UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended March 31, 1999
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 BOULEVARD
CHARLESTON, SC 29406
(Address of principal executive offices)
Registrant's telephone number, including area code:
(843) 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 [ ] NO [X]
As of March 31, 1999 the Registrant had outstanding 3,012,686 shares of
common Stock. Transitional small business disclosure format (check one):
YES [ ] NO [X]
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
March 31, 1999 and December 31, 1998 2
Condensed Statement of Operations for the
First Quarter ended March 31, 1999 and 1998 3
Condensed Statement of Cash Flows for the
First Quarter ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-6
Item 2.Management's Discussion and Analysis of Results of
Operations and Financial Conditions 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports 11
Signature 11
<PAGE>
ENVIROMETRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
ASSETS (Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 312,522 $ 40,934
Current portion of notes
receivable 418,294
Trade receivables less allowance
for doubtful accounts 1999 and
1998 $5,000 94,483 183,155
Other receivables 22,213
Prepaid expenses 40,107 38,830
-------- --------
TOTAL CURRENT ASSETS 447,112 703,426
-------- --------
OTHER ASSETS AND INTANGIBLES
Deposits 3,079 2,951
Due from shareholders 23,005 23,005
Other 31,121 31,373
------- -------
57,205 57,329
------- -------
PROPERTY AND EQUIPMENT
Furniture and equipment 987,470 984,635
Vehicles 9,490 9,490
--------- ---------
996,960 994,125
Less accumulated depreciation
and amortization (911,666) (900,800)
--------- ---------
85,294 93,325
--------- ---------
$ 589,611 $ 854,080
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 4,059 $ 10,149
Current maturities of
long-term debt $ 24,027 $ 241,156
Accounts payable 187,467 242,895
Accrued expenses 130,970 138,652
--------- ---------
TOTAL CURRENT LIABILITIES 346,523 632,852
--------- ---------
LONG-TERM DEBT,
less current maturities 89,802 94,400
---------- ----------
STOCKHOLDERS' EQUITY
Common stock par value $.001;
authorized 10,000,000 shares;
issued 1999 and 1998 -
3,012,686 shares 3,013 3,013
Preferred stock, no par value;
authorized 2,500,000 shares;
issued 1999 and 1998 -
353,518 shares 3,535 3,535
Additional paid-in capital 5,764,498 5,764,498
Retained earnings(deficit) (5,617,760) (5,644,218)
---------- ----------
153,286 126,828
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 589,611 $ 854,080
========== ==========
<FN>
See Notes to Condensed Financial Statements
</TABLE>
<PAGE>
ENVIROMETRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1999 and 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31, March 31,
1999 1998
--------- --------
<S> <C> <C>
NET SERVICE REVENUE
Consultative $ 200,294 $ 72,893
Laboratory 85,351 125,849
-------- --------
285,645 198,742
DIRECT SERVICE COSTS
Consultative 94,424 42,627
Laboratory 81,222 77,547
--------- ---------
175,646 120,174
GROSS PROFIT 109,999 78,568
---------- ----------
38.5% 39.5%
OTHER OPERATING REVENUE 2,939 11,395
---------- ----------
OPERATING EXPENSES
Sales and marketing 11,250 9,949
General and administrative 84,880 98,231
Depreciation and
amortization 10,866 11,856
--------- ---------
106,996 120,036
--------- ---------
OPERATING INCOME (LOSS) 5,942 (30,073)
--------- ---------
FINANCIAL INCOME (EXPENSE)
Interest income 1,843 11,804
Interest expense (2,523) (8,097)
Gain (loss) on disposition
of property - (11,720)
Gain (loss) on vendor
balances negotiated 21,171 (1,167)
Other 25 5,350
Amortization of loan costs (5,375)
-------- ---------
20,516 (9,205)
-------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 26,458 (39,278)
PROVISION FOR INCOME TAXES - -
-------- --------
NET INCOME (LOSS) $ 26,458 $ (39,278)
========= ==========
Weighted average number of
common shares outstanding 3,012,686 2,544,899
========== ==========
Net earnings (loss)
per common share $ 0.009 $ (0.015)
========= ==========
Dividends per common share $ - $ -
========= ==========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
ENVIROMETRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FIRST QUARTER ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
<C> <C>
March 31,1999 March 31,1998
Cash Flows From Operating Activities:
Net income (loss) $ 26,458 $ (39,278)
Adjustments To Reconcile net
income (loss) to net cash used
in operating activities
Depreciation 10,866 7,356
Amortization - 9,875
Net (gain) loss on vendor
balances negotiated (21,171) 1,167
Loss on disposal of equipment - 11,720
Change in assets and liabilities:
(Increase)Decrease in accounts
receivable 110,885 (39,677)
(Increase)Decrease in prepaid
expenses (1,277) 14,026
(Increase)Decrease in accounts payable
and accrued expenses (41,939) 5,898
-------- ---------
Net cash provided by
operating activities 83,822 (28,913)
--------- ---------
Cash Flows From Investing Activities:
Purchase of furniture and equipment (2,835) -
Decrease in notes receivable 218,294 24,914
Decrease in other assets 124 21,232
--------- ----------
Net cash provided by investing
activities 215,583 46,146
--------- ----------
Cash Flows From Financing Activities:
Principal payments on long-term borrowing (27,817) (27,174)
-------- ---------
Net cash used in financing activities (27,817) (27,174)
--------- ----------
Net (decrease) increase in cash and
cash equivalents 271,588 (9,941)
Cash and cash equivalents, beginning 40,934 54,096
--------- ----------
Cash and cash equivalents, ending $ 312,522 $ 44,155
========= ==========
Supplemental Disclosure of Cash Flows
Information
Cash payments for interest $ 2,768 $ 908
========= ==========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
ENVIROMETRICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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, should be read in
conjunction with the audited financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995. The Company has not completed its audits of the
consolidated financial statements for the years ended December 31, 1998,1997 and
1996 and has not filed form 10-KSB for the years ended December 31, 1998,1997
and 1996. The Company intends to complete its required financial statement
audits and file required forms 10-KSB no later than November 1999 to meet the
requirements of the OTC-Bulletin Board to retain its listing status. The
Company may be deleted from the OTC-Bulletin Board if it is not in compliance
with listing requirements by December 1999.
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 in 1994.
(3) Shakespeare Partners, LTD, whose general partner is a stockholder of the
Company, had outstanding notes payable due from the Company amounting to
$200,000 at December 31, 1998. No interest was paid by the Company during
1998 or year to date 1999. Approximately $149,700 of debt was converted to
74,878 preferred shares which have dividend and preference in liquidation
rights.
In December 1998 the Company entered into an agreement with Shakespeare
Partners, LTD and its General Partner to sell its note receivable from
Trico Incorporated amounting to $364,427 for $260,000 which resulted in a
loss to the Company of $104,427 and was recorded in December 1998. The
Company received $60,000 in cash during December 1998 and reduced the
outstanding $200,000 note payable balance to zero in January 1999.
The United States Company converted 100% of its outstanding notes payable
during 1998. No interest was paid during 1998. Approximately $85,000 of
debt was converted to 111,648 preferred shares which have dividend and
preference in liquidation rights. $124,100 was forgiven by the United
States Company. Two Directors of the Company are officers of the United
States Company. The Secretary and Treasurer is a Principal in The United
States Company.
The President and CEO converted 100% of his outstanding notes payable during
1998. No interest was paid during 1998. Approximately $17,700 (original
debt plus accrued interest) was converted to 8,835 preferred shares which
have dividend and preference in liquidation rights.
An officer converted $4,500 of accrued salary to 2,250 preferred shares in
December 1998 which have dividend and preference in liquidation rights.
In addition to the related party transactions discussed above, approximately
$171,812 of vendor debt was converted to 85,907 preferred shares during 1998
which have dividend and preference in liquidation rights.
(4) The Company had a $218,294 note receivable from the Buyer of its real
property in December 1996 which was paid in January 1999.
(5) The Company's common stock and warrants were deleted from The Nasdaq
SmallCap Market(tm) on December 3, 1996 for failure to meet the capital and
surplus requirement for continued listing. The Company is listed on the
OTC-Bulletin Board.
(6) On April 1, 1997 the Company issued 125,000 shares of its common stock
to The United States Company in exchange for 640,000 warrants to purchase
its common stock. On that same date the Company issued 5,000 shares of
common stock to Walter H. "Skip" Elliott, III, President and CEO, 5,000
shares of common stock to Elsie L. Rose, Treasurer, 5,000 shares of common
stock to Robin A. Bowers, Secretary at that date, and 1,000 shares of
common stock to another employee. The Company issued 125,000 shares to
Shakespeare Partners Ltd. in connection with a prior loan. On June 29, 1998
the Company granted 700,000 options to purchase common stock to its Directors
and Officers.
(7) During October 1997 the Company settled employment agreements with two
employees at termination of their employment by agreeing to grant warrants
for each to purchase 50,000 shares of Company common stock. No amounts have
been recorded in the financial statements.
(8) During 1998 the Company issued 180,287 shares of common stock in
connection with the negotiation and settlement of vendor trade payable balances.
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
The following financial information reports operating trends for the
Company for 1999 for the remaining operating subsidiary compared to 1998.
Net service revenue for the Consultative Service group which is comprised
of health and safety consulting for the first quarter of 1999 amounted to
$200,300 which was $127,400 (174.8%) higher than the $72,900 reported for
the first quarter of 1998. One customer accounted for $157,800 in revenue.
Net service revenue for the Laboratory Service group, which is comprised
of the industrial hygiene laboratory for the first quarter of 1999 amounted
to $85,400 which was $40,500 (32.2%) lower than the $125,900 reported for
the first quarter of 1998. This is accounted for by a large Project from
one customer that occurred during the first quarter of 1998 that was not
repeated in the first quarter of 1999.
Consultative direct service costs increased by 121.5% or $51,800 to $94,400
for the first quarter of 1999 as compared to $42,600 reported for the first
quarter of 1998 due to additional personnel and the purchase of outside
services due to the increase in revenue discussed above. Laboratory direct
service costs increased by 4.7% or $3,700 to $81,200 for the first quarter
of 1999 as compared to $77,500 reported for the first quarter of 1998 due to
increased personnel costs and outside laboratory services utilized.
The gross profit for the first quarter ended March 31, 1999 increased by
$31,400 an increase of 40.0%, to $110,000 as compared to $78,600 for the
three months ended March 31, 1998.
The Company reported a 38.5% gross margin for the first quarter of 1999 as
compared to a 39.5% margin for the first quarter in 1998. The reason for the
deterioration in gross margin is related to the fixed costs nature of
laboratory operations and the increase in direct costs of the laboratory
group over a lower revenue base. This was offset to a large degree by the
significant improvement in the consultative group contribution.
Percentage comparisons of gross margins reported by the Company are as follows:
Period Total Consultative Laboratory
1st Quarter 1999 38.5% 52.9% 4.8%
1st Quarter 1998 39.5% 41.5% 38.4%
Other operating revenue was $2,900 for the quarter ended March 31, 1999 as
compared to $11,400 for the quarter ended March 31, 1998.
Operating expenses were $13,000 lower and amounted to $107,000 for the three
months ended March 31, 1999, as compared to $120,000 reported for the
three months ended March 31, 1998. Sales and marketing expenses increased
by $1,300. General and administrative costs decreased by $13,300 to $84,900
for the three months ended March 31, 1999, as compared to $98,200
reported for the three months ended March 31, 1998. This decrease is
primarily attributable to a reduction in personnel costs and facilities and
equipment costs. Depreciation and amortization costs decreased overall
by $1,000 due to older equipment being fully depreciated and not replaced.
The Company incurred operating revenue of $5,900 for the three months ended
March 31, 1999 as compared to an operating loss of $30,100 for the three
months ended March 31, 1998. The significant improvement is due to the
Consultative group's increase in revenue, due to a significant project in
the first quarter of 1999 as compared to 1998.
Interest income for the quarter ended March 31, 1999 was $1,800 compared
to $11,800 of interest income recorded for the quarter ended March 31,
1998. The decrease of $10,000 is due to the reduction in the principal balance
outstanding for two notes receivable. One note that was executed during
1996 in connection with the disposition of the Environmental Consulting and
Engineering and Civil Engineering and Surveying Division was used to pay off
a shareholder loan in January 1999. The second note was collected in
January 1999. Interest expense of $2,500 for the three months ended
March 31, 1999 was $5,600 lower than the amount reported for the first
quarter of 1998 which was $8,100 due to the transactions noted above.
The Company recorded a net gain of $21,200 for the first quarter of 1999
on vendor trade payables and notes payable that were negotiated. Loan costs
were fully amortized at the end of the second quarter of 1998, so no amounts
were amortized during the first quarter of 1999. Amortization of loan costs
for the first quarter of 1998 was $5,400. In addition, the company recorded
a loss on dispositin of vehicles of $11,700 during the first quarter of 1998.
Net income for the first quarter ended March 31, 1999 was $26,500 which is
$65,700 higher than the net loss of $39,300 reported for the first quarter
ended March 31, 1998.
<PAGE>
FINANCIAL CONDITION
The Company's financial condition continued to improve during the first
three months of 1999 due principally to the collection of a note receivable,
stronger collections of trade receivables and negotiation of trade
payable balances with vendors. The Company had cash on hand in excess of
$312,000, at March 31, 1999. The Company intends to use cash for working
capital, complete its debt mediation, pursue complimentary joint ventures and
potential mergers, and purchase certain equipment and personal computers.
Working capital has increased by $30,000 from $70,600 at December 31, 1998
to $100,600 at March 31, 1999 due to the items discussed above.
Trade accounts receivable decreased approximately $88,700 to $94,500 at
March 31, 1998 from $183,200 at December 31, 1998. Part of the decrease
is attributable to lower laboratory revenues and collections of accounts with
higher outstanding balances at December 31, 1998.
RECENT DEVELOPMENTS
In September 1998 the Company, through its wholly owned subsidiary, Azimuth,
Inc. (Azimuth), entered into a strategic alliance with PHT Services, Ltd.
(PHTS) for the marketing and selling of environmental, health and safety
services to health care organizations in South Carolina. The alliance
between Azimuth and PHTS was formalized under a contract that outlines
the environmental, health and safety services PHTS will market to its
clients. Azimuth and PHTS will share the revenue generated. During
November 1998 the Company received its first engagement under this arrangment.
In November 1998 the Company, through its wholly owned subsidiary, Azimuth,
Inc.(Azimuth), entered into a strategic alliance with Enviro-Guard, Ltd. to
cross sell services into the respective customer bases of each company.
Enviro-Guard has a complete service line for medical environmental monitoring,
including medical gas systems evaluation and decontamination. The alliance
will compliment the existing menu of services offered by Azimuth to hospitals.
The alliance between Azimuth and Enviro-Guard was formalized under a
contract that outlines the services to be provided by each company.
GENERAL OVERVIEW
The Company believes there exists a synergy between the core competencies of
its operating subsidiary and the Workers' Compensation market (i.e.
Agencies, Claims' Management, and Claims' Administration). In 1994,
the total Workers' Compensation market, including medical benefits,
disability and survivor benefits, administration costs, lost productivity
and other miscellaneous occupational health and service costs, was estimated
at $121 billion. Traditionally, the participants in this market approach
the control of these costs from a reactive mode, trying to minimize the cost
after the injury has occurred. Envirometrics, Inc. is exploring this market
from the vantage of conducting a strategic roll-up of companies in its current
Occupational Health and Safety market and consolidating these together with
companies that operate in the Workers' Compensation market. The combination
of occupational health and safety with workers' compensation products lends
itself to program selling in addition to cross selling opportunities to a
higher level of management not typically accessible to the stand alone
occupational health and safety company and would provide more of a
preventative solution to workers' compensation costs. The Company is
currently identifying merger and acquisition candidates in these two
markets to further this strategic plan. However no letters of intent or
other contractual terms have been reached with any companies in connection
with pursuing management's strategic plan, and there is no guarantee that
any merger or roll-up transactions will occur in the future.
The information provided in this overview contains forward looking statements
that involve risks and uncertainties, including the failure of the Company
to find appropriate consolidation and/or roll-up partners, or the inability
to close consolidation and/or roll-up transactions if agreements are entered
into with such partners, and the failure of any consummated consolidated
and/or roll-up transaction to result in successful business operations for
the Company. Statements made in this overview that are not historical facts
are forward looking statements that are subject to the safe harbor created
by the Private Securities Litigation Reform Act of 1995. The Company's actual
results and outcome of the aforementioned plan could differ significantly
from those discussed herein.
YEAR 2000
Historically, certain computer programs were written using two digits rather
that four to define the applicable year. Accordingly, the Company's software
may recognize a date using "00" as 1900 reather than the year 2000, which could
result in computer systems failures or miscalculations, commonly referred to
as the Year 2000 ("Y2K") issue. The Y2K issue can arise at any point in the
Company's supply, lab analysis processing, and financial applications.
Incomplete or untimely resolution of the Y2K issue by the company, key
suppliers, customers and other parties could have a material adverse effect on
the company's results of operations, financial condition and cash flows.
The Company has developed a plan to modify its information technology to
recognize the Year 2000 and has, to the extent necessary, begun analyzing
and converting, where necessary, its critical data processing systems.
Since many of the Company's systems and software are relatively new, management
does not expect Year 2000 issues related to its own internal systems to be
significant and does not anticipate that it will incur significant operating
expenses or be required to invest heavily in computer systems improvements
to be Year 2000 compliant. The Company estimates that it may have to replace
three to five desktop personal computers used in its laboratory operations and
is incorporating that plan into its capital budget. The Company is planning
to initiate formal communications with certain of its significant lab
equipment suppliers and service providers to determine the extent to which
the Company's systems may be vulnerable to embedded technology such as
microcontrollers. The Company currently expects the project to be completed
in the third quarter of 1999. There can be no guarantee that the systems of
suppliers or other companies on which the Company relies will be converted
in a timely manner and will not have a material adverse effect on the
Company's systems. To date the Company has not developed a formal
contingency plan. The Company believes it is taking the steps necessary
regarding Year 2000 compliance with respect to matters within its control.
However, no assurance can be given that the Company's systems will be made
Year 2000 compliant in a timely manner or that the Year 2000 problem will
not have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 5. Other Information - None
Item 6. Exhibits and Reports - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENVIROMETRICS, INC.
<TABLE>
<S> <C>
Date: May 13, 1999 Walter H. Elliott, III
_______________________
Walter H. Elliott, III
President and CEO
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 312,522
<SECURITIES> 0
<RECEIVABLES> 94,483
<ALLOWANCES> (5,000)
<INVENTORY> 0
<CURRENT-ASSETS> 447,112
<PP&E> 996,960
<DEPRECIATION> 911,666
<TOTAL-ASSETS> 589,611
<CURRENT-LIABILITIES> 346,523
<BONDS> 0
0
3,535
<COMMON> 3,013
<OTHER-SE> 146,738
<TOTAL-LIABILITY-AND-EQUITY> 589,611
<SALES> 285,645
<TOTAL-REVENUES> 288,584
<CGS> 175,646
<TOTAL-COSTS> 175,646
<OTHER-EXPENSES> 83,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,523
<INCOME-PRETAX> 26,458
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,458
<EPS-PRIMARY> .009
<EPS-DILUTED> .009
</TABLE>
