SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to ____________
Commission file number 33-34021-NY
EV ENVIRONMENTAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3555254
(State or Other Jurisdiction (I.R.S. Employer dentification No.)
of Incorporation or Organization)
1465 Post Road East, Westport, CT 06880
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 203-256-9596
Not Applicable
Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report
Check whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act during the past 12 months (or
for such shorter period that was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days Yes__X__ No
Indicate the number of shares outstanding of
each of the issuers classes of Common Stock as of the
latest practicable date. 7,666,000 at March 31, 1997.
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EV ENVIRONMENTAL, INC.
Form 10-QSB
Index
Page
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
as of March 31, 1997
(unaudited) and December 31,
1996 (audited) 3
Consolidated Statements of
Operations (unaudited) for the
quarters ended March 31, 1997
and 1996 4
Consolidated Statements of
Cash Flows (unaudited) for the
quarters ended March 31, 1997
and 1996 5
Consolidated Statements of
Changes in Stockholders' Equity
(unaudited) for the quarter
ended March 31, 1997 6
Notes to Consolidated
Financial Statements 7
Item 2: Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Part II:
Item 6. Exhibits and Reports on Form 10
8-K
Signatures 11
Index to Exhibits None
Page 2
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(March 31, 1997 is unaudited)
March December
31, 31,
1997 1996
ASSETS
Cash $215,000 $454,000
Accounts receivable, net 4,375,000 4,389,000
Inventory 241,000 205,000
Other current assets 398,000 388,000
Total current assets 5,229,000 5,436,000
Property and equipment, net 293,000 306,000
Other long-term assets 87,000 89,000
Cost in excess of net assets acquired, net 5,249,000 5,329,000
Total Assets $10,858,000 $11,160,00
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - banks $ 364,000 $ 420,000
Current portion of long-term debt 291,000 291,000
Accounts payable 2,825,000 2,613,000
Accrued project costs 1,086,000 1,456,000
Accrued expenses 964,000 1,059,000
Total current liabilities 5,530,000 5,839,000
Long-term debt 1,940,000 2,396,000
Other noncurrent liabilities 200,000 200,000
Total long-term liabilities 2,140,000 2,596,000
Stockholders' Equity:
Common stock, $.01 par value: 20,000,000
shares authorized; 7,666,000 and 5,363,000
were issued and outstanding at March 31,
1997 and December 31, 1996, respectively 77,000 53,000
Paid in capital 8,008,000 7,581,000
Deficit (4,845,000)(4,832,000)
Cumulative translation adjustment (52,000) (77,000)
Total stockholders' equity 3,188,000 2,725,000
Total Liabilities and Stockholders' Equity $10,858,000 $11,160,000
See notes to consolidated financial statements
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1996 1995
Sales:
Treatment systems $1,598,000 $2,518,000
Engineering and management services 954,000 1,385,000
2,552,000 2,903,000
Cost of sales, exclusive of depreciation:
Treatment systems 1,021,000 2,074,000
Engineering and management services 529,000 844,000
1,550,000 2,918,000
Gross margin 1,002,000 985,000
Operating expenses:
General and administrative 789,000 771,000
Depreciation and amortization 100,000 103,000
889,000 874,000
Operating income (loss) 113,000 111,000
Interest expense 127,000 135,000
Net loss $ (13,000) $ (24,000)
Net loss per common share $ - $ (.01)
Weighted average shares outstanding 7,090,000 2,187,000
See notes to consolidated of financial statements
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
Net cash flows provided by (used in) operating
activities $(196,000) $(226,000)
Cash flows provided by (used in) investing activities:
(Additions to)/sale of property and equipment-net (7,000) (21,000)
Net cash from investing activities (7,000) (21,000)
Cash flows provided by (used in) financing activities:
Repayment of bank note (56,000) (116,000)
Issuance/(repayment) of notes 14,000
Issuance/(repayment) of long term debt (456,000) (512,000)
Payment of other noncurrent liabilities 8,000
Issuance of 9% convertible debentures-net 650,000
Issuance of stock on conversion of debt 451,000 30,000
Net cash provided by (used in) financing activities (61,000) 74,000
Effect of translation of balance sheet not included in
other captions 25,000 (1,000)
Net decrease in cash (239,000) (174,000)
Cash, at beginning of period 454,000 477,000
Cash, at end period $215,000 $303,000
Supplemental Disclosures:
Income taxes paid NONE NONE
Interest paid $37,000 $45,000
See notes to consolidated financial statements
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
(000's, except shares)
CUMULAT-
PAID IN IVE TRANS-
COMMON CAPITAL (DEFICIT)LATION AD-
STOCK JUSTMENT
SHARES AMOUNT
Balance-December 31, 1996 5,362,679 $ 53 $7,581 $(4,832) $(77)
Stock issued on conversion
of debt 2,302,942 24 426
Net loss (13)
Change in cumulative effect
of balance sheet translation
adjustments 25
Balance-March 31, 1996 7,665,621 $ 77 $8,007 $(4,845) $(52)
See notes to consolidated financial statements
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - There have been no material changes from the
disclosures included in the Notes to Consolidated Financial
Statements included with the Company's consolidated
financial statements filed in its annual report on Form 10-
KSB for the year ended December 31, 1997, except as
described in the following notes. The unaudited interim
consolidated financial statements for the quarters ended
March 31, 1997and 1996 reflect all adjustments, consisting
only of normal recurring items, which are, in the opinion of
management, necessary for a fair presentation of the results
for the interim period.
Note 2 - Accounts Receivable
The consolidated balance sheets of the Company include the
following:
Costs and Estimated Earnings in Excess of March 31, December 31,
Billings: 1997 1996
Costs and estimated earnings $9,085,000 $ 8,072,000
Billings 7,393,000 5,639,000
Net $1,692,000 $ 2,433,000
The net amounts of costs and estimated earnings in excess of
billings are included in accounts receivable in the
accompanying consolidated balance sheets.
Billings in Excess of Costs and Estimated March 31, December 31,
Earnings: 1997 1996
Billings $491,000 $576,000
Costs and estimated earnings 196,000 265,000
Net $295,000 $311,000
The net amounts of billings in excess of costs and estimated
earnings are included in accrued expenses in the
accompanying consolidated balance sheets.
Accounts receivable are comprised of the following amounts:
March 31, December 31,
1997 1996
Billed $2,772,000 $2,045,000
Unbilled 1,692,000 2,433,000
Retention 41,000 41,000
Allowance for doubtful accounts (130,000) (130,000)
$4,375,000 $4,389,000
Note 3 - Net loss per share
The net loss per common share is calculated by dividing net
loss by the weighted average number of shares of common
stock outstanding during each period. In each of the
periods presented, no exercise of options or warrants have
been assumed because they were either non-dilutive or anti-
dilutive.
Page 7
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Part I Item 2 - Management's Discussion and Analysis of
Operations
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,
1997 of $301,000, compared to a deficiency at December 31,
1996 of $353,000. This improvement was the result of
operations in the quarter. Although working capital
improved in the quarter, the Company continues to experience
significant strains on its cash flow, and continues to
closely monitor expenditures and to seek additional means of
working capital financing. There can be no assurance that
such efforts will result in additional sources of working
capital, and the Company's operations will continue to be
impacted until working capital can be improved.
In January, 1997, the Company converted $500,000 face amount of
debentures into common stock. This conversion was the
remaining principal amount of $2.1 million sold in 1996 to
improve the Company's financial position.
The Company's business cycle from the initiation of
expenditures on a systems 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
1997 to maintain the Company's operations.
The Company has a three year receivables financing agreement
with Access Capital, Inc. for the purchase and sale,
administration and collection of treatment system accounts
receivable. While this facility assists in the funding of
specific projects, few on the Company's receivables are
purchased by Access, and the facility has not been a
consistent source of working capital funding for the
Company. Two of the Company's service subsidiaries have a
$364,000 working capital loan from Key Bank of Indiana,
secured by their receivables. The Company is amortizing
this loan at $8,000 per month.
The Company does not intend to pay dividends in the foreseeable
future. The payment of dividends to the Company by its
subsidiaries is restricted by covenants of certain debt
agreements entered into by these subsidiaries.
Results of Operations
The Company experienced a decline is sales in the first quarter
compared to the same period in the prior year. The factors
contributing to this were the expiration of a $1.2 million
annual contract to operate a sewage treatment plant, client
delays in the initiation of two major contracts (totaling
$3.5 million), and prolonged negotiations on a major
contract award.
Page 8
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In August, 1996, the Company and Parsons Engineering Sciences,
Inc. ("Parsons") were selected to design, construct and
operate a major sludge handling facility by the Louisville
and Jefferson County Metropolitan Sewage District ("MSD").
Contract finalization was scheduled for January, 1997. Due
to the complexity of the contract and the need for pilot
plant testing, the Company now anticipates that the final
contract will be completed in late summer or early fall of
this year. While negotiations have continued, interim work
contracts for approximately $1 million have been performed
for MSD. Once initiated, the Company anticipates the design
and construction of the facility will take approximately two
years at a capital cost to MSD of approximately $50 million.
Once completed, the Company and Parsons will operate the
facility for twenty years under an operating contract. The
Company's agreement with Parsons is to divide the work
effort on the project as equally as possible (in line with
the capabilities of the companies), and to share resultant
profits, if any, equally. While the companies and MSD
continue to work toward completion of the necessary
contracts, there can be no assurance that final agreement
will be reached.
Gross margins experienced by the Company during the first
quarter of 1997 were 39% compared to 34% for the same period
in the prior year. This improvement is the result of a
higher percentage of revenues coming from the sale of
services (as opposed to equipment), where margins are
higher. General and administrative expenses increased by 2%
for the first quarter of 1997 compared to the first quarter
of 1996. The increase in these expenses is the result of
reduced revenues, which caused less engineering costs to be
absorbed into cost of sales.
Depreciation and amortization decreased by 3% in the comparable
quarters due to some equipment becoming fully depreciated.
Interest expense did not change significantly for the first
quarter of 1997 ($127,000) compared to the same period in
1996 ($135,000).
The Company's strategy is 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 which no cash outlay is required. The
Company believes the goodwill recorded from the acquisitions
will be recovered through operations; however, the Company
will continue to evaluate recoverability.
The Company had a backlog of approximately $8.4 million at
March 31, 1997 as compared to approximately $8.2 million at
March 31, 1996. The backlog is comprised of approximately
50% representing the treatment business and 50% representing
engineering and management services at both periods. 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. Approximately
25% of the engineering and management services backlog will
be realized subsequent to 1997. 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 85% of the total backlog amounts will be
realized during the year ended December 31, 1997.
The Company has not experienced a significant change in price
levels of goods and services during 1997.
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.
No statements issued by the Financial Accounting Standards
Board in 1996 are expected to have a material effect on the
Company's consolidated financial statements.
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EV ENVIRONMENTAL, INC.
PART II. OTHER INFORMATION
Part II:
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K.
1. Current Report on Form 8_K dated January 14, 1997 regarding:
a. the appointment of Schnitzer & Kondub LLP as the Company's
auditing firm.
b. recent sales of unregistered securities.
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EV ENVIRONMENTAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
EV ENVIRONMENTAL, INC.
Date: May 20,1997 /S/ Michael R. Cox
Michael R. Cox
Chairman, President, duly
authorized officer
and Chief Financial Officer
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