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, 1997
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: $1,844,021.00
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 September 30, 1997: 1,663,315 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, 1997, ETT:X-Ray, Inc.,("X-
Ray") and TankTek, Inc. were the only operating subsidiaries of the
company producing revenue. During the year ended May 31, 1996, in
addition to ETT:X-Ray, Inc. and TankTek, Inc., Accu-Inspect, Inc.
produced revenue until it was sold in July 1995.
BANKRUPTCY PROCEEDING; PLAN OF REORGANIZATION
In August 1993 ETT filed a voluntary petition in bankruptcy. Under the
plan of reorganization, which was approved in May 1994, the Company
refocused its revenue producing operations consisting of nondestructive
testing and above-ground storage tank examinations.
Under the plan of reorganization 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 three preferred stock redemption
payments which became due on August 31, 1995, 1996 & 1997. 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 exercised their right to convert the preferred stock and
management intends to make the required redemption payment when cash is
available.
ETT-X:RAY, INC.
ETT:X-Ray, Inc. performs nondestructive testing of metals and other
materials for the petrochemical, construction, aerospace, maritime and
other industries. ETT: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 ETT: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. ETT:X-Ray's revenues
for the fiscal years ended May 31, 1997, and 1996 totaled $1.379 million
for 1997 and $1.461 million for 1996.
TANKTEK, INC.
TankTek, Inc. provides engineering assessments and related testing
services to owners of above-ground storage tanks holding hazardous
materials, principally petroleum and chemical products. These services
are marketed nationally.
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 above-ground storage tank inspection, repair,
alteration and reconstruction needs. TankTek's revenues for the fiscal
years ended May 31, 1997 and 1996 totaled $.465 million for 1997 and
$.440 million for 1996.
ACCU-INSPECT, INC.
In August 1994, ETT formed a new subsidiary and subsequently acquired
certain assets of Accu-Tech, a nondestructive testing company with
offices in New Jersey and California. Due to significant operating
losses incurred in its year ended May 31, 1994, $.280 million on
revenues of $1.317 million, ETT elected to sell all the operating assets
of Accu-Tech, Inc. in exchange for notes and the return of 100,000
shares of Convertible Preferred Class B Stock. ETT recognized a gain of
approximately $44,000.00 on the sale in June 1995, and could realize
additional gains as payments on the $202,000.00 notes are made.
However, there is pending litigation and realization of the notes, if
any, is unknown.
NORTH AMERICAN INSPECTION, INC.
In April 1995, ETT agreed to merge with North American Inspection, Inc.
(NAII) and provided financial assistance to NAII until the merger was
abruptly terminated by NAII in July 1995. All advances made by ETT have
been repaid.
ETT has commenced legal action against NAII and its officers and
stockholders seeking contractual damages resulting from termination of
the merger. The ultimate outcome of the litigation is not known.
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 then 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 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 a
major provider.
The acquisitions of both Accu-Tech, Inc. and North American Inspection,
Inc. were directed at providing the local service concept described
above; however, these mergers did not achieve the desired results. The
Company retrenched but has not abandoned the local service concept. In
pursuit of its objectives, in July 1997, the Company agreed to acquire
tank lifting equipment and patent rights owned by Worldwide Tank
Services, Australia, Pty, LTD (WWT). The $100,000.00 purchase price
consists principally of ETT Stock WWT has moved into ETT's Seattle
office and TankTek is successfully marketing the WWT technology to its
existing customer base.
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
retaining personnel who can provide the services' and by keeping the
company's technical capability on the leading edge. WWT tank lifting
technology offers a cost effective, time saving alternative to the
current methods of correcting settlement and secondary containment
problems with above-ground storage tanks.
ETT does not have a current customer that represents more than 10% of
its anticipated revenue.
EMPLOYEES
ETT employs 20 technical, clerical, and managerial personnel, including
19 full time employees.
Item 2 - Description of Property
At May 31, 1997, ETT had the following properties under a long term
lease:
Office and laboratory in Seattle, WA at annual rent of
$33,374.88 through 2001.
Management believes that the facility is adequate for the Company's
current needs.
Item 3 - Legal Proceedings
The Company is not a party to any pending legal proceedings except the
litigation filed by the Company against North American Inspection, Inc.,
its Officers and Owners, and the litigation filed by the former owners
of Accu-Tech, Inc. against the Company.
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 9, 1997, there were approximately 423 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, 1997, the Company composed of Environmental Testing
Technologies, Inc. with its two operating subsidiaries, ETT:X-Ray, Inc.
and TankTek, Inc. is engaged in two primary business segments:
nondestructive testing and inspection of materials, and providing
engineering condition assessment services to owners of above-ground
petrochemical storage tanks, piping and pressure vessels.
In June 1995, ETT sold its New Jersey based company, Accu-Inspect, Inc.
to a former owner of Accu-Tech Evaluation Services, Inc., and in July
1995 North American Inspection terminated the merger agreement with ETT.
While both the Accu-Inspect, Inc. and North American Inspection, Inc.
mergers resulted in failure, the design of the mergers was strategic
alliances consistent with the Company's growth plans for establishing
base operations near petrochemical industry centers of operation.
The Company recognizes the need for new capital infusion and is actively
pursuing additional services 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.
RESULTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED 5/31/97 COMPARED TO FISCAL YEAR
ENDED 5/31/96.
OPERATING LOSS ANALYSIS
For the two years ended May 31, 1997 and 1996, operating losses were
$72,572 and $256,451. The causes for the decrease 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 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, 1997 and 1996
consisted of the following.
Revenues 1997 1996
Nondestructive Testing $1,378,588 $1,484,233
Petroleum Engineering Services 465,432 440,245
TOTAL $1,844,021 $1,924,478
Nondestructive testing revenues decreased from $1,484,233 in 1996 to
$1,378,588 in 1997. The overall decrease was approximately 7% with
the loss of Accu-Inspect, Inc. revenues from $21,572 in 1996 to
zero in 1997 accounting for 25% of the reduced volume levels. There
is no specific known reason for the remaining decrease.
Petroleum engineering services increased from $440,245 in 1996 to
$465,432 in 1997. This is only a slight increase of 5.7% with no
identifiable reason.
COST OF SALES/GROSS PROFIT ANALYSIS
Cost of sales and the resulting gross profit for the year ended May 31,
1997, were $1,264,376 and $579,645, or a gross profit of 31% on
revenues. For the year ended May 31, 1996, the cost of sales and gross
profit were $1,476,580 and $447,898, or a gross profit of 23% on
revenues.
The gross profit percentage increase of 8% from 23% in 1996 to 31% in
1997 was directly attributable to improvement in the nondestructive
testing segment improved labor efficiencies.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES ANALYSIS
Selling, general and administrative expenses decreased from $704,349 in
1996 to $652,217 in 1997 The $52,132 reduction in expenses was
attributable to lower bad debt expenses and reduced travel costs
associated with concentrating on the local market rather than national
sales presentations efforts in 1996.
OTHER EXPENSE ANALYSIS
Other operating expenses of $175,558 in 1996 increased 12% to $197,413
in 1997. Other expenses principally consist of interest; however, due
to late payments to vendors, late penalties and fees of $19,154 were
incurred in 1997 and account for most of the expense increase.
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.
CASH FLOW ANALYSIS
Net changes in cash provided <used> in operating activities were $42,934
in 1996 and <$76,676> in 1997. The most significant component of this
$119,610 change was the change from a net income of $15,169 in 1996 to a
net loss of <$269,985> in 1997. The other significant item is the
reduction of accounts receivable, accounts payable and accrued
liabilities that were caused by the sale of Accu-Inspect, Inc. assets.
Net cash flows <used> in investing activities changed from $323,371 in
1996 to <$15,339> in 1997. This $338,710 change was principally due to
collection of advances originally made to complete the North American
Inspection, Inc. merger.
Net cash provided <used> from financing activities went from <$372,520>
in 1996 to $85,571 in 1997, with the principal change attributable to
repayment of loans made to or attributable to North American Inspection,
Inc.'s defunct merger agreement.
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.
1997 1996
Current Assets 282,721 262,087
Current Liabilities 1,173,468 716,861
Negative Working Capital <890,747> <454,774>
As discussed in Note 2 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 $269,985 in
1997, $339,725 in 1995 and $158,668 in 1994 and as of May 31, 1997, a
stockholders deficit of $834,934 and a working capital deficit of
$890,747 raises 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 has taken a number of actions to
expand the Company's services into the testing of aboveground tank,
primarily for the petroleum industry.
The Company's first two acquisitions were not successful and for the
past two years the Company has been operating closer to home while
assessing the best way to continue its strategic plan for growth. In
July 1997, the Company acquired assets of Worldwide Tank Services of
Australia and has recently started operations. These services are
compatible with TankTek's current business and consistent with its long
term plans for strategic acquisitions and internal 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. However, there
are no assurances that these objectives can be attained. 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 issuance's 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 years, 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, 1997
and 1996 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
On September 18, 1997, the Board of Directors of ETT engaged the
accounting firm of Williams and Webster as independent accountants for
the Registrant to do the audits for the fiscal years 1996 and 1997. The
Company did not have any disagreements with its former auditor, BDO
Seidman, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement,
if not resolved to the satisfaction of BDO, would cause it to make
reference to the subject matter of the disagreement in connection with
its report.
Form 8K was filed and is an exhibit to this Form 10KSB.
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, 62 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 ETT:X-Ray, except on a
national basis. Mr. Basile achieved a BS and MBA degree in Engineering
in 1960 and 1964, respectively.
Lee G. Connel, 72 Director, ETT
President/Director, ETT:X-Ray
Lee G. Connel was reappointed President of ETT: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 ETT:X-Ray. In addition
to his position with ETT:X-Ray, Mr. Connel has managed his own business
as a professional consulting engineer from 1965 to the present.
Michael B. LaVigne, 40 Director, ETT
Michael B. LaVigne has served as a Director of ETT since December 1991.
From 1991 to 1993, Mr. LaVigne was self employed as a business
consultant. In 1993 he began as President of Northwest Capital, Inc., an
investment banking firm. In March 1997 Mr. LaVigne began as Chairman
and CEO of Global Leisure, Inc.
Michael C. McPherson, 45 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.
George B. Maitland, 59 Director, ETT
President & CFO, ETT
George B. Maitland has served in various executive positions with
ETT since December 1991.
___________
(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
<TABLE>
Annual Compensation
- ------------------------------------------------------------
Name and
Principal Position Year Salary Bonus Compensation
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Gene Basile, 1997 $33,000 0 0
CEO - ETT 1996 $36,000 0 0
1995 $36,000 0 0
George B. Maitland, 1997 $75,000 0 0
President
VP of Finance 1996 $75,000 0 0
1995 $60,000 0 0
============================================================
Long-Term Compensation
- ------------------------------------------------------------
Awards Payouts
---------------------
LTIP All Other
Name Year Options Payouts Compensation
- ------------------------------------------------------------
Gene Basile, 1995 0 0 0
CEO - ETT
George B. Maitland, 1995 0 0 0
President
VP of Finance
============================================================
</TABLE>
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 Shares Value of
Unexercised
Acquired on Value Options at Year End Options at Year End(1)
Name Exercise Realized ----------------------------------------------
- ---
(1) Exercisable Unexercisable Exercisable
Unexercisable
- --------------------------------------------------------------------------------
- ---
<S> <C> <C> <C> <C> <C> <C>
Gene Basile 128,000 0 0 0 0 0
Lee G. Connel 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).
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, Mr. Gene Basile and Mr. Floyd Hambleton are the only
shareholders with 10% or more in actual ownership. 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 10, 1997, 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 10, 1997(1)(2)
- ------------------------------------------------------------------------
George B. Maitland,
Director and President 403,620 (17.4%)
Gene Basile, Director and CEO 300,000 (12.9%)
Lee G. Connel, Director &
President, ETT:X-Ray, Inc. 400,000 (17.3%)
Michael LaVigne, Director 20,000 (
.9%)
Michael McPherson, Director 95,000 ( 4.1%)
5% Shareholders
Floyd Hambleton 140,000 ( 6.0%)
Raymond Hand 300,200 (12.95%)
All Directors and Officers as a Group 1,200,620 (51.8%)
(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 and warrants
are exercised for a total outstanding shares of 2,318,316.
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, 1997 the balance due on the stockholder
note was $141,252.00.
Item 13 - Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K August 15, 1997 amended
to October 13, 1997.
(c) Consolidated Financial Statements - Years
ended May 31, 1997 and 1996
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 _________________________.
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
By: S/S LEE G. CONNEL, DIRECTOR
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 _______________________________.
Signature Title
Principal Financial Officer and GB MAITLAND
Principal Accounting Officer: George B. Maitland
[Chief Financial Officer]
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Consolidated Financial Statements
Years Ended May 31, 1997 and 1996
CONTENTS
PAGE
Independent Auditor's Report 1
Consolidated Balance Sheets as
of May 31, 1997 and 1996 2
Consolidated Statements of Operations
for the years ended May 31, 1997 and 1996 3
Consolidated Statements of Changes
in Stockholders' Equity for the Years
ended May 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the years ended May 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-1
Exhibit
WILLIAMS & WEBSTER, P.S.
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of
Environmental Testing Technologies, Inc. as of May 31, 1997 and 1996,
and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the two years in the
period ended may 31, 1997. These financial statements are the
responsibility of the company's 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, 1997 and 1996,
and its consolidated statements of operations, changes in stockholders'
equity and cash flows for the two years ended May 31, 1997 and 1996, 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 2,
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
working capital deficity of $890,747 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 2. The Company also is at risk relating to
unresolved litigation and unpaid liabilities from foreclosure on a
subsidiary. These uncertainties are described in Note 9. The
consolidated financial statements do not include any adjustments that
might result ferom the outcome of these uncertainties.
Williams & Webster, P.S.
Certified Public Accountants
October 3, 1997
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Consolidated Balance Sheets as of May 31, 1997 and 1996
<TABLE>
<S>
<C>
<C>
ASSETS
May 31,
May 31,
1997
1996
CURRENT ASSETS
Cash
$ -
$ 6,444
Accounts receivable - trade, net of allowances
for doubtful accounts of $20,644 and $21,966
247,684
210,468
Other current assets
35,037
45,175
Total current assets
282,721
262,087
PROPERTY PLANT AND EQUIPMENT
net of accumulated depreciation
of $1,932,241 and $1,794,324
440,774
578,691
OTHER ASSETS
18,548
3,009
TOTAL ASSETS
$ 742,043
$ 843,787
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Line of credit
$ 175,679
$ 141,592
Accounts payable
250,778
298,867
Accrued liabilities
142,500
123,373
Current portion of long-term debt
604,511
153,029
Total current liabilities
1,173,468
716,861
LONG-TERM DEBT
net of current portion
226,551
547,917
COMMITMENTS AND CONTINGENCIES
-
-
TOTAL LIABILITIES
1,400,019
1,264,778
REDEEMABLE PREFERRED STOCK
176,958
176,958
STOCKHOLDERS' DEFICIT
Class B preferred stock 1,800,000 shares authorized,
100,000 shares issued and outstanding
100,000
100,000
Common stock; no par value; 10,000,000 shares
authorized; 1,663,315 and 1,535,315 shares issued
677,557
644,557
and outstanding
Accumulated deficit
(1,612,491)
(1,342,506)
Total Stockholders' Deficit
(834,934)
(597,949)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$ 742,043
$ 843,787
</TABLE>
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Consolidated Statements of Operations For the Two
Years Ended May 31, 1997 and 1996
<TABLE>
<S>
<C>
<C>
May 31,
May 31,
1997
1996
SALES
$ 1,844,021
$ 1,924,478
COST OF SALES
1,264,376
1,476,580
Gross Profit
579,645
447,898
OPERATING EXPENSES
Selling, General and Administrative Expenses
652,217
704,349
OPERATING LOSS
(72,572)
(256,451)
OTHER EXPENSE
Interest expense
(178,259)
(206,948)
Other expense
(19,154)
-
Other income
-
31,390
Total Other Expense
(197,413)
(175,558)
NET LOSS, from continuing operations before
extraordinary item
(269,985)
(432,009)
DISCONTINUED OPERATIONS
Gain on disposal of Accu-Inspect, Inc., and
X-Ray, Inc.
-
277,178
EXTRAORDINARY ITEM
Gain on tax settlement
-
170,000
Net (Loss) Income
$ (269,985)
$ 15,169
NET (LOSS) INCOME PER SHARE
Loss before discontinued operations and
Extraordinary item
$ (0.18)
$ (0.29)
Gain from discontinued operations
-
0.19
Extraordinary item
-
0.11
Net (Loss) Income Per Share
$ (0.18)
$ 0.01
WEIGHTED AVERAGE SHARES
OUTSTANDING
1,535,315
1,463,315
</TABLE>
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Statement of Changes in Stockholders' Equity For the
Two Years Ended May 31, 1997 and 1996
<TABLE>
Class B
Additional
Total
Preferred Stock
Common Stock
Paid-in
Accumulated
Stockholders'
Shares
Amount
Shares
Amount
Capital
Deficit
Deficit
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Balances at May 31, 1995
200,000
$ 200,000
1,463,315
$ 608,557
- -
$(1,357,675)
$ (549,118)
Redemption of preferred stock
(100,000)
(100,000)
(100,000)
Issuance of common stock
upon exercise of options
72,000
36,000
36,000
Net income
15,169
15,169
Balances at May 31, 1996
100,000
100,000
1,535,315
644,557
- -
(1,342,506)
(597,949)
Issuance of common stock
upon exercise of options
128,000
33,000
33,000
Net loss
(269,985)
(269,985)
Balances at May 31, 1997
100,000
$100,000
1,663,315
$677,557
- -
$ (1,612,491)
$ (834,934)
</TABLE>
ENVIRONMENTAL TESTING TECHNOLOGIES, INC.
Statement of Cash Flows for the Two Years
Ended May 31, 1997, 1996 and 1995
<TABLE>
May 31,
May 31,
1997
1996
<S>
<C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income
$ (269,985)
$ 15,169
Adjustments to reconcile net (loss) income to
cash provided by (used in) operating activities:
Depreciation
141,917
155,469
Issuance of common stock for consulting services
33,000
36,000
Change in assets and liabilities:
Accounts receivable (increase) decrease
37,216
324-831
Other current assets (increase) decrease
10,138
(6,018)
Accounts payable increase (decrease)
(48,089)
(271,417)
Accrued liabilities increase (decrease)
19,127
(211,100)
NET CASH FLOWS PROVIDED (USED) FROM
OPERATING ACTIVITIES
(76,676)
42,934
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in other receivables
- -
186,413
(Increase) decrease in other assets
(15,339)
136,958
NET CASH FLOWS (USED)
FROM INVESTING ACTIVITES
(15,339)
323,371
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt
225,000
230,651
Increase (decrease) in line of credit
34,087
(380,860)
Payments on long-term debt
(29,161)
(79,078)
Payments on capital leases
(144,355)
(143,233)
NET CASH FLOWS PROVIDED (USED)
FROM FINANCING ACTIVITES
85,571
(372,520)
TOTAL INCREASE (DECREASE) IN CASH
(6,444)
(6,215)
CASH AT BEGINNING OF YEAR
6,444
12,659
CASH AT END OF YEAR
$ -
$ 6, 444
</TABLE
Notes to Consolidated Financial Statements
NOTE 1 - 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 2 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 its wholly-owned subsidiaries: ETT: X-Ray, Inc. and
TankTek, Inc. All inter-company 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 3 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.
CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company performs credit evaluations of its customers and maintains
allowances for potential credit losses. For the years ended May 31,
1997 and 1996, no customer accounted for more than 10% of the Company's
consolidated annual revenues and no supplier accounted for more than
10% of the Company's consolidated purchases.
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 a
deferred tax asset will be realized, a 100% valuation allowance was
recorded.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
NOTE 2 - 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 prior funding of research and
development efforts, which have resulted in cash flow difficulties.
The Company has reported a loss of $269,985 for the year ended May 31,
1997, and as of that date a stockholders' deficit of $834,934 and a
working capital deficit of $890,747. 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.
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
$1.00 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 13).
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. (API 653 services relate to the inspection and certification
for continued use of above-ground storage tanks.) 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. (Also, see Note 9 regarding commitments and contingencies.)
NOTE 3 - LONG TERM DEBT
Long term debt at May 31, 1997 and 1996 is as follows:
1997 1996
Note payable to bank, collateralized by
equipment, due in monthly installments
of $6,863 including interest at prime
plus 1.50%, due August 31, 1996. $ - $ 13,725
Capital lease obligations, collateralized
by equipment, various amounts payable
monthly plus interest ranging from 12.67%
to 36.00%. The majority of the lease
obligation amounts are guaranteed by three
officers of the Company. 314,123 161,570
Note payable to preferred stockholder,
collateralized by the stock of ETT: X-Ray,
Inc. and Tank Tek, Inc., due in monthly
installments of $3,000 plus accrued
interest at 9%, maturing October 23, 1997. 141,252 153,538
Note payable to a financing company,
collateralized by equipment, due in 24
monthly installments of $2,432 including
interest at 16%, with a remainder due in a
balloon payment, maturing June 10, 1997. 97,040 100,190
Note payable to Merrill Lynch, guaranteed
by a director, collateralized by all assets
of the Company, with interest at Merrill
Lynch's rate plus 8%, full balloon payment
maturity in November 1997. 200,000 200,000
Note payable to a former officer, unsecured,
due in monthly installments of $2,500,
including interest at 10%. 78,646 71,923
831,061 700,946
Less amount due within one year: (604,511) (153,029)
$ 226,550 $ 547,917
Future scheduled principal payment on long-term debt and capital leases
during each of the years ending May 31, 2001 are as follows:
</TABLE>
<TABLE>
Year Ending
May 31,
Notes
Payable
Capital
Leases
<S>
1998
$
<C>
461,740
$
<C>
142,771
1999
25,634
131,077
2000
29,564
85,013
2001
- -
- -
Total minimum payments
$
516,938
358,861
</TABLE>
Amount representing imputed interest ( 44,738)
Present value of minimum lease payments $ 314,123
NOTE 4 - LINE OF CREDIT
The Company has a revolving line of credit arrangement with a financing
company which charges annualized interest of 33.48%. At May 31, 1996,
the agreement allowed the Company to borrow up to the lesser of
$400,000 or 80% of eligible receivables. At May 31, 1997, the
agreement allowed the Company to borrow up to $400,000 or 90% of
eligible receivables. Borrowings under this agreement totalled
$141,592 at May 31, 1996 and $175,679 at May 31, 1997. The agreement
is collateralized by accounts receivable and a personal guarantee by an
officer of the Company.
NOTE 5 - INCOME TAXES
Deferred taxes are comprised of the following:
<TABLE>
1997
1996
<S>
Reserve for bad debts
<C>
$ 7,468
<C>
$ 7,026
Accrued vacation
19,798
20,400
Net operating loss carryforwards
2,755,814
2,677,608
2,783,080
2,705,034
Valuation allowance
(2,783,080)
(2,705,034)
- -
- -
</TABLE>
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 1996 and 1997, the difference between the Company's effective
income tax rate and the federal statutory rate of 34% consists of the
following:
<TABLE>
<S>
<C>
<C>
1997
1996
Tax (benefit) at statutory rate
$(91,795)
$5,157
Utilization of net operating loss
carryforwards
-
(5,157)
Increase in valuation allowance
91,795
- -
Tax at effective rate
- -
- -
</TABLE>
The Company has net operating loss carry-forwards of approximately
$7,875,000 with expiration dates beginning in fiscal year 2000. As
part of a 1997 offer in compromise with the Internal Revenue Service,
the Company agreed to reduce the carry-forward by approximately
$500,000 for losses from one of its subsidiaries.
NOTE 6 - EMPLOYEE BENEFIT PLAN
ETT: 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 $9,500 beginning in 1996. ETT - 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 1997 and 1996.
NOTE 7 - OPTIONS AND WARRANTS
During 1996 and 1997, common stock purchase warrants and common stock
options consisted of the following:
<TABLE>
<S>
<C>
<C>
<C>
Options
Warrants
Balance, June 1, 1995
950,000
15,000
$
0.20 -
5.00
Issued
25,000
$
2.00
Exercise of options
(72,000)
.50
Cancellation of options
(300,000)
Balance, May 31, 1996
603,000
15,000
$
.050 -
5.00
Exercise of options
(128,000)
$
0.23
Balance , May 31, 1997
475,000
15,000
$
0.20 -
5.00
</TABLE>
The above options and warrants are fully vested, and are valued at the
fair market value of the common stock as of the date of grant. The
warrants expire in April 2002. The majority (300,000) of the options
expire in February 2000 and the remaining options expire on May 31,
1998.
NOTE 8 - STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flows information:
<TABLE>
<S>
<C>
<C>
1997
1996
Cash paid during the year for:
Interest
$178,259
$204,044
Income taxes
- -
- -
Non-cash investing and financing activities:
Equipment purchases financed by capital
lease obligations
- -
63,000
Common stock issued in exchange for
consulting services
$33,000
$36,000
</TABLE>
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 $33,375 per year through fiscal year 2001. Additionally, the
Company leases warehouse and commercial space in Washington under
cancelable leases with month-to-month terms. Rent expense related to
these leases was $35,050 and $28,196 for 1997 and 1996, respectively.
During the normal course of business, matters arise which may
ultimately subject the Company to claims and litigation. At present,
the Company is involved in litigation relating to a discontinued
operation (Accu-Inspect) and relating to a noncompleted merger
agreement (regarding North American). The Company is also at risk
relating to unpaid liabilities from foreclosure on a subsidiary (X-Ray,
Inc.). Management believes that the resolution of these matters will
not have a material adverse effect on the Company's financial position.
ACCU-INSPECT
In August 1994, the Company formed a subsidiary, Accu-Inspect, Inc., a
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.
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, after
recording a reserve for the full amount of the notes (against which no
payments have been made).
After the sale of Accu-Inspect assets, former owners of Accu-Tech
commenced legal actions against the Company for breach of contract.
Based upon the opinion of the Company's counsel, the suits could result
in a settlement or award by the court in favor of the Company. At this
time, however, no estimate can be made as to the time or the amount, if
any, of ultimate recovery.
NORTH AMERICAN
In April 1995, the Company entered into a letter-of-intent to merge
with North American Inspection, Inc. (North American). Shortly
thereafter, the Company obtained a $500,000 revolving line-of-credit
using North American's accounts receivable billed through a corporate
subsidiary as collateral (see Note 3). North American terminated the
merger agreement 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 the litigation is
not known.
X-RAY, INC.
In November 1995, the Company elected to foreclose on its security
interest in all of the assets of its subsidiary, X-Ray, Inc. The
foreclosure resulted in the Company's removal from its consolidated
balance sheet of $252,497 of X-Ray's liabilities. In effecting this
foreclosure, the Company recorded a net gain of $233,178.
NOTE 10 - PREFERRED STOCK
The Company elected not to make the first three preferred stock
redemption payments amounting to $21,235 per annum which became due on
August 31 of 1995, 1996, and 1997. 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.
The Company also elected not to make dividend payments to the holders
of Class B preferred stock. Under the terms of the preferred stock
agreement, required dividends are as follows: 2% (effectively, $2,000)
for the first year ending August 31, 1995; 6% (effectively, $6,000) for
subsequent years. The Company and the owners of the Class B preferred
stock are currently engaged in litigation. See Note 10.
NOTE 11- EXTRAORDINARY ITEM
In prior years, the Company recorded an estimated tax liability related
to a tax shelter investment made by X-Ray prior to its acquisition by
the Company. This recorded liability of $175,000 at May 31, 1995
included assessed taxes of approximately $143,000 in addition to
accrued interest and penalties. In April 1996, the Company was able to
successfully negotiate a full settlement with the Internal Revenue
Service for the sum of $5,000. The resultant gain of $170,000 has been
recorded as an extraordinary item in the year ended May 31, 1996.
NOTE 12- SUBSEQUENT EVENT
In a purchase agreement dated July 2, 1997, the Company agreed to
acquire tank-lifting equipment and patent rights owned by World Wide
Tank Services Australia Pty. Ltd. (WWT). The agreement calls for a
purchase price of U.S. $100,000, consisting of $75,000 in ETT stock and
a $25,000 non-interest bearing note payable in incremental installments
of $1,000 for each tank lifted. The Company expects to complete this
purchase in November 1997.
