SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] 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.
----------------
(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 October 21, 1997, the Company had a total of 19,489,826 common stock,
$.012 par value, outstanding.
Transitional Small Business Disclosure format (check one): Yes No X
-- --
<PAGE>
ECOS GROUP, INC.
INDEX
Page
Part I. Financial information
Item 1. Financial statements:
Consolidated balance sheets
- September 30, 1997 and March 31, 1997 3
Consolidated statements of operations
- Three & Six Months Ended September 30, 1997 and 1996 4
Consolidated statements of cash flows
- Six Months Ended September 30, 1997 and 1996 5-6
Notes to financial statements 7-10
Item 2. Management's Discussion and Analysis or
Plan of Operation
11-13
Part II: Other Information 13-14
Signatures
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, 1997 March 31, 1997
<S> <C> <C>
Current Assets:
Cash and equivalents $ 234,304 $ 45,778
Restricted cash 13,859 9,080
Marketable securities 140,000 140,000
Accounts receivable, net of allowance of $344,973 and $320,106 702,275 814,772
Note receivable 93,880 250,000
Net assets of discontinued operations - 1,433,606
Prepaid expenses & other 109,046 131,911
---------- ----------
Total current assets 1,293,364 2,825,147
Amounts due under
state reimbursement program 572,290 650,158
Property & equipment, net 514,502 587,304
Goodwill, net of amortization of $598,563 and $869,295 797,221 6,509,328
Other assets 18,700 22,477
-------- ----------
Total assets $3,196,076 $10,594,414
========= ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $969,581 $ 876,818
Accrued expenses 448,821 477,614
Related party notes payable and advances 1,194,000 1,075,000
Current portion of capital lease obligation & notes payable 4,961 262,929
Deferred revenues - -
--------------- ---------------
Total current liabilities 2,617,363 2,692,361
Notes payable, net of current portion 535,776 605,680
Commitments & contingencies
Stockholders' equity:
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,
19,489,826 and 17,597,626 issued and outstanding; respectively 233,878 211,172
Additional paid-in capital 16,457,556 16,125,228
Net unrealized loss on marketable securities (10,000) (10,000)
Accumulated deficit (16,638,496) (9,030,027)
------------ -----------
Total stockholders' equity 42,937 7,296,373
------ -----------
Total liabilities & stockholders' equity $3,196,076 $10,594,414
========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Environmental consulting $1,168,913 $1,262,490 $2,486,773 $2,527,535
Cost of environmental services:
Direct labor & employee 420,879 496,337 849,663 1,001,887
benefits
Other direct costs & expenses 211,613 209,638 568,566 488,633
Total direct costs & expenses 632,492 705,975 1,418,229 1,490,520
------- ------- --------- ---------
Gross profit 536,421 556,515 1,068,544 1,037,015
------- ------- ---------- ----------
Other costs & expenses
General, administrative & other
operating costs 793,782 861,841 1,559,975 1,568,237
Reserve for restructuring - - - 350,000
Total other costs & expenses 793,782 861,841 1,559,975 1,918,237
------- ------- --------- ---------
Operating loss (257,361) (305,326) (491,431) (881,222)
--------- --------- --------- ---------
Other income (expense):
Interest, net (34,697) 3,722 (72,822) (19,382)
Other income, net - 13,131 3,663 14,131
------- ------ ------ ------
(34,697) 16,853 (69,159) (5,251)
-------- ------ -------- -------
Loss from continuing operations (292,058) (288,473) (560,590) (886,473)
Discontinued operations:
Loss - discontinued operations (316,239) (247,203) (666,240) (247,203)
Gain (loss) on disposal (6,491,640) - (6,381,640) 509,036
----------- --------------- ----------- -------
Loss before extraordinary items (6,807,789) (535,676) (7,608,469) (624,640)
Extraordinary items:
Net gain on vendor settlements - - - 280,981
Net gain on payroll tax - - - 934,091
---------------- --------------- ------------------- -------
settlement
Net income (loss) $(6,807,789) $(535,676) $(7,608,469) $590,432
============ ========== ============ ========
Income (loss) per share from:
Continuing operations $(.016) $(0.03) $(0.028) $(.09)
Discontinued operations (0.386) 0.00 (0.39) .05
Extraordinary items 0.00 0.00 0.00 .10
----------- -------- -------- ------
$(0.41) $(0.03) $(0.42) $0.06
======= ======= ======= =====
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>
ECOS GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) ($7,608,469) $ 590,432
Adjustments to reconcile net income (loss) to net cash provided (used in)
operating activities:
provided by (used in) operating activities:
Depreciation & amortization 345,009 237,329
Gain on sale of equipment -- (1,000)
Other -- 20,626
Discontinued operations -- (509,036)
Write down of goodwill 5,448,657 --
Extraordinary items -- (1,228,203)
Write down of net assets of discontinued operations 1,433,606 (145,376)
Changes in operating assets & liabilities:
Accounts receivable 112,497 48,085
Prepaid expenses and other assets 178,985 (905,549)
Amounts due from state reimbursement program 77,868 (75,956)
Other non-current assets 3,777 (19,555)
Accounts payable 92,763 (937,518)
Accrued liabilities (28,794) (131,525)
Payroll taxes -- 1,051,688
----------- -----------
Net cash provided by (used in) continuing operations 55,899 (2,005,558)
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Investing activities:
Restricted cash (4,779) 123,189
Payments for purchase of American Remedial Technologies, Inc.
Net of cash acquired -- (5,982,839)
Proceeds from disposal of discontinued operations, net of expenses -- 1,047,007
Purchase of equipment (8,756) (62,999)
Proceeds from disposal of equipment -- 1,000
----------- -----------
Net cash used in investing activities (13,535) (4,874,642)
Financing activities:
Proceeds from original issuance of stock 354,338 8,100,000
Proceeds from warrant exercise 696 337,500
Costs associated with issuance of stock -- (805,758)
Proceeds from notes payable 144,000 500,000
Payments on capital lease obligations and notes payable (327,872) (1,164,689)
Payments on related party notes payable (25,000) --
Net cash provided by financing activities 146,162 6,967,053
----------- -----------
Net increase in cash 188,526 86,853
Cash and equivalents, beginning of period 45,778 178,121
----------- -----------
Cash and equivalents, end of period $ 234,304 $ 264,974
=========== ===========
Cash paid during the period for interest $ 24,664 $ 135,805
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS AND ORGANIZATION
The Company is engaged, through its wholly-owned subsidiaries, in
environmental consulting and other related services.
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,
1997 has been derived from the audited financial statements as of the
period ended March 31, 1997, but does not include all disclosures
required by generally accepted accounting principles. These balances
have been reclassified to show the effect of the discontinued
operations. 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 six months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended March
31, 1998. 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, 1997.
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.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition: Consulting revenue is recognized as services are
performed.
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Per share data: Per share data is based on the weighted average number
of shares of common stock, 19,489,826 and 17,925,919 for the quarters
ended September 30, 1997 and September 30, 1996, respectively. For the
period ended September 30, 1997, common stock equivalents have not been
included in the weighted average number of shares as they are
anti-dilutive. For the quarter ended September 30, 1996, 4,085,101
common stock options and warrants which are common stock equivalents
were assumed to be exercised for computation of earnings per share.
Discontinued Operations: In October 1997, the Company entered into a
settlement of a default of a $500,000 loan to its subsidiary, American
Remedial Technologies Inc. ("ART"). The Company conveyed all the common
stock of ART to the holder of the loan as part of this settlement. The
Company has treated ART as discontinued operations for all periods
presented.
3. COMMITMENTS AND CONTINGENCIES
Contingent Liability: The Company has been involved in various
discussions with a former private senior lender to the Company. The
purpose of these discussions has been to settle all outstanding
differences between the former lender and the Company regarding a
variety of matters, including, without limitation, the exercise price of
the former lender's outstanding warrants, amounts claimed to be owed to
the former lender for legal and financial advisory fees, shares claimed
to be owed to the former lender for the loan of funds and services
rendered, and claimed rights to additional shares of the Company's
stock. Although all cash amounts owed to the former lender for principal
and interest were paid in full in July 1996, the former lender has
continued to make further demands on the Company as well as asserting
enforceability of claimed agreements. Although the Company has rejected
the validity of all such claims it has agreed to reach an accommodation
with the former lender on some of these claims solely for the purpose of
reaching a definitive settlement of all outstanding differences. To date
the former lender has not agreed to any settlement. The Company is
unable to foresee the ultimate outcome of this matter.
4. RELATED PARTY DEBT
In June 1995, the Company borrowed $85,000 from Lisa Robbins, the
spouse of Dr. Charles Evans, the Chairman of the Board of Directors.
The note is due upon demand and bears interest at 12% per annum. Dr.
Evans disclaims any beneficial interest in the loan. The present
balance of this note is $50,000.
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 1996, ART acquired a used thermal desorption plant for a
purchase price of $600,000. This equipment was acquired pursuant to a
demand note by Mr. Sam Klein, the father of one of the company's
directors and shareholders for $515,000 bearing interest at 12% per
annum, secured by the acquired plant. The outstanding balance as of
March 31, 1997, was $515,000. On September 23, 1997, the note was
declared in default for nonpayment of pricipal and interest. The
obligations of this note were assumed by the acquiror of ART.
ART delivered a note dated June 30, 1996 in favor of Transportation
Financial Services, Inc., a company owned by Mr. Enrique Tomeu, the
Company's Chief Executive Officer and one of its directors. The note has
an original balance of $495,000 bearing a 13.5% per annum interest rate.
The outstanding balance a of March 31, 1997 was $303,000. On October 21,
1997, the balance on the note was forgiven in return for 1,889,800
shares of Common Stock of the Company, thereby extinguishing the note.
On December 31, 1996 the Company borrowed $1,000,000 from Mr. Michael
Klein, 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 sought alternative long-term
financing, the note was unsecured with interest only payable monthly.
Commencing March 1997, monthly payments of principal and interest were
required until maturity in December 1997, and the note was secured with
all trade accounts receivable of the Company. This note was subsequently
repaid on May 5, 1997 from proceeds of a $1,000,000 loan received from
Mr. Sam Klein, the father of Michael Klein. This latter loan has been
modified as a three month promissory note maturing on August 5, 1997,
with monthly interest only payable at 12% per annum. The note was
secured by all trade receivables of the Company. On September 23, 1997,
the Company was notified of its default on this note for nonpayment of
principal and interest. The Company settled its default by delivering a
$608,000 promissory note dated October 29, 1997 in favor of Samuel
Klein, bearing interest at 12% per annum with quarterly principal and
interest payments, and issuing 2,666,667 shares of the Company's Common
Stock to Mr. Klein. The new note and issuance of stock extinguishes the
$1,000,000 promissory note dated May 5, 1997.
On June 18, 1997, ART obtained a $500,000 promissory note from Mr.
Samuel Klein to fund the continuing operations of ART. This note,
bearing interest at 12% per annum, was due on Jun 18, 1998. The note was
secured by all of the common stock of ART and was required to be repaid
from expected proceeds from a $2.2 million dollar convertible equity
offering the Company was pursuing. The convertible equity offering never
materialized. On September 23, 1997, ART was notified that this $500,000
note was in default for nonpayment of interest. On October 23, 1997,
Samuel Klein sold his rights under the note to a third party. In the
settlement of the note, the Company transferred all of the common stock
of ART to the holder of the note, thereby extuinguishing the obligations
of this promissory note.
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. GOING CONCERN CONSIDERATION
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, 1997
and 1996. At September 30, 1997 its current liabilities exceed its
current assets. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management is
instituting the following measures to improve this situation:
1. Continue cost reduction measures at all operating divisions.
2. Engage various parties to raise capital for the company.
3. Convert present short-term debt into long-term debt
Management is implementing its plans. These measures, if successful are
expected to result in positive working capital for the year ended March
31, 1998; however, actual results may differ and there can be no
assurance that such plans will be effective.
In the absence of profitable operations or obtaining additional debt or
equity financing, the Company may not have sufficient funds to continue
operations through the fiscal year ended March 31, 1998.
6. CHANGE IN ACCOUNTING STANDARDS
In February, 1997, the Financial Accounting Standards Board (the FASB)
issued Statement of Financial Accounting Standards No. 128, Earnings
Per Share (FAS 128). FAS 128 specifies new standards designed to
improve the EPS information provided in financial statements by
simplifying the existing computational guidelines, revising the
disclosure requirements, and increasing the comparability of EPS data
on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS
and replacing it with basic EPS, with the principal difference being
that common stock equivalents (CSEs) are not considered in computing
basic EPS, (b) eliminating the modified treasury stock method and the
three percent materiality provision, and ( c) revising the contingent
share provisions and the supplemental EPS data requirements. FAS 128
also makes a number of changes to existing disclosure requirements. FAS
128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. The Company does
not believe that the impact from the implementation of FAS 128 to be
significant on EPS presentation for the periods presented herein.
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements: From time to time, the Company may publish
forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments,
new products, research and development activities and similar matters.
With respect to this Quarterly report, statements included in
Management's Discussion and Analysis or Plan of Operation and in the
Notes to the Consolidated Financial Statements, which are not historical
in nature, are intended to be and are hereby identified as "forward
looking statements" for purposes of the safe harbor by the Private
Securities Litigation Reform Act of 1995. In order to comply with the
terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The risks and uncertainties
that may affect the operations, performance, development and results of
the Company's business include the following: (I) changes in legislative
enforcement and direction, (II) unusually bad weather conditions, (III)
unanticipated delays in contract execution, (IV) sudden loss of key
personnel, (V) abrupt changes in competition, and (VI) decisions by the
Company's lenders to demand the Company's indebtedness.
Results of Operations: Total comparable revenues for environmental
consulting decreased $40,762 or 1.6% from $2,527,535 to $2,486,773 for
the six months ended September 30, 1996 and 1997, respectively. For the
quarter ended September 30, 1996 and 1997, comparable revenues dropped
from $1,262,490 to $1,168,913 respectively. This 7.4% decrease in
revenues represents a $93,577 change.
Direct costs decreased $72,291 or 4.9% from $1,490,520 to $1,418,229 for
the six months ended September 30, 1996 and 1997, respectively. For the
quarter ended September 30, 1996 and 1997, direct costs decreased over
10% from $705,975 to $632,492 respectively. This decrease in direct
costs amounts to $73,483. Direct costs consist of all professional and
technical labor, employee benefits, subcontractor, supplies and other
revenue generating expenses. The decreases in direct costs for the six
months ended as well as for the quarter ended September 30, 1997,
compared to September 30, 1996, are attributable to decreased labor
costs.
Gross profit increased $31,529 or just over 3% from $1,037,015 to
$1,068,544 for the six months period ended September 30, 1996 and 1997,
respectively. Gross profit as a percentage of revenue increased from 41%
to 43% for the six month period ended September 30, 1996 and 1997,
respectively. Gross profit fell $20,094 or 3.6% from $556,515 to
$536,421 for the quarter ended September 30, 1996 and 1997,
respectively. However, gross profit as a percentage of revenue increased
from just over 44% to nearly 46% for the quarter ended September 30,
1996 and 1997, respectively. All changes in gross profit for the
comparable periods stated above are attributable to improved labor
utilization.
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Comparable general administrative and other operating costs decreased
$8,262 or less than 1% from $1,568,237 to $1,559,975 for the six months
ended September 30, 1996 and 1997, respectively. For the quarter ended
September 30, 1997, general, administrative and other operating costs
fell $68,059 or almost 8% to $793,782 as compared to $861,841 for the
quarter ended September 30, 1996. These cost reductions are primarily
due to reductions in administrative labor, but are affected by other
cost saving measures as well.
The six months ended September 30, 1996 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 functions and integration with ART. During the 96 Quarter, the
Company settled with certain 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. In addition, on June 28, 1996, the Consulting Division
completed an Offer in Compromise Agreement with the IRS settling all
disputes related to delinquent payroll taxes. As a result of this
settlement, the Company reported a gain of $934,091, net of professional
fees and costs.
The net loss of $7,608,469 for the six months ended September 30, 1997
is a $8,198,901 increase from the net income of $590,432 reported for
the same period at September 30, 1996. The loss from discontinued
operations of $666,240 combined with the loss on disposal of $6,381,639,
most of which is attributable to the disposition of ART, reported in the
six months ended September 30, 1997 accounts for $7,047,880 of the net
loss for the period and for over 85 % of the change from September 30,
1996 to September 30, 1997. The net loss increased $6,564,261 from
$535,676 to $7,099,837 for the quarter ended September 30, 1996 and
1997, respectively. The combined loss on discontinued operations and the
loss on disposal associated with ART of $6,807,879 accounts for over 95%
of the loss reported for the quarter ended September 30, 1997.
Liquidity and Capital Resources: The Company had a working capital
deficit of $1,323,999 at September 30, 1997 compared to a working
capital of $132,786 at March 31, 1997. This reflects a working capital
decrease of $1,456,785. Historically the Company has experienced capital
and liquidity problems and no assurances can be given that for the
future the Company will not continue to have these shortages.
Major components of cash flow provided by operating activities of
$55,899 include the cash provided from depreciation and amortization of
$345,009.
Net cash used in investing activities of $13,535 consisted mainly of
purchases of equipment of $8,756. The net cash provided by financing
activities of $146,162, includes $354,338 from the conversion of the
Transportation Financial Services, Inc. promissory note into
1,889,800 shares
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of ECOS Group Common Stock. The cash and equivalents at September 30
1997 was $234,304.
The Company has no material commitments for capital expenditures.
The Company intends to fund its current operations from the combination
of cash on hand, cash generated from operations, potential sale of
equity and/or assets, as well as costs savings generated from its
continued cost reduction measures. These sources of capital are expected
to largely fund the Company's current operations through March 31, 1998.
Management expects a return to profitability in Fiscal 1999; however, if
the Company does not return to profitability, and absent alternative
sources of financing, there would be a material adverse effect on the
financial condition, operations and business prospects of the Company.
The Company has no arrangements in place for alternative sources of
financing, and there can be no assurance that any such financing will be
available at all or on terms acceptable to the Company.
Part II: Other Information
Subsequent Events: In October 1997, the Company entered into a
settlement of a default of a $500,000 loan to its subsidiary, ART. The
Company conveyed all the common stock of ART to the holder of the loan
as part of this settlement. The Company has treated ART as discontinued
operations for all periods presented.
Item 3: Defaults upon Senior Securities: On September 23, 1997, the
Company was notified that it was in default on three notes held by the
father of an officer and director for non-payment of interest and
principal. The three notes in default were the June, 1996 note for
$515,000, which was in default for $15,450, the May 5, 1997 note for
$1,000,000 wich was in default for $40,000 and the June 18, 1997 note
for $572,000 which was in default for $17,160.
Two of these notes were held by ART. The Company immediately began
negotiations to cure the default. The June 18, 1997 held by ART was sold
to an investment group that included two managers of ART and a private
individual. The default on this note was remedied by the sale of the
stock of ART to this investment group. The investment group issued to
ECOS Group 100,000 shares of Series C Preferred Stock that becomes
issuable on ART meeting certain performance goals. The Company also
converted a note held by Transportation Financial Services, Inc., an
affiliated company under common ownership of the Company's chief
executive officer, into equity in ECOS Group, Inc.
The Company has subsequently negotiated the default of the May 5, 1997,
note for $1,000,000 to a five year promissory note for $608,000 and the
balance converted to shares of Common Stock of ECOS Group, Inc.
<PAGE>
ECOS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
This settles all instances of default for ECOS Group, Inc.
Potential NASDAQ Delisting: The Company has been notified of a potential
delisting effective December 30, 1997 since it does not currently meet
NASDAQ Small Cap Market listing requirements. The Company's shares of
Common Stock have traded for less than $1.00 for ten consecutive days
and the Company does not presently have the $2 million dollar total
capital and surplus requirement. The Company is working to increase the
total capital and surplus of the Company and will continue to pursue
appropriate strategies to do so.
Effective February 23, 1998, the new NASDAQ listing requirements are
that each Company maintain a minimum of $1.00 per share trading price
and $2 million dollars in net tangible assets. At present, the Company
does not meet this requirement and is pursuing opportunities to enable
compliance with this requirement.
The Company is in the process of identifying candidates for merger or
acquisition that will enable it to meet the NASDAQ listing requirements.
All steps will be taken that are deemed appropriate to complete a
transaction which allows the Company to maintain its NASDAQ Small Cap
Market listing.
ITEM 6. REPORTS ON FORM 8-K
One report was filed on Form 8-K which reported the resignations of
Raimundo Lopez-Levy a member of the Board of Directors and David
Langle, Chief Financial Officer of the Company. This report was filed
on September 5, 1997.
<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.
ECOS GROUP, INC.
November 19, 1997 By: /s/ Michael G. Baker
--------------------
Michael G. Baker
Chief Financial Officer
On behalf of the Registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 234,300
<SECURITIES> 140,000
<RECEIVABLES> 702,270
<ALLOWANCES> 344,970
<INVENTORY> 0
<CURRENT-ASSETS> 1,293,360
<PP&E> 1,303,300
<DEPRECIATION> 788,800
<TOTAL-ASSETS> 3,196,070
<CURRENT-LIABILITIES> 2,617,360
<BONDS> 0
0
0
<COMMON> 233,870
<OTHER-SE> 42,930
<TOTAL-LIABILITY-AND-EQUITY> 3,196,076
<SALES> 2,486,770
<TOTAL-REVENUES> 2,486,770
<CGS> 1,418,220
<TOTAL-COSTS> 2,978,204
<OTHER-EXPENSES> (3,663)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,822
<INCOME-PRETAX> (560,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (560,590)
<DISCONTINUED> (7,047,880)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,608,469)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> 0
</TABLE>
