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 June 30, 2000
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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 0-16322
ECOS Group, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 84-1061207
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14505 Commerce Way, Suite 400, Miami Lakes, Florida 33016
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(Address of principal executive offices) (Zip Code)
(305) 374-8300
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(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 June 30, 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
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<PAGE>
ECOS Group, Inc.
Form 10-QSB
For the quarter ended June 30, 2000
<TABLE>
<CAPTION>
Index
Page
<S> <C>
Part I - Financial Information
Item 1. Financial Statements................................................................ 3
Item 2. Management's Discussion and Analysis or Plan of Operations.......................... 9
Part II - Other Information
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 June 30, 2000 and the related consolidated statements of
operations and cash flows for the period from April 1, 2000 through June 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 June 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
July 26, 2000
3
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
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(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 44,569 $ 168,650
Accounts receivable, net of allowance
of $76,469 and $70,137 1,112,731 816,234
Prepaid expenses & other assets 58,333 67,423
------------ ------------
TOTAL CURRENT ASSETS 1,215,633 1,052,307
Amounts due under state reimbursement program 116,287 116,287
Property and equipment, net 78,224 53,981
Goodwill, net of accumulated amortization of $337,090
and $326,555 252,863 263,398
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TOTAL ASSETS $ 1,663,007 $ 1,485,973
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 887,617 $ 814,380
Accrued expenses 358,317 346,722
Notes payable 254,872 251,077
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TOTAL CURRENT LIABILITIES 1,500,806 1,412,179
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LONG-TERM DEBT - related party notes payable,
less current portion 268,885 250,000
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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 (17,028,898) (17,098,420)
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TOTAL STOCKHOLDERS' DEFICIT (106,684) (176,206)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,663,007 $ 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 months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------------
2000 1999
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<S> <C> <C>
REVENUE
Consulting services $ 1,432,239 $ 1,245,076
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COSTS OF CONSULTING SERVICES
Subcontractor expenses 264,690 343,804
Other direct costs and expenses 528,163 355,037
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TOTAL DIRECT COSTS AND EXPENSES 792,853 698,841
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GROSS PROFIT 639,386 546,235
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OTHER COSTS AND EXPENSES
General, administrative and other operating costs 561,910 523,962
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TOTAL OTHER COSTS AND EXPENSES 561,910 523,962
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OPERATING INCOME 77,476 22,273
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OTHER INCOME (EXPENSE)
Interest, net (4,454) (15,817)
Other income (expense), net (500) --
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TOTAL OTHER INCOME (EXPENSE) (4,954) (15,817)
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INCOME BEFORE INCOME TAXES 72,522 6,456
INCOME TAXES 3,000 --
----------- -----------
NET INCOME 69,522 $ 6,456
=========== ===========
BASIC INCOME PER COMMON SHARE: $ 0.002 $ 0.000
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DILUTED EARNINGS PER COMMON SHARE $ 0.001 $ 0.000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 69,522 $ 6,456
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Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation & amortization 17,870 19,895
Increase in provision for bad debts and potential loss on
State reimbursement program 6,332 23,311
Changes in operating assets & liabilities
Accounts receivable (302,829) (101,038)
Prepaid expenses & other assets 9,090 (4,732)
Accounts payable and accrued expenses 84,832 130,573
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Total adjustments (184,705) 68,009
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Net cash provided by (used in) operating activities (115,183) 74,465
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Investing activities:
Purchases of property and equipment (31,578) (7,207)
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Net cash (used in) investing activities (31,578) (7,207)
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Financing activities:
Proceeds from notes payable 22,680 --
Payments on notes payable -- (6,750)
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Net cash (used in) financing activities 22,680 (6,750)
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Net increase (decrease) in cash (124,081) 60,508
Cash, beginning of period 168,650 90,677
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Cash, end of period $ 44,569 $ 151,185
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
ECOS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash paid during the period for interest $ 5,904 $14,851
=============== =======
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 June 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 June 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 three months ended June 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 22,881,448 for
the quarters ended June 30, 2000 and 1999, respectively. Diluted EPS
computations for June 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
June 30, 1999 were based on weighted average common shares of 50,749,720,
assuming the conversion of 8,067,667 common stock option shares, 2,660,193
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 Operations
Results of Operations
Introduction
During June 30, 1999 and June 30, 2000 (referred to as the
"First Quarter 1999" and the "First Quarter 2000" respectively), the
Company continued to focus on the growth and maintenance of EE&G, the
Company's operating subsidiary, and on further reducing the Company's
liabilities, especially long-term debt. In the First Quarter 2000, the
Company continued to explore a variety of merger and acquisition
opportunities as a means of increasing the Company's growth rate.
The First Quarter 2000 continued to be a transitional period
for EE&G. The asbestos market in Florida, EE&G's main service area,
steadily declined as this limited resource market continues to be depleted
with each completed project. The Company does not expect significant growth
in this area and has actively developed other service lines to replace the
lost asbestos revenues. The transition was officially marked at the
beginning of the First Quarter 2000 when 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
established.
Based on experience to date, including the amount of
construction/demolition/electrical work backlogged to date, the Company has
set aggressive goals for this practice area. The Company anticipates that
the growth in this new practice area will significantly exceed the erosion
of asbestos revenues by the early part of fiscal year 2001, allowing the
Company to experience significant growth both in revenues and operational
profit in fiscal year 2001.
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 outlay of significant quantities of
cash at the outset of projects that may not be recouped until collection on
the final invoice for that project some time later. The rapid expansion of
the construction/demolition/electrical practice has significantly impacted
the overall cash flow of the Company's operations. To date, the Company has
successfully managed this cash flow difficulty without external sources of
additional cash such as a bank line of credit. Should the Company not
obtain a line of credit to augment the operational cash flow, then the
Company foresees the possibility of not realizing the full growth potential
of the construction/demolition/electrical practice area in fiscal year
2001.
The Company in fiscal year 2000 began exploring a variety of
merger and acquisition opportunities in order to augment its existing
revenue stream and increase stockholder value. The Company continued to
explore these opportunities during the First Quarter 2000, although no
assurance can be given that a merger or acquisition will be made during the
foreseeable future.
Three months ended June 30, 2000 compared to three months ended June 30,
1999
The Company's revenues increased from $1,245,076 for the three
months ended the First Quarter 1999 to $1,432,239 for the three months
ended the First Quarter 2000, an increase of $187,163 or approximately 15%.
The increase in revenues is primarily attributed to the construction/
demolition/electrical practice area, which is new for fiscal year 2000.
Direct costs were $792,853 for the First Quarter 2000 versus
$698,841 for the First Quarter 1999, representing an increase of $94,012 or
approximately 13.5%. Direct costs consist of
9
<PAGE>
all professional and technical labor, subcontractor, supplies and other
revenue generating expenses. This increase in direct costs is attributable
to the new practice area described above. The Company's gross profit margin
increased from 43.9% for the First Quarter 1999 to 44.6% for the First
Quarter 2000.
General, administrative and other operating costs increased
$37,948, or 7.2% to $561,910 for the First Quarter 2000 compared to
$523,962 for the First Quarter 1999. This increase in general,
administrative and other operating costs is attributable to the new
practice area described above.
Net income for the First Quarter 2000 was $69,522, compared to
a $6,456 net income for the First Quarter 1999. The net income for First
Quarter 2000 includes a provision for income taxes of $3,000.
Liquidity and Capital Resources
The Company had a working capital deficit of $285,173 at the
First Quarter 2000, compared with a working capital deficit of $359,872 at
March 31, 2000. This decrease in deficit of $74,699 reflects a working
capital ratio of .81 at the First Quarter 2000 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 First Quarter 2000 by $124,081
compared to an increase during the First Quarter 1999 of $60,508. The major
cash outflow in the First Quarter 2000 was $115,183 from operating
activities. Cash of $8,898 and proceeds of bank loans of $22,680, for a
total of $31,578, were used to purchase property and equipment. The Company
expects to continue to control its expenditures during fiscal year 2000.
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
all of 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 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 no assurance can be given that such financing will be available at all
or on terms acceptable to the Company.
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 Operations" 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.
<PAGE>
Specifically, this report and the documents incorporated into this report
by reference contain forward-looking statements regarding:
- the Company's expectation that there will not be significant
growth in the asbestos practice area;
- the Company's expectation that growth in the
construction/demolition/electrical practice area will
significantly exceed the decrease in asbestos revenues by the
early part of fiscal year 2001 and will therefore allow the
Company to experience significant growth in revenues and
operational profit in fiscal year 2001;
- the Company's ability to control its expenditures during fiscal
year 2000;
- 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, hazardous substances, indoor air
quality 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 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 August 14, 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
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23.1 Consent of Morrison, Brown, Argiz & Company.
27.1 Financial Data Schedule.
14
