SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-18315-A
ENVIRONMENTAL CHEMICALS GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 65-0035784
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
E. Big Spring Highway 176, Andrews, Texas 79714
(Address of principal executive offices)
Registrant's telephone number, including area code: (915) 524-2372
Securities registered pursuant to Section 12(g)of the Act: None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock, par value $.0001 Per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 XX No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the voting stock (which consists solely of
shares of Common Stock) held by non-affiliates of the registrant as of December
31, 1995, (based upon the average of the $.75 per share "Bid" and $1.00 per
share "Asked" prices), was approximately $2,204,647.
The number of shares of the issuer's Common Stock, par value $.0001 per
share, outstanding as of December 31, 1995 was 4,242,510 shares of which
2,839,087 were held by non-affiliates.
Documents Incorporated by Reference: None
Report on Form 10-K, 1995 Page 1
<PAGE>
PART 1
ITEM 1. Business
General Information
- -------------------
Environmental Chemicals Group, Inc, (the "Registrant"), formerly Ringside
International Broadcasting Corporation, was incorporated on October 7, 1987, in
the State of Florida to develop live professional boxing shows for exhibition by
independent television stations.
On July 7, 1992, after a change in control, the Registrant changed its name
to Environmental Chemicals Group, Inc., its state of incorporation to Delaware
and its business operations to developing insecticides to combat fire ants as
well as other insecticide, pesticides, and pet care products under the trade
names "Vet Mate" and "Rapid Kill". The Registrant's principal executive offices
are located at E. Big Spring Highway 176, Andrews, Texas 79714.
Prior Acquisitions
- ------------------
On March 31, 1993, the Registrant purchased, for a total cost of
approximately $502,000, certain assets of R&M Specialty Products, Inc. The
assets acquired consisted of intellectual rights to a number of pet and personal
care trademarks and products which the Company now markets. Also included in the
acquisition cost of $502,000 were certain trade accounts receivable, inventory
and furniture and fixtures, with a basis of approximately $80,000. The assets
were acquired in consideration of cash of $204,000, common stock of the Company
valued at $150,000 for 50,000 shares and the assumption of approximately
$148,000 in liabilities.
In the first quarter of 1994, the Registrant completed its acquisition of a
mineral interest of approximately 280 acres located in Nevada, for consideration
of 140,000 shares of its common stock. In September of 1994, the Company amended
and restated one of the purchase and assignment agreements which requires the
Company to issue an additional 90,000 shares of its stock in exchange for
lowering future royalty payments due to the seller. During 1995, 120,000 shares
were returned to the Company as settlement of litigation related to this
acquisition.
Proposed Acquisitions
- ---------------------
The Registrant plans to continue to look for acquisitions that compliment
its desire to market, and if appropriate manufacture insecticides, pesticides
and other related products.
Products
- --------
The Registrant's initial formula for the killing of fire ants is yet to be
approved by the U.S. Environmental Protection Agency (EPA). A new formula was
acquired and the company was successful in obtaining EPA approval for ENCHEM's
Product "Rapid Kill". "Rapid Kill" approval for the killing of fire ants via
liquid mound drench was accomplished in October 1995.
The Registrant has, through the acquisition of certain assets of R&M
Specialty Products, a full line of insecticides, pesticides and pet care
products.
The Registrant, through the acquisition of a mineral interest in 280 acres
located in Nevada, has an all natural fertilizer and feed supplement for
agricultural use called "Dinomin".
Trademarks and Patents
- ----------------------
The Registrant has Environmental Protection Agency registration rights to a
number of insecticide, pesticide and pet care related products. Also, the
company has electronic related patents through an acquisition from a third
party.
Report on Form 10-K, 1995 Page 2
<PAGE>
Licenses
- --------
The Registrant has no licenses at this time.
Markets and Customers
- ---------------------
The market for the Registrant's products are home repair centers, plant
nurseries, retail chains, veterinary clinics and farm and ranch stores. The
Registrant contracts outside sales representatives for the marketing and selling
of its products. Management has determined this is the most cost effective
method to reach the largest number of customers at the current time.
Inventory, Backlog and Production
- ---------------------------------
As of December 31, 1995, the Registrant had inventory of finished goods and
raw materials of $84,736.
As of December 31, 1995, the Registrant had no backlog of orders.
Production of the Registrant's fire ant killer, "Rapid Kill" will start in
January 1996.
Production of the natural occurring mineral used as a fertilizer and animal
feed supplement for test purposes began in the second quarter 1995. This product
is known by the trade name "Dinomin".
During 1994 and 1995 the company purchased several patents for electronic
safety devices from a third party. Currently, newly appointed management is
evaluating continuation of the electronic safety device product line.
The Registrant is continuing to test a mosquito killer. This endeavor is
currently in a developmental stage.
Suppliers
- ---------
The Registrant has several suppliers and believes that it maintains good
relations with them.
Research and Development
- ------------------------
The Registrant utilizes independent, outside research testing laboratories
for the testing of its products, such as its fire ant killing insecticide.
Independent laboratories are necessary to maintain integrity during testing and
with test results.
On February 15, 1995, the Registrant announced the completion of a second
independent laboratory study on the effectiveness of its new formula Rapid Kill
fire ant killing insecticide. The results were positive. The product won
registration from EPA as a fire ant mound drench known as "Rapid Kill" in
October 1995.
The Registrant's current product development goals seek to address the
pesticide issue through products that minimize effects to humans or animals but
that control non-beneficial pests. The Registrant plans to continue to develop
additional products for use by consumers and commercial customers and plans to
continue to look for acquisitions that fit with its overall strategy.
The Registrant is continuing to evaluate the electronic safety device
product line for marketability.
Employees
- ---------
As of December 31, 1995, the Registrant had one full time employee other
than its officers. The Registrant continues to rely on independent contractors
for the bulk of sales, production, bottling and packaging functions.
Competition
- -----------
The insecticide and pesticide industry is very large and has a diverse
number of large and small companies offering a wide variety of products.
According to the manufacturer of Raid pesticides, S.C. Johnson & Son, of Racine,
Report on Form 10-K, 1995 Page 3
<PAGE>
Wisconsin, the fire ant killing industry alone involves more than $500,000,000
in gross sales annually. Although the Registrant's management is of the opinion
that the goal of many of its product development efforts will generate unusually
beneficial products, no assurances can be provided as to is competitive ability
even if it markets superior products.
Dinomin - The fertilizer industry is very large and has a diverse number of
large and small companies offering a wide variety of products. Although the
Registrant's management is of the opinions that its product (a 100% naturally
occurring mineral product for use as a fertilizer and animal feed supplement) is
overall superior to its competition, no assurance can be provided as to its
competitive ability.
ITEM 2. PROPERTIES
The Registrant rents corporate offices in Andrews, Texas. Presently offices
are temporarily rented from Dan W. Snow, the Registrant's Chairman. This
temporary lease will continue as the Registrant develops its business. If
needed, this lease will be dropped for more accommodating arrangements.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is involved in the following lawsuits.
Environmental Chemicals Group, Inc. vs George A. Moore and Heddy
Hetherington, Cause No. 155682A, 27th Judicial District Court, Bell County,
Texas - This is a claim filed by ECHG against George A. Moore, M.D. and Heddy
Hetherington arising out of breach of an agreement by the defendants to secure a
2 million dollar loan for ECHG. ECHG previously paid $25,000.00 to the
defendants as consideration for this agreement. At this time, the defendants
have both been personally served with a copy of this lawsuit but have not filed
formal answers to date although Dr. Moore has filed a letter which may
constitute an informal answer of some kind. To the best of my knowledge,
management intends to purse this matter against both defendants to judgement. In
my opinion, there is very little likelihood of either an unfavorable outcome or
any loss to the Company arising out of this matter.
Environmental Chemical Group, Inc. vs Robert Glyn Hightower, et al, Cause
No. 155427C, 169th Judicial District, Bell County, Texas - This is a claim filed
by Environmental Chemicals Group, Inc. Against Mr. Robert Glyn Hightower and
International Organic Minerals, Inc. arising out of certain mineral leases
assigned by Hightower and/or IOG to ECHG. ECHG has alleged that Mr. Hightower
has breached his contract and agreements with the Company and has defrauded
ECHG. ECHG has previously settled any and all claims against IOG and it's
shareholders and principals. All claims remain pending against Mr. Hightower at
this time and discovery is ongoing. To the best of my knowledge, management
intends to vigorously pursue this matter against Mr. Hightower. In my opinion,
there is very little likelihood of either an unfavorable outcome or a loss to
the Company arising out of this matter.
The Registrant is currently being investigated by the Securities and
Exhcange Commission "SEC" for alleged violations by the previous Board of
Directors. The Registrant has a completely new Board of Directors and all new
officers. The Registrant is cooperating with the SEC in its inquiry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted during 1995 or through the date of this
report to a vote of security-holders, through solicitation of proxies or
otherwise.
PART II
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ITEM 5. Market for Registrant's Common Stock & Related Security-Holder Matters
Current Control Group
- ---------------------
On June 9, 1992, Ernest W. Letiziano, the Registrant's founder, sole
director and president sold his 1,500,000 shares of the Registrant's common
stock, which represented approximately 49.66887% of the Registrant's outstanding
common stock, to the following individuals: Mr. & Mrs. C.J. Adams; Gay S. &
Gerald Adams; Ned Bartlett; Mike & Jan Batson; Marvin A. Burke & Jeanette P.
Report on Form 10-K, 1995 Page 4
<PAGE>
Burke; C&W Landscaping; Crofton Holdings; Kenneth M. Cardwell; Ervin Charles
Herber; Roger Herber; Sherry Isaacs; Marie & Norman Mendake; Shirley J. Manzel;
David McGuire; Dwain McGuire; Gary McGuire; Joyce McGuire; Larry McGuire; Lynn
McGuire; Lynn & Joyce McGuire Family Trust; Clarence & Betty Melber; Don L.
Merrill; Calvin Moerbe; Lee Moerbe; Lee & Shelly Moerbe; Lisa & Clint Moerbe;
Paul Moerbe; Wesley & Virginia Moerbe; Wayne E. & Treva Moore; Lucille Moore;
Calvin Shenkir, Jr.; Dwain C. Smith; Helen Gracy Smith & J.L. Smith; Earl S.
Tucker; Janelle Tucker; Phillip Scott Tucker; Caron Winfree; Curtis A. Younts,
Jr.; and Diane Younts. The shares were acquired in consideration for the sum of
$28,000 in cash, and the discharge of corporate obligations totaling
approximately $20,000. The stockholders were either affiliates of Mr. Curtis
Younts or subscribers of ENCHEM, Inc. a Texas corporation, subsequently acquired
by the Registrant in conjunction with the assignment of patent applications for
the Registrant's original fire ant pesticide formula.
In conjunction with the foregoing, affiliates of Mr. Curtis Younts, Jr.,
including Jena Beason, Thena Burhenn and Kimmy Corporation, also purchased
securities of the Registrant from Tech Venture International Corporation and
from principals of the Registrant's original underwriter.
Price Range of Common Stock
- ---------------------------
During the last twenty four months, the Registrant's common stock has been
traded over The National Association of Securities Dealers, Inc.'s NASDAQ
Bulletin Board under the symbol ECHG. The following chart discloses the high and
low bid for the Registrant's common stock, as reported in the National Daily
Quotation System, Inc.'s "Pink Sheets" and from the National Association of
Securities Dealers, Inc.'s NASDAQ Bulletin Board reports for the periods
indicated.
Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 1994 $6.50 $3.50
June 30, 1994 $4.25 $1.50
September 30, 1994 $2.25 $1.25
December 31, 1994 $2.00 $0.62
March 31, 1995 $1.75 $0.25
June 30, 1995 $0.75 $0.25
September 30, 1995 $2.25 $0.31
December 30, 1995 $2.00 $0.75
March 31, 1996 $0.50 $0.50
Suspension of Trading
- ---------------------
The SEC issued an Order Suspending Trading in the stock of the Registrant
for the period beginning on December 12, 1995, and ending on December 26, 1995.
Trading was suspended because of questions concerning the adequacy and accuracy
of publicly - disseminated information about the Registrant concerning its
product lines, business prospects and relationships, and recorded assets.
Trading commenced shortly after the end of the suspension period.
Description of Securities
- -------------------------
Common Stock
------------
The Registrant is authorized to issue 10,000,000 shares of Common Stock,
par value $.0001 per share, after adjusting to reflect a 1 for 100 share reverse
stock split effected on February 1, 1990. As of December 31, 1995, 4,242,510
shares of Common Stock were outstanding and held of record by approximately 500
persons. The holders of Common Stock have one vote per share on all matters
(including the election of directors) without provision for cumulative voting.
Thus, holders of more than fifty percent (50%) of the shares voting for the
election of directors can elect all of the directors, if they choose to do so.
The Common Stock is not redeemable and has no conversion or pre-emptive rights.
In the event of liquidation of the Registrant, the holders of Common Stock will
share equally in any balance of the Registrant's assets available for
distribution to them after satisfaction of creditors and the holder of the
Registrant's senior securities, if any.
Report on Form 10-K, 1995 Page 5
<PAGE>
Underwriter's Warrants
- ----------------------
General
-------
The Underwriter's Warrants entitle the holders to subscribe for up to
75,000 shares of Common Stock at an exercise price of $1.20 per share. The
Underwriter's Warrants have been purchased by affiliates of Mr. Younts who have
agreed to refrain from demanding registration rights in consideration for the
Registrant's agreement to extend their term until 90 days after they have been
registered with the Securities and Exchange Commission. The period for the
Underwriter's Warranties were extended for five years until September of 1997.
The Registrant may, in its sole discretion, extend the term of the
Underwriter's Warrants or reduce (but not raise, except as required to reflect
recapitalization, e.g. reverse stock splits) their exercise price.
The exercise price and number of shares of Common Stock issuable upon
exercise of the Underwriter's Warrants are adjustable upon the occurrence of
certain events, including Stockholder distributions, stock splits, combinations,
recapitalization, mergers or reorganizations, all as more fully set forth in the
Warrants Agreements which have been filed with the Securities and Exchange
Commission as exhibits to the Registrant's registration statements. No
fractional shares will be issued upon the exercise of the Underwriter's
Warrants, but the Registrant will pay the cash value (based on the exercise
price) of any such fractional shares otherwise issuable.
Rights of Underwriter's Warrant Holders
---------------------------------------
Holders of the Underwriter's Warrants will not have any of the rights or
privileges of stockholders of the Registrant prior to the exercise of the
Underwriter's Warrants.
Registration Requirements
-------------------------
The Registrant must have a current and effective Registration Statement on
file with the United States Securities and Exchange Commission for an
Underwriter's Warrant holder to be able to exercise his or her Underwriter's
Warrants.
Dividend Policy
- ---------------
The Registrant has never declared or paid dividends on its common stock. It
does not intend to pay cash dividends in the foreseeable future, rather, it
intends to retain its earnings, if any, to finance its growth, and to increase
its capital base.
Transfer Agent
- --------------
The Registrant's transfer agent is Midlantic National Bank, Corporate Trust
Department; P.O. Box 600; Edison, New Jersey 08818.
Additional Information
- ----------------------
The foregoing statement is a summary of the rights and privileges of the
holders of the Registrant's common stock. It does not purport to be complete and
is subject to the provisions of the Delaware General Corporation Act, the
Securities Act of 1933, as amended, and to the terms of the Registrant's
Articles of Incorporation, Bylaws and Underwriter's Warrant Agreement. Copies of
such documents were filed as exhibits to the Registrant's registration statement
on form S-18 filed with the Atlanta Regional Office of the Securities and
Exchange Commission, and copies of amendments to such documents were filed with
the Securities and Exchange Commission in prior reports on form 8-K, 10-Q and
10-K. The foregoing statements are qualified in their entirety by such
references.
Report on Form 10-K, 1995 Page 6
<PAGE>
ITEM 6. Selected Financial Data
The following sets forth selected information of the Registrant as derived
from the statements of operation for the years ended on December 31, 1995, 1994
and 1993, and from the balance sheets as of each respective year end. The
selected financial information should be read in conjunction with the audited
financial statements (including the notes thereto) included elsewhere in this
Report.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operations:
Revenues $ 59,635 $ 99,066 $ 296,229
Net (loss) (721,542) (863,673) (135,470)
Loss per common share (.20) (.22) (.04)
Balance Sheet:
Current Assets $ 112,512 $ 321,119 $ 305,871
Other Assets, Net 796,587 1,366,282 661,081
------- --------- --------
Total Assets $ 909,099 $ 1,687,401 $ 966,952
======= ========= =======
Current Liabilities $ $682,668 $ 302,669 $ 163,250
Other Liabilities ------- 430,516 313,161
Shareholders' Equity:
Common Stock 441 384 330
Additional Paid-in Capital 2,769,618 2,627,762 1,300,468
Accumulated Deficit 2,543,628) (1,673,930) (810,257)
--------- ---------- ---------
Total Shareholders' Equity 226,431 954,216 490,541
-------- -------- -------
Total Liabilities and $ 909,099 $ 1,687,401 $ 966,952
Shareholders' Equity ======= ========= =========
Report on Form 10-K, 1995 Page 7
</TABLE>
<PAGE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following is a discussion of the Company's financial condition, results
of operations, liquidity and capital resources. This discussion should be read
in conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto.
On March 31, 1993, the Registrant acquired certain assets of R&M Specialty
Products, Inc. As a result, the Registrant will market a full line of
insecticides, pesticides and pet care products under the trade name "Vet Mate".
The lines are sold to various retail chains.
The Registrant has received approval from the EPA for ENCHEM's trademark
"Rapid Kill", a fire ant mound drench. This approval was obtained in October of
1995.
During the fiscal year 1995, company business activity was hampered by
third party lawsuits and an SEC investigation into activities of the previous
Board of Directors including the Chairman of the Board. This investigation is
primarily directed at the former Chairman of the Board and is ongoing. On April
10, 1996, the company appointed a new Board of Directors and new officers.
Curtis Younts, Jr., Calvin Shenkir and Calvin Moerbe (the old board) resigned
their positions as directors and officers of the company on that day. The intent
of the new Board of Directors is to develop profitable business ventures and to
minimize the effect of the SEC investigation.
During 1995, Registrant attempted to obtain a $2 million dollar line of
credit. This line of credit was not obtained due to disagreements between the
Registrant and the proposed lender. The Registrant initiated a lawsuit against
the proposed lender. [See Legal Proceeding.]
Results of Operations
- ---------------------
The factor that most significantly affect the Registrant's 1995 results of
operations is the EPA approval of new formula "Rapid Kill" during the 4th
quarter of 1995, and marketing arrangements for 1995 for the product line of
"Rapid Kill".
Liquidity and Capital Resources
- -------------------------------
During 1994, the Company received proceeds of $317,250 from the sale of
134,500 shares of its common stock (at an average price of $2.36 per share) to
various individual investors.
During 1995, the Company received proceeds of $111,650 from the sale of
59,345 shares of its common stock (at an average price of $1.88 per share) to
various individual investors.
The company is attempting to explore all opportunities and alternatives,
including obtaining additional debt and/or equity financing in order to enhance
its current financial situation.
For the year ending December 31, 1996, the Company plans to: 1) complete
the registration process with the Environmental Protection Agency for an
improved formula Rapid Kill fire ant killer and commence active marketing of all
Rapid Kill products, 2) develop and obtain registration of an environmentally
friendly mosquito control product, 3) evaluate manufacturing and marketing of a
line of electronic safety equipment products, and 4) attempt to establish a
national and international distribution system for all product lines.
On April 10, 1996, the Company, concurrent with the change in the Board of
Directors, executed a line of credit agreement for up to $750,000. Management
believes these funds will be sufficient to provide necessary capital resources
for 1996.
Report on Form 10-K, 1995 Page 8
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes thereto are set out in this Form
10-K commencing on page F-1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
i. On November 14, 1995, the Registrant's former independent accountant,
Akin, Doherty, Klein & Fegue, P.C. resigned as independent accountants
from the Company by way of a letter of resignation.
ii. The former accountants report on the financial statements contained an
unqualified opinion as of and for the year ended December 31, 1993 and
was qualified due to a going-concern uncertainty as of and for the
year ended December 31, 1994.
iii. In connection with the audits of the Company's financial statements
for the two most recent fiscal years, there were no disagreements with
the former accountant on any manner of accounting principles or
practices, financial statement disclosures, or auditing scope or
procedure. During the subsequent interim period up to November 14,
1995, there were no disagreements with the former accountants on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
iv. As described in the accountant's November 14, 1995 letter, the former
accountants were concerned that the Company has not employed a full
time controller or CFO. This matter has been discussed by the Board of
Directors, who agree that the Company is unable, due to its limited
operations and cash flow, to employ a full time controller or CFO.
v. On December 29, 1995, the Company engaged the accounting firm of S.W.
Hatfield & Associates as its independent certified accounting firm to
perform the audit of the Company's 1995 financial statements.
vi. On July 22, 1996, the Company's former independent accountant, Akin,
Doherty, Klein & Fegue, P.C. notified the Company that they would not
re-release their audit opinion for inclusion in this filing related to
the accompanying financial statements as of and/or for the years ended
December 31, 1994 and 1993. Accordingly, the Company has included a
reproduction of the last audit opinion letter issued by Akin, Doherty,
Klein & Fegue, P.C. covering these financial statements. This audit
opinion letter was dated March 24, 1995 and the former auditors have
performed no substantial audit procedures since that date.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Report on Form 10-K, 1995 Page 9
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized
REGISTRANT: ENVIRONMENTAL CHEMICALS GROUP, INC.
July 22, 1996 By:/s/ Dan W. Snow
- ------------- ---------------
Dan W. Snow,
Chief Executive Officer
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ Billy Smartt
Billy Smartt President / Director July 22, 1996
-------------
/s/
Vice President & Director
/s/ Secretary/Treasurer & Director
Report on Form 10-K, 1995 Page 10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Environmental Chemicals Group, Inc.
We have audited the accompanying consolidated balance sheet of Environmental
Chemicals Group, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 1995 and the related consolidated statements of operations, changes in
shareholder's equity and cash flows for the year 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 audit.
The consolidated financial statements as of and for the respective years ended
December 31, 1994 and 1993 were audited by other auditors and they expressed a
qualified opinion related to going concern issues, as discussed below and in
Note C to the accompanying consolidated financial statements, in their report
dated March 24, 1995. The other auditors have not performed any auditing
procedures since March 24, 1995.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Environmental Chemicals Group, Inc. and Subsidiaries as of December 31, 1995,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
the accompanying consolidated financial statement schedules, as required by
Regulation S-X of the U. S. Securities and Exchange Commission, when considered
in relation to the basic consolidated financial statements, taken as a whole,
present fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note C, the
Company has recurring net operating losses and has used net cash in operations
over the previous three years. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classifications of recorded asset and liability amounts that
might result from the outcome of this uncertainty.
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
March 27, 1996 (except for Note D
as to which the date is April 2, 1996)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Shareholders
Environmental Chemicals Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Environmental
Chemicals Group, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the years then ended. Our audits also included the financial
statement schedules listed in the Index on page F-2. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall 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 consolidated financial position of
Environmental Chemicals group, Inc. and Subsidiaries at December 31, 1994 and
1993, and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial stetements,
the Company incurred net losses of $863,673, $135,470 and $98,129 during each
year in the three year period ended December 31, 1994, and as of that date, the
Company's current liabilities exceeded its current assets, less prepaid expenses
and deposits, by $174,825. These factors, among others as discussed in Note B to
the financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Akin, Doherty, Klein & Feuge, P.C.
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
March 24, 1995
F-2
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash on hand and in bank $ 614 $ 100
Accounts receivable
Trade, net of allowance for doubtful accounts
of approximately $7,555 and $10,000, respectively 1,887 4,586
Other - 21,356
Inventories 84,736 101,802
Prepaid expenses and other 25,275 193,275
------ -------
Total current assets 112,512 321,119
------- -------
Property and equipment
Furniture, fixtures and equipment 128,535 62,340
Less accumulated depreciation (27,629) (8,732)
------- ------
Net property and equipment 100,906 53,608
------- ------
Other assets
Patent, registrations and tradenames, net of
accumulated amortization of approximately
$129,562 and $83,902, respectively 595,014 637,674
Mineral leasehold interest, net of accumulated
amortization of $4,333 and $-0-, respectively 100,667 675,000
Investment in affiliated company - -
----------- -----------
Total other assets 695,681 1,312,674
------- ---------
TOTAL ASSETS $ 909,099 $ 1,687,401
=========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Cash overdraft $ 43,425 $ -
Current maturities of long-term debt 8,932 64,286
Accounts payable and other accrued liabilities 145,121 225,883
Advances from officers, directors and affiliates 344,390 12,500
Deferred revenues 100,800 -
Prepaid distributorship fees 40,000 -
------ -------
Total current liabilities 682,668 302,669
------- -------
Long-term liabilities
Advances from officers, directors and affiliates - 424,937
Long-term debt, net of current maturities - 5,579
------- -----
Total liabilities 682,668 733,185
------- -------
Commitments and contingencies
Shareholder's equity
Common stock - $0.0001 par value. 10,000,000
shares authorized. 4,408,710 and 4,164,512
issued and outstanding 441 416
Additional paid - in capital 2,769,618 2,627,730
Accumulated deficit (2,543,628) (1,673,930)
---------- ----------
Total shareholders' equity 226,431 954,216
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 909,099 $ 1,687,401
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues
Product sales $ 49,635 $ 99,066 $ 296,229
Sale of distributorship 10,000 - -
------ ------ -------
Total revenues 59,635 99,066 296,229
Cost of sales 40,469 154,575 175,980
------ ------- -------
Gross profit 19,166 (55,509) 120,249
------ ------- -------
Operating expenses
General and administrative costs 333,115 469,293 121,938
Legal, consulting and other
professional expenses 187,142 208,390 9,819
Fees, licenses and registration costs 14,638 10,655 14,637
Research and development expenses 6,836 19,716 810
Depreciation and amortization 68,890 54,468 42,009
------ ------ ------
Total operating expenses 610,621 820,594 249,213
------- ------- -------
Loss from operations (591,455) (876,103) (128,964)
Other income (expense)
Interest expense (41,573) (6,327) (7,389)
Litigation settlements (91,000) - -
Impairment of asset recoverability (100,000) - -
Abandonment of patent rights (46,000) - -
Other 330 18,550 883
--- ------ ---
Loss before income taxes (869,698) (863,673) (135,470)
Income taxes - - -
------- ------- -------
NET LOSS $ (869,698) $(863,673) $ (135,470)
========== ========= ===========
Net loss per weighted-average
number of common shares outstanding $ (0.20) $ (0.22) $ (0.04)
========== ========= ===========
Weighted-average number of
common shares outstanding 4,392,951 3,870,704 3,024,944
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional
Common Stock paid-in Accumulated
# shares Amount capital deficit Total
-------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balances at
January 1, 1993 3,080,013 $ 308 $ 764,094 $ (674,787) $ 89,615
Sale of common stock 166,500 17 380,379 - 380,396
Issuance of common stock for
Acquisition of assets, net
of liabilities assumed 50,000 5 149,995 - 150,000
Professional services 13,000 1 5,999 - 6,000
Net loss for the year - - - (135,470) (135,470)
--------- ----- --------- -------- --------
Balances at
December 31, 1993 3,309,513 331 1,300,467 (810,257) 490,541
Sale of common stock 483,999 48 317,202 - 317,250
Issuance of common stock
Acquisition of mineral
leasehold interest 140,000 14 664,986 - 665,000
Professional services 231,000 23 345,075 - 345,098
Net loss for the year - - - (863,673) (863,673)
------- -- --------- -------- --------
Balances at
December 31, 1994 4,164,512 416 2,627,730 (1,673,930) 954,216
Sale of common stock 88,500 9 126,091 - 126,100
Issuance of common stock for
Compensation 30,198 3 20,096 - 20,099
Professional services 30,000 3 24,997 - 25,000
Retirement of trade
accounts payable 7,500 1 29,999 - 30,000
Litigation settlements 25,000 3 24,997 - 25,000
Retirement of advances
and payments on
behalf of affiliates 183,000 18 485,696 - 485,714
Surrender of stock related
to settlement of litigation
over mineral leasehold
interest (120,000) (12) (569,988) - (570,000)
Net loss for the year - - - (869,698) (869,698)
--------- ----- ---------- -------- --------
Balances at
December 31, 1995 4,408,710 $ 441 $2,769,618 $(2,543,628) $ 226,431
========= ===== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss for the year $ (869,698) $ (863,673) $ (135,470)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 68,890 54,468 42,009
Common stock issued for services 70,099 346,098 -
Impairment of asset recoverability 100,000 - -
Abandonment of patent rights 49,000 - -
(Increase) decrease in
Accounts receivable 24,055 72,184 (68,121)
Inventories 17,066 44,433 (86,234)
Prepaid expenses and other 168,000 (183,275) (10,000)
Increase (decrease) in
Accounts payable and
other accrued liabilities (84,628) 109,101 116,379
Deferred income 100,800 - -
Prepaid distributorship fees 40,000 - -
-------- --------- ---------
Net cash used in operating activities (316,416) (420,664) (141,437)
------- ------- -------
Cash flows from investing activities
Purchase of property and equipment (66,195) (60,570) (2,770)
Cash paid for investment in affiliated company (100,000) - -
Cash paid for patents, registrations
and tradenames (52,000) (35,099) (402,248)
------- -------- -------
Net cash used in investing activities (218,195) (95,669) (405,018)
------- -------- -------
Cash flows from financing activities
Increase (decrease) in cash overdraft 43,425 - -
Net advances (to) from officers, directors
and affiliates 428,533 168,237 225,966
Increase in long-term debt - 1,202 -
Cash paid on long-term debt (60,933) - (31,337)
Cash received for sale of common stock 124,100 317,250 380,395
------- ------- -------
Net cash received from financing activities 535,125 486,689 575,024
------- ------- -------
Increase (decrease) in cash 514 (29,644) 28,569
Cash and cash equivalents at beginning of year 100 29,744 1,175
------- ------- ------
Cash and cash equivalents at end of year $ 614 $ 100 $ 29,744
========== ========== ==========
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF
INTEREST AND INCOME TAXES PAID
Interest paid during the year $ 41,573 $ 6,327 $ 7,389
========== ========= ========
Income taxes paid during the year $ - $ - $ -
========== ========= ========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock for acquisition
of asset and assumption of related liabilitie $ - $ - $298,000
========== ========= ========
Issuance of common stock to acquire
mineral leasehold interest $ (570,000) $ 665,000 $ -
========== ========= ========
Issuance of common stock to repay
advances from or amounts on
behalf of affiliates $ 521,580 $ - $ -
========== ========= ========
Issuance of common stock to repay
trade accounts payable $ 30,000 $ - $ -
========== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ENTITY AND ORGANIZATION
Environmental Chemicals Group, Inc. (ECHG) was incorporated as Ringside Network,
Incorporated under the laws of the State of Florida on December 4, 1986.
Ringside Network, Incorporated subsequently changed its corporate name to
Ringside International Network, Inc. and Ringside International Broadcasting
Corporation (RIBC), respectively. On July 8, 1992, RIBC merged with and into a
newly formed wholly-owned subsidiary, Ringside International Network, Inc.,
incorporated under the laws of the State of Delaware, for the purpose of
reincorporating RIBC in the State of Delaware. RIBC was retained as the
corporate name of the surviving entity. On July 14, 1992, RIBC changed its
corporate name to Environmental Chemicals Group, Inc.
ECHG operates as a holding company for its wholly-owned subsidiaries and to hold
investments in other entities.
EnChem, Inc. (EnChem) is a wholly-owned subsidiary of ECHG and was incorporated
on February 6, 1992 under the laws of the State of Texas. EnChem is engaged in
the development and sale of environmentally friendly pesticides, insecticides
and organic fertilizer compounds.
Odyssey 2000, Inc. (Odyssey) is a wholly-owned subsidiary of ECHG and was
incorporated on December 19, 1994 under the laws of the State of Texas. Odyssey
is engaged in the development and sale of various patented solar power
technology products.
The accompanying consolidated financial statements include the accounts of ECHG
and all wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The consolidated entities are collectively
referred to as the Company.
The development and sale of the Company's pesticide, insecticide and organic
fertilizer products subjects the Company to various regulations of Federal,
State and Local oversight agencies. Although no detrimental action on the part
of any oversight agency is anticipated, the Company is at potential economic
risk for any oversight agency action at future dates.
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.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents. Cash overdraft positions may occur from time to
time due to the timing of making bank deposits and releasing checks, in
accordance with the Company's cash management policies.
F-9
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2. Accounts and advances receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which
will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
3. Inventories
Inventories consist of pesticides, insecticides and fertilizer products and
various electronic components and are stated at the lower of cost or market
using the first-in, first-out method of accounting. Inventories consist of
the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Pesticides, insecticides and fertilizer products $66,431 $101,802
Electronic components 18,305 -
------ --------
$84,736 $101,802
======= ========
</TABLE>
4. Furniture, fixtures and equipment
Furniture, fixtures and equipment are stated at historical cost.
Depreciation is provided over the estimated useful life of the respective
asset using straight-line and accelerated methods. Expenditures for routine
repairs and maintenance are charged to operations as incurred. Significant
additions which extend the estimated useful life are capitalized to the
respective asset. Gains and losses from disposition of property and
equipment are recognized as incurred and are included in operations.
5. Patents, registrations and tradename rights
Capitalized costs of various patent rights, product registrations with
various Federal, State and Local oversight agencies and Company tradenames
are stated at cost and are amortized over a 15-year period using the
straight-line method.
6. Mineral leasehold interests
Mineral leasehold interests are stated at cost and are amortized over the
15 year life of the lease agreement.
F-10
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Income taxes
The Company accounts for deferred income taxes using the asset and
liability method of accounting. At December 31, 1995 and 1994, the deferred
tax asset and deferred tax liability accounts, as recorded when material,
consist entirely of temporary differences. All deferred tax assets related
to the future utilization of net operating losses have been fully reserved.
At December 31, 1995 and 1994, all deferred tax assets have been fully
reserved.
Temporary differences represent differences in the recognition of assets
and liabilities for tax and financial reporting purposes, primarily
accumulated depreciation and amortization and the allowance for doubtful
accounts.
8. Earnings (loss) per share
Earnings (loss) per common share is computed by dividing net income by the
weighted average number of common shares outstanding during each year.
9. Reclassifications
Certain amounts have been reclassified in the 1993 financial statements to
conform to the 1995 and 1994 presentation.
NOTE C - GOING CONCERN
The Company has incurred net operating losses of approximately $(879,000),
$(864,000) and $(135,000) over the past three years, respectively, and has used
net cash in operations of approximately $(313,000), $(421,000) and $(141,000)
over the same period. These factors, among others, raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classifications of recorded asset and liability amounts that might be necessary
should the Company be unable to continue as a going concern.
During 1995, the Company received the necessary approvals from the U. S.
Environmental Protection Agency for the appropriate labeling of a significant
pesticide product clearing the product for sale to the general public.
Management anticipates that the projected sale of this product, anticipated
sales agreements related to other existing products and the acquisition of debt
and/or equity financing during the next operating cycle will generate sufficient
resources to allow the Company to operate through the next year. The Company's
ability to continue to operate is dependent upon the successful accomplishment
of some or all of these objectives and to ultimately achieve profitable
operations.
F-11
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - INVESTMENT IN AFFILIATED COMPANY
In 1995, the Company paid $100,000 for a 40.0% interest in a company engaged in
the development and sale of patented children's garments. The Company has no
role in the day-to-day management of the investee company. The investment is
accounted for using the cost method of accounting.
On April 2, 1996, the Shareholders of the investee company executed various
documents related to the licensing of patented children's garments. As a part of
these new agreements at the investee company level, the investee company is
obligated to pay ECHG 80.0% (or 2.0% of 2.5%) of net annual patent earnings of
the investee company. Payments do not begin until the new patent licensee
receives $800,000 in net annual earnings and then the annual patent royalty
payments are limited to a maximum of $500,000. Accordingly, ECHG has the future
right to receive a maximum of $400,000 only after the patent assignee (not the
investee company) receives net earnings of $800,000 on an annual basis.
As a result of the April 2, 1996 agreement and the uncertainty of collection of
any future royalty, the Company has recorded an impairment reserve equal to the
total investment against this asset. The net recorded value in the accompanying
financial statements is $-0- as of December 31, 1995.
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1994,
respectively:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
$100,000 note payable to a corporation for
the acquisition of various assets. Interest
at 7.0%. Payable in monthly installments
of approximately $5,357, including interest.
Final maturity in January 1996. Secured by
the related acquired assets. Renegotiated
in January 1996 and paid in full in February
1996. $ 8,932 $ 69,865
Less current maturities (8,932) (64,286)
----- ------
Long term portion $ - $ 5,579
======= ========
</TABLE>
Future maturities of long-term debt are as follows:
Year ending
December 31, Amount
------------ ------
1996 $8,932
======
NOTE F - INCOME TAXES
The Company has cumulative net operating loss carryforwards of approximately
$2,400,000, subject to the provisions of Internal Revenue Code Section 382.
These carryforwards will begin to expire in 2003 if not used.
F-12
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - RELATED PARTY TRANSACTIONS
The Company owes entities affiliated with the Company's former Chairman of the
Board of Directors and other former members of management an aggregate
approximate $344,390 and $437,437 as of December 31, 1995 and 1994,
respectively. The advances are repayable upon demand and are non-interest
bearing. During 1995, the Company issued 183,000 shares of common stock to these
various entities and/or individuals or for payments to other third parties on
the behalf of the former Chairman or entities under his control to repay an
aggregate $485,714 in outstanding advances or other amounts.
In April 1995, and restructured in January 1996, the Company executed an
exclusive national distributorship agreement for a new pesticide product to an
entity controlled by a Company shareholder for an indefinite period of time. The
agreement requires certain sales quotas to be achieved during the first 5 years
of the agreement. The distributing company paid the Company $50,000 for the
exclusive rights distribution agreement and prepaid $108,000 in 1995 against the
initial product order. Further, the entity granted the exclusive national
distributorship executed a "sublicense" agreement with another entity controlled
by a Corporate officer and shareholder.
NOTE H - COMMON STOCK TRANSACTIONS
On March 31, 1993, the Company purchased certain assets; consisting principally
of intellectual rights for a number of pet and personal care trademarks, EPA
registration rights, trade accounts receivable, inventory, furniture and
fixtures. The transaction was valued at approximately $502,000. The Company gave
consideration of approximately $204,000 in cash, the assumption of approximately
$148,000 in related liabilities and the issuance of 50,000 shares of common
stock valued at $150,000.
During 1993, the Company issued 13,000 shares of common stock for professional
services valued at $6,000.
In the first quarter of 1994, the Company issued 140,000 shares of common stock
for a 280 acre mineral leasehold interest located in Nevada. The lease expires
in 2038. The initial transaction was valued at $665,000, including the issuance
of 190,000 shares of common stock and $10,000 in cash. In 1995, upon to the
completion of litigation over the validity of the lease agreement, 120,000
shares of common stock, valued at $570,000, were returned to the Company. This
return was accounted for as a reduction of the original basis in the leasehold
asset.
During 1994, the Company issued 231,000 shares of common stock for various
professional and consulting services. These shares and related services were
valued at approximately $345,098. Approximately $168,000 of this amount was
recorded as a prepaid asset as of December 31, 1994 and was charged against
operations during 1995.
In 1995, the Company issued an aggregate 30,198 shares of common stock to two
officers and an unrelated third party as compensation for services valued at
approximately $20,099
In 1995, the Company issued an aggregate 30,000 shares of common stock for
professional services related primarily to testing and research related to an
pesticide product.
In 1995, the Company issued 25,000 shares of common stock in settlement of
various litigation actions against the Company. These settlements were valued at
approximately $25,000.
In 1995, the Company issued 7,500 shares of common stock in settlement of trade
accounts payable and other unsecured cash advances due to a creditor aggregating
approximately $30,000.
F-13
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - CONTINGENCIES
The Company's operations are subject to extensive Federal, State and Local laws,
regulations and ordinances related to the generation, storage, handling,
emission, transportation and discharge of certain materials, pesticides,
insecticides and organic materials into the environment. Permits are required
for certain of the Company's operations and are subject to revocation,
modification and renewal by governmental authorities. Further, governmental
authorities have the power to enforce compliance with their laws, regulations
and ordinances, and violators may be subject to fines, penalties or both.
Compliance with environmental and other laws, regulations and ordinances in the
current and prior years has not had a material effect on the Company's earnings,
capital expenditures or competitive position. However, the future impact, if
any, of current, proposed or yet to be introduced laws, regulations and
ordinances cannot be determined as management is unaware of any violation, past
or present, that could be deemed to create liability. Accordingly, no accrual is
included in the accompanying financial statements.
Additionally, certain Federal regulations assess liability for environmental
damage as joint and several and is determined without fault. To the extent that
waste or other products of the Company are found in conjunction with an
environmentally damaged site, the Company may be liable for any and all costs
necessary to reclaim the site to an "original" condition. The Company knows of
no potential sites which could be attached to the Company as of December 31,
1995.
Further, the Company's operations are also governed by laws and regulations
related to workplace safety and worker health, principally the Occupational
Health and Safety Act and regulations thereunder. The Company believes that it
is in compliance with all such laws and regulations.
The Company is involved in various suits and claims in the normal course of
business. Although management believes that such claims are without merit and
continues to vigorously contest them, the ultimate outcome of these matters
cannot be determined at this time. In the opinion of management, after
consultation with counsel, the ultimate potential liabilities and losses, if
any, that may result from suits and claims involving the Company should not have
a material adverse effect on the Company's current or future financial and/or
competitive position. Additionally, during 1995, several of these lawsuits were
settled and the related costs and expenses are reflected in the accompanying
financial statements.
During 1995, the Company initiated litigation related to the recovery of fees
paid to obtain financing, which was never provided by the entity contracting to
provide such financing, and related to the organic mineral leases. The Company
has received a summary judgment in its favor on the financing matter and
continues to pursue these lawsuits. Any future recovery related to these
lawsuits will be reflected upon the ultimate consummation of the litigation.
During December 1995, the U. S. Securities and Exchange Commission initiated an
investigation related to the Company's periodic filings, news releases and other
documents. As of March 27, 1996, this matter is still pending. It is not
possible to determine the potential outcome of this action and whether or not
any type of enforcement action and/or penalties will be assessed against the
Company. Management is cooperating fully with the requests of the U. S.
Securities and Exchange Commission.
F-14
<PAGE>
ENVIRONMENTAL CHEMICALS GROUP, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING
ACCOUNTS Years ended December 31, 1995, 1994
and 1993
<TABLE>
<CAPTION>
Charged to Charged to
Beginning costs and other Ending
Balance expenses accounts Deductions Balance
------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1995
-----------------
Allowance for bad debts $10,000 $22,323 $ - $24,768 $ 7,555
======= ======= ======== ======= =======
Year ended
December 31, 1994
-----------------
Allowance for bad debts $60,000 $32,294 $ - $82,294 $10,000
======= ======= ======== ======= =======
Year ended
December 31, 1993
-----------------
Allowance for bad debts $ - $60,000 $ - $ - $60,000
======= ======= ======== ======= =======
</TABLE>
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 614
<SECURITIES> 0
<RECEIVABLES> 1,887
<ALLOWANCES> 17,555
<INVENTORY> 84,736
<CURRENT-ASSETS> 112,512
<PP&E> 128,535
<DEPRECIATION> 27,629
<TOTAL-ASSETS> 909,099
<CURRENT-LIABILITIES> 682,668
<BONDS> 0
0
0
<COMMON> 4,392,951
<OTHER-SE> 226,431
<TOTAL-LIABILITY-AND-EQUITY> 909,099
<SALES> 49,635
<TOTAL-REVENUES> 59,635
<CGS> 40,469
<TOTAL-COSTS> 610,621
<OTHER-EXPENSES> 278,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (869,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 869,698
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
