UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A-4
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:
Common Stock, $.0001 par value per share
(Title of Class)
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.
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
For the fiscal years ended April 30, 1996 and 1995, revenues derived from
asbestos abatement accounted for approximately 61% and 52%, respectively, of the
Company's total revenues. The remaining revenues
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were spread accross the other service categories, with no single service offered
accounting for more than 10% of total revenues during fiscal years 1996 or 1995,
except for non-hazardous waste services which accounted for approximately 14% of
total revenues during the fiscal year ended April 30, 1996.
The Company's current fleet of seventeen 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. The Company is currently one of approximately ten companies in the
North East, and one of approximately twenty-five in the United States, with
these spill response capabilities.
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 equipment 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.
During the year ended April 30, 1996 sales to a local municipality and a
regional real estate holding company represented 21% and 13%, respectively, of
total consolidated revenues.
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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.
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 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.
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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 carriers with
respect to its asbestos abatement operations. The Company's premium rates for
its claims made policies have remained stable.
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.
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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 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
In March 1993, the Company commenced an action in United States District Court
for the District of New Jersey against Norian Rezian 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 in this action
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. In March 1996, this action
was settled for 150,000 shares of common stock of the Company issued to the
defendent, which had a market value of approximately $150,000.
In November 1994, the Company commenced an action in New York State Supreme
Court to recover monies advanced to Mohave Shores Development, Inc., pursuant to
the acquisition agreement, dated November 1993, in anticipation of developing
land on an Indian reservation in Arizona. The Company seeks the return of its
$250,000 deposit plus legal fees and punitive damages. Management intends to
continue aggressively pursuing this matter.
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In February 1995, a lawsuit was commenced against the Company for $10,000,000 by
Robert Feuerzeig, former Chairman and President of the Company. The plaintiff
claimed compensation under his employment agreement and damages from lost
profits related to his inability to sell his restricted shares of CESI once the
restriction expired. The Company settled this action in October 1996 for $60,000
plus a one year consulting agreement that provides for the monthly issuance of
8,337 shares of common stock during the twelve month term of the agreement.
The Company commenced an arbitration action in August 1995 in connection with
the Spartan Dismantling Corp. ("Spartan") joint operating agreement, dated March
1994. The agreement called for Spartan and its management to provide the
physical facility and operational support for an asbestos transfer station
pursuant to a Department of Environmental Conservation 360 permit. The Company
provided marketing, management and working capital to support the growth of the
business from inception. The action alleges breach of contract, fiduciary
responsibility and other claims against Spartan and its President, Nicholas
Christie, who was a member of the Company's Board of Directors from June 1993
through March 1995. The Company's claim for net advances and accumulated profits
of approximately $2,800,000 was settled in October 1996 for $300,000. Terms
included a downpayment of $25,000 and monthly payments of $5,000. The settlement
note is collateralized by a first mortgage position on real property located in
Brooklyn, NY at the Spartan facility.
In a civil action which was commenced in August 1995 in United States District
Court, the Company and various current and prior officers and directors were
named in a lawsuit brought by shareholders from Seattle, Washington who had
purchased shares through the same broker. The lawsuit contains various
allegations asserting misrepresentations made by Leo Mangan to the broker and
non-disclosure in public filings of various Reg-S and S-8 stock issuances made
by the Company from August through October 1994. The officers and directors
named in the civil action were Messrs. Mangan (Chief Operating Officer), Varsi
(President), Lehrer (Chairman & CEO), Mazzella (Director) and O'Reilly
(Director). The Company settled this lawsuit in May 1997 for approximately
$120,000, net of insurance proceeds, with monthly payments of $6,250.
Other Proceedings
In January 1996 Laboratory Testing Services, Inc. ("LTS"), a wholly-owned
subsidiary, filed a Chapter 11 petition in United States Bankruptcy Court in the
Eastern District of New York. Simultaneously, operations of LTS were
discontinued and efforts focused on liquidating assets to satisfy outstanding
corporate obligations. 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.
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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) 25.31 16.31
Second Quarter (a) 21.63 12.50
Third Quarter (a) 14.38 4.69
Fourth Quarter 4.69 1.69
FISCAL 1996
First Quarter 3.69 1.00
Second Quarter 3.50 1.88
Third Quarter 2.19 1.00
Fourth Quarter 1.31 .63
(a) These per share prices have been restated to reflect the 1 for 10 reverse
split effective January 21, 1995.
The Company has approximately 5,455 shareholders of record at April 30, 1996.
There have been no dividends declared or paid and the Company has no current
intentions to declare or pay dividends. The Company has no agreements which
restrict the Company's ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the two fiscal years ended April 30, 1996 and 1995
should be read in conjunction with the Consolidated Financial Statements
contained herein.
Restatement of Consolidated Financial Statements
After filing its Form 10-KSB for the year ended April 30, 1996 and subsequent to
the October 1996 indictment of Messrs. Mangan and Nearen for stock fraud and
manipulation, the Company determined that the accounting treatment related to
certain issuances of common stock for investment service and promotional fees
during fiscal 1996 and 1995 was improper. The common stock was issued as
consideration for investment and promotional services purportedly provided to
the Company by consultants and investment advisory firms. The Company has
charged to expense the value of these services based on the quoted market value
of the Company's common stock on the date of each issuance. The total effect on
the results of operations for fiscal 1996 and 1995 was $393,750 and $5,698,989,
respectively. As more fully discussed in Note 2 to the Consolidated Financial
Statements, the Company has restated the financial statements to properly
account for these transactions as expenses rather than a reduction of Additional
Paid-in Capital.
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In July 1997, the Company further amended its Form 10-KSB for the year ended
April 30, 1996 in order to restate the consolidated statement of loss for the
year ended April 30, 1995. The additional restatement was necessary to exclude
from consolidated operations, the results of operations of Spartan. The
Company's financial investment in Spartan was not accompanied by the control of
voting stock and management influence which are required for consolidation.
There was no effect on the net loss of the Company in fiscal 1996 and 1995 as a
result of the second restatement. The changes to previously reported amounts of
revenues, costs of revenues, selling, general and administrative expenses and
loss on net equity in joint venture for the year ended April 30, 1995 is
summarized as follows;
Second Originally Reported
Restatment and Restated Change
---------------------------------------
Revenues $ 5,694,260 $ 8,313,050 $(2,618,790)
Cost of Revenues $ 3,386,364 $ 5,153,262 $(1,766,898)
Selling, General and
Administrative Expenses $ 7,539,589 $ 8,139,029 $ (599,440)
Loss on Equity in
Joint Venture $ 2,544,536 $ 2,796,988 $ (252,452)
Net Loss $10,752,057 $10,752,057 $ -0-
Results of Operations
Core Operations From Consolidated Subsidiaries
The loss from core operations was approximately $2,435,000 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. The loss from core
operations of approximately $5,232,000 for fiscal 1995 results primarily from
various non-recurring investment and promotional fees incurred beginning in the
second fiscal quarter.
Revenues for fiscal 1996 and 1995 were approximately $9,907,000 and $5,694,000,
respectively, which represents a 74% increase from the prior year. The revenues
changed substantially from 1995 to 1996 resulting directly from the growth in
abatement, remediation and testing operations . Additionally, the Company had no
revenues from the environmental trucking company after 1995. For fiscal 1996,
environmental services (including abatement and remediation) and testing
operations accounted for approximately 90% and 10%, respectively, of total
revenues.
Cost of revenues increased $3,901,000 or 115% from $3,386,000 to $7,287,000 for
fiscal 1995 to 1996, respectively. Cost of revenues increased primarily due to
increases in direct field labor for environmental services and testing
operations. This also accounts for the 14% increase from 1995 to 1996 because
direct costs for these services are more labor intensive and result in lower
profit margins.
Gross profits as a percentage of revenue decreased to 26% in fiscal 1996 from
41% in fiscal 1995 primarily due to increases in certain direct operating costs,
primarily field labor for environmental services, and excess non-recurring
operational direct costs of New York Testing Laboratories Inc. and Laboratory
Testing Services, Inc.
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Selling, general and administrative expenses decreased by approximately
$2,485,000 from 1995 to 1996 and constituted approximately 132% and 51% of
revenues, respectively, for such years. This results from a significant decrease
in the use of outside consultants and promoters. Specifically, the Company
recorded approximately $394,000 for fiscal 1996 compared to $4,700,000 in 1995
for such expenses. Normal operating overhead increased by approximately
$1,220,000 from 1995 to 1996 primarily due to increased parent company overhead
costs including legal fees.
For the years ended April 30, 1996 and 1995, the Company recognized $801,467 and
$1,918,795 of income tax benefits, respectively, which results from currently
recognizing, for book purposes, the estimated future realization of such net
operating loss carryforwards. The deferred tax assets were reduced in part by a
valuation allowance that represents a portion of the deferred tax assets that,
in the opinion of management, is more likely than not, will not be realized.
Equity Investments
The Company's overall business strategy was developed and implemented by Leo
Mangan who controlled the Company's operations between June 1993 and September
1996 when he resigned. Mr. Mangan's practice of using the Company's resources to
acquire control of, or make significant investment in, speculative businesses
that were unrelated to the Company's core business was a major reason for his
departure from the Company in September 1996.
The Company had 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)
----------- -----------
Net investments $ 628,000 $ 2,925,171
=========== ===========
Sovereign Fidelity, Ltd.
In December 1991, the Company issued 1,200,000 shares of common stock in
exchange for 70,000 shares of preferred stock in Pacific International Indemnity
Co., Ltd. ("PIIC"), purportedly an insurance company in the British Virgin
Island. During the fiscal year ended April 30, 1993, the Company exchanged the
investment in PIIC for 19,500 shares of Sovereign Fidelity, Ltd., ("Sovereign"),
purportedly an offshore reinsurrance company, which represented a 19.5% equity
interest. On May 1, 1995, the Company exchanged its investment in 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, this entire agreement was reversed and,
additionally, an agreement between the parties which would have exchanged the
$1,772,000 note for 590,667 post reverse restricted common shares was voided.
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
were returned by Apache 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 June of 1993, the Company agreed to purchase 100% of Cierra Enterprises, VLT,
Inc. (Cierra), a Quebec Canada based company involved in the development and
manufacturing of electronic gaming software and hardware for shares of
restricted common stock and additional funding. 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
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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, the Company 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 the 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
=========== ===========
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 in the wholesale auto parts business. 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.
-10-
<PAGE>
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
$2,600,000 dollars in funding. As of April 30, 1993 the Company had funded
approximately $400,000. The majority shareholder subsequently agreed to
repurchasehe 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-
=========== =========
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 (See Note 11). This investment was written off during fiscal
1995.
1996 1995
------------ ---------
Original cost $ -- $ 250,000
Write-off of Advance -- (250,000)
------------ ---------
Carrying value $ -- $ -0-
============ =========
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. 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 the
Company, resigned and assumed total control of the joint operations at Spartan.
As a result, the Company has commenced an arbitration against this individual
and Spartan for damages and recovery of net advances and accumulated profit.
Recovery of these amounts, if any, will be recognized in the future.
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.
-11-
<PAGE>
Current management is unable to determine the financial condition of the
investees at the time of the investments as the Company's files do not contain
any information related thereto. To the best of current management's knowledge,
no relationship existed between the Company and/or its officers and directors
and the investees prior to the initial investment. Subsequent valuation
allowances were based on a contemporaneous review of available information
concerning the underlying net assets of the investees compared with the
Company's carrying value of the investments. If there was a lack of reliable
financial information concerning the investee or, the extent that the Company's
proportionate share of the underlying net assets was less than the carrying
value of the Company's equity investment, and such difference was considered the
result of an "other than a temporary decline" as defined in SFAS 115, an
allowance was established and charged to operations. For fiscal 1996, additional
reserves of approximately $2,318,000 as unrealized losses and a corresponding
increase in the valuation allowance was made for the related investments.
Management believes the total remaining carrying value at April 30, 1996 of
$628,000, net of the valuation allowance, is reasonable.
During fiscal 1995, the Company recognized a $1,000,000 theft loss associated
with the issuance of 50,000 shares of common stock to a foreign company. It
appears the Company did not receive any proceeds or compensation of any kind in
connection with the issuance of these shares. As discussed in Note 13 to the
Consolidated Financial Statements, such shares were issued at the instruction of
Leo Mangan, the Company's former Chief Operating Officer who was indicted in
October 1996 on charges of using the Company as a vehicle to commit securities
fraud, among other charges.
Liquidity and Capital Resources
During fiscal 1996, the Company raised net proceeds of approximately $3,025,000
through various private placements of common stock. These funds were used to
purchase vehicles and equipment totalling approximately $1,550,000. The balance
of $1,475,000 was used to finance current operations and meet working capital
requirements.
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 borrowing was incurred in
connection with the acquisition of this equipment.
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 through
domestic private placements of equity and convertible debt as well as
establishing a credit line facility in order to expand operations.
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 disagreement 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:
-12-
<PAGE>
EXECUTIVE OFFICERS
NAME TITLE AGE APPOINTMENT DATE
- ---- ----- --- ----------------
Donald Kessler Chairman, President & Chief
Executive Officer 52 March 1995
Leo Mangan Chief Operating Officer 40 May 1993
DIRECTORS TITLE AGE APPOINTMENT DATE
- --------- ----- --- ----------------
Donald Kessler Chairman of the Board, President 52 March 1995
and Chief Executive Officer
Leo Mangan Chief Operating Officer 40 May 1993
Michael O'Reilly President of Trade-Winds 46 December 1993
Environmental Restoration, Inc.
Secretary of the Company
David Behanna Chief Financial Officer 38 February 1995
James Nearen Outside Director 42 December 1995
Lynne Scott Outside Director 48 March 1996
Donald Kessler had been a freelance public relations and investor promotion
consultant since 1992 for various clients in the New York Metropolitan Area
prior to his joining the Company in April 1995. His background includes the
director of business development and public relations for the Hardwick
Organization, a New York based group of companies in the hospitality and
entertainment industry, from 1990 through 1992 .
Michael O'Reilly has been the President of Trade-Winds Environmental
Restoration, Inc. since December 1993. He was previously Vice President of North
Shore Environmental Remediation, Inc., a provider of environmental clean-up
services, including asbestos and lead removal services, from January 1990
through November 1993.
David Behanna has been the Chief Financial Officer of the Company since February
1995. Prior to that he had been a partner in his own accounting firms since
1986, most recently with Behanna & Oliva, CPA's, P.C., the Company's auditor of
record for fiscal 1994.
Donald Kessler is a director and James Nearen is a director and an officer of
ICIS Management Group, Inc. located in Lighthouse Point, FL (NASDAQ:ICIS)
Leo Mangan has two prior felony drug trafficking convictions from 1979 and 1990
as noted in the October 1996 indictment of him.
Subsequent to their October 1996 indictment, management of the Company concluded
that they could not rely on representations made by Messrs. Mangan and Nearen
and Lynn Scott concerning their respective business experience and backgrounds
and, accordingly, has omitted such information from this amended report.
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).
-13-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during the
last three fiscal years to the Company's Chief Executive Officer and the other
three most highly compensated employees of the Company whose total cash
compensation exceeded $60,000 for services in all capacities.
<TABLE>
<CAPTION>
Name and Other Restricted Securities LTIP All Other
Principal Fiscal Compen- Stock Underlying Payouts Compen-
Position(s) Year Salary($) 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-
1995 6,667 -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0- -0-
Leo Mangan
COO 1996 160,000 6,000 -0- -0- 250,000 -0- 432,000(1)
1995 78,000 -0- -0- -0- 2,000,000 -0- 325,000(1)
1994 -0- -0- -0- -0- -0- -0- -0-
Michael O'Reilly
Secretary &
President of
Trade-Winds 1996 156,000 140,180 -0- -0- 250,000 -0- -0-
1995 158,500 -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0- -0-
David Behanna
CFO 1996 99,000 4,500 -0- -0- 100,000 -0- -0-
1995 22,000 -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
(1) All other compensation represents bonuses paid to the Company's former Chief
Operating Officer, Leo Mangan, in connection with his role in capital raising
transactions by the Company during the respective fiscal years.
The Company had six (6) year employment agreements expiring in 2000 with both
Leo Mangan, Chief Operating Officer, and David Behanna, Chief Financial Officer.
The total commitment of the Company for these agreements ranged from $252,000
per year in 1995 to $372,000 per year in 2000, plus certain fringe benefits paid
each year. Mr. Mangan's contract was terminated as part of his severance
agreement signed in September 1996. Mr. Behanna voluntarily terminated his
contract at the request of Mr. O'Reilly in September 1996 but retained his base
salary of $108,000 per annum. Trade-Winds had an employment agreement with its
President, Michael O'Reilly for five years expiring in December 1998 with annual
base compensation of $156,000 plus an incentive bonus based on 2% of gross
revenues as well as certain other fringe benefits. Mr O'Reilly's contract was
renegotiated in October 1996 upon his being elected as the Company's Chairman,
President & Chief Executive Officer. Terms of the agreement provide for a base
salary of $200,000 plus a bonus of 2% of gross revenues to a maximum of 25% of
pre-tax profit, payable 50% in cash and 50% in restricted stock, as well as
certain other fringe benefits.
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, 1,000,000 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 with an exercise price of $1.50 per share. Up to 50% of said options may be
exercised after six months from the date of grant and the balance may be
exercised after one year from the date of grant. As of April 30, 1996, no
options issued under this plan have been exercised.
Effective March 10, 1995, the Company granted the Chief Operating Officer a
non-qualified option to purchase 2,000,000 shares of the Company's common stock
at an exercise price of $.01 per share. This option may only be exercised during
the five (5) year period commencing upon the occurrence of i) the termination of
the officer, ii) the death of the officer, or iii) a change in control, as
defined, which shall be deemed to include a material change of the officers of
the Company. No amounts have been charged to compensation expense in the
accompanying statements of loss for the years ended April 30, 1996 and 1995
related to this option.
-14-
<PAGE>
At a board meeting on April 29, 1994, non-qualified stock options with an
exercise price of $10 per share and exercisable within four years were granted
to certain executive officers. The total number of new shares resulting from the
exercise of these options would have been 27,500 shares. These options have been
voluntarily cancelled upon the termination of each grantee, namely Messrs.
Mangan and Varsi.
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value
- --------------------------------------------------------------- -------------------------------------
% 0f Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration
Name Granted (#) Year ($)Shares Date Value 0% ($)
- ----------- ------------- ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Donald Kessler
Chairman,
President &
CEO 100,000 3.7 1.50 May, 2000 -0-
Leo Mangan 2,000,000 74.0 .01 March, 2000 1,260,000
COO 250,000 9.3 1.50 May, 2000 -0-
Mike O'Reilly
President of
Trade-Winds 250,000 9.3 1.50 May, 2000 -0-
David Behanna
CFO 100,000 3.7 1.50 May, 2000 -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set 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 officer and director
who owns any shares of the Company and by all officers and directors as a group.
<TABLE>
<CAPTION>
Name Principle Occupation # Shares % Shares
- ---- -------------------- -------- --------
<S> <C> <C> <C>
Donald Kessler Chairman, President &
CEO 0(1) 0
Leo Mangan Chief Operating Officer 10,000(1) *
Mike O'Reilly President, Trade-Winds
Environmental Restoration, Inc. 255,000(2) 2.7
David Behanna Chief Financial Officer 100,000(2) 1.1
James W. Nearen Director 1,200 *
Lynne Scott Director 0 0
Officers and Directors
As a Group 366,200 3.9
</TABLE>
* Less than 1% of issued and outstanding common shares plus vested options
exercisable within 60 days after April 30, 1996
-15-
<PAGE>
(1) Excludes a 100,000 share option cancelled pursuant to the termination
agreement with Mr. Kessler and excludes a 250,000 share option cancelled by
the Company as a result of Mr. Mangan's indictment in September 1996. Both
of these options had been previously granted on May 26, 1995
(2) Includes shares subject to stock options referred to in Note 14 to the
Consolidated Financial Statements for options granted by the Company on May
26, 1995 as follows; Mr. O'Reilly, 250,000 shares and Mr. Behanna, 100,000
shares. Excludes Mr. Mangan's 2,000,000 share option that was cancelled in
September 1996 pursuant the terms and conditions of his termination
agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996, Mangan was paid approximately $432,000 as fees for assisting
the Company in various capital raising transactions for which he purportedly
acted as finder. Payments for this service were made in addition to his base
compensation as Chief Operating Officer pursuant to an agreement negotiated by
the then Chairman & CEO, Dr. Kenneth Lehrer, and approved by the Company's Board
of Directors. The Board approved such compensation upon the advice of Dr. Lehrer
that the additional compensation was comparable with fees that would otherwise
be payable to unaffiliated third parties which provide similar services.
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.
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.
10. Employment Agreements; Messrs. Mangan, Chief Operating Officer
and Behanna, Chief Financial Officer
27. Financial Data Schedule.
-16-
<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: July 14 , 1997
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
By: /s/ Michael O'reilly
------------------------------------
MICHAEL O'REILLY, Chairman, President
and Chief Executive Officer
By: /s/ David 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/ Michael O'Reilly
- --------------------------------- Date: July 14, 1997
MICHAEL O'REILLY , Director
/s/ Anthony Towell
- --------------------------------- Date: July 14, 1997
ANTHONY TOWELL , Director
/s/ Samuel Sadove
- --------------------------------- Date: July 14, 1997
SAMUEL SADOVE , Director
/s/ Joann O'Reilly
- --------------------------------- Date: July 14, 1997
JOANN O'REILLY , Director
-17-
<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 -- F17
Independent Auditors' Report ................................... F18
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
(Restated)
ASSETS
<TABLE>
<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>
(Continued)
F-1
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(Formerly Integrated Resource Technologies, Inc.)
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
(Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<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
70,000 treasury shares 617
Additional paid-in capital 24,727,377
Treasury stock (58,000)
Stock subscription receivable (46,988)
Deficit (17,749,851)
------------
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
(Restated)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 9,906,661 $ 5,694,260
Cost of Revenues 7,287,098 3,386,364
------------ ------------
Gross profit 2,619,563 2,307,896
Selling, general and administrative expenses 5,054,416 7,539,589
------------ ------------
Loss before other income(expense) (2,434,853) (5,231,693)
------------ ------------
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) (2,544,536)
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)
Theft Loss ( Note 13) -- (1,000,000)
------------ ------------
Total other income (expense) (2,400,406) (7,457,293)
------------ ------------
(4,835,259) (12,688,986)
Minority interest in loss of consolidated
subsidiary -- 18,134
------------ ------------
Loss before income tax benefit (4,835,259) (12,670,852)
Income tax (benefit) (801,467) (1,918,795)
------------ ------------
Net Loss $ (4,033,792) $(10,752,057)
============ ============
Loss per common share: $ (.77) $ (7.45)(a)
============ ============
Weighted average number of
common shares outstanding: 5,232,783 1,442,899(a)
============ ============
</TABLE>
(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
(Restated)
<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 (Restated) 884,444(a) $ 88 $ 8,630,323 $ -- $ --
Private placements of common stock 688,139(a) 69 6,566,882
Issuance of common stock for services 421,700(a) 42 4,698,947
Other issuance of common
stock (Note 13) 50,000(a) 5 999,995
Loss for the year ended April 30, 1995
------------ ------------ ------------ ------------ ------------
Balance - April 30, 1995 2,044,283 $ 204 $ 20,896,147 $ -- $ --
Private placements of common stock 3,690,750 369 3,171,524
Acquisition of New York Testing
Laboratories, Inc. and Subsidiary 45,000 5 67,495
Issuance of common stock for services 297,333 30 502,220
Purchase of treasury shares (100,000) (88,000)
Issuance of common stock to settle
legal claim 120,000 9 89,991 30,000
Stock subscription receivable (46,988)
Loss for the year ended April 30, 1996
------------ ------------ ------------ ------------ ------------
Balance - April 30, 1996 6,097,366 $ 617 $ 24,727,377 $ (58,000) $ (46,988)
============ ============ ============ ============ ============
<CAPTION>
Accumulated
Deficit Total
------------ ------------
<S> <C> <C>
Balance - April 30, 1994 (Restated) $ (2,964,002) $ 5,666,409
Private placements of common stock 6,566,951
Issuance of common stock for services 4,698,989
Other issuance of common
stock (Note 13) 1,000,000
Loss for the year ended April 30, 1995 (10,752,057) (10,752,057)
------------ ------------
Balance - April 30, 1995 $(13,716,059) $ 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 502,250
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 (4,033,792) (4,033,792)
------------ ------------
Balance - April 30, 1996 $(17,749,851) $ 6,873,155
============ ============
</TABLE>
(a) The Number of Common Shares have been adjusted 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 (Restated)
FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,033,792) $(10,752,057)
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 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 for payment of services 502,250 4,698,989
Theft Loss -- 1,000,000
Issuance of treasury stock for payment of
lawsuit settlement 30,000 --
Common stock issued for 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 (DECREASE) INCREASE 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
12). 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 newly incorporated as a
wholly-owned subsidiary of the Company 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 5). 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 11). 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 6). 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.
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.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company includes cash on
deposit, money market funds, amounts held by brokers in cash accounts and
time deposits with a maturity of three months or less 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 where the decline in value from
historical cost is determined to be other than temporary.
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. RESTATEMENTS OF FISCAL 1996 AND 1995 FINANCIAL STATEMENTS
After filing its Form 10-KSB for the year ended April 30, 1996 and
subsequent to the October 1996 indictment of Messrs. Mangan and Nearen for
stock fraud and manipulation, the Company determined that the accounting
treatment related to certain issuances of common stock for investment
service and promotional fees during fiscal 1996 and 1995 was improper. The
common stock was issued as consideration for investment and promotional
services purportedly provided to the Company by consultants and investment
advisory firms. The Company has charged to expense the value of these
services based on the quoted market value of the Company's common stock on
the date of each issuance. The effect of these changes on the net loss of
fiscal 1996 and 1995 are as follows:
April 30,
---------
1996 1995
---- ----
Net loss, as originally reported $(3,640,042) $(5,053,068)
Net loss, as restated $(4,033,792) $(10,752,057)
Loss per share, as originally reported $(.70) $(3.50)
Loss per share, as restated $(.77) $(7.45)
These changes were principally related to investment service fees and other
costs incurred by the Company which should have been expensed rather than
recorded as a reduction to Additional Paid-in Capital. The restatement had
no effect on the total shares outstanding or Total Stockholders' Equity as
of April 30, 1996 and 1995. The cummulative effect of these changes results
in an increase of the Company's Deficit of approximately $6,100,000 and a
corresponding increase of Additional Paid-in Capital as of April 30, 1996
(See Notes 13).
F-8
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED APRIL 30, 1996 and 1995
2. RESTATEMENTS OF FISCAL 1996 AND 1995 FINANCIAL STATEMENTS (CONT'D)
In July 1997, the Company further amended its Form 10-KSB for the year
ended April 30, 1996 in order to restate the consolidated statement of loss
for the year ended April 30, 1995. The additional restatement was necessary
to exclude from consolidated operations, the results of operations of
Spartan. The Company's financial investment in Spartan was not accompanied
by the control of voting stock and management influence which are required
for consolidation. There was no effect on the net loss of the Company in
fiscal 1996 and 1995 as a result of the second restatement. The changes to
previously reported amounts of revenues, costs of revenues, selling,
general and administrative expenses and loss on net equity in joint venture
for the year ended April 30, 1995 is summarized as follows;
Second Originally Reported
Restatment and Restated Change
-----------------------------------------
Revenues $ 5,694,260 $ 8,313,050 $(2,618,790)
Cost of Revenues $ 3,386,364 $ 5,153,262 $ 1,766,898
Selling, General and
Administrative Expenses $ 7,539,589 $ 8,139,029 $ 599,440
Loss on Equity in
Joint Venture $ 2,544,536 $ 2,796,988 $ 252,452
Net Loss $10,752,057 $10,752,057 $ -0-
The changes resulting from the first restatement noted above affected
certain of the unaudited quarterly results of operations for fiscal 1996
and 1995 as follows:
<TABLE>
<CAPTION>
Fiscal Quarter Ended (Unaudited)
--------------------------------
July 31 Oct. 31, April 30, July 31,
1994 1994 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss), as reported $ 575,631 $ 3,178 $ (5,731,788) $ 501,030
Net income (loss), as restated $ 239,431 $ (4,809,611) $ (6,281,788) $ 246,800
Earnings per share, as reported $ .07 $ .00 $ (4.03) $ .15
Earnings per share, as restated $ .03 $ (3.85) $ (4.62) $ .07
</TABLE>
The unaudited quarterly results for January 31, 1995, October 31, 1995,
January 31, 1996 and April 30, 1996 were not affected by the first
restatement. The unaudited quarterly results for the fiscal year ended
April 30, 1995 were not affected by the second restatement.
3. SUPPLEMENTAL CASH FLOW INFORMATION
1996 1995
------- -------
Cash paid for:
Interest $50,629 $16,885
======= =======
Income taxes $12,191 $ --
======= -------
F-9
<PAGE>
Non-cash Investing & Financing Transactions
<TABLE>
<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>
4. 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, this entire agreement was reversed and, additionally, an
agreement between the parties which would have exchanged the $1,772,000
note for 590,667 post reverse restricted common shares was voided. 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 are to
be returned by Apache 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 the reserve of the remaining investment balance.
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
4. INVESTMENTS IN NON-MARKETABLE SECURITIES (CONT'D)
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
=========== ===========
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.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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
4. INVESTMENTS IN NON-MARKETABLE SECURITIES:(CONT'D)
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 $2,600,000 dollars in funding. As of April 30, 1993 the Company
had funded approximately $400,000. The majority shareholder subsequently
agreed to repurchase 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-
========= =========
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 (See Note 11). This
investment was written off during fiscal 1995.
1996 1995
------------ ---------
Original cost $ -- $ 250,000
Write-off of Advance -- (250,000)
------------ ---------
Carrying value $ -- $ -0-
============ =========
5. 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. 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 against this
individual and Spartan for damages and recovery of net advances and
accumulated profit ( see note 11). Recovery of these amounts, if any, will
be recognized in the future.
6. 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.
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. 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 8).
**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.
8. 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 7). $ 283,746 $ 410,333
Note payable for the purchase of the remaining 49% of a subsidiary (See
Note 6). 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>
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
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, 1996 and 1995
8. LONG-TERM DEBT (CONT'D)
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 expiring 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 futumum lease paymere minints $ 224,584
Less: Amount representing interest (48,197)
----------
Present value of future
minimum lease payments $ 176,387
==========
9. 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
31% of the Company's sales and 63% of the contract receivable balance.
10. 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 13).
11. 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 4). The
Company seeks the return of its $250,000 deposit plus legal fees and
punitive damages. Management intends to continue aggressively pursuing this
matter.
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 5). The Company settled
this action in October 1996 for $300,000. Terms included a downpayment of
$25,000 and monthly payments of $5,000. This note is collateralized by a
first mortgage position on real property located in Brooklyn, NY at the
Spartan facility.
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. COMMITMENTS AND CONTINGENCIES (CONT'D)
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, results
of operations and cash flows of the Company.
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 annual commitment of the Company from these agreements range from
$252,000 in 1995 to $372,000 in 2000, plus certain fringe benefits
including health insurance, vehicle allowance as well as a Company provided
cellular telephone and beeper. The annual obligation for these benefits
under each agreement is approximately $20,000. Trade- Winds is obligated
under an employment contract with its President for five (5) years expiring
December, 1998 with annual base compensation of $156,000 plus an incentive
bonus based on gross sales and net profits of Trade-Winds. The aggregate
commitment for the Chief Operating Officer, Chief Financial Officer and
President of Trade-Winds under each aggreement is approximatley $1,250,000,
$850,000 and $900,000.
12. 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.
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
12. CAPITAL STOCK (CONT'D)
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.
13. STOCK ISSUANCES (Restated- See Note 2)
During the year ended April 30, 1996, the Company sold and issued 3,690,750
shares of common stock in various private placements 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 10). The Company also issued 297,333
shares of common stock in connection with various professional and
consulting fees. These shares were valued at $502,250 and included in
Selling General and Administrative Expenses for the year ended April 30,
1996 (See Note 2). In addition, the Company issued 120,000 shares of common
stock for the partial settlement of a legal claim (See Note 11).
During the year ended April 30, 1995, the Company sold and issued 688,139
shares of common stock (on a post reverse split basis) in various private
placements 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 10). The
Company also issued 421,700 shares of common stock (on a post reverse split
basis) in connection with various investment banking and consulting
agreements. These shares were valued at $4,698,989 and included in Selling
General and Administrative Expenses for the fiscal year ended April 30,
1995. In addition, the Company issued 50,000 shares of common stock (on a
post reverse split basis) to a foreign company, purportedly in connection
with the purchase of various environmental remediation materials, supplies
and equipment. These shares were issued at the instruction of Mr. Mangan,
the Chief Operating Officer, who was terminated in September 1996 and
indicted in October 1996 on charges of using the Company to commit
securities fraud, among other charges. Environmental remediation materials,
supplies and equipment were ultimately not delivered nor the shares
returned to the Company and, as such, the value of these shares,
$1,000,000, is reflected as a Theft Loss and included in Other Income
(Expense) for the fiscal year ended April 30,1995. (See Note 2)
Subsequent to April 30, 1996, the Company sold and issued 2,711,111
discounted, restricted shares of common stock under certain 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 Current Liabilities on the
balance sheet under the caption "Deposits". In addition, 150,000 shares of
common stock were issued for promotional services.
14. STOCK OPTIONS
Pursuant to a majority vote of the voting shareholders of the Company, a
stock option plan was adopted effective January 21, 1995 for 1,000,000
shares. The plan provides for additional compensation for officers and key
employees in the form of non-qualified or incentive stock options. Under
this plan, 1,000,000 shares have been reserved for future issuance upon
exercise of the options, 700,000 of which have been registrated pursuant to
an S-8 filing. 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, the fair
market value on the date of the grant. Up to 50% of the options may be
exercised after six months from the date of grant and the balance may be
exercised after one year from the grant date.
Effective March 10, 1995, the Chief Operating Officer of the Company was
granted a non-qualified option to purchase 2,000,000 shares of the
Company's common stock at an exercise price of $.01 per share. This option
may only be exercised during the five (5) year period commencing upon the
occurrence of I) the termination of the officer, ii) the death of the
officer, or iii) a change in control, as defined, which shall be deemed to
include a material change of the officers of the Company. No amounts have
been charged to compensation expense in the accompanying statements of loss
for the years ended April 30, 1996 and 1995 related to this option.
F-16
<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
15. INCOME TAXES (Restated - See Note 2)
<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 (2,309,456) (3,896,631)
State (609,445) (916,854)
Less: Valuation allowance 2,117,434 2,894,690
----------- -----------
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 $ 5,413,756 $ 3,688,108
Unrealized losses on non-marketable services 2,517,413 1,406,060
Allowance for doubtful contracts 81,900 --
----------- -----------
8,013,069 5,094,168
Less: Valuation allowance (5,429,069) (3,311,635)
----------- -----------
$ 2,584,000 $ 1,782,533
=========== ===========
</TABLE>
At April 30, 1996, the Company has realized net operating losses available
for carryforward against future years' taxable income of approximately
$12,900,000 for tax purposes, which would expire throughout 2011. The
deferred tax assets were reduced in part by a valuation allowance that
represents a portion of the deferred tax assets that, in the opinion of
management, is more likely than not, will not be realized.
There conciliation of income tax from net loss computed at the federal
statutory tax rate to the Company's effective tax rate is as follows :
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------------
1996 1995
--------------------- -------------------------
Amount % Amount %
---------------------- ------------------------
<S> <C> <C> <C> <C>
Federal income tax benefit at statutory rate $(1,643,988) -34.00% $(4,308,090) -34.00%
Effect of valuation allowance of deferred tax assets 1,018,532 21.06% 2,894,690 22.85%
Other, net (176,011) -3.63% (505,395) -3.99%
----------- ------- ----------- -------
Effective income tax rate $ (801,467) -16.57% $(1,918,795) -15.14%
=========== ======= =========== =======
</TABLE>
F-17
<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 provide 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 4, 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.
As more fully discussed in Note 2 to the consolidated financial statements, (a)
the consolidated financial statements for the years ended April 30, 1996 and
1995 have been restated to reflect changes in the accounting treatment related
to expensing of certain previously capitalized costs which were recorded as a
reduction to Additional Paid-In Capital, and (b) the Consolidated Statement of
Loss for the year ended April 30, 1995 has been restated to reflect the
deconsolidation of the results of operations of the joint venture agreement with
Spartan Dismantling Corp.
Capraro, Centofranchi, Kramer & Co, P.C.
South Huntington, New York
August 8, 1996,
except for Note 2, as to which the dates are
(a)December 5, 1996 and (b)July 14, 1997
F-18
EXHIBIT 10
This Employment Agreement ("Agreement") is entered into as of April 1,
1996, by and between Comprehensive Environmental Systems, Inc., a Delaware
corporation (the "Company") and Leo J. Mangan ("Mangan"). These persons or
entities may from time to time herein be referred to as the party or parties.
RECITALS
The parties enter into this Agreement with respect to the following facts
and circumstances:
A. Mangan is presently the Chief Operating Officer of the Company.
B. The Company believes that Mangan's skills and knowledge are essential to
its continued success and by this Agreement, desires to secure Mangan's
continued employment as Chief Operating Officer for the term expressed below.
C. Mangan desires to be employed by the Company.
CONSIDERATION
In consideration of the mutual covenants contained herein, to give effect
to the Recitals stated above, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby, acknowledged, the parties agree as
follows:
1.0 Term. This Agreement shall commence on April 1, 1995 and shall continue
hereafter for a period of six (6) years (the "Term"). This Agreement may be
terminated only as provided at Section 4.0 below.
2.0 Duties. Mangan shall have the following obligations hereunder:
2.1 Title. Mangan shall serve the Company as its Chief Operating
Officer and shall have the right and authority to utilize said title in the
conduct of his business and personal affairs.
2.2 Job Description. Mangan shall perform such duties as the Board of
Directors of the Company may from time to time direct and as are consistent with
the position of Chief Operating Officer, including specifically, but without
limitation, overseeing the day to day operations of the Company and its
subsidiaries; establishing and maintaining the Company's books, records and
accounts; and investigating acquisitions investments and divestitures by the
Company. This provision shall not be deemed to prevent Mangan from raising
capital for the Company and being remunerated at normal market rates therefore,
nor shall such remuneration be deemed to violate any duty to the Company as a
result of his employment.
Page 1
<PAGE>
2.3 Best Efforts. Mangan shall use his best efforts, business
judgment, skill and knowledge to the advancement of the business and interests
of the Company and to the discharge of his duties and responsibilities
hereunder. The term "best" shall mean the use of such nonexclusive effort as a
reasonable man would be expected to devote under the circumstances and facts
then prevailing.
3.0 Compensation and Benefits. The Company, at its expense, shall provide
to Mangan the following compensation and benefits:
3.1 Salary. The Company shall pay Mangan the following annual salaries
upon the same general terms and at the same intervals as the payment of the
salaries of other employees of the Company:
Year Amount
1995 $156,000
1996 $168,000
1997 $180,000
1998 $192,000
1999 $204,000
2000 $216,000
3.2 Insurance. The Company, at its sole expense, shall provide Mangan
with (i) a policy of medical insurance that will insure Mangan regardless of his
physical location; (ii) a whole life insurance policy with death benefits of not
less than $2,000,000; and (iii) a disability policy with benefits equal to or
greater than the benefits currently provided to Mangan by the Company at the
time of execution of this Agreement.
The Company agrees to assign any policy of life insurance as directed
by Mangan to effect a split-dollar arrangement; and further agrees to pay up and
transfer any right or interest it may have to the trustee of the insurance trust
holding ownership of said policy at the time should, for any reason, this
Agreement terminate.
3.3 Payment and Reimbursement of Expenses. The Company shall provide
Mangan with an expense account against which he may charge all reasonable
travel, subsistence, entertainment and similar expenses incurred by him in the
performance of his obligations hereunder and shall promptly pay when due all
such statements and bills upon submission by Mangan and in accordance with the
then usual procedures of the company
Additionally, the Company shall pay a reasonable sum as an automobile
allowance including the costs of leasing, insurance, maintenance and repair.
Finally, the Company shall pay the actual costs incurred by Mangan for
Page 2
<PAGE>
cellular telephone and pager communications including equipment, service and
long distance charges.
3.4 Executive Bonus. The Company shall allow Mangan to participate in
any executive bonus plan upon the same terms and conditions as other executive
officers of Company.
3.5 Stock Options. Upon the execution hereof, the Company shall grant
and Issue to Mangan non qualified options to purchase for $1.50 per share two
hundred and fifty thousand (250,000) shares of validly issued, fully paid and
non assessable common stock of the Company, $.0001 par value, including rights
to demand registration at Company expense. Said options shall conform to the
Stock Option Grant attached hereto as Exhibit A.
The Company, by its execution hereof acknowledges, confirms and
ratifies the March 10, 1995 grant to Mangan of 2,000,000 non qualified stock
options exercisable at 20% to of the closing market bid price as of the last
trading day immediately proceeding the date of exercise, which were approved by
the shareholders at the last annual meeting of the company, to Mangan and
confirms that the additional options being granted to Mangan in this Section 3.5
are in addition to the previous grant. A copy of the previous grant of options
is attached hereto as Exhibit B.
3.6 Vacation. Mangan shall be entitled to paid vacation each year in
accordance with the following schedule:
1995 2 weeks
1996 3 weeks
1997-2000 4 weeks
All vacation time shall be taken at such times and intervals as shall be
determined by Mangan, subject to the reasonable business needs of the Company.
4.0 Termination. This Agreement may be terminated only as follows:
4.1 Death of Mangan. The death of Mangan shall terminate this
Agreement provided, however, that the Company's obligation to pay the Salary
described in Section 3.1 shall survive termination and continue through the date
on which the Term would have naturally ended pursuant to Section 1.0 except for
such early termination. Additionally, the following obligations shall survive
termination and the Company shall: (i) timely pay any statements or bills for
expenses incurred by Mangan prior to the time of his death as is described at
Section 3.3 above; (ii) disburse to Mangan's heirs or estate any executive bonus
then due and owing Mangan pursuant to Section 3.4 above; and (iii) allow
Mangan's heirs or estate to exercise, according to the terms thereof, any stock
options previously granted, granted by this
Page 3
<PAGE>
Agreement pursuant to Section 3.5 above, or that may subsequently be granted by
the Company.
4.2 Termination by Company. Subject to the timely payment of the
liquidated damages described hereafter, the Company may terminate this Agreement
upon thirty (30) days written notice to Mangan. In the event the Company
terminates this Agreement pursuant to this section or takes such action that
prevents Mangan's performance of his obligations hereunder thus effecting a
termination, then, upon the effective date of that termination, the Company
shall pay in certified funds a lump sum amount equal to the sum of the
following: (i) the total of the remaining unpaid salary described in Section 3.1
above; (ii) an amount equal to the annual premiums of the medical and life
insurance described at Section 3.2(i) and 3.2(ii) above for the balance of the
Term; (iii) any amounts due for reimbursement of expenses as described in
Section 3.3 above: and (iv) any executive bonus then due and owing as provided
at Section 3.4 above.
In the event of any dispute between the Company and Mangan concerning
the amount due, either party by written request may request that the Company's
independent outside auditor determine the amount owing hereunder. The costs of
such determination shall be paid by the Company.
The Company acknowledges that the amount and terms for payment of
these sums constitute a fair and equitable severance provision in the nature of
a liquidated damages provision. The Company waives any claim or right that it
might otherwise have to contest the validity or terms of payment. Further, to
the extent that the amount of damages owing hereunder has been determined by its
independent outside auditor, the Company waives any claim or right that it might
otherwise have to contest the amount of the damages described in this Section
4.2. The Company also acknowledges that Mangan is relying upon the protection
provided to him by this liquidated damages provision as an inducement to his
entering into this Agreement.
The Company acknowledges that its failure to pay the above described
severance amount as liquidated damages to Mangan when due shall cause him to
suffer immediate and irreparable harm, thus entitling him to enforce the payment
of these sums by actions at law and in equity for preliminary and permanent
injunctive relief as further described in Section 8.0 below.
4.3 Termination by Mangan. Mangan may terminate this Agreement upon
thirty (30) days written notice to the Company.
5.0 Covenant Not to Disclose. Other than is necessary in the ordinary
course of the Company's business. Mangan shall not disclose, make accessible or
use for the benefit of any other person or entity, at any time during or after
the Term, any information of a confidential, proprietary or secret nature
relating to the business, products or activities of the Company (the
"Confidential Information"). Such
Page 4
<PAGE>
Confidential information shall include, but not be limited to, information
relating to plans, devices, customers, marketing and sales. Information shall be
Confidential Information whether or not such information was developed, devised
or otherwise created in whole or in part by the efforts of Mangan, and whether
or not such information is a matter of public knowledge, unless the Company has
authorized disclosure of such information to the general public. All documents,
records and other media of every kind and description relating to the business,
present or otherwise, of the Company and any copies, in whole or in part,
thereof, whether or not prepared by Mangan, shall be the sole and exclusive
property of the Company. Mangan shall safeguard ail such property and shall
surrender such property in his possession or control to the Company upon his
termination of this Agreement or upon the request of the Company following its
termination of this Agreement in accordance with the terms hereof.
6.0 Representations and Warranties of Mangan. Mangan hereby represents and
warrants to the Company that he is under no contractual or other restriction
which is inconsistent with the execution of this Agreement, the performance of
his duties hereunder, or the rights of the Company hereunder.
7.0 Counterparts and Headings. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument. The headings in this agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
8.0 Enforcement. Mangan acknowledges that he has carefully read and
considered all terms and conditions of this Agreement, including the restraints
imposed upon him pursuant to Section 5 hereof. Mangan agrees that said
restraints are necessary for the reasonable and proper protection of the Company
and that any breach by Mangan of such section would cause irreparable damage to
the Company. Mangan therefore agrees that the Company, in addition to any other
remedies available to it, shall be entitled to preliminary and permanent
injunctive relief against any breach or threatened breach by Mangan of such
section. Similarly, the Company acknowledges that it has carefully read and
considered all terms and conditions of this Agreement, including the continuing
financial obligations in the event of termination, including the possibility of
lump sum payments, that may be imposed upon it pursuant to this Agreement. The
Company agrees that the financial obligations created hereby, including the
possibility of lump sum payments, are necessary for the reasonable and proper
protection of Mangan, his heirs or estate, and that any breach by the Company of
its financial obligations to Mangan pursuant to this Agreement would cause
irreparable damage to Mangan, his heirs or estate. The Company therefore agrees
that Mangan in addition to any other remedies (including a claim for money
damages) available to him, his heirs or estate, shall be entitled to preliminary
and permanent injunctive relief against any breach or threatened breach by the
Company of this Agreement.
Page 5
<PAGE>
9.0 No Waiver. The waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a Waiver of any subsequent breach
of such provision or any other provision hereof.
10.0 Notices. Any notice or communication required or permitted hereunder
shall be deemed given when delivered personally or when deposited in the United
States mails, by certified mail, return receipt requested, postage prepaid:
If to the Company at:
Comprehensive Environmental Systems. Inc.
72-E Cabot Street
West Babylon, NY 11704
If to Mangan, to him at:
Leo Mangan
328 Centre Avenue
Lindenhurst, NY 11757
or to such other address of which either party may notify the other party by
notice similarly given.
11.0 Assignment; No Third Party Beneficiaries. The Company may not assign
its rights or obligations pursuant to this Agreement. Mangan may not assign or
delegate to any third party his obligations under this Agreement. In all other
respects, the provisions of this Agreement shall be binding upon and inure to
the benefit of Mangan, his heirs, estate or personal representatives. This
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any person not a party to this Agreement, except as provided in
this Section 11.
12.0 Entire Agreement; Amendment. This instrument contains the entire
agreement between the parties with respect to the subject matter addressed
herein and all prior discussions, understandings, negotiations and agreements
are merged herein. This Agreement may not be changed orally (and no claim of an
oral modification shall be accepted as evidence of such change) but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
13.0 Corporate Approval. By his or their signature(s) on this Agreement,
the undersigned officer(s) of the Company represent and warrant as follows: (i)
that they have obtained all necessary and appropriate approvals from the
Company's board of directors; (ii) that the Company is and shall remain to be
legally bound pursuant to the terms of this Agreement; and (iii) the Company
through its officer(s) signature(s)
Page 6
<PAGE>
hereunder shall be deemed to have waived any claim of defect for failure to
comply with corporate policies and procedures pertaining to the execution of
agreements creating obligations of the Company. Any such dispute shall not
affect the enforceability hereof and shall be deemed to be a dispute between the
Company and its undersigned representative.
14.0 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument, effective as of the day and year first above written.
Attest: Comprehensive Environmental Systems, Inc.
/s/[illegible] By:/s/ Donald E. Kessler
- ------------------------------ ----------------------------
Donald E. Kessler, CEO and President
Attest Leo Mangan
/s/[illegible] By: /s/Leo J. Mangan
- ------------------------------ ----------------------------
Leo J. Mangan, Individually
/s/[illegible] Attest
Page 7
<PAGE>
EXHIBIT 10
EMPLOYMENT AGREEMENT, dated as of February 1, 1995, between COMPREHENSIVE
ENVIRONMENTAL SYSTEMS, INC., a Delaware corporation with offices at 72B Cabot
Street, West Babylon, New York 11704 (the "Company"); and DAVID R. BEHANNA,
residing at 53 Malvern Lane, Stony Brook, New York 11790 (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to engage the Employee to perform services for
the Company, and the Employee desires to perform such services, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein set forth,
the parties hereto agree as follows:
1. Term.
The Company agrees to employ the Employee, and the Employee agrees to be
employed by the Company, on the terms and conditions of this Agreement for a
period of six years commencing on the date hereof and ending on January 31,
2001, or such shorter period as may be provided for herein. The Employee shall
have the option of renewing this Agreement upon its scheduled expiration for an
additional period of three years and on terms no less favorable than those
contained herein. The period during which the Employee is employed hereunder is
hereinafter referred to as the "Employment Period."
2. Duties and Services.
During the Employment Period, the Employee shall be employed by the Company
as its Treasurer and Chief Financial Officer and, in connection therewith, shall
evaluate all acquisition, investment or divestiture proposals as may be
presented to the Company and shall recommend to the Board of Directors of the
Company the appropriate transactional structure that the Employee deems to be in
the best interest of the Company and its shareholders. Employee shall be
available to travel as the needs of the business require.
<PAGE>
3. Compensation and Related Matters.
(a) As compensation for his services hereunder, the Company shall pay the
Employee, during the Employment Period, a salary equal to (i) $96,000 per year
for the first year during the Employment Period, (ii) $108,000 per year for the
second year during the Employment Period, and (iii) $120, 000 per year for the
third year during the Employment Period. The Employee's salary shall be payable
in accordance with the Company's normal payroll practices, and the Company shall
withhold all customary federal, state and local taxes.
(b) The Employee shall be entitled to an expense account for the charging
of all reasonable travel and other expenses necessarily incurred in connection
with the performance of his services hereunder, which charges the Company will
pay upon submission of written statements and bills in accordance with the then
regular procedures of the Company.
(c) The Employee shall be entitled to full medical benefits, an automobile
lease allowance of $600 per month, plus all maintenance costs as may be
necessary therefor, a cellular telephone and beeper, and term life insurance in
the amount of $500,000 naming his estate as beneficiary thereof, all of which
shall be at the Company's expense.
(d) The Employee shall be entitled to participate in an executive bonus
plan when established by the Board of Directors. The Employee shall also be
entitled to four weeks of paid vacation per year during the Employment Period.
(e) The Employee shall be entitled to receive stock options for the
purchase of up to 100,000 shares of the company's common stock, all in
accordance with a separate agreement to be entered into between the Company and
the Employee. Such separate agreement shall provide that from the date of grant
of such stock options, such stock options shall be exercisable for up to ten
years and that up to 50,000 shares of common stock under such stock options may
be exercisable commencing six months after such date of grant, and up to an
additional 50,000 shares of common stock under such stock options may be
exercisable commencing one year after such data of grant. In the event that the
Employee's employment hereunder is terminated by the Company without cause, then
all such 100,000 shares of common stock that are the subject of such stock
options shall immediately upon such termination become fully vested to the
Employee, and fully exercisable by the Employee upon such termination.
$132,000 per year for year four
/s/ illegible $144,000 per year for year five
$156,000 per year for year six
2
<PAGE>
4. Representations and Warranties of the Employee.
The Employee represents and warrants to the Company that he is under no
contractual or other restriction or obligation which is inconsistent with the
execution of this Agreement, the performance of his duties hereunder, or the
other rights of the Company hereunder.
5. Confidential Information.
All confidential information which the Employee may now possess, may obtain
during or after the Employment Period, or may create prior to the end of the
Employment Period relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible by
him to any other person, firm or corporation either during the or after the
termination of his employment or used by him except during the Employment Period
in the business and for the benefit of the Company, in each case without prior
written permission of the Company. The Employee shall return all tangible
evidence of such confidential information to the Company prior to or at the
termination of his employment hereunder.
6. Termination.
Notwithstanding anything herein contained, if on or after the date hereof
and prior to the end of the Employment Period:
(a) either (i) the Employee shall be convicted of a crime, (ii) the
Employee shall commit any act or omit to take any action in bad faith and
to the detriment of the Company, or (iii) the Employee shall breach any
material term of this Agreement (including without limitation any material
representation, warranty or covenant contained herein) and fail to correct
such breach within fifteen (15) days after notice thereof is given to the
Employee by the Company, then, and in each such case, the Company shall
have the right to give notice of termination of the Employee's services
hereunder as of a date (not earlier than fifteen (15) days from such
notice) to be specified in such notice, and this Agreement shall terminate,
subject to the company's payment obligations hereinafter described, on the
date so specified in such notice, or
(b) the Employee shall be physically or mentally incapacitated or
disabled or otherwise
3
<PAGE>
unable fully to discharge his duties hereunder for a period of four (4)
consecutive months, then this Agreement shall terminate, subject to the
Company's payment obligations hereinafter described, upon the conclusion of
such four (4) month period, or
(c) the Employee shall die, then this Agreement shall terminate,
subject to the Company's payment obligations hereinafter described, on the
date of such Employee's death, or
(d) the Company shall terminate the Employee's employment hereunder
without cause upon notice to the Employee which shall specify a date of
termination not earlier than fifteen (15) days from such notice, then this
Agreement shall terminate, subject to the Company's payment obligations
hereinafter described, on the date so specified in such notice,
whereupon (i) the Employee shall be entitled to receive his compensation at the
rate provided in Section 3 to the date on which termination shall take effect in
the case of Section 6(a) hereof, (ii) the Employee or his estate, as the case
may be, shall be entitled to receive his compensation at the rate and in the
manner provided in Section 3 through the end of the term specified in Section 1
in the case of Section 6(b) or 6(c), and (iii) the Employee shall be entitled to
receive his compensation at the rate provided in Section 3 through the end of
the term specified in Section 1 payable in one lump sum on the date on which
termination shall take effect in the case of Section 6(d).
7. Modification.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
8. Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or hand delivered against receipt to the party to whom it is
to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 8). Notice to the estate of
the Employee shall be
4
<PAGE>
sufficient if addressed to the Employee as provided in this Section 8. Any
notice or other communication (a) given by hand delivery shall be deemed given
on the date of delivery, and (b) given by certified mail shall be deemed given
at the time of certification thereof, except that a notice changing a party's
address shall be deemed given at the time of receipt thereof.
9. Waiver.
Any waiver by any party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
10. Binding Effect.
The Employee's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise. The provisions of this Agreement shall
be binding upon and inure to the benefit of the Employee and his heirs and
personal representatives, and shall be binding upon and inure to the benefit of
the Company and its successors and assigns.
11. No Third Party Beneficiaries.
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement (except as
provided in Section 10).
12. Headings.
The headings in this Agreement are solely for convenience of reference and
shall be given no effect in the construction or interpretation of this
Agreement.
13. Counterparts; Governing Law.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflict of laws rules.
5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
By: /s/Ronald Kessler
--------------------------------------
Name: Ronald Kessler
Title: Chairman & CEO
/s/David R. Behanna
--------------------------------------
David R. Behanna
ATTEST: /s/L Mangan
--------------------------------------
NAME: Lee Mangan
TITLE:COO
6
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<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 282,933
<SECURITIES> 0
<RECEIVABLES> 2,043,740
<ALLOWANCES> 0
<INVENTORY> 265,065
<CURRENT-ASSETS> 3,420,295
<PP&E> 3,738,454
<DEPRECIATION> 594,977
<TOTAL-ASSETS> 9,289,389
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<COMMON> 18,635,255
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<TOTAL-LIABILITY-AND-EQUITY> 9,289,389
<SALES> 9,906,661
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<CGS> 7,287,098
<TOTAL-COSTS> 11,947,764
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<INTEREST-EXPENSE> 50,629
<INCOME-PRETAX> (4,441,509)
<INCOME-TAX> (801,467)
<INCOME-CONTINUING> (3,640,042)
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