<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NUMBER
0 - 25998
BIOSAFE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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, including zip code)
(617) 497-4500
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF AUGUST 7, 1996
----- --------------------------------
Common Stock, $.001 par value 16,474,183
<PAGE> 2
<TABLE>
BIOSAFE INTERNATIONAL, INC.
---------------------------
<CAPTION>
Index to Contents Page No.
----------------- --------
<S> <C> <C>
Part I Financial Information
Item I. Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and December
31, 1995 1 - 2
Consolidated Statements of Operations for the
Three Months Ended and Six Months Ended June 30, 1996
and 1995, and for the period from April 23,1990, (inception)
to June 30, 1996. 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995,
and for the period from April 23,1990, (inception)
to June 30, 1996. 4
Notes to Consolidated Financial Statements 5 - 13
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 14 - 22
Part II Other Information
Item 1. Legal Proceedings 23 - 24
Item 2. Changes in Securities 24
Item 3. Defaults on Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
</TABLE>
<PAGE> 3
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
1996 1995
Assets ------------ -----------
------ (unaudited)
<S> <C> <C>
Current assets:
Cash $ 4,009,239 $ 5,237,064
Accounts and notes receivable, net 1,461,962 2,047,065
Assets held for sale (Note 3) 150,000 -
Prepaid expenses and other current assets 337,496 515,558
----------- -----------
Total current assets 5,958,697 7,799,687
Assets held for sale (Note 3) 301,862 505,980
Restricted securities 1,160,757 187,500
Due from former employees (Note 4) 504,185 385,425
Investment in affiliate - 10,029
Property and equipment, net (Note 5) 14,792,952 12,503,091
Prepaid consulting fees 500,625 834,375
Deferred financing costs 1,143,283 1,182,251
Other assets 104,253 99,772
----------- -----------
Total assets $24,466,614 $23,508,110
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Balance Sheets
<CAPTION>
Liabilities and Stockholders' Equity June 30, December 31,
------------------------------------ 1996 1995
------------ -----------
(unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt and notes payable $ 1,808,763 $ 1,526,188
Accounts payable 1,634,625 2,546,169
Accrued expenses 523,079 635,879
Restructuring and current liabilities related to
discontinued operations (Note 3) 1,228,502 622,624
Income and franchise taxes payable 24,000 75,535
------------ -----------
Total current liabilities 5,218,969 5,406,395
Long-term debt and notes payable(Note 9) 12,074,155 12,266,003
Landfill closure and post-closure costs (Note 6) 1,500,000 1,500,000
------------ -----------
Total liabilities 18,793,124 19,172,398
------------ -----------
Contingencies (Note 7)
Minority interest 1,039,769 1,044,111
------------ -----------
Stockholders' equity (deficit): (Notes 8 and 9)
Common stock, $.001 par value. Authorized
100,000,000 shares; 15,077,279 and
11,706,338 shares issued and outstanding
at June 30, 1996 and December 31, 1995,
respectively 15,077 11,706
Additional paid-in capital 18,508,991 12,607,210
Deficit accumulated during the development stage (13,890,347) (9,327,315)
------------ -----------
Total stockholders' equity (deficit) 4,633,721 3,291,601
------------ -----------
Total liabilities and stockholders' equity (deficit) $ 24,466,614 $23,508,110
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Operations
(unaudited)
<CAPTION>
Period from
Three Months Ended Six Months Ended April 23, 1990
-------------------------- ------------------------ (inception) to
June 30, June 30, June 30, June 30, June 30,
1996 1995 1996 1995 1996
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Landfill revenues $ 319,413 $ 9,815 $ 736,612 $ 9,815 $ 2,081,009
----------- ----------- ----------- ----------- ------------
Cost of landfill operations:
Operating expenses 116,621 - 345,042 - 1,111,054
Write-off of landfill development costs 229,113 - 229,113 - 229,113
Depreciation 54,456 - 98,287 - 169,936
----------- ----------- ----------- ----------- ------------
Total cost of landfill operations 400,190 - 672,442 - 1,510,103
----------- ----------- ----------- ----------- ------------
Gross profit (80,777) 9,815 64,170 9,815 570,906
Selling, general and administrative expenses 612,796 710,950 1,781,856 1,229,612 8,771,755
Amortization of prepaid consulting fees 166,875 166,875 333,750 166,875 834,375
Restructuring - - 250,000 - 1,565,323
----------- ----------- ----------- ----------- ------------
Income (loss) from operations (860,448) (868,010) (2,301,436) (1,386,672) (10,600,547)
----------- ----------- ----------- ----------- ------------
Other income (expense):
Royalty and other income 39,800 - 51,870 725,000 4,977,090
Interest income 9,023 29,181 82,183 45,657 466,113
Gain on sale of assets - - - - 222,728
Interest expense and financing costs (352,242) (15,982) (627,888) (56,158) (1,656,072)
Equity in loss of affiliate (29,650) - (59,650) - (59,650)
Write-off of accounts and notes receivable - (2,975,001) - (2,975,001) (2,975,001)
Loss on investment in marketable securities - (40,625) - (71,875) (100,000)
Write-off of assets - - - - (241,546)
----------- ----------- ----------- ----------- ------------
Total other income (expense) (333,069) (3,002,427) (553,485) (2,332,377) 633,662
----------- ----------- ----------- ----------- ------------
Income (loss) before income taxes , minority interest
and discontinued operations (1,193,517) (3,870,437) (2,854,921) (3,719,049) (9,966,885)
Federal and state income tax expense 25,000 (200,000) 50,000 (185,000) 228,035
----------- ----------- ----------- ----------- ------------
Income (loss) before minority interest
and discontinued operations (1,218,517) (3,670,437) (2,904,921) (3,534,049) (10,194,920)
Minority interest (1,996) - 4,342 - (8,674)
----------- ----------- ----------- ----------- ------------
Income (loss) from continuing operations (1,220,513) (3,670,437) (2,900,579) (3,534,049) (10,203,594)
Discontinued operations (Note 3) - (140,927) (1,662,453) (193,427) (3,686,753)
----------- ----------- ----------- ----------- ------------
Net income (loss) (1,220,513) (3,811,364) (4,563,032) (3,727,476) $(13,890,347)
============
Preferred stock dividend - - - 9,500
----------- ----------- ----------- -----------
Net income (loss) available for
common shareholders $(1,220,513) $(3,811,364) $(4,563,032) $(3,736,976)
=========== =========== =========== ===========
Net income (loss) per share:
Income (loss) from continuing operations $ (0.10) $ (0.33) $ (0.24) $ (0.44)
Discontinued operations - $ (0.01) $ (0.14) $ (0.02)
----------- ----------- ----------- -----------
Net income (loss) per share $ (0.10) $ (0.34) $ (0.38) $ (0.46)
=========== =========== =========== ===========
Weighted average number of shares used in
computation of net income (loss) per share 12,115,575 11,102,659 11,930,670 8,067,242
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
Consolidated Statements of Cash Flows
(unaudited)
<CAPTION>
Period from
April 23, 1990
Six months ended June 30, (inception) to
------------------------- June 30,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,563,032) $(3,727,476) $(13,890,347)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Discontinued operations 1,662,453 193,427 3,686,753
Depreciation and amortization 575,265 173,589 1,388,658
Deferred income taxes - (185,000) -
Loss on investment in marketable securities - 71,875 100,000
Equity on loss in affiliate 59,650 - 59,650
Minority interest (4,341) - 8,675
Allowance for doubtful accounts - - 347,426
Write-off of accounts and notes receivable - 2,975,001 2,975,001
Issuance of common stock for services - - 383,300
Write-off of projects - - 241,546
Changes in assets and liabilities:
Accounts receivable and notes receivable 533,403 (674,161) (3,070,808)
Prepaid expenses and other current assets 178,062 (333,732) (337,496)
Accounts payable (1,147,356) (242,833) 1,869,678
Accrued expenses 122,991 231,916 471,709
Income and franchise taxes payable (51,535) (98,005) 24,000
Deferred income - - (500,000)
----------- ----------- ------------
Net cash used by continuing operations (2,634,440) (1,615,399) (6,242,255)
Net cash used by discontinued operations (966,374) (655,423) (2,376,745)
----------- ----------- ------------
Net cash used by operating activities (3,600,814) (2,270,822) (8,619,000)
----------- ----------- ------------
Cash flows from investing activities:
Assets held for sale - - (402,500)
Restricted cash & securities (973,257) (187,500) (1,160,757)
Receivable from One, Three, Six, Inc. - - (800,000)
Investment in affiliate (49,621) - (59,650)
Construction in progress (1,748,448) - (11,158,353)
Future landfill development projects (25,002) (3,288,951) (371,479)
Other property and equipment (434,002) (1,158,904) (1,391,660)
Landfill equipment (34,074) - (65,888)
Patents (2,601) (15,739) (65,986)
Other assets (3,737) (11,651) (38,279)
Licenses and permits - - (78,807)
----------- ----------- ------------
Net cash provided (used) by investing activities (3,270,742) (4,662,745) (15,593,359)
----------- ----------- ------------
Cash flows from financing activities:
Borrowings from notes payable and long-term debt - 626,635 2,248,425
Repayment of notes payable and long-term debt (67,637) (394,182) (1,262,201)
Net borrowings and advances
from stockholders and related parties (118,760) - 262,621
Issuance of subordinated notes payable - - 12,405,000
Repayments of subordinated notes payable - (770,500) (790,000)
Net proceeds from issuance of common stock 5,905,152 9,175,019 16,236,808
Redemption of preferred stock - - (300,000)
Preferred stock dividends - (9,500) (117,334)
Minority interest - (120,490) 1,031,095
Deferred financing and registration costs (75,024) - (1,492,816)
----------- ----------- ------------
Net cash provided by financing activities 5,643,731 8,506,982 28,221,598
----------- ----------- ------------
Increase (decrease) in cash (1,227,825) 1,573,415 4,009,239
Cash, beginning of period 5,237,064 170,893 -
----------- ----------- ------------
Cash, end of period $ 4,009,239 $ 1,744,308 $ 4,009,239
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(1) BASIS OF PRESENTATION
These consolidated financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at June
30, 1996 and for all periods presented have been made. The results of
operations for the period ended June 30, 1996 are not necessarily
indicative of the operating results for the full year.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed financial statements be read in
conjunction with the Company's December 31, 1995 audited financial
statements and notes thereto.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Landfill Revenue Recognition
The Company'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, payroll taxes, employee
benefits, fuel, equipment maintenance, insurance, depreciation and
amortization, depletion of landfill 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 certain 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 each Town. In such
Towns, the Town is responsible for the ultimate closure and
post-closure costs related to such landfills.
Landfill Closure and Post-Closure Costs
The Company 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 for estimated closure and post-closure costs, as necessary, as
a component of the purchase price for acquisitions using the purchase
method of accounting when the acquisition is consummated.
5
<PAGE> 8
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
Property and Equipment
Capitalization of landfill development costs begins with the signing of a
landfill management contract (for facilities operated by the Company
which are not owned) or upon determination by the Company of economic
feasibility or extended useful life of each landfill 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 $90,502 and $0, and $185,566 and $0 were capitalized
during the three and six months ended June 30, 1996 and 1995,
respectively.
Landfill 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 topography
surveys, generally using aerial survey techniques, of the Company's
landfill facilities to determine remaining airspace capacity in each
landfill. The surveys are 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 is compared against the airspace consumption figures used during
the current year for accounting purposes (primarily tipping volume) to
ensure proper recording of the provision for depletion. The process of
reevaluating airspace consumption did not impact results of operations
for any periods presented in these consolidated financial statements.
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 benefit 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. Landfill development
costs of $229,113 and $0, were expensed based on such determination
during the three and six months ended June 30, 1996 and 1995.
6
<PAGE> 9
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
Allother property and equipment are stated at cost. Depreciation and
amortization are 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
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.
Reclassifications
Certain amounts in prior year financial statements have been reclassified
to conform to the 1996 presentation.
(3) RESTRUCTURING OF OPERATIONS AND 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.
Restructuring Charge
During the first quarter of 1996, the Company recorded a restructuring
charge of $250,000 for estimated restructuring costs associated with
management's plan to focus on the core business of landfill remodeling
and operation. These costs included accruals for employee severance,
non-cancelable lease commitments and professional fees. Cash
requirements will be funded by the Company's cash flow from operating
and financing activities. The restructuring plan, when fully
implemented, is expected to result in annual savings in excess of $1.0
million. As of June 30, 1996, costs of $75,172 have been charged to the
reserve with the balance expected to be utilized by the end of 1996.
7
<PAGE> 10
'
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
Assets Held for Sale and Discontinued Operations
During the fourth quarter of 1995, the Company recorded a non-recurring
charge to 1995 earnings of approximately $1.3 million primarily
related to the write-down of assets to their estimated net realizable
value. The aggregate carrying values of such property considered no
longer strategic to the Company's operations will be reviewed
periodically and stated at the estimated net realizable value. During
the six months ended June 30, 1996, the Company recorded an additional
charge of $54,118 to reduce the carrying value of these assets. Net
assets of the discontinued operations consists primarily of equipment
of $49,362, also included in assets held for sale is property of
$402,500 not related to a discontinued operation. As a result of
discontinuance of these operations, the Company expects annual savings
in excess of $3.0 million. The Company expects to dispose of
these assets during 1996.
On March 27, 1996, 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 (the "Ancillary Technologies"), and Major Sports
Fantasies, Inc. ("MSF"), a business unrelated to the environmental
industry. The Company did not recognize any substantial revenues from
the technology center operations or MSF activities.
The expenses associated with operating the Ancillary Technologies for all
periods presented are reported in the accompanying reclassified
consolidated financial statements of operations and cash flows under
discontinued operations. During the first quarter of 1996, the Company
provided a reserve of $650,000 for estimated costs directly associated
with disposing of the Ancillary Technologies and MSF. The discontinued
operations reserve was recorded net of a deferred tax asset of zero.
The Company has recorded a valuation allowance against the full amount
of its deferred tax asset, which consists primarily of its available
net operating loss tax carryforwards. As of June 30, 1996, costs of
$102,006 have been charged to the reserve with the balance expected to
be utilized by the end of 1996.
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.
8
<PAGE> 11
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
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 "Due From Former Employees' Note 4 and Part II, Item 1 "Legal
Proceedings"). The Board of Directors named Philip Strauss, Chief
Operating Officer, to the additional positions of Chief Executive
Officer and President of the Company and, on June 26, 1996 the Company
also named Philip Strauss Chairman of the Board of Directors. In
connection with Dr. Rosen's resignation, the Company granted Dr. Rosen
a non-exclusive option to purchase the Company's technology center
operations described above and the medical waste technology, which are
not used in the Company's core landfill remodeling and operation
business, at a price to be determined by independent appraisal. The
option expires on September 4, 1996 after giving effect to an extension
which resulted from delays in completing an appraisal of the optioned
technology. 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.
(4) DUE FROM FORMER EMPLOYEES
The Company has commenced arbitration proceedings against Dr. Richard
Rosen, former Chairman, Chief Executive Officer and President of the
Company (See Note 3), seeking to recover an amount in excess of $1.8
million, excluding interest, which the Company believes is owed to it
by Dr. Rosen. This action was undertaken at the direction of the Board
of Directors following its receipt of a report by a special committee
which had been appointed to investigate Dr. Rosen's financial dealings
with the Company. The Special Committee retained independent counsel in
connection with its investigation. Dr. Rosen resigned from all offices
with the Company on March 27, 1996. Amounts which the Company seeks to
recover include unreimbursed advances and amounts which the Company
believes constitute improper expense reimbursements and payments of
Company funds for personal benefit. On July 19, 1996 the Company (a)
filed a Demand for Arbitration with the Boston office of the American
Arbitration Association relating to these claims, and (b) filed a
Verified Complaint for Injunctive Relief in Massachusetts Superior
Court seeking to prohibit any sale or other transfer by Dr. Rosen, his
wife Marguerite Piret, a former Director of the Company, and their
children of their stock in the Company in order to provide security for
the Company's claims. No assurance can be given that the Company will
be able to prevail in these proceedings or that it will be able to
collect any amounts awarded in arbitration. The Company is carrying on
its balance sheet an amount of approximately $328,000 in unreimbursed
advances due from Dr. Rosen, but the Company's other claims and
additional advances have not been reflected on the balance sheet at
this time.
9
<PAGE> 12
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(5) PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are stated at cost and consist of the following;
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Construction in progress - landfills owned $ 5,923,185 $ 5,152,750
Construction in progress - landfills operated 5,885,168 4,907,155
Future landfill development projects 294,383 269,381
Equipment used in landfills 1,074,720 1,040,646
Buildings, facilities and improvements 1,256,495 664,060
Other property, equipment and equipment deposits 718,388 702,821
----------- -----------
15,152,339 12,736,813
Less accumulated depreciation and amortization (359,387) (233,722)
----------- -----------
$14,792,952 $12,503,091
=========== ===========
</TABLE>
Town of Fairhaven
The Company entered into a management 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. The Company has
remodeled and constructed an initial cell at the landfill. On August 9,
1996 the Company received final authorization from the Massachusetts
Department of Environmental Protection ("MDEP") to operate its initial
cell. As a result of the permit to operate, the Company will continue to
operate at a daily capacity of 150 tons per day. The Company expects the
MDEP to increase the daily rate from 150 tons per day to approximately
400 tons per day when additional lined cells are constructed. The Company
does not anticipate reaching 400 tons per day until late 1997. When the
Company reaches 400 tons per day, the Fairhaven project will generate
increased operating cash flow. 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
10
<PAGE> 13
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
one phase of the landfill remodeling project claiming the MDEP violated
the Massachusetts Environmental Policy Act ("MEPA") in issuing the Permit
(the "MEPA Claims"). 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.
Pursuant to the Massachusetts Administrative Procedures Act, the Permit
Appeal will be heard by a Bristol County Superior Court Judge.
Plaintiffs, the MDEP, the Town and BioSafe each have submitted briefs to
the Court. The Court has scheduled a hearing on the Permit Appeal for
September 5, 1996. The Company has challenged 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 filed a similar motion. The Court heard oral argument on the
motions to dismiss on April 9, 1996. On May 1, 1996, the Court issued a
decision on the motions to dismiss in favor of BioSafe and the Town,
dismissing the MEPA Claims in their entirety.
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 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, a period of additional discovery and other
pre-trial proceedings would take place prior to trial on the merits.
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.
On July 22, 1996 the Company received its Draft Certification from the
Vermont Agency of Natural Resources (VANR) to commence operations at
the Moretown landfill using available capacity and construction of Cell
One, Phase II. The Draft Certification is currently under a 28-day
public comment review period which ends August 23, 1996. Upon receipt
of the Full Certification and the ACT 250 Land Use Permit the Company
will be able to commence operations at approximately 400 TPD. The
Company currently anticipates commencing operations at the landfill by
the end of September 1996 with a daily capacity of 200 - 300 TPD.
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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 for estimated closure and post-closure costs based on
engineering estimates of the current condition of the landfill. See
Note 6.
(6) 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 all cells are filled and the operating life of the
landfill is over, all cells 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 June 30, 1996 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 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 at June 30, 1996. See Note 5.
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.
None of the Company's landfills are currently connected with Superfund
National Priority Lists or potentially responsible party issues.
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BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(7) CONTINGENCIES
Legal Matters
The Company is party to certain 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 5.
(8) COMMON STOCK
On June 28, 1996 the Company closed an offering to overseas investors
under Regulation S of the Securities Act of approximately 3.3 million
shares of common stock at approximately $2.00 per share, raising net
proceeds of approximately $5.9 million. The purchasers were all non
U.S. - persons and were primarily existing institutional BioSafe
shareholders and internationally recognized environmental mutual funds.
These shares 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.
(9) SUBSEQUENT EVENTS
On July 6, 1996 the Company's Subordinated Redeemable Convertible Notes
due October 6, 2000 became eligible for conversion. Through August 7,
1996, such notes in the principal amount of $2,525,000, plus accrued
interest in the amount of $22,102 have been converted into 1,389,733
shares of common stock of the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q 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 is engaged in the business of rehabilitating landfills to
permit their continued operation with increased capacity in an environmentally
sound manner, referred to by the Company as "landfill remodeling" and landfill
operation. The Company has developed technologies for size reduction and
handling of waste materials for use in landfill remodeling. The Company also
intends to investigate or pursue potential acquisitions of collection and
transfer operations to develop fully integrated solid waste management
operations in markets where it believes it can maximize utilization of Company
owned or operated landfills.
Prior to March 27, 1996, the Company had been actively developing other
technologies with potential application in a number of business areas, including
the Ancillary Technologies and Major Sports Fantasies, Inc., a business
unrelated to the environmental industry. The Company is not currently allocating
its resources or activities to the development or commercial exploitation of the
Ancillary Technologies or Major Sports Fantasies, Inc. See Note 3 to the
consolidated financial statements.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
FINANCIAL POSITION
- ------------------
BioSafe had $4,009,000 in cash as of June 30, 1996. This represented a
decrease of $1,228,000, or 23%, from December 31, 1995. Working capital as of
June 30, 1996 was $740,000, a decrease of $1,654,000, or 69%, from December 31,
1995. This decrease was primarily due to the use of cash to fund the net loss
for the six months ended June 30, 1996, capital costs associated with landfill
development projects, and the restructuring and discontinued operations costs
and reserves which the Company recorded in the first quarter of 1996 (See Note 3
to the consolidated financial statements), partially offset by the net proceeds
of approximately $5.9 million in equity that the Company raised on June 28,
1996. See Note 8 to the consolidated financial statements.
During the six months ended June, 1996, the Company allocated resources
to various project development and related activities. See Note 5 to the
Consolidated Financial Statements. Additions to property and equipment,
primarily related to landfill remodeling and construction of $2,416,000 were
made during the six months ended June 30, 1996.
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In February 1996 the Company entered into a licensing and services
agreement with ScotSafe Limited, a Glasgow, Scotland company for the exclusive
rights to use the Company's continuous feed autoclave medical waste processing
technology in the British Isles. The Company generated approximately $50,000 in
consulting revenues from this agreement during the three months ended June 30,
1996 and anticipates earning royalties and consulting fees of approximately
$500,000 - $1,000,000 during the third quarter of 1996, based on the estimated
completion of two medical waste treatment facilities by ScotSafe during this
period. See Note 3 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
- ---------------------
Through the first quarter of 1995, substantially all of the Company's
revenue had been attributable to the sale and licensing of its medical waste
treatment technology to BioMedical Waste Systems, Inc. ("Biomed"). On August 31,
1995 the Company terminated its agreement with Biomed in most territories as a
result of Biomed's failure to make required payments.
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. See Note 3 to the
consolidated financial statements. The Company expects the restructuring and
related discontinued operations to result in annual savings in excess of $4.0
million.
Revenues for the six months ended June 30, 1996 consisted of $737,000
received from operation of the Fairhaven landfill project which commenced on
June 22, 1995.
For the six months ended June 30, 1996, the net loss was ($4,563,000),
as compared to a net loss of ($3,737,000) during the six months ended June 30,
1995. This increase was primarily due to the restructuring and discontinued
operations charges (See Note 3 to the Consolidated Financial Statements), an
increase of $572,000 in interest expense and financing costs, primarily related
to the Fairhaven landfill and the convertible debenture issued in the fourth
quarter of 1995, and the write-off of $229,000 in landfill development costs
associated with the termination of the Company's option to purchase a landfill
in Rushville, PA for remodeling and development, 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
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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, 1995,
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 $334,000 for the six months ended June 30, 1996.
Selling, general and administrative expenses consist of project
development activities, marketing costs, salaries and benefits, legal,
accounting and other professional fees, and other administrative costs. These
costs totaled $1,782,000 for the six months ended June 30, 1996. This
represented an increase of $552,000, or 45%, compared to the $1,230,000 incurred
during the six months ended June 30, 1995. The increase was primarily associated
with the development and marketing of the Company's landfill remodeling
technology, financing activities and non-recurring professional fees associated
with the investigation discussed in Note 4 to the consolidated financial
statements.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS
- ---------------------
For the three months ended June 30, 1996 the net loss was $1,221,000 as
compared to net loss of $3,811,000 in the comparable prior year quarter, a
decrease of $2,590,000 or 66%. The decrease was primarily the result of the
write-off of accounts and notes receivable during the second quarter ended June
30, 1995 of $2,975,000 or, 78% of the net loss for the quarter then ended, due
to the cancellation of the Company's technology agreement with BioMed.
Revenues for the three months ended June 30, 1996 were $319,000 as
compared to revenues of $10,000 in the comparable prior year quarter, an
increase of $309,000. This increase was the result of revenue received from
operations at the Fairhaven landfill project which commenced on June 22, 1995.
Selling, general and administrative expenses for the quarter ended June
30, 1996 were approximately $613,000, or 192% of revenue as compared to $710,000
for the comparable prior year's quarter. The decrease was primarily due to the
Company's March 27, 1996 restructuring plan, in which the Company determined to
focus its resources and activities on its core business of landfill remodeling
and operation.
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. Any of these permits or approvals may be
subject to denial, revocation or modification
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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, the Company or its customers may be
required to obtain additional operating permits or approvals. There can be no
assurance that the Company 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 financing,
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
where it manages but does not own. 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 6 to the Consolidated Financial
Statements.
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CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
Initial Commercialization Stage; Limited Operating History. 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 the
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.
Operating Losses and Accumulated Deficit; Uncertainty of Future
Profitability. The Company had an accumulated operating deficit at June 30, 1996
of $13,890,000. Prospects for future profitability are heavily dependent on the
success of the Company's landfill remodeling projects. There can be no assurance
that the Company 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.
Future Capital will be Required. The Company will require substantial
funds to complete and bring to commercial viability all of its currently planned
projects.
Unpredictability of Patent Protection and Proprietary Technology. The
Company'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 the Company 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 the Company's processes or design around any processes on which
the Company has or may obtain patents. In addition, it is possible that third
parties may have or acquire licenses for other technology that the Company may
use or desire to use, so that it may need to acquire licenses to, or to contest
the validity of, such patents of third parties relating to the Company's
technology. There
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can be no assurance that any license required under such patents would be made
available to the Company on acceptable terms, if at all, or that it would
prevail in any such context. Moreover, the Company could incur substantial costs
in defending itself in suits brought against it or in bringing suits against
other parties related to patent matters.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technology which it seeks to protect through
confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements and other steps taken by the
Company will be effective to protect its technology against unauthorized use by
others.
Potential Environmental Liability and Adverse Effect of Environmental
Regulation. The Company'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.
Dependence on Operating Permits. The Company's ability to derive
revenues from its landfill projects is dependent on obtaining requisite permits
from state and/or local authorities. Obtaining such permits is time-consuming
and expensive, and success cannot be assured in any case. As illustrated by
litigation in which the Company is now involved (see Note 5 to the Financial
Statements), permits, once granted, are subject to challenge in civil
proceedings. If the Company is not successful in obtaining a permit for one of
its project, or if a permit is revoked as a result of litigation, the Company
stands to lose all or part of its investment in the project.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its activities primarily through the
issuance of equity securities and debt, including convertible notes and common
stock warrants. 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. On June 28, 1996 Company raised net proceeds of
$5,905,000 through a private placement of common stock. See Note 8 to the
consolidated financial statements.
At present, the Company is focusing its resources and efforts on the
development of its landfill remodeling and operations business. The Company also
intends to investigate or pursue potential acquisitions of collection and
transfer operations to develop fully integrated solid waste management
operations in markets were it believes it can maximize utilization of Company
owned or operated landfills.
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The Company is currently engaged in a project with the Town of Fairhaven,
Massachusetts to remodel its existing 28-acre landfill. Total investments in the
Fairhaven landfill project through June 30, 1996 were approximately $8.0
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 has received 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. This permit has been challenged in state court by certain
residents of the Town of Fairhaven. See "Legal Proceedings" in Item 1 and Note 5
to the Consolidated Financial Statements.
Construction of phase 1 of the first cell of the Fairhaven landfill has
been completed. On August 9, 1996 the Company obtained final authorization to
operate its initial cell from the MDEP. As a result of the permit to operate,
the Company will continue to operate at a daily capacity of 150 tons per day.
The Company expects the MDEP to increase the daily rate from 150 tons per day
to approximately 400 tons per day when additional lined cells are constructed.
The Company does not anticipate reaching 400 tons per day until late 1997. When
the Company reaches 400 tons per day, the Fairhaven project will generate
increased operating cash flow, which will reduce the Company's dependence on
external financing to fund future project capital costs. Additional
Authorization to Construct (ATC), Authorization to Operate (ATO) 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 final issuance of
a permit to operate phase 1 of the first cell reflects substantial acceptance
of its remodeling approach as applied at the Fairhaven landfill by the MDEP,
but no assurance can be given that further required ATCs, ATOs and other permits
will be obtained on a timely basis.
The Company is pursuing various options for project financing of
development expenses of the Fairhaven Landfill project, although no assurance
can be given that any such project financing will be obtained.
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
the Company. 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 $7.0 million at June 30, 1996. 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.
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On July 22, 1996 the Company received its Draft Certification from the
Vermont Agency of Natural Resources "VANR" to commence operations at the
landfill using available capacity and construction of Cell One, Phase II. The
Draft Certification is currently under a 28 day public comment review period
which ends August 23, 1996. Upon receipt of the Full Certification and the ACT
250 Land Use Permit the Company will be able to commence operations at
approximately 400 tons per day. The Company currently anticipates commencing
operations at the landfill by the end of September 1996 with a daily capacity of
200 - 300 tons per day.
The Company is pursuing various options for project financing of
development expenses of the Moretown Landfill project, although no assurance can
be given that any such project financing will be obtained.
A third landfill project involves a landfill located on a 26-acre
parcel in the Town of South Hadley, Massachusetts, for which the Company and the
Town entered into an agreement under which the Company 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. 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 also been negotiated. The Company has also
been chosen to remodel additional landfills in Massachusetts and is in
preliminary negotiations for landfill remodeling contracts or landfill
acquisitions in the Northeast and Midatlantic areas.
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 and operating business. The
Company also intends to investigate or pursue potential acquisitions of
collection and transfer operations to develop fully integrated solid waste
management operations in markets where it believes it can maximize utilization
of Company owned or operated landfills.
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 or landfill acquisition in the initial phases of the
project. After completion of these initial phases, the Company will generally
seek to obtain project-level financing 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 or landfill acquisition 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
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remodeling investments over an extended period of time while still collecting
projected project revenues from the utilization of existing space.
In summary, the Company's total investment required to complete its
Fairhaven and Moretown landfill projects, in addition to amounts already
invested as of June 30, 1996, will be approximately $20 million, subject to
possible cost overruns which cannot be predicted. The Company estimates that, of
the $20 million estimated required investment, approximately $12 million will be
invested in the Fairhaven landfill project, and approximately $8 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 also has under discussion and
negotiation a number of additional landfill remodeling projects or acquisitions,
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 anticipates increases in revenues and cash flow from both
the Fairhaven and Moretown projects in the foreseeable future.
As discussed above, the Company will require additional financing in
order to satisfy its existing and pending capital commitments. The Company's
additional alternatives under consideration in this regard include: (a) certain
prospects for project financing (such as secured debt financing with banks or
other institutions) in relation to specific projects; (b) exercising its call
rights with respect to certain outstanding warrants when and if the applicable
market price conditions are satisfied, with the possibility that proceeds of
approximately $36.0 million could be realized from exercise of these warrants,
although no assurance can be given that any or all such proceeds will be
realized; and (c) the raising of additional equity or long-term debt financing.
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.
INFLATION
The Company does not believe its operations have been materially
affected by inflation.
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BIOSAFE INTERNATIONAL, INC.
---------------------------
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(a) The Company has commenced arbitration proceedings against Dr.
Richard Rosen, former Chairman, Chief Executive Officer and President of the
Company (See Note 3), seeking to recover an amount in excess of $1.8 million,
excluding interest, which the Company believes is owed to it by Dr. Rosen. This
action was undertaken at the direction of the Board of Directors following its
receipt of a report by a special committee which had been appointed to
investigate Dr. Rosen's financial dealings with the Company. The Special
Committee retained independent counsel in connection with its investigation. Dr.
Rosen resigned from all offices with the Company on March 27, 1996. Amounts
which the Company seeks to recover include unreimbursed advances and amounts
which the Company believes constitute improper expense reimbursements and
payments of Company funds for personal benefit. On July 19, 1996 the Company (a)
filed a Demand for Arbitration with the Boston office of the American
Arbitration Association relating to these claims, and (b) filed a Verified
Complaint for Injunctive Relief in Massachusetts Superior Court seeking to
prohibit any sale or other transfer by Dr. Rosen, his wife Marguerite Piret, a
former Director of the Company, and their children of their stock in the Company
in order to provide security for the Company's claims. No assurance can be given
that the Company will be able to prevail in these proceedings or that it will be
able to collect any amounts awarded in arbitration. The Company is carrying on
its balance sheet an amount of approximately $328,000 in unreimbursed advances
due from Dr. Rosen, but the Company's other claims and additional advances have
not been reflected on the balance sheet at this time.
(b) The Company 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.
(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 permit issued by the
Massachusetts Department of Environmental Protection (the "MDEP") on October 11,
1995, authorizing one phase of the reclamation project undertaken by the Town of
Fairhaven and BioSafe at the Fairhaven Landfill (the "Permit"). Plaintiffs also
have brought claims alleging that the MDEP violated the Massachusetts
Environmental Policy Act ("MEPA") in issuing the Permit (the "MEPA Claims").
Further, 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.
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Pursuant to the Massachusetts Administrative Procedures Act, the
Permit Appeal will be heard by a Bristol County Superior Court Judge.
Plaintiffs, the MDEP, the Town and BioSafe each have submitted briefs to the
Court. The Court has scheduled a hearing on the Permit Appeal for September 5,
1996. The Company has challenged 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 filed a similar motion. The Court heard oral argument on the
motions to dismiss on April 9, 1996. On May 1, 1996, the Court issued a decision
on the motions to dismiss in favor of BioSafe and the Town, dismissing the MEPA
Claims in their entirety.
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, a period of additional discovery and other pre-trial proceedings
would take place prior to trial on the merits.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on June 26, 1996.
The stockholders voted to elect Richard Golub, Jay Matulich, William B.
Philipbar, Daniel J. Shannon, Dr. Barry Simmons, Philip Strauss and Bill G.
Taylor to serve as directors of the Company. There were 4,601,173 votes cast
for, 1,456,381 votes withheld from and 20,850 votes abstaining from the election
of Richard Golub. There were 4,603,173 votes cast for, 1,454,381 votes withheld
from and 20,850 votes abstaining from the election of Jay Matulich. There were
4,600,173 votes cast for, 1,457,381 votes withheld from and 20,850 votes
abstaining from the election of William B. Philipbar. There were 4,603,173 votes
cast for, 1,454,381 votes withheld from and 20,850 votes abstaining from the
election of Daniel J. Shannon. There were 4,603,173 votes cast for, 1,454,381
votes withheld from and 20,850 votes abstaining from the election of Dr. Barry
Simmons. There were 4,602,773 votes cast for, 1,454,781 votes withheld from and
20,850 votes abstaining from the election of Philip Strauss. And there were
24
<PAGE> 27
4,600,173 votes cast for, 1,457,381 votes withheld from and 20,850 votes
abstaining from the election of Bill G. Taylor.
A vote was held to approve an amendment to the Company's 1995 stock
option and incentive plan, as well as the Company's 1995 stock option plan for
non-employee directors. 2,202,585 votes were cast in favor, 391,057 votes
against, 69,764 abstaining, and 1,991,539 not voted for the Company's 1995 stock
option and incentive plan. 2,747,220 votes were cast in favor, 1,673,828 votes
against, 149,502 abstaining, and 1,507,854 not voted for the Company's 1995
stock option plan for non-employee directors.
The stockholders also voted to ratify the board of Directors
selection of KPMG Peat Marwick, LLP as the Company's independent auditors for
the fiscal year ended December 31, 1996. 4,593,101 votes were cast in favor of
this proposal, 1,455,769 were cast against it and 32,310 abstained.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a current Report on Form 8-K on June 28, 1996
regarding the private placement of common stock on June 28, 1996.
25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant as duly caused this Report to be signed on its behalf the
undersigned, thereunto duly authorized.
BIOSAFE INTERNATIONAL, INC.
Date: August 8, 1996 /s/ Philip Strauss
-----------------------------------------------------
Philip Strauss
Chief Executive Officer,
President, and Treasurer
(Principal Executive Officer)
Date: August 8, 1996 /s/ Robert Rivkin
-----------------------------------------------------
Robert Rivkin
Vice President, Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
26
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