U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g)OF THE SECURITIES EXCHANGE ACT OF 1934
CERTIFIED ENVIRONMENTAL GROUP, INC.
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(Name of small business issuer in its charter)
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DELAWARE 11-3286550
(State or Other Jurisdiction of (I.R.S. Employer Incorporation
Organization) Identification No.)
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509 Route 168, P.O. Box 8828
Turnersville, New Jersey 08012
(Address of Principal Executive Offices) (Zip code)
(609) 401-0300
(Issuers Telephone Number)
Securities to be registered under Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which to be so Registered Each Class is to be Registered
Common Stock OTCBB
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Securities to be registered under Section 12(g) of the Act:
Common Stock
Title of Class
Preferred Stock
Title of Class
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and
Management.
Item 5 Directors, Executive Officers, Promoters and Control
Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
<PAGE>
Part I
Item 1. Description of Business.
General
Certified Environmental Group, Inc. (the "Company") provides a diversified
range of environmental services to residential, commercial and government
clients primarily located in the northeastern region of the United States. The
Company specializes in four segments of the environmental services industry:
i. lead-based paint management services, which include consulting,
inspection, detection, sampling, testing, risk assessment, in-plant
management, project monitoring, abatement, training, and turn-key
operations; air quality services; environmental site assessments to
residential, commercial and industrial real properties and asbestos
abatement services on a limited basis for existing clients, or as part
of larger environmental projects.
The Company's licensed professional engineers, industrial hygienists and
certified technicians provide investigation, assessment and remediation for all
relevant hazardous substances in air, water and soil. Since October 1995, the
Company has focused its future growth on the identification of environmental
hazards resulting from, and the remediation of, lead-based paint. This segment
of the environmental industry has grown in importance with the enactment of
federal and state laws during the early 1990's which require the identification
and, in some cases, the remediation of lead based paint in public, residential
and commercial real estate. Company market studies indicate that the
environmental aspects of the lead-based paint industry could exceed $300 to $600
billion during the next twenty five years.
The Company provides its services through its staff of key supervisory
personnel, (See "Directors, Executive Officers, Promoters and Control Persons")
who are fully licensed, experienced and who specialize in the detection of
hazardous, toxic and cancer-causing substances. The Company contracts with
professional licensed entities to undertake remediation, removal, transportation
and disposal of hazardous materials. Other than subcontracting for hazardous
material remediation, collection and disposal, the Company utilizes independent,
accredited subcontractors for laboratory testing analysis. All of the Company's
projects require hazardous substance abatement or professional liability
insurance.
Company Background
The Company was organized under the laws of the State of Delaware on
November 24, 1992. From its organization until October 2, 1995, the Company was
a development company engaged in activities solely related to the lead-based
paint industry ("LBP"). On October 2, 1995, the Company acquired all of the
outstanding shares of the common stock of U.S. Lead Training Institute, Inc.
(the "Institute") in consideration of the payment of $25,000 and the issuance of
450,000 shares of Common Stock. Further, all of the former officers and
directors of the Institute resigned and were replaced by officers and directors
of the Company. The Institute was organized under the laws of the State of New
York on September 22, 1992.
On September 9, 1996, the Company acquired all of the outstanding shares of
the common stock of U.S. Lead Control, Inc. ("Lead Control") in consideration of
the issuance of 25,000 shares of Common Stock. In connection with this
transaction, Certified Environmental Group, Inc. (a predecessor to the Company)
merged with and into Lead Control, with Lead Control being the surviving entity.
Simultaneously with the merger, Lead Control changed its name to Certified
Environmental Group, Inc. Lead Control was incorporated under the laws of the
State of Delaware on November 24, 1992.
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Since the acquisition of the Institute on October 2, 1995, the Company's
primary business focus has been to provide lead-based paint professional
consulting, abatement and training services for its residential, commercial and
governmental clients located primarily in the northeastern region of the United
States. To a lesser extent, the Company also responds to opportunities in other
related environmental areas, such as professional asbestos consulting, indoor
air quality and environmental site assessment services. However, recent events
have caused the Company to re-evaluate its strategic business plan to take the
necessary steps to position the Company for its future growth in the projected
$300 billion lead-based paint industry and at September 30, 1996, over 80% of
the Company's business is in the lead-based paint management industry. In
connection with the refocus of its business, the Company has elected to
phase-out its asbestos detection and remediation operations and performs such
asbestos related services only for existing clientele and clients requiring
asbestos as well as other environmental remediation. The Company now specializes
in three major growth segments of the environmental services industry:
lead-based paint management services, which includes consulting,
inspection, detection, sampling, testing, risk assessment, in-plant management,
project monitoring, abatement and training, turn-key operations and, to a lesser
extent, air quality services, and environmental site assessments, for
residential, commercial and industrial real properties.
In consolidating operations, the Company has reduced overall operating
costs by combining existing administrative, financial, information systems and
human resource functions. Also, the Company has augmented its traditionally
strong relationships with its private and public sector asbestos clients and is
now securing lead-based paint projects from the same companies, consistent with
its new business strategy. Many of the Company's former asbestos clients that
own or operate buildings and facilities now face potential lead hazard problems.
The Company can therefore market a portion of this segment of the business
through its existing customer base.
Lead Remediation Environmental Services
Tap water, lead-based paint ("LBP"), lead dust and lead in soil are the
primary sources of lead poisoning: a malady with symptoms that range from
headaches and mood swings to retardation, miscarriage, and heart and kidney
damage. The hazards of lead poisoning are often unrecognized and despite much
media attention, public concern and government action over the last twenty-five
years, lead poisoning still affects millions of Americans today.
Lead is found in such common materials as ceramic glaze, paint, plumbing,
and tin can solder. Lead plumbing and paint represent the greatest threat, as
they are present in a majority of buildings constructed prior to 1960, and are
likely to contaminate their environments as they decay. Although contamination
resulting from lead-based paint exposure is relatively easy to detect and
mitigate, lead in drinking water presents a much more complicated problem, as
the source of contamination may be in the groundwater.
The Company's certified industrial hygienists and technicians follow
Environmental Protection Agency ("EPA") Housing and Urban Development ("HUD")
recommended procedures when conducting lead surveys. All samples are analyzed by
an independent third party EPA certified laboratory. The Company's remediation
plans are specifically written for each building or facility and match the
appropriate solution to a particular problem. The Company provides advice on
public notification and media relations, liability, regulatory compliance and
cost effective remediation. The Company utilizes the latest state-of-the-art
technology in testing for lead, including XRF Spectrum Analyzer devices for
component testing of lead in paint, dust, soil, and water, as well as high tech
laboratory analysis. All of the Company's technicians have EPA/HUD
licenses/certifications, as lead inspectors/risk assessors. The Company
maintains close contact with clients to ensure they fully understand the extent
of any lead contamination as well as the best options available to resolve the
problem.
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Lead-Based Paint Turn-Key Operations
The Company provides complete, turn-key operations, including certified
lead surveys, detection, sampling, laboratory testing and analysis, assessment,
compliance, training, remediation (removal) and/or hazard reduction and
construction services.
The Company utilizes the latest state-of-the art lead-based paint XRF
spectrum analyzers for component lead-based paint testing. All of the Company's
field technicians have experience with radiation safety instrument operation and
are trained and certified LBP inspectors, risk assessors, abatement workers and
supervisors.
The Company provides full LBP turn-key services to government, residential,
commercial and industrial facilities, office buildings, manufacturing, schools,
health and day care centers, multi-family small and large apartment buildings
(including co-ops and condominiums), and private residences.
Lead-Based Paint Services
Lead surveys (in compliance with EPA, HUD, OSHA, CDC and NIOSH regulations)
are conducted by the Company's highly trained, experienced LBP experts who
utilize the most current techniques to provide clients with accurate lead
surveys, site evaluations and hazard assessments. Additionally, the Company
assists in evaluating client/facility's health and safety requirements and in
meeting the challenges of compliance with new legislation (regulations). The
Company's services also include identification of regulatory violations,
required health and safety documentation, health and safety monitoring and
maintenance programs.
Lead Testing (Laboratory 24 Hours/7 Days a Week)
The Company provides complete onsite sampling of lead chips, lead in dust,
soil, air and water. The Company utilizes independent third-party certified test
laboratories for sample analysis and evaluation, including final abatement
clearance testing. Certified industrial hygienists, technicians and testing
specialists utilize state-of-the-art laboratory equipment to analyze samples and
report results 24 hours a day/7 days a week.
Lead Air Monitoring Services (Contractual On-Going Safety Monitoring)
The Company is committed to providing high quality, ethical and responsive
service in all aspects of its operations including providing OSHA (personal) air
monitoring services during LBP abatement. The Company also provides area
(environmental) air monitoring, if requested by the client.
Lead Remediation -Hazardous Contamination Clean-Up
Lead remediation is an economic as well as a compliance and safety issue.
Since the Company offers all abatement techniques, the Company's experts can
best advise the clients on which methods offer the most cost-effective results
for the project.
Lead Restoration (Construction)
Efficient Post-Abatement Restoration is essential to the timely completion
of a lead abatement project and the return of a facility to
habitable/operational status. Since the Company provides complete abatement,
restoration and construction services, the Company provides integrated solutions
that are scheduled to meet the clients specific requirements at cost and on
time.
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Lead Safety/Compliance Certification, Education and Communication Services
The Company through its wholly owned subsidiary, U.S. Lead Training
Institute, Inc., provides LBP training, seminars and information dissemination
which are critical elements in an effective lead safety/compliance program. The
Company's training specialists also create training, information and
communications programs to fulfill employee needs as well as providing lead
training to others in the private and public sector.
U.S. Lead Training Institute, Inc.
The Company's wholly owned subsidiary, U.S. Lead Training Institute, Inc.
(the "Institute"), provides certified training for various environmental areas
of concern, particularly lead in paint, dust, water, air, and soil. The
Institute was originally founded as a sole proprietorship and was incorporated
on November 24, 1992, upon the initial introduction of the HUD/EPA model LBP
training guidelines.
The Institute's professional environmental management staff has conducted
environmental training courses on a limited basis for the public and private
sector for over four (4) years. The Institute owns certain training educational
materials, instructors' manual(s), student handouts, visual aids, video tapes,
color slides, overviews and documentation for classroom and on-hands training in
lead-based paint, inspection, detection, testing, assessment and abatement.
These materials were developed with outside independent environmental
consultants and lead-based paint experts, utilizing the lead based paint Interim
guidelines for hazard identification and abatement in public and Indian housing
prepared in September 1990 by the Office of Public and Indian Housing, U.S.
Department of Housing and Urban Development, Washington, D.C. The Institute's
lead training courses are not meant to replace the guidelines but rather to be
used in conjunction with HUD and EPA guidelines as a text book.
The Institute offers a number of regulatory driven lead-based paint
training courses which, upon successful completion, can result in certification
by the EPA/HUD. The Institute's LBP courses meet pertinent Federal EPA, HUD and
OSHA training provider certifications and approvals.
The Institute's training also addresses state regulatory issues, in a more
limited context. State legislation and regulations vary widely from state to
state. Only nineteen (19) states currently have regulations governing lead
paint, training, consulting and abatement procedures. The Institute addresses
these state issues in its training as they relate to the State and City of New
York, as well as New Jersey, Pennsylvania and Connecticut. The Institute also
addresses both the state and city regulations promulgated by the Departments of
Public Health, Labor, Environmental Protection Agency, OSHA and general law. The
Institute's lead-based paint training courses exceed EPA/HUD guidelines and are
based upon the model training program developed by the EPA and the Commonwealth
of Massachusetts, which has set a more stringent standard than the federal
regulations.
The Institute's faculty consists of licensed professional engineers,
certified industrial hygienists, registered nurses, legal/insurance
professionals and occupational health specialists. Other hands-on environmental
professionals include abatement handlers, inspectors, and investigators, project
designers and planners, air monitoring supervisors, and construction managers
and contractors. The Institute's curriculum includes courses such as
"Identifying and Abating Lead-Based Paint ("HUD")," "EPA Lead Abatement Training
for Supervisors and Contractors," "EPA Lead Inspector Training," "EPA Lead
Abatement Worker," and "EPA Lead Risk Assessor Training."
The Institute also offers on-site day and evening courses (and
certification) at client facilities. Lead-based paint training courses are
tailored to meet specific company needs. Typically, on-site courses are more
convenient, save travel costs and time and alleviate scheduling problems.
Courses vary in price on average from $100 to $150 per day, per student.
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To date, although the Institute has only operated on a limited basis due to
the lack of legislation, which is to be promulgated under Title X during 1998,
the Company intends, over the next three (3) years to open six "Training
Centers" throughout New York State, four of which will be in New York city.
The Institute also offers numerous courses for asbestos, and is presently
conducting asbestos seminars in a number of disciplines for various Housing
Authorities. The asbestos curriculum includes courses in:
i. "Asbestos Awareness," which covers overall basics of health effects,
sources of asbestos and worker safety;
ii. "Asbestos in Operations and Maintenance," which covers the same
information as the "Awareness" course,in more detail;
iii. "New Jersey & Pennsylvania Asbestos Worker" Training course, which
meets the minimum requirements for both New Jersey & Pennsylvania State Asbestos
Worker certifications and covers the health effects of asbestos, sources of
asbestos, regulations, personal protection, proper containment, proper asbestos
abatement techniques, asbestos in operations and maintenance, clean-up,
clearance sampling and disposal; and
iv. "New Jersey & Pennsylvania State Asbestos Supervisor", an advanced
course designed for those seeking New Jersey or Pennsylvania Asbestos Supervisor
certification. The course covers basic information and includes additional
information on supervisory techniques, testing and monitoring for asbestos,
record-keeping, insurance and bonding.
Lead-based Paint Video Productions
The Company has developed the text to be utilized for a proposed
homeowner's, lead-based paint, "How to Do It Yourself," instructional video. The
project is currently on hold due to the inability to raise sufficient equity
capital on a timely basis, however the Company intends to produce its first
video production after the successful completion of this Offering. This video is
designed to train and educate property owners on how to inspect, detect and test
for LBP and, if test results find hazardous levels of LBP contamination, the
correct procedure to engage in LBP procedures involving removal, replacement,
enclosure, encapsulation, repair and in-place management. The Company's LBP
video will stress health and safety training with regard to the occupants and
the environment. Methods for evaluation and reducing LBP hazards, appropriate
clean-up standards, abatement strategies and related costs and the effectiveness
of lead hazard evaluation and reduction will also be covered.
The Company is in the planning stage of three other "How to Do It Yourself"
instructional LBP video productions and based upon their design aspects, the
programs may be extended for the retail or consumer home market.
Environmental Proficiencies, Capabilities and Management Planning
A third major component of the Company's business encompasses environmental
management. The Company assists its clients in establishing standards for
individual environmental remediation, planning and other projects. The Company
acts in coordination with its clients as part of its "team" in defining the
client's goals giving consideration to factors such as safety, risk, liability,
downtime, and other circumstances which may be unique to that client's business
and project. The Company supplies the client with thorough written assessments,
explaining whatever environmental audit or impact study that is pertinent. In
addition, the Company makes the complicated legal and environmental issues
comprehensible and practical for its clients.
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Building Inspections and Surveys
The Company meets with clients to evaluate the owners' goals and needs and
provide clients with authorized environmental building inspections and surveys.
In such inspections, the Company searches for asbestos, lead and other hazardous
materials on the premises, identifying properties of the hazardous material, as
well as its specific location. After completing its survey, the Company
recommends the safest and most cost-effective procedure to address the problem,
whether hazardous substance removal, management or some other solution. All of
the Company's inspectors are federal, state and city certified, with extensive
experience in evaluating different types of conditions in commercial sites,
industrial locations, institutional buildings and residential facilities.
Air Monitoring and Bulk Sampling
The Company provides comprehensive hazardous substance testing including
asbestos, lead, formaldehyde, PCB'S, VOCS, particulate, radon testing and
investigations, as well as other air and bulk sampling. AU air monitoring and
bulk sampling is performed by certified inspectors accredited by NYS/ELAP and
NIST/ELAP. All phases of the Company's air monitoring are in accordance with the
Environmental Protection Agency (EPA), Occupational Safety Health Association
(OSHA), and NIOSH.
Operational and Maintenance Programs
The Company creates a clear, comprehensible set of procedures, tailored to
its client's particular requirements. The Company's objective is to provide its
client with the most effective, cost-efficient asbestos lead and other hazardous
material program depending on their needs and desired degree of involvement of
the Company's staff. This program serves as detailed documentation of the
client's awareness of and solutions to any environmental problems.
Abatement (Removal, Encapsulation, Enclosure, Replacement, Repair)
The Company engages in its environmental services, including removal,
encapsulation, enclosure, replacement and/or in-place management of lead based
paint and other hazardous materials in total compliance with EPA, OSHA, NIOSH
and other environmental regulatory governmental agencies. The Company brings the
industry's most advanced technology and equipment to every project.
Phase Zero Residential Environmental Site Assessments
On March 31, 1996, the Company purchased an exclusive 17 year license to a
patented "Phase Zero, System and Protocol" for Residential Environmental
Assessments, from the Environmental Realty Guild of America, Inc. ("ERGA"). The
exclusive license covers the territories of Nassau and Suffolk Counties, Long
Island, New York and grants the Company the right to exclude others from making,
using or selling the invention throughout such territory during the license
period. The protocol is protected by U.S. patent number 5,419,209, issued on May
30, 1995. ERGA had been issued ten trademarks covering a number of the key terms
relating to the protocol.
The Phase Zero System and Protocol is a system and protocol for the
environmental assessment of residential properties. The system includes a
standard tool kit and standard equipment to be used by an inspector in
inspecting and sampling suspected contaminants on the property. The inspector
follows a precise protocol (step-by-step procedure), consisting of specially
designed forms to record the inspection, the location of the suspected areas of
contaminants, the readings taken of contaminant levels and the time at which the
sampling and readings were taken. In addition, a specific checklist and
reporting form is used to record the results of the inspection of the exterior
of the building for the presence of suspected contaminants.
<PAGE>
The Phase Zero System and Protocol provides an environmental audit of a
residential real property that sets certain measurements and visual observations
at a standard baseline. If "sample" test results of suspect contaminants
indicate a "reading" or measurement at or below the baseline (negative), the
property investigated would be considered environmentally in compliance. If test
measurements exceed the standard baseline or are marginal and inconclusive,
additional air or bulk samples may be collected and analyzed; if the results
once again exceed the established baseline (positive), remediation or abatement
is recommended to eliminate or control the release of hazardous, toxic and
cancer causing substances.
The Phase Zero Protocol is, in management's estimation, an affordable, cost
effective method for the inspection, detection, sampling, collecting, testing,
evaluation and assessment of residential real property which is suspected of
containing interior and/or exterior contaminates and tests for all relevant
indoor known hazardous, toxic and cancer causing substances including asbestos,
radon, formaldehyde, particulate, volatile organic compounds, lead-based paint,
lead in drinking water and lead in soil. Upon completion of a Phase Zero
Protocol, the inspector produces an environmental health risk assessment report
which contains ERGA's seal and "Certificate of Environmental Compliance." If
contaminants are found that exceed the existing U.S. Environmental Protection
Agency's ("EPA's") standard permissible emission levels, remediation is
recommended. As an additional service and cost to its customers, the Company
will provide final clearance testing by one of its Network Certified
Environmental Inspectors after abatement is complete.
The Phase Zero Protocol also includes visual "outside" or "exterior"
environmental inspection including the detection of above and underground
(leaking) storage tanks, contaminated soil (petroleum products), Polychlorinated
biphenyls (PCBs), among other contaminants. Upon completion of the Phase Zero
visual inspection, sampling and testing of reported suspect outside contaminants
are reported to the customer, and remediation can be undertaken for an
additional fee. The Company also provides quality environmental
inspection/assessment training and solid professional service to its Network of
certified Environmental Inspectors.
The Phase Zero Protocol is primarily used to conduct indoor and outside
environmental inspection and hazard assessments of residential real property;
single and multi-family homes, apartments, condominiums, cooperatives, day care
centers, retail shops and the like. The proprietary (patented) Phase Zero
Protocol was invented and designed to complete an average three (3) bedroom home
utilizing one (1) certified environmental inspector for two (2) to three (3)
hours, (approximately one hundred fifty minutes). Lead-based paint is an option
and may take an additional two (2) to three (3) hours for a full on-site X Ray
Fluorescence (XRF) Spectrum Analyzer component surface to surface testing. The
Company's local network inspectors save the consumer time and money with little
or no inconvenience. No other potential competing residential environmental
assessment organization is authorized to use the ERGA's patented invention or
issue the ERGA's unique trademark Seal and "Certificate of Environmental
Compliance."
Phase I, II, and III Environmental Site Assessments
The Phase I Environmental Site Assessment ("ESN") follows industry accepted
general guidelines as developed by the American Society for Testing and
Materials ("ASTM") for property transactions to satisfy the due diligence
process under Title X. The main purpose of a Phase I ESA is to satisfy the
required due diligence by identifying the immediate and most recognizable
environmental concerns at the subject property by focusing on work items such as
visual inspection, neighboring properties review, prior use history review,
geology/flood plain review, underground storage tanks, PCB electrical equipment
identification, asbestos investigation, lead-based paint survey. After the
Company receives legal descriptions and specific site data from the client, the
Company typically completes an ESA within 5-10 working days.
<PAGE>
Phase II of the Phase Zero System and Protocol encompasses the development
and implementation of a sampling and testing plan. Phase III includes risk
assessment, data collection and evaluation. Inspectors gather and analyze
relevant site data and identify potential chemicals and ecological habitats,
species of concern and other relevant ecological environmental factors.
The majority of the Company's Environmental Site Assessments are performed
for banks, mortgage lenders, real estate appraisers, real estate brokers,
insurers and property owners and managers. Phase I represents 80% of the
Company's work. Phase I does not include sampling hazardous substances or
laboratory testing and analyses. Items investigated and considered include but
are not limited to: legal considerations, ethical considerations, drinking
water, sanitary waste disposal, soil contaminants, asbestos, PCB'S, radon,
underground storage tanks, nearby hazardous waste sites, UREA formaldehyde
(UFF), lead paint, air pollution, wetlands and flood plains and other
environmental hazards.
Indoor Air Quality Surveys
Whether it is called "sick building syndrome" or "tight building syndrome",
the human and economic costs of poor indoor air quality (IAQ) can be
substantial, considering the potential effects on health and worker
productivity. Studies suggest that up to 50 percent of worker absenteeism may
result from IAQ causes. The IAQ problem intensified following the advent of high
efficiency ventilation systems developed during the energy crisis of the 1970's.
In an effort to save energy, some property managers close outdoor air
intakes, resulting in inadequate quantities of fresh air introduced into the
building's environmental control systems. This situation can cause the build-up
of gases, fumes, and other irritants, including formaldehyde, ozone, carbon
dioxide, fiberglass, and asbestos in the recycled air. Dirt and moisture in an
air conditioning system can provide an incubator for the growth of microbes,
i.e., bacteria, molds, fungi. These microbes release spores which can be
irritating to the eyes, nose and respiratory system. The symptoms of poor IAQ
include general fatigue, itchy watery eyes, sore throat, headaches, nausea and
general recurring respiratory problems.
Although IAQ may not seem a particularly dangerous environmental hazard, it
has far reaching effects. In addition to its adverse effect on building occupant
health and worker productivity, poor IAQ presents a potential area of liability
for the building owner. Poor IAQ has led to negative exposure in the media and
labor unions have used poor indoor air quality as a bargaining chip in
employer/labor negotiations.
The Company's IAQ protocol commences with the review of data to develop a
sampling and inspection regimen for each building surveyed. The Company's
sampling regimen is designed to investigate possible air quality problems
quickly and minimize cost to the client. The Company has performed indoor air
quality surveys in all types of buildings ranging from small office buildings to
complex commercial structures.
A few of the IAQ services offered by the Company include (i) adequate fresh
air determination, (ii) site analysis for potential contaminants, (iii) air and
bulk sample collection, (iv) HVAC inspection for microbes, (v) air sample
analysis for spores and (vi) survey data/regulatory standards comparison.
Market Analysis
Company Position
Prior to October 1995, the Company's principal business encompassed the
inspection for and remediation of asbestos and lead-based paint consulting.
Environmental site assessments, indoor air quality and lead training were
adjuncts to such business. In connection with the acquisition of the Institute,
in October 1995, the Company adopted a new strategic business plan which
included the downsizing and ultimate discontinuance of the asbestos consulting
and abatement segment of its environmental services business (except for
asbestos abatement services which it will provide as a part of larger projects
for which it may be engaged) and specialization into the lead management
industry as the Company's primary profit center.
<PAGE>
Due to the increasing competition and price compression prevalent in the
asbestos business, management elected to discontinue the Company's asbestos
consulting operations and focus on expanding and diversifying the Company's
principal services into new growth markets. The Company's present strategy in
achieving this objective is to expand its lead based paint testing, consulting,
abatement and training operations capabilities, an industry which many studies
indicate could reach $300 to $600 billion during the ensuing twenty-five years.
In addition, the Company has, to a lessor extent, focused its business on two
other environmental growth markets: environmental risk assessments and indoor
air quality services (including duct cleaning services). These three
environmental segments represent the Company's strongest growth market potential
and profitability.
Lead Based Paint Services Segment
Several major marketing groups project a total market potential for the
lead-based paint industry from $300 to $600 billion in residential buildings and
related market segments over the next 25 years. The 1995 market was projected to
be $2.4 billion depending on the growth of public awareness and the promulgation
of Title X.
LBP represents one of the greatest environmental health risks to children
and poses significant risks to unprotected construction workers and pregnant
women. LBP is present in an estimated 85% of all residential housing and child
care facilities as well as a high percentage of commercial and industrial
buildings. Health problems from LBP in residential buildings affect all economic
levels of society, not just the urban poor living in under-maintained housing.
The current LBP remediation market is primarily residential and HUD driven.
The initial market opportunity is in public housing, which is a small portion of
the overall market. The rate of growth in the overall residential market will be
a function of public awareness and mandatory disclosure as required by Title X
legislation. The market available to outside LBP contracting and consulting
(testing, specification, supervision and clearance testing) companies is
estimated to exceed $300 billion.
Management believes that the current regulatory environment has provided
favorable economic conditions for the growth of the LBP remediation industry.
The enactment of additional federal and state regulations including the expected
enforcement provisions of Title X and OSHA for lead in construction, as well as
local LBP regulations and the redefinition of elevated lead blood by the Centers
for Disease Control will foster significant further future growth of this
industry. While the regulations are evolving, work standards, specifications and
enforcement are not expected to be consistent from job to job.
<PAGE>
Companies engaging in LBP consulting will have opportunities to generate
revenues from other lead remediation projects including shooting ranges,
drinking water/plumbing, lead products manufacturing facilities, among other
opportunities.
Lead-based paint abatement work in the commercial and industrial market
segments should increase the size of the overall available market potential.
However, removal of LBP from bridges, storage tanks, marine and other outdoor
metal surfaces generally requires repainting (priming) of the surface during the
same work day, making removal of the LBP an integrated part of the repainting
operation.
Residential Market Segment
The following marketing estimates were prepared by the EPA, HUD, OSHA, CDC,
CPSC and various environmental government agencies. As a result of LBP exposure:
* 64 million homes and apartments built before 1978 should be inspected
for lead concentration in paint.
* Between 1.7 million and 3 million children have elevated blood lead
levels primarily from LBP found in the home.
* An estimated 57 million older homes still contain some LBP of which
20.8 million have LBP hazards such as chipping, flaking or peeling
lead-based paint and/or excessive levels of lead dusts.
* 3.8 million homes containing LBP hazards are occupied by families with
young children who are at risk of being poisoned.
* 1 out of 5 children in poor minority families have elevated blood lead
levels.
* The new regulations (laws) apply to approximately 350 million
dwellings.
* Sectors affected by the lead-based paint hazard disclosure rule were
real estate transfers, including real estate agents and managers. An
estimated 72 thousand establishments could be affected by the proposed rule
which includes 339 thousand real estate agents and 225 thousand property
managers.
* The transaction volume is estimated at 2.9 million sales transactions
and 9.3 million rental transactions which occur annually in target housing.
Lead-based Paint Health Hazards Segment
If not detected early, children with high levels of lead in their bodies
can suffer from: damage to the brain and nervous system, behavior and learning
problems (such as hyperactivity), slowed growth, hearing problems, and
headaches.
Lead also is harmful to adults. Adults can suffer from difficulties during
pregnancy, other reproductive problems (in both men and women), high blood
pressure, digestive problems, nerve disorders, memory and concentration
problems, muscle and joint pain.
Residential structures built prior to 1978 may present exposure to lead
from lead-based paint. This exposure may place young children at risk of
developing lead poisoning. Lead poisoning in young children can produce
permanent neurological damage, including learning disabilities, reduced
intelligence quotient, behavioral problems and impaired memory. Lead poisoning
also poses a particular risk to pregnant women. The lessor of any residential
dwelling is required to provide the lessee with any information on lead based
paint hazards from risk assessments or inspections in the lessor's possession
and notify the lessee of any known lead based hazards.
<PAGE>
Lead Based Paint Video Productions Segment
The number of pre-1978 residential real properties that contain some degree
of hazardous LBP including single family houses, high and low rise apartments,
co-ops, condominiums and row houses are estimated at 87 million households
(units). Management estimates the Company's potential share of the "Do It
Yourself" market is 7,500,000 home videos, to be sold over a five year period
representing less than 10% of the total market potential.
Environmental Site Assessments Segment
The promulgation of the Residential Lead based Paint Hazard Reduction Act
of 1992 has been primarily responsible for the increase in Environmental Site
Assessment contracts recently granted to the Company, even prior to the
operation of the enforcement provisions of such law. The Company has been
engaged to perform lead-based paint remediation and risk assessment for a number
of entities and anticipates that as the public becomes more knowledgeable of the
provisions of Title it will be engaged by many others.
Environmental due diligence has primarily been driven by property
purchases, refinancing and lenders fearful of being held liable for clean-up of
hazardous waste and associated soil and groundwater contamination as a result of
becoming an owner. The liability has stemmed from the enactment of the
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA')
and subsequent district court rulings.
Indoor Air Quality Surveys Segment
The Clean Air Act (CAA), as amended in 1990,charges EPA with promulgating
more than 400 regulations and developing numerous guidelines and procedures. The
amendments establish a national permit program and a strong enforcement program.
The Company believes that activity related to CAA compliance may be the source
of future work, as related to its indoor air quality and duct cleaning turn-key
services.
Customers
Some of the U.S. Lead Training Institute's past clients include the United
States Army, Philadelphia Housing Authority, United States Postal Service,
Southeastern Pennsylvania Transportation Authority, Fort Dix Federal Corrections
Facility, City of Vineland Health Department, Nugent Environmental, REG&S,
Environmental Protection Inspections, LVI Environmental Services, and Plymouth
Environmental.
Some of the Company's past environmental consulting clients include the
Philadelphia Housing Authority, New York City Housing Authority, City of Newark
Department of Development Housing Assistance, Jersey City Housing Authority,
Apartment Management Associations, Inc. (a Trump Organization), Gloucester City
Housing Authority, Development Corporation, and City of Vineland Health
Department.
Competition
The Company has numerous competitors throughout the United States,
particularly, in the northeast, (the Company's current area of concentration)
for each of the services which it offers with no single firm predominating. A
few major publicly traded competitors in the asbestos abatement industry
include: LVI Environmental Services, Inc., NSC Corporation, ABATTIX
Environmental, Inc., etc., those in the environmental consulting services
industry include: Dames & Moore, Inc., KIMMINS Environmental, Inc., Air & Water
Technology, Inc., Versar, Inc., Clean Harbors, Inc., ATC Environmental, Inc.,
among others.
<PAGE>
Some of the Company's competitors are small, however others are large
diversified firms having substantially greater financial technical, personnel
and marketing resources than the Company. Since lead-based paint remediation is
a recently emerging multi-billion dollar industry, it is not possible to predict
the extent of competition which the Company will encounter in the future, or the
Company's ability to effectively compete in such a market place. The Company's
ability to successfully compete will depend upon its reputation, the quality and
safety of its work, its ability to complete work within an estimated time
period, pricing and the availability of capital to finance its operations, among
other things.
Government Regulation
Regulatory Framework Directly Applicable to the Company
The Company believes it is in compliance with federal, state and local
regulations pertaining to environmental protection. The Company does not
anticipate that costs of compliance with such regulations will have a material
effect on its capital expenditures, earnings or competitive position.
The Company is licensed to provide various environmental services in the
States (and City of) New York, New Jersey and Pennsylvania. These licenses
include Lead Evaluation Contractor - (Residential & Public Buildings); Lead
Abatement Contractor; Asbestos Safety Control Monitor; and Radioactive Materials
License (XRF Spectrum Analyzer Lead Test Devices). These licenses allow the
Company to test for lead, asbestos and other environmental hazards and to remove
the substances which contain lead from private commercial and residential
properties. Additionally the Company has licenses in the States of New Jersey,
Pennsylvania and New York to teach a variety of Lead and Asbestos courses to
supervisors, consultants and workers.
The Residential Lead based Paint Hazard Reduction Act of 1992 (or Title X
of the 1992 Housing Bill)requires that Regulations be promulgated for
certification and training of lead inspectors and abatement contracts. These
requirements may not necessarily be the same as state requirements, which may
cause problems for those who are initially certified under State law only to
find that their certification has been preempted by Federal law and is no longer
valid. Federal Regulations will require that contractors engaged in lead risk
assessment, inspection, and abatement be certified, as opposed to some state
laws that encourage, but do not require certification.
State and Federal Regulatory Framework in which the Company Operates
Most states and municipalities have adopted housing codes that make it
illegal to have lead-based paint on either interior or exterior surfaces of
residential property. A handful of states have also passed more proactive
legislation requiring the abatement of lead based paint hazards in residential
dwellings and/or seller disclosure of lead hazards upon transfer. Connecticut
has just passed Regulations that require abatement of lead-based paint on
interior and exterior surfaces of residences where children under the age of six
live if:
i. the surfaces are defective,
ii. the child has an elevated blood level, or
iii. certain renovations are being done.
In Massachusetts, sellers and salespeople of residential property are
required to disclose whether they know if the residence contains the lead paint.
If the home does contain lead paint, the transfer of ownership triggers the
requirement to abate lead hazards if a child under six years of age will reside
there. California, Illinois, Louisiana, Maine, Maryland, Minnesota,
Pennsylvania, Rhode Island and Virginia have also passed proactive laws
regarding lead paint disclosure and/or abatement. Since lawmakers are beginning
to recognize that lead poisoning is best treated by preventing it, it is
anticipated that those states that have not yet enacted some of lead paint
hazard reduction law will do so in the future.
<PAGE>
The Federal Government has recently addressed lead poisoning in two ways.
First, the U.S. Department of Housing and Urban Development ("HUD") now requires
that a Lead based Paint notice be given to borrowers taking out a loan to
finance a house built before 1978, if the loan is insured by the Federal Housing
Administration (FHA). Previously, this notice was to be delivered to the
borrower at the time of the mortgage application. However, new guidelines from
HUD issued in 1992 state that HUD will not allow financing through FHA unless a
purchaser signs the notice before singing a purchase contract.
In addition to HUD requirements, comprehensive new federal lead legislation
was enacted in 1992 that introduces new programs and deregulations intended to
prevent lead poisoning and reduce lead based paint hazards in housing. The
Residential Lead based Paint Hazard Reduction Act of 1992 (or Title X of the
1992 Housing Bill) was approved by both the United States House and Senate in
October 1992 and was signed by President Bush in November, 1992. While it does
not require abatement in private housing, it does require affirmative action on
the part of sellers, landlords and real estate agents to ensure that lead based
paint hazards are taken into account in the sale and leasing of homes and
apartments. The new law calls for the enactment of Regulations to implement its
provisions.
Section 1018 of the Title X requires the Environmental Protection Agency to
enact Regulations for the disclosure of lead based paint hazards in housing
constructed prior to 1978, that is offered for sale or lease. Consequently, the
seller or lessor of pre-1978 housing is obligated to:
Give the purchaser or lessee an EPA lead hazard information pamphlet.
Disclose the presence of any known lead-based paint or lead based hazard.
Provide the purchase or lessee with any available lead reports conducted on
the housing.
Allow the purchaser to get a lead hazard risk assessment or inspection.
In addition, any contract for the purchase and sale of a pre-1978 house
must contain a "Lead Warning Statement". The statement must notify the buyer of
the potential risks associated with lead poisoning, inform them of the seller's
requirement to provide the buyer with the results of any risk assessments or
inspections in the seller's possession, and recommend inspection for possible
lead-based paint hazards prior to purchase. The contract must also contain a
statement signed by the purchaser that the purchaser has reviewed the Lead
Warning Statement, received the EPA pamphlet and had a 10-day opportunity to
conduct a lead inspection.
<PAGE>
Under Title X, real estate agents representing sellers or lessors of
pre-1978 housing will be required to ensure compliance with the above
Regulations. Failure to abide by Title X's provisions will not affect the
validity of a contract or lease. However, any person, including an agent or
broker, violating the Regulations will be liable to the purchaser or lessee for
money damages equal to three times the amount of actual damages incurred and
attorneys' fees. Considering that actual damages may include irreparable harm
caused to poisoned children of a purchaser as well as lead abatement costs,
damages could potentially be astronomical. Furthermore, any person refusing to
comply with the above provisions could be fined up to $10,000 per violation.
Unlike State law, Title X does not require abatement of hazards in
privately-owned housing. It does, however, call for the abatement of hazards in
all federally-assisted housing and prior to the sale of nay pre- 1960 housing by
any federal agency (including the RTC). The new federal law also contains
provisions for financial assistance to state and local governments to abate lead
hazards in low income housing.
Legislation Governing Lead-based Paint
To date, there are nineteen (19) states that require mandatory disclosure
of environmental hazards including lead-based paint, in addition to the Federal
Title X law which only covers lead-based paint. However, if a homeowner elects
to have a radon test, most states or local municipalities require radon
licensing and/or certification of the business and inspection technicians.
The Company welcomes increased federal and state licensing and/or
certification of the Company's business, since it enhances the professionalism
and credibility of its environmental inspections, hazard assessments and
remediations therefore discouraging easy entry into the Company's business. For
the latter reason, environmental regulation will increase the Company's
business. Initially, environmental assessments were driven by liability and
lawsuits, rather than by public family health issues. Ultimately however, a
great portion of the Company's business will be driven by environmental
legislation and enforcement causing mandatory indoor hazardous substance testing
and or mandatory disclosure Regulations for environmental home inspections for
hazardous materials. Approximately nineteen (19) states require by legislation
or regulation, "lead paint mandated disclosures." Of these nineteen (19) states,
some mention hazardous materials in general but not specifically, while others
specifically address hazardous substances such as asbestos, radon, UREA
formaldehyde foam insulation/formaldehyde, lead in water, lead-based paint and
underground storage tanks. The Company believes that by the end of 1998, over
twenty-five (25) states will regulate some form of "environmental related
mandatory disclosure" for residential properties, which will have an extremely
positive impact on the future growth of the Company's business.
Federal
Federal LBP Poisoning Act, 42 USC ss.ss. 4801 - 4846, 1971 as amended Lead
Paint Banned in 1977.
Federal Residential LBP Hazard Reduction Act; 42 USCss.ss.4801 - 4846.
PUB.L. No. 102-550, 106 Stat. 3897 1992 - Title X - Section 1018 - Private.
Public Health Law, Title X ss.ss. 1370 - 1376 - a (1970) as amended by L.
1992, C 485.C.
New York City
New York City Sanitary Code ss. 230d -N.Y.C. requires Warning Labels for
Lead Paint.
New York City Health Code ss. 173.13 - N.Y.C. bans use of Lead Paint for
dwelling interiors.
New York City Administrative Code ss. 27-2013 (H) and 2126 -N.Y.C.
establishes a presumption in 1982 that paint on walls of pre-1960
buildings contain lead.
<PAGE>
Federal Legislation
In 1971 the Federal Government enacted the LBP Poisoning Prevention Act
(L.P.P.P.A.) (Volume 42 U.S.G ss.ss. 4801 - 4846) which prohibited the use of
LBP containing more than 1% of lead by weight in residential structures
constructed or rehabilitated by the Federal Government or with Federal
Assistance.
The general regulations pertaining to LBP in HUD housing are set forth in
Volume 24 CFR Part 35. The two critical sections of these Regulations are
Subpart (A) which requires notification to purchasers and tenants of HUD
associated housing constructed prior to 1978 of the hazards of LBP, and Subpart
(B) which provides for the elimination of LBP hazards.
Subpart (A) requires specifically that purchasers and tenants of HUD
associated housing built prior to 1978 be notified by the owner of the property
that:
i. The dwelling was constructed prior to 1978 and may contain LBP.
ii. Must explain the hazards of LBP.
iii. The symptoms of Lead Poisoning.
iv. The treatment of Lead Poisoning.
v. The precautions to be taken to avoid Lead Poisoning.
In addition, Subpart A prescribes minimum inspection and abatement
standards for H.U.D. associated housing:
i. All applicable surfaces of HUD associated housing constructed prior 1978
must be inspected to determine if defective paint surfaces exist.
ii. When hazards are discovered, treatment will consist, at a minimum, of
covering or removing the defective surfaces using an approved method.
These Federal regulations were altered in October 1992 by passage of
legislation known as the "Residential LBP Hazard Reduction Act of 1992" (Title
X). Some of its provisions apply to Federally assisted housing built prior to
1978 and apply to all residential housing.
For residential properties the owner of the property must comply with the
following:
i. The purchaser or lessee shall be given a Lead Hazard Information
Pamphlet which was developed by the EPA;
ii. The purchaser or lessee shall be informed of any information available
on the presence of LBP or LBP Hazards;
iii. The purchaser shall be given at least ten (10) days to conduct a Risk
Assessment or inspection The sales contract shall include a Lead
warning statement and a statement signed by the purchaser.
New York State legislation
In New York State, LBP is regulated under Public Health Lawss.1370. Section
1373 governs the abatement of lead paint conditions and gives the State
Commissioner of Health or his designee the authority to order abatement of lead
paint conditions deemed conducive to lead paint poisoning. The Public Health Law
was recently amended by passage of the Lead Poison Prevention Act. The
amendments establish a lead poisoning prevention program targeting children and
pregnant women for regular lead screening and providing for follow-up of
individuals with elevated blood lead levels (E.B.L.).
Of greatest relevance to a landlord or building owner are the new
provisions on abatement of lead hazard conditions. The State Commissioner of
Health may order the discontinuance of a dangerous lead paint condition and
prescribe the method of abatement.
<PAGE>
The appropriate methods of abating the lead hazard are contained in this
statute. These methods include removal of lead paint down to the base surface
and refinishing with a suitable finish or covering and encapsulating the
surfaces with a durable material approved by the commissioner.
The New York State Department of Health has not yet promulgated the
regulations that would put the new law into effect. However, the draft
regulations will contain considerably more detailed provisions on abatement
procedures and techniques and directly place the obligation on the building
owner to remedy any condition conducive to lead paint poisoning.
In New York City, LBP is regulated under two statutes, the New York City
Health Code and The Housing Maintenance Code. Under Health Code 173-13, if the
New York City Department of Health finds that a resident of a dwelling has blood
lead levels in excess of 20 micrograms per deciliter (ug/dl) regardless of the
individuals age, NYCDOH must order removal and refinishing of any interior
paints surface in the dwelling containing more than 0.5% metallic lead by
weight. It also has the discretion to order abatement at lower blood lead levels
when LBP hazards are found. In addition to enforcing NYCDOH orders, the New York
City Department of Housing Preservation Development (H.P.D.) is also charged
with enforcement of the Housing Maintenance Code which regulates LBP in multiple
dwellings. Section 27-2013(h) of the New York City Administrative Code requires
that owners of multiple family dwellings to remove or cover any paint containing
more than 0.5% of metallic lead on any walls, ceilings, doors, window sills or
moldings in any dwelling in which a child under the age of seven resides.
The presence of LBP in dwelling units occupied by children under seven,
meeting or exceeding the threshold levels indicated above, is a Class C Building
violation. An owner must remove or encapsulate the painted surfaces that exceed
the applicable standards whether or not they are intact. In any multiple
dwellings built before January 1, 1960, the date LBP was banned in New York
City, it is presumed that any peeling paint found in the interior of the
dwelling in which a child under seven resides, contains the threshold amounts of
lead. This presumption may be rebutted by an owner with the appropriate
evidence.
<PAGE>
Employees
As of August 31, 1999, the Company employed 40 individuals, 25 on a
full-time basis and 15 on a part-time basis. This staff is augmented by
approximately 20 consultants on average.
The Company intends to add 8-12 additional employees within the next twelve
months as backlog and new business dictate. Additional support technicians may
be engaged on an as-needed basis. All other additions or subtractions from the
aforementioned work force will be based upon the gross profit of the Company and
projected revenue.
The Company believes that relations with its employees are satisfactory.
Presently there are no collective bargaining agreements in effect with respect
to any of the Company's employees and the Company anticipates that this
situation will remain the same. The employees of the Company are not now, nor
have they been during the history of the Company, either on strike or threatened
to go on strike.
Strategic Marketing Plan
Since early 1996, the Company's marketing efforts have focused primarily
upon providing private and public industry sector clients with practical and
effective solutions to their site Lead based Paint contamination problems. The
Company has recently broadened its marketing efforts to include selected
public-sector projects, particularly for the Departments of Defense and Energy
and the EPA. The Company has performed work at numerous large and small housing
authorities. The Company has worked for a significant number of large U.S.
corporations. The Company's clients include real estate property managers,
owners of high rise apartment complexes, commercial and other industrial
corporations, governmental agencies and contractors. The Company has initiated a
regional accounts program to develop and establish comprehensive and long-term
relationships between the management of clients requiring Lead based Paint
services and the Company. The Company's marketing strategy features and
reinforces the Company's ability to deliver comprehensive and specialized
environmental services in the Lead based Paint, Indoor Air Quality and training
sectors. The Company augments its marketing staff with management and technical
and professional specialists.
The Company intends to market its Lead Based Paint Management Services on
the Internet via the World Wide Web. Management believes that posting a web site
(Home Page) is the most economically efficient and effective means of revealing
potential clients and enhancing its revenue base. The Company's web site is
currently located at www.certified-group.com. The company also plans to do some
limited television and radio promotions through financial and real estate media
to promote the need for lead based paint and other testing and remediation. In
addition the Company plans to promote free Lead Awareness seminars for realtors,
real estate owners and the banking and mortgage communities.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion contains certain forward-looking statements that
aresubject to business and economic risks and uncertainties, and the
Company'sactual results could differ materially from those forward-looking
statements.The following discussion regarding the financial statements of the
Company should be read in conjunction with the financial statements and notes
thereto.
OVERVIEW
Certified was incorporated under the Laws of the State of Delaware on
November 24, 1992, as U. S. Lead Control, Inc. From its inception until October
2, 1995, Certified was a development company engaged in activities solely
related to the lead-based paint industry. On October 2, 1995 the Company
acquired all of the outstanding shares of the common stock of the U. S. Lead
Training Institute, Inc., and on September 9, 1996 Certified merged with and
simultaneously changed its name to Certified Environmental Group, Inc. Upon
completion of the merger, Certified became an operation company in the
Environmental industry. Certified offers environmental services in the Lead
consulting, training and remediation, as well as asbestos and general
environmental consulting and training.
Results of Operations
Nine Months Ended June 30, 1999 as Compared to the Nine Months Ended June
30, 1998
Revenues. Revenues increased to $7,244,607 for the nine months ended June
30, 1999, from $3,894,800 for the nine months ended June 30, 1998. The Company
feels this 86% increase in sales was attributable to a growth in Certified's
clients need to respond to potential liability and violation of newly imposed
laws governing the sale and rental of child occupied space. These Laws known as
Federal Title 10 require testing and abate lead based paint hazards in houses
apartments and other space in which a child occupies approximately 40% of the
time. While Certified's present and future clients are expected to continue to
respond to this environmental concern, there is no assurance that these
potential clients will continue to use Certified accordingly their can be no
assurance that Certified will enjoy continued increased revenue.
Operating Expenses and Gross Margins. Operating expenses increased to
$5,129,688 for the nine months ended June 30, 1999, from $3,206,323 for the nine
months ended June 30, 1998. Gross margins as a percentage of revenues increased
to 29% for the nine months ended June 30, 1999, from 18% from the nine months
ended June 30, 1998. This increase is attributable to the increase in abatement
and remediation services which yield a higher gross margin than the
environmental consulting.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $1,050,767 for the nine months ended June 30, 1999,
as compared to $368,049 for the nine months ended June 30, 1998. This increase
is attributable to increased administrative costs and commissions paid on sales,
as a result of the increase in revenue.
Amortization and Depreciation Expense. Amortization and depreciation
expense was $49,926 for the nine months ended June 30, 1999, as compared to $
40,815 for the nine months ended June 30, 1998. This increase was mostly
attributable to the additional capital expenditures made by Certified to
accommodate the increase in revenue and expansion into the lead based paint
remediation market, as well as the increased costs to obtain state certification
of the Company's environmental seminars.
<PAGE>
Interest Expense. Interest expense increased to $507,475 for the nine
months ended June 30, 1999, from $156,750 for the nine months ended June 30,
1998. This increase was due to Certified's increased dependency on accounts
receivable financing. Certified's Notes Payable attributable to borrowing
against accounts receivable increased approximately 65% from the same period in
1998, while the Company's interest factor increased by 5% annually.
Net Earnings. Net earnings were $310,351 for the nine months ended June 30,
1999, as compared to $73,718 for the nine month ended June 30, 1998. This
approximately 320% increase was attributable to the net result of the
aforementioned items. There is no assurance that the Certified will be able to
continue to experience such increases in net earnings, or that future years
operations will be profitable.
Year Ended September 30, 1998 as Compared to the Year Ended September 30,
1997
Revenues. Revenues increased to $7,499,843 for the year ended September 30,
1998, from $5,208,996 for the year ended September 30, 1997. This 44% increase
in sales was attributable to a growth in Certified's clients need to respond to
potential liability and violation of newly imposed laws governing the sale and
rental of child occupied space. These Laws known as Federal Title 10 require
testing and abate lead based paint hazards in houses apartments and other space
in which a child occupies approximately 40% of the time. While Certified's
present and future clients are expected to continue to respond to this
environmental concern, there is no assurance that these potential clients will
continue to use Certified accordingly their can be no assurance that Certified
will enjoy continued increased revenue.
Operating Expenses and Gross Margins. Operating expenses increased to
$5,430,558 for the year ended September 30, 1998, from $4,228,338 for the year
ended September 30, 1997. Gross margins as a percentage of revenues increased to
27.5% for the year ended September 30, 1998, from 18.8% from the year ended
September 30, 1997. This increase is attributable to the increase in abatement
and remediation services which yield a higher gross margin than the
environmental consulting.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $1,162,968 for the year ended September 30, 1998, as
compared to 454,873 for the year ended September 30, 1997. This increase is
attributable to increased administrative costs as a result of the increase in
revenue as well as an increase in costs resulting from Certified relocating it's
New Jersey office from 1,000 square feet to 2,500 square feet during the end of
fiscal 1997.
Amortization and Depreciation Expense. Amortization and depreciation
expense was $66,568 for the year ended September 30, 1998, as compared to
$54,414 for the year ended September 30, 1997. This increase was mostly
attributable to the additional capital expenditures made by Certified to
accommodate the increase in revenue and expansion into the remediation of lead
based paint, as well as the increase costs to obtain state certification of it's
environmental seminars.
Interest Expense. Interest expense increased to $536,239 for the year ended
September 30, 1998, from $209,715 for the year ended September 30, 1997. This
increase was due to Certified's increased dependency on accounts receivable
financing. Certified's Notes Payable attributed to it's borrowing against it's
accounts receivable increased over 40% from form 1997.
Net Earnings. Net earnings were $182,106 for the year ended September 30,
1998, as compared to $163,531 for the year ended September 30, 1997. This
approximately 12% increase was attributable to the net result of the
aforementioned items. There is no assurance that the Certified will be able to
continue to experience such increases in net earnings, or that future years
operations will be profitable.
<PAGE>
Year 2000
Our business should not be adversely effected or impacted by information
technology issues related to Year 2000. Certified and most of their significant
venders have relatively new computers and computer programs which should not be
effected upon the turning of the millennium. Certified will download all current
projects to disks and paper copy on there last day of operation in December
1999. And will minimize the samples sent to labs during this time frame.
Certified could experience work delays as a result of local power outages, bank
failures and it's larger clients such as the Housing authorities and school
boards suffering various forms of computer failure. However Certified would
anticipate these problems to be minor and temporary administrative problems.
Item 3. Description of Property.
(Item 102 Reg. S-B)
Effective August 1, 1997, the Company began leasing approximately 2,500
square feet of administrative office and classroom space in Turnersville, New
Jersey at a monthly rental rate of approximately $1650.00. The premises are
currently utilized as the Company's main administrative headquarters and
predominant class location for The U.S. Lead Training Institute, Inc. The lease
expires July 31, 2000, at which time the Company intends to roll over the lease
for another three (3) year term.
Effective January 1997, the Company began leasing approximately 500 square
feet of storage space in Brooklyn, New York, at a monthly rental rate of
approximately $250.00. The premises is currently utilized as the Company's main
equipment storage location. The lease is renewable on a month to month basis and
the Company intends to continue leasing it through December 31, 1999.
Effective July 1, 1999, the Company began leasing approximately 1000 square
feet of administrative and classroom space in New York, New York, at a monthly
rental rate of approximately $1000.00. The premises are currently utilized as
the Company's secondary administrative headquarters and secondary class location
for The U.S. Lead Training Institute, Inc. The lease expires December 31, 1999,
at which time the Company intends to roll over the lease for another six (6)
month term.
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of the date of this filing: (i) each
shareholder known by the Company to be the beneficial owner of more than five
percent of the outstanding common stock, (ii) each director of the Company and
(iii) all directors and officers as a group. No family relationship exists
between any executive officer or director of the Company, except for Geoffrey &
Jennifer McCormick, who are husband and wife.
<PAGE>
Total number of shares authorized is 25,000,000 shares of Common Stock,
each of which is $.0l per share par value. 9,105,555 shares of Common Stock have
been issued and are outstanding as follows:
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percent of
Beneficial Owner Class (%)
John L. Sepe (1)(5)
<S> <C> <C> <C>
337 West 43rd Street 937,500 10.2
New York, NY 10036
Ralph F. Romano (1)
11 1-20 Jamaica Avenue 250,000 2.7
Richmond Hill, NY 11418
Ernest Micciche (3)(4)(6)
509B Route 168 1,007,500 (10) 11.0
Black Horse Pike, NJ 08012
Geoffrey V. McCormick (1)(2)(3)(7)
111 North Avenue 375,000 (11) 4.1
Blue Anchor, NJ 08037
Arnold Bluth (3)(4)
8 N. Melbourne Avenue 660,000 (12) 7.2
Ventnor, NJ 08406
Brian Clark (3)
818 Parry Avenue
Palmyra, NJ 0806 275,000 (13) 3.0
Bruce Newman (3)
100 Park Blvd. 300,000 (14) 3.3
Cherry Hill, NJ 08034
Jennifer W. McCormick (2)(3)
111 North Avenue
Blue Anchor, NJ 08037 12,500 0.1
James Proctor (3)
11 Oak Road 275,000 (15) 3.0
Hammonton, NJ 08037
Asher Cottrell (3)(4)
394 Green Lane 60,000 (16) 0.7
Mantua, NJ 08051
All Officers and Directors
as a Group, Including Proxies 4,125,000 (17) 45.3
</TABLE>
Footnotes:
(1) May be deemed a "parent" or "promoter" as those terms are defined in
The Rules and Regulations as adopted under the Securities Exchange Act of 1934.
(2) Kathleen McCormick and Geoffrey McCormick are related as husband and
wife.
(3) Individual is an Executive Officer of the Company.
(4) Individual is a Director of the Company. (5) John L. Sepe is the record
and sole beneficial owner of 437,500 shares. The balance represents 500,000
Shares for which an irrevocable proxy to vote such shares have been granted to
Mr. John L. Sepe by his three siblings, each of which owns 166,667 shares,
beneficial ownership of which is acknowledged by Mr. Sepe.
<PAGE>
(6) Ernest Micciche is the record owner of 37,500 shares. Additionally, he
is the beneficial owner of 427,500 shares by way of proxy to vote 50,000 shares
owned by Shevket Okumus and 102,500 shares owned by his son, Andrew Chase
Micciche. Mr. Micciche's mother, Mary Micciche is the record owner of 125,000
shares of stock. Ernest Micciche disclaims beneficial ownership of his mother's
shares. Mr. Micciche is also beneficial owner of 275,000 shares by way of proxy
to vote 275,000 shares owned by the Environmental Realty Guild of America, Inc.
(7) Geoffrey McCormick and Jennifer McCormick are related as husband and
wife. Beneficial ownership of Mrs. McCormick's shares is acknowledged by Mr.
McCormick.
(8) Based upon a total of 9,105,555 common shares outstanding.
(9) Based upon a total of 9,105,555 common shares outstanding, assuming the
exercise of all of the Employee Stock Options totaling 2,125,000 shares.
(10) Assumes exercise of 500,000 Employee Stock Options.
(11) Assumes exercise of 250,000 Employee Stock Options.
(12) Assumes exercise of 550,000 Employee Stock Options.
(13) Assumes exercise of 265,000 Employee Stock Options.
(14) Assumes exercise of 275,000 Employee Stock Options.
(15) Assumes exercise of 265,000 Employee Stock Options.
(16) Assumes exercise of 10,000 Employee Stock Options.
(17) Assumes exercise of 2,115,000 Employee Stock Options.
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth the names and ages of the current directors
and executive officers of the Company, the principal offices and positions with
the Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. The directors serve one year terms
and until their successors are elected. The executive officers serve terms of
one year or until their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and executive
officers (except that Jennifer McCormick and Gregory McCormick are related as
husband and wife. In addition, there was no arrangement or understanding between
any executive officer and any other person pursuant to which any person was
selected as an executive officer.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Ernest Micciche 40 Chief Financial Officer, Treasurer & Director
Arnold Bluth 66 President, Chief Operating Officer & Director
Brian Clark 28 Vice-President - Lead Consulting
Bruce P. Newman 42 Vice-President- Training
Jennifer McCormick 42 Secretary & Director
Asher Cottrell 57 Vice-President- ESA Division & Director
James Proctor 29 Vice-President- Asbestos
Geoffrey McCormick 37 Vice-President- Lead Remediation
</TABLE>
<PAGE>
Ernest Micciche
Chief Financial Officer, Treasurer & Director
Mr. Micciche has served as Chief Financial Officer for the Company since
April 30, 1998. In addition, he has served as Treasurer for the Company since
October 1, 1995, and Director for the Company since October 1995. Mr. Micciche
assumed the position of President on March 7 1997 through November 21, 1998.
From November 1994 to September 1995 he was President, Chief Executive
Officer and Treasurer of Probe Services, Inc. From December 1993 to August 1994,
Mr. Micciche was the Treasurer of Probe Environmental, Inc. Mr. Micciche is a
graduate of the Wharton School of Business at the University of Pennsylvania,
where he majored in Accounting and received a Bachelor of Science Degree in
Economics and Commerce.
Arnold Bluth
Chief Executive Officer, Chief Operating Officer, President & Director
Mr. Bluth has served as Chief Executive Officer of the Company since
September 1, 1998 and Chief Operating Officer since June 1, 1997. In addition,
he has served as President of the Company since November 22, 1998 and has been a
Director of the Company since March 1997.
From 1992 to present, he was employed as a staff engineer, business
development specialist and technical support services consultant for DCS, Inc.,
Yardley, PA. His responsibilities included correspondence and dealing with
potential new business accounts to promote new business with government agencies
and commercial firms; review CBD announcements, government agency bid
solicitations, small business procurement set-aside releases and other potential
business sources. He generated technical and cost proposal data in response to
RFPS, RFQ's and IFBS. He was responsible for reports and technical data sheets
(TDS) for the Federal Aviation Agency (FAA) Aviation Security Research and
Development Division on program contract deliverables and participated in field
testing at various airports in the United States. He conducted field tests and
wrote reports, plans and procedures on airport ASR & D tasks for data generated
in support of the EASSP program at BWI. He assisted ASR & D in the FAA
Integrated Product Development System (IPDS) to systematically employ a teaming
of functional disciplines to integrate and concurrently apply all necessary
processes to manage products and services that satisfy customer needs. The IPDS
extends through all stages in a products/services life cycle.
From 1989 to 1991 Mr. Bluth was engaged as Vice-President, Engineering
Division Manager for Thosani, Inc., Mt. Laurel, NJ.
From 1966 to 1989, Mr. Bluth was Principal, Owner, President and Chief
Executive Officer of Triad Engineering Co., Inc., Runnemede, NJ. Mr. Bluth
formed Triad Engineering to provide design engineering and software
documentation services to government agencies and commercial industry. During
this twenty-three year time span Mr. Bluth actively participated in numerous
projects as well as being the guiding force of corporate management for Triad
growth and expansion. In 1989, Triad Engineering was purchased by Thosani, Inc.
and became a separate division.
For the ten years prior to his service with Triad, Mr. Bluth was employed
with various engineering and scientific organizations including Scientific
Management Associates (2 yrs.), DYNATRONICS, Inc., a division of General
Dynamics (2 yrs.), ITE Circuit Breaker Co. (4 yrs.), RCA (I yr.) and Hughes
Aircraft Company (I yr.).
From 1953 to 1956 Mr. Bluth served with the United States Army during the
Korean War period. Mr. Bluth was part of the Signal Corps staff engineering
group in the European Theater Operations, 7th Army Depot, Germany. He served as
military liaison to technical representatives of US concerns providing radar
systems to the military.
<PAGE>
Mr. Bluth holds a Bachelor of Arts degree in Physics (1953) from Rutgers
University. He also attended the Engineering Graduate School at University of
Southern California (1957).
Bruce P. Newman
Vice President Training
Mr. Newman has served as Vice President in charge of the Environmental and
Training Operations for the Company since June 1, 1997. His responsibilities
include directing the Company's subsidiary, U.S. Lead Training Institute, Inc.
From 1996 to June 1997 he was employed by TTI Environmental, Inc. of
Marlton, New Jersey as Director of Lead-Based Paint Consulting and Training
Services. His responsibilities included Marketing, Sales and Training; New
Jersey State and EPA-HUD certified Lead-Based Paint 3 to 5 day training courses;
Lead abatement worker, Supervisor, Inspector and Risk assessor. He also
performed Lead-Based Paint Consulting including lead inspections and risk
assessments.
From one year prior thereto, he was employed by Leadtec Services, Inc.,
Baltimore, Maryland as Regional Manager responsible for all phases of branch
operations including development of lead training manuals.
From 1989 to 1995 he was Chief Executive Officer of Team Environmental
Supply, Inc. He was responsible for P&L and overall management.
From 1991 to 1995 he was president and Chief Executive Officer of Leadtest,
Inc., a lead consulting organization.
For five years prior thereto, Mr. Newman was engaged as an Executive,
Engineer, Sales and Marketing of Asbestos Environmental Supplies and Training
Operations on a national basis.
He holds various State Certifications in Lead-Based Paint disciplines
including Lead Instructor, with the New Jersey Dept. of Health, Member of the
State Lead Task Force, Lead Certification Exam Force and National Lead Abatement
Council. In addition, Mr. Newman holds a Bachelor of Science degree in Biology
and Education (1977) from West Chester State University and a Master of Science
degree in Environmental Sciences (1979) from Florida State University.
Jennifer McCormick
Corporate Secretary & Director
Ms. McCormick has served as a Director of the Company since the Company's
inception, in October 1, 1995, and has served as Secretary of the Company since
July 5, 1996. Her responsibilities include maintaining all incoming and outgoing
Company correspondence, keeping up-to-date records and maintaining the by-laws
and minutes of the Company. Ms. McCormick is also in charge of the Company's
secretarial/data-entry/word processing and contract labor pool.
From November 1985 to October 1995, She was engaged as a contract
administrator/secretary to various environmental consulting & training
organizations. Her principal responsibilities were as administrator, office
manager, secretary and documentation manager.
Ms. McCormick received her Bachelor of Arts Sociology degree from Rutgers
University, Camden, New Jersey in 1980 and graduated from The Real Estate
School, Haddonfield, New Jersey, Sales Associate License in 1984. She also
received her Notary Public Commission in 1995.
Brian Clark
Vice-President, Lead Services
<PAGE>
Mr. Clark has served as Vice-President in charger of Lead Services for the
Company since November 21, 1998. He is responsible for all Lead-based paint
related services, i.e., inspections, risk assessments, abatement designs,
abatement/personal air monitoring, pre/post-abatement clearance and regulation
compliance. Mr. Clark has experience in many other environmental areas,
including collection of Potable Water, Surface Water and Groundwater sampling
for environmental analysis, soil sampling for Phase I & II Environmental Testing
in compliance with SW846 protocols, Lead Inspection with the RMD-LPA and SCITEC
Map 3 instrumentation and Indoor Air Quality Testing utilizing a Drager
Multi-Gas Detector and a TMX-412 Multi-Gas Detector.
He has also performed sample log-in procedures, inputting & downloading of
the RMD-LPA data for Final Report writing for the Philadelphia Housing
Authority, the New York Housing Authority, the Gloucester City Housing Authority
and the Pittsburgh Housing Authority; including Chain of Custody sample
preservation and sample extraction and analysis. Mr. Clark also played an
integral part in conducting Risk Assessment/Lead-based paint inspections on a
Pilot Program for HUD.
In addition to lab & field work, Mr. Clark is involved heavily with Client
liason and the marketing of new & current business, in the training of
Technicians for Detection, Sampling, Coordination and preparations of all
aspects of Lead Based Paint Inspection/Risk Assessments. Mr. Clark holds a
Bachelor of Science degree in Biology from Rowan College, Glassboro, NJ (1994).
Geoffrey V. McCormick
Vice-President, Lead Remediation Services
Mr. McCormick has served as Vice-President in charge of Lead Remediation
Services for the Company since November 21, 1998. He has over 15 years of
Project Management & Field Technician experience in the Environmental/Industrial
Hygiene consulting fields. He has provided the professional consulting services
to complete the investigation, detection, sampling and assessment of Lead,
Asbestos and other Hazardous Materials. He provided the supervision for numerous
Lead & Asbestos Management projects, particularly involving a number of the
largest public housing authorities, school districts, military bases, and health
departments throughout Pennsylvania, New Jersey, New York and Delaware. Mr.
McCormick's duties have also included the administration & coordination of
various Industrial Hygiene Field Services, Marketing & Sales & Training of newly
hired Field Technicians. Mr. McCormick received his Associate of Science degree
in Business Administration from Temple University (1982). He also attended a
Business Administration curriculum at Camden County College, Blackwood, NJ
during 1979-1980.
James L. Proctor
Vice-President, Asbestos Services
Mr. Proctor has served as Vice-President in charge of Asbestos Services for
the Company since November 21, 1998. He has over 5 years experience in the
environmental/Industrial Hygiene Consulting Fields covering a broad range of
disciplines and project types. Mr. Proctor's professional duties have included
Asbestos Building Inspection, Asbestos Abatement Specification Design & Project
Management, Lead-Based paint Inspection & Testing, Indoor Air Quality Testing
and "Right-to-Know" Surveys. He has conducted numerous pre-bid meetings,
designed & implemented a number of operations & management programs for various
school districts, municipal clients & private companies throughout the Delaware
Valley which contain regulated materials.
Mr. Proctor has also completed a number of jobs involving OSHA compliance
monitoring. He has performed Industrial Hygiene sampling for stressors
including, but not limited to Lead, Silica & Noise.
Mr. Proctor is also experienced in performing tasks within the
Environmental Service division of the Company. He has conducted Phase I & II
Site Assessments & Sampling, Soil/Groundwater Sampling, Environmental Impact
Surveys and Hazardous Site Assessments. Mr. Proctor has also performed a number
of compliance inspections of sewage discharge, groundwater remediation systems
and groundwater wells.
<PAGE>
Mr. Proctor holds a Bachelor of Science degree in Environmental Sciences
from Stockton State College (1994) in NJ, and an Associate of Science degree in
Computer Science from Atlantic Community College (1991).
Asher Cottrell,
Vice-President, ESA Consulting Services & Director
Mr. Cottrell has served as a Director of the Company since November of
1998, and as Vice-President in charge of ESA Consulting Services for the Company
since November 21, 1998. He has over eleven (11) years of experience in the
Environmental Consulting/Industrial Hygiene Fields. He has worked as Technician
& Manager on numerous hazardous materials projects from inception to completion.
Mr. Cottrell has been involved with large-scale asbestos inspections including
the 4.4 billion square foot General Electric Aircraft Engines Riverworks Plant
in Lynn, MA & the Sears Building in Chicago, IL. He has performed many large
Lead Inspection projects, including a 400+ unit complex for the Cambridge
Housing Authority in Cambridge, MA.
After Inspection work, Mr. Cottrell worked closely with other Environmental
Professionals to design abatement specifications & monitored abatement projects
to ensure safety, regulatory & contract specification compliance. He also has
experience in the area of Environmental Training. He provided Lead & Asbestos
Training & managed an Environmental Health & Safety Training Program per OSHA
requirements. Most recently, Mr. Cottrell has been expanding his base of
experience involving Phase I & II Environmental Site Assessments. He holds an
Associate of Business degree in Science from Rutgers University (1967) and a
Master of Science degree in Education Counseling from Trenton State College
(1972).
Advisory Committee
The Company intends to establish an Advisory Committee of not less than
three nor more than five persons who will be appointed by the Board of Directors
but not be members of the Board of Directors. The purpose of the Advisory
Committee will be to consult with Directors and Officers of the Company
concerning factors affecting the Company's existing business and to provide
advice and guidance with respect to proposed business. Management of the Company
anticipates the Advisory Committee members will be business people from many
different industries who will be able to review and evaluate the business of the
Company, proposed business and to aid in the Company expansion and
profitability.
Members of the Committee will serve at the pleasure of the Board of
Directors and receive compensation as determined from time to time by the Board.
There are no understandings at this time regarding any compensation to be paid
to members of the Advisory Committee. The Board has determined that members of
the Advisory Committee will be reimbursed for all reasonable expenses associated
with activities as a member of the Advisory Committee. The Board has also
decided that if the Company should decide to avail itself of consulting services
from any Advisory Committee members, it will negotiate fees paid to such member
for his services. Management believes that such fees, if paid, will be
comparable with those fees paid to non-affiliates as negotiated in an
arms-length transaction. Finally, the by-laws of the Company also provides for
indemnification of Advisory Committee members to the same extent that Directors,
Officers and Employees of the Company are indemnified. No members of the
Advisory Board have been selected or elected.
<PAGE>
Item 6. Executive Compensation.
The Company did not pay any Officer or Director in excess of $60,000 during
the 12 months prior to September 30, 1998. The Company has capped all Officer's
and Director's annual salaries at a $25,000 base. Additionally, the Company
compensates responsible Employees with a 5% sales commission on new sales and
10% Profit Center commissions on their operations. Mr. Bluth and Mr. Micciche
receive no Profit Center commissions. Each executive devotes full time to the
business.
Unless otherwise established by the Board of Directors, no compensation is
paid to directors, as such, for their services. Nothing shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Long Term Incentive Plan
The Company has adopted a Long Term Incentive Plan for 1998 (the "Plan").
The Plan is administered by the Board of Directors as a means of attracting and
retaining key employees and compensating non-employee directors, consultants and
others who perform services on behalf of the Company. Under the Plan, the Board
of Directors may, from time to time, grant
i. Incentive Stock Options,
ii. Non-Qualified Stock Options,
iii. Stock Unit,
iv. Restricted Stock, and
v. Stock Appreciation Rights (collectively "Awards") to purchase up to
125,000 common shares
to officers, directors, employees and consultants who render services to
the Company. Awards under the Plan are granted at a reasonable price as
determined by a subcommittee of Board of Directors. The Company has additionally
adopted a 1999 plan for a total of 1.5 million additional Stock Options. To date
both of these plans have been fully issued but none have been exercised.
Board of Directors
Directors who are also officers of the Company currently do not receive
salaries or fees for serving as directors of the Company. There are presently
four (4) directors who are also officers serving on the Board. The Company
intends to add outside directors to its Board in the future. Outside directors
will receive compensation for their services. All directors are reimbursed by
the Company for any expense incurred in attending Board meetings.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and
Principal Other Restricted Securities LTIP All
Position Year Salary ($) Bonus ($) Annual Stock Underlying Payouts Other
Compen- Awards Options/ Compensation
sation ($) SARS ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arnold Bluth, CEO 1999 25,000 0 0 0 1,500,000 0 0
(1) 1998 85,000 0 0 0 0 0 0
Ernie Micciche, CFO 1998 25,000 0 0 0 0 0 0
1997 25,000 0 0 0 0 0 0
</TABLE>
(1) Arnold Bluth has served as CEO from November 1998 to present.
(2) Ernie Micciche served as CEO of the Company from October 1995 to
November 1998. He now serves as CFO of the Company.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options/SARs
Underlying Options/SARs Granted to Employees Exercise or
Name Granted in Fiscal Year Base Price ($/Sh) Expiration Date
<S> <C> <C> <C>
Arnold Bluth, CEO 1,500,000 0.25 November 1, 2003
Ernie Micciche, CFO 500,000 0.25 November 1, 2003
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number Of Securities Value Of
Shares Acquired Underlying Unexercised Unexercised
On Exercise (#) Value Realized ($) Options/SAR's In-The-Money
Name At FY-End (#) Options/SAR's
Exercisable/ Unexercisable At FY-End (#)
Exercisable/ Unexercisable
<S> <C> <C> <C>
Arnold Bluth, President 0 0 1,600,000 exercisable
Ernie Micciche 0 0 500,000 exercisable
</TABLE>
Item 7. Certain Relationships and Related Transactions.
On March 31, 1997, the Company issued 300,000 shares of Common Stock to
Tracey Sepe, Esq., daughter of Founder, Louis Sepe, in consideration of legal
services she provided in conjunction with the Company's acquisition of US Lead
Training Institute.
On November 21, 1998 the Company issued 500,000 Employee Stock Options each
to Ernie Micciche and Arnold Bluth, as well as 250,000 Employee Stock Options
each to Geoffrey McCormick, James Proctor, Brian Clark, and Bruce Newman, in
consideration of a 50% reduction in their respective base salaries, going
forward from that date. These options are exercisable at $0.125 per share and
vest 1/5 each year over a period of five years, at which time they expire. On
the same date, the Company granted 46,250 shares of common stock each to Ernie
Micciche and Arnold Bluth, in consideration of a retroactive 50% reduction in
their respective base salaries that commenced in May 1998.
Item 8. Description of Securities.
Certified Environmental Group, Inc. authorized capital stock consists of
25,000,000 shares of Common Stock with $0.01 par value per share and 1,000,000
shares of Preferred Stock with $0.001 par value per share.
<PAGE>
Common Stock
The holders of Common Stock,
i. have equal ratable rights to dividends from funds legally available
therefore, when, as and if declared by the Board of Directors;
ii. are entitled to share ratably in all of the assets of the company
available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the
company;
iii. do not have preemptive, subscription or conversion rights, or
redemption or sinking fund provisions applicable thereto;
iv. and are entitled to one non-cumulative vote per share in person or
by proxy on all matters on which stockholders may vote at all
meetings of stockholders.
All outstanding shares of Common Stock are fully paid and non-assessable,
with no personal liability attaching to the ownership thereof. The holders of
Common Stock do not have cumulative voting rights, which means that the holders
of more than 50% of such outstanding shares, voting at an election of Directors,
can elect all of the Directors if they so choose and, in such event, the holders
of the remaining shares will not be able to elect any of the Directors.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of Preferred stock,
with $0.001 par value per share. The Preferred stock is non-voting upon
issuance. The Board of Directors has the authority, without further vote or
action by the stockholders, to issue up to 1,000,000 shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock should these shares convert to Common Stock, and the likelihood
that such holders will receive dividend payments and payments upon liquidation.
The Company has no present plans to issue any additional shares of Preferred
Stock, after this Offering.
Stock Options
The Company has issued two plans for employee stock options; one for
125,000 share options; and the other for 2.0 million share options, totaling
2,125,000.
Part II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
Certified Environmental Group, Inc. authorized capital stock consists of
25,000,000 shares of Common Stock with $0.01 par value per share and 1,000,000
shares of Preferred Stock with $0.01 par value per share. Currently, there are
9,105,555 shares of Common Stock issued and outstanding to approximately 500
holders of record. In addition, there are 500,000 shares of Preferred Stock
issued and are outstanding to 1 holder of record. The Company's Common Stock is
currently traded on the Over the Counter Bulletin Board, under the symbol
"CENV".
<PAGE>
MARKET PRICE
The following table provides a summary of the high and low sales prices of the
Company's Common Stock for each quarter since the shares began trading, up to
the second quarter of 1999:
<TABLE>
<CAPTION>
Period High Low
($/shr.) ($/shr.)
Ask Bid Ask Bid
<S> <C> <C> <C> <C> <C>
2nd Quarter 1998* 1.25 0.75 1.25 0.75
3rd Quarter 1998 2.00 1.00 0.48 0.25
4th Quarter 1998 0.48 0.25 0.48 0.12
1st Quarter 1999 0.75 0.50 0.25 0.12
2nd Quarter 1999 1.02 0.82 0.53 0.25
</TABLE>
* First quarter in which the Company's Common Stock was traded.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
However, it is the intention of the Board of Directors to distribute dividends
that are above the industry average. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, capital requirements, the financial
condition of the Company and general business conditions. The Company does not
intend to make such dividend distributions until it has retired its bank lines
of credit and redeemed or converted all of its Preferred Stock. Of course, the
Company shall pay dividends to all Preferred shareholders based on the terms of
said shares.
Item 2. Legal Proceedings.
The Company believes it is not a party to any litigation or other legal
matter which might adversely affect the business plans herein. The law firm of
Sichenzia, Ross & Friedman LLP, 135 West 50th Street, 20th Floor, New York, New
York 10020, serves as the Company's General Counsel and SEC Legal Advisor.
Item 3. Changes in and Disagreements With Accountants.
Since the Company's inception, in October 1995, Stanton Remer, Certified
Public Accountants, has been engaged by the Company as their principal
accountant to audit the Company's financial statements. There have been no
changes in accountants or disagreements of the type required to be reported
under this Item 3 between the Company and its independent auditors since their
date of engagement.
Item 4. Recent Sales of Unregistered Securities.
On March 31, 1997, the Company completed an offering of 1,200,000 shares of
its Common Stock, at $0.05 per share, for a total offering of $60,000. The
offering was self-placed and registered in the state of New York under a 504 D
exemption, based on the Company's qualification under that section as defined in
the Securities Act of 1933.
On December 31, 1997, the Company completed an offering of 100,000 units
(comprising of 1 share of Common Stock and 10 warrants to purchase additional
shares), at $1.00 per unit, for a total offering of $100,000. The offering was
self-placed and registered in the state of New York under a 504 D registration
exemption, based on the Company's qualification under that section as defined in
the Securities Act of 1933.
<PAGE>
On February 17, 1999 the Company completed an offering of 1.5 million
shares of its Common Stock, at $0.10 per share, for a total offering of
$150,000. The offering was self-placed and registered in the state of New York
under a 504 D registration exemption, based on the Company's qualification under
that section as defined in the Securities Act of 1933. However, 850,000 of the
offered shares were sold to promoters who refused to honor their subscription
receivable and make payment after selling all of their shares. Consequently, the
Company received only $65,000 of the expected proceeds from the offering. The
Company is seeking certain legal remedies collectively against these promoters,
including but not limited to action under Section 16(b) of the Securities
Exchange Act, for approximately $2 million dollars.
On March 1, 1999 the Company filed an offering memorandum in the State of
New York to sell 170,000 shares of its preferred convertible stock at $5.00 per
share, pursuant to a 504 D registration exemption. Each of the offered Preferred
Stock shares are convertible to fifteen shares of Common Stock at 75% of the
Common Stock bid price at the time of conversion. The company intends to close
this offering upon the filing of this Form SB10. To date the Company has sold
170,000 shares of preferred stock for a total of $850,000. To date all 170,000
preferred shares have been converted into 2,550,000 shares of common stock
Item 5. Indemnification of Directors and Officers.
At present the Company has not entered into individual indemnity agreements
with its Officers or Directors. However, the Company's by-laws and Certificate
of Incorporation provide a blanket indemnification that the Company shall
indemnify, to the fullest extent under Delaware law, its directors and officers
against certain liabilities incurred with respect to their service in such
capabilities. In addition, the Certificate of Incorporation provides that the
personal liability of directors and officers to the Company and its stockholders
for monetary damages will be limited.
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 Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
case.
Part F/S
Financial Statements
The Financial Statements required by this Item are included at the end of this
report beginning on Page F-1.
Part III
Item 1. Index to Exhibits.
The following is an index of Exhibits which will be filed by Amendment.
<TABLE>
<CAPTION>
<S> <C>
1.1 Articles of Incorporation
1.2 Certificate of Amendment of Articles of Incorporation.
2.1 Bylaws.
3.1 Commercial Lease for Property at 509 Route 168, Turnersville, New Jersey 08012.
3.2 Commercial Lease for Property at 365 Avenue U, Brooklyn, New York 11223.
3.3 Commercial Lease for Property at 225 Broadway, New York, New York 10022.
4.1 Financial Data Schedule.
</TABLE>
Item 2. Description of Exhibits.
Not Applicable
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Certified Environmental Group, Inc.
(Registrant)
Date: October 5,1999 By: /s/ Ernie Micciche
Ernie Micciche,
Treasurer and Chief Financial Officer
<PAGE>
Certified Environmental Group, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Accountant's Report(s)
Balance Sheets as of September 30, 1997 &
September 30, 1998 F-2 & 3
Statement of Income for years ended September 30, 1997
& September 30, 1998 F-4
Statement of Changes in Stockholder's Equity F-6
Statement of Changes in Cash Flow for year ended
September 30, 1997 & September 30, 1998 F-7
Notes to Financial Statements F-8-10
Balance Sheets as of June 30, 1998 & June 30, 1999 F-11
Statement of Income for the Nine Months ended June 30, 1998 &
for the Nine Months ended June 30, 1999 F-12
Statement of Cash Flows for the Nine Months ended June 30, 1998
& for the Nine Months ended June 30, 1999 F-13
Notes to Financial Statements F-14
</TABLE>
<PAGE>
Board of Directors
Certified Environmental Group, Inc.
I have audited the accompanying balance sheet of Certified Environmental
Group, Inc. as of September 30, 1998 and the related statement of earnings,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Certified Environmental
Group, Inc. at September 30, 1998 and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
May 13, 1999
/s/ Aaron Stein
Aaron Stein
Certified Public Accountant
F-2
<PAGE>
Certified Environmental Group, Inc.
Balance Sheet
September 30,
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Cash ............................................................. $ 64,723 $ 136,121
Accounts Receivable .............................................. 2,656,900 2,116,617
Advances ......................................................... 3,100 3,100
Securities ....................................................... 115,000 115,000
Prepaid Expenses ................................................. 82,352 9,252
----------- -----------
Total Current Assets .......................................... 2,922,075 2,380,090
----------- -----------
Fixed Assets
Furniture & Equipment ............................................ 57,054 57,054
Field Equipment .................................................. 127,095 62,889
Leasehold Improvements ........................................... 35,185 33,996
----------- -----------
Less Accumulated Depreciation .................................... (67,988) (20,101)
----------- -----------
Total Fixed Assets ............................................ 151,346 133,838
Other Assets
Goodwill, (net of amortization) .................................. 220,024 451,589
Licenses (net of amortization) ................................... 276,524 221,494
Offering Costs ................................................... 75,018 43,449
----------- -----------
Total Other Assets ............................................ 571,566 716,532
----------- -----------
Total Assets ............................................ $ 3,644,987 $ 3,230,460
=========== ===========
LIABILITIES & SHAREHOLDER'S EQUITY
Current Liabilities
Accounts Payable & Accrued Equity ................................ $ 68,916 $ 403,985
Notes Payable -Current Portion of Term Loan ...................... 321,420 -0-
Notes Payable - Bank ............................................. 2,069,673 1,870,728
----------- -----------
Total Current Liabilities ..................................... 2,460,009 2,274,713
=========== ===========
Long-term liabilities
Long-term Debt - Term Loan ....................................... 53,575 --
Deferred Income Taxes Payable .................................... 273,529 152,125
----------- -----------
Total Long-term Debt .......................................... 327,104 152,125
----------- -----------
Total Liabilities .......................................... 2,787,113 2,426,838
----------- -----------
Shareholder's Equity:
Common Stock, 10,000,000 shares ................................ 44,000 43,000
authorized par value $.01; 4,400,000 shares issued and outstanding
as of September 30, 1998
Preferred Stock, 1,000,000 shares ............................. 5,000 -0-
authorized par value $.01; 500,000 shares issued and outstanding
as of September 30, 1998
Paid in Capital ................................................ 362,272 496,126
Retained Earnings .............................................. 446,602 264,496
----------- -----------
Total Shareholder's Equity ..................................... 857,874 803,622
----------- -----------
Total Liabilities & Shareholder's Equity ......................... $ 3,644,987 $ 3,230,460
=========== ===========
</TABLE>
F-4
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
Certified Environmental Group, Inc.
Statement of Income
For the Year Ended September 30,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenue ............................................. $7,499,843 $5,208,996
Direct Expenses ..................................... 5,430,558 4,228,338
---------- ----------
Gross profit ........................................ 2,069,285 980,658
General Selling & Administrative Costs .............. 1,162,968 454,873
---------- ----------
Earnings before Depreciation, Amortization & Interest
Expense ............................................. 906,317 525,785
---------- ----------
Interest expense ................................ 536,239 209,715
Depreciation and amortization ................... 66,568 54,414
---------- ----------
602,807 264,129
Earnings before Income Tax .......................... 303,510 261,656
Provision for Federal & State Income Taxes .......... 121,404 98,125
---------- ----------
Net earnings ........................................ $ 182,106 $ 163,531
========== ==========
Earnings Per Share of Common Stock .................. $ 0.04 $ 0.04
========== ==========
</TABLE>
F-5
See Accompanying Notes to the Financial Statements
<PAGE>
Certified Environmental Group, Inc.
Statement of Changes in Stockholders' Equity
Year Ended September 30, 1998
<TABLE>
<CAPTION>
Common Stock Additional
Shares Amount Paid In Retained
Capital Earnings
<S> <C> <C> <C> <C>
September 30, 1996 ..... 3,000,000 $ 30,000 $ 482,376 $ 100,965
Issuance of stock for
Acquisition of Kinsey
Industrial 3/19/97 .. 100,000 1,000 -- --
Sale of Common Stock
at $.05 per share net
at cost of Offering . 1,200,000 12,000 13,750 --
Net Eamings ............ -- -- -- $ 163,531
--------- --------- --------- ---------
September30, 1997 ...... 4,300,000 $ 43,000 $ 496,126 $ 264,496
Sale of Common Stock
At $1.00 per share net
Of cost of offering;
Offered 10.97 ........ 10,000 $ 1,000 84,000 --
Devaluation of Asset ... -- -- (217,854) --
Net Earnings 1998 ...... ______ _______ _________ $ 182,106
---------
September 30, 1998 ..... 4,310,000 $ 44,000 $ 362,272 $ 446,602
</TABLE>
F-6
See Accompanying Notes to the Financial Statements
<PAGE>
Certified Environmental Group, Inc.
Statement of Changes in Cash Flows
September 30th
<TABLE>
<CAPTION>
1998 1997
Cash Flows From Operating Activities:
<S> <C> <C>
Net Earnings ...................................... $ 182,106 $ 163,531
--------- ---------
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ..................... 66,568 54,414
Changes in operating assets and liabilities
Accounts receivable ............................ (540,283) (817,553)
Prepaid expenses and other current assets ...... (73,100) (19,210)
Accounts payable and accrued payroll ........... (335,069) 228,635
Deferred income taxes .......................... 121,404 98,125
--------- ---------
Total adjustments ................................. (760,480) (455,589)
--------- ---------
Net cash provided by operating activities ......... (578,374) (292,058)
Cash Flows From Investments ....................... (115,000)
Capital expenditures ........................... (65,395) (87,190)
Investment in sub and licensures ............... (91,569) (346,961)
--------- ---------
Net cash used in Investments ...................... (156,964) (549,151)
--------- ---------
Cash Flows From Financing Activities:
Notes payable - affiliate ...................... (100,000) 100,000
Sale of common stock ........................... 85,000 13,000
Issuance of Preferred Stock .................... 5,000 -0-
Net borrowings from short term debt arrangements 620,365 809,262
Long Term Portion of Term Loan ................. 53,575 -0-
Net cash provided by financing activities ......... 663,940 922,262
Net decrease in cash .............................. (71,298) 81,053
Cash, beginning of year ........................... 136,121 55,068
--------- ---------
Cash, end of year ................................. $ 64,723 $ 136,121
========= =========
Supplemental Cash Flow Disclosures:
Cash paid for:
Income Tax ..................................... -0- -0-
--------- ---------
Interest expense ............................... $ 536,239 $ 209,715
========= =========
</TABLE>
F-7
See Accompanying Notes to the Financial Statements
<PAGE>
Certified Environmental Group, Inc.
Notes to Financial Statements
September 30, 1998
1. Organization and Nature of Business
Certified Environmental Group, Inc. is in the business of providing
environmental services to the private sector, and governmental agencies. The
Company specializes in lead and asbestos detection, abatement, and remediation
and provides other environmental consulting services, including asbestos
inspections, management plans, environmental inspections, site assessments. In
addition, the Company conducts worker safety and awareness courses in lead
abatement and detection. The Company was incorporated in the State of Delaware
as U.S. Lead Control, Inc. and reorganized through a merger as Certified
Environmental Group, Inc. in August 1996.
2. Summary of Accounting Policies
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets (five years) or, where applicable, the terms of the respective
leases, whichever is shorter. Depreciation and amortization of property and
equipment charged to operations was $47,887 for the year ended September 30,
1998.
Financial Instruments
The carrying amounts reported in the balance sheet for cash and short-term
borrowings approximate their fair market values.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company reports for financial reporting purposes on the accrual basis.
However, for income tax reporting purposes, the Company prepares its tax returns
on the cash basis. This temporary difference gives rise to a short term deferred
tax liability in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes." Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
F-8
<PAGE>
Certified Environmental Group, Inc.
Notes to Financial Statements
September 30,1998
2. Summary of Accounting Policies -- (Continued)
Intangibles
Intangibles are amortized on a straight-line basis over a period of eighteen
years. Such life is periodically reviewed by management in order to assess its
adequacy. When, in the opinion of the Company's management, a permanent
diminution in the value has occurred, the amount of the diminution would be
included in the statement of earnings. These intangible assets consist of the
following:
<TABLE>
<CAPTION>
Amounts Net of Amortization
<S> <C>
License for Patented Phase Zero Environmental
Technology & Seven Environmental Training Licenses $276,524
Goodwill - purchase of U.S. Lead Training Institute $220,024
</TABLE>
3. Note Payable
The Company maintains a credit facility with a commercial finance company.
Advances under the credit facility are limited to 80% of accounts receivable
which are less than 91 days from the date of invoice. The credit facility bears
interest at the prime rate of interest plus 2%. In addition, the commercial
finance company charges a collection processing fee of 2% of the face value of
each invoice. The credit facility is collateralized by all accounts receivable
of the Company. At September 30, 1998, the Company had additional availability
of approximately $430,327 under the credit facility.
The Company has a 14 month term loan through 12/1/99 with a commercial
lending institution at 8 & 1/2 % annual interest.
4. Commitments
The Company leases its administrative offices under operating leases
expiring in various years through September 30, 2000.
Minimum future rental payments under non-cancellable operating leases as of
September 30, 1998 were as follows:
For the Month Ended September 30, Amount
1999 19,303
2000 19,884
------
Total $ 39,192
F-9
<PAGE>
Certified Environmental Group, Inc.
Notes to Financial Statements
September 30, 1998
Subsequent Events
In October 1997, the Company offered for sale 100,000 units for $1.00 per
unit. Each unit consists of one (1) share of common stock and three (3) Class A
convertible warrants, which convert at $1.25 per share and 3 Class B convertible
warrants, which convert at $1.50 per share. This offering was closed upon the
completion of the sale of 100,000 units on December 8, 1997. On October 31, 1998
the Company cancelled both the A & B warrants. None of these warrants had been
exercised.
On December 12, 1997 the Company filed a 15C-211 application with the NASD
to allow the trading of its securities on the Electronic Bulletin Board, and
commenced trading in June 1998.
On August 8, 1998, the Company issued 500,000 of its Preferred Stock
(non-voting) 8 &1/2% coupon ($.01 par value) to a financial institution in favor
of certain lending arrangements. This stock has a mandatory redemption @ $1.00
per share on December 31, 1999.
F-10
<PAGE>
Certified Environmental Group, Inc.
Balance Sheet
June 30,
<TABLE>
<CAPTION>
ASSETS 1998 1999
<S> <C> <C>
Cash ............................................................. $ 114,459 $ 7,942
Accounts Receivable .............................................. 1,372,895 2,374,889
Advances ......................................................... 3,100 35,169
Securities ....................................................... 115,000 115,000
Prepaid Expenses ................................................. 82,352 482,352
----------- -----------
Total Current Assets .......................................... 1,687,806 3,015,352
----------- -----------
Fixed Assets
Furniture & Equipment ............................................ 57,054 57,054
Field Equipment .................................................. 127,095 147,199
Leasehold Improvements ........................................... 35,185 45,185
----------- -----------
Less Accumulated Depreciation .................................... (53,767) (106,414)
----------- -----------
Total Fixed Assets ............................................ 165,567 143,024
Other Assets
Goodwill, (net of amortization) .................................. 225,024 215,024
Licenses (net of amortization) ................................... 283,024 270,024
Offering Costs ................................................... 75,018 205,459
----------- -----------
Total Other Assets ............................................ 583,066 690,507
----------- -----------
Total Assets ........................................... $ 2,436,439 $ 3,848,883
=========== ===========
LIABILITIES & SHAREHOLDER'S EQUITY
Current Liabilities
Accounts Payable & Accrued Equity ................................ $ 52,109 $ 130,773
Notes Payable -Current Portion of Term Loan ...................... -0- 179,025
Notes Payable - Bank ............................................. 1,098,316 1,809,376
----------- -----------
Total Current Liabilities ..................................... 1,150,425 2,119,174
----------- -----------
Long-term Liabilities
Long-term Debt - Term Loan ....................................... -0- -0-
Deferred Income Taxes Payable .................................... 322,674 479,929
-----------
Total Long-term Debt .......................................... 322,674 479,929
----------- -----------
Total Liabilities .......................................... 1,473,099 2,599,103
----------- -----------
Shareholder's Equity:
Common Stock, 10,000,000 shares ................................ 44,000 65,555
authorized par value $.01; 4,400,000 shares issued and outstanding
as of September 30, 1998
Preferred Stock, 1,000,000 shares ............................. -0- 5,000
authorized par value $.01; 500,000 shares issued and outstanding
as of September 30, 1998
Paid in Capital ................................................ 581,126 422,272
Retained Earnings ............................................. 338,214 756,953
----------- -----------
Total Shareholder's Equity ...................................... 963,340 1,249,780
----------- -----------
Total Liabilities & Shareholder's Equity ......................... $ 2,436,439 $ 3,848,883
=========== ===========
</TABLE>
F-11
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
Certified Environmental Group, Inc.
Statement of Income
Nine Months Ended June 30
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Revenue ............................................. $3,894,800 $7,244,607
Direct Expenses ..................................... 3,206,323 5,129,688
---------- ----------
Gross profit ........................................ 688,477 2,124,919
General Selling & Administrative Costs .............. 368,049 1,050,767
---------- ----------
Earnings before Depreciation, Amortization & Interest
Expense .................................... 320,428 1,074,152
Interest expense ................................ 156,750 507,475
Depreciation and amortization ................... 40,815 49,926
---------- ----------
197,565 557,401
---------- ----------
Earnings before Income Tax .......................... 122,863 516,751
Provision for Federal & State Income Taxes .......... 49,145 206,400
---------- ----------
Net earnings ........................................ $ 73,718 $ 310,351
========== ==========
Earnings Per Share of Common Stock .................. $ 0.02 $ 0.05
========== ==========
</TABLE>
F-12
See Accompanying Notes to the Financial Statements
<PAGE>
Certified Environmental Group, Inc.
Statement of Cash Flow
Nine Months Ended June 30th
<TABLE>
<CAPTION>
1998 1999
Cash Flows From Operating Activities:
<S> <C> <C>
Net Earnings ...................................... $ 73,718 $ 310,351
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ..................... 40,815 49,926
Changes in operating assets and liabilities
Accounts receivable ............................ 743,722 282,011
Prepaid expenses and other current assets ...... (73,100) (545,955)
Accounts payable and accrued payroll ........... (351,876) 61,857
Deferred income taxes .......................... 49,145 206,400
--------- ---------
Total adjustments ................................. 408,706 54,239
Net cash provided by operating activities ......... 482,424 364,590
Cash Flows From Investments
Capital expenditures ........................... (64,206) (30,104)
Investment in sub and licensures ............... 247,532 -0-
--------- ---------
Net cash used in Investments ...................... 183,326 (30,104)
Cash Flows From Financing Activities:
Notes payable - affiliate ...................... (100,000) -0-
Sale of common stock ........................... 85,000 60,000
---------
Issuance of Preferred Stock .................... -0- 5,000
Net borrowings from short term debt arrangements (672,412) (402,692)
Long Term Portion of Term Loan ................. -0- (53,575)
--------- ---------
Net cash provided by financing activities ......... (687,412) (391,267)
Net decrease in cash .............................. (21,662) (56,781)
Cash, beginning of year ........................... 136,121 64,723
Cash, end of year ................................. 114,459 7,942
========= =========
Supplemental Cash Flow Disclosures:
Cash paid for:
Income Tax ..................................... -0- -0-
--------- ---------
Interest expense ............................... $ 156,750 $ 507,475
========= =========
</TABLE>
F-13
See Accompanying Notes to the Financial Statements
<PAGE>
Certified Environmental Group, Inc.
Notes to Financial Statements
June 30, 1999
1. Organization and Nature of Business
Certified Environmental Group, Inc. is in the business of providing
environmental services to the private sector, and governmental agencies. The
Company specializes in lead and asbestos detection, abatement, and remediation
and provides other environmental consulting services, including asbestos
inspections, management plans, environmental inspections, site assessments. In
addition, the Company conducts worker safety and awareness courses in lead
abatement and detection. The Company was incorporated in the State of Delaware
as U.S. Lead Control, Inc. on November 24, 1992 and reorganized through a merger
as Certified Environmental Group, Inc. in August 1996.
2. Summary of Accounting Policies
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets (five years) or, where applicable, the terms of the respective
leases, whichever is shorter. Depreciation and amortization of property and
equipment charged to operations was $38,426 for the nine months ended June 30,
1999.
Financial Instruments
The carrying amounts reported in the balance sheet for cash and short-term
borrowings approximate their fair market values.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company reports for financial reporting purposes on the accrual basis.
However, for income tax reporting purposes, the Company prepares its tax returns
on the cash basis. This temporary difference gives rise to a short term deferred
tax liability in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes." Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
F-14
<PAGE>
Certified Environmental Group, Inc.
Notes to Financial Statements
June 30, 1999
2. Summary of Accounting Policies -- (Continued)
Intangibles
Intangibles are amortized on a straight-line basis over a period of eighteen
years. Such life is periodically reviewed by management in order to assess its
adequacy. When, in the opinion of the Company's management, a permanent
diminution in the value has occurred, the amount of the diminution would be
included in the statement of earnings. These intangible assets consist of the
following:
<TABLE>
<CAPTION>
Amounts Net of Amortization
<S> <C>
License for Patented Phase Zero Environmental
Technology & Seven Environmental Training Licenses $276,524
Goodwill - purchase of U.S. Lead Training Institute $220,024
</TABLE>
3. Note Payable
The Company maintains a credit facility with a commercial finance company.
Advances under the credit facility are limited to 80% of accounts receivable
which are less than 91 days from the date of invoice. The credit facility bears
interest at the prime rate of interest plus 2%. In addition, the commercial
finance company charges a collection processing fee of 1% of the face value of
each invoice. The credit facility is collateralized by all accounts receivable
of the Company. At June 30, 1999, the Company had additional availability of
approximately $0.00 under the credit facility.
The Company has a 14 month term loan through 12/1/99 with a commercial
lending institution at 8.5 % annual interest.
F-15
