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
[Fee required]
For the quarterly period ended December 31, 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
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ECOS Group, Inc.
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(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 December 31, 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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<TABLE>
<CAPTION>
ECOS GROUP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999 March 31, 1999
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 170,787 $ 90,677
Accounts receivable, net of allowance
of $170,669 and $152,151 757,487 999,197
Prepaid expenses & other assets 56,704 66,922
---------------- ---------------
TOTAL CURRENT ASSETS 984,978 1,156,796
Amounts due under state reimbursement program 179,008 179,008
Property and equipment, net 50,480 41,410
Goodwill, net of accumulated amortization of $316,020
and $284,416 273,933 305,537
---------------- ---------------
TOTAL ASSETS $ 1,488,399 $ 1,682,751
================ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 920,560 $ 1,041,025
Accrued expenses 381,652 830,309
Current portion of related party notes payable 199,417 196,741
Notes payable 251,077 264,077
---------------- ---------------
TOTAL CURRENT LIABILITIES 1,752,706 2,332,152
---------------- ---------------
LONG-TERM DEBT - related party notes payable,
less current portion 340,934 378,128
---------------- ---------------
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 (17,799,252) (17,864,626)
---------------- ---------------
TOTAL STOCKHOLDERS' DEFICIT (605,241) (1,027,529)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,488,399 $ 1,682,751
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended December 31, 1999 and 1998
(Unaudited)
Three months ended Nine months ended
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Consulting services $ 1,194,708 $ 1,032,910 $ 3,762,922 $ 3,730,449
----------- ----------- ----------- -----------
COSTS OF CONSULTING SERVICES
Subcontractorexpenses 314,995 247,532 1,071,241 882,715
Other direct costs and expenses 400,445 365,656 1,158,066 692,339
----------- ----------- ----------- -----------
TOTAL DIRECT COSTS AND EXPENSES 715,440 613,188 2,229,307 1,575,054
----------- ----------- ----------- -----------
GROSS PROFIT 479,268 419,722 1,533,615 2,155,395
----------- ----------- ----------- -----------
OTHER COSTS AND EXPENSES
General, administrative and other operating costs 515,424 469,910 1,579,805 1,981,106
----------- ----------- ----------- -----------
TOTAL OTHER COSTS AND EXPENSES 515,424 469,910 1,579,805 1,981,106
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (36,156) (50,188) (46,190) 174,289
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest, net (12,984) (16,735) (42,579) (53,327)
Accounts Payable Settlement -- -- -- 230,668
Forgiveness of debt 41,923 354,337 154,629 354,337
Other income (expense), net 500 -- 500 375
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 29,439 337,602 112,550 532,053
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (6,717) 287,414 66,360 706,342
INCOME TAXES 986 -- 986 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (7,703) $ 287,414 $ 65,374 $ 706,342
=========== =========== =========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ -- $ 0.01 $ -- $ 0.03
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ -- $ 0.01 $ -- $ 0.03
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
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<TABLE>
<CAPTION>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended December 31, 1999 and 1998
(Unaudited)
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 65,374 $ 706,342
--------- ---------
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation & amortization 58,317 66,105
Accounts payable settlements (230,668)
Forgiveness of debt (354,337)
Increase in provision for bad debts and potential loss on
State reimbursement program 68,371 36,268
Changes in operating assets & liabilities
Accounts receivable 173,339 162,725
Prepaid expenses & other assets 10,218 (22,417)
Accounts payable and accrued expenses (225,557) (135,438)
--------- ---------
Total adjustments 84,688 (477,762)
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Net cash provided by operating activities 150,062 228,580
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Investing activities:
Purchases of property and equipment (29,934) (12,022)
--------- ---------
Net cash (used in) investing activities (29,934) (12,022)
--------- ---------
Financing activities:
Proceeds from notes payable -- 22,000
Payments on notes payable and capital lease obligations (13,000) (29,250)
Payments on related party notes payable (27,018) (107,036)
--------- ---------
Net cash (used in) financing activities (40,018) (114,286)
--------- ---------
Net increase in cash 80,110 102,272
Cash, beginning of period 90,677 68,902
--------- ---------
Cash, end of period $ 170,787 $ 171,174
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended December 31, 1999 and 1998
(Unaudited)
1999 1998
----------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 43,254 $ 54,503
=========== ==============
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.
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, engineering, remediation 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
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 December 31, 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
December 31, 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 nine months ended December 31, 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 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.
NET INCOME PER SHARE. Net income per share computations are based on the
weighted average common shares outstanding of 29,418,334 and 20,266,693 for
the quarters ended December 31, 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.
5
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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.
4. SUBSEQUENT EVENTS. In January 2000, the Company entered into a two year
interest only credit arrangement with a private lender. The agreement
provides for the issuance of 1,000,000 shares of the Company's stock to the
lender. The $250,000 proceeds of this 10% interest bearing loan was used to
payoff a $608,000 promissory note dated October 29, 1997 which outstanding
balance was $460,851 at the date of payoff. Related to these events, a gain
of $221,596 and the issuance of the 1,000,000 shares of common stock in the
Company were both affected in the fourth quarter.
Some employees opted for stock in lieu of cash payment of prior year's
bonuses. In January 2000, the Company issued an aggregate of 603,526 shares
of stock to these employees. The expense of these shares was recorded in
the year ended March 31, 1999.
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 direction, (ii)
unusually bad weather conditions, (iii) unanticipated delays in
6
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ECOS GROUP, INC.
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 nine months ended December 31, 1999 (the "99 to date")
increased by $32,473 or .9% to $3,762,922 from $3,730,449 for the
corresponding nine months ended December 31, 1998 (the "98 to date"). For
the quarter ended December 31, 1999 (the "99 Quarter") and December 31,
1998 (the "98 Quarter"), comparable revenues increased $161,798 or 15.7%
from $1,032,910 to $1,194,708.
Direct costs were $2,229,307 in 99 to date versus $2,213,053 in 98 to date,
a $16,254 or .7% increase. For the 99 quarter, direct costs were $715,440,
a $69,255 increase over $646,185 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
40% and 37% in the 99 and 98 quarters, respectively. The increased gross
profit percentage is attributed to lower expenses during the 99 quarter.
The comparable year to date gross profit percentages were both 41%.
General, administrative and other operating costs increased $78,511, or 18%
to $515,424 for the 99 Quarter compared to $436,913 for the 98 Quarter. The
increased costs are also reflected in the 99 to date of $1,579,805 compared
to $1,343,107 for the 98 to date, a $236,698 or 17.6% change.
Other income for the 99 Quarter and year to date reflects $41,923 and
$154,629, respectively, of the favorable effect of forgiveness of prior
debts. The 98 quarter and year to date reflects $354,337 of forgiveness of
prior debts. The 98 year to date also includes $230,668 effect of a
settlement agreement for a claim payable to one of the Company's attorneys.
Net loss for the 99 Quarter of $(7,703) was under the 98 quarter by
$294,131. The 99 Quarter includes forgiveness of debt in the amount of
$41,923. The 98 Quarter includes Forgiveness of prior debts in the amount
of $354,337. Excluding both of these non-operating items, the 99 Quarter
was better than the 98 Quarter by $18,283.
Cumulatively, Net income for the 99 to date was $65,374 compared to a
$706,342 for 98 to date. The 99 to date includes forgiveness of debt in the
amount of $154,629. The 98 to date includes an Accounts Payable settlement
of $230,668 and Forgiveness of debt in the amount of $354,337. Excluding
both of these large non-operating items, the 99 to date was less than the
98 to date by $209,606.
7
<PAGE>
ECOS GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES:
The Company had a working capital deficit of $767,728 at December 31, 1999
compared to $1,175,356 at March 31, 1999. This working capital decrease in
deficit of $407,628 reflects a working capital ratio of .56 at December 31,
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 $80,110 in the 99 to date compared to $102,272
in the 98 to date. The major cash inflow in the 99 to date was $150,062
from operating activities. The Company's control of expenditures during 99
to date is reflected in the small amount ($29,934) 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.
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.
8
<PAGE>
ECOS GROUP, INC.
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings.
Item 3 - Legal Proceedings from the March 31, 1999 10-KSB is incorporated
by reference. No new legal proceedings were encountered during the quarter.
ITEM 2: Changes in Securities and Use of Proceeds.
There were no changes in securities during the quarter.
ITEM 3: Defaults Upon Senior Securities.
There were no defaults upon senior securities during the quarter.
ITEM 4: Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the third quarter ending December 31, 1999.
ITEM 5: Other Information.
Recently, the Company became aware that ECOS Group, Inc had been
administratively dissolved under Colorado law because it did not file
Annual Reports for the years 1996 and 1997. In Colorado, a corporation that
has been administratively dissolved can only be reinstated within two years
of its dissolution. The administrative dissolution in Colorado has not
impacted the business operations because ECOS Group is a holding company
and the business operations are conducted through the subsidiary, Evans
Environmental & Geological Sciences & Management, Inc. The Company is
presently taking steps to approve a change in ECOS Group's state of
incorporation from Colorado to Florida by means of a merger of ECOS Group
with and into a wholly-owned subsidiary. The approval of the merger will
resolve the administrative dissolution issue.
ITEM 6: Exhibits and Reports on Form 8K.
Item 13 included in the March 31, 1999 10-KSB is incorporated by reference.
None were filed during the quarter.
9
<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.
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
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 170787
<SECURITIES> 0
<RECEIVABLES> 928156
<ALLOWANCES> 170669
<INVENTORY> 0
<CURRENT-ASSETS> 984978
<PP&E> 233053
<DEPRECIATION> 182573
<TOTAL-ASSETS> 1488399
<CURRENT-LIABILITIES> 1752706
<BONDS> 0
0
1000
<COMMON> 353019
<OTHER-SE> (618326)
<TOTAL-LIABILITY-AND-EQUITY> 1488399
<SALES> 3762922
<TOTAL-REVENUES> 3762922
<CGS> 2229307
<TOTAL-COSTS> 2229307
<OTHER-EXPENSES> 1579805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42579
<INCOME-PRETAX> 66360
<INCOME-TAX> 986
<INCOME-CONTINUING> 65374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65374
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
