SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
(Amendment No. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
ENVIRO-RECOVERY, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Texas 33-0507697
- -------------------------------- -------------------------------------
(State of Incorporation) (Issuer's I.R.S. Employer I.D. Number)
Enviro-Recovery, Inc.
1610 Cornell Road
Green Bay, Wisconsin 54313
(Address of principal executive offices and zip code)
(920) 662-1052
(Issuer's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value per share
<PAGE>
PART F/S
Our financial statements are included in this report beginning on page
F-1, immediately following in this section.
-2-
<PAGE>
ENVIRO-RECOVERY, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1998 and 1997
Together With Independent Auditors' Report
-3-
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Enviro-Recovery, Inc. and Subsidiaries
Ashland, Wisconsin
We were engaged to audit the accompanying consolidated balance sheets of
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management.
Except as explained in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
Because we were not engaged as auditors until after the end of the year, we were
not present to observe the physical inventories at December 31, 1997 and
December 31, 1996 (stated at $ 652,931 and $57,836, respectively), and we were
unable to satisfy ourselves concerning inventory quantities on hand at those
dates by other auditing procedures. Accordingly, the scope of our work was not
sufficient to enable us to express, and we do not express an opinion on the
statements of income, retained earnings and cash flows for the year ended
December 31, 1998.
Since the inventory balances as of December 31, 1997 and 1996, materially affect
the determination of financial position, results of operations, and cash flows,
the scope of our work was not sufficient to enable us to express, and we do not
express an opinion on the financial statements as of and for the year ended
December 31, 1997.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Enviro-Recovery, Inc. and
Subsidiaries as of December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Schenck & Associates SC
Green Bay, Wisconsin
November 1, 1999
F-2
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS - DECEMBER 31, 1998 AND DECEMBER 31, 1997
Consolidated Balance Sheet F-3 to F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 to F-8
Conolidated Statement of Expenses F-9
Consolidated Statement of Revenues F-10
Notes to Consolidated Financial Statements F-11 to F-21
FINANCIAL STATEMENTS - SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
Consolidated Balance Sheet F-22 to F-23
Consolidated Statements of Operations F-24
Consolidated Statements of Cash Flows F-25
Consolidated Statements of Stockholders' Equity F-26
Notes to Consolidated Financial Statements F-27 to F-32
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Enviro-Recovery, Inc. and Subsidiaries
Ashland, Wisconsin
We were engaged to audit the accompanying consolidated balance sheets of
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management.
Except as explained in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
Because we were not engaged as auditors until after the end of the year, we were
not present to observe the physical inventories at December 31, 1997 and
December 31, 1996 (stated at $ 652,931 and $57,836, respectively), and we were
unable to satisfy ourselves concerning inventory quantities on hand at those
dates by other auditing procedures. Accordingly, the scope of our work was not
sufficient to enable us to express, and we do not express an opinion on the
statements of income, retained earnings and cash flows for the year ended
December 31, 1998.
Since the inventory balances as of December 31, 1997 and 1996, materially affect
the determination of financial position, results of operations, and cash flows,
the scope of our work was not sufficient to enable us to express, and we do not
express an opinion on the financial statements as of and for the year ended
December 31, 1997.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Enviro-Recovery, Inc. and
Subsidiaries as of December 31, 1998, in conformity with generally accepted
accounting principles.
Green Bay, Wisconsin
November 1, 1999
F-2
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS 1998 1997
------ ---- ----
Current assets
Cash $ 201,547 $ 187,859
Receivables:
Trade 6,886 6,154
Other 3,421 5,413
Inventories 1,678,673 652,931
Prepaid expenses 121,194 48,805
---------- ----------
Total current assets 2,011,721 901,162
---------- ----------
Property and equipment
Land and improvements 25,336 20,504
Buildings and improvements 927,079 976,839
Equipment 2,097,181 604,788
Vehicles 141,627 127,993
Office equipment 40,266 32,145
Construction in progress -- 231,116
---------- ----------
3,231,489 1,993,385
Less accumulated depreciation 374,280 179,034
---------- ----------
Net property and equipment 2,857,209 1,814,351
---------- ----------
Other assets
Other investment, at cost 174,300 --
Intangible assets, net of amortization 29,517 32,320
---------- ----------
Total other assets 203,817 32,320
========== ==========
F-3
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) 1998 1997
Current liabilities
Notes payable $ 1,756,611 $ 726,609
Current maturities of long-term debt 156,900 152,300
Accounts payable 593,213 327,437
Customer deposits 153,810 163,810
Accrued liabilities:
Salaries and wages 30,032 22,272
Interest 109,304 12,662
Property taxes 24,393 19,212
Payroll taxes -- 2,202
Sales tax 3,611 2,030
Other -- 1,035
---------- ----------
Total current liabilities 2,827,874 1,429,569
Long-term debt, less current maturities 2,491,281 818,576
---------- ----------
Total liabilities 5,319,155 2,248,145
---------- ----------
Stockholders' equity (deficit)
Common stock, $.0001 par value:
Authorized, 50,000,000 shares
Issued and outstanding, 34,344,636 shares
and 20,454,944 shares, respectively 3,435 2,046
Additional paid-in capital 3,774,442 2,057,057
Accumulated deficit (4,034,327) (1,558,111)
---------- ----------
(256,450) 500,992
Minority interest in net equity position of
consolidated subsidiary 10,042 (1,304)
---------- ----------
Total stockholders' equity (deficit) (246,408) 499,688
---------- ----------
$ 5,072,747 $ 2,747,833
========= ============
F-4
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
1998 1997
Revenues
Lumber $ 456,281 $ 167,563
Advertising 4,143 17,443
------------ ------------
Total revenues 460,424 185,006
Cost of revenues 675,252 192,927
------------ ------------
Gross profit (214,828) (7,921)
Operating expenses 1,433,209 1,232,460
------------ ------------
Loss from operations (1,648,037) (1,240,381)
------------ ------------
Other income (expense)
Rental income 400 7,500
Interest income 2,498 4,730
Miscellaneous income 14,187 30,198
Loss on disposal of
property and equipment (213,718) --
Interest expense (620,200) (69,396)
------------ ------------
Other expense, net (816,833) (26,968)
------------ ------------
Loss before income taxes (2,464,870) (1,267,349)
Income tax credit -- --
Net loss $ (2,464,870) $ (1,267,349)
============ ============
Loss per share $ (0.09) $ (0.10)
============ ============
Weighted average number of
shares 27,399,790 12,413,763
============ ============
Diluted loss per share $ (0.07) $ (0.10)
Weighted average number of
shares and dilutive
potential shares 33,389,790 12,413,763
============ ============
See notes to consolidated financial statements
F-5
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1998 and 1997
<TABLE>
Common Stock
----------------------- Total
Additional Stockholders'
Shares Stock Paid-in Accumulated Minority Equity
issued Amount Capital Deficit Interest (Deficit)
--------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 5,000,000 $ 125 $ 24,949 $ (293,066) $ -- $ (267,992)
Reverse split -
1 share for 4 shares (3,750,000) -- -- -- -- --
Stock issued 2,550,000 255 127,245 -- 1,000 128,500
Shares issued to acquire
Resource Recovery, Inc. 15,435,369 1,544 399,393 -- -- 400,937
Stock issued 1,219,575 122 1,505,470 -- -- 1,505,592
Net loss -- -- -- (1,265,045) (2,304) (1,267,349)
---------- ----------- ----------- ----------- ------------ -------------
Balance, December 31, 1997 20,454,944 2,046 2,057,057 (1,558,111) (1,304) 499,688
Stock issued 13,889,692 1,389 1,717,385 -- -- 1,718,774
Net loss -- -- -- (2,476,216) 11,346 (2,464,870)
---------- ----------- ----------- ----------- ------------ -------------
Balance, Decembr 31, 1998 34,344,636 $ 3,435 $ 3,774,442 $(4,034,327) $ 10,042 $ (246,408)
========== =========== =========== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997
<TABLE>
1998 1997
<S> <C> <C>
Operating activities
Net loss $ (2,464,870) $ (1,267,349)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 256,008 145,277
Amortization 3,358 7,564
Loss on disposal of property and equipment 213,718 -
Issuance of common stock for services 31,540 94,350
Decrease (increase) in:
Receivables 1,260 (3,777)
Inventories (1,025,742) (595,095)
Prepaid expenses (72,389) (48,805)
Increase (decrease) in:
Accounts payable 265,776 153,352
Customer deposits (10,000) 124,748
Accrued liabilities 107,927 43,642
--------- ---------
Net cash used for operating activities (2,693,414) (1,346,093)
--------- ---------
Investing activities
Purchase of property and equipment (1,667,014) (1,250,415)
Proceeds from sale of property and equipment 154,430 -
Loans made (174,300) -
Increase in intangible assets (555) (444)
--------- ---------
Net cash used for investing activities (1,687,439) (1,250,859)
--------- ---------
Financing activities
Proceeds from additional long-term debt 1,960,621 545,102
Retirement of long-term debt (283,316) (56,312)
Net proceeds from notes payable 1,486,565 738,969
Issuance of common stock 1,230,671 1,539,742
--------- ---------
Net cash provided by financing activities 4,394,541 2,767,501
--------- ---------
Cash
Net increase 13,688 170,549
Beginning of year 187,859 17,310
--------- ---------
End of year $ 201,547 $ 187,859
========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1998 and 1997
1998 1997
Supplemental cash flow information
Cash paid for:
Interest $ 523,558 $ 88,433
Supplemental disclosure of noncash investing and financing activities
During 1997, the Company acquired the assets of True North TV 25 station for the
assumption of the liabilities. The purchase price and related assumption of
liabilities was as follows:
Assets acquired:
Account receivable $ 4,100
Equipment 31,366
Goodwill 24,875
Organizational costs 7,545
----------
$ 67,886
Liabilities assumed:
Accounts payable $ 6,487
Long-term debt 61,399
---------
$ 67,886
During 1998, loans from stockholders in the amount of $ 456,563 were converted
into common stock.
During 1998 and 1997, the Company issued common stock in exchange for services.
Shares issued during 1998 and 1997 were 315,395 and 943,500, respectively. The
value of the shares issued were $31,540 and $94,350, respectively.
See notes to consolidated financial statement.
F-8
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Operating Expenses
Years ended December 31, 1998 and 1997
1998 1997
---- ----
Advertising $ 11,786 $ 12,803
Amortization 3,358 98
Bank charges 4,533 4,303
Commissions 1,103 3,667
Contributions 70 378
Depreciation 72,418 37,139
Director fees 20,000 --
Dues and subscriptions 2,697 650
Equipment rental 3,995 7,611
Insurance-general 106,208 57,699
Insurance-health 59,667 34,520
Leases 3,372 15,401
Licenses and fees 730 5,917
Lobbying expenses 20,430 --
Lodging 64,488 139,587
Meals and entertainment 13,118 16,927
Outside services 40,949 78,613
Payroll taxes 43,698 27,005
Postage 7,141 8,645
Professional services 183,207 226,863
Property taxes 25,950 31,114
Public relations 7,667 23,133
Rent 17,693 6,198
Repairs and maintenance 12,491 7,952
Research and development 188,856 8,189
Supplies 48,264 116,264
Telephone expense 67,025 56,495
Training 305 85
Utilities 4,362 1,565
Vehicle expense 20,183 16,612
Wages 377,445 287,027
---------- ----------
$1,433,209 $1,232,460
========== ==========
See notes to consolidated financial statement.
F-9
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Cost of Revenues
Years ended December 31, 1998 and 1997
1998 1997
Inventories, beginning of year $ 652,931 $ 57,836
Purchases 835,200 358,496
Direct labor 351,753 144,102
Payroll taxes 29,428 16,309
Other costs:
- ------------
Depreciation 183,590 108,138
Freight 83,553 2,576
Permits and fees 18,665 28,868
Repairs and maintenance 20,813 4,084
Subcontractors 7,194 1,212
Supplies 69,612 62,177
Utilities 76,399 23,775
Vehicle expense 5,607 17,736
Vessel expense 19,180 20,549
---------- ---------
2,353,925 845,858
Inventories, end of year 1,678,673 652,931
---------- ---------
$ 675,252 $ 192,927
========== ===========
See notes to consolidated financial statement.
F-10
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1 - Nature of business and significant accounting policies
- ------
A. Organization and Nature of business
-----------------------------------
On June 2, 1997, Enviro-Recovery, Inc. (Company) acquired Resource
Recovery, Inc. and it's subsidiaries, Superior Water Logged Lumber Company,
Inc. and Viking Marine, Inc. in a business combination accounted for as a
pooling of interests. Resource Recovery, Inc. became a wholly-owned
subsidiary of the company through the exchange of 15,435,369 shares of the
company's common stock for all of the outstanding stock of Resource
Recovery, Inc. The accompanying financial statements for 1997 are based on
the assumption that the companies were combined for the full year.
The Company is engaged in the production of lumber and wood products from
old growth forest timber recovered from the bottom of the lakes and rivers
of North America. Lumber sales are made to customers located mainly in the
upper Midwestern region of the United States. The Company also operates
True North TV 25 in Ashland, Wisconsin with sales to advertisers located in
or with operations in that same area.
B. Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and all subsidiaries in which more than 50% control is maintained. Those
subsidiaries include:
Ownership
Interest
Resource Recovery, Inc. 100%
Superior Water Logged Lumber Company, Inc. 100%
Resource Recovery of Wisconsin, Inc. 100%
Viking Marine, Inc. 75%
All significant intercompany balances and transactions have been
eliminated.
C. 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 and disclosures.
Accordingly, actual results could differ from those estimates.
B. Receivables
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required to state
accounts receivable at net realizable value. If amounts become
uncollectible, they will be charged to operations when that determination
is made.
F-11
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 1 - Nature of business and significant accounting policies, continued
- ------
C. Inventories
Inventories are stated at the lower of cost or market. The cost of
inventory is determined on the first-in, first-out (FIFO) method.
D. Property and equipment and depreciation
---------------------------------------
Property and equipment are stated at cost. Expenditures for additions and
improvements are capitalized while replacements, maintenance and repairs
which do not improve or extend the lives of the respective assets are
expense currently as incurred. Properties sold, or otherwise disposed of,
are removed from the property accounts, with gains or losses on disposal
credited or charged to operations.
Depreciation for financial reporting and income tax purposes is provided
over the estimated useful lives of the respective assets using the
straight-line and accelerated methods.
E. Amortization
Intangible assets and deferred charges of the Company are amortized using a
straight-line method as follows:
Goodwill 15 years
Organizational costs 5 years
Trademark 15 years
F. Income taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of inventories and
property and equipment for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of
those differences, which will wither be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes are also
recognized for operating losses that are available to offset future taxable
income.
F-12
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 2 - Acquisition of television station
On November 1, 1997, Resource Recovery of Wisconsin, Inc. acquired the assets of
the True North TV 25 station for the assumption of liabilities in the amount of
$ 67,886. The acquisition was accounted for as a purchase. The results of
operations of the True North TV 25 station have been included in the
accompanying statement of operations from the date of acquisition forward.
The purchase price was allocated as follows:
Accounts receivable $ 4,100
Equipment 31,366
Goodwill 24,875
Organizational costs 7,545
-------
$ 67,886
========
Note 3 - Cash
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash.
Note 4 - Inventories
Inventories at December 31, 1998 and 1997 consisted of the following:
1998 1997
---- ----
Raw materials $ 399,573 $ 75,402
Supplies 5,000 5,000
Retail inventory 24,262 3,216
Work in process and finished goods 1,249,838 569,313
---------- ---------
$1,678,673 $ 652,931
========== =========
F-13
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 5 - Investment in Brazil operations
On July 27, 1998 the Company entered into a joint venture purchase/agreement
with three affiliated Brazilian operations - Know How Madeiras, Lamituc Ltd.,
and R.. Corte Real Barros - along with the individual owners of the operations
Rogerio Corte Real Barros and Gilberto de Paula Corte Real. The three operations
are sawmills and related facilities located on Lake Tucurui, Brazil. The
operations have contract rights for the recovery of submerged lumber in the Lake
Tucurui hydroelectric reservoir. Upon execution of this agreement and the
payment of $100,000, the Company received a band saw and the first right of
refusal of all wood subsequently recovered from Lake Tucurui by the three
affiliated Brazilian operations. As of December 31, 1998, the Company had funded
an additional $74,300 for the purchase of the three affiliated Brazilian
operations. The terms of the acquisition and acquisition schedule were amended
on March 3, 1999. The amended acquisition agreement was terminated due to the
affiliated Brazilian operation's not obtaining the complete allotment of rights
to extract timber from Lake Tucurui, Brazil. Under the termination clause, the
Brazilian operations shall refund the $74,300 to the Company. The Company
continues to maintain the first right of refusal for timber extracted by the
Brazilian operations.
Note 6 - Intangible assets
Intangible assets at December 31, 1998 and 1997 consisted of the following:
1998 1997
---- -----
Goodwill $ 24,873 $ 24,873
Organizational costs 7,989 7,989
Trademark 555 -
-------- ---------
33,417 32,862
Less accumulated amortization 3,900 542
-------- ---------
Intangible assets, net $ 29,517 $ 32,320
======= =======
F-14
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 7 - Notes payable
Notes payable at December 31, 1998 and 1997 consisted of the following:
1998 1997
---- ----
Northern State Bank
10.25% note, retired in 1998 $ - $ 50,000
10.25% note, retired in 1998 - 50,000
Stockholders 5.63% notes, unsecured:
Kevin Deutsch, retired in 1998 - 50,373
New note 53,464 -
Kent and Carmel Lowry, retired
in 1998 - 50,285
Jack Lowry, retired in 1998 - 50,285
William and Reeva Heide, retired
in 1998 - 105,404
Michael Wagner, retired in 1998 - 50,138
Wade Micoley, retired in 1998 - 25,030
Jeff Noeldner, retired in 1998 - 25,030
New note 164,082 -
Steven Schock, retired in 1998 - 100,017
Rick Luytjes 207,734 -
Scott Mitchen 89,262 -
Thomas Evinrude 25,411 -
Subsequent to December 31, 1998, these notes were converted into common
stock.
F-15
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 7 - Notes payable, continued
1998 1997
---- ----
Kenneth C. Wiley
9.50% note, retired in 1998 - 100,000
David P. Grau
10.00% note, retired in 1998 - 50,000
M & I Bank
9.50% note, retired in 1998 - 20,047
Jack Lowry
9.75%* note, due April, 1999,
secured by real estate 300,000 -
First Capital Services, Inc.
32% note, due April, 1999 250,000 -
24% note, due September, 1999 650,000 -
Subsequent to December 31, 1998, $300,000 was converted into common stock.
Edge Tech
13.72% note, payable in monthly
installments of $2,490 to June,
1999, secured by equipment 16,658 -
--------- ---------
$ 1,756,611 $ 726,609
========== =========
* Interest rate fluctuates at 2% over prime.
Note 8 - Long-term debt
Long-term debt at December 31, 1998 and
1997 consisted of the following:
1998 1997
---- ----
Northern States Power Company
10.25% note, payable in monthly
installments of $1,069
including interest to October, 2001,
secured by real estate $ 34,548 $ 40,504
10.00% note, payable in monthly
installments of $2,295
including interest to June, 2003,
secured by real estate 105,199 -
F-16
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 8 - Long-term debt, continued
1998 1997
---- ----
M & I Bank
9.75%* note, payable in monthly
installments of $6,700
including interest to January, 2000,
secured by a general
business security agreement 255,883 267,694
10.50%* note, retired in 1998
interest in each of the second, third
and fourth years with the remaining
balance and interest payable in the
fifth year (June, 2001), unsecured 100,000 150,000
Jerry and Jane Immel
8.00% note, payable in quarterly
installments of $1,200 the first year,
$1,800 the second year and $2,400 the
third year, with a balloon payment of
$7,993 including interest to
August 1, 1999, unsecured 17,952 22,980
Norwest Bank
------------
10.25% note, retired in 1998 - 16,700
10.50% note, payable in monthly
installments of $304 including
interest to July, 2001, secured
by a vehicle 8,221 11,104
10.25% note, payable in monthly
installments of $451 including
interest to November, 2001,
secured by a vehicle 13,589 17,440
Department of Development
-------------------------
4.00% note, amounts advanced under
the terms of $350,000 note,
interest only payments to August, 1999,
then payable in monthly installments
of $5,400, including interest to July,
2004 at which time the remaining balance
is due, secured by accounts receivable,
inventory, intangibles and waterway
rights. 337,297 217,297
F-17
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 8 - Long-term debt, continued
1998 1997
---- ----
Northwest WI Business Development Co.
7.50% note, amounts advanced under
the terms of $100,000 note, due
February 15, 2007, interest only
payments until September 15, 1997.
Monthly principal and interest
payments of $1,624 starting September
15, 1997, secured by a general
business agreement and personal
guarantees of Scott Mitchen and
Robert Holland 98,423 13,923
Ashland Area Development Corporation
4.00% note, interest only payments
until March, 1999, then payable in
monthly installments of $276
including interest to June, 2004,
secured by specific equipment 14,391 15,000
HP Envirovision
8.00% note, retired in 1998 - 47,380
GMAC
8.9% note, payable in monthly
installments of $802 to May,
2002, secured by a vehicle 29,596 -
The Associates
9.75% note, payable in monthly
installments of $800 to June, 2000 11,962 -
Caterpillar Financial Services Corporation
8.67% note, payable in monthly
installments of $1,281 to April,
2002, secured by equipment 44,496 -
Steven Schock
8.00% note, due September, 2000,
unsecured 137,300 -
Thomas Evinrude
9.00% note, due August, 2000,
secured by a first priority
security interest in specific
property and a general security
interest 1,395,590 -
--------- -------
Total Long-term debt 2,648,181 970,876
Current maturities 156,900 152,300
--------- -------
Long-term debt, less current maturities $ 2,491,281 $ 818,576
=========== =========
* Interest rate fluctuates at 2% over prime.
** Interest rate fluctuates at 2.50% over prime.
F-18
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 8 - Long-term debt, continued
Maturities of long-term debt at December 31, 1998 are as follows:
Year ending
December,
1999 $ 156,900
2000 1,881,800
2001 229,000
2002 113,800
2003 121,700
Thereafter 144,981
----------
$ 2,648,181
===========
Note 9 - Income taxes
The net deferred tax asset related to the net operating loss carryforwards has
been offset in its entirety by a valuation allowance. No tax benefit has been
reported for the year ended December 31, 1998 and 1997 .
The net deferred tax asset and valuation allowance at December 31, 1998 and 1997
are as follows:
1998 1997
---- ----
Deferred tax asset $838,000 $431,000
Valuation allowance (838,000) (431,000)
-------- --------
Net deferred tax asset $ - $ -
======== ========
Net operating loss carryforwards available to offset future federal and state
taxable income approximate $4,000,000 and expire in years 2007 - 2013.
Note 10 - Advertising costs
Advertising and marketing costs are expenses as incurred. Advertising and
marketing costs amounted to $11,786 and $12,803 for the years ended December 31,
1998 and 1997, respectively.
F-19
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 11 - Stock option plans - common stock
- -------
The Company has two broad-based stock option plans established on June 5, 1998
under which non-qualified and qualified stock options may be granted to certain
employees and non-employee stockholders. Each option allows for purchase of one
common share of the company.
Qualified Plan - Employees
This plan calls for immediate vesting of options on June 5, 1998 with either a
four or five year vesting schedule for additional options to be granted. The
exercise price of the vested options at December 31, 1998 is $10 per share for
options vested at that time. The exercise price for subsequent options will be
the closing market price on the day before the option vest (June 4) of each
succeeding year. These options will expire on termination of employment or on
June 4, 2005.
Non-qualified Plans - Non-employee shareholders
This plan calls for immediate vesting of options on September 23, 1998 with a
one-year schedule to September 22, 1999 for additional options. The exercise
price for current and subsequent options is the same as the qualified option
plan. The options under this plan expire May 2, 2003.
A summary of the status of the Company's two stock option plans is presented
below for current and subsequent options granted:
Options Exercise
Outstanding Price Per Share
Qualified plan
Balance at January 1, 1998 - $ -
Options granted - June 5, 1998 4,640,000 $ .10
========= ============
Subsequent options
June 5, 1999 1,095,000
2000 1,095,000
2001 1,095,000
2002 1,095,000
2003 650,000
---------
5,030,000
=========
Non-qualified plan
Balance at January 1, 1998 - -
Options granted - September 23,
1998 1,350,000 $ .10
========= =============
Subsequent options
September 23, 1999 2,000,000
=========
F-20
<PAGE>
ENVIRO-RECOVERY, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1998 and 1997
Note 12 - Risk Concentrations
The Company's business entails a number of risks. A significant portion of the
Company's revenue is concentrated with one customer. This one customer accounts
for $162,000 and $42,100 and 36% and 23% of total revenue in 1998 and 1997,
respectively.
The Company is also dependent upon a small number of suppliers. Of these
suppliers, one accounted for approximately 31% of cost of revenues in 1997 only.
There were no suppliers in excess of 10% of cost of revenues in 1998.
F-21
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
ASSETS
1999 1998
---- ----
Current assets
Cash $ 102,044 $ 359,810
Accounts receivable 70,567 116,343
Inventories 2,133,371 607,839
Prepaid expenses 140,323 70,777
---------- ---------
Total current assets 2,446,305 1,154,769
---------- ---------
Property and equipment
Land and improvements 25,366 25,366
Buildings and improvements 935,452 907,035
Equipment 2,872,816 2,284,752
Vehicles 141,627 163,328
Office equipment 44,829 38,210
---------- ---------
4,020,090 3,418,691
Less accumulated depreciation 477,219 310,910
---------- ---------
Net property and equipment 3,542,871 3,107,781
---------- ---------
Other assets
Note receivable 44,000
Other investment, at cost 174,300 22,166
Intangible assets, net of
amortization 26,992 174,300
---------- ---------
Total other assets 245,292 196,466
---------- ---------
$6,234,468 $4,459,016
========== ==========
F-22
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
---- ----
Current liabilities
Notes payable $ 2,268,000 $ 1,485,610
Current maturities of
long-term debt 135,500 155,000
Accounts payable 381,537 420,438
Accrued liabilities 411,595 127,994
----------- -----------
Total current liabilities 3,196,632 2,189,042
Long-term debt, less current
maturities 1,113,710 1,590,851
----------- -----------
Total liabilities 4,310,342 3,779,893
----------- -----------
Stockholders' equity
Common stock 7,132 3,032
Additional paid-in capital 7,795,919 4,137,236
Treasury stock, at cost (10,000)
Accumulated deficit (4,034,327) (1,558,111)
Current loss (1,844,640) (1,901,730)
----------- -----------
1,914,084 680,427
Minority interest in net equity
position of consolidated
subsidiary 10,042 (1,304)
----------- -----------
Total stockholders' equity 1,924,126 679,123
----------- -----------
$ 6,234,468 $ 4,459,016
=========== ===========
F-23
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
1999 1998
---- ----
Revenues $ 745,379 $ 260,201
Cost of revenues 1,043,531 382,495
----------- -----------
Gross profit (loss) (298,152) (122,294)
Operating expenses 1,030,370 1,093,529
----------- -----------
Loss from operations (1,328,522) (1,215,823)
----------- -----------
Other income (expense)
Interest income 5,282 2,437
Settlement expense (65,400) (206,309)
Interest expense (456,000) (482,035)
----------- -----------
Other expense, net (516,118) (685,907)
----------- -----------
Loss before income taxes (1,844,640) (1,901,730)
Income tax credit -- --
----------- -----------
Net loss $(1,844,640) $(1,901,730)
=========== ===========
F-24
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
1999 1998
---- ----
Operating activities
Net loss $(1,844,640) $(1,901,730)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 102,939 131,876
Amortization 2,525 10,154
Decrease (increase) in:
Receivables (60,260) (104,776)
Inventories (454,698) 45,092
Prepaid expenses (19,129) (21,972)
Increase (decrease) in:
Accounts payable (211,676) 93,001
Accrued liabilities 90,445 (95,229)
--------- ---------
Net cash used for operating activities (2,392,495) (1,843,584)
--------- ---------
Investing activities
Purchase of property and equipment (788,601) (1,425,306)
Loans made (44,000) (174,300)
--------- ---------
Net cash used for investing activities (832,601) (1,599,606)
--------- ---------
Financing activities
Net proceeds (retirement) of
notes payable 511,389 759,001
Net proceeds (retirement) of
long-term debt (1,398,971) 774,975
Issuance of common stock 4,025,174 2,081,165
Treasury stock purchase (10,000)
--------- ---------
Net cash provided by financing activities 3,127,592 3,615,141
--------- ---------
Cash
Net decrease (97,504) 171,951
Beginning of period 201,547 187,859
--------- --------
End of period $ 104,043 $ 359,810
========= =========
F-25
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
(Formerly NSJ Mortgage Capital Corporation)
Consolidated Statement of Stockholders' Equity
9 mos ending 9/30/1999 compared to 9 mos ending 9/30/1998
<TABLE>
Common Stock
----------------------
Additional Total
Shares Stock Paid-in Accumulated Minority Stockholders'
issued Amount Capital Deficit Interest Equity
-------- -------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1997 5,000,000 $ 125 $ 24,949 $ (293,066) $ -- $ (267,992)
Reverse split -
1 share for 4 shares (3,750,000) -- -- -- -- --
Stock issued 2,550,000 255 127,245 -- 1,000 128,500
Stock issued to acquire
Resource Recovery, Inc. 15,435,369 1,544 399,393 -- -- 400,937
Stock issued 1,219,575 122 1,505,470 -- -- 1,505,592
Net loss -- -- -- (1,842,336) (2,304) (1,844,640)
----------- ---------- ----------- ----------- ----------- -----------
Balance,
December 31, 1997 20,454,944 $ 2,046 $ 2,057,057 $(2,135,402) $ (1,304) $ (77,603)
=========== =========== =========== ========== =========== ===========
</TABLE>
F-26
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 1 - Nature of business and significant accounting policies
- ------
A. Nature of business
------------------
The Company is engaged in the production of lumber and wood products from
old growth forest timber recovered from the bottom of the lakes and rivers
of North America. Lumber sales are made to customers located mainly in the
upper Midwestern region of the United States. The Company also operates
True North TV 25 in Ashland, Wisconsin with sales to advertisers located in
or with operations in that same area.
B. Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and all subsidiaries in which more than 50% control is
maintained. Those subsidiaries include:
Ownership
Interest
---------
Resource Recovery, Inc. 100%
Superior Water Logged Lumber Company, Inc. 100%
Resource Recovery of Wisconsin, Inc. 100%
Viking Marine, Inc. 75%
All significant intercompany balances and transactions have been
eliminated.
C. 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 and disclosures.
Accordingly, actual results could differ from those estimates.
D. Receivables
-----------
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required to state
accounts receivable at net realizable value. If amounts become
uncollectible, they will be charged to operations when that
determination is made.
E. Inventories
-----------
Inventories are stated at the lower of cost or market. The cost of
inventory is determined on the first-in, first-out (FIFO) method.
F. Property and equipment and depreciation
---------------------------------------
Property and equipment are stated at cost. Expenditures for additions
and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the lives of the respective
assets are expense currently as incurred. Properties sold, or
otherwise disposed of, are removed from the property accounts, with
gains or losses on disposal credited or charged to operations.
F-27
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 1 - Nature of business and significant accounting policies, continued
- ------
Depreciation for financial reporting and income tax purposes is
provided over the estimated useful lives of the respective assets using
the straight-line and accelerated methods. Depreciation expense for the
period ended September 30, 1999 amounted to $102,939.
G. Amortization
------------
Intangible assets and deferred charges of the Company are amortized
using a straight-line method as follows:
Goodwill 15 years
Organizational costs 5 years
Trademark 15 years
H. Income taxes
------------
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
inventories and property and equipment for financial and income tax
reporting. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will wither be
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that
are available to offset future taxable income.
Note 2 - Cash
- -----
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash.
Note 3 - Inventories
- ------
Inventories at September 30, 1999 consisted of the following:
Raw materials $ 356,051
Supplies 46,174
Retail inventory 30,967
Work in process and finished goods 1,700,149
----------------
$ 2,133,341
================
F-28
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 4 - Investment in Brazil operations
- ------
On July 27, 1998 the Company entered into a joint venture purchase/agreement
with three affiliated Brazilian operations - Know How Madeiras, Lamituc Ltd.,
and R.. Corte Real Barros - along with the individual owners of the operations
Rogerio Corte Real Barros and Gilberto de Paula Corte Real. The three operations
are sawmills and related facilities located on Lake Tucurui, Brazil. The
operations have contract rights for the recovery of submerged lumber in the Lake
Tucurui hydroelectric reservoir. Upon execution of this agreement and the
payment of $100,000, the Company received a band saw and the first right of
refusal of all wood subsequently recovered from Lake Tucurui by the three
affiliated Brazilian operations. As of September 30, 1999, the Company had
funded an additional $74,300 for the purchase of the three affiliated Brazilian
operations. The terms of the acquisition and acquisition schedule were amended
on March 3, 1999. The amended acquisition agreement was terminated due to the
affiliated Brazilian operation's not obtaining the complete allotment of rights
to extract timber from Lake Tucurui, Brazil. Under the termination clause, the
Brazilian operations shall refund the $74,300 to the Company. The Company
continues to maintain the first right of refusal for timber extracted by the
Brazilian operations.
Note 5 - Intangible assets
- ------
Intangible assets at September 30, 1999 consisted of the following:
Goodwill $ 24,873
Organizational costs 7,989
Trademark 555
----------------
33,417
Less accumulated amortization 6,425
----------------
Intangible assets, net $ 26,992
================
Amortization expense for the period ended September 30, 1999 amounted to $2,525.
Note 6 - Notes payable
- ------
Notes payable at September 30, 1999 consisted of the following:
Thomas Evinrude
9% note, due August, 2000, secured
by a first priority security interest
in specific property and a general
security interest $ 1,395,590
Jack Lowry
10 1/4%* note, due April, 2000,
secured by real estate 300,000
F-29
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 6 - Notes payable, continued
- ------
First Capital Services, Inc.
32% note, due April, 2000 250,000
24% note, due September, 2000 300,000
Other 22,464
----------------
$ 2,268,054
================
* Interest rate fluctuates at 2% over prime.
Note 7 - Long-term debt
Long-term debt at September 30, 1999 consisted of the following:
Northern States Power Company
10 1/4% note, payable in monthly
installments of $1,069 including
interest to October, 2001, secured
by real estate $ 33,774
10% note, payable in monthly installments
of $2,295 including interest to June,
2003, secured by real estate 103,781
M & I Bank
10 1/4%* note, payable in monthly installments
of $6,700 including interest to January,
2000, secured by a general business security
agreement 246,790
10 3/4%** note, payable in monthly installments
of $682 including interest to June, 2006,
secured by a general business security agreement 42,888
William and Reeva Heide
8 1/2% note, payable as follows: Interest only
during the first year, principal payment of
$10,000 and interest in each of the second, third
and fourth years with the remaining balance and
interest payable in the fifth year (June, 2001),
unsecured 100,000
Jerry and Jane Immel
8% note, payable in quarterly installments of $1,200
the first year, $1,800 the second year and $2,400
the third year, with a balloon payment of $7,993
including interest to August 1, 1999, unsecured 17,952
Norwest Bank
10 1/2% note, payable in monthly installments of
$304 including interest to July, 2001,
secured by a vehicle 2,888
F-30
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 7 - Long-term debt, continued
Department of Development
4% note, amounts advanced under the terms of
$350,000 note, interest only payments to
August, 1999, then payable in monthly
installments of $5,400, including interest
to July, 2004 at which time the remaining
balance is due, secured by accounts
receivable, inventory, intangibles
and waterway rights. 333,021
Northwest WI Business Development Co.
7 1/2% note, amounts advanced under
the terms of $100,000 note, due February 15,
2007, interest only payments until September
15, 1997. Monthly principal and interest
payments of $1,624 starting September 15, 1997,
secured by a general business agreement
and personal guarantees of Scott Mitchen
and Robert Holland 98,423
Ashland Area Development Corporation
4% note, interest only payments until March,
1999, then payable in monthly installments of
$276 including interest to June, 2004,
secured by specific equipment 14,162
GMAC
8.9% note, payable in monthly installments of
$802 to May, 2002, secured by a vehicle 23,991
The Associates
9 3/4% note, payable in monthly installments
of $800 to June, 2000 5,424
Caterpillar Financial Services Corporation
8.67% note, payable in monthly installments of
$1,281 to April, 2002, secured by equipment 35,612
Steven Schock
8% note, due September, 2000, unsecured 137,300
-----------
Total long-term debt 1,196,006
Current maturities 135,500
-----------
Long-term debt, less current maturities $ 1,060,506
===========
* Interest rate fluctuates at 2% over prime.
** Interest rate fluctuates at 2 1/2% over prime.
F-31
<PAGE>
ENVIRO-RECOVERY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
Note 7 - Long-term debt, continued
- ------
Maturities of long-term debt at September 30, 1999 are as follows:
Year ending
September 30,
2000 $ 135,500
2001 464,000
2002 218,600
2003 108,600
2004 116,100
Thereafter 153,206
----------------
$ 1,196,006
================
Note 8 - Income taxes
- ------
The net deferred tax asset related to the net operating loss carryforwards has
been offset in its entirety by a valuation allowance. No tax benefit has been
reported for the period ended September 30, 1999.
The net deferred tax asset and valuation allowance at September 30, 1999 is as
follows:
Deferred tax asset $ 1,890,000
Valuation allowance (1,890,000)
------------------
Net deferred tax asset $ -
==================
F-32
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
(a) Exhibits
3.1* Restated and Amended Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant
4.1* Form of Common Stock Certificate of Registrant
10.1* 1998 Performance Equity Plan
10.2* Form of Stock Option Agreement between Registrant and Steven Schock
10.3* Form of Stock Option Agreement between Registrant and David Neitzke
10.4* Form of Agreement between Registrant and Fund Amazon, and Eco-Wood,
Ltd.
10.5* Loan Agreement dated August 5, 1998 between Superior Water - Logged
Lumber Co., Inc. and Thomas Evinrude.
21.1* Subsidiaries of Registrant
27.1* Financial Data Schedule
________________________
* Previously Filed.
-4-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to the Report to be
signed on its behalf by the undersigned, thereunto duly authorized on the ____
day of February, 2000.
ENVIRO-RECOVERY, INC.
/s/ Jeff Wierichs
--------------------------
Jeff Wierichs,
Acting Chief Executive Officer
-5-
