<PAGE> 1
As filed with the Securities and Exchange Commission on October 22, 1998
Registration No. 333-50255
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
WESTSTAR ENVIRONMENTAL, INC.
(Name of small business issuer in its charter)
------------------
<TABLE>
<S> <C> <C>
FLORIDA 4953 59-3066915
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9550 REGENCY SQUARE BOULEVARD, SUITE 1109, JACKSONVILLE,
FLORIDA 32225; (904) 721-7557 (Address and telephone
number of principal executive offices)
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9550 REGENCY SQUARE BOULEVARD, SUITE 1109, JACKSONVILLE,
FLORIDA 32225 (Address of principal place of business or
intended principal place of business)
------------------
MICHAEL E. RICKS, PRESIDENT
9550 REGENCY SQUARE BOULEVARD, SUITE 1109, JACKSONVILLE,
FLORIDA 32225; (904) 721-7557 (Name, address, and
telephone number of agent for service)
------------------
With copies to:
JOHN L. MILLING, ESQ. WILLIAM M. PRIFTI, ESQ.
MILLING LAW OFFICES PRIFTI LAW OFFICES
115 RIVER ROAD, BLDG. 12, SUITE 1205 220 BROADWAY, SUITE 204
EDGEWATER, NJ 07020 LYNNFIELD, MA 01940
(201) 313-1600 (781) 593-4525
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following box. /x/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
to be Offering Price Aggregate Registration
Registered Per Security(1) Offering Price(1) Fee
---------- --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Title of each Class of Securities Being Registered
Units(2)(3).................................................. 1,150,000 $ 5.10 $ 5,865,000 $1,730.18
--------- -------- ----------- ---------
Common Stock, $.001 par value(4) (8)......................... 1,150,000 $ 6.00 $ 6,900,000 $2,035.50
--------- -------- ----------- ---------
Representative's Securities Purchase Warrants(5)............. 100,000 $ .001 $ 100 $ .03
--------- -------- ----------- ---------
Representative's Common Stock, $.001 par value(6) (8)........ 100,000 $ 7.25 $ 725,000 $ 213.88
--------- -------- ----------- ---------
Representative's Underlying Common Stock Purchase Warrants(6) 100,000 $ 0.145 $ 14,500 $ 4.28
--------- -------- ----------- ---------
Representative's Underlying Common Stock(7)(8)............... 100,000 $ 8.70 $ 870,000 $ 256.65
--------- -------- ----------- ---------
TOTAL........................................................ $14,374,600 $4,240.52
=========== =========
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Each Unit consists of one share of common stock valued at $5.00 and one
common stock purchase warrant valued at $0.10.
(3) Includes 150,000 Units which may be issued subject to the
Representative's over-allotment option. Each Warrant included therein
is exercisable for one share of Common Stock, $.001 par value.
(4) Issuable upon exercise of the Redeemable Common Stock Purchase
Warrants.
(5) To be sold to the Representative upon the completion of the offering.
Each such Warrant is exercisable for securities (the "Securities")
consisting of shares of Common Stock, $.001 par value (the
"Representative's Common Stock") and warrants (the "Representative's
Underlying Warrants") to purchase additional such shares (the
"Representative's Underlying Common Stock").
(6) Issuable upon exercise of the Representative's Securities Purchase
Warrants.
(7) Issuable upon the exercise of the Representative's Underlying Common
Stock Purchase Warrants.
(8) Pursuant to Rule 416 there are also registered hereby such additional,
indeterminate number of shares as may become issuable by reason of the
anti-dilution provisions of the Common Stock Purchase Warrants, the
Representative's Securities Purchase Warrants, and the Representative's
Underlying Warrants.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
<PAGE> 2
WESTSTAR ENVIRONMENTAL INC.
------------------------------------
CROSS-REFERENCE SHEET
------------------------------------
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS 1 THROUGH 23, PART I, OF FORM SB-2
<TABLE>
<CAPTION>
Item in Form SB-2 Prospectus Caption
----------------- ------------------
<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus ................. Facing Page of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information and Risk
Factors............................................ Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus;
Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers,
Promoters and Control Persons...................... Management
11. Security Ownership of Certain
Beneficial Owners and Management .................. Principal Stockholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel ............... Experts; Legal Matters
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................................... Underwriting
15. Organization Within Last Five Years ................. Business; Certain Transactions
16. Description of Business.............................. Business; Risk Factors
17. Management's Discussion and
Analysis or Plan of Operation...................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationships and
Certain Transactions............................... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........................ Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Market for Common Equity and
Related Stockholder Matters;
Description of Securities; Underwriting
21. Executive Compensation............................... Executive Compensation
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosures.............................. Experts
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PROSPECTUS PRELIMINARY PROSPECTUS DATED October , 1998
1,000,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK, $.001 PAR VALUE
AND ONE REDEEMABLE STOCK PURCHASE WARRANT
WESTSTAR ENVIRONMENTAL, INC.
The Units offered hereby are being sold by Weststar Environmental,
Inc., a Florida corporation (the "Company") at a price of $5.10 per Unit. Each
Unit consists of one share of common stock, $.001 par value per share (the
"Shares" or the "Common Stock") and one redeemable common stock purchase warrant
(the "Redeemable Warrants"). Each Redeemable Warrant entitles the holder to
purchase one Share at a price of $6.00 per Share at any time during the four
year period commencing one year from the date of this Prospectus and is
redeemable at a redemption price of $.10 per Redeemable Warrant at any time
commencing one year and thirty days from the date of this Prospectus on thirty
days prior written notice, provided that the market price of the Common Stock
equals or exceeds $8 per share for twenty consecutive days within ten days prior
to the notice of redemption (see "Description of Securities").
The Shares and the Redeemable Warrants comprising the Units will be
automatically detached and separately transferable immediately prior to the
commencement of trading and will be traded as separate securities. There will at
no time be a trading market in the Units. Prior to this offering there has been
no public market for the Common Stock or the Redeemable Warrants and no
assurance can be given that a public market will develop for such Common Stock
or the Redeemable Warrants after this offering. The public offering price for
the Units does not necessarily bear any direct relationship to the Company's
assets, earnings, book value or any other established criteria of value and was
arbitrarily determined by the Company and Westport Resources Investment
Services, Inc., the Representative of the several Underwriters in this offering
(the "Representative") (see "Risk Factors - Arbitrary Determination of Offering
Price"). The Company has made application to list the Common Stock and
Redeemable Warrants for separate trading on the NASDAQ-SmallCap Market under the
proposed symbols "WSTX" and "WSTXW, respectively, upon the closing of this
offering.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE, INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION (SEE "RISK FACTORS" AND
"DILUTION").
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.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY (2)
--------------- -------------- -----------
<S> <C> <C> <C>
Per Unit (3)(4) .......... $5.10 $.51 $4.59
</TABLE>
(see inside front cover for notes to this spread table)
------------------
The Units are being offered by the Underwriters on a firm commitment
basis, when, as and if delivered to and accepted by the Underwriters and subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
offering and to reject any order, in whole or in part. It is expected that
delivery of the certificates representing the securities comprising the Units
will be made against payment therefor at the offices of the Representative at
315 Post Road West, Westport, CT 06880 on or about __________, 1998.
------------------
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
315 POST ROAD WEST
WESTPORT, CONNECTICUT 06880
The date of this Prospectus is __________, 1998
<PAGE> 5
Notes to Spread Table:
(1) In addition, the Company has agreed to the following: (1) It will pay
the Representative a 3% non-accountable expense allowance. (2) It will
issue to the Representative, upon the closing of this offering,
warrants (the "Representative's Warrants") to purchase up to 100,000
Shares and up to 100,000 Redeemable Warrants (the "Underlying
Warrants"). The Representative's Warrants are exercisable for a period
of four years, commencing twelve months from the date of this
Prospectus, at $7.25 per Share and $0.145 per Underlying Warrant and
the Underlying Warrants are exercisable during the same time period at
$8.70 per Share. (3) It will pay to the Representative consulting fees
and certain other items of compensation. (4) The Company and the
Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "1933 Act") (see "Underwriting").
(2) Before deducting expenses of the offering payable by the Company
estimated at $386,102, including the non-accountable expense allowance
payable to the Representative (see "Underwriting").
(3) The Company has assigned a value of $5.00 to each of the Shares and
$0.10 to each of the Redeemable Warrants comprising the Units.
(4) The Company has granted the Representative an option (the
"Over-allotment Option") exercisable within 45 days from the date of
this Prospectus to purchase up to an additional 150,000 Units on the
same terms, solely to cover over-allotments, if any. If the
Over-allotment Option is exercised in full, the total "Price to
Public", "Underwriting Discount and Commissions" and "Proceeds to
Company" will be $5,865,000, $586,500, and $5,278,500, respectively.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AND REDEEMABLE WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH
OTHERWISE MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by its independent
certified public accountants. In addition, the Company may furnish unaudited
quarterly or other interim reports to its shareholders as it deems appropriate.
The Company as issuer has undertaken to make post-effective amendments
to the Registration Statement to which the Prospectus relates and to reflect
therein any facts or events arising after the date hereof which represent a
fundamental or material change in the information set forth herein or in said
Registration Statement. Any such amendments, which relate to this Prospectus,
will be disseminated to stockholders of the Company after the required filings
with the Securities and Exchange Commission have been made.
THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WHICH
REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS. THE WORDS "BELIEVE", "EXPECT",
"ANTICIPATE", "ESTIMATE", "PROJECT", "INTEND", AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS MAY INCLUDE, BUT NOT BE LIMITED TO, FUTURE RESULTS OF
OPERATIONS, GROWTH PLANS, INTEGRATION OF NEW OPERATIONS, FINANCING NEEDS,
INDUSTRY TRENDS, CONSUMER DEMAND AND LEVELS OF COMPETITION. THESE STATEMENTS BY
THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, SOME OF WHICH CANNOT
BE PREDICTED OR QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FORM THOSE EXPRESSED IN, CONTEMPLATED BY OR UNDERLYING ANY SUCH
FORWARD-LOOKING STATEMENTS. STATEMENTS IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION THOSE CONTAINED IN THE SECTIONS ENTITLED "RISK FACTORS",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", "BUSINESS", AND IN THE NOTES TO THE COMPANY'S FINANCIAL STATEMENTS,
DESCRIBE FACTORS, AMONG OTHERS, THAT COULD CONTRIBUTE TO OR CAUSE SUCH
DIFFERENCES.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more
detailed information and the financial statements appearing elsewhere in this
Prospectus. Prospective investors should also carefully consider the information
set forth herein under "Risk Factors". Unless otherwise indicated (i) the
information throughout this Prospectus assumes non-exercise of the
Over-allotment Option and (ii) all per share data and information in this
Prospectus relating to shares of Common Stock outstanding has been adjusted to
give effect to a fifteen-for-one forward stock split effected on February 16,
1998.
THE COMPANY
Weststar Environmental Inc. (the "Company") is a non-hazardous, liquid
waste management company that provides waste management services to
governmental, commercial and residential customers. These services include the
removal, transport, treatment and disposal of bio-solids, food service grease
and septic waste. The Company also engages in the installation, replacement and
repair of commercial and residential waste disposal systems. Plans to conduct a
third area of business devoted to the recycling of non-hazardous waste materials
are also being developed. At the present time, the Company's services are
principally provided in the southeastern United States. The goal of management
is to expand the Company's operations by conducting an aggressive acquisition
program, increasing productivity and operating efficiency, and by internal
growth.
The Company was formed under the laws of the State of Florida on June
26, 1990. In February, 1998 the Company acquired all of the issued and
outstanding capital stock of B&B Septic and Environmental Services, Inc.
("B&B"), a Florida corporation principally engaged in the installation,
replacement and repair of waste disposal systems and wastewater treatment and
disposal. At the time of such acquisition, B&B was owned by the Company's
shareholders. Unless context requires otherwise, references herein to the
Company include the Company and its wholly-owned subsidiary, B&B (see "The
Company", "Business" and "Certain Transactions").
THE OFFERING
Securities Offered................... 1,000,000 Units, each Unit consisting of
one Share and one Redeemable Warrant. An
additional 150,000 Units have been
reserved for issuance pursuant to the
Representative's Over-allotment Option.
Offering Price....................... $5.10 per Unit, to which the Company has
assigned a value of $5.00 per Share and
$0.10 per Redeemable Warrant.
Terms of Unit ....................... The securities comprising the Units will
be automatically detached and separately
transferable immediately prior to the
commencement of trading and will be
traded as separate securities. There
will be no trading market in the Units.
Accordingly, all Units issued subsequent
to the commencement of trading will be
in detached and separately transferable
form.
6
<PAGE> 7
Terms of Common Stock................ Holders of the Common Stock have one
noncumulative vote for each share held.
There are no preemptive, conversion or
redemption privileges, nor sinking fund
provisions with respect to the Common
Stock. All of the Company's outstanding
shares of Common Stock are validly
issued, fully paid and non-assessable.
The holders of shares of Common Stock
are entitled to dividends when and as
declared by the Board of Directors from
funds legally available therefor and,
upon liquidation, are entitled to share
pro rata in any distribution to common
shareholders (see "Description of
Securities - Common Stock").
Terms of Redeemable
Warrants........................... Holders of the Redeemable Warrants have
the right to purchase one share of
Common Stock at an exercise price of
$6.00 per share at any time during the
four year period commencing one year
from the date of this Prospectus. The
Redeemable Warrants are redeemable at a
redemption price of $.10 per Redeemable
Warrant at any time after _____, 1999 on
thirty days prior written notice,
provided that the market price of the
Common Stock equals or exceeds $8 per
Share for twenty consecutive days within
ten days prior to the notice of
redemption (see "Description of
Securities - Redeemable Warrants").
Common Stock Outstanding
as of the Date of this
Prospectus......................... 1,690,000 shares of Common Stock
(excluding 487,500 shares of Common
Stock which may be issued in connection
with outstanding options).
Common Stock Outstanding
After the Offering................. 2,690,000 shares of Common Stock. These
share amounts do not include (i) up to
487,500 shares of Common Stock issuable
upon the exercise of the Company's
outstanding options; (ii) up to
1,000,000 shares of Common Stock
issuable upon exercise of the Redeemable
Warrants; (iii) up to 150,000 shares of
Common Stock issuable upon the possible
exercise by the Representative of the
Over-allotment Option; (iv) up to
150,000 shares of Common Stock
underlying 150,000 Redeemable Warrants
issuable upon the possible exercise by
the Representative of the Over-allotment
Option; (v) up to 100,000 shares of
Common Stock issuable upon exercise of
the Representative's Warrants; and (vi)
up to 100,000 Shares issuable upon the
possible exercise of the Redeemable
Warrants issuable to the Representative
upon the possible exercise of the
Representative's Warrants.
7
<PAGE> 8
Use of Proceeds...................... The Company intends to apply the net
proceeds of this Offering to consolidate
and reduce outstanding debt, to purchase
equipment, to construct a grease
processing facility, for corporate
and/or asset acquisitions, for expansion
and for working capital (see "Use Of
Proceeds").
Risk Factors and Dilution............ The Units offered hereby involve a high
degree of risk and substantial dilution.
Potential investors should carefully
review the entire Prospectus and
particularly, the sections entitled
"Risk Factors" and "Dilution".
Proposed NASDAQ
Symbols (1)......................... Common Stock.............. WSTX
Redeemable Warrants....... WSTXW
(1) Assumes that the Common Stock and Redeemable Warrants offered hereby
will be eligible for NASDAQ-Small Cap Market listing and that a viable
trading market therefor will develop, of which there can be no
assurance.
8
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following table sets forth summarized financial information
regarding the Company and B&B Septic and Environmental Services, Inc., on a
consolidated basis for the years ended December 31, 1996 and December 31, 1997
and for the six month periods ended June 30, 1997 and June 30, 1998. The
selected financial information for the years ended December 31, 1996 and
December 31, 1997 is derived from the Company's audited financial statements.
The selected financial information for the six month periods ended June 30, 1997
and June 30, 1998 is derived from unaudited financial statements which, in the
opinion of management, include all adjustments necessary for the fair
presentation of financial position and results of operations. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and the audited and unaudited
financial statements and notes thereto set forth elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Income Statement Data: Year Year Six Months Six Months
(period ended) Ended Ended Ended Ended
December 31, December 31, June 30, June 30,
1996 1997 1997 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,682,566 $ 2,245,008 $ 1,147,881 $ 1,060,892
Net Income (Loss) (216,061) 421,858 263,534 234,391
Net Income (Loss) Per Share (.14) .28 .18 .15
Weighted Average Number
of Shares Outstanding 1,500,000 1,500,000 1,500,000 1,608,122
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: December 31, 1997 June 30, 1998 June 30, 1998
(at period ended) Actual Actual As Adjusted(1)
----------------- ------------- -------------
<S> <C> <C> <C>
Current Assets $ 451,762 $ 545,934 $3,342,329
Total Assets 2,195,100 2,256,871 5,053,266
Current Liabilities 1,182,912 936,111 41,028
Total Liabilities 1,823,687 1,603,567 195,791
Stockholders' Equity 371,413 653,304 4,857,475
</TABLE>
(1) As adjusted to reflect the sale of the Units offered hereby. The table
does not assume the exercise of the Representative's Over-allotment
Option, the Redeemable Warrants, the Representative's Warrants or any
outstanding stock options.
ALL REFERENCES TO THE COMPANY'S COMMON STOCK AND TO ITS AUTHORIZED AND
OUTSTANDING SECURITIES THROUGHOUT THIS PROSPECTUS GIVE EFFECT TO A FORWARD SPLIT
OF THE COMPANY'S OUTSTANDING COMMON STOCK IN FEBRUARY 1998, AT THE RATE OF
FIFTEEN FOR ONE.
9
<PAGE> 10
THE COMPANY
The Company is a non-hazardous, liquid waste management company which
provides various non-hazardous, liquid waste management services to
governmental, commercial and residential customers. The Company's services are
currently provided in the states of Florida, Georgia, Alabama, Tennessee,
Kentucky, West Virginia, Pennsylvania, Maryland, Delaware, and Virginia. Such
services include the removal, transport, treatment and disposal of bio-solids,
food service grease and septic waste (see "Business - Services - Removal,
Transport, Treatment and Disposal of Bio-Solids, Grease and Septic Waste"). The
Company is also engaged in the installation, repair and replacement of
residential and commercial waste systems including drain fields, septic tanks,
and grease traps (see "Business - Services - Repair, Maintenance and
Installation of Commercial and Residential Waste Systems"). Plans to conduct a
third area of business involving the recycling of non-hazardous waste materials
are under development (see "Business - Services - Waste Recycling").
The Company was incorporated in the State of Florida on June 26, 1990
under the name Weststar Environmental Pumping and Septic Service Inc. On March
12, 1993 its name was changed to Weststar Environmental, Inc. From inception
through the present time, the Company operated as a Subchapter S corporation
under the Internal Revenue Code of 1986 as amended (the "Code"). Upon the
completion of this offering the Company plans to revoke its Subchapter S status,
whereafter it will operate as a Subchapter C corporation.
The Company believes that continuing initiatives of government
authorities relating to environmental and waste disposal problems have resulted
in significant opportunities for liquid waste management companies. Accordingly,
the Company intends to use a significant portion of the proceeds of this
offering to expand the range of services provided and the geographical area in
which its services are provided. The Company intends to do so through the
expansion of present activities and the acquisition of related businesses. No
assurance can be given, however, that the Company will be successful with any of
its expansion and acquisition plans.
The Company's principal executive offices are located at 9550 Regency
Square Blvd., Suite 1109, Jacksonville, Florida 32225, telephone (904) 721-7557.
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. Prospective investors, prior to making an investment decision, should
carefully consider, along with other matters referred to herein, the risk
factors contained in this section. This prospectus contains certain
"forward-looking statements" which represent the Company's expectations or
beliefs. The words "believe", "expect", "anticipate", "estimate", "project",
"intend", and similar expressions identify forward-looking statements, which
speak only as of the date such statement was made. Forward-looking statements
may include, but not be limited to, future results of operations, growth plans,
integration of new operations, financing needs, industry trends, consumer demand
and levels of competition. These statements by their nature involve substantial
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those expressed in,
contemplated by or underlying any such forward-looking
10
<PAGE> 11
statements. Statements in this Prospectus, including those contained in this
Risk Factors section in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and in the Notes to
the Company's Financial Statements, describe factors, among others, that could
contribute to or cause such differences.
1. Negative Working Capital, Possible Need for Additional Capital - At
June 30, 1998, the Company had total current assets of $545,934 and total
current liabilities of $936,111 or a negative working capital of ($390,177). The
Company plans to increase its present business through expansion and
acquisition. The rate at which such growth occurs depends, in part, on the
capital resources available to the Company as well as its ability to locate and
acquire suitable acquisitions. There can be no assurance that the net proceeds
generated from this offering together with cash available from operating
revenues will be sufficient to meet the Company's capital requirements for the
planned growth of its business. The Company may require additional financing to
realize such growth and there can be no assurance that such financing will be
available in the amounts required or on satisfactory terms (see "Use Of
Proceeds").
2. Dependence on Major Customers - During the Company's fiscal years
ended December 31, 1997 and December 31, 1996, three customers have accounted
for approximately 80.2% and 77.0%, respectively, of the Company's revenues. The
City of Jacksonville/Jacksonville Electric Authority accounted for approximately
70.7% of total sales in 1997 and approximately 41.6% of total sales in 1996.
Food Lion Supermarkets accounted for approximately 7.1% of total sales for 1997
and approximately 15.6% of total sales in 1996. Roto-Rooter accounted for
approximately 2.4% of sales in 1997 and approximately 19.8% of total sales in
1996. The loss of the City of Jacksonville/Jacksonville Electric Authority
and/or Food Lion Supermarkets as a customer would have a materially adverse
effect upon the business of the Company (see "Business- Customers").
3. Non-Compete Agreements; Right Of First Refusal - In connection with
the Company's October 4, 1996 Asset Sale and Purchase Agreement (the "Asset Sale
Agreement") with CBP Resources, Inc. ("CBP"), a non-affiliated Delaware
corporation, the Company and Michael E. Ricks entered into ten year non-compete
agreements with CBP. These non-compete agreements prohibit the Company and Mr.
Ricks from owning, operating or managing any businesses engaged in the grease
trap business, the recycling of waste frying oil business and/or the rendering
business or any business engaged in the sale of any related products or services
in the states of North Carolina, South Carolina, Tennessee, Virginia, West
Virginia, Maryland, Alabama and the District of Columbia and within certain
areas bordering such states (the "Prescribed Territory"). The Company's
restricted activities in these areas could have an adverse effect on the
Company's proposed expansion and acquisition plans. Notwithstanding the
foregoing, CBP has granted the Company the limited right to engage in certain
activities prohibited by the non-compete agreements in the states of Tennessee,
Alabama, West Virginia and Maryland. No assurance can be given that if
challenged, these non-compete agreements would be upheld. Non-competition
agreements are not always enforceable due to public policy limitations existing
in various states and the difficulty of obtaining injunctive relief. Courts
typically have the power to cancel or modify such agreements. The Company does
not believe any such action would be taken by a court in this instance, however,
were it to contest such agreements. The Asset Sale Agreement also contains a
right of first refusal in favor of CBP. It provides that, if at any time, during
the ten year period commencing October 4, 1996, the Company, an affiliate of the
Company
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<PAGE> 12
or a shareholder of the Company makes an offer to sell any business within the
Prescribed Territory engaged in the grease trap business, waste frying oil
business or rendering business, that the Company will give written notice to CBP
of the terms of any such proposed sale. CBP shall thereafter have thirty days to
negotiate an agreement with the seller of such business (see "Business -
Services - Removal, Transport, Treatment and Disposal of Bio-Solids, Grease and
Septic Waste - Asset Sale Agreement - Business Restrictions").
4. Dependence on Third Party Landfills and Land Application Sites - A
portion of the waste collected by the Company is delivered to third party
landfills and/or land application sites under informal arrangements or without
long-term contracts. If these third parties increase their disposal fees and the
Company is unable to pass along the increase to its customers, or if these third
parties discontinue their arrangements with the Company and the Company is
unable to locate alternative disposal sites, the Company's business and results
of operations would be adversely affected.
5. Dependence on Government Contracts - For the years ended December
31, 1997 and December 31, 1996, approximately 75.0% and 45.5% of the Company's
revenues were derived from services provided to governmental customers and it is
anticipated that a substantial portion of the Company's future revenues will be
derived from governmental customers. Government contracts are subject to special
risks, including delays in funding; lengthy review processes for awarding
contracts; non-renewal; delay, termination, reduction or modification of
contracts in the event of changes in the government's policies or as a result of
budgetary constraints; and increased or unexpected costs resulting in losses,
all of which could have a material adverse effect on the business of the Company
(see "Business - Customers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
6. Government Regulation - The waste management business is subject to
extensive and frequently changing local, state and federal laws and substantial
regulation under these laws by governmental agencies, including the United
States Environmental Protection Agency (the "EPA"), various state agencies and
county and local authorities acting in conjunction with such federal and state
entities. This extensive regulatory framework imposes significant compliance
burdens and risks on the Company. Furthermore, amendments to existing statutes
and regulations, adoption of new statutes and regulations and the Company's
expansion into other jurisdictions and waste management services could require
the Company and others in the industry to continually alter methods of
operations at costs that will likely be substantial and which could adversely
affect the Company. There can be no assurance that the Company will be able, for
economic reasons or otherwise, to comply with future laws and regulations. The
Company believes that it is presently in substantial compliance with all
material federal, state and local laws and regulations governing its operations
and that such compliance has not had any material effect upon its capital
expenditures, net income, financial condition or competitive position (see
"Business Government Regulation").
7. Significant Competition in Waste Management Industry - The waste
management industry is extremely competitive and requires substantial amounts of
capital. Although competition varies by locality and type of service, the
Company's principal sources of competition are: local companies, which provide
primarily collection services to customers in a limited geographic area; large
companies which operate over a more extensive geographic area, provide
integrated waste
12
<PAGE> 13
management services, own or operate disposal sites and engage in various waste
transfer and resource recovery activities; and municipalities and other
governmental authorities. Many of the Company's competitors are well established
and have substantially greater marketing, financial, technological and other
resources than the Company. In addition, many of the Company's competitors offer
services not currently offered by the Company and have capabilities not
currently possessed by the Company including company owned disposal sites,
greater recycling and processing capabilities, more extensive and specialized
categories and types of equipment and personnel, and in-house engineering
departments. Although it has been the Company's experience that there are
available subcontractors which possess capabilities which can be integrated with
those offered by the Company, competitors which possess these capabilities
internally may be able to provide such services more cost effectively. There can
be no assurance that the Company will have the ability to compete effectively
(see "Business - Competition").
8. Competitive Bidding - In many instances, the Company obtains
contracts for its services through the process of competitive bidding. There can
be no assurance that the Company will be successful in having its bids accepted
or, if accepted, that awarded contracts will generate sufficient revenues to
result in profitability for the Company. Additionally, inherent in the
competitive bidding process is the risk that if a bid is submitted and a
contract is subsequently awarded, actual performance costs may exceed the
projected costs upon which the submitted bid or contract price was based. To the
extent that actual costs exceed the projected costs on which bids or contract
prices were based, the Company's profitability could be materially adversely
affected.
9. Potential Environmental Liability - The Company is subject to
liability for any environmental damage that its operations may cause, including
any contamination of drinking water sources or soil. To date, the Company has
not incurred any such liability for environmental damage and does not believe
that its operation as a non-hazardous waste management company will result in
any such liability in the future. No assurance can be given however, that this
will prove to be the case. Any substantial liability for environmental damage
incurred by the Company could have a material adverse effect on the Company's
business and results of operations.
As is typically the case in the non-hazardous waste industry, the
Company is able to obtain only very limited environmental impairment insurance
regarding its operations. An uninsured or underinsured claim of sufficient
magnitude would require the Company to fund such claim from cash flow generated
by operations or other sources. There can be no assurance that the Company would
be able to fund any such claim from operations or from other sources.
10. Extensive Permitting and Licensing Requirements - The Company is
required to obtain and maintain in effect various federal, state, and local
permits and licenses in connection with its waste collection, transportation and
disposal operations. These permits and licenses are difficult, time consuming,
and, in certain instances, are costly to obtain, may be subject to community
opposition, opposition by various local elected officials or citizens,
regulatory delays and other uncertainties. In addition, certain permits may be
subject to modification, renewal, or revocation by the issuing agencies after
issuance, which may increase the Company's obligations and reopen opportunities
for opposition relating to the permits. Moreover, from time to time, regulatory
agencies may impose moratoria on, or otherwise delay, the review or granting of
these
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<PAGE> 14
permits or licenses or such agencies may modify the procedures or increase the
stringency of the standards applicable to the review or granting of such permits
or licenses.
There can be no assurance that the Company will be successful in
obtaining and maintaining in effect the permits and licenses required for the
successful operation and growth of its business. The failure of the Company to
obtain or maintain in effect a permit or license significant to its business
would have a material adverse effect on the Company's business and results of
operations.
11. Dependence on Acquisitions For Growth; Availability of Acquisition
Targets; Potential Liabilities Associated with Acquisitions - The rate of future
growth and profitability of the Company will be dependent, in part, upon its
ability to identify and acquire additional nonhazardous waste management and
related businesses. This strategy involves risks inherent in assessing the
values, strengths, weaknesses, risks, and profitability of acquisition
candidates, including adverse short-term effects on the Company's reported
operating results, diversion of management's attention, dependence on retaining,
hiring and training key personnel, and risks associated with unanticipated
problems or latent liabilities. There can be no assurance that acquisition
opportunities will be available, that the Company will have access to the
capital required to finance potential acquisitions, that the Company will be
able to acquire additional businesses or that any businesses acquired by the
Company will be integrated successfully into the Company's operations or prove
profitable.
In addition to the foregoing, the businesses acquired by the
Company may have liabilities that the Company does not discover or may be unable
to discover during its pre-acquisition investigations, including liabilities
arising from environmental contamination or non-compliance by prior owners with
environmental laws or regulatory requirements, and for which the Company, as a
successor owner or operator, may be responsible. Certain environmental
liabilities, even if expressly not assumed by the Company, may nonetheless be
imposed on the Company under certain legal theories of successor liability. The
Company may be required under federal, state, or local law to investigate and
remediate this contamination, if any. Any indemnities or warranties, due to
their limited scope, amount, duration, the financial limitations of the
indemnitor or warrantor, or other reasons, may not fully cover such liabilities
(see "Business - General Growth Strategy").
12. Dependence on Chief Executive Officer - The Company is highly
dependent on the services of Michael E. Ricks, the Company's president and chief
executive officer. The Company and Mr. Ricks entered into a three year
employment contract on April 28, 1997. The Company intends to acquire and
maintain key man term life insurance on Mr. Ricks upon the completion of this
offering. The face amount of the policy has not been determined and is intended
to be the maximum amount which the Company deems feasible in light of its
working capital position, based upon the cost of premiums. The loss of the
services of Mr. Ricks could have a material adverse effect on the Company (see
"Certain Transactions").
13. Control of the Company - The Common Stock included in the Units
offered hereby will represent a minority of the Company's outstanding voting
stock after its issuance. Since each common share is entitled to one vote which
is non-cumulative, investors in the offering will have no effective voting voice
in the Company's management which will continue to be controlled by the
14
<PAGE> 15
Company's current shareholders. These current shareholders presently own an
aggregate of 1,690,000 shares of Common Stock and own stock options exercisable
for the purchase of up to an additional 487,500 shares of Common Stock (see
"Principal Stockholders" and "Certain Transactions").
14. Ability To Manage Growth, To Integrate Acquired Businesses and To
Achieve Operating Efficiencies - The Company's strategy of growing through
acquisitions and expansion is expected to place significant burdens on the
Company's management and on its operational and other resources. The Company
will need to attract, train, motivate, retain, and supervise its senior
managers, technical professionals and other employees. Any failure to expand its
management information system capabilities, to implement and improve its
operational and financial systems and controls or to recruit appropriate
additional personnel in an efficient manner and at a pace consistent with the
Company's business growth could have a material adverse effect on the Company's
business and results of operations.
15. Bonding Requirements - The Company is required, in certain
instances, to post bid and/or performance bonds in connection with contracts or
projects with government entities and, to a lesser extent, private sector
customers. Approximately 36% of the Company's revenues for the year ended
December 31, 1997 were derived from contracts or projects which required the
Company to post bid and/or performance bonds. In addition to bid and performance
bond requirements, new legislation in various jurisdictions may require the
posting of substantial bonds or require waste management companies to provide
other financial assurances covering their activities. There can be no assurance
that personal guarantees or other security necessary to obtain bonding coverage
will be available in the future or that the Company will be able to obtain bonds
in the amounts required or have the ability to increase its bonding capacity, if
necessary or desired. In the event the Company is unable to obtain bonding
coverage there could be a materially adverse impact on the Company's operations
(see "Business - Insurance and Bonding").
16. Potential Liability and Insurance - The waste management industry
involves potentially significant risks of statutory, contractual and common law
liability. The Company carries a broad range of insurance coverage, which the
Company considers sufficient to meet regulatory and customer requirements and to
protect the Company's assets and operations. The Company also obtains additional
insurance as required on a project-by-project basis. The Company attempts to
operate in a professional and prudent manner and to reduce its liability risks
through specific risk management efforts (see "Business - Insurance and
Bonding").
17. Arbitrary Determination of Offering Price - The Offering price of
the Units and the portions thereof assigned to the Shares and Redeemable
Warrants have been arbitrarily determined by the Company and the Underwriter and
this price and these amounts bear no relationship to the Company's assets,
earnings, book value or other such criteria of value (see "Business" and
"Underwriting").
18. Dilution - Based on the net tangible book value of the Company at
June 30, 1998, purchasers of the Shares offered hereby will incur immediate
substantial dilution in the net tangible book value of their shares of Common
Stock of approximately $3.29 (65.8%) per Share from the public offering price of
$5.00 per Share. Such dilution is due, in part, to the disparity between the
consideration paid for the Company's shares by the Company's existing
shareholders and the
15
<PAGE> 16
consideration being paid by investors in this offering. The foregoing does not
assume the exercise of presently outstanding stock options, of the
Over-allotment Option, the exercise of the Redeemable Warrants, the exercise of
the Representative's Warrants, or the exercise of warrants issuable to the
Representative upon its exercise of the Representative's Warrants. The net
tangible book value of each share of Common Stock owned by the Company's
existing stockholders will increase by approximately $1.45 as a result of the
consummation of this offering. As of the date of this Prospectus, the Company
has outstanding stock options to purchase 460,000 shares of Common Stock at an
exercise price of $5 per share and outstanding stock options to purchase 27,500
shares of Common Stock at an exercise price of $.001 per share. The latter
options were granted to non-shareholder employees of the Company to instill
greater work motivation and Company loyalty. The exercise of such latter stock
options will result in additional dilution to the purchasers of the Shares
offered hereby. In the event all presently outstanding options were exercised,
the total number of shares of Common Stock outstanding after the offering would
be 3,177,500 (see "Dilution", "Management - Executive Compensation - Stock
Option Plan", and "Description of Securities - Outstanding Options").
19. No Assurance of Public Market; Effect of NASDAQ Delisting - Prior
to this offering, there has been no public market for the Common Stock or
Redeemable Warrants, and there is no assurance that a public market for the
Common Stock or Redeemable Warrants will develop after this offering. If trading
markets do in fact develop for the Common Stock and Redeemable Warrants offered
hereby, there is a possibility that they will not be sustained. Therefore, there
can be no assurance that any of the Shares or Redeemable Warrants offered hereby
can be resold at or near their offering prices. The Company anticipates that
upon completion of this offering, the Company's Common Stock and Redeemable
Warrants will be quoted on the NASDAQ - Small Cap Market. If the Company's
Common Stock and Redeemable Warrants are not originally or subsequently eligible
for listing, purchasers of the Shares and Redeemable Warrants may have
difficulty in selling their Shares and Redeemable Warrants should they desire to
do so. Any such difficulty in the attempted sale of the Shares or Redeemable
Warrants, could have an adverse effect on the market prices for such securities.
20. Exchange Act Compliance; Effect on Acquisitions - The Company has
agreed, contemporaneous with the sale of the Common Stock and Redeemable
Warrants, that it will file an application with the Securities and Exchange
Commission (the "Commission") to register its Common Stock and Redeemable
Warrants under the provisions of Section 12(g) of the Exchange Act of 1934, as
amended (the "Exchange Act"), and that it will use its best efforts to continue
to maintain such registration for a minimum of five years from the date of this
Prospectus. Such registration will require the Company to comply with periodic
reporting, proxy solicitations and certain other requirements of the Exchange
Act. If the Company seeks shareholder approval of an acquisition or business
combination at such time as the Company's securities are registered pursuant to
Section 12(g) of the Exchange Act, the Company's proxy solicitation materials
required to be transmitted to shareholders may be subject to prior review by the
Commission. Under the federal securities laws, public companies must furnish
certain information about significant acquisitions, which information may
require audited financial statements of an acquired company with respect to one
or more fiscal years, depending upon the relative size of the acquisition.
Consequently, if a prospective acquisition or combination candidate did not have
available and was unable to reasonably obtain the requisite audited financial
statements, the Company could, in the event of consummation of an acquisition or
combination with such company, be precluded from (i)
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<PAGE> 17
any public financing of its own securities for a period of as long as three
years, as such financial statements would be required to undertake registration
of such securities for sale to the public; and (ii) registration of its
securities under the Exchange Act. Consequently, it is unlikely that the Company
would seek to consummate an acquisition or business combination with such an
entity.
21. Penny Stock Regulations - In the event the Common Stock and
Redeemable Warrants are never listed or are listed but subsequently delisted
from the NASDAQ Small Cap Market they may subsequently become subject to the
rules and regulations governing penny stocks. In general, penny stocks are
equity securities (i) of companies that have net tangible assets of less than
$2,000,000 and; (ii) that have a market price of less than $5.00 (excluding
securities that are quoted on NASDAQ or are registered on a national securities
exchange provided that current price and volume information for transactions in
such securities are reported and made available to vendors under the rules of
such national securities exchange). Under the penny stock rules, broker-dealers
who recommend such securities to persons other than institutional accredited
investors (generally institutions with assets in excess of $5,000,000) must make
a special written suitability determination for the purchaser, receive the
purchaser's written agreement to a transaction prior to sale and provide the
purchaser with risk disclosure documents which identify certain risks associated
with investing in penny stocks and which describe the market therefor as well as
the purchaser's legal remedies. Further, the broker-dealer must also obtain a
signed and dated acknowledgment from the purchaser demonstrating that the
purchaser has actually received the required risk disclosure document before a
transaction in a penny stock can be consummated. These requirements may have the
effect of reducing the level of trading activity in the secondary market for
securities that become subject to the penny stock rules. If the Company's
securities become subject to the penny stock rules, investors in this offering
may find it more difficult to sell such securities which could have an adverse
effect on the market price thereof.
22. Possible Issuance of Additional Shares of Common Stock - The
Company's Articles of Incorporation authorize the issuance of 10,000,000 shares
of Common Stock. Upon the sale of all of the shares of Common Stock and
Redeemable Warrants offered hereby and exercises, if any, of outstanding stock
options, Redeemable Warrants, and Representative's Warrants approximately 53.2%
of the Company's authorized common shares will remain unissued. The Company's
board of directors has the power to issue any or all of such additional common
shares for general corporate purposes without shareholder approval. Management
presently anticipates that it may choose to issue such shares to acquire
business interests or other types of property in the future, although the
Company presently has no commitments, contracts or intentions to issue any
additional common shares except as otherwise disclosed in this Prospectus.
Potential investors should be aware that any such stock issuances may result in
a reduction of the book value or market price of the outstanding common shares.
If the Company issues any additional common shares, such issuance will reduce
the proportionate ownership and voting power of each other common shareholder.
23. Potential Sales Pursuant to Rule 144 and Otherwise; Adverse Effect
on Market Price of Common Stock. Future sales in the public market of previously
issued restricted shares of Common Stock pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), could have a material
adverse effect on the market price of the Company's Common Stock. In connection
with the foregoing, certain Company shareholders including Company officers and
directors, certain holders of Company stock options and holders of 5% or more of
the Company's
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<PAGE> 18
outstanding Shares have agreed with the Underwriter to a lockup of their Shares
(see "Market For Common Equity And Related Stockholder Matters", "Description Of
Securities" and "Underwriting").
24. Dividends Not Likely - There can be no assurance that the proposed
operations of the Company will result in sufficient revenues to enable the
Company to operate at profitable levels or to generate a positive cash flow. For
the foreseeable future it is anticipated that any earnings which may be
generated from operations of the Company will be used to finance the growth of
the Company and that cash dividends will not be paid to stockholders.
25. Related Party Transactions - Since its inception, the Company has
on several occasions entered into transactions with Company officers, directors,
principal shareholders and other affiliated parties including those transactions
discussed in the "Certain Transactions" section of this Prospectus. The Company
believes that all such transactions were made on terms as fair as those
obtainable from independent third parties, were independent third parties able
and willing to enter into similar transactions with the Company, although no
assurance can be given that this is the case. In June 1998, the Company adopted
a policy which, among other things, requires all future material transactions
with affiliated parties to be approved by a majority of the Company's
independent directors who do not have an interest in the transaction and who
have access, at the Company's expense, to the Company's or independent legal
counsel.
26. Discretion in Application of Offering Proceeds; Affiliated Persons
Loans to be Paid Out of Offering Proceeds - The Company's management may apply
the proceeds of this offering for purposes other than those specified in "Use of
Proceeds" in order to accommodate changing circumstances. In addition, a
substantial portion of the proceeds of this offering will be applied to working
capital of the Company. Accordingly, the Company's management will have broad
discretion as to the application of the proceeds of this offering (see "Use of
Proceeds").
The Company intends to utilize a portion of the net offering proceeds
to pay the preponderance of its short and long term debt, including loans made
to the Company by certain officers, directors and shareholders and entities
controlled by them. These loans include loans made to the Company by G&W Framing
Contractors, Inc. (evidenced by a note in the amount of $75,000); and by Michael
E. Ricks; Yarborough Gas Inc.; and CBI, Inc. totaling undocumented loans in the
amount of $268,634. As of June 30, 1998, the aggregate amount of principal and
interest due to such affiliated or associated persons by reason of these loans
and note was $299,611. Interest continues to accrue on these loans through the
date of repayment (see "Use of Proceeds" and "Certain Transactions").
27. Ongoing Influence of the Representative - The Representative,
through its right to select a nominee to the Company's board of directors for a
period of five years after the closing of the offering, its two year financial
consulting agreement with the Company and its right to receive a 10% acquisition
fee for introducing the Company to a party which enters into a stock or asset
acquisition with the Company, will have an ongoing influence on the Company's
future operations and activities.
28. Current Prospectus and State "Blue Sky" Registration Required to
Exercise the Redeemable Warrants - Beginning one year from the date hereof,
purchasers of the Redeemable Warrants will have the right to exercise them to
purchase shares of Common Stock but only if a
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<PAGE> 19
current prospectus relating to such shares of Common Stock is then in effect and
only if the shares of Common Stock are qualified for sale under the securities
laws of the states in which the respective purchasers reside. The Company
intends to maintain current a prospectus which will permit the purchase and sale
of the shares of Common Stock underlying the Redeemable Warrants, but there can
be no assurance that the Company will be able to do so. Although the Company
intends to seek to qualify the shares of Common Stock underlying the Redeemable
Warrants for sale in those states in which the securities are to be offered, no
assurance can be given that such qualification will occur. The Redeemable
Warrants may be deprived of any value if a current prospectus covering the
shares of Common Stock issuable upon the exercise thereof is not filed and kept
effective or if such underlying shares of Common Stock are not, or cannot be,
registered in the applicable states (see "Description of Securities").
29. Representative's Warrants - In connection with this offering, the
Company has agreed to sell, for a nominal price, to the Representative,
four-year warrants (the "Representative's Warrants") to purchase 100,000 Units
at a price of $7.395 per Unit (145% of the public offering price), valued at a
price of $7.25 per Share and $0.145 per Redeemable Warrant, exercisable at a
price of $8.70 per Share. The Representative's Warrants are exercisable for a
four year period commencing 12 months after the effective date of this
Prospectus. The Representative's Warrants contain anti-dilution provisions
which, among other things, provide, under certain circumstances, for a reduction
of the purchase price per Share and an increase in the number of Shares that may
be purchased. To the extent that all or a portion of the Representative's
Warrants are sold or exercised and all or a portion of the underlying securities
are sold, the market price of the Company's Common Stock may be adversely
affected and the Company's ability to raise additional capital may be impaired,
following exercise of such rights (see "Underwriting").
30. Year 2000 Problem - The advent of the Year 2000 presents the
possibilities of business disruption throughout the world, possibly including
the business of the Company. For a fuller discussion of the Year 2000 problem
and the Company's belief with respect to its potential effects upon the
Company's business and competitive position, reference is made to
"Business-Effect of Year 2000 Problem".
USE OF PROCEEDS
GENERAL
The net proceeds to the Company from the offering, after deducting
underwriting discounts and commissions and offering related expenses, are
estimated to be approximately $4,202,822 without giving effect to the exercise
of the Underwriter's Over-allotment Option. The Company intends to use the net
proceeds from the offering in the approximate amounts and in the order of
priority shown below for the purposes listed:
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<TABLE>
<CAPTION>
Percent
of
Anticipated Use Approximate Amount Total
--------------- ------------------ -------
<S> <C> <C>
Debt consolidation and reduction(1)............. $1,407,776 33.50%
Construction of grease processing facility(2)... 500,000 11.90%
Equipment purchases(3).......................... 400,000 9.50%
Acquisition and expansion(4).................... 1,400,000 33.31%
Working capital(5).............................. 495,046 11.79%
TOTAL...................................... $4,202,822 100.00%
</TABLE>
- ------------
(1) The Company intends to pay off the preponderance of its short and long
term debt, including loans made to the Company by Company officers,
directors, and shareholders with the exception of certain trade
payables and of the mortgage on the Starke, Florida property in the
amount of $160,000 (see "Business - Property and Equipment").
(2) The facility is intended to serve as a waste treatment and recycling
prototype. The proceeds allocated for this purpose are expected to be
sufficient to construct the facility and lease the underlying land. The
Company expects such facility to be constructed and become operational
approximately three months after the completion of the offering. Based
upon results of operations, the Company intends to build up to five
more similar facilities over the next two years. No assurance can be
given, however, that this will prove to be the case (see "Business -
Services - Waste Recycling").
(3) The Company intends to purchase approximately 4 new or used tank
trailers, hereinafter referred to as "tankers", at an approximate cost
of $20,000 per tanker. Tankers are used to pump out, store and
transport liquid waste removed by the Company to environmentally
approved treatment facilities. The Company also intends to purchase
approximately 3 new tractors at an approximate cost of $60,000 per
tractor. Tractors are used to transport the tankers. In addition to the
foregoing, the Company intends to upgrade pumps and make improvements
to existing equipment. The Company presently owns 15 tankers and 4
tractors and leases 5 tractors. The Company intends to curtail or
discontinue its leasing of tractors following such purchases.
(4) Includes costs relating to the expansion and/or acquisition of waste
management facilities or businesses including operating costs. Such
costs would include, among others, costs associated with purchase or
lease and upgrading of property, acquisition, construction, permitting,
equipment and personnel.
(5) To be used for general corporate purposes. This working capital will
also permit the Company to carry greater receivables from expected
sales increases, although no assurance can be given that this will
prove to be the case. The Company anticipates that the net proceeds
from the offering will be sufficient to meet its working capital
requirements for at least 24 months following the completion of this
offering.
Management presently intends to utilize the net proceeds of the
offering for the specific purposes set forth herein. Notwithstanding the
foregoing, none of the expenditures described above constitutes a firm
commitment by the Company. Projected expenditures are estimates or
approximations only. Future events, including changes in the economic climate or
the Company's
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<PAGE> 21
planned business operations including the success or lack of success of the
Company's intended business activities could make shifts in the allocation of
funds necessary or desirable. Any such shifts will be at the discretion of the
board of directors of the Company. Until utilized, the net proceeds of this
offering may be invested in short-term interest bearing obligations such as
United States government obligations, bank certificates of deposit and money
market funds.
DEBT CONSOLIDATION AND REDUCTION
The following tables set forth the indebtedness of the Company intended
to be discharged by way of the application by the Company of a portion of the
proceeds of this offering. This indebtedness consists of notes payable, loans
payable (borrowings not evidenced by any written instrument), dividends
attributable to various fiscal year ends, declared but unpaid to certain
shareholders, certain ordinary trade payables, and certain capital lease
obligations. The amounts of indebtedness involved have been calculated as at
June 30, 1998, so that the actual amounts paid may be somewhat more or less than
those indicated below. With respect to notes payable and loans payable, their
maturities and annual interest rates are provided. With respect to dividends
payable and trade payables, they do not bear interest as such and their
maturities are either not formally existent, inapplicable, or subject to varying
contingencies not germane to this data. With respect to capital leases, they
relate to the lease by the Company as lessee of various items of equipment and
do not bear interest as such (which is factored into the amount of the lease
rent). In the case of notes payable and loans payable which originated within
one year prior to June 30, 1998, the application of their proceeds are provided.
Notes Payable
<TABLE>
<CAPTION>
Note and Interest Rate Amount Due Maturity
---------------------- ---------- --------
<S> <C> <C>
Unsecured note payable to a corporation.
Interest is at 18%.(1)(2) $ 80,389 Demand
Note payable to a bank in 59 monthly installments
of $3,390, including interest at 10%, commencing
October 1995. The mortgage is secured by the
Company's real property in Deland, Florida. 258,155 08/00
Mortgage payable to an individual in 150 monthly
installments of $1,000, including interest at 7%,
commencing February 1994. 76,121 07/06
Note payable to a bank in 71 monthly installments
of $1,448, including interest at 10.75%, commencing
November 1995. 51,685 09/01
Note payable to a bank in 47 monthly installments
of $1,935, including interest at 10.75%, commencing
April 1996. 45,100 02/00
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
Note payable to a bank in 51 monthly installments
of $602, including interest at 12%, commencing
December 1995. 12,424 01/00
Note payable to a bank in 60 monthly installments
of $735, including interest at 8.75%, commencing
September 1994. 12,141 08/99
Note payable to a bank in 51 monthly installments
of $603, including interest at 12%, commencing
December 1995. 10,154 01/00
Note payable to a bank in 24 monthly installments
of $2,367, including interest at 12.43%, commencing
March 1996. paid
Note payable to a bank in 24 monthly installments
of $2,530, including interest at 9.35%, commencing
August 1996. 4,026 07/98
Note payable to a bank in 36 monthly installments
of $2,881, including interest at 12%, commencing
February 1995. paid
Note payable to a bank in 36 monthly installments
of $392, including interest a 10%, commencing
October 1995. 3,393 09/98
Total notes payable $ 553,588
</TABLE>
Loans Payable
<TABLE>
<CAPTION>
Creditor Interest Rate Amount Maturity
-------- ------------- ------ --------
<S> <C> <C> <C> <C>
CBI, Inc.(1)(2) 8% $38,000 Demand
Yarborough Gas, Inc.(1) 10% 1,000 Demand
Michael E. Ricks(3)(4) 8% 180,222 Demand
-------
Total loans payable 219,222
</TABLE>
22
<PAGE> 23
S Corporation Dividends Payable(8)
<TABLE>
<CAPTION>
Creditor Amount
-------- ------
<S> <C> <C> <C> <C>
Michael E. Ricks(4) $78,000
James Flynn(5) 4,000
Thomas F. Fey(6) 8,000
-------
90,000
Trade Accounts Payable(7)
Miscellaneous trade creditors 353,256
Capital Leases(7)
Lessor Amount Maturity Application
------ ------ -------- -----------
Colonial Pacific Corp. $117,396 02/02 2 trucks
National Credit Corp. 59,708 04/00 1 truck
7 leases each under $3,500 14,606 98 to 00 miscellaneous equipment
--------
191,710
----------
Total Debt Consolidation and Reduction $1,407,776
==========
</TABLE>
Notes:
(1) Creditor is a corporation owned and controlled by unaffiliated
shareholders of the Company.
(2) Obligation was incurred subsequent to March 31, 1997. Proceeds were
applied to working capital.
(3) During the year ended December 31, 1997 dividends payable to Mr. Ricks
in the amount of $42,417 were converted into a stockholder loan. A
portion of these obligations were incurred subsequent to March 31,
1997. Proceeds of these obligations were applied to working capital.
(4) Creditor is a controlling shareholder, director and president of the
Company.
(5) Creditor is an unaffiliated shareholder of the Company.
(6) Creditor is a director of the Company.
(7) None of such creditors or lessors are affiliated or associated with the
Company.
(8) Under the Internal Revenue Code the net income of an S Corporation
constitutes income to its shareholders in proportion to their
shareholdings. Upon completion of this offering the Company will cease
to be an S Corporation.
23
<PAGE> 24
MARKET FOR COMPANY SECURITIES AND RELATED SECURITYHOLDER MATTERS
Prior to this offering, there has been no public market for the Common
Stock or the stock options of the Company nor have any warrants (stock options
in tradeable form) been outstanding. There can be no assurance that a public
market for the Common Stock or the Redeemable Warrants will develop after this
offering. The Company anticipates that upon completion of this offering that its
Common Stock and the Redeemable Warrants will be traded on the NASDAQ SmallCap
Market.
Presently, the Company has 1,690,000 shares of Common Stock issued and
outstanding which are held by approximately 22 persons. An additional 487,500
shares of Common Stock are subject to issuance upon exercise of outstanding
stock options. Upon completion of this offering, 1,500,000 of the 1,690,000
outstanding shares of Common Stock will be eligible for sale under Rule 144 of
the Securities Act of 1933, as amended. Notwithstanding the foregoing, and
except as described herein, the Company's officers and directors, the holders of
the 460,000 stock options exercisable at $5 per share (the "$5 Option Holders"),
and the holders of 5% or more (the "5% Shareholders") of the outstanding shares
of the Company's Common Stock immediately prior to the date of this Prospectus,
have agreed with the Representative not to sell any of their Shares, options, or
underlying Shares for an 18 month period following the closing of this offering
(the "Initial Lock-Up Period"). The Representative has agreed however, that the
Company's officers and directors, $5 Option Holders and 5% Shareholders can sell
up to 25% of their Shares, pursuant to Rule 144 of the General Rules and
Regulations under the 1933 Act, during the Initial Lock-Up Period, at any time
subsequent to 12 months after the date of this Prospectus, provided that the
Share market price, adjusted for splits and like transactions, has closed at or
above $7.50 for a period of 20 consecutive days within 10 days of any sale by
them. The 5% Shareholders have further agreed not to sell or transfer any of
their Shares for an additional 18 month period unless the Share market price,
adjusted for splits and like transactions, has closed at or above $7.50 for a
period of 20 consecutive days within 10 days of any sale by them (see
"Underwriting").
The Company is an S Corporation. Accordingly, its net income is income
to its shareholders in proportion to their shareholdings. Upon completion of
this offering the Company will cease to be an S Corporation. It paid dividends
during the years ended December 31, 1997 and December 31, 1996 in the respective
amounts of $106,000 and $27,583. There are no restrictions that limit the
Company's ability to pay dividends on the Common Stock or which are likely to do
so in the future. Notwithstanding the foregoing, for the foreseeable future, it
is anticipated that any earnings which may be generated from operations of the
Company will be used to finance the growth of the Company and that cash
dividends will not be paid to stockholders (see "Risk Factors - Dividends Not
Likely").
During the year ended December 31, 1997 dividends payable to Michael
Ricks, president and a principal shareholder of the Company, in the amount of
$42,417, were converted to a stockholder loan (see "Use of Proceeds - Debt
Consolidation and Reduction").
24
<PAGE> 25
DILUTION
The following table sets forth as of March 31, 1998 the difference
between the present stockholders and the new stockholders with respect to the
number of Shares purchased from the Company in the offering, the total cash
consideration paid and the average price per Share, assuming an initial public
offering price of $5.00 per Share and before the deduction of underwriting
discounts and commissions and offering expenses payable by the Company. The
table does not assume the exercise of any outstanding stock options, including
27,500 dilutive options, the Redeemable Warrants, the Representative's Warrants
or the exercise of the Underwriter's Over-allotment option.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- -----------------------
Percent Percent Average Price
Number of Total Amount of Total Per Share
------ -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C>
Present stockholders(1) 1,690,000 62.8% $ 141,522 2.8% $ .08
New stockholders 1,000,000 37.2% $5,000,000 97.2% $5.00
--------- ----- ---------- -----
TOTAL 2,690,000 100% $5,141,522 100% $1.91
</TABLE>
(1) All issuances of shares to present shareholders are historical. No
shares have been issued since March 31, 1998 to date.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998 and as adjusted to give effect to the issuance and sale by the
Company of the Shares offered hereby. The table does not assume the exercise of
the Representative's Over-allotment Option, the Redeemable Warrants, the
Representative's Warrants or any outstanding stock options. It gives effect to
the Company's February 1998 fifteen-for-one forward stock split and February 16,
1998 acquisition of B&B. This table should be reviewed in conjunction with the
December 31, 1997 and 1996 consolidated audited financial statements of the
Company and B&B, the June 30, 1998 and 1997 six-month consolidated unaudited
financial statements of the Company and B&B and the notes thereto included
elsewhere in this Prospectus:
25
<PAGE> 26
<TABLE>
<CAPTION>
June 30, 1998(1)
---------------------------
Actual As Adjusted
<S> <C> <C>
Notes payable $ 80,389 $ -0-
Current portion of long-term debt 87,326 5,236
Current portion of capital lease obligations 70,127 -0-
Long term debt, net of current portion 545,873 154,764
Capital lease obligations, net of current portion 121,583 -0-
Stockholders' equity
Common stock, $.001 par value;
10,000,000 shares authorized;
1,690,000 shares issued and outstanding(2);
2,690,000 shares as adjusted(1)(2) 1,690 2,690
Additional paid-in capital 139,902 4,343,073
Retained earnings 511,712 511,712
---------- ----------
Total Stockholders' equity 653,304 4,857,475
---------- ----------
Total Capitalization $1,558,602 $5,017,475
</TABLE>
(1) Does not include stock issuable on the exercise of any options or
warrants, including the underwriter's over-allotment option.
(2) All issuances of shares described above are historical. No shares have
been issued since March 31, 1998 to date.
DIVIDEND POLICY
The Company, by reason of its contemplated future financial
requirements and business plans, does not contemplate or anticipate paying any
dividends upon its Common Stock in the foreseeable future. The Company presently
plans to retain earnings, to the extent that there are any, to finance the
development and expansion of its business (see "Risk Factors").
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's current operations consist of the activities of the
Company and its wholly owned subsidiary, B&B. The Company's principal business
is the removal, transportation, treatment and disposal of liquid waste; the
installation, maintenance and repair of residential and commercial waste
management systems; and the removal and disposal of food service grease from
restaurants and other food service establishments. All statistical references to
the Company under Management's Discussion and Analysis of Financial Condition
and Results of Operations are to the Company and B&B on a consolidated basis.
26
<PAGE> 27
The following information is intended to highlight key developments in
the Company's operations and to identify other factors affecting the Company's
results of operations and its liquidity and capital resources on a consolidated
basis for the years ended December 31, 1997 and December 31, 1996 and for the
six-month periods ended June 30, 1998 and 1997. The information should be read
in conjunction with the audited consolidated financial statements and notes
thereto set forth elsewhere in this Prospectus.
<TABLE>
<CAPTION>
12 MONTHS ENDED DECEMBER 31 6 MONTHS ENDED JUNE 30
------------------------------------------------- -------------------------------------------
1996 % 1997 % 1998 % 1997 %
----------- ------ ----------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,682,566 100 $ 2,245,008 100 1,060,892 100 1,147,881 100
Cost of Sales $ 1,522,476 90.49 $ 1,091,196 48.61 567,200 53.46 596,996 52.01
Gross Profit $ 160,090 9.51 $ 1,153,812 51.39 493,692 46.54 550,885 47.99
SG&A Expense $ 518,176 30.80 $ 522,203 23.26 212,747 20.05 217,829 18.98
Operating Profit $ (358,086) (21.29) $ 631,609 28.13 280,946 26.48 333,058 29.02
(Loss)
(Gain) or Loss on $ (245,446) (14.59) $ 35,828 1.60
Disposal of Fixed
Assets(1)
Interest Expense $ 103,421 6.15 $ 173,923 7.75 46,654 4.39 69,524 6.06
Historical Net (Loss) $ (216,061) (12.85) $ 421,858 18.78 234,391 22.09 263,534 22.96
Income Before
Income Taxes
Proforma Income Tax $ 76,000 4.52 $ (148,000) (6.59) (82,000) (7.73) (92,000) (8.01)
(Expense) Benefit
Proforma Net Income $ (140,061) (8.33) $ 273,858 12.19 152,391 14.36 171,534 14.95
(Loss)(2)
Proforma Net (Loss) $ (.09) $ .18 $ .09 $ .11
Income per Common
Share(2)
*No. of Shares 1,500,000 1,500,000 1,608,122 1,500,000
Outstanding
</TABLE>
* Gives effect to February 1998 15 for 1 stock split
(1) The gain on disposal of fixed assets for 1996 resulted from the sale of
routes to CBP in October of 1996. The gain of $379,000 was offset by
write-offs on equipment to a lower book value. The loss on disposal of
fixed assets for the twelve months ended December 31, 1997 resulted
from the Company's early termination of an equipment lease.
(2) The unaudited proforma information represents income tax expense which
would have been recorded had Weststar been a taxable corporation based
on the tax laws in effect during the period.
27
<PAGE> 28
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Results of Operations
The Company's revenues were $2,245,008 for the year ended December 31,
1997, an increase of $562,442 or 33.43% over the year ended December 31, 1996.
This increase in revenues was due to an increase in sales of $942,062 to the
government sector. The foregoing sales increase was offset to a certain extent
however, by the reduced revenues from the Company's grease trap business
directly attributable to the 1996 Sale to CBP (the "Agreement").
Revenues in 1997 were increasingly derived from the government sector
versus the private sector. 67.6% of revenues, or $1,709,834, were generated by
government sources for the year ended December 31, 1997 as compared to 43.2%, or
$767,769 for the year ended December 31, 1996.
Cost of sales for the year ended December 31, 1997 were $1,091,196 or
48.61% of gross revenues as compared to cost of sales of $1,522,476 or 90.49% of
gross revenues for the year ended December 31, 1996. The large improvement in
cost of sales resulted primarily from the sale of grease trap business routes in
North Carolina and South Carolina in connection with the 1996 Sale and the
discontinuation of the Company's licensing arrangement with Roto Rooter. Vehicle
operating costs in 1997 were up by $46,334 or 20.65% when compared to the same
costs in 1996 primarily due to an increase in equipment rentals and repairs.
Labor and benefit costs in 1997 were down $283,882 or 39.90% when compared to
the same costs in 1996. This decline was primarily due to the October 1996
cancellation of the Company's license agreement with Rotor Rooter which required
the Company to bear high labor costs and to the decline in labor requirements
resulting from the 1996 Sale. The Company has replaced equipment as needed and
depreciation expense remained relatively constant at $208,576 in 1997 as
compared to $214,097 in 1996. A major component of direct costs is insurance
expense, which the Company seeks to obtain at the most competitive rates. For
the year ended December 31, 1997 insurance expense was $98,222, down from
$176,636 for the year ended December 31, 1996. This large decrease was a result
of lower workman's compensation costs and a determined effort by the Company to
shop rates and get the lowest cost possible. The increased business volume with
the government and municipality sector in 1997 also resulted in a lower cost of
sales compared to 1996, thereby contributing to the higher gross margin.
Selling, general and administrative expenses were $522,203 for the year
ended December 31, 1997 as compared to $518,176 for the year ended December 31,
1996. Although the dollar amount of expenses were similar for each of 1997 and
1996, as a percentage of sales, 1997 selling, general and administrative were
23.26% as compared to 30.80% in 1996 reflecting the Company's greater efficiency
in expense control in relation to revenues.
SG&A salary and wages for the year ended December 31, 1997 were
$306,953 as compared to $258,458 for the year ended December 31, 1996. This
18.76% increase was due to addition of a part-time accounting person and an
in-house attorney. Interest expense rose from $103,421 for the year ended
December 31, 1996 to $173,923 for the year ended December 31, 1997. This
represents a 68% increase. The increase was caused by several factors including
the Company's replacement of lower cost long term debt with more expensive short
term debt and the
28
<PAGE> 29
Company's incurring greater equipment lease fees and costs, part of which were
treated as interest expense.
Liquidity and Capital Resources
For the year ended December 31, 1997 the Company financed its
activities primarily from cash flow from operations and loans from stockholders
and other financial lenders. The Company generated $310,392 net cash from
operations and used $219,189 of this cash to purchase property and equipment.
The Company used $84,970 of the remaining cash funds for financing activities.
This left $6,233 in increased cash for the year ended December 31, 1997. For the
year ended December 31, 1996, the Company used debt along with the sale of a
portion of its grease trap routes to finance its operations. Proceeds from
investing activities in the amount of $500,000 and net cash from borrowings and
repayments of $140,181 was used to purchase $608,863 of property and equipment.
During 1996, the Company sold a portion of its grease trap business
consisting of specific customer routes in North Carolina, Virginia, Tennessee,
West Virginia, South Carolina, Alabama, Maryland and the District of Columbia.
The sale price totaled $500,000 consisting of $379,000 for the customer routes
and $121,000 for a tanker truck used to service the routes. As part of the
agreement, Weststar entered into a 10-year covenant not-to-compete with the
purchaser in the specified geographic areas. All revenue from the sale was
recognized in 1996.
As a Subchapter S Corporation, the individual stockholders pay taxes on
profits. Dividends have been declared in the past to enable the Company's
stockholders to pay their taxes. Dividends of $106,000 were paid in the year
ended December 31, 1997 compared to $27,583 of dividends which were paid in the
year ended December 31, 1996. Upon the successful completion of this public
offering, the Company plans voluntarily to revoke its Subchapter S election.
Once the Company has converted to a Subchapter C Corporation, it will no longer
be necessary to pay dividends for this purpose for fiscal 1998 and beyond. The
current working capital position (current assets less current liabilities) of
the Company at the year ended December 31, 1997 was a negative $731,150 as
compared to a negative working capital position of $962,761 at the year ended
December 31, 1996. Stockholder loans of $319,634 at December 31, 1997, and
$220,911 at December 31, 1996 are classified as current liabilities since they
were made on a demand basis, even though they are subordinated to financial
debt. Part of the proceeds from the offering is intended to be utilized to pay
off the Company's short and long term debt. This is expected to free up
approximately $25,000 per month which is currently utilized by the Company to
service such debt.
For the year ended December 31, 1997, the Company had pre-tax profits
of $421,858 as compared to a loss of $216,061 for the year ended December 31,
1996 and pre-tax profits of $493,240 for the year ended December 31, 1995. In
1996, the Company decided to cancel its Roto Rooter license for Jacksonville,
Florida and sell a portion of its grease trap routes to CBP Resources, Inc.
These two events were a major factor contributing to this loss in 1996. Also,
net loss on disposal of assets was $133,554. Net income as a percentage of
revenues was 18.78% for 1997. Net loss as a percentage of revenues was (12.85%)
for 1996.
29
<PAGE> 30
The Company put increased emphasis on the government sector in 1997 and
expects to continue to bid on additional government jobs in the future. The
major emphasis for the Company in the next two years will be to gain access to
the yellow grease market since the current customer base gives the Company an
inroad to a readily available supply of yellow grease. In addition, the Company
plans to build belt-processing plants to allow for a more efficient method of
land applying wastewater bio-solids and brown grease. Strategic acquisitions in
the same or similar lines of business will be sought out to expand the Company's
geographical territory and increase revenues without deteriorating the Company's
net profit margin. To accomplish this task, the Company will need to expand its
management team to successfully integrate the acquired companies into a
synergistic unit.
COMPARISON OF SIX (6) MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Results of Operations
Revenues for the six (6) months ended June 30, 1998 were $1,060,892,
down 7.6% from revenues of $1,147,881 for the six (6) months ended June 30,
1997. This decrease was due to a smaller number of emergency jobs for the
J.E.A./City of Jacksonville in the first half of 1998 versus 1997. The
J.E.A./City of Jacksonville will be doing $250,000,000 of work starting in the
last half of 1998. Cost of sales for the six months ended June 30, 1998 were
$567,200 or 53.46% of sales as compared to $596,996 or 52.01% of sales for the
six months ended June 30, 1997. The decrease in margin was mainly due to labor
and benefits increasing by 2.49% as a percentage of sales. This decrease in
gross margin was somewhat offset by a decrease in insurance expense in the six
months ended June 30, 1998 of 1.64% as a percentage of sales.
The make-up of the Company's revenues for the first half of 1998 were
generated by government sources (78.8%) and private sector work (21.2%). The
increased percentage of government work came mainly from the City of
Jacksonville. Management expects this reliance on government work to decrease in
the future (as a percentage of revenue) as the Company expands its proposed
additional lines of non-governmental business.
Selling, general, and administrative expenses were $212,747 or 20.05%
for the first six months of 1998 as compared to $217,827 or 18.98% for the first
six months of 1997. Although actual dollars were decreased by $5,081; as a
percentage of sales, expenses were up by 1.07%. This was due to an increase in
travel expense in 1998 as compared to 1997.
The Company believes that the Year 2000 problem will not have a
material effect on its operations and competitive position. For a fuller
discussion of the Year 2000 problem and the Company's belief as aforesaid,
reference is made to "Business-Effect of Year 2000 Problem". Liquidity and
Capital Resources
For the six months ended June 30, 1998 the Company financed its
activities from cash flow generated from operations and a mortgage loan. Cash
flow of $291,006 was used to pay-down debt by $143,802 and to make capital
expenditures of $52,396. This left $94,808 in increased cash for the end of the
six months. For the six months ended June 30, 1997, the Company financed its
activities with debt and cash from operations. Cash from operations of $337,011
and new debt of
30
<PAGE> 31
$283,545 was used to make capital expenditures of $142,678 and to pay down debt.
Net cash increased by $9,133 for the six months ended June 30, 1998.
The Company intends to use $500,000 of the proceeds of this offering
for the construction of a grease processing facility. No material commitments
for such construction have been made by the Company. The Company anticipates
that $500,000 is wholly sufficient to build this facility and to lease the
underlying land. In the unexpected event that this amount proves to be
inadequate, the equipment will be leased rather than purchased to the extent
necessary to cure the deficiency (see "Business - Waste Recycling").
Net profits after interest expense of $46,554 and depreciation of
$116,327 for the six months ended June 30, 1998 were $234,391 as compared to
$263,534 for the six months ended June 30, 1997. Interest expense and
depreciation in the six months ended June 30, 1997 were $69,524 and $107,258,
respectively. As the Company continues to pay down its debt, interest expense
will continue to decrease. The profit margin of 22.09% after six months in 1998
was very close to the 22.96% profit margin for the first six months of 1997. The
decrease in profit margin related to the smaller number of emergency jobs
handled in 1998. The profit margin on these jobs is higher than day-to-day work,
so in 1997 profits were slightly higher for the first six months of the year.
With a profit margin of 15.28% for the first three months of 1998 as compared to
a profit margin of 23.23% for the first three months of 1997, the Company added
more profitable business in the second quarter to close the gap between 1998 and
1997.
BUSINESS
GENERAL
Corporate History
The Company was incorporated in the State of Florida on June 26, 1990.
In February 1994 the Company's shareholders purchased B&B from unaffiliated
third parties to take advantage of the operating efficiencies presented by the
purchase of an entity also engaged in the non-hazardous liquid waste management
field and to take advantage of B&B's tax loss carryforwards. B&B was purchased
by the Company's shareholders rather than by the Company, since the Company was
a Subchapter S corporation at the time of purchase, and therefore unable to own
B&B directly. On February 16, 1998 the B&B shareholders, whose ownership of B&B
common stock duplicated their ownership of the Company, transferred ownership of
B&B to the Company.
Effective April 29, 1997 the Company entered into an Agreement and Plan
of Reorganization (the "Plan of Reorganization") with Northstar Holding
Corporation, a Florida corporation ("Northstar"), Weststar Acquisition Corp., a
Florida corporation ("Weststar Acquisition"); B&B; B&B Acquisition Corp., a
Florida corporation ("B&B Acquisition Corp."); and Michael E. Ricks. The Plan of
Acquisition resulted in the acquisition of the Company and B&B, by Weststar
Acquisition (the "Weststar Corporate Acquisition") and B&B Acquisition (the "B&B
Corporate Acquisition"), respectively, in separate but simultaneous reverse
triangular merger transactions, whereby the surviving corporations following
such mergers were the Company and B&B. At the time of such transactions, the
Company and B&B had common ownership and common
31
<PAGE> 32
management and Northstar, Weststar Acquisition and B&B Acquisition had common
ownership and common management. The mergers were accomplished in contemplation
of the subsequent acquisition of the Company and B&B by Northstar (the
"Northstar Corporate Acquisition"), a company without assets or liabilities
which was intended to serve as a holding company for the Company and B&B.
Subsequent to the execution of the Plan of Reorganization, but prior to the
proposed Northstar Corporate Acquisition, the parties abandoned their plans to
have Northstar serve as a holding company. In connection with the execution of
the Plan of Reorganization, Northstar's three shareholders, William Perry, Marie
Stubbs and Peggy Stubbs, transferred 1/3 of the shares of Northstar and two
other companies owned by them, Empire Energy, Inc. and Southern Trailer
Manufacturing Inc., to the shareholders of the Company. In consideration
thereof, the shareholders of the Company and B&B, who held in the aggregate
100,000 shares of each of the Company and B&B, transferred an aggregate of
66,667 of the shares of each of the Company and B&B to the three former
shareholders of Northstar. Subsequently, effective November 14, 1997 Northstar
was merged with and into the Company with the Company being the surviving
corporation.
The Company amended its articles of incorporation on February 16, 1998
for the purpose of increasing the Company's authorized capital from 100,000
shares of common stock, $1 par value, to 10,000,000 shares of common stock,
$.001 par value. This was done in contemplation of this offering and to effect a
stock split. Pursuant to such stock split, the Company's 100,000 outstanding
shares of common stock were converted at the rate of 15-for-1 into 1,500,000
shares of common stock. Subsequent to the certificate amendment and stock split,
the Company has issued an additional 190,000 shares of common stock (see
"Certain Transactions").
Industry Overview
In the United States the collection and disposal of non-hazardous waste
is a major industry. Industry revenues are derived primarily from collection and
hauling services, disposal services and processing/recycling services. The
non-hazardous waste industry is regional in nature and highly fragmented. It is
currently estimated that 95% of industry revenue is accounted for by
approximately 23,000 private, predominantly small, collection and disposal
businesses; 2% by municipal governments that provide collection and disposal
services; and the remainder by large, publicly-traded non-hazardous waste
companies.
As a result of increasingly strict regulation, the technical,
managerial and financial resources needed by most companies to operate a
non-hazardous waste business have grown significantly. The increase in
regulation has required, and will continue to require, commensurate increases in
technical sophistication and capital expenditures to meet new standards for the
construction and operation of waste facilities. As a result, the Company
believes that many private waste disposal facilities and companies are being
sold to larger, better capitalized companies. In addition, many municipalities
are choosing to privatize their collection and disposal services, due primarily
to the ability of the private sector to perform these operations more
efficiently and economically.
Another factor expected to affect the non-hazardous waste industry is
the increasing mandate to recycle waste materials. This mandate is expected to
reduce the volume of waste disposed in landfills, but may provide additional
revenues for collection and processing operations.
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The ability of industry participants to engage profitably in recycling
operations will depend in large part on the further development of markets for
recycled products and the market prices available for recyclable materials.
The preponderance of the Industry Overview statistical data set forth
above is based upon information obtained by the Company at the 1998 Pumper &
Cleaner Environmental Exposition (the "Exposition") that was held in Nashville,
Tennessee during the period February 26-28, 1998. This data includes the
estimated revenues of $25 billion in 1997 generated by the U.S. non-hazardous
waste collection and disposal industry. The Company also obtains various
operating, equipment, methodology and statistical data from a leading trade
publication, Pumper magazine, publications of the Florida Department of
Environmental Protection including "Biosolids Management in Florida" and other
private and governmentally published literature. The Exposition, together with
the personal knowledge and experiences of Company management, also serves as the
basis for the Company's beliefs, understandings and opinions regarding the waste
management industry that are expressed throughout this Prospectus. Neither the
Company nor any persons affiliated with the Company have any previous or current
relationships with any of the speakers or other persons affiliated with the
Exposition.
Growth Strategy
The Company believes that continuing initiatives of government
authorities relating to environmental and waste disposal problems have resulted
in significant opportunities, through internal growth and acquisition, for waste
management companies. The Company intends to use a portion of the proceeds of
this offering to expand its existing facilities, to acquire other waste
management companies or facilities, and to grow and expand the range of services
offered by the Company. Although the Company has identified certain areas for
potential growth and expansion, there can be no assurance that the Company will
be able to grow and expand its operations successfully.
The Company's growth strategy will be to add to its service lines, to
increase the capacity and service area of its existing service lines, and to
expand its geographic presence through acquisitions and internal development. In
particular, the Company intends to seek opportunities to acquire businesses that
will permit the Company to offer additional services to its existing customers,
to introduce its existing services to customers of the acquired companies, and
to offer its services to new customers in new markets. The Company also intends
to acquire businesses with facilities located in new geographic markets,
generally within reasonably close proximity to an existing Company facility. The
Company believes that strategic location of its facilities in this manner will
enable it to maximize utilization of its equipment and personnel and to satisfy
special customer needs (see "Business - Property and Equipment"). The Company
also believes that strategic acquisitions will enable the Company to achieve
economies of scale and operating efficiencies resulting from shared management,
administrative, marketing and operating staffs. There can be no assurance given
however that expected efficiencies and economies of scale will be realized.
The Company may also consider the acquisition of larger businesses or
businesses with facilities in geographic markets that are not adjacent to its
existing service facilities. The Company
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may effect future acquisitions by issuing its Common Stock to the selling
parties or through debt or equity financings. To the extent that the Company
issues Common Stock as consideration for or to fund future acquisitions, the
equity interests of its then current stockholders may be diluted. Although the
Company has engaged in discussions regarding possible acquisitions from time to
time, it currently has no commitments or negotiations in progress to acquire or
make investments in other businesses. Further, no assurance can be given that
desired acquisition opportunities will be available, if at all, or on terms
which the Company deems favorable, or that if consummated, such acquired
businesses can be successfully integrated into the Company's operations or prove
profitable (see "Risk Factors - Dependence on Acquisitions for Growth;
Availability of Acquisition Targets; Potential Liabilities Associated with
Acquisitions and Ability to Manage Growth; To Integrate Acquired Businesses and
to Achieve Operating Effectiveness").
Notwithstanding the Company's intentions, increased competition for
acquisition candidates may result in fewer acquisition opportunities being made
available to the Company as well as less advantageous acquisition terms which
may increase acquisition costs to levels that are beyond the Company's financial
capability or that may have an adverse effect on the Company's business and
results of operations. Accordingly, no assurance can be given as to the number
or timing of the Company's acquisitions or as to the availability of financing
necessary to complete an acquisition. The Company also believes that a
significant factor in its ability to consummate acquisitions following the
offering will be the attractiveness of the Company's Common Stock as an
investment to potential acquisition candidates. Such attractiveness may, in
large part, be dependent upon the market price and capital appreciation
prospects of the Company's Common Stock compared to the equity securities of the
Company's competitors. Many of the Company's competitors for acquisitions are
larger, more established companies with significantly greater capital resources
than the Company and whose equity securities may be more attractive than the
Company's Common Stock. To the extent the Company's Common Stock is less
attractive to acquisition candidates, the Company's acquisition program may be
adversely affected.
SERVICES
Removal, Transport, Treatment and Disposal of Bio-Solids, Grease and Septic
Waste
The Company services both the public (governmental) and private
(residential/commercial) sector in the removal, transportation, treatment and
disposal of non-hazardous waste materials including bio-solids, food service
generated grease and septic waste which is processed and/or disposed of by the
Company at environmentally approved treatment and disposal sites. The Company's
waste removal, transport, treatment and disposal operations provided revenues
during the fiscal years ended December 31, 1997 and December 31, 1996 in the
respective amounts of $2,245,008 and $1,682,566. Within this service line, the
Company categorizes revenues in terms of bio-solid and septic waste removal,
transport, treatment and disposal; and brown grease removal, transport,
treatment, and disposal. Brown grease is food service generated grease that
results from, among other things, the process of washing meats, fruits and
vegetables and/or from washing dishes. During the fiscal years ended December
31, 1997 and December 31, 1996, the bio-solid and septic waste category
accounted for sales revenues of $1,918,205 and $1,026,879.35, respectively.
During the same periods, the brown grease category accounted for sales revenues
of $326,803 and $655,686.65, respectively. The Company expects the grease
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category, including its proposed future operations involving yellow grease, to
experience the greatest rate of growth of any category over the next five years
(see "Business - Services - Waste Recycling"). The Company anticipates that
during this period it will become responsible for 50% or more of the Company's
operating revenues. No assurance can be given, however, that this will prove to
be the case. During the years ended December 31, 1997 and December 31, 1996, the
waste removal, transport, treatment and disposal category, as a whole, accounted
for a significant portion of the Company's sales revenue.
Asset Sale Agreement - Business Restrictions
The Company entered into an Asset Sale and Purchase Agreement (the
"Asset Sale Agreement") with CBP Resources, Inc. ("CBP"), a Delaware
corporation, as of October 4, 1996, pursuant to which the Company sold to CBP,
substantially all of the assets, excluding real property, owned by the Company
in the operation of its grease trap business in the states of North Carolina,
South Carolina, Tennessee, Virginia, West Virginia, Maryland, Alabama, and the
District of Columbia (the "Prescribed Territory"). The purchase price paid by
CBP to the Company pursuant to the Asset Sale Agreement was $500,000, $121,000
of which was allocated to the purchase of machinery and equipment with the
balance of $379,000 being allocated to the purchase of the Company's grease trap
business customer accounts in the Prescribed Territory. The Asset Sale Agreement
contains a non-compete provision which provides that, for a period of ten years
from October 4, 1996, the Company can not own, manage or operate, in any
capacity, any entity within the Prescribed Territory or within a fifty-mile
radius around the borders lines of the Prescribed Territory and a one hundred
mile area or radius around any operating facility owned, operated or leased (the
"Operating Facilities") by CBP (the "Extended Territory") as of October 4, 1996
that was then engaged in the grease trap business, the recycling of waste frying
oil business, and/or the rendering business or that was then engaged in the sale
of any related products or services including those products and services which
were manufactured, sold, distributed or provided by the Company at the time of
the Asset Sale Agreement. As of October 4, 1996, all CBP Operating Facilities
were located within the Prescribed Territory. The Company has further agreed
that during such ten year period, it will not solicit or accept orders or
business relating to the aforementioned business activities within the
Prescribed Territory or the Extended Territory, from any of its existing
customers or active prospects as of October 4, 1996 or from any former
customers. Also contained in the Asset Sale Agreement is a right of first
refusal in favor of CBP. It provides that, if at any time during the ten year
period commencing October 4, 1996, the Company, an affiliate of the Company, or
any shareholder of the Company, makes an offer to sell any business within the
Prescribed Territory or Extended Territory engaged in the grease trap business,
waste frying oil business or the rendering business, that the Company will give
written notice to CBP of the terms of any such proposed sale. CBP shall
thereafter have thirty days to negotiate an agreement with the seller of such
business.
Pursuant to the Asset Sale Agreement, the Company's president, Michael
E. Ricks, entered into a four-year Consulting and Non-Competition Agreement (the
"Consulting and Non-Competition Agreement") with CBP effective October 4, 1996.
The Consulting and Non-Competition Agreement requires Michael Ricks to assist
CBP with the transition of accounts from the Company to CBP and provides for
payment to Mr. Ricks of a consulting fee of $2,500 per month for his consulting
services throughout the 48-month term of the consulting portion of the
Consulting and Non-
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<PAGE> 36
Competition Agreement. The non-compete section of the Consulting and
Non-Competition Agreement contains similar terms to those in the Asset Sale
Agreement with regard to geographic area, duration (10 years) and scope. In
consideration of the non-compete provisions contained in the Consulting and
Non-Competition Agreement, CBP further agreed to pay Mr. Ricks the aggregate sum
of $200,000, payable in yearly $20,000 installments.
The Asset Sale Agreement contains a provision that allows CBP, at any
time during the ten year non-compete period, to discontinue servicing accounts
within the Prescribed Territory and/or Extended Territory and to thereafter
grant the Company the right to service such accounts subject to terms and
conditions to be negotiated between CBP and the Company. CBP's grant of rights
to the Company to service accounts in such manner constitutes a limited waiver
of the non-competition agreement. Each waiver is valid for one year from the
date of grant and is subject to renewal, on an annual basis, if mutually agreed
to by the parties. Pursuant to such provision, CBP has chosen, in several
instances, not to service accounts that are not within close proximity to CBP
Operating Facilities. In connection therewith, the Company is presently
servicing approximately 233 accounts in the states of Tennessee, Alabama, West
Virginia and Maryland. Most of the grease collected by the Company in such
states is presently disposed of at CBP disposal sites. Similarly, CBP permits
the Company to solicit new accounts within the Prescribed Territory and Extended
Territory with the prior approval of CBP. In addition to the foregoing, CBP has
recently advised the Company that it expects to be able to offer the Company
additional business in the District of Columbia and the states of Delaware,
Georgia, Maryland, Pennsylvania, Tennessee, Virginia and West Virginia. No
assurance can be given however that this will prove to be the case.
Waste Treatment
The Company engages in septic waste and brown grease treatment and
recycling through the operation of its Deland, Florida lime stabilization plant.
The Company engages in bio-solid and brown grease treatment and recycling
through its operation of the Lake Butler, Florida lime stabilization plant (see
"Business - Property and Equipment"). The bio-solids treated at Lake Butler are
derived, in part, from the wastewater treatment process which takes place at the
same plant. The treatment process removes solid material from the liquid waste.
The collected material, called bio-solids, residuals, or sewage sludge, is
valuable as a soil conditioner and fertilizer because it is high in organic
content and contains nutrients required by plants. Many agricultural operations
need soil amendments and bio-solids have some properties that are not found in
many other commercially available fertilizers, such as organic matter, trace
elements, and slow nutrient release. Bio-solids have been shown to substantially
lower fertilization costs. These factors, combined with improved regulations to
protect public health and the environment, have helped to increase the
proportion of bio-solids being used for agricultural land application. At the
present time, the Company disposes of the collected materials from the treatment
process at approximately 6 governmentally approved land application sites
located in Florida and on occasion also uses governmentally approved Florida
landfills. These land application and landfill sites are owned by third parties
and disposal is made under informal arrangements with the owners and operators
thereof. The Company believes alternative or additional sites are readily
available at competitive rates. Any change in availability or rate structure
would have an adverse effect on the Company's operations (see "Risk Factors -
Dependence on Third Party Landfills and Land Application Sites").
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Bio-solids have been produced and land applied since municipalities
began to treat liquid waste about 150 years ago. Application to the land, either
for disposal or fertilization, has been a natural solution. To achieve and
maintain public acceptance, land application of bio-solids is accomplished in a
way that protects public health and the environment. The public must be
protected from exposure to harmful microorganisms or dangerous levels of
chemical pollutants, and management practices are geared to protect the
environment from harm. Land application must not cause objectionable odors or
other aesthetic problems, which may foster public opposition. To meet these
challenges, regulations at both the federal and state levels specify acceptable
treatment, management, and beneficial use practices. Land applied bio-solids
must meet regulatory limits on pollutant concentrations, requirements for
destruction of potentially harmful microorganisms, and standards for reduction
of attractiveness to vectors such as flies and rodents that can transmit the
microorganisms to humans. Land application sites also are subject to site
management requirements that provide further protection for public health and
the environment.
Repair, Maintenance and Installation of Commercial and Residential Waste Systems
The Company installs, maintains and repairs commercial and residential
waste disposal systems including septic tanks, drain fields, and grease traps.
Septic tanks are sewage disposal tanks generally utilized on residential
property which is not connected to municipal water and sewer lines. Drain fields
are effluent disposal systems generally utilized in conjunction with septic tank
systems which are not connected to municipal sewer lines. Grease traps are
devices generally utilized by restaurants, supermarkets, food processors, and
others in the food service industry to contain, segregate and prevent cooking
grease and related waste products from entering the sewage system. This service
line provided revenues to the Company during the fiscal years ended December 31,
1997 and December 31, 1996 in the respective amounts of $108,453 and $324,000.
The principal reason for such decline was the termination of the Company's
license agreement with Roto Rooter (see "Business - Customers").
The commercial segment of the market generally involves grease trap
pump outs with service charges ranging from $75 - $200 per trap on a monthly
maintenance contract. The Company also handles large lift station disposal jobs
with charges ranging between $175 - $450 per station based on station size.
The residential segment of this market involves various types of
services. The Company's residential pump outs are generally based on septic tank
pump outs with service charges of $120 - $205 per septic tank pump out based on
size. Repair prices range between $125 - $400 on average for minor work and
between $1,100 - $5,000 on average for large repair work such as drain field
installations.
This line of services generally involves long-term customer
relationships. Routine maintenance of septic systems through pump outs should be
carried out every three to five years. Grease trap maintenance through pump outs
should be carried out every month based on the frequency of trap use. Commercial
lift stations should be pumped four times a year. Lift stations are utilized to
allow liquid waste to flow uninterruptedly through pipes despite changes in pipe
dimensions or pipe elevations.
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The waste system repair, maintenance and installation service category
was responsible for 4.8% and 19.3% of the Company's sales revenues during the
years ended December 31, 1997 and December 31, 1996, respectively, and is
expected to continue to account for a small percentage of Company revenues in
the future. The services provided by the Company with regard to this aspect of
its business are, for the most part, similar to those provided by the Company's
competitors. The Company believes its prices to be comparable to most of its
competitors. The Company believes it has a competitive advantage, however, with
regard to quality of service but cannot say so with any certainty.
Waste Recycling
The Company's waste recycling business is in the developmental stage
and is not expected to commence material commercial operation until the Company
completes construction of a belt processing facility which is not expected to
take place prior to November 1998 (see "Use of Proceeds"). This project has not
yet advanced beyond the planning stage. The Company intends to build such
facility in or near Jacksonville, Florida but at the present time, an exact
location for the proposed facility has not been selected. A belt processing
facility is a waste treatment processing and recycling facility that utilizes a
belt filter press system to treat and separate waste. A belt filter press pushes
the waste material through a series of belts and rollers for the purpose of
segregating certain components of the waste material. A belt processing plant
will provide the Company with a more efficient method of treating wastewater
bio-solids and brown grease than is currently available to it through its
operation of the Deland and Lake Butler lime stabilization plants. Such a plant
would result in greater efficiency in separating solid materials from liquids
thereby simplifying the recycling process and lessening the amount of material
requiring land application. The Company's ability to process and recycle waste
products would be a logical extension of its waste collection and disposal
activities and in addition to resulting in saleable end products could be
expected to save the Company considerable disposal fees. The initial treatment
and recycling facility is expected to be devoted to the treatment of brown
grease and bio-solids only. Recovered bio-solids can be converted to compost and
sold to wholesale and retail gardening supply chains. Within the next 12 months,
the Company also intends to engage in yellow grease processing although no
assurance can be given that this will prove to be the case. Yellow grease, used
to fry foods in supermarkets, restaurants, food processors and other food
services establishments can be recycled into an end product with cosmetic
industry applications or into an end product with an agricultural industry
application as an animal feed supplement. The Company presently has a readily
available source of yellow grease from its contract with the Food Lion
Supermarket chain to pump their grease traps and from its contracts with several
restaurant chains including certain McDonald's and Hardees' franchises.
SALES AND MARKETING
To date, marketing has principally been conducted through the efforts
of the Company's management and administrative personnel, none of which devote
their full time to such marketing activities. The Company believes its present
arrangement to be adequate for its current needs. Marketing activities have
included direct mailings, advertisements, and community involvement. All such
activities have stressed the Company's provision of reasonably priced, high
quality,
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environmentally friendly service. Notwithstanding the restrictions placed upon
the Company by its agreement with CBP Resources, Inc. as to its engaging in the
grease trap business in the states of North Carolina, South Carolina, Tennessee,
Virginia, West Virginia, Maryland, Alabama and the District of Columbia, CBP has
subcontracted considerable grease trap business in the restricted areas and
otherwise to the Company, with whose performance CBP has expressed its
satisfaction. Based upon this, CBP has advised the Company that it intends to
expand its subcontracting business to the Company in the states of Delaware,
Georgia, Maryland, Pennsylvania, Tennessee, Virginia, West Virginia and the
District of Columbia as well as other unnamed states. In addition, the Company
is soliciting and will continue to solicit business which is not restricted by
the CBP agreement by way of the removal, transport, treatment and disposal of
septic waste and bio-solids. In this regard the Company submits bids on
municipal government contracts, solicits institutions, manufacturers and
national franchises including hospitals, manufacturers, and other appropriate
organizations, as well as grease trap business in areas not covered by the CBP
restriction.
SUPPLIES AND SUPPLIERS
The Company's business is not dependent upon any raw materials and as
such the Company is not dependent upon sources for raw materials or upon
suppliers thereof.
SEASONAL ASPECTS
The Company does not presently experience seasonal variations in its
operating results. In the event the Company increases the geographic scope of
its operations, through acquisition or expansion, to include material activity
in northern states, it may experience seasonal fluctuations in revenues marked
by lower revenues in the winter months.
RESEARCH AND DEVELOPMENT
All of the Company's research and development activities are Company
sponsored. To date, most of such activities have related to the development and
establishment of one or more waste treatment and recycling facilities. During
fiscal 1998 the Company anticipates spending approximately 5% of its gross sales
revenues on research and development. During the fiscal years ended December 31,
1997 and December 31, 1996, the Company spent approximately $126,500 and $53,310
or approximately 6% and 3% of gross sales revenues, respectively, on research
and development. The Company is presently unable to anticipate the amount of its
expenditures in this area during the current fiscal year. Its expenditures in
this category, during the six months ended June 30, 1998, were negligible.
CUSTOMERS
The Company provides its services to governmental and private sector
customers. The Company presently derives a substantial portion of its revenues
from governmental customers and it is anticipated that a substantial portion of
the Company's future revenues will be derived from
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governmental customers. The following table sets forth information relating to
the approximate dollar amounts and percentages of revenues derived from each of
governmental and private sector customers (see "Management's Discussion and
Analysis"):
<TABLE>
<CAPTION>
Year Ended December 31, 6 Months Ended June 30,
-------------------------------------- -----------------------------------
1996 1997 1998 1997
---------------- ----------------- -------------- --------------
$ % $ % $ % $ %
------- ---- --------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Private Sector............ 917,326 54.5 561,351 25.0 224,909 21.2 316,815 27.6
Governmental.............. 765,240 45.5 1,683,657 75.0 835,983 78.8 831,066 72.4
</TABLE>
The Company has been dependent on a small number of customers for a
significant portion of its revenues. For the years ended December 31, 1997 and
1996, revenues derived from three customers accounted for approximately 80.2%
and 75.0% respectively of the Company's revenues. The City of
Jacksonville/Jacksonville Electric Authority accounted for approximately 70.7%
of total sales in 1997 and approximately 41.6% of total sales in 1996. Food Lion
Supermarkets accounted for approximately 7.1% of total sales in 1997 and
approximately 15.6% of total sales in 1996. Roto Rooter accounted for
approximately 2.4% of sales in 1997 and approximately 19.8% of total sales in
1996. The non-renewal or termination of the Company's contracts with the City of
Jacksonville/Jacksonville Electric Authority and/or Food Lion Supermarkets could
have an adverse effect on the Company (see "Risk Factors - Dependence on
Government Contracts; - Dependence on Major Customers").
The Company was the lowest bidder for bio-solids hauling services for
the City of Jacksonville for the contract period January 1, 1997 through
September 30, 1997 (the "Initial Contract Period") based on its hauling price
per gallon of bio-solids. The contract provided the City of Jacksonville with
the option, at its sole discretion, to renew the contract for up to four
additional one year terms. During the Initial Contract Period, on June 1, 1997,
the City of Jacksonville, transferred and assigned all of its rights under the
contract to the Jacksonville Electric Authority (the "JEA"). On October 31,
1997, the JEA and the Company agreed to exercise the first of the four annual
renewals which covers the period October 1, 1997 through September 30, 1998 (the
"Current Contract Period"). Therein, the parties agreed that the maximum payment
by the JEA to the Company for the Current Contract Period with regard to
bio-solids hauling would be $825,000. The Company provides the JEA, without
regard to dollar amount, with other services including emergency pipe bypasses,
lift station cleaning, pipe inspections and other maintenance, repair, and
emergency services (the "Other Services"). During the twelve month period ended
December 31, 1997 the JEA paid the Company an aggregate of $1,606,000 consisting
of $623,457 for bio-solids hauling and $983,317 for Other Services. The contract
was amended June 5, 1998 for the purpose of revising the renewal provisions
thereof. Pursuant to such amendment, the parties agreed to combine the three
remaining annual renewal periods under the contract into a single term of three
years ending September 30, 2001 and to renew the contract through the end of
such three year period. The contract was further amended to adjust certain
pricing terms covered by the contract. Such adjustments include the parties
agreement that the maximum payment by the JEA to the Company with regard to
bio-solids hauling for each of the three years covered by the contract extension
will not exceed $1,250,000 per contract year. The Company's ability to provide
the JEA with Other Services without regard to aggregate annual dollar amount was
not affected by the contract amendment. Other adjustments included an increase
in the per gallon price chargeable
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by the Company for standard bio-solids hauling and a decrease in the per gallon
price for emergency bio-solids hauling necessitated by sewer overflows from
$.14391 per gallon to $.05 per gallon. At the conclusion of the contract term,
as extended, the JEA will reopen the contract for bidding. At such time the
Company intends to re-bid for the contract.
Effective September 1, 1996 the Company entered into a three year
service agreement (the "Service Agreement") with Food Lion Inc. ("Food Lion"), a
large multi-state supermarket chain, to service all Food Lion stores in
Virginia, Maryland (excluding the Ocean City area), Pennsylvania, Tennessee,
Kentucky, Florida, Georgia, South Carolina and North Carolina. It applies to the
period September 1, 1996 through August 31, 1999 and is cancelable by Food Lion
at any time upon thirty days prior notice. The Service Agreement principally
provides for the cleaning of external and internal grease traps at Food Lion
stores and the disposal of brown grease removed from the grease traps. The
Service Agreement is affected by the Company's September 25, 1996 agreement with
CBP Resources, Inc., pursuant to which the Company does not presently service
Food Lion stores in North Carolina, South Carolina, and Pennsylvania but
services Food Lion stores in Tennessee, West Virginia and Maryland at the
discretion of CBP Resources, Inc. (see "Business - Services - Removal,
Transport, Treatment and Disposal of Bio-Solids, Grease and Septic Waste"). In
connection with Food Lion stores which are serviced by CBP, the Company is
occasionally requested by Food Lion to assist CBP with services covered by the
Service Agreement. In such instances, the Company is reimbursed for their
expenses. The Company has previously operated under year to year service
agreements with Food Lion.
During the period May 1995 through October 1996 the Company operated
under a license agreement with Roto Rooter. In connection therewith the Company
was principally involved with the repair, maintenance and installation of
commercial and residential waste systems. Due to high labor costs and a low
profit margin associated with such license agreement and the services performed
by the Company thereunder, the Company terminated the license agreement in
October 1996. From November 1996 to the present the Company has continued to
provide services to Roto Rooter on a subcontract basis, all of which services
involve the hauling and disposal of food service generated grease. The Company
will attempt to utilize its planned grease processing plant to expand its
business derived from Roto-Rooter. Should the Company succeed, of which there is
no assurance, it will solicit Roto-Rooter owned facilities in other areas for
their business. This will not conflict with the Company's restrictions imposed
by its agreement with CBP Resources, Inc.
COMPETITION
Although developments in the non-hazardous waste management industry
have resulted in the emergence of large, mostly private waste management
companies, the Company believes that no single company has a significant market
share of the non-hazardous waste management business in the United States,
particularly with regard to the specific services provided and intended to be
provided by the Company. Nevertheless, the non-hazardous waste management
business is extremely competitive. Although competition varies by locality and
type of service, the Company's principal sources of competition are: local
companies, which provide primarily collection services to customers in a limited
geographic area; large companies which operate over a more extensive geographic
area, provide integrated waste management services, own or operate disposal
sites and engage in various waste transfer and resource recovery activities; and
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municipalities and other governmental authorities. Many of the Company's
competitors are well established and have substantially greater marketing,
financial, technological and other resources than the Company. In addition, many
of the Company's competitors offer services not currently offered by the Company
and have capabilities not currently possessed by the Company.
The Company believes that the principal competitive factors in the
industry are reputation, technical proficiency, managerial experience, financial
assurance capability (particularly as it relates to surety bonding), price and
breadth of services offered (see "Risk Factors - Significant Competition in
Waste Management Industry").
GOVERNMENT REGULATION
The Company is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the EPA and various other
federal, state and local environmental. zoning, health and safety agencies, many
of which periodically inspect the Company's operations to monitor compliance
with these laws and regulations. The Company believes that it is presently in
substantial compliance with all material federal, state and local laws and
regulations governing its operations.
The Company's operation of waste-related facilities subjects it to
operational, monitoring, and site maintenance obligations which are complex and
sometimes costly. Governmental authorities have the power to enforce these
obligations and to obtain injunctions, revoke operating permits, require
corrective actions or impose civil or criminal penalties in case of violations.
In addition, in many instances, the Company is required to obtain state, local
and federal permits in order to operate.
The Company's business is significantly affected by federal, state, and
local environmental laws and corresponding state laws and related regulations
and enforcement practices. Since the business in which the Company is engaged is
intrinsically connected with the protection of the environment and the potential
discharge of materials into the environment, a portion of the Company's
expenditures are, directly or indirectly, related to compliance with
environmental laws.
The principal regulations applicable to the Company's operations
include the following:
THE RESOURCE CONSERVATION AND RECOVERY ACT ("RCRA"). RCRA is a federal
statute that regulates the generation, treatment, storage, handling,
transportation and disposal of hazardous and non-hazardous wastes and requires
states to develop programs to insure the safe disposal of solid wastes.
THE FEDERAL WATER POLLUTION CONTROL ACT (THE "CLEAN WATER ACT"). The
Clean Water Act establishes rules regulating the discharge of pollutants into
groundwater, streams, or other surface waters from a variety of sources,
including waste disposal sites. The Clean Water Act provides civil, criminal and
administrative penalties for violations of its provisions.
STATE AND LOCAL REGULATION. Each state in which the Company now
operates, or may operate in the future has laws and regulations governing the
generation, storage, treatment,
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handling, transportation and disposal of non-hazardous waste. Furthermore, many
counties and municipalities also have ordinances, local laws and regulations
affecting Company operations. These include zoning and health measures that
limit waste management activities to specified sites or activities, flow control
provisions that direct the delivery of wastes to specific facilities, laws that
grant rights to establish franchises for collection services and then put out
for bid the right to provide collection services, and bans or other restrictions
on the movement of wastes into a county or municipality.
In addition, in order to develop, operate and expand waste management
facilities, it is generally necessary to obtain and maintain in effect one or
more operating permits as well as zoning, environmental and other land use
permits. These permits and approvals are difficult and time-consuming to obtain
and are frequently subject to opposition by local elected officials or citizens.
Facility operating permits may be subject to revocation, and it may be necessary
to periodically renew the permit. Revocation or renewal of a permit may reopen
opportunities for opposition to the permit. Loss of an operating permit would
require that the affected facility be shut down until the permit is renewed or
reissued, and this could have a material adverse effect on the Company's
business and financial condition.
In addition, certain states and localities may for economic or other
reasons attempt to restrict the export of waste from their jurisdiction or
require that a specified amount of waste be disposed of at facilities within
their jurisdiction. Such restrictions, if enforced, could result in higher
disposal costs for the Company (see "Risk Factors - Government Regulation").
INSURANCE
The Company carries a broad range of insurance coverage, which the
Company considers sufficient to meet regulatory and customer requirements and to
protect the Company's assets and operations. The Company's insurance coverage
currently includes $2,000,000 of comprehensive general liability insurance,
$1,000,000 of excess liability insurance and $1,000,000 of trucking liability
insurance. The Company also obtains additional insurance as required on a
project-by-project basis. The Company attempts to operate in a professional and
prudent manner and to reduce its liability risks through specific risk
management efforts, including employee training. Nevertheless, a partially or
completely uninsured claim against the Company, if successful and of sufficient
magnitude, could have a material adverse effect on the Company and its financial
condition. In addition, the inability to obtain insurance of the type and in the
amounts required could impair the Company's ability to obtain new contracts,
which are, in certain instances, conditioned upon the availability of adequate
insurance coverage.
The Company does not currently maintain environmental impairment
insurance. The Company believes that it does not require this type of insurance
and that it is common for waste management companies which do not participate in
the hazardous waste business not to maintain such insurance. Nevertheless, there
can be no assurance that hazardous substances are not or will not, unknown to
the Company, be present at the Company's facilities, or that the Company will
not incur liability for environmental damage. The Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), imposes
strict, joint and several liability on the present and former owners and
operators of facilities which release hazardous
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<PAGE> 44
substances into the environment. Similar liability is imposed upon the
generators and transporters of waste which contain hazardous substances. All
such persons may be liable for waste site investigation, waste site cleanup
costs and natural resource damages, which costs could be substantial, regardless
of whether they exercised due care and complied with all relevant laws and
regulations. There can be no assurance that the Company will not face claims
under CERCLA resulting in substantial liability for which the Company is
uninsured, which could have a material adverse effect on the Company.
BONDING
The Company is required, in most instances, to post bid and/or
performance bonds in connection with contracts or projects with government
entities and, to a lesser extent, private sector customers. Approximately 36% of
the Company's revenues for the year ended December 31, 1997 were derived from
contracts or projects which required the Company to post bid and/or performance
bonds. In addition to bid and performance bond requirements, new or proposed
legislation in various jurisdictions may require the posting of substantial
bonds or require waste management companies to provide other financial
assurances covering the activities for certain waste management facilities.
There can be no assurance that personal guarantees or other security necessary
to obtain bonding coverage will be available in the future or that the Company
will be able to obtain bonds in the amounts required or have the ability to
increase its bonding capacity (see "Risk Factors - Bonding Requirements;
Potential Liability and Insurance").
PERSONNEL
As of August 31, 1998, the Company had 27 employees including 4
executive officers, 7 administrative employees, and 16 field employees
responsible for the Company's trucking and repair requirements. The Company
plans to add other employees in connection with its expansion and acquisition
plans. The Company considers its relationship with its employees to be
satisfactory. All of the employees work on a full time basis with the exception
of 2 executive officers who work on an as needed basis and receive no
compensation for their services as such (see "Management"). Seven of the
employees are salaried while the other compensated employees are paid on an
hourly basis. The Company's work force is non-unionized.
All of the Company's employees are leased to the Company by Staff
Leasing II, L.P. ("Staff Leasing"), an unaffiliated Delaware limited partnership
that performs certain administrative functions for the Company. Staff Leasing is
responsible for matters relating to payroll, payroll taxes, workers
compensation, and the administration, procurement and payment of certain
employee benefits. Notwithstanding the foregoing, all employees are hired by the
Company and work under the control and direction of the Company. Further, the
Company provides Staff leasing with the funds necessary to make all required
payments to and on behalf of Company employees.
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<PAGE> 45
PROPERTY AND EQUIPMENT
The Company presently conducts its operations from three principal
properties located in Jacksonville, Florida; Starke, Florida; and Deland,
Florida. A fourth property location, in Brunswick, Georgia is expected to become
operational in January 1999, although no assurance can be given that this will
prove to be the case. The Brunswick, Georgia property is expected to contain a
treatment/stabilization facility similar to those operated by the Company at
Deland, Florida and Lake Butler, Florida. However, unlike those sites, the
Brunswick site is expected to provide treatment services directly to third
parties in addition to treating waste collected directly by the Company.
The Jacksonville, Florida property serves as the Company's corporate
and administrative headquarters and consists of approximately 1,516 square feet
of office space. The property is subject to a three year lease which commenced
on September 1, 1997. The Company considers this space adequate for its present
and anticipated future needs. The lease is renewable at the end of the three
year lease term upon mutual agreement of the parties on terms to be negotiated.
The Starke, Florida property is used principally for repair work on
Company owned vehicles and equipment and as a staging area for Company trucks.
The Company's accounting offices are also located on the property. The property
consists of approximately 4.96 acres of land and contains an approximately 5,055
square foot building which was constructed in 1989. On June 3, 1998 the Company
mortgaged the property with Prime South Bank for $160,000. The mortgage requires
the payment of interest at the annual rate of 9.5% and provides for 60 monthly
payments of $1,684.31 each along with a final principal balloon payment of
$130,789.04 due on June 3, 2003. The mortgage is personally guaranteed by Dr.
John S. Poser, a director of the Company. The mortgage proceeds are being used
as working capital. In consideration of his guarantee of the mortgage
obligation, the Company has agreed to pay Dr. Poser $500 per month so long as
his guaranty is in effect.
The Deland, Florida property is owned by the Company's wholly owned
subsidiary, B&B, is subject to a mortgage with a principal balance thereon, as
of June 30, 1998, of approximately $258,000 and is used principally as a service
site for the Company's residential and commercial operations. The property
consists of approximately 2 acres of land and contains an approximately 2,650
square foot building and an underground lime stabilization plant. The lime
stabilization plant is used to stabilize septic waste and brown grease.
The City of Lake Butler, Florida ("Lake Butler") owns a lime
stabilization plant which the Company operates on Lake Butler's behalf pursuant
to an oral agreement. In exchange for operating the plant, treating Lake
Butler's wastewater at the plant, and hauling and disposing of the sludge
created by such treatment, the Company is allowed to use the plant to treat
liquid waste generated by Company customers. The Company's operation of the
plant generated revenues for the Company during the fiscal years ended December
31, 1997 and December 31, 1996 in the approximate amounts of $18,000 and
$21,245, respectively.
The Company presently owns 15 tankers, 4 tractors, 1 belt press unit, 1
high velocity vacuum unit, and lesser equipment needed for its present
operations. In addition to the foregoing,
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<PAGE> 46
the Company presently leases 5 tractors. The Company intends to use part of the
proceeds from this offering to purchase 4 additional tankers and 3 tractors (see
"Use of Proceeds").
EFFECT OF YEAR 2000 PROBLEM
The Company has assessed its state of readiness with respect to the
problems, regarding computer data processing, generally foreseen for many
businesses upon the advent of the Year 2000. The Year 2000 problem has arisen
because most existing computers use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a year that begins
with "20" instead of the familiar "19". If not corrected, many computer
applications could fail or produce erroneous results. This could have materially
adverse effects on the entire business community. This shortcoming in most
computers arises because of the deficiencies in their information technology
("IT"), consisting primarily of date-sensitive software, and their non-IT
systems, consisting primarily of hardware containing date-sensitive chips
(microprocessors or microcontrollers).
The Company has assessed its state of readiness on (1) its internal
dependence on computer data processing and the steps being taken by it to meet
the problem; (2) its dependence on third parties with whom it has a material
relationship and which are unprepared to meet the problem; (3) the effect, on a
"gross basis" of the failure of the business world in general to meet the
problem; (4) the costs to the Company eventually to correct the problem; and (5)
the effect of the problem on the Company on a "worst-case scenario" basis.
The Company, because of its small size and the simplicity of its
operations, places minimal reliance on computers. It has a comparatively small
amount of personnel, equipment, real property, customers, work projects,
vendors, and the like. It uses five inexpensive microcomputers in its various
locations. The computers are not networked and communicate neither with one
another or with third parties. These computers are used for maintaining simple
financial books of account and statements and for non-date sensitive word
processing, record maintenance and report generation using word processing.
Billing, estimating, customer quotation, and planning are done manually, in many
cases by word processing. The date sensitive uses of computers (books of account
and statements) could readily be accomplished manually by word processing or, in
the bookkeeping software, by substituting for a third millennium year (those
beginning with ("20") a second millennium year (those beginning with "19") on
which the dates fall on the same weekdays as the particular third millennium
year, on a "balance brought forward" basis. These simple financial statements
and reports could be exported to a word processing system where dates could be
corrected for the purpose of external distribution. The Company believes that
the manual approach or the artificial year designation approach would prove to
be operationally effective and cost-effective temporary expedients.
The Company has approximately 12 to 15 customers, governmental and
corporate, of significant size, and approximately 25 vendors and suppliers of
significant size, with whom its has a material relationship (the "Material Third
Parties"). Other customers, vendors and suppliers of the Company are of clearly
small size whereby their dependence on computers is minimal and which would
render their Year 2000 unreadiness not material to their business with the
Company. With respect to the Material Third Parties, the Company has made oral
inquiry of them as to their
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<PAGE> 47
Year 2000 readiness. All of these organizations are aware of the problem and are
taking steps, in varying degrees, for remediation. While the Company believes
that, for the most part, these organizations will successfully meet the problem,
it cannot be certain of this. However, for general business purposes the Company
has always maintained a personal relationship with appropriate administrative
and operational personnel of Material Third Parties for the purpose of business
procurement, prompt billing payment, placing orders for goods and services, and
receiving prompt delivery thereof. In the event of the lack of readiness of any
Material Third Party in the Year 2000 to meet the problems under discussion, the
Company intends to utilize its personal relationships for the purposes of
obtaining prompt payment of its customer bills and prompt delivery of its orders
by its vendors and suppliers. Because of the comparative narrowness and
simplicity of the Company's operations and the nature of these operations
generally being non-dependent upon computers (as compared to computer,
financial, insurance, and record-intensive organizations), and because of small
number of, and its relationship with, its Material Third Parties, it does not
anticipate that the Year 2000 problem will have an adverse effect on its
business and administrative operations on a "gross basis".
The cost of replacing its computer equipment and its date-sensitive
software to remediate the Year 2000 problem is not material to the Company's
financial condition nor does the Company anticipate other costs, losses and
expenses arising out of the Year 2000 problem. On a worst-case scenario basis,
the Company can anticipate suffering two adverse consequences from the Year 2000
problem. First, its receipt of customer billing payments and of delivery of its
vendors' and suppliers' goods and services would be delayed for varying periods
of time, thereby adversely affecting its working capital position. Second, for
the reasons described above, its expansion plans, both in the nature and
geographical scope of its operations, would likewise be delayed.
The Company believes that the Year 2000 problem will not have a
material effect on its operations and competitive position. Software and
computer microprocessors and microcontrollers for microcomputers, which will
remediate the Year 2000 problem, is expected shortly to be on the market at
competitive prices, although the time within which this will occur is uncertain.
LEGAL PROCEEDINGS
On or about January 16, 1998 Hartford Fire Insurance Company
("Hartford") filed a complaint against the Company in the Circuit Court (the
"Court") for Bradford County, Florida (Case No. 98-35-CA) seeking $76,795.78
plus interest from July 30, 1996 based upon the alleged failure of the Company
to pay Hartford for providing the Company with workers compensation insurance
for the period July 19, 1995 until July 19, 1996 and conducting a payroll audit
in connection therewith. The Company inadvertently failed to answer the
complaint in a timely manner and on or about February 11, 1998 a default
judgment was entered against the Company. The Company subsequently petitioned
the Court to set aside the default judgement and filed an answer to the
complaint. The principal amount of the claim is reflected as an account payable
on the Company's balance sheet for $76,795.78. The Company expects its set aside
petition to be granted and its answer to be accepted, although no assurance can
be given that this will prove to be the case. The Company disputes the amount
due Hartford and expects to be able to settle the claim, including all interest
due thereon, for not more than $60,000.
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<PAGE> 48
No other material legal proceedings are pending to which the Company or
any of its property is subject, nor to the knowledge of the Company are any such
legal proceedings threatened.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
of the directors and executive officers of the Company:
Name Age Position
---- --- --------
Michael E. Ricks 37 President, Chief Executive Officer,
and Director
William B. Gray 61 Chairman of the Board of Directors
and Executive Vice President
Keith M. Carter 38 Treasurer, Chief Financial Officer
and Director
James D. Ricks 42 Secretary
Dr. John S. Poser 51 Director
Thomas F. Fey 53 Director
Michael J. George 45 Director (1)
- -----------
(1) Appointment effective upon the completion of this offering and the
Company's procurement of directors and officers liability insurance
with coverage and at rates satisfactory to the directors.
Each current director was elected on January 28, 1998. Executive
officers are elected by and hold office at the pleasure of the board of
directors. The term of office of each director is one year or until his or her
successor is elected and qualified. Michael E. Ricks and James Ricks are
cousins. No other family relationship exists between any director or executive
officer of the Company or any person contemplated to become such.
As of August 10, 1998 the board of directors created and appointed an
audit committee comprised solely of directors independent of management. The
principal functions to be performed by the audit committee consist of confirming
selection of the independent auditor, reviewing the arrangements for and scope
of the audit, reviewing the auditors' comments as to weaknesses in internal
accounting controls and management's proposed corrective action, and serving as
a conduit to the board for reporting illegal or questionable acts of management
and irregularities
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<PAGE> 49
detected in the audit. Some additional functions expected to be performed by the
audit committee include (1) discharging auditors, (2) reviewing the auditors'
fee, (3) reviewing with the auditors their report, their perception of the
Company's accounting personnel, and the co-operation they received, (4)
reviewing significant unusual transactions, (5) meeting with the Company's
financial staff to discuss internal accounting and auditing procedures, and (6)
reviewing significant press releases concerning financial matters. The members
of the audit committee are Dr. John S. Poser and Thomas F. Fey. If and when
Michael J. George joins the board, it is intended that he become a member of the
audit committee.
The following is a brief account of the business experience of each
director and executive officer of the Company during the past five years or
more.
MICHAEL E. RICKS has been the president, chief executive officer and a
director of the Company since the Company's inception in 1990. During such
period he has been exclusively engaged in waste management activities on the
Company's behalf. He has served in similar capacities for B&B since February
1994. His Company responsibilities include, but are not limited to, supervision
of other corporate officers and other corporate personnel, assisting with the
preparation of the Company's financial budget, bidding on jobs and working with
customers and potential customers, developing marketing and financial plans, and
reviewing proposed corporate and asset acquisitions. From 1989 through 1990 Mr.
Ricks was employed as an assistant general manager for Griffin Industries. From
1987 until 1989 he worked as staff manager/auditor for Independent Life
Insurance Company and during 1986 he worked as an insurance agent for Liberty
National Life Insurance Company. From 1982 through 1985 he worked for Carter's
Fried Chicken, first as an operation's manager (1982 - 1983) and later (1983 -
1985) as an owner/operator. From 1979 through 1981 he was employed as a unit
manager for Spartan Foods, Inc.
WILLIAM B. GRAY has been the chairman of the board of directors of the
Company and B&B since January 28, 1998. He served as a director of B&B from
February 1994 through April 28,1997. From April 1992 through the present he also
served as an executive vice president for the Company and from April 28, 1997
through January 28, 1998 he served as the Company's secretary and treasurer. He
served as a director of the Company from April 1992 through April 28, 1997. He
has served as an executive vice president for B&B since January 28, 1998, a
position which he also held from February 1994 through April 28, 1997. He also
served as B&B's secretary and treasurer from April 28, 1997 through January 28,
1998. From 1962 until 1992 he was employed by Otis Elevator in various
capacities including District Manager for the State of Florida (1979 - 1992),
Branch Manager (1972 - 1979), Direct Service Manager for the State of Georgia
(1968 - 1972), Branch Manager - Orlando, Florida (1966 - 1968) and Sales
Engineer (1962 - 1966). Mr. Gray received a B.S. Degree in Mechanical
Engineering from Auburn University in 1959 and a Business Management Certificate
from Hartford Graduate College in 1981.
KEITH M. CARTER has been the treasurer, chief financial officer and a
director of the Company since January 28, 1998. He has also served as a director
of B&B since January 28, 1998. At the present time, Mr. Carter does not receive
salary or other compensation for his services to the Company and does not devote
his full time to the performance of his Company duties. The Company is actively
searching for a replacement for Mr. Carter as the Company's treasurer and chief
financial officer. Mr. Carter has been a practicing attorney in the State of
Florida since 1985. From 1997 through the present Mr. Carter has worked for the
law firm of
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<PAGE> 50
Shackleford, Farrior, Stallings & Evans, P.A. From 1989 until 1997 he worked for
the law firm of Mitchell & Carter, P.A., from 1986 until 1989 the law firm of
Mitchell, Alley, Rywant & Vessel and from 1985 until 1986 the law firm of Butler
& Burnette. Mr. Carter is a member of the Hillsborough County Bar, Florida Bar,
American Bar Association and Florida Defense Lawyers Association. He received a
B.S. Degree in Business Finance from Florida State University in 1981, and a
J.D. Degree from Stetson University College of Law in 1985.
JAMES D. RICKS has been the secretary of the Company and B&B since
January 28, 1998. At the present time, Mr. Ricks does not receive salary or
other compensation from the Company for his services to the Company and does not
devote his full time to the performance of his Company duties. From May 1983 to
the present he has worked in various capacities for the Department of Insurance
for the State of Florida including field representative, special investigator
and most recently insurance administrator for the Jacksonville, Florida service
office. In this latter capacity, Mr. Ricks manages a staff of nine employees
which handles consumer questions and complaints with regard to a fifteen county
area in northeast Florida. During the period 1978 through April 1983, Mr. Ricks
worked as an insurance agent for several insurance companies.
DR. JOHN S. POSER has been a director of the Company and B&B since
January 28, 1998. From 1983 to the present he has operated a medical practice
dedicated to performing various types of plastic surgery. From 1984 to the
present he has practiced in Gainesville, Florida. He is currently affiliated
with Alachua General Hospital and North Florida Regional Hospital and is an
associate clinical professor at the University of Florida. He is a member of the
Certified American Board of Plastic Surgery, American Medical Association and
the Alachua County Medical Society. He also serves as a member of the board of
the American College of Surgeons. Dr. Poser received a B.A. Degree from the
University of Wisconsin in 1968 and a medical degree from Northwestern
University in 1973.
THOMAS F. FEY has been a director of the Company from inception through
April 28, 1997 and from January 28, 1998 to the present. He has been director of
B&B from February 1994 through April 28, 1997 and from January 28, 1998 to the
present. From 1996 to the present he has worked as the owner/operator of three
McDonald's Restaurants in Georgia. From 1984 until 1996 he was employed as the
Director of Operations for McDonald's Restaurants. From 1967 until 1984 he
worked in various academic capacities including Associate Director/Principal at
the University of Florida Laboratory School, Assistant Professor at the
University of Florida College of Education, Assistant Superintendent/Director of
Curriculum at Ochechobee County School District, Co-Director for National
Teachers Corps Federal Project and elementary school teacher. Mr. Fey received a
Bachelor's Degree in Education from the University of Florida in 1967, a Masters
Degree in Curriculum and Instruction from the University of Florida in 1970 and
a Doctoral Degree in Administration and Supervision from the University of
Florida in 1974.
MICHAEL J. GEORGE will become a director of the Company and B&B upon
the completion of this offering and the Company and B&B's procurement of
directors and officers insurance at rates and coverage which are satisfactory to
the Directors ("D&O Insurance"). Mr. George is a practicing certified public
accountant. From September 1997 until April 1998 he was employed as senior vice
president and chief financial officer of Connectivity Technologies Inc., a
public company engaged in the manufacture and assembly of wire and cable
products. From 1984 through 1997 and from May 1998 through the present Mr.
George was and has been a partner in
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<PAGE> 51
George and Fischer Consulting Group Inc., a financial and managerial consulting
company which he co-founded, in Jefferson, Massachusetts. From 1974 until 1978
he worked for several firms in accounting and/or auditing capacities. Mr. George
received a B.S. Degree from Bentley College in 1974 where he majored in
accounting.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each of the Underwriters has agreed to indemnify the Company, its
officers and directors, and each person who controls it within the meaning of
Section 15 of the Securities Exchange Act of 1933 with respect to any statement
in or omission from the Registration Statement or the Prospectus or any
amendment or supplement thereto if such statement or omission was made in
reliance upon information furnished in writing to the Company by such
Underwriter specifically for or in connection with the preparation of the
Registration Statement, the Prospectus, or any such amendment or supplement
thereto. In like manner, the Company has agreed to indemnify the Underwriters
with respect to statements in or omissions from the Registration Statement or
Prospectus made by the Company (see "Underwriting").
The Florida General Corporation Act (the "Florida GCA") empowers a
corporation to indemnify its directors and officers and to purchase D&O
Insurance with respect to liability arising out of their capacity or status as
directors and officers provided that such a provision does not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve international misconduct; (iii) for a knowing
violation of law arising under the Florida GCA; or (iv) for any transaction from
which the director derived an improper personal benefit. Following the
completion of this offering, the Company intends to purchase D&O Insurance, if
such insurance is available at rates which are satisfactory to the Company.
The Florida GCA provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any rights to which the directors
and officers may be entitled under the corporation's by-laws, any agreement,
vote of shareholders or otherwise.
Article 7 of the Company's Articles of Incorporation eliminates the
personal liability of officers and directors to the fullest extent permitted by
law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claims arising against such
persons in their official capacities if such persons acted in good faith and in
a manner that they reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 52
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or accrued by the Company during the three fiscal years ended December 31,
1997 to its chief executive officer. No other executive officer received annual
compensation in excess of $100,000 in any of such fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------------------- -----------------------------------------------
Name and Fiscal Other Annual Options/ Restricted LTIP All Other
Principal Position Year Salary Bonus Compensation SARs Stock Awards Payouts Compensation
- ------------------ ---- ------ ----- ------------ ---- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael E. Ricks 1997 $87,500(1) $0 $20,769(1)(2) 75,000(3) $0 $0 $0
Chief Executive Officer
Michael E. Ricks 1996 $87,500(1) $0 $19,171(1)(2) 0 $0 $0 $0
Chief Executive Officer
Michael E. Ricks 1995 $87,500 $0 $18,671(2) 0 $0 $0 $0
Chief Executive Officer
</TABLE>
(1) Does not include compensation paid to Mr. Ricks by CBP pursuant to a
Non-Competition and Consulting Agreement (see "Business - Services -
Removal, Transport and Disposal of Bio-Solids, Grease and Septic Waste
- Asset Sale Agreement - Business Restrictions").
(2) Represents health insurance benefits and use of Company leased
automobiles.
(3) Represents 75,000 options issued to Mr. Ricks on April 28, 1997 under
the Company's 1997 Stock Option Plan. Each option is exercisable to
purchase one share of Common Stock at any time during the four year
period commencing April 28, 1998 at a price of $5 per Share.
1997 NONSTATUTORY STOCK OPTION PLAN
The Weststar Environmental, Inc. 1997 Nonstatutory Stock Option Plan
(the "Plan"), which was adopted by the Company's Board of Directors (the
"Board") in April 1997 covers up to 1,000,000 shares of the Company's Common
Stock which are issuable upon the exercise of a like number of options. The
purpose of the Plan is to enable the Company to encourage eligible Plan
participants to contribute to the success of the Company by granting such
individuals stock options. Options granted under the Plan are not intended to
qualify as "incentive stock options" as defined in Section 422A of the Internal
Revenue Code of 1986, as amended. The Plan is presently administered by the
Board. The eligible participants under the Plan are determined at the discretion
of the Board. Subject to the express provisions of the Plan, the Board has the
complete discretion and power to determine from among eligible persons those to
whom options may be granted, the time or times at which options may be granted,
the option price, the number of shares of Common Stock to be subject to each
option and the duration of the options. Options may be granted under the Plan
from time to time until April 27, 2007 or such earlier date as may be determined
by the Board. On April 28, 1997 the Company issued an aggregate of 487,500 Plan
options including 75,000 options which were issued to the named executive.
460,000 of such options are exercisable at $5 per share and the other 27,500
options are exercisable at $.001 per
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<PAGE> 53
share. 207,500 of the Plan options are exercisable at any time during the four
year period commencing April 28, 1998. The other 280,000 Plan options are
exercisable at any time during the four year period commencing January 1, 1999.
No determinations have been made regarding the persons to whom options will be
granted in the future or the option exercise prices. However, the Company has
adopted a policy whereby no options will be granted having an exercise price of
less than 85% of market price at the time of grant.
OPTIONS/STOCK APPRECIATION RIGHT ("SAR") GRANTS
The following table sets forth information concerning individual grants
of stock options and freestanding SARs made during the fiscal year ended
December 31, 1997 to the Company's chief executive officer. No SARs were granted
by the Company during the fiscal year ended December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Number of Percent of
Securities Options/SARs
Name and Underlying Granted to Exercise or
Principal Options/SARs Employees in Base Price Expiration
Position Granted (#) Fiscal Year ($/SH) Date
-------- ----------- ----------- ------ ----
<S> <C> <C> <C> <C>
Michael E. Ricks 75,000 shares 31% $5/share April 27, 2002
Chief Executive Officer
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets forth information concerning exercises of
stock options (or tandem SAR's) and freestanding SAR's during the fiscal year
ended December 31, 1997 by the Company's chief executive officer and the fiscal
year end value of unexercised options and SARs. The Company has no outstanding
SARs and there were no exercises of stock options by the Company's chief
executive officer during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
Number of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Shares Options/SARs Options/SARs
Acquired At Fiscal Year At Fiscal Year
On Value End (#) End ($)
Name and Exercise Realized Exercisable/ Exercisable/
Principal Position (#) ($) Unexercisable Unexercisable
-------------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Michael E. Ricks(1) Not applicable(1) Not applicable(1) 0/75,000(1) Not applicable(1)
Chief Executive Officer
</TABLE>
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<PAGE> 54
(1) At December 31, 1997 the Company's chief executive officer owned 75,000
stock options, each of which was exercisable for one share of the
Company's common stock at an exercise price of $5 per share. The
options are exercisable at any time during the four year period which
commenced April 28, 1998. None of the 75,000 options were exercised or
exercisable during the fiscal year ended December 31, 1997 and none of
such options were in-the-money at December 31, 1997 based upon the
exercise price of the options and the fair market value of the Common
Stock underlying the options.
LONG TERM INCENTIVE PLAN AWARDS
The Company did not make any long-term incentive plan awards during
1997.
REPORT ON REPRICING OF OPTIONS/SARS
The Company did not adjust or amend the exercise price of any stock
options or SAR's during 1997.
PENSION PLANS
The Company does not presently provide pension plans for any of its
officers or directors.
EMPLOYMENT AGREEMENTS
The Company and Michael E. Ricks have entered into an employment
agreement for a term of three years commencing April 28, 1997. The agreement
provides for a base salary of $87,500 in the first year, $96,250 in the second
year and $105,000 in the third year. It also provides Mr. Ricks with health
insurance benefits and the use of a Company leased automobile (see "Certain
Transactions").
DIRECTORS' COMPENSATION
The directors of the Company are not compensated for their services as
directors.
CERTAIN TRANSACTIONS
The transactions disclosed herein were for the most part entered into
by the Company at times when the Company lacked sufficient disinterested,
independent directors to ratify such transactions or were not separately
ratified by a majority of the Company's disinterested, independent directors on
or about the effective date of each such transaction (see Risk Factor 25
"Related Party Transactions"). Notwithstanding the foregoing, the Company
believes all of the transactions disclosed in this section were made on terms as
fair as those obtainable from independent third parties, were independent third
parties able and willing to enter into similar
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<PAGE> 55
transactions with the Company. In addition, all of the transactions disclosed
herein have been subsequently ratified by all of the Company's disinterested,
independent directors who did not have an interest in the transactions and who
had access, at the Company's expense, to legal counsel. The Company's present
independent directors are Dr. John S. Poser and Mr. Thomas F. Fey. If and when
he becomes a director, Mr. Michael J. George will also be an independent
director. No other material transactional activities between the Company and its
officers, directors, 5% shareholders or their affiliates are presently pending
nor are any such transactions currently proposed.
Since the inception of the Company Michael E. Ricks has periodically
made loans to the Company. The aggregate outstanding principal balance of such
loans is presently $204,023. The loans, which are payable on demand, require the
Company to pay interest thereon at the annual rate of 8%. The Company intends to
use part of the proceeds of this offering to repay all such loans.
During the period January 1996 through December 1997 the Company made
aggregate payments of $42,000 to William B. Gray, an officer and director of the
Company, in consideration of Mr. Gray's leasing to the Company certain equipment
owned by him including a dump truck, back-hoe and pressure washer. The Company
considers the payments required by the equipment lease to have been reasonable.
On May 15, 1996, Yarborough Gas Inc. ("Yarborough Gas"), a company
owned by Riley Glenn Yarborough, Chuck L. Yarborough, David M. Yarborough and
Stanly H. McDonald, minority shareholders of the Company, loaned the Company
$100,000. The loan was intended to be a 90-day interest free loan. However, at
the end of the 90-day period, the Company and Yarborough Gas agreed to extend
the due date indefinitely subject to the demand for repayment by Yarborough Gas
or the Company's payment of 8% interest on the outstanding principal balance on
the loan from the extension date through the date of payment. At December 31,
1997, a balance of $31,611 was due to Yarborough Gas under the loan including
$28,000 in principal. At June 30, 1998 the balance of principal and interest due
on this loan was $1,000. The Company intends to use part of the proceeds of this
offering to repay this loan (see "Use of Proceeds - Debt Consolidation and
Reduction").
On April 28, 1997 Michael E. Ricks, the Company's president and chief
executive officer, entered into a written three year employment agreement with
the Company (the "Employment Agreement"). The Employment Agreement provides for
Mr. Ricks to receive a base salary of $87,500 in the first year, $96,250 in the
second year and $105,000 in the third year. It also provides Mr. Ricks with
health insurance and medical benefits, the use of a Company leased automobile
and the right to participate in any bonus or other incentive compensation,
profit sharing or retirement plan that the Company may institute in the future.
The Employment Agreement also contains a non-compete provision which provides
that Mr. Ricks cannot, during the three year term of the employment agreement or
upon the termination of his employment, whichever event shall occur later, and
for a period of two years thereafter, engage in any business which is in direct
competition with the Company, within any state or jurisdiction in which the
Company is engaged in business, without the prior written consent of the
Company. No assurance can be given however, as to the enforceability of such
non-compete provisions. Non-competition agreements are not always enforceable
due to public policy limitations existing in various states and the
55
<PAGE> 56
difficulty of obtaining injunctive relief. The Employment Agreement also
contains provisions that require the Company to continue to pay Mr. Ricks all or
part of his employment compensation at the rate in effect on the date of
termination, including any compensation due under any bonus or profit sharing
plans, for the period from the date of termination through the scheduled
expiration date of the Employment Agreement, in the event of disability, certain
changes in control of the Company, and other events resulting in termination of
employment without cause.
On April 28, 1997 the Company issued stock options, exercisable at $5
per share, to each of Michael E. Ricks, an officer and director of the Company
(75,000 options), William Perry, a principal shareholder of the Company who, at
the time of issuance, was a director of the Company (75,000 options), John
Stubbs, who, at the time of issuance, was an officer and director of the Company
(140,000 options), Elton Stubbs, who, at the time of issuance, was a consultant
to the Company (140,000 options), William B. Gray, an officer and director of
the Company (20,000 options), Michael George, a Company nominee for director
who, at the time of issuance, had no affiliation with the Company as an officer
or director (5,000 options) and Dr. John Poser, a director of the Company who,
at the time of issuance, had no affiliation with the Company as an officer or
director (5,000 options) in consideration of services rendered to the Company.
Such services related to the April 29, 1997 Agreement and Plan of Reorganization
between, among others, the Company and Northstar (see "Business - General -
Corporate History"). Each of the options is exercisable for one share of the
Company's common stock at an exercise price of $5 per share. The options issued
to Michael E. Ricks, William Perry, Michael George and Dr. John Poser are
exercisable at any time during the four year period commencing April 28, 1998.
The options issued to John Stubbs and Elton Stubbs are exercisable at any time
during the four year period commencing January 1, 1999.
On October 7, 1997 G&W Framing Contractors, Inc., an inactive company
owned by William B. Gray, made a $120,000 loan to the Company to be used for
working capital purposes. The loan, which is payable on demand and reflected by
a promissory note of the Company dated October 7, 1997, requires the Company to
pay interest on the outstanding principal balance through the date of repayment
at the annual rate of 18%. At June 30, 1998 the full amount of principal and
interest due on this loan had been reduced to $80,389. The Company intends to
use part of the proceeds of this offering to repay this loan (see "Use of
Proceeds - Debt Consolidation and Reduction").
Empire Energy, Inc. ("Energy"), a company owned by several shareholders
of the Company, including Marie H. Stubbs, Michael E. Ricks, Peggy W. Stubbs,
William W. Perry, William B. Gray, Dr. John S. Poser, and Thomas F. Fey, paid
the Company $99,950 in consulting fees on November 6, 1997 in consideration of
preparation and site work done by the Company on Empire's behalf for the purpose
of enabling Empire to obtain a permit approving a parcel of land owned by Empire
to serve as a land application site for sludge. Mesdames Marie and Peggy Stubbs
and Messrs. Ricks and Perry are each beneficial owners of in excess of 5% of the
common stock of the Company and Messrs. Ricks and Gray are officers and
directors of the Company.
The Company entered into a consulting agreement with Thomas C. Souran
(the "Consultant") as of January 1, 1998 which was modified in June 1998 by
addendum deleting all rights of Mr. Souran to registration by the Company of his
Company common stock (the "Consulting Agreement"). The Consulting Agreement has
a three-year term which runs through December 31,
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<PAGE> 57
2000. The services to be rendered by the Consultant to the Company pursuant to
the Consulting Agreement involve business planning including the identification
of prospective acquisition candidates, business strategy evaluation and
procurement of commercial financing for the Company's business. In consideration
of the Consultant's services pursuant to the Consulting Agreement, the Company
sold to the Consultant 100,000 shares of common stock (the "Consultant Shares")
at $.001 per share and agreed to reimburse him for all expenses incurred by him
in the performance of such services, subject to the Company's prior written
approval. The Consulting Agreement further provides that the Consultant shall be
entitled to receive a finder's fee from the Company on terms to be negotiated,
in the event the Company, subsequent to the completion of the offering made
hereby, completes a merger, acquisition, sale, financing, or similar transaction
as the result of the introduction, negotiation, or other material assistance
rendered by the Consultant in the performance of certain duties under the
Consulting Agreement.
Reference is also made herein to the Agreement and Plan of
Reorganization between, among others, the Company and Northstar, and to the
Company's February 1998 acquisition of B&B (see "Business - General - Corporate
History").
During 1997, short-term loans were made and repaid to two directors,
William B. Gray in the amount of $60,000 and Thomas F. Fey in the amount of
$55,000, each with annual interest at the rate of 12%. The proceeds were used to
discharge the Company's outstanding debt secured by a mortgage on its real
estate in Starke, Florida.
Dr. John S. Poser has guaranteed a mortgage loan to the Company in the
amount of $160,000 made in June 1998, for which guarantee the Company's
compensating him at the rate of $500 per month (see "Business - Property and
Equipment").
As of February 1998 the Company issued 50,000 shares of its common
stock, at $.001 per share, to Environmental and Financial Consulting Inc., a
corporation owned by William W. Perry, a principal shareholder of the Company,
in consideration of financial consulting services and the arrangement of a
number of commercial loans to the Company.
As of February 1998 the Company issued 100,000 shares of its common
stock to Thomas C. Souran, a principal shareholder of the Company, in
consideration of business consulting services to be rendered by him to the
Company for a three-year period pursuant to a consulting agreement entered into
between him and the Company as of February 1998.
The Company intends to apply a portion of the proceeds of the offering
made hereby to the payment of the preponderance of its present indebtedness.
Certain of the creditors who will receive such payment are affiliated with the
Company (see "Use of Proceeds - Debt Consolidation and Reduction").
In connection with future material transactions between the Company and
affiliated parties, the Company has adopted a policy which requires that (i) all
future material affiliated transactions and loans be made or entered into on
terms that are not less favorable to the Company than those that can be obtained
from unaffiliated third parties; and (ii) all future material affiliated
transactions and loans, and any forgiveness of loans, be approved by a majority
of the Company's independent
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<PAGE> 58
directors who do not have an interest in the transactions and who have access,
at the Company's expense, to the Company's or independent legal counsel.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of July 15, 1998 with
respect to the ownership of the Company's Common Stock by (i) each person known
by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock, (ii) each director of the Company, (iii) each person nominated to
become a director of the Company; (iv) each executive officer of the Company,
and (v) all directors and executive officers as a group. As with all other
references in this Prospectus to the Common Stock, this table gives effect to
the February 16, 1998 fifteen for one forward split of the outstanding Common
Stock of the Company. The percentages in the table have been calculated on the
basis of treating as outstanding for a particular holder, all shares of the
Company's Common Stock outstanding on said date and all shares of Common Stock
issuable to such holder in the event of exercise of outstanding options owned by
such holder at said date which are exercisable within 60 days of such date. The
percentage ownership set forth in the "After Offering" column assumes
non-exercise of the Underwriter's over-allotment option and does not give effect
to the shares of Common Stock issuable upon exercise of the Redeemable Warrants
and Representative's Warrants.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned Percentage Ownership
------------------ --------------------
Name and Address of Before After Before After
Beneficial Owner Offering Offering Offering(9) Offering(10)
---------------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Marie H. Stubbs 406,121(1) 406,121(1) 21.4% 14%
Cottage 405
Sea Island, Georgia 31561
Michael E. Ricks 419,179(2) 419,179(2) 22.1% 14.5%
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
Peggy W. Stubbs 306,122(3) 306,122(3) 16.1% 10.6%
5209 Leeward Cove
Amelia Island, Florida 32034
William W. Perry 273,578(4) 273,578(4) 14.4% 9.4%
9550 Regency Square Blvd
Suite 1109
Jacksonville, Florida 32225
Thomas C. Souran 100,000 100,000 5.3% 3.5%
2 Woodland Drive
Great Notch, NJ 07424
</TABLE>
58
<PAGE> 59
<TABLE>
<S> <C> <C> <C> <C>
Keith M. Carter 0 0 0 0
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
James Ricks 1,000(5) 1,000(5) (11) (11)
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
William B. Gray 82,500(6) 82,500(6) 4.3% 2.8%
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
Dr. John S. Poser 12,500(7) 12,500(7) (11) (11)
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
Thomas F. Fey 20,000 20,000 (11) (11)
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
Michael J. George 5,000(8) 5,000(8) (11) (11)
9550 Regency Square Blvd.
Suite 1109
Jacksonville, Florida 32225
All officers and directors
as a group (7 persons) 540,179(12) 540,179(12) 28.5% 18.6%
</TABLE>
- --------------
(1) John Stubbs, the husband of Marie Stubbs, has neither voting nor
investment power with regard to such Shares and disclaims any
beneficial ownership thereof. Marie Stubbs is the sister-in-law of
Peggy Stubbs.
(2) Includes 75,000 Shares issuable upon exercise of 75,000 stock options
granted by the Company to Mr. Ricks at an exercise of price of $5 per
Share. The options are exercisable at any time during the four year
period commencing April 28, 1998.
(3) Elton Stubbs, the husband of Peggy Stubbs, has neither voting nor
investment power with regard to such Shares and disclaims any
beneficial ownership thereof. Peggy Stubbs is the sister-in-law of
Marie Stubbs.
(4) Includes 75,000 Shares issuable upon exercise of 75,000 stock options
granted by the Company to Mr. Perry at an exercise price of $5 per
Share. The options are exercisable at any time during the four year
period commencing April 28, 1998. Also includes 50,000 Shares owned by
Environmental
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<PAGE> 60
and Financial Consulting Inc., a company owned by Mr. Perry. Mr. Perry
acquired Environmental and Financial Consulting Inc. on March 9, 1998.
(5) Includes 1,000 Shares issuable upon exercise of 1,000 stock options
granted by the Company to Mr. Ricks at an exercise price of $.001 per
Share. The options are exercisable at any time during the four year
period commencing April 28, 1998.
(6) Includes 20,000 Shares issuable upon exercise of 20,000 stock options
granted by the Company to Mr. Gray at an exercise of price of $5 per
Share. The options are exercisable at any time during the four year
period commencing April 28, 1998. All of the Shares presently owned by
Mr. Gray and the Shares which may be issued to Mr. Gray upon the
exercise of any stock options are and/or will be owned jointly by Mr.
Gray and his wife, Patricia Gray.
(7) Includes 5,000 Shares issuable upon exercise of 5,000 stock options
granted by the Company to Dr. Poser at an exercise of price of $5 per
Share. The options are exercisable at any time during the four year
period commencing April 28, 1998.
(8) Includes 5,000 Shares issuable upon exercise of 5,000 stock options
granted by the Company to Mr. George at an exercise of price of $5 per
Share. The options are exercisable at any time during the four year
period commencing April 28, 1998.
(9) Based upon 1,897,500 Shares issued and outstanding including 207,500
Shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(10) Based upon 2,897,500 Shares issued and outstanding including 207,500
Shares issuable upon the exercise of outstanding stock options that are
exercisable within the next 60 days.
(11) Less than 1%.
(12) Includes 106,000 stock options held by the Company's officers and
directors, all of which are exercisable within the next 60 days.
Michael E. Ricks, Marie Stubbs, Peggy Stubbs and William W. Perry may
be deemed to control the Company by virtue of their ownership or control of the
Common Stock of the Company.
DESCRIPTION OF SECURITIES
GENERAL
Pursuant to its Articles of Incorporation, the Company is authorized to
issue 10,000,000 shares of Common Stock, $.001 par value per share. At August
31, 1998, the Company had issued and outstanding 1,690,000 shares of Common
Stock excluding 487,500 shares of Common Stock underlying outstanding stock
options, none of which have been exercised to date.
UNITS
Each Unit offered by the Company consists of one share of Common Stock
(the "Shares") and one redeemable warrant exercisable for one share of Common
Stock (the "Redeemable
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<PAGE> 61
Warrants"). Only certificates representing the Common Stock and the Redeemable
Warrants will be issued and no certificates representing the Units will be
issued. The Common Stock and Redeemable Warrants will be detached and separately
transferable immediately prior to the commencement of trading and there will be
no trading market in the Units. All Units issued subsequent to the commencement
of trading will be in detached and separately transferable form.
COMMON STOCK
The holders of shares of Common Stock are entitled to dividends when
and as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
common shareholders. Holders of the Common Stock have one non-cumulative vote
for each share held. There are no pre-emptive, conversion or redemption
privileges, nor sinking fund provisions, with respect to the Common Stock. All
of the Company's outstanding shares of Common Stock are validly issued, fully
paid and non-assessable.
REDEEMABLE WARRANTS
The Redeemable Warrants will be issued in registered form pursuant to
an agreement, dated the date of this Prospectus (the "Warrant Agreement")
between the Company and Continental Stock Transfer & Trust Company (the "Warrant
Agent"). The following discussion of certain terms and provisions of the
Redeemable Warrants is qualified in its entirely by reference to the detailed
provisions of the Redeemable Warrant and Warrant Agreement, the forms of which
have been filed as exhibits to the registration statement of which this
prospectus forms a part. The Redeemable Warrant and the Warrant Agreement are
available for procurement and/or inspection by the public (see "Additional
Information").
One Redeemable Warrant represents the right of the registered holder to
purchase one share of Common Stock at an exercise price of $6.00 per share,
subject to adjustment (the "Purchase Price"). The Redeemable Warrants are
subject to adjustment in the Purchase Price and in the number of shares of
Common Stock and/or other securities deliverable upon the exercise thereof in
the event of certain stock dividends, stock splits, reclassifications,
reorganizations, consolidations or mergers.
Unless previously redeemed in accordance with the terms set forth
below, the Redeemable Warrants may be exercised at any time commencing one year
from the date of this prospectus and prior to the close of business on
_____________, 2003 (the "Expiration Date"). On and after the Expiration Date,
the Redeemable Warrants become wholly void and of no value. The Redeemable
Warrants may be exercised at the office of the Warrant Agent.
The Company has the right at any time after _______________, 1999 to
redeem the Redeemable Warrants, in whole, for cancellation at a price of $.10
each, by written notice mailed 30 days prior to the redemption date to each
Redeemable Warrant holder at his address as it appears on the books of the
Warrant Agent. Such notice shall only be given within 10 days following any
period of 20 consecutive days during which the closing price of the Common Stock
has equalled or exceeded $8.00 per Share, subject to adjustments for stock
dividends, stock splits
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<PAGE> 62
and the like. If the Redeemable Warrants are called for redemption, they must be
exercised prior to the close of business on the date of any such redemption or
the right to purchase the applicable shares of Common Stock is forfeited.
No holder, as such, of Redeemable Warrants shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purpose whatsoever until such Redeemable Warrants have been duly exercised and
the Purchase Price has been paid in full.
If required, the Company will file a post effective amendment to the
registration statement with the Commission with respect to the securities
underlying the Redeemable Warrants prior to the exercise of the Redeemable
Warrants and deliver a prospectus with respect to such securities to all
Redeemable Warrant holders as required by Section 10(a)(3) of the Act (see "Risk
Factors -- Current Prospectus and State Blue Sky Registration Required to
Exercise the Redeemable Warrants").
OUTSTANDING STOCK OPTIONS
There are currently outstanding under the Company's 1997 Nonstatutory
Stock Option Plan 487,500 options to purchase 487,500 shares of Common Stock.
These options are held by 15 persons. 207,500 options are exercisable for a
period of four years commencing April 28, 1998. 280,000 options are exercisable
for a period of four years commencing January 1, 1999. 460,000 of the options
are exercisable at $5 per share and 27,500 options are exercisable at $.001 per
share. Reference is made to "Description of Securities - Representative's
Warrants".
REPRESENTATIVE'S WARRANTS
The Company has authorized, in connection with the Representative's
Warrants, the issuance of 100,000 Units, and has reserved an appropriate number
of shares of Common Stock for issuance upon exercise of such Representative's
Warrants and upon the exercise of the Redeemable Warrants (the "Underlying
Warrants") included in the Units (see "Underwriting"). The Representative's
Warrants are not redeemable and contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price and the number of
shares issuable upon exercise thereof in certain events, such as stock
dividends, distributions and stock splits. In the event of any capital
reorganization, reclassification, conversion of the Common Stock or
consolidation, merger or sale of all or substantially all of the assets of the
Company, the Representative's Warrants will be exercisable for the number of
shares of stock or other securities or property of the Company, or of the
corporation into which shares of Common Stock and Underlying Warrants are
converted or resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, to which the shares of Common
Stock and Underlying Warrants issuable upon exercise of such Representative's
Warrants would have been converted if such shares had been issued and
outstanding at the time of the change. The Company is not required to issue
fractional securities, but will pay the holder of the Representative's Warrant
an amount in cash equal to such fraction multiplied by the then current market
value for the Common Stock or the Underlying Warrants. The holder of a
Representative's
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<PAGE> 63
Warrant will not possess any rights as a stockholder of the Company unless and
until he exercises his Representative's Warrant (see "Underwriting").
FLORIDA'S ANTI-TAKEOVER LAW
The Florida Business Corporation Act (the "FBCA") contains provisions
that regulate corporate takeovers. Under Florida law, corporations can elect not
be governed by Sections 607.0901 and 607.0902 of the FBCA (the "Anti-Takeover
Sections") and other laws relating thereto. The Company has made no such
election and as such is subject to the Anti-Takeover Sections. The Anti-Takeover
Sections provide, among other things, that certain transactions between the
Company and an "interested shareholder" or any affiliate of the "interested
shareholder" be approved by two-thirds of the Company's outstanding voting
shares excluding the shares beneficially owned by the "interested shareholder."
An "interested shareholder" is defined in section 607.0901 of the FBCA as any
person who is the beneficial owner of more than 10% of the outstanding voting
shares of the Company. The intended effect of the Anti-takeover Sections is to
be provide the Company with assistance in fighting unfriendly take-over
attempts.
TRANSFER AND WARRANT AGENT
Continental Stock Transfer & Trust Company, New York, NY will act as
the Transfer and Warrant Agent for the Company's Common Stock and Redeemable
Warrants.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") between the Company and Westport Resources Investment
Services, Inc., as Representative of the several Underwriters named below, the
Company has agreed to sell to the Underwriters and the Underwriters, through the
Representative, have severally but not jointly agreed to purchase from the
Company, on a firm commitment basis, the aggregate number of Units set forth
opposite their respective names (exclusive of Units purchased pursuant to the
Representative's Over- allotment Option).
Underwriter Number of Units
----------- ---------------
Westport Resources Investment Services, Inc.
---------
TOTAL 1,000,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other
63
<PAGE> 64
conditions. The nature of the Underwriters' obligations are such that they are
committed to purchase all of the Units offered hereby if any are purchased.
The Company has agreed to sell the Units to the Underwriters at a 10%
discount from the offering price and to pay to the Representative a
non-accountable expense allowance equal to 3% of the gross proceeds of the
public offering price of the Units sold pursuant to this Prospectus, including
any Units sold to the Underwriters upon exercise of the Representative's
Over-allotment Option. $40,000 of the non-accountable expense allowance has been
paid to the Representative to date. In addition to such expense allowance, the
Company has agreed to pay certain fees and expenses of the Representative's
counsel in connection with qualification of this offering under state securities
laws.
The Underwriters, through the Representative, have advised the Company
that they propose to offer the Units at the public offering price set forth on
the cover page of this Prospectus and that the Underwriters may utilize the
services of certain dealers, including dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") and certain foreign
dealers. The public offering price and the amount of the concessions and
reallowances, if any, provided for any broker-dealers involved in the
distribution of the securities offered hereby will not be changed until after
the initial public offering is completed.
The Company has granted to the Representative options, exercisable
within 45 days from the date of this Prospectus, to purchase up to a maximum of
150,000 additional Units on the same terms as the 1,000,000 Units offered
hereby. The Representative may exercise such options only for the purpose of
covering over-allotments, if any.
Management of the Company may provide the Representative with a list of
persons who they believe may be interested in purchasing Units being offered
hereunder. The Representative and the other Underwriters may sell a portion of
the Units to such persons if such persons reside in a state where the Units can
be sold and where the Underwriters or selected dealers are permitted to sell the
Units.
The Company's officers and directors, the holders of the Company's
460,000 stock options exercisable at $5 per share (the "$5 Option Holders"), and
the holders of 5% or more (the "5% Shareholders") of the outstanding shares of
the Company's Common Stock immediately prior to the date of this Prospectus,
have agreed with and for the Representative not to sell any of their Shares,
options or underlying Shares for the eighteen-month period (the "Initial
Eighteen-Month Period") commencing on the date of this Prospectus.
Notwithstanding the foregoing, the Representative has agreed, if at any time
during the period subsequent to 12 months after the date of this Prospectus and
on or prior to 18 months after the date of this Prospectus, that the Share
market price, adjusted for splits and like transactions, closes at or above
$7.50 for a period of 20 consecutive days within 10 days prior to any sale by
them, that officers, directors, $5 Option Holders and 5% Holders can sell up to
25% of their respective Shares pursuant to Rule 144 of the General Rules and
Regulations under the 1933 Act. The 5% Holders have further agreed with and for
the Representative not to sell or transfer any of their Shares during the
eighteen month period subsequent to the Initial Eighteen Month period unless the
Share market price, adjusted for splits and like transactions, closes at or
above $7.50 for a period of 20 consecutive days within 10 days prior to any sale
by them.
64
<PAGE> 65
In connection with this offering, the Company has agreed to issue to
the Representative, for a purchase price of $.001 per warrant, (the
"Representative's Warrants"), warrants to purchase common stock and redeemable
common stock purchase warrants at a price equal to 145% of the respective public
offering price per share, for up to 200,000 Shares. The Representative's
Warrants contain anti-dilution provisions and are exercisable for a period of
four years commencing twelve months from the date of this Prospectus. They are
restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the date of this Prospectus except to officers of the
Representative or their successors, or to other Underwriters and their officers.
The holders of the Representative's Warrants will have no voting, dividend or
other rights as stockholders of the Company with respect to shares of Common
Stock underlying the Representative's Warrants until the Representative's
Warrants have been exercised. The Company has agreed, at its sole expense, to
include the Representative's Warrants and underlying shares in the Registration
Statement of which this Prospectus is a part and to keep such Registration
Statement current until all of the underlying shares have been sold.
For the term of the Representative's Warrants, the holders thereof will
be given the opportunity to profit from a rise in the market value of the
Company's Common Stock, with a resulting dilution in the interest of other
stockholders. The holders of the Representative's Warrants can be expected to
exercise the Representative's Warrants at a time when the Company would be able
to obtain needed capital by an offering of its unissued capital shares on terms
more favorable to the Company than those provided by the Representative's
Warrants. Such facts may adversely affect the terms upon which the Company can
obtain additional financing. Any profit realized by the Representative upon the
sale of the Representative Warrants or shares of Common Stock issuable upon the
exercise of the Representative's Warrants may be deemed additional underwriting
compensation (see "Risk Factors - Representative's Warrants").
The Company, as part of the Underwriting Agreement, has also agreed to
enter into a two-year financial consulting agreement with the Representative
providing for compensation of $3,000 per month or $72,000 on an aggregated
basis, payable in advance at the closing of the offering. In addition, the
Company has agreed to permit the Representative to nominate one person for
election to the Company's Board of Directors for a period of five years after
the closing of the offering, such nominee to be subject to the reasonable
approval of the Company's Board. To date, no particular individual has been
nominated by the Representative to serve as a Board member.
If at any time on or before December 14, 2002, the Company completes
the acquisition of a majority of common stock or assets of or by another company
by way of a transaction with a party introduced to the Company by the
Underwriter, the Underwriter shall be paid a fee in the amount of 10% of the
total consideration paid for such acquisition.
The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
None of the Underwriters nor any of their controlling persons have any
material relationship with the Company, its promoters or their controlling
persons.
In connection with this offering, certain Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the
65
<PAGE> 66
market price of the Common Stock or Redeemable Warrants. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such persons may bid for or purchase Common
Stock or Redeemable Warrants for the purpose of stabilizing their respective
market prices. The Underwriters also may create a short position for the account
of the Underwriters by selling more Units in connection with the offering than
they are committed to purchase from the Company, and in such case may cover all
or a portion of such short position. The Representative, on behalf of the
Underwriters, may also cover all or a portion of such short position by
exercising the Over-allotment Option. In addition, the Representative, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering) for the account of other Underwriters, the
selling concession with respect to Units that are distributed in the offering
but subsequently purchased for the account of the Underwriters in the open
market. Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock or Redeemable Warrants at levels
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken they may be discontinued at any time.
The Company has agreed to indemnify the Underwriters and the
Underwriters have agreed to indemnify the Company against certain liabilities,
including liabilities arising under the Securities Act of 1933, as amended, by
reason of misstatements of, or omissions to state, material facts in this
Prospectus and the Registration Statement of which it is a part.
This Underwriting section is a summary of all of the material terms of
the Underwriting Agreement and does not purport to be complete. A copy of the
Underwriting Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available at or from the
offices of the Securities and Exchange Commission for review (see "Additional
Information").
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market
any of the Company's securities. The initial offering price of the Units has
been arbitrarily determined by negotiations between the Company and the
Representative. Among the factors considered in determining such prices are
prevailing market conditions generally, the Company's historical and prospective
operations and earnings, the history of the prospects for the industry in which
the Company operates, and market prices for securities of other companies
comparable to the securities comprising the Units.
66
<PAGE> 67
LEGAL MATTERS
Milling Law Offices, 115 River Road, Bldg. 12, Suite 1205, Edgewater,
NJ 07020 will render an opinion as counsel to the Company, that the securities
offered hereby, when issued and sold, will be legally issued, fully paid and
nonassessable. John L. Milling and Scott E. Rapfogel, a former associate
attorney with the Milling Law Offices, own 30,000 and 10,000 shares,
respectively, of the Company's Common Stock. Certain legal matters relating to
the sale of such securities will be passed upon for the Representative by Prifti
Law Offices, 220 Broadway, Suite 204, Lynnfield, MA 01940.
EXPERTS
The consolidated financial statements of the Company and B&B as at
December 31, 1997 and 1996 and for the two fiscal years then ended which are
included in this Prospectus, have been audited by Horton & Company, L.L.C., 1680
Route 23, Suite 110, Wayne, NJ 07470, independent certified public accountants,
as set forth in their report thereon, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
Horton & Company, L.L.C. replaced Reddish & White, CPA's, as the
Company's independent auditors effective May 26, 1998. The decision to replace
Reddish & White with Horton & Company L.L.C. was approved by the Company's board
of directors. Such change was necessitated by the NASDAQ requirement that the
Company's independent auditors be members of the AIPCA SEC Practice Section peer
review program. None of Reddish & White's reports on the financial statements of
the Company and B&B contained an adverse opinion or a disclaimer of opinion or
was qualified or modified as to uncertainty, audit scope, or accounting
principles, and there were no disagreements between the Company and Reddish &
White on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
ADDITIONAL INFORMATION
Following the completion of this offering, the Company will be subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, will file reports
and other information with the Securities and Exchange Commission (the "SEC").
Such reports, proxy statements and other information filed by the Company will
be available for inspection and copying at the Public Reference Section
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following Regional Offices: Seven World Trade Center, 13th
Floor, New York, NY 10048 and Northwestern Atrium Center, 500 West Madison
Street Suite 1400, Chicago, IL 60661. Copies of such materials can be obtained
from the Public Reference Section at prescribed rates. The SEC also maintains a
web site that will contain all information electronically filed by the Company
with the SEC. The address of such site is http://www.sec.gov.
A Registration Statement relating to the securities offered hereby has
been filed by the Company with the SEC. This Prospectus does not contain all of
the information set forth in such Registration Statement. For further
information with respect to the Company and the securities
67
<PAGE> 68
offered hereby, reference is made to such Registration Statement, including the
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Anyone may inspect the Registration
Statement without charge at the office of the SEC and may obtain copies of all
or any part of it from the SEC in Washington, DC, upon paying the fees
prescribed by the SEC.
68
<PAGE> 69
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 70
Consolidated balance sheets as of December 31, 1997 and 1996 and June 30, 1998 71
Consolidated statements of operations for the years ended December 31, 1997
and 1996 and for the six-month periods ended June 30, 1998 and 1997 72
Consolidated statements of stockholders' equity for the years ended December 31, 1997
and 1996 and for the six-month periods ended June 30, 1998 and 1997 73
Consolidated statements of cash flows for the years ended December 31, 1997 and 1996
and for the six-month periods ended June 30, 1998 and 1997 74
Notes to consolidated financial statements 75
</TABLE>
69
<PAGE> 70
[HORTON & COMPANY LETTEREAD]
INDEPENDENT AUDITORS' REPORT
The Stockholders
Weststar Environmental, Inc. and subsidiary
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Weststar
Environmental, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial position of Weststar
Environmental, Inc. and subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ HORTON & COMPANY, L.L.C.
HORTON & COMPANY, L.L.C.
Wayne, New Jersey
August 21, 1998
70
<PAGE> 71
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1996 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash $ 6,233 $ - $ 101,041
Accounts receivable 407,736 27,064 237,675
Prepaid expenses 26,793 45,563 207,218
Due from affiliates 11,000 500 --
---------- ---------- ----------
Total current assets 451,762 73,127 545,934
Property and equipment, net 1,740,828 1,804,467 1,676,897
Other assets 2,510 5,410 34,040
---------- ---------- ----------
$2,195,100 $1,883,004 $2,256,871
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 125,063 $ 9,000 $ 80,389
Current portion of long-term debt 121,418 287,143 87,326
Current portion of capital lease obligations 68,432 24,586 70,127
Accounts payable 409,960 353,507 353,255
Accrued expenses 44,405 98,324 35,792
Dividends payable 94,000 42,417 90,000
Stockholder loans 319,634 220,911 219,222
---------- ---------- ----------
Total current liabilities 1,182,912 1,035,888 936,111
Long-term debt, net of current portion 466,515 635,284 545,873
Capital lease obligations, net of current portion 174,260 62,277 121,583
---------- ---------- ----------
1,823,687 1,733,449 1,603,567
---------- ---------- ----------
Stockholders' equity:
Common stock, $.001 par value,
10,000,000 shares authorized;
1,500,000 shares outstanding in 1997 and 1996,
1,690,000 shares outstanding in 1998 1,500 1,500 1,690
Additional paid-in capital 92,592 92,592 139,902
Retained earnings 277,321 55,463 511,712
---------- ---------- ----------
371,413 149,555 653,304
---------- ---------- ----------
$2,195,100 $1,883,004 $2,256,871
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
71
<PAGE> 72
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
1997 1996 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 2,245,008 $ 1,682,566 $ 1,060,892 $ 1,147,881
----------- ----------- ----------- -----------
Direct costs:
Labor and benefits 427,670 711,552 237,539 228,425
Vehicle operating costs 270,747 224,413 123,236 137,925
Depreciation 208,576 214,907 116,327 107,258
Insurance 98,222 176,636 31,351 52,773
Other 85,981 194,968 58,747 70,615
----------- ----------- ----------- -----------
1,091,196 1,522,476 567,200 596,996
----------- ----------- ----------- -----------
Gross profit 1,153,812 160,090 493,692 550,885
----------- ----------- ----------- -----------
Operating expenses (income):
Selling and administrative 522,203 518,176 212,747 217,827
Loss on disposal of assets 35,828 133,554 -- --
Gain on sale of routes -- (379,000) -- --
Interest expense 173,923 103,421 46,554 69,524
----------- ----------- ----------- -----------
731,954 (376,151) 259,301 287,354
----------- ----------- ----------- -----------
Net income (loss) $ 421,858 $ (216,061) $ 234,391 $ 263,534
=========== =========== =========== ===========
PRO FORMA INCOME TAX, NET INCOME (LOSS) AND EARNINGS
(LOSS) PER SHARE INFORMATION (UNAUDITED)
Historical income (loss) before income taxes $ 421,858 $ (216,061) $ 234,391 $ 263,534
Pro forma income tax (expense) benefit (148,000) 76,000 (82,000) (92,000)
----------- ----------- ----------- -----------
Pro forma net income (loss) $ 273,858 $ (140,061) $ 152,391 $ 171,534
=========== =========== =========== ===========
Pro forma earnings (loss) per share $ 0.18 $ (0.09) $ 0.09 $ 0.11
=========== =========== =========== ===========
Historical weighted average shares outstanding 1,500,000 1,500,000 1,608,122 1,500,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
72
<PAGE> 73
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996 (INFORMATION FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balances at January 1, 1996 1,500,000 $ 1,500 $ 92,592 $ 341,524
Dividends -- -- -- (70,000)
Net loss -- -- -- (216,061)
--------- --------- --------- ---------
Balances at December 31, 1996 1,500,000 1,500 92,592 55,463
Dividends -- -- -- (200,000)
Net income -- -- -- 421,858
--------- --------- --------- ---------
Balances at December 31, 1997 1,500,000 $ 1,500 $ 92,592 $ 277,321
========= ========= ========= =========
Balances at January 1, 1997 1,500,000 $ 1,500 $ 92,592 $ 55,463
Net income (unaudited) -- -- -- 263,534
--------- --------- --------- ---------
Balances at June 30, 1997 (unaudited) 1,500,000 $ 1,500 $ 92,592 $ 318,997
========= ========= ========= =========
Balances at January 1, 1998 1,500,000 $ 1,500 $ 92,592 $ 277,321
Stock issued in satisfaction of fees (unaudited) 190,000 190 47,310 --
Net income (unaudited) -- -- -- 234,391
--------- --------- --------- ---------
Balances at June 30, 1998 (unaudited) 1,690,000 $ 1,690 $ 139,902 $ 511,712
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
73
<PAGE> 74
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
1997 1996 1998 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 421,858 $(216,061) $ 234,391 $ 263,534
--------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 220,517 226,907 116,327 110,243
Loss on disposal of assets 35,828 133,554 -- --
Gain on sale of routes -- (379,000) -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (380,672) 151,552 170,061 (39,578)
(Increase) decrease in prepaid expenses 18,770 52,530 (157,508) 13,606
(Increase) decrease in deposits 2,900 -- -- --
(Increase) decrease in other assets -- -- (6,947) (1,424)
Increase (decrease) in accounts payable 45,110 132,603 (56,705) 38,696
Increase (decrease) in accrued expenses (53,919) (133,403) (8,613) (48,066)
--------- --------- --------- ---------
Total adjustments (111,466) 184,743 56,615 73,477
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 310,392 (31,318) 291,006 337,011
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 121,000 -- --
Capital expenditures (219,189) (608,863) (52,396) (142,678)
Proceeds from sale of routes -- 379,000 -- --
--------- --------- --------- ---------
Net cash used in investing activities (219,189) (108,863) (52,396) (142,678)
--------- --------- --------- ---------
Cash flows from financing activities:
Repayment of notes payable -- -- (44,674) --
Proceeds from capital lease obligations 240,000 -- -- 150,000
Proceeds from notes payable 235,063 202,927 160,000 --
Loan proceeds from stockholders 133,545 160,911 -- 133,545
Loan payments to stockholders and affiliates (87,739) (500) (93,412) (87,917)
Principal payments on long-term debt (453,494) (173,587) (114,734) (265,292)
Principal payments on capital lease obligations (46,345) (21,987) (50,982) (9,536)
Dividends paid (106,000) (27,583) -- (106,000)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (84,970) 140,181 (143,802) (185,200)
--------- --------- --------- ---------
Net increase in cash 6,233 -- 94,808 9,133
Cash balance at beginning of period -- -- 6,233 --
--------- --------- --------- ---------
Cash balance at end of period $ 6,233 $ - $ 101,041 $ 9,133
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
74
<PAGE> 75
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (INFORMATION FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Weststar
Environmental, Inc. and subsidiary (the "Company") is presented to
assist in understanding the consolidated financial statements. The
consolidated financial statements and notes are representations of the
management of Weststar Environmental, Inc. and subsidiary which are
responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the consolidated
financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Weststar
Environmental, Inc. ("Weststar") and its wholly-owned subsidiary, B&B
Septic and Environmental Services, Inc. ("B&B"). Significant
intercompany accounts and transactions have been eliminated. On
February 16, 1998, Weststar acquired 100% of the issued and outstanding
capital stock of B&B, thereby making B&B a wholly-owned subsidiary of
Weststar. Prior to that date, and throughout the years ended December
31, 1997 and 1996, Weststar and B&B were under common control as the
stockholders of Weststar Environmental, Inc. also owned 100% of the
stock of B&B Septic and Environmental Services, Inc. The capital
structure for all periods presented has been retroactively restated to
give effect to the business combination and for other changes in the
capital structure which took place subsequent to December 31, 1997, as
described in Note 8.
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 period. Actual results could differ from those
estimates.
75
<PAGE> 76
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
HISTORY AND BUSINESS ACTIVITY
Weststar Environmental, Inc. is a non-hazardous, liquid waste
management company that provides waste management services to
governmental, commercial and residential customers. These services
include the removal, transport, treatment and disposal of bio-solids,
food service grease and septic waste. B&B Septic and Environmental
Services, Inc. engages in the installation, replacement and repair of
commercial and residential waste disposal and waste water treatment
systems. Plans to conduct a third area of business devoted to the
recycling of non-hazardous waste materials are also being developed. At
the present time, the Company's services are principally provided in
the southeastern United States. The Company maintains its offices in
Jacksonville, Florida. The Company owns real estate in Starke, Florida,
which is principally used for repair work on the Company's vehicles and
equipment and as a staging area for the Company's trucks. The Company
also owns real estate in Deland, Florida, which is used for waste
treatment and recycling operations.
Weststar Environmental, Inc. was incorporated under the laws of the
State of Florida on June 26, 1990. B&B Septic and Environmental
Services, Inc. was incorporated under the laws of the State of Florida
on July 5, 1989.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of accounts
receivable. The Company's policies do not require collateral to support
accounts receivable. However, because of the diversity and credit
worthiness of individual accounts which comprise the total balance,
management does not believe that the Company is subject to any
significant credit risk.
At December 31, 1997, the Company had accounts receivable from a single
municipal customer in the amount of $361,312 representing 88.6% of the
consolidated accounts receivable balance at that date. At December 31,
1996, no single customer balance represented a significant amount of
the consolidated accounts receivable.
A single municipal customer accounted for approximately 70.7% of the
Company's revenues during the year ended December 31, 1997, and 41.6%
of the Company's revenues during the year ended December 31, 1996.
During the year ended December 31, 1996, another customer accounted for
approximately 15.6% of the Company's revenues. A majority of these
customer routes were sold during 1996 (Note 6).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's receivables and payables are current and on normal terms
and, accordingly, are believed by management to approximate fair value.
Management also believes that notes payable, long-term debt and capital
lease obligations approximate fair value when current interest rates
for similar debt securities are applied.
76
<PAGE> 77
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation is provided on
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Building and improvements 15-40
Machinery and equipment 5-10
Vehicles 5
</TABLE>
Depreciation expense was $220,517 and $226,907 for the years ended
December 31, 1997 and 1996, respectively.
Maintenance, repairs and renewals which neither materially add to the
value of the equipment nor appreciably prolong its life are charged to
expense as incurred. Gains or losses on dispositions of equipment are
included in income.
PRO FORMA INFORMATION (UNAUDITED)
The statements of operations present pro forma information (unaudited)
of income tax expense which would have been recorded had Weststar been
a taxable corporation based on the tax laws in effect during the period
and the resultant pro forma effect on net income (loss) and earnings
(loss) per share.
SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Interest paid for the years ended December 31, 1997 and 1996 was
$173,923 and $103,421, respectively. Interest paid for the six-month
periods ended June 30, 1998 and 1997 was $46,554 and $69,524,
respectively.
Noncash investing and financing activities consisted of the following:
During the year ended December 31, 1997, dividends payable in the
amount of $42,417 were converted to a stockholder loan. During the
six-month period ended June 30, 1998, `the Company issued 190,000
shares of its common stock to various professionals and consultants in
satisfaction of $47,500 in fees.
ACCOUNTING PRONOUNCEMENTS FOR FUTURE ADOPTION
The FASB recently issued Statement No. 130, "Comprehensive Income,"
which is effective for the Company's financial statements for the year
ending December 31, 1998. In addition to net income, comprehensive
income is comprised of "other comprehensive income" which includes all
charges and credits to equity that are not the result of transactions
with owners of the Company's common stock. This Statement is not
anticipated to materially affect the Company's financial statements.
77
<PAGE> 78
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING PRONOUNCEMENTS FOR FUTURE ADOPTION (CONTINUED)
The FASB recently issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which is effective for the
Company's financial statements for the year ending December 31, 1998.
This statement requires reporting of summarized financial results for
operating segments as well as established standards for related
disclosures about products and services, geographic areas and major
customers. Primary disclosure requirements include total segment
revenues, total segment profit or loss and total segment assets. The
Company has not yet completed its evaluation of the impact of this
statement on the Company's financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1997 1996 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Building and improvements $ 544,825 $ 544,825 $ 557,825
Machinery and equipment 361,957 408,829 401,353
Vehicles 1,522,173 1,329,419 1,522,173
----------- ----------- -----------
2,428,955 2,283,073 2,481,351
Less: accumulated depreciation (688,127) (478,606) (804,454)
----------- ----------- -----------
$ 1,740,828 $ 1,804,467 $ 1,676,897
=========== =========== ===========
</TABLE>
Property and equipment includes equipment under capital leases of
$237,470 at December 31, 1997 and $58,910 at December 31, 1996.
Accumulated depreciation on equipment under capital leases was $55,399
and $11,450 at December 31, 1997 and 1996, respectively.
3. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1996 1998
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured demand note payable to a corporation owned
by one of the Company's stockholders. Interest is at
18% $125,063 $ - $ 80,389
Unsecured demand note payable to an individual dated
February 1, 1995. Payments of interest only at a rate
of 10% are due monthly -- 9,000 --
-------- -------- --------
$125,063 $ 9,000 $ 80,389
======== ======== ========
</TABLE>
78
<PAGE> 79
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1996 1998
-------- -------- --------
<S> <C> <C> <C>
Mortgage payable to a bank in 59 monthly installments of $3,390,
including interest at 10%, commencing October 1995. The mortgage is
secured by the Company's real property in Deland,
Florida $294,662 $292,375 $258,155
Unsecured note payable to an individual in 150 monthly
installments of $1,000, including interest at 7%, commencing
February 1994 81,130 84,886 76,121
Note payable to a bank in 71 monthly installments of $1,448,
including interest at 10.75%, commencing November 1995 58,827 61,021 51,685
Note payable to a bank in 47 monthly installments of $1,935,
including interest at 10.75%, commencing April 1996 54,516 63,227 45,100
Note payable to a bank in 51 monthly installments of $602,
including interest at 12%, commencing December 1995 16,633 20,417 12,424
Note payable to a bank in 60 monthly installments of $735,
including interest at 8.75%, commencing September 1994 16,396 26,891 12,141
Note payable to a bank in 51 monthly installments of $603,
including interest at 12%, commencing December 1995 15,702 20,069 10,154
Note payable to a bank in 24 monthly installments of $2,367,
including interest at 12.43%, commencing March 1996 11,989 34,995 --
Note payable to a bank in 24 monthly installments of $2,530,
including interest at 9.35%, commencing August 1996 17,221 44,594 4,026
Note payable to a bank in 36 monthly installments of $2,881,
including interest at 12%, commencing February 1995 14,416 37,850 --
Note payable to a bank in 50 monthly installments of $4,892,
including interest at 9.9%, commencing March 1994 1,102 94,428 --
Note payable to a bank in 36 monthly installments of $392,
including interest at 10%, commencing October 1995 5,339 7,491 3,393
Note payable to a bank in 60 monthly installments of $1,684
including interest at 9.5%, commencing July 1998 -- -- 160,000
Mortgage payable to a bank in 284 monthly installments of $891,
including interest at 9%, commencing January 1993. The mortgage is
secured by the Company's real property in Starke, Florida
-- 98,346 --
Notes payable to various banks, financial institutions and individuals
in monthly installments totalling $2,622, including interest ranging
between 9% and 19.5%. All such notes matured
or were repaid during 1997 -- 35,837 --
-------- -------- --------
Total 587,933 922,427 633,199
Current portion of long-term debt 121,418 287,143 87,326
-------- -------- --------
Long-term debt, net of current portion $466,515 $635,284 $545,873
======== ======== ========
</TABLE>
79
<PAGE> 80
4. LONG-TERM DEBT (CONTINUED)
Following are maturities of long-term debt as of December 31, 1997:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998 $121,418
1999 71,593
2000 59,321
2001 39,895
2002 29,990
Thereafter 265,716
---------
$ 587,933
=========
</TABLE>
Except as noted above, substantially all long-term debt is secured by
machinery, equipment and vehicles.
5. CAPITAL LEASE OBLIGATIONS
The Company leases machinery and equipment under capital leases
expiring in various years through 2002. The assets and liabilities
under capital lease obligations are recorded at the lower of the
present values of the minimum lease payments or their fair values of
the assets. The assets are included in property and equipment and are
depreciated over their estimated useful lives.
As of December 31, 1997, minimum future lease payments under capital
lease obligations are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998 $ 79,702
1999 79,702
2000 63,290
2001 36,270
2002 3,023
---------
Total minimum lease payments 261,987
Less: amounts representing interest (19,295)
---------
Net minimum lease payments 242,692
Less: current portion (68,432)
---------
$ 174,260
=========
</TABLE>
80
<PAGE> 81
6. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company leases office space under an operating lease which
commenced September 1997 and runs through August 2000. Rent expense for
office space totalled $2,354 and $9,782 for the years ended December
31, 1997 and 1996, respectively.
In addition, the Company leases vehicles and equipment under operating
leases which run through the year 2000.
Minimum annual rental payments under these operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31, Office Equipment
------------ ------ ---------
<S> <C> <C>
1998 $ 20,203 $ 20,465
1999 22,119 8,200
2000 15,177 8,200
2001 - 8,200
2002 - 4,784
--------- ----------
$ 57,499 $ 49,849
========= ==========
</TABLE>
RELATED PARTY TRANSACTIONS
During 1997, revenues included $99,950 of consulting and engineering
fees paid by a company which is owned by the stockholders of Weststar.
During 1997, the Company rented equipment from a stockholder for
$42,000.
SALE OF ACCOUNTS
During 1996, Weststar sold a portion of its grease trap business
consisting of specific customer routes in North Carolina, Virginia,
Tennessee, West Virginia, South Carolina, Alabama, Maryland and the
District of Columbia. The sale price totalled $500,000 consisting of
$379,000 for the customer routes and $121,000 for a tanker truck used
to service the routes. As part of the agreement, Weststar entered into
a 10-year covenant not-to-compete with the purchaser in the specified
geographic areas. All revenue from the sale was recognized in 1996.
PUBLIC OFFERING
Weststar Environmental, Inc. is in the process of preparing a
registration statement under the Securities Act of 1933. Under the
terms of the proposed registration, Weststar would offer 1,000,000
shares of its $.001 par value common stock for sale at a purchase price
of $5 per share including a detachable warrant. It is anticipated that
the shares will be offered by the underwriters on a firm commitment
basis. If successful, the offering would provide Weststar with
$4,500,000 in proceeds, net of underwriting discounts and commissions.
Upon the successful completion of the planned offering, Weststar would
revoke its election to be treated as an S Corporation (Note 7).
81
<PAGE> 82
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
GOVERNMENT REGULATION
Substantially all of the Company's operations are subject to federal,
state and local regulations relating to the disposition of
environmentally-sensitive waste. Compliance with these provisions has
not had, nor does the Company expect such compliance to have, any
material effect upon the capital expenditures, net income, financial
condition or competitive position of the Company. Management believes
that its current practices and procedures for the control and
disposition of such wastes comply with applicable federal, state and
local requirements.
7. INCOME TAXES
B&B Septic and Environmental Services, Inc. is a corporation subject to
Federal and State income taxes. As of December 31, 1997, B&B has net
operating losses of $95,051 available for carryforward until their
expiration in the year 2012.
During the years ended December 31, 1997 and 1996, Weststar elected to
be treated as an S Corporation under the provisions of the Internal
Revenue Code and similar provisions of state tax laws. As an S
Corporation, the net income or loss of Weststar is reportable by the
stockholders who are responsible for any income taxes thereon.
Therefore, no provision for income taxes on the income of Weststar has
been included in these financial statements.
If it successfully completes the intended public offering of its common
stock during 1998, Weststar will voluntarily revoke its election to be
treated as an S Corporation, thereby becoming a taxable entity. As a
result, a deferred income tax liability would be recorded and a
deferred income tax expense recognized for the year in which the
election is terminated based on accumulated temporary differences
existing at that date.
The deferred income tax effect of revoking the S Corporation election,
based on accumulated temporary differences existing as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
------- ----------
<S> <C> <C>
Deferred tax assets $ 166,000 $ -
Deferred tax liabilities (166,000) (263,000)
---------- ---------
Net deferred tax liabilities $ - $(263,000)
========== =========
</TABLE>
82
<PAGE> 83
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect temporary differences in reporting assets
and liabilities for financial accounting and income tax purposes. These
temporary differences arise from the use of the accrual method of
accounting for financial statements and the cash method for taxes, from
different depreciation methods used for financial statement and income
tax purposes and from tax loss carryforwards.
8. STOCKHOLDERS' EQUITY
RECAPITALIZATION
On February 16, 1998, Weststar authorized a recapitalization of its
equity structure to provide for 10,000,000 authorized shares at a par
value of $.001. Simultaneous therewith, Weststar authorized a 15-for-1
stock split to existing shareholders, resulting in a total of 1,500,000
shares issued and outstanding. The capital structure of Weststar has
been retroactively restated for all periods presented to reflect the
above changes.
STOCK ISSUANCE
During February 1998, Weststar issued 190,000 shares of its common
stock to various professionals and consultants in payment for their
services. Such compensation was recorded at $47,500, based on the
estimated fair value of the stock at the date of issuance.
9. STOCK OPTION PLAN
The Weststar Environmental, Inc. 1997 Nonstatutory Stock Option Plan
(the "Plan"), which was adopted by the Company's Board of Directors
(the "Board") in April 1997 covers up to 1,00,000 shares of the
Company's common stock which are issuable upon the exercise of a like
number of options. The purpose of the plan is to enable the Company to
encourage eligible plan participants to contribute to the success of
the Company by granting such individuals stock options. Options granted
under the Plan are not intended to qualify as "incentive stock options"
as defined in Section 422A of the Internal Revenue Code of 1986, as
amended. The plan is presently administered by the Board. The eligible
participants under the plan are determined at the discretion of the
Board. Subject to express provisions of the plan, the Board has the
complete discretion and power to determine from among eligible persons
those to whom options may be granted, the time or times at which
options may be granted, the option price, the number of shares of
Common Stock to be subject to each option and the duration of the
options. Option may be granted under the Plan from time to time until
April 27, 2007 or such earlier date as may be determined by the Board.
On April 28, 1997 the Company issued an aggregate of 487,500 Plan
options including 75,000 options which were issued to the named
executive. 460,000 of such options are exercisable at $5 per share and
the other 27,500 options are exercisable at $.001 per share. 207,500 of
the Plan options are exercisable at any time during the four year
period commencing April 28, 1998. The other 280,000 Plan options are
exercisable at any time during the four year period commencing January
1, 1999. No determinations have been made regarding the persons to whom
options will be granted in the future or the option exercise prices.
83
<PAGE> 84
10. RESTATEMENT
The Company's 1996 financial statements have been restated to reflect
revisions to certain asset and liability accounts which were previously
misstated as follows. Insurance expense and the related liability
account were understated by $58,138. Equipment was overstated by
$205,071 for items which were disposed or scrapped but for which the
net book value had not been removed for the balance sheet. Gain on sale
of routes was understated by $284,250 because a portion of the gain was
originally recorded as deferred revenue to be reported in future
periods. The effect of the restatement on retained earnings and the
resultant effect on the statement of operations are as follows:
<TABLE>
<CAPTION>
RETAINED NET
EARNINGS LOSS
<S> <C> <C>
Balances at December 31, 1996, as previously reported $ 34,422 $ (237,102)
Accrued expenses (58,138) (58,138)
Deferred revenue 284,250 284,250
Equipment (205,071) (205,071)
---------- ----------
Balances at December 31, 1996, as restated $ 55,463 $ (216,061)
=========== ==========
</TABLE>
11. SUBSEQUENT EVENTS
FINANCING AGREEMENT
Effective June 3, 1998, the Company obtained a $160,000 bank mortgage
on its Starke, Florida real estate. The mortgage is payable in 60
monthly installments of $1,684, including interest at 9.5% with the
remaining principal balance due on June 3, 2003.
HAULING SERVICES CONTRACT
On June 5, 1998, Weststar signed an amendment to its contract with
Jacksonville Electric Authority ("JEA"). Under the terms of the
contract amendment, Weststar will provide biosolids hauling services to
JEA for the three-year period ending September 30, 2001 at annual fees
not to exceed $1,250,000 per year. Such limitation does not apply to
other services Weststar provides to JEA on an emergency basis. The
agreement may not be rebid to other contractors during the term of the
contract.
84
<PAGE> 85
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................ 6
Summary Financial Information............. 9
The Company............................... 10
Risk Factors.............................. 10
Use of Proceeds........................... 19
Market for Company Securities and
Related Securityholder Matters.......... 24
Dilution.................................. 25
Capitalization............................ 25
Dividend Policy........................... 26
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............... 26
Business.................................. 31
Management................................ 48
Certain Transactions...................... 54
Principal Stockholders.................... 58
Description of Securities................. 60
Underwriting.............................. 63
Legal Matters............................. 67
Experts................................... 67
Additional Information.................... 67
Financial Statements...................... 69
---------------------------
UNTIL __________, 1998 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
WESTSTAR ENVIRONMENTAL INC.
1,000,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK, $.001
PAR VALUE AND ONE REDEEMABLE
STOCK PURCHASE WARRANT
P R O S P E C T U S
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
315 POST ROAD WEST
WESTPORT, CONNECTICUT 06880
800-935-0222
, 1998
85
<PAGE> 86
WESTSTAR ENVIRONMENTAL INC.
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each of the Underwriters has agreed to indemnify the Company, its
officers and directors, and each person who controls it within the meaning of
Section 15 of the Securities Exchange Act of 1933 with respect to any statement
in or omission from the Registration Statement or the Prospectus or any
amendment or supplement thereto if such statement or omission was made in
reliance upon information furnished in writing to the Company by such
Underwriter specifically for or in connection with the preparation of the
Registration Statement, the Prospectus, or any such amendment or supplement
thereto.
The Florida General Corporation Act (the "Florida GCA") empowers a
corporation to indemnify its directors and officers and to purchase D&O
Insurance with respect to liability arising out of their capacity or status as
directors and officers provided that such a provision does not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve international misconduct; (iii) for a knowing
violation of law arising under the Florida GCA; or (iv) for any transaction from
which the director derived an improper personal benefit. Following the
completion of this offering, the Company intends to purchase D&O Insurance, if
such insurance is available at rates which are satisfactory to the Company.
The Florida GCA provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any rights to which the directors
and officers may be entitled under the corporation's by-laws, any agreement,
vote of shareholders or otherwise.
Article 7 of the Company's Articles of Incorporation eliminates the
personal liability of officers and directors to the fullest extent permitted by
law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION
IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
86
<PAGE> 87
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses in connection with
the issuance and distribution of the securities being registered, other than
selling discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.......................... $ 4,240.52
NASD Filing Fee.............................................................. 1,937.46
Blue Sky Legal Fees and Expenses............................................. 25,000.00
Printing and Engraving Expenses.............................................. 40,000.00
Transfer Agent's Fees and Expenses........................................... 4,000.00
Accounting Fees and Expenses................................................. 53,000.00
Legal Fees and Expenses...................................................... 95,000.00
Miscellaneous Expenses....................................................... 11,000.00
---------------
Total Estimated Expenses................................................ $ 234,177.98
===============
</TABLE>
- ------------------
All such expenses will be borne by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company did not issue any shares of Common Stock during the years
ended December 31, 1997; December 31, 1996 and December 31, 1995. Pursuant to
the amendment of the Company's articles of incorporation on February 16, 1998,
increasing the Company's authorized capital from 100,000 shares of Common Stock,
$1 par value, to 10,000,000 shares of Common Stock, $.001 par value, the Company
authorized and effected a stock split. Pursuant to such stock split, the 100,000
outstanding shares of Common Stock, $1 par value, were converted at the rate of
15 for 1 into 1,500,000 shares of Common Stock, $.001 par value, all of which
remain currently issued and outstanding. Subsequent to the certificate amendment
and stock split, the following unregistered securities were issued by the
Company. No underwriting discounts or commissions were paid in connection with
the issuance of such securities.
As of February 1998, pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, the Company
issued an aggregate of 190,000 shares of Common Stock for services rendered or
to be rendered, to Thomas C. Souran (100,000 shares), Environmental and
Financial Consulting Inc. (50,000 shares) and Milling Law Offices (40,000
shares). All of the foregoing purchasers are sophisticated investors, are
familiar with the business activities of the Company and were given full and
complete access to any corporate information requested by them and did in fact
review extensive corporation information.
The shares issued to Thomas C. Souran were issued in connection with a
January 1, 1998 Consultant Agreement between the Company and Mr. Souran. The
shares issued to Milling Law Offices were issued in connection with legal
services. The shares issued to Environmental and Financial Consulting Inc. were
issued in connection with financial consulting services rendered by
Environmental and Financial Consulting Inc. to the Company in 1997 with regard
to arranging several commercial loans for the Company. As of March 9, 1998,
William Perry, a principal shareholder of the Company, has owned Environmental
and Financial Consulting, Inc.
87
<PAGE> 88
All of such purchasers acknowledged that they were acquiring such
securities for investment. Restrictive legends were placed on all stock
certificates issued in said transactions and stop transfers were placed against
all such certificates. Exemption from registration under the Securities Act of
1933, as amended, was claimed pursuant to Section 4(2) of said Act.
During the current fiscal year and the fiscal years ended December 31,
1997, December 31, 1996, and December 31, 1995, the Company issued an aggregate
of 487,500 non-statutory stock options pursuant to the Company's 1997
Nonstatutory Stock Option Plan as set forth in the following table:
<TABLE>
<CAPTION>
Date of Number of Exercise Exercise
Optionee Issuance Options Price Period
- -------- -------- ------- ----- ------
<S> <C> <C> <C> <C>
Elton Stubbs April 28, 1997 140,000 $5 Jan. 1, 1999 - Dec. 31, 2002
John Stubbs April 28, 1997 140,000 $5 Jan. 1, 1999 - Dec. 31, 2002
Michael E. Ricks April 28, 1997 75,000 $5 Apr. 28, 1998 - Apr. 27, 2002
William W. Perry April 28, 1997 75,000 $5 Apr. 28, 1998 - Apr. 27, 2002
William B. Gray April 28, 1997 20,000 $5 Apr. 28, 1998 - Apr. 27, 2002
Michael George April 28, 1997 5,000 $5 Apr. 28, 1998 - Apr. 27, 2002
Dr. John Poser April 28, 1997 5,000 $5 Apr. 28, 1998 - Apr. 27, 2002
Wendy Stubbs April 28, 1997 10,000 $.001 Apr. 28, 1998 - Apr. 27, 2002
David Capps April 28, 1997 10,000 $.001 Apr. 28, 1998 - Apr. 27, 2002
George King April 28, 1997 1,500 $.001 Apr. 28, 1998 - Apr. 27, 2002
Joseph Baldree April 28, 1997 1,500 $.001 Apr. 28, 1998 - Apr. 27, 2002
Jeff Kirkendahl April 28, 1997 1,500 $.001 Apr. 28, 1998 - Apr. 27, 2002
Jim Ricks April 28, 1997 1,000 $.001 Apr. 28, 1998 - Apr. 27, 2002
Kristan Lowe April 28, 1997 1,000 $.001 Apr. 28, 1998 - Apr. 27, 2002
Genie Dyal April 28, 1997 1,000 $.001 Apr. 28, 1998 - Apr. 27, 2002
</TABLE>
Exemption from registration under the Securities Act of 1933, as
amended, was claimed pursuant to Section 4(2) of the Act. All of the foregoing
persons are familiar with the business prospects and financial status of the
Company and were given full and complete access to any corporate information
requested by them.
ITEM 27. EXHIBITS
EXHIBIT NO. ITEM
- ----------- ----
1.1* Revised form of Agreement Among Underwriters
1.2* Revised form of Underwriting Agreement
1.3* Revised form of Selected Dealer Agreement
1.4* Revised form of Representative's Warrant
1.5* Form of Financial Consulting Agreement
1.6* Supplemental amendment to Underwriting Agreement
88
<PAGE> 89
2.* Agreement and Plan of Reorganization dated as of April 29,
1997 by and among the Company, Northstar Holding Corp.,
Weststar Acquisition Corp., B&B Acquisition Corp., B&B Septic
and Environmental Services, Inc. and Michael E. Ricks
3.1* Articles of Incorporation file June 26, 1990
3.2* Amendment to Articles of Incorporation filed March 12, 1993
3.3* Amendment to Articles of Incorporation filed February 16, 1998
3.4* By-laws
4.1* Specimen Common Stock Certificate
4.2* Specimen Redeemable Common Stock Purchase Warrant Certificate
4.3* Form of Warrant Agreement between the Company and Warrant
Agent
5. Opinion and Consent of Counsel
10.1* Employment Agreement dated April 28, 1997 between the Company
and Michael E. Ricks
10.2* Promissory Note dated October 7, 1998 issued by the Company to
G&W Framing Contractors, Inc.
10.3* Staff Leasing Agreement, dated April 10, 1996 between the
Company and Staff Leasing II, L.P.
10.4* Asset Sale and Purchase Agreement dated as of October 4, 1996
between the Company and CBP Resources, Inc.
10.5* Agreement between the Company and Food Lion, Inc. dated August
20, 1996.
10.6* Contract dated October 31, 1997 between the Company and the
Jacksonville Electric Authority including Amendment dated June
5, 1998 and Bid Proposal Form
10.7* Consultant Agreement dated as of January 1, 1998*, including
Addendum dated as of June 15, 1998, between the Company and
Thomas C. Souran
10.8* 1997 Nonstatutory Stock Option Plan
10.9* Noncompetition and Consulting Agreement dated as of October 4,
1996 between Michael E. Ricks and CBP Resources, Inc.
10.10* Mortgage note, dated October 29, 1990, made by B&B Plumbing
and Septic Services, Inc. to SouthTrust Bank of Central
Florida in the amount of $230,000.
10.11* Unsecured note, dated January 31, 1994, made by the Company to
Gloria Ferguson et al in the amount of $100,000.
10.12* Promissory note, dated October 11, 1995, made by the Company
to SouthTrust Bank of Central Florida in the amount of
$76,284.80.
10.13* Promissory note, dated March 1, 1996, made by Company to
SouthTrust Bank of Central Florida in the amount of $75,000.
10.14* Promissory note, dated October 25, 1995, made by B&B Septic
and Environmental Services, Inc. (a predecessor to the
company) to First Union National Bank of Florida in the amount
of $24,414.
89
<PAGE> 90
10.15* Promissory note, dated September 27, 1994, made by B&B
Plumbing and Septic Services, Inc. to First Community Bank in
the amount of $35,612.25.
10.16* Promissory note, dated October 25, 1995, made by the Company
to First Union National Bank in the amount of $24,414.
10.17* Promissory note, dated February 23, 1996, made by the Company
to CNB National Bank in the amount of $50,064.
10.18* Promissory note, dated July 5, 1996, made by the Company to
SunTrust Bank, North Central Florida in the amount of $
55,193.20.
10.19* Promissory note, dated December 29, 1994, made by the Company
to CNB National Bank in the amount of $86,465.75.
10.20* Promissory note, dated February 10, 1994, made by the Company
to First Union Bank of Florida in the amount of $200,000.
10.21* Promissory note, dated September 11, 1995, made by the Company
to SouthTrust Bank of Central Florida in the amount of
$12,117.70.
10.22* Mortgage note, dated June 3, 1998, made by the Company to
Primesouth Bank in the amount of $160,000.
16.* Letter on Change in Certifying Accountant
21. Subsidiaries - The Company's sole subsidiary, which is
wholly-owned, is B&B Septic and Environmental Services, Inc.,
a Florida corporation
23. Consent of Horton & Company L.L.C., independent certified
public accountants
27. Financial Data Schedule (filed by EDGAR)
99.* Consent of Michael J. George, prospective director
- ------------------
* Previously Filed
ITEM 28. UNDERTAKINGS
(a) Rule 415 Offering
The undersigned Company will:
(1) File, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof),
which, individually or in the
90
<PAGE> 91
aggregate, represent a fundamental change in
the information set forth in the
Registration Statement; and
(iii) Include any additional or changed material
information on the plan of distribution not
previously disclosed in the Registration
Statement.
(2) For determining any liability under the Securities Act,
that each such post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering thereof.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the termination of the
offering.
(b) Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referred to in Item 14 of this
Registration Statement, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling in connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) Rule 430A
The undersigned Company will:
(1) For determining any liability under the Securities Act of
1933, treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act of
1933, treat each post-effective amendment that contains a form of prospectus as
a new registration statement for the securities offered therein, and that
offering of the securities at that time as the initial bona fide offering of
those securities.
91
<PAGE> 92
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Jacksonville, State of Florida, on October 12, 1998.
WESTSTAR ENVIRONMENTAL INC.
By /s/ Michael E. Ricks
-----------------------------
MICHAEL E. RICKS, President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Michael E. Ricks President October 12, 1998
- -----------------------------------------------
MICHAEL E. RICKS
Principal Financial and Accounting Officer:
/s/ Keith M. Carter Treasurer October 12, 1998
- -----------------------------------------------
KEITH M. CARTER
A Majority of the Board of Directors:
/s/ Michael E. Ricks Director October 12, 1998
- -----------------------------------------------
MICHAEL E. RICKS
/s/ William B. Gray Director October 12, 1998
- -----------------------------------------------
WILLIAM B. GRAY
/s/ Keith M. Carter Director October 12, 1998
- -----------------------------------------------
KEITH M. CARTER
/s/ Dr. John S. Poser Director October 12, 1998
- -----------------------------------------------
DR. JOHN S. POSER
/s/ Thomas F. Fey Director October 12, 1998
- -----------------------------------------------
THOMAS F. FEY
</TABLE>
92
<PAGE> 93
EXHIBIT NO. ITEM
- ----------- ----
1.1* Revised form of Agreement Among Underwriters
1.2* Revised form of Underwriting Agreement
1.3* Revised form of Selected Dealer Agreement
1.4* Revised form of Representative's Warrant
1.5* Form of Financial Consulting Agreement
1.6* Supplemental amendment to Underwriting Agreement
2.* Agreement and Plan of Reorganization dated as of April 29,
1997 by and among the Company, Northstar Holding Corp.,
Weststar Acquisition Corp., B&B Acquisition Corp., B&B Septic
and Environmental Services, Inc. and Michael E. Ricks
3.1* Articles of Incorporation file June 26, 1990
3.2* Amendment to Articles of Incorporation filed March 12, 1993
3.3* Amendment to Articles of Incorporation filed February 16, 1998
3.4* By-laws
4.1* Specimen Common Stock Certificate
4.2* Specimen Redeemable Common Stock Purchase Warrant Certificate
4.3* Form of Warrant Agreement between the Company and Warrant
Agent
5. Opinion and Consent of Counsel
10.1* Employment Agreement dated April 28, 1997 between the Company
and Michael E. Ricks
10.2* Promissory Note dated October 7, 1998 issued by the Company to
G&W Framing Contractors, Inc.
10.3* Staff Leasing Agreement, dated April 10, 1996 between the
Company and Staff Leasing II, L.P.
10.4* Asset Sale and Purchase Agreement dated as of October 4, 1996
between the Company and CBP Resources, Inc.
10.5* Agreement between the Company and Food Lion, Inc. dated August
20, 1996.
10.6* Contract dated October 31, 1997 between the Company and the
Jacksonville Electric Authority including Amendment dated June
5, 1998 and Bid Proposal Form
10.7* Consultant Agreement dated as of January 1, 1998*, including
Addendum dated as of June 15, 1998, between the Company and
Thomas C. Souran
10.8* 1997 Nonstatutory Stock Option Plan
10.9* Noncompetition and Consulting Agreement dated as of October 4,
1996 between Michael E. Ricks and CBP Resources, Inc.
<PAGE> 94
10.10* Mortgage note, dated October 29, 1990, made by B&B Plumbing
and Septic Services, Inc. to SouthTrust Bank of Central
Florida in the amount of $230,000.
10.11* Unsecured note, dated January 31, 1994, made by the Company to
Gloria Ferguson et al in the amount of $100,000.
10.12* Promissory note, dated October 11, 1995, made by the Company
to SouthTrust Bank of Central Florida in the amount of
$76,284.80.
10.13* Promissory note, dated March 1, 1996, made by Company to
SouthTrust Bank of Central Florida in the amount of $75,000.
10.14* Promissory note, dated October 25, 1995, made by B&B Septic
and Environmental Services, Inc. (a predecessor to the
company) to First Union National Bank of Florida in the amount
of $24,414.
10.15* Promissory note, dated September 27, 1994, made by B&B
Plumbing and Septic Services, Inc. to First Community Bank in
the amount of $35,612.25.
10.16* Promissory note, dated October 25, 1995, made by the Company
to First Union National Bank in the amount of $24,414.
10.17* Promissory note, dated February 23, 1996, made by the Company
to CNB National Bank in the amount of $50,064.
10.18* Promissory note, dated July 5, 1996, made by the Company to
SunTrust Bank, North Central Florida in the amount of $
55,193.20.
<PAGE> 95
10.19* Promissory note, dated December 29, 1994, made by the Company
to CNB National Bank in the amount of $86,465.75.
10.20* Promissory note, dated February 10, 1994, made by the Company
to First Union Bank of Florida in the amount of $200,000.
10.21* Promissory note, dated September 11, 1995, made by the Company
to SouthTrust Bank of Central Florida in the amount of
$12,117.70.
10.22* Mortgage note, dated June 3, 1998, made by the Company to
Primesouth Bank in the amount of $160,000.
16.* Letter on Change in Certifying Accountant
21. Subsidiaries - The Company's sole subsidiary, which is
wholly-owned, is B&B Septic and Environmental Services, Inc.,
a Florida corporation
23. Consent of Horton & Company L.L.C., independent certified
public accountants
27. Financial Data Schedule (filed by EDGAR)
99.* Consent of Michael J. George, prospective director
- ------------------
* Previously Filed
NOTE: NO exhibits to be filed EXCEPT Nos. 5, 23 and 17 (including document
header pages). ALL exhibits to be filed are in this EDGAR extract.
<PAGE> 1
[MILLING LAW OFFICES LETTERHEAD]
October 9, 1998
Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549
Re: Weststar Environmental, Inc. Registration Statement
on Form SB-2, No. 333-50255
Dear Sirs:
As counsel to Weststar Environmental, Inc. (the "Company"), we have
examined the certificate of incorporation, the by-laws and other relevant
corporate documents of the Company with reference (1) to the 1,690,000 shares of
its common stock, par value $.001, per share, presently issued and outstanding
(the "Outstanding Stock"); (2) to the proposed issuance and sale of 1,150,000
units (the "Units") including 150,000 Units reserved for issuance to cover
over-allotments at the underwriter's option, each Unit consisting of one share
of common stock (the "Shares") and one redeemable warrant to purchase one share
of common stock (the "Warrants"), the securities comprising each of which Units
being detachable and separately transferrable; and (3) an additional 1,150,000
shares of common stock, (collectively the "Underlying Stock") reserved for
issuance on the exercise of the Warrants. Based upon such examination, it is our
opinion that:
(1) The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Florida with an authorized
capitalization as set forth in the prospectus forming a part of the above
captioned registration statement (the "Registration Statement").
(2) (a) The Outstanding Stock is validly issued, fully paid and
non-assessable shares of common stock of the Company; (b) the Units and their
constituent Shares and Warrants have been duly authorized; (c) the Shares and
the Underlying Shares, when issued in accordance with the terms of the
Registration Statement, will be validly issued, fully paid and non-assessable
shares of common stock of the Company; and (d) the Warrants, when issued in
accordance with the terms of the Registration Statement, will be validly issued
and will constitute valid and subsisting contractual commitments of the Company.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and we further consent to the reference therein to us as
counsel to the Company and as having passed upon the legality of the securities
being offered pursuant to the Registration Statement.
Very truly yours,
MILLING LAW OFFICES
By /s/ John L. Milling
------------------------
JOHN L. MILLING
JLM/mxh
<PAGE> 1
[HORTON & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 21, 1998,
relating to the consolidated financial statements of Weststar Environmental,
Inc. and subsidiary for the years ended December 31, 1997 and 1996, which is
contained in the Prospectus.
We also consent to the reference to us under the caption "Experts" in the
prospectus.
/s/Horton & Company, L.L.C.
Horton & Company, L.L.C.
Wayne, New Jersey
October 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1996 JUN-30-1998 JUN-30-1997
<CASH> 6,233 0 101,041 9,133
<SECURITIES> 0 0 0 0
<RECEIVABLES> 407,736 45,563 237,675 66,642
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 451,762 73,127 545,934 107,732
<PP&E> 2,428,955 2,283,073 2,481,351 2,425,766
<DEPRECIATION> (688,127) (478,606) (804,454) (588,864)
<TOTAL-ASSETS> 2,195,100 1,883,004 2,256,871 1,951,468
<CURRENT-LIABILITIES> 1,182,912 1,035,888 936,111 1,214,255
<BONDS> 640,775 697,561 667,456 524,124
0 0 0 0
0 0 0 0
<COMMON> 1,500 1,500 1,690 1,500
<OTHER-SE> 369,913 148,055 561,614 211,589
<TOTAL-LIABILITY-AND-EQUITY> 2,195,100 1,883,004 2,256,871 1,951,468
<SALES> 0 0 0 0
<TOTAL-REVENUES> 2,245,008 1,682,566 1,060,892 1,147,881
<CGS> 0 0 0 0
<TOTAL-COSTS> 1,091,196 1,522,476 567,200 596,996
<OTHER-EXPENSES> 558,031 651,730 212,747 217,827
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 173,923 103,421 46,554 69,524
<INCOME-PRETAX> 421,858 (216,061) 234,391 263,534
<INCOME-TAX> 148,000 (76,000) 82,000 92,000
<INCOME-CONTINUING> 273,858 (140,061) 152,391 171,534
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 273,858 (140,061) 152,391 171,534
<EPS-PRIMARY> 0.18 (0.09) 0.09 0.11
<EPS-DILUTED> 0.18 (0.09) 0.09 0.11
</TABLE>
