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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-19350
ViroGroup, Inc.
Exact name of Registrant as specified in its charter
FLORIDA 59-1671036
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5217 Linbar Drive, Suite 309
Nashville, TN 37211
(Address of principal executive offices)
Registrant's telephone number: (615) 832-0081
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of November 17, 1997 the aggregate market value of the voting stock
of the Registrant held by non-affiliates of the Registrant was $225,060.
As of November 17, 1997, the number of outstanding shares of Common
Stock, par value $.01 per share, of the Registrant was 795,214.
Information required by Part III is incorporated by reference to
portions of the Registrant's 1998 Proxy Statement for the Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
within 120 days after the close of the 1997 fiscal year.
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PART I
ITEM 1. BUSINESS
ViroGroup, Inc. (the "Company"), provides a wide range of environmental
services to assess and remediate groundwater and soil contamination, to design
and monitor solid and hazardous waste landfills, to protect air quality, to
assure regulatory compliance and to develop groundwater resources. The Company's
strategy is to provide a comprehensive array of services through integrated
utilization of a skilled technical staff consisting of hydrogeologists, environ-
mental engineers, chemical engineers, chemists, biologists, computer modelers
and others to find optimum solutions to a client's environmental challenges. The
Company's current market focus is centered on North America with most of its
business in the Southeastern United States.
BACKGROUND AND ORGANIZATION
The Company's client base is diversified. Its clients range in size
from large, publicly held corporations to municipalities and local enterprises,
including industrial firms, sales and service companies, service stations, and
utilities. The majority of the Company's revenues are derived from
private-sector clients.
The Company's first office was established in Cape Coral, Florida in
1976 and primarily focused on the development, management and protection of
groundwater resources such as drinking water. Subsequently, the Company
broadened its scope of services to include other environmental services.
Primarily in response to anticipated demand for underground petroleum storage
tank site assessments and remediations to be paid by the State of Florida
through its Inland Protection Trust Fund, the Company in fiscal years 1989
through 1992 opened six additional offices in Florida. In March, 1995, the State
suddenly curtailed the program significantly reducing the available work.
Primarily as a result of this curtailment, the Company closed three of its
offices in 1995 and 1996. The Company also closed two small, nonprofitable
offices in Florida and decreased the size of its South Carolina office by
one-third in 1997. Present Company locations in Florida are Cape Coral and
Pensacola.
During fiscal 1992, the Company, in exchange for common stock and cash,
acquired a company which mainly provides planning, design and construction
Quality Control/Quality Assurance, facility permitting and closure, as well as
wastewater services to the solid and hazardous waste management industries.
Through this acquisition, the Company acquired locations in California, New York
and South Carolina. The New York and California offices were closed in fiscal
1994 and 1996, respectively.
During fiscal 1993 the Company acquired an environmental and
remediation services company in Nashville, Tennessee, from a Laidlaw Inc.
(Laidlaw) affiliate in exchange for 600,000 shares of the Company's Series A
Preferred Stock. On the same date the Company sold to
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another Laidlaw affiliate an additional 200,000 shares of Series A Preferred
Stock for $2,000,000 in cash. In June 1995 these entities surrendered these
holdings in exchange for 397,607 of the Company's $0.01 par value common shares,
which represents 50% of the Company's total shares after giving effect to the
one-for-eight reverse stock split on January 23, 1997. In addition, the
agreement included the following provisions:
- - Should Laidlaw sell or transfer the Common Stock received under this
agreement at any time between two and six years after issuance, holders
of other outstanding Common Shares will be granted the right to
participate in any such transaction on the same basis, terms and
conditions.
- - ViroGroup's Board of Directors was reduced from nine members to seven,
three of whom are to be nominated by the holders of the Common Stock
issued under the agreement.
- - Commencing with the issuance of the Common Stock and for a three-year
period thereafter, Laidlaw agreed to extend to ViroGroup a $3.0 million
line of credit subordinated to and bearing the same interest rate as
the Company's existing bank credit line. Laidlaw, in lieu of its
commitment to provide the debt financing to the Company, caused a
letter of credit to be issued to collateralize the Company's $3.0
million line of credit to a bank lender. Substantially all of the
Company's assets secure this obligation to Laidlaw in the event of a
draw upon the line of credit.
Furthermore, Laidlaw waived unpaid preferred stock dividends totaling
$180,445. As a result of this preferred stock conversion and waiver, the Company
is no longer obligated to pay an annual preferred stock dividend of $560,000.
In 1996, Laidlaw affiliates were the Company's largest clients,
accounting for approximately 20 per cent of the Company's revenues. In 1997,
Laidlaw affiliates accounted for only 8 per cent of revenues.
The Company is organized into two broad service divisions. These
service divisions are Environmental Consulting and Engineering Services, and
Hydrogeological and Water Resources Services. Through this organization, each
office utilizes the Company's full resources regardless of geographical
location, thus contributing to optimizing solutions that address our clients'
diverse environmental challenges. This merger of the Company's talent is
designed to maximize staff utilization while reducing overhead costs. All
Company locations use the name of ViroGroup as their identity.
The Company's common stock is listed on the Nasdaq SmallCap System.
The Company's principal executive offices are located at 5217 Linbar
Drive, Suite 309, Nashville, Tennessee 37211, and its phone number is (615)
832-0081. Unless otherwise
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indicated, references herein to specific years correspond to the Company's
fiscal year ending August 31.
Environmental Consulting and Engineering Services
The Company provides professional services in the following areas:
environmental management information services, bio-remediation, remediation
design, construction management, contamination assessment, risk assessment,
underground storage tank management, transactional environmental audits,
operational environmental audits, air quality management, and wastewater
management and regulatory assistance, as well as hazardous and solid/liquid
waste management consulting services and other services. Environmental,
Consulting and Engineering services comprised approximately 89% of the Company's
1997 consolidated gross revenues.
Operational Environmental Audits. Operational environmental audits are
performed at industrial, commercial and governmental facilities to provide an
analysis of a client's environmental compliance status, to suggest ways to
minimize hazardous waste and reduce costs and to recommend corrective action, if
appropriate. The Company performs these services to help clients comply with
environmental and work place laws and regulations, including air emissions,
wastewater and groundwater discharges, hazardous and solid wastes,
polychlorinated biphenyls, asbestos, pesticides, oil spill control, underground
storage tanks, drinking water, contingency planning, OSHA, worker right-to-know,
and SARA Title III (community right-to-know). This complex body of environmental
laws and regulations has substantially reduced a company's ability to comply
without assistance by outside specialists.
The Company offers specialized follow-on services to address needs
identified during the audit. Chemical and process engineers work with regulatory
specialists to develop waste minimization programs. Permit deficiencies are
evaluated and corrective action programs including training are implemented.
Wastewater and Process Engineering Services. These services include
wastewater treatment projects that use physical, chemical and biological
processes. Other wastewater management services include, monitoring and
inspection of wastewater management systems and compliance with applicable
provisions of federal, state and local laws and regulations. NPDES and RCRA
(TSD) permit related services are provided as well as wastewater facility, and
collection system planning and design.
Remediation Design, Construction and Management. ViroGroup provides
comprehensive remediation services to correct groundwater and soil
contamination. Services provided include remediation plan development, design
and installation of treatment and recovery systems, hydrogeological studies,
bio-remediation, vapor extraction, RCRA closures, Treatment, Storage and
Disposal (TSD) facilities closure, soil/water removal and treatment programs, as
well as long-term monitoring and maintenance programs, including monitoring well
design and construction, and above-ground tank installation.
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The Company provides complete underground storage tank (UST) assessment
and remediation services. Among the services provided are site assessments,
hydrogeological studies, remediation plan development, tank removal, replacement
tank system design and installation, soil and water removal, treatment system
design and installation, as well as systems monitoring and maintenance.
Bio-remediation Services. During fiscal 1996 the Company added a new
bio-remediation technology to its line of services known as the immobilized
microbe bio-reactor system. This technology is a biological treatment process
which is a simple, efficient and effective method for treating entrenched
organic contamination in both soil and groundwater. It has distinct performance
benefits over many traditional bio-remediation technologies and can offer lower
cost, efficient remediation for large area contamination.
Solid and Hazardous Waste Management Services. These services include
planning, design and construction services, facility permitting, permit
modifications and construction quality control inspections. Solid waste services
are almost exclusively offered to the private sector while wastewater services
are mainly offered to county and city governments.
Environmental Management Services (EMS). During fiscal 1996 the Company
added database design services to help clients efficiently manage their
compliance programs. Environmental compliance can be extremely time-consuming
and complex. The Company's EMS staff works with clients to evaluate their needs
for compliance and designs a database which easily and timely generates
automatic tracking, specification calculations and compliance reports. This
modular system allows clients to select modules for air permitting, discharge
monitoring reporting, permit tracking, and hazardous waste tracking, as well as
specific client customized modules. Such flexibility allows the Company to
easily tailor these applications to each client's needs and budget.
Florida Underground Petroleum Storage Tank (UST) Reimbursement Program.
During fiscal 1994, the Company aggressively expanded its participation in the
State of Florida financed programs to provide environmental services to
evaluate, assess and remediate contaminated underground petroleum storage tank
sites. Through its Inland Protection Trust Fund, the State of Florida reimburses
certain costs to clean up eligible contaminated sites. Primarily due to an
estimated unfunded $450 million backlog and annual tax revenue allocation of
only $100 million, in March 1995 new legislation directed the Florida Department
of Environmental Protection to cease processing, with certain limited
exceptions, applications for reimbursement of costs to clean up UST sites
eligible for state funds.
In May, 1996 a new law (the "1996 Act") was passed which implemented
significant changes to the reimbursement program and addressed the estimated
$450 million backlog of unpaid claims. The 1996 Act provided for the elimination
of the reimbursement program effective August 1, 1996 and required all
reimbursement applications to be submitted by December 31, 1996. Also, the 1996
Act created a non-profit public benefit corporation, which became
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operational in the Fall of 1997, to finance the unpaid backlog. This non-profit
corporation is charged with financing the estimated backlog of 9,500 claims
totaling over $556 million. Payment of claims will be on a first-come,
first-served methodology based on application filing date and an assumed annual
allocation rate of $100 million. Claims paid will be subject to a 3.5% annual
discount in consideration of the anticipated accelerated payment as compared to
the previously expected period of 4 to 5 years. Based upon information received
from the State of Florida, it is currently anticipated that payment of the
initial portion of the claims (approximately $213 million) should begin in the
first quarter of calendar 1998; however, no assurance of that timetable can be
given.
The Company in prior fiscal years recorded valuation allowances on the
amounts due to reflect the State mandated discount and potential denied costs.
At August 31, 1996 allowances totaled $931,665 with $889,937 applied as a
valuation allowance to the amounts due, resulting in a net amount of $2,812,737
shown as the Amounts Due from State Agency, net, in the accompanying
consolidated balance sheet.
At August 31, 1997 allowances totaled $913,918 with $166,623 applied as
a valuation allowance to the amounts due, resulting in a net of $512,927 shown
as the Amounts Due From State Agency, net, in the accompanying consolidated
balance sheet. The balance sheet also includes $747,295 which is included in
Accrued liabilities to reflect the Company's liability to pay discounts and
denied costs on receivables sold to third-parties.
All of the approximately $3.1 million in reimbursement applications
which were unfiled at August 31, 1996, have been sold to third party financing
entities at August 31, 1997. The Company used third-party funding to obtain the
cash from the financing entities to avoid the long payout period by the State.
In addition to selling the previously mentioned claims, the Company filed
approximately $703,000 directly with the State.
Specifically, the Company entered into several arrangements to sell
substantially all the claims filed with the State for reimbursement. These
arrangements required prepayment of a 3 - 4% prepaid fee to cover administrative
and other costs for up to the first nine months at the time the financing entity
paid the Company.
If the State has not paid the funding entities within the first nine
months, the Company will pay indemnification costs at the rate of .6875% per
month beginning October 1997. In January 1998, the indemnification rate begins
to increase each month and could reach 12.375% per month in August 1998. The
effect of the rate increase is to generate an overall yield, since inception, of
8.25%. These indemnification costs are being charged against the reserve account
at the present time. In the event the State does not meet the projected payment
schedule beginning in the first quarter of calendar year 1998, the reserves will
not be adequate to absorb all of the indemnification costs.
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Risk Assessment. The Company performs risk assessments for industrial
sites to evaluate the potential danger to the health and safety of individuals,
as well as the impact on the environment at and near the site. The risk
assessment report also predicts the ultimate fate and disposition of any
contaminants. The risk assessment provides an assessment of potential harm,
predicts who might be affected and proposes and monitors corrective action. At
times, the Company performs risk assessments to determine the consequences of
deferring remediation while continuing to monitor the problem.
Contamination Assessment. The Company provides comprehensive
definitions of and solutions for contamination problems. The principal sources
of contamination that the Company addresses are: leaking underground storage
tanks, spills of hazardous waste and improper disposition of solid and hazardous
waste. The Company assigns trained personnel with thorough knowledge of
environmental, health and safety regulations to all contamination assessment
projects.
Transactional Environmental Audits. The Company performs transactional
environmental audits in connection with real property transactions, foreclosures
and loans secured by real property. Such audits assess environmental risks and
estimate remediation needs and costs. In 1980, Congress passed the Comprehensive
Environmental Response, Compensation and Liability Act, which generally provides
that owners, operators and purchasers of properties contaminated with toxic or
hazardous substances may be liable for the cost of clean-up and also may be
exposed to third-party liability actions. The demand for environmental audits
was increased by the 1986 Superfund Amendment and Reauthorization Act, which
created an innocent purchaser defense known as the "due diligence" test.
The Company has developed an internal system of classification with
scopes of service for various levels of environmental audits ranging from data
review and site visits to cases of increased complexity requiring site testing
of groundwater, surface water, soils and air for asbestos, radon and other
harmful substances. If an audit identifies contamination, an "assessment" of the
site follows to determine the extent and significance of the contamination.
Air Quality Management. The Company's services include: emissions
reduction studies, atmospheric dispersion modeling, air-quality control system
design and assistance in obtaining permits. Title V permitting and associated
process engineering services are provided to a variety of industrial sectors.
The Company's professionals provide enforcement representation, negotiation of
financial settlements and consent orders and expert witness services to address
air quality issues during administrative and judicial proceedings.
Other Services. ViroGroup's professionals provide training services for
client management and employees on a variety of environmental issues and
regulations and serve as expert witnesses, negotiate financial settlements and
consent orders, as well as serve as representation during enforcement
administrative and judicial proceedings. The Company does not represent any
federal, state or local authorities in enforcement proceedings against private
entities.
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HYDROGEOLOGICAL AND WATER RESOURCES SERVICES
The Company provides professional services for water supply
development, injection well design and water resource planning. These services
include computer modeling to assess surface water influences as well as
groundwater changes. Computer modeling services result in site-condition
analysis ranging from contaminant plume migration to regional well field
impacts. Groundwater resource management services are provided primarily in the
southeastern United States and the Caribbean. These services comprise
approximately 11% of the Company's consolidated gross revenues.
Water Supply. The Company assists in the development of groundwater
supplies for municipal, agricultural and industrial uses. The Company performs
subsurface investigations and upgrades existing systems with cost-effective
solutions to water quality or well construction problems. The Company estimates
the potential yield of an aquifer and recommends the most efficient well design
to maximize yield while minimizing impact, assesses water quantity and quality
and supervises the wellfield construction.
Identification of an acceptable source of water can be time consuming
and expensive in coastal and island hydrogeologic environments. Withdrawals from
an aquifer can induce the movement of poorer quality water into the production
wells, causing failure of the system. In response to these problems, the
Company's professionals conduct research in the hydrodynamics of the fresh/salt
water interface and model withdrawal scenarios to maximize both water production
and protection of potable water resources. The Company specializes in saltwater
intrusion, including identifying, quantifying and controlling the problem.
The Company believes that reverse osmosis desalination will become
increasingly important in developing water supply systems for municipal and
industrial clients. The Company designs and develops wellfields to supply such
systems.
The Company has special expertise in predicting the long-term effects
on water quality of various levels of production from such wellfields through
the use of three dimensional computer modeled simulations. The Company
originated as a groundwater supply engineering firm and has more than fifteen
years' experience with groundwater wellfields. A number of the Company's
professionals have degrees in hydrogeology and have published articles on the
subject in scientific and technical publications.
Water Resource Planning. The Company assists municipalities, water
management districts and industrial clients in developing water resource
management plans to alleviate water shortages caused by drought conditions,
declining water levels, groundwater contamination or saltwater intrusion. The
Company's professionals provide specialized regional exploration for new
groundwater resources and develop alternative water sources, including reuse of
residential and industrial wastewater, storage and recovery of excess freshwater
runoff and treatment of salt water by reverse osmosis.
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In connection with its groundwater resource management services, the
Company provides both surface and groundwater monitoring, including location and
installation of wells, sampling, chain of custody requirements, analytical work
and analysis of results. The Company's water monitoring services assist its
clients in maintaining regulatory compliance and improving their process flow
while recycling water, conserving resources and upgrading treatment plants.
Injection Well Technology. Injecting fluids into underground formations
containing nonpotable groundwater is called deep-well injection. Treated
wastewater or reverse osmosis concentrate water are commonly injected into
deeper aquifers containing poorer quality saline water. Also, treated freshwater
is injected into aquifers during periods of abundant supply for recovery during
peak demand periods. Injection-well technology is used where the receiving
aquifer is capable of accepting the injected fluids without endangering any
underground source of drinking water. The Company's work includes design of the
wells, preparation for construction permits, preparation of technical data,
construction, inspection, installation and injection testing.
CLIENTS
Almost all of the clients that retain the Company to provide
environmental services are private-sector clients ranging from large, publicly
traded corporations to local enterprises, including industrial, sales and
service companies and service stations. Almost all of the clients that retain
the Company to provide groundwater resource management services, which
principally relate to public water supply development, are public and private
utilities and governmental water supply systems. The Company does not provide
services to governmental units in connection with regulatory enforcement actions
against private companies.
During fiscal 1997, the Company's 10 largest clients, in the aggregate,
accounted for approximately 50% of gross revenues. The Company's largest client,
International Comfort Products, is an international business which has no
ownership association with ViroGroup. This client accounts for approximately 14%
of total revenues and the loss of this client could have a material adverse
effect on the Company. No other client accounted for more than 10% of total
revenues.
MARKETING
The Company's sales and marketing efforts focus on developing new
clients including national accounts and generating new business from existing
clients. The Company believes its corporate sales and marketing program, which
includes three fulltime, professional sales people, teamed with localized
marketing by the professional consulting staff is the most effective method of
generating revenues. Marketing activities include presentations by senior staff
personnel to civic and professional associations, presentations at seminars and
publication of articles in professional journals.
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PRICING
Approximately 75% of the Company's business consists of charging
clients for hours worked on their project plus expenses incurred for their job.
The remainder of the revenues are generated by fixed fee contracting and unit
price contracts. In all material instances, the fixed fee contracts are for
services with which the Company has substantial experience and can reasonably
predict costs requirements.
The business of the Company is somewhat seasonal. Materials and
third-party services used in performing the contracted work are readily
available.
BACKLOG
As of August 31, 1997, the Company's backlog was approximately
$4,000,000, compared to approximately $2,000,000 as of August 31, 1996.
Management does not believe backlog is a meaningful indication of future
revenues.
COMPETITION
The market for the Company's services is highly competitive. The
Company competes with many other firms, ranging from small, local firms to
large, national firms having substantially greater financial, and marketing
resources than the Company. The Company competes primarily on the basis of
quality of service and expertise. Other competitive factors include geographic
location, price and availability of personnel.
INSURANCE AND LIABILITY
It has been both a Company policy, and a requirement of many clients,
for the Company to carry insurance for the services it performs. The Company
maintains professional liability and contractor's pollution liability insurance
in the amount of $5,000,000. The Company's general liability insurance is in the
amount of $2,000,000 plus $5,000,000 in excess liability coverage. Aggressive
enforcement of RCRA and Superfund Act regulations and legal decisions adverse to
insurance carriers involving pollution damage may make it difficult for the
Company and others in its industry to obtain adequate liability insurance in the
future. In addition, the professional liability insurance policy is available
only on a claims made basis, so the insured is only covered if it maintains
coverage. While the Company believes it operates safely and prudently, there are
various exclusions under its insurance policies and there is no assurance that
all possible liabilities that may be incurred by the Company are covered by its
insurance or that the dollar amount of such liabilities will not exceed the
Company's policy limits.
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EMPLOYEES
At August 31, 1997, the Company had 64 fulltime employees of whom 31
hold technical degrees and 12 of whom held advanced degrees. The
technical/professional staff includes hydrogeologists, environmental engineers,
chemical engineers, civil engineers, geologists and others.
The Company's ability to retain and expand its staff of qualified
professionals will be an important factor in determining the Company's future
success. None of the Company's employees is represented by a union. The Company
considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company leases the following facilities:
<TABLE>
<CAPTION>
APPROXIMATE EXPIRATION
LOCATION USED FOR SQUARE FOOTAGE DATE
-------- -------- -------------- ----
<S> <C> <C> <C>
Nashville, Tennessee Corporate 13,000 1998
Headquarters and
Operations Office
Pensacola, Florida Operations Office 3,200 1999
Lexington, South Operations Office 3,400 1999
Carolina
Cape Coral, Florida Operations Office 13,000 2002
</TABLE>
The Company believes that its existing facilities are adequate to meet
current requirements and that suitable additional or substitute space will be
available as needed to accommodate any expansion of operations and for
additional offices.
ITEM 3. LEGAL PROCEEDINGS
In August 1993, a civil action was filed in Hamblen County Chancery
Court of the Third District of Tennessee against the Company and Galen of
Tennessee, Inc., seeking compensatory and punitive damages of approximately
$1,140,000 in regards to an asbestos abatement project. In December 1993, the
Court dismissed the lawsuit.
The parties are now compelled to submit to arbitration, and Management
believes the Company's exposure will be substantially less than $140,000. The
plaintiff has not made any demand for arbitration. The Company believes that
this action is without merit and intends to vigorously defend itself.
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The Company has been notified by the Environmental Protection Agency,
through a General Notice Letter that the Company is a potentially liable party
at the Florida Petroleum Reprocessors Site in Davie, Florida. However, at this
time, no estimate of the potential liability can be calculated due to the
limited amount of information available. This type of liability is an insurable
risk and the Company's insurance carrier has been notified; however, no formal
claim has been filed at this time. The insurance policy has a deductible of
$250,000. Company management is of the opinion that Company liability, if any,
will be minimal.
The Company is not subject to any other material legal proceedings.
From time to time, the Company is involved in other routine litigations, claims
and assessments incidental to its business. The Company does not believe that
the ultimate resolution of any of the above described matters would have a
material adverse impact on the accompanying consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITIES AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is listed on the Nasdaq SmallCap System. The
number of holders of record of common stock of the Company as of November 18 was
40. The Company believes that there are over 800 beneficial owners of its common
stock.
The Company has not paid any cash dividends and does not intend to pay
any cash dividends in the foreseeable future.
The high and low closing prices of the Company's common stock for each
quarter of the two most recent fiscal years, 1997 and 1996, respectively, are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR FIRST SECOND THIRD FOURTH
1997
- ------------------- ------------ ------------- ----------- --------------
<S> <C> <C> <C> <C>
High 4 1/4 4 1/2 2 1 3/4
Low 2 1/4 1 3/4 1
FISCAL YEAR FIRST SECOND THIRD FOURTH
1996
- ------------------- ------------ ------------- ----------- --------------
High 9 1/2 7 8 6
Low 4 4 4 2 1/2
</TABLE>
Stock price data reflects inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions. The closing
price of the Company's common stock, as reported on the Nasdaq SmallCap System,
on November 17, 1997, was 5/8.
On January 23, 1997, the Company implemented a one-for-eight reverse
stock split of the Company's common stock. Prices for prior periods have been
adjusted to reflect that reverse split.
On August 25, 1997, the Nasdaq announced new requirements for continued
listing on the Nasdaq SmallCap Market. As of the date of this annual report, the
Company is not in compliance with such requirements which may result in the
delisting of the common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended August 31,
----------------------------------------------------------------------------
INCOME STATEMENT DATA: 1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross revenues ............................ $ 26,956,682 $ 26,272,211 $ 21,478,007 $ 13,986,538 $ 6,884,742
Cost of gross revenues .................... 18,118,165 17,090,139 15,927,619 9,420,106 5,175,925
------------ ------------ ------------ ------------ -----------
Gross profit .............................. 8,838,517 9,182,072 5,550,388 4,566,432 1,708,817
Operating expenses (1)(2) ................. 22,013,274 8,732,094 8,287,922 5,764,563 4,488,295
------------ ------------ ------------ ------------ -----------
Income (loss) from operations before
income taxes and cumulative effect of a
change in accounting principle ............ (13,174,757) 449,978 (2,737,534) (1,198,131) (2,779,478)
Other income (expense), net (3) ........... (94,281) (65,857) 6,888 (177,514) (113,238)
------------ ------------ ------------ ------------ -----------
Income (loss) from operations before
income taxes and cumulative effect of a
change in accounting principle ............ (13,269,038) 384,121 (2,730,646) (1,375,645) (2,892,716)
Income taxes (benefit) .................... (468,000) (176,259) (143,909) -- --
------------ ------------ ------------ ------------ -----------
Income (loss) before cumulative effect of a
change in accounting principle ............ (12,801,038) 560,380 (2,586,737) (1,375,645) (2,892,716)
Cumulative effect on prior years of
changing the method of accounting for
income taxes (4) .......................... -- 52,546 -- -- --
------------ ------------ ------------ ------------ -----------
Net income (loss) ......................... $(12,801,038) $ 612,926 $ (2,586,737) $ (1,375,645) $(2,892,716)
============ ============ ============ ============ ===========
Net income (loss) per common share:
Operations ............................... $ (32.20) $ -- $ (3.25) $ (1.73) $ (3.64)
Effect of accounting change ............... -- .13 -- -- --
------------ ------------ ------------ ------------ -----------
Net income (loss) per share (5) ........... $ (32.20) $ .13 $ (3.25) $ (1.73) $ (3.64)
============ ============ ============ ============ ===========
Weighted average number of shares
outstanding ............................... 397,561 397,607 795,214 795,214 795,214
============ ============ ============ ============ ===========
BALANCE SHEET DATA:
Current assets ............................ $ 10,663,724 $ 10,518,359 $ 6,340,770 $ 4,524,526 $ 2,696,042
Total assets .............................. 12,678,319 12,136,255 9,410,953 7,916,270 3,563,969
Short-term debt ........................... 140,869 79,325 37,125 2,500,876 1,160,944
Long-term debt ............................ 118,881 38,234 107,486 0 0
Shareholders' equity ...................... 7,276,966 7,329,892 4,433,659 3,058,014 165,298
</TABLE>
- ----------------------
(1) Includes amortization of goodwill in the amount of $11,851,575 for the year
ended August 31, 1993.
(2) Includes restructuring charges of $470,000 for the year ended August 31,
1993, $47,305 for the year ended August 31, 1994, $326,190 for the year
ended August 31, 1995, $326,428 for the year ended August 31, 1996, and
$237,755 for the year ended August 31, 1997.
(3) Year ended August 31, 1995 includes a $150,168 gain on a favorable contract
settlement.
(4) The effect of the adoption of SFAS 109, Accounting for Income Taxes as of
September 1, 1993.
(5) Calculated after the deduction of preferred stock dividends of $272,329 for
the year ended August 31, 1993 and $560,000 for the year ended
August 31, 1994. For all years presented, primary earnings (loss) per share
and fully diluted earnings (loss) per share were the same except for fiscal
year 1995. (See Note 1 (h) to Notes to the Consolidated Statements).
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, as a percentage of gross revenues, certain
selected financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended August 31,
----------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Gross revenues 100.0% 100.0% 100.0%
Cost of gross revenues 74.2 67.3 75.2
----- ----- -----
Gross profit 25.8 32.7 24.8
Operating expenses 38.6 41.2 65.2
----- ----- -----
Income (loss) from operations (12.8) (8.5) (40.4)
Other income (expense), net (.0) (1.3) (1.6)
Income taxes (benefit) (.7) .0 .0
----- ----- -----
Net income (loss) (12.1) (9.8) (42.0)
===== ===== =====
</TABLE>
FISCAL 1997 VS. FISCAL 1996
Gross revenues for 1997 decreased by $7,101,796 from the 1996 level of
$13,986,538. The Environmental Consulting and Engineering Services Division
decreased by $5,820,295 and the Hydrogeological and Water Resources Services
Division decreased by $1,281,501.
<TABLE>
<CAPTION>
Division Gross Revenues
-------- --------------
% of
Increase
1996 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Enviro Florida $ 4,175,484 $1,813,485 (57)
Enviro South Carolina/California 4,566,138 1,980,597 (57)
Enviro Tennessee/New Orleans 3,185,631 2,312,876 (27)
----------- ----------
TOTAL ENVIRO DIVISION 11,927,253 6,106,958 (49)
Hydro Division 2,059,285 777,784 (62)
----------- ----------
TOTAL VIROGROUP, INC. $13,986,538 $6,884,742 (51)
=========== ==========
</TABLE>
15
<PAGE> 16
Each of the Company's offices produces revenue in Enviro and each office
showed a decrease in its volume of revenue.
The Hydro division operates out of the Cape Coral office only.
The majority of the revenue generated by the Enviro operation in Florida
has been for the UST program. That program, which was paid for by the State of
Florida until May 1996, had a substantial reduction in the amount of work
available which was the primary reason for the decrease in Enviro revenues in
Florida. South Carolina Enviro had an even greater decrease in revenues
primarily due to a major cutback in the work available from Laidlaw affiliates.
In 1996, the Laidlaw work amounted to approximately 20% of total Company
revenues or $2.8 million. In 1997, Laidlaw affiliate work was just over $500,000
or a decrease of almost $2.3 million. Enviro operations of Tennessee incurred a
decrease of approximately $800,000 in 1997. A large portion of that decrease
($300,000) results from the closing of the New Orleans office in late 1996 and
which had been included as part of the Tennessee operations. Another significant
factor was the decrease in the revenues generated by the Remedial division. That
decrease ($500,000) resulted primarily from having a one time, non budgeted job
that generated $300,000 in revenue during 1996 and a general lower amount of
work available for that division.
Hydrogeological and Water Resources Services revenues decreased by $1.3
million in 1997. The primary reason for this decrease was the completion of a
large injection well project in 1996. The Company was not able to replace the
volume of revenue produced by that job.
Gross margin decreased from 32.7% in 1996 to 24.8% in 1997. Competition, a
decrease in the amount of work available and lower employee utilization in 1997
all contributed to the decrease.
Operating expenses (selling, general and administrative expenses) decreased
by $1.2 million in 1997. Office closures, staff downsizing, better personnel
utilization, renegotiated contracts and overall improved cost controls all
contributed to the decrease in these expenses. The decreases were partially
offset by a restructing charge of $238,000 for rent expense and severance pay
resulting from closing two small, non-profitable offices and decreasing the size
of the South Carolina operation in late 1997.
Interest expense decreased by $89,000 in 1997 due to the lower balance of
outstanding debt during the year. The interest decrease was offset by a monthly
amortization of the prepaid costs ($120,000) incurred in connection with selling
the UST receivables in 1997.
Other income, net, increased by $73,000. The largest single portion of that
increase was the gain on the sale of fixed assets in the amount of $37,000.
16
<PAGE> 17
FISCAL 1996 VS. FISCAL 1995
Gross revenues for fiscal 1996 decreased by $7,491,469 to $13,986,538 when
compared to fiscal 1995. The Environmental Consulting and Engineering Services
Division (Enviro) had a decrease of $8,197,688, while Hydrogeological and Water
Resources Services Division (Hydro) increased by $706,219. The Enviro division
has personnel located in each of the Company's offices while Hydro division
personnel are located in the Cape Coral, Florida office.
<TABLE>
<CAPTION>
Division Gross Revenues
-------- --------------
% of
Increase
1995 1996 (Decrease)
---- ---- --------
<S> <C> <C> <C>
Enviro Florida $ 9,118,674 $ 4,175,484 (54)
Enviro South Carolina/California 6,142,300 4,566,138 (26)
Enviro Tennessee/New Orleans 4,863,967 3,185,631 (35)
----------- -----------
TOTAL ENVIRO DIVISION 20,124,941 11,927,253 (41)
Hydro Division 1,353,066 2,059,285 52
----------- -----------
TOTAL VIROGROUP, INC. $21,478,007 $13,986,538 (35)
=========== ===========
</TABLE>
The Enviro division gross revenues generated from Florida operations, which
mainly provides underground petroleum storage tank (UST) site assessments and
remediation services, environmental audits and risk assessments had a decrease
in gross revenues of $4.9 million or 54%. A majority of this decrease is related
to the curtailment and other aspects of the Florida UST cost reimbursement
program which began in March, 1995 and was terminated in May, 1996. This program
accounted for approximately $2.6 million of 1995 revenues and only $335,000 of
1996 revenues. Because of this gross revenue decrease and other factors, the
Company closed its Miami office and reduced personnel in other Florida offices.
To expand the Company's revenue potential, the Company began offering two
services during 1996. One of these services is bio-remediation and the second is
environmental management systems (EMS). Bio-remediation gives the Company a
competitive advantage by offering cost efficient, value-added services to
remediate large petroleum contaminated sites and EMS is a service needed by all
entities that have reporting requirements.
The Enviro division revenues generated by the South Carolina/California
operations decreased by approximately $1.6 million in 1996. This operation
primarily provides waste management, engineering and remediation services and
the decrease was mainly caused by a decrease in revenues from Laidlaw facilities
located in California and South Carolina. As these Laidlaw projects were
completed in California, new projects were not there to replace them. Revenues
in
17
<PAGE> 18
the California office decreased from $1.4 million in 1995 to $363,000 in 1996.
As a result, the California office was closed in late 1996.
The work done for Laidlaw in South Carolina, continued to be reduced and
1996 revenues decreased by $600,000 as a result. The South Carolina staff was
reduced by 25% because of this revenue drop.
The Enviro division gross revenues generated by Tennessee operations
decreased by approximately $1.7 million in 1996. This operation primarily
provides remediation, engineering, risks assessments and environmental audits.
This decrease is partially comprised of a $600,000 decrease in New Orleans
office operations which contributed approximately $900,000 and $290,000 in gross
revenues for fiscal 1995 and 1996, respectively. Due to this decrease, the New
Orleans office was closed in late 1996. The balance of the decrease of $700,000
is mainly due to a decrease in remedial work as well as price competition and
general economic conditions.
Hydrogeological and Water Resources Services (Hydro) division gross
revenues increased by $706,219 when compared to fiscal 1995. This increase is
primarily due to a large injection well and well field assessment projects in
South Florida which are expected to continue through the second quarter of
fiscal year 1997.
Overall gross margin increased from 25.8% in fiscal 1995 to 32.7% in fiscal
1996. This increase is a combination of improved margins in fiscal 1996 due to
increased utilization of Company personnel and the one-time charges to fiscal
1995 gross revenues to record the discount on the receivables due from the State
of Florida relating to the curtailment of the UST program. Operating expenses
(selling, general and administrative expenses) decreased in fiscal 1996 by
approximately $2.5 million. This decrease is the result of the office closure
and personnel downsizing combined with increased staff utilization and improved
cost controls. In addition, primarily due to the cessation of the Florida UST
program, combined with a decline in landfill related projects and general
economic conditions, the Company charged to expense in fiscal 1996 approximately
$326,000 in restructuring expenses for employee severance pay, office closing
and rent expenses, as well as other related expenses.
Interest expense increased by approximately $28,000 to $180,884 in fiscal
1996 due to an increase in average amounts borrowed. Other, net income decreased
to $3,370 in fiscal 1996 from $150,168 in fiscal 1995 primarily due to the
inclusion in fiscal 1995 of a favorable settlement of claim on a disputed
contract.
The benefit for income taxes decreased to zero in 1996 because the Company
has used all of its tax loss carry-back benefit. Although the Company has
substantial tax benefit to carry forward to future years, it cannot presently
recognize this benefit in the current year due to the uncertainty of future
taxable income.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities through the ordinary course of business.
The Company has incurred losses for the past three years beginning with fiscal
year ended August 31, 1995 and has been dependent upon Laidlaw, Inc. to
guarantee the Company's bank line of credit. In accordance with the preferred
stock conversion agreement, effective June 26, 1998, any amounts borrowed from
Laidlaw will convert to a three year term loan payable to Laidlaw with quarterly
amortization payments due. If operating losses continue, the Company may not be
able to generate sufficient cash flow to service the term debt or to fund
operations. See Footnote 2 in Notes to Consolidated Financial Statements for
additional details.
The Company's operations used cash in the amount of $1,817,103. The
decrease in cash results primarily from the net loss of $2,892,716 for the year
and the transfer of $596,408 of cash into an escrow account related to the sale
of the UST receivables.
Investing activities had a net use of cash of $54,956 from equipment
purchases.
Financing activities generated cash in the amount of $1,681,058 mainly as
the result of the sales of UST receivables to a third party ($3,020,989)
partially offset by a net decrease in notes payable of $1,330,484.
Working capital decreased by approximately $370,000 from 1996 due primarily
from the overall decrease in revenues and therefore an overall decrease in
receivables.
Accounts receivables turnover for 1997 was 3.45 times per year (105 days)
compared to 3.4 times per year (107 days) for 1996. During the last half of
1997, more effort was made to collect past due accounts than in prior years. In
late 1997, collections became a function of the corporate office instead of
relying on each project manager to collect from his/her clients.
Net current liabilities decreased mainly due to the payments made to decrease
notes payable with cash generated from the sale of the UST receivables.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is listed on page F-1 and is incorporated
herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
20
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the Company as
of November 1, 1997 are listed below, followed by a brief account of their
business experience during the past five years. Officers are elected annually by
the Board of Directors and serve at the discretion of the Board. There are no
family relationships among these officers nor any arrangements or understandings
between any officer and any other person pursuant to which an officer was
elected. None of these officers has been involved in any court or administrative
proceeding within the past five years adversely reflecting on his or her ability
or integrity.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles S. Higgins, Jr. 49 President and Chief Executive Officer
Lloyd E. Horvath 47 Executive Vice President
DeWayne Baskette 57 Chief Financial Officer
A. Todd Vehring 38 Vice President Sales and Marketing
</TABLE>
Charles H. Higgins, Jr., P.E., was appointed Chairman, President and CEO on
January 23, 1997. He was Executive Vice President and Chief Operating Officer of
the Company from June 1995 until he was appointed to his current position. From
March 1993 until June 1995 he was the Vice President in charge of the Environics
division. Prior to that, he was President of Environics, Inc., a wholly owned
affiliate of Laidlaw, Inc., providing environmental consulting services.
Lloyd E. Horvath, P.E., is a water resources engineer and has been employed
by the Company since 1977. He has been Vice President of the Company since 1986,
Executive Vice President since 1993 and served as a Director from 1977 to
February, 1995.
21
<PAGE> 22
DeWayne Baskette, CPA, has been Chief Financial Officer of the Company
since March 1997. For the two years prior to that date, he was Finance
Controller for Thomas Nelson, Inc., a publishing company located in Nashville,
Tennessee. During the two years preceding Thomas Nelson, he was a self-employed
financial consultant.
A. Todd Vehring, P.G., has been Vice President of Sales and Marketing of
the company since January 1997. He began with the Company in November of 1995 as
the Director of Marketing. Prior to that, February 1994 to September 1995, he
served as General Manager and Business Development Manager for Environmental
Science and Engineering, Inc., and from March 1993 to February 1994, he was
Sales Manager for IT Corp.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information required by this
Item included in the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders.
22
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
(1) Financial Statements
The financial statements listed in the accompanying
Index to Consolidated Financial Statements and Schedule
on page F-1 are filed as part of this Report.
(2) Financial Statement Schedules
The financial statement schedules listed in the
accompanying Index to Consolidated Financial Statements
and Schedule on page F-1 are filed as part of this
Report.
(B) EXHIBITS:
Exhibit Number
--------------
10.39 Loan Agreement, Line-of-Credit Note and Irrevocable Letter
of Credit dated January 20, 1997 (1)
23.1 Consent of Arthur Andersen LLP (2)
27 Financial Data Schedule (SEC Use Only) (2)
(C) REPORTS ON FORM 8-K:
None
------------
(1) Filed as an exhibit to the Company's 10-Q for the
quarter ended February 28, 1997, as filed with the
Securities and Exchange Commission on April 12, 1997,
and incorporated herein by reference.
(2) Filed herewith.
23
<PAGE> 24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS: Page
----
<S> <C> <C>
Report of Independent Certified Public Accountants................................................ F-2
Consolidated Balance Sheets....................................................................... F-3
Consolidated Statements of Operations............................................................. F-4
Consolidated Statements of Shareholders' Equity................................................... F-5
Consolidated Statements of Cash Flows............................................................. F-6
Notes to Consolidated Financial Statements........................................................ F-8
Schedule:
Report of Independent Certified Public Accountants................................................ F-27
Schedule II - Valuation and Qualifying Accounts................................................... F-28
</TABLE>
F-1
<PAGE> 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of ViroGroup, Inc.:
We have audited the accompanying consolidated balance sheets of ViroGroup, Inc.
(a Florida corporation) and subsidiaries as of August 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ViroGroup, Inc. and
subsidiaries as of August 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
ARTHUR ANDERSEN LLP
Miami, Florida,
October 22, 1997.
F-2
<PAGE> 26
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 191,001 $ --
Restricted cash................................................................... -- 596,408
Accounts receivable, net of allowance for doubtful
accounts of $502,551 in 1996 and $310,258 in 1997................................ 3,384,426 1,727,152
Unbilled accounts receivable...................................................... 717,946 254,235
Prepaid income taxes.............................................................. 26,840 4,376
Prepaid expenses and other........................................................ 204,313 113,871
----------- -----------
Total current assets.......................................................... 4,524,526 2,696,042
AMOUNTS DUE FROM STATE AGENCY, net...................................................... 2,812,737 512,927
PROPERTY AND EQUIPMENT, net............................................................. 543,746 340,869
OTHER ASSETS............................................................................ 35,261 14,131
----------- -----------
............................ $ 7,916,270 $ 3,563,969
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 1,160,354 $ 374,703
Accrued liabilities............................................................... 1,197,026 1,863,024
Current maturities of capitalized lease obligations............................... 9,447 --
Notes payable..................................................................... 2,491,429 1,160,944
----------- -----------
Total current liabilities..................................................... 4,858,256 3,398,671
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares
authorized, 795,214 issued and
outstanding at August 31, 1996 and 1997, respectively............................ 7,952 7,952
Additional paid-in capital........................................................ 18,333,533 18,333,533
Accumulated deficit............................................................... (15,283,471) (18,176,187)
----------- -----------
Total shareholders' equity.................................................... 3,058,014 165,298
----------- -----------
$ 7,916,270 $ 3,563,969
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 27
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
GROSS REVENUES....................................................... $21,478,007 $13,986,538 $ 6,884,742
COST OF GROSS REVENUES............................................... 15,927,619 9,420,106 5,175,925
---------- ---------- ----------
Gross Profit................................................... 5,550,388 4,566,432 1,708,817
OPERATING EXPENSES
Selling, general and administrative
expenses, including rentals to related
party of $186,000 in 1995, 1996
and 1997, respectively...................................... 7,961,732 5,438,135 4,250,540
Restructuring charge........................................... 326,190 326,428 237,755
---------- ---------- ----------
(Loss) from operations...................................... (2,737,534) (1,198,131) (2,779,478)
OTHER INCOME (EXPENSE):
Interest expense............................................... (152,588) (180,884) (92,040)
Interest income................................................ 9,308 -- 22,912
Other, net..................................................... 150,168 3,370 (44,110)
---------- -------- ------------
(Loss) before income taxes .................................... (2,730,646) (1,375,645) (2,892,716)
BENEFIT FOR INCOME TAXES............................................. 143,909 -- --
---------- ---------- -----------
Net (loss)..................................................... $(2,586,737) $(1,375,645) $(2,892,716)
========== ========== ===========
Net earnings (loss) per common share -
Primary..................................................... $ 4.09 $ (1.73) $ (3.64)
========== ========== ===========
Net (loss) per common share -
Fully diluted............................................... $ (3.25) $ (1.73) $ (3.64)
=========== ============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - Primary.......................................... 470,591 795,214 795,214
========== ========== ==========
Fully diluted ................................... 795,214 795,214 795,214
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 28
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Number of Number of Paid-In (Accumulated
Shares Amount Shares Amount Capital Deficit)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, August 31, 1994.......................... 800,000 $ 8,000 397,607 $ 3,976 178,560 $(10,860,644)
Conversion of preferred stock into common stock... (800,000) (8,000) 397,607 3,976 154,973 --
Net loss for the year............................. -- -- -- -- -- (2,586,737)
Dividends on preferred stock...................... -- -- -- -- -- (460,445)
------- ------- ------- ------- ----------- ------------
BALANCE, August 31, 1995.......................... -- 795,214 7,952 18,333,533 (13,907,826)
Net loss for the year............................. -- -- -- -- -- (1,375,645)
------- ------- ------- ----------- ------------
BALANCE, August 31, 1996.......................... -- -- 795,214 7,952 18,333,533 (15,283,471)
Net loss for the year............................. -- -- -- -- -- (2,892,716)
BALANCE, August 31, 1997.......................... -- 795,214 $ 7,952 $18,333,533 $(18,176,187)
======= ======= ======= ======= =========== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 29
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ............................................... $(2,586,737) $(1,375,645) $(2,892,716)
Adjustments to reconcile net (loss)
to net cash provided by (used in) operating
activities-
Depreciation and amortization........................... 617,822 387,687 294,717
Provision for bad debts................................. 539,746 48,008 72,526
Restructuring charge.................................... 326,190 326,428 237,755
(Gain) loss on disposition of property
and equipment.......................................... 34,950 9,378 (36,884)
Discount on long-term receivables....................... 726,308 16,745 --
Changes in assets and liabilities
Decrease (increase) in-
Restricted cash......................................... -- -- (596,408)
Accounts receivable and amounts due from
state agency........................................... 793,304 187,561 863,562
Unbilled accounts receivable............................ (228,225) 731,518 463,711
Prepaid expenses and other assets....................... 318,107 192,126 134,036
Increase (decrease) in-
Accounts payable........................................ (273,024) (290,631) (785,645)
Accrued liabilities..................................... 82,568 (1,421,395) 428,243
Deferred income taxes................................... (17,856) -- --
---------- ---------- ----------
Total adjustments....................................... 2,919,890 187,425 1,075,613
---------- ---------- ----------
Net cash provided by (used in)
operating activities................................... 333,153 (1,188,220) (1,817,103)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (121,433) (41,415) (91,840)
Proceeds from sale of property and equipment.................. 22,850 49,283 36,884
---------- ---------- ----------
Net cash provided by (used in)
investing activities................................... (98,583) 7,868 (54,956)
---------- ---------- ----------
</TABLE>
F-6
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sell of receivables to third party
funders ............................................... -- -- 3,020,989
Proceeds from current notes payable........................... 14,847,778 9,448,098 5,814,599
Repayment of notes payable.................................... (14,821,775) (8,046,374) (7,145,083)
Repayment of long-term debt................................... (15,243) (109,228) --
Repayment of capitalized lease obligations.................... (57,142) (25,936) (9,447)
Cash paid to issue common stock............................... (29,497) -- --
Proceeds from long-term notes payable......................... 99,437 -- --
Payment of preferred stock dividends.......................... (280,000) -- --
---------- ---------- ----------
Net cash provided by (used in)
financing activities.................................... (256,442) 1,266,560 1,681,058
---------- ---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,872) 86,208 191,001
CASH AND CASH EQUIVALENTS,
Beginning of year............................................. 126,665 104,793 191,001
--------- ---------- -----------
CASH AND CASH EQUIVALENTS,
End of year ............................................... $ 104,793 $ 191,001 $ 0
========= ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for-
Income taxes................................................ $ 12,586 $ 15,840 $ 8
========= ========== ===========
Interest ............................................... $ 88,667 $ 164,345 $ 92,040
========= ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 31
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of Consolidation-
The accompanying consolidated financial statements include the
accounts of ViroGroup, Inc. (the Company) and its wholly owned subsidiaries. All
intercompany balances and transactions are eliminated in consolidation.
(b) Business-
Primarily within the southeastern region of the United States, the
Company provides a wide range of environmental services to assess and remediate
groundwater and soil contamination, to design and monitor solid waste landfills,
to protect air quality, to assure regulatory compliance and to develop
groundwater resources.
(c) Property and Equipment-
Property and equipment is stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided on a
straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Office furniture and equipment 5 to 7 years
Technical equipment 5 years
Vehicles 3 to 5 years
Leasehold improvements the lessor of 5 years or the remaining
life of the lease
(d) Income Taxes-
</TABLE>
The Company and its wholly owned subsidiaries file consolidated
federal and state income tax returns. With the beginning of fiscal year 1994,
September 1, 1993, the Company adopted the new standard for accounting for
income taxes, Statement of Financial Accounting Standards No. 109 (SFAS No.
109). Prior to this date, deferred taxes were computed in
F-8
<PAGE> 32
accordance with APB Opinion No. 11, "Accounting for Income Taxes," which
computed deferred amounts based upon timing differences in recognition of income
and expense for financial reporting and for income tax purposes. Effective with
the adoption of SFAS No. 109, the Company applies an asset and liability
approach to compute deferred tax assets and liabilities with respect to the
expected future tax consequence of events recognized in the consolidated
financial statements and tax returns.
(e) Cash Equivalents-
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
(f) Restricted Cash -
Restricted cash represents funds placed in an interest bearing
escrow account to provide for potential denied costs and discounts related to
long term receivables sold to third parties.
(g) Revenues and Expenses-
Revenues and expenses are recognized as services are provided and
the related costs are incurred. Unbilled revenues are recognized as earned on
the percentage of completion method. Extent of progress toward completion is
measured based on actual labor and other costs incurred. Billings are made on a
periodic basis as arranged. Customers generally arrange with the Company to
provide professional services under either fixed fee or "time and materials"
contracts. Occasionally, the amount of unbilled revenues, when combined with
previously billed revenues, may exceed the original fixed fee or "not to exceed"
limit specified in the contract. The Company evaluates such contracts on a
case-by-case basis and estimates unbilled revenues to the extent that the
Company deems ultimate billing and collection probable. Any differences between
these estimates and the amounts ultimately billed and collected are recognized
as an adjustment to revenues in the period in which these differences become
known.
(h) Restructuring Charge-
Primarily due to the May 1996 law relating to the Florida UST
Program and a continued decline in forecasted landfill design work, as well as
general market conditions, the Company in fiscal 1996 implemented the third
phase of its restructuring program in fiscal 1996. This action resulted in a
one-time restructuring charge to Operating Expenses in fiscal 1996 of $326,428.
The restructuring costs remaining to be paid at August 31, 1996 were $174,072
and are included in accrued liabilities in the August 31, 1996 consolidated
balance sheet. The Company believes the balance of the accrued restructuring
charge of $43,251 which is included in accrued liabilities in
F-9
<PAGE> 33
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
the accompanying consolidated balance sheet at August 31, 1997 is adequate to
absorb these remaining estimated restructuring charges.
On February 18, 1997, the Company announced plans to move its
Corporate office to Nashville, Tennessee. The relocation was completed in the
fourth quarter of fiscal 1997.
In addition, the Company closed two non-profitable satellite offices
in Tampa, Florida and Jacksonville, Florida and reduced the size of its
Lexington, South Carolina office by approximately one-third. A restructuring
charge of $237,755 is included in the August 31, 1997 Consolidated Statement of
Operations. These restructuring charges consist primarily of employee severance
and rent expense and the $237,755 is included in Accrued liabilities on the
August 31, 1997 Consolidated Balance Sheet. The charges are estimated to be paid
as follows: $230,000 in 1998 and $7,755 in 1999.
(I) Earnings (loss) Per Share-
Earnings (loss) per share is calculated by dividing net income
(loss) attributed to common shareholders (net income less applicable preferred
stock dividends) by the weighted average number of common shares and common
share equivalents outstanding during the period. Preferred stock dividend
requirements were $460,445 for fiscal year 1995 and $0 for fiscal years 1996 and
1997. Common share equivalents are calculated using the "treasury stock method"
and include the number of shares issuable on exercise of outstanding options and
warrants (only if the exercise prices are below the average quoted market prices
of the Company's common stock) less the number of shares that could have been
purchased with the proceeds from the exercise of the options and warrants, based
on the average quoted market price of the Company's common stock during the
periods. Common stock equivalents are not considered for periods in which there
is a loss, as their impact would be anti-dilutive. Primary and fully diluted
earnings (loss) per share are the same for fiscal years 1996 and 1997, while due
to the preferred stock conversion and the resulting issuance of additional
shares of common stock, primary earnings and fully diluted loss per share (using
the "if converted method") are different in fiscal year 1995 and were calculated
as follows:
PRIMARY EARNINGS PER SHARE:
Net loss for the year ended
August 31, 1995 $(2,586,737)
Preferred stock dividend
F-10
<PAGE> 34
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
requirements to June 26, 1995 (460,445)
Add gain on conversion of
preferred stock 4,970,096
Net income attributable to
common shareholders $ 1,922,914
===========
Divided by weighted average
shares outstanding 470,591
===========
Primary Earnings Per Share $ 4.09
===========
FULLY DILUTED LOSS PER SHARE:
Net loss for the year ended
August 31, 1995 $(2,586,737)
===========
Divided by weighted average
shares outstanding 795,214
===========
Fully Diluted Loss Per Share $ (3.25)
===========
(j) Fair Value of Financial Instruments-
The carrying amount of accounts receivable, unbilled accounts
receivable, amounts due from state agency and notes payable are recorded at cost
or adjusted cost which approximates fair value as of August 31, 1997.
(k) Use 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 those estimates.
F-11
<PAGE> 35
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
(2) GOING CONCERN
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities through the ordinary course
of business. The Company has incurred losses for the past three years beginning
with fiscal year ended August 31, 1995 and has been dependent upon Laidlaw, Inc.
to guarantee the Company's bank line of credit. In accordance with the preferred
stock conversion agreement, effective June 26, 1998, any amounts borrowed from
Laidlaw will convert to a three year term loan payable to Laidlaw with quarterly
amortization payments due. If operating losses continue, the Company may not be
able to generate sufficient cash flow to service the term debt or to fund
operations.
The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amounts
and classification of liabilities that might result if the Company is unable to
continue as a going concern.
Management is aware of the possibility of not being able to continue
as a going concern and has implemented the following actions in its fiscal 1998
business plan in an effort to maintain its continuity as a going concern:
(a) Implementation of aggressive cost containment procedures.
(b) Increase in profitability by placing increased emphasis on
products and services which are in high demand and which carry
a higher profit margin than traditional services.
(c) Closing of small, non-profitable offices and disposing of
assets which are not needed.
(d) Restructuring all locations to more properly meet the
immediate needs of each location.
(e) Centralizing controls for operations and for administrative
functions, such as accounting, credit management and contract
administration.
If this business plan is not successful, the Company may not be able to
continue as a going concern and the Company's recent history has shown an
inability to meet its business plan projections.
F-12
<PAGE> 36
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
(3) PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at August 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C>
Office furniture and equipment $ 1,246,158 $ 903,745
Technical equipment 722,452 622,226
Vehicles 395,946 293,489
Leasehold improvements 184,701 184,701
----------- -----------
2,549,257 2,004,161
Less Accumulated depreciation and
amortization (2,005,511) (1,663,292)
----------- -----------
$ 543,746 $ 340,869
=========== ============
Property and equipment under capitalized lease obligations included in
property and equipment consisted of the following at August 31, 1996 and
1997:
1996 1997
----------- ------------
Capitalized cost $ 51,784 $ 51,784
Less Accumulated depreciation and
amortization (39,718) (51,784)
----------- ------------
$ 12,066 $ 0
=========== =============
(4) INCOME TAXES:
With the beginning of fiscal year 1994, September 1, 1993, the Company
adopted the new standard for accounting for income taxes, SFAS No. 109.
</TABLE>
F-13
<PAGE> 37
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
The components of the net deferred tax asset (liability) as of August
31, 1996 and 1997 are as follows:
Deferred Tax Asset (Liability)
<TABLE>
<CAPTION>
Current: 1996 1997
- ------- --------- -------
<S> <C> <C>
Allowance for bad debts $ 181,252 $ 92,304
Long-term:
Excess of tax over book depreciation (121,283) (111,084)
Accrued restructuring charge 63,271 113,909
Discount on accounts receivable 246,945 254,080
State net operating loss carry-forwards 268,524 435,896
Federal net operating loss carry-forwards 746,374 1,679,149
Less valuation allowance (1,385,083) (2,464,254)
----------- -----------
$ $
=========== ===========
</TABLE>
The Company has provided a valuation allowance against 100% of the
deferred tax asset that results from federal and state net operating loss
carry-forwards due to the lack of availability of federal and state taxable
income within the carry-back period, if any, available under the federal and
state tax laws and the inability to determine the likelihood that future federal
and state taxable income will be sufficient to utilize the deferred tax asset.
State net operating loss carry-forwards of approximately $7,662,000 expire
between 1998 and 2009. Federal net operating loss carry-forwards of
approximately $4,938,000 expire in 2001.
A reconciliation of the statutory federal income tax rate and the
effective tax rates as a percentage of pre-tax (loss) are as follows for the
years ended August 31, 1995, 1996, and 1997:
F-14
<PAGE> 38
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate (34.0)% (34.0)% (34.0)%
Establishment (reversal) of valuation
allowance 14.3 30.7 33.1
Limitation on realization of loss
carry-forwards 13.5 -- --
Nondeductible expenses .9 3.3 .9
------ ------ ------
Effective rate (5.3)% 0.0% 0.0%
====== ====== ======
</TABLE>
The components of the benefit for income taxes consisted of the
following for the years ended August 31, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(126,053) $ -- $ --
State -- -- --
--------- ------ -------
(126,053) -- --
Deferred (17,856) -- --
--------- ------ -------
$(143,909) $ -- $ --
========= ====== =======
</TABLE>
(5) NOTES PAYABLE:
Notes payable at August 31, 1996 and 1997 consisted of advances against
a $3.0 million line of credit. Under this line of credit, the Company may borrow
up to $3.0 million at an interest rate of prime (8.5% at August 31, 1997) less
.25%. Laidlaw, Inc. (Laidlaw), in lieu of its commitment to provide up to $3.0
million in debt financing to the Company pursuant to the terms of the preferred
stock conversion agreement of June 26, 1995, caused a letter of credit to be
issued to collateralize the $3.0 million line of credit. Substantially all of
the Company's assets secure this obligation to Laidlaw in the event of a draw
upon the letter of credit. The line of credit expires January 20, 1998 and the
letter of credit expires February 20, 1998. At the letter's expiration, Laidlaw
has stated it will comply with the terms of the preferred stock conversion
agreement whereby an affiliate will make available to the Company for a
three-year period from June 26, 1995 up to $3.0 million in financing with
advances thereunder carrying an interest rate
F-15
<PAGE> 39
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
equal to that available to the Company from alternative sources with the
principal and interest to be paid in equal quarterly installments over a
three-year period commencing with the line of credit expiration.
(6) CAPITALIZED LEASE OBLIGATIONS
Capitalized lease obligations at August 31, 1996, consisted of various
lease agreements maturing in fiscal 1997, repayable in aggregate monthly lease
payments of $1,158, discounted at interest rates ranging between 6% and 11% per
annum. As of August 31, 1997, those obligations had been paid off.
(7) SHAREHOLDERS' EQUITY:
(a) Common and Preferred Stock-
In March 1993, the Company amended its Articles of Incorporation to
create a Series A Preferred Stock. The Series A Preferred Stock had a stated
liquidation value of $10.00 per share and required redemption on March 5, 2003,
in either cash or common stock, at the Company's option. The shares bore
cumulative per share dividends of $.70 per year, payable quarterly. The owners
of the Preferred Stock had the right to elect two directors to the Company's
Board of Directors, and the right to elect a majority of the directors in the
event that payment of the Preferred Stock dividends was in default for two
quarters. In addition, the prior consent of the owners of the Preferred Stock
was required, among other things, in order for the Company to repurchase any
shares of common stock or to pay any dividends on its common stock in excess of
20% of the Company's net income for the preceding four fiscal year quarters.
On March 5, 1993, the Company sold 200,000 shares of Series A Preferred
Stock to Bryson Industrial Services, Inc.(Bryson), a wholly owned subsidiary of
Laidlaw Environmental Services, Inc., a wholly owned subsidiary of Laidlaw, Inc.
for $2,000,000. The Company agreed with Bryson to use the cash proceeds for
future acquisitions.
On March 5, 1993, the Company acquired Environics, a Tennessee
corporation, by merger of Environics into a wholly owned subsidiary of the
Company. Upon effectiveness of the merger, OSCO, the sole shareholder of
Environics, received 600,000 shares of the Company's Series A Preferred Stock,
which were valued by the Company and OSCO at $10.00 per share. OSCO is also a
wholly owned subsidiary of Laidlaw Environmental Services, Inc., a wholly owned
subsidiary of Laidlaw, Inc.
F-16
<PAGE> 40
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
On June 26, 1995, all holders of the 800,000 shares of Series A
Preferred Stock agreed to amend the conversion rate and surrender their holdings
for conversion into 50% of the Company's common equity. This resulted in the
issuance to a Laidlaw affiliate of 397,607 shares of the Company's $.01 par
value common stock. Also, the agreement, among other things, canceled the
previous preferred shareholder rights provisions and provides should Laidlaw
sell or transfer the common stock received under the agreement at any time
between two and six years after issuance, shareholders of other outstanding
common shares will be granted the right to participate in any such transaction
on the same basis, terms and conditions. Further, Laidlaw waived accrued but
unpaid dividends at June 26, 1995, of $180,445.
Due to the amended conversion rate, for earnings per share calculation
purposes, the Company realized in fiscal 1995 an equity gain on the conversion
totaling $4,970,096. This gain was calculated as the difference between the
carrying value of the preferred stock ($8,000,000) plus accrued dividends and
the quoted market value of the common stock issued upon conversion, less
issuance cost.
On January 23, 1997, the Company implemented a one-for-eight reverse
stock split of the Company's common stock. The effect of the reverse split upon
holders of the Company's common stock is that the total number of shares of the
Company's common stock held by each shareholder was automatically converted into
that number of whole shares of common stock equal to the number of shares of
common stock owned immediately prior to the reverse split divided by eight,
adjusted for any fractional shares.
The reverse split was effectuated to enable the Company to remain in
compliance with the listing criteria of the Nasdaq SmallCap Market. In addition,
on August 25, 1997, Nasdaq announced new requirements for continued listing on
the Nasdaq Small Cap Market. As of the date of this annual report, the Company
is not in compliance with those requirements which may result in the delisting
of the common stock.
The Company has an authorized capitalization of 50,000,000 shares of
common stock, par value $.01 per share. The authorized capital stock of the
Company was not reduced or otherwise affected by the reverse split. As of
January 23, 1997, the Company had 6,361,708 shares of common stock issued and
outstanding. The aggregate number of shares of common stock issued and
outstanding following the reverse split is 795,214. All common shares and per
share amounts have been adjusted to give retroactive effect of the reverse
split.
F-17
<PAGE> 41
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
(b) Options and Warrants-
In May 1991, the Company's Board of Directors adopted the 1991
Long-Term Incentive Plan (the "Incentive Plan") which permits the granting of
stock options, stock appreciation rights and other awards. The Board has
reserved 37,500 shares of unissued common stock under the Incentive Plan. The
Incentive Plan is administered by the Compensation Committee of the Board of
Directors which is authorized to determine, from time to time, the term,
exercise price, settlement terms, forfeiture provisions and other terms and
conditions of each of the types of awards. The following tables set forth the
status of the Incentive Plan at August 31, 1997, after giving effect to the one
for eight reverse stock split.
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Exercise Shares of Common Common Shares
Price Common Stock Stock Out-
Per Share Stock Exercised Forfeited standing
Date of Grant --------- Granted --------- --------- --------
- ------------- -------
<S> <C> <C> <C> <C> <C>
December 1991 $56.00 19,281 (106) (18,350) 825
June 1992 72.00 6,125 (6,125) 0
March 1993 70.00 10,063 (6,000) 4,063
August 1993 32.00 250 250
December 1993 20.00 6,000 (6,000) 0
October 1994 14.00 1,250 (1,250) 0
November 1994 12.00 4,375 (4,375) 0
July 1995 8.00 313 (313) 0
July 1995 7.52 313 (313) 0
January 1996 4.48 6,750 6,750
November 1996 2.56 15,000 (3,125) 11,875
January 1997 1.12 6,250 6,250
March 1997 1.12 3,500 3,500
------- ------- -------
Balance
August 31, 1997 79,470 (106) (45,851) 33,513
======= ==== ======= =======
</TABLE>
F-18
<PAGE> 42
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
Except for the options granted in January 1997, March 1997, January,
1996 and November, 1994 the options are exercisable at the rate of 20% per
annum, beginning on the first anniversary of the date of grant and expire on the
earlier of the employee's termination date or ten years from grant date.
Forfeited shares are available for regranting.
In January 1997 and March 1997, the Company's Chief Executive Officer
and the Chief Financial Officer were granted 6,250 and 2,500 options
respectively, at $1.12 per share, the fair market value on the date of grant.
The options vest at 25% at six months, 25% at twelve months, 25% at twenty-four
months and 25% at thirty-six months.
In January 1996, the Company's Chief Executive Officer and Chief
Operating Officer were granted options to purchase 3,750 and 3,000 shares of
common stock, respectively, at $4.48 per share, the fair market value on the
date of grant. These options are exercisable immediately and remain exercisable
until the termination date of 5 years from the date of grant.
On November 1, 1994, the Company's Chief Executive Officer was granted
an option to purchase 4,375 shares of common stock at $12.00 per share, the fair
market value on the date of grant. These options become exercisable at the rate
of 12 2/3% per annum beginning on the first anniversary of the date of grant.
The options expire 10 years from the date of grant.
In February, 1995 the Company adopted the Non-Employee Director Stock
Option Plan providing for the purchase of up to 7,500 shares of the Company's
common stock by non-employee members of the Board of Directors. The plan
provides for the grant of an option to purchase of up to 188 common shares
annually per director at the fair market price per share on the grant date, and
is exercisable six months following the grant date. To the extent not earlier
exercised, the option terminates the earlier of three months after the date the
optionee ceases to serve as a director, one year after the date the optionee
ceases to be a director by reason of death, optionee ceases to be a director by
reason of removal for cause or five years from the date of grant. As of August
31, 1997 there are options to purchase 1,500 common shares outstanding and no
options had been exercised. The three directors nominated by Laidlaw have waived
their participation in this program.
In December, 1994, the Company granted to a former Chairman of the
Board, an option to purchase 625 common shares at a purchase price per share of
$11.84, the fair market value on the grant date. The option was fully
exercisable as of the grant date. To the extent not earlier exercised, the
option terminates ten years from the grant date.
F-19
<PAGE> 43
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
In February 1994, the Company entered into a Revolving Reimbursement
Facility with a limited liability corporation whereby the corporation agreed to
provide up to a maximum of $2,000,000 in financing. Relative to this agreement
the Company granted the corporation a warrant to purchase 7,500 shares of voting
common stock which can be exercised at any time and in any amount until January
31, 1999 at a price of $28.64 per share, the fair market value on the date of
grant. As of August 31, 1997, no purchases relative to this warrant were made.
Total shares reserved for issuance under the options and warrants
referred to above aggregated 74,268 as of August 31, 1997. All options and
warrants outstanding as of August 31, 1997 were 43,138.
As permitted under SFAS No. 123 ("SFAS 123), "Accounting for
Stock-Based Compensation", the Company accounts for stock-based employee
compensation arrangements in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", whereby no compensation cost
is deducted in determining net loss. Had the Company recorded stock-based
compensation cost for options granted in fiscal 1997 and 1996 pursuant to SFAS
123 (using the Black-Scholes options pricing model) net loss and net loss per
share, including the assumptions used in these calculations, would have been as
follows for fiscal 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ----------
<S> <C> <C>
Pro forma net loss $2,901,174 $1,382,604
Pro forma net loss per share 3.65 1.74
Pro forma weighted average fair
value of options granted 1.03 .35
Risk free interest rates 5.37% 5.81%-6.48%
Expected lives 5 years 3 years
Expected volatility 0% 0%
Expected dividends -- --
</TABLE>
The following table summarizes information about stock option outstanding at
August 31, 1997:
F-20
<PAGE> 44
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- --------------------------------
OPTIONS REMAINING OPTIONS
OUTSTANDING AT CONTRACTUAL EXERCISABLE AT
DATE OF GRANT 8/31/97 LIFE (YEARS) 8/31/97 EXERCISE PRICE
- ----------------------- ----------------------------- ------------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
December 1991 825 4.3 825 $56.00
March 1993 4,063 5.6 3,250 70.00
August 1993 250 6 200 32.00
December 1994 625 7.3 625 11.84
February 1994 7,500 1.4 7,500 28.64
February 1995 1,500 5 1,500 3.86
January 1996 6,750 8.3 6,750 4.48
November 1996 11,875 9.3 -- 2.58
January 1997 6,250 9.3 1,562 2.00
March 1997 3,500 9.8 -- 1.12
------ --- ------ ----
TOTAL 43,138 22,212
====== ======
</TABLE>
(8) RELATED-PARTY TRANSACTIONS:
ETE (now known as ViroGroup of South Carolina, Inc.), a wholly owned
subsidiary of the Company, leases property from an entity controlled by certain
of its former shareholders. The lease expires in November 1997 and contains two
one-year renewal options. Total rentals earned by this related-party lessor
amounted to $186,000 during each of the years ended August 31, 1995, 1996 and
1997. The Company does not plan to exercise its option to renew this lease.
F-21
<PAGE> 45
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
(9) EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution profit sharing plan for the
benefit of its eligible employees. Eligibility is determined by specified
minimum periods of service and attainment of minimum age requirements. The
employer contribution is determined annually by the Board of Directors and
involves no unfunded past service costs. No contributions were authorized by the
Board of Directors for the years ended August 31, 1995, 1996 and 1997.
Employees can also contribute, to the plan on a tax-deferred or non-tax
deferred basis, specified percentages of their compensation as defined. The
Company will match the employee contributions up to 2% of total compensation.
Employee contributions become fully vested immediately. Employer contributions
vest at the rate of 20% per annum, beginning after the first year of service (as
defined), so that an employee becomes fully vested after six full years of
service. Forfeitures of nonvested employer contributions are utilized to reduce
required employer contributions and expenses. Contributions to the plan charged
to expense amounted to $134,704, $49,925 and $28,782 during the years ended
August 31, 1995, 1996 and 1997, respectively.
(10) COMMITMENTS AND CONTINGENCIES:
(a) Operating leases-
The Company leases facilities and equipment from related and unrelated
parties under operating leases expiring between 1997 and 2002. Minimum annual
lease payments are as follows:
F-22
<PAGE> 46
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Minimum Annual Lease Payments
Fiscal Year Related Unrelated
Ending August 31, Parties Parties
----------------- ------- -------
<S> <C> <C>
1998 $31,000 $ 374,093
1999 -- 272,324
2000 -- 202,744
2001 -- 187,531
2002 -- 76,047
------- ---------
$31,000 $1,112,739
======= ==========
</TABLE>
Rent expense under all operating leases amounted to $986,700,
$679,036 and $602,551 during the years ended August 31, 1995, 1996 and 1997,
respectively.
(b) Potential liability for environmental contamination -
The Company's environmental services present risks of substantial
liability for environmental contamination. Certain of the Company's remediation
activities also entail risks of personal injury and property damage. Although
the potential liability of the Company is significant, no material legal claim
has ever been asserted against the Company. No liability for any such claims is
reflected in the accompanying consolidated financial statements.
The Company has been notified by the Environmental Protection
Agency, through a General Notice Letter that the Company is a potentially liable
party at the Florida Petroleum Reprocessors Site in Davie, Florida. However, at
this time, no estimate of the potential liability can be calculated due to the
limited amount of information available. This type of liability is an insurable
risk and the Company's insurance carrier has been notified; however, no formal
claim has been filed at this time. The insurance policy has a deductible of
$250,000. Company management is of the opinion that Company liability, if any,
will be minimal.
(c) Insurance-
Since July 1993, the Company has maintained certain professional
liability insurance policies with an insurance carrier. To the best of the
Company's knowledge, there are no outstanding professional liability claims at
this time. See Note 10(b) for additional information.
F-23
<PAGE> 47
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
(d) Litigation, claims and assessments-
In May 1996, the Company settled all its remaining claims deriving
from Sunshine Jr. Stores, Inc. bankruptcy in 1992. These claims, totaling
approximately $270,000, were settled for approximately $237,000 resulting in a
charge to the allowance for doubtful accounts in fiscal 1996 of approximately
$33,000.
In August 1993, a civil action was filed in Hamblen County Chancery
Court of the Third District of Tennessee against the Company and Galen of
Tennessee, Inc., seeking compensatory and punitive damages of approximately
$1,140,000 in regards to an asbestos abatement project. In December 1993, the
Court dismissed the lawsuit. The parties are now compelled to submit to
arbitration, and the Company's exposure appears to be substantially less than
$140,000. The plaintiff has not made any demand for arbitration. The Company
believes that this action is without merit and intends to vigorously defend
itself.
The Company is not subject to any other material legal proceedings.
From time to time, the Company is involved in other routine litigation, claims
and assessments incidental to its business. The Company does not believe that
the ultimate resolution of any of the above described matters would have a
material adverse impact on the accompanying consolidated financial statements.
(e) Florida Underground Petroleum Storage Tank (UST) Reimbursement
Program, Amounts Due from State Agency and the Concentration of Credit Risk.
During fiscal 1994, the Company aggressively expanded its
participation in the State of Florida financed programs to provide environmental
services to evaluate, assess and remediate contaminated underground petroleum
storage tank sites. Through its Inland Protection Trust Fund, the State of
Florida reimburses certain costs to clean up eligible contaminated sites.
Primarily due to an estimated unfunded $450 million backlog and annual tax
revenue allocation of only $100 million, in March 1995 new legislation directed
the Florida Department of Environmental Protection to cease processing, with
certain limited exceptions, applications for reimbursement of costs to clean up
UST sites eligible for state funds.
In May, 1996 a new law (the "1996 Act") was passed which implemented
significant changes to the reimbursement program and addressed the estimated
$450 million backlog of unpaid claims. The 1996 Act provided for the elimination
of the reimbursement program effective August 1, 1996 and required all
reimbursement applications to be submitted by December 31,
F-24
<PAGE> 48
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
1996. Also, the 1996 Act created a non-profit public benefit corporation, which
became operational in the Fall of 1997, to finance the unpaid backlog. This
non-profit corporation is charged with financing the estimated backlog of 9,500
claims totaling over $556 million. Payment of claims will be on a first-come,
first-served methodology based on application filing date and an assumed annual
allocation rate of $100 million. Claims paid will be subject to a 3.5% annual
discount in consideration of the anticipated accelerated payment as compared to
the previously expected period of 4 to 5 years. Based upon information obtained
from the State of Florida, it is currently anticipated that payment of the
initial portion of the claims (approximately $213 million) should begin in the
first quarter of calendar 1998; however, no assurance of that timetable can be
given.
The Company in prior fiscal years recorded valuation allowances on
the amounts due to reflect the State mandated discount and potential denied
costs. At August 31, 1996 these allowances totaled $931,665 with $889,937
applied as a valuation allowance to the amounts due, resulting in a net amount
of $2,812,737 shown as the Amounts Due from State Agency, net, in the
accompanying consolidated balance sheet.
At August 31, 1997 these allowances totaled $913,918 with $166,623
applied as a valuation allowance to the amounts due, resulting in a net of
$512,927 shown as the Amounts Due From State Agency, net, in the accompanying
consolidated balance sheet. The balance sheet also includes $747,295 which is
included as an accrued liability to reflect the Company's liability to pay
discounts and denied costs on receivables sold to third-parties.
All of the approximately $3.1 million in reimbursement applications
at August 31, 1996, have been sold to third party entities at August 31, 1997.
The Company used third-party funding to obtain the cash from the buyers to avoid
the long payout period by the State. In addition to selling the previously
mentioned claims, the Company filed approximately $703,000 directly with the
State.
Specifically, the Company entered into several arrangements to sell
substantially all the claims filed with the State for reimbursement. These
arrangements required the Company to pay a 3 - 4% prepaid fee at the time the
buyers paid the Company.
If the State has not paid the buyers within the first nine months,
the Company will pay indemnification costs at the rate of .6875% per month
beginning October 1997. In January 1998, the indemnification rate begins to
increase each month and could reach 12.375% per month in August 1998. The effect
of the rate increase is to generate an overall yield, since inception, of
F-25
<PAGE> 49
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
8.25%. These indemnification costs are being charged against the reserve account
at the present time. In the event the State does not meet the projected payment
schedule beginning in the first quarter of calendar year 1998, the reserves will
not be adequate to absorb all of the indemnification costs.
In addition, the Company has placed 13% of the amounts sold in an
interest bearing escrow account to provide for potential state denied costs and
state mandated interest discount. The interest earned on the escrowed amounts
accrues to the Company's benefit and is recorded as interest income in the
period earned. The escrow balance at August 31, 1997, is $596,408 and is
included in restricted cash on the accompanying Consolidated Balance Sheet.
The Company filed all amounts due from the State prior to the state
mandated filing deadline of December 31, 1996.
(f) Segment Information
The Company operates in one industry segment, as contemplated by
Financial Accounting Standards Board Statement No. 14. Laidlaw and its
affiliates accounted for approximately 21%, 20% and 8% of consolidated gross
revenues for the years ended August 31, 1995, 1996, and 1997, respectively.
Included in accounts receivable, net in the accompanying consolidated balance
sheets as of August 31, 1996 and 1997 are amounts due from Laidlaw and its
affiliates of $432,700 and $128,373, respectively. A Laidlaw affiliate owns 50%
of the Company's outstanding common stock and three officers of Laidlaw
affiliates are Directors of the Company.
F-26
<PAGE> 50
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of ViroGroup, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of ViroGroup, Inc. and subsidiaries as of
August 31, 1996 and 1997, and for each of the three years in the period ended
August 31, 1997, included in this Form 10-K, and have issued our report thereon
dated October 22, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the accompanying Index to Consolidated Financial Statements and Schedule on
Page F-1 of this Form 10-K is presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
October 22, 1997
F-27
<PAGE> 51
VIROGROUP, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
For the Balance at Charged to Balance at
Year Ended Beginning of Costs and End of
August 31, Description Period Expenses Deductions Other Period
- ---------- ----------- ------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
1995 Allowance for Doubtful Accounts $391,109 $539,746 $295,294(1) $ -- $635,561
======== ======= ======== ========= =======
Allowance for Discounts and $ -- $726,308(2) $ -- $ -- $726,308
Denied Costs ======== ======== ======== ========= =======
1996 Allowance for Doubtful Accounts $635,561 $ 48,008 $ 62,721(1) $(118,297)(3) $502,551
======== ======== ======== ========= =======
Allowance for Discounts and $726,308 $ 16,745(2) $ -- $(146,884)(4) $889,937
Denied Costs ======== ======== ======== ========= =======
1997 Allowance for Doubtful Accounts $502,551 $ 72,526 $264,819(1) $ -- $310,258
======== ======== ======== ========= =======
Allowance for Discounts and $889,937 $(17,652) $ 4,370 $(705,662)(5) $166,623
Denied Costs ======== ======== ======== ========= =======
</TABLE>
- --------------------------
(1) Represents net accounts written off.
(2) Represents a reduction in gross revenues.
(3) Represents a transfer to the Allowance for Discounts and Denied Costs.
(4) Represents amounts transferred from Allowance for Doubtful Accounts of
$118,297 plus allowance transferred from unbilled receivables at August 31,
1997 of $48,665 less amount transferred to accrued liabilities of $20,078
(5) Represents a transfer to accrued liabilities
F-28
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VIROGROUP, INC.
/s/ CHARLES S. HIGGINS, JR., PRESIDENT
-------------------------------------------
Charles S. Higgins, Jr., Chairman,
President and Chief Executive Officer
Dated: November 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND CAPACITY DATE
- ---------------------- ----
<S> <C>
/s/ DEWAYNE BASKETTE November 25, 1997
- -------------------------------
DeWayne Baskette
Chief Financial Officer
/s/ A. DENNY ELLERMAN November 25, 1997
- -------------------------------
A. Denny Ellerman, Director
/s/JAMES J. HATTLER November 25, 1997
- -------------------------------
James J. Hattler, Director
/s/ RICK L. MCEWEN November 25, 1997
- -------------------------------
Rick L. McEwen, Director
/s/ SYLVESTER O. OGDEN November 25, 1997
- -------------------------------
Sylvester O. Ogden, Director
/s/ KENNETH W. WINGER November 25, 1997
- -------------------------------
Kenneth W. Winger, Director
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed registration statements on Form S-8 (File Nos. 33-57614 and
33-90254).
ARTHUR ANDERSEN LLP
Miami, Florida,
November 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VIROGROUP, INC. FOR THE YEAR ENDED AUGUST 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 596,408
<SECURITIES> 0
<RECEIVABLES> 2,291,645
<ALLOWANCES> 310,258
<INVENTORY> 0
<CURRENT-ASSETS> 2,696,042
<PP&E> 2,004,161
<DEPRECIATION> 1,663,292
<TOTAL-ASSETS> 3,563,969
<CURRENT-LIABILITIES> 3,398,671
<BONDS> 0
0
0
<COMMON> 7,952
<OTHER-SE> 157,346
<TOTAL-LIABILITY-AND-EQUITY> 3,563,969
<SALES> 0
<TOTAL-REVENUES> 6,884,742
<CGS> 0
<TOTAL-COSTS> 5,175,925
<OTHER-EXPENSES> 4,488,295
<LOSS-PROVISION> 72,526
<INTEREST-EXPENSE> 212,701
<INCOME-PRETAX> (2,892,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,892,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,892,716)
<EPS-PRIMARY> (3.64)
<EPS-DILUTED> (3.64)
</TABLE>
