================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
[ ] 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 August 9, 1996, the Company had a total of 17,040,126 shares of common
stock, $.012 par value, outstanding.
Transitional Small Business Disclosure format (check one): Yes ___ No [X]
================================================================================
This Form 10QSB/A amends the Form 10-QSB for the quarter ended June 30, 1996.
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated balance sheets
- June 30, 1996 and March 31, 1996 3
Consolidated statements of operations
- Three Months Ended June 30, 1996 and 1995 4
Consolidated statements of cash flows
- Three months ended June 30, 1996 and 1995 5-6
Notes to financial statements 7-13
Item 2. Management's discussion and analysis of
financial condition and results of
operations 14-17
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 18
SIGNATURES 19
Page 2 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND MARCH 31, 1996
JUNE 30, 1996 MARCH 31, 1996
------------- --------------
ASSETS (UNAUDITED)
Current assets:
Cash $ 448,402 $ 178,121
Restricted cash 33,020 154,749
Marketable securities 30,000 75,000
Accounts receivable, net 713,169 792,929
Note receivable 750,000 -
Net assets of discontinued operations - 1,037,971
Prepaid expenses & other 295,039 354,974
----------- -----------
Total current assets 2,269,630 2,593,744
Amounts due under state reimbursement
program 874,320 832,922
Property & equipment, net 527,647 573,813
Goodwill, net 921,665 946,554
Long term note receivable 250,000 -
Other assets 298,525 298,859
----------- -----------
Total assets $ 5,141,787 $ 5,245,892
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,260,132 $ 1,861,425
Accrued expenses 535,194 604,459
Payroll taxes 383,528 1,051,688
Related party note payable 85,000 85,000
Current portion of capital lease
obligations & notes payable 1,180,174 1,197,262
----------- -----------
Total current liabilities 3,444,028 4,799,834
Notes payable, net of current portion 931,206 873,113
Commitments & contingencies - -
Stockholders' equity (deficit):
Series A preferred stock:
$.001 par value, 5,000,000 authorized,
none issued and outstanding - -
Common stock:
$.012 par value, 25,000,000 authorized,
issued and outstanding:
June 30, 1996 - 4,740,126
March 31, 1996 - 4,590,126 56,882 55,082
Additional paid in capital 6,746,198 6,635,498
Net unrealized loss on marketable
securities (45,000) -
Retained earnings (deficit) (5,991,527) (7,117,635)
----------- -----------
Total stockholders' equity (deficit) 766,553 (427,055)
----------- -----------
Total liabilities &
stockholders' equity (deficit) $ 5,141,787 $ 5,245,892
=========== ===========
The accompanying notes are an integral part
of these financial statements
Page 3 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Environmental consulting revenue $ 1,265,045 $ 1,790,811
----------- -----------
Direct costs & expenses:
Direct labor & employee
benefit costs 505,550 607,936
Other direct costs 278,995 388,932
----------- -----------
784,545 996,868
----------- -----------
Gross profit 480,500 793,943
----------- -----------
Other costs & expenses:
General, administrative &
other operating costs 706,396 1,005,227
Reserve for restructuring 350,000 -
Other offering cost - 151,766
----------- -----------
Operating income (loss) (575,896) (363,050)
Other income (expense):
Gain from equipment sales 1,000 -
Interest, net (23,104) (43,678)
----------- -----------
Income (loss) before income taxes (598,000) (406,728)
Provision for income taxes - -
----------- -----------
Income (loss) from continuing operations (598,000) (406,728)
Discontinued operations:
Income from discontinued operations - 85,500
Gain on disposal 509,036 -
----------- -----------
Income (loss) before extraordinary items: (88,964) (321,228)
Extraordinary items:
Net gain on vendor settlements (280,981) -
Net gain on payroll tax settlement (934,091) -
----------- -----------
Net income (loss) $ 1,126,108 $ (321,228)
=========== ===========
Income (loss) per share from:
Continuing operations $ (.08) $ (.15)
Discontinued operations .07 .03
Extraordinary items .16 -
----------- -----------
$ .15 $ (.12)
=========== ===========
The accompanying notes are an integral part
of these financial statements
Page 4 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Operating activities:
Net income (loss) $ 1,126,108 $ (321,228)
Adjustments to reconcile net income
(loss) to net cash used in
in operating activities:
Depreciation & amortization 65,255 80,960
Gain on sale of equipment (1,000) -
Other 10,545 29,913
Discontinued operations (509,036) (85,500)
Extraordinary items (1,215,072) -
Changes in operating assets & liabilities:
Accounts receivable 79,760 (240,725)
Prepaid expenses & other 59,935 78,588
Amounts due under state reimbursement
program (41,398) 15,329
Other assets 334 303
Accounts payable (320,312) 45,023
Accrued expenses 259,685 (64,616)
Payroll taxes (63,019) (15,134)
----------- -----------
Net cash used by operating activities of:
Continuing operations (548,215) (477,087)
Discontinued operations - (19,843)
----------- -----------
Net cash used by operating activities (548,215) (496,930)
Investing activities:
Restricted cash 121,729 -
Proceeds from disposal of discontinued
operations, net of expenses 547,007 -
Proceeds from disposal of equipment 1,000 -
Purchases of equipment (4,745) (17,196)
----------- -----------
Net cash provided (used) by
investing activities 664,991 (17,196)
The accompanying notes are an integral part
of these financial statements
Page 5 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Financing activities:
Proceeds from original issuance of stock $ - $ 476,500
Proceeds from warrant exercise 112,500 -
Costs associated with issuance of stock - (125,546)
Proceeds from notes payable 62,881 -
Payments on capital lease obligations
and notes payable (21,876) (60,578)
----------- -----------
Net cash provided by financing activities 153,505 290,376
----------- -----------
Net increase (decrease) in cash 270,281 (223,750)
Cash, beginning of period 178,121 300,743
----------- -----------
Cash, end of period $ 448,402 $ 76,993
=========== ===========
The accompanying notes are an integral part
of these financial statements
Page 6 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
Evans Environmental Corporation (the "Company") is engaged, through its
wholly-owned subsidiaries, in environmental consulting and other
environmental related services (the "Consulting Division"). Until April
3, 1996, the Company was also engaged in 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,
1996 has been derived from the audited financial statements as of the
period ended March 31, 1996, 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
months ended June 30, 1996 and 1995 are not necessarily indicative of
the results that may be expected for the year ending March 31, 1997.
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, 1996.
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, 7,732,202 and 2,714,796 for the quarters
ended June 30, 1996 and June 30, 1995, respectively. For the 96 Quarter
4,085,101 common stock options and warrants which are common stock
equivalents were assumed to be exercised for computation of earnings
per share under the treasury stock method. For the period ended June
30, 1995, common stock equivalents have not been included in the
weighted average number of shares as they are anti-dilutive.
DISCONTINUED OPERATIONS: During April 1996, ABC Cable Products, Inc., a
wholly-owned subsidiary, ceased operations and disposed of all of its
operating assets. As such, the Company has treated the Cable Products
Division as discontinued operations for all periods presented.
PRESENTATION: Certain amounts previously reported have been
reclassified to conform to the Fiscal 1997 financial statement
presentation.
Page 7 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. SALE OF CABLE PRODUCTS DIVISION
On April 3, 1996, ABC Cable Products, Inc. ("ABC"), a wholly-owned
subsidiary, ceased operations and sold all of its operating assets for
an aggregate of $550,000 in cash and a promissory note in the amount of
$1,000,000. In addition, at closing, the purchaser assumed certain
liabilities of ABC aggregating $595,049. The promissory note, which is
fully collateralized by certain irrevocable letters of credit, has
payment dates of July 1, 1996 ($500,000), March 5, 1997 ($250,000) and
September 5, 1997 ($250,000). The September 5, 1997 payment will
automatically accelerate if certain of the underlying letters of credit
are not renewed. The July 1996 payment was received in a timely manner.
In April 1996, the Company recorded a gain of $509,036, net of costs
associated with the transaction, on the sale of its Cable Products
Division.
4. VENDOR SETTLEMENTS
During April 1996, the Company executed a Composition Agreement with
certain of its trade creditors. The Company, due to its limited cash
flow situation, began negotiating with these creditors in September
1995. These creditors formed an Informal Creditors Committee, who hired
both legal and accounting professionals. Negotiations were finalized in
April 1996, with over 75% of the creditors accepting a payout of $.20
for each $1.00 of their allowed claim. The payout was made in April
1996 from funds that the Company had previously put into escrow. The
Company continues to negotiate with the creditors who rejected the
Company's offer. In the three months ended June 30, 1996, the Company
recorded a benefit, net of expenses, of approximately $281,000 related
to completed vendor settlements.
5. SETTLEMENT OF DELINQUENT PAYROLL TAXES
On June 28, 1996, the Consulting Division and the IRS completed an
Offer in Compromise Agreement settling all outstanding issues and
disputes. In connection with the settlement the Consulting Division
paid the IRS an aggregate of $350,000 and agreed to waive certain net
operating tax loss carryforwards. The net operating loss carryforwards
waived would have been available to offset future taxable income. As a
direct result of this settlement, in June 1996, the Company recorded a
gain of approximately $934,000, net of professional fees and costs. The
Company, including the Consulting Division, has no other outstanding
disputes with the IRS or delinquent payroll taxes.
Page 8 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. RESERVE FOR RESTRUCTURING
During the first quarter of Fiscal 1997, the Company recorded a special
charge of $350,000 for the restructuring of its operations and
integration with American Remedial Technologies, Inc., which was
acquired on July 8, 1996. These costs include accruals for severance
pay, real and personal property lease terminations, relocation costs
for certain offices and other costs associated with a streamlining of
operations and administrative functions. These costs are expected to be
paid or settled during the 1997 fiscal year.
7. SUBSEQUENT EVENTS
STRATEGICA LOAN REPAYMENT: On July 12, 1996, the Company repaid the
outstanding loan balance of $1,139,875 under the Strategica line of
credit.
REGULATION S OFFERING: On July 8, 1996, the Company completed a
Regulation S stock offering. The offering involved a sale of 9,000,000
shares of Common Stock at an offering price of $.90 per share
generating gross proceeds to the Company of $8,100,000. The offshore
placement agent (the "Placement Agent") handling the offering entered
into an agency agreement which provided for a cash management and
selling fee aggregating $607,500, or 7.5% of the gross proceeds. In
addition, the Placement Agent received broker warrants to purchase
630,000 shares of Common Stock, exercisable at $1.00 per share until
July 8, 1998 and was reimbursed for out of pocket expenses of
approximately $140,000. Thus, net cash proceeds to the Company in
connection with this offering were approximately $7,352,500.
ACQUISITION OF AMERICAN REMEDIAL TECHNOLOGIES: On July 8, 1996, the
Company acquired all the outstanding stock of American Remedial
Technologies, Inc. ("ART"). ART operates a soil remediation facility in
Lynwood, California. The acquisition of ART will involve the Company in
thermal remediation, a natural outgrowth of its current environmental
consulting and remediation activities. The acquisition is to be
accounted for as a purchase and, accordingly, the purchase price will
be allocated to the acquired assets and assumed liabilities, based on
their respective fair values. The excess of the purchase price over the
fair values of assets acquired will be amortized over 15 years on a
straight line basis.
Page 9 of 19
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
ACQUISITION OF AMERICAN REMEDIAL TECHNOLOGIES (CONTINUED): The purchase
price of ART consisted of a cash payment of $6,000,000, the issuance of
3,000,000 shares of unregistered Common Stock and the issuance of
1,000,000 shares of Series B Preferred Stock. The Series B Preferred
Stock is convertible, subject to an earn-out formula, up to a maximum
of 10,000,000 shares of Common Stock. Furthermore, Mr. Enrique A.
Tomeu, the current ART President, has become the Chief Executive
Officer of the Company.
The Series B Convertible Preferred Stock, $.001 par value per share
(the "Series B"), is not entitled to receive any dividends. The Series
B has a liquidation value of $.75 per share. The holders of the Series
B are entitled to elect six members to the Company's Board of
Directors.
PRO FORMA INFORMATION: The following pro forma balance sheet gives
effect to the sale of 9,000,000 shares of the Company's Common Stock
pursuant to the Regulation S offering and the acquisition of ART, both
events which are described therein, as if they occurred on March 31,
1996. For purposes of the pro forma statement of operations, it has
been assumed that the offering and acquisition occurred on April 1,
1995. In preparing the pro forma financial information, no adjustments
have been made to operations for the impact of certain anticipated
operational and administrative efficiencies. The pro forma financial
information is not necessarily indicative of the results of operations
that necessarily would have occurred had the foregoing transactions
been in effect on the dates and for the periods indicated or which may
result in the future.
The pro forma financial statements included herein are presented with
this Form 10QSB in lieu of being filed as an amendment to Form 8-K
dated July 22, 1996 reporting the acquisition of ART.
Page 10 of 19
<PAGE>
<TABLE>
<CAPTION>
EVANS ENVIRONMENTAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
MARCH 31, 1996
----------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS UNAUDITED
HISTORICAL ART INC(DEC) PRO FORMA
------------------ ------------------ --------------- ----------------
ASSETS
<S> <C> <C> <C> <C>
Cash 332,870 11,740 1,352,500 1,697,110
Accounts receivable, net 792,929 571,166 - 1,364,095
Note receivable
Net assets of discontinued operations 1,037,971 - - 1,037,971
Prepaid expenses & other 429,974 46,114 - 476,088
------------------ ------------------ --------------- ----------------
Total current assets 2,593,744 629,020 1,352,500 4,575,264
Amounts due under state reimbursement program 832,922 - - 832,922
Property & equipment, net 573,813 1,733,585 - 2,307,398
Goodwill, net 946,554 5,748,413 6,694,967
Long term note receivable
Other assets 298,859 519,924 - 818,783
------------------ ------------------ --------------- ----------------
Total assets $ 5,245,892 $ 2,882,529 $ 7,100,913 $ 15,229,334
================== ================== =============== ================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 1,861,425 351,414 $ 2,212,839
Accrued expenses & other 604,459 206,595 - 811,054
Delinquent payroll taxes 1,051,688 - - 1,051,688
Current portion of notes & capital lease obligations 1,282,262 58,545 - 1,340,807
------------------ ------------------ --------------- ----------------
Total current liabilities 4,799,834 616,554 - 5,416,388
------------------ ------------------ --------------- ----------------
Notes payable 873,113 124,388 - 997,501
Notes payable to affiliated company - 400,000 - 400,000
------------------ ------------------ --------------- ----------------
Total long-term debt 873,113 524,388 - 1,397,501
------------------ ------------------ --------------- ----------------
Stockholders' equity (deficit):
Series A Preferred stock - - - -
Series B Preferred stock - - - (c) -
Common stock 55,082 10,000 134,000 (b) 199,082
Additional paid in capital 6,635,498 3,500,000 5,198,500 (a)(b)(c) 15,333,998
Net unrealized loss on marketable securities
Accumulated deficit (7,117,635) (1,768,413) 1,768,413 (7,117,635)
------------------ ------------------ --------------- ----------------
Total stockholders' equity (deficit) (427,055) 1,741,587 7,100,913 8,415,445
------------------ ------------------ --------------- ----------------
Total liabilities & stockholders'
e equity (deficit) $ 5,245,892 $ 2,882,529 $ 7,100,913 $ 15,229,334
================== ================== =============== ================
Notes:
(a) Reflects net proceeds of $7,352,500 received from the common stock offering
less cash payment of $6,000,000 for acquisition of ART.
(b) Reflects issuance of 9,000,000 and 3,000,000 shares of common stock from
sale of shares in offering at $.90 per share, net of offering costs, and
stock consideration given for acquisition of ART estimated at a total value
of $1,500,000, respectively.
(c) Reflects issuance of 1,000,000 shares of Series B convertible preferred
stock given for acquisition of ART estimated at zero value.
<PAGE>
JUNE 30,1996
------------------------------------------------------------------------------
Pro forma
EVANS ART adjustments Unaudited
unaudited Unaudited Inc(Dec) Pro forma
------------------------------------ ----------------- ----------------
ASSETS
Cash 481,422 23,862 1,325,500 1,857,784
Accounts receivable, net 713,169 585,791 - 1,298,960
Note receivable 750,000 - - 750,000
Net assets of discontinued operations - - - -
Prepaid expenses & other 325,039 226,673 - 551,712
---------------- ----------------- ----------------- ----------------
Total current assets 2,269,630 836,326 1,352,500 4,458,456
Amounts due under state reimbursement program 874,320 - - 874,320
Property & equipment, net 527,647 1,663,053 - 2,190,700
Goodwill, net 921,665 - 5,652,606 6,574,271
Long term note receivable 250,000 - - 250,000
Other assets 298,525 606,270 - 904,795
---------------- ----------------- ----------------- -----------------
Total assets $ 5,141,787 $ 3,105,649 $ 7,005,106 $ 15,252,542
================ ================= ================= ================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable 1,260,132 526,430 $ 1,786,562
Accrued expenses & other 918,722 248,618 - 1,167,340
Delinquent payroll taxes - - - -
Current portion of notes & capital lease obligations 1,265,174 64,019 - 1,329,193
---------------- ----------------- ----------------- ----------------
Total current liabilities 3,444,028 839,067 - 4,283,095
---------------- ----------------- ----------------- ----------------
Notes payable 931,206 132,299 - 1,063,505
Notes payable to affiliated company - 495,000 - 495,000
---------------- ----------------- ----------------- ----------------
Total long-term debt 931,206 627,299 - 1,558,505
---------------- ----------------- ----------------- ----------------
Stockholders' equity (deficit):
Series A Preferred stock - - - -
Series B Preferred stock - - - (c) -
Common stock 56,882 10,000 134,000 (b) 200,882
Additional paid in capital 6,746,198 3,500,000 5,198,500 (a)(b)(c) 15,444,698
Net unrealized loss on marketable securities (45,000) - - (45,000)
Accumulated deficit (5,991,527) (1,870,717) 1,672,606 (6,189,638)
---------------- ----------------- ----------------- ----------------
Total stockholders' equity (deficit) 766,553 1,639,283 7,005,106 9,410,942
---------------- ----------------- ----------------- ----------------
Total liabilities & stockholders'
equity (deficit) $ 5,141,787 $ 3,105,649 $ 7,005,106 $ 15,252,542
================ ================= ================= ================
Notes:
(a) Reflects net proceeds of $7,352,500 received from the common stock offering
less cash payment of $6,000,000 for acquisition of ART.
(b) Reflects issuance of 9,000,000 and 3,000,000 shares of common stock from
sale of shares in offering at $.90 per share, net of offering costs, and
stock consideration given for acquisition of ART estimated at a total value
of $1,500,000, respectively. (c) Reflects issuance of 1,000,000 shares of
Series B convertible preferred stock given for acquisition of ART estimated
at zero value.
</TABLE>
Page 11 of 19
<PAGE>
<TABLE>
<CAPTION>
EVANS ENVIRONMENTAL CORPORATION
CONDENSED PRO FORMA STATEMENTS OF OPERATION
YEAR ENDED MARCH 31, 1996
------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS UNAUDITED
HISTORICAL ART INC (DEC) PRO FORMA
------------------ ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Consulting services $ 5,721,221 $ - $ - $ 5,721,221
Soil remediaation - 1,503,774 - 1,503,774
------------------ ------------------ ---------------- ------------------
Total revenues 5,721,221 1,503,774 - 7,224,995
------------------ ------------------ ---------------- ------------------
Direct costs & expenses:
Direct labor & employee benefit costs 1,990,786 236,962 - 2,227,748
Other direct costs & expenses 1,306,325 1,015,798 - 2,322,123
------------------ ------------------ ---------------- ------------------
Total direct costs & expenses 3,297,111 1,252,760 - 4,549,871
------------------ ------------------ ---------------- ------------------
Other costs & expenses:
General, administrative & other operating costs 4,049,449 1,471,016 383,228 (a) 5,903,693
Reserve for restructuring - - - -
Write down for closed offices 629,518 - - 629,518
------------------ ------------------ ---------------- ------------------
Total operating and other costs & expenses 4,678,967 1,471,016 383,228 6,533,211
------------------ ------------------ ---------------- ------------------
Operating loss (2,254,857) (1,220,002) (383,228) (3,858,087)
Other expense, net (187,388) (415,703) - (603,091)
------------------ ------------------ ---------------- ------------------
Loss before income taxes (2,442,245) (1,635,705) (383,228) (4,461,178)
Provision for income taxes - - - -
------------------ ------------------ ---------------- ------------------
Loss from continuing operations (2,442,245) (1,635,705) (383,228) (4,461,178)
Income from discontinued operations, net of taxes 390,880 - - 390,880
Gain on disposal of discontinued operations - - - -
------------------ ------------------ ---------------- ------------------
Income (loss) before extraordinary items (2,051,365) (1,635,705) (383,228) (4,070,298)
Extraordinary items, net of taxes - - - -
------------------ ------------------ ---------------- ------------------
Net loss $ (2,051,365) $ (1,635,705) $ (383,228) $ (4,070,298)
================== ================== ================ ==================
(Loss) income per share from: (B)
Continuing operations $ (0.28)
Discontinued operations 0.09
Extraordinary item -
------------------
$ (0.18)
==================
Notes:
(a) Reflects additional amortization of goodwill associated with ART acquisition
amortized over 15 years on the straight line basis.
(b) Pro forma earnings per common share computed after giving effect to the
issuance of 12,000,000 shares related to the ART acquisition and Regulation
S offering
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
CONDENSED PRO FORMA STATEMENTS OF OPERATION (Continued)
THREE MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------------
Pro forma
EVANS ART adjustments Unaudited
Unaudited Unaudited Inc (dec) Pro forma
------------------- --------------- --------------- -----------------
Revenues:
Consulting services 1,265,045 $ $ 1,265,045
Soil remediation - 905,095 - 905,095
------------------- --------------- --------------- -----------------
Total revenues 1,265,045 905,095 - 2,170,140
------------------- --------------- --------------- -----------------
Direct costs & expenses:
Direct labor & employee benefit costs 505,550 142,623 - 648,173
Other direct costs & expenses 278,995 529,787 - 808,782
------------------- --------------- --------------- -----------------
Total direct costs & expenses 784,545 672,410 - 1,456,955
------------------- --------------- --------------- -----------------
Other costs & expenses:
General, administrative & other operating costs 706,396 310,688 95,807 1,112,891
Reserve for restructuring 350,000 - - 350,000
Write down for closed offices - - - -
------------------- --------------- --------------- -----------------
Total operating and other costs & expenses 1,056,396 310,688 95,807 1,462,891
------------------- --------------- --------------- -----------------
Operating loss (575,896) (78,003) (95,807) (749,706)
Other expense, net (22,104) (24,301) - (46,405)
------------------- --------------- --------------- -----------------
Loss before income taxes (598,000) (102,304) (95,807) (796,111)
Provision for income taxes - - - -
------------------- --------------- --------------- -----------------
Loss from continuing operations (598,000) (102,304) (95,807) (796,111)
Income from discontinued operations, net of taxes - - - -
Gain on disposal of discontinued operations 509,036 - - 509,036
------------------- --------------- --------------- -----------------
Income (loss) before extraordinary items (88,964) (102,304) (95,807) (287,075)
Extraordinary items, net of taxes 1,215,072 - - 1,215,072
------------------- --------------- --------------- -----------------
Net loss $ 1,126,108 $ (102,304) $ (95,807) $ 927,997
=================== =============== =============== =================
(Loss) income per share from: (B)
Continuing operations $ (0.04)
Discontinued operations $ 0.03
Extraordinary item $ 0.06
-----------------
$ 0.05
=================
Notes:
(a) Reflects additional amortization of goodwill associated with ART acquisition
amortized over 15 years on the straight line basis.
(b) Pro forma earnings per common share computed after giving effect to the
issuance of 12,000,000 shares related to the ART acquisition and Regulation
S offering.
Page 12 of 19
</TABLE>
<PAGE>
EVANS ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has suffered significant net losses for the years ended March 31, 1996
and 1995 and, at March 31, 1996 its current liabilities exceeded its
current assets. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management has taken measures to address the Company's going concern
issue. As discussed above, subsequent to March 31, 1996, management
sold the operating assets of the Cable Products Division, executed a
Composition Agreement with certain of its trade creditors and settled
its delinquent payroll tax matter with the IRS. In addition, management
completed a Regulation S stock offering on July 8, 1996. A substantial
portion of the net proceeds from the stock offering were used by the
Company to acquire all of the outstanding stock of ART and repay the
outstanding balance of the Strategica line of credit. The acquisition
of ART will involve the Company in thermal remediation, a natural
outgrowth of its current environmental consulting and remediation
activities. Management is also continuing to evaluate the need for
future cost saving measures.
In the absence of obtaining profitable operations or obtaining
additional debt or equity financing the Company may not have sufficient
funds to continue operations in 1997.
Page 13 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the fiscal year ended March 31, 1996 ("Fiscal 96"), the Company
incurred a net loss of $2,051,365, primarily from its Consulting
Division. These losses, from operations began in prior years and
continued through June 30, 1996, are attributable to the Company's lack
of sustained revenue growth, inability to balance associated labor
costs and other operational costs. The Company took certain significant
cost saving actions during Fiscal 96 and continues to do so, including
significant labor reductions, restructuring of underperforming offices,
closing of unprofitable offices, reductions of corporate overhead and
other cost saving measures. Although these cost saving measures have
not returned the Company to profitability, management believes that the
Company can return to sustained and profitable revenue growth, although
no assurances can be given. Management will continue to evaluate any
additional cost savings measures and focus on new marketing efforts to
increase revenues from its existing offices.
On April 3, 1996 the Company sold all the operating assets and ceased
operations of ABC Cable Products, Inc. ("Cable Products Division"), a
wholly owned subsidiary, for an aggregate of $550,000 in cash and a
promissory note in the amount of $1,000,000. In addition, the purchaser
assumed certain liabilities of ABC aggregating $595,049. From this sale
the Company recorded a net gain of $509,036.
Revenues for the quarter ended June 30, 1996 (the "96 Quarter")
decreased by $525,766 or 29.36% to $1,265,043 from $1,790,811 in the
corresponding period of the prior fiscal year (the "95 Quarter"). This
decrease in revenue is primarily attributable to the closing of the New
York office during Fiscal 96 and significant revenues recorded in the
95 Quarter from a nonrecurring emergency response contract involving
the derailment of a railcar that was transporting hazardous material.
The Company's direct costs and expenses, as a percentage of revenue,
increased to 62.02% in the 96 quarter from 55.67% in the 95 Quarter.
This increase is directly attributable to the high profit margin
associated with the emergency response project performed in the 95
Quarter. Direct costs consist of all labor, employee benefit costs and
other expenses directly related to the production of revenue on a
project. Other direct costs also includes sub-contractors, suppliers
and other revenue generating expenses.
Gross margin as a percentage of revenue was 37.98% and 44.33% in the 96
Quarter and 95 Quarter, respectively. The decrease in gross margin of
approximately 6% is directly attributable to the more profitable
emergency response project performed in the 95 Quarter as mentioned
above.
General, administrative and other operating costs were $706,396 in the
96 Quarter, a decrease of approximately $299,000 or 30% from the 95
Quarter, The decrease is primarily related to the closing of the New
York office during Fiscal 96, which had approximately $96,000 of
expenses in the 95 Quarter and the realignment and termination of
certain personnel and the reduction of office costs during Fiscal 96.
The reduction of these costs resulted in savings of approximately
$84,000. Penalties and interest costs accrued to the Internal Revenue
Service were $55,000 in the 95 Quarter and none in the 96 Quarter as a
result of the Company's settlement with the Internal Revenue Service.
Professional fees and other operating costs were approximately $64,000
greater in the 95 Quarter.
Page 14 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The 96 Quarter also includes several nonrecurring operating
transactions and extraordinary items totaling a net gain of $865,072.
One of these non-recurring transactions was a charge to earnings of
$350,000 for the Company's restructuring plans initiated in the 96
Quarter for the streamlining of operations and administrative functions
and integration with ART. During the 96 Quarter the Company reached a
settlement with certain of its trade creditors who accepted a payout of
$.20 for each $1.00 of their allowed claim. This settlement resulted in
a net gain of $280,981 for the Company. In addition, on June 28, 1996,
the Consulting Division completed an Offer in Compromise Agreement with
the IRS settling all outstanding issues and disputes related to
delinquent payroll taxes. As a direct result of this settlement, the
Company recorded a gain of $934,091, net of professional fees and
costs.
In the 95 Quarter, the Company paid a $151,766 finder's fee in
connection with an unsuccessful Regulation S offering and accordingly,
the Company expensed the full amount of the finder's fee.
Loss from continuing operations of $598,000 in the 96 Quarter was a
$191,272 increase over the $406,728 loss in the 95 Quarter. Loss from
continuing operations, excluding the nonrecurring operating
restructuring transaction and finders' fee described above, was
$248,000 in the 96 Quarter and $254,962 in the 95 Quarter, a decrease
in losses of $6,962 between the comparable periods despite the decrease
in revenue of $525,766 from the 95 Quarter to the 96 Quarter.
Net income of $1,126,108 in the 96 Quarter was $1,447,336 higher than
the 95 Quarter net loss of $321,228.
LIQUIDITY AND CAPITAL RESOURCES:
For the 96 Quarter, the Company's primary source of liquidity was
approximately $660,000 in cash from the proceeds on the sale of its
Cable Products division and exercise of certain warrants.
The Company's working capital ratio increased to .66 at June 30, 1996
from .54 at March 31, 1996. As of June 30, 1996, the Company had a
working capital deficit of $1,174,398 representing a $1,031,692
reduction from the March 31, 1996 working capital deficit of
$2,206,090. The decrease in the working capital deficit is primarily
attributable to the sale of its Cable Products division and the IRS
settlement.
On July 8, 1996, the Company completed a Regulation S stock offering.
The offering involved the sale of 9,000,000 shares of Common Stock at
an offering price of $.90 per share generating gross proceeds to the
Company of $8,100,000. The offshore placement agent handling the
offering entered into an agency agreement which provided for a cash
management and selling fee aggregating $607,500, or 7.5% of the gross
proceeds and broker warrants to purchase 630,000 shares of Common
Stock, exercisable at $1.00 per share until July 8, 1998. In addition
it was reimbursed for out pocket expenses of approximately $140,000.
Net cash proceeds to the Company in connection with this offering were
approximately $7,352,500, of which a substantial portion was used for
the ART acquisition and reduction of outstanding debt.
Page 15 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
On July 8, 1996, the Company acquired all the outstanding stock of
American Remedial Technologies, Inc. ("ART"). ART operates a soil
remediation facility in Lynwood, California. This facility is the only
currently licensed fixed base facility for thermal soil remediation in
Los Angeles County, California. The acquisition of ART will involve the
Company in thermal remediation, a natural outgrowth of its current
environmental consulting and remediation activities. The purchase price
of ART consisted of a cash payment of $6,000,000, the issuance of
3,000,000 shares of unregistered Common Stock and the issuance of
1,000,000 shares of Series B Preferred Stock. The Series B Preferred
Stock is convertible, commencing after March 31, 1997, subject to an
earn-out formula, up to a maximum of 10,000,000 shares of Common Stock.
In July 1994, the Company established a $2,500,000 subordinated line of
credit with Strategica Capital Corporation ("Strategica"). This line of
credit bore interest at 15% and was secured by a first lien on all the
assets of the Company, including its subsidiaries. At March 31, 1996,
the Company was not in compliance with certain of the covenants of the
Strategica line of credit. The covenants contained provisions regarding
certain operating ratios, solvency ratios, material adverse changes,
and other matters. On July 12, 1996, the Company repaid the outstanding
loan balance under the Strategica line of credit.
In April 1996, ABC Cable Products, Inc. a wholly owned subsidiary,
ceased operations and disposed of all of its operating assets for an
aggregate of $1,550,000 in cash and a promissory note and the
assumption by the buyer of $595,049 of ABC's liabilities. ABC received
at closing $550,000 cash and a promissory note in the amount of
$1,000,000. The note, which is fully collateralized by certain
irrevocable letters of credit, has payment dates of July 1, 1996
($500,000), March 5, 1997 ($250,000) and September 5, 1997 ($250,000).
The July 1, 1996 payment was received on time and was used to reduce
the then outstanding balance of the Strategica line of credit. The
Company is currently negotiating with a local bank for a $500,000
revolving bank loan collateralized by the foregoing letters of credit.
In April 1996, the Company executed a Composition Agreement with
certain of its trade creditors. The Company, due to its limited cash
flow situation, began negotiating with these creditors in September
1995. Negotiations were finalized in April 1996, with over 75% of the
creditors accepting a payout of $.20 for each $1.00 of their allowed
claim. The payout was made in April 1996 from funds that the Company
had previously put into escrow. In April 1996, the Company recorded a
benefit, net of expenses, of approximately $281,000 related to these
completed vendor settlements.
The Company has no material commitments for capital expenditures.
Page 16 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company intends to fund its current operations from the combination
of cash on hand, cash generated from operations, potential new equity
from the possible exercise of outstanding warrants, as well as costs
savings generated from its restructuring measures. These sources of
capital are expected to largely fund the Company's current operations
through March 31, 1997. Management expects a return to profitability in
Fiscal 1997. However, if the Company does not return to profitability,
then 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, except the $500,000 revolving bank
loan currently being negotiated, 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Audited financial statements of American Remedial
Technologies, Inc. for the Fiscal periods ended
March 31, 1996 and 1995.
(b)(i) Form 8-K dated April 17, 1996 incorporated by
reference, reporting the sale and disposal of
substantially all operating assets of ABC Cable
Products, Inc. a wholly owned subsidiary on
April 3, 1996.
b(ii) Form 8-K dated July 22, 1996 incorporated by
reference, reporting the acquisition of all the
outstanding stock of American Remedial
Technologies, Inc. on July 8, 1996. The unaudited
financial and Pro Forma financial information of
this acquisition are being filed with this Form
10QSB.
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
August 19, 1996 By: /s/ DAVID C. LANGLE
-----------------------------
David C. Langle, Chief Financial Officer
on behalf of the Registrant and as
Principal Accounting Officer
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 481,422
<SECURITIES> 30,000
<RECEIVABLES> 1,756,636
<ALLOWANCES> (2,293,467)
<INVENTORY> 0
<CURRENT-ASSETS> 2,269,630
<PP&E> 1,109,589
<DEPRECIATION> 581,942
<TOTAL-ASSETS> 5,141,787
<CURRENT-LIABILITIES> 3,444,028
<BONDS> 0
0
0
<COMMON> 56,882
<OTHER-SE> 709,671
<TOTAL-LIABILITY-AND-EQUITY> 5,141,787
<SALES> 1,265,045
<TOTAL-REVENUES> 1,265,045
<CGS> 784,545
<TOTAL-COSTS> (1,056,396)
<OTHER-EXPENSES> (1,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,104
<INCOME-PRETAX> (598,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (598,000)
<DISCONTINUED> 509,036
<EXTRAORDINARY> 1,215,072
<CHANGES> 0
<NET-INCOME> 1,126,108
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
March 31, 1996 and 1995
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................................2
Balance Sheets..............................................................3
Statements of Operations...................................................4
Statement of Changes in Stockholder's Equity................................5
Statements of Cash Flows....................................................6
Notes to Financial Statements...............................................8
1
<PAGE>
LOPEZ LEVI & ASSOCIATES, P.A.
[letterhead]
INDEPENDENT AUDITORS' REPORT
To the Stockholder
American Remedial Technologies, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of American Remedial
Technologies, Inc. (A Development Stage Company) as of March 31, 1996 and 1995,
and the related statements of operations, changes in stockholder's equity, and
cash flows the year then ended, the eight month period ended March 31, 1995 and
the period August 23, 1994 (date of inception) to March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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
misstatements. 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of American Remedial Technologies,
Inc. as of March 31, 1996 and 1995, and the results of its operations and its
cash flows the year then ended, the eight month period ended March 31, 1995 and
the period August 23, 1994 (date of inception) to March 31, 1996 in conformity
with generally accepted accounting principles.
/s/ LOPEZ LEVI & ASSOCIATES, P.A.
Lopez Levi & Associates, P.A.
June 21, 1996
(expect for Note H, as to
which the date is July 9, 1996)
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
MARCH 31, 1996 MARCH 31, 1995
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,740 $ 1,103,806
Trade accounts receivable - Note B 571,166 -
Inventory of small tools and supplies 12,494 -
Other current assets 33,620 -
------------------ -----------------
TOTAL CURRENT ASSETS 629,020 1,103,806
PROPERTY AND EQUIPMENT - Note C
Leasehold improvements, including capitalized
interest of $70,312 1,281,664 -
Plant machinery and equipment 563,299 -
Office furniture and equipment 77,892 -
------------------ -----------------
1,922,855 -
Less: accumulated depreciation and amortization (189,270) -
------------------ -----------------
PROPERTY AND EQUIPMENT, net 1,733,585 -
OTHER ASSETS
Deferred costs, net of accumulated amortization
of $28,707 and $0 for 1996 and 1995, respectively 403,311 217,456
Deposits 116,613 143,587
------------------ -----------------
TOTAL OTHER ASSETS 519,924 361,043
------------------ -----------------
TOTAL ASSETS $ 2,882,529 $ 1,464,849
================== =================
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
-------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Note payable $ - $ 1,500,000
Advances payable to related parties - 47,557
Current portion of equipment notes payable - Note C 58,545 -
Trade accounts payable 351,414 -
Accrued expenses - Note D 150,578 -
Deferred revenues 56,017 -
------------------ -----------------
TOTAL CURRENT LIABILITIES 616,554 1,547,557
LONG-TERM DEBT
Equipment notes payable, less current portion - Note C 124,388 -
Note payable to affiliated company - Note B 400,000 -
------------------ -----------------
TOTAL LONG-TERM DEBT 524,388 -
COMMITMENTS - Note E
STOCKHOLDER'S EQUITY
Common stock, par value $.01 per share; authorized
10,000,000 shares; 1,000,000 shares issued and
outstanding - Note F 10,000 10,000
Additional paid-in capital 3,500,000 40,000
Accumulated deficit during the development stage (1,768,413) (132,708)
------------------ -----------------
TOTAL STOCKHOLDER'S EQUITY 1,741,587 (82,708)
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,882,529 $ 1,464,849
================== =================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE EIGHT MONTH
FOR THE YEAR ENDED PERIOD ENDED FROM INCEPTION
MARCH 31, 1996 MARCH 31, 1995 TO MARCH 31, 1996
---------------- ------------------- -----------------
<S> <C> <C> <C>
Revenues, net $ 1,503,774 $ - $ 1,503,774
Cost of revenues 1,252,760 - 1,252,760
------------- ------------- ------------
GROSS PROFIT 251,014 - 251,014
Operating expenses:
Selling, general and administrative - Note G 1,039,472 - 1,039,472
Depreciation and amortization 233,796 - 233,796
Research and development costs 197,748 132,708 330,456
------------- ------------- ------------
TOTAL OPERATING EXPENSES 1,471,016 132,708 1,603,724
------------- ------------- ------------
LOSS FROM OPERATIONS (1,220,002) (132,708) (1,352,710)
Other expenses:
Interest expense 304,734 - 304,734
Write-off of loans costs 72,672 - 72,672
Other expense, net 38,297 - 38,297
------------- ------------- ------------
TOTAL OTHER EXPENSE 415,703 - 415,703
------------- ------------- ------------
NET LOSS $ (1,635,705) $ (132,708) $ (1,768,413)
============= ============= ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
ACCUMULATED
DEFICIT
ADDITIONAL DURING THE
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
--------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Common stock issued
August 23, 1994 (date of
inception) $ 10,000 $ 40,000 $ - $ 50,000
Conversion of
stockholder debt to
equity - Note H - 3,960,000 - 3,960,000
Reacquisition of
warrants - Note F & H - (500,000) - (500,000)
Net loss - - (1,768,413) (1,768,413)
--------------- ----------------- ------------------ -----------------
Balance at
March 31, 1996 $ 10,000 $ 3,500,000 $ (1,768,413) $ 1,741,587
=============== ================= ================== =================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTH
FOR THE YEAR ENDED PERIOD ENDED FROM INCEPTION
MARCH 31, 1996 MARCH 31, 1995 TO MARCH 31, 1996
------------------ -------------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,635,705) $ (132,708) $ (1,768,413)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 233,797 - 233,797
Changes in assets and liabilities:
Increase in trade accounts receivable (571,166) - (571,166)
Increase in inventory of small tools and
supplies (12,494) - (12,494)
Increase in other assets (33,620) - (33,620)
Increase in deposits (26,613) (30,000) (56,613)
Increase in trade accounts payable 351,414 - 351,414
Increase in accrued expenses 150,578 - 150,578
Increase in deferred revenues 56,017 - 56,017
-------------- -------------- --------------
Total adjustments 147,913 (30,000) 117,913
-------------- -------------- --------------
NET CASH USED IN OPERATING
ACTIVITIES (1,487,792) (162,708) (1,650,500)
-------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of common stock - 50,000 50,000
Deposit for purchases of equipment (60,000) (113,587) (60,000)
Purchases of property and equipment (1,809,268) - (1,922,855)
Increase in deferred costs (230,381) (217,456) (447,837)
-------------- -------------- --------------
NET CASH USED IN
INVESTING ACTIVITIES (2,099,649) (281,043) (2,380,692)
-------------- -------------- --------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - Continued
FOR THE EIGHT MONTH
FOR THE YEAR ENDED PERIOD ENDED FROM INCEPTION
MARCH 31, 1996 MARCH 31, 1995 TO MARCH 31, 1996
------------------ -------------------- -----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from loans payable 600,000 1,500,000 2,100,000
Payments on loan payable (100,000) - (100,000)
Advances from affiliates, net (32,557) 32,557 -
Proceeds from advances on factored receivables 400,000 - 400,000
Proceeds from related party loans 2,000,000 15,000 2,015,000
Payment for the reacquisition of warrants (50,000) - (50,000)
Payments on related party loans (505,000) - (505,000)
Proceeds from equipment notes payable 205,068 - 205,068
Payments on equipment notes payable (22,136) - (22,136)
-------------- -------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,495,375 1,547,557 4,042,932
-------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,092,066) 1,103,806 11,740
CASH AND CASH EQUIVALENTS- beginning of year 1,103,806 - -
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS - end of year $ 11,740 $ 1,103,806 $ 11,740
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 273,937 $ - $ 273,937
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Loan payable by company paid off by
stockholder in return for a note payable that
was subsequently converted to equity - Note H $ 2,000,000 $ - $ 2,000,000
============== ============== ==============
Loan payable to a related party which was
transferred to the sole stockholder and then
converted to equity - Note H $ 510,000 $ - $ 510,000
============== ============== ==============
Repurchase of warrants by stockholder in return for
a note payable which was subsequently converted
to equity - Note H $ 450,000 $ - $ 450,000
============== ============== ==============
Loan payable to stockholder converted to equity -
Note H $ 1,000,000 $ - $ 1,000,000
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: American Remedial Technologies, Inc. ("the Company"), incorporated
in the State of Florida, was organized in August 1994 for the purpose of
providing environmental services for remediation and testing of petroleum
contaminated soils. The Company's operating site is located in the Los Angeles,
California greater metropolitan area.
The Company is a development stage company primarily devoted to obtaining
environmental permits, seeking financing, constructing the facility, and
performing marketing and administrative functions related to the development of
the Company.
For the year ended March 31, 1996, the Company has not generated significant
revenues and has reported an accumulated deficit during the development stage of
$1,768,413. As a result, management has developed a plan that will include, but
not be limited to, the following actions to fund its working capital
requirements and raise capital to achieve its plans for growth.
1. Continue to pursue plans of closing on the stock sale agreement with a
publicly held company (see Note H) which will give the Company access
to seek additional funding from potential offerings.
2. Develop a marketing and promotion strategy that further increases
market share and recognition within the industry.
3. Seek new financing sources to fund future capital acquisitions (see
Note H).
4. The stockholder has personally guaranteed funding of $1,500,000 for any
working capital deficiency during the year, if necessary.
Management has begun the implementation of if its plans for the Company's
operations as described above and expects to meet its goals and objectives for
the year ending March 31, 1997. These measures, if successfully implemented, are
expected to result in positive working capital position as well as net income
for the year ended March 31, 1997. However, actual results may differ from
management's plans.
CHANGE IN FISCAL YEAR: The Company has changed its fiscal year end from December
31 to March 31, effective the year beginning April 1, 1995.
8
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
REVENUE RECOGNITION: Revenues are recognized as soil is processed. The Company
bills customers upon receipt of the contaminated soil at its remediation
facility. Amounts billed in excess of revenues recognized are classified as
"deferred revenues" on the accompanying balance sheet.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all highly liquid
debt instruments purchased with original maturities less than three months.
CASH CONCENTRATION: The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
INVENTORY OF SMALL TOOLS AND SUPPLIES: Inventories are stated at cost. Cost is
determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost, less
accumulated depreciation and amortization. Depreciation is provided principally
on the straight line method over the estimated useful lives of the assets.
Amortization is provided on the straight line basis method over the term of the
lease. Interest costs aggregating $70,312 for the construction of long term
assets were capitalized and are being amortized over the related assets
estimated useful life. When property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
resulting gains or losses are credited or charged to operations.
DEFERRED COSTS: Costs consisting of primarily consulting fees, salaries and
legal fees related to organizing and obtaining environmental services permits
are being amortized over five years.
INCOME TAXES: The Company, with the consent of its stockholder, had elected
Subchapter "S" corporate status. In lieu of corporate income taxes, the
individual stockholder of the Company is responsible for the taxes on his
proportionate share of the Company's taxable income (losses).
On March 31, 1996, the Company terminated its Subchapter "S" corporate status
and elected a taxable status of a regular "C" corporation effective April 1,
1996.
RESEARCH AND DEVELOPMENT COSTS: Expenditures related to the development of new
processes are expended as incurred.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures including, but
not limited to, the determination of the net realizable value of receivables,
useful lives of acquired assets, deferred costs and the evaluation of
contingencies, if any , that may exist. Accordingly, actual results could differ
from those estimates.
9
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE B - TRADE ACCOUNTS RECEIVABLE
In February 1996, the Company entered into a factoring agreement to sell
accounts receivable without recourse to a related party at ninety-five percent
of their fair market value payable within 90 days of when the proceeds are
remitted to the Company. At March 31, 1996 amounts advanced aggregated $400,000
and accrued interest, included in accrued expenses, approximated $5,000.
Subsequent to year end, additional advances of $95,000 were made to the Company.
In June 1996, the agreement was renegotiated as a note payable to the affiliate
for $495,000 with a 13.5 % interest rate. Interest is payable monthly and a
balloon payment of the principal is due in June 1999. The loan is collateralized
by accounts receivable.
NOTE C - EQUIPMENT NOTES PAYABLE
Equipment notes payable at March 31 are summarized as follows:
1996 1995
-------- -------
9.95% note payable to a bank; monthly
principal and interest payments of $1,830
through July 1998; collateralized by a misting
system with a net book value of $63,503. $ 49,211 $ -
10.25% note payable to a bank; monthly
principal and interest payment of $ 968
through May 1998; collateralized by a truck
scale with a net book value of $28,553. 24,901 -
10.25% note payable to a bank; monthly
principal and interest payment of $2,519
through June 1998; collateralized by screening
equipment with a net book value of $101,322. 108,821 -
--------- -------
182,933 -
Less: current maturities of equipment notes payable 58,545 -
--------- -------
$ 124,388 $ -
========== =======
10
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE C - EQUIPMENT NOTES PAYABLE - Continued
The maturities of equipment notes payable for each of the years subsequent to
March 31, 1996 are as follows:
1997(included in current maturities) $ 58,545
1998 53,806
1999 35,266
2000 27,894
2001 7,422
-----------
$ 182,933
===========
NOTE D- ACCRUED EXPENSES
Accrued expenses at March 31 consist of the following:
1996 1995
----------- ---------
Payroll taxes $ 55,212 $ -
Other 31,200 -
Management fees 17,500 -
Related party interest 30,397 -
Commissions 16,269 -
----------- ---------
$ 150,578 $ -
=========== =========
NOTE E - COMMITMENTS
OPERATING LEASES: The Company has operating lease agreements for the plant and a
loader with aggregate monthly payments approximating $ 39,000. These leases are
non-cancelable and expire at various dates through 2000. The Company also has a
non-cancelable lease agreement for the land for which the plant is located.
Monthly payments for the first year are $15,000 and increase by $1,000 each
year. On the fifth year the Company has option to extend for three additional
years with continued increases of $1,000 each year. This lease expires in
December 2000.
Future minimum rental payments due under these lease agreements for each of the
years subsequent to March 31, 1996 are as follows:
1997 $ 655,000
1998 667,000
1999 629,000
2000 223,000
2001 235,000
-----------
$ 2,409,000
===========
11
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE E - COMMITMENTS - Continued
Rent expense charged to operations totaled approximately $467,000 for the year
ended March 31, 1996 and for the period from inception to March 31, 1996. There
was no rent expense charged to operations for the eight month period ended March
31, 1995.
EQUIPMENT PURCHASE COMMITMENT: In March 1996, the Company entered into an
agreement to acquire a used thermal desorption plant located at the Port of Los
Angeles for a purchase price of $600,000. To date, the Company has paid $85,000
as a deposit to be held in escrow pending approval of financing for the balance
of the purchase price.
In June 1996, this equipment was acquired by an unrelated party on behalf of the
Company. This unrelated party also has a lien on the stockholder's shares as
noted above. Financing terms are still being negotiated.
NOTE F - WARRANTS
In connection with loans from an unrelated party and a related party, the
Company authorized 505,959 warrants with an exercise price of $.01 (par value).
On the date of issuance, the exercise price of the warrants exceeded their
estimated fair value of the related common stock as determined by the board of
directors. Consequently, no amounts related to the issuance of the warrants have
been reflected in the accompanying financial statements.
Subsequent to the issuance of the warrants, the rights to the outstanding
warrants were reacquired by the Company from the unrelated lender for $500,000
and rights to the outstanding warrants of the related party were waived (see
Note H).
NOTE G - MANAGEMENT FEES
Effective August 1995, beginning September 1995 the Company has agreed to pay a
monthly management fee of $2,500 to a related party under common ownership for
the utilization of administrative services, office space and accounting
services. The management fee expense as of March 31, 1996 and from inception to
March 31, 1996, which is included in selling, general & administrative expenses,
aggregates $17,500. There were no management fees charged to operation for the
eight month period ended March 31, 1995.
12
<PAGE>
AMERICAN REMEDIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE H - SUBSEQUENT EVENT
SALE OF STOCKHOLDER SHARES: On March 25, 1996, the Company entered into a stock
sale agreement authorizing the sale of the sole stockholders shares (1,000,000)
to a publicly held corporation in consideration for $6,000,000, 3,000,000 shares
of the purchasers' common stock and 1,000,000 shares of the purchasers' series
"B" convertible preferred stock. Certain preferences and limitations were
outlined in the agreement in conjunction with the signing of the agreement.
Listed below are those transactions
1. $ 510,000 of debt owed to a related party was assigned to the
stockholder and converted to equity and rights to warrants outstanding
(see Note F) for the related party were canceled.
2. $ 100,000 note payable to a related party was paid in full.
3. Note payable for $ 2,000,000 due to an unrelated party was paid in full
by the stockholder. In return the amounts then owed to the stockholder
were converted to equity.
4. The stockholder paid the aforementioned unrelated party $ 450,000 for
the outstanding warrants and the Company paid $ 50,000, totaling $
500,000. Amounts paid for the warrants have been reflected as a
reduction of equity and debt owed by Company to the stockholder for the
reacquisition of the warrants have been converted to equity (see Note
F).
5. The shareholder loan for $1,000,000 was converted to equity.
To payoff the note payable of $2,000,000 and the outstanding warrants for
$450,000, the stockholder borrowed funds from an unrelated third party. This
loan was secured by the stockholder's shares. In conjunction with the closing of
the sale of stockholder's shares on July 9, 1996, the loan has been repaid to
the unrelated third party and the lien on the shares have been released.
13
