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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-16322
EVANS ENVIRONMENTAL CORPORATION
(Name of small business issuer as specified in its charter)
COLORADO 84-1061207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
99 S.E. FIFTH STREET,
FOURTH FLOOR, MIAMI, FLORIDA 33131
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (305) 374-8300
Check whether the issuer (1) has 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 X No
As of October 31, 1995, the Company had a total of 16,602,060 shares of common
stock, $.003 par value, outstanding.
Transitional Small Business Disclosure format (check one): Yes No X
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<PAGE>
EVANS ENVIRONMENTAL CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated balance sheets
- September 30, 1995 and March 31, 1995 3
Consolidated statements of operations
- Six and Three Months Ended September 30, 1995 and 1994 4
Consolidated statements of cash flows
- Six months ended September 30, 1995 and 1994 5-6
Notes to financial statements 7-10
Item 2. Management's discussion and analysis of
financial condition and results of
operations 11-17
PART II. OTHER INFORMATION
Item 1. Legal proceedings 18
Item 2. Changes in securities 18
Item 3. Defaults upon senior securities 18
Item 4. Submission of matters to a vote of security holders 18
Item 5. Other information 18
Item 6. Exhibits and reports on form 8-K 18
SIGNATURES 19
Page 2 of 19
<PAGE>
<TABLE>
<CAPTION>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 AND MARCH 31, 1995
(UNAUDITED)
--------------
SEPT 30, 1995 MARCH 31, 1995
------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 161,371 $ 300,743
Restricted cash 141,729 141,729
Marketable investments 500,000 -
Accounts receivable, net 1,792,139 1,863,038
Inventory 546,506 392,928
Laboratory sale proceeds due 139,908 -
Prepaid expenses & other 507,768 411,964
----------- -----------
Total current assets 3,789,421 3,110,402
Amounts due under state
reimbursement program 1,035,883 995,088
Property & equipment, net 812,422 900,972
Goodwill, net 1,465,786 1,532,280
Other assets 51,992 49,765
----------- -----------
Total assets $ 7,155,504 $ 6,588,507
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,233,887 $ 2,075,178
Accrued expenses 784,931 1,097,790
Delinquent payroll taxes 1,044,667 1,068,864
Related party note payable 85,000 -
Current portion of capital lease
obligations & notes payable 1,199,581 1,141,668
----------- -----------
Total current liabilities 5,348,066 5,383,500
Capital lease obligations & notes payable 461,775 472,151
Commitments & contingencies
Stockholders' equity:
Preferred stock:
$.001 par value, $.64 liquidation
preference, 5,000,000 authorized,
170,725 issued and outstanding 171 -
Common stock:
$.003 par value, 25,000,000 authorized,
issued and outstanding:
September 30, 1995 - 16,602,060
March 31, 1995 - 13,009,610 49,806 39,029
Additional paid in capital 6,752,447 5,760,097
Retained deficit (5,456,761) (5,066,270)
----------- -----------
Total stockholders' equity 1,345,663 732,856
----------- -----------
Total liabilities &
stockholders' equity $ 7,155,504 $ 6,588,507
=========== ===========
</TABLE>
See accompanying notes
Page 3 of 19
<PAGE>
<TABLE>
<CAPTION>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
--------------
THREE MONTHS SIX MONTHS
------------------------------------ -----------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Consulting $ 1,474,739 $ 1,868,748 $ 3,265,550 $ 3,529,349
Laboratory - 673,875 - 1,418,603
Cable products 1,392,685 1,122,518 2,636,064 1,982,986
----------- ----------- ----------- -----------
Total revenue 2,867,424 3,665,141 5,901,614 6,930,938
Environmental services:
Direct labor & employee
benefit costs 387,561 1,053,222 864,746 2,095,627
Other direct costs 292,554 802,872 681,487 1,483,285
----------- ----------- ----------- -----------
Cost of environmental
services 680,115 1,856,094 1,546,233 3,578,912
Cost of cable products 1,058,654 828,741 2,007,103 1,473,713
----------- ----------- ----------- -----------
Total direct costs 1,738,769 2,684,835 3,553,336 5,052,625
----------- ----------- ----------- -----------
Gross profit 1,128,655 980,306 2,348,278 1,878,313
----------- ----------- ----------- -----------
General, administrative
& other operating costs 1,152,164 1,522,857 2,498,155 2,797,720
Reserve against Enviropact
fees & expenses - 211,712 - 211,712
Investment write off - 86,659 - 86,659
----------- ----------- ----------- -----------
Total other
operating costs 1,152,164 1,821,228 2,498,155 3,096,091
----------- ----------- ----------- -----------
Operating loss (23,509) (840,922) (149,877) (1,217,778)
----------- ----------- ----------- -----------
Other income (expense):
Interest, net (46,054) (26,944) (89,148) (32,681)
Equipment disposals, net 300 2,000 300 2,000
----------- ----------- ----------- -----------
Other, net (45,754) (24,944) (88,848) (30,681)
----------- ----------- ----------- -----------
Loss before income taxes (69,263) (865,866) (238,725) (1,248,459)
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Loss before
extraordinary item (69,263) (865,866) (238,725) (1,248,459)
Extraordinary item - - (151,766) -
----------- ----------- ----------- -----------
Net loss $ (69,263) $ (865,866) $ (390,491) $(1,248,459)
=========== =========== =========== ===========
Loss per common share:
Loss before
extraordinary item $ - $ (.09) $ (.02) $ (.14)
Extraordinary item - - (.01) -
----------- ----------- ----------- -----------
Loss per share $ - $ (.09) $ (.03) $ (.14)
=========== =========== =========== ===========
</TABLE>
See accompanying notes
Page 4 of 19
<PAGE>
<TABLE>
<CAPTION>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
--------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (390,491) $ (1,248,459)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization 180,460 244,884
Non-cash expenses 42,608 283,712
Gain on sale of equipment (300) (2,000)
Changes in operating assets &
liabilities, net of effects
of acquisitions
Accounts receivable (172,063) 190,350
Inventory (153,578) 82,991
Income tax receivable - 110,345
Prepaid expenses & other 18,454 (162,577)
Amounts due under reimbursement
program (40,795) (497,544)
Other assets (2,227) (429)
Accounts payable 158,709 235,846
Accrued expenses (312,859) (156,559)
Payroll taxes (24,197) 387,629
------------ ------------
Total adjustments (305,788) 716,648
------------ ------------
Net cash used in
operating activities (696,279) (531,811)
Cash flows provided by (used in) investing activities:
Payments for acquisition,
including acquisition costs,
less cash acquired - (19,300)
Laboratory sale proceeds 103,054 -
Proceeds from equipment disposals 300 2,000
Purchases of equipment (29,938) (301,335)
------------ ------------
Net cash provided by (used in)
investing activities 73,416 (318,635)
</TABLE>
See accompanying notes
Page 5 of 19
<PAGE>
<TABLE>
<CAPTION>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
--------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows provided by financing activities:
Original issuance of stock $ 477,013 $ -
Costs associated with issuance
of stock (126,059) -
Increase in notes payable 132,233 1,022,919
Increase in related party note payable 85,000 -
Payments on capital lease obligations
and notes payable (84,696) (158,964)
------------ ------------
Net cash provided by
financing activities 483,491 863,955
------------ ------------
Net increase (decrease) in cash (139,372) 13,509
Cash, beginning of period 300,743 322,465
------------ ------------
Cash, end of period $ 161,371 $ 335,974
============ ============
</TABLE>
Non-cash activities:
In a non-cash transaction, the Company issued, in May 1995, 650,000 shares of
common stock in exchange for services, valued at $152,344 and which is being
amortized over a twelve month period. However, by mutual agreement of the
parties, the transaction has been suspended and the common stock is in the
process of being returned pending final determination of the Company's appeal
for relisting on the NASDAQ Small Cap Market.
See accompanying notes
Page 6 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------
1. BUSINESS
The Company is primarily engaged, through its wholly-owned
subsidiaries, in environmental consulting and other environmental
related services (the "Environmental Division") and the production and
sale of cable products (the "Cable Products Division").
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
consolidated balance sheet as of March 31, 1995 has been derived from
the audited financial statements as of the period ended March 31, 1995,
but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, these statements
reflect all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation for the periods presented.
Operating results for the three and six months ended September 30, 1995
and 1994 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1996. These statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the period
ended March 31, 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated.
PER SHARE DATA
Per share data is based on the weighted average number of shares of
common stock, 15,164,148 and 9,936,905 for the quarters ended September
30, 1995 and 1994, respectively; and 13,024,292 and 9,038,973 for the
six months ended September 30, 1995 and 1994, respectively. Common
stock equivalents have not been included in the weighted average number
of shares as they are anti-dilutive for all periods presented.
3. BUSINESS SEGMENTS
The Company's operations are classified into two segments:
environmental consulting and other environmental related services and
the production and sale of cable products. Identifiable assets by
segment are those tangible and intangible assets that are used in the
operation of that unit.
Page 7 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
--------------
3. BUSINESS SEGMENTS (CONTINUED)
A summary of the Company's operations by segment as of and for the six
months ended September 30, 1995 is as follows:
<TABLE>
<CAPTION>
ENVIRON-
MENTAL CABLE CORPORATE TOTAL
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $3,265,550 $2,636,064 $ - $5,901,614
Operating
income (loss) (163,397) 221,094 (207,574) (149,877)
Identifiable assets 4,782,615 1,676,136 696,753 7,155,504
Capital expenditures 18,944 10,994 - 29,938
Depreciation &
amortization 158,930 21,530 - 180,460
</TABLE>
4. WAIVERS, CONSENTS & NOTES PAYABLE
In April 1995, the Company issued additional warrants to its
subordinated lender, in connection with certain waivers and consents
related to the outstanding credit facility. A total of 12,500 shares of
common stock and 761,731 shares of series A preferred stock are
issuable under the warrants. The warrants to purchase the preferred
stock are exercisable until the year 2002 at an exercise price of $.675
per each underlying share of common stock, subject to certain
adjustments. The preferred stock is convertible into 9,140,772 shares
of common stock. The new warrants to purchase common stock are
exercisable at $.675 per share until the year 2002. In connection with
this transaction, the exercise price of the then existing common stock
warrants was also reduced to $.675 per share, the then market price of
the Company's common stock.
4. RELATED PARTY NOTE PAYABLE
In Fiscal 1996, the Company borrowed $85,000 from the spouse of the
Chairman of the Board of Directors. The note is due upon demand and
bears interest at 12% per annum.
5. DISPOSAL OF LABORATORY OPERATIONS
In May 1995, the Company divested itself of the laboratory operations
of the Environmental Division. The purchaser bought all the assets and
essentially all operating liabilities of the laboratory operations. The
Company received no direct cash proceeds from the sale, but received
free laboratory services and significant proceeds from the sold
receivables. As of March 31, 1995, the Company had reserved for the
loss and impairment on fixed and other assets related to this
divestiture. The Company still has certain contingent obligations
regarding its former laboratories' leases and loans which aggregate
approximately $250,000. During the six months ended September 30, 1995,
the Company received cash or cash equivalents of approximately $103,000
in connection with the sale.
Page 8 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
--------------
6. EXTRAORDINARY ITEM
During the year ended March 31, 1995, the Environmental Division became
delinquent in certain of its payroll tax deposits. As of September 30,
1995, the Company owed approximately $1,375,000 to the Internal Revenue
Service for payroll taxes, interest and penalties. In June 1995, the
Company and the Internal Revenue Service agreed to a payment schedule
and other agreements. Later in June 1995, the Company received a bank
cashiers check for payment on a Regulation S offering of the Company's
preferred stock. The Company gave this cashiers check to the Internal
Revenue Service to discharge all of the tax obligations. The cashiers
check was not honored by the bank, which denied its validity. A fee of
approximately $151,000 was paid to finders in this transaction. The
Company has demanded repayment of the fee and continues to discuss all
possible courses of action with the Internal Revenue Service, various
law enforcement agencies, its attorneys and advisers. The preferred
stock certificate issued in this transaction has been recovered. The
Company and the Internal Revenue Service are currently negotiating a
revised settlement agreement, although no assurance can be given that
such an agreement can be reached. Since March 31, 1995, the Company has
made all required payroll tax deposits for the current periods.
Although, the Company has demanded repayment of the $151,000 finders
fee, the Company has expensed, as an extraordinary item, the full
amount of the finders fee issued in this transaction.
7. STOCK ISSUANCES AND MARKETABLE SECURITIES
In August 1995, in connection with a full and final settlement of the
notes receivable issued in October 1994 in connection with the sale of
common stock, the Company agreed to revise the purchase price per share
of the stock sold from $.75 to approximately $.24 and reduce the number
of shares purchased to 2,500,000. In addition, the Company issued, at a
price of $1.91 per unit, 249,745 units pursuant to Regulation S, each
unit consisting of one share of Series A preferred stock and ten shares
of common stock. The overall effect of this settlement is that the
Company has issued 249,745 Series A preferred stock, convertible into
2,996,940 shares of common stock and 4,997,450 shares of common stock
at a purchase price of $1,100,000 or approximately $.14 per share. As
of September 30, 1995, the Company had received $976,500 of the
$1,100,000. As of October 31, 1995, the balance of $123,500 is
scheduled to be paid in November 1995. The Company received a portion
of the proceeds in the form of marketable securities. The Company has
begun an orderly liquidation of these securities. The Company incurred
costs and fees totalling approximately $350,780 in association with
these series of transactions. During the quarter ended September 30,
1995, 78,750 shares of the Series A preferred stock were converted into
945,000 shares of common stock.
Page 9 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
--------------
8. PREFERRED STOCK
The Series A Convertible Preferred Stock, $.001 par value per share
(the "Preferred Stock") is entitled to receive cumulative preferential
dividends at the rate of $.0512 per share, per annum, payable either in
cash or in common stock of the Company. Each share of the Preferred
Stock is convertible into 12 shares of the Company's common stock. The
Preferred Stock contains certain liquidation rights in the event of any
liquidation, dissolution or winding up of the Company. The liquidation
value is $.64 per share of Preferred Stock, plus any accrued and unpaid
dividends. The Company may redeem the Preferred Stock at a price of
$.64 per share of Preferred Stock, in whole or in part, at any time
commencing 2 years after its issuance.
9. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's audited consolidated financial statement as of and for the
two years in the period ended March 31, 1995 contained a going concern
qualification due to the significant net losses for the year ended
March 31, 1995 and delinquent payroll tax deposits, interest and
penalties, as of March 31, 1995, of approximately $1,450,000.
Furthermore, the timing of collections on amounts expected to be
received from the State of Florida pursuant to services performed by
the Company to assist in the clean up of sites eligible for
reimbursement by the Florida Inland Protection Trust Fund (the
"Program") is presently uncertain because the State of Florida has
placed a moratorium on the Program and has not resolved how such
Program will operate in the future. In addition, the Company violated
certain provisions of its credit agreement with its principal lender
during the year. Although the Company has received a waiver of past and
certain potential future covenant violations through September 30,
1995, there can be no assurances that the principal lender will grant
continued forbearance under the credit agreement and not demand
immediate repayment of amounts due subsequent to September 30, 1995.
The Company does not presently have the cash resources to satisfy such
a demand. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the
uncertainties be unfavorably resolved or the Company is unable to
continue as a going concern. Management is attempting to raise
additional financing through a private placement of its equity
securities to fund its current operations. In addition, management is
continuing to evaluate the need for future cost saving measures with
particular emphasis on its under-performing offices.
In the absence of achieving successful negotiations with its principal
lender, achieving viable settlements with the Internal Revenue Service
and the Company's creditors, obtaining profitable operations, or
obtaining additional debt or equity financing, the Company may not have
sufficient funds to continue operations in 1996.
Page 10 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the year ended March 31, 1995 ("Fiscal 1995"), the Company, mainly
through its Environmental Division, experienced a net loss of $4,732,301.
The Company's ability to survive is based on returning the Environmental
Division to profitability, obtaining additional financing and scheduling
workouts with the Internal Revenue Service and certain of its creditors.
The losses, which began in fiscal 1994 and which continued through August
1995, are attributable to the Company's inability to balance revenue growth
with a proper level of associated labor, other operational costs and the
write-down of certain assets. The Company took certain significant cost
saving actions during Fiscal 1995 and continues to do so, including the
divestiture of the Environmental Division's underperforming laboratory
operations. Although these cost savings, which included significant labor
reductions, restructuring of underperforming offices and divisions and
other cost saving measures have not yet returned the Company to sustained
profitability (September 1995 was profitable), management believes that the
Company can maintain profitable revenue growth, although no assurances can
be given. Management will continue to evaluate the need for further cost
saving measures on a monthly basis, with particular emphasis on
underperforming offices. While management will continue to evaluate such
cost saving measures, additional focus will be on new marketing efforts to
increase revenue from existing offices. During Fiscal 1995, the Company
utilized substantially all of its existing commercial lines of credit to
finance prior losses.
In May 1995, the Company divested the Environmental Division's laboratory
operations (the "Laboratory Divestiture"). The purchaser bought all the
assets and essentially all operating liabilities of the laboratory
operations. The Company received no direct cash proceeds from the sale, but
received free laboratory services and significant proceeds from the sold
receivables. The six month period ended September 30, 1995 contains
immaterial amounts related to current period operating loss and impairment
on fixed and other assets related to the Laboratory Divestiture since the
impairment was recorded as of March 31, 1995. The Company still has certain
contingent obligations regarding its former laboratories' leases and loans
which aggregate approximately $250,000. During the six months ended
September 30, 1995, the Company received cash or cash equivalents of
approximately $103,000 in connection with the Laboratory Divestiture.
QUARTER ENDED SEPTEMBER 30, 1995 COMPARED TO QUARTER ENDED
SEPTEMBER 30, 1994
The Company's revenue decreased from $3,665,141 for the quarter ended
September 1994 (the "94 Quarter") to $2,867,424 for the quarter ended
September 30, 1995 (the "95 Quarter"), a decrease of $797,717 or 21.8%.
However, as a result of the Laboratory Divestiture, the 95 Quarter does not
contain any laboratory revenue, which in the 94 Quarter was $673,875.
Therefore, total comparable revenue decreased by only $123,842 or 4.1% from
$2,991,266 in the 94 Quarter as compared to $2,867,424 in the 95 Quarter.
Within this net comparable decrease, consulting revenue decreased from
$1,868,748 in the 94 Quarter to $1,474,739 in the 95 Quarter, a decrease of
$394,009 or 21.1% and cable products sales increased from $1,122,518 in the
94 Quarter to $1,392,685 in the 95 Quarter, an increase of $270,167 or
24.1%.
Page 11 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The decrease of $394,009 in environmental consulting during the comparative
quarters is directly related to the closing of offices. The closed offices
had revenue of $47,080 in the 95 Quarter in comparison to $460,916 in the
94 Quarter, a decrease of $413,836. The comparable remaining consulting
office revenue increased by $19,827 or 1.4% from $1,407,832 in the 94
Quarter to $1,427,659 in the 95 Quarter. Pricing for the Company's
consulting services has not significantly increased, and in many cases, due
to competitive situations, has decreased, compared to the comparable period
in the 94 Quarter. Substantially all revenue growth in the 95 Quarter over
the 94 Quarter is attributable to increased number and size of contracts
due to improved marketing efforts. Future expansion of additional offices
is dependent on future economic and business conditions and the
availability of capital.
Total revenue for the Cable Products Division was $1,392,685 for the 95
Quarter, as compared to $1,122,518 for the 94 Quarter, an increase of
$270,167 or 24.1%. This increase in revenue is attributable to the
introduction of certain new products and increased market penetration of
the Cable Products Division's fiber optic products. The Cable Products
Division's operating costs and expenses are comprised of cost of product
and overhead. The Cable Products Division's gross margin was 24.0% and
26.2% for the 95 and 94 Quarters, respectively. This decrease in gross
margin is largely attributable to the Cable Products Division's change in
product mix and the high cost of bringing new products to market.
Direct costs of environmental services were $680,115 for the 95 Quarter,
representing a decrease of $1,175,979 or 63.4% from the 94 Quarter.
However, the 95 Quarter does not contain any laboratory direct costs, which
in the 94 Quarter were $451,372. Due to the aforementioned cost savings,
direct costs attributable to consulting services decreased by $724,607 or
51.6% from $1,404,722 in the 94 Quarter. Direct costs consist of all labor,
employee benefit costs and other expenses directly related to the
production of revenue on a project. All other labor, including unbillable
professional time, employee benefits and other expenses are recorded under
general, administrative and other operating costs. Other direct costs
include sub-contractors, suppliers and other revenue generating expenses.
The Environmental Division's gross margin was 53.9% and 27.0% for the 95
and 94 Quarters, respectively. This increase in gross margin is directly
attributable to the Laboratory Divestiture, the closing of unprofitable
offices and other cost saving measures, including layoffs. As of September
30, 1995, the Environmental Division, excluding laboratory personnel, had
78 employees on staff as opposed to 116 on staff as of September 30, 1994,
a decrease of 38 employees or 32.8%. Better utilization of billable staff
and the reduction of staff significantly contributed to the overall
reduction of expenses.
Page 12 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
General, administrative and other costs were $1,152,164 for the 95 Quarter,
a decrease of $370,693 or 24.3% from the 94 Quarter. The 94 Quarter
includes approximately $281,000 of expenses for offices that have been
closed or sold. The balance of the decrease in expenses is a result of the
cost savings measures that have been implemented and in particular, the
elimination of various staff positions. Penalties and interest accrued to
the Internal Revenue Service were approximately $25,000 in the 95 Quarter
as compared to none in the 94 Quarter.
The operating loss for the 95 Quarter was $23,509, a decrease in the
operating loss of $817,413 or 97.2% from the 94 Quarter. The operating loss
was comprised of an Environmental Division loss of $60,238, a Cable
Products Division profit of $136,178 and corporate expenses of $99,449.
During the 95 Quarter, due to extensive use of the Company's lines of
credit, the Company incurred $46,054 of net interest expense as compared to
$26,944 in the 94 Quarter.
The net loss of $69,263 for the 95 Quarter is $796,603 or 92.0% less than
the $865,866 loss in the 94 Quarter.
SIX MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1994
The Company's revenue decreased from $6,930,938 for the six months ended
September 1994 (the "94 Six Months") to $5,901,614 for the six months ended
September 30, 1995 (the "95 Six Months"), a decrease of $1,029,324 or
14.8%. However, the 95 Six Months does not contain any laboratory revenue,
which in the 94 Six Months was $1,418,603. Therefore, total comparable
revenue increased by $389,279 or 7.1% from $5,512,335 in the 94 Six Months
as compared to $5,901,614 in the 95 Six Months. Within this net comparable
increase, consulting revenue decreased from $3,529,349 in the 94 Six Months
to $3,265,550 in the 95 Six Months, a decrease of $263,799 or 7.5% and
cable products sales increased from $1,982,986 in the 94 Six Months to
$2,636,064 in the 95 Six Months, an increase of $653,078 or 32.9%.
The decrease of $263,799 in environmental consulting during the comparative
quarters is directly related to the closing of offices. In the 95 Six
Months, the closed offices had revenue of $198,303 in comparison to
$919,017 in the 94 Six Months, a decrease of $720,714. Comparable
consulting office revenue increased by $456,915 or 17.5% from $2,610,332 in
the 94 Six Months to $3,067,247 in the 95 Six Months. Substantially all
revenue growth in the 95 Six Months over the 94 Six Months is attributable
to increased number and size of contracts. During the 95 Six Months, the
Company began providing services for emergency responses to environmental
hazardous situations. This new segment of business represents a new
opportunity for the Company to market its services to larger and more
sophisticated clients.
Page 13 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Total revenue for the Cable Products Division was $2,636,064 for the 95 Six
Months, as compared to $1,982,986 for the 94 Six Months, an increase of
$653,078 or 32.9%. This increase in revenue is attributable to the
introduction of certain new products and increased market penetration of
the Cable Products Division's fiber optic products. The Cable Products
Division's operating costs and expenses are comprised of cost of product
and overhead. The Cable Products Division's gross margin was 23.9% and
25.7% for the 95 and 94 Six Months, respectively. This decrease in gross
margin is largely attributable to the Cable Products Division's change in
product mix and the high cost of bringing new products to market.
Direct costs of environmental services were $1,546,233 for the 95 Six
Months, representing a decrease of $2,032,679 or 56.8% from the 94 Six
Months. However, the 95 Six Months does not contain any laboratory direct
costs, which in the 94 Six Months were $944,210. Direct costs attributable
to consulting services decreased by $1,088,469 or 41.3% from $2,634,702 in
the 94 Six Months. Direct costs consist of all labor, employee benefit
costs and other expenses directly related to the production of revenue on a
project. All other labor, including unbillable professional time, employee
benefits and other expenses are recorded under general, administrative and
other operating costs. Other direct costs include sub-contractors,
suppliers and other revenue generating expenses.
The Environmental Division's gross margin was 52.7% and 27.7% for the 95
and 94 Six Months, respectively. This increase in gross margin is directly
attributable to the Laboratory Divestiture, the closing of unprofitable
offices and other cost saving measures, including layoffs. Better
utilization of billable staff and the reduction of staff significantly
contributed to the overall reduction of expenses.
General, administrative and other costs were $2,498,155 for the 95 Six
Months, a decrease of $597,936 or 19.3% from the 94 Six Months. The 94 Six
Months includes approximately $518,000 of expenses for offices that have
been closed or sold and approximately $300,000 of write offs and
adjustments . The balance of the decrease in expenses is a result of the
cost savings measures that have been implemented and in particular, the
elimination of various staff positions. Penalties and interest accrued to
the Internal Revenue Service were approximately $80,000 in the 95 Six
Months as compared to $10,000 in the 94 Six Months. Professional fees,
including legal, accounting, consulting and other, during the 95 Six Months
were $303,830, an increase of $80,440 or 36.0% over the 94 Six Months.
The operating loss for the 95 Six Months was $149,877, a decrease in the
operating loss of $1,067,901 or 87.7% from the 94 Six Months. The operating
loss was comprised of an Environmental Division loss of $163,397, a Cable
Products Division profit of $221,094 and corporate expenses of $207,574.
During the 95 Six Months, due to extensive use of the Company's lines of
credit, the Company incurred $89,148 of net interest expense as compared to
$32,681 in the 94 Six Months.
Page 14 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The net loss before income taxes and extraordinary item, of $238,725 for
the 95 Six Months is $1,009,734 or 80.8% less than the $1,248,459 loss in
the 94 Six Months. In the 95 Six Months, in connection with a Regulation S
offering of the Company's preferred stock, a fee of $151,766 was paid to
finders. The Regulation S transaction was never completed when the check
purportedly issued by the Regulation S purchaser, on the Company's behalf,
was not honored by the bank. The Company has demanded repayment of the fee
and continues to discuss all possible courses of action with various law
enforcement agencies, its attorneys and advisers. Although, the Company has
demanded repayment of the finders fee, the Company has expensed, as an
extraordinary item, the full amount of the fee issued in this transactions.
The net loss of $390,491 for the 95 Six Months is $857,968 or 68.7% less
than the $1,248,459 loss in the 95 Six Months.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital ratio increased to .71 at September 30, 1995
from .58 at March 31, 1995. As of September 30, 1995, the Company had a net
working capital deficit of $1,558,645, representing a $714,453 reduction in
the March 31, 1995 working capital deficit of $2,273,098. The decrease in
the working capital deficit is primarily attributable to reduced operating
losses and the issuance of the Company's preferred and common stock for
cash and marketable investments.
Net cash decreased during the 95 Six Months by $139,372 compared to a
$13,509 increase during the 94 Six Months. One of the major components of
the net cash decrease in the 95 Six Months was the $151,766 cash fraud
loss. Cash flow used by operating activities in the 95 Six Months excluding
the cash fraud loss was $544,513. The significant uses of this operating
cash deficit were the net loss before extraordinary item and a net
reduction in accrued expenses. During the 94 Six Months, cash flow was
enhanced due to the utilization of the Company's lines of credit.
The Company reduced expenditures on capital and investment activities
during the 95 Six Months, as compared to the 94 Six Months resulting in a
net cash saving in the comparable periods of $392,051. The Company
continues to review all current operations and assets for potential
reorganizations, sale or liquidation in order to raise additional capital
or lower costs.
During the 95 Six Months, the Company repaid its $25,000 line of credit
with a commercial bank for the Environmental Division's working capital
purposes. The Cable Products Division does not maintain any outside working
capital facilities. The Cable Products Division has established a $100,000
letter of credit with a commercial bank collateralized by a certificate of
deposit.
During the 95 Six Months, the Company raised net proceeds of approximately
$351,000 from the sale of preferred and common stock.
Page 15 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In July 1994, the Company established a $2,500,000 subordinated line of
credit with a private lender. This additional line of credit, which is
subordinated to the Company's commercial banking line of credit, expires
July 1996 and bears interest at 15%. This facility is collateralized by a
first lien on the outstanding stock of all the Company's subsidiaries and a
second lien on all assets of the subsidiaries of the Company. In April
1995, the Company issued additional warrants to its subordinated lender, in
connection with certain waivers and consents related to the outstanding
credit facility. A total of 12,500 shares of common stock and 761,731
shares of series A preferred stock are issuable under the warrants. The
warrants to purchase the preferred stock are exercisable until the year
2002 at an exercise price of $.675 per each underlying share of common
stock, subject to certain adjustments. The preferred stock is convertible
into 9,140,772 shares of common stock. The new warrants to purchase common
stock are exercisable at $.675 per share until the year 2002. In connection
with this transaction, the exercise price of the then existing common stock
warrants was also reduced to $.675 per share, the then market price of the
Company's common stock.
The Company continues to monitor the recent governmental activities in the
State of Florida with respect to proposed changes in the Florida Inland
Protection Trust Fund program, which provides for the remediation of
contamination related to the storage of petroleum and petroleum products.
In Fiscal 1995, approximately 7% of the Company's business was currently
related, directly or indirectly, to this state-funded reimbursement
program.
During the 95 Six Months, the Company funded certain of its receivables
under the Florida Inland Protection Trust Fund program. The cost of funding
is 8.75% per annum for the first 12 months, 10% per annum for the next 6
months, and prime plus 3% for any periods thereafter. Interest has been
prepaid for the first 18 months.
As of September 30, 1995, the Company had no additional availability under
its commercial lines of credit. Availability under the Company's commercial
lines of credit are based upon eligibility of the Company's accounts
receivable and other conditions. As of September 30, 1995, the Company had
approximately $235,000 of available credit under its various funding
agreements for receivables under the Florida Inland Protection Trust
program.
The Company and the Internal Revenue Service are currently negotiating a
settlement agreement, although no assurance can be given that such an
agreement can be reached. Since March 31, 1995, the Company has made all
required payroll tax deposits for the current periods. In addition, several
of the Company's subsidiaries and their unsecured creditors are currently
negotiating a settlement agreement, although no assurances can be given
that such agreements will be reached. Based on these proposed agreements,
the Company's private lender has agreed to continue funding the Company,
pursuant to its credit facility, and to make additional funds available to
consummate the various proposed settlement agreements with the Internal
Revenue Service and unsecured creditors. In exchange for this agreement,
the Company has agreed to reduce the current exercise price of the lender's
outstanding warrants to an exercise price of approximately $.12 per share.
Page 16 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In August 1995, in connection with a full and final settlement of the notes
receivable issued in October 1994 in connection with the sale of common
stock, the Company agreed to revise the purchase price per share of the
stock sold from $.75 to approximately $.24 and reduce the number of shares
purchased to 2,500,000. In addition, the Company issued, at a price of
$1.91 per unit, 249,745 units pursuant to Regulation S, each unit
consisting of one share of Series A preferred stock and ten shares of
common stock. The overall effect of this settlement is that the Company has
issued 249,745 Series A preferred stock, convertible into 2,996,940 shares
of common stock and 4,997,450 shares of common stock at a purchase price of
$1,100,000 or approximately $.14 per share. As of September 30, 1995, the
Company had received $976,500 of the $1,100,000. As of October 31, 1995,
the balance of $123,500 is scheduled to be paid in November 1995. The
Company received a portion of the proceeds in the form of marketable
securities. The Company has begun an orderly liquidation of these
securities. The Company incurred costs and fees totalling approximately
$350,780 in association with these series of transactions. During the
quarter ended September 30, 1995, 78,750 shares of the Series A preferred
stock were converted into 945,000 shares of common stock.
The Company has no material commitments for capital expenditures.
The Company intends to fund its current operations from a combination of
cash on hand, cash generated from operations, proceeds from the settlement
of the above referenced notes receivable, potential new equity or a sale of
assets. These sources of capital are expected to fund the Company's current
operations through March 31, 1996. Management expects a return to
profitability in Fiscal 1996. However, if the Company does not return to
profitability, and cannot collect a substantial portion of the settlement
proceeds of the notes receivable, absent alternative sources of financing,
there would be a material adverse effect on the financial condition,
operations and business prospects of the Company. The Company has no
arrangements in place for alternative sources of financing, and no
assurance can be given that such financing will be available at all or on
terms acceptable to the Company.
Page 17 of 19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 2, 1995, the Company filed an Application with
the Securities and Exchange Commission for Review of a
Determination by the National Association of Securities
Dealers, Inc. In said Application, the Company requests
that the Commission stay the effectiveness of the action
of the NASD delisting the common stock of the Company from
trading on the Nasdaq SmallCap Market.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS None
B. REPORTS ON FORM 8-K
During the quarter ended September 30, 1995, the Company
filed a Form 8-K dated September 13, 1995.
Page 18 of 19
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EVANS ENVIRONMENTAL
CORPORATION
November 14, 1995 By: /s/ SCOTT E. SALPETER
------------------------------------
Scott E. Salpeter, Vice President
on behalf of the Registrant and as
Principal Accounting Officer
Page 19 of 19
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