SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the quarterly period ended September 30, 1999
------------------
[ ] 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 in Its Charter)
COLORADO 84-1061207
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
14505 COMMERCE WAY, SUITE 400; MIAMI LAKES~ FLORIDA 33016
- --------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(305) 374-8300
--------------
Issuer's Telephone Number, Including Area Code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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 September 30, 1999 the Company had a total of 29,418,334 shares of $.012
par value Common Stock outstanding.
Transitional Small Business Disclosure format (check one):
Yes No x
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<PAGE>
ECOS GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 136,788 $ 90,677
Accounts receivable, net of allowance
of $176,292 and $152,151 1,060,581 999,197
Prepaid expenses & other assets 66,384 66,922
------------ ------------
TOTAL CURRENT ASSETS 1,263,753 1,156,796
Amounts due under state reimbursement program 179,008 179,008
Property and equipment, net 44,523 41,410
Goodwill, net of accumulated amortization of $305,486
and $284,416 284,467 305,537
------------ ------------
TOTAL ASSETS $ 1,771,751 $ 1,682,751
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,128,542 $ 1,041,025
Accrued expenses 449,319 830,309
Current portion of related party notes payable 195,924 196,741
Notes payable 251,077 264,077
------------ ------------
TOTAL CURRENT LIABILITIES 2,024,862 2,332,152
------------ ------------
LONG-TERM DEBT --~related party notes
payable, less current portion 344,427 378,128
------------ ------------
STOCKHOLDERS' DEFICIT
Preferred stock ($.75 liquidation value):
Series A; $.001 par value, 5,000,000 authorized,
None issued and outstanding
Series B convertible; $.001 par value,
1,000,000 authorized, issued and outstanding 1,000 1,000
Common stock, $.012 par value; 75,000,000 authorized,
29,418,334 and 20,266,693 issued and outstanding 353,019 243,199
Additional paid in capital 16,839,992 16,592,898
Accumulated deficit
(17,791,549) (17,864,626)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (597,538) (1,027,529)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,771,751 $ 1,682,751
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Consulting services $ 1,323,138 $ 1,274,886 $ 2,568,214 $ 2,697,539
----------- ----------- ----------- -----------
COSTS OF CONSULTING SERVICES 412,442 289,856 756,246 635,183
Subcontractor expenses 412,843 465,543 802,347 931,685
Other direct costs and expenses
TOTAL DIRECT COSTS AND EXPENSES 825,285 755,399 1,558,593 1,566,868
----------- ----------- ----------- -----------
GROSS PROFIT 497,853 519,487 1,009,621 1,130,671
----------- ----------- ----------- -----------
OTHER COSTS AND EXPENSES 530,160 465,310 1,019,655 906,194
----------- ----------- ----------- -----------
General, administrative and other operating costs
TOTAL OTHER COSTS AND EXPENSES 530,160 465,310 1,019,655 906,194
----------- ----------- ----------- -----------
OPERATING 1NCOME (LOSS) (32,307) 54,177 (10,034) 224,477
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE) (13,778) (17,906) (29,595) (36,592)
Interest, net 230,668 -- 230,668
Accounts Payable Settlement 112,706 112,706 --
Forgiveness of debt
Other income (expense), net -- 375 -- 375
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 98,928 213,137 83,111 194,451
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 66,621 $ 267,314 $ 73,077 $ 418,928
=========== =========== =========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.003 $ 0.01 $ 0.003 $ 0.02
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ 0.003 $ 0.01 $ 0.003 $ 0.02
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 73,077 $ 418,928
--------- ---------
Adjustments to reconcile net income to net cash
used by operatin gactivities:
Depreciation & amortization 40,135 115,383
Accounts payable settlements (230,668)
Increase in provision for bad debts and potential
loss on State reimbursement program 9,718 10,045
Changes in operating assets & liabilities
Accounts receivable (71,102) 66,543
Prepaid expenses & other assets 538 (88,766)
Accounts payable and accrued expenses 50,092 (106,304)
--------- ---------
Total adjustments 29,381 (233,767)
--------- ---------
Net cash provided by operating activities 102,458 185,161
--------- ---------
Investing activities:
Purchases of property and equipment (16,329) (12,022)
--------- ---------
Net cash (used in) investing activities (16,329) (12,022)
--------- ---------
Financing activities:
Proceeds from notes payable -- 22,000
Payments on notes payable and capital lease obligations (13,000) (21,000)
Payments on related party notes payable (27,018) (72,311)
--------- ---------
Net cash (used in) financing activities (40,018) (71,311)
--------- ---------
Net increase in cash 46,111 101,828
Cash, beginning of period 90,677 68,902
--------- ---------
Cash, end of period $ 136,788 $ 170,730
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 29,007 $ 37,147
========= =========
SUPPLEMENTAL SCHEDULE ON NONCASH INVESTING AND FINANCING ACTIVITIES:
On June 4, 1999, the Company issued 1,637,500 shares of common stock
to employees holding options and which option price in the aggregate of
$63,862 was waived.
The stock and related cost of issuance was valued at: $ 63,862 $ --
========= =========
On June 4, 1999, the Company issued 7,364,141 shares of common stock to its
directors and officers in payment of past due unpaid compensation and a
$7,500 paydown on a related party debt. The stock was valued at: $ 287,203 $ --
========= =========
On June 4, 1999, the Company issued 150,000 shares of common stock to an
employee in exchange for assets acquired.
The stock was valued at: $ 5,849 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ECOS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Ecos Group, Inc. (the "Company") is engaged, through its wholly-owned
subsidiary, Evans Environmental and Geological Science and Management,
Inc., in environmental consulting and other environmental related services.
2. Significant Accounting Policies
INTERIM FINANCIAL STATEMENTS. THE accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 1
0-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 September 30, 1999 has been derived
from the audited financial statements as of the period ended March 31,
1999, but does not include all disclosures required by generally accepted
accounting principles. Certain amounts previously reported in both the
September 30, 1998 Consolidated Statement of Operations and Consolidated
Statement of Cash Flows have been reclassified to conform to the 1999
financial statement presentation. 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, 1999
are not necessarily indicative of the results that may be expected for the
year ended March 31, 2000. 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, 1999.
PRINCIPLES OF CONSOLIDATION. THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE
THE accounts of the Company and its wholly-owned subsidiary. All
inter-company balances and transactions have been eliminated.
USE OF ESTIMATES. THE PREPARATION OF FMANCIAL 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.
NET INCOME PER SHARE. Net income per share computations are based on the
weighted average common shares outstanding of 26,167,751 and 20,266,693 for
the quarters ended September 30, 1999 and 1998, respectively. Potential
common shares have not been included in the weighted average common shares
outstanding as they are anti-dilutive for all periods presented.
F-5
<PAGE>
ECOS GROUP, INC.
3. GOING CONCERN CONSIDERATION. The accompanying consolidated
financial statements have been prepared assuming that the Company
will continue as a going concern. Despite its profitability in
Fiscal 1999, the Company suffered significant net losses for the
years ended March 31, 1998 and 1997 and currently has a working
capital deficiency. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management
plans to fund its working capital requirements through continued
cost reduction measures through procurement of outside financing
from banks or other lenders, including related parties, and through
increased sales growth.
No assurance can be given that the Company will be able to achieve
such plans. In the event the Company is unsuccessful in either
raising additional capital, increasing sales growth or reducing
costs, the Company may then be forced to curtail its then current
level of operations.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
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 those that were previously discussed in the prior
filing with the Security and Exchange Commission and also include
the following: (i) changes in legislative enforcement and directiom
(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:
Revenues for the six months ended September 30, 1999 (the "99 to
date") decreased by $129,325 or 4.8% to $2,568,214 from $2,697,539
for the corresponding six months ended September 30, 1998 (the "98
to date"). For the quarter ended September 30, 1999 (the "99
Quarter") and September 30, 1998 (the "98 Quarter"), comparable
revenues increased $48,252 or 3.8% from $1,274,886 to $1,323,138.
F-6
<PAGE>
ECOS GROUP, INC.
Direct costs were $1,558,593 in 99 to date versus $1,566,868 in 98 to date,
a $8,275 or .5% decrease. For the 99 quarter direct costs were $825,285, a
$69,886 increase over $755,399 in the 98 quarter. Direct costs consist of
all professional and technical labor, subcontractor, supplies and other
revenue generating expenses. Gross profit as a percentage of revenue was
38% and 41% in the 99 and 98 quarters, respectively. The comparable to date
gross profit percentages were 39% and 42%, respectively. The decreased
gross profit percentage is attributed to lower revenues during 99 to date.
General, administrative and other operating costs increased $64,850, or 14%
to $530,160 for the 99 Quarter compared to $465,310 for the 98 Quarter. The
increased costs are also reflected in the 99 to date of $1,019,655 compared
to $906,194 for the 98 to date, a $113,461 or 12.5% difference.
Other income for the 99 Quarter and year to date reflects the $112,706
favorable effect of forgiveness of prior debts. The 98 Quarter and year to
date reflects $230,668 effect of a settlement agreement for a claim payable
to one of the Company's attorneys.
Net income for the 99 Quarter of $66,621 was reduced by $200,693 compared
to the income of $267,314 in the 98 quarter. The 99 Quarter includes
forgiveness of debt in the amount of $112,706. The 98 Quarter includes an
Accounts Payable settlement of $230,668. Excluding both of these
non-operating items, the 99 Quarter was less than the 98 Quarter by
$82,731.
Cumulatively, Net income for the 99 to date was $73,077 compared to a
$418,928 for 98 to date. The 99 to date includes forgiveness of debt in the
amount of$l 12,706. The 98 to date includes an Accounts Payable settlement
of $230,668. Excluding both of these large non-operating items, the 99 to
date was less than the 98 to date by $227,889.
LIQUIDITY AND CAPITAL RESOURCES:
The Company had a working capital deficit of $761,109 at September 30, 1999
compared to $1,175,356 at March 31, 1999. This working capital decrease in
deficit of $414,247 reflects a working capital ratio of .62 at September
30, 1999 from .50 at March 31, 1999. Historically the Company has
experienced capital and liquidity problems and no assurances can be given
that such shortages will not negatively impact the Company's operations in
the future.
The Company's cash flow was $46,111 in the 99 to date compared to $101,828
in the 98 to date. The major cash inflow in the 99 to date was $102,458
from operating activities. The Company's control of expenditures during 99
to date is reflected in the small amount ($16,329) of cash used in
investing activities. The cash generated in the 99 quarter was used to pay
its obligations in the amount of $40,018.
The Company has no major material commitments for capital expenditures.
F-7
<PAGE>
ECOS GROUP, INC.
The Company intends to continue to fund its current operations from the
combination of cash on hand, cash generated from operations, cost savings
generated from its continued cost reduction measures, potential increased
sales, as well as the procurement of additional financing, as to all of
which no assurance can be given.
No assurance can be given that the Company will be able to achieve such
plans. In the event the Company is unsuccessful, in either raising
additional capital, increasing sales growth or reducing costs, the Company
may then be forced to curtail its then current level of operations.
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K INCORPORATED BY REFERENCE:
None.
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.
By: /s/ Charles C. Evans
--------------------------------
Dr. Charles C. Evans
Chairman of the Board
By: /s/ Ana Caminas
--------------------------------
Ana Caminas
Chief Financial Officer
On behalf of the Registrant and as
Principal Accounting Officer
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 136,788
<SECURITIES> 0
<RECEIVABLES> 1,236,873
<ALLOWANCES> 176,292
<INVENTORY> 0
<CURRENT-ASSETS> 1,263,753
<PP&E> 219,448
<DEPRECIATION> 174,925
<TOTAL-ASSETS> 1,771,751
<CURRENT-LIABILITIES> 2,024,862
<BONDS> 0
0
1,000
<COMMON> 353,019
<OTHER-SE> (951,557)
<TOTAL-LIABILITY-AND-EQUITY> 1,771,751
<SALES> 2,568,214
<TOTAL-REVENUES> 2,568,214
<CGS> 1,558,593
<TOTAL-COSTS> 1,558,593
<OTHER-EXPENSES> 1,019,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,595
<INCOME-PRETAX> 73,077
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,077
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
