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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 DECEMBER 31, 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
ECOS GROUP, INC.
F/K/A 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.)
1000 SOUTHERN BOULEVARD, SUITE 200,
WEST PALM BEACH, FLORIDA 33405
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 835-0990
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 February 12, 1997, the Company had a total of 17,597,626 shares of common
stock, $.012 par value, outstanding.
Transitional Small Business Disclosure format (check one): Yes [ ] No [X]
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ECOS GROUP, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated balance sheets
- December 31, 1996 and March 31, 1996.........................................................3
Consolidated statements of operations
- Three months and nine months ended December 31, 1996 and 1995................................4
Consolidated statements of cash flows
- Nine months ended December 31, 1996 and 1995...............................................5-6
Notes to financial statements................................................................7-12
Item 2. Management's discussion and analysis
of financial condition and results of operations............................................13-18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................................19
Item 6. Exhibits and reports on Form 8-K...............................................................20
Signatures.......................................................................................................21
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ECOS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1996 MARCH 31, 1996
---------------- --------------
ASSETS (UNAUDITED)
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Current assets:
Cash $ 1,033,097 $ 178,121
Restricted cash 17,848 154,749
Marketable securities 232,500 75,000
Accounts receivable, net 1,769,122 792,929
Note receivable 500,000 --
Net assets of discontinued operations -- 1,037,971
Prepaid services 500,421 --
Prepaid expenses & other 424,335 354,974
------------ ------------
Total current assets 4,477,323 2,593,744
Amounts due under state reimbursement
program 903,987 832,922
Property & equipment, net 2,743,928 573,813
Goodwill, net 6,641,053 946,554
Deferred costs, net 349,581 --
Other assets 79,695 298,859
------------ ------------
Total assets $ 15,195,567 $ 5,245,892
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,636,213 $ 1,861,425
Accrued expenses 679,584 604,459
Payroll taxes -- 1,051,688
Note payable, bank 500,000 --
Related party notes payable 1,924,268 85,000
Current portion of capital lease
obligations & notes payable 84,934 1,197,262
------------ ------------
Total current liabilities 4,824,999 4,799,834
Notes payable, net of current portion 972,615 873,113
Commitments & contingencies -- --
Stockholders' equity (deficit):
Preferred stock:
Series A, $.001 par value 5,000,000
authorized, none issued and outstanding -- --
Series B convertible, $.01 par value
1,000,000 authorized, issued and outstanding -- --
Common stock:
$.012 par value, 75,000,000 authorized,
issued and outstanding:
December 31, 1996 - 17,597,626 211,172
March 31, 1996 - 4,590,126 55,082
Additional paid in capital 16,121,905 6,635,498
Net unrealized loss on marketable
securities (117,500) --
Retained earnings (deficiency) (6,817,624) (7,117,635)
------------ ------------
Total stockholders' equity (deficit) 9,397,953 (427,055)
------------ ------------
Total liabilities &
stockholders' equity (deficit) $ 15,195,567 $ 5,245,892
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
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ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
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Revenue:
Environmental Consulting $ 2,063,071 $ 1,207,699 $ 4,590,606 $ 4,473,249
Soil Remediation 858,108 -- 1,786,654 --
----------- ----------- ----------- -----------
Total Revenue 2,921,179 1,207,699 6,377,260 4,473,249
----------- ----------- ----------- -----------
Cost of Environmental Services:
Direct Labor & Benefits 598,805 460,333 1,600,692 1,562,567
Other Direct Costs 513,395 319,093 1,002,028 1,000,580
----------- ----------- ----------- -----------
1,112,200 779,426 2,602,720 2,563,147
Cost of Soil Remediation 990,360 -- 1,904,500 --
----------- ----------- ----------- -----------
Total Direct Costs 2,102,560 779,426 4,507,220 2,563,147
----------- ----------- ----------- -----------
Gross Profit 818,619 428,273 1,870,040 1,910,102
----------- ----------- ----------- -----------
General, Administrative & Other
Operating Costs 1,080,388 613,006 2,887,092 2,465,806
Reserve for Restructuring -- -- 350,000 --
Other Offering Costs -- -- -- 151,766
----------- ----------- ----------- -----------
Total Operating Costs 1,080,388 613,006 3,237,092 2,617,572
----------- ----------- ----------- -----------
Operating Loss (261,769) (184,733) (1,367,052) (707,470)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest, Net (34,745) (45,994) (77,269) (135,130)
Other Income, Net 6,092 -- 20,223 (1,046)
----------- ----------- ----------- -----------
(28,653) (45,994) (57,046) (136,176)
----------- ----------- ----------- -----------
Net Income (loss) before Taxes (290,422) (230,727) (1,424,098) (843,646)
Provision for Income Taxes -- -- -- --
----------- ----------- ----------- -----------
Loss from Continuing Operations (290,422) (230,727) (1,424,098) (843,646)
Discontinued Operations:
Income - Discontinued Operations -- 94,441 -- 316,869
Gain on Disposal -- -- 509,037 --
----------- ----------- ----------- -----------
Income (loss) before extraordinary items (290,422) (136,286) (915,061) (526,777)
Extraordinary Items:
Net Gain on Vendor Settlements -- -- 280,981
Net Gain on Payroll Tax Settlement -- -- 934,091 --
----------- ----------- ----------- -----------
Net Income (Loss) $ (290,422) $ (136,286) $ 300,011 $ (526,777)
=========== =========== =========== ===========
Income (loss) Per Share from:
Continuing Operations $ (.01) $ (.05) $ (.08) $ (.23)
Discontinued Operations -- .02 .03 .08
Extraordinary Items -- -- .08 --
----------- ----------- ----------- -----------
$ (.01) $ (.03) $ .03 $ (.15)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
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Operating activities:
Net income (loss) $ 300,011 $ (526,777)
----------- -----------
Adjustments to reconcile net income
(loss) to net cash used in
in operating activities:
Depreciation & amortization 596,719 235,540
Gain on sale of equipment (1,000) (300)
Other 22,875 16,522
Discontinued operations (509,036) (316,869)
Extraordinary items (1,228,203) --
Changes in operating assets & liabilities, net
of effects from purchase of American
Remedial Technologies, Inc.:
(Increase) decrease in accounts receivable (390,402) 102,017
(Increase) decrease in prepaid expenses
and other assets 157,789 (235,281)
Increase in amounts due from state
reimbursement program (71,065) (77,751)
(Increase) decrease in other non-current assets 38,725 931
Increase (decrease) in accounts payable (463,008) 108,393
Increase (decrease) in accrued liabilities 155,457 (521,312)
Increase (decrease) in payroll taxes (446,547) 525
----------- -----------
(2,137,696) (687,585)
----------- -----------
Net cash used by operating activities of:
Continued operations (1,837,685) (1,214,362)
Discontinued operations -- 118,029
----------- -----------
(1,837,685) (1,096,333)
----------- -----------
Investing activities:
Restricted cash 136,901 --
Payments for purchase of American
Remedial Technologies, Inc., net
of cash acquired (5,983,677) --
Proceeds from disposal of discontinued
operations, net of expenses 1,047,007 --
Purchases of equipment (260,437) (28,185)
Proceeds from disposal of equipment 1,000 103,354
Proceeds from investments -- 150,000
----------- -----------
Net cash provided (used)
by investing activities (5,059,206) 225,169
</TABLE>
The accompanying notes are an integral part of these financial statements
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ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
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Financing activities:
Proceeds from original issuance of stock $ 8,100,000 $ 477,013
Proceeds from warrant exercise 337,500 --
Costs associated with issuance of stock (805,758) (127,728)
Proceeds from notes payable 562,800 464,993
Proceeds from related party notes payable 1,158,048 85,000
Payments on capital lease obligations
and notes payable (1,271,943) (106,471)
Payments on related party notes payable (328,780) --
----------- -----------
Net cash provided by financing activities 7,751,867 792,807
----------- -----------
Net increase (decrease) in cash 854,976 (78,357)
Cash, beginning of period 178,121 300,743
----------- -----------
Cash, end of period $ 1,033,097 $ 222,386
=========== ===========
Cash paid during the period for interest $ 155,754 $ 179,430
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING:
On July 8, 1996 the Company acquired 100%
of the outstanding stock of American
Remedial Technologies, Inc.
Details of the acquisition are:
Common stock issued $ 1,500,000
Convertible preferred stock issued --
Book value of assets acquired 3,106,127
Liabilities assumed 1,466,844
Cash paid for acquisition $ 6,000,000
Cost of acquisition 46,836
Less cash acquired 63,159
-----------
Net cash paid $ 5,983,677
-----------
On August 20, 1996 the Company issued
545,000 shares of common stock for
services to be performed in connection
with a public relations consulting agreement
The stock and related cost of issuance was valued at: $ 493,881
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements
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ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
ECOS Group, Inc. (formerly known as Evans Environmental Corporation) (the
"Company") is engaged, through its wholly-owned subsidiaries, in
environmental consulting and other environmental related services (the
"Consulting Division") and soil remediation (the "Remediation Division").
Until April 3, 1996, the Company was also engaged in the production and
sale of cable products (the "Cable Products Division"). The Company
changed its name to ECOS Group, Inc. effective October 25, 1996 pursuant
to a majority vote at its annual meeting of shareholders held on October
18, 1996. The name change was made because of the Company's expanded
activities in remediation since the acquisition of American Remedial
Technologies, Inc. ("American Remedial") in July, 1996, as further
discussed below.
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 and nine months ended December
31, 1996 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, 19,138,718 and 4,147,081 for the quarters ended
December 31, 1996 and 1995, respectively, and 14,650,175 and 3,555,256
for the nine months ended December 31, 1996 and 1995, respectively. For
the 96 Quarter and nine months ended December 31, 1996, 5,065,101 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 95 Quarter and nine month period ended
December 31, 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.
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ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRESENTATION: Certain amounts previously reported have been reclassified
to conform to the Fiscal 1997 financial statement presentation.
3. ACQUISITION
On July 8, 1996, the Company acquired all the outstanding stock of
American Remedial. American Remedial operates a soil remediation facility
in Lynwood, California. The acquisition of American Remedial will involve
the Company in thermal soil remediation, a natural outgrowth of its
current environmental consulting and remediation activities. The
acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the acquired assets and assumed
liabilities, based on their respective fair values. The excess
(approximately $5,900,000) of the purchase price over the fair values of
assets acquired was recorded as a goodwill and is being amortized over 15
years on a straight line basis. The initial valuation of the purchase
price and related carrying value of goodwill will be periodically valued
by the Company in relation to current and expected operating results to
assess if there has been any permanent impairment.
The purchase price of American Remedial consisted of a cash payment of
$6,000,000, the issuance of 3,000,000 shares of unregistered Common Stock
of which 272,277 shares were subsequently registered 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, into a maximum of
10,000,000 shares of Common Stock. Furthermore, American Remedial's
President, Mr. Enrique A. Tomeu, became 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 and
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.
The purchase price was principally funded from a contemporaneous
Regulation S stock offering by the Company as herein discussed.
The pro-forma results of operations, which follow, assume that the
acquisition had occurred at the beginning of each period presented. In
addition to combining the historical results of operations of the two
companies, the pro-forma calculations include adjustments for the
estimated effect on the Company's historical results of operations for
amortization of goodwill.
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Revenues $ 7,282,355 $ 4,881,002
================ ================
Net earnings (losses) $ 101,900 $ (984,605)
================ ================
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ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITION (CONTINUED)
The following is a summary of the financial position of American Remedial
at date of acquisition, July 8, 1996:
JULY 8, 1996
------------
Current assets $ 836,326
Property & equipment, net 1,663,053
Other assets 484,147
-----------
Total assets $ 2,983,526
===========
Current liabilities $ 839,067
Long-term debt 132,299
Related party debt 495,000
Stockholders equity 1,517,160
-----------
Total liabilities and equity $ 2,983,526
===========
4. NOTES PAYABLE
BANK: On August 23, 1996 PTV Corporation (f/k/a ABC Cable Products, Inc.),
a wholly-owned subsidiary, borrowed $500,000 from a bank pursuant to a
Promissory Note collateralized by reassignment to the bank of the letters
of credit received from the sale of its cable product division and is also
guaranteed by the Company. The bank note is due on the same payment dates
of the letters of credit, which are March 5, 1997 ($250,000) and September
5, 1997 ($250,000). The bank note bears interest at prime plus 1.75%.
RELATED PARTY: On December 31, 1996 the Company borrowed $1,000,000 from a
shareholder and director of the Company pursuant to a one year promissory
note bearing interest at 14% per annum. For the first three months of the
note, while the Company secures alternative long-term financing, the note
is unsecured with interest only payable monthly. Commencing March 1997,
monthly payments of principle and interest are required until maturity in
December 1997, and the note is secured with all trade accounts receivable
of the Company.
5. STOCKHOLDERS' EQUITY
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
9 of 21
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ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
share until July 8, 1998 and was reimbursed for out-of-pocket expenses of
approximately $140,000. Thus, net cash proceeds of the Company including
other offering cost of approximately $58,000 in connection with this
offering were approximately $7,294,500. The majority of the net proceeds
received from this offering were utilized for the acquisition of American
Remedial and payment of debt under the Strategica line of credit.
During the six month period ended September 30, 1996, warrants were
exercised for 450,000 shares of Common Stock for total proceeds of
$337,500.
On August 13, 1996, the Company entered into a five year Lead
Generation/Corporate Relations Agreement with a public relations company,
which was retained to provide certain corporate relations services. As
payment for these corporate relations services, the Company issued to the
public relations company 545,000 shares of Common Stock valued at fair
market value of approximately $494,000 inclusive of related cost.
Additionally, the Company has issued warrants to purchase Common Stock as
follows: (i) 300,000 shares at the exercise price of $2.00 per share,
exercisable within one year from August 13, 1996, (ii) 150,000 shares at
$2.50 per share, exercisable within two years from August 13, 1996; and
(iii) 150,000 shares at $2.70 per share, exercisable three years from
August 13, 1996. The Company has registered all of the above shares for
resale by the public relations company. Notwithstanding the above, the
public relations company has agreed to return 47,000 shares to the Company
if by the end of the five year term of the agreement the price of the
Company's shares as traded on NASDAQ has not traded at or above $4.50 per
share for any period of ten consecutive days. The company will record a
non-cash charge to earnings of approximately $494,000 for the foregoing
agreement in the fourth quarter of Fiscal 1997, the period in which
services commenced.
At the Annual Meeting of Shareholders held on October 18, 1996, the
majority of shareholders voted to approve to increase the number of
authorized shares of common stock to 75,000,000.
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, 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. EXTRAORDINARY ITEMS
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
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ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. EXTRAORDINARY ITEMS (CONTINUED)
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.
SETTLEMENT OF DELINQUENT PAYROLL TAXES: On June 28, 1996, certain
subsidiaries of the Company and the IRS completed an Offer in Compromise
agreement settling all outstanding issues and disputes. In connection with
the settlement these subsidiaries 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 its subsidiaries, has no other
outstanding disputes with the IRS or delinquent payroll taxes.
8. 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. ABC subsequently
changed it's name to PTV Corporation.
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.
9. JOINT VENTURE
In October 1996, the Company's subsidiary, American Remedial entered into a
joint venture agreement with Marbi, Inc. ("Marbi") for the design,
construction and operation of a metal recycling operation in West Virginia,
to be known as ECOS Briquetting, Incorporated. American Remedial will
provide the construction capital (not to exceed $2.2 million) and Marbi
will provide the raw materials to be recycled and will be responsible for
the sales and marketing for the material.
The joint venture agreement provides for among other terms for (i) profits
and losses, as defined, to be allocated 50% between the two partners; (ii)
losses shall accrue to the account of American Remedial and in
consideration for this arrangement, Marbi agreed to split the commission on
it's marketing of materials; (iii) 20% of distributions from the venture on
a pro-rata basis for recovery
11 of 21
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ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. JOINT VENTURE (CONTINUED)
of each partners initial contributions and; (iv) formation of a four
person committee consisting of two representatives from each partner,
with the responsibility of managing the business and affairs of the new
venture.
The Company's chief executive officer and majority shareholder is the
brother-in-law of one of the principal owners of Marbi. As of February
13, 1996, the operations of this new venture were still in the design,
development and financing status.
10. 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 and December 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, secured a bank
loan in August 1996 and obtained a bridge loan from one of its
shareholders in December 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 American Remedial and repay the outstanding balance
of the Strategica Capital Corporation line of credit. The acquisition of
American Remedial 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 savings 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.
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ECOS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT CHANGES IN MANAGEMENT
Beginning in July 1996, the Company began a process of reorganization,
restructuring and changing its direction. A significant part of these
changes was the appointment of a new President and Chief Executive
Officer, Mr. Enrique A. Tomeu, as a condition of the acquisition of
American Remedial Technologies, Inc. ("American Remedial"). Mr. Tomeu
replaced Mr. John C. Reynolds, who guided the Company from April 1995
until July 1996 as Interim President. Mr. Tomeu has implemented an agenda
for changes in management, operations, and corporate structure. Since
coming on board, changes in management have included the appointment of a
new Chief Financial Officer, two new Vice Presidents of Operations for
the west and east coast divisions, and a Director of the Company's
Environmental Consulting Division.
During the quarter ended September 30, 1996, there were significant
changes in operations which included: (i) directing the Company into
remediation and resource recovery; (ii) restructuring its existing
environmental consulting division; and (iii) reducing corporate overhead.
On July 8, 1996, the Company purchased American Remedial Technologies,
Inc. ("American Remedial"), which launched its efforts in the remediation
and resource recovery arenas. Subsequent to this purchase, American
Remedial has announced the formation of a joint venture with a private
company in the recovery and beneficial re-use of steel making by-products
and announced the development of a system for the treatment of bio-solids
at its existing thermal remediation facility in Los Angeles, California.
The environmental division has been restructured through closing
non-profitable offices and labor reductions in order to improve and
generate a consistently profitable operation. In September 1996, the
environmental division announced the commencement of a major project in
the clean-up and remediation of damage associated with Hurricane "Fran"
in North Carolina ("North Carolina Project"). Through the quarter ended
December 31, 1996, the North Carolina Project has generated approximately
$1,200,000 in consulting revenues.
In connection with the operational changes discussed above, the Company
began an aggressive program in the change of the corporate structure
aimed at reduction of corporate overhead. The reduction of corporate
overhead is based on management's view that the Company's existing
operating subsidiaries could not generate sufficient, sustained,
operating profits to cover the corporate overhead. Management believes
that the reductions made to date are an important component of the
Company's efforts to return to profitability with its current operating
capacities, although further changes may be made as the Company moves out
of this restructuring mode, which is expected to be concluded by the end
of Fiscal 1997.
RESULTS OF OPERATIONS
During the fiscal year ended March 31, 1996 ("Fiscal 96"), the Company
incurred a net loss of $2,051,365. These losses from operations which
began in prior years and continued through most of the first and second
quarter of Fiscal 1997, 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
savings actions during Fiscal 96 and continues to do so, including
13 of 21
<PAGE>
ECOS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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.
In connection with the Company's focus to increase its revenue base, it
broadened its service base with the July 1996 acquisition of American
Remedial Technologies, Inc. ("American Remedial"). American Remedial (the
"Remediation Division") operates a multiple technology soil recycling
operation located in Lynwood, California, which is designed to treat
non-hazardous petroleum hydrocarbon contaminated soil.
QUARTER ENDED DECEMBER 31, 1996 COMPARED TO
QUARTER ENDED DECEMBER 31, 1995
Revenues for the quarter ended December 31, 1996 (the "96 Quarter") were
$2,921,179, up 142 percent from $1,207,699 in the second quarter of 1995
(the "95 Quarter"). This increase in revenue of approximately $1,713,000
is primarily attributed to the addition of soil remediation revenues of
$858,000 from the Company's new subsidiary acquisition in July 1996,
American Remedial and, $900,000 of revenues generated from the major
emergency response contact for clean-up and remediation of damage
associated with the North Carolina Project. Revenues for the Consulting
Division increased 71 percent ($855,000) from the corresponding quarter
of the prior year predominantly caused by the North Carolina Project.
Direct costs of environmental services were $1,112,200 for the 96
Quarter, a 43 percent increase from $779,426 of the corresponding 95
Quarter. This increase in direct cost resulted principally from the
additional labor, travel and incidental costs incurred by the North
Carolina Project. Costs of soil remediation of $990,359 for the 96
Quarter was 115 percent of soil revenues, which reflects a high cost of
operations caused mainly by increased fuel costs and the presentment of
final electric billings covering several periods which final bills were
previously estimated and underaccrued. The total cost for the electricity
in excess of the estimated amount was approximately $125,000.
14 of 21
<PAGE>
ECOS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Total gross margin was 28 and 36 percent for the 96 and 95 Quarters,
respectively, a decrease of 8 percent due primarily from the abnormal
high cost of operations of the Remediation Division. Additionally, the
soil remediation market served by American Remedial continues to be
highly competitive causing a suppressed average selling price combined
with unusually bad weather conditions in Southern California causing
delays in soil deliveries and accordingly, lower amounts of revenue.
General, administrative and other costs were $1,080,388, a 76 percent
increase from $613,006 of the corresponding prior quarter. This increase
is primarily related to the addition of the Remediation Division
($237,000), goodwill amortization of the Remediation Division ($100,000)
and incremental costs associated with the North Carolina Project
($135,000).
Loss from continuing operations of $290,422 in the 96 Quarter was a
$59,685 increase over the $230,727 loss in the 95 Quarter. This loss, for
the 96 Quarter, results primarily from the approximate operating loss of
$397,000 from the Remediation Division, corporate expenses of $379,000
(includes goodwill amortization) and offset by a profit from the
Consulting Division of $486,000, which is the result of new management's
restructuring efforts. The 95 Quarter loss of $230,727 consisted of a
Consulting Division loss of $145,463 and corporate expenses of $86,000.
For Fiscal 96 the Company had changed its allocation of corporate
expenses to include more non-division related expenditures as compared to
prior fiscal periods.
Net loss for the 96 Quarter was $290,422 compared to a loss of $136,286
for the 95 Quarter.
NINE MONTHS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
For the nine months ended December 31, 1996 (the "96 Period"), the
Company reported revenues of $6,377,260, up 42 percent from $4,473,249 in
the comparable period last year (the "95 Period"). This increase in
revenue resulted primarily from the new acquisition of the Remediation
Division ($1,786,654), combined with a 2 percent increase in revenues
from the Company's Consulting Division from $4,473,249 in the 95 Period
compared to $4,590,606 in the 96 Period.
The Company's total direct cost and expenses were 70 percent and 57
percent for the 96 and 95 Periods, respectively, as a percentage of total
revenues, representing a 13 percent increase in costs caused
substantially from the addition of cost of soil remediation. Direct cost
for the Environmental Division as a percentage of total consulting
revenues remained steady at approximately 52 percent for the 96 and 95
Periods.
Gross margin as a percentage of revenue was 29 percent of the 96 Period
compared to 43 percent for the corresponding 95 Period. This decrease in
gross margin of 14 percent was due mainly to the high cost of operations
of the Remediation Division.
General, administrative and other operating cost were $2,887,092 for the
96 period, an increase of $421,286 or 17 percent from the 95 Period. The
increase is primarily related to the inclusion of the general,
administrative, and other operating costs for the soil remediation
division. In the first quarter of Fiscal 97 the Company recorded a
restructuring charge of $350,000 in anticipation of
15 of 21
<PAGE>
ECOS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
additional costs associated with an overall reorganization and
implementation of a new management structure. As of December 31, 1996
approximately $140,000 of the provision for restructure remains for the
execution of management's plans.
The operating loss of the 96 Period was $1,424,098, an increase in the
operating loss of $580,451 from the 95 Period. The operating loss of the
96 Period was comprised of a Remedial Division loss of $644,442, a
Consulting Division profit of $461,993 and corporate expenses of
$1,241,648.
The 96 Period also includes several non-recurring operating transactions
and extraordinary items totaling a net gain of approximately $865,000.
One of these non-recurring transactions was a charge to earnings of
$350,000 for the Company's restructuring plans initiated in the First
Quarter ended June 30, 1996 for the streamlining of operations and
administrative functions and integration with American Remedial. During
the 96 Period 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 reported a net gain of $934,091,
net of professional fees and costs.
In the 95 Period, the Company paid a $151,766 finder's fee in connection
with the unsuccessful Regulation S offering and accordingly, the Company
expensed the full amount of the finder's fee.
The net income of $300,011 for the 96 period is approximately $827,000 or
156% improvement over the $526,777 loss for the 95 period, due primarily
to the extraordinary items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has operated with a working capital deficiency during a
majority of the periods presented in the accompanying financial
statements. For the nine month period ended December 31, 1996, the
Company's primary source of liquidity was generated from cash provided
from investing and financing activities such as the issuance of new
equity, exercise of warrants, bank and shareholder borrowings and
proceeds from the sale of its Cable Products Division.
The Company's working capital ratio increased to .93 at December 31, 1996
from .54 at March 31, 1996. As of December 31, 1996, the Company had a
working capital deficit of $347,676, representing a reduction of
approximately $1,860,000 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, the IRS
settlement, payoff of the Strategica Capital Corporation ("Strategica")
line of credit and the third quarter shareholder borrowing.
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
16 of 21
<PAGE>
ECOS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
$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. Net cash proceeds to the Company in connection with this
offering were approximately $7,294,500, net of broker fees and offering
cost, of which a substantial portion was used for the ART acquisition and
reduction of outstanding debt.
On July 8, 1996, the Company acquired all the outstanding stock of
American Remedial Technologies, Inc. ("American Remedial"). American
Remedial 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 American Remedial involves the Company in thermal
remediation, a natural outgrowth of its current environmental consulting
and remediation activities. The purchase price of American Remedial
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, into a
maximum of 10,000,000 shares of Common Stock.
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 $1,500,000 in cash and a promissory note and the assumption
by the buyer of $595,049 of ABC's liability. 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.
In October 1996, the Company's subsidiary, American Remedial, entered
into a joint venture agreement with Marbi for the design, construction
and operation of a metal recycling operation in West Virginia. American
Remedial is expected to provide the construction capital not to exceed
$2,200,000. As of February 13, 1997, the operations of this new venture
are still in the design, development and financing stages.
American Remedial is in the process of expanding its Lynwood facility to
treat and recycle bio-solids generated from local water treatment plants
and produce a fertilizer by-product for resale. This expansion will
require equipment modifications at its existing Lynwood Thermal Plant,
which have been estimated to cost approximately $500,000. This equipment
has been installed as of February 1997 and is currently being financed
under an operating lease structure. Further discussions are being held
with the holder of this lease for possible long term direct purchase and
financing of certain operating equipment leases.
In December 1996, the Company received $1,000,000 in loan proceeds as a
short-term bridge loan from Mr. Michael Klein, a director and shareholder
of the Company. These funds provided working and operating capital while
the Company pursues alternative long-term financing.
17 of 21
<PAGE>
ECOS GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Although working capital for the nine months period showed an
improvement, because of the continued losses, its interest burden and
forthcoming principal repayment of its shareholder loan, the Company
could continue to experience a cash shortage that, if not remedied, could
adversely affect the Company's operations. The Company's proposed plans
for expansion, as discussed above, could also be delayed. The Company is
presently seeking various methods of raising sources of capital, either
through a private equity placement or debt arrangement to fund its
current operations and plans for expansion. No assurance can be given
that such capital or debt raising will be available or on terms
acceptable to the Company. The Company is continuing its restructuring
plans for cost savings, which have involved the relocation of its
corporate offices, reduction of line personnel, closing of
underperforming offices and continued negotiations of rental obligations.
The Company presently has no arrangements in place for alternative
sources of financing, except for the $500,000 revolving bank loan, which
has been fully utilized and/or, possible modification of terms of
repayment on the shareholder loans.
18 of 21
<PAGE>
ECOS GROUP, INC.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of ECOS Group, Inc.
(f/k/a Evans Environmental Corporation) was held on
Friday, October 18, 1996.
(b) A brief description of each matter voted upon at the meeting
and number of votes cast is as follows:
PROPOSAL 1: ELECTION OF DIRECTORS
FOR AGAINST ABSTAIN
--- ------- -------
Wendell R. Anderson 11,607,141 -- 83,596
Luis De La Cruz 11,607,141 -- 83,596
Leon S. Eplan 11,607,225 -- 83,512
Charles C. Evans 11,607,050 -- 83,687
Raimundo Lopez-Lima Levi 11,607,225 -- 83,512
John B. McCracken 11,607,141 -- 83,596
Joseph F. Startari 11,607,225 -- 83,512
PROPOSAL 2: CHANGE OF COMPANY NAME FROM EVANS ENVIRONMENTAL
CORPORATION TO ECOS GROUP, INC.
FOR AGAINST ABSTAIN
--- ------- -------
11,670,516 13,299 6,922
PROPOSAL 3: APPROVAL OF 1996 STOCK OPTION PLAN
FOR AGAINST ABSTAIN
--- ------- -------
10,403,056 131,446 3,132
PROPOSAL 4: INCREASE AUTHORIZED SHARES OF THE COMPANY TO 75,000,000
FOR AGAINST ABSTAIN
--- ------- -------
10,371,043 154,191 12,400
All of the foregoing proposals exceeded the required number of votes and
accordingly were approved.
19 of 21
<PAGE>
ECOS GROUP, INC.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)(10.1) Corporate Relations Agreement dated August 13, 1996
between the Company and Corporate Relations Group,
Inc. incorporated by reference as filed under exhibit
No. 10.2 of Registration Statement on Form S-3 dated
October 9, 1996.
(a)(10.2) Joint Venture agreement dated October 10, 1996
between American Remedial Technologies, Inc. and
Marbi, Inc. incorporated by reference as filed with
From 10-QSB for the quarterly period ended September
30, 1996.
(a)(10.3) The Company's 1996 Stock Option Plan incorporated by
reference as filed under Exhibit 10.3 of Registration
Statement on Form S-3 dated October 9, 1996.
(a)(10.4) Promissory Note of $1,000,000 dated December 20, 1996
between the Company and Mr. Michael Klein.
(a)(27) Financial Data Schedule
(b)(i) No reports on Form 8-K were filed during the period
covered by this Form 10-QSB.
20 of 21
<PAGE>
ECOS GROUP, INC.
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.
ECOS GROUP, INC.
(F/K/A EVANS ENVIRONMENTAL CORPORATION)
February 14, 1997 By: /s/ David C. Langle
----------------------------------------
David C. Langle
Chief Financial Officer
on behalf of the Registrant and as
Principal Accounting Officer
21 of 21
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.4 Promissory Note
27 Financial Data Schedule
ECOS GROUP, INC.
EXHIBIT (A)(10.4) PROMISSORY NOTE
PROMISSORY NOTE
1,000,000 WEST PALM BEACH, FLORIDA
DECEMBER 20, 1996
FOR VALUE RECEIVED, the undersigned, ECOS GROUP, INC., a Florida
corporation ("Marker"), promises to pay to the order of MICHAEL KLEIN ("Holder")
at 111 Gilmartin Drive, Tiburon, CA 94920, or at such other place or places as
Holder may designate in writing, in lawful funds of the United States of
America, the principal sum of ONE MILLION DOLLARS ($1,000,000), together with
interest on the unpaid principal balance, at a rate of FOURTEEN (14%) PERCENT
PER ANNUM, with said interest calculated to begin as of DECEMBER 20, 1996 OR AS
OF DATE OF RECEIPT OF LOAN PROCEEDS until this note has been paid in full. This
Note and the records of Maker, shall serve as conclusive evidence of the unpaid
principal balance hereof, accrued interest heron, and all payments made in
respect thereof, absent manifest error. THIS NOTE IS UNSECURED FOR THE FIRST 90
DAY PERIOD UNTIL MARCH 20, 1997. AFTER MARCH 20, 1997, THE NOTE IS SECURED BY
ALL TRADE ACCOUNTS RECEIVABLE OF ECOS GROUP, INC. AND ITS WHOLLY OWNED
SUBSIDIARIES.
INTEREST ONLY will be due on this note for the first 90 days from DECEMBER
20, 1996 until MARCH 20, 1997. After MARCH 20, 1997 the principal on this note
will be amortized evenly over the remaining nine months until DECEMBER 20, 1997.
Principal payments plus interest on this Note shall be paid at the end of each
month commencing on APRIL 30, 1997 and continuing on the last day of each
subsequent calendar month until DECEMBER 20, 1997, at which time any unpaid
principal together with interest thereon, and all other sums due pursuant to
this Note shall be due and payable in full. In the event any payment of interest
exceed the Maximum Rate (as defined herein below) allowed by law, such amount
exceeding said Maximum Rate, shall be applied to the reduction of the unpaid
principal and not to the payment of interest. This Note may be prepaid, in whole
or in part, at any time without premium or penalty.
Maker hereby waives in connection with the delivery, acceptance,
performance, default, or enforcement of the payment of this Note; presentment;
demand and protest; notice of presentment; dishonor; notice of intent to
accelerate; and notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension, waiver, and renewal of any or all
other notices.
No delay or omission on the part of Holder is exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. No waiver of any right shall be effective unless in writing and
signed by Holder, nor shall any waiver on one occasion be construed as a bar to,
or waiver of, any such right on any future occasion.
An "Event of Default" shall exist hereunder if any one or more of the
following events shall have occurred: (i) default shall be made in the due and
punctual payment of this Note when and as it shall become due and payable; (ii)
a court of competent jurisdiction shall enter an order, judgment or decree
appointing a receiver of Maker or of the whole or any substantial part of
Maker's property, or approving a petition filed against Maker under the federal
bankruptcy laws or any other applicable law or statue of the United States of
America or any state thereof, and as it shall become due and payable and in the
event that this note shall at any time after maturity or an Event of Default be
placed with an attorney for collection, Maker agrees to
<PAGE>
pay, in addition to the entire remaining principal balance and any interest due
hereunder, reasonable attorney's /paralegal' fees, costs, and disbursements,
through appeal. No remedy herein conferred upon Holder is intended to be
exclusive of any other remedy and each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or not or
hereafter existing at law or in equity or by statue or otherwise.
TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE
WAIVED, MAKER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF
OR RELATED TO THIS NOTE, OR THE TRANSACTIONS CONTEMPLATED HEREIN, WHETHER
SOUNDING IN TORT OR CONTRACT OR OTHERWISE , OR WITH RESPECT TO ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY; AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
JUDGE AND NOT BEFORE A JURY. SUCH WAIVER SHALL NOT AFFECT IN ANY WAY THE
HOLDER'S RIGHT TO DEMAND A JURY TRIAL. MAKER FURTHER WAIVED ANY RIGHT TO SEEK TO
CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY
OTHER LITIGATION IN WHICH A JURY TRAIL CANNOT OR HAS NOT BEEN WAIVED. FURTHER,
MAKER HEREBY CERTIFIED THAT NO REPRESENTATIVE OR AGENT OF HOLDER, NOR HOLDER'S
COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT HOLDER WOULD NOT, IN THE
EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL
PROVISION, MAKER ACKNOWLEDGES THAT THE PROVISIONS OF THIS PARAGRAPH ARE A
MATERIAL INDUCEMENT TO THE HOLDER'S ACCEPTANCE OF THIS NOTE.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as of
the date first above written.
ECOS GROUP, INC. THIS NOTE IS ACCEPTED BY:
By: /s/ DAVID C. LANGLE /s/ MICHAEL KLEIN
----------------------- ----------------------
DAVID C. LANGLE MICHAEL KLEIN
CHIEF FINANCIAL OFFICER
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,033,097
<SECURITIES> 232,500
<RECEIVABLES> 2,590,541
<ALLOWANCES> (321,419)
<INVENTORY> 0
<CURRENT-ASSETS> 4,477,323
<PP&E> 3,816,578
<DEPRECIATION> (1,072,650)
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<CURRENT-LIABILITIES> 4,824,999
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0
0
<COMMON> 211,172
<OTHER-SE> 9,186,781
<TOTAL-LIABILITY-AND-EQUITY> 15,195,567
<SALES> 6,377,260
<TOTAL-REVENUES> 6,377,260
<CGS> 4,507,220
<TOTAL-COSTS> 3,237,092
<OTHER-EXPENSES> 57,046
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<INTEREST-EXPENSE> 77,269
<INCOME-PRETAX> (1,424,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,424,098)
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<EXTRAORDINARY> 509,037
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