<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-17430
GLOBAL ENVIRONMENTAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-3431486
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 1300, Unit 1 Apple Tree Lane 18949
Plumsteadville, PA (Zip Code)
(Address of principal executive offices)
(215) 766-2730
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.01 par value)
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (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 period 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 ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of October 31, 1995, the aggregate market value of the Company's common stock
held by non-affiliates of the registrant, based on the average bid and ask
price, was approximately $740,000.
As of December 31, 1995, the registrant had 2,369,565 shares of common stock
outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS.
HISTORY AND DEVELOPMENT OF BUSINESS:
Global Environmental Corp. ("Global"), formerly named Affiliated National, Inc.,
was incorporated in New York in 1987. As used herein, the term the "Company"
refers to Global Environmental Corp., its wholly owned subsidiary, Global
Environmental Holdings, Inc. ("Global Holdings") and Global Holdings' wholly
owned subsidiaries, The Danzer Metal Works Company ("Danzer") and Rage Inc.
("Rage").
In January, 1988, Global completed an initial underwritten public offering of
400,000 units for an offering price of $1.00 per unit. Each unit consisted of
one share of common stock, three Class A Warrants and three Class B Warrants.
In August, 1988, Global acquired all of the outstanding capital stock of Global
Holdings. In June, 1988, Global Holdings purchased all of Danzer's outstanding
capital stock from Danzer's sole shareholder. Danzer is located in Hagerstown,
MD and produces and installs a wide range of custom designed and engineered
fabricated metal products including those used in pollution control
applications.
In November, 1988, Global Holdings' newly incorporated subsidiary, Texcon,
purchased certain assets from a manufacturing concern (Texcon Inc., a South
Carolina corporation), located in Greenville, SC. The assets acquired consisted
of contracts to produce engineering and design services for pollution control
systems as well as assets used in air monitoring and testing.
In December, 1988, Global Holdings' newly incorporated subsidiary, Rage,
acquired substantially all of the assets of Rage Engineering, Inc., located in
Plumsteadville, PA. Rage designs and assembles pneumatic handling systems used
in the processing of bulk materials in manufacturing and pollution control
processes.
In August, 1993, the Company acquired the assets of Morrison Industries L.P., a
manufacturer of specialized utility truck bodies. The Company began production
of the bodies in December 1993.
In October, 1994, the Company's Texcon subsidiary was closed. All Texcon
products and systems are marketed under Rage and/or Global Environmental Corp.
SUBSTANTIAL BUSINESS DEVELOPMENTS:
* The Company suffered a substantial loss during fiscal 1994 due, in part, to
the continued recession in the Company's lines of business, production
inefficiencies associated with the start-up of the new Morrison product
line for manufacturing utility truck bodies and increased competitive
pressure on gross profit margins.
* As a result of the expiration of the lease for the Plumsteadville location
on December 31, 1993, the Company relocated to its Bedminster facility
during December 1993. The expiration of this lease coincides with the
expiration of the employment contract with the former shareholder of Rage
Inc. and the expiration of amortization of the favorable lease asset and
covenant not to compete.
* During the fourth quarter of fiscal 1993 and first quarter of fiscal 1994,
the Company acquired certain equipment intended to improve manufacturing
efficiencies. This equipment consisted of a CNC press brake and a CNC
punch plasma unit. The total cost of the equipment was approximately
$613,000.
* During the first quarter of fiscal 1994, the Company entered into a joint
venture agreement with Cadema Corporation. During the term of the joint
venture terminating December 31, 1998 (unless otherwise extended), the
joint venture has the right to contract for the design and installation of
air
2
<PAGE>
pollution control equipment in the Company's name in all areas of the world
outside the United States and its territories.
* September, 1994, Global completed a private offering of 7,550 shares of 10%
Cumulative Convertible Senior Preferred Stock at $100 per share. Each 10%
preferred share is currently convertible into 200 shares of common stock.
* On December 31, 1994, Renaissance Capital Partners, Ltd. exchanged
$1,600,000 principal amount of the Company's 12.5% Convertible Debentures
for 16,000 shares of the Company's Series B Cumulative Convertible Senior
Preferred Stock at $100 per share. The Company also issued Renaissance a
10% Term Note in the principal amount of $211,635 due December 31, 1997
representing interest accrued on the Convertible Debentures through
September 30, 1994. Each Series B preferred share is currently convertible
into 200 shares of common stock.
These events are more fully discussed in Management's Discussion and Analysis.
Global's business plan is to develop the businesses acquired, integrate the
services and capabilities of each business and acquire other complementary
businesses within the environmental control field and truck body industry.
DESCRIPTION OF THE BUSINESS:
Global is a holding company and through its operating subsidiaries, has been
engaged in three main areas of business (each of which generates in excess of
15% of consolidated net sales): the manufacturing of fabricated metal products,
including those used in pollution control processes, the design and assembly of
pneumatic conveying systems for bulk materials, and the design and assembly of
pollution control systems.
MANUFACTURING CAPABILITIES
The Company's manufacturing activities located at Danzer's facility in
Hagerstown, MD, produce truck bodies and a wide range of custom engineered
fabricated metal products including, but not limited to environmental equipment,
ductwork, louvers, penthouses and general sheet metal fabrication of materials
up to 5/8 of an inch thick. The Company's equipment enables the Company to
produce certain metal products up to 1-1/2 inches thick. Materials used include
aluminum, stainless steel, and mild steel in both sheet and plate. Danzer
offers heliarc and MIG welding, brazing, forming, assembly, and dip-coat
cleaning and painting services to its customers.
Environmental products manufactured by Danzer include drying chambers, spray
dryers and flash dryers for foundries, glass plants and other industrial
processes as well as scrubbers, bag houses, hoppers, cyclones, ducts, plenums
and hoods. Danzer also maintains in-house design, engineering and installation
capabilities thus allowing it to provide turnkey systems to its customers.
Danzer's Airline Products division manufactures louvers, air control dampers and
penthouses constructed from galvanized steel, aluminum, copper, brass, bronze,
and stainless steel. These products provide equipment ventilation, air control
and prevent water penetration in architectural applications, such as high rise
office buildings and commercial buildings.
MATERIALS HANDLING
The Company's material handling capabilities are carried out by Rage. Rage
designs and assembles turnkey pneumatic handling systems for the conveying,
storage and processing of bulk materials. Pneumatic handling employs forced air
to convey materials. This process is utilized to transport materials in and out
of a plant, from one point in a manufacturing process to another or from a
storage facility to a transporter. Pneumatic materials handling can also be
employed in a pollution control system to convey pollutants (such
3
<PAGE>
as fly-ash) from a site or to transport a neutralizing substance such as
lime to a pollution source such as sulfur dioxide.
Rage's systems can be used by all industries that wish to handle their materials
in bulk. These systems can be used in conjunction with the customer's
classification, size reduction, drying, heating/cooling, blending, weighing and
batching process requirements. The systems normally handle dry materials. Rage
can integrate, through the use of automated controls, several functions,
including storage, loading and unloading, inventory control, mixing, weighing
and classifying. Rage custom designs its systems using technology available in
the marketplace to fit the specific requirements of each customer's process.
Although different systems utilize similar equipment, such as pipe, blowers,
motors, etc., such equipment is applied differently based upon the process
involved.
Systems can be designed to handle diverse materials including, but not limited
to, acrylics, cement, ceramics, pharmaceuticals, fly ash, resin, foods, zinc and
lime. Rage selects the method of conveying (dense phase, dilute phase or
vacuum) dependent on the process involved. Rage utilizes equipment of its own
design and purchases equipment from outside vendors. Due to the specialized
nature of the equipment supplied, however (e.g. scales, blenders, pipe, silos,
pressure vessels, etc.), most equipment must be purchased from outside vendors.
Fabricated metal products such as bins, hoppers, bag dump stations, etc. can be
supplied by Danzer. Equipment of Rage's own design include vacuum filter
receivers, bin vent filters, bag dump stations and powderslides (an air gravity
conveying system) and pressure transport vessels.
POLLUTION CONTROL SERVICES
The Company utilizes the design, engineering, manufacturing, project management,
and start-up capabilities of its various operating subsidiaries to provide
customized environmental control systems. Management has integrated the
engineering and design services formerly provided by Texcon with the conveying
and project management expertise of Rage and the manufacturing and installation
capabilities of Danzer. Through this integration, the Company provides single
source system responsibility utilizing its in-house capability. The primary
application emphasis of Global's environmental control systems is for air
pollution control. However, the Company can also provide ancillary systems
involving water, waste and sludge treatment.
Environmental control systems are utilized by various industries such as pulp
and paper, textiles, fertilizer, coal fired boilers, incineration, mining,
ferrous and non-ferrous metals, chemicals, petrochemical and many other process
industries. Each system is designed to fit the particular needs of the customer
utilizing various technologies available in the marketplace.
The Company's environmental systems include dust collection systems, emission
control systems, and odor control systems. Dust control systems utilize fabric
filters, cartridge type dust collectors, cyclones, wet scrubbers, rotary drum
filters and other products. These systems are applied to processes such as
machining, powder handling/mixing/conveying, bulk material loading and
unloading, manufacturing, finishing, textile processes, mineral and stone
products mining and processing. Occasionally, the customer's process requires a
combination of the systems mentioned above. For example, a scrubber could be
used to collect offgases, in conjunction with incineration and a mist eliminator
for product recovery, the end result being the conversion of a toxic material
into a non-toxic or usable material.
Emission control systems utilize wet or dry scrubbers, bag houses, fume
incinerators and other technologies to collect and process gases and airborne
compounds. Emission control systems are applied to plating, etching, and
surface preparation processes, industrial boilers, driers, thermal manufacturing
processes, spray driers, extruding processes, painting operations, heat treating
operations and other manufacturing processes.
Odor control systems are utilized for baking operations, fermentation processes,
composting, sewage sludge treatment, tanneries, pharmaceuticals manufacturing,
and other organic processes. Gasses emitted from these operations are processed
by biofilter systems utilizing organic biomass, wet scrubber systems, carbon
absorption systems, and/or fume incineration systems.
4
<PAGE>
The Company will use equipment or fabrications of its own design where
appropriate. However, if specialized equipment (precipitators, filter media,
fans, blowers, etc.) is required, this equipment is purchased from outside
vendors. The Company also procures various services from outside sources, as
needed, such as automated controls, and mechanical and electrical installation
services. The use of local suppliers and contractors sometimes enhances the
Company's competitiveness or profitability by reducing such costs as travel,
freight, etc.
GOVERNMENT REGULATION:
The Company is subject to regulation by federal, state, and local agencies, such
as environmental, fire hazard control, and working condition, and other similar
regulators that have jurisdiction to take actions which could have a material
adverse affect upon the Company's ability to do business. The businesses of the
Company do not subject it to any special regulatory authority.
Further environmental regulation, however, may increase the demand for the
Company's environmental controls systems. Federal, State and Local
environmental protection regulation is continually evolving and expanding. The
industries which the Company serves are subject to the effects of this
proliferating regulation. Therefore, while the Company is subject to these
laws, it is indirectly dependent upon them for future business, since many of
its services offered are directed at facilitating compliance with such laws and
regulations.
COMPETITION:
There are a significant number of companies engaged in metal fabrication in the
United States. While many of these companies are relatively small and do not
possess the Company's technical capacity, a number of its competitors are larger
and possess equal or greater technical and financial resources. The Company
competes with others in its industry through price and service, with price being
the most important factor.
The engineering industry is fragmented and the Company competes with numerous
other pollution control and materials handling businesses throughout the United
States, many of which have more well-developed sales and marketing capabilities.
The Company competes with others in its industry on the basis of price,
technology and service, with price being the major factor in most instances.
MARKETING:
Due to the diversity of the Company's products and services, the Company's
customer base is highly diversified, ranging from small contractors to large
corporations. The Company's sales volume is principally comprised of sales to
large companies located throughout the country. Although the Company's
manufacturing operation, at its Danzer subsidiary, generally markets to
customers within the Eastern United States, bulk material handling projects and
pollution control projects have been obtained throughout the United States and
internationally. Although the level of the Company's export sales to date has
been nominal, the dollar value of the proposals outstanding with foreign
concerns increased significantly during fiscal 1995 and 1994. Management
believes that recent changes in the value of the U.S. dollar have increased the
competitive position of U.S. firms. Global is attempting to capitalize on this
opportunity by increasing the number of its independent representatives in
foreign countries.
Because most projects are secured through competitive bidding, there is
generally little or no repeat business. Once projects are completed, customer
relationships terminate, unless the customer engages the Company for another
project. Turnkey project lives range from a minimum of three months to as long
as one year. As a result, the Company bears all risks of increases in the costs
of labor and materials except where its subcontractors assume part of the risk.
Accurate estimating and efficient project management is critically important to
the financial success of each project. The Company bears all the risk of faulty
design. The Company's position in the industry depends upon its pricing,
engineering, production, project management and marketing skills. The Company
believes its turnkey single-source responsibility approach
5
<PAGE>
to providing systems affords it a competitive advantage against regional or
local competitors. The Company nationally advertises its products and services
in certain industrial buying guides.
The Company utilizes an internal sales force in conjunction with independent
representatives located throughout the country and internationally. These
representatives generally have exclusive territories and are paid commissions on
all sales from a specific territory based upon payments made by the customer.
Commission is calculated based upon sales effort and project location. The
Company's fabricated steel products, manufactured by Danzer, are marketed only
through an internal sales force. Danzer's Airline Products division markets its
products principally through independent sales representatives who are assigned
non-exclusive sales areas.
PRINCIPAL CUSTOMERS:
Since projects are largely obtained as a result of competitive bidding and there
is generally little or no repeat business, principal customers often change from
year to year. During the fiscal year ended October 31, 1995, the Company had
two customers which each represented 10% or more of total net sales: Burton
Rubber Processing, Inc., a rubber products manufacturer for which the Company
supplied a materials handling system (16%), and Mobile Tool International, a
truck body supplier, for which the Company supplied truck bodies (20%).
MANUFACTURING AND FACILITIES:
The Company purchases its raw materials from numerous suppliers and has not had
any difficulty in obtaining components or raw materials. Danzer purchases
domestically produced and imported sheetmetal from a number of distributors and
is not dependent upon any particular source of supply. The Company bears the
risks of its products and systems not conforming to customer specifications, but
in most cases, defects and deficiencies are correctable. Management believes
that the Company's existing manufacturing and office facilities are adequate to
meet its present needs and anticipated growth. Consequently, the Company does
not plan any significant capital expansion of its property, plant and equipment
during fiscal 1996 except for usual upgrades and maintenance.
EMPLOYEES:
As of October 31, 1995, Danzer has approximately 94 employees. Of these
employees, 22 are involved in sales, administration and engineering, and 72 are
in manufacturing, installation and servicing of Danzer's products. The 72
employees are represented by a labor union. Danzer believes its employee
relations are satisfactory. Rage has 9 employees in sales, administration,
design, testing and engineering. The employees are not represented by a labor
union and Rage believes its employee relations are satisfactory. Global's sole
employee is the President and Chief Executive Officer.
PATENTS AND PROPRIETARY TECHNOLOGY:
The Company does not rely on any patents, registered trademarks, or special
licenses to give it a competitive advantage. The Company's position in its
industry depends mainly on its ability to offer competitive pricing. The
Company did not incur, during any of its last three fiscal years, and does not
contemplate incurring, any material research and development expenses.
INSURANCE:
The Company carries a broad range of insurance coverage which management
considers sufficient to provide acceptable levels of financial resources to
protect the employees, assets, and operations of the Company that may be
negatively affected in the event of a loss. The Company also obtains additional
insurance, as required, on a project by project basis. The Company does not
currently maintain, and in the future may not choose to or may not be able to
obtain, coverage for liabilities arising from environmental damage or
professional design deficiencies or other circumstances which could arise as a
result of the type
6
<PAGE>
of business in which the Company engages. To date, the Company has not had
difficulty in obtaining insurance. However, if the Company should be unable to
obtain adequate insurance or should decide to operate without insurance, a
partially or completely uninsured claim against the Company, if successful and
of sufficient magnitude, could have a material adverse affect upon the Company's
business or its financial condition. Difficulty in obtaining insurance could
also impair the Company's ability to secure future contracts which may be in
many cases conditioned upon the availability of adequate insurance coverage.
SEASONALITY:
The Company's business has not generally been seasonal in the past. However,
the Company has historically experienced a reduced flow of orders during July
and August, as well as in late November and December. No seasonal modification
of the Company's production schedule or staffing is required under normal
business circumstances.
WARRANTIES:
In connection with most contracts for manufacture and sale of equipment and
systems, the Company warrants the equipment to be free from defects in material
and workmanship and performance under normal use and service for a period of
twelve months after shipment, installation, or start-up, whichever is
applicable. The obligation of the Company is generally limited to the repair or
replacement of the defective parts. Equipment not manufactured by the Company
carries the warranty given by the manufacturer. In addition, the Company
sometimes provides performance guarantees for equipment and systems which it
furnishes. Proposed applications are evaluated for their potential risks prior
to such guarantees being offered to the customer. Warranty and performance
guarantee related expenses are recognized as incurred.
BACKLOG:
At October 31, 1995, the Company's backlog was approximately $2,400,000, which
is all expected to be filled within the current 1996 fiscal year. Danzer
accounted for approximately $1,500,000 of the backlog and Rage for approximately
$900,000.
EXPORT SALES:
Sales of goods exported to foreign countries during the fiscal years ended
October 31, 1994 and 1995 were approximately $125,000 and $25,000, respectively.
ITEM 2. PROPERTIES.
Effective December 1, 1993, Global and Rage occupied office/warehouse
condominium space owned by the Company consisting of approximately 8,000 sq. ft.
located in Bedminster, Pennsylvania. Due to the proximity of the Bedminster
office facility to the former facility located in Plumsteadville, no change in
Post Office or Telephone Numbers was necessary. The balance of the mortgage on
the property as of October 31,1995 was approximately $355,000, which was due
April 1, 1995, which was extended and is now due April 1997.
Danzer owns its principal manufacturing facilities which are located in an
80,000 square foot plant on an eleven acre site in Hagerstown, Maryland, near
the intersection of two major interstate highways. Approximately 75,000 square
feet are used in manufacturing and 5,000 square feet are used as office space.
Fremont Financial Corporation has a priority security interest on such property.
The Company believes that all of its properties, plants and equipment are well
maintained and adequate for its requirements. The Company also believes that
all of its properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
7
<PAGE>
In October, 1994, Jeffrey Richardson, an individual plaintiff, filed a complaint
against 15 defendants, including Rage Inc., a Global subsidiary, in the superior
court of the State of New Jersey, County of Burlington, Docket No. BUR-L-03543-
93. The complaint alleges that the Company supplied a product which caused harm
to plaintiff and claimed damages in an unspecified amount arising from alleged
product liability. Although damages claimed by the plaintiff significantly
exceed the Company's insurance coverage, the Company and outside counsel believe
that the case will be settled within the Company's insurance policy limits.
In November, 1994, Jonathan Daniels & Co. and Ray Vahab d/b/a Small Cap
Research, plaintiffs, filed a complaint against Global Environmental Corp. and
William V. Rice, its President, in the Supreme Court of the State of New York,
County of New York, Index No. 129426 (1994). The complaint claimed fees and
commissions in the amount of $500,000 in connection with plaintiff's alleged
representation as placement agent for a private placement that was never
consummated. On April 13, 1995 the Company and the plaintiffs agreed to a
settlement of $12,880 which was paid during fiscal 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Global's common stock was listed on the National Association of Security Dealers
Automated Quotations System (NASDAQ) under the symbol "GLEN" until September 29,
1993 at which time the Company was "delisted". Global's common stock is
currently traded on the Over-the-Counter Electronic Bulletin Board. The
following table sets forth the high and low bid quotations for the common stock
for the fiscal quarters indicated.
<TABLE>
<CAPTION>
FISCAL 1994
- - ---------- HIGH LOW
-----------------------
<S> <C> <C>
First Quarter $1 29/32 $ 1/4
Second Quarter $1 14/16 $ 3/8
Third Quarter $ 31/32 $ 13/32
Fourth Quarter $1 29/32 $ 9/16
FISCAL 1995
- - -----------
First Quarter $ 3/4 $ 1/4
Second Quarter $ 9/16 $ 1/4
Third Quarter $ 9/16 $ 5/16
Fourth Quarter $ 9/16 $ 9/32
</TABLE>
The above quotations reflect inter-dealer prices, and may not include retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions.
At December 31, 1995, there were approximately 814 holders of record of Global's
common stock. Most of the shares of the common stock are held in street name
for a larger number of beneficial owners.
To date Global has not paid a cash dividend on its common stock. The payment
and amount of any future dividends is currently restricted by the terms of the
Company's 10% Cumulative Convertible Senior Preferred Stock and the Series B
Cumulative Convertible Senior Preferred Stock, which require payment of
8
<PAGE>
a 10% dividend on such preferred stock and which restrict the Company's ability
to pay any dividends on the Company's Common Stock until payment of all accrued
dividends on the preferred stock. In addition, payment of after dividends is
restricted by the company's lenders and will unnecessarily depend upon
conditions then existing, including the Company's earnings, financial condition,
working capital requirements, and other factors.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial
information concerning the Company. This information is not covered by the
independent auditor's report. For further information, see the accompanying
Consolidated Financial Statements of Global Environmental Corp. and subsidiary
for the years ended October 31, 1995, 1994, and 1993, and the information set
forth in item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and in Item 8, "Financial Statements and
Supplementary data" below.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following information is a summary of the consolidated financial statements
of the Company included elsewhere and should be read in connection with such
consolidated financial statements.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
OPERATING DATA: YEAR ENDED OCTOBER 31,
- - --------------- ----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $12,419 $11,712 $9,016 $ 9,218 $14,058
Income (loss) from
operations (86) (739) (989) (648) 305
Net loss (389) (979) (1,309) (776) (45)
Net loss per share
and fully-diluted
net loss per share
attributable to common
shareholders (1) (.25) (.42) (.56) (.32) (.02)
Weighted average
number of shares
outstanding (1) 2,370 2,361 2,333 2,455 2,343
BALANCE SHEET DATA: AS OF OCTOBER 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Working capital
(deficiency) $ 86 $ (541) $ (137) $ 439 $ 1,871
Total assets $ 5,702 $ 6,087 $ 5,842 $ 6,197 $ 6,750
Long-term debt
Stockholders' $ 1,946 $ 2,650 $ 2,288 $ 1,657 $ 2,536
9
<PAGE>
equity (deficiency) $ 560 $ (353) $ (37) $ 1,270 $ 2,028
</TABLE>
(1) The 10% Cumulative Convertible Senior Preferred Stock and assumed conversion
of stock options and warrants have not been considered in the calculation of
earnings per share, the effect of which would be anti-dilutive.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
RESULTS OF OPERATIONS
Fiscal 1995 Compared to Fiscal 1994
Sales volume increased by $707,106 from its fiscal 1994 level due to increased
sales in pneumatic conveying systems and truck bodies. The Company believes
that the U.S. capital goods market in selected industries is continuing to
showing signs of improvement and corporate America is increasing the
allocation of funds for plant expansions.
The Company's gross profit margin increased from 8.2% to 14.7% during fiscal
1995. The was due to the decrease in inefficiencies of the Morrison product
line and an increase in manufacturing operations which decreased the effect of
fixed manufacturing costs on gross profit.
Consolidated backlog at October 31, 1995 was approximately $2,400,000 versus
approximately $2,440,000 at October 31, 1994. The Company continues to bid on
projects of all sizes, and quotation volume remains active. Opportunities exist
to obtain large projects and therefore backlog levels could substantially
increase. It is extremely difficult, however, to predict the nature and timing
of large projects upon which the Company has bid and the outcome of the biding
process. Therefore it is extremely difficult to predict future bookings or
sales volume.
The selling, general and administrative costs increased from the fiscal 1994
level by approximately $206,076 as a result of higher sales and marketing costs.
Selling, general and administrative costs also increased as a percentage of net
sales from 14.5% to 15.3%.
Interest expense decreased during fiscal 1995 primarily due to the conversion of
convertible debentures to convertible preferred shares.
The Company's net loss before preferred dividends during fiscal 1995 was
$338,934, a decrease of $589,726 over the fiscal 1994 loss. The decrease in
loss was primarily due to production efficiencies associated with manufacturing
operations.
Fiscal 1994 Compared to Fiscal 1993
Sales volume increased by $2,696,285 from its fiscal 1993 level due in part to
approximately $1.2 million in revenues from the Morrison product line in fiscal
1994.
There were several major factors that caused a decline in the Company's gross
profit margins from 12.2% during fiscal 1993 to 8.2% during fiscal 1994. In
addition to the continued increased competition from other providers of similar
products and services and the continued recession in the Company's lines of
10
<PAGE>
business, the Company experienced production inefficiencies attributable to the
learning process associated with the start-up of the Company's new Morrison
product line, which manufactures utility truck bodies.
Consolidated backlog at October 31, 1994 was approximately $2,440,000 versus
approximately $3,409,000 at October 31, 1993.
As a result of various cost reductions in fiscal 1994, selling, general and
administrative costs decreased from the fiscal 1993 level by approximately
$385,878. Selling, general and administrative costs also declined as a
percentage of net sales from 23.1% to 14.5%.
Interest expense increased during fiscal 1994 primarily due to the financing of
Danzer's new equipment.
The Company's net loss before preferred dividends during fiscal 1994 was
$978,660, a decrease of $330,692 over the fiscal 1993 loss. The loss was
primarily due to certain production inefficiencies associated with the start-up
of the Morrison product line.
Quarterly losses during fiscal 1994 were relatively static until the fourth
quarter when the Company incurred a loss of approximately $433,000. The loss
for the fourth quarter of fiscal 1993 was approximately $588,000. During the
fourth quarter of fiscal 1994, sales revenues declined to approximately
$2,687,000 (a decline of approximately $602,000 from the level in the third
quarter of fiscal 1994). The decline in sales volume during the fourth quarter
was primarily due to reduced sales volume at Danzer resulting from reduced sales
revenues from the new Morrison product line and the placement of orders on hold
by certain customers. At October 31, 1994, the Company also recorded certain
adjustments, which increased its net loss by approximately $330,000. Such
adjustments related to revenues earned on contracts in process, accrual of
manufacturing costs and accruals of other selling, general and administrative
expenses.
In August, 1993 the Company purchased the assets of Morrison Industries, L.P., a
manufacturer of specialized utility truck bodies. The purchase price is
calculated based on a percentage of revenue generated. The contract carries
certain minimum annual sales level requirements for continuation of the
contract. The contract requires a minimum sales level for the first annual
period of $1,000,000, an additional $1,500,000 by the second anniversary and
$2,000,000 in each year thereafter until the tenth anniversary. In fiscal 1994
Morrison products had sales of approximately $1,200,000.
During the first quarter of fiscal 1994, the Company entered into a joint
venture agreement with Cadema Corporation. The joint venture has been
capitalized by Cadema with $350,000 in cash and by Global with $1,000. During
the term of the joint venture terminating December 31, 1998, the joint venture
has the exclusive right (unless otherwise extended) to contract for the design
and installation of air pollution control equipment in the Company's name in
all areas of the world outside the United States and its territories. The
business of the joint venture is managed by the Company and income or loss from
the joint venture will be allocated 51% to Cadema and 49% to Global. As a
result, income or loss reported by the joint venture is recorded on Global's
books as equity income from a joint venture; net sales revenue for the joint
venture is not consolidated on Global's books. The agreement allows Global to
acquire Cadema's interest in the joint venture for 875,000 shares of Global
common stock or $350,000 in cash or an amount equal to Cadema's capital
account, whichever is greater, subject to certain antidilution provisions. The
agreement also allows for quarterly distributions of income and capital to the
partners.
LIQUIDITY AND CAPITAL RESOURCES
Cash at October 31, 1995 decreased by $24,252 from the level at October 31,
1994. The Company's policy of increased conservation of cash, lengthening of
trade payable, accrued expenses and the utilization of cash from favorable terms
with customers minimized the cash outflow.
The Company received $167,894 in a certificate of deposit (restricted cash) on
March 1, 1996.
11
<PAGE>
Accounts receivable increased approximately $171,007 from their level at
October 31, 1994 due to increased sales volume.
Inventories decreased over their October 31, 1994 level by approximately
$236,219 due to the reduction of the production cycle at Danzer which decreased
work in process.
The Company had working capital of approximately $86,000 at October 31, 1995, an
increase of $627,000 from a deficiency of approximately $541,000 at October 31,
1994. Both the Fremont revolving credit facility and mortgage on the Company's
Bedminster property were renegotiated increasing long term debt and reducing
current liabilities.
It is anticipated that additional working capital may be required in order to
efficiently execute the Company's work in progress and backlog. The Company's
weakened financial condition has, in turn, led to tighter credit terms with
certain vendors and has therefore further strained the Company's working
capital.
The Company's Danzer subsidiary currently has a credit facility with Fremont
Financial Corporation comprised of a revolving credit facility and an equipment
term loan. The term loan is for up to $350,000 and the revolving credit
facility is for up to $1,150,000 at an interest rate of prime plus 4.5% maturing
on January 31, 1997 with an extension of three years at the option of the
lender. The loans are collateralized by real estate, Danzer's accounts
receivable, inventory and equipment. The revolving loan balance under the
Fremont facility at October 31, 1995 ($645,045) was incurred in connection with
the refinancing of the Danzer mortgage and is based upon eligible accounts
receivable and inventory of Danzer as defined. The equipment term loan had a
balance of $116,667 at October 31, 1995. In addition, the Company's Danzer
subsidiary is limited to making distributions of no more than 75% of its net
cash flow (as defined) to the Company's parent, providing that Danzer maintains
a minimum net worth, which net worth was not maintained at October 31, 1995.
The gross value of equipment at October 31, 1994 was approximately $240,000
higher than at October 31, 1993 primarily due to the purchase of new equipment
at Danzer.
From October 31, 1995 to October 31, 1994, billings in excess of costs and
estimated earnings on uncompleted contracts increased by approximately $279,000.
From October 31, 1994 to October 31, 1995, long-term debt (net of current
portion) decreased by $703,000 due to the conversion of the 12.5% convertible
debenture payable ($1,600,000) to equity. The decrease in long-term debt at
October 31, 1995 was offset by the reclassification to long-term debt of (i) the
mortgage on the Company's Bedminster property (approximately $355,000) (ii) the
equipment term loan to Fremont Financial Corporation(approximately $116,667),
and (iii) reclassification of the revolving loan payable to Fremont Financial
($645,045) to long term.
The Company was in default on the January 1, April 1, July 1, and October 1,
1994 interest payments due Renaissance. The Company received a waiver of
default, including a waiver of remedies due to payment default, from Renaissance
through November 1, 1995. On December 31, 1994 the Convertible Debentures were
exchanged for preferred stock, the $211,635 of accrued interest thereon was
converted to a three-year 10% Term Note and the Company paid Renaissance $50,000
representing interest on the Convertible Debentures from October 1, 1994 through
December 31, 1994.
The 10% Cumulative Convertible Preferred Stock and the Series B Stock require
the Company to comply with certain affirmative and negative covenants
including, but not limited to, the timely filing of financial statements. In
addition, it limits the Company's ability to issue new indebtedness, issue
other classes of preferred stock, pay dividends on the Company's common
stock, purchase equity securities, increase executive compensation, enter
into liens and acquire new businesses, among other items. The Company is also
subject to registration requirements under certain circumstances. As of
October 31, 1995, the Company was in violation of certain of the above
covenants. If certain of the violations remain uncured for twelve consecutive
months, the holders of the Series B Preferred Stock become entitled to vote
as a separate class on certain significant matters.
As of October 31, 1995, the Company was in default under the Term Note due to
Renaissance . The lender has waived its right to demand payment of the
principal amount of the Term Note of $211,635 until December 31, 1996. (The
original due date was December 31, 1997.) The lender did not waive any interest
payments.
12
<PAGE>
In addition, the terms of the mortgage debt of $354,866 on the Company's
premises (which debt was in default as a result of nonpayment by the Company on
its original due date of April 1, 1995) were modified in January 1996 and the
maturity date extended until April 30, 1997.
In early February 1996, the Company's revolving loan payable to Fremont
Financial Corporation was increased by $200,000. The increase enables the
Company to borrow $200,000 in excess of their allowed borrowings under the
revolving loan agreement and provides additional working capital for overall
business activity.
In light of the Company's backlog at October 31, 1995, its projected cash flow
from operations, the market for the Company's products, and the amount of short-
term debt due in fiscal 1996 it is anticipated that the Company may need
increased sales, an increase in its profit margin and/or an infusion of capital
in order to sustain its operations. The company's ability to meet certain
interest and principal payments, as well as its working capital needs to execute
its backlog and generate sales volume during fiscal 1996, will be dependent upon
the success of the company's efforts to increase sales volume, as well as the
profitability of new business.
If efforts to increase the level of business, increase profitability or obtain
additional capital are unsuccessful, the Company may need to consider additional
steps to reduce costs, generate working capital and improve operating
efficiencies to sustain its operations. Such steps may involve the sale of
certain assets, the consolidation of operating activities, the sale or
discontinuance of a line of business, reductions in staff or other measures, the
effect of which is the reduction of expenses, conservation of cash, and/or
generation of working capital. The Company is also currently attempting to
limit cash outlays, aggressively collect accounts receivable and channel all
available resources into its sales function in order to continue all operations
on the basis that it can further increase its backlog and sales revenue. The
Company believes that the long term prospects for the industry in which the
Company operates are positive and therefore offer Global opportunity for revenue
growth.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See "Index to Consolidated Financial Statements on page F- below.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth information with respect to all of the incumbent
directors of the Company.
<TABLE>
<CAPTION>
Position with Director
Name Age Company Since
- - ---- --- ------------- --------
<S> <C> <C> <C>
William V. Rice 57 President, Chief Executive
Officer, Treasurer and
Director 1988
Russell Cleveland 57 Director 1991
William L. Pryor, III 62 Director 1993
</TABLE>
13
<PAGE>
(1) William V. Rice has been a director, the President and Chief Executive
Officer of the Company since August 1, 1988. From 1987 to 1988 Mr. Rice was
involved in the start up of the Company. From 1986 to 1987 Mr. Rice served as
Chairman and Chief Executive Officer of Filcon Technology Inc., 147 East Second
Street, Mineola, NY and from 1979 to 1985 Mr. Rice was Vice President of
International Operations for U.S. Filter Systems Inc., Melville, NY. Filcon
Technology, Inc. and U.S. Filter Systems, Inc., engineer, manufacture and market
internationally, environmental pollution control equipment and systems using
filtration and conveying processes.
(2)Russell Cleveland, a chartered financial analyst, became director of the
Company on April 26, 1991. Mr. Cleveland has for the past five years been a
director, officer and shareholder of Renaissance Capital Group, Inc., which is
the managing general partner of Renaissance Capital Partner, Ltd., a business
development company. Mr. Cleveland is a director of Greiner Engineering, an
engineering company, AFN, Inc., an information processing and data base service,
Unico, Inc., a direct mail advertising company, International Movie Group, Inc.,
and independent foreign distributor of American films and Biopharmaceutics,
Inc., a manufacturer of over-the-counter generic and prescription drugs, Mr.
Cleveland is Renaissance's designee to the Board of Directors. See "Item 13-
Certain Relationships and Related Transactions" herein.
(3)William L. Pryor, III is the Chairman of Prism Group, Inc. a diskette
duplication manufacturing company at 441 Lexington Avenue, Suite 502, New York,
NY. Mr. Pryor was the Managing Director of Warren Management Chief Executive
Officer of Manufacturing Solutions, Inc. (formerly Applicon Corporation), a
manufacturer of computer workstations and other electronic and computer
peripheral devices. Mr. Pryor is presently a member of the Board of trustees of
Kent School, a member of the Board of National Defense University, and a Trustee
of IIE (Institute of International Education). Mr. Pryor currently serves as a
director of World View, a multi-media CD ROM publisher, MacSimmum, a distributor
of Apple and MacIntosh add-on peripherals and of Prism.
EXECUTIVE OFFICERS
The Company's executive officers are appointed by the Board of Directors and
hold office at the pleasure of the Board until successors are appointed and have
qualified.
COMPLIANCE WITH SECTION 16 (A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than ten percent of the
Company's Common Stock ("10% Shareholders") to file reports of Ownership and
reports of changes in ownership of the Company's Common Stock with the
Securities Exchange Commission ("SEC"). Officers, Directors and Shareholders
are required by SEC regulation to furnish the Company with copies of all forms
they file under Section 16 (a). Based solely on its review of the copies of
such forms received by it with respect to its fiscal year ended October 31, 1995
and written representations from certain reporting persons that no other reports
were required to those persons, the Company believes that all Section 16 (a)
filing requirements applicable to its officers, directors and 10% Shareholders
were complied.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY AND COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered during the
Company's fiscal year ended October 31, 1995 by the named officer.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------------------------------------
Name and Principal Salary Common Other Annual All Other
Position Year ($) Stock Options Compensation Compensation
14
<PAGE>
(a) (b) (c) (d) (e) (f)
- - ---------------- ----- ----- --- ------- ----
<S> <C> <C> <C> <C> <C>
William V. Rice, 1993 $60,652 0 $7,547 (1) $8,114 (2)
President and Chief 1994 $96,250 0 $7,547 (1) $8,543 (3)
Executive Officer 1995 $140,708 200,000 $7,547 (1) $8,895 (4)
</TABLE>
(1) Represents lease payments and automobile insurance paid by the Company for a
car provided for the use of Mr. Rice.
(2) Of the total $8,114 paid to Mr. Rice "in all other compensations," the
Company paid $7,181. (amount based on two-thirds of the total cost of the
policy) for term life insurance on Mr. Rice in the amount of 1.5 million. The
policy provides that the Company will receive one-third of any proceeds from the
policy and Mr. Rice's beneficiary will receive two-thirds of any such proceeds.
An additional $933. was paid by the Company to the account of Mr. Rice as a
matching contribution under the Company's Tax Savings Investment Plan, described
below.
(3) Of the total $8,543 paid to Mr. Rice "in all other compensations," the
Company paid $7,181. (amount based on two-thirds of the total cost of the
policy) for term life insurance on Mr. Rice in the amount of 1.5 million. The
policy provides that the Company will receive one-third of any proceeds from the
policy and Mr. Rice's beneficiary will receive two-thirds of any such proceeds.
An additional $1,362. was paid by the Company to the account of Mr. Rice as
a matching contribution under the Company's Tax Savings Investment Plan,
described below.
(4) Of the total $8,895 paid to Mr. Rice "in all other compensations," the
Company paid $7,181. (amount based on two-thirds of the total cost of the
policy) for term life insurance on Mr. Rice in the amount of 1.5 million. The
policy provides that the Company will receive one-third of any proceeds from the
policy and Mr. Rice's beneficiary will receive two-thirds of any such proceeds.
An additional $1,714. was paid by the Company to the account of Mr. Rice as a
matching contribution under the Company's Tax Savings Investment Plan, described
below.
The Company maintains a Tax Savings Investment Plan (the "Investment Plan")
which qualifies as a cash deferred salary arrangement under Section 410(K) of
the Internal Revenue Code. Employees are eligible to participate in the
Investment Plan if they have been employed for 12 months, and are not members of
a collective bargaining unit.
Under the Investment Plan, participants may defer up to 15% of the pre-tax
salary. The Company will match 50% of the participant's deferral up to 2% of
salary and 25% of the next 4% of salary. The Company's matching will be
invested in the money market fund. The participant's pre-tax salary deferrals
will be invested, at the participant's direction, in an Index Fund, Bond Fund,
Money Market Fund, or in combination of these funds.
Participant's are vested in their salary deferrals and all earnings on those
deferrals. However, the Company's matching contribution and earnings thereon
become vested only upon the third year of vesting services with the Company,
with 33% vesting being given up for each year up to the third year.
Investment Plan benefits will be paid upon retirement, termination of
employment, disability, or death. In addition, benefits may be distributed to
a participant in the event of financial hardship.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SR VALUES
The following table sets forth information concerning stock options awarded to
the named executive officer during the Company's fiscal year ended of October
31, 1995. No stock appreciation rights were granted to the named executive
officer in such year.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Name William V. Rice, President & CEO
No. of Shares Underlying Options
Granted (if any) 200,000
% of Total Options Granted to
Employee in Fiscal Year 85%
Exercise Price Per Share $.30
Expiration Date December 31, 2004
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option Term:
5% $0.49
10% $0.66
The following table sets forth certain information concerning the number of
stock options held by the named officer as of October 31, 1995. During the year
ended October 31, 1995, no stock options were exercised.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISE
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Name Number of Unexercised Value of Unexercised
Options/SAR's In-the-Money Options/
at Fiscal Year-End (#) (2) ($)
(a) (b) (c)
---------------------------------------- ------------------------
<S> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
William V. Rice 200,000 -0- $22,000.00 -0-
</TABLE>
(1)Based upon the difference between the average closing stock price of the
Company's common stock on October 31, 1995 of approximately $.41 and the
exercise price of $.30 per share for options to purchase 200,000 shares of
common stock.
(2)The Company maintains a Stock Option Plan (the "Plan") under which options of
purchase 800,000 shares of the Company's Common Stock, par value $.001 per
share, have been reserved. Pursuant to the Plan, the Company is permitted to
issue incentive stock options ("Incentive Stock Options") and non-qualified
stock options ("Non-Qualified Stock Options") to employees or directors of the
Company; provided, however, that no incentive Stock Options shall be granted to
a non-employee director. Incentive Stock Options under the Plan are intended to
qualify for the tax treatment accord under Section 422A of the Internal Code of
1986, as amended (the "Code). Non-Qualified Options under the plan are intended
to be options which do not qualify for the tax treatment accorded under Section
422A of the Code.
All directors and key employees of the Company and its subsidiaries are eligible
to participate in the Plan. The Plan is administered by the Board of Directors
of the Company which, to the extent it determine, may delegate its power with
respect to the administration of the Plan to a compensation advisory committee
consisting of not less than three members, at least of whom two shall be
directors for the Company.
Under the Plan, Incentive Stock Options to purchase shares of the Company's
Common Stock may not be granted for less than 100 percent of fair market value
of the Common Stock on the date the Incentive Stock Option is granted; provided,
however, that in the case of an Incentive Stock Option granted to any person
then owning 10 percent of the voting power of all classes of the Company's
stock, the Purchase Price per share of all classes of the Company's stock, the
Purchase Price per share subject to the Incentive Stock
16
<PAGE>
Option may not be less than 110 percent of the fair market value of the stock on
the date of the grant of the option. The option price per share with respect to
each Non-Qualified Stock Option granted under the Plan is to be determined by
the Board of Directors, but may not be less than 85% of the fair market value of
the Common Stock on the date the Non-Qualified Stock Option is granted.
Options under the Plan may not have a term of more than 10 years; provided,
however, that an Incentive Stock Option granted to a person then owing more than
10 percent of the voting power of all classes of the Company's stock may not be
exercised more than 5 years after the date such option is granted. In addition,
the aggregate fair market value, determined at the time the options granted, of
the stock with respect to which Incentive Stock Options are exercised for the
first time by an employee in any calendar year under the Plan may not exceed
$100,00.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are entitled to a board meeting
attendance fee of $750 plus reimbursement of expenses.
EMPLOYMENT AGREEMENTS
Mr. Rice has a five year employment agreement terminating April 15, 1996, which
is automatically renewable for successive one year terms, unless otherwise
canceled 60 days prior to the end of the initial terms of any successive term.
The contract requires a salary of approximately $115,000 per annum with an
increase each year of not less than 5% of the prior's years salary. The
agreement provided a bonus payment of up to 35% of base compensation, the
amount of which will be based upon the realization by the Company of certain
levels of pre-tax income. Under the argument, the employee may elect to require
the Company to provide life insurance for such employee in the amount of
$1,000,000. The agreement may be terminated by the Company for certain events
constituting "cause" upon death or upon disability. Upon disability, the
employee would receive fifty percent of his salary for the remaining term of the
agreement/. Upon death, the employee's beneficiary would receive fifty percent
of his base salary for a period of twelve months. If the Company discharges the
employee (other than a discharge for "cause" or a discharge as a result of the
employee's disability) or if he terminates the agreement because of the
company's breach, he is entitled to the salary due him for the remaining term of
the agreement and is entitled to continue to receive employee benefits provided
under the agreement through the end of the then-current.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 19, 1996 information concerning the
shares of the Company's Common Stock beneficially owned by (a) each person or
group known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Common Stock, (b) each director and nominee, and (c)
all directors and officers as a group. The outstanding voting securities of the
Company as of the record date consisted of 2,369,565 shares of common stock,
7,550 shares of 10% Preferred Stock (which are currently convertible into
1,510,000 shares of common stock), and 16,000 shares of Series B Preferred Stock
(which are currently convertible into 3,200,000 shares of common stock), all of
which vote together as a single class on all matters submitted to the holders of
the Company's common stock except in certain limited instances. Except as
otherwise indicated, each person named or included in a group has sole voting
and investment power with respect to his or its shares of Common Stock.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of Percent
Owner or Identity of Group Beneficial Ownership Of Class (1)
- - -------------------------- -------------------- ------------
<S> <C> <C>
Renaissance Capital Partners, Ltd. 3,400,000 (2) 58.9%
8080 N. Central Expressway,
17
<PAGE>
Suite 219-L869
Dallas, TX 75206-1857
William V. Rice 717,000 (3) 27.9%
c/o Global Environment Corp.
Unit 1, Apple Tree Lane
Plumsteadville, PA 18949
Russell G. Cleveland 40,000 (4) 1.7%
c/o Renaissance Capital Group, Inc.
8080 N. Central Expressway,
Suite 210L869
Dallas, TX 75206-1857
William L. Pryor, III 25,000 (5) 1.0%
Prism Group, Inc.
441 Lexington Avenue, Suite 502
New York, NY 10017
All officers and directors
as a group (3 person) 782,000 (6) 30.1%
</TABLE>
(1) Common Stock which is not outstanding but which a person has a right to
acquire with 60 days of the record date are considered as Common stock
outstanding for purposes of computing the percentage of Common Stock owned by
such person, but such Common stock is not deemed outstanding for purposes of
computing the percentage of Common Stock owned by any other person.
(2) Represents (i) 200,000 shares of common stock currently issuable upon
conversion of 1,000 shares of the Company's 10% Preferred Stock and (ii)
3,200,000 shares of common stock currently issuable upon the conversion of
16,000 shares of the Company's Series B Preferred Stock.
(3) Includes 200,000 shares of common stock issuable upon exercise of options
granted to Mr. Rice under the Company's Stock Option Plan.
(4) Does not include 3,400,000 shares of the Company's common stock issuable to
Renaissance Capital Partners, Ltd. upon the conversion of 1,000 shares of the
Company's 10% Preferred Stock and 16,000 shares of the Company's Series B
Preferred Stock described in note (2) above. Mr. Cleveland is a director,
officer and principal shareholder of Renaissance Capital Group Inc., the
managing general partner of Renaissance Capital Partners, Ltd., and may be
deemed to share voting and investment control over such shares.
(5) Represents 25,000 shares of common stock issuable upon exercise of options
granted to Mr. Pryor under the Company's Stock Option Plan.
(6) Includes 225,000 shares of common stock issuable upon the exercise of
options granted under the Company's Sock Option Plan, but does not include
3,400,000 shares of common stock currently issuable upon the conversion of the
10% Preferred Stock and the Series B Preferred Stock held by Renaissance Capital
Partner, Ltd. described in note (2) above, over which Mr. Cleveland may by
deemed to share voting and investment control. All of the outstanding shares of
the Company's Series B Preferred Stock are beneficially owned by Renaissance
Capital Partners, Ltd. Renaissance also beneficially owns 1,000 shares
(approximately 13%) of the Company's 10% Preferred Stock. Mr. Cleveland, by
virtue of his position Renaissance described in note 4 to the table, may be
deemed to share voting and investment control over all of the preferred stock
owned by Renaissance. No other director or officer of the Company owns any
shares of the Company's 10% Preferred Stock and the Company is not aware of any
person holding more than 5% of the Company's 10% Preferred Stock.
18
<PAGE>
CHANGES IN CONTROL
Renaissance Capital Partners, Ltd. acquired control of the company on December
31, 1994, pursuant to a Purchase Agreement with the Company (the "Purchase
Agreement") under which Renaissance exchanged $1,600,000 principal amount of the
Company's 12.5% Convertible Debentures (the "Debentures") for 16,000 shares of
the Company's Series B Preferred Stock. The Company also issued Renaissance a
10% Term Note originally due December 31, 1997 in the principal amount of
$211,635.40 (representing interest on the Debentures accrued through
September 30, 1994) and paid Renaissance $50,000 (representing interest on
the Debentures from October 1, 1994 through December 31, 1994). Prior to the
exchange transaction, the Debentures were convertible any time at the option
of Renaissance, at a price of $.70 per share, into approximately 2,285,714
shares of common stock of the Company. Until the conversion of the
Debentures into common stock, however, Renaissance had no power to vote the
shares of Common Stock into which the Debentures were convertible.
As the holder of Series B Preferred Stock, Renaissance currently may convert
such shares into common stock at the rate of $.50 per share. The terms of the
Series B Preferred Stock provide that the holders of such shares shall vote
together as a single class with the holders of the common stock and the 10%
Preferred Stock on matters submitted to the vote of the common stockholders
(except as provided in the next paragraph), and the holders of the Series B
Preferred Stock are entitled to cast the number of votes equal to the number of
shares of common stock into which the shares of Series B Preferred Stock are
then convertible. Therefore, at current conversion rates, 16,000 shares of
Series B Preferred Stock and the 1,000 shares of 10% Preferred Stock currently
owned by Renaissance represent approximately 48% of the voting power represented
by the outstanding voting securities of the Company.
In addition, the holders of the Series B Preferred Stock currently may vote as a
separate class on (I) the amendment of any of the terms of the Series B
Preferred Stock; (ii) the authorization , creation, issuance or sale of any
class or series of capital stock ranking senior to or on parity with the Series
B Preferred Stock as to dividends or liquidation preference; (iii) the merger
of the Company into, or consolidation of the Company with, or sale of all of
substantially all of the assets of the Company to, another person or entity;
(iv) any of the matters described in Section 9 of Exhibit A to the Certificate
of Amendment to the Certificate of Incorporation of the Company, which specifies
the terms of the Series B Preferred Stock; and (v) the election of a majority
of the Board of Directors of the Company if (1) all shares of the Series B
Preferred Stock have not been redeemed or converted by October 31, 1999 or (2) a
default occurs under the Purchase Agreement and remains uncured for 12
consecutive months. The affirmative vote of the holders of not less than sixty-
six and two thirds percent (66 2/3%) of the outstanding shares of Series B
Preferred Stock is necessary to authorize any of the transactions referenced in
this paragraph.
The Purchase Agreement entitles Renaissance, as the holder of all shares of the
Series B Preferred Stock, to elect one member of the Board of Directors of the
Company. Renaissance has advised the Company that it has waived such right with
respect to the 1996 Annual Meeting. Such right survives as long as Renaissance
holds shares of the Series B Preferred Stock or unregistered common stock issued
upon conversion of such preferred shares.
Pursuant to the terms of all Debentures issued by the Company to Renaissance
Capital Partners, Ltd. (described under "Certain Relationships and Related
Transactions"), the conversion of the debentures into Common Stock may result in
Renaissance acquiring control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Rice has personally guaranteed payment of up to $125,000 of the Company's
obligations under its bank credit facility.
On April 25, 1991, the Company issued to Renaissance a convertible debenture
(the "1991 Debenture") in the principal amount of $1,250,000 which was then
convertible into the Company's common stock at a
19
<PAGE>
conversion price of $.90 per share. The 1991 Debenture bore interest at the
rate of 12.5% per annum. The principal of the 1991 Debenture was repayable in
quarterly installments of $40,000 each, beginning on July 1, 1994 and was
payable in full at maturity on March 31, 1998. The conversion price of the 1991
Debenture was reduced to $.70 per share in December, 1992.
On December 30, 1992, the Company issued to Renaissance a second convertible
debenture in the amount of $350,000 (the: 1992 Debenture"). The 1992 Debenture
bore interest at an annual rate of 12.5%. The principal of the 1992 Debenture
was repayable in quarterly installments of $10,500 each, beginning on July 1,
1994, and was payable in full at maturity on March 31, 1998. The 1992 Debenture
was convertible into the Company's common stock at a conversion price of $.70
per share.
On December 31, 1994, Renaissance exchanged the Debenture for 16,000 shares of
the Company's Series B Preferred Stock. The Company also issued Renaissance a
10% Term Note due December 31, 1996 in the principal amount of approximately
$211,635 for unpaid accrued interest on the Debentures and paid Renaissance
$50,000 (representing interest on the Debentures from October 1, 1994 through
December 31, 1994). Renaissance currently may convert the Series B Preferred
Stock into 3,200,000 shares of the Company's common stock at the rate of $.50
per share, subject to adjustment. See "PRINCIPAL SHAREHOLDERS - Change in
Control".
Renaissance may vote the Series B Preferred Stock together with the holders of
the common stock and the 10% Preferred Stock as a single class on all matters
submitted to the vote of the common stockholders, and is entitled to cast the
number of votes equal to the number of shares into which the Series B Preferred
Stock is then convertible. In addition, Renaissance, as the sole holder of the
Series B Preferred Stock, has the right to vote separately as a class to elect
one member of the Board of Directors and on certain other matters
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Documents filed as part of this Annual Report on Form
10-K:
(1) Financial Statements.
--------------------
See "Index to Consolidated Financial Statements
and Financial Statement Schedules" on page F-1 herein.
(2)Financial Statement Schedules Required to be Filed by Item 8 on this
--------------------------------------------------------------------
Form.
----
(a) "NONE"
(3) Exhibits.
--------
<TABLE>
<CAPTION>
Incorporated by Reference
Exhibit No. Description or Filed Herewith
- - ----------- ----------- ------------------
<S> <C> <C>
3(i)(a) Certificate of Incorporation as Incorporated by reference to
amended through August 18, 1994 Exhibit 3(i) to Registrant's Form
10-Q for the period ended July 31,
1994
3(i)(b) Certificate of Amendment to Certificate Incorporated by reference to
of Incorporation filed December 30, 1994 Exhibit 4.1 to Registrant's Form 8-
K dated December 31, 1994
20
<PAGE>
3(ii) By Laws Incorporated by reference to
Exhibit 3.3 to the Registration
Statement on Form S-18 (No. 33-
18636-NY) (the "Registration
Statement").
4(a) Stock Certificate Incorporated by reference to
Exhibit 4.1 to the Registration
Statement.
4(b) Certificate of Incorporated by reference to
Amendment to Certificate Exhibit 4 of Registrant's Form
of Incorporation filed 10-Q for the period ended
August 18, 1994 (with terms of July 31, 1994.
10% Senior Preferred Stock)
4(c) Certificate of Incorporated by reference to
Amendment to Certificate Exhibit 4.1 to Registrant's Form
of Incorporation filed 8-K dated December 31, 1994.
December 30, 1994 (with terms
of Series B Senior Preferred Stock)
10(a) Employment Incorporated by reference to
Agreement dated Exhibit 10(c) to Form 10-K
April 16, 1991, between Report dated January 28, 1993.
Global Environmental Corp.
and William V. Rice
10(b) Global Incorporated by reference to
Environmental Corp. Exhibit 10(j) to the October
Stock Option Plan 31, 1990 Form 10-K.
10(c) Mortgage Note and Incorporated by reference to
Mortgage Agreement Exhibit 10(k) to the October
dated April 3, 1990 of Global 31, 1990 Form 10-K.
Environmental Corp.
with Continental Bank
10(d) Convertible Incorporated by reference to
Debenture Agreement Exhibit 10(c) to Form 10-K
in the amount of Report dated January 28, 1993.
$1,250,000 dated April 25, 1991
between Global Environmental
Corp. and Renaissance Capital
Partners, Ltd.
10(e) First Amendment Incorporated by reference to
dated December 30, Exhibit (10j) to Form 10-K
1992 to Convertible Report dated January 28, 1993.
Debenture Agreement in the amount of
$1,250,000 dated April 25, 1991
between Gobal Environmental Corp.
and Renaissance Capital Partners, Ltd.
10(f) Convertible Incorporated by reference to
21
<PAGE>
Debenture Agreement Exhibit (10k) to Form 10-K
in the amount of Report dated January 28, 1993.
$350,000 dated December 30, 1992
between Global Environmental Corp.
and Renaissance Capital Partners, Ltd. II
10(g) Loan and Security Incorporated by reference to
Agreement dated Exhibit 10(h) to Form 10-K Report
May 28, 1993 between dated January 28, 1994.
Danzer Metal Works Co.
and Fremont Financial Corporation
10(h) Asset purchase Incorporated by reference to
agreement dated Exhibit 10() to Form 10-K Report
August 25, 1993 between dated January 28, 1994.
Morrison Industries L.P.
and Global Environmental Corp.
10(I) Joint Venture Incorporated by reference to
Agreement dated Exhibit 10(j) to Form 10-K Report
December 31, 1993 dated January 28, 1994.
between Global Environmental
Corp. and Cadema Corporation.
10(j) Equipment Purchase and Incorporated by reference to
Security Agreement dated Exhibit 10(k) to Form 10-K Report
September 17, 1993 dated January 28, 1994.
between U.S. Amada, Ltd.
and The Danzer Metal Works Co.
10(k) Equipment Purchase and Incorporated by reference to
Security Agreement dated Exhibit 10(l) to Form 10-K Report
September 17, 1993 dated January 28, 1994.
between U.S. Amada, Ltd.
and The Danzer Metal Works Co.
10(l) Equipment Purchase and Incorporated by reference to
Security Agreement dated Exhibit 10(m) to Form 10-K
September 17, 1993 Report dated January 28, 1994
between U.S. Amada, Ltd.
and The Danzer Metal Works Co.
10(m) Purchase Agreement Incorporated by reference to
dated December 31, Exhibit 99.1 to Registrant's Form
1994 between Global 8-K dated December 31, 1994.
Environmental Corp. and
Renaissance Capital
Partners, Ltd. to exchange
$1,600,000 of Convertible
Debentures for 16,000 Series B
Cumulative Convertible Senior
Preferred Stock.
10(n) 10% Term Note in Incorporated by reference to
principal amount of Exhibit 10(n) to Registrant's Form
22
<PAGE>
$211,635 due December 31, 1997. 8-K dated December 31, 1994
10(o) Loan and Security Agreement Filed herewith Exhibit 10(o)
dated June 23, 1995 between
Danzer Metal Works Co.
and Fremont Financial Corporation
10(p) Mortgage Note and Filed herewith Exhibit 10(p)
Mortgage Agreement
dated January 25, 1996 of Global
Environmental Corp.
with Midlantic Bank
21 List of Subsidiaries Incorporated by reference to
Exhibit 22 to the October
31, 1989 Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal year
ended October 31, 1995
</TABLE>
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLOBAL ENVIRONMENTAL CORP.
By: /s/William V. Rice
------------------
William V. Rice
President and Chief Accounting Officer
March 22, 1996
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 date indicated.
March 22, 1996
By: /s/William V. Rice
------------------
William V. Rice, Director and
Chief Financial and Accounting Officer
March 22, 1996
By: /s/Russell G. Cleveland
-----------------------
Russell G. Cleveland, Director
March 22, 1996
By: /s/William L. Pryor
-------------------
William L. Pryor, Director
24
<PAGE>
GLOBAL ENVIRONMENTAL CORP AND SUBSIDIARY
EXHIBIT NO. 10 (O)
THIRD AMENDMENT
TO LOAN AND SECURITY AGREEMENT
BETWEEN DANZER METAL WORKS COMPANY
AND FREMONT FINANCIAL CORPORATION
This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is made as of June 23,1995 by and between FREMONT FINANCIAL CORPORATION
("Fremont") and DANZER METAL WORKS COMPANY ("Borrower"), in light of the
following:
WHEREAS, Borrower and Fremont entered into a Loan and Security
Agreement dated May 28, 1993 (as amended from time to time, the "Loan
Agreement": Capitalized terms used herein shall have them earnings set forth in
the Loan Agreement unless specifically defined herein); and
WHEREAS, Borrower and Fremont wish to amend the Loan Agreement as set
forth herein.
NOW THEREFORE, in consideration of the mutual promises and agreements
of the parties hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged the
parties hereto agree as follows:
1. The first sentence of Section 3.1 of the Loan Agreement is
deleted in its entirely and replaced with the following:
3.1 This Agreement shall become effective upon acceptance by
Fremont and shall continue in full force and effect for a term ending January
31, 1997 (the Renewal Date) and from year to year thereafter, unless sooner
terminated pursuant to the terms hereof.
2. Borrower reaffirms, ratifies and confirms its Obligations
under the Loan Agreement, acknowledges that all the terms and conditions in the
Loan Agreement (except as amended herein) remain in full force and effect and
further acknowledges that the security interest granted to Fremont in the
Collateral is valid and perfected.
3. Borrower is not aware of any events which now constitute, or with
the passage of time or the giving of notice would constitute ,an Event of
Default under the Loan Agreement.
1
<PAGE>
4. This Amendment constitutes the entire agreement of the parties in
connection with the agreement of the parties in connection with the subject
matter of this Agreement and cannot be changed or terminated orally. All prior
agreements, understandings, representations, warranties and negotiations
regarding the subject matter hereof, if any, are merged into this Amendment.
5. This Amendment may be executed in counterparts, each of which, when
so executed and delivered shall be deemed an original, and all of such
counterparts together shall constitute but one and the same agreement.
6. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, Borrower and Fremont have executed this Amendment
as of the date first written above.
FREMONT FINANCIAL
CORPORATION,
a California corporation,
By:
------------------------
Print Name:
Title/Capacity:
DANZER METAL WORKS
COMPANY,
a Maryland corporation,
By:
------------------------
Print Name:
Title/Capacity:
2
<PAGE>
GLOBAL ENVIRONMENTAL CORP AND SUBSIDIARY
EXHIBIT NO. 10 (P)
SECOND MODIFICATION AND EXTENSION AGREEMENT
This Agreement is made as of the 25th day of January, 1996, effective as of
October 31, 1995, by and between Global Environmental Corp., a New York
corporation having an address of PO Box 1300, Bedminster Industrial Park, Unit
1, "Appletree Lane, Plumsteadville, Pennsylvania 18949 (hereinafter referred to
as "Borrower") and MIDLANTIC BANK, N.A., a national banking association and
successor by merger to Continental Bank, with an office at 1500 Market Street,
Philadelphia, Pennsylvania 19102 (hereinafter referred to as "Bank").
RECITALS
WHEREAS, Bank is the owner and holder of a certain Mortgage Note dated April 3,
1990, executed and delivered by Borrower to Bank, evidencing Borrower's
obligation to repay to Bank a loan in the original principal amount of Four
Hundred Eight Thousand Dollars ($408,000.00) (the "Loan"), which Mortgage Note
was amended by a First Note and Mortgage Modification Agreement dated March 16,
1995 (as amended, the "Note"); and
WHEREAS, the Note is secured, inter alia, by (i)the lien of a certain Mortgage
Agreement dated April 3, 1990, in the Office of the Recorder of Deeds of Bucks
County, Pennsylvania in Mortgage Book 167, Page 1256 (the "Mortgage"),
constituting a first lien on, and granting a security interest on and in, a
parcel of land and the buildings and other improvements thereon, situate in the
Township of Bedminster, Bucks County, Pennsylvania (the "Premises") as more
particularly described on Exhibit "A" thereto;
WHEREAS, Borrower has requested and Bank has agreed to extend the maturity date
of the Note from October 31, 1995 to April 30, 1997, to modify the interest rate
charged under the Note, and otherwise modify the Note on the terms and
conditions hereinafter set forth. All capitalized terms used herein shall have
the same meanings ascribed to them in the Note, the Mortgage, and all
agreements, documents and instruments executed and/or delivered in connection
therewith or related thereto (collectively, the "Loan Documents") unless herein
provided to the contrary or unless the context requires otherwise.
NOW, THEREFORE, for and in consideration of the premises (which are deemed
herein contained) and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Confirmation of Present Indebtedness. Bank and Borrower hereby agree that,
as of January 12, 1996, the outstanding principal amount of the Note is
$3553,873.38 and interest accrued and outstanding under the Note is $2,759.53;
which amounts Borrower hereby represents, warrants and confirms are due and
owing to Bank without claim, defense, or setoff. This Agreement neither
extinguishes any debt evidenced by the Note nor affects or impairs, and Borrower
confirms its full liability with respect to, any and all Collateral now or
hereafter held by Bank to secure payment of Borrower's liabilities to Bank under
the Loan Documents.
2. Amendments to Note. The Note is hereby modified as follows:
A. Extension of Maturity Date. The date on which the Note shall mature
and on which the entire remaining principal balance, as well as all accrued and
unpaid interest thereon and other sums required to
1
<PAGE>
be paid thereunder, shall be fully due and payable is hereby extended from
October 31, 1995 to April 30, 1997. All references in the Mortgage or the Loan
Documents to the maturity date of the Note shall be to April 30, 1997.
B. Change in Interest Rate. Effective as of November 1, 1995, the
interest rate charged under the Note shall be decreased to nine and one-half
percent(9 1/2%) fixed per annum for the balance of the term of the Note.
Interest shall accrue on the outstanding principal balance of the Note and be
calculated on the basis of a 360-day year and shall be payable monthly in
arrears on the first day of each month based on the actual number of days
elapsed at the interest rate herein specified.
C. Prepayment. The outstanding principal balance of the Note may be
prepaid in full or in part at any time; provided, however, that
contemporaneously with such payment (whether prior to or after the occurrence of
a loan default) Borrower shall pay to Bank a prepayment Note as determined by
the application of a discount rate equal to the Reinvestment Treasury Note Yield
(as hereinafter defined) resulting from the positive difference, if any,
between: (a) amount of the monthly interest payment calculated on the principal
balance prepaid at the fixed rate of interest as set forth herein; and (b) the
amount of the monthly interest payment calculated at the United States Treasury
Note Yield for instruments scheduled to mature in the month next following the
actual maturity date of the Note (Reinvestment Treasury Note Yield") plus 250
basis points, over the balance of the term of the Note.
D. Amended and Restated Warrant of Attorney for Confession of Judgment.
The warrant of attorney for confession of judgment contained in the Note is
hereby amended and restated in its entirety as follows: MAKER HEREBY IRREVOCABLY
AUTHORIZES AND EMPOWERS BANK, BY ITS ATTORNEY, OR BY THE PROTHONOTARY OR CLERK
OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY
JURISDICTION WHERE PERMITTED BY LAW, AS OF ANY TERM OR TIME, UPON THE OCCURRENCE
OF AN EVENT OF DEFAULT, TO APPEAR FOR MAKER AND TO CONFESS AND ENTER JUDGMENT
AGAINST IT IN FAVOR OF BANK IN ANY JURISDICTION IN WHICH MAKER OR ANY OF ITS
PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS, TOGETHER WITH COSTS OF
SUIT AND WITH ACTUAL COLLECTION COSTS, INCLUDING THE GREATER OF $1,000 OR 15% OF
THE SUM OF THE PRINCIPAL AMOUNT OF THE INDEBTEDNESS PLUS ACCRUED BUT UNPAID
INTEREST AND LATE CHARGES AND FEES ADDED THERETO AS AN ATTORNEY'S COLLECTION
FEE, WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION, AND WITH THE
RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING
SO, THIS NOTE OR COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT
WARRANT. MAKER HEREBY WAIVES AND RELEASES ALL RELIEF FOR ANY AND ALL
APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR HEREAFTER
ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE EXERCISE
THEREOF, AND SHALL CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID, PERFORMED,
DISCHARGED AND SATISFIED.
MAKER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF LEGAL COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING AND
EFFECT OF THE FOREGOING PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN
FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.
BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE VALIDITY
OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY BANK UNDER THIS NOTE BEFORE
JUDGMENT CAN BE ENTERED AGAINST MAKER AND BEFORE ASSETS OF MAKER CAN BE
GARNISHED, MAKER NONETHELESS INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY
AGREES AND CONSENTS TO BANK ENTERING JUDGMENT AGAINST MAKER BY CONFESSION AND
ATTACHING AND GARNISHING THE BANK ACCOUNTS AND OTHER ASSETS OF MAKER, ALL
WITHOUT PRIOR NOTICE OR OPPORTUNITY FOR A HEARING. MAKER ACKNOWLEDGES AND AGREES
THAT THIS SECTION IS A SPECIFIC AND MATERIAL
2
<PAGE>
ASPECT OF THIS NOTE, AND THAT BANK WOULD NOT EXTEND CREDIT TO SUCH PARTY IF THE
WAIVER SET FORTH IN THIS SECTION WERE NOT PART OF THIS INSTRUMENT.
3. Security for the Note. The Mortgage and any Assignment of Leases shall
continue to be a first lien on the Premises and shall secure the Note as
modified by this Agreement.
4. Value of Premises. Borrower hereby agrees that Bank shall have the right
to conduct an appraisal of the Premises at any time and from time to time to
determine whether the ratio of the outstanding balance of the Note to the
appraised value of the Premises remains in compliance with Bank's loan to value
ratio standards. The cost of such appraisal will be the responsibility of the
Borrower and will be payable by Borrower to Bank upon Bank's demand therefor.
The failure of the Loan to remain in compliance with Bank's loan to value ratio
requirements shall constitute a default under the Note, Mortgage and other Loan
Documents unless cured by Borrower to Bank's satisfaction within 30 days of
notice of non-compliance from Bank to Borrower.
5. Right to Inspect and Cure. Bank shall have the right, at any time and from
time to time, to conduct or cause to be conducted such environmental
inspections, testing or studies as it shall deem advisable at the sole cost and
expense of Borrower. In the event that Borrower fails to comply with any
applicable Federal or State environmental law or regulation. Bank may, in
addition to any of its other remedies under the Mortgage or their Loan
Documents, cause the Premises to be in compliance with such laws and regulations
and the cost(s) of such action to bring about compliance shall be paid by
Borrower to Bank upon demand therefor, and shall be secured by the Mortgage and
the Collateral.
6. No Impairment of Lien Priority. The parties hereto intend and agree that
this Agreement shall not constitute a novation and shall not in any way
adversely affect or impair the lien priority of the Mortgage. If this Agreement
or any part hereof, or any instrument executed in connection herewith, shall be
construed or shall operate to affect the lien priority of the Mortgage, this
Agreement, at Bank's option by written notice to Borrower, shall be void and of
no further force bound by all of the terms and conditions of this Agreement
until all indebtedness owing from Borrower to Bank has been paid, except that
Bank may, at its option, accelerate the maturity of the indebtedness evidenced
by the Note.
7. Release. Borrower hereby absolutely and unconditionally as an independent
covenant releases Bank, its officers, agents and employees from any and all
claims, causes of action, liabilities or obligations, of any sort or kind, which
against Bank Borrower ever had, now has or its heirs, executors, administrators,
successors or assigns can, shall or may have arising out of or relating to the
Loan Documents or the Loan or any matter collateral thereto from the beginning
of the world to the date hereof.
8. Confirmation of Prior Security Interests. Borrower hereby ratifies and
confirms, without condition or reservation, all liens and security interests
previously granted to Bank including, without limitation, those liens and
security interests granted by the Mortgage. Borrower hereby acknowledges and
agrees that such liens and security interests shall continue to secure the
prompt satisfaction of all of Borrower's liabilities to Bank.
9. Representations. Warranties and Covenants. All representations,
warranties, and covenants of Borrower contained in the Loan Documents are hereby
ratified and confirmed without condition as if made anew upon the execution of
this Agreement and are hereby incorporated herein by reference.
10. Certification of No Default. Borrower hereby represents and warrants to
Bank that, as of the date of execution of this Agreement, no default or Event of
Default and no event which, with the giving of notice or passage of time or
both, could become a default or Event of Default under the Note, the Mortgage or
the other Loan Documents has occurred. This representation and warranty shall
survive the making of this Agreement.
11. Reaffirmation and Extension of Loan Documents. Except as modified by the
terms hereof, all terms, provisions and conditions of the Note, the Mortgage and
the other Loan Documents are hereby ratified and confirmed without condition,
shall remain unaltered and in full force and effect, and are hereby incorporated
herein by reference. Without limiting the generality of the foregoing, Borrower
hereby ratifies and confirms the warrant of attorney for confession of judgment
contained in the Note, as amended and restated herein and
3
<PAGE>
agrees that such warrant shall pertain to the Note as modified hereby. All
references to the Note in any of the Loan Documents shall be deemed to refer to
the Note, as amended by this Agreement.
12. No Waiver. No right, remedy, privilege or power of Bank provided for
herein shall be construed in derogation of any right, remedy, privilege or power
of Bank granted in the Note, the Mortgage and the other Loan Documents. Nothing
herein contained, and no transaction entered into in connection herewith, shall
alter, impair, or diminish the validity and efficacy of any lien, security
interest, right, power or privilege now held by Bank in connection with the Loan
Documents, or the indebtedness evidenced and secured thereby. This Agreement
does not and shall not be deemed to constitute a waiver by Bank of any Event of
Default, or any event which with the passage of time or the giving of notice or
both would constitute an Event of Default, or obligate Bank to agree to any
further extension of the maturity date of the Note, or constitute a waiver of
any of Bank's other rights or remedies.
13. Severability. If any one or more of the provisions contained in this
Agreement are found to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
14. Costs and Expenses. Borrower covenants and agrees that it shall be
responsible for the payment, upon demand, of all costs and expenses related to
the modification of the Loan Documents set forth in this Agreement including,
without limitation, title charges and recording fees.
15. Amendments. No provision of this Agreement or of the Loan Documents may
be amended, modified supplemented, changed, waived, discharged or terminated
unless each party hereto consents in writing.
16. Entire Agreement. This Agreement and the Loan Documents constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof, and this Agreement supersedes all previous negotiations, discussions and
agreements between the parties with respect to the matters contained herein, and
no parol evidence of any prior or other agreements shall be permitted to
contradict or vary the terms hereof. This Agreement and the Loan Documents
shall be deemed as complementing one another and not restricting Bank's rights
hereunder or thereunder. If there is any conflict or discrepancy between the
provisions of this Agreement and those of the Loan Documents, the terms and
provisions of this Agreement shall control and prevail.
17. Effectiveness of Agreement. Anything to the contrary in this Agreement
notwithstanding, the provisions hereof shall not be effective until this
Agreement is: (a) executed by Borrower and delivered to Bank's office in
Pennsylvania; and (b) duly signed by an authorized officer of Bank.
18. Copy of Agreement. BORROWER DECLARES THAT IT HAS RECEIVED, WITHOUT CHARGE,
A TRUE COPY OF THIS SECOND MODIFICATION AND EXTENSION AGREEMENT.
19. Captions. Captions preceding the text of paragraphs or subparagraphs of
this Agreement are inserted for convenience of reference only shall neither be a
part hereof nor affect its meaning, construction, interpretation or effect.
20. Recordation. This Agreement may be recorded in the real estate records of
the County in which the Premises are located.
21. Governing Law. This Agreement shall be governed by and construed
according to the laws of the Commonwealth of Pennsylvania, without regard to
conflicts of law.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Modification and
Extension Agreement to be duly executed as of the day and year first above
written.
BORROWER:
Global Environmental Corp., a New York corporation ;pg
By:
---------------------------------------
William V. Rice, President
Attest:
-------------------------------------
Patricia F. Gilliland, Secretary
BANK:
MIDLANTIC BANK, N.A., a national banking association
and successor by merger to Continental Bank
By:
---------------------------------------------
Thomas C. Dinges, Vice President
Attest:
-----------------------------------------
George Pearlingi, Assist. Vice President
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000825521
<NAME> VW3H & USN
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 329,213
<SECURITIES> 0
<RECEIVABLES> 1,763,127
<ALLOWANCES> 41,669
<INVENTORY> 932,411
<CURRENT-ASSETS> 3,280,877
<PP&E> 4,665,411
<DEPRECIATION> 2,369,535
<TOTAL-ASSETS> 5,702,064
<CURRENT-LIABILITIES> 3,195,144
<BONDS> 0
0
2,173,469
<COMMON> 247
<OTHER-SE> (1,613,229)
<TOTAL-LIABILITY-AND-EQUITY> 5,702,064
<SALES> 12,419,442
<TOTAL-REVENUES> 12,419,442
<CGS> 10,599,511
<TOTAL-COSTS> 10,599,511
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 300,653
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (388,934)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
<PAGE>
GLOBAL ENVIRONMENTAL CORP.
AND SUBSIDIARY
YEARS ENDED
OCTOBER 31, 1995, 1994 AND 1993
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
PAGE(s)
-------
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report F-1
Consolidated Balance Sheets - October 31, 1995 and 1994 F-2
Consolidated Statements of Operations -
Years Ended October 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) Years Ended October 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows -
Years Ended October 31, 1995, 1994 and 1993 F-5 to F-6
Notes to Consolidated Financial Statements F-7 to F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Global Environmental Corp. and Subsidiary
Plumsteadville, Pennsylvania
We have audited the accompanying consolidated balance sheets of Global
Environmental Corp. and Subsidiary as of October 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency) and cash flows for the each of the three years in the period ended
October 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Global
Environmental Corp. and Subsidiary as of October 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME
TAXES," effective November 1, 1993.
RUDOLPH, PALITZ LLP
February 15, 1996
Plymouth Meeting, Pennsylvania
F - 1
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
----------
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 329,213 $ 353,465
Restricted cash 167,894 -
Accounts receivable, less allowance for doubtful
accounts of $41,669 and $55,691, respectively 1,721,458 1,588,951
Inventories 932,411 1,168,630
Costs and estimated earnings in excess of
billings on uncompleted contracts 77,518 50,972
Prepaid expenses and other 52,383 87,212
----------- -----------
Total current assets 3,280,877 3,249,230
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 150,797 150,797
Building and improvements 1,823,825 1,823,825
Equipment 2,690,789 2,593,301
----------- -----------
4,665,411 4,567,923
Less - accumulated depreciation and amortization (2,369,535) (2,148,633)
----------- -----------
Total property, plant and equipment, net 2,295,876 2,419,290
----------- -----------
OTHER ASSETS
Investment in joint venture 8,950 8,630
Restricted cash - 167,894
Goodwill, net of accumulated amortization of
$32,027 and $26,917, respectively 70,169 75,279
Other, net 46,192 166,738
----------- -----------
125,311 418,541
----------- -----------
$5,702,064 $6,087,061
----------- -----------
----------- -----------
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
1995 1994
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Revolving loan agreement $ - $ 933,530
Current portion of long-term debt 195,061 692,209
Accounts payable 2,030,372 1,464,319
Billings in excess of costs and estimated earnings
on uncompleted contracts 331,262 52,615
Accrued salaries and wages 124,787 203,387
Accrued commissions 26,700 37,996
Accrued expenses, other 486,962 406,285
----------- -----------
Total current liabilities 3,195,144 3,790,341
----------- -----------
LONG-TERM DEBT, net of current portion 1,946,433 2,649,783
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, par value $.0001 per share;
20,000,000 shares authorized; 2,465,144 shares issued 247 247
Preferred stock, $.001 par value;
5,000,000 shares authorized; Class of 10%
Cumulative Convertible Senior Preferred Stock,
10,500 shares authorized, 7,550 shares issued and
outstanding in 1995 and 1994 (total of $662,150);
Series B Cumulative Convertible Senior Preferred Stock,
16,000 shares authorized, issued and outstanding 1995
(total of $1,511,319); No shares issued, 1994 2,173,469 662,150
Additional paid-in capital 1,877,784 1,877,784
Deficit (3,491,013) (2,893,244)
Less: Treasury stock, 95,579 shares, at cost - -
----------- -----------
Total stockholders' equity (deficiency) 560,487 (353,063)
----------- -----------
$ 5,702,064 $ 6,087,061
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 2
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES $12,419,442 $11,712,336 $ 9,016,051
COST OF GOODS SOLD 10,599,511 10,751,640 7,919,315
----------- ----------- -----------
Gross profit 1,819,931 960,696 1,096,736
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,905,507 1,699,431 2,085,309
----------- ----------- -----------
Loss from operations (85,576) (738,735) (988,573)
----------- ----------- -----------
INTEREST EXPENSE (300,653) (373,948) (323,378)
INTEREST INCOME 3,522 6,253 2,599
OTHER INCOME 80,342 127,770 -
OTHER EXPENSE (86,569) - -
----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT (388,934) (978,660) (1,309,352)
----------- ----------- -----------
INCOME TAX BENEFIT - - -
----------- ----------- -----------
NET LOSS $ (388,934) $ (978,660) $(1,309,352)
----------- ----------- -----------
----------- ----------- -----------
NET LOSS PER SHARE $ (.25) $ (.42) $ (.56)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,369,565 2,360,966 2,333,170
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 3
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
10% AND SERIES B
CUMULATIVE
CONVERTIBLE SENIOR
COMMON STOCK PREFERRED STOCK
------------ ---------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at October 31, 1992 2,426,874 $ 243 - $ -
Issuance of 7,500 common shares 7,500 - - -
Net loss - - - -
--------- ------ ------ ---------
Balance at October 31, 1993 2,434,374 243 - -
Issuance of 30,770 common shares 30,770 4 - -
Issuance of 7,550 preferred shares - - 7,550 662,150
Net loss - - - -
Dividends on preferred stock - - - -
--------- ------ ------ ---------
Balance, October 31, 1994 2,465,144 247 7,550 662,150
Issuance of 16,000 Series B preferred shares - - 16,000 1,511,319
Net loss - - - -
Dividends on preferred stock - - - -
--------- ------ ------ ---------
Balance, October 31, 1995 2,465,144 $ 247 23,550 $2,173,469
---------- ------ ------ ----------
---------- ------ ------ ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 4
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS TREASURY STOCK
--------------
CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1992 1,863,180 ($ 593,490) (95,579) $ - $1,269,933
Issuance of 7,500 common shares 2,108 - - - 2,108
Net loss - (1,309,352) - - (1,309,352)
---------- ----------- ---------- ------- ----------
Balance at October 31, 1993 1,865,288 (1,902,842) (95,579) - (37,311)
Issuance of 30,770 common shares 12,496 - - - 12,500
Issuance of 7,550 preferred shares - - - - 662,150
Net loss - (978,660) - - (978,660)
Dividends on preferred stock - (11,742) - - (11,742)
---------- ----------- ---------- ------- ----------
Balance at October 31, 1994 1,877,784 (2,893,244) (95,579) - (353,063)
Issuance of 16,000 Series B
preferred shares - - - - 1,511,319
Net loss - (388,934) - - (388,934)
Dividends on preferred stock - (208,835) - - (208,835)
---------- ----------- ---------- ------- ----------
Balance, October 31, 1995 $1,877,784 ($3,491,013) ($95,579) $ - $ 560,487
---------- ----------- ---------- ------- ----------
---------- ----------- ---------- ------- ----------
</TABLE>
F-4 (continued)
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ($ 388,934) ($ 978,660) ($1,309,352)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 279,332 306,034 365,514
Write-off of deferred financing fees 86,569 - 90,927
Provision for bad debts 38,500 21,618 17,934
Gain on sale of equipment - (26,227) -
Net (increase) decrease in non-cash current assets:
Accounts receivable (171,007) (132,061) 963,275
Inventories 236,219 (66,215) (287,252)
Costs and estimated earnings in excess of
billings on uncompleted contracts (26,546) 608,681 (603,444)
Prepaid expenses and other 34,829 (59,606) 148,312
Net increase (decrease) in non-debt current liabilities:
Accounts payable 403,926 (435,655) 68,433
Billings in excess of costs and estimated earnings
on uncompleted contracts 278,647 (111,001) 103,266
Accrued salaries and wages (78,600) 81,565 (38,430)
Accrued commissions and accrued expenses, other 69,381 (81,068) 189,175
(Increase) decrease in other assets, net (19,343) 16,822 (1,244)
--------- -------- --------
Net cash provided by (used in) operating activities 742,973 (855,773) (292,886)
---------- -------- -------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (97,488) (162,628) (77,990)
Investment in joint venture (320) (8,630) -
Proceeds from sale of equipment - 46,286 -
---------- -------- -------
Net cash used in investing activities (97,808) (124,972) (77,990)
---------- -------- ------
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving loan agreement (288,485) 331,202 602,328
Proceeds from the issuance of long-term debt - 548,337 726,875
Payments of long-term debt (245,543) (199,565) (882,008)
Payment of legal fees in connection with conversion of
debt to preferred stock (88,681) - -
Payments of loan acquisition fees - (15,000) (92,084)
Increase in restricted cash - (167,894) -
Net proceeds from the issuance of preferred stock - 662,150 -
Payment of dividends on preferred stock (46,708) (11,742) -
---------- -------- ---------
Net cash provided by (used in) financing activities (669,417) 1,147,488 355,111
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (24,252) 166,743 (15,765)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 353,465 186,722 202,487
---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 329,213 $ 353,465 $ 186,722
---------- --------- ---------
---------- --------- ---------
</TABLE>
F - 5
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid for -
Interest $298,854 $435,619 $277,866
-------- -------- --------
-------- -------- --------
Income taxes $ - - $ 12
------- ------- -------
------- ------- -------
NONCASH FINANCING ACTIVITIES:
Conversion of Renaissance debt to
preferred stock (Note 7) $1,600,000 - -
Reclass of revolving loan to long-term debt
due to modification of loan agreement (Note 5) $933,530 - -
Accrual of dividends on Senior Preferred Stock
10% Cumulative Convertible $28,794 - -
Series B Cumulative Convertible $133,333 - -
Issuance of 7,500 shares of restricted stock
in connection with an investment
banking contract - - $ 2,108
Issuance of long-term debt in connection
with purchase of equipment - $439,100 $183,142
Issuance of 30,770 shares of common stock
in connection with a legal settlement - $12,500 -
Reclass of accrued interest to long-term debt
in connection with Renaissance conversion - $28,298 -
NONCASH INVESTING ACTIVITIES:
Reclass of deposit on equipment purchase - $ 21,451 -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F - 6
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Global Environmental Corp. (formerly Affiliated National, Inc.)
was incorporated on October 6, 1987. Effective August 1, 1988, Global
Environmental Corp. acquired all of the issued and outstanding common shares of
Global Environmental Holdings, Inc. (Global) (Note 2).
Danzer Metal Works Company (Danzer), a wholly-owned subsidiary of
Global, is principally engaged in the design, manufacture and installation of
fabricated metal products. Products produced are normally based upon
specifications received from customers. Danzer's revenues represent
approximately 60% of the Company's total revenues and are generated throughout
the United States. Rage, Inc. ("Rage"), a wholly-owned subsidiary of Global, is
engaged in the business of engineering, and supplying pneumatic material
handling systems (Note 2). Revenues from the Rage subsidiary represent
approximately 40% of the Company's total revenues and are generated throughout
the United States.
Effective June 20, 1989, Affiliated National, Inc. changed its
name to Global Environmental Corp.
The accompanying consolidated financial statements present the
accounts of Global Environmental Corp. and its wholly-owned subsidiary. The
entities are collectively referred to herein as the "Company". All significant
intercompany transactions and balances have been eliminated in consolidation.
The Company uses the equity method of accounting for a 49% owned
interest in a joint venture. The original investment is recorded at cost,
adjusted for the Company's share of undistributed earnings or losses. The
operations of the joint venture are presently immaterial.
Summary of Significant Accounting Policies
REVENUE RECOGNITION
Revenues from the manufacture of sheet metal products and
fabrications are generally recognized when products are shipped to the
customer.
F - 7
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Summary of Significant Accounting Policies (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
Contract revenues are recognized utilizing the percentage of
completion method of accounting. Contract costs include all direct material and
labor costs and those indirect costs related to contract performance. Selling,
general and administrative costs are charged to expense as incurred. Provision
for estimated losses on contracts are made during the period in which the
Company first becomes aware that a loss on a contract is probable. Total
estimated costs are periodically revised, if necessary, to reflect changes to
the original contract and changes to total estimated contract costs based upon
deviations of actual costs to date from original estimates and anticipated
future deviations from such original estimates. The percentage of completion
method relies heavily on the use of estimates and assumptions by management.
Actual results of operations could differ from those estimates.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents amounts billed in excess of revenues
recognized.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and are comprised of the following components:
<TABLE>
<CAPTION>
OCTOBER 31,
----------
1995 1994
---- ----
<S> <C> <C>
Raw materials and supplies $585,473 $ 491,194
Work-in-process 161,960 677,436
Finished goods 184,978 -
-------- ----------
$932,411 $1,168,630
-------- ----------
-------- ----------
</TABLE>
Work-in-process and finished goods include purchased materials, direct
labor and allocated overhead.
F - 8
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Summary of Significant Accounting Policies (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment placed in service are depreciated on the
straight-line method over the following estimated useful lives:
Building and improvements 10 to 30 years
Equipment 5 to 20 years
Depreciation and amortization expense of property, plant and equipment
for the years ended October 31, 1995, 1994 and 1993 was $220,902, $208,017, and
$232,374, respectively.
CASH EQUIVALENTS
Cash equivalents consist of all highly liquid investments purchased
with an original maturity of three months or less.
INCOME TAXES
The Company files a consolidated income tax return for Federal tax
purposes. Global Environmental Corp., Global and each of Global's subsidiaries
file separate state income tax returns. As discussed in Note 3, the Company
adopted Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR
INCOME TAXES," effective November 1, 1993.
MAJOR CUSTOMERS
The following is a list of the Company's customers which represent 10%
or more of consolidated net sales.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES TOTAL
YEAR ENDED CTOBER 31,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Elevator Manufacturer (Danzer) - 10% -
Rubber Products Manufacturer (Rage) 16% - -
Plastic Product Manufacturer (Rage) 10% 19%
Truck Body Manufacturer (Danzer) 20% - -
</TABLE>
F - 9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a bank which, at various times
during the year, exceeded the Federal Deposit Insurance Corporation limit.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, FASB issued Statement No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF"
("Statement"). The Statement established accounting standards for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Statement requires that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. The Company has not determined the effect, if any, that this
Statement will have on its financial position or results of operations.
In October 1995, FASB issued SFAS No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION," ("Statement") which provides an alternative method of accounting
for stock-based compensation arrangements, based on fair value of the stock-
based compensation utilizing various assumptions regarding the underlying
attributes of the options and the Company's stock, rather than the existing
method of accounting for stock-based compensation which is provided in
Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" (APB No. 25). FASB encourages entities to adopt the fair value-based
method but does not require adoption of this method. The Company anticipates
that it will continue its current accounting policy; however, if adopted, SFAS
No. 123 is not expected to have a material impact on its financial position or
its results of operations.
Both of the above standards would be effective for the Company's
fiscal year beginning November 1, 1996.
F - 10
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 2. OTHER ASSETS
In connection with the acquisition of Rage, certain other assets were
purchased and valued as follows:
FAVORABLE LEASE TERMS
A lease agreement was entered into as of the date of the closing with
the previous sole stockholder of Rage for the office, manufacturing and
warehouse facilities. The Company determined that payments under this lease
were $175,000 less in the aggregate than those for similar terms for similar
space in the area. This amount was capitalized and amortized over five years,
the term of the lease. Amortization expense was $5,833 for the year ended
October 31, 1994 and $35,000 for the year ended October 31, 1993. The lease
agreement expired December 31, 1993.
COVENANT NOT-TO-COMPETE
A covenant not-to-compete was entered into with the previous
shareholder of Rage. This amount, valued at $200,000, was capitalized and
amortized on a straight-line basis over five years, the term of the agreement.
Amortization expense was $6,667 for the year ended October 31, 1994 and $40,000
for the year ended October 31, 1993. The agreement expired December 31, 1993.
GOODWILL
The purchase price in excess of the fair value of the net assets of
Rage acquired was $105,446. This amount is being amortized over 20 years.
Amortization expense was $5,110 for the years ended October 31, 1995, 1994 and
1993.
OTHER
Included in other assets as of October 31, 1995 and 1994 are certain
deferred financing fees incurred in connection with the issuance of long-term
debt (Notes 4 and 5). In connection with the conversion of long-term debt, in
December 1994, the Company wrote-off the related deferred financing fees (Note
5).
F - 11
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 3. INCOME TAXES (BENEFIT)
Effective November 1, 1993, the Company changed its method of
accounting for income taxes to comply with Statement of Financial Accounting
Standards (SFAS) No. 109, "ACCOUNTING FOR INCOME TAXES." A requirement of SFAS
No. 109 is that deferred tax assets and liabilities be recorded for any
temporary differences between the financial statement and tax bases of assets
and liabilities, using the currently enacted tax rate expected to be in effect
when the taxes are actually paid or recovered. In accordance with SFAS No. 109,
the Company elected to adopt this statement prospectively in fiscal year 1994 by
determining an adjustment for the cumulative effect on prior years of the change
in method of accounting for income taxes. At November 1, 1993, the cumulative
effect on prior years of adopting SFAS No. 109 was $ - 0 -.
Total income tax expense (benefit) amounted to $-0- in 1995, 1994 and
1993 (effective tax rates of 0%, 0%, and 0%, respectively) compared to income
tax expense (benefit) of ($132,000), ($333,000), and ($445,000) computed by
applying the statutory rate of 34.0% to loss before income taxes. These
differences are accounted for as follows:
<TABLE>
<CAPTION>
1995
PERCENT OF
AMOUNT PRETAX LOSS
------ -----------
<S> <C> <C>
Computed "expected" tax benefit ($132,000) (34.0)%
Decrease in benefit due to
valuation allowance provided for
deferred tax assets 132,000 34.0 %
--------- -----
$ - 0 %
--------- -----
--------- -----
1994
PERCENT OF
AMOUNT PRETAX LOSS
------ -----------
Computed "expected" tax benefit ($333,000) (34.0)%
Decrease in benefit due to valuation allowance
provided for deferred tax assets 333,000 34.0 %
-------- ------
$ - 0 %
--------- ---
--------- ---
</TABLE>
F - 12
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 3. INCOME TAXES (BENEFIT) (CONTINUED)
<TABLE>
<CAPTION>
1993
----
Percent of
Amount Pretax Loss
------ -----------
<S> <C> <C>
Computed "expected" tax benefit ($445,000) (34.0)%
Decrease in benefit resulting from
limitation on recognition of net
operating loss carryforward 445,000 34.0 %
-------- -----
$ - 0 %
-------- -----
-------- -----
</TABLE>
Deferred income tax assets (liabilities) result from differences in the
recognition of revenues and expenses for income tax and financial reporting
purposes.
The net deferred tax assets at October 31, 1995 and 1994 include the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax asset $1,123,000 $916,000
Deferred tax liability (125,000) (82,000)
Valuation allowance for deferred tax asset (998,000) (834,000)
----------- ---------
$ - $ -
---------- --------
---------- --------
</TABLE>
The Company has recorded a valuation allowance for its entire net
deferred tax asset at October 31, 1995 and 1994 since management believes
that it is more likely than not that the deferred tax asset will not be
realized.
The tax effect of major temporary differences that gave rise to the
Company's net deferred tax assets at October 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net operating loss carryforward $1,123,000 $916,000
Depreciation (125,000) (82,000
--------- --------
$ 998,000 $834,000
--------- --------
--------- --------
</TABLE>
F - 13
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 3. INCOME TAXES (BENEFIT) (CONTINUED)
Income tax expense (benefit) for the year ended October 31, 1993 was
computed in accordance with the provisions of Accounting Principles Board
Opinion No. 11, "ACCOUNTING FOR INCOME TAXES."
As of October 31, 1995, the Company has available net operating loss
carryforwards of approximately $3,211,000 and $3,116,000 that may be applied
against taxable income and alternative minimum taxable income, respectively.
These carryforwards expire at various dates through fiscal 2010.
NOTE 4. NOTE PAYABLE
Effective May 28, 1993, Danzer entered into a loan and security
agreement (the "Agreement") with Fremont Financial Corporation comprised of a
revolving credit facility (the "Facility") and an equipment term loan (the "Term
Loan"). The amount available under the Facility is based on a defined percentage
of eligible accounts receivable and inventory. The Company had drawn $645,045
at October 31, 1995 which represented 56% of the amount available under the
Agreement at that date. The maximum amounts available under the Facility and
the term loan are $1,150,000 and $350,000, respectively. Borrowings under the
Agreement accrue interest at prime plus 4.5% (13.25% at October 31, 1995). The
Agreement was amended most recently on June 23, 1995, extending the term of the
Agreement to January 31, 1997 (Note 5).
Under the terms of the Agreement, borrowings are collateralized by
real estate and Danzer's accounts receivable, inventory and equipment.
Borrowings are also guaranteed personally by the President of the Company,
limited to a defined amount. The Agreement provides for certain restrictions
including, but not limited to, that the Company shall not without prior consent
of the lender: a) sell, lease, transfer, exchange or otherwise dispose of any
assets except in the ordinary course of business; b) enter into any merger,
consolidation, or acquisition of any other business organization; c)guaranty or
otherwise become in any way liable with respect to the obligations of any third
party; or d) change its ownership by greater than 10%. The Agreement also
restricts: payment of compensation and loans and advances to executives,
officers, directors and certain others; capital expenditures to a specified
level; and distributions to Danzer's Parent. For the year ended October 31,
1995, the Company was in compliance with these covenants. For the year ended
October 31, 1994, the Company received a waiver as a result of noncompliance
with certain of these covenants.
F - 14
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 5. LONG-TERM DEBT
On April 25, 1991, the Company issued to Renaissance Capital
Partners, Ltd. ("Renaissance") an unsecured 12 1/2% convertible debenture (the
"1991 Debenture"), convertible into common stock, with a face value of
$1,250,000.
On December 30, 1992, Global entered into a second unsecured
12 1/2% convertible debenture (the "1992 Debenture") with Renaissance for
$350,000.
Effective December 31, 1994, Renaissance exchanged the $1,600,000
aggregate amount of 1991 and 1992 debentures for an aggregate of 16,000 shares
of the Company's Series B Cumulative Convertible Senior Preferred Stock. In
addition, Renaissance agreed to exchange the accrued but unpaid interest on the
Debentures through September 30, 1994, totaling $211,635 for a 10% Term Note
(the "Term Note") originally due December 31, 1997. (Notes 6 and 7).
As a result of the conversion of the Renaissance Debentures
effective December 31, 1994, the Company no longer has an obligation to meet the
minimum financial standards and ratios under the terms of the Debentures. In
addition, the 10% Term Note contains no covenant default provisions and a
default occurs only for failure to pay principal or interest when due.
As of October 31, 1995, the Company had not paid interest in the
approximate amount of $16,500 on the Term Note due to Renaissance and is
therefore in default of the Term Note Agreement. As of October 31, 1995, the
lender had waived its right to demand payment of the principal amount of the
Term Note of $211,635 until December 31, 1996. The lender has not waived the
payment of any past due or future quarterly interest payments.
In connection with the conversion, the Company wrote-off
approximately $87,000 of related deferred financing costs in December 1994.
F - 15
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 5. LONG-TERM DEBT (CONTINUED)
The President of the managing General Partner of Renaissance is
also a Director of the Company. Interest expense incurred to Renaissance in
1995, 1994 and 1993 was $21,164, $200,000 and $191,968, respectively.
Consolidated long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
1995 1994
---- ----
<S> <C> <C>
Revolving note payable to Fremont Financial
due January 1997 (Note 4) $ 645,045 -
Note payable to joint venture;
interest-free, principal due December 31, 1996 (Note 6) 345,000 $ 345,000
Mortgage payable to Midlantic Bank
(formerly Continental Bank);
Interest due monthly at 9 1/2%; remaining principal
balance of $354,866 due April 30, 1997;
collateralized by land and building with a
cost of approximately $527,000 354,866 365,269
12 1/2% convertible debentures payable to Renaissance - 1,600,000
10% Term Note payable to Renaissance;
Interest payable quarterly commencing March 31,
1995; principal due December 31, 1996 211,635 211,635
Term Loan payable to Fremont Financial;
monthly principal payments of $5,833 plus interest
at prime plus 4.5%; principal due June 1997 116,667 180,833
Term Loans payable to US Amada, Ltd.;
monthly principal payments ranging from $3,450 to
$9,063 plus interest at 8.5% to 8.75%; final balance
due October 1, 1999; collateralized by equipment 465,037 600,956
Other 3,244 38,299
----------- -----------
2,141,494 3,341,992
Less - current portion (195,061) (692,209)
----------- -----------
Total long-term debt $1,946,433 $2,649,783
----------- -----------
----------- -----------
</TABLE>
F - 16
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 5. LONG-TERM DEBT (CONTINUED)
Maturities on long-term debt as of October 31, 1995 are as
follows:
1996 $ 195,061
1997 1,727,930
1998 136,491
1999 82,012
----------
$2,141,494
----------
----------
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS
The Company had net sales of approximately $12,400,000 for the
year ended October 31, 1995 (a 6% increase over the prior year) and a net loss
of $388,934. Working capital increased approximately $627,000 from 1994 to 1995
to a positive balance of approximately $86,000 at October 31, 1995.
Stockholders' equity increased by $913,000 to approximately $560,000 at October
31, 1995.
The Company has experienced difficulty executing a portion of its
backlog due to its shortage of working capital. The Company was required to
supply a performance bond for approximately $167,000 related to the completion
of a certain contract which occurred in the second quarter of its fiscal year
ending October 31, 1994. The requirement is for a term of 24 months which will
expire March 1, 1996, which will make the funds available. The Company
satisfied the requirements of the performance bond by executing a letter of
credit, which letter of credit is collateralized by a certificate of deposit
(restricted cash) of $167,894. In addition, the Company's Danzer subsidiary is
limited to making distributions of no more than 75% of its net cash flow (as
defined) to the Company's parent, providing that Danzer maintains a minimum net
worth, which net worth was not maintained at October 31, 1995.
In the opinion of management, the Company's weakened financial
condition has been caused by the weak economic climate which has negatively
affected the capital goods market where the Company markets its products. It
appears that the capital goods market improved somewhat in 1995, having a
positive effect on the Company's 1995 results from operations. The backlog at
the Company's Danzer subsidiary has been growing. However, the backlog at the
Company's Rage subsidiary as of January 31, 1996 has decreased from its average
level over the last few years which may adversely affect the Company's results
of operations in fiscal 1996.
F - 17
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS
(CONTINUED)
During the fourth quarter of fiscal 1993, the Company acquired
the rights to manufacture and sell a product line consisting of utility truck
bodies (Morrison) which is similar to a product currently manufactured by the
Company. The Company has begun production of the line and has in place a sales
force and distributor network to market the product. A portion of the sales of
this product, generally approximating 5%, will be paid as a royalty to the
seller of this product line to the Company. In fiscal 1995 and 1994, the
Company had sales of approximately $1,200,000 and incurred royalties of $66,000
and $58,000, respectively. The Company anticipates increased Morrison sales in
fiscal 1996, which should increase coverage of the Company's fixed manufacturing
overhead.
During the first quarter of fiscal 1994, the Company entered into
a joint venture agreement (the "Agreement") with Cadema Corporation ("Cadema").
The joint venture has been capitalized by Cadema with $350,000 in cash and by
Global with $1,000 in cash. The joint venture's principal objective is to
provide the partners with current income by contracting for the design and
installation of air pollution control equipment in its name in all areas of the
world outside the United States and its territories. The term of the Agreement
expires December 31, 1998, unless otherwise extended. Income or loss from the
joint venture will be allocated 51% to Cadema and 49% to the Company. The
Agreement allows Global, subject to certain conditions, to acquire Cadema's
interest in the joint venture for 875,000 shares of Global common stock or
$350,000 in cash or an amount equal to Cadema's capital account, whichever is
greater, subject to certain antidilution provisions. The Agreement also allows
for quarterly distributions of income and capital to the joint venture partners.
The Company had borrowed approximately $364,000 from the joint venture as of
October 31, 1995.
In September 1994, the Company completed a 10% Cumulative
Convertible Senior Preferred Stock offering whereby 7,550 shares were issued.
The Company realized $662,150 of net proceeds, after placement fees and expenses
of approximately $93,000. The funds were used to expand the Company's new
Morrison product line and provide working capital for overall business activity.
F - 18
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS
(CONTINUED)
Effective December 31, 1994, Renaissance exchanged the $1,600,000
aggregate amount of 1991 and 1992 convertible debentures for an aggregate of
16,000 shares of the Company's Series B Cumulative Convertible Senior Preferred
Stock (Notes 5 and 7).
As of October 31, 1995, the Company was in compliance with the
loan covenants with Fremont Financial Corporation and had received waivers of
such noncompliance from the lender concerning the year ended October 31, 1994.
In addition, the terms of the Loan and Security Agreement with Fremont were
modified in 1995 and extend payment of principal until January 1997.
As of October 31, 1995, the Company was in default under the Term
Note due to Renaissance (Note 5). The lender has waived its right to demand
payment of the principal amount of the Term Note of $211,635 until December 31,
1996. (The original due date was December 31, 1997.) The lender did not waive
any interest payments.
In addition, the terms of the mortgage debt of $354,866 on the
Company's premises (which debt was in default as a result of nonpayment by the
Company on its original due date of April 1, 1995) were modified in January 1996
and the maturity date extended until April 30, 1997.
In early February 1996, the Company's revolving loan payable to
Fremont Financial Corporation was increased by $200,000. The increase enables
the Company to borrow $200,000 in excess of their allowed borrowings under the
revolving loan agreement (Notes 4 and 5) and provides additional working
capital for overall business activity.
In light of the Company's backlog at October 31, 1995, its
projected cash flow from operations and the market for capital equipment, it is
anticipated that the Company will be dependent on increased sales, higher profit
margins and/or further infusions of capital in order to sustain its operations.
The Company recognizes that the proceeds received from various equity offerings
may not be sufficient to fund its current backlog and provide sufficient working
capital for fiscal 1996. The Company's ability to meet certain interest and
principal payments, as well as its working capital needs to execute its backlog
and generate sales volume during fiscal 1996, will be dependent upon the success
of the Company's efforts to increase sales volume, as well as the profitability
of new business. If it becomes likely that the Company is unable to meet its
scheduled interest and principal payments on its debt securities, the Company
may need to examine the restructuring of these instruments or the sale of
certain assets to satisfy all or a portion of these outstanding liabilities.
F - 19
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 6. FINANCING ARRANGEMENTS, OPERATIONS AND MANAGEMENT'S PLANS
(CONTINUED)
If such efforts to increase the level of business and
profitability and/or obtain an infusion of capital are unsuccessful, the Company
may need to consider additional steps to reduce costs, generate working capital
and improve operating efficiencies to sustain its operations. Such steps may
involve the sale of certain assets, the consolidation of operating activities,
the sale or discontinuance of a line of business, reductions in staff or other
measures, the effect of which is the reduction of expenses, conservation of
cash, and/or generation of working capital. The Company is also currently
attempting to limit cash outlays, aggressively collect accounts receivable and
channel all available resources into its sales function in order to continue all
operations on the basis that it can further increase its backlog and sales
revenue. The Company believes that the long-term prospects for the industries
in which the Company operates are positive and therefore, offer Global
opportunity for revenue growth. However, due to the unpredictable course of the
U.S. economy, and the lack of environmental regulation enforcement, the
realization of this revenue growth cannot be assured.
NOTE 7. STOCKHOLDERS' EQUITY (DEFICIENCY)
On May 7, 1990, the Company's stockholders approved a stock
option plan to issue both "qualified" and "non-qualified" stock options. Under
the Plan, 800,000 options to purchase shares of the Company's common stock may
be issued at the discretion of the Company's Board of Directors. The option
price per share will be determined by the Company's Board of Directors, but in
no case will the price be less than 85% of the fair value of the common stock on
the date of grant. Options under the Plan will have a term of not more than ten
years with accelerated termination upon the occurrence of certain events. As of
October 31, 1995 there were 375,000 options outstanding. Exercise prices ranged
from $.30 to $.48 per share with 200,000 options, 150,000 options and 25,000
options exercisable at $.30, $.35, and $.48 per share, respectively. At October
31, 1994, there were 305,000 options outstanding. Exercise prices at October 31,
1994 ranged from $.48 to $1.50 per share with 125,000 options, 30,000 options,
10,000 options, 100,000 options and 40,000 options exercisable at $.48, $.56,
$1.19, $1.27, and $1.50 per share, respectively. No options have been exercised
as of October 31, 1995. During the year ended October 31, 1995, 350,000 options
were granted and 280,000 options were terminated.
F - 20
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 7. STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
In connection with a legal settlement during 1994, the Company
issued 30,770 shares of common stock, par value $.0001 per share, and warrants
to purchase 75,000 shares of common stock through February 9, 1997 at $1.00 per
share, subject to adjustment as defined.
In connection with a consulting agreement effective November 2,
1994, the Company issued warrants to purchase 100,000 shares of common stock
through November 1, 1999 at $.50 per share, subject to adjustment as defined.
During 1994, Global Environmental Corp. completed a private
placement offering by selling 7,550 shares of its 10,500 authorized shares of
10% Cumulative Convertible Senior Preferred Stock (the "10% Senior Preferred
Stock") at a stated value of $100 per share. The Company raised $662,150, net
of placement fees of $92,850 as a result of the offering. Commencing September
30, 1994, dividends are cumulative, payable quarterly in arrears at an annual
rate of $10 per share. Total dividends declared during 1994 were $75,500, of
which $28,794 were unpaid as of October 31, 1995. The 10% Senior Preferred Stock
is voting and convertible into the Company's Common Stock, $.0001 par value, at
$.50 per share subject to anti-dilution adjustment and is equivalent to
approximately 1,510,000 common shares at October 31, 1995. The Senior Preferred
Stock is subject to redemption, at a price of $100 per share plus accrued but
unpaid dividends, at the option of the Company provided certain conditions are
met. Effective April 30, 1995, the Company registered the shares of common stock
issuable upon conversion of the Senior Preferred Stock under the Securities Act
of 1933.
Effective December 31, 1994, Renaissance exchanged the $1,600,000
aggregate amount of 1991 and 1992 Debentures (the "Debentures") (Note 5) for an
aggregate of 16,000 shares of the Company's Series B Cumulative Convertible
Senior Preferred Stock (the "Series B Stock"), par value $.001 per share, stated
value $100 per share. The Company raised $1,511,319 net of legal and other costs
of $88,681 incurred in connection with the offering. Commencing December 31,
1994, dividends are cumulative, payable quarterly in arrears at an annual rate
of $10 per share. Total dividends declared during 1995 of $133,333 were payable
as of October 31, 1995. The Series B Stock is voting and convertible into common
stock at $.50 per share, subject to anti-dilution adjustment, and is equivalent
to approximately 3,200,000 common shares, $.0001 par value, at December 31,
1994. The Series B stock is subject to redemption at a price of $100 per share
plus accrued but unpaid dividends at the option of the Company, provided certain
conditions are met.
F - 21
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 7. STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
The 10% Cumulative Convertible Preferred Stock and the Series B
Stock require the Company to comply with certain affirmative and negative
covenants including, but not limited to, the timely filing of financial
statements. In addition, it limits the Company's ability to issue new
indebtedness, issue other classes of preferred stock, pay dividends on the
Company's common stock, purchase equity securities, increase executive
compensation, enter into liens and acquire new businesses, among other items.
The Company is also subject to registration requirements under certain
circumstances. As of October 31, 1995, the Company was in violation of certain
of the above covenants. If certain of the violations remain uncured for twelve
consecutive months, the holders of the Series B Preferred Stock become entitled
to vote as a separate class on certain significant matters.
NOTE 8. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Amounts classified as "costs and estimated earnings in excess of
billings on uncompleted contracts" and "billings in excess of costs and
estimated earnings on uncompleted contracts" in the accompanying consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
1995 1994
---- ----
<S> <C> <C>
Costs incurred on uncompleted contracts $1,906,150 $2,256,268
Estimated earnings 514,822 462,956
---------- ----------
2,420,972 2,719,224
Less - billings-to-date 2,674,716 2,720,867
---------- ----------
($ 253,744) ($ 1,643)
---------- ----------
---------- ----------
Included in the accompanying consolidated
balance sheets under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 77,518 $ 50,972
Billings in excess of costs and estimated
earnings on uncompleted contracts (331,262) (52,615)
----------- -----------
($253,744) ($ 1,643)
----------- -----------
----------- -----------
</TABLE>
F - 22
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 9. CONTRACT RECEIVABLES
Included in accounts receivable in the accompanying consolidated
balance sheets are the following receivables on contracts:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
1995 1994
---- ----
<S> <C> <C>
Completed contracts $357,500 -
Contracts-in-progress 425,103 $269,715
-------- --------
$782,603 $269,715
-------- --------
-------- --------
</TABLE>
NOTE 10. NET LOSS PER SHARE AMOUNTS
Net loss per share is calculated after deducting dividends earned
on preferred stock ($208,835 and $11,742 in fiscal 1995 and 1994, respectively)
from the net loss and dividing by the weighted average number of shares of
common stock outstanding during the period. The assumed conversions of the 10%
and Series B Cumulative Convertible Senior Preferred Stock and assumed exercise
of stock options and warrants have not been considered in the calculations of
loss per share, since the effect of such conversions/exercise would be
antidilutive.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Rent expense was approximately $25,000, $25,000 and $80,041 for
the years ended October 31, 1995, 1994, and 1993, respectively.
The Company has an employment contract with an officer. This
contract requires the Company to pay an aggregate annual salary of approximately
$134,000 plus bonuses based on pretax earnings of certain subsidiaries and/or on
a consolidated basis. The contract expires in 1996 and is automatically
renewable for successive one-year terms unless cancelled.
As of October 31, 1995, the Company had outstanding purchase
commitments with its vendors totaling approximately $758,000 for the completion
of customer contracts.
F - 23
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
One of the Company's subsidiaries has a contributory defined
benefit pension plan covering all eligible employees who have elected to
participate in the Plan. It is the Company's policy to fund pension costs as
determined by the Plan's actuary. The weighted average discount rate and
expected rate of return on long-term assets used in determining the actuarial
present value of the projected benefit obligation were 6% and 7%, respectively.
The actuarial information included below, which is as of January 1, 1994, is for
the Plan's fiscal year ended December 31, 1994, and is the most recent available
information.
<TABLE>
<CAPTION>
Pension expense for the year ended December 31, 1994, was as
follows:
<S> <C>
Benefits earned (service cost) $ 5,791
Interest expense on projected benefit obligation 27,233
Actual return on Plan assets 19,819
Other items (43,217)
-------
$9,626
------
------
</TABLE>
A summary of the status of the Plan as of January 1, 1994, is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Pension benefit obligation:
Projected benefit obligation:
Vested ($414,625)
Non-vested (1,307)
----------
(415,932)
Plan assets at fair value 269,895
---------
Funded status (146,037)
Unrecognized gain 15,129
Deferred transition gain/loss 71,224
---------
Accrued pension expense ($59,684)
---------
---------
</TABLE>
The Company also has a defined contribution 401(k) plan which
permits voluntary employee contributions up to 6% of compensation and which
provides Company contributions up to 3% of employee compensation. 401(k) plan
expense for each of the years ended October 31, 1995, 1994 and 1993 was
approximately $13,000, $12,000 and $18,000, respectively.
F - 24
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On August 25, 1993, Global Environmental Corp. (the "Company")
entered into a royalty agreement structured as an asset sale and purchase
agreement (the "Agreement") with Morrison Industries, L.P., DIP, a Delaware
Limited Partnership, (the "Seller"), to buy certain "Intangible" and "Tangible"
assets of the Seller, as defined. In consideration of the sale, the Company is
required to pay monthly to the Seller, 5% of "Qualified Revenues" as defined,
during years 1 through 5 of the Agreement and 2 1/2% of Qualified Revenues, up
to $2,000,0000 during years 6 through 10 of the Agreement. In addition, the
Agreement stipulates certain annual and quarterly minimum sales levels and
requires the Seller to enter into a non-compete agreement indefinitely. Royalty
expenses for 1995 and 1994 were $66,000 and $58,000, respectively, of which
$15,000 and $38,000 were due at October 31, 1995 and 1994, respectively.
As of October 31, 1995, Rage is a defendant in a personal injury
lawsuit relating to a defect in a product provided by Rage. Since the lawsuit is
in the early stage of discovery the exact nature of the allegations is unknown.
The Company intends to vigorously defend such claim. Although damages claimed
by the plaintiff significantly exceed the Company's insurance coverage, the
Company and outside counsel believe that the case will be settled within the
Company's insurance policy limits.
NOTE 12. SEGMENT INFORMATION AND PARENT COMPANY FINANCIAL STATEMENTS
Danzer Metal Works Company, a wholly-owned subsidiary of Global,
is principally engaged in the design, manufacture and installation of fabricated
metal products.
Rage, Inc. a wholly-owned subsidiary of Global, is engaged in the
business of engineering and supplying pneumatic material handling systems.
<TABLE>
<CAPTION>
The following represents financial information for each of the
Company's reportable industry segments:
Danzer Rage Other Total
------ ---- ----- -----
<S> <C> <C> <C> <C>
Net Sales $7,418,000 $5,001,000 $ - $12,419,000
---------- ---------- --------- -----------
---------- ---------- --------- -----------
Income (loss) from operations
(before management fee) ($103,000) $200,000 ($183,000) ($86,000)
---------- ---------- --------- --------
---------- ---------- --------- --------
Depreciation, amortization and
write-off of deferred financing fees $205,000 $29,000 $132,000 $366,000
---------- ---------- --------- --------
---------- ---------- --------- --------
</TABLE>
F - 25
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
NOTE 12. SEGMENT INFORMATION AND PARENT COMPANY FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
The following represents financial information for each of the
Company's reportable industry segments: (CONTINUED)
Danzer Rage Other Total
------ ---- ----- -----
<S> <C> <C> <C> <C>
Identifiable Assets
Cash and cash equivalents $183,000 $ - $146,000 $329,000
-------- ------- -------- --------
Restricted cash - $168,000 - $168,000
------- -------- ------- --------
Accounts receivable $906,000 $815,000 - $1,721,000
-------- -------- ------- ---------
Inventories $790,000 $142,000 - $932,000
-------- -------- ------- --------
Property, plant and equipment, net $1,764,000 $62,000 $470,000 $2,296,000
---------- ------- -------- ----------
Other $33,000 $162,000 $ 61,000 $256,000
------- -------- -------- --------
Capital expenditures $ 93,000 $ 4,000 - $ 97,000
-------- ------- -------- --------
</TABLE>
See Note 1 for summary of significant accounting policies. Segment
information for fiscal years prior to October 31, 1995 is unavailable. The
"other" column above represents general corporate overhead expenses of the
Company's parent corporation, incurred in the management of the consolidated
group. Such expenses have not been allocated to the Company's subsidiaries (as
"management fees") in the presentation shown above.
The financial statements of the parent company (Global Environmental Corp.
or "Corp.") have not been separately presented because the segment information
above provides the relevant information pertaining to such financial statements.
Corp.'s assets, exclusive of its investments in and advances to subsidiaries,
represent cash of $146,000, property, plant and equipment of $470,000, and
immaterial other assets. All of the Company's preferred stock and substantial
amounts of long-term debt are also recorded on Corp.'s balance sheet.
Since Corp.'s only significant source of revenue and cash to pay interest
on debt, dividends on preferred stock and corporate overhead results from
management fees charged to its Rage and Danzer subsidiaries, and such management
fees are limited due to the lack of profitability and positive cash flow of
these, subsidiaries as well as certain restrictions on the ability of those
subsidiaries to pay distributions or dividends to Corp., available cash to pay
interest and principal on debt, dividends on preferred stock and/or dividends on
common stock, is severely constrained.
F - 26
