<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
AMENDMENT NO. 1
ON
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): APRIL 18, 1995
INSITUFORM MID-AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-15280 43-1319439
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
17988 EDISON AVENUE
CHESTERFIELD, MISSOURI 63005-3700
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 532-6137
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
-------------------------------------------
(i) Independent Auditors' Report
(ii) Consolidated Balance Sheets as of March 25, 1995 and
March 26, 1994
(iii) Consolidated Statements of Operations for the years
ended, respectively, March 25, 1995 and March 26, 1994
(iv) Consolidated Statements of Stockholders' Equity for the
years ended, respectively, March 25, 1995 and March 26,
1994
(v) Consolidated Statements of Cash Flows for the years
ended, respectively, March 25, 1995 and March 26, 1994
(vi) Notes to Consolidated Financial Statements
(b) Pro forma financial information.
-------------------------------
(i) Condensed Pro Forma Consolidated Balance Sheet as of
March 31, 1995
(ii) Condensed Pro Forma Consolidated Income Statement for
the six months ended March 31, 1995
(iii) Condensed Pro Forma Consolidated Income Statement for
the year ended September 30, 1994
(c) Exhibits. See Exhibit Index.
--------
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
IMA Merger Sub, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
Enviroq Corporation and subsidiaries (renamed IMA Merger Sub, Inc.)
as of March 25, 1995 and March 26, 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended March 25, 1995. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our 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, such consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of Enviroq Corporation and subsidiaries as of March 25,
1995 and March 26, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended
March 25, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1, to the consolidated financial statements,
the Company discontinued the operations of two of its subsidiaries;
Synox Corporation and Sprayroq, Inc. and spun off their related
assets, together with certain other assets, to a newly formed
company on April 18, 1995. The loss from operations of these
subsidiaries is included in income from discontinued operations in
the accompanying consolidated financial statements. In addition on
April 18, 1995, the Company sold all of its common stock to
Insituform Mid-America, Inc.
As discussed in Note 16, the Company is involved in certain litigation
and arbitration proceedings in connection with the merger with Insituform
Mid-America, Inc. regarding certain aspects of its Insituform and
NuPipe licensing agreements and the partnership agreement of Midsouth Partners.
The ultimate outcome of these litigation and arbitration proceedings cannot
presently be determined. Accordingly, no provision for any loss that may
result upon resolution of these matters has been made in the accompanying
consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Jacksonville, Florida
June 9, 1995
<PAGE> 4
<TABLE>
ENVIROQ CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 1995 March 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 621,477 $ 218,806
Contracts receivable (net of allowance for
doubtful accounts of $0). . . . . . . . . . . . . . 3,671,831 3,315,651
Marketable securities (at amortized cost which
approximates market value). . . . . . . . . . . . . 203,083 360,485
Inventories. . . . . . . . . . . . . . . . . . . . . . 960,716 876,083
Costs and estimated earnings in excess of
related billings. . . . . . . . . . . . . . . . . . 966,245 1,751,194
Receivables from related parties . . . . . . . . . . . 15,978 86,358
Income taxes receivable. . . . . . . . . . . . . . . . 112,998
Prepaid expenses and other assets. . . . . . . . . . . 219,316 259,876
----------- -----------
6,771,644 6,868,453
----------- -----------
Investment and other assets:
Investments in and advances to affiliate . . . . . . . 1,322,529 913,808
Receivable from New Enviroq. . . . . . . . . . . . . . 344,162
Deferred income taxes. . . . . . . . . . . . . . . . . 131,806 170,332
Other assets . . . . . . . . . . . . . . . . . . . . . 987,852 1,024,802
----------- -----------
2,786,349 2,108,942
----------- -----------
Property, plant and equipment, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . 252,789 252,789
Buildings. . . . . . . . . . . . . . . . . . . . . . . 2,589,081 2,523,441
Construction equipment . . . . . . . . . . . . . . . . 5,543,573 5,608,100
Other equipment and vehicles . . . . . . . . . . . . . 2,448,462 1,985,306
Construction in process. . . . . . . . . . . . . . . . 182,952 89,069
----------- -----------
11,016,857 10,458,705
Less accumulated depreciation. . . . . . . . . . . . . (6,595,047) (6,549,775)
----------- -----------
4,421,810 3,908,930
----------- -----------
Net assets of discontinued operations. . . . . . . . . . . 1,943,227 2,718,767
----------- -----------
$15,923,030 $15,605,092
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 5
<CAPTION>
March 1995 March 1994
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ 1,000
Accounts payable and accrued expenses. . . . . . . . . 2,071,227 1,226,867
Salaries, wages and related taxes. . . . . . . . . . . 251,252 275,044
Billings in excess of costs and estimated earnings . . 34,706
Due to related parties . . . . . . . . . . . . . . . . 696,726 914,295
Income taxes payable . . . . . . . . . . . . . . . . . 74,106
Current portion of long-term debt and capital leases . 126,115 121,663
----------- -----------
3,146,320 2,647,681
Long-term debt and capital leases. . . . . . . . . . . . . 339,401 465,515
Deferred compensation. . . . . . . . . . . . . . . . . . . 560,783 412,498
----------- -----------
4,046,504 3,525,694
----------- -----------
Commitments and contingencies (Notes 4, 7 and 16)
Stockholders' Equity:
Class C preferred stock-$1 par value; authorized
1,000,000 shares, none issued or outstanding
Common stock-$.44 par value; authorized 15,000,000 shares,
issued 4,916,791 shares . . . . . . . . . . . . . . 2,163,388 2,163,388
Additional paid-in capital . . . . . . . . . . . . . . 9,700,619 10,178,748
Retained earnings (deficit). . . . . . . . . . . . . . 134,311 (140,946)
----------- -----------
11,998,318 12,201,190
Less treasury stock at cost, 51,404 shares . . . . . . (121,792) (121,792)
----------- -----------
11,876,526 12,079,398
----------- -----------
$15,923,030 $15,605,092
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE> 6
<TABLE>
ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended
-------------------------------
March 1995 March 1994
---------- ----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .$21,263,498 $22,015,031
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . 17,252,236 17,903,924
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 4,011,262 4,111,107
Selling, general and administrative expenses . . . . . . . . . 2,868,240 2,657,907
----------- -----------
Income from operations . . . . . . . . . . . . . . . . . . 1,143,022 1,453,200
----------- -----------
Other income:
Equity in income of affiliate. . . . . . . . . . . . . . . . 531,971 150,254
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 78,897 57,042
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 208,342 138,050
----------- -----------
819,210 345,346
----------- -----------
Other expense:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 85,299 57,437
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 45,268 48,159
----------- -----------
130,567 105,596
----------- -----------
Income from continuing operations before income taxes. . . . . .1,831,665 1,692,950
Income tax provision . . . . . . . . . . . . . . . . . . . . . (794,000) (671,000)
----------- -----------
Income from continuing operations. . . . . . . . . . . . . . . .1,037,665 1,021,950
Discontinued operations (Note 1):
Loss from operations of discontinued subsidiaries
Synox and Sprayroq (less applicable income tax
benefit of $272,000 and $265,000). . . . . . . . . . . . (762,408) (647,206)
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .$ 275,257 $ 374,744
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE> 7
<TABLE>
ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 1995 and 1994
<CAPTION>
Common Stock
($.44 Par Value) Additional Retained Treasury Stock
------------------ Paid-In Earnings --------------
Shares Amount Capital (Deficit) Shares Amount Total
--------- ---------- ----------- --------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance March 27, 1993 . . . . . 4,871,791 $2,143,588 $10,072,923 $(515,690) 51,404 $(121,792) $11,579,029
Net income . . . . . . . . . . . 374,744 374,744
Issuance of common stock . . . . 45,000 19,800 105,825 125,625
--------- ---------- ----------- --------- ------ --------- -----------
Balance March 26, 1994 . . . . . 4,916,791 2,163,388 10,178,748 (140,946) 51,404 (121,792) 12,079,398
Net income . . . . . . . . . . . 275,257 275,257
Organization costs of Synox
and Sprayroq. . . . . . . . . (478,129) (478,129)
--------- ---------- ----------- --------- ------ --------- -----------
Balance March 25, 1995 . . . . . 4,916,791 $2,163,388 $ 9,700,619 $ 134,311 51,404 $(121,792) $11,876,526
========= ========== =========== ========= ====== ========= ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE> 8
<TABLE>
ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended
-------------------------------
March 1995 March 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .$ 275,257 $ 374,744
Adjustments to reconcile net income as adjusted to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 975,922 1,099,004
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . 193,908 142,018
Gain on disposal of fixed assets . . . . . . . . . . . . . . . . .(74,059) (36,638)
Gain on disposal of securities . . . . . . . . . . . . . . . . . . (1,500) (3,145)
Decrease in deferred income taxes. . . . . . . . . . . . . . . 38,526 69,008
Equity in income of affiliates . . . . . . . . . . . . . . . . (531,971) (150,254)
Increase in contracts receivable . . . . . . . . . . . . . . . (356,180) (1,182,237)
(Increase) decrease in income taxes receivable . . . . . . . . (112,998) 96,414
Receivable from New Enviroq. . . . . . . . . . . . . . . . . . (344,162)
Decrease (increase) in receivable from related parties . . . . 70,380 (47,523)
Increase in inventories. . . . . . . . . . . . . . . . . . . . (84,633) (139,905)
Decrease (increase) in costs and estimated earnings
in excess of related billings. . . . . . . . . . . . . . . 784,949 (1,027,533)
Decrease (increase) in prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . . . 40,560 (207,088)
Increase in other assets . . . . . . . . . . . . . . . . . . . (156,958) (262,847)
Increase in accounts payable and accrued expenses. . . . . . . 809,526 16,211
(Decrease) increase in salaries, wages and related taxes . . . (23,792) 160,063
Decrease in billings in excess of costs and
estimated earnings . . . . . . . . . . . . . . . . . . . . (34,706) (37,294)
(Decrease) increase in due to related parties. . . . . . . . . (182,735) 726,826
(Decrease) increase in income taxes payable. . . . . . . . . . (74,106) 74,106
Increase in deferred compensation. . . . . . . . . . . . . . . 148,285 62,923
Discontinued operations - non cash charges and working
capital changes. . . . . . . . . . . . . . . . . . . . . . 285,358 233,920
----------- -----------
Net cash provided by (used in) operating activities. . . . . . 1,644,871 (39,227)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities . . . . . . . . . . . . . . (8,870,000) (3,500,000)
Sales of marketable securities . . . . . . . . . . . . . . . . 9,028,902 4,504,668
Proceeds from sale of equipment. . . . . . . . . . . . . . . . 129,613 38,781
Additions to property, plant and equipment . . . . . . . . . . (1,544,356) (856,603)
Distribution of Midsouth Partnership Capital . . . . . . . . . . .123,250
Cash provided by (used in) discontinued segment. . . . . . . . 500,362 (62,817)
----------- -----------
Net cash (used in) provided by investing activities. . . . . . (632,229) 124,029
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on obligations under capital leases . . . . . . . . . (52,698) (39,331)
Payments on long-term debt . . . . . . . . . . . . . . . . . . (68,964) (68,966)
Issuance of additional common stock. . . . . . . . . . . . . . 84,375
----------- -----------
Net cash used in financing activities. . . . . . . . . . . . . (121,662) (23,922)
----------- -----------
Net increase in cash and cash equivalents. . . . . . . . . 890,980 60,880
Cash and cash equivalents at beginning of year . . . . . . . 235,666 174,786
Cash and cash equivalents at end of year . . . . . . . . .$ 1,126,646 $ 235,666
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE> 9
ENVIROQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. GENERAL INFORMATION.
Pursuant to a Merger Agreement, dated November 2, 1994, by and among
Enviroq Corporation ("Enviroq"), Insituform Mid-America, Inc. ("IMA") and
IMA Acquisition Corp. ("Acquisition Corp."), on April 18, 1995,
Acquisition Corp. acquired the common stock of and merged into Enviroq
which changed its name to IMA Acquisition Corp. and, together with its
wholly-owned subsidiaries, Insituform Southeast, Inc., Enviroq Services,
Inc. (which subsequently changed its name to ISE Services, Inc.), E-
Midsouth, Inc. and NuPipe Southeast, Inc. became subsidiaries of IMA.
Immediately prior to the merger, the net assets of Synox Corporation
("Synox"), a wholly-owned subsidiary of Enviroq, and Sprayroq, Inc.
("Sprayroq"), a 50% owned subsidiary of Enviroq, approximately 11 acres
of unimproved land and $500,000 in cash were transferred to New Enviroq,
a newly formed public company, at their respective book values and all of
the shares of New Enviroq were spun off by Enviroq to its shareholders.
Each share of common stock of Enviroq issued and outstanding was
converted into a right to receive a cash payment equal to the pro rata
portion of the merger consideration of $15,250,000.
The consolidated financial statements of the Company have been restated
to reflect Synox and Sprayroq as discontinued operations. Summarized
financial information for the discontinued operations as of and for the
years ended March 1995 and 1994 is as follows:
<TABLE>
Balance Sheet Data:
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents . . . . . . $ 505,169 $ 16,860
Marketable securities . . . . . . . . 500,000
Other current assets . . . . . . . . 171,709 261,430
----------- -----------
676,878 778,290
Other Noncurrent Assets. . . . . . . . . 722,211 807,555
Net Property, Plant and Equipment. . . . 1,153,873 1,247,538
----------- -----------
Total Assets. . . . . . . . . . . . . . . . 2,552,962 2,833,383
----------- -----------
Liabilities
Current Liabilities. . . . . . . . . . . 45,902 77,531
Noncurrent Liabilities . . . . . . . . . 563,833 37,085
----------- -----------
Total Liabilities . . . . . . . . . . . . . 609,735 114,616
----------- -----------
Net Assets of Discontinued Operations . . . $ 1,943,227 $ 2,718,767
=========== ===========
7
<PAGE> 10
<CAPTION>
Discontinued Loss Data:
<S> <C> <C>
Related Party Revenues. . . . . . . . . . . $ 173,523 $ 142,796
Other Revenues. . . . . . . . . . . . . . . 43,110 78,322
----------- -----------
Total Revenues . . . . . . . . . . . . . 216,633 221,118
----------- -----------
Loss Before Income Taxes. . . . . . . . . . (1,034,408) (912,206)
Income Tax Benefit. . . . . . . . . . . . . 272,000 265,000
----------- -----------
Net Loss. . . . . . . . . . . . . . . . . . $ (762,408) $ (647,206)
=========== ===========
</TABLE>
The Merger Agreement provides that New Enviroq will be responsible to
reimburse Enviroq/IMA and pay all transaction costs incurred by Enviroq
in connection with the negotiation and consummation of the Merger
Agreement. These costs include:
* Registration of New Enviroq shares,
* Preparation and filing of Enviroq's Proxy Statement, and
* All related professional fees and expenses and printing costs
including the investment banking fees associated with the fairness
opinion.
B. BASIS OF PRESENTATION.
Principles of Consolidation.
The consolidated financial statements include the accounts of Enviroq
Corporation, its wholly-owned subsidiaries, and its 50% owned subsidiary,
Sprayroq, Inc. Sprayroq, Inc. is included on a consolidated basis
because the Company has a majority voting interest of the stock of
Sprayroq, Inc. As previously disclosed, the accounts of Synox and
Sprayroq are disclosed as discontinued operations in the consolidated
financial statements. All significant intercompany transactions are
eliminated. The equity method of accounting is used for the Company's
investment in its unconsolidated affiliate.
Allocated Revenues and Expenses.
Certain subsidiaries of Enviroq purchased chemical products from Sprayroq
in order to fulfill requirements of outside contracts. The revenues
earned from these outside contracts were allocated to Sprayroq based on
the fair value of the products. Revenues allocated to Sprayroq were
approximately $174,000 and $143,000 in 1995 and 1994. In addition, a
pro-rata share of general and administrative corporate costs incurred by
Enviroq have been allocated to Synox and Sprayroq based upon estimated
time expended by corporate employees, services performed by outside
vendors and usage of various corporate materials related to the
operations of Synox and Sprayroq. General and administrative expenses
allocated to Synox and Sprayroq were approximately $219,000 in 1995 and
1994. Management believes the above stated allocations of revenues and
expenses were made on a reasonable basis; however, they do not
necessarily reflect the results of operations which would have occurred
had Synox and Sprayroq been independent entities nor are they necessarily
indicative of future revenues or expenses.
C. FISCAL YEAR.
Enviroq's fiscal year ends on the last Saturday in March. Fiscal years
1995 and 1994 consisted of 52 weeks.
D. ENVIROQ'S BUSINESS AND OPERATING CYCLE.
Enviroq is engaged in the business of pipeline, sewer and conduit
reconstruction, repair and rehabilitation using a process that provides
a continuous, jointless tube with little or no excavation under normal
conditions. Enviroq has the exclusive licensee for
8
<PAGE> 11
the Insituform and NuPipe processes in Alabama, Florida, Georgia, North
Carolina, and South Carolina, and in addition, own 42.5% of Midsouth
Partners, a general partnership which is the exclusive licensee of the
Insituform and NuPipe processes in Tennessee, most of Kentucky, and
northern Mississippi.
The work is performed under cost-plus-fee and fixed-priced contracts,
primarily with state and local government agencies. Because such
contracts do not extend beyond one year, the accompanying balance sheets
are presented on a classified basis.
E. REVENUE AND COST RECOGNITION.
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs
incurred to total estimated costs for each contract (cost-to-cost
method). This method is used because management considers costs incurred
to be the best available measure of progress on these contracts.
Revenues from cost-plus-fee contracts are recognized on the basis of
costs incurred during the period plus the fee earned, measured by the
cost-to-cost method.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation. Selling, general and
administrative costs are charged to expense as incurred. Changes in job
performance, conditions and estimated profitability may result in
subsequent revisions to costs and income. When possible, such revisions
are recognized in the period that the related contract revenues and costs
are recorded. Otherwise, they are recognized in the period in which the
revisions are determined. The asset, "Costs and estimated earnings in
excess of related billings", represents revenues recognized in excess of
amounts billed. The liability, "Billings in excess of costs and
estimated earnings", represents billings in excess of revenues
recognized.
F. CASH AND CASH EQUIVALENTS.
Enviroq considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents except
for certain short term state and municipal bond funds.
G. INVENTORIES.
Inventories, consisting of raw materials and supplies, are valued at the
lower of cost (first-in, first-out method) or market.
H. MARKETABLE SECURITIES.
Marketable securities consist primarily of state and municipal tax exempt
bonds and bond funds of various maturities carried at amortized cost
which approximates market value. These investments are subject to market
risk associated with fixed income securities. Enviroq classifies all
debt and marketable equity securities in one or more of the following
three categories: (1) Held-to-Maturity; (2) Available-for-Sale; and (3)
Trading. Enviroq considers all securities to be available-for-sale
securities. Realized gains and losses on these securities are determined
on a specific identification basis. There were no unrealized holding
gains or losses at March 1995 and 1994.
I. INVESTMENT IN AND ADVANCES TO AFFILIATE.
Enviroq's investment in Midsouth Partners, a general partnership, is
accounted for by the equity method. Under the terms of the partnership
agreement, Enviroq has a 42.5% interest in the partnership's profits or
losses.
9
<PAGE> 12
J. INTANGIBLES.
Costs incurred for certain sub-license agreements are being amortized
over a 12 year period using the straight-line method.
Organizational costs for NuPipe Southeast, Inc. and Enviroq Services,
Inc. are being amortized over a three year period using the straight-line
method.
Enviroq purchased a license agreement from NU-PIPE, Inc. in December
1990. This agreement provides NuPipe Southeast, Inc. exclusive process
rights within its territory and use of copyrighted information. This
cost is being amortized over the life of the agreement (15 years) using
the straight-line method.
The excess of Enviroq's basis in Synox over the underlying net asset
value is being amortized over a 15 year period using the straight-line
method.
Management periodically evaluates the likelihood of impairment of its
intangible assets based upon anticipated future cash flows.
K. PROPERTY, PLANT AND EQUIPMENT.
Depreciation is provided principally on the straight-line method over the
following estimated useful lives of the assets:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings . . . . . . . . . . . 5 to 40
Construction equipment. . . . . 2 to 15
Other equipment and vehicles. . 2 to 7
</TABLE>
Repairs and maintenance costs are charged to expense as incurred.
L. CAPITALIZATION OF INTEREST.
Interest incurred on major capital expenditures is capitalized during the
period of construction. Capitalized interest was $14,357 and $3,664 for
the years ended March 1995 and 1994, respectively.
M. RESEARCH AND DEVELOPMENT COSTS.
Research and development costs are expensed as incurred. For the years
ended March 1995 and 1994 such costs relating to continuing operations
were $69,295 and $47,320, respectively.
N. INCOME TAXES.
Enviroq Corporation files consolidated federal income tax returns.
Income tax expense (benefit) is allocated to each member of the
consolidated group on the basis of their respective taxable income or
loss included in the consolidated income tax returns. Enviroq utilizes
an asset and liability approach to financial accounting for income taxes.
Under this method deferred tax assets and liabilities are recognized
based on differences between financial statement and tax basis of assets
and liabilities using presently enacted tax rates.
In 1995 and 1994, deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of
Enviroq assets and liabilities.
10
<PAGE> 13
O. PRODUCT WARRANTIES.
Enviroq generally warrants that its products meet contract
specifications. Such warranties cover materials and workmanship and are
generally effective for a period of one year from date of contract
completion. Liability for warranty claims is accrued when management
determines that a specific liability exists and the amount can be
reasonably estimated.
P. RECLASSIFICATIONS.
Certain reclassifications have been made to the 1994 consolidated
financial statements to conform with the presentation adopted for 1995.
2. CONTRACTS RECEIVABLE:
Substantially all the contracts are with governmental units located within
Enviroq's geographic territory. Contracts receivable are as follows:
<TABLE>
<CAPTION>
March 1995 March 1994
----------- -----------
<S> <C> <C>
Completed contracts. . . . . . . . . . . . . . $ 826,556 $ 1,077,604
Contracts in process . . . . . . . . . . . . . . 2,100,609 1,960,791
Retained . . . . . . . . . . . . . . . . . . . 744,666 277,256
----------- -----------
$ 3,671,831 $ 3,315,651
=========== ===========
</TABLE>
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:
<TABLE>
<CAPTION>
March 1995 March 1994
----------- -----------
<S> <C> <C>
Costs on uncompleted contracts . . . . . . . . $ 5,424,974 $ 4,848,507
Estimated earnings . . . . . . . . . . . . . . 452,204 1,366,433
----------- -----------
5,877,178 6,214,940
Less billings to date. . . . . . . . . . . . . (4,910,933) (4,498,452)
----------- -----------
$ 966,245 $ 1,716,488
=========== ===========
</TABLE>
Included in the accompanying consolidated balance sheets under the following
captions:
<TABLE>
<CAPTION>
March 1995 March 1994
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess
of billings . . . . $ 966,245 $ 1,751,194
Billings in excess of costs and
estimated earnings . . . . (34,706)
----------- -----------
$ 966,245 $ 1,716,488
=========== ===========
</TABLE>
4. INVESTMENT IN AND ADVANCES TO AFFILIATE:
The Midsouth Partners partnership agreement requires each partner to fund
additional capital contributions as may be necessary for operations of the
partnership in proportion to their respective interests. In addition,
Enviroq and one other partner are each obligated to loan up to $250,000 to
Midsouth Partners for operating capital. As of March 1995, Enviroq had no
loans outstanding under this agreement. During the year ended March 1995,
Midsouth Partners distributed $290,000 to its owners. Enviroq's portion of
this distribution was $123,250. Summary information for Midsouth Partners
as of March 1995 and 1994 and for the twelve month periods then ended is as
follows:
11
<PAGE> 14
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . $ 2,545,224 $ 2,026,386
Long-term assets . . . . . . . . . . . . . . . . . . . 1,293,161 971,842
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 3,838,385 $ 2,998,228
=========== ===========
Current liabilities. . . . . . . . . . . . . . . . . . $ 691,335 $ 765,582
Long-term liabilities. . . . . . . . . . . . . . . . . 35,218 82,510
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . . . . $ 726,553 $ 848,092
=========== ===========
Partnership equity . . . . . . . . . . . . . . . . . . $ 3,111,832 $ 2,150,136
=========== ===========
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 7,857,190 $ 6,357,515
=========== ===========
Gross profit . . . . . . . . . . . . . . . . . . . . . $ 2,227,243 $ 1,479,577
=========== ===========
Net income . . . . . . . . . . . . . . . . . . . . . . $ 1,251,696 $ 352,855
=========== ===========
Enviroq's interest:
Share of cumulative undistributed partnership income $ 1,322,529 $ 913,808
=========== ===========
</TABLE>
5. LONG-TERM DEBT AND CAPITAL LEASES:
<TABLE>
<CAPTION>
March 1995 March 1994
---------- -----------
<S> <C> <C>
Mortgage obligation under industrial
development bond $ 396,551 $ 465,516
Less current portion . . . . . . . . . . . . . (68,966) (68,965)
----------- -----------
$ 327,585 $ 396,551
=========== ===========
</TABLE>
In December 1985, Enviroq received proceeds of $965,145 from the issuance
of a $1,000,000 Industrial Development Bond (the "Bond") by the City of
Jacksonville, Florida and financed by Barnett Bank of Jacksonville, N.A.
(the "Bank"). Principal is due in 174 equal monthly installments of
$5,747 beginning July 1986 plus interest. Interest is computed at a rate
of 91.7% of the Bank's base lending rate. The Bank's base lending rate
was 9% at March 1995. The obligation is redeemable at the Bank's option,
every five years beginning December 1, 1988 or upon occurrence of a tax
violation as defined in the agreements. The obligation is secured by a
first mortgage and a first security interest in substantially all of
Enviroq's real and personal properties at March 1995.
Restrictive covenants include: restrictions on the sale or transfer of
project assets, change in entities, material adverse change in financial
condition or operations, the subordination of all notes payable to
stockholders, affiliates or related parties, limitations on additional
funded debt, permitting total debt not to exceed 3 times net worth
(including subordinated debt), maintaining net worth (including
subordinated debt) of not less than $2,000,000, maintaining cash flow
available for debt service at 1.5 times annual debt service for all
funded debt before dividends may be paid, and maintaining a current ratio
of at least 1.3-to-1.
12
<PAGE> 15
Aggregate long-term debt maturities subsequent to March 1995 are as
follows:
<TABLE>
<CAPTION>
March
-------------------------------
<S> <C>
1996. . . . . . . . . . . . . . $ 68,966
1997. . . . . . . . . . . . . . 68,966
1998. . . . . . . . . . . . . . 68,966
1999. . . . . . . . . . . . . . 68,966
2000. . . . . . . . . . . . . . 68,966
Thereafter. . . . . . . . . . . 51,721
--------
$396,551
========
</TABLE>
Enviroq acquired some of its vehicles subject to leasing arrangements
that qualify for capitalization. The net book value of leased vehicles
at March 25, 1995 is approximately $64,000.
Future minimum rental payments for obligations under capital leases at
March 25, 1995 are as follows:
<TABLE>
<S> <C>
1996. . . . . . . . . . . . . . $ 60,662
1997. . . . . . . . . . . . . . 11,956
--------
Total. . . . . . . . . . . . 72,618
Less interest. . . . . . . . (3,653)
--------
Total principal portion. . . $ 68,965
========
</TABLE>
At March 25, 1995, Enviroq had available two bank lines of credit
aggregating $2,500,000 which terminated effective with the merger.
6. INCOME TAXES:
The provision for income taxes from continuing operations for the years
ended March 1995 and 1994 includes the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current . . . . . . . . . . . . . . . . . . . $ 755,000 $ 602,000
Deferred . . . . . . . . . . . . . . . . . . . 39,000 69,000
---------- ----------
Income tax provision . . . . . . . . . . . . . $ 794,000 $ 671,000
========== ==========
</TABLE>
The differences between the provision for income taxes from continuing
operations and income taxes computed using the Federal statutory rate for
the years ended March 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Taxes computed at Federal statutory rate . . . $ 623,000 $ 576,000
State income taxes, net of Federal tax benefit 76,000 61,000
Nondeductible expenses . . . . . . . . . . . . 95,000 34,000
---------- ----------
$ 794,000 $ 671,000
========== ==========
</TABLE>
13
<PAGE> 16
The types of temporary differences and their related tax effects which
create deferred taxes at March 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets:
Deferred compensation . . . . . . . . . . . $ 209,172 $ 156,733
Other . . . . . . . . . . . . . . . . . . . 73,802 61,732
---------- ---------
Total assets . . . . . . . . . . . . . . 282,974 218,465
---------- ---------
Liabilities:
Equity in Midsouth Partners . . . . . . . . (92,632) (48,133)
Other . . . . . . . . . . . . . . . . . . . (58,536)
---------- ---------
Total liabilities. . . . . . . . . . . . (151,168) (48,133)
---------- ---------
Net deferred tax asset . . . . . . . . . $ 131,806 $ 170,332
========== =========
</TABLE>
7. COMMITMENTS:
Enviroq leases certain vehicles and equipment used in its operations on
a month-to-month basis. Total rent expense for all operating leases for
the years ended March 1995 and 1994 was approximately $207,000 and
$212,000 respectively. These amounts do not include equipment rented on
a day-to-day basis.
Under the terms of its sublicense agreements, Enviroq is obligated to pay
the licensor royalties of 8% of contract revenue, excluding certain
preparatory and finishing work. These agreements require the payment of
minimum royalties of approximately $448,000 per year as of March 1995;
extend for the life of the underlying patents and are cancelable, either
by the licensee upon written notice, or by the licensor upon nonpayment
of royalties or certain other events as defined.
Pursuant to a supplement to the Sublicense Agreement dated December 1,
1990, future minimum royalties may be waived by the licensor if the
licensor approves Enviroq's marketing and sales plan with respect to
licensed processes. The Company has submitted such a plan which has been
approved for the 1995 royalty year.
8. RELATED PARTY TRANSACTIONS:
Substantially all of Enviroq's insurance is purchased through Assurance
Agency, Inc., an affiliate of SCE, Incorporated ("SCE"), a principal
stockholder of Enviroq until April 18, 1995. Enviroq leases warehouse
space from Sullivan, Long and Hagerty ("SLH") (the parent of SCE). The
lease term is one year, renewable annually, and requires monthly payments
of $1,750. Enviroq also purchased marketing promotion and related
services from Market Potential, Incorporated, which is owned by a party
associated with SCE.
Enviroq purchased Insitutube, NuPipe and related products from Insituform
Technologies, Inc. ("ITI") which was a stockholder of Enviroq until April
18, 1995.
14
<PAGE> 17
Total expenditures by Enviroq to the above affiliates for the years ended
March 1995 and 1994 were approximately as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ITI. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,560,000 $ 4,223,000
SCE and affiliates . . . . . . . . . . . . . . . . . . . . 1,063,000 1,053,000
SLH. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000 27,000
----------- -----------
5,650,000 5,303,000
Capitalized expenditures . . . . . . . . . . . . . . . . . 0 (41,000)
----------- -----------
Amounts charged to cost of revenues and selling, general
and administrative. . . . . . . . . . . . . . . . . . . $ 5,650,000 $ 5,262,000
=========== ===========
</TABLE>
For the years ended March 1995 and 1994 Enviroq provided $17,000 and
$71,000, respectively, of operational support and contract related
services to Midsouth Partners. For the years ended March 1995 and 1994,
Midsouth Partners provided operational support to Enviroq of $15,000 and
$298,000, respectively.
Due to related parties is comprised of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Royalties payable to licensors . . . . . . . . . . . . . . $ 360,000 $ 341,000
Inventory purchases payable to ITI . . . . . . . . . . . . 257,000 395,000
Insurance payable to Assurance Agency, Inc.. . . . . . . . 50,000 111,000
Inventory purchases payable to Sprayroq. . . . . . . . . . 22,000 35,000
Payables to SCE and SLH. . . . . . . . . . . . . . . . . . 8,000
Payable to Midsouth Partners . . . . . . . . . . . . . . . 32,000
----------- -----------
$ 697,000 $ 914,000
=========== ===========
</TABLE>
9. RETIREMENT PLAN:
Enviroq has a Retirement Plan (the "Plan") for its employees, which
remains in effect with the IMA merger, which allows participants to make
contributions by salary reduction pursuant to Section 401(K) of the
Internal Revenue Code. The Board of Directors approved Enviroq
contributions to the Plan for the year ended March 1995 and 1994 of
$43,268 and $40,096, respectively, for allocation to eligible participant
individual accounts. Participants under the Plan are fully vested within
one year for Enviroq contributions.
10. STATEMENT OF CASH FLOWS:
Supplemental disclosure of cash flow information for the years ended
March 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . $ 38,681 $ 61,355
Income taxes. . . . . . . . . . . . . . . . $ 483,323 $ 89,130
</TABLE>
Non-cash investing transactions for 1995 include the write-off of fully
depreciated property, plant and equipment of $930,650. Non-cash
financing transactions for 1995 include the accrual of organization costs
of approximately $478,000 with a corresponding reduction in additional
paid-in capital.
15
<PAGE> 18
Non-cash investing and financing transactions for 1994 includes $161,000
related to assets acquired under capital leases and the issuance of
15,000 shares of common stock valued at $41,250 related to a previous
acquisition described in Note 14.
11. PRINCIPAL CUSTOMER INFORMATION:
Revenues from major customers (those providing over 10% of total
revenues) were $2,880,000 and $2,975,000 (Miami/Dade County, Florida) for
fiscal years 1995 and 1994, and $3,866,000 (Cobb County, Georgia) for
fiscal year 1994.
12. STOCK OPTION PLANS:
In August 1986, Enviroq adopted an incentive stock option plan and a non-
qualified stock option plan. As of March 1994, options to purchase
491,060 shares of Enviroq common stock were outstanding. The IMA merger
consideration cash payment of $15,250,000 included payment to stock
option holders under both plans with stock options having an exercise
price of less than the merger consideration price of $3.13 per share.
As of April 18, 1995, the IMA merger date, holders of options to purchase
143,500 shares with exercise prices ranging from $2.125 to $2.9167 were
paid the difference between the merger consideration price per share of
$3.13 and the applicable exercise price per share which totalled
approximately $46,000. In addition, on April 18, 1995, options to
purchase 38,000 shares were exercised at exercise prices ranging from
$3.1875 to $3.5063. Stock options to purchase 209,384 shares of common
stock with exercise prices in excess of $3.13 per share were terminated
effective with the merger. The remaining options to purchase 100,176
shares of Enviroq common stock expired.
13. DEFERRED COMPENSATION BENEFITS:
Enviroq established non-qualified deferred compensation agreements, as
amended, for certain employees providing for fixed annual benefits
ranging from $10,000 to $100,000 payable over a period of 10 years in
event of death, full disability or retirement at age 65. These deferred
compensation agreements remain in effect subsequent to the merger with
IMA on April 18, 1995.
Benefits will be funded by life insurance contracts purchased by Enviroq.
The cost of these benefits is being charged to expense and accrued using
a present value method over the expected terms of employment. The charge
to expense in continuing operations for the years ended March 1995 and
1994 was $231,842 and $93,640, respectively. Enviroq (IMA subsequent to
April 18, 1995) reserves the right to terminate these agreements.
14. PURCHASE OF C&L WATERPROOFING, INC.:
On January 2, 1991, Enviroq purchased substantially all the assets of C&L
Waterproofing, Inc., a manhole reconstruction company for $320,000. The
transaction was accounted for by the purchase method. Results of this
business from January 2, 1991 are included in the accompanying combined
financial statements.
Because of a contingent purchase price provision, Enviroq issued 15,000
shares of common stock to the seller in fiscal year 1994. The fair value
of the stock issued is accounted for as an additional cost of the
acquired business.
16
<PAGE> 19
15. OFFICERS INDEMNIFICATION TRUST:
Enviroq (IMA subsequent to April 18, 1995) maintains a trust fund to
indemnify officers and directors in the event legal proceedings are
undertaken against the officers or directors as a result of actions on
behalf of Enviroq. Trust investments are United States Treasury notes
and bonds with varying maturity dates. Trust assets may only be used
upon approval of the Board of Directors and for the uses specified in the
trust agreement. The trust balance as of March 1995 and 1994 was
$354,745 and $334,568, respectively.
16. LEGAL PROCEEDINGS:
Enviroq is involved in certain litigation and arbitration proceedings in
connection with the IMA merger regarding certain aspects of its Insituform
and NuPipe licensing agreements and the partnership agreement of Midsouth
Partners. The principal issue involves the failure by Insituform North
America Corp. and NuPipe, Inc., subsidiaries of Insituform Technologies,
Inc. ("ITI"), to grant consent under their respective licenses, and of a
partner of Midsouth Partners, owned by Insituform East, to grant consent
under the governing partnership agreement, to the transactions under the
merger agreement between IMA and Enviroq. ITI, IMA and Enviroq have entered
into various agreements to take no further legal action regarding such
issues pending consummation of the transactions proposed between ITI and IMA
or termination of such arrangements. Management is unable at this time to
determine the effect, which could be material, of the ultimate outcome of
these litigation and arbitration proceedings. Accordingly, no provision for
any loss that may result upon resolution of these matters has been made in
these consolidated financial statements.
17. SUBSEQUENT EVENTS:
In addition to the Enviroq merger into IMA on April 18, 1995, ITI and IMA
on May 23, 1995 entered into a definitive agreement which provides for the
merger into IMA of a subsidiary of ITI formed for that purpose, as a result
of which IMA would become a wholly-owned subsidiary of ITI. The ITI and IMA
merger transaction is conditional upon obtaining certain approvals and other
conditions being met.
17
<PAGE> 20
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statements of income
for the year ended September 30, 1994 and for the six months ended March 31,
1995, and the unaudited pro forma condensed consolidated balance sheet at
March 31, 1995 (collectively, the "Pro Forma Statements") were prepared to
illustrate the estimated effects of the acquisition of Enviroq Corporation
(Enviroq) as if the acquisition had occurred for consolidated statement of
income purposes on October 1, 1993, and for consolidated balance sheet
purposes on March 31, 1995.
The pro forma financial information has been prepared on the basis of
assumptions described in the notes thereto and includes assumptions relating
to the allocation of the consideration paid for Enviroq to its respective
assets and liabilities based on preliminary estimates of their respective fair
values. The actual allocation of such consideration may differ from that
reflected in the pro forma condensed consolidated financial statements after
valuations and other studies to be performed pursuant to post closing
adjustments related to the acquisition.
The Pro Forma Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if such
events had occurred on October 1, 1993 or March 31, 1995, as the case may be,
or to project the Company's financial position or results of operations for
any future date or period.
18
<PAGE> 21
<TABLE>
INSITUFORM MID-AMERICA, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 1995
<CAPTION>
Insituform
Mid-America,
Inc. Enviroq <F1> Adjustments Pro Forma
---- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 2,647,576 621,477 - 3,269,053
Accounts receivable 17,535,307 3,671,831 - 21,207,138
Costs and estimated earnings
in excess of billings on
uncompleted contracts 9,228,693 966,245 - 10,194,938
Inventory 3,707,037 960,716 - 4,667,753
Prepaid expenses and other
current assets 2,571,648 782,539 - 3,354,187
---------- ---------- ---------- ----------
35,690,261 7,002,808 - 42,693,069
Property and equipment, net 22,232,679 4,421,810 - 26,654,489
Net assets of discontinued
operations - 1,943,227 (1,943,227)<F3> -
License costs 1,829,974 - - 1,829,974
Excess of cost over fair value
of net assets acquired 2,072,518 - 6,016,701 <F2> 8,089,219
Deferred non-compete expense 820,482 - 3,000,000 <F2> 3,820,482
Patents 3,334,706 - - 3,334,706
Investment in and advances to
affiliates - 1,322,529 - 1,322,529
Other 78,743 987,852 - 1,066,595
---------- ---------- ---------- ----------
$ 66,059,363 15,678,226 7,073,474 88,811,063
========== ========== ========== ==========
Liabilities and
Stockholders' Equity
--------------------
Current liabilities:
Note payable to bank 9,875,460 1,000 - 9,876,460
Accounts payable 5,564,382 1,030,943 - 6,595,325
Accrued income taxes 485,089 (112,998) 500,000 <F2> 872,091
Accrued expenses 4,852,224 1,291,536 200,000 <F2> 6,343,760
Due to related parties - 696,726 - 696,726
Current portion of long-term
debt and capital leases - 126,115 1,536,000 <F2> 1,662,115
---------- ---------- ---------- ----------
20,777,155 3,033,322 2,236,000 26,046,477
---------- ---------- ---------- ----------
Long-term liabilities:
Minority interest 1,311,690 - - 1,311,690
Deferred income taxes 1,217,641 (131,806) - 1,085,835
Long-term debt and capital
leases - 339,401 16,714,000 <F2> 17,053,401
Other 282,885 560,783 - 843,668
---------- ---------- ---------- ----------
2,812,216 768,378 16,714,000 20,294,594
---------- ---------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock 107,557 2,163,388 (2,163,388)<F4> 107,557
Additional paid-in capital 18,348,916 9,700,619 (9,700,619)<F4> 18,348,916
Retained earnings 24,463,079 134,311 (134,311)<F4> 24,463,079
Cumulative translation
adjustments (449,560) - - (449,560)
---------- ---------- ---------- ----------
42,469,992 11,998,318 (11,998,318) 42,469,992
Less treasury stock, at cost - (121,792) 121,792 <F4> -
---------- ---------- ---------- ----------
Total stockholders' equity 42,469,992 11,876,526 (11,876,526) 42,469,992
---------- ---------- ---------- ----------
$ 66,059,363 15,678,226 7,073,474 88,811,063
========== ========== ========== ==========
(Footnotes on following page)
19
<PAGE> 22
(Footnotes for preceding page)
<FN>
- ----------------
<F1> Reflects the historical balance sheet of Enviroq at March 25, 1995.
<F2> Reflects (a) the establishment of a $3 million non-compete agreement,
(b) transaction costs of $200,000, (c) accrued income taxes from the
spin-off of the net assets of discontinued operations of $500,000 and
(d) the allocation of the Enviroq purchase price to the fair value of the
net assets acquired as follows:
<S> <C>
Working capital $ 3,269,486
Property and equipment, net 4,421,810
Investment in and advance to affiliates 1,322,529
Non-compete agreement 3,000,000
Other assets 987,852
Deferred income taxes 131,806
Long-term debt and capital leases (339,401)
Non-compete note payable (3,000,000)
Other liabilities (560,783)
Goodwill 6,016,701
----------
Purchase price funded with
long-term debt $15,250,000
==========
<F3> Reflects the elimination of net assets of discontinued operations which
were spun-off to the stockholders of Enviroq immediately prior to the
Company's acquisition of Enviroq.
<F4> Reflects the elimination of historical stockholders' equity of Enviroq.
</TABLE>
20
<PAGE> 23
<TABLE>
INSITUFORM MID-AMERICA, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Six Months Ended March 31, 1995
<CAPTION>
Insituform
Mid-America,
Inc. Enviroq <F1> Adjustments Pro Forma
---- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Contract revenues $ 50,663,251 10,752,276 - 61,415,527
Cost of contract revenues 37,435,917 9,075,389 - 46,511,306
---------- ---------- --------- ----------
Gross profit 13,227,334 1,676,887 - 14,904,221
---------- ---------- --------- ----------
Costs and expenses:
General and administrative
expenses 4,655,447 1,081,114 400,000 <F2> 6,136,561
Selling expenses 1,556,900 442,730 - 1,999,630
Research and development
expenses 518,111 36,787 - 554,898
---------- ---------- --------- ----------
6,730,458 1,560,631 400,000 8,691,089
---------- ---------- --------- ----------
Income from operations 6,496,876 116,256 (400,000) 6,213,132
---------- ---------- --------- ----------
Interest income 57,737 42,031 - 99,768
Interest expense (324,472) (78,551) (672,810)<F3> (1,075,833)
Joint venture income 140,000 379,673 - 519,673
Other income (expense) (49,649) (5,588) (120,334)<F4> (175,571)
---------- ---------- --------- ----------
(176,384) 337,565 (793,144) (631,963)
---------- ---------- --------- ----------
Income before taxes and minority
interest 6,320,492 453,821 (1,193,144) 5,581,169
Provision for income taxes 2,148,968 196,015 (413,032)<F5> 1,931,951
---------- ---------- --------- ----------
Income before minority interest 4,171,524 257,806 (780,112) 3,649,218
Minority interest in income of
consolidated subsidiary (736,795) - - (736,795)
---------- ---------- --------- ----------
Income from continuing operations $ 3,434,729 257,806 (780,112) 2,912,423
========== ========== ========= ==========
Income from continuing operations
per common share .31 .26
========== ==========
Average common shares outstanding 11,060,000 11,060,000
========== ==========
<FN>
<F1> Reflects the addition of the historical operating results of Enviroq.
<F2> Reflects the payment of a $200,000 annual consulting fee and the
amortization of the non-compete agreement over five years. The consulting
fee is based upon a five-year consulting agreement.
<F3> Reflects the interest expense associated with (a) $15.25 million in
long-term debt to fund the purchase of Enviroq based on a 60-day Libor rate
plus 1.75% and (b) $3 million non-compete note payable at 6%.
<F4> Reflects the amortization of goodwill over 25 years.
<F5> Reflects the tax benefit associated with the interest expense on the
long-term debt to fund the purchase of Enviroq and non-compete note payable,
and the payment of annual consulting fees. Goodwill amortization does not
receive an income tax benefit.
</TABLE>
21
<PAGE> 24
<TABLE>
INSITUFORM MID-AMERICA, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended September 30, 1994
<CAPTION>
Insituform
Mid-America,
Inc. Enviroq <F1> Adjustments Pro Forma
---- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Contract revenues $ 75,279,329 21,780,796 - 97,060,125
Cost of contract revenues 54,472,300 17,068,285 - 71,540,585
---------- ---------- --------- ----------
Gross profit 20,807,029 4,712,511 - 25,519,540
---------- ---------- --------- ----------
Costs and expenses:
General and administrative
expenses 7,779,777 1,396,750 800,000 <F2> 9,976,527
Selling expenses 3,170,447 1,248,141 - 4,418,588
Research and development
expenses 652,166 55,406 - 707,572
---------- ---------- --------- ----------
11,602,390 2,700,297 800,000 15,102,687
---------- ---------- --------- ----------
Income from operations 9,204,639 2,012,214 (800,000) 10,416,853
---------- ---------- --------- ----------
Interest income 131,218 63,283 - 194,501
Interest expense (324,422) (38,458) (1,030,309)<F3> (1,393,189)
Joint venture income 164,298 332,345 - 496,643
Other income (expense) (211,991) 217,965 (240,668)<F4> (234,694)
---------- ---------- --------- ----------
(240,897) 575,135 (1,270,977) (936,739)
---------- ---------- --------- ----------
Income before taxes and minority
interest 8,963,742 2,587,349 (2,070,977) 9,480,114
Provision for income taxes 3,734,824 1,078,861 (701,699)<F5> 4,108,986
---------- ---------- --------- ----------
Income before minority interest 5,228,918 1,508,488 (1,366,278) 5,371,128
Minority interest in income of
consolidated subsidiary (179,867) - - (179,867)
---------- ---------- --------- ----------
Income from continuing
operations $ 5,049,051 1,508,488 (1,366,278) 5,191,261
========== ========== ========= ==========
Income from continuing opera-
tions per common share .45 .47
========== ==========
Average common shares outstanding 11,102,000 11,102,000
========== ==========
(Footnotes on preceeding page)
</TABLE>
22
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 30, 1995
INSITUFORM MID-AMERICA, INC.
By /s/ Joseph F. Olson
------------------------------------------
Joseph F. Olson, Vice President - Finance
and Administration
- 3 -
<PAGE> 26
<TABLE>
EXHIBIT INDEX
<CAPTION>
Sequential
Exhibit Page
Number Description Number
- ------- ----------- ----------
<C> <S> <C>
2 Merger Agreement, dated as of November 2, 1994, by and among N/A
Insituform Mid-America, Inc., IMA Merger Sub, Inc., Enviroq
Corporation and New Enviroq Corporation, filed as Exhibit Number
10.6 to Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, is hereby incorporated herein by
reference.
23 Consent of Deloitte & Touche LLP
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-21382 and 33-82328 of Insituform Mid-America, Inc. on Form S-8
of our report dated June 9, 1995 which expresses an unqualified opinion
and includes an explanatory paragraph relating to the discontinued
operations of two subsidiaries and the sale of Enviroq Corporation stock
to Insituform Mid-America, Inc. effective April 18, 1995, appearing in
this Current Report on Form 8-K of Insituform Mid-America, Inc.
/s/ DELOITTE & TOUCHE LLP
June 27, 1995
