<PAGE>
EXHIBIT 13
INFRACORPS INC.
2000
ANNUAL
REPORT
TO
SHAREHOLDERS
7400 Beaufont Springs Drive, Suite 415, Richmond, VA 23225 - (804) 272-6600
<PAGE>
2000 ANNUAL REPORT
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Message to Shareholders................................................... 1
Company Profile........................................................... 3
Market Information........................................................ 4
Selected Financial Data................................................... 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 6
Independent Auditors' Report.............................................. 12
Consolidated Balance Sheets............................................... 14
Consolidated Statements of Operations..................................... 16
Consolidated Statements of Stockholders' Equity (Deficit)................. 17
Consolidated Statements of Cash Flows..................................... 18
Notes to Consolidated Financial Statements................................ 21
Directors and Officers.................................................... 38
Shareholder Information................................................... 39
</TABLE>
FORWARD LOOKING STATEMENTS
This Annual Report includes certain forward-looking statements relating to
such matters as anticipated financial performance, business prospects,
technological developments, new products and similar matters. None of the
Company's statements about the future are guarantees of future results or
outcomes. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for such forward-looking statements. 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 could significantly affect
the operations, performance, development and results of the Company's business
include, but are not limited to, the following: (i) changes in legislative
enforcement and direction; (ii) unusually bad or extreme weather conditions;
(iii) unanticipated delays in contract execution; (iv) project delays or changes
in project costs; (v) unanticipated changes in operating expenses and capital
expenditures; (vi) sudden loss of key personnel; (vii) abrupt changes in
competition or the political or economic climate; and (viii) abrupt changes in
market opportunities.
<PAGE>
MESSAGE TO SHAREHOLDERS
Dear Shareholders:
InfraCorps Inc. continues to improve its position in the design build of
subsurface infrastructure corridors, utilizing conventional methods and
trenchless technologies for pipeline installation and rehabilitation for the
transmission of water, waste and natural gas. During fiscal year 2000,
InfraCorps produced revenues of about $2,000,000 per month, as compared to
approximately $1,500,000 per month during fiscal 1999. Our authorized backlog is
approximately $20,000,000 as of June 15, 2000, as compared to approximately
$15,000,000 a year ago. Further, InfraCorps continues to increase the percentage
of its deployment of higher margin proprietary trenchless technologies, as
compared to the utilization of traditional lower margin "open-cut" methods in
its generation of revenue.
More importantly, InfraCorps had income from continuing operations of $518,022
for fiscal 2000, as compared to losing $711,864 on combined ongoing and
discontinued operations during fiscal 1999. Your Company's net worth increased
to $4,319,556 from last year's $2,574,917, due in part to the completion of
private placements of preferred stock.
As stated in the past, in order for InfraCorps to attain improved margins while
incurring the costs associated with being a publicly owned company, it must
rapidly grow its revenue. Management believes that if InfraCorps were relieved
of financial responsibility for the contract with China Steel Corporation for
the design and construction of three air pollution control units in Taiwan,
raising the additional working capital necessary to more aggressively grow your
Company will become a stronger possibility. Without the cash infusion, it is
probable that InfraCorps will incur a flat performance during fiscal 2001.
The following briefly describes the steps taken during the first quarter of
fiscal 2001:
. Negotiations have commenced for the transfer of complete financial and
project management responsibility for the contract with China Steel from
the existing project manager, Air Technologies, Inc., to E&C Engineering,
the latter being the largest firm of its type in Taiwan and an existing
subcontractor on the project. Given E&C's sound financial position, as
compared to that of Air Technologies, a successful transfer should result
in eliminating the risks associated with your Company's participation in
this otherwise discontinued operation. E&C recently proposed this transfer
in exchange for the rights to the associated technology in China;
. Contracts of $4,500,000 and $2,400,000 for the construction of sewer and
gas lines on behalf of Chesterfield County, Virginia and the City of
Richmond, Virginia were executed by our wholly-owned subsidiary, InfraCorps
of Virginia;
-1-
<PAGE>
. Management is negotiating with UltraLiner to expand your Company's license
for the use of their fold and form pipeline rehabilitation technology in the
State of Maryland, in addition to our existing agreement for the right to
same in Central and Northern Virginia.
Looking forward, management will continue to focus on the additional
strengthening of the Company's financial base to support continued growth
internally, improved margins and seek opportunities to expand geographically and
expand our range of trenchless capabilities. Additionally, InfraCorps will look
to include the installation of fiber-optic and broadband cable networks in our
list of services associated with the design build of subsurface infrastructure
corridors on behalf of municipal and industrial customers.
Management seeks shareholder approval to drop the "ps" from the Company's name,
changing it to "InfraCor", which will eliminate the frequent mispronunciation of
same and better represent our focus on the design build of subsurface
infrastructure corridor networks. While the mispronunciation, "InfraCorpse", may
have been understandable in the past, management's optimism for the Company is
greater now than it was two years ago. Assuming shareholder approval of the name
change, our existing website address will be changed to "www.infracor.net".
Thanks to our Board of Directors, Employees, Management Advisory Committee and
you, the Shareholders, for the efforts, continued support and patience shown
during the past year. It is much appreciated.
Sincerely,
James B. Quarles
Chairman and President
-2-
<PAGE>
COMPANY PROFILE
InfraCorps Inc. ("INFC"), a Virginia corporation formed in 1987, is a
technology-based firm that historically has provided both environmental and
construction products and services. During the second half of fiscal 1998, INFC
made a determination to focus on its construction lines of business and to
de-emphasize its environmental products and services. Specifically, INFC is
directing its efforts to the development and growth of its existing underground
infrastructure products and services related to the installation and
rehabilitation of subsurface pipelines using trenchless technologies as well as
conventional methods. Trenchless technology involves the installation and
rehabilitation of underground pipelines with minimal surface disruption. Some of
the methods used are pipe relining, manhole construction and "pipe bursting."
INFC operates its infrastructure business through three wholly-owned
affiliates, InfraCorps of Virginia, Inc. ("ICVA"), InfraCorps Technology, Inc.
("ICTI"), both Virginia corporations headquartered in Richmond, Virginia, and
InfraCorps International, Inc. ("ICII"), a Virginia corporation headquartered in
Seattle, Washington. ICVA was formed as a result of INFC's acquisition on June
1, 1994, of Stamie E. Lyttle Company, Inc., Lyttle Utilities, Inc. and LPS
Corporation. The three firms, the history of which dates back to 1947, were
consolidated into one corporation, ICVA. ICVA, along with its subsidiary,
InfraCorps of Florida, Inc. ("ICFL"), a Virginia corporation headquartered in
Orlando, Florida and closed November 30, 1998, utilizes trenchless technologies
to install and rehabilitate subsurface pipelines. INFC's infrastructure
customers include municipalities, government agencies, Fortune 500 companies and
developers. ICVA, through its Service Division, also designed and installed
septic and irrigation systems and provided related repair and maintenance
services. As part of INFC's effort to focus on the infrastructure business,
INFC, in April 1998, sold the Service Division of ICVA to a new corporation
formed by Coleman S. Lyttle, a director of INFC and President of ICVA.
ICTI was formed as a result of the purchase of the assets of Cat
Contracting in Richmond, VA in April 1999. ICTI utilizes trenchless technologies
to install and rehabilitate subsurface pipelines. ICTI's infrastructure
customers include municipalities and government agencies.
ICII was started in May 1999 to provide engineering and consulting
services in trenchless technology throughout the United States. ICII's customers
include municipalities, government agencies, and developers.
INFC's principal executive offices are located at 7400 Beaufont Springs
Drive, Suite 415, Richmond, Virginia 23225, and its telephone number is (804)
272-6600.
-3-
<PAGE>
MARKET INFORMATION
The Common Stock of INFC was traded in the over-the-counter market and was
quoted under the symbol ETSI on the OTC Bulletin Board, an electronic quotation
and trade reporting service of the National Association of Securities Dealers.
On August 17, 1998, the Company changed its name to InfraCorps Inc. and is
currently quoted under the symbol INFC.
The table below sets forth for each of the fiscal years during INFC's last
two fiscal years the range of the high and low bid information for INFC Common
Stock. Such information reflects inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
High Low
---- ---
Fiscal 1999
Quarter ended June 30, 1998..................... $0.1562 $0.0725
Quarter ended September 30, 1998................ $0.0937 $0.0937
Quarter ended December 31, 1998................. $0.15 $0.15
Quarter ended March 31, 1999.................... $0.15 $0.15
Fiscal 2000
Quarter ended June 30, 1999..................... $0.28 $0.22
Quarter ended September 30, 1999................ $0.26 $0.15
Quarter ended December 31, 1999................. $0.21 $0.13
Quarter ended March 31, 2000.................... $0.48 $0.16
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<PAGE>
SELECTED FINANCIAL DATA
(As of and for the years ended March 31,
except for 1998, which is as of and for the 10 month
period ended March 31, and for 1997 and 1996,
which is as of and for the years ended May 31)
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 23,593,187 $ 18,877,867 $ 11,267,909 $ 16,209,501 $ 13,743,857
Gross profit 3,320,884 2,589,255 1,695,185 2,427,278 819,587
Operating income (loss) 661,210 315,998 19,530 1,001,017 (988,446)
Income (loss) from continuing
Operations 518,022 378,460 (658,861) 810,533 (1,163,241)
Income (loss) from discontinued
Operations -- (343,110) (2,756,617) (662,098) (835,550)
Loss on disposal of discontinued
Operations -- (747,214) (1,391,873) -- --
Extraordinary Gain -- 2,550,000 -- -- --
Net income (loss) 518,022 1,838,136 (4,807,351) 148,435 (1,998,791)
Total assets 13,031,191 8,570,447 8,550,871 12,111,437 9,651,799
Long term debt, net of current portion 1,881,900 682,046 907,896 1,063,831 1,260,133
Total stockholders' equity (deficit) 4,319,556 2,574,917 (713,619) 2,969,523 1,305,089
Income (loss) from continuing
operations per common share:
Basic 0.02 0.02 (0.04) 0.06 (0.09)
Diluted 0.02 0.02 (0.04) 0.06 (0.09)
Income (loss) from discontinued
operations per common share:
Basic -- (0.02) (0.18) (0.05) (0.07)
Diluted -- (0.02) (0.18) (0.05) (0.07)
Loss on disposal of discontinued
operations per common share:
Basic -- (0.04) (0.09) -- --
Diluted -- (0.04) (0.09) -- --
Extraordinary Gain
Basic -- 0.15 -- -- --
Diluted -- 0.14 -- -- --
Net Income (loss) per common share:
Basic 0.02 0.11 (0.31) 0.01 (0.16)
Diluted 0.02 0.10 (0.31) 0.01 (0.16)
</TABLE>
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Result of Operations
On April 6, 1998, the Board of Directors changed the fiscal year-end of the
Company from May 31 to March 31. As the year ended March 31, 1999 was a twelve-
month period, the Company will compare its results of operations for the year
ended March 31, 1999 to the twelve-month period ended March 31, 1998.
Fiscal year ended March 31, 2000 compared to fiscal year ended March 31, 1999.
In November 1998, the Company closed its Florida operations and all assets
and certain liabilities were moved to the Virginia operations. The revenues and
expenses were removed from continuing operations for the period ended March 31,
1999.
Revenues for the fiscal year ended March 31, 2000 (the "fiscal year 2000")
were $23,593,187, as compared to $18,877,867 for the fiscal year ended March 31,
1999 (the "fiscal year 1999"), resulting in a 25% increase in revenues. This
increase largely was the result of increase in new orders and several large
contracts awarded to the Company during this period.
Cost of goods and services for the fiscal year 2000 of sales was
$20,272,303 or 85.9% of sales, as compared to $16,288,612 or 86% of sales for
the fiscal year 1999. Gross profits for the fiscal year 2000 were $3,320,884 or
14.1% of sales compared to $2,589,255 or 14% of sales for the fiscal year 1999.
Gross profit ratio was maintained with the increase in sales.
Selling, general and administrative expenses were $2,659,674 or 11.2% of
sales for the fiscal year 2000, as compared to $2,273,257 or 12 % of net sales
for the fiscal year 1999. The general and administrative expense decrease as a
percentage was due to increased sales and the higher dollar amount due to costs
associated with additional companies in existence for the first time this year.
Gain on sale of assets for fiscal year 2000 was $3,195, as compared to
$332,575 for the fiscal year 1999, which reflected the sale of the Service
Division of ICVA. Interest expense for the fiscal year 2000 was $347,337
compared to $324,499 for the fiscal year 1999. Interest expense reflects
interest paid on notes payable and long-term debt, including credit lines,
amortization of discount associated with the convertible debentures and capital
leases. The increase was due to a general increase in interest rates during the
year.
Income from continuing operations for the fiscal year 2000 was $518,022
compared to $378,460 for the fiscal year 1999. The higher profit in 1999 was a
result of the one time sale of the Service Division of ICVA that increased
profits by $329,000. Loss from discontinued operations was $343,110 for the
fiscal year 1999. Discontinued operations were for Florida's operations that
were closed November 30, 1998 for fiscal year 1999. Revenues of $1,042,446
related to the Florida infrastructure operations for fiscal year 1999.
-6-
<PAGE>
Loss on disposal of discontinued operations was $747,214 for the fiscal
year 1999, and includes the loss on sale and abandonment of the assets, as well
as phase-out period operating losses of $677,031 from the measurement date to
March 31, 1999.
On July 30, 1998, certain shareholders converted debt to preferred shares.
As a result, a gain on extinguishment of debt arose due to the fair value of the
shares being less than the amount converted. This was based on a presumption of
effective interest rate earned on the preferred shares as well as the price of
the preferred shares on an as-if converted to common stock basis. Therefore, an
extraordinary gain on extinguishment of debt in the amount of $1,950,000 was
recognized. On December 31, 1998, a shareholder converted debt to preferred
shares in the amount of $1,000,000 and an extraordinary gain on extinguishment
of debt of $600,000 was recognized.
Net income for the fiscal year 2000 was $518,022 as compared to $1,838,136
for the fiscal year 1999.
Fiscal year ended March 31, 1999 compared to twelve months ended March 31, 1998.
Substantially all of the assets and certain liabilities relating to the
Company's environmental operations have been sold and revenues from
environmental operations were removed from continuing operations for the twelve-
month period ended March 31, 1998. As this sale occurred in March 1998, no
revenues or expenses are included in fiscal year ended March 31, 1999. In
November 1998, the Company closed its Florida operations and all assets and
certain liabilities were moved to the Virginia operations. The revenues and
expenses have been removed from continuing operations for the period ended March
31, 1998.
Revenues for the fiscal year ended March 31, 1999 (the "fiscal year 1999")
were $18,877,867 compared to $15,130,953 for the twelve-month period ended March
31, 1998, resulting in a 25% increase in revenues. This increase largely was the
result of increase in new orders and several large contracts awarded to the
Company during this period.
Cost of goods and services for the fiscal year 1999 was $16,288,612 or 86%
of sales compared to $12,840,717 or 85% of sales for the twelve-month period
ended March 31, 1998. Gross profits for the fiscal year 1999 were $2,589,255 or
14% of sales compared to $2,290,236 or 15% of sales for the twelve-month period
ended March 31, 1998. This decrease in gross profit was due to the decreases in
margins on the larger contracts awarded.
Selling, general and administrative expenses were $2,273,257 for the fiscal
year 1999 or 12% of net sales compared to $1,976,890 or 13% of net sales for the
twelve-month period ended March 31, 1998. The general and administrative expense
decrease as a percentage was due to reduced costs associated with the management
reorganization, and the higher dollar amount is attributable to higher
professional fees and the move of the corporate offices.
-7-
<PAGE>
Gain on sale of assets of $332,575 for the fiscal year 1999 reflected the
sale of the Service Division of ICVA. Interest expense for the fiscal year 1999
was $324,499 compared to $948,358 for the twelve-month period ended March 31,
1998. Interest expense reflects interest paid on notes payable and long-term
debt, including credit lines, amortization of discount associated with the
convertible debentures and capital leases. The reduction was due to the
conversion of $4,250,000 of debt to equity during the fiscal year 1999.
Income from continuing operations for the fiscal year 1999 was $378,460
compared to a loss of $582,151 for the twelve-month period ended March 31,1998.
Loss from discontinued operations was $343,110 for the fiscal year 1999 as
compared to $2,657,574 for the twelve-month period ended March 31, 1998.
Discontinued operations include Florida's operations that were closed November
30, 1998 for the fiscal year 1999, and include Florida operations and
environmental operations sold in October 1997 and March 1998 for the twelve-
month period ended March 31, 1998. Revenues of $1,042,446 and $1,809,671 for the
fiscal year 1999 and the twelve months ended March 31, 1998 related to the
Florida infrastructure operations. Revenues of $964,571 for the twelve months
ended March 31, 1998 related to the discontinued environmental operations.
Loss on disposal of discontinued operations was $1,391,873 for the twelve-
month period ended March 31, 1998, with a loss of $878,326 having been incurred
on the sale of the assets of ETSAS and a loss of $513,547 having been incurred
on the sale of the assets of ETS. Loss on disposal of discontinued operations
was $747,214 for the fiscal year 1999, and includes the loss on sale and
abandonment of the assets, as well as phase-out period operating losses of
$677,031 from the measurement date to March 31, 1999.
On July 30, 1998, certain shareholders converted debt to preferred shares.
As a result, a gain on extinguishment of debt arose due to the effective value
of the shares being less than the amount converted. This was based on a
presumption of effective interest rate earned on the preferred shares as well as
the price of the preferred shares on an as-if converted to common stock basis.
Therefore, an extraordinary gain on extinguishment of debt in the amount of
$1,950,000 was recognized. On December 31, 1998, a shareholder converted debt to
preferred shares in the amount of $1,000,000 and an extraordinary gain on
extinguishment of debt of $600,000 was recognized.
On December 31, 1998, the Company redeemed 2,500,000 shares of Series A
Convertible Preferred Stock held by The Thomas W. Marmon Trust at $0.50 per
share payable with $250,000 cash and a promissory note for $1,000,000 bearing 8%
interest due March 31, 1999 and secured by 2,000,000 shares of Series A
Convertible Preferred Stock. In a related matter, Mr. Thomas W. Marmon resigned
from the Board of Directors. At March 31, 1999, Mr. Marmon agreed to convert the
$1,000,000 promissory note and accrued interest to 10,421 shares of Series B
Preferred Stock bearing 8% dividend payable monthly. There are no conversion
rights.
In a subsequent transaction on December 31, 1998, Dr. Allen Kahn agreed to
purchase 1,000,000 shares of Series A Convertible Preferred Stock at $1.00 per
share, in exchange for $150,000 in cash and cancellation of a promissory note
for $850,000 which was secured by the Company's assets. Dr. Kahn joined the
Board of Directors of the Company as elected by the holders of the Series A
Convertible Preferred Stock.
-8-
<PAGE>
Effective November 30, 1998, the Company closed InfraCorps of Florida, Inc.
("Florida"). This was due to the losses that have been sustained by that
operation in the prior periods. The Company attempted to find a buyer for
Florida but, as no buyer stepped forward, certain fixed assets were sold. All
other fixed assets were either abandoned or moved to Virginia, and will be
utilized in Virginia's operation or sold. All current contracts were completed.
Net income for the fiscal year 1999 was $1,838,136 compared to net loss
of $4,631,598 for the twelve-month period ended March 31, 1998.
Liquidity and Capital Resources as of March 31, 2000
Management negotiated a line of credit from BB&T for $1,000,000 effective
April 16, 1999 and was able to increase the line at March 15, 2000 to
$1,250,000. As of March 31, 2000, $1,000,000 was drawn on this line of credit.
The interest rate is prime plus one percent payable monthly. Additional equity
or credit is being sought. Management's success in this regard will, to a large
extent, depend upon whether InfraCorps is able to accomplish the assignment
without recourse of the China Steel Contract to ATI. While negotiations with
China Steel Corporation are on-going, there can be no assurance that such
negotiations will be successful.
In a transaction on January 31, 2000, Dr. Allen Kahn agreed to purchase
5,000 shares of Series B Preferred Stock bearing an 8% dividend payable monthly
for $500,000. There are no conversion rights.
In a transaction on December 28, 1999, an investor agreed to purchase 751
shares of Series C Preferred Stock for $751,000. In addition, warrants for
300,400 shares at $0.16 were issued to the investor. The preferred shares pay 6%
interest payable quarterly and there are no conversion rights.
Net cash used by operating activities in 2000 was $110,977. Major
components of cash flows used in operating activities include an increase in
inventories of $567,345, an increase in accounts receivable of $451,951, and a
decrease in accounts payable of $175,267. These increases were a result of
higher sales. Another component was depreciation and amortization expense of
$536,963 for the period.
Net cash used in investing activities consisted mainly of purchase of
property, plant and equipment in the amount of $559,929. This was the result of
usual replacement of capital assets. Net cash provided by financing activities
of $843,005 includes in part proceeds from preferred stock of $1,313,317,
proceeds from line of credit of $1,000,000, and principal payments on long term
debt of $1,541,563. The cash and cash equivalents at March 31, 2000 were
$1,049,429 including $600,000 of restricted cash.
New orders received for the fiscal year 2000 were $30,304,537 compared to
$21,698,835 for the fiscal year ended 1999. The increase in new orders was due
to several large contracts received during the year. Backlog at March 31, 2000
was $19,100,000 compared to $12,286,247 at March 31, 1999.
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<PAGE>
Impact of Accounting Pronouncements
Financial Accounting Standards Board Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Management will assess the impact, if any,
on the Company's financial statements.
Fourth Quarter Adjustment
During the fourth quarter, two leases entered into earlier in fiscal year
2000 were capitalized, resulting in an adjustment to property and equipment and
capital lease obligations of $959,819.
-10-
<PAGE>
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
INFRACORPS, INC.
AND
SUBSIDIARIES
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
InfraCorps, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of InfraCorps,
Inc. and Subsidiaries as of March 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of InfraCorps,
Inc. and Subsidiaries and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Norfolk, Virginia
May 25, 2000
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<PAGE>
INFRACORPS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
(NEXT PAGE)
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<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 449,429 $ 272,259
Accounts receivable:
Trade (net of allowance of $50,000 in 2000
and 1999) 3,829,893 3,389,342
Other 24,317 12,917
Costs and estimated earnings on uncompleted contracts in
excess of billings of: 2000 - $6,861,450; 1999 - $4,536,031 1,007,464 868,061
Notes receivable 177,952 23,085
Inventories 1,166,796 599,451
Prepaid expenses 62,897 47,612
----------------------------
Total current assets 6,718,748 5,212,727
----------------------------
Property, plant and equipment
Furniture and fixtures 369,236 364,236
Tools and equipment 6,920,993 3,766,096
Vehicles 1,898,952 1,567,493
Leasehold improvements 307,663 301,370
----------------------------
9,496,844 5,999,195
Less accumulated depreciation and amortization (4,366,147) (3,829,184)
----------------------------
5,130,697 2,170,011
----------------------------
Other assets
Restricted cash 600,000 600,000
Notes receivable 169,205 321,454
Cash surrender value of life insurance (net of
outstanding loan of $176,499 in 2000 and $156,339 in 1999) 23,469 22,879
Assets under contractual arrangements (net of
valuation allowance of $858,000) 183,051 190,740
Other 206,021 52,636
----------------------------
1,181,746 1,187,709
----------------------------
$ 13,031,191 $ 8,570,447
============================
</TABLE>
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<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 97,322 $ 241,931
Note payable to bank 1,000,000 -
Notes payable to affiliates 602,019 609,900
Current portion of long-term debt 867,797 364,248
Accounts payable 3,750,104 3,574,837
Accrued expenses and other liabilities 372,154 382,229
----------------------------
Total current liabilities 6,689,396 5,173,145
----------------------------
Long-term debt 1,881,900 682,046
Liabilities under contractual arrangements 140,339 140,339
----------------------------
2,022,239 822,385
----------------------------
Total liabilities 8,711,635 5,995,530
----------------------------
Stockholders' equity
Preferred stock, no par value; authorized 5,000,000 shares:
4% cumulative Series A, $1 convertible, 1,850,000 and
1,750,000, shares outstanding at March 31, 2000 and
1999, respectively (liquidation value of $1,850,000) 830,311 730,311
8% Series B, 15,421 and 10,421 shares outstanding at
March 31, 2000 and 1999, respectively (liquidation value
of $1,542,100) 1,542,100 1,042,100
6% Series C, 751 shares outstanding at March 31,
2000 (liquidation value $751,000) 713,317 -
Common stock, no par value; authorized 30,000,000 shares;
Outstanding 16,392,387 and 16,492,043 at March 31, 2000
and 1999, respectively 5,933,226 6,126,338
Accumulated deficit (4,699,398)
(5,130,720)
Less notes receivable from officers -
(193,112)
----------------------------
Total stockholders' equity 4,319,556 2,574,917
----------------------------
$ 13,031,191 $ 8,570,447
============================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-15-
<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
Years Ended March 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---------------------------------
<S> <C> <C>
Contract revenues $ 23,593,187 $ 18,877,867
---------------------------------
Costs of goods and services 20,272,303 16,288,612
Selling, general and administrative
expenses 2,659,674 2,273,257
---------------------------------
22,931,977 18,561,869
---------------------------------
661,210 315,998
---------------------------------
Interest income 61,954 54,386
Interest expense (347,337) (324,499)
Gain on sale of equipment 3,195 332,575
---------------------------------
Income from continuing
operations before income taxes 379,022 378,460
Income tax benefit 139,000
---------------------------------
Income from continuing operations 518,022 378,460
Loss from discontinued operations - (343,110)
Loss from disposal of discontinued
operations - (747,214)
---------------------------------
Income (loss) before extraordinary item 518,022 (711,864)
Extraordinary gain on extinguishment of debt - 2,550,000
---------------------------------
Net income $ 518,022 $ 1,838,136
---------------------------------
Basic earnings per common share
Income from continuing operations $ 0.02 $ 0.02
Loss from discontinued operations - (0.02)
Loss on disposal of discontinued operations - (0.04)
Extraordinary gain - 0.15
---------------------------------
Net income $ 0.02 $ 0.11
---------------------------------
Diluted earnings per common share
Income from continuing operations $ 0.02 $ 0.02
Loss from discontinued operations - (0.02)
Loss on disposal of discontinued operations - (0.04)
Extraordinary gain - 0.14
---------------------------------
Net income $ 0.02 $ 0.10
---------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-16-
<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
Years Ended March 31, 2000 and May 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Preferred Preferred
Stock Stock Stock
Series A Series B Series C Common
-----------------------------------------------------------------------
Amount Amount Amount Shares
--------------- --------------------------------- ---------------
<S> <C> <C> <C> <C>
Balances at March 31, 1998 $ - $ - $ - 16,492,043
Issuance of series A preferred stock for
payment of note payable to
stockholders 1,730,311 - - -
Redemption of series A preferred stock (1,000,000) - - -
Issuance of series B preferred stock for
payment of note payable to stockholders - 1,042,100 - -
Dividends - - - -
Net income - - - -
-----------------------------------------------------------------------
Balances at March 31, 1999 730,311 1,042,100 - 16,492,043
Issuance of Series A Preferred Stock 100,000 - - -
Issuance of Series B Preferred Stock - 500,000 - -
Issuance of Series C Preferred Stock - - 713,317 -
Common stock received in satisfaction
of receivable from officers - - - (99,656)
Dividends - - - -
Net income - - - -
-----------------------------------------------------------------------
$ 830,311 $ 1,542,100 $ 713,317 16,392,387
=======================================================================
<CAPTION>
Notes
Receivable
Stock Accumulated from
----------------
Amount Deficit Officers Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balances at March 31, 1998 $ 6,126,338 $ (6,646,845) $ (193,112) $ (713,619)
Issuance of series A preferred stock for
payment of note payable to
stockholders - - - 1,730,311
Redemption of series A preferred stock - (250,000) - (1,250,000)
Issuance of series B preferred stock for
payment of note payable to stockholders - - - 1,042,100
Dividends - (72,011) - (72,011)
Net income - 1,838,136 - 1,838,136
---------------------------------------------------------------------
Balances at March 31, 1999 6,126,338 (5,130,720) (193,112) 2,574,917
Issuance of Series A Preferred Stock - - - 100,000
Issuance of Series B Preferred Stock - - - 500,000
Issuance of Series C Preferred Stock - - - 713,317
Common stock received in satisfaction
of receivable from officers (193,112) - 193,112 -
Dividends - (86,700) - (86,700)
Net income - 518,022 - 518,022
---------------------------------------------------------------------
$ 5,933,226 (4,699,398) - $ 4,319,556
=====================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-17-
<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
Years Ended March 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
-------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 518,022 $ 1,838,136
Adjustments to reconcile to net cash used
by operating activities:
Loss on disposal of discontinued operations - 747,214
Depreciation and amortization 536,963 570,059
Deferred income taxes (139,000) -
Write-down of notes receivable - 151,040
Amortization of deferred gain on sale/leaseback - (481,821)
Gain on extinguishment of debt - (2,550,000)
(Gain) loss on sale of equipment (3,195) (332,575)
Changes in:
Accounts receivable (451,951) (848,532)
Costs and estimated earnings in excess of
billings on uncompleted contracts (139,403) (304,137)
Inventories (567,345) 182,139
Prepaid expenses (15,285) 95,562
Cash surrender value of life insurance, net (590) (16,186)
Accounts payable 175,267 1,151,270
Accrued expenses and other liabilities (10,075) (349,695)
Other assets (14,385) 63,648
-------------------------------
Net cash used by operating activities (110,977) (83,878)
-------------------------------
</TABLE>
-18-
<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
================================================================================
Years Ended March 31, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------------------------
<S> <C> <C>
Cash flows from investing activities
Purchases of property, plant and equipment $ (559,929) $ (410,889)
Proceeds from sale of equipment - 372,398
Decrease in assets under contractual
arrangements 7,689 76,926
Notes receivable payments (advances) (2,618) 261,631
------------------------------
Net cash provided (used) by investing activities (554,858) 300,066
------------------------------
Cash flows from financing activities
Bank overdraft increase (decrease) (144,609) 68,438
Proceeds from (payments on) notes payable to banks 1,000,000 (89,062)
Proceeds from (payments on) notes payable affiliates (7,881) (64,259)
Proceeds from notes payable to stockholders - 648,400
Proceeds from issuance of preferred stock 1,313,317 -
Proceeds from long-term debt 310,441 -
Preferred stock dividends (86,700) (41,700)
Principal payments on long-term debt (1,541,563) (422,496)
Redemption of preferred stock - (250,000)
------------------------------
Net cash provided (used) by financing activities 843,005 (150,679)
------------------------------
Increase in cash and cash equivalents 177,170 65,509
Cash and cash equivalents at beginning of year
including $600,000 of restricted cash 872,259 806,750
------------------------------
Cash and cash equivalents at end of year
including $600,000 of restricted cash $ 1,049,429 $ 872,259
------------------------------
</TABLE>
-19-
<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
================================================================================
Years Ended March 31, 2000 and 1999
--------------------------------------------------------------------------------
Supplemental disclosures of cash flow information and noncash investing and
financing activities
During 1999, the Company sold fixed assets with a book value of $146,522
and inventory with a book value of $150,000 related to its service
division for $350,000 in cash, assumption of $100,000 of indebtedness
by the buyer, and notes payable to the Company in the aggregate amount
of $175,000.
Additionally during the fiscal year ended March 31, 1999, in a series of
transactions, the Company converted $4,250,000 of debt into 4,250,000
shares of Series A preferred stock with a fair value of $1,700,000.
Subsequently, 2,500,000 shares of this stock with a fair value of
$1,000,000 were redeemed for $250,000 in cash and a note for
$1,000,000. In March, 1999, the $1,000,000 note, along with $42,100 in
other payables due to the noteholder, were converted into 10,421 shares
of Series B preferred stock.
Interest paid on notes payable and long-term debt was $338,495 and
$558,513, for the years 2000 and 1999, respectively. Capital lease
obligations of $2,652,173 and $35,939 were incurred during 2000 and
1999, respectively, under leases entered into for vehicles, furniture
and fixtures, and equipment.
The accompanying notes are an integral part of these consolidated
financial statements.
-20-
<PAGE>
INFRACORPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - BUSINESS AND ORGANIZATION
InfraCorps, Inc., formerly ETS International, Inc., (the "Company") is a
Virginia corporation formed in 1987. The Company and its wholly-owned
subsidiaries provide environmental products and services, and infrastructure
products and services primarily related to the installation and rehabilitation
of underground pipelines. See Note 4 - Business Segment Information and Note 11
- Disposal of Segments for additional information.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Currency
All references to dollars are United States dollars unless otherwise
denoted as Canadian (CDN).
Principles of Consolidation
The consolidated financial statements include the accounts of InfraCorps,
Inc. and its wholly-owned subsidiaries, IC Subsidiary, Inc. (formerly ETS,
Inc.), ETS Analytical Services, Inc., InfraCorps of Florida, Inc. (formerly ETS
Liner, Inc.), InfraCorps of Virginia, Inc. (formerly ETS Water and Waste
Management, Inc.), InfraCorps Technology, Inc. and InfraCorps International,
Inc. Significant intercompany accounts and transactions have been eliminated in
consolidation. During fiscal 1999, the operations of InfraCorps of Florida,
Inc. were discontinued. During fiscal 1998, substantially all assets and
certain liabilities of ETS, Inc. and ETS Analytical Services, Inc. were sold.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories, consisting of raw materials and supplies, are stated at the
lower of cost (first-in, first-out method) or market.
Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash investments,
restricted cash and trade accounts receivable. At March 31, 2000 and 1999, the
Company had deposits in excess of federally insured limits of approximately
$686,600 and $500,000, respectively. The Company places its temporary cash
investments and restricted cash with high credit quality financial
intermediaries to minimize its exposure. The Company grants trade credit to
customers in the normal course of business, and any related losses, in the
aggregate, have not exceeded management's expectations.
(Notes continued on next page)
-21-
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Term Contracts
Revenues on uncompleted long-term contracts are recorded using the
percentage-of-completion method. Provisions are made for estimated losses at
the time the losses are determinable. Revenues related to certain government
contracts are subject to adjustments upon audit of costs by the government, with
any such adjustments reflected in the accounting period in which determined.
Billings are prepared according to specific terms of individual contracts.
Contracts will generally provide for periodic payments as work is completed with
final amounts due upon completion and acceptance of the project by the customer.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property and equipment
under capital leases are stated at the present value of minimum lease payments
at the inception of the lease.
Provisions for depreciation and amortization have been calculated using the
straight-line method over the following estimated useful lives of the assets:
Furniture and fixtures 5 - 10 years
Laboratory equipment 5 - 10 years
Tools and equipment 5 - 10 years
Vehicles 3 - 10 years
Leasehold improvements 5 - 31 years
Property and equipment under capital leases are amortized on the straight-
line basis over the shorter of the lease term or the estimated useful life of
the asset. Leasehold improvements are amortized on the straight-line basis over
the shorter of the lease term or the estimated useful life of the improvement.
Research and Development
Research and development costs are charged to operations as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(Notes continued on next page)
-22-
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
It replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Business Segments and Related Information
The Company adopted FASB Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information, as of April 1, 1998. Statement No. 131
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by
management in deciding how to allocate resources and in assessing performance.
Stock Options and Warrants
The Company accounts for its stock options and warrants in accordance with
the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(Statement No. 123), permits entities to recognize as expense over the vesting
period the fair value of all stock- based awards on the date of grant.
Alternatively, Statement No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25, and provide pro forma net income or loss and
pro forma net income or loss per common share disclosures for stock option and
warrant grants made in 1996 and future years as if the fair-value-based method
defined in Statement No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of Statement No. 123.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and disclosure of contingent assets and
liabilities for the reported periods. Actual results could differ from those
estimates and assumptions.
(Notes continued on next page)
-23-
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassification
Certain reclassifications have been made to the consolidated financial
statements of the prior periods, to place them on a basis comparable with the
current year's consolidated financial statements.
NOTE 3 - RESTRICTED CASH
Restricted cash represents a performance bond relating to the Company's
contract with China Steel Corporation (the "China Steel Contract"). The Board
of Directors of the Company is continuing to review the financial and other
aspects of the Limestone Emission Control ("LEC") technology that is being
developed for the China Steel Contract. This review was undertaken after
potential issues were brought to current management's attention regarding the
budget to meet certain of the performance specifications of the China Steel
Contract and the overall viability of the LEC technology for wide-scale
commercialization. If the LEC technology does not meet contract specifications,
China Steel Corporation may seek to impose financial penalties or attempt to
recover damages or obtain other relief under the contract, including drawing
down on the $600,000 performance bond posted by the Company.
The Company has entered into a management agreement with Air Technologies,
Inc. ("ATI"), a newly-formed firm, to provide management services with respect
to the China Steel Contract. In connection with the sale of the Company's
environmental operations subsidiary in March, 1998, ATI and CCTI agreed to
accept responsibility for any potential liabilities associated with the China
Steel Contract and to provide their best efforts to have the contract
transferred from the Company to ATI. ETS Acquisition, Inc., CCTI and ATI are
owned by John D. McKenna, Arthur B. Nunn, III and John C. Mycock, three former
executive officers of the Company and former members of the Company's Board of
Directors.
NOTE 4 - BUSINESS SEGMENT INFORMATION
In prior years, the Company had three reportable segments: environmental
operations, infrastructure operations - Florida, and infrastructure operations -
Virginia. The environmental and infrastructure operations are differentiated
based on differences in products and services. The Florida and Virginia
segments are further differentiated by their geographical locations and
construction techniques. The environmental operations segment specialized in
toxic emission measurement and control, but was discontinued during the ten-
month period ended March 31, 1998. The infrastructure operations segments
specialize in the design, construction and maintenance of subsurface pipelines.
The Florida infrastructure operation segment was discontinued during the year
ended March 31, 1999. Segments are regularly evaluated by management in
deciding how to allocate resources and in assessing performance.
(Notes continued on next page)
-24-
<PAGE>
NOTE 4 - BUSINESS SEGMENT INFORMATION (Continued)
For the year ended March 31, 2000, the Company has one reportable operating
segment (Infrastructure Operations - Virginia). Therefore, there are no items
of income, expense or capital expenditures to report separately for fiscal year
2000. Asset and liabilities remaining with respect to environmental operations
and Florida Infrastructure operations are reported below as of March 31, 2000
and 1999.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on net income or loss. The Company accounts for intersegment
sales and transfers as if the sales or transfers were to third parties, that is,
at current market prices. The information related to infrastructure operations
in prior periods has been restated to differentiate the Florida segment.
The Company currently derives its primary contract revenues from domestic
customers.
For the year ended March 31, 2000, the Company had infrastructure contract
revenues from four customers, each of which accounted for more than 5 percent of
contract revenues, aggregating approximately $8,523,328 or 36 percent of
contract revenues. At March 31, 2000, three customers had accounts receivable
balances which exceeded 5 percent of the trade accounts receivable balance. The
accounts receivable balances for these customers totaled $1,150,004.
For the year ended March 31, 1999, the Company had infrastructure contract
revenues from six customers, each of which accounted for more than 5 percent of
contract revenues, aggregating approximately $8,403,100 or 45 percent of
contract revenues. At March 31, 1999, five customers had accounts receivable
balances which exceeded 5 percent of the trade accounts receivable balance. The
accounts receivable balances for these customers totaled $1,477,180
Information related to the environmental and infrastructure operations for
Virginia and Florida follows:
<TABLE>
<CAPTION>
Environmental Infrastructure Operations Reclassifications/
-------------------------------
2000 Operations Florida Virginia Eliminations Totals
------------- ---------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Total assets $ 183,051 $ 38,709 $ 12,809,431 $ - $ 13,031,191
Total liabilities 320,066 60,321 8,331,248 - 8,711,635
</TABLE>
(Notes continued on next page)
-25-
<PAGE>
NOTE 4 - BUSINESS SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
Environmental Infrastructure Operations Reclassifications/
-------------------------------
1999 Operations Florida Virginia Eliminations Totals
------------- ------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 190,740 $ 481,409 $ 7,898,298 $ - $ 8,570,447
Total liabilities 351,605 620,137 5,023,788 - 5,995,530
Contract revenues - 1,042,446 18,877,767 (1,042,446) 18,877,767
Depreciation and
amortization - 144,977 425,082 (144,977) 425,082
Interest income - - 54,386 - 54,386
Interest expense - 39,076 324,499 (39,076) 324,499
Income from continuing
operations - - 378,460 - 378,460
Loss from discontinued
operations - (343,110) - - (343,110)
Loss from disposal of
discontinued operations - (747,214) - - (747,214)
Extraordinary gain on
extinguishment of debt - - 2,550,000 - 2,550,000
Net income (loss) - (1,090,324) 2,928,460 - 1,838,136
Capital expenditures - - 410,889 - 410,889
</TABLE>
NOTE 5 - ACCOUNTS RECEIVABLE
A summary of the changes in the allowance for doubtful accounts follows:
2000 1999
----------- -----------
Balances, beginning of period $ 50,000 $ 50,000
Provision for bad debts - -
Accounts written off - -
----------- -----------
Balances, end of period $ 50,000 $ 50,000
=========== ===========
(Notes continued on next page)
-26-
<PAGE>
NOTE 6 - NOTE PAYABLE TO BANK AND LONG-TERM DEBT
Note payable to bank consists of the following:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
$1,250,000 line of credit, maturing on September 15,
2000, bearing interest at prime plus 1%,
collateralized by accounts receivable and
certain equipment $ 1,000,000 $ -
=========== ===========
Long-term debt consists of the following:
$327,841 term note payable to bank, due February,
2002,bearing interest at 10.5%, payable in
monthly installments of $10,178 including
interest, collateralized by certain vehicles $ 211,331 $ 305,613
$373,500 term note payable to bank, due October 2002,
bearing interest at 9.35%, payable in monthly
installments of $7,819 including interest,
collateralized by equipment 208,959 279,126
$190,139 term note payable to finance company, due
February 2002, bearing interest at 9.75%, payable
in varying monthly installments of $2,330 to
$6,545 including interest, collateralized by
equipment 73,021 122,983
$185,892 term note payable to finance company, due July
2003, bearing interest at 10.85%, payable in monthly
installments of $4,366 including interest,
collateralized by certain equipment 146,004 -
$100,000 term note payable to finance company, due
February 2001, bearing interest at 12.5%, payable in
monthly installments of $2,658 including interest,
collateralized by certain vehicles - 27,491
Installment loans with maturities to 2001, bearing
interest at varying interest rates from 8.5% to
9.5%, payable in varying monthly installments of $833
to $46,167 including interest, collateralized by
vehicles and equipment 90,565 97,976
Capital lease obligations, with maturities to 2004,
bearing interest at varying interest rates from 6.33%
to 14.7%, payable in varying monthly installments of
$375 to $29,907 including interest, collateralized by
vehicles and equipment 2,019,817 213,105
----------- -----------
2,749,697 1,046,294
Less current maturities 867,797 364,248
----------- -----------
$ 1,881,900 $ 682,046
=========== ===========
</TABLE>
(Notes continued on next page)
-27-
<PAGE>
NOTE 6 - NOTE PAYABLE TO BANK AND LONG-TERM DEBT (Continued)
Maturities of notes payable and long-term debt for future years are as
follows:
2001 $ 867,797
2002 845,550
2003 667,394
2004 265,216
2005 103,740
----------
$2,749,697
==========
The line-of-credit agreement specifies certain financial covenants. As of
March 31, 2000, the Company was in compliance with the financial covenants.
NOTE 7 - LEASES
Property, plant and equipment included the following amounts of assets
under capital lease obligations:
March 31, March 31,
2000 1999
---- ----
Furniture and fixtures $ 75,822 $ 75,822
Tools and equipment 2,916,870 264,697
Vehicles 31,635 31,635
----------- -----------
3,024,327 372,154
Less - accumulated depreciation (328,591) (114,564)
------------ -----------
$ 2,695,736 $ 257,590
=========== ===========
Capital lease payments were $872,952 in fiscal 2000, and $90,400 in fiscal
1999.
Future minimum payments under capital and operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------------- ----------------
<S> <C> <C>
2001 $ 697,830 $ 660,873
2002 727,361 455,856
2003 643,469 415,919
2004 269,723 228,343
2005 106,531 23,050
------------- -------------
2,444,914 $ 1,784,041
=============
Less amounts representing interest (rates 6.33% - 14.7%) 425,097
-------------
Present value of lease payments (including $508,327 classified
as current) $ 2,019,817
=============
</TABLE>
(Notes continued on next page)
-28-
<PAGE>
NOTE 7 - LEASES (Continued)
Rent expense for operating leases of approximately $1,243,954, and
$738,417 was recognized for the years ended March 31, 2000 and 1999,
respectively.
On October 25, 1995, the Company entered into a sale/leaseback
agreement which provided for the sale and leaseback of certain equipment. This
equipment, with a net book value of $443,668, was sold for $1,660,900 and was
leased back to the Company for a 48-month period at $39,015 per month. The
resulting gain of $1,217,232 on the sale of the equipment is being amortized
over the life of the operating lease and had a remaining balance of $481,821 at
March 31, 1998. Subsequently, this lease was cancelled by the lessors and the
lessor's interest in this equipment was terminated; therefore, the remaining
unamortized gain was recognized as income during the year ended March 31, 1999.
NOTE 8 - ASSETS AND LIABILITIES UNDER CONTRACTUAL ARRANGEMENTS
During the ten-month period ended March 31, 1998, the Company disposed
of its environmental operations segment. In October 1997, the Company sold
substantially all of the assets and certain liabilities of ETS Analytical
Services, Inc. (ETSAS), a wholly-owned subsidiary, to Q Enterprises, Inc. (Q
Enterprises), a company owned by James B. Quarles, a former employee and senior
vice president of ETS International, Inc. Mr. Quarles has since become president
and chief executive officer of the Company and sold his interest in Q
Enterprises. Since the risks of ownership were not transferred to Q Enterprises,
no sale was recognized for accounting purposes. Accordingly, the assets and
liabilities transferred to Q Enterprises are shown in the noncurrent sections of
the balance sheet and are designated as "assets under contractual arrangements"
and "liabilities under contractual arrangements." The Company received an 8.5
percent promissory note in the amount of $1,000,000 with payments amortized over
30 years with a balloon payment after 10 years. As payments of principal and
interest are received, they are being recorded as a reduction to assets under
contractual arrangements until such time the Company determines a sale can be
recorded for accounting purposes. The conversion of these assets to cash is
dependent on the future profitable operations of Q Enterprises.
NOTE 9 - PREFERRED STOCK
During the year ended March 31, 1999, the Company converted $4,250,000
of debt to related parties into 4,250,000 shares of Series A 4% cumulative
convertible preferred stock with a fair value of $1,700,000. The stock has no
par value, but is convertible into the Company's common stock on a share for
share basis. The stock is redeemable at the option of the Company. Dividends on
the Series A preferred stock are cumulative from the date of original issuance
and are payable quarterly. The Company subsequently redeemed 2,500,000 shares of
Series A preferred stock for $250,000 in cash and a note for $1,000,000. In May
1999, 100,000 additional share of Series A preferred stock were issued for
$100,000. No dividends were declared or paid during the fiscal year ended March
31, 2000, and the series currently has $73,390 of dividends in arrears as of
March 31, 2000.
(Notes continued on next page)
-29-
<PAGE>
NOTE 9 - PREFERRED STOCK (Continued)
In March 1999, the Company converted $1,042,100 in debt obligations to
related parties into 10,421 shares of 8% non-cumulative, non-convertible Series
B preferred stock. Dividends are paid monthly. In January 2000, 5,000
additional shares of Series B preferred stock were issued for $500,000. Total
dividends paid on Series B preferred stock were $86,700 during the fiscal year
ended March 31, 2000
In December 31, 1999, the Company issued 751 shares of 6% non-cumulative,
non-convertible Series C preferred stock. Dividends are paid quarterly and the
first quarterly dividend payment of $11,265 was made on April 3, 2000.
NOTE 10 - INCOME TAXES
The Company is in a net operating loss position; accordingly, no income tax
expense has been recognized for years ended March 31, 2000 and 1999.
Income tax expense (benefit) differs from the amount computed by applying
the statutory corporate tax rate of 34 percent to income (loss), including loss
from discontinued operations and loss from disposal of discontinued operations
before income taxes as follows:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Expected federal income tax expense (benefit) $ 127,098 $ 624,966
Increase (decrease) resulting from:
State income tax, net of federal income tax
impact 14,803 75,890
Meals and entertainment 8,568 9,734
Change in the beginning of the year balance of
the valuation allowance for deferred tax assets (300,098) (724,286)
Other 10,629 13,696
------------ ------------
Income tax expense (benefit) (139,000) $ -
============ ============
</TABLE>
The significant components of deferred income tax expense (benefit) for the
years ended March 31, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Deferred tax expense (benefit) exclusive of the
components listed below $ 161,098 $ 724,286
Increase (decrease) in beginning of the year balance
of the valuation allowance for deferred tax assets (300,098) (724,286)
------------- -------------
Deferred income tax expense (benefit) $ (139,000) $ -
============= =============
</TABLE>
(Notes continued on next page)
-30-
<PAGE>
NOTE 10 - INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2000 and 1999 are presented below:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryforwards $ 1,534,590 $ 1,627,076
Property, plant and equipment, principally due to differences
in depreciation for financial reporting and tax purposes 158,142 278,519
Bad debts 18,980 18,980
Accrued costs, principally due to accrual for financial 52,025 52,630
purposes
Other 16,702 16,702
----------- -----------
Total gross deferred tax assets 1,780,439 1,993,907
Less valuation allowance (1,641,439) (1,941,537)
----------- -----------
Deferred tax asset, net of valuation allowance $ 139,000 $ 52,370
=========== ===========
Deferred tax liabilities:
Accounts receivable and accounts payable, principally due to
accrual versus cash basis of accounting for financial
reporting and tax purposes $ - $ 52,370
----------- -----------
Net deferred tax $ 139,000 $ -
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable losses, uncertainties with respect to the China Steel
contract and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will not realize substantially all of the benefits of these
deductible differences and loss carryforwards in excess of the amount which can
be offset by the reversal of future taxable items in the foreseeable future.
At March 31, 2000, the Company has loss carryforwards for income tax
purposes of $3,957,400 available to offset taxable income. If not utilized,
these loss carryforwards will expire as follows:
Expiration Date
---------------
2008 $ 168,837
2011 582,048
2012 100,841
2013 3,105,673
----------
$3,957,400
==========
(Notes continued on next page)
-31-
<PAGE>
NOTE 11 - DISPOSAL OF SEGMENTS
During the year ended March 31, 1999, the Company discontinued its Florida
infrastructure operations (Florida Segment). Due to the unique licensed
construction techniques employed to accommodate the engineering difficulties
associated with trenchless technology in areas significantly below sea level,
management believes that its Florida operations constitute a separate line of
business. Management does not intend to utilize trenchless technology
engineering methods used in Florida for the foreseeable future.
The loss from operations for the Florida Segment from the beginning of the
fiscal year to November 30, 1998, the measurement date for effective disposal,
was $343,110. Subsequent to November 30, 1998, certain fixed assets of the
segment were sold in exchange for a note receivable of $40,000. All other fixed
assets were either abandoned or transferred to the Virginia segment prior to
March 31, 1999. The loss on disposal of this segment of $747,214, includes the
loss on sale and abandonment of the assets above, as well as phase-out period
operating losses of $677,031 from the measurement date to March 31, 1999. At
March 31, 1999, assets remaining in the Florida Segment included cash, accounts
receivable, costs in excess of billings on uncompleted contracts, and notes
receivable of approximately $8,000, $238,000, $195,000, and $40,000,
respectively. At March 31, 1999, liabilities of approximately $620,000 include
trade accounts payable and accrued expenses associated with estimating the loss
from discontinuing the Florida Segment. At March 31, 2000, a notes receivable
balance of $38,000 and accounts payable of $60,000 remained in the segment.
Interest costs are allocated to the discontinued operations of the Florida
Segment based on debt that can be specifically attributable to those operations.
Other potentially allocable interest costs are immaterial.
NOTE 12 - STOCK OPTIONS AND WARRANTS
Pursuant to various stock option and stock warrant agreements, the Company
has granted nontransferable options and warrants to acquire the Company's common
stock to certain officers, directors, investors, vendors and employees of the
Company and its subsidiaries. Options and warrants are generally granted at
approximate fair market value based on the higher of the most recent ten-day
average price of the stock or the last day's closing price of the stock on the
date of the grant. Options generally become exercisable over a period not
exceeding five years from date of grant and warrants are exercisable upon
issuance.
The aggregate amount of shares under option pursuant to these agreements
were as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
------------- --------------------
<S> <C> <C>
Options outstanding at March 31, 1998 3,303,200 $ 0.95
Granted 1,110,000 $ 0.23
Exercised -
Expired (1,195,200) $ 1.21
----------
Options outstanding at March 31, 1999 3,218,000 $ 0.61
Granted -
Exercised -
Expired (374,000) $ 1.68
----------
Options outstanding at March 31, 2000 2,844,000 $ 0.47
==========
</TABLE>
(Notes continued on next page)
-32-
<PAGE>
Number of Weighted Average
Shares Exercise Price
------ --------------
Price range - $.17 - $.75 (weighted-average
remaining contractual life of 3.0 years) 2,730,000 $0.44
Price range - $1.00 - $1.75 (weighted-average
remaining contractual life of 2.2 years) 114,000 $1.27
Exercisable options:
March 31, 2000 2,810,000 $0.47
March 31, 1999 3,164,000 $0.61
The aggregate amount of shares under warrant agreements were as follows:
Number of Weighted Average
Shares Exercise Price
------ --------------
Warrants outstanding at March 31, 1998 1,170,875 $0.85
Granted - -
Expired (461,525) $1.00
---------
Warrants outstanding at March 31, 1999 1,309,350 $0.80
Granted 5,115,420 $0.24
Expired - -
---------
Warrants outstanding at March 31, 2000 6,886,295 $0.33
=========
The per share weighted average fair values of stock options and warrants
granted during the periods ended in 2000 and 1999 were $.22 and $.15,
respectively, on the various dates of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: 2000 - expected
dividend yield of 0 percent, risk free interest rate of 6.25 percent, expected
volatility of 144 percent and an expected life of 5 years; 1999 - expected
dividend yield of 0 percent, risk free interest rate of 5.5 percent, expected
volatility of 314 percent and an expected life of 5 years.
The Company uses the intrinsic value method of APB Opinion No. 25 for
recognizing stock-based compensation in the financial statements. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options and warrants under the provision of Statement No. 123, the
Company's net income (loss) and net income (loss) per common share would have
been as shown in the following table:
2000 1999
--------- ----------
Net income
As reported $ 518,022 $1,838,136
Pro forma (589,816) 1,920,652
Net income (loss) per common share:
Basic, as reported $ 0.02 $ 0.11
Basic, pro forma (0.04) 0.12
Diluted, as reported 0.02 0.10
Diluted, pro forma (0.04) 0.11
(Notes continued on next page)
-33-
<PAGE>
NOTE 12 - STOCK OPTIONS AND WARRANTS (Continued)
Pro forma net income (loss) reflects only options granted from the periods
ended in 1996 through 2000, and applicable cumulative catch-up adjustments for
forfeitures. Therefore, the full impact of calculating compensation cost for
stock options under Statement No. 123 is not reflected in the pro forma net
income (loss) amounts presented above, because compensation cost is reflected
over the options vesting periods and compensation cost for options granted prior
to June 1, 1995 is not considered.
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company leases the premises of its subsidiary, Infracorps of Virginia,
Inc., from an estate in which a current director serves as executor. Rent
expense under this operating lease approximated $126,000 for fiscal 2000 and
fiscal 1999, respectively.
Other accounts receivable includes advances to officers, directors and
other employees. At March 31, 2000 and 1999, $1,250 and $2,500, respectively,
were the result of these advances.
The Company has notes receivable from officers and employees of $0 and
$193,112 as of March 31, 2000 and 1999, respectively. The notes bear interest at
six percent. These notes originated in connection with the issuance of common
stock in a prior year transaction. During the year ended March 31, 2000, the
common stock was returned to the Company in exchange for the cancellation of the
notes.
During the year ended March 31, 1999, the Company sold fixed assets with a
book value of $146,522 and inventory with a book value of $150,000 to a
corporation owned by one of its officers. The Company received $350,000 in cash,
assumption of $100,000 of indebtedness by the buyer and notes in the aggregate
amount of $175,000. At March 31, 2000 and 1999, a $125,000 note was still
outstanding as a result of this transaction.
The Company has notes payable to affiliates of $597,400 and $609,900 as of
March 31, 2000 and 1999, respectively. These affiliates include certain
partnerships and individuals whose members are officers and directors of the
Company. The notes bear interest at rates between six and twelve percent.
The Company, in May 1998, entered into an agreement in principle to
restructure its credit facility with Thomas W. Marmon, a former director and a
stockholder of the Company. The new note for the credit facility, which in part
is a renewal of the previous note, permitted total aggregate borrowing by the
Company of up to $3,500,000. The new note provided for monthly interest payments
at a rate of 10 percent until the facility's maturity at May 1, 1999 and 12
percent thereafter. The note was subject to call by the holder upon sixty days
written notice. At March 31, 1998, the amount outstanding under the credit
facility was $2,860,000, plus accrued interest of $210,000 which was payable on
June 1, 1998. Mr. Marmon resigned as a director of the Company as of April 13,
1998. During the year ended March 31, 1999, $2,500,000 of this note was
converted to Series A preferred stock and the remaining principal and accrued
interest was paid to the noteholder.
-34-
<PAGE>
(Notes continued on next page)
NOTE 13 - RELATED PARTY TRANSACTIONS (Continued)
In addition, the Company had $550,000 of notes payable to two stockholders
at March 31, 1998 with due dates in fiscal 1999. Interest is payable monthly at
rates ranging from 10 percent to 12 percent per annum. The notes are unsecured.
During the year ended March 31, 1999, these notes were converted to Series A
preferred stock.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (Statement 107), requires the Company to disclose
estimated fair values of its financial instruments. Statement 107 defines the
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments: The fair value of notes receivable is
estimated by discounting the future cash flows at rates the Company would
currently receive for similar notes receivable. The fair values of notes payable
and long-term debt is estimated by discounting the future cash flows of each
instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bank. The carrying amounts
reported in the consolidated balance sheets for cash and cash equivalents, notes
receivable, notes payable and long-term debt approximate fair value.
NOTE 15 - CONTINGENCIES
The Company does not receive hazardous waste during the normal course of
business. Until the Company's environmental operations were sold in fiscal 1998,
it received environmental samples for analysis; and, occasionally, in the
process of analysis, small quantities of hazardous waste were generated. Such
waste was stored in designated areas, lab packed for disposal, picked up by
licensed hazardous waste contractors and transported to licensed disposal
facilities. In addition to its laboratory activities, the Company was engaged in
field testing. It was the Company's intention to conduct its operations in an
effective, safe and prudent manner, and to ensure against potential risks. The
Company carries workers' compensation insurance for its employees and insurance
for any personal liability and injury which could occur to nonemployees and/or
the property of others.
The Company is involved from time to time in litigation and environmental
matters; however, it is the opinion of management that there are no litigation
or environmental matters currently existing which would have a material impact
on the financial position or results of operations of the Company.
See previously mentioned contingencies related to the China Steel Contract.
(Notes continued on next page)
-35-
<PAGE>
NOTE 16 - EARNINGS PER SHARE RECONCILIATION
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
For the Year Ended March 31, 2000
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
<S> <C> <C> <C>
Income from continuing operations $ 518,022
Less: preferred stock dividends (160,090)
---------
Basic EPS
Income available to common shareholders 357,932 16,442,216 $0.02
=====
Effect of dilutive securities:
Options and warrants - 348,811
--------- ----------
Diluted EPS
Income available to common shareholders and
Assumed conversions $ 357,932 16,791,027 $0.02
========= ========== =====
</TABLE>
Exercisable options and warrants to purchase 8,426,440 shares of common
stock were outstanding during the year ended March 31, 2000, but were not
included in the computation of diluted earnings per share because the exercise
prices were greater than the average market price of the common shares.
Therefore, the effect of including these options and warrants would be
antidilutive. Convertible preferred stock was also not included, as the effect
of its conversion would be antidilutive.
<TABLE>
<CAPTION>
For the Year Ended March 31, 1999
------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- ----------------
<S> <C> <C> <C>
Income from continuing operations $378,460
Less: preferred stock dividends (72,011)
--------
Basic EPS
Income available to common shareholders 306,449 16,492,043 $0.02
=====
Effect of dilutive securities:
Convertible preferred stock 72,011 1,791,667
-------- ----------
Diluted EPS
Income available to common shareholders and
Assumed conversions $378,460 18,283,710 $0.02
======== ========== =====
</TABLE>
(Notes continued on next page)
-36-
<PAGE>
NOTE 16 - EARNINGS PER SHARE RECONCILIATION (Continued)
Exercisable options and warrants to purchase 4,473,350 shares of common stock
were outstanding during the period ended March 31, 1999 but were not included in
the computation of diluted earnings per share because the exercise prices were
greater than the average market price of the common shares. Therefore, the
effect of including these options would be antidilutive.
NOTE 17 - EXTRAORDINARY ITEM
During the year ended March 31, 1999, the Company realized a net gain of
$2,550,000 as a result of extinguishing certain debt obligations.
* * * * *
-37-
<PAGE>
INFRACORPS INC.
DIRECTORS AND OFFICERS
INFRACORPS INC.
7400 Beaufont Springs Drive Suite 415
Richmond, VA 23225
Phone No. (804) 272-6600
James B. Quarles, Director, President, Chief Executive Officer
Navin D. Sheth, Director, Chief Financial Officer, Treasurer
Coleman S. Lyttle, Director, Chief Operating Officer
Terence R. Dellecker, Director
Dr. Allen Kahn, Director
John R. Potter, Director
James G. Zumwalt, Director
Claudio Faria Santos, Director
Warren E. Beam, Jr., Secretary
INFRACORPS OF VIRGINIA, INC.
2210 Belt Boulevard at Hopkins Road
Richmond, VA 23224
Phone No. (804) 231-3426
Coleman S. Lyttle, Director, President
Navin D. Sheth, Director, Chief Operating Officer, Secretary
David C. Paulette, Director, Vice President
INFRACORPS TECHNOLOGY, INC.
7400 Beaufont Springs Drive Suite 415
Richmond, VA 23225
Phone No. (804) 272-6600
Richard A. Herrick, President
Warren E. Beam, Jr., Secretary, Treasurer
James B. Quarles, Director
Navin D. Sheth, Director
INFRACORPS INTERNATIONAL, INC.
7400 Beaufont Springs Drive Suite 415
Richmond, VA 23225
Phone No. (804) 272-6600
Michael Kirby, President
Warren E. Beam, Jr., Secretary, Treasurer
James B. Quarles, Director
Navin D. Sheth, Director
-38-
<PAGE>
INFRACORPS INC.
SHAREHOLDER INFORMATION
Annual Meeting
--------------
The 2000 Annual meeting of Shareholders will be held at 10:00 a.m. on July 31,
2000, at the Omni Hotel, 235 West Main Street, Charlottesville, Virginia 22902
Requests for Information
------------------------
Requests for information about INFC should be directed to Warren E. Beam, Jr.,
7400 Beaufont Springs Drive, Suite 415, Richmond, Virginia 23225, telephone
(804) 272-6600. A copy of INFC's Annual Report on Form 10-K for the period from
April 1, 1999 to March 31, 2000 is available without charge to any shareholder
requesting the same.
Shareholder Relations
---------------------
Warren E. Beam, Jr.
7400 Beaufont Springs Drive, Suite 415
Richmond, Virginia 23225
Phone No. (804) 272-6600
Transfer Agent
--------------
ChaseMellon Shareholder Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660-2108
Trading Information
-------------------
OTC Bulletin Board
Symbol: INFC
-39-
