<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 March 31, 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
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 May 14, 1996, was 9,900,311.
<PAGE> 2
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
March 31, 1996 (unaudited) and September 30, 1995 . . . . . . . . . 2
Consolidated Statements of Operations for the three months and
six months ended March 31, 1996 and 1995 (unaudited) . . . . . . . . 3
Consolidated Statements of Cash Flows for the
six months ended March 31, 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
<PAGE> 3
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 553,038 $ 78,556
Restricted cash 130,000 100,000
Accounts receivable, less allowances of $1,004,735 and $1,283,269
at March 31, 1996 and September 30, 1995, respectively 3,480,993 2,970,505
Inventory 58,636 90,384
Other current assets 470,436 254,378
------------- --------------
Total current assets 4,693,103 3,493,823
------------- --------------
Property, plant and equipment, at cost 12,819,762 12,044,891
Accumulated depreciation (3,297,797) (2,656,169)
------------- --------------
Net property, plant and equipment 9,521,965 9,388,722
------------- --------------
Incineration rights and permits, at cost, net of accumulated
amortization of $791,487 and $646,455 at
March 31, 1996 and September 30, 1995, respectively 1,700,257 1,845,289
Excess of cost over net assets acquired, net of accumulated amortization
of $673,026 and $517,237 at March 31, 1996 and September 30,
1995, respectively 10,141,599 10,297,387
Other intangible assets, net of accumulated amortization of $796,029 and
$677,120 at March 31, 1996 and September 30, 1995, respectively 699,541 493,375
------------- --------------
Total assets $ 26,756,465 $ 25,518,596
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - 226,501
Current portion of long-term debt, unaffiliated lenders 2,130,065 1,962,992
Accounts payable 1,848,644 1,292,514
Accrued liabilities 1,109,128 2,558,634
Note Payable Majority Shareholder 7,701,885
------------- --------------
Total current liabilities 12,789,722 6,040,641
------------- --------------
Accounts payable, affiliated companies 289,156 307,046
Long-term debt unaffliated lenders, net of current portion 1,082,240 1,475,622
Long-term debt majority shareholder, net of current portion - 4,100,000
------------- --------------
Total liabilities 14,161,118 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 20,108,745 19,665,235
Accumulated deficit (9,412,401) (7,938,945)
------------- --------------
Total Shareholders' equity 10,795,347 11,821,339
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Total liabilities and shareholders' equity $ 26,756,465 $ 25,518,596
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
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 Six Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
----------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 4,408,871 $ 4,051,394 $ 9,151,924 $ 8,294,052
Expenses:
Cost of services 3,506,168 2,668,969 7,336,680 5,276,926
Depreciation and amortization 540,433 493,487 981,226 994,422
Selling, general and administrative 945,078 1,446,943 1,907,494 2,553,757
----------------- ---------------- ---------------- --------------
Loss from operations (582,808) (558,005) (1,073,476) (531,053)
Other income (expense):
Interest and other expense, net (204,970) (29,698) (373,928) (184,048)
Loss before income taxes and accretion
of stock put (787,778) (587,703) (1,447,404) (715,101)
----------------- ---------------- ---------------- --------------
Income taxes - - - -
Accretion of stock put (52,098) (26,052) (112,880)
----------------- ---------------- ---------------- --------------
Net loss $ (787,778) $ (639,801) $ (1,473,456) $ (827,981)
================= ================ ================ ==============
Weighted average shares outstanding 8,783,258 8,340,077 8,710,906 8,317,894
================= ================ ================ ==============
Net loss per common share $ (0.09) $ (0.08) $ (0.17) $ (0.10)
================= ================ ================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the For the
Six Months Ended Six Months Ended
March 31, March 31,
1996 1995
---------------------- --------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (1,473,456) $ (827,981)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Interest expense of affiliated debt 401,885
Depreciation and amortization 981,226 994,422
Accretion of stock put 26,052 112,880
Change in assets and liabilities,
(Increase) decrease in restricted cash (30,000) -
(Increase) decrease in accounts receivable, net (529,858) 134,317
(Increase) decrease in inventory 31,748 (16,947)
(Increase) decrease in prepaid expenses (196,688) (262,590)
Increase (decrease) in accounts payable 556,126 (38,460)
Increase (decrease) in accounts payable, affiliated companies (17,890) 159,230
Increase (decrease) in accrued liabilities (923,487) (296,718)
---------------------- --------------------
Total adjustments to net loss 299,114 786,134
---------------------- --------------------
Net cash provided by (used in) operating activities (1,174,342) (41,847)
---------------------- --------------------
Cash flow from investing activities:
Purchase of property, plant and equipment (774,871) (370,712)
Increase in Intangible assets (322,761) -
---------------------- --------------------
Net cash used in investing activities (1,097,632) (370,712)
---------------------- --------------------
Cash flow from financing activities:
Proceeds from issuance of notes payable
Principal reduction of notes payable (226,501) -
Proceeds from issuance of long-term debt, unaffiliated lenders 166,338 -
Reduction of long-term debt, unaffiliated lenders (393,381) (1,667,686)
Proceeds from issuance of note payable to majority shareholder 3,200,000 2,000,000
---------------------- --------------------
Net cash provided by financing activities 2,746,456 332,314
---------------------- --------------------
Net increase (decrease) in cash and cash equivalents 474,482 (80,245)
====================== ====================
Cash and cash equivalents, beginning of period 78,556 286,006
---------------------- --------------------
Cash and cash equivalents, end of period $ 553,038 $ 205,761
====================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 aquired 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 second 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 long term
strategy which success is dependent upon the Company's ability to substantially
reduce operating expenses and increase the average revenue per pound to levels
sufficient to generate 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, of which $7.3
million in cash has been advanced as of March 31, 1996, leaving $100,000 of
future cash available. 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 a shift to reusable waste
containers. These items, coupled with lower than expected revenues, contributed
to losses incurred for the quarters ended December 31, 1995, and March 31, 1996
which have been significantly greater than expected. Consequently, as of March
31, 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 periods ending June 30,
and September 30, 1996. In February and May 1996, the Company requested and
received financial covenant waivers from WSI related to the quarters ended
December 31, 1995 and March 31, 1996. The Company intends to seek covenant
waivers for the subsequent quarters, 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
renegotiating 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 to forego 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.
(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.
6
<PAGE> 8
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 Spring 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 six months ended March 31, 1996 the Company made
payments totaling approximately $81,000 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>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ ---------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 4,409 $ 4,051 $ 9,152 $ 8,294
Costs of Services 3,506 2,669 7,337 5,277
Selling, General and
Administrative Expense 945 1,447 1,907 2,554
Loss from operations (583) (558) (1,073) (531)
Other expense and stock
accretion, net (205) (82) (400) (297)
Net loss (788) (640) (1,473) (828)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
REVENUES:
Revenues for the three month period ended March 31, 1996, increased to
$4,408,871 from revenues for the three month period ended March 31, 1995 of
$4,051,394. The increase in revenue is primarily due to an overall increase
in volume. The industry continued to experience a downward pressure in pricing
caused by competitors attempting to gain market share through deep discount
pricing.
COSTS OF SERVICES:
Cost of services increased to $3,506,168 for the three months ended March 31,
1996, compared to $2,668,969 for the three month period ended March 31, 1995.
The increased cost of services resulted from higher transportation costs,
higher incineration costs paid to third parties, and a substantial increase in
operating supplies. These higher operating costs can be partially associated
with the River Bay division due to the delays in the start of an incinerator
located in Birmingham, Alabama. Management believes that the completion of the
incinerator should reduce future costs of services in that region.
Additionally, the Company is in the process of implementing a program to shift
from cardboard boxes to reusable waste containers in order to reduce box costs.
The reusable containers have not been fully incorporated, however, resulting in
box costs which have been higher than anticipated.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
Selling, General and Administrative expense for the three month period ended
March 31, 1996, decreased to $945,078 compared to $1,446,943 for the three
month period ended March 31, 1995. As a percentage of revenue, the expense for
the 1996 period decreased to 21.4% compared to 35.7% for the 1995 period. The
decrease is related to one time salary settlements being incurred in March
1995, and the elimination of duplicative administration functions that were
being incurred by the Company from previous acquistions. Additionally, during
the quarter ended March 31, 1995, the Company incurred costs associated with
the relocation of it's corporate offices from Houston, Texas to Shreveport,
Louisiana.
8
<PAGE> 10
DEPRECIATION AND AMORTIZATION EXPENSE for the three months ended March 31, 1996
increased to $540,433 compared $493,487.
INTEREST EXPENSE increased to $204,970 for the quarter ended March 31, 1996
from $29,698 for the three months ended March 31, 1995. This increase was due
to interest related to the WSI promissory note.
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995:
REVENUES:
Revenues for the six month period ended March 31, 1996, increased to $9,151,924
from revenues for the six month period ended March 31, 1995 of $8,294,052.
This increase in revenue is primarily due to an overall increases in volume.
The industry continued to experience a downward pressure in pricing caused by
competitors attempting to gain market share through deep discount pricing.
COSTS OF SERVICES:
Cost of services increased to $7,336,680 for the six months ended March 31,
1996, compared to $5,276,926 for the six month period ended March 31, 1995. The
increased cost of services resulted from higher transportation costs,
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 delays in the start of an
incinerator located in Birmingham, Alabama. Management believes that the
completion of the incinerator should reduce the cost of services for that
region. Additionally, the costs of supplies, (primarily boxes and liners)
increased as a result of increased prices of paperboard and resin, resulting in
higher cost per revenue dollar. The Company was not able to pass all these cost
increases on to its customers due to ongoing competitive pricing pressures.
During the six months ended March 31, 1996 the Company implemented a program to
shift to reusable waste containers in order to reduce box costs. The reusable
containers have not yet been fully incorporated, however, resulting in box costs
which have been higher than anticipated.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
Selling, General and Administrative expense for the six month period ended
March 31, 1996 decreased to $1,907,494 compared to $2,553,757 for the six month
period ended March 31, 1995. As a percentage of revenue, expenses for the 1996
period decreased to 20.8% compared to 30.8% for the 1995 period. The decrease
is related to one time salary settlements that were incurred in the six months
ended March 31, 1995, and the elimination of duplicative administration
functions that were being incurred by the Company from previous acquisitions.
Additionally, during the six months ended March 31, 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 six months ended March 31, 1996
decreased to $981,226 compared $994,422.
INTEREST EXPENSE increased to $373,928 for the six months month ended March 31,
1996 from $184,048 for the six months ended March 31, 1995. This increase in
interest expense was due to the WSI promissory note.
9
<PAGE> 11
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, increasing 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 which are
automatically added to the outstanding principal balance, if not paid. As of
March 31, 1996, the Company has borrowed an additional $3,200,000 for a total of
$7.3 million, under the note, leaving only $100,000 available for additional
cash advances. 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 quarter management became aware that
critical aspects of the business plan had been delayed such as the commencing
of incineration facilities in Birmingham, Alabama a shift to reusable waste
containers. These items, coupled with lower than expected revenues contributed
to losses incurred for the quarters ended December 31, 1995, and March 31, 1996
which have been significantly greater than expected. Consequently, as of March
31, 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 covenants related to the periods ending June
30, and September 30, 1996. In February and May 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 and
March 31, 1996. The Company intends to seek covenant waivers for the subsequent
quarters, 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
renegotiating an increase in its line of credit with WSI to meet these revised
cash projections, however, no assurance can be given that following April 30,
1996, WSI will continue to advance funds to the Company and to forego 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.
10
<PAGE> 12
OPERATING ACTIVITIES
The Company continues to experience a cash loss from operations during the
quarter ended March 31, 1996. The Company anticipates a working cash deficit
from operations for fiscal 1996 and will be dependent upon WSI to fund its
continued 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 three months ended December 31, 1995 totaled $376,000, and $150,000
respectively in addition to the $550,000 incurred on the facility prior to
acquisition of River Bay. The Company expects to spend approximately an
additional $200,000 to complete the facility. An integral part of management's
plans to increase revenues per pound 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 to the second quarter of fiscal 1996.
Pursuant to a Put Option Agreement with River Bay, as amended (the "Put
Option"), the Company, in October 1995, 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 providing for 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 for $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):
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- - ------ ----------- ------
<S> <C> <C>
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).
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C>
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 Promissory Note of the Company dated January 13, 1993, in the principal amount of
$200,000, bearing interest payable quarterly at payee's prime rate plus 1% payable on or before
January 15, 1995, to the order of Midlantic National Bank with payment of principal subject to
the conditions specified in Paragraph 14 of said promissory note (incorporated by reference to
Exhibit 4.2. of 3CI's Annual Report on Form 10-K for the fiscal year ended September 30, 1992).
4.3. Copy of Deed of Trust, Assignment, Security Agreement and Financing Statement dated January 13,
1993, granted and delivered by the Company in favor of Midlantic National Bank to secure the
Company's promissory note of even date referred to in Exhibit 4.2. immediately above
(incorporated by reference to Exhibit 4.3. of 3CI's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992).
4.4. 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).
4.5. 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).
4.6. 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).
4.7. 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).
4.8. Stock Escrow and Pledge Agreement dated July 1994, among 3CI, Med-Waste Disposal Service, Inc.,
Jim Shepherd, Mike Shepherd and Richard McElhannon (incorporated by reference to Exhibit 4.11 of
3CI's Annual Report on Form 10-K for the fiscal year ended September 30, 1992).
</TABLE>
14
<PAGE> 16
<TABLE>
<S> <C>
4.9. Copy of Revolving Promissory Note dated June 1, 1995, in the principal amount of $6,000,000
between 3CI and WSI, its majority stockholder (incorporated by reference to Exhibit 4.1 of 3CI's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
4.10. Copy of Revolving Promissory Note dated September 1, 1995 in the principal amount of $6,000,000
between 3CI and WSI, its majority stockholder (incorporated by reference to Exhibit 4.2 of 3CI's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
4.11. 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).
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 Termination Agreement, dated as of May 20, 1993, between 3CI, Micro-Waste Corporation
and the shareholders of Micro-Waste Corporation (incorporated by reference to Exhibit 10.17. of
3CI's Annual Report on Form 10-K for the fiscal year ended September 30, 1993).
10.9. 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).
10.10. Promissory Note dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI
Acquisition Corp./A/MED and River Bay Corporation (incorporated by reference to Exhibit 1.5 of
3CI's report on Form 8-K filed October 27, 1994).
10.11. 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).
10.12. 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).
</TABLE>
15
<PAGE> 17
<TABLE>
<S> <C>
10.13. 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).
10.14. 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).
10.15. 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).
10.16. 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).
10.17. Employment Agreement dated October 10, 1994, between 3CI Complete Compliance Corporation and Zeb
Baucum (incorporated by reference to Exhibit 1.13 of 3CI's report on Form 8-K filed October 27,
1994).
10.18. 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).
10.19. 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).
10.20. Employment Agreement dated May 20, 1994, between 3CI and Charles Crochet (incorporated by
reference to Exhibit 10.20 of 3CI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992).
10.21. 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).
10.22. 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).
10.23 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 of 3CI's
report on Form 8-K/A filed December 28, 1994).
27 Financial Data Schedule
</TABLE>
(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)
May 13, 1996 /s/ Charles D. Crochet
------------------------------------------------
Charles D. Crochet
President (Principal Executive Officer)
May 13, 1996 /s/ Curtis W. Crane
------------------------------------------------
Curtis W. Crane
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
17
<PAGE> 19
INDEX TO EXHIBITS
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 683,038
<SECURITIES> 0
<RECEIVABLES> 4,485,728
<ALLOWANCES> 1,004,735
<INVENTORY> 58,636
<CURRENT-ASSETS> 4,693,103
<PP&E> 12,819,762
<DEPRECIATION> 3,297,797
<TOTAL-ASSETS> 26,756,465
<CURRENT-LIABILITIES> 12,789,722
<BONDS> 0
<COMMON> 99,003
0
0
<OTHER-SE> 10,696,344
<TOTAL-LIABILITY-AND-EQUITY> 26,756,465
<SALES> 9,151,924
<TOTAL-REVENUES> 9,151,924
<CGS> 8,317,906
<TOTAL-COSTS> 8,317,906
<OTHER-EXPENSES> 1,762,494
<LOSS-PROVISION> 145,000
<INTEREST-EXPENSE> 399,980
<INCOME-PRETAX> (1,453,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,473,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,473,456)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
