<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 December 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 February 14, 1997, 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
December 31, 1996 (unaudited) and September 30, 1996 . . . 3
Consolidated Statements of Operations for the three months
ended December 31, 1996 and 1995 (unaudited) . . . . . . . 4
Consolidated Statements of Cash Flows for the
three ended December 31, 1996 and
1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements (unaudited) . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 9
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
<PAGE> 3
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ --
Restricted cash 130,000 130,000
Accounts receivable, less allowances of $1,003,441 and $990,994
at December 31, 1996 and September 30, 1996, respectively 5,148,725 3,753,421
Inventory 95,985 59,045
Other current assets 88,442 232,989
------------ ------------
Total current assets 5,463,152 4,175,455
------------ ------------
Property, plant and equipment, at cost 11,538,509 11,396,144
Accumulated depreciation (3,192,618) (2,933,525)
------------ ------------
Net property, plant and equipment 8,345,891 8,462,619
------------ ------------
Excess of cost over net assets acquired, net of accumulated amortization
of $56,238 and $49,988 at December 31, 1996 and September 30, 1996, respectively 380,993 387,243
Other intangible assets, net of accumulated amortization of $93,190 and
$74,552 at December 31, 1996 and September 30, 1996, respectively 331,012 349,502
------------ ------------
Total assets $ 14,521,048 $ 13,374,819
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Bank overdrafts $ 422,077 $ 34,382
Notes payable 67,479 211,928
Current portion of long-term debt, unaffiliated lenders 1,055,263 1,314,290
Accounts payable 2,266,587 1,866,223
Accounts payable, affiliated companies 337,156 319,156
Accrued liabilities 2,200,108 2,361,006
Note payable majority shareholder 10,134,497 8,842,969
------------ ------------
Total current liabilities 16,483,167 14,949,954
------------ ------------
Long-term debt unaffiliated lenders, net of current portion 700,990 742,400
Long-term debt majority shareholder, net of current portion -- --
------------ ------------
Total liabilities 17,184,157 15,692,354
------------ ------------
Accrued stock put option 1,696,500 1,696,500
Shareholders' Equity (deficit):
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 9,900,311 shares at
December 31, 1996 and September 30, 1996, respectively 99,004 99,004
Additional Paid-in capital 20,108,745 20,108,743
Accumulated deficit (24,567,358) (24,221,782)
------------ ------------
Total Shareholders' equity (deficit) (4,359,609) (4,014,035)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 14,521,048 $ 13,374,819
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
December 31, December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Revenues $4,673,658 $4,743,054
Costs and Expenses:
Cost of revenues 3,499,959 3,828,881
Depreciation and amortization 357,923 440,793
Selling, general and administrative 836,970 962,416
---------- ----------
Loss from operations (21,194) (489,036)
Other income (expense):
Interest and other expense, net (324,382) (168,958)
---------- ----------
Loss before income taxes and accretion (345,576) (657,994)
---------- ----------
of stock put
---------- ----------
Income taxes - -
Accretion of stock put (26,052)
========== ==========
Net loss $ (345,576) $ (684,046)
========== ==========
Weighted average shares outstanding 9,034,811 8,786,791
========== ==========
Net loss per common share $ (0.04) $ (0.08)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
December 31, December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (345,576) $ (684,046)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
(Gain) loss on disposal of fixed and intangible assets -
Depreciation and amortization 357,923 440,793
Accretion of stock put - 26,052
Change in assets and liabilities, net of effect of purchase
of River Bay
(Increase) decrease in accounts receivable, net (1,395,304) (466,542)
(Increase) decrease in inventory (36,940) 3,800
(Increase) decrease in prepaid expenses 144,547 135,811
(Increase) decrease in other current assets - 441,902
Increase (decrease) in accounts payable 400,364 481,982
Increase (decrease) in accounts payable, affiliated companies 18,000 33,446
Increase (decrease) in accrued liabilities (160,898) (608,500)
----------- ----------
Total adjustments to net loss (672,308) 488,744
----------- ----------
Net cash provided by (used in) operating activities (1,017,884) (195,302)
----------- ----------
Cash Flow from investing activities:
Purchase of property, plant and equipment (232,536) (390,108)
Increase in Intangible Assets - (322,761)
----------- ----------
Net cash used in investing activities (232,536) (712,869)
Cash flow from financing activities:
Increase (decrease) in bank overdrafts 387,695 -
Proceeds from issuance of notes payable - 143,678
Principal reduction of notes payable (144,449) (83,969)
Reduction of long-term debt, unaffiliated lenders (470,495) (330,094)
Proceeds from issuance of note payable to majority shareholder 1,096,000 1,100,000
----------- ----------
Net cash provided by financing activities 481,056 829,615
----------- ----------
Net decrease in cash and cash equivalents (769,364) (78,556)
----------- ----------
Cash and cash equivalents, beginning of period (769,364) (78,556)
----------- ----------
Cash and cash equivalents, end of period $ 0 $ 0
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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.
In October 1992, Medical Environmental Disposal, Inc. (MEDI), a wholly owned
subsidiary of WSI was merged with and into AMTC, with AMTC being the surviving
corporation.
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, 1996, 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 the Stock Put Option 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
6
<PAGE> 7
transaction. The effect of stock options and warrants is antidilutive and is
therefore not considered in the calculation of net loss per common share.
(3) BUSINESS CONDITIONS
The Company has consistently suffered losses for the past several fiscal
years, and losses have ontinued in fiscal 1997. As of December 31, 1996, the
Company has a negative working capital of $11,020,015 and a net capital
deficiency of $4,359,609. The Company has historically relied on Waste
Systems, Inc. ("WSI"), the Company's majority stockholder, for funding, and
such support was again necessary in fiscal 1996. In the absence of the Company
being able to secure third party financing, WSI agreed to provide the Company
with a revolving credit facility of $8 million, including deferred interest
with cash advances not to exceed $7.4 million, of which $10.1 million
including deferred interest and $8.9 million including deferred interest has
been drawn as of December 31, 1996 and September 30, 1996, respectively. The
note agreement with the majority shareholder signed September 30, 1995
contains various covenants which the Company has been unable to meet and
waivers were obtained during fiscal year ended September 30, 1996. Since
September 30, 1996, WSI has made additional cash advances to the Company
totaling $960,000 including interest. Due to the additional cash advances that
have been made in excess of the principal in the original promissory note, the
Company entered into a second Revolving Credit Facility of $2.7 million
including deferred interest, dated December 20, 1996 with maturity date of
February 28, 1997. It is the intent of WSI and 3CI that this Revolving
Promissory Note shall evidence all sums owing by 3CI to WSI to the extent that
such sums represent advances of funds to 3CI in excess of the maximum limits
fixed under that certain $8,000,000 Revolving Promissory Note dated September
30, 1995. The Promissory Note dated September 30, 1995 has a due date of
December 31, 1996 of which the Company has requested from and received a 30
day extension until January 31, 1997 to discuss with WSI the possibility of
restructuring the terms of the Revolving Promissory Note. WSI's shareholders
have indicated that they are not willing to continue this funding into 1997.
Furthermore, the Company has attempted and has been unsuccessful to date in
obtaining third party financing. In the event the Company and WSI do not come
to a resolution on the restructuring of the note and the Company is unable to
obtain alternative financing, there can be no assurance that the Company will
be able to meet its obligations as they become due or realize the recorded
value of its assets and would likely be forced to seek bankruptcy protection.
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 565,500 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. The Company has
begun discussions with River Bay regarding the exercising of the remaining
shares of the Put Option. There is no definitive agreement in place towards a
renegotiation of the terms. If no resolution can be achieved during the
exercise period the Company is not in a financial position to have the ability
to repurchase the shares and would likely be forced to seek bankruptcy
protection.
The nature and level of competition in this industry have remained at a high
level for several years. This condition has produced aggressive price
competition and results in pressure on profit margins. The Company competes
against companies which may 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 shareholders 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.
7
<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 suppression, 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 that the resolution of
this matter, including attorneys fees incurred in the Company's defense could
have a material adverse effect on the Company's financial condition. 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.
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 was transferred to the United States District
Court of the Western District of Arkansas, Hot Springs Division and in
November 1996 was subsequently transferred to the United States District Court
for the Western District of Louisiana. 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. 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 litigation and claims
will not have a materially adverse effect on the Company's financial position
or results of operations.
The Company has received a request from the Texas Natural Resource Conservation
Commission that the Company submit an environmental remediation plan for the
site of an inactive medical waste incineration facility acquired in the reverse
merger. An accrued liability of $50,000 is included in the accompanying balance
sheet as of September 30, 1996.
The Company operates within the regulated medical waste disposal industry which
is subject to intense governmental regulation at the federal, state and local
levels. The Company believes it is currently in compliance in all material
respects with all applicable laws and regulations governing the medical waste
8
<PAGE> 9
disposal business. However, continuing expenditures may be required in order
for the Company to remain in compliance with existing and changing regulations.
Furthermore, because the medical waste disposal industry is predicated upon the
existence of strict governmental regulation, any material relaxation of
regulatory requirements governing medical waste disposal or of their
enforcement could result in a reduced demand for the Company's services and
have a material adverse effect on the Company's revenues and financial
condition. The scope and duration of existing and future regulations affecting
the medical waste disposal industry cannot be anticipated and are subject to
changing political and economic pressures.
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
December 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Revenues $ 4,674 $ 4,743
Cost of services 3,500 3,829
Depreciation and amortization 358 441
Selling, General, and
Administrative Expense 837 962
Income (loss) from operations (21) (489)
Other Income (expense), net (324) (195)
Net income (loss) (345) (684)
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995:
REVENUES:
Revenues for the three month period ended December 31, 1996, decreased to
$4,673,658 from revenues for the three month period ended December 31, 1995 of
$4,743,054. This decrease of $69,396 (1.5%) in revenue is primarily
attributable to a reduction in third party incineration revenue. The industry
continues 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 decreased to $3,499,959 for the three months ended December
31, 1996, compared to $3,828,881 for the three month period ended December 31,
1995. The decreased costs of services was a result of lowered transportation
costs, the Company's dependence on third party incineration facilities and
conversion of existing large customers from once used cardboard containers to
multi-used reusable containers.
9
<PAGE> 10
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"):
Selling, General and Administrative expense for the three month period ended
December 31, 1996, decreased to $836,970 compared to $962,416 for the three
month period ended December 31, 1995. As a percentage of revenue, the expense
for the 1996 period improved to 17.9% compared to 20.3% for the 1995 period.
DEPRECIATION AND AMORTIZATION expense for the three months ended December 31,
1996 decreased to $357,923 compared to $440,793 for the three months ended
December 31, 1995.
INTEREST EXPENSE increased to $324,382 for the three month period ended
December 31, 1996 from $168,958 for the three month ended December 31, 1995,
primarily due to the increase in the note payable from cash advances by the
majority shareholders.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES:
The Company has continued to experience a cash loss from operations during the
three months ended December 31, 1996. The Company anticipates a working cash
deficit from operations for the remainder of fiscal year 1997 and will be
dependent upon WSI to fund its continued operations. 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.
INVESTING ACTIVITIES:
During the first fiscal quarter 1997, the Company invested $233,000 for
transportation, machinery and equipment, computer equipment and software, and
other fixed assets.
FINANCING ACTIVITIES:
The Company has historically funded its operations, acquisitions and debt
service through cash advances from WSI. During fiscal 1994, advances of
$3,100,000 and $4,671,973 were converted to 666,670 and 1,557,324 shares of
common stock. As a result of its prior expansion and program of acquisitions,
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 interest, with principal 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
December 31, 1996 and and September 30, 1996, the Company has borrowed
$10,134,497 and $8,842,969 respectively under the note. As a significant amount
of the advances from WSI have
10
<PAGE> 11
historically been non interest bearing, some of which was ultimately converted
to equity, interest expense in 1997 has increased significantly as a result of
the advances made pursuant to the interest bearing note.
Since September 30, 1996, WSI has made additional cash advances to the Company
totaling $1,292,000 including interest. Due to the additional cash advances
that have been made in excess of the principal in the original promissory note,
the Company entered into a second Revolving Credit Facility of $2.7 million
including deferred interest, dated December 20, 1996 with maturity date of
February 28, 1997. It is the intent of WSI and 3CI that this Revolving
Promissory Note shall evidence all sums owing by 3CI to WSI to the extent that
such sums represent advances of funds by 3CI in excess of the maximum limits
fixed under that certain $8,000,000 Revolving Promissory Note dated September
30, 1995. The Promissory Note dated September 30, 1995 has a due date of
December 31, 1996 of which the Company has requested from and received a 30 day
extension until January 31, 1997 to discuss with WSI on the possibility of
restructuring the terms of the Revolving Promissory Note. This note has been
further extended until February 28, 1997. In the event the Company and WSI do
not come to a resolution on the restructuring of the note and the Company is
unable to obtain alternative financing, there can be no assurance that the
Company will be able to meet its obligations as they become due or realize the
recorded value of its assets and would likely be forced to seek bankruptcy
protection.
No assurance can be given that, following December 31, 1996, WSI will continue
to advance funds to the Company or that WSI will forego demand for payment of
the current indebtedness of the Company to WSI after February 28, 1997. 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. At this time
WSI's shareholders have indicated that they are not willing to continue this
funding into 1997. Furthermore, the Company has attempted and has been
unsuccessful in obtaining third party financing.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - 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, Waste Systems,
Inc. 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. The
Company's insurer has denied coverage in the lawsuit. The Company has denied
all material allegations of the lawsuit and believes that the resolution of
this matter will not have a material adverse effect on the Company's financial
condition. 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.
In June 1995, the former stockholders of Med-Waste Disposal Services, Inc.
("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 Spring Division,
but the plaintiffs are seeking to remand the case to the state court. The
Company has denied all material allegations of the lawsuit and believes that
the resolution of this matter will not have a material adverse effect on the
Company's financial condition. 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.
In connection with an auto accident in July 1996, two suits have been filed
against the Company. Ryan O'Neil Youmans & Anita Youmans v. American 3CI, et
al, No. CV9604899, was filed in the Circuit Court of Jefferson County,
Alabama, in August 1996. Jimmy R. Whitfield & Rhonda Whitfield v. Paul
Bronger, American 3CI, et al. No. CV-96-847, was filed in the Circuit Court of
Shelby County, Alabama in November of 1996. These proceedings have just been
initiated and little or no discovery has been conducted. Although the
Company's insurer has acknowledged that it provides coverage for this
accident, the outcome of this cannot be predicted. An adverse decision in the
lawsuit is not likely to have a material effect on the Company's financial
condition and results of operations.
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 - None
12
<PAGE> 13
INDEX TO EXHIBITS
(a) 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).
13
<PAGE> 14
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).
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).
3.1. Copy of 3CI's Certificate of Incorporation as amended
(incorporated by reference to Exhibit 3(a) of 3CI's
registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
3.2. Copy of 3CI's Certificate of Incorporation, as amended
effective June 13, 1995 (incorporated by reference to Exhibit
3.1 of 3CI's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995).
14
<PAGE> 15
3.3. Copy of 3CI's Bylaws, as amended (incorporated by reference
to Exhibit 3(b) of 3CI's registration statement on Form S-1
(No. 33-45632) effective April 14, 1992).
3.4. Copy of 3CI's Bylaws, as amended effective May 14, 1995
(incorporated by reference to Exhibit 3.2 of 3CI's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1995).
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).
15
<PAGE> 16
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).
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 shareholder (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 shareholder (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 shareholder.
4.12. Copy of Revolving Promissory Note dated December 20, 1996 in
the principal amount of $2,700,000 between 3CI and WSI, its
majority shareholder.
4.13. Copy of extension of Revolving Promissory Note dated December
30, 1996 in the pincipal amount of $8,000,000 between 3CI and
WSI, its majority shareholder.
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).
16
<PAGE> 17
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).
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).
17
<PAGE> 18
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.
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 10.21
of 3CI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
10.23 Settlement Agreement dated January 1996 between James
Shepherd, 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. 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).
* Filed herewith
(b) REPORTS ON FORM 8-K - NONE
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
3CI COMPLETE COMPLIANCE
CORPORATION
(Registrant)
Dated: February 14, 1997
By: /s/ Charles D. Crochet
-----------------------------------
Charles D. Crochet
President
(Principal Executive Officer)
Dated: February 14, 1997
By: /s/ Curtis W. Crane
-----------------------------------
Curtis W. Crane, CPA
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE> 20
INDEX TO EXHIBITS
EXHIBIT NO.
27 FINANCIAL DATA STATEMENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 130,000
<SECURITIES> 0
<RECEIVABLES> 6,152,166
<ALLOWANCES> 1,003,441
<INVENTORY> 95,985
<CURRENT-ASSETS> 5,463,152
<PP&E> 11,538,509
<DEPRECIATION> 3,192,618
<TOTAL-ASSETS> 14,521,048
<CURRENT-LIABILITIES> 16,483,167
<BONDS> 0
<COMMON> 99,004
0
0
<OTHER-SE> (4,458,613)
<TOTAL-LIABILITY-AND-EQUITY> (4,359,609)
<SALES> 4,673,658
<TOTAL-REVENUES> 4,673,658
<CGS> 3,857,882
<TOTAL-COSTS> 3,857,882
<OTHER-EXPENSES> 850,732
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 250,620
<INCOME-PRETAX> (345,576)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (345,576)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
