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 September 30, 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 of Incorporation or Organization)(I.R.S. Employer Identification No.) 1
1900 Plantside Drive, Louisville, KY 40299
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 502-499-1600
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. 7,665,621
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EV ENVIRONMENTAL, INC.
Form 10-QSB
Index
Pag
e
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 1997
(unaudited) and December 31,
1996 (audited) 3
Consolidated Statements of
Operations (unaudited) for the
quarters ended September 30,
1997 and 1996 4
Consolidated Statements of
Operations (unaudited) for the
six months ended September 30,
1997 and 1996 5
Consolidated Statements of
Cash Flows (unaudited) for the
nine months ended September 30,
1997 and 1996 6
Consolidated Statements of
Changes in Stockholders' Equity
(unaudited) for the nine months
ended September 30, 1997 7
Notes to Consolidated
Financial Statements 8
Item 2: Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
Part II:
Item 6. Exhibits and Reports on Form
8-K 13
Signatures 12
Index to Exhibits None
PAGE 2
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(September 30, 1997 is unaudited)
September 30, December 31,
1997 1996
ASSETS
Cash $ 252,000 $ 454,000
Accounts receivable, net 2,119,000 4,389,000
Inventory 43,000 205,000
Other current assets 93,000 388,000
Total current assets 2,507,000 5,436,000
Property and equipment, net 168,000 306,000
Other long-term assets 135,000 89,000
Cost in excess of net assets acquired, net 4,289,000 5,329,000
Total Assets $ 7,099,000 $11,160,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - banks $ 104,000 $ 420,000
Current portion of long-term debt 141,000 291,000
Accounts payable 1,163,000 2,613,000
Accrued project costs 572,000 1,456,000
Accrued expenses 286,000 1,059,000
Total current liabilities 2,266,000 5,839,000
Long-term debt 1,969,000 2,396,000
Other noncurrent liabilities 277,000 200,000
Total long-term liabilities 2,246,000 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 September 30,
1997 and December 31, 1996, respectively 77,000 53,000
Paid in capital 8,008,000 7,581,000
Deficit (5,498,000)(4,832,000)
Cumulative translation adjustment (77,000)
Total stockholders' equity 2,587,000 2,725,000
Total Liabilities and Stockholders' Equity $ 7,099,000$11,160,000
See notes to consolidated financial statements
PAGE 3
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SPETEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
Sales:
Treatment systems 1,448,000 2,541,000
Engineering and management services 713,000 858,000
2,161,000 3,399,000
Cost of sales, exclusive of depreciation:
Treatment systems 1,036,000 2,004,000
Engineering and management services 361,000 563,000
1,397,000 2,567,000
Gross margin 764,000 832,000
Operating expenses:
General and administrative 1,124,000 698,000
Depreciation and amortization 82,000 100,000
1,206,000 798,000
Operating income (loss) (442,000) 34,000
Interest expense 95,000 122,000
Net loss $ (537,000) $ (88,000)
Net loss per common share $ (.07) $ (.02)
Weighted average shares outstanding 7,665,000 3,998,000
See notes to consolidated of financial statements
PAGE 4
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
Sales:
Treatment systems $ 4,296,000 $ 7,900,000
Engineering and management services 2,641,000 3,194,000
6,937,000 11,094,000
Cost of sales, exclusive of depreciation:
Treatment systems 2,961,000 6,234,000
Engineering and management services 1,478,000 1,926,000
4,439,000 8,160,000
Gross margin 2,498,000 2,934,000
Operating expenses:
General and administrative 2,537,000 2,365,000
Depreciation and amortization 284,000 305,000
2,821,000 2,670,000
Operating income (loss) (323,000) 264,000
Interest expense 343,000 350,000
Net loss $ (666,000) $ (86,000)
Net loss per common share $ (.09) $ (.03)
Weighted average shares outstanding 7,450,000 3,003,000
See notes to consolidated of financial statements
PAGE 5
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
Net cash flows provided by (used in) operating
activities $(819,000) $(615,000)
Cash flows provided by (used in) investing activities:
(Additions to)/sale of property and equipment-net 138,000 (66,000)
Increase on other assets (46,000)
Proceeds from sale of assets 813,000 300,000
Net cash from investing activities 905,000 234,000
Cash flows provided by (used in) financing activities:
Repayment of bank note (316,000) (390,000)
Issuance/(repayment) of long term debt (577,000) (705,000)
Issuance/(repayment) of other noncurrent 77,000 (105,000)
liabilities
Issuance of 9% convertible debentures-net 1,754,000
Issuance of stock on conversion of debt 451,000
Net cash provided by (used in) financing activitie s (365,000) 554,000
Effect of translation of balance sheet not included in
other captions 77,000 (4,000)
Net increase/(decrease) in cash (202,000) 169,000
Cash, at beginning of period
454,000 477,000
Cash, at end period $ 252,000 646,000
Supplemental Disclosures:
Income taxes paid $ NONE NONE
Interest paid $ 73,000 80,000
See notes to consolidated financial statements
PAGE 6
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EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except shares)
(Unaudited)
CUMULATIVE
COMMON STOCK PAID IN TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
Balance-December 31, 1996 5,362,679 $ 53 $ 7,581 $(4,832) $ (77)
Stock issued on conversion of
debt 2,302,942 426
Net loss (666)
Change in cumulative effect
of balance sheet translation
adjustments 77
Balance-March 31, 1996 7,665,621 $ 77 $ 8,007 $(5,498) $ -
See notes to consolidated financial statements
PAGE 7
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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 periods ended
September 30, 1997 and 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 - 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.
Note 3 - Sale and discontinuance of subsidiaries
In July, 1997, the Company discontinued support of its wholly-
owned Canadian subsidiary, with the result that the
subsidiary was placed into receivorship under Canadian
bankruptcy law. The Company had written-off its investment
in this subsidiary and the related goodwill in December,
1995 as a result of the continuing losses of that operation.
The Company sells in Canada through a commissioned sales
agent, and no reduction in sales volume is anticipated as a
result of closing its direct sales operations.
On August 28, 1997 the Company sold its consulting engineering
operations and $507,000 of assets to a group of former
employees for $821,000 and the assumption of liabilities of
$636,000. The results of operations of that business is
included to the date of sale. The condensed pro-forma
results of operations for the nine months ended September
30, 1997, assuming the sale had occurred on January 1, 1997
as are follows (in thousands):
As
reported Adjustments Pro-forma
Revenues $ 6,937 $1,657 $5,280
Gross Margin 2,498 685 1,813
Expenses 3,164 618 2,546
Net Loss $ (666) $ (67) $ (731)
Included in the adjustments column are reductions in
amortization of goodwill of $26,000 for the reduction in the
goodwill balance from the sale, and reduction of interest
expense of $28,000 for the retirement of debt.
PAGE 8
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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 working capital at September 30, 1997 of
$241,000, compared to a deficiency at December 31, 1996 of
$353,000. This improvement was the result of the sale of
the Company's engineering subsidiary (See note 3 to the
Company's interim financial statements). Although working
capital improved in the period, 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 is pursuing additional actions to improve
liquidity. In July, 1997 the Company decided to cease
having direct operations in Canada and to reach that market
through independent commissioned representatives.
Consequently, the Company has liquidated its Canadian
subsidiary. The Company does not anticipate that this
action will have any material adverse impact on its
operations or financial position, as its investment and
goodwill relating to its Canadian operation were written off
in December, 1995.
Additionally, the Company sold its consulting engineering
business in August, 1997 and a portion of its contract
operations business in November, 1997, which November sale
has not been reflected in its financial statements for the
period ended September 30, 1997.
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.
PAGE 9
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
third 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.
Two of the Company's service subsidiaries had a $340,000
working capital loan from Key Bank of Indiana, secured by
their receivables. The Company retired $235,000 of this
loan from the proceeds of the sale of the engineering
business and the remainder in November from the sales of its
contract operations business.
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
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
The Company experienced a decline in sales in the third quarter
compared to the same period in the prior year. The factors
contributing to this were client delays in the initiation of
a major contract (totaling $1 million), and prolonged
negotiations on a major contract with the Louisville Sewer
District ("MSD"). In September, 1997, the Company was
informed by MSD that contract negotiations were being
terminated, and that the contract would be re-bid. At that
time, the Company had incurred engineering and development
costs related to this totalling approximately $750,000, of
which $221,000 were covered under interim contracts with
MSD. In the quarter ended September 30, 1997, approximately
$400,000 of costs related to the development of this
contract were written off. The Company has been informed by
MSD that the project will be re-bid in early 1998, at which
time the Company intends to again pursue this project.
PAGE 10
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Gross margins experienced by the Company during the third
quarter of 1997 were 35% compared to 24% for the same period
in the prior year. This improvement is the result of
margins on equipment business being higher in the current
quarter than the same period last year. General and
administrative expenses increased by 61% for the second
quarter of 1997 compared to the second quarter of 1996. The
increase in these expenses is the result of the write-off of
costs related to the MSD project.
Depreciation and amortization decreased due to the sale of the
engineering business.
Interest expense for the third quarter of 1997 ($95,000)
decreased compared to the same period in 1996 ($122,000)due
to reduced borrowings.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997.
The Company experienced a decline in sales in the nine months
compared to the same period in the prior year. The factors
contributing to this were those cited in the discussion of
the current quarter, plus a large operations contract
included in the first six months of 1996 was not renewed.
Gross margins experienced by the Company during the nine months
of 1997 were 36% compared to 26% 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, and to
higher margin jobs in treatment systems. General and
administrative expenses increased by 7% for the first nine
months of 1997 compared to the first nine months of 1996 as
a result of the write-off of MSD costs, ofset by the
Company's efforts to reduce overhead.
Depreciation and amortization decreased by 2% in the comparable
quarters due to the sale of the engineering business.
Interest expense for the first six months of 1997 ($343,000)
decreased compared to the same period in 1996 ($350,000) due
to lower average borrowings.
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. During the
current period, goodwill was reduced by $813,000 from the
sale of the engineering business.
PAGE 11
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The Company had a backlog of approximately $4 million at
September 30, 1997 as compared to approximately $8.7 million
at September 30, 1996. The backlog is comprised of
approximately 75% representing the treatment business and
25% representing management services at September 30, 1997,
compared to 53% representing treatment business and 47%
representing engineering and management services in the
prior year. Approximately $1 million of backlog was sold
with the engineering business. 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 nine month
period following receipt of order. Approximately 50% of the
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 40% 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 1997 are expected to have a material effect on the
Company's consolidated financial statements.
PAGE 12
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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.
Report dated September 13, 1997 on the sale of the
business ofEV Engineering, Inc.
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: November 25,1997 /S/ Michael R. Cox
Michael R. Cox
Chairman, President, duly
authorized officer
and Chief Financial Officer
PAGE 13
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