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The following items which were the subject of a Form 12b-25 are included herein:
Item 6 - Management's Discussion and Analysis and Item 7 - Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-KSB/A-1
[X] AMENDMENT NO. 1 TO THE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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: 0-1561
____________________________
GREEN ISLE ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0780999
(State of Incorporation) (I.R.S. Employer
Identification No.)
410 11TH AVENUE SOUTH
HOPKINS, MINNESOTA 55343
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (612) 935-7798
___________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.1875 per share
___________________________
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- --------------------------------------------------------------------------------
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
Green Isle Environmental Services, Inc. (f/k/a Reuter, Inc.) (the
"Company") is currently engaged principally in the business of contract
manufacturing of precision machined products and assemblies. The Company
manufactures, among other items, close tolerance bearing-related assemblies for
the medical device industry. The Company discontinued its former waste
processing business prior to 1994 and the manufacture of plastic waste
containers during 1994. The Company completed the sale of its waste processing
facility in Eden Prairie, Minnesota in late 1994 and is in the process of
selling its container manufacturing equipment. The Company continues to own,
through a wholly-owned subsidiary, a waste processing facility in Pembroke
Pines, Florida which is subject to a November 1, 1992 agreement with a lender
described in the following paragraph.
In November 1992, the Company entered into an agreement with the lender to
the Pembroke Pines Facility and a management agreement with Reuter Recycling of
Florida, Inc. (the "Florida Subsidiary"). Under these agreements, the Company
no longer is required to fund any future construction costs or operations of the
Pembroke Pines Facility following the $2.4 million equity contribution (which
the Company made in 1992). Pursuant to these agreements, the Company
acknowledged a continuing pledge of the stock of the Florida Subsidiary to the
lender. As a result of these agreements, the Company has effectively given up
control and any future economic interest associated with ownership for the
Pembroke Pines Facility except for management fees for managing the plant
pursuant to the management agreement. These agreements are more fully discussed
in Note 4 of the Notes to Consolidated Financial Statements included in this
Report. As a result of these agreements, the Company deconsolidated the Florida
subsidiary from its consolidated financial statements effective November 1,
1992. In June 1995, the Company entered into an agreement to sell all of the
stock of the Florida Subsidiary to a third party. Upon closing under this
agreement, the Company's management responsibilities and related fees will
terminate. The Company has also agreed not to compete with the business of the
Florida Subsidiary for a period five years after the closing. Proceeds from the
sale will be paid to the lender to the Florida Subsidiary and not the Company.
On January 1, 1994, the Company's wholly owned subsidiary, EPR, Inc.
("EPR"), ceased operations of its waste processing facilities in Eden Prairie,
Minnesota. On September 1, 1994, EPR sold substantially all of its assets for
$3.8 million, which resulted in a gain of $1,914,534. The net proceeds of
$3,768,809 from the sale were used to repay a portion of the debt underlying the
EPR facility. The Company retained all liabilities of EPR, including the
balance of the loan underlying the facility, which was guaranteed by the
Company.
On September 12, 1994, the Company entered into a preliminary agreement
with the lender of the debt underlying the EPR facility. Pursuant to this
agreement, the lender agreed not to pursue its rights against the Company under
the guaranty in exchange for: (a) a senior subordinated secured note for
$2,750,000 with interest at 8% per year (interest to be payable monthly and
principal to be payable in quarterly installments of $75,000 beginning in 1997
and ending on July 1, 1999, when all outstanding principal interest is due); (b)
a junior subordinated secured note for $1,000,000 with interest at 8% per year
(principal and interest to be paid from excess cash flow from operations, if
any, with all outstanding principal and interest due on July 1, 1999); and (c) a
net
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operating loss sharing agreement under which the Company will make annual
payments to the lender of an amount equal to any tax savings related to its net
operating loss carry forwards. The Company and the lender are actively
finalizing these agreements although there can be no assurance an agreement will
be finalized. See Notes 2 and 6 to Notes to Consolidated Financial Statements.
The Company was incorporated in 1956 as a Minnesota corporation. The
principal executive offices of the Company are located at 410 - 11th Avenue
South, Hopkins, Minnesota 55343. Its telephone number is (612) 935-7798. The
term "Company" as used in this Report includes Green Isle Environmental
Services, Inc. and all of its subsidiaries, unless the context otherwise
requires.
PRODUCTS AND MARKETS
CONTRACT MANUFACTURING. The Company manufactures highly engineered
products and sub-assemblies on a contract basis. In the past year, the Company
has directed its emphasis toward the manufacture of bearing related assemblies
for the medical device industry such as blood centrifuges, and toward other
medical products such as components for patient oxygen delivery systems. The
Company continues its activity in prototype development for other medical
products which is expected to result in future orders. The Company also has
expanded its business of contract manufacturing of precision parts for
industrial use, such as gas pressure regulators and a wide range of piece parts
for paint equipment, brakes and fluid power equipment. These efforts have
resulted in additional revenue growth for the Company.
The basic specifications and tolerances for the products produced by the
Company are initially provided by the customer and the Company is involved early
in design review and development to effect potential long-term cost reductions
and performance improvements. Upon receiving an initial order from a customer,
the Company designs and manufactures the tooling required to produce the device
to the customer's specifications and tolerances. Castings, springs, bearings
and similar parts are purchased by the Company, and the parts are machined and
assembled at the Company's plant.
During 1994, the Company ceased production of most spindles for computer
rigid disk drives because the Company's principal customer shifted its sourcing
overseas; the Company continues, however, to repair disk drive spindles for a
number of computer companies.
PROPRIETARY PRODUCTS. In 1994, the Company decided to diversify its
contract manufacturing business by manufacturing and selling of proprietary
products (those carrying the Company name). The Company has developed and is
manufacturing and marketing centrifuges for continuous removal of contaminants
from lubricating oil in internal combustion engines and expects to add
additional products in this and related centrifuge fields. During late 1994,
the Company negotiated for the purchase of a line of rotary vane actuators,
which was completed in January 1995. The Company is now manufacturing and
marketing rotary vane actuators at its facility in Hopkins, Minnesota.
MARKETING AND CUSTOMERS
The Company's precision machining manufacturing services are sold through
the Company's own sales representatives or manufacturer's representatives. The
Company usually enters into long-term production arrangements with most of its
customers. During the year ended December 31, 1994, sales to Haemonetics
Corporation and Caire Inc. accounted for approximately 44% and 18%
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of total sales, respectively. The Company believes that termination of orders
from Haemonetics would have a material adverse effect on its business. In
addition, sales to Seagate Technology, Inc. in Singapore in 1994 amounted to
approximately $1.3 million (approximately 11% of total sales) and is related to
the computer industry sales of the Company. Such sales effectively ceased after
March 31, 1994. See Note 10 to Notes to Consolidated Financial Statements.
SUPPLIES
The raw materials used by the Company in its manufacturing operations
generally are reasonably available. The Company seeks to maintain multiple
sources of the parts and material it purchases from suppliers; however, certain
significant customers limit and/or designate specific suppliers that may be used
for parts that are included in the final assembly. The availability of such
parts and materials could affect the Company's ability to fill customers' orders
on a timely basis. Management of the Company believes that interruption of its
relationships with suppliers would not have a material adverse effect over the
long-term, as parts and materials suitable for the production of its products
would be available from other suppliers.
The Company generally manufactures its products to a customer's
specifications on a contract basis, and does not carry significant amounts of
inventory to meet rapid delivery requirements of customers or to assure a
continuous allotment of goods from suppliers. The Company does not provide
extended payment terms to customers. To its knowledge, the practices of the
Company's competitors relating to working capital items are similar to the
practices of the Company.
COMPETITION
Each of the manufacturing businesses in which the Company engages is highly
competitive. Many of the competitors of the Company have greater sales and
resources than the Company. The principal elements of competition are quality,
service, delivery, price and meeting customer requirements. Management believes
the Company accounts for only a small portion of aggregate national sales of
products of the type it produces.
RESEARCH AND DEVELOPMENT
The Company conducts research and development activities primarily related
to prototype development of its medical and industrial products. However, the
Company does not consider these research or development activities to be
material. The Company provides, however, engineering services to support
customers in the development of new products including reverse engineering and
improvements of current products.
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BACKLOG
On March 8, 1995 the Company's backlog was approximately $6 million,
compared to approximately $3.9 million on March 8, 1994. Management believes
that all of such backlog can reasonably be expected to be filled during the
current year, and that additional orders will be received during the current
year. The usual time period between receipt of an order and the first delivery
of the product by the Company is approximately 3 to 6 months. The delivery
period for repair orders generally is shorter than the period for the initial
order.
EMPLOYEES
As of March 8, 1995, the Company (excluding Pembroke Pines) had 113
employees in its manufacturing operations. The Pembroke Pines Facility employed
30 persons.
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As described in Note 4 of the Notes to Consolidated Financial Statements
included in this Report on Form 10-KSB, the Company entered into an agreement
with the lender for the Pembroke Pines Facility in November 1992, effectively
removing from the Company control and the future economic risks and benefit of
ownership of the facility. Accordingly, effective the date of that agreement,
Reuter Recycling of Florida, Inc. (the "Florida Subsidiary") was no longer
included in the Company's consolidated financial statements. As also described
in Note 4 of the Notes to the Consolidated Financial Statements in June 1995,
the Company entered into an agreement to sell all of the stock of the Florida
Subsidiary, which had been pledged to the construction lender, to an unrelated
third party. Proceeds from the sale will be paid to the lender to the Florida
Subsidiary and not the Company. As discussed in Notes 3 and 4 of the Notes to
Consolidated Financial Statements included in this Report on Form 10-KSB, the
Eden Prairie facility ceased operations effective January 1, 1994. The results
of operations from the Florida Subsidiary through the date of deconsolidation
and the results of operations from the Eden Prairie subsidiary are shown in the
Statements of Operations as discontinued waste processing operations for all
periods presented.
RESULTS OF OPERATIONS
CONTINUING MANUFACTURING OPERATIONS
Continuing operations consist primarily of the precision machining
business, which manufactures certain medical products and other precision
machined parts on a contract basis. The Company also began development and
manufacturing of proprietary products during 1994. The Company has sold most of
the equipment used in its plastics manufacturing operations and substantially
all plastics manufacturing ceased effective August 1994.
4
<PAGE>
The Company's net revenues from continuing operations decreased by 31% in
1994 from 1993, compared to a decrease of 29% in 1993 from 1992. The lower net
revenues in 1994 as compared to both 1993 and 1992 was due primarily to the loss
of revenues of computer disk drive spindles from Seagate Technology, Inc.
("Seagate"), the Company's primary customer prior to 1994. Sales to Seagate
were approximately $1,700,000, $10,400,000, and $19,500,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. The lost revenue was partially
offset by increased sales of medical products and related contract manufacturing
products of approximately $4,600,000 in 1993 to $7,400,000 in 1994.
As discussed above, a significant portion of the Company's sales had been
to Seagate prior to 1994. Shipments of products to Seagate effectively ended
March 31, 1994. Due to the significant dependence of the Company on this
customer, the Company has made substantial efforts to increase revenues through
the addition of new customers, primarily in the medical products industry.
Management believes that sales of medical products, which generally generate
higher margins than disk drive spindle sales, along with actions to reduce costs
will allow the Company to partially replace the effect of the lost Seagate
business. In 1994, the Company developed an oil centrifuge for use in removing
contaminants from lubricating oil used in internal combustion engines. In the
first quarter of 1995 the Company purchased the rights to exclusively produce
and sell an existing line of rotary vane actuators. The oil centrifuge and
rotary actuators are expected to provide incremental revenue in 1995 and beyond.
The manufacture of other proprietary items will also be explored by management.
During 1994, the Company had operating income from continuing operations of
$144,036 compared to an operating loss of $81,829 in 1993, and operating income
of $814,550 in 1992. The improvement in 1994 was primarily due to a shift in
the sales mix toward higher margin medical products. Medical product sales from
the Company's two principal customers accounted for over 61% of net sales for
1994 as compared to over 26% of net sales for 1993. The 1994 operating income
and 1993 operating loss include valuation writedowns for certain plastics
manufacturing equipment held for sale of $177,752 and $214,000 for the years
ended December 31, 1994 and 1993, respectively.
The Company achieved income from continuing operations of $57,210 or $.02
per share in 1994 compared to a loss from continuing operations of $128,191 or
$.04 per share in 1993 and income from continuing operations of $397,223 or $.13
per share in 1992. The 1994 income from continuing operations resulted
primarily from an increase in operating income stemming from a change in the
sales mix towards higher margin medical products and $120,000 of management fees
received for management of the Florida waste processing facility on behalf of
the underlying lender. The loss from continuing operations in 1993 compared to
the income from continuing operations in 1992 was due primarily to the decrease
in sales to Seagate in 1993, partially offset by $140,000 of management fees
related to the Florida facility. In connection with the sale of Reuter
Recycling of Florida stock pledged to the underlying lender, the Management
Agreement and related fees for the Florida facility will terminate upon closing
on an agreement to sell to a strategic buyer entered into on June 1, 1995.
Gross margin was 19.1% in 1994 compared to 12.2% in 1993 and 14.2% in 1992.
The higher gross margin in 1994 was primarily due to the change in product mix
towards higher margin medical products coupled with cost reduction measures
taken in the first half of 1994, including staff
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reductions. Gross margin in 1992 was higher than 1993 due primarily to the
effects of higher production volumes in 1992.
Selling, General and Administrative Expenses were $1,972,302 or 16.4% of
net revenues for 1994, compared to $1,999,403 or 11.5% of net revenues in 1993
and $2,678,578 or 10.9% of net revenues in 1992. The net decrease in these
expenses is primarily due to reductions in the Company's corporate
administrative staff, reduction in depreciation related to the EPR facility and
increases in selling related expenses. The Company continues to incur
additional professional fee expenses related to the continuing troubled debt
restructuring.
The Company had no taxable income, and accordingly, recorded no provision
for income taxes in 1994, 1993 or 1992. A deferred tax liability of $200,000
was recorded as the cumulative effect of an accounting change upon the adoption
of SFAS No. 109 in the first quarter of 1993. During the fourth quarter of
1993, the $200,000 deferred tax liability was reversed in connection with the
shutdown of the Eden Prairie facility. (See Note 8 of the Notes to the
Consolidated Financial Statements included in the Company's 1994 Form 10-KSB.)
The effect of inflation on the Company's consolidated results has not been
significant.
DISCONTINUED WASTE PROCESSING AND WASTE COLLECTION OPERATIONS
As described in Note 3 of the Notes to Consolidated Financial Statements in
the Company's 1994 Form 10-KSB, the Company undertook a formal plan to dispose
of its remaining waste processing and recycling operation located in Eden
Prairie, Minnesota during the fourth quarter of 1993. The Company wrote-down
the carrying value of this facility to its estimated net realizable value, which
resulted in a charge against earnings of $10,800,000 in 1993. In 1994, an
additional charge of $120,000 was recorded to reflect holding period costs
incurred in addition to those accrued at December 31, 1993. The Eden Prairie
facility ceased operations effective January 1, 1994 and in September 1994 the
Company closed on the sale of all of the assets of EPR for approximately $3.8
million. These net proceeds exceeded the carrying value of the EPR assets by
approximately $1.9 million, resulting in a gain on disposal.
The proceeds from the sale of the assets of EPR, Inc. have been used to
repay a portion of the debt originally underlying EPR, Inc. The Company
retained all liabilities of EPR, Inc., including the balance of the loan
underlying the facility (the "EPR loan") which is guaranteed by the Company. As
described in Note 3 "Discontinued Operations" in this form 10-KSB, the Company
entered into a preliminary settlement agreement with the lender of the debt
underlying EPR, Inc. on September 12, 1994. Pending finalization of the
preliminary agreement, the lender has agreed not to pursue its rights against
the Company under the parent company guarantee of the EPR loan in return for a
Senior Subordinated Note for $2,750,000, a Junior Subordinated Note for
$1,000,000, an agreement to share any benefit the Company derives in the future
through use of net operating loss carryforwards (See Note 2 to the Consolidated
Financial Statements), and a warrant to purchase 3,178,780 shares, exercisable
only in the event of an "ownership change" in respect to the Company. In
addition, there is to be a "Standstill Agreement" feature to the loan
restructuring agreement whereby certain officers would agree not to buy or sell
stock in the Company while the agreement is in effect. In return, such officers
management would receive compensation in the first year after the loan
restructuring agreement is signed and future compensation based on increases,
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if any, to the value of the Company's stock. Management and the lender have
been actively negotiating for a final settlement agreement. If a final
settlement agreement is not reached during the third quarter of 1995, management
may elect to seek protection for the Company under U.S. bankruptcy laws. There
can be no assurance that the agreement will be finalized (see "Liquidity and
Capital Resources").
Total net losses from discontinued operations were $361,935, $14,200,635
and $7,002,568 in 1994, 1993 and 1992, respectively.
NET LOSS
The net loss in 1994 was $304,725 or $.09 per share compared to net losses
of $14.5 million or $4.55 per share and $6.6 million or $2.09 per share in 1993
and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has negative working capital and is in payment and
technical default of the terms in the EPR, Inc. loan agreement and is also in
violation of certain covenants of its demand line of credit agreement. The
Company had a working capital deficiency of $17,219,561 at December 31, 1994,
compared to a working capital deficiency of $19,057,833 at December 31, 1993.
The current ratio at December 31, 1994 was .14 compared to .17 at December 31,
1993.
The working capital deficit includes the Eden Prairie debt because the
entire remaining balance of this loan has been classified as a current liability
as a result of the payment, technical and other defaults described in Notes 3
and 6 of the Notes to the Consolidated Financial Statements included with this
form 10-KSB. The Eden Prairie debt is guaranteed by the Company. As noted
before under the caption "Discontinued Waste Processing Operations," the Company
has sold the Eden Prairie Facility and has signed a preliminary settlement
agreement with the Eden Prairie lender, which includes a release from the parent
Company guarantee of the debt and the parent entering into new agreements with
the lender if the agreement is finalized. Management desires definitive
agreements to be executed during the third quarter of 1995, although there can
be no assurance that the agreement will be finalized. If a final settlement is
not reached by this time, management may elect to seek protection under U.S.
bankruptcy laws. Until such an agreement is finalized, under the terms of the
original loan agreement, as a result of the payment and technical defaults, the
lender can demand repayment of the entire outstanding balance of the loan. In
addition, the lender can demand payment of the default interest which is 2%
higher than the stated interest rate of 11.85 %. Interest accruals reflecting
the incremental charge for the higher default interest rate are included in the
results for all of 1994, 1993, and 1992, respectively.
As discussed in Notes 2 and 6 of the Notes to the Consolidated Financial
Statements, the Company has a line of credit agreement with an asset based
lender which is collateralized by the assets associated with the manufacturing
operations. The Company is in violation of certain financial and technical
covenants contained in this line of credit agreement, which could result in the
lender discontinuing advances and demanding repayment of all outstanding
borrowings which totalled $2,063,477 at December 31, 1994. Due to the default
conditions discussed above and borrowing limits related to available collateral,
it is possible that the Company will not be able to borrow sufficient amounts
against this line to meet all the operating cash needs of the Company.
7
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In addition, there can be no assurance that the asset based lender will continue
to disregard these covenant violations in the future. If the lender takes any
action to reduce the availability of funds to the Company, there may not be
sufficient liquidity to continue operations. As described in Note 6 of the
Notes to the Consolidated Financial Statements, the Company amended its line of
credit agreement in January 1995 effectively granting the Company an additional
$125,000 in borrowing capacity. The additional funds were essentially used to
finance the product acquisition of an existing line of rotary vane actuators.
As of June 13, 1995, the Company had borrowed approximately $2,108,000 and had
additional availability, assuming the lender will continue making advances, of
approximately $95,000 under this line.
The Company had positive cash flow from operations for the periods ending
December 31, 1994 and 1993, respectively. However, the Company's ability to
meet its continuing manufacturing operations cash flow requirements in the
future, is dependent on increasing net revenues and margins in the manufacturing
business.
Management anticipates making capital expenditures to support
diversification and growth of the Manufacturing Operations. Near term capital
commitments for new manufacturing equipment currently total approximately
$200,000. The Company desires to raise capital for these requirements through
vendor or other asset-based lending arrangements although there is no assurance
the Company will successfully raise such funds.
The Company generated $614,306 of cash from operations (including
discontinued operations) during 1994, compared to $337,938 for the year ended
December 31, 1993 and cash used by operations of $730,303 for the year ended
December 31, 1992. Cash used by investing activities (including discontinued
operations) was $13,382 for the year ended December 31, 1994, compared to cash
provided by investing activities (including discontinued operations) of $540,503
for the year ended December 31, 1993 and cash used in investing activities
(including discontinued operations) of $613,575 for the year ended December 31,
1992. Net cash used by financing activities (including discontinued operations)
was $713,695, $656,560 and $629,040 for the years ended December 31, 1994, 1993
and 1992, respectively. As discussed earlier, the EPR facility was sold for
$3.8 million in September 1994. The proceeds from this sale were used to repay
a portion of the accrued interest on the debt underlying the EPR facility.
The Company's ability to meet its cash flow requirements in the future
depends on successfully restructuring the loan underlying the EPR facility which
is guaranteed by the Company, and improving sales and margins in the
manufacturing business. In the future, the Company intends to attract new
customers in the medical and industrial fields and one such new customer has
been acquired for 1995; several other prospects have been identified.
Additionally, the Company intends to emphasize sales of proprietary products and
to add new proprietary items as they can be identified and evaluated. As
success occurs for medical and proprietary products, there will be a lessening
emphasis on general contract manufacturing. Again, there can be no assurance
that any of these events will occur.
In summary the Company currently has negative working capital and is in
default under the terms of two outstanding loan agreements. Either of these two
lenders could, at any time, demand full payment of the underlying debt, which
the Company would be unable to satisfy, in which case the Company may be forced
to seek protection under U.S. Bankruptcy laws.
8
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ITEM 7. FINANCIAL STATEMENTS.
The following Financial Statements and Independent Accountants Report
thereon are included herein (page numbers refer to pages in this Amendment):
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants.............................. 10
Consolidated Balance Sheets as of December 31,
1994 and 1993................................................ 13
Consolidated Statements of Operations for the years
ended December 31, 1994, 1993 and 1992....................... 14
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992................. 15
Consolidated Statment of Cash Flows for the years ended
December 31, 1994, 1993 and 1992............................. 17
Notes to Consolidated Financial Statements..................... 19
</TABLE>
9
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Green Isle Environmental Services, Inc.:
We have audited the consolidated financial statements and financial
statement schedule of Green Isle Environmental Services, Inc. (f/k/a Reuter,
Inc.) and Subsidiaries (the Company) included on pages 13 to 43 of this
Amendment No. 1 to Form 10-KSB. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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.
As discussed in Note 4, effective November 1, 1992, the Company
entered into an agreement with a lender to one of its subsidiaries (Reuter
Recycling of Florida, Inc.) pursuant to which the Company effectively gave up
any future economic interest in or management control associated with ownership
of Reuter Recycling of Florida. In connection with this agreement, the Company
deconsolidated the accounts of Reuter Recycling of Florida effective November 1,
1992. Accordingly, the assets and liabilities of Reuter Recycling of Florida
are not included in the Company's consolidated balance sheets as of December 31,
1994 and 1993. The net losses from Reuter Recycling of Florida for the ten-
month
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period ended October 31, 1992, are included in the loss from discontinued waste
processing operations in the Company's consolidated statement of operations for
the year ended December 31, 1992. Subsequent to October 31, 1992, the Company
has not recorded further losses of Reuter Recycling of Florida.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Green
Isle Environmental Services, Inc. and Subsidiaries as of December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
These consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. The following matters raise substantial doubt about the Company's
ability to continue as a going concern:
. As discussed in Notes 2, 3 and 6, at December 31, 1994, a subsidiary of the
Company (EPR, Inc.) is in payment default and is in violation of a technical
covenant and certain other covenants in connection with financing underlying
the Eden Prairie waste processing facility. These violations could result in
acceleration of the scheduled repayment of the Eden Prairie facility loan,
which is guaranteed by the Company. On September 1, 1994, all assets of the
Eden Prairie facility were sold. Proceeds from the sale were used to repay a
portion of the debt underlying the facility. The Company has retained all
liabilities of the facility including the balance of the loan and accrued
interest underlying the facility. On September 12, 1994, the Company entered
into a preliminary settlement agreement with the lender whereby the lender
agreed not to pursue its rights against the Company under the parent
guarantee
11
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contingent upon finalization of a final debt settlement agreement. If the
Company is unable to reach such a settlement agreement with the lender, the
lender could foreclose the loan and exercise its rights under the guarantee
by the Company. This could force the Company to seek protection under U.S.
bankruptcy laws.
. As discussed in Notes 2 and 6, the Company is in violation of certain
covenants contained in its demand line of credit agreement (the Agreement).
These violations could result in the lender discontinuing advances to the
Company and demanding immediate repayment of all outstanding borrowings under
the Agreement.
. In March 1994, the Company's primary customer discontinued placing orders for
products manufactured by the Company's continuing precision manufacturing
operations.
. The Company has suffered significant losses in each of the three years ended
December 31, 1994, and has a significant excess of current liabilities over
current assets and a stockholders' deficiency.
Management's plans concerning these matters are also described in
Note 2. The financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of these
uncertainties.
As discussed in Note 8, effective January 1, 1993, the Company
changed its method of accounting for income taxes.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis Minnesota
March 3, 1995, except as to the
last paragraph of Note 4,
Note 7 - Warrants and the last
paragraph of Note 12, for
which the date is June 1, 1995.
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<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, December 31, 1994 and 1993
--------
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 209,192 $ 321,963
Investments, restricted 250,000 250,000
Accounts receivable, net of allowances of
$20,685 at December 31, 1994 and $8,000
at December 31, 1993 1,387,124 1,425,369
Inventories 917,329 1,294,320
Other current assets 23,828 119,582
Other assets held for sale 50,000 356,534
------------ ------------
Total current assets 2,837,473 3,767,768
Net property, plant and equipment 4,425,257 4,569,425
Net assets of Eden Prairie facility held for sale 1,974,275
Other assets 551
------------ ------------
Total assets $ 7,262,730 $ 10,312,019
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Debt of Eden Prairie facility guaranteed by
parent company, including accrued interest
of $1,117,716 and $2,730,056 in 1994 and
1993, respectively $ 16,626,079 $ 18,238,419
Current maturities of long-term debt 151,981 111,185
Borrowings under line of credit 2,063,477 2,650,350
Accounts payable, trade 602,340 1,038,647
Accrued expenses 613,157 787,000
------------ ------------
Total current liabilities 20,057,034 22,825,601
Long-term debt, less current maturities 267,385 168,505
Other long-term liabilities 243,009 317,886
Stockholders' equity (deficiency):
Preferred stock, par value $.01 per share;
authorized 2,500,000 shares, none issued
Common stock, par value $.1875 per share;
authorized 9,000,000 shares; issued and out-
standing: 3,191,520 shares in 1994 and 1993 598,410 598,410
Additional paid-in capital 13,710,596 13,710,596
Accumulated deficit (27,613,704) (27,308,979)
------------ ------------
Total stockholders' equity (deficiency) (13,304,698) (12,999,973)
------------ ------------
Total liabilities and stockholders'
equity (deficiency) $ 7,262,730 $ 10,312,019
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
13
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992
---------
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net sales $12,026,221 $ 17,452,338 $24,542,218
Less:
Cost of sales 9,121,078 14,593,628 20,279,806
Depreciation 611,053 727,136 769,284
----------- ------------ -----------
Gross profit 2,294,090 2,131,574 3,493,128
Selling, general and administrative
expenses 1,881,313 1,810,293 2,588,291
Depreciation 90,989 189,110 90,287
Valuation writedown, other assets
held for sale 177,752 214,000
----------- ------------ -----------
Operating income (loss) 144,036 (81,829) 814,550
----------- ------------ -----------
Other income (expenses):
Interest income 13,013 34,218 61,537
Interest expense (366,789) (394,281) (320,827)
Management fees 120,000 140,000
Other, net, principally gain on
sale of assets in 1994 146,950 173,701 (158,037)
----------- ------------ -----------
Total other expense (86,826) (46,362) (417,327)
----------- ------------ -----------
Income (loss) from continuing
operations 57,210 (128,191) 397,223
----------- ------------ -----------
Cumulative effect of accounting change (200,000)
Discontinued operations:
Loss from discontinued waste process-
ing operations (2,276,469) (2,793,635) (5,583,445)
Loss from discontinued refuse
collection operations (60,618)
Gain (loss) on disposal of waste process-
ing assets, including provision of
$120,000 in 1994 and $257,000 in 1993
for operating losses during the
phase-out period 1,914,534 (11,407,000) (1,045,554)
Loss on disposal of refuse collection
assets (312,951)
----------- ------------ -----------
Loss from discontinued operations (361,935) (14,200,635) (7,002,568)
----------- ------------ -----------
Net loss $ (304,725) $(14,528,826) $(6,605,345)
----------- ------------ -----------
----------- ------------ -----------
Net loss per common share data:
Income (loss) from continuing operations $ .02 $ (.04) $ .13
Cumulative effect of accounting change (.06)
Loss from discontinued operations (.11) (4.45) (2.22)
----- ------ ------
Net loss per share $(.09) $(4.55) $(2.09)
----- ------ ------
----- ------ ------
Weighted average number of shares
outstanding 3,191,520 3,191,520 3,158,733
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
14
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the years ended December 31, 1994, 1993 and 1992
---------
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Balances, December 31, 1991 3,158,643
Net loss
Amortization of stock bonus shares
Common stock issued under employee stock purchase
plan 34,260
Bonus shares forfeited (1,383)
---------
Balances, December 31, 1992 3,191,520
Net loss
Balances, December 31, 1993 3,191,520
Net loss
---------
Balances, December 31, 1994 3,191,520
---------
---------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Retained
Additional Unamortized Earnings
Paid-In Cost of Stock (Accumulated
Par Value Capital Bonus Shares Deficit)
- --------- ----------- ------------- ------------
<S> <C> <C> <C>
$592,245 $13,682,586 $(92,821) $ (6,174,808)
(6,605,345)
86,045
6,424 34,527
(259) (6,517) 6,776
- -------- ----------- -------- ------------
598,410 13,710,596 - (12,780,153)
(14,528,826)
- -------- ----------- -------- ------------
598,410 13,710,596 - (27,308,979)
(304,725)
- -------- ----------- -------- ------------
$598,410 $13,710,596 - $(27,613,704)
- -------- ----------- -------- ------------
- -------- ----------- -------- ------------
</TABLE>
16
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
for the years ended December 31, 1994, 1993 and 1992
---------
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (304,725) $(14,528,826) $ (6,605,345)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 701,442 2,236,824 2,586,505
(Gain) loss on sales of assets (148,612) 285,284 35,071
Provision for uncollectible receiv-
ables 12,685 5,000 27,039
Provision for (adjustment of) write-
down and phase-out costs for
assets of discontinued operations
held for sale (1,794,534) 11,169,412 1,302,554
Provision for writedown of other
assets held for sale and
inventories 244,125 338,069 115,000
Net loss of deconsolidated Florida
Subsidiary funded in prior years 760,439
Cumulative effect of accounting
change 200,000
Changes in operating assets and
liabilities, excluding effects
of Florida Subsidiary deconsoli-
dation in 1992:
Accounts receivable 25,560 (631,563) 2,667,329
Inventories 310,618 275,187 497,210
Other assets 96,305 (126,139) 100,747
Accounts payable (436,307) (599,522) (1,479,694)
Accrued expenses, primarily
interest 2,204,604 1,946,527 (644,906)
Accrued retirement and severance (307,109) 168,749 (88,557)
Other liabilities 10,254 (401,064) (3,695)
------------ ------------ ------------
Net cash provided (used) by
operating activities 614,306 337,938 (730,303)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment 387,250 88,500 49,625
Proceeds from sale of assets of
discontinued operations 163,465 81,457
Additions to property, plant and
equipment (400,632) (461,462) (773,487)
Decrease in short-term investments,
restricted 750,000 65,000
Increase in deferred financing costs (36,170)
------------ ------------ ------------
Net cash provided by (used in)
investing activities (13,382) 540,503 (613,575)
------------ ------------ ------------
</TABLE>
Continued
17
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Increase (Decrease) in Cash and Cash Equivalents
for the years ended December 31, 1994, 1993 and 1992
---------
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of long-term debt $ (126,822) $ (192,152) $ (1,066,257)
Proceeds from short-term borrowings 11,904,429 17,559,529 27,591,088
Repayment of short-term borrowings (12,491,302) (18,023,937) (27,194,822)
Proceeds from sales of common stock 40,951
------------ ------------ ------------
Net cash used by financing
activities (713,695) (656,560) (629,040)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (112,771) 221,881 (1,972,918)
Cash and cash equivalents, beginning
of period 321,963 100,082 2,073,000
------------ ------------ ------------
Cash and cash equivalents, end of
period $ 209,192 $ 321,963 $ 100,082
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow
information:
Cash paid for:
Interest $ 4,137,160 $ 472,555 $ 3,041,037
Noncash investing and financing
activities:
Purchase of equipment in exchange
for notes payable 266,498 126,735 38,896
Equipment exchanged in connection
with equipment purchase, at
net book value 9,749 102,000
Proceeds from sale of EPR assets
paid directly to EPR lender 3,768,809
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
18
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
1. SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements include, as continuing operations,
the accounts of Green Isle Environmental Services, Inc. and its precision
manufacturing and container manufacturing operations (Green Isle or the
Company), and as discontinued operations, its wholly owned subsidiaries,
EPR, Inc. (Eden Prairie Waste Processing Facility) and Can-It, Inc.
(Note 3). As described in Note 4, the accounts of Reuter Recycling of
Florida, Inc., a wholly owned subsidiary (Reuter Recycling of Florida),
were deconsolidated effective November 1, 1992. The loss from operations
up to the date of deconsolidation (November 1, 1992) has been recorded as
part of the Consolidated Statements of Operations and the assets and
liabilities of Reuter Recycling of Florida are not included in the
Consolidated Balance Sheets. All significant intercompany accounts and
transactions, except for transactions subsequent to November 1, 1992
between Green Isle and Reuter Recycling of Florida pursuant to terms of a
management agreement following deconsolidation as described in Note 4, have
been eliminated in consolidation. As discussed in Note 3, the waste
processing operations of the Company (including EPR, Inc. and Reuter
Recycling of Florida) were discontinued in 1993 and the results of their
operations are presented separately as a component of the loss from
discontinued operations in the Consolidated Statements of Operations.
CASH EQUIVALENTS:
For financial statement purposes, the Company considers all overnight
investments in bank repurchase agreements and all bank certificates of
deposits, with initial maturities of less than three months, to be cash
equivalents. The Company had no cash equivalents at December 31, 1994 or
1993.
ACCOUNTS RECEIVABLE:
A significant portion of the Company's accounts receivable are due
primarily from two customers (see Note 10). The Company performs ongoing
credit evaluations of its customers, generally does not require collateral
and maintains an allowance for potential credit losses.
Continued
19
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
INVENTORIES:
Manufacturing:
Inventories are valued at the lower of cost or market with cost determined
on a first-in, first-out basis.
Waste Processing and Recycling (discontinued operations):
Inventoriable costs associated with paper-based fuel products, hereafter
referred to as Refuse Derived Fuels or RDF, produced at the Eden Prairie
waste processing facility (prior to cessation of operations), and costs
associated with compost produced at the Florida waste processing facility
(prior to deconsolidation) are not significant and are expensed as
incurred. The Company has included an accrual for estimated costs
associated with holding and disposition of RDF quantities totaling $139,045
in the Consolidated Balance Sheets at December 31, 1993.
DEFERRED FINANCING COSTS:
Costs associated with obtaining financing underlying the Eden Prairie waste
processing facility were initially capitalized but were charged to the loss
from discontinued operations in 1993 because these costs have no remaining
value as the Company is in default of this loan agreement and is attempting
to negotiate a settlement with the lender (see Notes 2, 3 and 6).
PROPERTY, PLANT AND EQUIPMENT:
Property, Plant and Equipment Used in Operations:
Property, plant and equipment are recorded at cost, including the
amortization during the construction period of debt issuance costs and
interest on funds borrowed to finance the construction of major capital
additions. All direct and incremental costs associated with major capital
additions, including those associated with securing underlying sites and
permits, are capitalized as a cost component of the respective plant
facility.
Depreciation is provided for by the straight-line method based on estimated
useful lives ranging from 3 to 40 years.
Continued
20
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
PROPERTY, PLANT AND EQUIPMENT, continued
Property, Plant and Equipment Used in Operations, continued:
Expenditures for major renewals and betterments are capitalized, and
expenditures for maintenance and repairs are charged to operations as
incurred. Upon retirement or other disposition of property, applicable
cost and accumulated depreciation are eliminated from the accounts. Any
gains or losses are included in operations.
REVENUE RECOGNITION:
Manufacturing:
The Company recognizes sales revenues associated with precision
manufacturing and container manufacturing products when these products are
shipped to customers.
Waste Processing and Recycling (discontinued operations):
Revenues from fees charged to waste haulers were recognized when waste was
received at the Company's waste processing facilities (prior to cessation
of operations). Revenues from materials recycled as part of waste
processing operations were recognized when these materials were shipped to
customers.
Waste processing facility management fee revenues are recognized when
services are provided.
INCOME TAXES:
The Company accounts for income taxes using the liability method. The
liability method provides that deferred tax assets and liabilities are
recorded based on differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes
using enacted tax rates in effect in the years in which the differences are
expected to reverse.
Investment and energy tax credits are accounted for using the flow-through
method in the year utilized for income tax reporting purposes, or in the
year recognized as deferred tax assets.
Continued
21
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
LOSS PER SHARE:
Loss per common share data is computed by dividing loss data by the
weighted average number of shares of common stock outstanding during each
period. Common stock equivalents were excluded from loss per share
computations as their effect would be antidilutive.
2. BASIS OF PRESENTATION:
The Company's consolidated financial statements have been presented on the
basis that it will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business. Conditions and uncertainties associated with this
basis of presentation as well as management's plans concerning these
matters are described in the following paragraphs.
EDEN PRAIRIE FACILITY ASSETS SALE AND DEBT NEGOTIATIONS:
Effective January 1, 1994, the county in which the Eden Prairie waste
processing facility (the facility) operated, substantially reduced the fees
at competing county-owned waste processing facilities. The Company could
no longer attract waste haulers using its existing fee structure and could
not generate sufficient cash to fund operations using the county's fee
structure. Accordingly, the Company ceased operation of the facility
effective January 1, 1994.
During 1993, the Company wrote down the carrying value of the idle facility
to its estimated net realizable value, assuming a sale of the facility.
This writedown resulted in a charge of $10,800,000 (the 1993 writedown)
which was included in the 1993 loss from discontinued operations. The
Company closed on the sale of all of the assets of EPR, Inc. for $3,800,000
on September 1, 1994. The net proceeds of $3,768,809 from the sale have
been used to repay a portion of the debt underlying the EPR, Inc. facility.
These net proceeds exceeded the carrying value of the EPR, Inc. assets by
$1,794,534, resulting in a gain on disposal included in 1994 discontinued
operations, net of an additional $120,000 of holding period costs accrued
prior to the disposition in 1994, as described in Note 3. The Company has
retained all liabilities of EPR, Inc., including the balance of the loan
and accrued interest underlying the facility which is guaranteed by Green
Isle Environmental Services, Inc. (GIES).
Continued
22
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
2. BASIS OF PRESENTATION, continued:
EDEN PRAIRIE FACILITY ASSETS SALE AND DEBT NEGOTIATIONS,
continued:
On September 12, 1994, GIES entered into a preliminary settlement agreement
with the lender of the debt underlying EPR, Inc. whereby the lender agreed
not to pursue its rights against GIES under the parent guarantee of the EPR
debt in return for finalization of the settlement agreement with the
following proposed terms:
(i) A Senior Subordinated Note to the lender for $2,750,000 with
interest at 8% per year, payable monthly on the outstanding
principal balance. Principal payments of $75,000 will be payable
quarterly beginning in 1997 and ending on July 1, 1999, when all
outstanding principal and interest is due.
(ii) A Junior Subordinated Note to the lender for $1,000,000 with
interest to accrue at 8% per year; principal and interest will be
payable from excess cash flow from operations (as defined), if any,
with all outstanding principal and accrued interest due on July 1,
1999.
(iii) A Net Operating Loss Sharing Agreement under which GIES will make
annual payments to the lender of an amount equal to any income tax
savings related to use of its net operating loss carryforwards.
(iv) A warrant to purchase 3,178,780 shares, exercisable only in event of
an "ownership change" in respect of Green Isle for purposes of
Section 382(g)(1) of the Internal Revenue Code of 1986, as amended.
The ownership change would effectively eliminate the NOL Sharing
Agreement obligation ((iii) above) and result in the effective
contribution of any remaining balance of the NOL Sharing Agreement
obligation to contributed capital (stockholders' equity). The
number of shares is to be adjusted in event of any future stock
transactions, to enable the holder to not suffer dilution. The
aggregate proceeds to the Company upon exercise would be $10, in all
cases upon exercise. The warrant will terminate and cease to be
exercisable upon the indefeasible payment in full of all sums due
the lender under the NOL Sharing Agreement (see (iii) above). The
warrant is effectively nondetachable (see (iii) above) and, under
its terms, cannot be sold or transferred.
Continued
23
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
2. BASIS OF PRESENTATION, continued:
EDEN PRAIRIE FACILITY ASSETS SALE AND DEBT NEGOTIATIONS,
continued:
Definitive agreements with the lender have not been executed despite
continuing efforts by management and the lender to negotiate a debt
settlement. There can be no assurance that this debt settlement will
occur.
At December 31, 1994, the Company was in payment default and was in
violation of a technical debt covenant and certain other covenants of the
debt agreement underlying the Eden Prairie facility, and was not able to
obtain a waiver of these defaults from the lender. Under terms of the debt
agreement, the lender may, at its discretion, demand repayment of the
entire outstanding loan balance and exercise its rights under the guarantee
agreement with the Company.
If the Company is unable to reach a settlement agreement with the lender,
or if the lender exercises its right to accelerate the scheduled repayment
of the facility loan, the lender could foreclose the loan and exercise its
rights to proceed against the assets of the Company pursuant to the
guarantee. This could force the Company to seek protection under U.S.
bankruptcy laws and may result in the lender gaining a controlling
ownership interest in the Company.
CORPORATE DEMAND LINE OF CREDIT:
As described in Note 6, the Company is in violation of certain covenants
contained in its demand line of credit agreement. As a result of these
violations, the lender may, at its sole discretion, discontinue making
advances to the Company and demand repayment of all borrowings under the
line of credit.
MANUFACTURING OPERATIONS:
The Company's largest customer during 1993, accounting for approximately
$10.4 million of net sales in 1993, changed its sourcing practices and,
effective March 31, 1994, stopped purchasing the Company's products in
favor of overseas suppliers.
GENERAL:
The Company has also suffered significant losses in each of the last three
years ended December 31, 1994, which have reduced stockholders' equity from
$8,007,202 at December 31, 1991 to a deficit of $13,304,698 at December 31,
1994.
Continued
24
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
2. BASIS OF PRESENTATION, continued:
GENERAL, continued:
The Company's continued existence is dependent on its ability to negotiate
a final settlement agreement with the Eden Prairie facility lender and its
ability to generate sufficient cash flows from continuing manufacturing
operations to meet debt service requirements.
Management's plans and objectives include the following:
A. Negotiate the final terms of a release from the parent company
guarantee of the debt underlying EPR, Inc. (i.e., settlement agreement)
substantially in the form of the preliminary settlement agreement
described above under the caption "Eden Prairie Assets Sale and Debt
Negotiations."
B. Renegotiate the terms and conditions associated with the line of credit
or obtain replacement financing that can support and be serviced by the
manufacturing operations.
C. The Company's Precision Manufacturing operations continue to focus on
maintaining and expanding its medical device customer base and
diversification into industrial parts and components including
marketing of certain proprietary products. Management hopes these
efforts will replace precision manufacturing revenues that were lost
effective March 31, 1994, as discussed on the preceding page.
Management believes that the successful execution of these plans and
attainment of these objectives described above, will allow the Company to
fund operations and service its remaining and any new debts. However,
there can be no assurance that the Company will continue as a going concern
in its current form and it is possible that the Company could be forced to
seek protection under U.S. bankruptcy laws. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
3. DISCONTINUED OPERATIONS:
WASTE PROCESSING OPERATIONS:
As described in Note 2, the Company ceased operation of its EPR facility
effective January 1, 1994 and sold all assets of EPR effective
September 1, 1994. As described in Note 4, the
Continued
25
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
3. DISCONTINUED OPERATIONS, continued:
WASTE PROCESSING OPERATIONS, continued:
Company relinquished any future economic interest in or management control
associated with ownership of Reuter Recycling of Florida (the Company's
only other waste processing and recycling operation) to the underlying
lender and the operations were deconsolidated effective November 1, 1992.
Net revenues from the discontinued Eden Prairie facility operations were
$8,154,547 and $9,342,137 in 1993 and 1992, respectively. The net revenues
of Reuter Recycling of Florida for the ten-month period ended October 31,
1992 are set forth in Note 4.
During 1993, the Company recorded a $10,800,000 charge to writedown the
carrying value of the EPR facility to its estimated net realizable value.
The net assets of the discontinued operations, including the idle Eden
Prairie facility held for sale, as of December 31, 1993 and the 1993 loss
on disposal of discontinued operations as presented in the Company's
consolidated financial statements, include $257,000 of the estimated
holding costs to be incurred and funded by EPR, Inc.
The net assets of the discontinued EPR facility operations as of
December 31, 1993 were $1,974,275. These net assets excluded $18,238,419
of principal and interest owed to the Eden Prairie facility lender at
December 31, 1993, because it is guaranteed by the parent company (Green
Isle) and would not be assumed by any purchaser of the facility.
During 1994, the Company sold all of the assets of EPR for $3,768,809.
These net proceeds exceeded the carrying value of EPR, Inc. assets by
$1,794,534, resulting in a gain on disposal included in 1994 discontinued
operations, net of $120,000 of holding costs incurred prior to the disposal
in 1994. The net proceeds from the sale of $3,768,809 were paid directly
to the EPR lender to repay a portion of the debt underlying the EPR
facility. The Company has retained all liabilities of EPR, including the
loan underlying the facility.
The loss from discontinued waste processing operations for the year ended
December 31, 1994 consists of accrued interest of $2,156,469 and $120,000
of holding period costs which were incurred during 1994 in addition to the
$257,000 of estimated 1994 holding period costs accrued at December 31,
1993. This
Continued
26
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
3. DISCONTINUED OPERATIONS, continued:
WASTE PROCESSING OPERATIONS, continued:
accrual does not include an accrual for the estimated interest that will be
incurred on the debt underlying EPR, Inc. between January 1, 1995 and the
date of final settlement, due to uncertainty of the timing of the ultimate
settlement.
The carrying value of assets and liabilities of Green Isle (the parent
company of EPR, Inc. which has guaranteed the remaining unpaid EPR facility
debt and interest, as of December 31, 1994 and 1993, are summarized as
follows:
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Cash $ 209,192 $ 321,963
Accounts receivable, net 1,387,124 1,425,369
Inventories 917,329 1,294,320
Other current assets 323,828 726,116
------------ ------------
Total current assets 2,837,473 3,767,768
Property, plant and equipment, net 4,425,257 4,569,425
Other assets 551
------------ ------------
Total assets (1) 7,262,730 8,337,744
------------ ------------
LIABILITIES
Notes payable 151,981 111,185
Borrowings under line of credit 2,063,477 2,650,350
Accounts payable and accrued expenses 1,215,497 1,825,647
Investment in net liabilities of
Eden Prairie subsidiary 16,626,079 16,264,144
------------ ------------
Total current liabilities 20,057,034 20,851,326
Long-term liabilities 510,394 486,391
------------ ------------
Total liabilities 20,567,428 21,337,717
------------ ------------
Consolidated net (liabilities)
assets (1) $(13,304,698) $(12,999,973)
------------ ------------
------------ ------------
</TABLE>
Continued
27
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
3. DISCONTINUED OPERATIONS, continued:
WASTE PROCESSING OPERATIONS, continued:
The net (liabilities) assets of Green Isle as of December 31, 1994 and 1993
are comprised of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net assets of Green Isle, excluding
net liabilities of EPR, Inc. (1) $ 3,321,381 $ 3,264,171
Net liabilities of EPR, Inc. (16,626,079) (16,264,144)
------------ ------------
Consolidated net (liabilities)
assets $(13,304,698) $(12,999,973)
------------ ------------
------------ ------------
<FN>
(1) Green Isle has guaranteed the debt underlying the Eden Prairie
facility (see Notes 2 and 6).
</TABLE>
The assets of EPR, Inc. were fully disposed of prior to December 31, 1994.
REFUSE COLLECTION OPERATIONS:
During 1990, the Company undertook a formal plan to dispose of all of its
refuse collection operations. The Company's only remaining refuse
collection operation ceased operations in December 1992. Liquidation of
these assets and settlement of these liabilities was completed during the
second quarter of 1993. The Company had recorded writedowns of the
carrying value of certain assets of this discontinued operation of $257,000
(including accruals for estimating remaining operating losses) in 1992,
based on estimated proceeds to be realized from liquidation of the assets.
The carrying value of the net assets of these discontinued operations was
zero at December 31, 1994 and 1993.
4. DECONSOLIDATION OF REUTER RECYCLING OF FLORIDA, INC.:
During 1992, Green Isle's subsidiary, Reuter Recycling of Florida, was in
payment default with respect to the construction loan underlying the
Florida waste processing facility and, in 1991, was notified of a violation
of a subjective covenant of the construction loan agreement which
constituted a continuing default condition.
Continued
28
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
4. DECONSOLIDATION OF REUTER RECYCLING OF FLORIDA, INC.,
continued:
Effective November 1, 1992, Green Isle and Reuter Recycling of Florida
entered into an agreement with the construction lender to Reuter Recycling
of Florida, which provides that, following a $2.4 million equity
contribution made by Green Isle to Reuter Recycling of Florida in November,
1992, Green Isle has no further financial obligation to make equity
contributions to Reuter Recycling of Florida or to fund operating losses or
construction costs of Reuter Recycling of Florida. In connection with this
agreement, Green Isle acknowledged a continuing pledge of all Reuter
Recycling of Florida stock to the construction lender. In another
agreement between Green Isle and Reuter Recycling of Florida that was
entered into concurrently with the November 1, 1992 agreement described
above, Green Isle continued to manage and administer the Florida waste
processing facility (the Management Agreement) subject to and in accordance
with the standards and limitations provided for in the Management
Agreement. This Management Agreement also specifies that Green Isle is no
longer obligated to fund the operations of Reuter Recycling of Florida.
The Management Agreement required Green Isle to obtain the prior approval
and consent of the construction lender for any significant management
decisions, as defined. As a result of these agreements, Green Isle
effectively gave up any future economic interest and management control
associated with ownership of the Florida waste processing facility. Green
Isle believes that as a result of these agreements, it effectively
eliminated its exposure to future liability associated with the results of
operations of Reuter Recycling of Florida, except for those imposed under
the Management Agreement.
As a result of these agreements, Green Isle deconsolidated Reuter Recycling
of Florida effective November 1, 1992. Accordingly, the assets and
liabilities of Reuter Recycling of Florida are not included in Green Isle's
Consolidated Balance Sheets as of December 31, 1994 and 1993. The net
losses of Reuter Recycling of Florida for the ten-month period ended
October 31, 1992 are included in the loss from discontinued waste
processing operations in the Company's Statements of Operations for the
year ended December 31, 1992. The portion of the net losses of Reuter
Recycling of Florida included in Green Isle's Consolidated Statement of
Operations for the year ended December 31, 1992, and funded by Green Isle
during 1992, are included in "Cash used in operations" of Green Isle's
Consolidated Statement of Cash Flows for the year ended December 31, 1992.
Continued
29
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
4. DECONSOLIDATION OF REUTER RECYCLING OF FLORIDA, INC.,
continued:
Reuter Recycling of Florida revenues and net loss for the ten-month period
ended October 31, 1992 were $8,449,205 and $4,056,199, respectively.
Green Isle has agreed, as part of the agreements with the lender, to
provide certain management and administrative services to Reuter Recycling
of Florida in connection with the operation of the Florida facility. As
compensation for these services, Green Isle receives monthly reimbursements
of direct costs and a monthly management fee of $10,000.
Management fees of $120,000 and $140,000 (including $20,000 of fees
deferred at December 31, 1992, due to certain contingent conditions which
were resolved during 1993) are included in the Company's 1994 and 1993
Consolidated Statements of Operations, respectively. Direct costs incurred
by Green Isle and reimbursed by Reuter Recycling of Florida were $197,019,
$282,140 and $64,500 for the years ended December 31, 1994, 1993 and 1992,
respectively.
In connection with the November 1, 1992 agreements described above, Green
Isle has issued to the lender a warrant to purchase 150,000 shares of
common stock of Green Isle as described in Note 7.
Effective June 1, 1995, the Company entered into an agreement to sell all
of the Reuter Recycling of Florida stock, which had been pledged by Green
Isle to the construction lender of Reuter Recycling of Florida, to an
unrelated third party. Because Reuter Recycling of Florida had previously
been deconsolidated from the Green Isle consolidated financial statements
and Green Isle will receive no proceeds from the sale, the transaction will
have no impact on Green Isle's financial position or results of operations.
The management agreement between Green Isle and Reuter Recycling of Florida
will be terminated upon the close of the sale.
5. SELECTED BALANCE SHEET INFORMATION:
INVENTORIES:
Inventories, associated with the manufacturing segment, are comprised of
the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Raw materials and supplies $340,631 $ 459,527
Work-in-process 576,698 834,793
-------- ----------
$917,329 $1,294,320
-------- ----------
-------- ----------
</TABLE>
Continued
30
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
5. SELECTED BALANCE SHEET INFORMATION, continued:
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, excluding assets associated with
discontinued operations (Note 3), at December 31, 1994 and 1993, was
comprised of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land and related improvements $ 206,995 $ 206,995
Buildings 2,980,608 2,845,015
Machinery and equipment 7,716,254 8,316,637
----------- -----------
Total 10,903,857 11,368,647
Less accumulated depreciation (a) 6,478,600 6,799,222
----------- -----------
Total property, plant
and equipment, net $ 4,425,257 $ 4,569,425
----------- -----------
----------- -----------
Other assets held for sale:
Compost equipment (b) 108,885
Land and building in Green
Isle, MN (c) 34,639
Container manufacturing equip-
ment (d) 50,000 213,010
----------- -----------
Other assets held for
sale $ 50,000 $ 356,534
----------- -----------
----------- -----------
<FN>
(a) Depreciation expense from continuing operations was $701,442, $916,246
and $859,571 for 1994, 1993 and 1992, respectively.
(b) The Company had certain equipment originally purchased for use in
construction of a compost facility to complement the Eden Prairie
waste processing facility. During 1993 and 1992, the Company recorded
$205,000 and $1,045,554 valuation writedowns to reflect this equipment
at its estimated liquidation value. During 1994, all of this
equipment was sold, resulting in a net gain of $1,115.
(c) As a result of management's decision to discontinue waste processing
and recycling operations, this land and building originally purchased
by Green Isle in 1992 for
Continued
31
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
5. SELECTED BALANCE SHEET INFORMATION, continued:
PROPERTY, PLANT AND EQUIPMENT, continued:
future construction of a compost facility to complement the Eden
Prairie waste processing facility operations was written down by
$145,000 in the fourth quarter of 1993 to reflect its estimated
liquidation value. During 1994, the remaining balance of $34,639 was
written off.
(d) During 1994, the Company sold for $10,000 certain idle equipment
previously used by the container manufacturing division with a
carrying value of $19,897. At December 31, 1994, the Company had
additional idle equipment previously used by the container
manufacturing division carried at its estimated liquidation value of
$50,000. Valuation writedowns to estimated liquidation values of
$143,113 and $214,000 were recorded during 1994 and 1993,
respectively, on the above equipment.
</TABLE>
OTHER SELECTED BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accrued expenses, excluding accrued
expenses associated with dis-
continued operations (Note 3):
Interest, excluding accrued
interest associated with
Eden Prairie debt $ 28,243 $ 29,805
Payroll, benefits and related
taxes 291,699 375,792
Legal and accounting 104,850 126,898
Accrued container warranty 140,000 116,635
Accrued retirement and severance 38,496 102,775
Other 9,869 35,095
-------- --------
$613,157 $787,000
-------- --------
-------- --------
</TABLE>
Continued
32
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
6. NOTES PAYABLE AND OTHER FINANCING ARRANGEMENTS:
Notes payable and long-term debt at December 31, 1994 and 1993, consisted
of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Installment note payable by EPR and
guaranteed by Green Isle (see related
Green Isle covenant violation discussed
below under the caption "Asset-based
short-term financing arrangement").
The note is payable in monthly
principal and interest payments of
$251,560 with interest at 11.85% with
the remaining principal balance of $9.7
million due in May 1996. (a) $15,508,363 $15,508,363
Notes payable in monthly principal and
interest installments with interest
ranging from 9% to 13%. Notes mature
from January 1995 to November 1999,
collateralized by vehicles and
equipment with an aggregate carrying
value of $639,142 at December 31, 1994. 419,366 279,690
----------- -----------
Total notes payable, including long-term
debt 15,927,729 15,788,053
Less current maturities, principally
installment note 15,660,344 15,619,548
----------- -----------
Long-term debt, less current maturities $ 267,385 $ 168,505
----------- -----------
----------- -----------
<FN>
(a) In connection with this note, the Company is in payment default and is in
violation of the debt ratio covenant and certain other covenants and has
not been able to obtain a waiver from the lender. Under terms of the
agreement, the lender may, at its discretion, demand repayment of the
entire outstanding note, plus accrued interest (see Note 3). Accordingly,
the entire balance of this note of $15,508,363 at December 31, 1994 and
1993, has been reflected as a current liability. During the period of
default, the lender may elect to increase the interest rate charged on this
note to 13.85% (default rate). The lender did not waive its right to
charge the Company interest at the default rate. Accordingly, the
Company's interest expense and accrued but unpaid interest for the years
ended December 31, 1994 and 1993 includes $392,017 and $314,475 of
incremental default rate interest incurred during 1994 and 1993. In
addition, the lender has the right pursuant to terms of
Continued
33
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
6. NOTES PAYABLE AND OTHER FINANCING ARRANGEMENTS, continued:
the agreement to demand payment for certain transaction costs and to
assess additional late charges for delinquent payments. The lender
has not made such a demand. Accordingly, no such transaction costs or
late charges have been accrued by the Company. As discussed in
Note 3, the Company discontinued its waste processing and recycling
operations during 1993. The loan agreement contains restrictive
covenants which, among other things, require the Company to maintain a
debt to equity ratio of no more than 2.0, as defined, restrict the
payment of cash dividends to the parent, and restrict the purchase,
redemption or retirement of the subsidiary's stock.
</TABLE>
Principal repayment obligations as of December 31, 1994, including amounts
reclassified to currently payable and principal payments in arrears (see
Note 6(a)) are as follows:
<TABLE>
<S> <C>
1995 $15,660,344
1996 116,752
1997 67,375
1998 44,728
1999 38,530
-----------
Total $15,927,729
-----------
-----------
</TABLE>
ASSET-BASED SHORT-TERM FINANCING ARRANGEMENT:
In February 1991, Green Isle entered into a $6 million short-term demand
line of credit arrangement with an asset-based lender. In January 1993,
the term of the demand line of credit agreement was renewed for a two-year
period. In December 1993, the Company reduced the balance of a certificate
of deposit which collateralizes the line of credit from $1,000,000 to
$250,000 and used the $750,000 of proceeds to repay a portion of borrowings
under the line of credit. This certificate of deposit is invested with a
financial services company and is classified as a restricted investment on
the Company's Consolidated Balance Sheets. The line of credit is also
collateralized by all receivables, inventories and property, plant and
equipment of Green Isle, excluding the assets of its subsidiaries.
Interest on borrowings under the line are computed at the prime rate plus
3% (prime rate was 8.5% and 6.0% at December 31, 1994 and 1993,
respectively). In January 1995, the Company amended its loan and security
agreement with its asset based lender. The key elements to the amendment
include reducing the short-term demand line of credit to $4,500,000 and
Continued
34
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
6. NOTES PAYABLE AND OTHER FINANCING ARRANGEMENTS, continued:
ASSET-BASED SHORT-TERM FINANCING ARRANGEMENT, continued:
increasing interest on borrowings to prime plus 3.75%, and increasing
available borrowings $125,000 by increasing the advance rate on the
certificate of deposit which partially collateralizes borrowings under the
line of credit. Funds available to Green Isle pursuant to terms of the
line of credit agreement are dependent upon the level of eligible Green
Isle accounts receivable and plant and equipment, as defined. The Company
is in violation of certain financial and technical covenants of this
agreement and a cross-default covenant due to the defaults described in
Note 6(a). As a result of these default conditions, the lender may, at its
sole discretion declare the Company in default, discontinue making advances
to the Company and demand immediate repayment of borrowings under the line
of credit. If the lender will continue making advances to the Company,
borrowing capacity under this line of credit is approximately $95,000 at
June 13, 1995. The weighted average interest rate was 9.95%, 9.0% and
9.21% for the years ended December 31, 1994, 1993 and 1992, respectively.
7. STOCKHOLDERS' EQUITY:
EMPLOYEE STOCK OPTION PLAN:
The Company had an Incentive Stock Option Plan, that was terminated in
1991, through which options had been granted to employees to purchase
common stock. Under the Plan, 350,000 shares of common stock were
available for grant at exercise prices not less than the fair market value
on the date of grant.
The options vest over periods ranging from two to five years as determined
by the Board of Directors. The options expire ten years from the date of
grant or earlier if the participant's employment is terminated.
Continued
35
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
7. STOCKHOLDERS' EQUITY, continued:
EMPLOYEE STOCK OPTION PLAN, continued:
The following summarizes the option activity under the plan:
<TABLE>
<CAPTION>
Options Options Price
Outstanding Exercisable Per Share
----------- ----------- ---------
<S> <C> <C> <C>
Balances, December 31, 1991 240,000 108,750 $2.63 - $7.00
Options cancelled (110,000) (30,000) $2.63 - $3.50
Options vested 20,000 $2.63 - $3.50
--------- --------
Balances, December 31, 1992 130,000 98,750 $2.63 - $7.00
Options cancelled (35,000) (22,500) $3.50
Options vested 11,250 $2.63 - $3.37
--------- --------
Balances, December 31, 1993 95,000 87,500 $2.63 - $7.00
Options cancelled (55,000) (55,000) $2.63 - $7.00
Options vested 7,500 $2.75 - $3.37
--------- --------
Balance, December 31, 1994 40,000 40,000 $2.75 - $7.00
--------- --------
--------- --------
</TABLE>
1991 STOCK OPTION PLAN:
In 1991, the Board of Directors approved a new stock option plan (1991
Plan) to grant nonstatutory stock options to eligible employees, directors,
consultants and independent contractors of the Company. A total of 200,000
shares of common stock are available for grant under this plan at exercise
prices not less than 50% of the fair market value on the date of grant for
non-incentive stock options and not less than 100% of fair market value on
the date of grant for incentive stock options.
The Board of Directors determine vesting provisions for each option
granted. The options expire ten years from the date of grant or earlier if
the participant's employment is terminated.
Continued
36
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
7. STOCKHOLDERS' EQUITY, continued:
1991 STOCK OPTION PLAN, continued:
The following summarizes the activity under the 1991 Plan:
<TABLE>
<CAPTION>
Options Options Price
Outstanding Exercisable Per Share
----------- ----------- ---------
<S> <C> <C> <C>
Balances, December 31, 1991 50,000
Options granted 60,000 25,000 $1.50 - $1.81
Options cancelled (50,000) $4.25
------- -------
Balances, December 31, 1992 60,000 25,000 $1.50 - $1.81
Options cancelled (10,000) $1.50
Options granted 50,000 $.1875 - $1.50
Options vested 8,750 1.81
------- -------
Balances, December 31, 1993 100,000 33,750 $.1875 - $1.81
Options cancelled (50,000) (13,750) $.1875 - $1.81
Options granted 140,000 $.31 - $.50
Options vested 112,500 $.1875 - $.3125
------- -------
Balances, December 31, 1994 190,000 132,500 $.1875 - $1.50
------- -------
------- -------
</TABLE>
DIRECTORS' STOCK OPTION PLAN:
In 1991, the Board of Directors adopted a new Directors' Stock Option Plan
(new plan) which was approved at the 1992 stockholders' meeting. The Board
reserved 125,000 shares of common stock for grant under this plan to
nonemployee directors at exercise prices not less than the fair value on
the date of grant. Under terms of the new plan, the nonemployee directors
terminated their options under the previous directors' stock option plan
and exchanged them for options issued under the new plan. Options under
the new plan vest over periods ranging from immediately to three years,
based on the directors' term of office, and generally expire one year after
a participating director leaves the Board of Directors.
Continued
37
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
7. STOCKHOLDERS' EQUITY, continued:
DIRECTORS' STOCK OPTION PLAN, continued:
The following summarizes the option activity under the plan:
<TABLE>
<CAPTION>
Options Options Price
Outstanding Exercisable Per Share
----------- ----------- ---------
<S> <C> <C> <C>
Balances, December 31, 1991 50,000
Options vested 36,668 $4.25
Options granted 12,000 $2.25 - $5.13
------ ------
Balances, December 31, 1992 62,000 36,668 $2.25 - $5.13
Options vested 18,665 $2.25 - $5.13
Options granted 22,000 $.625
------ ------
Balances, December 31, 1993 84,000 55,333 $.625 - $5.13
Options vested 13,333 $.625 - $5.13
Options granted
------ ------
Balances, December 31, 1994 84,000 68,666 $.625 - $5.13
------ ------
------ ------
</TABLE>
In April 1991, the Company granted a director an option, which expires if
not exercised by 2001, to purchase up to 20,000 shares of common stock at
$4.88 per share, the fair market value of common stock on the date of
grant. As of December 31, 1994, all of these options are exercisable.
No options were exercised under any of the Company's plans during 1994.
WARRANTS:
In connection with the November 1, 1992, agreements between Green Isle and
the Reuter Recycling of Florida construction lender, as described in
Note 4, Green Isle issued the lender warrants to purchase 150,000 shares of
common stock of Green Isle at a price of $1.5625 per share (fair market
value at the date of issuance). Warrants previously issued by Green Isle
to this lender, to acquire 85,000 shares of common stock at $10.00 per
share were cancelled. The new warrants became exercisable in 1993. The
warrants expire in 2023, except that
Continued
38
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
7. STOCKHOLDERS' EQUITY, continued:
WARRANTS, continued:
if the Management Agreement between Green Isle and Reuter Recycling of
Florida is terminated earlier, the expiration date for the warrant is 60
days after such termination (Note 12).
EMPLOYEE STOCK PURCHASE PLAN:
The Company's 1987 Employee Stock Purchase Plan (the 1987 Plan) was
terminated on December 31, 1991. In 1991, the Company established a new
Employee Stock Purchase Plan which took effect in 1992 (the 1992 Plan).
Under the 1987 Plan, participating employees were allowed to contribute up
to 10% of their annual gross wages to acquire shares of common stock at the
end of each year at 85% of the lower of the market price on the first or
last day of the year. After the end of the year, the Company granted each
participant the right to earn bonus shares equal to 20% of the shares
purchased by the employee. These bonus shares vested over two years. A
participating employee's termination results in forfeiture of all unvested
bonus shares.
Under the 1992 Plan, participating employees were allowed to contribute up
to 10% of their annual gross wages to acquire shares of common stock at the
end of each year at 85% of the lower of the market price on the first or
last day of the year. The aggregate number of shares issued under the plan
could not exceed 200,000 shares. Employees of the Company and certain of
its subsidiaries, who have attained the age of 18 and had completed three
months of employment, were eligible to participate.
At any time prior to December 31, a participating employee could request a
refund of all amounts deducted from their compensation pursuant to the plan
during the year. A participating employee's termination resulted in
automatic withdrawal from the plan.
During 1992, the Board of Directors suspended the 1992 Plan effective
January 1, 1993, and declared all bonus shares previously granted under the
1987 Plan to be fully vested.
Continued
39
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
8. INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
The cumulative effect of this accounting change increased the net loss by
$200,000 for 1993. Prior years' financial statements have not been
restated to apply the provisions of SFAS 109. The net deferred tax
liability at January 1, 1993 resulted from accumulated tax basis
depreciation in excess of accumulated depreciation for financial reporting
purposes which was expected to reverse beyond the expiration periods of
available net operating loss and credit carryforwards.
The following table sets forth the components of the deferred tax assets
and liabilities as of December 31, 1994 and 1993, assuming an effective tax
rate of 40%.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Tax credits available for carryforward
(expire 1999 to 2001) $ 1,330,000 $ 1,330,000
Net operating losses available for carry-
forward (expire 2001 to 2008) 13,928,000 12,560,000
Writedown of discontinued Eden Prairie
facility carrying value for financial
reporting purposes (Note 2) 4,320,000
Accelerated depreciation for tax
reporting purposes (344,000) (4,191,000)
Other future deductible temporary
differences, net 353,000 1,252,000
------------ ------------
Deferred tax assets and liabilities
before valuation allowance 15,267,000 15,271,000
Valuation allowance (15,267,000) (15,271,000)
------------ ------------
Net deferred income taxes - -
------------ ------------
------------ ------------
</TABLE>
Net operating loss carryforwards set forth above exclude the net operating
losses of Reuter Recycling of Florida (Note 4).
As discussed in Note 2, should the Company successfully complete its
settlement negotiations with the lender of the debt underlying EPR,
approximately $7,000,000 of the tax effected net operating loss
carryforwards will not be available.
The Company has established a valuation allowance for any tax benefits for
which management believes, based on the relative weight of currently
available evidence, that it is "more likely than not" that the related net
deferred tax asset will not be realized.
Continued
40
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
8. INCOME TAXES, continued:
Under the Internal Revenue Code, certain stock transactions, including
sales of stock and the granting of warrants to purchase stock, may limit
the amount of net operating loss carryforwards that may be utilized on an
annual basis to offset taxable income in future periods.
In addition, if the Net Operating Loss Sharing Agreement described in
Note 2 is finalized, utilization of Green Isle net operating losses will
initiate payments to the EPR, Inc. lender.
Reconciliation of the income tax computed at the Federal statutory rate to
the actual income tax provision is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Benefit at Federal statutory rate $(103,607) $(4,939,801) $(2,245,817)
Limitation of net operating
loss carryforward benefit 103,607 4,939,801 2,245,817
--------- ----------- -----------
Income tax provision - - -
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
9. EMPLOYEE SAVINGS PLAN:
All employees who are at least 21 years of age and have completed six
months of service and have worked at least 1,000 hours are eligible to
participate in the Company's 401(k) employee savings plan, which was
established in 1991. Employees may contribute from 1% to 20% of their
gross annual wages to the plan. Participants vest in the Company
contributions at a rate of 33% annually beginning one year after their date
of employment. The Company may make matching contributions at the
discretion of the Board of Directors. The Company made a discretionary
contribution of $60,000 in 1994 and 1993 and $15,000 in 1992.
10. SIGNIFICANT CUSTOMER INFORMATION:
Three customers account for net aggregate revenues, expressed as
percentages of total consolidated net sales and revenues, as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------- ---------------------- ----------------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Customer A $5,231,418 43.5% $ 4,587,887 26.3% $ 1,287,515 5.2%
Customer B
(1) 1,685,554 14.0% 10,416,216 59.7% 19,499,008 79.5%
Customer C 2,179,833 18.1%
<FN>
(1) Customer B (Seagate Technology, Inc.) stopped purchasing products from
the Company effective March 31, 1994.
</TABLE>
Continued
41
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------
10. SIGNIFICANT CUSTOMER INFORMATION, continued:
Accounts receivable credit concentrations associated with customers A
(Haemonetics Corporation), B and C (Caire) at December 31, 1994 were
$591,318, $-0- and $602,713, respectively.
For the years ended December 31, 1994 and 1993, export product sales
associated with the manufacturing segment, principally to Singapore,
comprised approximately 10.7% and 35.3% of consolidated net sales and
revenues, respectively.
11. FOURTH QUARTER 1993 ACTIVITY:
As described in Notes 2 and 3, during the fourth quarter of 1993, the
Company recorded approximately $11,000,000 of valuation adjustments and
accruals associated with the discontinued operations of its waste
processing segment. These adjustments are included in the "loss for
discontinued operations" in the 1993 Consolidated Statement of Operations.
12. SUBSEQUENT EVENT:
Effective January 9, 1995, the Company purchased the assets, inventory,
patents and patent applications, trademarks and goodwill associated with
the Vane Rotary Actuation business of The Sollami Company. The purchase
price was $326,154 plus contingent payments equal to 8% of net sales made
each month, for the 48 months beginning in February 1995, of vane rotary
actuators and related parts. To the extent cumulative monthly contingent
payments do not equal a guaranteed minimum additional payment of $295,000
for any 12-month period, the Company will be required to make an additional
payment sufficient to achieve the guaranteed minimum payment.
As described in Note 4, effective June 1, 1995, the Company entered into an
agreement to sell the common stock of Reuter Recycling of Florida which had
been pledged by the Company to the lender. The sale will have no impact on
the Company's financial position or results of operations. The Management
Agreement between Green Isle and Reuter Recycling of Florida (see Note 7 -
Warrants) will be terminated upon the close of the sale.
42
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
---------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Classification of Period Expenses Retirements of Period
-------------- ---------- ---------- ----------- ---------
Year ended Decem-
ber 31, 1992:
Valuation allowance:
Inventories $ 50,893 $ 99,107 $ 35,000 $115,000
Allowance for doubt-
ful accounts 80,000(2) 27,039 71,039(1) 36,000(3)
Accrued warranties 117,550 139,339 40,514 216,375
-------- -------- -------- --------
$248,443 $265,485 $146,553 $367,375
-------- -------- -------- --------
-------- -------- -------- --------
Year ended Decem-
ber 31, 1993:
Valuation allowance:
Inventories 115,000 124,069 114,035 125,034
Allowance for doubt-
ful accounts 36,000(3) 5,000 27,000 14,000(4)
Accrued warranties 216,375 16,460 116,200 116,635
-------- -------- -------- --------
$367,375 $145,529 $257,235 $255,669
-------- -------- -------- --------
-------- -------- -------- --------
Year ended Decem-
ber 31, 1994:
Valuation allowance:
Inventories 125,034 60,411 105,445 80,000
Allowance for doubt-
ful accounts 14,000(3) 15,337 8,652(1) 20,685
Accrued warranties 116,635 110,042 86,677 140,000
-------- -------- -------- --------
$255,669 $185,790 $200,774 $240,685
-------- -------- -------- --------
-------- -------- -------- --------
<FN>
(1) Write-off of accounts receivable.
(2) Includes allowance of $10,000 on accounts receivable of discontinued
operations.
(3) Includes allowance of $25,000 on accounts receivable of discontinued
operations.
(4) Includes allowance of $6,000 on accounts receivable of discontinued
operations.
</TABLE>
43
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTER AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) DIRECTORS OF THE REGISTRANT.
The directors of the Company, their ages, their principal occupation and the
year first elected to office are as follows:
NAME OF PRINCIPAL DIRECTOR
DIRECTORS OCCUPATION AGE SINCE
- -------- ---------- --- -----
Gary W. Laidig Minnesota State Senator 46 1990
James W. Taylor President, Chief Executive 76 1989
Officer and Chief
Financial Officer of the
Company, President of
Taylor Consultants, Inc.
(management and financial
consulting)
Caroline Avey Independent Consultant 38 1992
James H. McGuire President of NJK Holding 51 1990
Corporation (Investment
and Management
Company)
Edward E. Strickland Chairman of the Board of 68 1989
Directors of the Company
Kenneth E. Daugherty Professor, University of 56 1990
North Texas
OTHER INFORMATION ABOUT DIRECTORS
Except as indicated below, there has been no change in principal occupations or
employment during the past five years for the directors. There are no family
relationships between or among the directors of the Company.
44
<PAGE>
Mr. McGuire has been President of NJK Holding Corporation since October 1992.
He has also been the Chairman of the Board of Intercim Corporation, a supplier
of factory floor information software and services, since January 1989 and was
Chief Executive Officer of Intercim from 1987 to 1992.
Mr. Taylor also is a director of Compositech Ltd. Mr. Taylor was elected Chief
Executive Officer and President of the Company in November 1992 and Chief
Financial Officer in March 1994.
Ms. Avey has been a director since 1992. She had been an Account Executive with
Business Incentives, Inc., a performance services company, from April 1991 until
January 31, 1994 and is now performing consulting work for a major utility.
Prior to April 1991, Ms. Avey was employed by U.S. West Financial Services,
Inc., a financial services company, most recently as Manager, Project Finance.
Mr. Strickland served on the Executive Committee of the Board of Directors,
which performed the duties of Chief Executive Officer, from October 1, 1990
until January 28, 1991. He has been Chairman of the Board of Directors since
that time. He has been an independent financial consultant for more than seven
years. Mr. Strickland also serves as a director of Bio-Vascular, Inc., Hector
Communications Corp., Communication Systems Inc. and AVECOR Cardiovascular Inc.
Dr. Daugherty also serves as a director of TRAC Laboratories, Inc., The KEDS,
Inc. and Pyro Industries, Inc.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages and the offices held as
of March 15, 1995 are as follows:
Position with the Company
Name (age) or Principal Occupation
- ---------------------- -----------------------
James W. Taylor (76) Director, Chief Executive Officer, President and
Chief Financial Officer
Edward E. Strickland (68) Chairman of the Board of Directors
Mr. Taylor's and Mr. Strickland's biographical information is included above
under Item 9(a).
(c) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Executive officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company during
45
<PAGE>
the year ended December 31, 1994, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10%
shareholders were met.
ITEM 10. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION
All directors of the Company, except for Messrs. Taylor and Strickland,
currently receive compensation for their services as directors at the rate of
$400 per month as well as a meeting fee in the amount of $500 for each Board and
committee meeting attended. Directors are not compensated for telephonic
meetings.
The Company has entered into a consulting agreement with Mr. Strickland, which
may be terminated at any time by the Company. Under this agreement, Mr.
Strickland is paid a retainer of $2,000 per month, plus reimbursement for all
reasonable business expenses. During 1994, Mr. Strickland received $26,000 for
services under this agreement.
In November 1992, the Company entered into a consulting agreement with Taylor
Consultants, Inc. ("Taylor Consultants") whereby Taylor Consultants agreed to
provide the services of James W. Taylor to act as President and Chief Executive
Officer of the Company. Taylor Consultants is paid $13,000 per month for its
services and reimbursed for all reasonable expenses. Taylor Consultants is an
independent contractor, and neither it nor Mr. Taylor is an employee of the
Company. The agreement may be terminated by either party upon 30 days written
notice. During 1994, Taylor Consultants received $156,000 for services under
this agreement. See "Summary Compensation Table."
Under the Company's 1991 Non-Employee Director Stock Option Plan, adopted by the
Board of Directors in 1991 and approved by the shareholders at the 1992 Annual
Meeting, members of the Board of Directors who are not employees of the Company
or any subsidiary receive periodic grants of non-qualified stock options.
Options granted under the Plan have an exercise price equal to 100% of the fair
market value of the Common Stock on the date of grant, have 10-year terms and
may not be exercised before the next annual meeting of shareholders after the
date of grant. Options generally terminate one year after termination of
director status. On the effective date of the Plan, each non-employee director
automatically received a one-time option grant to purchase 10,000 shares of
Common Stock, and new non-employee directors subsequently elected to the Board
will automatically be granted a 10,000 share option upon their election. In
addition, each non-employee director will be automatically granted an additional
option at the first annual shareholders meeting occurring more than 35 months
after the director was initially elected to the Board to purchase a number of
shares equal to 2,000 times the number of years between the date of grant and
the expiration of the director's term. Initial grants under the plan become
exercisable on a cumulative basis on the dates of the Company's annual
shareholder meetings after the date of grant over a period of one to three
years, depending on the director's period of Board service prior to grant (in
three annual installments for directors with one or few prior years of service).
Additional options granted under the plan become exercisable, on a cumulative
basis, to the extent of 2,000 shares each year. An option generally will
terminate one year after an optionee ceases to serve as a director (and will
remain exercisable during that time to the extent exercisable on the date
46
<PAGE>
director status terminated), except that an option held by an optionee ceasing
to serve as a director by reason of death or disability when served as a
director for at least one continuous year following the option grant will become
immediately exercisable in full and remain exercisable for an additional three
years after termination of service (but not beyond the option's original term).
On July 26, 1994, Mr. McGuire was granted an option to purchase 15,000 shares of
Common Stock at a price of $.31 per share in lieu of the option he would have
received under the Plan if the Company had held an annual meeting of
shareholders in 1994. He was granted an option to purchase 15,000 shares rather
than 6,000 shares to account for the difference between the fair market value of
the Common Stock on May 17, 1994, of $.125 per share, the date the Option would
have been granted under the Plan, and the fair market value on July 26, 1994.
The Plan was terminated in April 1995 and no further options will be granted
under the Plan.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning cash and non-cash
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the executive officers of the Company whose
cash and non-cash salary and bonus exceeded $100,000 in 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION YEAR SALARY OPTIONS
- ------------------ ---- ------ -------
<S> <C> <C> <C>
James W. Taylor (1) 1994 $156,000(2) 100,000
Chief Executive Officer 1993 $156,000(2) 4,000
1992 $71,150(2) 25,000
<FN>
- --------------------
(1) Mr. Taylor joined the Company as Chief Executive Officer in 1992.
Prior to that time, Mr. Taylor was not an officer or employee of the
Company.
(2) Mr. Taylor's annual salary for 1992 includes $9,600 for directors fees
and $32,550 in consulting fees which were earned before Mr. Taylor
became Chief Executive Officer of the Company in November 1992. Mr.
Taylor's annual salary for 1993 and 1994 represents consulting fees
paid to him for services rendered as President and Chief Executive
Officer of the Company.
</TABLE>
47
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables provide information for the year ended December 31, 1994
as to individual grants and aggregate exercises in options to purchase shares
of the Company's Common Stock by each of the named executive officers of the
Company.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRA-
NAME GRANTED (1) FISCAL YEAR ($/SHARE) TION DATE
- ---- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
James W. Taylor 100,000 (2) 83% .50 9/26/04
<FN>
- --------------------
(1) All of the options granted to the executive were granted under the
Company's 1991 Stock Option Plan. Options granted under the plan are
exercisable as determined by the committee granting the options,
except that options may not be exercised prior to six months from the
date of grant. Options granted under the plan remain exercisable so
long as the executive remain in the employ of the Company or one of
its subsidiaries.
(2) These options were granted on September 27, 1994 and are exercisable
in full immediately upon grant.
</TABLE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (2)
-------------------------- ----------------------
NON- NON-
EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
James W. Taylor 137,000 2,000 0 0
<FN>
- --------------------
(1) In the fiscal year ended December 31, 1994, no options were exercised by
the named executive officer. The exercise price may be paid in cash or,
in the Compensation and Stock Committee's discretion, in shares of the
Company's common stock valued at fair market value on the date of
exercise or pursuant to a cashless exercise procedure under which the
executive provides irrevocable instructions to a brokerage firm to sell
the purchased shares and to remit to the Company, out of the sale
proceeds, an amount equal to the exercise price plus all applicable
withholding taxes. The Compensation and Stock Option Committee
48
<PAGE>
also has the discretion to grant a supplemental cash bonus to an
optionee in connection with the grant or exercise of an option or both
the grant and an exercise of an option.
(2) The fair market value of the Common Stock on December 30, 1994 was less
than the exercise price of all such options.
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial ownership of
the Common Stock of the Company as of the dates indicated by each shareholder
who is known by the Company to own beneficially more than 5% of the outstanding
Common Stock, by each director, each executive officer named in the Summary
Compensation Table below under the heading "Executive Compensation and Other
Benefits -- Summary of Cash and Certain Other Compensation" and by all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)(2)
--------------------------------
NAME AMOUNT PERCENT OF CLASS
---- ------ ----------------
<S> <C> <C>
Edward E. Strickland 260,250 (4) 8.1%
520 Warbass Way
Friday Harbor, WA 98250
James W. Taylor 237,600 (7) 7.1%
719 Lenape Trail
Westfield, NJ 07090
Richard W. Perkins 184,200 (3) 5.8%
730 East Lake Street
Wayzata, MN 55391
Kenneth E. Daugherty 143,100 (5) 4.5%
University of North Texas
P.O. Box 5068
Denton, TX 76203
Gary W. Laidig 15,000 (6) *
Room 155 - State Office Building
St. Paul, MN 55155
Caroline Avey 10,000 (8) *
16341 Wild Plum Circle
Morrison, CO 80465
James H. McGuire 18,000 (9) *
7803 Glenroy Road
Bloomington, MN 55439
All current directors and executive officers
as a group (6 persons) 691,850 (10) 20.2%
<FN>
- ------------------------
49
<PAGE>
* Less than 1% of the outstanding shares.
(1) As of May 1, 1995, unless noted. Unless otherwise noted, all of the shares shown are held
by individuals or entities possessing sole voting and investment power with respect to
such shares.
(2) Shares not outstanding but deemed beneficially owned by virtue of the right of a person or
member of a group to acquire them within 60 days are treated as outstanding only when
determining the amount and percent owned by such person or group.
(3) According to a Schedule 13D dated February 9, 1995, as filed with the Securities and
Exchange Commission. Does not include 65,900 shares beneficially owned by Perkins Capital
Management, Inc. as to which shares Mr. Perkins disclaims beneficial ownership.
(4) Includes 36,000 shares that Mr. Strickland has the right to acquire within 60 days upon
the exercise of options.
(5) Includes 14,000 shares that Mr. Daugherty has the right to acquire within 60 days upon the
exercise of options.
(6) Includes 14,000 shares that Mr. Laidig has the right to acquire within 60 days upon the
exercise of options.
(7) Includes 139,000 shares that Mr. Taylor has the right to acquire within 60 days upon the
exercise of options.
(8) Includes 10,000 shares that Ms. Avey has the right to acquire within 60 days upon the
exercise of options.
(9) Includes 17,000 shares that Mr. McGuire has the right to acquire within 60 days upon the
exercise of options.
(10) Includes an aggregate of 228,000 shares that executive officers and directors have the
right to acquire within 60 days pursuant to outstanding options.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See "Director Compensation" under Item 10 of this Report.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: June 23, 1995 GREEN ISLE ENVIRONMENTAL
SERVICES, INC.
By:/s/ James W. Taylor
--------------------------------------------
James W. Taylor, President and Chief
Executive Officer
51
<PAGE>
GREEN ISLE ENVIRONMENTAL SERVICES, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB/A-1
For the Fiscal Year Ended December 31, 1994
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- -------- ---- ----------------
<C> <S> <C>
3.1 Restated Articles of Incorporation . . . Incorporated by reference to Exhibit 3.1 of
the Company's Annual Report on Form 10-K
for the year ended December 31, 1991
(File No. 0-1561)
3.1(a) Amendment to Restated Articles
of Incorporation . . . . . . . . . . . . Incorporated by reference to Exhibit 3.1(a)
to Amendment No. 1 to the Company's Annual
Report on Form 10-K/A for the year ended
December 31, 1993 (File No. 0-1561)
3.2 Amended Bylaws . . . . . . . . . . . . . Incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K
for the year ended December 31, 1990
(File No. 0-1561)
4.1 Form of the Company's Common Stock
Certificate . . . . . . . . . . . . . . Incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K
for the year ended December 31, 1990
(File No. 0-1561)
10.1 Incentive Stock Option Plan of Reuter,
Inc., as amended effective December 17,
1987 . . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10(a)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987
(File No. 0-1561)
10.3 Directors Stock Option Plan of
Reuter, Inc. . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10(c)
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987
(File No. 0-1561)
52
<PAGE>
10.4 Summary of options granted under
Directors Stock Option Plan . . . . . . Incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994
(File No. 0-1561)
10.5 1991 Non-Employee Director Stock
Option Plan . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993
(File No. 0-1561)
10.6 Summary of options granted under
1991 Non-Employee Director
Stock Option Plan . . . . . . . . . . . Incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993
(File No. 0-1561)
10.7 1991 Employee Stock Purchase Plan . . . Incorporated by reference to Exhibit 28.1
to the Company's Registration Statement
on Form S-8 (File No. 33-44304)
10.8 1991 Stock Option Plan . . . . . . . . Incorporated by reference to Exhibit 10.8
to Amendment No. 1 to the Company's Annual
Report on Form 10-K/A for the year ended
December 31, 1993 (File No. 0-1561)
10.9 Summary of Options granted
under 1991 Stock Option Plan . . . . . Incorporated by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994
(File No. 0-1561)
10.10 Option Agreement between Edward E.
Strickland and the Company . . . . . . Incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991
(File No. 0-1561)
10.11 Consulting Agreement with
Edward E. Strickland . . . . . . . . . Incorporated by reference to Exhibit 10.6
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990
(File No. 0-1561)
53
<PAGE>
10.12 Installment Note payable by Reuter
Recycling, Inc. to Sanwa Business
Credit Corporation and Term Loan
and Security Agreement between
Reuter Recycling, Inc., the
Company and Sanwa Business Credit
Corporation, both dated May 6, 1988 . . Incorporated by reference to Exhibit 28(a)
to the Company's Current Report on Form 8-K
dated May 6, 1988 (File No. 0-1561)
10.13 Guaranty by the Company and Debtor's
Security and Pledge Agreement between
the Company and Sanwa Business
Credit Corporation, both dated
May 6, 1988 . . . . . . . . . . . . . . Incorporated by reference to Exhibit 28(b)
to the Company's Current Report on Form 8-K
dated May 6, 1988 (File No. 0-1561)
10.14 Solid Waste Disposal Agreement dated
August 19, 1988 between Reuter
Recycling of Florida, Inc. and the
cities of Dania, Hallandale,
Pompano Beach and Pembroke Pines . . . Incorporated by reference to Exhibit 28(a)
to the Company's Current Report on Form 8-K
dated August 19, 1988 (File No. 0-1561)
10.15 Capital Cost and Operating Support
Agreement dated August 19, 1988
between Reuter Recycling of
Florida, Inc. and the Company . . . . . Incorporated by reference to Exhibit 28(b)
to the Company's Current Report on Form 8-K
dated August 19, 1988 (File No. 0-1561)
10.16 Construction Note dated March 12,
1990, payable by Reuter Recycling of
Florida, Inc. to U.S. West Financial
Services, Inc. and Construction and
Senior Term Loan Agreement dated
as of March 1, 1990 between Reuter
Recycling of Florida, Inc. and U.S.
West Financial Services, Inc. . . . . . Incorporated by reference to Exhibit 28(a)
to the Company's Current Report dated
March 12, 1990 (File No. 0-1561)
54
<PAGE>
10.17 Subordinated Term Loan Agreement
dated as of March 1, 1990, between
Reuter Recycling of Florida, Inc.
and U.S. West Financial Services, Inc. Incorporated by reference to Exhibit 28(b)
to the Company's Current Report on Form 8-K
dated March 12, 1990 (File No. 0-1561)
10.18 Mortgage and Security Agreement dated
as of March 1, 1990 between Reuter
Recycling of Florida, Inc. and U.S.
West Financial Services, Inc. . . . . . Incorporated by reference to Exhibit 28(c)
to the Company's Current Report on Form 8-K
dated March 12, 1990 (File No. 0-1561)
10.19 Agreement regarding GIES matters
dated as of November 1, 1992,
among the Company Reuter
Recycling of Florida, Inc.
and U.S. West Financial
Services, Inc. . . . . . . . . . . . . Incorporated by reference to Exhibit 6.1 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992
(File No. 0-1561)
10.20 Amended and Restated Management
Agreement, dated as of
November 1, 1992, between the
Company and Reuter Recycling
of Florida, Inc. . . . . . . . . . . . Incorporated by reference to Exhibit 6.2 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992
(File No. 0-1561)
10.21 Warrant, dated as of November 9, 1992,
granted to U.S. West Financial
Services,Inc. by the Company. . . . . . Incorporated by reference to Exhibit 6.3 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992
(File No. 0-1561)
55
<PAGE>
10.22 Commitment Letter, dated
November 9, 1992, between
U.S. West Financial Services, Inc.
and Reuter Recycling of
Florida, Inc. . . . . . . . . . . . . . Incorporated by reference to Exhibit 6.4 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992
(File No. 0-1561)
10.23 Assignment, dated November 9, 1992, by
Reuter Recycling of Florida, Inc. . . Incorporated by reference to Exhibit 6.5 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992
(File No. 0-1561)
10.24 Loan and Security Agreement,
dated February 15, 1991, between
Reuter, Inc. and The CIT Group/
Credit Finance, Inc. . . . . . . . . . Incorporated by reference to Exhibit 28(a)
to the Company's Current Report on Form 8-K
dated February 15, 1991 (File No. 0-1561)
10.25 Promissory Note, dated February 15,
1991, payable by Reuter, Inc. to
The CIT Group/Credit Finance, Inc. . . Incorporated by reference to Exhibit 28(b)
to the Company's Current Report on Form 8-K
dated February 15, 1991 (File No. 0-1561)
10.26 Mortgage and Security Agreement and
Fixture Financing Statement, dated
February 15, 1991, between Reuter,
Inc. and The CIT Group/Credit
Finance, Inc. . . . . . . . . . . . . . Incorporated by reference to Exhibit 28(c)
to the Company's Current Report on Form 8-K
dated February 15, 1991 (File No. 0-1561)
10.27 Patent, Trademark and License
Mortgage, dated February 15, 1991,
between Reuter, Inc. and The CIT
Group/Credit Finance, Inc. . . . . . . Incorporated by reference to Exhibit 28(d)
to the Company's Current Report on Form 8-K
dated February 15, 1991 (File No. 0-1561)
56
<PAGE>
10.28 Independent Contractor Agreement
dated as of November 2, 1992,
between Taylor Consultants, Inc.
and Green Isle Environmental
Services, Inc. . . . . . . . . . . . . Incorporated by reference to Exhibit 10.30
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992
(File No. 0-1561)
10.29 Amendment to Loan and Security
Agreement, dated December 31, 1992,
between Green Isle Environmental
Services, Inc. and The CIT Group/
Credit Finance, Inc. . . . . . . . . . Incorporated by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992
(File No. 0-1561)
10.30 Amended Promissory Note dated as
of December 30, 1992 between
Green Isle Environmental Services,
Inc. and The CIT Group/Credit
Finance, Inc. . . . . . . . . . . . . Incorporated by reference to Exhibit 10.32
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992
(File No. 0-1561)
10.31 Amendment Number Three to Construction
and Senior Term Loan Agreement, dated
October 22, 1993, between Reuter
Recycling of Florida, Inc. and
US West Financial Services, Inc. . . . Incorporated by reference to Exhibit 10.33
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993
(File No. 0-1561)
10.32 Letter Agreement, dated July 26,
1994 amending Loan Agreement with
The CIT Group/Credit Finance, Inc. . . Incorporated by reference to Exhibit 10.32
to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994
(File No. 0-1561)
10.33 Letter Agreement, dated December 15,
1994 amending Loan Agreement with
The CIT Group/Credit Finance, Inc. . . Incorporated by reference to Exhibit 10.33
to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994
(File No. 0-1561)
57
<PAGE>
10.34 Letter Agreement, dated January 11,
1995 amending Loan Agreement with
The CIT Group/Credit Finance, Inc. . . Incorporated by reference to Exhibit 10.34
to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994
(File No. 0-1561)
10.35 Purchase Agreement, dated August 22,
1994, by and between EPR, Inc., Green
Isle Environmental Services, Inc. and
BFI Recycling Systems of Minnesota,
Inc. Omitted from this Exhibit, as
filed, are the exhibits referenced in
such agreement, Green Isle
Environmental Services, Inc. will
furnish supplementally a copy of any
such exhibits to the Commission upon
request . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K,
dated September 19, 1994 (File No. 0-1561)
21.1 Subsidiaries of the Registrant . . . . Incorporated by reference to Exhibit 21.1
to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994
(File No. 0-1561)
23.1 Consent of Coopers & Lybrand . . . . . Filed herewith
</TABLE>
58
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Green Isle Environmental Services, Inc. (f/k/a Reuter, Inc.) and Subsidiaries on
Form S-8 (File Nos. 33-15293, 33-33107, 33-44304 and 33-44281) of our report,
which includes an explanatory paragraph addressing substantial doubt about the
Company's ability to continue as a going concern, dated March 3, 1995, except as
to the last paragraph of Note 4, Note 7 - Warrants and the last paragraph of
Note 12, for which the date is June 1, 1995, on our audits of the consolidated
financial statements and financial statement schedules of Green Isle
Environmental Services, Inc. and Subsidiaries as of December 31, 1994 and 1993,
and for the three years ended December 31, 1994, 1993 and 1992, which report is
included in this Annual Report on Form 10-KSB.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
June 20, 1995
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