U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
Mark one
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED].
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED].
For the transition period from ____ to ____
Commission file number: 33-34021-NY
EV ENVIRONMENTAL, INC.
(Name of small business issuer in its charter)
Delaware 13-3555254
(State of Incorporation) (IRS Employer Identification Number)
1465 Post Road East, Westport, Ct. 06880
(Address of principal executive offices) Zip Code
Issuer's telephone number(203) 256-9596
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01; Series A Warrants;
(Title of class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
$14,028,000
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant is $2,232,000 (as of April 14,
1997 based on the last transaction at $0.31 per share on the
NASDAQ Small-Cap Market). As of March 31,1997, 7,746,621 shares
of the Registrant's Common Stock are outstanding.
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PART I, ITEM 1: BUSINESS DEVELOPMENT
EV Environmental, Inc. (the "Company") was incorporated in
Delaware in 1990 and is engaged in the manufacture, distribution
and engineering 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.
Acquisition of Business of Tenney Pavoni Associates, Inc.
during 1994 - 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"). 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 will enable
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.
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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 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.
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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 two 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):
1996 1995
Treatment Systems 68% 61%
Engineering & Management Services 32 39
100% 100%
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.
3
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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 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.
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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 19 independent sales
representatives in the United States; in Canada, the Company
markets through 7 commissioned independent representatives while
there are an additional 4 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 Southeast Asia,
Mexico, Egypt and Israel, and has current projects in each of
those areas. 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 $4,100,000 in 1996 and
$1,685,000 in 1995. In 1996 export sales were $2,000,000 from the
United States and $2,100,000 from Canada. The export sales in
1996 were comprised of approximately 48% to South America, 31% to
Mexico and 15% to Indonesia. 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. Amounts
attributable to foreign sales included in the Company's backlog at
December 31, 1996 included $1,000,000 to Columbia and $500,000 to
Thailand. For additional information regarding international
operations, see Note 10 to the consolidated financial statements
of EV Environmental, Inc.
5
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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.
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, although two
customers each represented approximately 15% and 13% of
consolidated revenues in 1996 from treatment systems revenues.
Engineering and management services customers are ongoing in
nature. Generally, engineering services are provided on a one
year contractual agreement with their customers. In 1996, one
customer represented 13% 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.
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 two years.
6
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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
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,
along with the financial department, 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
7
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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, the Company continued a
freeze on 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 $300,000, and
centralized accounting and cash management. The Company believes
that its has reduced its expense level over the past two years, on
an annualized basis, in excess of $1,000,000. The Company intends
to add new employees to meet expected sales growth in 1997 when
actual sales are awarded.
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 year
ended December 31, 1995 purchases from Marcon Custom Metals, Inc.
accounted for 3% of costs of sales. In 1995 and 1996, purchases
from Water Services, Inc. accounted for 5% of the costs of sales,
and in 1996, K&S Steel Fabricators and Yardney Water Management
Systems each accounted for 4% of costs of sales. None of these
suppliers are the sole source for the products they provide.
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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 generate, 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.
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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 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 $9,400,000 at
December 31, 1996 as compared to approximately $9,000,000 at
December 31, 1995. The backlog at the end of 1995 has been
reduced by $2,300,000 from previously reported amounts due to a
contract cancellation. The backlog is comprised of approximately
49% and 46% representing the treatment business and 51% and 54%
representing engineering and management services for the years
ending December 31, 1996 and 1995, 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 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 88% of the 1996 backlog amounts
will be realized during the year ended December 31, 1997 as
compared to approximately 83% having been realized of the December
31, 1995 backlog during 1996.
EMPLOYEES
The Company currently has approximately 90 employees, 85 in
the United States and 5 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 annual report 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.
10
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PART I, ITEM 2: DESCRIPTION OF PROPERTY
The Company uses approximately 2,000 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 1998), 2,000 square feet of
leased premises in California (which lease expires in 1997), 2,600
square feet of leased office space in Indiana (which lease expires
in 1998) and 2,000 square feet of leased space in Canada (which
lease expires in 1999). The Company rents approximately 1,000
square feet of office space for its headquarters on a month-to-
month basis.
PART I, ITEM 3: LEGAL PROCEEDINGS
None, other than in the normal course of business, whose
resolution is not expected to have a material impact on the
Company.
PART I, ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
On December 16, 1996, the Company held its annual meeting for
which proxies had been solicited under Regulation 14A of the
Securities and Exchange Commission. The following were the
results of the voting at that meeting:
Items submitted to a vote: Votes Votes Withheld Broker
For Against Non-
votes
1. For Director:
Michael R. Cox 1,654,821 162,835
Dan L. Scroggins 1,654,821 162,835
Murdoch Heideman 1,470,190 347,466
Ralph A. Armstrong 1,654,821 162,835
For increasing the number
of authorized common shares
from 10,000,000 to 20,000,000
1,544,707 100,015 157,834 15,100
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PART II, ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table indicates the range of the closing high and
low transactions for the Company's Common Stock for each
quarterly period in the last two years as reported by the listing
of NASDAQ Small-Cap Market:
Quarterly Period High Close Low Close
Ending
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
June 30, 1996 1 3/8 7/8
September 30, 1996 1 7/16 1/2
December 31, 1996 3/4 7/8
There are approximately 400 beneficial holders of the
Company's Common Stock. 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.
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PART II, ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
DECEMBER 31, 1996 AND THE TWO 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, 1996 of
$403,000, compared to a deficiency at December 31, 1995 of $1,622,000.
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 proceeds netted
the Company $500,000, which were used to repay a note. In April 1996,
the Company closed the sale of a similar 5% convertible debentures which
proceeds netted the Company $385,000, which was added to working
capital. In July 1996, the Company closed an additional $1,000,000
aggregate principal amount of 6% convertible debentures, with proceeds
to the Company of $897,000, which was added to working capital. As of
December 31, 1996, $1,650,000 of these debentures had been converted
into common stock, and the remaining $500,000 was converted in January,
1997.
In April 1996, the Company sold its facility in Florence, Kentucky for
$300,000. The proceeds were used to retire the existing mortgage of
$140,000; reduce a line of credit by $149,000 and the remainder 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. 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.
In July 1996, the Company entered into a three year receivables
financing agreement with Access Capital, Inc.. This agreement is for
the purchase and sale, administration, and collection of the treatment
system companies' accounts receivable. The fee earned by Access
Capital, Inc. for purchasing accounts receivable with an initial payment
of 70% (for the first year) is at least 1.5% and not more than 7.5% of
the amount of its accounts receivable purchased. Access Capital, Inc.
will earn a 1.5% administrative fee for all accounts receivable created
by the Company during the term of the account agreements.
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 $420,000 was utilized
at December 31, 1996. This facility is a demand note bearing interest
at 10.5% with the Society National Bank of Indiana, which expires
October 31, 1997. The Company has an agreement to reduce the amount
outstanding under this facility by $8,000 per month, so that no
borrowings are available under this facility.
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During 1995, the Company experienced losses which contributed to
decreased liquidity and a deficiency in working capital at December 31,
1995. Although experiencing a net loss in 1996, the Company's operations
contributed positive working capital of $475,000 before non-cash charges
for depreciation, amortization and interest. Additionally, the
Company's backlog at December 31, 1996 and improved operations for the
year cause management to believe the Company will improve operations and
cash flow.
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.
The debentures issued in February ($650,000) and April ($500,000) were
converted into 1,493,624 shares of common stock in June, 1996; however
the holder of such debentures is challenging the right of the Company to
force conversion as to $920,000 principal amount of such debentures, or
1,132,308 (plus accrued interest shares) shares common stock. The
Company has issued a certificate representing 361,316 shares of common
stock relating to debentures surrendered and will issue a certificate
representing 1,132,308 shares upon surrender of the remaining
debentures. The Company's management and legal counsel believe the
forced conversion is valid and have, therefore, considered the 1,132,308
shares as converted and outstanding. If the conversion were not valid,
additional interest expense might be required in 1996.
Results of Operations
Net sales of the Company increased by 8% during 1996 compared to an
increase of 33% in 1995. The 1996 increase was the result of an
increase in treatment sales, offset to some extent by the expiration of
an operations contract in June, 1996. The increase in 1995 was the
result of the TPA acquisition.
Gross margins experienced by the Company were 28% in 1996 compared to
23% in 1995 and 1994. The improvement in 1996 was primarily the result
of better cost controls in the systems division compared with the prior
two years.
General and administrative expenses decreased by 15% in 1996 from 1995
after increasing by 49% in 1994. The 1996 decrease was the result of
the consolidation of operations and cost controls, while the 1995
increase was the result of the TPA acquisition.
Depreciation and amortization decreased by 16% during 1996 compared to
1995. This decrease is the result of the pilot plant equipment and
goodwill associated with the Company's Canadian operations being written
off in 1995. This was after a 33% increase in 1995 as a result of the
TPA acquisition.
14
<PAGE>
Interest expense decreased by a net 5% during 1996 compared to 1995,
that was comprised of a decrease in interest expense associated with
notes payable-bank, offset by increased interest expense related to
debentures issued in 1996 and amortization of fees associated with the
issues.
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. 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 $9,400,000 at December
31, 1996 as compared to approximately $9,000,000 at December 31, 1995.
The backlog at the end of 1995 has been reduced by $2,300,000 from
previously reported amounts due to a contract cancellation. The backlog
is comprised of approximately 49% and 46% representing the treatment
business and 51% and 54% representing engineering and management
services for the years ending December 31, 1996 and 1995, 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 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 88% of
the 1996 backlog amounts will be realized during the year ended December
31, 1997 as compared to approximately 83% having been realized of the
December 31, 1995 backlog during 1996.
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.
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.
15
<PAGE>
PART II, ITEM 7: FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
1. EV ENVIRONMENTAL, INC.
Consolidated balance sheet of EV Environmental, Inc. and subsidiaries
as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 1996 15
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
EV Environmental, Inc.:
We have audited the accompanying consolidated balance sheet of EV
Environmental, Inc. and its subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity,
and cash flows for year then ended. 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 audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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, 1996 and the
results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements the Company's backlog and additional contracts
awarded and in process since year end cause management to believe the
Company will improve operations and cash flow in 1997.Although management
believes that the backlog and future contracts will improve operations
and cash flow, no assurances can be given that operations and cash
flow will improve.
Schnitzer & Kondub, Certified Public Accountants
Eastchester, New York
April 14, 1997
17
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Cash $ 454,000
Accounts receivable, net 4,389,000
Inventory 205,000
Other current assets 388,000
Total current assets 5,436,000
Equipment, net 306,000
Other long-term assets 89,000
Cost in excess of net assets acquired, net 5,329,000
TOTAL ASSETS $ 11,160,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - banks $ 420,000
Current portion of long-term debt 291,000
Accounts payable 2,613,000
Accrued project costs 1,456,000
Accrued expenses 1,059,000
Total current liabilities 5,839,000
Long-term debt 2,396,000
Other noncurrent liabilities 200,000
Total long-term liabilities 2,596,000
Stockholders' Equity:
Common stock, $.01 par value: 20,000,000 shares 53,000
authorized; 5,363,000, issued and outstanding
Paid in capital 7,581,000
Deficit (4,832,000)
Cumulative translation adjustment (77,000)
Total stockholders' equity 2,725,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,160,000
See notes to consolidated financial statements
18
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years
Ended December 31,
1996 1995
Sales:
Treatment systems $ 9,588,000 $ 7,941,000
Engineering and management 4,440,000 5,057,000
14,028,000 12,998,000
Cost of sales, exclusive of
depreciation:
Treatment systems 7,190,000 6,870,000
Engineering and management services 2,846,000 3,094,000
10,036,000 9,964,000
Gross margin 3,992,000 3,034,000
Operating expenses:
General and administrative 3,392,000 3,967,000
Depreciation and amortization 412,000 493,000
Impairment of long-term assets 1,182,000
3,804,000 5,642,000
Operating profit (loss) 188,000 (2,608,000)
Interest expense 481,000 505,000
Net loss $ (293,000) $ (3,113,000)
Net loss per common share $ (.07) $ (1.50)
Weighted average shares outstanding 4,218,000 2,076,000
See notes to consolidated financial statements
19
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years
Ended
December 31,
1996 1995
Cash flows provided by (used in) operating
activities:
Net loss $ (293,000) $(3,113,000)
Adjustments to reconcile net loss to cash
flows provided by (used in)operating
activities:
Depreciation and amortization 412,000 493,000
Impairment of long-term assets 1,182,000
Non-cash expenses 198,000 217,000
Changes in operating assets and liabilities:
Accounts receivable (354,000) (598,000)
Inventory (9,000) 153,000
Other current assets (75,000) (49,000)
Accounts payable 231,000 562,000
Accrued expenses (919,000) 853,000
Net cash provided by (used in) operating (809,000) (300,000)
activities
Cash flows provided by (used in) investing
activities:
Purchase of the net assets of acquired 129,000 (314,000)
business
Increase in other assets (89,000)
Net (additions) dispositions to property and 220,000 (13,000)
equipment
Net cash provided by (used in) investing 260,000 (327,000)
Cash flows provided by (used in) financing
activities:
Issuance of convertible debentures 450,000 716,000
Issuance of long-term debt 500,000
Repayment of notes payable - banks (438,000) (387,000)
Issuance (repayment) of long-term debt, (721,000) (273,000)
net
Issuance of stock 1,261,000 104,000
Payment of other noncurrent liabilities - (29,000) (330,000)
net
Net cash provided by financing activities 523,000 330,000
Effect of translation on balance sheet not 3,000 11,000
included in other captions
Net (decrease) in cash (23,000) (286,000)
Cash, beginning of period 477,000 763,000
Cash, end of period $ 454,000 $477,000
See notes to consolidated financial statements
20
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
Paid- Cumulative
Common Stock In Translation
Shares Amount Capital (Deficit) Adjustment
Balance--December 31, 2,023,880 $ 20 $ 5,809 $(1,426) $ (91)
1994
Issuance of stock 45,454 104
Stock issued in payment 50,000 1 99
of fees
Stock issued in payment 57,597 1 141
of interest
Net loss (3,113)
Change in cumulative
effect of balance sheet
translation adjustments 11
Balance--December 31, 2,176,931 $ 22 $6,153 $(4,539) $ (80)
1995
Stock issued in payment
of debt 29,841 30
Stock issued in payment
of interest 212,976 2 172
Stock issued in
conversion of debentures 2,903,931 29 1,187
Stock issued in payment
of expenses 24,200 24
Private placement 14,800 15
Net loss (293)
Change in cumulative
effect of balance sheet
translation adjustments 3
Balance--December 31, 5,362,679 $ 53 $7,581 $(4,832) $ (77)
1996
See notes to consolidated financial statements
21
<PAGE>
EV ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1995
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, and sold $2,000,000
of convertible debentures in 1996 (which netted the Company
$1,600,000). $1,500,000 were of these debentures were converted
into 2,903,931 shares of common stock in 1996 and the remaining
$500,000 was converted into 2,302,942 shares in January of 1997.
The Company also arranged a factoring facility for the financing of
certain of its accounts receivable. Additionally, the Company's
backlog at December 31, 1996 and additional contracts awarded since
year-end cause management to believe the Company will improve
operations and cash flow in 1997.
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 its 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.
22
<PAGE>
Cash - At December 31, 1996 cash included $320,000 of cash in an
escrow account for the purpose of paying certain subcontractors on
one of the Company's projects. Such amount was reduced through
payments to $127,000 at March 31, 1997.
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; and rental equipment - 15 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 $1,239,000
at December 31, 1996. 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 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.
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.
23
<PAGE>
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 $ 144,000 and $202,000 for the years
ended December 31, 1996 and 1995, respectively. No income taxes
were paid for any of the years presented. In 1996, 212,976 shares
of common stock with a value of $174,000 were issued in payment of
interest, and in 1995, 107,597 shares of common stock with a value
of approximately $242,000 were issued in payment of interest and
certain placement agent fees
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 yet to decide
whether it will adopt the new "fair value" based method. However,
adoption of such methods will not affect the amounts reported in
the accompanying consolidated financial statements.
24
<PAGE>
Reclassifications - Certain previously reported amounts in the
accompanying consolidated financial statements have been
reclassified to conform to the current year's classification.
2 ACCOUNTS RECEIVABLE
The consolidated balance sheet includes the following costs and
estimated earnings in excess of billings in account receivable:
Costs and estimated earnings $ 8,072,000
Billings 5,639,000
Net $ 2,433,000
The consolidated balance sheet includes the following billings in
excess of costs and estimated earnings in accrued expenses or
accrued project costs:
Billings $ 576,000
Costs and estimated earnings 265,000
Net $ 311,000
Accounts receivable are comprised of the following amounts:
Billed $ 2,045,000
Unbilled 2,433,000
Retention 41,000
Allowance for doubtful accounts (130,000)
$ 4,389,000
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, 1996 and 1995, the allowance for
doubtful accounts was increased by $77,000 and $ 85,000
respectively, through charges to operations. In 1996 and 1995,
there were writeoffs of $212,000 and $183,000 respectively
against the allowance for doubtful accounts.
3. EQUIPMENT
Equipment consist of the following at December 31, 1996:
Machinery and equipment $ 626,000
Accumulated depreciation (320,000)
Net $ 306,000
24
<PAGE>
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.
4. NOTES PAYABLE
The Company has a $500,000 line of credit 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, 1996,
$420,000 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.
The Company has an agreement with a financial institution to
factor certain of its invoices, without recourse, at a discount
rate of 1.5% plus interest at 18% per annum. At December 31,
1996, there were no borrowings under these facility.
Information pertaining to the above short-term borrowings for the
years ended December 31, 1996 and 1995 is as follows:
1996 1995
Weighted average interest rate, end 9.25% 10.29%
of period
Weighted average interest rate, over 9.75% 10.46%
the period
Highest month-end borrowings $ 858,000 $1,279,000
Average month-end borrowings $ 639,000 $1,061,000
5. LONG TERM DEBT
25
<PAGE>
Long-term debt consists of the following at December 31, 1996:
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) $ 1,938,000
6% convertible subordinated debenture (b) 500,000
Installment payments due to TPA, with interest
imputed at 10% and payments beginning January
1, 1998 $16,700 each. 135,000
Various notes payable due to owners (and/or
their spouses) of acquired businesses at
variable rates defined by the purchase
agreements (9.75% at December 31, 1996) with
monthly monthly principal installments of 321,000
$17,000.
Other notes payable 120,000
3,014,000
Less: Current portion (291,000)
Financing fees (net of $123,000 (327,000)
amortization)
Total $ 2,396,000
The aggregate amount of repayment requirements for the five years
subsequent to 1996 are: 1997 - $291,000; 1998 - $282,000; and
1999 - $1,941,000.
(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) 6% convertible debentures due June 30, 1998. Theses
debentures were converted into 2,382,942 shares of common
stock in January, 1997.
(c) In 1996 the Company sold $1,150,000 of 5% convertible
subordinated debentures, which were converted into 1,493,624
shares of common stock. The holder of these debentures is
challenging the right of the Company to force conversion as to
$920,000 principal amount of such debentures. The Company has
issued certificates representing 361,316 shares of common stock
relating to debentures surrendered and will isuue additional
certificates for 1,132,308 shares upon surrender of the remaining
debentures. The Company's management and legal counsel believe
the forced conversion is valid and have therefore considered the
1,132,308 shares as outstanding. If the conversion were not
valid, additional interest expense might be required in 1996.
The convertible debentures described in (b) and (c) above are
convertible and were converted into the Company's common stock
at 65% of the average bid, as defined in the debenture agreements.
The Company has accounted for the conversion as an addition to
stockholders' equity, reducing the increase in paid-in capital by
the above discount from market.
26
<PAGE>
At December 31, 1996, the Company's long-term debt had a carrying
value of approximately $2,772,000 which approximates its fair
value.
6 INCOME TAXES
No provisions for income tax were necessary for the years ended
December 31, 1996 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, 1996 were as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,834,000
Allowance for doubtful accounts 45,000
1,879,000
Valuation allowance 1,879,000
Total deferred tax assets $ 0
Net operating losses of approximately $5,393,000 begin to expire
in 2007.
7. 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 1996 and 1995.
The Company sponsors a self-funded health benefits plan for its
domestic employees. Payments are made to a trust 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.
8. 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.
27
<PAGE>
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 209,000 shares
for issuance under the plan as of December 31, 1996.
Of the outstanding stock options at December 31, 1996, 168,500
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:
1996 1995
Avg. Avg.
Option Option
Stock options: Shares Price Shares Price
Outstanding, beginning of 485,800 $2.95 363,600 $3.05
year
Expired (169,060) 2.47 (89,400) 4.65
Granted 3.50 211,600 3.50
Outstanding, end of year 316,740 $2.95 485,000 $2.95
The Company has exercisable warrants outstanding, for which no
value has been ascribed, at December 31, 1996 and 1995 for the
purchase of the Company's common stock. During 1995, the Company
reduced the exercised price of its Series A Warrants to $5.00 per
share. The warrants and related per share prices are as follows:
1996 1995
Warrants: Shares Price Shares Price
Series A 481,000 $ 5.00 481,000 $ 5.00
Underwriters 20,800 2.00 20,800 2.00
Total 501,800 501,800
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. These warrants expired without exercise on February
14, 1997.
Certain of the Company's subsidiaries have dividend restrictions
as a result of borrowing agreements.
28
<PAGE>
9. 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 at
December 31, 1996 and 1995.
International Domestic Total
Year Ended December 31,
1996
Sales $2,948,000 $11,080,000 $14,028,000
Operating income $ 91,000 $ 97,000 $ 188,000
Net income (loss) $ (47,000) $ (246,000)$ (293,000)
Identifiable assets $1,291,000 $ 9,869,000 $11,160,000
Accounts receivable $ 957,000 $ 3,432,000 $ 4,389,000
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
Approximate value of international sales were as follows:
1996 1995
Canada $ 548,000 $2,111,000
United States 300,000 203,000
Bolivia 152,000
Mexico 1,500,000 50,000
Indonesia 600,000
$ 2,948,000 $ 2,516,000
10. SIGNIFICANT CUSTOMERS
The Company had sales to three customers totaling 15%, 13% and
13% of total revenues for the year ended December 31, 1996, and
three customers totaling 12%, 9%, and 9% for the year ended
December 31, 1995. 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 systems 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.
29
<PAGE>
11. 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: 1997 - $193,000;
1998 - $167,000; 1999 - $21,000; and none thereafter. Rent
expense was approximately $243,000 and $217,000 for 1996 and
1995, respectively.
The Company has employment agreements with two employees who are
directors, which expire in 1997. The Company has adopted an
incentive compensation program whereby key employees will
participate in bonuses equal to one-third of pre-tax profits for
1997. Individual awards are at the discretion of the Board of
Directors.
30
<PAGE>
Part II, Item 8: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company's Board of Directors has unanimously approved the
dismissal of the Company's auditing firm, Deloitte & Touche LLP
("D&T") for the year ended December 31, 1996. The Company informed
D & T on December 26, 1996 that they would be replaced. The report
of D & T on the Company's consolidated financial statements for
the past two years contained no adverse opinion or disclaimer of
opinion, and was not modified as to uncertainty, audit scope, or
accounting principles. During the two years ended Decemter 31, 1995
and subsequent interim periods, there were no disagreements with
D & T of the type requiring disclosure under Item 304(a)(1)(iv)(A)
of Regulation S-B.
With regard to Item 304(a)(1)(iv)(B)(1), the Company reports the
following: In connection with its audit of the Company's financial
statements for the year ended December31, 1995, D & T identified
and reported to the Company's audit committee three areas they
believed to be internal control weaknesses which they considered
to be "reportable conditions" as defined under standards established
by the American Institute of Certified Public Accountants. The
conditions reported related to the Company's understanding of its
health insurance plan, the accumulation of personnel costs on certain
fixed-fee contracts, and the level of documentation on journal entries.
With regard to Item 304(a)(1)(iv)(B)(3), the Company reports the
following: In December 1996, subsequent to the issuance of its three
quarterly filings on Form l0-QSB for the current year, D & T informed
the Company that (a) debt issued in 1996 which was convertible at
discounts to market was not accounted for in accordance with the SEC
staff position issued on October 9, 1996 which D&T believes is generally
accepted accounting principles ("GAAP") for such issuances, and
(b) revenues and expenses for a contract begun prior to the end of the
third quarter but for which final contract terms had not been concluded
and the contract had not been signed should be recognized in subsequent
periods. Net income related to this contract was approximately $44,000
in the third quarter. Management agrees that the Company's Quarterly
report on Form 10-QSB for the third quarter should be restated for item
(b) above, and that (a)above should be evaluated for its applicability
to the Company's transactions and the impact on the first three quarters
of 1996, and the related Form 10-QSB's amended, if appropriate,to conform
to GAAP.
The Company has authorized D & T to respond fully to the inquiries of the
successor accountant. The Company has provided D & T with a copy of the
disclosures contained in this report and D & T furnished it with a letter
addressed to the Securities & Exchange Commission stating that it agreed
with the above statements. A copy of such letter was filed as an exhibit
to the Company's 8-K report.
31
<PAGE>
Part III, Item 9: Directors', Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of the Exchange
Act.
Officer
Name or
Age Director Position with the
Since Company
Michael R. Cox 50 1991 Chairman, President,
and Chief Executive
Officer and Director
Dan L. Scroggins 40 1991 Executive Vice
President and Director
Ralph A. Armstrong 43 1994 Senior Vice President -
Sales and Marketing and
Director
Steve Money 34 1997 Vice President --
Controller
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.
Mr. Scroggins has been an Executive Vice President of the
Company and its predecessor JBCH since October 16, 1991. He has
been President of EV Environmental Systems, Inc. (the Company's
wholly-owned subsidiary) since October 16, 1991.
Mr. Money has been Vice President - Controller of the Company
since February, 1997. Prior to that he served as Controller of
Fulton County Daily Report, a legal newspaper in Atlanta, from
1996. From September, 1991 to May 1996 Mr. Money was Accounting
Manager with De Smet Process & Technology, Inc., an engineering
firm.
32
<PAGE>
Mr. Armstrong joined the Company in February 1994 as Senior
Vice President - Sales and Marketing. 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.
Part III, Item 10: 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, 1996 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.
33
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation Compensation
Name and Principal Year Salary Number
Position of
Option
Awards
Michael R. Cox, 1996 $ 130,000
Chairman, 1995 130,000 20,000
President and 1994 130,000
Chief Executive
Officer
All Current 1995 525,760
Executive Officers 1994 453,000 77,000
As a Group 1993 548,000 60,000
During the year ended December 31, 1996, no options were granted
to executive officers. During 1995, the following options were
granted to executive officers:
34
<PAGE>
Individual
Grants
% of
Number of Total Exercise Expiration
Name Securities Options Price Date
Underlying Granted ($/share
Options
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
The aggregate option exercise in the last fiscal year and fiscal
year end option values for the named employee is presented as
follows:
Number
of Value of
securities unexercised
Underlying in-the-
Shares Unexcercised Money
Acquired Value Options Options
Name on Realized at FY end at FY end
Exercise Excercisable/ Exercisable/
Unexcercisable Unexcercisable
Michael R. Cox 0 N/A 52,966/ 0/0
13,333
The Company qualifies as a Small Business Issuer.
The Company has adopted an incentive compensation program
whereby key employee, 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
could 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.
35
<PAGE>
Other Options; Director Compensation
The are currently no directors of the Company who are not
employees. Employees are not paid additional amounts for their
services as directors.
Part III, Item 11: Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth information with respect to
beneficial ownership of Common Stock 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.
Amount and
Nature of
Beneficial Percentage
Name and Address of Title of Ownership of Class
Beneficial Owner Class (1) Owned
Michael R. Cox Common Stock 238,598(2) 3.7
1465 Post Road East Series A 5,000(3) 1.1
Westport, CT 06880 Warrants
(Director and Officer)
Dan L. Scroggins Common Stock 110,501(4) 1.7
EV Environmental, Systems, Series A 8,000 1.8
Inc. Warrants
250 Grandview Drive
Ft. Mitchell, KY 41017
(Director and Officer)
Ralph A. Armstrong Common Stock 53,408(5) 0.8
1465 Post Road East 9%
Westport, CT 06880 Convertible 50,000 2.5
(Director and Officer) Debentures
RBB Bank Aktiengesellschaft Common Stock 1,504,781(6) 15.2
Leonhardstr. 5 8010 Graz
Austria
(5% Shareholder)
United Overseas Bank Common Stock 1,045,150 16.4
11 Qual des Bergues
Geneva, Switzerland
(5% Shareholder)
All executive officers and Common Stock 402,507(7) 6.2
directors as a group (3 Series A 13,000 2.9
persons) Warrants
9% 50,500 2.5
Convertible
Debentures
___________
36
<PAGE>
(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.
(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.
(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) Includes 20,075 shares held by Mr. Armstrong's retirement
account, over which Mr. Armstrong exercises sole investment
and voting control, 20,000 shares issuable upon conversion of
the Company's 9% convertible securities and 13,333 shares
issuable upon the exercise of certain options.
(6) Includes shares issuable upon conversion of
convertible securities. The Company has noticed RBB of the
conversion of the convertible securities; RBB has disputed
the Company's right to cause such coonversion. 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.
(7) Includes 256,704 shares outstanding and 145,803 shares
issuable upon the exercise of options, warrants and conversion
of 9% convertible securities.
conversion of 9% Convertible Securities.
37
<PAGE>
Part IV, Item 13: Exhibits, Lists and Reports on Form 8-K
(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 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, the Company, 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 R
egistration 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 Amendment to Amended and Restated Warrant Agreement,
and Amended and Restated Warrant agreement, between
registrant and American Stock Transfer & Trust
Company, as warrant agent for Redeemable Warrants
filed as Exhibit 4.4 to the Company's Annual Report
on Form 10-K for the Fiscal Year Ended December 31,
1992.
38
<PAGE>
4.4 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.
4.5 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.
4.6 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.
10.1 Employment Agreement between Dan L. Scroggins and PCI
** dated December 9, 1991, filed as Exhibit 19.1 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 Stockholders' Agreement by and between 958147
Ontario, Inc., JBCH, Budd and Beaver Corporation,
Castle Corporation and Betco Inc. filed as Exhibit
19.8 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and
incorporated by this reference.
10.3 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.
10.4 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.
10.5 Promissory note payable to Murdoch Heideman dated
December 20, 1993 filed as Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated by this
reference.
10.6 Promissory note payable to Jimmie Dysert dated
December 20, 1993 file as Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated by this
reference.
10.7 Promissory note payable to Murdoch Heideman dated
January 1, 1994 filed as Exhibit 10.33 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and incorporated by this
reference.
39
<PAGE>
10.8 Promissory note payable to Jimmie Dysert dated
January 1, 1994 filed as Exhibit 10.34 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and incorporated by this
reference.
10.9 Promissory note payable to Nadine Heideman dated
December 31, 1994 filed as Exhibit 10.35 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and incorporated by this
reference.
10.10 Stock Option Agreement dated November 30, 1994
between the Company and Tenney filed as Exhibit 10.6
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 Pavoni filed as Exhibit 10.7
to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
40
<PAGE>
10.18 Pledge Agreement, dated as of December 5, 1994,
between the Company, the holders of the Company's 5-
Year 9% Convertible Subordinated Debentures (the
"Debenture holders") 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.
10.19 Security Agreement, dated as of December 5, 1994,
between the Subsidiaries, the Debenture holders 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.
10.20 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.
10.21 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.
10.22 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.
10.23 Form of 5% Series A Convertible Debentures due
December 31, 1996 of the Company filed as Exhibit
10.49 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995.
10.24 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.
16.1 Letter from Deloitte & Touche LLP regarding change in
accounts file as exhibit 16.1 to Current Report on
Form 8-K dated December 26, 1996, incorporated herein
by reference.
21.1 Subsidiaries of the Registrant
27.1* Financial Data Schedule
* Filed herewith
** Management contract or compensatory plan arrangements
41
<PAGE>
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated December 26, 1996 regarding
the dismissal of Deloitte & Touche LLP as the Company's auditing
firm.
2. Current form on Form 8-K dated January 14, 1997 regarding:
a. the appointment of Schnitzer & Kondub, Certified Public
Accountants as the Company's auditing firm.
b. Recent sales of unregistered securities.
42
<PAGE>
EV Environmental, Inc.
Annual Report on Form 10-KSB
Year Ended December 31, 1995
Index to Exhibits
No. Page
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, the Company, 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.
43
<PAGE>
4.1 Specimen Form of Stock Certificate filed, as Exhibit
3.3 to the Company's Amendment No. 1 to its R
egistration 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 Amendment to Amended and Restated Warrant Agreement,
and Amended and Restated Warrant agreement,
between registrant and American Stock Transfer &
Trust Company, as warrant agent for Redeemable
Warrants filed as Exhibit 4.4 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended
December 31, 1992.
4.4 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.
4.5 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.
4.6 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.
10.1 Employment Agreement between Dan L. Scroggins and PCI
** dated December 9, 1991, filed as Exhibit 19.1 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 Stockholders' Agreement by and between 958147
Ontario, Inc., JBCH, Budd and Beaver Corporation,
Castle Corporation and Betco Inc. filed as Exhibit
19.8 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and
incorporated by this reference.
10.3 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.
10.4 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.
44
<PAGE>
10.5 Promissory note payable to Murdoch Heideman dated
December 20, 1993 filed as Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated by this
reference.
10.6 Promissory note payable to Jimmie Dysert dated
December 20, 1993 file as Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated by this
reference.
10.7 Promissory note payable to Murdoch Heideman dated
January 1, 1994 filed as Exhibit 10.33 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and incorporated by this
reference.
10.8 Promissory note payable to Jimmie Dysert dated
January 1, 1994 filed as Exhibit 10.34 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and incorporated by this
reference.
10.9 Promissory note payable to Nadine Heideman dated
December 31, 1994 filed as Exhibit 10.35 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994 and incorporated by this
reference.
10.10 Stock Option Agreement dated November 30, 1994
between the Company and Tenney filed as Exhibit 10.6
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 Pavoni filed as Exhibit 10.7
to the Company's Current Report on Form 8-K dated
December 7, 1994 and incorporated by this reference.
10.12 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.
10.13 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.
10.14 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.
45
<PAGE>
10.15 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.
10.16 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.
10.17 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.
10.18 Pledge Agreement, dated as of December 5, 1994,
between the Company, the holders of the Company's 5-
Year 9% Convertible Subordinated Debentures (the
"Debenture holders") 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.
10.19 Security Agreement, dated as of December 5, 1994,
between the Subsidiaries, the Debenture holders 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.
10.20 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.
10.21 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.
10.22 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.
10.23 Form of 5% Series A Convertible Debentures due
December 31, 1996 of the Company filed as Exhibit
10.49 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995.
46
<PAGE>
10.24 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.
16.1 Letter from Deloitte & Touche LLP regarding change in
accounts file as exhibit 16.1 to Current Report on
Form 8-K dated December 26, 1996, incorporated herein
by reference.
21.1* Subsidiaries of the Registrant 47
27.1* Financial Data Schedule 48
* Filed herewith
** Management contract or compensatory plan arrangements
47
<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
46
<PAGE>
Exhibit 27.1
Financial Data Schedule
[ARTICLE] 6
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] 454
[SECURITIES] 0
[RECEIVABLES] 4519
[ALLOWANCES] 130
[INVENTORY] 205
[CURRENT-ASSETS] 388
[PP&E] 626
[DEPRECIATION] 320
[TOTAL-ASSETS] 11160
[CURRENT-LIABILITIES] 5839
[BONDS] 2396
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 53
[OTHER-SE] 2672
[TOTAL-LIABILITY-AND-EQUITY] 11160
[SALES] 14028
[TOTAL-REVENUES] 14028
[CGS] 10036
[TOTAL-COSTS] 3804
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 481
[INCOME-PRETAX] (293)
[INCOME-TAX] 0
[INCOME-CONTINUING] (293)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (293)
[EPS-PRIMARY] (.07)
[EPS-DILUTED] (.07)
</TABLE>
