<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1996
Commission file Number 0-23892
ENVIROMETRICS, INC.
(Exact name of registrant as specified in its charter.)
DELAWARE 57-0941152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9229 UNIVERSITY BLVD., CHARLESTON, SC 29406
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(803) 553-9456
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $.001 Par Value - 2,471,626 shares as of September 30, 1996.
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
ENVIROMETRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS
(Unaudited)
<CAPTION>
Three months ended Nine months ended
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES AND SERVICE
REVENUE
Services $ 467,948 $ 1,087,772 $ 2,007,634 $ 2,980,194
Products 318,595 716,983 1,502,682 1,947,863
--------- ---------- --------- ---------
786,543 1,804,755 3,510,316 4,928,057
--------- ---------- --------- ---------
COST OF GOODS SOLD AND
DIRECT SERVICE COSTS
Services 364,064 805,747 1,541,000 2,184,589
Products 236,790 452,560 1,070,212 1,151,511
-------- --------- --------- ---------
600,855 1,258,307 2,611,212 3,336,100
-------- --------- --------- ---------
GROSS PROFIT 185,688 546,448 899,104 1,591,957
-------- --------- --------- ---------
OTHER OPERATING REVENUE 2,515 5,419 3,048 34,780
-------- --------- --------- ---------
OPERATING EXPENSES
Sales and marketing 61,000 131,275 246,574 449,041
General and
administrative 167,979 476,570 861,686 1,122,455
Research and
development 48,171 61,441 158,433 203,047
Shipping and receiving 18,050 16,958 59,367 52,325
Quality control 2,233 9,578 9,773 27,222
Depreciation and
amortization 56,408 66,929 175,231 195,014
--------- --------- -------- ---------
353,841 762,751 1,511,064 2,049,104
Expense goodwill
from '94 acquisition - 614,938 -
--------- --------- --------- ---------
353,841 762,751 2,126,002 2,049,104
--------- --------- --------- ---------
OPERATING LOSS (165,638) (210,884) (1,223,850) (422,367)
--------- --------- --------- ---------
FINANCIAL INCOME (EXPENSE)
Interest income 6,435 - 7,849 5,387
Gain on disposition
of subsidiary 124,553 - 124,553 -
Interest expense (35,146) (37,275) (133,468) (118,052)
Amortization of
loan costs (25,378) (15,693) (46,449) (32,618)
--------- --------- --------- ---------
70,464 (52,968) (47,515) (145,283)
--------- --------- --------- ---------
NET LOSS $ (95,174) $(263,852) $(1,271,365) $(567,650)
========== ========= =========== =========
Weighted average
number of common
shares outstanding 2,443,679 2,500,203 2,481,155 2,399,562
========== ========= ========== ==========
Net loss per
common share $ (.39) $ (0.106) $ (0.512) $ (0.237)
========== ========== =========== ==========
Dividends per
common share $ - $ - $ - $ -
========== ========== ========== ==========
<FN>
See Notes to Condensed Financial Statements
</TABLE>
<PAGE>
<TABLE>
ENVIROMETRICS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
<CAPTION>
ASSETS September 30, December 31,
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 15,305 $ 53,143
Cash, restricted - 125,644
Note receivable 86,306 -
Trade receivables less allowance
for doubtful accounts
1996 $32,318; 1995 $86,000 538,793 1,191,910
Other receivables, including amounts
due from stockholders of
1996 $16,400; 1995 $57,435 66,648 81,480
Inventories 391,657 563,981
Prepaid expenses 28,442 111,437
--------- ---------
TOTAL CURRENT ASSETS 1,127,151 2,127,595
--------- ---------
OTHER ASSETS AND INTANGIBLES
Deposits 13,871 15,972
Notes receivable 491,228
Organization and loan costs, net
of accumulated amortization
1996 $43,445; 1995 $18,304 50,537 6,739
Goodwill and acquisition costs,
net of accumulated amortization
1996 $0; 1995 $35,598 0 623,153
License and distribution agreements,
net of accumulated amortization
1996 $6,500; 1995 $2,000 23,500 28,000
Other 68,687 59,816
--------- ---------
647,823 733,680
--------- ---------
PROPERTY AND EQUIPMENT
Land 114,218 239,120
Buildings 847,988 841,790
Furniture and equipment 1,227,844 1,443,197
Vehicles 141,027 200,050
--------- ---------
2,331,077 2,724,157
Less accumulated depreciation
and amortization 1,143,060 1,088,397
--------- ---------
1,188,017 1,635,760
--------- ---------
$2,962,991 $4,497,035
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 692,616 $ 246,480
Current maturities of long-term debt 185,298 914,847
Stockholders 24,844 24,844
Accounts payable 929,044 965,155
Accrued expenses 447,241 454,957
--------- ---------
TOTAL CURRENT LIABILITIES 2,279,043 2,606,283
--------- ---------
LONG-TERM DEBT,
less current maturities 678,476 597,363
--------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $.001;
authorized 10,000,000 shares;
issued 2,471,626 shares;
1995 2,500,203 shares 2,472 2,500
Additional paid-in capital 5,101,418 5,117,942
Retained earnings (5,098,418) (3,827,053)
--------- ---------
5,472 1,293,389
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,962,991 $4,497,035
========= =========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ENVIROMETRICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(Amounts in thousands)
<CAPTION>
September 30, September 30
1996 1995
<S> <C> <C>
Cash Flow From Operating Activities:
Net (loss) $(1,271,365) $ (567,650)
Adjustments to reconcile net
income (loss)to net cash
used in operating activities:
Depreciation 151,805 169,316
Amortization 684,813 59,055
Provision (recoveries)for
doubtful accounts (12,869) 9,990
Non-cash expense paid by
issuance of warrants 7,500 -
(Gain) loss on disposal of equipment (680) 2,064
(Gain) on disposition of
Trico Envirometrics, Inc. (124,553) -
Change in assets and liabilities:
(Increase)decrease in
cash, restricted 125,644 561,953
(Increase) decrease in
accounts receivable 139,317 (631,282)
(Increase) decrease in inventory 172,324 (23,269)
(Increase) decrease in
prepaid expenses 58,490 63,696
(Increase) decrease in accounts
payable and accrued expenses 189,981 287,888
--------- --------
Net cash provided by (used in)
operating activities 120,407 (68,239)
--------- --------
Cash Flow From Investing Activities:
Purchase of property
and equipment (64,395) (101,601)
Proceeds from sale of equipment 26,555 3,000
Collection on note receivable 22,466 -
(Increase) in deposits, organization
and loan and acquisition costs (69,210) (28,156)
(Increase) in other assets (20,975) (15,171)
------- --------
Net cash used in investing
activities (105,559) (141,928)
------- -------
Cash Flow From Financing Activities:
Proceeds from borrowings on
short-term notes 327,884 818,594
Principal payments on
short-term notes (18,140) (584,805)
Proceeds from long-term borrowings 0 14,952
Principal payments on
long-term borrowing (362,430) (123,864)
Net proceeds from sale of stock 0 257,813
Disbursements for offering costs (25,211)
-------- --------
Net Cash (used in) provided by
financing activities (52,686) 357,479
-------- --------
Net (decrease) increase in
cash equivalents (37,838) 147,312
Cash and cash equivalents, beginning 53,143 3,295
------- -------
Cash and cash equivalents, ending $ 15,305 $ 150,607
======= =======
Supplemental Disclosure of Cash Flows
Information
Cash payments for interest $132,075 $ 104,040
======= =======
Supplemental Disclosure of Non Cash
Financing Activities
Issuance of common stock for
accounts payable $ 20,947 $ -
======= =======
Disposition of Trico Envirometrics,
Inc. for treasury stock $ 45,000 $ -
====== =======
Issuance of common stock for loan cost $ - $ 7,410
====== =======
<FN>
See Notes to Condensed Financial Statements
</TABLE>
<PAGE>
ENVIROMETRICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(1) The unaudited condensed financial statements and related notes
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements of the Company,
and notes thereto, for the year ended December 31, 1995.
The results of operations for the interim periods shown in this report
are not necessarily indicative of results to be expected for the fiscal
year. In the opinion of management, the information contained herein
reflects all adjustments necessary to present fairly the consolidated
financial position, results of operations and changes in cash flow for
the interim periods. All such adjustments are of a normal recurring
nature.
(2) Net loss per common share is computed using the weighted average
number of common shares outstanding, after giving effect for the 1 for
2 reverse split effective with the initial public offering.
(3) On May 13, 1996 the Company entered into a two year financing
arrangement with Reservoir Capital Corporation. Under the terms of the
agreement, the Company will offer to sell to Reservoir Capital Corp.
the eligible trade accounts receivable at an approved advance rate. On
that date Reservoir Capital Corporation advanced approximately $233,000
on behalf of the Company. The Company immediately reduced one of its
bank notes by approximately $50,000. The Company intends to utilize the
remaining funds to reduce its trade accounts payable.
(4) The mortgage on the property of approximately $600,000 was
refinanced in July 1996 and accordingly a portion was reclassified to
long-term debt at September 30, 1996. In addition, the Company entered into
contracts for the sale of all of its real estate holdings. One transaction
was completed on October 18, 1996. Net proceeds of approximately $70,000
were used to pay down the mortgage. The two remaining contracts are expected
to close no later than November 30, 1996. Proceeds from the sale will be
used to pay off remaining mortgages approximating $35,000 and approximately
$58,000 of accounts payable.
(5) The Company disposed of the civil engineering service group during
the third quarter of 1996.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
attached condensed consolidated financial statements and with the
Company's audited financial statements, and notes thereto, for the
fiscal year ended December 31, 1995.
RESULTS OF OPERATIONS
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995
Sales and revenue for the third quarter of 1996 of $786,500 decreased
by 56.4% or $1,018,200 from the third quarter of 1995 which were $1,804,700.
The Service group decreased its sales by 57.0% or $619,800 to $467,900, and
the Products group lost revenues of $398,400 (55.6%)and reported $318,600
for the third quarter of 1996 as compared to $717,000 for the third quarter
of 1995. Included in the Service group revenue reduction of $619,800 is a
decrease of $446,600 related to the Environmental Consulting and Engineering
and Civil Engineering and Surveying Division which was disposed at July 31,
1996. The Consultative Services and Air Quality groups reported $173,200
less revenues for the third quarter of 1996 as compared to 1995.
Cost of goods sold and direct service costs decreased by 52.3% or
$657,500 to $600,800 for the third quarter of 1996 as compared to
$1,258,300 reported for the third quarter of 1995. The Services
Division reduced its direct service costs by $441,700 (54.8%) and
reported $364,000 for the third quarter of 1996 as compared to $805,700
for the third quarter of 1995. Included in the Service group direct
service costs reduction of $441,700 is a decrease of $322,500 related
to the Environmental Consulting and Engineering and Civil Engineering and
Surveying Division which was disposed at July 31, 1996. The Products group
decreased its cost of goods sold by $215,800 (47.7%) to $236,800 for the
third quarter of 1995.
The gross margins for the quarter ended September 30, 1996 decreased by
$360,800, to $185,700 for the third quarter of 1996 as compared to
$546,400 for the third quarter of 1995. The Services division recorded a
significant decrease of 63.2% or $178,142 in gross profit and reported
103,900 for the third quarter of 1996 as compared to $282,000 for the
third quarter of 1995. The Products Division experienced a 69.1% or
$182,600 reduction in its gross margin and reported $81,800 for the third
quarter of 1996 as compared to 264,400 for the third quarter of 1995. The
Products Division has experienced significant declines in the gross margins
on its air sampling cassettes products due to an agreement with a major
customer. Percentage comparisons of gross margins reported by the company
are as follows:
[S] [C] [C] [C]
Period Total Products Services
3rd Quarter 1996 23.6% 25.7% 22.2%
3rd Quarter 1995 30.3% 36.9% 25.9%
Other operating revenue decreased by $2,900 to $2,500 for the third
quarter ended September 30, 1996 as compared to $5,400 for the quarter
ended September 30, 1995.
<PAGE>
Operating expenses were $408,900 lower and amounted to $353,800 for the
quarter ended September 30, 1996, as compared to $762,700 reported for the
quarter ended September 30, 1995. Included in the third quarter 1996
operating expenses is the recovery of approximately $80,000 of amounts
expensed in 1995 related to a financial settlement with a former officer.
Sales and marketing expenses decreased by 53.5% decrease over the same
period in 1995. The reduction in sales personnel and related cost savings
at the Products Division, which resulted from the agreement with Zellweger
Analytics, Inc. for the distribution of the ACT product line amounted to
$70,300, a 53.5% decrease over the 131,300 reported in 1995. General and
administrative costs decreased by $308,600 to $168,000, including the
$80,000 expense reduction discussed above, for the quarter ended September
30, 1996, as compared to $476,600 reported for the quarter ended September
30, 1995. A portion of the decrease is due to a reduction in personnel and
restructuring of costs. Research and development costs decreased by $13,300,
a 21.6% reduction over the same period in 1995, to $48,200 for the quarter
ended September 30, 1996 as compared to $61,500 for the quarter ended
September 30, 1995. Shipping and receiving costs increased by $1,100 to
$18,100 for the quarter September 30, 1996 as compared to $17,000 for the
quarter ended September 30, 1995. A reduction of $7,300 in costs related to
quality control was also the result of a reduction in personnel in the third
quarter of 1996 as compared to 1995. Depreciation and amortization costs
decreased by $10,500 for the third quarter ended September 30, 1996 as
compared to 1995. All of the decrease is attributable to the disposition of
the engineering services group. Operating expenses generally have declined
as a result of reductions in personnel reported during the first quarter of
1996, consolidation of facilities, and as a result of the disposition of
the civil engineering services division during the third quarter of 1996.
The Company incurred an operating loss of $165,600 for the third quarter of
1996 as compared to an operating loss of $210,900 for the third quarter of
1995. The net operating loss for the second quarter of 1996, excluding the
one time recovery of $80,000 from the financial settlement with a former
officer would have been $245,600 which is $34,700 higher than the $210,900
operating loss reported for the third quarter of 1995.
Interest income for the third quarter of 1996 was $6,400 and resulted from
interest earned on a note that was exchanged in connection with the
disposition of the civil engineering service group completed on July 31,
1996. The company also recorded a gain of $124,500 for the third quarter
of 1996 related to the disposition of the civil engineering service group.
Interest expense of $35,200 for the third quarter of 1996 was $2,100 less
than the amount reported for the third quarter of 1995 which was $37,300.
Amortization of loan costs for the third quarter of 1996 was $25,400 and
was $9,700 higher that the $15,700 reported for the third quarter of 1995.
These higher amortization costs were related to the asset based line of
financing initiated in May 1996 and the refinancing of the mortgage in July
1996.
The Company incurred a net loss of $95,200 for the quarter ended September
30, 1996 as compared to a net loss of $263,800 for the quarter ended
September 30, 1995. Included in the quarter ended September 30, 1996 net
loss is the gain on the disposition of the engineering services division of
$124,500 and the recovery of approximately $80,000 of amounts previously
expensed due to a financial settlement with a former officer as compared to
the first nine months of 1995. The net loss for the quarter ended September
30, 1996 excluding the gain on the disposition of the engineering services
division of $124,500 and the recovery of approximately $80,000 of amounts
previously expensed would have been $299,700 which is $35,900 higher than
the $263,800 reported for the quarter ended September 30, 1995.
<PAGE>
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Sales for the first nine months of 1996 amounted to $3,510,300 which
were $1,417,700 (28.8%)lower than the $4,928,000 reported for the first
nine months of 1995. The Service group decreased its sales by 32.6% or
$972,600 to $2,007,600 and the Products group lost revenues of $445,200
(22.9%)and reported $1,502,700 for the nine months ended September 30, 1996
as compared to $1,947,900 for the nine months ended September 30, 1995.
Included in the Service group revenue reduction of $972,600 is a decrease
of $452,000 related to the Environmental Consulting and Engineering and
Civil Engineering and Surveying Division which was disposed at July 31,
1996. The Consultative Services and Air Quality groups reported $520,600
less revenues for the first nine months of 1996 as compared to the first
nine months of 1995. The Products group reported $1,502,700 in sales for
the nine months ended September 30, 1996 which was $445,200 less revenues
than the $1,947,900 reported for the first nine months of 1995.
Cost of goods sold and direct service costs decreased by 21.7% or $724,900
to $2,611,200 for the first nine months of 1996 as compared to $3,336,100
reported for the first nine months of 1995. The Services Division reduced
its direct service costs by $643,600 (29.5%) and reported $1,541,000 for
the first nine months of 1996 as compared to $2,184,600 for the first nine
months of 1995. The Products group decreased its cost of good sold by
$81,300 or 7.1%, to $1,070,200 for 1996 as compared to $1,151,500 for the
first nine months of 1995.
The gross margins for the first nine months ended September 30, 1996
decreased by $692,800, a decrease of 43.5%, to $899,100 as compared to
$1,591,900 for the nine months ended September 30, 1995. The Services
Division recorded a significant decrease of 37.6% or $299,000 in its gross
margin for the first nine months of 1996 as compared to the first nine
months of 1995. The Products Division also experienced a significant
decrease of 45.7% or a $363,900 reduction in its gross margin for the
first nine months of 1996 as compared to the first nine months of 1995.
The Products Division has experienced significant declines in the gross
margins on its air sampling cassettes products due to an agreement with a
major customer.
Percentage comparisons of gross margins reported by the company are as
follows:
[S] [C] [C] [C]
Period Total Products Services
1st Nine Months 1996 25.6% 28.8% 23.2%
1st Nine Months 1995 32.3% 40.9% 26.7%
Other operating revenue decreased by $31,700 to $3,000 for the first nine
months ended September 30, 1996 as compared to $34,700 for the first nine
months ended September 30, 1995. This decrease is attributable to a change
in the way the Company recorded service charges for 1995. For 1996 the
Company records service charges as revenue when collected rather than when
applied to customer accounts.
<PAGE>
Operating expenses were $76,900 higher and amounted to $2,126,000 for the
nine months ended September 30, 1996, as compared to $2,049,100
reported for the nine months ended September 30, 1995. The operating
expenses for the first nine months of 1996 included a one time charge of
approximately $615,000 related to the write-off of unamortized goodwill
related to the civil engineering service group acquisition made on November
30, 1994. The operating expenses for the first nine months of 1996,
excluding the one time charge of $615,000 would have been $1,511,000 which
is $538,100 lower than the $2,049,100 reported for the first nine months
ended September 30, 1995. Sales and marketing expenses decreased by
$202,500, which savings were mostly attributable to the agreement with
Zellweger Analytics, Inc. for the distribution of the ACT product line.
General and administrative costs decreased by $260,800 to $861,700 for the
nine months ended September 30, 1996, as compared to $1,122,500 reported for
the nine months ended September 30, 1995. Included in the third quarter 1996
general and administrative expenses is the recovery of approximately $80,000
of amounts expensed in 1995 related to a financial settlement with a former
officer. If the recovery of amounts previously expensed had been excluded,
general and administrative expenses would have decreased by $180,800. A
portion of the decrease is due to a reduction in personnel and restructuring
of costs. Research and development costs decreased by $44,600 to $158,400.
Shipping and receiving costs increased by $7,000 to $59,300 for the nine
months ended September 30, 1996 as compared to $52,300 for the nine months
ended September 30, 1995. A reduction of $17,400 in costs related to
quality control was also the result of a reduction in personnel in the nine
months of 1996 as compared to 1995. Depreciation and amortization costs
decreased by $19,800 for the third quarter ended September 30, 1996 as
compared to 1995. All of the decrease is attributable to the disposition of
the engineering services group. Operating expenses generally have declined
as a result of reductions in personnel reported during the first quarter of
1996, consolidation of facilities, and as a result of the disposition of
the civil engineering services division during the third quarter of 1996.
The Company incurred an operating loss of $1,223,800 for the nine months
ended September 30, 1996 as compared to an operating loss of $422,400 for
the nine months ended September 30, 1995. Included in the 1996 operating
loss for the first nine months ended September 30, 1996 is the write-off of
approximately $615,000 of unamortized goodwill related to the civil
engineering service group acquisition made on November 30, 1994 and the
recovery of approximately $80,000 of amounts previously expensed due to a
financial settlement with a former officer as compared to the first nine
months of 1995. If these non recurring amounts had not been included, the
operating loss would have been $688,800 for the nine months ended September
30, 1996 as compared to the operating loss of $422,400 reported for the
first nine months ended September 30, 1995.
Interest income for the nine months ended September 30, 1996 was $2,500
higher than the amount recorded for 1995. All interest earned in 1996
resulted from interest earned on a note that was exchanged in connection
with the disposition of the civil engineering service group completed on
July 31, 1996. The company also recorded a gain of $124,500 for the third
quarter of 1996 related to the disposition of the civil engineering service
group. Interest expense of $133,500 for the nine months ended September 30,
1996 was $15,400 higher than the amount reported for the first nine months
of 1995 which was $118,100. Amortization of loan costs for the first nine
months of 1996 was $46,400 and was $13,800 higher than the $32,600 reported
for the first nine months ended September 30, 1995. These higher
amortization costs were related to the asset based line of financing
initiated in May 1996 and the refinancing of the mortgage in July 1996.
The Company incurred a net loss of $1,271,400 for the first nine months
ended September 30, 1996 as compared to a net loss of $567,600 for the
nine months ended September 30, 1995. Included in the nine months ended
<PAGE>
September 30, 1996 net loss is the write-off of approximately $615,000 of
unamortized goodwill related to the civil engineering service group
acquisition made on November 30, 1994, the gain on the disposition of the
engineering services division of $124,500, and the recovery of approximately
$80,000 of amounts previously expensed due to a financial settlement with a
former officer as compared to the first nine months of 1995. The net loss
for the first nine months of 1996, excluding the one time charge of $615,000,
the gain on the disposition of the engineering services division
of $124,500, and the recovery of approximately $80,000 of amounts previously
expensed would have been $860,900 which is $293,300 higher than the $567,600
reported for the first nine months of 1995.
FINANCIAL CONDITION
The Company's financial condition continued to deteriorate during the first
nine months of 1996 due principally to continued operating losses and the
write-off of the unamortized goodwill resulting from an acquisition made in
1994.
The working capital deficiency has increased from $481,700 at December
31, 1995 to $1,154,900 at September 30, 1996.
Effective January 1, 1996 the Company, through its Products Division
subsidiary, entered into a two year Master Distribution Agreement with
Zellweger Analytics, Inc. Zellweger has become the exclusive national
and international distributor of the Company's proprietary passive air
monitoring technology, known as the ACT Monitoring Card System(TM).
Zellweger is responsible for all sales and marketing activity of the
system. The Company has already experienced a decrease in sales and
marketing costs as a result of the agreement.
Under the Master Distribution Agreement quarterly payments totaling
$675,000 are to be made at the beginning of each calendar quarter for
1996 based on forecasted sales. A total of $438,750 has been received
for the first, second and third quarters of 1996. The final 1996 quarterly
payment of $236,250 was received on October 3, 1996. Quarterly payments
for forecasted sales for 1997 are expected to be determined during the
fourth quarter of 1996.
During July 1996 the Company disposed of its Engineering Services
Division. The disposition resulted in a gain of approximately $124,500
during the third quarter of 1996. This group, which was acquired during
1994, had not performed as planned, and the refocus of the operating
activities to laboratory services and promotion of the ACT product line
discussed above led to the decision to dispose of this division.
In January 1996 the Company modified two of its loan agreements
the borrowings under which were due and extended the due dates to January 15,
1997. In addition, on February 26, 1996 The United States Company
loaned $150,000 to the Company for an initial 30 days. Subsequent to its
due date the note was amended and extended to October 1996. Richard H.
Guilford, Chairman of the Board of Directors of the Company, Maurizio F.
Giabbai, Ph.D., A Director of the Company, and Elsie L. Rose, CPA,
Treasurer of the Company, are Principals in The United States Company.
During October 1996 $115,000 was repaid and a balance of $35,000 remains
outstanding.
<PAGE>
On May 13, 1996 the Company entered into a two year financing arrangement
with Reservoir Capital Corporation. Under the terms of the agreement, the
Company will offer to sell to Reservoir Capital Corporation the eligible
trade accounts receivable at an approved advance rate. On that date
Reservoir Capital Corporation advanced approximately $233,000 on behalf
of the Company. The Company immediately reduced one of its bank notes by
approximately $50,000. The Company intends to utilize the remaining funds
to reduce its trade accounts payable. At the same time an officer of the
Company replaced $40,000 of a bank note payable by advancing funds at an
interest rate of .5% over the prime rate charged by BB&T. This note is due
January 15, 1997.
On July 27, 1996 the Company refinanced its mortgages held by NationsBank.
The new mortgages are for a period of two years, based on a 15 year
amortization and carry interest at 12.5%. Cash savings from this
refinancing are expected to approximate $7,000 per month.
On October 18, 1996, the Company announced that it had signed a letter of
intent with Intellisource, Inc. to acquire 100% of the outstanding stock
of Employee Management Solutions, Inc. (EMS), a wholly owned subsidiary
of Intellisource, Inc. In a related transaction, the Company also entered into
a letter of intent to acquire substantially all of the assets and certain
liabilities of Employee Resource Management, Inc. (ERM), a South Carolina
corporation.
On November 15, 1996, the Company announced that merger discussions with
Employee Resource Management, Inc. were terminated. The Company also
announced on that date that as a result, the Company would be delisted by
Nasdaq effective November 25, 1996 for failure to comply with
Nasdaq net capital requirements. The November 25 deadline had been
previously imposed by Nasdaq in the Company's appeal of an earlier
delisting decision by Nasdaq. The Company did announce, however, that
discussions were continuing with another party concerning a capital
investment. No assurance was given that such investment, or any other
transaction now under consideration by the Company, would result in
continued listing of Envirometrics, Inc. in the Nasdaq Small Cap market.
In addition, the Company entered into contracts for the sale of all of
its real estate holdings. One transaction was completed on October 18, 1996.
Net proceeds of approximately $70,000 were used to pay down the mortgage.
The two remaining contracts are expected to close no later than November 30,
1996. Proceeds from the sale will be used to pay off remaining mortgages
approximating $35,000 and approximately $58,000 of accounts payable.
During the third quarter the Company borrowed an additional $50,000 from a
partnership owned by a shareholder.
<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit
10.1 Note Modification and Extension Agreement with Shakespeare
Partners, L.P. (filed separately)
<PAGE>
SIGNATURES
Pursuant to the registration requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIROMETRICS, INC.
(Registrant)
November 19, 1996 ----------------------------------
Elsie L. Rose, CPA, Treasurer
Signing on behalf of the registrant
and as principal financial officer
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