As filed with the Securities and Exchange Commission on August 10, 2000.
Registration No. 333-43356
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM SB-2
---------------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WESTSTAR ENVIRONMENTAL, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Florida 4953 59-3066915
------------------------ ------------------ -------------
(State of Incorporation) (Primary SIC Code) (IRS Employer
ID Number)
9550 Regency Square Boulevard
Jacksonville, Florida 32225
(904) 721-7557
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
Michael E. Ricks, President
Weststar Environmental, Inc.
9550 Regency Square Boulevard
Jacksonville, Florida 32225
(904) 721-7557
(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: [ ]
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: [ ]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED
TITLE OF EACH MAXIMUM PROPOSED
CLASS AMOUNT OFFERING MAXIMUM AMOUNT OF
SECURITIES TO TO BE PER AGGREGATE REGISTRATION
BE REGISTERED REGISTERED SHARE(1) PRICE (1) FEE
------------- ---------- -------- --------- ------------
Common Stock,
$.001 par value (2) ...... 1,150,000 $6.00 $6,900,000 $1,821.60
Representative's
Stock Purchase
Warrants (3) ............. 100,000 $.001 $ 100 $ .03
Representative's
Common Stock (4)(5) ...... 100,000 $8.40 $ 840,000 $ 221.76
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Total ...................... $7,740,100 $2,043.39
========== =========
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(1) Estimated solely for purposes of calculng the registration fee.
(2) Includes 150,000 Shares which may be issued subject to the Representative's
over allotment option.
(3) To be sold to the Representative upon the completion of the Offering. Each
such Warrant allows the representative to purchase shares of Common Stock
at the price of $8.40 per share.
(4) Issuable upon exercise of the Representative's Stock Purchase Warrants.
(5) Pursuant to Rule 416 there are also registered hereby such additional,
indeterminate number of shares as may become issuable by reason of the
anti-dilution provisions of the Representative's Stock Purchase Warrants.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER 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 PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
CROSS REFERENCE SHEET
CAPTION IN
ITEM OF FORM SB-2 AND CAPTION PROSPECTUS
----------------------------- ----------
PART I -- INFORMATION REQUIRED IN PROSPECTUS
1. Front of Registration Statement and Front of Registration
Outside Front Cover of Prospectus Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Inside Front and Outside
Pages of Prospectus Back Cover
3. Summary Information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Underwriting
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page; Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Names Experts
and Counsel Experts; Legal Matters
14. Disclosure of Commission position on Indemnification of
Indemnification for Securities Officers and Directors
Act Liabilities
15. Organization within Last Five Years Summary Business; Certain
Transactions
16. Description of Business Business
<PAGE>
17. Management's Discussion and Analysis Management's Discussion
or Plan of Operation and Analysis of Results
of Operations and
Financial Condition
18. Description of Property Business -- Property
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters Cover Page; Risk Factors
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure Not Applicable
<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.
--------------------------------------------------------------------------------
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST___, 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 by us.
Prior to this offering, there has been no public market for the common
stock and no assurance can be given that a public market will develop for the
common stock after this offering. The public offering price for the shares does
not necessarily bear any direct relationship to our assets, earnings, book value
or any other established criteria of value and was arbitrarily determined by us
and Kashner Davidson Securities Corporation, the representative of the several
underwriters in this offering. We have made application to list the common stock
for trading on the Nasdaq SmallCap Market under the proposed symbol "WSTX".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
----------
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
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.
----------
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 August ___, 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 SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. BEFORE YOU
DECIDE TO INVEST IN WESTSTAR ENVIRONMENTAL, INC. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION, OUR FINANCIAL
STATEMENTS AND THE RELATED NOTES INCLUDED IN THIS PROSPECTUS, AND THE DOCUMENTS
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. REFERENCES TO "WESTSTAR
ENVIRONMENTAL, INC.", "WE", "US" AND "OUR" REFER TO WESTSTAR ENVIRONMENTAL, INC.
BUT NOT TO THE UNDERWRITERS. OUR FISCAL YEAR ENDS DECEMBER 31. REFERENCES TO
FISCAL YEARS BY DATE REFER TO THE FISCAL YEAR BEGINNING JANUARY 1 OF THAT
CALENDAR YEAR. FOR EXAMPLE, "FISCAL 1999" BEGAN ON JANUARY 1, 1999 AND ENDED ON
DECEMBER 31, 1999.
OUR COMPANY
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.
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, 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 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.
On March 10, 2000, we acquired all of the issued and outstanding shares of
Pipeline Contractors, Inc. for 100,000 shares of our common stock. We also
entered into non-compete agreements with the former shareholders of Pipeline
pursuant to which we paid them an aggregate of $50,000 at closing and the
balance will be paid in five equal installments of $50,000 per year for the next
five years. Pipeline is an underground utilities and road-related construction
contractor doing business in northern and central Florida.
On June 1, 2000, we acquired all of the issued and outstanding shares of
Wealing Brothers, Inc. for 82,500 shares of our common stock and the issuance of
a one-year promissory note in the amount of $360,000. Wealing is engaged in site
preparation, dredging, non-hazardous waste transportation and sludge recycling
through Indiana and Michigan.
Both of these transactions can be rescinded by their respective owners in
the event we do not consummate this offering within one year from the date of
closing of the respective acquisition.
THE NON-HAZARDOUS LIQUID WASTE INDUSTRY
We estimate that the removal and treatment of septic tank and grease trap
waste in the U.S. generates approximately $20 billion in annual revenues. There
are approximately 25,000 service providers currently in the non-hazardous liquid
waste industry and, of these service providers, approximately 75% generate less
than $500,000 of annual revenues. We believe our industry will continue to grow
based on increased waste from a growing population and general economic
1
<PAGE>
conditions that are driving new building demands and the need for non-hazardous
liquid waste services.
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
efficiencies as a result of common billing, the coordination of advertising, the
elimination of duplicative professional and technical support providers, the
standardization and upgrading of equipment and 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. There
can be no assurance, however, that the Company will be able to profitability
consolidate service providers within this industry.
OUR BUSINESS
We receive fees to collect, process and dispose of nonhazardous biosolids
and liquid wastes. Collection fees charged to customers vary per gallon by waste
stream according to constituents of the waste, expenses associated with
processing the waste and competitive factors. Grease trap waste from restaurant
and other food processing and preparation facilities is transported to our
facilities in vacuum trucks, trailers and other transportable containers. We
operate vehicles to collect waste directly from generators and receives waste
from independent transporters servicing additional waste generators. Using a
variety of physical, chemical, thermal and other biological techniques, the
waste is broken down into constituent components. Water extracted from the waste
is pretreated and then discharged into the municipal sanitary sewer system or
applied to leased grasslands as organic fertilizer. Solid materials are dried
and disposed of in a solid waste landfill. At some locations where we do not
have pretreatment facilities, the waste is transported to private pretreatment
facilities, or, where permitted by local regulations, directly to municipal or
private wastewater treatment facilities.
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 benefit from federal, state and local regulations prohibiting the
disposal of grease trap waste and other waste in municipal collection and
treatment systems. Although restaurants, food processing and preparation
facilities and other industrial operations have produced such waste for many
years, regulations governing the management of non-hazardous liquid waste, and
the enforcement of such regulations, are becoming increasingly stringent. These
requirements have increased the value of our services to our customers in recent
years. As federal, state and local regulations governing the disposal of this
waste increases, we believe the amount of non-hazardous liquid waste products
delivered to third parties for processing and disposal will continue to
increase.
OUR STRATEGY
We intend to expand our presence in the non-hazardous liquid waste industry
through internal growth and acquisitions of local service providers throughout
the United States. Our mission is to target acquisitions of local service
providers which we believe will be profitable additions and integrate them into
our business. We believe these acquisitions, by consolidating smaller local
service providers, will create synergies and improve efficiencies and
standardize equipment and procurement procedures in the area of non-hazardous
liquid waste management.
2
<PAGE>
OUR OFFICES
Our offices are located at 9550 Regency Square Boulevard, Suite 1109,
Jacksonsville, Florida 32225 and our telephone number is (904) 721-7557.
THE OFFERING
Shares offered by Weststar 1,000,000 shares of common stock
Shares outstanding after this offer 2,915,833 shares of common stock
Proposed Nasdaq SmallCap Market symbol WSTX
Proposed BSE symbol WST
Use of proceeds For the repayment of debt, payments
related to completed acquisitions,
capital expenditures, to finance
possible acquisitions, and for
working capital and other general
corporate purposes.
-----
The above information is based on shares outstanding as of March 31, 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.
CAUTIONARY CLAUSE
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
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
3
<PAGE>
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
March 31, 2000 and the statement of operations data for the three-month periods
ended March 31, 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
following data should be read in conjunction with our financial statements and
related notes thereto:
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED(1)
-------------------------
THREE-
THREE-MONTHS ENDED MONTHS
YEAR ENDED DECEMBER 31, MARCH 31, YEAR ENDED ENDED
-------------------------- -------------------------- DECEMBER 31, MARCH 31,
1998 1999 1999 2000 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA: (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 1,696,915 $ 1,726,614 $ 335,173 $ 489,834 $ 8,471,908 $ 1,758,760
Income from operations ............ 132,459 295,706 48,014 65,598 1,017,047 179,821
Interest expense .................. 86,745 102,678 17,671 32,564 246,537 64,022
Net income (loss) ................. (158,374) 193,028 30,343 33,034 507,803 74,831
Earnings (loss) per share ......... (0.10) 0.12 0.02 0.02 0.17 0.03
Pro forma income tax expense
(benefit) ...................... (55,000) 66,000 11,000 12,000 262,707 40,968
Pro forma net income (loss) ....... (103,374) 127,028 19,343 21,034 507,803 74,831
Pro forma earnings (loss)
per share ...................... (0.06) 0.08 0.01 0.01 0.17 0.03
Weighted average number of
shares outstanding ............. 1,666,630 1,673,951 1,690,000 1,672,033 2,939,784 2,837,866
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31, 2000
----------- --------------------------------
1999 PRO FORMA
----------- --------------
ACTUAL CONSOLIDATED(1)
----------- --------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash .................................... $ 144,186 $ 67,773 $ 1,810,355
Current assets .......................... 347,769 872,407 3,192,883
Current liabilities ..................... 1,425,399 2,312,657 1,198,002
Working capital (deficit) ............... (1,077,570) (1,440,250) 1,994,881
Long-term assets ........................ 1,794,792 3,306,263 5,735,581
Total assets ............................ 2,142,561 4,178,670 8,928,464
Long-term debt and other
liabilities ........................... 275,155 776,512 1,265,533
Stockholders' equity .................... 442,067 1,089,501 6,464,929
</TABLE>
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(1) Adjusted for the sale of the common stock offered hereby and application of
estimated net proceeds therefrom. See Pro Forma Condensed Consolidated
Financial Statements and related notes on pages F-21 through F-26.
4
<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 (INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS), BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE;
ADDITIONAL RISKS AND UNCERTAINTIES, INCLUDING THOSE OF WHICH WE ARE NOT AWARE OR
WHICH WE CURRENTLY DEEM IMMATERIAL, MAY ALSO ADVERSELY AFFECT OUR BUSINESS.
WE HAVE A WORKING CAPITAL DEFICIENCY AND NEED ADDITIONAL CAPITAL
At March 31, 2000, we had total current assets of $872,407 and total
current liabilities of $2,312,657 or a working capital deficiency of
($1,440,250). 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. There can be no assurance that the net
proceeds generated from this offering together with cash available from
operations will be sufficient to meet our capital needs for the 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.
WE ARE DEPENDENT ON MAJOR CUSTOMERS
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 three months ended March 31, 2000, these customers accounted
for 41.3% 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 37.0% for the three months ended
March 31, 2000. Food Lion Supermarkets accounted for approximately 28.6% of
total sales for 1999 and approximately 11.5% of total sales in 1998 and 4.3% for
the three months ended March 31, 2000. The loss of either of these customers
would have a materially adverse effect upon our business.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO MAKE ACQUISITIONS AND OBTAIN
ACQUISITION FINANCING
Our ability to acquire local non-hazardous liquid waste service providers
at economically attractive prices, integrate their operations and then grow
their operations profitably, will determine our future success. We intend to
continue to expand our market presence in our current locations and enter other
markets through acquisitions or the opening of new offices. Our ability to
continue growing and attain profitability will depend on a number of factors,
including the availability of capital to fund acquisitions, existing and
emerging competition and the ability to maintain sufficient profit margins
despite cost increases and pricing pressures. We currently intend to finance
future acquisitions by using Common Stock, cash, or a combination of common
stock and cash. If common stock is issued in connection with future acquisitions
or earn-out provisions of completed acquisitions, purchasers of common stock in
this offering may experience dilution in the earnings, cash flow and net
tangible book value of their stock. If the
5
<PAGE>
common stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept common stock as all or
part of the consideration for the sale of their businesses, we may be required
to use more of our cash resources, if available, or incur indebtedness in order
to continue our acquisition program. If we do not have sufficient cash resources
to pursue acquisitions, our growth could be limited unless we are able to obtain
additional capital through debt or equity financing. There can be no assurance
that we will be able to obtain the financing we will need in the near future on
terms we deem acceptable. The inability to acquire such financing, if needed,
could have a material adverse effect on our business, financial condition and
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 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 can be 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 can be 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 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 AND RIGHT OF FIRST REFUSAL
AGREEMENTS
In connection with our October 4, 1996, sale of CBP Resources, Inc., we and
Michael E. Ricks 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 (the "Prescribed Territory"). Notwithstanding the
foregoing, 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. Our restricted activities in
these areas could have an adverse effect on our proposed expansion and
acquisition plans. The acquisition agreement also contains a right of first
refusal in favor of CBP Resources, Inc. It provides that, if at any time, during
the ten year period commencing October 4, 1996, Weststar, an affiliate of
Weststar or a shareholder of Weststar makes an offer to sell any business within
the Prescribed Territory engaged in the grease trap business, waste frying oil
business or rendering business, we are required to give written notice to CBP
Resources, Inc. of the terms of any such proposed sale. CBP Resources, Inc.
shall thereafter have thirty days to negotiate an agreement with the seller of
such business.
WE ARE DEPENDENT ON THIRD PARTY LANDFILLS AND LAND APPLICATION SITES
A portion of the waste collected by us is delivered to third party
landfills and/or land application sites under informal arrangements or without
long-term contracts. If these third
6
<PAGE>
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 and results of operations would be adversely affected.
WE ARE DEPENDENT ON GOVERNMENT CONTRACTS
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 delays in funding; lengthy
review processes for awarding contracts; non-renewal; delay, termination,
reduction or modification of contracts in the event of changes in the
government's policies or as a result of budgetary constraints; and increased or
unexpected costs resulting in losses, all of which could have a material adverse
effect on our business.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS
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
adversely affect our business. There can be no assurance that we will be able,
for economic reasons or otherwise, to comply with future laws and regulations.
It is our belief that we presently comply with all material federal, state and
local laws and regulations governing our operations and that such compliance has
not had any material effect upon our capital expenditures, net income, financial
condition or competitive position.
WE FACE SIGNIFICANT COMPETITION IN THE WASTE MANAGEMENT INDUSTRY
The waste management industry is extremely competitive and requires
substantial amounts of capital. Although competition varies by locality and type
of service, our principal sources of competition are: local companies, which
provide primarily collection services to customers in a limited geographic area;
large companies which operate over a more extensive geographic area, provide
integrated waste management services, own or operate disposal sites and engage
in various waste transfer and resource recovery activities; and municipalities
and other governmental authorities. Many of our competitors are well established
and have substantially greater marketing, financial, technological and other
resources than Weststar. In addition, many of our competitors offer services not
currently offered by us and have capabilities not currently possessed by us,
including company owned disposal sites, greater recycling and processing
capabilities, more extensive and specialized categories and types of equipment
and personnel, and in-house engineering departments. Although it has been our
experience that there are available subcontractors which possess capabilities
which can be integrated with those offered by us, competitors which possess
these capabilities internally may be able to provide such services more cost
effectively. There can be no assurance that we will have the ability to compete
effectively.
7
<PAGE>
OUR BUSINESS RELIES ON COMPETITIVE BIDDING
In many instances, we obtain contracts for our services through the process
of competitive bidding. There can be no assurance that we will be successful in
having our bids accepted or, if accepted, that awarded contracts will generate
sufficient revenues to result in our profitability. Additionally, inherent in
the competitive bidding process is the risk that if a bid is submitted and a
contract is subsequently awarded, actual performance costs may exceed the
projected costs upon which the submitted bid or contract price was based. To the
extent that actual costs exceed the projected costs on which bids or contract
prices were based, 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.
WE HAVE EXTENSIVE PERMITTING AND LICENSING REQUIREMENTS
We are required to obtain and maintain in effect various federal, state,
and local permits and licenses in connection with our waste collection,
transportation and disposal operations. These permits and licenses are
difficult, time consuming, and, in certain instances, are costly to obtain, may
be subject to community opposition, opposition by various local elected
officials or citizens, regulatory delays and other uncertainties. In addition,
certain permits may be subject to modification, renewal, or revocation by the
issuing agencies after issuance, which may increase 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.
8
<PAGE>
There can be no assurance that we will be successful in obtaining and
maintaining in effect the permits and licenses required for the successful
operation and growth of our business. Our failure to obtain or maintain in
effect a permit or license significant to its business would have a material
adverse effect on our business and our results of operations.
WE ARE DEPENDENT ON ACQUISITIONS FOR GROWTH; AND WE MAY FACE POTENTIAL
LIABILITIES ASSOCIATED WITH ACQUISITIONS
The rate of future growth and profitability of our business will be
dependent, in part, upon our ability to identify and acquire additional
non-hazardous waste management and related businesses. This strategy involves
risks inherent in assessing the values, strengths, weaknesses, risks, and
profitability of acquisition candidates. Such risks include adverse short-term
effects on our reported operating results, diversion of management's attention,
dependence on retaining, hiring and training key personnel, and risks associated
with unanticipated problems or latent liabilities. There can be no assurance
that acquisition opportunities will be available, that we will have access to
the capital required to finance potential acquisitions, that we will be able to
acquire additional businesses or that any businesses acquired by us will be
integrated successfully into our operations or prove profitable.
In addition to the foregoing, the businesses acquired by us may have
liabilities that we did not discover or may be unable to discover during our
pre-acquisition investigations, including liabilities arising from environmental
contamination or non-compliance by prior owners with environmental laws or
regulatory requirements, and for which we, as a successor owner or operator, may
be responsible. Certain environmental liabilities, even if expressly not assumed
by us, may nonetheless be imposed on us under certain legal theories of
successor liability. We may be required under federal, state, or local law to
investigate and remediate this contamination, if any. Any indemnities or
warranties, due to their limited scope, amount, duration, the financial
limitations of the indemnitor or warrantor, or other reasons, may not fully
cover such liabilities.
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.
Our future success also depends on our ability to attract, retain and
motivate highly-skilled employees. Competition for employees in our industry is
intense. We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future in the event that we lose
any of our key employees.
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
could be adversely affected.
CERTAIN STOCKHOLDERS WILL CONTROL 63.6% 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 63% 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
9
<PAGE>
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.
WE REQUIRE BONDING IN ORDER TO OBTAIN CERTAIN CONTRACTS
We are required, in certain instances, to post bid and/or performance bonds
in connection with contracts or projects with government entities and, to a
lesser extent, private sector customers. Approximately 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 our operations.
THE OFFERING PRICE FOR OUR COMMON STOCK WAS DETERMINED ARBITRARILY; YOU WILL
INCUR DILUTION
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.
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 $4.56 per share, or
approximately 75%, assuming an offering price of $6.00 per share. See "Dilution"
for a description of how dilution has been calculated.
OUR MANAGEMENT HAS BROAD DISCRETION IN USING THE NET PROCEEDS OF THIS OFFERING
INCLUDING REPAYMENT OF LOANS TO AFFILIATES AND YOU MAY HAVE NO OPPORTUNITY TO
APPROVE THE USE OF PROCEEDS OF THIS OFFERING
We intend to use approximately 22% of the net proceeds from this offering
for working capital and general corporate purposes. Our management will have
broad discretion over how we use these proceeds. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions regarding how to use the proceeds form this offering, and we
may spend the proceeds in ways with which you disagree.
We intend to utilize approximately $3,230,000 or approximately 68% 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 March 31,2000, the
aggregate amount of these loans was approximately $574,000. Interest continues
to accrue on these loans until repaid.
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
10
<PAGE>
determine that we did not meet the Code requirements for Subchapter S
corporations, we could 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 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.
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 hare; 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 a risk disclosure document, disclosure of
market quotations, disclosure of the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
values of our securities held in the customers' accounts. 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.
THE RIGHT OF OUR COMMON STOCKHOLDERS MAY BE MATERIALLY LIMITED OR QUALIFIED BY
RIGHT OF PREFERRED STOCKHOLDERS
We are authorized to issue 5,000,000 shares of preferred stock, $.001 par
value. The preferred stock may be issued in series from time to time with such
designation, rights, preferences and limitations as our board of directors may
determine by resolution. the rights, preferences and limitations of a separate
series of preferred stock may differ with respect to such matters as may be
determined by the board of directors, including, without limitation, the rate of
dividends, methods and nature of payment of dividends, terms of redemption,
amount payable on liquidation, sinking fund provisions (if any), conversion
rights (if any), and voting rights. an and all such rights that may be granted
to preferred stockholders may be in preference to common stockholders and to
common stockholders' detriment. In general, shares
11
<PAGE>
of preferred stock may be issued by the board of directors without stockholder
approval. In the event of issuance, the preferred stock could be utilized under
certain circumstances as a method of discouraging, delaying or preventing a
change in control. This may have the effect of discouraging third party bidders
from ever making a bid, may reduce any premium that such bid could yield to
holder of common stock over market value and may have a depreciation effect on
the price of our common stock. Although we have no present intention to issue
any shares of preferred stock, there can be no assurance that we will not do so
in the future. No preferred stock may be issued without the consent of the
underwriter for a period of 12 months from the date of this prospectus.
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 pursuant to its 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:
12
<PAGE>
Repayment of Debt ......................... $1,980,000 41%
Payments Related to Acquisitions .......... 1,180,000 25%
Capital Expenditures, including equipment 500,000 10%
General Working Capital ................... 1,167,500 24%
----------- -----
Total ....................... $4,827,500 100%
=========== =====
-- We intend to use approximately $1,980,000 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
$573,536:
PAYEE AMOUNT INTEREST RATE
----- -------- -------------
Mike Ricks $209,730 None
Marie H. Stubbs 26,000 8.5%/annum
Peggy W. Stubbs 37,806 8.5%/annum
James Flynn 4,000 None
Thomas Fey 8,000 None
Caribbean Breeze
(David Capps) 38,000 None
Ron Denmark 250,000* 8.5%/annum
--------
$573,536
========
*Payable $50,000 per year with first payment due March 2001 or
upon completion of IPO.
-- We intend to use approximately $1,180,000 to complete the acquisitions
of Wealing Brothers, Inc. and Village Ventures, Inc. In connection
with these acquisitions, we issued promissory notes in the amount of
$360,000 to the shareholders of Wealing Brothers and we have proposed
to pay approximately $820,000 to the shareholders of Village Ventures.
-- We intend to use approximately $500,000 to purchase four (4) 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. The purposes include paying 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
13
<PAGE>
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. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities or similar quality investments.
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.
14
<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 March 31,
2000, on an historical basis and on a pro forma basis, adjusted to reflect the
sale of the common stock offered hereby, the application of the estimated net
proceeds as described in "Use of Proceeds" and to reflect the acquisition of
Wealing Brothers, Inc. and 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 thereto
included elsewhere in this prospectus.
MARCH 31, 2000
---------------------------
PRO FORMA
------------
HISTORICAL(1) CONSOLIDATED
------------- ------------
Current portion of long-term debt (2) ............. $ 426,827 $ 257,138
Notes payable-unsecured (2) ....................... 661,898 --
Loans from stockholders (2) ....................... 573,536 8,333
----------- -----------
Total current debt obligations ......... $ 1,662,261 $ 265,471
----------- -----------
Long-term debt, net of current portion (2) ........ $ 465,710 $ 954,731
Other long-term liabilities (2) ................... 310,802 310,802
----------- -----------
Total long-term debt obligations ....... 776,512 1,265,533
----------- -----------
Stockholders' equity:
Common stock, $.001 par value,
10,000,000 shares authorized,
1,800,000 shares issued, 1,750,000 shares
outstanding, 2,965,833 shares issued,
2,915,833 shares outstanding, pro forma ...... 1,800 2,966
Additional paid-in capital ..................... 755,192 6,129,454
Treasury stock, 50,000 shares, at cost ......... (12,500) (12,500)
Accumulated deficit ............................ 345,009 345,009
----------- -----------
Total stockholders' equity ............. 1,089,501 6,464,929
----------- -----------
Total capitalization ................... $ 1,866,013 $ 7,730,462
----------- -----------
(1) Does not include Village Ventures, Inc. and Wealing Brothers, Inc.
(2) See Notes 4, 5, 6, 7 and 8 of Notes to Financial Statements for a
description of our debt obligations.
15
<PAGE>
DILUTION
Our net tangible book value at March 31, 2000 was $(318,152), or $(0.18) 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 hereby
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 March 31, 2000 would have been approximately $3,767,821 or $1.29 per
share. This represents an immediate increase in net tangible book value per
share of $1.47 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:
Initial public offering price per share $ 6.00
Net tangible book value per share before offering $ (0.18)
Increase per share attributable to new investors 1.47
--------
Pro forma tangible book value per share after offering 1.29
------
Dilution to new investors $ 4.71
=======
The following table sets forth, as of March 31, 2000, the number of shares of
common stock purchased from the Company, the effective cash contribution made
and the average price per share paid by existing stockholders and by purchasers
of the common stock offered hereby (assuming a public offering price of $6.00
per share):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE PER
------------------- -------------------- SHARE
NUMBER PERCENT AMOUNT PERCENT ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders ....... 1,750,000 63.6% $ 744,492 11.0% $ .43
New investors ............... 1,000,000 36.4% 6,000,000 89.0% $ 6.00
---------- ----- ---------- ------ -----
Total 2,750,000 100.0% $6,744,492 100.0%
========== ===== ========== ======
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the four-year period ended
December 31, 1998 and 1999 are derived from our audited financial statements.
The selected financial data for the three-month periods ended March 31, 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 three months ended March 31,
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 March 31, 2000 gives
effect to the offering and the acquisitions of Wealing Brothers, Inc. and
Village Ventures, Inc. by the Company as if the offerings and acquisitions had
occurred on March 31, 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 three months ended
March 31, 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 (loss) and earnings (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
------------------------
THREE-MONTHS
THREE-MONTHS ENDED YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
-------------------------- ------------------------- ---------- ----------
1998 1999 1999 2000 1999 2000
----------- ----------- ----------- ----------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues .................................... $ 1,696,915 $ 1,726,614 $ 335,173 $ 489,834 $8,471,908 $1,758,760
Direct costs ................................ 1,233,967 1,145,854 243,259 339,963 6,309,208 1,237,626
----------- ----------- ----------- ----------- ---------- ----------
Gross profit ................................ 462,948 580,760 91,914 149,871 2,162,700 521,134
Operating expenses .......................... 330,489 285,054 43,900 84,273 1,145,653 341,313
----------- ----------- ----------- ----------- ---------- ----------
Income from operations ...................... 132,459 295,706 48,014 65,598 1,017,047 179,821
Cost of delaying planned
public offering ........................... 204,088 -- -- -- -- --
Interest expense ............................ 86,745 102,678 17,671 32,564 246,537 64,022
----------- ----------- ----------- ----------- ---------- ----------
Income (loss) before income taxes ........... (158,374) 193,028 30,343 33,034 770,510 115,749
Income taxes ................................ -- -- -- -- 262,707 40,968
----------- ----------- ----------- ----------- ---------- ----------
Net income (loss) ........................... $ (158,374) $ 193,028 $ 30,343 $ 33,034 $ 507,803 $ 74,831
=========== =========== =========== =========== =========== ===========
Earnings (loss) per share ................... $ (0.10) $ 0.12 $ 0.02 $ 0.02 $ 0.17 $ 0.03
=========== =========== =========== =========== =========== ===========
UNAUDITED PRO FORMA INCOME TAX, NET
INCOME (LOSS) AND EARNINGS (LOSS) PER
SHARE INFORMATION:
Income (loss) before income taxes ........... $ (158,374) $ 193,028 $ 30,343 $ 33,034 $ 770,510 $ 115,799
Pro forma income tax
expense (benefit) ......................... (55,000) 66,000 11,000 12,000 262,707 40,968
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pro forma net income (loss) ................. $ (103,374) $ 127,028 $ 19,343 $ 21,034 $ 507,803 $ 74,831
----------- ----------- ----------- ----------- ---------- ----------
Pro forma earnings (loss) per share: ........ $ (0.06) $ 0.08 $ 0.01 $ 0.01 $ 0.17 $ 0.03
----------- ----------- ----------- ----------- ---------- ----------
Weighted average shares
outstanding - basic ....................... 1,666,630 1,673,951 1,690,000 1,672,033 2,939,784 2,837,866
----------- ----------- ----------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, CONSOLIDATED
-------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
---------- ----------- ----------- -----------
(unaudited) (unaudited)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Cash .................................. $ 18,108 $ 144,186 $ 67,773 $ 1,810,355
Current assets ........................ 137,769 347,769 872,407 3,192,883
Current liabilities ................... 1,019,834 1,425,339 2,312,657 1,198,002
Working capital (deficit) ............. (882,065) (1,077,570) (1,440,250) 1,994,881
Long-term assets ...................... 1,816,203 1,794,792 3,306,263 5,735,581
Total assets .......................... 1,953,972 2,142,561 4,178,670 8,928,464
Long-term liabilities ................. 673,599 275,155 776,512 1,265,533
Stockholders' equity .................. 260,539 442,067 1,089,501 6,464,929
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE BASED
UPON CURRENT EXPECTATIONS. THESE FORWARD-LOOKING STATEMENTS FALL WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS THAT RELATE TO FUTURE EVENTS OR OUR
FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING
STATEMENTS BY TERMINOLOGY SUCH AS "MAY", "WILL," "SHOULD," "EXPECT," "PLAN,"
"ANTICIPATE," "BELIEVE," "ESTIMATE," "PREDICT," "INTEND," "POTENTIAL" OR
"CONTINUE" OR THE NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY.
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS
AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
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 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.
Effective April 29, 1997 we entered into an Agreement and Plan of
Reorganization with Northstar Holding Corporation, a Florida corporation,
Weststar Acquisition Corp., a Florida corporation; B&B; B&B Acquisition Corp., a
Florida corporation; and Michael E. Ricks. The Plan of Acquisition resulted in
the acquisition of Weststar and B&B, by Weststar Acquisition and B&B
Acquisition, respectively, in separate but simultaneous reverse triangular
merger transactions, whereby the surviving corporations following such mergers
were Weststar and B&B. At the time of such transactions, Weststar and B&B had
common ownership and common management and Northstar, Weststar Acquisition and
B&B Acquisition had common ownership and common management. The mergers were
accomplished in contemplation of the subsequent acquisition of Weststar and B&B
by Northstar, a company without assets or liabilities which was intended to
serve as a holding company for Weststar and B&B. Subsequent to the execution of
the Plan of Reorganization, but prior to the proposed Northstar Corporate
Acquisition, the parties abandoned their plans to have Northstar serve as a
holding company. In connection with the execution of the Plan of Reorganization,
Northstar's three shareholders, William Perry, Marie Stubbs and Peggy Stubbs,
transferred 1/3 of the shares of Northstar and two other companies owned by
them, Empire Energy, Inc. and Southern Trailer Manufacturing Inc., to the
shareholders of Weststar. In consideration thereof, the shareholders of Weststar
and B&B, who held an aggregate of 100,000 shares of each of Weststar and B&B,
transferred an aggregate of 66,667 of the shares of each of Weststar and B&B to
the three former shareholders of Northstar. Subsequently, effective November 14,
1997 Northstar was merged with and 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
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whereby our 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
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.
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 (including designing,
pumping and maintenance) and approximately 5% from sewer and drain services.
Collection fees charged to customers vary per gallon by waste stream according
to constituents of the waste, expenses associated with processing the waste and
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 compensation and related benefits for executives and
administrative, staff, advertising, office
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rent, communications and 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.
In 1999 we signed a letter of intent to acquire Village Ventures, Inc.
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, we would 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 debt at closing.
The final closing of each of the above described transactions is dependent
upon the consummation 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 $2,361,000 of goodwill which will be amortized over a 15
year period.
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
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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 QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Our revenues for the three-month period ended March 31,2000, were $489,834
as compared to $335,173 for the same period ended March 31, 1999. This increase
was solely due to the acquisition of Pipeline Contractors, Inc. on March 10,
2000. We included 22 days of revenue from Pipeline, which was $152,255. Our
revenues in the 2000 period were up $2,406 from the same quarter in 1999, or
less than 1%.
Gross profits for the quarter ended March 31,2000 were $149,871 or 30.6% as
a percent of sales compared to $91,914 or 27.4% for the quarter ended March
31,1999. This number and percentage contains Pipeline figures for the year 2000
which decreased our gross margin down from 35.1% to 30.6%. We cut our direct
labor force and saved money in the first quarter which increased our gross
margin. Pipeline's first quarter, which is historically weak, had a lower gross
margin, which impacted the overall margin downward. Selling and Administrative
expenses for the quarter ended March 31,2000 were $84,273 or 17.2% of sales
versus $43,900 or 13.1% of sales for the quarter ended March 31,1999. This 4.1%
increase as a percentage of sales came mainly from our increased administrative
personnel expenses. Interest expense remained relatively constant in each
quarter.
Profit for the quarter ended March 31, 2000 was $33,034 which was an
increase of $2,691 or 8.9% over profit of $30,343 for the quarter ended March
31, 1999. 65% of the increase was a result of the acquisition of Pipeline and
12% came from our increased margins. Net profit as a percentage of sales for the
first quarter of 2000 was 6.7% versus 9.1% for the first quarter of 1999.
Pipeline added $19,609 to profits for the 22 days they were a part of us, which
helped increase our net profit margin.
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
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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 (current assets - 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. We plan to refinance the mortgage at its maturity in September of
2000.
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.
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 41.2% of revenue during the year ended December 31, 1999 and the three
months ended March 31, 2000, respectively.
We financed our operations for the quarter ended March 31, 2000 with
profits and short-term borrowings. To cover the costs of going public, we
borrowed $250,000 in the first quarter from private investors. 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.
We also purchased Pipeline Contractors, Inc. on March 10, 2000. In connection
with the purchase, we gave the sole shareholder a note for $250,000, which is
included in notes due to stockholders. As a result of the acquisition, our total
assets increased from $1,924,781 for the quarter ended March 31, 1999 to
$4,178,670 for the quarter ended March 31, 2000. Intangibles of $966,879 were
generated from the purchase. Working capital for the quarter ended March 31,
2000 was $(1,440,250) versus working capital of $(828,491) for the quarter ended
March 31, 1999. This negative working capital position at March 31, 2000, is
negatively impacted by two items. A mortgage loan for $259,999 is payable in
full this year and is included in current liabilities. Also, stockholder debt of
$573,536 is included in current liabilities even though it is subordinate to
other debt.
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BUSINESS
INDUSTRY OVERVIEW
In the United States the collection and disposal of non-hazardous liquid
waste is a major industry. Industry revenues are derived primarily from
collection and hauling services, disposal services and processing/recycling
services. The non-hazardous waste industry is regional in nature and highly
fragmented.
We estimate that the septic tank and grease trap business segment of the
U.S. domestic non-hazardous liquid waste industry generates approximately $20
billion in revenues annually. There are approximately 25,000 service providers
currently in the non-hazardous liquid waste industry and, of these service
providers, approximately 75% generate less than $500,000 of annual revenues. 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 larger, better capitalized companies. In addition, many
municipalities are choosing to privatize their collection and disposal services,
due primarily to the ability of the private sector to perform these operations
more efficiently and economically.
Another factor expected to affect the non-hazardous waste industry is the
increasing mandate to recycle waste materials. This mandate is expected to
reduce the volume of waste disposed in landfills, but may provide additional
revenues for collection and processing operations. 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.
COMPANY OVERVIEW
We engage in the following businesses relating to the industry:
o biosolids management
o bulk liquid waste transportation
o liquid waste processing and disposal
o maintenance and pumping services
Our customers include:
o restaurants
o hospitals
o military bases
o office buildings
o apartments
o schools
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o municipalities
o industrial businesses, and
o single family residences.
All references to us include our operating subsidiaries unless the context
indicates otherwise.
We intend to expand our presence in the non-hazardous liquid waste industry
through internal growth and acquisitions of local service providers throughout
the United States. We believe that these acquisitions, by consolidating smaller
local service providers, will create synergies and improve efficiencies.
COMPANY 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
efficiencies as a result of common billing, the coordination of advertising, the
elimination of duplicative professional and technical support providers, the
standardization and upgrading of equipment and 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 to add to our service lines, to increase the
capacity and service area of our existing service lines, and 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 Company 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: sales management, accounts receivable and accounts payable management,
debt collection, financial reporting, tax management, advertising, purchasing,
legal, health and safety, environmental, human resources and training. Customer
service representatives will
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also be provided. 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 out of bankruptcy.
Pipeline was founded in 1987 by Ron Denmark in Starke, Florida (until 1994 a/k/a
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 corporations. When we do by-pass work for the Jacksonville
Electric Authority, Pipeline does the repair work on the bypassed lines, thereby
making the businesses complementary.
Pipeline's bankruptcy resulted form 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 cost the
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.
We signed a letter of intent to acquire Village Ventures, Inc. Subject to
the completion of this offering and our signing a definitive agreement, we will
acquire Village Ventures, d/b/a Village Septic, which 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 compete for
because of a lack of critical equipment that together they posses.
SERVICES
We service both the public (governmental) and private (residential/
commercial) sector in the removal, transportation, treatment and disposal of
non-hazardous waste materials including bio-solids, food service generated
grease and septic waste which is processed and/or disposed of by 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 quarter ended March 31, 2000 these operations
accounted for $337,579 in revenues. Within this service line, we categorize
revenues in terms of bio-solid and septic waste removal, transport, treatment
and disposal; and brown grease removal, transport, treatment, and disposal.
Brown grease is food service generated grease that results from, among other
things, the process of washing meats, fruits and vegetables and/or from washing
dishes. During the fiscal years ended December 31, 1999, December 31, 1998, and
the quarter
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ended March 31, 2000, the bio-solid and septic waste category accounted for
sales revenues of $1,108,141, $1,314,770 and $216,658, respectively. During the
same periods, the brown grease category accounted for sales revenues of
$618,473, $382,145, and $120,921, 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.
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 thereof. 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 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
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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 the delivery of our 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 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 thereby
simplifying the recycling process and lessening 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
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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. Notwithstanding 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 thereof.
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.
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
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<PAGE>
expenditures in this area during the current fiscal year. Our expenditures in
this category, during the three months ended March 31, 2000, were negligible.
CUSTOMERS
We provide our services to governmental and private sector 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 private sector customers:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1999
------------------ ----------------
$ % $ %
--------- ---- ------- ----
Private Sector ......... 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
(the "Initial Contract Period") based on its hauling price per gallon of
bio-solids. The contract provided the City of Jacksonville with the option, at
its sole discretion, to renew the contract for up to four additional one year
terms. During the Initial Contract Period, on June 1, 1997, the City of
Jacksonville, transferred and assigned all of its rights under the contract to
the Jacksonville Electric Authority. 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 (the
"Other Services"). During the twelve month period ended December 31, 1999 and
the three months ended March 31, 2000 the Jacksonville Electric Authority paid
us an aggregate of $626,170 and $181,107, respectively, for bio-solids hauling.
The contract was amended June 5, 1998 for the purpose of revising the renewal
provisions thereof. The parties agreed to combine the three remaining annual
renewal periods under the contract into a single term of three years ending
September 30, 2001 and to renew the contract through the end of such three year
period. The contract was further amended to adjust certain pricing terms covered
by the contract. Such adjustments include the parties agreement that the maximum
payment by the 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
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<PAGE>
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. Notwithstanding 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., pursuant 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
their 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 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.
Additionally, 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
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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 pursuant to 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 comply with the methods
prescribed by the Environmental Protection Agency for treatment and/or disposal
of waste as defined by Resource Conservation Recovery Act. These potential
changes may result in decreased demand for our services or increased costs that
could have a material adverse effect on our business.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended 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, joint and
several 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 nonhazardous 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, the Company may be held
jointly and severally liable for the costs of any damage or required cleanup of
the site.
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.
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State and local governments in which we now operate, or may operate in the
future has 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 Company operations. These include zoning and health measures that
limit waste management activities to specified sites or activities, flow control
provisions that direct the delivery of wastes to specific facilities, laws that
grant rights to establish franchises for collection services and then put out
for bid the right to provide collection services, and bans or other restrictions
on the movement of wastes into a county or municipality.
In addition, in order to develop, operate and expand waste management
facilities, it is generally necessary to obtain and maintain in effect one or
more operating permits as well as zoning, environmental and other land use
permits. These permits and approvals are difficult and time-consuming to obtain
and are frequently subject to opposition by local elected officials or citizens.
Facility operating permits may be subject to revocation, and it may be necessary
to periodically renew the permit. Revocation or renewal of a permit may reopen
opportunities for opposition to the permit. Loss of an operating permit would
require that the affected facility be shut down until the permit is renewed or
reissued, and this could have a material adverse effect on 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. Nevertheless, there can be no assurance
that hazardous substances are not or will not, unknown to us, be present at our
facilities, or that we will not incur liability for environmental damage. The
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, imposes strict, joint and several liability on the present and former
owners 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
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<PAGE>
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/or 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 March 31, 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.
Notwithstanding the foregoing, 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 1,516 square feet of
office space. The property is subject to a three year lease which commenced on
September 1, 1997. We consider this space adequate for our present and
anticipated future needs. The lease is renewable at the end of the three year
lease term upon mutual agreement of the parties on terms to be negotiated.
The Starke, Florida property is used principally for repair work on 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
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$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 March 31, 2000,
of approximately $254,329 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.
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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 (1) 63 Chairman of the Board of Directors
and Executive Vice President
Dr. John S. Poser (2) 53 Director
Thomas F. Fey (2) 55 Director
----------
[FN]
(1) Member of the audit and finance committee
(2) Member of the compensation committee
</FN>
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 capa cities 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.
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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 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 Michael B.
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Ricks and William B. Gray. 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.
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 pursuant to 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 pursuant 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, the Company intends to purchase
Directors & Officers Insurance, if such insurance is available at rates which
are satisfactory to the Company.
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 pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange
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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.
<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> <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.
pursuant to 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 revised
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 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 $5.00 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, the Company has adopted a policy whereby no
39
<PAGE>
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 benefits, the use of a
Company leased automobile and the right to participate in any bonus or other
incentive compensation, profit sharing or retirement plan that 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 thereafter, 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
the Company, 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.
CERTAIN TRANSACTIONS
The transactions disclosed herein 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 disclosed
herein 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 March 31, 2000 is
$209,730. 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
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<PAGE>
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 the Company dated October 7, 1997, requires the Company to
pay interest on the outstanding principal balance through the date of repayment
at the annual rate of 18%. At March 31, 2000 the full amount of principal and
interest due on this loan had been reduced to $101,375. The Company 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.
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.
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<PAGE>
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 prior to 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 for the year 1999 and the portion of 2000 prior to the termination of our
S corporation status of up to $500,000. This distribution may be made using a
portion of the net proceeds of this offering. The actual amount of this will be
reduced to the extent distributions of accumulated earning are made by us to the
existing stockholders prior to the date of this offering with other corporate
funds.
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 March 31, 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
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 1,750,000 shares outstanding as of
March 31, 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., 9550 Regency Square Boulevard, Suite
1109, Jacksonville, FL 32225.
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<PAGE>
<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 thereof. 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.
(3) William Perry, the husband of Jeannie Perry, has neither voting or
investment power with regard to such shares and disclaims any
beneficial ownership thereof. 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.
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<PAGE>
(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 and
5,000,000 shares of preferred 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 March 31, 2000, 1,750,000 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 fo
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.
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.
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<PAGE>
Our calculation that 2,915,833 shares of common stock will be
outstanding after this offering and the acquisitions is based on the 1,750,000
shares of common stock outstanding prior to the offering, 1,000,000 shares of
common stock being sold by us in this offering, and 165,833 shares to be issued
in connection with the acquisitions. 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.
PREFERRED STOCK
Our certificate of incorporation authorizes the issuance of 5,000,000
shares of preferred stock with designations, rights and preferences determined
from time to time by its board of directors. Our board of directors is
empowered, without stockholder approval, to issue shares of preferred stock with
voting, liquidation, conversion, or other rights that could adversely affect the
rights of the holders of the common stock. We have no present intention to issue
any shares of preferred stock. There can be no assurance that we will not do so
in the future. No preferred stock may be issued without the underwriter's
consent for 12 months following the effective date of this prospectus.
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 7 E. 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
(not including the exercise of outstanding stock options) shares of common stock
or 3,065,833 shares if the underwriter's over-allotment option is exercised in
full. Of these shares, 2,637,000 will be freely tradeable, subject to lock-up
agreements with the underwriter and volume restrictions imposed by rule 144. The
lock-up agreements executed by the officers, directors and holders of a minimum
of five percent of our
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<PAGE>
common stock prohibit the transfer of 1,546,333 of the freely tradeable shares
without the underwriter's consent for 24 months after the offering.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our bylaws provide that we shall indemnify its 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 as 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 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
UNDERWRITERS OF 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.
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<PAGE>
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 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.
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<PAGE>
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
INDEMNIFICATION OF UNDERWRITER
We have agreed to indemnify the underwriter against specific civil
liabilities, including liabilities under the Securities Act.
Each of the underwriters has agreed to indemnify us, our 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 of which this prospectus forms a part or any
amendment or supplement thereto if such statement or omission was made in
reliance upon information furnished in writing to us by such underwriter
specifically for or in connection with the preparation of the registration
statement, the prospectus, or any such amendment or supplement thereto. In like
manner, we have agreed to indemnify the underwriters with respect to statements
in or omissions from the registration statement or prospectus made by us.
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.
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<PAGE>
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
Prior to 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:
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.
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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;
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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WESTSTAR ENVIRONMENTAL, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1999 and 1998 and March 31, 2000 F-3
Consolidated statements of operations for the years ended December 31, 1999 and
1998 and for the three-month periods ended March 31, 2000 and 1999 F-4
Consolidated statements of stockholders' equity for the years ended December 31,
1999 and 1998 and for the three-month periods ended March 31, 2000 and 1999 F-5
Consolidated statements of cash flows for the years ended December 31, 1999 and
1998 and for the three-month periods ended March 31, 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 March 31, 2000 (unaudited) F-22
Pro forma condensed consolidated statement of income for the three-month period
ended March 31, 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-35
Independent Auditors' Report F-36
Balance sheet as of December 31, 1998 F-37
Statement of income and retained earnings for the year ended December 31, 1998 F-38
Statement of cash flows for the year ended December 31, 1998 F-39
Notes to financial statements F-40-F-45
Statement of income for the period January 1, 2000 through March 9, 2000 (unaudited) F-46
WEALING BROTHERS, INC.
Independent Auditors' Report F-47
Balance sheet as of December 31, 1999 F-48
Statement of income and retained earnings for the year ended December 31, 1999 F-49
Statement of cash flows for the year ended December 31, 1999 F-50
Notes to financial statements F-51-F-54
Independent Auditors' Report F-55
Balance sheet as of December 31, 1998 F-56
Statement of income and retained earnings for the year ended December 31, 1998 F-57
Statement of cash flows for the year ended December 31, 1998 F-58
Notes to financial statements F-59-F-62
Balance sheet as of March 31, 2000 (unaudited) F-63
Statement of income for the three-month period ended March 31, 2000 (unaudited) F-64
VILLAGE VENTURES, INC.
Independent Auditors' Report F-65
Balance sheet as of December 31, 1999 F-66
Statement of income and retained earnings for the year ended December 31, 1999 F-67
Statement of cash flows for the year ended December 31, 1999 F-68
Notes to financial statements F-69-F-72
Balance sheet as of March 31, 2000 (unaudited) F-73
Statement of income for the three-month period ended March 31, 2000 (unaudited) F-74
</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.
/s/ HORTON & COMPANY, L.L.C.
----------------------------
HORTON & COMPANY, L.L.C.
March 8, 2000
Wayne, New Jersey
F-2
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------------------------
2000 1999 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash $ 67,773 $ 144,186 $ 18,108
Accounts receivable, net of allowances of $17,000
in 2000, $35,000 in 1999, and $26,000 in 1998 721,922 134,408 75,884
Prepaid expenses 82,712 69,175 43,777
---------- ---------- ----------
Total current assets 872,407 347,769 137,769
Property and equipment, net 1,861,391 1,503,707 1,647,228
Deferred charges and other assets 1,444,872 291,085 168,975
---------- ---------- ----------
$4,178,670 $2,142,561 $1,953,972
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 661,898 $ 354,393 $ 88,500
Current portion of long-term debt 346,012 315,496 66,036
Current portion of capital lease obligations 80,815 82,949 63,201
Accounts payable 510,104 289,425 361,248
Accrued expenses 140,292 52,075 100,152
Stockholder loans 573,536 331,001 340,697
---------- ---------- ----------
Total current liabilities 2,312,657 1,425,339 1,019,834
Long-term debt, net of current portion 437,800 235,862 551,357
Capital lease obligations, net of current portion 27,910 39,293 122,242
Other long-term liabilities 310,802 -- --
---------- ---------- ----------
3,089,169 1,700,494 1,693,433
---------- ---------- ----------
Stockholders' equity:
Common stock, $.001 par value,
10,000,000 shares authorized;
1,800,000 shares issued, 1,750,000 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 1,800 1,694 1,690
Additional paid-in capital 755,192 140,898 139,902
Treasury stock, 50,000 shares, at cost (12,500) (12,500) --
Retained earnings 345,009 311,975 118,947
---------- ---------- ----------
1,089,501 442,067 260,539
---------- ---------- ----------
$4,178,670 $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>
THREE-MONTH PERIOD
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------
2000 1999 1999 1998
---------- --------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 489,834 $ 335,173 $1,726,614 $1,696,915
---------- --------- ---------- ----------
Direct costs:
Labor and benefits 126,901 129,250 466,145 528,615
Vehicle operating costs 40,564 12,048 176,041 238,860
Depreciation 59,000 53,000 237,469 260,956
Insurance 17,538 10,453 39,206 91,584
Other 95,960 38,508 226,993 113,952
---------- --------- ---------- ----------
339,963 243,259 1,145,854 1,233,967
---------- --------- ---------- ----------
Gross profit 149,871 91,914 580,760 462,948
Selling and administrative expenses 84,273 43,900 285,054 330,489
---------- --------- ---------- ----------
Income from operations 65,598 48,014 295,706 132,459
---------- --------- ---------- ----------
Other expenses:
Cost of delaying planned public offering -- -- -- 204,088
Interest expense 32,564 17,671 102,678 86,745
---------- --------- ---------- ----------
32,564 17,671 102,678 290,833
---------- --------- ---------- ----------
Net income (loss) $ 33,034 $ 30,343 $ 193,028 $ (158,374)
========== ========= ========== ==========
PRO FORMA INFORMATION (UNAUDITED):
Historical income (loss) before income taxes $ 33,034 $ 30,343 $ 193,028 $ (158,374)
Pro forma income tax (expense) benefit (12,000) (11,000) (66,000) 55,000
---------- --------- ---------- ----------
Pro forma net income (loss) $ 21,034 $ 19,343 $ 127,028 $ (103,374)
========== ========= ========== ==========
Pro forma earnings (loss) per share:
Basic $ 0.01 $ 0.01 $ 0.08 $ (0.06)
========== ========= ========== ==========
Diluted $ 0.01 $ 0.01 $ 0.08 $ (0.06)
========== ========= ========== ==========
Historical weighted average shares outstanding:
Basic 1,672,033 1,690,000 1,673,951 1,666,630
========= ========= ========== ==========
Diluted 1,735,077 1,706,888 1,690,849 1,666,630
========= ========= ========== ==========
See notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
(INFORMATION FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 IS UNAUDITED)
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) -- -- -- -- -- 30,343
--------- --------- --------- ------ --------- ---------
Balance at March 31, 1999 1,690,000 $ 1,690 $ 139,902 -- $ -- $ 149,290
========= ========= ========= ========= ========= =========
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 14,394 -- -- --
Stock issued in acquisition of Pipeline
Contractors, Inc. (unaudited) 100,000 100 599,900 -- -- --
Net income (unaudited) -- -- -- -- -- 53,730
--------- --------- --------- ------ --------- ---------
Balance at March 31, 2000 1,800,000 $ 1,800 $ 755,192 50,000 $ (12,500) $ 365,705
========= ========= ========= ========= ========= =========
See notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------
2000 1999 1999 1998
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 33,034 $ 30,343 $ 193,028 $(158,374)
--------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities, net of
effects of business combination:
Depreciation and amortization 65,296 53,000 237,469 260,956
Bad debts -- -- 9,000 26,000
Interest cost paid in stock 14,400 -- 1,000 --
Accrued interest added to notes payable -- -- 15,893 --
Cost of delaying planned public offering -- -- -- 204,088
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 2,130 (46,586) (67,524) 305,852
(Increase) decrease in prepaid expenses (8,803) (599) (25,398) (16,984)
Increase (decrease) in accounts payable (41,007) (13,221) (71,823) (48,712)
Increase (decrease) in accrued expenses (3,329) (22,579) (48,077) 55,747
--------- --------- --------- ---------
Total adjustments 28,687 (29,985) 50,540 786,947
--------- --------- --------- ---------
Net cash provided by operating activities 61,721 358 243,568 628,573
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures (74,506) (1,429) (93,948) (146,266)
Investments in subsidiaries (50,000) -- -- --
Deposit on investment (25,000) -- -- --
--------- --------- --------- ---------
Net cash used in investing activities (149,506) (1,429) (93,948) (146,266)
--------- --------- --------- ---------
Cash flows from financing activities:
Deferred financing costs (155,985) (5,776) (134,610) (323,053)
Repayment of notes payable (41,791) -- -- (36,563)
Proceeds from notes payable 250,000 -- 250,000 --
Proceeds from long-term debt -- -- -- 160,000
Loan payments to stockholders and affiliates (7,465) -- (9,696) (57,937)
Proceeds from stockholders and affiliates -- 20,803 -- --
Principal payments on long-term debt (19,870) (15,668) (66,035) (151,630)
Principal payments on capital lease obligations (13,517) (16,396) (63,201) (57,249)
Dividends paid -- -- -- (4,000)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities 11,372 (17,037) (23,542) (470,432)
--------- --------- --------- ---------
Net increase (decrease) in cash (76,413) (18,108) 126,078 11,875
Cash balance at beginning of period 144,186 18,108 18,108 6,233
--------- --------- --------- ---------
Cash balance at end of period $ 67,773 $ -- $ 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 THREE-MONTH PERIODS ENDED MARCH 31, 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") and Pipeline Contractors,
Inc. ("Pipeline"). 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.
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.
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:
Years
-----
Building and improvements 15-40
Machinery and equipment 5-10
Vehicles 5
Depreciation expense was $237,469 and $260,956 for the years ended December
31, 1999 and 1998, respectively, and $59,000 and $53,000 for the
three-month periods ended March 31, 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.
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>
THREE-MONTH PERIOD ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- ---------------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BASIC:
Pro forma net income (loss) $ 21,034 $ 19,343 $ 127,028 $ (103,374)
----------- ----------- ----------- -----------
Weighted average shares
outstanding during the period 1,672,033 1,690,000 1,673,951 1,666,630
----------- ----------- ----------- -----------
Basic earnings (loss) per share $ 0.01 $ 0.01 $ 0.08 $ (0.06)
=========== =========== =========== ===========
DILUTED:
Net income (loss) $ 21,034 $ 19,343 $ 127,028 $ (103,374)
----------- ----------- ----------- -----------
Weighted average shares
outstanding during the period 1,672,033 1,690,000 1,673,951 1,666,630
Effect of dilutive securities:
Stock options 64,099 16,888 16,922 --
----------- ----------- ----------- -----------
1,736,132 1,706,888 1,690,873 1,666,630
----------- ----------- ----------- -----------
Diluted earnings (loss) per share $ 0.01 $ 0.01 $ 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 three-month periods ended
March 31, 2000 and 1999 was $18,164 and $17,671, 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,
MARCH 31, --------------------------
2000 1999 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land, building and improvements $ 690,495 $ 664,693 $ 607,107
Machinery and equipment 1,649,493 433,867 420,512
Vehicles 1,491,745 1,591,698 1,568,692
---------- ---------- ----------
3,831,733 2,690,258 2,596,311
Less: accumulated depreciation 1,970,342 1,186,551 949,083
---------- ---------- ----------
$1,861,391 $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,
MARCH 31, -----------------------------
2000 1999 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred offering costs $ 447,070 $ 278,867 $ 157,013
Goodwill 666,879 -- --
Covenant not to compete 300,000 -- --
Deposit 25,000 -- --
Other 12,219 12,218 11,962
---------- ---------- ----------
1,451,168 291,085 168,975
Less: accumulated amortization 6,296 -- --
---------- ---------- ----------
$1,444,872 $ 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,
MARCH 31, --------------------
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. $101,375 $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. 201,330 201,330 --
Unsecured notes payable to an individua within one year or
completion of the publi offering The notes are dated July
1999 and January 2000, with interest at 10.5%. The balance
includes unpaid interest. 102,188 52,188 --
Unsecured note payable to an individual within one year or
completion of the public offering. The note is dated March
2000, with interest at 10.0%. 100,000 -- --
Unsecured note payable to an individual within two years or
completion of the public offering. The note is dated
January 2000, with interest at 8.5%. 100,000 -- --
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. 50,358 -- --
45-day note payable to a bank with interest at 1% over
prime. The note is secured by the Company's property and
equipment. 6,647 -- --
-------- -------- -------
$661,898 $354,393 $88,500
======== ======== =======
</TABLE>
F-12
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
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. $254,329 $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. 150,481 152,432 157,444
Unsecured note payable to an individual in 150 monthly installments of
$1,000, including interest at 7%, through September 2006. 71,684 71,584 74,210
Note payable to a bank in monthly installments of $2,699 through
November 2000 and the unpaid balance of principal and interest due in
December 2000. Installments include interest at a rate of 7.5%. The note
is secured by the Company's property and equipment. 106,833 -- --
Note payable to a bank in monthly installments of $3,337 through
November 2000 and the unpaid balance of principal and interest in
December 2000. Installments include interest at a rate of 7.5%. The note
is secured by the Company's property and equipment. 102,285 -- --
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. 43,206
-------- -------- --------
Notes payable to various banks in monthly installments of $5,187,
including effective interest between 8.75% and 11.5%, through April
2002. These notes are secured by machinery, equipment and vehicles. 54,994 67,343 113,713
-------- -------- --------
783,812 551,358 617,393
Less: current portion of long-term debt 346,012 315,496 66,036
-------- -------- --------
Long-term debt, net of current portion $437,800 $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:
Year ending
December 31,
------------
2000 $315,496
2001 37,166
2002 23,280
2003 141,249
2004 9,923
Thereafter 24,244
--------
$551,358
========
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 $191,067 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:
Year ending
December 31,
------------
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 (89,949)
--------
$ 32,293
========
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:
Year ending
December 31, Office Vehicle
------------ ------- -------
2000 $15,177 $ 8,200
2001 -- 8,200
2002 -- 4,784
------- ------
$15,177 $21,184
======= =======
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. The underwriting is dependent on
the Company consummating several planned acquisitions (Note 12) which would
result in pro-forma consolidated revenues of approximately $10,000,000 and
$1,000,000 of pre-tax profit. Upon the successful completion of the planned
offering, Weststar would revoke its election to be treated as an S
corporation (Note 9). 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 was 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 ACQUISITIONS
Planned acquisitions are as follows:
During 1999, the Company signed a letter of intent to acquire 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 proposed
agreement, Weststar would acquire 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.
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.
F-18
<PAGE>
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.
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,
which ever is earlier. As additional consideration, the Lenders are to
receive a total of 5,000 shares of the Company's common stock. 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 COMBINATION
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.
The following unaudited information has been prepared on a pro forma basis
as if the business of Pipeline had been acquired as of the beginning of the
year ended December 31, 1999:
Revenues $5,101,970
----------
Net income $ 653,111
----------
Pro forma income taxes $ 228,589
----------
Pro forma net income $ 424,522
----------
Basic earnings per share $ 0.24
----------
Weighted average common shares 1,773,951
----------
F-19
<PAGE>
14. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
BUSINESS COMBINATION (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 acquisition 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>
THREE-MONTH PERIOD ENDED WASTE
MARCH 31, 2000 MANAGEMENT CONSTRUCTION TOTAL
------------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Revenues $ 337,579 $ 152,255 $ 489,834
Interest expense $ 30,688 $ 1,876 $ 32,564
Depreciation and amortization $ 46,500 $ 18,796 $ 65,296
Segment profit $ 19,721 $ 13,313 $ 33,034
Segment assets $2,267,962 $1,910,708 $4,178,670
Expenditures for segment assets $ 74,506 $ -- $ 74,506
</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 acquisitions of Village
Ventures, Inc. ("Village") and Wealing Brothers, Inc. ("Wealing"), as if the
transactions had taken place at March 31, 2000 for the pro forma condensed
consolidated balance sheet, and to give effect to the offering and the
acquisitions of Village, 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 for the three-month period ended March 31, 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)
MARCH 31, 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 $ 67,773 $ -- $ 7,580 $ 64,983 (a) $ 1,670,019 $ 1,810,355
Accounts receivable 721,922 -- 258,471 113,963 -- 1,094,356
Inventories -- -- 97,237 34,081 -- 131,318
Prepaid expenses 78,965 -- 20,050 9,979 -- 108,994
Due from affiliates 3,747 -- -- -- -- 3,747
Stockholder loans -- -- 44,113 -- -- 44,113
---------- ----------- ----------- ----------- ----------- -----------
Total current assets 872,407 -- 427,451 223,006 1,670,019 3,192,883
---------- ----------- ----------- ----------- ----------- -----------
Property and equipment, net 1,861,391 -- 331,299 822,622 -- 3,015,312
---------- ----------- ----------- ----------- ----------- -----------
Other assets:
Deferred charges 37,219 -- -- 10,942 (b) (25,000) 23,161
Deferred offering costs 447,070 -- -- -- (c) (447,070) --
Goodwill 666,879 -- -- -- (b) 1,736,525 2,403,404
Covenant not-to-compete 300,000 -- -- -- -- 300,000
Accumulated amortization (6,296) -- -- -- -- (6,296)
---------- ----------- ----------- ----------- ----------- -----------
Total other assets 1,444,872 -- -- 10,942 1,264,455 2,720,269
---------- ----------- ----------- ----------- ----------- -----------
Total assets $ 4,178,670 $ -- $ 758,750 $ 1,056,570 $ 2,934,474 $ 8,928,464
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - unsecured $ 661,898 $ -- $ -- $ -- (a) $ (661,898) $ --
Current maturities of long-term debt 426,827 -- 52,032 205,106 (a) (426,827) 257,138
Accounts payable 510,104 -- 46,856 84,242 -- 641,202
Accrued expenses 140,292 -- 121,740 29,297 -- 120,062
Stockholder loans 573,536 -- -- 8,333 (a) (573,536) 8,333
---------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 2,312,657 -- 220,628 326,978 (1,662,261) 1,198,002
---------- ----------- ----------- ----------- ----------- -----------
Long-term debt, net of current maturities 465,710 -- 104,345 698,386 (a) (313,710) 954,731
Other long-term liabilities 310,802 -- -- -- -- 310,802
---------- ----------- ----------- ----------- ----------- -----------
776,512 -- 104,345 698,386 (313,710) 1,265,533
---------- ----------- ----------- ----------- ----------- -----------
Total liabilities 3,089,169 -- 324,973 1,025,364 (1,975,971) 2,463,535
---------- ----------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock 1,800 -- -- 800 (c) 366 2,966
Additional paid-in capital 755,192 -- 178,493 16,515 (c) 5,179,254 6,129,454
Treasury stock (12,500) -- -- -- -- (12,500)
Retained earnings 345,009 -- 255,284 13,891 (c) (269,175) 345,009
---------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity 1,089,501 -- 433,777 31,206 4,910,445 6,464,929
---------- ----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity $ 4,178,670 $ -- $ 758,750 $ 1,056,570 $ 2,934,474 $ 8,928,464
=========== =========== =========== =========== =========== ===========
</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)
THREE-MONTH PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS
----------------------------------------------------- PRO FORMA PRO FORMA
WESTSTAR PIPELINE WEALING VILLAGE ADJUSTMENTS CONSOLIDATED
--------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 489,834 $ 449,881 $ 384,079 $ 434,966 $ -- $ 1,758,760
Direct costs 339,963 396,065 178,672 312,926 (d) 10,000 1,237,626
--------- --------- --------- --------- ---------- -----------
Gross profit 149,871 53,816 205,407 122,040 (10,000) 521,134
Selling and administrative expenses 84,273 17,899 91,171 92,913 (e) 55,057 341,313
---------- --------- --------- --------- ---------- ------------
Income from operations 65,598 35,917 114,236 29,127 (65,057) 179,821
Interest expense 32,564 3,884 3,731 19,593 (f) 4,250 64,022
--------- --------- --------- --------- ---------- ------------
Income before income taxes 33,034 32,033 110,505 9,534 (69,307) 115,799
Income taxes -- -- 38,677 3,337 (g) (1,046) 40,968
--------- --------- --------- --------- ---------- ------------
Net income $ 33,034 $ 32,033 $ 71,828 $ 6,197 $ (68,261) $ 74,831
========= ========= ========= ========= ========== ===========
Income before income taxes $ 33,034 $ 115,799
Pro forma income taxes 12,000 40,968
--------- -----------
Pro forma net income $ 21,034 $ 74,831
========= ===========
Pro forma earnings per share $ 0.01 $ 0.03
========= ===========
Weighted average shares outstanding 1,672,033 2,837,866
========= ===========
</TABLE>
See notes to pro forma condensed consolidated financial statements
F-23
<PAGE>
WESTSTAR ENVIRONMENTAL, INC.
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
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 2,824,945 874,464 1,383,945 (d) 80,000 6,309,208
----------- ----------- ----------- ----------- ---------- -----------
Gross profit 580,760 550,411 481,726 629,803 (80,000) 2,162,700
Selling and administrative expenses 285,054 74,019 242,205 345,973 (e) 198,402 1,145,653
----------- ----------- ----------- ----------- ---------- -----------
Income from operations 295,706 476,392 239,521 283,830 (278,402) 1,017,047
Interest expense 102,678 16,309 19,637 90,913 (f) 17,000 246,537
----------- ----------- ----------- ----------- ---------- -----------
Income before income taxes 193,028 460,083 219,884 192,917 (295,402) 770,510
Income taxes -- -- 69,988 -- (g) 192,719 262,707
----------- ----------- ----------- ----------- ---------- -----------
Net income $ 193,028 $ 460,083 $ 149,896 $ 192,917 $ (488,121) $ 507,803
=========== =========== ========== =========== ========== ===========
Income before income taxes $ 193,028 $ 770,510
Pro forma income taxes 67,560 262,707
----------- -----------
Pro forma net income $ 125,468 $ 507,803
=========== ===========
Pro forma earnings per share $ 0.07 $ 0.17
=========== ===========
Weighted average shares outstanding 1,673,951 2,939,784
=========== ===========
</TABLE>
See notes to pro forma condensed consolidated financial statements
F-24
<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 March 31, 2000 and the pro forma
condensed consolidated statements of income for the three-month period ended
March 31, 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 Wealing Brothers, Inc. and the
retirement of certain indebtedness of the Company and that of the companies
to be acquired.
<TABLE>
<CAPTION>
Cash:
<S> <C> <C>
Estimated proceeds, net $ 4,827,500
Repayment of unsecured notes payable (661,898)
Repayment of long-term debt, including current
portion of long-term debt (740,537)
Repayment of stockholder loans (573,536)
Acquisition of Village Ventures, Inc., including
related expenses (821,510)
Acquisition of Wealing Brothers, Inc., including
related expenses (360,000)
--------
(3,157,481)
-----------
$ 1,670,019
===========
</TABLE>
(b) The following pro forma adjustments reflect the elimination of the
investment in Wealing and Village. The acquisitions are 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 acquisitions and
adjustments are summarized as follows:
Wealing Brothers, Inc.
Reflects the issuance of 82,500 shares of Weststar's common stock to
purchase all outstanding shares of Wealing Brothers, Inc. The share
issuance has been recorded at the estimated fair value of $6.00 per share.
The acquisition of Wealing 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Stock purchase price $495,000
Payment of note payable 360,000
--------
855,000
Less: adjusted net assets acquired 433,777
--------
Excess cost of net assets acquired over estimated fair value $421,223
========
</TABLE>
F-25
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Stock purchase price $ 499,998
Cash payments 25,000
Payment of note payable 821,510
--------
1,346,508
Less: adjusted net assets acquired 31,206
----------
Excess cost of net assets acquired over estimated fair value $1,315,302
==========
</TABLE>
(c) Reflects the pro forma adjustments and transactions relating to
stockholders' equity as a result of the following:
<TABLE>
<CAPTION>
<S> <C>
Common stock:
Proceeds from the offering $ 1,000
Stock issued in acquisitions 166
Elimination of common stock of Wealing and Village (800)
-----------
$ 366
Additional paid-in capital:
Proceeds from the offering $ 5,999,000
Stock issued in acquisitions 994,832
Elimination of additional paid-in capital of Wealing and Village (195,008)
Offering costs (1,619,570)
-----------
$ 5,179,254
-----------
Retained earnings:
Elimination of retained earnings of Wealing and Village $ (269,175)
===========
</TABLE>
(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.
/s/ REDDISH & WHITE, C.P.A.'S
-----------------------------
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:
Accounts payable $ 239,075
Payroll taxes payable 68,919
Billings in excess of costs and estimated
earnings on uncompleted contracts 0
Current portion of long-term debt 39,097
---------
Total current liabilities 347,091
---------
Long-term liabilities:
Accounts payable 196,805
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
=========
See notes to financial statements
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 2,824,945
-----------
Gross profit 550,411
-----------
Operating expenses:
Accounting and legal 2,465
Advertising 441
Bank charges 943
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 92,012
-----------
Income from operations 458,399
-----------
Other income:
Miscellaneous Income 1,684
-----------
Total other income 1,684
-----------
Net income 460,083
Beginning deficit in retained earnings (490,578)
-----------
Ending retained earnings $ (30,495)
==========
See notes to financial statements
F-29
<PAGE>
PIPELINE CONTRACTORS,INC.
STATEMENT OF CASH FLOWS
YEAR ENDED 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 by operating activities 13,104
---------
Cash flows from investing activities:
Purchases of property and equipment (1,226)
---------
Net cash used by investing activities (1,226)
---------
Cash flows used for financing activities:
Principal payments on long-term debt (31,636)
Advances from stockhlder 3,001
Repayments to stockholder (6,500)
---------
Net cash used by financing activities (35,135)
---------
Net decrease in cash (23,257)
Cash at beginning of year 38,876
---------
Cash at end of year $ 15,619
=========
SUPPLEMENTAL DISCLOSURES
Interest Paid $ 16,309
Income Taxes Paid --
See notes to financial statements
F-30
<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>
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.
/s/ REDDISH & WHITE, C.P.A.'S
-----------------------------
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
FEBRUARY 2, 2000
F-36
<PAGE>
PIPELINE CONTRACTORS,INC.
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 $ 464,049
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 871,251
---------
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' EQUITY (490,078)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 490,519
=========
See notes to financial statements
F-37
<PAGE>
PIPELINE CONTRACTORS,INC.
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)
===========
See notes to financial statements
F-38
<PAGE>
PIPELINE CONTRACTORS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED 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 Stockholder 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 --
See notes to financial statements
F-39
<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-40
<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-41
<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-42
<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-43
<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 non-cancelable 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-44
<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
=========
F-45
<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-46
<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.
/s/ REDDISH & WHITE, C.P.A.'S
-----------------------------
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
JANUARY 25,2000
F-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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.
/s/ REDDISH & WHITE, C.P.A.'S
-----------------------------
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
JULY 14,2000
F-55
<PAGE>
WEALING BROTHERS, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
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
========
See notes to financial statements
F-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<PAGE>
WEALING BROTHERS, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
ASSETS
Current assets:
Cash $ 7,580
Accounts receivable 258,471
Inventories 97,237
Prepaid expenses 20,050
Stockholder loans 44,113
---------
Total current assets 427,451
Property and equipment, net 331,299
---------
Total assets $ 758,750
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 52,032
Accounts payable 46,856
Accrued expenses 121,740
---------
Total current liabilities 220,628
Long-term debt, net of current maturities 104,345
---------
Total liabilities 324,973
---------
Stockholders' equity:
Additional paid-in capital 178,493
Retained earnings 255,284
---------
Total stockholders' equity 433,777
---------
Total liabilities and stockholders' equity $ 758,750
=========
F-63
<PAGE>
WEALING BROTHERS, INC.
STATEMENT OF INCOME
(UNAUDITED)
THREE-MONTH PERIOD ENDED MARCH 31, 2000
Sales $ 384,079
Direct costs 178,672
---------
Gross profit 205,407
Selling and administrative expenses 91,171
---------
Income from operations 114,236
Interest expense (3,731)
---------
Income before income taxes 110,505
Income taxes 38,677
---------
Net income $ 71,828
=========
F-64
<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.
/s/ REDDISH & WHITE, C.P.A.'S
-----------------------------
REDDISH & WHITE, C.P.A.'S
STARKE, FLORIDA
JANUARY 25, 2000
F-65
<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-66
<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-67
<PAGE>
VILLAGE VENTURES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
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 $ --
=========
See notes to financial statements
F-68
<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-69
<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-70
<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-71
<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-72
<PAGE>
VILLAGE VENTURES, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
ASSETS
Current assets:
Cash $ 64,983
Accounts receivable 113,963
Inventories 34,081
Prepaid expenses 9,979
-----------
Total current assets 223,006
Property and equipment, net 822,622
Deferred charges 10,942
-----------
Total assets $ 1,056,570
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 205,106
Accounts payable 84,242
Accrued expenses 29,297
Stockholder loans 8,333
-----------
Total current liabilities 326,978
Long-term debt, net of current maturities 698,386
-----------
Total liabilities 1,025,364
-----------
Stockholders' equity:
Common stock 800
Additional paid-in capital 16,515
Retained earnings 13,891
-----------
Total stockholders' equity 31,206
-----------
Total liabilities and stockholders' equity $ 1,056,570
===========
F-73
<PAGE>
VILLAGE VENTURES, INC.
STATEMENT OF INCOME
(UNAUDITED)
THREE-MONTH PERIOD ENDED MARCH 31, 2000
Sales $ 434,966
Direct costs 312,926
---------
Gross profit 122,040
Selling and administrative expenses 92,913
---------
Income from operations 29,127
Interest expense (19,593)
---------
Income before income taxes 9,534
Income taxes 3,337
---------
Net income $ 6,197
=========
F-74
<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
thereto 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 thereto.
The Florida General Corporation Act (the "Florida GCA") 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 GCA; 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 GCA provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any rights to which the directors
and officers may be entitled under the corporation's by-laws, any agreement,
vote of shareholders or otherwise.
Article 7 of 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 PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION
IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
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:
51
<PAGE>
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
Pursuant to 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. Pursuant to such stock split, the 100,000
outstanding shares of Common Stock, $1 par value, were converted at the rate of
15 for 1 into 1,500,000 shares of Common Stock, $.001 par value, all of which
remain currently issued and outstanding. Subsequent to the certificate amendment
and stock split, the following unregistered securities were issued by us. No
underwriting discounts or commissions were paid in connection with the issuance
of such securities.
As of February 1998, under the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, 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. 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.
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.
All of such purchasers acknowledged that they were acquiring such
securities for investment. Restrictive legends were placed on all stock
certificates issued in said transactions and stop transfers were placed against
all such certificates. Exemption from registration under the Securities Act of
1933, as amended, was claimed pursuant to Section 4(2) of said Act.
During the current fiscal year and the fiscal years ended December 31, 1998
and December 31, 1997, the Company issued an aggregate of 300,000 non-statutory
stock options pursuant to the Company's 1997 Nonstatutory Stock Option Plan as
set forth in the following table and amended in September of 1999:
52
<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 10,000
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 of 1933, as amended. The warrants are exercisable at 140% of the IPO price
of the Company's common stock.
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
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, as amended.
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 the Company, Northstar Holding Corp., Weststar Acquisition
Corp., B&B Acquisition Corp., B&B Septic and Environmental Services,
Inc. and Michael E. Ricks
3.1 Articles of Incorporation file June 26, 1990
3.2 Amendment to Articles of Incorporation filed March 12, 1993
----------
*By Amendment
53
<PAGE>
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 the Company and
Michael E. Ricks
10.2 Promissory Note dated October 7, 1998 issued by the Company to G&W
Framing Contractors, Inc.
10.3 Staff Leasing Agreement, dated December 16, 1999 between the Company
and Professional Employer Plans, Inc.
10.4 Consultant Agreement dated as of January 27, 1999 between the
Company 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 the Company to
Gloria Ferguson et al in the amount of $100,000.
10.8 Promissory note, dated October 11, 1995, made by the Company
to SouthTrust Bank of Central Florida in the amount of
$76,284.80.
10.9 Promissory note, dated March 1, 1996, made by Company to
SouthTrust Bank of Central Florida in the amount of $75,000.
10.10 Form of Promissory Notes made by the Company to Peggy and Marie
Stubbs.
10.11 Mortgage note, dated June 3, 1998, made by the Company to
Primesouth Bank in the amount of $160,000.
10.12 Agreement and Plan of Reorganization between Ronald E. Denmark and
the Company dated March 10, 2000 regarding acquisition of Pipeline
Contractors, Inc.
10.13 Form of Stock Purchase Agreement between Joseph M. Duke and Carolyn
M. Duke and the Company 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 the Company regarding
the acquisition of Wealing Brothers, Inc.
10.15 Consulting Agreement dated as of January 1, 1999 between the Company
and Thomas C. Souran.
10.16 Loan Agreement dated June 15, 1999 between the Company and Edward
Tenant in the principal amount of $50,000.
10.17 Loan Agreement dated July 23, 1999 between the Company and Linda
Pomerantz in the principal amount of $50,000.
10.18 Loan Agreement dated December 31, 1999 between the Company and
Edward Tenant in the principal amount of $150,000.
10.19 Loan Agreement dated January 19, 2000 between the Company and Paige
Gray Bertini in the principal amount of $100,000.
10.20 Loan Agreement dated January 24, 2000 between the Company and Linda
Pomerantz in the principal amount of $50,000.
21. Subsidiaries -- The Company's only subsidiaries, which are
wholly-owned, are B&B Septic and Environmental Services, Inc., a
Florida corporation, Pipeline Contractors Inc. and Village Ventures,
Inc.
--------
*By Amendment
54
<PAGE>
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
ITEM 28. UNDERTAKINGS
(a) RULE 415 OFFERING
The undersigned Company will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof), which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) Include any additional or changed material
information on the plan of distribution not previously
disclosed in the Registration Statement.
(2) For determining any liability under the Securities Act, that each
such post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
(b) INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Weststar
pursuant to 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 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.
55
<PAGE>
(c) RULE 430A
The undersigned Company will:
(1) For determining any liability under the Securities Act of 1933,
treat the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered therein, and that offering of
the securities at that time as the initial bona fide offering of those
securities.
56
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Jacksonville, State of Florida, on August 11, 2000.
WESTSTAR ENVIRONMENTAL INC.
By /s/ Michael E. Ricks
---------------------------
MICHAEL E. RICKS, President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
SIGNATURES TITLE DATE
---------- ----- ----
Principal Executive, Financial
and Accounting Officer:
/s/ Michael E. Ricks President August 11, 2000
--------------------
MICHAEL E. RICKS
A Majority of the Board of Directors:
/s/ Michael E. Ricks Director August 11, 2000
--------------------
MICHAEL E. RICKS
/s/ William B. Gray Director August 11, 2000
--------------------
WILLIAM B. GRAY
/s/ John S. Poser Director August 11, 2000
--------------------
DR. JOHN S. POSER
/s/ Thomas F. Fey Director August 11, 2000
--------------------
THOMAS F. FEY
57
