<PAGE> 1
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
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)
Registrant's telephone number, including area code (318) 869-0440
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Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
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 requirement for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Voting Stock held by non-affiliates of the
registrant as reported on the OTC Bulletin Board on December 28, 2000 was
approximately $573,143 computed on the basis of the closing sale price that
day. The number of shares of Common Stock outstanding as of the close of
business on December 28, 2000 was 9,198,325.
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3CI COMPLETE COMPLIANCE CORPORATION
TABLE OF CONTENTS *
ANNUAL REPORT ON FORM 10-K
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<TABLE>
<CAPTION>
PAGE
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PART I
<S> <C> <C>
Item 1. Business.......................................................................... 3
Item 2. Properties........................................................................ 10
Item 3. Legal Proceedings................................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............................... 11
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters..................................... 11
Item 6. Selected Financial Data........................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 13
Item 7a. Qualitative Disclosures about Market Risk......................................... 16
Item 8. Financial Statements and Supplementary Data....................................... 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................................ 16
PART III
Item 10. Directors and Executive Officers of the Registrant .............................. 17
Item 11. Executive Compensation........................................................... 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management...................................................... 22
Item 13. Certain Relationships and Related
Transactions............................................................... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................................... 23
Signature Page ............................................................................. 26
</TABLE>
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* This Table of Contents is inserted for convenience of reference only
and is not a part of this Report as filed.
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PART I
ITEM 1. BUSINESS
GENERAL.
3CI Complete Compliance Corporation ("3CI" or the "Company") was
incorporated in Delaware in 1991. The Company is engaged in the business of
medical waste management services. It services customers in a number of states
in and contiguous to the south and southeastern United States, including
Alabama, Arkansas, Georgia, Florida, Louisiana, Mississippi, Oklahoma,
Tennessee, and Texas. The Company's customers include regional medical centers,
major hospitals, clinics, medical and dental offices, veterinarians,
pharmaceutical companies, retirement homes, medical testing laboratories and
other medical waste generators. Services to customers include collection,
transportation, bar code identification and destruction by controlled high
temperature incineration, autoclav, microwave and chemical grinding and heating
technologies. The Company also provides training to customers on compliance with
regulations, use of containers, documentation and tracking.
"Medical waste" or "biomedical waste," as used herein, is broadly
defined to mean any liquid or solid waste generated in the diagnosis, treatment
or immunization of human beings or animals or in related research, that may
result in an infectious disease. State and federal regulations tend to focus on
regulated and infectious medical waste, which includes pathological wastes,
including tissues, organs and body parts; blood and the products or components
of blood; "sharps," including needles, scalpels, pipettes and other medical
instruments; waste from surgery or autopsy; dialysis wastes, including
contaminated disposable equipment and supplies; cultures and stocks of
infectious agents, including cultures from medical and pathological
laboratories; and various other biological wastes and discarded materials
contaminated with or exposed to blood, excretion and secretions from human
beings or animals. Also included are out of date or off specification
pharmaceutical wastes. "Medical waste" or "biomedical waste" as used herein,
does not include "hazardous waste," as such term is commonly defined under state
and federal regulations.
The Company believes the key to success in the medical waste management
business is to provide customers a total solution to their medical waste
compliance and disposal needs at competitive prices. To achieve and sustain a
competitive advantage in the medical waste disposal industry, the Company
provides the products and services described below to its customers.
DISPOSAL TECHNOLOGY
INCINERATION. The Company operates two incinerators with a capacity to
treat 36 tons of medical waste per day at its Springhill, Louisiana facility and
one incinerator with a treatment capacity of 12 tons per day at its Birmingham,
Alabama location. The incineration process is a two-stage process that ensures
the complete destruction of all pathogens. Most medical waste consists of
disposable paper and plastic products, which burn readily. In an incinerator,
medical waste is first burned and reduced to ash. The resulting gases are then
heated in the incinerator to a temperature of approximately 1800 degrees F to
2000 degrees F, assuring the destruction of all pathogens. This process
produces exhaust gas that is subsequently passed through scrubbers and bag
houses to incinerator stacks to ensure compliance with applicable air quality
standards. The remaining ash, which at this stage is sterilized and free of
pathogens, is then transported by truck to licensed landfills. Ash currently is
not considered hazardous under regulations of the Environmental Protection
Agency ("EPA"), but is regulated at the state level by various state agencies.
AUTOCLAVING. The Company treats a portion of its waste using
autoclaving. A conventional steam autoclave is a large cylindrical chamber with
a vacuum lock door. It uses high temperature steam in a multi-stage process to
sterilize or disinfect waste. In some processing facilities the treated waste is
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then transported to a landfill without any shredding, while in others the
treated waste is fed into a shredder/grinder to render the waste unrecognizable
and to reduce volume.
Although there are a range of other methods used for disposal of
medical waste, such as the use of microwave technology, incineration and
autoclaving are the most widely used technologies in the United States. The
other technologies below are accepted, but are either new or developing.
MICROWAVE. The Company operates one microwave unit with a capacity to
treat 10.8 tons of medical waste per day at its Birmingham, Alabama location.
The microwave process is an alternative technology that is compact and designed
to shred and treat medical waste in an enclosed environment. The process uses a
combination of steam and microwave heat to destroy any pathogens that are
present. The resultant waste is then classified as ordinary municipal solid
waste and is disposed of in an approved solid waste landfill.
CHEM-CLAV. The Company operates one Chem-Clav unit with a capacity to
treat 30 tons of medical waste per day at its Springhill, Louisiana facility.
The Chem-Clav is a chemically enhanced steam autoclave that uses sodium
hypocholrite to sanitize the medical waste before its introduction into the
steam autoclave. The Chem-Clave process runs waste through a grinder prior to
treatment to enhance sterilization and to render it unrecognizable. The treated
waste is then transferred to an approved landfill.
ALTERNATIVE TECHNOLOGIES; TECHNOLOGICAL OBSOLESCENCE
The regulated medical waste management industry presents continuing
opportunities for the development of alternative treatment and disposal
technologies. These alternative technologies may emphasize operating cost
efficiencies, reductions in the volume of regulated medical waste generated or
other environmental factors.
DISPOSAL AGREEMENTS
The Company enters into medical waste disposal agreements with
customers for the collection of their medical waste according to a schedule
agreed upon between the parties. The Company accepts medical waste that has been
packaged by customers in containers the Company provides and transports it in
Company vehicles to treatment facilities the Company owns or for which the
Company has long-term contractual rights. The Company uses a bar code technology
to track and record the movement of medical waste through all phases of its
handling and treatment, in compliance with applicable governmental regulations.
The Company also enters into disposal agreements with other medical
waste transporters and manufacturers and distributors of pharmaceuticals for the
treatment and related documentation of medical waste and out dated
pharmaceuticals. The Company intends to continue to enter into such agreements
to the extent possible in order to maximize utilization of its treatment
capacity without affecting its service to its regular customers.
MEDICAL WASTE CONTAINERS
The Company's policy is to accept medical waste from customers only if
it is packaged in containers provided or approved by the Company. The Company
furnishes its customers with multiple containers, reusable plastic carts,
plastic reusable and rigid cardboard containers for disposal of medical waste
products. These containers are clearly marked with the "biohazard" symbol to
draw attention to their contents and are lined with specialized plastic bags and
sealed to minimize potential contact with the medical waste products by health
care workers and medical waste handlers. The Company also furnishes its
customers with rigid reusable plastic containers clearly marked as biohazardous
and designed to contain certain types of medical waste, such as hypodermic
needles, scalpels and other so-called
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"sharps". Each container is specifically designed for the type of waste it will
hold and meets or exceeds governmental specifications as to construction and
strength. The Company believes that its emphasis on proper containerization
results in safer medical waste disposal and minimizes potential hazards or
liabilities to the Company and its customers.
The Company also provides reusable plastic containers for certain
customers. The Company believes the use of reusable containers has the potential
to lower costs to the Company. The rigid, plastic containers generally are
larger than the disposable boxes and can therefore hold greater volumes of
waste.
TRANSPORTATION
An important element of the Company's business strategy is to maximize
the efficiency with which it collects and transports regulated medical waste.
Therefore, the Company operates a specially equipped fleet of trucks, tractors
and trailers (dry and refrigerated) to provide strict control of transportation
services for the acceptance and transportation of containerized medical waste.
Drivers are trained in Department of Transportation ("DOT") procedures for the
transportation of medical waste. The Company has in place contingency plans to
respond immediately to any type of spill, leakage or other emergency that may
occur during transportation and provides emergency services to customers upon
request.
DOCUMENTATION AND REPORTING
The bar code label affixed to each of the Company's medical waste
containers is used in conjunction with computers, laser scanners and digital
scales to document the handling, treatment, disposal and weighing of the
customer's medical waste stream. Bar coded containers allow proper documentation
and tracking of waste materials and meet all applicable local, state and federal
regulations concerning packaging and labeling of medical waste materials. The
Company provides its customers on a regular basis with medical waste destruction
reports that document the acceptance, transportation, treatment and third party
verification of their medical waste disposal. The Company's detailed
documentation provides information on all waste it accepts and treats, including
the individual container bar code number, point of origin, date and time of pick
up, date and time of treatment, weight at time of treatment and certificate of
destruction.
SAFETY TRAINING AND CONSULTATION
The Company designs specialized on-site training systems for the
identification, segregation, handling and containerizing of waste products.
These systems are designed to assist customers in reducing their waste disposal
costs while maintaining regulatory compliance and to reduce potential exposure
to the Company's employees. The Company instructs health care workers in the
most efficient methods of handling, recording and documenting their waste
streams in compliance with local, state or federal regulations. The Company
will, on request, review a customer's internal waste collection and control
system or assist the customer in developing an internal system to provide for
the efficient management of medical waste within the customer's facility from
its creation to the point of its acceptance by the Company.
CUSTOMERS
The Company's health care customer base is diverse, with about 13,000
accounts in Arkansas, Florida, Georgia, Louisiana, Texas, Alabama, Mississippi,
and Tennessee, including regional medical centers, major hospitals, specialty
clinics, individual medical and dental practitioners, dialysis centers,
veterinary clinics, nursing homes and assisted care residences, among others.
The Company is not dependent upon a single customer or a few customers, and no
individual customer generates five percent or more of the Company's revenues.
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SALES AND MARKETING
The Company divides its market into three categories within each
geographic region: the hospital market, the professional market and the third
party market. The hospital market consists principally of medical centers, major
hospitals, major teaching institutions involved in medicine and research and
major medical complexes. The professional market consists principally of
physician and dental offices, laboratories, nursing and convalescent homes,
medical and veterinarians' offices, and clinics and mortuaries. The third party
market consists principally of pharmaceutical manufacturers and distributors and
other medical waste transportation companies.
The Company uses a three-fold strategy to increase its presence and
customer base in a particular geographical market. First, Company
representatives meet personally with a prospective customer to describe the
Company's services and to negotiate a disposal agreement that reflects the
prospective customer's service needs. Second, the Company uses direct mail to
establish potential customer leads, particularly in the professional market.
Third, the Company seeks endorsements or referral relationships with hospitals
and professional associations in the market areas. The Company seeks to achieve
a mix of both hospital and professional accounts which maximizes its resources
in each given market area.
COMPETITION
The market for regulated medical waste collection and processing
services is highly competitive and requires substantial labor and capital
resources. The Company experiences intense competition from national, regional
and local waste disposal (i.e., collection) companies as well as national,
regional and local companies providing integrated medical waste services (i.e.,
collection and processing). These companies compete directly with the Company
for business from medical waste generators located in the Company's regional
markets. In addition, the Company faces competition from businesses and other
organizations that are attempting to commercialize alternate treatment
technologies collectively to member groups of regulated medical waste
generators. The Company's majority shareholder, Waste Systems, Inc. ("WSI") is
owned by Stericycle, Inc. ("Stericycle"), which also operates in some of the
Company's operating markets.
INSURANCE COVERAGE
The medical waste disposal industry involves potentially significant
risks of statutory, contractual, tort and common law liability. The Company
carries a range of insurance coverage, including a comprehensive general
liability policy in the amount of $1,000,000 with a combined single limit for
bodily injury and property damage, and a $5,000,000 excess umbrella liability
policy. The Company carries $3,000,000 per occurrence of such coverage for the
incineration facilities used by the Company. The Company also carries $1,000,000
per occurrence of transportation liability insurance coverage, which includes
coverage for environmental damage caused by waste spillage or other forms of
pollution occurring during transportation. The Company believes that the types
of insurance it carries and amounts of coverage are customary in the industry
and are sufficient to protect the Company against the covered liabilities. There
can be no assurance, however, the Company's insurance will be adequate under all
circumstances or that the Company will be able to maintain it's current
insurance at existing levels and prices, or at all.
EMPLOYEES
A December 28, 2000, the Company had approximately 175 full-time and 4
part-time employees. Two of the employees are employed in executive capacities;
the remaining are in transportation operations, treatment facility operations,
sales positions and administrative and clerical capacities. None of the
Company's employees are subject to collective bargaining agreements. The Company
has not
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experienced any strikes or work stoppages and considers its relationship with
its employees to be satisfactory.
GOVERNMENTAL REGULATIONS
GENERAL. All aspects of the Company's business are heavily regulated.
The Company's collection, hauling, processing and disposal activities are
governed by numerous federal, state and local agencies and authorities under
laws, rules and ordinances relating to the definition, generation, segregation,
handling and packaging of medical waste. In addition, facility citing,
construction, operations, occupational training, safety, air, water and
incineration ash characteristics and disposal are regulated under different but
related laws, rules and ordinances.
The Company's activities are subject to federal laws and regulations
relating to public health and the environment. In addition to those federal
environmental and public health related laws that apply generally to the
Company's activities, there are a number of federal laws and regulations which
directly pertain to the handling, transport and processing of medical waste. The
most pertinent of these federal environmental and public health laws are
discussed below.
TREATMENT FACILITIES. The Company is required to obtain permits at
federal, local and state levels for the construction and operation of treatment
facilities. These efforts typically involve the expenditure of substantial
resources without any assurance of success. Such permits may include: (i) air
quality permits relating to the emissions from treatment facilities, (ii) solid
waste permits relating to storage, receipt and treatment of medical waste, the
storage and disposal of residues from the treatment facilities, and ancillary
air pollution control equipment relative to incinerators, (iii) waste-water
discharge permits, (iv) storm water discharge permits, (v) site permits, such as
zoning or special use permits, relating to the appropriateness of sites for a
waste processing facility under applicable zoning regulations, (vi) building
permits and (vii) occupancy permits. Air quality permits and site permits, and
in some cases solid waste permits, can be difficult to obtain, and may take a
year or longer to be issued.
Companies in the medical waste disposal industry often face resistance
to various permit applications from local and regional organizations, citizens
groups and residents because of the nature of the waste and the perceived threat
to air quality and public health caused by waste processing. The Company often
must conduct a public relations campaign, with an emphasis on education, to
overcome local opposition, which often is highly political and emotional.
Furthermore, once granted, permits often are subject to continuing review and
may be challenged either in court or otherwise even after construction or
operations have commenced. Accordingly, the Company's operations could be
subject to suspension or termination even after substantial funds have been
expended in reliance upon state or local regulatory approvals.
Operating permits generally incorporate performance standards. The
failure to comply with such standards could subject the Company to the
suspension or revocation of its permits or financial penalties for failure to
comply with permit requirements.
TRANSFER STATIONS. Transfer of medical waste, generally from a small
local pick-up vehicle to a large transport trailer, is necessary to consolidate
and transport waste in an economical fashion to regional processing centers.
Most states permit such transfer operations under their solid waste regulatory
authority or their department of health. After receiving local approvals, such
as necessary zoning or special use permits, application may be made to the
appropriate state solid waste authority.
STATE TRANSPORT PERMITS. Transportation permits currently are required in
a number of states. Some states require permits only if waste is picked up in
that state, while others require permits to transport waste through the state.
These permits generally include driver safety and training, waste packaging,
labeling and tracking requirements. The Company currently holds all necessary
hauling permits in each state in which it conducts operations. There can be no
assurance that any of the
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Company's current permits will be renewed or that, if the Company is able to
identify and secure additional locations for treatment or other waste processing
facilities or transfer stations, all necessary permits will be obtained, or that
if such permits are granted that they will be granted in a timely manner or
under conditions that will be acceptable to the Company.
THE OCCUPATIONAL SAFETY AND HEALTH ACT ("OSHA"). OSHA gives the federal
government the authority to regulate the management of infectious medical waste.
Liability may be imposed under the general duty clause found in Section 654 of
OSHA. This section requires employers to provide a place of employment that is
free from recognized and preventable hazards that are likely to cause serious
physical harm to employees. The regulations promulgated under OSHA require
employers to give notice to employees regarding the presence of hazardous
chemicals and to train employees in the use of such substances. This may be
found to apply in the case of chemicals that could be present in infectious
medical waste.
OSHA contains rules regarding exposure to blood borne pathogens, which
increase the cost of providing medical waste management services. These rules
impose, among other things, engineering and work practice controls, use of
personal protective clothing and equipment, training, medical surveillance,
labeling and record keeping requirements with respect to occupational exposure
to blood and other potentially infectious materials.
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA
establishes a regulatory program administered by the Environmental Protection
Agency ("EPA") covering the generation, storage, transportation, treatment and
disposal of hazardous waste. RCRA defines "hazardous waste" as any solid waste,
or combination of solid waste, which because of quantity, concentration,
physical, chemical, or infectious characteristics may:
(a) cause, or significantly contribute to, an increase in
mortality or an increase in serious irreversible or
incapacitating reversible illness; or
(b) poses a substantial present or potential hazard to human
health or the environment when improperly treated, stored,
transported or disposed of, or otherwise managed.
Although this general statutory definition of hazardous waste may
provide the EPA with the authority to regulate at least certain infectious
medical wastes as hazardous wastes, the EPA has not chosen to do so. To date,
infectious medical wastes have not been listed by the EPA as hazardous waste,
nor has being infectious been designated by the EPA as one of the
characteristics of a hazardous waste. Thus, infectious medical wastes, which do
not otherwise qualify as hazardous wastes, currently are not subject to
regulation under RCRA as hazardous wastes.
Although the EPA has not chosen to regulate infectious wastes as
hazardous wastes, it has developed and issued informal guidance outlining
practical approaches to infectious waste management. Moreover, although RCRA
does not comprehensively address the area of medical waste, certain wastes
common to the medical field currently are listed as hazardous wastes and,
therefore, certain medical wastes may be subject to the requirements of RCRA.
With respect to those solid wastes, that are deemed hazardous, RCRA contains
extensive regulatory requirements pertaining to reporting to the EPA, record
keeping, labeling, the use of containers, the furnishing of information to
persons handling the hazardous wastes and the tracking of hazardous wastes from
the point of generation to the point of disposal involving, among other things,
the use of transportation manifests.
Finally, facility ash may constitute hazardous waste depending upon the
composition and characteristics of the waste ash generated by the incineration
technology employed. If so, the ash would be subject to the hazardous waste
transportation, disposal and other hazardous waste management requirements of
RCRA discussed above.
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U.S. DEPARTMENT OF TRANSPORTATION. The Company's medical waste
transportation activities are subject to federal regulation by the DOT pursuant
to the Hazardous Waste Materials Transportation Act of 1994. The DOT regulations
contain packaging and labeling requirements, which are imposed on different
waste categories, depending on the perceived hazards of each category. The
regulations impose the most stringent requirements on packages containing over
four liters gross volume of "etiologic agents", which are defined as "viable
microorganism(s) or (their) toxin(s), which cause or may cause human disease,"
and are limited to certain agents listed in the Hazardous Materials Regulations.
These standards are intended to prevent the release of such agents into the
environment. The DOT requirements are intended to supplement etiologic waste
regulations promulgated by the Public Health Service of the U.S. Department of
Health and Human Services.
A significant portion of the waste the Company handles is "Regulated
Medical Waste", which as defined in the DOT Regulations, includes cultures and
stocks, pathological waste, human blood and any blood products, sharps, animal
waste, isolation waste, and unused sharps. These wastes are considered to be of
medium danger. To meet the packaging standards, packages containing these wastes
must be rigid, leak resistant and impervious to moisture, of sufficient strength
to prevent tearing or bursting while under normal conditions of use and
handling, sealed to prevent leakage during transport, puncture resistant for
sharps and sharps with residual fluids, and break resistant and tightly sealed
for fluids in quantities greater than 20 cubic centimeters. The DOT regulations
also prescribe labeling standards for all infectious and regulated waste and
testing protocols for manufacturers and suppliers of packaging.
In addition, the Company generally is subject to regulation by the DOT
and may be subject to regulation by the Interstate Commerce Commission pursuant
to a number of other statutes and bodies of regulation, some of which
specifically pertain to the transport of medical waste and which address, among
other things, vehicle operating procedures and the training of persons to
operate commercial vehicles carrying hazardous materials.
CERCLA. Federal regulations are included in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Super-fund Amendments and Reauthorization Act of 1986 ("CERCLA"), which in
general imposes strict liability in the event of a release or threatened release
of hazardous substances from a facility. Certain medical wastes may be
categorized as hazardous substances under CERCLA.
FEDERAL CLEAN AIR ACT. The Federal Clean Air Act and related regulations
may apply to the air emissions from the Company's incineration facilities. The
Clean Air Act establishes, among other things, comprehensive air permitting and
enforcement programs. These regulatory programs are based on several types of
air quality standards: national air quality standards, national emissions
standards for hazardous air pollutants, new source performance standards,
technology-based standards and acid disposition requirements. The Company is
required to design, construct and operate its facilities in accordance with the
Federal Clean Air Act and obtain all permits and approvals required therein.
FEDERAL CLEAN WATER ACT. Water discharges from the disposal processes, if
any, and storm water discharges may be regulated under the Federal Clean Water
Act and implementing regulations. Pursuant to the Federal Clean Water Act, the
EPA has promulgated extensive effluent and water quality standards as well as
permitting requirements for industrial discharges of water. The Company is
required to design, construct and operate its facilities in accordance with the
Federal Clean Water Act and obtain all permits and approvals required therein.
THE FOOD AND DRUG ADMINISTRATION ("FDA"). The Company is subject to
regulation by the FDA and the corresponding agencies of the states and foreign
countries in which the Company sells its products. Such regulation, among other
things, relates to the testing, marketing, export and manufacture of medical
devices. The FDA considers sharps containers to be "medical devices", as defined
under the
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Federal Food, Drug, and Cosmetic Act. Most sharps containers, according to the
FDA, are class II accessories to sharps devices.
STATE REGULATION
The states in which the Company operates generally have complex
regulatory frameworks governing, among other issues, the storage, treatment,
labeling, transport and disposal of medical waste. The Company's vehicles,
packaging, facilities and operating procedures are subject to detailed and
comprehensive regulation on the state level. The Company's incineration
facilities are required to include controlled air combustion units, air quality
control equipment, pollution control equipment and ancillary control and
monitoring equipment. All facilities are required to provide monitoring
equipment. State regulatory authorities may inspect Company operations on a
regular basis and assess fines and penalties or may halt operations for failures
by the Company to follow specific regulations. In addition, the failure of state
regulatory agencies to issue required permits or renewals, or any delays by such
agencies, could have a material adverse impact on the Company's operations.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately
6,100 square feet of office space in Shreveport, Louisiana, which is leased
under a lease expiring in December 2001, under which the Company paid
approximately $76,402 during fiscal 2000. A summary description of the Company's
operating properties is set forth below:
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY CAPACITY OWNED/LEASE
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<S> <C> <C> <C>
Shreveport, LA Corporate Office N/A Leased
San Marcos, TX Sales & Transportation N/A Leased
Carthage, TX Sales & Transportation N/A Leased
Grand Prairie, TX Sales & Transportation N/A Leased
Kenner, LA Sales & Transportation N/A Leased
Fresno, TX Sales & Transportation, Transfer Station N/A Owned
Birmingham, AL Sales & Transportation N/A Leased
Jackson, MS Sales & Transportation, Transfer Station N/A Owned Land
Springhill, LA Sales & Transportation N/A Owned
Bismark, AR Sales & Transportation, Transfer Station N/A Leased
Springhill, LA Incinerator 36 tons/day Owned
Springhill, LA Chem-Clav 30 tons/day Lease-Purchase
Birmingham, AL Incinerator 12 tons/day Owned
Birmingham, AL Microwave Unit 10.8 tons/day Owned
</TABLE>
The Company believes that its facilities are adequate for its current
and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is subject to certain litigation and
claims arising in the ordinary course of business. Management believes the
amounts ultimately payable, if any, as a result of such claims and assessments
will not have a materially adverse effect on the Company's financial position,
results of operations or net cash flows.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year ended September 30, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the OTC
Bulletin Board under the symbol "TCCC." On September 14, 1999, the Company was
informed that the Company's Common Stock securities would be delisted from the
NASDAQ Stock Market effective with the close of business on September 14, 1999.
The Common Stock was immediately eligible to be traded on the OTC Bulletin
Board.
The following table provides the high and low bid quotations for the
NASDAQ Small-Cap market up to September 14, 1999, and on the OTC Bulletin Board
thereafter for each of the quarterly periods indicated for the fiscal years
ended September 30, 2000 and 1999. These quotations indicated the inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL 1999:
First Quarter $1.375 $0.750
Second Quarter $1.188 $0.469
Third Quarter $0.938 $0.531
Fourth Quarter $0.813 $0.250
FISCAL 2000:
First Quarter $0.625 $0.250
Second Quarter $0.688 $0.250
Third Quarter $0.625 $0.313
Fourth Quarter $0.453 $0.188
</TABLE>
As of December 28, 2000, the approximate number of beneficial holders of
record of the Company's Common Stock was 425, and the closing sale price of the
Common Stock on December 28, 2000 was $0.14.
The Company declared, but did not pay, preferred stock dividends of
$497,550 during the fiscal year ended September 2000. The Company has never paid
dividends on its Common Stock.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following information is derived from the Company's audited
financial statements. This data should be read in conjunction with the financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Report.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
Revenues .................................. $ 17,216,778 $ 18,121,295 $ 19,008,696 $ 18,789,749 $ 17,748,300
Costs and expenses:
Cost of Sales ........................ 12,077,440 12,609,173 14,058,522 14,285,834 13,815,480
Write off of intangibles ............. -- -- -- -- 11,385,328
Write off of assets .................. -- -- -- -- 1,183,446
Selling, general and administrative .. 2,859,392 3,030,843 3,110,671 3,080,398 4,343,246
Depreciation and amortization ........ 1,704,262 1,750,702 1,297,620 1,352,015 2,224,161
------------- ------------- ------------- ------------- -------------
Total operating expenses ................. 16,641,094 17,390,718 18,466,813 18,718,247 32,951,661
------------- ------------- ------------- ------------- -------------
Income (Loss) from operations ............. 575,684 730,577 541,883 71,502 (15,203,361)
Interest income (expense) ................. (1,021,850) (911,411) (661,715) (902,229) (839,089)
Other income (expense) net ................ (140,390) 752,476 131,721 (257,461) (214,335)
Accretion of put option .................. -- -- -- -- (26,052)
------------- ------------- ------------- ------------- -------------
Net Income (Loss) ......................... $ (586,556) $ 571,642 $ 11,889 $ (1,088,188) $ (16,282,837)
============= ============= ============= ============= =============
Basic net income (loss) per common share .. $ (0.12) $ 0.06 $ 0.01 $ (0.12) $ (1.84)
============= ============= ============= ============= =============
Diluted net income (loss) per common
share ................................... $ (0.12) $ 0.03 $ 0.01 $ (0.12) $ (1.84)
============= ============= ============= ============= =============
SELECTED BALANCE SHEET DATA:
Working Capital (deficit) ................. (4,910,978) (4,903,722) (6,785,489) (6,135,666) (10,774,499)
Property, plant and equipment, net ........ 7,611,533 8,819,935 9,897,085 8,449,748 8,462,619
Total Assets .............................. 11,925,397 13,065,607 14,618,340 13,157,605 13,374,819
Long-term Debt, current maturities ........ 447,948 739,401 1,619,889 1,373,617 1,314,290
Long-term Debt, net of current Maturities . 702,760 1,120,241 986,524 986,467 742,400
Shareholders' Equity ...................... 2,380,967 3,347,619 2,759,511 1,964,122 (4,014,035)
Cash dividends per share .................. -- -- -- -- --
</TABLE>
----------
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is engaged in the business of medical waste management
services in the southwestern and southeastern United States. The Company's
customers include regional medical centers, major hospitals, clinics, medical
and dental offices, veterinarians, pharmaceutical companies, retirement homes,
medical testing laboratories and other medical waste generators. Services
include collection, transportation, bar code identification and destruction by
controlled, high temperature incineration and alternative treatment
technologies.
Competition in the medical waste industry has been high for several
years. The Company competes against companies that have access to greater
capital resources. One of those competitors is Stericycle, Inc., which owns 100%
of the capital stock of WSI, the Company's majority shareholder. During fiscal
year 1999 and 2000, the medical waste industry became more consolidated. In
November 1999, Stericycle, Inc. completed the purchased of the medical waste
assets formerly operated by Browning-Ferris Industries, Inc., its largest
competitor, from Allied Waste.
The Company has substantial indebtedness owed to WSI. This indebtedness
currently consists of a note in the principal amount of $5,629,379. In 1997 and
1998, through a series of transactions described below, certain additional debt
that the Company owed to WSI previously was converted into 7,000,000 shares of
the Company's Series B Convertible Preferred Stock, par value $.01 per share
(the "Series B Preferred Stock") and 750,000 shares of the Company's Series C
Convertible Preferred Stock, par value $.01 per share (the "Series C Preferred
Stock"). The Series B Preferred Stock and Series C Preferred Stock have
substantially identical terms. See "--Liquidity and Capital Resources."
YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1999
REVENUES decreased by $904,517, or 5.0%, to $17,216,778 during the
fiscal year ended September 30, 2000, from $18,121,295 for the fiscal year ended
September 30, 1999. This decrease is primarily a result of the Company selling
off certain routes in its Oklahoma territory. Net of the sale of routes in
Oklahoma in February 1999, revenues decreased by $360,970 or 2.1%.
COST OF SERVICES decreased $531,733 or 4.2%, to $12,077,440 during the
year ended September 30, 2000, compared to $12,609,173 for fiscal 1999. The
decrease is primarily the result of the Company selling certain routes in its
Oklahoma territory. The decrease in cost of services is also attributable to the
reduction of the Company's packing and container costs, transportation cost and
external processing fees. Net of the effect of the sale of the Oklahoma routes
Cost of Services decreased 1.0%. Cost of services as a percentage of revenues
increased to 70.1% during 2000 from 69.6% during 1999. Gross margin before
depreciation and amortization remained constant at 29.9% of revenue for the
fiscal year ended 2000 as compared to 30.4% for the fiscal year ended 1999.
DEPRECIATION AND AMORTIZATION expense decreased $46,440 or 2.7% to
$1,704,262 for fiscal year ended 2000, from $1,750,702 for fiscal 1999. This
decrease was related to certain assets becoming fully depreciated.
SELLING, GENERAL AND ADMINISTRATIVE expenses decreased $171,451 or 5.7%
to $2,859,392 or 16.6% of revenue during the fiscal year ended September 30,
2000 from $3,030,843, or 16.7% of revenue during the year ended September 30,
1999. This decrease is primarily the result of a reduction in salaries,
professional fees, and various other administrative expenses.
INTEREST EXPENSE increased by $110,439, or 12.1%, to $1,021,850 during
the fiscal year ended September 30, 2000, as compared to $911,411 in the fiscal
year ended September 30, 1999. This increase was primarily due to higher loan
commitment fees and an increase in the interest rate for the WSI promissory
note, which is variable and tied to the prime interest rate.
13
<PAGE> 14
OTHER INCOME AND EXPENSE decreased by $892,866 or 118.7% to $140,390
expense during the fiscal year ended September 30, 2000, from ($752,476) income
for the fiscal year ended September 30, 1999. This decrease is primarily a
result of the sale of certain of the Company's routes in Oklahoma described
above that totaled $898,690.
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1998
REVENUES decreased by $887,401, or 4.7%, to $18,121,295 during the
fiscal year ended September 30, 1999, from $19,008,696 for the fiscal year ended
September 30, 1998. This decrease is primarily a result of the Company selling
off certain routes in its Oklahoma territory.
COST OF SERVICES decreased $1,449,349, or 10.3%, to $12,609,173 during
the year ended September 30, 1999, compared to $14,058,522 for fiscal 1998. The
decrease is attributable to lower costs at the Company's treatment facilities
and a reduction in transportation cost, as well as the sale of certain routes in
the Company's Oklahoma territory. Cost of revenues as a percentage of revenues
decreased to 69.6% during 1999 from 74% during 1998. Gross margin before
depreciation and amortization totaled 30.4% of revenue compared to 26% for the
fiscal year ended.
DEPRECIATION AND AMORTIZATION expense increased $453,082 or 34.9% to
$1,750,702 for fiscal 1999 from $1,297,620 for fiscal 1998. This increase is
primarily due to management's decision on September 30, 1998 to revise the
useful lives of certain incinerators, bag houses and other treatment technology
based upon a review of expected remaining useful lives of these assets. This
change in accounting estimate increased depreciation expense by approximately
$285,000 for 1999.
SELLING, GENERAL AND ADMINISTRATIVE expenses decreased $79,828, or 2.6%
to $3,030,843 during the year ended September 30, 1999 from $3,110,671 during
the year ended September 30, 1998. The decrease was primarily attributable to a
reduction in salaries and other professional fees. Selling, general and
administrative expenses, as a percentage of revenue increased to 16.7% in fiscal
1999 from 16.4% in fiscal 1998.
INTEREST EXPENSE increased by $249,696, or 37.7%, to $911,411 during the
fiscal year ended September 30, 1999, from $661,715 in fiscal 1998. This
increase resulted from increased borrowings to purchase capital equipment and an
increase in its borrowing rate from WSI.
OTHER INCOME AND EXPENSE increased approximately $620,755 or 471% to
$752,476, due primarily to the sale of certain of the Company's routes in
Oklahoma.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital needs,
capital expenditures and acquisitions using internally generated funds as well
as borrowing from third parties and advances from WSI. The Company's
indebtedness currently consists of amounts owed to WSI described below,
insurance premiums that are financed over the course of each fiscal year, debt
incurred in connection with the leasing of the Chem-Clav unit, and the
indebtedness incurred in connection with the purchase of rolling stock. During
fiscal 2000, 1999, and 1998, the Company invested approximately $410,885,
$688,345, and $2,789,934, respectively, for transportation, machinery and
equipment at its treatment and transportation locations, computer equipment and
software. The 1998 amount includes approximately $810,000 for the construction
of the Chem-Clav technology at the Company's Springhill, Louisiana treatment
facility. In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment, of
which $390,291 had been utilized at September 30, 2000, and $1,000,000 for the
financing of equipment, of which $521,416 and $633,583 had been utilized at
14
<PAGE> 15
September 30, 2000 and 1999 respectively. This agreement is guaranteed by
Stericycle, Inc. which owns 100% of WSI.
On October 1, 1998, WSI and the Company, amended and restated a
revolving promissory note which had been extended from its original maturity
date in 1997 ("the Note"). The Note totaled approximately $5,800,000 as of
September 30, 1999, consisting of approximately $5,400,000 due under the
original note, $493,000 of accounts payable to WSI added to the note on October
1, 1998, and approximately $144,000 of accrued and unpaid interest, which was
capitalized and added to the principal balance effective January 1, 1999.
As of June 30, 2000 the Company notified WSI that it anticipated that
it would fail to meet its net income requirement under the Note for the quarter
ended June 30, 2000. Accordingly, WSI and the Company amended and restated the
original note as of August 1, 2000. The Amended and Restated Promissory Note
(the "Amended Note") which matured October 1, 2000 called for interest to be
paid quarterly at prime rate plus 3.5%, per annum not to exceed 13%. In
addition, in connection with the Amended Note 3CI will issue WSI warrants for
the purchase up to 351,836 shares of 3CI Common stock at an exercise price of
$.20 per share. The warrants expire September 20, 2002. The Note was amended and
restated pursuant to a waiver by WSI of all existing events of default under the
existing indebtedness. As of October 1, 2000 the Amended Note was again extended
to January 1, 2001. The Amended note calls for interest to be paid quarterly in
arrears at the prime rate plus 3.5% per annum not to exceed 13%. In addition, in
connection with the Amended Note 3CI will issue WSI warrants for the purchase of
up to 541,286 shares of 3CI Common stock at an exercise price of $.10 per share.
The Amended Note may be renewed at maturity at terms to be negotiated contingent
on the Company achieving certain EBITDA covenants. WSI intends to support the
Company through the year 2001.
In June 1997, WSI converted $7,000,000 of debt into 1,000,000 shares of
the Company's Series A preferred stock and canceled the 1996 Credit Facility the
Company had with WSI and reduced the outstanding indebtedness of the 1995 Note
owed to WSI by $4,300,000. During February 1998, the Company and WSI converted
an additional $750,000 of debt under the 1995 Note into Series C preferred
stock. In March 1998, the Company exchanged 1,000,000 shares of Series A
preferred stock for 7,000,000 shares of Series B preferred stock.
At September 30, 2000, the Company had net working capital, exclusive
of the note payable to its majority shareholder, of $718,401 compared to a net
working capital of $870,443 and ($1,781,086) at September 30, 1999 and 1998,
respectively. This decrease in net working capital of ($152,042) was due to the
declaration of preferred stock dividends of $497,550.
Net cash provided by operating activities was $1,429,540 during the
year ended September 30, 2000, compared to $1,732,430 for the year ended
September 30, 1999. This decrease reflects the Company's loss in the fiscal year
ended September 30, 2000. Net cash provided by operations was $1,732,430, during
the year ended September 30, 1999, compared to net cash provided by operations
of $1,228,643 during the year ended September 30, 1998. This increase reflected
an improvement in the Company's income from operations.
Net cash provided by (used in) investing activities for the year ended
September 30, 2000, was ($358,434) compared to $1,545 for the fiscal year ended
September 30,
15
<PAGE> 16
1999. This increase primarily reflects an increase in cash used for the capital
expenditures. Net cash provided by (used in) investing activities for the year
ended September 30, 1999, was $1,545 compared to ($2,575,273) for the fiscal
year ended September 30, 1998. This increase in cash provided was the result of
the proceeds from the sale of certain routes in the Oklahoma territory and a
reduction in the level of capital expenditures from the year ended September 30,
1998.
Net cash used in financing activities was ($746,304) during the year
ended September 30, 2000 compared to net cash used by financing activities of
($1,497,588) during the year ended September 30, 1999. The difference is
primarily the result of the repayment of long term debt and notes payable and
the reduction of borrowings. Net cash provided by (used in) financing activities
during the year ended September 30, 1999, was ($1,497,588) as compared to net
cash provided by financing activities of $1,346,630 during the year ended
September 30, 1998. The difference is primarily the result of the repayment of
long term debt and notes payable and the reduction of borrowings.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
totaled $2,139,556 for the fiscal year ended September 30, 2000 which reflected
a decrease of $1,094,229 from the similar period for 1999 which totaled
$3,233,785. The decrease was primarily due to the sale of certain customer
routes in the Company's Oklahoma territory during 1999. EBITDA increased by
$1,259,774 to $3,233,785 for the year ended September 30, 1999 as compared to
$1,971,224 for the same period ended September 30, 1998. This increase consisted
of the sale of certain routes described above totaling approximately $920,000
and an overall improvement in the operations of the Company.
The Company settled a lawsuit with the City of Center in October 1998
under which the city agreed to pay the Company the aggregate amount of $380,000
for breaking the exclusivity of the an incineration contract. The Company
received $200,000 of this settlement in October 1998, with the remaining balance
of $180,000 to be paid over 24 months. The balance as of September 30, 2000 is
$7,500.
ITEM 7A. QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk includes the possibility of rising
interest rates in connection with the Company's credit facility with WSI, its
majority shareholder, thereby increasing debt service obligation which could
adversely effect the Company's cash flows. The interest rate for the Note is
variable and tied to the prime rate not to exceed 13%. An increase in the prime
rate would not effect the rate of interest for the note as the rate is currently
13%. A decrease in the prime rate of 1% would have the effect of decreasing
interest expense by approximately $56,294 over 12 months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedule listed in
Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 10, 1999, Heard, McElroy & Vestal LLP was dismissed from
its role as principal accountants. The decision to engage Ernst & Young LLP for
the audit of the financial statements for the fiscal year ended September 30,
1999 was recommended by the Company's audit committee of Board of Directors
primarily in an effort to reduce outside accounting fees and to benefit from
Ernst & Young's national reputation.
In connection with the audits of the years ended September 30, 1998 and
1997, and the subsequent interim period through September 10, 1999, there were
no disagreements with Heard, McElroy & Vestal LLP on any matter of accounting
principles or practices, financial disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
The audit report of Heard, McElroy & Vestal LLP on the consolidated
financial statements of 3CI Complete Compliance Corporation for the year ended
September 30, 1998 did not contain any adverse opinion or disclaimer of opinion;
however, the 1998 financial statements were prepared assuming that the Company
would continue as a going concern. The auditors' reports included an
16
<PAGE> 17
explanatory paragraph that described circumstances that raise substantial doubt
about the Company's ability to continue as a going concern.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
During the fiscal year ended September 30, 2000 the Board of Directors
held five meetings. Each of the current directors who then were in office
attended at least 75% of the meetings of the Board of Directors and each
committee thereof on which such Director served. The Board of Directors has an
Audit Committee, and a Compensation Committee.
AUDIT COMMITTEE - The Audit Committee met once during the fiscal year
and is currently composed of three members, Messers ten Brink, Schoonmaker, and
Waller. All members of the Audit Committee are independent, in accordance with
the existing requirements of the Securities Exchange Commission. The functions
of the Audit Committee include meeting with the Company's independent auditors
annually to review financial results, audited financial statements, internal
financial controls and procedures and audit plans and recommendations. The Audit
Committee also recommends the selection, retention or termination of the
Company's independent auditors, approves services provided by the independent
public accountants before providing such services, and evaluates the possible
effect the performance of such services will have on the accountants'
independence. The Board of Directors has adopted a new written charter for the
Audit Committee effective October 23, 2000.
COMPENSATION COMMITTEE - The Compensation Committee met three times
during the fiscal year ended September 30, 2000, and is currently composed of
Messrs. Schoonmaker, Waller and Tomasello. The Compensation Committee recommends
to the Board of Directors the compensation for the Company's executive officers;
administers and makes awards under the Company's compensation plans; and
monitors and makes recommendations with respect to the Company's various
employee benefit plans.
The following table sets forth certain information as of December 28,
2000, with respect to the Directors and executive officers of the Company. All
Directors hold office until the next annual meeting of stockholders of the
Company, and until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack W. Schuler 59 Chairman of the Board
Otley L. Smith III 51 President and Director
Curtis W. Crane 41 Chief Financial Officer, Secretary
and Treasurer
Mark C. Miller 44 Director
Frank J.M. ten Brink (2) 45 Director
Anthony J. Tomasello (1) 54 Director
David J. Schoonmaker (1)(2) 56 Director
Robert M. Waller (1)(2) 56 Director
</TABLE>
(1) Serves on the Company's compensation committee
(2) Serves on the Company's audit committee
There are no arrangements or understandings with respect to the
selection of officers and directors and there are no family relationships
between any of such persons. Messrs. Jack Schuler, Mark Miller, Frank J.M. ten
Brink and Anthony Tomasello are senior officers of Stericycle, which
beneficially
17
<PAGE> 18
owns 55.5% of the outstanding shares of the Common Stock and 100% of the
preferred stock of the Company.
The following is a summary of the business background and experience of
each of the persons named above:
JACK W. SCHULER has served as a Director of the Company since October
1998. Mr. Schuler has served as Chairman of the Board of Directors of
Stericycle, Inc. since January 1990. From January 1987 to August 1989,
Mr. Schuler served as President and Chief Operating Officer of Abbott
Laboratories, a diversified health care company, where he served as a
director from April 1985 to August 1989. Mr. Schuler serves as a
director of Chiron Corporation, Medtronic, Inc. and Ventana Medical
Systems, Inc. He is a co-founder of Crabtree Partners LLC, a private
investment firm in Lake Forest, Illinois, which was formed in June
1995. Mr. Schuler received a B.S. degree in mechanical engineering from
Tufts University and a M.B.A. degree from the Stanford University
Graduate School of Business Administration.
OTLEY L. SMITH III has served as President and a Director of the
Company since June 2000. From 1998 until 2000, he served as a
consultant to the medical waste industry. In 1986 he founded
Med-Compliance Services, Inc. and served as President until 1998. In
1995, he founded Technology 2100, Inc. and managed the development of a
new medical waste treatment technology that was approved for use by the
U.S. EPA (FIFRA) and several states. For the past ten years Mr. Smith
has served as the industry representative in public sector initiatives
to standardize medical waste management regulations in several
southwestern states.
CURTIS W. CRANE has served as Chief Financial Officer of the Company
since September 1995. From 1993 until 1995, he served as Chief
Financial Officer for NDE Environmental Corporation and from 1988 until
1993, he served as Director of Finance and Tax for Lone Star Steel
Company. Mr. Crane received a B.B.A. degree in accounting from the
University of Texas.
MARK C. MILLER has served as a Director of the Company since October
1998. Mr. Miller has served as Stericycle's President and Chief
Executive Officer and a Director since May 1992. From May 1989 until he
joined Stericycle, Mr. Miller served as Vice President for Pacific Asia
and Africa in the International Division of Abbott Laboratories, which
he joined in 1976 and where he held a number of management and
marketing positions. He is a Director of Affiliated Research Centers,
Inc., which provides clinical research for pharmaceutical companies,
and is a Director of Lake Forest Hospital. Mr. Miller received a B.S.
degree in computer science from Purdue University.
FRANK J.M. TEN BRINK has served as a Director since October 1998. Mr.
Ten Brink has served as Stericycle's Vice President, Finance and Chief
Financial Officer since June 1997. From 1991 until 1996, he served as
Chief Financial Officer of Hexacomb Corporation, and from 1996 until
joining Stericycle, he served as Chief Financial Officer of Telular
Corporation. Prior to 1991, Mr. ten Brink held various financial
management positions with Interlake Corporation and Continental Bank of
Illinois. He received a B.B.A. degree in international business and a
M.B.A. degree in finance from the University of Oregon.
ANTHONY J. TOMASELLO has served as a Director since October 1998. Mr.
Tomasello has served as Stericycle's Executive Vice President and Chief
Technical Officer since January 1999 and previously had served as Vice
President, Operations, since August 1990. For eight years prior to
joining Stericycle, Mr. Tomasello was President and Chief Operating
Officer of Pi Enterprises and Orbital Systems, companies providing
process and automation services. Mr. Tomasello received a B.S. degree
in mechanical engineering from the University of Pittsburgh.
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<PAGE> 19
DAVID J. SCHOONMAKER has served as a Director since February 1998. Mr.
Schoonmaker has served as President and Chief Executive Officer of
RxThermal, Inc., a company that permits, designs, builds, and operates
medical waste treatment facilities, since 1989. Mr. Schoonmaker has
also been President of BMWNC, Inc. a commercial incinerator of medical
waste, since 1995. Mr. Schoonmaker received a B.S. degree in chemistry
from the University of California and a M.B.A. from California State
College.
ROBERT M. WALLER has served as a Director since April 1999. Mr. Waller
has served as President of RMW Logistics, since 1994. From 1992 until
1994 Mr. Waller served as Chief Operating Officer of DSC Logistics. Mr.
Waller received a B.S. degree in business administration from
Northwestern University and a M.B.A from Lake Forest Graduate School of
Management.
DIRECTOR COMPENSATION
During the fiscal year ended September 30, 2000, Directors who are
officers or employees of the Company or associated with WSI received no
additional compensation for their services as members of the Board of Directors.
Directors who are not such officers or employees currently receive $2,000 for
each meeting attended in person, $500 for each telephonic meeting, and $500 for
each committee meeting of the Board of Directors and were awarded options to
purchase shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, executive officers, and persons who own more than 10% of a
registered class of its equity securities to file reports of ownership and
reports of changes in ownership of such equity securities with the Securities
and Exchange Commission (the "SEC"). Directors, executive officers and greater
than 10% stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such forms furnished to the Company and written representations that no other
reports were required, the Company believes that its Directors, executive
officers and greater than 10% stockholders complied with all Section 16(a)
filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the cash
compensation awarded to, earned by or paid to the officers for the fiscal years
ended September 30, 1998, September 30, 1999 and September 30, 2000. No other
named executive officer received bonus and salary, which exceeded $100,000 in
1998, 1999 and 2000.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -------------------
------------ SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#)
--------------------------- ---- ------------ --------- -------------------
<S> <C> <C> <C> <C>
Otley L. Smith, III, President (1) 2000 $50,000
Charles D. Crochet, President (1) 2000 $160,000 $8,000 --
1999 $160,000
1998 $160,000 180,000 (2)
84,000 (3)
Curtis W. Crane, Chief Financial Officer 2000 $105,000 $20,000
1999 $105,000 90,000 (4)
</TABLE>
19
<PAGE> 20
----------
(1) On June 8, 2000 Charles Crochet, President, resigned. Otley L. Smith
was appointed as President of 3CI Complete Compliance Corporation.
(2) In July 1998, Mr. Crochet received an option to purchase 180,000 shares
of Common Stock at $1.50 per share that vests in annual increments of
60,000 shares on July 31 of each year for three years commencing July
31, 1999. All of such options expire July 31, 2008.
(3) Under the terms of Mr. Crochet's employment agreement, which became
effective June 1, 1998, certain options that Mr. Crochet held for a
total of 122,500 shares of Common Stock were converted into new options
for 84,000 shares of Common Stock and repriced. At the time of such
repricing, 32,500 options had an exercise price of $3.00 per share and
90,000 options had an exercise price of $2.00 per share. The 84,000 new
options have an exercise price of $1.50 per share and expire August 31,
2005.
(4) In April 1999, Mr. Crane received an option to purchase 90,000 shares
of common stock at $1.00 per share which vests in annual increments of
30,000 shares on April 27 of each year for three years commencing in
2000. All of such options expire April 27, 2009.
2000 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides certain information regarding unexercised
options to purchase shares of Common Stock granted by the Company to the named
executives during the fiscal year ended September 30, 2000. No executives
exercised any Common Stock options during fiscal 2000.
<TABLE>
<CAPTION>
NAME NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
---- OPTIONS/SARS AT OPTIONS AT
FISCAL YEAR-YEAR (#) FISCAL YEAR-YEAR (#)(1)
-------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles D. Crochet 204,000 60,000 -- --
Curtis W. Crane 30,000 60,000 -- --
</TABLE>
20
<PAGE> 21
----------
(1) The exercise price per share exceeded the closing price of a share of
Common Stock on September 30, 2000, and accordingly, none of Mr.
Crochet and Mr. Crane's stock options were in the money at fiscal year
end.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company performs, among other functions,
the functions normally performed by a compensation committee. During the fiscal
year 2000, the following persons served on the Board of Directors and
participated in the deliberations concerning executive officer compensation:
Anthony J. Tomasello, David Schoonmaker and Robert Waller.
21
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 22, 2000 the number of
shares of Common Stock beneficially owned by each (i) director (ii) executive
officer, and (iii) all Directors and executive officers of the Company as a
group. Except as noted below, each holder has sole voting and investment power
with respect to all shares of Common Stock listed as owned by such person.
<TABLE>
<CAPTION>
NAME BENEFICIAL OWNER
PERCENTAGE OF SHARES NUMBER OF SHARES(1)
<S> <C>
Waste Systems, Inc.(1).................................................................. 13,747,570
77.1%
Jim Shepherd (2)....................................................................... 490,189
5.3%
Jack W. Schuler......................................................................... --
Otley L. Smith.......................................................................... --
Mark C. Miller.......................................................................... --
Frank J.M. ten Brink.................................................................... --
David Schoonmaker (3)................................................................... 97,000
1.0%
Anthony Tomasello....................................................................... --
Curtis W. Crane (4)..................................................................... 31,700
.3%
Robert M. Waller(5)..................................................................... 50,000
.5%
All Directors and executive officers as a group (7 persons) ............................ 224,359
2.4%
</TABLE>
----------
(1) A Schdule 13D dated October 14, 1998 reflects that WSI is the
beneficial owner of 5,104,448 shares of Common Stock. Such Schedule 13D
reflects that Stericycle, Inc. owns 100% of WSI. Assumes the conversion
of 7,750,000 shares of preferred stock owned by WSI into 7,750,000
shares of Common Stock. Assuming the preferred stock are not converted,
WSI would own 55%, also assumes conversion of 893,122 warrants.
(2) A schedule 13D dated September 30, 1998 reflects that Mr. Shepherd is
the beneficial owner of 490,100 shares of Common Stock.
(3) Includes 80,000 shares issuable upon the exercise of vested options.
(4) Includes 50,000 shares issuable upon the exercise of vested options.
(5) Includes 30,000 shares issuable upon the exercise of vested options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 18, 1998, WSI and the Company entered into a Loan Agreement
and Note Amendment (the "New Loan") whereby WSI loaned $750,000 to 3CI. The New
Loan bore interest at Prime Rate, which was 7.75%, plus 3.0%. The outstanding
principal balance of the New Loan was due and payable on September 30, 1999.
This note was repaid in full as of September 30, 1999.
22
<PAGE> 23
On September 30, 1998, Stericycle acquired 100% of the common stock of
WSI for $10 million (the "Transaction"). As a result of the Transaction, WSI
became a wholly owned subsidiary of Stericycle. WSI owns 55.5% or 5,104,448
shares of the Company's Common Stock and 100% of the Company's outstanding
preferred stock, consisting of 7,000,000 shares of Series B preferred stock and
750,000 shares of Series C preferred stock . The Preferred Shares are
convertible into 7,750,000 shares of Common Stock, which if converted, would
increase WSI's ownership percentage to 75.8%.
On October 1, 1998, WSI and the Company entered into the Amended and
Restated promissory Note (the Note). The Note was in the principal amount of
approximately $5,488,000. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Overview."
During 2000, the Company made purchases of business forms with a
company owned by the father of Curtis W. Crane, the Chief Financial Officer of
the Company. Payments to the business forms Company during fiscal year ended
September 30, 2000 totaled $76,000.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment, and
$1,000,000 for the financing of equipment, of which $521,416 and $633,583 had
been utilized at September 30, 2000 and 1999 respectively. This agreement is
guaranteed by Stericycle, Inc. which owns 100% of WSI.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. Financial Statements
The audited financial statements and reports as detailed in the Index
to Financial Statements and Schedules for the year ended September 30, 2000, the
year ended September 30, 1999 and the year ended September 30, 1998, required in
response to Item 8 of Form 10-K are annexed to this report as a separate
section.
2. Financial Statement Schedule
The financial statement schedule for the year ended September 30, 2000,
the year ended September 30, 1999, and the year ended September 30, 1998,
required by Item 8 of Form 10-K, is annexed to this report as a separate
section.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 2000:
None
(c) EXHIBITS - THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS
A SEPARATE SECTION OF THIS REPORT.
EXHIBITS
23
<PAGE> 24
EXHIBIT
NUMBER DESCRIPTION
3.1 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 Amendment to 3CI's Certificate of Incorporation, as amended
effective June 13, 1995 (incorporated by reference to Exhibit 3.1
of 3CI's Quarterly Report on Form10-Q for the quarterly period
ended June 30, 1995).
3.3 Amendment to 3CI's Certificate of Incorporation, as amended
effective March 23, 1998 (incorporated by reference to Exhibit
3.3 of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.4 Bylaws, 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).
3.5 Amendment of Bylaws effective October 1, 1998.
3.6 Certificate of Designations of 3CI's Series A Preferred Stock
without par value (incorporated by reference to Exhibit 3.6 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
3.7 Certificate of Designations of 3CI's Series B Preferred Stock
without par value (incorporated by reference to Exhibit 3.7 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
3.8 Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
4.1 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4 of
3CI's report on Form 10-K filed January 12, 1999).
4.2 Loan Agreement and Note Amendment dated December 18, 1998, by 3CI
and Waste Systems, Inc. (incorporated by reference to Exhibit 4.5
of 3CI's report on Form 10-K filed January 12, 1999).
4.3* Letter Agreement and Note Amendment dated August 10, 2000 by 3CI
and Waste Systems, Inc.
4.4* Letter Agreement and Note Amendment dated December 20, 2000 by
3CI and Waste Systems, Inc.
10.1 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).
10.2 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
(incorporated by reference to Exhibit 10.23 of 3CI's report on
Form 10-K filed January 14, 1997).
10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated as
of June 24, 1997 (incorporated by reference to Exhibit 10.12 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
10.4 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998 (incorporated
by reference to Exhibit 10.13 of 3CI's registration statement on
Form S-1 (No. 333-48499), filed March 24, 1998).
10.5 Employment Agreement dated May 30, 1998, between 3CI and Charles
D. Crochet (incorporated by reference to Exhibit 10.9 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March
24, 1998).
10.6 Agreement dated September 30, 1998 among 3CI, Waste Systems, Inc.
and Stericycle, Inc. regarding Section 203 of the Delaware
General Corporation Law (incorporated by reference to Exhibit
10.14 of 3CI's report on Form 10-K filed January 12, 1999).
24
<PAGE> 25
10.7 Form of Indemnification Agreement dated August 26, 1998 entered
into between 3CI and Valerie Banner, David Schoonmaker, Charles
Crochet, Juergen Thomas, Dr. Werner Kook and Dr. Clemens Pues
(incorporated by reference to Exhibit 10.15 of 3CI's report on
Form 10-K filed January 12, 1999).
10.8 Form of Indemnification Agreement dated June 3, 1999 entered into
between 3CI and Robert Waller (incorporated by reference to
Exhibit 10.11 of 3CI's report on Form 10-K filed January 12,
2000).
10.9 LaSalle National Leasing master lease agreement dated June 18,
1999 between LaSalle National Leasing as lessor and the Company
as lessee (incorporated by reference to Exhibit 10.12 of 3CI's
report on Form 10-K filed January 12, 2000).
27.1* Financial Data Schedule * Filed herewith
----------
25
<PAGE> 26
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)
December 28, 2000 /s/ Otley L. Smith III
----------------------
Otley L. Smith III
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Otley L. Smith III President and Director December 28, 2000
----------------------
Otley L. Smith III
/s/ Mark C. Miller Director December 28, 2000
------------------
Mark C. Miller
/s/ Jack W. Schuler Chairman and Director December 28, 2000
-------------------
Jack W. Schuler
/s/ Curtis W. Crane Chief Financial Officer, December 28, 2000
------------------- Secretary and Treasurer
Curtis W. Crane
/s/ Frank J.M. ten Brink Director December 28, 2000
-------------------------
Frank J.M. ten Brink
/s/ Anthony J. Tomasello Director December 28, 2000
-------------------------
Anthony J. Tomasello
/s/ David J. Schoonmaker Director December 28, 2000
-------------------------
David J. Schoonmaker
</TABLE>
26
<PAGE> 27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL STATEMENTS OF 3CI COMPLETE COMPLIANCE CORPORATION
Reports of Independent Auditors 29
Balance Sheets -- September 30, 2000 and 1999 30
Statements of Operations for the years ended September 30, 2000, 1999
and 1998 31
Statements of Shareholders' Equity for the years ended September 30, 2000,
1999 and 1998 32
Statements of Cash Flows for the years ended September 30, 2000
1999 and 1998 33
Notes to Financial Statements 34
FINANCIAL STATEMENT SCHEDULE
The following schedule is filed as part of this Annual Report on Form 10-K.
Schedule II Valuation and Qualifying Accounts 45
</TABLE>
All other Schedules are omitted because they are not required, are not
applicable or the required information is presented elsewhere herein.
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board Directors of
3CI Complete Compliance Corporation:
We have audited the accompanying consolidated balance sheets of 3CI Complete
Compliance Corporation as of September 30, 2000 and 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of 3CI Complete
Compliance Corporation as of September 30, 2000 and 1999 and the consolidated
results of its operations and cash flows for the years then ended in conformity
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 2000
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board Directors of
3CI Complete Compliance Corporation:
We have audited the accompanying statements of operations, shareholders' equity
and cash flows for the year ended September 30, 1998. These financial statements
and schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and cash flows for the year
ended September 30, 1998 in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
HEARD, McELROY & VESTAL, LLP
Shreveport, Louisiana
January 11, 1999
29
<PAGE> 30
3CI COMPLETE COMPLIANCE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 561,189 $ 236,387
Accounts receivable, net allowances of $281,051 and $308,489
at September 30, 2000 and 1999, respectively 2,819,920 2,861,963
Inventory 88,062 91,460
Prepaid expenses 396,101 330,193
Other current assets 65,420 174,022
------------ ------------
Total current assets 3,930,692 3,694,025
------------ ------------
Property, plant and equipment, at cost 14,381,550 14,141,354
Accumulated depreciation (6,770,017) (5,321,419)
------------ ------------
Net property, plant and equipment 7,611,533 8,819,935
------------ ------------
Excess of cost over net assets acquired, net of accumulated amortization of
$189,988 and $140,988 at September 30, 2000 and 1999 respectively 367,243 416,243
Other intangible assets, net of accumulated amortization of $372,761 and
$298,209 at September 30, 2000 and 1999, respectively -- 74,552
Other assets 15,929 60,852
------------ ------------
Total assets $ 11,925,397 $ 13,065,607
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 227,898 $ 120,484
Current portion of long-term debt, unaffiliated lenders 447,948 739,401
Accounts payable 858,524 1,056,963
Accounts payable, affiliated companies 486,502 2,125
Accrued liabilities 693,869 904,609
Dividends Payable 497,550 --
Note payable majority shareholder 5,629,379 5,774,165
------------ ------------
Total current liabilities 8,841,670 8,597,747
------------ ------------
Long-term debt unaffiliated lenders, net of current portion 702,760 1,120,241
------------ ------------
Total liabilities 9,544,430 9,717,988
------------ ------------
Shareholders' Equity:
Preferred stock,$0 .01 par value, authorized 16,050,000 shares;
Issued and outstanding 7,750,000 shares 77,500 77,500
Additional Paid-in capital - preferred stock 7,672,500 7,672,500
Common stock, $0.01 par value, authorized 40,450,000 shares;
Issued and outstanding 9,232,825 shares 92,329 92,329
Less cost of treasury stock 34,500 shares (51,595) (51,595)
Additional Paid-in capital - common stock 20,400,778 20,283,324
Accumulated deficit (25,810,545) (24,726,439)
------------ ------------
Total Shareholders' equity 2,380,967 3,347,619
------------ ------------
Total liabilities and shareholders' equity $ 11,925,397 $ 13,065,607
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended September 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 17,216,778 $ 18,121,295 $ 19,008,696
Expenses:
Cost of services 12,077,440 12,609,173 14,058,522
Depreciation and amortization 1,704,262 1,750,702 1,297,620
Selling, general and administrative 2,859,392 3,030,843 3,110,671
------------ ------------ ------------
Income from operations 575,684 730,577 541,883
Other income (expense):
Interest expense (1,021,850) (911,411) (661,715)
Other income (expense) (140,390) 752,476 131,721
------------ ------------ ------------
Income (loss) before income taxes (586,556) 571,642 11,889
Income taxes -- -- --
------------ ------------ ------------
Net Income (loss) $ (586,556) $ 571,642 $ 11,889
------------ ------------ ------------
Dividends on preferred stock (497,550) -- --
------------ ------------ ------------
Net Income (loss) applicable to common shareholders $ (1,084,106) $ 571,642 $ 11,889
============ ============ ============
Basic earnings per share:
Basic net income (loss) per share $ (0.12) $ 0.06 $ 0.01
============ ============ ============
Diluted earnings per share:
Diluted net income (loss) per share $ (0.12) $ 0.03 $ 0.01
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Additional Common Additional
Shares Preferred Paid-In Shares Common Paid-In
Issued Stock Capital Issued Stock Capital
----------- ----------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 1,000,000 $ 7,000,000 -- 9,154,811 $ 91,549 $ 20,182,543
Conversion of Series A to Series B preferred stock (1,000,000) $(7,000,000)
Issuance of Series B for Series A preferred stock 7,000,000 $ 70,000 $6,930,000
Conversion of WSI debt and accrued interest to Series C 750,000 $ 7,500 $ 742,500
Issuance of minority lawsuit settlement shares 78,014 $ 780 $ 77,236
Purchase of treasury stock (28,500)
Net income
----------- ----------- ---------- ---------- --------- ------------
Balance at September 30, 1998 7,750,000 $ 77,500 $7,672,500 9,204,325 $ 92,329 $ 20,259,779
Purchase of treasury stock (6,000)
Issuance of stock options for compensation $ 23,545
Net income
----------- ----------- ---------- ---------- --------- ------------
Balance at September 30, 1999 7,750,000 $ 77,500 $7,672,500 9,198,325 $ 92,329 $ 20,283,324
Issuance of warrants $ 70,366
Declaration of preferred stock dividends
Issuance of stock options for exercise of options $ 47,088
Net loss
----------- ----------- ---------- ---------- --------- ------------
Balance at September 30, 2000 7,750,000 $ 77,500 $7,672,500 9,198,325 $ 92,329 $ 20,400,778
=========== =========== ========== ========== ========= ============
<CAPTION>
Total
Accumulated Treasury Shareholders'
Deficit Stock Equity (Deficit)
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at September 30, 1997 $(25,309,970) -- $ 1,964,122
Conversion of Series A to Series B preferred stock (7,000,000)
Issuance of Series B for Series A preferred stock 7,000,000
Conversion of WSI debt and accrued interest to Series C 750,000
Issuance of minority lawsuit settlement shares 78,016
Purchase of treasury stock $ (44,516) (44,516)
Net income $ 11,889 11,889
------------ ------------ ----------------
Balance at September 30, 1998 $(25,298,081) $ (44,516) $ 2,759,511
Purchase of treasury stock $ (7,079) $ (7,079)
Issuance of stock options for exercise of options $ 23,545
Net income $ 571,642 571,642
------------ ------------ ----------------
Balance at September 30, 1999 $(24,726,439) $ (51,595) $ 3,347,619
Issuance of warrants $ 70,366
Declaration of preferred stock dividends $ (497,550) $ (497,550)
Issuance of stock options for compensation $ 47,088
Net loss $ (586,556) $ (586,556)
------------ ------------ ----------------
Balance at September 30, 2000 $(25,810,545) $ (51,595) $ 2,380,967
============ ============ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended September 30,
---------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (586,556) $ 571,642 $ 11,889
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on disposal of fixed and intangible assets (13,876) (842,711) --
Depreciation and amortization 1,704,262 1,750,702 1,297,620
Compensation expense related to stock options 47,088 23,545
Issuance of warrants 70,366 -- 0
(Increase) decrease in accounts receivable, net 42,043 390,710 306,418
(Increase) decrease in inventory 3,398 5,311 (24,885)
(Increase) decrease in prepaid expenses (65,908) 107,844 (296,999)
(Increase) decrease in other current assets 153,525 212,553 (90,000)
Increase (decrease) in accounts payable (198,439) (589,788) 611,827
Increase (decrease) in accounts payable, affiliated companies 484,377 133,481 92,250
Increase (decrease) in accrued liabilities (210,740) (30,859) (679,477)
------------ ------------ ------------
Total adjustments to net income (loss) 2,016,096 1,160,788 1,216,754
------------ ------------ ------------
Net provided by operating activities 1,429,540 1,732,430 1,228,643
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 52,451 689,890 214,661
Purchase of property, plant and equipment (410,885) (688,345) (2,789,934)
------------ ------------ ------------
Net cash provided by (used in) investing activities (358,434) 1,545 (2,575,273)
------------ ------------ ------------
Cash flows from financing activities:
Increase (decrease) in bank overdrafts -- (666,834) 509,954
Proceeds from issuance of notes payable 629,971 918,534 1,094,266
Principal reduction of notes payable (522,556) (1,150,437) (959,403)
Purchase of treasury stock -- (7,079) (44,516)
Proceeds from issuance of long-term debt, unaffiliated lenders 22,867 342,572 1,723,331
Reduction of long-term debt, unaffiliated lenders (731,800) (1,089,344) (1,477,002)
Proceeds from issuance of note payable to majority shareholders -- 750,000 500,000
Reduction of note payable to majority shareholders (144,786) (595,000) --
------------ ------------ ------------
Net cash flows provided by (used in) financing a activities (746,304) (1,497,588) 1,346,630
------------ ------------ ------------
Net increase in cash and cash equivalents 324,802 236,387 --
------------ ------------ ------------
Cash and cash equivalents, beginning of period 236,387 -- --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 561,189 $ 236,387 $ --
============ ============ ============
Supplemental Disclosures:
Cash paid for interest $ 774,682 $ 767,442 $ 251,129
Non-Cash Activities:
Conversion of shareholder debt and accrued interest -- -- $ 750,000
Common stock issued for lawsuit settlement -- -- $ 78,014
Issuance of warrants $ 70,366
Declaration of preferred stock dividends $ 497,550
Right of first refusal exchanged for reduction in
notes payable to shareholder $ -- $ 155,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the collection, transportation, treatment and
disposal of biomedical waste in the south and southeastern United States.
Effective October 1, 1998, after approval by the then properly
constituted 3CI Board of Directors, Stericycle Inc., a Delaware corporation
("Stericycle") acquired 100% of the common stock of Waste Systems, Inc. ("WSI")
for $10 million. As a result of the Transaction, WSI became a wholly-owned
subsidiary of Stericycle. WSI owns 55.5% or 5,104,448 shares of the outstanding
common stock and 100% of the outstanding preferred stock of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents primarily represents highly liquid investments with a
maturity of three months or less when purchased.
INVENTORIES
Inventories, consisting of containers and supplies, are stated at the
lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization, which includes the depreciation of assets recorded under capital
leases, are computed using the straight-line method over the estimated useful
lives of the assets. Expenditures for major renewals and betterments are
capitalized; expenditures for repairs and maintenance are charged to expense as
incurred.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line method as follows:
<TABLE>
<S> <C>
Excess of cost over net assets acquired (goodwill) 17.5 - 40 years
Permits 5 - 7 years
Customer lists 5 - 10 years
</TABLE>
Amortization expense charged to operations for the years ended
September 30, 2000, 1999 and 1998 was $123,552, $115,552 and $99,552,
respectively. The Company continually evaluates the value and future benefits of
its intangible assets. Under this approach, the carrying value of goodwill would
be reduced if it becomes probable that the Company's best estimate for expected
undiscounted future cash flows of the related business would be less than the
carrying amount of goodwill over its remaining
34
<PAGE> 35
amortization period. For the three-year period ended September 30, 2000, there
were no adjustments to the carrying amounts of goodwill resulting from these
evaluations.
REVENUE RECOGNITION
The Company generally recognizes revenue when the treatment of the
regulated medical waste is completed on-site or the waste is shipped off-site
for processing and disposal. For waste shipped off-site, all costs are
recognized at time of shipment.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
liabilities and assets are determined based on the differences between the
financial statement and tax base of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
FINANCIAL INSTRUMENTS
The Company's primary financial instruments are accounts receivable,
notes payable, accounts payable and accrued liabilities. The fair values of
these financial instruments were not materially different from their carrying
values. Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
Credit risk is minimized as a result of the large size of the Company's customer
base. No single customer represents greater than 5% of total accounts
receivable. The Company performs ongoing credit evaluation of its customers and
maintains allowances for potential credit losses. These losses, when incurred,
have been within the range of management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could vary from the estimates that were used.
STOCK COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company uses the
intrinsic value method to account for stock options as set forth in Accounting
Principals Board No. 25, Accounting for Stock Issued to Employees (APB 25).
NOTE 3 - DIVESTITURES
In January 1999, the Company sold a portion of its Oklahoma customer
routes and a waste transfer permit for a Tulsa, Oklahoma location to a
competitor. The Company received total consideration of $920,000 consisting
primarily of cash, as well as a note receivable and certain customer routes of
the competitor located in Texas. In addition, the Company was granted a right of
first refusal to purchase all or substantially all of the assets of the
competitor which right was then shared with its majority shareholder in exchange
for $155,000 in forgiveness of debt. The Company recognized a gain
35
<PAGE> 36
on this transaction of $910,954, which is included in the 1999 Consolidated
Statement of Operations as other income (expense).
NOTE 4 - PROPERTY, PLANT EQUIPMENT
Property, plant and equipment consists of the following at September
30:
<TABLE>
<CAPTION>
2000 1999 USEFUL LIFE
---- ---- -----------
<S> <C> <C> <C>
Land $ 584,940 $ 584,940
Buildings and improvements 1,850,706 1,840,610 3-40 years
Transportation equipment 4,875,684 4,904,477 5-10 years
Machinery and equipment 6,688,618 6,464,585 5-20 years
Furniture and fixtures 381,602 346,742 3-10 years
----------- -----------
$14,381,550 $14,141,354
=========== ===========
</TABLE>
Depreciation expense charged to operations was $1,580,710, $1,635,150,
and $1,198,068 for the years ending September 30, 2000, 1999, and 1998,
respectively. On October 1, 1998 the Company changed the depreciable lives of
certain assets based upon a review of expected remaining useful lives of these
assets. The effect of these changes in estimates resulted in the decrease of
1999 operating income and net income of approximately $285,000 ($.02 per share).
Substantially all of the Company's property, plant and equipment have been
pledged as collateral against certain of the Company's liabilities.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of net income (loss) per
common share:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (586,556) $ 571,642 $ 11,889
Less preferred dividends (497,550)
------------ ------------ ------------
Net income (loss) after preferred dividends (1,084,106) 571,642 11,889
Denominator for basic earnings per share--weighted
Average shares 9,198,325 9,197,728 9,160,034
Effect of dilutive securities:
Preferred shares -- 7,750,000 7,750,000
------------ ------------ ------------
Denominator for diluted earnings per share 9,198,325 16,947,728 16,910,034
============ ============ ============
Basic net income (loss) per share $ (0.12) $ 0.06 $ 0.01
Diluted net income (loss) per common share $ (0.12) $ 0.03 $ 0.01
</TABLE>
For additional information regarding outstanding employee stock options
and outstanding warrants, see note 10.
Preferred stock, stock options and warrants, to purchase shares of
common stock outstanding during fiscal year ended September 30, 2000, were not
included in the computation of diluted earnings per share because the Company
had a net loss and the effect would be antidilutive. In 1999 and 1998, stock
options and warrants were not included because they were antidilutive, as the
exercise prices ranging from $3.00 to $1.50 were greater than the average price
of the common stock.
36
<PAGE> 37
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following at September 30:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Notes payable to an insurance company, due in monthly and
quarterly installments including interest of 5.9% to 9%
unsecured, with maturities in January and March, 2001. $227,898 $120,484
======== ========
</TABLE>
NOTE 7 - LONG TERM DEBT
Long-term debt - unaffiliated lenders consists of the following at
September 30:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Notes payable for purchased vehicles and equipment
held as collateral, due in monthly installments,
including interest, at rates ranging from 8% to 18.0%, maturing
through 2004 $ 629,293 $1,226,059
Obligations under capital leases 521,415 633,583
---------- ----------
Total debt 1,150,708 1,859,642
Less-current portion (447,948) (739,401)
---------- ----------
Long-term portion $ 702,760 $1,120,241
========== ==========
</TABLE>
Note payable to majority shareholder consists of the following at
September 30:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Revolving note payable to WSI, bearing interest at the prime rate
plus 3.5% per annum not to exceed 13%, due January 1, 2000
with interest payable quarterly $5,629,379 $5,774,165
========== ==========
</TABLE>
On October 1, 1998, WSI and the Company amended and restated a
revolving promissory note (the Note). Amounts due under the Note totaled
$5,629,379 as of September 30, 2000. The Note bears interest at the prime rate,
which is currently 9.5%, plus 3.5%. The Company was required to maintain a
minimum level of net worth and comply with certain performance related
covenants. Interest under the note is due and payable in quarterly installments
on the last business day of each calendar quarter.
As of June 30, 2000 the Company notified WSI that it anticipated that
it would fail to meet its net income requirement under the Note for the quarter
ended June 30, 2000. Accordingly, WSI and the Company amended and restated the
original note as of August 1, 2000. The Amended and Restated Promissory Note
(the "Amended Note") which matured October 1, 2000 called for interest to be
paid quarterly at prime rate plus 3.5%, per annum not to exceed 13%. In
addition, in connection with the Amended Note 3CI will issue WSI warrants for
the purchase up to 351,836 shares of 3CI Common stock at an exercise price of
$.20 per share. The warrants have an estimated fair value of $70,366 which was
charged to interest expense. The warrants expire September 20, 2002. The Note
was amended and restated whereby WSI waived all existing events of default under
the existing indebtedness. As of October 1, 2000 the Amended Note was again
extended to January 1, 2001. The Amended note calls for interest to be paid
quarterly in arrears at the prime rate plus 3.5% per annum not to exceed 13%. In
37
<PAGE> 38
addition, in connection with the Amended Note 3CI will issue WSI warrants for
the purchase of up to 541,286 shares of 3CI Common stock at an exercise price of
$.10 per share. The Amended Note may be renewed at maturity at terms to be
negotiated contingent on the Company achieving certain EBITDA covenants. WSI
intends to support the Company through the year 2001.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment of
which $390,291 had been utilized at September 30, 2000, and $1,000,000 for the
financing of equipment, of which $521,416 and $633,583 had been utilized at
September 30, 2000 and 1999 respectively. This agreement is guaranteed by
Stericycle, Inc. which owns 100% of WSI.
Payments due on long-term debt, during each of the five years
subsequent to September 30, 2000 are as follows:
<TABLE>
<S> <C>
2001......................................... $6,305,208
2002......................................... 376,445
2003......................................... 202,649
2004......................................... 123,684
----------
$7,007,986
==========
</TABLE>
Total interest expense was $1,021,850, $911,411 and $661,715 for the
years ended September 30, 2000, 1999 and 1998, respectively.
NOTE 8 - INCINERATION CONTRACTS
The Company was a party to exclusive incineration contracts with the
cities of Carthage and Center, Texas (the "Cities") whereby the Company was
guaranteed a minimum weekly burn capacity subject to meeting
certain annual minimum burn fees. In January 1997, the City of Center, Texas
filed suit in City of Center vs. 3CI Complete Compliance Corporation, Cause No.
CV 9:97-CV-125, in United States District Court Eastern District of Texas. The
City filed the lawsuit to recover damages arising out of a delinquent account of
3CI. 3CI filed counterclaims seeking damages arising out of the alleged breach
of exclusivity and tortuous interference by the City of Center. The Company and
the City of Center reached a settlement of the disputed claims whereby the City
of Center would give up their claim for the outstanding burn fees of
approximately $80,000 and pay to the Company $380,000 in settlement for breaking
the exclusivity agreement in the contract. The Company received $200,000 of this
settlement in October 1998, with the remaining balance of $180,000 to be paid
over 24 months. The balance as of September 30, 2000, and 1999 is $7,500 and
$105,000 respectively.
During 1999 the expansion of internal treatment capacity enabled the
Company to reduce outside treatment fees by treating waste internally, which was
formerly treated at the Carthage facility. Consequently, the $1,000,000 in fees
required to retain the exclusivity agreement with the City of Carthage expired.
The Company did retain a guarantee of treatment capacity at the City of
Carthage, of approximately 5,000,000 pounds, for the fiscal year ended September
30, 2000, which was based upon the level of treatment between June 1998 and May
1999.
In order to retain the exclusivity with the City of Carthage, the
Company had a minimum guaranteed payments for incineration fees for the years
ended May 31, 2000, May 31, 1999, and 1997, of $1,000,000. In the years ended
May 31, 2000, 1999, and 1998 the Company paid incineration fees of $62,329,
$492,235, and $1,277,033 respectively to the City of Carthage.
38
<PAGE> 39
Included in cost of sales for the years ended September 30, 2000, 1999,
and 1998, is $60,405, $271,805, and $1,199,384 respectively, related to
incineration costs at the City of Carthage.
NOTE 9 - INCOME TAXES
The Company's deferred tax liabilities and assets as of September 30,
are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Deferred income tax liabilities -
Property and equipment $ 1,732,740 $ 1,779,369
Other 68,735 68,735
------------ ------------
Total deferred income tax liabilities 1,801,475 1,848,104
Deferred income tax assets -
Net operating loss carryforward 9,290,411 9,147,802
Bad debt reserves 102,127 91,958
Other 997,194 985,858
------------ ------------
Total deferred income tax assets 10,389,732 10,225,618
Valuation allowance (8,588,257) (8,377,514)
------------ ------------
Net deferred income tax asset 1,801,475 1,848,104
------------ ------------
Total deferred income tax assets and liabilities $ -- $ --
============ ============
</TABLE>
At September 30, 2000, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $24,132,721, which will begin
expiring in 2004. The Company also had state net operating losses at September
30, 2000. Because of separate return limitations, change in ownership
limitations, and the weight of available evidence, it is more likely than not
that some portion or possibly all of the net operating losses will not be
available for use by the Company. The Company has established a valuation
allowance for the federal and state net operating losses of $8,588,257 and
$8,377,514 as of September 30, 2000 and 1999 respectively. The change in the
valuation allowance in 2000 was due to the 2000 net loss.
NOTE 10 - STOCK OPTION AND WARRANTS
In 1992, the Company's Board of Directors and shareholders approved a
stock option plan (the Plan), which, provides for the granting of 500,000 shares
of common stock in the form of stock options to employees, officers and
directors. The purpose of the Plan is to provide additional incentives to
officers and employees of the Company who are primarily responsible for the
management and growth of the Company. Each option granted pursuant to the Plan
shall be designated at the time of grant as either an "incentive stock option"
or as a "non-qualified stock option".
During 2000 the Company did not issue any stock options. During 1999,
the Company issued 215,000 stock options at exercise prices ranging from $0.594
to $1.00. During 1998, the Company issued 84,000 stock options issued at an
exercise price of $1.50, in exchange for the cancellation of 32,500 and 90,000
previously issued stock options, which were exercisable at a price of $3.00 per
share and $2.00 per share, respectively. The Company issued 180,000 stock
options of the Company's common stock at an exercise price $1.50 per share
during 1998.
As of September 30, 2000, 1999 and 1998, the Company had outstanding
424,000, 484,000 and 274,000 shares respectively of the 500,000 option shares
described above. The outstanding option shares vest annually over a three- year
period.
39
<PAGE> 40
A summary of stock option information follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 484,000 $ 1.50 274,000 $ 1.50 122,500 $ 2.27
Granted .76 274,000 1.50
215,000
Exercised -- -- --
Canceled/Forfeited (60,000) $ 1.50 (5,000) 1.50 (122,500) 2.27
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of year 424,000 $ 1.50 484,000 $ 1.17 274,000 $ 1.50
========== ========== ========== ========== ========== ==========
Exercisable at end of year 364,000 $ 1.50 174,000 $ 1.34 84,000 $ 1.50
Available for future grant 76,000 16,000 236,000
</TABLE>
Utilizing the intrinsic value method of APB 25, the Company recognized $47,088,
$24,000, and $46,000 of compensation expense related to stock options during the
years ended September 30, 2000, 1999, and 1998 respectively. The following table
illustrates the Company's net income (loss) on a pro forma basis as if stock
options had been accounted for under the fair value method recommended by SFAS
123.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net income - as reported $ (586,556) $ 571,642 $ 11,889
Net income - pro forma $ (650,678) $ 507,834 $ (33,691)
Pro forma income (loss) per share $ (0.07) $ .03 $ (.01)
</TABLE>
The fair value of stock options used to compute pro forma net income
(loss) is the estimated present value at the grant date using the Black Sholes
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rates of 5.0% for 2000, 5.00% for 1999 and 4.65% for 1998;
and a weighted-average expected option life of five years.
The Company, in connection with the February 1998 settlement of a
lawsuit with a group of its minority stockholders, issued the minority
shareholder class warrants to purchase up to 1,002,964 shares of common stock at
$1.50 per share. None of these warrants were exercised and they had expired in
April 2000.
NOTE 11 - RELATED PARTY TRANSACTION
The Company had notes payable to WSI, its majority shareholder, of
$5,629,379 and $5,774,165, as September 30, 2000 and 1999, respectively. In
addition, the Company owed current accounts payables to WSI of $486,502 and
$2,125 as of September 30, 2000 and 1999, respectively. Related interest expense
in the amount of $839,025, $590,638 and $410,596, was recorded for the years
ended September 30, 2000, 1999, and 1998, respectively. The amount recorded for
2000 included $627,639 in interest on the Note payable to WSI, $140,735 in Note
commitment fees, and $70,366 in warrants issued. Transactions and other
information relating to the debt owed to WSI are more fully described in Note 7
above.
40
<PAGE> 41
The Company treats medical waste at a treatment facility in Terrill,
Texas Conroe, Texas and Reserve, Louisiana which are owned by Stericycle, Inc.,
the parent of WSI, its majority shareholder. The treatment fees are paid
currently in accordance with 30-day terms. In addition, Stericycle treats waste
at the treatment 3CI treatment facility in Birmingham, Alabama. Treatment fees
for 3CI totaled $177,085 at the various facilities Stericycle incurred $45,395
at 3CI facilities. In February 1999, the Company entered into a 36 month
operating lease agreement with Stericycle Inc., to lease medical waste
containers. The rental expense recorded at September 30, 2000 was $24,300 for
2000 and $12,153 for 1999.
During the fiscal years ending September 30, 1998, the Company shared
certain facilities, personnel and administrative services with WSI. Certain
costs were allocated between the companies based on management's best estimate.
The Company purchased business forms from a company owned by the father
of Curtis W. Crane, the Chief Financial Officer of the Company. The payments
made were approximately $76,000, $70,000, and $72,000, during fiscal years ended
September 30, 2000, 1999, and 1998, respectively.
NOTE - 12 PREFERRED STOCK
In June 1997, WSI converted $7,000,000 of their promissory note with
3CI Complete Compliance Corporation to preferred stock. The Company issued
1,000,000 shares of Series A cumulative convertible preferred stock, with no par
value, at $7.00 per share or $7,000,000, to WSI, the Company's majority
shareholder. The Series A preferred shares were not entitled to receive any
fixed dividends but were entitled to receive such cash dividends as may have
been declared from time to time by the Board of Directors. The Series A
Preferred Stock holders were entitled to receive, if declared by the
Corporation's Board of Directors, cumulative dividends from the second
anniversary of the original issuance date, at the rate of $0.5775 per share per
annum. Had such dividends been declared by the Board of Directors, they would
have been cumulative from the second anniversary of the original issuance date
of the Series A Preferred Stock. Accruals of dividends do not bear interest. No
such dividends were declared.
In February 1998, Waste Systems, Inc., exchanged the 1,000,000 shares
of the Series A Preferred Stock for 7,000,000 shares of Series B cumulative
convertible preferred stock, with a par value $.01. The Series B preferred stock
holders are entitled to receive, if declared by the Corporation's Board of
Directors, out of the assets of the Corporation legally available for such
payment, cumulative dividends from the second anniversary of the original
issuance date, at the rate of $0.0825 per share per annum. These dividends if
declared will be payable quarterly on the 15th day of July, October, January and
April of each year, commencing with a payment on July 15, 1999. Such dividends
shall be cumulative from the second anniversary of the original issuance date of
the Series B preferred stock. Accruals of dividends shall not bear interest. For
so long as any shares of Series B preferred stock are outstanding, the
Corporation shall not purchase or redeem any shares of its par value $.01 common
stock, ("Common Stock") or declare or pay any dividend on its Common Stock
without the written consent of the holders of a majority interest in the Series
B preferred stock.
The shares of Series B preferred stock may be redeemed at any time on
or after the second anniversary of the original issuance date, at the option of
the Company, in whole or in part, at a per share redemption price equal to $1.00
plus accrued dividends if any. In the case of redemption of only a part of the
Series B Preferred stock the shares to be redeemed shall be selected by lot.
Subject to certain adjustments, the series B preferred stock shall be
convertible at the option of the record holder thereof, at any time after the
second anniversary of the original issuance thereof, in whole, or from time to
time in part, in the manner provided, into common stock. The Series B preferred
stock may be converted at any time on or after the second anniversary of the
original issuance thereof, in whole but not in part, into full shares of common
stock of the Corporation with a market price of $7,000,000 based on a conversion
rate determined by (i) dividing $7,000,000 by the market price of the
41
<PAGE> 42
common stock on the date of the conversion, (ii) plus an amount of cash
determined by subtracting the quotient calculated in (i) and subtracting from
$7,000,000; provided however, that at the option of the holder, the holder may
convert the Series B preferred stock into solely that number of shares of common
stock determined as provided in (i), and forego obtaining the additional common
stock issuable as calculated in (ii), subject to such adjustments, if any, of
the conversion rate and the securities or other property issuable upon such
conversion.
During February 1998, the Company and WSI converted an additional
$750,000 of debt under the 1995 Note, into 750,000 shares of Series C
Convertible preferred stock which have cumulative dividends, with a par value
$.01. The Series C preferred stock holders are shall be entitled to receive,
when, and if declared by the Corporation's Board of Directors cumulative
dividends from the second anniversary of the original issuance date, at the rate
of $0.0825 per share per annum, payable quarterly on the 15th day of July,
October, January and April of each year, commencing with a payment on July 15,
1999, of dividends accrued from the second anniversary of the original issuance
date of the Series C preferred stock. For so long as any shares of Series C
preferred stock shall be outstanding, without the written consent of the holders
of a majority in interest of the series C preferred stock, the Corporation shall
not (i) purchase or redeem any shares of its par value $.01 common stock, or
declare or pay any dividend on its Common Stock.
The shares of Series C preferred stock may be redeemed at any time on
or after the second anniversary of the original issuance date of the Series C
preferred stock, at the option of the Company in whole or, from time to time in
part, in any such case at a per share redemption price equal to $1.00, plus
accrued dividends, if any.
Subject to certain adjustments, the Series C preferred stock shall be
convertible at the option of the record holder thereof, at any time after the
second anniversary of the original issuance thereof, in whole, or from time to
time in part, in the manner provided, into common stock. The Series C preferred
stock may be converted at any time on or after the second anniversary of the
original issuance thereof, in whole but not in part, in to full shares of Common
Stock of the Corporation with a market price of $750,000 based on a conversion
rate determined by (i) dividing $750,000 by the market price of the common stock
on the date of the conversion, (ii) plus an amount of cash determined by
subtracting the quotient calculated in (i) and subtracting from $750,000;
provided however, that at the option of the holder, the holder may convert the
Series C preferred stock into solely that number of shares of common stock
determined as provided in (i), and forego obtaining the additional common stock
issuable as calculated in (ii), subject to such adjustments, if any, of the
conversion rate and the securities or other property issuable upon such
conversion.
On June 1, 2000 the Company declared a $0.0705 dividend on the series B
preferred stock which totaled $493,500 and represented the undeclared dividends
accrued for the period from June 24, 1999 through April 30, 2000. The resolution
called for the payment in cash from funds of the Corporation legally available
for the payment of dividends, as and when the Board of Directors may direct by
further resolution of the Board. In addition to the dividends declared,
undeclared dividends in arrears for the series B preferred stock totaled
$242,075.
Also on June 1, 2000 the Board of Directors declared a dividend of
$0.0054 for the Series C preferred stock totaling $4,050 and representing
dividends accrued for the period from April 6, 2000 to April 30, 2000. The
resolution called for payment in cash from funds legally available for the
payment of dividends, as and when the Board of Directors may direct by further
resolution of the Board. In addition to the dividends declared, undeclared
dividends in arrears for the series C preferred stock totaled $26,250.
42
<PAGE> 43
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In September 1998, Insurance Company of the State of Pennsylvania filed
suit in Insurance Company of the State of Pennsylvania v. 3CI Complete
Compliance Corporation, No. CV98-1756S, in the United Sates District Court of
Louisiana, Shreveport, Louisiana. The plaintiffs have alleged approximately
$390,000 in unpaid premiums for workers compensation insurance policies
allegedly issued between February 1994 and February 1997. This lawsuit was
settled in February 1999 by the payment of $255,000.
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
assessments will not have materially adverse effect on the Company's financial
position, result of operations or net cash flows.
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 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.
NOTE 14 - LEASE COMMITMENT
At September 30, 2000, the Company had certain noncancelable leases,
principally for office space and equipment, with various expiration dates.
Future minimum rentals under these leases for the following fiscal years are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ---------
<S> <C> <C>
2001 $ 164,037 322,500
2002 164,037 240,726
2003 164,037 211,031
2004 123,028 65,672
2005 and thereafter -0- 4,500
--------- ---------
615,138 844,429
=========
Less amounts representing interest 93,723
---------
Obligations under capital lease 521,415
Less obligation due within one year 122,564
---------
Long-term obligation under capital lease $ 398,851
=========
</TABLE>
Total rent expense for the fiscal years ended September 30, totaled $263,632,
and $252,158 for 2000, and 1999 respectively.
43
<PAGE> 44
NOTE 15 - EMPLOYEE BENEFIT PLAN
Under a plan approved by the Board of Directors in 2000, the Company
has a 401(k) defined contribution retirement plan covering substantially all
employees of the Company. Each participant may elect to defer a portion of his
or her compensation subject to certain limitations. The Company has the right to
make a discretionary contribution under the plan agreement. The Company did not
make any contribution in 2000.
44
<PAGE> 45
3CI COMPLETE COMPLIANCE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Schedule II
================================================================================
<TABLE>
<CAPTION>
Additions
Balance at charged to Charged to Balance at
beginning costs and other end of
Classification of period expenses accounts period
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
For the year ended September 30, 2000:
Allowance for doubtful accounts $ 308,489 $ 60,000 $ (87,438) $ 281,051
----------- ----------- ----------- -----------
$ 308,489 $ 60,000 $ (87,438) $ 281,051
=========== =========== =========== ===========
For the year ended September 30, 1999:
Allowance for doubtful accounts $ 573,937 $ 70,050 $ (335,498) $ 308,489
----------- ----------- ----------- -----------
$ 573,937 $ 70,050 $ (335,498) $ 308,489
=========== =========== =========== ===========
For the year ended September 30, 1998:
Allowance for doubtful accounts $ 875,144 $ (65,916) $ (235,291) $ 573,937
----------- ----------- ----------- -----------
$ 875,144 $ (65,916) $ (235,291) $ 573,937
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
beginning Reductions end of
Classification of period Additions Charged period
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
For the year ended September 30, 2000:
Income tax valuation allowance $ 8,377,514 $ 210,743 $ -- $ 8,588,257
----------- ----------- ----------- -----------
$ 8,377,514 $ 210,743 $ -- $ 8,588,257
=========== =========== =========== ===========
For the year ended September 30, 1999:
Income tax valuation allowance $ 8,929,871 $ -- $ (552,357) $ 8,377,514
----------- ----------- ----------- -----------
$ 8,929,871 $ -- $ (552,357) $ 8,377,514
=========== =========== =========== ===========
For the year ended September 30, 1998:
Income tax valuation allowance $ 8,943,370 $ -- $ (13,499) $ 8,929,871
----------- ----------- ----------- -----------
$ 8,943,370 $ -- $ (13,499) $ 8,929,871
=========== =========== =========== ===========
</TABLE>
45
<PAGE> 46
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 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 Amendment to 3CI's Certificate of Incorporation, as amended
effective June 13, 1995 (incorporated by reference to Exhibit 3.1
of 3CI's Quarterly Report on Form10-Q for the quarterly period
ended June 30, 1995).
3.3 Amendment to 3CI's Certificate of Incorporation, as amended
effective March 23, 1998 (incorporated by reference to Exhibit
3.3 of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.4 Bylaws, 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).
3.5 Amendment of Bylaws effective October 1, 1998.
3.6 Certificate of Designations of 3CI's Series A Preferred Stock
without par value (incorporated by reference to Exhibit 3.6 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
3.7 Certificate of Designations of 3CI's Series B Preferred Stock
without par value (incorporated by reference to Exhibit 3.7 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
3.8 Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
4.1 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4 of
3CI's report on Form 10-K filed January 12, 1999).
4.2 Loan Agreement and Note Amendment dated December 18, 1998, by 3CI
and Waste Systems, Inc. (incorporated by reference to Exhibit 4.5
of 3CI's report on Form 10-K filed January 12, 1999).
4.3* Letter Agreement and Note Amendment dated August 10, 2000 by 3CI
and Waste Systems, Inc.
4.4* Letter Agreement and Note Amendment dated December 20, 2000 by
3CI and Waste Systems, Inc.
10.1 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).
10.2 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
(incorporated by reference to Exhibit 10.23 of 3CI's report on
Form 10-K filed January 14, 1997).
10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated as
of June 24, 1997 (incorporated by reference to Exhibit 10.12 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
10.4 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998 (incorporated
by reference to Exhibit 10.13 of 3CI's registration statement on
Form S-1 (No. 333-48499), filed March 24, 1998).
10.5 Employment Agreement dated May 30, 1998, between 3CI and Charles
D. Crochet (incorporated by reference to Exhibit 10.9 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March
24, 1998).
10.6 Agreement dated September 30, 1998 among 3CI, Waste Systems, Inc.
and Stericycle, Inc. regarding Section 203 of the Delaware
General Corporation Law (incorporated by reference to Exhibit
10.14 of 3CI's report on Form 10-K filed January 12, 1999).
<PAGE> 47
10.7 Form of Indemnification Agreement dated August 26, 1998 entered
into between 3CI and Valerie Banner, David Schoonmaker, Charles
Crochet, Juergen Thomas, Dr. Werner Kook and Dr. Clemens Pues
(incorporated by reference to Exhibit 10.15 of 3CI's report on
Form 10-K filed January 12, 1999).
10.8 Form of Indemnification Agreement dated June 3, 1999 entered into
between 3CI and Robert Waller (incorporated by reference to
Exhibit 10.11 of 3CI's report on Form 10-K filed January 12,
2000).
10.9 LaSalle National Leasing master lease agreement dated June 18,
1999 between LaSalle National Leasing as lessor and the Company
as lessee (incorporated by reference to Exhibit 10.12 of 3CI's
report on Form 10-K filed January 12, 2000).
27.1* Financial Data Schedule * Filed herewith
----------
