UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended April 30, 1996
Commission File No. 0-17072
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
(Formerly International Bankcard Services Corporation)
State of Delaware 11-2844247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
72 Cabot Street, West Babylon, New York 11704
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (516) 694-7060
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: 575,000 Units, each
Unit consisting of Five Warrants, each Warrant entitling the holder thereof to
purchase one share of Common Stock, at $1.50 per share.
Indicate by check marks whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
This form does NOT contain disclosure of any delinquent filers as required by
item 405 of Regulation S-B and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-KSB or any amendments to
this form 10-KSB.
The issuer's revenues for its most current fiscal year were $9,906,661
As of July 31, 1996, the issuer had 9,028,477 common shares, $.0001 par value,
outstanding. Based upon the average bid and ask price on that date ($.63) the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $5,678,500 (assuming solely for purposes of this
calculation that all directors and officers of the Registrant are "affiliates").
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Comprehensive Environmental Systems, Inc. and subsidiaries ("Comprehensive" or
the "Company") was incorporated under the laws of the state of Delaware on March
21, 1986 under the name of International Bankcard Services Corporation. The
original company marketed various credit card and consumer services to financial
institutions. In fiscal 1993, the Company divested itself of this operation and
commenced acquisitions of other entities primarily in the environmental sector.
Today, Comprehensive has emerged as a leading environmental company that offers
a broad range of services.
In fiscal 1996, one of Comprehensive's wholly owned subsidiaries became only the
fifth environmental remediation company on the East Coast to obtain a "Class E"
designation from the US Coast Guard. With this rating, which is the highest
available, the Company can now provide oil spill and hazardous chemical clean-up
in wetland, coastal and ocean locations. Additionally in 1996, the Company
purchased a testing laboratory that allows it to offer materials testing and
expands the environmental services offered to its clients. Thus, the Company is
in a position to expand its marketing efforts through the client synergism that
these varied services create.
Business of Issuer
Operations
In fiscal 1994, when the Company first entered the environmental clean-up
business, it was principally marketed as an asbestos remediation, transportation
and disposal company. Asbestos abatement remains a large part of the business.
Hundreds of buildings, manufacturing facilities, power plants, government
offices, commercial offices, schools, churches and other structures that were
constructed prior to 1972 were built with materials containing asbestos that now
pose serious health hazards and must be removed under threat of legal penalty or
lack of continued insurability.
In fiscal 1995 Comprehensive, undertook a vast expansion and now offers many
additional services to its broad based clientele. These services include the
following:
o Asbestos Abatement/Demolition
o Lead Abatement
o Sandblasting for Lead and Repainting
o Underground Storage Tank Removal/Soil Remediation
o Oil Spill Response - Marine and Land
o Hazardous Waste Management/Chemical Response
o 24-hour Emergency Response
o Environmental Duct Cleaning
o Fire Restoration
o Wetlands Restoration/Wildlife Rehabilitation
o OSHA Safety and OPA '90 Training
o General Construction
o Testing for Hazardous and Non-hazardous Waste
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<PAGE>
The Companies' fleet of spill response boats are available twenty-four hours a
day, seven days a week. These vessels are equipped with skimmer capabilities.
The staff includes professional divers experienced in sunken boat retrievals and
Coast Guard certified captains. The Coast Guard maintains a spill response list
of companies that have passed rigorous testing qualifications. Only those
companies on the list can respond to emergency spills. In fiscal 1996, the
Company qualified to be included on the Coast Guard's list.
For dry land liquid spills, Comprehensive has the equipment capacity to move
100,000 gallons in any 24 hour period directly to the disposal facility
utilizing a fleet of 18 pump trucks that include tankers and straight trucks.
Additionally, this esquipment has the capability of loading directly into drums
on site, roll-offs or transporting directly to the disposal site. One of
Comprehensive's subsidiaries is a licensed waste hauler for the State of New
York.
All of the Company's equipment is U.S. Department of Labor-Occupational and
Safety Health Administration ("OSHA"), approved and is operated pursuant to a
strict written corporate health and safety plan. Additionally, each member of
its on-site work force is trained in all aspects of OSHA requirements. This
includes medical surveillance as required by these regulations. All health and
safety programs are in place and meet all regulations.
In 1992, in an effort to protect families from exposure to the hazards of
lead-based paint, Congress amended the Toxic Substances Control Act to add Title
X, titled "Lead Exposure Reduction". Lead poisoning is the number one
environmental hazard to children. Since May 1993, OSHA has had standards for
lead exposure in the construction industry that requires testing before, during
and after construction or renovation. The Environmental Protection Agency
("EPA") estimates that 936,000 workers fall under OSHA's Lead Based Paint Hazard
Reduction Act.
Among its many services, the Company provides a training program on lead hazards
in the construction industry trades. It is designed for use by supervisors,
foremen, project safety and health trainers, construction workers and laborers.
The training program addresses the following topics: Sources of lead exposure;
health effects of lead; personal protective equipment and the medical
surveillance required by OSHA; engineering controls and lead removal procedures.
Presently, the Company's broad range of services makes it one of the leading
environmental companies in the New York Tri-State area.
Marketing and Sales
Comprehensive markets its environmental services to a broad range of customers.
These customers include Fortune 500(TM) companies, banks, school districts,
state, local and county governments, commercial building owners and real estate
development concerns. Additionally, with its Class E marine oil spill response
designation, the Company is on the official Coast Guard list of companies
qualified to provide oil spill clean up that is paid for through government
agencies or insurance companies.
The Company's environmental services are marketed in the New York metropolitan
area including Long Island, Connecticut and New Jersey. Business is obtained
through client referral, client expansion, referrals from architects, engineers
and general contractors for whom the company has provided services, competitive
bidding, and advertising.
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<PAGE>
In all of its marketing efforts, including competitive bidding, Comprehensive
emphasizes its experience, industry knowledge, safety record and reputation for
timely performance of contracts. With its new testing capabilities,
Comprehensive also provides surveying and sampling of materials that leads to
the opportunity to market and sell its services.
Government Regulation
Asbestos abatement firms are subject to federal, state and local regulations,
including OSHA and EPA regulations for asbestos. Government regulations have
heightened public awareness of the danger of asbestos contamination, creating
pressure on both private and public building owners to abate this hazard, even
in the absence of specific regulations requiring corrective action.
Lead poisoning is the number one environmental hazard to children. The 1992
adoption of the Toxic Substances Control Act to add Title X, titled "Lead
Exposure Reduction", and the 1993 adoption by OSHA of standards for lead
exposure in the construction industry essentially created a new area for
environmental remediation. The EPA estimates that 936,000 workers fall under
OSHA's Lead Based Paint Hazard Reduction Act. The Company believes that these
recently adopted lead remediation laws create new opportunities that the Company
will be able to take advantage of.
In fiscal 1996, the Company received its Class E marine oil spill response
designation from the US Coast Guard. This designation, which is the highest
rating that can be achieved allows the company to respond to a variety of high
profile contamination containment spills such as, for example, oil tanker
disasters.
Insurance and Surety Bonds
The Company carries general liability insurance on a "claims made" basis with an
A++15 rated insurer. "Claims made" policies cover claims filed during the life
of the policy and a specified "tail" period thereafter arising out of projects
during the life of the policy. In addition, the Company maintains workers
compensation and employers liability including harbor workers insurance policy.
The Company also carries comprehensive automobile liability and hull machinery
protection insurance.
All bids for lead and asbestos abatement work require that the contractor
maintains liability insurance covering its operations and, in many cases, the
property owner as an additional insured. Many major insurance companies, after
experiencing numerous claims against asbestos product manufacturers during the
1980's, have dropped all coverage for asbestos related claims and have refused
to write liability policies for persons engaged in the asbestos industry,
including asbestos abatement contractors. Denial of insurance to abatement
contractors has created a problem for building owners who feel compelled to
remove asbestos and yet cannot find contractors with adequate insurance
coverage. The inability of the Company to obtain liability insurance, the
reduction of policy limits or a sizeable increase in rates could materially and
adversely affect the Company's business. Because asbestos related illnesses may
not become apparent until 15 to 35 years after exposure, any shortening of the
"tail" during which claims can be made would materially increase the risks to
the Company. Finally, the Company is subject to the risk of potential claims in
excess of policy limits, claims relating to projects performed during periods
not covered by insurance or claims made after the expiration of the policy
coverage period. Since its incorporation the Company has not filed claims
against its liability insurance carriers with respect to its asbestos abatement
operations. The Company's premium rates for its claims made policies have
remained stable.
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<PAGE>
Many of the Company's remediation and abatement contracts require performance or
completion bonds. The continuance of relationships with its various sureties and
the issuance of bonds pursuant thereto is dependent on the sureties continued
willingness to write bonds for asbestos abatement work, their assessment of the
Company's performance record and their view as to the credit worthiness of the
Company. At present, surety bonds for asbestos abatement contractors are
available only from a limited number of sureties. While the Company has no
reason to believe that it will not continue to be able to obtain required surety
bonds, any failure of the Company to obtain these bonds could materially and
adversely affect its revenues.
Permits and Licenses
Certain states require that asbestos abatement firms be licensed. Licensing
requires that workers and supervisors receive training from state certified
organizations and pass required tests. The Company is presently licensed in New
York and New Jersey, the only license-requiring states in which it conducts
operations. New York City has also passed regulations requiring that only
specially trained and certified workers engage in asbestos abatement.
The Company may need additional licenses in areas into which it plans to expand
its operations. Based upon the level of training of its employees and its past
experience, the Company believes that it will be able to obtain all such
required licenses, though delays in commencing operations in a particular area
may occur.
Patents, Trademarks, Licenses and Copyrights
The Company does not hold any registered patents, trademarks or trade names. The
Company has obtained common law copyrights for certain of its promotional and
employee training materials. During fiscal 1996, the Company acquired a
Professional Engineering ("PE") license as part of the acquisition of a
subsidiary. Presently, the Company has intentions of selling this license.
Competition
The Company competes with numerous remediation, abatement and clean-up
companies, many of which have revenues which equal or exceed those of the
Company, and general or specialty construction contractors who perform
remediation and abatement work as an adjunct to their other business. Some
competitors are large diversified firms having substantially greater financial
and marketing resources than the Company. The Company's ability to compete
effectively depends upon its success in networking, generating leads and bidding
opportunities through its marketing efforts, the quality, safety and timely
performance of its contracts, the accuracy of its bidding and its ability to
hire and train field, operations and supervisory personnel. The Company believes
it is well positioned to compete within the New York Tri-State area.
Employees
As of April 30, 1996, the Company employed a core group of approximately 40
persons including managers, project specialists and executive personnel.
Independent contract labor pools are utilized on a project basis for field
labor. Additional marketing and clerical personnel are employed on a part-time
basis as needed.
The Company attempts to provide year-round employment for its hourly asbestos
field workers. The Company believes a stable work force results in increased
productivity at the work site and that its reputation for steady employment
permits it to pay reasonable hourly rates. The Company also believes in
promoting
-4-
<PAGE>
qualified field workers to supervisory positions and supervisors into production
management and other staff positions. The Company has never had a work stoppage
and believes that it has good employee relations.
All members of the work force engaged in remediation services are trained in
OSHA regulation where appropriate. Additionally, each field worker must be
examined by a physician and complete a training and safety program conducted by
the Company. Training topics include the dangers of asbestos, methods for
controlling friable Asbestos Containing Material ("ACM"), approved work
procedures and ACM transportation and handling procedures. Each employee is also
issued detailed training materials. The Company's managers and field supervisors
receive continuous training in various abatement and remediation methods.
ITEM 2. PROPERTIES
All of the Company's properties are leased. Lease terms range up to 5 years with
certain renewal options. Facilities and locations are:
<TABLE>
<CAPTION>
Principal Approx. Type of Exp.
Location Use Sq. Ft. Const. Date
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
72 Cabot St.
West Babylon, NY 11704 Headquarters, 20,000 Block May, 1998
Warehouse &
Offices
84 Kean St. Laboratory 8,000 Block September, 1997
West Babylon, NY 11704 Testing Facilities
</TABLE>
Management considers that its properties are well maintained and are sufficient
for its present operations, but additional facilities may be needed in
connection with the expansion of the Company's regional operations.
ITEM 3. LEGAL PROCEEDINGS
Pending Litigation
The Company commenced an arbitration action in August 1995 in connection with
the Spartan Dismantling Corp. joint operating agreement. The action alleges
breach of contract, fiduciary responsibility and other claims. The Company is
seeking to recover its net advances and accumulated profits of approximately
$2,800,000. Management intends to continue aggressively pursuing this action to
the fullest extent.
In an action that commenced in August 1995 in United States District Court, the
Company, various current and prior officers and directors have been named in a
lawsuit with certain shareholders which contains various allegations asserting
misrepresentations and non-disclosure of certain stock issuances made by the
company during fiscal 1995. Management denies any wrongdoing, asserts that the
complaint is without merit and intends to vigorously defend these claims and,
possibly assert counterclaims.
-5-
<PAGE>
Other Proceedings
In January 1996, the Company's wholly-owned subsidiary, Laboratory Testing
Services, Inc. ("LTS") filed a Chapter 11 petition in United States Bankruptcy
Court in the Eastern District of New York. Simultaneously to which, operations
of LTS were discontinued and efforts focused on liquidating assets to satisfy
outstanding corporate obligations. This proceeding is expected to be finalized
during fiscal 1997. Company management does not expect any significant
impairment of capital to the extent that settled obligations exceed the
liquidated assets of LTS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market on the
National Association of Securities Dealers Automatic Quotation System
("NASDAQ"). The following table sets forth the range of high and low sale (bid)
prices by quarter, for the last two fiscal years. These quotations represent
inter-dealer prices, do not reflect retail mark-up, mark-down, or commission and
may not represent actual transactions.
FISCAL 1995 HIGH LOW
----------- ----- -----
First Quarter (a) 28.12 16.25
Second Quarter (a) 25.62 12.50
Third Quarter (a) 15.62 4.69
Fourth Quarter 5.25 1.69
FISCAL 1996
-----------
First Quarter 3.38 1.63
Second Quarter 3.50 1.88
Third Quarter 1.88 .94
Fourth Quarter 1.19 .63
(a) These per share prices have been restated to reflect the 1 for 10 reverse
split effective January 21, 1995.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Core Operations
The loss from core operations was approximately $2,041,000 for fiscal 1996. This
resulted primarily from non-recurring expenses related to additional legal fees
necessary to settle litigation, redundant expenses in New York Testing
Laboratories, Inc. and Laboratory Testing Services, Inc. operations that have
now been streamlined, as well as setting an overhead structure to accommodate a
consolidated revenue base of between $15 and $20 million.
Revenues for fiscal 1996 and 1995 were approximately $9,907,000 and $8,313,000,
respectively, which represents a 20% increase from the prior year.
Cost of revenues increased $2,134,000 or 42% from fiscal 1995 to 1996. As a
percentage of revenues, such expenses were 73% and 62% for fiscal 1996 and 1995,
respectively.
Gross profits as a percentage of revenue decreased slightly to 27% in fiscal
1996 from 38% in fiscal 1995 primarily due to increases in certain direct
operating costs and excess non-recurring operational direct costs of New York
Testing Laboratories Inc. and Laboratory Testing Services, Inc.
For the years ended April 30, 1996 and 1995, the Company recognized $801,467 and
$1,918,795 of tax benefit, respectively, from various net operating loss
carryforwards based on the current ability to reasonably predict the utilization
of these losses against pre-tax profits in future years.
Investments
In line with the Company's continued focus on core operations, a conservative
approach was again taken in determining the carrying values of investments in
non-marketable securities. For fiscal 1996, additional reserves of approximately
$2,318,000 were recognized as unrealized losses and corresponding increase in
the valuation allowance was made for the related investments. This treatment is
consistent with the prior year where the ultimate realization of even a portion
of the investment is uncertain. Management believes the total remaining carrying
value at April 30, 1996 of $628,000, net of the valuation allowance, is
reasonable.
Liquidity and Capital resources
Working capital at April 30, 1996, including $283,000 in cash, was $1,386,000, a
decrease of 32% over the prior year. Accounts receivable increased $337,000 to
$2,044,000 as a result of increased revenues in the abatement, remediation and
spill response business.
Equipment increased by $2,207,000 due to increased operations related to
anticipated spill response business as well as the acquisition of New York
Testing Holdings, Inc. and subsidiaries during the fiscal year now included in
the consolidated balance sheet. No additional borrowings were incurred in
connection with the acquisition of this equipment.
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<PAGE>
The Company believes that the current levels of working capital and liquidity
will not be sufficient to support the continued increase in its scope of
operations. As such, management will be seeking new sources of capital as well
as establishing a credit facility in order to meet its goals.
ITEM 7. FINANCIAL STATEMENTS
See Item 13 herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements with accountants on accounting and financial
disclosure. A change in accountants is herein incorporated by reference to 8-K
filings dated August 8, 1995 and August 14, 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors of the Company hold office until the next annual meeting of
Stockholders and until their successors have been elected and shall qualify or
until their death, resignation or removal from office. The officers of the
Company are elected by the Board of Directors at the first meeting after each
annual meeting of the Company's stockholders, and hold office until their
successors are chosen and qualified, or until their death, resignation or
removal from office. The officers and directors of the Company are as follows:
EXECUTIVE OFFICERS
NAME TITLE APPOINTMENT DATE
- ---- ----- ----------------
Donald Kessler Chairman, President & Chief March 1995
Executive Officer
Michael O'Reilly Secretary August 1995
DIRECTORS
- ---------
Donald Kessler Chairman of the Board, President March 1995
and Chief Executive Officer
Leo Mangan Chief Operating Officer May 1993
Michael O'Reilly President of Trade-Winds December 1993
Environmental Restoration, Inc.
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<PAGE>
David Behanna Chief Financial Officer February 1995
James Nearen Outside Director December 1995
Lynne Scott Outside Director March 1996
Directors do not presently receive compensation for serving on the Board. In
addition, there are no pension, profit sharing or other forms of deferred
compensation available to any employee of the Company. The Company has adopted a
stock option plan for officers and key personnel. (See Item 11).
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company during the fiscal years ended April 30, 1996 to all executive officers
and key employees of the Company each of whose total cash compensation exceeded
$60,000 for services in all capacities.
<TABLE>
<CAPTION>
Other
Name and Annual Restricted Securities LTIP All Other
Principal Fiscal Compen- Stock Underlying Payouts Compen-
Position(s) Year Salary($) Bonus($) sation($) Awards ($) Options ($) sation ($)
- ----------------- ------ --------- -------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald Kessler
Chairman,
President &
CEO 1996 99,000 4,500 -0- -0- 100,000 -0- -0-
Leo Mangan
COO 1996 160,000 6,000 -0- -0- 2,250,000 -0- 432,000
Michael O'Reilly
Secretary &
President of
Trade-Winds 1996 156,000 24,180 -0- -0- 250,000 -0- -0-
David Behanna
CFO 1996 99,000 4,500 -0- -0- 100,000 -0- -0-
</TABLE>
Stock Options
Pursuant to a majority vote of the voting shareholders of the Company, a stock
option plan was adopted effective January 21, 1995. The plan provides for
additional compensation for officers and key employees in the form of
non-qualified or incentive stock options. Under this plan, 700,000 shares have
been reserved for future issuance upon exercise of the options. Non-qualified
options to purchase 700,000 of these shares have been granted effective May 26,
1995 at an exercise price of $1.50 per share. As of April 30, 1996, no shares
were issued under this plan.
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<PAGE>
An option to purchase 2,000,000 shares was granted to the Chief Operating
Officer on March 10, 1995 pursuant to his employment agreement. The exercise
price for these option shares was amended to be $.01 per share. These options
can be exercised for a period of five (5) years only upon certain contingencies
and conditions specifically related to employment termination, death or change
in control as defined by Rule 405 of Regulation C of the 1933 Act.
At a board meeting on April 29, 1994, additional compensation was given to
certain executive officers in the form of non-qualified stock options with a
price of $10 per share exercisable within four years. The total number of new
shares resulting from the exercise of these options would be 27,500 shares. The
officers reserve the right to a piggyback registration in the future.
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value
- -------------------------------------------------------------- --------------------------------
% 0f Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration
Name Granted (#) Year ($)Shares Date Value 0% ($)
- ----------- ------------- ---------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Donald Kessler
Chairman,
President &
CEO 100,000 3.7 1.50 May, 2005 -0-
Leo Mangan 2,000,000 74.0 .01 March, 2000 1,260,000
COO 250,000 9.3 1.50 May, 2005 -0-
Mike O'Reilly
President of
Trade-Winds 250,000 9.3 1.50 May, 2005 -0-
David Behanna
CFO 100,000 3.7 1.50 May, 2005 -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the number and percentage, as of April 30, 1996
of the Company's common shares owned of record and/or beneficially by each
person owning more than 5% of such common shares, by each director who owns any
shares of the Company and by all officers and directors as a group.
Number of
Name Shares Owned Percent Owned
- --------------------------------------------------------------
None.
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<PAGE>
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
- ----------------------
Name Principle Occupation Age Shares
- ---- -------------------- --- ------
<S> <C> <C> <C>
Donald Kessler Chairman, President &
CEO 52 0
Leo Mangan Chief Operating Officer 40 10,000
Mike O'Reilly President, Trade-Winds
Environmental Restoration, Inc. 46 5,000
David Behanna Chief Financial Officer 38 0
James W. Nearen Director 42 1,200
Lynne Scott Director
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996, a director and employee of the Company, with approval of the
Board of Directors, was paid approximately $432,000 as fees for assisting the
Company in various capital raising transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) 1. Financial Statements.
b) Reports on Form 8-K
Incorporated by reference to filing dated August 2, 1995,
August 8, 1995 and August 16, 1995.
c) Items Required by Item 601 of Regulation S-B
3a. Restated Certificate of Incorporation and
Amendment to the Certificate of
Incorporation. (Incorporated by reference to
Exhibits 3.1 and 3.2, respectively, of the
Company's Registration Statement No.
33-14370 N.Y. filed June 1, 1987).
3b. Restated By-Laws (Incorporated by reference
to Exhibit 3.3 of the Company's Registration
Statement No. 33-14370 N.Y. filed June 1,
1987).
3c. Restated Certificate of Incorporation and
Amendment to the Certificate of
Incorporation filed March 6, 1995.
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<PAGE>
ITEM 13. EXHIBITS (CONT'D)
4. Instruments defining the rights of Security
Holders including indentures:
a. Specimen of Common Stock Purchase
Warrant dated September 3, 1987,
(Incorporated by reference to
Exhibit 4.1 of the Company's
Registration Statement No. 33-14370
of N.Y. filed June 1, 1987).
b. Form of Warrant Agreement with
American Stock Transfer Company
dated September 3, 1987.
(Incorporated by reference to
Exhibit 4.2 of the Company's
Registration Statement No. 33-14370
N.Y. filed June 1, 1987).
c. Form of Underwriter's Unit Purchase
Option granted to Date Securities,
Inc. dated September 3, 1987.
(Incorporated by reference to
Exhibit 4.3 of the Company's
Registration Statement No. 33-14370
N.Y. filed June 1, 1987).
5. Proxy statement dated December 20, 1994 is
hereby incorporated by reference.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 13, 1996
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
By: /s/ DONALD KESSLER
-----------------------------
DONALD KESSLER, Chairman and
Chief Executive Officer
By: /s/ DAVID R. BEHANNA
-----------------------------
DAVID R. BEHANNA, CPA,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ DONALD KESSLER
- ----------------------------- Date: August 13, 1996
DONALD KESSLER, Director
/s/ LEO MANGAN
- ----------------------------- Date: August 13, 1996
LEO MANGAN, Director
/s/ MICHAEL O'REILLY
- ----------------------------- Date: August 13, 1996
MICHAEL O'REILLY, Director
/s/ DAVID BEHANNA
- ----------------------------- Date: August 13, 1996
DAVID BEHANNA, Director
/s/ JAMES W. NEAREN
- ----------------------------- Date: August 13, 1996
JAMES W. NEAREN, Director
/s/ LYNNE SCOTT
- ----------------------------- Date: August 13, 1996
LYNNE SCOTT, Director
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<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
TABLE OF CONTENTS
Page
----
Consolidated Balance Sheet as of April 30, 1996 F-1, F-2
Consolidated Statements of Loss for the
years ended April 30, 1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity for the
years ended April 30, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the
years ended April 30, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6 -- F16
Independent Auditors' Report F17
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
<TABLE>
ASSETS
<CAPTION>
CURRENT ASSETS
<S> <C> <C>
Cash $ 282,933
Contracts receivable, net of allowance for
doubtful contracts of $195,000 2,043,740
Inventories and prepaid supplies 265,065
Deferred income taxes 680,000
Other current assets 148,557
-------------
Total Current Assets $ 3,420,295
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $594,977 3,143,477
OTHER ASSETS
Investment in non-marketable securities, net of
valuation allowance of $5,993,841 628,000
Goodwill, net of accumulated amortization 30,590
Deferred acquisition costs, net of accumulated amortization 100,580
Deferred income taxes 1,904,000
Other assets 62,447
--------------
Total Other Assets 2,725,617
------------------ --------------
TOTAL ASSETS $ 9,289,389
==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 260,952
Accounts payable and accrued expenses 1,335,287
Income taxes payable 59,080
Deposits 150,000
Payroll taxes payable 228,591
-------------
Total Current Liabilities $ 2,033,910
OTHER LIABILITIES
Long-term debt, net of current portion 382,324
--------------
Total Liabilities 2,416,234
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
10,000,000 shares authorized,
no shares issued or outstanding
Common stock, $.0001 par value,
50,000,000 shares authorized
6,167,366 shares issued less
100,000 Treasury shares 617
Additional paid-in capital 18,634,638
Treasury stock (58,000)
Stock subscription receivable (46,988)
Deficit (11,657,112)
-------------
Total Stockholders' Equity 6,873,155
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,289,389
==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED STATEMENTS OF LOSS
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
1996 1995
----------- -----------
Revenues $ 9,906,661 $ 8,313,050
Cost of Revenues 7,287,098 5,153,262
----------- -----------
Gross profit 2,619,563 3,159,788
Selling, general and administrative expenses 4,660,666 3,440,040
----------- -----------
Loss before other income(expense) (2,041,103) (280,252)
----------- -----------
Other Income(Expense):
Interest expense (50,629) (16,885)
Settlement of legal claims (162,087) --
Forgiveness of Debt 56,857 --
Gain on sale of investment 63,999 --
Gain on sale of buildings 14,775 --
Unrealized loss on investments in non-marketable
securities (2,317,841) (3,500,000)
Loss on net equity in joint ventures (20,042) (2,796,988)
Write down of net equity in subsidiary -- (675,520)
Income from installment sale -- 662,593
Realized loss on disposal of investments -- (662,500)
Interest income 14,562 348,795
Loss on abandonment of leasehold improvements -- (69,240)
----------- -----------
Total other income (expense) (2,400,406) (6,709,745)
----------- -----------
(4,441,509) (6,989,997)
Minority interest in loss of consolidated
subsidiary -- 18,134
----------- -----------
Loss before income tax (benefit) (4,441,509) (6,971,863)
Income tax (benefit) (801,467) (1,918,795)
----------- -----------
Net Loss $(3,640,042) $(5,053,068)
=========== ===========
Loss per common share: $ (.70) $ (3.50)(a)
=========== ===========
Weighted average number of
common shares outstanding: 5,232,783 1,442,899(a)
=========== ===========
(a) The earnings per share and weighted average
shares for fiscal 1995 have been restated
for the effect of the reverse split on
January 21, 1995.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
----------------------------- Additional Stock
Number of Par Paid-in Treasury Subscription
Shares Value Capital Stock Receivable
----------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance - April 30, 1994 829,444(a) $ 83 $ 8,630,328 $ -- $ --
Private placements of common stock 1,214,839(a) 121 6,566,830
Loss for the year ended April 30, 1995
----------- ------------ ------------ -------------- --------------
Balance - April 30, 1995 2,044,283 $ 204 $15,197,158 $ -- $ --
Private placements of common stock 3,915,750 392 3,171,501
Acquisition of New York Testing
Laboratories, Inc. and Subsidiary 45,000 5 67,495
Issuance of common stock for services 72,333 7 108,493
Purchase of Treasury Shares (100,000) (88,000)
Issuance of common stock to settle
legal claim 90,000 9 89,991 30,000
Stock subscription receivable (46,988)
Loss for the year ended April 30, 1996
----------- ----------- ----------- -------------- --------------
Balance - April 30, 1996 6,067,366 $ 617 $18,634,638 $ (58,000) $ (46,988)
=========== =========== =========== =============== ===============
Accumulated
Deficit Total
------------ ------------
<S> <C> <C>
Balance - April 30, 1994 $ (2,964,002) $ 5,666,409
------------ ------------
Private placements of common stock 6,566,951
Loss for the year ended April 30, 1995 (5,053,068) (5,053,068)
------------ ------------
Balance - April 30, 1995 $ (8,017,070) $ 7,180,292
Private placements of common stock 3,171,893
Acquisition of New York Testing
Laboratories, Inc. and Subsidiary 67,500
Issuance of common stock for services 108,500
Purchase of Treasury Shares (88,000)
Issuance of common stock to settle
legal claim 120,000
Stock subscription receivable (46,988)
Loss for the year ended April 30, 1996 (3,640,042) (3,640,042)
------------ ------------
Balance - April 30, 1996 $(11,657,112) $ 6,873,155
============ ============
</TABLE>
(a) The Number of Common Shares have been
restated for the effect of the 1 for 10
reverse split on January 21, 1995.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(3,640,042) $(5,053,068)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 445,998 193,859
Unrealized loss on non-marketable securities 2,317,841 3,500,000
Minority interest in loss of consolidated subsidiary -- (18,134)
Loss on abandonment/theft of fixed assets 66,739 69,240
Equity in net (income) loss of joint venture (22,673) 9,170
Realized (gain) loss on investments/joint venture 44,188 662,500
Write-off of goodwill -- 110,129
Reserve for contingencies -- 378,902
Write-off of minority interest on wholly-owned subsidiary -- (99,813)
Gain recognized on installment sale -- (662,593)
Write-off of investment in subsidiary -- 270,000
Accrued interest income -- (160,000)
Common stock issued in lieu of payment of professional fees 108,500 --
Issuance of treasury stock in lieu of payment of
lawsuit settlement 30,000 --
Common stock issued in lieu of payment of lawsuit
settlement 90,000 --
Write-off of advances to subsidiary -- 2,190,410
Deferred income taxes (801,467) (1,918,795)
Changes in assets and liabilities:
(Increase) Decrease in:
Accounts receivable (234,086) (723,693)
Inventories (32,456) (125,000)
Other current assets (79,204) (56,606)
Other assets (45,641) 10,099
Increase (Decrease) in:
Accounts payable and accrued expenses (305,548) 542,404
Payroll taxes payable 102,175 --
Income taxes payable 59,080 (31,200)
----------- -----------
Net cash used by operating activities (1,896,596) (912,189)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of advances and deposits to joint venture and
investments 455,758 (1,152,820)
Payments made for property and equipment (1,549,608) (809,606)
Payments to acquire non-marketable securities (100,000) (2,052,399)
Payments to acquire notes receivable -- (2,050,000)
Principal payments received on notes receivable 50,000 755,125
Payment to acquire subsidiary 10,000 (20,000)
Payment of capitalized acquistion costs (107,126) --
----------- -----------
Net cash used by investing activities (1,240,976) (5,329,700)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (replacement of) note payable (75,000) 75,000
Principal payments or long-term debt (239,423) (40,382)
Deposit held for stock placement 150,000 100,000
Payment to acquire treasury stock (88,000) --
Net proceeds from issuance of common stock 3,024,905 6,566,951
----------- -----------
Net cash provided by financing activities 2,772,482 6,701,569
----------- -----------
NET INCREASE (DECREASE) IN CASH (365,090) 459,680
CASH AND CASH EQUIVALENTS - BEGINNING 648,023 188,343
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 282,933 $ 648,023
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION \ REPORTING ENTITIES
The consolidated financial statements of Comprehensive Environmental
Systems, Inc. and Subsidiaries (the "Company") include the following
entities:
Comprehensive Environmental Systems, Inc.
Comprehensive Environmental Systems, Inc. ("CESI") was incorporated as
International Bankcard Services Corporation in 1986 under the laws of
the State of Delaware. In July, 1992, the Company amended its
certificate of incorporation to change its name to Integrated Resource
Technologies, Inc. In February, 1995, the certificate of incorporation
was amended to change the Company's name to Comprehensive Environmental
Systems, Inc. (See Note 11). CESI is the parent company which serves as
a holding company for its various subsidiaries and investments and
provides administrative support to the operations. CESI and its
subsidiaries operate within the New York metropolitan area.
Trade-Winds Environmental Restoration, Inc.
Trade-Winds Environmental Restoration, Inc ("Trade-Winds") was acquired
in December, 1993 in a stock-for-stock transaction accounted for as a
purchase. Trade-Winds is a wholly-owned subsidiary of Eastgate Removal
Services, Inc.("Eastgate"), an inactive wholly-owned subsidiary of
CESI. The excess purchase price over the fair market value of the
identifiable assets acquired and liabilities assumed of $39,900 was
allocated to goodwill. Trade-Winds is engaged in asbestos abatement and
lead remediation and work is performed primarily under fixed-price
construction-type contracts. The typical contract term is between two
weeks to three months.
L. Harris Environmental Corp.
L. Harris Environmental Corp. ("LHE") was acquired after being newly
incorporated in April, 1993, and concurrent to the acquisition, LHE
entered into a consulting agreement with Spartan Dismantling Corp.
("Spartan"). In June, 1993, LHE entered into a joint operating
agreement with Spartan which superceded the prior agreement (See Note
4), and, in accordance with the terms of this agreement, consolidated
its proportionate share of assets, liabilities, revenues and expenses
with those of the Company. In March, 1995, a former director of the
Company and President of Spartan resigned and has assumed total control
of the joint operations (See Note 10). During fiscal 1996, LHE was
inactive.
Dicar Asbestos, Ltd d/b/a Phoenix Disposal
In October, 1993, LHE purchased 51% of the outstanding voting stock of
Dicar Asbestos, Ltd d/b/a Phoenix Disposal ("Dicar") for $150,000 cash
and stock valued at $107,200. The excess purchase price over the fair
market value of the identifiable assets acquired and liabilities
assumed of $115,929 was allocated to goodwill. Dicar is involved in the
transportation of hazardous waste. In February, 1995, LHE acquired the
remaining 49% of the outstanding stock of Dicar for $20,000 cash and a
note payable of $250,000 (See Note 7). Dicar operated out of the same
physical location as LHE and Spartan and, in connection with the loss
of control of Spartan, management of the Company has ceased the
operations of Dicar, and Dicar has remained inactive during fiscal
1996.
Sound Coastal Remediation, Inc.
In July, 1994, Trade-Winds incorporated a newly organized, wholly-owned
subsidiary, Sound Coastal Remediation, Inc. ("Sound Coastal"). Sound
Coastal specializes in coastal and wetland environmental clean-ups of
all kinds.
Long Island Lead Institute, Inc.
During September, 1994, Trade-Winds incorporated a newly organized,
wholly-owned subsidiary, Long Island Lead Institute, Inc. ("LI Lead").
LI Lead is a seminar teaching facility geared at informing both the
public and private sector of the latest developments on lead and
asbestos.
New York Testing Laboratories, Inc.
In June 1995, Eastgate acquired 100% of the outstanding shares of New
York Testing Holdings, Inc. and Subsidiaries, ("Holdings"), accounted
for as a purchase for cash and stock valued at $77,500. On the date of
acquisition, Holdings wholly-owned New York Testing Laboratories, Inc.
("NYT") which wholly-owned Laboratories Testing Services, Inc. ("LTS").
In November 1995, NYT was transferred and became a wholly-owned
subsidiary under Trade-Winds and LTS became a wholly-owned subsidiary
of Holdings. NYT and LTS provide environmental testing services
including air monitoring and oversight consulting as well as product
testing of all kinds. In January, 1996, LTS filed a Chapter 11 petition
in United States Bankruptcy Court. Simultaneously to which, operations
of LTS were discontinued and efforts focused on liquidating assets to
satify outstanding corporate obligations. This proceeding is expected
to be finalized during 1997.
F-6
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(Con't)
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions have been eliminated in the
consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include; the valuation of
inventories and prepaid supplies, the valuation of non-marketable
securities, collectability of receivables, and revenue recognition on
construction contracts.
REVENUE RECOGNITION
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost
incurred to date to estimated total cost for each contract. Revenues
from short-term contracts with terms of less than one month, are
recognized on the completed contract method as it approximates the
percentage-of-completion method.
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 costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions and estimated profitability, including those arising from
contract penalty provisions, and final contract settlements may result
in revisions to costs and income and are recognized in the period in
which the revisions are determined. Profit incentives are included in
revenues when their realization is reasonably assured.
An amount equal to contract costs attributable to claims is included in
revenues when realization is probable and the amount can be reliably
estimated.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company includes cash
on deposit, money market funds and amounts held by brokers in cash
accounts to be cash equivalents.
The Company has approximately $115,121 in money market accounts which
is included in the balance sheet under the heading "Cash."
INVESTMENTS IN NON-MARKETABLE SECURITIES
Non-marketable securities, such as investments in privately-held
companies, or investments in companies without a readily determinable
value are carried at historical cost, reduced by, if necessary, a
valuation allowance to estimated net realizable value.
INVENTORIES AND PREPAID SUPPLIES
Inventories and prepaid supplies consist of various materials and
supplies utilized on construction contracts and are valued at the lower
of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for
property and those which substantially increase useful lives are
capitalized. Maintenance, repairs, and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs
and related accumulated depreciation are removed from the accounts and
resulting gains or losses are included in income. Depreciation is
provided by both straight-line and accelerated methods over the
estimated useful lives of the assets.
F-7
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(Con't)
INTANGIBLE ASSETS
Goodwill is being amortized on a straight-line basis over ten years.
EARNINGS PER SHARE
The computation of earnings per common share is based on the weighted
average number of outstanding common stock and common stock equivalents
outstanding during the period. The stock options issued under the stock
option plan and the option issued to the Chief Operating Officer were
not included in common stock equivalents as they were anti-dilutive. As
of April 30, 1996 and 1995 there was no difference between primary
earnings per share and fully diluted earnings per share.
INCOME TAXES
The Company files a consolidated Federal tax return, which includes all
of the subsidiaries. Accordingly, Federal income taxes are provided on
the taxable income of the consolidated group. State income taxes are
provided on a separate company basis, if and when taxable income, after
utilizing available carryforward losses, exceeds certain levels.
DEFERRED INCOME TAXES
Deferred tax assets arise principally from net operating losses and
capital losses available for carryforward against future years taxable
income, and the recognition of unrealized losses on marketable
securities for financial statement purposes, which are not deductible
for income tax purposes.
RECLASSIFICATIONS
Certain accounts in the prior-years financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current-year financial statements. Such reclassifications had no
effect on the Company's operations.
2. SUPPLEMENTAL CASH FLOW INFORMATION
1996 1995
------- ------
Cash paid for:
Interest $50,629 $16,885
======= =======
Income taxes $12,191 $ --
======= =======
<TABLE>
Non-cash Investing & Financing Transactions
-------------------------------------------
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Debt incurred for acquisition of property and equipment,
Net of cash down payment of $7,559 in 1996 and
$81,236 in 1995 $ 232,366 $ 440,715
========= =========
Debt incurred for acquisition of remaining interest in
Dicar Asbestos, net of cash down payment of $20,000 $ -- $ 250,000
========= =========
Issuance of common stock to acquire New York Testing
Holdings, Inc. and subsidiaries, net of cash payment
of $10,000 $ 67,500 $ --
========= =========
</TABLE>
F-8
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
3. INVESTMENTS IN NON-MARKETABLE SECURITIES
The Company has the following investments in non-marketable securities
as of April 30, 1996 and 1995:
1996 1995
----------- -----------
Sovereign Fidelity, Ltd. $ 1,776,000 $ 1,776,000
Pilot Transport, Inc. 3,417,841 3,417,841
ICIS Mangement Group Inc. (formerly
Alter Sales Co., Inc.) 1,328,000 1,228,000
Business News Network, Inc. 100,000 100,000
Martin Labs Joint Venture -- 79,330
----------- -----------
6,621,841 6,601,171
Less: valuation allowance (5,993,841) (3,676,000)
----------- -----------
Total investments 628,000 2,925,171
Less: current investments -- --
----------- -----------
Net long-term investments $ 628,000 $ 2,925,171
=========== ===========
Sovereign Fidelity, Ltd.
On May 1, 1995, the Company exchanged its investment in Sovereign
Fidelity, Ltd. ("Sovereign") for a promissory note in the amount of
$1,772,000 and 3,800,000 restricted shares of Tuscan Industries, Inc.
("Tuscan") valued at $228,000 or $.06 per share. Tuscan, which is
publicly traded on the electronic bulletin board, changed its name to
Apache Group, Inc. ("Apache") in 1995 and reversed its common stock 1
for 50. As a result, the original 3,800,000 shares were reduced to
76,000 shares. Subsequent to April 30, 1996, Apache reversed an
agreement with the Company which would have exchanged the $1,772,000
note for 590,667 post reverse restricted common shares. Based on the
underlying facts and circumstances and the uncertainty of the ultimate
recovery of the original investment, an additional reserve was
established at the end of fiscal 1996. The original 19,500 shares of
Sovereign held as collateral in escrow are to be returned to the
Company.
1996 1995
----------- -----------
Original cost $ 1,776,000 $ 1,776,000
Less: valuation allowance (1,676,000) (176,000)
----------- -----------
Carrying value $ 100,000 $ 1,600,000
=========== ===========
Pilot Transport, Inc.
In April, 1994, Cierra Enterprises, VLT, Inc. ("Cierra"), a Canadian
based company involved in the development and manufacturing of
electronic gaming software and hardware, was sold to Rep, Inc., a
privately held company, for cash of $10,000 and a note of $3,990,000.
As of April 30, 1994, based on the underlying facts and circumstances,
the Company deferred recognition of the gain on the sale of Cierra
until cash payments on the note were actually received. In April, 1995,
after receiving principal payments of approximately $755,000 plus
interest, CESI exchanged the note due from Rep, Inc. with an unpaid
balance of approximately $3,235,000 for 300,000 restricted shares of
Pilot Transport, Inc. ("Pilot"), an electronic bulletin board traded
stock. Pilot had purchased Cierra from Rep, Inc. during fiscal 1995.
The Company utilized its basis in the note, net of the deferred gain as
basis for the shares received. On July 28, 1995, the Company exchanged
an additional $2,160,000 of notes receivable made during fiscal 1995,
including accrued interest, for 500,000 shares of preferred stock in
Pilot. The preferred stock carried a 6% coupon dividend payable
quarterly commencing August 31, 1995 and is convertible to common
shares at the discretion of Pilot's Board of Directors. During the
fiscal year ended April 30, 1995, the Company also purchased 65,000
shares of Pilot common stock in the open market for approximately
$824,000. As of April 30, 1996, Pilot was non-operational, and the
nominal value of the underlying assets required a reserve of the
remaining investment balance.
1996 1995
----------- -----------
Original cost/adjusted basis in note,
net of deferred gain $ 433,442 $ 433,442
Exchange for loans receivable 2,160,000 2,160,000
Acquisition of additional shares 824,399 824,399
----------- -----------
Total cost basis 3,417,841 3,417,841
Less: valuation allowance (3,417,841) (2,700,000)
----------- -----------
Carrying value $ -0- $ 717,841
=========== ===========
F-9
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
3. INVESTMENTS IN NON-MARKETABLE SECURITIES:(Cont'd)
ICIS Management Group Inc. (formerly, Alter Sales Co., Inc.)
In December, 1994, the Company invested $1,228,000 in preferred stock
of Global Talent Guild ("Global"). This investment was exchanged in
April 1995 for 256,000 common shares of Alter Sales Co., Inc.
("Alter"), a publicly traded NASDAQ company. Alter had acquired Global
as a wholly owned subsidiary in February 1995. During fiscal 1996,
Alter changed its name to ICIS Management Group, Inc. Also during
fiscal 1996, the Company invested an additional $100,000 for 625,000
restricted comon shares.
1996 1995
----------- -----------
Original cost $ 1,328,000 $ 1,228,000
Less: valuation allowance (800,000) (800,000)
----------- -----------
Carrying value $ 528,000 $ 428,000
=========== ===========
Business News Network, Inc.
During fiscal 1995, the Company advanced $150,000 to Business News
Network, Inc. ("BNN") to develop a television program to be known as
Power Profiles. As of April 30, 1995, $50,000 was classified as a Note
Receivable and $100,000 as an investment. The Note was collected
subsequent to April 30, 1995. As of April 30, 1996, the realization of
the BNN investment in any amount is uncertain.
1996 1995
--------- ---------
Original cost $ 100,000 $ 100,000
Less: valuation allowance (100,000) -0-
--------- ---------
Carrying value $ -0- $ 100,000
========= =========
Martin Laboratories, Inc. d/b/a Healthwatchers Systems
During fiscal 1995, the Company invested in a joint venture with Martin
Laboratories, Inc. d/b/a Healthwatchers Systems ("Healthwatchers") for
$88,500. The agreement calls for a marketing and sales program for a
nutritional supplement known as GH3X utilizing the funds advanced to
the joint venture. The Company is entitled to its original investment
back before profits are split equally between the joint venture
partners. This joint venture was terminated during fiscal 1996. As
such, the remaining investment balance was written-off after
considering current year income and monies received as a return of
capital.
1996 1995
-------- --------
Original cost $ 88,500 $ 88,500
Equity in income (loss) 13,503 (9,170)
Return of capital (59,288) -0-
Write-off of investment (42,715) -0-
-------- --------
Carrying value $-0- $ 79,330
======== ========
Sunflower
On April 10, 1992, the Company acquired a 49% interest in Sunflower
Enterprises, Inc., ("Sunflower") a New Jersey corporation. The
agreement called for purchasing the minority interest for 30,000 shares
of restricted stock plus $2.6 million dollars in funding. As of April
30, 1993 the Company had funded approximately $400,000. The majority
shareholder subsequently agreeded to repurchased the 49% interest of
Sunflower from the Company for a $385,000 note and return of the 30,000
shares of the Company's common stock. He defaulted on this note and, as
a result, the balance has been written-off by the Company in fiscal
1995.
1996 1995
--------- ---------
Original cost, including advances $ -- $ 370,000
Write-off of note receivable in default -- (370,000)
--------- ---------
Carrying value $ -- $ -0-
========= =========
F-10
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
3. INVESTMENTS IN NON-MARKETABLE SECURITIES:(Cont'd)
Kimberlyn Trading, Inc.
In December, 1993, the Company purchased 51% of Kimberlyn Trading, Inc.
("KTI"), for cash of $42,500. KTI was a start-up commodity brokerage
operation involved primarily in the international brokerage of
industrial environmental paints and crumb rubber. KTI has had no
reportable revenues or expenses. This investment was written off during
fiscal 1995.
1996 1995
-------- --------
Original cost $ -- $ 42,500
Write-off of investment -- (42,500)
-------- --------
Carrying value $ -- $ -0-
======== ========
Mohave Shores Development Inc.
During fiscal 1994, the Company advanced $250,000 to Mohave Shores
Development, Inc. ("Mohave") in anticipation of developing land on an
Indian reservation in Arizona under a joint venture agreement. Said
development never took place and the Company has commenced litigation
and is seeking the return of monies advanced to Mohave. This investment
was written off during fiscal 1995.
1996 1995
-------- ---------
Original cost $ -- $ 250,000
Write-off of investment -- (250,000)
-------- ---------
Carrying value $ -- $ -0-
======== =========
4. INVESTMENT IN OPERATING AGREEMENT
In June, 1993, LHE entered into a joint operating agreement with
Spartan Dismantling Corp. ("Spartan") (as amended March, 1994) for the
transfer and disposal of asbestos. Pursuant to the terms of this
agreement, the Company has included in the consolidated financial
statements its proportionate share of the transfer and disposal
business:
Year Ended April 30
---------------------------
1996 1995
---------- ----------
Current assets $ -- $ --
========== ==========
Current liabilities $ -- $
========== ==========
Revenues $ -- $2,618,790
========== ==========
Cost of revenues 1,766,898
General & administrative expenses -- 599,440
---------- ----------
Total costs and expenses -- 2,366,338
---------- ----------
Net Income $ -- $ 252,452
========== ==========
In addition, the Company had advanced funds of approximately $2,190,000
to support the joint operations through April 30, 1995.
In March, 1995, the President of Spartan, who was also a Director of
CESI, resigned and assumed total control of the joint operations at
Spartan. As a result, the Company has commenced an arbitration action
against this individual and Spartan for damages and recovery of net
advances and accumulated profit (see note 10). Recovery of these
amounts, if any, will be recognized in the period(s) funds are actually
received.
F-11
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
5. INVESTMENT IN SUBSIDIARY
In October, 1993, the Company purchased 51% of Dicar Asbestos, Ltd.
d/b/a Phoenix Disposal, Inc.("Dicar"), an environmental company
involved in the transportation of hazardous waste. The purchase price
was $150,000 cash plus 20,000 shares of restricted stock. In February,
1995, the Company completed the acquisition of the remaining 49%
minority interest for $270,000. Terms of payment called for $20,000
down and twenty-five monthly payments in the amount of $10,000 each.
Dicar has been operating out of the same physical location as Spartan,
and in connection with the loss of control of the Spartan joint
operations, management has ceased the operations of Dicar. Accordingly,
as of April 30, 1995, management has provided a reserve for the net
book value of Dicar of $367,309 which is included in the consolidated
balance sheet under the caption "Reserve for contingencies." In fiscal
1996, Dicar was inactive and accordingly the reserve was offset against
the corresponding assets and liabilities.
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated useful
life-years 1996 1995
----------------- -------------- --------------
<S> <C> <C> <C>
Machinery and equipment 5-10 $ 2,176,486 $ 580,659
Office furniture and equipment 3-7 131,987 80,875
Transportation equipment* ** 3-5 933,427 903,532
Leasehold improvements 5-31.5 496,555 243,067
-------------- --------------
3,738,455 1,808,133
Less: Accumulated depreciation
and amortization (594,978) (429,483)
Net property and equipment $ 3,143,477 $ 1,378,650
============= =============
</TABLE>
- ----------
*Partially pledged, see note 7.
**Includes approximately $191,000 of equipment under capitalized leases
Depreciation expense for the years ended April 30, 1996 and 1995 was
$435,462 and $193,859, respectively.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-Term debt consists of: 1996 1995
--------- ---------
<S> <C> <C>
Various equipment notes with monthly payments from $402 to $6,440,
including interest ranging from 7.9% to 12.25%, with terms expiring
through April, 2001. These notes are collateralized by transportation
equipment with an original cost of approximately $571,000 (see note 6) $ 283,746 $ 410,333
Note payable for the purchase of the remaining 49% of a subsidiary (See
Note 5). An original amount of $250,000 with payments in the amount of
$10,000 are due monthly commencing in March, 1995 until April, 1997
The Company was in dispute with the seller and had ceased making
payments. The note has been in default and accordingly as of April 30,
1995, the entire amount had been classified as current. Subsequent to
April 30, 1996, the Company reached a settlement for approximately
$180,000, which requires a down payment of $15,000 plus expenses and
the balance payable in $5,000 monthly installments commencing July,
1996 until September, 1998 183,143 240,000
Obligations under capitalized leases 176,387 --
--------- ---------
Total debt 643,276 650,333
Less: Current portion (260,952) (356,135)
--------- ---------
Long-term portion: $ 382,324 $ 294,198
========= =========
</TABLE>
F-12
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
7. LONG-TERM DEBT (CONT'D)
The following is a schedule by year of the future minimum principal
payments for the next five years;
As of April 30,
---------------
1997 $ 260,952
1998 209,134
1999 120,521
2000 47,095
2001 5,574
----------
$ 643,276
==========
Lease obligations/Capital leases
The Company has leased equipment under capital leases with monthly
payments ranging from $1,348 to 3,236, including interest from 10% to
21.50%, with terms expriing through the year 2000.
Future minimum lease payments under non cancelable capital leases
having terms in excess of one year are as follows:
As of April 30,
---------------
1997 $ 73,140
1998 73,140
1999 62,140
2000 16,164
----------
Total future minimum lease payments $ 224,584
Less: Amount representing interest (48,197)
-----------
Present value of future
minimum lease payments $ 176,387
==========
8. MAJOR CUSTOMERS
During fiscal 1996, two customers accounted for approximately 34% of
the Company's sales and one customer accounted for 26% of the contract
receivable balance. In 1995, a single customer accounted for
approximately 21% of the Company's sales and 63% of the contract
receivable balance.
9. RELATED PARTY TRANSACTIONS
During the year's ended April 30, 1996 and 1995, a director of the
Company received fees for assisting the Company in various capital
raising transactions (See Note 12).
10. COMMITMENTS AND CONTINGENCIES LITIGATION
In March 1993, the Company commenced an action in United States
District Court for the District of New Jersey against an individual
seeking a declaration that he has no right to purchase, or cause the
sale of, any stock of the company pursuant to any alleged agreement
with the Company. The defendant has asserted a counterclaim in that
action against the company alleging a breach of a stock purchase
agreement, as well as a claim of fraud and declaratory judgement
seeking to enforce the alleged agreement. During fiscal 1994, the
Company was awarded $15,000 in legal fees from a court in Texas where
the defendant attempted to change venue, which is being appealed.
Management has negotiated a settlement of all claims for 90,000
restricted and 60,000 free trading common shares of the Company.
In November, 1994, the Company commenced an action in New York State
Supreme Court to recover monies advanced to Mohave in anticipation of
developing land on an Indian reservation in Arizona (See Note 3). The
Company seeks the return of its $250,000 deposit plus legal fees and
punitive damages. Management intends to continue aggressively pursuing
this matter.
F-13
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
10. COMMITMENTS AND CONTINGENCIES (CONT'D)
In February 1995, a lawsuit was commenced against the Company by its
former Chairman and President for $10,000,000. The plaintiff claims
compensation under his employment agreement and damages from lost
profits related to the inability, on cause of the Company, to sell his
restricted shares of CESI once the restriction was lifted. The Company
has filed counter claims against the plaintiff and believes that it has
meritorious defenses to his action and intends to defend it vigorously.
However, the final outcome of the case cannot presently be determined
and, accordingly, no provision has been made in the financial
statements.
The Company has commenced an action in connection with the Spartan
joint venture. The action alleges breach of contract, fiduciary
responsibility and other claims. The Company is seeking to recover its
advances and accumulated profits which have been written-off as of
April 30, 1995. This action has been submitted to arbitration (see note
4).
The Company and various current and prior officers and directors have
been named in a lawsuit with certain shareholders which contains
various allegations. Management denies any wrongdoing, asserts that the
complaint is without merit and intends to vigorously defend these
claims and, possibly assert counterclaims. No answer or motion has been
filed by the defendants, and given the early stage of this action, an
evaluation of the outcome is premature. Accordingly, no provision for
any liability arising from this lawsuit is included in the Company's
financial statement.
The Company is party to other litigation matters and claims which are
normal in the course of its operations, and while the results of
litigation and claims cannot be predicted with certainty, management
believes, based on advice of counsel, the final outcome of such matters
will not have a materially adverse effect on the consolidated financial
position.
LEASES
Trade-Winds is obligated under a lease for its office and warehouse
space expiring March 31, 1998, which provides for minimum annual
rentals of approximately $86,000, plus 5% annual increases, real estate
taxes and operating costs. Trade- Winds has the option to extend the
lease annually through March 31, 2001, based on annual increases of 5%.
Trade-Winds is also obligated under a lease for the space occupied by
NYT, expiring September 30, 1997, which provides for minimum annual
rentals of approximately $38,000 plus 5% annual increases, real estate
taxes and operating costs. Trade-Winds has the option to extend the
lease through September, 1999, based on annual increases of 5%.
The following is a schedule by year of future minimum lease obligations
under noncancellable leases as of April 30,
Total
-----------
1997 $ 129,991
1998 103,364
-----------
Total minimum obligation $ 233,355
===========
Total rental expense under cancelable and noncancellable operating
leases was $108,167 and $59,702 for the years ended April 30,1996 and
1995, respectively.
EMPLOYMENT AGREEMENTS
In 1995, CESI entered into six (6) year employment agreements with the
Chief Operating Officer and the Chief Financial Officer of the Company.
The total commitment to the Company from these agreements range from
$252,000 in 1995 to $372,000 in 2000, plus certain fringe benefits.
Trade-Winds is obligated under an employment contract with its
President for five (5) years expiring December, 1998 with annual
commitments of $156,000 plus certain incentive bonuses.
F-14
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
11. CAPITAL STOCK
Amendment to Certificate of Incorporation:
In February, 1995, CESI amended its certificate of incorporation, as
follows:
(a) To change the name of the corporation to Comprehensive Environmental
Systems, Inc.
(b) The authorization of 10,000,000 shares of preferred stock having a par
value of $.01 per share, which may be divided into and issued in
series. Holders of preferred stock shall not have the right to cumulate
their votes for the election of directors of the corporation and shall
not have preemptive rights. The Board of Directors is authorized to
designate each series, and to determine:
1. The rate of dividends;
2. The price at and the terms and conditions on which shares may
be redeemed;
3. The amount payable upon shares in the event of
liquidation;
4. Sinking fund provisions for the redemption or purchase of
shares;
5. The terms and conditions on which shares may be converted if
the shares of any series are issued with the privilege of
conversion; and
6. Voting rights.
Dividends on preferred stock may be cumulative and have a preference
over the common stock as to the payment of such dividends, at the
discretion of the Board of Directors.
In the event of voluntary liquidation of the corporation, the preferred
stock shall have a preference in the assets of the corporation over the
common stock.
c) To declare a one-for- ten reverse stock split on all outstanding shares
of common stock. All share data has been changed to reflect post-split
amounts.
d) To provide for indemnification of officers and directors.
12. STOCK ISSUANCES
During the year ended April 30, 1996, the Company sold and issued
3,915,750 shares of common stock in various private placements and S-8
registrations for gross proceeds of approximately $3,699,500. Out of
these proceeds, direct expenses of approximately $528,000 were paid,
including $432,000 of fees paid to a director of the Company (See Note
9). In addition, the Company issued 72,333 shares of common stock for
services under various S-8 placements, and 120,000 shares of common
stock for a partial settlement of a legal claim (See Note 10).
During the year ended April 30, 1995, the Company sold and issued
1,214,839 post reverse shares of common stock in various private
placements and S-8 registrations for gross proceeds of approximately
$8,394,000. Out of these proceeds, direct expenses of approximately
$1,827,000 were paid, including $325,000 of fees paid to a director of
the Company (See Note 9).
Subsequent to April 30, 1996, the Company sold and issued 2,711,111
discounted, restricted shares of common stock under certain private
placements. In additional, 150,000 shares of S-8 stock were issued for
services in connection with the private placements. One of the agents
for these placements was a director of the Company. As of April 30,
1996, $150,000 was held by the Company as advances for these
transactions and is included in the balance sheet under the caption
"Deposits" in the current liabilities section.
13. STOCK OPTIONS
Pursuant to a majority vote of the voting shareholders of the Company,
a stock option plan was adopted effective January 21, 1995. The plan
provides for additional compensation for officers and key employees in
the form of non-qualified or incentive stock options. Under this plan,
700,000 shares have been reserved for future issuance upon exercise of
the options. As of April 30, 1995, no shares were issued under this
plan. Non-qualified options to purchase 700,000 of these shares have
been granted effective May 26, 1995 at an exercise price of $1.50 per
share.
F-15
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
13. STOCK OPTIONS (CONT'D)
In addition, on March 10, 1995, the Company granted to the Chief
Operating Officer, a non-qualified option to purchase 2,000,000 shares.
The exercise price for these option shares, as amended is $.01 per
share. This option can be exercised in whole or in part for a period of
five (5) years only upon certain conditions specifically related to
employment termination, death or change in control as defined by Rule
405 of Regulation C of the 1933 Act. The Company has deemed a "change
in control" to include a material change of the officers of the
Company, the acquisition of ten percent (10%) or more of the voting
securities of the Company by any person or entity, or a change in the
identity of a majority of the board of directors existing on the date
of the grant of these options.
14. INCOME TAXES (BENEFIT)
<TABLE>
<CAPTION>
Components of income taxes are as follows:
Year Ended April 30,
----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current:
Federal $ -- $ --
State -- --
Benefit of net operating loss carryforward -- --
----------- -----------
Total current -- --
----------- -----------
Deferred:
Federal (2,195,569) (2,298,975)
State (582,648) (540,935)
Less: Valuation allowance 1,976,750 921,115
----------- -----------
Total deferred (801,467) (1,918,795)
----------- -----------
Total income taxes (benefit) $ (801,467) $(1,918,795)
=========== ===========
Deferred tax assets consist of the following components:
at April 30,
----------------------------------
1996 1995
----------- -----------
Net operating loss carryforward $ 3,299,500 $ 1,714,533
Unrealized losses on non-marketable services 2,517,400 1,406,060
Allowance for doubtful contracts 81,900 --
----------- -----------
5,898,800 3,120,593
Less: Valuation allowance (3,314,800) (1,338,060)
----------- -----------
$ 2,584,000 $ 1,782,533
=========== ===========
</TABLE>
At April 30, 1996, the Company has realized operating losses available
for carryforward against future years' taxable income of approximately
$7,856,000 for tax purposes, which would expire throughout 2011. The
deferred tax assets were reduced in part by a valuation allowance as
the Company estimates that sufficient future taxable income on both a
consolidated basis for federal tax purposes and a separate company
basis for state tax purposes may not be available to provide for the
full realization of such assets.
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors of
Comprehensive Environmental Systems, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Comprehensive
Environmental Systems, Inc. and Subsidiaries as of April 30, 1996 and the
related consolidated statements of loss, stockholders' equity and cash flows for
the years ended April 30, 1996 and 1995. These consolidated 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
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 consolidated 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 consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Comprehensive
Environmental Systems, Inc. and Subsidiaries as of April 30, 1996, and the
results of its operations and its cash flows for the years ended April 30, 1996
and 1995, in conformity with generally accepted accounting principles.
As more fully explained in Note 3, the accompanying consolidated balance sheet
includes certain investments at a net carrying value of $628,000. The ultimate
recovery of such amounts is primarily dependent upon the future value and future
performance of the companies underlying these investments, which is not
determinable at this time.
Capraro, Centofranchi, Kramer & Co, P.C.
South Huntington, New York
August 8, 1996
F-17
