<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 1-11097
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3CI COMPLETE COMPLIANCE CORPORATION
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0351992
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
910 Pierremont, #312 Shreveport, LA. 71106
--------------------------------------------
(Address of principal executive offices)
(Zip Code)
(318)869-0440
-------------
(Registrant's telephone number, including area code)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
----------------------
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
The number of shares of Common Stock outstanding as of the close of
business on August 14, 1996, was 9,900,311.
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3CI COMPLETE COMPLIANCE CORPORATION
I N D E X
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 (unaudited) and September 30, 1995 ............ 2
Consolidated Statements of Operations for the three months and
nine months ended June 30, 1996 and 1995 (unaudited) ........ 3
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1996 and
1995 (unaudited) ............................................ 4
Notes to Consolidated Financial Statements (unaudited) .......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities ........................................... 12
Item 3. Defaults Upon Senior Securities ................................. 12
Item 4. Submission of Matters to a Vote
Of Security Holders ......................................... 12
Item 5. Other Information ............................................... 12
Item 6. Exhibits and Reports on Form 8-K ................................ 12
SIGNATURES ................................................................ 17
</TABLE>
1
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3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalent $ -- $ 78,556
Restricted cash 131,458 100,000
Accounts receivable, less allowances of $913,082 and $1,283,269
at June 30, 1996 and September 30, 1995, respectively 3,549,174 2,970,505
Inventory 72,802 90,384
Prepaid expenses and other 374,213 254,378
------------ ------------
Total current assets 4,172,648 3,493,823
------------ ------------
Property, plant and equipment, at cost 13,396,632 12,044,891
Accumulated depreciation (3,662,090) (2,656,169)
------------ ------------
Net property, plant and equipment 9,734,542 9,388,722
------------ ------------
Incincration rights and permits, at cost, net of accumulated
amortization of $864,002 and $646,455 at
June 30, 1996 and September 30, 1995, respectively 1,627,741 1,845,289
Excess of cost over net assets acquired, net of accumulated amortization
of $750,921 and $517,237 at June 30, 1996 and September 30, 1995, respectively 10,063,705 10,297,387
Other intangible assets, net of accumulated amortization of $855,483 and
$796,029 at June 30, 1996 and September 30, 1995, respectively 640,122 493,375
------------ ------------
Total assets $ 26,238,757 $ 25,518,596
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Overdrafts 42,914 --
Notes payable -- 226,501
Current portion of long-term debt, unaffiliated lenders 1,692,783 1,962,992
Accounts payable 1,894,931 1,292,514
Accrued liabilities 880,746 2,558,634
Note Payable Majority Shareholder 8,215,224
------------ ------------
Total current liabilities 12,726,598 6,040,641
------------ ------------
Accounts payable, affiliated companies 294,166 307,046
Long-term debt unaffiliated lenders, net of current portion 1,030,247 1,475,622
Long-term debt majority shareholder, net of current portion -- 4,100,000
------------ ------------
Total liabilities 14,051,011 11,923,309
------------ ------------
Commitments and contingencies -- --
Accrued stock put option 1,800,000 1,773,948
Shareholders' Equity:
Preferred stock, no par value, authorized 1,000,000 shares; none issued
Common Stock, $.01 par value, authorized 15,000,000 shares;
issued and outstanding 9,900,311 and 9,504,841 shares at
March 31, 1996 and September 30, 1995, respectively 99,003 95,049
Additional Paid-in capital 20,108,744 19,665,235
Accumulated deficit (9,820,001) (7,938,945)
------------ ------------
Total Shareholders' equity 10,387,746 11,821,339
------------ ------------
Total liabilities and shareholders' equity $ 26,238,757 $ 25,518,596
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue $ 4,685,228 $ 3,901,239 $ 13,837,152 $ 11,952,240
Expenses:
Cost of services 3,412,666 2,993,968 10,749,346 8,027,844
Depreciation and amortization 555,357 496,297 1,536,583 1,490,719
Selling, genral and administrative 899,127 2,285,066 2,806,620 4,838,822
----------- ----------- ------------ ------------
Loss from operations (181,922) (1,874,092) (1,255,397) (2,405,145)
Other income (expense):
Interest and other expense, net (225,679) (113,699) (599,607) (297,747)
Loss before income taxes and accretion
of stock put (407,601) (1,987,791) (1,855,004) (2,702,892)
----------- ----------- ------------ ------------
Income taxes -- -- -- --
Accretion of stock put -- (52,098) (26,052) (164,978)
----------- ----------- ------------ ------------
Net Loss $ (407,601) $(2,039,889) $ (1,881,056) $ (2,867,870)
=========== =========== ============ ============
Weighted average shares outstanding 8,783,258 8,729,759 8,710,966 8,445,251
----------- ----------- ------------ ------------
Net loss per common share $ (0.05) $ (0.23) $ (0.22) $ (0.34)
=========== =========== ============ ============
</TABLE>
The accomanpanying notes are an integral part of these financial statements.
3
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3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1996
----------------- -----------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $(1,881,056) $(2,867,870)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred interest on affiliated debt 565,224 -
Depreciation and amortization 1,536,583 1,490,719
Provision for uncollectible accounts receivable - 700,000
Accretion of stock put 26,052 164,978
Change in asset and liabilities,
(Increase) decrease in bank overdrafts 42,914 -
Issuance of common stock 447,463 -
(Increase) decrease in restricted cash (31,458) -
(Increase) decrease in accounts receivable, net (623,669) 345,021
(Increase) decrease in Inventory 17,583 (76,537)
(Increase) decrease in prepaid expenses (119,835) (75,093)
Increase (decrease) in accounts payable 602,417 (1,180,265)
Increase (decrease) in accounts payable, affiliated companies (12,880) 154,230
Increase (decrease) in accrued liabilities 1,677,888) 375,066
----------- -----------
Total adjustments to net loss 772,506 1,898,119
----------- -----------
Net cash provided by (used in) operating activities (1,108,550) (969,751)
Cash flow from investing activities:
Purchase of property, plant and equipment (1,255,157) (457,931)
Increase in intangible assets (322,761) -
----------- -----------
Net cash used in investing activities (1,577,918) (457,931)
----------- -----------
Cash flow from financing activities:
Principal reduction of notes payable (226,507) -
Reduction of long-term debt, unaffiliated lenders (715,581) (1,788,368)
Proceeds from issuance of note payable to majority shareholder 3,550,000 3,100,000
----------- -----------
Net cash provided by financing activities 2,607,912 1,311,632
----------- -----------
Net decrease in cash and cash equivalents (78,556) (116,050)
----------- -----------
Cash and cash equivalents, beginning of period 78,556 286,006
----------- -----------
Cash and cash equivalents, end of period $ 0 $ 169,956
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the collection, transportation and incineration of
biomedical waste in the southeastern and southwestern United States. In
February 1994, subsidiaries of 3CI acquired all the assets and business
operations of American Medical Transports Corporation (AMTC), an Oklahoma
corporation, and A/MED, Inc. (A/MED), a Delaware corporation. Both AMTC and
A/MED were engaged in businesses similar to that of 3CI. Waste Systems, Inc.
(WSI), a Delaware corporation, was the majority shareholder of both AMTC and
A/MED (the Companies). Additionally, in February 1994, WSI purchased 1,255,182
shares of 3CI common stock from American Medical Technologies (AMOT).
As a result of the transactions described above, WSI became the majority
shareholder of 3CI immediately following the acquisition of AMTC and A/MED.
For accounting purposes, AMTC and A/MED were considered the acquirer in a
reverse acquisition. The combined financial statements of AMTC and A/MED are
the historical financial statements of the Company for periods prior to the
date of the business acquisition. Historical combined shareholders' equity of
AMTC and A/MED has been retroactively restated for the equivalent number of
3CI shares received for the assets and business operations of AMTC and A/MED,
and the combined accumulated deficit of AMTC and A/MED has been carried
forward.
The accompanying consolidated financial statements have been prepared, without
audit, by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. As applicable under such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes that the presentation and
disclosures herein are adequate to make the information not misleading and the
financial statements reflect all adjustments which are necessary for a fair
presentation of these financial statements. Certain reclasses have been made
to prior year accounts to conform to current year presentations. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended September 30, 1995, as filed with the Securities and
Exchange Commission.
(2) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share was computed by dividing net income (loss)
for each quarterly period by the weighted average number of common shares
outstanding for each period. In October 1994, the Company acquired
substantially all the assets and assumed certain liabilities of River Bay
Corporation. The 865,500 shares issued in connection with the acquisition of
River Bay have been excluded from weighted average shares outstanding. The
accretion of a Stock Put Option related to the purchase of the River Bay
division is reflected as a reduction of net income in determining net income to
common shareholders. In conjunction with the business acquisition with respect
to AMTC and A/MED, the weighted average shares outstanding have been
retroactively restated for reverse acquisition accounting to reflect the
equivalent shares based on the conversion ratio established in the merger
transaction. The effect of stock options and warrants is antidilutive and is
therefore not considered in the calculation of net loss per common share.
5
<PAGE> 7
(3) BUSINESS CONDITIONS
The Company has consistently incurred losses for the past several fiscal years
and losses have continued into fiscal 1996. The Company has historically
relied on WSI for funding, and such support was again necessary in the third
quarter of fiscal 1996 and will continue to be necessary in the future.
Management and the Company's board of directors have implemented a business
plan and a coordinating long term strategy. The success of these measures is
dependent upon the Company's ability to substantially reduce operating expenses
and increase the average revenue per pound to levels sufficient to generate the
income and cash flow necessary to satisfy its obligations as they become due
and realize the recorded value of its assets. In the absence of the Company
being able to obtain third party financing, WSI has agreed to provide the
Company with a promissory note of up to $8 million including deferred interest,
with cash advances not to exceed $7.4 million. As of June 30, 1996 $7.65
million in cash has been advanced thus exceeding the principal line of credit
and leaving no availability for cash advances under the current note. The note
agreement contains various covenants which, among other things, required that
the Company's net after tax loss before stock accretion for the 3 months ended
December 31, 1995 not exceed $600,000, and that net after-tax income for the 3
months ended March 31, 1996, June 30, 1996 and September 30, 1996 shall exceed
$100,000, $200,000 and $300,000, respectively (excluding any expenses connected
with litigation commenced prior to September 30, 1995). During the first
quarter management became aware that critical aspects of the business plan had
been delayed, such as the commencing of incineration facilities in Birmingham,
Alabama and the shift to reusable waste containers. These items, coupled with
lower than expected revenues, contributed to losses incurred for the quarters
ended December 31, 1995, March 31, 1996 and June 30, 1996 which have been
significantly greater than expected. Consequently, as of June 30, 1996, the
Company was not in compliance with the loan covenant described above and
management's revised earnings estimates indicate that the Company will not be
in compliance with the covenants related to the period ending September 30,
1996. In the previous quarters for the fiscal year ending 1996, the Company
requested and received financial covenant waivers from WSI related to the
quarter ended December 31, 1995, March 31, 1996 and June 30, 1996. The Company
intends to seek a covenant waiver for the fourth quarter, however, no assurance
can be given that additional waivers can be obtained.
Management believes, based upon revised cash projections, that additional
funding above the $8,000,000 line of credit will be required to meet its
expenses and obligations as they become due. The Company is currently in
discussions to renegotiate an increase in its line of credit with WSI to meet
the revised increase in cash requirements, however, no assurance can be given
that WSI will continue to advance funds to the Company and forego the demand
for payment of the current indebtedness of the Company to WSI. In the event
that WSI fails to advance required funds to the Company or demands payment of
current indebtedness, the Company would have limited financing sources and
would likely be forced to seek bankruptcy protection.
The nature and level of competition in the medical waste industry has remained
high for several years. This condition has produced aggressive price
competition and results in pressure on profit margins. The Company competes
against companies which have access to greater capital resources. In order to
compete in this industry on a long-term basis and fully realize its business
strategy, the Company will require additional and continued financing and other
assistance from its current stockholders and if available, from outside
sources. There is no assurance that adequate funds for these purposes will be
available when needed or, if available, on terms acceptable to the Company.
6
<PAGE> 8
(4) COMMITMENTS AND CONTINGENCIES
In May 1995, a group of minority stockholders of the Company, including Patrick
Grafton, former Chief Executive Officer of the Company, acting individually and
purportedly on behalf of all minority stockholders, and on behalf of the
Company, filed suit in James T. Rash, et al v. Waste Systems, Inc., et al, No.
95-024912 in the District Court of Harris County, Texas, 129th Judicial
District, against the Company, WSI and various directors of the Company. The
plaintiffs have alleged minority stockholder oppression, breach of fiduciary
duty and breach of contract and "thwarting of reasonable expectations" and have
demanded an accounting, appointment of a receiver for the sale of the Company,
unspecified actual damages and punitive damages of $10 million, plus attorney's
fees. In addition, Mr. Grafton has alleged unspecified damages as a result of
his removal as an officer and director of the Company and the Company's failure
to renew his employment agreement in March 1995 and has alleged that such
removal was wrongful and ineffective. The Company's insurer has denied
coverage in the lawsuit. The Company has denied all material allegations of
the lawsuit and believes it has adequately reserved for potential losses
related to this matter. However, the outcome of this cannot be predicted, and
an adverse decision in the lawsuit would likely have a material adverse effect
on the Company's financial condition and results of operations. Legal fees
related to this matter continue to strain cash available to fund operations and
have contributed to the need for additional advances from WSI.
In June 1995, the former stockholders of Med-Waste filed suit in James H.
Shepherd, et al v. 3CI Complete Compliance Corporation, et al, No.
C.V.-95-1441-1 in the Circuit Court of Hot Springs County, Arkansas, against
the Company and various current and former officers and directors of the
Company. Plaintiffs have alleged violations of federal and state securities
laws, breach of contract, common law fraud and negligence in connection with
the acquisition of Med-Waste by the Company and have demanded rescission,
restitution, unspecified actual damages and punitive damages of $10 million,
plus attorney's fees. The case has been transferred to the United States
District Court of the Western District of Arkansas, Hot Springs Division. The
parties, other than Patrick Grafton, former Chief Executive Officer of the
Company, have agreed to settle the suit in consideration for the issuance by
the Company to the plaintiffs of 250,000 shares of common stock and the payment
by the Company to the plaintiffs of 20% to 55% of the pre-tax profits, as
defined, attributable to the assets previously acquired from Med-Waste until
such time as the shares of common stock held by the plaintiffs become freely
tradable and the market price of the common stock averages at least $2.50 over
a period of 42 consecutive days. During the nine months ended June 30, 1996,
the Company made payments totaling approximatly $128,000 to the plaintiffs
related to this agreement. In addition, the Company and WSI have agreed to
repurchase the shares of Common Stock held by the plaintiffs for $2.50 per
share in certain events, including the bankruptcy of the Company or in the
event WSI ceases to be the largest beneficial holder of the common stock. The
obligations of the Company to the plaintiffs are secured by a security interest
in most of the assets of the Company, and WSI has agreed to subordinate its
loans to the Company, and all related security interests, to the obligations
and the related security interests of the Company to the plaintiffs.
The Company is subject to certain other litigation and claims arising in the
ordinary course of business. In the opinion of management of the Company, the
amounts ultimately payable, if any, as a result of such claims and assessment
will not have a materially adverse effect on the Company's financial position
or results of operations except where noted above.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following summarizes (in thousands) the Company's operations:
<TABLE>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- ------------------------
1996 1995 1996 1995
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenues $4,685 $ 3,901 $13,837 $11,952
Costs of Services 3,413 2,994 10,749 8,028
Selling, General and
Administrative Expense 899 2,285 2,807 4,839
Loss from operations (182) (1,874) (1,255) (2,405)
Other Expense and Stock
Accretion, Net (226) (166) (626) (463)
Net loss (408) (2,040) (1,881) (2,868)
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995:
REVENUES:
Revenues for the three month period ended June 30, 1996 increased to $4,685,228
from revenues for the three month period ended June 30, 1995 of $3,901,239,
representing an increase of 20%. The Company has been able to achieve this
increase in revenues by a change in the mix and an increase in the volume of
waste streams collected and processed at its facilities. The Company has been
able to achieve this increase notwithstanding continued downward pressure on
pricing resulting from the high level of competition in the industry.
COSTS OF SERVICES:
Costs of services increased to $3,412,666 for the three months ended June 30,
1996, compared to $2,993,968 for the three month period ended June 30, 1995.
As a percentage of revenue, cost of services decreased to 73% from 77% from
period to period. The increase in cost of services resulted from the Company
incurring higher transportation costs due to the increase in volume of the
waste stream and the change in the mix of waste that the Company is handling.
In January 1996, the River Bay division began the operation of an incinerator
located in Birmingham, Alabama which has enabled the Company to reduce outside
incineration costs paid to third parties, and to reduce additional
transportation and repackaging costs associated with the dependency for outside
incineration. The Company has also begun to experience positive effects from
implementing a shift from cardboard boxes to reusable waste containers.
SELLLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
Selling, General and Administrative expense for the three month period ended
June 30, 1996 decreased to $899,127 compared to $2,285,066 for the three month
period ended June 30, 1995. As a percentage of revenue, the expense for the
1996 period decreased to 19.1% compared to 58.6% for the 1995 period. The 1995
period includes two items which account for $1.2 million of the increase: a
$500,000 accrual for
8
<PAGE> 10
legal fees related to the lawsuits described in footnote (4), and a $700,000
increase in the allowance for uncollectible accounts.
DEPRECIATION AND AMORTIZATION EXPENSE for the three months ended June 30, 1996
increased to $555,357 compared to $496,297 for the three month period ended
June 30, 1996.
INTEREST EXPENSE increased to $225,679 for the quarter ended June 30, 1996 from
$113,699 for the three months ended June 30, 1995. The increase in interest
expense is primarily attributed to a $4.55 million increase in the note payable
from advances by the majority shareholders.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995:
REVENUES:
Revenues for the nine month period ended June 30, 1996 increased to $13,837,152
from revenues for the nine month period ended June 30, 1995 of $11,952,240,
representing an increase of 16%. The Company has been able to achieve this
increase in revenues by a change in themix and an increase in the volume of
waste streams collected and processed at its facilities. The Company has been
able to achieve the increase notwithstanding continued downward pressure on
pricing resulting from the high level of competition in the industry.
COSTS OF SERVICES:
Costs of services increased to $10,749,346 for the nine months ended June 30,
1996, compared to $8,027,844 for the nine month period ended June 30, 1995.
The increased cost of services resulted from higher transportation costs,
escalating incineration costs paid to third parties, and a substantial increase
in the costs of operating supplies. These higher operating costs can be
partially associated with the River Bay division due to the delay in the start
of an incinerator located in Birminham, Alabama. The incinerator was in full
operation during the quarter ended June 30, 1996 and has begun to achieve some
of the projected reduction in outside incinerator costs paid to third parties
and the elimination of additional transportation and repackaging costs
associated with the dependency for outside incineration.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
Selling, General and Administrative expense for the nine month period ended
June 30, 1996 decreased to $2,806,620 compared to $4,838,822 for the nine month
period ended June 30, 1995. As a percentage of revenue, expenses for the 1996
period decreased to 20.3% compared to 40.5% for the 1995 period. The 1995
period includes two items which account for $1.2 million of the increase: a
$700,000 increase in the allowance for uncollectible accounts, and a $500,000
accrual for legal fees related to the lawsuits described in footnote (4). The
higher costs in 1995 also include one time severance costs and duplicative
administration functions that were being incurred by the Company from previous
acquisitions. Additionally, during the nine months ended June 30, 1995 the
Company incurred costs associated with the relocation of it's corporate offices
from Houston, Texas to Shreveport, Louisiana.
DEPRECIATION AND AMORTIZATION EXPENSE for the nine months ended June 30, 1996
increased to $1,536,583 compared to $1,490,719 for the nine months ended June
30, 1995.
9
<PAGE> 11
INTEREST EXPENSE increased to $599,607 for the nine months ended June 30, 1996
from $297,747 for the nine months ended June 30, 1995. The increase in
interest expense is primarily attributed to a $4.55 million increase in the
note payable from advances by the majority shareholders.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING ACTIVITIES
As a result of its prior expansion and program of acquisitions, as well as
operating cash deficits, the Company has experienced liquidity deficiencies.
In October 1994, WSI made a non-interest bearing cash advance of $1,000,000 to
the Company which was converted into 416,667 shares of Common Stock in April
1995. In the first half of 1995, WSI made non-interest bearing cash advances
totaling $4,100,000 to the Company. In June 1995, the Company executed a
$6,000,000 revolving promissory note, which was utilized in part to repay the
advances. This note was renegotiated in September 1995 to increase the total
available to $8,000,000, including deferred interest, with cash advances not to
exceed $7,400,000. The note bears interest at the prime rate and is payable on
December 31, 1996. Interest is payable in quarterly installments beginning
December 31, 1995, which may be deferred at the discretion of the Company. As
quarterly interest payments are deferred they are automatically added to the
outstanding principal balance of the note. As of June 30, 1996, the Company
has borrowed an additional $3,550,000 for a total of $7.650 million, which
exceeds the maximum cash advances provided for in the current promissory note.
The Company is currently in discussions with WSI concerning the restructing of
the promissory note and increasing the amount available under the line of
credit necessary to support the Company going forward. The note agreement
contains various covenants which, among other things, required that the
Company's net after tax loss before stock accretion for the 3 months ended
December 31, 1995 not exceed $600,000, and that net after-tax income for the 3
months ended March 31, 1996, June 30, 1996 and September 30, 1996 shall exceed
$100,000, $200,000 and $300,000 respectively (excluding any expenses connected
with litigation commenced prior to September 30, 1995). During the first and
second quarters management became aware that critical aspects of the business
plan had been delayed, such as the commencing of incineration facilities in
Birmingham, Alabama and the shift to reusable waste containers. These items,
coupled with lower than expected revenues, contributed to losses incurred for
the quarters ended December 31, 1995, March 31, 1996 and June 30, 1996 which
have been significantly greater than expected. Consequently, as of June 30,
1996, the Company was not in compliance with the loan covenant described above,
and management's revised earnings projections indicate that the Company will
not be in compliance with the covenant related to the period ending September
30, 1996. In February, May, and July 1996, the Company requested and received
financial covenant waivers from WSI for the net after tax loss before stock
accretion requirements related to the quarters ended December 31, 1995, March
31, 1996 and June 30, 1996. The Company intends to seek a covenant waiver for
the fourth quarter of fiscal 1996, however, no assurance can be given that
additional waivers will be obtained.
As discussed above, the Company has exceeded its level of cash advances
permitted under the current line of credit with WSI and is currently revising
its business plan. The Company will continue to require additional funding to
meet its expenses and obligations as they become due. The Company is also in
the process of renegotiating an increase in its line of credit and the terms of
the promissory note. However, no assurance can be given that WSI will continue
to advance funds to the Company and forego the demand for payment of the
current indebtedness of the Company to WSI. In the event that WSI fails to
advance
10
<PAGE> 12
required funds to the Company, or demands payment of current indebtedness, the
Company would have limited financing sources and would likely be forced to seek
bankruptcy protection.
OPERATING ACTIVITIES
The Company continues to experience a cash loss from operations during the
quarter ended June 30, 1996. The Company anticipates a cash deficit from
operations for fiscal 1996 and will be dependent upon WSI to continue to fund
its operations.
INVESTING ACTIVITIES
In March 1996, the Company began the operation of incineration facilities in
Birmingham, Alabama. Expenditures related to the project during fiscal 1995
and the nine months ended June 30, 1996 totaled $263,000 and $500,000
respectively, in addition to the $550,000 incurred on the facility prior to the
acquisition of River Bay. An integral part of management's plans to increase
revenues and decrease operating costs is the start up and operation of the
Company's new incinerator in Birmingham, Alabama. Originally scheduled for
completion in December 1995, the start up of the incinerator was delayed into
the second quarter of fiscal 1996.
Pursuant to a Put Option Agreement with River Bay, as amended (the "Put
Option"), in October 1995 the Company repurchased 300,000 of the shares of
Common Stock issued in connection with the acquisition in consideration for its
promissory note in the original principal amount of $900,000 ($3.00 per share)
and with monthly principal payments ranging from $25,000 to $75,000, plus
interest, through January 1997. Pursuant to the Put Option, the Company is
obligated to repurchase the remaining shares of Common Stock issued in
connection with the acquisition, at the option of River Bay, from February 1,
1997 until April 1, 1997 at $3.00 per share.
11
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
12
<PAGE> 14
(b) INDEX TO EXHIBITS
EXHIBITS
Except as otherwise indicated, the following documents are incorporated
by reference as Exhibits to this Report (as used in the following
listing, "3CI" refers to the Company):
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1. Copy of Agreement of Purchase and Sale dated as of June 27,
1991 by, between and among American Medical Technologies, Inc.,
Harry Argovitz, et ux, Complete Compliance Corporation and 3CI
Transportation Systems Corporation, as amended by the First
Amendment thereto dated as of September 3, 1991 and the Second
Amendment thereto dated as of October 7, 1991 (incorporated by
reference to Exhibit 10(a) of 3CI's registration statement on
Form S-1 (No. 33-45632) effective April 14, 1992).
2.2. Copy of Blanket Conveyance, Bill of Sale and Assignment dated
as of September 6, 1991 executed and delivered by American
Medical Technologies, Inc., in favor of 3CI (incorporated by
reference to Exhibit 10(o) of 3CI's registration statement on
Form S-1 (No. 33-45632) effective April 14, 1992).
2.3. Copy of Asset Purchase Agreement dated as of December 10, 1991
between 3CI, MedCon, Inc., and Harry S. Allen, individually and
as sole shareholder of MedCon, Inc. (incorporated by reference
to Exhibit 10(d) of 3CI's registration statement on Form S-1
(No. 33-45632) effective April 14, 1992).
2.4. Copy of First Amendment dated March 26, 1992 to Asset Purchase
Agreement by, and between and among, MedCon, Inc., Harry S.
Allen, as sole shareholder of MedCon, Inc., and 3CI
(incorporated by reference to Exhibit 10(n) of 3CI's
registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
2.5. Copy of Second Amendment dated May 22, 1992 to Asset Purchase
Agreement by, between and among MedCon, Inc., Harry S. Allen,
as the sole shareholder of MedCon, Inc. and 3CI (incorporated
by reference to Exhibit 2.6 of 3CI's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992).
2.6. Copy of Third Amendment dated October, 1992 to Asset Purchase
Agreement by, between and among MedCon, Inc., Harry S. Allen,
as sole shareholder of MedCon, Inc. and 3CI (incorporated by
reference to Exhibit 2.7 of 3CI's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992).
2.7. Purchase Agreement and Plan of Reorganization dated February 4,
1994, among A/MED, Inc., 3CI Complete Compliance Corporation
and 3CI Acquisition Corp./A/MED (incorporated by reference to
Exhibit 1.1 of 3CI's report on Form 8-K filed February 7,
1994).
2.8. Purchase Agreement and Plan of Reorganization dated February 4,
1994, among A/Med, Inc., 3CI Complete Compliance Corporation
and 3CI Acquisition Corp./A/MED (incorporated by reference to
Exhibit 1.2 of 3CI's report on Form 8-K filed February 7,
1994).
2.9. Stock Purchase Agreement dated February 4, 1995, between Waste
Systems, Inc. and 3CI Complete Compliance Corporation
(incorporated by reference to Exhibit 1.3 of 3CI's report on
Form 8-K filed February 7, 1994).
13
<PAGE> 15
2.10. Purchase Agreement dated October 10, 1994, among 3CI Complete
Compliance Corporation, River Bay Corporation and Marlan Baucum
(incorporated by reference to Exhibit 1.1 of 3CI's report on
Form 8-K filed October 27, 1994).
2.11. Addendum to Purchase Agreement dated October 12, 1994, among
3CI Complete Compliance Corporation, River Bay Corporation and
Marlan Baucum. (incorporated by reference to Exhibit 1.2 of
3CI's report on Form 8-K filed October 27, 1994).
2.12. Assumption of Liabilities dated October 10, 1994, among 3CI
Complete Compliance Corporation, 3CI Acquisition Corp./A/MED,
Marlan Baucum and River Bay Corporation. (incorporated by
reference to Exhibit 1.11 of 3CI's report on Form 8-k filed
October 27, 1994).
2.13. Plan of Reorganization and Acquisition Agreement dated August
9, 1994, among the 3CI, Med-Waste Disposal Service, Inc., Jim
Shepherd, Mike Shepherd and Richard McElhannon (incorporated by
reference to Exhibit 2.14 of 3CI's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992).
4.1. Copy of Representative Warrant Agreement dated as of April 14,
1992 (incorporated by reference to Exhibit 4(b) of 3CI's
registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
4.2. Copy of Warrant No. 3CI-01 issued to James T. Rash providing
for the purchase on or before December 31, 1996 of 50,000
warrants of the common stock of 3CI at a purchase price of
$3.00 per share, subject to adjustment as therein provided
(incorporated by reference to Exhibit 4.4 of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
4.3. Copy of Warrant No. 3CI-02 issued to Leonard A. Bedell
providing for the purchase on or before December 31, 1996 of
50,000 warrants of the common stock of 3CI at a purchase price
of $3.00 per share, subject to adjustment as therein provided.
(incorporated by reference to Exhibit 4.5 of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
4.4. Put Option Agreement dated October 10, 1994, among 3CI Complete
Compliance Corporation, River Bay Corporation and Marlan Baucum
(incorporated by reference to Exhibit 1.3 of 3CI's report on
Form 8-K filed October 27, 1994).
4.5. Stock Pledge Agreement dated October 10, 1994, between 3CI
Complete Compliance Corporation and River Bay Corporation
(incorporated by reference to Exhibit 1.4 of 3CI's report on
Form 8-K filed October 27, 1994).
4.6. Copy of Revolving Promissory Note dated September 30, 1995 in
the principal amount of $8,000,000 between 3CI and WSI, its
majority stockholder (incorporated by reference to Exhibit 4.11
of 3CI's Annual Report on Form 10K for the fiscal year ended
September 30, 1995).
10.1. Copy of Contract dated August 22, 1989 between 3CI and the City
of Carthage, Texas, related to the incineration of medical
waste (incorporated by reference to Exhibit 10 of 3CI's
registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
10.2. Copy of Addendum dated March 30, 1992 to Contract between 3CI
and the City of Carthage, Texas (incorporated by reference to
Exhibit 10 (p) of 3CI's registration statement on Form S-1 (No.
33-45632) effective April 14, 1992).
10.3. Copy of First Amendment dated July, 1993 to Contract between
3CI and City of Carthage, Texas (incorporated by reference to
Exhibit 10.3 of 3CI's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993).
10.4. Copy of Contract dated August, 1989, between 3CI and the City
of Center, Texas, related to the incineration of medical waste
(incorporated by reference to Exhibit 10 (b) of 3CI's
registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
14
<PAGE> 16
10.5. Copy of form of Amendment No. 1 dated October 12, 1992 to the
contract dated August, 1989, between 3CI and the City of
Center, Texas, related to the incineration of medical waste
(incorporated by reference to Exhibit 10.5. of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
10.6. Copy of form of Amendment No. 2 dated December 29, 1992 to the
contract dated August, 1989, between 3CI and the City of
Center, Texas, related to the incineration of medical waste
(incorporated by reference to Exhibit 10.6. of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
10.7. Copy of form of Amendment No. 3 dated December, 1993 to the
contract dated August, 1989, between 3CI and the City of
Center, Texas, related to the incineration of medical waste
(incorporated by reference to Exhibit 10.7. of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
10.8. Copy of 1992 Stock Option Plan of 3CI (incorporated by
reference to Exhibit 10(m) of 3CI's registration statement on
Form S-1 (No. 33-45632) effective April 14, 1992).
10.9. Promissory Note dated October 10, 1994, between 3CI Complete
Compliance Corporation and River Bay (incorporated by reference
to Exhibit 1.6 of 3CI's report on Form 8-K filed October 27,
1994).
10.10. Security Agreement dated October 10, 1994, among 3CI Complete
Compliance Corporation, 3CI Acquisition Corp./A/MED and River
Bay (incorporated by reference to Exhibit 1.7 of 3CI's report
on Form 8-K filed October 27, 1994).
10.11. Security Agreement dated October 10, 1994, between 3CI Complete
Compliance Corporation and River Bay Corporation (incorporated
by reference to Exhibit 1.8 of 3CI's report on Form 8-K filed
October 27, 1994).
10.12. Mortgage, Security Agreement, Assignment of Leases and
Financing Statement dated October 10, 1994, among 3CI Complete
Compliance Corporation, 3CI Acquisition Corp., A/A/MED and
River Bay Corporation (incorporated by reference to Exhibit 1.9
of 3CI's report on Form 8-K filed October 27, 1994).
10.13. Debt Subordination Agreement dated October 10, 1994, among 3CI
Complete Compliance Corporation, 3CI Acquisition Corp./A/MED,
River Bay Corporation, Marlan Baucum, Zeb Baucum, III, Diedra
Baucum, The Smith County Bank and the Bank of Raleigh
(incorporated by reference to Exhibit 1.10 of 3CI's report on
Form 8-K filed October 27, 1994).
10.14. Non-Competition Agreement dated October 10, 1994, between 3CI
Complete Compliance Corporation and Marlan Baucum (incorporated
by reference to Exhibit 1.12 of 3CI's report on Form 8-K filed
October 27, 1994).
10.15. Consultant Agreement dated October 10, 1994, between 3CI
Complete Compliance Corporation and Marlan Baucum (incorporated
by reference to Exhibit 1.14 of 3CI's report on Form 8-K filed
October 27, 1994).
10.16. Employment Agreement dated May 20, 1994, between 3CI and
Patrick Grafton (incorporated by reference to Exhibit 10.19 of
3CI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992).
10.17 Employment Agreement dated August 31, 1995, between 3CI and
Charles D. Crochet incorporated by reference to Exhibit 10.21
of 3CI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
10.18. Modification of Purchase Transaction dated January 25, 1995,
among 3CI, 3CI Acquisition Corp./A/MED, River Bay Corporation
and Marlan Baucum (incorporated by reference to Exhibit 10.22
of 3CI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
15
<PAGE> 17
10.19 Settlement Agreement dated January 1996 among James H.
Shepherd, James Michael Shepherd and Richard T. McElhannon, as
Releassors, and the Company, Georg Rethmann, Dr. Herrmann
Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
16.1 Letter Re: Change in Certifying Accountant (incorporated by
reference to Exhibit 16.2 10.19 of 3CI's report on Form 8-K/A
filed 16.1 December 28, 1994).
(b) Reports on Form 8-K - None
16
<PAGE> 18
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, thereto duly authorized.
3CI COMPLETE COMPLIANCE CORPORATION
(Company)
August 14, 1996 /s/ Charles D. Crochet
----------------------------------
Charles D. Crochet
President (Principal Executive Officer)
August 14, 1996 /s/ Curtis W. Crane
----------------------------------
Curtis W. Crane
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
17
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