<PAGE>
PROSPECTUS
UP TO 1,000,000 SHARES
CRAWFORD EQUIPMENT & ENGINEERING COMPANY
COMMON STOCK
CRAWFORD EQUIPMENT & ENGINEERING COMPANY (the "Company") is offering (the
"Offering") 1,000,000 shares of common stock ("Common Stock") at an initial
public offering price of $7.25 per share. Prior to this Offering there has
been no market for the shares, and no assurance can be given that any such
market will exist or develop upon completion of this Offering or, if
developed, will be maintained. See "Plan of Distribution" for information
relating to the factors considered in determining the price to public.
----------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE
"RISK FACTORS" COMMENCING ON PAGE 4 AND "DILUTION" ON PAGE 16. THESE ARE
SPECULATIVE SECURITIES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO ISSUER OR
TO PUBLIC AND COMMISSIONS(1) OTHER PERSONS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................ 7.25 .5075 6.7425
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Total Minimum............ 2,537,500 177,625 2,359,875
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Total Maximum............ 7,250,000 507,500 6,742,500
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</TABLE>
(1) The Company has agreed to pay to Discovery Capital Group, Inc. (the
"Underwriter"), a non-accountable expense allowance equal to 3% of the
gross proceeds of the offering and has agreed to sell to the Underwriter
five (5) year warrants to purchase up to 14,000 shares of Common Stock
with the minimum and 40,000 shares of Common Stock with the maximum at
120% of the price to the public per share. The Company has also agreed to
indemnify the Underwriter against certain liabilities including
liabilities under the Securities Act of 1933, as amended. See "Plan of
Distribution".
(2) Before deducting expenses of the Offering estimated at $184,000 with
either the minimum or the maximum, which does not include the 3% non-
accountable expense allowance described in Note 1 above.
NO SHARES WILL BE ISSUED BY THE COMPANY UNTIL A MINIMUM OF 350,000 SHARES
HAVE BEEN SOLD.
ALL FUNDS FROM SUBSCRIPTIONS SHALL BE HELD IN AN ESCROW ACCOUNT AT SUNTRUST
BANK CENTRAL FLORIDA, NATIONAL ASSOCIATION, 225 E. ROBINSON STREET, SUITE 250,
ORLANDO, FLORIDA 32801. See "Plan of Distribution".
OFFICERS, DIRECTORS, PRESENT SHAREHOLDERS AND INSIDERS OF THE COMPANY OR
AFFILIATES THEREOF MAY PURCHASE SOME OR ALL OF THE SECURITIES OFFERED HEREBY
ALTHOUGH THEY ARE NOT OBLIGATED TO DO SO. See "Plan of Distribution".
----------------
THE SECURITIES ARE BEING OFFERED BY THE UNDERWRITER ON A BEST EFFORTS BASIS.
THE UNDERWRITER RESERVES THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THIS
OFFERING AND TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED
THAT DELIVERY OF THE SECURITIES WILL BE MADE FOLLOWING THE CONCLUSION
OF THE OFFERING IN WINTER PARK, FLORIDA.
DISCOVERY CAPITAL GROUP, INC.
The date of this Prospectus August 11, 1998.
<PAGE>
SUMMARY DESCRIPTION OF ARTWORK
The artwork to be contained within the Prospectus is a four (4) page
foldout. The inside front cover contains a harmony sign centered against a
background of a cream colored rock like substance which simulates ash. The top
portion of this page above the wording "in the simplification of matter
harmony simplifies matter" appears on orange-yellow like flame against a black
background. The foldout displays the same orange-yellow like flame against a
black background. The back inside cover to the prospectus again contains a
centered harmony sign surrounded by four (4) color schemed boxes that contain
testimonials from customers of the Company. The orange-yellow like flame
against a black background appears in the left-hand top corner of this page.
To its right is a white-brownish color scheme background within the second
box. In the box located to the bottom right of the harmony sign is a cream
colored background and the box to its immediate left is a blue and white color
background. Below the four boxes that surround the harmony sign is a black
background against which additional verbiage appears.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share and per
share data have been adjusted to give effect to a 30,000 for one (1) stock
split on January 20, 1998. See "Shares Eligible for Future Sale".
THE COMPANY
Crawford Equipment & Engineering Company (the "Company") manufactures a
variety of packaged combustion systems that are utilized to incinerate or
oxidize various types of waste, odors and air pollutants. These systems are
designed for a wide range of industrial and commercial uses, which include:
animal, pathological and human cremation/incineration, medical/bio-
hazardous/infectious waste ("Medical Waste"), incineration, general solid waste
incineration, and the control of volatile organic compounds and hazardous air
pollutants (VOC/HAPS) emitted from industrial processes. In addition, the
Company provides services and replacement parts for existing packaged
combustion systems. The Company was founded in July 1974 by James P. Crawford,
the Chairman of the Board of Directors and Chief Executive Officer and to date
has manufactured and installed approximately 700 installations to customers
located throughout the world. The Company maintains its corporate and
manufacturing and testing facilities in Orlando, Florida.
Through the efforts of Mr. Crawford, the Company has developed unique
features which are integrated into the packaged combustion systems it
manufacturers. See "Business--Products Services and Markets". Mr. Crawford has
also developed patented devices which are primarily used by the Company in the
crematory and incinerator systems it manufactures. These patented devices
provide operational and environmental advantages. See "Business--Intellectual
Property and Proprietary Rights". Following the successful conclusion of the
offering, the Company intends to acquire those patents from Mr. Crawford for a
purchase price of $875,000. See "Certain Relationships and Related
Transactions".
The Company's customers have included, among others, Bristol Meyers-Squibb,
Zoltek Corp., Robert Bosch Corp., Ciba-Giegy, ABB, Royal Caribbean, Alcoa
Aluminum, Whirlpool and Colgate Palmolive. In addition, the Company is a
supplier of waste disposal systems for several federal agencies, municipal and
political subdivisions, foreign governments and academic research facilities.
The Company has recently entered into a strategic alliance agreement with
Monsanto Enviro-Chem Systems, Inc. ("MEC"), an affiliate of Monsanto
Corporation. This agreement establishes a relationship through which specific
custom systems manufactured by the Company for use in the abatement and control
of VOC/HAPS, shall be marketed through MEC, the Company and other sales
representatives. See "Risk Factors and Business--Sales and Marketing".
The Company believes that the packaged combustion equipment industry has
growth potential due to environmental concerns that exist with respect to waste
disposal in general and stringent federal regulations promulgated under the
Clean Air Act (the "Act") and specifically Title V of the Act which imposes
guidelines concerning the emission of VOC/HAPS and international environmental
infrastructure clean-up. See "Business".
1
<PAGE>
THE OFFERING
Securities Offered................................
1,000,000 Shares of Common
Stock
3,200,000 Shares of Common
Stock
Securities Outstanding Prior to the Offering(1)...
Securities Outstanding After the Minimum
Offering(1)....................................... 3,550,000 Shares of Common
Stock
4,200,000 Shares of Common
Stock
Securities Outstanding After the Maximum
Offering(1).......................................
Proposed OTC Bulletin Board Symbol(2).............
"CRAW"
- --------
(1) Does not include (a) 14,000 shares of Common Stock with the minimum and
40,000 shares of Common Stock with the maximum issuable upon the exercise
of the Underwriter's Warrants at 120% of the Price to Public and (b)
approximately 172,835 shares of Common Stock that certain noteholders may
exchange their notes for, as of March 31, 1998, in connection with a
private placement of such securities. See "Certain Relationships and
Related Transactions" and Note 7 to the financial statements included
elsewhere in the Prospectus.
(2) The Company intends to file an application with the National Association of
Securities Dealers ("NASD") to list its Common Stock with NASDAQ provided,
that at least 830,000 shares are sold through this Offering. See "Risk
Factors--Over-The-Counter Market, Penny Stock Trading Rules and Possible
Delisting of Common Stock from NASDAQ SmallCap Market".
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31 MARCH 31
---------------------------------- ----------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Sales................... $2,546,895 $2,417,939 $4,375,494 $ 1,116,295 $ 263,736
Cost of sales........... 1,767,054 1,516,070 2,717,640 679,421 178,181
Operating expenses...... 765,448 902,648 1,224,217 233,151 272,896
Operating income (loss). 14,393 (779) 433,637 203,723 (187,341)
Other income (expense).. 825 (2,426) 920 621 (654,742)(1)
Net income (loss)....... 15,218 (3,205) 434,557 204,344 (842,083)
Net income (loss) per
common share........... 0.005 (0.001) 0.14 0.06 (0.26)
Shares used in computing
net income (loss)
per share.............. 3,200,000 3,200,000 3,200,000 3,200,000 3,200,000
BALANCE SHEET DATA
Current assets.......... $ 644,943 $ 701,182 $ 605,826 $ 1,339,441 $ 730,821
Current liabilities..... 599,228 741,992 404,859 1,153,267 151,808
Working capital......... 45,715 (40,810) 200,967 186,174 579,013
Total assets............ 734,422 783,338 722,884 1,421,658 974,768
Long-term debt, less
current portion........ 7,143 -- 17,123 26,000 715,970
Retained earnings
(accumulated deficit).. (150,453) (237,158) 22,398 (36,113) (819,685)
Stockholder's equity.... 128,051 41,346 300,902 242,391 106,990
</TABLE>
PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
ACTUAL PRO FORMA ADJUSTMENT(2) PRO FORMA AS ADJUSTED
---------- ----------------------- ---------------------
<S> <C> <C> <C>
Sales................... $4,375,494 $ -- $4,375,494
Cost of sales........... 2,717,640 9,800 2,727,440
Operating expenses...... 1,224,217 319,950 1,544,167
Operating income........ 433,637 (329,750) 103,887
Other income............ 920 -- 920
Net income.............. $ 434,557 $(329,750) $ 104,807
Net income per common
share.................. $ 0.14 -- $ 0.03
Shares used in computing
net income per share... 3,200,000 -- 3,200,000
</TABLE>
(1) Other income (expense) for the three months ended March 31, 1998 includes a
one-time charge to interest expense of $648,131. This charge relates to the
issuance of $600,000 of Convertible Promissory Notes during the three month
period March 31, 1998. See Note 5 to Financial Statements dated March 31,
1998.
(2) See Note 8 to the Financial Statements dated December 31, 1997.
3
<PAGE>
RISK FACTORS
An investment in the shares offered hereby is highly speculative and
involves a high degree of risk and should only be made by investors who can
afford to lose their entire investment. Prospective investors should carefully
consider the following risk factors, along with the other information set
forth in this prospectus in evaluating the Company, its business and prospects
before purchasing the shares.
LIMITED OPERATING HISTORY
The Company's operating history has consisted primarily of custom design,
manufacturing and installation of packaged combustion equipment for use in a
variety of waste disposal applications. Initially, its equipment was utilized
for animal, pathological and human cremation/incineration and later for
Medical Waste disposal. Additional equipment was developed to dispose of
general solid waste, including but not limited to shipboard waste,
international flight waste, and liquid/chemical waste. Volatile Organic
Compounds ("VOC") and Hazard Air Pollutants ("HAP") waste oxidation systems
(hereafter collectively referred "VOC/HAP Waste Disposal Market Systems") were
also developed as a result of current Federal legislation and the Company's
belief that its equipment was compatible to this market. This broad customer
base is often referred to collectively as the "Waste Disposal" or "Waste
Disposal Industry". By creating networks and alliances, the Company intends to
develop additional markets for its products, which may include but are not
limited to nuclear waste disposal, soil remediation and municipal solid waste
disposal markets. This will expand its manufacturing role by adding additional
market sectors in the Waste Disposal Industry in a broader and more
diversified environmental arena. The Company also intends to set up additional
sales and distribution networks both domestically and internationally. As a
result, the Company will be subject to many business risks, including, but not
limited to, the risks of unforeseen capital requirements, governmental
regulations, the possible failure to achieve market acceptance, and establish
business relationships. Competitive disadvantages may arise when larger and
more established companies start to compete. See "Business Competition".
NO ASSURANCE OF ADDITIONAL COLLABORATIVE AND JOINT VENTURE AGREEMENTS,
LICENSES OR PROJECT CONTRACTS
The Company's business strategy is based upon entering into collaborative
working relationships which include sales and marketing agreements with
established developers, purchasers, engineering and environmental companies in
waste incineration equipment systems and technologies, as well as formal joint
venture agreements involving VOC/HAP Waste Disposal, solid and general waste
disposal and air pollution control systems. The Company currently has a
Strategic Alliance Agreement with the Monsanto Enviro-Chem Systems, Inc., a
subsidiary of Monsanto ("Monsanto Agreement"). The Monsanto Agreement provides
sales and support personnel to market certain equipment under the Monsanto
name which is manufactured and designed by the Company.
Under the terms of the Monsanto Agreement either party may terminate for
"cause of convenience" with sixty days advance written notice. Termination of
the Monsanto Agreement may have an adverse effect on the Company's ability to
continue to expand its marketing operations in the VOC/HAP industry. The
Company is currently negotiating other similar relationships. There is no
assurance, however, that the Company will enter into any other definitive
arrangements or joint venture relationships, or that such agreements, if
entered into, will be on terms and conditions that are sufficiently favorable
to the Company to enable it to generate profits.
In addition, any other joint venture contracts or project contracts which
may be awarded to the Company, including the Monsanto Agreement, may be
curtailed, delayed, redirected or eliminated at any time. Problems experienced
on any specific venture, or delays arising in the implementation and funding
of any venture, could have an adverse affect on the Company's business and
financial condition. See "Business--Sales and Marketing".
4
<PAGE>
UNCERTAINTY OF MARKET ACCEPTANCE
Many prospective users in the Waste Disposal Industry have already committed
substantial resources to certain forms of environmental waste disposal
technologies, such as microwave, chemical treatment, steam sterilization,
landfill, and burial. The Company's growth and future financial performance
may depend on demonstrating to prospective collaborative partners and users
the advantages of its Waste Disposal Equipment over alternative systems. There
can be no assurance that the Company and its prospective collaborative
partners will be successful in this effort. It is possible that demand for
environmental waste disposal systems may decline in the future. Private and
public sectors may limit further pollution as a result of governmental
regulations and through recycling. See "Business--Competition".
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied in the
past and may fluctuate in the future as a result of a variety of factors, many
of which are outside the Company's control. Such factors include general
economic and industry conditions, the size and timing of the individual
orders, and the introduction of new products or services by the Company or its
competitors. Additionally, the introduction of the Company's products to new
markets, changes in the levels of operating expenses, including development
costs, and the amount and timing or other costs relating to the expansion of
the Company's operations could affect quarterly revenues and operating
results.
Furthermore, the purchase of the Company's systems, and in particular the
larger systems, may involve a commitment of capital by the Company. Attendant
delays frequently associated with large capital expenditures and authorization
procedures within customers' organizations could also result. For these and
other reasons, the sales cycle for the Company's products can be lengthy (up
to 18 months) and subject to a number of significant risks over which the
Company has little or no control, including customer budgetary constraints.
The Company historically has operated at times with various amounts of works
in progress. Most customer orders are placed with relatively short lead times,
usually from four to twenty-four weeks. Variations in the timing of the
recognition of revenues due to changes in project scope and timing may
adversely and disproportionately affect the Company's operating results for a
quarter because the Company establishes its expenditure levels on the basis of
expected future revenues, and a significant portion of the Company's expenses
do not vary with current revenues. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
MANAGEMENT GROWTH
The Company's revenues increased from $2,417,939 in the year ended December
31, 1996 to $4,375,494 in the year ended December 31, 1997. Additional growth
could place a significant strain on its managerial, operational and financial
resources. Although it relies on the customers and/or subcontractors to
assemble, install, maintain and service certain completed systems, the Company
uses its own employees to engineer, design, manufacture, test and commission
its systems. The Company seeks to maintain engineering and design staffing
levels adequate for current and near term demand. During periods of rapid
growth that may be experienced by the Company, the Company's engineering and
design personnel would be operating at full capacity. As a result, future
growth, if any, is limited by the Company's ability to recruit and train
additional engineering, design and project management personnel, and by the
ability of individual employees to manage more and larger projects.
Furthermore, any failure to maintain quality or to meet customer installation
schedules could damage relationships with important customers, damage the
Company's reputation generally and result in contractual liabilities. The
pressures of meeting increased demand may lead to errors in manufacturing or
assembly, which in turn could increase manufacturing costs and decrease gross
margins due to the costs of rework. The Company seeks to adhere to strict
internal operating procedures and controls, including testing of components.
However, the failure of the Company to prevent such errors could have an
adverse effect on the Company's ability to increase its operating margins
which could have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that the
Company will be able to effectively manage an expansion of its operations or
that the Company's systems or controls will be adequate to support the
5
<PAGE>
Company's operation if expansion occurs. In such event, any failure to manage
growth effectively could have a material adverse effect on the Company's
business, and financial condition. See "Business--Engineering and
Manufacturing and Facilities".
RISKS ASSOCIATED WITH COMMERCIALIZATION OF TECHNOLOGY
The Company's first commercial VOC/HAP unit was installed in 1995, and
therefore, the Company has limited operating history regarding VOC/HAP
installed equipment. Furthermore, as the Company's technology has become more
accepted, the Company has been selling increasingly larger systems. Larger
systems are generally distinguished by the size and weight of the system and
the characteristics of the waste stream flow. The Company's manufacturing
history of larger equipment is also limited, and the larger systems are
generally more complex than the initial systems that were installed by the
Company. There can be no assurance that the performance of the Company's
equipment will not deteriorate as the equipment ages or that unanticipated
problems will not be encountered with the larger, more complex systems. Any
deterioration of the Company's equipment or unanticipated problems with its
systems could have a material adverse effect on the Company's business, and
financial condition.
RISK OF INCREASED COSTS
If the public offering is successful, the Company intends to use the net
proceeds for development of new facilities, salaries, equipment purchases,
payment for patents and a loan to shareholders. The balance will be used for
working capital purposes, including general and administrative expenses,
possible research and development related to the Company's present and new
products, and sales and marketing. The Company believes that the net proceeds
of this Offering, together with the availability of its borrowing capacity,
will be sufficient to finance its working capital and other capital
requirements through the year 2000, however, the increased expenses may have
an adverse effect on the cost of sales and result in a decrease in net profit.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations".
COMPETITION
The market for the Company's products is highly competitive and has been
dominated by manufacturers such as: Thermatrix, Inc., Surface Combustion,
Inc., Seco/Warwick, Lindberg Corporation, and Ebner Furnaces, Inc. There are
many companies known to produce or market products, or provide services
similar to those of Crawford Equipment & Engineering Company worldwide.
According to The McIlvaine Company, a market analyst firm serving the air
pollution control industry, it is estimated that Volatile Organic Compound
abatement systems, as part of the environmental Waste Disposal Industry, will
have sales in excess of two (2) billion dollars by the year 2001. See
"Business--Company Waste Management Equipment Products". The Company believes
that a greater portion of the market share can be attained from competition
and market expansion. However, the present competition is well established and
well capitalized and, currently competes in markets with the Company. The
Company has 24 years of experience marketing waste disposal equipment and five
(5) years of experience in marketing its VOC/HAP Waste Disposal Equipment. Any
one or more of the Company's competitors or other enterprises, not presently
known to the Company, may develop technologies and marketing efforts which are
superior to those utilized by the Company. To the extent that the Company's
competitors are able to offer more cost-effective process waste disposal
alternatives, the Company's ability to compete could be materially and
adversely affected. See "Business--Competition".
The Company's VOC/HAP manufactured systems currently compete primarily with
suppliers of flame-based and flameless thermal oxidation systems, carbon
adsorption systems and scrubbing systems. The Company believes the major
considerations in selecting industrial VOC control systems are: safety,
capital cost, operating and maintenance costs, ease of permitting, process
stream characteristics, unit location and on-line reliability. Many of the
Company's competitors have substantially greater financial resources,
operating experience and market presence than the Company. As a result, these
competitors may be able to respond more
6
<PAGE>
quickly to changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than the Company.
Competitors could potentially reduce prices or adopt other strategies to
compete with the Company. There is no assurance that the Company's existing
competitors or new market entrants will not develop new technologies or
modifications to existing technologies that are superior to or more cost-
effective than the Company's technology. Increased competition could result in
price reductions and reduced gross margins, and could limit the Company's
market share. There can be no assurance that the Company will compete
successfully with new competitors or that competitive pressures faced by the
Company would not materially, adversely affect its business, results of
operations and financial condition. See "Business--Competition".
PROPRIETARY TECHNOLOGY AND UNPREDICTABILITY OF PATENT PROTECTION
The Company's future success may depend, in part, on its ability to obtain
additional patents, protect the patents which it owns and which it may
acquire, maintain trade secrecy protection and operate without infringing on
the proprietary rights of third parties. James P. Crawford currently owns four
patents that are licensed by the Company and which shall be acquired following
the successful conclusion of the Offering. See "Certain Relationships and
Related Transactions". There can be no assurance that the Company will develop
additional proprietary technology that is patentable, that any patents issued
and used by the Company will provide the Company with competitive advantages
or that any patents developed will not be challenged by third parties.
Furthermore, there can be no assurance that others will not independently
develop similar or superior technologies, duplicate any of the Company's waste
disposal processes, or design around its patented processes. It is possible
that the Company may need to acquire licenses to or contest the validity of,
issued or pending patents of third parties relating to the components of its
incineration equipment. There can be no assurance that any license acquired
under such patents would be made available to the Company on acceptable terms,
if at all, or that the Company would prevail in any such contest. In addition,
the Company could incur substantial costs in defending itself in suits brought
against the Company on the patents it utilizes and intends to acquire, or in
prosecuting patent suits against other parties.
In addition to patent protection, the Company also relies on trade secrets,
proprietary know-how and technology which in certain instances it seeks to
protect, in part, by confidentiality agreements with its prospective working
partners and collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets and
proprietary know-how will not otherwise become known or be independently
discovered by others. See "Business--Competition".
ENVIRONMENTAL REGULATIONS; REGULATORY COMPLIANCE
The Waste Disposal Industry has experienced severe regulatory pressures
which has had a direct effect upon the ability of potential customers to
forecast costs.
The Company's customers are subject to various federal, state and local
environmental laws and regulations which limit the discharge, storage and
disposal of VOC/HAP pollutants and other chemicals in applications such as:
chemical plants, electronics, printing and publishing, automotive, petroleum
refining, plastics and solvents manufacturing, and organic chemical
production. Other waste disposal customers of the Company include funeral
homes, cemeteries, research facilities, animal control agencies, veterinary
clinics, humane societies, solid waste disposal facilities, universities and
others. These customers are also subject to a wide variety of regulations.
Accordingly, some of these regulations benefit the Company due to the fact
that they mandate the utilization of combustion systems similar to those
manufactured by the Company.
In order to develop and operate facilities, it is often necessary for the
Company's customers to obtain and maintain, in effect, one or more licenses or
permits as well as zoning, environmental and/or other land use approvals.
These licenses or permits and approvals are often difficult and time consuming
to obtain and are frequently subject to opposition by various elected
officials, environmental advocates and citizen groups. The
7
<PAGE>
failure by the Company's customers to obtain or maintain, in effect, a permit
or approvals significant to its business could have an adverse effect on the
Company's operations and financial conditions.
The EPA has published regulations designed to enforce The Clean Air Act and
to protect the environment. The Company believes, based on required testing,
that its technologies meet current regulatory and statutory emission, disposal
and discharge standards. In addition, the Company believes that it is
currently in compliance with all applicable environmental regulations. There
may be further efforts to impose more stringent environmental regulations
relating to disposition of wastes. Operations of the Company are also governed
by laws and regulations relating to workplace safety and worker health, which
include the Occupational Safety and Health Administration Act, its applicable
state acts and the regulations under these acts. The company recognizes that
it must comply with all such regulations, but the laws and regulations may be
changed and there can be no assurance of compliance with future laws and
regulations.
In addition, the level of enforcement activities by environmental agencies
may also affect demand for the Company's systems. To the extent that certain
VOCs are banned or lower cost substitutes that are not subject to regulation
are developed for some or all of the VOCs currently generated in the Company's
markets, such bans or developments could materially adversely affect the
demand for the Company's systems. To the extent that the burdens of complying
with such environmental laws and regulations may be eased, the demand for the
Company's systems could be materially adversely affected. In addition, the
existence of environmental regulations and the level of enforcement vary by
country and may affect the Company's ability to sell its systems outside the
United States. See "Business--Environmental Matters and Existing Treatment
Methods For Control of VOCs".
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the efforts and
performance of its Executive Officers and key employees, most of whom have
worked together since the early stages of development of Crawford Equipment &
Engineering Company. The Company is dependent on its ability to retain and
motivate high quality personnel, especially its management and highly skilled
sales representatives, mechanical and electrical engineers, marketing team,
administration team, and to a limited extent, consultants. The loss of the
services of any of its key employees, particularly Mr. James P. Crawford, Mrs.
Kathleen B. Crawford and Mr. Steven L. Atkinson, could have a material adverse
effect on the Company's business, financial condition or operating results and
therefore a "Key Persons" insurance policy on each will be underwritten. The
Company's future success may also depend on its continuing ability to
identify, hire, train and retain other highly qualified managerial and sales
personnel. Since there is competition for such personnel, there can be no
assurance that the Company will be able to attract, or retain qualified
technical and managerial personnel in the future, and the failure of the
Company to do so may have a material adverse effect on the Company's business,
financial condition and operating results. See "Business of the Company,
Management, and Employees".
OPERATIONAL RISKS
Potential investors should be aware of the delays, expenses and difficulties
encountered by any company when looking at future development, including, but
not limited to, the lack of sufficient capital and unforeseeable problems that
may be beyond the control of the Company. Because of the high cost of
developing and implementing the Company's future marketing sales efforts, if
it does not prove to have a satisfactory market appeal, the Company may not
have sufficient revenues to explore or undertake alternative strategies that
could prove more viable and the Company may be forced to alter its direction
or cease operations. See "Business and Financial Statements".
POSSIBLE PRODUCT LIABILITY
As of this date, the Company has never had a product liability claim for any
of its waste disposal systems. The Company's newer systems are designed to
destroy VOC/HAPS, which can be highly toxic and flammable.
8
<PAGE>
If any of the Company's systems are improperly designed or operated outside of
design parameters and operating instructions provided by the Company, there is
a risk of system failure, which could require the Company to defend itself
against a products liability or personal injury claim. Although the Company
has product liability and commercial general liability insurance which it
believes to be sufficient for the conduct of its business, there can be no
assurance that such insurance coverage will be adequate to cover such claims.
In addition, the Company's general liability insurance is subject to coverage
limitations and excludes coverage for losses or liabilities relating to
environmental damage or pollution. Accordingly, the Company's efforts to
protect itself against such claims could have a material adverse effect on the
Company's business, results of operations and financial condition.
DEPENDENCE ON CUSTOMER INFORMATION
The Company is highly dependent upon information provided by its potential
customers concerning the type, volume and flow rate of waste to be treated by
the Company's systems. If the customer's information is inaccurate, a
malfunction in the Company's system could occur, resulting in damage to the
customer's facilities or personal injury. In addition, incorrect information
could cause delays in the design, manufacture and installation of the
customer's system. Through no fault of its own, the Company could then be held
liable for damages resulting from such malfunction or delay. Any of these
factors could have a material adverse effect on the Company's business,
results of operations and financial condition.
POTENTIAL ENVIRONMENTAL LIABILITY
Although the Company does not believe that its activities would directly
expose it to liabilities under local, state or federal environmental laws and
regulations, if the Company were to improperly design, manufacture or test its
systems or fail to properly train its customer's employees in the operation of
the systems, it could be exposed to possible liability for investigation and
clean-up costs under such environmental laws. Although the Company does not
currently lease its systems to customers or operate the systems on behalf of
its customers, if it were to do so in the future, the Company could be liable
under environmental laws for any releases of toxic substances.
The Company generally conducts performance tests on its systems at its
customers' facilities. However, in the future the Company may perform
prototype testing in its own facilities. If such testing were to involve toxic
substances, it could subject the Company to liability under environmental laws
and regulations.
The Company could also be exposed to possible liability under environmental
laws for violations of requirements involving the generation, storage,
treatment and disposal of toxic waste. Under some environmental laws and
various theories of tort and contract law, it is also possible that the
Company could be liable for damages to its customers and third parties
resulting from the actions of its customers or arising from the failure or
malfunction, or the design, construction or operation of, the Company's
systems or products, even if the Company were not at fault. The Company's
general liability insurance is subject to coverage limits and generally
excludes coverage for losses or liabilities relating to or arising out of
environmental damage or pollution. The Company's business, results of
operations and financial condition could be materially adversely affected by
an uninsured or partially insured claim. See "Business--Environmental
Matters."
RISKS ASSOCIATED WITH FIXED PRICE CONTRACTS
A majority of the Company's contracts are performed using "fixed-price"
rather than "cost-plus" terms. Under fixed-price terms, the Company quotes
firm prices to its customers and bears the full risk of cost overruns caused
by estimates that differ from actual costs incurred or manufacturing delays
during the course of the contract. Some costs, including component costs, are
beyond the Company's control and may be difficult to predict. If manufacturing
or installation costs for a particular project exceed anticipated levels,
gross margins would be materially adversely affected, and the Company could
experience losses. In addition, the manufacturing process may be subject to
change orders. The failure of the Company to recover the full cost of these
change
9
<PAGE>
orders could materially adversely affect gross margins and also cause the
Company to experience losses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND SALES
The Company plans to increase its revenues, in part, through an expansion of
its overseas operations. International sales and operations may be limited or
disrupted by the imposition of government controls, export license
requirements, trade restrictions, changes in tariffs, difficulties in
staffing, the transport of machinery, managing international operations and
other factors. Regulatory compliance requirements differ among foreign
countries and are also different from those established in the United States.
If the Company's customers are unable to obtain necessary foreign regulatory
approvals on a timely basis, the Company's international sales, and thereby
its business, results of operations and financial condition, could be
materially adversely affected. Additionally, the Company's business, results
of operations and financial condition may be materially adversely affected by
fluctuations in currency exchange rates as well as increases in duty rates,
difficulties in obtaining export licenses, ability to maintain or increase
prices and foreign competition. The Company denominates international sales in
either United States dollars or local currencies. Sales in Europe have been
primarily denominated in British pounds sterling. Since the bulk of expenses
in connection with international contracts are often incurred in United States
dollars, there could be exchange risks. If the Company has significant
international sales in the future denominated in foreign currencies, the
Company may purchase hedging instruments to minimize the exchange rate risk on
such contracts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations and Business--Sales and Marketing".
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
There has been no public market for the Common Stock prior to the Offering,
and there can be no assurance that an active trading market will develop or be
sustained after completion of the Offering or that the market price of the
Common Stock will remain at or above the public offering price. In the event
that the Company's operating results are below the expectations of public
market analysts and investors in one or more future periods, it is likely that
the price of the Common Stock will be materially adversely affected. In
addition, the stock market has experienced significant price and volume
fluctuations that have affected the market prices of equity securities of many
companies and that often have been unrelated to the operating performance of
such companies. General market fluctuations may also adversely affect the
market price of the Common Stock. See "Plan of Distribution".
Prior to this Offering, there has been no public market for the Company's
securities. Although the Company anticipates possible listing of the Common
Stock on the NASDAQ SmallCap Market, there can be no assurance that an active
public market for the Company's securities will develop or be sustained. The
offering price of the Shares has been arbitrarily determined by negotiation
between the Company and the Underwriter and bears no relationship to the
Company's current operating results, book value, net worth or financial
statement criteria of value. The factors considered in determining the
offering price included an evaluation by management of the history of and
prospects for the industry in which the Company competes and prospects for
earnings of the Company. Such factors are largely subjective, and the Company
makes no representation as to any objectively determinable value of the
securities offered hereby.
In addition, if the Company fails to be listed on or maintain a
qualification for its Common Stock to trade on the NASDAQ SmallCap Market, the
Shares could be subject to certain rules of the Securities and Exchange
Commission relating to "penny stocks." Such rules require broker-dealers to
make a suitability determination for purchasers and to receive the purchaser's
prior written consent for a purchase transaction, thus restricting the ability
of purchasers and broker-dealers to sell the stock in the open market. See
"Plan of Distribution".
NO COMMITMENT TO PURCHASE COMMON STOCK; DEPOSITS OF SUBSCRIPTIONS
The Underwriter, in selling the Common Stock, is acting as agent for the
Company on a "best efforts" basis. The Underwriter is only obligated to use
its best efforts to sell the Common Stock, and the Company will
10
<PAGE>
not receive any proceeds of the Offering unless the Underwriter sells shares
equal to the Minimum Offering amount. If the Minimum Offering is not sold,
potential investors will lose the use of their funds for the Offering period,
and any extension thereof, although the funds invested by them will be
returned without interest. See "Plan of Distribution".
POSSIBLE DELISTING OF COMMON STOCK FROM NASDAQ SMALLCAP MARKET
NASDAQ has implemented changes to the standards for companies to remain
listed on the SmallCap Market, including, without limitation, new corporate
governance standards, a new requirement that a listed company have net
tangible assets of $2,000,000, market capitalization of $35,000,000, or net
income of $500,000, and other qualitative requirements. The Company will apply
for listing of its Common Stock on the NASDAQ SmallCap Market, subject to
selling 830,000 shares in this Offering, and believes that if such amount is
sold, it will meet all criteria to become listed and to continue its listing
after completion of this Offering. There can be no assurance, however, that an
active trading market will develop or that if such a market is developed that
it will be sustained. In addition, to obtain a NASDAQ Small Cap Market listing
the Company is required to maintain at least three (3) market makers in the
Company's Common Stock. The Company believes it will have at least three (3)
market makers by the closing of the Offering, but as of the date hereof has
not entered into any agreement with any firm to act as a market maker. If the
Company is unable in the future to satisfy the requirements for continued
quotation on the NASDAQ SmallCap Market, trading in the Common Stock offered
hereby would be conducted only in the over-the-counter market in what are
commonly referred to as the "pink sheets" or on the NASD Electronic Bulletin
Board. As a result, an investor may find it more difficult to dispose of his
or her shares or obtain accurate quotations as to the price of the Common
Stock offered hereby. See "Plan of Distribution".
NO STABILIZATION TRANSACTIONS
The Underwriter has informed the Company that no persons have been engaged
to stabilize, maintain or otherwise affect the price of Common Stock including
entering stabilizing bids. In general, purchases of a security for the
purposes of stabilization or to reduce a short position could cause the price
of the security to be higher than it might be in the absence of such
purchases. In the absence of transactions that stabilize, maintain or
otherwise affect the price of the Common Stock, the price of the Common Stock
offered to the public by the Company could be materially and adversely
affected by market conditions. In addition, the Underwriter does not make
representations that the Underwriter will engage in such transactions or that
such stabilizing transactions, once commenced, will not be discontinued
without notice. See "Plan of Distribution".
EXERCISE OF UNDERWRITER'S WARRANTS
In connection with this Offering, the Company will sell to the Underwriter,
for nominal consideration of one hundred dollars ($100), warrants (the
"Warrants") to purchase an aggregate of four percent (4%) of the shares of
Common Stock sold to the public. The Warrants will be exercisable for five
years (commencing after the effective date of this Offering) at an exercise
price of 120% of the initial price to the public as set forth on the cover
page of this Prospectus. The Underwriter will have the opportunity to profit
from a rise in the market price of the Common Stock, if any, without assuming
the risk of ownership. To the extent that any of the Warrants are exercised,
the ownership interest of the Company's shareholders may be diluted. The
Company also has granted registration rights to the Underwriter with respect
to the shares of Common Stock issuable upon exercise of the Warrants. See
"Plan of Distribution".
OVER-THE-COUNTER MARKET; PENNY STOCK TRADING RULES
If the Common Stock is traded in the over-the-counter market, it may be
subject to the "penny stock" trading rules. The over-the-counter market is
characterized as volatile in that securities traded in such market are subject
to substantial and sudden price increases and decreases and at times price
(bid and ask) information for such securities may not be available. In
addition, when there is a limited number of market makers (a dealer
11
<PAGE>
holding itself out as ready to buy and sell the securities on a regular
basis), there is a risk that the dealer or group of dealers may control the
market in the security and set prices that are not based on competitive forces
and the available offered price may be substantially below the quoted bid
price.
Generally, at any time the bid price of the Common Stock in the over-the-
counter market is less than $5.00, the Company's equity securities will be
subject to the "penny stock" trading rules, unless the Company meets certain
exemptions. The "penny stock" trading rules impose additional duties and
responsibilities upon broker-dealers and salespersons effecting purchase and
sale transactions in such equity securities of the Company, including
determination of the purchaser's investment suitability, delivery of certain
information and disclosures to the purchaser, and receipt of a specific
purchase agreement from the purchaser prior to effecting the purchase
transaction. Compliance with the "penny stock" trading rules affect or will
affect the ability to resell the Common Stock by a holder principally because
of the additional duties and responsibilities imposed upon the broker-dealers
and salespersons recommending and effecting sale and purchase transactions in
such securities. In addition, many broker-dealers will not effect transactions
in penny stocks, except on an unsolicited basis, in order to avoid compliance
with the "penny stock" trading rules. Consequently, the "penny stock" trading
rules may materially limit or restrict the number of potential purchasers of
the Common Stock and the ability of a holder to resell the Company's Common
Stock. See "Plan of Distribution".
CONTROL BY OFFICERS, DIRECTORS AND EXISTING SHAREHOLDERS
Based upon the number of shares that will be outstanding at the time of
closing and assuming that holders of certain convertible notes have not
elected to convert their notes for shares of the Company's Common Stock, see
"Description of Securities", the present officers, directors and existing
shareholders of the Company will beneficially own approximately 90% of the
outstanding shares of the Company with the minimum proceeds raised and
approximately 76% with the maximum proceeds raised. As a result the current
shareholders will be in a position to elect all of the Company's Directors and
otherwise control the Company. After the closing of this Offering, the
executive officers of the Company will beneficially own shares of Common Stock
(directly or through entities they control), representing approximately 75% of
the outstanding voting securities of the Company with the minimum proceeds
raised and approximately 63% with the maximum proceeds raised. Consequently,
since the Common Stock has no cumulative voting rights, the executive officers
will continue to have the power to elect all of the members of the Board of
Directors of the Company and to generally control the Company's operations,
including acquisitions or mergers involving the Company. See "Dilution,
Management and Principal Shareholders".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the Public market following
the Offering could adversely effect the market price for the Common Stock.
Upon completion of this Offering, approximately 1,230,000 restricted shares of
Common Stock held by the Company's existing stockholders will be eligible for
sale, subject to the volume limitations and other requirements of Rule 144
under the Act. Notwithstanding however, all of the existing stockholders have
agreed that they will not, without the consent of the Underwriter, publicly
sell or otherwise dispose of any of their presently owned shares of Common
Stock until 24 months from the date this registration statement is effective.
The sale in the future of a substantial number of shares of Common Stock by
existing stockholders could have an adverse effect on the price of the Common
Stock. See "Description of Securities--Shares Eligible For Future Sale".
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation. The Company does not currently intend to declare or pay cash
dividends on the Common Stock in the foreseeable future and anticipates that
earnings, if any, will be used to finance the development, working capital and
expansion of its business. Payment of future dividends, if any, and the
amounts thereof will be dependent upon the Company's earnings, financial
requirements, and other factors deemed relevant by the Company's Board of
Directors.
12
<PAGE>
Accordingly, investors should not purchase the Shares with a view toward
receipt of cash dividends from any Shares.
RELATED PARTY TRANSACTIONS
The Company and the current shareholders and a director have entered into
certain transactions that may present a conflict of interest. See "Certain
Relationships and Related Transactions".
DILUTION TO NEW INVESTORS
Purchasers of the securities offered hereby will experience immediate
substantial dilution of approximately $6.49 per share with the minimum
proceeds raised and approximately $5.64 per share with the maximum proceeds
raised in the pro forma net tangible book value per share of Common Stock. See
"Dilution". Additional dilution to future book value per share after March 31,
1998 may occur upon the exercise of the Underwriters' Warrants. See "Dilution
and Plan of Distribution".
BROAD DISCRETION IN APPLICATION OF PROCEEDS
Approximately 58% of the net proceeds, if the maximum amount is sold, of
this Offering, has been allocated for working capital and general corporate
purposes. This working capital includes an allocation for proposed
collaborative ventures, research and development for which the Company has no
binding agreements as of the date of this Prospectus. Accordingly, the Company
will have broad discretion as to the application of a significant portion of
the net proceeds of this Offering raised with the maximum. See "Use of
Proceeds".
13
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from this Offering after
deducting estimated costs and expenses of the Offering are estimated to be
approximately $2,099,750 with the minimum proceeds raised and approximately
$6,316,000 with the maximum proceeds raised. The Company intends to utilize
the net proceeds as follows:
MINIMUM PROCEEDS
<TABLE>
<S> <C>
Collateralized Loan to James P. and Kathleen B. Crawford For New
Manufacturing Facility.......................................... $ 750,000
Purchase of Equipment For New Manufacturing Facility............. $ 500,000
Additional Labor and Personnel................................... $ 200,000
Marketing and Advertising........................................ $ 75,000
Acquisition of Patents(1)........................................ $ 500,000
Working Capital(2)............................................... $ 74,750
MAXIMUM PROCEEDS
Collateralized Loan to James P. and Kathleen B. Crawford For New
Manufacturing Facility.......................................... $ 750,000
Purchase of Equipment For New Manufacturing Facility............. $ 650,000
Additional Labor and Personnel................................... $ 250,000
Marketing and Advertising........................................ $ 200,000
Acquisition of Patents(1)........................................ $ 875,000
Working Capital(2)(3)(4)......................................... $3,591,000
</TABLE>
- --------
(1) The Company intends to acquire four (4) patents presently owned by James
P. Crawford for a total purchase price of $875,000. With the minimum
proceeds raised, the Company intends to pay Mr. Crawford $500,000 in cash
with the balance owed to be evidenced by a promissory note payable
quarterly over a five-year term. With the maximum proceeds raised, the
Company intends to pay the entire acquisition fee to Mr. Crawford in
cash. See "Certain Relationships and Related Transactions".
(2) The Company may utilize a portion of the proceeds allocated to working
capital for leasehold improvements and build-out expenses associated with
the development of a new manufacturing facility.
(3) The Company may utilize a portion of the proceeds allocated to working
capital for product design development and enhancement of new engineering
processes and equipment.
(4) The Company may also utilize a portion of the proceeds allocated to
working capital for the acquisition of waste disposal and environmental
related businesses.
Collateralized Loan to James P. and Kathleen B. Crawford. The Company
intends to utilize a maximum of approximately $750,000 of the net proceeds of
the Offering with either the minimum or the maximum proceeds raised as a loan
to James P. and Kathleen B. Crawford. The loan proceeds shall be utilized by
the Crawfords to construct and develop a new manufacturing facility that shall
be leased by the Company. The loan made to the Crawfords by the Company shall
be secured by a mortgage on real property they own. See "Business--Facilities
and Certain Relationships and Related Transactions".
Purchase of Equipment for New Manufacturing Facility. The Company intends to
utilize approximately $500,000 of the net proceeds raised at the minimum
Offering and approximately $650,000 at the maximum Offering to purchase
additional equipment for the Company's new manufacturing facility. See
"Business--Facilities".
Additional Labor and Personnel. The Company intends to utilize approximately
$200,000 of the net proceeds raised at the minimum Offering and approximately
$250,000 of the net proceeds raised at the maximum Offering to hire between
seven (7) and ten (10) employees. See "Risk Factors--Dependence on Key
Personnel and Business--Employees".
14
<PAGE>
Marketing and Advertising. The Company intends to utilize approximately
$75,000 of the net proceeds raised at the minimum Offering and approximately
$200,000 of the net proceeds raised at the maximum Offering for marketing,
advertising and promotion of the products and services offered by the Company.
See "Business--Sales and Marketing and Marketing Strategy".
Acquisition of Patents. The Company intends to utilize approximately
$500,000 of the net proceeds raised at the minimum Offering and approximately
$875,000 of the net proceeds raised at the maximum Offering to acquire four
(4) patents from James P. Crawford, one of the Company's founders. With the
minimum proceeds raised, the Company shall issue a promissory note in the
principal amount of $375,000 which represents the balance owed to Mr. Crawford
on the total patent acquisition price of $875,000. See "Business--Intellectual
Property and Proprietary Rights and Certain Relationships and Related
Transactions".
Working Capital. The balance of the net proceeds raised at the minimum and
maximum offerings will be used for general working capital purposes.
Notwithstanding, however, the Company may utilize a portion of the net
proceeds raised at either the minimum or maximum Offering that have been
allocated to working capital for leasehold improvements and tenant build-out
expenses associated with the development of a new manufacturing facility. The
Company may also utilize a portion of the proceeds raised at the maximum
Offering that have been allocated to working capital for product design,
development and enhancement of new engineering processes and equipment and the
possible acquisition of waste disposal and environmental related businesses.
The foregoing represents the Company's best estimate of the net proceeds at
both the minimum and maximum offering based upon the current state of its
business operations, its current plans and current economic and industry
conditions. These estimates are subject to change based on unanticipated
levels and types of competition, adverse market trends and new business
opportunities. Any material revisions in the allocation of proceeds will be
made at the discretion of management. The Company believes that net proceeds
from this Offering together with cash generated from operations will be
sufficient to meet the Company's capital needs until the year 2000. Pending
the use of the proceeds of this Offering, the Company intends to invest the
proceeds in short term, interest bearing instruments.
15
<PAGE>
DILUTION
Purchasers of the Shares offered hereby will experience an immediate
substantial dilution in net tangible book value of the Shares. As of March 31,
1998, the Company's net tangible book value was $106,990 or approximately $.03
per share of Common Stock. "Net tangible book value" per share of Common Stock
represents the amount of total tangible assets of the Company less the amount
of all liabilities (excluding contingent liabilities) divided by the number of
shares of Common Stock outstanding. After giving effect to the issuance of
approximately 172,835 shares upon exercise of certain outstanding Convertible
Notes ("Notes") which exercise may take place at any time within twelve months
from the respective dates of issuance (the "Pro Forma Adjustments"), the Pro
Forma net tangible book value was approximately $711,914 or $.21 per share.
Without giving effect to any other changes in the Pro Forma net tangible book
value after March 31, 1998 and assuming the sale of 350,000 shares of Common
Stock offered at the minimum and the receipt of the net proceeds of the
minimum Offering estimated to be approximately $2,099,750, the Pro Forma net
tangible book value as of March 31, 1998 would have been $2,811,664 or
approximately $.76 per share. This represents an immediate increase to
existing shareholders in the Pro Forma net tangible book value of
approximately $.55 per share and an immediate dilution to new shareholders of
approximately $6.49 per share. Without giving effect to any changes in the Pro
Forma net tangible book value after March 31, 1998 and assuming the sale of
1,000,000 shares of Common Stock offered at the maximum and the receipt of net
proceeds of the maximum Offering estimated to be approximately $6,316,000, the
Pro Forma net tangible book value as of March 31, 1998 would have been
$7,027,914 or approximately $1.61 per share. This represents an immediate
increase to existing shareholders in the Pro Forma net tangible book value of
approximately $1.40 per share and an immediate dilution to new shareholders of
approximately $5.64 per share. "Dilution" represents the difference between
the amount per share paid by purchasers in this Offering and the Pro Forma net
tangible book value per share of the Common Stock after this Offering. See
"Risk Factors".
The following tables illustrate the per share Dilution at the minimum and
the maximum Offering levels:
(THIS SPACE LEFT BLANK INTENTIONALLY)
16
<PAGE>
MINIMUM OFFERING
<TABLE>
<S> <C> <C>
Assumed initial public Offering price per Share.................... $7.25
Net tangible book value at March 31, 1998.......................... $ .03
Increase in net tangible book value attributable to Pro Forma
Adjustments....................................................... .18
Pro Forma net tangible book value at March 31, 1998................ .21
Increase in net tangible book value attributable to new investors
assuming the Minimum Offering..................................... $ .55
Pro Forma net tangible book value after the Minimum Offering....... .76
Dilution in net tangible book value to new investors assuming the
Minimum Offering.................................................. $6.49
MAXIMUM OFFERING
Assumed initial public Offering price per Share.................... $7.25
Net tangible book value at March 31, 1998.......................... $ .03
Increase in net tangible book value attributable to Pro Forma
Adjustments....................................................... .18
Pro Forma net tangible book value at March 31, 1998................ .21
Increase in net tangible book value attributable to new investors
assuming the Maximum Offering..................................... $1.40
Pro Forma net tangible book value after the Maximum Offering....... 1.61
Dilution in net tangible book value to new investors assuming the
Maximum Offering.................................................. $5.64
</TABLE>
The following tables summarize the differences between the Company's
officers, directors and affiliated parties, existing shareholders and the new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total cash consideration paid by each group, and the average
cash consideration per share of Common Stock paid by each group.
MINIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Officers, Directors and
Affiliated Parties........... 3,200,000 85.96% $ 540 .02% $.0002
Other Existing
Shareholders(1).............. 172,835 4.64% $ 600,000 19.10% $ 3.50
New Investors................. 350,000 9.40% $ 2,537,500 80.88% $ 7.25
Total......................... 3,722,835 100.00% $ 3,140,000 100.00%
</TABLE>
MAXIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Officers, Directors and
Affiliated Parties........... 3,200,000 73.20% $ 540 .01% $.0001
Other Existing
Shareholders(1).............. 172,835 3.92% $ 600,000 7.64% $ 3.50
New Investors................. 1,000,000 22.88% $ 7,250,000 92.35% $ 7.25
Total......................... 4,372,835 100.00% $ 7,852,500 100.00%
</TABLE>
- --------
(1) Calculated as though Noteholders converted their notes for shares of
Common Stock in the Company as of March 31, 1998 and includes accrued
interest due under the notes. See "Description of Securities".
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<PAGE>
S CORPORATION STATUS
Since August 1, 1993 and through December 31, 1997 (the "Termination Date")
the Company elected to be taxed as an S corporation under the provisions of
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result,
the Company's results of operations through the date of termination of the
Company's S corporation status for federal and state income tax purposes were
included in the personal tax returns of the Company's shareholders. Effective
January 1, 1998, the Company terminated its S election and accordingly, it
will become responsible for payment of state and federal income tax on
earnings, if any, subsequent to the Termination Date.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's historical financial
condition and results of operations should be read in conjunction with the
Company's Financial Statements (including the Notes thereto), and the other
financial information included elsewhere in this Prospectus. The Company's
fiscal year runs from January 1 to and including December 31.
GENERAL
The Company is engaged in the development, manufacture and sale of packaged
combustion equipment and related environmental waste disposal systems. The
Company's activities for fiscal years ending December 31, 1995, December 31,
1996, and December 31, 1997, include domestic and international sales of
medical waste incineration equipment; animal cremation/incineration equipment;
human cremation/incineration equipment; Volatile Organic Compounds ("VOC") and
Hazardous Air Pollutants ("HAP") abatement systems, general waste incineration
systems, ancillary equipment for systems integration and research and
development for other new products and businesses.
From the Company's inception in 1974 to approximately 1986, the Company's
revenues were derived primarily from sales of human cremation/incineration
equipment and animal cremation/incineration equipment. As a result of the
versatility and flexibility of the Company's equipment, coupled with the
enactment of state and local environmental waste disposal regulations, the
Company in 1986 expanded its product lines to include systems for the
incineration of medical/bio-hazardous and infectious Waste ("Medical Waste")
generated by hospitals, doctor's offices, research facilities and laboratories
of federal government agencies among others. This line of Medical Waste
incineration equipment produced additional sales with high gross profit, from
1986 to 1993. See "Risk Factors--Risks Associated with Fixed Priced
Contracts".
In 1993, due to the impending enactment of federal legislation governing the
disposal of medical waste, industry sales of medical waste incineration
equipment began to decrease significantly as producers of medical waste chose
to await the outcome of the legislation before upgrading or replacing their
existing incineration equipment. Sales of Medical Waste disposal systems made
by the Company were similarly affected by the uncertainty of this federal
legislation. In 1993, for example sales of Medical Waste disposal systems
accounted for approximately 55% of the Company's total sales while
Animal/Pathological Cremation/Incineration systems accounted for approximately
25% of total sales; Human Cremation/Incineration systems accounted for
approximately 15% of total sales; and General Waste Incineration systems
accounted for approximately 5% of total sales. By 1997, however, sales of
Medical Waste disposal systems had declined and accounted for only 10% of the
Company's total sales. New federal Medical Waste disposal legislation however
became effective in January of 1998 and will continue to be phased in through
the year 2000. The Company will further attempt to capitalize in the Medical
Waste incineration market due to its technological capability, reputation in
the industry and perceived lack of any significant competition. See
"Business--Sales and Marketing".
Commencing in 1995 the Company developed a new line of equipment to control
Volatile Organic Compounds ("VOCs") and Hazardous Air Pollutants ("HAPs"). The
Company's VOC/HAP abatement systems were developed in accordance with
compliance mandated by the Clean Air Act and specifically Title V of that Act.
The Company installed its first VOC system in the second quarter of 1995. The
Company plans to continue to aggressively pursue this market. Sales of VOC/HAP
systems made by the Company have steadily increased since their introduction
in 1995. VOC/HAP sales accounted for approximately 30% of total sales made by
the Company in 1996 and approximately 45% of total sales made by the Company
in 1997. Sales of Animal/Pathological Cremation Incineration systems made by
the Company in 1997 accounted for approximately 30% of its total sales,
Medical Waste disposal systems accounted for approximately 10% of the
Company's total sales while General Waste Incineration systems accounted for
approximately 10% of the Company's total sales and Human
Cremation/Incineration systems represented approximately 5% of total sales. It
is anticipated that VOC/HAP product lines will continue to account for a
substantial portion of the Company's sales in the future based upon the market
demand for these products and the high efficiency levels at which the
Company's VOC/HAP systems perform.
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Traditionally, sales made by the Company in the first quarter of the fiscal
year are the lowest due to the fact that the Company's customer purchasing
cycles are completed by the end of the third quarter of the Company's fiscal
year. This results in fewer orders being placed during the fourth quarter, and
therefore fewer shipments of systems are made during the first quarter of the
following year. The Company recognizes revenue when systems are shipped.
Deposits received with purchase orders are reflected as Deferred Revenue on
the Company's Balance Sheet. The Company from January 1, 1998, to May 31,
1998, has received orders for its products of approximately $2,100,000 and has
a substantial number of proposals outstanding pending customer approval. Of
these proposals approximately 88% represent potential sales of VOC/HAP systems
and general and medical waste systems both domestically and internationally.
See "Financial Statements".
In anticipation of the outstanding proposals, the Company, during the fourth
quarter of 1997, and the first quarter of 1998, began increasing its sales,
engineering and management personnel. In addition, the development of a new
manufacturing facility will commence in the third quarter of 1998. It is
anticipated that up to $1,650,000 from this Offering shall be allocated to
construct and build-out this facility, and to add equipment and personnel. In
addition, the Company may, depending on orders received from customers, lease
both its existing manufacturing facility as well as the new manufacturing
facility to satisfy production requirements. Such new facility is expected to
be completed by January 1999. See "Business-Facility". While additional
purchase orders for the Company's products would increase sales, additional
costs including higher lease expenses would be incurred that could adversely
affect operations. See "Risk Factors--Risks of Increased Costs"; "Use of
Proceeds" and "Business". By the end of 1998, the Company plans on adding
sales offices in California, the United Kingdom and Hungary. See "Business--
Sales and Marketing".
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year ended December
31, 1996
Total sales were $4,375,494 for the year ended December 31, 1997, as
compared to $2,417,939 for the year ended December 31, 1996. The significant
increase of $1,957,555, or 81%, is primarily attributable to sales of the
Company's latest product line; the Volatile Organic Compound and Hazardous Air
Pollutants ("VOC/HAP") abatement system. The Company's first VOC/HAP system
was sold and installed in the second quarter of 1995.
Total cost of sales were $2,717,640 for the year ended December 31, 1997, as
compared to $1,516,070 for the year ended December 31, 1996. Cost of sales
decreased as a percentage of sales to 62% in 1997 as compared to 63% in 1996.
The decrease in cost of sales as a percentage of sales was a result of
increased volume of VOC/HAP equipment sales at higher than previous retail
prices. The VOC/HAP product line produces gross profit of approximately 40%
compared to 32%-35% from the Company's other product lines. See "Risk
Factors--Risks Associated with Fixed Price Contracts".
Selling, general and administrative expenses were $1,198,351 for the year
ended December 31, 1997, as compared to $878,254 for the year ended December
31, 1996. The increase in these expenses is a direct result of the increased
sales. Selling, general and administrative expenses decreased as a percentage
of net revenues to 27% in 1997 as compared to 36% in 1996. The decrease in
selling, general and administrative expenses as a percentage of sales was a
result of increased equipment sales without expansion of the manufacturing
facility or increasing administrative staff.
The Company has developed a sales force on a national and international
level. Although the Company anticipates increased sales due to a fully
operational facility, and expanded marketing efforts, there can be no
assurance that increased sales will be realized. Further, in 1998 a new
manufacturing facility, equipment and additional staff may result in an
increase in expenses as a percentage of sales. See "Risk Factors--Risks of
Increased Costs".
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Three Months Ended March 31, 1998, Compared to Three Months Ended March 31,
1997
Total sales were $263,736 for the three months ended March 31, 1998, as
compared to $1,116,295 for the three months ended March 31, 1997. This
significant decrease of $852,559 or 76%, is primarily attributable to the fact
that several systems completed in the fourth quarter of 1996 were not shipped
until the first quarter of 1997, due to customer delays with site completion
and permitting. Since sales are recognized when systems are shipped, the
delayed shipments from the fourth quarter of 1996 distorted sales for the
first quarter of 1997, causing higher than usual results. Further, as
customers tend not to place orders with the Company in the fourth quarter,
sales for the Company's fiscal first quarter are historically lower as
compared to other quarters.
Total cost of sales were $178,181 for the three months ended March 31, 1998
as compared to $679,421 for three months ended March 31, 1997. This
significant decrease is a direct result of the decreased sales. The gross
profit for the three months ended March 31, 1998 of approximately 32% is down
from the gross profit for the comparable period in 1997 of approximately 39%
because there were no VOC/HAP systems shipped in the three month period ending
March 31, 1998 and therefore there was no income recognition for this quarter.
Selling, general and administrative expenses were $269,855 for the three
months ended March 31, 1998, as compared to $231,321 for the three months
ended March 31, 1997. As a percentage of sales, selling, general and
administrative expenses increased from 21% for the three months ended March
31, 1997 to 102% for the comparable period in 1998. The significant increase
in selling, general and administrative expenses as a percentage of sales is a
result of increased marketing and selling activities, hiring of production and
sales personnel, and administrative costs related to planning for the
expansion of the manufacturing facility and preparation for the planned public
offering. See "Use of Proceeds".
Interest expense was $654,784 for the three months ended March 31, 1998, as
compared to $152 for the three months ended March 31, 1997. This significant
increase is a direct result of the interest expense attributable to the
Convertible Notes of $6,653 and the one-time charge to interest expense of the
Convertible Notes beneficial conversion feature discount of $648,131. See
"Note 5 to Financial Statements dated March 31, 1998."
The Company's quarterly sales and operating results have varied
significantly in the past and may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. Such factors include general economic and industry conditions, the
size and timing of individual orders, research and development expenses, the
introduction of new products or services by the Company or its competitors or
the introduction of the Company's products to new markets, changes in the
levels of operating expenses, including development costs, and the amount or
timing of other costs relating to the expansion of the Company's operations.
Furthermore, the purchase of the Company's products, particularly for major
projects, may involve a significant commitment of customer capital, with the
attendant delays frequently associated with large capital expenditures and
authorization procedures within its customers' organization. For these and
other reasons, the sales cycles for the Company's products are typically
lengthy and subject to a number of significant risks over which the Company
has little or no control, including customer budgetary constraints. The
Company historically has operated with little backlog because most customer
orders are placed with relatively short lead times, usually from four to
twenty-four weeks. Variations in the timing of recognition of specific
revenues may adversely and disproportionately affect the Company's operating
results for a quarter because the Company establishes its expenditure levels
on the basis of expected future sales, and a significant portion of the
Company's expenses do not vary with current sales. Accordingly, the Company
believes that period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as indicative of future
performance. See "Risk Factors".
Pro Forma Statement of Operations For the Year Ended December 31, 1997
The Historical Statement of Operations for the year ended December 31, 1997
has been adjusted to reflect transactions which became effective on January 1,
1998.
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Total cost of sales were $2,717,640 for the year ended December 31, 1997, as
compared to $2,727,440 for the pro forma adjusted year ended December 31,
1997. This increase in cost of sales of $9,800 is attributable to the patent
licensing agreement which became effective on January 1, 1998.
Total operating expenses were $1,224,217 for the year ended December 31,
1997, as compared to $1,544,167 for the pro forma adjusted year ended December
31, 1997. This increase in operating expenses of $319,950 is attributable to
the Officers Employment Agreements, the Facility Lease Agreement and the
revocation of the Company's Corporation election, all of which became
effective on January 1, 1998. See Note 8 to Financial Statements dated
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company provided cash from operating activities of $251,496 for the year
ended December 31, 1997, as compared to $64,259 for the year ended December
31, 1996. The increase in cash provided for the year ended December 31, 1997,
is a result of increased sales. The Company used the cash provided to acquire
$60,768 of equipment, repay principal on long-term debt of $7,143 and
distribute $175,000 to a shareholder. The Company used cash in operating
activities of $274,331 for the three months ended March 31, 1998 compared to
cash provided by operating activities of $334,717 for the three months ended
March 31, 1997. The increase in cash used in the three months ended March 31,
1998 is a direct result of the increase in operating expenses and the
resulting operating loss for that period. The Company used cash in investing
activities of $16,080 for the three months ended March 31, 1998 compared to
$1,769 for the three months ended March 31, 1997. These operating and
investing cash outflows were financed primarily from the cash provided from
the reduction in accounts receivable and proceeds from the issuance of the
Company's convertible notes. During 1996 and 1997 the Company met its
liquidity needs primarily from sales and from a loan from an officer. See Note
7 of Notes to Audited Financial Statement.
From January 1998 to March 1998, the Company generated a total of $600,000
from a private placement of convertible notes. The net proceeds of the
offering were $542,500 after deducting selling commissions and other expenses.
These net proceeds were used for working capital purposes, including general
and administrative expenses and expenses related to the planned public
offering. See "Description of Securities--Convertible Notes".
If the public Offering is successful, the Company intends to use the net
proceeds for salaries, equipment purchases, payment for patents and a loan to
certain shareholders for the development of a new facility. The balance will
be used for working capital purposes, including general and administrative
expenses, and may include research and development related to the Company's
present and new products and sales and marketing. The Company believes that
the net proceeds of this Offering, together with the availability of its
borrowing capacity, will be sufficient to finance its working capital and
other capital requirements until the year 2000. See "Risk Factors--Risks of
Increased Costs".
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company has not realized a reduction in the selling price of any of its
product lines as a result of domestic inflation nor has the Company
experienced unfavorable profit reductions due to currency exchange
fluctuations or inflation with its foreign customers. Once the Company opens
its foreign offices, currency exchange fluctuations and or inflation with its
foreign customers may occur. See "Risk Factors--International Operations and
Sales".
EFFECT OF THE YEAR 2000
The Company believes that the costs associated with completing the
awareness, assessment, renovation, validation, and implementation of Year 2000
remediation is unlikely to have a significant effect on its operations. The
Company expects the primary impact of Year 2000 remediation to revolve around
acquiring upgrades to the Company's internal accounting software. As of the
present time, it is impossible for the Company to quantify the cost of these
remediation efforts or any future remediation costs.
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BUSINESS
GENERAL
Crawford Equipment & Engineering Co., Inc., (the "Company") is primarily
engaged in the business of design, engineering and manufacturing of combustion
equipment and technology for use in the disposal of waste. The Company
provides design, engineering, manufacturing, sales and service to customers
worldwide. The Company originally manufactured and serviced cremation systems
for professionals in the death care industry. In addition to human and animal
cremation/incineration equipment the Company also developed equipment to
dispose of solid waste, medical, infectious and bio-hazardous waste. In more
recent years additional equipment was engineered and developed to dispose of
Volatile Organic Compounds ("VOC") and Hazardous Air Pollutants ("HAP") waste
(collectively the "VOC/HAP Waste Disposal Market"). Liquid waste, RAD waste
and municipal solid waste disposal can also be processed by the Company's
equipment. After market parts, service and repairs are also components of the
Company's business. The Company was formed in 1974 and operates from leased
facilities located in Orlando, Florida. See "Business--Facilities and Certain
Relationships and Related Transactions".
PRODUCTS, SERVICES AND MARKETS
The increasing demand for effective disposal of generated waste and the
regulation of pollution and environmental controls has contributed to the
Company's success in filling the needs of the waste disposal market. The Clean
Air Act, and the roles that Environmental Protection Agency (EPA) and the
Occupational Safety and Health Administration (OSHA) play have impacted the
waste management industry. The control and disposal of Medical Waste,
hazardous waste and VOC/HAP waste is becoming more and more regulated with
specific emphasis placed on effective disposal and protection of the
environment.
The Company has many custom designed and manufactured products, systems and
services to meet this growing need. It has expanded in a very competitive
market, striving to maintain high quality while achieving maximum economy for
customers. Technology and ingenuity in the design and manufacturing operations
are of paramount importance to management. The Company believes a true test of
any product is performance. The Company's goal is for its equipment to perform
with minimal required service and to continually live up to efficiency
specifications. The Company has 24 years experience and approximately 700
installations worldwide. The Company's approach to combustion engineering and
design incorporates features which effectively dispose of waste. The Company
provides combustion and air pollution control systems to a variety of
facilities and industries including but not limited to chemical,
pharmaceutical, medical, printing and plastics, textile, converting,
finishing, solid waste, recycling, utility, industrial, composites,
wood/furniture, packaging, food, automotive, painting, animal pathological
disposal and human cremation among others.
Patented Refractory Lined Draft Control System, Multi-Material Construction,
Controlled Air Turbulence/Mixing, Integrated PLC Control System and Total
System Modulation Control are some of the features constructed into the
Combustion Systems manufactured by the Company. These features are intended to
provide safe, durable, and reliable equipment. This, together with greater
operational efficiency and worldwide environmental compliance, should continue
to enable the Company's products and services to be competitive in its
industry. The Company has an ongoing commitment to product design, development
and enhancement both in process engineering and equipment.
ENVIRONMENTAL MATTERS
The United States Clean Air Act Amendments of 1990 (the "CAAA")
significantly expanded the scope of air pollution regulations established in
the 1970s, and required the reduction and control of a wide range of air
pollutants, including 188 hazardous air pollutants ("HAPS"), most of which are
VOCs. The CAAA also addressed for the first time the reduction of Nitrogen
Oxides ("NOx") that, in combination with VOCs, produced ground level ozone or
urban smog. The CAAA introduced new regulatory requirements and timetables for
the abatement of VOCs and NOx for various geographic areas that become
progressively more stringent through the year 2010.
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The CAAA originally envisaged that standards for regulatory compliance would
be technology-specific. Current regulatory trends in the United States allow
for performance based mechanisms that provide economic incentives to surpass
compliance standards. One such mechanism currently in effect involves the
accumulation and banking of VOC emission credits obtained by achieving
performance beyond compliance standards. In addition, several states are
currently developing VOC emission credit trading programs. The Company
believes that these programs create additional economic incentives to select
the Company's technology over other treatment methods.
Title I of the CAAA establishes requirements for attaining and maintaining
national ambient air quality standards ("NAAQS"). Key provisions of Title I
are aimed at bringing cities and other geographic areas which are not in
attainment with NAAQS by the year 2010. In addition, measures for all regions
require the application of technological controls to reduce emissions of ozone
precursors, such as VOCs, from a broad range of industrial activities,
including consumer solvents and coatings, hazardous waste treatment storage
and disposal facilities, solid waste landfills and marine terminal loading and
unloading facilities.
Title III of the CAAA establishes a new program for the regulation of toxic
air pollutants. The combined federal and state programs create a comprehensive
and coordinated nationwide effort to deal with these pollutants. Title III
specifically lists 188 substances as hazardous air pollutants, of which most
are VOCs. Title III defines three significant programs that will require
substantial pollution control expenditures by industry across the nation: (i)
control of routine releases of air toxics from major industrial and commercial
sources; (ii) control of air toxic releases from area sources, primarily in
urban areas; and (iii) control of accidental releases of air toxics from
industrial and commercial sources. To reduce emissions of the 188 listed toxic
hazardous air pollutants, the application of the maximum achievable control
technology at major air emitting sources may be required.
The Pollution Prevention Act of 1990 establishes pollution prevention as a
national objective, naming it a primary goal wherever feasible. According to
this Act, where pollution cannot be prevented, materials should be recycled,
reduced or minimized in an environmentally sound manner.
International demand for VOC/HAP control equipment is also rapidly growing.
While many European nations have comprehensive health, safety and
environmental regulations in force, certain Asian and Latin American nations
have only recently begun to recognize the need to more stringently control VOC
emissions. In addition, many multinational companies have recognized the
benefits of global health, safety and environmental standards and are
collaborating in the development of comprehensive future performance
standards. See "Risk Factors--Environmental Regulations; Regulatory
Compliance".
COMPANY WASTE MANAGEMENT EQUIPMENT PRODUCTS
1. Human Cremation/Incineration Equipment Division.
The Company offers a range of Human Cremation Incineration Equipment with
models to accommodate a varied selection of applications.
The range starts with the C1000HB. This is a cremation chamber designed and
constructed to meet the demand of the cremation market to operate continuously
(around the clock if necessary). The high production capability of the
Company's crematory (average processing time 1 hour 15 minutes) is a valued
asset to customers. The Human Cremation/Incineration line is offered in three
"feature package" variations to meet a variety of requirements. The C1000HB
base model includes a manually operated counter-balance chamber access door.
This model serves to accommodate facilities with minimal cremation
requirements. The standard model C1000HS is equipped with such additional
convenience and performance enhancements as a hydraulically operated chamber
access door, easy load casket roller, integral remains collection hopper, and
primary chamber view port. The Company's model C1000 series crematories have
been extensively tested and approved by Underwriters Laboratories (UL) for
safety. The Company also manufactures a high-speed cremation remains
processor. The CP200 model is quiet, fast, compact, efficient and has dust
free operation. Base models manufactured by the Company range in price from
approximately $35,000 to approximately $125,000 per system.
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2. Animal Cremation/Incineration Equipment Division.
The Company offers a range of animal cremation/incineration equipment with
models to accommodate a variety of applications.
The standard models range from the C500PA which operates at 75 pounds per
hour to the C-5000 PA which operates at 500 pounds per hour. These multiple
chamber pathological cremation/incineration systems are designed to process
pathological as well as small quantities of high BTU content plastics found in
"red bag" veterinary/medical waste streams, while complying with the higher
temperatures and residence times required by environmental agencies. Utilizing
a negative pressured, controlled air, hot hearth design, the units are suited
for private cremations with capability of extended continuous operation to
meet greater mass disposal demands. Additional models CB150-1800 have also
been developed for batch loads of between 150 and 1800 pounds. These systems
require minimal operator interface and are suitable for demanding operations.
Finally, custom built systems for diseased or contaminated animal/pathological
waste are available for critical environmental applications and range in size
up to 2,000 pounds per hour. Base models manufactured by the Company range in
price from approximately $12,000 to approximately $350,000 per system.
3. Medical, Infectious Bio-Hazardous and General Waste Incineration Equipment
Division.
The Company offers a full range of medical, infectious and bio-hazardous
waste incineration equipment with models to accommodate the needs of a variety
of customers. The standard models range from the C500PM which operates at 25
pounds per hour to the C-2000 SHP which can operate at approximately 2000
pounds per hour. The small systems are multiple chamber, controlled air, hot
hearth incinerators designed to accommodate mixed waste streams ranging from
general medical waste to "red bag" waste. These systems comply with the New
Source Performance Standards ("NSPS") and new rules required by federal
environmental agencies. The larger systems are stepped hearth, hot-loading,
continuous feed incineration systems designed to accommodate mixed waste
streams ranging from general medical waste to "red bag" waste. These systems
also comply with the NSPS and new rules required by federal environmental
agencies by utilizing a negative pressured, controlled air stepped hearth
design, with a sealed, hydraulic ram feed charging system, internal refractory
ash rams and wet/dry ash handling systems. These units are designed for high
production facilities. Base models manufactured by the Company range in price
from approximately $25,000 to approximately $900,000 per system. The Company
also offers a variety of custom designed incineration equipment to dispose of
general waste which includes but is not limited to general solid waste,
shipboard waste, international flight waste and liquid chemical waste. Custom
systems manufactured by the Company have been installed for between $20,000
and $550,000.
4. VOC (Volatile Organic Compound) Abatement Systems
VOCs are an unavoidable by-product of numerous manufacturing and process
industries worldwide which must be controlled due to the serious health,
safety and environmental risks associated with them. The current global market
for control equipment exceeds two billion dollars and is estimated to grow at
ten percent (10%) per annum according to The McIlvaine Company, a market
analyst firm serving the air pollution control industry. Conventional
technologies for the treatment of industrial VOCs are primarily flame-based
destruction systems (such as oxidizers), activated carbon adsorption systems
and scrubbing systems, most of which have been in use for over thirty years.
The Company either manufactures or markets these technologies. Custom systems
manufactured by the Company have been installed for between $15,000 and
$912,500.
The health, safety and environmental risks presented by VOCs have led to
significant federal regulations, which are enforced by the Occupational Safety
Health Administration ("OSHA"), the United States Environmental Protection
Agency ("EPA") and various state and local agencies. Non-compliance with these
regulations carries substantial civil and criminal penalties. See "Risk
Factors--Environmental Regulations; Regulatory Compliance and "Business--
Environmental Matters".
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The installation of additional auxiliary equipment such as Air Pollution
Heat Recovery and Emission Control Systems to any packaged combustion system
manufactured by the Company could increase the sales price significantly.
EXISTING TREATMENT METHODS FOR CONTROL OF VOCS
Established methods to control VOC emissions can be broadly classified as
destruction processes or removal processes. These are generally mature
technologies with multiple suppliers and commodity pricing. These technologies
generally achieve destruction removal efficiencies ("DRE") and heat recovery
ranging from 90 to 99%. The major considerations in selecting industrial VOC
control systems are: safety; capital cost; operating and maintenance costs;
ease of permitting; process stream characteristics; unit location; low energy
consuming oxidation; and on-line reliability.
DESTRUCTION PROCESSES
Destruction processes typically employ various flame-based technologies
which are designed to convert VOCs into carbon dioxide, water, vapor and, in
some cases, acid gases that can be neutralized. Flame-based technologies
include flares, fume incinerators, catalytic oxidation systems, regenerative
thermal oxidizers and thermal/recuperative oxidizers. The choice of the
destruction process is based upon the composition and concentration of VOCs in
the fume stream, the required DRE, and other factors. Although most VOCs can
be oxidized, the process must be highly controlled to achieve high DRE and
minimize the formation of products of incomplete combustion and carbon
monoxide ("CO"). The inherent higher temperatures of flame-based devices also
result in the formation of thermal NOx.
Scrubbing systems typically utilize water spray to remove VOCs from a fume
stream for collection in liquid form. The liquid effluent from the scrubbing
process is subsequently treated in another process. Scrubbing systems will
only remove VOCs that are soluble in the scrubbing medium and therefore are
not suitable for all VOC streams.
The Company's advanced technology controls VOC/HAPS for odors and toxic air
pollutants for a multitude of industries and processes. All VOC units are
guaranteed to meet or exceed all current regulatory emission/destruction
efficiency standards. All systems are designed to be expandable from 100 SCFM
through 100,000 SCFM and to accommodate a broad spectrum of VOC/HAP gas
streams. The Company can also design custom systems engineered and
manufactured to meet specific requirements. Certain features of this equipment
include up to a 99.99% DRE, minimum one-plus (1+) second residence time,
minimum 1400(degrees)F operating temperature, and low NOx and CO emissions.
SALES AND MARKETING
The Company has established a network of Company employed and independently
commissioned sales representatives. The Company currently has agreements with
three (3) organizations with over 75 sales agents selling the Company's Waste
Management equipment throughout the United States and abroad. The sales
representative network was established to introduce the Company's technology
by utilizing long standing relationships and to utilize the selling experience
of the representatives within the Company's target customer base.
All independent representatives are paid solely on commission, which is
calculated on a sliding scale as a percentage of sales revenues. Sales to
government agencies are handled directly by the Company.
The Non-exclusive Strategic Alliance Agreement between Monsanto Enviro-Chem
Systems, Inc. ("MEC"), a subsidiary of Monsanto, covers the private labeling
of certain VOC control equipment. MEC is an additional sales channel for the
Company's Recuperative Thermal Oxidizers and Thermal Oxidizers domestically
except for sales in Texas. Existing Company sales and marketing staff and
outside representatives market these products
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in Texas and internationally. In addition, certain pre-existing customers are
excluded from the MEC Agreement and this contract may be terminated for "cause
of convenience."
In order to manage the growing global interest in the technology, and to
handle sales and technical support directly for the Western United States and
European markets, the Company intends to establish sales/marketing offices in
California, the United Kingdom and Hungary in the third quarter of 1998. In
1998, the Company entered into a representative/manufacturing agreement for
the United Kingdom and Europe. The Company also entered into an agreement for
sales representation in Vietnam, Southeast Asia and the Pacific Rim. The
Company is the authorized representative for the continuous emissions
monitoring analyzer and system sales in the United Kingdom and Eastern and
Western Europe for Spectrum Systems, Inc. It has a letter of intent to be the
European sales agent for Des Champs Laboratories' line of heat exchangers and
air movement handling systems. There is also a non-exclusive sales agreement
for eighteen (18) months starting May 1, 1998 with Emcotek Emission Control
Technology Corporation for the sale of medical and related waste air pollution
control systems. See "Risk Factors--No Assurances of Additional Collaborative
and Joint Venture Agreements, Licenses or Project Contracts".
The Company has submitted a substantial number of proposals to potential
customers both nationally and internationally. There can be no assurance that
such proposals will result in purchase orders or contracts, or that sales will
be finalized. See "Management Discussion and Analysis and Results of
Operations and Risk Factors--Operational Risks".
MARKETING STRATEGY
The Company intends to market its products and services through an expanding
network of customers and affiliations with similar companies. Currently, MEC,
a world leader in air quality management, sells VOC/HAP systems manufactured
by the Company through a strategic alliance agreement. Pursuant to the terms
of this agreement the equipment built for Monsanto will bear the Monsanto
name. The Company may also manufacture Monsanto designed systems that bear the
Company's name. This arrangement allows the Company access to additional
representatives in the field which sell its products without the usual
overhead, management or control systems needed to normally maintain such a
sales force. The Company is continuing to expand into more national and
international markets.
The new manufacturing and assembly plant should foster increased production
and greater sales of the Company's waste incineration equipment. See "Use of
Proceeds and Business--Facilities". The Company is also entering into an
advertising and marketing campaign, to promote the Company's core products and
bring awareness of these products to a larger audience of customers by
utilizing between $100,000 and $200,000 of net proceeds raised from this
Offering. See "Use of Proceeds".
ENGINEERING AND MANUFACTURING
The Company's engineering and manufacturing operations are based in Orlando,
Florida and organized under a comprehensive project management system,
including project costing, process design and engineering, procurement, system
assembly, pre-testing, installation and commissioning. The engineering and
manufacturing group is staffed by experienced engineers and project managers
and is directly managed by James P. Crawford, the Company's founder.
The Company has focused on modularizing and standardizing components of its
technology and utilizes sophisticated software to integrate these components
into comprehensive waste management and air pollution control systems. This
integration allows the Company to provide comprehensive systems centered
around the Company's waste disposal technologies. The engineers utilize state-
of-the-art, PC-based, computer-aided-engineering and database management
tools, including three-dimensional design tools. The Company believes this
approach of automating the design process is effective in that it: (i)
optimizes the engineering work effort and allows ready access to a growing
inventory of standardized design data; (ii) contributes significantly to
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accuracy; (iii) shortens the Company's product delivery cycle; and (iv)
facilitates the handling of design data between the Company and its clients.
The systems are typically pre-assembled, pre-wired and tested prior to
delivery and installation. The Company manufactures its systems to order.
Component fabrication is carried out using pre-qualified Company employees who
specialize in the manufacture of each particular component. These specialized
employees adhere to and carry formal certifications with national and
international codes and standards such as those of the American Society of
Mechanical Engineers (ASME). The Company's subcontractors have been selected
to allow the Company to expand its capacity to manufacture additional systems
while minimizing the Company's investment fixed costs. The Company also uses
pre-qualified subcontractors throughout the United States and overseas but is
not dependent on any particular subcontractor.
In the fabrication process, no one subcontractor is exposed to the entire
technology package and final assembly of each system is coordinated by the
Company or by a totally separate subcontractor.
During the period that the technology was developed, an extensive empirical
database for waste flows of different volumes and compositions was compiled.
The Company has used this database to develop a proprietary, software-based
design tool. In the design process, the software tools analyze the
characteristics of the customer's fume flow and determine the optimal system
configuration and size. Not only does this process specify the correct system
characteristics, but it also automates the task of generating budget
proposals. The Company is continuing to expand this database as new systems
are installed.
CONSULTING SERVICES
The Company has retained Grove Scientific & Engineering Company for a period
of 12 months to perform certain environmental permitting, analysis and
consulting services. The President of Grove Scientific Company is Bruno A.
Ferraro, who is also a member of the Company's Board of Directors. See
"Management and Certain Relationships and Related Transactions".
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company currently licenses from James P. Crawford four United States
patents. The patent numbers together with the patent abstracts are set forth
below. Due to the technical nature of these abstracts, investors are
encouraged to review the patent documents on file with the United States
Patent Office. Copies of this information will also be produced by the Company
upon request.
Patent number 4,512,264 issued: April 23, 1985
An apparatus to induce drafts in combustion chamber stacks can operate at
temperatures from 1400(degrees) to 2600(degrees) while being fabricated from
mild steel with refractory lining. The induced draft apparatus includes an
exhaust stack connected to a combustion chamber and has an annular plenum
formed around the base of the stack with narrowed annular outlet from the
plenum into the stack. An air blower is connected to the annular plenum for
directing air under pressure thereunto and into the stack at a predetermined
position. An annular refractory surface is formed on the outside of the plenum
wall in stack and the stack is similarly lined with a refractory material.
Patent number 4,685,403 issued: August 11, 1987
An auxiliary incinerator apparatus for the crematory includes a main
incinerator having primary and secondary chambers formed with a plurality of
refractory walls and main door into the primary chamber. The main incinerator
has an outer framework with wall attached thereto and spaced from the
refractory walls. The refractory passageway extends from the primary chamber
refractory wall to the outer wall. An auxiliary incinerator is attached to the
side of the main incinerator outer wall and framework, adjacent to the opening
from
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<PAGE>
the refractory passageway through the wall. The auxiliary incinerator has an
incineration chamber formed therein with a top opening thereunto. An auxiliary
door simultaneously opens and closes over the opening from the refractory
passageway through the outer wall and over the opening into the auxiliary
incinerator, so that partially incinerated materials can be moved from the
main incinerator to the auxiliary incinerator for further combustion. A second
door into the auxiliary incinerator allows for the removal of ashes and the
main door into the primary chamber. This patent was also issued in Canada.
Patent number 4,890,367 issued: January 2, 1990
A crematory loader apparatus is provided for loading objects to be
incinerated into a preheated crematory. The loader has a frame with a slidable
support surface attached to the frame for supporting an object thereon which
slides in a track supporting the slidable top surface during of the top
surface between a first position for loading the object onto the slidable
support surface and a second position cantilevering the slidable support into
the crematory. A plurality of legs are attached to the frame and has a first
position out of the path of an object on the slidable support surface and a
second position blocking the path of the object on a slidable support surface
to block the movement of the object when the slidable top surface is moved
from the second position to the first position to thereby force the object
into the crematory as the sliding support surface is withdrawn from its second
cantilevered position. The slidable support surface has rollers thereon with a
ramp at one end with a roller thereon to slide an object off the slidable
support surface. The support surface is moved by an electric motor driven
chain drive.
Patent number 5,152,232 issued: October 6, 1992
An incinerator apparatus has a primary incinerator chamber which has a
secondary incinerator coupled thereto by a passageway. The primary incinerator
chamber has a primary air input into the incinerator chamber and the secondary
air chamber has a secondary air input thereinto having a plurality of air
input lines with each line having an electric motor control valve, such as a
damper motor controlling a damper valve controlling the flow through one of
the input lines. A plurality of ultraviolet flame detector ports open into the
side of the secondary incinerator chamber, each being spaced a predetermined
distance from each other and each having an ultraviolet flame detector
positioned therein for sensing the ultraviolet radiation and the flame
adjacent the detector in the secondary incinerator chamber. Each ultraviolet
flame detector is operatively coupled through electronic controls which
includes relays to actuate each of the plurality of electric damper motors to
open and close the damper valve responsive to the ultraviolet flame detector
signal thereby the secondary air flow is controlled by a flame detector or
reading the flame position at a plurality of points in the secondary
incinerator chamber. One air blower can direct the air to the primary chamber
and to the secondary chamber through a plurality of ports into each chamber
with the secondary air being increased or decreased responsive to the length
of the flame in the secondary chamber to thereby maintain the temperature
within a predetermined range within the secondary chamber to ensure complete
combustion of the incinerated product.
The Company may apply for further patents as further R&D produces
innovations in its products. As a condition of employment, the Company intends
to routinely enter into agreements with its employees, to protect any future
rights relating to intellectual property and proprietary rights. See "Certain
Relationships and Related Transactions, and Risk Factors".
DESCRIPTION OF LICENSE
On January 2, 1998, the Company entered into a License Agreement with James
P. Crawford to utilize the four (4) patents that he has developed and holds
title to. The License Agreement requires the Company to pay a fee to Mr.
Crawford of $350 for each packaged combustion equipment system manufactured by
the Company that implements one or more of these patents. Following the
successful completion of the offering the Company intends to acquire the
patents from Mr. Crawford for a purchase price of $875,000. In conjunction
with the acquisition of the patents, the Company shall also be obligated to
pay a royalty fee to Mr. Crawford equal to the license fee it currently pays
to him. The royalty fee shall be paid to Mr. Crawford until the current
patents expire. See "Certain Relationships and Related Transactions".
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<PAGE>
COMPETITION
The industrial waste disposal equipment market is mature and highly
fragmented among a large number of competitors, none of whom have a
significant industry-wide market share. The following sets forth the Company's
main competition by category:
THE HUMAN CREMATION MARKET COMPETITION includes: Industrial Equipment &
Engineering Co., Inc., CMS, Inc., and American Cremation Systems, Inc.
THE ANIMAL CREMATION/INCINERATION MARKET COMPETITION includes: Industrial
Equipment & Engineering Co., Inc., Shenandoah Manufacturing, Inc., Consumat
Systems, Inc., International Incinerator, Inc., and Therm-Tech, Inc.
THE MEDICAL WASTE MARKET COMPETITION includes: International Waste
Industries, Inc., Simmonds Manufacturing Co., Inc., Consumat Systems, Inc.,
Advanced Combustion Systems, Inc., and Therm-Tech, Inc.
The Company currently competes with suppliers of flame-based thermal
oxidation systems, carbon adsorption systems and scrubbing VOC equipment
control systems. These companies include Reeco, Inc., Durr Industries,
Thermatrix, Inc., Smith Environmental Co., Inc., Anguil Environmental Systems
Co., Inc., Ad-West and ABB Inc., among others. Since many of these
technologies have been in use for over 30 years, they have certain advantages.
These technologies are familiar and predictable to companies requiring VOC
controls and to regulators, and are available from and promoted by a large
number of suppliers. Many of the Company's competitors have substantially
greater financial resources, operating experience and market presence than the
Company. There can be no assurance that the Company's existing competitors or
new market entrants will not develop new technologies or modifications to
existing technologies that are superior to or more cost-effective than the
Company's waste disposal technologies. In addition, increased competition
could result in price reductions and reduced gross margins and could limit the
Company's market share. See "Risk Factors--Competition".
EMPLOYEES
As of March 31, 1998, the Company had 40 full-time employees, ten (10) of
whom hold advanced degrees. The Company believes that it has been successful
in attracting experienced and capable engineering and management personnel.
None of the Company's employees is covered by collective bargaining. The
Company intends to hire additional employees after the closing of the
Offering. See "Risk Factors--Dependence on Key Personnel and Use of Proceeds.
The Company has employment agreements with James P. Crawford, Kathleen B.
Crawford and Steven L. Atkinson. See "Certain Relationships and Related
Transactions".
FACILITIES
The Company's manufacturing facility and offices are located at: 436 W
Landstreet Road, Orlando, Florida, 32824. The Company intends to use a portion
of the proceeds from this Offering to fund the building of a new plant and
manufacturing facility on a site near its existing facility. Such new
facilities are expected to be completed by January 1999. The majority of the
funding for this is being provided by the Company through a loan to Mr. and
Mrs. Crawford personally. It will be repaid to the Company over a twenty year
period and shall be secured by real property they presently own. The plans for
the new facility are available for inspection. The new manufacturing plant
will be built on land adjacent to the current location. The Company leases the
current facility and offices from Mr. and Mrs. Crawford at rates the Company
believes to be commensurate with industrial rental rates charged in the
Central Florida area. See "Certain Relationships and Related Transactions". A
copy of the lease agreement is available for inspection upon request. See
"Management's Discussion and Analysis and Results of Operations and Risk
Factors".
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company or its
Properties are subject.
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<PAGE>
MANAGEMENT
The executive officers, directors and key employees of the Company upon
completion of the Offering and their representative ages and positions are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
James P. Crawford..... 59 Chief Executive Officer and Chairman of the Board
Vice President, Chief Financial Officer,
Kathleen B. Crawford.. 51 Secretary, and Director
Steven L. Atkinson.... 40 President, Asst. Secretary and Director
C. David Cooper....... 50 Director
Bruno A. Ferraro...... 40 Director
William M. Dillard.... 50 Director
</TABLE>
James P. Crawford is a founder and has been the Chief Executive Officer of
the Company since its formation in 1974. Prior to that he worked in the
mechanical and combustion field. Mr. Crawford is or has been a member of the
American Society of Hospital Engineers, the Air and Waste Management
Association, American Animal Hospital Association, American Veterinary Medical
Association, American Association of Crematory Animal Science, Cremation
Association of North America and The National Funeral Directors Association.
He holds a State of Florida Mechanical Contractor Certification and Welder
Unlimited Certification. After attending Orlando Junior College in 1958, Mr.
Crawford served in the United States Army, U.S. Corp of Engineers.
Mr. Crawford has taken extensive courses and seminars in pipe fitting, boiler
making, electrical, and fire brick and high temperature castable. He has
designed numerous products and holds patents previously discussed.
Mr. Crawford is married to Kathleen B. Crawford. Together they are partners in
Horse Shoe Cove Land Development, a Tennessee Corporation. Together they also
own West Landstreet Properties, Inc.; Florida Bio-Compliance, Inc.; land in
Airport Industrial Park, Sebring, Florida; and an 80 acre development project
in Geneva, Florida.
Kathleen B. Crawford, is a founder, Vice President, Corporate Secretary and
Chief Financial Officer of the Company. Prior to founding the Company with her
husband, James P. Crawford, she was employed with Bordens Dairy from 1967 to
1970 in their accounting department. Mrs. Crawford is or has been a member of
The American Veterinary Medical Association, The American Association of
Laboratory Animal Science, The National Funeral Directors Association and The
American Funeral Directors Association. Mrs. Crawford is also a member of the
Daughters of the American Revolution.
Steven L. Atkinson is the President, Assistant Secretary, and a Director for
the Company. He is also a shareholder and a Director of Florida Bio-
Compliance, Inc. He has been with the Company since 1983. Prior to that he was
a communications consultant from 1979 through 1983. In addition to holding a
degree from Brevard Community College, Mr. Atkinson has been or is a member of
The American Society of Hospital Engineers, Air and Waste Management
Association, American Animal Hospital Association, American Veterinary Medical
Association, American Association of Laboratory Animal Science, National
Funeral Directors Association, American Cemetery Association, and the
Cremation Association of North America.
William Mason Dillard is a Director of the Company. He has been President
and Chief Executive Officer of Mechanical Services, Inc., since 1974. Prior to
that he was a Field Superintendent with Munson & Associates and has served in
a technical capacity with other engineering firms in Orlando, Florida and
Georgia. He holds an Associate Degree in Heating and Ventilation and Air
Conditioning Technologies from Dekalb College in Atlanta, Georgia. He is an
active member of the American Society of Heating, Refrigeration and Air
Conditioning Engineers (ASHRAE) and recently received the ASHRAE's
distinguished service award.
Bruno A. Ferraro, CEP, QEP, is a Director of the Company. He is founder and
President of Grove Scientific & Engineering Company, a multi-disciplined
environmental consulting firm, which provides engineering design, air
pollution consulting, permitting and testing of pathological, solid waste and
VOC incinerators for a wide variety of industries including the Company. See
"Business--Consulting Services and Certain Relationships and
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<PAGE>
Related Transactions". Mr. Ferraro has extensive experience in environmental
consulting including indoor air quality, industrial hygiene, water quality,
hazardous waste, laboratory analysis and as an expert witness. Mr. Ferraro has
had numerous articles published, has been appointed to local, state and
federal technical advisory boards, has made technical presentations and was a
columnist for the Florida Environment New Journal for over 11 years. He is a
member of several environmental organizations including the Florida Society of
Environmental Analysts where he served as president. He holds several
certifications in environmental science related fields.
C. David Cooper, Ph.D., PE, QEP, has his B.S., MS and Ph.D. degrees in
Chemical Engineering, with a specialization in Environmental Engineering.
After working approximately six (6) years for a major oil company in Texas, he
joined the faculty of the Civil and Environmental Engineering Department at
the University of Central Florida ("UCF") in 1980. Dr. Cooper currently holds
the title of Professor of Engineering, and teaches courses at the graduate and
undergraduate levels. His areas of teaching and research include Hazardous
Waste Incineration, Atmospheric Dispersion Modeling and Air Pollution Control.
He is the principal author of Air Pollution Control--Design Approach, the
leading textbook in the field. This book is in use at more than 120
universities in the United States and Canada; it has been translated into
Korean. The book is also being translated into Chinese. Dr. Cooper is an
active researcher at UCF, and has published numerous peer-reviewed journal
articles on the subjects of hazardous waste incineration and mobile source air
pollution modeling. Sponsors of his research over the years include the EPA,
NASA, the Gulf Coast Hazardous Substance Research Center, Florida DOT, Florida
DEP, and others. Throughout his career, Dr. Cooper has been the principal
investigator on more than 30 research contracts worth more than $3.2 million
in funding for UCF. Dr. Cooper is a registered professional engineer in the
state of Florida, and has served as a consultant to industry and government
agencies on many projects related to combustion and air pollution. He is an
active member of the International Air and Waste Management Association.
COMMITTEES OF DIRECTORS
Following the completion of the Offering, the Board of Directors will have
the following committees:
<TABLE>
<CAPTION>
COMMITTEE CHAIRPERSON(S)
--------- --------------
<S> <C>
Executive........................... James P. Crawford and Steven L. Atkinson
Audit............................... Kathleen B. Crawford
Compensation........................ Kathleen B. Crawford
</TABLE>
The Executive Committee will conduct the normal business operations of the
Company except for certain matters reserved to the Board of Directors. The
Audit Committee will recommend an independent auditor for the Company,
consults with such independent auditor and reviews the Company's financial
statements. The Compensation Committee will recommend to the Board of
Directors the compensation of officers and key employees for the Company and
the granting of stock options. Messrs. C. David Cooper, Bruno A. Ferraro and
William M. Dillard are considered to be independent directors for these and
other purposes.
COMPENSATION OF DIRECTORS
The Company does not pay non-employee directors a fee or a meeting fee for
Board meetings attended, and does not automatically grant to each director any
non-qualified stock options.
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<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and each other executive officer of the Company whose total
cash compensation for the fiscal year ended December 31, 1997 exceeded
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER COMPENSATION SECURITIES
UNDERLYING ($) ($) ($) AWARDS OPTIONS(#)
--------------------------- ------ ------ ----- ------------ ----------
<S> <C> <C> <C> <C> <C>
James P. Crawford, Chief
Executive Officer and Chairman
of the Board................... 20,000 52,249 -0- -0- -0-
Steve Atkinson, President(1).... 50,000 76,079 -0- -0- -0-
</TABLE>
- --------
(1) On February 1,1998, Mr. Atkinson purchased 200,000 shares of Common Stock
from the Company for a total consideration of $40. See "Certain
Relationships and Related Transactions".
The Company intends to hire a Chief Financial Officer beginning in January
1, 1999, and will grant him or her options to acquire an unspecified number of
shares of Common Stock at the initial public offering price. It is anticipated
the options will vest in installments over five (5) years.
PROFIT SHARING/401K PLAN
The Company has a profit-sharing and a 401(k) plan (the Plan) which cover
substantially all employees who have met certain age and length of service
requirements. Plan contributions are made at the discretion of the Company's
Board of Directors. The Company did not elect to make a contribution to the
Plan for the years ended December 31, 1995 and 1996. However, the Company made
a $9,015 employer matching contribution to the 401(k) plan for the year ended
December 31, 1997.
BOARD OF DIRECTORS
Each of the Company's directors has been elected to serve until the next
annual meeting of shareholders. Each of the Company's directors continues to
serve until his or her successor is designated and qualified.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Restated Articles of Incorporation provide that the Company
shall indemnify its officers and directors and former officers and directors
to the fullest extent permitted by law. The Amended By-laws provide that the
Corporation shall have the power to indemnify any director, officer, employer
or agent of the Corporation as provided in Section 607.0850 of the Florida
Business Corporation Act. Such Act generally provides that a corporation shall
have the power to indemnify such persons to the extent they acted in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interest of the Company and, with respect to any criminal action or
proceeding, to the extent they had no reasonable cause to believe the conduct
was unlawful. In the event any such person shall be judged liable for
negligence or misconduct, such indemnification shall apply only if approved by
the Court in which the action was pending. Any other indemnification shall be
made only after a determination by the Board of Directors (excluding any
directors who were party to such action), by independent legal counsel in a
written opinion, or by a majority vote of shareholders (excluding any
shareholders who were parties to such action).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be provided to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, it may be deemed
against public policy as expressed in the Securities Act of 1933, as amended,
and may therefore, be unenforceable.
33
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1998, the Company entered into respective employment
agreements with James P. Crawford, Kathleen B. Crawford, and Steven L.
Atkinson, each having a term of five (5) years. These agreements increased the
base salaries of Mr. Crawford from approximately $72,000 that he received for
1997 to $125,000 per annum that he will receive during 1998 and in subsequent
years thereafter over the term of his agreement. Mrs. Crawford's salary was
increased from approximately $20,000 that she received for 1997 to $125,000
that she will receive during 1998 and in subsequent years thereafter over the
term of her agreement. Mr. Atkinson's base salary was increased from $50,000
per annum that he received in 1997 to $75,000 per annum that he shall receive
during 1998 and in subsequent years thereafter over the term of his agreement.
In addition to his base salary, Mr. Atkinson shall also receive a commission
equal to one percent (1%) of all annual gross sales made by the Company and
three percent (3%) of the annual net pre-tax profits earned by the Company as
reflected by the Company's annual audited financial statements. During 1997,
Mr. Atkinson would have received additional compensation based upon the gross
sales and annual pre-tax profits earned by the Company of approximately
$57,000 under this agreement (see Note 8 to Financial Statements dated
December 31, 1997). These agreements also provide the Crawfords and Mr.
Atkinson with additional benefits such as major health, life and disability
insurance coverage; the use of an automobile; and three (3) weeks of annual
paid vacation. Each of the agreements may be terminated either on a justified
or unjustified basis. In the event that the Company unjustly terminates any of
these agreements, then the terminated employee is entitled to receive an
amount equal to two and one-half years of his or her base salary. In the event
that the Company elects not to renew any of these agreements, then the
affected employee is entitled to receive an amount equal to one (1) year of
his or her base salary.
On January 1, 1998, the Company entered into a Lease Agreement ("Lease")
with James and Kathleen Crawford to lease the existing 26,000 square foot
manufacturing facility that the Company presently operates from. The terms of
the Lease require the Company to pay rent to the Crawfords over a three (3)
year term equal to seven dollars ($7) per square foot during the first year;
eight dollars ($8) per square foot during the second year; and nine dollars
($9) per square foot during the third year. The Lease also requires the
Company to reimburse the Crawfords for all real estate taxes, assessments and
other governmental charges assessed, levied or imposed against the leased
premises. The Company is required to bear the costs and expenses to maintain
the leased premises in good working order. In addition, the Company is
required to maintain during the term of the Lease, general liability insurance
in an amount at least equal to $3,000,000. The Company is further obligated to
pay all utility charges that may be assessed, used in or about the leased
premises. Between January 1, 1986, and December 31, 1997, the Company had
leased this facility from the Crawfords for rental rates ranging from
approximately $1.85 per square foot to approximately $2.54 per square foot.
On January 1, 1998, the Company entered into a License Agreement with James
P. Crawford to utilize the four (4) patents that he has developed and holds
title to. The License Agreement is in effect until the expiration of the last
patent issued to Mr. Crawford which takes place on October 6, 2009 and
requires the Company to pay him a fee of $350 for each packaged combustion
equipment system manufactured by the Company that implements one or more of
these patents. Mr. Crawford would have received fees pursuant to the License
Agreements during 1997 of approximately $9,800 (see Note 8 to Financial
Statements dated December 31, 1997).
On January 20, 1998, a majority of the Company's shareholders affirmatively
voted to adopt a Plan of Re-capitalization (the "Plan"), that increased the
number of shares of common stock that the Company was authorized to issue from
500 shares to 15,000,000 shares ("Common Stock"). The Plan further reduced the
par value of each share of Common Stock from $5.00 to $.0002 per share. Each
shareholder of record as of the date the Plan was adopted received 30,000
shares for each share owned. Following the adoption of the Plan, the Company
caused its Articles of Incorporation to be restated and amended to reflect the
increased capitalization.
On January 20, 1998, a majority of the Company's shareholders affirmatively
voted to grant Steven L. Atkinson, upon the filing by the Company of its
Restated and Amended Articles of Incorporation, the right to subscribe for a
total of 200,000 shares of common stock at a purchase price of $.0002 per
share. On February 1, 1998, Mr. Atkinson acquired 200,000 shares of Common
Stock from the Company for a total consideration of $40. The purchase price
paid by Mr. Atkinson for these shares was arbitrarily set by a majority of the
Company's shareholders and bears no relationship to any value associated with
the shares of Common Stock or to the Initial
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<PAGE>
Offering Price. The shares owned by Mr. Atkinson are subject to certain risks
of forfeiture should he terminate his employment with the Company during the
initial term of his employment agreement.
On February 1, 1998, Kathleen Crawford Meehan and Mary Jennifer Crawford
(the "Stockholders") entered into a Voting Trust Agreement with James P.
Crawford and Kathleen B. Crawford (the "Trustees") whereby the Stockholders
each assigned and delivered 90,000 shares of the Company's Common Stock for a
total of 180,000 shares to the Trustees. For a period of ten (10) years from
the date of the Voting Trust Agreement, the Trustees shall have the exclusive
right to vote these shares.
On April 7, 1998, the Company entered into an agreement with Grove
Scientific & Engineering Company ("Grove"), a Florida corporation that is co-
owned by Bruno A. Ferraro, a director of the Company. Under the terms of the
agreement, Grove has agreed to provide the Company with support services for
proposals; assist with incinerator and thermal oxidizer sizing and
specifications; counsel on regulatory issues; perform engineering design; and
assist with other related services. For these services the Company is
obligated to pay Grove a monthly retainer of $2,000. In addition, the Company
shall reimburse Grove for any additional costs that exceed the monthly
retainer as contracts are awarded. To date, Grove has performed engineering
design and consulting servicers in connection with approximately 26 proposals
for equipment sales the Company has made; prepared a regulatory permit
application for a Central Florida customer; and provided operational testing
and training for an incineration system sold by the Company.
In December 1997, the Company commenced a private offering of convertible
notes ("Notes") pursuant to exemptions from the registration requirements of
federal and applicable state securities laws. Through this private offering,
the Company raised a total of $600,000 from ten (10) purchasers
("Noteholders"). The Notes permit either the Company or the Noteholders to
exchange their Notes for shares of the Company's Common Stock at any time
within twelve (12) months from the date of issuance at a conversion price of
$3.50 per share. See "Description of Securities". As of the date of this
Prospectus, neither the Noteholders nor the Company has elected to convert any
Notes for Common Stock.
On January 7, 1998, James P. Crawford loaned the Company $100,000 for
working capital. The loan was evidenced by a demand promissory note bearing
interest at the rate of eight percent (8%) per annum. On April 27, 1998,
principal and accrued interest were paid to Mr. Crawford in full.
After the Offering, the Company intends to loan approximately $750,000 of
the net proceeds raised with either the minimum or the maximum to James P.
Crawford and Kathleen B. Crawford. These loan proceeds shall be utilized by
the Crawfords to develop and construct a new 40,000 square foot manufacturing
facility for the Company, located on property owned by the Crawfords that is
adjacent to the Company's existing facility. See "Business--Facilities". The
loan shall be evidenced by a promissory note having a term of 20 years and
bearing interest at the rate of eight percent (8%) per annum. The note may be
prepaid either in whole or in part by the Crawfords without penalty and shall
be secured by real property owned by the Crawfords.
After the offering, the Company intends to purchase four (4) patents from
James P. Crawford for a total purchase price of $875,000. With the minimum
proceeds raised, the Company intends to utilize approximately $500,000 as an
initial payment to Mr. Crawford with the balance of the total purchase price
to be evidenced by a promissory note having a principal balance of $375,000.
The note to Mr. Crawford shall be payable quarterly over a five (5) year term
and shall bear interest at the rate of eight percent (8%). With the maximum
proceeds raised, the Company does not intend to finance any portion of the
patent purchase price and shall pay the entire sum of $875,000 to Mr. Crawford
in cash. In addition to the purchase price to be paid for the patents, the
Company shall also pay Mr. Crawford a royalty fee equal to $350 for each
packaged combustion equipment system manufactured by the Company that
implements one or more of the patents to be acquired. The royalty fee shall be
paid to Mr. Crawford until the last issued patent expires which takes place on
October 6, 2009. While the Company reasonably believes that the patent
acquisition fee payable to Mr. Crawford is fair, there has been no independent
valuation performed of the subject patents.
Following the offering and upon its completion the Company shall lease a new
manufacturing facility from the Crawfords. The terms of the proposed lease
shall be similar to those presently in effect between the Company and the
Crawfords for the existing manufacturing facility except that the term of the
proposed lease is for a period of ten (10) years. Base Rent due under the
proposed lease shall be seven dollars ($7) per square foot during the first
year; eight dollars ($8) per square foot during the second year; and nine
dollars ($9) per square foot during the third year. Thereafter, in years
seven, eight and nine of the proposed lease, Base Rent shall increase by five
percent (5%) per annum.
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All future transactions and loans with officers, directors or shareholders
holding more than 5% of the Company's outstanding Common Stock or affiliates
of any such persons will be made for bona fide business purposes, will be on
terms no less favorable than could be obtained from an unaffiliated third
party, and will be approved by a majority of the independent outside directors
who do not have an interest in the transactions.
[THIS SPACE LEFT BLANK INTENTIONALLY]
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 1998 and as adjusted
to reflect the sale of Common Stock offered at the minimum and the maximum
hereby for (i) each of the Executive Officers, (ii) each of the Company's
Directors, (iii) all Directors and Executive Officers as a group, and (iv)
each person who is known by the Company to beneficially own more than 5% of
the Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES OUTSTANDING
------------------------------------
NAMED EXECUTIVE OFFICERS,
DIRECTORS,
ALL DIRECTORS, EXECUTIVE NUMBER OF
OFFICERS AS A GROUP SHARES AFTER AFTER
AND FIVE PERCENT BENEFICIALLY BEFORE MINIMUM(2) MAXIMUM(3)
STOCKHOLDERS OWNED(1) OFFERING OFFERING OFFERING
------------------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
James P. Crawford(4)........ 1,230,000 38.43% 34.64% 29.28%
Kathleen B. Crawford(5)..... 1,230,000 38.43% 34.64% 29.28%
Steven L. Atkinson.......... 200,000 6.25% 5.63% 4.76%
All executive officers and
directors as a group (3
persons)................... 2,660,000 83.12% 74.93% 63.33%
5% STOCKHOLDERS:
Mary Jennifer 180,000 5.62% 5.07% 4.28%
Crawford(6)(8)..............
Irrevocable Trust dated
December 31, 1997
Kathleen Crawford 180,000 5.62% 5.07% 4.28%
Meehan(7)(8)................
Irrevocable Trust dated
December 31, 1997
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock are deemed outstanding. Except as indicated
in the footnotes to this table and as provided pursuant to applicable
community property laws, the stockholders named in the table have sole
voting and investment power with respect to the shares set forth opposite
each stockholder's name.
(2) After giving effect to the issuance of 350,000 shares of Common Stock
offered at the minimum.
(3) After giving effect to the issuance of 1,000,000 shares of Common Stock
offered at the maximum.
(4) James P. Crawford beneficially owns 1,230,000 shares in his capacity as
the Trustee for the James P. Crawford Revocable Trust dated March 24,
1992.
(5) Kathleen B. Crawford beneficially owns 1,230,000 shares in her capacity as
the Trustee for the Kathleen B. Crawford Revocable Trust dated March 24,
1992.
(6) Mary Jennifer Crawford is the daughter of James P. and Kathleen B.
Crawford and sole beneficiary to the Mary Jennifer Crawford Irrevocable
Trust dated December 31, 1997. William Edward Crawford, the brother of
James P. Crawford is the acting Trustee.
(7) Kathleen Crawford Meehan is the daughter of James P. and Kathleen B.
Crawford and sole beneficiary to the Kathleen Crawford Meehan Irrevocable
Trust dated December 31, 1997. William Edward Crawford, the brother of
James P. Crawford is the acting Trustee.
(8) Both Mary Jennifer Crawford and Kathleen Crawford Meehan also own 90,000
shares of Common Stock each which shares are subject to a Voting Trust
Agreement ("Agreement") dated February 1, 1998. James P. and Kathleen B.
Crawford are the Trustees under the Agreement and therefore have the right
to vote these shares for a period of ten (10) years. See "Certain
Relationships and Related Transactions".
37
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 15,000,000 shares of
common stock $.0002 par value per share ("Common Stock"). There are presently
3,200,000 shares issued and outstanding. In the event that the minimum
offering has been completed, there shall be 3,550,000 shares issued and
outstanding. In the event that the maximum offering has been completed, there
shall be 4,200,000 shares issued and outstanding.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result
in a dilution of the interest of existing shareholders should additional
shares of Common Stock be issued. Holders of the Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
assets legally available therefore and to share ratably in the assets of the
Company available upon liquidation. The Company's Board of Directors does not
intend to declare dividends and presently intends to return all earnings, if
any, for use in the Company's business for the foreseeable future. See "Risk
Factors--Dividend Policy". In addition, the Common Stock is not subject to
further calls or assesments.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions such as
amendments to the articles of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority in interest of the outstanding shares of Common Stock. Other matters
to be voted upon by the holders of Common Stock normally require the
affirmative vote of a majority in interest of the shares present at the
particular shareholders' meeting. The Company's directors and officers as a
group beneficially own approximately 83% of the outstanding Common Stock of
the Company. Upon completion of this Offering, such persons will beneficially
own approximately 75% of the outstanding Common Stock of the Company with the
minimum proceeds raised and approximately 63% with the maximum proceeds
raised. See "Principal Shareholders". Accordingly, such persons will continue
to be able to substantially control the Company's affairs, including, without
limitation, the sale of equity or debt securities of the Company, the
appointment of officers, the determination of officers' compensation and the
determination whether to cause a registration statement to be filed. There are
seven (7) holders of record of the Company's Common Stock as of the date of
this Prospectus.
CONVERTIBLE NOTES
Between January 27, 1998, and March 12, 1998, the Company issued Notes
having an aggregate principal amount of $600,000 to ten (10) Noteholders in
connection with a private offering made pursuant to certain exemptions from
the registration requirements of federal and state securities laws. See
"Certain Relationships and Related Transactions". The Notes may be converted
into shares of the Company's Common Stock at a conversion price of $3.50 per
share by either the Noteholders or the Company at any time within twelve (12)
months after the date the Note was issued. If neither party elects to convert
the Notes within such time, the entire principal together with accrued
interest at the rate of seven percent (7%) per annum shall be due and payable
to the Noteholders. Both accrued interest and principal due under the Notes
will be subject to conversion. Certificates representing shares of Common
Stock issued to Noteholders upon conversion shall be rounded to the nearest
whole number. No fractional shares shall be issued. As of March 31, 1998, all
Noteholders as a group would be entitled to receive approximately 172,835
shares of Common Stock in exchange for their Notes. Of the ten (10) Notes
issued by the Company, two (2) Notes, collectively having a principal amount
owed of $100,000 shall mature on January 27, 1999; one (1) Note, having a
principal amount owed of $200,000, shall mature on February 9, 1999; and seven
(7) Notes, collectively having a principal amount owed of $300,000, shall
mature on March 12, 1999.
TRANSFER AGENT AND REGISTRAR
It is anticipated that the Transfer Agent and Registrar for the Company's
Common Stock is Liberty Transfer Company, 191 New York Ave, Huntington, New
York 11743-2711.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price for the Common Stock.
Upon completion of this Offering, approximately 1,230,000 restricted shares of
Common Stock held by the Company's existing stockholders will be eligible for
sale, subject to the volume limitations and other requirements of Rule 144
under the Act. However, all existing shareholders have agreed that they will
not, without the consent of the Underwriter, publicly sell or otherwise
dispose of any of their presently owned shares of Common Stock until 24 months
from the date that the Registration Statement is effective. The sale in the
future of a substantial number of shares of Common Stock by existing
stockholders could have an adverse effect on the price of the Common Stock.
39
<PAGE>
PLAN OF DISTRIBUTION
The Company has entered into an Underwriting Agreement with Discovery
Capital Group, Inc., Winter Park, Florida, to act as the Underwriter of this
Offering ("Underwriter"). Pursuant to the Underwriting Agreement, the
Underwriter will act as an agent for the Company to offer to sell on a "best
efforts" basis a minimum of 350,000 shares of Common Stock and a maximum of
1,000,000 shares of Common Stock. The Common Stock will be offered to the
public through the Underwriter and dealers as may be selected by the
Underwriter at the public offering price stated on the front cover of the
Prospectus. The Underwriter has made no commitment to purchase any or all of
the Common Stock. It has agreed to use its best efforts to find purchasers for
the Common Stock within a period of 90 days from the date of this Prospectus,
subject to an extension in the discretion of the Underwriter for an additional
period not to exceed 30 days. On behalf of the Company, the Underwriter
proposes to offer the Common Stock directly to retail purchasers at the
initial public offering price set forth on the cover page of this Prospectus
and may offer, in part, to possible participating dealers who are members of
the National Association of Securities Dealers, Inc. at such price, less a
concession not in excess of $.406 per share. The Underwriter does not intend
to confirm sales to any accounts over which it exercises discretionary
authority. Contingent upon the minimum sale of 350,000 shares of the Company's
Common Stock, the Company will pay the Underwriter a commission of seven
percent (7%) of the public offering price.
It is anticipated that all proceeds from subscriptions with respect to the
shares will be deposited promptly with SunTrust Bank, Central Florida National
Association, 225 E. Robinson Street, Suite 250, Orlando, Florida, 32801 as
Escrow Agent pursuant to an Escrow Agreement between the Company, the
Underwriter and such Escrow Agent. Funds will be deposited in such escrow no
later than noon of the business day following receipt. In the event 350,000
shares of Common Stock are not sold within the initial 90-day period (subject
to the 30-day extension period described above), funds will be refunded
promptly to subscribers in full without deduction therefrom or interest
thereon. During the offering period or any extension thereof, no subscriber
will be entitled to any refund of any subscription.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). Upon the successful completion of this Offering, the
Company has agreed to pay the Underwriter a non-accountable expense allowance
of 3% of the total proceeds of this offering, of which approximately $52,000
has been paid as of the date of this Prospectus. The Company has also agreed
to pay all expenses in connection with qualifying the Common Stock for sale
under the laws of such jurisdictions as the Underwriter may designate. In
addition, the Underwriter will be sold Warrants (Underwriter's Warrants) to
purchase shares of Common Stock on a pro-rata basis representing four percent
(4%) of the total shares sold to the public equal to a minimum of 14,000
shares and a maximum of 40,000 shares of Common Stock of the Company. See
"Underwriter's Warrants".
Pursuant to the terms of the Underwriting Agreement, all of the Company's
existing shareholders have agreed not to sell the securities of the Company
acquired by them prior to the date of this Prospectus until 24 months
following the effective date of this registration statement.
The Underwriting Agreement provides that for a period of twelve (12) months
following the effective date of the Offering, the Underwriter shall act as the
financial consultant to the Company and shall receive a consulting fee of
approximately $3,000 per month plus reimbursement of actual expenses incurred
on behalf of the Company.
The Underwriting Agreement also provides that the Underwriter has a right of
first refusal limited to a period of three (3) years from the effective date
of this Offering with respect to any future offerings made by the Company or
its principal shareholders of any securities of the Company to be sold through
registration under the Securities Act of 1933 or otherwise.
As part of the Underwriting Agreement, the Company has entered into an
investment banking agreement with the Underwriter. Such agreement shall remain
in effect for a period of two (2) years. The investment banking agreement
provided that the Underwriter shall serve as a nonexclusive agent of the
Company for a period of two years in connection with mergers, consolidations,
joint ventures, exchange offers, and purchase or
40
<PAGE>
sale of securities or assets of the Company. The investment banking agreement
provides that the Underwriter shall receive transaction fees ranging from two
(2%) to five (5%) of the aggregate consideration paid or received by the
Company in any of the designated transactions for which the Underwriter acts
as introducing agent.
The Company anticipates providing the Underwriter with a confidential list
of persons whom it believes may be interested or who have contacted the
Company with interest in purchasing shares of Common Stock offered hereby. The
Underwriter may sell the Common Stock to such persons if they reside in a
state in which the Common Stock may be sold and in which the Underwriter is
permitted to sell the shares. The Underwriter is not obligated to sell any
shares to any such person, and will do so only to the extent not inconsistent
with a public distribution of common shares of the Company. Additionally,
officers, directors and present shareholders of the Company and persons
associated with them may be sold some of the 1,000,000 shares. However, it is
not intended that the proceeds from this offering will be utilized, directly
or indirectly, to enable anyone, including officers, directors, present
shareholders or persons associated with them, to purchase the shares offered.
Neither the Company nor the Underwriter will directly or indirectly arrange
for financing of purchases of shares by officers, directors, present
shareholders or persons associated with them. Any such purchases must be made
for investment purposes only.
To the extent such persons purchase up to 1,000,000 shares in the offering,
the number of shares required to be purchased by the general public such that
the minimum amount for closing is reached will be reduced by a like amount.
Moreover, these purchases may be used in order to reach the minimum amount for
closing in the event the minimum is not reached with purchases made by the
general public. Consequently, this offering could close with a substantially
greater percentage of shares being held by present shareholders and with
lesser participation by the public than would otherwise be the case.
UNDERWRITER'S WARRANTS
The Company has agreed to issue to the Underwriter or its designees on the
completion of the offering, for nominal consideration of $100, Underwriter's
Warrants to acquire a minimum of 14,000 and a maximum of 40,000 Common Shares.
The Underwriter's Warrants will be exercisable at a price of $8.70 per share
or 120% of the initial price to the public set forth on the cover page of this
Prospectus during the four-year period commencing 12 months after the
effective date of this Offering. The Underwriter's Warrants may not be
assigned, transferred, sold, delivered or hypothecated by the Underwriters for
a period of one (1) year from the effective date of the Offering except to
officers or partners of the Underwriter, any other underwriters, or members of
the selling group within the first year. Any transfer or assignment of the
Underwriter's Warrants to any person must be made in accordance with the
provisions of the Act. No public offering of the shares issued or issuable
upon the exercise of the Underwriter's Warrants will be made until a
registration statement has been filed by the Company and declared effective by
the Securities and Exchange Commission. Any profits realized by the
Underwriter upon sale of the Underwriter's Warrants or the underlying shares
may be deemed to be additional underwriting compensation.
Under the Underwriting Agreement, the Company is obligated, upon written
request of the then holders of the Underwriter's Warrants and any issued
shares underlying the Underwriter's Warrants, if made at any time within the
period commencing two (2) years and ending five (5) years after the effective
date of this Offering unless otherwise agreed to by the Company, to file with
the Securities and Exchange Commission, at its expense but not to exceed
$12,000, and only on one (1) occasion, a post-effective amendment to the
registration statement of which this Prospectus forms a part or a new
registration statement qualifying the Underwriter's Warrants and underlying
shares for sale to the public. The Company is also obligated for a period of
five (5) years beginning one (1) year after the effective date of this
Offering to include the Underwriters Warrants and underlying shares in any
subsequent registration statement filed by the Company with the Securities and
Exchange Commission.
The exercise price of the Underwriter's Warrants and the number of
underlying shares that the holders of Underwriter's Warrants may acquire are
subject to certain adjustments upon the occurrence of certain events,
including, but not limited to, stock dividends. If the Company liquidates,
merges or reorganizes in such a way as to terminate the Underwriter's
Warrants, the Underwriter's Warrants may be exercised immediately prior to
such action. In the event of liquidation, dissolution and winding up of the
Company, holders of the Underwriter's unexercised Warrants are not entitled to
participate in the distribution of the Company's assets.
41
<PAGE>
The foregoing is a summary of the material provisions of the Underwriting
Agreement and the Underwriter's Warrants. Copies of such documents have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. See "Risk Factors--No Commitment to Purchase Common Stock; Deposits of
Subscriptions and Exercise of Underwriters Warrants."
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock. The initial public offering price has been determined through
negotiations between the Company and the Underwriter. There is no direct
relation between the offering price and the assets, book value, or net worth
of the Company. However, the Company and the Underwriter considered these
factors, and the condition and prospects of the Company, the experience of the
Company's management, the amount of ownership desired to be retained by
present shareholders and the waste disposal and incineration industry in
general in their negotiations concerning the offering price. There can be no
assurance that the price at which the Shares will be selling after this
offering will not be lower than the initial price to the public. See "Risk
Factors--Lack of Public Market; Determination of Offering Price."
COUNSEL
The legality of the securities of the Company offered will be passed on for
the Company by Snyderburn, Rishoi & Swann, a partnership of professional
associations.
EXPERTS
The financial statements for the years ended December 31, 1995, 1996 and
1997 included herein have been audited by J. Rick Maloy, CPA, independent
auditors, as stated in their report with respect thereto, and is included
herein in reliance upon the authority of said firm as experts in giving said
report.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Securities Exchange Act of
1934, as amended. The Company has filed with the Washington, D.C. Office of
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form SB-2 under the Act with respect to the Common Stock offered
hereby. This Prospectus filed as a part of the Registration Statement does not
contain all of the information contained in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other documents are not necessarily complete, and in each
instance, reference is made to such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement and exhibits may be
inspected without charge and copied at the Washington office of the
Commission, 450 Fifth Street, N.W., Washington, DC 20549, and copies of such
material may be obtained at prescribed rates from the Commission's Public
Reference Section at the same address. In addition, the Commission maintains a
Web site that contains reports, proxy and information regarding registrants,
such as the Company, that file electronically, with the Commission. The
address of this Web site is: http://www.sec.gov. The Company intends to
furnish to its shareholders annual reports containing audited financial
statements.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants................................. F-2
Balance Sheets as of December 31, 1995, 1996 and 1997............. F-3
Statements of Operations for the years ended December 31, 1995,
1996 and 1997.................................................... F-4
Statements of Changes in Stockholder's Equity for the years ended
December 31, 1995, 1996 and 1997................................. F-5
Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997.................................................... F-6
Notes to Financial Statements--December 31, 1997.................. F-7 to F-11
Balance Sheets as of March 31, 1997 and 1998 (Unaudited).......... F-12
Statements of Operations for the three months ended March 31, 1997
and 1998 (Unaudited)............................................. F-13
Statements of Cash Flows for the three months ended March 31, 1997
and 1998 (Unaudited)............................................. F-14
Statements of Stockholder's Equity for the three months ended
March 31, 1998 (Unaudited)....................................... F-15
Notes to Financial Statements--March 31, 1998 (Unaudited)......... F-16 to F-17
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Crawford Equipment and Engineering Company
Orlando, Florida
We have audited the accompanying balance sheets of Crawford Equipment and
Engineering Company as of December 31, 1995, 1996, and 1997 and the related
statements of operations, changes in stockholder's equity and cash flows for
the years ended December 31, 1995, 1996 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crawford Equipment and
Engineering Company at December 31, 1995, 1996 and 1997 and the results of its
operations and its cash flows for the years ended December 31, 1995, 1996 and
1997 in conformity with generally accepted accounting principles.
J. RICK MALOY, CPA
Orlando, Florida
May 22, 1998
F-2
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $ 23,391 $ (25,343) $ 8,926
Accounts receivable........................... 359,088 529,522 465,320
Inventories
Work in process.............................. 217,540 146,044 88,884
Parts and supplies........................... 38,167 39,961 37,959
Other current assets.......................... 6,757 10,998 4,737
--------- --------- --------
TOTAL CURRENT ASSETS........................ 644,943 701,182 605,826
Property and equipment, net................... 89,479 82,156 117,058
--------- --------- --------
TOTAL ASSETS................................ $ 734,422 $ 783,338 $722,884
========= ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable.............................. 278,846 234,529 $178,522
Accrued expenses.............................. 54,139 46,436 176,717
Deferred revenue.............................. 253,821 453,884 41,058
Current portion of long-term debt............. 12,422 7,143 8,562
--------- --------- --------
TOTAL CURRENT LIABILITIES................... 599,228 741,992 404,859
LONG TERM DEBT.................................. 7,143 0 17,123
--------- --------- --------
TOTAL LIABILITIES........................... 606,371 741,992 421,982
STOCKHOLDER'S EQUITY
Common stock--Authorized: 15,000,000 shares;
Issued and outstanding: 3,200,000 $.0002 par
value shares (Note 7)........................ 500 500 500
Additional paid-in capital.................... 278,004 278,004 278,004
Retained earnings--(accumulated deficit)...... (150,453) (237,158) 22,398
--------- --------- --------
TOTAL STOCKHOLDER'S EQUITY.................. 128,051 41,346 300,902
--------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.. $ 734,422 $ 783,338 $722,884
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
SALES...................................... $2,546,895 $2,417,939 $4,375,494
COST OF SALES.............................. 1,767,054 1,516,070 2,717,640
---------- ---------- ----------
GROSS PROFIT............................. 779,841 901,869 1,657,854
OPERATING EXPENSES......................... 754,658 878,254 1,198,351
Selling, General and Administrative
Depreciation and Amortization........... 10,790 24,394 25,866
---------- ---------- ----------
TOTAL OPERATING EXPENSES............... 765,448 902,648 1,224,217
---------- ---------- ----------
OPERATING INCOME (LOSS).................... 14,393 (779) 433,637
INTEREST EXPENSE........................... 2,031 1,431 0
OTHER INCOME (LOSS), NET................... 2,856 (995) 920
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 15,218 $ (3,205) $ 434,557
========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE......... $ .005 $ (.001) $ .14
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE (NOTE 7)................. 3,200,000 3,200,000 3,200,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ACCUMULATED TOTAL
NO. OF ADDITIONAL EARNINGS STOCKHOLDER'S
SHARES AMOUNT PAID-IN-CAPITAL (DEFICIT) EQUITY
--------- ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 3,200,000 $500 $276,217 $ (64,884) $ 211,833
Contribution to capital. 1,787 1,787
Distribution to share-
holder's............... (100,787) (100,787)
Net income.............. 15,218 15,218
--------- ---- -------- --------- ---------
BALANCE AT DECEMBER 31,
1995................... 3,200,000 500 278,004 (150,453) $ 128,051
Distribution to share-
holder's............... (83,500) (83,500)
Net loss................ (3,205) (3,205)
--------- ---- -------- --------- ---------
BALANCE AT DECEMBER 31,
1996................... 3,200,000 500 278,004 (237,158) 41,346
Distribution to share-
holder's............... (175,000) (175,000)
Net income.............. 434,557 434,557
--------- ---- -------- --------- ---------
BALANCE AT DECEMBER 31,
1997................... 3,200,000 $500 $278,004 $ 22,398 $ 300,902
--------- ---- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss).................. $ 15,218 $(3,205) $434,557
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization..... 10,790 24,394 25,866
Increase (decrease) from changes
in:
Accounts receivable.............. 43,190 (170,434) 64,202
Inventories...................... (72,478) 69,702 59,162
Other assets..................... (4,545) (4,241) 6,261
Accounts payable and accrued
expenses........................ (38,105) (52,020) 74,274
Deferred revenue................. 149,929 200,063 (412,826)
-------- --------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES..................... 103,999 64,259 251,496
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment. (2,000) (17,072) (60,768)
-------- --------- --------
NET CASH USED IN INVESTING
ACTIVITIES..................... (2,000) (17,072) (60,768)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt....... -- -- 25,684
Principal payments on long-term
debt.............................. -- (12,422) (7,143)
Distributions to shareholder's..... (100,787) (83,499) (175,000)
-------- --------- --------
NET CASH USED IN FINANCING
ACTIVITIES ..................... (100,787) (95,921) (156,459)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 1,212 (48,734) 34,269
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 22,179 23,391 (25,343)
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 23,391 $ (25,343) $ 8,926
-------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Crawford Equipment and Engineering Company (the Company) was incorporated on
August 1, 1974 in the State of Florida. The Company is engaged in the
development, manufacture and sale of packaged combustion equipment and related
environmental waste disposal systems. These systems are designed for a wide
range of industrial and commercial uses, which include animal and human
cremation, medical waste incineration, general solid waste incineration, and
the control of volatile organic compounds (VOC) and hazardous air pollutants
(HAP) emitted from manufacturing processes. In addition, the Company provides
services and replacement parts for existing packaged combustion systems. The
Company to date has manufactured and installed approximately 700 packaged
combustion systems to customers located throughout the world. The Company
maintains its manufacturing and testing facilities in Orlando, Florida.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The principal areas of judgment relate to provisions for
returns and sales allowances, doubtful accounts, and the realizability of
inventories, tools and equipment. Actual results could differ from those
estimates.
Cash Equivalents
For financial statement presentation purposes, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method and includes direct costs of manufacturing and
applicable overhead. Inventories consist primarily of work in process and
components for the packaged combustion equipment and environmental waste
disposal system.
Property and Equipment
Property and equipment are stated at cost. Replacement and major
improvements are capitalized and maintenance and repairs are charged to
expense as incurred. Depreciation of property and equipment is computed
primarily using accelerated methods over the estimated useful lives of the
related assets, which range from five to seven years.
As required by SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, the Company regularly
evaluates the remaining life and recoverability of property and equipment.
Because the Company has only a minimal investment in long-lived assets, the
adoption of SFAS No. 121 did not have significant effect on the Company's
financial position and results of operations.
Revenue Recognition
The Company records sales upon completion and shipment of equipment and
systems and a provision for future returns and other sales allowances is
established based upon historical experience and management estimates.
F-7
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
Deferred Revenue
Deferred revenue represents customer deposits and amounts received from
customers prior to shipment of equipment and systems. The deposits and advance
payments are made pursuant to the terms of the Company's standard purchase
orders.
Effect of Inflation and Foreign Currency Exchange
The Company has not realized a reduction in the selling price of any of its
products or services as a result of domestic inflation. In addition, the
Company has not experienced unfavorable profit reductions due to currency
exchange fluctuations or inflation with its foreign customers.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the Company does not pay federal or
state income tax on its income. As a result, there is no provision, or
benefit, for income taxes included in the accompanying financial statements.
Research and Development
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities
that perform certain research on behalf of the Company.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
Credit risk related to the Company's accounts receivable is somewhat mitigated
by substantial deposits which are generally required from customers. Credit
losses historically have not been significant.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average shares of common stock outstanding.
2. RELATED PARTY TRANSACTIONS
The Company leases office and plant facilities from its stockholder pursuant
to a long-term lease agreement. Rent expense was $66,000 for the years ended
December 31, 1995, 1996 and 1997. Included in accounts payable and accrued
expenses at December 31, 1995, 1996 and 1997 is $5,500 of accrued rent payable
to the stockholder.
F-8
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Automobiles and Trucks................... $ 159,747 $ 159,747 $ 189,924
Office Furniture and Equipment........... 62,807 67,159 88,033
Machinery and Equipment.................. 68,046 80,766 90,321
Leasehold Improvements................... 13,130 13,130 13,130
--------- --------- ---------
303,730 320,802 381,408
Accumulated Depreciation................. (214,251) (238,646) (264,350)
--------- --------- ---------
$ 89,479 $ 82,156 $ 117,058
========= ========= =========
</TABLE>
4. ACCRUED EXPENSES
Accrued Expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Commissions Payable...................... $ $ $101,682
Accrued Salaries......................... 29,993 42,703 15,088
Payroll Taxes Payable.................... 18,942 3,667 56,939
Other.................................... 5,204 66 3,008
------- ------- --------
54,139 46,436 176,717
======= ======= ========
</TABLE>
5. PROFIT-SHARING AND 401(K) PLANS
The Company has a profit-sharing and a 401(k) plan (the Plan) which cover
substantially all employees who have met certain age and length of service
requirements. Plan contributions are made at the discretion of the Company's
Board of Directors. The Company did not elect to make a contribution to the
Plan for the years ended December 31, 1995 and 1996. However, the Company made
a $9,015 employer matching contribution to the 401(k) plan for the year ended
December 31, 1997.
6. PROPOSED PUBLIC OFFERING
On November 6, 1997, the Board of Directors of the Company approved a NASD
member-broker-dealer to act as underwriter in connection with a proposed
public offering. The underwriter is to be retained by the Company to provide
investment banking services concerning a best efforts public offering of the
Company's securities.
7. SUBSEQUENT EVENTS
Income Taxes
The Company has elected to revoke, effective January 1, 1998, the election
to be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, effective January 1, 1998, the Company will adopt the liability
method of accounting for income taxes under Statement of Financial Accounting
Standards (SFAS)
F-9
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
No. 109. Under the liability method specified by SFAS No. 109, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by the
currently enacted tax rates in effect for the years in which these differences
reverse.
Private Placement
In December 1997, the Company began a private placement of up to $600,000 of
securities. Each security consists of a convertible promissory note with a
stated rate of interest of 7% and convertible into the Company's common stock
at a price of $3.50 per share. The notes are convertible at any time within
twelve (12) months from the date of issuance by exercise of the conversion
right by either the Company or the noteholders. As of March 31, 1998, the
Company had issued 10 notes for cash proceeds of $600,000.
Common Stock
On January 20, 1998, the Board of Directors approved a Plan of
Recapitalization (Plan), in contemplation of the planned public offering. The
Plan provides as follows: (1) To increase the number of common shares
authorized from 500 shares to 15,000,000 shares; (2) To change the authorized
shares with a par value of $5.00 per share to shares with a par value of
$.0002 per share; (3) To change each share having a par value of $5.00 per
share which the Company had authority to issue immediately prior to the
effective date of the Plan into 30,000 shares having a par value of $.0002 per
share; and (4) That each certificate representing one or more shares having a
par value of $.0002 per share which shall be issued and outstanding
immediately prior to the effective date of the Plan shall be submitted by the
existing shareholders to the Company. Upon receipt of the outstanding
certificates by the holders thereof, the Company upon the effective date of
the Plan shall issue to such shareholders additional certificates representing
30,000 shares having a par value of $.0002 per share for each share having a
par value of $5.00 per share.
Restricted Common Stock
On February 1, 1998, subsequent to the effective date of the Plan of
Recapitalization, the Company issued and granted an officer of the Company the
right to purchase a total of 200,000 shares of common stock of the Company at
a purchase price of $.0002 per share in exchange for valuable services
rendered to the Company. The officer exercised this right, on February 1,
1998, and purchased the 200,000 shares for $.0002 per share. These shares are
subject to a substantial risk of forfeiture pursuant to the terms of the
officer's employment agreement.
Pursuant to the issuance of the restricted stock, the value assigned by the
Company's investment banker of $2.19 per share will be capitalized as contra-
stockholder's equity and will be amortized ratably as compensation expense
during the years ending December 31, 2001, 2002 and 2003, in accordance with
the terms of the officer's employment agreement.
Effective January 1, 1998, the Company will adopt the disclosure approach
provided for in Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock Based Compensation, with respect to restricted stock
granted to employees. The Company does not expect the pronouncement to have an
impact on its results of operations since the intrinsic value-based method
prescribed by APB Opinion No. 25 and also allowed by SFAS No. 123 will be used
for any restricted stock. The resulting unearned compensation will be
amortized in accordance with the terms of the respective employment agreement.
F-10
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
Employment Agreements
Effective January 1, 1998, the Company entered into employment agreements
with three officers, which expire on January 1, 2003. The agreements provide
for aggregate annual compensation of $325,000 effective upon completion of the
planned public offering.
Related Party Transactions
On January 7, 1998, an officer loaned the Company $100,000. This unsecured
demand note will bear interest at 8%.
The Company currently utilizes patents in the design and manufacture of
certain equipment, which are owned by its stockholder. On January 1, 1998, the
Company entered into a licensing agreement with respect to these patents. The
licensing agreement provides for the payment of $350 to the stockholder for
every unit sold. These payments are due on the fifth day of the month
following the month in which they are sold. The Company intends to purchase
the patents upon completion of the planned public offering for $875,000. Upon
completion of the purchase, the patents will be recorded at the stockholders
basis of $1,500 with the excess consideration accounted for as a capital
distribution in accordance with APB 16.
8. PRO FORMA STATEMENT OF OPERATIONS
The following Pro Forma Statement Of Operations for the year ended December
31, 1997 is prepared to reflect transactions which became effective in 1998
but are not reflected in the Historical Statement of Operations.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENT AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Sales..................................... $4,375,494 $ -- $4,375,494
Cost of sales............................. 2,717,640 9,800 (1) 2,727,440
Operating Expenses........................ 1,224,217 319,950 (2) 1,544,167
Operating Income.......................... 433,637 (329,750) 103,887
Other income.............................. 920 -- 920
Net income................................ $ 434,557 $(329,750) $ 104,807
Net income per common share............... $ 0.14 $ 0.03
Shares used in computing net income per
share.................................... 3,200,000 3,200,000
</TABLE>
- --------
(1) Adjusted to reflect the patent licensing agreement, which became effective
on January 1, 1998, as if it were in effect for the year ended December
31, 1997. See Note 7.
(2) a. Adjusted to reflect the Officers Employment Agreements, which became
effective on January 1, 1998, as if they were in effect for the year ended
December 31, 1997. Officers compensation for the year ended December 31,
1997 was $219,000. It is anticipated that Officers compensation for the
year ended December 31, 1998 will be $375,000. See Note 7.
b. Adjusted to reflect the Facility Lease Agreement, which became effective
on January 1, 1998, as if it were in effect for the year ended December 31,
1997. Facility lease expense for the year ended December 31, 1997 was
$66,000. It is anticipated that Facility Lease Expense will be $182,000 for
the year ended December 31, 1998. See Note 2.
c. Adjusted to reflect the revocation of the Company's "S" Corporation
election, which became effective on January 1, 1998, and the corresponding
income tax effect, as if it were in effect for the year ended December 31,
1997. See Note 7.
F-11
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................ $ 326,833 $ 303,552
Accounts receivable.................................. 477,829 169,692
Inventories..........................................
Work in process..................................... 486,896 191,985
Parts and supplies.................................. 36,731 59,539
Other Current Assets................................. 11,152 6,053
---------- ----------
TOTAL CURRENT ASSETS............................... 1,339,441 730,821
Property and equipment, net.......................... 82,217 130,097
Subscription receivable.............................. 40
Debt offering costs.................................. 57,872
Deferred public offering costs....................... 55,938
---------- ----------
TOTAL ASSETS....................................... $1,421,658 $ 974,768
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable..................................... 423,981 $77,957
Accrued expenses..................................... 29,814 30,941
Deferred revenue..................................... 695,680 34,348
Current portion of long-term debt.................... 3,792 8,562
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 1,153,267 151,808
LONG TERM DEBT
Notes payable........................................ 1,000 15,970
Convertible notes payable............................ 600,000
Note payable to stockholder.......................... 25,000 100,000
---------- ----------
TOTAL LIABILITIES.................................. 1,179,267 867,778
STOCKHOLDER'S EQUITY
Common Stock--Authorized: 500 shares; issued and
outstanding: 100 $5.00 par value shares at March 31,
1997 Authorized: 15,000,000 shares; issues and
outstanding: 3,200,000 $.0002 par value shares at
March 31, 1998...................................... 500 640
Additional paid-in capital........................... 278,004 2,375,995
Unearned compensation................................ (1,449,960)
Accumulated deficit.................................. (36,113) (819,685)
---------- ----------
TOTAL STOCKHOLDER'S EQUITY......................... 242,391 106,990
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY......... $1,421,658 $ 974,768
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SALES.................................................. $1,116,295 $ 263,736
COST OF SALES.......................................... 679,421 178,181
---------- ---------
GROSS PROFIT......................................... 436,874 85,555
OPERATING EXPENSES
Selling, General and Administrative.................. 231,321 269,855
Depreciation and Amortization........................ 1,830 3,041
---------- ---------
TOTAL OPERATING EXPENSES........................... 233,151 272,896
---------- ---------
OPERATING INCOME (LOSS)................................ 203,723 (187,341)
INTEREST EXPENSE (NOTE 5).............................. 152 654,784
OTHER INCOME (LOSS), NET............................... 773 42
---------- ---------
NET INCOME (LOSS)...................................... $ 204,344 $(842,083)
========== =========
NET INCOME (LOSS) PER COMMON SHARE..................... $ 0.06 $ (0.26)
SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON
SHARE (NOTE 7)........................................ 3,200,000 3,200,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss)..................................... $204,344 $(842,083)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization........................ 1,830 3,041
Amortization of deferred convertible notes discount.. 648,131
Increase (decrease) from changes in:
Accounts receivable................................. 51,693 295,628
Inventories......................................... (337,622) (124,681)
Other assets........................................ (154) (1,316)
Accounts payable and accrued expenses............... 172,830 (246,341)
Deferred revenue.................................... 241,796 (6,710)
-------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES... 334,717 (274,331)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.................... (1,769) (16,080)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,769) (16,080)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt.................. (2,351) (1,153)
Distributions to stockholder.......................... (3,421) --
Proceeds from issuance of convertible notes payable... -- 600,000
Issuance costs--convertible notes payable............. -- (57,872)
Issuance costs--planned public offering............... -- (55,938)
Proceeds from note payable to stockholder............. 25,000 100,000
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 19,228 585,037
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 352,176 294,626
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... (25,343) 8,926
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $326,833 $ 303,552
-------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL ACCUMULATED TOTAL
NO. OF PAID-IN- UNEARNED EARNINGS STOCKHOLDER'S
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) EQUITY
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 100 $500 $ 276,217 $ (64,884) $211,833
Contribution to capital. 1,787 1,787
Distribution to
shareholder's.......... (100,787) (100,787)
Net income.............. 15,218 15,218
--------- ---- ---------- ----------- --------- --------
BALANCE AT DECEMBER 31,
1995................... 100 500 278,004 (150,453) 128,051
Distribution to
shareholder's.......... (83,500) (83,500)
Net loss................ (3,205) (3,205)
--------- ---- ---------- ----------- --------- --------
BALANCE AT DECEMBER 31,
1996................... 100 500 278,004 (237,158) 41,346
Distribution to
shareholder's.......... (175,000) (175,000)
Net income.............. 434,557 434,557
--------- ---- ---------- ----------- --------- --------
BALANCE AT DECEMBER 31,
1997................... 100 500 278,004 22,398 300,902
Thirty-thousand-for-one
stock split
(unaudited)............ 2,999,900 100 (100)
Issuance of restricted
stock (unaudited)...... 200,000 40 1,449,960 (1,449,960) 40
Convertible notes
discount (unaudited)... 648,131 648,131
Net loss (unaudited).... (842,083) (842,083)
--------- ---- ---------- ----------- --------- --------
BALANCE AT MARCH 31,
1998 (unaudited)....... 3,200,000 $640 $2,375,995 $(1,449,960) $(819,685) $106,990
--------- ---- ---------- ----------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
CRAWFORD EQUIPMENT AND ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
UNAUDITED
1. FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of March
31, 1997 and 1998 and the results of operations and its cash flows for the
three months ended March 31, 1997 and 1998 and the statements of changes in
stockholder's equity for the three months ended March 31, 1998. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the SEC's rules and regulations. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
2. DEBT OFFERING COSTS
Debt offering costs related to the private placement of convertible
promissory notes ( see Note 5) are being amortized on a straight-line basis
(which approximates the interest method) over the one year term of the notes.
3. DEFERRED PUBLIC OFFERING COSTS
Costs associated with the Company's proposed public offering have been
deferred. Such costs will be netted against the offering proceeds unless the
offering is terminated, at which time they will be charged to expense.
4. INCOME TAXES
The Company has elected to revoke, effective January 1, 1998, the election
to be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, effective January 1, 1998, the Company adopted the liability
method of accounting for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109. Under the liability method specified by SFAS No.
109, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the currently enacted tax rates in effect for the
years in which these differences reverse. The Company recognized no income tax
benefit from the loss generated for the three months ended March 31, 1998.
5. PRIVATE PLACEMENT
In January 1998, the Company began a private placement of up to $600,000 of
securities. Each security consists of a convertible promissory note with a
stated rate of interest of 7% and convertible into the Company's common stock
at a price of $3.50 per share. The notes are convertible at any time within
twelve (12) months from the date of issuance by exercise of the conversion
right by either the Company or the noteholders. Through March 31, 1998, the
Company had issued 10 notes for cash proceeds of $600,000. The convertible
noteholders do not have registration rights.
In accordance with EITF Announcement D-60, the "Beneficial Conversion
Feature Discount" was recorded as a charge to interest expense in the three
month period ended March 31, 1998 with a corresponding increase in additional
paid-in-capital. This discount of $648,131 was calculated by multiplying the
number of shares into which the notes are convertible (172,835 shares) by
$3.75 per share, the difference between the Initial Public Offering Price of
$7.25 per share and the fixed conversion price of $3.50 per share.
6. NOTE PAYABLE TO STOCKHOLDER
As of March 31, 1998, a note payable to stockholder aggregating $100,000 was
outstanding. The unsecured demand note bears interest at 8%.
7. COMMON STOCK
On January 20, 1998, the Board of Directors approved a Plan of
Recapitalization (Plan), in contemplation of the planned public offering. The
Plan provides as follows: (1) To increase the number of common shares
F-16
<PAGE>
authorized from 500 shares to 15,000,000 shares; (2) To change the authorized
shares with a par value of $5.00 per share to shares with a par value of
$.0002 per share; (3) To change each share having a par value of $5.00 per
share which the Company had authority to issue immediately prior to the
effective date of the Plan into 30,000 shares having a par value of $.0002 per
share; and (4) That each certificate representing one or more shares having a
par value of $.0002 per share which shall be issued and outstanding
immediately prior to the effective date of the Plan shall be submitted by the
existing shareholders to the Company. Upon receipt of the outstanding
certificates by the holders thereof, the Company upon the effective date of
the Plan shall issue to such shareholders additional certificates representing
30,000 shares having a par value of $.0002 per share for each share having a
par value of $5.00 per share.
8. RESTRICTED COMMON STOCK AND UNEARNED COMPENSATION
On February 1, 1998, subsequent to the effective date of the Plan of
Recapitalization, the Company issued and granted an officer of the Company the
right to purchase a total of 200,000 shares of common stock of the Company at
a purchase price of $.0002 per share in exchange for valuable services
rendered to the Company. The officer exercised this right, on February 1,
1998, and purchased the 200,000 shares for $.0002 per share. These shares are
subject to a substantial risk of forfeiture pursuant to the terms of the
officer's employment agreement.
Pursuant to the issuance of the restricted stock, the Initial Public
Offering price of $7.25 per share has been capitalized as contra-stockholder's
equity and will be amortized ratably as compensation expense during the years
ending December 31, 2001, 2002 and 2003, in accordance with the terms of the
officer's employment agreement.
Effective January 1, 1998, the Company adopted the disclosure approach
provided for in Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock Based Compensation, with respect to restricted stock
granted to employees. The Company does not expect the pronouncement to have an
impact on its results of operations since the intrinsic value-based method
prescribed by APB Opinion No. 25 and also allowed by SFAS No. 123 will be used
for any restricted stock. The unearned compensation will be amortized in
accordance with the terms of the respective employment agreement.
9. RELATED PARTY TRANSACTION
The Company currently utilizes patents in the design and manufacture of
certain systems, which are owned by its stockholder. On January 1, 1998, the
Company entered into a licensing agreement with respect to these patents. The
licensing agreement provides for the payment of $350 to the stockholder for
every system sold. These payments are due on the fifth day of the month
following the month in which they are sold. The Company intends to purchase
the patents upon completion of the planned public offering.
10. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average shares of common stock and common stock equivalents
outstanding.
11. SUBSEQUENT EVENT
On April 27, 1998, the Company repaid a note payable to stockholder in full
with accrued interest (see Note 6).
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECU-
RITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Selected Financial Information............................................ 3
Risk Factors.............................................................. 4
Use of Proceeds........................................................... 14
Dilution.................................................................. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 23
Management................................................................ 31
Certain Relationships and Related Transactions............................ 34
Principal Shareholders.................................................... 37
Description of Securities................................................. 38
Shares Eligible for Future Sale........................................... 39
Plan of Distribution...................................................... 40
Counsel................................................................... 42
Experts................................................................... 42
Additional Information.................................................... 42
Index to Financial Statements............................................. F-1
</TABLE>
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UNTIL AUGUST 11, 1998, 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS
AFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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1,000,000 SHARES
CRAWFORD EQUIPMENT & ENGINEERING COMPANY
COMMON STOCK
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PROSPECTUS
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DISCOVERY CAPITAL GROUP, INC.
AUGUST 11, 1998
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