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As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 333-22949
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 3)
U.S. PLASTIC LUMBER CORP.
(Name of small business issuer in its charter)
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Nevada 3080 87-0404343
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431
(561) 394-3511
(Address and telephone number of principal executive offices and
place of business)
Bruce C. Rosetto, Esq.
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431
(561) 394-3511
(Name, address and telephone number of agent for service)
COPIES TO:
Thomas G. Kimble & Van L. Butler
THOMAS G. KIMBLE & ASSOCIATES
311 South State Street, #440
Salt Lake City, Utah 84111
(801) 531-0066
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this registration statement.
CALCULATION OF REGISTRATION FEE
(previously submitted)
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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U.S. PLASTIC LUMBER CORP.
950,000 SHARES OF COMMON STOCK
UNDERLYING SERIES A COMMON STOCK PURCHASE WARRANTS
U.S. Plastic Lumber Corp. (the "Company"), is offering, for sale to the
holders of outstanding Series A Common Stock Purchase Warrants (the "Series A
Warrants"), 950,000 shares (the "Shares") of its $.0001 par value common stock,
(the "Common Stock" ) which are issuable upon exercise of the Series A Warrants,
at a price of $2.50 per share. Each Series A Warrant entitles the holder to
purchase one share of Common Stock of the Company. The Series A Warrants were
distributed as a dividend with respect to the Common Stock of the Company to
shareholders of record as of March 18, 1996. By their terms, the Series A
Warrants were not exercisable and did not constitute an offer by the Company to
sell the Shares prior to the effective date of the registration statement, of
which this prospectus is part, which registers the Shares issuable upon such
exercise. The Series A Warrants are exercisable until June 30, 1998. The Series
A Warrants are callable and can be redeemed by the Company for $.01 per Series A
Warrant on 30 days notice at any time after the effective date of this
Prospectus if the closing bid price of the Common Stock equals or exceeds $4.00
for 20 consecutive trading days. The Company's common stock is quoted on the OTC
Electronic Bulletin Board under the Symbol "ECPL" and the current bid price
quotation is $4.50. The conditions for redemption of the Series A Warrants have
already been accomplished; therefore management intends to call for redemption
as soon as practicable in the future. In the event management calls for
redemption of the Series A Warrants at any time in the future, Series A
Warrantholders would have 30 days to exercise, after which they would be
compelled to accept the nominal redemption price. The exercise and redemption
prices of the Series A Warrants were arbitrarily determined by the Company and
bear no relationship to assets, shareholders equity or any other recognized
criteria of value. Prior to this offering, there has been only a limited public
market for the Common Stock and there is no assurance that such market will
continue in the future.
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THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL AND IMMEDIATE
DILUTION AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD TO RISK THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Commissions & Proceeds to the
Public(1) Discounts(1)(2) Company(2)
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Per Share (Series A).................. $2.50 $0.00 $2.50
- --------------------------------------------------------------------------------------------------------------------
Total Maximum......................... $2,375,000 $0.00 $2,375,000
====================================================================================================================
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(1) The Shares are being offered by the Company only to the holders of
outstanding Series A Warrants, and will be sold by the Company without
any discounts or other commissions. The offering price is payable in
cash upon exercise of the Series A Warrants. No minimum number of
Series A Warrants must be exercised, and no assurance exists that any
Series A Warrants will be exercised. The Company will retain any
proceeds from Series A Warrant exercises, regardless of the number
exercised. See "Plan of Distribution."
(2) Proceeds to the Company are shown before deducting offering expenses
payable by the Company for legal and accounting fees and printing
costs. See "Use of Proceeds".
The date of this Prospectus is , 1998
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AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2, under the
Securities Act of 1933, as amended (the "Securities Act), with respect to the
securities offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained in
the Registration Statement. For further information regarding both the Company
and the Securities offered hereby, reference is made to the Registration
Statement, including all exhibits and schedules thereto, which may be inspected
without charge at the public reference facilities of the Commission's
Washington, D.C. office, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
may be obtained from the Washington, D.C. office upon request and payment of the
prescribed fee.
As of the date of this Prospectus, the Company became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(The "Exchange Act") and, in accordance therewith, will file reports and other
information with the Commission. Reports and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act will be available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: New York Regional Office, 75 Park Place, New York, New York
10007; Chicago Regional Office, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material may be obtained from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet Web site that contains
reports, proxy and information statements and other information regarding
issuers that file such reports electronically with the Commission. Such site is
accessible by the public through any Internet access service provider and is
located at http://www.sec.gov.
Copies of the Company's Annual, Quarterly and other Reports which will
be filed by the Company electronically with the Commission commencing with the
Quarterly Report for the first quarter ended after the date of this Prospectus
(due 45 days after the end of such quarter) will also be available upon request,
without charge, by writing U.S. Plastic Lumber Corp., 2300 W. Glades Road, Suite
440 W, Boca Raton, Florida 33431, (561)-394-3511. The Company will provide
without charge to any person who receives a prospectus, upon written or oral
request, a copy of any of the information that was incorporated by reference in
the prospectus by contacting Bruce C. Rosetto, Vice President and General
Counsel/Secretary of the Company at the address and telephone number listed
herein.
UNTIL [90 DAYS AFTER THE DATE OF THIS PROSPECTUS], ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY STATE SECURITIES
COMMISSION OR OTHER STATE REGULATORY AUTHORITY, AND NO SUCH REGULATORY AUTHORITY
HAS PASSED UPON THE TERMS OF THIS OFFERING OR APPROVED THE MERITS THEREOF.
INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF
THIS OFFERING IN EVALUATING THE MERITS AND RISKS OF THE OFFERING AND MAKING AN
INVESTMENT DECISION.
THIS PROSPECTUS SHOULD BE READ IN ITS ENTIRETY BY ANY PROSPECTIVE INVESTOR PRIOR
TO HIS OR HER INVESTMENT.
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PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THE PROSPECTUS.
THE COMPANY
U.S. Plastic Lumber Corporation (the "Company") is a manufacturer and
marketer of recycled plastic lumber products and a provider of environmental
recycling services. The Company was incorporated under the laws of the State of
Utah on July 26, 1983, under the name of Front Street Energy, Inc., and
completed an initial public offering of its securities in 1983. The Company
changed its corporate domicile to the State of Nevada in June 1992 and changed
its name to Front Street, Inc. In 1994, the Company changed its name to
Educational Storybooks International, Inc. when it acquired all the outstanding
stock of Educational Storybooks, Inc. The Company subsequently divested itself
of Educational Storybooks, Inc. and another subsidiary, and had no significant
assets or business until March, 1996, when the Company acquired Earth Care
Global Holdings, Inc. ("Earth Care") as a wholly owned subsidiary, through the
acquisition of all the issued and outstanding stock of Earth Care in a stock for
stock exchange (the "Acquisition") and changed its name to U.S. Plastic Lumber
Corporation. The mailing address of the Company's principal executive offices is
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431. The Company's
telephone number is (561) 394-3511.
The Company has two distinct business lines. One division, U.S. Plastic
Lumber Ltd., manufactures structural and non-structural plastic lumber and
fabricates a variety of accessory products, such as park and site amenities,
made from 100% recycled high density polyetheylene. The other division, Clean
Earth, Inc. oversees the environmental recycling services including thermal
desorption and bioremediation plants, environmental construction services,
upland disposal of dredge materials, beneficial re-use management of industrial
wastes, and on-site recycling services. The Company owns and operates five
manufacturing, processing and fabrication facilities in the U.S. The primary
product produced in three of these plants is feedstock and lumber made from
recycled waste plastic. Recycled plastic lumber is manufactured in a variety of
colors, profiles and shapes including standard lumber dimensions and many custom
engineered profiles and shapes. The fourth plant is a recycled plastic
processing business which includes the washing, grinding and pelletizing of post
consumer and post industrial plastic waste. Some of this material is used to
supply the raw material needs of the Company's lumber manufacturing facilities.
Plastic lumber's principal intended use is as an environmentally friendly and
non-toxic alternative to pressure treated lumber or rain forest hardwoods, which
is suitable for and provides superior performance in most nonstructural, outdoor
applications. The Company's fifth plant operates a process for decontaminating
and recycling soil that has been contaminated with petroleum hydrocarbons and
similar compounds through a process known as thermal desorption. The Company
anticipates a sixth plant to open during the first quarter of 1998 also for
decontaminating and recycling soil through a process which is bio-organic. See
"Business."
THE OFFERING
Securities offered ............... 950,000 Shares of Common Stock, $.0001 par
value ("Common Stock") issuable upon exercise
of outstanding Series A Warrants. See
"Description of Securities".
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Plan of Distribution............. The Shares are being offered and will be sold
by the Company, without any discounts or
other commissions, to the holders of the
Series A Warrants upon the exercise thereof.
See "Plan of Distribution."
Offering Price................. $2.50 per share.
Use of Proceeds................ The Company could potentially receive gross
proceeds of as much as $2,375,000 from sale
of the 950,000 Shares of Common Stock
issuable upon exercise of the Series A
Warrants, if and to the extent such Warrants
are exercised. Any such proceeds will be used
generally to provide additional working
capital, but have not been specifically
allocated, inasmuch as there is no assurance
any of the Series A Warrants will be
exercised. See "Use of Proceeds."
Securities Outstanding......... The Company is authorized to issue up to
50,000,000 shares of Common Stock and
presently has 15,652,790 shares of Common
Stock issued and outstanding. The Company has
reserved from its authorized capital 950,000
shares of Common Stock for issuance upon
exercise of the Series A Warrants. In
addition, the Company also has Series B and
other warrants or options outstanding which
give the holders thereof the right, subject
to certain conditions, to acquire up to an
additional 7,788,975 shares of Common Stock.
The Company is also authorized to issue up to
5,000,000 shares of Preferred Stock in one or
more series with such rights and preferences
as the Board of Directors may designate. The
Board of Directors has designated one series
of Preferred Stock (Series A) and 209,207
Series A preferred shares are presently
issued and outstanding, which are convertible
into 1,464,449 shares of Common Stock of the
Company. The Company has reverse split its
Common Stock on a 1 for 16 basis in March
1996. See "Description of Securities."
Series A Warrants.............. Each Series A Warrant entitles the holder to
purchase one share of Common Stock at any
time during the period commencing on the date
of this Prospectus and ending June 30, 1998.
The Series A Warrants are callable and can be
redeemed by the Company for $.01 per Series A
Warrant on 30 days notice at any time after
the date of this Prospectus if the closing
bid price of the Common Stock equals or
exceeds $4.00 for 20 consecutive trading
days.
In the event management calls for redemption
of the Series A Warrants at any time in the
future, Series A Warrantholders would then
have 30 days in which to decide whether to
exercise their warrants, after which time
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they would be compelled to accept the
nominal redemption price. The exercise price
is $2.50 per share for the Series A Warrants,
subject to adjustment in certain events. See
"Description of Securities - Series A and B
Warrants."
Transfer Agent................. Interwest Transfer Company, Inc., 1981 East
4800 South, Suite 100, Salt Lake City, Utah
84117, (801) 272-9294, serves as transfer
agent and registrar for the Company's
outstanding securities.
Risk Factors................... An investment in the Company is highly
speculative. Investors will suffer
substantial dilution in the book value per
share of the Common Stock compared to the
purchase price. The Company incurred a net
loss during 1996 of $113,415 and has an
accumulated deficit of $98,229 as of December
31, 1996. If substantial funds are not
received from exercise of the Series A
Warrants, of which there is no assurance, the
Company may require additional funding for
which it has no commitments. No person should
invest in the Company who cannot afford to
risk loss of the entire investment. See "Risk
Factors."
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RISK FACTORS
This prospectus contains certain forward-looking statements.
Prospective investors and other readers are cautioned not to place undue
reliance upon such forward looking statements, which represent only the plans,
beliefs, estimates, expectations and/or anticipation of management as of the
date of this prospectus. These forward looking statements are subject to certain
uncertainties and other factors which could cause actual results in the future
to differ materially from the results contemplated in and by such statements.
Such uncertainties and other factors include, but are not limited to, those
enumerated below as risk factors.
The securities being offered hereby involve a high degree of risk.
Prospective investors should carefully consider the following risk factors
before investing in the Company.
RISKS INHERENT IN THIS COMPANY
OPERATING LOSSES. The Company incurred a net loss of $113,415 for the
year ended December 31, 1996. The success of operations in the future will be
largely dependent upon the Company's ability to substantially increase its sales
revenue, as to which there is no assurance. See financial statements attached
hereto.
CONFLICTS OF INTEREST INHERENT IN MATERIAL RELATED PARTY TRANSACTIONS.
The Company has recently entered into several significant acquisitions and other
affiliated transactions, the terms of which were, in some instances, determined
without the benefit of arms length bargaining or negotiation and necessarily
involve conflicts between the interests of the related parties and the Company.
These include the recent acquisitions, as wholly owned subsidiaries of the
Company, of Earth Care Global Holdings and Earth Care Partners, Duratech
Industries, Clean Earth, Inc., Recycled Plastics Industries, Inc., Integrated
Technical Services, Inc., Environmental Specialty Plastics, Inc., EnviroPlastics
Corp., Advanced Remediation and Disposal Technologies, Inc., Waste Concepts,
Inc., and Green Horizon Environmental, Inc. as well as the granting or issuance
of various stock, options and other rights to members of management, principal
stockholders, and other affiliates. See "Certain Transactions."
DEPENDENCE ON MANAGEMENT. The development of the Company's business and
operations is dependent upon the efforts and talents of its executive officers,
in particular, Mark Alsentzer, Chief Executive Officer. The loss of the services
of this officer or other executive officers could have a material adverse effect
on the Company's business. See "Management."
NO CASH DIVIDENDS. The Company does not currently intend to pay cash
dividends on its Common Stock and does not anticipate paying such dividends at
any time in the foreseeable future. At present, the Company will follow a policy
of retaining all of its earnings, if any, to finance development and expansion
of its business. The Company does intend to pay dividends in stock on its
outstanding Series A Preferred Stock. See "Dividend Policy."
LIMITED LIABILITY OF MANAGEMENT. The Company has adopted provisions to
its Articles of Incorporation and Bylaws which limit the liability of Officers
and Directors and provides for indemnification by the Company of Officers and
Directors to the full extent permitted by Nevada law, which provides that
officers and directors shall have no personal liability to a Company or its
stockholders for monetary damages for breach of fiduciary duties as directors,
except for a breach of their duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law,
unlawful payment of dividends or unlawful stock purchases or redemptions, or any
transaction from which a director derives an improper personal benefit. Such
provisions substantially limit the shareholders' ability to hold officers and
directors liable for breaches of fiduciary duty, and may require the Company to
indemnify its officers and directors. See "Certain Transactions - Conflicts of
Interest".
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ACCESS TO CAPITAL. The Company has limited access to capital. There can
be no assurances that the Company will have necessary and appropriate levels of
capital to operate its business.
EXPERTISE. The business of the Company requires much expertise in a
wide variety of functions. There can be no assurance that the Company will be
able to maintain employees with the requisite levels of expertise or that the
Company will be able to attract and keep such employees in the future.
RISKS RELATED TO THE NATURE OF THE PROPOSED BUSINESS
NEWLY DEVELOPING INDUSTRY. The reclamation and recycling of plastic
waste and the manufacture of plastic lumber for use in construction, and other
composite materials containing recycled waste plastics, are relatively new
industries. There is a general reluctance in the construction industry to use
new materials before they have been extensively tested, particularly in certain
segments which have exacting performance standards for component materials. In
the case of the Company's plastic lumber and composite materials in particular,
such testing may be extensive for each prospective customer and may require
substantial additional time and resources. In addition, the Company may
experience resistance from prospective customers who are accustomed to more
conventional, non-artificial wood materials. Moreover, the Company may not have
sufficient financial and other resources to undertake extensive marketing and
advertising activities or to afford the cost of the necessary marketing and
sales personnel at such time as it becomes appropriate to broaden its marketing
efforts. See "Business".
AVAILABILITY OF RAW MATERIALS. The availability of low-cost raw
materials, namely consumer and industrial plastic waste products, is a material
factor in the Company's costs of operations. Historically, suppliers have
provided adequate quantities of such raw materials at favorable costs. The
Company generally maintains raw material inventories of approximately one half
million pounds, which is adequate for approximately two months of production.
The Company believes that its current sources of raw materials will continue to
be available on commercially reasonably terms. However, unavailability, scarcity
or increased cost of such raw materials would have a material adverse effect
upon the Company's business. The Company purchases most of its raw materials
through distributors. Disruption of these supply sources could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company does not rely on contractual arrangements with its raw
materials suppliers and has no long-term supply contracts.
COMPETITION AND MARKETING. The Company's plastic lumber business faces
competition from other producers of recycled plastic lumber as well as producers
of vinyl and aluminum decking, and traditional wood lumber, especially pressure
treated wood lumber. The Company competes against other makers of recycled
plastic lumber principally on the basis of price and quality as well as the
immediate availability of its product, and competes against other products such
as pressure treated lumber by emphasizing the superior suitability
characteristics of recycled plastic lumber for certain applications, as well as
appealing to the environmental consciousness of consumers. The Company's
environmental recycling division has several large competitors which provide
similar services throughout the Northeast and Mid Atlantic states. The resources
of the competition, financial and otherwise, may be such that it can be very
difficult for the Company to effectively compete. In some instances, the
competitors of the Company have more revenues, market share, and capital
available which can make it difficult for the Company to compete. There can be
no assurances that the Company will be able to effectively compete in any of its
markets.
NEWLY DEVELOPING TECHNOLOGIES. The Company's products and services
involve newly developing technologies, and there is no assurance the Company
will be able to compete effectively in developing and marketing such products
and services or in developing or maintaining the know how, technology, and
patents to compete effectively. There is a general lack of public awareness of
these newly developing products and services generally, or as alternatives to
more traditional and well established products. To compete effectively, the
Company must increase public knowledge and acceptance of its products and
services and develop and maintain certain levels of know how and technical
expertise, of which there is no assurance.
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INDUSTRY STANDARDS. ASTM (American Society for Testing and Materials)
and certain industry trade organizations have established general standards and
methods for measuring the characteristics of specific building materials. Users
of building materials (and frequently, issuers of building codes) generally
specify that the building materials comply with such standards relative to the
proposed applications. Since uniform, recognized standards or methods have only
recently been established for measuring the characteristics of plastic lumber,
potential users may not know of this, to judge whether or not plastic lumber may
be suitable for their particular requirements, without being informed of such
standards by the plastic lumber supplier or otherwise becoming aware of them.
The fact that such standards are not well known for plastic lumber may limit the
market potential of the Company's building materials and make potential
purchasers of such building materials reluctant to use them. The Plastic Lumber
Trade Association, of which the Company is a member, is pursuing increased
public awareness of such standards, but no assurance can be given that public
awareness will successfully be increased or that increased awareness will
increase the market for the Company's products.
REGULATORY MATTERS. The Company's businesses are subject to laws and
regulations designed to protect the environment from toxic wastes and hazardous
substances or emissions and to provide a safe workplace for its employees. Under
current federal regulations (Resource Conservation & Recovery Act, "RCRA" &
Comprehensive Environmental Responsibility, Compensation & Liability Act,
"CERCLA"), the generator of toxic or hazardous waste is financially and legally
responsible for that waste forever, and strictly liable for the clean up and
disposal costs. In particular, the business of decontaminating or otherwise
handling toxic or hazardous waste materials is fraught with potential liability
to such handlers if the handling and tracking of such wastes is not properly
done. The Company believes it is either in material compliance with all
currently applicable laws and regulations or is operating in accordance with
appropriate variances or similar arrangements, but there is no assurance that it
will always be deemed in compliance, nor any assurance that compliance with
current laws and regulations will not require significant capital expenditures
that could have a material adverse effect on its operations. Such laws and
regulations are always subject to change and could become more stringent in the
future. Although state and federal legislation currently provide for certain
procurement preferences for recycled materials, such preferences for materials
containing waste plastics are dependent upon the eventual promulgation of
product or performance standard guidelines by state or federal regulatory
agencies. Such guidelines for recycled plastic building materials may not be
released or, if released, the product performance standards required by such
guidelines may be incompatible with the Company's manufacturing capabilities.
LOSS OF PERMITS. The Company's business, especially the environmental
recycling division, is dependent upon certain permits and licenses from many
different federal, state, and local agencies. There can be no assurances that
the Company will be able to maintain its permits and licenses in the future or
modify its permits and licenses to be able to compete effectively.
PROTECTION OF TECHNOLOGY. The Company's business involves many
proprietary trade secrets, as well as certain methods, processes and equipment
designs for which the Company has not sought patent protection. Although the
Company has taken measures to safeguard its trade secrets by limiting access to
manufacturing and processing facilities and requiring confidentiality and
nondisclosure agreements with third parties, there is no assurance that its
trade secrets will not be disclosed or that others will not independently
develop comparable or superior technology. Rather than rely on patent
protection, the Company has generally chosen to rely on the unique and
proprietary nature of its processes. The Company has obtained exclusive
worldwide licensing rights with respect to patent pending technology related to
railroad crossties and the process to manufacture them, but there is no
assurance the Company will be able to maintain such rights for any specific
length of time.
BIDDING. The environmental recycling division consists of certain
subsidiaries which are highly reliant upon contract bidding as a significant
source of revenues. There can be no assurance that the Company will be
successful in obtaining bid work in the future or that if it does obtain bid
work that it will be at suitable profitable margins.
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RISKS RELATED TO THE OFFERING
NO ASSURANCE OF WARRANT EXERCISE AND NO ESCROW OF FUNDS. There is no
assurance that any proceeds will be received from exercise of Series A Warrants
in this offering. Proceeds may be insufficient to defray offering expenses.
There is no minimum number of Series A Warrants that must be exercised and no
escrow of funds received upon exercise. Any proceeds received will immediately
be retained by the Company to be used in its business. The amount of capital
currently available to the Company is limited. In the event that any proceeds
from this offering and the Company's existing capital are not sufficient to
enable the Company to develop and expand its business and generate a profit, the
Company may need to seek additional financing from commercial lenders or other
sources, for which it presently has no commitments or arrangements. This creates
an increased risk to persons who do exercise their Series A Warrants, because
there is no assurance that additional Series A Warrants will be exercised or
that the Company will receive any further funding.
RISKS OF WARRANT EXERCISE. Although the market price of the Common
Stock currently exceeds the exercise price of the Series A Warrants, there is no
assurance that exercising Series A Warrantholders will be able to sell their
Common Stock in the future at a price which equals or exceeds such exercise
price.
OUTSTANDING WARRANTS, OPTIONS AND OTHER RIGHTS. In addition to the
950,000 Series A Warrants, the Company has outstanding 950,000 Series B
Warrants, and other warrants, options and earn-out rights to purchase up to
6,838,975 shares. The Company will also have other options granted in the future
in connection with an employee incentive stock option program. The holders of
such options, warrants or rights are given an opportunity during the term of
such rights to profit from a rise in the market price of the Company's common
stock, with a resultant dilution of the interests of all other stockholders. The
holders thereof are likely to exercise them only if the then prevailing market
price exceeds such exercise prices, which would be at a time when, in all
likelihood, the Company would otherwise be able to obtain funds from the sale of
its securities on terms more favorable than those provided by the options and
warrants. Accordingly, the Company may find it more difficult to raise
additional capital while the options and warrants are outstanding.
CURRENT PROSPECTUS AND REGISTRATION REQUIRED FOR EXERCISE. Holders of
the Series A Warrants will only be able to exercise such securities to acquire
the underlying Common Stock if a current prospectus relating to the Common Stock
is then in effect and such exercise is qualified or exempt from qualification
under applicable securities laws of the states in which such holders of the
Series A Warrants reside. Although the Company intends to use its best efforts
to update this prospectus as necessary to maintain a current prospectus and
federal and state registration/qualification for such exercise, there is no
assurance that the Company will be able to do so at such time as such persons
may wish to exercise such securities. The value of the Series A Warrants may be
greatly diminished if the ability to exercise such securities is not maintained.
If a current prospectus is in effect, the Series A Warrants are redeemable for
nominal consideration at any time after the date hereof upon 30 days notice, if
the bid price of the common stock equals or exceeds $4.00 for 20 consecutive
trading days. If redeemed, warrantholders would have 30 days to exercise the
Series A Warrants, after which they would be compelled to accept the nominal
redemption price.
DILUTION. Series A Warrantholders who exercise their Series A Warrants
to purchase the underlying Shares of Common Stock will suffer substantial
dilution in the purchase price of the Shares compared to the net tangible book
value per share immediately after the purchase. The exact amount of dilution
will vary depending upon the total number of Series A Warrants exercised, and
will be greater if less than all the Series A Warrants are exercised. The fewer
Series A Warrants exercised, the greater dilution will be with respect to the
Series A Warrants that are exercised. See "Dilution."
POTENTIAL ISSUANCE OF ADDITIONAL COMMON AND PREFERRED STOCK. The
Company is authorized to issue up to
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50,000,000 shares of Common Stock. To the extent of such authorization, the
Board of Directors of the Company will have the ability, without seeking
shareholder approval, to issue additional shares of Common Stock in the future
for such consideration as the Board of Directors may consider sufficient. The
issuance of additional Common Stock in the future will reduce the proportionate
ownership and voting power of the Common Stock offered hereby. The Company is
also authorized to issue up to 5,000,000 shares of preferred stock, the rights
and preferences of which may be designated in series by the Board of Directors.
To the extent of such authorization, such designations may be made without
shareholder approval. The Board of Directors has designated one series of
Preferred Stock (Series A) and issued 209,207 shares of Series A Preferred
Stock. The designation and issuance of series of preferred stock creates
additional securities which have dividend and liquidation preferences over the
Common Stock offered hereby. See "Description of Securities."
POTENTIAL ANTI-TAKEOVER MEASURES. Certain provisions in the articles of
incorporation or bylaws of the Company, such as staggered terms for the Board of
Directors and authorization to issue additional common or preferred stock and
designate the rights and preferences of the preferred stock without further
approval of shareholders, could be used as anti-takeover measures. Provisions
such as these could result in the Company being less attractive to anyone who
might consider a takeover attempt, and result in shareholders receiving less
than they otherwise might in the event of a takeover attempt.
CONTINUATION OF MANAGEMENT CONTROL. Upon completion of this offering,
present shareholders, which includes current management of the Company, will own
a majority of the total outstanding securities and will have absolute control of
the Company. Investors in this offering as a group will have no ability to
remove, control or direct such management. Only one third of the outstanding
shares is required to constitute a quorum at any stockholders' meeting, and
action may be taken by a majority of the voting power present at a meeting, or
may be taken without a meeting by written consent of stockholders holding a
majority of the total voting power. See "Principal Stockholders" and
"Description of Securities."
ARBITRARY DETERMINATION OF OFFERING PRICE. The exercise price of the
Series A Warrants was arbitrarily determined by management of the Company and
was set at a level substantially in excess of prices recently paid for
securities of the same class. The price bears no relationship to the Company's
assets, book value, net worth or other economic or recognized criteria of value.
In no event should the exercise prices be regarded as an indicator of any future
market price for the Company's securities.
NO ASSURANCE OF A LIQUID PUBLIC MARKET FOR SECURITIES. Although the
Company's shares of common stock are eligible for quotation on the Electronic
Bulletin Board, there can be no assurance that a regular and established market
will continue for the securities upon completion of this offering. There can
also be no assurance as to the depth or liquidity of any market for common stock
or the prices at which holders may be able to sell the Shares. As a result, an
investment in the Shares may be totally illiquid and investors may not be able
to liquidate their investment readily or at all when they need or desire to
sell.
VOLATILITY OF STOCK PRICES. In the event that an established public
market does develop for the Shares, market prices will be influenced by many
factors, and will be subject to significant fluctuation in response to
variations in operating results of the Company and other factors such as
investor perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, international political
conditions, developments with regard to the Company's activities, future
financial condition and management. See "Plan of Distribution."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 15,652,790 shares of the
Company's common stock outstanding prior to the exercise of any Series A
Warrants, 1,808,506 shares are freely tradeable or are eligible to be sold in
the public market, and the 950,000 shares of Common Stock underlying the Series
A Warrants will also be freely tradeable immediately upon issuance. All the
remaining shares of Common Stock presently outstanding are restricted and/or
affiliate securities which are not presently, but may in the future be
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sold into any public market that may exist for the Common Stock, pursuant to
Rule 144 promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). Future sales by current shareholders of substantial amounts
of this common stock into the public market could depress the market prices of
the Common Stock in any such market. See "Shares Eligible for Future Sale".
APPLICABILITY OF LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS. The
common stock of the Company may be considered a low priced security under rules
promulgated under the Exchange Act. Under these rules, broker-dealers
participating in transactions in low priced securities must first deliver a risk
disclosure document which describes the risks associated with such stocks, the
broker-dealer's duties, the customer's rights and remedies, and certain market
and other information, and make a suitability determination approving the
customer for low priced stock transactions based on the customer's financial
situation, investment experience and objectives. Broker-dealers must also
disclose these restrictions in writing and provide monthly account statements to
the customer, and obtain specific written consent of the customer. With these
restrictions, the likely effect of designation as a low priced stock is to
decrease the willingness of broker-dealers to make a market for the stock, to
decrease the liquidity of the stock and increase the transaction cost of sales
and purchases of such stocks compared to other securities.
ACQUISITIONS. The Company has been successful in closing upon numerous
acquisitions in the past. These acquisitions have been an important source of
Company growth and increased profitability. There can be no assurance that the
Company will be able to achieve any acquisitions in the future or that if does
accomplish acquisitions that it will have a beneficial impact upon the Company's
business, its results of operations, or its financial condition.
GROWTH. The Company has experienced a high growth rate during the last
year. There can be no assurance that the Company will continue to experience
high growth rates.
DILUTION
Dilution is the difference between the Series A Warrant exercise price
of $2.50 per share for the Common Stock underlying the Series A Warrants, and
the net tangible book value per share of the Common Stock immediately after its
purchase. The Company's net tangible book value per share of Common Stock is
calculated by subtracting the Company's total liabilities and the amount of the
liquidation preferences of its outstanding preferred equity, from its total
assets less any intangible assets, and then dividing by the number of shares of
Common Stock then outstanding.
Based on the September 30, 1997, unaudited interim consolidated
financial statements of the Company, the net tangible book value attributable to
the Common Stock of the Company at that date was $1,081,017 or approximately
$.07 per common share. After adjusting for the acquisition of Waste Concepts,
Inc. in November 1997 and Green Horizon Environmental, Inc. in January 1998 and
other issuances of additional stock subsequent to September 30, 1997 and receipt
of the net proceeds therefrom but without taking into consideration any changes
in operating results or other changes in net tangible book value subsequent to
September 30, 1997, the Company has 15,652,790 shares of Common Stock
outstanding prior to the exercise of any Series A Warrants with an estimated net
tangible book value attributable to Common Stock of $1,412,941 or approximately
$.09 per share.
If all the Series A Warrants were to be exercised (of which there is no
assurance), upon the exercise thereof, but prior to exercise of any Series B
Warrants or exercise or conversion of any other outstanding convertible
securities, options or stock rights, the Company would then have 16,602,790
Shares of Common Stock outstanding. The estimated post offering net tangible
book value of the Company (which gives effect to receipt of the estimated net
proceeds from such exercise and issuance of the underlying Shares of Common
Stock, but does not take into consideration any other changes in net tangible
book value of the Company subsequent to September 30, 1997), would then be
$3,488,191 or approximately
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$.21 per share. This would result in dilution to persons exercising Series A
Warrants of $2.29 per share, or 92% of the exercise price of $2.50 per share.
Net tangible book value per share would increase to the benefit of present
stockholders from $.09 prior to the offering to $.21 after the offering, or an
increase of $.12 per share attributable to the exercise of the Series A
Warrants.
The following table sets forth the estimated net tangible book value
("NTBV") per share after exercise of all Series A Warrants and the dilution to
persons purchasing the underlying Shares of Common Stock.
EXERCISE OF ALL SERIES A WARRANTS:
Series A Warrant exercise price/share $2.50
NTBV/share prior to exercise $.09
Increase attributable to Series A Warrant exercise .12
----
Pro forma NTBV/share after exercise .21
------
Dilution $2.29
If less than all the Series A Warrants are exercised, dilution to the
exercising Series A Warrantholders will be greater than the amount shown. The
fewer Series A Warrants exercised, the greater dilution will be to those who do
exercise.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares of Common
Stock underlying the Series A Warrants at the exercise price of $2.50 per Share
for Series A Warrants will vary depending upon the total number of Series A
Warrants exercised. If all Series A Warrants were to be exercised (of which
there is absolutely no assurance, nor any assurance that any Series A Warrants
will be exercised), the Company would receive gross proceeds of $2,375,000 from
Series A Warrants. Regardless of the number of Series A Warrants exercised, the
Company expects to incur offering expenses estimated at $300,000 for legal,
accounting, printing and other costs in connection with the offering. Inasmuch
as there is no assurance that all Series A Warrants will be exercised nor any
requirement that any minimum amount of the Series A Warrants be exercised, there
are no escrow provisions and any proceeds that are received will be immediately
available to the Company to provide additional working capital to be used for
general corporate purposes. The exact uses of any other proceeds will depend on
the amounts received and the timing of receipt. While the Company may consider
additional acquisitions in the future as a method to further develop and expand
its business, there are presently no specific plans, proposals, arrangements,
understandings or contracts with respect to future acquisitions or other
methods to the further development and expansion of the Company's business.
MARKET INFORMATION & DIVIDEND POLICY
The common stock of the Company has traded in the over-the-counter
market on a limited and sporadic basis, and is quoted on the OTC Electronic
Bulletin Board under the symbol ECPL. The following table sets forth the high
and low bid price quotations for each calendar quarter during the last two
fiscal years and subsequent interim period. The Company reverse split its common
stock on a 1 for 16 basis in March, 1996. Quotations for periods prior to such
split and information regarding the number of shares have been restated here and
elsewhere throughout the prospectus to reflect post split amounts throughout.
QUARTER ENDED HIGH BID LOW BID
March 31, 1995 $ 1.76 $ 1.12
June 30, 1995 $ 1.60 $ 1.12
September 30, 1995 $ 1.60 $ 1.44
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December 31, 1995 $ 3.20 $ 1.92
March 31, 1996 $ 3.50 $ 2.88
June 30, 1996 $ 4.75 $ 4.13
September 30, 1996 $ 5.13 $ 4.63
December 31, 1996 $ 4.75 $ 3.00
March 31, 1997 $ 6.50 $ 6.00
June 30, 1997 $ 6.13 $ 5.75
September 30, 1997 $ 6.50 $ 5.50
The above prices represent interdealer quotations, without retail
markup, markdown or commissions, and may not represent actual transactions. As
of November 30, 1997, there were approximately 318 record holders of the
Company's Common Stock.
CAPITALIZATION
Primary Shares:
Common Stock (1,808,506 shares
are freely tradeable) 15,652,790
Fully Diluted:
Preferred Shares (convert @ 7:1
common) 1,464,449
Series A Warrants 950,000
Series B Warrants 950,000
Other Warrants and Options 1,996,789
Earn Out shares and Options 268,500
Historical Shareholder earn out 4,573,686
---------
Subtotal 10,203,424
Fully Diluted Equity 25,856,214
DIVIDEND POLICY
The Company has not previously paid any cash dividends on its common
stock and does not anticipate or contemplate paying dividends on common stock in
the foreseeable future. Certain divisions or subsidiaries recently acquired by
the Company have in the past (prior to their acquisition by the Company) paid
cash dividends, but it is the present intention of management of the Company to
utilize all available funds for the development of the Company's business. The
Company does intend to pay stock dividends on its outstanding Series A Preferred
Stock in accordance with the terms thereof. The only restrictions that limit the
ability to pay dividends on common or preferred equity or that are likely to do
so in the future, are those restrictions imposed by law. Under Nevada corporate
law, no dividends or other distributions may be made which would render the
Company insolvent or reduce assets to less than the sum of its liabilities plus
the amount needed to satisfy outstanding liquidation preferences.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
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PRIOR FISCAL YEAR. On December 30, 1996 the Company completed the acquisition of
Clean Earth, Inc. in a transaction accounted for as a reverse merger stock
purchase. The following results of operations discussed represent those of the
Clean Earth entity which is considered to be the acquiring company for
accounting purposes.
After deduction of interest, general and administrative expenses, the Company
incurred net income of $514,224 OR 8.5% of total sales during the fiscal year
ended December 31, 1995. The Company's total revenues for the period were
$6,043,963 consisting primarily of revenues from treated soils contaminated with
petroleum hydrocarbon wastes. The Company's cost of sales for the year was
$4,116,721 or 68% OF total sales and the Company's general and administrative
expenses were $1,103,018 OR 18% of sales for the fiscal year ended December 31,
1995.
CURRENT FISCAL YEAR COMPARED TO PRIOR FISCAL YEAR. Operating performance in 1996
showed a decline from the previous year as the Company experienced a net loss of
$113,415 in 1996 compared to net income of $514,224 in 1995. The decrease in the
company's net income of $627,639 was primarily due to the lower sales volume
associated with a facility fire that occurred in March of 1996. The plant
retrofit process continued throughout 1996 and adversely affected the plant's
processing capacity that in turn reduced net sales compared to the same period
in 1995. The retrofit process was substantially complete at the end of 1996 and
is not expected to impact plant capacity in 1997. The existing facilities at
Clean Earth were substantially depreciated as of the end of 1996 and
consequently an additional estimated $400,000 of depreciation expense on these
facilities will not burden net income in 1997.
SALES
Total sales decreased $1,302,024 or 21.5% in 1996 from $6,043,963 in 1995 to
$4,741,939 IN 1996. The sales decrease was primarily due to a fire in the
operating facility which occurred in March of 1996 and interrupted business for
a period of several months resulting in lost processing capacity during the
retrofit process. In addition there was a decrease in revenue in the first
quarter primarily due to extraordinary harsh weather conditions in the Northeast
during first quarter of 1996 compared to 1995 which interfered with the ability
to access soil requiring recycling.
COST OF GOODS SOLD
Cost of Goods Sold decreased $395,213 or 9.6% from $4,116,721 in 1995 to
$3,721,508 in 1996. The Company experienced a decrease in depreciation expense
of $281,747 as a significant portion of the plant had been fully depreciated as
of the end of 1995. In addition, there was a decrease of $167,434 in the amount
recognized for the covenant not to compete which is based on the amount of soil
treated and was less due to the lower volume of treated soil. Soil and rock
disposal costs decreased by $38,680 as the Company had success in negotiating to
have cleaned soil removed from the facility at no charge compared to removal
fees paid in the prior year to remove excess cleaned soil. These decreases were
offset by an increase of $104,117 and heavy equipment rentals which were no
longer needed when the Company purchased its own heavy equipment. The remaining
differences were offsetting changes in other operating expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative Expenses increased $208,137 from $1,103,018 in 1995
to $1,311,155 in 1996. The increase in administrative expenses is primarily due
to an increase in clerical and management salaries of $90,300. In addition there
was an increase of $57,500 in management fees charged by a former related
company (IA Construction), an increase of $25,526 in professional fees
associated with buy out of the former related party with the remaining increase
related to additional general expenses.
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Interest income of $53,156 was earned in 1996 over and above 1995 as short-term
interest bearing accounts were established for cash generated from operations
and sales of capital stock.
The Company recognized a gain on involuntary conversion in the amount of $66,859
related to fire damaged equipment. The gain represents the excess of insurance
proceeds received over the loss incurred. The Company and the insurance carrier
have reached a final settlement in the amount of an additional $455,000 of which
a reserve in the amount of $290,000 has been set aside for additional expenses
relating to the fire that were charged to this reserve in 1997.
NINE MONTHS 1997 COMPARED TO NINE MONTHS 1996. The company experienced a 313%
increase in net sales in the first nine months of 1997 compared to the same
period in 1996. This increase was due primarily to increased sales from acquired
businesses in both the recycled plastic lumber segment as well as the
environmental recycling business segment during the past year. Net income of
$424,788 in the first nine months of 1997 improved from a net loss of $426,917
in the first nine months of 1996. This was due to certain one-time general and
administrative expenses that were recognized in the prior year, improved
operating performance in the Clean Earth unit and net income contribution from
acquired companies during 1997.
SALES
During the first nine months of 1997, sales increased $11,699,993 or 313% over
the same period in 1996. This significant increase in sales came primarily from
acquired businesses, which were not part of the Company during the first nine
months of 1996. These acquisitions contributed $11,991,150 of the increase
offset by a decrease of $291,157 in Clean Earth sales during the comparable
period. Both business segments are now into the summer and fall seasons that
historically have been strong sales months for all of the units. The plastic
lumber group has also experienced strong demand for its new "Carefree Decking
System" product that was introduced at the beginning of the year and is expected
to contribute incremental sales to this business for the remainder of the year.
Demand for this product has pushed delivery lead times from the Wisconsin plant
back from 4-6 weeks to 12 weeks. The Company committed to double capacity at
this facility by adding additional machinery and floor space before the end of
1997.
Plastic lumber division sales contributed $5,444,083 or 46.5% Of the total
increase in the first nine months of 1997 compared to the same period in 1996.
In addition to sales contributions of $1,980,418 from the U S Plastic Lumber
division which was acquired in December 1996, the Recycled Plastics Industries
(RPI) and Environmental Specialty Plastics (ESP) and EnviroPlastics (EPC) units
(discussed in detail under Certain Transactions) contributed $3,463,665 to 1997
sales.
In the environmental recycling division, sales increased by $6,255,910 in the
first nine months of 1997 compared to the same period in 1996. The ARDT and ITS
acquisitions (discussed in detail under Certain Transactions ) contributed
incremental sales of $6,547,067 in the first nine months of 1997. The remaining
$291,157 decrease at the Clean Earth unit was primarily due to competitive
conditions which caused a reduction in both price and volume.
GROSS PROFIT
Gross profit increased $3,609,112 from $444,206 in the first nine months of 1996
to $4,053,318 in the first nine months of 1997. The acquired businesses in both
business segments contributed gross profit of $2,542,666 or 70.5% Of the total
increase. The remaining increase was from the Clean Earth unit which experienced
reduced depreciation expense from fully depreciated assets and improved
operating performance during the comparable period.
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The plastic lumber division contributed gross profit of $777,309 most of which
came from the acquired RPI and ESP and EPC units. Gross profit increased by
$2,831,803 in the environmental recycling division for the first nine months of
1997 over the same period in 1996. The ARDT and ITS acquisitions contributed
$1,765,356 or 62.3% Of the increase in the environmental recycling segment's
gross margin during this period. In the Clean Earth unit, the existing plant and
equipment was substantially depreciated in prior years and consequently,
depreciation expense related to these items was lower by $401,393 for the first
nine months of 1997. Plant operation costs were $579,115 less than the
comparable period which included a reduction in plant fuel of $133,188 and a
decrease in transportation costs of $334,027 due to decreases in off-premises
hauling, continued success in negotiating fees to offset hauling out expense
associated with disposal of cleaned earth as well as increased customer bill
back of transportation costs. The remaining reduction was primarily due to
reduced plant maintenance costs during the period. The company continued to
experience replacement of equipment parts that related to last year's facility
fire which were identified and charged to reserves set aside for this purpose.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $2,842,235 or 417.3% In the first
nine months of 1997 compared to the comparable period quarter in 1996 primarily
due to the addition of several acquisitions in both business segments. Acquired
businesses (USPL, RPI, ARDT, ITS, ESP and EPC) contributed an additional
$2,706,759 to general and administrative expenses. This increase was offset by
certain non-recurring expenses in the Clean Earth unit recognized during the
first nine months of the previous year.
The plastic lumber acquisitions contributed $2,118,886 to expenses primarily in
the area of corporate administrative, sales and marketing expenses. The
environmental soil recycling division acquisitions (ARDT and ITS) contributed
$587,873 to general and administrative expenses in the nine months of 1997. A
payment of $303,000 in management service fees was made to IA Construction, a
former owner of Clean Earth, Inc. During the first quarter of 1996. This
management fee is no longer paid in the current year and accounts for most of
the remaining offset in general and administrative expense for the period.
In June 1997, in exchange for reduction of future salary agreements with the
retained officers to terms more favorable to the Company, the Company provided
cash consideration equal to $30,000, and accelerated 150,000 additional earn-out
shares for total compensation of $123,750. The retained officers salaries were
to be increased from a base salary of $50,000 annually to $75,000 and $90,000
annually as certain earn-out targets were reached. Salaries for these officers
were increased to $65,000 base compensation without pre-arranged future base
salaries.
Interest expense increased $140,542 in the first nine months of 1997 compared to
the same period in the prior year directly as a result of debt service acquired
with the acquisitions made since December 26, 1996. ARDT was the only entity
acquired where no debt existed. Interest in the amount of $58,378 on an
unsecured note payable of $1,200,000 to a related party (Schultes, Inc.) (See
Certain Transactions) was paid during the nine month period ending September 30,
1997.
The Company experienced a fire at the plant at the end of March 1996. While the
fire caused a slight loss of revenue in the first quarter of 1996, the resulting
decrease in plant capacity did effect revenues during the summer months of last
year. The Company assessed damages and recorded a provision for fire loss of
$220,000 as an extraordinary item during the first quarter 1996.
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LIQUIDITY AND CAPITAL RESOURCES.
PRIOR FISCAL YEAR.
Cash position increased $66,137 for the twelve months ended December 31, 1995.
Cash generated from operating activities was $273,739 and consisted primarily of
net income of $514,224 and depreciation and amortization expense of $912,905 (a
non-cash item) offset by an increase of Accounts Receivable in the amount of
$1,129,648 due to the strong month of December sales. There was a small amount
of capital expenditures however, the Company did recognize $200,000 in proceeds
from the sale of machinery and equipment during the year. The cash provided by
the financing and operating activities was offset by the payment of cash
dividends of $400,000.
FISCAL YEAR ENDED DECEMBER 31, 1996.
Total cash decreased $255,916 for the twelve months ended December 31, 1996.
Cash from operating activities totaled $1,817,651 and consisted primarily of
collections on accounts receivable totaling $646,996, depreciation (a non-cash
item) totaling $629,697 and an increase in accounts payable and accrued expenses
totaling $436,383 Investing activities totaled $(25,567) and included capital
expenditures of primarily plant equipment and heavy machinery of $251,035 which
was offset by $225,468 of cash received in the CEI/USPL reverse merger
consummated on December 30, 1996 (see Certain Transactions). The cash provided
by operating activities was offset by other financing activities that used cash,
including payments for the purchase of treasury stock of $1,100,000, and the
payment of cash dividends of $948,000 so that the net cash used in financing
activities was $2,048,000.
NINE MONTHS ENDED SEPTEMBER 30, 1996. Net increase in cash for the first nine
months of 1996 totaled $51,057. Despite a net operating loss of $426,917 during
the first nine months of 1996, the Company still managed to generate cash of
$1,706,437 from operating activities. This was primarily due to collections of
accounts receivable from the end of the busier season totaling $926,114,
increases in accounts payable of $409,388 and $526,899 of depreciation (a
non-cash item). The cash generated from operating activities was offset by
dividends of $948,000 paid by Clean Earth and $1,100,000 paid to Stout
Partnership (former owner of Clean Earth) for purchase of treasury stock prior
to the consummation of the CEI/USPL reverse merger. The Company also recognized
$625,000 in proceeds from borrowings on an available bank line of credit, the
proceeds of which were used to purchase treasury stock. The net result of
financing activities was $(1,423,000) for the period. Total investing activities
during this period were $232,380 invested in capital for equipment.
NINE MONTHS ENDED SEPTEMBER 30, 1997. Net cash generated in the first nine
months totaled $757,313 of which $4,880,000 was generated from a private
offering of preferred and common stock and was the principal source of capital
during this period. An additional $2,015,469 of capital was provided by the
issuance of notes payable of which $1,200,000 was issued to Schultes, Inc., a
related party (see certain transactions). As of September 30, 1997 notes payable
to Schultes, Inc. totaled $1,200,000. Proceeds from issued debt were used to
consummate the RPI, ARDT, ESP, ITS and EnviroPlastics acquisitions (see certain
transactions) as well as to pay off other notes and an officer loan payable.
Total cash provided from financing activities totaled $5,813,827 during the
first nine months of 1997. Net cash used in operations was $2,160,071 primarily
due to the increase in accounts receivable of $1,625,137 as a result of
increased sales entering peak season and increases in accrued expenses primarily
due to acquisitions of $960,101 somewhat offset by non-cash depreciation and
amortization of $506,568. Allowance for doubtful accounts were 14.4% Of total
accounts and notes receivable as of December 31, 1996 compared to 6.3% Of total
notes and accounts receivable as of September 30, 1997. Bad debt write-offs
during the first nine months were $15,612. The addition of
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gross accounts receivables from acquisitions was the primary reason for the
decline of doubtful account reserve as a percentage of gross notes and accounts
receivable. An additional provision for bad debts added to the reserve for
doubtful accounts during the first nine months of 1997 for the plastic lumber
segment which totaled $59,192. Investing activities included the acquisitions of
RPI, ESP, ARDT, ITS and EnviroPlastics Corp. (Discussed in detail in certain
transactions) which required $1,492,186 of cash (net of cash received from these
subsidiaries). Another $1,886,701 was required for capital expenditures
consisting primarily of machinery and equipment for the Tennessee and Wisconsin
manufacturing plants and the Clean Earth facility. Cash used in investing
activities totaled $2,896,443.
Due to favorable response to the Company's new "Carefree Decking System", the
Company has committed to expanding the capacity of the RPI subsidiary. The
company will add an additional 15,000 square feet to the existing leased
facility and plans to add six new extruders and vacuum calibration systems in
addition to the two existing extruders at this site. The estimated cost of this
project is $1,000,000 and will be financed through an independent leasing
company or bank. The company has access to an additional $1,100,000 from
Schultes, Inc. At Federal Reserve prime rate plus 1% and the Company's Clean
Earth subsidiary has a commitment for a bank line of credit facility of
$1,500,000 at the bank's prime rate plus .5%. As of September 30, 1997 the
Company had borrowed $443,406 against this line of credit. In addition, the
Company is currently in negotiation for an additional bank credit facility of
$4,000,000.
The Company has also committed to building a bio-organic soil recycling
facility in Carteret, New Jersey as part of a start-up company named Carteret
Biocycle, Inc, which is a wholly owned subsidiary of Clean Earth, Inc. (see
Certain Transactions). This facility is expected to be completed in the first
quarter of 1998 at an estimated cost of $2,000,000 and will be financed through
a conventional bank loan facility.
POSSIBLE FUTURE ACQUISITIONS
The Company continues to seek acquisition candidates that can be vertically
integrated into either the recycled plastic lumber or environmental recycling
divisions. In the recycled plastic lumber division, targeted companies include
manufacturers and distributors of recycled plastic products as well as raw
material regrind operations. In the environmental recycling division targeted
companies include soil recycling companies including bio-organic methodologies,
consulting and construction companies involved in on-site clean-up and potential
joint ventures with dredging operations for remediation and disposal of
contaminated soils.
While the Company has entered into related party acquisitions in the past, it is
not expected to have any further significant dealings with affiliates in the
future. At present there are no known affiliates with which the Company intends
to negotiate an acquisition nor are there any related entities that will be
considered for acquisition in the foreseeable future. If there are dealings with
such entities in the future, the parties will attempt to deal on terms
competitive in the market and on the same terms either party would deal with a
third person. Management will attempt to resolve any conflicts of interest that
may arise in favor of the Company.
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BUSINESS
U.S. Plastic Lumber Corporation is divided into two divisions; the
recycled plastic lumber division, operating under the name U.S. Plastic Lumber
Ltd, and the environmental recycling division, operating under the name Clean
Earth, Inc. The plastic lumber division is comprised of five wholly owned
subsidiaries: Earth Care Products of Tennessee, Inc., which operates a
manufacturing plant in Trenton, Tennessee: Earth Care Products of the Midwest,
Inc., which operates a sales and assembly facility in Lake Odessa, Michigan;
Recycled Plastics Industries, Inc, which operates a sales and manufacturing
facility in Green Bay, Wisconsin; Environmental Specialty Products, Inc., which
runs a sales and distribution center of recycled plastic products in Guasti,
California and EnviroPlastics Corporation, which operates a recycled plastic
regrind plant in Auburn, Massachusetts. The Clean Earth division operates a
plant in New Castle, Delaware and two environmental construction companies:
Integrated Technical Services, Inc. (ITS), in Winslow, New Jersey and Advanced
Remediation and Disposal Technologies, Inc. (ARDT) in Coopersberg, Pennsylvania.
As of November 18, 1997, the Company also acquired Waste Concepts, Inc. which
provides environmental recycling services, transportation, and beneficial re-use
of waste materials. As of January 2 ,1998, the Company also acquired Green
Horizon Environmental, Inc., also an environmental recycling services company.
In addition, the Company has started Carteret Biocycle, Inc. which is
constructing an earth recycling facility in Carteret, New Jersey utilizing a
bio-organic methodology of recycling contaminated soils. It anticipates this
facility will open during the first quarter of 1998.
The Company's plastic lumber division manufactures plastic lumber from
recycled waste plastic to produce a high quality, long lasting alternative to
wood lumber that provides superior performance in outdoor uses and is suitable
for most nonstructural applications. By producing a high quality recycled
plastic lumber product, the Company conserves natural resources by reducing the
need for lumber products made from wood and at the same time reduces the amount
of plastic waste streaming into landfills while providing a longer lasting,
useful product. The Company's plastic lumber products are intended as an
excellent replacement for pressure treated wood lumber, which is injected with
toxic chemicals to retard decay and insect infestation. Plastic lumber is not
subject to decay or insect infestation and so will outlast wood lumber,
especially in applications exposed to moisture. Recycled plastic lumber is
environmentally friendly in that it eliminates potential pollution from leaching
of such toxic chemicals into the environment.
The Company's Clean Earth division, which offers environmental
recycling services, operates several subsidiaries. Clean Earth of New Castle,
Inc. operates a low temperature thermal desorbtion treatment plant that ensures
that contaminated soil is decontaminated in accordance with local, state and
federal regulations. This thermal treatment process removes petroleum
hydrocarbons from the soil and has been recognized by federal and state agencies
(including Delaware, New Jersey, New York, Maryland and Pennsylvania) as a cost
effective technology for cleaning up the environment. Contaminated solids, soils
and construction debris are recycled and reused in construction and industrial
applications. The Company's recycling center in New Castle, Delaware is in a
prime location for servicing the Northeast and Mid-Atlantic regions, where
extensive remodeling and rebuilding of infrastructure and abandoned industrial
property is ongoing. This division also operates Carteret Biocycle Corp. which
plant will remove petroleum hydrocarbons from soil when it opens in the winter
of 1998. The plant is similar to the Clean Earth of New Castle, Inc. (CENC)
facility except that its process involves bio-organic removal of petroleum
hydrocarbons whereas the CENC facility uses natural gas as the energy source to
remove petroleum hydrocarbons from the soil. The remaining environmental
recycling subsidiaries are involved in beneficial re-use management of waste
products, upland re-use of dredge materials, environmental construction
services, and on-site recycling services.
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HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in Utah on July 26, 1983, under the name
of Front Street Energy, Inc. The Company completed a public offering of its
securities in 1983, but had no active business for several years. The Company
changed its corporate domicile to the State of Nevada in June 1992 and changed
its name to Front Street, Inc. In 1994, the Company acquired all the outstanding
stock of Educational Storybooks, Inc. and changed its name to Educational
Storybooks International, Inc. The Company subsequently divested itself of
Educational Storybooks, Inc. and another subsidiary and had no business
operations prior to March, 1996.
In March, 1996, the Company entered into an Agreement and Plan of
Reorganization with Earth Care Global Holdings, Inc. ("Earth Care"), a
manufacturer and marketer of recycled plastic products and other recycling
services. Pursuant to the Agreement, the Company reverse split its common stock
on a 1 for 16 basis, and then issued 4,196,316 post split shares of its
authorized but previously unissued common stock to acquire all the issued and
outstanding stock of Earth Care in a stock for stock exchange (the
"Acquisition") which was intended to be a tax free reorganization under Section
368(a) of the Internal Revenue Code.
In April, 1996 the Company acquired all of the assets of DuraTech
Industries. DuraTech Industries, in operation since 1986, is a manufacturer of
recycled plastic lumber, recycled plastic shapes and value added products
located in Lake Odessa, Michigan. This acquisition doubled the Company's
recycled plastic lumber sales.
In December, 1996, the Company completed a reverse triangular merger
with Clean Earth, Inc. ("Clean Earth"). Clean Earth has been in operation since
1991, and has treated over 600,000 tons of soil and construction debris that was
contaminated with petroleum hydrocarbon wastes, such as fuels, lubricating oils,
tars and gasoline. Clean Earth, Inc. now operates all of environmental
subsidiaries of the Company.
In January, 1997, the Company acquired Recycled Plastics Industries,
Inc. (RPI), located in Green Bay, Wisconsin. RPI is a manufacturer of specialty
profile, recycled plastic lumber products that was formed in 1989. RPI's
production process utilizes an automated continuous flow extrusion process with
vacuum calibration forming technology. The special products and additional
dimensional lumber capacity complement the Company's existing products
manufactured at the Tennessee and Michigan plants. The recycled plastic lumber
industry is a young, highly fragmented industry with over 30 small manufacturers
and many more marketers of recycled plastic lumber products.
In February, 1997, the Company acquired Advanced Remediation and
Disposal Technologies, Inc. (ARDT). ARDT is engaged in environmental consulting
and clean up of contaminated sites primarily involving water and soils.
In March, 1997, the Company acquired Environmental Specialty Plastics,
Inc. (ESP), a marketing and distribution company of recycled plastic products in
Guasti, California. The Company also manufactures custom signs out of recycled
plastic lumber utilizing in house routing equipment and is able to personalize
site amenities, such as benches, ash urns and picnic tables, engraving logos and
designs into recycled plastic end products. This acquisition provides the
Company with a presence on the west coast of the U.S. market.
In March of 1997, the Company acquired Integrated Technical Services,
Inc. (ITS) located in Winslow, New Jersey. The Company is engaged in
environmental consulting and clean up of contaminated sites primarily involving
water and soils similar to the operations of ARDT.
In June of 1997, the Company acquired EnviroPlastics Corporation, in
Auburn, Massachusetts, which operates a recycled plastic processing business
which includes the washing, grinding and pelletizing of post-
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consumer and post-industrial plastic waste. In the subsidiary, an estimated 70%
of the $5,230,000 in sales for the year ended December 31, 1996 were from one
major customer, Dupont, who was the prime customer for the pelletized,
post-consumer feedstock product.
In June of 1997 the Company formed Carteret Biocycle Inc. as a wholly
owned subsidiary of Clean Earth, Inc.. The Company will construct an 80,000
square foot soil recycling facility on a 5-acre leased parcel in Carteret, New
Jersey. This facility will recycle contaminated soils utilizing a bio-organic
methodology of removing contaminants. The plant will have the capacity to
process 240,000 tons of contaminated soil annually.
In July of 1997, the Company formed a joint venture partnership with
Interstate Industrial Corp. of Secaucus, New Jersey to bid on dredge/upland
disposal projects. The joint venture company does business as Interstate/U.S.
Plastic Lumber Corp. joint venture.
In November of 1997, the Company acquired Waste Concepts, Inc as a
wholly owned subsidiary of Clean Earth Inc.. This subsidiary is primarily
involved in removing and transporting large volumes of waste products through
the use of subcontractors and consultation on environmental waste issues. This
subsidiary has also been actively involved with the beneficial re-use of dredge
materials and is a critical component of the Company's plans to expand its
operations to include large volume handling of such material.
In January of 1998, the Company acquired Green Horizon Environmental,
Inc. as a wholly owned subsidiary of Waste Concepts, Inc.. This subsidiary is
primarily involved in removing and transporting large volumes of waste products
through the use of subcontractors and consultation on environmental waste
issues. This subsidiary has also been actively involved with the beneficial
re-use of dredge materials and ash and is a critical component of the Company's
plans to expand its operations to include large volume handling of such
material. It operates in the same market area as Waste Concepts, Inc.
CORPORATE STRUCTURE
U.S. Plastic Lumber Corporation, a Nevada corporation, is a holding
company for the Company's wholly owned subsidiaries, U.S. Plastic Lumber Ltd.,
has been formed to act as a holding company for all operating plastic lumber
subsidiaries and Clean Earth, Inc., which owns all operating environmental
recycling subsidiaries.
U.S. Plastic Lumber Ltd., A Delaware corporation:
Earth Care Products of the Midwest, Inc., a Florida corporation
Earth Care Products of Tennessee, Inc., a Florida corporation
RPI Acquisition Corp., a Wisconsin corporation
Environmental Specialty Products, Inc., a California corporation
EnviroPlastics Corp., a Massachusetts corporation
Clean Earch Inc., A Delaware corporation:
Clean Earth of New Castle, Inc., A Delaware Corporation
Advance Remediation and Disposal Technologies, Inc., a Pennsylvania
corporation (eff. 12/31/97 merged into Integrated Technical Services, Inc.)
Integrated Technical Services, Inc. a Delaware corporation
Carteret Biocycle Corp., a Delaware corporation
Waste Concepts, Inc., a Pennsylvania corporation
Green Horizon Environmental, Inc., a Pennsylvania corporation
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PHYSICAL FACILITIES AND EMPLOYEES
The Company's principal executive offices are located in Boca Raton,
Florida. The Company leases approximately 3,265 square feet of office space in a
four story office building for which it pays $4,600 per month. The Company has a
total of ten employees at the corporate offices in administration and finance.
One the Company's manufacturing facilities is located in Trenton,
Tennessee. The Company leases, with an option to purchase, a 50,000 square foot
building for $6,846 per month. The Company employs an average of 20 people at
this facility.
The Company also had a manufacturing facility in Lake Odessa, Michigan
which it acquired as part of the DuraTech acquisition. In September, 1997 the
manufacturing operations of the Tennessee and Michigan locations were
consolidated into a larger facility in Tennessee. The Company still leases
16,000 square feet in Lake Odessa, Michigan, in a separate building at $3,333
per month for twelve months, which houses a fabrication shop and employs an
average of 9 people.
The Company also has a manufacturing facility in Green Bay, Wisconsin
which it acquired as part of the RPI acquisition. The Company leases
approximately 20,000 square feet of space at $4,432 per month on a five year
lease which commenced January 27, 1997, and employs 13 people at this facility.
The Company has required the Landlord to construct a 14,000 sq. ft. addition for
purposes of expanding the capacity of the plant. Revised Lease terms are being
renegotiated at the time of the writing of this document.
The Company also has a non-hazardous waste processing in New Castle,
Delaware which it acquired as part of the Clean Earth acquisition. The Company
leases approximately 72 acres of ground on which it has erected the soil
decontamination facilities, for a fee of $1 per ton of soil received for
treatment, with an annual minimum of $50,000 and a put under which the landowner
can require the Company to purchase the property for $750,000 at any time. The
Company employs 26 people at this facility.
The Company has a sales and distribution office located in Guasti,
California as a result of the ESP acquisition. The company leases 6,120 square
feet of building space as well as 17,427 square feet of outdoor space at a cost
of $1,500 per month on a two year lease. The facilities are utilized as office
and fabrication space as well as a warehouse. This facility employs an average
of five people.
The ITS subsidiary leases 7,000 square feet of office and utility space
on a 3 acre parcel in Winslow, New Jersey at a cost of $ 1,000 per month on a
month to month basis. Office space consisting of 3,000 square feet in
construction trailers is complemented by a utility structure of 4,000 square
feet which is used for light repairs and equipment storage. The Company employs
an average of 31 employees of which seven are located at the premises and the
remaining generally report directly to job sites.
The EnviroPlastics Corp. subsidiary leases 33,494 square feet of
manufacturing and office space that houses a recycled plastic regrind, washing
and pelletizing operation of post consumer and post-industrial plastic waste.
The Company leases the property at $18,143 per month on a five-year lease and
employs an
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average of 47 people.
The Waste Concepts facility leases a two story stand alone office
building at $4,000 per month and employs 16 people.
PLASTIC LUMBER DIVISION -
PRODUCTS
During the past several years, the Company's plastic lumber division
has positioned itself to be a leading manufacturer in the emerging recycled
plastic lumber industry in North America. Recycled plastic lumber is
manufactured in a variety of colors, profiles and shapes including standard
lumber dimensions and many custom engineered profiles and shapes.
The Company's recycled plastic lumber products are made from 100%
recycled, post-consumer and post-industrial plastics and are used for numerous
municipal, commercial and residential applications. This non-toxic material is
an environmentally friendly alternative to pressure treated lumber and rare
woods and provides superior performance for most nonstructural, outdoor
applications where traditional wood lumber is subject to moisture damage and
rotting. Recycled plastic lumber products offer these unique advantages:
* 50 year limited warranty
* Environmentally friendly and non-toxic
* Virtually maintenance free
* Saves trees and reduces use of exotic rain forest hardwoods
* Can be worked with conventional tools
* Aesthetically pleasing wood-like textured surface
* Splinter proof - never rots
* Not affected by termites, ants or other wood borers
* No splitting, cracking or chipping
* Holds nails and screws 40% better than wood
* Non absorbent and waterproof
* No leaching into soil or groundwater
* Most graffiti easily washes off
* Does not promote organic growth when wet
Products built with the Company's recycled plastic lumber have the
appearance of freshly stained or painted wood but the longevity and
maintenance-free qualities of plastic. Recycled plastic products are an ideal
replacement for wood, metal and concrete in numerous applications, including
most non-structural exterior functions. Some of the potential applications
are:
* Decking for residential and commercial projects
* Commercial, municipal and residential applications such as park benches,
picnic tables, trash receptacles, car stops, planters and ash urns
* Fencing
* Highway spacer blocks, guardrail posts, sound attenuation barriers and speed
bumps
* Trailer, farm equipment and railroad box car flooring
* Industrial applications such as pallets, walkways in chemical plants,
catwalks on factory roofs
* Sanitary animal pen flooring
* Railroad ties
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* Engineered products such as pier piling cores
* Sea pilings and marine bulkheads
MANUFACTURING
The Trenton, Tennessee manufacturing facility currently has four closed
mold forming extruders and one continuous flow forming extruder. Most of the
Company's large profiles are manufactured at this facility, including engineered
products such as marine piling cores, retaining wall timbers and prototype
products including the railroad cross tie, highway guardrail posts, and highway
spacer blocks. This facility also produces lumber in assorted specialty shapes
such as bench ends and table legs.
The fabrication facility in Lake Odessa, Michigan houses the assembly
line that fabricates most of the value added products sold by the Company. A
regional sales office is also maintained at this location.
The Green Bay, Wisconsin sales and manufacturing facility operates
three extruders that utilize a vacuum calibration continuous flow forming line.
This process allows for the manufacture of many special profiles, in any length,
that are not able to be produced with conventional roll forming or closed mold
systems. A regional sales office is also maintained in this location. The
facility will also manufacture the Company's "Carefree Decking Systems", a
specialty product used for decks and rail systems in commercial and residential
applications.
The Company's manufacturing process involves proprietary technologies
and specialized manufacturing equipment custom built or modified to the
company's specifications. The manufacturing process utilizes granulated and/or
densified recycled plastic, which in certain cases, contains additives
formulated for desired end use characteristics of the product. A key advantage
of the process is the ability to utilize plentiful, recycled plastic waste to
create a consistent material which can be extruded into a desired shape. While
the end product maintains many of the desirable properties of traditional wood
materials, it also has superior characteristics such as moisture resistance
which give it an advantage over wood for many applications.
The primary product of the Company's manufacturing process is molded
plastic lumber in various sizes ranging from 3/8" x 1", to 10" diameter profiles
in various lengths. The Company also markets and sells various engineered or
value added products for specific applications, in which the plastic lumber is
used to make the finished product.
The manufacturing process uses 100% recycled plastic raw material and
consists of three stages. First, the recycled plastic materials received at the
plant are identified and categorized by resin type. These materials are
processed through a series of grinding, densifying and other operations to a
consistent particle size. The ground plastic resins are then blended with other
ingredients such as colorant and UV stabilizers to prepare specific mixes for
the products being produced by the plant. Second, the plastics are heated, mixed
and compounded into a thick molten composite which is extruded through either
closed mold, roll forming or vacuum calibration finishing lines into specified
shapes or profiles using equipment specifically designed for processing recycled
materials. Finally, the extruded products are cooled in a downstream process,
and the resulting profiles are inspected and cut to specific lengths. The
product is then ready to be shipped as plastic lumber in sizes and shapes
corresponding to standard lumber dimensions. The Company utilizes only recycled
polyethylenes and does not use plastics with PVC, toxic chemicals, insecticide
or paint residues. The Company's manufacturing process produces no harmful
environmental by-products or hazardous waste.
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RAW MATERIALS SUPPLY
The Company obtains approximately 80% of its mixed plastics feedstock
through firms who obtain such materials from a large variety of materials
recycling facilities, including municipal recycling programs as well as plastics
discarded in various industrial and manufacturing processes. Management believes
the raw materials feedstock is currently purchased from sources which it
believes are dependable and adequate for at least short term manufacturing
requirements. Generally the company attempts to maintain raw materials inventory
sufficient to supply its manufacturing requirements for approximately two
months, and management believes that suitable alternative sources are available
in the event of disruption. In the past, the Company has not experienced any
significant disruptions or other supply problems. However, the cost of recycled
plastics has been subject to significant cyclical market fluctuations over the
past several years based on supply and demand. The Company's long term strategy
is to contract directly with Municipal Recycling Facilities and industrial
plastic manufacturers for long term supply to mitigate the exaggerated
fluctuation in pricing and supply that the distributors' influence in the market
promotes. At present, the Company has no such contracts in place. Currently the
Company purchases its raw material supply from a wide network of vendors, none
of which constitute a key supplier or is under contract with the Company.
However, no assurances can be given that raw materials will always be available
at commercially reasonable prices. Management is generally of the belief that if
significant increases in demand for recycled plastics of a lasting nature were
to occur, the potential supply of recycled plastics could easily be expanded to
meet any lasting increase in demand. Management believes that both supply and
demand will continue to increase as public awareness of the need to recycle
plastic waste increases. However, any disruption of supply arrangements or
significant lasting increases in raw materials prices could have a material
adverse effect on the Company's operations.
RESEARCH AND DEVELOPMENT
Extensive testing of recycled plastic lumber has been performed for the
past several years at Rutgers University's Center for Plastics Recycling
Research. The Company has been an active participant along with others in the
research and development process. Since its formation, the Company has also
devoted significant efforts on its own, testing and refining its manufacturing
processes, molds and recipes to improve its finished products.
In May, 1996, after a long period of research and development with the
Company, Rutgers University applied for U.S. Patent Protection for its recycled
plastic composite railroad cross tie and its related manufacturing technology.
These patents, if granted, would be held by Rutgers University, with the Company
being the exclusive worldwide licensee for the sale of this and related products
pursuant to an agreement the Company has with Rutgers University.
A group of plastic lumber manufacturers founded the Plastic Lumber
Trade Association (PLTA) to promote the benefits of plastic lumber and create
proper testing standards. PLTA holds committee meetings three time a year in
conjunction with the American Society of Testing & Materials (ASTM). Complete
ASTM standards are being established for plastic lumber and preliminary test
results are now available from the following institutions:
* Rutgers University's Center for Plastics Recycling Research
* University of Massachusetts at Lowell, Dept. of Engineering
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* Batelle, Engineering Mechanics Dept.
* US Army Corps of Engineers Research Laboratories
A full set of ASTM standards has been developed and approved for
plastic lumber as of July of 1997. This will greatly expand the potential users
who are required to meet specifications and standards known to the wood
industry. A manual for use of residential decking material is anticipated to be
approved as early as 1998.
PROPRIETARY TECHNOLOGY
Management is generally of the belief that maintaining state of the art
technology in its recipes, molds and manufacturing processes and maintaining the
proprietary nature of that technology through trade secrecy is more important to
maintaining a competitive position in the industry than seeking any legal
protections that patents may provide. However, patent protection for technology
related to railroad crossties and the process to manufacture them, is currently
being sought by Rutgers University, but there is no assurance it will obtain any
such protection. The Company has entered into an agreement with Rutgers pursuant
to which it has exclusively licensed such technology.
COMPETITION
There are an over 30 manufacturers of recycled plastic lumber in the
United States, of which approximately 22 are members of the Plastic Lumber Trade
Association (PLTA). The competition is broken down into two separate categories:
plastic lumber manufacturers using strictly high density polyethylene, and
manufacturers that use a mixture of high density and other polymers to produce a
product that is less expensive.
The Company primarily uses only high density polyethylene and additives
at all of its plants. The major competitors in this segment of the market
include Eaglebrook Products, Inc., Chicago, Illinois, Bedford Industries,
Worthington, Minnesota; Cycle-Masters, Inc., Sweetster, Indiana and NEW Plastics
Corp., Luxemburg, Wisconsin. Management intends to compete with these
competitors on the basis of price, quality and service. The two major commingled
manufacturers are The Plastic Lumber Company, Inc., Akron, Ohio and Hammer's
Plastics Recycling, Iowa Falls, Iowa.
In all its applications, the plastic lumber manufactured by the Company
will also be in direct competition with conventional wood lumber. At present,
the principal competitive disadvantage of plastic lumber compared to wood lumber
is that it is generally more expensive to purchase. Plastic lumber is comparable
in price to high grade cedar and redwood. Although plastic lumber can be more
expensive to initially purchase than comparable wood lumber, plastic lumber can
substantially outlast wood lumber, particularly in applications where the lumber
is exposed to the elements, and can therefore be more cost effective in the long
run. Furthermore, management believes that environmental restrictions are
presently impeding forestry operations in United States forests. A second factor
impeding the use of pressure treated lumber is the toxic leaching
characteristics. Chemicals injected into pressure treated lumber contain
hazardous constituents which are released into the soil and create potentially
toxic and hazardous conditions. Such factors may reduce if not eliminate any
price advantage that wood lumber presently has with respect to its initial
acquisition cost.
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POTENTIAL MARKETS
By producing a suitable recycled plastic lumber product, the Company
conserves natural resources, reduces the plastic waste streaming into landfills
and provides a useful product that satisfies this growing market. One of the
many major markets for recycled plastic lumber is as a substitute for pressure
treated lumber. There are currently a number of states that have either passed
laws or have on their legislative agenda, restrictions on the use and disposal
of pressure treated lumber. The pressure treating process injects copper,
chromium and arsenic (all carcinogens) into the wood to provide a defensive
barrier against insect attack. Pressure treated wood has legislative
restrictions in some states on its disposal methods which require disposal in
toxic waste landfills. Plastic lumber is a safe alternative which is fully
recyclable.
Also, plastic lumber's increased resistance to weathering processes,
particularly moisture, makes it an ideal substitute for lumber made from wood in
any application in which the lumber is exposed to the elements. The resistance
to moisture and other weathering processes gives plastic lumber the ability to
outlast wood in such applications by several times.
In July, 1994 the Company was selected to participate in a cooperative
venture with Rutgers University, Norfolk & Southern Railroad, Conrail and the US
Army Corps of Engineers Research Laboratories to develop a prototype railroad
crosstie made from recycled commingled plastic. Rutgers University has performed
extensive tests on many formulas and the Company has developed a prototype that
is superior in many ways to the creosote wood crosstie. Norfolk & Southern and
Conrail are currently track testing the new prototype. The Company believes it
is the only plastic lumber manufacturer participating in this project.
Presently there are approximately 180,000 miles of railroad track in
the United States, with approximately 3,100 crossties per mile or a total of
approximately 558,000,000 ties in place. In 1993, 11,300,000 crossties were
replaced. The expected useful life of a creosote wood crosstie is 12 years,
creating a tremendous demand for the more durable recycled plastic crossties
that have an estimated useful life in excess of 50 years. Conditions which
shorten tie life are moisture, location relative to curves and switches.
Railroads know from extensive experience which locations require highest
maintenance and these will be the initial target areas for longer lasting
polymer crossties. Based on the replacement rate of 11 million crossties per
year, the total potential market for this segment of the business is
approximately $700 million annually.
The Company is currently in the process of developing new products for
a variety of uses. These new products include component center cores for a
manufacturer of reinforced marine pilings and timbers, flooring for farm
equipment and railroad ties. The Company is also working with a supplier to
produce a recycled plastic highway guard rail spacer block. The project has
received conditional approval from the Federal Department of Transportation
(DOT) and several state DOT approvals. The Company is working with Texas A & M
University and the Southwest Research Institute to develop a highway guardrail
post to be marketed to DOTs all over the country. The Company has been assigned
national stock numbers from the U.S. Defense Construction Supply Center which
controls purchasing for all of the U.S. armed forces.
Although management believes that plastic lumber products are currently
suitable for many non-load bearing purposes for which conventional wood lumber
is used, the compressive and flexural strength characteristics of plastic lumber
are not as suitable as conventional wood lumber for most load bearing
applications without additional support; therefore the Company does not intend
at present to market its products for structural, framing or general
construction purposes.
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MARKETING STRATEGIES
The recycled plastic lumber division of the Company is itself divided
into four distinct classifications. These divisions are (i) fabricated products,
including park and site amenities such as picnic tables, park benches, and trash
receptacles; (ii) building products, including decking systems, golf course
related products, and standard plastic lumber; (iii) engineered products,
including marine piling center cores, highway guardrail spacer blocks, and other
engineered products; and (iv) railroad ties.
Each of these divisions contain a Division Head who reports to a senior
corporate officer in charge of Sales and Marketing. This senior corporate
officer is also in charge of managing and supporting existing Distributor
relationships and developing new Distributor relationships.
The Company employs Regional Sales Managers to market and sell its
products utilizing traditional sources of sales including but not limited to
attending trade shows, select advertising, cold calling, customer referrals, and
the like. The Company also markets and sells through Distributor relationships;
however, it is the Company's policy not to grant any exclusive territory
arrangements. The Company is seeking to expand its distribution network
nationwide.
The focus of the Company's selling strategy is the high quality of its
product along with superior customer service. The Company also focuses on the
benefits of its products including such items as being maintenance free, 100%
recycled, environmentally sensitive, aesthetically pleasing in appearance, free
from rot and insect infestation, and durable.
The Company has experienced a seasonal slow-down in the winter months
during the past three years but expects to reduce the seasonality of its sales
by increasing its marketing efforts in warmer climates of the U.S. during winter
months and by adding contracts for custom items which are not as seasonal.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Although the plastic lumber operations do not and are not expected to
generate significant quantities of waste materials nor any hazardous substances
or result in hazardous emissions, operations are and will in the future be
subject to numerous existing and proposed laws and regulations designed to
protect the environment from waste materials generally and particularly
hazardous wastes and emissions. Management does not believe that its waste
disposal practices and manufacturing processes will be in violation of any
existing or presently proposed law or regulation or require special handling
permits or procedures or otherwise result in significant capital expenditures
that would have a material adverse effect on operations. However, there can be
no assurance that regulatory requirements will not in the future adversely
affect operations or require the introduction of costly additional manufacturing
or waste disposal practices.
ENVIRONMENTAL RECYCLING DIVISION -
PRODUCTS & SERVICES
The Company offers a wide array of services in this business line including soil
decontamination through either thermal desorption or bioremediation,
environmental construction services, upland disposal of dredge materials,
environmental transportation services, beneficial re-use management of
industrial wastes, and on-site recycling services.
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Clean Earth of New Castle, Inc. was founded in 1991 to provide a safe, cost
effective and final solution to the environmental problem of dealing with soils
and construction debris contaminated with light distillate petroleum
hydrocarbons such as diesel fuel, heating fuel, kerosene, jet fuel and gasoline,
by decontaminating such soils so they can then be recycled as clean fill. The
process essentially heats the contaminated soils in a controlled environment to
a point that the contaminants are burned or evaporated out. In 1995, Clean Earth
modified its plant to recycle products at higher temperatures (up to 1,100
degrees Fahrenheit), and is now capable of treating soils contaminated with
heavier products such as #6 oil, refinery wastes, waste oils and coal
distillates such as coal tar. The facility is currently seeking two permit
modifications to help reduce costs. One permit modification is seeking to allow
the facility to burn waste oil rather than natural gas to fuel the plant in
winter months. Natural gas is at its highest cost in winter months and waste oil
is at its lowest. The second permit modification has already been approved by
the State of Delaware for accepting sewer sludge into the process. The impact of
this material in the process will significantly reduce the volume of water
consumed by the plant, and increase the volume of clean soil which can be sold.
Carteret Biocycle Corp. was founded in 1997 and anticipates opening its facility
for business in February 1998. This facility serves a similar function as Clean
Earth of New Castle, Inc., except that its remediates soil contaminated with
petroleum hydrocarbons through a bio-organic process. The operational costs for
this facility are substantially less than thermal desorption, yet the Company
anticipates the "tipping fee" (the per ton fee charged to customers who dispose
of their materials at the Company's site) for this facility will be similar to
its tip fee at the Clean Earth of New Castle facility. In addition, Carteret
Biocycle is strategically located to receive materials by truck, rail or barge.
This location is also perfectly suited to receiving dredge materials from the
New York harbor, treating the material and then handling and shipping the
material for disposition in Pennsylvania strip mines. The Company has positioned
itself to be one of very few companies able to take advantage of this new
market.
In addition to its plants, the Company has subsidiaries which perform services
in environmental construction, on site remediation, transportation services,
beneficial re-use of industrial wastes, UST removals, landfill capping,
stabilization and treatment of hazardous waste to non-hazardous waste materials,
consulting services and other ancillary environmental services. One of the more
exciting opportunities for the Company is the beneficial re-use of dredge
materials. As of September 1997, the federal government has prohibited off-shore
dumping of dredge material. The Company has positioned itself to take advantage
of this new market opportunity by finding ways to re-use dredge material mixed
with other products to create a grout like substance which can be used for cover
material and clean fill. One example of this is the Company has disposal rights
granted by the Pennsylvania DEP to utilize dredge material mixed with coal ash
or incinerator ash to produce a grout like substance suitable to reclaim strip
mines. Strip mines represent a very significant environmental issue for
Pennsylvania.
REGULATION
The business of decontaminating or otherwise handling waste materials is highly
regulated (Resource Conservation & Recovery-Act, "RCRA" & Comprehensive
Environmental Responsibility, Compensation & Liability-Act, "CERCLA"). The
generator of the waste is financially and legally responsible for that waste
forever, and is strictly liable for the costs of clean up and disposal of such
wastes. Placing it in a landfill or mixing it with other materials does not
eliminate that liability. Therefore, proper control and tracking of all wastes
materials handled by the Company is essential for the Company to avoid any
liabilities with respect to such wastes. The Company takes great precaution not
only to eliminate, if possible, the liability of its customers, who are the
generators of the contaminated soil and debris, but also to maintain proper
control and tracking of each waste stream brought which it handles. Once the
waste has successfully been treated by one of its two plants, the contamination
is destroyed and the liability is virtually eliminated. The product, once
treated, is no longer classified as waste, but is a reusable material.
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<PAGE> 31
Landfills are a necessary solution for certain hard to treat wastes; but the
Company has created an environmentally friendly way to recycle petroleum
hydrocarbon contaminated soils, thus saving valuable landfill space for these
other needs. Most "recycling" systems merely dilute the contaminated soil by
mixing it with clean materials. Clean Earth's technology thoroughly cleans the
soils before it is made available for reuse. The best illustration of this
crucial point is that all production material to date has been sold as clean
fill.
SALES AND MARKETING
As indicated, the environmental recycling Division is involved in a number of
markets, including but not limited to remediation of contaminated soil, coal
tar, upland disposal of dredge materials and the recycling of sewer sludge and
municipal incinerator ash to productive use. Each of these markets is
substantial and the markets are tied together via the contracting services arm
of Clean Earth. These service companies can remove, provide on site clean-up,
and transport these materials to other divisions of the Company for recycling
and re-use of the products in an environmentally safe manner.
The Company has recently begun bidding on large contracts to receive dredge
material. Previous to September 1997 dredge material from harbors was dumped in
the oceans. New federal regulations require upland disposal of this material.
Every harbor throughout the country will be faced how to deal with this issue
and abide by these new federal regulations. This market is new, and the Company
has the permits in place to provide for using the dredge spoils to reclaim
abandoned strip mines as opposed to disposing of the material in landfills.
The Company is also expanding the capabilities of its facility in Delaware to
process material such as sewer sludge, for which permitting has already been
obtained, and municipal incinerator ash. These products are currently
landfilled. The Company will process the sewer sludge and recover the nutrients
which will be mixed with the clean soil to provide an improved product for
resale.
The principal sales and marketing advantage that Clean Earth has over its
competitors is a broad range of services allowing customers a one stop shopping
concept- not only contracting services but also the facilities to process
material. In addition, the Company has a distinct advantage built into its
quality control system. Comprehensive disclosure and testing systems ensures
proper tracking of material as well as on site testing confirming that only
acceptable material is permitted onto its site. Rigorous quality control
procedures are essential as they relate to the responsibility and liability in
handling of material not only to the Company but also to its customers.
COMPETITION AND BARRIERS TO ENTRY
Clean Earth has several large competitors which provide similar services within
the northeast and mid-Atlantic states. These competitors include R-3
Technologies in Bristol, Pennsylvania, TPST in Baltimore, Maryland and SRP in
Philadelphia, Pennsylvania. Clean Earth has obtained a permit to clean coal tar
materials from DNREC (Delaware Department of Natural Resources and Environmental
Control) and believes that this provides a niche market. The nearest competitor
with similar capabilities is R-3 Technologies which is approximately 50 miles
from the facility.
There are significant barriers to entry for this line of business. First and
foremost, the siting, permitting and licensing process is time consuming and
costly. Second, there is a large capital investment required to build the plants
and purchase the equipment necessary to operate the facility . Additionally,
contracts
30
<PAGE> 32
must be awarded to obtain the incoming product as well as contracts to
dispose of the material after it has been treated in order to operate an
economically feasible facility. Finally, this type of operation requires
technically trained individuals to operate and ensure that the facility remains
in strict compliance with environmental laws.
PLANT OPERATIONS
The plant operations facility is operated with a strict commitment to
safety, health and environmental issues coupled with a rigorous system of
controls, which lends credence to the "Certificate of Destruction and Recycling"
issued to each generator.
The Waste Tracking System process starts before the contaminated soil
is accepted at the plant gate. A comprehensive disclosure testing and
manifesting system ensures that the solids brought to the facility falls well
within the limits of Clean Earth's permits and treatment capacities. This system
mirrors the procedures of hazardous waste facilities. Furthermore, Clean Earth
runs an EOX test (Extractable Organic Halogens) on every load of material before
it is authorized for unloading in the storage buildings. In addition, management
runs several spot checks with the comprehensive on-site laboratory:
GC (Gas Chromatographer) for PCB's (Poly Chlorinated Biphenyls)
GC for VOC identification (Volatile Organic Compounds)
GC with a high temperature desorber for THC (Total Hydrocarbons) and
Desorption Temperatures EOX analyzer and the screening equipment for
fines content
These tests enable Clean Earth to determine quickly and efficiently
that the materials that are received are in accordance with their
characterization by the generator. This sizable investment in equipment and
personnel protects both the facility and the customers against the possibility
of receiving undesirable wastes.
The storage buildings are large, fully enclosed structures and are
built on continuous concrete slabs. Runoffs from the buildings are collected and
checked regularly. The buildings are divided into small compartments to maintain
a rigorous separation and tracking of each waste stream that minimizes
commingling. This mitigates the potential liability to a small quantity in the
case an undesirable waste is detected after it has been accepted. This also ties
into the sophisticated waste tracking system that mobilizes a network of eight
micro-computers so as to monitor each load of material from the time of
reception to the treatment test results. These computers function on-line and
enables operators to view and analyze, at any time, all the information relative
to a given shipment.
In addition to this set of comprehensive control and recording devices
that insure compliance with the various permit requirements, Clean Earth further
guarantees the facility's performance by testing the production daily. As
recommended in EPA publication #SW846, Clean Earth composites a sample for every
300 tons of production and tests it for BTEX with a GC and for TPH by the EPA
418 method, using an independent State certified laboratory. For coal tars, the
treated materials are also tested for PAH's (Polynuclear Aromatic Hydrocarbons)
by the EPA 8270 method. It is management's belief that this treatment plant is
the first in the industry to control its emissions with a C.E.M. (Continuous
Emissions Monitoring) system. Information is collected minute by minute and
stored on computers for control purposes; this information is available to both
customers and regulators. The property itself is monitored through several
monitoring wells, that are tested quarterly. The test results are reported to
DNREC.
31
<PAGE> 33
LIABILITY INSURANCE
Clean Earth has fully bonded the costs of a closure plan approved by
the DNREC. In addition, Clean Earth has secured a total of $7 million of General
Liability and of Environmental Impairment Liability insurance coverages. The
waste generating companies recycled product is also protected with $1 million
single/$2 million aggregate Products and Completed Operations coverage that
includes a five year tail coverage.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The following table sets forth the directors, executive officers and
other significant employees of the Company, their ages, terms of office and all
positions. Directors are divided into classes which are elected for staggered
terms of four years, and serve until the annual meeting of the year in which the
terms expire, or until their successors are duly elected by the stockholders and
qualify. Annual meetings are scheduled to be held the second Wednesday of April
each year in Boca Raton, Florida. Officers and other employees serve at the will
of the Board of Directors.
<TABLE>
<CAPTION>
Term served
Name of Director/Officer Age (Term expires) Positions with the Company
- ------------------------ --- -------------- --------------------------
<S> <C> <C> <C>
Mark S. Alsentzer 41 May 1994 (2000) Chairman, President & Chief Executive
Officer/Director
Bruce C. Rosetto 39 Secretary/General Counsel
Michael Schmidt 48 Treasurer/Chief Financial Officer
Raymond J. Kiernan 72 Dec 1994 (1999) Director
Lester E. Moody 68 May 1996 (1997) Director
James Blosser 58 Aug 1996 (1999) Director
Roger Zitrin 49 Nov 1996 (1998) Director
August C. Schultes III 50 Feb 1997 (2000) Director
Gary J. Ziegler 49 Feb 1997 (2000) Director
Stephen M. Groth 39 Feb 1997 (1999) Director
</TABLE>
32
<PAGE> 34
MARK S. ALSENTZER, CHAIRMAN, PRESIDENT & CEO; Flourtown, Pennsylvania. Mr.
Alsentzer has been a principal in the building of three successful businesses
which have provided excellent returns to shareholders. As former President of
Stout Environmental, Inc. Mr. Alsentzer developed that company from $2 million
to $90 million in revenues and 46 to 700 employees. Stout merged with Republic
Waste Industries, whose Chairman is Wayne Huizenga, and the net return to
Stout's shareholders was $180 million. In addition, Mr. Alsentzer was Director
of Cemtech, a company whch grew from $6 to $21 million and was sold to Waste
Management for $17 million in 1991. Mr. Alsentzer founded Clean Earth, which is
currently a wholly owned subsidiary of the Company and a leading recycler of
contaminated soil and debris located in the northeast. Mr. Alsentzer is a
Chemical Engineer and has an B.S. from Lehigh University and an MBA from
Farleigh Dickenson.
BRUCE C. ROSETTO, SECRETARY AND GENERAL COUNSEL, Boca Raton, Florida. Mr.
Rosetto was a partner in a New Jersey law firm; Paschon, Feurey, and Rosetto
from 1982-86. In 1986, Mr. Rosetto became Chairman and CEO of Consolidated Waste
Services of America, Inc., a fully integrated environmental company, building
that company primarily through mergers and acquisitions into one of the largest
privately owned environmental companies in New Jersey. In 1994, he became
Chairman and CEO of Hemo Biologics International, Inc., a biologic products
company. He joined the Company in January, 1997 and his primary responsibilities
are acting as General Counsel to the Company, mergers and acquisitions, and
providing sales management support. He graduated from LaSalle University in 1979
with a BA Degree in Political Science, and from Villanova University School of
Law in 1982, with a JD Degree.
MICHAEL SCHMIDT, TREASURER AND CHIEF FINANCIAL OFFICER - Mr. Schmidt is
responsible for the Company's overall financial direction and reporting,
accounting operations and accounting controls. Mr. Schmidt has over 20 years of
public and private accounting experience including 10 years in the environmental
industry. Mr. Schmidt joined the Company on December 1, 1997. Prior to joining
the Company, Mr. Schmidt served as Chief Financial Officer of Republic
Environmental Systems, Inc., a publicly traded company and a leading
environmental service provider, headquartered in Blue Bell, Pennsylvania from
1987-1997. Mr. Schmidt has a Bachelor of Science in Business Administration from
Rowan College and is a Certified Public Accountant in the State of New Jersey.
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<PAGE> 35
RAYMOND J. KIERNAN, DIRECTOR; Bronxville, New York and Ocean Ridge, Florida. Mr.
Kiernan was associated with Merrill Lynch and Co. in various capacities from
1951-1980, ultimately holding the office of Vice President. He was also on the
board of directors of Merrill Lynch, Pierce Fenner & Smith, it=s predecessor.
During his tenure with Merrill Lynch, Mr. Kiernan was an Allied Member of the
NYSE, a Director of Security Traders Association of NY, and was on the Board of
Governors of the National Association of Securities Dealers, chairing the
trading, marketing, and development committees. In 1980 Mr. Kiernan formed R.J.
Kiernan and Associates, a business consulting firm which he operates presently
in the capacity of President. Mr. Kiernan presently holds Directorships on the
boards of Fleet Bank of New York, Fleet Trust Company of Florida and BCT
International. Mr. Kiernan attended Villanova and is a graduate of Iona College
with a BA Degree in Finance.
LESTER E. MOODY, DIRECTOR; Fort Lauderdale, Florida, is a member of the Board of
Directors, Miami Heart Institute, Board of Directors C&S Bank, President
Committee of 100, Board of Directors 100 Club of Fort Lauderdale. He was an
automobile dealer for approximately forty years, was on the General Motors
President's Dealer Advisory Council, and owned 9 different dealerships,
including Pontiac, Cadillac, Buick, Honda and Acura. Mr. Moody attended
Christian Brothers College.
JAMES J. BLOSSER, DIRECTOR; Fort Lauderdale, Florida, was the former Executive
Vice President and General Counsel of Huizenga Holdings, Inc. In addition, Mr.
Blosser served as special counsel to the Miami Dolphins, Florida Panthers and
the Florida Marlins. He was formerly a partner in Ruden, McClosky, Smith,
Schuster & Russell, P.A., is currently a member of the Florida Bar, New York Bar
and the American Bar Association, and is extremely active in community affairs.
Mr. Blosser received his J.D. from the University of Miami.
ROGER N. ZITRIN, DIRECTOR; Boca Raton, Florida. Dr. Zitrin was the Founder and
President of the Heart Association of Palm Beach County where he was a
practicing physician specializing in Cardiology until he retired in 1992. He is
presently acting as an independent investor and investment advisor. Dr. Zitrin
is the Founder of Florida Medical Laser Corp. and Gold Coast Specialty Lab and
Co-founder of Physicians Cardiac Imaging. He is presently acting as a Financial
Advisor to Gold Coast Ventures, Inc., and serving as a Board Member of
Associated Home Health. Dr. Zitrin is a graduate of Rutgers College of Medicine
and Dentistry.
AUGUST C. SCHULTES III, DIRECTOR; Wenonah, New Jersey. Mr. Schultes is Chairman
of the Board and CEO of A.C. Schultes, Inc., a contracting and service
organization specializing in water well drilling, water and waste water
treatment, and pump and motor repair services with offices in Maryland, Delaware
and two (2) locations in New Jersey. He is also the Chairman of the Board and
CEO of Life Care Institute, a medical diagnostic center with facilities to
perform stress tests, CAT scans, MRI scans and physical therapy located in New
Jersey. He was also the founder, Chairman of the Board and
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<PAGE> 36
CEO of Stout Environmental, Inc., a full service hazardous waste environmental
company. Stout merged with Republic Waste Industries in 1992. Mr. Schultes is a
graduate of Penn State University and has a BS in Civil Engineering.
GARY J. ZIEGLER, DIRECTOR; Turnersville, New Jersey. Mr. Ziegler is President of
Consultants and Planners, Inc., which provides operating services to several
water utility companies in New Jersey. Mr. Ziegler is a Professional Engineer
and Professional Planner in New Jersey, a Professional Engineer in Maryland,
Pennsylvania, Ohio and New York and a member of the American Society of Civil
Engineers and the National Society of Professional Engineers. He was President
of W.C. Services, Inc. and Vice President of Stout Environmental, Inc. Mr.
Ziegler is a graduate of Clemson University with a BS degree in Civil
Engineering.
STEPHEN M. GROTH, DIRECTOR, Green Bay, Wisconsin. In addition to his
responsibilities as Treasurer of Recycled Plastics Industries, Inc., Mr. Groth
is President of Outlet Mall Inc. and CST Investments, Inc., two commercial real
estate development companies located in northeast Wisconsin. Mr. Groth has
extensive background and experience in small business start up and was
instrumental in the start up of Recycled Plastics Industries, Inc. Mr. Groth
served as the Tax Director of Terex Corporation, a Fortune 500 company
headquartered in Green Bay, Wisconsin, and was a Senior Tax Consultant for Price
Waterhouse. Mr. Groth is a graduate of George Washington University with a BA in
Accounting, a JD from Marquette University Law School and a MST from the
University of Wisconsin - Milwaukee.
The Operations management of the Company is as follows:
MICHAEL A. LUPO - President - Plastic Lumber Division - Mr. Lupo has extensive
domestic and international experience in sales, marketing, operations, finance,
systems, and stockholders relations serving consumer, industrial and
service-oriented businesses. For the past 15 years, he has served as Executive
Vice President, Chief Financial Officer and a Director in the Building Products
Industry. He has been responsible for directing and negotiating leverage buy
outs, mergers and acquisitions, initial public offerings, secondary and follow
on offerings. He has also directed listings to NASDAQ,
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<PAGE> 37
American and New York Stock Exchanges. Mr. Lupo is a graduate of St. John's
University.
The Environmental Recycling Division of the Company is primarily led by the
following three individuals.
Michael Goebner is President of two subsidiaries for the Company, Carteret
Biocycle Corp., the bioremediation facility, and Clean Earth of New Castle Inc.,
the thermal desorption facility. He also has substantial experience in
industrial waste management, uplands disposal, and regulatory permitting. He has
17 years experience in the environmental recycling business predominately in the
New York, New Jersey marketplace. His former experience included work for
subsidiaries of Republic Environmental Systems, Inc. as a Lab Technician,
Supervisor, Process Control Manager, Hazardous Waste Coordinator/Government
Contracts Administrator and Director of Business Development for Waste
Conversions, Inc. He also served as the General Manager of Innovative Soil
Technologies, Inc. and Vice President/General Manager of Republic Environmental
Recycling, Inc.
Steven C. Sands is President of the Waste Concepts subsidiary and his expertise
is industrial waste management with experience in all phases of construction and
environmental management. Mr. Sands has a B.S. in engineering from Duke
University and subsequently completed education at Exxon for environmental
engineering for service stations and at Owens Corning for installation of UST
systems. Mr. Sands is a pioneer in the beneficial re-use of industrial wastes
and dredge materials and has significant experience in transporting waste
material.
Theodore Budzynski is President of the Integrated Technical Services subsidiary.
His expertise is in environmental construction management and consulting. This
subsidiary specializes in environmental recycling and disposal, in situ and ex
situ remediation, environmental transportation services, and the handling of
many industrial waste products. His former experience was as a Project Manager
with Waste Conversions, Inc., Operations Manager for Enroserv, Inc., Vice
President and General Manager of Enroserv, Vice President and General Manager of
Stout Environmental Company.
EXECUTIVE COMPENSATION
The following table summarizes executive compensation paid or accrued
during the past three fiscal years for the Company's Chief Executive Officer
during that period and the most highly compensated executive officers whose
total annual salary and bonus exceeded $100,000 during those years.
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<PAGE> 38
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
- ------------- ------- ------------------------------------- ------------------------ ------------ --------------
Annual Compensation Awards Payouts
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
Name and
Principal Securities
Position Other Annual Restricted Underlying All Other
Compensation Stock Options/ LTIP Compensation
Year Salary($) Bonus($) ($) Awards SARs (#) Payouts ($) ($)
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO - 1996 107,800 955,000(1)
Mark 1995 -0- -0-
Alsentzer 1994 -0- -0-
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
- ------------- ------- ------------ --------- -------------- ----------- ------------ ------------ --------------
============= ======= ============ ========= ============== =========== ============ ============ ==============
</TABLE>
(1) In 1996 Mr. Alsentzer received 400,000 common stock warrants at the lower of
$2.25 per share or a price equal to $1.75 below the market price per share and
not less than $.01 based on gross sales exceeding $7,500,000 over any
consecutive 12 month period or gross sales of $700,000 per month for three
consecutive months whichever occurs first. Mr. Alsentzer also receives an
additional 50,000 common stock warrants per year for three years at the lower of
$3.50 or market price at date of exercise. Mr. Alsentzer also received an
additional 400,000 common stock warrants as an incentive to induce Mr. Alsentzer
to enter into an employment agreement with the Company at the lower of (i) $4.00
or (ii) the market price on each employment anniversary date over the next ten
years. Mr. Alsentzer also received 5,000 shares of common stock options at $2.50
per share for converting a personal loan owed by the Company into preferred
stock.
EMPLOYMENT AGREEMENTS
Mark S. Alsentzer - Chairman, Chief Executive Officer and President. See
footnote 1 above.
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<PAGE> 39
Bruce C. Rosetto - Vice President and General Counsel/Secretary. Base salary of
$100,000. Option to purchase 10,000 shares of common stock at the fair market
value of the stock on the date of his employment.
Michael Schmidt - Chief Financial Officer/Treasurer. Base salary of $100,000.
Option to purchase 25,000 shares of common stock at the fair market value of
the stock on the date of his employment.
Michael Goebner - President of Carteret Biocylce Corp. and Clean Earth of New
Castle, Inc. Base salary of $100,000 per annum. He is also provided with a
company car. Option to purchase 15,000 shares of common stock at $4.50 per share
with another option at the end of his first year of employment to purchase an
additional 15,000 shares at the market price of the common stock at the end of
the first year of employment. He was also provided an earn out for 5,000 shares
of stock based upon meeting certain EBIT criteria,
Steven C. Sands - President of Waste Concepts, Inc. Base salary of $125,000 per
annum. He receives $7,200 per year as an auto allowance. He has an option to
purchase 10,000 shares of common stock at $6.00 per share. He also has an earn
out of 25,000 shares based upon Waste Concepts meeting certain financial
performance goals at the rate of 5,000 shares per year for each of the next five
years.
DIRECTOR COMPENSATION
Beginning on May 15, 1996, the Board adopted a compensation package for outside
directors at 100 shares of common stock for each meeting attended and 60 shares
of common stock for each Committee meeting attended not held in conjunction with
a regular board meeting.
STOCK OPTION PLAN
The Board of Directors of the Company has adopted, with the approval
of stockholders, a Stock Option Plan (the "Plan"). Under the Plan, the Company
has granted options to acquire 120,000 shares of Common Stock to the Company's
key employees and officers. Awards consist of stock options (both non-qualified
options and options intended to qualify as "Incentive" stock options under
Section 422 of the Internal Revenue Code of 1986, as amended), restricted stock
awards, deferred stock awards, stock appreciation rights and other stock-based
awards, as described in the Plan. The Plan is administered by the Board of
Directors which has determined the persons to whom awards are granted, the
number of awards granted and the specific terms of each grant, including the
vesting thereof, subject to the provisions of the Plan.
In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the Common Stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of the outstanding stock of the Company). The aggregate
fair market value of shares for which qualified stock options are exercisable
for the first time by such employee during any calendar year may not exceed
$100,000. Non-qualified stock options granted under the Plan may be granted at a
price determined by the Board of Directors, not to be less than the fair market
value of the Common Stock on the date of grant.
The Plan may also contain certain change in control provisions which
could cause options and other awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d), but excluding certain stockholders of the Company, became the beneficial
owners of more than 25% of the Company's outstanding shares of Common Stock.
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<PAGE> 40
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock by each person who is
proposed to serve, currently serves or has served during the past year as a
director of the Company, each person (or group of person whose shares are
required to be aggregated) known to the Company to be the beneficial owner of
more than five percent (5%) of said securities, and all such directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent
Name and Address Class Beneficial Ownership of Class
- ---------------- -------- ---------------------- --------
<S> <C> <C> <C>
Harold Gebert Common 461,904 shares 3.0%
David A. Farrow Common 464,232 shares(1) 3.0%
Mark Alsentzer Common 6,033,155 shares(2) 37.7%
Raymond F. Darling Common 330,943 shares 2.1%
Robert W. Johnson Common 103,468 shares 0.7%
Christopher J. Walter Common 68,885 shares 0.4%
Raymond J. Kiernan Common 161,926 shares(3) 1.0%
Eugene Arnold, Jr. Common 98,124 shares(4) 0.6%
Louis H. Jullien III Common 238,781 shares 1.5%
Lester E. Moody Common 189,196 shares(5) 1.2%
James J. Blosser Common 99,800 shares(6) 0.6%
Roger Zitrin Common 336,240 shares(7) 2.2%
August C. Schultes III Common 5,470,522 shares(8) 34.9%
Gary J. Ziegler Common 5,750,200 shares(9) 36.0%
Stephen M. Groth Common 291,777 shares 1.9%
All executive officers and directors as a group Common 9,309,153 shares 54.8%
(19 persons)
Stout Partnership Common 5,400,000 shares 34.5%
Lancer Partners, L.P. Common 500,000 shares 3.2%
Michael Lauer Common 50,000 shares 0.3%
Lancer Voyager Fund Common 50,000 shares 0.3%
Lancer Offshore, Inc. Common 511,111 shares 3.2%
==================================================================================================================
</TABLE>
(1) Includes 116,000 shares not presently outstanding which Mr. Farrow presently
has the right to acquire through the exercise of outstanding earned options.
(2) Includes 955,000 shares not presently outstanding which Mr. Alsentzer
presently has the right to acquire through the exercise of outstanding earned
options, 42,000 shares not presently outstanding which he has the right to
acquire through conversion of outstanding preferred stock, and 5,400,000 shares
as to which Mr. Alsentzer has shared beneficial ownership, which are held of
record by Stout Partnership, a partnership in which Mr. Alsentzer is a principal
partner.
(3) Includes 5,000 shares not presently outstanding which Mr. Kiernan presently
has the right to acquire through the exercise of outstanding earned options and
7,000 shares not presently outstanding which he has the right to acquire through
conversion of outstanding preferred stock.
(4) Includes 5,000 shares not presently outstanding which Mr. Arnold presently
has the right to acquire through the exercise of outstanding earned options and
7,000 shares not presently outstanding which he has the right to acquire through
conversion of outstanding preferred stock.
(5) Includes 96,278 shares not presently outstanding which Mr. Moody or his wife
presently has the right to acquire through conversion of outstanding preferred
stock.
(6) Includes 5,000 shares not presently outstanding which Mr. Blosser presently
has the right to acquire through the exercise of outstanding earned options and
94,500 shares not presently outstanding which he has the right to acquire
through conversion of outstanding preferred stock.
(7) Includes 23,170 shares not presently outstanding which Mr. Zitrin presently
has the right to acquire through conversion of outstanding preferred stock.
(8) Includes 70,322 shares not presently outstanding which Mr. Schultes
presently has the right to acquire through conversion of outstanding preferred
stock and 5,400,000 shares as to which Mr. Schultes has shared beneficial
ownership, which are held of record by Stout Partnership, a partnership in which
Mr. Schultes is a principal partner.
(9) Includes 350,000 shares of common stock not presently outstanding which Mr.
Ziegler presently has the right to acquire through the conversion of 50,000
shares of outstanding preferred stock and 5,400,000 shares as to which Mr.
Ziegler has shared beneficial ownership, which are held of record by Stout
Partnership, a partnership in which Mr. Ziegler is a principal partner.
The foregoing amounts include all shares these persons are deemed to
beneficially own regardless of the form of ownership. See "Certain
Transactions."
CERTAIN TRANSACTIONS
During the past two fiscal years, the Company has entered into several
significant acquisitions and other transactions with affiliates. The terms of
these transactions were, in some instances, determined without the benefit of
arms length bargaining or negotiation and necessarily involve conflicts between
the interests of the related parties and the Company. These are as follows:
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On February 1, 1996 the Earth Care Global Holdings acquired certain assets of
Earth Care Partners (ECP), a partnership controlled by certain former
officers/stockholders (including the former Chairman of the Company) of the
Company for a total purchase price of $200,000. In exchange therefore, the
partners of ECP received 112,926 shares of the Company's common stock. At
December 31, 1996, $113,535 of receivables due from certain partners of ECP was
included in accounts and notes receivable. Certain partners of ECP have agreed
to pledge 70,579 shares of their holdings in the Company's common stock as
collateral for the repayment of such receivables, although such pledge has not
been formally perfected. At such time as those shares are registered, such
partners have agreed to sell such 70,759 shares and repay the Company. The
Company has recorded an allowance equal to the receivable as there are no plans
to register such shares at this time. Due to the fact that the then Chairman of
the Company was also a partner of ECP, the transaction was negotiated between
the Presidents of both companies, neither of whom had a direct interest in the
other, although the President of ECP was the son of the former Chairman. In
determining the purchase price, the Company considered the fair market value of
assets acquired from ECP. In addition, the Company also considered the fact that
ECP was the Company's largest distributor, had an established customer base, and
would retain three of the partners to establish a national sales office for the
parent company. All of these factors as well as the fact that there was no cash
outlay required for the purchase of ECP were considered in determining the
number of shares eventually issued. In August 1997, one of the former partners
of ECP alleged that the Company wrongfully issued shares to certain of the other
partners of ECP. The Company responded by appointing an independent board
committee to examine the facts surrounding the ECP acquisition. Independent
counsel was retained to thoroughly review the ECP transaction to insure that
this related party transaction was in fact properly authorized and executed.
Independent counsel has reported its findings and made certain recommendations
to the independent board committee. Based upon these recommendations, the
Company is reviewing its legal remedies and simultaneously therewith, ECP and
the Company are currently involved in negotiations to resolve all issues arising
out of the ECP acquisition.
On or about November 5, 1997, Eugene Arnold, Jr. (a former director of
the Company), Vernon C. Walker, and R. Wayne Raffety (collectively "Arnold")
filed suit in the United States District Court for the Eastern District of
Pennsylvania against the Company and former directors David Farrow and Harold
Gebert. Arnold's claims arise out of a venture capital loan made by Arnold to
the Company on January 12, 1995 (the "Loan"). On that date, Arnold loaned the
Company $50,000.00 and, in return, received a Note in that amount executed by
Gebert and Farrow, as well as warrants to purchase shares of the Company's stock
for a designated period. Arnold subsequently agreed to extend the due date on
the Note and forgive past interest and waive the previous grant of warrants from
the Company in exchange for Gebert's and Farrow's personal grant of warrants to
purchase shares of stock in the Company owned by Gebert and Farrow. The Company
paid off the Note when it became due. Arnold contends that at the time that
Gebert and Farrow agreed to the grant of warrants of their stock in the Company,
Gebert and Farrow, on behalf of either the Company or themselves, also made
assurances that Arnold would be protected against any anti-dilution of the
shares of stock. The Company disputes Arnold's claim that the Company extended
any anti-dilution protection; disagrees with Arnold's concept of
"anti-dilution"; and contest Arnold's right to the number of shares sought. The
Company is, however, engaging in negotiations with Arnold and is attempting to
resolve the matter without protracted litigation. In the event settlement
discussions are not successful, the Company shall vigorously defend this matter.
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In March, 1996, the Company entered into an Agreement and Plan of
Reorganization with Earth Care Global Holdings, Inc. ("Earth Care"), a
manufacturer and marketer of recycled plastic products and other recycling
services. Pursuant to the Agreement, the Company reverse split its common stock
on a 1 for 16 basis, and then issued 4,196,316 post split shares of its
authorized but previously unissued common stock to acquire all the issued and
outstanding stock of Earth Care in a stock for stock exchange (the
"Acquisition") which was intended to be a tax free reorganization under Section
368(a) of the Internal Revenue Code. The Company also granted to the former
Earth Care shareholders earn-out rights with respect to an additional 2,000,000
shares of Common Stock, subject to fulfillment of certain conditions relating to
production and net sales. As a condition precedent to the closing of the
Acquisition, the Company raised $1,000,000 of capital through an offering of its
securities. The offering was completed and the Acquisition closed on or about
March 28, 1996. As part of the Acquisition, the Company completed a distribution
to common stockholders of Series A and B Warrants. The Company has registered
the Shares underlying the Series A Warrants by means of the registration
statement of which this prospectus is part. If all the Series A Warrants
registered hereby are exercised, of which there is no assurance, the Company
would receive an additional $2,375,000 of capital. As a condition to closing the
Acquisition of Earth Care, the Company was also required to retire an existing
note payable which at March 15, 1996, had a balance due of $699,775 reflecting
principal and accrued interest. The note was secured by all assets of Earth
Care. The note was retired upon payment of approximately $200,000 (representing
approximately $95,000 principal reduction) and by issuing a new note which is
not convertible to stock, is not secured by Earth Care assets, was due on
December 31, 1996, and was personally guaranteed by certain officers of Earth
Care and their spouses. In consideration of becoming personal guarantors on the
new note, Harold H. Gebert, David A. Farrow, Raymond F. Darling and Raymond J.
Kiernan were issued an aggregate of 32,000 shares of Earth Care (representing
180,682 shares of the Company stock included in the 4,196,316 issued in the
Acquisition).
In April, 1996, the Company acquired all of the assets of DuraTech
Industries. DuraTech Industries, in operation since 1986, is a manufacturer of
recycled plastic lumber, recycled plastic shapes and value added products
located in Lake Odessa , Michigan. The Company paid a total of $41,000 cash and
issued 24,772 shares of common stock to the shareholders of DuraTech for a total
purchase price of $65,772 which exceeded the fair value of the net assets of
DuraTech by $125,423. There were a total of five shareholders of DuraTech who
represented 100% ownership of the company none of whom had any relationship to U
S Plastic Lumber prior to negotiations. The purchase price was negotiated, at
arms-length, primarily between the Presidents of both companies. The fair market
value of assets to be acquired was used as a basis for determining a range for
negotiating the purchase price. In addition, the intangible value of the sales
and operating skills of the officers eventually retained to manage the sales and
operations of this facility, the suitablility of the business for vertical
integration and the financial condition of DuraTech were also considered in
determining the final purchase price. As part of the asset purchase, an earn-out
incentive was granted which provides for the issuance of 150,000 additional
shares of common stock if DuraTech meets certain production goals for plastic
lumber by April 30, 1999. In June 1997, in exchange for reduction of future
salary agreements with the retained officers to terms more favorable to the
Company, the Company provided cash consideration equal to $30,000, and
accelerated the 150,000 additional earn-out shares for total compensation of
$123,750. The retained officers salaries were to be increased from a base salary
of
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$50,000 annually to $75,000 and $90,000 annually as certain earn-out targets
were reached. Salaries for these officers were increased to $65,000 base
compensation without pre-arranged future base salaries.
In December, 1996 the Company acquired through a reverse triangular
merger, Clean Earth Inc., and subsidiaries. For financial purposes, Clean Earth,
Inc. is deemed to be the acquiring corporation and has accounted for the
transaction as a reverse merger. The Company tendered 5,400,000 shares of U.S.
Plastic Lumber Corp.'s (USPL) common stock for all outstanding shares of Clean
Earth, Inc. (CEI). The value of USPL's shares in connection with the reverse
merger was $2,538,000 as determined by market transactions. The purchase
price exceeded the fair value of assets acquired by approximately $2,810,328 and
will be amortized on a straight-line basis over a twenty year period. CEI has
been in operation since 1991, and has treated over 600,000 tons of soil and
construction debris that was contaminated with petroleum hydrocarbon wastes such
as fuels, lubricating oil, tars and gasoline. Clean Earth owns and operates a
low temperature thermal desorption plant that can treat and recycle up to 30,000
tons per month of petroleum contaminated soil. The Company issued 5,400,000
shares of common stock to Stout Partnership, the sole shareholder of Clean
Earth, and also granted earn-out rights with respect to 2,573,686 shares of
Company common stock. Gary Ziegler and August Schultes, two of the principals of
Stout Partnership, then became directors of the Company. Mr. Alsentzer, the
remaining principal of Stout Partnership, had already assumed the position of
President and Chief Executive Officer of the Company prior to merging the two
companies. Mr. Alsentzer and the Stout Partnership held a .45% interest in USPL
prior to the acquisition. The acquisition was negotiated between Mr. Harold
Gebert, former Chairman of the Board of the Company, and Mr. August Schultes,
principal of Stout Partnership. The fair market value of the assets of Clean
Earth, its financial stability, and the fact that the acquisition required no
cash were all considered in the determination of the purchase price.
On December 31, 1996 and simultaneous to the closing of the Clean Earth
merger, the Stout Partnership (owners of Clean Earth, Inc.) extended a note to
the Company in the amount of $500,824 at Federal prime rate plus 1%. The
proceeds were used to pay off the note payable to Magellan Finance Co which
matured on December 31, 1996.
Clean Earth, Inc. incurred administration and service fees to its
stockholders of $500,000 and $450,000 for the years ended December 31, 1996 and
1995, respectively.
On January 23, 1997 Schultes, Inc., loaned the Company an additional
$700,000 at Federal Reserve prime rate plus 1%, the proceeds of which some were
used to partially fund the RPI acquisition. The Company has since borrowed
additional cash from Schultes, Inc. and as of September 30, 1997 owed $1,200,000
on an unsecured line of credit from Schultes, Inc. at Federal Reserve prime rate
plus 1% The total available facility from Schultes, Inc is $2,300,000 and is
renewable on an annual basis.
On January 27, 1997 the Company acquired Recycled Plastics, Inc. (RPI)
which was merged into a newly formed wholly owned subsidiary of the Company. RPI
is engaged in the manufacture and sale of recycled plastic lumber products with
facilities located in Green Bay, WI. The stockholders of RPI received $1,200,000
and 1,000,000 shares of the Company's common stock for a purchase price of
$1,675,000 which exceeded the estimated fair value of the net assets of RPI by
approximately $1,410,000. The excess was recorded as goodwill and will be
amortized on a straight-line basis over a twenty year period. The common stock
tendered was valued at $475,000 based upon an independent appraisal. The four
officers of RPI represented 100% ownership of the company none of which had any
relationship to U S Plastic Lumber Corp. prior to negotiations. The purchase
price was negotiated, at arms length, by the CEO of U S Plastic Lumber and the
President and Treasurer of RPI. The discounted value of normalized historic net
income was calculated to determine a purchase
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price range. In addition, factors such as the intangible value of "vacuum
calibration technology" (not a proprietary technology) which supplemented the
Company's product offering, expertise as well as the financial and operational
skills of two of the officers to be retained were also considered in negotiating
a final purchase price. Subsequent to the purchase of RPI, Steven Groth, the
former Treasurer of the company was elected as a director of U S Plastic Lumber,
Corp. In addition, Lee Anderson, the former President of RPI was retained by the
Company to serve as a Vice President of Manufacturing for the USPL recycled
plastic division and entered into a four-year employment agreement with USPL.
RPI had sales of $1,395,322 and net income of $281,029 for the year ended
December 31, 1996 and management is not aware of any events or conditions that
would not allow this operating trend to continue.
On February 24, 1997, Advanced Remediation and Disposal Technologies,
Inc. (ARDT) of Coopersburg, Pennsylvania was acquired by the Company. ARDT is
engaged in environmental consulting and construction clean-up of contaminated
sites primarily involving water and soils. The stockholders of ARDT received
300,000 shares of the Company's common stock which was valued at $159,000 by an
independent appraisal. The purchase price was less than the fair value of net
assets by approximately $120,000 and this difference was used to reduce the
basis of non-current assets. The shareholders of ARDT were also given a stock
earn-out agreement based on pre-tax profits for 1997 and 1998. ARDT's
shareholders may be awarded up to a range of 25,000 to a maximum of 75,000
shares of common stock per year based on attainment of pre-tax profit levels in
the ARDT subsidiary in 1997 and 1998. The discounted value of normalized
historic net income was calculated to determine a purchase price range. In
addition, the intangible value of the sales and operating skills of the officers
eventually retained as well as the fact that no cash consideration was required
in the transaction were considered in the negotiation. The purchase price was
negotiated, at arms-length, primarily between the Presidents of both companies.
The six officers of ARDT represented 100% of the shareholders of the company and
no relationship existed between ARDT or its officers and USPL prior to
negotiation. Two key officers of ARDT, John O'Donnell, President and Kevin John,
Vice President of ARDT have been retained by the Company to run sales and
operations of the ARDT subsidiary and have entered into three-year employment
contracts with the Company. Both officers were granted a total of 30,000 options
of the Company's common stock for covenants-not-to-compete at the fair market
value of the Company's shares as traded on the OTC Bulletin Board as of the
close of business on February 24, 1997. ARDT had sales of $2,343,047 and a net
income of $217,184 for the year ended December 31, 1996. Management expects
improved performance from this unit due to increased sales volume, improved
margins and elimination of certain general and administrative expenses during
1997. On December 31, 1997, ARDT was merged into its sister company, Integrated
Technical Services, Inc. due to the similarity in services and proximity of
operations.
On March 28, 1997, the Company acquired Environmental Specialty
Plastics (ESP), a marketing and distribution company of recycled plastic lumber
products in Guasti, California. The shareholders of ESP received $110,000 in
cash and 25,150 shares of the Company's common stock for a purchase price of
$123,581 which exceeded the estimated fair value of the net assets of ESP by
approximately $29,000. The excess was recorded as goodwill and will be amortized
on a straight-line basis over a twenty year period. The common stock tendered
was valued at $13,581 based upon an independent appraisal. As additional
compensation, the Company shall pay shareholders of ESP 5% percent of the ESP
subsidiary's gross profit margin each month for a period of 12 months provided
net sales exceed $100,000 in each month. The two officers of ESP represented
100% of the shareholders of the company and no relationship existed between ESP
or its officers and USPL prior to negotiation. The purchase price was
negotiated, at arms-length, primarily between the Presidents of both companies.
The fair market value of assets acquired was used to determine a price range for
ESP. Factors such as the intangible value of sales and operations expertise of
both officers to be retained, gaining a foothold in the California market and
the amount of cash consideration required were also
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considered in negotiating a final purchase price. Both officers of ESP,
Elizabeth Head, President and James Chew, Vice President of ESP have been
retained by the Company to run sales and operations of the ESP subsidiary and
have entered into three-year employment contracts with the Company. ESP had
sales of $1,036,303 and net income of $8,332 for the fiscal year ended February
28, 1997. Management is not aware of any factors that would alter continuation
of this operating trend in 1997.
On March 31, 1997, the Company acquired Integrated Technical Services,
Inc. (ITS) located in Winslow, New Jersey. ITS is an environmental consulting
and construction company which cleans up contaminated sites primarily involving
water and soils. The stockholders of ITS received $110,000 in cash, and 185,000
shares of the Company's common stock for a purchase price of $209,900 which
exceeded the estimated fair value of the net assets of ITS by approximately
$139,000 based upon an independent appraisal. The excess was recorded as
goodwill and will be amortized on a straight-line basis over a twenty year
period. The four officers of ITS represented 100% of the shareholders of the
company and no relationship existed between ITS or its officers and USPL prior
to negotiation. The purchase price was negotiated, at arms-length, primarily
between the Presidents of both companies. The discounted value of normalized
historic net income was calculated to determine a purchase price range. In
addition, the intangible value of the sales and operating skills of the officers
eventually retained as well as the amount of cash consideration required in the
transaction were considered in the negotiation. Two key officers of ITS,
Theodore Budzynski, President and Martin Brubaker, Vice President of ITS have
been retained by the Company to run sales and operations of the ITS subsidiary
and have entered into five-year employment contracts with the Company. These
officers received an additional 47,572 shares of common stock in exchange for
two year non-compete agreements after their employment with the Company. The
retained officers of ITS were also given a stock earn-out agreement based on
pre-tax profits and sales volume for 1997 and 1998. The retained officers may be
awarded up to a range of 8,600 to a maximum of 16,000 shares of common stock per
year based on attainment of pre-tax profit levels and sales volume in the ITS
subsidiary in 1997 and 1998. Both officers were granted a total of 20,000
options of the Company's common stock as an inducement to enter into employment
contracts at the fair market value of the Company's shares as traded on the OTC
Bulletin Board as of the close of business on April 8, 1997. ITS had sales of
$3,905,783 and net loss of $93,751 for the year ended December 31, 1996.
Management expects improved performance from this unit due to increased sales
volume, improved margins and elimination of certain general and administrative
expenses during 1997. ARDT was merged into ITS as of December 31, 1997.
On June 9, 1997, the Company formed Carteret Biocycle Corporation, a
wholly owned subsidiary of Clean Earth, Inc. This start-up company will
construct a recycling facility in Carteret, New Jersey that will recycle
contaminated soils utilizing a bio-organic recycling methodology. The Company
has entered into a 30-year ground lease with two additional 10-year options on a
5-acre parcel of land in Carteret, New Jersey at a rental cost of $210,000 per
year during the initial 30-year rental period. The Company will construct an
80,000 square foot recycling facility at an estimated cost of $2,000,000. The
Company simultaneously entered into a License and Operating Agreement with S D&
G Aggregates, Inc. who holds a license to operate a recycling operation on the
subject rental property. The Company also has right of first refusal to lease
the adjacent 17-acre parcel. The recycling facility is expected to be
operational by first quarter of 1998 and will have the capacity to treat an
estimated 240,000 tons annually. This is an estimate of the plant's potential
capacity and there can be no assurances that these results may be achieved or
that the plant will operate at full capacity year round.
On June 30, 1997, the Company acquired EnviroPlastics Corp., (EPC) a
recycled plastic raw material regrind operation in Auburn, MA. The stockholders
of EPC received 280,000 shares of the Company's common stock which exceeded the
estimated fair value of the net assets of EPC by
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approximately $1,455,000. The excess was recorded as goodwill and will be
amortized on a straight-line basis over a twenty year period. The common stock
tendered was valued at $630,000 based upon the most recent market transactions
completed for the Company's common stock. The officers of EPC represent 100% of
the shareholders of the company and no relationship exists between the company
or its officers and USPL. The purchase price was negotiated, at arms-length,
primarily between the Presidents of both companies. In addition, the intangible
value of the sales and operating skills of the officers who were retained as
well as the suitability of vertical integration of this business with the
Company were considered in the negotiation. Two key officers of EPC, Bruce
Fortin, President and Franco Previd, Vice President were retained by the Company
to run sales and operations of the subsidiary and entered into five-year
employment contracts with the Company. Both officers received 12,500 shares of
the Company's commons stock each in exchange for non-compete agreements for two
years after their employment with the Company. EPC had sales of $5,229,915 and
net income of $1,502,010 for the year ended December 31, 1996 which included
extraordinary income from the forgiveness of debt totaling $1,807,230. The
Company purchased EPC understanding that a significant investment in relocation
expenses to a larger facility of an estimated $500,000 as well as additional
machinery and equipment of $300,000 will be required in order to achieve
operating throughput in sufficient quantity to achieve potential future
earnings.
On July 17, 1997 the Company formed a joint venture partnership with
Interstate Industrial Corp. of Secaucus, New Jersey. The Company, identified as
Interstate Industrial Corp./USPL Joint Venture was formed to bid on
dredge/upland disposal projects. The Company was recently low bidder on a
$4,700,000 dredge/disposal contract over a one year period and is awaiting award
of the contract.
On July 23, 1997 the Company agreed, in principle, to purchase certain
assets of Tri-Max Lumber, Inc. a manufacturer of recycled plastic lumber
products in New York approved for certain structural uses. Consummation of the
acquisition is subject to a number of conditions including, but not limited to,
the renegotiation of the terms of certain liabilities and results of due
diligence. Due to the contingencies involved, the Company cannot predict whether
or when the acquisition will be consummated.
On November 18, 1997 the Company acquired 100% of the outstanding
shares of Waste Concepts, Inc Waste Concepts, Inc. is in the environmental
recycling construction, service and consulting business. The stockholder of WCI
received $175,000 in cash at Closing plus 400,000 shares of the Company's common
stock. The common stock was valued based upon the most recent market
transactions completed for the Company's common stock at $900,000 for a total
purchase price of $1,075,000 which exceeded the estimated fair value of WCI by
approximately $1,039,000. The excess was recorded as goodwill which will be
amortized on a straight-line basis over a twenty year period. The purchase price
was negotiated, at arms length, primarily between the Presidents of both
companies. In addition, the intangible value of the sales and operating skills
of the President of WCI who was retained, as well as the suitability of vertical
integration of this business with the company and management's knowledge of the
dredging business were considered in the negotiation. The stockholder, Steven C.
Sands, has also received a five year employment agreement with the Company. The
stockholder also received an earn-out compensation package which awards him with
5,000 shares of stock for each of the next five years in the event Waste
Concepts, Inc. meets certain EBIT levels. Finally, the stockholder will receive
royalty compensation, based upon certain events occurring, at a set fee based
upon tonnage volumes of waste received at a facility to be operated by Browning
Ferris Industries at the Company's property in Carteret, New Jersey. WCI had
sales of $4,814,731 and net loss of $33,502 for the year ended December 31,
1996. Management expects improved performance from this unit due to increased
sales
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volume and improved margins during 1997.
In November 1997, the Company executed an agreement to acquire 25% of
the outstanding shares of Consolidated Technologies, Inc. , "CTI", ( a start-up
company) with an option to buy the remaining 75% interest in CTI. CTI is in the
process of obtaining a final contract with the Pennsylvania Department of
Environmental Protection to permit CTI to use dredge materials mixed with ash to
create a grout like substance to reclaim strip mine property at a designated
site in western Pennsylvania. This permit is an important link in the Company's
ability to competitively bid on large contracts to receive dredge material.
Steven C. Sands, the sole shareholder of Waste Concepts, Inc. at the time of the
Closing of that acquisition by the Company, is a 20% shareholder of CTI. Michael
Roscoe, an employee of Waste Concepts, Inc., owns 5% of CTI. The shareholders of
Green Horizon Environmental, Inc., Timothy Fogerty and Al Silkroski, together
own 25% of CTI.
On January 2, 1998, the Company acquired Green Horizon Environmental,
Inc. (GH) in a stock purchase transaction. The Company tendered 50,000 shares of
common stock of the Company. The common stock was valued at a total purchase
price of $112,500 which approximated the estimated fair value of the net assets
acquired. GH had sales of $281,600 and a net loss of $17,942 for the year ended
December 31, 1996. Management expects improved performance from this unit due to
increased sales volume and improved margins during 1997.
The Company also leases other office space and manufacturing facilities
from entities controlled by individuals who are stockholders. The Company leased
a small office in Blue Bell, Pennsylvania at a monthly rental of $1,173 on a
month to month basis, which lease term is ending on December 31, 1997. Harold
Gebert is a 21% owner of the building in which the office is located. The
Company previously leased the manufacturing facility located in Tennessee from
the entity from which the Company acquired the assets used in such manufacturing
operation, and the owners of which became stockholders of the Company in such
acquisition. The Company has terminated this lease and relocated its facility
into a larger rented facility in a nearby Tennessee location. The Company's RPI
subsidiary leases approximately 20,000 square feet of office and manufacturing
space at a cost of $4,432 per month from Plastic Properties, LLC. The lease
provides for minimum rentals of $265,945 through December 31, 2001 with an
option to renew for an additional 5-year terms. Lee Anderson, Vice President of
Operations of RPI and Steven Groth, Company Director are principal shareholders
in Plastic Properties, LLC. This lease is being renegotiated as the Company has
required the Landlord to expand the building by 14,000 square feet to allow the
Company to expand its equipment capacity at that facility.
CONFLICTS OF INTEREST
Other than as described herein the Company is not expected to have
significant further dealings with affiliates. However, if there are such
dealings the parties will attempt to deal on terms competitive in the market and
on the same terms that either party would deal with a third person. Presently
none of the officers and directors have any transactions which they contemplate
entering into with the Company, aside from the matters described herein.
Management will attempt to resolve any conflicts of interest that may
arise in favor of the Company.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF MANAGEMENT
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The General Corporation Law of Nevada permits provisions in the
articles, by-laws or resolutions approved by shareholders which limit liability
of directors for breach of fiduciary duty to certain specified circumstances,
namely, breaches of their duties of loyalty, acts or omissions not in good faith
or which involve intentional misconduct or knowing violation of law, acts
involving unlawful payment of dividends or unlawful stock purchases or
redemptions, or any transaction from which a director derives an improper
personal benefit. The Company's by-laws indemnify its Officers and Directors to
the full extent permitted by Nevada law. The by-laws with these exceptions
eliminate any personal liability of a Director to the Company or its
shareholders for monetary damages for the breach of a Director's fiduciary duty
and therefore a Director cannot be held liable for damages to the Company or its
shareholders for gross negligence or lack of due care in carrying out his
fiduciary duties as a Director. The Company's Articles provide for
indemnification to the full extent permitted under law which includes all
liability, damages and costs or expenses arising from or in connection with
service for, employment by, or other affiliation with the Company to the maximum
extent and under all circumstances permitted by law. Nevada law permits
indemnification if a director or officer acts in good faith in a manner
reasonably believed to be in, or not opposed to, the best interest's of the
corporation. A director or officer must be indemnified as to any matter in which
he successfully defends himself. Indemnification is prohibited as to any matter
in which the director or officer is adjudged liable to the corporation. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of the
Company's Articles of Incorporation and Bylaws, copies of which will be
furnished to an investor upon written request therefor. See "Additional
Information."
COMMON STOCK
The Company is presently authorized to issue 50,000,000 shares of
$.0001 par value common stock. The Company presently has 15,652,790 shares of
common stock outstanding. The Company has reserved from its authorized but
unissued shares a sufficient number of shares of common stock for issuance of
the Shares offered hereby. The shares of common stock issuable on completion of
the offering will be, when issued in accordance with the terms of the offering,
fully paid and non-assessable.
The holders of common stock, including the Shares offered hereby, are
entitled to equal dividends and distributions, per share, with respect to the
common stock when, as and if declared by the Board of Directors from funds
legally available therefor. No holder of any shares of common stock has a
pre-emptive right to subscribe for any securities of the Company nor are any
common shares subject to redemption or convertible into other securities of the
Company. Upon liquidation, dissolution or winding up of the Company, and after
payment of creditors and preferred stockholders, if any, the assets will be
divided pro-rata on a share-for-share basis among the holders of the shares of
common stock. All shares of common stock now outstanding are fully paid, validly
issued and non-assessable, except as set forth relative to the Earth Care
Partners transaction discussed in the Certain Transactions section. Each share
of common stock is entitled to one vote with respect to the election of any
director or any other matter upon which shareholders are required or permitted
to vote. Holders of the Company's common stock do not have cumulative voting
rights, so that the holders of more than 50% of the combined shares voting for
the election of directors may elect all of the directors, if they
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choose to do so and, in that event, the holders of the remaining shares will not
be able to elect any members to the Board of Directors.
PREFERRED STOCK
The Company is also presently authorized to issue 5,000,000 shares of
$.001 par value Preferred Stock. Under the Company's Articles of Incorporation,
as amended, the Board of Directors has the power, without further action by the
holders of the common stock, to designate the relative rights and preferences of
the preferred stock, and issue the preferred stock in such one or more series as
designated by the Board of Directors. The designation of rights and preferences
could include preferences as to liquidation, redemption and conversion rights,
voting rights, dividends or other preferences, any of which may be dilutive of
the interest of the holders of the common stock or the Preferred Stock of any
other series. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without further shareholder action
and may adversely effect the rights and powers, including voting rights, of the
holders of common stock. In certain circumstances, the issuance of preferred
stock could depress the market price of the common stock. The Board of Directors
effects a designation of each series of Preferred Stock by filing with the
Nevada Secretary of State a Certificate of Designation defining the rights and
preferences of each such series. Documents so filed are matters of public record
and may be examined in accordance with procedures of the Nevada Secretary of
State, or copies thereof may be obtained from the Company.
The Board of Directors of the Company has designated 250,000 shares as
Series A Preferred Stock, with a 10% cumulative stock dividend, payable
semiannually on March 31 and September 30 of each year, commencing on September
30, 1996, at a rate of 10% per annum. The Company has issued 209,207 shares of
Series A Preferred Stock. Each share of Series A Preferred Stock is convertible:
(i) at the option of the holder into Common Stock of the Company at the rate of
seven (7) shares of Common Stock for each share of Series A Preferred Stock, and
(ii) mandatorily converted into Common Stock on the date on which a Registration
Statement, which is filed with the U.S. Securities and Exchange Commission and
would yield proceeds to the Company in excess of $10 million, is declared
effective by the SEC. The Series A Preferred Stock is subject to redemption by
the Company at its option at any time commencing from the date of issue of such
Series A Preferred Stock at a price of $25.00 per share. In the event of any
liquidation, after payment of debts and other liabilities, the stockholders of
Series A Preferred Stock will be entitled to receive, before the stockholders of
any Common Stock, the stated value of $20 per share. None of the Series A
Preferred Stock issued has been converted into Common Stock of the Company or
redeemed by the Company as of the date hereof.
SERIES A AND SERIES B WARRANTS
At the same time that the Company distributed the Series A Warrants, it
also distributed Series B Warrants, so the Company now has 950,000 Series A and
950,000 Series B common stock purchase warrants (the "Warrants") outstanding.
The Warrants are exercisable at $2.50 per share for the Series A Warrants and
$4.50 per share for the Series B Warrants, at any time prior to June 30, 1998,
subject to effectiveness of registration of the Warrants and underlying shares.
(a) The Company may redeem all or a portion of the Warrants,
in each case at $.01 per warrant upon 30 days' prior written notice to
the warrant holders in the event the Closing bid price of the Company's
common stock exceeds or equals $4.00 per share for 20 consecutive
trading days, then the Series A Warrants can be redeemed and if the
price equals or exceeds $6.00 then the Series B Warrants may be
redeemed. The warrants may only be redeemed if a current registration
statement is in effect with respect thereto. Any warrant holder who
does not exercise his Warrants prior to the Redemption Date, as set
forth on the Company's Notice of
48
<PAGE> 50
Redemption, will forfeit his right to purchase the shares of Common
Stock underlying such Warrants, and after such Redemption Date any
outstanding Warrants referred to in such Notice will become void and be
canceled. If the Company does not redeem such Warrants, such warrants
will expire at the conclusion of the exercise period unless extended by
the Company.
(b) The Company may at any time, and from time to time, extend
the exercise period of the Warrants provided that written notice of
such extension is given to the warrant holders prior to the expiration
date thereof. Also, the Company may, at any time, reduce the exercise
price thereof by written notification to the holders thereof. The
Company does not presently contemplate any extensions of the exercise
period or reduction in the exercise price of the Warrants.
(c) The Warrants contain anti-dilution provisions with respect
to the occurrence of certain events, such as stock splits or stock
dividends. The anti-dilution provisions do not apply in the event of a
merger or acquisition. In the event of liquidation, dissolution or
winding-up of the Company, warrant holders will not be entitled to
participate in the assets of the Company. Warrant holders have no
voting, preemptive, liquidation or other rights of a stockholder of a
Company, and no dividends may be declared on the Warrants.
(d) The Warrants may be exercised by surrendering to the
Company, a Warrant certificate evidencing the Warrants to be exercised,
with the exercise form included therein duly completed and executed,
and paying to the Company the exercise price per share in cash or check
payable to the Company. Stock certificates will be issued as soon
thereafter as practicable.
(e) The Warrants are not exercisable until the Warrants and
the shares of Common Stock underlying the Warrants are registered. The
Company has agreed to file with the Commission a registration statement
with respect to the issuance of such shares underlying the Warrants.
The effective date of such registration will be the "Commencement Date"
for determining the exercise period of such Warrants. The Company will
also seek to register or qualify the Common Stock issuable upon the
exercise of the Warrants under the Blue Sky laws of all states in which
holders of the Warrants may reside.
(f) The Warrants are deemed to be "restricted securities" in a
manner similar to the definition of that term used in Rule 144 and will
only be transferable, prior to registration, upon a showing to the
satisfaction of the Company that the transfer is exempt from the
registration provisions of the Securities Act of 1933. The Warrants are
stamped with a restrictive legend.
TRANSFER AGENT
The transfer agent for the Company is Interwest Stock Transfer Co.,
1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117.
ANNUAL REPORTS
The Company intends to furnish annual reports to shareholders which
will contain financial statements audited by independent certified public
accountants and such other interim reports as the Company may determine.
49
<PAGE> 51
DIVIDEND POLICY
The Company has not paid any cash dividends on common stock to date and
does not anticipate paying cash dividends on common stock in the foreseeable
future. The Company intends for the foreseeable future to follow a policy of
retaining all of its earnings, if any, to finance the development and expansion
of its business. The Company does intend to pay stock dividends on its preferred
stock in accordance with the terms thereof.
EARN-OUT SHARES AND OPTIONS
Pursuant to various agreements entered into between the Company and the
former shareholders of Earth Care, Clean Earth, ARDT, ITS and EPC as part of the
acquisitions of those companies, up to a total of 4,842,186 shares of the
Company's Common Stock is subject to the right of such shareholders to receive
such stock under certain conditions relating to earnings, sales or production
levels reached by the Company or by the entities which these person were
formerly shareholders of.
The Earth Care Historical Shareholders are entitled to receive on a pro
rata basis an aggregate of 2,000,000 additional shares of the Company's common
stock at any time prior to December 31, 2000, in the event that Earth Care, on a
consolidated basis, reaches production or sales of at least 2,000,000 pounds of
plastic lumber product per month for three consecutive months.
The Clean Earth Historical Shareholders are entitled to receive on a
pro rata basis an aggregate of 2,573,686 additional shares of the Company's
common stock at any time prior to December 31, 2000, in the event that the
Company, on a consolidated basis, reaches production or net sales of at least
2,000,000 pounds of plastic lumber product per month for three consecutive
months.
The ARDT Historical Shareholders are entitled to receive on a pro rata
basis an aggregate of up to 87,500 additional shares of the Company's common
stock during 1997 and 1998 in the event that ARDT reaches certain specified
levels of profits as defined in the agreement during each of those years. Upon
issuance the Company will record compensation expense equal to the current
market value of the shares.
Two key operating officers at ITS are entitled to receive an aggregate
of up to 16,000 additional shares of the Company's stock during 1997 and 1998 in
the event that ITS reaches certain specified levels of sales and profits, as
defined in the acquisition agreement, during each of those years. Upon issuance
the Company will record compensation expense equal to the excess of the then
current market value over the $5.00 per share exercise price.
Two key operating officers of EnviroPlastics Corp. have been granted
options to purchase an aggregate of up to 90,000 shares on a pro rata basis of
the Company's common stock at an exercise price of $5.00 per share during 1997,
1998 and 1999 provided certain specified levels profits as defined in the
agreement during each of those years.
The stockholder of Waste Concepts, Inc. has been provided with the
right to earn additional shares of the Company's stock equal to 25,000 shares
over the next five years in the event Waste Concepts, Inc. meets certain EBIT
levels during each of those years.
The stockholders of Green Horizon Environmental, Inc. have been
provided with the right to earn additional shares, not to exceed 12,500 shares
per year for each of the next four years, based upon EBIT for each of those
years.
50
<PAGE> 52
OTHER OUTSTANDING OPTIONS
The Company has reserved 353,684 shares of the Company's common stock
for issuance upon exercise of an option held by a former creditor of Earth Care
(the "Magellan Option"). The option is exercisable at an aggregate amount of
$626,021 for all 353,684 shares, with the option expiring as to 117,895 shares
on December 31, 1997 (these shares have been exercised by shareholder and
consideration has been paid to the Company), 117,895 shares on December 31, 1998
and 117,894 shares on June 30, 1999. In the event the Magellan Option is not
exercised in whole or in part, then those shares reserved for the Option shall
be issued on a pro rata basis to the persons who formerly were shareholders of
Earth Care at no cost, in proportion to the Earth Care shares they owned
immediately prior to closing the Acquisition.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 15,652,790 shares of the Company's common stock outstanding
prior to the exercise of any Warrants, 1,808,506 shares are freely tradeable or
eligible to be sold in the public market that exists for the Common Stock. In
addition, the 950,000 shares of Common Stock underlying the Series A Warrants
will also be freely tradeable into the public market immediately upon issuance.
Sales of substantial amounts of this common stock in the public market could
adversely affect the market price of the common stock. Furthermore, all of the
remaining shares of Common Stock presently outstanding are restricted and/or
affiliate securities which are not presently, but may in the future be sold into
any public market that may exist for the Common Stock, pursuant to Rule 144
promulgated pursuant to the Securities Act of 1933, as amended (the "Securities
Act").
In general, under Rule 144 as currently in effect, a person (or group
of persons whose shares are aggregated), including affiliates of the Company,
can sell within any three-month period, an amount of restricted securities that
does not exceed the greater of 1% of the total number of outstanding shares of
the same class, or (if the Stock becomes quoted on NASDAQ or a stock exchange),
the reported average weekly trading volume during the four calendar weeks
preceding the sale; provided at least one year has elapsed since the restricted
securities being sold were acquired from the Company or any affiliate of the
Company, and provided further that certain other conditions are also satisfied.
If at least two years have elapsed since the restricted securities were acquired
from the Company or an affiliate of the Company, a person who has not been an
affiliate of the Company for at least three months can sell restricted shares
under Rule 144 without regard to any limitations on the amount. Future sales by
current shareholders could depress the market prices of the Common Stock in any
such market.
PLAN OF DISTRIBUTION
This Prospectus and the registration statement of which it is part
relate to the offer and sale of 950,000 shares of Common Stock of the Company
underlying Series A Warrants. The securities registered hereby include 950,000
shares of Common Stock issuable upon the exercise of the Series A Warrants at an
exercise price of $2.50 per share. The Series A Warrants were recently
distributed as a dividend with respect to the Common Stock of the Company to
shareholders of record as of March 18, 1996. By their terms, the Warrants were
not exerciseable and did not constitute an offer by the Company to sell the
Shares prior to the date of this prospectus. The Warrants are now exerciseable
until June 30, 1998.
The offering will be managed by the Company without an underwriter, and
the Shares will be offered and sold by the Company, without any discount, sales
commissions or other compensation being paid to anyone in connection with the
offering. In connection therewith, the Company will pay the costs of preparing,
mailing and distributing this Prospectus to the holders of the Warrants.
Brokers,
51
<PAGE> 53
nominees, fiduciaries and other custodians will be requested to forward copies
of this Prospectus to the beneficial owners of securities held of record by
them, and such custodians will be reimbursed for their expenses.
There is no assurance that all or any of the Shares will be sold, nor
any requirement, or escrow provisions to assure that, any minimum amount of
Warrants will be exercised. All funds received upon the exercise of any Warrants
will be immediately available to the Company for its use.
EXERCISE PROCEDURES
Warrants may be exercised in whole or in part by presentation of the
Warrant Certificate, with the Purchase Form on the reverse side thereof filled
out and signed at the bottom thereof, together with payment of the Exercise
Price and any applicable taxes at the principal office of Interwest Stock
Transfer Co., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117.
Payment of the Exercise Price shall be made in lawful money of the United States
of America by wire transfer or check payable to the order of "U.S. Plastic
Lumber Corp."
All holders of warrants will be given an independent right to exercise
their purchase rights. If, as and when properly completed and duly executed
notices of exercise are received by the Transfer Agent and/or Warrant Agent,
together with the Certificates being surrendered and full payment of the
Exercise Price in cleared funds, the checks or other funds will be delivered to
the Company and the Transfer Agent and/or Warrant Agent will promptly issue
certificates for the underlying Common Stock. It is presently estimated that
certificates for the shares of Common Stock will be available for delivery in
Salt Lake City, Utah at the close of business on the tenth business day after
the receipt of all required documents and funds.
LEGAL MATTERS
To the knowledge of management, there is no material litigation pending
against the Company except as disclosed the Certain Transactions section of this
registration document. The validity of the issuance of the Shares offered hereby
will be passed upon for the Company by Thomas G. Kimble & Associates, Salt Lake
City, Utah.
EXPERTS
The consolidated financial statements as of December 31, 1996 and for
the years ended December 31, 1996 and 1995 of the Company, the consolidated
financial statements as of and for the years ended December 31, 1996 and 1995 of
Clean Earth, Inc. and subsidiaries, Advanced Remediation and Disposal
Technologies, Inc. and Recycled Plastic Industries, Inc., and the financial
statements as of and for the year ended December 31,1996 of Waste Concepts,
Inc. and Integrated Technical Services, Inc. included in this Prospectus have
been audited by Kuntz Lesher Siegrist & Martini, LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance on such reports given upon the authority of that
firm as experts in accounting and auditing.
The December 31, 1996 and 1995 financial statements of EPC included in
this Prospectus have been audited by Love, Bollus, Lynch & Rogers, independent
certified public accountants, as indicated in their report with respect thereto,
and are included herein in reliance on such report given upon the authority of
that firm as experts in accounting and auditing.
52
<PAGE> 54
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
U.S. Plastic Lumber Corp. and Subsidiaries
Audited Financial Statements as of December 31, 1996 and for the years
ended December 31, 1996 and 1995
Unaudited Financial Statements as of September 30, 1997 and for the
nine months ended September 30, 1997 and 1996
Pro Forma Balance Sheet as of September 30, 1997 (unaudited) and Pro
Forma Statements of Operations for the nine months ended September 30,
1997 (unaudited) and for the year ended December 31, 1996 (unaudited)
Clean Earth, Inc. and Subsidiaries
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
Recycled Plastics Industries, Inc.
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
Advanced Remediation and Disposal Technology, Inc.
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
Integrated Technical Services, Inc.
Audited Financial Statements as of and for the year ended December 31,
1996
Waste Concepts, Inc.
Audited Financial Statements as of and for the year ended December 31,
1996
EnviroPlastics Corporation
Audited Financial Statements as of and for the years ended December 31,
1996 and 1995
<PAGE> 55
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 56
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders
U.S. Plastic Lumber Corp. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of U.S.
Plastic Lumber Corp. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended December 31,1996 and 1995. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audit.
We conducted our audits 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 from
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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of U.S. Plastic
Lumber Corp. and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 18, 1997
Page 1
<PAGE> 57
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 854,290
Receivables:
Trade, net of allowance for doubtful accounts of $148,744 1,559,463
Affiliate, net of allowance for doubtful accounts of $113,535 --
Insurance settlement 455,000
Inventories 486,978
Prepaid expenses and other current assets 99,462
----------
TOTAL CURRENT ASSETS 3,455,193
Property and equipment, net 935,718
Intangible assets 2,810,328
Other assets 9,655
----------
TOTAL ASSETS $7,210,894
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 707,582
Payables:
Trade 1,065,081
Stockholder 200,000
Accrued expenses 701,257
Deferred revenue 162,819
Other liabilities 27,654
----------
TOTAL CURRENT LIABILITIES 2,864,393
Notes payable, net of current portion 6,730
----------
TOTAL LIABILITIES 2,871,123
----------
STOCKHOLDERS' EQUITY
10% Convertible preferred stock, par value $.001; authorized 5,000,000
shares; issued and outstanding 74,970 shares at December 31, 1996
(aggregate liquidation
preference of $1,499,400) 75
Common stock par value $.0001, authorized 50,000,000
shares; issued and outstanding 11,672,349 shares 1,167
Additional paid-in capital 4,436,758
Accumulated deficit (98,229)
----------
TOTAL STOCKHOLDERS' EQUITY 4,339,771
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,210,894
==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 2
<PAGE> 58
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Net sales $ 4,741,939 $6,043,963
Cost of goods sold 3,721,508 4,116,721
----------- ----------
GROSS PROFIT 1,020,431 1,927,242
General and administrative expenses 1,311,155 1,103,018
----------- ----------
OPERATING INCOME (LOSS) (290,724) 824,224
Interest income 53,156 --
Interest expense (8,397) --
----------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES AND
EXTRAORDINARY ITEM (245,965) 824,224
Provision for (benefit from) income taxes (65,691) 310,000
----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (180,274) 514,224
Extraordinary item - gain on involuntary conversion
(net of income taxes of $44,500 for the year ended
December 31, 1996) 66,859 --
----------- ----------
NET INCOME (LOSS) $ (113,415) $ 514,224
=========== ==========
Primary earnings (loss) per share:
Income (loss) before extraordinary item $ (.03) $ .06
Extraordinary item .01 --
----------- ----------
NET INCOME (LOSS) $ (.02) $ .06
=========== ==========
Weighted-average number of shares outstanding 6,696,805 7,714,286
=========== ==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
<PAGE> 59
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ---------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1994, as originally reported -- $-- 100 $ 100
Restatement for new capital structure acquired
with the merger of U. S. Plastic Lumber Corp.
(see Note 2) -- -- 7,714,186 671
------ --- ---------- -------
Balance, December 31, 1994, as restated -- -- 7,714,286 771
Cash dividends paid -- -- -- --
Net income -- -- -- --
------ --- ---------- -------
Balance, December 31, 1995 -- -- 7,714,286 771
Purchase and retirement of treasury stock -- -- (2,314,286) (231)
Cash dividends paid -- -- -- --
Merger with U.S. Plastic Lumber Corp.
(see Note 2) 74,970 75 6,272,349 627
Net loss -- -- -- --
------ --- ---------- -------
Balance, December 31, 1996 74,970 $75 11,672,349 $ 1,167
====== === ========== =======
<CAPTION>
ADDITIONAL ACCUMULATED
PAID-IN CAPITAL EARNINGS (DEFICIT) TOTAL
--------------- ------------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1994, as originally reported $ 2,999,900 $ 848,962 $ 3,848,962
Restatement for new capital structure acquired
with the merger of U. S. Plastic Lumber Corp.
(see Note 2) (671) -- --
----------- --------- -----------
Balance, December 31, 1994, as restated 2,999,229 848,962 3,848,962
Cash dividends paid -- (400,000) (400,000)
Net income -- 514,224 514,224
----------- --------- -----------
Balance, December 31, 1995 2,999,229 963,186 3,963,186
Purchase and retirement of treasury stock (1,099,769) -- (1,100,000)
Cash dividends paid -- (948,000) (948,000)
Merger with U.S. Plastic Lumber Corp.
(see Note 2) 2,537,298 -- 2,538,000
Net loss -- (113,415) (113,415)
----------- --------- -----------
Balance, December 31, 1996 $ 4,436,758 $ (98,229) $ 4,339,771
=========== ========= ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
<PAGE> 60
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (113,415) $ 514,224
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 629,697 912,905
Provision for losses on accounts and notes receivable 21,704 (5,000)
Write-off of abandoned and fire damaged property and equipment 68,085 --
Gain on sale of assets -- (84,500)
Deferred income taxes 121,300 (120,000)
Increase (decrease) in cash due to changes in operating assets and
liabilities, net of effects of acquisition:
Accounts receivable 646,996 (1,129,648)
Inventories (39,630) (6,074)
Prepaid expenses and other current assets 72,767 40,914
Accounts payable 243,363 (217,385)
Accrued expenses 193,020 179,248
Deferred revenue (26,236) 189,055
----------- -----------
Total adjustments 1,931,066 (240,485)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,817,651 273,739
----------- -----------
Cash flows from investing activities:
Capital expenditures (251,035) (7,602)
Proceeds from sale of property and equipment -- 200,000
Cash received in acquisition 225,468 --
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (25,567) 192,398
----------- -----------
Cash flows from financing activities:
Dividends paid (948,000) (400,000)
Payment for purchase of treasury stock (1,100,000) --
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,048,000) (400,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (255,916) 66,137
Cash and cash equivalent - beginning of year 1,110,206 1,044,069
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 854,290 $ 1,110,206
=========== ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
<PAGE> 61
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries are engaged in
the manufacturing of recycled plastic lumber from post-consumer plastic
waste and the recycling of soils which have been exposed to
hydrocarbons. The Company's plastic lumber customers are located
throughout the United States. The Company's soil recycling customers
are located primarily in the Northeastern United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of U.S. Plastic Lumber Corp. and its wholly-owned subsidiaries
Earth Care Products of America, Inc., Earth Care Products of Tennessee,
Inc., Earth Care Products of the Midwest, Inc., Earth Care Products of
New Jersey, Inc., Clean Earth, Inc., Clean Earth of New Castle, Inc.,
Clean Earth In-Situ, and Delaware Improvement Corp., (collectively the
Company). All significant intercompany balances and transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts of
assets and liabilities and disclosure of contingent liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be a cash
equivalent.
INVENTORIES
Inventories are valued at the lower of cost or market, cost
being determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed for financial purposes by the use of the straight-line method
over the estimated useful lives of the assets. Accelerated methods of
computing depreciation are used for tax purposes. Upon sale or
retirement, the cost and related accumulated depreciation of such
assets are removed from the accounts and any resulting gain or loss
realized is credited or charged to income for the period. Expenditures
for maintenance and repairs are charged to income as incurred.
Significant renewals, improvements and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets consist of goodwill, which represents the
excess cost of a company acquired over the fair value of its net assets
at the date of acquisition and is amortized on a straight-line basis
over a period of twenty years. Goodwill is reviewed for impairment
annually or whenever events or circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount, a loss is
recognized for the difference between the fair value and the carrying
value of the goodwill.
Page 6
<PAGE> 62
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The adoption of SFAS No. 121 did not have an impact on
the Company's financial position or results of operations.
DEFERRED REVENUE
Revenue from soil recycling is recognized upon treatment and
certification. Billings for untreated soils are recorded as deferred
revenue.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No. 123 -
"Accounting for Stock-Based Compensation." As permitted by SFAS No.
123, the Company will continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations and will disclose the additional information
relative to issued stock options and proforma net income and earnings
per share, as if the options granted were expensed at their estimated
fair value at the time of grant. The adoption of SFAS No. 123 did not
have an impact on the Company's financial position or results of
operations.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year which the
differences are expected to be settled or realized.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and
were approximately $18,500 and $17,600 in 1996 and 1995, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash,
cash equivalents and trade receivables. The Company maintains its cash
and cash equivalents with various financial institutions which are
primarily located in the Eastern United States. At December 31, 1996,
the Company had bank balances of approximately $774,000 in excess of
amounts insured by federal deposit insurance. Trade receivables are
concentrated primarily in the Northeastern United States. The Company
generally does not require collateral from its customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, cash equivalents, accounts
and notes receivable, accounts payable, and notes payable. The carrying
amounts reported in the consolidated balance sheet for these financial
instruments approximate their fair value due to their short-term
nature.
EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is computed by dividing net
income (loss) by the weighted-average number of shares actually
outstanding in 1996 and 1995. Common stock equivalents have been
excluded as they are anti-dilutive. Fully diluted loss per share
amounts are not presented as they are anti-dilutive. There were no
common stock equivalents or other potentially dilutive securities
outstanding during 1995.
RECLASSIFICATION
The 1995 consolidated financial statements have been
reclassified to conform to the current year presentation.
Page 7
<PAGE> 63
NOTE 2 - ACQUISITIONS
Effective December 30, 1996, Clean Earth, Inc. and
Subsidiaries (CEI) were acquired as a wholly-owned subsidiary of U.S.
Plastic Lumber Corp. and Subsidiaries (USPLC), a publicly-held
corporation, trading on the NASD Electronic Bulletin Board, through the
exchange of 77,142.86 shares of USPLC for each outstanding share of CEI
for a total of 5,400,000 shares. For financial reporting purposes, CEI
is deemed to be the acquiring corporation and has accounted for the
transaction as a reverse merger with the historical financial
statements prior to December 30, 1996 being those of CEI. The
determination of CEI as the acquirer for financial reporting purposes
was based upon the following factors: (i) former shareholders of CEI
held the right to control a majority of board seats immediately
subsequent to the acquisition, (ii) the chief executive officer and
certain board of directors of the merged companies were individuals who
were holding such positions at CEI, (iii) the assets and revenues of
CEI substantially exceeded those of USPLC, and (iv) although the former
shareholders did not receive a majority share of USPLC common stock
after the acquisition, when taking into account the number of preferred
shares and stock options held by these individuals, if such preferred
shares were converted and stock options were exercised, a majority
ownership position would be obtained. All references in the
consolidated financial statements referring to shares, share prices,
per share amounts and stock prices have been retroactively adjusted to
reflect the capital structure of USPLC. The merger agreement provides
for the issuance of an additional 2,573,686 shares of common stock to
the former shareholders of CEI upon the ultimate resolution of the
contingency related to the issuance of shares to certain USPLC
stockholders as discussed in Note 11 to the consolidated financial
statements. Upon final resolution of this contingency, the additional
shares issued, if any, will be issued at their then current fair value
as an additional cost of the acquisition and allocated to goodwill.
The purchase price allocation to USPLC assets and liabilities
are based on preliminary estimates of the fair value of the assets and
liabilities acquired and are subject to adjustment as additional
information becomes available. The value of the USPLC shares issued in
connection with the reverse acquisition was $2,538,000, or $.47 per
share, which approximated the per share price paid with respect to the
1996 Treasury Stock Transactions (see Note 6) and the appraised price
per share with respect to the Recycled Plastics Industries, Inc.
acquisition (see Note 13). The purchase price exceeded the fair value
of the net assets acquired by approximately $2,810,000. Accordingly,
the excess is being amortized on a straight-line basis over a period of
twenty years.
The following unaudited pro forma information presents a
summary of consolidated results of operations of the USPLC and CEI as
if the acquisition had occurred January 1, 1996:
<TABLE>
<S> <C>
Net sales $ 6,627,000
===========
Loss before extraordinary item $(2,303,000)
===========
Net loss $(2,236,000)
===========
Primary loss per share:
Loss before extraordinary item $ (.18)
Extraordinary item .01
-----------
Net loss $ (.17)
===========
</TABLE>
These unaudited pro forma results have been prepared for
comparison purposes only and include adjustments for depreciation on
revalued property and equipment, amortization of goodwill, and to
reflect the provision for income taxes at an effective statutory rate
of 40%.. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been
in effect on January 1, 1996, or of future results of operations of the
consolidated entities.
NOTE 3 - INVENTORIES
Inventories consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Supplies $ 71,143
Raw materials 83,887
Finished goods 331,948
--------
$486,978
========
</TABLE>
Page 8
<PAGE> 64
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December
31, 1996:
<TABLE>
<S> <C>
Machinery and equipment $ 3,779,540
Leasehold improvements 409,470
Furniture and fixtures 23,822
-----------
4,212,832
Less accumulated depreciation (3,277,114)
-----------
$ 935,718
===========
</TABLE>
Depreciation expense was $621,452 and $903,199 for the years
ended December 31, 1996 and 1995, respectively.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable to stockholder, bearing interest at prime plus 1% (9.25% at
December 31, 1996) due December 31, 1997
retired in January 1997 $500,824
Promissory bank note, payable in monthly installments of $3,263, including
interest at the bank's basic rate (10.25%
at December 31, 1996), balloon payment due in April 1997 134,724
Note payable to stockholder/director, non interest bearing,
due September 1997. (A) 50,000
Other notes payable 28,764
--------
714,312
Current portion 707,582
--------
$ 6,730
========
</TABLE>
(A) The $50,000 note payable provides an option for the holder to
purchase up to 84,695 shares of the Company's common stock at
$1.77 per share. The option expires September 15, 1997. This
option was exercised by the holder prior to its expiration.
The Company's subsidiary, Clean Earth, Inc., had available a
$500,000 line of credit and a $1,000,000 commitment for a term loan
both bearing interest at the bank's prime rate (8.25% at December 31,
1996). Effective with the merger these agreements terminated. In June
1997, the Company obtained a new revolving discretionary line of credit
with availability of $1,500,000, bearing interest at the bank's prime
rate plus .50%. Advances under the line of credit will be made at the
sole discretion of the lender.
NOTE 6 - CAPITAL STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
During the year ended December 31, 1996, the Company initiated
an offering of up to 250,000 shares of the Company's Series A Preferred
Stock. The shares are nonvoting and have a 10% cumulative stock
dividend payable semiannually and will be paid in Series A Preferred
Stock. No cash dividends will be paid. Each share is convertible into
seven shares of the Company's common stock at the option of the
stockholder or mandatorily on the date a registration statement which
would yield the Company $10,000,000 in proceeds is declared effective
by the Securities and Exchange Commission. In the event of any
liquidation, after payment of debts and other liabilities, the
stockholders of Series A Preferred Stock will be entitled to receive,
before the stockholder of any of the Common stock, the stated value of
$20.00 per share. The Series A Preferred Stock can be redeemed at any
time at the sole option of the Company for $25.00 per share.
Page 9
<PAGE> 65
NOTE 6 - CAPITAL STOCK (Continued)
TREASURY STOCK
Prior to the merger, Clean Earth, Inc. acquired 2,314,286
shares of its common stock from its sole stockholder for $1,100,000
during June and September 1996. Effective with the merger, those
treasury shares were cancelled and retired.
STOCK WARRANTS
At December 31, 1996, the Company had outstanding 950,000
Series A and 950,000 Series B Warrants to purchase the Company common
stock at $2.50 and $4.50 per share, respectively. Such warrants are
exercisable at any time prior to June 30, 1998 provided that a
registration statement is in effect for the underlying common shares.
The warrants are redeemable by the Company for .01 per warrant upon 30
days notice if the closing bid price for the Company's stock equals or
exceeds $4.00 and $6.00 per share for the Series A and Series B
Warrants, respectively, at any time for twenty consecutive trading
days. As of December 18, 1997, the Company has not registered the
underlying common stock for the Series A and Series B Warrants.
STOCK OPTIONS
During 1996, the Company granted stock options to key
employees and directors. The option price at the date of grant is
determined by the Board of Directors and is generally tied to the
market price of the Company's freely trading shares. The term for
exercising the stock options is generally ten years. Stock options
granted under the Company's stock option incentive plan vest ratably
over a period of three years. Stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED - AVERAGE
EXERCISE PRICE
------------------
<S> <C> <C>
Outstanding, December 31, 1995 -- $ --
Granted 1,300,000 3.44
Exercised (5,000) 2.50
Cancelled (13,000) 4.75
--------- -----
Outstanding, December 31, 1996 1,282,000 $3.43
========= =====
Stock options exercisable 625,000 $3.94
========= =====
</TABLE>
The Company granted 550,000 stock options to a key employee which will
be earned upon the achievement of the following:
200,000 options will be earned at the time the Company reaches
gross sales of $5,000,000 over a consecutive twelve month
period or if gross sales reach a monthly average of $500,000
over a consecutive three month period prior to January 2002;
An additional 200,000 options will be earned at the time the
Company reaches gross sales of $7,500,000 over a consecutive
twelve month period or if gross sales reach a monthly average
of $700,000 over a consecutive three month period prior to
January 2002.
The initial exercise price for the options will be $2.25 per
share and will be adjusted every ninety days to be the lower
of $2.25 per share or a price equal to $1.75 below the market
value of the Company's freely trading shares. The options have
a term of ten years.
Upon the achievement of the above sales goal or no later than
January, 1999, the employee will earn an additional 50,000
options for each of the next three years. The initial exercise
price for the options will be $3.50 per share and will be
adjusted every ninety days to be the lower of $3.50, or the
price per share from the previous quarter, or the market value
of the Company's freely trading shares. The options have a
term of ten years.
When earned, the Company will recognize compensation expense
equal to the difference between the then fair market value of the
underlying shares and the exercise price of the options earned.
Page 10
<PAGE> 66
NOTE 6 - CAPITAL STOCK (Continued)
The Company accounts for its stock-based compensation plans
under APB No 25. Accordingly, compensation expense is only recognized
when the exercise price is less than the estimated fair market value of
the stock at the time of grant. Had compensation cost for the Company's
plans been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the Company's net loss
and primary loss per share would not have been materially different
from that as determined in accordance with APB No. 25.
The fair value is estimated on the date of grant using the
Black-Scholes option-pricing model. The assumptions used were as
follows: dividend yield of 0%, expected volatility of 75%, risk-free
interest rate of 6.2%, and expected lives of approximately 10 years.
STOCK RESERVATIONS
At December 31, 1996, common stock was reserved for the
following reasons:
<TABLE>
<S> <C>
Contingently issuable under earn-out provisions 4,723,686
Exercise of Series A and Series B Warrants 1,900,000
Conversion of Preferred Stock 524,790
Exercise of options related to notes payable 438,379
Exercise of stock options 732,000
Exercise of stock options contingency issuable
under performance goals 550,000
---------
8,868,855
=========
</TABLE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company's Clean Earth, Inc. subsidiary has defined
contribution 401(k) and profit sharing plans which cover substantially
all employees who have met the eligibility requirements. Employees may
contribute up to the maximum allowable under current regulations to the
401(k). There are no employee contributions to the profit sharing plan.
The Company's contribution to each plan is at the discretion of the
Company. There were no Company contributions to either plan during 1996
and 1995.
NOTE 8 - INCOME TAXES
The provision for income taxes includes federal and state
taxes currently payable and those deferred because of temporary
differences between financial statement and tax basis of assets and
liabilities. The components of the provision for income taxes for the
years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal $(144,812) $ 357,800
State (42,179) 72,200
--------- ---------
(186,991) 430,000
--------- ---------
Deferred:
Federal 94,918 (93,800)
State 26,382 (26,200)
--------- ---------
121,300 (120,000)
--------- ---------
$ (65,691) $ 310,000
========= =========
</TABLE>
Page 11
<PAGE> 67
NOTE 8 - INCOME TAXES (Continued)
The following is a summary of the significant components of
the Company's deferred tax assets and liabilities at December 31, 1996:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 2,271,000
Property and equipment 303,000
Inventory 35,000
Accounts and notes receivable 105,000
Accrued expenses 81,000
Intangibles 91,000
-----------
2,886,000
Valuation allowance (2,820,000)
-----------
Net deferred tax assets $ 66,000
Deferred tax liabilities:
Insurance settlement receivable 66,000
-----------
NET DEFERRED TAXES $ --
===========
</TABLE>
For federal tax purposes, the Company has net operating loss
carryforwards of approximately $5,678,000 at December 31, 1996. These
losses expire in the years 2008 through 2011. The Company is subject to
Internal Revenue Code regulations section 382 which limit the annual
utilization of net operating loss carryforwards after a change in
control, as defined, occurs. The Company estimates that, after such
limitations, approximately $500,000 of net operating loss carryforwards
will be available to offset future taxable income.
NOTE 9 - GAIN ON INVOLUNTARY CONVERSION
During March 1996, fire damaged equipment at the Company's
Clean Earth, Inc. subsidiary. The extraordinary gain represents the
excess of insurance proceeds received over the loss incurred. The
Company and the insurance carrier have reached a final settlement in
February 1997 for an additional $455,000. This amount is reflected in
the December 31, 1996 balance sheet as a receivable. Total insurance
proceeds amounted to $805,000 for the year ended December 31, 1996.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company incurred administrative and service fees to
various stockholders and directors for the years ended December 31,
1996 and 1995 totalling $500,000 and $450,000, respectively.
During the year ended December 31, 1996, certain stockholders
and directors loaned the Company $120,000 which was later converted
into Series A Preferred Stock. Each participating stockholder/director
also received 5,000 stock options to purchase Company common stock at
$2.50 per share.
At December 31, 1996, $113,415 of notes receivable are due
from certain partners of Earth Care Partners (ECP). ECP was a
partnership controlled by an officer/stockholder of USPLC. USPLC
acquired ECP in February 1996. Shares issued in connection with the
acquisition were to be pledged as collateral and subsequently sold when
registered to repay the notes. As there were no plans to register such
shares, an allowance equal to the notes receivable was recorded. In
August 1997, a former partner of ECP alleged that the Company had
wrongfully issued shares to the other partners of ECP in connection
with acquisition. The Company, through an outside counsel, reviewed the
transaction and concluded that the stock issued to certain ECP partners
was not properly authorized. The affected ECP partners have disputed
this conclusion. The Company and the affected ECP partners are in
negotiations to resolve these issues. The Company believes that the
ultimate outcome will not have a material effect on the financial
position or results of operations of the Company.
Page 12
<PAGE> 68
NOTE 11 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space, equipment, manufacturing
facilities, and land under non-cancelable operating leases which expire
at various dates through 1999.
Future minimum payments are as follows for the years ending
December 31:
<TABLE>
<S> <C>
1997 $191,000
1998 191,000
1999 70,000
</TABLE>
The Company leases land at its soil recycling facility at a
rental of $1.00 per ton of soil received with a minimum rental of
$50,000 per year. Rent expense under this lease was $144,915 and
$159,762 for the years ended December 31, 1996 and 1995, respectively.
The lease currently expires in 1998 and contains three five year
renewal options. The lessor has the right and option at the time of
renewal to require the Company to purchase the property at a purchase
price of $100,000 per acre subject to annual escalations based on the
Consumer Price Index from inception of the lease. The Company currently
leases 7.5 acres of land.
The Company leases certain office space and manufacturing
facilities from entities controlled by individuals who are
stockholders. These leases provide for minimum annual rentals of
$96,000 through 1999. The manufacturing facility lease provides the
Company the option to purchase the facility at any time during the term
of the lease. The purchase price is based on a decreasing sliding scale
and was approximately $338,000 and $394,000 at December 31, 1996 and
1995, respectively. The manufacturing facility lease was terminated in
December 1997.
Rent expense for all operating leases for the years ended
December 31, 1996 and 1995 was approximately $300,000 and $213,000,
respectively.
COVENANT NOT TO COMPETE
The Company has a covenant not to compete agreement for which
the Company pays $2.00 per ton of soil received for processing. These
payments expire August, 1997. The expense for the covenant not to
compete for 1996 and 1995 amounted to $336,546 and $503,980,
respectively.
MAGELLAN FINANCE CORPORATION OPTIONS
Magellan Finance Corporation (Magellan), a stockholder, holds
an option to purchase up to 353,684 shares of the Company's common
stock at $1.77 per share. The option expires on December 31, 1997. If
Magellan does not exercise its option to purchase the shares, then the
Company is obligated to issue the 353,684 shares to certain USPLC
stockholders, as defined, at no cost. In July 1997 the Company extended
the expiration date of the option as follows, 117,895 shares expire on
December 31, 1997, 117,895 options expire on September 30, 1998, and
117,894 options expire on June 30, 1999.
EARNOUT AGREEMENT
The Company has an earnout agreement which provides for
2,000,000 shares of the Company's common stock to be reserved for
certain USPLC stockholders, as defined, to be issued upon the Company
meeting certain production or sales goals for plastic lumber product
prior to December 31, 2000. The additional shares, if any, will be
issued at their then current fair value as an additional cost of the
acquisition of Earth Care Global Holdings, Inc. and subsidiaries by
USPLC and allocated to goodwill.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise
in the ordinary course of its business. The Company believes that the
ultimate liability, if any, with respect to these claims and legal
actions, will not have a material effect on the financial position or
results of operations of the Company.
Page 13
<PAGE> 69
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Cash paid during the year for:
Interest $ 8,397 $ --
======= ========
Income taxes $50,000 $210,000
======= ========
</TABLE>
The Company acquired the net assets of USPLC in a transaction
accounted for as a reverse merger during the year ended December 31,
1996. The details the transaction is as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 4,210,617
Liabilities assumed (1,672,617)
Common stock issued (2,538,000)
Cash Paid --
Less cash acquired (225,468)
-----------
Net cash acquired in acquisition $ (225,458)
===========
</TABLE>
NOTE 13 - SUBSEQUENT EVENTS
ACQUISITIONS
On January 27, 1997, the Company acquired Recycled Plastics
Industries, Inc. (RPI) a recycled plastic lumber manufacturer for
$1,200,000 in cash and 1,000,000 shares of the Company's common stock.
The common stock was valued based on an independent appraisal at
$475,000. The total purchase price of $1,675,000 exceeded the estimated
fair value of the net assets of RPI by approximately $1,410,000. The
excess will be recorded as goodwill and amortized on a straight-line
basis over a period of twenty years.
On February 24, 1997, the Company acquired Advanced
Remediation and Disposal Technologies, Inc. (ARDT) an environmental
consulting and remediation company for 300,000 shares of the Company's
common stock. The common stock was valued based on an independent
appraisal at $159,000 which was less than the estimated fair value of
the net assets of ARDT by approximately $120,000. The difference will
be used to reduce the basis of noncurrent assets. The purchase
agreement also provides for the issuance of up to an additional 150,000
shares of the Company's common stock if ARDT meets certain
profitability levels during the years ending December 31, 1997 and
1998. The additional shares will be issued at their then current fair
value and reflected as compensation expense when earned.
On March 28, 1997, the Company acquired Environmental
Specialty Products, Inc. (ESP) a sales and marketing company of
recycled plastic lumber products for $110,000 in cash and 25,150 shares
of the Company's common stock. The common stock was valued based on an
independent appraisal at $13,581. The total purchase price of $123,581
exceeded the estimated fair value of the net assets of ESP by
approximately $29,000. The excess will be recorded as goodwill and
amortized on a straight-line basis over a period of twenty years.
On March 31, 1997, the Company acquired Integrated Technical
Services, Inc. (ITS) an environmental consulting and remediation
company for $110,000 in cash and 185,000 shares of the Company's common
stock. The common stock was valued based on an independent appraisal at
$99,900. The total purchase price of $209,900 exceeded the estimated
fair value of the net assets of ITS by approximately $139,000. The
excess will be recorded as goodwill and amortized on a straight-line
basis over a period of twenty years. The purchase agreement also
provides for the issuance of up to an additional 16,000 shares of the
Company's common stock to certain former stockholders if ITS meets
certain profitability levels during the years ending December 31, 1997
and 1998. The additional shares will be issued at their then current
fair value and reflected as compensation expense when earned.
On June 30, 1997, the Company acquired EnviroPlastics
Corporation (EPC) a recycler of post consumer plastic for 280,000
shares of the Company's common stock. The common stock was valued based
on contemporaneous stock transactions for cash at $630,000 which
exceeded the estimated fair value of the net assets of EPC by
approximately $1,455,000. The excess will be recorded as goodwill and
amortized on a straight-line basis over a period of twenty years. The
Company has the right to rescind the acquisition at any time prior to
December 31, 1997. The purchase agreement also provides for the
issuance of up to 90,000 stock options for shares of the Company's
common stock, at an exercise price of $5.00 per share, if EPC meets
certain profitability levels during the years ending December 31, 1997,
1998, and 1999. When earned, the Company will recognize compensation
expense equal to the difference between the then fair value of the
underlying shares and the exercise price of the options earned.
Page 14
<PAGE> 70
NOTE 13 - SUBSEQUENT EVENTS (Continued)
ACQUISITIONS (Continued)
On November 18, 1997, the Company acquired Waste Concepts,
Inc. (WCI) an environmental consulting and remediation company for
$175,000 in cash and 400,000 shares of the Company's common stock. The
common stock was valued based on contemporaneous stock transactions
for cash at $900,000. The total purchase price of $1,075,000 exceeded
the estimated fair value of the net assets of WCI by approximately
$1,039,000. The excess will be recorded as goodwill and amortized on a
straight-line basis over a period of twenty years. The purchase
agreement also provides for the issuance of up to an additional 25,000
shares of the Company's common stock if WCI meets certain profitability
levels during the five year period ending December 31, 2002. The
additional shares will be issued at their then current fair value and
reflected as compensation expense when earned.
The acquisitions will be accounted for as a purchase and,
accordingly, the results of operations of the acquired companies will
be included with those of the Company for periods subsequent to the
date of acquisition. The purchase price allocations are based on
preliminary estimates of the fair value of the net assets acquired and
are subject to adjustment as additional information becomes available.
The unaudited pro forma combined results of operations of the
Company, RPI, ARDT, ESP, ITS, EPC, and WCI for the year ended December
31, 1996 after giving effect to certain pro forma adjustments are as
follows:
<TABLE>
<S> <C>
Net sales $ 23,042,000
==============
Loss before extraordinary items $ (88,000)
==============
Net income $ 1,063,000
==============
Primary earnings per share:
Loss before extraordinary items $ (.01)
Extraordinary items .13
--------------
Net income $ .12
==============
</TABLE>
The foregoing unaudited pro forma results of operations
reflect adjustments for interest on notes issued to fund the purchase
price, amortization of goodwill, depreciation on revalued property and
equipment, and to reflect income taxes at an effective statutory rate
of 40%. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been
in effect on January 1, 1996, or of future results of operations of the
consolidated entities.
BUSINESS FORMATIONS
In June 1997, the Company formed Carteret Biocycle Corporation
(CBC), as a wholly-owned subsidiary of Clean Earth, Inc. CBC will
operate a bio-organic recycling facility for contaminated soils. In
connection with the formation of CBC, the Company anticipates
constructing a recycling facility for approximately $2,000,000. The
Company entered into a thirty year lease for land at a lease rate of
$210,000 annually. The lease provides for two ten year renewal options.
Additionally the Company entered into a license and operating agreement
with SD&G Aggregates, Inc. (SD&G) to conduct remediation of
contaminated soils. The Company will pay SD&G a royalty of 2% of sales.
In July 1997, the Company and Interstate Industrial Corp.
formed a joint venture to operate a dredging company. The Company will
account for its investment on the equity method.
STOCK TRANSACTIONS
Through December 18, 1997, the Company issued 119,000 shares
of its 10% convertible preferred stock for net proceeds of $2,380,000.
On June 20, 1997, the Company issued 1,111,111 shares of its
common stock for net proceeds of $2,500,000.
Page 15
<PAGE> 71
NOTE 13 - SUBSEQUENT EVENTS (Continued)
LEGAL PROCEEDINGS
In November 1997, a suit was filed against the Company and
certain former directors by a former director and other affected
individuals alleging that options granted to them were protected from
any dilution and that they are entitled to additional options. The
Company has disputed the claim and is negotiating with the affected
parties to resolve this issue. The Company believes that the ultimate
outcome will not have a material effect of the financial position or
results of operations of the Company.
Page 16
<PAGE> 72
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<PAGE> 73
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,611,603
Accounts and notes receivable, net of allowance for
doubtful accounts of $377,001 5,578,503
Inventories 1,387,656
Prepaid expenses and other current assets 401,860
-----------
TOTAL CURRENT ASSETS 8,979,622
Property and equipment, net 5,020,173
Intangible and other assets, net 5,885,316
-----------
TOTAL ASSETS $19,885,111
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 2,108,258
Accounts payable 2,927,409
Accrued expenses and other liabilities 1,207,419
Deferred revenue 212,183
Deferred income taxes 312,137
-----------
TOTAL CURRENT LIABILITIES 6,767,406
Deferred income taxes 400,000
Notes payable, net of current portion 1,567,232
-----------
TOTAL LIABILITIES 8,734,638
-----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001; authorized 5,000,000
shares; issued and outstanding 209,207 shares
(aggregate liquidation value of $4,184,140) 210
Common stock par value $.0001, authorized 50,000,000
shares; issued and outstanding 15,000,200 shares 1,500
Additional paid-in capital 11,126,944
Retained earnings 21,819
-----------
TOTAL STOCKHOLDERS' EQUITY 11,150,473
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,885,111
===========
</TABLE>
- -------------------------------------------
See accompanying selective notes to consolidated financial statements.
Page 1
<PAGE> 74
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Net sales $ 15,432,537 $ 3,732,544
Cost of goods sold 11,379,219 3,288,338
------------ -----------
GROSS PROFIT 4,053,318 444,206
General and administrative expenses 3,523,331 681,096
------------ -----------
OPERATING INCOME (LOSS) 529,987 (236,890)
Other income (expense):
Interest income 36,942 30,003
Interest expense (140,572) (30)
------------ -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM 426,357 (206,917)
Provision for income taxes 1,569 --
------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 424,788 (206,917)
Extraordinary item - loss on involuntary conversion -- (220,000)
------------ -----------
NET INCOME (LOSS) 424,788 (426,917)
Preferred stock dividends (304,740) --
------------ -----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 120,048 $ (426,917)
============ ===========
Primary earnings (loss) per share:
Income (loss) before extraordinary item $ .01 $ (.03)
Extraordinary item -- (.03)
------------ -----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ .01 $ (.06)
============ ===========
Weighted-average number of shares outstanding 13,660,767 7,084,145
============ ===========
</TABLE>
- -------------------------------------------
See accompanying selective notes to consolidated financial statements.
Page 2
<PAGE> 75
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 424,788 $ (426,917)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 506,568 526,899
Issuance of common stock for services 1,264 --
Provision for bad debts 59,192 --
Increase (decrease) in cash due to changes in operating
assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,625,137) 926,114
Inventories 14,611 (18,560)
Prepaid expenses and other current assets (220,096) 256,883
Accounts payable (360,605) 409,388
Accrued expenses (960,101) 82,260
Deferred revenue (555) (49,630)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,160,071) 1,706,437
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,886,701) (232,380)
Payment for acquisitions, net of cash received (1,492,186) --
Payments for deferred expenses 482,444 --
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (2,896,443) (232,380)
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of capital stock 4,880,000 --
Dividends paid -- (948,000)
Proceeds from issuance of notes payable 2,015,469 625,000
Purchase of treasury stock -- (1,100,000)
Payments on notes payable (1,081,642) --
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,813,827 (1,423,000)
----------- -----------
NET INCREASE IN CASH 757,313 51,057
Cash at beginning of period 854,290 1,110,206
----------- -----------
CASH AT END OF PERIOD $ 1,611,603 $ 1,161,263
=========== ===========
</TABLE>
- -------------------------------------------
See accompanying selective notes to consolidated financial statements.
Page 3
<PAGE> 76
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
SELECTIVE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated
financial statements of U.S. Plastic Lumber Corp. and Subsidiaries (the
"Company") includes all adjustments necessary to present fairly the
financial position, results of operations, and cash flows for the
periods presented. These consolidated financial statements should be
read in connection with the consolidated financial statements and notes
thereto included in the December 31, 1996 consolidated financial
statements of the Company. The results of the operations for the nine
months ended September 30, 1997 are not necessarily indicative of the
results expected for the year.
NOTE 2 - ACQUISITIONS
On January 27, 1997, the Company acquired Recycled Plastics
Industries, Inc. (RPI), a recycled plastic lumber manufacturer for
$1,200,000 in cash and 1,000,000 shares of the Company's common stock.
The common stock was valued based on an independent appraisal at
$475,000. The total purchase price of $1,675,000 exceeded the estimated
fair value of the net assets of RPI by approximately $1,410,000. The
excess was recorded as goodwill and is being amortized on a
straight-line basis over a period of twenty years.
On February 24, 1997, the Company acquired Advanced
Remediation and Disposal Technologies, Inc. (ARDT), an environmental
consulting and remediation company. The common stock was valued based
on an independent appraisal at $159,000 which was less than the
estimated fair value of the net assets of ARDT by approximately
$120,000. The difference will be used to reduce the basis of noncurrent
assets. The purchase agreement also provides for the issuance of up to
an additional 150,000 shares of the Company's common stock if ARDT
meets certain profitability levels during the years ending December 31,
1997 and 1998. The additional shares will be issued at their current
fair value and reflected as compensation expense when earned.
On March 28, 1997, the Company acquired Environmental
Specialty Products, Inc. (ESP). a sales and marketing company of
recycled plastic lumber products for $110,000 in cash and 25,150 in
shares of the Company's common stock. The common stock was valued based
on an independent appraisal at $13,581. The total purchase price of
$123,581 exceeded the estimated fair value of the net assets of ESP by
approximately $29,000. The excess was recorded as goodwill and is being
amortized on a straight-line basis over a period of twenty years.
On March 31,1997, the Company acquired Integrated Technical
Services, Inc. (ITS), an environmental consulting and remediation
company for $110,000 in cash and 185,000 shares of the Company's common
stock. The common stock was valued based on an independent appraisal at
$99,900. The total purchase price of $209,900 exceeded the estimated
fair value of the net assets of ITS by approximately $139,000. The
excess was recorded as goodwill and is being amortized on a
straight-line basis over a period of twenty years. The purchase
agreement also provides for the issuance of up to an additional 16,000
shares of the Company's common stock to certain former stockholders if
ITS meets certain profitability levels during the years ending December
31, 1997 and 1998. The additional shares will be issued at their then
current fair value and reflected as compensation expense when earned.
Page 4
<PAGE> 77
NOTE 2 - ACQUISITIONS (CONTINUED)
On June 30,1997, the Company acquired EnviroPlastics
Corporation (EPC), a recycler of post consumer plastic for 280,000
shares of the Company's common stock. The common stock was valued based
on contemporaneous stock transactions for cash at $630,000 which
exceeded the estimated fair value of the net assets of EPC by
approximately $1,455,000. The excess was recorded as goodwill and is
being amortized on a straight-line basis over a period of twenty years.
The Company has the right to rescind the acquisition at any time prior
to December 31, 1997. The purchase agreement also provides for the
issuance of up to 90,000 stock options for shares of the Company's
common stock, at an exercise price of $5.00 per share, if EPC meets
certain profitability levels during the years ending December 31, 1997,
1998, and 1999. When earned, the Company will recognize compensation
expense equal to the difference between the then fair market value of
the underlying shares and the exercise price of the options earned.
ACQUISITIONS UNDER AGREEMENT
In July 1997, the Company agreed in principle to acquire
certain net assets of Tri-Max Lumber, Inc. a manufacturer of recycled
plastic lumber. Consummation of the acquisition is subject to a number
of conditions including, but not limited to, the results of the
Company's due diligence. Due to the contingencies involved, the Company
cannot predict whether or when the acquisition will be consummated.
FORMATION OF BUSINESS PARTNERSHIP
In July 1997, the Company and Interstate Industrial Corp.
formed a joint venture to operate a dredging operation. The Company
will account for its investment on the equity method.
NOTE 3 - CAPITAL STOCK
STOCK ISSUANCES
Through September 30, 1997, the Company issued 119,000 shares
of 10% convertible preferred stock for net proceeds of $2,380,000.
On June 20, 1997, the Company issued 1,111,111 shares of
common stock for proceeds of $2,500,000.
CONVERTIBLE PREFERRED STOCK DIVIDEND
During the nine months ended September 30, 1997, the Company
declared and paid a preferred stock dividend of $304,740. The dividend
was paid in the form of 15,237 shares of convertible preferred stock.
PRIMARY EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is computed by dividing net
income (loss), adjusted for dividends on convertible preferred stock,
by the weighted-average number of shares outstanding during the nine
months ended September 30, 1997 and 1996. Common stock equivalents have
been excluded as they are not materially dilutive for the nine months
ended September 30,1997. Fully diluted earnings per share amounts are
not presented as they are not materially dilutive for the nine months
ended September 30, 1997. There were no common stock equivalents or
other potentially dilutive securities outstanding during the nine month
period ended September 30, 1996.
Page 5
<PAGE> 78
NOTE 4 - NOTES PAYABLE
During the nine months ended September 30, 1997, the Company
borrowed $1,200,000 from an affiliate of a director/stockholder of the
Company. The note payable is due on demand, bears interest at prime
plus 1% (9.5% as of September 30, 1997), and is uncollateralized. The
Company may borrow up to $2,300,000 under the note.
In June 1997, the Company obtained a new revolving
discretionary line of credit with availability of $1,500,000, bearing
interest at the bank's prime rate plus .50%. Advances under the line of
credit will be made at the sole discretion of the lender.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
FORMATION OF NEW SUBSIDIARY
In September 1997, the Company formed Carteret Biocycle
Corporation (Carteret), as a wholly-owned subsidiary of Clean Earth,
Inc. Carteret will operate a bio-organic recycling facility for
contaminated soils. In connection with the formation of Carteret, the
Company anticipates constructing a recycling facility for approximately
$1,500,000. The Company also entered into a 30 year lease for land at a
lease rate of $210,000 per year. The lease contains two ten year
renewal options. Additionally, the Company entered into a license and
operating agreement with SD&G Aggregates, Inc. (SD&G) to conduct
remediation of contaminated soils. The Company will pay SD&G a royalty
of 2% of sales.
LICENSE AND RESEARCH AGREEMENT
In March 1997, the Company entered into a license agreement
with Rutgers University (Rutgers) for an exclusive worldwide license
related to the recycled plastic composite railroad tie technology. The
Company paid Rutgers initial consideration of $10,000 in cash and
187,500 shares of the Company's common stock valued by an independent
appraisal at $101,250 and has committed to pay Rutgers annual
maintenance fees of $5,000 beginning in 1998 and increasing to $10,000
per year thereafter. The initial consideration of $110,250 will be
amortized on a straight-line basis over the life of the agreement. In
addition, the Company will pay a royalty of 3% of product sales with
minimum royalties of $60,000 per year after the initial two year
period.
In March 1997, the Company entered into a research agreement
with Rutgers for a one year period to conclude certain research issues
relating to the marketability of the recycled plastic composite
railroad tie technology. The Company will pay Rutgers approximately
$100,000 for the research.
LEGAL PROCEEDINGS
In August 1997, a former partner of ECP alleged that the
Company had wrongfully issued shares to the other partners of ECP in
connection with acquisition. The Company, through an outside counsel,
reviewed the transaction and concluded that the stock issued to certain
ECP partners was not properly authorized. The affected ECP partners
have disputed this conclusion. The Company and the affected ECP
partners are in negotiations to resolve these issues. The Company
believes that the ultimate outcome will not have a material effect of
the financial position or results of operations of the Company.
Page 6
<PAGE> 79
NOTE 6 - RECENT PRONOUNCEMENTS
In 1997, Financial Accounting Standards No. 128 (FAS 128),
"Earnings per Share," was issued and is effective for both interim
and annual periods ending after December 15, 1997. The Company will
adopt the requirements of FAS 128 when it reports its operating
results for the year ended December 31, 1997. The adoption of FAS
128 is not expected to have a material effect on the Company's
reported earnings per share.
In 1997 Financial Accounting Standards No. 130 (FAS 130),
"Reporting Comprehensive Income," was issued and is effective for
periods beginning after December 15, 1997. The Company will adopt
the requirements of FAS 130 in 1998. The adoption of FAS 130 is not
expected to have a material effect on the Company's results of
operations.
In 1997 Financial Accounting Standards No. 131 (FAS 131),
"Disclosures About Segments of an Enterprise and Related
Information," was issued and is effective for annual periods
beginning after December 15, 1997. The Company will adopt the
requirements of FAS 131 in 1998.
NOTE 7 - SUBSEQUENT EVENTS
ACQUISITIONS
On November 18, 1997, the company acquired Waste Concepts,
Inc. (WCI) an environmental consulting and remediation company for
$175,000 in cash and 400,000 shares of the Company's common stock. The
common stock was valued based on contemporaneous stock transactions for
cash at $900,000. The total purchase price of $1,075,000 exceeded the
estimated fair value of the net assets of WCI by approximately
$1,039,000. The excess will be recorded as goodwill and amortized on a
straight-line basis over a period of twenty years. The purchase
agreement also provides for the issuance of up to an additional 25,000
shares of the Company's common stock if WCI meets certain profitability
levels during the five year period ending December 31, 2002. The
additional shares will be issued at their then current fair value and
reflected as compensation expense when earned.
On January 2, 1998, the Company acquired Green Horizon
Environmental, Inc. (GHE), an environmental recycling services company
for 50,000 shares of the Company's common stock. The common stock was
valued based on contemporaneous stock transactions for cash at $112,500
which approximated the estimated fair value of the net assets of GHE.
The purchase agreement also provides for the issuance of up to an
50,000 stock options for shares of the Company's common stock if GHE
meets certain profitability levels during the four year ending December
31, 2001. When earned, the Company will recognize compensation expense
equal to the difference between the then fair value of the underlying
shares and the exercise price of the options earned.
The acquisitions will be accounted for as a purchase and,
accordingly, the results of operations will be included with those of
the Company for periods subsequent to the date of acquisition. The
purchase price allocations are based on preliminary estimates of the
fair value of the net assets acquired and are subject to adjustment as
additional information becomes available.
LEGAL PROCEEDING
In November 1997, a suit was filed against the Company and
certain former directors by a former director and other affected
individuals alleging that options granted to them were protected from
any dilution and that they are entitled to additional options. The
Company has disputed the claim and is negotiating with the affected
parties to resolve this issue. The Company believes that the ultimate
outcome will not have a material effect of the financial position or
results of operations of the Company.
OPTIONS
In December 1997, the Company received proceeds of $208,675
when Magellen Finance Corporation exercised 117,895 of its options.
Page 7
<PAGE> 80
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
<PAGE> 81
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma consolidated financial information
gives effect to the combination of Clean Earth, Inc., (USPLC) the acquiror for
financial reporting purposes with the following:
U.S. Plastic Lumber Corp., the legal acquiror and parent (Parent),
acquired December 30, 1996
Recycled Plastics Industries, Inc. (RPI), acquired January 27, 1997
Advanced Remediation and Disposal Technologies, Inc. (ARDT), acquired
February 24, 1997
Environmental Speciality Products, Inc. (ESP), acquired March 28, 1997
Integrated Technical Services, Inc. (ITS), acquired March 31, 1997
EnviroPlastics Corporation (EPC), acquired June 30, 1997
Waste Concepts, Inc. (WCI), acquired November 18, 1997
The pro forma consolidated financial information is based in the
historical financial statements of the Parent, USPLC, RPI, ARDT, ESP, ITS, EPC,
and WCI, estimates and assumptions set forth below and in the notes to the pro
forma consolidated financial information.
The pro forma consolidated balance sheet gives effect to the combination
of USPLC and WCI as if the acquisition had occurred on the latest balance sheet
date, September 30, 1997. As of September 30, 1997 the balance sheets of the
Parent, RPI, ARDT, ITS, ESP, and EPC are included in the USPLC consolidated
balance sheet.
The pro forma consolidated statements of operations present pro forma
results from operations for the year ended December 31, 1996 and the nine months
ended September 30, 1997. For purposes of the pro forma consolidated statements
of operations, the acquisitions of the Parent, RPI, ARDT, ESP, EPC, and WCI are
included as if the acquisitions had occurred on January 1, 1996.
The pro forma consolidated statements of operations for the nine months
ended September 30, 1997 includes: (i) the unaudited financial information of
USPLC for the nine months ended September 30, 1997 (which includes the Parent
for the nine months ended September 30, 1997, RPI for the eight months ended
September 30, 1997, ARDT for the seven months ended September 30, 1997, ESP and
ITS for the six months ended September 30, 1997, and EPC for the three months
ended September 30, 1997; (ii) the unaudited financial information of RPI for
the one month period ended January 31, 1997; (iii) the unaudited financial
information of ARDT for the two months ended February 28,1997; (iv) the
unaudited financial information of ESP and ITS for the three months ended March
31, 1997; (v) the unaudited financial information of EPC for the six months
ended June 30, 1997; and (vi) the unaudited financial information of WCI for the
nine months ended September 30, 1997.
The pro forma consolidated statements of operations for the year ended
December 31, 1996 includes: (i) the audited financial information of the Parent,
RPI, ARDT, EPC, and WCI for the year ended December 31, 1996, and (ii) the
unaudited financial information of ESP for the year ended December 31, 1996.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial information presented herein is not
necessarily indicative of the results the companies would have obtained had such
events occurred at the beginning of the period, as assumed, or of the future
results of the companies. The pro forma consolidated financial information
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in the Prospectus.
<PAGE> 82
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
USPLC WCI ADJUSTMENTS BALANCE SHEET
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,611,603 $ 17,961 a $(175,000) $ 1,454,564
Accounts and notes receivable, net 5,578,503 1,738,463 -- 7,316,966
Inventories 1,387,656 -- -- 1,387,656
Prepaid expenses and other
current assets 401,860 61,527 -- 463,387
----------- ----------- --------- ------------
TOTAL CURRENT ASSETS 8,979,622 1,817,951 (175,000) 10,622,573
Property and equipment, net 5,020,173 169,970 c 95,000 5,285,143
Intangible and other assets, net 5,885,316 47,916 c 925,069 6,858,301
----------- ----------- --------- ------------
TOTAL ASSETS $19,885,111 $ 2,035,837 $ 845,069 $ 22,766,017
=========== =========== ========= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 2,108,258 $ 20,000 $ -- $ 2,128,258
Line of credit -- 224,643 -- 224,643
Loan from stockholder -- 95,100 -- 95,100
Accounts payable 2,927,409 1,611,630 c (81,000) 4,458,039
Accrued expenses and other
liabilities 1,207,419 2,878 -- 1,210,297
Deferred revenue 212,183 -- -- 212,183
Deferred income taxes 312,137 -- c 26,000 338,137
----------- ----------- --------- ------------
TOTAL CURRENT LIABILITIES 6,767,406 1,954,251 (55,000) 8,666,657
Deferred income taxes 400,000 -- -- 400,000
Notes payable, net of current portion 1,567,232 81,655 -- 1,648,887
----------- ----------- --------- ------------
TOTAL LIABILITIES 8,734,638 2,035,906 (55,000) 10,715,544
----------- ----------- --------- ------------
STOCKHOLDERS' EQUITY
Preferred stock 210 -- -- 210
Common stock 1,500 1,000 a 40 1,540
b (1,000)
Additional paid-in capital 11,126,944 40,683 a 899,960 12,026,904
b (40,683)
Retained earnings 21,819 (41,752) b 41,752 21,819
----------- ----------- --------- ------------
TOTAL STOCKHOLDERS'
EQUITY 11,150,473 (69) 900,069 12,050,473
----------- ----------- --------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $19,885,111 $ 2,035,837 $ 845,069 $ 22,766,017
=========== =========== ========= ============
</TABLE>
- ---------------------------------------
See accompanying notes to the pro forma
consolidated financial statements.
<PAGE> 83
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
USPLC RPI ARDT ESP ITS
------------ -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 15,432,537 $ 82,868 $ 38,276 $ 147,145 $ 1,785,026
Cost of goods sold 11,379,219 62,604 59,984 137,434 1,483,824
------------ -------- -------- --------- -----------
GROSS PROFIT (LOSS) 4,053,318 20,264 (21,708) 9,711 301,202
General and administrative expenses 3,523,331 13,032 38,432 131,545 188,586
------------ -------- -------- --------- -----------
OPERATING INCOME
(LOSS) 529,987 7,232 (60,140) (121,834) 112,616
Interest income 36,942 189 -- -- --
Interest expense (140,572) (2,055) (1,911) (1,693) (4,638)
Other income (expense) -- -- -- -- --
------------ -------- -------- --------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR
INCOME TAXES 426,357 5,366 (62,051) (123,527) 107,978
Provision for (benefit from)
income taxes 1,569 -- -- (29,918) 18,738
------------ -------- -------- --------- -----------
NET INCOME (LOSS) 424,788 5,366 (62,051) (93,609) 89,240
Preferred stock dividends (304,740) -- -- -- --
------------ -------- -------- --------- -----------
NET INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
STOCKHOLDERS $ 120,048 $ 5,366 $(62,051) $ (93,609) $ 89,240
============ ======== ======== ========= ===========
Primary loss per share:
Net loss attributable to
common stockholders
Weighted-average number of shares outstanding
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA STATEMENT
EPC WCI ADJUSTMENTS OF OPERATIONS
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 2,891,508 $ 4,791,242 a $(981,000) $ 24,187,602
Cost of goods sold 3,125,953 3,903,960 a (981,000) 19,087,978
d (84,000)
----------- ----------- --------- ------------
GROSS PROFIT (LOSS) (234,445) 887,282 84,000 5,099,624
General and administrative expenses 285,019 953,229 b (23,000) 5,193,174
c 83,000
----------- ----------- --------- ------------
OPERATING INCOME
(LOSS) (519,464) (65,947) 24,000 (93,550)
Interest income -- -- -- 37,131
Interest expense (51,639) (24,823) e (4,800) (230,231)
f 1,900
Other income (expense) 97,822 (16,665) -- 81,157
----------- ----------- --------- ------------
INCOME (LOSS) BEFORE
PROVISION FOR
INCOME TAXES (473,281) (107,435) 21,100 (205,493)
Provision for (benefit from)
income taxes -- -- g (72,586) (82,197)
----------- ----------- --------- ------------
NET INCOME (LOSS) (473,281) (107,435) 93,686 (123,296)
Preferred stock dividends -- -- -- (304,740)
----------- ----------- --------- ------------
NET INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
STOCKHOLDERS $ (473,281) $ (107,435) $ 93,686 $ (428,036)
=========== =========== ========= ============
Primary loss per share:
Net loss attributable to
common stockholders $ (.03)
============
Weighted-average number of shares outstanding h 13,862,499
============
</TABLE>
- ---------------------------------------
See accompanying notes to the pro forma
consolidated financial statements.
<PAGE> 84
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PARENT USPLC RPI ARDT ESP
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,885,303 $ 4,741,939 $ 1,395,322 $ 2,343,047 $ 1,036,303
Cost of goods sold 2,568,433 3,721,508 857,056 1,646,099 737,979
------------ ----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) (683,130) 1,020,431 538,266 696,948 298,324
General and administrative expenses 2,603,948 1,311,155 235,553 468,826 286,539
------------ ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (3,287,078) (290,724) 302,713 228,122 11,785
Interest income 3,115 53,156 2,060 -- --
Interest expense (75,441) (8,397) (23,744) (14,007) (1,524)
Other income (expense) (199,087) -- -- 3,069 --
------------ ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES (3,558,491) (245,965) 281,029 217,184 10,261
Provision for (benefit from) income taxes -- (65,691) -- -- 1,929
------------ ----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (3,558,491) $ (180,274) $ 281,029 $ 217,184 $ 8,332
============ =========== =========== =========== ===========
Primary loss per share:
Loss from continuing
operations
Weighted-average number of
shares outstanding
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA STATEMENTS
ITS ENVIRO WCI ADJUSTMENTS OF OPERATIONS
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 3,905,783 $ 5,229,915 $ 4,814,731 a $ (425,000) $ 24,927,343
Cost of goods sold 3,225,836 4,529,969 4,133,973 d (299,000) 20,696,853
a (425,000)
----------- ----------- ----------- ----------- ------------
GROSS PROFIT (LOSS) 679,947 699,946 680,758 299,000 4,230,490
General and administrative expenses 735,236 478,220 690,204 b (53,000) 7,100,681
c 344,000
----------- ----------- ----------- ----------- ------------
OPERATING INCOME (LOSS) (55,289) 221,726 (9,446) 8,000 (2,870,191)
Interest income -- -- -- -- 58,331
Interest expense (25,914) (161,543) (24,835) e (58,000) (379,405)
f 14,000
Other income (expense) -- (352,152) 779 -- (547,391)
----------- ----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES (81,203) (291,969) (33,502) (36,000) (3,738,656)
Provision for (benefit from) income taxes 12,548 13,251 -- g (1,457,499) (1,495,462)
----------- ----------- ----------- ----------- ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (93,751) $ (305,220) $ (33,502) $ 1,421,499 $ (2,243,194)
=========== =========== =========== =========== ============
Primary loss per share:
Loss from continuing
operations
$ (.15)
============
Weighted-average number of
shares outstanding h 15,125,028
============
</TABLE>
- ---------------------------------------
See accompanying notes to the pro forma
consolidated financial statements.
<PAGE> 85
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
1. Unaudited Pro Forma Consolidated Balance Sheet Adjustments
a Adjustment to reflect the payment of cash and issuance of
stock to effect the acquisition of Waste Concepts, Inc.
b Adjustment to eliminate the common stock, additional paid-in
capital and retained earnings of Waste Concepts, Inc.
c Adjustment to reflect the purchase price allocation of
acquired assets and liabilities to estimated fair value
2. Unaudited Pro Forma Consolidated Statements of Operations
a Adjustment to reflect the elimination of intercompany sales
b Adjustment to reflect the reduction in amortization expense
related to the amortization of goodwill which was recorded on
the historical financial statements of the Parent and WCI
c Adjustment to reflect increase in amortization expense on the
goodwill recorded related to the acquisitions of the Parent,
RPI, ARDT, ESP, ITS, EPC, and WCI
d Adjustment to reflect the net decrease in depreciation expense
on property and equipment recorded at the estimated fair value
e Adjustment to reflect increase in interest expense for the
notes payable incurred to partially fund the RPI acquisition
f Adjustment to reflect the decrease in interest expense for
notes payable not assumed in the acquisition of ARDT
g Adjustment to calculate the provision for income taxes on the
consolidated pro forma results at the effective statutory tax
rates of 40%
h The weighted average shares outstanding used to calculate pro
forma loss per share is based on the historical average number
of shares of common stock outstanding during the period
adjusted for the acquisitions as if they had occurred on
January 1, 1996. For the year ended December 31, 1996 and the
nine months ended September 30, 1997, common stock equivalents
have been excluded and fully diluted loss per share amounts
are not presented as they are both anti-dilutive.
<PAGE> 86
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 87
CONTENTS
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Accountants' Report Page 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 to 9
</TABLE>
<PAGE> 88
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholder
Clean Earth, Inc. and Subsidiaries
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Clean
Earth, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Clean Earth,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 18, 1997
Page 1
<PAGE> 89
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 628,822 $1,110,206
Receivables:
Accounts, net of allowance for doubtful accounts
of $61,704 and $40,000 in 1996 and 1995, respectively 1,319,471 2,443,171
Insurance settlement 455,000 --
Inventories 71,143 31,513
Prepaid expenses and other current assets 80,468 153,235
----------- ----------
TOTAL CURRENT ASSETS 2,554,904 3,738,125
Property and equipment, net 435,718 874,220
Deferred income taxes -- 121,300
Deferred expenses 9,655 17,900
----------- ----------
TOTAL ASSETS $ 3,000,277 $4,751,545
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 652,576 $ 409,213
Accrued expenses 383,111 190,091
Deferred revenue 162,819 189,055
----------- ----------
TOTAL LIABILITIES 1,198,506 788,359
STOCKHOLDERS' EQUITY
Common stock par value $1.00, authorized 700 shares; issued and
outstanding 70 shares and 100 shares at December 31, 1996 and 1995,
respectively 70 100
Additional paid-in capital 1,899,930 2,999,900
Retained earnings (deficit) (98,229) 963,186
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,801,771 3,963,186
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,000,277 $4,751,545
=========== ==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 2
<PAGE> 90
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Net sales $ 4,741,939 $6,043,963
Cost of goods sold 3,721,508 4,116,721
----------- ----------
GROSS PROFIT 1,020,431 1,927,242
General and administrative expenses 1,311,155 1,103,018
----------- ----------
OPERATING INCOME (LOSS) (290,724) 824,224
Interest income 53,156 --
Interest expense (8,397) --
----------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES (245,965) 824,224
Provision for (benefit from) income taxes (65,691) 310,000
----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (180,274) 514,224
Extraordinary item - gain on involuntary conversion (net of
income taxes of $44,500) 66,859 --
----------- ----------
NET INCOME (LOSS) $ (113,415) $ 514,224
=========== ==========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 3
<PAGE> 91
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
COMMON ADDITIONAL EARNINGS
STOCK PAID-IN CAPITAL (DEFICIT) TOTAL
----- --------------- --------- -----------
<S> <C> <C> <C> <C>
Balance January 1, 1995 $ 100 $ 2,999,900 $ 848,962 $ 3,848,962
Net income -- -- 514,224 514,224
Cash dividend paid -- -- (400,000) (400,000)
----- ----------- --------- -----------
Balance December 31, 1995 100 2,999,900 963,186 3,963,186
Purchase and retirement of treasury
stock (30) (1,099,970) -- (1,100,000)
Net loss -- -- (113,415) (113,415)
Cash dividend paid -- -- (948,000) (948,000)
----- ----------- --------- -----------
Balance December 31, 1996 $ 70 $ 1,899,930 $ (98,229) $ 1,801,771
===== =========== ========= ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 4
<PAGE> 92
CLEAN EARTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (113,415) $ 514,224
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 629,697 912,905
Provision for losses on accounts receivable 21,704 (5,000)
Gain on sale of property and equipment -- (84,500)
Write-off of fire damaged equipment 68,085 --
Deferred income taxes 121,300 (120,000)
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Accounts receivable 646,996 (1,129,648)
Inventories (39,630) (6,074)
Prepaid expenses and other assets 72,767 40,914
Accounts payable 243,363 (217,385)
Accrued expenses 193,020 179,248
Deferred revenue (26,236) 189,055
----------- -----------
Total adjustments 1,931,066 (240,485)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,817,651 273,739
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 200,000
Capital expenditures (251,035) (7,602)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (251,035) 192,398
----------- -----------
Cash flows from financing activities:
Payment for purchase of treasury stock (1,100,000) --
Dividends paid (948,000) (400,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,048,000) (400,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (481,384) 66,137
Cash and cash equivalent - beginning of year 1,110,206 1,044,069
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 628,822 $ 1,110,206
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,397 $ --
=========== ===========
Income taxes $ 50,000 $ 210,000
=========== ===========
</TABLE>
- -------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
Page 5
<PAGE> 93
CLEAN EARTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Clean Earth, Inc. and its subsidiaries are engaged in the
recycling of soils which have been exposed to hydrocarbons. The
Company's soil recycling customers are located primarily in the
Northeastern United States.
On December 30, 1996, Clean Earth, Inc. and its wholly-owned
subsidiaries were acquired by U.S. Plastic Lumber corp. (USPLC) in an
exchange of 5,400,000 shares of USPLC for all of the outstanding shares
of Clean Earth, Inc. The acquisition will be accounted for as a reverse
merger, and accordingly, Clean Earth, Inc. and Subsidiaries will be
considered the acquiror for financial reporting purposes.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Clean Earth, Inc. and its wholly-owned subsidiaries, Clean
Earth of New Castle, Inc., Clean Earth In-Situ and Delaware Improvement
Corp., (collectively the Company). All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts of
assets and liabilities and disclosure of contingent liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be a cash
equivalent.
INVENTORIES
Inventories are valued at the lower of cost or market, cost
being determined by the first-in, first-out method. Inventories consist
primarily of supplies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed for financial purposes by the use of the straight-line method
over the estimated useful lives of the assets. Accelerated methods of
computing depreciation are used for tax purposes. Upon sale or
retirement, the cost and related accumulated depreciation of such
assets are removed from the accounts and any resulting gain or loss
realized is credited or charged to income for the period. Expenditures
for maintenance and repairs are charged to income as incurred.
Significant renewals, improvements and betterments are capitalized.
Depreciation expense was $621,452 and $903,199 for the years
ended December 31, 1996 and 1995, respectively.
Page 6
<PAGE> 94
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEFERRED EXPENSES
Deferred expenses consist primarily of covenants not to
compete and organization costs. These expenses are amortized over their
estimated useful lives.
DEFERRED REVENUE
Revenue from soil recycling is recognized upon treatment and
certification. Billings for untreated soils are recorded as deferred
revenue.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, which requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year which the
differences are expected to be settled or realized.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and
were approximately $18,500 and $17,600 in 1996 and 1995, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash,
cash equivalents and trade receivables. The Company maintains its cash
and cash equivalents with two financial institutions which are located
in the Northeastern United States. At December 31, 1996 and 1995, the
Company had bank balances of approximately $548,000 and $968,000,
respectively, in excess of amount insured by federal deposit insurance.
Trade receivables are concentrated primarily in the Northeastern United
States. The Company generally does not require collateral from its
customers.
RECLASSIFICATION
The 1995 consolidated financial statements have been
reclassified to conform to the current year presentation.
NOTE 2 - TREASURY STOCK
In March 1996, Clean Earth, Inc. acquired 30 shares of its
common stock from its sole stockholder for $1,100,000. Effective with
the reverse merger, those treasury shares were cancelled and retired.
NOTE 3 - EMPLOYEE BENEFIT PLANS
The Company has defined contribution 401(k) and profit sharing
plans which cover substantially all employees who have met the
eligibility requirements. Employees may contribute up to the maximum
allowable under current regulations to the 401(k). There are no
employee contributions to the profit sharing plan. The Company's
contribution to each plan is at the discretion of the Company. There
were no Company contributions to either plan during 1996 and 1995.
Page 7
<PAGE> 95
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Machinery and equipment $ 3,301,111 $ 3,194,235
Leasehold improvements 409,470 406,971
Furniture and fixtures 2,250 2,250
----------- -----------
3,712,831 3,603,456
Less accumulated depreciation (3,277,113) (2,729,236)
----------- -----------
$ 435,718 $ 874,220
=========== ===========
</TABLE>
NOTE 5 - INCOME TAXES (Continued)
The provision for income taxes includes federal and state taxes currently
payable and those deferred because of temporary differences between financial
statement and tax basis of assets and liabilities. The components of the
provision for income taxes for the years ended December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal $(144,812) $ 357,800
State (42,179) 72,200
--------- ---------
(186,991) 430,000
--------- ---------
Deferred:
Federal 94,918 (93,800)
State 26,382 (26,200)
--------- ---------
121,300 (120,000)
--------- ---------
$ (65,691) $ 310,000
========= =========
</TABLE>
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 25,000 $ 16,000
Property and equipment 241,000 192,000
Accrued expenses 30,600 --
--------- ---------
296,600 208,000
Valuation allowance (230,600) (86,700)
--------- ---------
Net deferred tax assets $ 66,000 $ 121,300
Deferred tax liabilities:
Insurance settlement receivable $ 66,000 $ --
--------- ---------
NET DEFERRED TAXES $ -- $ 121,300
========= =========
</TABLE>
Page 8
<PAGE> 96
NOTE 6 - GAIN ON INVOLUNTARY CONVERSION
During March 1996, fire damaged equipment at one of the
Company's subsidiaries. The extraordinary gain represents the excess of
insurance proceeds received over the loss incurred. The Company and the
insurance carrier reached a final settlement in February, 1997, for an
additional $455,000. This amount is reflected in the December 31, 1996
balance sheet as a receivable. Total insurance proceeds amounted to
$805,000 for the year ended December 31, 1996.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company incurred administration and services fees to its
stockholders of $500,000 and $450,000 for the years ended December 31,
1996 and 1995, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases land at its soil recycling facility at a
rental of $1.00 per ton of soil received with a minimum rental of
$50,000 per year. Rent expense under this lease was $144,915 and
$159,762 for the years ended December 31, 1996 and 1995, respectively.
The lease currently expires in 1998 and contains three five year
renewal options. The lessor has the right and option at the time of
renewal to require the Company to purchase the property at a purchase
price of $100,000 per acre subject to annual escalations based on the
Consumer Price Index from inception of the lease. The Company currently
leases 7.5 acres of land. Rent expense was approximately $300,000 and
$213,000 for the years ended December 31, 1996 and 1995, respectively.
COVENANT NOT TO COMPETE
The Company has a covenant not to compete agreement for which
the Company pays $2.00 per ton of soil received for processing. These
payments expire July, 1998. The expense for the covenant not to compete
for 1996 and 1995 amounted to $336,546 and $503,980, respectively.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise
in the ordinary course of its business. The Company believes that the
ultimate liability, if any, with respect to these claims and legal
actions, will not have a material effect on the financial position or
results of operations of the Company.
Page 9
<PAGE> 97
RECYCLED PLASTICS INDUSTRIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 98
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders
Recycled Plastics Industries, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheets of Recycled Plastics
Industries, Inc. as of December 31, 1996 and 1995, and the related statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 from
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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Recycled Plastics
Industries, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
November 24, 1997
Page 1
<PAGE> 99
RECYCLED PLASTICS INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash $ 11,532 $ 39,586
Accounts receivable, net of allowance for
doubtful accounts of $22,463 and $23,730 89,283 100,295
Inventories 300,774 194,366
-------- --------
TOTAL CURRENT ASSETS 401,589 334,247
Property and equipment, net 132,094 144,316
Other assets 5,373 9,125
-------- --------
TOTAL ASSETS $539,056 $487,688
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 57,875 $ 68,498
Accounts payable 47,144 35,092
Accrued expenses 30,916 36,784
-------- --------
TOTAL CURRENT LIABILITIES 135,935 140,374
Long-term debt, net of current portion 231,305 --
Loans from shareholders -- 60,000
-------- --------
TOTAL LIABILITIES 367,240 200,374
-------- --------
STOCKHOLDERS' EQUITY
Common stock par value $.01, authorized 10,000
shares; issued and outstanding 4,000 shares 40 40
Additional paid-in capital 64,960 64,960
Retained earnings 106,816 222,314
-------- --------
TOTAL STOCKHOLDERS' EQUITY 171,816 287,314
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $539,056 $487,688
======== ========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 100
RECYCLED PLASTICS INDUSTRIES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Net sales $ 1,395,322 $ 1,133,335
Cost of goods sold 857,056 716,551
----------- -----------
GROSS PROFIT 538,266 416,784
General and administrative expenses 235,553 272,427
----------- -----------
OPERATING INCOME 302,713 144,357
Other income (expense)
Interest income 2,060 4,358
Interest expense (23,744) (16,382)
----------- -----------
NET INCOME 281,029 132,333
Retained earnings, beginning of year: 222,314 161,981
Distributions to stockholders (396,527) (72,000)
----------- -----------
RETAINED EARNINGS, END OF YEAR: $ 106,816 $ 222,314
=========== ===========
- ---------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 101
RECYCLED PLASTICS INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 281,029 $ 132,333
--------- ---------
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 49,793 58,514
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Accounts receivable 11,013 12,704
Inventories (106,408) (51,443)
Accounts payable 12,052 (41,504)
Accrued expense (5,868) (17,262)
Other assets 2,295 5,795
--------- ---------
Total adjustments (37,123) (33,196)
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 243,906 99,137
--------- ---------
Cash flows from investing activities:
Capital expenditures (36,115) (33,706)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (36,115) (33,706)
--------- ---------
Cash flows from financing activities:
Principal payments on stockholders' loans (60,000) (25,000)
Principal payments on long-term debt (104,318) (65,044)
Proceeds from issuance of long-term debt 325,000 --
Distributions to stockholders (396,527) (72,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (235,845) (162,044)
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (28,054) (96,613)
Cash and cash equivalents, beginning of year 39,586 136,199
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 11,532 $ 39,586
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 23,744 $ 16,382
========= =========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 102
RECYCLED PLASTICS INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Recycled Plastics Industries, Inc. (the Company) is engaged in the
manufacturing of recycled plastic lumber from post-consumer plastic waste. The
Company's customers are primarily located throughout the North Central United
States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be a cash equivalent.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial purposes by the use of the straight-line method over the estimated
useful lives of the assets. Accelerated methods of computing depreciation are
used for tax purposes. Upon sale or retirement, the cost and related accumulated
depreciation of such assets are removed from the accounts and any resulting gain
or loss realized is credited or charged to income for the period. Expenditures
for maintenance and repairs are charged to income as incurred. Significant
renewals, improvements and betterments are capitalized.
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The adoption of SFAS No.
121 did not have an impact on the Company's financial position or results of
operations.
Page 5
<PAGE> 103
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company has elected under the Internal Revenue Code to be taxed as
an S corporation. In lieu of corporation income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal and state income taxes
has been included in these financial statements.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and were
approximately $7,200 and $2,500 during the years ended December 31, 1996 and
1995, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash, cash
equivalents and trade receivables. The Company maintains its cash and cash
equivalents with one financial institution which is located in Wisconsin. Trade
receivables generally are concentrated in the North Central United States.
However, one customer accounted for 15.4% and 14.0% of net sales during the
years ended December 31, 1996 and 1995, respectively. The Company generally does
not require collateral from its customers.
NOTE 2 - INVENTORIES
Inventories consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Raw materials $ 70,622 $ 68,232
Finished goods 230,152 126,134
--------- ---------
$ 300,774 $ 194,366
========= =========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Machinery and equipment $348,000 $ 317,211
Leasehold improvements 8,831 8,831
Furniture and fixtures 18,783 13,456
-------- --------
375,614 339,498
Less accumulated depreciation (243,520) (195,182)
------- ---------
$132,094 $ 144,316
======== =========
</TABLE>
Depreciation expense was $48,338 and $56,621 for the years ended
December 31, 1996 and 1995, respectively.
Page 6
<PAGE> 104
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Promissory bank note, payable in monthly installments
of $6,630, including interest at a fixed rate of 8.25%,
balloon payment due in April 1999. $289,180 $ --
Promissory bank note, payable in monthly installments
of $6,190, including interest at a fixed rate of 8.75%,
balloon payment due in December 1996. -- 68,498
-------- ---------
289,180 68,498
Less current portion 57,875 68,498
-------- ---------
$231,305 $ --
======== =========
</TABLE>
The Company had available a $125,000 line of credit bearing interest at
the bank's prime rate plus .25% (8.50% at December 31, 1996). At December 31,
1995 the Company had available a $65,000 line of credit bearing interest at the
bank's prime rate plus 1.00% (9.50% at December 31, 1995).
Future maturities of long-term debt are as follows:
1997 $ 57,875
1998 62,835
1999 168,470
NOTE 5 - RELATED PARTY TRANSACTIONS
As of December 31, 1995, a loan payable of $60,000 was payable to the
shareholders of the Company. Interest is payable at 10% annually. Interest
expense was $2,000 and $7,146 for the years ended December 31, 1996 and 1995.
This loan was repaid in 1996.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
RELATED PARTY OPERATING LEASE
The Company leases office space and manufacturing facilities under a
non-cancelable operating lease from an entity controlled by individuals who are
also stockholders of the Company. The lease expires in December 1999 and may be
extended by the Company for a period of five years.
Future minimum payments are as follows for the years ending December 31:
1997 $ 53,189
1998 53,189
1999 53,189
Rent expense for all operating leases for the year ended December 31,
1996 and 1995 was $53,189 in each year.
Page 7
<PAGE> 105
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not have
a material effect on the financial position or results of operations of the
Company.
NOTE 7 - SUBSEQUENT EVENT
Effective January 27, 1997, all of the Company's issued and outstanding
shares of common stock was sold to U.S. Plastic Lumber Corporation (USPLC). The
accompanying financial statements do not reflect any adjustments related to
USPLC's acquisition of the Company.
Page 8
<PAGE> 106
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE> 107
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders
Advanced Remediation and Disposal
Technologies, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheets of Advanced Remediation
and Disposal Technologies, Inc. as of December 31, 1996 and 1995, and the
related statements of operations and retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 from
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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Remediation
and Disposal Technologies, Inc. as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 29, 1997
Page 1
<PAGE> 108
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash $ 18,335 $ 109,090
Accounts receivable, net of allowance for
doubtful accounts of $132,848 and $0 726,669 240,379
Prepaid expenses 24,726 16,919
Investments -- 31,500
--------- ---------
TOTAL CURRENT ASSETS 769,730 397,888
Property and equipment, net 90,729 138,345
Other assets 972 1,420
--------- ---------
TOTAL ASSETS $ 861,431 $ 537,653
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 33,015 $ 67,083
Line of credit 120,000 150,000
Accounts payable 252,131 30,579
Accrued expenses 27,184 45,059
--------- ---------
TOTAL CURRENT LIABILITIES 432,330 292,721
Long-term debt, net of current portion -- 33,015
--------- ---------
TOTAL LIABILITIES 432,330 325,736
--------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $1, authorized 10,000 shares;
issued and outstanding 1,200 shares 1,200 1,200
Additional paid-in capital 4,300 4,300
Retained earnings 423,601 206,417
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 429,101 211,917
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 861,431 $ 537,653
========= =========
</TABLE>
- ---------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 109
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net sales $2,343,047 $1,865,194
Cost of goods sold 1,646,099 1,426,582
---------- ----------
GROSS PROFIT 696,948 438,612
General and administrative expenses 468,826 252,971
---------- ----------
OPERATING INCOME 228,122 185,641
Other income (expense)
Gain on sale of assets 3,069 --
Interest expense (14,007) (9,413)
---------- ----------
NET INCOME 217,184 176,228
Retained earnings, beginning of year: 206,417 90,189
Distributions to shareholders -- 60,000
---------- ----------
RETAINED EARNINGS, END OF YEAR: $ 423,601 $ 206,417
========== ==========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 110
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 217,184 $ 176,228
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 43,854 29,713
Gain on sale of asset (3,069) --
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Accounts receivable (486,290) (50,606)
Prepaid expenses (7,807) (4,099)
Accounts payable 221,552 (49,222)
Accrued expenses (12,375) 32,423
--------- ---------
Total adjustments (244,135) (41,791)
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,951) 134,437
Cash flows from investing activities:
Purchase of capital equipment (13,727) (157,118)
Purchase of securities -- (31,500)
Proceeds from sale of assets 47,006 --
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 33,279 (188,618)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit borrowings -- 130,000
Proceeds from issuance of long-term debt -- 108,637
Principal payments on notes payable (67,083) (8,539)
Payments on line of credit (30,000) --
Principal payments on shareholders' loans -- (11,644)
Distributions to shareholders -- (60,000)
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (97,083) 158,454
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (90,755) 104,273
Cash and cash equivalents, beginning of year 109,090 4,817
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 18,335 $ 109,090
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 14,662 $ 7,423
========= =========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 111
ADVANCED REMEDIATION AND DISPOSAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company provides remediation, waste handling and disposal services
in the Philadelphia area environmental market.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for
maintenance, repairs and renewals of a minor nature are charged against earnings
as incurred. Major improvements and betterments are capitalized. Depreciation is
provided by the use of the straight-line and accelerated methods over the
estimated useful lives of the related assets.
INCOME TAXES
The Company has elected S corporation status for federal and state
income tax purposes. Under such election, federal and state income taxes are the
responsibility of the shareholders personally and are included on their
individual income tax returns. Accordingly, the financial statements do not
contain a provision for income taxes.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Office fixtures and equipment $ 13,062 $ 8,823
Field equipment 31,186 21,698
Transportation equipment 115,473 138,920
--------- ----------
159,721 169,441
Less accumulated depreciation (68,992) (31,096)
--------- ----------
$ 90,729 $ 138,345
========= ==========
</TABLE>
Depreciation expense was $43,406 and $29,265 for the years ended
December 31, 1996 and 1995, respectively.
Page 5
<PAGE> 112
NOTE C - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Promissory bank note, payable in monthly installments of $1,427, including
interest at the Wall Street Journal's prime rate plus 1.5% (9.75% and 10.0% at
December 31, 1996 and 1995, respectively) collateralized by equipment and
guaranteed by the stockholders. The note was retired in February 1997. $ 33,015 $ 65,646
Installment note payable, due in 60 monthly installments of $405 including
interest at 12% through January 2000, collateralized by transportation equipment. -- 15,611
Installment note payable, due in 60 monthly installments of $488 including
interest at 12% through January 2000, collateralized by transportation equipment. -- 18,841
-------- --------
$ 33,015 $100,098
Less current portion 33,015 67,083
-------- --------
$ -- $ 33,015
======== ========
</TABLE>
The Company had available a $500,000 line of credit bearing interest at
the Wall Street Journal's prime rate plus 1.5% (9.75% and 10.0% at December 31,
1996 and 1995, respectively). The outstanding balance was $120,000 and $150,000
at December 31, 1996 and 1995, respectively.
NOTE D - RETIREMENT PLAN
The Company started a Simplified Employee Pension for all employees not
covered under a collective bargaining agreement in 1995. To be eligible the
employee must be 21 years of age and have three years of employment.
Contributions under this plan were $15,000 for the years ended December 31, 1996
and 1995, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
Three minority shareholders of the Company are also shareholders of
Corrosion Control Corporation. The Company and Corrosion Control Corporation
have entered into several transactions. The following is a summary of such
transactions with Corrosion Control Corporation for the years ended December 31,
1996 and 1995:
Aggregate sales during the years ended December 31, 1996 and 1995 were
approximately $75,000 and $0, respectively.
Aggregate services purchased during the years ended December 31, 1996
and 1995 were approximately $400 and $91,000, respectively.
Page 6
<PAGE> 113
NOTE F - SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company had substantial contracts with various entities. During the
years ended December 31, 1996 and 1995, approximate sales to these entities were
as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Entity A 28% --
Entity B 14% --
Entity C -- 36%
Entity D -- 29%
Entity E -- 14%
Entity F -- 11%
</TABLE>
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash with high credit quality institutions.
At times such investments may be in excess of the FDIC insurance limit.
Credit risk with respect to trade receivables generally are concentrated
in the Northeastern United States. The Company's top five customers accounted
for approximately 69% and 93% of sales in 1996 and 1995, respectively, and 59%
and 76% of accounts receivable at December 31, 1996 and 1995, respectively. One
customer accounted for 28% of the Company's account receivable at December 31,
1996. Another customer accounted for 48% of accounts receivable at December 31,
1995. The Company generally does not require collateral from its customers.
NOTE G - SUBSEQUENT EVENT
Effective February 24, 1997, all of the Company's issued and outstanding
shares of common stock were sold to U.S. Plastic Lumber Corporation (USPLC).
The accompanying financial statements do not reflect any adjustments related to
USPLC's acquisition of the Company.
Page 7
<PAGE> 114
INTEGRATED TECHNICAL SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE> 115
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders
Integrated Technical Services, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheet of Integrated Technical
Services, Inc. as of December 31, 1996, and the related statements of operations
and retained earnings and cash flows for the year then ended. The 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 from
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, the financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Technical
Services, Inc. as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
August 7, 1997
Page 1
<PAGE> 116
INTEGRATED TECHNICAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 61,626 $ 94,550
Accounts receivable, net of allowance for
doubtful accounts of $45,000 in 1996 and 1997 760,614 1,023,887
Cost and estimated earnings in excess of billings
on uncompleted contracts 7,467 368,424
Prepaid expenses 62,997 42,701
----------- -----------
TOTAL CURRENT ASSETS 892,704 1,529,562
Property and equipment, net 206,519 189,168
Deferred expenses, net 1,200 900
----------- -----------
TOTAL ASSETS $ 1,100,423 $ 1,719,630
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 116,698 $ 86,343
Notes payable, stockholders 115,000 115,000
Accounts payable 391,431 1,015,113
Accrued expenses 107,893 98,960
Billings in excess of costs and estimated earnings on
uncompleted contracts 95,745 28,246
Deferred income taxes 91,447 104,460
----------- -----------
TOTAL CURRENT LIABILITIES 918,214 1,448,122
Long-term debt, net of current portion 79,984 80,043
----------- -----------
TOTAL LIABILITIES 998,198 1,528,165
----------- -----------
STOCKHOLDERS' EQUITY
Common stock par value $1, authorized 1,000 shares;
issued and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 3,000 3,000
Retained earnings 98,225 187,465
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 102,225 191,465
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,100,423 $ 1,719,630
=========== ===========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 117
INTEGRATED TECHNICAL SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, 1996 MARCH 31, 1997
----------------------- --------------
(unaudited)
<S> <C> <C>
Revenue $ 3,905,783 $ 1,785,026
Cost of goods sold 3,225,836 1,483,824
------------ ------------
GROSS PROFIT 679,947 301,202
Selling, general and administrative expenses 735,236 188,586
------------ ------------
INCOME (LOSS) FROM OPERATIONS (55,289) 112,616
Interest expense 25,914 4,638
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (81,203) 107,978
Provision for income taxes 12,548 18,738
------------ ------------
NET INCOME (LOSS) (93,751) 89,240
Retained earnings - beginning of period 191,976 98,225
------------ ------------
RETAINED EARNINGS - END OF PERIOD $ 98,225 $ 187,465
============ ============
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 118
INTEGRATED TECHNICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE
ENDED DECEMBER 31, MONTHS ENDED
1996 MARCH 31, 1997
------------------ ---------------------
<S> <C> <C>(unaudited)
Cash flows from operating activities:
Net income (loss) $ (93,751) $ 89,240
Adjustments to reconcile net income (loss) to net --------- ----------
cash provided by operating activities:
Depreciation and amortization 71,638 20,925
Deferred income taxes (36,855) 13,013
Increase (decrease) in cash due to changes in operating assets and
liabilities:
Accounts receivable (7,157) (263,273)
Cost and estimated earnings in excess of billings
on uncompleted contracts 53,754 (360,957)
Prepaid expenses 48,485 20,296
Accounts payable (35,602) 623,682
Accrued expenses 51,488 (8,933)
Billings in excess of costs and estimated earnings
on uncompleted contracts 59,220 (67,499)
--------- ----------
Total adjustments 204,971 (22,746)
--------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 111,220 66,494
--------- ----------
Cash flows from investing activities:
Capital expenditures (58,190) (3,274)
--------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (58,190) (3,274)
--------- ----------
Cash flows from financing activities:
Principal payments on notes payable - stockholders (10,000) --
Principal payments on long-term debt (102,602) (30,296)
Proceeds from issuance of long-term debt 15,000 --
--------- ----------
NET CASH USED IN FINANCING
ACTIVITIES (97,602) (30,296)
--------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (44,572) 32,924
Cash and cash equivalent - beginning of the period 106,198 61,626
--------- ----------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 61,626 $ 94,550
========= ==========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 119
INTEGRATED TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Integrated Technical Services, Inc. is engaged in environmental
remediation and consulting services. The Company's customers are located
primarily in the state of New Jersey.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be a cash equivalent.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial purposes by the use of the straight-line method over the estimated
useful lives of the assets. Accelerated methods of computing depreciation are
used for tax purposes. Upon sale or retirement, the cost and related accumulated
depreciation of such assets are removed from the accounts and any resulting gain
or loss realized is credited or charged to income for the period. Expenditures
for maintenance and repairs are charged to income as incurred. Significant
renewals, improvements and betterments are capitalized.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 - "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of
SFAS No. 121 did not have an impact on the Company's financial position or
results of operations.
REVENUE AND COST RECOGNITION
Revenues are recognized for fixed-price contracts on the
percentage-of-completion method measured by the total costs incurred to date to
estimated total costs for each contract. Revenues from time-and-material
contracts are recognized currently as the work is performed.
Contract costs include all direct material, labor and other costs and
those indirect costs related to contract performance, such as indirect labor,
fringe benefits, general insurance, repairs and depreciation. General and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. No losses were anticipated on any jobs in process at
December 31, 1996. Changes in job conditions and estimated profitability may
result in revisions to costs and income and are recognized in the period in
which such revisions are determined. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
can be reliably estimated.
Page 5
<PAGE> 120
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of revenues recognized.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year which the differences are expected to be settled or realized.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred and were
approximately $2,200 in 1996.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company maintains its cash and cash equivalents with
various financial institutions which are located in the state of New Jersey. At
December 31, 1996, the Company had bank balances of approximately $113,000 in
excess of amount insured by federal deposit insurance. Trade receivables are
concentrated primarily in the state of New Jersey. The Company generally does
not require collateral from its customers.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments
necessary for a fair presentation of financial position as of March 31, 1997,
and of the results of operations, and cash flows for the three months ended
March 31, 1997, as presented in the accompanying unaudited interim financial
statements. The results of operations for the three month period ended March
31, 1997 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs incurred on uncompleted contracts $ 284,136
Estimated earnings on uncompleted contracts 139,399
---------
423,535
Less billings on uncompleted contracts 511,813
----------
$ (88,278)
=========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 7,467
Billings in excess of costs and estimated
earnings on uncompleted contracts (95,745)
---------
$ (88,278)
=========
Page 6
<PAGE> 121
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
Machinery and equipment $180,162
Vehicles 145,448
--------
325,610
Less accumulated depreciation (119,091)
--------
$206,519
========
Depreciation expense was $70,438 for the year ended December 31, 1996.
NOTE 4 - NOTES PAYABLE - STOCKHOLDERS
The Company has notes payable from its stockholders, bearing interest
ranging from 7.5% to 10%. The notes are payable on demand and are
uncollateralized.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1996:
Notes payable, monthly principal and interest payments of
$5,560, bearing interest at 9.0% to 10.45%, collateralized by
related equipment. $135,227
Note payable, monthly principal and interest payments
of $1,798, bearing interest at 10.75%, uncollateralized. 10,457
Note payable, monthly principal and interest payments
of $4,165, bearing interest at 9.81%, uncollateralized. 35,998
Bank line of credit, bearing interest at prime plus 1.25%
(9.50% as of December 31, 1996), maximum availability of
$100,000. 15,000
--------
196,682
Less current portion 116,698
--------
$ 79,984
========
Future maturities of long-term debt are as follows:
1997 $116,698
1998 58,996
1999 17,848
2000 3,140
--------
$196,682
========
Page 7
<PAGE> 122
NOTE 6 - INCOME TAXES
The provision for income taxes includes federal and state taxes currently
payable and those deferred because of temporary differences between financial
statement and tax basis of assets and liabilities. The components of the
provision for income taxes for the year ended December 31, 1996 are as follows:
Current:
Federal $ 36,849
State 12,554
---------
49,403
---------
Deferred:
Federal (28,735)
State (8,120)
---------
(36,855)
---------
$ 12,548
=========
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities at December 31, 1996:
Deferred tax assets:
Accounts payable $ 159,900
Accrued expenses 23,302
Billings in excess of costs and estimated
earnings on uncompleted contracts 36,062
---------
Gross deferred tax assets 219,264
Deferred tax liabilities:
Accounts receivable 310,711
---------
Net deferred tax liabilities $ 91,447
=========
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company routinely subcontracts services to one of its stockholders.
During the year ended December 31, 1996, such subcontracts amounted to
approximately $277,000. As of December 31, 1996, $21,358 was included in
accounts payable to the stockholder.
Page 8
<PAGE> 123
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
The Company leases a vehicle under a non-cancelable operating lease which
expires in November 2000.
Future minimum payments are as follows for the years ending December 31:
1997 $ 5,256
1998 5,256
1999 5,256
2000 4,818
Rent expense for the year ended December 31, 1996 was approximately
$15,200.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not have
a material effect on the financial position or results of operations of the
Company.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the year ended
December 31, 1996:
Cash paid during the year for:
Interest $ 16,584
Income taxes $ --
Supplemental schedule of noncash investing and financing activities for
the year ended December 31, 1996:
Long-term debt issued for capital expenditures $152,744
Long-term debt issued for prepaid expenses $ 51,477
NOTE 10 - SUBSEQUENT EVENTS
Effective March 31, 1997, all of the Company=s issued and outstanding
shares of common stock were sold to U.S. Plastic Lumber Corp. (USPLC). The
accompanying financial statements do not reflect any adjustments related to
USPLC=s acquisition of the Company.
Page 9
<PAGE> 124
WASTE CONCEPTS, INC.
FINANCIAL STATEMENTS
<PAGE> 125
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders
Waste Concepts, Inc.
We have audited the accompanying balance sheet of Waste Concepts, Inc.
as of December 31, 1996, and the related statements of operations and retained
earnings (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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 from
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, the financial statements referred to above present
fairly, in all material respects, the financial position of Waste Concepts, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
December 8, 1997
Page 1
<PAGE> 126
WASTE CONCEPTS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 24,435 $ 17,961
Accounts receivable, net of allowance for doubtful
accounts of $253,735 at December 31, 1996 and
$691,786 at September 30, 1997 1,453,357 1,686,337
Loan receivable 13,642 52,126
Prepaid expenses 171,496 61,527
----------- -----------
TOTAL CURRENT ASSETS 1,662,930 1,817,951
----------- -----------
Property and equipment, net 164,439 169,970
Intangible assets 65,166 47,916
----------- -----------
TOTAL ASSETS $ 1,892,535 $ 2,035,837
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current portion of long-term debt $ 31,895 $ 20,000
Loan from shareholder 95,100 95,100
Line of credit 362,500 224,643
Accounts payable 1,099,071 1,611,630
Accrued expenses 119,997 2,878
----------- -----------
TOTAL CURRENT LIABILITIES 1,708,563 1,954,251
Long-term debt, net of current portion 76,606 81,655
----------- -----------
TOTAL LIABILITIES 1,785,169 2,035,906
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock par value $1, authorized 100,000 shares;
issued and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 40,683 40,683
Retained earnings (deficit) 65,683 (41,752)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 107,366 (69)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,892,535 $ 2,035,837
=========== ===========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE> 127
WASTE CONCEPTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, 1996 ENDED SEPTEMBER 30, 1997
------------------ ------------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 4,814,731 $ 4,791,242
Cost of goods sold 4,133,973 3,903,960
----------- -----------
GROSS PROFIT 680,758 887,282
General and administrative expenses 690,204 953,229
----------- -----------
OPERATING LOSS (9,446) (65,947)
Other income and (expenses)
Gain (loss) on sale of equipment 779 (16,665)
Interest expense (24,835) (24,823)
----------- -----------
NET LOSS (33,502) (107,435)
Retained earnings, beginning of period: 99,185 65,683
----------- -----------
RETAINED EARNINGS (DEFICIT),
END OF PERIOD: $ 65,683 $ (41,752)
=========== ===========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE> 128
WASTE CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (33,502) $(107,435)
--------- ---------
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 71,292 55,350
(Gain) loss on sale of asset (779) 16,665
Increase (decrease) in cash due to changes
in operating assets and
liabilities:
Accounts receivable (762,050) (232,980)
Loans receivable (36,702) (38,484)
Prepaid expenses (7,332) 109,969
Accounts payable 477,838 512,559
Accrued expenses 25,317 (117,119)
--------- ---------
Total adjustments (232,416) 305,960
--------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (265,918) 198,525
--------- ---------
Cash flow from investing activities:
Purchase of capital equipment (47,169) (68,746)
Proceeds from sale of equipment 2,500 8,450
--------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (44,669) (60,296)
--------- ---------
Cash flow from financing activities:
Borrowings on notes payable 30,357 -
Principal payments on notes payable (28,461) (24,880)
Payments on line of credit - (137,857)
Proceeds from note payable - 18,034
Borrowings on line of credit 325,000 -
--------- ---------
NET CASH FLOW PROVIDED BY
(USED IN) FINANCING ACTIVITIES 326,896 (144,703)
--------- ---------
NET INCREASE (DECREASE) IN CASH 16,309 (6,474)
Cash and cash equivalents, beginning of period 8,126 24,435
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 24,435 $ 17,961
========= =========
Supplemental disclosures of cash flows information:
Cash paid during the year for interest $ 24,835 $ 24,823
========= =========
</TABLE>
- ----------------------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE> 129
WASTE CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Waste Concepts, Inc. (the Company) is engaged in the business of removing
and transporting waste products through the use of subcontractors in addition to
consultation on environmental waste issues. The Company's customers are located
throughout the Northeastern United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be a cash equivalent.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial purposes by the use of the straight-line method over the estimated
useful lives of the assets. Accelerated methods of computing depreciation are
used for tax purposes. Upon sale or retirement, the cost and related accumulated
depreciation of such assets are removed from the accounts and any resulting gain
or loss realized is credited or charged to income for the period. Expenditures
for maintenance and repairs are charged to income as incurred. Significant
renewals, improvements and betterments are capitalized.
INCOME TAXES
The Company has elected under the Internal Revenue Code to be taxed as an
S corporation. In lieu of corporation income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal and state income taxes
has been included in these financial statements.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and a covenant not to compete,
which are being amortized on a straight-line basis over five years.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments
necessary for a fair presentation of financial position as of September 30,
1997, and of the results of operations, and cash flows for the nine months ended
September 30, 1997, as presented in the accompanying unaudited interim financial
statements. The results of operations for the nine month period ended September
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
Page 5
<PAGE> 130
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Equipment $ 174,509
Furniture and fixtures 156,538
---------
331,047
Less accumulated depreciation (166,608)
---------
$ 164,439
=========
</TABLE>
Depreciation expense was $48,292 for the year ended December 31, 1996.
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Promissory bank note, payable in monthly installments of $296, including
interest at a fixed rate of 8.5% The note is collateralized by equipment. $ 9,370
Promissory note, payable in monthly installments of $334, including
interest at a fixed rate of 9.99%
The note is collateralized by related equipment. 14,885
Promissory bank note, payable in monthly installments of $364, including
interest at a fixed rate of 9.25%
The note is collateralized by related equipment. 13,625
Promissory note to a former shareholder, payable in
monthly installments of $2,328, including interest
at a fixed rate of 9.0%. 70,621
---------
108,501
Less current portion (31,895)
---------
$ 76,606
=========
</TABLE>
Maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 31,895
1998 34,660
1999 32,991
2000 6,383
2001 2,572
--------
$108,501
========
</TABLE>
The Company has available a $375,000 line of credit bearing interest at
the bank's prime rate plus 1.5% (9.75% at December 31, 1996). The line balance
is payable on demand and is collateralized by all Company assets. The balance on
this line as of December 31, 1996 was $362,500.
NOTE 4 - LOANS FROM SHAREHOLDERS
As of December 31, 1996, the Company has a loan payable of $95,100 to the
sole stockholder. The loan is payable on demand and bears interest at 8%.
Page 6
<PAGE> 131
NOTE 5 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996, the Company received 25,000
cubic yards of landfill airspace, valued at $150,000, from its sole stockholder
in full satisfaction of $116,132 of notes receivable from the stockholder. The
$33,868 balance was credited to additional paid-in capital as a capital
contribution.
NOTE 6 - RETIREMENT PLANS
The Company has a 401(k) plan that covers substantially all employees.
The 401(k) provision permits employees to elect to defer current taxation on the
portion of their salary contributed to the plan. The Company is required to
match a portion of any employee contributions. The Company's contributions to
the plan totaled $3,160 for the year ended December 31, 1996.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under various operating
leases expiring through December, 1999.
Future minimum payments are as follows for the years ending December 31:
<TABLE>
<S> <C>
1997 $40,509
1998 36,000
1999 36,000
</TABLE>
Rent expenses for all operating leases was $72,609 for the year ended
December 31, 1996.
LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not have
a material effect on the financial position or results of operations of the
Company.
NOTE 8 - SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company had substantial contracts with various entities. During the
year ended December 31, 1996, approximate sales to these entities were as
follows:
<TABLE>
<S> <C>
Entity A 11.8%
Entity B 10.7%
</TABLE>
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with various
financial institutions which are located in Pennsylvania. At December 31, 1996,
the Company had bank balances of approximately $87,000 in excess of the amount
insured by federal deposit insurance.
Credit risk with respect to trade receivables generally are concentrated
in the Northeastern United States. The Company's top five customers accounted
for approximately 43% of sales in 1996, and 49% of accounts receivable at
December 31, 1996. One customer accounted for 24% of the Company's account
receivable at December 31, 1996. The Company generally does not require
collateral from its customers.
Page 7
<PAGE> 132
NOTE 9 - SUBSEQUENT EVENT
Effective November 18, 1997, all of the Company's issued and outstanding
shares of common stock were sold to U.S. Plastic Lumber Corporation (USPLC).
The accompanying financial statements do not reflect any adjustments related to
USPLC's acquisition of the Company.
Page 8
<PAGE> 133
ENVIROPLASTICS CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 134
ENVIROPLASTICS CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Earnings (Loss) and Retained Earnings (Deficit) 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 9
</TABLE>
<PAGE> 135
LOVE, BOLLUS, LYNCH & ROGERS
Certified Public Accountants and Consultants
10 Mechanic Street, Worcester, Massachusetts 01608
Telephone 508-755-7107 Facsimile 508-755-3896
INDEPENDENT AUDITORS' REPORT
Board of Directors
EnviroPlastics Corporation
We have audited the accompanying balance sheets of EnviroPlastics Corporation as
of December 31, 1996 and 1995, and the related statements of earnings (loss) and
retained earnings (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EnviroPlastics Corporation as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Love, Bollus, Lynch & Rogers
Worcester, Massachusetts
July 25, 1997
<PAGE> 136
ENVIROPLASTICS CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Interim Unaudited
Financial Statements
For the Periods Ended
---------------------
JUNE 30,
1996 1995 1997 1996
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 81,650 $ 87,539 $ 62,251 $ 43,687
Accounts receivable, trade 211,787 82,935 328,235 259,913
Inventories 58,100 54,114 43,364 51,500
Prepaid expense 55,333 50,674 - 15,621
Total current assets 406,870 275,262 433,850 370,721
Property and equipment 3,172,720 3,336,103 3,341,934 3,535,729
Less: Accumulated depreciation
and amortization 1,055,434 882,569 1,211,434 1,032,569
2,117,286 2,453,534 2,130,500 2,503,160
Other assets
Security and other deposits 42,681 44,681 41,036 43,296
Due from affiliate - 115,215 - -
Deferred charge, net of
amortization of $43,874 in 1995 - 95,657 - 89,657
42,681 255,553 41,036 132,953
$2,566,837 $2,984,349 $2,605,386 $ 3,006,834
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term det $ 199,790 $ 1,267,900 $ 119,033 $ 124,451
Accounts payable, trade 542,670 387,109 886,679 341,600
Accrued and other liabilities 36,425 31,340 75,506 24,731
Deferred revenue 53,400 - - -
Total current liabilities 832,285 1,686,349 1,081,218 490,782
Long-term debt, less current maturities 983,079 2,048,537 1,277,350 3,064,637
Stockholders' equity
Common stock, $.01 par value, 200,000
shares authorized, 22,692 shares
issued and outstanding 227 227 227 227
Additional paid-in capital 299,773 299,773 299,773 299,773
Retained earnings (deficit) 451,473 (1,050,537) (53,182) (848,585)
751,473 (750,537) 246,818 (548,585)
$2,566,837 $2,984,349 $2,605,386 $3,006,834
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 137
ENVIROPLASTICS CORPORATION
STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Interim Unaudited
Financial Statements
For the Periods Ended
---------------------
JUNE 30,
1996 1995 1997 1996
<S> <C> <C>
Revenue $ 5,229,915 $ 7,187,469 $ 2,891,508 $ 2,440,423
Cost of revenue 4,529,969 6,360,022 3,125,953 1,916,915
Gross profit 699,946 827,447 (234,445) 523,508
General and administrative expenses 478,220 220,547 285,019 232,641
Operating profit 221,726 606,900 (519,464) 290,867
Other income (expenses)
Interest income - 408 - -
Interest expense (161,543) (217,280) (51,639) (90,121)
Loss on advance - affiliate (147,851) - - -
Miscellaneous income - - 97,822 1,206
Loss on acquisition of building (66,297) - - -
Loss on disposal of property and equipment (138,004) - - -
(513,695) (216,872) 46,183 (88,915)
-
Earnings (loss) before income taxes and
extraordinary item (291,969) 390,028 (473,281) 201,952
Income taxes 13,251 8,908 -
Earnings (loss) before extraordinary item (305,220) 381,120 (473,281) 201,952
Extraordinary item
Forgiveness of debt 1,807,230 - - -
Net earnings (loss) 1,502,010 381,120 (473,281) 201,952
Retained earnings (deficit), beginning of year (1,050,537) (1,431,657) 451,473 (1,050,537)
Less: Distributions to stockholders - - (31,374) -
Retained earnings (deficit), end of year $ 451,473 $(1,050,537) $ (53,182) $ (848,585)
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 138
ENVIROPLASTICS CORPORATION
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Interim Unaudited
Financial Statements
For the Periods Ended
JUNE 30,
---------------------
1996 1995 1997 1996
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,502,010 $ 381,120 $ (473,281) $ 201,952
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss on advance to affiliate 147,851 - - 115,215
Depreciation and amortization 315,861 295,358 156,000 156,000
Forgiveness of debt (1,807,230) - - -
Loss on disposal of property and equipment 138,004 - - -
Distributions to stockholders - - (31,374) -
(Increase) decrease in operating assets:
Accounts receivable, trade (128,852) 327,002 (116,448) (176,978)
Inventories (3,986) 54,059 14,736 2,614
Prepaid expenses (4,659) (14,534) 55,333 35,053
Increase (decrease) in operating liabilities:
Accounts payable, trade 155,561 (263,503) 344,009 (45,509)
Accrued and other liabilities 5,085 (9,634) 39,081 (6,609)
Deferred revenue 53,400 - (53,400) -
Total adjustments (1,128,965) 388,748 407,937 79,786
Net cash provided by operating
activities 373,045 769,868 (65,344) 281,738
Cash flows from investing activities:
Expenditures for property and equipment (106,617) (395,717) (169,214) (199,626)
(Increase) decrease in security and other deposits 2,000 19,966 1,645 1,385
Advance to affiliate (32,636) (49,655) - -
Net cash (used in) investing
activities (137,253) (425,406) (167,569) (198,241)
Cash flows from financing activities:
Additional borrowing from long-term debt - - 300,000 -
Principal payments of long-term debt (241,681) (292,266) (86,486) (127,349)
Net cash (used in) financing
activities (241,681) (292,266) 213,514 (127,349)
Net increase (decrease) in cash and cash equivalents (5,889) 52,196 (19,399) (43,852)
Cash and cash equivalents, beginning of year 87,539 35,343 81,650 87,539
Cash and cash equivalents, end of year $ 81,650 $ 87,539 $ 62,251 $ 43,687
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 114,482 $ 146,705 $ 51,369 $ 90,121
Income taxes 9,531 2,120
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 139
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
EnviroPlastics Corporation recycles post consumer plastics into high
quality clear and colored resins that are sold as raw materials for plastic
products. A significant amount of sales for both years were primarily generated
by one customer.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses. Actual results
could differ from those estimates.
Cash and cash equivalents
For financial statement purposes, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents.
Inventories
Inventories are valued at the lower of cost or market. Raw materials
mainly consist of recycled milk bottles and colored laundry detergent bottles.
Cost is determined principally on the basis of the first-in, first-out (FIFO)
method.
Property and equipment
Property and equipment are carried at cost. Depreciation and amortization
are computed using the straight-line method.
Deferred charge
Deferred charge represents legal fees and other costs incurred in
organizing the Company and negotiating the Master Recycling Agreement as
discussed in Note 5. Because of the termination of the Master Recycling
Agreement, the balance of the unamortized charge was fully amortized in 1996.
Income taxes
The Company has elected to be taxed as a small business corporation under
the provisions of the Internal Revenue Code (S Corporation). Under those
provisions, the Company does not pay federal and only certain state corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual income taxes on their respective shares of the Company's taxable
income. The Company distributes earnings to the stockholders to the extent
necessary to pay these income taxes.
<PAGE> 140
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
Impairment of long-lived assets
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of ". SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Adoption of this statement
did not have a material impact on the Company's financial position, results of
operations, or liquidity.
Deferred revenue
Deferred revenue represents advanced payments on product sales.
2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $41,500 $31,204
Work in process 4,000 9,910
Finished goods 12,600 13,000
$58,100 $54,114
</TABLE>
3 - PROPERTY AND EQUIPMENT
Property and equipment, together with estimated useful lives, consists of
the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1996 1995
<S> <C> <C> <C>
Leasehold improvements 31 years $ 100,476 $ 100,476
Manufacturing system 10 years 1,790,374 2,060,374
Manufacturing support equipment 10 - 12 years 1,142,721 1,036,104
Office furniture and fixtures 7 years 139,149 139,149
$3,172,720 $3,336,103
</TABLE>
Depreciation and amortization expense was $304,861 and $283,358 in 1996
and 1995, respectively.
4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable - Bank. Collateralized by primary lien
on all assets of the business and is guaranteed by
four of the Company's stockholders. Due in monthly
principal payments of $7,083, plus interest at the
prime rate plus 2%, through September 1998, at
which time the entire principal and interest
shall be due and payable. $403,738 $488,750
</TABLE>
<PAGE> 141
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - LONG-TERM DEBT, continued
<TABLE>
<S> <C> <C>
Note payable - Guaranteed by the Small Business
Administration. Collateralized by secondary lien on
all assets of the business and is guaranteed by four
of the Company's stockholders. Due in monthly payments
of $9,288 including interest at 7.565%, through April
2002. 462,319 531,450
Economic Development note payable - Town of Auburn, MA.
Subordinated loan collateralized by third lien on all
assets of the business and is guaranteed by four of the
Company's stockholders. Due in monthly payments of
$6,293, including interest at 10% through December
1998, at which time the entire principal is due
and payable. 316,812 395,411
Bond payable - Occidental Chemical Corporation. Interest
is being accrued at a rate of 8.5% compounded
quarterly payable on the maturity date of the bond
which is September 1, 1996. The bond is convertible
to common shares of the company at any time after
the maturity date up to and including
September 1, 2001. - 980,826
Advance payable - Occidental Chemical Corporation.
Collateralized by primary lien on the equipment
purchased from the proceeds of this Advance. Due
December, 1997, provided certain financial
covenants are maintained. - 864,000
Economic Development note payable - Town of Auburn, MA.
Collateralized by second mortgages on four of the
Company's stockholders' principal residences.
Due in monthly payments of $7,200, plus
interest at 7.5% through May, 1996. - 36,000
Note payable - Other collateralized by equipment.
Due in monthly installments of $5,000,
through April, 1996. - 20,000
1,182,869 3,316,437
Less: Current Maturities of long-term debt 199,790 1,267,900
$ 983,079 $2,048,537
</TABLE>
<PAGE> 142
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - LONG-TERM DEBT, continued
Maturities of long-term debt in subsequent years are as follows:
<TABLE>
<S> <C>
1997 $ 199,790
1998 675,692
1999 86,682
2000 93,472
2001 100,794
Thereafter 26,439
$ 1,182,869
</TABLE>
The debt contains certain usual financial covenants which the company was
not in compliance with at December 31, 1996. Management is currently in
negotiations to resolve the defaults. Management believes that they will be able
to successfully negotiate the debt and therefore the presentation has remained
consistent with the original terms and conditions.
5 - FORGIVENESS OF DEBT
EnviroPlastics and Occidental Chemical Corporation, a New York
Corporation ("Oxychem"), entered into an agreement dated August 30, 1991,
amended on April 15, 1993 (as amended, the "Master Recycling Agreement"),
wherein EnviroPlastics agreed to supply Oxychem with quantities of post-
consumer recycled plastic. The initial term of the agreement was 15 years.
Contemporaneously with the Master Recycling Agreement, Enviroplastics
entered into an agreement with Oxychem dated as of August 30, 1991 (the "Bond
Purchase Agreement") in which Oxychem advanced funds to EnviroPlastics to fund
the design, procurement, construction, start up and initial capital requirements
to construct and operate a facility for the processing of post consumer recycled
plastic.
Under the terms of the Bond Purchase Agreement, EnviroPlastics issued and
delivered to Oxychem, a bond dated August 30, 1991 in the principal amount of
$1,027,887 for the original issue discounted price of $675,000 (the "Bond"), due
on September 1, 1996.
Under an intercreditor agreement dated April 15, 1993 between
EnviroPlastics, Oxychem, Shawmut Bank, N.A. and the United States Small Business
Administration, Oxychem advanced EnviroPlastics an additional $864,000 for
working capital with regard to the operation of the plastic recycling facility
(as defined in the intercreditor agreement, the "Oxychem Advance").
On May 1, 1995, Lyondell acquired certain assets of Oxychem and as a
result, became the successor in interest to Oxychem in the Master Recycling
Agreement, the Bond Purchase Agreement, the Bond, and the Oxychem Advance.
<PAGE> 143
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
5 - FORGIVENESS OF DEBT, continued
On November 30, 1996, EnviroPlastics and Lyondell mutually agreed to
terminate the Master Recycling Agreement. Under the terms of the agreement,
Lyondell forever canceled, released and forgave the obligation of EnviroPlastics
to redeem the bond and to pay the interest accrued since the issuance of the
bond. As of the date of the Agreement, the principal amount due on the bond was
$1,027,887. In addition, Lyondell forgave, canceled and released the Company
from any obligation under the Oxychem Advance in the amount of $864,000.
The forgiveness of debt is presented as an extraordinary item in the
Statement of Earnings (Loss) and Retained Earnings (Deficit). It is comprised of
$1,891,887 of the total principal due to Lyondell on the date of forgiveness,
net of the remaining unamortized deferred charges of $84,657.
6 - MAJOR CUSTOMERS
The approximate sales and accounts receivable, trade and related
percentages to the Company's major customers were as follows:
<TABLE>
<CAPTION>
Sales for the year ended
December 31, 1996 December 31, 1995
Customer Amount % Amount %
<S> <C> <C> <C> <C>
A $4,491,281 85.9% $6,731,469 94.0%
Accounts receivable, trade
December 31, 1996 December 31, 1995
Customer Amount % Amount %
A $ 15,486 7.2% $ 52,735 60.8%
</TABLE>
7 - RELATED PARTY TRANSACTIONS
The Company made operating advances to an affiliated company,
EnviroProducts Corporation, to support general business activities. The balance
due to the Company as of December 31, 1995 was $115,215 which increased to a
total of $147,851 during 1996. EnviroProducts suspended operations during 1996
and was unable to repay the Company. As a result, the company wrote off the
$147,851 due from the affiliate.
<PAGE> 144
ENVIROPLASTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
8 - LOSS ON ACQUISITION OF BUILDING
The Company made a $5,000 security deposit and incurred $66,297 of pre-
development costs for a new production facility. The efforts to purchase the
building were terminated in 1996 due to factors outside of the company's
control. As a result, the $66,297 was recorded as a loss in 1996. The $5,000
security deposit was returned to the company early in 1997.
9 - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances with a financial institution. The
balances at this institution are insured by the Federal Deposit Insurance
Corporation. The uninsured cash balances totaled $59,000 as of December 31,
1996.
10 - LEASE OF BUILDING
The Company's five year lease that began July 1, 1991, expired on June
30, 1996. The rent expense payment at the end of the lease agreement was $6.50
per square foot. The Company and lessor amended the lease to extend the term by
one year, beginning July 1, 1996, and negotiated the rent payment to remain the
same as of June 30, 1996. The rent expense was $255,627 and $209,337 for
December 31, 1996 and 1995 respectively.
11 - INTERIM UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying financial statements of
EnviroPlastics Corporation (the "Company") includes all adjustments necessary
to present fairly the financial position, results of operations, and cash flows
for the periods presented. These financial statements should be read in
connection with the financial statements and notes thereto included in the
December 31, 1996 and 1995 financial statements of the Company. The results of
operations for the six months ended June 30, 1997 and 1996 are not necessarily
indicative of the results expected for the year.
<PAGE> 145
---------------------
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAT THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES COVERED HEREBY IN ANY JURISDICTION OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS PAGE
AVAILABLE INFORMATION............................. 2
PROSPECTUS SUMMARY ............................... 3
RISK FACTORS...................................... 6
DILUTION.......................................... 11
USE OF PROCEEDS................................... 12
MARKET INFORMATION & DIVIDEND POLICY.............. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS.............. 14
BUSINESS.......................................... 19
MANAGEMENT........................................ 33
CERTAIN TRANSACTIONS.............................. 41
DESCRIPTION OF SECURITIES......................... 48
PLAN OF DISTRIBUTION.............................. 52
LEGAL MATTERS..................................... 53
EXPERTS........................................... 53
FINANCIAL STATEMENTS........................See Index
---------------------
U.S. PLASTIC LUMBER CORP.
950,000 SHARES
COMMON STOCK
PROSPECTUS
, 1998
----------------
---------------------
<PAGE> 146
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, bylaws, contracts or other arrangements under
which controlling persons, directors or officers of the registrant are insured
or indemnified in any manner against any liability which they may incur in such
capacity are as follows:
(a) Section 78.751 of the Nevada Business Corporation Act provides that each
corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a party or is threatened
to be made party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably
<PAGE> 147
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction, determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim, issue
or matter therein, he must be indemnified by the corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a court or
advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not parties
to the act, suit or proceeding so orders, by independent legal counsel, in a
written opinion; or
(d) If a quorum consisting of directors who were not parties to the act, suit or
proceeding cannot be obtained, by independent legal counsel in a written
opinion.
5. The certificate or articles of incorporation, the bylaws or an agreement made
by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the
<PAGE> 148
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than director of
officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under the certificate or articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer, employee or
agent and inures to the benefit of the heirs, executors and administrators of
such a person."
(b) The registrant's Articles of Incorporation limit liability of its Officers
and Directors to the full extent permitted by the Nevada Business Corporation
Act.
<PAGE> 149
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth all estimated costs and expenses, other than
underwriting discounts, commissions and expense allowances, payable by the
registrant in connection with the maximum offering for the securities included
in this registration statement:
AMOUNT
SEC registration fee $ 720.00
Blue sky fees and expenses 5,000.00
Printing and shipping expenses 7,500.00
Legal fees and expenses 85,000.00
Accounting fees and expenses 137,000.00
Appraisal Valuation 53,000.00
Transfer and Miscellaneous expenses 11,780.00
-----------
Total $300,000.00
===========
* All expenses are estimated except the Commission filing fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During 1994, the Company (which was then known as Front Street, Inc.), issued
18,750,000 shares (pre-split) in February and 15,000,000 shares (pre-split) in
June, in connection with the acquisitions of Educational Storybooks, Inc. and
one other company, both of which were privately held companies, in stock for
stock exchanges which were intended to be tax free reorganizations under Section
368(a) of the Internal Revenue Code. Later that same year, these acquisitions
were both rescinded and the stock issued was cancelled. These transactions were
not registered under the Securities Act of 1933 (the "Act") in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was done to a very
limited number of officers, directors and shareholders of the companies being
acquired. The officers, directors and few shareholders had strong knowledge and
experience in business matters as well as pre-existing business relationships
with the Company. The knowledge and experience of these individuals enabled them
to evaluate the risks and merits of the investment. These securities were issued
as restricted securities and the certificates were stamped with restrictive
legends to prevent any resale without registration under the Act or in
compliance with an exemption.
In October, 1995, the Company (which was then known as Educational Storybooks
International, Inc.) issued 200,000 shares (pre-split) for $10,000 in a private
placement. This transaction was not registered under the Act in reliance on the
exemption from registration in Section 4(2), as transactions not involving any
<PAGE> 150
public offering. This offering made was completed without any general or public
solicitation. In each case the offering was done to a very limited number of
officers, directors and shareholders of the companies being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment. These securities were issued as
restricted securities and the certificates were stamped with restrictive legends
to prevent any resale without registration under the Act or in compliance with
an exemption.
In March, 1996, the Company entered into an Agreement and Plan of Reorganization
with Earth Care Global Holdings, Inc. ("Earth Care"), pursuant to which the
Company reverse split its common stock on a 1 for 16 basis, and then issued
4,196,316 post split shares of its authorized but previously unissued common
stock to the shareholders of Earth Care to acquire all the issued and
outstanding stock of Earth Care in a stock for stock exchange, which was
intended to be a tax free reorganization under Section 368(a) of the Internal
Revenue Code, and was accounted for, for financial reporting purposes, as an
acquisition by Earth Care of the Company. This transaction was not registered
under the Act in reliance on the exemption from registration in Section 4(6) of
the Act, as an offering made to accredited investors, all of whom were officers
and directors of Earth Care and/or represented that they were otherwise
accredited investors. These securities were issued as restricted securities and
the certificates were stamped with restrictive legends to prevent any resale
without registration under the Act or in compliance with an exemption.
As a condition precedent to the closing of the Earth Care acquisition, the
Company raised $1,000,000 of capital through an offering of its securities. The
offering was completed and the acquisition closed on or about March 28, 1996.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 3(b) of the Act, and Rule 504 of
Regulation D promulgated thereunder, in that securities with an aggregate
offering price not exceeding $1,000,000 were offered and sold by an issuer that
was not subject to the reporting requirements of the Securities Exchange Act of
1934, and was not an investment company or a company that had no specified
business purpose.
In April, 1996 the Company acquired all of the assets of DuraTech Industries.
The Company issued 24,772 post-split shares of its authorized but previously
unissued common stock to the shareholders of Duratech to acquire all the issued
and outstanding stock of Duratech in a stock for stock exchange which was
intended to be a tax free reorganization under Section 368(a) of the Internal
Revenue Code. This transaction was not registered under the Act in reliance on
the exemption from registration in Section 4(2), as transactions not involving
any public offering. This offering made was completed without any general or
public solicitation. In each case the offering was done to a very limited number
of officers, directors and shareholders of the companies being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment. These securities were issued as
restricted securities and the certificates were stamped with restrictive legends
to prevent any resale without registration under the Act or in compliance with
an exemption.
<PAGE> 151
In December, 1996, the Company formed the Clean Earth, Inc. and through it
acquired a wholly owned subsidiary, Clean Earth of New Castle, Inc. The Company
issued 5,400,000 post-split shares of its authorized but previously unissued
common stock to the shareholder of Clean Earth to acquire all the issued and
outstanding stock of Clean Earth in a stock for stock exchange which was
intended to be a tax free reorganization under Section 368(a) of the Internal
Revenue Code. This transaction was not registered under the Act in reliance on
the exemption from registration in Section 4(2), as transactions not involving
any public offering. This offering made was completed without any general or
public solicitation. In each case the offering was done to a very limited number
of officers, directors and shareholders of the companies being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment. These securities were issued as
restricted securities and the certificates were stamped with restrictive legends
to prevent any resale without registration under the Act or in compliance with
an exemption.
In January, 1997, the Company acquired Recycled Plastics Industries, Inc. (RPI),
located in Green Bay, Wisconsin. The Company paid $1,200,000 cash and issued
1,000,000 shares of its Common Stock to the shareholders of RPI in the
acquisition. This transaction was not registered under the Act in reliance on
the exemption from registration in Section 4(2), as transactions not involving
any public offering. This offering made was completed without any general or
public solicitation. In each case the offering was done to a very limited number
of officers, directors and shareholders of the companies being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment. These securities were issued as
restricted securities and the certificates were stamped with restrictive legends
to prevent any resale without registration under the Act or in compliance with
an exemption.
In February, 1997, the Company acquired Advanced Remediation and Disposal
Technologies, Inc. (ARDT). ARDT is engaged in environmental consulting and clean
up of contaminated sites primarily involving water and soils. The Company issued
300,000 shares of its Common Stock to the former shareholders of ARDT. This
transaction was not registered under the Act in reliance on the exemption from
registration in Section 4(2), as transactions not involving any public offering.
This offering made was completed without any general or public solicitation. In
each case the offering was done to a very limited number of officers, directors
and shareholders of the companies being acquired. The officers, directors and
few shareholders had strong knowledge and experience in business matters as well
as pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment. These securities were issued as restricted securities and the
certificates were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
During the period from June, 1996 through February, 1997, the Company has
offered and issued 209,207 shares of Class A Preferred Stock to a limited number
of investors at $20 per share, and raised $3,879,400 in proceeds. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2), as transactions not involving any public offering.
The securities were sold primarily to officers, directors or other acquaintances
who were familiar with the business of the Company and were able to assess the
risks and merits of the investment. These securities were issued as restricted
securities and the certificates were stamped with restrictive legends to prevent
any resale without registration under the Act or in compliance with an
exemption.
<PAGE> 152
During 1996, the Company issued a total of 5,565 shares of Common Stock pursuant
to the exercise of outstanding options held by two individuals who were officers
or directors of the Company. In 1997, the Company issued 500 shares to directors
for attendance at meetings. These transactions were not registered under the Act
in reliance on the exemption from registration in Section 4(2), as transactions
not involving any public offering. These securities were issued as restricted
securities and the certificates were stamped with restrictive legends to prevent
any resale without registration under the Act or in compliance with an
exemption.
During February, 1997, the Company issued 187,500 shares in connection with and
as partial consideration for the licensing agreement with Rutgers University.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2), as transactions not involving any
public offering. This offering was completed without any general or public
solicitation. The offering was done to a single investor which had knowledge and
experience in business matters to enable them to evaluate the risks and merits
of the investment. This investor also had a pre-existing business relationship
with the Company. The securities were issued as restricted securities and
certificates were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
On March 28, 1997, the Company acquired Environmental Specialty Plastics (ESP),
a marketing and distribution company of recycled plastic lumber products in
Guasti, California. The shareholders of ESP received $110,000 in cash and 25,150
shares of the Company's common stock for a purchase price of $123,581. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2), as transactions not involving any public offering.
This offering made was completed without any general or public solicitation. In
each case the offering was done to a very limited number of officers, directors
and shareholders of the companies being acquired. The officers, directors and
few shareholders had strong knowledge and experience in business matters as well
as pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment. The securities were issued as restricted securities and
certificates were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
On March 31, 1997, the Company acquired Integrated Technical Services, Inc.
(ITS), an environmental consulting and construction company in Winslow, New
Jersey. The stockholders of ITS received as acquisition consideration, cash plus
185,000 shares of the Company's common stock, and an additional 47,572 shares of
common stock for the for the non-compete agreements. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2), as transactions not involving any public offering. This offering
made was completed without any general or public solicitation. In each case the
offering was done to a very limited number of officers, directors and
shareholders of the companies being acquired. The officers, directors and few
shareholders had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment. The securities were issued as restricted securities and
certificates were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
<PAGE> 153
On June 20, 1997, the Company issued 1,111,111 shares of Common Stock to two
investment funds, a partnership, and one accredited private investor. These
transactions were not registered under the Act in reliance on the exemption from
registration in Rule 506 of Regulation D, promulgated under Section 4(2), as
transactions not involving any public offering, consisting of sales made solely
to accredited investors. Each entity investor has assets substantially in excess
of $5,000,000 and was not formed for the purpose of investing in the securities.
The natural person who invested has net worth substantially in excess of
$1,000,000. The securities were issued as restricted securities and certificates
were stamped with restrictive legends to prevent any resale without registration
under the Act or compliance with an exemption.
On June 30, 1997, the Company acquired EnviroPlastics Corp., (EPC) a recycled
plastic raw material regrind operation in Auburn, MA. The stockholders of EPC
received 280,000 shares of the Company's common stock as the purchase price plus
25,000 shares as consideration for non-compete agreements. These transactions
were not registered under the Act in reliance on the exemption from registration
in Section 4(2), as transactions not involving any public offering. This
offering made was completed without any general or public solicitation. In each
case the offering was done to a very limited number of officers, directors and
shareholders of the companies being acquired. The officers, directors and few
shareholders had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment. The securities were issued as restricted securities and
certificates were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
On June 30, 1997, the Company issued 150,000 shares to the former shareholders
of DuraTech Industries, Inc. as part of an earn out provision in the purchase
documents of that acquisition. These earn out shares were accelerated in part in
exchange for salary concessions made by the former shareholders of DuraTech
Industries, Inc. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2), as transactions not
involving any public offering. The securities were issued as restricted
securities and certificates were stamped with restrictive legends to prevent any
resale without registration under the Act or in compliance with an exemption.
On November 18, 1997, the Company acquired Waste Concepts, Inc. (WCI), an
environmental recycling services company located in Norristown, PA. The
stockholder of WCI received $175,000 at Closing plus 400,000 shares of common
stock of the Company. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2), as transactions not
involving any public offering. This offering made was completed without any
general or public solicitation. In each case the offering was done to a very
limited number of officers, directors and shareholders of the companies being
acquired. The officers, directors and few shareholders had strong knowledge and
experience in business matters as well as pre-existing business relationships
with the Company. The knowledge and experience of these individuals enabled them
to evaluate the risks and merits of the investment. The securities were issued
as restricted securities and certificates were stamped with restrictive legends
to prevent any resale without registration under the Act or in compliance with
an exemption.
<PAGE> 154
On or about January 2, 1998, the Company acquired Green Horizon Environmental,
Inc. (GH), an environmental recycling services company located in Norristown,
PA. The stockholders of GH received 50,000 shares of common stock of the
Company. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2), as transactions not involving any
public offering. This offering made was completed without any general or public
solicitation. In each case the offering was done to a very limited number of
officers, directors and shareholders of the companies being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment. The securities were issued as
restricted securities and certificates were stamped with restrictive legends to
prevent any resale without registration under the Act or in compliance with an
exemption.
ITEM 27. EXHIBITS INDEX
<TABLE>
<CAPTION>
SEC NO. DOCUMENT EXHIBIT NO.
<S> <C> <C>
2 Agreement & Plan of Reorganization 2.1*
(Earth Care/Educational Storybooks)
3 Articles of Incorporation (Front Street) 3.1*
3 Articles of Amendment (Front Street) 3.2*
3 Articles of Amendment (Educational Storybooks) 3.3*
3 Articles of Amendment (Educational Resources) 3.4*
3 Articles of Merger (Educational Resources and 3.5*
U.S. Plastic Lumber Corp.
3 By-Laws 3.6*
4 Common Stock Specimen Certificate 4.1*
4 Warrant Agreement 4.2*
4 Series A Warrant Certificate 4.3*
4 Series B Warrant Certificate 4.4*
5,24 Opinion & Consent of Counsel 5.1 & 24.1*
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
<S> <C> <C>
10 Jeanell Sales Corp. Acquisition Agreement 10.1*
10 Duratech Acquisition Agreement 10.2*
10 Clean Earth Acquisition Agreement 10.3*
10 RPI Acquisition Agreement 10.4*
10 ARDT Acquisition Agreement 10.5*
10 Employment Agreement - Mark Alsentzer 10.6*
10 Employment Agreement - Harold Gebert 10.7*
10 Employment Agreement - David Farrow 10.8*
10 Rutgers Licensing Agreement 10.9*
10 ESP Acquisition Agreement 10.10*
10 ITS Acquisition Agreement 10.11*
10 EPC Acquisition Agreement 10.12*
10 ICC/USPL Joint Venture Agreement 10.13*
10 S D & G License and Operating Agreement 10.14*
10 Ground Lease Agreement (Carteret Biocycle) 10.15*
10 Lease Agreement (Brock Mgt/Earth Care TN) 10.16*
10 Lease Agreement (APEC/Earth Care Midwest) 10.17*
10 Lease Agreement (Plastic Properties LLC/RPI) 10.18*
10 Lease Agreement (Dalphon Sr./Clean Earth) 10.19*
10 Lease Agreement (Glades Twin Plaza/Earth Care) 10.20*
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
<S> <C> <C>
10 Lease Agreement (Consol. Realty/EPC) 10.21*
10 Lease Agreement (Waste Concepts, Inc.) 10.22
10 Lease Agreement (Earth Care Partners of Tennessee) 10.23
10 WCI Acquisition Agreement 10.24
10 CTI Stock Purchase Agreement 10.25
10 Employment Agreement - Steven Sands 10.26
10 Employment Agreement - Bruce Rosetto 10.27
10 ICC/USPL Joint Venture II 10.28
11 Statement re computation of per share earnings 11.1*
21 List of subsidiaries 21.1*
23 Consent of Accountants (USP) 23.1
23 Consent of Accountants (CEI) 23.1
23 Consent of Accountants (RPI) 23.1
23 Consent of Accountants (ARDT) 23.1
23 Consent of Accountants (ITS) 23.1
23 Consent of Accountants (WCI) 23.1
23 Consent of Accountants (EPC) 23.1
27 Financial Data Schedules 27
</TABLE>
* Exhibit previously filed
<PAGE> 157
ITEM 28. UNDERTAKINGS
The registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
(ii) Include any additional or changed material information on the plan of
distribution; and
(iii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the Registration
Statement.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE> 158
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Boca
Raton, State of Florida, on January 8, 1998.
U.S. PLASTIC LUMBER CORP.
By: /s/ Mark S. Alsentzer
------------------------------------
Mark S. Alsentzer, President (Chief Executive Officer)
By: /s/ Michael Schmidt
------------------------------------
Michael Schmidt, (Chief Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Thomas G. Kimble or Van L. Butler, the
undersigned's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing, requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature: /s/ Mark S. Alsentzer Date: February 11, 1998
---------------------------------- -----------------
Mark S. Alsentzer, President & Director
Signature: /s/ Raymond J. Kiernan Date: February 11, 1998
------------------------------- -----------------
Raymond J. Kiernan, Director
<PAGE> 159
Signature: /s/ Lester E. Moody Date: February 11, 1998
--------------------------------- ------------
Lester E. Moody, Director
Signature: /s/ James Blosser Date: February 11, 1998
----------------------------------- ------------
James Blosser, Director
Signature: /s/ Roger Zitrin Date: February 11, 1998
----------------------------------- ------------
Roger Zitrin, Director
Signature: /s/ August C. Schultes III Date: February 11, 1998
----------------------------------- ------------
August C. Schultes, III, Director
Signature: /s/ Gary J. Ziegler Date: February 11, 1998
----------------------------------- ------------
Gary J. Ziegler, Director
Signature: /s/ Steve Groth Date: February 11, 1998
----------------------------------- ------------
Steve Groth, Director
<PAGE> 1
EXHIBIT 23.1
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 18, 1997, on our audit of the consolidated
financial statements of U.S. Plastic Lumber Corp. and Subsidiaries. We also
consent to the reference to our firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1998
<PAGE> 1
EXHIBIT 23.2
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 18, 1997, on our audit of the consolidated
financial statements of Clean Earth, Inc. and Subsidiaries. We also consent to
the reference to our firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1998
<PAGE> 1
EXHIBIT 23.3
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated November 24, 1997, on our audit of the financial statements
of Recycled Plastics Industries, Inc. We also consent to the reference to our
firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1998
<PAGE> 1
EXHIBIT 23.4
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 29, 1997, on our audit of the financial statements
of Advanced Remediation and Disposal Technologies, Inc. We also consent to the
reference to our firm under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1998
<PAGE> 1
EXHIBIT 23.5
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS'
We consent to the inclusion in this registration statement on Form SB-2
of our report dated August 7, 1997, on our audit of the financial statements of
Integrated Technical Services, Inc. We also consent to the reference to our firm
under the caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1998
<PAGE> 1
EXHIBIT 23.6
-----------------------------------
KUNTZ LESHER SIEGRIST & MARTINI LLP
-----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
215 S. CENTERVILLE ROAD
P. O. BOX 8408
LANCASTER, PA 17604
(717)394-5666
FAX (717)394-0693
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 8, 1997, on our audit of the financial statements
of Waste Concepts, Inc. We also consent to the reference to our firm under the
caption "Experts".
/s/ KUNTZ LESHER SIEGRIST & MARTINI LLP
KUNTZ LESHER SIEGRIST & MARTINI LLP
CERTIFIED PUBLIC ACCOUNTANTS
Lancaster, Pennsylvania
February 10, 1998
<PAGE> 1
EXHIBIT 23.7
LOVE, BOLLUS, LYNCH & ROGERS
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
10 Mechanic Street * Worcester, Massachusetts 01608
Telephone 508-755-7107 * Facsimile 508-755-3896
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form SB (No. 2)
of our report, dated July 25, 1997, relating to the financial statements of
EnvironPlastics Corporation. We also consent to the reference to our Firm under
the captions "Experts" and "Selected Financial Data" in the Prospectus.
/s/ Love, Bollus, Lynch & Rogers
----------------------------------
Love, Bollus, Lynch & Rogers
Worcester, Massachusetts
February 11, 1998
MCGLADREY NETWORK
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF U.S. PLASTIC LUMBER CORPORATION FOR THE TWELVE MONTHS
ENDED, DECEMBER 31, 1996 AND NINE MONTHS ENDED, SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 854,290 1,611,603
<SECURITIES> 0 0
<RECEIVABLES> 1,821,742 5,955,504
<ALLOWANCES> 262,279 377,001
<INVENTORY> 486,978 1,387,656
<CURRENT-ASSETS> 3,455,193 8,979,622
<PP&E> 4,212,832 8,584,532
<DEPRECIATION> 3,277,114 3,564,359
<TOTAL-ASSETS> 7,210,894 19,885,111
<CURRENT-LIABILITIES> 2,864,393 6,767,406
<BONDS> 714,312 3,675,490
0 0
75 210
<COMMON> 1,167 1,500
<OTHER-SE> 4,338,529 11,148,763
<TOTAL-LIABILITY-AND-EQUITY> 7,210,894 19,885,111
<SALES> 4,741,939 15,432,537
<TOTAL-REVENUES> 4,741,939 15,432,537
<CGS> 3,721,508 11,379,219
<TOTAL-COSTS> 3,721,508 11,379,219
<OTHER-EXPENSES> 1,311,155 3,523,331
<LOSS-PROVISION> 21,704 59,192
<INTEREST-EXPENSE> 8,397 140,572
<INCOME-PRETAX> (245,965) 426,357
<INCOME-TAX> (65,691) 1,569
<INCOME-CONTINUING> (180,274) 424,788
<DISCONTINUED> 0 0
<EXTRAORDINARY> 66,859 0
<CHANGES> 0 0
<NET-INCOME> (113,415) 424,788
<EPS-PRIMARY> (.02) .01
<EPS-DILUTED> .00 .00
</TABLE>
