SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------- -----------
Commission File No. 0-23900
IDM ENVIRONMENTAL CORP.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2194790
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
396 Whitehead Avenue, South River, New Jersey 08882
---------------------------------------------------
(Address of principal executive offices)
(908) 390-9550
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
--------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
---- ---
As of May 1, 1997, 9,602,730 shares of Common Stock of the issuer were
outstanding.
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996............................................ 1
Consolidated Statements of Operations - For the three
months ended March 31, 1997 and March 31, 1996................ 2
Consolidated Statements of Cash Flows - For the three
months ended March 31, 1997 and March 31, 1996................ 3
Notes to Consolidated Financial Statements.................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 5
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 8
SIGNATURES.............................................................. 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
========================= ====================
Current Assets:
Cash and cash equivalents $2,402,260 $1,001,254
Accounts receivable, net of
allowance for doubtful accounts
of $200,000 4,405,475 5,626,208
Stock subscription receivable 784,483 775,862
Notes receivable - current 5,311,660 1,274,773
Inventory 917,125 1,182,517
Costs and estimated earnings in
excess of billings 2,790,863 1,655,754
Bonding deposits 8,998 55,472
Deferred income taxes 2,309,000 2,609,000
Due from officers 255,477 208,676
Prepaid expenses and other
current assets 805,872 1,884,977
------------ --------------------
Total Current Assets 19,991,213 16,274,493
Investment in Affiliate, at cost 1,300,000 1,300,000
Notes Receivable - long term 2,929,958 1,572,238
Deferred Issuance Costs, net 210,833 -
Property, Plant and Equipment, net 2,627,746 2,742,650
Other Assets 486,393 313,246
------------ --------------------
$ 27,546,143 $22,202,627
============ ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $364,647 $351,127
Accounts payable and accrued
expenses 8,106,196 7,105,827
Billings in excess of costs and
estimated earnings 157,846 86,496
------------ --------------------
Total Current Liabilities 8,628,689 7,543,450
Long-Term Debt 164,034
Minority Interest 1,034,483 1,034,483
------------ --------------------
Total Liabilities 9,663,172 8,741,967
------------ --------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, authorized
1,000,000 shares $1.00 par
value, issued and outstanding
300 shares in 1997 300
Common stock, authorized 20,000,000
shares $.001 par value, issued
and outstanding 9,602,370 9,603 9,603
Additional paid-in capital 28,359,165 25,359,465
Retained earnings (deficit) (10,486,097) (11,908,408)
------------ --------------------
17,882,971 13,460,660
------------ --------------------
$ 27,546,143 $22,202,627
============ ====================
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1997 1996
---------- ----------
Revenue:
Contract income $4,733,164 $7,481,845
Sale of equipment 3,531,800 -
---------- ----------
8,264,964 7,481,845
---------- ----------
Cost of Sales:
Direct job costs 3,989,508 4,564,141
Cost of equipment sales 286,676 -
4,276,184 4,564,141
---------- ----------
Gross Profit 3,988,780 2,917,704
---------- ----------
Operating Expenses:
General and administrative expenses 2,167,654 1,652,783
Depreciation and amortization 156,059 211,161
2,323,713 1,863,944
---------- ----------
Income from Operations 1,665,067 1,053,760
Other Income (Expense):
Interest income(expense) 57,244 2,825
---------- ----------
Income before Provision for Income Taxes 1,722,311 1,056,585
Provision for Income Taxes 300,000 210,000
---------- ----------
Net Income $1,422,311 $ 846,585
========== ==========
Earnings per Share:
Primary earning per share $ 0.15 $ 0.13
========== ==========
Fully diluted earnings per share $ 0.15 $ 0.13
========== ==========
Primary common shares outstanding 9,602,730 6,640,934
========== ==========
Fully diluted common shares outstanding 9,602,730 6,640,934
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three months Ended March 31,
1997 1996
---------- -----------
Cash Flows from Operating Activities:
Net Income $1,422,311 $ 846,585
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deferred Taxes 300,000 210,000
Depreciation and amortization 138,351 211,161
Write-down of surplus inventory
Decrease (Increase) In:
Accounts receivable 1,220,733 (1,397,106)
Inventory 265,392 -
Notes receivable (5,403,228) 68,080
Costs and estimated earnings
in excess of billings (1,135,109) 203,972
Bonding deposits 46,474 50,000
Recoverable income taxes - 19,275
Prepaid expenses and other
current assets 1,079,105 238,850
Increase (Decrease) In:
Accounts payable and accrued
expenses 1,000,369 (113,318)
Billings in excess of costs and
estimated earnings 71,350 352,670
---------- -----------
Net cash provided by (used in)
operating activities (994,252) 690,169
---------- -----------
Cash Flows from Investing Activities:
Acquisition of property, plant and
equipment (31,987) (476,101)
Proceeds from disposal of property,
plant and equipment 17,707 -
Aquisition of other assets (173,147) -
Loans and advances to officers (46,801) (122,092)
---------- ------------
Net cash (used in) investing
activities (234,228) (598,193)
---------- ------------
Cash Flows from Financing Activities:
Net proceeds from convertible preferred
stock issuance 2,780,000 (85,880)
Principal payments on long-term debt (150,514) -
Issuance of common stock upon exercise
of stock options - 14,659
---------- -----------
Net cash provided by (used in)
financing activities 2,629,486 (71,221)
---------- -----------
Increase (Decrease) in Cash and Cash
Equivalents 1,401,006 20,755
Cash and Cash Equivalents, beginning of
period 1,001,254 83,286
---------- -----------
Cash and Cash Equivalents, end of period $2,402,260 $ 104,041
========== ===========
Supplementary Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest expense $ 47,118 $ 8,909
========== ===========
Income taxes - -
========== ===========
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Conversion of convertible promissory
notes to common stock $2,828,037 $ 1,668,628
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10- Q. These statements include the
accounts of IDM Environmental Corp. and all of its wholly owned and
majority owned subsidiary companies. The December 31, 1996 balance sheet
data was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-K for the year ended December 31, 1996. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
the interim periods presented. The current period results of operations are
not necessarily indicative of results which ultimately will be reported for
the full year ending December 31, 1997.
2. NOTES RECEIVABLE
The Company entered into a sale agreement with a German company dated as of
March 28, 1997 for the sale of certain power generating equipment (the
"equipment") for a total purchase price of six million ($6,000,000)
dollars. The payment terms of the sale agreement require an initial payment
of $600,000 and four installment payments of $1,350,000 each plus interest
at 5.6246 % payable on September 28 and December 28, 1997 and March 28 and
June 28, 1998. The debt is collateralized by a security interest in the
equipment. Prior to the sale, the equipment was owned jointly by the
Company and its joint venture partner, UPE. The Company has agreed to
purchase UPE's ownership interest in the equipment for two million five
hundred thousand ($2,500,000) dollars.
3. CONTINGENCIES
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and
Health Administration ("OSHA") issued a willful citation and notification
of penalty in the amount of $147,000 on the Company in connection with the
accidental death of an employee of one of the Company's subcontractors on
the United Illuminating Steel Point Project job site in Bridgeport,
Connecticut. A complaint was filed against the Company by the Secretary of
Labor, United States Department of Labor on September 30, 1996. The Company
is contesting the Citations and Notification of Penalty.
In November of 1996, a shareholder filed a class action lawsuit against the
Company and certain directors and officers of the Company. The suit, filed
in the Superior Court of New Jersey, Middlesex County, alleges that the
Company disseminated false and misleading financial information to the
investing public between March 27, 1996 and November 18, 1996 and seeks
damages in an unspecified amount to compensate investors who purchased the
Company's common stock between the indicated dates as well as the
disgorgement of profits allegedly received by the individual defendants
from sales of common stock during that period. The Company believes this
action is without merit and intends to vigorously contest this matter.
On February 11, 1997 the Company was served with a lawsuit naming the
Company as a co-defendant in a wrongful death cause of action arising out
of the accidental death of an employee of a subcontractor. The suit, filed
in the Federal District Court for the Northern District of Indiana, is
based on the same facts as gave rise to the aforementioned administrative
proceeding instituted by OSHA. Management believes that the suit, as it
relates to the Company, is without merit, and intends to vigorously contest
this claim. In addition the Company has insurance in place to protect
against such events.
On April 1, 1997 Continental Waste Conversion, Inc. ("CWC") commenced
litigation against the Company and two of its subsidiaries, Global Waste &
Energy, Inc., Delaware, and Global Waste & Energy, Inc., Alberta, and the
two principal officers of Global Alberta. CWC alleges that the agreements
entered into whereby CWC granted to Global Delaware the exclusive world
wide rights (excluding Canada) to the proprietary Kocee Gas Generator waste
treatment technology in exchange for a 10% interest in Global Delaware
should be voided because amongst other claims CWC did not obtain proper
approvals and the transaction was not consummated on an arms length basis.
Their claim alleges the loss of revenues estimated at $30 million. Prior to
the closing, the Company obtained the legal opinion of CWC's counsel that
states "CWC has full power, without limitation in any way, to enter into
the agreements, and all necessary corporate steps and proceedings have been
taken so that the agreements are properly granted and executed and
delivered as binding obligations of CWC". The Company believes this claim
is without merit and intends to vigorously contest this claim.
4
<PAGE>
Item 2. Management's Discussion and Analysis Of Financial Condition And Results
Of Operations.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report.
Material Changes in Results Of Operations
The Company's total revenues increased by approximately 10.5% from $7,482,000
for the quarter ended March 31, 1996 to $8,265,000 for the quarter ended March
31, 1997. Contract service income decreased during the quarter by 36.7% from
$7,482,000 in 1996 to $4,733,000 in 1997. The decrease in contract service
income is attributable to expected revenues being delayed into the second
quarter at our Oak Ridge and Boston offices. Surplus equipment revenues
increased from zero in 1996 to $3,532,000 in 1997. The increase in surplus
equipment revenues was attributable to the sale of four generators to a German
company.
Direct job costs decreased by approximately 12.6% from $4,564,000 for the
quarter ended March 31, 1996 to $3,990,000 for the same period in 1997. The
primary elements of such decrease in job costs were job salaries and material
and supplies. The decrease in job costs was attributable to the decrease in
contract service revenues during the quarter. The reason why contract revenues
decreased 36.7% and direct job costs decreased only 12.6% during the quarter is
primarily attributable to one contract where the direct job costs equaled the
contract revenues of $1,144,000. Cost of equipment sales increased from zero in
1996 to $287,000 in 1997. The increase in cost of equipment sales was
attributable to the sale mentioned above.
While total revenues increased by 10.5% for the quarter, general and
administrative expenses increased 31.2 % from $1,653,000 during the quarter
ended March 31, 1996 to $2,168,000 during the same period in 1997. The increase
in general and administrative expense was attributable to $144,000 in expenses
recorded by the Company's 90% owned subsidiary, Global Waste & Energy Inc. and
increases in professional fees and insurance expense (due to additional premium
as a result of an audit on the prior year premium) of $242,000 and $98,000,
respectively.
In addition to its operating income and expenses, the Company reported net
interest income of $57,000 for the quarter ended March 31, 1997 as compared to
net interest income of $3,000 for the same period in 1996. The increase in net
interest income/expense was attributable to $40,000 in interest expense which
accrued on indebtedness which remained outstanding during the first quarter of
1996 out of the $5,000,000 of convertible notes issued in the third quarter of
1995 versus no corresponding expense in the first quarter of 1997, as all the
notes had been converted as of December 31, 1996.
As a result of the foregoing, the Company reported income before taxes of
$1,722,000 and net income of $1,422,000 for the quarter ended March 31, 1997 as
compared to income before taxes of $1,057,000 and net income of $847,000 for the
same quarter in 1996.
Material Changes in Financial Condition, Liquidity and Capital Resources.
At March 31, 1997, the Company had a backlog totaling approximately $47 million
compared to a backlog of approximately $50 million at March 31, 1996. The
largest component of the Company's backlog at March 31, 1997 was $15 million for
the East Dam project.
In addition to its existing backlog, the Company is presently bidding on, and
intends to bid on numerous projects to replace revenues from projects which will
be completed during 1997 and to increase the total dollar volume of projects
under contract. Management anticipates that the Company's efforts to bid on and
secure new contracts will focus on projects which can be readily serviced from
the three regional offices opened by the Company during 1994 and 1995. In
addition, the Company has submitted proposals on several large international
plant relocation projects. The Company's regional offices, particularly the Oak
Ridge, Tennessee, Los Alamos, New Mexico, and Boston, Massachusetts offices are
strategically located in areas having a high concentration of prospective public
and private remediation sites. While bidding to perform services at such sites
is expected to be highly competitive, management believes that the Company's
existing presence on projects at these locations combined with its proven
expertise and resources will enhance the Company's chances of successfully
bidding on substantial new projects.
5
<PAGE>
The Company had working capital of $ 11,362,000, including cash and cash
equivalents balances of $2,402,000 at March 31, 1997. This compares to working
capital of $8,731,000 and a cash balance of $1,001,000 at December 31, 1996. The
increase in working capital and cash is primarily attributable to the sale in
February of 1997 of $3 million of Series B Convertible Preferred Stock.
Quarter-end receivables as a percentage of first quarter income was 53.6% in
1997 compared to 107% in the same period of 1996. The percentage excluding
equipment sales (which is a note receivable) would be a more comparable 92%.
Year-end receivables as a percentage of fourth quarter income increased
substantially from 53.0% in 1994 to 103.5% in 1995 and 157% in 1996. This ratio
was 82% at December 31, 1993. The ratio dropped to 53% at December 31, 1994
because the Company received a $4,184,000 payment a major contract on December
23, 1994. If this payment had been received after year end, the ratio would have
been a more comparable 98.4%.
Unbilled revenue as a percentage of quarterly contract income has increased from
0% at December 31, 1993, to 31% at December 31, 1994, to 56% at December 31,
1995, and to 44% at December 31, 1996 and 56% at March 31, 1997. Also, accounts
payable have constantly decreased since 1994 where as accounts receivable and
unbilled revenues have increased substantially during this period.
Prior to going public in April 1994, most of the Company's revenues were
generated in the private sector. Many of these contracts had substantial initial
mobilization payments and generated positive cash flow during the life of the
contract. Since then the company has been successful, as a result of its growth
strategy, in obtaining a number of government contracts at major Department of
Energy and Department of Defense sites. This work was obtained as a direct
result of opening three new regional offices. The experience with these
contracts has been negative cash flows until we near contract completion. This
is due to the requirement that we submit a schedule and a schedule of values at
the beginning of the job and bill according to the percent complete of each item
in the schedule of values - not the costs we have incurred. Our jobs of any size
are at a risk of being front end cost loaded when there is little progress to
report (i.e., we cannot bill until the structure is demolished). The Company is
aware of this problem and is trying to remedy it by maximizing mobilization
costs in the schedule of values, requiring subcontractors to bill on the same
basis and aggressively negotiating better (less front end cost loaded) schedule
of values.
Initially the Company tried to increase payment terms to vendors by paying them
after the Company received our payment. This method was unsuccessful. Many
vendors put the Company on a COD basis and its D&B rating weakened because D&B's
file showed "increased slowness in the company's payment record." This lower
rating hurt the Company in attempts to establish credit with new vendors.
Because IDM is a growing company and trying to establish good relationships with
its vendors, the company is now paying its vendors within terms to fifteen days
late and attempting to improve its D&B "paydex rating." The paydex rating of 60
is much worse than the average of the lower quartile for the industry of 68
(median for the industry is 75).
Inventory of $917,000 at March 31, 1997 decreased as a result of the sale of
four generators during the quarter. This inventory consists of fifteen (15)
generator sets with a total electrical capacity of 212,500 kilowatts per hour
(KWH). The estimated market price of the Company's generator inventory is ten
million dollars. Twelve (12) of the generators are steam driven and range in
size from 12,500 kilowatts to 33,000 kilowatts (KW). Three (3) of the generators
are diesel driven and range in size from 1,000 to 9,000 kilowatts (KW). These
generator sets should not be considered as obsolete or outdated inventory since
its design and technology has not changed much over the years. They are very
long lead items (15-18 months), experience and project specific and as such they
are not to be compared with disposable items.
It is the Company's intent to incorporate two (2) 15,000 KW generator sets
(steam driven) in the Company's pending El Salvador waste to energy project. In
future projects, the Company will try to use the balance of the 15,000 KW
generator sets and the 12,500 KW and 33,000 KW sets.
At March 31, 1997, the Company had no long term debt. Long term debt at December
31, 1996 totaled $164,034, consisting of installment debt secured by job
equipment.
The Company entered into a sale agreement with a German company dated as of
March 28, 1997 for the sale of certain power generating equipment (the
"equipment") for a total purchase price of six million ($6,000,000) dollars. The
payment terms of the sale agreement require an initial payment of $600,000 and
four installment payments of $1,350,000 each plus interest at 5.6246 % payable
on September 28 and December 28, 1997 and March 28 and June 28, 1998. The debt
is collateralized by a security interest in the equipment. Prior to the sale,
the equipment was owned jointly by the Company and its joint venture partner,
UPE. The Company has agreed to purchase UPE's ownership interest in the
equipment for two million five hundred thousand ($2,500,000) dollars
6
<PAGE>
During the quarter ended March 31, 1997, the Company made additional loans of
$325,000 repayable upon demand with interest at 9.25% to its ninety percent
owned subsidiary, Global Waste & Energy, Inc. ("Global Delaware"). In addition,
IDM, through a wholly-owned subsidiary of Global Delaware loaned $160,000
(Canadian) to Continental Waste Conversion, Inc. ("CWC") repayable in 18
consecutive installments commencing January 1, 1997 with interest at 7.5% per
annum. As of the date of this report CWC has made no payment and the loan is
delinquent. On April 1, 1997, CWC commenced litigation against the Company and
two of its subsidiaries, Global Delaware and Global Alberta, and the two
principal officers of Global Alberta. CWC alleges that the agreements entered
into whereby CWC granted to Global Delaware the exclusive world wide rights
(excluding Canada) to the proprietary Kocee Gas Generator waste treatment
technology in exchange for a 10% interest in Global Delaware should be voided
because amongst other claims CWC did not obtain proper approvals and the
transaction was not consummated on an arms length basis. Their claim alleges the
loss of revenues estimated at $30 million. Prior to the closing, the Company
obtained the legal opinion of CWC's counsel that states "CWC has full power,
without limitation in any way, to enter into the agreements, and all necessary
corporate steps and proceedings have been taken so that the agreements are
properly granted and executed and delivered as binding obligations of CWC". The
Company believes this claim is without merit and intends to vigorously contest
this claim.
Other than funding the Company's bonding and other job costs the Company does
not anticipate any substantial demands on the liquidity or capital resources of
the Company during the following twelve months.
Since 1994 the Company has consistently generated negative operating cash flows.
The primary reason for this the Company's policy of successfully bidding new
work at lower than normal margins in order to penetrate strategic markets
serviced by the Company's newly opened regional offices. Now that the Company is
established in these markets, the Company has been bidding work at normal
margins. Management of the Company believes, based on the current backlog of
work and expected work to be awarded based on bids outstanding, that future
operating cash flows will be positive.
Management believes that the Company's working capital is sufficient to meet the
Company's anticipated needs for at least the following twelve months, including
the performance of all existing contracts of the Company. However, as the
Company is presently pursuing bids on multiple large projects, the Company may
be required to seek new bank lines of credit or other financing in order to
facilitate the performance of jobs if the volume and size of projects being
performed by the Company increases substantially. While the Company is
conducting ongoing discussions with various potential lenders with a view to
establishing available bank lines of credit if and when needed to support future
growth, the Company presently has no commitments from any bank or other lender
to provide financing if such financing becomes necessary to support growth.
7
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Sale Agreement with CAG Technologie
10.2 Security Agreement with CAG Technologie
10.3 Promissory Note with CAG Technologie
27 Financial Data Schedule
(b) Reports on Form 8-K
None
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IDM ENVIRONMENTAL CORP.
Dated: May 16, 1997 By: /s/ Joel Freedman
----------------------------------
Joel Freedman, President
Dated: May 16, 1997 By: /s/ Michael B. Killeen
----------------------------------
Michael B. Killeen, Principal
Financial and Accounting Officer
9
SALE AGREEMENT
dated as of March 28, l997
by and between
IDM ENVIRONMENTAL CORP.
and
CAG TECHNOLOGIE MANAGEMENT CONSULTANTS
GREIFSWALD GMBH
<PAGE>
SALE AGREEMENT dated as of March 28, l997 (this "Agreement") by and between
IDM ENVIRONMENTAL CORP., a New Jersey corporation ("Seller"), and CAG
TECHNOLOGIE MANAGEMENT CONSULTANTS GREIFSWALD GMBH, a corporation formed under
the laws of the Federal Republic of Germany ("Purchaser").
WITNESSETH:
WHEREAS, Seller is the owner of certain power generating equipment (the
"Equipment"); and
WHEREAS, Purchaser desires to acquire all of the Equipment as hereinafter
provided.
NOW, THEREFORE, Seller and Purchaser, intending to be legally bound hereby
agree as follows:
I. PURCHASE AND SALE OF EQUIPMENT
1.01 Purchase of Equipment. Subject to the terms and conditions of this
Agreement, Seller hereby sells, assigns, transfers, sets over, conveys and
delivers to Purchaser and Purchaser hereby purchases from Seller the Equipment
for the Purchase Price on an AS IS/WHERE IS basis. The Equipment shall mean all
equipment specifically set forth on Schedule l.0l attached hereto.
II. PURCHASE PRICE
2.01 Purchase Price; Method of Payment; Collateral Security. The purchase price
for the Equipment is Six Million (US$6,000,000.00) U.S. Dollars (the "Purchase
Price"). Purchaser shall pay the Purchase Price to Seller upon execution and
delivery of this Agreement as follows: (i) Purchaser shall pay Six Hundred
Thousand (U.S. $600,000.00) U.S. Dollars to Seller by wire transfer of
immediately available funds into an account designated by Seller and (ii)
Purchaser shall deliver simultaneously herewith to Seller a promissory note
("Promissory Note") in the amount of Five Million Four Hundred Thousand (U.S.
$5,400,000.00) U.S. Dollars in the form of Exhibit A attached hereto. The debt
underlying the Promissory Note shall be secured by a lien on the Equipment.
III. THE CLOSING
3.01 Time of Closing. The closing of the transactions contemplated in this
Agreement (the "Closing") shall be effective upon the delivery of (i) fully
executed originals of this Agreement to Seller and Purchaser; (ii) the
Promissory Note to Seller; (iii) delivery of a security agreement made by
Purchaser in favor of Seller; and (iv) the delivery by Seller to Purchaser of an
executed bill of sale for the Equipment substantially in the form of Exhibit B
attached hereto.
1
<PAGE>
IV. REPRESENTATIONS AND WARRANTIES
4.0l Representations and Warranties of Seller. Seller represents and warrants to
Purchaser that:
a. The Seller is a New Jersey corporation, validly existing and in good
standing under the laws of New Jersey.
b. The Seller has full corporate power and authority to own its
properties and assets and operate its business and to perform all of
the Seller's obligations under this Agreement.
c. The Seller has taken all corporate actions necessary to authorize the
execution, delivery and performance of this Agreement, and this
Agreement constitutes the valid, legal and binding obligation of the
Seller.
d. No approval, authorization, consent, or other action by any
governmental authority, administrative agency or other person is
necessary for the Seller's execution and delivery of the Agreement or
the performance of the Seller's obligations hereunder.
e. The Seller's execution and delivery of this Agreement and the
performance of the obligations hereunder will not cause a material
breach or violation of, or default under, any provision of (i) the
charter or bylaws of the Seller, (ii) any security issued by the
Seller, (iii) any written agreement, contract, commitment, or other
arrangement to which the Seller is a party or by which the Seller is
bound, (iv) any applicable law, rule, or regulation of any
governmental authority, or (v) any applicable decree, order,
injunction, or other decision of any court, arbitrator, governmental
authority or administrative agency.
f. The Equipment is being sold to Purchaser on an AS IS WHERE IS basis.
Seller makes no representation or warranty of merchantability or
fitness for a particular purpose.
4.02 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller that:
a. Purchaser is a German company, validly existing and in good standing
under the laws of the Federal Republic of Germany.
b. Purchaser has full corporate authority and power to own its properties
and assets and operate its business and to perform all of Purchaser's
obligations under this Agreement.
2
<PAGE>
c. Purchaser has taken all corporate actions necessary to authorize the
execution, delivery and performance of this Agreement, and this
Agreement constitutes the valid, legal and binding obligation of
Purchaser. Purchaser has the financial ability and capacity to
purchase the Equipment and pay for same pursuant to the terms of the
Promissory Note.
d. No approval, authorization, consent, or other action by any
governmental authority, administrative agency or other person is
necessary for Purchaser's execution and delivery of this Agreement.
e. Purchaser's execution and delivery of this Agreement will not cause a
material breach or violation of, or default under, any provision of
(i) the charter or bylaws of the Purchaser, (ii) any written
agreement, contract, commitment, or other arrangement to which
Purchaser is a party or by which Purchaser is bound, (iii) any
applicable law, rule, or regulation of any governmental authority, or
(iv) any applicable decree, order, injunction, or other decision of
any court, arbitrator, governmental authority, or administrative
agency.
V. MISCELLANEOUS
5.01 Notice. Any notice given pursuant to this Agreement shall be in writing
signed by the party giving such notice (or by its agent) and shall be delivered
either by hand, messenger, overnight delivery or by telecopier to the other
party at the address listed below and shall be effective upon receipt unless
otherwise provided herein:
Seller: IDM Environmental Corp.
P.O. Box 388
396 Whitehead Avenue
South River, New Jersey 08882
Attention: Joel Freedman, President
Telephone: (908) 390-9550
Telecopier: (908) 390-9545
Purchaser: CAG Technologie Management Consultants
Greifswald GMBH
Koitenhager Landstrabe
17491 Greifswald
Attention:Alexander Lentes, President
Telephone: #03834 80 32 0
Telecopier: #03834 80 32 13
3
<PAGE>
Each party shall have the right to change the place to which notice shall be
sent or delivered by similar notice sent in like manner to the other party.
5.02 Governing Law. This Agreement shall be governed by the laws of the State of
New Jersey, U.S.A.
5.03 Entire Agreement. This Agreement (including the Schedules and Exhibits
hereto) contains the entire understanding of the parties with respect to the
subject matter hereof.
5.04 Further Assurances. Without limiting the generality of any provisions of
this Agreement, each party agrees that upon request of any other party, it
shall, from time to time, do any and all other acts and things as may reasonably
be required to carry out its obligations hereunder, to consummate the
transactions contemplated hereby, and to effectuate the purposes hereof.
5.05 Amendments. No amendment or modification of this Agreement shall be valid
or binding upon the parties unless made in writing and executed by the parties.
5.06 Severability. If any provision of this Agreement or the application thereof
to any person(s) or circumstances shall be invalid or unenforceable to any
extent, (i) the remainder of this Agreement and the application of such
provision to other person(s) or circumstance(s) shall not be affected thereby;
and (ii) each such provision shall be enforced to the greatest extent permitted
by law.
5.07 No Waiver. No consent or waiver, express or implied, by a party to or of
any breach by a party in the performance by it of any of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of the
breach in the performance by such party of the same or any other obligation of
such party hereunder. Failure on the part of any party to complain of any act or
failure to act of any other party or to declare any other party in default,
irrespective of how long such failure continues, shall not unless otherwise
herein provided to the contrary constitute a waiver by a party of its rights
hereunder. All consents and waivers shall be in writing.
5.08 Successors and Assigns. Subject to the restrictions on transfers set forth
herein, this Agreement shall inure to the benefit of, be binding upon and be
enforceable by and against the parties and their respective successors and
permitted assigns.
5.09 Joint Effort. Preparation of this Agreement has been a joint effort of the
parties and this Agreement shall not be construed more severely against any
party.
4
<PAGE>
5.10 Expenses. Purchaser and Seller shall pay all of their own expenses,
respectively, including legal and accounting fees, relating to the transactions
contemplated hereby, regardless of whether the transactions contemplated hereby
are consummated.
5.11 Counterparts. This Agreement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute but one Agreement. It shall not be necessary that any counterpart be
signed by the parties so long as each party shall have executed a counterpart.
IN WITNESS WHEREOF, the parties have hereto set their hands and seals as of
the date first set forth above.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
-------------------------------------------
Joel Freedman
President
By: /s/ Frank Falco
-------------------------------------------
Frank Falco
Executive Vice President
CAG TECHNOLOGIE MANAGEMENT
CONSULTANTS GREIFSWALD GMBH
By: /s/ Alexander Lentes
-------------------------------------------
Alexander Lentes
President
5
SECURITY AGREEMENT
THIS AGREEMENT dated as of this 28th day of March, 1997, is between CAG
Technologie Management Consultants Greifswald GMBH, a corporation formed and
legally existing under the laws of the Federal Republic of Germany, having its
principal offices at Koitenhager Landstrabe 17491 Greifswald (hereinafter
"Grantor")
and
IDM ENVIRONMENTAL CORP., a New Jersey corporation, having its principal
office located at 396 Whitehead Avenue, South River, New Jersey 08882
(hereinafter "Secured Party").
WHEREAS, as of the date hereof Secured Party sold to Grantor certain
equipment (the "Equipment") as specifically described in the sale agreement
between Grantor and Secured Party (the "Sale Agreement");
WHEREAS, Secured Party paid for the Equipment with a $600,000 cash payment
at closing and delivery of a U.S. $5,400,000.00 promissory note (the "Note")
made by Grantor in favor of Secured Party dated as of the date hereof;
WHEREAS, one of the terms of the Note requires that the Grantor grant to
Secured Party a security interest in the Equipment in order to secure its debt
evidenced by the Note; and
WHEREAS, the purpose of this Security Agreement is to comply with the terms
of the Note and to grant to Secured Party a security interest in the Equipment.
NOW THEREFORE, the Grantor and the Secured Party agree as follows:
SECTION 1. OBLIGATIONS. The Grantor has entered into this Agreement with
Secured Party to comply with the terms of the Note and to provide collateral
security.
SECTION 2. COLLATERAL. To secure the payment and performance of all
obligations of Grantor set forth in this Agreement, the Note and the Sale
Agreement whether presently existing or hereafter arising, together with all
renewals, extensions and modifications thereof, the Grantor pledges and grants
to Secured Party a first security interest in the Equipment set forth on
Schedule 1 attached hereto and made a part hereof.
1
<PAGE>
2.2 LOCATION OF COLLATERAL.
The Equipment is located at The Electrical Federal Commission of Mexico in
Durango, Mexico and at The Electrical Federal Commission of Mexico in Merida,
Mexico.
SECTION 3. REPRESENTATIONS AND WARRANTIES Grantor represents and warrants
to Secured Party that:
3.1 Grantor is duly incorporated, validly existing and in good standing
under the laws of the Federal Republic of Germany.
3.2 The execution, delivery, and performance by Grantor of this Agreement
has been duly authorized by all necessary corporate action and such action does
not cause Grantor to be in default under any law, rule, regulation, order,
judgment, injunction, decree, determination, award, indenture, agreement, lease
or instrument.
3.3 There is no pending or threatened action against or affecting Grantor
which may materially adversely affect the ability of Grantor to perform its
obligation under this Agreement.
3.4 Grantor has filed all tax returns required to be filed and has paid all
taxes, assessments and governmental charges and levies including interest and
penalties.
SECTION 4. GRANTOR'S AGREEMENTS.
4.1 Grantor will not sell, exchange, lease or otherwise dispose of the
Equipment except in the ordinary course of business, nor permit any lien or
security interest therein, or a financing statement to be filed against the
Equipment other than that of Secured Party.
4.2 Grantor will maintain the Equipment in good condition and repair and
preserve it against loss, damage or depreciation in value other than by
reasonable wear.
4.3 Grantor will maintain liability and risk insurance coverage on the
Equipment against fire, theft and other casualty with financially solid and
reputable insurance companies or associations in such amounts satisfactory to
Secured Party, with loss to be payable to Secured Party and Grantor as their
respective interest may appear. In the event of loss or damage, Grantor shall
notify Secured Party in writing and promptly file proof of loss with the
appropriate insurer. Any proceeds of such insurance received by Grantor shall be
held in trust by Grantor for Secured Party and shall be paid to Secured Party.
4.4 Grantor will pay, when due, all taxes, license fees and assessments
relating to the Equipment or its use. 2
2
<PAGE>
4.5 Grantor authorizes Secured Party, if Grantor fails so to do, to do all
things required of Grantor by Sections 4.2, 4.3 and 4.4 and charge all of its
expenses to Grantor.
4.6 Grantor will not remove the Equipment from the specified location(s)
without the prior written consent of Secured Party and will permit Secured Party
to inspect the Equipment and Grantor's books and records with respect thereto at
any reasonable time.
4.7 Grantor represents that it has not violated and will not violate as
long as any obligation is outstanding under this Agreement, any local, state or
federal environmental law, rule or regulation. Grantor shall notify Secured
Party in the event of any notification, claim, communication, judgment or other
involving the violation of Grantor of any environmental law, rule or regulation.
SECTION 5. DEFAULT. The following occurrences shall constitute a default
and Secured Party may declare all amounts payable under this Agreement, the Note
and the Sale Agreement executed by the Grantor evidencing debt to Secured Party
in connection therewith to be immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Grantor:
(i) Failure by Grantor to pay the principal or interest on the Note.
(ii) Any representation or warranty made or deemed made by Grantor in this
Agreement, the Note and Sale Agreement shall prove to have been incorrect in any
material respect on or as of the date made or deemed made.
(iii) The Grantor shall fail to perform or observe any term, covenant or
agreement contained herein or in the Note or Sale Agreement.
(iv) Grantor shall make a general assignment for the benefit of creditors,
or file a petition in bankruptcy, or become the subject of a bankruptcy
proceeding, or shall have a receiver or trustee appointed for it or any of its
properties.
(v) If Grantor becomes insolvent or ceases to do business as a going
concern.
5.1 Each of the occurrences described in Sections (i) through (v) above are
hereinafter referred to as an "Event of Default".
3
<PAGE>
SECTION 6. REMEDY ON DEFAULT. At any time after an Event of Default and
during the continuation thereof, Secured Party may declare all outstanding sums
due under the Note and proceed with or without judicial process to take
possession of all or any part of the Equipment. Secured Party may thereafter
sell, assign, lease, transfer and deliver all, or any part of the Equipment at a
private sale or public auction for cash, upon credit or otherwise at such prices
and upon such terms as Secured Party may deem advisable and any requirement of
reasonable notice to Grantor shall be met if notice is mailed, postage prepaid,
to Grantor at the address set forth in the caption of this Agreement at least
ten (10) days prior to the sale or other disposition and Secured Party may be
the purchaser at any public sale of the Equipment free of any right of
redemption, which right Grantor hereby waives.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 All the terms herein, and the rights, duties and remedies of the
parties shall be governed by the law of the State of New Jersey, U.S.A.
7.2 All of the benefit hereof shall inure to Secured Party, its successors
and assigns, and the obligations shall be binding upon the Grantor, its
successors and assigns.
7.3 Secured Party shall not be deemed to have waived any of its rights
under this or any other agreement or instrument signed by Grantor unless the
waiver is in writing signed by Secured Party. No delay in exercising its rights
shall be a waiver nor shall a waiver on one occasion operate as a waiver of such
right on a future occasion.
4
<PAGE>
7.4 Each demand, notice or other communication shall be served or given by
regular mail, courier or facsimile transmission addressed to the party at its
address set forth herein or as changed by written notice to the other party or
by personal service upon the party or its proper officer.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and year first above written.
CAG TECHNOLOGIE MANAGEMENT
CONSULTANTS GREISFWALD GMBH
By: /s/ Alexander Lentes
---------------------------------------------
Alexander Lentes, President
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
---------------------------------------------
Joel Freedman, President
5
NON-RECOURSE PROMISSORY NOTE
$5,400,000.00 South River, N.J.
as of March 28, 1997
WHEREAS, IDM ENVIRONMENTAL CORP., a New Jersey corporation ("Payee"), has
sold certain equipment to CAG TECHNOLOGIE MANAGEMENT CONSULTANTS GREIFSWALD
GMBH, a corporation formed and legally existing under the laws of the Federal
Republic of Germany ("Maker"), for a total purchase price of U.S. $5,400,000.00
evidenced by that certain sale agreement by and between Payee and Maker dated as
of the date hereof (the "Sale Agreement"); and
WHEREAS, Maker has agreed to execute and deliver this promissory note to
Payee to memorialize the debt created by the sale of the Equipment defined in
the Sale Agreement.
NOW THEREFORE, FOR VALUE RECEIVED, and intended to be legally bound hereby,
CAG Technologie Management Consultants Greifswald GMBH ("Maker") promises to pay
to the order of IDM ENVIRONMENTAL CORP. ("Payee"), at its offices at 396
Whitehead Avenue, South River, NJ 08882 or at such place as Payee may direct,
the principal sum of Five Million Four Hundred Thousand U.S. Dollars
(U.S.$5,400,000.00), together with interest upon the unpaid balance from the
date of this Note at the rate of five and 6,246/10,000 (5.6246%) percent per
annum. The Maker shall make four (4) payments of principal and interest as set
forth on Schedule 1 attached hereto. The Maker makes this Note on a non-recourse
basis in favor of Payee.
Costs of Collection; Late Charge. If any installment or other payment is
not paid when due, the amount thereof shall bear an additional late charge at a
rate of five (5%) percent per year until paid, but in no event shall such late
charge exceed the maximum permitted under applicable law. Maker agrees to pay
all costs of collection, including reasonable attorney's fees and disbursements,
if any payment hereunder is not made when due.
No Right of Set-Off. This Note shall not be subject to any right of
set-off, counterclaim, defense, abatement, suspension, deferment or reduction.
Lien to Secure Note. This Note is secured by a grant of a security interest
in the Equipment as set forth in that certain Security Agreement made by Maker
in favor of Payee dated as of the date hereof. Payee's remedies upon default
under this Note are limited to those set forth in the Security Agreement.
Waiver of Notice. Maker hereby waives any requirement of presentment,
notice of protest and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note.
1
<PAGE>
No Waiver of Right or Remedy. No delay, failure or omission by the Payee or
any subsequent holder in respect of the exercise of any right or remedy granted
to the Payee or other holder or allowed to the Payee or other holder by law,
herein, under said Note or otherwise, shall constitute a waiver of the right to
exercise the right or remedy at that or any future time or in the same or other
circumstance.
Notice. Notices and demands hereunder on the Maker may be given in writing
at the address below:
CAG Technologie Management Consultants
Greifswald GMBH
Koitenhager Landstrabe
17941 Greifswald
Attention: Alexander Lentes, President
Prepayment. The principal sum of this Note may be prepaid in whole or in
part at the option of the Maker, without premium or penalty, at any time or
times prior to the date it is due. Any such prepayment shall be applied to the
installments of such principal sum in the inverse order of the date thereof and
shall be accompanied by the payment of interest accrued on the principal amount
of such prepayment to the date thereof.
Subsequent Certifications. Each of the Maker and Payee, within fifteen (l5)
days after request by the other, shall certify to such person as the requesting
party may designate, the amount of principal, interest or other sums payable
hereunder, the date to which the same shall have been paid, whether this Note
has been modified or amended, whether any default exists under this Note, and in
the case of Maker, whether any set-offs or defenses exist against this Note or
the obligations of the Maker hereunder.
Applicable Law. All rights and obligations hereunder shall be governed by
the laws of the State of New Jersey, U.S.A. This Note shall be binding upon
Maker and inure to the benefit of Payee and its respective assigns and
successors.
Maker acknowledges that this Note has been delivered to Payee pursuant to a
commercial transaction and that nothing herein contained shall be construed as
constituting the Payee a partner of or joint venturer with the Maker.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed and
delivered by a duly authorized officer of Maker as of the day and year first
above written.
CAG TECHNOLOGIE MANAGEMENT
CONSULTANTS GREIFSWALD GMBH
By: /s/ Alexander Lentes
---------------------------------------
Alexander Lentes, President
2
<PAGE>
SCHEDULE 1
DATE AMOUNT (U.S.$)
September 28, 1997 $1,501,864
December 28, 1997 $1,406,948
March 28, 1998 $1,387,966
June 28, 1998 $1,363,983
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,402,260
<SECURITIES> 0
<RECEIVABLES> 4,605,475
<ALLOWANCES> (200,000)
<INVENTORY> 917,125
<CURRENT-ASSETS> 19,991,213
<PP&E> 6,465,739
<DEPRECIATION> (3,837,993)
<TOTAL-ASSETS> 27,546,143
<CURRENT-LIABILITIES> 8,628,689
<BONDS> 0
0
300
<COMMON> 9,603
<OTHER-SE> 17,873,068
<TOTAL-LIABILITY-AND-EQUITY> 27,546,143
<SALES> 8,264,964
<TOTAL-REVENUES> 8,264,964
<CGS> 4,276,184
<TOTAL-COSTS> 4,276,184
<OTHER-EXPENSES> 2,323,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (57,244)
<INCOME-PRETAX> 1,722,311
<INCOME-TAX> 300,000
<INCOME-CONTINUING> 1,422,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,422,311
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
