<PAGE>
REGISTRATION NO. 33-94114
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
AMENDMENT NUMBER 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
EV ENVIRONMENTAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 8999 13-3555254
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
_____________________
1465 POST ROAD EAST
WESTPORT, CT 06880
(203) 256-9596
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
_____________________
MICHAEL R. COX
CHAIRMAN AND PRESIDENT
EV ENVIRONMENTAL, INC.
1465 POST ROAD EAST
WESTPORT, CT 06880
(203) 256-9596
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_____________________
Copies of Communications and Notices to:
Daniel T. Clark, Esq.
Rich, May, Bilodeau and Flaherty, P.C.
294 Washington Street
Boston, Massachusetts 02108-4675
(617) 482-1360
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective
____________________
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the same
offering [_]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [_]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered (1) Per Share Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 438,320 (2) $ 3.75(3) $1,648,000 $ 568
- ---------------------------------------------------------------------------------------------------------
Series A Warrants (4) 102,000 - - -
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (5) 452,000 $ 5.00 $2,260,000 $ 780
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (6) 775,200 $ 3.75(3) $2,907,000 $ 1026
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (7) 77,520 $ 3.75(3) $ 290,700 $ 101
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (13) 400,000 $ 3.75(16) $1,500,000 $ 518
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (14) 485,800 $ 2.84(15) $1,433,700 $ 495
- ---------------------------------------------------------------------------------------------------------
Series A Warrants (8) 35,000 - - -
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (9) 35,000 $ 5.00 $ 175,000 $ 61
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (10) 228,476 $0.934(11) $ 213,000 $ 74
- ---------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (12) 35,000 $ 5.00 $ 175,000 $ 61
- ---------------------------------------------------------------------------------------------------------
TOTAL REGISTRATION FEE - - - $3,684
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated to be the maximum number of securities to be issued by the
Registrant and sold by the Selling Security Holders, as defined herein,
upon the completion of this offering. (See PLAN OF DISTRIBUTION - Selling
Security Holders).
(2) Estimated to be the maximum number of shares of currently outstanding
Common Stock to be sold by the Selling Security Holders, as defined herein,
upon the completion of this offering.
(3) Estimated solely for purposes of calculating the registration fee, pursuant
to Rule 457(c), based on the average of the high and low prices of the
Common Stock of the Registrant on June 23, 1995, as reported on the NASDAQ
System - Small Cap Market.
(4) Warrants issued in private placements and being registered hereunder for
resale by certain Selling Security Holders.
(5) Represents shares of Common Stock issuable at $5.00 per share upon exercise
of Warrants described in footnote (4) above and Warrants issued in a public
offering of the Company.
(6) Represents Common Stock issuable upon the conversion of the Company's 9%
Convertible Subordinated Debentures and registered for resale herein.
(7) Represents shares of Common Stock issuable upon the exercise of a warrant
issued to the placement agent for the Debentures in (6).
<PAGE>
(8) Represents warrants issuable upon exercise of warrants to purchase units
each consisting of one Series A Warrant and one share of Common Stock
issued to the underwriter in a public offering of the Company.
(9) Represents Common Stock issuable upon the exercise of the Warrants
described in footnote (8) above.
(10) Represents shares of Common Stock issuable upon exchange of shares of a
subsidiary of the Company.
(11) Solely for purposes of calculating the registration fee pursuant to Rule
457(f)(2).
(12) Represents shares of Common Stock issuable upon exercise of the Series A
Warrants issuable upon the exercise of the warrants as described in
footnote (8) above.
(13) Represents shares which may be issued at the Company's option, in payment
of interest on the Company's 9% Convertible Subordinated Debentures and
registered for resale herein.
(14) Represents shares of stock issuable upon exercise of options and warrants
granted to employees or in connection with acquisitions.
(15) Weighted average exercise price of shares in (14) above.
(16) Estimated solely for purposes of calculating the registration fee, pursuant
to Rule 457(g), based on the average of the high and low prices of the
Common Stock of the Registrant on June 23, 1995, as reported on the NASDAQ
System-Small Cap Market.
<PAGE>
EV ENVIRONMENTAL, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING CAPTION IN PROSPECTUS
- ---------------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus ......................Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus .....................Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges .....................Prospectus Summary; The
Company; Risk Factors;
Ratio of Earnings to Fixed
Charges - Not Applicable
4. Use of Proceeds ...............................Use of Proceeds
5. Determination of Offering Price................Not Applicable
6. Dilution ......................................Not Applicable
7. Selling Security Holders ......................Plan of Distribution -
Selling Security Holders
8. Plan of Distribution ..........................Cover; Plan of Distribution
9. Description of Securities
to be Registered ..............................Description of Securities
10. Interest of Named Experts
and Counsel ...................................Counsel; Experts
11. Information with Respect
to the Registrant .............................The Company; Risk Factors;
Financial Statements;
Summary Operations
Information; Management's
Discussion and Analysis of
Results of Operations and
Financial Condition;
Management; Remuneration of
Directors and Executive
Officers; Security
Ownership of Certain
Beneficial Owners and
Management; Certain
Relationships and
Transactions; Description
of Securities; Shares
Eligible for Future Sale
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities ................Limitation on Directors'
Liability
</TABLE>
<PAGE>
EV ENVIRONMENTAL, INC.
137,000 SERIES A WARRANTS
2,948,116 SHARES OF COMMON STOCK
____________________
PROSPECTUS
- ----------
This Prospectus relates to the following securities of EV Environmental, Inc., a
Delaware corporation (the "Company").
137,000 Series A Warrants, 585,840 of the shares of Common Stock registered
hereunder which may be offered and sold from time to time by and for the account
of certain Selling Security Holders, 775,200 shares for resale following
issuance upon conversion of the Company's 9% Convertible Subordinated
Debentures, and 400,000 for resale following possible issuance for payment of
interest on the Company's 9% Convertible Subordinated Debentures. (See PLAN OF
DISTRIBUTION -- Selling Security Holders). 1,187,076 of the shares of Common
Stock registered hereunder are being registered for issuance upon the exercise
of 452,000 Series A Warrants and 735,076 shares for issuance in connection with
other warrants and options to purchase or rights to acquire shares of Common
Stock.
INVESTMENT IN THESE SECURITIES INVOLVES SUBSTANTIAL RISKS AND SHOULD BE
CONSIDERED ONLY BY SUCH PERSONS CAPABLE OF BEARING THE ECONOMIC RISK OF SUCH
INVESTMENT. (SEE RISK FACTORS).
The sale of the shares of Common Stock by the Selling Securityholders may
be effected from time to time in one or more transactions (which may involve
block transactions, ordinary brokerage transactions, transactions in which
brokers solicit purchases and transactions directly with a market maker) in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Brokers and dealers selected by the
Selling Securityholders may receive commissions or discounts from the Selling
Securityholders in amounts to be negotiated immediately prior to the sale. The
Selling Securityholders and such brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act") in connection with such sales.
The Common Stock and Series A Warrants are listed for trading on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
Small Cap Market under the trading symbols of EVEN and EVENW, respectively. On
June 11, 1996, the closing prices, as reported on NASDAQ, were $1.25 per share
of Common Stock, and $0.25 per Series A Warrant.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting discounts Proceeds to issuer or
Price to public and commissions(d) other persons
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series A Warrants(a) $ .25 $ 34,250
- -----------------------------------------------------------------------------------------------------------
Common Stock(a) $1.25 2,630,926
- -----------------------------------------------------------------------------------------------------------
Common Stock(b) $5.00 2,260,000
- -----------------------------------------------------------------------------------------------------------
Common Stock(c) $2.95 1,433,110
----------
- -----------------------------------------------------------------------------------------------------------
Total $6,311,676
==========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on the closing bid price of $1.25 per share of Common Stock and $.25
per Series A Warrant on June 11, 1996.
<PAGE>
(b) Exercise price of common stock issuable upon exercise of Series A Warrants.
(c) Average exercise price of outstanding options.
(d) There is no underwriter in the transactions covered by this prospectus.
THE DATE OF THIS PROSPECTUS IS JUNE 28, 1996.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information should be available for inspection and copying
at the public reference facilities maintained by the Commission at 450 Fifth
Avenue, N.W., Washington, DC 20549, and at the following Regional Offices of the
Commission: 75 Park Place, New York, New York 10007; 5757 Wilshire Boulevard,
Los Angeles, California 90036; 219 South Dearborn Street, Chicago, Illinois
60604; 1375 Peachtree Street N.E., Atlanta, Georgia 30309; Suite 700, 410
Seventeenth Street, Denver, Colorado 80202; Eighth Floor, 411 West Seventeenth
Street, Fort Worth, Texas 76102; 3040 Federal Building, 915 Second Street,
Philadelphia, Pennsylvania 19106; and 150 Causeway Street, Boston, Massachusetts
02114. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, DC 20549 at
prescribed rates. Such reports, proxy statements and other information should
also be available for inspection at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC 20006.
This Prospectus, which constitutes part of a Registration Statement filed
by the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act") omits certain of the information contained in the
Registration Statement. Reference is hereby made to the Registration Statement
and to its exhibits for further information with respect to the Company and the
securities registered hereby. Statements contained herein concerning provisions
of documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
PROSPECTUS SUMMARY
PROSPECTUS SUMMARY
The following is intended only to supply certain facts and highlights of
the material contained in the body of the Prospectus and is qualified in its
entirety by the more detailed information and financial statements and notes
thereto appearing elsewhere in this Prospectus and Registration Statement.
THE COMPANY
The Company is a Delaware corporation with five operating subsidiaries, EV
Environmental Systems, Inc., formerly Pollution Control, Inc. ("PCI"), Aer-O-Flo
Environmental, Inc. ("Aer-O-Flo"), Pollution Control Engineering, Inc. ("PCE"),
EV Engineering, Inc. ("EVE") and EV Contract Management Services, Inc. ("CMS").
PCI, a Kentucky corporation located in Ft. Mitchell, Kentucky (a suburb of
Cincinnati, Ohio), is a successor business by merger to a business incorporated
in 1985. Aer-O-Flo, an Ontario corporation located in Burlington, Ontario (a
suburb of Toronto, Ontario), is a successor business to a business formed in
1963. PCE, a Delaware corporation located in Irvine, California, is the
successor to a business formed in 1960. EV Engineering, Inc. and EV Contract
Management Services, Inc. (both Delaware corporations) are successors to a
business formed in 1969. The Company is engaged in the business of supplying
systems and services for the treatment of water and wastewater. The Company
markets to its customers its ability to design, supply and operate the total
treatment system for the solution of the customer's process discharges. The
Company designs the treatment systems, manages the manufacture of the related
hardware (through contract manufacturers), manages the installation of the
systems, trains customer personnel in their operation, and provides ongoing
system management and support. Any combination of these offerings, and in some
cases all of them, can be utilized by the Company's customers. The Company
believes that its systems provide positive returns on investment for its
customers. As freshwater resources are stretched by growth in many regions, the
Company believes that reuse of wastewater will become the most economically
viable source of additional water. In regions where freshwater use is
restricted, it is possible for a customer to expand operations by recycling
wastewater or alternatively, to sell water rights to other users. Coupled with
reduced operating costs and sewage surcharges, investment in the Company's
systems can be economically attractive. The Company does not own or operate a
hazardous waste landfill or any other hazardous waste treatment, storage or
disposal facility. The Company intends to pursue a business
2
<PAGE>
strategy through the growth of its existing business and introductions of new
products. The Company's priority in its business strategy is achieving
consistently profitable operations. (See BUSINESS -- Operations).
Investment in the securities offered hereby involves a high degree of risk.
(See RISK FACTORS).
The address of the Company is: EV Environmental, Inc., 1465 Post Road East,
Westport, Connecticut 06880, (203) 256-9596.
THE OFFERING
Securities Offered: 585,840 shares of Common Stock and 137,000 Series A
Warrants may be offered and sold from time to time by
and for the account of certain Selling Security
Holders, and 775,200 shares for resale following
issuance upon conversion and 400,000 for resale
following possible payment of interest in shares of the
Company's 9% Convertible Subordinated Debentures. (See
PLAN OF DISTRIBUTION -- Selling Security Holders). One
Series A Warrant entitles the holder to purchase one
share of Common Stock for $5.00 between February 16,
1994 and February 16, 1997, subject to the Company's
redemption rights. (See DESCRIPTION OF SECURITIES).
1,187,076 of the shares of Common Stock registered
hereunder are being registered for issuance upon the
exercise of 452,000 Series A Warrants and 735,076
shares for issuance in connection with other warrants
and options to purchase or rights to acquire shares of
Common Stock. (See PLAN OF DISTRIBUTION).
Common Stock
Outstanding: *Prior to this Offering -- 3,803,836 shares of Common
Stock After this Offering -- 5,954,119 shares of Common
Stock
Use of Proceeds: The Company will receive no cash consideration from the
issuance of shares of Common Stock upon the share
exchange described in the first sentence of note (*)
below. The Company will receive no part of the proceeds
of the Offering by Selling Security Holders. The
proceeds received by the Company upon the exercise of
warrants and options to purchase the Common Stock
registered hereunder will be used for general corporate
purposes and working capital.
NASDAQ Symbols: Common Stock EVEN
Series A Warrants EVENW
______________
(*) Such amount includes 228,476 shares which are not outstanding but are
reserved for issuance upon the exchange of shares of a subsidiary in
connection with an acquisition. Such amount does not include shares which
are not outstanding but are reserved for issuance upon the exercise of (a)
options and warrants to purchase 485,800 shares granted to employees,
directors and others in connection with an incentive plan, acquisitions and
private placements and (b)(i) Series A Warrants to purchase 452,000 shares
at $5.00 per share, and (ii) 35,000 shares issuable upon exercise of the
certain warrants to purchase units consisting of one share and one Series A
Warrant granted to the underwriter in a public offering and 35,000 shares
underlying the Series A Warrants included in such units issuable upon
exercise of such underwriter warrants, (c)(i) the shares of stock issuable
upon the conversion of 9% subordinated debentures ($1,938,000 aggregate
principal amount of Debentures, convertible into 775,200 shares of Common
Stock, have been issued); or (ii) 77,520 shares issuable upon exercise of
warrants to be issued to the placement agent in the private placement.
3
<PAGE>
SUMMARY INFORMATION
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Predecessor)
(a) (b) (b) (c)
STATEMENT OF OPERATIONS DATA:
Sales $6,269 $7,086 $9,318 $ 9,754 $12,998
Net Income (Loss) (512) 51 (973) (375) (3,113)
Net Income (Loss) per Common Share (d) .04 (.51) (.19) (1.50)
Weighted Average Number of Common Shares
Outstanding (d) (d) 1,436 1,914 2,013 2,076
BALANCE SHEET DATA:
Total Assets $4,845 $6,590 $8,524 $12,625 $11,417
Long Term Liabilities 198 1,050 288 1,996 3,020
Stockholders' Equity (d) 1,946 4,636 4,312 1,556
<CAPTION>
Quarter Ended March 31
-----------------------
1995 1996
---- ----
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $ 2,809 $ 3,903
Net Income (Loss) (378) (24)
Net Income (Loss) per Common Share (.19) (.01)
Weighted Average Number of Common Shares
Outstanding (d) 2,024 2,187
BALANCE SHEET DATA:
Total Assets $11,918 $12,293
Long Term Liabilities 2,489 3,089
Stockholders' Equity 3,934 1,561
</TABLE>
(a) Amounts shown at December 31, 1991 include combined amounts for the
Company, Pollution Control, Inc. and Aer-O-Flo, the predecessor businesses
to the Company. Amounts included for Aer-O-Flo are as of March 31, the end
of its fiscal year, and have been translated at the rate of .87 United
States dollar per Canadian dollar, the rate as of December 31, 1991.
(b) Results of operations include the operations of Pollution Control
Engineering, Inc. since March, 1993 and the operations acquired from Tenney
Pavoni Associates, Inc. since November, 1994, the respective dates of
acquisition.
(c) Results of operations for 1995 include charges of $1,182,000 relating to
the impairment of long-term assets.
(d) Per share earnings for the year ended December 31, 1992 are as reported.
Outstanding shares, per share data and stockholders' equity for prior
periods have not been presented as the predecessor businesses were
privately owned.
The Company has not paid any dividends.
4
<PAGE>
RISK FACTORS
Investment in these securities involves substantial risks and should be
considered only by persons capable of bearing the economic risk of the
investment. Investors should carefully consider the following factors before
investing in these securities.
NEW BUSINESS; GROWTH THROUGH ACQUISITIONS
The Company had no operations prior to its merger in 1991 with JBCH
Acquisition Corp. ("JBCH") and its subsidiaries, PCI and Aer-O-Flo. With the
acquisition of JBCH and its subsidiaries, the Company entered the water and
wastewater treatment industries. On February 26, 1993, the Company acquired PCE
and on December 7, 1994, the Company acquired the businesses of CMS and EVE.
Although the operating companies owned by the Company have been engaged in these
industries for over five years, there can be no assurance that the combined
operations of the acquired companies will be able to become profitable.
The risks attendant to managing a company which has consistently grown
through acquisition, as opposed to internal growth, are, in general, the
potential difficulty in causing each acquired entity to become a part of the
organization in terms of internal reporting and communication, business culture,
and uniformity of policy, procedures and controls, and the need to eliminate
unnecessary duplication of assets, personnel and procedure, all of which can
meet resistance and all of which may have a negative effect on the morale of the
staffs of both the acquired and acquiring organizations.
OPERATING RESULTS; FINANCIAL CONDITION
The Company has had operating losses in each of the last three years, which
has resulted in a negative cash flow and working capital. The Company has taken
steps to eliminate redundancies in engineering and administrative facilities
among the various subsidiaries, while increasing the client base and geographic
markets. Additionally, the Company has eliminated its strategy of piloting its
systems prior to sales to its customers, and has substantially reduced the scope
of its Canadian operations. Management believes these actions will increase
sales and profitability of the combined companies as compared to the less
profitable individual companies before this strategy was implemented. The
Company's financial condition will be primarily dependent upon the ability of
the Company to sustain profitable operations in future periods.
The Company has an operating line of credit of $500,000 secured by the
receivables of two of its subsidiaries which expires October 31, 1996. There can
be no assurance that this line will be renewed or that it can be replaced by
another lender.
DEPENDENCE UPON MANAGEMENT AND SKILLED PERSONNEL
The success of the Company is particularly dependent on the management team
and its ability to coordinate the operations of the Company, and to implement
the Company's strategic plans. The loss of any one of several individuals could
have a material adverse effect on the Company's operations. In addition, the
Company's success will depend in large part upon the continued ability of the
operating companies to attract and retain skilled employees, which may be
difficult because the market for the services of such individuals is
competitive.
COMPETITION; SMALL MARKET SHARE
The water treatment and wastewater treatment industries are competitive
industries. Consulting engineering firms, construction firms, equipment
suppliers, and manufacturers, among others, compete in the water treatment and
wastewater treatment industries. As a result, the Company cannot reasonably
estimate the number of competitors, although they are numerous. The Company
believes that no one competitor, or combination of several, is dominant in the
industry. Many of the Company's competitors have more resources than the
Company, and there can be no assurance that these competitors will not develop
new or enhanced products that are more effective than those that have been or
may be developed by the Company.
5
<PAGE>
Although price is a factor, the Company believes that its solutions-
oriented service approach to its customers is a key factor in obtaining
business.
Based on management's comparison of the Company's financial results and
estimates of the overall market for the Company's products, the Company's market
share is presently very small. The Company's market share may negatively impact
its ability to compete. Although it is management's view that an opportunity for
significant growth is provided by the large size (according to industry
publications) of the overall market in relation to the Company's market share,
there can be no assurance that the Company's efforts to expand its market share
will yield positive results.
RELIANCE ON A RELATIVELY SMALL NUMBER OF CONTRACTS
Historically, in any given fiscal year, three to five customer contracts
have accounted for up to 30% of the Company's revenues. As the Company's sales
are generally on a one-time, contract basis, reliance on any one customer or
group of customers does not represent a significant risk to the Company's
business. However, the failure of the Company in any given year to obtain that
number of large contracts sufficient to maintain historical revenues could have
a material adverse effect on the Company.
FIXED PRICE CONTRACTS
The Company's products and services are generally sold pursuant to fixed
price contracts. To the extent costs relating to any such contract are higher
than anticipated, the Company's profit margin will be reduced or the Company
will incur a loss. Such losses, if incurred, could have a material adverse
effect on the Company.
GOVERNMENTAL SUPPORT AND REGULATION
The demand for products used in the water treatment and wastewater
treatment industries, as well as their nature and performance, is materially
affected by from the existence and enforcement of federal, state, provincial and
local regulation. The nature and extent of future regulatory enforcement and
funding and their impact on the demand for the Company's services cannot be
accurately predicted. Therefore, there can be no assurance that changes in
governmental support and regulation will not have a material effect on the
Company's business.
ECONOMIC FACTORS
The Company's products are primarily capital assets of its customers.
Economic factors, such as recessions, significantly affect the ability of
potential customers to expand their capital assets. Although many of the
Company's customers are required by existing laws and regulations to implement
systems to treat wastewater flows, economic factors affecting the financial
condition of their businesses can impact the timing and extent of investment,
and, in extreme cases, cause potential customers to close facilities rather than
make the necessary investment to bring facilities into compliance. Rising
interest rates will effect the cost to the Company of borrowed funds as well as
the effective cost of equity financing. To the extent that an increase in
interest rates reduces the willingness of potential customers of the Company to
incur capital expenditures, or in general results in a slowing down of economic
activity in the United States, such an increase could have a material adverse
effect on the business of the Company.
POTENTIAL PRODUCT AND ENVIRONMENTAL IMPAIRMENT LIABILITIES
Aer-O-Flo carries $5.0 million (Canadian) of product liability insurance in
the form of a $1 million limit general liability policy and a $4 million limit
umbrella policy. PCI and PCE have no product liability coverage. Aer-O-Flo's
insurance policy covers liability for property damage and bodily injury
resulting from sudden and accidental discharges of pollutants as a result of
product defects up to the limit of the policy (but excluding liabilities
relating to environmental damage or impairment) and other third party damages
from product liability, but does not provide general pollution coverage. The
terms and conditions of the insurance coverage are the same for liabilities
arising out of property damage and bodily injury. The $5.0
6
<PAGE>
million in liability coverage represents the limit of coverage for each
occurrence from which covered losses arise, and also represents the limit of
coverage for all such occurrences in a policy year. Potential liabilities from
product liability or environmental impairment (including possible soil, water
and air contamination) could have a material adverse effect on the financial
statements of the Company. The Company does not haul or dispose of any waste
substances. The Company and its predecessors have never had a product liability
or environmental impairment claim; however, there can be no assurance that there
will be no such claim, that the Company's insurance will cover such claim, or
that any such claim will not exceed the limits of any policy then in force.
DIVIDENDS; REDEMPTION OF SECURITIES
The Company has paid no dividends on its Common Stock since its inception
and it is anticipated that future earnings, if any, will be retained to finance
development of the Company's business and consequently, the Company does not
foresee paying dividends in the immediate future. Further, the Company has, for
a period of two years from the completion of its offering of 9% Convertible
Subordinated Debentures (such offering was completed on March 20, 1995) agreed
not to (i) redeem any of its securities outstanding as of the closing date of
that offering (other than redemptions that may be required), or (ii) pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's consolidated current or retained earnings
derived after the closing date of such offering, without the prior written
consent of Noble Investment Co. of Palm Beach, which served as placement agent
in connection with the offering.
EXERCISE OF UNDERWRITER AND PLACEMENT AGENT WARRANTS AND OTHER OPTIONS MAY
HINDER COMPANY'S ABILITY TO OBTAIN FUTURE CAPITAL; OTHER OBLIGATIONS TO
UNDERWRITER AND PLACEMENT AGENT
In connection with a public offering completed in February 1993, the
Company sold to the Noble Investment Co. of Palm Beach (the "Underwriter"),
which served as the underwriter in such offering, for a nominal consideration,
warrants to purchase an aggregate of 35,000 Units, each of which consists of one
share of Common Stock and one Series A Warrant ("Underwriter Warrants"). Each
Series A Warrant entitles its registered owner to purchase, at an exercise price
of $5.00, one share of the Company's Common Stock during the three years
commencing February 26, 1994 and ending February 26, 1997, subject to extension
by the Company. The Underwriter Warrants are exercisable during the four year
period commencing February 26, 1994 at an exercise price of $6.00 per Unit. In
addition, the Underwriter has received, for a nominal consideration, warrants to
purchase 77,520 shares of Common Stock for acting as placement agent in
connection with the Company's offering of 9% Convertible Subordinated Debentures
(the "Placement Agent Warrants"). The aggregate exercise price of the Placement
Agent Warrants is $198,000. The Placement Agent Warrants are exercisable for a
period of four years commencing the date one year after the date of completion
of the Debenture offering (March 20, 1995). The holders of the Underwriter and
Placement Agent Warrants, as well as other options and warrants of the Company
that may be outstanding, have the opportunity to profit from a rise in the
market price of the Company's Debentures, Common Stock and Warrants, if any,
without assuming the risk of ownership. The Company may find it more difficult
to raise additional equity capital if it should be needed for the business of
the Company while the Underwriter and Placement Agent Warrants and other options
and warrants are outstanding. At any time when the holders thereof might be
expected to exercise them, the Company would probably be able to obtain
additional equity capital on terms more favorable than those provided by the
Underwriter or Placement Agent Warrants and other options and warrants. To the
extent that any of the Underwriter or Placement Agent Warrants or any other
options and warrants granted by the Company are exercised, the ownership
interest of the Company's shareholders may be diluted. In connection with said
offerings, the Underwriting Agreement and Agreement with Placement Agent provide
for reciprocal indemnification between the Company and the Underwriter as to
certain liabilities, including liabilities under the Securities Act. In
addition, the Company has granted the Underwriter the right to designate one
member of the Company's Board of Directors for five years commencing February
16, 1993, and a second director for a period of five years commencing October
24, 1994 and has granted the Underwriter a right of first refusal until March
19, 1998 for the underwriting of any public or private sale of securities of the
Company to be made by the Company.
7
<PAGE>
PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to February 16, 1993 (the date of the Company's most recently
completed public offering), there had been no public market for the Company's
Common Stock and Series A Warrants. There can be no assurance that an active
trading market for the Company's Common Stock or Series A Warrants will be
sustained. In the absence of a public market, an investor may be unable to
liquidate his investment in the Company. The market price of the Company's
Common Stock or Series A Warrants may be adversely affected by factors that may
or may not relate to the Company's performance. Such factors may include the
announcement or introduction of new products by the Company's competitors, as
well as conditions in the pollution control industry, the stock market and the
economy in general.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 50% of the outstanding shares of Company's Common Stock
(approximately 1,000,000 shares) are eligible for resale under Rule 144
including 295,083 shares registered hereunder. In addition, the Company is
registering herein an additional 1,264,714 shares issuable upon the exercise of
outstanding rights and 775,200 shares issuable upon the conversion of
debentures.
Prior to the public offering effective on February 16, 1993, there was no
market for the Common Stock. The Company cannot predict the number of shares of
Common Stock which may be sold in the future pursuant to the exercise of
registration rights, or pursuant to Rule 144 or other applicable exemptions from
the registration requirements of the Securities Act, since such sales will
depend on whether persons choose to exercise any registration rights they may
have, the market price of the Common Stock, the individual circumstances of
holders thereof and other factors. Nevertheless, the possibility that
substantial amounts of restricted or registrable shares may be sold in the
public market may adversely affect prevailing market prices for the Company's
securities.
Additionally, in February and April, 1996, the Company sold $650,000 and
$500,000 principal amount of 5% convertible debentures, which debentures were
convertible into marketable shares at 65% of the average bid price of the common
stock for the five business days prior to conversion. These debentures were
converted into 1,483,624 shares of common stock in June, 1996.
The effect of the above securities could act to limit the potential market
appreciation, or to depress the price of, the shares offered hereunder.
POSSIBLE ISSUANCES OF THE COMPANY'S PREFERRED STOCK AND OTHER POTENTIAL ANTI-
TAKEOVER MATTERS.
Shares of the Company's Preferred Stock may be issued in the future without
further stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors of the Company may
determine. The rights of holders of the Company's Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any of the
Company's Preferred Stock that may be issued in the future. See "Description of
Securities." The issuance of the Company's Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions, financing and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock. The Company is also
subject to Section 203 of the General Corporation Law of Delaware (which is an
anti-takeover statute), but only as to persons who became interested persons, as
defined in the statute, prior to April 23, 1993 (the effective date of the
Company's election not to be governed by such statute), and then only until
April 23, 1996.
RISKS RELATING TO CMS AND EVE
Certain of the risks applicable to the Company's business in general are
applicable to the newly acquired businesses of CMS and EVE. Risks applicable to
such businesses include the following:
8
<PAGE>
CMS and EVE Competition; Small Market Share
- -------------------------------------------
The business of providing engineering and technical services, including
wastewater treatment design and the contract management and operation of
wastewater treatment facilities for third parties, is a competitive industry.
Consulting engineering firms, construction firms, equipment suppliers, and
manufacturers, among others, compete in the water treatment and wastewater
treatment industries.
As a result, the Company cannot reasonably estimate the number of
competitors, although they are numerous. The Company believes that no one
competitor, or combination of several, is dominant in the industry. Many
competitors have more resources than the Company, and there can be no assurance
that these competitors will not develop new or enhanced products that are more
effective than those that have been or may be developed by the Company.
CMS and EVE compete based on quality of service, past experience and
reputation, and price. Pricing for engineering services is usually at an hourly
rate per level of engineer utilized, usually with a total contract price which
the Company cannot exceed. Contract management services are generally at a fixed
price for a given time period for a defined scope of services.
Market share is presently very small which may negatively impact the
ability to compete. Although it is management's view that an opportunity for
significant growth is provided by combined large size (according to industry
publications) of the overall market in relation to EVE and CMS's market share,
there can be no assurance that efforts to expand market share will yield
positive results.
Reliance on a Relatively Small Number of Contracts
- --------------------------------------------------
In the year ended December 31, 1995, two customers accounted for 52% of the
revenues of the businesses acquired by CMS and EVE. No other customer accounted
for as much as 10% of sales. The loss of any one of these customers could have a
material adverse effect on the Company.
Capped and Fixed Price Contracts
- --------------------------------
In approximately 85% of the contracts of CMS and EVE, which are those
relating to engineering services, constituting approximately 45% of total
contracts by dollar volume, rates are set based on costs and overheads incurred
by CMS and EVE, usually with a total contract price which cannot be exceeded. In
such cases, the customers have the right to audit the costs incurred, which
could result in adjustments to the hourly rates utilized. Contract management
services are generally at a fixed price for a given time period for a defined
scope of services. To the extent costs relating to any capped or fixed price
contract are higher than anticipated, the Company's profit margin will be
reduced or the Company will incur a loss. While CMS and EVE have not experienced
any significant losses in connection with capped or fixed price contracts, such
losses, if incurred, could have a material adverse effect on the Company.
Potential Product and Environmental Impairment Liabilities
- ----------------------------------------------------------
CMS and EVE have $500,000 of product liability insurance limit as well as
$1,000,000 of professional liability insurance. They have not encountered any
difficulty in obtaining government contracts as a result of limited coverage.
They have not generally contracted with state governments or the federal
government in connection with the business which will be continued by the
Company. Potential liabilities from product liability or environmental
impairment (including possible soil, water and air contamination) could have a
material adverse effect on the financial statements of the Company. CMS and EVE
and their predecessors have never had an environmental impairment claim;
however, there can be no assurance that there will be no such claim, that the
insurance of the acquired business will cover such claim, or that any such claim
will not exceed the limits of any policy then in force.
9
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from sales by the Selling
Security Holders. Proceeds received by the Company upon the exercise of options
and warrants to purchase Common Stock registered hereunder will be used for
general working capital purposes.
DIVIDEND POLICY
The Company has paid no dividends on its Common Stock since its inception
and it is anticipated that future earnings, if any, will be retained to finance
development of the Company's business and consequently, the Company does not
foresee paying dividends in the immediate future. Further, the Company has, for
a period of two years from the completion of its offering of 9% Convertible
Subordinated Debentures (such offering was completed on March 20, 1995) agreed
not to (i) redeem any of its securities outstanding as of the closing date of
that offering (other than redemptions that may be required), or (ii) pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's consolidated current or retained earnings
derived after the closing date of this offering, without the prior written
consent of Noble Investment Co. of Palm Beach, which served as placement agent
in connection with the offering.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996. The table should be read in conjunction with the Company's
financial statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<S> <C>
Short-term debt:
Bank $ 883,000 (1)
Other 183,000
Long-term debt (including current maturities) 3,230,000 (1)
Stockholders' Equity:
Common Stock, $.01 par value, 2,207,000 shares issued and
outstanding 22,000
Paid-in-Capital 6,183,000
Retained Earnings/(Deficit) (4,563,000)
Cumulative Translation Adjustment (81,000)
----------
Total Stockholders' Equity 1,561,000
----------
Total Capitalization $5,857,000
==========
</TABLE>
______________
(1) See Notes 5 and 6 to Consolidated Financial Statements.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following unaudited information is presented for comparative purposes.
Summary Operations Information
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, Quarters Ended March 31,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $9,318 $9,754 $12,998 $2,809 $3,903
Cost of Sales 6,859 6,942 9,964 2,028 2,918
------ ------ ------- ------ ------
Gross Margin 2,459 2,812 3,034 781 995
General and administrative
expenses 3,432 3,187 6,147 1,159 1,009
------ ------ ------- ------ ------
Net Loss $ (973) $ (375) $(3,113) $ (378) $ (24)
====== ====== ======= ====== ======
</TABLE>
MARCH 31, 1996 AND THE QUARTER THEN ENDED
Liquidity and Capital Resources
The Company has no material commitments for capital expenditures, and does not
anticipate any material commitments in the coming year. The operations of the
Company do not require the Company to have significant additional investments in
long- term assets.
The Company had a deficiency in working capital at March 31, 1996 of $1,399,000,
compared to a deficiency at December 31, 1995 of $1,830,000.
As a result of these deficiencies in working capital, the Company has
experienced significant strains on its cash flow. To address this condition, in
February 1996 the Company sold, through a private placement, 5% Convertible
Subordinated Debentures which resulted in net proceeds to the Company of
$500,000, which was used to repay a note. In April 1996, the Company closed the
sale of an additional $500,000 of debentures, netting $385,000, which was added
to working capital.
In February 1996, the Company accepted an offer to sell its facility in
Florence, Kentucky. The sale proceeds were $300,000 and were received in April
1996. These proceeds were used to retire the existing mortgage of $140,000,
reduce the Company's bank line of credit by $149,000, and the remainder was
used for operations.
The Company's business cycle from the initiation of expenditures on a project to
the collection of all outstanding receivables from the project is typically four
to six months, depending on the project. In many instances, the Company
receives deposits and progress payments in order to reduce its working capital
commitment to specific projects.
A majority of the Company's sales are non-recurring capital expenditures for its
customers; therefore, the Company cannot usually rely on repeat sales to meet
its sales and cash flow objectives. Additionally, the lead time required to
fulfill customers' requirements are not such that equipment and systems that
will be delivered by the Company in the current year have been ordered by the
end of the first quarter. The Company cannot therefore predict with certainty
the customers or orders it will receive to sustain its operations.
Nevertheless, the Company's prior experience causes management to believe that,
when added to the current backlog, sufficient orders will be received in 1996 to
maintain the Company's operations.
12
<PAGE>
The Company's Canadian subsidiary had a credit facility available of $75,000
Canadian ($55,000 US) which was fully utilized at March 31, 1996 (this line has
subsequently been paid in full). This facility was a demand note bearing
interest at 9.25% at March 31, 1996 with the Bank of Nova Scotia. Two of the
Company's domestic subsidiaries as joint borrowers have available a credit
facility of $500,000, but not to exceed 70% of Qualified Accounts Receivable as
defined, of which $493,000 was utilized at March 31, 1996. This facility is a
demand note bearing interest at 10.25% with the Society National Bank of
Indiana, and expires October 31, 1996. One of the Company's subsidiaries had a
$200,000 line of credit which has been paid down to $25,000 by June, 1996
through the use of proceeds from the sale of the Florence building and $5,000
per month of amortization.
During 1995, the Company experienced losses which contributed to decreased
liquidity and a deficiency in working capital at December 31, 1995. To address
this situation, the Company has centralized certain functions and thereby
reduced expenses, sold the debentures mentioned above and is working to close a
new receivables financing facility. Additionally, the Company's backlog at March
31, 1996 and improved operations for the first quarter of 1996 cause management
to believe the Company will improve operations and cash flow in 1996. The
Company's operations before non-cash charges for depreciation and amortization
of goodwill and interest generated $169,000 for the first quarter of 1996.
The Company has paid no dividends on its Common Stock since its inception and it
is anticipated that future earnings, if any, will be retained to finance
development of the Company's business and consequently, the Company does not
foresee paying dividends in the immediate future. Further, the Company has, for
a period of two years from the completion of its offering of 9% Convertible
Subordinated Debentures (such offering was completed on March 20, 1995) agreed
not to (i) redeem any of its securities outstanding as of the closing date of
that offering (other than redemptions that may be required), or (ii) pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's consolidated current or retained earnings
derived after the closing date of this offering, without the prior written
consent of Noble Investment Co. of Palm Beach, which served as placement agent
in connection with the offering.
Results of Operations
Net sales of the Company increased by 39% during the first quarter of 1996
compared to the same period in 1995. This increase is the result of the increase
in treatment sales in the latter half of 1995, which sales were recognized in
revenues during the first quarter of 1996.
Gross margins experienced by the Company during the first quarter of 1996 were
25% compared to 28% for the same period in 1995. This decline is the result of
cost-overruns on several contracts for turn-key wastewater treatment systems,
primarily due to duplicated efforts in performing the engineering on the
contracts while relocating this work to the Company's Louisville office.
General and administrative expenses decreased by 16% for the first quarter of
1996 compared to the first quarter of 1995. The decrease in these expenses is
primarily the result of management's efforts to eliminate redundancies, strict
cost control in all operations, and the centralization of various functions
(which was initiated in 1995).
Depreciation and amortization decreased by 18% during the first quarter of 1996
compared to the same period in 1995. This decrease is the result of the pilot
plant equipment and goodwill associated with the Company's Canadian operations
written off in 1995.
Interest expense increased by 15% during the first quarter of 1996 ($135,000)
compared to the same period in 1995 ($117,000), primarily due to the increase in
amortization of fees associated with the issuance of convertible
debentures.
The Company's strategy has been to develop a full service solutions oriented
wastewater treatment company, both by internal growth and through acquisition.
To date four such acquisitions have been made. Because the Company does not have
significant investments in plant and equipment, much of the purchase price paid
for the acquisition is recognized as goodwill. This goodwill is being amortized
over 20 years on a straight line basis, which results in substantial charges to
earnings for
13
<PAGE>
which no cash outlay is required. In 1995, the Company wrote off the goodwill
associated with its Canadian operation. The Company believes the remaining
goodwill will be recovered through operations; however, the Company will
continue to evaluate recoverability.
The Company had a backlog of approximately $8,168,000 at March 31, 1996 as
compared to approximately $7,776,000 at March 31, 1995. The backlog is comprised
of approximately 50% and 24% representing the treatment business and 50% and 76%
representing engineering and management services at March 31, 1996 and 1995,
respectively. The treatment business backlog represents firm purchase orders and
proposals accepted by customer for which purchase orders will not be issued
until engineering designs have been accepted. This backlog is generally shipped
within a four month period following receipt of order. The Company's backlog as
of any particular date may not be indicative of backlog as of any subsequent
date and may vary considerably from time to time depending upon the volume and
size of orders and changes in delivery schedule. The Company anticipates that
approximately 78% of the total backlog amounts will be realized during the year
ended December 31, 1996. The above backlog amounts do not include a contract for
management of a sewage plant which expires June 30, 1996, and which the customer
has indicated that it will not renew. This contract had generated approximately
$90,000 of revenues and $10,000 of contribution to the Company's overhead
coverage on a monthly basis.
The Company has not experienced a significant change in price levels of goods
and services during 1996.
The Company does not engage in any currency hedging activities. It does
contract for exports in U.S. or Canadian currencies, with customers' payment
obligations secured by irrevocable letters of credit.
Statements issued by the Financial Accounting Standards Board in 1995 have not
had a material effect on the Company's consolidated financial statements. The
Company has elected to continue to utilize APB Opinion Number 25 to account for
employee stock options.
DECEMBER 31, 1995 AND THE THREE YEARS THEN ENDED
Liquidity and Capital Resources
The Company has no material commitments for capital expenditures, and does not
anticipate any material commitments in the coming year. The operations of the
Company do not require the Company to have significant additional investments in
long- term assets.
The Company had a deficiency in working capital at December 31, 1995 of
$1,830,000, compared to a deficiency at December 31, 1994 of $1,514,000. The
principal components of this decrease in working capital of $316,000 are the
cash used by operations ($300,000), additional amounts invested in businesses
acquired in 1994 ($314,000), offset by amounts raised in financing activities
($330,000).
The Company experienced a decrease in working capital of $1,196,000 during 1994.
The principal components of this decrease in working capital are the amounts by
which current liabilities assumed in the Tenney Pavoni Associates, Inc. ("TPA")
acquisition exceeded current assets ($2,063,000), the year's net loss
($375,000), offset by the long-term debentures sold ($1,005,000) to fund the
acquisition and to enhance the initial working capital for the acquired
business.
The Company experienced a decrease in working capital of $136,000 in 1993. The
principal components of this decrease in working capital were the sale of stock
and warrants in a public offering which netted the Company $2,378,000; offset by
cash outlays of $1,105,000 in the PCE acquisition (including transaction costs),
net debt repayment of $563,000 and a loss of $973,000 for the year ended
December 31, 1993.
The Company's operations used cash in the amount of $300,000 for the year ended
December 31, 1995 while such operations provided cash of $150,000 for the year
ended December 31, 1994. The cash used by operations during 1995 was the result
primarily of the cash loss for the period of $1,221,000 (net loss exclusive of
charges not requiring cash) net of an increase in current payables. The cash
used in 1994 was the result primarily of the cash loss for the period of $4,000
net of a reduction in inventories. The cash used in operations in 1993 of
$738,000 was the result primarily of the cash loss for 1993 of $656,000.
14
<PAGE>
As a result of these deficiencies in working capital, the Company has
experienced significant strains on its cash flow. To address this condition, in
late 1994 and early 1995, the Company sold, through a private placement, 9%
Convertible Subordinated Debentures which proceeds had netted the Company
$1,588,000.
In 1995, the Company held merger discussions with a Company in similar lines of
business, and during the course of these discussions and negotiations, was
advanced $500,000 which was used for working capital, primarily to reduce
current borrowings. In November 1995, these negotiations terminated due to a
failure to agree to terms, and repayment of the advance was demanded. In
February 1996, the advance was repaid with the proceeds of a private placement
of a convertible debenture.
In 1995, the Company decided to centralize, in Louisville, Kentucky, its
engineering and project management organization for its treatment systems. This
enables the Company to reduce its employment and consistently manage similar
engagements previously carried out by its first three acquisitions. Costs
incurred in 1995 related to this were $249,000 of costs related to terminated
employees and $81,000 of costs incurred as a result of the centralization of the
engineering and project management functions, which are included in general and
administrative costs.
In February 1996, the Company accepted an offer to sell its facility in
Florence, Kentucky. The sales proceeds were $300,000 and were received in April,
1996. These proceeds were used to retire the existing mortgage of $140,000,
reduce the Company's bank line of credit by $149,000 and the remainder was used
for operations.
The Company's business cycle from the initiation of expenditures on a project to
the collection of all outstanding receivables from the project is typically four
to six months, depending on the project. In many instances, the Company
receives deposits and progress payments in order to reduce its working capital
commitment to specific projects.
A majority of the Company's sales are non-recurring capital expenditures for its
customers; therefore, the Company cannot usually rely on repeat sales to meet
its sales and cash flow objectives. Additionally, the lead time required to
fulfill customers' requirements is not such that equipment and systems that will
be delivered by the Company in the current year have been ordered by the end of
the first quarter. The Company cannot therefore predict with certainty the
customers or orders it will receive to sustain its operations. Nevertheless, the
Company's prior experience cause management to believe that, when added to the
current backlog, sufficient orders will be received in 1996 to maintain the
Company's operations.
The Company's Canadian subsidiary has a credit facility available of $190,000
Canadian ($140,000 US) which was fully utilized at December 31, 1995. This
facility is a demand note with a floating interest rate (10% at December 31,
1995) with the Bank of Nova Scotia. Two of the Company's domestic subsidiaries
as joint borrowers have available a credit facility of $500,000, but not to
exceed 70% of Qualified Accounts Receivable as defined, of which $493,000 was
utilized at December 31, 1995. This facility is a demand note bearing interest
at 10.5% with the Society National Bank of Indiana.
During 1995, the Company experienced losses which contributed to decreased
liquidity and a deficiency in working capital at December 31, 1995. To address
this situation, the Company has centralized certain functions and thereby
reduced expenses, sold a $650,000 5% convertible debenture in February, 1996
(which netted the Company $500,000), and sold an additional 5% convertible
debenture in April, 1996 for $500,000 (which netted the Company $385,000).
Additionally, the Company has a.proposal for a new receivables financing
facility which it expects to complete in the second quarter of 1996. The
Company's backlog at December 31, 1995 and additional contracts awarded since
year-end cause management to believe the Company will improve operations and
cash flow in 1996.
The Company has paid no dividends on its Common Stock since its inception and it
is anticipated that future earnings, if any, will be retained to finance
development of the Company's business and consequently, the Company does not
foresee paying dividends in the immediate future. Further, the Company has, for
a period of two years from the completion of its offering of 9% Convertible
Subordinated Debentures (such offering was completed on March 20, 1995) agreed
not to (i) redeem any of its securities outstanding as of the closing date of
that offering (other than redemptions that may be required), or (ii) pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's consolidated current or retained earnings
derived after the closing date of this offering, without the prior written
consent of Noble Investment Co. of Palm Beach, which served as placement agent
in connection with the offering.
15
<PAGE>
Results of Operations
Net sales of the Company increased by 31% in 1993 compared to 1992 reflecting
$3,122,000 of revenue derived from the subsidiary acquired in 1993. Net sales of
the Company increased by 5% in 1994 compared to 1993. Sales increased 33% in
1995 versus 1994. Both of these increases were primarily the result of the TPA
acquisition. The Company usually has its lowest sales quarter in the first
quarter, and this is expected to continue in 1996.
The Company experienced a slight decline in gross margin in the year ended
December 31, 1993 to 26% from 29% for 1992 which is reflective of the lower
gross margins experienced as the result of heightened competition in a
relatively slow market. The Company experienced a slight increase in gross
margin in the year ended December 31, 1994 to 29% from 26% for 1993 which was
the result of the inclusion of higher gross margin business from the TPA
acquisition and stronger margins in equipment sales. The Company's gross margins
in 1995 were 23%, which decline was the result of cost overruns on several
contracts for turn-key wastewater treatment systems.
General and administrative expenses increased by 81% for the year 1993 as a
result of an acquisition. General and administrative expenses decreased 10% in
1994 as compared to 1993. This decrease was the result of $639,000 in expense
reductions net of $264,000 of additional expenses as a result of the Tenney
Pavoni acquisition. The reduction in expenses in 1994 was the result of
management's efforts to eliminate redundancies and strict cost control in all
operations. These expenses increased by 49% ($1,312,000) in 1995 due to
inclusion of TPA for the full year. Included in this increase are $330,000 of
costs related to terminated employees and other costs incurred to move the
engineering and management functions to a central location, which are expected
to be non-recurring charges.
Depreciation of fixed assets and amortization of goodwill increased to $493,000
during 1995 from $371,000 during 1994 and $230,000 in 1993 as a result of
acquisitions.
As a result of centralizating operations and a change in strategy initiated in
1995, the Company concluded that the goodwill associated with its Canadian
operations was not likely to be recovered, and therefore wrote off the goodwill
of that subsidiary of $673,000. The Company's strategy had been to maintain an
autonomous operation in Canada which was capable of marketing, designing and
fabricating products for the Canadian markets. As a result of the decision to
centralize these functions in the U.S. offices, the Canadian operations are now
strictly a sales and customer service operation. The Company believes the
remaining goodwill will be recovered through operations; however, the Company
will continue to evaluate recoverability. Additionally, the Company has decided
to de-emphasize pilot testing of its systems at its customers' locations, and
has reduced the carrying value of those assets by approximately $509,000.
Interest expense did not change significantly in 1993 and 1994, and increased by
$344,000 in 1995 as a result of the TPA Acquisition and the debentures issued to
fund the acquisition.
The Company's strategy has been to develop a full service solutions oriented
wastewater treatment company, both by internal growth and through acquisition
(to date, four such acquisitions have been made). Because the Company does not
have significant investments in plant and equipment, much of the purchase price
paid for earlier acquisitions is recognized as goodwill. This goodwill is being
amortized over 20 years on a straight line basis, which results in substantial
charges to earnings for which no cash outlay is required.
The Company had a backlog of approximately $8,905,000 at December 31, 1995 as
compared to approximately $8,357,000 at December 31, 1994. The backlog is
comprised of approximately 45% and 14% representing the treatment business and
55% and 86% representing engineering and management services for the years
ending December 31, 1995 and 1994, respectively. The treatment business backlog
represents firm purchase orders and proposals accepted by customers for which
purchase orders will not be issued until engineering designs have been accepted.
This backlog is generally shipped within a four month period following receipt
of order. The Company's backlog as of any particular date may not be indicative
of backlog as of any subsequent date and may vary considerably from time to time
depending upon the volume and size of orders and changes in delivery schedules.
The Company anticipates that approximately 84% of the 1995 backlog amounts will
be realized during the year ended December 31, 1996 as compared to approximately
55% having been realized of the December 31, 1994 backlog during 1995.
16
<PAGE>
The Company has not experienced a significant change in price levels of goods
and services during 1995 or 1994. The Company does not engage in any currency
hedging activities. It does contract for exports entirely in U.S. or Canadian
currencies, with international customers' payment obligations secured by
irrevocable letters of credit.
No statements issued by the Financial Accounting Standards Board in 1995 are
expected to have a material effect on the Company's consolidated financial
statements.
BUSINESS
The Company is engaged in the design, engineering, manufacture,
distribution and operation of products used to treat water and wastewater. The
Company's background, business strategy, operations and products, as well as its
markets and competition are discussed below.
BACKGROUND
EV Environmental, Inc., formerly Equity Ventures Inc. ("EV" or the
"Company") is a Delaware corporation formed in February, 1990 for the purpose of
acquiring an operating business, which was then unidentified, which the
management of EV thought might offer significant growth potential. During 1990,
EV raised $467,000 ($443,000 net after expenses) in its initial public offering.
On December 9, 1991, JBCH Acquisition Corp. ("JBCH") was merged with and
into the Company (the "Merger"). JBCH was a privately-held company which was
formed in 1991 for the purpose of acquiring two operating subsidiaries,
Pollution Control, Inc. ("PCI") and Aer-O-Flo Environmental, Inc. ("Aer-O-Flo").
PCI, a Kentucky corporation located in Florence, Kentucky (a suburb of
Cincinnati), is successor by merger to a business incorporated in 1985. Aer-O-
Flo, an Ontario corporation located in Burlington, Ontario (a suburb of
Toronto), is successor to a business formed in 1963.
In the Merger, 600,497 shares of Common Stock of the Company were issued to
the former stockholders of JBCH in exchange for all the outstanding stock of
JBCH. An additional 342,713 shares were reserved for issuance in exchange for
shares of 958147 Ontario Inc. ("9 Co."), a subsidiary of JBCH at the time of the
Merger, 40% of the stock of which was issued to the former stockholders of
546022 Ontario Inc., the holding company which owned Aer-O-Flo ("5 Co."), in
exchange for their shares of 5 Co.
As a result of the Merger and the subsequent amalgamation of 5 Co. and 9
Co. into 1008650 Ontario, Inc. ("Canco") and the exchange of Canco shares for
114,235 shares of the Company common stock by one of the former stockholders,
the Company owns all the outstanding stock of PCI and a seventy-three percent
(73%) interest in Canco, the holding company of Aer-O-Flo. Upon the exchange of
the shares of Canco held by such former stockholders of 5 Co. for the 228,477
shares of the Company reserved for issuance upon such exchange, the Company will
be the one hundred percent (100%) beneficial owner of Aer-O-Flo. Holders of such
Canco shares may not transfer their respective shares, unless such shares are
first offered to the Company for exchange into Common Stock of the Company, as
provided above. Upon a change of control of the Company, such Canco shares are
exchangeable at the option of the Company for Common Stock of the Company, as
provided above. If at any time the Company has the right to effect such
exchange, it will do so.
At the time of the Merger, Michael R. Cox (who subsequently became Chairman
of the Board, President and Chief Executive Officer of the Company as a result
of the Merger) was the ultimate control person of JBCH. Prior to the Merger,
JBCH had committed to issue 417 JBCH shares (less than 5% of the JBCH shares)
for nominal consideration to Drake Capital Securities, Inc. ("Drake"). Pursuant
to the terms of the Merger, such share issuance commitment was substituted with
42,107 shares of the Company. At the time of the Merger, Ezra E. Ezra was the
Company's Chairman of the Board and a vice president and minority shareholder of
Drake. (See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Transactions with
Ezra). Except as set forth in this paragraph, neither JBCH and its affiliates,
nor the Company and its affiliates, owned any equity interest in, nor held any
official position such as officer or director with, the other.
17
<PAGE>
ACQUISITION OF PCE
On February 26, 1993, the Company acquired Pollution Control Engineering,
Inc. (a California operation), a wastewater treatment firm engaged in business
similar to that of the Company, through a merger into a newly formed subsidiary
of the Company, Pollution Control Engineering, Inc. (a Delaware
corporation)("PCE"). The former stockholders of the acquired business received
in exchange for all of their stock 145,456 shares of common stock of the
Company, $806,000 cash and $92,000 of notes.
ACQUISITION OF BUSINESS OF TENNEY PAVONI ASSOCIATES, INC.
On December 7, 1994, in a transaction accounted for as of November 1, 1994
(the date of effective control), the Company completed the purchase of
substantially all of the business assets, and assumed specific business
liabilities, of Tenney Pavoni Associates, Inc., an Indiana corporation ("TPA")
(the "TPA Acquisition"). The Company did not assume any liabilities related to
the settlement of an investigation by the Justice Department relating to the
predecessor business, and the settlement of that investigation included the
agreement of the U.S. government not to pursue assets sold by TPA to the
Company. TPA was a consulting engineering firm engaged in wastewater treatment
design and the contract management and operation of wastewater treatment
facilities for third parties. The assets were acquired by two newly-formed,
wholly-owned subsidiaries of the Company, EV Engineering, Inc. and EV Contract
Management Services, Inc. (collectively the "Subsidiaries"). The Company
believes the acquisition enables the Company to enter two additional important
wastewater treatment markets, the design of large municipal treatment plants and
the contract management and operation of wastewater treatment plants for third
parties.
The purchase price in connection with the TPA Acquisition, which was
determined by arms-length bargaining between the parties, was approximately
$2,607,000, $361,000 payable in monthly installments of $16,700 commencing March
1, 1997, except that the first installment will be $10,000, plus the assumption
of net liabilities of approximately $2,014,000. Such purchase price includes
$314,000 in additional expenses and consideration paid in 1995. At the close of
the TPA Acquisition, the Company made a payment to TPA's lending bank, Society
National Bank, Indiana (the "Bank"), of approximately $750,000 in satisfaction
of a portion of the assumed liabilities.
BUSINESS STRATEGY
The Company's business strategy is based on expansion of its participation
in the growing water and wastewater treatment market in the United States and
Canada. Estimates of the size of such market vary significantly. The Company
believes it has a very small market share.
The Company intends to pursue a business strategy of expansion through the
growth of the existing business and introductions of new products. The Company's
priority in its business strategy is achieving consistently profitable
operations. Nevertheless, the Company intends to pursue those opportunities
which, in management's opinion, will provide the best return on investment based
on the opportunities available.
The Company intends to expand its existing businesses by focusing the sales
and marketing efforts under consistent leadership, stressing its product
differentiation as a full solutions company, and continuing to expand its
presence in targeted industries. The Company also believes that its increased
size will enable it to pursue opportunities not available to the Company's
predecessors. Additionally, management believes that the Company's previous
acquisitions will increase its ability to penetrate geographic markets and
provide enhanced abilities to address industrial users' requirements.
The Company's marketing strategy is to offer to targeted industries a full
solutions approach to the customer's wastewater discharge problems. Since such
problems are similar throughout an industry, the Company has targeted certain
industries which it has penetrated for expansion of its customer base.
Currently, these industries are food processing, pulp and paper, textiles,
contract operations of municipal treatment plants, and, on a regional basis in
the Midwest, municipal wastewater engineering services. Other target industries
will be added as the Company identifies opportunities, and will be addressed by
developing capabilities, hiring key individuals, and adding to technologies with
a presence in a target industry.
The Company believes that its systems and operating capabilities provide
positive returns on investment for many of its customers. Positive returns from
using the Company's systems arise a number of ways, including reductions in the
18
<PAGE>
surcharges which customers are assessed for discharges which can be alleviated
by treatment; decrease in the use of energy; decrease in chemical and
maintenance costs; recovery of saleable or reusable materials from the waste
stream; and providing water suitable for reuse in the customer's processes. As
freshwater resources are stretched by growth in many regions, the Company
believes that reuse of wastewater will become the most economically viable
source of additional water. In regions where freshwater use is restricted, it is
possible for a customer to expand operations by recycling wastewater or
alternatively, to sell water rights to other users. Coupled with reduced
operating costs and sewage surcharges, investment in the Company's systems can
be economically attractive.
The Company intends to transition the identity of acquired businesses to EV
Environmental to enhance cross-marketing, increase product recognition and to
maximize market presence.
PRODUCTS AND SERVICES
Although the Company's products are water treatment systems, the Company
believes that its solutions-oriented service approach to its customers is a key
factor in obtaining business. In many instances, the Company is the single
supplier for the complete treatment system. In such situations, the Company is
able to control all facets of the system, which minimizes the customer's burden
of compliance with its discharge requirements.
The Company's principal products are wastewater treatment systems designed
to meet customers' specific treatment needs. These systems are varied in size
(based upon the volume to be treated) and complexity (based upon the
contaminants to be treated). In some instances, the Company sells components
rather than complete systems, both to its competitors and directly to customers
or their consultants.
The following is the approximate percentage contribution to sales by class
of similar products and services for the Company for each of the last three
years (all of the Company's systems, products and services are considered by the
Company to be of a single class for the purification of water, and comprise a
single industry segment):
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Treatment Systems 100% 91% 61%
Engineering & Management Services 9 39
---- -- --
100% 100% 100%
===== ===== =====
</TABLE>
The above classifications have been made based on the Company's primary
products and services. Treatment systems, in most cases, employ more than one
wastewater treatment methodology, such as oil water separation, solids
separation, and/or biological treatment. The increase in engineering and
management services is the result of inclusion of those operations for the
entire period in the current year. The Company intends to aggressively pursue
sales in the above classes of treatment in the future.
MARKETS AND COMPETITION
The Company's markets in both the United States and Canada are driven by
environmental forces, such as increased awareness and cost of polluted
discharges and enforcement and funding programs of federal, state and local
governments.
Federal government deficits have decreased the amount of funding available
to local sewage treatment authorities to expand existing treatment facilities.
Because many facilities are operating at or near capacity, local governments
have been forced to enforce wastewater discharge requirements as a means of
reducing the volume to be treated by their facilities. The result is that most
industries with significant waste streams must install or improve their own
pretreatment facilities to reduce the amount of wastes discharged. Management of
the Company expects this trend to continue as the phase-in requirements for the
level of treatment of wastes become more stringent in both the U.S. and
Canada.
Management of the Company believes additional impetus to reduce the
contaminant level of waste streams will occur in localities where ample
freshwater is not available. Treated water from the discharge stream can be
reused to reduce
19
<PAGE>
freshwater requirements. For example, the Company installed a treatment system
for a food processor in Kentucky so that the wastewater from the Company's
processes could be reused.
Historically, the principal source of new business for the Company is
referrals from customers that have had the Company's systems successfully
installed to prospective customers in the same industry. Due to this, the
Company has adopted an industry approach to developing new sales by first
developing a presence in an industry and then seeking to expand that
presence.
The Company's marketing efforts are aimed at reaching targeted groups of
buyers and supporters of certain types of environmental solutions. Advertising
is primarily utilized in trade journals targeted to plant engineers,
environmental engineers and managers and waste treatment facility managers. The
Company also participates in trade shows and exhibitions. Targeted direct mail
campaigns are utilized to keep potential customers abreast of the Company's
capabilities. Leads generated by these activities are passed to independent
sales representatives or handled directly.
Sales activities are principally conducted through a sales force of
commissioned independent representatives. In certain situations, top management
is directly involved in the sales effort. The Company has approximately 24
independent sales representatives in the United States; in Canada, the Company
markets through 7 commissioned independent representatives while there are an
additional 6 representatives in other parts of the world. These commissioned
representatives are either independent salespeople or small sales organizations.
The Company has a standard representative agreement which is executed with each
representative, which agreement provides for cancellation by either party on 30
days notice (which is the industry standard). In all cases, these
representatives also sell products for other suppliers, generally in the water
or wastewater industries, which provide the representatives a broad line to
sell. The Company attempts to select representatives who do not represent
competing lines, although this is not always possible. In large system sales,
Company employees have significant participation in the sales efforts, as the
sales process frequently exceeds the representative's technical expertise.
Because of the above, even though sales by a particular representative may be
significant in any given period, the Company does not believe such agreements to
be material, and the loss of any single representative would not have a material
adverse effect on the Company.
The Company has active representation in Mexico, Egypt, Thailand, Indonesia and
Israel, and has current projects in each of those countries. The Company also
has occasional sales in Europe; however, because of the more developed nature of
that market and greater competition, the Company has not stressed European sales
to the same extent as in developing countries. All export sales are arranged
with letter-of-credit financing.
The Company and its predecessors have experienced a steady growth in export
sales as environmental concerns have increased worldwide. Such sales were
approximately $1,685,000 in 1995, $1,400,000 in 1994 and $1,095,000 in 1993. In
1995 export sales were $1,483,000 from the United States and $202,000 from
Canada. The export sales in 1995 were comprised of approximately 32% to Brazil,
20% to Argentina, 20% to South Africa, and 28% to various other countries.
During 1994, export sales were approximately 17% to Russia, 71% to China and 12%
to various other countries. During 1993, export sales were approximately 20% to
Egypt, 18% to Chile, 17% to China and 45% to various other countries. Amounts
attributable to foreign sales included in the Company's backlog at December 31,
1995 included $607,000 to Brazil and $506,000 to South Africa and $144,000 to
other countries. For additional information regarding international operations,
see Note 10 to the consolidated financial statements of EV Environmental,
Inc.
The Company has experienced a seasonal weakness in the market in the first
calendar quarter. Management believes this is attributable to two causes: (1)
the Company's systems are capital assets of its customers, and the first
calendar quarter is generally the period when the Company commences the design
of systems after approval of the expenditure, and (2) the installation of some
systems is hampered by cold weather.
The Company has numerous competitors, many with substantially more
resources than the Company. Management believes that no single competitor,
however, has a dominant market position. Management believes that the Company is
able to compete successfully on the basis of product efficacy, reliability, and
service to customers. Although price is a consideration, the Company believes
that the above mentioned areas are equally important in the buying decision.
20
<PAGE>
Treatment systems customers vary significantly from year to year based on
the expansion activity of wastewater treatment facilities. Repeat sales have
not been significant, although the Company endeavors to generate repeat sales
from customers with multiple locations. No single customer represents in excess
of 10% of the Company's sales on an ongoing basis, and no single or affiliated
group of customers has accounted for as much as 10% of combined sales in the
past three years for the treatment systems.
Engineering and management services customers are ongoing in nature.
Generally, engineering services are provided on a one year contractual agreement
with their customers. In 1995, one engineering customer represented 12% of the
Company's combined sales. Management services are provided on contractual
agreements, generally ranging from one to three years. In 1995, no single
customer represented in excess of 10% of the Company's combined sales. For
1994, no customer for the engineering and management services represented a
significant portion of the combined sales.
The Company's research and development activities are primarily internal
engineering to develop enhancements to existing technologies. The costs
associated with developing similar enhancements for specific customer
applications, which, because of the unique characteristics of each customer
application are present in many systems, are not considered research and
development. Because much of the costs of designing the Company's VDR system
(see "Operations") was included in job related costs, it is not practicable to
isolate the total cost of the effort. Management believes that specific
research and development costs were less than $50,000 in each of the last three
years.
OPERATIONS
The Company's operations prior to the acquisition of TPA consisted
primarily of designing treatment systems for its customers' aqueous flows,
managing the manufacture of the related hardware (through contract
manufacturers) and in many instances managing the installation of the systems
and the training of personnel at customers' locations. All such services are
included in the contract price of the equipment or system to the customer. The
Company's systems are also utilized within manufacturing customers' internal
resource recovery and process control operations. As a result of the TPA
acquisition the Company now provides consulting engineering services (primarily
to municipalities in Kentucky and Indiana) and the contract operation of
wastewater treatment facilities for both public and private sector clients.
During 1995, the Company decided to reorganize its operations along market
and product lines, rather than along the lines of the former autonomous
operating entities that had been acquired. Three distinct markets were
identified that the Company served: wastewater systems, contract operations of
treatment facilities, and consulting engineering. The wastewater systems markets
are serviced by the first three acquisitions made by the Company from inception
through 1993. The contract operations and consulting engineering markets are
served by the acquired operations of TPA, which are organized and managed from
Louisville, Kentucky and South Bend, Indiana, respectively.
In reorganizing the wastewater systems business, the Company has changed
from being geographically independent and operating autonomously to being
functionally driven as described in the preceding paragraph. Separate sales and
marketing, engineering and production, and finance and administration personnel
report to the functional executives. Due to the base of engineering talent in
the Louisville, Kentucky location, engineering and production in the systems
operations have been concentrated in that location, with the elimination of
redundancies in the engineering operations at the Florence, Kentucky,
Burlington, Ontario and Irvine, California locations. The Company believes that
organization will enable it to respond more quickly to market changes and
significantly reduce its overall cost of doing business.
As a result of this centralization activity, the Company has significantly
reduced the size and scope of its Canadian subsidiary. The office census was
reduced, management was changed, the extensive use of pilot plants in the
marketing effort curtailed, certain products of other suppliers dropped or
exclusive rights relinquished, and engineering for this market supplied from
other locations. As a result, goodwill related to this acquisition of $673,000
(net) was deemed to be permanently impaired and was written off in the fourth
quarter, along with an investment in pilot plant equipment of having a net book
value of approximately $509,000.
To reduce operating cash needs in 1995, the Company froze capital additions
and new hires during the year and reduced its payroll through a series of
terminations which is expected to reduce overall expenses by over $800,000, and
centralized accounting and cash management. The full benefit of these steps are
not expected to be realized until 1996. The Company intends to add new employees
to meet expected sales growth in 1996 when actual sales are awarded.
21
<PAGE>
Essentially all of the Company's systems and products are designed
internally. The designs of the products were either developed internally or
purchased. There is some patent and copyright protection, although the Company
does not believe this protection to be material to its competitive situation
other than the new patent application discussed below. The Company's proprietary
patents do not give the Company exclusive use of any of these technologies, but
rather protect certain mechanical enhancements which reduce maintenance and
power usage, and provide the ability to adjust to the changing effluents. There
are many technologies available in the public domain for the treatment of the
waste flows which the Company addresses. Most treatment systems employ several
different technologies in reaching the desired discharge level. The Company has
the ability to provide appropriate analysis of customers' wastewater problems,
combine technologies to efficiently treat the waste, provide a system with ease
of operation and relatively low maintenance, and provide flexibility in the
system to enable the customer to more easily deal with changing effluents.
The Company currently has a patent application pending (submitted in early
1995) for a proprietary biological treatment system (the Variable Depth Reactor
or "VDR"). The Company currently has several installations using this
technology, and believes it is a significant improvement over prior methods of
utilizing aerobic biological treatment. The principle advantages are ease of
operation, lower energy and chemical costs, and reduced initial capital
costs.
The Company's products are manufactured by contract vendors, primarily
metal working concerns. Raw materials are purchased by the vendors to Company
specifications and are billed to the Company as part of the manufacturing costs,
principally upon shipment by the vendors. There are numerous sources for the
parts and materials used in the Company's products, as well as numerous contract
fabricators to produce the products. During the years ended December 31, 1995,
1994 and 1993, purchases from Marcon Custom Metals, Inc. accounted for 3%, 3%
and 7%, and Columbian Steel Tank accounted for 1%, 4% and 2%, respectively of
the Company's cost of sales during the same periods. Neither of these vendors is
the sole source of the products it supplies. In 1995, purchases from Water
Services, Inc. accounted for 5% of the purchases. Purchase orders for the supply
of the Company's products are negotiated on a job-by-job basis, generally by
competitive bid. There are no general supply contracts with any of the Company's
vendors. Since there are many potential sources of supply, none of the
relationships with such vendors are material and the loss of any single such
vendor would not have a material adverse effect on the Company. Shipments are
made to the Company's warehouses or drop shipped to the customer. In many
instances, component parts are shipped to the Company for final assembly and
testing before shipment to customers.
Company personnel perform all functions described above, other than the
actual metal-working required in the fabrication of products, and occasional
construction functions, which are subcontracted to the appropriate craft.
The Company maintains an inventory of replacement parts to fill recurring
and immediate customer needs. This inventory generally does not require a
significant financial investment.
The businesses of water treatment and wastewater treatment have
substantially benefited from federal, state, provincial and local regulation of
environmental and water quality matters. The two principal United States federal
statutes which substantially affect the Company's business are the Revised Clean
Water Act of 1987 and the Revised Safe Drinking Water Act of 1980. Many states
and provinces regulate and enforce water and wastewater treatment as well. These
regulatory and enforcement efforts have created a strong demand for the
Company's products. Continued promulgation and enforcement of similar
regulations, or the failure to adopt or enforce such regulations, could have a
significant impact on the demand for the Company's products and services.
The Company does not haul or dispose of wastes, and is therefore not
subject to regulations regarding those activities.
Government agencies frequently require permits to be issued for the
Company's projects to proceed toward completion. Permits fall into two general
categories, namely construction permits and wastewater discharge permits. The
former seldom, if ever, become an issue with regard to the Company's ability to
proceed with contract completion. The wastewater discharge permits are generally
administered by individual state departments of environmental protection. When
customers expand existing production facilities or change their discharge from a
public sewer to a waterway, permits are scrutinized extensively by state
agencies, which can delay the customer's installation.
Where the customer is upgrading an installed pretreatment facility or
installing a pretreatment facility for a waste stream that already discharges
into an existing sewer, obtaining permits is not generally an issue. Because the
Company's
22
<PAGE>
customers are usually under pressure from regulatory agencies to reduce
discharges, the threat of withdrawal of existing discharge permits has a
generally positive impact on the Company's operations.
BACKLOG
The Company had a backlog of approximately $8,905,000 at December 31, 1995
as compared to approximately $8,357,000 at December 31, 1994. The backlog is
comprised of approximately 45% and 14% representing the treatment business and
55% and 76% representing engineering and management services for the years
ending December 31, 1995 and 1994, respectively. The treatment business backlog
represents firm purchase orders and proposals accepted by customers for which
purchase orders will not be issued until engineering designs have been accepted.
This backlog is generally shipped within a four to six month period following
receipt of order. The Company's backlog as of any particular date may not be
indicative of backlog as of any subsequent date and may vary considerably from
time to time depending upon the volume and size of orders and changes in
delivery schedules. The Company anticipates that approximately 84% of the 1995
backlog amounts will be realized during the year ended December 31, 1996 as
compared to approximately 55% having been realized of the December 31, 1994
backlog during 1995.
EMPLOYEES
The Company currently has 103 employees, 95 in the United States and 8 in
Canada, none of whom are represented by unions. The Company's management
believes its relations with employees are satisfactory.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Except for historical information contained herein, the matters discussed
in this Registration Statement are forward-looking statements which involve
risks and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
PROPERTIES
The Company uses approximately 2,800 square feet of leased office space in
Ft. Mitchell, Kentucky (which lease expires in 1999), 10,000 square feet of
leased office space in Louisville, Kentucky (which lease expires in 1999), 8,000
square feet of leased premises in California (which lease expires in 1998),
2,600 square feet of leased office space in Indiana (which lease expires in
1998) and 12,000 square feet of leased space in Canada (which lease expires in
1997). The Company rents approximately 1,000 square feet of office space for its
headquarters on a month-to-month basis.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From the date of the Company's initial public offering through February 24,
1993, there had not been a publicly quoted market for the Company's Common
Stock. On February 24, 1993, the Company completed a public offering of 350,000
units, each unit consisting of one share of common stock and one warrant to
purchase a share of common stock at $12. The Common Stock is traded in the
over-the-counter market and is quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") Small Cap Market. The following
table indicates the range of the closing high and low bid quotations for the
Company's Common Stock for each full quarterly period since such offering as
quoted on the listing of NASDAQ Small-Caps Issues.
<TABLE>
<CAPTION>
Quarterly Period Ending High Bid Low Bid
- ----------------------- -------- -------
<S> <C> <C>
June 30, 1993 $8 3/8 $7 1/2
September 30, 1993 7 7/8 6 3/4
December 31, 1993 6 3/4 5
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
March 31, 1994 5 3/8 4 3/8
June 30, 1994 4 3/8 3 1/8
September 30, 1994 4 1/2 3 3/8
December 31, 1994 4 3 3/8
March 31, 1995 4 1/2 3 1/2
June 30, 1995 4 1/4 3
September 30, 1995 3 1/4 1 3/8
December 31, 1995 2 1/2 1
March 31, 1996 2 7/8 1 1/4
April 30, 1996 1 3/8 1
</TABLE>
The closing price for the Company's Common Stock on June 14, 1996 was
$1.25.
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily reflect
actual transactions. There are approximately 400 beneficial holders of the
Company's Common Stock. The Company has paid no dividends on its Common Stock
since its inception and it is anticipated that future earnings, if any, will be
retained to finance development of the Company's business and consequently, the
Company does not foresee paying dividends in the immediate future. Further, the
Company has, for a period of two years from the completion of its offering of 9%
Convertible Subordinated Debentures (such offering was completed on March 20,
1995) agreed not to (i) redeem any of its securities outstanding as of the
closing date of that offering (other than redemptions that may be required), or
(ii) pay any dividends or make any other cash distribution in respect of its
securities in excess of the amount of the Company's consolidated current or
retained earnings derived after the closing date of this offering, without the
prior written consent of Noble Investment Co. of Palm Beach, which served as
placement agent in connection with the offering.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE SINCE POSITION WITH THE COMPANY
- ---- --- ----- -------------------------
<S> <C> <C> <C>
Michael R. Cox 49 1991 Chairman, President, Chief Executive
Officer, Chief Financial Officer and
Director
Dan L. Scroggins 39 1991 Executive Vice President and Director
Murdoch Heideman 51 1993 President of PCE and Director
Ralph A. Armstrong 41 1994 Senior Vice President - Sales and
Marketing and Director since 1996.
</TABLE>
Mr. Cox has been Chairman, President, and Chief Executive Officer of the
Company since the merger of JBCH in December, 1991. He had held the same
positions with JBCH since June, 1991. Mr. Cox was a director and Executive Vice
President of Kimberly, Cox & Harnish, Inc., a private investment firm, from
prior to 1989 until 1993. He was Vice
24
<PAGE>
Chairman of the Board of Hunter Environmental Services, Inc., a publicly traded
environmental services firm, in 1989, and President and Chief Executive Officer
from 1987 through 1988.
Mr. Scroggins was Chairman of the Board and President of North American
Environmental, Inc. from June, 1991 to October 16, 1991. Prior to that he was
Vice President and General Manager of such corporation beginning in 1986. Mr.
Scroggins has been an Executive Vice President of the Company and its
predecessor JBCH since October 16, 1991. He has been President of Pollution
Control, Inc. since October 16, 1991.
Mr. Heideman has been a director of the Company since March, 1993. For
more than the last five years, he has been President of Pollution Control
Engineering, Inc., a California corporation which in February, 1993 was acquired
by merger into the Company's wholly-owned subsidiary.
Mr. Armstrong joined the Company in February 1994 as Senior Vice President-
Sales and Marketing and was elected a Director in March, 1996. He was President
of erca USA Inc. (a food processing and packaging equipment manufacturer) from
1991 to 1993. Prior to that he had held various positions since 1979 with
Continental Can Company, most recently Vice President of Sales and Marketing at
Continental Plastic Ventures.
The terms of office of all Directors of the Company are from the time of
election until the next annual meeting of stockholders and until their
respective successors are qualified as provided in the By-laws of the Company.
All officers hold office at the pleasure of the Board of Directors. None of the
Company's Directors or executive officers has a family relationship with any
other Director or executive officer.
EXECUTIVE COMPENSATION
- ----------------------
The following table sets forth information concerning remuneration paid or
accrued by the Company and its subsidiaries during the three years ended
December 31, 1995 for all executive officers including those as to whom the
total remuneration exceeded $100,000, and for all executive officers of the
Company as a group.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
NUMBER OF
OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY AWARDS
<S> <C> <C> <C>
Michael R. Cox 1995 $130,000 20,000
Chairman, President and 1994 130,000
Chief Executive Office 1993 130,000
All Current Executive Officers 1995 452,760 77,000
As a Group 1994 547,616 60,000
1993 381,250 10,000
</TABLE>
25
<PAGE>
During the year ended December 31, 1995 options were granted to the following
executive officers:
<TABLE>
<CAPTION>
Individual Grants
-----------------
Number of
Securities % of Total
Underlying Options Exercise Price Expiration
Name Options Granted ($/share) Date
- ---- ------ ------- -------- ----
<S> <C> <C> <C> <C>
Michael R. Cox 20,000 9% $3.50 2000
Ralph A. Armstrong 40,000 19% 3.50 2000
Dan L. Scroggins 10,000 5% 3.50 2000
Murdoch Heideman 5,000 2% 3.50 2000
Jennifer L. Clark 2,000 1% 3.50 2000
</TABLE>
The aggregate option exercise in the last fiscal year and fiscal year end option
values for the named employee is presented as follows:
<TABLE>
<CAPTION>
Number
Securities Value of
Underlying unexercised in
Unexercised the Money
Options at Options at
Shares FY-End FY-End
Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable
- ---------------- -------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Michael R. Cox 0 N/A 46,300 0
</TABLE>
The Company qualifies as a Small Business Issuer.
Mr. Cox is paid at the rate of $130,000 per year pursuant to a one year
extension of a three-year employment agreement.
The Company has adopted an incentive compensation program whereby key
employees will participate in bonuses equal to one-third of pre-tax profits for
1996. Individual awards are at the discretion of the Board of Directors.
STOCK OPTION PLAN
The Company has adopted a stock option plan conforming to Securities and
Exchange Commission Rule 16b-3 and pursuant to which incentive stock options and
non-statutory stock options can be granted. Up to an aggregate of 300,000
shares of the Common Stock may be issued under the plan. The plan was approved
by the Company's stockholders and may be amended or terminated by the Board of
Directors. The plan is to be administered by a committee (the "Option
Committee") consisting of at least two directors.
An incentive stock option may be granted to an eligible employee pursuant
to the plan. The number of shares and other terms of grant will be fixed by the
Committee except that in no event shall the term of an incentive stock option be
more than ten years. The exercise price of an incentive stock option shall be
not less than the fair market value of the Common Stock at the time of grant,
and may be paid either in cash or, with the Option Committee's consent, with
previously owned shares of the Company's Common Stock, a promissory note or a
combination thereof.
26
<PAGE>
DIRECTOR COMPENSATION
Each non-management director receives meeting fees of $500 for each meeting
of the Board of Directors attended, and $250 for each meeting attended of a
committee of the Board of Directors.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Descriptions of certain transactions and agreements to which the Company,
or its predecessor, JBCH, and certain of the officers, directors and other
related parties of the Company are parties are set forth below. The Board of
Directors believes the transactions and agreements described below were on terms
at least as favorable to the Company as those which could have been obtained
from unrelated parties and were negotiated in an arm's-length manner.
PURCHASE OF JBCH SHARES BY COX
Upon the merger of JBCH into the Company, Mr. Cox received 184,630 shares
in exchange for JBCH shares held by him which he purchased for an aggregate cash
consideration of $151,000.
LEASE OF REAL ESTATE
Effective September 1, 1993, PCE entered into a lease arrangement with a
company of which Mr. Heideman, President of PCE and director of the Company, is
a principal owner. The lease is for approximately 8,000 square feet of office
and warehouse space which serves as the headquarters of PCE. The lease calls
for base annual rentals of $43,200 per year with taxes, insurance and
maintenance being the responsibility of PCE. The lease is for a period of five
years with annual adjustments to the base rent based on the Consumer Price Index
with minimum annual increases of 4% and maximum annual increases of 6%.
LOANS TO COMPANY
During the year ended December 31, 1994, Mr. Heideman, a director of the
Company, and his spouse were issued promissory notes totaling $110,000 bearing
interest at rates ranging from 8% to 9.5% with various maturities through
January 1999.
TRANSACTIONS WITH EZRA
Ezra E. Ezra was the Chairman of the Board of the Company up to the Merger
and a former vice president of Drake Capital Securities, Inc. ("Drake"), the
placement agent for a private placement of common stock by the Company which was
completed in February 1992 and is described below. In addition, Mr. Ezra is a
beneficial owner of more than five percent of the shares of the Company. Prior
to the Merger, the Company had no operations, a net worth of approximately
$450,000 consisting mostly of cash raised in a 1990 "blind pool" public
offering, and the sole business objective of acquiring an operating business
which offered significant growth potential. At the time of the Merger, Mr. Ezra
held 49% of the Company's shares.
Upon the consummation of the Merger, the Company paid Mr. Ezra $12,000 as a
non-accountable expense reimbursement and issued 14,036 shares to him in
consideration of services rendered by him in connection with the Merger. Of the
42,107 shares issued to Drake following the Merger in consideration of services
provided by Drake, Mr. Ezra received 27,370 shares. Pursuant to the terms of the
Merger, Mr. Ezra was given the right to direct the Company to issue 20,000
shares and 20,000 Redeemable Warrants directly to persons designated by Mr.
Ezra. Of such amounts, 1,600 shares and 16,000 Redeemable Warrants were issued
to Mr. Ezra. In addition, the Company has agreed to nominate Mr. Ezra, at his
request, for election as a director of the Company and to use its reasonable
best efforts to cause his election. Mr. Ezra has not made such a request and the
Company does not anticipate that Mr. Ezra will make such a request in the near
future.
As part of the Merger, EV agreed to a subsequent private placement of its
Common Stock at a price of $2.00 per share. Such private placement was completed
in February 1992 and 197,500 shares were sold. In connection with the completion
of such private placement, Drake received a combination of fees, shares and
warrants. Mr. Ezra, pursuant to his employment arrangement with the Placement
Agent, received sixty-five percent of such fees, shares and warrants. Of the
27
<PAGE>
$37,000 in placement fees paid to Drake, Mr. Ezra received $24,050. Of the
14,035 shares issuable to Drake following such private placement, Mr. Ezra
received 9,123 shares. Of the warrants to purchase 20,800 shares issuable to
Drake at $2.00 per share following such private placement, Mr. Ezra received
warrants to purchase 13,520 shares. In addition, Mr. Ezra jointly with his wife,
purchased 32,500 shares in such private placement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------
The following table sets forth information with respect to beneficial
ownership of Equity Securities as of June 11, 1996 by (1) each person who owns
of record or is known by the Company to own beneficially more than 5% of the
common shares of the Company, (2) by each director and certain executive
officers of the Company and (3) by all executive officers and directors as a
group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP(1) CLASS OWNED
------------------------------------ -------------- ------------ -----------
<S> <C> <C> <C>
Michael R. Cox Common Stock 238,598(2) 6.2
1465 Post Road East Series A Warrants 5,000(3) 1.1
Westport, CT 06880
(Director and 5% shareholder)
Dan L. Scroggins Common Stock 110,501(4) 2.9
Pollution Control, Inc. Series A Warrants 8,000 1.8
7529 Sussex Drive
Florence, KY 41042
(Director and 5% shareholder)
Murdoch Heideman Common Stock 72,728(5) 1.9
Pollution Control Engineering, Inc.
6 Autry, Suite B
Irvine, CA 92718
(Director)
Ralph A. Armstrong Common Stock 46,333(6) 1.2
1465 Post Road East 9% Convertible
Westport, CT 06880 Debentures 50,000 2.5
The Robins Companies, Inc. Common Stock 222,354 5.8
871 Michigan Avenue
Columbus, Ohio 42315
(5% Shareholder) (9)
RBB Bank Aktiengesellschaft Common Stock 1,467,972(7) 38.6
Leonhardstr. 5, 8010 Graz
Austria
All executive officers and Common Stock 469,494(8) 11.9
directors as a group (8 persons) Series A Warrants 13,000 2.9
9% Convertible
Debentures 50,000 2.5
</TABLE>
___________
(1) Except as otherwise stated, all holders of any shares have sole voting and
investment power with respect to such shares, and all holders having the
right to acquire shares will have sole voting and investment power upon the
acquisition of said shares.
28
<PAGE>
(2) Includes 39,523 shares held by Mr. Cox's retirement account, over which Mr.
Cox exercises sole investment and voting control and 52,967 shares issuable
upon the exercise of certain options and warrants.
(3) Includes 1,000 Series A Warrants held by Mr. Cox's retirement account, over
which Mr. Cox exercises sole investment and voting control.
(4) Includes 59,503 shares issuable upon the exercise of certain other
options.
(5) Such shares are held by Mr. Heideman as co-trustee of the Murdoch Heideman
and Nadine Heideman Living Trust and 1,667 shares issuable upon the
exercise of certain options and include 52,967 shares issuable upon the
exercise of certain options held directly by Mr. Heideman.
(6) Includes 20,000 shares issuable upon conversion of the Company's 9%
convertible securities and 13,333 shares issuable upon the exercise of
certain options.
(7) Shares held in the name of RBB are held for the account of foreign
investors. RBB represents that no beneficial owner represents 5% of the
outstanding voting securities of the Company.
(8) Includes 321,357 shares outstanding and 148,137 shares issuable upon the
exercise of options, warrants and conversion of 9% Convertible
Securities.
(9) The Robins Companies, Inc. is controlled by Gary Robins and Gregg B.
Robins.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, $.01
par value (the "Common Stock"). On June 12, 1996, there were 3,575,360 shares of
the Company's Common Stock outstanding (not including 228,476 shares issuable
upon the exchange of Canco stock, which shares are considered outstanding for
financial statement purposes). All outstanding shares of Common Stock are, and
the shares offered hereby will be, validly issued, fully paid and nonassessable.
Holders of Common Stock are entitled to share ratably in such dividends and
distributions as may from time to time be declared by the Board of Directors of
the Company from funds legally available therefor and upon liquidation will be
entitled to share ratably in any assets of the Company legally available for
distribution to holders of the Common Stock. The Company's Certificate of
Incorporation, as amended, and By-laws do not confer any preemptive,
subscription, redemption or conversion rights on the holders of Common Stock.
Holders of Common Stock are entitled to cast one vote for each share held of
record on each matter submitted to a vote of shareholders. There is no
cumulative voting, which means that holders of a majority of the Common Stock
may elect all of the directors.
DIVIDENDS
The Company has paid no dividends on its Common Stock since its inception
and it is anticipated that future earnings, if any, will be retained to finance
development of the Company's business and consequently, the Company does not
foresee paying dividends in the immediate future. Further, the Company has, for
a period of two years from the completion of its offering of 9% Convertible
Subordinated Debentures (such offering was completed on March 20, 1995) agreed
not to (i) redeem any of its securities outstanding as of the closing date of
that offering (other than redemptions that may be required), or (ii) pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's consolidated current or retained earnings
derived after the closing date of this offering, without the prior written
consent of Noble Investment Co. of Palm Beach, which served as placement agent
in connection with the offering.
29
<PAGE>
SERIES A WARRANTS
The following summary of terms and provisions of the Series A Warrants is
qualified in its entirety by reference to the detailed provisions of the Series
A Warrants, the form of which is an exhibit to the Registration Statement of
which this Prospectus is a part.
Each Series A Warrant entitles its registered owner to purchase, at the
exercise price of $5.00, one share of the Company's Common Stock during the
three years commencing February 26, 1994 and ending February 26, 1997, subject
to extension by the Company. The Company may call and redeem all outstanding
Warrants commencing 15 months from February 16, 1993 upon 30 days' prior written
notice, at the redemption price of $.01 per Warrant, at such time as the market
price of its Common Stock (as defined in the Warrant Agreement), has exceeded
the Warrant exercise price by 20% for the period of 20 consecutive business
days, provided that the holder may exercise the Warrant at any time prior to
expiration of the 30-day period. Any Warrant so called and not exercised prior
to expiration of the 30-day period will be entitled only to the redemption
price. 452,000 Series A Warrants are outstanding. 102,000 of such Series A
Warrants and the 452,000 shares of Common Stock issuable upon the exercise of
such warrants are registered hereunder.
The exercise price of the Series A Warrants and the number of shares of
Common Stock issuable upon exercise of the Series A Warrants are subject to
anti-dilution adjustments under certain circumstances including stock splits,
stock dividends, any subdivision, combination or recapitalization of the
Company's Common Stock, the sale of all or substantially all of the Company's
assets or the merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation.
Series A Warrants may be exercised by surrendering the Warrant Certificate
with the subscription form duly completed and executed, together with cash or a
bank cashier's check payable to the Company, in the amount of the exercise
price, to the Company's Warrant Agent.
Holders of Series A Warrants are not entitled to vote, to receive
dividends, or to exercise any rights of holders of Common Stock until the Series
A Warrants have been duly exercised.
During the exercise period of the Series A Warrants holders are given the
opportunity to profit from any rise in the market value of the Company's Common
Stock, and the Company may be deprived of favorable opportunities to obtain
additional equity capital, if it should then be needed, for its business. A
warrant holder may be expected to exercise such Warrants at a time when the
Company is likely to be able to obtain equity capital on terms more favorable
than those provided in such Warrants.
PREFERRED STOCK
The Board of Directors is authorized to issue up to 500,000 shares of
Preferred Stock in one or more series and to designate the number of shares
constituting any such series and the terms thereof, including dividend,
conversion and voting rights, terms of redemption, liquidation preferences and
sinking fund provisions. No shares of Preferred Stock have been issued and no
series of Preferred Stock has been designated. The Board of Directors has no
present plans to issue shares of Preferred Stock or to designate any such
series.
9% CONVERTIBLE SUBORDINATED DEBENTURES
The Company has outstanding $1,938,000 of its 9% Convertible Subordinated
Debentures, due October 31, 1999 (the "Debentures"). Interest on the Debentures
is payable semi-annually on April 30 and October 31 of each year. Payment of
interest may, at the option of the Company, be paid in cash or cash equivalent
value of shares of the common stock of the Company, $.01 par value (the "Common
Stock"). The rights of holders of the Debentures to receive payment of any
principal or interest thereon is subject and subordinate to the prior payment of
the principal of (and prepayment premium, if any), and the interest on existing
indebtedness at the date of issue, institutional debt and purchase money
obligations. The Debentures will mature on October 31, 1999, unless previously
converted or redeemed.
The Debentures are convertible, at the option of the holder, at any time
prior to maturity, unless previously redeemed at a conversion price of $2.50 of
Debenture principal and accrued interest for one share of Common Stock
(equivalent to a conversion rate of 400 shares of Common Stock per $1.000 of
principal amount of Debentures). The Debentures are
30
<PAGE>
subject to mandatory conversion or redemption at the option of the Company
subject to certain market conditions and prepayment premiums.
The Debentures are secured by a first priority security interest in the
stock of the Company's wholly-owned subsidiaries created to acquire certain
assets of TPA, as well as a security interest in such assets second to that of
the subsidiaries' lending bank.
CONVERTIBLE DEBENTURES
On February 13, 1996, the Company sold RBB Bank Aktiengesellschaft of Graz,
Austria("RBB") a $650,000 face amount of 5% convertible debenture, due December
31, 1996. The debenture is convertible into the Company's common stock at the
option of either the Company or the holder at the lower of 65% of the average
bid price for the five days before subscription (February 6, 1996) or 65% of the
average bid price for the five days before conversion. The Company paid fees to
the placement agent on this transaction of $150,000.
On March 28, 1996, the Company sold a similar 5% convertible debenture due
December 31, 1996 to RBB in the face amount of $500,000, which netted the
Company $385,000 after fees. This debenture is convertible into the Company's
common stock at the option of either the Company or the holder at the lower of
65% of the five lowest closing bids in the period March 20 to April 13, 1996 or
65% of the average closing bid price for the five days before conversion.
The above debentures were converted into 1,493,624 shares of common stock in
June, 1996.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock and Series A Warrants and warrant
agent is American Stock Transfer & Trust Company, 99 Wall Street, New York, New
York 10005.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation, as amended, includes a
provision eliminating the monetary liability of directors to the fullest extent
permissible under Delaware law. The provision does not affect a director's
liability for breach of the fiduciary duties of loyalty, failure to act in good
faith, receipt of an improper personal benefit, engagement in intentional
misconduct or participation in the payment of a dividend, in a stock redemption
or in a purchase prohibited by Delaware laws. Also, the provision does not
affect a director's liability for violation of federal or state securities laws.
As a result of this provision, the Company and its shareholders may not be
able to obtain money damages from a director for breach of the duty of due care.
Although shareholders may seek injunctive or other equitable relief for a
director's alleged breach of the duty of due care, shareholders may not have any
effective remedy against such conduct if equitable remedies are unavailable.
The Certificate of Incorporation, as amended, also empowers the Company to
indemnify its directors and officers to the fullest extent permissible under
Delaware law.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 3,575,360 shares of Common Stock outstanding, of which
approximately 1,000,000 shares (29% of the shares outstanding) are held by
persons who acquired such shares in transactions which were not registered under
the Securities Act of 1933, as amended (the "Securities Act"). All of these
shares are "restricted securities" as that term is defined in Rule 144
promulgated under the Securities Act. In general, under Rule 144, a person who
has beneficially owned restricted securities for at least two years may, under
certain circumstances, sell publicly within any three-month period a number of
shares which does not exceed the greater of 1% of the then outstanding shares or
the average weekly trading volume during the four calendar weeks immediately
preceding such sale. Rule 144 also permits, under certain circumstances, the
sale of shares without any quantity or other limitation by a person who has
owned the shares for at least three years and has not been an "affiliate" of the
issuer of the securities during the three months immediately preceding the
sale.
31
<PAGE>
The above does not include 228,476 shares reserved for issuance upon exchange of
Canco stock, which shares are registered hereunder and absent registration such
shares would not be eligible for sale under Rule 144 for at least two years
after such exchange.
438,320 of the "restricted securities" described above are registered
hereunder.
Prior to the public offering effective on February 16, 1993, there was no
market for the Common Stock. The Company cannot predict the number of shares of
Common Stock which may be sold in the future pursuant to the exercise of
registration rights, or to Rule 144 or other applicable exemptions from the
registration requirements of the Securities Act, since such sales will depend on
whether persons choose to exercise any registration rights they may have, the
market price of the Common Stock, the individual circumstances of holders
thereof and other factors. Nevertheless, the possibility that substantial
amounts of restricted or registerable shares may be resold in the public market
may adversely affect prevailing market prices for the Company's securities.
PLAN OF DISTRIBUTION
SHARES TO BE ISSUED BY THE COMPANY
An aggregate 485,800 shares of Common Stock registered for issuance
hereunder are issuable upon the exercise of various warrants and options to
purchase Common Stock. 452,000 shares of Common Stock registered for issuance
hereunder are issuable upon the exercise of Series A Warrants at $5.00 per
share. An aggregate 228,476 shares of Common Stock registered for issuance
hereunder are issuable upon the exchange of 27% of the shares of 1008650
Ontario, Inc., a subsidiary controlled by the Company. An aggregate of 400,000
shares of Common Stock are registered for resale hereunder upon issuance in
payment of interest on the Company's 9% Convertible Debentures. The Company
intends to maintain the effectiveness of the registration statement covering
such shares, of which this Prospectus is a part, for at least so long as it is
obligated to maintain the effectiveness of a registration statement covering
other shares.
SELLING SECURITY HOLDERS
585,840 shares of Common Stock and 137,000 Series A Warrants may be offered
by, or for the account of, the Selling Security Holders, and 775,200 shares of
Common Stock registered for resale following issuance are issuable upon
conversion of the Company's 9% Convertible Debentures. The Company is obligated
to register these securities and to maintain the effectiveness of the
registration statement covering these securities, of which this Prospectus is
part, for at least so long as it is obligated to maintain the effectiveness of a
registration statement covering other shares.
In the case of each Selling Security Holder, the securities held by such
person prior to this Offering and registered hereunder are being offered hereby
for such person's account and it is assumed that all the securities offered
hereby will be sold so that, after completion of the offering, no Selling
Security Holder will hold any of such securities. The tables below set forth the
name of each Selling Security Holder, the relationship of the Selling Security
Holder to the Company and the number of securities which will be beneficially
owned by such Selling Security Holder as of the effective date of this Offering
(to the best of the Company's knowledge) of which this Prospectus forms a part.
The percentage of the class to be owned by each Selling Security Holder, if one
percent or more, is indicated in parentheses.
32
<PAGE>
COMMON STOCK
<TABLE>
<CAPTION>
SECURITIES TO
SECURITIES BE OFFERED FOR
NAME OWNED PRIOR STOCKHOLDER'S
TO OFFERING ACCOUNT*
<S> <C> <C>
Murdoch Heideman (3)(5) 71,728 71,728
Harry J. Marshall(7) 144,237 144,237
The Robins Companies, Inc. 222,355 222,355
Noble Investment Company of
Palm Beach, Inc. (4) 147,520 147,520
</TABLE>
SERIES A WARRANTS
<TABLE>
<CAPTION>
SECURITIES TO BE
OFFERED FOR
SECURITIES OWNED SECURITYHOLDER'S
NAME PRIOR TO OFFERING ACCOUNT*
<S> <C> <C>
First Equity Corporation
of Florida 6,000 6,000
A.B. Margolis Investments, Ltd. 8,000 8,000
Steven and Kimberly Silver 4,000 4,000
Michael R. Cox (3) (6) 4,000 4,000
Scott Goldberg 4,000 4,000
Kenneth V. Knight, Revocable Trust 8,000 8,000
Steven Silvers, P.A. Profit Sharing 4,000 4,000
Erik Petersson & Co. 8,000 8,000
Mario F. Rodriguez 8,000 8,000
J. Sheth 4,000 4,000
David L. Ziegler 4,000 4,000
Dan L. Scroggins (3) 8,000 8,000
Harry J. Marshall (7) 2,666 2,666
Roy Arthur Budd 2,667 2,667
Betco Inc. 2,667 2,667
Hedge Fund Partners Ltd. 8,000 8,000
R. Cory Schnepper 4,000 4,000
ITO Investments Ltd. 8,000 8,000
Ezra E. Ezra 4,000 4,000
</TABLE>
33
<PAGE>
COMMON STOCK ISSUABLE UPON CONVERSION OF 9% SECURED CONVERTIBLE
SUBORDINATED DEBENTURES (REGISTERED FOR RESALE)
<TABLE>
<CAPTION>
Securities to be
Principal Number of Common Shares Issued in Offered for
Amount of Shares Into Which Payment of Debenture Holders
Debentures Convertible Interest(8) Account*
---------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
Martin J., Andrew Bradley and Wendy
Blair Altman, Jointly $ 25,000 10,000 1,738 11,738
Ralph A. Armstrong (2)(3) 50,000 20,000 3,475 23,475
Philip Baretti 50,000 20,000 3,475 23,475
Virgil A. Caudy (2) 12,500 5,000 870 5,870
Jorge J. DeMoya 50,000 20,000 3,475 23,475
Paul A. DiFranco, Jr. 25,000 10,000 1,738 11,738
Effecten Stroeve N.V. 608,000 243,200 40,555 283,755
Irving and Kathy Estrin, Jointly 12,500 5,000 870 5,870
George J. Gubener 25,000 10,000 1,738 11,738
H. Wesselius & Co. B.V. 190,000 76,000 13,204 89,204
Robert L. Harvey (1)(2) 25,000 10,000 1,738 11,738
Barry J. Haskell 12,500 5,000 870 5,870
Ice Components, Inc. 50,000 20,000 3,475 23,475
Jeffrey M. Josef 25,000 10,000 1,738 11,738
Harold H. Katz Trust 40,000 16,000 2,780 18,780
Robert P. and Dolores S. Kluba, Jointly 12,500 5,000 870 5,870
James Listfield 25,000 10,000 1,738 11,738
S. Stanford Manson 12,500 5,000 870 5,870
Noble Properties I of Boca Raton, Ltd. 25,000 10,000 1,738 11,738
Rev. Living Trust Philip Rubin,
Trustee under Philip Rubin 50,000 20,000 3,475 23,475
James T. Speegle 25,000 10,000 1,738 11,738
Joseph Tricomi 25,000 10,000 1,738 11,738
Cornelis F. Wit 25,000 10,000 1,624 11,624
Luc Delhaes 12,500 5,000 870 5,870
J. Don Kepley 50,000 20,000 3,370 23,370
Riley Wilson 37,500 15,000 2,527 17,527
Milton H. Barbarosh 12,500 5,000 827 5,827
Jim Caudy 12,500 5,000 827 5,827
H. Allen Elliot 37,500 15,000 2,527 17,527
Clifford J. Moquist 25,000 10,000 1,652 11,652
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Perry A. Diamond, Jr. 12,500 5,000 827 5,827
Chesapeake Bay Ltd. 100,000 40,000 6,605 46,605
Maria Llorca 12,500 5,000 827 5,827
Philip K. and Nancy M. Nolan, Jointly 12,500 5,000 827 5,827
Marc A. and Rosann E. Kaplan, Jointly 37,500 15,000 2,477 17,477
Joseph and Grace Doria, Jointly 12,500 5,000 827 5,827
Patrick and Margaret Zirkelbach, Jointly 12,500 5,000 827 5,827
Ronald L. Russell 25,000 10,000 1,652 11,652
John W. and James C. Burlen, Jointly 25,000 10,000 1,607 11,607
Katharine C. Adams 25,000 10,000 1,607 11,607
Gregory G. Dollarhyde 25,000 10,000 1,607 11,607
R. Peter Zimmermann (1)(2) 12,500 5,000 805 5,805
Victor Caroli (2) 25,000 10,000 1,607 11,607
Cory B. Nass 12,500 5,000 805 5,805
</TABLE>
*Unless indicated below each Selling Security Holder will own less than 1% of
the outstanding class following this Offering, assuming all the securities
offered hereby are sold.
(1) Former Director.
(2) Held in retirement account, over which indicated beneficiary exercises
voting and investment control.
(3) Officer and Director
(4) Represents Warrants to purchase 35,000 units at $6.00 per unit consisting of
one share of common stock and one redeemable Series A Warrant; and rights to
purchase 77,520 common shares at $2.50 per share.
(5) Held by Mr. Heideman as co-trustee of the Murdoch Heideman and Nadine
Heideman Living Trust.
(6) Chairman, President, and Chief Executive Officer of the Company and a 10%
beneficial owner.
(7) Officer and Director until March, 1995.
(8) Shares issued in payment of interest totalling 131,037 of the total of
400,000 hereby registered for such purposes. Future share issued to pay
interest, if any, will be determined by the then market price divided into the
interest then owed.
The sale of securities by the Selling Security Holders may be effected from
time to time in one or more transactions (which may involve block transactions,
ordinary brokerage transactions, transactions in which brokers solicit purchases
and transactions directly with a market maker) in the over-the-counter market,
in negotiated transactions or otherwise, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Brokers and dealers selected by Selling Security Holders may receive
commissions or discounts from a Selling Security Holder in amounts to be
negotiated immediately prior to the sale. A Selling Security Holder and such
brokers or dealers may be deemed to be "Underwriters" within the meaning of the
Securities Act in connection with such sales.
35
<PAGE>
The Company has agreed to pay the fees and expenses incurred in connection
with the preparation and filing of the registration statement covering the
securities of the Selling Security Holders included in this Prospectus, which
forms a part of the registration statement, and any required updates to the
registration statement. The Selling Security Holders are responsible for any
commissions, discounts or fees of underwriters, brokers, dealers or agents, and
any transfer taxes applicable to the securities sold by them pursuant to this
Prospectus.
COUNSEL
The validity of the authorization and issuance of the securities offered
hereby will be passed upon for the Company by Rich, May, Bilodeau & Flaherty,
P.C., Boston, Massachusetts. Daniel T. Clark, Secretary of the Company, is a
shareholder of such firm. Shareholders of Rich, May, Bilodeau & Flaherty, P.C.
hold in the aggregate 20,559 shares of Common Stock of the Company and options
to purchase 10,000 shares of Common Stock of the Company.
36
<PAGE>
EXPERTS
The financial statements of EV Environmental, Inc. as of December 31, 1995
and 1994 and for each of the years in the three year period ended December 31,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of Tenney Pavoni Associates, Inc. for the year
ended December 31, 1993 have been included herein and elsewhere in the
registration statement in reliance upon the report of Schnitzer & Kondub,
independent certified public accountants, and upon the authority of such firm as
experts in accounting.
37
<PAGE>
EV ENVIRONMENTAL, INC.
INDEX TO FINANCIAL STATEMENTS
1. EV ENVIRONMENTAL, INC.
Consolidated balance sheets of EV Environmental, Inc. and subsidiaries as
of December 31, 1995 and 1994 and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years
ended December 31, 1995, 1994 and 1993............................ F-2
2. TENNEY PAVONI ASSOCIATES, INC.
Statements of operations, changes in shareholders' equity, and cash flows
of Tenney Pavoni Associates, Inc. for the year ended December 31, 1993 and
the unaudited ten months ended October 31, 1994...................F-19
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
EV Environmental, Inc.:
We have audited the accompanying consolidated balance sheets of EV
Environmental, Inc. and its subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the 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 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, such consolidated financial statements present fairly, in
all material respects, the financial position of EV Environmental, Inc. and its
subsidiaries at December 31, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
March 27, 1996
F-2
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
------------------------- -----------
1994 1995 1996
---------- ---------- --------
(Unaudited)
<S> <C> <C> <C>
Cash $ 763,000 $ 477,000 $ 303,000
Accounts receivable 3,437,000 4,035,000 4,994,000
Inventory 349,000 196,000 190,000
Other current assets 254,000 303,000 757,000
----------- ----------- -----------
Total current assets 4,803,000 5,011,000 6,244,000
Property and equipment, net 1,269,000 626,000 350,000
Cost in excess of net assets acquired, net 6,553,000 5,780,000 5,699,000
----------- ----------- -----------
$12,625,000 $11,417,000 $12,293,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable -- banks $ 1,245,000 $ 858,000 $ 883,000
Notes payable -- others 250,000 183,000
Current portion of long-term debt 146,000 167,000 141,000
Accounts payable 1,820,000 2,382,000 3,028,000
Accrued project costs 1,327,000 1,555,000 2,166,000
Accrued expenses 1,483,000 1,879,000 1,242,000
Promissory notes, payable to officers 46,000 -- --
----------- ----------- -----------
Total current liabilities 6,317,000 6,841,000 7,643,000
Long-term debt 1,377,000 2,648,000 2,625,000
Indebtedness to related parties - non-current 289,000 143,000 20,000
Other non-current liabilities 330,000 229,000 444,000
----------- ----------- -----------
Total long-term liabilities 1,996,000 3,020,000 3,089,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,024,000,
2,177,000 and 2,207,000 issued and outstanding
at December 31, 1994,
1995 and March 31, 1996 20,000 20,000 22,000
Paid-in capital 5,809,000 6,153,000 6,183,000
Deficit (1,426,000) (4,539,000) (4,563,000)
Cumulative translation adjustment (91,000) (80,000) (81,000)
----------- ----------- -----------
4,312,000 1,556,000 1,561,000
----------- ----------- -----------
$12,625,000 $11,417,000 $12,293,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Quarter Ended March 31,
-------------------------------- -----------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Sales:
Treatment systems $9,318,000 $8,903,000 $ 7,941,000 $1,501,000 $2,518,000
Engineering and management services -- 851,000 5,057,000 1,308,000 1,385,000
---------- ---------- ----------- ---------- ----------
9,318,000 9,754,000 12,998,000 2,809,000 3,903,000
---------- ---------- ----------- ---------- ----------
Cost of sales, exclusive of depreciation
Treatment systems 6,859,000 6,490,000 6,870,000 1,240,000 2,074,000
Engineering and management services -- 452,000 3,094,000 788,000 844,000
---------- ---------- ----------- ---------- ----------
6,859,000 6,942,000 9,964,000 2,028,000 2,918,000
---------- ---------- ----------- ---------- ----------
Gross margin 2,459,000 2,812,000 3,034,000 781,000 985,000
---------- ---------- ----------- ---------- ----------
Operating expenses:
General and administrative 2,953,000 2,655,000 3,967,000 916,000 771,000
Depreciation and amortization 317,000 371,000 493,000 126,000 103,000
Impairment of long-term assets - - 1,182,000 - -
---------- ---------- ----------- ---------- ----------
3,270,000 3,026,000 5,642,000 1,042,000 874,000
---------- ---------- ----------- ---------- ----------
Operating income/(loss) (811,000) (214,000) (2,608,000) (261,000) 111,000
Interest expense 162,000 161,000 505,000 117,000 135,000
---------- ---------- ----------- ---------- ----------
Net loss $ (973,000) $ (375,000) $(3,113,000) $ (378,000) $ (24,000)
========== ========== =========== ========== ==========
Net loss per common share $ (.51) $ (.19) $ (1.50) $ (.19) $ (.01)
========== ========== =========== ========== ==========
Weighted average shares outstanding 1,914,000 2,013,000 2,076,000 2,024,000 2,187,000
========== ========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) operating
activities:
Net income (loss) $ (973,000) $(375,000) $(3,113,000) $(378,000) $ (24,000)
Adjustments to reconcile net income
(loss) to cash flows provided by
(used in) operating activities:
Depreciation and amortization 317,000 371,000 493,000 126,000 103,000
Impairment of long-term assets 1,182,000
Non-cash interest expense 217,000 90,000
Changes in operating assets and liabilities
net of effects of acquisitions:
Accounts receivable 272,000 (389,000) (598,000) 242,000 (959,000)
Inventory 78,000 281,000 153,000 46,000 6,000
Other current assets 603,000 (109,000) (49,000) 12,000 (179,000)
Accounts payable (258,000) 79,000 562,000 (146,000) 646,000
Accrued expenses and other liabilities (777,000) 292,000 853,000 (309,000) 91,000
----------- --------- ----------- ---------- ---------
Net cash provided by (used in) operating
activities (738,000) 150,000 (300,000) (407,000) (226,000)
Cash flows provided by investing activities:
Additions to property and equipment excluding
acquired business (40,000) (266,000) (13,000) 10,000 (21,000)
Purchase of the net assets of acquired
businesses, net of cash acquired (1,104,000) 270,000 (314,000) (83,000)
Insurance proceeds relating to pre-
acquisition costs, net 302,000
---------- --------- ----------- --------- ---------
Net cash (used in) investing activities (843,000) 4,000 (327,000) (73,000) (21,000)
Cash flows provided by (used in)
financing activities:
Issuance of stock 2,378,000 83,000 104,000
Issuance (repayment) of promissory notes (640,000) 14,000
Issuance of 9% Convertible Debentures 872,000 716,000 716,000 650,000
Issuance of long-term debt 86,000 281,000 500,000
Increase (decrease) notes payable--banks 112,000 (827,000) (387,000) (132,000) (116,000)
Payment of other non-current liabilities (330,000) (290,000) 8,000
Notes payable -- related parties (132,000) 2,000 (5,000)
Repayment of long-term debt (121,000) (141,000) (170,000) (477,000)
---------- --------- ----------- --------- ---------
Net cash provided by financing activities 1,815,000 409,000 330,000 126,000 74,000
Effect of translation on balance sheet not
included in other captions (24,000) (32,000) 11,000 -- (1,000)
---------- --------- ----------- --------- ---------
Net increase (decrease) in cash 210,000 531,000 (286,000) (354,000) (174,000)
Cash, beginning of period 22,000 232,000 763,000 763,000 477,000
---------- --------- ----------- --------- ---------
Cash, end of period $ 232,000 $ 763,000 $ 477,000 $ 409,000 $ 303,000
========== ========= =========== ========= =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
RETAINED CUMULATIVE
PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT
------ ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance-December 31, 1992 1,486,864 $ 15,000 $2,044,000 $ (78,000) $(35,000)
Sale of stock in public offering 350,000 4,000 2,374,000
Stock issued in connection with
acquisition of Pollution Control
Engineering, Inc. 145,456 1,000 1,308,000
Net loss (973,000)
Change in cumulative effect of balance
sheet translation adjustments (24,000)
--------- ------- ---------- ----------- ---------
Balance-December 31, 1993 1,982,320 20,000 5,726,000 (1,051,000) (59,000)
Stock issued upon exercise of options 28,560 57,000
Sale of stock in private placement 13,000 26,000
Net loss (375,000)
Change in cumulative effect of balance
sheet translation adjustments (32,000)
--------- ------- ---------- ----------- ---------
Balance-December 31, 1994 2,023,880 20,000 5,809,000 (1,426,000) (91,000)
Issuance of stock 45,454 104,000
Stock issued in payment of fees 50,000 1,000 99,000
Stock issued in payment of interest 57,597 1,000 141,000
Net loss (3,113,000)
Change in cumulative effect of balance
sheet translation adjustments 11,000
--------- ------- ---------- ----------- ---------
Balance-December 31, 1995 2,176,931 22,000 6,153,000 (4,539,000) (80,000)
Stock issued in payment of debt
(unaudited) 29,841 30,000
Net loss (unaudited) (24,000)
Change in cumulative effect of
balance sheet translation
adjustments (unaudited) (1,000)
--------- --------- ---------- ----------- ---------
Balance-March 31, 1996 (unaudited) 2,206,772 $ 22,000 $6,183,000 $(4,563,000) $(81,000)
========= ======== ========== ============ =========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE QUARTER ENDED MARCH 31, 1996
(INSOFAR AS THESE NOTES RELATE TO PERIODS SUBSEQUENT TO DECEMBER 31, 1995,
THEY ARE UNAUDITED)
GENERAL INFORMATION
The Company supplies systems for treatment of water and wastewater, designs
and engineers wastewater treatment and sewer systems and provides operating
services for wastewater treatment plants for both municipal and industrial
clients. The Company conducts business throughout the world with the largest
concentrations being in the United States and Canada.
During 1995, the Company experienced losses which contributed to decreased
liquidity and a deficiency in working capital at December 31, 1995. To address
this situation, the Company has centralized certain functions and thereby
reduced expenses, sold a $650,000 5% convertible debenture in February, 1996
(which netted the Company $500,000), and has a subscription for additional
convertible debentures with substantially the same terms as the convertible
debenture issued in February 1996 and proposal for a new receivables financing
facility. Additionally, the Company's backlog at December 31, 1995 and
additional contracts awarded since year-end cause management to believe the
Company will improve operations and cash flow in 1996.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and all subsidiary companies. Material intercompany
balances and transactions have been eliminated. The Company treats its majority
owned Canadian subsidiary as wholly-owned due to an agreement with that
Subsidiary's minority shareholders to exchange 228,476 of the Company's common
stock for their interests. Such shares remain unissued but are included in
outstanding common stock in all years presented.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to use numerous
estimates and assumptions. The accompanying consolidated financial statements
include estimates for items such as: estimated costs on contracts,
recoverability of cost in excess of net assets acquired, allowances for doubtful
accounts, and various liability accounts. Actual results could differ from those
estimates. Policies that affect the more significant elements of the
consolidated financial statements are summarized below.
Inventory - Inventory consists primarily of parts and equipment for specific
projects and is stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment - Property and equipment are carried at cost.
Depreciation is computed using the straight-line method, based on the following
estimated useful lives of the assets: building - 31 years; machinery and
equipment - 5 to 7 years; motor vehicles - 5 years.
Cost in Excess of Net Assets Acquired - Cost in excess of net assets acquired is
being amortized over 20 years on a straight-line basis and is recorded net of
accumulated amortization of $699,000 and $619,000 at December 31, 1995 and 1994
respectively. The Company reviews the recoverability of the carrying value of
cost in excess of net assets acquired based on anticipated future operating
results of the acquired companies. The Company's criteria for assessing such
recoverability is that anticipated operating results will at least equal the
periodic amortization on a non-discounted basis.
In December 1995, the Company charged operations $673,000 as a reduction of
carrying value of cost in excess of net assets acquired based on management's
assessment of the recoverability of such amounts. As a result of a
centralization of Canadian operations to another location, the Company has
significantly reduced the size and scope of its Canadian operations. The office
census was reduced, management was changed, the extensive use of pilot
F-7
<PAGE>
plants in the marketing effort was eliminated and certain products of other
suppliers dropped or exclusive rights relinquished. Consequently, the Company
concluded that the goodwill associated with its Canadian operations was not
likely to be recovered, and therefore adjusted the carrying value of that
subsidiary. The Company does not anticipate a material impact from adopting FASB
121, "Accounting for the Impairment of Long-Lived Assets."
Revenue recognition - Revenue is recognized based on the percentage of
completion method for long term construction and equipment supply projects. The
estimated percentage completed is based on cumulative costs incurred in relation
to the currently estimated total costs to complete each respective project.
Revenues derived from engineering consulting services and contract management
services are recognized as such services are provided.
Concentration of Credit Risk - The Company believes that credit risk related to
accounts receivable is limited due to its use of mechanic's lien rights and the
existence of payment bonds supporting commitments by various customers.
Additionally, substantially all international contracts, unless made with a U.S.
based company, are collateralized with irrevocable letters of credit.
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company defines cash as cash held in operating accounts at financial
institutions and cash equivalents as all highly liquid investments with a
maturity at the time of purchase of three months or less.
The Company paid interest of $202,000; $151,000 and $162,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. No income taxes were paid for
any of the years presented. 107,597 shares of common stock with a value of
approximately $242,000 were issued in payment of interest and certain placement
agent fees in 1995. Additional information about non-cash consideration paid
for acquisitions is included in Note 2.
Foreign Currency Translation - The financial statements of the Company's
Canadian subsidiary are translated into U.S. dollars in accordance with (SFAS)
No. 52. Net assets and liabilities are translated at current rates of exchange
existing at the end of the period and revenues and expenses are translated at
the average monthly exchange rates.
Net Loss Per Share - Net loss per common share is calculated by dividing net
loss by the weighted average number of shares of common stock outstanding during
each year. In each of the periods presented, no exercise of options or warrants
have been assumed because they were either non-dilutive or anti-dilutive.
Fair Value of Financial Instruments - The values of cash, accounts receivable,
notes payable, accounts payable and any financial instruments included in other
current assets and accrued expenses approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
promissory notes and long-term debt is estimated using interest rates that are
currently available to the Company for issuance of debt with similar terms and
maturities.
Stock Option Plans - The Company has a plan which provides for granting stock
options to certain employees and independent directors of the Company and its
subsidiaries. Currently, the Company accounts for compensation expense related
to such transactions using the "intrinsic value" based method. The Financial
Accounting Standards Board has issued SFAS No. 123, "Accounting for Stock Based
Compensation", that defines a "fair value" based method of accounting for stock-
based compensation, but permits compensation expense to continue to be measured
using the "intrinsic value" based method. The Company has decided to continue to
account for stock options using the "intrinsic value" method.
Reclassifications - Certain previously reported amounts in the accompanying
consolidated financial statements have been reclassified to conform to the
current year's classification.
2. BUSINESS ACQUISITIONS
Tenney Pavoni Associates, Inc. - The Company completed the purchase of
substantially all of the business assets and assumed specified business
liabilities of Tenney Pavoni Associates, Inc. (an Indiana corporation) ("TPA")
effective November 1, 1994 and the results of these operations are included in
the accompanying financial statements from that date. TPA is a consulting
engineering firm engaged in wastewater treatment design and the contract
management
F-8
<PAGE>
and operation of wastewater treatment facilities for third parties.
The purchase price in connection with the TPA Acquisition was approximately
$2,607,000, comprised of a $361,000 non interest bearing note payable in twenty
one monthly installments of $16,700 commencing March 1, 1997, except that the
first installment will be $10,000, plus the assumption of net liabilities of
approximately $2,014,000. Such purchase price includes $314,000 in additional
expenses and consideration paid in 1995.
Pollution Control Engineering, Inc. - On February 26, 1993, the Company acquired
Pollution Control Engineering, Inc. (a California corporation), a wastewater
treatment firm engaged in business similar to that of the Company, through a
merger into a newly formed subsidiary of the Company, Pollution Control
Engineering, Inc. (a Delaware corporation)("PCE"). The former stockholders of
the acquired business received in exchange for all of their stock 145,456 shares
of common stock of the Company, $806,000 cash and $92,000 of notes.
3. ACCOUNTS RECEIVABLE
The consolidated balance sheets include the following costs and estimated
earnings in excess of billings in accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- ---------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Costs and estimated earnings $8,109,000 $6,296,000 $7,083,000
Billings 6,282,000 4,422,000 4,333,000
---------- ---------- ----------
Net $1,827,000 $1,874,000 $2,750,000
========== ========== ==========
</TABLE>
The consolidated balance sheets include the following billings in excess of
costs and estimated earnings in accrued expenses or accrued project costs.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------ ---------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Billings $130,000 $564,000 $326,000
Costs and estimated earnings 111,000 394,000 194,000
-------- -------- --------
Net $ 19,000 $170,000 $132,000
======== ======== ========
</TABLE>
Accounts receivable are comprised of the following amounts:
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
--------------- ---------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Billed $1,624,000 $1,839,000 $1,780,000
Unbilled 2,032,000 2,250,000 3,064,000
Retention 144,000 211,000 268,000
Allowance for doubtful accounts (363,000) (265,000) (118,000)
---------- ---------- ----------
$3,437,000 $4,035,000 $4,994,000
========== ========== ==========
</TABLE>
All receivables on contracts in progress are considered to be collectible within
twelve months. Substantially all accounts receivable are related to North
American based companies.
In the years ended December 31, 1993, 1994 and 1995, the allowance for doubtful
accounts was increased by $20,000, $120,000 and $85,000 respectively, through
charges to operations. In 1993 and 1995, there were writeoffs of $81,000 and
$183,000, respectively, against the allowance for doubtful accounts, and in the
quarter ended March 31, 1996, writeoffs of $147,000.
F-9
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
---- ----
<S> <C> <C>
Machinery $1,197,000 $ 581,000
Building 315,000 289,000
Land 25,000 25,000
---------- ---------
Subtotal 1,537,000 895,000
Accumulated depreciation (268,000) (269,000)
---------- ---------
Net $1,269,000 $ 626,000
========== =========
</TABLE>
In December 1995, the Company wrote off pilot plant equipment previously used in
the marketing process to demonstrate its products and process that had an
original cost of approximately $600,000 and accumulated depreciation of $91,000
since the Company no longer employs this equipment in its marketing
efforts.
5. NOTES PAYABLE
The Company has a $500,000 line of credit expiring October 31, 1996 of up to 70%
of defined accounts receivable with a commercial bank bearing interest at the
bank's prime rate (8.5%) plus 2.0%. At December 31, 1995 $493,000 was
outstanding under the line of credit. This loan is secured by the assets of two
subsidiaries. The Company is not in compliance with certain covenants relating
to financial ratios and the bank has not provided a waiver. At December 31,
1994 there was $550,000 (of a total facility of $750,000) outstanding under this
line.
The Company has a Canadian $190,000 line of credit (U.S. $140,000) at December
31, 1995 and Canadian $550,000 (U.S. $393,000) at December 31, 1994 with a
commercial bank bearing interest at the bank's prime rate (7.5%) plus 2.5% at
December 31, 1995. The line was fully utilized at December 31, 1995 and 1994.
This loan was repaid in 1996.
The Company has a $175,000 demand loan with a commercial bank bearing interest
at the bank's prime rate (8.5%) plus 1.5% at March 31, 1996. At December 31,
1995 and 1994 the outstanding loan balance was $200,000 and $250,000,
respectively. The loan is secured by a subsidiary's inventory and accounts
receivable amounting to $549,000 at December 31, 1995. The Company has entered a
forbearance agreement through March 31, 1996 wherein the bank has agreed to not
pursue remedies under provisions of the original contract for events of non-
compliance with certain provisions of the contracts. This loan was reduced by
$149,000 in April, 1996 through the use of proceeds from the sale in April, 1996
of a building formerly occupied by a subsidiary of the Company, and agreement
was reached with the bank to retire the remaining balance through $5,000 per
month payments.
All of the above are callable on demand.
The Company has an installment note totalling $25,000 payable to a bank bearing
interest at the bank's prime rate (7.5% ) plus 2.5% at December 31, 1995. At
December 31, 1994 the installment note balance was $52,000.
Information pertaining to the above short-term borrowings is as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average interest rate, end of period 7.21% 9.80% 10.29%
Weighted average interest rate, over the period 7.53% 8.59% 10.46%
Highest month-end borrowings $741,000 $1,245,000 $1,279,000
Average month-end borrowings $603,000 $807,000 $1,061,000
</TABLE>
F-10
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Convertible Subordinated Debentures due October 1, 1999, interest is
payable semi-annually commencing April 30, 1995 at the rate of 9%
per annum. Interest is payable in cash or common stock of the
Company at the discretion of the Company. (a) $1,005,000 $1,938,000
Installment payments due to TPA, with interest imputed at 10%.
The first monthly installment is due March 1, 1997 in the
amount of $9,983 followed by successive monthly payments of
$16,700 each. 332,000 264,000
Mortgage note payable to bank, due in monthly installments
consisting of principal payments of $1,250 plus interest
equal to the bank's prime rate (8.5%) plus 1.5% at
December 31, 1994 through September 2005. The note is
secured by land and a building having a net book value
of $283,000 and $275,000 at December 31, 1994 and
1995. (b) 160,000 145,000
Installment note payable in settlement of litigation in
ten equal quarterly installments with zero stated
interest rate, interest imputed at 10%. The notes
are secured by a junior mortgage against a building
and certain inventories and accounts receivable. 123,000 --
Note payable to Aqua Care, Inc. bearing interest at
10% payable on February 10, 1996. (c) 500,000
Various notes payable due to owners (and/or their
spouses) of TPA at a variable rate defined by
the purchase agreement (9.75% at December 31,
1995). Beginning on April 1, 1996, monthly
principal installments of $10,000 in total are
payable based upon the pro rata share of the
original notes. 250,000
Other notes payable 33,000 30,000
----------- ----------
1,653,000 3,127,000
Less: Current portion (146,000) (107,000)
Financing fees (net of $3,000 and $78,000 amortization
in 1994 and 1995, respectively) (130,000) (372,000)
----------- -----------
Total $1,377,000 $2,648,000
=========== ===========
</TABLE>
F-11
<PAGE>
Indebtedness to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1994 1995
---- ----
<S> <C> <C>
Officers and directors at rates ranging from 8% to 12%
due on January 1, 1997 $247,000 $ 96,000
Employees or spouses due in installments at 9.5% through
December 31, 1998 88,000 107,000
-------- --------
335,000 203,000
Less current portion (46,000) (60,000)
-------- ---------
Total $289,000 $143,000
======== ========
</TABLE>
The aggregate amount of repayment requirements for the five years subsequent to
1995 are: 1996 - $669,000; 1997 - $416,000; 1998 - $207,000; 1999 - $1,953,000;
2000 - $15,000; and 2001 and thereafter - $70,000.
(a) These debentures are convertible to common stock of the Company at the
option of the holders at a rate of one share of common stock per $2.50 of
debenture principal amount and accrued interest. The debentures are subject
to conversion at the option of the Company if the closing bid price of the
common stock exceeds $7.50 per share for a period of twenty consecutive
business days. All related fees are being amortized over the life of the
debentures.
(b) The provisions of the mortgage payable to the bank include various
covenants pertaining to maintenance of certain financial ratios and
restrictions on dividends. At December 31, 1995, the Company was in
violation of these financial ratios. In April 1996, the Company sold the
building for $300,000. A portion of the proceeds was used to retire this
mortgage.
(c) On February 6, 1996, the Company closed a $650,000 aggregate principal
amount of 5% convertible debentures due December 31, 1996. The net proceeds
of $500,000 were used to pay Aqua Care, Inc. The debentures are subject to
conversion to common stock at the option of the holder, at its option, at
any time after 45 days after issuance, and they are subject to conversion
at the option of the Company at any time, at the lower of 65% of the market
price for the five days preceding the sale of the debentures or the five
days preceding conversion. The debentures have been classified as long term
at March 31, 1995, as they were converted into common stock in June
1996.
At December 31, 1995, the Company's long-term debt had a carrying value of
approximately $2,730,000 and a fair value of approximately $2,888,000.
7. INCOME TAXES
No provisions for income tax were necessary for the years ended December 31,
1993, 1994 and 1995 due to the net operating losses of the Company during those
years; no income tax benefits have been realized.
Significant temporary differences and net operating loss carryforwards at
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 998,000 $1,792,000
Allowance for doubtful accounts 145,000 93,000
---------- ----------
1,143,000 1,885,000
Valuation allowance 1,113,000 1,885,000
---------- -----------
Total deferred tax assets $ 30,000 $ 0
========== ===========
</TABLE>
F-12
<PAGE>
Net operating losses of approximately $5,100,000 begin to expire in 2007.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors two defined contribution 401(k) retirement plans covering
certain employees of two subsidiaries. Company contributions are accrued at the
discretion of the Company's Board of Directors. The Company did not make a
contribution to the plans in 1995 and contributed approximately $9,000 and
$12,000 in 1994 and 1993, respectively.
The Company sponsors a self-funded health benefits plan for its domestic
employees. Payments are made to a separate account for the benefits of the
participants. The Company has an excess loss insurance policy with a deductible
amount of $15,000 per individual with an aggregate limit of $1,000,000 with a
coverage period extending three months past the policy period on a claims-made
basis.
9. STOCKHOLDERS' EQUITY
The Board of Directors is authorized to issue up to 500,000 shares of Preferred
Stock in one or more series and to designate the number of shares constituting
any such series and the terms thereof, including dividend, conversion and voting
rights, terms of redemption, liquidation preferences and sinking fund
provisions. No shares of Preferred Stock have been issued and no series of
Preferred Stock has been designated.
The Company granted stock options to key employees, directors of the Company and
its subsidiaries and members of management of acquired businesses. During 1993,
the Company implemented an incentive stock option plan with a maximum grant
limited to 300,000 shares of common stock and has reserved 156,600 shares for
issuance under the plan as of December 31, 1995.
Of the outstanding stock options at December 31, 1995; 242,500 were exercisable
and generally had an exercise price of not less than 100% of the fair market
value of the common stock on the date of the grant. All options granted expire
five years from the date of grant.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
Avg. Avg. Avg.
Option Option Option
Shares Price Shares Price Shares Price
------- ----- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Stock options:
Outstanding, beginning of year 273,360 $2.11 284,460 $2.23 363,600 $3.05
Exercised (28,560) 2.00
Expired (17,300) 5.47 (89,400) 4.65
Granted 11,100 5.30 125,000 5.00 211,600 3.50
------- ----- -------- ----- -------- -----
Outstanding end of year 284,460 $2.23 363,600 $3.05 485,800 $2.95
======= ===== ======== ===== ======== =====
</TABLE>
The Company has exercisable warrants outstanding, for which no value has been
ascribed, at December 31, 1993, 1994 and 1995 for the purchase of the Company's
common stock. The warrants and related per share prices are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -------
Shares Price Shares Price Shares Price
------ ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Warrants:
Series A 452,000 $12.00 452,000 $12.00 452,000 $5.00
Redeemable 193,470 6.25
Founders 46,735 3.75
Underwriters 20,800 2.00 20,800 2.00 20,800 2.00
------- ---- ------ ------
Total 713,005 472,800 472,800
======= ======= =======
</TABLE>
F-13
<PAGE>
The Series A Warrants are redeemable by the Company at a price of $.01 per
Warrant upon 30 days written notice, commencing 15 months from February 16, 1993
at such time as the market price of Common Stock has exceeded the exercise price
by 20% for 20 consecutive business days. The warrants are exercisable during
such period.
The Company has granted to its underwriter in its February, 1993 and placement
agent in its debenture placement in 1994 and 1995 (i) 35,000 warrants
exercisable at $6.00 per unit to purchase one share of common stock and one
Series A warrant and (ii) warrants to purchase 77,520 shares of common stock for
$198,000.
Certain of the Company's subsidiaries have dividend restrictions as a result of
borrowing agreements.
10. INTERNATIONAL OPERATIONS
International activities include the business conducted by the Company's
Canadian subsidiary. The following table sets forth international operating
activities and identifiable assets:
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC TOTAL
------------- -------- -----
YEAR ENDED DECEMBER 31, 1993:
- -----------------------------
<S> <C> <C> <C>
Sales $ 3,784,000 $ 5,534,000 $ 9,318,000
=========== ============ ===========
Operating income $ (222,000) $ (589,000) $ (811,000)
============ ============ ============
Net income (loss) $ (308,000) $ (665,000) $ (973,000)
============ ============ ============
Identifiable assets $ 2,517,000 $ 6,007,000 $ 8,524,000
============ =========== ============
Accounts receivable $ 1,434,000 $ 876,000 $ 2,310,000
============ =========== ============
YEAR ENDED DECEMBER 31, 1994:
- -----------------------------
Sales $ 2,912,000 $ 6,842,000 $ 9,754,000
=========== =========== ===========
Operating loss $ (335,000) $ 121,000 $ (214,000)
============ =========== ===========
Net loss $ (371,000) $ (4,000) $ (375,000)
============ ============ ============
Identifiable assets $ 2,015,000 $10,610,000 $12,625,000
=========== =========== ===========
Accounts receivable $ 2,391,000 $ 1,046,000 $ 3,437,000
=========== =========== ===========
YEAR ENDED DECEMBER 31, 1995:
- -----------------------------
Sales $ 2,516,000 $10,482,000 $12,998,000
=========== =========== ===========
Operating income (loss) $(1,180,000) $(1,428,000) $(2,608,000)
=========== =========== ===========
Net loss $(1,229,000) $(1,884,000) $(3,113,000)
=========== =========== ===========
Identifiable assets $ 1,529,000 $ 9,888,000 $11,417,000
=========== =========== ===========
Accounts receivable $ 1,148,000 $ 2,887,000 $ 4,035,000
=========== =========== ===========
</TABLE>
F-14
<PAGE>
Approximate value of international sales were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Canada $2,870,000 $2,512,000 $2,111,000
Russia 95,000 239,000
Mexico 64,000 50,000
Chile 197,000
Egypt 215,000
Bolivia 152,000
Various Others 343,000 161,000 203,000
----------- ----------- -----------
$3,784,000 $2,912,000 $2,516,000
=========== =========== ===========
</TABLE>
11. SIGNIFICANT CUSTOMERS
The Company had sales to three customers totaling 12%, 9% and 9% of total
revenues for the year ended December 31, 1995; to three customers totaling 11%,
10% and 10% of total revenues for the year ended December 31, 1994 and two
customers totaling 9% and 8% for the year ended December 31, 1993. The nature
of the Company's business is such that a limited number of customers can
comprise a material portion of sales; and because a significant portion of the
Company's sales are non-recurring capital additions by its customers, a single
customer is unlikely to represent a material portion of sales in consecutive
periods.
Engineering and management services customers are ongoing in nature. Generally,
engineering services are provided on a one year contractual agreement with their
customers. Management services are provided on contractual agreements,
generally ranging from one to three years.
12. COMMITMENTS AND CONTINGENCIES
The Company had lease commitments for premises occupied by its various
subsidiaries which require approximate annual rental payments for the next five
years as follows: 1996 - $242,000; 1997 - $204,000; 1998 - $166,000; 1999 -
$98,000; 2000 - $1,000. Rent expense was approximately $217,000 and $138,000 for
1995 and 1994, respectively .
One lease included above requires base annual payments of $48,000 with annual
increases ranging from 4% to 6% through 1998 based on the Consumer Price Index.
The owner of these premises is a corporation controlled by one of the Company's
directors and his spouse.
The Company plans to lease office space in the Florence, Kentucky area to
replace space being vacated upon the sale of the land and building there. It is
not anticipated that a new lease commitment will be significant.
The Company has employment agreements with two employees who are directors,
which expire in 1996. The Company has adopted an incentive compensation program
whereby key employees will participate in bonuses equal to one-third of pre-tax
profits for 1996. Individual awards are at the discretion of the Board of
Directors.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
TENNEY PAVONI ASSOCIATES, INC.
South Bend, IN
We have audited the accompanying statements of operations, changes in
shareholders' equity and cash flows of Tenney Pavoni Associates, Inc. for the
year ending December 31, 1993. These financial statements are the responsibility
of the Company's Management. Our responsibility is to express an opinion on
these 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the results of operations of Tenney Pavoni Associates,
Inc. and its cash flows for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1. and 2. to the
financial statements, the Company incurred a significant loss from operations,
has a negative net worth and working capital, is in violation of certain
covenants on its bank loan agreement, and has reached a settlement with certain
federal agencies regarding certain billing practices with respect to its
contracts and with respect to obtaining contracts with certain municipalities
and public agencies. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are discussed in Notes 1. and 2. to the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Schnitzer & Kondub
February 14, 1995
Greenwich, Connecticut
F-16
<PAGE>
TENNEY PAVONI ASSOCIATES, INC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Ten
Months Ended
Year Ended October 31,
December 31, 1994
1993 (Unaudited)
------------ -------------
<S> <C> <C>
Net Sales $10,128,189 $4,840,445
Project costs:
Direct labor 3,330,618 1,803,266
Subcontractors 1,631,590 470,459
Other project costs 441,178 412,877
----------- ----------
5,403,386 2,686,602
----------- ----------
4,724,803 2,153,843
Operating expenses:
General and administrative 4,835,978 2,546,430
Depreciation and amortization 76,159 56,044
----------- ----------
4,912,137 2,602,474
Operating (loss) income (187,334) (448,631)
Litigation expense 1,347,000 -0-
Interest expense 127,670 95,183
----------- ----------
Net (loss) income $(1,662,004) $ (543,814)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
TENNEY PAVONI ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained Earnings
------------ -----------------
Shares Amount (Deficit)
------ ------ -----------
<S> <C> <C> <C>
Balance, December 31, 1992 400 50,175 577,436
Net loss -0- -0- (1,662,004)
Distribution to shareholders -0- -0- (452,105)
--- ----- -----------
Balance, December 31, 1993 400 50,175 $(1,536,673)
Net loss (unaudited) -0- -0- (543,814)
Balance, October 31, 1994 (unaudited) 400 $50,175 $(2,080,487)
=== ======= ===========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
TENNEY PAVONI ASSOCIATES, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Ten
Months Ended
Year Ended October 31,
December 31, 1994
1993 (Unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,662,004) $ (543,814)
Adjustments to reconcile net income (loss) to
net cash from operating activities
Depreciation and amortization 76,159 56,044
Change in assets and liabilities
Accounts receivable 652,797 20,838
Costs and estimated earnings in excess of
billing on contracts 323,005 861,936
Prepaid expenses and other assets 93,046 63,159
Accounts payable and accrued expenses (162,316) 1,595,072
Litigation reserve 1,347,000 (1,347,000)
Accrued payroll and benefits (315,352) (275,777)
Billings in excess of costs and estimated earnings
on contracts (187,566) (44,974)
----------- -----------
Net cash from operating activities 164,769 385,484
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Purchase of equipment, net (31,022) 4,251
Other assets 7,818 50,234
----------- -----------
Net cash (used in) investing activities (23,204) 54,485
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Bank overdraft 147,390 (147,390)
Advances from related parties 2,796 10,603
Borrowings on notes payable to bank 260,000 (140,000)
Payments on notes payable to shareholders (150,000) 150,000
Distributions to shareholders (452,105) -0-
----------- -----------
Net cash (used in) financing activities (191,919) (126,787)
----------- -----------
Net change in cash (50,354) 313,182
Cash at beginning of year 81,446 31,092
----------- -----------
Cash at end of year $ 31,092 $ 344,274
=========== ===========
Cash paid for:
Interest 128,000 95,183
Taxes -0- -0-
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Organization
Tenney Pavoni Associates, Inc. is a civil and environmental engineering
firm with locations in Indiana, Illinois and Kentucky. The Company provides
engineering planning, design and development service to a variety of industrial,
municipal and governmental clients located primarily in the midwestern United
States.
At December 31, 1993, the Company had negative working capital, negative
shareholders' equity, incurred a substantial operating loss for 1993 and was in
violation of certain covenants of its bank loan agreement. An unfavorable
outcome of the Federal investigation as described in Note 2 appears likely to
occur. These factors indicate that the Company may be unable to continue in
operation.
Effective November 30, 1994 Tenney Pavoni Associates entered into an asset
purchase agreement with EV Environmental, Inc. (EV). In addition to the assets
purchased certain liabilities including the bank debt described in Note 4 have
been assumed by EV. No adjustments have been made to the accompanying financing
statements to reflect the purchase by EV.
Revenue Recognition
Revenues from contracts are recognized on the percentage of completion
method, measured by the cost-to-cost method. The asset, costs and estimated
earnings in excess of billings on contracts in process, represents revenues
recognized in excess of amounts billed. The liability, billings in excess of
costs and estimated earnings on contracts in process, represents billings in
excess of revenues recognized.
Fixed Assets
Fixed assets are stated at cost. Depreciation is calculated on the straight
line methods over the lives of the related assets.
Estimated useful lives are; office and laboratory equipment, 7 years;
furniture and fixtures, 7 years; automobiles, 5 years; leasehold improvements,
term of the lease.
Income Taxes
The Company has elected to be taxed as a Subchapter S corporation under the
Internal Revenue Code the state tax laws in which states the Company conducts
business. These laws provide that, in lieu of corporate income taxes, the
shareholders are taxed on their proportionate share of the Company's taxable
income. Accordingly, the financial statements contain no provision or liability,
or benefit or refund, for federal or state income taxes.
Statement of Cash Flows
For purposes of the cash flow statement, cash includes cash and cash
equivalents with maturities of 90 days or less. The exchange of ownership of
insurance policies for the partnership interest for $22,487 described above was
a non cash investing activity in 1992.
F-20
<PAGE>
TENNEY PAVONI ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1993
and the Ten Months Ended October 31, 1994
(Information related to 1994 is Unaudited)
NOTE 2. LITIGATION
The United States Attorney's Office for the Northern District of Indiana,
in conjunction with the United States Environmental Protection Agency and the
United States Department of Transportation, conducted an investigation regarding
the Company's billing practices with respect to its contracts and with respect
to obtaining contracts with certain municipalities and public agencies for the
years 1986 through 1992.
On October 21, 1994, in connection with the sale of specified assets of the
Company, the Company and its principals entered into an agreement with the
United States (the "U.S."), represented by the U.S Attorney, with EV
Environmental, Inc. ("EV") as beneficiary, whereby the U.S. agreed not to pursue
EV, its officers, directors or assigns, for the payment of fines or penalties
assessed against the Company or its principals.
As of February 13, 1995, the Company and its principals have entered into
an agreement with the United States providing for entry of pleas of guilty to
certain charges relating to false billing, and for agreed upon fines and
restitution, subject to court approval. The principals and the Company have
agreed to pay the government approximately $1,347,000 as part of this agreement.
The Company's portion of the $1,347,000 consists of restitution of $373,000 and
a fine of $474,000. This amount being paid as cash is received by the Company
from the sale of assets. The Company is jointly and severally liable for the
fines against the principals. A reserve of $1,347,000 has been recorded in the
accompanying financial statements to reflect this. Pursuant to this agreement,
charges were filed with the United States District Court for the Northern
District of Indiana on February 13, 1995. It is the Company's belief that after
presentation of these charges to the court, administrative action will be taken
against the Company and its principals by the agencies involved to bar them from
work relating to government contracts for a period of time.
Interest expense on these notes was approximately $13,000 for 1993.
NOTE 3. PROFIT SHARING PLAN
The Company contributes to a 401(K) profit sharing plan that covers all
employees meeting the eligibility requirements of the Plan. Plan contributions
are on a discretionary basis and are in compliance with the Employee Retirement
Income Security Act requirements. The Company's contribution for 1993 was $-0-.
NOTE 4. OPERATING LEASE COMMITMENTS AND RELATED PARTIES TRANSACTIONS
The Company leases its Louisville and South Bend office facilities and
certain other property and equipment from a partnership related through common
ownership (Note 1 other investments). The leases are primarily for one year and
require the Company to pay property taxes, insurance and maintenance. It is
management's intention to extend these leases. Lease payments to the related
partnership were approximately $159,000 for 1993. In addition, the Company has
several operating leases with unrelated parties for facilities and equipment
with terms of longer than one year. Total rental expenses were approximately
$417,000 1993.
F-21
<PAGE>
TENNEY PAVONI ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended December 31, 1993
and the Ten Months Ended October 31, 1994
(Information related to 194 is Unaudited)
At December 31, 1993, future minimum lease commitments for operating leases
with terms of greater than one year are as follows:
<TABLE>
<CAPTION>
Related Party Other Total
------------- ----- -----
<S> <C> <C> <C>
1994 $159,000 $132,000 $291,000
1995 -0- 113,000 113,000
1996 -0- 26,000 26,000
-------- -------- --------
$159,000 $271,000 $439,000
======== ======== ========
</TABLE>
At December 31, 1993, the Company had certain advances due from
shareholders of $10,603.
NOTE 5. SIGNIFICANT CUSTOMER
At December 31, 1993 the company had receivables from agencies of the State
of Illinois which comprised approximately 39% of total accounts receivable.
During the year ended December 31, 1993, revenue from these agencies was
approximately 25% of total revenue.
NOTE 6. COMMITMENTS
The Company is party to several employment agreements with key employees.
Under the terms of these agreements, the employees receive specific annual
salary amounts for periods ranging in length from one to five years and in some
cases, incentive bonuses based on formulas agreed upon between management and
the employees. The Company is also obligated to pay specific benefits upon
disability as such terms are defined in certain agreements.
The Company is subject to various audits and examinations by regulatory
agencies arising from activities in the normal course of business.
NOTE 7. SUBSEQUENT EVENT
Effective November 30, 1994 Tenney Pavoni Associates, Inc. entered into an
asset purchase agreement with EV Environmental, Inc. (EV). In addition to the
assets purchased, certain liabilities including the bank debt described in Note
4 have been assumed by EV. EV has been informed by the Federal Agencies that it
will not be part of the litigation described in Note 2. No adjustments have been
made to the accompanying financial statements to reflect the purchase by EV.
F-22
<PAGE>
No person has been authorized in connection with this Offering to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that the information herein is correct as of any time subsequent to
the date of this Prospectus or that there has been no change in the affairs of
the Company since such date. This Prospectus does not constitute an offer or
solicitation any state or other jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such state or jurisdiction.
________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 2
Additional Information...................................... 2
The Company................................................. 2
The Offering................................................ 3
Summary Information......................................... 4
Risk Factors................................................ 5
use of Proceeds............................................. 9
Dividend Policy............................................. 9
Capitalization.............................................. 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................. 11
Summary Operations Information.............................. 11
Business.................................................... 16
Management.................................................. 23
Remuneration of Directors and
Executive Officers.......................................... 24
Certain Relationships and Transactions...................... 25
Security Ownership of Certain Beneficial
Owners and Management...................................... 26
Description of Securities................................... 28
Shares Eligible For Future Sale............................. 30
Plan of Distribution........................................ 30
Counsel..................................................... 34
Experts..................................................... 35
Index to Financial Statements............................... F-1
</TABLE>
102,000 SERIES A WARRANTS
3,026,754 SHARES OF COMMON STOCK
EV ENVIRONMENTAL, INC.
PROSPECTUS
JUNE 28, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses, other than underwriting discounts, in connection with the issuance
and distribution of the securities being registered hereunder are:
<TABLE>
<S> <C>
Registration fee, Securities
and Exchange Commission ........................ $3,657.00
Blue Sky fees and expenses,
including legal fees and expenses .............. 10,000.00 *
Printing and engraving costs ............................. 5,000.00 *
Accounting fees and expenses ............................. 20,000.00 *
Legal fees and expenses of the Company
(other than Blue Sky
fees and expenses) ............................. 20,000.00 *
Miscellaneous ............................................ 5,000.00 *
---------
...............................................
Total ......................................... $63,657.00 *
=========
...............................................
</TABLE>
*estimated
No portion of the expenses incurred by the Registrant in connection with the
registration of the securities offered by the Selling Security Holders will be
borne by the Selling Security Holders. Any items which are not included will be
supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant's Certificate of Incorporation contains a provision
relating to indemnification in accordance with the General Corporation Law of
Delaware which provides for indemnification of directors and officers of a
corporation and other specified persons subject to the specific requirements
therein contained. In general, these sections provide that persons who are
officers or directors of a corporation may be indemnified by the corporation for
acts performed in their capacities.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment from Registrant of expenses incurred or paid
by a director, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) On February 26, 1993, the Company issued 72,728 shares each to
Murdoch, Heideman and Jimmie E. Dysert, in connection with the merger of
Pollution Control Engineering, Inc. into a subsidiary of the Company.
(b) On February 26, 1993, the Company issued to First Equity Corporation
of Florida 6,000 Redeemable Warrants and 6,000 Series A Warrants.
(c) In February, 1994 the Company sold 13,000 shares of common stock to
Ralph A. Armstrong, Senior Vice President of the Company, for $2.00 per
share.
(d) From December, 1994 through March 20, 1995, the Company sold 9%
Subordinated Convertible Debentures (which convert into common stock at
$2.50 per share of face value of the debentures), to the following persons
in the amounts set forth:
<TABLE>
<CAPTION>
<S> <C>
Martin J., Andrew Bradley and Wendy Blair Altman, Jointly $ 25,000
Ralph A. Armstrong 50,000
Philip Baretti 50,000
Virgil A. Caudy 12,500
Jorge J. DeMoya 50,000
Paul A. DiFranco, Jr. 25,000
Effectenbank Stroeve N.V. 608,000
Irving and Kathy Estrin, Jointly 12,500
George J. Gubener 25,000
H. Wesselius & Co. B.V. 190,000
Robert L. Harvey 25,000
Barry J. Haskell 12,500
Ice Components, Inc. 50,000
Jeffrey M. Josef 25,000
Harold H. Katz Trust 40,000
Robert P. and Dolores S. Kluba, Jointly 12,500
James Listfield 25,000
S. Stanford Manson 12,500
Noble Properties I of Boca Raton, Ltd. 25,000
Philip Rubin, Trustee under Philip Rubin Rev. Living Trust 50,000
James T. Speegle 25,000
Joseph Tricomi 25,000
Cornelis F. Wit 25,000
Luc Delhaes 12,500
J. Don Kepley 50,000
Riley Wilson 37,500
Milton H. Barbarosh 12,500
Jim Caudy 12,500
H. Allen Elliot 37,500
Clifford J. Moquist 25,000
Perry A. Diamond, Jr. 12,500
Chesapeake Bay Ltd. 100,000
Maria Llorca 12,500
Philip K. and Nancy M. Nolan, Jointly 12,500
Marc A. and Rosann E. Kaplan, Jointly 37,500
Joseph and Grace Doria, Jointly 12,500
Patrick and Margaret Zirkelbach, Jointly 12,500
Ronald L. Russell 25,000
John W. and James C. Burlen, Jointly 25,000
Katharine C. Adams 25,000
Gregory G. Dollarhyde 25,000
R. Peter Zimmermann (2)(3) 12,500
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
Victor Caroli (2) 25,000
Cory B. Nass 12,500
</TABLE>
(e) In December, 1994, the Company agreed to issue 72,000 shares to
Continental Capital Corporation for consulting services. The shares
were subsequently registered for resale on a registration statement on
Form S-8.
(f) On August 31, 1995, the Company sold to Four Horsemen Ltd. 45, 454
shares of common stock in a private placement under Regulation S for
$50,000.
(g) In December, 1995 the Company issued to the holders of its 9%
Convertible Subordinated Securities 57,597 on common stock in payment
of interest
(h) In January, 1996 the Company issued 29,841 shares of common stock in
payment of a $25,000 note and accrued interest to Charles Ellis.
(i) On February 13, 1996, the Company sold RBB Bank Aktiengesellschaft of
Graz, Austria("RBB") a $650,000 face amount of 5% convertible
debenture, due December 31, 1996. The debenture is convertible into
the Company's common stock at the option of either the Company or the
holder at the lower of 65% of the average bid price for the five days
before subscription (February 6, 1996) or 65% of the average bid price
for the five days before conversion.
(j) On March 28, 1996, the Company sold a 5% convertible debenture due
December 31, 1996 to RBB in the face amount of $500,000, which netted
the Company $385,000 after fees. This debenture is convertible into
the Company's common stock at the option of either the Company or the
holder at the lower of 65% of the five lowest closing bids in the
period March 20 to April 13, 1996 or 65% of the average closing bid
price for the five days before conversion. These debentures were
converted into 1,483,624 shares of Common Stock in June, 1996.
To the extent the foregoing transactions represented a sale of a
security, the securities of the Registrant referenced therein were not
registered under the Securities Act of 1933 (the "Act") in reliance on the
exemption set forth in Section 4(2) of the Act for transactions by an issuer not
involving any public offering. The private placement described in paragraph (d)
was made under Regulation D of the Securities and Exchange Commission.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
1.1 Underwriting Agreement between the Company and Noble Investment Co. of
Palm Beach ("Noble") filed as Exhibit 1.1 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1992.
1.2 Underwriter Warrant to Purchase Units of the Company, filed as Exhibit
1.3 to Amendment No. 4 to the Company's Registration Statement on Form
S-1 (File No. 33-50624) and incorporated by this reference.
2.1 Asset Purchase Agreement, dated October 7, 1994 between EV
Environmental, Inc. (the "Company"), Tenney Pavoni Associates, Inc.
("TPA") and Mark W. Tenney ("Tenney") and Joseph L. Pavoni ("Pavoni"),
with Amendment No. 1 to the Asset Purchase Agreement, dated October
30, 1994, and Amendment No. 2 to the Asset Purchase Agreement dated
November 30, 1994 filed as Exhibit 2.1 to
II-3
<PAGE>
the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
2.2 Assignment, dated October 7, 1994, among the Company, TPA, Tenney,
Pavoni, EV Engineering, Inc., and EV Contract Management Services,
Inc. (EV Engineering, Inc. and EV Contract Management Services, Inc.
are hereinafter referred to as the "Subsidiaries") filed as Exhibit
2.2 to the Company's Current Report on Form 8-K dated December 7, 1994
and incorporated by this reference.
2.3 Agreement of Assumption of the Assumed Liabilities, dated November 30,
1994, executed by the Subsidiaries filed as Exhibit 2.3 to the
Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
2.4 Bill of Sale and Assignment executed by TPA filed as Exhibit 2.4 to
the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
3.1 Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992 and incorporated by this
reference.
3.2 Bylaws of the Company, filed as Exhibit 1.3 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (File No. 33-50624) and
incorporated by this reference.
4.1 Specimen Form of Stock Certificate filed, as Exhibit 3.3 to the
Company's Amendment No. 1 to its Registration Statement on Form S-1
(File No. 33-50624) and incorporated by this reference.
4.2 Specimen Form of Series A Warrant Certificate, filed as Exhibit 3.5 to
the Company's Amendment No. 2 to its Registration Statement on Form S-
1 (File No. 33-50624) and incorporated by this reference.
4.3 Amended Series A Warrant Agreement, and Series A Warrant Agreement,
between Registrant and American Stock Transfer & Trust Company, as
warrant agent for Series A Warrants filed as Exhibit 4.5 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1992, and incorporated by this reference.
**4.4 EV Environmental, Inc. Stock Option Plan, filed as Exhibit 19.3 to the
Company's Amendment No. 1 to its Registration Statement on Form S-1
(File No. 33-50624) and incorporated by this reference.
4.9 Form of 5-Year 9% Convertible Subordinated Debenture due October 31,
1999 of the Company filed as Exhibit 4.01 to the Company's Current
Report on Form 8-K dated December 7, 1994 and incorporated by this
reference.
*5.1 Opinion of Rich, May, Bilodeau & Flaherty, P.C.
_____________________
*Filed herewith
**Management contract or compensatory
plan arrangments II-4
<PAGE>
**10.1 Employment Agreement between Michael R. Cox and the Company dated
December 9, 1991, filed as Exhibit 19.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 and
incorporated by this reference.
10.2 Form of Registration Rights Agreement between JBCH and certain of its
stockholders, filed as Exhibit 19.1 to the Company's Registration
Statement on Form S-1 (File No. 33-50624) and incorporated by this
reference.
10.3 Lease of real property between AOF and Appleline Property Ltd. dated
January 7, 1992, filed as Exhibit 19.9 to the Company's Registration
Statement on Form S-1 (File No. 33-50624) and incorporated by this
reference.
10.4 Promissory note payable to Murdoch Heideman dated December 20, 1992,
filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1993 and incorporated herein by
this reference.
10.5 Promissory note payable to Jimmie Dysert dated December 20, 1992,
filed as Exhibit 10.31 to the Company's Annual Report on From 10-K for
the Fiscal Year Ended December 31, 1993 and incorporated herein by
this reference.
10.6 Promissory note payable to Murdoch Heideman dated January 1, 1994
filed as Exhibit 10.33 to the Company's Annual Report in Form 10-KSB
for the fiscal year ended December 31, 1994 and incorporated by this
reference.
10.7 Promissory note payable to Jimmie Dysert dated January 1, 1994, filed
as Exhibit 10.34 to the Company's Annual Report in Form 10-KSB for the
fiscal year ended December 31, 1994 and incorporated by this
reference.
10.8 Promissory note payable to Nadine Heideman dated December 31, 1994
filed as Exhibit 10.35 to the Company's Annual Report in Form 10-KSB
for the fiscal year ended December 31, 1994 and incorporated by this
reference.
10.9 Non-Competition and Confidentiality Agreement dated November 30, 1994
between the Subsidiaries, Tenney, Mark W. Tenney Associates, Inc. and
the Company filed as Exhibit 10.3 to the Company's Current Report on
Form 8-K dated December 7, 1994 and incorporated by this
reference.
10.10 Non-Competition and Confidentiality Agreement dated November 30, 1994
between the Subsidiaries, Joseph L. Pavoni, Pavoni Associates, Inc.
and the Company filed as Exhibit 10.4 to the Company's Current Report
on Form 8-K dated December 7, 1994 and incorporated by this
reference.
**10.11 Stock Option Agreement dated November 30, 1994 between the Company and
Tenney filed as Exhibit 10.5 to the Company's Current Report on Form
8-K dated December 7, 1994 and incorporated by this reference.
**10.12 Stock Option Agreement dated November 30, 1994 between the Company and
Pavoni filed as Exhibit 10.6 to the Company's Current Report on Form
8-K dated December 7, 1994 and incorporated by this reference.
_____________________
*Filed herewith
**Management contract or compensatory
plan arrangments II-5
<PAGE>
10.13 Agreement dated October 21, 1994 between the United States of America,
TPA, Tenney and Pavoni for the benefit of the Company filed as Exhibit
10.7 to the Company's Current Report on Form 8-K dated December 7,
1994 and incorporated by this reference.
10.14 Revolving Loan Agreement, dated December 8, 1994, between the
Subsidiaries and Society National Bank, Indiana (the "Bank") filed as
Exhibit 10.8 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
10.15 Master Revolving Note dated December 8, 1994, of the Subsidiaries in
favor of the Bank in the principal amount of $750,000 filed as Exhibit
10.9 to the Company's Current Report on Form 8-K dated December 7,
1994 and incorporated by this reference.
10.16 Security Agreement, dated December 8, 1994, between EV Engineering,
Inc. and the Bank filed as Exhibit 10.10 to the Company's Current
Report on Form 8-K dated December 7, 1994 and incorporated by this
reference.
10.17 Absolute, Unconditional and Continuing Guaranty, dated December 8,
1994, of the Company in favor of the Bank filed as Exhibit 10.11 to
the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
10.18 Confidential Private Placement Memorandum of EV Environmental, Inc.
dated October 24, 1994, with Supplement No. 1 dated November 17, 1994,
Supplement No. 2 dated November 30, 1994, and Supplement No. 3 dated
December 14, 1994 (without exhibits) filed as Exhibit 10.12 to the
Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
10.19 Pledge Agreement dated as of December 5, 1994, between the Company,
the holders of the Company's 5-Year 9% Convertible Subordinated
Debentures (the "Debentureholders") and Broad and Cassel (the
"Collateral Agent") filed as Exhibit 10.13 to the Company's Current
Report on Form 8-K dated December 7, 1994 and incorporated by this
reference.
10.20 Security Agreement, dated as of December 5, 1994, between the
Subsidiaries, the Debentureholders and the Collateral Agent filed as
Exhibit 10.14 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
10.21 Collateral Agency Agreement, dated as of December 5, 1994, between the
Company, the Subsidiaries and the Collateral Agent filed as Exhibit
10.15 to the Company's Current Report on Form 8-K dated December 7,
1994 and incorporated by this reference.
10.22 Form of Subscription Agreement between the Company and each of the
Debentureholders, including registration rights filed as Exhibit 10.16
to the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
**10.23 Employment Agreement by and between AOF and Jeffrey Plant dated March
13, 1995, filed as Exhibit 10.48 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995 and
incorporated herein by reference.
10.53 Agreement to purchase real estate dated February 27, 1996, filed as
Exhibit 10.50 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 and incorporated herein by
reference.
*21.1 Subsidiaries of the Registrant
II-6
<PAGE>
*23.1 Consent of Deloitte & Touche, Cincinnati, Ohio.
*23.2 Consent of Schnitzer & Kondub, Greenwich, Connecticut.
*23.4 Consent of Rich, May, Bilodeau & Flaherty, P.C. (contained in the
opinion in Exhibit 5.1).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions described under Item
14 above, or otherwise, the Company has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling persons of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the Town of Westport, State of
Connecticut, on the 28th day of June, 1996.
EV ENVIRONMENTAL, INC.
By /s/ Michael R. Cox
-------------------------------------------
Michael R. Cox
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
(i) Principal Executive and Financial Officer:
------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
/s/ Michael R. Cox June 28, 1996
-------------------------------------
Michael R. Cox
Chairman of the Board, President,
and Chief Executive Officer
(ii) Principal Accounting Officer:
----------------------------
/s/ Jennifer L. Clark June 28, 1996
-------------------------------------
Jennifer L. Clark
Vice President, Controller and
Chief Accounting Officer
</TABLE>
II-8
<PAGE>
(iii) A Majority of the Board of Directors:
------------------------------------
<TABLE>
<CAPTION>
<S> <C>
/s/ Michael R. Cox June 28, 1996
-----------------------------------
Michael R. Cox
----------------------------------- June __, 1996
Dan L. Scroggins
/s/ Ralph A. Armstrong June 28, 1996
-----------------------------------
Ralph A. Armstrong
/s/ Murdoch Heideman June 28, 1996
-----------------------------------
Murdoch Heideman
</TABLE>
_____________________
*Filed herewith
**Management contract or compensatory
plan arrangments
II-9
<PAGE>
EV ENVIRONMENTAL, INC.
REGISTRATION STATEMENT
ON FORM S-1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C> <C>
1.1 Underwriting Agreement between the Company and Noble Investment Co. of
Palm Beach ("Noble") filed as Exhibit 1.1 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1992.
1.2 Underwriter Warrant to Purchase Units of the Company, filed as Exhibit
1.3 to Amendment No. 4 to the Company's Registration Statement on Form S-1
(File No. 33-50624) and incorporated by this reference.
2.1 Asset Purchase Agreement, dated October 7, 1994 between EV
Environmental, Inc. (the "Company"), Tenney Pavoni Associates, Inc. ("TPA")
and Mark W. Tenney ("Tenney") and Joseph L. Pavoni ("Pavoni"), with
Amendment No. 1 to the Asset Purchase Agreement, dated October 30, 1994,
and Amendment No. 2 to the Asset Purchase Agreement dated November 30, 1994
filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
2.2 Assignment, dated October 7, 1994, among the Company, TPA, Tenney,
Pavoni, EV Engineering, Inc., and EV Contract Management Services, Inc. (EV
Engineering, Inc. and EV Contract Management Services, Inc. are hereinafter
referred to as the "Subsidiaries") filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated December 7, 1994 and incorporated by this
reference.
2.3 Agreement of Assumption of the Assumed Liabilities, dated November 30,
1994, executed by the Subsidiaries filed as Exhibit 2.3 to the Company's
Current Report on Form 8-K dated December 7, 1994 and incorporated by this
reference.
2.4 Bill of Sale and Assignment executed by TPA filed as Exhibit 2.4 to
the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
3.1 Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 and incorporated by this reference.
3.2 Bylaws of the Company, filed as Exhibit 1.3 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (File No. 33-50624) and
incorporated by this reference.
4.1 Specimen Form of Stock Certificate filed, as Exhibit 3.3 to the
Company's Amendment No. 1 to its Registration Statement on Form S-1 (File
No. 33-50624) and incorporated by this reference.
</TABLE>
______________________
*Filed herewith
**Management contract or compensatory
plan arrangements
<PAGE>
<TABLE>
<S> <C>
4.2 Specimen Form of Series A Warrant Certificate, filed as Exhibit 3.5 to
the Company's Amendment No. 2 to its Registration Statement on Form S-1
(File No. 33-50624) and incorporated by this reference.
4.3 Amended Series A Warrant Agreement, and Series A Warrant Agreement,
between Registrant and American Stock Transfer & Trust Company, as warrant
agent for Series A Warrants filed as Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1992, and
incorporated by this reference.
**4.4 EV Environmental, Inc. Stock Option Plan, filed as Exhibit 19.3 to the
Company's Amendment No. 1 to its Registration Statement on Form S-1 (File
No. 33-50624) and incorporated by this reference.
4.9 Form of 5-Year 9% Convertible Subordinated Debenture due October 31,
1999 of the Company filed as Exhibit 4.01 to the Company's Current Report
on Form 8-K dated December 7, 1994 and incorporated by this reference.
*5.1 Opinion of Rich, May, Bilodeau & Flaherty, P.C.
</TABLE>
______________________
* Filed herewith
** Management contract or compensatory
plan arrangements
<PAGE>
<TABLE>
<S> <C>
**10.1 Employment Agreement between Michael R. Cox and the Company dated
December 9, 1991, filed as Exhibit 19.10 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated by this
reference.
10.2 Form of Registration Rights Agreement between JBCH and certain of its
stockholders, filed as Exhibit 19.1 to the Company's Registration Statement on
Form S-1 (File No. 33-50624) and incorporated by this reference.
10.3 Lease of real property between AOF and Appleline Property Ltd. dated
January 7, 1992, filed as Exhibit 19.9 to the Company's Registration Statement
on Form S-1 (File No. 33-50624) and incorporated by this reference.
10.4 Promissory note payable to Murdoch Heideman dated December 20, 1992, filed
as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1993 and incorporated herein by this reference.
10.5 Promissory note payable to Jimmie Dysert dated December 20, 1992, filed as
Exhibit 10.31 to the Company's Annual Report on From 10-K for the Fiscal Year
Ended December 31, 1993 and incorporated herein by this reference.
10.6 Promissory note payable to Murdoch Heideman dated January 1, 1994 filed as
Exhibit 10.33 to the Company's Annual Report in Form 10-KSB for the fiscal year
ended December 31, 1994 and incorporated by this reference.
10.7 Promissory note payable to Jimmie Dysert dated January 1, 1994, filed as
Exhibit 10.34 to the Company's Annual Report in Form 10-KSB for the fiscal year
ended December 31, 1994 and incorporated by this reference.
10.8 Promissory note payable to Nadine Heideman dated December 31, 1994 filed as
Exhibit 10.35 to the Company's Annual Report in Form 10-KSB for the fiscal year
ended December 31, 1994 and incorporated by this reference.
10.9 Non-Competition and Confidentiality Agreement dated November 30, 1994
between the Subsidiaries, Tenney, Mark W. Tenney Associates, Inc. and the
Company filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
10.10 Non-Competition and Confidentiality Agreement dated November 30, 1994
between the Subsidiaries, Joseph L. Pavoni, Pavoni Associates, Inc. and the
Company filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
**10.11 Stock Option Agreement dated November 30, 1994 between the Company and
Tenney filed as Exhibit 10.5 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
**10.12 Stock Option Agreement dated November 30, 1994 between the Company and
Pavoni filed as Exhibit 10.6 to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
</TABLE>
______________________
*Filed herewith
**Management contract or compensatory
plan arrangements
<PAGE>
<TABLE>
<S> <C>
10.13 Agreement dated October 21, 1994 between the United States of America,
TPA, Tenney and Pavoni for the benefit of the Company filed as Exhibit 10.7 to
the Company's Current Report on Form 8-K dated December 7, 1994 and incorporated
by this reference.
10.14 Revolving Loan Agreement, dated December 8, 1994, between the
Subsidiaries and Society National Bank, Indiana (the "Bank") filed as Exhibit
10.8 to the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
10.15 Master Revolving Note dated December 8, 1994, of the Subsidiaries in
favor of the Bank in the principal amount of $750,000 filed as Exhibit 10.9 to
the Company's Current Report on Form 8-K dated December 7, 1994 and incorporated
by this reference.
10.16 Security Agreement, dated December 8, 1994, between EV Engineering, Inc.
and the Bank filed as Exhibit 10.10 to the Company's Current Report on Form 8-K
dated December 7, 1994 and incorporated by this reference.
10.17 Absolute, Unconditional and Continuing Guaranty, dated December 8, 1994,
of the Company in favor of the Bank filed as Exhibit 10.11 to the Company's
Current Report on Form 8-K dated December 7, 1994 and incorporated by this
reference.
10.18 Confidential Private Placement Memorandum of EV Environmental, Inc. dated
October 24, 1994, with Supplement No. 1 dated November 17, 1994, Supplement No.
2 dated November 30, 1994, and Supplement No. 3 dated December 14, 1994 (without
exhibits) filed as Exhibit 10.12 to the Company's Current Report on Form 8-K
dated December 7, 1994 and incorporated by this reference.
10.19 Pledge Agreement dated as of December 5, 1994, between the Company, the
holders of the Company's 5-Year 9% Convertible Subordinated Debentures (the
"Debentureholders") and Broad and Cassel (the "Collateral Agent") filed as
Exhibit 10.13 to the Company's Current Report on Form 8-K dated December 7, 1994
and incorporated by this reference.
10.20 Security Agreement, dated as of December 5, 1994, between the
Subsidiaries, the Debentureholders and the Collateral Agent filed as Exhibit
10.14 to the Company's Current Report on Form 8-K dated December 7, 1994 and
incorporated by this reference.
10.21 Collateral Agency Agreement, dated as of December 5, 1994, between the
Company, the Subsidiaries and the Collateral Agent filed as Exhibit 10.15 to the
Company's Current Report on Form 8-K dated December 7, 1994 and incorporated by
this reference.
10.22 Form of Subscription Agreement between the Company and each of the
Debentureholders, including registration rights filed as Exhibit 10.16 to the
Company's Current Report on Form 8-K dated December 7, 1994 and incorporated by
this reference.
**10.23 Employment Agreement by and between AOF and Jeffrey Plant dated March
13, 1995, filed as Exhibit 10.48 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995 and incorporated herein by reference.
10.53 Agreement to purchase real estate dated February 27, 1996, filed as
Exhibit 10.50 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995 and incorporated herein by reference.
*21.1 Subsidiaries of the Registrant
</TABLE>
______________________
*Filed herewith
**Management contract or compensatory
plan arrangements
<PAGE>
<TABLE>
<S> <C>
*23.1 Consent of Deloitte & Touche, Cincinnati, Ohio.
*23.2 Consent of Schnitzer & Kondub, Greenwich, Connecticut.
*23.4 Consent of Rich, May, Bilodeau & Flaherty, P.C. (contained in the opinion
in Exhibit 5.1).
</TABLE>
______________________
*Filed herewith
**Management contract or compensatory
plan arrangements
<PAGE>
EXHIBIT 5.1
RICH, MAY, BILODEAU & FLAHERTY, P.C.
THE OLD SOUTH BUILDING
294 WASHINGTON STREET
BOSTON, MASSACHUSETTS 02108-4675
TELEPHONE (617) 482-1360
FAX (617) 556-3889
July 1, 1996
EV Environmental, Inc.
1465 Post Road East
Westport, CT 06880
Gentlemen:
We have acted as counsel to EV Environmental, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-1 (the "Registration Statement"), to be filed
with the Securities and Exchange Commission under the Securities Act of 1933 for
the registration of 102,000 Series A Warrants and 3,026,754 shares of Common
Stock (collectively the "Securities).
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents as we have
deemed relevant or necessary as the basis for the opinions hereinafter
expressed. In all such examinations, we have assumed the genuineness of all
signatures on original or certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to our opinion, we have relied
upon statements or certificated of public officials, officers or representatives
of the Company and others.
Based upon the foregoing, we are of the opinion that those Securities that
have been issued as of the date hereof are validly issued, fully paid and non-
assessable, and that those Securities to be issued will be, when issued,
delivered and paid for in accordance with the terms of the various agreements
providing for their issuance, validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
<PAGE>
RICH, MAY, BILODEAU & FLAHERTY, P.C.
EV Environmental, Inc.
July 1, 1996
Page 2
Stockholders of this firm are members of the Bar of the Commonwealth of
Massachusetts and we do not hold ourselves out as being conversant with the laws
of any jurisdiction other than those of the United States of America, the
Commonwealth of Massachusetts and, to the extent necessary to express the above
opinion, the State of Delaware.
Very truly yours,
Rich, May, Bilodeau & Flaherty, P.C.
<PAGE>
Exhibit 21.1
List of Subsidiaries
1008650 Ontario Inc., an Ontario corporation
Volumetric International Inc., an Ontario corporation
457575 Ontario Inc., an Ontario corporation
Aer-O-Flo Environmental Inc., an Ontario corporation
EV Environmental Systems, Inc., a Kentucky corporation
Pollution Control Engineering, Inc., a Delaware corporation
EV Engineering, Inc., a Delaware corporation
EV Contract Management Services, Inc., a Delaware corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No. 33-
94114 of EV Environmental, Inc. on Form S-1 of our report dated March 27, 1996,
on the consolidated financial statements of EV Environmental, Inc. appearing in
the Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Cincinnati, Ohio
July 1, 1996
<PAGE>
EXHIBIT NO. 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of EV Environmental, Inc.
on Form S-1 of our report dated February 14, 1995, on the financial statements
of Tenney Pavoni Associates, Inc.appearing in the Prospectus, which is a part of
this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Schnitzer & Kondub
Greenwich, CT
June 28, 1996
