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BIOSAFE INTERNATIONAL, INC.
ANNUAL REPORT
1995
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 0-25998
BIOSAFE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Nevada 95-4203626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Fawcett Street
Cambridge, Massachusetts 02138
(Address of principal executive offices) (Zip Code)
(617) 497-4500
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
Series A Warrants
Series C Warrants
Series D Warrants
Series E Warrants
Placement Agent Warrants
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
As of April 29, 1996, the market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $26,020,643.
The number of shares of the Registrant's common stock, par value $.001 per
share, outstanding as of April 29, 1996 was 11,759,254.
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<TABLE>
TABLE OF CONTENTS
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PAGE
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PART I ..................................................................................................1
Item 1. Business........................................................................................1
Item 2. Properties.....................................................................................13
Item 3. Legal Proceedings..............................................................................13
Item 4. Submission of Matters to a Vote of Security Holders ...........................................14
PART II .................................................................................................14
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters....................................................................................14
Item 6. Selected Financial Data........................................................................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................17
Item 8. Financial Statements and Supplementary Data....................................................24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................................26
PART III .................................................................................................26
Item 10. Directors and Executive Officers..............................................................26
Item 11. Executive Compensation........................................................................26
Item 12. Security Ownership of Certain Beneficial Owners and Management................................26
Item 13. Certain Relationships and Related Transactions................................................26
PART IV .................................................................................................27
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..............................27
Signatures................................................................................................29
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This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Operating Results" on page 16 of
this Form 10-K.
PART I
ITEM 1. BUSINESS
BioSafe International, Inc. (the "Company" or "BioSafe") is engaged in the
business of rehabilitating landfills to permit their continued operation with
increased capacity in an environmentally sound manner (referred to by BioSafe as
"landfill remodeling"). BioSafe has developed technologies for size reduction
and handling of waste materials for use in landfill remodeling. Prior to March
27, 1996, BioSafe had been actively developing other technologies with potential
application in a number of business areas, including the manufacture of useful
materials from tires and other recycled materials, contaminated soil cleanup and
recycling, industrial sludge disposal, size reduction equipment design and
manufacture (collectively, the "Ancillary Technologies"), and infectious medical
waste disposal. BioSafe is not currently allocating its resources or activities
to the development or commercial exploitation of the Ancillary Technologies. See
"Business--Discontinued Operations, Restructuring and Management Change."
BioSafe is focusing its resources and activities on the development of its
landfill remodeling business. As its primary effort in this area, BioSafe is
engaged in a project with the Town of Fairhaven, Massachusetts to remodel the
Town's existing 26-acre landfill. BioSafe entered into a definitive agreement
with the Town on July 25, 1994 for this project under which BioSafe is
remodeling and operating the landfill for the Town, and has secured a long-term
contract with a major solid waste management company to supply waste to the
landfill. The remodeled landfill is expected to have an additional capacity of
approximately 1.5 million tons. With a planned fill rate of approximately 400
tons per day, the total project life is estimated to be approximately twelve
years.
The Company has also acquired, through a joint venture in which the Company
has an 80% interest, a landfill located in Moretown, Vermont. The available
potential new capacity at this landfill is estimated at approximately 1.5
million tons. The Company intends to complete and operate this landfill and, to
increase its new capacity by remodeling other unlined portions of the landfill.
BioSafe is actively pursuing additional opportunities in landfill
remodeling and landfill operations and is involved in various stages of project
evaluation, discussion or negotiation on several potential landfill remodeling
projects and landfill acquisitions. At the present time, in addition to the
projects under contract in Fairhaven, Massachusetts and Moretown, Vermont,
BioSafe is focusing on the following potential projects:
o The Company and the Town of South Hadley, Massachusetts have entered
into a contract that provides for BioSafe to operate and remodel an
existing 26-acre landfill in South Hadley.
o The Company and the Town of Buckland, Massachusetts have entered into
a contract that provides for BioSafe to operate and remodel an
existing 10-acre landfill in Buckland.
o The Company has agreed to form a joint venture in which the Company
will have an 80% interest for the purpose of purchasing an option to
acquire a large landfill located in Middleton and Rush Townships,
Pennsylvania, subject to the receipt of satisfactory title insurance,
successful permitting and community acceptance of the landfill for
remodeling and operation.
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o The Company has been selected by the Town of Orange, Massachusetts as
the vendor of choice to negotiate a definitive agreement to remodel
the existing 20-acre Orange, Massachusetts landfill.
o The Company has been selected by the Town of Oak Bluffs in Martha's
Vineyard, Massachusetts as the vendor of choice to negotiate a
definitive agreement to remodel the existing Martha's Vineyard,
Massachusetts landfill.
o In December 1995, the Company entered into an agreement to form
BioSafe Europe PLC ("BioSafe Europe"), which is planned as a public
limited liability company, to introduce BioSafe's landfill remodeling
technology throughout Europe and certain other territories.
Each of these projects is subject to various financing and operational
uncertainties, which are more fully discussed under "Business--Landfill
Remodeling" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Certain Factors Affecting Future Operating Results."
BioSafe is a Nevada corporation with its principal executive offices at 10
Fawcett Street, Cambridge, Massachusetts 02138. Its telephone number is (617)
497-4500.
COMPANY BACKGROUND AND 1995 REORGANIZATION
The Company was incorporated in Nevada in 1989 as Zoe Capital Corp. and had
no operations until March 29, 1995. On that date, the Company acquired BioSafe,
Inc., a Delaware corporation, through a merger with a subsidiary of the Company
(the "Acquisition"), and the Company changed its name to "BioSafe International,
Inc." BioSafe, Inc. was incorporated in Delaware in April 1990. Pursuant to an
Agreement and Plan of Merger dated March 17, 1995 among the Company, BioSafe,
Inc., a subsidiary of the Company and certain shareholders of the Company, all
persons serving as directors and officers of the Company resigned upon the
consummation of the Acquisition. The persons serving as directors and officers
of BioSafe, Inc. immediately prior to the consummation of the Acquisition were
elected to the same offices with the Company and retained their positions as
directors and officers of BioSafe, Inc. Prior to the Acquisition, neither
BioSafe nor any affiliate of BioSafe had an interest in Zoe Capital Corp.
DISCONTINUED OPERATIONS, RESTRUCTURING AND MANAGEMENT CHANGE
On March 27, 1996, the Company announced its intention to take meaningful
actions to conserve cash and working capital, including the restructuring of the
Company's operations to focus its resources and activities on its core business
of landfill remodeling and operation. On that date, the Company ceased
operations at its technology center in Woburn, Massachusetts and discharged all
employees and consultants previously engaged in developing the Ancillary
Technologies, and Major Sports Fantasies, Inc., a business unrelated to the
environmental industry. In addition, the Company discharged certain employees
involved in the Company's core landfill remodeling and operation business,
including administrative, marketing and sales, and operations. No substantial
revenues have been received from the technology center operations and Major
Sports Fantasies, Inc. activities.
In connection with the anticipated discontinuance of these operations, the
Company recorded a nonrecurring charge to 1995 earnings primarily related to the
write-down of assets to estimated net realizable value. During the first quarter
of 1996, the Company will record an as yet unknown charge to earnings for
estimated costs of discontinuing these operations and restructuring.
The Company is currently maintaining ownership of its infectious medical
waste disposal technology (which is fully developed and requires no further
development costs), which is outside the Company's core landfill remodeling and
operations business, subject to the non-exclusive purchase option described in
the following paragraph.
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On March 27, 1996, Dr. Richard H. Rosen resigned from the offices of
Chairman of the Board of Directors, President, Chief Executive Officer and
Treasurer of the Company and all of its subsidiaries and affiliates. The Board
of Directors named Philip Strauss, Chief Operating Officer, to additional
positions of Chief Executive Officer, President and Treasurer of the Company and
named Jay Matulich as interim Chairman of the Board of Directors. In connection
with Dr. Rosen's resignation, the Company granted Dr. Rosen a 90-day
non-exclusive option to purchase the Company's medical waste technology, and the
technology center operations described above, which are not used in the
Company's core landfill remodeling and operation business, at a price to be
determined by independent appraisal. The Company retains a right to accept a
competing offer deemed preferable by the Company, subject to a right of first
refusal by Dr. Rosen.
INDUSTRY BACKGROUND
Achieving safer and more efficient disposal and management of solid waste
is an increasingly pressing problem for a wide variety of participants in the
nation's economy--ranging from municipalities which must provide for the
disposal of household, industrial and commercial trash. National and state
policies are imposing increasing constraints on solid waste disposal, creating a
need for creative and effective approaches to the engineering problems that are
involved. Of particular importance to BioSafe's landfill remodeling business are
policies being implemented by the U.S. Environmental Protection Agency ("US
EPA") and State environmental regulatory authorities that are compelling the
closure of most existing unlined landfills throughout the country. At the same
time, the Clean Air Act Amendments of 1990 require the imposition of stringent
limitations on the emission of toxic substances into the atmosphere from
incinerators, further limiting the available options for disposal of solid
waste.
Several categories of technology, such as materials handling and size
reduction technology, are of particular importance in the different stages of
solid waste disposal and management. Materials handling and size reduction
technology is useful because of the large volume of the materials involved in
most waste streams and the specialized handling that may be required in order to
achieve separation into usable and/or recyclable components. Size reduction
technology is useful in order to convert all material to be processed to a
uniform size so that it can be efficiently handled and effectively processed.
The solid waste disposal industry offers opportunities for a company with
engineering technology, know-how and experience to apply technologies to
particular disposal problems. It is first necessary to identify and evaluate
appropriate project areas which offer the best opportunity to generate
substantial revenue and profits from the application of available technologies.
Substantial effort is required to understand the materials that are involved in
the waste stream and the economic context, and to develop an effective strategy
for dealing with those materials. If this can be accomplished successfully,
BioSafe believes that it will generally be possible to structure profitable
projects by establishing ventures in which the Company can play an ongoing role
in the implementation and management of the solution on a revenue-producing
basis.
BIOSAFE TECHNOLOGY AND STRATEGY
BioSafe, Inc., a wholly-owned subsidiary of the Company, was formed in 1990
to provide solutions for various waste disposal problems that are currently
major concerns to municipalities, industry and health-care providers and are a
principal area of focus for environmentalists.
BioSafe has focused its work on the development and implementation of
proprietary processes which may offer practical benefits to entities faced with
meeting regulatory restrictions on the handling and disposal of waste, including
reductions in capital cost, reductions in operating cost, recycling of all
recyclable materials and reductions of environmental risk. BioSafe has developed
technology in two important areas of waste processing, materials handling and
size reduction. These technologies are central to BioSafe's landfill remodeling
process, which reduces all existing landfill materials to a size that can be
handled efficiently in a continuous process.
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LANDFILL REMODELING
BioSafe is now focusing its resources and activities principally on the
landfill remodeling business. This decision has been arrived at based on
BioSafe's work to date in connection with the remodeling and operation of the
existing 26-acre landfill at Fairhaven, Massachusetts and its existing landfill
at Moretown, Vermont (described in more detail below) and BioSafe's
investigation of market opportunities for landfill remodeling and operation.
Revenues from landfill operations for 1995 amounted to $1,344,397.
Municipal waste at landfills, even if it has been in place for many years,
typically contains a large amount of low-density, unshredded material. By
processing and recycling this material through BioSafe's soil separation and
size reduction equipment, it is possible to achieve volume reductions of
approximately 40-80%, based on the Company's feasibility studies at various
municipal landfills and its initial remodeling work at the Fairhaven landfill to
date. Depending on the size of the landfill to be remodeled, BioSafe may place
its transportable shredding equipment at the landfill. BioSafe can then begin to
process all of the material on the site. As an area is excavated and processed,
the landfill can be lined in accordance with current environmental standards. At
that time, the site can receive municipal solid waste and the reprocessed
landfill waste.
As this procedure continues through the entire site, it is expected that
(a) the entire landfill can be brought into compliance with current applicable
environmental regulations; (b) the useful life of the landfill can be extended
as a result of the volume reduction and in effect the creation of substantial
new capacity, which represents an opportunity to generate revenues from tipping
fees for many additional years; and (c) the high cost of closing down a landfill
in compliance with current environmental regulations can be deferred for years
into the future and can be financed through a sinking fund funded by a share of
fees for the use of landfill capacity that are charged to persons bringing waste
into the landfill (referred to as "tipping fees"). The economic life of a
landfill depends upon the amount of waste per day that the landfill is permitted
to accept, the site conditions and relevant regulations governing the geometric
configuration of the landfill, and the amount of additional space that can be
created by the size reduction of waste material taking into account the nature
of the material found in that particular landfill. At Fairhaven, for example,
the remodeled landfill is expected to have an additional capacity of
approximately 1.5 million tons. With a planned fill rate of approximately 400
tons per day, the total project life is estimated to be approximately twelve
years.
The Company's approach to landfill remodeling is based on extensive
professional experience of its engineering personnel in connection with
materials handling and size reduction technologies, including field testing of
the technologies employed by the Company. In connection with any particular
landfill remodeling project, the Company conducts extensive feasibility studies,
including core samples of existing landfill content, to serve as the basis for
projected volume reduction to be achieved through extraction of reusable
materials and compacting. At this time, the Company has developed significant
experience through initial remodeling activities at the Fairhaven landfill. In
developing its landfill remodeling strategy, the Company has consulted
extensively with State regulatory authorities in various states having
permitting and regulatory authority over landfills which the Company is
evaluating for possible remodeling. In particular, in connection with the plan
approval and permitting of the Fairhaven landfill project, the Company has made
numerous presentations to the Massachusetts Department of Environmental
Protection ("DEP"), and has consulted and met frequently with DEP personnel, in
relation to technical, regulatory and broader policy issues relating to landfill
remodeling projects.
The economics of this proposed solution to the above-described landfill
problems will vary from location to location based upon the particular
circumstances of a project, and no assurance can be given that the utilization
of BioSafe's landfill remodeling technology can achieve cost effective results
at any particular landfill.
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FAIRHAVEN LANDFILL PROJECT
The Fairhaven landfill project involves the remodeling of the municipal
landfill of Fairhaven, Massachusetts. The proposed rehabilitation of the
Fairhaven landfill by BioSafe is designed to create substantial new space within
the existing landfill as well as to upgrade the landfill consistent with current
regulatory standards. A part of operating revenues will be used to pay a host
community fee to the Town ("host Town fee") and a closure fund fee which
contributes to the Town's ultimate landfill closure costs. The balance will be
retained by BioSafe. The Company began work at the Fairhaven landfill project in
February 1995, when it began processing waste materials and remodeling the
landfill. On June 22, 1995, the Company assumed full operation of the landfill
and has been accepting waste at a maximum average rate of 150 tons per day until
phase 1 of the first remodeled cell is completed and an authorization to operate
("ATO") is granted under the applicable permit. On October 11, 1995, a Major
Modification Permit was issued by the Massachusetts DEP with respect to the
project, including an Authorization to Construct ("ATC") and remodel the first
of three "cells" of the landfill (about 6 1/2 acres). This permit has been
challenged in state court by certain residents of the Town of Fairhaven. See
"Legal Proceedings." After construction of phase one of the first cell of the
Fairhaven landfill is completed, the Company will need to obtain an
Authorization to Operate for operation of this phase of the cell as planned.
When and if the ATO is issued, and if there is not an adverse result in the
permit litigation, the Company will be permitted to accept waste at a rate of
approximately 400 tons per day.
The Fairhaven landfill project involves the excavation of the existing
landfill, separation of soil and ferrous metals from the excavated material,
shredding and compacting the separated waste, and finally returning such waste
to a newly-created landfill cell. Prior to returning the material to the
landfill, the Fairhaven landfill will be lined and brought up to applicable
regulatory standards. Costs of lining the landfill and providing leachate and
methane gas collection systems, representing the principal improvements required
to satisfy regulatory requirements, account for a substantial portion of the
total capital investment required for the project. The proposed rehabilitation
will be accomplished in stages, starting with the creation of an initial cell
which is lined and used for re-depositing the compacted waste and accepting new
waste.
The Fairhaven landfill project is based upon existing excavation, materials
handling, size reduction and other technologies with which the Company and its
personnel have experience. However, the Company has not previously carried out
any landfill remodeling project, and is not aware of any equivalent project
carried out by other persons. Based on its feasibility studies and the
experience of the Company and its personnel with the processes required to be
carried out in connection with the remodeling and operation of the landfill, the
Company believes that it will be able to complete and operate the project on a
profitable basis, but the Company has encountered and may continue to encounter
costs or difficulties not envisioned in its project plan, and no assurance can
be given that the Company's expectations of profitability will be satisfied.
During the early stages of construction and operation of the Fairhaven project,
the Company has found it necessary to make significant expenditures on
activities required for the further development, refinement and enhancement of
landfill remodeling methods, techniques and processes based on the practical
experience gained at the site.
BioSafe's feasibility studies in preparation for the Fairhaven landfill
project have not indicated the presence of any hazardous materials in the
landfill, and hazardous materials will not be accepted for disposal in the
landfill in the future. Accordingly, the Company does not anticipate that it
will encounter any material risk of toxic spills or similar incidents involving
hazardous materials in its remodeling and operation of the landfill. The Company
has established systems to protect site personnel and to monitor air quality in
the vicinity of the landfill, at abutting residential and commercial areas in
predominant downwind directions, and at a nearby public school, in relation to
the baseline study on a continuing basis during remodeling and operation of the
landfill, so that a prompt response may be initiated in the event that air
quality problems should ever occur. The Company routinely monitors water quality
as required by current environmental regulations.
Although BioSafe and the Town of Fairhaven have entered into a
definitive agreement, the ability of BioSafe and the Town to perform their
respective duties and obligations thereunder is subject to various regulatory
and other requirements which result in uncertainty. Carrying out the landfill
remodeling and
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operating the landfill requires a number of regulatory approvals and permits.
Because of the administrative delays anticipated in preparing the required
applications and obtaining the required approvals and permits, and because of
its confidence of the landfill remodeling approach as applied to the Fairhaven
site, the Company elected to proceed with preliminary project activities before
all required approvals and permits were received. Preliminary project activities
included engineering and environmental studies, the installation of air
monitoring systems, the commencement of excavation and materials separation,
permanent project financing activities and other general activities associated
with contract negotiation and the permitting process. The Massachusetts DEP
issued a Landfill Disruption Approval with respect to certain preliminary
remodeling efforts in February 1995, and on July 18, 1995 approved an operating
permit which allows BioSafe to continue operating the landfill at a daily
capacity of 150 tons per day on average. On October 11, 1995, the Company
received a Major Modification Permit including an Authorization to Construct and
remodel phase 1 of the first of three "cells" of the landfill (about 6 1/2
acres). This permit has been challenged in state court by certain residents of
the Town of Fairhaven. See "Legal Proceedings." Construction of phase 1 of the
first cell of the Fairhaven landfill has been completed, and the Company is
awaiting the ATO for operation of the cell as planned. Additional ATCs, ATOs and
other minor permits will also be required for phase 1 of the first cell and for
the second and third cells. The Company believes that the issuance of a permit
to remodel phase 1 of the first cell reflects substantial acceptance of its
remodeling approach as applied at the Fairhaven landfill by the Massachusetts
environmental authorities, but no assurance can be given that further required
ATCs, ATOs and other permits will be obtained on a timely basis. Pending
completion of remodeling phase 1 of the first cell and issuance of the ATO for
this phase, the Company is operating the landfill under prior permits. At
December 31, 1995 BioSafe had invested approximately $6.0 million, raised
principally through private placements of equity securities and equipment
financing, in commencing performance under its agreement with the Town of
Fairhaven. The Company estimates that the Fairhaven landfill project will
require a total capital investment of approximately $20 million for completion
as currently planned. On July 31, 1995, the Company entered into an agreement
with Waste Management of Rhode Island, Inc. ("Waste Management") relating to the
supply of waste materials to the Fairhaven landfill. Pursuant to this agreement,
which has a term of 7 years, Waste Management will use the landfill to dispose
of up to approximately 400 tons of waste per day, for which it will pay the
Company tipping fees for each ton of waste delivered. The Fairhaven landfill
project will require significant financing. One potential financing alternative
for this project is the sale of tax-exempt industrial revenue bonds, and the
Company has received initial approval from the Massachusetts Industrial
Financing Agency ("MIFA") for such financing. The Company has engaged
Oppenheimer & Co., Inc. as placement agent to market and sell these bonds, and
Oppenheimer has identified a potential purchaser of the bonds, although no
assurance can be given that such a purchase will be consummated. Negotiations
for such a purchase have been delayed and could be terminated depending on the
outcome of litigation relating to a permit granted for the Fairhaven landfill.
See "Legal Proceedings." There can be no assurance that BioSafe and the Town of
Fairhaven will receive all required regulatory approvals in order to complete
this project, and that financing for this project can be obtained on
commercially reasonable terms. If BioSafe for any reason is not able to complete
the Fairhaven landfill project, or is not able to operate the project in
accordance with its original plans, such circumstances would have a material
adverse effect on BioSafe's financial condition and results of operations.
MORETOWN, VERMONT LANDFILL PROJECT
In addition to the Fairhaven landfill, the Company is currently in the
process of permitting its acquired landfill in Moretown, Vermont. Although the
Company's landfill remodeling plans generally focus primarily on the performance
of landfill remodeling and operation under contract to the landfill owners, in
the case of the Moretown project the Company has decided to acquire an interest
in a landfill. On July 5, 1995, Waste Professionals of Vermont, Inc. ("WPV"), a
corporation 80% owned by the Company, acquired the property of the Moretown,
Vermont landfill, together with certain related assets. The Moretown landfill
was acquired from an entity in bankruptcy which had owned the real estate on
which the landfill had been operating pursuant to a lease. The currently
available space at the landfill is estimated at approximately 1.5 million tons.
The Company intends to complete and operate the landfill. In the future, at such
time as additional capacity can be utilized, the Company may seek to expand the
landfill's capacity by remodeling. The Company is seeking to obtain project
financing for acquisition, development and working capital costs of the Moretown
landfill project
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from a local bank and other sources, but no assurance can be given than such
financing can be obtained on terms satisfactory to the Company. The Company's
indirect ownership of the Moretown landfill involves a greater degree of
exposure to potential environmental liabilities than is involved with the
Fairhaven landfill project and other planned landfill remodeling projects,
although the Company believes that the actual risk is manageable on the basis of
its engineering and economic feasibility studies and its operating plans for the
Moretown landfill.
OTHER LANDFILL REMODELING PROJECTS
At the present time, in addition to the projects under contract and
operation in Fairhaven, Massachusetts and Moretown, Vermont, BioSafe is focusing
on developing projects in New England, Pennsylvania and Europe.
South Hadley, Massachusetts. One of the Company's landfill projects
involves a landfill located on a 26-acre parcel in the Town of South Hadley, for
which BioSafe and the Town entered into an operation and remodeling contract on
August 22, 1995. The Town of South Hadley will retain full ownership of the
landfill. The South Hadley landfill project will involve BioSafe utilizing its
proprietary landfill remodeling technology in a similar application as in the
Fairhaven landfill project. Thirteen of the 26 acres at this site may contain
hazardous waste and may not be included in the first phase of the remodeling,
subject to a feasibility study. The Company's ability to proceed with this
project is subject to completion of regulatory procurement requirements, which
to date are not completed.
Buckland, Massachusetts. The Company entered into a contract with the Town
of Buckland, Massachusetts in November 1995, under which BioSafe will operate
and remodel the Buckland community landfill. Under the terms of the agreement,
BioSafe will take over from the Town the complete operations of the 10-acre
Buckland landfill; however, the Town of Buckland will retain full ownership of
the landfill.
Rushville, Pennsylvania. On December 28, 1995, the Company agreed to form a
joint venture in which the Company will have an 80% interest for the purpose of
purchasing an option to purchase a large landfill located in Middleton and Rush
Townships, Pennsylvania (approximately 30 miles Southwest of Binghamton, New,
York), subject to the receipt of satisfactory title insurance, successful
permitting and community acceptance of the landfill for remodeling and
operation. Depending on the outcome of current due diligence and feasibility
investigations, the joint venture may possibly purchase the landfill in the
first half of 1997 if community acceptance and satisfactory permits are
obtained. If the landfill is purchased, BioSafe would own an 80% joint venture
interest in and would operate the Pennsylvania site as a municipal solid waste
landfill. In addition to the continuous operation of the permitted acres,
BioSafe would use its patented landfill remodeling technology to reclaim new
disposal capacity in one area of this site. The location of the landfill would
give BioSafe the ability to access waste streams from several large population
centers including New York City, Long Island, Upstate New York, New Jersey and
Pennsylvania.
Orange, Massachusetts. The Company has been selected by the Town of
Orange as the vendor of choice to negotiate an agreement to remodel the existing
20-acre Orange, Massachusetts landfill.
Negotiations regarding a definitive agreement are not yet complete.
Martha's Vineyard, Massachusetts. The Company has been selected by the
Town of Oak Bluffs on the Island of Martha's Vineyard, Massachusetts as the
vendor of choice to negotiate an agreement to remodel the existing Oak Bluffs
landfill. Negotiations regarding a definitive agreement are not yet complete.
BioSafe Europe PLC. In December 1995, the Company entered into an
agreement to form BioSafe Europe PLC ("BioSafe Europe") to introduce the
Company's landfill remodeling technology throughout Europe and certain other
territories. The joint venture agreement provides that the initial shareholders
of BioSafe Europe will be the Company and GB First Capital Ventures, a
European-based concern ("First Capital"). According to the joint venture
agreement, First Capital is required to arrange an initial equity offering in
Europe
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to raise a minimum of $8.0 million in equity capital on or before September 30,
1996. If such financing is not closed by such date, the joint venture agreement
may be terminated at the option of the Company on or before March 30, 1997. In
accordance with the antidilution provision of the joint venture agreement, the
Company will own no less than 40% of the equity of BioSafe Europe after such
initial equity offering.
As part of the joint venture, the Company entered into an engineering
services and licensing agreement with BioSafe Europe under which BioSafe Europe
is granted the exclusive license to carry out landfill remodeling projects using
the Company's technology in the European territory and in certain other
territories. The Company will receive a 6% royalty on all project revenues and
will provide continuing technological assistance on a fee basis.
MEDICAL WASTE TECHNOLOGY LICENSE
On February 9, 1996, the Company entered into a licensing and royalty
agreement with ScotSafe Limited for the exclusive rights to use BioSafe's
continuous feed autoclave ("CFA") medical waste processing technology in the
British Isles and Ireland. ScotSafe is a Glasgow, Scotland based company.
Under the terms of the agreement with ScotSafe Limited, BioSafe will be
paid $600,000 in licensing fees relating to the second ScotSafe medical waste
processing plant, which is currently under construction and has not yet been
completed. No fees were payable relating to the first such plant, which is
currently in operation. The licensing agreement contemplates that ScotSafe will
establish as many as nine CFA plants, each of which would result in additional
licensing fees to BioSafe. In accordance with the agreement, BioSafe will
provide technical assistance in connection with these facilities including
facility design, installation, testing and training. In addition to royalty
payments for each plant, ScotSafe has agreed to pay BioSafe for consulting and
other services, and will reimburse the company for its out-of-pocket expenses
and disbursements in connection with these services.
In connection with Dr. Rosen's resignation on March 27, 1996, the Company
granted him a 90- day non-exclusive option to purchase the Company's medical
waste disposal technology, among other assets that are not used in the Company's
core landfill remodeling and operation business, at a price to be determined by
independent appraisal. The Company retains a right to accept a competing offer
deemed preferable by the Company, subject to a right of first refusal by Dr.
Rosen. See "Business--Discontinued Operations, Restructuring and Management
Change."
MARKETS AND COMPETITION
The solid waste disposal and management industry presents a broad variety
of opportunities, and it is difficult to characterize the market in general
terms. Likewise, the competitive environment is evolving rapidly, as new
problems are identified and new technologies and approaches are developed for
dealing with them. BioSafe faces competition or potential competition from a
large number of companies, many of which have substantially greater resources
than the Company. The Company believes that its engineering technology, know-how
and experience represent potential competitive advantages, and it seeks also to
compete by being prepared to understand and evaluate thoroughly the potential
customer's problem and the materials involved before proposing a solution. In
certain circumstances, the Company's marketing approach may require it to expend
significant resources in preliminary phases of a project before there is any
assurance that a project is feasible or that the Company's proposal will be
accepted, which necessarily entails certain financial risks.
At the present time the Fairhaven landfill project is believed to be the
largest project of its kind in the United States. There have been some small
landfill mining demonstration projects in Massachusetts, Florida, New York, and
Pennsylvania. Landfill mining differs from landfill remodeling in that landfill
mining's principal purposes are to reclaim recyclables and to reduce the
footprint of the landfill to reduce and/or delay closure and postclosure costs.
BioSafe is not aware of any major company involved in either landfill mining or
remodeling at this time. BioSafe expects that significant competition is likely
to develop as the benefits of
8
<PAGE> 12
the remodeling approach become more widely known,
and that some potential competitors may have significantly greater resources
than BioSafe. BioSafe has obtained patent protection for aspects of its
remodeling technology. No assurance can be given, however, that competitors may
not be able to successfully challenge BioSafe's patents, or develop landfill
remodeling technologies which avoid these patents.
ENVIRONMENTAL REGULATION
The Company and its customers are subject to extensive and evolving
environmental laws and regulations that have been enacted in response to
technological advances and increased concern over environmental issues. These
regulations are administered by the EPA and various other federal, state and
local environmental, transportation, health and safety agencies. The Company
believes that to a significant extent such laws and regulations have the effect
of enhancing the potential market in which the Company operates, because the
Company seeks to attract customers by offering them economical solutions to
regulatory problems. On the other hand, such laws and regulations represent a
potential constraint on the Company's operation of projects for its customers or
for its own account.
In order to develop and operate a landfill remodeling project, the Company
must go through several governmental review processes and obtain one or more
permits and often zoning or other land use approvals. These permits and zoning
or land use approvals are difficult and time consuming to obtain and may be
opposed by various local elected officials and citizens' groups. Once obtained,
operating permits generally must be periodically renewed and are subject to
modification and revocation by the issuing agency.
The Company's remodeling and operation of landfills subject it to certain
operational, monitoring, site maintenance, closure and post-closure and
financial assurance obligations which change from time to time and which could
give rise to increased capital expenditures and operating costs, although in
landfill projects carried out for municipalities or other customers the Company
will seek to establish contractual arrangements under which the customer will
assume the risk of any additional capital expenditure requirements arising from
regulatory requirements. In connection with the Company's preliminary
development of landfill remodeling projects, it is necessary to expend
considerable time, effort and money in complying with the governmental review
and permitting process necessary to remodel and increase the capacity of these
landfills. Governmental authorities have the power to enforce compliance with
these laws and regulations and to obtain injunctions or impose civil or criminal
penalties in the case of violations. Failure to correct the problems to the
satisfaction of the authorities could lead to curtailed operations or even
closure of a landfill.
The principal federal, state and local statutes and regulations
applicable to the Company's operations are as follows:
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976. RCRA regulates the
generation, treatment, storage, handling, transportation and disposal of solid
waste and requires states to develop programs to insure the safe disposal of
solid waste. RCRA divides solid waste into two groups, hazardous and
nonhazardous. Wastes are generally classified as hazardous wastes if they (i)
either (a) are specifically included on a list of hazardous wastes or (b)
exhibit certain hazardous characteristics and (ii) are not specifically
designated as nonhazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as nonhazardous.
Among the wastes that are specifically designated as nonhazardous waste are
household waste and special waste. These wastes, which will be accepted at the
Company's landfills, may contain substances that may be as toxic or prove to
cause contamination as some wastes classified and regulated as hazardous.
In October 1991, the EPA adopted new regulations pursuant to Subtitle D
of RCRA (the "Subtitle D Regulations"). These new regulations became generally
effective in October 1993 (except for certain MSW landfills accepting less than
100 tons per day, as to which the effective date was April 9, 1994, and new
financial assurance
9
<PAGE> 13
requirements, which become effective April 9, 1997) and include location
restrictions, facility design standards, operating criteria, closure and
post-closure requirements, financial assurance requirements, groundwater
monitoring requirements, groundwater remediation standards and corrective action
requirements. In addition, these regulations require that new landfill units
meet more stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) designed to keep leachate out
of groundwater and have extensive collection systems to carry away leachate for
treatment prior to disposal. Groundwater wells must also be installed at
virtually all landfills to monitor groundwater quality. The regulations will
also require, where threshold test levels are present, that methane gas
generated at landfills be controlled in a manner that will protect human health
and the environment. Each state is required to revise its landfill regulations
to meet these requirements or such requirements will be automatically imposed
upon it by the EPA. Each state is also required to adopt and implement a permit
program or other appropriate system to ensure that landfills within the state
comply with the Subtitle D criteria. Many states have already adopted
regulations or programs as stringent as or more stringent than the Subtitle D
Regulations, which were first proposed in August 1988.
THE FEDERAL WATER POLLUTION CONTROL ACT (THE "CLEAN WATER ACT"). The Clean
Water Act establishes rules regulating the discharge of pollutants from a
variety of sources, including solid waste disposal sites, into waters of the
United States. If runoff or collected leachate from the Company's landfills is
discharged into a water of the United States, the Clean Water Act would require
the Company to apply for and obtain a discharge permit, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants
in such discharge. Also, virtually all landfills are required to comply with the
new federal storm water regulations, which are designed to prevent possibly
contaminated storm water from flowing into surface waters. The Company is
working with the appropriate regulatory agencies to ensure that its facilities
are in compliance with Clean Water Act requirements, particularly as they apply
to treatment and discharge of leachate and storm water. The Company has secured
or has applied for the required discharge permits under the Clean Water Act or
comparable state-delegated programs. To ensure compliance with the Clean Water
Act pretreatment and discharge requirements, the Company has either installed
wastewater treatment systems at its facilities to treat its effluent to
acceptable levels before discharge or has arranged (or is arranging) to
discharge its effluent to municipal wastewater treatment facilities.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY
ACT OF 1980 ("SUPERFUND" OR "CERCLA"). CERCLA established a regulatory and
remedial program intended to provide for the investigation and cleanup of
facilities from which there has been, or is threatened, a release of any
hazardous substance into the environment. CERCLA's primary mechanism for
remedying such problems is to impose strict joint and several liability for
cleanup of facilities on current owners and operators of the site, former owners
and operators of the site at the time of the disposal of the hazardous
substances, as well as the generators of the hazardous substances and the
transporters who arranged for disposal or transportation of the hazardous
substances. The costs of CERCLA investigation and cleanup can be very
substantial. Liability under CERCLA does not depend upon the existence or
disposal of "hazardous waste" but can also be founded upon the existence of even
very small amounts of the numerous "hazardous substances" listed by the EPA,
many of which can be found in household waste. If the Company were to be found
to be a responsible party for a CERCLA cleanup, either at one of the Company's
owned or operated facilities has been stored or disposed of, the enforcing
agency could hold the Company completely responsible for all investigative and
remedial costs even if others may also be liable. CERCLA also authorized the
imposition of a lien in favor of the United States upon all real property
subject to or affected by a remedial action for all costs for which a party is
liable. The Company's ability to obtain reimbursement from others for their
allocable share of such costs would be limited by the Company's ability to find
other responsible parties and prove the extent of their responsibility and by
the financial resources of such other parties. In the past, legislation has been
introduced in Congress to limit the liability of municipalities and others under
CERCLA as generators and transporters of municipal solid waste. Although such
legislation has not been enacted, if it were to pass it would limit the
Company's ability to seek full contribution from municipalities for CERCLA
cleanup costs even if the hazardous substances that were released and caused the
need for cleanup at one of the Company's facilities were generated by or
transported to the facility by a municipality.
10
<PAGE> 14
THE CLEAN AIR ACT. The Clean Air Act provides for regulation, through
state implementation of federal requirements, of the emission of air pollutants
from certain landfills based upon the date of the landfill construction and
volume per year of emissions of regulated pollutants. The EPA has recently
promulgated new source performance standards regulating air emissions of certain
regulated pollutants (methane and non-methane organic compounds) from municipal
solid waste landfills. The EPA may also issue regulations controlling the
emissions of particular regulated air pollutants from municipal solid waste
landfills. Landfills located in areas with air pollution problems may be subject
to even more extensive air pollution controls and emission limitations. In
addition, the EPA has issued standards regulating the removal, handling and
disposal of asbestos-containing materials.
Each of the federal statutes described above contains provisions
authorizing, under certain circumstances, the bringing of lawsuits by private
citizens to enforce the provisions of the statutes.
THE HAZARDOUS MATERIALS TRANSPORTATION ACT. The transportation of
hazardous waste is regulated both by the EPA pursuant to RCRA and by the federal
Department of Transportation ("DOT") pursuant to the Hazardous Materials
Transportation Act ("HMTA"). Pursuant to the HMTA, DOT has enacted regulations
governing the transport of hazardous waste. These regulations govern, among
other things, packaging of the hazardous waste during transport, labeling and
marking requirements, and reporting of and response to spills of hazardous waste
during transport. In addition, under both the HMTA and RCRA, transporters of
hazardous waste must comply with manifest and recordkeeping requirements, which
are designed to ensure that a shipment of hazardous waste is properly identified
and can be tracked from its point of generation to point of disposal at a
permitted hazardous waste treatment, storage or disposal facility.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 ("OSHA"). OSHA
authorizes the Occupational Safety and Health Administration to promulgate
occupational safety and health standards. Various of those promulgated
standards, including standards for notices of hazards, safety in excavation, and
the handling of asbestos, may apply to certain of the Company's operations. OSHA
regulations set forth requirements for the training of employees handling, or
who may be exposed in the workplace to, concentrations of asbestos-containing
materials that exceed specified action levels. The OSHA regulations also set
standards for employee protection, including medical surveillance, the use of
respirators, protective clothing and decontamination units, during asbestos
demolition, removal or encapsulation as well as its storage, transportation and
disposal. In addition, OSHA specifies a maximum permissible exposure level for
airborne asbestos in the workplace. The company has no direct involvement in
asbestos removal or abatement projects.
STATE AND LOCAL REGULATION. Each state in which the Company now
operates or may operate in the future has laws and regulations governing the
generation, storage, treatment, handling, transportation and disposal of solid
and hazardous waste, water and air pollution and, in most cases, the siting,
design, operation, maintenance, closure and post-closure maintenance of
landfills and transfer stations. In addition, many states have adopted
"Superfund" statutes comparable to, and in some cases more stringent than,
CERCLA. These statutes impose requirements for investigation and cleanup of
contaminated sites and liability for costs and damages associated with such
sites, and some provide for the imposition of liens on property owned by
responsible parties. Furthermore, many municipalities also have ordinances,
local laws and regulations affecting Company operations. These include zoning
and health measures that limit solid waste management activities to specified
sites or activities, flow control provisions that direct the delivery of solid
wastes to specific facilities, laws that grant the right to establish franchises
for collection services and then put out for bid for the right to provide
collection services, and bans or other restrictions on the movement of solid
wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate against
out-of-state waste. Generally, restrictions on the importation of out-of-state
waste have not withstood
11
<PAGE> 15
judicial challenge. However, proposed federal legislation would allow individual
states to prohibit the disposal of out-of-state waste or to limit the amount of
out-of-state waste that could be imported for disposal and would require states,
under certain circumstances, to reduce the amounts of waste exported to other
states. If this or similar legislation is enacted, states in which the Company
operates landfills could act to limit or prohibit the importation of
out-of-state waste. Such state actions could adversely affect landfills within
those states that receive a significant portion of waste originating from
out-of-state.
In addition, certain states and localities may for economic or other
reasons restrict the exportation of waste from their jurisdiction or require
that a specified amount of waste be disposed of at facilities within their
jurisdiction. Recently, the United States Supreme Court held unconstitutional,
and therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
may elect not to challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation would allow states
and localities to impose certain flow control restrictions. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may adversely affect the Company's ability to operate its landfills
at their full capacity and/or affect the prices that can be charged for landfill
disposal services.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling and to prohibit
the disposal of certain types of solid wastes, such as yard wastes, in
landfills. The enactment of regulations reducing the volume and types of wastes
available for transport to and disposal in landfills could affect the Company's
ability to operate its facilities at their full capacity.
EMPLOYEES
As of April 29, 1996, BioSafe had approximately 25 full-time employees.
BioSafe believes its future success will depend in part on its continued ability
to recruit and retain highly qualified technical and managerial personnel.
BioSafe's employees are not subject to any collective bargaining agreement.
BioSafe considers its relations with its employees to be good.
12
<PAGE> 16
ITEM 2. PROPERTIES
In addition to the leases and fee interests relating to certain of
BioSafe's landfills described under "Business--Landfill Remodeling," the Company
leases the following properties:
BioSafe's corporate headquarters is located in Cambridge, Massachusetts.
BioSafe occupies 8,956 square feet at the Cambridge location under the terms of
a lease expiring in December 1998, with an annual rent of $165,180. The lessor
is unaffiliated with BioSafe.
BioSafe has leased two parcels of land in Fairhaven, Massachusetts (the
"Fairhaven Land") for use as sorting and processing sites for the Fairhaven
landfill project. The terms of the lease call for BioSafe to lease the Fairhaven
Land for a five year term at an annual rent of approximately $30,000.
Through a subsidiary in which the Company owns an 80% interest, the Company
has purchased the Moretown landfill. The property comprises approximately 200
acres in total.
BioSafe has leased a 20,000 square foot research and development facility
in Woburn, Massachusetts, where the discontinued operations were located.
BioSafe occupies this facility under the terms of a lease agreement for five
years, calling for annual rent of $75,000. The lessor is unaffiliated with
BioSafe. BioSafe is currently reviewing its options with respect to this lease.
BioSafe believes that its present offices and facilities are adequate for
its current needs, and that suitable additional or substitute space will be
available to accommodate further physical expansion of BioSafe's operations.
BioSafe does not lease or own any other real property.
ITEM 3. LEGAL PROCEEDINGS
BioSafe, Inc. is a party to litigation pending in Superior Court in Bristol
County, Massachusetts, captioned SUSAN ALLUA, ET AL. V. MASSACHUSETTS DEPARTMENT
OF ENVIRONMENTAL PROTECTION, TOWN OF FAIRHAVEN AND BIOSAFE, INC. (Bristol
Superior Court, Massachusetts) (Civil Litigation No. A95-01717) (the
"Litigation"). Plaintiffs are 16 residents of Fairhaven, Massachusetts who
reside in the vicinity of the Fairhaven landfill. Plaintiffs commenced the
Litigation on November 8, 1995. In the Litigation, plaintiffs seek an order
annulling the Major Modification Permit issued by the Massachusetts DEP on
October 11, 1995 (the "Permit"), which authorized one phase of the landfill
remodeling project at the Fairhaven landfill. Plaintiffs also have brought
claims alleging that the DEP violated the Massachusetts Environmental Policy Act
in issuing the Permit (the "MEPA Claims"). Further, plaintiffs have brought
certain common law claims against BioSafe for nuisance, trespass and strict
liability based principally on alleged odor and dust conditions resulting from
BioSafe's work at the Fairhaven landfill. The common law claims seek
compensatory damages and injunctive relief.
Pursuant to the Massachusetts Administrative Procedure Act, the Permit
Appeal will be heard by a Bristol County Superior Court Judge. Plaintiffs, the
DEP, the Town and BioSafe each will have an opportunity to submit a brief to the
Court. The parties have submitted a proposed briefing schedule to the Court and
have requested that the Court hold a hearing on the Permit Appeal on May 10,
1996. The Company intends to challenge all of the alleged procedural and
substantive grounds asserted by the Plaintiffs for the appeal.
On January 12, 1996, the Company filed a motion to dismiss the MEPA Claims.
The Town and DEP have filed a similar motion. The Court heard oral argument on
the motions to dismiss on April 9, 1996, and took the matter under advisement.
The Court indicated that a decision on the motion will be forthcoming in the
next several weeks. Plaintiffs' common law claims for nuisance, trespass and
strict liability are based principally on alleged odor and dust conditions
resulting from BioSafe's excavation activities at the Fairhaven landfill during
the summer and early fall of 1995. The Company is pursuing factual discovery
with regard to these claims. If the Plaintiffs pursue these claims after
disposition of the Permit Appeal and the MEPA Claims, a period of additional
discovery and other pre-trial proceedings would take place prior to trial on the
merits.
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<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securityholders during the fiscal
quarter ended December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
The Common Stock has been quoted on the NASDAQ Small-Cap Market under the
symbol "BSFE" since November 14, 1995 and previously had been quoted in the NASD
Over-the-Counter market since March 29, 1995. Prior to that date, 49,496 shares
of Common Stock had been issued and registered pursuant to a registration
statement under the 1933 Act and were eligible for resale without restriction,
although no active trading market existed for the Company's Common Stock. On
April 29, 1996, the reported last sale price of the Common Stock on the NASDAQ
Small-Cap Market was $2.86 per share and there were 302 holders of record of
Common Stock. The Company has not paid dividends and has no present intention to
pay dividends. The following table sets forth the high and low bid information
of the Common Stock for the periods indicated.
<CAPTION>
High Low
Quarter Ended Closing Bid Closing Ask
------------- ----------- -----------
<S> <C> <C>
1995
----
March 31(1) $3.65 --
June 30 $8.50 $7.50
September 30 $8.00 $4.87
December 31 $7.63 $4.06
<FN>
- -------------
(1) As adjusted to reflect a 1 for 73.083 reverse stock split effected on March
29, 1995.
</TABLE>
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
[Remainder of page intentionally left blank.]
15
<PAGE> 19
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
SELECTED FINANCIAL DATA
(in thousands except for outstanding shares and earnings per share data)
<CAPTION>
FISCAL YEAR ENDED (1)
==========================================================================
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1992 1991
================================================== =========== ========== ========== ========= =========
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPEREATIONS DATA:
Revenues
Landfill revenues............................ $ 1,344 0 0 0 0
Cost of landfill operations
Operating expenses........................... 766 0 0 0 0
Depreciation................................. 72 0 0 0 0
---------- ---------- ---------- --------- ---------
Total cost of operations.................. 838 0 0 0 0
---------- ---------- ---------- --------- ---------
Gross profit(loss)..................... 506 0 0 0 0
Sales, general and administrative expenses... 4,275 1,485 936 561 779
Amort. of prepaid consulting services........ 500 0 0 0 0
Nonrecurring charges......................... 1,315 0 0 0 0
---------- ---------- ---------- --------- ---------
Income (loss) from operation........... (5,584) (1,485) (936) (561) (779)
---------- ---------- ---------- --------- ---------
Other income(expense)
Royalty and other incom................... 865 1,850 1,300 835 75
Interest income........................... 289 14 27 54 --
Interest and financing expense............ (471) (166) (125) (116) (108)
Gain on sale of assets.................... -- 223 -- -- --
Write-off of accounts and notes
receivable.............................. (2,975) -- -- --
Loss on investment in
marketable securities................... (91) 9 -- -- --
Write-off of assets....................... -- -- -- (211) (30)
---------- ---------- ---------- --------- ---------
Total other income (expense)........... (2,383) 1,912 1,202 562 63
---------- ---------- ---------- --------- ---------
Income (loss) before income taxes...... (7,967) 427 266 1 (842)
Federal and state income taxes............... (109) 185 103 0 0
----------- ---------- ---------- --------- ---------
Net income (loss) before minority
interest............................. (7,858) 242 163 1 (842)
Minority interest............................ 13 0 0 0 0
----------- ---------- ---------- --------- ---------
Net Income (loss)...................... (7,871) 242 163 1 (842)
=========== ========== ========== ========= =========
Preferred stock dividend..................... 10 108
----------- ---------- ---------- --------- ---------
Net income (loss) available to common stock
shareholders.............................. (7,881) 134 163 1 (842)
=========== ========== ========== ========= =========
Earnings (loss) per share.................... (0.82)(2) 0.03(2) 0.04(2) 00.00(2) (0.51)(2)
Weighted average number of shares used in
computation of earnings (loss) per share.. 9,664,046 4,498,635 3,645,903 3,522,094 1,640,625
BALANCE SHEET DATA (AT PERIOD END):
Working capital.............................. $ 2,393 659 (88) (1,778) (2,019)
Total assets................................. $ 23,508 4,369 1,289 979 822
Long-term debt, less current
maturities................................. $ 12,266 1,263 505 0 0
Total shareholder's equity (deficit)......... $ 3,292 597 (403) (1,730) (1,731)
<FN>
NOTES:
(1) Excludes BioSafe International, Inc. (formerly Zoe Capital Corp.) which is immaterial.
(2) Primary earnings per common share are based on the weighted average number of common shares and dilutive common stock
equivalent shares outstanding during each period. Fully diluted earnings per share have been omitted since thay are either
the same as primary earnings per share or are anti-dilutive.
</TABLE>
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<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed herein.
The Company was incorporated in 1989 as Zoe Capital Corp. and had no
operations until March 29, 1995. On that date, the Company acquired BioSafe,
Inc., a Delaware corporation, through a merger with a subsidiary of the Company,
and the Company changed its name to "BioSafe International, Inc."
The Company is engaged in the business of rehabilitating landfills to
permit their continued operation with increased capacity in an environmentally
sound manner (referred to by BioSafe as "landfill remodeling"). BioSafe has
developed technologies for size reduction and handling of waste materials for
use in landfill remodeling. Prior to March 27, 1996, BioSafe had been actively
developing other technologies with potential application in a number of business
areas, including the Ancillary Technologies, infectious medical waste disposal,
and Major Sports Fantasies, Inc., a business unrelated to the environmental
industry. BioSafe is not currently allocating its resources or activities to the
development or commercial exploitation of the Ancillary Technologies or Major
Sports Fantasies, Inc. See "Business--Discontinued Operations, Restructuring and
Management Change."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
FINANCIAL POSITION
- ------------------
BioSafe had $5,237,000 in cash as of December 31, 1995. This represented an
increase of $5,066,000 over December 31, 1994. Working capital as of December
31, 1995 was $2.393,000, an increase of $1,734,000 over December 31, 1994. This
increase was largely due to the raising of net proceeds of $19,038,000 in equity
and long-term debt during the year ended December 31, 1995. BioSafe had
approximately $1.8 million in cash and nominal working capital as of March 31,
1996. See Notes 3, 7, 9, 10, 14, 15 and 18 to t he Consolidated Financial
Statements presented in Item 8.
During the year ended December 31, 1995, the Company devoted substantial
resources to various project development and related activities. See "Business -
Landfill Remodeling" in Item 1 and Note 7 to the Consolidated Financial
Statements presented in Item 8. Additions to project development costs,
primarily related to landfill remodeling, of $11,843,000 were made during the
year ended December 31, 1995 including equipment purchase costs of $2,246,000.
On August 1, 1995, BioSafe terminated the BioMedical Waste Systems, Inc.
("BioMed") technology license for BioSafe's patented continuous feed autoclave
("CFA") medical waste processing technology in most territories as a result of
BioMed's failure to make required payments. Accordingly, the Company wrote off
as uncollectible the outstanding accounts and notes receivable balances of
$2,975,000 from BioMed. In December 1995 the Company entered into a licensing
and royalty agreement with ScotSafe Limited for the exclusive rights to use
BioSafe's continuous feed autoclave medical waste processing technology in the
British Isles. ScotSafe is a Glasgow, Scotland based company.
RESULTS OF OPERATIONS
- ---------------------
Through the first quarter of 1995, substantially all of BioSafe's revenue
had been attributable to the sale and licensing of BioSafe's medical waste
treatment technologies to BioMed. Revenues recorded during the year ended
December 31, 1995 consisted of $1,344,000 received from operation of the
Fairhaven landfill project which commenced on June 22, 1995 as well as revenues
from BioMed.. For the year ended December 31, 1995, the net loss was
($7,871,000), as compared to net income of $241,000 during the year ended
December
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<PAGE> 21
31, 1994. This decrease was primarily due to the write-off of the accounts and
notes receivable from BioMed, the increased level of the Company's selling,
general and administrative expenses, the nonrecurring charges related to the
discontinuance of certain operations (see Note 18 to the Consolidated Financial
Statements presented in Item 8), and an increase of $306,000 in interest expense
and financing costs, primarily related to the Fairhaven landfill and the
convertible debenture issued in the fourth quarter of 1995 (see Notes 7 and 9 to
the Consolidated Financial Statements presented in Item 8), partially offset by
net operating income from the Fairhaven landfill project. In addition, on March
29, 1995, the Company entered into a two-year agreement with Liviakis Financial
Communications, Inc. ("Liviakis"), whereby Liviakis assists and consults with
the Company on matters concerning mergers and acquisitions, corporate finance,
investor relations and financial public relations. As compensation for services
to be rendered by Liviakis, the Company issued 890,000 unregistered, restricted
shares of Common Stock. As a result, on March 29, 1985, the Company recorded a
prepaid asset of $1,335,000. The Company is amortizing this expense over the two
years of the Agreement, at a rate of $167,000 per quarter, or a total of
$501,000 for the year ended December 31, 1995. See Note 8 to the Consolidated
Financial Statements presented in Item 8.
Selling, general and administrative expenses consist of project development
activities, marketing and sales costs, salaries and benefits, and legal,
accounting and other professional fees, and other administrative costs. These
costs totaled $4,275,000 for the year ended December 31, 1995, including
$1,079,000 relating to the discontinued operations. This represented an increase
of 188% compared to the $1,485,000 incurred during the year ended December 31,
1994. The increase was primarily associated with the development, marketing and
sales of BioSafe's landfill remodeling technology, the Ancillary Technologies,
Major Sports Fantasies, Inc.,and financing activities.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
FINANCIAL POSITION
- ------------------
BioSafe had $171,000 in cash as of December 31, 1994. This represented an
increase of $168,000 over December 31, 1993. Working capital as of December 31,
1994 was $659,000, which represented an increase of $746,000 over December 31,
1993, which was ($87,000). This increase was largely due to the net proceeds of
$2,200,000 in equity and debt capital and increased levels of royalties from the
BioMed Agreement. See Notes 3, 7, 9, 10, 14, 15 and 18 to the Consolidated
Financial Statements presented in Item 8.
Other significant assets as of December 31, 1994 were project development
costs and the receivable from One, Three, Six, Inc. Project development costs
increased $771,000, largely as a result of start up costs of $670,000 incurred
on the Fairhaven landfill project. On August 31, 1994, One, Three, Six, Inc.
agreed to sell substantially all of its assets to a third party and,
accordingly, liquidate the company. BioSafe expects to receive proceeds valued
at $800,000, on a discounted basis at 9%, from the liquidation. The Company
recognized a gain of $223,000 in 1994 from this transaction. See Note 3 to the
Consolidated Financial Statements included elsewhere herein.
RESULTS OF OPERATIONS
- ---------------------
Revenues under the BioMed licensing agreement (the "BioMed Agreement") for
the year ended December 31, 1994 increased to $1,850,000 from $1,300,000 for the
year ended December 31, 1993. This represented an increase of 42% over the
preceding year.
Selling, general and administrative expenses increased from $905,000
during the year ended December 31, 1993 to $1,476,000 during the year ended
December 31, 1994. This represented an increase of $572,000, or 63%, over the
preceding year, and was due to the development, marketing and sales of BioSafe's
landfill remodeling technology and financing activities.
18
<PAGE> 22
For the year ended December 31, 1994, net income was $241,000, as compared
to $164,000 for the year ended December 31, 1993. This represented an increase
of 47%. This increase was primarily due to the gain on sale of the Company's
short-term investment in One, Three, Six, Inc. (formerly Shred Pax Corp.), net
of increased levels of interest expense incurred by the Company due to the
increased indebtedness of the Company during the year ended December 31, 1994.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company and its customers operate in a highly regulated environment,
and in general the Company's landfill remodeling projects, such as the Fairhaven
landfill, will be required to have federal, state and/or local government
permits and approvals. See "Business--Environmental Regulation." Any of these
permits or approvals may be subject to denial, revocation or modification under
various circumstances. In addition, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
are interpreted or enforced differently, BioSafe or its customers may be
required to obtain additional operating permits or approvals. There can be no
assurance that BioSafe will meet all of the applicable regulatory requirements.
Any delay in obtaining required permits or approvals will tend to cause delays
in the Company's ability to obtain bond or other project financings, resulting
in increases in the Company's needs to invest capital in projects prior to
obtaining financing, and will also tend to reduce project returns by deferring
the receipt of project revenues. In the event that the Company is required to
cancel any planned project as a result of the inability to obtain required
permits or other regulatory impediments, the Company may lose any investment it
has made in the project up to that point, and in the case of the Fairhaven and
Moretown landfill projects, have a material adverse effect on the Company's
financial condition and results of operations.
To the extent possible, the Company intends to conduct its operations in
such a manner as to minimize the impact of environmental issues on operating
results. As a general matter, the Company will seek to avoid projects in which
it would be required to handle or dispose of hazardous waste, although it is
prepared to consider projects that may involve some cleanup of previously
existing hazardous waste, subject to controls designed to minimize exposure to
risk of liability and to assure an economic return from the activity. The
Company's landfill projects will involve the installation and operation of
extensive environmental monitoring systems to enable the Company to identify and
deal with any potential environmental problems, which systems have already been
implemented at the Fairhaven and Moretown landfill projects. The cost of
installing these systems will be included in the Company's total investment in
the project. The Company's contract for the Fairhaven landfill project requires
the Town, as owner of the landfill, to pay for the ultimate cost of closing the
landfill, and provides for a set-aside of a part of the Town's share of project
revenues to establish a sinking fund for payment of closure costs, so that the
Company will not be required to establish any reserves for this purpose. The
Company intends to implement similar arrangements for closure costs in its
agreements for other landfill projects which it may enter into in the future.
The Company's ownership of the Moretown landfill through its subsidiary, Waste
Professionals of Vermont, Inc., involves a greater degree of exposure to
potential environmental liabilities than is involved with landfills operated
under a management contract. In conjunction with the acquisition of the Moretown
project, the Company recorded $1.5 million in estimated closure and post-closure
costs based on engineering estimates of the current condition of the landfill.
See Note 12 to the Consolidated Financial Statements presented in Item 8.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
Initial Commercialization Stage; Limited Operating History. To date,
although BioSafe has conducted significant testing of methods and processes
based on its size reduction and materials handling technology, and has gained
substantial experience in connection with the development and operation of the
Fairhaven landfill project to date, BioSafe has not yet carried through a
landfill remodeling project to completion. Final development and operation may
be subject to engineering and construction problems such as cost overruns and
start-up delays resulting from technical or mechanical problems, unfavorable
conditions in the equipment or labor market, or environmental permitting and
other regulatory problems, as well as other possible adverse factors. There can
be no assurance that BioSafe will be successful in developing and implementing
commercial
19
<PAGE> 23
landfill remodeling projects, or that any such development can be accomplished
without excessive cost or delay.
Operating Losses and Accumulated Deficit; Uncertainty of Future
Profitability. BioSafe had an accumulated operating deficit at December 31, 1995
of $9,327,000. Prospects for future profitability are heavily dependent on the
success of BioSafe's landfill remodeling projects. There can be no assurance
that BioSafe will generate sufficient revenue to be profitable or, if
profitable, to maintain profitability in future years.
Risks of Limited Liquidity. The Company has limited liquidity in relation
to its short-term capital commitments and operating cash requirements. The
Company's ability to satisfy its commitments and operating requirements is
dependent on a number of pending financing activities which are not assured of
successful completion. Any failure of the Company to obtain sufficient financing
in the short run would have a materially adverse effect on the Company's
financial condition and operations.
Potential Environmental Liability and Adverse Effect of Environmental
Regulation. BioSafe's business exposes it to the risk that it will be held
liable if harmful substances escape into the environment as a result of its
operations and cause damages or injuries. Moreover, federal, state and local
environmental legislation and regulations require substantial expenditures and
impose significant liabilities for noncompliance. See "Business--Environmental
Regulation" in Item 1.
Future Capital will be Required. BioSafe will require substantial funds to
complete and bring to commercial viability all of its currently planned
projects.
Unpredictability of Patent Protection and Proprietary Technology. BioSafe's
success depends, in part, on its ability to obtain and enforce patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. While BioSafe has been issued a U.S. patent and certain
related foreign patents on certain of its size reduction and materials handling
technology with particular reference to landfill remodeling and on its CFA
medical waste treatment system, there can be no assurance that others will not
independently develop similar or superior technologies, duplicate any of
BioSafe's processes or design around any processes on which BioSafe has or may
obtain patents. In addition, it is possible that third parties may have or
acquire licenses for other technology that BioSafe may use or desire to use, so
that BioSafe may need to acquire licenses to, or to contest the validity of,
such patents of third parties relating to BioSafe's technology. There can be no
assurance that any license required under such patents would be made available
to BioSafe on acceptable terms, if at all, or that BioSafe would prevail in any
such context. Moreover, BioSafe could incur substantial costs in defending
itself in suits brought against BioSafe or in bringing suits against other
parties related to patent matters.
In addition to patent protection, BioSafe also relies on trade secrets,
proprietary know-how and technology which it seeks to protect, and
confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements and other steps taken by BioSafe
will be effective to protect BioSafe's technology against unauthorized use by
others.
LIQUIDITY AND CAPITAL RESOURCES
To date, BioSafe has financed its activities primarily through the
issuance of equity securities and debt, including convertible notes and common
stock warrants. As previously mentioned, during the year ended December 31, 1995
the Company raised net proceeds of $19,038,000 through private placements of
equity securities and the issuance of long-term debt. The Company used
$1,459,000 of such proceeds to repay existing indebtedness
At present, BioSafe is focusing its resources and efforts on the
development of its landfill remodeling business. BioSafe is currently engaged in
a project with the Town of Fairhaven, Massachusetts to remodel its
20
<PAGE> 24
existing 26-acre landfill. Total investments in the Fairhaven landfill project
through December 31, 1995 were approximately $6 million. The Company estimates
that the total cost of development of the Fairhaven landfill project, including
amounts invested to date, will be approximately $20 million. Since assuming
responsibility for operation of the landfill in June 1995, the Company is
receiving revenue from such operation. On October 11, 1995, the Company received
a Major Modification Permit including an Authorization to Construct and remodel
phase 1 of the first of three "cells" of the landfill (about 6 1/2 acres). This
permit has been challenged in state court by certain residents of the Town of
Fairhaven. See "Legal Proceedings." Construction of phase 1 of the first cell of
the Fairhaven landfill has been completed, and the Company is awaiting an
Authorization to Operate from the DEP to operate the cell as planned. Additional
ATCs, ATOs and other minor permits will also be required for the second phase of
the first cell and for the second and third cells. The Company believes that the
issuance of a permit to remodel phase 1 of the first cell reflects substantial
acceptance of its remodeling approach as applied at the Fairhaven landfill by
the Massachusetts environmental authorities, but no assurance can be given that
further required ATCs, ATOs and other permits will be obtained on a timely
basis. Pending completion of remodeling of phase one of the first cell and
issuance of the ATO for this phase, the Company is operating the landfill under
prior permits. Revenue received during the period of completing the remodeling
is expected to cover a portion of capital requirements for project completion,
although the contribution will be small in proportion to total requirements.
BioSafe may finance the Fairhaven landfill project in large part through a sale
of approximately $15.0 million in tax-exempt industrial revenue bonds, and has
received initial approval from the Massachusetts Industrial Finance Authority
("MIFA") for such financing. The Company has engaged Oppenheimer & Co., Inc. as
placement agent to manage and sell the bonds, and Oppenheimer has identified a
potential purchaser of the bonds, although no assurance can be given that such a
purchase will be consummated.
A second landfill project involves the Moretown landfill, located in
Moretown, Vermont. On July 5, 1995, WPV, a corporation 80% owned by the Company,
acquired the property of the Moretown landfill, together with certain related
assets. The remaining 20% of WPV is held by an individual not affiliated with
BioSafe. The Moretown landfill was acquired from an entity in bankruptcy which
had owned the real estate on which the landfill had operated pursuant to a
lease. The Company's total investment in the Moretown landfill project was
approximately $5,000,000 at December 31, 1995. The Company estimates that the
total cost to WPV of completing the Moretown landfill project as planned,
including the cost of completing the landfill and its remodeling, including
amounts invested to date, will be approximately $15.0 million. The Company is
currently seeking to obtain project financing for acquisition, development and
working capital costs of the Moretown landfill project from a local bank, and is
also in the preliminary stages of investigating the availability of industrial
development bond financing similar to the financing in connection with the
Fairhaven landfill project. No assurance can be given that such financing can be
obtained on terms satisfactory to the Company. The Company's ability to sell
industrial revenue bonds for the Moretown landfill project is subject to normal
uncertainties involved with project debt financing, including review of
eligibility of project costs for bond financing, credit evaluation by
prospective bond buyers and negotiation of mutually agreeable financing terms.
In the event that such sale of industrial revenue bonds is not feasible, the
Company believes that it would be able to carry out the remaining investments
required to commence operation of the landfill, without additional remodeling to
expand present capacity, with bank financing and use of general funds from
corporate financings, and that remodeling could be completed by re-investment of
cash flows from such operations.
A third landfill project involves a landfill located on a 26-acre
parcel in the Town of South Hadley, for which BioSafe and the Town recently
entered into an agreement under which BioSafe will operate and remodel the
landfill. Thirteen of the 26 acres may contain hazardous waste and will not be
included in the first phase of the remodeling, subject to a feasibility study.
Upon completion of landfill remodeling activities in the first 13-acre phase at
this site by Company, the remodeled landfill is expected to have additional
capacity of approximately 900,000 tons of waste. In addition, the Company's
proposal to remodel and operate the 10-acre landfill of the Town of Buckland,
Massachusetts has been approved by the Town, and a contract for this project has
been negotiated.
21
<PAGE> 25
The Company has been chosen to remodel additional landfills in
Massachusetts and has acquired an option to purchase a landfill in Pennsylvania.
See "Business--Landfill Remodeling--Other Landfill Remodeling Projects."
If the Company is successful in raising additional capital to meet existing
commitments and to support additional capital investments, the Company intends
to pursue and increase its landfill remodeling business, and therefore its
capital requirements, during the next few years. Typically, the Company expects
to be required to incur substantial capital costs in connection with feasibility
studies, contracting, permitting and initial development, ranging from $500,000
up to $2.0 million, for any such landfill remodeling project in the initial
phases of the project.
After completion of these initial phases, the Company will generally seek
to obtain project-level financing from the issuance of industrial revenue bonds
or similar means, and to recapture a part of its initial investment from such
project financing. The Company will therefore be required to commit substantial
capital resources from internal sources in the case of any landfill remodeling
project prior to being able to obtain outside financing or to derive material
operating revenues from the project.
To the extent practicable, the Company seeks in its projects to retain the
flexibility to defer scheduled capital investments. For example, the total
investments required for the Fairhaven and Moretown landfill projects as
described above assume completion of landfill remodeling over the entire site.
The Company may stage remodeling investments over an extended period of time
while still collecting projected project revenues from the utilization of
existing space, although industrial revenue bond financing requirements
applicable to projects such as the Fairhaven landfill project require full use
of proceeds as planned within three years at the longest.
In summary, the Company's total investment required to complete its
Fairhaven and Moretown landfill projects, in addition to amounts already
invested as of December 31, 1995, will be approximately $24 million, subject to
possible cost overruns which cannot be predicted. The Company estimates that, of
the $24 million estimated required investment, approximately $14 million will be
invested in the Fairhaven landfill project, and approximately $10 million will
be invested in the Moretown landfill. Furthermore, feasibility studies required
under the Company's contracts with the Towns of South Hadley and Buckland,
Massachusetts, are expected to cost approximately $1 million, and if either of
these projects is determined to be feasible, substantial investments, comparable
to those required for the Company's other landfill remodeling projects, would be
required to complete the projects. The Company has under discussion and
negotiation a number of additional landfill remodeling projects, and any
contracts resulting from these discussions and negotiations would increase the
Company's capital requirements accordingly. In addition, the Company requires
cash to fund its corporate staff and other overhead expenses, which may grow
significantly as the Company expands the scope of its operations. Although the
Company has recently begun receiving cash revenues from operation of the
Fairhaven landfill, such revenues are at this time small in relation to ultimate
projections. The Company anticipates that it will be at least three months
before the Company will begin realizing cash revenues from its investments in
the Moretown landfill project and other pending projects. The Company will
require additional financing in order to satisfy its existing and pending
commitments. The Company's alternatives under consideration in this regard
include: (a) the raising of additional equity or long-term debt financing; (b)
exercising its call rights with respect to certain outstanding warrants when and
if the applicable market price conditions are satisfied, with the expectation
that proceeds of approximately $18.1 million may be realized from exercise of
these warrants; (c) certain prospects for bank financing or other industrial
revenue bond financing in relation to specific projects; and (d) the proposed
MIFA financing of the Fairhaven landfill project. There can be no assurance that
all or any of these financing plans and expectations will be realized. Failure
of the Company to obtain required financing in the short term could have a
materially adverse effect on the Company's financial condition and operations.
22
<PAGE> 26
INFLATION
BioSafe does not believe its operations have been materially affected by
inflation.
23
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[Remainder of page intentionally left blank.]
24
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1995 and 1994 F-2 to F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 and for the period
from April 23, 1990 (inception) through December 31, 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1995, 1994 and 1993
and for the period from April 23, 1990 (inception) through
December 31, 1995 F-5 to F-9
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 and for the period
from April 23, 1990 (inception) through December 31, 1995 F-10 to F-11
Notes to Consolidated Financial Statements F-12 to F-31
All schedules have been omitted as they ae inapplicable or not required, or the
information has been included in the consolidated financial statements or in
the notes thereto.
25
<PAGE> 29
Independent Auditors' Report
----------------------------
The Board of Directors
BioSafe International, Inc.:
We have audited the accompanying consolidated balance sheets of BioSafe
International, Inc. (a Nevada Corporation) and subsidiaries (a Development Stage
Company) as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1995, and for the
period from April 23, 1990 (inception) through December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BioSafe
International, Inc. and subsidiaries (a Development Stage Company) as of
December 31, 1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1995, and for the period from April 23, 1990 (inception) through December
31, 1995, in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that BioSafe
International, Inc. will continue as a going concern. As discussed in note 1 to
the consolidated financial statements, the Company must raise substantial
additional capital and must achieve a level of revenues adequate to support the
Company's cost structure, which raises substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 30, 1996
F-1
<PAGE> 30
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31,
-------------------------
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 5,237,064 170,893
Accounts and notes receivable, net (Note 3) 2,047,065 2,808,775
Prepaid expenses and other current assets 515,558 2,905
----------- ---------
Total current assets 7,799,687 2,982,573
Non-current accounts and notes receivable (Note 3) -- 300,000
Assets held for sale, net (Notes 4 and 18) 505,980 115,281
Restricted cash 187,500 --
Due from former employees (Note 5) 385,425 --
Investment in affiliate (Note 6) 10,029 --
Property and equipment, net (Note 7) 12,503,091 771,113
Prepaid consulting fees (Note 8) 834,375 --
Deferred financing costs (Note 9) 1,182,251 43,102
Other assets 99,772 157,286
----------- ---------
Total assets $23,508,110 4,369,355
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 31
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31,
---------------------------
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current portion of long-term debt and notes payable (note 9) $ 1,526,188 1,330,124
Accounts payable 3,106,134 682,030
Accrued expenses (Note 10) 698,538 213,603
Income and franchise taxes payable (Note 11) 75,535 98,005
----------- ----------
Total current liabilities 5,406,395 2,323,762
Deferred tax liability (Note 11) -- 185,000
Long-term debt and notes payable (Note 9) 12,266,003 1,263,153
Landfill closure and post-closure costs (Note 12) 1,500,000 --
----------- ----------
Total liabilities 19,172,398 3,771,915
----------- ----------
Commitments and contingencies (Note 13)
Minority interest 1,044,111 --
----------- ----------
Stockholders' equity (Notes 14, 15 and 16):
Preferred stock, $.001 par value. Authorized
1,000,000 shares; no shares issued and out-
standing at December 31, 1995, $.01 par value
authorized 50,000 shares; 4,750 shares
issued and outstanding of Series A, $100
face value at December 31,1994 -- 475,000
Common stock, $.001 par value. Authorized 100,000,000 shares; 11,706,338
shares issued and outstanding at December 31, 1995, $.01 par value,
authorized 10,000,000 shares; 4,712,178 shares (adjusted for stock
split) issued
and outstanding at December 31, 1994 11,706 47,122
Additional paid-in capital 12,607,210 1,500,124
Deficit accumulated during the development stage (9,327,315) (1,424,806)
----------- ----------
Total stockholders' equity 3,291,601 597,440
----------- ----------
Total liabilities and stockholders' equity $23,508,110 4,369,355
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 32
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Operations
<CAPTION>
Period from
April 23, 1990
Years ended December 31, (inception) to
------------------------ December 31,
1995 1994 1993 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Landfill revenues $ 1,344,397 -- -- 1,344,397
----------- ---------- ---------- -----------
Cost of landfill operations:
Operating expenses 766,012 -- -- 766,012
Depreciation 71,649 -- -- 71,649
----------- ---------- ---------- -----------
Total cost of landfill operations 837,661 -- -- 837,661
----------- ---------- ---------- -----------
Gross profit 506,736 -- -- 506,736
Selling, general and administrative expenses (Note 18) 4,275,192 1,484,554 936,196 9,014,199
Amortization of prepaid consulting fees (Note 8) 500,625 -- -- 500,625
Nonrecurring charges (Note 18) 1,315,323 -- -- 1,315,323
----------- ---------- ---------- -----------
Income (loss) from operations (5,584,404) (1,484,554) (936,196) (10,323,411)
----------- ---------- ---------- -----------
Other income (expense):
Royalty and other income (Note 3) 865,220 1,850,000 1,300,000 4,925,220
Interest income 289,145 13,708 27,041 383,930
Gain on sale of assets (Note 3) -- 222,728 -- 222,728
Interest expense and financing costs (471,763) (166,085) (124,788) (1,028,184)
Write-off of accounts and notes receivable (Note 3) (2,975,001) -- -- (2,975,001)
Loss on investment in marketable securities (90,625) (9,375) -- (100,000)
Write-off of assets -- -- -- (241,546)
----------- ---------- ---------- -----------
Total other income (expense) (2,383,024) 1,910,976 1,202,253 1,187,147
----------- ---------- ---------- -----------
Income (loss) before income taxes
and minority interest (7,967,428) 426,422 266,057 (9,136,264)
Federal and state income taxes (Note 11) (109,465) 185,000 102,500 178,035
----------- ---------- ---------- -----------
Net income (loss) before minority interest (7,857,963) 241,422 163,557 (9,314,299)
Minority interest 13,016 -- -- 13,016
----------- ---------- ---------- -----------
Net income (loss) (7,870,979) 241,422 163,557 (9,327,315)
===========
Preferred stock dividend 9,500 107,834 --
----------- ---------- ----------
Net income (loss) available for
common shareholders $(7,880,479) 133,588 163,557
=========== ========== ==========
Net income (loss) per share $ (0.82) 0.03 0.04
=========== ========== ==========
Weighted average number of shares used in
computation of net income (loss) per share 9,664,046 4,498,635 3,645,903
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 33
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1995, 1994 and 1993 and for the period from
April 23, 1990 (inception) through December 31, 1995
<CAPTION>
Deficit
accumulated
Preferred stock Common Stock Additional during the Stockholders'
---------------- ------------------ paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
------ ------ ------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
April 23, 1990, issuance of
common stock -- $ -- 666,750 $ 6,668 93,332 -- 100,000
Net loss -- -- -- -- -- (988,442) (988,442)
----- -------- --------- ------- -------- ---------- ----------
Balance, December 31, 1990 -- -- 666,750 6,668 93,332 (988,442) (888,442)
Issuance of common stock,
at no value, for investment
considerations and
consulting services -- -- 270,750 2,707 (2,707) -- --
Net loss -- -- -- -- -- (842,502) (842,502)
----- -------- --------- ------- -------- ---------- ----------
Balance, December 31, 1991 -- -- 937,500 9,375 90,625 (1,830,944) (1,730,944)
Issuance of common stock,
at no value, for investment
considerations and
consulting services -- -- 1,075,125 10,751 (10,751) -- --
Net income -- -- -- -- -- 1,159 1,159
----- -------- --------- ------- -------- ---------- ----------
Balance, December 31, 1992 -- -- 2,012,625 20,126 79,874 (1,829,785) (1,729,785)
Issuance of common stock,
at no value, for investment
considerations and
consulting services -- -- 62,310 623 (623) -- --
Issuance of common stock
at $1.50 per share (before
adjustment for the 1.75-to-1
stock split) -- -- 280,000 2,800 385,099 -- 387,899
Issuance of preferred stock 7,750 775,000 -- -- -- -- 775,000
Net income -- -- -- -- -- 163,557 163,557
----- -------- --------- ------- -------- ---------- ----------
Balance, December 31, 1993 7,750 775,000 2,354,935 23,549 464,350 (1,666,228) (403,329)
</TABLE>
(Continued)
F-5
<PAGE> 34
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Years ended December 31, 1995, 1994 and 1993 and for the period from
April 23, 1990 (inception) through December 31, 1995
<CAPTION>
Deficit
accumulated
Preferred stock Common Stock Additional during the Stockholders'
---------------- ------------------ paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
------ ------ ------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 7,750 775,000 2,354,935 23,549 464,350 (1,666,228) (403,329)
Issuance of common stock
at $4.00 per share (before
adjustment for the 1.75-
to-1 stock split -- -- 256,250 2,563 838,666 -- 841,229
Issuance of common stock at
$4.00 per share (before
adjustment for the 1.75-
to-1 stock split), in
exchange for debt -- -- 61,488 615 245,337 -- 245,952
Issuance of common stock at
an assigned value of $4.00
per share (before adjustment
for the 1.75-to-1 stock split),
for investment considerations
and consulting services -- -- 20,000 200 79,800 -- 80,000
Issuance of 122,719 Series A
Warrants to purchase
common stock at $2.43
per share -- -- -- -- -- -- --
Issuance of 43,750 Warrants
to purchase common stock
at $2.29 per share -- -- -- -- -- -- --
Redemption of preferred
stock (3,000) (300,000) -- -- -- -- (300,000)
Preferred stock dividends -- -- -- -- (107,834) -- (107,834)
Net income -- -- -- -- -- 241,422 241,422
------ --------- --------- ------- ---------- ---------- --------
Balance, December 31, 1994 4,750 $ 475,000 2,692,673 $26,927 1,520,319 (1,424,806) 597,440
Issuance of common stock
through March 29, 1995 -- -- 82,700 827 320,673 -- 321,500
Preferred stock dividends -- -- -- -- (9,500) -- (9,500)
Issuance of common stock due
to 1.75-to-1 Stock Split -- -- 2,081,542 20,815 (20,815) -- --
Issuance of common stock at
$2.00 per share, for
conversion of preferred
stock on March 29, 1995 (4,750) (475,000) 237,500 2,375 472,625 -- --
</TABLE>
(Continued)
F-6
<PAGE> 35
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Years ended December 31, 1995, 1994 and 1993 and for the period from
April 23, 1990 (inception) through December 31, 1995
<CAPTION>
Deficit
accumulated
Preferred stock Common Stock Additional during the Stockholders'
---------------- ------------------ paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
------ ------ ------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
$2.00 per share, in exchange
for debt and accrued interest
on March 29, 1995 -- -- 558,578 5,586 1,111,570 -- 1,117,156
Issuance of common stock at
$2.00 per share, through
Private Placement on
March 29, 1995 -- -- 2,000,000 20,000 3,980,000 -- 4,000,000
Effect of change in par value
from $0.01 to $0.001 -- -- -- (68,877) 68,877 -- --
Capitalization of BioSafe
International, Inc. -- -- 300,000 300 31,230 (31,530) --
Issuance of common stock at
$2.00 per share, for
investment banking services- -- -- 200,000 200 (200) -- --
Issuance of common stock at
$2.00 per share, net of 25%
discount due to restrictions on
sale or transfer of stock, for
prepaid consulting services -- -- 890,000 890 1,343,010 -- 1,343,900
Issuance of common stock at
$2.00 per share, through
private placement in
April, 1995 -- -- 2,510,000 2,510 5,020,000 -- 5,022,510
Expenses incurred in
connection with the
issuance of common stock
and merger in March and
April, 1995 -- -- -- -- (1,295,047) -- (1,295,047)
Issuance of 550,000
Series C Warrants to
purchase stock at
$2.00 per share -- -- -- -- -- -- --
Issuance of 2,805,000 Series D
Warrants to purchase common
stock at $4.75 per share -- -- -- -- -- -- --
Issuance of 500,000 Series E
Warrants to purchase common
stock at $3.50 per share -- -- -- -- -- -- --
</TABLE>
(Continued)
F-7
<PAGE> 36
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Years ended December 31, 1995, 1994 and 1993 and for the period from
April 23, 1990 (inception) through December 31, 1995
<CAPTION>
Deficit
accumulated
Preferred stock Common Stock Additional during the Stockholders'
---------------- ------------------ paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
------ ------ ------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 720,000 merger-related
Placement Agent Warrants to
purchase common stock at
$2.30 per share -- -- -- -- -- -- --
Issuance of 114,625 Warrants to
purchase common stock at
$2.29 per share -- -- -- -- -- -- --
Issuance of 50,000 Warrants to
purchase common stock at
$3.50 per share -- -- -- -- -- -- --
Exercise of Series A Warrants
to purchase 109,594 shares of
common stock at $2.43 per
share -- -- 109,594 109 266,047 -- 266,156
Exercise of Series D Warrants
to purchase 5,625 shares of
common stock at $4.75 per
share -- -- 5,625 6 26,713 -- 26,719
Exercise of Series E Warrants
to purchase 1,126 shares of
common stock at $3.50 per
share -- -- 1,126 1 3,940 -- 3,941
Exercise of Warrants to purchase
2,000 shares of common stock
at $2.29 per share -- -- 2,000 2 4,578 -- 4,580
Exercise of merger-related
Placement Agent Warrants to
purchase 15,000 shares of
common stock at
$2.30 per share -- -- 15,000 15 34,485 -- 34,500
Issuance of 10,000 shares and
10,000 shares of common
stock at $8.00 and $4.25 per
share, respectively, for
consulting services -- -- 20,000 20 122,480 -- 122,500
Expenses incurred in connection
with the securities registration
statement on Form S-1 -- -- -- -- (393,775) -- (393,775)
Issuance of 125,000 Warrants
to purchase common stock
at $2.89 per share -- -- -- -- -- -- --
(Continued)
</TABLE>
F-8
<PAGE> 37
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Years ended December 31, 1995, 1994 and 1993 and for the period from
April 23, 1990 (inception) through December 31, 1995
<CAPTION>
Deficit
accumulated
Preferred stock Common Stock Additional during the Stockholders'
---------------- ------------------ paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
------ ------ ------ ------ ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series F Warrants
to purchase a number of
shares of common stock
equal to the number of
shares of common stock
issuable upon conversion
of the convertible debentures
(or, in the case of the first
200 units, 150% of such number
of shares), at the lesser of
a price equal to 75% of the
20-day average bid price of
the common stock immediately
prior to the date nine months
following the issuance of the
convertible debentures or
$9.00 per share -- -- -- -- -- -- --
Issuance of 701,563 convertible
debenture-related Placement
Agent Warrants to purchase
common stock at $10.00
per share -- -- -- -- -- -- --
Net loss for the year ended
December 31, 1995 -- -- -- -- -- (7,870,979) (7,870,979)
-- --- ---------- ------- ---------- ---------- ----------
Balance, December 31, 1995 -- $-- 11,706,338 $11,706 12,607,210 (9,327,315) 3,291,601
== === ========== ======= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-9
<PAGE> 38
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Period from
April 23, 1990
(inception) to
Years ended December 31, December 31,
-------------------------------- ------------
1995 1994 1993 1995
---- ---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $ (7,870,979) 241,422 163,557 (9,327,315)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 689,186 8,770 32,958 813,393
Deferred income taxes (185,000) 185,000 -- --
Loss on investment in marketable securities 90,625 9,375 -- 100,000
Minority interest 13,016 -- -- 13,016
Allowance for doubtful accounts 232,145 -- -- 232,145
Write-off of accounts and notes receivable 2,975,001 -- -- 2,975,001
Issuance of common stock for services 303,300 80,000 -- 383,300
Write-off of assets -- -- -- 241,546
Changes in assets and liabilities:
Accounts receivable and notes receivable (1,695,436) (1,329,770) (210,000) (3,604,211)
Prepaid expenses and other current assets (512,653) 14,595 4,997 (515,558)
Accounts payable 2,424,104 507,637 (293,014) 3,283,886
Accrued expenses 484,935 78,005 127,424 704,490
Income and franchise taxes payable (22,470) (4,495) 102,500 75,535
Deferred income -- -- (465,000) (500,000)
------------ ---------- -------- -----------
Net cash used by operating activities (3,074,226) (209,461) (536,578) (5,124,772)
------------ ---------- -------- -----------
Cash flows from investing activities:
Assets held for sale (390,699) -- -- (390,699)
Restricted cash (187,500) -- -- (187,500)
Receivable from One, Three, Six, Inc. -- (800,000) -- (800,000)
Investment in affiliate (10,029) -- -- (10,029)
Construction in progress (8,699,803) (634,094) (76,008) (9,409,905)
Future landfill development projects (247,656) (21,725) -- (269,381)
Other property and equipment (693,008) (135,726) (8,560) (957,658)
Landfill equipment (31,814) -- -- (31,814)
Patents (20,795) (15,253) (12,505) (63,385)
Other assets (12,316) 18,765 (40,991) (34,542)
Licenses and permits -- -- -- (78,807)
------------ ---------- -------- -----------
Net cash provided (used) by investing activities (10,293,620) (1,588,033) (138,064) (12,233,720)
------------ ---------- -------- -----------
Cash flows from financing activities:
Borrowings from notes payable and long-term debt 585,960 980,500 -- 2,266,114
Repayment of notes payable and long-term debt (1,000,984) (93,580) (100,000) (1,194,564)
Net (repayments to) borrowings and advances from
stockholders and related parties (662,072) 72,269 86,534 381,381
Issuance of subordinated notes payable 11,225,000 900,000 280,000 12,405,000
Repayments of subordinated notes payable (490,000) (300,000) -- (790,000)
Net proceeds from issuance of common stock 8,970,998 841,229 387,899 10,331,656
Redemption of preferred stock -- (300,000) -- (300,000)
Preferred stock dividends (9,500) (107,834) -- (117,334)
Minority interest 1,031,095 -- -- 1,031,095
Deferred financing and registration costs (1,216,480) (27,416) (15,686) (1,417,792)
------------ ---------- -------- -----------
Net cash provided by financing activities 18,434,017 1,965,168 638,747 22,595,556
------------ ---------- -------- -----------
Increase (decrease) in cash 5,066,171 167,674 (35,895) 5,237,064
Cash, beginning of period 170,893 3,219 39,114 --
------------ ---------- -------- -----------
Cash, end of period $ 5,237,064 170,893 3,219 5,237,064
============ ========== ======== ===========
</TABLE>
F-10
<PAGE> 39
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows (Continued)
Supplemental disclosures of cash flow information:
During the years ended December 31, 1995, 1994 and 1993, cash paid for
interest was $221,458, $192,243, and $78,196, respectively.
Supplemental disclosures of noncash activities:
In 1991, 1992, 1993 and 1994, the Company issued 270,750, 1,075,125, 62,310
and 20,000 shares of common stock for no cash consideration. Shares were
granted to related parties, including stockholders, and outsiders for
various investment considerations and consulting services.
In 1992, the Company sold certain technology and entered into various
royalty agreements in exchange for a note receivable in the amount of
$500,000.
In 1993, the Company acquired assets of $20,498 under a capital lease
obligation.
In 1993, the Company issued 7,750 shares of preferred stock in exchange for
retirement of $775,000 of debt.
In 1994, the Company exchanged $240,000 of subordinated notes payable and
$5,952 of accrued interest for 61,488 shares of common stock.
In 1994, the Company received a note for $450,000 in payment of accounts
receivable and issued a note payable for $57,394 in satisfaction of
accounts payable.
During the year ended December 31, 1995, the Company issued 2,450 shares
for employee bonuses, 31,500 shares in exchange for Directors' fees and
11,250 shares for consulting services at $4.00 per share (before adjustment
for the 1.75 to 1 stock split).
As part of the merger on March 29, 1995, all of the 4,750 outstanding
shares of $100 par value preferred stock were converted into 237,500 shares
of common stock of the Company, the Company converted 1,100 units of $1,000
face amount 10% convertible subordinated notes plus accrued interest into
558,578 shares of common stock, the Company issued 200,000 shares of common
stock, and charged to stockholder's equity at $2.00 per share, to US Sachem
LP for investment banking services, the Company issued 890,000 shares of
common stock, and recorded as prepaid consulting fees at $1.50 per share,
to Liviakis Financial Communications, Inc. to provide ongoing assistance
and consultation to the Company. Subsequent to the merger, the Company
issued 20,000 additional shares to Liviakis (see Note 8).
In 1995, the Company acquired assets of $1,148,516 under capital lease
obligations.
In 1995 the Company exchanged $400,000 of receivable from One, Three, Six,
Inc. for a deposit on equipment (see Note 3).
In 1995, in connection with the acquisition of Waste Professionals of
Vermont, Inc., the Company recorded a receivable for the purchase of rights
to $850,000 in escrow funds held by the State of Vermont (see Note 3) and
provided for $1,500,000 for estimated closure and post-closure costs
existing at acquisition (see Note 12).
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 40
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(1) BUSINESS COMBINATION AND NATURE OF OPERATIONS
BioSafe International, Inc. (a Nevada Corporation) (the "Company"),
formerly Zoe Capital Corp. (see Note 15), is a Development Stage
Company. The Company was founded to apply its expertise in materials
handling and size reduction technology to the solution of environmental
problems. The Company is currently engaged in rehabilitating landfills
to permit their continued operation with increased capacity in an
environmentally sound manner (referred to as "landfill remodeling") and
the acquisition and/or development of operating landfills.
Prior to March 27, 1996, the Company had been actively developing other
technologies with potential application in a number of business areas.
On March 27, 1996, the Company announced its intention to take
meaningful actions to conserve cash and working capital, including
restructuring the Company's operations to focus its resources and
activities on its core business of landfill remodeling and operation.
See Note 18 for discussion of nonrecurring charges related to these
discontinued operations. As of March 31, 1996, the Company had
approximately $1.8 million in cash and nominal working capital.
TheCompany has generated limited revenue since its organization and has
been engaged in activities such as project development, engineering,
permitting, and marketing and sales efforts. The Company will continue
to seek out landfill remodeling and operating landfill projects for
investment and will require substantial additional funds to fully
develop and bring to commercial viability all of its currently planned
projects. Successful completion of the Company's development program is
dependent on raising substantial additional capital and achieving a
level of revenues adequate to support the Company's cost structure.
To date, although the Company has conducted significant testing of methods
and processes based on its size reduction and materials handling
technology, and has gained substantial experience in connection with
the development and operation of its Fairhaven landfill project to
date, the Company has not yet carried through a landfill remodeling
project to completion. Final development and operation may be subject
to engineering and construction problems such as cost overruns and
start-up delays resulting from technical or mechanical problems,
unfavorable conditions in the equipment or labor market, or
environmental permitting and other regulatory problems, as well as
other possible adverse factors. There can be no assurance that the
Company will be successful in developing and implementing commercial
landfill remodeling projects, or that any such development can be
accomplished without excessive cost or delay.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis for Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its significant subsidiaries which include BioSafe,
Inc. ("BioSafe") and BioSafe Landfill Technology, Inc. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Minority interest consists of 20% of Waste Professionals of Vermont, Inc.,
(an 80% owned subsidiary of BioSafe Landfill Technology, Inc.).
(Continued)
F-12
<PAGE> 41
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
Landfill Revenue Recognition
TheCompany's revenues from its landfill operations consist of disposal
fees (known as tipping fees) charged to customers. Tipping fees are
recognized as revenue based on the volume or weight of solid waste
disposed of at the Company's operated or owned landfill sites. The
daily volume of waste disposed at the Company's disposal facilities may
vary according to market and weather conditions.
Cost of Landfill Operations
Cost of operations includes direct labor, fuel, equipment maintenance,
insurance, depreciation and amortization, depletion of project
development costs, accruals for ongoing closure and post-closure
regulatory compliance (for landfills owned) and other routine
maintenance and operating costs directly related to landfill
operations. Also included in cost of landfill operations are payments
made to the Towns in which each landfill is located in the form of
"Host Town Fees" and "Closure Fees" (for landfills operated under
management contracts), which are negotiated on a rate per ton basis as
part of the contract with the Town. In such Towns, the Town is
responsible for the closure and post-closure costs related to the
landfill.
Landfill Closure and Post-Closure Costs
TheCompany estimates and accrues remaining closure and post-closure costs
for landfills owned or acquired on a unit-of-production basis over each
facility's estimated remaining airspace capacity. The Company records
reserves, as necessary, as a component of the purchase price of
facilities acquired, in acquisitions accounted for under the purchase
method, when the acquisition is consummated.
Property and Equipment
Capitalization of landfill development costs begins with the signing of
landfill management contracts for facilities operated by the Company
that are not owned, or upon determination by the Company of economic
feasibility or extended useful life of each landfill acquired as a
result of comprehensive engineering and profitability studies. Capital
costs include acquisition, engineering, legal and other direct costs
associated with the permitting and development of new landfills,
expansions at existing landfills, and cell development. These costs are
capitalized pending receipt of all necessary operating permits or
commencement of operations.
Interest is capitalized on landfill costs related to permitting, site
preparation, and facility construction during the period that these
assets are undergoing activities necessary for their intended use.
Interest costs of $82,195 were capitalized during 1995.
Landfill project development costs will be depleted using the
unit-of-production method, which is calculated using the total units of
airspace filled during the year in relation to total estimated
permitted airspace capacity. The determination of airspace usage and
remaining airspace capacity is an essential component in the
calculation of landfill asset depletion. The determination is performed
by conducting annual topography surveys, generally using aerial survey
techniques, of the Company's landfill facilities to determine remaining
airspace capacity in each landfill. The surveys will be reviewed by the
Company's consulting engineers, the Company's internal operating and
engineering staff, and its financial and accounting staff. Current
year-end remaining airspace capacity is compared with prior year-end
remaining airspace capacity to determine the amount of airspace used
during the current year. The result
(Continued)
F-13
<PAGE> 42
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
is compared against the airspace consumption figures used during the
current year for accounting purposes to ensure proper recording of the
provision for depletion. The reevaluation process did not impact
results of operations for any years presented.
The Company performs assessments for each landfill of the recoverability
of capitalized costs which requires considerable judgment by management
with respect to certain external factors, including, but not limited
to, anticipated future revenues, estimated economic life and changes in
environmental regulation. It is the Company's policy to periodically
review and evaluate that the benefits associated with these costs are
expected to be realized and therefore capitalization and depletion is
justified. Capitalized costs related to landfill development for which
no future economic benefit is determined by the Company are expensed in
the period in which such determination is made.
All other property and equipment are stated at cost. Depreciation and
amortization is provided using the straight-line method over the
estimated useful lives of the respective assets as follows:
Buildings, facilities and improvements 10 to 30 years
Vehicles and equipment 5 to 10 years
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
All short-term investments which have an original maturity of 90 days or
less are considered to be cash equivalents.
Prepaid Consulting Fees
Prepaid consulting fees are amortized on a straight-line basis over the
term of the related consulting agreement.
Deferred Financing Costs
Deferred financing costs are amortized on a straight-line basis over the
life of the related notes payable or debt.
Income Taxes
Effective January 1, 1993, BioSafe became a C corporation for Federal and
state income tax purposes. Previously, BioSafe had elected Subchapter S
status.
BioSafe has adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109
requires recognition of deferred tax liabilities and assets for the
estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their
(Continued)
F-14
<PAGE> 43
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
respective tax bases. Measurements of deferred tax liabilities and
assets are based upon provisions of enacted tax laws and the effects of
future changes in tax laws or rates are not anticipated. The impact of
adopting SFAS 109 was not material and, accordingly, there is no
cumulative effect of an accounting change presented in the accompanying
financial statements.
Earnings Per Share
Primary earnings per common share are based on the weighted average number
of common shares and dilutive common stock equivalent shares
outstanding during each period. Fully diluted earnings per share have
been omitted since they are either the same as primary earnings per
share or are anti-dilutive.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses approximates fair value because of the short maturity
of these items. The carrying amount of debt, notes and balances with
bank lines of credit with interest rates related to the prime rate
approximate fair value because the interest rates change with the
market interest rates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued two Statements of
Financial Accounting Standards, Accounting For The Impairment of
Long-Lived Assets to Be Disposed Of No. 121 ("SFAS 121") and Accounting
For Stock-based Compensation No. 123 ("SFAS 123"). In 1996, the Company
will adopt SFAS 121 and will implement the disclosure requirements of
SFAS 123; it does not expect either SFAS 121 or SFAS 123 to have a
material effect on the financial statements.
Reclassifications
Certain amounts in prior year financial statements have been reclassified
to conform to the 1995 presentation.
(3) ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
Accounts and notes receivable consist of the following:
<CAPTION>
December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Trade $ 352,524 --
State of Vermont 850,000 --
One, Three, Six, Inc. 400,000 800,000
BioMedical Waste Systems, Inc. - 2,308,775
ScotSafe Limited 78,000 --
Interest 151,041 --
Other 447,646 --
---------- ---------
2,279,211 3,108,775
Allowance for doubtful accounts (232,146) --
---------- ---------
2,047,065 3,108,775
Less current portion 2,047,065 2,808,775
---------- ---------
$ -- 300,000
========== =========
</TABLE>
(Continued)
F-15
<PAGE> 44
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
Trade
On July 31, 1995, the Company entered into a contract with Waste
Management of Rhode Island, Inc. ("WMRI"). The contract requires WMRI
to provide a fixed annual quantity of waste, approximately 95% of the
available annual permitted capacity of the Fairhaven Landfill for seven
years, upon receipt by the Company of its authorization to operate
("ATO") of phase I of Cell I at the Fairhaven landfill. At December 31,
1995, the balance due from WMRI was $130,500 or 45% of the total trade
accounts receivable balance. Through December 31, 1995, revenues from
WMRI were approximately $586,000, or 44% of landfill revenues.
State of Vermont
In connection with the acquisition of a landfill in Moretown, Vermont, the
Company purchased the rights to certain funds held by the State for
closure and post-closure costs which were set aside in escrow by the
prior owner to obtain a landfill operating permit. The Company intends
to use these funds as collateral to obtain its new landfill operating
permit.
One, Three, Six, Inc.
During 1994, BioSafe made a refundable deposit for the option to purchase
80 percent of the common stock of Shred Pax Corporation (now known as
One, Three, Six, Inc.), a manufacturer of shredding and grinding
equipment. The option expired on March 31, 1994 but was extended by
BioSafe under the option agreement which in turn resulted in the
deposit being used to purchase 16 percent of One, Three, Six, Inc.
common stock. One, Three, Six, Inc. sold substantially all of its
assets to a third party on August 31, 1994, and has adopted a plan to
liquidate One, Three, Six, Inc. Pursuant to the plan of liquidation,
the Company has the right to receive its share of the net proceeds of
liquidation upon completion of winding up the affairs of One, Three,
Six, Inc.
The Company expects total proceeds of $800,000 (calculated on a discounted
basis at 9%). The Company has preliminarily negotiated the purchase
from One, Three, Six, Inc. of certain equipment to be used in landfill
operations. Accordingly, the Company has reclassified $400,000 of the
total proceeds to property and equipment as a deposit on equipment for
which the Company intends to take possession in 1996 (see Note 7).
The Company recognized a gain of $222,728 in 1994 from this
transaction.
BioMedical Waste Systems, Inc.
The Company had previously licensed its medical waste processing
technology to BioMedical Waste Systems, Inc. ("BioMed"). At December
31, 1994, the Company had notes receivable of $458,775 ($450,000 due
March 31, 1995) and accounts receivable of $1,850,000 due from BioMed.
During May, 1995, the Company received a payment of $50,000 and
extended the due date of the remaining $400,000 note receivable to July
31, 1995. The Company had anticipated total payments from BioMed on
July 31, 1995, of $1,550,000, consisting of the remaining note balance
of $400,000 and royalty payments of $1,150,000.
(Continued)
F-16
<PAGE> 45
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
As a result of the financial, legal and operating difficulties experienced
by BioMed, BioMed did not pay the Company the outstanding amounts owed
at July 31, 1995, and the Company elected to terminate the technology
agreement with BioMed effective August 1, 1995. As a result of the
termination, BioMed was no longer contractually obligated to repay the
outstanding accounts receivable balance to the Company, and the
outstanding March 31, 1995 balance of $2,575,000, as well as the
outstanding note receivable balance of $400,000, was written off as of
June 30, 1995. The Company recognized revenues under the technology
agreement of $1,850,000 and $1,300,000 in the years ended December 31,
1994 and 1993, respectively, and $725,000 in the quarter ended March
31, 1995, and ceased accruing revenues thereafter.
ScotSafe Limited
On February 9, 1996, The Company entered into a license and services
agreement with ScotSafe Limited (a Glasgow, Scotland Company)
("ScotSafe"). The agreement provides for the Company to license to
ScotSafe its medical waste technology (reclaimed from BioMed) and
provide ScotSafe with certain engineering and consulting services
throughout the British Isles and Ireland.
The agreement requires ScotSafe to pay a royalty for up to nine facilities
constructed by ScotSafe which will utilize the Company's medical waste
technology. Total royalty revenues under this agreement are expected to
be approximately $2.0 million, based upon the construction or
initiation of these facilities. During 1996, the Company anticipates
recognizing estimated royalty revenue of $900,000 to $1,300,000 under
this agreement. In addition, the Company expects to provide continuing
engineering and consulting services on a fee basis during facility
design and construction.
(4) ASSETS HELD FOR SALE
On March 27, 1996, the Company announced its intention to take meaningful
action to conserve cash and working capital, including the
restructuring of the Company's operations to focus its resources and
activities on its core business of landfill remodeling and operation.
Net assets of the discontinued operations consisted primarily of land
of $402,500 and other property and equipment of $103,480, and are
stated at their approximate net realizable value at December 31, 1995.
The Company expects to dispose of these assets during 1996.
(5) DUE FROM FORMER EMPLOYEES
This represents outstanding cash advances to former employees for
anticipated business-related expenses. Subsequent to year-end, these
advances increased. In addition, the Company is evaluating the
potential to recover additional amounts from former employees. Certain
of these amounts may be disputed and, therefore, the Company is not
able to ascertain the amount of potential recoveries at this time. See
Note 18, subsequent events.
(Continued)
F-17
<PAGE> 46
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(6) INVESTMENT IN AFFILIATE
In December 1995, the Company entered an agreement to form BioSafe Europe
PLC ("BioSafe Europe") to introduce the Company's landfill remodeling
technology throughout Europe and certain other territories. The joint
venture agreement provides that the initial shareholders of BioSafe
Europe will be the Company and GB First Capital Ventures, a
European-based concern ("First Capital"). According to the joint
venture agreement, First Capital is required to arrange an initial
equity offering in Europe to raise a minimum of $8.0 million in equity
capital on or before September 30, 1996. If such financing is not
closed by such date, the joint venture agreement may be terminated at
the option of the Company on or before March 30, 1997. In accordance
with the antidilution provision of the joint venture agreement, the
Company will own no less than 40% of the equity of BioSafe Europe after
such initial equity offering.
As part of the joint venture, the Company entered into an engineering
services and licensing agreement with BioSafe Europe under which
BioSafe Europe is granted the exclusive license to carry out landfill
remodeling projects using the Company's technology in the European
territory and certain other territories. The Company will receive a 6%
royalty on all project revenues and will provide continuing
technological assistance on a fee basis.
(7) PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are stated at cost and consist of the following;
<CAPTION>
December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Construction in progress - landfills owned $ 5,152,750 -
Construction in progress - landfills operated 4,907,155 710,102
Future landfill development projects 269,381 21,725
Equipment used in landfills 1,152,646 -
Deposit on equipment purchase 400,000 -
Buildings, facilities and improvements 552,060 -
Other property and equipment 302,821 161,873
----------- -------
12,736,813 893,700
Less accumulated depreciation and amortization (233,722) (122,587)
----------- -------
$12,503,091 771,113
=========== =======
(Continued)
</TABLE>
F-18
<PAGE> 47
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
Town of Fairhaven
The Company entered into a contract with the Town of Fairhaven,
Massachusetts on July 24, 1994 to remodel the Town of Fairhaven
landfill. On June 22, 1995, the Company commenced operations and began
accepting waste at the landfill utilizing existing capacity. In
addition, the Company has remodeled and constructed an initial cell and
is awaiting final authorization from the Massachusetts Department of
Environmental Protection ("MDEP"). Upon receipt of final authorization
from MDEP, and if there is not an adverse result in the litigation
referred to below, the Company will be permitted to increase daily
capacity from 150 to approximately 400 tons per day ("TPD"). The
contract requires the Company to pay a "Host Town Fee" of $2.00 per ton
or 5% of the tipping fees for solid waste and $3.00 per ton to
contribute to the Town's closure and post-closure costs, excluding
waste from the Town and waste for "beneficial reuse."
On November 8, 1995 an action was brought against various parties
including the Company relating to the Fairhaven landfill. Plaintiffs
are 16 residents of Fairhaven, Massachusetts who reside in the vicinity
of the Fairhaven landfill. In the litigation, the plaintiffs seek an
order annulling the major modification permit issued by the MDEP (the
"Permit"), which authorized one phase of the landfill remodeling
project at the Fairhaven landfill. The plaintiffs also have brought
claims alleging that the MDEP violated the Massachusetts Environmental
Policy Act in issuing the Permit. Further, the plaintiffs have brought
certain common law claims against The Company for nuisance, trespass
and strict liability based principally on alleged odor and dust
conditions resulting from The Company's work at the Fairhaven landfill.
The common law claims seek compensatory damages and injunctive relief.
The Company intends to challenge all of the alleged procedural and
substantive grounds asserted by the plaintiffs for the appeal. On
January 12, 1996, the Company filed a motion to dismiss the litigation.
The Town and MDEP have filed a similar motion. The Court heard oral
arguments on the motions to dismiss on April 9, 1996, and took the
matter under advisement. The Court indicated that a decision on the
motion will be forthcoming in the next several weeks. If the MDEP's
granting of the permit is reversed, the Company's plans with respect to
the Fairhaven landfill project would be materially adversely affected.
Acquisition of Landfill in Moretown, Vermont
In May 1995, the Company submitted a successful bid, through the Company's
80%-owned subsidiary, Waste Professionals of Vermont, Inc. ("WPV"), to
purchase a landfill located in Moretown, Vermont, and certain related
assets at an auction conducted by the United States Bankruptcy Court
for the District of Vermont. On June 2, 1995, the Bankruptcy Court
entered its order authorizing and directing the sale of this landfill
and certain related assets to WPV, which transaction closed on July 5,
1995.
The Company has filed a permit application with Vermont Department of
Natural Resources (VDNR) to commence operations at the landfill. Upon
receipt of its permit, the Company will commence operations at
approximately 400 TPD. In order for VDNR to issue a permit to the
Company, the Company must provide financial assurance for estimated
closure and post-closure costs of approximately $2.0 million.
(Continued)
F-19
<PAGE> 48
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
The Company's ownership of the landfill through its subsidiary, WPV,
involves a greater degree of exposure to potential environmental
liabilities than is involved with landfills operated under a management
contract. In conjunction with the acquisition, the Company recorded
$1.5 million in estimated closure and post-closure costs based on
engineering estimates of the current condition of the landfill. See
Note 12.
(8) CONSULTING AGREEMENT
On March 29, 1995, contemporaneous with the merger (see Note 15), the
Company entered into a two year agreement with Liviakis Financial
Communications, Inc. ("Liviakis"), whereby Liviakis will provide
ongoing assistance and consultation to the Company on matters
concerning mergers and acquisitions, corporate finance, investor
relations and financial public relations. As compensation for services
to be rendered by Liviakis, the Company issued Liviakis 890,000 shares
of the Company's common stock. As a result, on March 29, 1995, the
Company recorded a prepaid asset of $1,335,000 representing a 25%
discount from the private placement share value since, under the
agreement, the Liviakis shares are restricted and may not be sold or
transferred without the Company's consent before March 29, 1997.
Amortization of prepaid consulting fees for the year ended December 31,
1995 was $500,625.
In addition, the Company is required to issue to Liviakis 10,000
restricted shares of the Company's common stock at the end of the
fourth, eighth, twelfth, sixteenth, twentieth, and twenty-fourth months
after March 29, 1995. Under the agreement, these shares may not be sold
or transferred without the Company's consent before March 29, 1997.
During 1995, the Company issued an additional 20,000 shares to Liviakis
and expensed $122,500 related to the issuance of these shares.
(9) LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
Long-term debt and notes payable consists of:
<CAPTION>
December 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Capital leases and equipment notes payable $ 1,022,377 5,529
FDIC 511,093 513,153
Boston Private Bank 211,065 300,000
Mortgages 200,037 -
One, Three, Six, Inc. 400,000 400,000
Stockholders and related parties - 396,701
Other notes payable 72,619 337,894
Convertible subordinated debt 11,375,000 640,000
----------- ---------
13,792,191 2,593,277
Less current portion 1,526,188 1,330,124
----------- ---------
$12,266,003 1,263,153
=========== =========
</TABLE>
(Continued)
F-20
<PAGE> 49
<PAGE> 50
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
<TABLE>
Maturity of Long Term Debt and Notes Payable, Excluding Capital Leases and
Equipment Notes Payable
Scheduled maturities of long-term debt and notes payable are as follows:
<CAPTION>
Payments due in the year ending December 31,
<C> <C>
1996 $ 708,034
1997 597,058
1998 57,624
1999 7,234
2000 11,232,970
Thereafter 166,894
-----------
$12,769,814
===========
</TABLE>
<TABLE>
Capital Leases and Equipment Notes Payable
The Company leases certain facilities, equipment and vehicles under agreements
which are classified as capital leases. The facility leases have original
terms of 5 years and purchase options at the end of the lease term. Leased
capital assets included in property are as follows:
<CAPTION>
December 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Buildings $ 56,250 -
Machinery and equipment 1,360,560 20,498
---------- -------
1,416,810 20,498
Accumulated amortization (58,966) (10,249)
----------- --------
$1,357,844 10,249
========== =======
</TABLE>
<TABLE>
Future minimum lease payments, by year and in the aggregate, under
non-cancelable capital leases and operating leases with initial or
remaining terms of one year or more at December 31, 1995 are as follows:
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Payments due in the year ending December 31,
1996 $1,050,067 388,118
1997 83,889 331,470
1998 73,845 336,333
1999 68,832 169,556
2000 14,965 85,276
---------- ---------
Total minimum lease payments 1,291,598 1,310,753
=========
Amounts representing interest 269,221
----------
Present value of net minimum lease payments 1,022,377
Current portion 818,154
----------
Long-term portion $ 204,223
==========
(Continued)
</TABLE>
F-21
<PAGE> 51
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
The Company's rental expense for operating leases was $294,492, $66,648, and
$44,720 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company has reclassified approximately $582,000 of capitalized lease
obligations to current since it was not in compliance with certain
financial covenants at December 31, 1995.
Bank Debt
During 1994, the Company renegotiated its existing FDIC line of credit and
extended the due date on the note to May 1, 1997. Interest is due monthly
at prime plus 1.5% (prime was 8.5% at December 31, 1995). The debt is
secured by the Company's assets.
During 1994, the Company entered into a debt agreement with Boston Private Bank
and borrowed $300,000. The note is payable in monthly installments of
$6,667, plus interest at prime plus 1.5% (prime was 8.5% at December 31,
1995) through June 6, 1998. The debt is secured by the Company's assets and
the principal residence of Dr. Richard Rosen and Marguerite Piret (see Note
18).
Mortgages
Mortgage notes are secured by the respective assets, and are due in various
amounts through 2015.
One, Three, Six, Inc.
In 1994, the Company received $400,000 in the form of a note as an advance
against the initial distribution of proceeds from the sale of the assets of
One, Three, Six, Inc. The note, which bears interest at 10% payable
quarterly, was due in March, 1996 (see Note 3).
Stockholders and Related Parties
On March 31, 1995, all notes payable to stockholders and related parties
were repaid. Interest expense on notes to stockholders and related
parties for years ended December 31, 1995, 1994 and 1993 amounted to
$2,701, $16,733 and $25,201, respectively.
Other Notes Payable
In 1994, the Company issued promissory notes in the aggregate principal amount
of $280,500 and Series A Warrants, adjusted for the 1.75 to 1 stock split,
to purchase an aggregate of 122,719 shares of Common Stock in connection
with a special-purpose financing in August 1995. On March 31, 1995, the
promissory notes, including interest at 8% per annum, were paid. The Series
A Warrants were exercisable over a period of three years at a price of
$2.43 per share (see Note 15).
In 1994, the Company issued a note for $57,394 to a creditor in satisfaction
of accounts payable. The note was repaid in January, 1995.
(Continued)
F-22
<PAGE> 52
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
On September 7, 1995, the Company borrowed $1,000,000 as a bridge loan from a
stockholder who is not an affiliate of the Company, under a six month
promissory note at 10% interest secured by certain assets of the Company.
The Company issued to the lender warrants to purchase 125,000 shares of
common stock at $2.89 per share. The note and all accrued interest was
repaid in 1995 from the proceeds of the convertible debenture discussed
below.
Convertible Subordinated Debt
During 1993, the Company completed a $700,000 private placement of 14 investment
units. Each unit sold for $50,000, consisting of 20,000 shares of the
Company's common stock and a $20,000 subordinated note with an interest
rate of 7%. In 1994, the Company conducted an exchange offer pursuant to
which the holders of $240,000 of the subordinated notes exchanged their
notes for common stock at a price of $4 per share (before adjustment for
the 1.75 to 1 stock split). On June 30, 1995 the remaining note balances
and all accrued interest were repaid.
The Company issued a Subordinated Note and Warrant for $500,000 with interest at
9% per annum, to a single investor in connection with a special-purpose
financing in January 1994. Through December 31, 1994, the Company repaid
$300,000 of the principal due. On March 31, 1995, the remaining outstanding
principal balance and all accrued interest were repaid. The Warrant
entitles the holder to purchase from the Company 43,750 shares of common
stock at $2.29 per share, adjusted for the 1.75 to 1 stock split, through
January 14, 1999. The Warrant may be exercised in full or in part at any
time during this exercise period.
The Company issued a $250,000 Convertible Subordinated Note to an investor in
July 1994, with simple interest at 9% per annum. In January 1995, $100,000
was repaid. On March 31, 1995, the unpaid principal and accrued interest
was paid.
The Company issued a three-year $150,000 Convertible Subordinated Note to an
investor in August 1994. The note may be converted into common stock at
the option of the holder, adjusted for the 1.75 to 1 stock split, at the
rate of one share of common stock for each $2.44 in outstanding principal
and interest.
On October 6 and 12, and November 7, 1995, the Company closed a "Regulation S"
offering of $11,225,000 in convertible notes and warrants to overseas
investors, which resulted in net proceeds to the Company of $10,085,587.
The offering consisted of 449 units. Each unit sold for $25,000, and
consisted of one convertible subordinated note ("Note") along with Series F
Warrants ("Warrants") to purchase shares of Common Stock. The Notes are due
in the year 2000 and bear interest at 10%, payable quarterly. The Notes are
convertible into Common Stock as of the nine-month anniversary of the
initial closing of the offering, July 6, 1996, at face value plus accrued
interest. The conversion price per share is the lesser of $9.00, or 75% of
the 20-day average closing bid price of the Common Stock immediately
preceding July 6, 1996. The Notes are callable at the option of the Company
at any time after October 6, 1996, if the closing sale price of the Common
Stock has exceeded $10.00 per share for a period of 20 consecutive trading
days prior to redemption notice. The Warrants are exercisable for a number
of shares equal to the number of shares of Common Stock issuable upon
conversion of the Note (or, in the case of the first 200 units sold, 150%
of such number of shares) at the Note conversion price described above. The
Warrants expire on or about
(Continued)
F-23
<PAGE> 53
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
September 30, 1998. The Notes and Warrants have not been registered under
the Securities Act and may not be sold in the United States without such
registration or an applicable exemption from the requirement of
registration. Under most circumstances, resales in the United States of
Notes and shares of Common Stock acquired or conversion of Notes or
exercise of Warrants is exempt from registration under prevailing
interpretations of Regulation S. In connection with the offering, the
Company issued to the Placement Agent warrants to purchase up to 701,563
shares of Common Stock at $10 per share.
(10) ACCRUED EXPENSES
<TABLE>
Accrued expenses consisted of the following:
<CAPTION>
December 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
Interest $209,631 39,840
Professional and consulting fees 421,500 40,000
Salaries and wages 37,809 66,509
Insurance 25,345 -
Other 4,253 67,254
-------- ----------
$698,538 213,603
======== ==========
</TABLE>
(11) INCOME TAXES
As discussed in Note 2, effective January 1, 1993, the Company became taxable
as a C Corporation for Federal and state income tax purposes. The Company
has adopted SFAS 109. The cumulative effect of this change in accounting
for income taxes was not material.
<TABLE>
Income tax expense consists of:
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1995:
Federal $ - (141,358) (141,358)
State 75,535 (43,642) 31,893
-------- -------- --------
$ 75,535 (185,000) (109,465)
======== ======== ========
Year ended December 31, 1994:
Federal $ - 141,358 141,358
State - 43,642 43,642
-------- -------- --------
$ - 185,000 185,000
======== ======== ========
Year ended December 31, 1993:
Federal $ 77,200 - 77,200
State 25,300 - 25,300
-------- -------- --------
$102,500 - 102,500
======== ======== ========
(Continued)
</TABLE>
F-24
<PAGE> 54
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
<TABLE>
A reconciliation between federal income tax expense at the statutory rate and
the Company's federal tax expense is as follows for the year ended December
31:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax (benefit) $(2,708,925) 144,983 90,459
State taxes, net of federal income tax benefit (704,604) 35,211 16,698
Valuation allowance 3,294,764 - -
Other 9,300 4,806 (4,657)
----------- ------- -------
$ (109,465) 185,000 102,500
=========== ======= =======
</TABLE>
<TABLE>
The tax effects of temporary differences between financial statement and tax
accounting that gave rise to significant portions of the Company's net
deferred tax assets and deferred tax liabilities at December 31, 1995 are
presented below.
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 116,001 -
Inventories 80,899 -
Long-term contracts 191,559 -
Property and equipment 12,990 -
Other accrued liabilities 174,370 18,652
Operating loss and credit carryforwards 2,953,174 30,312
---------- -------
Gross deferred tax assets 3,528,993 48,964
Less: valuation allowance 3,294,764 -
---------- -------
Net deferred tax assets 234,229 48,964
---------- -------
Deferred tax liabilities:
Deferred income and capitalized costs 234,229 233,964
---------- -------
Total deferred tax liabilities 234,229 233,964
---------- -------
Net deferred tax liability $ - 185,000
========== =======
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $6.7 million which are
available to offset future federal taxable income, if any, and which expire
during the years ended December 31, 2008 and December 31, 2010. The
Company's ability to utilize its existing net operating loss carryforwards
may be limited if there is change in ownership of the Company of greater
than 50% within a three-year period. The Company also has state tax net
operating loss carryforwards of approximately $6.7 million that expire
during the years ended December 31, 1998 and 2000.
(Continued)
F-25
<PAGE> 55
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(12) LANDFILL CLOSURE AND POST-CLOSURE COSTS
Landfills are typically developed in a series of cells, each of which is
constructed, filled, and capped in sequence over the operating life of the
landfill. When the cell is filled and the operating life of the landfill is
over, the final cell must be capped, the entire site must be closed and
post-closure care and monitoring activities begin. The Company will have
material financial obligations relating to the final closure and
post-closure costs of each landfill the Company owns.
The Company has estimated as of December 31, 1995 that the total costs for final
closure and post-closure of Cell I at the Moretown, Vermont landfill,
including capping costs, cap maintenance, groundwater monitoring, methane
gas monitoring, and leachate treatment and disposal for up to 30 years
after closure, is approximately $2.0 million. Based upon the capacity of
Cell I under the current applied permit and existing conditions of the
landfill at acquisition, $1.5 million has been accrued for at December 31,
1995.
The Company bases its estimates for these accruals on respective State
regulatory requirements, including input from its internal and external
consulting engineers and interpretations of current requirements and
proposed regulatory changes. The closure and post-closure requirements are
established under the standards of the U.S. Environmental Protection
Agency's Subtitle D regulations as implemented and applied on a
state-by-state basis.
The determination of airspace usage and remaining airspace capacity is an
essential component in the calculation of closure and post-closure
accruals. See Note 2, significant accounting policies.
(13) COMMITMENTS AND CONTINGENCIES
Landfill related activities
In the normal course of its business, and as a result of the extensive
governmental regulation of the solid waste industry, the Company
periodically may become subject to various judicial and administrative
proceeding involving federal, state or local agencies. In these
proceedings, the agency may seek to impose fines on the Company or to
revoke or deny renewal of an operating permit held by the Company. From
time to time, the Company also may be subjected to actions brought by
citizens' groups in connection with the permitting of its landfills or
transfer stations, or alleging violations of the permits pursuant to which
the Company operates. Certain federal and state environmental laws impose
strict liability on the Company for such matters as contamination of water
supplies or the improper disposal of hazardous waste. The Company's
operation of landfills subjects it to certain operational, monitoring, site
maintenance, closure and post-closure obligations which could give rise to
increased costs for monitoring and corrective measures. See Note 12.
(Continued)
F-26
<PAGE> 56
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
The Company has obtained environmental impairment liability insurance covering
claims for sudden or gradual onset of environmental damage. If the Company
were to incur liability for environmental damage in excess of its insurance
limits, its financial condition could be adversely affected. The Company
carries a comprehensive general liability insurance policy which management
considers adequate at this time to protect its assets and operations from
other risks.
None of the Company's landfills are currently connected with Superfund National
Priority Lists or potentially responsible party issues.
Employment Contracts
The Company has entered into employment agreements with two of its senior
executives. The two agreements provide for employment until terminated by
either party at an annual salary of $150,000 and $125,000.
Legal Matters
The Company is party to pending legal proceedings and claims. Although the
outcome of such proceedings and claims cannot be determined with certainty,
the Company's management, after consultation with outside legal counsel, is
of the opinion that the expected final outcome should not have a material
adverse effect on the Company's financial position, results of operations
or liquidity with the exception of certain litigation brought against the
Company related to the Fairhaven Landfill (see Note 7).
(14) PREFERRED STOCK
In 1993, the Company issued 7,750 shares of newly created Series A 8%
preferred stock to related and unrelated parties, in exchange for the
retirement of $775,000 of debt.
During 1994, the Company redeemed from a principal stockholder 3,000 shares of
preferred stock for a purchase price of $300,000.
Included in due to stockholders and related parties are accrued but unpaid
dividends of $63,834 at December 31, 1994.
On March 29, 1995 all outstanding shares of preferred stock were converted
into 237,500 shares of common stock as part of the merger.
(15) COMMON STOCK
During 1993, the Company issued 280,000 shares and received gross proceeds of
$420,000.
During 1994, the Company circulated a private placement memorandum that raised
gross proceeds of $1,025,000 through the issuance of 256,250 shares of
common stock at a price of $4.00 per share (before adjustment for the 1.75
to 1 stock split).
On December 1, 1994, the Company converted $240,000 of subordinated notes
payable and $5,952 accrued interest into 61,488 shares of common stock.
(Continued)
F-27
<PAGE> 57
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
During 1991, 1992, 1993 and 1994, the Company issued 270,750, 1,075,125, 62,310
and 20,000 shares of common stock, respectively, in exchange for various
investment considerations and consulting services. No value was assigned by
the Company to the shares that were issued in 1991, 1992 and 1993 since, at
the time of issuance, the Company had not sold any stock since inception
and the Company had a substantial stockholders' deficit. The 1994 shares
were recorded at a current value of $4.00 per share (before adjustment for
the 1.75-to-1 stock split).
From January 1 through March 29, 1995, the Company issued 2,450 shares for
employee bonuses, 31,500 shares in exchange for Directors' fees and 11,250
shares for consulting services at $4.00 per share (before adjustment for
the 1.75 to 1 stock split).
On February 1, 1995, BioSafe closed a private placement of 1,100 units with
net proceeds of $997,250. Each unit consisted of a $1,000 face amount 10%
convertible subordinated note, a Series C Warrant to purchase 500 shares of
Common Stock at $2.00 per share and a Series D Warrant to purchase 500
shares of Common Stock at $4.75 per share. The convertible notes and all
accrued interest were then converted into 558,578 shares of the Company's
Common Stock on March 29, 1995 as part of the merger transaction described
below.
On February 17, 1995, BioSafe began offering units consisting of four shares
of Common Stock with a Series D Warrant to purchase two shares of Common
Stock at $4.75 a share. Contemporaneous with the merger on March 29, 1995
described below, BioSafe completed an initial closing of its private
placement with gross proceeds of $4.0 million from the sale of 500,000
units at $8.00 per unit. After the merger, on April 18, 1995 and April 24,
1995, the Company closed an aggregate of $5,000,000 in additional gross
proceeds with respect to the private placement from the sale of 625,000
units at $8.00 per unit.
In March, 1995, the Company issued warrants to purchase 114,625 shares at
$2.29 per share and 50,000 shares at $3.50 per share to certain investors
for investment considerations and professional services rendered.
On March 29, 1995, the Company acquired BioSafe in a merger accounted for as a
reverse recapitalization. The acquisition was consummated through an
exchange of shares of the Company for an equal number of shares of BioSafe.
To accomplish this, the stockholders of the Company approved a 1 for 73.083
reverse stock split while the stockholders of BioSafe approved a 1.75 to 1
forward stock split. Since stockholders of BioSafe received the majority
stock of the resulting combined enterprise, management of BioSafe became
management of the combined enterprise. The name of the Company was then
changed from Zoe Capital Corp. to BioSafe International, Inc. The financial
statements presented treat BioSafe as the surviving entity in the
combination. The financial statements for December 31, 1994 and prior
periods exclude BioSafe International, Inc. since such financial statements
are not material.
As part of the merger agreement, all of the outstanding shares of BioSafe's
Preferred Stock (total of 4,750 shares with $100 par value) were converted
into 237,500 shares of Common Stock of the Company. On March 29, 1995, the
Company also issued to the existing BioSafe stockholders Series E Warrants
on a pro-rata basis to purchase an aggregate of 500,000 shares of the
Company's Common Stock at $3.50 a share.
(Continued)
F-28
<PAGE> 58
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
The Company has the right to accelerate the expiration of the Warrants in the
event that the average market price of the Common Stock for 20 consecutive
trading days exceeds $4.625 per share in the case of Series A Warrants and
$5.75 per share in the case of Series C Warrants, Series D Warrants and
Series E Warrants. In the event that the Company accelerates the expiration
of any Warrants, the holders of such Warrants would be permitted to
exercise the Warrants during a period of not less than 20 days following
notice of such event.
On March 30, 1995, the Company issued three-year non-callable Warrants to
purchase 720,000 shares of the Company's Common Stock at $2.30 per share
and 200,000 shares of Common Stock, issued and charged to stockholder's
equity at $2.00 per share, to Capital Growth International, Inc. ("Capital
Growth") as compensation for investment banking services rendered in
connection with the private placement and the merger.
On March 30, 1995, the Company issued 890,000 shares of Common Stock and
recorded the issuance as prepaid consulting expense at $1.50 per share, to
Liviakis Financial Communications, Inc. in conjunction with the two year
consulting agreement described more fully in Note 8 to these consolidated
financial statements.
The Company used a portion of the proceeds from the merger and private placement
to repay notes payable, notes payable to stockholders and related parties
and subordinated notes payable.
On November 6, 1995, the SEC declared effective the Company's registration
Statement on Form S-1 relating to the resale by certain security holders of
up to 16,606,356 shares of Common Stock, 122,719 Series A Warrants and
550,000 Series C Warrants, 2,800,000 Series D Warrants, and 500,000 Series
E Warrants. The Company did not receive any proceeds from the sale of
shares of Common Stock or Warrants from the selling security holders. The
Company will receive proceeds from the issuance of Secondary Warrant Stock
when, and if, any of the Warrants are exercised by the warrant holders.
In 1995, the Company issued additional warrants to purchase common stock in
connection with various financing transactions. See note 9.
(16) STOCK OPTIONS
During January of 1994, BioSafe adopted the 1993 Stock Option Plan (the "Plan")
for the issuance of options to purchase up to 450,000 shares of Common
Stock by employees, directors, and consultants of the Company. Options
granted under the Plan may be either Incentive Stock options or
Non-Qualified Stock Options for purposes of federal income tax law. Options
are generally subject to vesting over a period of four years from the date
of grant and are exercisable only to the extent vested from time to time,
although certain options have provided for earlier vesting. The selection
of individuals to receive awards of options under the Plan and the amount
and terms of such awards may be determined by the Board of Directors of the
Company or an Administering Committee appointed by the Board of Directors.
(Continued)
F-29
<PAGE> 59
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
On March 27, 1995 the BioSafe 1993 Stock Option Plan was assumed by the
Company, adjusted to reflect the 1.75 to 1 stock split. The Option Plan
provides for the issuance of options to purchase up to 1,500,000 shares of
Common Stock to employees, directors, and consultants of the Company. As of
December 31, 1995, options to purchase 619,125 shares of Common Stock had
been granted and options to purchase up to an additional 880,875 shares
remained available for grant.
<TABLE>
Changes in options and option shares under the plan during the respective years
were as follows:
<CAPTION>
1995 1994
-------------------------- ---------------------------
Option price Number Option price Number
per share of shares per share of shares
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year $2.00 555,625 -
Options granted $2.00 to 8.25 287,500 $2.00 555,625
Options exercised -
Options canceled $2.00 224,000 -
--------- -------
Options outstanding, end of year $2.00 to 8.25 619,125 $2.00 555,625
Shares reserved for future grants $2.00 to 8.25 880,875 $2.00 231,875
--------- -------
Total options in the plan 1,500,000 787,500
========= =======
Options exercisable, end of year $2.00 147,656 $2.00 87,500
========= =======
</TABLE>
<TABLE>
Options outstanding at December 31, 1995 and market value at date of grant were
as follows:
<CAPTION>
Number Price
of shares per share Amount
--------- --------- ------
<S> <C> <C> <C>
Year of grant:
1994 327,250 $2.00 $ 654,500
1995 21,875 2.00 43,750
1995 70,000 8.25 577,500
1995 200,000 5.44 1,088,000
------- ----------
619,125 $2,363,750
======= ==========
</TABLE>
In addition, options to purchase 43,750 shares of Common Stock were granted
outside of the Option Plan to a director. Twenty-five percent of these are
exercisable at $2.00 per share at December 31, 1995.
(17) RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, 1994, and 1993 the Company paid and
accrued investment advisory fees of $45,936, $45,740 and $20,570
respectively, to Newbury, Piret & Company, Inc.(a Company owned by
Marguerite A. Piret, a major stockholder and director of the Company and
the wife of Dr. Richard H. Rosen). See Note 18, subsequent events and Note
5, due from former employees. (Continued)
(Continued)
F-30
<PAGE> 60
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
As part of the merger discussed in Note 15, the Company entered into a
one-year investment banking agreement with Capital Growth International,
Inc. at $4,500 per month, which expired in March, 1996.
(18) SUBSEQUENT EVENTS
On March 27, 1996, the Company announced its intention to take meaningful
actions to conserve cash and working capital, including the restructuring
of the Company's operations to focus its resources and activities on its
core business of landfill remodeling and operation. On that date, the
Company ceased operations at its technology center in Woburn, Massachusetts
and discharged all employees and consultants previously engaged in
developing technologies with potential application in activities including
the manufacture of useful materials from tires and other recycled
materials, contaminated soil cleanup and recycling, industrial sludge
disposal, size reduction equipment design and manufacture, and Major Sports
Fantasies, Inc., a business unrelated to the environmental industry. In
addition, the Company discharged certain employees involved in the
Company's core landfill remodeling and operation business, including
administrative, marketing and sales, and operations. No substantial
revenues have been received from the technology center operations or Major
Sports Fantasies, Inc. activities. Included in selling, general and
administrative expenses for 1995 is $1,078,826 related to these activities.
In connection with the anticipated discontinued operations, the Company
recorded a nonrecurring charge to 1995 earnings of $1,315,313 primarily
related to the write-down of assets to estimated net realizable value.
During the first quarter of 1996, the Company will record an as yet unknown
charge to earnings for estimated costs of discontinuing these operations
and restructuring. As of March 31, 1996, the Company had approximately $1.8
million in cash and nominal working capital.
The Company is currently maintaining ownership of its infectious medical waste
disposal technology (which is fully developed and requires no further
development costs), which is outside the Company's core landfill remodeling
and operations business, subject to the non-exclusive purchase option
described in the following paragraph.
On March 27, 1996, Dr. Richard H. Rosen resigned from the offices of Chairman
of the Board of Directors, President, Chief Executive Officer and Treasurer
of the Company and all of its subsidiaries and affiliates (see Note 5, due
from former employees). The Board of Directors named Philip Strauss, Chief
Operating Officer, to additional positions of Chief Executive Officer,
President and Treasurer of the Company and named Jay Matulich as interim
Chairman of the Board of Directors. In connection with Dr. Rosen's
resignation, the Company granted Dr. Rosen a 90-day non-exclusive option to
purchase the Company's medical waste technology, and the technology center
operations described above, which are not used in the Company's core
landfill remodeling and operation business, at a price to be determined by
independent appraisal. The Company retains a right to accept a competing
offer deemed preferable by the Company, subject to a right of first refusal
by Dr. Rosen. The assets of these subsidiaries that are expected to be sold
have been included in assets held for sale on the consolidated balance
sheets.
F-31
<PAGE> 61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 29, 1995, the Company acquired all of the outstanding capital
stock of BioSafe, Inc. through the merger of a wholly-owned subsidiary of the
Company with and into BioSafe, Inc. (the "Acquisition"). As part of the
Acquisition, the Company's stockholders elected new directors, and the Company
moved its principal offices to Cambridge, Massachusetts. The Company's Board of
Directors determined that it was in the best interests of the Company to appoint
an independent accountant that is located near the Company's new principal
office and is familiar with the operations of its operating subsidiary, BioSafe,
Inc. Accordingly, on March 29, 1995, the Board of Directors appointed KPMG Peat
Marwick LLP as the Company's certifying independent public accountant.
Additional information relating to this appointment is as follows:
1. The effective date of the appointment of KPMG Peat Marwick LLP as the
Company's independent certifying accountant was March 29, 1995.
2. There had been no disagreements with the previous accountant of the
Company on any matter of accounting principles or practices, financial statement
disclosure or auditing scope of procedure.
3. The accountants' reports on the Company's financial statements for the
two years previous to the appointment of KPMG Peat Marwick LLP did not contain
adverse opinions or disclaimers of opinions, nor were such reports qualified as
to audit scope or accounting principles.
4. A letter from the former accountant of the Company stating that it
agrees with the statements set forth in this Item is incorporated by reference
as an exhibit to this Annual Report on Form 10-K.
5. The decision to change accountants was recommended by the Company's
Board of Directors. The Company has no audit committee.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be held on June
14, 1996, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be held on June
14, 1996, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be held on June
14, 1996, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be held on June
14, 1996, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.
26
<PAGE> 62
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3(i).1 Articles of Incorporation of the Company. (Incorporated by reference to Exhibit No.
3(i).1 to the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-
93966.)
3(i).2 Articles of Amendment to Articles of Incorporation of the Company. (Incorporated by
reference to Exhibit No. 3(i).2 to the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
3(i).3 Certificate of Incorporation of BioSafe, Inc., as amended. (Incorporated by reference
to Exhibit No. 3(i).3 to the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
3(ii).1 Bylaws of the Company, as amended on March 26, 1996.
3(ii).2 Bylaws of BioSafe, Inc. (Incorporated by reference to Exhibit No. 3(ii).2 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.1 Form of Series A Warrant Certificate. (Incorporated by reference to Exhibit No. 4.1
to the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-
93966.)
4.2 Series A Warrant Agreement. (Incorporated by reference to Exhibit No. 4.2 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.3 Form of Series C Warrant Certificate. (Incorporated by reference to Exhibit No. 4.3
to the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-
93966.)
4.4 Series C and Series D Warrant Agreement. (Incorporated by reference to Exhibit No.
4.4 to the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-
93966.)
4.5 Form of Series D Warrant Certificate. (Incorporated by reference to Exhibit No. 4.5
to the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-
93966.)
4.6 Series D Warrant Agreement. (Incorporated by reference to Exhibit No. 4.6 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.7 Form of Series E Warrant Certificate. (Incorporated by reference to Exhibit No. 4.7
to the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-
93966.)
4.8 Series E Warrant Agreement. (Incorporated by reference to Exhibit No. 4.8 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.9 Form of Placement Agent Warrant. (Incorporated by reference to Exhibit No. 4.9 to
the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.10 Form of Series F Warrant Certificate.
4.11 Series F Warrant Agreement.
10.1 Amended and Restated Joint Venture Agreement between BioSafe, Inc. and BioMed
Environmental Systems, Inc., dated December 24, 1992. (Incorporated by reference
to Exhibit No. 10.1 to the Registration Statement on Form S-1 of BioSafe International,
Inc., No. 33-93966.)
10.2 Agreement between BioSafe, Inc. and the Town of Fairhaven, Massachusetts, dated
July 24, 1995. (Incorporated by reference to Exhibit No. 10.2 to the Registration
Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
10.3 Letter Agreement from the Town of Fairhaven to the Company, dated June 20, 1995.
(Incorporated by reference to Exhibit No. 10.3 to the Registration Statement on Form
S-1 of BioSafe International, Inc., No. 33-93966.)
10.4 Agreement and Plan of Merger dated as of March 17, 1995, among the Company, Zoe
Resources, Inc., certain stockholders of the Company and BioSafe, Inc.
</TABLE>
27
<PAGE> 63
<TABLE>
<S> <C>
(Incorporated by Reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, dated March 29, 1995.)
10.5 1995 Stock Option Plan (Incorporated by Reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K, dated March 29, 1995.)
10.6 Employment Agreement between S. Russell Sylva and the Company. (Incorporated by
reference to Exhibit No. 10.7 to the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.7 Employment Agreement between Robert Rivkin and the Company. (Incorporated by
reference to Exhibit No. 10.8 to the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.8 Selling Agreement between the Company and U.S. Sachem Financial Consultants,
L.P., dated March 29, 1995. (Incorporated by reference to Exhibit No. 10.9 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
10.9 Consulting Agreement between the Company and Liviakis Financial Communications,
Inc., dated February 1, 1995. (Incorporated by reference to Exhibit No. 10.10 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
10.10 Agreement between BioSafe, Inc. and Waste Management of Rhode Island, Inc., dated
July 31, 1995. (Incorporated by reference to Exhibit No. 10.11 to the Registration
Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
10.11 Agreement between BioSafe, Inc. and the Town of South Hadley, Massachusetts, dated
August 22, 1995. (Incorporated by reference to Exhibit No. 10.12 to the Registration
Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
10.12 Agreement between BioSafe, Inc. and Janos Szombathy, dated April 4, 1995.
(Incorporated by reference to Exhibit No. 10.13 to the Registration Statement on Form
S-1 of BioSafe International, Inc., No. 33-93966.)
10.13 USA Tire Recycling, LLC Pre-Formation Agreement between Michael A. Bowers and
BioSafe, Inc., dated April 3, 1995. (Incorporated by reference to Exhibit No. 10.14 to
the Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
10.14 Asset Purchase and Stockholders' Agreement among BioSafe International, Inc.,
BioSafe Landfill Technology, Inc., Cairns Associates, Inc. and Benjamin F. Cairns,
dated December 28, 1995.
10.15 Form of 10% Convertible, Redeemable, Subordinated Note Due 2000.
10.16 Venture Agreement and Engineering Services and License Agreement relating to
BioSafe Europe, plc.
16.1 Letter regarding change in certifying accountant. (Incorporated by reference to
Exhibit A to the Current Report on Form 8-K/A of BioSafe International, Inc.,
dated July 31, 1995.)
21.1 Schedule of Subsidiaries. (Incorporated by reference to Exhibit No. 21.1 to the
Registration Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)
23.1 Consent of KPMG Peat Marwick LLP
(b) Financial Statement Schedules
1. Quarterly Results of Operations (unaudited).
(c) Reports on Form 8-K
None.
</TABLE>
28
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 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.
BIOSAFE INTERNATIONAL, INC.
Date: May 6, 1996 By: PHILIP STRAUSS
------------------------------------------------
Philip Strauss
Chief Executive Officer, President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: May 6, 1996 PHILIP STRAUSS
-----------------------------------------------------
Philip Strauss
Chief Executive Officer, President and Treasurer
(Principal Executive Officer)
Date: May 6, 1996 ROBERT RIVKIN
-----------------------------------------------------
Robert Rivkin
Vice President, Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Date: May 6, 1996 JAY MATULICH
-----------------------------------------------------
Jay Matulich, Director
Date: May 6, 1996
-----------------------------------------------------
Marguerite A. Piret, Director
Date: May 6, 1996
-----------------------------------------------------
Daniel J. Shannon, Director
Date: May 6, 1996 BARRY SIMMONS
-----------------------------------------------------
Dr. Barry Simmons, Director
Date: May 6, 1996 BILL G. TAYLOR
-----------------------------------------------------
Bill G. Taylor, Director
29
<PAGE> 65
STOCKHOLDER INFORMATION
- --------------------------------------------------------------------------------
ANNUAL MEETING
The Annual Meeting of Stockholders of BioSafe International, Inc. will be
held at the offices of Goodwin, Procter & Hoar LLP, Second Floor Conference
Center, 53 State Street, Boston, MA 02109, on Monday, June 24, 1996, at 4:00
p.m. A formal notice of the meeting, together with a proxy statement and proxy
card, is being mailed to stockholders with this Annual Report.
- -------------------------------------------------------------------------------
FORM 10-K AND OTHER REPORTS
Additional copies of this Annual Report to Stockholders, which contains the
Company's Annual Report to the Securities and Exchange Commission on Form 10-K
(without exhibits), a copy of the exhibits to the Annual Report on Form 10-K and
copies of quarterly reports may be obtained without charge by writing to:
Secretary, BioSafe International, Inc., 10 Fawcett Street, Cambridge, MA 02138.
- --------------------------------------------------------------------------------
STOCKHOLDER INFORMATION
Transfer Agent
InterWest Transfer Co.
1981 East 4800 So., Suite 100
Salt Lake City, UT 84117
Independent Auditors
KPMG Peat Marwick, L.L.P.
99 High Street
Boston, MA 02110
General Counsel
Goodwin, Procter & Hoar LLP
53 State Street
Boston, MA 02109
30
<PAGE> 66
CORPORATE INFORMATION
As of May 8, 1996
- --------------------------------------------------------------------------------
DIRECTORS
Jay J. Matulich*o
Senior Vice President
Capital Growth International LLC
Philip Strauss
Chief Executive Officer, Chief Operating Officer and Treasurer
Richard S. Golub
President
Worldwide Information Systems
William B. Philipbar
Director
Matlack Systems, Inc.
Marguerite Piret
Principal
Newbury, Piret & Co., Inc.
Daniel J. Shannon*
Director
LaSalle Street Capital Management, LTD.
Barry Simmons
Physician
Brigham Orthopedic Associates, Inc.
Bill G. Taylor*
Retired
Former President and Chief Operating Officer,
The Halliburton Services Company
* Executive Committee
o Compensation Committee (pending the appointment of one or more additional
members)
PRINCIPAL OFFICERS
Philip Strauss
Chief Executive Officer, Chief Operating Officer and Treasurer
Robert Rivkin
Vice President, Chief Financial Officer and Secretary
S. Russell Sylva
Vice President
31
