U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended September 30, 1998
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22388
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US INDUSTRIAL SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 99-0273889
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(State or other jurisdiction (I.R.S. Employer)
of incorporation or organization) Identification No.)
8111 Preston Rd, Suite 715, Dallas, Texas 75225
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(Address of principal executive offices) (Zip Code)
(214) 891-9698
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(Issuer's telephone number)
54 Stiles Road, Salem, NH 03079
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(Former name, former address and former
fiscal year, if changed since last report)
Securities registered under
Section 12(b)of the Exchange Act: None
Securities registered under
Section 12(g)of the Exchange Act:
COMMON STOCK, $ .01 PAR VALUE
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(Title of Class)
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this Form, and
no disclosure will 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-KSB or any
amendment to this Form 10-KSB.[X]
Issuer's revenues for its most recent fiscal year: $58,324,519
As of December 31, 1998, the aggregate market value of the voting
stock held by non-affiliates was $2,699,804 (1,588,120 shares
held by persons other than affiliates) at an average of the high
and low bid and high and low asked prices of $1.70 as reported by
the National Quotation Bureau, Inc.
At December 31, 1998, 8,763,978 shares of Common Stock were
outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one):
YES [ ] NO [X]
<PAGE>
US INDUSTRIAL SERVICES, INC.
Table of Contents
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . 3
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN . 13
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . 34
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT . . . . . . . . . . 34
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . 35
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . 36
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 36
ITEM 13. EXHIBIT AND REPORTS ON FORM 8-K . . . . . . . 37
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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Organization and Recent Developments
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US Industrial Services, Inc. a Delaware corporation (the
"Company" or "USIS"),is the successor to EIF Holdings, Inc., a
Hawaii corporation ("EIFH"). In May 1998, the EIFH shareholders
approved a merger with and into USIS, a newly-formed wholly owned
subsidiary of EIFH. The merger, which became effective in June
1998, resulted in a change in name and in the state of
incorporation and also in a 1-for-10 reverse stock split of the
outstanding Common Stock. All share information in this report
gives effect to the reverse stock split.
Subsequent to the May 1998 reincorporation and
recapitalization (the "Reincorporation"), the Company effected a
conversion of a substantial portion of its unsecured debt to
equity, disposed of some operating businesses and is seeking to
refocus its activities in other industries, one of which may be
the commercial real estate construction and management business.
The Company has engaged a consulting firm to prepare a strategic
business plan to assist in refocusing the Company. The Company
has not entered into any commitments with respect to these
activities.
In November 1997, EIFH completed the acquisition of J.L.
Manta, Inc. an Illinois corporation ("Manta"), which provided
specialty coatings and industrial maintenance services. The
consideration paid by EIFH included $4,725,321 of cash and
$2,045,184 of convertible promissory notes, payable in
installments, with the final payment due on November 18, 2000.
EIFH also entered into Retention Bonus Agreements with key Manta
managers providing for bonus payments aggregating $900,000 over a
three-year period and committed to provide 500,000 options to
purchase 500,000 shares of EIFH Common Stock. In connection with
the acquisition, Manta entered into a $10.0 million credit
facility.
In November 1998, USIS sold the assets of Manta and
transferred related liabilities, including the credit facility,
to Kenny Industrial Services, L.L.C., for $23.0 million,
consisting of a combination of $3.0 million of cash, a short term
note of $15.0 million, which was paid December 15, 1998, and $5.0
million in four separate notes, the first three notes each for
$1.0 million due in annual installments, and the final note for
$2.0 million due in November 2002, together with interest at
5.25%.
On December 31, 1998, USIS sold the assets of P.W. Stephens
Residential Inc. and transferred its related liabilities to
American Temporary Sanitation Inc. for $2,400,000, consisting of
$1,004,000 in cash and a five year promissory note for $1,396,000
payable in equal quarterly installments through 2004, together
with interest at the Prime Rate plus 2.5% per annum.
Upon the Reincorporation, American Eco Corporation, an
Ontario, Canada corporation ("American Eco"), acquired 1,000,000
shares of the Company's Common Stock pursuant to a February 1996
Stock Purchase Agreement. The closing had been delayed pending
the Recapitalization. At that time, American Eco held certain
promissory notes (the "Notes") of the Company consisting of
outstanding principal and interest in the aggregate amount of
$17.9 million. The outstanding amount of the Notes had been
reduced by $1 million, representing the purchase price for the
1,000,000 shares. In 1996, American Eco had provided EIFH a $5.2
million line of credit, which line of credit was increased to
$20.0 million by September 1997. The Notes were convertible into
shares of the Company's Common Stock at a price equal to 85.0% of
the five day weighted average price of such shares immediately
preceding the conversion date.
As of July 24, 1998, American Eco sold the Notes to USIS
Acquisition, L.L.C. (the "Holder") for $5.0 million in cash and a
secured promissory note for $12.9 million repayable on January
29, 1999. The Holder converted the Notes into 5,295,858 shares
of the Company's Common Stock, and secured its promissory note to
American Eco with a pledge of the 5,295,858 shares. In November
1998, the Holder advised American Eco that the Holder would not
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be able to pay its note at maturity, and American Eco took
ownership of the pledged shares in discharge of the Holder's
note. At December 31, 1998, American Eco owned 7,175,858 shares
of the Company's Common Stock representing 81.9% of the
outstanding shares, see Item 11, Security Ownership of Certain
Beneficial Owners and Management.
Historical
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EIF Holdings, Inc. was formed in the State of Hawaii in
1989, and migrated to Delaware in 1998 and in connection
therewith changed its name to U.S. Industrial Services, Inc.
Until late 1997, EIFH was primarily engaged in environmental
construction related industries, more specifically, asbestos
abatement, both commercial and residential, lead removal, and
soil and groundwater remediation. The Company was also involved,
to a limited extent, in the energy management business. These
activities, in particular the commercial asbestos abatement
business, involved a high percentage of relatively large, fixed-
price contracts under which the Company assumed significant
financial risks. The Company incurred substantial losses on a
number of major contracts and consequently reported substantial
operating losses during the three-year period ended September 30,
1997.
In May 1997, Frank J. Fradella was named President and CEO
of the Company. Mr. Fradella had previously served as Vice
President and Chief Operating Officer of American Eco. The
Company changed its focus to the specialized maintenance
industry, an industry characterized by a predominance of cost-
plus contracts, creditworthy industrial customers and significant
repeat business. Management also sought to eliminate
unprofitable operations, reduce the Company overhead costs,
recapitalize the Company's balance sheet, and effect acquisitions
in the specialized maintenance industry. The acquisition of
Manta was a result of this strategy.
The primary businesses of the Company have been acquired
through a series of acquisitions. In January 1993, the Company
acquired P.W. Stephens Contractors, Inc., ("P.W. Stephens") which
was engaged in the environmental contracting industry, primarily
focusing on the removal of materials containing asbestos, but
also offering lead hazard removal, insulation and other hazardous
materials clean-up services. Services were offered to the
commercial, industrial and institutional markets, primarily in
the states of California, Hawaii and Nevada. These operations
were conducted out of seven branch offices located throughout the
service area. Services were offered to the residential market in
California through P.W. Stephens Residential, Inc., a California
corporation ("Residential"),and a wholly-owned subsidiary of P.
W. Stephens. As previously mentioned, Residential was sold as of
December 31, 1998. In the fourth quarter of 1996, the Company
assumed the assets of QHI, Inc., a California corporation out of
bankruptcy, which provided asbestos abatement services to the
commercial, industrial and institutional markets.
The commercial asbestos operations of P. W. Stephens had
generated operating losses over each of the years from 1995 to
1997. As part of management's efforts to eliminate unprofitable
operations, all of the operations of P. W. Stephens, with the
exception of Residential, were discontinued by the Company in May
1997.
In August 1994, the Company acquired VonGuard Holdings, Inc.
("Vonguard"), and its subsidiaries. VonGuard was formed as a
Missouri corporation in 1992, as a holding company to acquire FCA
Services, Inc. ("FCA") and Remediation Services, Inc. ("RSI").
FCA had been in business since 1987 and RSI since 1989. In June
1996, VonGuard and Enstar-North American, Inc., a subsidiary of
VonGuard, were merged into FCA and the name of the entity was
changed to P. W. Stevens Services, Inc., a Missouri corporation.
At the same time, Select Abatement, Inc., a subsidiary of
VonGuard, was merged into RSI and the name of that entity was
changed to P. W. Stephens Contractors, Inc., a Missouri
corporation. P.W. Stephens Services, Inc. and P. W. Stephens
Contractors, Inc. (Missouri) are collectively referred to as "P.
W. Stephens St. Louis" or "St. Louis". P. W. Stephens St
Louis provides industrial cleaning and remediation services,
including soil and groundwater remediation, hazardous materials
management and clean-up, asbestos abatement and lead hazard
removal service, to clients, primarily located in the Midwest.
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In December 1994, the Company acquired Kelar Controls, Inc.,
a California corporation ("Kelar"). Kelar primarily installed
new or retrofitted energy management controls and conservation
equipment for large storage and warehouse facilities. Management
of EIFH determined that the business of Kelar was not consistent
with the strategic direction of the Company and sold Kelar to
Regal Oak Properties, Inc., effective June 30, 1997, for a one-
year 10% interest-bearing note in the principal amount of $2.5
million. This note, including interest, was satisfied in August
of 1998.
Services Provided By Continuing Subsidiaries
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P.W. Stephens St. Louis provides its environmental services
through P.W. Stephens Services, Inc. and P.W. Stephens
Contractors, Inc. P.W. Stephens Services, Inc. provides asbestos
abatement and lead hazard removal for commercial, industrial,
governmental, and residential clients primarily in the Midwestern
states of Illinois, Missouri, Iowa, and Nebraska. P.W. Stephens
Contractors, Inc. provides soil and groundwater remediation and
hazardous material management cleanup for industrial,
commercial, and governmental clients. P.W. Stephens Services,
Inc., through its RSI Hydro Services division, offers industrial
cleaning services primarily for industrial, commercial, and
governmental clients utilizing ultra-high pressure water
technology. The work of P.W. Stephens St. Louis is generally
performed under cost-plus-fee contracts or fixed price contracts.
P.W. Stephens St. Louis provides services to its clients through
its office in St. Louis, Missouri.
Environmental Remediation Services
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Asbestos Abatement
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From 1910 until 1978, asbestos was a common ingredient in
building materials due primarily to its ability to retard fire,
absorb heat from friction, provide insulation from heat and cold,
resist corrosion and add tensile strength. The Environmental
Protection Agency, ("EPA"), began to ban the use of asbestos in
construction products in 1973, in response to evidence that
asbestos causes certain forms of cancer and poses other health
hazards. The first Federal regulations requiring the removal of
asbestos, however, did not appear until 1986 when Congress passed
the Asbestos Hazard Emergency Response Act ("AHERA"). This
legislation required all public schools to identify materials
containing asbestos and develop management programs. An increase
in awareness of asbestos hazards led to an increased demand for
abatement. However, since 1990, there has been a trend toward
management in place rather than removal where possible. The EPA
now recommends abatement only when other options, such as
management in place, will not work, or when renovation will
disturb the material and cause a potential health risk to
workers. Although there are currently no laws requiring the
removal of asbestos from buildings, there are numerous federal,
state and local regulations which govern the removal or
disturbance of asbestos through demolition, renovation,
remodeling, or repairs.
The Company's asbestos abatement services include complete
removal of asbestos-containing materials as well as encapsulation
and enclosure. The Company's workers remove asbestos in
accordance with the regulations promulgated by the EPA, the
Occupational Safety and Health Administration ("OSHA") and
various state and local agencies.
Before any removal can begin, the work area must be sealed
off from other parts of the building as well as from the outdoor
environment. Containment of the work area requires the
construction of barriers on the walls and floors. These barriers
must be made of polyethylene plastic sheeting sealed at the seams
or, in some cases, more permanent materials to provide a
continuous isolation that will prevent fibers from escaping. Once
contained the work area can be accessed only through one entrance
and an air filtration system is required to further prevent
escape of any asbestos fibers. The Company constructs a three-
stage worker decontamination chamber which is generally comprised
of a clean room where workers prepare for the work, a shower room
and a dirty room where contaminated clothing is discarded. Signs
and barricades are posted around the work area, positioned so
that an individual can take protective steps to avoid exposure.
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The containment areas are equipped with high efficiency
negative pressure air filtration machines. The negative air
units, equipped with HEPA filters, ensure that air is
decontaminated before being exhausted outside the building.
Additional pre-filters are used to trap large particles before
they reach the HEPA filter. At certain times during the abatement
process, air samples are taken to indicate the level of airborne
fibers both inside and outside the work area in order to protect
the worker and building occupants.
Prior to removal, workers wet the asbestos containing
material and then remove it in small sections before it dries.
Gross removal is considered complete only when no visible clumps
of asbestos-containing materials remain on the surface. All
surfaces are then thoroughly scrubbed. After cleaning, the
surface is coated with a penetrating encapsulate to seal off any
potential residual fibers remaining. Plastic sheeting on walls
and floors is also covered with a mist of sealant.
Before the isolation barrier is dismantled, a final air
sample is taken. When the level of airborne fibers is equal to or
below 0.01 fibers per cubic centimeter (f/cc), the isolation
barrier can be removed and disposed of in the same manner as
asbestos waste. After removal, the work area is thoroughly
cleaned using high efficiency particulate air filter vacuuming
and wet mopping of all surfaces.
Each asbestos field worker must complete training and safety
programs as required by state and federal regulations. Workers
are required to wear a suitable respirator, a one-piece
disposable suit that contains head and foot covers, and rubber
gloves at all times while working in contaminated areas. Suits
and gloves are disposed of and replaced after each exit from the
containment work area.
The Company believes that the asbestos abatement market will
continue to offer business opportunities, driven by factors such
as the existence of strict regulation, building renovation and
demolition, catastrophe repairs and restoration, public
awareness and desire for an asbestos free environment, worker
demand for protection, and liability concerns of building owners,
contractors, realtors, lending institutions and insurance
companies.
Lead Abatement
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Lead-based paint is considered the most prevalent source of
lead poisoning in the United States, posing a risk to occupants
and construction workers. Lead was added to paint used on the
interior and exterior of buildings to shorten drying time and
increase the durability of paint. The EPA began to restrict the
use of lead-based paint during the 1970s. The largest initial
market for lead-based paint abatement is public housing. Laws
concerning the disclosure, identification and abatement of lead-
based paint already exist in some states. Federal regulations
require the inspection of all Housing and Urban Development
("HUD") housing built prior to 1978 and abatement of any existing
hazards.
The Company removes lead from various surfaces using various
techniques including wet sanding, stripping or component
replacement and ultra high pressure water blasting (see
"Industrial Cleaning" herein). The Company also encapsulates
and encloses surfaces of lead based coated products. As with
asbestos removal, dust minimization and control of the
environment are required.
Each lead field worker and supervisor must complete training
programs required by state regulations. The training course
provider must be licensed by the appropriate state agencies and
the course must meet EPA recommended standards. The Company
believes that it is in compliance with these training
requirements.
Soil and Groundwater Remediation and Hazardous Materials
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Cleanup
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The Company performs soil and groundwater remediation and
hazardous materials services. Soil remediation is used to repair
or contain environmental damage caused when hazardous materials
have been allowed to leak into the soil. When hazardous materials
are released into the environment, site remediation may be
necessary to eliminate potential health risks and contamination
of land, air and water. Soil and groundwater remediation services
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offered by the Company include underground storage tank cleaning,
removal and installation; soil sampling and analysis; excavation
and disposal; soil stabilization; bioventing; bio-
remediation; soil vapor extraction/air sparging, groundwater
remediation and soil recycling. The Company also offers system
installation/operation and site restoration.
Before a remediation project begins, an environmental
assessment is usually conducted to identify the type and extent
of contamination. The Company generally performs this assessment
through a joint venture with an independent environmental
engineering firm or it is conducted by the client's environmental
consultant. Once the assessment is completed, the Company will
then assist in formulating a remediation solution which meets the
client's individual needs.
Industrial Cleaning
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The Company provides industrial cleaning services primarily
using hydroblasting technology. Hydroblasting utilizes high-water
pressure ranging from 20,000 pounds per square inch (psi) to
40,000 psi, at a very low flow rate, to remove protective
coatings and product buildup in industrial and commercial
settings. Hydroblasting can remove urethane coatings, fiberglass
coatings, rubberized coatings, and lead-base paint from steel and
concrete substrates. Hydroblasting can also be used to cut steel
and concrete through the use of entrained abrasive without the
risk of sparking. Industrial cleanings services are also utilized
in cleaning barges, railroad cars and conveyor systems in
manufacturing and distribution plants.
Raw Materials
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The Company obtains its raw materials, supplies and small
tools used in its operations from multiple vendors. Although
unforeseen costs and delays could occur resulting from
catastrophic environmental emergencies, the Company believes
that sufficient sources of raw materials exist to cover its
operational needs.
Strategy
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In November 1998, the Company adopted a strategic plan to
sell off all industrial service and environmental companies with
the goal of rebuilding the Company with a clean balance sheet and
engaging in a line of business related to another industry, one
of which may be the commercial real estate construction and
management business. The Company has engaged a consulting firm to
prepare a strategic business plan to assist in refocusing the
Company.
The implementation of this strategy began when the Company
sold the assets and transferred the liabilities of Manta on
November 30, 1998. The second step was completed on December 31,
1998 when the Company sold the assets and transfer the
liabilities of P.W. Stephens Residential, Inc. Management is
engaged in preliminary negotiations with several acquisition
prospects, however no commitments have been entered into.
Customers
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The shift in strategic direction of the Company is resulting
in changes in the Company's customer list. At the present time,
the Company provides services through its subsidiary P.W.
Stephens St. Louis. Services are primarily provided in the
Midwestern part of the United States; primarily in the states of
Illinois, Iowa, Kentucky and Missouri. Most of the customers are
manufacturing facilities and government installations.
During the fiscal years ended September 30, 1998 and 1997,
no customer accounted for more than ten percent (10%) of the
Company's annual revenues.
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Competition
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At the present time, the Company provides services through
its subsidiary P.W. Stephens St. Louis. Services are primarily
provided in Midwestern part of the United States primarily in the
states of Illinois, Iowa, Nebraska and Missouri. These markets
are all competitive markets in which numerous other companies
compete on the basis of quality, service and price. Many of the
competitive firms have revenues and capital resources exceeding
those of the Company. The Company believes that competitive
pressures will continue, but that it will continue to receive a
reasonable share of the contracts awarded based on its reputation
in the industry, ability to meet competitive pricing levels and
to provide high quality service to its customers.
Insurance and Bonding
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The Company obtains insurance covering certain general risks
inherent in the industrial service industry such as the liability
from delays, fires or breaches in the enclosure or "containment"
of a work area resulting from its acts or the acts of
subcontractors.
Commercial and industrial projects involving environmental
cleanup or demolition often require contractors to post both
performance and payment bonds, or letters of credit in lieu
thereof, at the time of execution of a contract. These bonds are
required to protect the interests of the general public and
private owners in order to guarantee that the projects will be
completed and all subcontractors and vendors are paid. The
Company is currently meeting its bonding needs through its
relationships with various bonding companies as projects require.
Government Regulation
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The Company's industrial clean-up operation, particular
those operations related to environmental and asbestos removal,
are strictly regulated by statutes and regulations administered
by several federal, state and local agencies. These statutes and
regulations cover all aspects of the environmental health and
safety industry as well as the construction industry in general.
The Company's operations and compliance with statutes and
regulations are reviewed by various governmental agencies and,
from time to time, these agencies may make requests for
information or issue citations for noncompliance.
Federal Regulation
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Asbestos abatement operations are subject to regulation by
federal, state, and local governmental authorities, including
OSHA, EPA and the United States Department of Transportation
("DOT"). In general, OSHA regulations set the maximum asbestos
fiber exposure levels applicable to employees and the EPA
regulations provide asbestos fiber emission control standards.
The EPA requires use of accredited persons for both inspection
and abatement. OSHA has promulgated regulations specifying
airborne asbestos fiber exposure standards for workers,
engineering and administrative controls, workplace practices, and
medical surveillance and worker protection requirements. OSHA's
construction standards require companies removing asbestos fibers
to conduct air monitoring, to provide decontamination units and
to appropriately supervise the operations. Transportation and
disposal activities are also regulated. The DOT sets standards
for management of the packaging and transportation of asbestos.
Lead hazard removal is currently regulated by OSHA and the
EPA. In general, OSHA regulations set the permissible lead
exposure level for construction workers and EPA regulates
emission of lead into the air and soil. Disposal of lead
containing material is regulated under the Resource Conservation
Recovery Act (RCRA). The EPA has been mandated by Title X (the
Residential Housing Act of 1992) to have contractor training and
certification requirements in place during 1994. These interim
training guidelines were implemented on November 1, 1994.
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State and Local Regulations
---------------------------
P.W. Stephens St. Louis provides services in the Midwestern
part of the United States primarily in the states of Illinois,
Iowa, Kentucky and Missouri. Each state has its own local laws
and regulations to supplement the federal laws. A number of
states have promulgated regulations setting forth such
requirements as registration or licensing of asbestos abatement
contractors, training courses and licensing for workers,
notification of intent to undertake abatement projects and
requires approvals from certain state agencies. Management
believes the Company holds all necessary licenses and permits
required by these states for business operation.
Soil and Groundwater Remediation and Hazardous Waste
----------------------------------------------------
Management
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The Company and its customers are subject to extensive and
evolving environmental regulations administered by the EPA, OSHA
and various other federal, state and local environmental and
safety and health agencies relating to its soil and groundwater
remediation services as well as its hazardous waste management
services. Although the Company's customers remain responsible by
law for their environmental problems, the Company must itself
comply with the requirements of those laws applicable to its
services. Because the field of environmental protection is
rapidly developing and subject to varying interpretations, the
Company cannot predict the extent to which its operations may be
affected by future enforcement policies as applied to existing
laws or by the enactment of new environmental laws and
regulations. Moreover, any predictions regarding possible
liability are further complicated by the fact that under current
environmental laws the Company could be jointly and severally
liable for certain activities of third parties over whom the
Company has little or no control. Although management believes
that the Company is currently in substantial compliance with all
applicable laws and regulations, the Company could be subject to
fines, penalties or other liabilities or otherwise adversely
affected by existing or subsequently enacted laws or regulations.
The principal environmental laws affecting the Company and its
customers in these areas are briefly discussed below.
The Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), and the regulations promulgated by the EPA
thereunder establish a strict and comprehensive regulatory
program governing the handling and treatment of hazardous waste.
The EPA has promulgated regulations under RCRA for new and
existing treatment, storage and disposal facilities including
incinerators, storage and treatments tanks, storage containers,
storage and treatment surface impoundments, waste piles and
landfills. RCRA defines solid and hazardous waste, regulates the
preparation of wastes for shipment, record keeping and reporting
requirements. Specific approved disposal methods are also defined
for different waste streams.
The Safe Drinking Water Act ("SDWA") was established to
protect groundwater and drinking water sources. Two types of
drinking water standards were established to limit the amount of
contamination that may be in drinking water: primary standards
with a maximum contaminant level (MCL) to protect human health,
and, secondary standards that involve the color, taste, smell or
other physical characteristics of a drinking water source.
The Clean Water Act ("CWA") controls the discharge of toxic
materials discharged into surface streams and other navigable
waters. The EPA has established effluent standards covering 129
toxic pollutants. Toxic and hazardous waste are generated
primarily from industries and farmlands. Industries discharging
directly into surface streams and other navigable waters are
regulated by a NPDES (National Pollutant Discharge Elimination
System) permit. Discharges into municipal sewer plants are
required to meet pretreatment requirements.
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA", also referred to as the
"Superfund Act") governs the clean-up of sites at which hazardous
substances are located or at which hazardous substances have been
released or are threatened to be released into the environment.
CERCLA authorizes the EPA to compel responsible parties to clean
up sites and provides for punitive damages for noncompliance.
CERCLA imposes joint and several liability for the costs of
clean-up and damages to natural resources.
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Health and Safety Regulations
-----------------------------
The operation of the Company's environmental activities are
subject to the requirements of the OSHA and comparable state
laws. Regulations promulgated under OSHA by the Department of
Labor require employers of persons in the transportation and
environmental industries, including independent contractors, to
implement hazard communications, work practices and personnel
protection programs in order to protect employees from equipment
safety hazards and exposure to hazardous chemicals.
Other Laws
----------
The Company's activities are subject to various federal
environmental protection and similar laws, including, without
limitation, the Clean Air Act, the Hazardous Materials
Transportation Act and the Toxic Substances Control Act. Many
states, also have adopted laws for the protection of the
environment which may affect the Company, including laws
governing the generation, handling, transportation and
disposition of hazardous substances as well as laws governing the
investigation and clean-up of, and liability for, contaminated
sites. Some of these state provisions are broader and more
stringent than existing federal laws and regulations. The failure
of the Company to comply and conform its operations to the
requirements of any of these federal or state laws could subject
the Company to substantial liabilities which could have a
material adverse affect on the Company, its operations and
financial condition. The Company cannot predict the extent to
which it may be affected by any law or rule that may be enacted
or enforced in the future, or any new or different
interpretations of existing laws or rules.
Compliance
----------
The Company believes that it is in substantial compliance
with all local, state and federal regulations relating to its
operations. To insure such compliance the Company has developed
and maintains its own quality control program. As one aspect of
this program, the Company's quality control officers perform
random inspections before, during, and after project operations.
Categories of inspection include isolation barriers,
decontamination units, protective equipment, negative pressure,
work practices, general housekeeping, air monitoring, disposal,
detail and final clean-up, demobilization and enforcement of
state regulations.
Research and Development
------------------------
Research and development activities for the fiscal years
ended September 30, 1998 and 1997 have not been material and the
Company has had no customer sponsored research activities during
each of these periods.
Employees
---------
As of January 1, 1999, the Company had approximately 20
full-time personnel employed as executives, managers, project
managers, safety directors, sales and estimators, as well as
administrative and clerical support. In addition, the Company
also employs an hourly direct labor force which totaled
approximately 50 employees, some of whom are represented by
unions under collective bargaining agreements. Such bargaining
agreements between the Company and the unions represent employees
based upon geographic region and expire at various times. All of
the employees represented by such agreements are employed in the
St. Louis operations. The Company believes that it has
satisfactory relations with its employees.
Seasonality
-----------
The Company's business is subject to variations in revenues
and results of operations for interim periods and from year to
year. Increased revenues may not always result in a corresponding
increase in results of operations. These conditions are due to a
number of characteristics shared by the Company to varying
degrees with most other members of the industry, including the
following: (1) its business is seasonal ( typically less activity
-10-
<PAGE>
in the winter months) and is affected by the scheduling of work
at commercial properties and outages at utilities and other
industrial facilities; (2) its business is labor intensive; (3)
its performance on a given project is often dependent on the
performance of other contractors, who are working on the same
job, over which the Company has no control; and (4) costs
ultimately incurred by the Company on a job may be materially
affected by such risks as technical problems, labor shortages and
disputes, time extensions, weather, delays caused by external
timing of large contracts, especially if all or a substantial
part of the performance of such contracts occurs within one or
two quarters. Accordingly, quarterly results or other interim
results should not be considered indicative of results to be
expected for any other quarter or for the full fiscal year.
Royalties, Patents and Trademarks
---------------------------------
The Company does not currently own any patents, royalties,
trademarks, licenses, franchises or concessions which are
material to its business.
ITEM 2. DESCRIPTION OF PROPERTY
-------------------------------
The Company's principal corporate office is located at 8111
Preston Rd, Suite 715, Dallas, Texas which consists of
approximately 1,100 square feet with a monthly rent of $1,000
expiring in January 1999 and thereafter on a month-to-month
basis. The Company closed the office located in Salem, New
Hampshire in December 1998, which office is leased through
December 1999, and efforts are being made to sub-lease this
office.
P.W. Stephens St. Louis leases one principal facility
located at 1525 S. 8th Street, St. Louis, Missouri which has both
office and warehouse space in support of its operations. The
leased property consists of approximately 7,000 square feet and
has a monthly rent of $2,950 and expires in April 1999.
The Company currently leases properties as necessary to
support its operations. One of the leased facilities located in
California is not being utilized and has been sublet since
January 1, 1998. The Company believes that the remaining
facilities are sufficient to meet the needs of its current
operations and that substitute and or additional space will be
available as needed to accommodate expansion of operations and
growth through acquisitions.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
The nature and scope of the Company's business operations
bring it into regular contact with the general public, a variety
of businesses and government agencies. These activities
inherently subject the Company to the hazards of litigation,
which are defended in the normal course of business. Management
believes that such proceedings are either adequately covered by
insurance, or if uninsured, by the estimated losses it has
recorded to date. The resolution of such claims, however, could
have a material effect on the Company's results of operations or
cash flows. The reserves for litigation and contingencies
recorded by the Company as of September 30, 1998 amounted to
$100,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
Not applicable.
-11-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------
Market Prices
-------------
The Common Stock of the Company is traded in the over-the-
counter market. Quotations are published in the National
Quotation Bureau "Pink Sheets" and the NASDAQ OTC Bulletin Board
under the symbol USIS. The following table sets forth, for the
fiscal quarters indicated, the range of high ask and low bid
quotations for the Company's Common Stock as reported by the
National Quotation Bureau, Inc. The quotations presented are
between broker-dealers and do not retail mark-ups, mark-downs or
other fees and commissions. As a result, the following quotations
may not reflect actual transactions.
Fiscal Year ended September 30, 1998: HIGH ASK LOW BID
-------- -------
Quarter ended September 30, 1998 2.00 1.25
Quarter ended June 30, 1998 6.50 1.00
Quarter ended March 31, 1998 0.49 0.28
Quarter ended December 31, 1997 0.58 0.38
Fiscal Year ended September 30, 1997: HIGH ASK LOW BID
-------- -------
Quarter ended September 30, 1997 0.72 0.34
Quarter ended June 30, 1997 0.82 0.31
Quarter ended March 31, 1997 0.97 0.28
Quarter ended December 31, 1996 0.63 0.28
Stockholders
------------
As of December 31, 1998, the Company had approximately 197
record holders of its Common Stock, as reflected on the books of
the Company's transfer agent. Significant number of shares are
held in street name and as such the Company believes the actual
number of beneficial owners is higher.
Dividends
---------
The Company has not established a policy concerning payment
of regular dividends nor has it paid any dividends on its Common
Stock to date. Any payment of dividends in the future will be
determined by the Board of Directors in light of conditions then
existing, including the Company's earnings, financial condition,
capital requirements and debt covenants.
Recent Sales of Unregistered Securities
---------------------------------------
During the fiscal quarter ended September 30, 1998, the
Company issued 5,295,858 shares of its Common Stock upon
conversion of Notes, see Item 1, Description of Business--
Organization and Recent Developments.
-12-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN
-----------------------------------------------------
The Company has included on this Form 10-KSB certain
forward-looking statements. 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, are
statements relating to the Company's plans, goals, objectives,
strategies, future performance and events as well as any other
statements or representations other than those relating to
historical data. Forward-looking statements inherently possess
risks and uncertainties. As a result, although the Company's
forward-looking statements are expressed in good faith, the
Company's actual results could differ materially.
General
-------
The Company has been engaged in the business of asbestos
abatement, lead abatement, soil and hazardous waste remediation
and industrial cleaning. The Company services commercial,
industrial and residential customers primarily located in the
mid-western areas of the United States.
The Company's 1997 10-KSB did not include any financial
information regarding Manta because it was purchased after
September 30, 1997. Since Manta was sold on November 30, 1998,
management has chosen to offer a comparison of operations for
subsidiaries that were held by USIS for both 1998 and 1997.
Management feels that this would present the most accurate
comparison of operations between the two years. However, where
material, the effect of Manta on the financial results of the
Company is noted.
Results of Operations
1998 vs. 1997
Continuing Operations
Revenue:
-------
P.W. Stephens--Residential
Revenue for the year ended September 30, 1998 decreased 1.6%
to $6,054,000 from $6,141,000 for the same period in 1997. The
decrease in revenue was negligible, and basically stayed
consistent over the same period in 1997.
P.W. Stephens-St. Louis
Revenue for the year ended September 30, 1998 decreased
20.0% to $5,839,000 from $7,293,000 for the same period in 1997.
The decrease in revenue can be attributed to the threat of a
labor strike within a primary client's facility. The client had
suspended all large capital expenditures until the labor strike
is resolved. This issue was resolve in October 1998.
Gross Profit:
------------
P.W. Stephens-Residential
Gross Profit for the year ended September 30, 1998 decreased
from $3,364,000 to $2,649,891 or 21.2% for the same period in
1997. The decrease in the gross profit margin was the result of
the Residential's marketplace becoming more competitive.
-13-
<PAGE>
P.W. Stephens-St. Louis
Gross Profit for the year ended September 30, 1998 increased
from $1,570,690 to $1,635,000 or 4.1% for the same period in
1997. The increase in the gross profit margin can be attributed
to the incentive based plan implemented by management to
effectuate a reduction in costs through successful project
management programs.
Selling, General and Administrative Expenses:
--------------------------------------------
P.W. Stevens-Residential
Selling, general and administrative expenses (SG&A) for the
year ended September 30, 1998 were $2,462,000 compared to
$1,784,000 for the same period in 1997. The increase in SG&A
expenses was due to several factors. Increases in corporate
overhead, marketing, new hires and legal expenses all contributed
to Residential's increase in SG&A.
P.W. Stevens-St.Louis
Selling, general and administrative expenses for the year
ended September 30, 1998 were $1,958,000 compared to $1,628,000
for the same period in 1997. The increase in SG&A was due to an
increase in corporate overhead, marketing and new hires.
Other Income and Expenses:
-------------------------
Other income and expenses for the years ended September 30,
1998 and 1997 were $1,176,000 and $1,435,000 respectively. The
primary factor contributing to expense for 1998 was interest
expense on various notes from the Manta acquisition. The decrease
was primarily due to interest income received from the note due
from Regal Oak Properties, Inc. from the sale of Kelar Controls,
Inc. and management fees paid to the Company from outside
entities. The income gained from these sources off-set the
increase in interest expense attributed to notes payable from the
Manta acquisition.
Income From Continuing Operations
---------------------------------
The income from continuing operations for the year ended
September 30, 1998 increased to $3,756,000 compared to a net loss
of $3,129,000 during the same period in 1997. The increase in
income is a attributable to the recognition of the income tax
benefits of the Company's net operating loss carryforwards.
Discontinued Operations
-----------------------
Discontinued operation income for the year ended September
30, 1998 amounted to $645,000 compared to a loss of $3,684,000
for the year ended September 30, 1997. The income for the year
ended September 30, 1998 resulted primarily from final
settlements with customers in excess of net amounts recorded as
of September 30, 1998 and final settlements with trade creditors
in amounts less than those recorded as of September 30, 1997.
-14-
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company's existing capital resources consists of cash
and notes totaling $8,170,000. Management believes that the cash
and funds available are sufficient to meet its anticipated cash
requirements to operate its sole operating unit P.W. Stephens St.
Louis.
The Company plans to execute a strategic plan going forward
to grow the company through acquisition which may require the
Company to raise additional capital by issuing debt (straight or
convertible) or equity securities in private or public offerings.
There can be no assurance that the Company will be able to raise
debt or that the Company will be able to issue its securities to
coincide with the funding of certain capital requirements.
Impact of the Year 2000 Issue
-----------------------------
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. Any of the Company's computer programs that have
data-sensitive software may recognize a date using 00" as the
year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in other routine
business activities.
Based on a recent assessment, the Company determined that it
will be required to modify or replace significant portions of its
software so that its computer systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that
with modifications to existing software and conversions to new
software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
Based on presently available information, the Company has
initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which
the Company is vulnerable to the failure of these third parties
to remediate their own Year 2000 Issues. However, there can be no
guarantee that the systems of other companies on which the
Company's system rely will be timely converted, or that a failure
to convert by another company or a conversion that is
incompatible with the Company's systems, would not have material
adverse effect on the Company.
The Company will utilize both internal and external
resources to reprogram, or replace, and test the software for the
Year 2000 modifications. The Company plans to complete the Year
2000 project within no later than August 1999. The total
remaining cost of the Year 2000 project is estimated at $50,000
and is being funded through the operating cash flows of the
Company. The total project cost includes the purchase of new
software, which will be capitalized. To date, the Company has not
incurred any expense for its Year 2000 project.
The costs of the project and the date on which the Company
plans to complete the Year 2000 modifications are based on
managements's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ
materially from such plans. Specific factors that might cause
such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and
similar uncertainties.
-15-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
----------------------------
C O N T E N T S
---------------
Page
Independent Auditor's Report . . . . . . . . . . . . . . . . 17
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 18
Consolidated Statement of Operations . . . . . . . . . . . . 20
Consolidated Statement of Stockholders Equity . . . . . . . 21
Consolidated Statement of Cash Flows . . . . . . . . . . . . 22
Notes to Consolidated Financial Statements . . . . . . . . . 23
-16-
<PAGE>
To the Stockholders and Directors of
U.S. INDUSTRIAL SERVICES, INC.
Independent Auditor's Report
----------------------------
We have audited the accompanying consolidated balance sheet of
U.S. INDUSTRIAL SERVICES, Inc. (formerly EIF Holdings, Inc.) as
of September 30, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of U.S. INDUSTRIAL SERVICES, Inc. at September 30, 1998 and 1997,
and the results of its operations and cash flows for the years
then ended in conformity with generally accepted accounting
principles.
KARLINS FULLER ARNOLD & KLODOSKY, P.C.
The Woodlands, Texas
December 1, 1998
-17-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
ASSETS
------
CURRENT ASSETS
Cash . . . . . . . . . . . . $ 2,349,491 $ 304,678
Accounts receivable, trade,
less allowance for
doubtful accounts of
$275,000 and $225,000,
respectively . . . . . 14,722,153 3,768,252
Accounts receivable, retention 1,106,887 39,115
Receivable, officer . . . . 120,507 70,000
Securities available for sale 410,400 5,562,697
Note receivable . . . . . . -- 2,562,500
Costs and estimated earnings
in excess of billings on
contracts in progress . 1,381,950 52,003
Prepaid retention bonus . . 762,500 --
Supplies inventory . . . . . -- 165,079
Prepaid expenses and other
current assets . . . . 457,618 561,605
Deferred income tax . . . . 3,603,480 --
---------- ----------
TOTAL CURRENT ASSETS . . . . . . 24,914,986 13,085,929
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 6,591,677 603,940
OTHER ASSETS
Prepaid expenses and other assets 611,359 20,520
Receivable, officer . . . . 304,148 210,000
Investments . . . . . . . . 246,000 --
Goodwill, net of amortization
of $705,383 and $455,164,
respectively . . . . . . . 2,844,419 755,597
---------- ----------
4,005,926 986,117
---------- ----------
TOTAL ASSETS . . . . . . . . . . $35,512,589 $14,675,986
========== ==========
The accompanying notes are an integral part of these financial
statements.
-18-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Current portion of long-term
debt $ 8,704,380 $ 1,695,120
Note payable due to shareholder - 17,609,424
Accounts payable, trade 5,250,736 1,678,071
Accrued liabilities 4,480,461 730,006
Reserve for contingencies 510,000 1,349,000
Net liabilities of discontinued
operations 266,216 1,776,041
Billings in excess of costs and
estimated earnings on
contracts in progress 629,736 178,921
--------- ----------
TOTAL CURRENT LIABILITIES 19,841,529 25,016,583
--------- ----------
LONG-TERM DEBT
Long-term debt 3,598,577 -
--------- ----------
TOTAL LIABILITIES 23,440,106 25,016,583
--------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par
value, 20,000,000
authorized, none
outstanding - -
Common stock, $.01 par
value, 25,000,000
authorized, 8,763,982
and 2,461,820 outstanding
(after giving effect for
one-for-ten stock split),
respectively 87,640 3,019,246
Additional paid-in capital 22,636,302 804,696
Accumulated other
comprehensive income
Unrealized loss on
securities available
for sale (887,852) -
Accumulated deficit (9,763,607) (14,164,539)
----------- ------------
12,072,483 (10,340,597)
---------- ------------
$35,512,589 $14,675,986
=========== ===========
The accompanying notes are an integral part of these financial
statements.
-19-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
REVENUE $58,324,519 $13,434,423
COST OF REVENUE 44,291,727 8,399,561
----------- ------------
GROSS PROFIT 14,032,792 5,034,862
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,942,472 6,738,610
----------- ------------
INCOME (LOSS) FROM OPERATIONS 1,090,320 (1,703,748)
----------- ------------
OTHER INCOME (EXPENSE)
Other income (expense), net 645,127 10,189
Interest income 308,743 -
Interest expense (2,130,138 (1,434,992)
----------- ------------
(1,176,268) (1,424,803)
----------- ------------
LOSS BEFORE PROVISION FOR INCOME TAX (85,948) (3,128,551)
----------- ------------
PROVISION FOR INCOME TAX
Current - -
Deferred 3,842,116 -
----------- ------------
3,842,116 -
----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 3,756,168 (3,128,551)
----------- ------------
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Loss from operations on discontinued commercial
asbestos operations including provision of
$300,000 for operating loss during phase out
for the year ended September 30, 1997 and
income from final settlements for the year
ended September 30, 1998 644,764 (5,765,745)
Loss on disposal of assets from discontinued
commercial asbestos operations - (156,863)
Loss from operations on discontinued
operations of Kelar Controls, Inc. - (86,672)
Gain on sale of Kelar Controls, Inc. - 2,370,580
----------- ------------
644,764 (3,683,700)
----------- ------------
NET INCOME (LOSS) 4,400,932 (6,767,251)
----------- ------------
OTHER COMPREHENSIVE INCOME
Unrealized loss on securities available
for sale (1,344,600) -
Income tax effect on other comprehensive
income 456,748 -
----------- ------------
(887,852) -
----------- ------------
COMPREHENSIVE INCOME $ 3,513,080 $(6,767,251)
=========== ============
Basic earnings per share
Continuing operations $ 1.03 $ (1.27)
Discontinued operations 0.18 (1.48)
----------- ------------
$ 1.21 $ (2.75)
=========== ============
Diluted earnings per share
Continuing operations $ 0.92 $ (1.27)
Discontinued operations 0.15 (1.48)
----------- ------------
$ 1.07 $ (2.75)
=========== ============
Weighted average number of common and
common equivalent shares outstanding:
Basic 3,635,866 2,461,820
=========== ============
Diluted 4,372,910 2,461,820
=========== ============
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Common shares Additional
Shares Dollar paid-in
outstanding amount capital
----------- ------ --------
Balance,
September 30, 1996 24,618,201 $ 3,019,246 $ 804,696
Net loss - - -
---------- ----------- ------------
Balance,
September 30, 1997 24,618,201 3,019,246 804,696
Reverse stock split (22,150,077) (2,994,565) 2,994,565
Conversion of
long-term debt 6,295,858 62,959 18,837,041
Unrealized loss on
securities, net - - -
Net income - - -
---------- ----------- ------------
Balance,
September 30, 1998 8,763,982 $ 87,640 $22,636,302
========== =========== ============
Accumulated
other Retained
comprehensive earnings
income amount Total
------------- -------- -----
Balance,
September 30, 1996 $ - $(7,397,288) $(3,573,346)
Net loss - (6,767,251) (6,767,251)
---------- ----------- ------------
Balance,
September 30, 1997 - (14,164,539) (10,340,597)
Reverse stock split - - -
Conversion of
long-term debt - - 18,900,000
Unrealized loss on
securities, net (887,852) - (887,852)
Net income - 4,400,932 4,400,932
---------- ----------- ------------
Balance,
September 30, 1998 $(887,852) $(9,763,607) $12,072,483
========== =========== ============
The accompanying notes are an integral part of these financial
statements.
-21-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,400,932 $(6,767,251)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Gain on sale of Kelar
Controls, Inc. - (2,370,580)
Depreciation and amortization 1,905,636 472,058
Loss on disposal of machinery
and equipment 94,622 156,863
Change in deferred income tax (4,403,480) -
Non cash expense, net 1,290,576 -
Change in accounts receivables (920,633) 2,413,415
Change in accounts receivable,
retention 365,897 -
Change in receivable, officer (144,655) -
Change in costs and estimated
earnings in excess of billings
on jobs in progress (585,593) 274,340
Change in prepaid retention bonus (762,500) -
Change in inventory 165,079 152,305
Change in prepaid expenses and
other current assets 477,802 122,574
Change in other assets 150,086 26,098
Change in accounts payable 171,144 2,792,148
Change in accrued liabilities 168,576 -
Change in reserve for contingencies (839,000) 1,349,000
Change in net liabilities of
discontinued operations (1,509,820) 1,776,041
Change in billings in excess of
costs and estimated earnings on
jobs in progress (367,866) (558,555)
----------- ------------
Net cash used in operating
activities (343,196) (161,544)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash divested upon sale of Kelar
Controls, Inc. - (53,750)
Acquisition of business, net of
cash acquired 172,467
Proceeds from sale of machinery
and equipment 251,529 99,500
Capital expenditures (932,413) (198,228)
----------- ------------
Net cash used in investing
activities (508,417) (152,478)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 6,210,000 2,795,333
Principal payments on long-
term debt (7,578,019) (3,475,664)
Proceeds from securities
available for sale 4,264,445
Proceeds from stockholder line
of credit - 1,120,800
----------- ------------
Net cash provided by
financing activities 2,896,426 440,469
----------- ------------
NET INCREASE IN CASH 2,044,813 126,447
CASH AT BEGINNING OF PERIOD 304,678 178,231
----------- ------------
CASH OF END OF PERIOD $ 2,349,491 $ 304,678
=========== ============
The accompanying notes are an integral part of these financial statements.
-22-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
BASIS OF PRESENTATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
U.S. Industrial Services, Inc. and its wholly owned subsidiaries
(the "Company" or "USIS"), (formerly "EIF Holdings, Inc.") is a
multi-state service company, specializing in painting,
fireproofing, hydroblasting and vacuum services. The major
industries served include refining, petrochemicals, utilities,
paper mills, steel production, food processing and public works.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.
Revenue Recognition - The Company recognizes revenues and profits
-------------------
on contracts using the percentage-of-completion method. Under the
percentage-of-completion method, contract revenues are accrued
based upon the percentage that accrued costs to date bear to
total estimated costs. As contracts can extend over more than one
accounting period, revisions in estimated total costs and profits
during the course of work are reflected during the period in
which the facts requiring the revisions become known. Losses on
contracts are charged to income in the period in which such
losses are first determined.
The percentage-of-completion method of accounting can result in
the recognition of either costs and estimated profits in excess
of billings or billings in excess of costs and estimated profits
on uncompleted contracts, which are classified as current assets
and liabilities, respectively, in the accompanying balance sheet.
The current asset account represents costs incurred and profits
earned that have not been billed to the customer on uncompleted
construction contracts. The current liability account represents
deferred income on uncompleted construction contracts. Generally
accepted accounting principles for percentage-of-completion
accounting require the classifications as current assets and
liabilities.
Revenues from time and material contracts are recognized
currently as the work is performed.
Securities Available for Sale -Equity securities are classified
-----------------------------
as "available-for-sale" as defined by SFAS 115. In accordance
with that Statement, they are reported at aggregate fair value
with unrealized losses excluded from earnings and reported as
other comprehensive income, net of deferred taxes.
The cost of securities sold was determined by the average cost
method.
Property, Plant and Equipment - Property, plant and equipment are
-----------------------------
stated at cost. Depreciation of plant and equipment is provided
over the estimated useful lives of the respective assets using
the straight-line method, generally from five to forty years.
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are
charged to earnings as incurred.
When property, plant and equipment are retired or otherwise
disposed of, the cost thereof and the applicable accumulated
depreciation are removed from the respective accounts and the
resulting gain or loss is reflected in earnings.
Uses of Estimates - The preparation of financial statements in
-----------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
these estimates.
Goodwill - Goodwill is amortized on a straight-line basis over 20
--------
- 40 years. Management reviews, on an annual basis, the carrying
value of goodwill in order to determine whether an impairment has
occurred. Impairment is based on several factors including the
Company's projection of future undiscounted operating cash flows.
If an impairment of the carrying value were to be indicated by
this review, the Company would adjust the carrying value of
goodwill to its estimated fair value.
Long-Lived Assets - The Company reviews its long-lived assets and
-----------------
certain identifiable intangibles to be held and used for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
such events or changes in circumstances are present, a loss is
recognized to the extent the carrying value of the asset is in
-23-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
excess of the sum of the undiscounted cash flows expected to
result from the use of the asset and its eventual disposition.
Income taxes - Income taxes are provided for the tax effects of
------------
transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related primarily from
different depreciation methods for financial accounting and
income tax purposes and retainage receivables which are
recognized when collected for income tax purposes. The deferred
taxes represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled.
Recapitalization - Effective June 22, 1998, the Company effected
----------------
a one-for-ten reverse stock split, reducing the number of shares
of outstanding common stock from 24,618,200 to 2,461,820.
Immediately following the reverse-split, the Company completed a
recapitalization and reincorporation through a merger with U.S.
Industrial Services, Inc., a newly-formed Delaware corporation,
and wholly-owned subsidiary of EIF Holdings, Inc. USIS became the
surviving company, and all outstanding shares of EIF common stock
were exchanged on a one-for-one basis for shares of USIS common
stock.
Concentration of credit risk - The Company has concentrated its
----------------------------
credit risk for cash by maintaining deposits at a financial
institution which at times may exceed amounts covered by
insurance provided by the U.S. Federal Deposit Insurance
Corporation (FDIC). The maximum loss that would have resulted
from that risk totaled $1,149,348 at September 30, 1998 for the
excess of the deposit liabilities reported by the banks over the
amounts that would have been covered by federal insurance. The
Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk to
cash.
The Company, as a condition for entering into construction
contracts, has purchased surety bonds totaling approximately
$11,250,000 and $450,000 for the years ending September 30, 1998
and 1997 respectively. The bonds are collateralized by contract
receivables.
The Company operates and grants credit to customers throughout
the United States.
Letter of credit - The Company has an outstanding letter of
----------------
credit for insurance purposes, not reflected in the accompanying
financial statements, in the amount of $1,086,647 at September
30, 1998.
Fair Value of Financial Instruments - The Company's financial
-----------------------------------
instruments consist of cash and cash equivalents, contract
receivables, accounts payable and notes payable. The Company
believes that the carrying value of these instruments on the
accompanying consolidated balance sheet approximates their fair
value.
Reclassifications - Certain reclassifications have been made to
-----------------
the prior year financial statements to conform with the current
year presentation.
RECEIVABLE, OFFICER
The receivable, officer is an amount due from Frank Fradella,
former President of the Company. This receivable was originally
transferred from American Eco Corporation ("AEC") when Mr.
Fradella assumed his position as President of U.S. Industrial
Services, Inc. The amount as of September 30, 1997 represented
the remaining balance of a forgivable loan made to Mr. Fradella
upon his employment with AEC in September 1996. The increase
during the year ended September 30, 1998 resulted from additional
borrowings to Mr. Fradella. The revised total balance of
$424,655 will be amortized over the next four years, as Mr.
Fradella will serve as a consultant to the Company in pursuing
and reviewing acquisition candidates for the Company. The amount
due bears no interest and is unsecured.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of 180,000 shares and
570,533 shares of common stock of AEC, as of September 30, 1998
and 1997, respectively. These shares were issued to the Company
in lieu of cash in conjunction with the Amendment dated
-24-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
September 30, 1997, to the existing line of credit which increased
the maximum borrowing amount under the line to $20,000,000. These
securities reflect a value of $2.28 and $9.75 per share as of
September 30, 1998 and 1997, respectively, on the consolidated
balance sheet, which reflects the market value. The Company
intends to sell these securities to settle certain of the
Company's existing obligations. See "Note Payable due to
Stockholder" and "Related Party Transactions" for additional
disclosures.
Proceeds and gross realized gains from the sale of securities
classified as available-for-sale for the year ended September 30,
1998 was as follows:
Gross proceeds $4,264,445
Gross realized gains $ 55,464
NOTE RECEIVABLE
On June 30, 1997, the Company sold all of the issued and
outstanding shares of stock in its wholly owned subsidiary, Kelar
Controls, Inc. to Regal Oak Properties, Inc. ("Regal Oak") for
$2,500,000. Pursuant to the acquisition agreement, the Company
received a Promissory Note for the full amount of the purchase
price. The note matures on June 30, 1998, bears interest at 10%
and is secured by performance bonds. Refer to "Discontinued
Operations" for additional disclosure.
In August, 1998, Regal Oak remitted its payment of $2,780,822
(including accrued interest of $280,822) directly to Turner
Holdings, Inc. ($1,210,977) and Deere Park Capital Management,
Inc. ($1,569,845), which are creditors of the Company, and which
reduced the Company's obligations by such amounts to these
creditors. Refer to "Long-term Debt" for additional disclosure.
COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
Costs and estimated earnings on uncompleted contracts consist of
the following:
1998 1997
---- ----
Costs incurred on jobs in
progress . . . . . . . . . . $33,011,790 $2,188,031
Estimated earnings . . . . . . 6,305,039 413,922
----------- ----------
39,316,829 2,601,953
Less: billings to date . . . . 38,564,615 2,728,871
----------- ----------
$752,214 $(126,918)
=========== ==========
The amounts above are included in the accompanying balance sheet
under the following captions:
1998 1997
---- ----
Costs and estimated earnings in
excess of billings on jobs in
progress . . . . . . . . . . $1,381,950 $52,003
Billings in excess of costs and
estimated earnings on jobs in (629,736) (178,921)
progress . . . . . . . . . . ---------- ----------
$752,214 $(126,918)
========== ==========
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
1998 1997
---- ----
Land . . . . . . . . . . . . . $ 35,000 $ --
Buildings . . . . . . . . . . . 299,250 --
-25-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Transportation equipment . . . 3,883,701 514,944
Machinery and equipment . . . . 3,590,342 814,199
Office equipment . . . . . . . 526,799 196,244
Leasehold improvements . . . . 713,667 97,439
--------- ---------
1,622,827 9,048,759
Accumulated depreciation and 2,457,082 1,018,887
amortization . . . . . . . . --------- ---------
$6,591,677 $ 603,940
========= =========
The cost of fully depreciated assets still in service amounted to
$280,788 and $531,127 at September 30, 1998 and 1997,
respectively.
BUSINESS COMBINATIONS
JL Manta, Inc. - Effective October 31, 1997, the Company
--------------
completed its acquisition of JL Manta, Inc. ("Manta"), an
Illinois corporation which provides specialized maintenance
services for clients in the industrial, environmental and low-
level nuclear sectors. Pursuant to the terms of a Stock Purchase
Agreement, the Company acquired all the issued and outstanding
common stock, no par value per share, of Manta (the "Manta
Stock") from the stockholders of Manta (the "Manta Stockholders")
for consideration of $4,725,321 in cash and $2,235,312 in
convertible promissory notes of the Company, payable in
installments with a final payment due on November 18, 2000 (the
"Manta Notes"). Subject to the approval by the Company's
stockholders of an amendment to USIS's charter authorizing the
requisite amount of stock, at any time after June 30, 1998 the
holders of the Stockholder Notes may convert any principal
payment due under the Stockholder Notes into shares of USIS's
common stock, $0.01 par value per share (the "USIS Stock"), at a
conversion price equal to the closing transaction price of the
USIS Stock on the date a conversion notice is received by USIS
(the "Conversion Price"). Concurrent with the closing of the
Acquisition, certain Manta stockholders and key employees entered
into Retention Bonus Agreements with USIS providing for bonus
payments in the aggregate amount of $900,000 to be amortized by
the Company over a six year period, of which $762,500 still
remains as prepaid. The purchase price and expenses associated
with the acquisition exceed the fair value of net assets acquired
by approximately $2 million. Refer to "Subsequent Events" for
additional disclosure.
Also concurrently with the Manta Acquisition, in connection with
financing provided to the Company, the Company issued a
$6,500,000 Convertible Promissory Note. The note bears interest
at the rate of 5 1/4% per annum, becomes due on May 18, 1999 and
is secured by a pledge of all of the Manta stock. Subject to
approval of the Company's Stockholders of an amendment to USIS's
charter, authorizing the requisite amount of preferred and common
stock, the Note is convertible into 5 1/4% preferred convertible
stock at a conversion price of One Dollar ($1) per share, with
such preferred convertible stock convertible into USIS common
stock.
Also in connection with the Manta Acquisition, the Company issued
a $2,500,000 Promissory Note. The note bears interest at the rate
of Nine Percent (9%) per annum and becomes due on February 16,
1998. The loan amount represented by the note was used by the
Company to refinance certain indebtedness of Manta.
Manta has working capital and fixed asset based credit facilities
which it utilizes in the normal course of business. Essentially
all of the assets of Manta are pledged as security under one or
more of these facilities. The loan agreements which govern these
facilities contain typical covenants, including financial
covenants, with which the Company must comply.
The unaudited pro forma results, assuming the Manta acquisition
had occurred at October 1, 1996, are as follows:
1998 1997
---- ----
Revenues . . . . . . . . . . . $62,769,435 $59,034,888
Net income (loss) from
continuing operations . . . . 3,778,650 (2,569,684)
Basic earnings per share . . . $1.04 $(1.04)
The unaudited pro forma summary is not necessarily indicative of
results of operations that would have occurred had the
acquisition been made at the beginning of the periods presented,
or of future results of operations of the combined companies.
-26-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
A summary of the above Manta business combination is as follows:
Consideration . . . . . . . . . . . . . . . . . . $9,294,000
Assets . . . . . . . . . . . . . . . . . . . . . 21,179,000
Liabilities . . . . . . . . . . . . . . . . . . . (13,860,000)
-----------
Net book value . . . . . . . . . . . . . . . . . 7,319,000
-----------
Goodwill . . . . . . . . . . . . . . . . . . . . $1,975,000
===========
LONG-TERM DEBT
1998 1997
---- ----
Notes payable, payable $21,482
monthly including interest from
7.61% to 9.75%; collateralized by
vehicles, equipment and building;
maturing through November, 2005 . . $416,792 $ --
Note payable, payable $91,667
monthly plus interest at the prime
or libor rate plus 1.75%;
collateralized by substantially all
of the assets of Manta and the
guaranty of USIS . . . . . . . . . 4,478,331 --
Note payable, due to Deere Park
Capital Management, Inc., due May
1, 1999, at 5.25% rate of interest,
uncollateralized . . . . . . . . . 5,017,364 --
Notes payable to former
stockholders of Manta ("Manta
Notes"), due February, 2001, at
5.25% rate of interest,
collateralized by the guaranty of
AEC . . . . . . . . . . . . . . . . 2,045,184 --
Notes payable to former Manta
stockholders and key employees,
payable $22,060 quarterly, with
interest at 5.25%, uncollateralized 264,701 --
Note payable, due to Turner
Holdings, Inc., due March 1, 1998,
at 10% rate of interest, unsecured -- 1,030,000
Notes payable, finance company for
insurance premiums, due August 31,
1998. Payable $59,208 monthly
including interest at 7.64%,
secured by unearned premiums . . . -- 598,364
Miscellaneous notes payable . . . . 80,585 66,756
---------- ---------
12,302,957 1,695,120
Current portion . . . . . . . . . . 8,704,380 1,695,120
---------- ---------
Long-term portion . . . . . . . . .
$3,598,577 $ --
========== =========
The aggregate principal payments on long-term debt during the
fiscal years subsequent to September 30, 1998 are: 1999 -
$8,704,380; 2000 - $1,149,014; 2001 - $1,271,244; 2002 -
$1,100,004; 2003 - $78,315.
The Company entered into a revolving credit agreement with a
bank, which provides for maximum borrowings of $4,000,000 at an
interest rate of prime or libor plus 1.75%. Principal is payable
on demand; however if no demand is made, principal is due on
February 1, 1999. Interest on this credit agreement is payable
monthly. At September 30, 1998, there was no outstanding balance
on this agreement. This note is collateralized by substantially
all of the assets of the Manta, and the guaranty of USIS.
The above notes payable to former Manta stockholders and key
employees were paid off upon the sale of Manta assets. Refer to
"Subsequent Events" for additional disclosure.
-27-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE PAYABLE DUE TO STOCKHOLDER
During the fiscal year ended September 30, 1996, the Company
entered into a line of credit agreement with a major stockholder,
American Eco Corporation, ("AEC"). The original terms of the AEC
facility carried a maximum borrowing amount of $5,250,000, with
interest at the prime rate plus 2% per annum, was unsecured and
matured on July 31, 1997. Effective July 31, 1997, the line of
credit agreement with AEC was renewed, extended and modified to
increase the maximum borrowing amount to $15,000,000 and extended
the maturity date to February 18, 1998. All other terms under the
original line of credit agreement remained unchanged. On
September 30, 1997, AEC executed another amendment to the line of
credit facility increasing the maximum borrowing amount to
$20,000,000.
In July, 1998, AEC, pursuant to a Stock Purchase Agreement closed
its purchase of 1,000,000 shares of USIS common stock in exchange
for $1 million which reduced the outstanding balance under the
Company's line of credit facility with AEC.
Also in July, 1998, AEC sold $17.9 million of its outstanding
line of credit to USIS Acquisition, LLC, ("UALC"), which
exercised its rights under the agreement to convert the debt to
equity. The conversion resulted in the issuance of 5,295,858
shares of common stock to UALC, thus providing it with 60.4% of
all outstanding USIS common stock. Refer to "Subsequent Events"
for additional disclosure.
OPERATING LEASES
The Company leases office and warehouse space under operating
leases that expire at various times through May, 2006. The
Company leases warehouse space from a related party under a lease
providing for base monthly rentals of $5,000. The monthly base
rent is increased yearly by 4% until termination on May 15, 2006.
The Company also pays all operating costs and real estate taxes
for their space. Total rent expense for the years ended September
30, 1998 and 1997 amounted to $430,555 and $300,778,
respectively.
Future minimum payments, by year and in the aggregate, under
these operating leases, consisted of the following at September
30, 1998:
1999 . . . . . . . . . . . . . . . . .$296,614
2000 . . . . . . . . . . . . . . . . . 131,316
2001 . . . . . . . . . . . . . . . . . 114,420
--------
2002 . . . . . . . . . . . . . . . . . 66,745
--------
$609,095
========
As Lessor
---------
The Company entered into an agreement to sub-lease an office and
warehouse facility to an outside party from January 1, 1998 to
July 31, 2002. Future minimum rents receivable under
noncancellable leases are: 1999 - $89,800; 2000 - $101,000; 2001
- $102,100 and 2002 - $59,558.
CASH FLOW INFORMATION
For purposes of the Statement of Cash Flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
1998 1997
---- ----
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest . . . . . . . . . . . $1,887,892 $613,260
Income taxes . . . . . . . . . $ 105,988 $ --
Supplemental schedule of noncash
investing and financing
activities:
-28-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Machinery and equipment acquired
through long-term debt
obligations . . . . . . . . $470,802 $22,565
Refer to "Discontinued Operations" footnote for sale of Kelar
Controls, Inc. and to "Securities Available for Sale" footnote
for marketable securities activity.
FEDERAL INCOME TAX
Deferred income tax assets and liabilities are computed for those
differences that have future tax consequences using the currently
enacted tax laws and rates that apply to the periods in which
they are expected to affect taxable income. Valuation allowances
are established, if necessary, to reduce the deferred tax asset
to the amount that will more likely than not be realized. Income
tax expense is the current tax payable or refundable for the
period plus or minus the net change in the deferred tax assets
and liabilities.
Deferred federal income taxes result from temporary differences
in the recognition of revenue and expense for tax and financial
reporting purposes. Such temporary differences relate primarily
to the method of recording depreciation and accounting for
contracts in progress.
Federal income tax expense for the years ended September 30, 1998
and 1997 consists of the following:
1998 1997
---- ----
Current tax:
Federal . . . . . . . . . . . . $234,000 $ --
State . . . . . . . . . . . . . 77,000 --
-------- -------
311,000 --
Deferred tax . . . . . . . . . (82,000) --
-------- -------
$229,000 $ --
======== =======
The Company's provision for income taxes differs from applying
the statutory U.S. federal income tax rate to income before
income taxes. The primary differences result from providing for
state income taxes and from deducting certain expenses for
financial statement purposes but not for federal income tax
purposes.
The significant components of the net deferred tax liability at
September 30, 1998 and 1997 are as follows:
1998 1997
---- ----
Plant and equipment depreciation $458,000 $20,500
Accounts receivable, retention 432,000 --
Allowance for bad debts . . . . (33,000) 552,500
Goodwill . . . . . . . . . . . (37,000) --
Other reserves . . . . . . . . (29,000) --
Accrued liabilities . . . . . . (73,000) 501,000
Net operating loss carryforward -- 2,894,000
Valuation allowance . . . . . . -- (3,968,000)
-------------------
Net deferred tax liability . . $718,000$ --
===================
The Company has net operating loss carryforwards of approximately
$9,030,000 and $8,400,000 at September 30, 1998 and 1997
respectively, for federal income tax purposes available to offset
future financial income, expiring, if not used, periodically
through the year 2012. An valuation allowance has not been
established as of September 30, 1998, due to the subsequent sales
of (a) significantly all of the net assets of J.L. Manta, Inc.
and (b) significantly all of the net assets of P.W. Stephens
Residential, Inc. Refer to "Subsequent Events" footnote for
additional disclosure.
-29-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
LITIGATION, COMMITMENTS AND CONTINGENCIES
The nature and scope of the Company's business operations bring
it into regular contact with the general public, a variety of
businesses and government agencies. These activities inherently
subject the Company to the hazards of litigation, which are
defended in the normal course of business. The Company is
currently involved in several litigations and investigations
including regulatory compliance. Although the outcome of these
claims is not clearly determinable at the present time,
Management believes that such proceedings are adequately covered
by the estimated losses it has recorded to date.The Company
believes that the disposition of all such claims and disputes,
individually or in the aggregate, should not have a material
adverse affect upon the Company's financial position, results of
operations or cash flows.
RELATED PARTY TRANSACTIONS
The Company is involved in various related party transactions.
These transactions are summarized as follows:
Pursuant to a Management Services Agreement effective October 1,
1996, between AEC and the Company, AEC had agreed to provide
certain services to the Company in exchange for a management fee
to be accrued on a quarterly basis. The services include
providing the Company with management guidance in addition to
guaranteeing certain of the Company's obligations with its
creditors, in order to allow the Company to receive favorable
terms with its creditors. The agreement provides for a quarterly
payment of $1,000,000. AEC stopped providing management services
to the Company shortly after the appointment of Frank Fradella as
President and CEO of the Company in May 1997. Therefore the
management fee was pro-rated for the third quarter and amounted
to $300,000. For the year ended September 30, 1997, total
management fees were $2,300,000. For the year ended September 30,
1997, the total amount outstanding under the AEC facility was
$17,609,424, including $835,311 for accrued interest.
For the year ended September 30, 1998, the Company incurred costs
of $292,471 to AEC in return for AEC guaranteeing certain debt
relating to the acquisition of Manta. In addition the Company
incurred interest expense with AEC in the amount of $1,096,038
for the year ended September 30, 1998.
For the year ended September 30, 1998, the Company received rent
and fee income in the amount of $80,806 from two companies
related to Manta.
The Company leased warehouse and office facilities under an
operating lease from an entity that was owned by a former
stockholder. The Company incurred rent expense of $55,000 for the
year ended September 30, 1997.
WARRANTS AND OPTIONS
In connection with funds advanced to the Company under a
promissory note, and subsequent amendments and extensions to the
note issued by an investor group, the Company committed to issue
48,000 warrants, to purchase the Company's common stock. The
exercise price of the warrants will be equal to the market value
on the date of issue.
RETIREMENT PLANS
The Company, through its collective bargaining agreements with
various unions, contributes to the unions' retirement plans. For
the years ended September 30, 1998 and 1997, an expense of
approximately $935,000 and $150,000 was incurred for these
retirement plans, respectively.
The Company contributes to a profit sharing plan covering all
eligible employees. Contributions in the amount of $43,000 was
expensed for the year ended September 30, 1998. No expense was
incurred for the year ended September 30, 1997. The Company's
policy is to fund the costs annually as incurred.
-30-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
DISCONTINUED OPERATIONS
Commercial Asbestos
-------------------
In May 1997, the Company decided to discontinue the commercial
asbestos abatement operations of P.W. Stephens Contractors, Inc.
("PWSC") and QHI Stephens, Inc. ("QHI"). The results of
operations for the respective periods presented are reported as a
component of discontinued operations in the consolidated
statements of operations. The net loss of these operations
subsequent to September 30, 1997 are included in the statements
of operations under discontinued operations and therefore
revenues, cost of revenue, selling, general and administrative
expenses associated with the discontinued operations. The
following table summarizes results of operations for PWSC and QHI
for the year ended September 30, 1997.
1997
----
Net sales . . . . . . . . . . . . . . . . . . . $ 7,059,949
Operating loss . . . . . . . . . . . . . . . . (5,765,745)
Loss from discontinued operations . . . . . . . (5,765,745)
The following table summarizes the net liabilities related to the
discontinued operations of PWSC and QHI for the year ended:
1997
----
Net working capital deficit . . . . . . . . . . $(1,930,988)
Machinery and equipment, net . . . . . . . . . 154,947
------------
Net liabilities related to discontinued
operations . . . . . . . . . . . . . . . . . . $(1,776,041)
============
Included in the current liabilities at September 30, 1997 is a
provision for loss on discontinued operations of $300,000 which
consists of estimated costs associated with the disposal and
operating losses expected through February 28, 1998, the phase
out period. During the current year, the Company sold certain
machinery and equipment with a net book value of $258,933 related
to the discontinued operations that could not be used in the
existing businesses. The Company received proceeds of $99,950 for
the sale of those assets resulting in a loss on disposition of
assets in the amount of $156,863. The remaining machinery and
equipment consists of vehicles that will be utilized in the
Company's ongoing operations.
Sale of Kelar
-------------
As of June 30, 1997, the Company completed the sale of all of the
issued and outstanding shares of Kelar Controls, Inc. ("Kelar")
to Regal Oak Properties, Inc. ("Regal Oak") for $2,500,000.
Pursuant to the Acquisition Agreement, the Company received a
Promissory Note for the full amount of the purchase price. The
note is payable in one (1) installment due June 30, 1998, accrues
interest at 10% per annum and is secured by performance bonds
totaling $2,500,000. The results of operations for the respective
periods presented are reported as a component of discontinued
operations in the current year of the consolidated statements of
operations.
The following are summarized results of operations for Kelar for
the years ended September 30, 1997.
1997
----
Net sales . . . . . . . . . . . $1,089,277
Operating loss . . . . . . . . (86,672)
Loss from discontinued
operations . . . . . . . . . . (86,672)
-31-
<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
1998 1997
---- ----
Numerator:
Net income (loss) for basis
earnings per share . . . . $4,400,932 $(6,767,251)
Effect of dilutive securities -
convertible debt . . . . . . 268,510 --
---------- ------------
Numerator for diluted
earnings per share, after
assumed conversions . . . 4,669,442 (6,767,251)
----------- ------------
Denominator:
Denominator for basic
earnings per share,
weighted-average shares . 3,635,866 2,461,820
Effect of dilutive securities -
convertible debt . . . . . . 737,044 --
--------- ---------
Denominator for diluted
earnings per share -
adjusted weighted-average
shares and assumed
conversions . . . . . . . 4,372,910 2,461,820
--------- ---------
Basic earnings per share . . . $1.21 $(2.75)
========= =========
Diluted earnings per share . . $1.07 $(2.75)
========= =========
The Company adopted Statement of Financial Accounting Standards
(SFAS) No.128, "Earnings per Share", and restated for all periods
presented. All earnings per share amounts presented have been
restated to reflect the one-for-ten reverse stock split.
OTHER COMPREHENSIVE INCOME
Changes in other comprehensive income for the year ended
September 30, 1998 are shown below:
Unrealized loss on securities
available for sale . . . . . . $1,344,600
Income tax benefit . . . . . . . (456,748)
-----------
Net unrealized loss on securities
available for sale . . . . . . $ 887,852
===========
For the year ended September 30, 1997, the Company had not
incurred any other comprehensive income.
SUBSEQUENT EVENTS
On November 20, 1998, UALC issued notice to AEC that they would
be unable to meet their debt obligations to AEC. UALC surrendered
all of their shares (5,295,858) to AEC. After this transaction,
AEC owned approximately 82% of USIS.
In November of 1998, USIS sold the assets of Manta and
transferred related liabilities, including the credit facility,
to Kenny Industrial Services, L.L.C., for $23,000,000 consisting
of a combination of cash and notes.
On December 31, 1998, USIS sold the assets of P.W. Stephens
Residential Inc. and transferred its liabilities, to American
Temporary Sanitation Inc. for $2,400,000, consisting of
$1,004,000 in cash and a five year promissory note for $1,396,000
payable quarterly through 2004, together with interest at the
prime rate plus 2.5% per annum.
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<PAGE>
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
INDUSTRY SEGMENT DATA
The Company operates in two principal industries - (a)
Industrial, commercial and governmental environmental remediation
services and (b) residential asbestos abatement. It is the
Company's policy to price intersegment contracts on an equivalent
basis to that used for pricing external contracts. The following
is a summary of selected data, determined under the provisions of
SFAS No. 14, for these business segments:
YEARS ENDED SEPTEMBER 30,
-------------------------
1998 1997
---- ----
Revenue
Industrial maintenance
services . . . . . . . . . . $46,642,024 $ --
Environmental services . . . . 5,839,725 7,293,082
Residential asbestos
abatement . . . . . . . . . 6,054,400 6,141,341
Less intersegment revenue . . (211,177) --
----------- -----------
Total revenue . . . . . . . $58,324,519 $13,434,423
=========== ===========
Operating income (loss)
Industrial maintenance
services . . . . . . . . . $ 853,178 $ --
Environmental services . . . (322,764) (57,247)
Residential asbestos
abatement . . . . . . . . 187,457 1,579,985
----------- -----------
Total operating income . . 717,871 1,522,738
Corporate income (expenses) . . 372,449 (3,226,486)
Interest expense . . . . . . . (2,130,138) (1,434,992)
Interest income . . . . . . . . 308,743 --
Other . . . . . . . . . . . . . 645,127 10,189
----------- -----------
Loss before provision for $ (85,948) $(3,128,551)
income taxes . . . . . . . =========== ===========
Depreciation and amortization
Industrial maintenance
services . . . . . . . . . $ 1,577,144 $ --
Environmental services . . . 205,860 213,328
Residential asbestos
abatement . . . . . . . . 28,159 97,772
Corporate . . . . . . . . . 94,493 3,856
----------- -----------
Total depreciation and
amortization . . . . . . $ 1,905,636 $ 314,956
=========== ===========
Capital expenditures
Industrial maintenance
services . . . . . . . . . $ 690,817 $ --
Environmental services . . . 92,783 10,691
Residential asbestos
abatement . . . . . . . . 87,861 135,616
Corporate . . . . . . . . . 60,952 31,388
----------- -----------
Total capital expenditures $ 932,413 $ 177,696
=========== ===========
Identifiable assets
Industrial maintenance
services . . . . . . . . . $23,965,794 $ --
Environmental services . . . 2,083,945 3,955,112
Residential asbestos
abatement . . . . . . . . 1,794,355 1,538,278
Corporate . . . . . . . . . 7,668,495 9,182,596
----------- -----------
Total assets . . . . . . . $35,512,589 $14,675,986
=========== ===========
-33-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
---------------------------------------------------------
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
---------------------------------------------------------------
As of December 31, 1998, the directors and executive officers of
the Company were:
NAME AGE POSITION WITH COMPANY
---- --- ----------------------
Albert V. Furman 48 Chairman of the Board
Michael E. McGinnis 48 Director
Andreas O. Tobler 48 Director
C. Thomas Mulligan 29 Vice President, Chief Financial
Officer and Secretary Counsel
The terms of the Board of Directors will expire annually at
the next stockholders meeting. The Company's officers are
elected by the Board of Directors and hold office at the will of
the Board. There is no family relationship between any of the
officers or directors.
Albert V. Furman has been Chairman of the Board of the Company
since July 1998. He has been director/chairman of the investment
committee at Texas Heritage Bancorp since 1993. He has been
President of the Georgetown Golf Company since 1991. He was a
full member of the Chicago Mercantile Exchange from 1973 to 1989.
Michael E. McGinnis has been a director of the Company since
February 1996, having served as its Chairman of the Board from
June 1996 to October 1997, and as its President from March 1996
to August 1996. He has been Chief Executive Officer and a
director of American Eco since 1993 and 1994, respectively, and
has been President since December 1998, having served as
President from 1993 to July 1998. He was President and Chief
Executive Officer of Eco Environmental, Inc. from 1992 until it
was acquired by American Eco in 1993. For 27 year prior thereto,
he served in various operational and administrative capacities
for The Brand Companies, one the largest asbestos abatement
contractors in the United States. He has been a director of
Dominion Bridge Corporation since February 1998.
Andreas O. Tobler has served as a director of the Company
since November 1993. He served as Vice President and Treasurer of
the Company from January 1995 and November 1993, respectively, to
February 1997. Since September 1998, Mr. Tobler has served as
Chief Executive Officer and Director of the Board of Sector
Communications Inc., a US public Company with operations in
Switzerland and Bulgaria. Sector focuses on telecommunication
and related businesses. Since October 1996, Mr. Tobler has
served as a principal and an officer of Online Capital GmbH, a
private financial advisory company headquartered in Switzerland.
He also served as the Managing Director of its affiliate
Cornerstone Financial Corporation, a U.S. private financial
company until September 1998. From 1989 to 1991, Mr. Tobler was
Managing Partner of Royal Trust (Switzerland).
-34-
<PAGE>
Thomas Mulligan has served as the Chief Financial Officer and
General Counsel for the Company since July 1998, and Vice
President and Secretary since September 1998. He was an attorney
for the law firm DeHay & Elliston, L.L.P. from November 1996 to
July 1998. He attended law school at Southern Methodist
University from 1993 to 1996.
The Board of Directors of the Company held three meetings
during the fiscal year ended September 30, 1998, and each
director attended all of the meetings.
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
Compensation
-------------
The following table sets forth all compensation actually paid or
accrued by the Company for the fiscal year ended September 30,
1998 to the Chief Executive Officer and other officers who
received compensation in excess of $100,000.
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary Bonus Compensation(1)
----------------- ---- ------ ----- ---------------
Frank J. Fradella
President, CEO(2) 1998 $208,333 $ 22,569
1997 $107,665
Michael J. Chakos
President(3) 1998 $ 83,076
J. Drennan Lowell
Executive V.P.(4) 1998 $149,683 $120,000 $189,583
Joseph Vaillancourt
Controller(5) 1998 $106,204 $ 37,500
-------------------
1) Represents severance payments
2) Mr. Fradella became President and CEO in May 1997 and
resigned as of May 1998.
3) Mr. Chakos served as President from May 1998 through
September 1998.
4) Mr. Lowell served as Executive Vice President and CFO from
October 1997 to July 1998.
5) Mr. Vaillancourt served as Controller from October 1997 to
July 1998.
The Company has not granted any options under its 1998 Stock
Option Plan, nor granted any long-term awards. There are no
employment agreements with any employees.
-35-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
-------------------------------------------------------------
The following table sets forth information regarding the
beneficial ownership of the Common Stock of the Company as of
December 31, 1998 concerning (i) persons known to the Company to
be the beneficial owners of more than 5% of the outstanding
Common Stock, (ii) by each director and (iii) by all directors
and officers as a group.
Amount and Nature
Name of Status of of Beneficial
Beneficial Owner Beneficial Owner Ownership(1) Percent
-------------------------------------- ----------------- -------
American Eco Beneficial owner 7,175,858 81.9%
Corporation** of more than 5%
of Common Stock
Albert V. Furman Chairman -0- --
and Director
Michael E. McGinnis Director 7,175,858(2) 81.9%
Andreas O. Tobler Director 25,450 *
All Officers & Directors
(four persons)
------------------
*Represents less than 1% of the issued and outstanding shares of
Common Stock.
**The principal executive offices of American Eco are 154
University Avenue, Toronto, Ontario, Canada M5H 3Y9.
1)Unless otherwise noted, all of the shares shown are held by
individuals or entities possessing sole voting and investment
power with respect to such shares. The number of shares
beneficially owned includes shares which each beneficial owner
has the right to acquire within 60 days of December 31, 1998.
2)Includes 7,175,858 shares beneficially owned by American Eco,
of which Mr. McGinnis is President and CEO. Mr. McGinnis
disclaims beneficial ownership of the Company's securities owned
by American Eco.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
As of July 24, 1998, American Eco sold the Notes to USIS
Acquisition, L.L.C. (the "Holder") for $5.0 million in cash and a
secured promissory note for $12.9 million repayable on January
29, 1999. The Holder converted the Notes into 5,295,858 shares of
the Company's Common Stock, and secured its promissory note to
American Eco with a pledge of the 5,295,858 shares. In November
1998, the Holder advised American Eco that the Holder would not
be able to pay its note at maturity, and American Eco took
ownership of the pledged shares in discharge of the Holder's
note. At December 31, 1998, American Eco owned 7,175,858 shares
of the Company's Common Stock representing 81.9% of the
outstanding shares, Item 11, Security Ownership of Certain
Beneficial Owners and Management. Michael E. McGinnis, who is a
director and former officer of USIS, is President and CFO of
American Eco.
As of September 30, 1998, Frank J. Fradella, former President
and a director of the Company, owed the Company $424,655. This
amount had been part of a loan which was originally transferred
from American Eco to the Company when Mr. Fradella assumed his
position as President of the Company in May 1997. The amount
represented the remaining balance of a forgivable loan made to
Mr. Fradella upon his employment with American Eco in September
-36-
<PAGE>
1996. The increase during the year ended September 30, 1998
resulted from additional borrowings by Mr. Fradella. The revised
total balance of $424,655 is being amortized over the next four
years, as Mr. Fradella will serve as a consultant to the Company
in pursuing and reviewing acquisition candidates for the Company.
The amount due bears no interest and is unsecured.
ITEM 13. EXHIBIT AND REPORTS ON FORM 8-K
----------------------------------------
(a) Exhibits
--------
Regulation S-B
Exhibit Number Description of Exhibit
-------------- ----------------------
2.1 Exchange of Stock Agreement and Plan of
Reorganization between EIF Holdings, Inc. ("EIF")
and P.W. Stephens Contractors, Inc. [filed as an
Exhibit to the Current Report of the Company on
Form 8-K for the Date of Event January 31, 1993
and incorporated herein by reference].
2.2 Acquisition Agreement between EIF and Von Guard
Holdings, Inc. and its subsidiaries [filed as an
Exhibit to the Current Report of the Company on
Form 8-K for the Date of Event August 2, 1994 and
incorporated herein by reference].
2.3 Sale of Stock Agreement by and between EIF, Kelar
Controls, Inc. and its shareholders [filed as an
Exhibit to the Annual Report of the Company on
Form 10-KSB for the fiscal year ended December 31,
1994 and incorporated herein by reference].
2.4 Agreement and Plan of Merger, dated March 2, 1998
between USIS and EIF Holdings [filed as Exhibit
10.1 to the Current Report on form 8-K for the
Date of Event June 18, 1998 and incorporated
herein by reference].
3.1 Certificate of Incorporation [filed as Exhibit 3.1
to the Current Report on form 8-K for the Date of
Event June 19, 1998 and Incorporated herein by
reference].
3.2 By-Laws [filed as Exhibit 3.2 to the Current
Report on form 8-K for the Date of Event June 19,
1998 and Incorporated herein by reference].
* 4.1 1998 Stock Option Plan.
10.1 Promissory Note Line of Credit Agreement, dated
March 1, 1996, with American Eco Corporation
("American Eco") [filed as an Exhibit to the
Annual Report of the Company on Form 10-KSB for
the year ended September 30, 1996 and incorporated
herein by reference].
10.2 Agreement, dated February 2, 1996, between EIF and
American Eco [filed as an Exhibit to the Current
Report of the Company on Form 8-K for the Date of
Event February 2, 1996 and incorporated herein by
reference].
10.3 Management Agreement effective October 1, 1996
between the Company and American Eco [incorporated
by reference to Exhibit 10.1 to the Registrant's
Form 10-QSB for the quarter ended December 31,
1996].
10.4 Settlement Agreement and Mutual Release, dated
April 4, 1996, among Kelar, Kelly McMahon, and
Larry Thomas (as plaintiffs) and EIF and the other
defendants [filed as an Exhibit to the Annual
Report of the Company on Form 10-KSB for the year
ended September 30, 1996 and incorporated herein
by reference].
-37-
<PAGE>
10.5 Agreement and General Release, dated as of
November 8, 1996, among Richard Austin, EIF, PW
Stephens and American Eco [filed as an Exhibit to
the Annual Report of the Company on Form 10-KSB
for the year ended September 30, 1996 and
incorporated herein by reference].
10.6 Lease Agreement, dated January 9, 1997, between
Aetna Life Insurance Company and EIF, for premises
in Anaheim, California [filed as an Exhibit to the
Annual Report of the Company on Form 10-kSB for
the year ended September 30, 1996 and incorporated
herein by reference].
10.7 Promissory Note dated December 13, 1996 between
the Company and Truman Harty. [incorporated by
reference to Exhibit 10.2 to the Registrant's Form
10-QSB for the quarter ended December 31, 1996].
10.8 Revolving Line of Credit dated September 1, 1996
between the Company and Turner Holdings, Inc.
[incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-QSB for the quarter ended
December 31, 1996].
10.9 Acquisition Agreement by and between the Company
and Regal Oak Properties, Inc. dated June 30, 1997
for the sale of Kelar Controls, Inc. [incorporated
by reference to Exhibit 10.1 to the Registrant's
Form 10-QSB for the quarter ended June 30, 1997].
10.10 Secured Promissory Note between the Company and
Regal Oak Properties, Inc. dated June 30, 1997.
[incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-QSB for the quarter ended
June 30, 1997].
10.11 Security Agreement Pledge between the Company and
Regal Oak Properties, Inc. dated June 30, 1997.
[incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-QSB for the quarter ended
June 30, 1997].
10.12 Renewal, Extension and Enlargement Promissory Note
between the Company and Truman Harty dated April
4, 1997. [incorporated by reference to Exhibit
10.4 to the Registrant's Form 10-QSB for the
quarter ended June 30, 1997].
10.13 Stock Purchase Agreement, dated September 30,
1997, among EIF and each of the stockholders of JL
Manta, Inc. ("Manta") [incorporated by reference
to Exhibit 10.1 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.14 $6.5 Million Convertible Promissory Note issued by
EIF to Deere Park Capital Management, Inc., as
nominee for EIFH Joint Venture, L.L.C. and Certain
Reg. D Hedge Funds. [incorporated by reference to
Exhibit 10.2 to the Registrant's Form 8-K for the
date of event November 19, 1997].
10.15 $2.5 Million Convertible Promissory Note from EIF
to Deere Park Capital Management, Inc. ("Deere
Park"). [incorporated by reference to Exhibit
10.3 to the Registrant's Form 8-K for the date of
event November 19, 1997].
10.16 Convertible Promissory Note of EIF, issued to Leo
J. Manta. [incorporated by reference to Exhibit
10.4 to the Registrant's Form 8-K for the date of
event November 19, 1997].
10.17 Pledge Agreement by and among EIF, Deere Park
Equities, L.L.C. and Deere Park Capital
Management, Inc., as nominee for EIFH Joint
Venture, L.L.C. and certain Reg. D Hedge Funds,
regarding $6.5 Million Promissory Note from EIF.
[incorporated by reference to Exhibit 10.13 to the
Registrant's Form 8-K for the date of event
November 19, 1997].
-38-
<PAGE>
10.18 Security Agreement executed by the Company in
favor of Harris [incorporated by reference to
Exhibit 10.14 to the Registrant's Form 8-K for the
date of event November 19, 1997].
10.19 Subordination Agreement between Harris and Deere
Park Capital Management, Inc. [incorporated by
reference to Exhibit 10.15 to the Registrant's
Form 8-K for the date of event November 19, 1997].
10.20 Subordination Agreement between Harris and EIF.
[incorporated by reference to Exhibit 10.16 to the
Registrant's Form 8-K for the date of event
November 19, 1997].
10.21 Security Agreement between Deere Park and EIF.
[incorporated by reference to Exhibit 10.17 to the
Registrant's Form 8-K for the date of event
November 19, 1997].
10.22 Registration Rights Agreement between EIF and each
of the Sellers. [incorporated by reference to
Exhibit 10.18 to the Registrant's Form 8-K for the
date of event November 19, 1997].
10.23 Employment Agreement between EIF and Michael J.
Chakos. [incorporated by reference to Exhibit
10.19 to the Registrant's Form 8-K for the date of
event November 19, 1997].
10.24 Form of Registration Rights Agreement.
[incorporated by reference to Exhibit 10.20 to the
Registrant's Form 8-K for the date of event
November 19, 1997].
10.25 Form of Guaranty. [incorporated by reference to
Exhibit 10.21 to the Registrant's Form 8-K for the
date of event November 19, 1997].
10.26 Renewal, Extension and Modification Revolving Line
of Credit Note effective July 1, 1997 between EIF
and American Eco Corporation [incorporation by
reference to Exhibit 10.37 to the Registrant's
Form 10-KSB for the year ended September 30, 1997
and incorporated herein by reference].
10.27 Second Amendment Revolving Line of Credit Note
effective September 30, 1997 between EIF and
American Eco [incorporated by reference to Exhbiti
10.38 to the Registrant's Form 10-KSB for the year
ended September 30, 1997 and incorporated herein
by reference].
10.28 Asset Purchase Agreement, dated November 30, 1998,
among USIS and Kenny Industrial Services, L.L.C.
and Manta, Inc.[incorporated by reference to
Exhibit 2 to the Registrant's Form 8-k for an
event of November 30, 1998].
* 21 Subsidiaries of the Registrant
* 27 Financial Data Schedule
-----------------
* Filed herewith
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K for an event
of July 27, 1998 to report a change in control and conversion of
debt.
-39-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, US
Industrial Services, Inc. caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
US Industrial Services, Inc.
(Registrant)
By:/s/ C. Thomas Mulligan
-----------------------
C. Thomas Mulligan,
Chief Financial Officer and
General Counsel (Principal
financial officer)
Dated: January 21, 1999
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By:/s/ Albert V. Furman Dated: January 21, 1999
-----------------------
Albert V. Furman,
Director
By:/s/ Michael E. McGinnis Dated: January 21, 1999
-----------------------
Michael E. McGinnis,
Director
By:
-----------------------
Andreas O. Tobler,
Director
By:/s/ C. Thomas Mulligan Dated: January 21, 1998
----------------------
C. Thomas Mulligan,
Chief Financial Officer
and General Counsel
(Principal financial officer)
-40-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
4.1 1996 Stock Option Plan
21 Subsidiaries of the Registrant
27 Financial Data Schedule
-41-
EXHIBIT 21 - LIST OF SUBSIDIARIES
Subsidiary Jurisdiction of Incorporation
P.W. Stephens Residential, Inc. . . . . . . . California
P.W. Stephens Contractors, Inc. . . . . . . . . Missouri
P.W. Stephens Services, Inc. . . . . . . . . . Missouri
J.L. Manta, Inc. . . . . . . . . . . . . . . . Illinois
Each of those subsidiaries is wholly-owned. This list does not
include inactive, sold or discontinued subsidiaries.
Exhibit 4.1
U S INDUSTRIAL SERVICES, INC.
1998 STOCK OPTION PLAN
1. Purpose. This 1998 Stock Option Plan (the "Plan")
-------
of U S Industrial Services, Inc., a Delaware corporation (the
"Company"), is intended to provide incentives: (a) to certain
directors, officers, employees and other persons who perform
services for or on behalf of the Company and any subsidiaries of
the Company (collectively, the "Subsidiaries") by providing them
with opportunities to purchase capital stock in the Company
pursuant to options granted hereunder which qualify as "incentive
stock options" under Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code") ("ISO" or "ISOs") or which do
not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); and (b) to individuals who are directors but not also
employees of the Company and the Subsidiaries ("Non-Employee
Directors") by providing them with opportunities to purchase
capital stock in the Company pursuant to Non-Qualified Options.
Both ISOs and Non-Qualified Options are referred to hereinafter
individually as an "Option" and collectively as "Options," and
persons to whom Options are granted are referred to hereinafter
individually as an "Optionee" and collectively as "Optionees."
As used herein, the term "Subsidiary" means "subsidiary
corporation" as that term is defined in Section 424(f) of the
Code.
2. Administration of the Plan. The Plan shall be
--------------------------
administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"), each member of which
shall be a "disinterested person" within the meaning of Rule 16b-
3 or any successor provision ("Rule 16b-3") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The
Committee shall consist of two members. Subject to the terms of
the Plan, the Committee shall have the authority to (i) determine
the employees of the Company and Subsidiaries (from among the
class of employees eligible under Section 4 hereof to receive
ISOs) to whom ISOs may be granted; (ii) determine the number of
shares which may be issued under each Option; (iii) determine the
time or times at which Options may be granted; (iv) determine the
exercise price of shares subject to each Option, which price
shall not be less than the fair market value as specified in
Section 6; (v) determine (subject to Sections 7 and 9) the time
or times when each Option shall become exercisable and the
duration of the exercise period; (vi) determine whether
restrictions are to be imposed on shares subject to Options and
the nature of such restrictions, if any, and (vi) interpret the
Plan and prescribe and rescind rules and regulations relating to
it. If the Committee determines to issue a Non-Qualified Option,
it shall take whatever actions it deems necessary, under Section
422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be
final. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. No
member of the Committee or of the Board of Directors of the
Company shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under
it.
3. Stock. The stock delivered under this Plan shall
-----
be the Company's Common Stock, $.01 par value per share (the
"Common Stock"), either authorized and unissued, treasury stock
or shares purchased on the open market. The aggregate number of
shares which may be issued pursuant to the Plan is 1,000,000
subject to adjustment as provided in Section 13. If any Option
granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part, the unpurchased
shares subject to such Option shall again be available for grants
of Options under the Plan.
4. Eligible Employees and Others. ISOs may be
-----------------------------
granted to any employee of the Company. Those officers and
directors of the Company who are not employees may not be granted
ISOs under the Plan. Non-Qualified Options may be granted to any
employee, officer or director (whether or not also an employee)
of the Company. The Board may take into consideration a
recipient's individual circumstances in determining whether to
grant an ISO or a Non-Qualified Option. Granting of any Option
to any person shall neither entitle that person to, nor
disqualify him from, participation in any other Option grant.
5. Term of Plan; Granting of Options. The term of
---------------------------------
the Plan will commence on the date of approval of the Plan by the
Company's Board of Directors, subject to approval by stockholders
within one year of adoption, and terminate on the day immediately
preceding the tenth anniversary of said adoption, except as to
options outstanding on that date and subject to earlier
termination as provided in Sections 9 and 10 hereof. Options may
be granted under the Plan at any time during the term of the
Plan. The date of grant of an Option under the Plan shall be the
date specified by the Committee at the time it grants the Option;
provided, however, that such date shall not be prior to the date
on which the Committee acts to approve the grant.
6. Minimum Exercise Price; ISO Limitations.
---------------------------------------
6.01 Price for Non-Qualified Options. The
-------------------------------
exercise price per share for each Non-Qualified Option granted
under the Plan shall not be less than the fair market value of
the Common Stock on the date of grant of the Option, and in no
event shall be less than the minimum legal consideration required
therefor under the laws of the State of Delaware or the laws of
any jurisdiction in which the Company or its successors in
interest may be organized.
6.02 Price for ISOs. The exercise price per share
--------------
for each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning
stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or
any Subsidiary (a "10% Employee"), the price per share for such
ISO shall not be less than one hundred ten percent (110%) of the
fair market value per share of Common Stock on the date of grant.
For purposes of determining stock ownership under this Section,
the rules of Section 424(d) of the Code shall apply.
6.03 $100,000 Annual Limitation on ISO Vesting.
-----------------------------------------
To the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Subsidiary,
ISOs become exercisable for the first time by an employee during
any calendar year with respect to stock having a fair market
value (determined at the time the ISOs were granted) in excess of
$100,000, such excess amount of stock shall be deemed to have
been granted as a Non-Qualified Option, and not as an ISO.
6.04 Determination of Fair Market Value. If at
----------------------------------
the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or
quotes discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the mean (on that date)
of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities
exchange; (ii) the last reported sale price (on that date) of the
Common Stock on the NASDAQ National Market or Small-Cap Market
(or other interdealer quotation system), if the Common Stock is
not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on that
date) by the OTC Electronic Bulletin Board or other established
quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market or Small-Cap
Market. However, if the Common Stock is not publicly traded at
the time an Option is granted under the Plan, the "fair market
value" shall be deemed to be the fair value of the Common Stock
as determined by the Committee in good faith after taking into
consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination
---------------
as provided in Sections 9 and 10, each Option shall expire on the
date specified by the Committee, but not more than (i) ten (10)
years from the date of grant in the case of Non-Qualified
Options, (ii) ten (10) years from the date of grant in the case
of ISOs generally, and (iii) five (5) years from the date of
grant in the case of ISOs granted to a 10% Employee, as
determined under Section 6.02. Subject to earlier termination as
provided in Sections 9 and 10, the term of each ISO shall be the
term set forth in the original instrument granting such ISO,
except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to Section 16.
8. Exercise of Option. Subject to the provisions of
------------------
Sections 9 through 12, each Option granted under the Plan shall
be exercisable as follows:
8.01 Vesting. The Option shall either be fully
-------
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify,
provided that an Option granted to a director or executive
officer of the Company may not vest earlier than six (6) months
from the date of grant.
8.02 Full Vesting of Installments. Once an
----------------------------
installment becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
8.03 Partial Exercise. Each Option or installment
----------------
may be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to which
it is then exercisable.
8.04 Acceleration of Vesting. The Committee shall
-----------------------
have the right to accelerate the date of exercise of any
installment of any Option, provided that the Committee shall not,
without the consent of an Optionee, accelerate the exercise date
of any installment of any Option granted to any employee as an
ISO if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described
in Section 6.03.
9. Termination of Employment. If an Optionee ceases
-------------------------
his employment with, or service by, the Company and all
Subsidiaries (other than by reason of death or disability as
defined in Section 10 or by the Company or any Subsidiary for
cause), no further installments of his Options shall become
exercisable, and his Options shall terminate after the passage of
three (3) months from the date of termination of his employment
or service (except that Outside Directors Options shall terminate
one (1) year after cessation of the directorship), but in no
event later than on their specified expiration dates, during
which period he shall have the right to exercise any Options
exercisable by him on the date of termination of employment or
service, subject to exercise for such other periods as determined
by the Committee at the time of grant. Options (including
Outside Directors Options) held by an Optionee whose termination
of employment or service is for cause shall terminate upon such
termination. For purposes of this Section 9 only, employment or
service shall be considered as continuing uninterrupted during
any bona fide leave of absence (such as those attributable to
illness, military obligations or governmental service). A bona
fide leave of absence with the written approval of the Committee
shall not be considered an interruption of employment or service
under this Section 9, provided that such written approval
contractually obligates the Company or any Subsidiary to continue
the employment or service of the Optionee after the approved
period of absence. Options granted under the Plan shall not be
affected by any change of employment or service within or among
the Company and Subsidiaries, so long as the Optionee continues
to be an employee of or consultant to the Company or any
Subsidiary. Nothing in the Plan shall be deemed to give any
Optionee the right to be retained in employment or other service
by the Company or any Subsidiary for any period of time.
10. Death; Disability.
-----------------
10.01 Death. If an Optionee ceases his
-----
employment with or service by the Company and all Subsidiaries by
reason of his death, any Option may be exercised, to the extent
of the number of shares with respect to which he could have
exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the Option by will
or by the laws of descent and distribution at any time within one
(1) year from the date of the Optionee's death or such later date
as fixed by the Committee, but in no event later than on their
specified expiration dates.
10.02 Disability. If an Optionee ceases his
----------
employment with or service by the Company and all Subsidiaries by
reason of his disability, he shall have the right to exercise any
Option held by him on the date of termination of employment, to
the extent of the number of shares with respect to which he could
have exercised it on that date, at any time prior to one (1) year
from the date of the termination of the Optionee's employment or
service or such later date as fixed by the Committee as to Non-
Qualified Options, but in no event later than on their specified
expiration dates. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or successor statute.
11. Assignability. No Option shall be assignable or
-------------
transferable by the Optionee except by (i) will or by the laws of
descent and distribution or (ii) with respect to Non-Qualified
Options, to a spouse or lineal descendant or lineal ascendant of
the Optionee ("Permitted Assignee"), and are exercisable during
the lifetime of the Optionee only by the Optionee or by the
Optionee's guardian or legal representative or Permitted
Assignee.
12. Terms and Conditions of Options. Options shall be
-------------------------------
evidenced instruments (which need not be identical) in such forms
as the Committee may from time to time approve (the "Option
Agreements"). The Option Agreements shall conform to the terms
and conditions set forth in Sections 6 through 11 hereof and may
contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon the exercise
of Options. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver the Option
Agreements. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable
from time to time to carry out the terms of the Option
Agreements.
13. Adjustments. Upon the occurrence of any of the
-----------
following events, an Optionee's rights with respect to Options
granted to him hereunder shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written
agreement between the Optionee and the Company relating to such
Option:
13.01 Stock Dividends and Stock Splits. If
--------------------------------
the shares of Common Stock shall be subdivided or combined into a
smaller or greater number of shares or if the Company shall issue
any shares of Common Stock as a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately decreased or
increased proportionately, and appropriate adjustments shall be
made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
13.02 Consolidations or Mergers. If the
-------------------------
Company is to be consolidated with or acquired by another entity
in a merger, sale of all or substantially all of the Company's
assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the
Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for
the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; (ii) upon
written notice to the Optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all
Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the
extent then exercisable) over the exercise price thereof.
13.03 Recapitalization or Reorganization. In
----------------------------------
the event of a recapitalization or reorganization of the Company
(other than a transaction described in Section 13.02 above)
pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of
Common Stock, an Optionee upon exercising an Option shall be
entitled to receive for the purchase price paid upon such
exercise the securities he would have received if he had
exercised his Option prior to such recapitalization or
reorganization.
13.04 Change in Control. In the event of a
-----------------
change in control of the Company, all Options under the Plan
shall vest 100% and shall be immediately exercisable. For
purposes of this Plan, a "change in control" shall mean any of
the following events: (a) the Company receives a report on
Schedule 13D filed with the Securities and Exchange Commission
pursuant to Section 13(d) of the Exchange Act disclosing that any
person, group, corporation or other entity is the beneficial
owner, directly or indirectly, of twenty percent (20%) or more of
the outstanding Common Stock of the Company; (b) any person (as
such term is defined in Section 13(d) of the Exchange Act),
group, corporation or other entity other than the Company or any
Subsidiary, purchases shares pursuant to a tender offer or
exchange offer to acquire any Common Stock of the Company for
cash, securities or any other consideration, provided that after
consummation of the offer, the person, group, corporation or
other entity in question is the beneficial owner (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of twenty percent (20%) or more of the outstanding
Common Stock of the Company (calculated as provided in paragraph
(d) of Rule 13d-3 under the Exchange Act in the case of rights to
acquire common stock); (c) the stockholders of the Company
approve (i) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or
pursuant to which shares of Common Stock would be converted into
cash, securities or other property, or (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets
of the Company; or (d) there shall have been a change in a
majority of the members of the Board of Directors of the Company
within a twenty-four (24) month period unless the election or
nomination for election by the Company's stockholders of each new
director was approved by the vote of two-thirds of the directors
then still in office who were in office at the beginning of the
twenty-four (24) month period.
13.05 Modification of ISOs. Notwithstanding
--------------------
the foregoing, any adjustments made pursuant to Section 13.01,
13.02, 13.03 or 13.04 with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section
424 of the Code) or would cause any adverse tax consequences for
the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such
adjustments.
13.06 Dissolution or Liquidation. In the
--------------------------
event of the proposed dissolution or liquidation of the Company,
each Option will terminate immediately prior to the consummation
of such proposed action or at such other time and subject to such
other conditions as shall be determined by the Committee.
13.07 Issuances of Securities. Except as
-----------------------
expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of
the Company.
13.08 Fractional Shares. No fractional shares
-----------------
shall be issued under the Plan and the Optionee shall receive
from the Company cash in lieu of such fractional shares.
13.09 Adjustments. Upon the happening of any
-----------
of the events described in Section 13.01, 13.02, 13.03 or 13.04
above, the class and aggregate number of shares set forth in
Section 3 hereof that are subject to Options which previously
have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in
such subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this Section
13 and, subject to Section 2 hereof, its determination shall be
conclusive.
14. Means of Exercising Options. An Option (or any
---------------------------
installment or portion of an installment thereof) shall be
exercised by giving written notice to the Company at its
principal office address. The notice shall identify the Option
being exercised and specify the number of shares as to which such
Option is being exercised, accompanied by full payment of the
purchase price therefor either: (a) in United States dollars in
cash or by check; (b) at the discretion of the Committee, through
delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price
of the Option; (c) at the discretion of the Committee, by
delivery of the Optionee's personal recourse note bearing
interest payable not less than annually at no less than 100% of
the lowest applicable Federal rate, as defined in Section 1274(d)
of the Code; (d) at the discretion of the Committee and
consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of the
Option and an authorization to the broker or selling agent to pay
that amount to the Company, which sale shall be at the Optionee's
direction at the time of exercise; or (e) at the discretion of
the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of
the exercise price of an ISO by means of the methods set forth in
clauses (b), (c), (d) or (e) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant
of the ISO in question. An Optionee shall not have the rights of
a stockholder with respect to the shares covered by his Option
until the date of issuance of a stock certificate to him for such
shares. Except as expressly provided above in Section 13 with
respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for
which the record date is before the date such stock certificate
is issued.
15. Termination or Amendment of Plan. The Committee
--------------------------------
may terminate or amend the Plan in any respect at any time;
however, without the approval of the Company's stockholders
obtained within twelve (12) months before or after the Committee
adopts a resolution authorizing any such termination or
amendment, the Committee may not: (a) materially increase the
number of shares which may be granted to Non-Employee Directors
under the Plan (except by adjustment pursuant to Section 13
hereof); (b) materially modify the requirements as to eligibility
to participate in the Plan; (c) materially increase the benefits
under the Plan; (d) extend the period during which Options under
the Plan may be granted; (e) modify the Plan or the terms of the
Options in such a way that members of the Committee lose their
status as "disinterested persons" under Rule 16b-3 of the
Exchange Act; or (f) modify the provisions of Section 6.02
regarding the exercise price at which shares may be offered
pursuant to ISOs (except by adjustment pursuant to Section 13).
Except as otherwise provided in this Section 15, in no event may
action of the Committee or stockholders alter or impair the
rights of an Optionee, without his consent, under any Option
previously granted to him.
16. Notice to Company of Disqualifying Disposition.
----------------------------------------------
By accepting an ISO granted under the Plan, each Optionee agrees
to notify the Company in writing immediately after making a
Disqualifying Disposition, as described in Sections 421, 422 and
424 of the Code and regulations thereunder, of any stock acquired
under the Plan (or stock received in a transaction described in
Section 424(b) or 424(c)(1)(B) of the Code, relating to
distributions of stock with respect to stock acquired under the
Plan and certain tax-free exchanges of stock acquired under the
Plan for other stock or securities). A Disqualifying Disposition
(with certain exceptions) is generally any disposition within two
(2) years of the date the ISO was granted or within one (1) year
of the date the ISO was exercised, whichever period ends later.
With respect to stock held jointly with right of survivorship, a
termination of such joint tenancy may constitute a Disqualifying
Disposition. This Section 16 shall be made binding upon the
Optionee and upon any transferee of stock described in this
Section to whom Section 424(c)(4)(B) of the Code applies.
17. Withholding of Additional Income Taxes. Upon the
--------------------------------------
exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Section 16), the Company
may withhold taxes in respect of amounts that constitute
compensation includible in gross income, whenever the Company
determines that such withholding is required. The Committee in
its discretion may condition the exercise of an Option on the
Optionee's making satisfactory arrangement for such withholding.
In addition to tax withholding, government regulations may impose
reporting or other obligations on the Company with respect to the
Plan. For example, the Company may be required to send tax
information statements to employees and former employees that
exercise ISOs.
18. Governing Law, Construction. The validity and
---------------------------
construction of the Plan and the agreements evidencing Options
shall be governed by the laws of the State of Delaware, or the
laws of any jurisdiction in which the Company or its successors
in interest may be organized, without giving effect to conflicts
of law. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM US INDUSTRIAL
SERVICES, INC. FORM 10-KSB FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,349,491
<SECURITIES> 410,400
<RECEIVABLES> 14,722,153
<ALLOWANCES> 275,000
<INVENTORY> 0
<CURRENT-ASSETS> 24,914,986
<PP&E> 9,048,759
<DEPRECIATION> 2,457,082
<TOTAL-ASSETS> 35,512,589
<CURRENT-LIABILITIES> 19,841,529
<BONDS> 0
0
0
<COMMON> 87,640
<OTHER-SE> 11,984,843
<TOTAL-LIABILITY-AND-EQUITY> 35,512,589
<SALES> 58,324,519
<TOTAL-REVENUES> 58,324,519
<CGS> 44,291,727
<TOTAL-COSTS> 44,291,727
<OTHER-EXPENSES> 12,942,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,130,138
<INCOME-PRETAX> (85,948)
<INCOME-TAX> (3,842,116)
<INCOME-CONTINUING> 3,756,168
<DISCONTINUED> 644,764
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,400,932
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.07
</TABLE>
