler
SPECIFIC ASSET PURCHASE AGREEMENT
AGREEMENT between and among ENVIRONMENTAL TESTING
TECHNOLOGIES, INC. (formerly Peripheral Systems, Inc.), a Washington
Corporation, located at 7500 Perimeter Road South, Seattle, Washington 98108
(hereinafter "ETT"); ACCU-TECH EVALUATION SERVICES, INC., a New
Jersey Corporation, located at 1410 Pinewood Street, Rahway, New Jersey
07065 and 917 Alhambra Avenue, Suite D, Martinez, California 94553
(hereinafter "Accu-Tech") and the shareholders of Accu-Tech, ANTON S.
KURTZ and MARY ELLEN KURTZ both of 525 North Terry Lane,
Jamesburg, New Jersey 08831; RICHARD KURTZ, 140 Cedar Run Road,
Bayville, New Jersey 08721, and JOSEPH S. FERENC and JULIE A. FERENC
both of 904 Capstan Drive, Forked River, New Jersey 08753 (hereinafter
collectively the "Shareholders").
RECITALS
The Shareholders of Accu-Tech are, together, the owners of all the issued
and outstanding capital stock of Accu-Tech. ETT is a holding Company
owning two businesses, X-RAY, INC. and TANKTEK, INC., that are engaged
in above-ground storage tank certifications and nondestructive inspection
services.
Accu-Tech is an "S" corporation operating nondestructive inspection
laboratories in both New Jersey ad California.
ETT is desirous of purchasing certain specific assets of Accu-Tech.
The Shareholders are desirous of joining the ETT organization and selling
certain assets of Accu-Tech to ETT.
AGREEMENT
I. THE TRANSACTION
A. Accordingly, ETT, Accu-Tech and its Shareholders (the "Parties")
agree to the following:
1. ETT has formed a new 100% owned subsidiary incorporated
in New Jersey., Such subsidiary will purchase the
specific assets of Accu-Tech. The Accu-Tech assets (the
"Assets") to be purchased by ETT's subsidiary are:
a. rights to the name Accu-Tech;
b. all customer lists and contracts to provide
services to customers;
c. all equipment owned nd/or used in Accu-Tech's
business;
d. work in progress; and
e. the NRC license held by Accu-Tech permitting the
use of certain testing equipment which emits
radiation, as well as all other licenses and
permits used by Accu-Tech in its business.
2. In addition, ETT shall require a covenant not to compete
from Accu-Tech and the Shareholders (for a period of two
(2) years after the termination of their employment with
Accu-Tech or any ETT affiliate) as set forth in a
separate non-competitive agreement to be executed at
Closing; and
B. ETT will purchase the Assets by issuing TWO HUNDRED
THOUSAND (200,000) shares of Class B non-voting Convertible
Preferred Stock with value of ONE DOLLAR ($1.00) per share for a
total value of TWO HUNDRED THOUSAND DOLLARS ($200,000.00).
Thus, the Purchase Value of each share of stock is ONE DOLLAR
($1.00) ("Share Purchase Value"). This convertible Preferred
Stock is convertible into ETT common Stock at the option of the
Shareholders for a period of eight (8) years from Closing as
follows:
1. Until the third anniversary of the Closing, one (1)
share of Class B Preferred Stock can be converted into
two (2) shares of ETT Common Stock.
2. From the third anniversary until the fourth anniversary
of closing, one (1) share of Class B Preferred stock can
be converted into one and a half (1-1/2) shares of ETT
Common Stock.
3. From the fifth anniversary until the eighth anniversary
of Closing, one (1) share of Class B Preferred Stock can
be converted into one (1) share of ETT Common Stock.
4. Thereafter, the Preferred Stock may not be redeemed.
C. While outstanding, the Preferred Stock shall carry dividend
rights as follows:
1. First year, TWO PERCENT (2%) of Share Purchase Value.
2. Second year through the eighth year, SIX PERCENT (6%) of
Share Purchase Value.
3. After the eighth year, none.
Such dividend shall be paid to the holders of Preferred Stock on
the anniversary of the Closing each year.
D. Distribution of the ETT Preferred Stock is the responsibility of
Accu-Tech. Accu-Tech has elected to distribute the Preferred
Stock as outlined in Schedule B (attached) and hereby directs
ETT to distribute the Convertible Preferred Stock due to
Accu-Tech pursuant hereto in accordance with Schedule B.
E. Accu-Tech has provided ETT complete listings and agings of its
payables and receivable. ETT's new subsidiary specifically is
not purchasing Accu-Tech's trade receivable nor receivables from
stockholders on any other receivable created prior to the date
of closing. Nonetheless, ETT shall, on and after Closing,
collect trade receivables on behalf of Accu-Tech. ETT shall be
entitled to pay any payables of Accu-Tech, including any tax
liabilities, which survive the Closing if such liabilities,
including tax liabilities, constitute an actual or potential
lien or encumbrance upon the Assets ("Critical Payables").
F. ETT is assuming no liabilities of Accu-Tech other than those
shown on Schedule C (attached).
G. ETT specifically is not assuming any of Accu-Tech's trade
payable obligations or payroll obligations, such as employee
wages or payroll taxes, unpaid vacation, unpaid sick leave,
medical insurance or similar obligations which were incurred
prior to the date of Closing.
H. Accu-Tech hereby agrees to indemnify and hold harmless ETT and
the officers, agents and affiliates of ETT from and against any
trade payables, payroll obligations or any other liability of
Accu-Tech arising before the Closing Date, whether or not such
liability has been disclosed to ETT, unless such liability has
expressly been assumed by ETT pursuant to Schedule C hereof.
I. Accu-Tech assumes responsibility for collection of the
receivables and payment of all the pre-closing liabilities, and
covenants to cooperate with ETT in ETT's efforts to collect such
receivables. ETT's new subsidiary will deposit all funds
collected from pre-closing receivables into a bank account
("Payables Account") upon which ETT and Accu-Tech have check
signing authority. ETT may use its check signing authority to
pay Critical Payables at any time. ETT will be reimbursed at
the end of each month FIVE PERCENT (5%) of funds collected to
cover the administrative costs of its efforts. ETT may draw a
check in the Payables Account each month for the purpose of
making this payment. Accu-Tech may use its check signing
authority only to pay Accu-Tech's payables, including taxes,
until such time as all payables are paid in full and shall make
no payments to Shareholders.
J. ETT shall be free to hire the employees of Accu-Tech upon
Accu-Tech's termination of business on the scheduled Closing
Date. Employees who are hired by ETT will thereafter receive
benefits comparable to those afforded to employees of TankTek,
Inc.
K. The scheduled Closing Date for completion of this transaction is
August 31, 1994, but may occur on another date as agreed by the
parties and confirmed in writing. The Closing will take place
in Rahway, New Jersey or at any other mutually agreeable
location.
II. ADDITIONAL COMPENSATION
A. Accu-Tech Shareholders Anton Kurtz ad Richard Kurtz are planning
on continued involvement in ETT's new subsidiary's operations.
Anton Kurtz shall be engaged as a consultant. Richard Kurtz
shall be hired as an employee. Joseph Ferenc will be engaged by
ETT or its new subsidiary in a management position. His
continued involvement is considered critical to the successful
operation of the Accu-Tech business by ETT and his agreement to
be employed by ETT or its subsidiary is a condition precedent to
the Closing of this transaction. In recognition of Joseph
Ferenc's ongoing contributions, the Shareholders are entitled to
receive in the aggregate, in cash, THIRTY PERCENT (30%) of the
pre-tax profits generated by ETT's new subsidiary (the "Profit
Incentive") for that portion of the five (5) year period ending
August 5, 1999, during which Mr. Ferenc, richard Kurtz and
Joseph Ferenc may be terminated only for "good cause".
B. Cash payments reflecting the Profit Incentive will be make
annually after the closing of the books and records and annual
audit; provided, however, that no payment shall be made for any
period after the termination of employment of Joseph Ferenc;
provided, however, that the Shareholders shall be entitled to
receive the Profit Incentive payment throughout the five (5)
year period in the event such termination is the result of Mr.
Ferenc's death, disability or illness.
C. ETT's year end is May 31st. Payments due will be made no later
than July 30th.
D. Schedule A outlines the distribution of the incentive earnings
to the individual Shareholders.
III. REPRESENTATIONS & WARRANTIES OF ACCU-TECH AND ITS
SHAREHOLDERS
A. Accu-Tech is a New Jersey corporation duly organized and validly
existing. It is in good standing under the laws of New Jersey,
and is properly authorized to do business in California. It is
not required to be authorized to do business in any other state.
Accu-Tech has all requisite power and authority to own its
properties, assets and carry on its business as now conducted.
B. Accu-Tech and its Shareholders have the power and authority to
execute and deliver this agreement. The Shareholders are,
together, the owners of all the issued and outstanding shares of
Accu-Tech and no person, including the Shareholders, has any
other interest nor has any warrant or right in any
shares of Accu-Tech. This agreement is valid, binding and
enforceable against the parties in accordance with its terms,
except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditor's
rights. Accu-Tech will assist in and facilitate ETT's needs in
filing all legal notices required to transfer the assets.
C. Schedule D describes all pending legal actions or proceedings
existing or known to be threatened against Accu-Tech.
D. Accu-Tech has good and marketable title to all of the Assets as
shown on Schedule E and the Assets are free and clear of all
mortgages, pledges, liens, security interests, conditional sales
contracts, charges, encumbrances and claims, except those shown
on Schedule C.
E. Certain Shareholders are acquiring, via the conversion right,
the Common Stock of ETT. They will acquire such common stock
for investment and not with the view to or for immediate resale
as the Shareholders understand the shares being offered are
unregistered securities under the Securities Act of 1933. The
shares are "restricted" securities within the meaning of Rule
144 of the Securities and Exchange Commission and may not
be sold or disposed of other than pursuant to Rule 144.
F. Accu-Tech and the Shareholders will, at any time or from time to
time after the Closing Date, upon the request of ETT, execute,
acknowledge and deliver, all such further bills of sale,
assignments, checks endorsements or other instruments of
transfer and conveyance as may be reasonably required to
confirm or better effectuate the sale, transfer, assignment or
delivery of the Assets to ETT.
G. Accu-Tech has provided to ETT unaudited financial statements of
Accu-Tech for the period ending December 31,1993 and April 30,
1994. Such statements are true, accurate, complete and correct
and fairly set forth the financial condition of Accu-Tech as of
the dates specified (attached hereto as Schedule F).
H. Attached hereto and made a part hereof as Schedule E is a brief
description of all leases of real property to which Accu-Tech is
now or will be a party at the Closing Date. Accu-Tech owns free
and clear of any lien, mortgage, pledge, claim, encumbrance or
charge or leases all of the fixtures and equipment in the
structures located on such leased premises.
I. No complaints that Accu-Tech is in violation of any federal,
state or local statute, law, ordinance, regulation, rule or
order in the operation of its business, have been received by
Accu-Tech or Shareholders and, to the best of their knowledge,
none are threatened.
J. Accu-Tech has all material permits, licenses, registrations,
franchises and approvals of and from all governmental
authorities necessary for the operation of its business and
no governmental approval is required for the sale of the Assets
contemplated herein.
K. No notice, notification, demand, request for information,
citation, summons, complaint or order has been issued or filed,
no penalty has been assessed and no investigation or review is
known by Accu-Tech or Shareholders to be pending or threatened
by any governmental entity or agency (i) with respect to any
alleged violation of any law, ordinance, rule, regulation
or order of any governmental entity in connection with the
conduct of the business of Accu-Tech and relating to a Hazardous
Substance (as hereinafter defined) or (ii) with respect to any
alleged failure to have any permit, certificate, license,
approval, registration or authorization required in connection
with the conduct of the business of Accu-Tech and relating to a
Hazardous substance or (iii) with respect to any generation,
treatment, storage, recycling, transportation, disposal or
release of any toxic, caustic or otherwise hazardous substance,
including petroleum, its derivatives, by-products and other
hydrocarbons, whether or not regulated under federal, state or
local environmental statutes, ordinances, rules, regulations or
orders ("Hazardous Substance") used in connection with the
business of Accu-Tech.
Accu-Tech has not handled any Hazardous Substance and mon are present
on any property now or previously owned or leased by Accu-Tech, nor has
Accu-Tech allowed any release thereof nor transported or allowed transport
thereof to any location. There are no underground storage tanks, currently in
use or abandoned, at any property now or previously owned or leased by
Accu-Tech which have been used to store or have contained a Hazardous
Substance.
No Oral or written notification of a release of a Hazardous Substance has
been made or filed by or on behalf of Accu-Tech and no property now or
previously owned or leased by Accu-Tech is listed, or proposed for listing, on
the National Priorities List promulgated pursuant to any federal or state list
of sites requiring investigation or clean-up.
There are no environmental liens on any Asset of Accu-Tech and to the
best of Accu-Tech's and Shareholders' knowledge, no government actions have
been taken or are in process which could subject any of such assets to such
liens.
To the best of Accu-Tech's and Shareholders' knowledge, there have been
no environmental investigations, studies, audits, tests, reviews or other
analyses conducted by or which are in the possession of Accu-Tech in relation to
any property or facility now or previously owned or leased by Accu-Tech.
L. Accu-Tech shall provide to ETT, prior to Closing, a summary
description (including agent, carrier, limits, deductibles,
premium dates in force and nature of coverage) of all policies
of insurance held by Accu-Tech, including but not limited to,
those concerning fire, theft, casualty and liability, as well as
all self-insurance programs, including but not limited to, those
concerning employee medical plans, workers compensation,
disability, fire, theft, casualty and liability.
M. Accu-Tech represents and warrants that it has used the name
"Accu-Tech" in connection with its services and business.
Accu-Tech and Shareholders have no knowledge of any patents,
trademarks, service marks, trade name, rights, copyrights or
publication rights of others which materially adversely affect
use of this name.
N. No broker, agent, finder or other party has been retained by
Accu-Tech and none is entitled to payment in connection with the
transactions contemplated by this Agreement or the origin,
negotiation, execution or consummation thereof.
IV. ETT REPRESENTATIONS AND WARRANTIES
A. ETT is a Washington corporation duly organized, validly existing
and in good standing under the laws of the State of Washington
and has all the requisite corporate power and authority to own
its own properties and carry on its business as now being
conducted.
B. ETT has the power and authority to execute and deliver this
agreement and the agreement is valid, binding and enforceable
against ETT in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relative to or affecting
enforcement of creditors rights and except as enforceability
may be limited by rules of equity governing specific
performance, injunctive relief, other equitable remedies.
C. ETT is providing Accu-Tech and its Shareholders, the unaudited
financials of ETT as of May 31, 1994 (Schedule G), and the
disclosure statement dated March 9, 1994 (Schedule G).
V. CONDITIONS OF CLOSING
There have been no material adverse change or any development involving
a prospective material adverse change in the business and/or financial condition
of Accu-Tech since May 1, 1994, or of ETT since June 1, 1994.
VI. MISCELLANEOUS
A. Further Assurances - Each party will, on request of the other,
execute and deliver all instruments and documents of further
assurance or otherwise necessary and perform all acts and things
that may be required to carry out its obligations hereunder and
to consummate and complete the transaction contemplated by this
Agreement.
B. Notices - Any notice, request, instruction or other document to
be given hereunder by any party hereto shall be in writing and
shall be delivered personally or sent by registered or certified
mail postage prepaid, to the Shareholders of Accu-Tech addressed
to them at the address set forth on Schedule A of this
Agreement. If to ETT, such notice shall be addressed to
George Maitland, at the address set forth on Page 1 of the
Agreement or such other addresses as any party may designate by
written notice to the other.
C. Governing Law - This Agreement shall be governed and construed
in accordance with the laws of Washington State.
D. Parties-in-Interest - This Agreement shall be binding on and
inure to the benefit of the Parties hereto, their respective
heirs, administrators, executors, successors and assigns;
provided, however, that this Agreement may no be assigned by any
of the Parties hereto.
E. Entire Agreement - This Agreement is the entire agreement of the
Parties and supersedes ny and all prior negotiations,
correspondence, understandings and agreements between the
Parties respecting the subject matter hereof.
F. Waiver - Any of the terms and conditions of this Agreement and
any inaccuracies in any of the representations or warranties
contained herein may be waived at any time and from time to
time, in writing, by the parties entitled to the benefit of such
terms, conditions, warranties, or representations. Such
waiver shall not constitute or be deemed a waiver of any other
terms, conditions or inaccuracies.
G. Amendment - This Agreement may be amended but only by an
instrument in writing executed by the Parties.
H. Attorneys' Fees - If suit or action is filed by any party to
enforce this Agreement or otherwise with respect to the subject
matter of this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees incurred in preparation
for and prosecution of such suit or action as fixed by
the trial court, and if any appeal is taken from the decision of
the trail court, reasonable attorneys' fees as fixed by the
appellate court.
J. Counterparts - This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
K. Schedules - The schedules referred to in this Agreement shall be
the schedules described in such, initialed by the Parties and
attached to this Agreement and its execution and delivery.
L. Integrated Agreement - The schedules which are attached hereto
are hereby incorporated into this Agreement of this Reference.
SCHEDULES DESCRIPTION
A Incentive Earnings Distribution
B Convertible Preferred Stock Distribution
C Assumed Liabilities
D Pending Litigation
E Assets Being Purchased
F Accu-Tech Financials
G ETT Financials and Disclosure Statement
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first indicated.
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
DATED: August , 1994 BY: George B. Maitland, President
ACCU-TECH EVALUATION SERVICES, INC.
DATED: August , 1994 BY: Julie Ferenc
ACCU-TECH EVALUATION SERVICES, INC.
SHAREHOLDERS
DATED: August , 1994 BY: Joseph S. Ferenc
DATED: August , 1994 BY: Richard Kurtz
DATED: August , 1994 BY: Anton Kurtz
DATED: August , 1994 BY: Julie Ferenc
DATED: August , 1994 BY: MaryEllen Kurtz
MaryEllen Kurtz Personally Appeared
Before Me this Date, August 26, 1994
James M. Rixey
Notary Public of New Jersey
My Commission Expires June 13, 1998
TABLE OF CONTENTS
1. SPECIFIED ASSET PURCHASE AGREEMENT]
2. SCHEDULE A (Incentive Earnings Distribution Schedule) through SCHEDULE E
3. ACCU-TECH EVALUATION SERVICES, INC. FINANCIAL REPORT (SCHEDULEG)
4. ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Income Statement - June 1994 (SCHEDULE G)
5. UNANIMOUS WRITTEN CONSENT OF DIRECTORS TO ACTION WITHOUT A
MEETING DATED AS OF AUGUST 24, 1994
6. UNANIMOUS WRITTEN CONSENT OF SHAREHOLDERS TO ACTION WITHOUT
A MEETING DATED AS OF AUGUST 23, 1994
7. UNANIMOUS WRITTEN CONSENT OF DIRECTORS TO ACTION WITHOUT A
MEETING DATED AS OF AUGUST 17, 1994
8. UNANIMOUS WRITTEN CONSENT OF SHAREHOLDERS TO ACTION WITHOUT
A MEETING DATED AS OF AUGUST 15, 1994
9. BILL OF SALE
SCHEDULE A
INCENTIVE EARNINGS DISTRIBUTION SCHEDULE
The following employees or consultants are participants in the incentive pool on
the following basis;
Names 1995 1996 1997 1998 1999
Anton Kurtz 30% 30% 30% 30% 30%
Richard Kurtz 20% 20% 20% 20% 20%
Joseph Ferenc 50% 50% 50% 50% 50%
Total 100% 100% 100% 100% 100%
SCHEDULE B
CONVERTIBLE PREFERRED STOCK DISTRIBUTION
Number of Shares Dollar Value
To: Anton Kurtz 60,000 $60,000.00
TO: Richard Kurtz 40,000 $40,000.00
To: Joseph Ferenc 100,000 $100,000.00
Total 200,000 $200,000.00
ACCU-TECH OFFICE EQUIPMENT SCHEDULE E - 1 OF 8
1. 2-486 DX 2-50 Computer
2. 1-386 25 Computer
3. 1-HP Ink Jet Color Printer
4. 2-Laser Jet II P B/W Printer
5. 1-HP Ink Jet B/W Printer
6. 1-HP DOT Matrix Printer
7. 10- Desks
8. 4-Fire Proof File Cabinets
9. 20-Regular File Cabinets
10. 1-Blue Print File Cabinet
11. 2-Equipment Cabinets
12. 20-Chairs
13. 1-19" Color TV/VHS Combo
14. 1-1992 Savin Copier
15. 1-Phone System W/9 Phones
16. Books, Codes, Procedures
17. 5-Bookcases
18. 1-Blue Print Copier
ACCU-TECH MAGNETIC PARTICLE EQUIPMENT SCHEDULE E - 2 of 8
1. 1-Magnaflux ANQ 4845-AC 4000 amp Stationary Unit
2. 1-Magnaflux KCH-3D 3000 amp Job Site Unit
3. 2-P-90 Magnaflux Portable Units
4. 10- Parker AC/DC ADJ Probes
5. 5-Blacks Lights
ACCU-TECH FIBER OPTIC EQUIPMENT SCHEDULE E - 3 OF 8
1. 3- Complete Welch Allyn fiber Optic - lease 9/93 - 9/94
Video Inspection Systems w/20'x6mm Probes - 9/93 - 9/94
2. 1-Welch allyn 25'x6mm Probe
3. 1-Complete Olympus Fiber Optic Video - lease 1994-1997
Inspection System w/12' Probe
4. 2-Spare 13" Monitors
5. 3-Rolling Cabinets
6. 1-8' Schott Boroscope - bought in 1994 T.C.
7. 1-15' Schott Boroscope - bought in 1994 T.C.
The parties agree to keep the physical Olympus Systems currently in their
possession, but X-Ray, Inc. agrees to assume two leases per Schedule E
identification. June 18, 1995 (signed by George B. Maitland)
ACCUTECH RADIOGRAPHIC EQUIPMENT SCHEDULE E - 4 of 8
1. 7-Amersham 660 Cameras
2. 10-Sets of Amersham Crank Assemblies
3. 8-Fully Equipped Dark Rooms (7 mobile - 1 shop)
1 in 1994, 2 in 1992, 2 in 1993
4. 28-Survey Meters
5. 6-Dosimeters
ACCU-TECH INVENTORY OF EQUIPMENT for SCHEDULE E - 5 OF 8
ACCU-TECH EVALUATION SERVICES, INC.
RAHWAY, NJ and MARTINEZ, CA
JUNE 1, 1994
VEHICLES
1. 1-1984 Chevy Cube Van-Dark Room
2. 1-1985 Ford Cube Van-Dark Room
3. 1-1986 Ford Cube Van-Dark Room
4. 1-1987 Ford 1-ton P/U w/ Dark Room
5. 1-1978 Ford 1-ton P/U w/ Dark Room
6. 1-1971 Ford 1-ton P/U w/ Dark Room
7. 1-1993 1-ton Chevy Diesel P/U w/ Dark Room
8. 1-1994 1-ton Chevy Diesel P/U w/ Dark Room
9. 1-1989 GMC P/U S-15
10. 1-1990 1/2-ton Chevy P/U
11. 1-1991 Oldsmobile Van
12. 1-1991 Nissan Pathfinder
13. 1-1992 Chevy S-10 P/U
14. 1-1993 Chevy S-10 P/U
15. 1-1994 Chevy S-10 P/U Extended Cab
ACCU-TECH ULTRASONIC EQUIPMENT SCHEDULE E - 6 OF 8
1. 1-Rohbeck "B" Scan Unit
2. 2-KBI USK-7 UT Units
3. 4-KBI USK-6 UT Units
4. 1-KBI USL-32 UT Unit
5. 1-KBI 303B UT Unit
6. 3-Panometric DL 2+
7. 3-Stress Tel T-Mike
8. 1-Sonotest "D" Meter
9. 1-Nova "D" Meter
10. 60-Various Size Transducers
11. 4-IIW Steel Blocks
12. 1-IIW Aluminum Blocks
13. 2-DSC Aluminum Blocks
14. 4-DSC Steel Blocks
15. 1-Set Titanium MIL-STD Blocks
16. 2-Sets Aluminum MIL-STD Blocks
17. 2-Sets Steel MIL-STD Blocks
18. 1-Navships Cal Block
19. Various Size and Mat Step Wedges
ACCU-TECH SAFETY EQUIPMENT SCHEDULE E - 7 OF 8
1. 12-Harnesses
2. 2-Sniffer for Tanks
3. 10-Fire Extinguishers
4. 6-Respirators
5. 4- Ladders
6. 12-Safety Belts w/ Lanyards
7. 24-Nomex Suits
8. 12-Quartz Lights
ACCU-TECH SHOP EQUIPMENT SCHEDULE E - 8 OF 8
1. 1-Shop Dark Room
2. 1-Band Saw
3. 1-Miller ARC Welder
4. 1-Miller MIG Welder
5. 5-Matabo Power Grinders
6. 2-Granite Lab Tables
7. 1-Snap-on Rolling Tool Box
8. Various Hand Tools
9. Various Air Tools
10. Various Vehicle Maintenance Tools & Equipment
SCHEDULE C
ASSUMED LIABILITIES
Leases Amt/Mo. Pay-off Date Pay-off @ 7/31/94
1990 Chevy P/U $395.00 6/95
1991 Olds Silhouette Van 407.21 1/95
1991 Nissan Pathfinder 398.89 7/95
1992 Chevy S-10 P/U 280.36 8/96
1993 Chevy S-10 P/U 288.20 7/97
1992 Chevy Diesel P/U 603.73 11/96
1994 Chevy Diesel P/U 552.80 2/98
1994 Chevy S-10 P/U
Olympus Video Probe System 1,018.00 12/96
Olympus Video Probe System 1,361.00 1/97
Olympus Video Probe 1,024.08 3/96
Welch Allyn Video 3,558.99 11/94
Probe Systems
Buy Out Date
Computer - $114.02/Mo. 9/95
Computer - $124.77/Mo. 6/96
Telephone System - $113.60/Mo. 3/97
Summit Equipment Loan - Balance $18,333.35
$555.55/Mo. Plus Interest
Copier - $145.10/Mo. 7/97
Radios - $201.00/Mo. 4/96
The Company has facility leases that are assignable to the new Companies. The
New Jersey lease expires May 15, 1997 and has a fixed monthly lease payment of
$2,436.10.
The California lease expires January 6, 1995 and has a fixed monthly lease
payment of $400.00.
Copies of the leases are attached.
SCHEDULE D
PENDING LITIGATION AGAINST ACCU-TECH
None.
BY: August 25, 1994
Joseph Ferenc
BY: August 25, 1994
Richard Kurtz
BY: August 25, 1994
Anton S. Kurtz
Julie Ferenc
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 12,659
<SECURITIES> 0
<RECEIVABLES> 595,301
<ALLOWANCES> 60,002
<INVENTORY> 0
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<PP&E> 2,743,561
<DEPRECIATION> 1,735,668
<TOTAL-ASSETS> 1,811,479
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<BONDS> 0
<COMMON> 608,557
200,000
176,958
<OTHER-SE> (1,357,675)
<TOTAL-LIABILITY-AND-EQUITY> 1,811,479
<SALES> 4,471,967
<TOTAL-REVENUES> 0
<CGS> 4,471,967
<TOTAL-COSTS> 3,238,638
<OTHER-EXPENSES> 199,667
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