U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 000-16322
---------
ECOS Group, Inc.
----------------
(Exact name of small business issuer as specified in its charter)
Florida 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 under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.012 par value
Check whether the issuer (1) 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
---- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of November 3, 2000, the Company
had a total of 31,271,860 shares of $.012 par value Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No x
--- ---
<PAGE>
ECOS Group, Inc.
Form 10-QSB
For the quarter ended September 30, 2000
Index
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I - Financial Information
Item 1. Financial Statements............................................. 3
Item 2. Management's Discussion and Analysis or Plan of Operation........ 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.............. 12
Item 5. Other Information................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................. 12
</TABLE>
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
ECOS Group, Inc. and Subsidiary
We have reviewed the accompanying consolidated balance sheet of ECOS Group, Inc.
and Subsidiary as of September 30, 2000 and the related consolidated statements
of operations and cash flows for the period from April 1, 2000 through September
30, 2000, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of ECOS Group, Inc. and Subsidiary.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the September 30, 2000 financial statements in order for them to be
in conformity with generally accepted accounting principles.
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
Miami, Florida
November 8, 2000
3
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
-------------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 396 $ 168,650
Accounts receivable, net of allowance
of $83,667 and $70,137 1,188,556 816,234
Prepaid expenses & other assets 77,502 67,423
------------ ------------
TOTAL CURRENT ASSETS 1,266,454 1,052,307
Amounts due under state reimbursement program 116,287 116,287
Property and equipment, net 103,194 53,981
Goodwill, net of accumulated amortization of $347,625
and $326,555 242,328 263,398
------------ ------------
TOTAL ASSETS $ 1,728,263 $ 1,485,973
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 857,165 $ 814,380
Accrued expenses 393,197 346,722
Notes payable - related party 11,866 --
Notes payable 255,021 251,077
------------ ------------
TOTAL CURRENT LIABILITIES 1,517,249 1,412,179
------------ ------------
Long-term debt, less current portion - Related party 7,324 --
Long-term debt, less current portion 267,873 250,000
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, None issued and outstanding -- --
Common stock, $.012 par value; 75,000,000 authorized,
31,271,860 issued and outstanding 375,262 375,262
Additional paid in capital 16,546,952 16,546,952
Accumulated deficit (16,986,397) (17,098,420)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (64,183) (176,206)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,728,263 $ 1,485,973
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Consulting services $ 1,371,701 $ 1,323,138 $ 2,803,940 $ 2,568,214
----------- ----------- ----------- -----------
COSTS OF CONSULTING SERVICES
Subcontractor expenses 287,395 412,442 552,085 756,246
Other direct costs and expenses 506,100 412,843 1,034,263 802,347
----------- ----------- ----------- -----------
TOTAL DIRECT COSTS AND EXPENSES 793,495 825,285 1,586,348 1,558,593
----------- ----------- ----------- -----------
GROSS PROFIT 578,206 497,853 1,217,592 1,009,621
----------- ----------- ----------- -----------
OTHER COSTS AND EXPENSES
General, administrative and other operating costs 526,428 530,160 1,088,338 1,019,655
----------- ----------- ----------- -----------
TOTAL OTHER COSTS AND EXPENSES 526,428 530,160 1,088,338 1,019,655
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 51,778 (32,307) 129,254 (10,034)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest, net (6,277) (13,778) (10,731) (29,595)
Forgiveness of debt -- 112,706 -- 112,706
Other income (expense), net -- -- (500) --
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (6,277) 98,928 (11,231) 83,111
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 45,501 66,621 118,023 73,077
INCOME TAXES 3,000 -- 6,000 --
----------- ----------- ----------- -----------
NET INCOME $ 42,501 $ 66,621 $ 112,023 $ 73,077
=========== =========== =========== ===========
BASIC INCOME PER COMMON SHARE: $ 0.002 $ 0.002 $ 0.004 $ 0.002
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ 0.002 $ 0.001 $ 0.003 $ 0.001
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 112,023 $ 73,077
--------- ---------
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation & amortization 37,723 40,135
Increase in provision for bad debts and potential loss on
State reimbursement program 13,530 9,718
Changes in operating assets & liabilities
Accounts receivable (385,852) (71,102)
Prepaid expenses & other assets (10,079) 538
Accounts payable and accrued expenses 89,260 50,092
--------- ---------
Total adjustments (255,418) 29,381
--------- ---------
Net cash provided by (used in) operating activities (143,395) 102,458
--------- ---------
Investing activities:
Purchases of property and equipment (65,866) (16,329)
--------- ---------
Net cash (used in) investing activities (65,866) (16,329)
--------- ---------
Financing activities:
Proceeds from related party notes payable 19,190 --
Proceeds from notes payable 22,680 --
Payments on related party notes payable -- (27,018)
Payments on notes payable (863) (13,000)
--------- ---------
Net cash provided by (used in) financing activities 41,007 (40,018)
--------- ---------
Net increase (decrease) in cash (168,254) 46,111
Cash, beginning of period 168,650 90,677
--------- ---------
Cash, end of period $ 396 $ 136,788
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $12,728 $29,007
======= =======
SUPPLEMENTAL SCHEDULE ON NONCASH INVESTING AND FINANCING ACTIVITIES:
On June 4, 1999, the Company issued 198,128 shares of common stock for
$7,500 principal and $217 interest payment on a related party debt.
The stock was valued at: $ -- $ 931
======= =======
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: $ -- $ 7,696
======= =======
On June 4, 1999, the Company issued 7,166,013 shares of common stock to
its directors and officers in payment of past due unpaid compensation.
The stock was valued at: $ -- $33,680
======= =======
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: $ -- $ 5,850
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<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. The Company is a Florida corporation with its principal office
in Miami Lakes, Florida.
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 September 30, 2000 has
been derived from the audited financial statements as of the period ended
March 31, 2000, but does not include all disclosures required by generally
accepted accounting principles. Certain amounts previously reported in
both the September 30, 1999 Consolidated Statement of Operations and
Consolidated Statement of Cash Flows have been reclassified to conform to
the 2000 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, 2000
are not necessarily indicative of the results that may be expected for the
year ended March 31, 2001. 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, 2000.
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.
Earnings Per Share. Earnings per share ("EPS") computations were based on
weighted average common shares outstanding of 31,271,860 and 26,167,751
for the quarters ended September 30, 2000 and 1999, respectively. Diluted
EPS computations for September 30, 2000 were based on weighted average
common shares of 42,699,720, assuming the conversion of 8,217,667 common
stock option shares and 3,210,193 common stock warrants. Diluted EPS
computations for September 30, 1999 were based on weighted average common
shares of 50,748,081, assuming the conversion of 8,217,667 common stock
option shares, 2,510,193 common stock warrants, 10,000,000 common stock
equivalents for preferred B stock and 603,526 common stock shares issuable
to the Company's officers in payment of past due unpaid compensation.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Introduction
During the quarter ended September 30, 2000 (referred to as the "Second
Quarter 2001"), the Company continued to focus on the growth and maintenance of
Evans Environmental and Geological Science and Management, Inc. ("EE&G"), the
Company's operating subsidiary, while continuing to explore a variety of merger
and acquisition opportunities as a means of increasing the Company's growth
rate. In order to better meet the requirements of a changing market, the Company
transitioned several areas in operations.
The transition in operations was initiated at the beginning of this
fiscal year and continued through the Second Quarter 2001. At the beginning of
fiscal year 2001, the asbestos practice was combined with the indoor air quality
practice into a single practice area and a new practice area, the
construction/demolition/electrical practice, was started. The Company is looking
to the construction/demolition/electrical practice to be the primary source of
significant internal growth during this fiscal year. The Company anticipates
that the asbestos market will continue to gradually weaken.
The development of the construction/demolition/electrical practice has,
over the last year, proven to be a cash intensive effort. This type of work
typically requires significant cash expenditures at the outset of projects that
may not be recouped until collection on the final invoice for those projects
some time later. The rapid expansion of the construction/demolition/electrical
practice has significantly impacted the overall cash flow of the Company's
operations. Up to the second quarter of fiscal year 2001, the Company had
managed this cash flow difficulty without incurring indebtedness. During the
second quarter of fiscal year 2001, the Company obtained a small line of credit
for short term cash flow difficulties and in order to allow the Company the
opportunity to approach larger, potentially more lucrative projects.
The Company in fiscal year 2000 began exploring a variety of merger and
acquisition opportunities in order to increase its existing revenue stream and
stockholder value. The Company has continued to explore these opportunities
during fiscal year 2001, although no assurance can be given that a merger or
acquisition will be made during the foreseeable future.
Three months ended September 30, 2000 compared to three months ended
September 30, 1999
The Company's revenues increased 3.7% to $1,371,701 for the Second
Quarter 2001 from $1,323,138 for the Second Quarter 2000. The increase in
revenues is primarily attributable to the construction/ demolition/electrical
practice area, established in early fiscal year 2001.
Direct costs decreased 3.9% to $793,495 for the Second Quarter 2001
from $825,285 for the Second Quarter 2000. Direct costs consist of all
professional and technical labor, subcontractor, supplies and other revenue
generating expenses. This decrease in direct costs is attributable to the
increased use of technical labor in lieu of subcontractors during the Second
Quarter 2001. The Company's gross profit margin increased to 42.2% for the
Second Quarter 2001 from 37.6% for the Second Quarter 2000.
General, administrative and other operating costs decreased .7% to
$526,428 for the Second Quarter 2001 compared to $530,160 for the Second Quarter
2000.
9
<PAGE>
Net income for the Second Quarter 2001 was $42,501, compared to a net
income of $66,621 for the Second Quarter 2000. The net income for the Second
Quarter 2001 includes a provision for income taxes of $3,000, while the Second
Quarter 2000 net income does not include such a provision. Additionally, the
Second Quarter 2000 includes forgiveness of debt in the amount of $112,706.
Six months ended September 30, 2000 compared to six months ended
September 30, 1999
The Company's revenues increased 9.2% to $2,803,940 for the six months
ended September 30, 2000 (referred to as the "Year to date 2001") from
$2,568,214 for the six months ended September 30, 1999 (referred to as the "Year
to date 2000"). The increase in revenues is primarily attributable to the
construction/demolition/electrical practice area, established in early fiscal
year 2001.
Direct costs increased 2% to $1,586,348 for Year to date 2001 from
$1,558,593 for Year to date 2000. The Company's gross profit margin increased to
43.4% for Year to date 2001 from 39.3% for Year to date 2000.
General, administrative and other operating costs increased 6.7% to
$1,088,338 for Year to date 2001 from $1,019,655 for Year to date 2000. This
increase in general, administrative and other operating costs is attributable to
the construction/demolition/electrical practice area, established in early
fiscal year 2001.
Net income for Year to date 2001 was $112,023, compared to a net income
of $73,077 for Year to date 2000. The net income for Year to date 2001 includes
a provision for income taxes of $6,000, while the Year to date 2000 net income
does not include such a provision. Additionally, Year to date 2000 includes
forgiveness of debt in the amount of $112,706.
Liquidity and Capital Resources
The Company had a working capital deficit of $250,795 at the Second
Quarter 2001, compared with a working capital deficit of $359,872 at March 31,
2000. This decrease in deficit of $109,077 reflects a working capital ratio of
.83 at the Second Quarter 2001 from .75 at March 31, 2000. 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.
Net cash decreased during the six months ended September 30, 2000 by
$168,254 compared to an increase during the six months ended September 30, 1999
of $46,111. The major cash outflow in the six months ended September 30, 2000
was $143,395 from operating activities. Cash of $23,996 and proceeds of bank
loans of $41,870, for a total of $65,866, were used to purchase property and
equipment.
The Company has no major material commitments for capital expenditures.
The Company intends to continue to fund its current operations from a
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 which no assurance can
be given. These sources of capital are expected to fund the Company's current
operations through March 31, 2001. The Company believes that it can experience
sustained and profitable revenue growth in the future, although no assurances
can be given. However, if the Company does not continue its profitability, or it
cannot obtain 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 no assurance can be given that such financing will be available
at all or on terms acceptable to the Company.
10
<PAGE>
Forward Looking Statements
This report on Form 10-QSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Discussions containing forward-looking
statements may be found in the material set forth under "Management's Discussion
and Analysis or Plan of Operation" as well as in the report generally. These
statements concern expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. Specifically, this report and the
documents incorporated into this report by reference contain forward-looking
statements regarding:
- the Company's expectation that demand for asbestos services will
continue to decline ;
- the Company's expectation that the construction/demolition/electrical
practice area will be the primary source of significant internal
growth during fiscal year 2001;
- the Company's ability to control its expenditures during fiscal year
2001;
- the Company's estimates of the manner in which it will fund its
current operations and the Company's ability to fund its current
operations through March 31, 2001; and
- the Company's ability to experience sustained and profitable revenue
growth in the future.
These forward-looking statements reflect the Company's current views
about future events and are subject to risks, uncertainties and assumptions. The
Company wishes to caution readers that certain important factors may have
affected and could in the future affect the Company's actual results and could
cause actual results to differ significantly from those expressed in any
forward-looking statement. The most important factors that could prevent the
Company from achieving its goals, and cause the assumptions underlying
forward-looking statements and the actual results to differ materially from
those expressed in or implied by those forward-looking statements include, but
are not limited to, the following:
- changes in legislative enforcement and direction with respect to or
affecting the asbestos/ indoor air quality, hazardous substances, and
construction/demolition/electrical practice areas;
- natural disasters such as hurricanes and tornadoes;
- unanticipated delays in contract execution;
- sudden loss of key personnel;
- changes with respect to the Company's competitors or the market for
environmental consulting, testing and engineering specifically; and
- decisions by the Company's lenders to demand the repayment of the
Company's indebtedness.
11
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On August 11, 2000, the Company held its Annual Meeting of Shareholders
(the "Meeting"). At the Meeting, the shareholders voted on the election of six
directors to serve until the 2001 Annual Meeting of Shareholders and a proposal
to adopt the Company's 2000 Equity Compensation Plan.
The voting results were as follows:
1. Election of Directors
Name of Nominee For Against Abstain
--------------- --- ------- -------
Wendell R. Anderson 20,246,377 2,709 18,145
Luis De La Cruz 20,246,377 2,709 18,145
Leon S. Eplan 20,246,377 2,709 18,145
Dr. Charles C. Evans 20,246,377 2,709 18,145
Timothy R. Gipe 20,246,377 2,709 18,145
Joseph F. Startari 20,246,377 2,709 18,145
2. Adoption of the Company's 2000 Equity Compensation Plan:
Broker Non-Votes For Against Abstain
---------------- --- ------- -------
-- 13,829,752 339,396 22,875
Item 5. Other Information
Charles C. Evans resigned from the Audit Committee effective August 11, 2000, in
order that the Audit Committee be comprised solely of independent directors.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
--------
23.1 Consent of Morrison, Brown, Argiz & Company.
27.1 Financial Data Schedule.
(b) Form 8-Ks
---------
None.
12
<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.
Date November 13, 2000 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
13
<PAGE>
Exhibit Index
Exhibit Description
------- -----------
23.1 Consent of Morrison, Brown, Argiz & Company.
27.1 Financial Data Schedule.
