As filed with the Securities and Exchange Commission on November ___, 2000.
Registration No. 333-43356
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WESTSTAR ENVIRONMENTAL, INC.
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(Name of small business issuer in its charter)
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Florida 4953 59-3066915
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(State of Incorporation) (Primary SIC Code) (IRS Employer
ID Number)
9000 Regency Square Boulevard, Suite 202
Jacksonville, Florida 32211
(904) 721-7557
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(Address and telephone number of principal executive offices)
Michael E. Ricks, President
Weststar Environmental, Inc.
9000 Regency Square Boulevard, Suite 202
Jacksonville, Florida 32211
(904) 721-7557
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(Name, address and telephone number of agent for service)
COPIES TO:
Joel C. Schneider, Esq. Gregory Sichenzia, Esq.
Sommer & Schneider LLP Thomas A. Rose, Esq.
595 Stewart Avenue, Suite 710 Sichenzia, Ross & Friedman LLP
Garden City, NY 11530 135 W. 50th Street
(516) 228-8181 New York, NY 10020
(212) 664-1200
Approximate date of commencement of proposed sale to public: As soon after
the effective date of the Registration Statement as is practicable.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
THE REGISTRANT 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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING ACCORDING TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER ___, 2000
1,000,000 SHARES
WESTSTAR ENVIRONMENTAL, INC.
COMMON STOCK
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This is an initial public offering of our shares of common stock. All
of the 1,000,000 shares of common stock are being sold on Weststar's behalf by
Kashner Davidson Securities Corporation on a firm commitment basis.
Before this offering, there has been no public market for the common
stock. We applied to list the common stock for trading on the Nasdaq SmallCap
Market and Boston Stock Exchange under the proposed symbols "WSTX" and "WSE",
respectively.
See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.
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Neither the securities and exchange commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Share Total
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Initial public offering price........................ $ 6.00 $6,000,000
Underwriting discount................................ $ 0.60 $ 600,000
Proceeds, before expenses, to Weststar............... $ 5.40 $5,400,000
To the extent that the underwriters sell more than 1,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
150,000 shares from us at the initial public offering price, less the
underwriting discount.
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The underwriters expect to deliver the shares in New York,
New York on or about ________.
Kashner Davidson Securities Corporation
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Prospectus dated November ___, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary
Risk Factors
Cautionary Note Regarding
Forward Looking Statements
Use of Proceeds
Dividend Policy
Capitalization
Dilution
Selected Financial Data
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations
Business
Management
Certain Transactions
Termination of S Corporation
Status
Principal Stockholders
Description of Our
Securities
Shares Eligible for Future
Sale
Underwriting
Legal Matters
Experts
Where You Can Find More
Information
Index to Consolidated
Financial Statements
--------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
different information. This document may only be used where it is legal to sell
these securities. The information in this document may not be accurate after the
date of this document.
Dealer Prospectus Delivery Obligation
Until ______________, all dealers that effect transactions in these
securities, whether or not participation in this offering, may be required to
deliver a prospectus. This is in addition to the dealer' obligation to deliver a
prospectus when acting as underwriters and with respect to unsold allotments or
subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully before investing in our common
stock.
Weststar
We are 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. We also engage in the installation,
replacement and repair of commercial and residential waste disposal systems. We
are also developing plans to engage in the recycling of non-hazardous waste
materials. Our services are principally provided in the southeastern United
States. Management's goal is to expand our operations by conducting an
aggressive acquisition program, increasing productivity and operating
efficiency, and by internal growth.
We are also engaged in the business of biosolids management through the
reuse of organic materials. We provide transportation, treatment, site
monitoring, and land application to private companies. Our vehicles pick up and
transport biosolids to various sites.
We were formed under the laws of the State of Florida on June 26, 1990. In
February 1994, we acquired all of the issued and outstanding capital stock of
B&B Septic and Environmental Services, Inc., 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
Septic and Environmental Services, Inc. was owned by our shareholders.
We acquired Pipeline Contractors, Inc. in March 2000 and Wealing Brothers,
Inc. in June 2000, each for a combination of cash, our stock and promissory
notes. On August 22, 2000 we entered into an agreement to acquire the stock of
Village Ventures, Inc. for a combination of cash and our common stock.
Pipeline is an underground utilities and road-related construction
contractor doing business in northern and central Florida. Wealing is engaged in
site preparation, dredging, non-hazardous waste transportation and sludge
recycling throughout Indiana and Michigan. Village Ventures is engaged in site
preparation and the installation and repair of residential and commercial sewage
systems throughout northern and central Florida.
Our Offices
Our executive offices are located at 9000 Regency Square Boulevard, Suite
202, Jacksonville, Florida 32211 and our telephone number is (904) 721-7557.
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The Offering
Shares offered by Weststar 1,000,000 shares of common stock
Shares outstanding after this offering 2,915,833 shares of common stock
Proposed Nasdaq SmallCap Market symbol WSTX
Proposed BSE symbol WSE
Use of proceeds o repayment of debt
o payments related to completed
acquisitions
o capital expenditures
o acquisition financing
o working capital and general
corporate purposes
The above information is based on shares outstanding as of September 30,
2000. This information excludes 300,000 shares of common stock issuable upon the
exercise of outstanding options at a weighted average exercise price of $4.718
per share.
Except as otherwise indicated, we have presented information in this
prospectus based on the assumption that the underwriters do not exercise their
over-allotment option.
Before you decide to invest in Weststar Environmental, Inc. you should read
the entire prospectus carefully, including the "risk factors" section, financial
statements and related notes included in this prospectus. References to
"Weststar Environmental, Inc.", "Weststar," "we," "us," and "our" refer to
Weststar Environmental, Inc., but not to the underwriters.
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Summary Selected Financial Data
The following tables present summary financial data derived from our financial
statements included elsewhere in this prospectus. The balance sheet data for
September 30, 2000 and the statement of operations data for the nine month
period ended September 30, 1999 and 2000 have not been audited by independent
auditors, but in the opinion of our management, all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation have been included.
The pro forma information has been adjusted for the sale of the common stock
offered in this registration statement and application of estimated net proceeds
from the sale. See pro forma condensed consolidated financial statements and
related notes on pages F-21 through F-26. The following data should be read in
conjunction with our financial statements and related notes:
<TABLE>
<CAPTION>
Pro forma consolidated
----------------------
Nine-months ended Nine months
Year ended December 31, September 30, Year ended ended
-------------------------- ------------------------ December 31, September 30,
1998 1999 1999 2000 1999 2000
---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $1,696,915 $1,726,614 $1,344,050 $2,860,375 $8,471,908 $5,201,417
Income from operations 132,459 295,706 179,814 392,093 850,956 545,444
Interest expense 86,745 102,678 49,391 257,566 246,537 337,449
Net income (loss) (158,374) 193,028 130,423 134,527 507,803 135,196
Earnings (loss) per share (0.10) 0.12 0.08 0.08 0.17 0.05
Pro forma income tax expense
(benefit) (55,000) 66,00 45,600 47,000 204,575 72,798
Pro forma net income (loss) (103,374) 127,028 84,823 87,527 507,803 135,196
Pro forma earnings (loss)
per share (0.06) 0.08 0.05 0.05 0.17 0.05
Weighted average number of
shares outstanding 1,666,630 1,673,951 1,690,000 1,763,095 2,939,784 2,846,428
</TABLE>
<TABLE>
<CAPTION>
December 31 September 30, 2000
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1999 Pro forma
---- ---------
Actual consolidated
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(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash $ 144,186 $ 51,190 $ 1,356,653
Current assets 347,769 1,381,797 2,829,780
Current liabilities 1,425,339 3,291,966 1,194,535
Working capital (deficit) (1,077,570) (1,910,169) 1,635,245
Long-term assets 1,794,792 4,434,455 5,832,647
Total assets 2,142,561 5,816,252 8,662,427
Long-term debt and other
liabilities 275,155 708,959 1,040,687
Stockholders' equity 442,067 1,815,327 6,427,205
</TABLE>
3
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below, associated with an investment in
our common stock. Such risks could have a material adverse effect on our
business, financial condition or results of operations. You should carefully
consider these risk factors, together with all of the other information included
in this prospectus before you decide whether to purchase shares of our common
stock.
We have a working capital deficiency and need additional capital for
acquisitions and internal growth; we may need to raise additional funds in the
future to continue to grow our business
At September 30, 2000, we had total current assets of $1,381,797 and total
current liabilities of $3,291,966 or a working capital deficiency of $1,910,169.
At December 31, 1999 and 1998, we had total current assets of $347,769 and
$137,769, respectively, and total current liabilities of $1,425,339 and
$1,019,834, respectively, or a working capital deficiency of $1,077,570 and
$882,065 respectively. We plan to increase our present business through
expansion and acquisition. The rate at which such growth occurs depends, in
part, on the capital resources available to us as well as our ability to locate
and acquire suitable acquisitions. The net proceeds from this offering and cash
available from operations may not be sufficient to meet our capital needs for
our planned growth of its business. We 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.
A significant percentage of our revenues come from the city of Jacksonville and
Food Lion Supermarkets, the loss of either of which would adversely affect our
financial results
During our fiscal years ended December 31, 1999 and December 31, 1998, two
customers accounted for approximately 69.6% and 72.9%, respectively, of our
revenues. For the nine months ended September 30, 2000, these customers
accounted for 45% of our revenues. The City of Jacksonville/Jacksonville
Electric Authority accounted for approximately 41% of total sales in 1999 and
approximately 61.4% of total sales in 1998 and 42.2% for the nine months ended
September 30, 2000. Food Lion Supermarkets accounted for approximately 28.6% of
total sales for 1999 and approximately 11.5% of total sales in 1998 and 2.8% for
the nine months ended September 30, 2000. The loss of either of these customers
would cause a significant loss of revenue and adversely affect our results of
operations.
We have a limited operating history and an absence of combined operating
history, which makes it difficult to evaluate our business and acquisition
prospects
We have very little significant operating history as an integrated
non-hazardous liquid waste business to which investors may look to evaluate our
performance. Since we began operations, we have negotiated four operating
acquisitions. There is no assurance that we will be able to successfully
integrate the operations of the acquired businesses or any subsequently acquired
businesses or to institute the necessary systems and procedures, including
accounting and financial reporting systems, to manage the entire combined
enterprise on a profitable basis. In addition, there is no assurance that our
management group will be able to effectively manage the combined entity or to
effectively implement our acquisition program and internal growth strategy. Our
pro forma financial statements and our intended acquisitions cover periods when
4
<PAGE>
the Acquired businesses were not under common control or management and may not
be indicative of our future financial or operating results. Our inability to
integrate these acquired businesses successfully would have a material adverse
effect on our business, results of operations and financial condition, as well
as our acquisition program.
Our business may be limited by non-compete agreements with CBP Resources, Inc.,
which restricts our ability to solicit potential customers
In connection with our October 4, 1996, sale of CBP Resources, Inc., We and
Michael E. Ricks, our president and chief executive officer, entered into ten
year non-compete agreements with CBP Resources, Inc. These non-compete
agreements prohibit us 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. CBP Resources, Inc.
has granted us limited rights to engage in certain activities prohibited by the
non-compete agreements in the states of Tennessee, Alabama, West Virginia and
Maryland. The restriction of activities in these areas could adversely effect
our proposed expansion and acquisition plans.
We are dependent on third party landfills and land application sites to dispose
of the waste collected by Weststar, if such sites become unavailable or more
costly our operations would suffer
A portion of the waste collected by us is delivered to third party
landfills and land application sites under informal arrangements or without
long-term contracts. If these third parties increase their disposal fees and we
are unable to pass along the increase to our customers, or if these third
parties discontinue their arrangements with us and we are unable to locate
alternative disposal sites, our business would have to be curtailed and results
of operations would suffer.
Government contracts represent a large percentage of our business
For the years ended December 31, 1999 and December 31, 1998, approximately
45.7% And 67.0% of our revenues were derived from services provided to
governmental customers and it is anticipated that a substantial portion of our
future revenues will be derived from governmental customers. Government
contracts are subject to special risks, including:
o delays in funding
o lengthy review processes for awarding contracts
o non-renewal
o delays
o termination
o reduction or modification of contracts in the event in the
government's policies or as a result of budgetary constraints; and
o increased or unexpected costs resulting in losses.
Each of these could have a negative adverse effect on our business.
5
<PAGE>
Although we are currently exempt from compliance with certain government
regulation changes in the future to these laws could result in substantial
additional expenses
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, 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 us.
Furthermore, amendments to existing statutes and regulations, adoption of new
statutes and regulations and our expansion into other jurisdictions and waste
management services could require us and others in our industry to continually
alter methods of operations at costs that may be substantial and which could
negatively affect our profitability. We cannot be sure that we will be able, for
economic reasons or otherwise, to comply with future laws and regulations. Our
non-hazardous liquid waste and bio-solids management operations are currently
exempt from all material federal, state and local laws and regulations governing
our operations, however, changes that require us to comply with government
regulations could require that we make capital expenditures which will affect
our net income, our financial condition or our competitive position.
Our business relies on competitive bidding which may cause us to bid a job, the
cost of which may exceed our submitted bid
In many instances, we obtain contracts for our services through the process
of competitive bidding. We may not be successful in having our bids accepted or,
if accepted, that awarded contracts will generate sufficient revenues to result
in our profitability. 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. If actual costs exceed the projected costs on which
bids or contract prices were based, our profitability could be materially
adversely affected.
We face potential environmental liability for which we may not have adequate
insurance
Our industry involves potentially significant risks of statutory,
contractual and common law liability. We carry a broad range of insurance
coverage, which we consider sufficient to meet regulatory and customer
requirements and to protect our assets and operations. We also obtain additional
insurance as required on a project-by-project basis. We attempt to operate in a
professional and prudent manner to reduce our liability risks through specific
risk management efforts. However, a situation may arise that is not covered by
insurance which could have a significant effect on our business and assets.
We are subject to liability for any environmental damage that our
operations may cause, including any contamination of drinking water sources or
soil. To date, we have not incurred any such liability and we do not believe
that our 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 us could have a material adverse effect on our business and results
of our operations.
As is typically the case in the non-hazardous waste industry, we are able
to obtain only very limited environmental impairment insurance regarding our
operations. An uninsured or underinsured claim of sufficient magnitude would
require us to fund such claim from cash flow generated by operations or other
sources. There can be no assurance that we would be able to fund any such claim
from operations or from other sources.
6
<PAGE>
The inability to obtain and the revocation or non-renewal of required licenses
or permits to collect, transport and dispose of waste could result in a
disruption of our business and adversely effect our results of operations
We are required to obtain and maintain various federal, state, and local
permits and licenses for conducting our waste collection, transportation and
disposal operations. Obtaining these permits and licenses are difficult, time
consuming, and, in certain instances, costly, may be subject to community
opposition, opposition by various local elected officials or citizens,
regulatory delays and other uncertainties. Certain permits may be subject to
modification, renewal, or revocation by the issuing agencies after issuance,
which may increase our 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 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. In the event we are unable to obtain a required license or permit,
or if such license or permit is not renewed or revoked, we may be required to
cease operations in that particular area which would cause a disruption in
business, and negatively effect our results of operations.
Our future success depends, in part, on the continued service of Michael E.
Ricks, our chief executive officer
Our future success depends on the services of Michael E. Ricks, our
president and chief executive officer. We have entered into a three year
employment contract with Mr. Ricks. We intend 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 we deem feasible in light of our working capital position and based
upon the cost of premiums. The loss of the services of Mr. Ricks could have a
material adverse effect on us.
Resignation of interim chief financial officer and need for a replacement
On August 10, 2000, Keith Carter, who had been serving as our chief
financial officer and a director since January 28, 1998 resigned for personal
reasons. We are actively seeking a replacement for Mr. Carter and, pending the
recruitment and hiring of a replacement, Michael E. Ricks, our CEO, will assume
the role of our principal financial and accounting officer. If we are not able
to find a suitable replacement, our acquisition strategy and future success will
be adversely effected.
Certain stockholders will control 64.7% Of our common stock after this offering
and their interest may be different from yours, as a result, you may have no
effective voice in our management
Upon completion of this offering, current stockholders, including
management, will continue to own in excess of 64% of our outstanding voting
power. As a result, the current stockholders will be able to exercise control
over our business, policies and affairs and exert substantial influence over the
election of our directors, and the approval or disapproval of actions requiring
stockholder approval. This concentration of stock ownership could have the
effect of delaying or preventing, and may discourage attempts to bring about, a
change in control of us or the removal of existing management.
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<PAGE>
We require bonding in order to obtain certain contracts, our inability to obtain
bonding coverage could impair our business and results of operations
We are required, in certain instances, to put up bid and performance bonds
in connection with contracts or projects with government entities and, to a
lesser extent, private sector customers. A bid bond is sometimes required to
enable a contractor to bid on a job. This bond is only used if the successful
bidding contractor fails to enter into a contract. Performance bonds guarantee
the proper completion of the work. Approximately 22% of our revenues for the
year ended December 31, 1999 were derived from contracts or projects which
required us 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 to us in the future or that we 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 we are unable to obtain bonding
coverage it could have a materially adverse impact on ourbusiness and results of
operations.
The offering price for our common stock was determined arbitrarily between
Weststar and the underwriter
The offering price of our common stock was arbitrarily determined by us and
the underwriter and this price and these amounts bear no relationship to our
assets, earnings, book value or other such criteria of value.
You will experience immediate and substantial dilution of the value of the
common stock you purchase in this offering
If you purchase shares of our common stock in this offering, you will incur
immediate dilution in the pro forma per share net tangible book value of those
shares. We estimate this dilution to be approximately $4.71 per share, or
approximately 79%, assuming an offering price of $6.00 per share. We also expect
to offer stock options to employees, officers and directors in the future. These
issuances could further dilute the value of your investment in our common stock.
See "Dilution" for a description of how dilution has been calculated.
Approximately 68% of the net proceeds of this offering will be used to pay
existing debt and will not be available to fund acquisitions or internal growth
We intend to utilize approximately $3,575,000 or approximately 74% of the
net proceeds from this offering to pay existing debts, acquisition notes and
other acquisition costs. Included in this indebtedness, are loans made to us by
affiliates or entities controlled by affiliates. As of September 30,2000, the
aggregate amount of these loans was approximately $1,245,000. Interest continues
to accrue on some of these loans until repaid. The use of these proceeds to pay
existing indebtedness may impair our ability to make acquisitions in the future
and internally grow our business.
Our former status as a subchapter s corporation could expose us to liability
We elected Subchapter S corporation status under the Internal Revenue Code
from our inception to the completion of this offering. Although we believe that
we met the Subchapter S corporation requirements under the Code during this
period, we have not requested, and the IRS has not made a determination, as to
our status. If the IRS were to challenge our status and determine that we did
not meet the Code requirements for Subchapter S corporations, we could
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be liable for unpaid federal and state income taxes for all or a part of the
time that we elected Subchapter S corporation status, plus interest and possible
penalties.
If we fail to maintain our Nasdaq listing, liquidity of your investment will be
adversely affected
The Nasdaq SmallCap Market in which we intend our common stock to be traded
on has established certain maintenance listing requirements that must be
satisfied in order for a company's shares to continue to be listed. At the
completion of this offering we expect that our common stock will meet the Nasdaq
SmallCap Market maintenance listing requirements. However, if we incur losses,
this may affect our ability to meet the net tangible assets of $2 million
requirement or minimum Bid Price of $1 per share requirement as set by the
Nasdaq SmallCap Market. We cannot assure that we will always be able to meet the
Nasdaq SmallCap Market listing requirements in the future. Failure to meet the
Nasdaq SmallCap Market listing requirements could result in the delisting of our
common stock from the Nasdaq SmallCap Market which may adversely affect the
liquidity of our shares.
Under certain circumstances our common stock may be considered a penny stock
which could negatively impact the market for our common stock
The Securities Enforcement and Penny Stock Reform Act of 1999 requires
additional disclosure, relating to the market for penny stock, in connection
with trades in any stock defined as a penny stock. The Securities and Exchange
Commission has adopted regulations that generally define a penny stock to be an
equity security that has a market price of less than $5.00 per share; subject to
certain exceptions. Such exceptions include any equity security listed on the
Nasdaq SmallCap Market and any equity security that has net tangible assets of
at least $2,000,000. Unless an exception is available, the regulations require
the broker provide any customer with:
o a risk disclosure document
o disclosure of market quotations
o disclosure of the compensation of the broker-dealer and its salesman
in the transaction; and
o monthly account statements showing the market values of our securities
held in the customer's account
The market quotation and compensation information must be provided before
effecting the transaction and must be contained on the customers' confirmation.
These requirements may make brokers less willing to engage in transactions of
our securities. This may make it more difficult for our stockholders to sell
their securities.
Our sales of securities convertible into common stock may cause the market price
of our common stock to drop
We have sold a secured convertible promissory note in the principal amount
of $150,000. This note is convertible into our common stock at the rate of $1.00
per share, which is well below the offering price of $6.00 per share. The
conversion of this note may have an adverse affect on the market price for our
common stock.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus , the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify forward
looking statements. These statements include, but are not limited to, statements
under the captions "Risk Factors," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus concerning, among other things:
o our ability to maintain and expand current distribution, fulfillment
and other partnering relationships and to enter into new
relationships;
o our ability to attract advertisers and increase advertising revenue;
and
o our ability to broaden our existing product lines or expand into new
product categories;
You should not rely too extensively on the forward-looking statements
contained in this prospectus, because these statements reflect only or
management's view as of the date of this prospectus. In addition, these
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. We
assume no obligation to publicly update or revise these forward-looking
statements for any reason, or to update the reasons actual results could differ
from those anticipated in these forward-looking statements, even if new
information becomes available in the future.
USE OF PROCEEDS
Our net proceeds from the sale of the shares being offered in this offering
at an assumed public offering price of $6.00 per share are estimated to be
$4,827,500, after deducting the 10% underwriting discount, three percent
non-accountable expense allowance payable to the underwriter, $108,000 payable
to the underwriter for services under a consulting agreement, plus an additional
$284,500 in estimated offering expenses payable by us and assuming that the
underwriter's over allotment option is not exercised. If the underwriter's over
allotment option is exercised in full, our net proceeds are estimated to be
$5,610,500.
We intend to use the net proceeds as described in the following table:
Repayment of Debt $2,330,000 48%
Payments Related to Acquisitions 1,245,000 26%
Capital Expenditures, including equipment 576,500 12%
General Working Capital 676,000 14%
---------- ----
Total $4,827,500 100%
========== ====
- We intend to use approximately $2,330,000 to pay a preponderance of
our short and long term debt, including loans made to us by our
officers, directors and stockholders in the aggregate amount of
$569,687:
10
<PAGE>
Payee Amount Interest Rate
----- ------ -------------
Mike Ricks $221,431 None
Marie H. Stubbs 26,000 8.5%/annum
Peggy W. Stubbs 26,256 8.5%/annum
Thomas Fey 8,000 None
Caribbean Breeze
(David Capps) 38,000 None
Ron Denmark 250,000* 8.5%/annum
--------
$569,687
========
* Payable $50,000 per year with first payment due March 2001 or upon
completion of IPO.
- We intend to use approximately $1,245,000 to complete the acquisitions
of Wealing Brothers, Inc. and Village Ventures, Inc. In connection
with these acquisitions, we issued promissory notes in the aggregate
amount of $360,000 to Dean Wealing, Beverly Wealing, Ron Wealing and
Lynn Wealing, shareholders of Wealing Brothers and we have proposed to
pay approximately $820,000 to Joseph and Carolyn Duke, shareholders of
Village Ventures.
- We intend to use approximately $576,500 to purchase four new or used
tank trailers and three new or used tractors. We also intend to use a
portion of this money to upgrade pumps and improve existing equipment.
The remaining proceeds will be used for working capital and general
corporate purposes, including salaries and general administrative expenses. Our
management will have broad discretion concerning the allocation and use of a
significant portion of the net proceeds of this offering. In the event the
representative of the underwriters exercises the over-allotment option, we
intend to utilize such additional proceeds for working capital and general
corporate purposes.
We reserve the right to reallocate proceeds to different uses, including
ways which differ from the specific proposed uses described in this prospectus
if management determines the needs of the business so require. In addition, a
large portion of the proceeds is allocated to discretionary purposes. Investors
may not agree with the allocation or reallocation. Based on our operating plan,
we believe that the net proceeds of this offering, together with available funds
on hand and cash flow from future operations, will be sufficient to satisfy our
working capital requirements for at least 12 months following this offering. Our
belief is based upon assumptions, including assumptions about our contemplated
operations and economic and industry conditions. If we are able to make
significant acquisitions for cash consideration, we would require additional
capital. In addition, contingencies may arise that may require us to obtain
additional capital.
We cannot be sure that we will be able to obtain additional capital on
favorable terms or at all. Until the net proceeds of this offering are used, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities or similar quality investments.
11
<PAGE>
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain future earnings, if any, to operate and expand our
business and do not expect to pay cash dividends in the foreseeable future.
12
<PAGE>
CAPITALIZATION
The following table sets forth the current portion of long-term debt and other
short-term debt obligations and the consolidated capitalization as of September
30, 2000, on an historical basis and on a pro forma basis, adjusted to reflect
the sale of the common stock offered in this registration statement, the
application of the estimated net proceeds as described in "Use of Proceeds". The
historical information does not include Village Ventures, Inc. This table should
be read in conjunction with the consolidated financial statements and related
notes, and the pro forma condensed consolidated financial statements and notes
to the financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 2000
------------------
Pro forma
---------
Historical consolidated
---------- ------------
<S> <C> <C>
Current portion of long-term debt (1) $ 581,939 $ 207,433
Notes payable-unsecured (1) 1,261,152 --
Loans from stockholders (1) 569,687 6,426
----------- -----------
Total current debt obligations $ 2,412,778 $ 213,859
=========== ===========
Long-term debt, net of current portion (1) $ 427,583 $ 759,311
Other long-term liabilities (1) 281,376 281,376
----------- -----------
Total long-term debt obligations 708,959 1,040,687
----------- -----------
Stockholders' equity:
Common stock, $.001 par value,
10,000,000 shares authorized,
1,882,500 shares issued, 1,832,500 shares outstanding,
2,965,833 shares issued, 2,915,833 shares outstanding,
pro forma 1,883 2,966
Additional paid-in capital 1,379,442 5,990,237
Treasury stock, 50,000 shares, at cost (12,500) (12,500)
Retained earnings 446,502 446,502
----------- -----------
Total stockholders' equity 1,815,327 6,427,205
----------- -----------
Total capitalization $ 2,524,286 $ 7,467,892
=========== ===========
--------------
(1) See notes 4, 5, 6, 7 and 8 of Notes to financial statements for a
description of our debt obligations.
</TABLE>
13
<PAGE>
DILUTION
Our net tangible book value at September 30, 2000 was $(272,076), or $(0.15) per
share. "Net tangible book value per share" represents our total tangible assets
less our total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to the sale of the common stock offered by this
prospectus at an assumed offering price of $6.00 and the use of the proceeds of
the offering described in the "Use of Proceeds", our pro forma net tangible book
value at September 30, 2000 would have been approximately $3,766,360 or $1.29
per share. This represents an immediate increase in net tangible book value per
share of $1.44 to existing stockholders and an immediate dilution of $4.71 per
share to the investors purchasing shares of common stock at the initial public
offering price. The following table illustrates this dilution in net tangible
book value to new investors:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share $ 6.00
Net tangible book value per share before offering $ (0.15)
Increase per share attributable to new investors 1.44
-----------
Pro forma tangible book value per share after offering 1.29
----------
Dilution to new investors $ 4.71
==========
The following table sets forth, as of September 30, 2000, the number of shares
of common stock purchased from Weststar, the effective cash contribution made
and the average price per share paid by existing stockholders and by purchasers
of the common stock offered in this registration statement, assuming a public
offering price of $6.00 per share:
<CAPTION>
Shares Purchased Total Consideration Average
------------------------- ------------------------ Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders 1,832,500 64.7% $ 1,368,825 18.6% $ .70
New investors 1,000,000 35.3% 6,000,000 81.4% $ 6.00
---------- ------ ----------- ------
Total 2,832,500 100.0% $ 7,368,825 100.0%
========== ====== =========== ======
</TABLE>
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the two-year period ended
December 31, 1998 and 1999 are derived from our audited financial statements.
The selected financial data for the nine-month periods ended September 30, 1999
and 2000, are derived from our unaudited financial statements. In the opinion of
management, such unaudited financial statements contain all adjustments,
consisting of only normal recurring accruals, necessary for a fair presentation
of the consolidated financial condition and result of operations as of and for
the periods presented. Operating results for the nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 31, 2000. The financial data below should be
read in conjunction with our financial statements and related notes contained
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The following unaudited pro forma balance sheet data at September 30, 2000 gives
effect to the offering and the acquisition of Village Ventures, Inc. by Weststar
as if the offerings and acquisition had occurred on September 30, 2000. The
following unaudited pro forma income statement data for the year ended December
31, 1999 gives effect to the offerings and the acquisition of Pipeline
Contractors, Inc., Wealing Brothers, Inc., and Village Ventures, Inc., as if
these transactions had occurred on January 1, 1999. The following unaudited pro
forma income statement data for the nine months ended September 30, 2000 gives
effect to the offering and the acquisitions, as if these transactions had
occurred on January 1, 2000. The pro forma income statement data does not assume
any interest income on the excess proceeds of the offerings. The unaudited pro
forma consolidated financial data is not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions been
effective at the beginning of the respective periods presented or of the results
which may occur in the future.
Unaudited pro forma income tax, net income or loss and earnings or loss per
share information has been presented to reflect the effect of income taxes which
would have been recorded had Weststar and subsidiaries been taxable corporations
during the periods presented.
<TABLE>
<CAPTION>
Pro Forma Consolidated
----------------------
Nine months
Nine months ended Year ended ended
Year ended December 31, September 30, December 31, September 30,
----------------------- ------------- ------------ -------------
1998 1999 1999 2000 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $1,696,915 $1,726,614 $1,344,050 $2,860,375 $8,471,908 $5,201,417
Direct costs 1,233,967 1,145,854 785,264 2,016,952 6,475,299 3,441,248
----------------------------------------------------------------------------------------------
Gross profit 462,948 580,760 558,786 843,423 1,996,609 1,760,169
Operating expenses 330,489 285,054 378,972 451,330 1,145,653 1,214,726
-----------------------------------------------------------------------------------------------
Income from operations 132,459 295,706 179,814 392,093 850,956 545,444
Cost of delaying planned
public offering 204,088 -- -- -- -- --
Interest expense 86,745 102,678 49,391 257,566 246,537 337,449
----------------------------------------------------------------------------------------------
Income (loss) before income (158,374) 193,028 130,423 134,527 604,419 207,995
taxes
Income taxes -- -- -- -- 204,575 72,798
----------------------------------------------------------------------------------------------
Income before extraordinary item (158,374) 193,028 130,423 134,527 399,844 135,196
Gain on debt extinguishment -- -- - -- 107,959 --
----------------------------------------------------------------------------------------------
Net income (loss) $ (158,374) $ 193,028 $ 130,423 $ 134,527 $ 507,803 $ 135,196
==============================================================================================
Earnings (loss) per share $ (0.10) $ 0.12 $ 0.08 $ 0.08 $ 0.17 $ 0.05
==============================================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Unaudited pro forma income tax,
net income (loss) and earnings
(loss) per share information:
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $(158,374) $193,028 $130,423 $134,527 $604,419 $207,995
Pro forma income tax
expense (benefit) (55,000) 66,000 45,600 47,000 204,575 72,798
--------------------------------------------------------------------------------------------
Income before extraordinary item (103,374) 127,028 84,823 87,527 399,844 135,196
Gain on debt extinguishment -- -- -- -- 107,959 --
--------------------------------------------------------------------------------------------
Pro forma net income (loss) $(103,374) $127,028 $ 84,823 $ 87,527 $507,803 $135,196
============================================================================================
Pro forma earnings (loss) per
share: $(0.06) $0.08 $0.05 $0.05 $0.17 $0.05
============================================================================================
Weighted average shares
outstanding - basic 1,666,630 1,673,951 1,690,000 1,763,095 2,939,784 2,846,428
============================================================================================
<CAPTION>
Pro forma
Consolidated
December 31, September 30, September 30,
------------ ------------- -------------
1998 1999 2000 2000
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash $ 18,108 $ 144,186 $ 51,190 $ 1,356,653
Current assets 137,769 347,769 1,381,797 2,829,780
Current liabilities 1,019,834 1,425,339 3,291,966 1,194,535
Working capital (deficit) (882,065) (1,077,570) (1,910,169) 1,635,245
Long-term assets 1,816,203 1,794,792 4,434,455 5,832,647
Total assets 1,953,972 2,142,561 5,816,252 8,662,427
Long-term liabilities 673,599 275,155 708,959 1,040,687
Stockholders' equity 260,539 442,067 1,815,327 6,427,205
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our history
We were incorporated in the State of Florida on June 26, 1990. In February
1994 our shareholders purchased B&B Septic and Environmental Services, Inc. from
unaffiliated third parties. The purpose of this transaction was 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 our shareholders
rather than by Weststar, since we were a Subchapter S corporation at the time of
purchase, we were 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
Weststar, transferred ownership of B&B to Weststar.
Weststar Acquisition Corp. merged with Weststar and B&B merged with B&B
Acquisition Corp. in April 1997. The surviving corporations were Weststar and
B&B. At the time of this transaction, Weststar and B&B had common ownership and
common management, and Northstar, Weststar Acquisition and B& B Acquisition had
common ownership and common management. These mergers were done in contemplation
of the subsequent acquisition of Weststar and B&B by Northstar, which would have
served as a holding company. The plans to use Northstar as a holding company
were abandoned. As part of the Plan of Reorganization, Northstar's three
shareholders, William Perry, Marie Stubbs and Peggy Stubbs, transferred
one-third of the shares of Northstar and two other companies owned by them,
Empire Energy, Inc. and Southern Trailer Manufacturing, Inc. to the shareholders
of Weststar. In consideration, the shareholders of Weststar and B&B, who owned
an aggregate of 100,000 shares of each of Weststar and B&B transferred an
aggregate of 66,667 of those shares to the three former shareholders of
Northstar. On November 17, 1997, Northstar was merged into Weststar, which is
the surviving corporation.
We amended our articles of incorporation on February 16, 1998 for the
purpose of increasing our 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 to effect a stock split whereour 100,000 outstanding shares of common
stock were converted at the rate of 15-for-1 into 1,500,000 shares of common
stock.
Overview
The non-hazardous liquid waste industry serves a basic need - the
collection, treatment and disposal of food service generated waste, domestic
waste water plants, and septic tank waste. Demand for our services is driven
primarily by population and the general level of economic activity. Increasing
regulation at the federal, state and local level, as well as increased awareness
of and demand for, a safer and cleaner environment are creating the need for a
more professional and environmentally responsible non-hazardous liquid waste
industry.
We derive approximately 95% of our revenues from governmental and
commercial septic services and grease trap services. The services include the
design, pumping and maintenance of septic tanks and grease traps. Approximately
5% of our revenues come from sewer and drain services. Collection fees charged
to customers vary per gallon by waste stream according to:
17
<PAGE>
o constituents of the waste
o expenses associated with processing the waste; and
o competitive factors.
Cost of operations consist of fixed costs such as salaries and benefits of
vehicle operators and construction labor and variable costs such as supplies,
fuel and equipment rentals. General and administrative costs consist primarily
of:
o compensation and related benefits for executives and administrative
staff,
o advertising
o office rent,
o communications; and
o professional fees.
Depreciation expense primarily relates to the depreciation of capital
assets.
Planned acquisitions
On March 10, 2000, we acquired Pipeline Contractors, Inc. Pipeline is an
underground utilities and site preparation construction contractor doing
business in northern and central Florida. Under the terms of the agreement, we
acquired 100% of Pipeline's issued and outstanding common stock in exchange for
100,000 shares of our common stock. In addition, we entered into a $300,000
covenant not-to-compete agreement with the former shareholder of Pipeline,
payable in the amount of $50,000 up front and the balance paid in equal
installments over five years. In the event this offering is not completed, the
former shareholder has the right to rescind the sale of Pipeline.
On June 1, 2000, we acquired Wealing Brothers, Inc. Wealing is engaged in
site preparation, dredging, non-hazardous waste transportation and sludge
recycling throughout the states of Indiana and Michigan. Under the terms of the
agreement we acquired 100% of Wealing's common stock in exchange for 82,500
shares of our common stock plus a $360,000 promissory note, payable within one
year. In the event this offering is not completed, the former shareholders have
the right to rescind the sale of Wealing.
On August 22, 2000 we signed a definitive agreement to acquire Village
Ventures, Inc., subject to the closing of this offering. Village is engaged in
site preparation and the installation and repair of residential and commercial
sewage systems throughout northern and central Florida. Under the terms of the
agreement, we will acquire 100% of the common stock of Village in exchange for
83,333 shares of our common stock. Additionally, we agreed to pay the
shareholders of Village between $800,000 and $900,000 in cash upon closing this
offering depending upon the amount of Village's debt at the date of closing.
The final closing of each of the above described transactions is dependent
upon the closing of this offering. Acquiring these companies would give us
pro-forma revenue for the year ended December 31,1999 of $8,471,908 and a
pre-tax profit of $770,510. Assets of these acquisitions will be written up to
fair market value. However, the purchase price of these companies will be in
excess of the value of their net assets, accordingly, we estimate that we will
record approximately $2,428,000 of goodwill which will be amortized over a 15
year period.
18
<PAGE>
Comparison of fiscal years ended December 31, 1999 and December 31, 1998
Results of operations
Our revenues were $1,726,614 for the year ended December 31, 1999, as
compared to $1,696,915 for the year ended December 31, 1998, or a 1.8% increase.
We focused on going public during the year, and maintained sales while diverting
cash flow into expenses of a public offering. Revenues for the fiscal 1999 were
derived from the government sector (45.7%) and the private sector (54.3%). This
compared to (67.0%) government sector work and (33.0%) private sector work in
fiscal year 1998.
Direct Costs of Services for the year ended December 31, 1999, were
$1,145,854 or 66.4% of gross revenues as compared to direct costs of $1,233,967
or 72.7% of gross revenues for the year ended December 31, 1998. This 7.1%
decrease in direct costs was achieved by reducing labor and benefits by 11.8%,
vehicle operating costs by 26.3%, and insurance costs by 57.2%. Labor and
benefits were reduced by a more efficient utilization of our labor force, while
vehicle costs were managed better with an improved planned maintenance program
being instituted. Insurance cost reduction came about from an aggressive plan to
shop all components to reduce cost, and fewer incidents that would cause premium
increases. Depreciation remained relatively constant as we replaced equipment
only as needed.
Selling and Administrative expenses were $285,054 or 16.5% of gross
revenues for the year ended December 31, 1999 as compared to $330,489 or 19.5%
of gross revenues for the year ended December 31, 1998. Office wages were down
from $85,693 for fiscal year 1998, to $48,806 for fiscal year ending 1999.
Several positions were eliminated in 1999, thus achieving this decrease.
Offsetting some of these gains, travel and entertainment expense increased from
$5,819 in the year ended December 31, 1998 to $13,188 in the year ended December
31, 1999. This increase was attributable to a different mix of business, from
local government to local and out-of-state private sector business which
necessitated increased travel and other costs. Equipment repairs were $29,934
for the year ended December 31, 1999, down $5,401 from the $35,335 repair number
for the year ended December 31, 1998.
Officers' salaries and wages remained exactly the same for the years ended
December 31, 1998 and December 31, 1999, at a total of $137,500. Interest
expense rose from $86,745 in the year ended December 31, 1998, to $102,678 for
the year ended December 31, 1999. Short term borrowings to support acquisitions
for the proposed initial public offering accounted mainly for this increase.
Comparison of nine month periods ended September 30, 2000 and September 30, 1999
Revenues from Pipeline and Wealing Brothers from their dates of acquisition
through September 30, 2000 were $1,555,306 and $234,712 respectively. Our
revenues from the operations of Weststar alone were $1,070,357 or a decrease of
$280,868 from the same period in 1999. This decrease came about because we had
an emergency job of $250,000 in the second quarter of 1999, which was not
present in our 2000 revenues. Total revenues for the three companies for the
nine months ended September 30, 2000 were $2,860,375.
Gross profit for the period ended September 30, 2000 was $843,423 or 29.5%
as a percentage of revenues compared to $558,786 or 41.6% for the period ended
September 30, 1999. The decrease in gross margin percentage was principally the
result of a lower gross profit margin for Pipeline of 18.7%. While this gross
profit margin is in line with Pipeline's historical gross profit, it had the
effect of reducing our overall gross profit margin. Selling and
19
<PAGE>
administrative expenses for the period ended September 30, 2000 were $451,330 or
15.8% of revenues as compared to $378,972 or 28.2% of revenues for the period
ended September 30, 1999. This improvement in selling and administrative expense
as a percentage of revenues was caused by the increase in revenues from
acquisitions without a corresponding increase in selling and administrative
expenses.
Interest expense for the nine month period ended September 30, 2000 was
$257,566 or 9% of revenues as compared to $49,391 or 2% of revenue for the same
period in 1999, an increase of $208,175. This increase was the result of
acquiring approximately $1,000,000 of interest bearing debt due to acquisitions
and as a result of borrowing approximately $700,000 in short-term bridge loans
in order to facilitate our proposed public offering.
Net profit for the nine month period ended September 30, 2000 was $134,527
compared to $130,423 for the nine months ended September 30, 1999, an increase
of $4,104. This increase was reflective of a significant increase in gross
profit which was largely offset by the increase in interest costs.
Liquidity and capital resources
For the year ended December 31, 1999, we financed our activities primarily
from operations and short-term loans. We generated $243,568 net cash from
operations and used $93,948 to purchase equipment and make capital improvements.
After borrowing money and repaying loans and leases, we used $23,542 net dollars
for financing activities. This left $126,078 to increase cash at year end 1999
up to $144,186.
We are a Sub Chapter S corporation; and, as such, the individual
stockholders pay taxes on profits. No dividends were declared in 1999. Upon
successful completion of this public offering, we plan to voluntarily revoke our
Sub Chapter S election. In 1999, the tax burden would have been $66,000. Our
current working capital position, which equal current assets minus current
liabilities at the year ended December 31, 1999 was a negative $1,077,570 as
compared to a negative working capital position of $882,065 at the year ended
December 31, 1998. Stockholder loans of $331,001 at December 31, 1999 and
$340,697 at December 31, 1998 are included in current liabilities even though
they are subordinate to financial debt. Also, notes payable of $354,393 at
December 31, 1999 and $88,500 at December 31, 1998 were loans from individuals
to enable us to proceed with this offering Both categories of loans are to be
paid off from proceeds from this offering. Finally, included in current
maturities of long-term debt of $315,496 at December 31, 1999, is a balloon
mortgage on one of our properties of $259,999.
For the year ended December 31, 1999, we had a profit of $193,028 as
compared to a loss of $158,374 for the year ended December 31, 1998. The loss in
1998 was directly attributable to the write-off of offering expenses incurred in
1998 when we changed underwriters after the previous underwriter was unable to
successfully complete the offering. $204,088 of expenses were written off in
1998. Had the offering occurred, these costs would have been netted against
proceeds of the offering. Without these expenses net operating income would have
been a profit of $45,714. Interest expense was $102,678 for the year ended
December 31, 1999 versus $86,745 for the year ended December 31, 1998. Net
income as a percentage of revenues was 11.2% for 1999 versus 9.33% in 1998.
Without the offering expenses, net income would have been 2.7% for 1998.
20
<PAGE>
We made a conscious effort in 1999 to expand our business lines in the
private sector by adding new customers. This allowed us to decrease our
dependence upon the government sector and special projects for a more even
spread of revenue mix, although the government section still accounted for 45.7%
and 44.4% of revenue during the year ended December 31, 1999 and the nine months
ended September 30, 2000, respectively.
We financed our operations for the nine months ended September 30, 2000
with profits and short-term borrowings. To cover most of the costs of going
public, we borrowed $730,000 on short-term notes from private investors.
Included in this short-term debt, is a secured convertible promissory note dated
May 23, 2000. This note is from an unaffiliated third party in the principal
amount of $150,000. This note matures on December 31, 2000, bears no nominal
rate of interest, and is secured by our accounts receivable. The note is
convertible, at the holder's option, into 150,000 shares of our common stock.
We purchased Pipeline Contractors, Inc. on March 10, 2000 and Wealing
Brothers, Inc. on June 1, 2000. In connection with these acquisitions, we gave
Mr. Ron Denmark a note for $250,000 and the Wealing shareholders combined notes
for $360,000 all of which are included in notes to stockholders. As a result of
the two acquisitions, our total assets increased from $2,142,561 at December
30, 1999, to $5,816,252 at September 30, 2000. Intangible assets of $1,,439,168
were generated as a result of these acquisitions. Our working capital deficit
for the nine months ended September 30, 2000 was $2,120,854 versus working
capital deficit of $1,077,570 at December 31, 1999. This deficit working capital
position is negatively impacted by three items. First, a long-term mortgage loan
in the amount of approximately $250,000 is payable this year, which is now
classified as a short-term liability. Second, approximately $610,000 of
stockholder notes issued as part of the acquisition financing are carried as a
short-term liability. Third, $730,000 in short-term bridge loans used to finance
our proposed public offering are considered current liabilities. All of these
debts will be paid off out of the proceeds of this proposed public offering.
BUSINESS
Industry overview
The collection and disposal of non-hazardous liquid waste in the United
States 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.
The septic tank and grease trap business segment of the U.S. domestic
non-hazardous liquid waste industry is a multibillion dollar industry. There are
a great number of service providers currently in the non-hazardous liquid waste
industry, many of whom are small businesses. We believe the industry will
continue to grow based on increased waste from a growing population and general
economic conditions that are driving new building demand and the need for these
services.
As a result of increasingly strict regulation, the technical, managerial
and financial resources needed by most companies to operate a non-hazardous
liquid 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 non-hazardous liquid waste facilities. As a
result, we believe that many private waste disposal facilities and companies are
being sold to
21
<PAGE>
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 we expect to affect the non-hazardous waste industry is the
increasing government 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. 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.
Weststar's overview
We engage in businesses related to the non-hazardous liquid waste industry.
These businesses include:
o grease trap pumping
o septic tank services, including designing, pumping and maintenance
o sewer and drain cleaning services
o high pressure jetting services
o bulk liquid waste transportation
o on-site biotreatment systems
o biosolids management, and
o liquid waste processing and disposal.
Our customers include:
o supermarkets
o restaurants
o hospitals
o military bases
o office buildings
o apartments
o schools
o municipalities
o industrial businesses, and
o single family residences.
We intend to expand our business in the non-hazardous liquid waste and
service industry through internal growth and the acquisition of local service
providers throughout the United States. These acquisitions will be made with
cash, shares of common stock or a combination of cash and common stock. Our
strategy is to increase operational and marketing synergies with our existing
business operations.
Weststar's strategy
Because our industry is so highly fragmented, management believes the
industry has the potential for significant cost savings by the economies of
scale that may be realized in consolidation. These costs savings would include:
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o efficiencies as a result of common billing;
o the coordination of advertising;
o the elimination of duplicative professional and technical support
provides;
o the standardization and upgrading of equipment; and
o the improvement of employee training.
We intend to determine lines of the non-hazardous liquid waste business in
which an acquired service provider is not currently engaged and, if appropriate,
assist the service provider in expanding into those areas.
We believe 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. We intend to use a portion of the proceeds of this offering to expand
our existing facilities, to acquire other waste management companies or
facilities, and to grow and expand the range of services offered by us.
Our growth strategy will be:
o to add to our service lines;
o to increase the capacity and service area of our existing service
lines; and
o to expand our geographic presence through acquisitions and internal
development.
In particular, our intention is to seek opportunities to acquire businesses
that will permit us to offer additional services to our existing customers, to
introduce our existing services to customers of the acquired companies, and to
offer our services to new customers in new markets. We also intend to acquire
businesses with facilities located in new geographic markets, generally within
reasonably close proximity to an existing Weststar facility. We believe that
strategic location of our facilities in this manner will enable us to maximize
utilization of its equipment and personnel and to satisfy special customer
needs. It is our belief that strategic acquisitions will enable us 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.
Acquisitions will be made with cash, shares of common stock, or a
combination of cash and shares of common stock. Our acquisition strategy has
been developed with the goal of increasing the efficiency and profitability of
acquisition targets through operational and marketing synergies with our
existing business operations. We will provide professional management to these
acquired entities to eliminate duplicative processes and procedures among the
acquired businesses. The services that we intend to provide to acquired entities
include:
o sales management;
o accounts receivable and accounts payable management;
o debt collection;
o financial reporting;
o tax management;
o advertising;
o purchasing;
o legal;
o health and safety;
o environmental;
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o human resources;
o training; and
o customer service.
These services are intended to allow the local managers to focus on the
growth of regional business.
As part of this strategy we have acquired or intend to acquire the
following three businesses:
On March 10, 2000 we acquired Pipeline Contractors, Inc., which had emerged
from Chapter 11 Bankruptcy. Pipeline was founded in 1987 by Ron Denmark in
Starke, Florida, which up until 1994 was also known as Pipeline of North
Florida, Inc.. Pipeline specializes in commercial site preparation, underground
utilities installation, road paving and road related construction. Pipeline
works mainly for governments and municipalities, but also bids jobs for private
businesses. When we do by-pass work for the Jacksonville Electric Authority,
Pipeline does the repair work on the bypassed lines, which makes the businesses
complementary.
Pipeline's bankruptcy resulted from a dispute over a contract with the
County of Putnam, Florida. During the course of performing the contract, it was
discovered that the dirt on site was unsuitable. While the County was required
to pay for suitable dirt for the project, the County refused to pay for cost
overruns out of its general revenues. This forced Pipeline to fund these
overruns itself; which eventually led Pipeline to file for bankruptcy
protection.
On June 1, 2000 we acquired Wealing Brothers, Inc. Wealing has been in
operation since 1985 in Fowler, Indiana. The company is in the custom bio-solids
removal and disposition business. They work mainly on removal of agriculture and
industrial by-products from lagoons, retention ponds, lakes and reservoirs. They
dispose of the waste by-products through a variety of methods which include
belt-filter pressing, injection and land-spreading. Wealing has all of the
necessary equipment to go into the disposition of grease and sludge as a new
line of business.
On August 22, 2000 we signed a definitive agreement to acquire Village
Ventures, Inc. subject to the completion of this offering. Village Ventures,
doing business as Village Septic, has been in business in Middleburg, Florida
since 1986. The company is engaged in the installation and repair of commercial
and residential sewage systems. The company also engages in commercial and
residential site preparation work. Weststar has a very small share of septic
business in our area, and the addition of Village will allow us to expand this
arm of our business. Also, Village and Pipeline Contractors will be able to
jointly bid on projects that they previously could not individually bid on
because of a lack of critical equipment that together they possess.
Services
We service both the governmental and 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 disposed of by us at environmentally approved treatment and
disposal sites. Our waste removal, transport, treatment and disposal operations
provided revenues during the fiscal years ended December 31, 1999 and December
31, 1998 in the respective amounts of $1,726,614 and $1,696,915. For the nine
months ended September 30, 2000 these operations accounted for $1,239,673 in
revenues. Within this service line, we categorize revenues in terms of bio-solid
and septic
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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, 1999, December 31, 1998, and the nine months ended September 30,
2000, the bio-solid and septic waste category accounted for sales revenues of
$1,108,141, $1,314,770 and $652,811, respectively. During the same periods, the
brown grease category accounted for sales revenues of $618,473, $382,145, and
$364,028, respectively. We expect the grease category, including our proposed
future operations involving yellow grease, to experience the greatest rate of
growth of any category over the next five years.
Asset sale agreement - business restrictions
In connection with the sale of certain assets to CBP Resources, Inc., we
and Michael E. Ricks entered into a ten year non-compete agreement with CBP
Resources, inc. These agreements prohibit us and Mr. Ricks from owning,
operating or managing any businesses engaged in the grease trap business or
related businesses in the states of North Carolina, South Carolina, Tennessee,
Virginia, West Virginia, Maryland, Alabama, and the District of Columbia and
with certain areas bordering such states. Notwithstanding the foregoing, CBP
Resources, Inc. has granted us limited rights to engage in certain prohibited
activities in Tennessee, Alabama, West Virginia and Maryland.
Waste treatment
We engage in septic waste and brown grease treatment and recycling through
the operation of our Deland, Florida lime stabilization plant. We engage in
bio-solid and brown grease treatment and recycling through our regional residual
management facility located in the City of Baldwin, Florida. This plant is a
state-of-the-art regional residual management facility using diffused air and
activated sludge for the digestion of sewage and food service sludge. The
bio-solids treated at City of Baldwin 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.
According to an article entitled "Bio-Solids Management in Florida" published by
the Florida Department of Environmental Protection in May 1997, 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, we dispose of the collected materials from the
treatment process at approximately six governmentally approved land application
sites located in Florida and on occasion also use 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 of the sites. We believe alternative or additional sites are readily
available at competitive rates. Any change in availability or rate structure
would have an adverse effect on our operations.
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
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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
We install, maintain and repair 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.
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. We also handles large lift station disposal jobs with
charges ranging between $300 - $450 per station based on station size.
The residential segment of this market involves various types of services.
Our residential pump outs are generally based on septic tank pump outs with
service charges of $135 - $300 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.
The services provided by us with regard to this aspect of our business are,
for the most part, similar to those provided by our competitors. We believe our
prices to be comparable to most of our competitors.
Waste recycling
Our waste recycling business is in the developmental stage and, in April,
2000, began with our purchase of a belt press unit. 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
provides us with a more efficient method of treating wastewater bio-solids and
brown grease than is currently
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available to us through our operation of the Baldwin lime stabilization and
waste water treatment plants. Such a plant gives us greater efficiency in
separating solid materials from liquids which simplifies the recycling process
and lessens the amount of material requiring land application. Our ability to
process and recycle waste products extends our waste collection and disposal
activities and in addition to resulting in saleable end products which could
save us considerable disposal fees. The initial treatment and recycling facility
will 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, we intend to engage in
yellow grease processing. 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.
We presently have a readily available source of yellow grease from the Food Lion
supermarket chain and the Publix supermarket chain because we pump their grease
traps and from several restaurant chains including certain McDonald's and
Hardees' franchises.
Sales and marketing
To date, marketing has principally been conducted through the efforts of
our management and administrative personnel, none of which devote their full
time to such marketing activities. We believe our present arrangement to be
adequate for our current needs. Marketing activities have included direct
mailings, advertisements, and community involvement. All such activities have
stressed our provision of reasonably priced, high quality, environmentally
friendly service. Despite the restrictions placed upon us by our agreement with
CBP Resources, Inc. as to our 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 Weststar, with whose
performance CBP has expressed its satisfaction. Based upon this, CBP has advised
us that it intends to expand its subcontracting business to us 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, we
are soliciting and will continue to solicit businesses which are not restricted
by the CBP agreement by way of the removal, transport, treatment and disposal of
septic waste and bio-solids. In this regard we submit 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
Our business is not dependent upon any raw materials and as such we are not
dependent upon sources for raw materials or upon suppliers of raw materials.
Seasonal aspects
We do not presently experience seasonal variations in its operating
results. In the event we increase the geographic scope of our operations,
through acquisition or expansion, to include material activity in northern
states, we may experience seasonal fluctuations in revenues marked by lower
revenues in the winter months.
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Research and development
Most of our research and development activity is related to the development
and establishment of one or more waste treatment and recycling facilities.
During fiscal 2000, we anticipate spending less than 1% of our gross revenues on
research and development. During the fiscal years ended December 31, 1999 and
December 31, 1998, we spent approximately $45,000 and $25,000 or approximately
2.6% and 1.5% of gross revenues, respectively, on research and development. We
are presently unable to anticipate the amount of its expenditures in this area
during the current fiscal year. Our expenditures in this category, during the
nine months ended September 30, 2000, were negligible.
Customers
We provide our services to governmental and residential/commercial
customers. We presently derive a substantial portion of our revenues from
governmental customers and it is anticipated that a substantial portion of our
future revenues will be derived from governmental customers. The following table
sets forth information relating to the approximate dollar amounts and
percentages of revenues derived from each of governmental and
residential/commercial customers:
Year Ended December 31,
---------------------------------------
1998 1999
------------------ ----------------
$ % $ %
----- ----- ----- ----
Residential/Commercial........... 559,473 32.9 937,206 54.3
Governmental..................... 1,137,442 67.0 789,408 45.7
We have been dependent on a small number of customers for a significant
portion of our revenues. For the years ended December 31, 1999 and 1998,
revenues derived from two customers accounted for approximately 69.6% and 72.9%
respectively of our revenues. The City of Jacksonville/Jacksonville Electric
Authority accounted for approximately 41% of total sales in 1999 and
approximately 61.4% of total sales in 1998. Food Lion Supermarkets accounted for
approximately 28.6% of total sales in 1999 and approximately 11.5% of total
sales in 1998.
We were the lowest bidder for bio-solids hauling services for the City of
Jacksonville for the contract period January 1, 1997 through September 30, 1997
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. On June 1, 1997, the City of
Jacksonville, transferred and assigned all of its rights under the contract to
the Jacksonville Electric Authority. On October 31, 1997, the Jacksonville
Electric Authority and Weststar agreed to exercise the first of the four annual
renewals which covers the period October 1, 1997 through September 30, 1998. The
parties agreed that the maximum payment by the Jacksonville Electric Authority
to us during that period with regard to bio-solids hauling would be $825,000. We
provide the Jacksonville Electric Authority, without regard to dollar amount,
with other services including emergency pipe bypasses, lift station cleaning,
pipe inspections and other maintenance, repair, and emergency services. During
the twelve month period ended December 31, 1999 and the nine months ended
September 30, 2000, the Jacksonville Electric Authority paid us an aggregate of
$626,170 and $548,419, respectively, for bio-solids hauling. The contract was
amended June 5, 1998 for the purpose of revising the renewal provisions. 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
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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
Jacksonville Electric Authority to us 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. Our ability to provide the Jacksonville Electric Authority
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 by us 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 Jacksonville Electric Authority will
reopen the contract for bidding. At such time we intend to re-bid for the
contract.
We previously had a service agreement with Food Lion Inc. Inc., a large
multi-state supermarket chain, to service all Food Lion Inc. stores in Virginia,
Maryland, excluding the Ocean City area, Pennsylvania, Tennessee, Kentucky,
Florida, Georgia, South Carolina and North Carolina. Despite the expiration of
the service agreement, we continue to provide the same service to Food Lion Inc.
on an extensive basis. The arrangements provide for the cleaning of external and
internal grease traps at Food Lion Inc. stores and the disposal of brown grease
removed from the grease traps. Our service of Food Lion Inc. is affected by our
agreement with CBP Resources, Inc., according to which we do not presently
service Food Lion Inc. stores in North Carolina, South Carolina, and
Pennsylvania but service Food Lion Inc. stores in Tennessee, West Virginia and
Maryland at the discretion of CBP Resources, Inc. In connection with Food Lion
Inc. stores which are serviced by CBP, we are occasionally requested by Food
Lion Inc. to assist CBP with services. In such instances, we are reimbursed for
our expenses. We also provide similar services to Kash and Karry, whose parent
company is Food Lion Inc., under the same arrangement. This agreement is on a
year-to-year basis.
Competition
We compete with a significant number of other non-hazardous liquid waste
service providers. Competitors compete primarily on the basis of proximity to
collection operations, fees charged and quality of service. Future technological
changes and innovations may result in a reduction in the amount of non-hazardous
liquid waste generated, or in alternative methods of treatment and disposal
being developed. We also face competition from customers that may seek to
enhance and develop their own methods of disposal. Increased use of internal
treatment and disposal methods and other competitive factors may have a material
adverse effect on our business, results of operation and financial condition.
We will be at a disadvantage in competing against service providers that
are better capitalized, have greater name recognition, have more background and
experience, have greater financial, technical, marketing and other resources and
skills, have better facilities and are able to provide services or products at a
lower cost than us. Because our industry is currently highly fragmented, the
acquisition of local service providers is the only strategy by which we will be
able to penetrate existing markets.
Government regulation
We are subject to rules and regulations of various federal, state and local
governmental agencies. Environmental laws and regulations are, and will continue
to be, a principal factor affecting the marketability of the services provided
by us. Any changes in these laws or regulations may affect our operations by
imposing additional regulatory compliance costs, requiring the modification of
or adversely affecting the market for our services. To the extent
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that demand for these services is based upon the need to comply with these
regulations, any modification to these regulations may increase the cost of or
decrease the demand for these services and adversely affect our business
condition and results of operations.
If new environmental legislation or regulations are enacted or existing
legislation or regulations are amended or enforced differently, we may be
required to obtain additional operating permits, registrations or approvals. The
process of obtaining required permits, registrations or approvals can be lengthy
and expensive and the issuance of such permit or the obtaining of such approvals
may be subject to public opposition.
The Resource Conservation Recovery Act is the principal federal statute
governing hazardous and solid waste generation, treatment, storage and disposal.
Resource Conservation Recovery Act and state hazardous waste management programs
govern the handling and disposal of "hazardous waste." The U.S. Environmental
Protection Agency has issued regulations in accordance with the Resource
Conservation Recovery Act. States have also promulgated regulations under
comparable state statutes that govern hazardous waste generators, transporters
and owners and operators of hazardous waste treatment, storage and disposal
facilities. These regulations impose detailed operating, inspection, training
and emergency preparedness and response standards and requirements for the
financial responsibility, manifesting of wastes, record keeping and reporting,
as well as treatment standards for any hazardous wastes intended for land
disposal.
Non-hazardous liquid waste is currently exempt from the requirements of
Resource Conservation Recovery Act. The repeal or modification of the Resource
Conservation Recovery Act exemption covering this waste, or the modification of
applicable regulations or interpretations regarding the treatment or disposal of
non-hazardous liquid waste, may require us to alter our method of treating and
disposing of this waste. Our current methods do not have to comply with the
methods prescribed by the Environmental Protection Agency for treatment and/or
disposal of waste as defined by Resource Conservation Recovery Act. However,
potential changes to these laws may result in decreased demand for our services
or increased costsresulting from altering our methods of operation.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 provides for immediate response and removal actions coordinated by the EPA
for releases of hazardous substances into the environment and authorizes the
government or private parties to respond to the release or threatened release of
hazardous substances. The government may also order persons responsible for the
release to perform any necessary cleanup. Liability extends to the present
owners and operators of waste disposal facilities from which a release occurs,
persons who owned or operated the facilities at the time the substance was
released, persons who arranged for the disposal or treatment of hazardous
substances and waste transporters who selected such facilities for treatment or
disposal of hazardous substances. The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 creates strict liability for all costs of
removal and remediation, other necessary response costs and damages for injury
to natural resources.
As we will be engaged in businesses that involve the treatment and removal
of non-hazardous liquid waste, we do not expect to be subject to Comprehensive
Environmental Response, Compensation and Liability Act of 1980. However, if we
were to acquire a business that has disposed of hazardous waste or treated
hazardous waste that falls within the parameters of Comprehensive Environmental
Response, Compensation and Liability Act of 1980, Weststar may be held liable
for the costs of any damage or required cleanup of affected sites.
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The Federal Water Pollution Control 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 Federal Water
Pollution Control Act provides civil, criminal and administrative penalties for
violations of its provisions.
State and local governments in which we now operate, or may operate in the
future have laws and regulations governing the generation, storage, treatment,
handling, transportation and disposal of non-hazardous waste. Furthermore, many
counties and municipalities also have ordinances, local laws and regulations
affecting Weststar's 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 our 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 us.
Insurance
We carry a broad range of insurance coverage, which we consider sufficient
to meet regulatory and customer requirements and to protect our assets and
operations. Our 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. We obtain additional
insurance as required on a project-by-project basis. We attempt 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 us, if successful and of
sufficient magnitude, could have a material adverse effect on our operations and
financial condition. In addition, the inability to obtain insurance of the type
and in the amounts required could impair our ability to obtain new contracts,
which are, in certain instances, conditioned upon the availability of adequate
insurance coverage.
We do not currently maintain environmental impairment insurance.
Management 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. However, there can be
no assurance that hazardous substances are not or will not be present at our
facilities without our knowledge, or that we will not incur liability for
environmental damage. The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, imposes strict, joint and several liability on the
present and former owners
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and operators of facilities which release hazardous 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 we will not face claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 resulting in substantial liability for
which we are uninsured, which could have a material adverse effect on our
business and financial condition.
Bonding
We are required, in some instances, to post bid and performance bonds in
connection with contracts or projects with government entities and, to a lesser
extent, private sector customers. Approximately 22% of our revenues for the year
ended December 31, 1999 were derived from contracts or projects which required
us 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.
Personnel
As of September 30, 2000, we had 57 employees including five executive
officers, 10 administrative employees, and 42 field employees responsible for
our trucking and repair requirements. We plan to add other employees in
connection with our expansion and acquisition plans. We consider our
relationship with our employees to be satisfactory. All of the employees work on
a full time basis with the exception of two executive officers who work on an as
needed basis and receive no compensation for their services as such. Of all
employees, 21 are salaried while the other compensated employees are paid on an
hourly basis. Our work force is non-unionized.
All of our employees are leased to us by Professional Employers Plan of
Tampa, Fla. and Strategic Outsourcing of North Carolina, unaffiliated companies
that perform certain administrative functions for us. They are responsible for
matters relating to payroll, payroll taxes, workers compensation, and the
administration, procurement and payment of certain employee benefits. All
employees are hired by us and work under our control and direction. We provide
these companies with the funds necessary to make all required payments to and on
behalf of our employees.
Property and equipment
We presently conduct our operations from three principal properties located
in Jacksonville, Florida; Starke, Florida; and Deland, Florida.
The Jacksonville, Florida property serves as our corporate and
administrative headquarters and consists of approximately 1,043 square feet of
office space. The property is subject to a two year lease which commenced on
September 1, 2000. The monthly rental rate is $1,250 per month. We consider this
space adequate for our present and anticipated future needs. The lease is
renewable at the end of the two year lease term upon mutual agreement of the
parties on terms to be negotiated.
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<PAGE>
The Starke, Florida property is used principally for repair work on our
vehicles and equipment and as a staging area for our trucks. Our accounting
offices are also located on the property. The property consists of approximately
five acres of land and contains an approximately 5,055 square foot building
which was constructed in 1989. On June 3, 1998, we 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, one of our
directors. The mortgage proceeds were used as working capital. In consideration
of his guarantee of the mortgage obligation, we have agreed to pay Dr. Poser
$500 per month so long as his guaranty is in effect.
The Deland, Florida property is owned by our wholly owned subsidiary, B&B,
is subject to a mortgage with a principal balance thereon, as of September 30,
2000, of approximately $248,809 and is used principally as a service site for
our residential and commercial operations. The property consists of
approximately two 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.
For $1,500 per month we lease a treatment plant from the City of Baldwin,
Florida. Under the lease, we dispose of the city's bio-solids, which we use to
aid in the treatment process of brown grease.
We presently own 16 tankers, three tractors, one belt press unit, one high
velocity vacuum unit, three smaller pumping units, and lesser equipment needed
for our present operations. In addition to the foregoing, we presently lease
four tractors. We intend to use part of the proceeds from this offering to
purchase four additional tankers and three tractors.
Legal proceedings
We are not currently engaged in litigation or arbitration, an adverse
result of which would have a material effect on our financial condition, results
of operations or future prospects.
33
<PAGE>
MANAGEMENT
Directors and executive officers
The following table sets forth certain information with respect to each
of our directors and executive officers:
Name Age Position
---- --- --------
Michael E. Ricks (1) 39 President, Chief Executive Officer,
and Director
William B. Gray 63 Chairman of the Board of Directors
and Executive Vice President
Dr. John S. Poser (1)(2) 53 Director
Thomas F. Fey (1)(2) 55 Director
----------
(1) Member of the audit and finance committee
(2) Member of the compensation committee
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. James Ricks, who is Michael E. Ricks' cousin, serves as
corporate secretary, a nominal position. No other family relationship exists
between any director or executive officer of Weststar or any person contemplated
to become such.
Biographical information
The following is a brief account of the business experience of each
director and executive officer of Weststar during the past five years or more.
Michael E. Ricks has been our president, chief executive officer and a
director since it's inception in 1990. During such period he has been
exclusively engaged in waste management activities on our behalf. He has served
in similar capacities for B&B since February 1994. From June 1989 through
December 1989 Mr. Ricks was employed as an assistant general manager for Griffin
Industries, a company engaged in rendering and yellow grease collection and
disposal. From February 1987 until June 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 March 1982 through June
1985 he worked for Carter's Fried Chicken, first as an operations manager (1982
- 1983) and later (1983 - 1985) as an owner/operator. From November 1979 through
March 1982 he was employed as a unit manager for Spartan Foods, Inc.
William B. Gray has been our chairman of the board of directors and the
chairman of the board of directors of B&B since January 28, 1998. He served as a
director of B&B from February 1994 through April 1997. From April 1992 through
the present he also served as an
34
<PAGE>
executive vice president of Weststar and from April 1997 through January 1998 he
served as our secretary and treasurer. He served as a director of Weststar from
April 1992 through April 1997. He has served as an executive vice president for
B&B since January 1998, a position which he also held from February 1994 through
April 1997. He also served as B&B's secretary and treasurer from April 1997
through January 1998. From 1962 until 1992 he was employed by Otis Elevator in
various capacities including District Manager for the State of Florida (1979 -
1992). 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.
Dr. John S. Poser has been a director of Weststar 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 Weststar from inception through April
1997 and from January 1998 to the present. He has been director of B&B from
February 1994 through April 1997 and from January 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.
Board compensation and committees
We currently have four directors. Our board of directors currently has an
audit and finance committee and a compensation committee. The audit committee
consists of Dr. John Poser, Thomas F. Fey and Michael E. Ricks. There is
currently an open position on the audit committee created by the resignation of
Keith M. Carter. The audit committee makes recommendations to the board of
directors regarding the selection of independent auditors, reviews the scope of
audit and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits. The compensation committee
consists of Dr. John S. Poser and Thomas F. Fey. The compensation committee
makes recommendations to the board of directors regarding our stock and
compensation plans, approves compensation of certain officers and grants stock
options.
Compensation committee interlocks
None of the members of the compensation committee is currently an officer
or employee of Weststar.
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<PAGE>
Director compensation
We reimburse our nonemployee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for their
services as board or committee members. We have in the past granted nonemployee
directors options to purchase our common stock in accordance with the terms of
our stock plans, and our board continues to have the discretion to grant options
to new nonemployee directors. Beginning after our stockholders meeting in 2000,
our nonemployee directors may each receive nondiscretionary, automatic grants of
options to purchase shares of our common stock upon joining the board of
directors and nondiscretionary, automatic grants of options to purchase shares
of our common stock each year according to the 1997 Nonstatutory Stock Option
Plan.
Indemnification of directors and officers
The Florida General Corporation Act empowers a corporation to indemnify its
directors and officers and to purchase Directors & Officers 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 General Corporation Act; or (iv) for any
transaction from which the director derived an improper personal benefit.
Following the completion of this offering, Weststar intends to purchase
Directors & Officers Insurance, if such insurance is available at rates which
are satisfactory to Weststar.
The Florida General Corporation Act 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 our 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 us to indemnify our officers and
directors 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 our best interests, 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 us with respect to the foregoing provisions, we have 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.
Executive compensation
The following table sets forth information concerning the compensation paid
or accrued by us during the three fiscal years ended December 31, 1999 to its
chief executive officer. No other executive officer received annual compensation
in excess of $100,000 in any of such fiscal years.
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<PAGE>
<TABLE>
<CAPTION>
Summary compensation table
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 1999 $87,500(1) $0 $20,769(1)(2) 46,155(3) $0 $0 $0
Chief Executive Officer
1998 $87,500(1) $0 $19,171(1)(2) 0 $0 $0 $0
1997 $87,500 $0 $18,671(2) 0 $0 $0 $0
-------------
</TABLE>
(1) Does not include compensation paid to Mr. Ricks by CBP Resources, Inc. in
accordance with a Non-Competition and Consulting Agreement.
(2) Represents health insurance benefits and use of our leased automobiles.
(3) Represents 46,155 options issued to Mr. Ricks on April 28, 1997 and reduced
from 75,000 in September 1999, under our 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, which
was adopted by our board of directors in April 1997 covers up to 1,000,000
shares of our common stock which are issuable upon the exercise of a like number
of options. The purpose of the Plan is to enable us to encourage eligible Plan
participants to contribute to our success 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. 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 Weststar 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 $5.00 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. However, Weststar has adopted a policy stating that no options will be
granted having an exercise price of less than 85% of market price at the time of
grant.
Employment agreements
On April 28, 1997 Michael E. Ricks, our president and chief executive
officer, entered into a written three year employment agreement with us. 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
37
<PAGE>
benefits, the use of an automobile leased by Weststar and the right to
participate in any bonus or other incentive compensation, profit sharing or
retirement plan that we 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 after the event, engage in any business which is in direct competition
with us, within any state or jurisdiction in which we are engaged in business,
without our prior written consent. 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 difficulty of obtaining injunctive relief. The employment
agreement also contains provisions that require us 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 Weststar, and other events resulting in termination of
employment without cause. Mr. Ricks' salary did not increase as was designed in
the employment agreement. In June 1999 we entered into a new three year
employment agreement with Mr. Ricks. The terms of the new agreement are the same
as his old employment agreement, except that we agreed to pay Mr. Ricks $87,500
for the first year, $125,000 for the second year and $137,500 for the third
year.
Consulting agreement with Environmental and Financial Consulting, Inc.
On January 27, 1999 we entered into a consulting agreement with
Environmental and Financial Consulting, inc., a corporation owned by William W.
Perry. Mr. Perry is the husband of Jeannie Perry, one of our principal
shareholders. Pursuant to the agreement, the consultant will provide Weststar
with the following services, as Weststar shall direct:
o locate acquisition merger candidates;
o perform due diligence on prospective candidates;
o interface with Weststar's professionals in preparation of transaction
documents;
o aid and assist the administration of our sales and marketing programs;
o assist Weststar in obtaining bank financing;
o promote our relations with our clients, potential clients and
employees; and
o institute programs and systems designed to increase the efficiency of
our operations
The tem of the agreement is for seven years. During the first two years we
will pay the consultant $250,000 per year. For the remainder of the term we will
pay the consultant $150,000 per year. Due to our current financial situation,
the consultant has agreed with us that the retainer shall only be due and
payable upon the successful completion of this offering.
The agreement also provides that the consultant shall receive a finder's
fee of 10% of the gross selling price of any acquisition or merger, payable upon
the closing of the transaction. In addition, the consultant shall receive a 10%
finder's fee on any bank financing arranged by it.
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<PAGE>
CERTAIN TRANSACTIONS
The transactions disclosed here were for the most part entered into by us
at times when we lacked sufficient disinterested, independent directors to
ratify such transactions or were not separately ratified by a majority of our
disinterested, independent directors on or about the effective date of each such
transaction. Despite the fact, we believe 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 transactions with us. In addition, all of the transactions in this
section have been subsequently ratified by all of our disinterested, independent
directors who did not have an interest in the transactions and who had access,
at our expense, to legal counsel. Our present independent directors are Dr. John
S. Poser and Mr. Thomas F. Fey. No other material transactional activities
between us and our officers, directors, 5% shareholders or their affiliates are
presently pending nor are any such transactions currently proposed.
Since our inception Michael E. Ricks has periodically loaned us money. The
aggregate outstanding principal balance of these loans as of September 30, 2000
is $221,431. The loan, which is payable on demand, is non-interest bearing. We
intend to use part of the proceeds of this offering to repay this loan.
During the period January 1996 through December 1997 we made payments in
the aggregate amount of $42,000 to William B. Gray, an officer and director of
Weststar, in consideration of Mr. Gray's leasing to us certain equipment owned
by him including a dump truck, back-hoe and pressure washer. We consider the
payments required by the equipment lease to have been fair and reasonable.
On October 7, 1997 G&W Framing Contractors, Inc., an inactive company owned
by William B. Gray, made a $120,000 loan to Weststar to be used for working
capital purposes. The loan, which is payable on demand and reflected by a
promissory note of Weststar dated October 7, 1997, requires Weststar to pay
interest on the outstanding principal balance through the date of repayment at
the annual rate of 18%. At September 30, 2000 the full amount of principal and
interest due on this loan had been reduced to $96,875. Weststar intends to use
part of the proceeds of this offering to repay this loan.
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 outstanding debt secured by a mortgage on our real estate in Starke,
Florida.
Dr. John S. Poser has guaranteed a loan made to us in the amount of
$160,000 in June 1998, for which we are compensating him at the rate of $500 per
month.
As of February 1998 we issued 50,000 shares of our common stock to
Environmental and Financial Consulting Inc., a corporation owned by William W.
Perry, in consideration of financial consulting services and the arrangement of
a number of commercial loans made to us. Mr. Perry is the husband of Jeannie
Perry, one of our principal shareholders.
During 1998 and 1999 Marie Stubbs, a principal shareholder, loaned us a
total of $26,000, payable on demand. The annual interest rate on this loan is
8.5%. This loan will be repaid from the proceeds of this offering.
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<PAGE>
Between September 23, 1998 and January 18, 1999, Peggy W. Stubbs, a
principal shareholder, loaned us an aggregate of $48,865.68 at the annual
interest rate of 8.5%. The principal amount of the loans has been reduced to
$29,805.68 as of the date of this offering. We intend to pay the balance of this
loan out of the proceeds from this offering.
In connection with future material transactions between us and affiliated
parties, we have adopted a policy which requires that:
o all future material affiliated transactions and loans be made or
entered into on terms that are not less favorable to us than those
that can be obtained from unaffiliated third parties;
o all future material affiliated transactions and loans, and any
forgiveness of loans, be approved by a majority of our independent
directors who do not have an interest in the transactions and who have
access, at our expense, to our counsel or independent legal counsel ;
and
o we will maintain at least two independent directors.
TERMINATION OF S CORPORATION STATUS
Since inception, we have elected to operate under subchapter S of the
Internal Revenue Code and comparable provisions of some state income tax laws.
An S corporation generally is not subject to income tax at the corporate level,
with some exceptions under state income tax laws. Instead, an S corporation's
income generally passes through to its stockholders and is taxed on their
personal income tax returns. As a result, our earnings have been taxed for
federal and state income tax purposes, with some exceptions, directly to our
existing stockholders.
On or before the closing of this offering, we will terminate our S
corporation status. Following the closing of this offering, we do not intend to
make a distribution to our existing stockholders of their aggregate federal and
state income tax liabilities attributable to our S corporation pass-through
income.
The existing stockholders have agreed to indemnify us should our S
corporation status during any portion of the period for which we claimed such
status in federal or state income tax filing ever be successfully challenged, up
to an aggregate of $500,000. We cannot assure you that the amount of any
indemnity we recover form our existing stockholders would be sufficient to cover
the amount of any tax liability if our S corporation status is successfully
challenged.
In connection with the termination of our S corporation status, we may be
obligated to record a deferred tax asset or liability, which will be recognized
in the quarter during which this offering occurs.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of September 30, 2000, as adjusted to reflect the sale of the shares offered
by this prospectus, by:
o each person who is known by us to beneficially own more than 5% of our
common stock
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<PAGE>
o each of the named executive officers and each of our directors; and
o all of our officers and directors as a group.
Percentage of ownership is based on 1,832,500 shares outstanding as of
September 30, 2000, and 2,915,833 outstanding after this offering and the
acquisitions, assuming no exercise of the underwriters' over-allotment option.
All shares of the common stock subject to options currently exercisable or
exercisable within 60 days are deemed to be outstanding for the purpose of
computing the percentage of ownership of the person holding such options, but
are not deemed to be outstanding for computing the percentage of ownership of
any other person. Unless otherwise indicated below, each stockholder named in
the table has sole or shared voting and investment power with respect to all
shares beneficially owned, subject to applicable community property laws. Unless
otherwise indicated in the table, the address of each individual listed in the
table is Weststar Environmental, Inc., 9000 Regency Square Boulevard, Suite 202,
Jacksonville, FL 32211.
<TABLE>
<CAPTION>
Percentage Ownership
Number of Shares --------------------
Name and Address of of Common Stock Before After
Beneficial Owner Beneficially Owned Offering(8) Offering(9)
-------------------- ------------------------ -------- --------
<S> <C> <C> <C>
Marie H. Stubbs 394,451(1) 18.5% 12.3%
Cottage 405
Sea Island, Georgia 31561
Michael E. Ricks 380,445(2) 17.8% 11.8%
Peggy W. Stubbs 294,452 13.8% 9.2%
5209 Leeward Cove
Amelia Island, Florida 32034
Jeannie A. Perry 144,307(3) 6.8% 4.5%
12563 Mission Hills Circle North
Jacksonville, Florida 32225
James Ricks 615(4) * *
William B. Gray 112,308(5) 5.3% 3.5%
Dr. John S. Poser 10,574(6) * *
Thomas F. Fey 1,000 * *
All officers and directors
as a group (4 persons) 504,942(7) 23.7% 15.7%
--------------
</TABLE>
*less than 1%
(1) John Stubbs, the husband of Marie Stubbs, has neither voting nor investment
power with regard to such shares and disclaims any beneficial ownership in
such shares. Marie Stubbs is the sister-in-law of Peggy Stubbs.
(2) Includes 46,155 shares issuable upon exercise of 46,155 stock options
granted by us to Mr. Ricks at an exercise of price of $5.00 per share. The
options are exercisable at any time during the four year period commencing
April 28, 1998.
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<PAGE>
(3) William Perry, the husband of Jeannie Perry, has neither voting or
investment power with regard to such shares and disclaims any beneficial
ownership in such shares. Mr. Perry owns Environmental & Financial
Consulting, Inc. which has a seven year consulting agreement with Weststar.
Mr. Perry has 46,155 options exercisable at $5.00 per share. Environmental
& Financial Consulting, Inc. owns 50,000 shares of Weststar.
(4) Includes 615 shares issuable upon exercise of 615 stock options granted by
us 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.
(5) Includes 12,308 shares issuable upon exercise of 12,308 stock options
granted by us to Mr. Gray at an exercise of price of $5.00 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 by Mr. Gray, Living Trust.
(6) Includes 3,074 shares issuable upon exercise of 3,074 stock options granted
by us 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.
(7) Includes 62,152 stock options held by our officers and directors, all of
which are exercisable within the next 60 days.
Michael E. Ricks, Marie Stubbs and Peggy Stubbs may be deemed to control us
by virtue of their ownership or control of our common stock.
DESCRIPTION OF OUR SECURITIES
We are incorporated in the state of Florida and are authorized to issue up
to 10,000,000 shares of common stock having a par value of $0.001 per share.
Neither the amended and restated certificate of incorporation nor the by-laws
contain any provision that would delay, defer or prevent a change in control.
Common stock
As of September 30, 2000, 1,832,500 shares of common stock are issued and
outstanding. Each share of common stock entitles the holder to one vote on each
matter submitted to the stockholders. The holders of common stock:
o have equal ratable rights to dividends from funds legally available
for payment of dividends when, as and if declared by the board of
directors;
o are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation, dissolution
or winding up of our affairs;
o do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
o are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
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<PAGE>
We have not paid any dividends on our common stock to date. We anticipate
that, for the foreseeable future, we will retain earnings, if any, to finance
the continuing operations of its business. The payment of dividends will depend
upon, among other things, our capital requirements and our operating and
financial conditions.
Our proposed trading symbol does not imply that a liquid and active market
will develop or be sustained for the securities upon completion of this
offering.
Our calculation that 2,915,833 shares of common stock will be outstanding
after this offering and the acquisition is based on the 1,832,500 shares of
common stock outstanding before the offering, 1,000,000 shares of common stock
being sold by us in this offering, and 83,333 shares to be issued in connection
with the acquisition. Our calculation of the shares of common stock to be
outstanding after this offering excludes:
o 150,000 shares of common stock subject to the underwriter's
over-allotment option,
o 100,000 shares of common stock issuable upon the exercise of the
underwriter's warrant,
o 300,000 shares of common stock reserved for issuance under our stock
option plan,
o 16,667 shares of common stock issuable upon the exercise of warrants
issued in conjunction with notes payable, and
o 150,000 shares of common stock issuable upon conversion of a
promissory note.
Outstanding stock options
There are currently outstanding, under our 1997 Nonstatutory Stock Option
Plan, 300,000 options to purchase a like number of shares of our common stock.
These options are held by 15 persons. 127,688 options expire on April 28, 2002
and 172,312 options expire on January 1, 2003. 283,078 options have an exercise
price of $5.00 per share and 16,922 options have an exercise price of $.001.
Transfer agent
Stock Trans, Inc. has been appointed as the transfer agent and registrar
for our common stock. The transfer agent's address is 44 W. Lancaster Avenue,
Ardmore, Pennsylvania 19003, its telephone number is (610) 649-7300.
Shares eligible for future sale
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Upon completion of this offering, we will have outstanding 2,915,833
shares of common stock, or 3,065,833 shares if the underwriter's over-allotment
option is exercised in full, not including the exercise of outstanding stock
option. Of these shares, 1,000,000, or 1,150,000 shares if the underwriter's
option is exercised in full, will be freely tradeable without restriction or
further registration under the Securities Act; provided, however, that none of
the shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act, their sales of shares would be subject to certain
limitations and restrictions that are described below.
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<PAGE>
The remaining 1,915,833 shares of common stock held by our 33 existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. These shares may not be resold
except pursuant to a registration statement effective under the Securities Act
or pursuant to an exemption from registration, including the exemption provided
by Rule 144. Of the 1,915,833 shares, 1,546,333 shares will be subject to
"lock-up" agreements described below on the effective date of this offering. All
of our officers and directors as well as stockholders holding more than 5% of
the outstanding common stock will enter into lock-up agreements with the
underwriter that provides that they will not offer or sell, pledge, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any of our securities for a period of twenty-four months from the
date of this prospectus without the prior written consent of the underwriter.
All 1,915,833 shares may be resold pursuant to Rule 144 subject to the
lock-up agreement. In general, under Rule 144, beginning 90 days after the
completion of this offering, a person or persons, including an affiliate, whose
shares are aggregated and who has satisfied a one year holding period including
the period of any prior owner who is not an affiliate of ours, may sell, within
any three month period, a number of shares which does not exceed the greater of:
o 1% of the then outstanding shares of our common stock; or
o the average weekly trading volume during the four calendar weeks
preceding the sale
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and to the availability of current public information about us.
Rule 144(k) also permits the sale of shares, without any volume limitations
or manner of sale or public information requirements, by a person who is not an
affiliate of ours and who has not been an affiliate of ours for at least the
three months preceding the sale, and who has satisfied a two year holding
period.
Indemnification of officers and directors
Our bylaws provide that we shall indemnify our officers, directors,
employees and other agents to the fullest extent permitted by Florida law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Florida law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty of care to us or our shareholders.
This provision in the certificate of incorporation does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
including an injunction or other forms of non-monetary relief would remain
available under Florida law. Each director will continue to be liable for breach
of the director's duty of loyalty to us or our shareholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for improper distributions to shareholders. In
addition, this provision does not affect a director's responsibilities under any
other laws, including federal securities laws or state or federal environmental
laws.
We have been advised that in the opinion of the Securities and Exchange
Commission, this type of indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against these types of liabilities, other than
the payment by us of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suitor proceeding,
is
44
<PAGE>
asserted by a director, officer or controlling person in connection with the
securities being registered, we will submit the question of whether
indemnification by us is against public policy to an appropriate court and will
be governed by the final adjudication of the case.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is or may be sought.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, we have agreed to sell to the
underwriters named below, for whom Kashner Davidson Securities Corporation is
acting as representative, the following respective numbers of shares of common
stock.
Number of
Underwriters Shares
------------ ------
Kashner Davidson Securities Corporation..................... 1,000,000
Total.................................................
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
Upon the completion of this offering and for a period of 24 months,
officers, directors and stockholders who will own more than 5% of our issued and
outstanding common stock after the offering are not permitted, without the prior
consent of the underwriter, to publicly sell, offer or contract to sell or grant
any option to purchase, transfer, assign or pledge, or otherwise encumber or
dispose of any shares of our stock. In the event that our stock is assigned or
transferred in a private sale, the assignee or transfer is also bound by the
agreement.
In addition, for a 12 month period we will not file a registration
statement on Form S-8, except for the 1,000,000 shares issuable under our stock
option plan, without Kashner Davidson Securities Corporation's consent.
We and Kashner Davidson Securities Corporation will enter into a financial
consulting agreement providing for Kashner Davidson Securities Corporation to
act as management and financial consultant to us for a two-year period for a fee
of $108,000 payable at the closing of this offering.
We have granted Kashner Davidson Securities Corporation, for a period of
not less than five years after the closing of the offering, the right to have
Kashner Davidson Securities Corporation's designee present at meetings of the
board of directors and each of its committees subject to our right to exclude
the designee under particular circumstances. The designee will be entitled to
the same notices and communications sent by us as we give to our directors and
will attend directors' and committees' meetings, but will not be entitled to
vote at these meetings. This designee will also be entitled to receive the same
compensation payable to directors as
45
<PAGE>
members of the board of directors and its committees and all reasonable expenses
in attending the meetings. Such compensation shall not be more than that
received by other directors. As of the date of this prospectus, no designee has
been selected.
Public offering price and dealers concession
The underwriter proposes initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to some dealers, who are
members of the National Association of Securities Dealers, Inc., at that price
less a concession not in excess of $[ ] per share. The underwriters and the
selling group members may not reallow any further discounts on sales to other
broker/dealers. After the offering has been completed, the public offering price
and concession and discount to dealers may be changed by the underwriter.
Over-allotment option
We have granted the underwriter an option, which may be exercised within 45
days after the date of this prospectus, to purchase up to 150,000 additional
shares of common stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. If the underwriter exercise its over-allotment option to
purchase any of these additional 150,000 shares of common stock, these
additional shares will be sold by the underwriter on the same terms as those on
which the shares offered by this prospectus are being sold. We will be
obligated, under the terms of to the over-allotment option, to sell shares to
the underwriter if the underwriter exercises their over-allotment option. The
underwriter may exercise its over-allotment option only to cover over-allotments
made in connection with the sale of the shares of common stock offered by this
prospectus.
Non-accountable expense allowance
We have agreed to pay the underwriter a non-accountable expense allowance
of 3% of the gross proceeds derived from the sale of the shares of common stock
underwritten, including the sale of any shares of common stock that the
underwriter may sell to cover over-allotments, if any, of which $50,000 has been
paid as of the date of this prospectus. We have also agreed to pay all expenses
in connection with qualifying the common stock offered in this prospectus for
sale under the laws of the states as Weststar and the underwriter may designate
and registering the offering with the NASD, including filing fees and fees and
expenses of counsel retained for these purposes.
Underwriting compensation
The following table summarizes the compensation to be paid to the
underwriter by us, which includes a 10% discount:
Total
--------------------------------
Without With
Per Share Overallotment Overallotment
--------- ------------- -------------
Underwriting discounts
paid by us........... $ .60 $ 600,000 $ 690,000
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<PAGE>
Indemnification of underwriter
We have agreed to indemnify the underwriter and their controlling persons
against some liabilities, as more fully set forth in the underwriting agreement,
including liabilities under the Securities Act, and to contribute to payments
the underwriter and their controlling person may be required to make.
The underwriter has agreed to indemnify us, our officers and directors
against some liabilities, as more fully set forth in the underwriting agreement,
including liabilities under the Securities Act, and to contribute to payment the
underwriter and their controlling persons may be required to make.
Underwriter's warrant
Upon completion of this offering, we will sell to the underwriter, for its
own accounts, a warrant covering an aggregate of up to 100,000 shares of common
stock exercisable at a price of $8.40 per share. The underwriter will pay a
price of $100 for the warrant. The underwriter will receive 100,000 shares if it
exercises the warrant, commencing on the first anniversary of the date of this
offering until the fifth anniversary of the date of this offering. The terms of
the warrant require us to register the common stock for which the warrant is
exercisable within one year from the date of the prospectus. This underwriter's
warrant is not transferable by the warrant holders other than to officers and
partners of the underwriter. The exercise price of the underwriter's warrant and
the number of shares of common stock for which the warrant is exercisable are
subject to adjustment to protect the warrant holders against dilution in
specific events.
Stabilization and other transactions
In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions effected in accordance with rule 104 of
Regulation M under the Securities Exchange Act of 1934, which permits an
underwriter to bid for, or purchase, common stock for the purpose of stabilizing
the market price. The underwriter also may create a short position by selling
more common stock in connection with this offering than they are committed to
purchase from us, and may then purchase common stock in the open market. Any of
the transactions described in this paragraph may result in the maintenance of
the price of the common stock at a level above that which might otherwise
prevail in the open market. None of the transactions described in the paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
Discretionary accounts
The underwriter has informed us that it does not intend to confirm sales to
any account over which it exercises discretionary authority.
Determination of offering price
Before this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriter. Among the factors
considered in determining the initial public offering price were:
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o our results of operations,
o our current financial condition,
o our future prospects,
o the state of the markets for our services,
o the experience of our management,
o the economics of our industry in general,
o the general condition of the equity securities market, and
o the demand for similar securities of companies considered comparable
to us.
LEGAL MATTERS
Particular legal matters that arise in connection with the offering will be
passed upon for us by Sommer & Schneider LLP, 595 Stewart Avenue, Suite 710,
Garden City, New York 11530. Particular legal matters that arise in connection
with the offering will be passed upon for the underwriter by its counsel,
Sichenzia, Ross & Friedman LLP, 135 West 50th Street, New York, New York 10020.
EXPERTS
The financial statements of Weststar Environmental, Inc. as of December 31,
1999 and 1998 and for each of the two years in the period ended December 31,
1999, appearing in this prospectus and registration statement, have been audited
by Horton & Company, L.L.C., Certified Public Accountants, as stated in their
reports which appear elsewhere in this prospectus and in the registration
statement, and are included in reliance upon the reports of Horton & Company,
L.L.C. given upon their authority as experts in accounting and auditing.
The financial statements of Pipeline Contractors, Inc., and Wealing
Brothers, Inc. at and for the two years ended December 31, 1999 and Village
Ventures, Inc. at and for the year ended December 31, 1999 appearing in this
prospectus and registration statement have been audited by Reddish & White,
C.P.A.'s , as stated in their reports which appear elsewhere in this prospectus
and in the registration statement, and are included in reliance upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
Weststar will file reports, proxy statements and other information with the
SEC. Those reports, proxy statements and other information may be obtained:
o At the public reference room of the SEC, Room 1024- Judiciary Plaza,
450 Fifth Street, N.W. Washington, D.C. 20549;
o At the public reference facilities at the SEC's regional offices
located at Seven World Trade Center, 13th Floor, New York, NY 10048 or
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
o By writing to the SEC, Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
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<PAGE>
o From the Internet site maintained by the SEC at http://www.sec.gov,
which contains reports, proxy information statements and other
information regarding issuers that file electronically with the SEC.
Weststar has filed with the SEC a registration statement under the
Securities Act of 1933, for the common stock offered in this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
the information set forth, or annexed as exhibits to, the registration
statement, some portions of which have been omitted under the rules and
regulations of the SEC. For further information with respect to Weststar and the
common stock, reference is made to our registration statement, including
exhibits, copies of which may be inspected and copied at the facilities of the
SEC. Copies of the registration statement, including exhibits, may be obtained
from the Public Reference Section of the SEC at the address listed in the
paragraph above upon payment of the fee prescribed by the SEC. Information
regarding the operation of the SEC's public reference facilities may be obtained
by calling the SEC at 1-800-SEC-0330.
Weststar intends to distribute to its stockholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make other
periodic reports as we determine to be appropriate or as may be required by law.
Weststar's fiscal year ends December 31 each year.
49
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers
Each of the Underwriters has agreed to indemnify Weststar, 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
,if such statement or omission was made in reliance upon information furnished
in writing to Weststar by such Underwriter specifically for or in connection
with the preparation of the Registration Statement, the Prospectus, or any such
amendment or supplement.
The Florida General Corporation Act empowers a corporation to indemnify its
directors and officers and to purchase Directors & Officers 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 General Corporation Act; or (iv) for any
transaction from which the director derived an improper personal benefit.
Following the completion of this offering, we intend to purchase Directors
&Officers Insurance, if such insurance is available at rates which are
satisfactory to us.
The Florida General Corporation Act 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 our 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 Weststar to indemnify our
officers and directors 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 IN ACCORDANCE WITH 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.
Item 25. Other Expenses of Issuance and Distribution
The following is a statement of our estimated expenses for the issuance and
distribution of the securities being registered, other than selling discounts
and commissions:
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Securities and Exchange Commission Registration Fee........ $ 2,078
NASD Filing Fee............................................ 1,287
Nasdaq Listing Fee......................................... 12,000
Boston Stock Exchange Listing Fee.......................... 7,500
Blue Sky Legal Fees and Expenses........................... 55,000
Printing and Engraving Expenses............................ 40,000
Transfer Agent's Fees and Expenses......................... 4,000
Accounting Fees and Expenses............................... 50,000
Legal Fees and Expenses.................................... 155,000
Underwriter's Consulting Agreement......................... 108,000
Underwriter's Non-Accountable Expense...................... 180,000
Miscellaneous Expenses..................................... 12,635
--------
Total Estimated Expenses............................ $ 627,500
=========
-----------------
We will pay all of these expenses.
ITEM 26. Recent Sales of Unregistered Securities
In accordance with the amendment of our articles of incorporation on
February 16, 1998, increasing our authorized capital from 100,000 shares of
common stock, $1 par value, to 10,000,000 shares of common stock, $.001 par
value, we authorized and effected a stock split. After 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. After the certificate amendment
and stock split, the following unregistered securities were issued by us. No
underwriting discounts or commissions were paid in connection with the issuance
of such securities.
On March 19, 1998, under the exemption from registration provided by
Section 4(2) of the Securities Act we issued a total 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). On April 28, 1999 Mr. Souran returned 50,000 shares
to us. The shares issued to Thomas C. Souran were under a January 1, 1998
Consultant Agreement between us and Mr. Souran. The shares issued to Milling Law
Offices were issued for legal services. The shares issued to Environmental and
Financial Consulting Inc. were issued for financial consulting services rendered
in 1997. These services were arranging several commercial loans for us. The
aggregate value of the services rendered to us was approximately $35,000 or $.25
per share. All of the foregoing purchasers are sophisticated investors, are
familiar with our business activities. They were given complete access to any
corporate information requested by them and did in fact review extensive
corporation information.
During the current fiscal year and the fiscal years ended December 31, 1998
and December 31, 1997, Weststar issued an aggregate of 300,000 non-statutory
stock options in accordance with Weststar's 1997 Nonstatutory Stock Option Plan
as set forth in the following table and amended in September of 1999. The
options were issued pursuant to Rule 701 in that all of the optionees were
either employees, directors, officers, consultants or advisors and we were not
subject to the reporting requirements of the Securities Exchange Act of 1934.
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<PAGE>
<TABLE>
<CAPTION>
Current
Date of Number of Exercise Exercise No. of
Optionee Issuance Options Price Period Options
-------- -------- ------- ----- ------ -------
<S> <C> <C> <C> <C> <C>
Elton Stubbs April 28, 1997 140,000 $5 1/1/99 - 12/31/02 86,156
John Stubbs April 28, 1997 140,000 $5 1/1/99 - 12/31/02 86,156
Michael E. Ricks April 28, 1997 75,000 $5 4/28/98 - 4/27/02 46,155
William W. Perry April 28, 1997 75,000 $5 4/28/98 - 4/27/02 46,155
William B. Gray April 28, 1997 20,000 $5 4/28/98 - 4/27/02 12,308
Michael George April 28, 1997 5,000 $5 4/28/98 - 4/27/02 3,074
Dr. John Poser April 28, 1997 5,000 $5 4/28/98 - 4/27/02 3,074
Wendy Stubbs April 28, 1997 10,000 $.001 4/28/98 - 4/27/02 6,154
David Capps April 28, 1997 10,000 $.001 4/28/98 - 4/27/02 6,154
George King April 28, 1997 1,500 $.001 4/28/98 - 4/27/02 923
Joseph Baldree April 28, 1997 1,500 $.001 4/28/98 - 4/27/02 923
Jeff Kirkendahl April 28, 1997 1,500 $.001 4/28/98 - 4/27/02 923
Jim Ricks April 28, 1997 1,000 $.001 4/28/98 - 4/27/02 615
Kristan Lowe April 28, 1997 1,000 $.001 4/28/98 - 4/27/02 615
Genie Dyal April 28, 1997 1,000 $.001 4/28/98 - 4/27/02 615
======= =======
487,500 300,000
</TABLE>
From June 15, 1999 to March 9, 2000, we issued an aggregate of 13,000
shares and 16,667 warrants to purchase common stock to the persons listed below
in connection with loans made to us by each of them. The shares were issued
under the exemption from registration provided by Section 4(2) of the Securities
Act . The warrants are exercisable at 140% of the IPO price of Weststar's common
stock. Each person was a sophisticated investor and was afforded access to
corporate information about us including our business plan and audited financial
statements. The purchasers of the securities in these transactions represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution of the securities and
appropriate legends were affixed to the certificates.
Shares Warrants
------ --------
Paige Gray Bertini 2,000 3,333
Linda Pomerantz - 2,000 3,334
Robert Mahuske - 5,000 3,333
Edward Tenant 4,000 6,667
------ ------
13,000 16,667
On March 10, 2000 we issued 100,000 shares to Ronald E. Denmark in
connection with the acquisition of Pipeline Contractors, Inc. These shares were
issued under the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. Mr. Denmark is a sophisticated investor and was afforded
access to corporate information about us including our business plan and audited
financial statements. The purchasers of the securities in these transactions
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution of the
securities and appropriate legends were affixed to the certificates.
On May 23, 2000 we entered into a secured convertible promissory note with
an unaffiliated third party in the principal amount of $150,000. This note
matures on December 31, 2000. The note, which bears no nominal rate of interest
is secured by our accounts receivable. The note is convertible, at the option of
the holder, into 150,000 shares of our common stock. The note was issued under
the exemption from registration provided by Section 4(2) of the
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<PAGE>
Securities Act. The holder is an accredited investor and represented his
intention to acquire the note and the shares underlying the note for investment
only and not with a view to or for sale in connection with any distribution of
the securities and appropriate legends will be affixed to the underlying shares
when issued.
On June 1, 2000 we issued an aggregate of 82,500 shares to Dean Wealing,
Beverly Wealing, Ron Wealing and Lynn Wealing in connection with the acquisition
of Wealing Brothers, Inc. These shares were issued under the exemption from
registration provided by Section 4(2) of the Securities Act. Each person was a
sophisticated investor and was afforded access to corporate information about us
including our business plan and audited financial statements. The purchasers of
the securities in this transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the securities and appropriate legends were affixed to
the certificates.
Item 27. Exhibits
Exhibit No. Item
----------- ----
1.1 Form of Underwriting Agreement*
1.2 Form of Representative's Warrant**
1.3 Form of Representative's Financial Consulting Agreement**
2. Agreement and Plan of Reorganization dated as of April 29, 1997
by and among Weststar, 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
5. Opinion and Consent of Counsel**
10.1 Employment Agreement dated June 30, 1999 between Weststar and
Michael E. Ricks*
10.2 Promissory Note dated October 7, 1998 issued by Weststar to G&W
Framing Contractors, Inc.*
10.3 Staff Leasing Agreement, dated December 16, 1999 between
Weststar and Professional Employer Plans, Inc.*
10.4 Consultant Agreement dated as of January 27, 1999 between
Weststar and Environmental and Financial Consulting, Inc.*
10.5 1997 Nonstatutory Stock Option Plan*
10.6 Noncompetition and Consulting Agreement dated as of October 4,
1996 between Michael E. Ricks and CBP Resources, Inc.*
10.7 Unsecured note, dated January 31, 1994, made by Weststar to
Gloria Ferguson et al in the amount of $100,000.*
10.8 Promissory note, dated October 11, 1995, made by Weststar to
SouthTrust Bank of Central Florida in the amount of $76,284.80.*
10.9 Promissory note, dated March 1, 1996, made by Weststar to
SouthTrust Bank of Central Florida in the amount of $75,000.*
10.10 Form of Promissory Notes made by Weststar to Peggy and Marie
Stubbs.*
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10.11 Mortgage note, dated June 3, 1998, made by Weststar to
Primesouth Bank in the amount of $160,000.*
10.12 Agreement and Plan of Reorganization between Ronald E. Denmark
and Weststar dated March 10, 2000 regarding acquisition of
Pipeline Contractors, Inc.*
10.13 Stock Purchase Agreement between Joseph M. Duke and Carolyn M.
Duke and Weststar dated August 22, 2000 regarding the
acquisition of Village Ventures, Inc.*
10.14 Agreement and Plan of Reorganization between Dean Wealing and
Ron Wealing, Beverly Wealing and Lynn Wealing and Weststar
regarding the acquisition of Wealing Brothers, Inc.*
10.15 Consulting Agreement dated as of January 1, 1999 between
Weststar and Thomas C. Souran.*
10.16 Loan Agreement dated June 15, 1999 between Weststar and Edward
Tenant in the principal amount of $50,000.*
10.17 Loan Agreement dated July 23, 1999 between Weststar and Linda
Pomerantz in the principal amount of $50,000.*
10.18 Loan Agreement dated December 31, 1999 between Weststar and
Edward Tenant in the principal amount of $150,000.*
10.19 Loan Agreement dated January 19, 2000 between Weststar and Paige
Gray Bertini in the principal amount of $100,000.*
10.20 Loan Agreement dated January 24, 2000 between Weststar and Linda
Pomerantz in the principal amount of $50,000.*
10.21 Lease Agreement dated September 25, 2000 between Weststar and
900 Regency Square Corporation for premises at 9000 Regency
Square Boulevard.
10.22 Amendment to Consulting Agreement dated October 25, 2000 between
Weststar and Environmental and Financial Consulting, Inc.
21. Subsidiaries -Weststar's only subsidiaries, which are
wholly-owned, are B&B Septic and Environmental Services, Inc., a
Florida corporation, Pipeline Contractors Inc. and Wealing
Brothers, Inc.*
23. Consent of Horton & Company L.L.C., independent certified public
accountants*
23.1 Consent of Reddish & White C.P.A., independent certified public
accountants*
27. Financial Data Schedule
----------
* Previously filed
** By Amendment
Item 28. Undertakings
(a) Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Weststar in
accordance with the provisions referred to in Item 14 of this Registration
Statement, or otherwise, Weststar 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 Weststar of expenses incurred or paid by a director, officer or
controlling person of Weststar in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or
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<PAGE>
controlling in connection with the securities being registered, Weststar 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.
(b) Rule 430A
Weststar 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 Weststar 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, and that offering of the
securities at that time as the initial bona fide offering of those securities.
55
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, Weststar
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 November 3, 2000.
WESTSTAR ENVIRONMENTAL INC.
By /s/ Michael E. Ricks
---------------------------------
MICHAEL E. RICKS, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Principal Executive, Financial and
Accounting Officer:
/s/ Michael E. Ricks President and CEO November 3, 2000
------------------------------
MICHAEL E. RICKS
A Majority of the Board of Directors:
/s/ Michael E. Ricks Director November 3, 2000
------------------------------
MICHAEL E. RICKS
/s/ William B. Gray Director November 3, 2000
------------------------------
WILLIAM B. GRAY
/s/ John S. Poser Director November 3, 2000
------------------------------
DR. JOHN S. POSER
/s/ Thomas F. Fey Director November 3, 2000
------------------------------
THOMAS F. FEY
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
WESTSTAR ENVIRONMENTAL, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1999 and 1998 and September 30, 2000 F-3
Consolidated statements of operations for the years ended December 31, 1999
and 1998 and for the nine-month periods ended September 30, 2000 and 1999 F-4
Consolidated statements of stockholders' equity for the years ended December 31,
1999 and 1998 and for the nine-month periods ended September 30, 2000 and
1999 F-5
Consolidated statements of cash flows for the years ended December 31, 1999 and
1998 and for the nine-month periods ended September 30, 2000 and 1999 F-6
Notes to consolidated financial statements F-7 - F-20
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Explanatory note relating to pro forma condensed consolidated financial
information F-21
Pro forma condensed consolidated balance sheet as of September 30, 2000
(unaudited) F-22
Pro forma condensed consolidated statement of income for the nine-month period
ended September 30, 2000 (unaudited) F-23
Pro forma condensed consolidated statement of income for the year ended
December 31, 1999 (unaudited) F-24
Notes to pro forma condensed consolidated financial statements (unaudited) F-25 - F-26
PIPELINE CONTRACTORS, INC.
Independent Auditors' Report F-27
Balance sheet as of December 31, 1999 F-28
Statement of income and retained earnings for the year ended December 31, 1999 F-29
Statement of cash flows for the year ended December 31, 1999 F-30
Notes to financial statements F-31-F-37
Independent Auditors' Report F-38
Balance sheet as of December 31, 1998 F-39
Statement of income and retained earnings for the year ended December 31, 1998 F-40
Statement of cash flows for the year ended December 31, 1998 F-41
Notes to financial statements F-42-F-47
Statement of income for the period January 1, 2000 through March 9, 2000 (unaudited) F-48
WEALING BROTHERS, INC.
Independent Auditors' Report F-49
Balance sheet as of December 31, 1999 F-50
Statement of income and retained earnings for the year ended December 31, 1999 F-51
Statement of cash flows for the year ended December 31, 1999 F-52
Notes to financial statements F-53-F-56
Independent Auditors' Report F-57
Balance sheet as of December 31, 1998 F-58
Statement of income and retained earnings for the year ended December 31, 1998 F-59
Statement of cash flows for the year ended December 31, 1998 F-60
Notes to financial statements F-61-F-64
Statement of income for the period January 1, 2000 through May 31, 2000 (unaudited) F-65
VILLAGE VENTURES, INC.
Independent Auditors' Report F-66
Balance sheet as of December 31, 1999 F-67
Statement of income and retained earnings for the year ended December 31, 1999 F-68
Statement of cash flows for the year ended December 31, 1999 F-69
Notes to financial statements F-70-F-73
Balance sheet as of September 30, 2000 (unaudited) F-74
Statement of income for the nine-month period ended September 30, 2000 (unaudited) F-75
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Weststar Environmental, Inc. and subsidiaries
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Weststar
Environmental, Inc. and subsidiaries as of December 31, 1999 and 1998, 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 subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
HORTON & COMPANY, L.L.C.
March 8, 2000
Wayne, New Jersey
F-2
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
SEPTEMBER 30, ----------------------------
2000 1999 1998
---- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash $ 51,190 $ 144,186 $ 18,108
Accounts receivable, net of allowances of $21,100
in 2000, $35,000 in 1999, and $26,000 in 1998 1,136,081 134,408 75,884
Prepaid expenses 156,824 69,175 43,777
Due from affiliates 37,702 - -
---------- ---------- ----------
Total current assets 1,381,797 347,769 137,769
Property and equipment, net 2,277,726 1,503,707 1,647,228
Deferred charges and other assets 2,156,729 291,085 168,975
---------- ---------- ----------
$5,816,252 $2,142,561 $1,953,972
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $1,261,152 $ 354,393 $ 88,500
Current portion of long-term debt 488,868 315,496 66,036
Current portion of capital lease obligations 93,071 82,949 63,201
Accounts payable 696,154 289,425 361,248
Accrued expenses 183,034 52,075 100,152
Stockholder loans 569,687 331,001 340,697
---------- ---------- ----------
Total current liabilities 3,291,966 1,425,339 1,019,834
Long-term debt, net of current portion 383,181 235,862 551,357
Capital lease obligations, net of current portion 44,402 39,293 122,242
Other long-term liabilities 281,376 - -
---------- ---------- ----------
4,000,925 1,700,494 1,693,433
---------- ---------- ----------
Stockholders' equity:
Common stock, $.001 par value,
10,000,000 shares authorized;
1,882,500 shares issued, 1,832,500 shares
outstanding in 2000
1,694,000 shares issued, 1,644,000 shares
outstanding in 1999
1,690,000 shares issued and outstanding in 1998 1,883 1,694 1,690
Additional paid-in capital 1,379,442 140,898 139,902
Treasury stock, 50,000 shares, at cost (12,500) (12,500) -
Retained earnings 446,502 311,975 118,947
---------- ---------- ----------
1,815,327 442,067 260,539
---------- ---------- ----------
$5,816,252 $2,142,561 $1,953,972
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------
2000 1999 1999 1998
---------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $2,860,375 $1,344,050 $1,726,614 $1,696,915
---------- ---------- ---------- ----------
Direct costs:
Labor and benefits 720,710 336,847 466,145 528,615
Vehicle operating costs 220,744 128,510 176,041 238,860
Depreciation 181,515 179,074 237,469 260,956
Insurance 61,999 41,711 39,206 91,584
Materials 463,747 - - -
Other 368,237 99,122 226,993 113,952
---------- ---------- ---------- ----------
2,016,952 785,264 1,145,854 1,233,967
---------- ---------- ---------- ----------
Gross profit 843,423 558,786 580,760 462,948
Selling and administrative expenses 451,330 378,972 285,054 330,489
---------- ---------- ---------- ----------
Income from operations 392,093 179,814 295,706 132,459
---------- ---------- ---------- ----------
Other expenses:
Cost of delaying planned public offering - - - 204,088
Interest expense 257,566 49,391 102,678 86,745
---------- ---------- ---------- ----------
257,566 49,391 102,678 290,833
---------- ---------- ---------- ----------
Net income (loss) $ 134,527 $ 130,423 $ 193,028 $ (158,374)
========== ========== ========== ==========
PRO FORMA INFORMATION (UNAUDITED):
Historical income (loss) before income taxes $ 134,527 $ 130,423 $ 193,028 $ (158,374)
Pro forma income tax expense (benefit) 47,000 45,600 66,000 (55,000)
---------- ---------- ---------- ----------
Pro forma net income (loss) $ 87,527 $ 84,823 $ 127,028 $ (103,374)
========== ========== ========== ==========
Pro forma earnings (loss) per share:
Basic $ 0.05 $ 0.05 $ 0.08 $ (0.06)
========== ========== ========== ==========
Diluted $ 0.05 $ 0.05 $ 0.08 $ (0.06)
========== ========== ========== ==========
Historical weighted average shares outstanding:
Basic 1,763,095 1,690,000 1,673,951 1,666,630
========== ========== ========== ==========
Diluted 1,827,194 1,754,099 1,690,849 1,666,630
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(INFORMATION FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000
AND 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------- PAID-IN ------------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS
--------- -------- ---------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 1,500,000 $ 1,500 $ 92,592 - $ - $ 277,321
Stock issued in satisfaction of fees 190,000 190 47,310 - - -
Net loss - - - - - (158,374)
--------- -------- ---------- ------ -------- ---------
Balances at December 31, 1998 1,690,000 1,690 139,902 - - 118,947
Redemption of stock in
adjustment of fees - - - 50,000 (12,500) -
Stock issued in conjunction with
issuance of debt 4,000 4 996 - - -
Net income - - - - - 193,028
--------- -------- ---------- ------ -------- ---------
Balances at December 31, 1999 1,694,000 $ 1,694 $ 140,898 50,000 $(12,500) $ 311,975
========= ======== ========== ====== ======== =========
Balance at January 1, 1999 1,690,000 $ 1,690 $ 139,902 - $ - $ 118,947
Net income (unaudited) - - - - - 130,423
--------- -------- ---------- ------ -------- ---------
Balance at September 30, 1999 1,690,000 $ 1,690 $ 139,902 - $ - $ 249,370
========= ======== ========== ====== ======== =========
Balance at January 1, 2000 1,694,000 $ 1,694 $ 140,898 50,000 $(12,500) $ 311,975
Stock issued in conjunction with
issuance of debt (unaudited) 6,000 6 44,227 - - -
Conversion feature of convertible debt
(unaudited) - - 100,000 - - -
Stock issued in acquisition of Pipeline
Contractors, Inc. (unaudited) 100,000 100 599,900 - - -
Stock issued in acquisition of Wealing
Brothers, Inc. (unaudited) 82,500 83 494,917 - - -
Net income (unaudited) - - - - - 134,527
--------- -------- ---------- ------ -------- ---------
Balance at September 30, 2000 1,882,500 $ 1,883 $1,379,942 50,000 $(12,500) $ 446,502
========= ======== ========== ====== ======== =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------
2000 1999 1999 1998
---------- --------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 134,527 $ 130,423 $ 193,028 $(158,374)
---------- --------- ---------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities, net of
effects of business combinations:
Depreciation and amortization 267,304 179,074 237,469 260,956
Bad debts - - 9,000 26,000
Interest cost paid in stock 143,733 - 1,000 -
Accrued interest added to notes payable 19,710 - 15,893 -
Cost of delaying planned public offering - - - 204,088
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (218,817) (39,507) (67,524) 305,852
(Increase) decrease in prepaid expenses 4,705 (2,865) (25,398) (16,984)
Increase (decrease) in accounts payable 132,095 (75,939) (71,823) (48,712)
Increase (decrease) in accrued expenses (6,650) (29,607) (48,077) 55,747
---------- --------- ---------- ---------
Total adjustments 342,080 31,156 50,540 786,947
---------- --------- ---------- ---------
Net cash provided by operating activities 476,607 161,579 243,568 628,573
---------- --------- ---------- ---------
Cash flows from investing activities:
Capital expenditures (218,329) (26,127) (93,948) (146,266)
Acquisition expenditures (50,000) - - -
Deposit on investment (50,000) - - -
---------- --------- ---------- ---------
Net cash used in investing activities (318,329) (26,127) (93,948) (146,266)
---------- --------- ---------- ---------
Cash flows from financing activities:
Deferred offering costs (518,970) (93,264) (134,610) (323,053)
Repayment of notes payable (52,247) - - (36,563)
Proceeds from notes payable 480,000 100,000 250,000 -
Proceeds from long-term debt 50,000 - - 160,000
Loan payments to stockholders and affiliates (24,592) (2,668) (9,696) (57,937)
Principal payments on long-term debt (137,026) (89,848) (66,035) (151,630)
Principal payments on capital lease obligations (48,439) (42,230) (63,201) (57,249)
Dividends paid - - - (4,000)
---------- --------- ---------- ---------
Net cash used in financing activities (251,274) (128,010) (23,542) (470,432)
---------- --------- ---------- ---------
Net increase (decrease) in cash (92,996) 7,442 126,078 11,875
Cash balance at beginning of period 144,186 18,108 18,108 6,233
---------- --------- ---------- ---------
Cash balance at end of period $ 51,190 $ 25,550 $ 144,186 $ 18,108
========== ========= ========== =========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(INFORMATION FOR NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000
AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Weststar
Environmental, Inc. and subsidiaries (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 subsidiaries 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 subsidiaries, B&B
Septic and Environmental Services, Inc. ("B&B"), Pipeline Contractors,
Inc. ("Pipeline") and Wealing Brothers, Inc. ("Wealing"). 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, Weststar and B&B were under common
control since the stockholders of Weststar Environmental, Inc. also
owned 100% of the stock of B&B Septic and Environmental Services, Inc.
Effective March 10, 2000, the Company acquired Pipeline Contractors,
Inc. ("Pipeline"). Pipeline is an underground utilities and site
preparation construction contractor which does business in northern and
central Florida. Under the terms of the agreement, Weststar acquired
100% of Pipeline's common stock in exchange for 100,000 shares of
Weststar's common stock. In addition, Weststar entered into a $300,000
covenant not-to-compete agreement with the former shareholders of
Pipeline, payable in the amount of $50,000 per year over five years.
The business combination has been recorded as a purchase. Cost in
excess of fair market value of net assets acquired has been recorded as
goodwill.
Effective June 1, 2000, the Company acquired Wealing Brothers, Inc.
("Wealing"). Wealing is engaged in site preparation, dredging,
non-hazardous waste transportation and sludge recycling throughout the
Indiana and Michigan area. Under the terms of the agreement, Weststar
acquired 100% of Wealing's common stock in exchange for 82,500 shares
of Weststar's common stock plus a $360,000 note, payable within one
year. The business combination has been recorded as a purchase. Cost in
excess of fair market value of net assets acquired has been recorded as
goodwill.
F-7
<PAGE>
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.
Pipeline Contractors, Inc. is engaged in road-related construction. The
work is generally performed under fixed price contracts. Credit is
extended to various customers throughout the North Central Florida
area.
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 cash and 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, 1999, the Company had a balance in one bank which was
approximately $40,000 in excess of the $100,000 limit insured by the
FDIC. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk with regard
to cash.
At December 31, 1999, the Company had accounts receivable from two
customers in the amount of $43,535, representing 30% of the
consolidated accounts receivable balance at that date. At December 31,
1998, the Company had accounts receivable from four customers in the
amount of $62,918, representing 85% of the consolidated accounts
receivable at that date.
Two customers accounted for approximately 53% of the Company's revenues
during the year ended December 31, 1999, and 49% of the Company's
revenues during the year ended December 31, 1998.
F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 $237,469 and $260,956 for the years ended
December 31, 1999 and 1998, respectively, and $199,919 and $179,074 for
the nine-month periods ended September 30, 2000 and 1999, 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.
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.
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.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated by dividing net income
(loss) by the average number of common shares outstanding during the
year. Diluted earnings per common share is calculated by adjusting
outstanding shares, assuming conversion of all potentially dilutive
stock options.
F-9
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE (CONTINUED)
The following table sets forth the calculation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------
2000 1999 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BASIC:
Pro forma net income (loss) $ 87,527 $ 84,823 $ 127,028 $ (103,374)
---------- ---------- ---------- ----------
Weighted average shares
outstanding during the period 1,763,095 1,690,000 1,673,951 1,666,630
---------- ---------- ---------- ----------
Basic earnings (loss) per share $ 0.05 $ 0.05 $ 0.08 $ (0.06)
========== ========== ========== ==========
DILUTED:
Net income (loss) $ 87,527 $ 84,823 $ 127,028 $ (103,374)
---------- ---------- ---------- ----------
Weighted average shares
outstanding during the period 1,763,095 1,690,000 1,673,951 1,666,630
Effect of dilutive securities:
Stock options 64,099 64,099 16,922 -
---------- ---------- ---------- ----------
1,827,194 1,754,099 1,690,873 1,666,630
---------- ---------- ---------- ----------
Diluted earnings (loss) per share $ 0.05 $ 0.05 $ 0.08 $ (0.06)
========== ========== ========== ==========
</TABLE>
SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Interest paid for the years ended December 31, 1999 and 1998 was
$85,785 and $86,745, respectively. Interest paid for the nine-month
periods ended September 30, 2000 and 1999 was $94,123 and $49,391,
respectively.
Noncash investing and financing activities consisted of the following:
During the year ended December 31, 1998, dividends payable in the
amount of $90,000 were converted to a stockholder loan. During the year
ended December 31, 1998, the Company issued 190,000 shares of its
common stock to various professionals and consultants in satisfaction
of $47,500 in fees. During the year ended December 31, 1999, 50,000
shares of stock issued in satisfaction of $12,500 of fees was returned
to the Company as treasury stock.
AMORTIZATION
Amortization of the covenant not to compete is computed using the
straight-line method over five years. Amortization of goodwill is
computed using the straight-line method over fifteen years.
F-10
<PAGE>
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
2000 1999 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land, building and improvements $ 720,336 $ 664,693 $ 607,107
Machinery and equipment 2,434,436 433,867 420,512
Vehicles 1,497,327 1,591,698 1,568,692
---------- ---------- ----------
4,652,099 2,690,258 2,596,311
Less: accumulated depreciation 2,374,373 1,186,551 949,083
---------- ---------- ----------
$2,277,726 $1,503,707 $1,647,228
========== ========== ==========
</TABLE>
Property and equipment includes equipment under capital leases of
$237,470 at December 31, 1999 and 1998. Accumulated depreciation on
equipment under capital leases was $106,377 and $80,888 at December 31,
1999 and 1998, respectively.
3. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
2000 1999 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred offering costs $ 715,620 $ 278,867 $ 157,013
Goodwill 1,139,168 - -
Covenant not to compete 300,000 - -
Deposit 50,000 - -
Other 19,326 12,218 11,962
---------- ---------- ----------
2,224,114 291,085 168,975
Less: accumulated amortization 67,385 - -
---------- ---------- ----------
$2,156,729 $ 291,085 $ 168,975
========== ========== ==========
</TABLE>
Costs incurred in connection with the Company's planned public offering
of its common stock have been capitalized as deferred offering costs.
If such offering is successful, the costs will be charged against the
proceeds of the offering. If such offering is not successful, such
costs will be expensed.
F-11
<PAGE>
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
2000 1999 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%. The
balance includes unpaid interest. $ 96,875 $100,875 $88,500
Unsecured notes payable to an individual. The notes are
dated June 1999 and December 1999. Payment of interest
only at 10.5% is due semi-annually. The balance includes
unpaid interest. 210,530 201,330 -
Unsecured notes payable to individuals within one year or
completion of public offering. The notes are dated July
1999 through March 2000 and have interest rates ranging
from 8.5% to 10.5%. The balance includes unpaid interest. 314,617 52,188 -
Line of credit to a bank with interest at 1% over prime.
The line of credit is secured by the Company's property
and equipment. 47,130 - -
Note payable to an individual which is due December 2000.
The note, dated May 2000, is secured by the Company's
accounts receivable and can be convertible into equity at
the holder's discretion. While the note bears no stated
interest, the imputed annual interest rate is 133%, based
on the beneficial conversion features described in Note 14. 152,000 - -
Unsecured notes payable to the former stockholders of
Wealing Brothers, Inc. (Note 14). The note, dated June 1,
2000, is payable within one year or completion of the
public offering, with interest at 8.5%. 360,000 - -
Unsecured notes payable to two individuals. The notes,
dated August 2000, are payable on or before November 2000,
with interest at 18% 80,000 - -
---------- -------- -------
$1,261,152 $354,393 $88,500
========== ======== =======
</TABLE>
F-12
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
2000 1999 1998
------------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage payable to a bank in 59 monthly installments of
$3,390, including interest at 10%, through September 2000.
The mortgage is secured by the Company's real property in
Deland, Florida. $ 248,809 $259,999 $272,026
Mortgage payable to a bank in 60 monthly installments of
$1,684, including interest at 9.5%, with the remaining
principal balance due in June 2003. The mortgage is
secured by the Company's real property in Starke, Florida. 142,375 152,432 157,444
Unsecured note payable to an individual in 150 monthly
installments of $1,000, including interest at 7%, through
September 2006. 70,584 71,584 74,210
Notes payable to banks in monthly installments of $6,036
through November 2000 and the unpaid balance of interest
due in December 2000. Installments include interest at a
rate of 7.5%. The notes are secured by the Company's
property and equipment. 176,830 - -
Notes payable to various banks in monthly installments of
$2,953, including interest between 9.0% and 9.5%, through
March 2001. These notes are secured by the Company's
property and equipment. 26,229 - -
Note payable to a bank in monthly installments of $2,176,
including interest at 11.0% through October 2004. The note
is secured by equipment. 86,074 - -
Note payable to a bank in monthly installments of $1,645,
including interest at 6%, through June 2003. The note is
secured by equipment. 49,936 - -
Notes payable to various banks in monthly installments of
$6,723, including effective interest between 8.75% and
12%, through April 2002. These notes are secured by
machinery, equipment and vehicles. 71,212 67,343 113,713
---------- -------- --------
872,049 551,358 617,393
Less: current portion of long-term debt 488,868 315,496 66,036
---------- -------- --------
Long-term debt, net of current portion $ 383,181 $235,862 $551,357
========== ======== ========
</TABLE>
F-13
<PAGE>
5. LONG-TERM DEBT (CONTINUED)
Following are maturities of long-term debt as of December 31, 1999:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
2000 $315,496
2001 37,166
2002 23,280
2003 141,249
2004 9,923
Thereafter 24,244
--------
$551,358
========
</TABLE>
6. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of obligations arising from a 1994
bankruptcy reorganization of Pipeline Contractors, Inc. The obligations
include $170,079 of payroll taxes payable under an agreement with the
Internal Revenue Service, in monthly installments of $1,373 over 63
months and $2,825 over 51 months. Payments include interest at 8.0%.
Other long-term liabilities also include a court-ordered repayment of
$196,065, payable in monthly installments of $3,333 over 59 months
without interest. $76,330 of other long-term liabilities is included in
accounts payable.
7. CAPITAL LEASE OBLIGATIONS
The Company leases machinery and equipment under capital leases
expiring in various years through 2002. The leases have effective
interest rates ranging between 9.5% and 11%. 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, 1999, minimum future lease payments under capital
lease obligations are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
2000 $ 89,365
2001 36,270
2002 3,023
--------
Total minimum lease payments 128,658
Less: amounts representing interest (6,416)
--------
Net minimum lease payments 122,242
Less: current portion (82,949)
--------
$ 39,293
========
</TABLE>
F-14
<PAGE>
8. STOCKHOLDER LOANS
Stockholder loans consist of unsecured, non-interest bearing demand
loans payable to various stockholders.
9. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company leases office space under an operating lease which
commenced September 1997 and runs through August 2000. A portion of the
obligation is assumed by an affiliate, pursuant to an oral sub-lease
agreement. Rent expense for office space, net of the sub-lease,
totalled $8,589 and $4,888 for the years ended December 31, 1999 and
1998, respectively.
In addition, the Company leased a vehicle under an operating lease
which runs through the year 2002.
Minimum annual rental payments under these operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31, Office Vehicle
------------ ------- --------
<S> <C> <C>
2000 $15,177 $ 8,200
2001 - 8,200
2002 - 4,784
------- -------
$15,177 $21,184
======= =======
</TABLE>
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 between $6.00 and $6.50 per share. It is anticipated that these
shares will be offered by the underwriters on a firm commitment basis.
If successful, the offering would provide Weststar with approximately
$5,200,000 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 10).
Amounts advanced for this registration will be charged to capital upon
completion of the registration. In late 1998, the Company delayed its
planned initial public offering. The Company recorded a charge of
$204,088 representing costs for which no future benefit would be
realized as a result of the delay.
F-15
<PAGE>
9. 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.
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.
10. INCOME TAXES
B&B Septic and Environmental Services, Inc. is a corporation subject to
Federal and State income taxes. As of December 31, 1999, B&B has net
operating losses of approximately $52,000 available for carryforward
until their expiration in the years 2010 and 2011.
During the years ended December 31, 1999 and 1998, 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 2000, 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,
1999 are as follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
------- ----------
<S> <C> <C>
Deferred tax assets $118,050 $ -
Deferred tax liabilities (67,226) (72,562)
-------- --------
Net deferred tax assets (liabilities) $ 50,824 $(72,562)
======== ========
</TABLE>
F-16
<PAGE>
10. 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.
11. 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. During 1999,
50,000 shares of stock issued in satisfaction of $12,500 of fees were
returned to the Company as treasury stock.
WARRANTS
In conjunction with the issuance of $500,000 of notes payable to
individuals described in Note 4, the Company has issued a total of
16,667 warrants as additional consideration. Such warrants may be
exercised to purchase shares of the Company's common stock at 140% of
offering price of the Company's planned public offering.
F-17
<PAGE>
12. 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 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 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. During 1999, the above plan grant was reduced to a total of
300,000 options. Each of the individual grants were reduced on a
pro-rata basis. As a result, 283,078 options are exercisable at $5 per
share and 16,922 are exercisable at $.001 per share. No determinations
have been made regarding the persons to whom options will be granted in
the future or the option exercise prices.
13. PLANNED ACQUISITION
During 1999, the Company signed a letter of intent to acquire Village
Ventures, Inc. ("Village"). Village is engaged in site preparation,
underground utilities and residential and commercial sewage systems
throughout northern and central Florida. Under the terms of the
proposed agreement, Weststar would acquire 100% of the common stock of
Village in exchange for 83,333 shares of Weststar's common stock. In
addition, Weststar would pay the sellers between $800,000 and $900,000
in cash upon closing of the planned public offering, dependent upon the
amount of debt assumed.
14. INTERIM FINANCIAL INFORMATION (UNAUDITED)
CONVERTIBLE PROMISSORY NOTE
On May 23, 2000, the Company entered into a secured convertible
promissory note in the amount of $150,000, which is payable December
31, 2000. The note, which bears no nominal rate of interest, is secured
by the Company's accounts receivable. The note is convertible, at the
option of the holder, into 150,000 shares of the Company's common
stock. In accordance with EITF Issue 98-5, the conversion feature has
been valued at the difference between the expected $6 offering price of
the Company's common stock and the $1 per share conversion price, not
to exceed the $150,000 of proceeds received. The value of the
conversion feature is being amortized over a six-month period. Interest
expense related to the value of the conversion feature was $100,000 for
the nine-month period ended September 30, 2000. Based on the value of
the conversion feature, the imputed interest rate of the note is 133%.
F-18
<PAGE>
14. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
PROMISSORY NOTES
During January through March 2000, the Company entered into a series of
unsecured promissory notes totaling $250,000. The notes bear interest
between 8.5% and 10.5% and are payable one year from the date of
issuance or upon effectiveness of the Company's planned registration
statement, whichever is earlier. As additional consideration, the
Lenders received a total of 8,000 shares of the Company's common stock.
The shares issued have been valued at $48,000 based on the expected $6
per share offering price of the Company's common stock. This additional
interest cost is being amortized over a period of nine to ten months.
Additional interest expense related to the value of the shares issued
totaled $37,733 for the nine-month period ended September 30, 2000. In
addition, upon completion of the Company's initial public offering, the
Lenders shall receive warrants to purchase 8,333 shares of the
Company's common stock at 140% of the IPO price and fees of $16,000.
BUSINESS COMBINATIONS
Effective March 10, 2000, the Company acquired Pipeline Contractors,
Inc. ("Pipeline"). Pipeline is a road-related construction contractor
which does business in northern and central Florida. Under the terms of
the agreement, Weststar acquired 100% of Pipeline's common stock in
exchange for 100,000 shares of Weststar's common stock. In addition,
Weststar entered into a $300,000 covenant not-to-compete agreement with
the former shareholders of Pipeline, payable in the amount of $50,000
per year over five years. The business combination has been recorded as
a purchase. Cost in excess of fair market value of net assets acquired
has been recorded as goodwill.
Effective June 1, 2000, the Company acquired Wealing Brothers, Inc.
("Wealing"). Wealing is engaged in site preparation, dredging,
non-hazardous waste transportation and sludge recycling throughout the
Indiana and Michigan area. Under the terms of the agreement, Weststar
acquired 100% of Wealing's common stock in exchange for 82,500 shares
of Weststar's common stock plus a $360,000 note, payable within one
year. The business combination has been recorded as a purchase. Cost in
excess of fair market value of net assets acquired has been recorded as
goodwill.
The following unaudited information has been prepared on a pro forma
basis as if the businesses of Pipeline and Wealing had been acquired as
of the beginning of the year ended December 31, 1999:
<TABLE>
<S> <C>
Revenues $6,458,160
==========
Net income $ 656,598
==========
Pro forma income taxes $ 229,809
==========
Pro forma net income $ 426,789
==========
Basic earnings per share $ 0.23
==========
Weighted average common shares 1,856,451
==========
</TABLE>
F-19
<PAGE>
14. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
BUSINESS COMBINATIONS (CONTINUED)
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating
results that would have occurred had the Pipeline and Wealing
acquisitions been consummated as of the beginning of the period
presented, nor are they necessarily indicative of future operating
results.
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by management's estimate of
the percentage of total costs incurred to-date to estimated total
contract costs for each contract.
Contract costs include all direct material and labor and those indirect
costs related to contract performance. Changes in job performance, job
conditions, estimated profitability, and final contract settlements may
result in revisions to costs and income and are recognized in the
period in which the revisions are determined.
Accounts receivable from construction contracts includes revenues
recognized in excess of amounts billed.
SEGMENT INFORMATION
Effective with the acquisition of Pipeline on March 10, 2000, Weststar
has two reportable segments: waste management and construction. The
waste management segment provides non-hazardous, liquid waste
management services and engages in installation and repair of waste
disposal and waste water treatment systems for governmental, commercial
and residential customers. The construction segment is engaged in
underground utilities and site preparation construction.
The accounting policies of the segments are the same as described in
the summary of significant accounting policies. There were no
inter-segment sales or transfers during the periods presented.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each business requires different technology and marketing
strategies. The businesses have been acquired as a unit, and the
management at the time of the acquisition has been retained.
The following is a summary of segment revenues, expenses, profit or
loss and assets:
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED WASTE
SEPTEMBER 30, 2000 MANAGEMENT CONSTRUCTION TOTAL
-------------------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Revenues $1,305,069 $1,555,306 $2,860,375
Interest expense $ 229,907 $ 27,659 $ 257,566
Depreciation and amortization $ 226,604 $ 40,700 $ 267,304
Segment profit (loss) $ (61,130) $ 195,657 $ 134,527
Segment assets $4,679,300 $1,166,142 $5,845,442
Expenditures for segment assets $ 218,329 $ - $ 218,329
</TABLE>
F-20
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma condensed consolidated financial statements have been
prepared to give effect to the offering and the acquisition of Village Ventures,
Inc. ("Village"), as if the transactions had taken place at September 30, 2000
for the pro forma condensed consolidated balance sheet, and to give effect to
the offering and the acquisitions of Village, Wealing Brothers, Inc. ("Wealing")
and Pipeline Contractors, Inc. ("Pipeline"), as if the transactions had taken
place at January 1, 1999 for the pro forma condensed consolidated statements of
income for the year ended December 31, 1999 and as of January 1, 2000 for the
nine-month period ended September 30, 2000.
The pro forma information is based on historical financial statements giving
effect to the proposed transactions using the purchase method of accounting and
the assumptions and adjustments in the accompanying notes to the pro forma
financial statements.
The unaudited pro forma financial information is not necessarily indicative of
the actual results of operations or the financial position which would have been
attained had the acquisitions been consummated at either of the foregoing dates
or which may be attained in the future. The pro forma financial information
should be read in conjunction with the historical consolidated financial
statements of Weststar Environmental, Inc. and subsidiaries.
F-21
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2000
ASSETS
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS
-------------------------------------------------- PRO FORMA PRO FORMA
WESTSTAR PIPELINE WEALING VILLAGE ADJUSTMENTS CONSOLIDATED
---------- -------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash $ 51,190 $ -- $ -- $ 51,582 (a) $ 1,253,881 $1,356,653
Accounts receivable 1,136,081 -- -- 111,560 -- 1,247,641
Inventories -- -- -- 25,335 -- 25,335
Prepaid expenses 156,824 -- -- 5,625 -- 162,449
Due from affiliates 37,702 -- -- -- -- 37,702
----------- ----------- ---------- ----------- ----------- ----------
Total current assets 1,381,797 -- -- 194,102 1,253,881 2,829,780
----------- ----------- ---------- ----------- ----------- ----------
Property and equipment, net 2,277,726 -- -- 857,470 -- 3,135,196
----------- ----------- ---------- ----------- ----------- ----------
Other assets:
Deferred charges 69,326 -- -- 17,280 (b) (50,000) 36,606
Deferred offering costs 715,620 -- -- -- (c) (715,620) --
Goodwill 1,139,168 -- -- -- (b) 1,289,062 2,428,230
Covenant not-to-compete 300,000 -- -- -- -- 300,000
Accumulated amortization (67,385) -- -- -- -- (67,385)
----------- ----------- --------- ---------- ----------- ----------
Total other assets 2,156,729 -- -- 17,280 523,442 2,697,451
----------- ----------- --------- ---------- ----------- ----------
Total assets $ 5,816,252 $ -- $ -- $1,068,852 $ 1,777,323 $8,662,427
=========== =========== ========= ========== =========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Notes payable $ 1,261,152 $ -- $ -- $ -- (a) $(1,261,152) $ --
Current maturities of long-term debt 581,939 -- -- 207,433 (a) (581,939) 207,433
Accounts payable 696,154 -- -- 69,598 -- 765,752
Accrued expenses 183,034 -- -- 31,890 -- 214,924
Stockholder loans 569,687 -- -- 6,426 (a) (569,687) 6,426
----------- ----------- --------- ---------- ----------- ----------
Total current liabilities 3,291,966 -- -- 315,347 (2,412,778) 1,194,535
----------- ----------- --------- ---------- ----------- ----------
Long-term debt, net of current maturities 427,583 -- -- 607,311 (a) (275,583) 759,311
Other long-term liabilities 281,376 -- -- -- -- 281,376
----------- ---------- --------- ---------- ----------- ----------
708,959 -- -- 607,311 (275,583) 1,040,687
----------- ----------- --------- ---------- ----------- ----------
Total liabilities 4,000,925 -- -- 922,658 (2,688,361) 2,235,222
----------- ----------- --------- ---------- ----------- ----------
Stockholders' equity:
Common stock 1,883 -- -- 800 (c) 283 2,966
Additional paid-in capital 1,379,442 -- -- 16,515 (c) 4,594,280 5,990,237
Treasury stock (12,500) -- -- -- -- (12,500)
Retained earnings 446,502 -- -- 128,879 (c) (128,879) 446,502
----------- ---------- ----------- ---------- ----------- ----------
Total stockholders' equity 1,815,327 -- -- 146,194 4,465,684 6,427,205
----------- ---------- ----------- ---------- ----------- ----------
Total liabilities and stockholders'
equity $ 5,816,252 $ -- $ -- $1,068,852 $1,777,323 $8,662,427
=========== ========== =========== ========== =========== ==========
</TABLE>
See notes to pro forma condensed consolidated financial statements
F-22
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS
--------------------------------------------------------- PRO FORMA PRO FORMA
WESTSTAR PIPELINE WEALING VILLAGE ADJUSTMENTS CONSOLIDATED
---------- --------- --------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $2,860,375 $449,881 $494,276 $1,396,885 $ -- $5,201,417
Direct costs 2,016,952 396,065 238,606 759,625 (d) 30,000 3,441,248
---------- -------- -------- ---------- --------- ----------
Gross profit 843,423 53,816 255,670 637,260 (30,000) 1,760,169
Selling and administrative expenses 451,330 17,899 185,264 461,206 (e) 99,027 1,214,726
---------- -------- -------- ---------- --------- ----------
Income from operations 392,093 35,917 70,406 176,054 (129,027) 545,443
Interest expense 257,566 3,884 8,379 54,870 (f) 12,750 337,449
---------- -------- -------- ---------- --------- ----------
Income before income taxes 134,527 32,033 62,027 121,184 (141,777) 207,994
Income taxes -- -- -- 42,414 (g) 30,384 72,798
---------- -------- -------- ---------- --------- ----------
Net income $ 134,527 $ 32,033 $ 62,027 $ 78,770 $(172,161) $ 135,196
========= ======== ======== ========== ========= ==========
Income before income taxes $ 134,527 $ 207,994
Pro forma income taxes 47,000 72,798
---------- ----------
Pro forma net income $ 87,527 $ 135,196
========== ==========
Pro forma earnings per share $ 0.05 $ 0.05
========== ==========
Weighted average shares outstanding 1,763,095 2,846,428
========== ==========
</TABLE>
See notes to pro forma condensed consolidated financial statements
F-23
<PAGE>
<TABLE>
<CAPTION>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
HISTORICAL FINANCIAL STATEMENTS
--------------------------------------------------------- PRO FORMA PRO FORMA
WESTSTAR PIPELINE WEALING VILLAGE ADJUSTMENTS CONSOLIDATED
----------- ----------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,726,614 $3,375,356 $1,356,190 $2,013,748 $ -- $8,471,908
Direct costs 1,145,854 2,991,036 874,464 1,383,945 (d) 80,000 6,475,299
---------- ---------- ---------- ---------- -------- ----------
Gross profit 580,760 384,320 481,726 629,803 (80,000) 1,996,609
Selling and administrative expenses 285,054 74,019 242,205 345,973 (e) 198,402 1,145,653
---------- ---------- ---------- ---------- -------- ----------
Income from operations 295,706 310,301 239,521 283,830 (278,402) 850,956
Interest expense 102,678 16,309 19,637 90,913 (f) 17,000 246,537
---------- ---------- ---------- ---------- --------- ----------
Income before income taxes 193,028 293,992 219,884 192,917 (295,402) 604,419
Income taxes -- -- 69,988 -- (g) 134,587 204,575
---------- ---------- ---------- ---------- --------- ----------
Income before extraordinary item 193,028 293,992 149,896 192,917 (429,989) 399,844
Gain on debt extinguishment -- 166,091 -- -- (g) (58,132) 107,959
---------- --------- ---------- ---------- --------- ----------
Net income $ 193,028 $ 460,083 $ 149,896 $ 192,917 $(488,121) $ 507,803
========== ========= ========== ========== ========= ==========
Income before income taxes $ 193,028 $ 604,419
Pro forma income taxes 66,000 204,575
---------- ----------
Pro forma income before extraordinary
item 127,028 399,844
Gain on debt extinguishment -- 107,959
---------- ----------
Pro forma net income $ 127,028 $ 507,803
========== ==========
Pro forma earnings per share:
Income before extraordinary item $ 0.08 $ 0.14
Extraordinary item -- 0.03
---------- ----------
Net income $ 0.08 $ 0.17
========== ==========
Weighted average shares outstanding 1,673,951 2,939,784
========== ==========
See notes to pro forma condensed consolidated financial statements
F-24
</TABLE>
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma adjustments are incorporated into the pro forma
condensed consolidated balance sheet as of September 30, 2000 and the pro forma
condensed consolidated statements of income for the nine-month period ended
September 30, 2000. We do not assume any interest income on the excess proceeds
of the offering.
(a) Reflects increases in cash as a result of the sale of 1,000,000 shares of
common stock at $6.00 per share or $6,000,000, and deducting the
underwriting discount and related expenses of $780,000. Also, reflects the
acquisition of Village Ventures, Inc. and the retirement of certain
indebtedness of the Company and that of the company to be acquired.
Cash:
Estimated proceeds, net $4,827,500
Repayment of unsecured notes payable (901,152)
Repayment of long-term debt, including current
portion of long-term debt (857,522)
Repayment of stockholder loans (569,687)
Acquisition of Village Ventures, Inc., including
related expenses (885,258)
Payment of debt arising from acquisition of
Wealing Brothers, Inc. (360,000)
-------
(3,573,619)
----------
$1,253,881
==========
(b) The following pro forma adjustments reflect the elimination of the
investment in Village. The acquisition is accounted for as purchases and
the assets have been accounted for at their estimated fair value. The
excess of the total acquisition cost over the estimated fair value is
included in intangibles. The pro forma acquisition and adjustments are
summarized as follows:
Village Ventures, Inc.
Reflects the issuance of 83,333 shares of Weststar's common stock to
purchase all outstanding shares of Village Ventures, Inc. The share
issuance has been recorded at the estimated fair value of $6.00 per share.
The acquisition of Village is accounted for as a purchase and the assets
have been accounted for at their fair value. The excess of the total
acquisition cost over the estimated fair value is included in intangibles.
Stock purchase price $499,998
Cash payments 50,000
Payment of note payable 885,258
--------
Less: adjusted net assets acquired 1,435,256
Excess cost of net assets acquired 146,194
over estimated fair value ----------
$1,289,062
==========
F-25
<PAGE>
(c) Reflects the pro forma adjustments and transactions relating to
stockholders' equity as a result of the following:
Common stock:
Proceeds from the offering $ 1,000
Stock issued in acquisitions 83
Elimination of common stock of Village (800)
-----------
$ 283
===========
Additional paid-in capital:
Proceeds from the offering $ 5,999,000
Stock issued in acquisitions 499,915
Elimination of additional paid-in capital of Village (16,515)
Offering costs (1,888,120)
-----------
$ 4,594,280
===========
Retained earnings:
Elimination of retained earnings of Village $ (128,879)
===========
(d) Reflects depreciation expense resulting from an adjustment to the carrying
value of the acquired equipment. Depreciation is being recorded over a
5-year estimated useful life.
(e) Reflects the effect of amortization of goodwill and of covenant
not-to-compete recorded in connection with the purchase acquisitions. The
excess cost of net assets acquired over estimated fair value is being
amortized over a 15-year period. The covenant not-to-compete is being
amortized over a 5-year period.
(f) Reflects the interest expense on the notes payable acquired through the
acquisition at 8.5%.
(g) Reflects the pro forma effect on income taxes of the business combination
as if the companies had been taxable corporations during the period.
F-26
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Pipeline Contractors, Inc.
Starke, Florida
We have audited the accompanying balance sheet of Pipeline Contractors, Inc. (an
S Corporation) as of December 31,1999 and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pipeline Contractors, Inc. as
of December 31,1999 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial
statements of the Company, taken as a whole. The information included in the
accompanying schedule is presented only for supplementary analysis purposes.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements, and, in our opinion is fairly stated,
in all material respects, in relation to the financial statements taken as a
whole.
Pipeline Contractors, Inc., with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S Corporation. In lieu of corporation
income taxes, the shareholders of an S Corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
February 2, 2000
F-27
<PAGE>
PIPELINE CONTRACTORS,INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets:
Cash $ 15,619
Accounts receivable-net 252,210
Due from employees 2,380
Retainage 211,825
Inventory 2,405
Costs and estimated earnings in excess
of billings on uncompleted contracts 144,282
Stockholder loan 15,103
--------
Total current assets 643,824
Property and equipment-net 131,394
--------
Total assets $775,218
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Postpetition payables $239,075
Postpetition payroll taxes payable 68,919
Current portion of long-term debt 39,097
--------
Total current liabilities 347,091
--------
Long-term liabilities:
Prepitition payables 196,805
Prepetition payroll taxes payable 191,067
Long-term debt 70,250
--------
Total long-term liabilities 458,122
--------
Total liabilities 805,213
--------
Stockholders' equity:
Common stock, $5 par value, 100 shares
authorized, issued and outstanding 500
Retained earnings (30,495)
--------
Total stockholders' equity (29,995)
--------
Total liabilities and stockholders' equity $775,218
========
F-28
<PAGE>
PIPELINE CONTRACTORS,INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999
Contract revenues earned $3,375,356
Cost of revenues earned 2,933,979
-----------
Gross profit 441,377
-----------
Operating expenses:
Accounting and legal 2,465
Advertising 441
Bank charges 943
Depreciation 57,057
Interest 16,309
Miscellaneous expense 1,075
Office expenses 13,219
Payroll expenses 11,597
Repairs 2,020
Telephone 21,000
Trustee fees 20,800
Utilities 2,143
-----------
Total expenses 149,069
-----------
Income from operations 292,308
-----------
Other income:
Miscellaneous income 1,684
-----------
1,684
-----------
Income before extraordinary item 293,992
Extraordinary item - Forgiveness of debt due to confirmation
of bankruptcy 166,091
-----------
Net income 460,083
Beginning deficit in retained earnings (490,578)
-----------
Ending deficit in retained earnings ($30,495)
===========
F-29
<PAGE>
PIPELINE CONTRACTORS,INC.
STATEMENT OF CASH FLOWS
DECEMBER 31, 1999
Cash flows from operating activities:
Net income $460,083
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 57,057
(Increase) decrease in:
Accounts receivable (178,515)
Retainage (66,342)
Costs and estimated earnings in excess of
billings on uncompleted contracts (113,052)
Other current assets (2,380)
Increase (decrease) in:
Accounts payable (28,169)
Accrued Salaries (2,595)
Billings in excess of costs and estimated
earnings on uncompleted contracts (114,796)
Payroll Taxes Payable 1,813
---------
Net cash provided (used) by operating activities 13,104
---------
Cash flows from investing activities:
Purchases of property and equipment (1,225)
---------
Net cash used by investing activities (1,225)
---------
Cash flows used for financing activities:
Principal Payments on Long-Term Debt (31,636)
Advances from Stockholder 3,001
Repayments to Stockholder (6,500)
---------
Net cash used by financing activities (35,135)
---------
Net decrease in cash (23,256)
Cash at beginning of year 38,876
---------
Cash at end of year $15,620
=========
SUPPLEMENTAL DISCLOSURES
Interest Paid $16,309
Income Taxes Paid --
F-30
The accompanying notes are an integral part of this statement.
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Pipeline Contractors,
Inc.(the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the Company's management who is 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 financial
statements.
Business Activity
The Company is a corporation engaged in road-related construction. The work is
generally performed under fixed price contracts. Credit is extended to various
customers throughout the North Central Florida area.
Revenue and Cost Recognition
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by management's estimate of the
percentage of total costs incurred to-date to estimated total contract costs for
each contract.
Contract costs include all direct material and labor and those indirect costs
related to contract performance. Changes in job performance, job conditions,
estimated profitability, and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions are
determined.
The asset, "Costs and Estimated Earnings in Excess of Billings on Uncompleted
Contracts", represents revenues recognized in excess of amounts billed. The
liability, "Billings in Excess of Costs and Estimated Earnings on Uncompleted
Contracts", represents billings in excess of revenues recognized.
Cash And Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
F-31
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
Accounts considered to be uncollectible are written-off prior to year-end.
Accounts receivable are all considered to be collectible at December 31,1999.
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 the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
Inventory
Inventory is stated at cost; under the first-in, first-out method; which is not
in excess of market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on machinery and
vehicles is computed using the straight-line method over estimated useful lives
of five (5) and seven (7) years. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead, the stockholders are
liable for individual federal income taxes on their respective shares of the
Company's income on their individual income tax returns.
F-32
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 2 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information regarding contracts in progress at December 31,1999 is as follows:
Expenditures on Uncompleted Contracts 1,615,999
Estimated Earnings Thereon 230,144
---------
Total Costs and Estimated Earnings 1,846,143
Less: Billings to Date 1,701,861
---------
Net 144,282
=========
Included in the accompanying Balance Sheet under the following captions:
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts 144,282
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts --
-------
Net 144,282
=======
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 1999:
Machinery and Equipment 377,493
Vehicles 102,126
Less: Accumulated Depreciation (348,225)
--------
Total 131,394
========
F-33
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 4 - LONG-TERM DEBT
Following is a summary of long-term debt at December 31,1999:
Prime + 1% Note for working capital;
Payable $3,533 Monthly,Plus Interest $ 50,357
9.0% Note collateralized by Equipment;
Payable $2,535 Monthly, Including Interest 37,308
9.48 % Note collateralized by 1997 Ford Truck;
Payable $540 Monthly, Including Interest 3,057
Prime + 1.0% Note for working capital
Payable $3,228 Monthly including interest 13,103
9.30% Note collateralized by Truck
Payable $417.88 Monthly,Including Interest 5,522
109,347
Less Current Portion ( 39,097)
--------
Long-term Debt $ 70,250
========
Following is a schedule of the debt requirements as of December 31, 1999:
2000 2001 2002 Total
------ ------ ------ -------
Principal 39,097 34,251 35,999 109,347
Interest 7,779 5,059 2,850 15,688
------ ------ ------ -------
Total 46,876 39,310 38,849 125,035
====== ====== ====== =======
F-34
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 5 - RELATED PARTY TRANSACTIONS
A BUILDING AND CERTAIN EQUIPMENT WAS RENTED FROM RON DENMARK, A 100% STOCKHOLDER
DURING 1999 AMOUNTING TO $ 141,797.
NOTE 6 - OPERATING LEASE AGREEMENT
The Company leases a vehicle under a noncancelable lease. The lease is for 38
months beginning August 27,1998. Total rent expense for the year was $ 6,336.
Minimum rents due under the lease are as follows:
Year ending December 31,
2000 $6,336
2001 5,280
-------
Total $11,616
=======
NOTE 7 - STOCKHOLDER LOAN
The stockholder loan amounting to $ 15,103 is due on demand, bears interest at
prime + 1%, and is unsecured.
NOTE 8 - RECLASSIFICATIONS
As a result of filing bankruptcy in 1998, the Company has reorganized its debt
repayments over a period of years. Certain payables and Federal payroll taxes
have been reclassified as long term on the balance sheet.
NOTE 9 - SUBSEQUENT EVENT
The Company signed a letter of intent to sell all of its common stock to
Weststar Environmental,Inc. The sale is planned to take place in year 2000.
F-35
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 10 - PLAN OF REORGANIZATION
On October 19, 1999 the Bankruptcy Court confirmed the Company's plan of
reorganization. The confirmed plan provided for the following:
Priority Tax Claims - Payroll and withholding taxes of $78,281.34 are payable to
the Internal Revenue Service in 72 equal monthly installments of $1,372.52
including interest at 8%. Florida Department of Revenue will be paid for state
taxes of $4,208.11 in monthly installments of $71.75 over 72 months at 7%
interest.
Secured Tax Claims - Payroll and withholding taxes of $139,000.00 are payable to
the Internal Revenue Service in 60 equal monthly installments of $2,824.97 at 8%
interest.
Secured Claim of SunTrust Bank - At the time of filing of the petition, SunTrust
Bank was owed approximately $121,182.49 for loans secured by various pieces of
equipment as well as security interests in the Debtor's inventory and accounts
receivable. The Debtor believes that this creditor is fully secured. The Debtor
entered into an adequate protection agreement with this creditor, which called
for monthly payments of $2,927.81. The Debtor granted this creditor a post
petition security interest in its inventory, equipment and accounts receivable.
The Debtor proposes to continue with this treatment throughout the term of the
Plan, until the various loans have either been retired or may ultimately be
negotiated between the parties.
Secured Claim of SunTrust Bank(Vehicle) - At the time of the filing
SunTrust was also owed approximately $8,971 on a purchase money security
interest in a 1997 Ford F150 pickup truck. The monthly installment payment on
this loan is $540.06. The Debtor has continued to make these payments as
adequate protection to this creditor. It is the Debtor's intention to sell this
vehicle and either pay the entire existing balance in full or to transfer the
loan balance to another vehicle, which will be financed by SunTrust. The Debtor
has filed a motion to incur new indebtedness which is now pending before the
Court. The Debtor will continue to make the regular installment payments until
the trade-in or sale is affected.
F-36
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 10 - PLAN OF REORGANIZATION (CONCLUDED)
Secured Claim of Nations Bank - Nations Bank was owed approximately $10,804 at
the time of filing of the petition. This debt is secured by a security interest
in a 1996 Ford F150. The Debtor is proposing to either sell or trade this
vehicle in on a new truck. This creditor will be paid in full from the sale
proceeds. It is anticipated that this vehicle will be traded in conjunction with
the vehicle subject to SunTrust's lien. The Debtor will continue making the
scheduled monthly payment of $417.88 to this creditor until the sale/trade-in is
accomplished.
Unsecured Claims - At the time of filing, the Debtor scheduled $537,782.34 in
unsecured debt. Many of the unsecured creditors' debts arose as a result of the
termination of the Putnam County job in 1998. This job was bonded and the
bonding company has paid many of the creditors. The Court has ordered the Debtor
to pay the remainder unsecured creditors $200,000, payable over 5 years at
$40,000 annually, with monthly installments of $3,333.33.
Executory Contracts - The Debtor assumed any and all executory contracts that it
had at the time of the filing of its petition, or currently has.
F-37
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Pipeline Contractors, Inc.
Starke, Florida
We have audited the accompanying balance sheet of Pipeline Contractors, Inc. (an
S Corporation) as of December 31,1998 and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pipeline Contractors, Inc. as
of December 31,1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the financial
statements of the Company, taken as a whole. The information included in the
accompanying schedule is presented only for supplementary analysis purposes.
Such information has been subjected to the auditing procedures applied in the
audit of the basic financial statements, and, in our opinion is fairly stated,
in all material respects, in relation to the financial statements taken as a
whole.
Pipeline Contractors, Inc., with the consent of its shareholders, has elected
under the Internal Revenue Code to be an S Corporation. In lieu of corporation
income taxes, the shareholders of an S Corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
FEBRUARY 2, 2000
F-38
<PAGE>
PIPELINE CONTRACTORS,INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash $38,876
Accounts Receivable-Net 73,695
Retainage 145,483
Inventory 2,405
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 31,230
Stockholder Loan 11,605
---------
TOTAL CURRENT ASSETS 303,294
---------
PROPERTY AND EQUIPMENT-NET 187,225
---------
TOTAL ASSETS $490,519
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $297,958
Accrued Payroll 2,595
Payroll Taxes Payable 258,173
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts 114,796
Current Portion of Long-Term Debt 31,638
---------
TOTAL CURRENT LIABILITIES 705,160
LIABILITIES SUBJECT TO COMPROMISE (a) 166,091
LONG-TERM DEBT 109,346
---------
TOTAL LIABILITIES 980,597
---------
STOCKHOLDERS' EQUITY:
Common Stock, $5 par value, 100 shares
authorized, issued and outstanding 500
Deficit in Retained Earnings (490,578)
---------
TOTAL STOCKHOLDERS' DEFICIT (490,078)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $490,519
=========
(a) Liabilities subject to compromise consist of unsecured claims.
F-39
The accompanying notes are an integral part of this statement.
<PAGE>
PIPELINE CONTRACTORS,INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
CONTRACT REVENUES EARNED $2,383,051
COST OF REVENUES EARNED 2,870,899
-----------
GROSS PROFIT (487,848)
-----------
OPERATING EXPENSES:
Accounting and Legal 32,368
Auto and Truck 1,449
Advertising 877
Bad Debt Expense 2,540
Bank Charges 1,725
Depreciation 56,562
Dues and Subscriptions 852
Interest 48,253
Miscellaneous Expense 1,388
Office Expenses 27,767
Rents 433
Repairs 1,268
Telephone 21,617
Travel 119
Utilities 2,899
-----------
TOTAL EXPENSES 200,117
-----------
LOSS FROM OPERATIONS -687,965
OTHER INCOME/EXPENSES
Loss on Disposal of Asset (3,513)
-----------
NET LOSS (691,478)
BEGINNING RETAINED EARNINGS,as previously reported 224,299
PRIOR PERIOD ADJUSTMENT (23,399)
-----------
ENDING DEFICIT IN RETAINED EARNINGS ($490,578)
===========
F-40
<PAGE>
PIPELINE CONTRACTORS,INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF CASH FLOWS
DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($687,965)
Adjustments to reconcile net income to net cash
provided by operating activities
Prior period adjustments (23,399)
Depreciation 56,562
(Increase) decrease in:
Accounts receivable 103,765
Retainage 79,766
Inventory (405)
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,602
Other current assets 557
Increase (decrease) in:
Accounts payable 266,295
Accrued Salaries (7,414)
Billings in excess of costs and estimated
earnings on uncompleted contracts 72,684
Accrued expenses 157,040
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,088
---------
CASH FLOWS FROM INVESTING ACTIVITES:
Sales of property and equipment 19,885
Purchases of property and equipment (23,705)
---------
NET CASH USED BY INVESTING ACTIVITIES (3,820)
---------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Principal Payments on Long-Term Debt (98,634)
Proceeds from Notes Payable 96,326
Advances from Stockhlder 65,000
Repayments to Stockholder (101,307)
---------
NET CASH USED BY FINANCING ACTIVITIES (38,615)
---------
NET DECREASE IN CASH (15,347)
CASH AT BEGINNING OF YEAR 54,223
---------
CASH AT END OF YEAR $38,876
=========
SUPPLEMENTAL DISCLOSURES:
Interest Paid $48,253
Income Taxes Paid --
F-41
The accompanying notes are an integral part of this statement.
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Pipeline Contractors, Inc.
(the Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is 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 financial
statements.
Business Activity
The Company is a corporation engaged in road-related construction. The work is
generally performed under fixed price contracts. Credit is extended to various
customers throughout the North Central Florida area.
Revenue and Cost Recognition
The Company recognizes revenues from fixed-price and modified fixed-price
construction contracts on the percentage of completion method, measured by the
percentage of cost incurred to date to estimated total cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that
estimates used will change within the near term. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs, and depreciation.
Selling, general, and administrative costs are charged as expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period
in which losses are determined. Changes in job performance, job conditions, and
estimated profitability may result in revisions to costs and income, which are
recognized in the period in which the revisions are determined. Changes in
estimated job profitability resulting from job performance, job conditions,
contract penalty provisions, claims, change orders, and settlements, are
accounted for as changes in estimates in the current period. The asset, "Costs
and Estimated Earnings in Excess of Billings on Uncompleted Contracts",
represents revenues recognized in excess of amounts billed. The liability,
"Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts",
represents billings in excess of revenues recognized.
F-42
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
Accounts considered to be uncollectible are written-off prior to year-end.
Accounts receivable are all considered to be collectible at December 31,1998.
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 the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
Inventory
Inventory is stated at cost; under the first-in, first-out method; which is not
in excess of market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on machinery and
vehicles is computed using the straight-line method over estimated useful lives
of five (5) and seven (7) years. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead, the stockholders are
liable for individual federal income taxes on their respective shares of the
Company's income on their individual income tax returns.
Cash And Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
F-43
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 2 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information regarding contracts in progress at December 31,1998 is as follows:
Expenditures on Uncompleted Contracts 508,152
Estimated Earnings Thereon (27,953)
-------
Total Costs and Estimated Earnings 480,199
Less: Billings to Date 563,765
-------
Net (83,566)
=======
Included in the accompanying Balance Sheet under the following captions:
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts 31,230
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts 114,796
-------
Net (83,566)
=======
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 1998:
Machinery and Equipment 376,268
Vehicles 102,126
Less: Accumulated Depreciation (291,169)
--------
Total 187,225
========
F-44
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 4 - LONG-TERM DEBT
Following is a summary of long-term debt at December 31,1998:
Prime +1% Note for working capital;
Payable $3,532.78 Monthly,Plus Interest $ 49,700
9.0% Note collateralized by Equipment;
Payable $2,535 Monthly, Including Interest 35,810
9.48 % Note collateralized by 1997 Ford Truck;
Payable $540 Monthly, Including Interest 9,924
Prime + 1% Note for working capital
Payable $3,227.81 Monthly including interest 35,425
9.3 % Note collateralized by Truck
Payable $417.88 Monthly,Including Interest 10,125
------
140,984
Less Current Portion (31,638)
--------
Long-term Debt $109,346
========
Following is a schedule of the debt requirements as of December 31, 1998:
1999 2000 2001 2002 Total
------ ------ ------ ------ -------
Principal 31,638 39,097 34,251 35,998 140,984
Interest 11,493 7,779 5,059 2,850 27,181
------ ------ ------ ------ -------
Total 43,131 46,876 39,310 38,848 168,165
====== ====== ====== ====== =======
F-45
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 5 - RELATED PARTY TRANSACTIONS
A BUILDING AND CERTAIN EQUIPMENT WAS RENTED FROM RON DENMARK, A 100% STOCKHOLDER
DURING 1998 AMOUNTING TO $131,960.
NOTE 6 - OPERATING LEASE AGREEMENT
The Company leases a vehicle under a noncancelable lease. The lease is for 38
months beginning August 27,1998. Total rent expense for the year was $2,640.
Minimum rents due under the lease are as follows:
Year ending December 31,
1999 $ 6,336
2000 6,336
2001 5,280
-------
Total $17,952
=======
NOTE 7 - STOCKHOLDER LOAN
The stockholder loan amounting to $11,605 is due on demand, bears interest at
prime + 1 %, and is unsecured.
NOTE 8 - GOING CONCERN
The Company incurred a loss of $691,478 during 1998, and ending retained
earnings was a negative $490,578. The direct cause of the loss was due to a
contract in which costs were incurred and payment was not made. The Company was
forced into bankruptcy and is currently in reorganization. It was noted that the
Company incurred net profits in 1999 and retained earnings has been restored to
a positive amount for the year then ended.
F-46
<PAGE>
PIPELINE CONTRACTORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 9 - PRIOR PERIOD ADJUSTMENTS
Certain errors, resulting in both the overstatement and understatement of
previously reported assets, liabilities and expenses of the prior year were
corrected this year, resulting in the following changes to retained earnings as
of December 31,1997:
Retained
Earnings
--------
As previously reported,December 31,1997 $ 224,299
Equipment written off in 1997 ( 26,000)
Associated Accumulated Depreciation 2,600
---------
As adjusted $ 200,899
=========
NOTE 10 - PETITION FOR RELIEF UNDER CHAPTER 11
On December 4, 1998 Pipeline Contractors, Inc. (the Debtor) filed petitions for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Middle District of Florida. Under Chapter 11, certain
claims against the Debtor in existence prior to the filing of the petitions for
relief under the federal bankruptcy laws are stayed while the Debtor continues
business operations as Debtor-in-possession. These claims are reflected in the
December 31,1998 balance sheet as "liabilities subject to compromise".
Additional claims (liabilities subject to compromise) may arise subsequent to
the filing date resulting from rejection of executory contracts, including
leases, and from the determination by the court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed amounts. Claims
secured against the Debtor's (secured claims) also are stayed, although the
holders of such claims have the right to move the court for relief from the
stay. Secured claims are secured primarily by liens on the Debtor's property,
plant, and equipment.
F-47
<PAGE>
PIPELINE CONTRACTORS, INC.
STATEMENT OF INCOME
(UNAUDITED)
FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 9, 2000
Sales $449,881
Direct costs 396,065
---------
Gross profit 53,816
Selling and administrative expenses 17,899
---------
Income from operations 35,917
Interest expense (3,884)
---------
Income before income taxes 32,033
Income taxes --
---------
Net income $32,033
=========
F-48
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Wealing Brothers, Inc.
Fowler, Indiana
We have audited the accompanying balance sheet of Wealing Brother, Inc. (an C
Corporation) as of December 31,1999 and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wealing Brothers, Inc. as of
December 31,1999 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
JANUARY 25, 2000
F-49
<PAGE>
WEALING BROTHERS, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets:
Cash $ 23,855
Accounts receivable-net 275,629
Retainage 17,000
Loans to shareholders 39,643
Inventory 24,558
Prepaid assets 20,050
--------
Total current assets 400,735
Property and equipment-net 337,723
--------
Total assets $738,458
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,589
Accrued wages 409
Payroll taxes payable 2,818
Accrued interest 2,682
Loan from shareholder 23,000
Deferred income taxes 78,048
Current portion of long-term debt 49,602
--------
Total current liabilities 253,148
--------
Long-term liabilities:
Long-term debt 91,272
--------
Total long-term liabilities 91,272
--------
Total liabilities 344,420
--------
Stockholders' equity:
Common stock, $0 par value,100 shares
authorized, issued and outstanding 0
Additional paid-in capital 178,493
Retained earnings 215,545
--------
Total stockholders' equity 394,038
--------
Total liabilities and stockholders' equity $738,458
See notes to financial statements
F-50
<PAGE>
WEALING BROTHERS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999
Sales $1,356,190
Cost of Sales 874,464
----------
Gross profit 481,726
----------
Operating expenses:
Officer Salary 79,557
Payroll Taxes 18,920
Rent 14,200
Repairs and Maintenance 41,308
Telephone & Utilities 36,533
Legal and Professional 18,104
General & Administrative Expenses 33,583
Interest Expense 19,637
----------
Total operating expenses 261,842
----------
Income before income taxes 219,884
Income taxes 69,988
----------
Net income 149,896
Beginning retained earnings 65,649
----------
Ending retained earnings $215,545
==========
See notes to financial statements
F-51
<PAGE>
WEALING BROTHERS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
Cash flows from operating activities:
Net Income $ 149,896
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 60,490
(Increase) decrease in:
Accounts receivable (109,241)
Inventory (13,815)
Retainage (13,841)
Work in Process (72,679)
Deposits 4,900
Prepaid Assets (10,463)
Increase (decrease) in:
Accounts payable 1,548
Accrued Interest 2,300
Accrued Wages (7,099)
Deferred income taxes 69,988
Income Taxes Payable (31,434)
Payroll Taxes Payable 794
---------
Net cash provided by operating activities 31,344
---------
Cash flows from investing activities:
Purchases of property and equipment (16,994)
---------
Net cash used by investing activities (16,994)
---------
Cash flows from financing activities:
Advances to Stockholder (10,925)
Repayment of Long-Term Debt (16,673)
---------
Net cash used by financing activities (27,598)
---------
Net decrease in cash (13,248)
Cash at beginning of year 37,103
---------
Cash at end of year $ 23,855
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 19,637
Income Taxes Paid $ 31,434
See notes to financial statements
F-52
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Wealing Brothers, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is 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 financial
statements.
Business Activity
The Company is a corporation engaged in site preparation, dredging,
non-hazardous waste transport, digester and sludge recycling. The work is
generally performed under fixed price contracts. Credit is extended to various
customers throughout the Indiana and Michigan area.
Revenue and Cost Recognition
The Company uses the accrual method of accounting which means that all revenues
are recognized when earned and expenses are recorded when incurred. Revenues
earned and unbilled are included in accounts receivable and amounted to $72,679.
Cash And Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Accounts Receivable
Accounts considered to be uncollectible are written-off prior to year end.
Accounts receivable are all considered to be collectible at December 31, 1999.
F-53
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
Inventory
Inventory is stated at cost; under the first-in, first-out method; which is not
in excess of market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on machinery and
vehicles is computed using the straight-line method over estimated useful lives
of five (5) and seven (7) years. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consists of taxes currently due plus deferred taxes
related primarily to differences between the basis of fixed assets for financial
and income tax reporting. The deferred tax liability represents the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses that are available to offset
future taxable income and tax credits that are available to offset future
federal income tax credits.
F-54
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 1999:
Machinery and Equipment 566,554
Less: Accumulated Depreciation (228,831)
---------
Total 337,723
========
NOTE 4 - LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 1999:
12.5% Note for trailers;
Payable $984 Monthly, Including Interest $ 17,676
11.0% Note collateralized by Equipment;
Payable $2,176 Monthly, Including Interest 97,523
12.50 % Note collateralized by a Truck;
Payable $284 Monthly, Including Interest 4,172
12.50 % Note collateralized by a Truck
Payable $268 monthly; Including Interest 4,151
Note Payable to Individual
Payable on Demand, Including Interest 17,352
---------
$ 140,874
=========
Less Current Portion ( 49,602)
---------
Long-term Debt $ 91,272
=========
F-55
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 4 - LONG-TERM DEBT (continued)
Following is a schedule of the debt requirements as of December 31, 1999:
2004 &
2000 2001 2002 2003 AFTER TOTAL
------- ------- ------- ------- ------- -------
Principal 49,602 27,968 20,136 22,469 20,699 140,874
Interest 12,292 8,493 5,976 3,643 1,059 31,463
------- ------- ------- ------- ------- -------
Total 61,894 36,461 26,112 26,112 21,758 172,337
======= ======= ======= ======= ======= =======
NOTE 6 - OPERATING LEASE AGREEMENT
The Company leases a building and land. The lease term is month to month at
$1,000 per month. Total rent expense for the year was $12,000.
NOTE 7 - STOCKHOLDER LOANS
The loan from stockholder amounting to $23,000 is due on demand, interest only
at 10.0%, and is secured by a truck.
The loan to stockholder amounting to $39,643 is due on demand, interest only at
unstated rate.
NOTE 8 - SUBSEQUENT EVENT
The Company signed a letter of intent to sell all of its common stock to
Weststar Environmental, Inc. The sale is planned to take place in year 2000.
NOTE 9 - INCOME TAXES
Income tax expense consists of the following. Differences in book and tax are
due to accruals of income and payables and methods of depreciation.
Current Taxes $ 0
Deferred Taxes 69,988
F-56
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Wealing Brothers, Inc.
Fowler, Indiana
We have audited the accompanying balance sheet of Wealing Brothers, Inc. (a C
Corporation) as of December 31,1998 and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wealing Brothers, Inc. as of
December 31,1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
JULY 14, 2000
F-57
<PAGE>
WEALING BROTHERS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 37,103
Accounts Receivable-Net 93,708
Retainage 3,159
Loans to Shareholders 28,718
Inventory 10,743
Prepaid Assets 9,587
--------
TOTAL CURRENT ASSETS 183,018
--------
PROPERTY AND EQUIPMENT-NET 381,220
--------
Bid Bond Deposit 4,900
--------
TOTAL ASSETS $569,138
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $95,041
Accrued Wages 7,508
Payroll Taxes Payable 2,023
Accrued Interest 383
Loan From Shareholder 23,000
Income Tax Payable 31,434
Deferred Income Taxes 8,060
Current Portion of Long-Term Debt 114,196
--------
TOTAL CURRENT LIABILITIES 281,645
--------
LONG-TERM LIABILITIES
Long-Term Debt 43,350
TOTAL LONG-TERM LIABILITIES 43,350
--------
TOTAL LIABILITIES 324,995
--------
STOCKHOLDERS' EQUITY
Common Stock, $0 par value,100 shares
authorized, issued and outstanding 0
Additional Paid in Capital 178,493
Retained Earnings 65,650
TOTAL STOCKHOLDERS' EQUITY 244,143
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $569,138
</TABLE>
See notes to financial statements
F-58
<PAGE>
WEALING BROTHERS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
Sales $1,524,064
Cost of Sales 1,133,587
----------
GROSS PROFIT 390,477
OPERATING EXPENSES
Officer Salary 77,500
Payroll Taxes 19,073
Rent 27,492
Repairs and Maintenance 46,266
Telephone & Utilities 46,336
Bad Debt Expense 11,206
Insurance 106,260
Legal and Professional 6,576
General & Administrative Expenses 69,223
Depreciation Expense 58,791
Interest Expense 10,462
----------
TOTAL OPERATING EXPENSES 479,185
----------
LOSS FROM OPERATIONS (88,708)
----------
SALE OF ASSET 15,000
----------
NET INCOME (73,708)
----------
BEGINNING RETAINED EARNINGS 176,816
----------
DIVIDENDS (37,458)
----------
ENDING RETAINED EARNINGS $ 65,650
See notes to financial statements
F-59
<PAGE>
WEALING BROTHERS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ($73,708)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 58,791
(Increase) decrease in:
Accounts receivable 13,141
Inventory 536
Retainage (3,159)
Deposits (4,900)
Prepaid Assets (3,341)
Increase (decrease) in:
Accounts payable 31,549
Accrued Interest 383
Accrued Wages 7,508
Income Taxes Payable 1,360
Payroll Taxes Payable (7,223)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,937
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends (37,458)
Purchases of property and equipment (104,859)
---------
NET CASH USED BY INVESTING ACTIVITIES (142,317)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Shareholder Loan Repayment 48,847
Proceeds from Long-Term Debt 100,099
Repayment of Long-Term Debt (5,706)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 143,240
---------
NET INCREASE IN CASH 21,860
---------
CASH AT BEGINNING OF YEAR 15,243
---------
CASH AT END OF YEAR $37,103
SUPPLEMENTAL DISCLOSURES:
Interest Paid 10,079
Income Taxes Paid 0
See notes to financial statements
F-60
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Wealing Brothers, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is 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 financial
statements.
Business Activity
The Company is a corporation engaged in site preparation, dredging,
non-hazardous waste transport, digester and sludge recycling. The work is
generally performed under fixed price contracts. Credit is extended to various
customers throughout the Indiana and Michigan area.
Revenue and Cost Recognition
The Company uses the accrual method of accounting which means that all revenues
are recognized when earned and expenses are recorded when incurred. Revenues
earned and unbilled are included in accounts receivable and amounted to $93,708.
Cash And Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Accounts Receivable
Accounts considered to be uncollectible are written-off prior to year-end.
Accounts receivable are all considered to be collectible at December 31,1998.
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 the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
F-61
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is stated at cost; under the first-in, first-out method; which is not
in excess of market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on machinery and
vehicles is computed using the straight-line method over estimated useful lives
of five (5) and seven (7) years. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consists of taxes currently due plus deferred taxes
related primarily to differences between the basis of fixed assets for financial
and income tax reporting. The deferred tax liability represents the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses that are available to offset
future taxable income and tax credits that are available to offset future
federal income tax credits.
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 1998:
Machinery and Equipment 549,561
Less: Accumulated Depreciation (168,341)
--------
Total 381,220
========
F-62
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 4 - LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 1998:
12.5% Note for trailers;
Payable $984 Monthly, Including Interest $ 26,649
11.0% Note collateralized by Equipment;
Interest Only Monthly, Balance due 4/16/99 100,000
12.50 % Note collateralized by a Truck;
Payable $284 Monthly, Including Interest 6,876
12.50% note collateralized by a truck
Payable $268 monthly; Including Interest 6,669
Note Payable to Individual
Payable on Demand, Including Interest 17,352
------
$ 157,546
Less Current Portion (114,196)
---------
Long-term Debt $ 43,350
=========
Following is a schedule of the debt requirements as of December 31, 1998:
1999 2000 2001 TOTAL
----- ---- ---- -----
Principal 114,196 33,430 9,920 157,546
Interest 13,402 2,352 427 16,181
------- ------ ----- -------
Total 127,598 35,782 10,347 173,727
======= ====== ====== =======
F-63
<PAGE>
WEALING BROTHERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1998
NOTE 6 - OPERATING LEASE AGREEMENT
The Company leases a building and land from a related party. The lease term is
month to month at $1,000 per month. Total rent expense for the year was $12,000.
The Company leased another building for 10 months during the year for $650 per
month.
NOTE 7 - STOCKHOLDER LOANS
The loan from stockholder amounting to $23,000 is due on demand, interest only
at 10.0%, and is secured by a truck.
The loan to stockholder amounting to $28,718 is due on demand, interest only at
unstated rate.
NOTE 8 - SUBSEQUENT EVENT
The Company sold all of its common stock to Weststar Environmental Services,
Inc. on June 1, 2000.
NOTE 9 - INCOME TAXES
Income tax expense consists of the following. Differences in book and tax are
due to accruals of income and payables and methods of depreciation.
Current Taxes $ 677
Deferred Taxes 0
F-64
<PAGE>
WEALING BROTHERS, INC.
STATEMENT OF INCOME
(UNAUDITED)
SIX-MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<S> <C>
Sales $494,276
Direct costs 238,606
--------
Gross profit 255,670
Selling and administrative expenses 185,264
--------
Income from operations 70,406
Interest expense (8,379)
--------
Income before income taxes 62,027
Income taxes --
--------
Net income $ 62,027
</TABLE>
F-65
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Village Ventures, Inc.
Middleburg, Florida
We have audited the accompanying balance sheet of Village Ventures, Inc. (a C
Corporation) as of December 31, 1999 and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Village Ventures, Inc. as of
December 31, 1999 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
JANUARY 25, 2000
F-66
<PAGE>
VILLAGE VENTURES,INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets:
Cash $ 62,066
Accounts receivable-net 102,009
Contracts receivable 510
Inventory 32,281
Prepaid assets 8,704
----------
Total current assets 205,570
----------
Property and equipment-net 853,867
----------
Other assets:
Loan costs 5,285
Deposits 200
----------
Total other assets 5,485
----------
Total assets $1,064,922
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $61,882
Accrued wages 9,284
Payroll taxes payable 2,814
Sales tax payable 2,361
Customer deposits 5,717
Stockholder loan 8,621
Curent portion of long-term debt 202,197
----------
Total current liabilities 292,876
----------
Long-term liabilities:
Long-term debt 749,132
----------
Total long-term liabilities 749,132
----------
Total liabilities 1,042,008
----------
Stockholders' equity:
Common stock, $1 par value, 800 shares
authorized, issued and outstanding 800
Additional paid in capital 16,515
Retained earnings 5,599
----------
Total stockholders' equity 22,914
----------
Total liabilities and stockholders' equity $1,064,922
See notes to financial statements
F-67
<PAGE>
VILLAGE VENTURES,INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999
Sales $2,013,748
Cost of sales 1,383,945
----------
Gross profit 629,803
----------
Operating expenses:
Salaries & wages 93,191
Officer salary 114,150
Payroll taxes 48,506
Repairs and maintenance 18,085
Telephone & utilities 25,376
General & administrative expenses 46,665
Interest expense 90,913
----------
Total operating expenses 436,886
----------
Net income 192,917
Deficit in beginning retained earnings (141,681)
Dividends paid (45,637)
----------
Ending retained earnings $5,599
See notes to financial statements
F-68
<PAGE>
VILLAGE VENTURES,INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net Income $ 192,917
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 115,289
(Increase) decrease in:
Accounts receivable 3,490
Inventory (24,192)
Loan Costs (5,284)
Deposits (200)
Prepaid Assets (8,044)
Increase (decrease) in:
Accounts payable (43,541)
Sales Tax Payable 759
SEP Payable (5,378)
Customer Deposits (3,611)
Payroll Payable 439
Payroll Taxes Payable (893)
---------
Net cash provided by operating activities 221,751
---------
Cash flows from investing activities:
Purchases of property and equipment (159,137)
---------
Net cash used by investing activities (159,137)
---------
Cash flows from financing activities:
Advances from Stockholder 1,586
Repayment of Long-Term Debt (321,300)
Proceeds from Long Term Debt 327,195
Dividends Paid (45,637)
---------
Net cash used by financing activities (38,156)
---------
Net increase in cash 24,458
Cash at beginning of year 37,608
---------
Cash at end of year $ 62,066
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 90,913
Income Taxes Paid $ --
</TABLE>
See notes to financial statements
F-69
<PAGE>
VILLAGE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Village Ventures, Inc.(the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is 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 financial
statements.
Business Activity
The Company is a corporation engaged in site preparation, underground utilities
and residential and commercial sewage systems. The work is generally performed
under fixed price contracts. Credit is extended to various customers throughout
the North Central Florida area.
Revenue and Cost Recognition
The Company uses the accrual method of accounting which means that all revenues
are recognized when earned and expenses are recorded when incurred.
Cash And Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Accounts Receivable
Accounts considered to be uncollectible are written-off prior to year end.
Accounts receivable are all considered to be collectible at December 31, 1999.
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 the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
F-70
<PAGE>
VILLAGE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is stated at cost; under the first-in, first-out method; which is not
in excess of market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation on machinery and
vehicles is computed using the straight-line method over estimated useful lives
of five (5) and seven (7) years. Expenditures for major renewals and betterments
that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consists of taxes currently due plus deferred taxes
related primarily to differences between the basis of fixed assets for financial
and income tax reporting. The deferred tax liability represents the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses that are available to offset
future taxable income and tax credits that are available to offset future
federal income taxes.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 1999:
Furniture & Equipment 25,400
Buildings & Improvements 231,514
Machinery and Equipment 1,357,072
Land 20,000
Less: Accumulated Depreciation (780,119)
---------
Total 853,867
=========
F-71
<PAGE>
VILLAGE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 3 - LONG-TERM DEBT
Following is a summary of long-term debt at December 31, 1999:
6.5% Note for vehicle;
Payable $711 Monthly, Plus Interest $ 29,965
9.0% Note collateralized by Equipment;
Payable $17,059 Monthly, Including Interest 624,133
9.25% Note collateralized Equipment;
Payable $737 Monthly, Including Interest 14,656
Prime + 1.0% Note for working capital
Interest payable monthly; due 2/1/2000 14,499
10% Note collateralized by Land
Payable $231 Monthly, Including Interest 11,162
7.95% Mortgage for Building
Payable $2,430 Monthly, Including Interest 250,254
8.25% Note collateralized by a truck;
Payable $574 Monthly, Including Interest 6,660
---------
$ 951,329
=========
Less Current Portion (202,197)
---------
Long-term Debt $ 749,132
=========
Following is a schedule of the debt requirements as of December 31, 1999:
2004 &
2000 2001 2002 2003 AFTER TOTAL
------- ------- ------- ------- ------- ---------
Principal 202,197 195,774 204,506 141,133 207,719 951,329
Interest 73,589 56,624 38,897 21,159 97,620 287,889
------- ------- ------- ------- ------- ---------
Total 275,786 252,398 243,403 162,292 305,339 1,239,218
======= ======= ======= ======= ======= =========
F-72
<PAGE>
VILLAGE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDING DECEMBER 31, 1999
NOTE 4 - OPERATING LEASE AGREEMENT
The Company leases three vehicles and a copy machine under non-cancelable
leases. The lease terms are 36 months for the copier and 60 months for the
trucks. Total rent expense for the year was $58,425. Minimum rents due under
the lease are as follows:
Year ending December 31,
2000 $ 58,425
2001 57,699
2002 46,538
2003 6,138
Total $168,800
========
NOTE 5 - STOCKHOLDER LOAN
The stockholder loan amounting to $8,621 is due on demand, bears interest at
prime + 1%, and is unsecured.
NOTE 6 - SUBSEQUENT EVENT
The Company signed a letter of intent to sell all of its common stock to
Weststar Environmental, Inc. The sale is planned to take place in year 2000.
NOTE 7 - INCOME TAXES
Income tax expense consists of the following. Differences in book and tax are
due to accruals of income and payables and methods of depreciation.
Current Taxes $ 0
Deferred Taxes 0
The Company was an S Corporation for most of the year. The portion of the year
that the Company was a C Corporation, there was no taxable income.
F-73
<PAGE>
VILLAGE VENTURES, INC.
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2000
ASSETS
Current assets:
Cash $ 51,582
Accounts receivable 111,560
Prepaid expenses 5,625
Inventories 25,335
----------
Total current assets 194,102
Property and equipment, net 857,470
Deferred charges 17,280
----------
Total assets $1,068,852
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 207,433
Accounts payable 69,598
Accrued expenses 31,890
Stockholder loans 6,426
----------
Total current liabilities 315,347
Long-term debt, net of current maturities 607,311
----------
Total liabilities 922,658
----------
Stockholders' equity:
Common stock 800
Additional paid-in capital 16,515
Retained earnings 128,879
----------
Total stockholders' equity 146,194
----------
Total liabilities and stockholders' equity $1,068,852
==========
F-74
<PAGE>
VILLAGE VENTURES, INC.
STATEMENT OF INCOME
(UNAUDITED)
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C>
Sales $1,396,885
Direct costs 759,625
----------
Gross profit 637,260
Selling and administrative expenses 461,206
----------
Income from operations 176,054
Interest expense (54,870)
----------
Income before income taxes 121,184
Income taxes 42,414
----------
Net income $ 78,770
==========
</TABLE>
F-75
