SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] 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.
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(Name of registrant as specified in its charter)
New Jersey 22-2194790
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
396 Whitehead Avenue, South River, New Jersey 08882
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Include Area Code: (732) 390-9550
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Class A Warrants
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(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 requirements for the past ninety (90) days. Yes X No
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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]
3,808,886 shares of common stock of the Registrant were outstanding as of
March 27, 2000. As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based on the closing price on
the Nasdaq SmallCap Market, was approximately $40,700,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS................................................ 1
ITEM 2. PROPERTIES.............................................. 17
ITEM 3. LEGAL PROCEEDINGS ...................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS..................................... 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS......................... 19
ITEM 6. SELECTED FINANCIAL DATA................................. 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK....................................... 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............. 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................... 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.............................................. 30
ITEM 11. EXECUTIVE
COMPENSATION............................................ 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................... 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................ 39
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K..................................... 40
SIGNATURES
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PART I
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 29 of this Form 10-K.
ITEM 1. BUSINESS
IDM Environmental Corp. (the "Company" or "IDM") is a global, diversified
services and project development company offering a broad range of design,
engineering, construction, project development and management, and environmental
services and technologies to government and private industry clients. We utilize
those same capabilities to build, own or lease, and operate energy, waste
treatment and similar facilities. Through our domestic and international
affiliates and subsidiaries, we offer services and technologies, and operate, in
three principal areas: Energy and Waste Project Development and Management,
Environmental Remediation and Plant Relocation.
Environmental remediation services, our historical core business, encompass
a broad array of environmental consulting, engineering and remediation services
with an emphasis on the physical execution ("hands-on") phases of remediation
projects. We are a provider of full-service turnkey environmental remediation
and plant decommissioning services and have established a track record of safety
and excellence in the performance of projects within the private sector, public
utility and governmental marketplace. We have focused our core expertise in
decommissioning and dismantlement services in environmentally sensitive settings
to establish a position in the forefront of nuclear power plant decommissioning,
radiological decommissioning within the weapons complex, industrial site
remediation and reindustrialization market.
Plant relocation services encompass a broad array of non-traditional
engineering projects, with an emphasis on plant dismantlement, relocation and
reerection. We have established the company as a world leader in plant
relocation services employing a proprietary, integrated matchmarking,
engineering, dismantling and documentation program that provides clients with
significant cost and schedule benefits when compared to traditional alternatives
for commencing plant operations.
Our energy and waste treatment project development and management services
are provided through IDM Energy Corporation and local project subsidiaries. We
actively entered the Energy and Waste Services market in 1996 following our
acquisition of the rights to utilize and deploy the proprietary "Kocee" solid
waste gasification technology and rights under an accompanying power purchase
agreement to deploy that technology in the construction and operation of a 30 MW
waste-to-energy project in El Salvador. Since our entry into the Energy and
Waste Services market, we have aggressively pursued opportunities to build, own
and operate conventional and other energy and waste treatment facilities. We
completed the acquisition of our first operating energy facility, a 42 MW
hydroelectric plant, in the Republic of Georgia, in the first quarter of 1999.
Because of difficulties incurred in El Salvador, we have entered into an
agreement to sell our assets in El Salvador which sale is expected to close
during the first half of 2000. We have also entered into a memorandum of
understanding pursuant to which construction and operation of a waste treatment
facility in Taiwan is expected to commence during 2000. Additionally, we
continue to pursue additional energy and waste treatment facility "build, own
and operate" opportunities in Asia, Eastern Europe, Central and South America.
In addition to our current and planned ownership and operation of energy and
waste facilities, we offer a broad range of Energy and Waste Services to
government and private industry clients, including project design and
development, engineering, and operation and management for conventional and
other energy and waste treatment projects. See "Energy and Waste Project
Development and Management Services."
IDM is a New Jersey corporation formed in 1978. Our principal offices are
located at 396 Whitehead Avenue, South River, New Jersey 08882, telephone number
(732) 390-9550.
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Business Strategy
Our business has evolved, and continues to evolve, to capitalize on market
opportunities. We have added strategic capabilities and resources through the
years to move the business from its roots as a demolition and deconstruction
company to a full service environmental remediation and plant relocation
services company and, now, an energy and waste treatment project developer,
manager, owner and operator. Supplementing our strengths and capabilities in our
core businesses, we have added strategic investments in technologies, with both
industrial and consumer applications, and real estate holdings.
In 1997, we began to implement a strategic plan to capitalize on our
strengths and market opportunities to position our company as a global leader in
providing services and technologies in selected high growth markets with an
emphasis on developing recurring revenue streams. The core elements of our
strategic plan are (1) aggressive entry into the global energy production and
waste treatment development and plant management market, (2) narrowing the focus
of our environmental remediation services to emphasize specialized services and
technologies in high growth, high margin niche markets, and (3) emphasizing our
multi-disciplinary expertise and relationships to generate growth in demand for
plant relocation services. We believe that our ability to respond to
opportunities in the market and deploy a broad array of technologies and
expertise in a rapid and cost effective manner provides a competitive advantage
in efforts to achieve the elements of our strategic plan.
Central to our strategy is a commitment to generating long-term recurring
revenue streams as a foundation for our other project specific activities.
International energy production and waste treatment projects are the core of our
planned recurring revenue streams. Our entry into the energy production and
waste treatment markets began with the acquisition, in 1996, of the proprietary
"Kocee" waste gasification technology and rights under an accompanying power
purchase agreement to deploy that technology in the construction and operation
of a 30 MW waste-to-energy project in El Salvador. Privatization of the
Salvadorean distribution company, combined with a decision to modify the nature
of the project to a more traditional energy production facility and increase the
capacity of the plant, has resulted in delays in the commencement of
construction of the facility and the anticipated commencement of operations of
the plant. We anticipate that arrangements for the sale of the project will be
finalized by the first half of 2000.
We completed the acquisition of our first operating energy facility, a 42
MW hydroelectric plant, in the Republic of Georgia, in the first quarter of
1999. We believe that one or more of the current energy and waste projects under
discussion will come to fruition during 2000 and that the commencement of
operations in the Republic of Georgia will add to our profile as an energy
project developer, owner and operator allowing us to aggressively pursue
additional opportunities to add to our recurring revenue base from the
development and operation of energy and waste treatment projects. See "Energy
and Waste Project Development and Management Services."
Within our historical environmental remediation services offerings, our
strategy is to concentrate our efforts on highly specialized environmental
projects where competition is less intense, profit margins are generally higher
and proprietary technology and engineering expertise are valued at a premium.
With the growth and evolution of the environmental remediation market in the
1990's, various segments of the remediation market have reached maturity and
have become characterized by intense competition and minimal operating margins.
While we continue to be active in the environmental remediation market, we
expect that bidding or negotiating of future remediation contracts will be
limited to special situations in which higher margins can be generated by the
deployment of proprietary technologies and the utilization of specialized
engineering services. In particular, we are aggressively pursuing opportunities
involving the decommissioning and remediation of large commercial nuclear power
facilities, which market we believe to be in an early growth stage.
In the plant relocation services area, we will continue to emphasize our
ever broadening expertise in an array of project engineering disciplines and the
establishment of strong relationships to drive demand for our services. With our
record of sourcing, dismantling, relocating and re-erecting process plants and
other facilities as a timely and cost effective alternative to the construction
of new facilities, we believe that the demand for such services, particularly in
growing economies outside of the United States and western Europe, will continue
to grow and that we will be a leading provider of those services worldwide.
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Supplementing our core business operations, we have historically sought
out, and will continue to seek out, opportunities which are compatible with our
existing expertise and capabilities to enhance our recurring and nonrecurring
revenues. Illustrative of such opportunities are (1) our investment in Life
International Products ("Life"), (2) our formation of Seven Star International
Holdings, Inc. ("Seven Star") to distribute Life water products in southeast
Asia and to pursue other opportunities in southeast Asia, (3) acquisition by
Seven Star of a license covering the bottling rights and distribution of the
Life superoxygenation process in southeast Asia, and (4) our acquisition of an
interest in Kortmann Polonia, a Polish company with substantial real estate
holdings. See "Other Services, Products and Investments."
Recent Developments - Fusion Networks Merger
In light of continued uncertainty effecting our operations during 1999,
management evaluated various options outside of its traditional businesses to
return the company to profitability and to increase shareholder value. Pursuant
to those efforts, on August 18, 1999, we entered into a Plan of Reorganization
and Merger and an Agreement and Plan of Merger (collectively, the "Plan of
Reorganization") with Fusion Networks, Inc. ("Fusion Networks"). Pursuant to the
terms of the Plan of Reorganization, we agreed to form a new holding company
(the "Holding Company"). We agreed to merge with a wholly-owned subsidiary of
the Holding Company with the shareholders of IDM receiving one share of common
stock of the Holding Company for each share of common stock of IDM held
immediately prior to the reorganization. Fusion Networks agreed to merge into
another wholly-owned subsidiary of the Holding Company with the shareholders of
Fusion Networks receiving one share of common stock of the Holding Company for
each share of common stock of Fusion Networks held immediately prior to the
reorganization. Following the reorganization, the shareholders of IDM were
expected to own approximately 10% of the common stock of the Holding Company
with the shareholders of Fusion Networks owning approximately 90% of the common
stock of the Holding Company.
Fusion Networks is a newly formed company, based in Miami, Florida, which
is in the process of building a portal-type web site with an initial emphasis on
Latin America and the Hispanic market in the United States. Fusion Networks
launched its initial site, on a pilot basis, in Bogota, Colombia, in October,
1999 followed by a formal launch of the site in Bogota and in Miami with
additional site launches planned in Latin America, the United States, Spain and
Portugal during 2000.
The proposed reorganization was approved by the shareholders of IDM and
Fusion Networks in March 2000 and the reorganization is expected to be completed
in April, 2000. As a result of the reorganization, IDM and Fusion Networks will
become wholly-owned subsidiaries of Fusion Networks Holdings, Inc. Both IDM and
Fusion Networks plan to continue their historical operations for the foreseeable
future.
Industry Background
Environmental Services Industry. The environmental remediation industry,
for all intents and purposes, emerged in the 1970s from the enactment of the
"Superfund" legislation in 1976 and, subsequently, the Resource Conservation and
Recovery Act ("RCRA") legislation in 1984. These landmark and far-reaching
pieces of legislation made owners responsible and liable for the environmental
damage caused by the present and past operations and established a strict
framework to regulate certain materials, designated as hazardous by regulation,
from cradle to grave.
Virtually overnight, many corporations faced billions of dollars in
potential liabilities that were nearly impossible to quantify. In addition, many
owners faced significant capital and operational cost increases to bring current
operations into full compliance with the new regulations, or face large
penalties, even potential shutdowns. The impact of these factors to the
corporate "bottom line" forced owners to undertake immediate action to assess
the extent of the problem and quickly move to quantify these liabilities.
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Federal regulations mandated a prescriptive and bureaucratic process for
the performance of site cleanups. This process consisted of an
investigative/assessment phase, followed by a detailed engineering and design
phase, finally culminating in the "hands-on" implementation phase. The first
phase consisted of the following major tasks: Preliminary Assessments/Site
Investigations, Remedial Investigations/Feasibility Studies, Engineering
Evaluations/Cost Analysis and lengthy, often contentious and controversial,
public hearings that would ultimately lead to the formal selection of a specific
Remedial Action Alternative that would be legally set forth in a Record of
Decision document following approvals by Federal, State and local regulators.
The implementation of the selected Remedial Action Alternative would involve two
major phases, the Remedial Design phase and the Remedial Action phase. Each of
these phases would be performed by a different company. The combination of
undefined liabilities and the threat of a growing regulatory enforcement
environment, quickly created a market for environmental services in the billions
of dollars annually, that grew at double digit rates.
Throughout the 1980s, the government continued to impose new regulations
and expand the National Priority List of "Superfund" sites to more than 1,200
sites. With a seemingly unbounded demand for these services, the industry saw a
quantum increase in the number of companies providing these services. During
this period, billions of dollars were spent for environmental remediation
services, but very few actual cleanups were completed.
As the 1980s drew to a close, the unbridled growth of the industry came to
an abrupt halt as a result of several major factors, including (1) questioning
by government administrators and owners of the validity of a process that cost
so much money and yielded virtually no tangible results, (2) recognition that
the cost associated with achieving regulatory-imposed cleanup standards, that
would require that all sites be restored to "pristine" conditions regardless of
location or future use, would be impossible to bear, even by the government, and
(3) technological and operational advances, including the completion of plant
modifications to reduce or eliminate the generation of hazardous wastes, the
implementation of large scale waste minimization programs, the application of
advanced treatment technologies and the advancements in computer technology that
allow for the cost-effective application of analytical risk assessments to
preclude the need for further cleanup actions.
As the industry has been transformed in the 1990s, in recent years, the
environmental remediation industry has been characterized by an increasing
number of well-capitalized competitors, reduced government enforcement of
environmental regulations and regulatory uncertainty. This has resulted in
reduced commercial spending on environmental cleanup and intense pricing
competition for hazardous waste cleanup projects. Lower demand in the private
sector has been offset to some extent by new major project opportunities in the
public sector, primarily comprehensive cleanup projects at U.S. Department of
Defense and Department of Energy installations, which require a broad range of
project management and field execution skills, limiting the number of potential
bidders. With the shift in the environmental remediation industry during the
1990s, successful industry participants must possess (1) the ability to
undertake complex cleanup actions involving multiple contaminants and multiple
contaminated media under a single integrated contract, (2) the ability to deploy
advanced cleanup technologies to reduce the cost and schedule of the cleanup
action as well as eliminate future potential liability for a site owner, and (3)
the ability to incorporate assessment and analytical tools into the cleanup
project as a way to reduce costs, ensure full compliance with the laws and
regulations, ensure safety and maintain the project focused towards completion.
Ultimately, consumers of environmental services in the present environment look
for completion of site cleanups quickly, safely and at the lowest cost.
With the expanded focus on cleanup of DOD and DOE installations, DOD and
DOE have become the largest customers for environmental remediation services in
the U.S. during the 1990s and are expected to continue to be such for the
foreseeable future. DOE is responsible for managing a program charged with the
cleanup of the vast U.S. nuclear weapons complex. DOD and the Army Corps of
Engineers are responsible for managing a program charged with the cleanup and
downsizing of the vast complex of military bases, command centers, research and
development facilities and defense production plants under the jurisdiction of
the DOD. Both the DOE and DOD cleanup efforts have evolved in recent years to
place a growing emphasis on completion of "hands-on" cleanup work and
implementation of innovative privatization, investment recovery,
reindustrialization and other measures designed to complete cleanup projects in
the minimum amount of time and at the lowest net cost to the agencies.
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In addition to DOD and DOE cleanup projects, which represent the most
concentrated market segments within the United States for environmental
remediation services, state and local government managed and funded cleanups and
private sector owned and financed cleanups represent distinct markets for
environmental services in the U.S.
Outside of the U.S., the enactment of stringent environmental regulations
in the industrialized nations of Europe and in industrialized and newly
industrialized Pacific Rim nations has created a new and growing market for
environmental remediation services.
Plant Relocation Services Industry. The plant relocation industry is a
highly specialized niche market business. Large scale plant relocations came
into popularity in the 1970s. The relocation of process plants as a viable
option to acquisition or on-site construction of new facilities has grown
rapidly in recent years with the industrialization of underdeveloped countries,
particularly in Eastern Europe, Asia and South America. It has been our
experience that the acquisition and relocation of existing facilities can cost
one-half or less of the cost of acquiring new facilities. Additionally, as most
large plants and facilities require substantial lead time to manufacture and
deliver, facilities can typically be brought operational in a significantly
shorter time period where a suitable plant can be identified, acquired and
relocated as compared to the time required to manufacture new facilities.
While information as to the worldwide scope and size of the plant
relocation industry is not readily available, we believe that a substantial
majority of the demand for such services is outside of the United States. We
believe that demand for plant relocation services in Asia has been temporarily
curtailed as a result of the currency crisis experienced in that region during
the second half of 1997 and into 1998. However, we believe that the cost and
time benefits associated with plant relocations will result in strong growth in
demand for those services over the next decade.
The plant relocation market is served by a variety of engineering and
construction firms which typically offer plant relocation services as an
additional service to customers. We believe that we are one of the few
competitors in the plant relocation industry offering those services as a
primary service as opposed to an additional service.
Energy and Waste Treatment Services Industry. Worldwide, the energy and
waste treatment industries are diverse and growing increasingly competitive. We
believe that economic development in the previously underdeveloped nations of
Eastern Europe, Asia and South and Central America has created, and will
continue to produce, growing demand for electrical power in those markets. In
the waste treatment market, a wide variety of factors have contributed to a
growing worldwide demand for innovative and cost-effective long-term waste
treatment and disposal alternatives. The driving forces behind the growth in
demand for such alternatives include: (1) identification of solid waste disposal
as a top priority of the U.S. Environmental Protection Agency, (2) the enactment
of tax credits and disposal taxes in the U.S. as a means of discouraging land
filling in favor of "clean" technologies, (3) the advent of proven
waste-to-energy technologies, (4) the enactment of international legislation
restricting the export of industrial wastes from "rich" nations for disposal in
lesser developed nations, and (5) the increase in waste produced as a result of
the explosive growth in urban areas in developing nations.
While many of the developing nations' energy needs are served by various
independent energy producers, distributors and state, municipal and privately
owned utilities, it is our belief that the energy needs of many of those nations
are not currently met. Likewise, while we believe that waste treatment is a
growing concern globally, economic development in the previously underdeveloped
nations of Eastern Europe, Asia and South and Central America has created, and
is expected to continue to produce, the greatest growth in demand for proven,
safe and cost-effective waste treatment solutions in those markets. While many
of the developing nations' waste treatment and disposal needs are served by
landfilling and various alternatives offered by municipal and private operators,
it is our belief that the waste treatment needs of many of those nations are not
currently met.
In an effort to capitalize on the perceived growth in demand for electrical
power and waste treatment alternatives in developing nations, as well as
opportunities to deploy our proprietary waste-to-energy technology and inventory
of generators, we have actively entered the energy and waste treatment markets.
We have acquired our first energy facility, a hydroelectric plant in the
Republic of Georgia, and have formed alliances and entered into agreements with
various strategic and financing partners and industrial consumers and local
governments to construct, own and operate energy production facilities in
Eastern European and Central American markets and waste treatment facilities in
Taiwan. While other energy producers may currently serve those markets or enter
into those markets, we have entered into, or expect to enter into power purchase
agreements ("PPAs") in each of those markets whereby industrial or governmental
concerns will guarantee the purchase of all or a substantial portion of the
energy produced by such facilities. We believe that the successful commencement
of energy production and waste treatment operations in Georgia and Taiwan will
make additional opportunities to construct and operate energy and waste
treatment facilities available as the industrialization of underdeveloped
countries progresses. See "Energy and Waste Project Development and Management
Services."
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While we see substantial opportunities in the international energy and
waste treatment markets, those markets are subject, and will continue for the
foreseeable future to be subject, to a variety of risks and uncertainties. The
energy market and waste treatment market are niche markets which are served by a
relatively small number of large competitors operating in multiple markets and
having substantially greater resources than do we and by many local producers
and operators having established relationships with local industry and
government. In addition to competitive risks, the operation of energy and waste
treatment facilities and the entry into new markets is subject to local economic
and political risks which may severely effect the demand for energy and waste
treatment services and the ability to finance projects and pay for energy
production and waste treatment services in underdeveloped nations. See
"Competition - Energy Services" and "- Waste Treatment Services."
Environmental Remediation Services
General. We offer a variety of specialized environmental services with an
emphasis on plant decontamination and decommissioning. Many of the projects
which we undertake are "cross-disciplinary" in nature, involving one or more
elements of dismantling, hazardous waste remediation, radiological remediation,
asbestos abatement, plant relocation and other related services. Our services
are generally offered on a "lump sum" basis wherein we bid to perform a complete
job for a predetermined price or on a "time and material" basis wherein we are
paid certain predetermined hourly or per day rates for services plus a charge
for materials used. We also provide services on a "cost plus" basis where we are
paid for all costs incurred plus a predetermined fee or profit margin without
regard to the time required to perform the job. While the majority of our
projects are priced on a "lump sum" basis, we generally will not bid on such
projects without an in-depth understanding of the scope of such projects.
Many contracts awarded to us require a surety bond. Our ability to obtain
bonding and the amount of bonding required is determined by our net worth,
annual revenues and liquid working capital and the number and size of jobs being
performed. The larger the project and/or the more projects in which we are
engaged, the greater our bonding, net worth and liquid working capital
requirements. The bonding requirements which we must satisfy vary depending upon
the nature of the job to be performed. We generally pay a fee to bonding
companies which typically averages three percent of the amount of the contract
to be performed with the percentage decreasing as our net worth increases.
Because such fees are generally payable at the beginning of a job, we must
maintain sufficient working capital reserves to permit us to pay such fees and
secure bonding prior to commencing work on a project. Additionally, bonding
companies will require us to provide as security for the bonding company liquid
working capital, consisting of cash and accounts receivable, in amounts based on
the size of the contract in question.
Where we have adequate bonding capacity to perform a job, an experienced
member of our management team will analyze the project and develop preliminary
plans, schedules and cost estimates in order to prepare a bid. If we obtain a
contract to perform the job being bid on, the management team, working from the
preliminary plans, schedules and cost estimates, will develop detailed work
plans, schedules and cost estimates to perform the job. Such planning will
include securing proper equipment and materials and staffing the jobs with
properly trained and experienced personnel to perform the job in a safe,
efficient, competent and timely manner.
Actual on-site services are supervised by our employees pursuant to the
detailed plans developed by management. Work is subcontracted to third parties
based upon a large number of factors including safety, efficiency, competency
and scheduling.
In order to assure the safety, quality and timeliness of our projects and
to assure our ability to perform projects, we provide extensive training to our
entire full-time workforce and go to great efforts to retain our trained
workforce, many of whom have been with us since inception. By maintaining an
experienced workforce and cross-training our dismantlers, riggers, ironworkers,
equipment operators, laborers, superintendents and foremen in OSHA 1910.120
hazardous waste procedures, asbestos abatement, radiological remediation and
other related skills, our workforce can address virtually every situation which
may arise in a remediation project. We believe this level of training and
expertise in each of the major areas of remediation is unique to our company.
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In addition to stringent safety and performance standards and procedures
implemented to assure safety, quality and timeliness, we have established strict
guidelines for the handling and disposal of hazardous materials. Such
guidelines, which are intended to protect our company from potential liability
as a generator or transporter of hazardous materials, include strict policies
that we contract only as an agent for generators to remediate sites, that we
avoid signing any waste manifest if possible and that all transportation of
hazardous materials from remediation sites be subcontracted to qualified
transportation companies with extensive insurance coverage. See "Regulation."
Our environmental services are primarily provided on a project basis in the
areas of plant dismantling and decommissioning, hazardous waste remediation,
radiological remediation and asbestos abatement.
Plant Dismantling and Decommissioning. Plant dismantling and
decommissioning is the historical core of our operations and serves as a
foundation for each of our other specialty services. Since inception, we have
provided deconstruction services for numerous Fortune 500 companies with the
bulk of such services being provided in connection with the closure of chemical
process plants. Where facilities have been closed or abandoned due to age,
safety conditions or other factors, we have been called upon to disassemble such
facilities on a piece by piece basis. Unlike the traditional destruction of
buildings using wrecking balls and explosives, the potential release of toxic
chemicals or other hazardous substances produced or present in such facilities
requires custom dismantling services in order to assure safety and proper
identification and disposal of contaminated materials as well as the safety of
the laborers involved. Only skilled craftsmen can safely dismantle contaminated
tanks and structures in government mandated and regulated personal protective
equipment. The scope and nature of deconstruction services provided is carefully
planned based on the nature of the subject facility and the contents thereof as
well as the desires of the owner of the facility. Such services range from
dismantling single buildings and small unenclosed chemical process facilities to
the complete deconstruction of large manufacturing facilities including multiple
buildings and all equipment and machinery within such buildings or on the site.
We typically perform dismantling and decommissioning services in
conjunction with other environmental and/or related services performed by us or
by a team of providers.
Hazardous Waste Remediation. Hazardous waste remediation encompasses the
clean up of a broad range of hazardous materials. The Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and RCRA
broadly define "hazardous substances" which, if released, may trigger reporting
and clean up obligations. The list of "hazardous substances" covered by these
laws is extensive and includes a large number of chemicals, metals, pesticides,
radiological materials, biological agents, explosives, toxic pollutants and
other materials which may produce health concerns if released into the
environment. Both CERCLA and RCRA impose stringent reporting, liability and
clean up obligations on owners and operators (including, in some cases, former
owners and operators) of sites where specified levels of hazardous substances
have been released. The most serious of these sites have been designated as
"superfund sites" under CERCLA.
Under CERCLA, the owners and operators of superfund sites at the time of a
release into the environment, and the transporters of hazardous substances, may
be designated as Potential Responsible Parties ("PRP"), many of whom are Fortune
500 companies, and, as such, may be liable for all or part of the clean up cost
at such site without regard to fault or the legality of the PRP's actions. While
PRP's may undertake clean up activities at superfund sites voluntarily or under
government compulsion, the federal government and the EPA may undertake the
clean up of some sites on its own and subsequently seek to identify and impose
liability for the cost of such clean up on PRP's. Additionally, most states have
environmental regulations comparable to, or supplementing, EPA regulations
wherein private parties can be compelled to clean up hazards or the state can
undertake the clean up of such hazards and seek reimbursement from private
parties.
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We have extensive experience working with PRP's, including Allied-Signal,
Exide, NL Industries, Johnson Controls, AT&T and others, in the clean up of
hazardous waste sites, including superfund sites. Our services at such sites
have entailed a combination of the dismantling of facilities and actual
implementation of remediation techniques to the subject hazards. Many of the
projects which we have undertaken at such sites are specialty jobs wherein major
architectural engineering firms contract to have us perform complex dismantling
and deconstruction jobs and to perform actual remediation of hazardous materials
in conjunction with the dismantling process. While we maintain existing
relations with numerous private sector industrial PRP's and have performed site
assessment and actual remediation at various sites, we have established, and are
seeking to strengthen, relations with the major architectural engineering firms
which control a significant portion of the larger government projects, including
many superfund sites. Because of the general lack of expertise and experience in
dismantling and deconstruction at most of the major engineering firms, and a
growing reputation with such firms, we have been called on to serve on
remediation teams and have handled all aspects of dismantling and deconstruction
at hazardous waste remediation sites.
In 1996, we further expanded our hazardous waste services with the
acquisition of a license from Life pursuant to which we acquired an exclusive
license to market and employ Life's patented superoxygenation technology for
long term bioremediation of contaminated groundwater in the United States,
Canada and Mexico. Life's superoxygenation process is designed to enhance
bioremediation of contaminated groundwater by increasing the oxygen content and
the time such oxygen will remain in water as compared to traditional methods of
oxygen injection. Our license runs for a period of twelve months from the
delivery by Life of a commercially viable unit subject to renewal for successive
terms provided that we meet certain minimum revenue requirements.
Radiological Remediation. Radiological remediation services consist
primarily of the decontamination and dismantling of facilities employing or
producing radioactive materials and the removal and disposal of radioactive
materials. Typically, such services are utilized by utility companies which
operate nuclear plants, universities and other research facilities which utilize
radioactive isotopes in a variety of research projects, and the DOE and DOD
which oversee nuclear weapons production.
Utility companies have now operated nuclear plants for more than 30 years.
Because of a combination of intervention of activists, worldwide competition for
electricity customers brought about by a growing deregulated market, strict
government oversight and high operating costs, many nuclear generating
facilities have been prematurely closed. As other nuclear facilities continue to
age and public skepticism as to the safety of such facilities remains high,
additional plants are expected to close. Due to the nature of these facilities,
utility companies are expected to seek experienced dismantling and remediation
specialists to decontaminate, dismantle and decommission such facilities and to
properly handle and dispose of radioactive waste.
Universities and other research facilities also operate nuclear reactors
and utilize radioactive isotopes in research and teaching. With a decline in the
enrollment in nuclear engineering departments in recent years the utilization of
nuclear reactors and related materials in teaching has declined to the point
that some programs have been dropped or significantly curtailed. Even where
research is continuing at universities and in industry, the use of isotopes over
extended periods has created, and is expected to continue to create, a market
for the disposal of radioactive materials and the decontamination of facilities.
In order to safely deal with inactive reactors and radioactive contamination,
industry and universities, sometimes under government direction, are seeking
experienced specialists to remove, decontaminate and/or dispose of abandoned
facilities and contaminated materials in and around abandoned or functioning
facilities.
Finally, the DOD and DOE oversee the operations and are responsible for the
clean up of weapons facilities across the country. Extensive remediation
activities are underway and are expected to be required for many years to come
as these facilities are closed as a result of sharply reduced nuclear weapons
production following the end of the Cold War. As with other owners and operators
of facilities having radioactive waste and contamination, the federal government
has sought, and is expected to continue to seek, experienced specialists to
decontaminate and dismantle such facilities and to remediate and dispose of
radioactive waste in a safe manner. We have skilled personnel with the necessary
experience and training to dismantle these structures in a safe, efficient and
regulatory compliant manner.
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We believe that radiological remediation is the greatest potential growth
area within the environmental services industry. While the asbestos abatement
and general hazardous remediation markets have matured resulting in slower
growth in demand for those services, we believe that the greatest growth in the
radiological remediation market lies ahead. The DOD and DOE in recent years have
pressed site managers for clear progress in actually cleaning up these sites vis
a vis studying the problem. Additionally, a major market exists at nuclear
facilities in other countries, including former Soviet-bloc countries and states
in which nuclear facilities were the prevalent sources of power.
During 1999 and into 2000, we continued our negotiations with the German
government and Duke Energy to provide radiological and decommissioning services
in connection with the decommissioning of six VVER 440 nuclear power plants and
one small reactor plant in Germany. Under the terms of the project, the German
government proposed to transfer to the Duke led team control of a state-owned
corporation, Energiewerke Nord ("EWN"), established to undertake the
decommissioning and waste management of the facilities. As a result of a series
of delays in finalizing definitive agreements to privatize the EWN project, as
of the end of the first quarter of 2000, the German government indicated its
intent to forego privatization of EWN and to move forward on the EWN project
under government control. While the German government and Duke continue to
negotiate with respect to the performance of services on the project, it is
presently anticipated that each of the phases of the project will be contracted
to third parties. We expect to submit proposals to perform services on each of
the phases of the project which we would otherwise have performed under the
contemplated privatization plan.
In addition to decommissioning and clean-up activities, the original EWN
privatization plan called for us to revitalize and re-industrialize the sites
with the objective of creating a minimum of 1,500 new jobs at the site and in
the Greifswald and Mecklenburg Vorpommern regions. Work involving
reindustrialization of the site commenced in 1998 with an initial agreement with
Magellan Biotechnology to construct an aquaculture complex at the EWN site and
the formation of a consortium with IVO Energienlagen GmbH to construct a power
plant at the EWN site. As a result of uncertainty regarding the privatization of
the EWN site, there is uncertainty as to whether the aquaculture complex and
power plant will be constructed.
Asbestos Abatement. The EPA, and most, if not all, states, have enacted
rules and regulations governing the emission of asbestos during the renovation
or demolition of facilities as well as during manufacturing and waste disposal
operations. These regulations have effectively required inspection for and/or
abatement of asbestos prior to or in conjunction with the renovation or
demolition of buildings. Requirements imposed by real estate lenders and
practical considerations as well as disclosure laws relating to real estate
transactions have effectively resulted in asbestos inspection and, where
appropriate, abatement as a condition of most conveyances of real estate.
We provide site assessment, planning and asbestos abatement services to
property owners desiring to remodel or sell properties or abate existing
asbestos on site for health and liability reasons. Because the handling and risk
associated with the presence of asbestos varies depending upon the use, volume
and nature of the asbestos present, we will evaluate the appropriate means of
abatement and develop a detailed plan based on such evaluation or subcontract
out such work. The abatement process may range from encapsulation of exposed
asbestos to the actual physical removal and disposal of the asbestos containing
materials on the site. Such materials may include thermal insulation used on
boilers, tanks, hot and cold water systems and heating, ventilation and air
conditioning systems, surfacing materials used for acoustical, decorative or
fireproofing purposes (asbestos sprayed or trawled on walls, ceiling and
structural members) and other materials such as floor tiles, ceiling tiles,
roofing felt, concrete pipe, outdoor siding and fabrics.
Upon development of a plan of abatement in compliance with applicable state
and federal regulations, our work crew, wearing protective clothing, head gear
and breathing apparatuses, will physically remove asbestos-containing materials
from the building. The building areas in which abatement work is being performed
are sealed off and blowers or ventilation equipment are utilized to create
negative pressure in the building to prevent the escape of airborne asbestos
from the building. Upon completion of the abatement process, the asbestos
removed is disposed of in accordance with applicable regulations by
transportation and disposal companies.
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Plant Relocation Services
In addition to our historical dismantling and decommission services, we
have developed as a primary service offering the relocation and re-assembly of
plants. Plant relocation and re-erection projects are typically bid on, planned
and engineered in a manner similar to our dismantling and decommissioning
services taking into account the special demands associated with transporting
and re-erecting such facilities. We have developed proprietary techniques and
extensive expertise for dismantling, matchmarking, relocation engineering,
packaging, documentation and re-erection of entire plants. See "Environmental
Services - General."
With the growth in the economies of numerous third-world countries and
other countries which were historically non-industrialized, we believe
significant opportunities are available in the worldwide plant relocation and
re-assembly market. Because of the time and cost savings associated with
relocating existing plants as compared to purchasing and starting-up new plants,
we believe that growing industrial concerns in South and Central America,
Pacific Rim and Eastern European countries will view the acquisition and
relocation of existing plants as the preferred method of expanding operations.
Typical of such opportunities was our completion during 1996 of the acquisition,
relocation and refurbishing of a 1,400-ton-per-day ammonia plant from Lake
Charles, Louisiana to Karachi, Pakistan, a site of the largest fertilizer
producer in Pakistan.
Energy and Waste Treatment Project Development and Management Services
In 1996, we laid the groundwork for entry into the energy and waste
treatment markets. In evaluating the potential markets for our power generation
equipment inventory and opportunities for future growth and establishment of
recurring revenue streams, management identified the demand for energy and waste
treatment in emerging markets as a business opportunity with the potential to
meet each of our criteria in those regards.
After evaluating various options for entry into the energy production
market, we acquired a license from Enviropower Industries, Inc. (fka Continental
Waste Conversion, Inc.)("CWC") pursuant to which we were granted the exclusive
worldwide rights (excluding Canada) to CWC's proprietary gasification technology
that can convert municipal solid waste into electrical energy. As a result of
the bankruptcy of CWC, in 1998 we acquired full and exclusive worldwide title to
the CWC technology. Through that investment, we now offer state-of-the-art
solutions to municipal waste and energy concerns worldwide. We believe that this
gasification technology offers a number of significant advantages over existing
waste-to-energy or other gasification technologies, including the production of
substantially reduced volumes of secondary waste ash and compliance with the
most stringent international clean air standards.
With the acquisition of the rights to deploy the CWC waste-to-energy
process and a strategic inventory of surplus generators, we began to actively
pursue energy production and waste treatment opportunities through the
establishment of strategic alliances and discussions with industrial concerns
and governmental entities in Central America, Eastern Europe and Asia.
Our international energy production and waste treatment operations and
development activities are anticipated to principally involve the development,
acquisition, financing, promotion, and management of energy and waste treatment
projects in emerging markets. Our objective is to develop, finance, own and
manage integrated energy and waste treatment projects worldwide through the
utilization of our portfolio of products and services.
Our initial international activities are expected to include management of
direct and indirect ownership interests in and/or operation of an energy plant
in the Republic of Georgia and a waste treatment facility in Taiwan. As of the
first quarter of 1999, we had completed the acquisition of our first operating
energy facility in the Republic of Georgia and were involved in energy and waste
treatment projects in early stages of development, financing or construction in
numerous other countries. The following is a brief description of our energy and
waste treatment projects which are in varying stages of development, financing
or construction; thus the information set forth below is subject to change. In
addition, these projects are, to varying degrees, subject to all the risks
associated with project development, construction and financing in foreign
countries, including without limitation, the receipt of permits and consents,
the availability of project financing on acceptable terms, expropriation of
assets, renegotiation of contracts with foreign governments and political
instability, as well as changes in laws and policies governing operations of
foreign-based businesses generally. Other than as noted below, there can be no
assurances that these projects will commence commercial operations.
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Georgia Energy Projects. In November of 1998, we, through our wholly-owned
subsidiary, IDM Energy Corporation, signed a Protocol of Intention with the
Ministry for Fuel and Energy of the former Soviet state of Georgia, replacing a
previously executed POI, under which we will have the right to acquire, design,
construct, own and operate electric power facilities in the region.
Our initial efforts in the Republic of Georgia have resulted in the
acquisition, during the first quarter of 1999, of an interest in Zages, Ltd.
Zages operates a 42 MW hydroelectric power plant pursuant to a lease of that
facility from the Georgian government. Zages has entered into an Electricity
Sale and Purchase Agreement with Telasi, the electricity distribution company of
Tblisi, Georgia, pursuant to which Zages will sell and Telasi will purchase all
electricity generated by the plant for a period of six years effective April 1,
1999. Pursuant to the terms of our acquisition of Zages, we made an investment
in Zages and have undertaken to perform a technical examination of the plant.
Zages will, in turn attempt to negotiate an extended lease on the plant in an
effort to extend the existing five year roll-over lease into a fixed term
twenty-five year lease. Depending on the outcome of our technical examination
and Zages' efforts to extend the lease on the plant, IDM Foreign Power
Incorporated, our indirect majority-owned subsidiary, may invest, over the
operating life of the plant, up to $9 million of additional funds for
rehabilitation and repair of the plant.
Telasi, which is 75% owned by AES Corporation, a leading global power
company, serves approximately 370,000 industrial, commercial and residential
customers, or roughly half of the total power needs of Georgia.
El Salvador Energy Project. In conjunction with our 1996 acquisition of a
license to exploit CWC's proprietary gasification technology, we acquired the
rights of CWC under a December 1995 Power Purchase Agreement (the "El Salvador
PPA") with Compania de Alumbrado Electrico de San Salvador, S.A. de C.V.
("CAESS") as part of a planned 30 MW waste-to-energy project in San Salvador,
the capital of El Salvador.
As a result of delays in financing and developing the project, we
determined to divest our interest in the El Salvador Power Project during 1999.
As of December 1999, we had agreed to the principal terms of a revised PPA with
CAESS and had entered into a Memorandum of Understanding with Centrans Energy
Services to sell our PPA. We were also engaged in discussions with various
parties to sell the land and permits relating to the El Salvador Power Project.
The sale of these assets is expected to be concluded by the second quarter of
2000.
Taiwan Waste Treatment Project. We have entered into a joint venture with a
leading Taiwanese waste management company to jointly develop a waste treatment
facility in Taipei, Taiwan.
The Taiwan Waste Treatment Plant was originally planned as a
100-tons-per-day industrial waste processing and energy production facility.
Plans for the Taiwan Waste Treatment Plant were altered during 1998 to develop
the facility in multiple phases, to increase the capacity of the plant to
200-tons-per-day and to convert the nature of the plant from a waste-to-energy
facility to an industrial waste treatment facility. The cost of developing the
Taiwan Waste Treatment Plant, estimated at $27 million, is expected to be funded
through conventional project financing. Several leading Taiwanese financial
institutions have expressed a strong interest in financing the project. The
venture would be among the first privately owned industrial waste treatment
facilities in Taiwan.
We are working with our joint venture partner to prepare a detailed plant
design. The project is expected to utilize a unique, proprietary and
commercially proven technology for the treatment of a wide range of waste
streams. Necessary steps have been initiated to secure environmental and
regulatory permits. We are presently working through our joint venture parter to
secure project financing and to establish a timetbable for the construction and
development of the project. There can be no assurance that we will be successful
in securing financing for the project or that the project will, in fact, be
completed as anticipated.
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Other Energy and Waste Treatment Projects. During 1998, we entered into an
agreement with respect to the proposed joint development of energy projects in
Bolivia. Our original plans called for the construction and operation of an 82
MW plant in Bolivia. As of the end of the first quarter of 2000, we were
exploring, as alternatives to developing the project ourselves, various options
to sell all or a substantial interest in the Bolivia power project in order to
minimize our costs and capital expenditures. We expect to conclude our efforts
with respect to the Bolivia project during 2000.
During 1998, we also entered into a series of agreements pursuant to which
we are acting as developer of various energy facilities in Germany and Poland in
which we expect to generate development fees, retained interests and/or a
combination of fees and retained interests. Included in such development
activities were our efforts in Germany pursuant to which IVO has agreed to
construct a power plant at the EWN site. See "Energy and Waste Treatment Project
Development and Management Services." We also entered into three separate
agreements pursuant to which we obtained development rights and, potentially
equity interests, in multiple power plants, an electric transmission and
distribution grid and a district heating loop in Poland. We intend to bring in
major European utility companies as controlling equity partners in each of these
projects while retaining a minority interest in the projects or receiving
development fees for our efforts.
Risk Factors. Our proposed non-domestic operations are subject to the
jurisdiction of numerous governmental agencies in the countries in which
projects are expected to be located with respect to environmental and other
regulatory matters. Generally, many of the countries in which we expect to do
business have recently developed or are in the process of developing new
regulatory and legal structures to accommodate private and foreign-owned
businesses. These regulatory and legal structures and their interpretation and
application by administrative agencies are relatively new and sometimes limited.
Many detailed rules and procedures are yet to be issued. The interpretation of
existing rules can also be expected to evolve over time. Although we believe
that our operations are, and will be, in compliance in all material respects
with all applicable environmental laws and regulations in the applicable foreign
jurisdictions, we also believe that the operations of our proposed projects
eventually may be required to meet standards that are comparable in many
respects to those in effect in the United States and in countries within the
European Community. In addition, as we acquire additional projects in various
countries, we will be affected by the environmental and other regulatory
restrictions of such countries.
Other Specialty Project Engineering Services.
In addition to our principal services, we routinely evaluate projects
requiring specialized engineering services of a multi-disciplinary nature. Where
projects require the extension of specialized engineering services across
disciplines and where we possess the disciplines required to perform those
services, we will attempt to negotiate to provide a package of specialized
services. We typically seek opportunities to perform specialty engineering
services on projects where the need to deploy expertise in multiple fields
provides favorable margins.
While our specialty project engineering services are not generally subject
to being categorized based on their non-recurring nature, typical service
offerings have included providing drilling and grouting services on the East Dam
reservoir project in California.
Other Services, Products and Investments
We have entered into selected strategic investments and undertakings in
conjunction with, and which supplement, our core operations. Those investments
and undertakings, as of the fourth quarter of 1999, include (1) an equity
investment in Life, (2) our formation of Seven Star to distribute Life water
products in southeast Asia and to pursue other opportunities in southeast Asia,
(3) acquisition by Seven Star of a license covering the bottling rights and
distribution of the Life superoxygenation process in southeast Asia, and (4) our
acquisition of an interest in Kortmann Polonia, a Polish company with
substantial real estate holdings.
Life International Products, Inc. At the time of our initial acquisition of
a license from Life to utilize it's patented superoxygenation process in
bioremediation, we also acquired a 10% equity interest in Life for $1.3 million.
In 1997, we invested an additional $375,000 in Life and, in 1998, we acquired
additional shares of Life from Joel Freedman, our President and Chief Executive
Officer, for $178,125.
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Seven Star International Holding, Inc. During 1997, we acquired a 50%
interest in Seven Star, a BVI company. We contributed $300,000 to the capital of
Seven Star and Jin Xin (Holding), Inc. contributed $300,000 to Seven Star. Seven
Star was formed to exploit opportunities to deliver western products and
technologies in Asia.
In December of 1997, Seven Star entered into its initial venture agreeing
to acquire the exclusive rights to distribute beverages incorporating, and
otherwise exploit, Life's superoxygenation process in a territory consisting of
the People's Republic of China (including Hong Kong), Taiwan, Indonesia and
Singapore. Pursuant to the terms of the license, Seven Star paid a minimum
guarantee payment in the amount of $400,000 to Life and will pay ongoing
royalties based on a percentage of revenues realized from licensing of the Life
process, subject to certain minimum royalty requirements. Seven Star intends to
distribute Life products directly in selected territories and to sublicense the
Life process in other territories. Sublicensing arrangements are expected to
generate initial sublicensing fees and ongoing minimum royalties from potential
sublicensees in amounts sufficient to recoup at least the minimum guarantee
payment paid by Seven Star as well as the minimum ongoing royalties.
In December of 1997, Seven Star entered into an initial sublicense
agreement with Zheng Zhou Wo Li Beverage Limited covering a territory consisting
of Zheng Zhou, Henan, in the People's Republic of China and providing for a
minimum guarantee payment of $600,000 and minimum royalty requirements in excess
of those under Seven Star's license with Life. Zheng Zhou Beverage has begun the
development of a bottling plant in Henan and expects to begin bottling and
distribution operations during the second half of 2000.
Seven Star's ability to successfully exploit the Life process and other
opportunities in Asia is subject to the numerous risks associated with operation
in Asia, including the recent currency crisis which has impaired the growth
prospects in the region, as well as the risks and uncertainties associated with
identifying, doing business with, and enforcing contracts with Seven Star's
prospective local partners and sublicensees.
Kortmann Polonia. In conjunction with our ongoing efforts to develop
waste-to-energy and other energy projects in Poland, during 1998, we were
presented with an opportunity to acquire a controlling interest in Kortmann
Polonia. Kortmann Polonia is a Polish corporation with valuable real estate
holdings. In November of 1998, we entered into an agreement to acquire a 75%
interest in Kortmann Polonia for $600,000. Shares evidencing 49% ownership of
Kortmann Polonia were transferred in November of 1998. Transfer of additional
shares bringing our interest in Kortmann Polonia to 75% is awaiting final
governmental approval.
Kortmann Polonia's real estate holdings consist of three separate tracts,
covering an aggregate of approximately 75 hectares, known as the "Medjew Site",
the "Koblaskowa Site" and the "Stepnjca Site".
The Medjew Site consists of approximately 30 hectares located on Lake
Medjew, near Szczecin, Poland. The Stepnjca Site consists of approximately 15
hectare located on the River Oder. Our present plans are to sell the Medjew Site
and the Stepnjca Site to developers.
The Koblashowa Site consists of approximately 33 hectares located 5 km from
downtown Szczecin, Poland. The site is located directly on the Autobahn
connecting Szczecin to Berlin, Germany immediately past the Polish-German
border. We are evaluating the development of a mall at the Koblashowa Site with
a view to retaining a minority interest in the mall and, possibly, generating
development fees, or the sale of the property.
We expect that from time to time in the future we will have opportunities
to invest or participate in ventures outside of, but connected to, our core
businesses. We will evaluate any such opportunities and, where we deem the
potential of such opportunities to merit participation or investment, we may
enter into additional ventures outside of our core businesses.
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Marketing
In marketing our services, we rely principally on the efforts of our
operating and executive management team who regularly call upon existing and
prospective customers. Through the efforts of our management, we have
established working relationships with numerous Fortune 500 industrial concerns
as well as major national architectural engineering firms, the DOD and the DOE
and many smaller and medium size industrial and engineering firms worldwide. We
supplement the efforts of our management by advertising in international trade
publications, direct mailings to selected industrial and engineering firms, and
participation in industry conferences and trade shows.
Regulation
Environmental Regulations. We and, in particular, our clients, are subject
to extensive and evolving environmental laws and regulations. These laws and
regulations are directly related to the demand for many of the services we offer
and often subject us to stringent regulation in the conduct of our operations.
The various environmental regulations affect estimating, scheduling, health
and safety, and field operations. Asbestos, polychlorinated biphenyl, lead,
hazardous waste, and nuclear waste are all regulated and some or all of these
components are found on nearly every project. Estimators and schedulers must
account for these regulations in estimating the cost and time for completion.
Every project must have a person who ensures health and safety regulations are
adhered to and superintendents and foremen must be aware of these regulations to
ensure they are adhered to during the work. Almost all of IDM's personnel attend
continuing education classes relating to the various areas of regulation.
The principal environmental legislation affecting our business and our
clients is described below.
-- Resource Conservation and Recovery Act of 1976. RCRA regulates the
treatment, storage and disposal of hazardous and solid wastes. RCRA has,
therefore, created a need generally for some of the types of services we
provide. The 1984 Hazardous and Solid Waste Amendments to RCRA ("HSWA") expanded
RCRA's scope by providing for the listing of additional wastes as "hazardous"
and lowering the quantity threshold of wastes subject to regulation. HSWA also
imposes restrictions on land disposal of certain wastes, prescribes more
stringent management standards for hazardous waste disposal sites, sets
standards for underground storage tanks and provides for "corrective" action
procedures. Under RCRA, liability and stringent management standards are imposed
on a person who is an RCRA permit holder, namely, a "generator" or "transporter"
of hazardous waste, or an "owner" or "operator" of a waste treatment, storage or
disposal facility. Both the EPA and states with authorized hazardous waste
programs can bring several types of enforcement actions under RCRA, including
administrative orders and actions seeking civil and criminal penalties. RCRA
also provides for private causes of action as an additional enforcement tool.
-- Comprehensive Environmental Response, Compensation and Liability Act of
1980. CERCLA , also known as the Superfund Act, addresses cleanup of sites at
which there has been or may be a release of hazardous substances into the
environment. CERCLA assigns liability for costs of cleanup and damage to natural
resources to any person who, currently or at the time of disposal of a hazardous
substance, owned or operated any facility at which hazardous substances were
deposited, to any person who by agreement or otherwise arranged for disposal or
treatment, or arranged with a transporter for transport of hazardous substances
owned or possessed by such person for disposal or treatment, and to any person
who accepted hazardous substances for transport to disposal or treatment
facilities or sites from which there is a release or threatened release of
hazardous substances. CERCLA authorizes the Federal government either to clean
up these sites itself or to order persons responsible for the situation to do
so. CERCLA created a fund to be used by the Federal government to pay for the
cleanup efforts. Where the Federal government expends money for remedial
activities, it must seek reimbursement from the potentially responsible parties.
Where the EPA performs remedial work with superfund dollars, it frequently sues
potentially responsible parties for reimbursement under the "cost recovery"
authority of Section 107 of CERCLA. The EPA may also issue an administrative
order seeking to compel potentially responsible parties to perform remedial work
with their own funds under the "abatement" authority of Section 106 of CERCLA.
In lieu of instigating such actions, the EPA may also seek through negotiations
to persuade such parties to perform and/or pay for any and all stages of
remedial action at a site in discharge of their liabilities under CERCLA.
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CERCLA provides that transporters and persons arranging for the disposal of
hazardous waste may be jointly and severally liable for the costs of remedial
action at the site to which the hazardous waste is taken. While we attempt to
minimize such exposure by contracting only with qualified hazardous waste
transporters meeting certain minimum insurance requirements and by having the
generator select the disposal site and method there can be no assurances that we
will be successful in so limiting such exposure. Under Section 101(20)(B) of
CERCLA, when a common or contract carrier delivers a hazardous substance to a
site selected by the shipper, the carrier is not considered to have caused or
contributed to any release at such disposal facility resulting from
circumstances or conditions beyond its control.
The Superfund Amendments and Reauthorization Act ("SARA") was enacted in
1986 and authorized increased Federal expenditure and imposes more stringent
cleanup standards and accelerated timetables. SARA also contains provisions
which expand the enforcement powers of the EPA.
While there can be no assurance, management believes that, even apart from
funding authorized by RCRA and CERCLA, industry and governmental entities will
continue to try to resolve hazardous waste problems due to their need to comply
with other statutory requirements and to avoid liabilities to private parties.
Although the liabilities imposed by CERCLA are more directly related to our
clients, they could under certain circumstances apply to some of our activities,
including failure to properly design or implement a cleanup, removal or remedial
action plan or to achieve required cleanup standards and activities related to
the transport and disposal of hazardous substances. Such liabilities can be
joint and several where other parties are involved.
-- Clean Air Act and 1990 Amendments (the "Clean Air Act"). The Clean Air
Act requires compliance with ambient air quality standards and empowers the EPA
to establish and enforce limits on the emission of various pollutants from
specific types of facilities. The 1990 amendments modify the Clean Air Act in a
number of significant areas. Among other things, they establish emissions
allowances for sulfur and nitrogen oxides, establish strict requirements
applicable to ozone emissions and other air toxics, establish a national permit
program for all major sources of pollutants and create significant new
penalties, both civil and criminal, for violations of the Clean Air Act.
Included within the scope of the Clean Air Act are rules issued by the EPA
known as National Emissions Standards for Hazardous Air Pollutants ("NESHAP").
NESHAP specifically regulates the emission of asbestos during manufacturing and
waste disposal operations and the renovation and demolition of certain
facilities. Authority to implement and enforce NESHAP standards has been
delegated to the various states which have implemented licensing requirements,
notice requirements and procedures with respect to asbestos abatement and other
rules governing the handling and disposal of asbestos.
-- Clean Water Act of 1972 ("CWA"). Originally enacted as the Federal Water
Pollution Control Act, but renamed as the Clean Water Act in 1977, CWA regulates
the discharge of pollutants into the surface waters of the United States. CWA
established a system of minimum national efficiency standards on an
industry-by-industry basis, water quality standards, and a discharge permit
program. It also contains special provisions addressing accidental or
unintentional spills of oil and hazardous substances into waterways.
-- Other Federal and State Environmental Regulations. Our services are also
used by clients in complying with, among others, the following Federal laws: the
Toxic Substances Control Act, the Safe Drinking Water Act, the Hazardous
Materials Transportation Act and the Oil Pollution Act of 1990. In addition,
many states have passed superfund-type legislation and other regulations and
policies to cover more detailed aspects of environmental impairment and the
remediation thereof. This legislation addresses such topics as air pollution,
underground storage tanks, water quality, solid waste, hazardous materials,
surface impoundments, site cleanup and wastewater discharge. Most states also
regulate the transportation of hazardous wastes and certain flammable liquids
within their borders by requiring that special permits be obtained in advance of
such transportation.
Other Regulations. In addition to a broad array of environmental
regulations relating to our environmental service activities, our business and
proposed businesses, are subject to a variety of non-environmental regulations.
Included in the regulations which may effect our current business are
regulations governing occupational safety and health, wage, overtime and other
employment matters and dealings with governmental agencies.
15
<PAGE>
Our proposed operations relating to the licensing of Life's
superoxygenation process for beverages may be subject to potential regulations
governing such matters as food and beverage safety and processes, packaging and
marketing, among other matters. Additionally, our commencement of energy
production operations may be subject to various regulations governing rates,
safety of operations, and financing, among other matters. While we anticipate
that our licensing activities related to the Life process and energy production
activities will be conducted outside of the United States in lesser developed
countries where extensive regulation may currently be lacking, it can be
expected that some of those countries will adopt extensive regulation governing
those activities similar to the United States.
Competition
Environmental Services. The environmental services industry is highly
competitive and fragmented. Because of the diverse nature of the industry, there
are many competitors, both large and small. Many segments of the industry,
including a significant portion of Superfund and other large projects, are
dominated by large national architectural engineering firms such as Bechtel,
Flour, Westinghouse, Foster Wheeler and ICF Kaiser. Additionally, many smaller
engineering firms, construction firms, consulting firms and other specialty
firms have entered the industry in recent years and additional firms can be
expected to enter the industry in the future. Many of the firms competing in the
environmental services industry have significantly greater financial resources
and more established market positions.
While many firms are active in the environmental services industry
providing site assessment, consulting and engineering services, we believe that
the number of firms having expertise in, and offering, dismantling,
decommissioning and deconstruction services within the environmental services
industry is limited. We maintain a highly trained and qualified workforce and
have extensive experience in planning and implementing decontamination and
decommissioning projects in a safe manner. Such expertise and experience has
allowed us to successfully compete within the industry and to secure contracts
from industrial firms as well as engineering firms which lack experience in
environmental decontamination and deconstruction. Because we, unlike most
engineering firms, are staffed by experienced and skilled
decontamination/deconstruction personnel, the involvement of engineering firms
is often limited to project management with actual hands-on services being
provided by our personnel. Because of the need for certain permits and licenses,
specialized equipment, OSHA-trained employees and the need to be knowledgeable
of and to comply with federal, state and local environmental laws, regulations
and requirements, we believe there are significant barriers to entry into the
environmental dismantling, decommissioning and deconstruction business. There
can be no assurance, however, that other firms, including the major engineering
firms which control a significant portion of Superfund and government contracts,
will not expand into or develop expertise in the areas in which we specialize,
decreasing any competitive advantage which we may enjoy. We believe that our
expertise and ability to provide full service, turnkey remediation and
decommissioning services and our utilization of state-of-the-art remediation
techniques will continue to allow us to compete effectively in the environmental
services industry and to capitalize on the expected growth in demand for
services in the nuclear facilities arena.
Plant Relocation Services. Plant relocation services are a niche business
and competition within the segment is limited. We believe that we are one of the
dominant firms within such industry. While demolition and dismantling firms
offer similar services, the primary competition within the plant relocation
industry is from various large engineering firms which offer services in the
form of construction management as consultants to owners. However, most firms
which offer relocation services do so as an additional service and not as a
primary service. We advertise and market our relocation services as a primary
service. Competition with respect to other specialty project engineering
services is believed to be limited to large engineering firms. We believe that
our ability to provide highly specialized cross-disciplinary engineering
services will allow us to compete successfully in this market.
Energy Services. Due to the substantial barriers to entry into the market
and the prevalence of power purchase agreements, competition within the energy
market is limited in most developing countries, including the markets in which
we expect to operate. While a variety of independent energy producers and
private and government owned utilities may provide energy in some of the markets
in which we expect to operate, it is anticipated that we will have power
purchase agreements in place in most markets which will provide contractual
commitments to purchase a significant portion, if not all, of the energy
produced from our planned facilities. Further, while we are focused on
establishing a niche position in the individual project 100 MW or less market,
we believe that the primary competitors in the energy market generally
concentrate on large projects of 200 MW or greater. Accordingly, competition for
the sale of energy is not expected to be significant for the foreseeable future
in our target markets. However, should those markets grow and undergo
deregulation similar to that experienced in the United States, it can be
expected that new competitors will enter those markets increasing pricing and
competitive pressures. Further, while established energy production operations
in developing markets are expected to be isolated from competition in the near
term, competition for contracts to provide energy in markets may be intense. In
light of the opening of the United States utility markets to competition, many
participants with substantially greater resources have actively begun efforts to
establish energy operations in developing countries around the world.
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<PAGE>
Waste Treatment Services. Due to the substantial barriers to entry into the
market and the prevalence of agreements, competition within the waste treatment
market is limited in most developing countries, including the markets in which
we expect to operate. While a variety of independent operators and private and
government owned entities may provide waste treatment in some of the markets in
which we expect to operate, it is anticipated that we will have agreements in
place in most markets which will provide contractual commitments to utilize our
facilities. Accordingly, competition for waste treatment revenues is not
expected to be significant for the foreseeable future in our target markets.
However, should those markets grow, it can be expected that new competitors will
enter those markets increasing pricing and competitive pressures. Further, while
established waste treatment operations in developing markets are expected to be
isolated from competition in the near term, competition for contracts to provide
waste treatment services in markets may be intense.
Employees
At December 31, 1999, we employed approximately 58 full-time employees, 24
of whom were management and administrative personnel, 10 of whom were clerical
personnel and 24 of whom were field personnel. We also employ additional field
personnel on a temporary basis when needed to adequately staff projects. All of
our permanent field personnel are skilled craftsmen with an average of over ten
years service with our company, they are OSHA-trained and asbestos trained to
perform their respective duties. We regularly hire temporary employees on
location to staff jobs performed away from the immediate vicinity of our
headquarters. We carefully review the training and qualifications of all
temporary workers to assure that all such workers are qualified to perform the
work in question. In all such instances, our supervisors and foremen will plan,
supervise and oversee all aspects of work performed by such temporary workers.
We believe that we enjoy good relations with all of our employees. None of
our permanent full-time employees are unionized or subject to collective
bargaining agreements and we have experienced no work stoppages or strikes. Some
of the temporary personnel we hire may be union members where the job in
question and local conditions as a practical matter require such personnel.
ITEM 2. PROPERTIES
Our principal offices are located on a 7.5 acre site at 396 Whitehead
Avenue, South River, New Jersey, in a 6,925 square foot two story office
building and an adjoining 7,600 square foot two story office building. Also
located on such site is a 4,248 square foot one story storage/work area and a
5,700 square foot warehouse facility. Such facilities are leased from L&G
Associates, an affiliate controlled by Joel Freedman and Frank Falco, pursuant
to a fifteen year lease expiring May 31, 2011 and providing for monthly rental
installments of $22,500, subject to annual adjustments based on the Consumer
Price Index, plus insurance, taxes and maintenance costs.
Our various subsidiaries also own real estate in Poland and El Salvador and
maintain offices in various locations to support international project
activities.
We believe our properties are adequate to support our current and
anticipated operations.
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ITEM 3. LEGAL PROCEEDINGS
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and
Health Administration issued willful citations and notifications of penalty in
the amount of $147,000 against us in connection with the accidental death of a
subcontractor's employee on the United Illuminating Steel Point Project in
Bridgeport, Connecticut in February, 1996. A complaint was filed against us by
the Secretary of Labor, United States Department of Labor on September 30, 1996.
We denied all of the allegations in the complaint. A hearing was conducted in
April, 1997 and, subsequently, OSHA's Review Commission issued a written
decision vacating the first alleged willful citation, but affirming the second
and third willful citations, and imposing a penalty in the amount of $70,000 for
each citation. A timely Notice of Appeal was filed with the OSHA Review
Commission for Discretionary Review, which body has accepted jurisdiction of the
matter on administrative appeal. We intend to continue to vigorously contest the
alleged violations and will pursue any and all remedies available, including
appellate proceedings at the U.S. Circuit Court of Appeals, in order to overturn
the decision.
On February 11, 1997, we were served with a lawsuit naming IDM as a
co-defendant in a wrongful death cause of action arising out of the accidental
death of an employee of its subcontractor, American Wrecking. The suit, styled
The Estate of Percy L. Richard, and Percy D. Richard, a minor by next of friend
Patricia Cunningham v. American Wrecking Corp. and its successors, IDM
Environmental Corp., and its successors, SECO Corp. and it successors, all joint
and individually, and all unknown persons, Case No. 2:97CV filed in the Federal
District Court for the Northern District Court for the Northern District of
Indiana, arises out of the same facts alleged in the above referenced
administrative proceeding instituted by OSHA. Plaintiff seeks damages of $45
million. We believe that the suit, as it relates to us, is without merit and
continue to vigorously contest the cause of action. Pursuant to our subcontract
with American Wrecking, we are now being defended and indemnified by the
insurance carrier for American Wrecking.
In July of 1998, we, our subsidiary, Global Waste & Energy and certain
affiliates and officers, were named as co-defendants in a cause of action styled
Kasterka Vertriebs GmbH v. IDM Environmental Corp., et al., filed in the Court
of Queen's Bench of Alberta, Judicial District of Calgary. The plaintiff,
Kasterka, has alleged that we and our affiliates breached a marketing agreement
that had been entered between Kasterka and Enviropower. The plaintiff has
alleged that the defendants failed to supply material information relating to
the gasification technology originally developed by Enviropower and that, as a
result, Kasterka was unable to manufacture and market gasification units in the
territories designated in the marketing agreement. Kasterka has asserted a
variety of claims for damages in the aggregate amount of approximately $42
million. We believe the suit is without merit and intend to vigorously contest
the cause of action.
In September of 1998, we were named as a defendant in a cause of action
styled Balerna Concrete Corporation, et al. v. IDM Environmental Corp., et al.,
filed in United States District Court of Massachusetts (Case No. 98CV11883ML).
The plaintiffs alleged that we, and others, engaged in a pattern of conduct to
divert funds from the plaintiffs through the operation of a concrete finishing
business. The plaintiffs asserted various claims under RICO, common law fraud,
conversion and breach of contract, and sought unspecified damages. The case was
dismissed in February 2000.
In November of 1997, we commenced an action styled IDM Environmental Corp.
v. Kvaerner Metals, et al. in the Superior Court of New Jersey. The action
against Kvaerner Metals, formerly known as Davy International ("Davy"), and
American Home Assurance Co. concerned a completed environmental clean-up project
at American Home Products in Bound Brook, New Jersey for which we and Davy had
entered into a teaming partnership agreement providing for, among other things,
an equal sharing of all direct costs and any losses sustained on the project. We
alleged that we were entitled to the sum of at least $700,000.00 representing
the share of the project losses owed to us by Davy, as well as additional
unliquidated damages for Davy's breach of fiduciary duties owed to the teaming
partnership, and its failure to submit change order claims to recover losses
incurred by the partnership for disruption of work and for its negligence. The
case was settled in January 2000 with the defendant agreeing to pay $550,000.
In addition to the foregoing, we are periodically subject to lawsuits and
administrative proceedings arising in the ordinary course of business.
Management believes that the outcome of such lawsuits and other proceedings will
not individually or in the aggregate have a material adverse affect on our
financial condition, operations or cash flows.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock has traded on the Nasdaq SmallCap Market under
the symbol "IDMC" since May 11, 1999. Prior to that date IDM's common stock
traded on the Nasdaq National Market under the same symbol. The following table
sets forth the high and low sales price as reported by the Nasdaq SmallCap
Market and the Nasdaq National Market for the IDM common stock for the periods
indicated. All prices are adjusted to reflect a 1-for-10 reverse stock split
effective April 16, 1999.
High Low
------ -----
Calendar Year 1999
Fourth Quarter...................... $17.63 $ 4.81
Third Quarter....................... 6.38 1.00
Second Quarter...................... 3.13 1.00
First Quarter....................... 5.63 2.50
Calendar Year 1998
Fourth Quarter...................... 9.22 3.44
Third Quarter....................... 27.19 5.00
Second Quarter...................... 40.00 25.63
First Quarter....................... 75.63 36.25
The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
At March 30, 2000, the bid price of the Common Stock was $8.9375.
Holders
As of March 30, 2000, there were approximately 150 holders of record and
3,500 beneficial owners of the Common Stock of the Company.
Dividends
The Company has never declared or paid any cash dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.
Sales of Unregistered Securities
(a) Pursuant to a reserve of 350,000 shares established on August 18, 1999
for issuance to various vendors in payment for services provided to IDM, at
various dates during the quarter ended December 31, 1999, we issued an aggregate
of 77,014 shares of common stock.
(b) The securities were issued, without an underwriter, to a total of 8
vendors and 1 surety of IDM.
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(c) The securities were issued in satisfaction of amounts owed to vendors
of the Company totaling $147,000, as collateral to sureties of the Company
totaling $200,000 and as security for payments owed to vendors totaling $91,000.
No commissions were paid in connection with the issuance of the securities
(d) The securities were issued pursuant to the exemption from registration
set forth in Section 4(2) of the Securities Act of 1933. The securities
issuances were privately negotiated pursuant to settlement efforts with selected
vendors without any general solicitation or advertising. The securities bear
legends restricting the resale thereof.
ITEM 6. SELECTED FINANCIAL DATA
The Company's historical figures as of and for the years ended December 31,
1995, 1996, 1997, 1998 and 1999 have been derived from its consolidated
financial statements and related notes. The historical figures that follow are
qualified by reference to the financial statements of IDM and the related notes
thereto set forth herein.
<TABLE>
Years ended December 31,
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues:
Contract revenues..................... $ 33,866 $20,808 $17,826 $20,019 $13,581
Other................................. - - - - -
Equipment and scrap revenues.......... 5,537 834 96 - -
-------- --------- --------- ---------- ---------
Total operating revenues............ 39,403 21,642 17,922 20,019 13,581
Cost of sales:
Direct job costs...................... 30,433 21,492 17,002 20,258 13,366
Unusual job costs..................... 3,300 - - - -
Cost of equipment..................... 2,977 943 647 - -
Write-down of inventory............... - - - - 583
-------- --------- --------- ---------- ---------
Gross profit (loss)................ . . 2,693 (793) 273 (239) (367)
Operating expenses:
General and administrative............ 7,637 9,567 10,538 12,871 7,054
Depreciation and amortization......... 653 668 723 627 334
Write-down on investment in
unconsolidated affiliates........... - - - - 177
Equity in net loss of
unconsolidated partnerships......... - - - 194 105
-------- --------- --------- ---------- ---------
Income (loss) from operations........... (5,597) (11,028) (10,988) (13,932) (8,039)
Other income (expense), net............. - - - - (140)
Interest income (expense), net.......... 200 30 (513) (4,322) (173)
-------- --------- --------- ---------- ---------
Income (loss) before income taxes....... (5,397) (10,998) (11,501) (18,253) (8,351)
Provision (credit) for income taxes..... (1,530) (1,850) (1,561) 4,170 (1,200)
-------- --------- --------- ---------- ---------
Net income (loss)....................... $ (3,867) $ (9,148) $ (9,940) $(22,423) $ (7,151)
======== ========= ========= ========== =========
Net income (loss) on common stock....... $ (3,867) $ (9,148) $(11,224) $(26,442) $ (7,162)
======== ========= ========= ========== =========
Net income (loss) per share (1)......... $ (6.70) $ (11.30) $ (10.01) $ (13.31) $ (2.21)
======== ========= ========= ========== =========
Weighted average shares
outstanding (1)...................... 581,556 808,947 1,121,269 1,987,264 3,243,493
======== ========= ========== =========== ==========
Balance Sheet Data:
Working capital......................... $ 10,293 $ 6,122 $ ( 1,149) $ ( 487) $ (3,162)
Total assets............................ 22,028 22,203 27,151 15,151 12,551
Long-term liabilities................... 4,004 164 259 65 17
Minority interest....................... - 1,034 - - -
Shareholders' equity.................... 10,940 13,461 18,079 7,885 2,537
</TABLE>
- ----------------
(1) Adjusted to give retroactive effect to a 1-for-10 reverse stock split
effective April 16, 1999.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 29 of this Form 10-K. All
per share amounts, including shares issued or issuable pursuant to convertible
securities, are adjusted to give retroactive affect to a 1-for-10 reverse split
effective April 16, 1999.
Overview
Our business has evolved, and continues to evolve, to capitalize on market
opportunities. We have added strategic capabilities and resources through the
years to move our business from its roots as a demolition and deconstruction
company to a full service environmental remediation company and plant relocation
services company and, now, an energy project developer and manager. Our revenues
were historically derived primarily from (1) contract decontamination and
decommissioning services in a broad range of industrial and environmentally
sensitive settings, including, but not limited to, plant dismantlement and
relocation services, asbestos abatement services, and remediation of
contaminated soil and groundwater; and (2) equipment and scrap sales. Our
operations have been characterized by fluctuations in revenues and operating
profits as projects begin and end. With the implementation of a strategic shift
in our business in 1997, we expect to generate a growing base of recurring
revenues and operating profits from energy and waste treatment projects and
long-term nuclear facilities decommissioning and remediation projects while
supplementing such revenues and profits with revenues from our traditional
environmental services and plant relocation services projects.
Recent Developments
Due to continued difficult conditions in the environmental services markets
and limited resources, we have experienced a decline in the number of
traditional environmental service projects on which we have bid and performed
services during 1999. In response to those conditions, we have concentrated our
efforts on securing specialty contracts, efforts to participate in nuclear
remediation projects and efforts to finalize arrangements and commence services
on our EWN project in Germany. At December 31, 1999, we had a backlog of
approximately $5.0 million of signed services contracts as compared to a backlog
of approximately $8 million at December 31, 1998. The largest project in our
backlog at December 31, 1999, was the Bound Brook project, with an estimated
value for the balance of services to be performed of $5 million. The Bound Brook
project began in August 1999 and is scheduled to be completed during 2002.
However, the elapsed time from the award of a contract to commencement of
services, and completion of performance, may be two or more years.
In addition to existing contracts, we are presently bidding on, or propose
to bid on, numerous projects in order to replace revenues from projects which
will be completed during 1999 and to increase the total dollar volume of
projects under contract. We anticipate that efforts to bid on and secure new
contracts will focus on projects which can be readily serviced from the regional
offices as well as certain large international plant relocation projects and
nuclear decommissioning projects which we intend to pursue. Our regional
offices, particularly the Oak Ridge, Tennessee offices, are strategically
located in areas having a high concentration of prospective governmental and
private remediation sites. While bidding to perform services at such sites is
expected to be highly competitive, we believe that our existing presence on
adjacent projects combined with our proven expertise and resources will allow us
to successfully bid on and perform substantial additional projects based out of
our regional offices.
In addition to remediation and plant relocation projects on which we are
presently bidding or negotiating, during 1997 and 1998 we entered the energy
production and waste treatment services market. We began energy production and
sales at our Georgia Power Project during the second quarter of 1999 and expect
to begin operations at, and to receive revenues from waste treatment projects
and nuclear decommissioning projects at various sites by as early as mid-2000.
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<PAGE>
While we anticipate that entry into the energy production, waste treatment
and nuclear facilities decommissioning and site revitalization market will
provide significant opportunities for sustainable growth in both revenues and
operating profits, entry into those markets requires substantial capital
commitments and involves certain risks. Undertaking energy production, waste
treatment and nuclear decommissioning projects can be expected to require
capital expenditures of as little as several million dollars to hundreds of
millions of dollars per project. We do not currently have the necessary capital
resources to undertake such ventures without third-party financing. We
anticipate that we will take on equity partners and seek third party debt
financing to finance substantial portions of the projects which we expect to
undertake.
There is substantial uncertainty as to our ability to continue to operate
as a result of continuing losses and a lack of currently available resources to
fund future operations. In an effort to deal with these concerns, we are
presently evaluating the sale or other liquidation of various long-term assets
which we believe can provide adequate funding to support future operations. In
March of 1999, we agreed to accept $300,000 in full settlement of our note
receivable from UPE relating to the sale of our surplus equipment inventory.
$150,000 was paid at closing with the balance payable in monthly installments
over eight months. We are presently evaluating the sale of properties in Poland
as sources of additional funds. We believe that adequate funding will be
provided from the efforts described to support our operations for the
foreseeable future. However, in the absence of receipt of adequate funding from
those, or other, sources, our ability to continue to operate at the current
level is in doubt.
In light of continued uncertainty effecting our operations during 1999,
management evaluated various options outside of its traditional businesses to
return the company to profitability and to increase shareholder value. Pursuant
to those efforts, on August 18, 1999, we entered into a Plan of Reorganization
and Merger and an Agreement and Plan of Merger (collectively, the "Plan of
Reorganization") with Fusion Networks, Inc. ("Fusion Networks"). Pursuant to the
terms of the Plan of Reorganization, we agreed to form a new holding company
(the "Holding Company"). We agreed to merge with a wholly-owned subsidiary of
the Holding Company with the shareholders of IDM receiving one share of common
stock of the Holding Company for each share of common stock of IDM held
immediately prior to the reorganization. Fusion Networks agreed to merge into
another wholly-owned subsidiary of the Holding Company with the shareholders of
Fusion Networks receiving one share of common stock of the Holding Company for
each share of common stock of Fusion Networks held immediately prior to the
reorganization. Following the reorganization, the shareholders of IDM were
expected to own approximately 10% of the common stock of the Holding Company
with the shareholders of Fusion Networks owning approximately 90% of the common
stock of the Holding Company.
Fusion Networks is a newly formed company, based in Miami, Florida, which
is in the process of building a portal-type web site with an initial emphasis on
Latin America and the Hispanic market in the United States. Fusion Networks
launched its initial site, on a pilot basis, in Bogota, Colombia, in October,
1999 followed by a formal launch of the site in Bogota and in Miami with
additional site launches planned in Latin America, the United States, Spain and
Portugal during 2000.
The proposed reorganization was approved by the shareholders of IDM and
Fusion Networks in March 2000 and the reorganization is expected to be completed
in April 2000. As a result of the reorganization, IDM and Fusion Networks will
become wholly-owned subsidiaries of Fusion Networks Holdings, Inc. Both IDM and
Fusion Networks plan to continue their historical operations for the foreseeable
future.
During 1999, our principal contract services related to, and substantially
all of our revenues were derived from, our East Dam Project and Oak Ridge
Project and a number of smaller projects. The Oak Ridge Project is a DOE managed
site and was our most significant remediation project during 1999. During the
second quarter of 1999, we completed work on the phase of the Oak Ridge Project
which was begun during 1998. Commencement of additional services at the Oak
Ridge Project has been delayed and future services are in doubt as a result of
disputes relating to two contracts at the Oak Ridge site. The first dispute
relates to an asset recovery contract, where the value of the equipment salvaged
pays for our cost of dismantling and removing the equipment. During the second
quarter of 1999, we became aware of several previously undisclosed problems that
reduced the value of the equipment and increased the costs to decontaminate and
remove the equipment. During September 1999, we were terminated from the
contract by the contractor. We have filed a request for arbitration which if
successful would probably be determined in the third quarter of 2000. The second
dispute relates to our determination during the second quarter of 1999 that the
waste we were required to dispose of had to be buried in a mixed waste cell at a
higher cost than the low-level waste cell it was supposed to go to because the
waste had undisclosed PCB's. Also, we were planning on decontaminating the steel
and selling it for scrap which would avoid disposal costs. Because the
contractor said we had to remove all the paint from the steel before they would
release it, it became more cost effective to dispose of the steel in a low-level
waste facility. During March 2000, we reached a settlement with the contractor
as a result of mediation. The settlement agreement provided for the contractor
to make payment to the Company in the amount of $3.1 million in full and final
settlement. This amount was recorded in 1999 and resulted in the contract
approximately breaking even. Because of these disputes and because our asset
contract was terminated, our revenues at the Oak Ridge Project have been
curtailed and we have incurred losses on that project.
22
<PAGE>
Revenues recognized and jobs costs attributable to our contract services
during 1998 were adversely affected by unforeseeable developments at the East
Dam Project and on our project at the Boston State Hospital (the "Boston State
Hospital Project"). On the East Dam Project, the scope of our services, and our
bid, was based on preliminary project specifications established by the project
owner. The amount payable with respect to our services on that project was
subject to adjustment, up or down, based on the actual conditions encountered.
As a result of the conditions encountered, the actual drill footage of the
project was substantially less than the footage initially bid based on the
specifications provided by the project owner. At the same time, we provided
substantial additional services, as called for by the contract, as a result of
change orders. Pursuant to the contract, compensation payable with respect to
additional services resulting from change orders was subject to documentation
and negotiation at the end of the project. The reduction in drill footage
resulted in a decrease in estimated project revenues (not giving effect to
amounts owing respect to change orders). As a result, estimated revenues to be
recognized from the East Dam Project were reduced from approximately $20 million
to $15 million. While total project revenues and 1998 revenues from the East Dam
Project were less than anticipated as a result of the reduction in drill
footage, job costs attributable thereto were substantially higher than
originally anticipated as a result of the performance of additional services
related to change orders. We submitted a claim for approximately $10.8 million
as additional compensation and cost reimbursement attributable to change orders.
Pending payment for services related to change orders, during 1998, we
recognized, as additional job costs, all costs attributable to the performance
of those services but did not recognize any revenues which might be realized
from those services. We will recognize as additional revenues, without any
corresponding job costs, all amounts received, if any, with respect to change
orders at such time as such amount is actually received. In July of 1999, we
assigned our claim with respect to the East Dam Project to our contractor for
$650,000. The contractor will pursue the claim, paying all direct claim costs,
including costs of experts. In the event the claim results in a payment to the
contractor, the payment will be distributed 70% to the contractor and 30% to us
after deducting direct claim costs and the $650,000 paid by the contractor. In
February 2000, the contractor settled the claim for $750,000 and paid the
Company $50,000, or one half of the $100,000 excess notwithstanding the
contractual obligation to pay only $30,000.
On the Boston State Hospital Project, we subcontracted certain portions of
the project to Dockside Dismantling Corporation ("Dockside"). Dockside defaulted
on its subcontract and abandoned the work for which it was responsible. In
addition, we were notified of certain work deficiencies for which Dockside and,
derivatively, IDM were allegedly responsible. We estimated the additional costs
to complete and correct the work of Dockside at $1.2 million and reflected
additional job costs in that amount. We made a claim against the bond ($500,000
performance and $500,000 payment) provided by Dockside's surety company. The
surety company disclaimed coverage and litigation to collect on the bond was
initiated. In January of 1999, we settled our claim against Dockside's surety
company for $375,000 for the performance bond of which we received $300,000
after legal fees. The $500,000 payment bond was paid directly to Dockside's
vendors and we received no funds from the payment bond. The results of the
settlement were reflected in fourth quarter 1998 results.
In the recurring revenue project arena, during 1998, we continued to invest
substantial resources in our efforts to acquire and/or build, start-up, own and
operate energy, waste treatment and other similar projects. We incurred
approximately $4 million in direct costs during 1998 in connection with our
efforts to enter those markets. At December 31, 1998, we were in advanced levels
of discussions with respect to more than a dozen potential energy, waste
treatment and similar projects and in February of 1999 we acquired our first
operating energy facility, a 42 MW hydroelectric power plant in the Republic of
Georgia. We expect to begin recognizing revenue from the Georgia Power Project
by the third quarter of 2000. Additionally, we continue in our efforts to
complete development of, and to begin realizing revenues from, one or more other
energy and/or waste treatment facilities. However, given the capital
requirements and time required to bring energy projects operational, at December
31, 1999 we were exploring various options to minimize our costs in pursuing
those projects, including selling substantial equity positions in our energy
projects while retaining smaller minority positions or, where appropriate,
selling our positions outright in exchange for recovery of our investments plus
a development fee.
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In the fourth quarter of 1999, we were contracted by URS Greiner Woodward
Clyde Federal Services and the U.S. Air Force to relocate a Plastics Media
Aircraft Stripping Booth from Sacramento, California to Ogden, Utah. At the end
of 1999, the dismantling and transportation phases of the project were complete
and the reerection was in progress in Utah. The project was completed during the
first quarter of 2000. Total revenues from the relocation project were $353,000
in 1999. We had no revenues from plant relocation operations in 1998.
In addition to our core operations, we have entered into selected strategic
investments and undertakings. Those investments and undertakings, as of December
31 1999, include (1) an equity investment in Life International, (2) our
formation of Seven Star to distribute Life water products in southeast Asia and
to pursue other opportunities in southeast Asia, (3) acquisition by Seven Star
of a license covering the bottling rights and distribution of the Life
superoxygenation process in southeast Asia, and (4) our acquisition of an
interest in Kortmann Polonia. We invested approximately $1.1 million in these
ventures during 1998. We did not recognize any revenues from those ventures
during 1998 or 1999 but expect to begin realizing revenues from the water
distribution operations of Seven Star and from the sale of certain real estate
holdings of Kortmann Polonia during 2000.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Total revenues decreased by approximately 32% from $20 million
for the year ended December 31, 1998 to $13.6 million for the year ended
December 31, 1999. The decrease was attributable to approximately $4.4 million
and $1.0 million in 1998 revenues from the East Dam Project and our Boston
office, respectively, compared to no revenues in 1999 from either source.
Revenues for 1999 included $1 million associated with the DOE project in
Los Alamos, New Mexico which was completed in 1997 and $ 650,000 associated with
the East Dam project which was completed in 1998. The payment for the Los Alamos
DOE project was for full settlement of our change order claim in the approximate
amount of $ 2.8 million. The payment for the East Dam project was consideration
for assignment to the contractor on the project of our claim for additional
compensation associated with change orders in the approximate amount of $10
million. The contractor will pursue the claim, paying all direct claim costs,
including costs of experts. In the event the claim results in a payment to the
contractor, the payment will be distributed 70% to the contractor and 30 % to us
after deduction direct claim costs and the $ 650,000 paid by the contractor.
Cost of sales. Cost of sales, which includes direct job costs and the third
quarter write down of our surplus generator inventory, decreased from $20.3
million for 1998 to $13.9 million for 1999. Direct job costs decreased by 34%
during 1999, approximately the same percentage as the decrease in revenues, from
$ 20.3 million for 1998 to $13.4 million for 1999. The primary elements of such
decrease in job costs were materials and supplies, job salaries and
subcontracting expense.
The decrease in job costs was primarily attributable to completion during
1998 of the East Dam project , which reduction was partially offset by
additional job cost charges associated with the two disputed contracts in our
Oak Ridge, Tennessee office and settlement of the Boston State Hospital project.
As a result of the unforseen problems, we recorded a negative $1.1 million gross
margin on the Oak Ridge asset recovery contract during the second quarter of
1999. Because we have been terminated from the job and have not been allowed to
salvage certain wire, we recorded additional direct costs $300,000 during the
third quarter of 1999. Because of price increases from our subcontractor
associated with the waste disposal, we recorded additional direct cost of
$400,000 during the third quarter of 1999. As a result of the settlement reached
in March 2000 and recorded in 1999, we recognized $650,000 in gross margin for
this contract in the fourth quarter. We intend to aggressively pursue contract
change orders. Any revenue received from the change order will be recorded when
realized. Additionally, we settled disputes relating to our Boston State
Hospital project. As a result of that settlement, we recorded additional direct
costs of $300,000 during the third quarter of 1999. We recorded negative $1.2
million of gross margin on the Oak Ridge waste disposal contract during the
second quarter of 1999.
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In addition to direct job costs, during 1999, our cost of sales included
the write down of our generator inventory in the amount of $583,000. The write
down of that inventory resulted from continued delays in the commencement of
active energy projects on which we planned to deploy the generator inventory,
coupled with continued losses and limited resources to pursue those projects.
Write down on investment in unconsolidated affiliate. We own 80% of Zages
Ltd., based in Tblisi, Republic of Georgia, which operates a 42-MW hydroelectric
power plant in that country, pursuant to a contract signed on January 31, 1999
with an effective date of April 1, 1999. According to the Georgian version of
the contract, the company's legal counsel in that country has informed the
company that it cannot make changes to the management of Zages Ltd., including
the removal of the sole director who directs and manages the affairs of the
company, without their consent. We have been unable to obtain financial
information on the operations of Zages Ltd., and as a result have not
consolidated the Zages Ltd. operation in our financial statements. Because of
the contractual uncertainty described above, we wrote off our investment in
Zages of approximately $0.2 million.
General and administrative expenses. General and administrative expense
decreased by 45% from $12.9 million in 1998 to $7.1 million in 1999. Included in
1998 expenses was a $1.9 million expense for options granted to consultants.
Without this expense the 1998 expenses of $11.0 million are 55% of revenues
compared to 52.2% for 1999.
Depreciation and amortization. Depreciation and amortization expense
decreased by approximately 50% from $0.6 million in 1998 to $0.3 million in
1999. The decrease was primarily attributable to the decrease in amortization of
deferred issuance costs.
Loss from operations. Loss from operations decreased to $8 million during
1999 from $13.9 during 1998. As a percentage of revenues, loss from operations
deceased from 69.5% in 1998 to 58.8% in 1999.
Interest income and expense. Net interest expense decreased from $4.3
million in 1998 to $0.2 million in 1999. The decreased in interest expense was
primarily attributable to $4.2 million of amortization of the beneficial
conversion feature of the convertible notes and warrants issued during 1998.
Income Taxes. The provision for income taxes totaled $4.2 million during
1998 as compared to a credit for income taxes of $1.2 million in 1999. The
income tax expense for 1998 was attributable to the write-off of our deferred
tax asset in the amount of $4.2 million during 1998. The credit for income taxes
of $1.2 million dollars was recorded in the third quarter of 1999. The credit
for income taxes is attributable to the tax benefit relating to our New Jersey
net operation loss ("NJ NOL"). We applied for participation in the Technology
Certificate Transfer Program sponsored by the New Jersey Economic Development
Authority and were notified during the third quarter that our application had
been approved. During December 1999 the Company received $550,000 from the
proceeds of the sale of part of our NJ NOL. We anticipate receiving the balance
in the third quarter of the year 2000.
Miscellaneous. During fiscal years 1998 and 1999, no provision was made for
post retirement benefits subject to FAS 106.
Net Loss. As a result of the foregoing, we reported a loss after taxes of
$7.2 million for 1999 as compared to a net loss of $22.4 million for 1998.
Net Loss attributable to common stock. The net loss attributable to common
stock was increased by the preferred stock dividend totaling $11,000 in 1999 and
$189,000 in 1998, and an accounting "deemed dividend" of $3.8 million in 1998
arising from the amortization of the beneficial conversion feature of our
Preferred Stock Series RR and Series C Preferred Stock. We are calculating
earning per share to comply with SEC staff position on accounting for securities
issued with beneficial conversion features. This accounting required that we
reflect the difference between the market price of our common stock and the
applicable conversion rate on the convertible preferred stock as a dividend at
the issue date (the beneficial conversion feature totaled $3,330,000 with
respect to the Series C Preferred Stock and $ 500,000 with respect to the Series
RR Preferred Stock in 1998) and amortized the dividend from the issue date for
the Series C Preferred, February 13, 1998 to June 22, 1998, the date the
Registration Statement of the underlying stock was declared effective and from
the issue date of the Series RR Preferred Stock, August 11, 1998 to November 12,
1998, the date the Registration Statement of the underlying stock was declared
effective.
25
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Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Total revenues increased by approximately 11.2% from $17.9
million for the year ended December 31, 1997 to $20 million for the year ended
December 31, 1998. Contract service income increased for the period by 12.3%
from $17.8 million in 1997 to $20 million in 1998. The increase in contract
service income was attributable to increased project volume from our Oak Ridge
office (up $6.6 million) which was partially offset by a decrease in project
volume from our Boston office (down $4.7 million). The East Dam Project
accounted for approximately $4.4 million, 22%, of revenues in 1998 and the Oak
Ridge Project accounted for approximately $3.6 million, 18%, of revenues in
1998. The environmental remediation business has been marked by increasing
competition and pressure on job margins. In light of such operating environment,
during 1998, as in 1997, we opted to only pursue specialized niche projects
where project risks could be limited and higher margins attained. 1998 contract
service revenues exclude approximately $12.1 million of additional compensation
claimed as being owing with respect to services performed under change orders,
including $10.8 million attributable to the East Dam Project. Such additional
compensation will be recognized as revenues at such time as such amounts are
paid, if ever.
Surplus equipment and scrap sales decreased from $96,000 for the year ended
December 31, 1997 to $0 in 1998 due primarily to the sale in 1996 of
substantially all of our surplus equipment, other than generators.
Cost of sales. Cost of sales, which includes direct job costs, cost of
equipment sales, and write-down of our surplus generator inventory, increased by
approximately 15.3% from $17.6 million for 1997 to $20.3 million for 1998.
Direct job costs increased by 19.4% during 1998 and increased from 95.4% to
101.5% of contract income. The primary elements of such increase in job costs
were materials and supplies, job salaries, subcontracting and disposal expense.
The decrease in gross margins during 1998 was attributable primarily to
unforeseeable costs incurred on several contracts, including the East Dam
Project and Boston State Hospital, where we, at December 31, 1998, were seeking
to recover an aggregate of $8.4 million of additional costs incurred as a result
of change orders from clients. The change order related job costs were
recognized in full during 1998 but no revenue attributable to those change
orders was recognized. As a result, the East Dam Project and Boston State
Hospital Project incurred negative gross margins during 1998.
As a result of the lack of sales of surplus equipment during 1998, cost of
equipment sales were $0 as compared to $47,000 during 1997.
In addition to the routine changes discussed above, cost of sales reflects
a write-down of the Company's surplus generator inventory of $600,000 in 1997.
General and administrative expense. General and administrative expenses
increased by 22.9% from $10.5 million (58.8% of gross revenues) in 1997 to $12.9
million (64.5% of gross revenues) in 1998. The increase in general and
administrative expenses was primarily attributable to (1) a $1.9 million expense
for options granted to consultants to purchase 122,000 shares of common stock at
the market price on the date of grant, (2) a $0.3 million increase in
professional fees (principally attributable to professional services relating to
efforts to commence energy and waste treatment markets in foreign countries and
increased litigation expenses) in 1998 as compared to 1997, (3) increased salary
expense, office expense and travel and entertainment expenses related to
increased activity in foreign projects, and (4) a $154,000 audit refund of
workers compensation insurance which reduced general and administrative expense
during 1997. Included in general and administrative expense was a $1 million
write-down during 1998 and a $1.2 million write-down during 1997 of the
Company's note receivable from UPE. Direct costs associated with efforts to
acquire and/or build, start-up, own and operate energy, waste treatment and
other similar projects totaled approximately $4 million during 1998 and $2
million during 1997.
Write-down of the UPE note resulted from unsatisfactory performance of the
note. The note related to the sale in 1995 of certain surplus equipment
inventory to UPE with IDM to receive one-third of the net sale proceeds realized
by UPE from the resale of the equipment with total proceeds to IDM to be in an
amount not less than $4 million. After an initial downpayment on the note,
resales of the equipment were less than projected and payments to IDM were
minimal, totaling $76,000 in 1998. UPE claimed the equipment required
unexpectedly high costs to make the equipment saleable. Because payments were
insufficient to cover the interest accruing on the note and because of
difficulties in reselling the equipment, IDM stopped accruing interest income on
the note during 1997 and wrote-down the note in part during 1997 and again in
1998. During 1999, IDM agreed to accept $300,000 in full settlement of the note.
26
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Depreciation and amortization. Depreciation and amortization expense
decreased by approximately 14.3% from $0.7 million in 1997 to $0.6 million in
1998. The decrease in depreciation and amortization expense was primarily
attributable to a decrease in amortization of deferred issuance costs.
Loss from operations. Loss from operations increased to $13.9 million
during 1998 from $11 million during 1997. As a percentage of revenues, loss from
operations increased from 61.3% in 1997 to 69.5% in 1998.
Interest income and expense. Net interest expense increased from $0.5
million in 1997 to $4.3 million in 1998. The increase in interest expense was
primarily attributable to $4.2 million of amortization of the beneficial
conversion feature of the convertible notes and warrants issued during 1998.
Income taxes. The provision for income taxes totaled $4.2 million during
1998 as compared to a credit for income taxes of $1.6 million in 1997. The
increase in the income tax expense for 1998 was attributable to the write-off of
the Company's deferred tax asset in the amount of $4.2 million during 1998.
Miscellaneous. During fiscal years 1997 and 1998, no provision was made for
post retirement benefits subject to FAS 106.
Net loss and net loss attributable to common stock. As a result of the
foregoing, we reported a loss before taxes of $18.3 million and a net loss of
$22.4 million for 1998 as compared to a loss before taxes of $11.5 million and a
net loss of $9.9 million for 1997. The net loss attributable to common stock was
increased by the preferred stock dividends ($189,000 in 1998 and $174,000 in
1997) and an accounting "deemed dividend" ($3.8 million in 1998 and $1.1 million
in 1997) arising from the amortization of the beneficial conversion feature of
preferred stock. Earnings per share has been calculated to comply with the
recent SEC staff position on accounting for securities issued with beneficial
conversion features. This accounting requires that we reflect the difference
between the market price of the common stock and the applicable conversion rate
on the convertible preferred stock as a dividend at the issue date amortized
over a period from that date until the date on which the preferred stock becomes
convertible.
Liquidity and Capital Resources
At December 31, 1999, we had a working capital deficit of approximately
$3.2 million and a cash balance of $512,000. This compares to a deficit in
working capital of $0.5 million and a cash balance of $0.4 million at December
31, 1998. The changes in working capital and cash were primarily attributable to
a combination of (1) the loss incurred during 1999, (2) the effects of an
increase in accounts payable of $2.3 million and (3) an adverse change in costs
and estimated expenses in excess of billings of $1.9 million, which were
partially offset by (1) the effects of an increase in accounts receivable of
$2.0 million , (2) the issuance of stock to pay certain vendors and to pay a
deposit in lieu of a bond in the aggregate amount of $490,000 and (3) a
$1,200,000 credit for New Jersey income tax.
Unbilled costs and estimated earnings at December 31, 1998 totaled $1.9
million. Billings in excess of costs and estimated earnings totaled $0.9 million
at December 31, 1999 as compared to $0 at December 31, 1998. The change was
primarily attributable to settling one of, and completing the second of, two
contracts at the Oak Ridge Project. The liability is attributable to our
Boundbrook Project.
At December 31, 1999, we had approximately $36.5 million of operating loss
carry-forwards that may be applied against future taxable income. $2.3 million
of such losses expire in the year 2010; $9.1 million in the year 2011; $8.6
million in the year 2012; $10.6 million in the year 2013; and the balance ($5.9
million) the following year. Based on our continuing operating losses, we
wrote-off our deferred tax asset during 1998. During the third quarter of 1999
we recorded a $1,200,000 tax benefit from the New Jersey NOL .We received
$550,000 in December 1999 and expect to realize the balance from our New Jersey
tax credit in the third quarter of the year 2000.
27
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We require substantial working capital to support our ongoing operations.
As is common in the environmental services industry, payment for services
rendered are generally received pursuant to specific draw schedules after
services are rendered. Thus, pending the receipt of payments for services
rendered, we must typically fund substantial project costs, including
significant labor and bonding costs, from financing sources within and outside
of the Company. Certain contracts, in particular those with United States
governmental agencies, may provide for payment terms of up to 90 days or more
and may require the posting of substantial performance bonds which are generally
not released until completion of a project.
Operations were historically funded through a combination of operating cash
flow, term notes and bank lines of credit. Since April of 1994, we have carried
no bank debt and have funded operations principally through the sale of equity
securities and securities convertible into equity securities. At December 31,
1999, we had no bank debt and no significant long-term debt and were funding
operations entirely through cash on hand and operating cash flow which was
supplemented by various borrowings and issuances of stock.
In order to meet working capital needs during 1999, we have borrowed funds
from various parties, including officers, and have issued stock in payment of
certain trade payables. At December 31, 1999, we owed a total of $217,000
primarily to our two principal officers for funds advanced. There are no
definitive repayment terms on such amounts. In June 1999, we borrowed $400,000
from existing stockholders. That loan was repayable in August 1999 with interest
at 6.5%. As inducement for making that loan, we issued 125,000 shares of common
stock to the lenders. The loan had been repaid at December 31, 1999. During the
year ended December 31, 1999, we issued 100,073 shares of common stock in
settlement of $470,000 of accounts payable and issued 102,000 shares of common
stock as collateral to our surety in lieu of a $400,000 performance bond and
16,070 shares to two vendors to secure amounts owed.
Other than funds provided by operations and the potential receipt of funds
from the exercise of outstanding warrants, we presently have no sources of
financing or commitments to provide financing. A total of approximately 34,000
Class A Warrants (after giving effect to the April 1999 reverse split) issued in
connection with our initial public offering were outstanding and exercisable at
December 31, 1999. Such warrants are exercisable to purchase two shares of
common stock each for a price of $90.00, or $45.00 per share. The warrants were
originally exercisable until April of 1999 unless earlier called. We declared a
1-for-10 reverse split of our Common Stock and Class A Warrants effective April
16, 1999 and extended the term of the Class A Warrants to April of 2000.
Exercise of the warrants would provide gross proceeds of approximately $3.1
million and result in the issuance of approximately 70,000 shares after giving
effect to the reverse split. However, given the current price of our Common
Stock, it is not expected that the Class A Warrants will be exercised in the
near future.
In November of 1998, we paid $600,000 to acquire a 49% interest in Kortman
Polonia, a Polish company with substantial real estate holdings. Kortmann
Polonia has initiated discussions with various real estate developers and major
U.S. retailers with respect to the sale of various real estate tracts and the
development and leasing of the remaining tracts.
In addition to funding requirements to support ongoing operations, we have
committed substantial capital resources to implementation of the strategic
initiative known as "Vision 2000." The focus of Vision 2000 is to position us as
a leading participant in the global energy and waste treatment market and in the
nuclear facility decommissioning and site revitalization market. The development
and initial implementation of Vision 2000 initiatives have required substantial
capital expenditures and can be expected to continue to require substantial
capital expenditures in the future. Direct investments in potential energy and
waste treatment projects undertaken under the Vision 2000 initiative, excluding
corporate overhead allocable to such initiative, totaled approximately $9
million at December 31, 1999. Capital expenditures and other outlays to bring
proposed projects to an operational state are expected to far exceed the
investment to date. Consequently, we have entered into discussions with several
potential equity investors in, and have signed a Memorandum of Understanding
with a potential purchaser of, the El Salvador Power Project. Similarly, in
connection with our acquisition of a controlling interest in the Georgia Power
Project, we agreed to perform a technical evaluation on the facility and,
depending on the results of that evaluation, to invest up to $9 million over the
life of the facility for repairs and rehabilitation. The ability to successfully
bring projects on line, carry out any required repairs and rehabilitation on the
Georgia Power Project and implement other Vision 2000 initiatives is
substantially dependent upon our ability to secure project financing and other
financing. While we believe that we will be able to attract adequate financing
to develop anticipated projects, we have no definitive commitments to provide
financing for those projects and there is no assurance that such financing will
be available. Other than funding Vision 2000 initiatives and bonding and other
job costs, we do not anticipate any substantial demands on our liquidity or
capital resources during the following twelve months.
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In March of 1999, our management appeared before a Nasdaq hearing panel
regarding the possible de-listing of our common stock for failure to maintain a
minimum bid price of at least $1.00. In order to address the deficiency in
minimum bid price, we proposed and have approved a 1-for-10 reverse split of our
common stock and warrants to be effective April 16, 1999. On May 7, 1999, NASDAQ
informed us of their decision that because of our failure to comply with the
minimum $5,000,000 market value of public float requirement for the past 37
consecutive trading days as of that date, that effective with the open of
business of May 11, 1999, our securities were transferred from the National
Market to the Small Cap Market, pursuant to the maintenance criteria.
We believe that our working capital, combined with the expected receipt of
funds from the resolution of certain change orders and litigation, is sufficient
to meet our anticipated needs, other than project financing requirements
discussed above, for at least the following twelve months, including the
performance of all existing contracts. However, as there is no assurance as to
the timing or amount of the receipt of funds from change orders, litigation or
other sources, we may be required to seek new bank lines of credit or other
financing in order to facilitate the performance of jobs. While we are
conducting ongoing discussions with various potential lenders with a view to
establishing available credit facilities, we presently have no commitments from
any bank or other lender to provide financing if such financing becomes
necessary to support operations.
Year 2000 Issue
We experienced no material failures and incurred no material costs or
losses as a result of the Year 2000 Issue.
Impact of Inflation
Inflation has not been a major factor in our business since inception.
There can be no assurances that this will continue. However, it is anticipated
that any increases in costs can be passed on to customers in the form of higher
prices.
Certain Factors Affecting Future Operating Results
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include the following: possible fluctuations in the
growth and demand for energy in markets in which the Company may seek to
establish energy production operations; intense competition for establishment of
energy production operations in growing economies; currency, economic, financing
and other risks inherent in establishing energy operations in foreign markets;
uncertainty regarding the rate of growth in demand for nuclear decommissioning
and site revitalization services; continued delays in awarding and commencing
contracts; delays in payment on contracts occasioned by dealings with
governmental and foreign entities; changes in accepted remediation technologies
and techniques; fluctuations in operating costs associated with changes in
project specifications and general economic conditions; substantial fluctuations
in revenues resulting from completion and replacement of contracts and delays in
contracts; economic conditions affecting the ability of prospective customers to
finance projects; and other factors generally affecting the timing and financing
of projects.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
independent auditors' report thereon of Samuel Klein and Company, appears
beginning on page F-1 of this report. See Index to Financial Statements on page
44 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Regarding Executive Officers and Directors
The following table sets forth the names, ages and offices of the present
executive officers and directors of the Company. The periods during which such
persons have served in such capacities are indicated in the description of
business experience of such persons below.
Name Age Position
------ ----- ----------
Joel A. Freedman 64 President, Chief Executive Officer and Director
Frank A. Falco 66 Executive Vice President, Chief Operating Officer
and Chairman
Michael B. Killeen 54 Treasurer, Chief Financial Officer and Director
Frank Pasalano 47 Vice President of Operations
John M. Tuohy 54 Vice President of Nuclear Services
John Klosek 52 Vice President of Engineering
Joe Dias 45 Vice President of Sales and Purchasing
Birger Munck 55 President - IDM Energy
Robert McGuinness 48 Director
Frank Patti 71 Director
Richard Keller 50 Director
Mark Franceschini 62 Director
Other than officers who are subject to employment agreements, each officer
serves at the discretion of the Board of Directors. See "Employment Contracts,
Termination of Employment and Change in Control Arrangements."
Mr. Falco is the uncle of Mr. Pasalano. Otherwise, there are no family
relationships among any of the directors or officers of the Company.
Joel A. Freedman. Mr. Freedman has served as a director of the Company
since 1978. Mr. Freedman has served as President and Chief Executive Officer of
the Company since co-founding the Company in 1978 and served as Chairman of the
Board from 1978 until June of 1993.
Frank A. Falco. Mr. Falco has served as a director of the Company since
1978. Mr. Falco has served as Executive Vice President and Secretary of the
Company since co-founding the Company in 1978 and has served as Chairman of the
Board and Chief Operating Officer of the Company since June of 1993.
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Michael B. Killeen. Mr. Killeen has served as Treasurer and Chief Financial
Officer of the Company since September of 1991, and as a director since June of
1998. Mr. Killeen previously served as a Director of the Company from September
of 1991 until May of 1996. Prior to joining the Company, Mr. Killeen served as
controller of Burnham Corporation, a multiple plant manufacturer of heating
equipment, from 1978 to 1991.
Frank Pasalano has served as Vice President of Operations of the Company
since 1985. Previously, Mr. Pasalano served as a project manager for the Company
from 1978 to 1985.
John M. Tuohy has served as Vice President of Nuclear Services of the
Company since 1990. Previously, Mr. Tuohy served as Director of Burns & Roe, a
national engineering firm, from 1970 to 1990.
John Klosek has served as Vice President of Engineering of the Company
since 1989. Previously, Mr. Klosek served as Associate Director of Colgate
Palmolive, a conglomerate engaged in the worldwide production and marketing of
consumer goods, from 1969 to 1989.
Joe Dias has served as Vice President of Sales and Purchasing of the
Company since 1979.
Birger Munck has served as President of IDM Energy since August of 1996.
Previously, Mr. Munck served as President of Continental Waste Conversion, Inc.,
a waste-to-energy project company from 1994 to 1996. Previously, Mr. Munck
served as a management consultant from 1990 to 1993 and as President of Nordex
Petroleum from 1987 to 1990.
Frank Patti. Mr. Patti has served as a director of the Company since 1994.
Mr. Patti has been a Project Engineer at the Brookhaven National Laboratory
since October of 1994. From March of 1994 through September of 1994, Mr. Patti
was a self-employed nuclear engineering consultant. For more than five years
prior to March of 1994, Mr. Patti was Chief Nuclear Engineer for Burns & Roe, a
major engineering firm. Mr. Patti serves on the Company's Compensation
Committee.
Mark Franceschini. Mr. Franceschini has served as a director of the Company
since June of 1998. Mr. Franceschini retired in 1993 after serving ten years as
the Superintendent of Schools for the Wall Township Public Schools in Wall, New
Jersey. From 1967 to 1983, Mr. Franceschini served as a teacher and
administrator. Prior to entering the education field, Mr. Franceschini was a
vice president and co-founder of IRT Electronics, a manufacturer of pressure
transducers. Mr. Franceschini serves on the Company's Audit Committee and
Compensation Committee.
Richard Keller. Mr. Keller has served as a director of the Company since
August 1997. Mr. Keller retired in 1997 from his position as Senior Vice
President/Manager of Garvin GuyButler Corporation, a money brokerage firm, where
he managed the trading desk. Mr. Keller serves as Chairman of the Company's
Compensation Committee and as a member of the Audit Committee.
Robert McGuinness. Mr. McGuinness has served as a director of the Company
since 1994. Since January of 1995, Mr. McGuinness has served as a partner in the
certified public accounting firm of McGuinness, Corley & Hodavance. For more
than five years prior to January of 1995, Mr. McGuinness was Vice President of
Essroc Corp., a cement manufacturer. Mr. McGuinness serves as Chairman of the
Company's Audit Committee.
Compliance With Section 16(a) of Exchange Act
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose in this Proxy Statement
any failure to file by these dates during 1999. All of the filing requirements
were satisfied on a timely basis in 1999. In making these disclosures, the
Company has relied solely on written statements of its directors, executive
officers and shareholders and copies of the reports that they filed with the
Commission.
31
<PAGE>
Committees and Attendance of the Board of Directors
In order to facilitate the various functions of the Board of Directors, the
Board has created a standing Audit Committee and a standing Compensation
Committee.
The functions of the Company's Audit Committee are to review the Company's
financial statements with the Company's independent auditors; to determine the
effectiveness of the audit effort through regular periodic meetings with the
Company's independent auditors; to determine through discussion with the
Company's independent auditors that no unreasonable restrictions were placed on
the scope or implementation of their examinations; to inquire into the
effectiveness of the Company's financial and accounting functions and internal
controls through discussions with the Company's independent auditors and
officers of the Company; to recommend to the full Board of Directors the
engagement or discharge of the Company's independent auditors; and to review
with the independent auditors the plans and results of the auditing engagement.
The members of the Audit Committee are Mr. McGuinness, Chairman, Mr.
Franceschini and Mr. Keller.
The functions of the Company's Compensation Committee include reviewing the
existing compensation arrangements with officers and employees, periodically
reviewing the overall compensation program of the Company and recommending to
the Board modifications of such program which, in the view of the development of
the Company and its business, the Committee believes are appropriate,
recommending to the full Board of Directors the compensation arrangements for
senior management and directors, and recommending to the full Board of Directors
the adoption of compensation plans in which officers and directors are eligible
to participate and granting options or other benefits under such plans. The
members of the Compensation Committee are Mr. Keller, Chairman, Mr. Franceschini
and Mr. Patti.
The Board of Directors does not have a standing nominating committee or a
committee performing similar functions.
During the year ended December 31, 1999, the Board of Directors held eight
formal meetings, including telephonic meetings, and acted through unanimous
written consent on other occasions, the Audit Committee held one meeting and the
Compensation Committee held two meetings. Each director (during the period in
which each such director served) attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors, plus (ii) the total
number of meetings held by all committees of the Board of Directors on which the
director served.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities to IDM during the
three years ended December 31, 1999 of each of the five most highly compensated
executive officers of IDM.
32
<PAGE>
<TABLE>
Long Term
Annual Compensation Compensation
----------------------------------------------- -----------------
Other Annual Stock
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)(2)
- --------------------------- ------ ------------ ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Joel A. Freedman................... 1999 480,000 -0- (1) 400,000
President and 1998 480,000 -0- (1) 225,000
Chief Executive Officer 1997 480,000 -0- (1) 10,000
Frank A. Falco..................... 1999 480,000 -0- (1) 400,000
Executive Vice President and 1998 480,000 -0- (1) 225,000
Chief Operating Officer 1997 480,000 -0- (1) 10,000
Birger Munck....................... 1999 175,000 -0- (1) 12,000
President - IDM Energy 1998 175,000 -0- (1) -0-
1997 175,000 -0- (1) -0-
Michael B. Killeen................. 1999 128,500 -0- (1) 19,500
Treasurer and Chief 1998 128,500 -0- (1) 2,500
Financial Officer 1997 123,084 -0- (1) 500
John M. Tuohy...................... 1999 123,000 -0- (1) 14,000
Vice President of 1998 117,382 -0- (1) 1,000
Nuclear Services 1997 111,764 -0- (1) 0
</TABLE>
(1) Although the officers receive certain perquisites such as auto allowances
and company provided life insurance, the value of such perquisites did not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(2) Reflects, retroactively, the effects of a 1-for-10 reverse stock split
effective April 16, 1999.
Compensation of Directors
Each non-employee director of the Company is paid a fee of $1,000 for each
Board of Directors meeting or committee meeting attended. The Company also
reimburses each director for all expenses of attending such meetings.
Pursuant to the IDM Environmental Corp. 1998 Comprehensive Stock Option and
Award Plan, commencing in 1998 and upon each subsequent reelection of each
non-employee director, options will be granted to each non-employee director to
purchase 5,000 shares of Common Stock multiplied by the number of years
remaining in each non-employee director's term. All such options will be
exercisable at the fair market value of the Company's Common Stock on the date
of grant. Such options will vest and become exercisable at the rate of 5,000
shares upon election as a non-employee director and 5,000 shares per year on
each subsequent anniversary of election provided that the non-employee director
continues to serve in such capacity.
No additional compensation of any nature is paid to employee directors.
Stock Option Plans
IDM adopted stock option plans in 1993, 1995 and 1998. The purpose of the
IDM Plans is to assist IDM and its subsidiaries in retaining the services of and
motivating employees by providing the opportunity for such personnel to acquire
a proprietary interest in IDM and thus share in its growth and success. A total
of 188,494 shares are reserved for issuance under the IDM Plans, consisting of
41,212 shares reserved under the 1993 Plan, 47,282 shares reserved under the
1995 Plan and 100,000 shares reserved under the 1998 Plan. The IDM Plans provide
for the granting of non-qualified stock options and "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986 to any
employee, officer, director or consultant of IDM and its subsidiaries. The 1998
Plan also permits the grant of restricted stock, stock awards and performance
shares. The Compensation Committee of IDM's board of directors administers each
of the IDM Plans. Members of that committee are eligible to receive awards under
the IDM Plans. The Committee designates optionees, the exercise price of options
(which may not be less than fair market value on the date of grant), the date of
the grant and the period of the option (which may not exceed ten years).
33
<PAGE>
At December 31, 1999, a total of 1,030,272 options were outstanding under
the IDM Plans including options issued subject to shareholder approval.
Stock Option Grants
The following table sets forth information concerning the grant of stock
options made during 1999 to each of the Chief Executive Officer and the next
four highest paid officers of IDM:
<TABLE>
Percent of Potential Realizable Value
Total Options at Assumed Annual Rates
Granted to of Stock Price Appreciation
Options Employees in Price Expiration For Option Term
Name Granted (1) Fiscal Year Per Share (1) Date 5% 10%
--------- ------------ ------------ ------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Freedman................ 400,000 41.0 1.156 07/18/09 10,369,600 16,785,600
Frank A. Falco.................. 400,000 41.0 1.156 07/18/09 10,369,600 16,785,600
Michael B. Killeen.............. 18,000 1.8 1.156 07/18/09 466,632 755,352
1,500 0.1 6.75 02/10/09 30,495 54,555
Birger Munck.................... 12,000 1.2 1.156 07/18/09 311,088 503,568
John M. Tuohy................... 13,000 1.3 1.156 07/18/09 337,012 545,532
1,000 0.1 6.75 02/10/09 20,330 36,370
</TABLE>
(1) Includes option grants under the 1998 Plan subject to approval by the
shareholders of IDM of any amendment to the 1998 Plan to increase the
number of shares reserved under the 1998 Plan.
Stock Option Exercises
The following table sets forth information concerning the exercise of stock
options during 1999 by each of the Chief Executive Officer and the next four
highest paid officers of IDM and the number and value of unexercised options
held by the named officers at the end of 1999:
<TABLE>
Number of Unexercised Value of Unexercised
Shares Options at In-the Money Options
Acquired on Value at FY-End (#)(1) at FY-End ($)(2)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Freedman............ 0 0 242,500 400,000 2,394,688 6,187,600
Frank A. Falco.............. 0 0 242,500 400,000 2,394,688 6,187,600
Michael B. Killeen.......... 0 0 17,504 9,000 223,198 139,221
Birger Munck................ 6,000 23,064 0 6,000 0 92,814
John M. Tuohy............... 0 0 11,505 6,500 149,973 100,549
</TABLE>
------------------
(1) Includes option grants under the 1998 Plan subject to approval by the
shareholders of IDM of any amendment to the 1998 Plan to increase the
number of shares reserved under the 1998 Plan. See "Proposed Amendment to
IDM's 1998 Comprehensive Stock Option and Award Plan.
(2) Based on the fair market value per share of the Common Stock at year end,
minus the exercise price of "in-the-money" options. The closing price for
IDM's Common Stock on December 31, 1999 on the Nasdaq SmallCap Market was
$16.625.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
Effective January 1, 1996, Joel A. Freedman and Frank A. Falco each entered
into employment agreements, superseding their prior employment agreements, with
IDM on substantially identical terms. Subsequently, on September 1, 1997 and
February 18, 1998, the employment agreements of Messrs. Freedman and Falco were
amended.
34
<PAGE>
Pursuant to such agreements, effective September 1, 1997, Mr. Freedman and
Mr. Falco each receive (i) a base salary of $480,000 per year plus 2% of
operating profits; (ii) bonuses as determined by the Board of Directors; (iii)
participation in any employee benefit plans and fringe benefit arrangements
generally available to IDM's employees; and (iv) an entertainment expense
allowance of $45,000 per year. For purposes of computing the salary of Messrs.
Freedman and Falco, operating profits are defined as net income from operations
before deduction of interest expense, income taxes, depreciation and
amortization and other non-cash charges to income. Pursuant to the February 18,
1998 amendment to their employment agreements, Messrs. Freedman and Falco were
each granted 225,000 stock options exercisable at $37.19 per share and expiring
February 17, 2003 (reflects the effects of a 1-for-10 reverse stock split
effective April 16, 1999).
Pursuant to the September 1997 and February 1998 amendments to the
employment agreements of Messrs. Freedman and Falco, the previously existing
draw schedule and stock bonus provisions were eliminated from the employment
agreements of Messrs. Freedman and Falco.
The employment agreements prohibit Mr. Freedman and Mr. Falco from
competing, directly or indirectly, with IDM or disclosing confidential matters
with respect to IDM for two years after termination of employment. Each of such
agreements expires on December 31, 2005 and are thereafter automatically
extended for one-year periods unless there is a notice of termination from
either IDM or the employee.
In the event of their disability, Messrs. Freedman and Falco are entitled
to continue to receive their full salary at the date of disability for a period
of one year after which time IDM may terminate the employment of such disabled
employee without further compensation. In the event of death during the term of
employment, the estate of Mr. Freedman or Mr. Falco, as appropriate, shall be
entitled to three months salary. In the event of the termination of Mr. Freedman
or Mr. Falco's employment within one year of the occurrence of various change in
control events, or in the event of termination of their employment by IDM for
any reason other than death or disability, IDM must pay or provide to Mr.
Freedman and/or Mr. Falco, as appropriate, (i) a lump sum payment equal to 2.99
times his average annual gross income from IDM for the five tax-year period
ending before the date of such termination; (ii) a lump sum payment equal to
three times the value of all "in-the-money" stock options held by such persons
at the date of termination; and (iii) continued participation in all employee
benefit plans or programs for a period of three years, provided that the
employee may, at his election, receive a lump sum cash payment equal to the
value of such benefits in lieu of continued participation in such benefit plans.
As used in the employment agreements of Messrs. Freedman and Falco, a "change in
control" is defined to be (i) the acquisition of 15% of IDM's common stock; (ii)
a change in the majority composition of the board of directors within any two
year period; or (iii) a failure to elect either of such employees to the board
when such employee is standing for election; provided, however, that such events
shall not constitute a change in control if a majority of the directors
immediately prior to such "change in control" approve the transaction or event
otherwise constituting a "change of control."
IDM has no other employment agreements with any other officers or
employees. IDM has, however, entered into agreements with certain of its
employees pursuant to which such employees have agreed to maintain the
confidentiality of certain information and have agreed to not compete with IDM
within 250 miles of IDM's principal places of business for a period of three
years following the termination of such persons' employment with IDM.
Additionally, IDM has entered into agreements with certain of its executive
officers, other than Messrs. Freedman and Falco, which provide that, in the
event of termination within one year of a change in control, such officers shall
be entitled to (i) a lump sum payment equal to 2.99 times his average annual
gross income from IDM for the three tax-year period ending before the date of
such termination; (ii) a lump sum payment equal to three times the value of all
"in-the-money" stock options held by such persons at the date of termination;
and (iii) continued participation in all employee benefit plans or programs for
a period of three years, provided that the employee may, at his election,
receive a lump sum cash payment equal to the value of such benefits in lieu of
continued participation in such benefit plans. For purposes of such agreements,
a change in control is defined in the same manner as in the employment
agreements of Messrs. Freedman and Falco, except that failure of either Mr.
Freedman or Falco to be elected when standing for election as a director shall
not constitute a "change in control" for purposes thereof.
In addition to the foregoing employment and change of control arrangements,
IDM's 1993 Plan, 1995 Plan and 1998 Plan provide that all outstanding options
shall become fully vested and exercisable in the event of a change in control.
35
<PAGE>
Retirement Savings Plan
In July of 1992, IDM amended an existing profit sharing plan to convert
such plan to a retirement savings plan under Section 401(k) of the Internal
Revenue Code. The 401(k) Plan generally covers all employees of IDM who have
completed two years of service with IDM. Employees may elect to defer, in the
form of contributions to the 401(k) Plan, up to 15% of their annual
compensation, subject to the federal maximum limit. IDM may, at its own
discretion, contribute to the plan. IDM made no contribution to the 401(k) Plan
during the fiscal year ended December 31, 1998.
Compensation Committee Report
General. The Compensation Committee of the Board of Directors establishes
the general compensation policies of the Company and the compensation plans and
specific compensation levels for executive officers.
The Compensation Committee consists of non-employee Directors who are not
eligible to participate in any of the compensation plans or programs that it
administers, other than the receipt of formula grants under the Company's Stock
Option Plans. The Committee believes that the Company is best served by a
program that is designed to motivate, reward and retain the management team to
achieve the objectives of the Company. To this end, the Committee has adopted a
program designed to focus on the Company's long-term goals. Accordingly, a
significant portion of the senior executive compensation is dependent upon
achieving these long-term goals.
The philosophical basis of the Committee is to compensate executives based
on performance and on the level of responsibility of the executive. Salary
ranges are established based on such criteria. Salaries of key executives are
set by measuring performances against the benchmark and by determining the value
of the executive's contribution towards the Company's long-term goals. In
addition, consideration is given to the individual's experience and past
performance because the Committee also believes that any program must recognize
performance and encourage initiative.
The Committee also reviews management's response to the changing business
environment in which the Company operates. A timely and effective response by
management to changing business conditions while continuing to focus on the
long-term objectives is considered essential by the Committee. Management is
also evaluated on its ability to evaluate and adjust the long-term goals in
response to the evolving business climate.
Base Salary. For fiscal 1999, the base salary of executive officers, other
than the Chief Executive Officer and Chairman whose base salaries are determined
by employment agreements, were set based upon the results of the executive's
performance review. Each executive is reviewed annually by the Chief Executive
Officer and Chairman and given specific objectives, with the objectives varying
based upon the executive's position and responsibilities and the specific
objectives for that position. At the next annual review, the performance of each
executive is reviewed versus the objectives established for each executive and
the Company's overall performance. The results of the review are then reported
to the Committee along with senior management's compensation recommendation. The
Committee then determines whether the base salary should be adjusted for the
coming year.
Long-Term Incentive Compensation. Each executive officer of the Company was
granted options at the time of the initial adoption of the Company's stock
option plans or at the time the officer joined the Company. The Committee makes
option grants to executive officers on a case- by-case basis relative to the
annual performance reviews and the recommendations of senior management. Grants
of options are designed to align the interests of executive officers with those
of stockholders. The size of these grants is generally set at a level which the
Committee feels is in proportion with the role and responsibility of the
executive, as well as his or her opportunity to effect the Company's
performance, while also being sufficient to attract and retain qualified
executives.
Chief Executive Officer and Chairman Compensation. With respect to the
compensation of the Chief Executive Officer and the Chairman of the Board, the
Committee believes that the Company continues to respond well to the changing
business environment in which it operates. The "Vision 2000" initiative
developed by the Chairman and CEO has proven to be a catalyst for expansion into
new and potentially lucrative markets. Both the Chairman and CEO have been
instrumental in creating new opportunities for the Company, which the Committee
believes will lead to strong growth in revenues, a return to profitability and
increased shareholder value. The Committee believes that the foresight of senior
management in setting the goals and direction of "Vision 2000", and the
opportunities uncovered by senior management during 1998 have allowed the
Company to weather difficult industry conditions and to position the Company
favorably while moving forward. Based on the foregoing considerations, the
Committee has agreed, to maintain the Chief Executive Officer and Chairman's
base salaries at $480,000 each plus an annual expense allowance of $45,000. At
the present time, the Committee believes that any movement away from the current
compensation plan or the above mentioned philosophies, would be detrimental to
the Company's ability to attract and retain key management personnel and,
ultimately, the Company's capabilities for future success.
36
<PAGE>
The Committee believes these executive compensation policies and programs
serve the interests of stockholders and the Company effectively. The various pay
vehicles offered are appropriately balanced to provide increased motivation for
senior executives to contribute to the Company's overall future success, thereby
enhancing the value of the Company for the stockholder's benefit.
The Compensation Committee
RICHARD KELLER, Chairman
MARK FRANCESCHINI
FRANK PATTI
Company Performance
The following graph compares the cumulative total investor return on the
Company's Common Stock for the five year period ended December 31, 1999 with an
index consisting of returns from a peer group of companies, consisting of the
Nasdaq Non-Financial Index (the "Nasdaq Non-Financial Index"), and The Nasdaq
Stock Market Composite Index (the "Nasdaq Composite Index").
The graph displayed below is presented in accordance with Securities and
Exchange Commission requirements. Shareholders are cautioned against drawing any
conclusions from the data contained herein, as past results are not necessarily
indicative of future performance. This graph in no way reflects the Company's
forecast of future financial performance.
(graph appears at this location depicting the following stock performance)
<TABLE>
Base Period December December December December December
December 31 1994 31 1995 31 1996 31 1997 31 1998 31 1999
---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
IDM Environmental Corp. 100 84.27 67.13 160.00 10.72 38.00
Nasdaq Composite Index 100 141.33 173.89 213.07 300.25 542.43
Nasdaq Non-Financial Index 100 139.26 169.16 198.09 290.32 559.35
</TABLE>
37
<PAGE>
TEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table is furnished as of March 27, 2000, to indicate
beneficial ownership of shares of the Company's Common Stock by (1) each
shareholder of the Company who is known by the Company to be a beneficial owner
of more than 5% of the Company's Common Stock, (2) each director, and Named
Officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information in the following table was provided by such
persons.
<TABLE>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (1)(2) Percent of Class (2)
---------------------- --------------------------- --------------------
<S> <C> <C>
Joel A. Freedman (3)................... 813,750 (4) 17.6%
Frank A. Falco (3)..................... 860,854 (5) 18.4%
Michael B. Killeen..................... 26,504 (6) *
Birger Munck........................... 6,000 (7) *
Frank Patti............................ 12,750 (8) *
Robert McGuinness...................... 13,255 (9) *
Richard Keller......................... 12,000 (10) *
Mark Franceschini...................... 11,000 (11) *
All executive officers and directors
as a group (12 persons)............... 1,802,562 (12) 32.1%
</TABLE>
* Less than 1%.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) Includes shares of Common Stock not outstanding, but which are subject to
options exercisable within 60 days of the date of the information set forth
in this table, which are deemed to be outstanding for the purpose of
computing the shares held and percentage of outstanding Common Stock with
respect to the holder of such options. Such shares are not, however, deemed
to be outstanding for the purpose of computing the percentage of any other
person.
(3) Address is 396 Whitehead Avenue, South River, New Jersey 08882.
(4) Includes 813,750 shares issuable upon exercise of incentive stock options
and non-qualified stock options held by Mr. Freedman. Excludes shares held
by the adult children of Joel Freedman. Mr. Freedman disclaims any
beneficial ownership interest in such shares.
(5) Includes 813,750 shares issuable upon exercise of incentive stock options
and non-qualified stock options held by Mr. Falco. Excludes shares held by
Margaret Mullin, the adult daughter of Frank Falco, and the children of
Mrs. Mullin. Mr. Falco disclaims any beneficial ownership interest in such
shares.
(6) Includes 26,504 shares issuable upon exercise of incentive stock options
held by Mr. Killeen.
(7) Includes 6,000 shares issuable upon exercise of incentive stock options
held by Mr. Munck.
(8) Includes 12,750 shares issuable upon exercise of non-qualified stock
options held by Mr. Patti.
(9) Includes 13,250 shares issuable upon exercise of non-qualified stock
options held by Mr. McGuinness. Also includes 5 shares held by a minor
child of Mr. McGuinness, as to which Mr. McGuinness disclaims any
beneficial interest.
(10) Includes 12,000 shares issuable upon exercise of non-qualified stock
options held by Mr. Keller.
(11) Includes 11,000 shares issuable upon exercise of non-qualified stock
options held by Mr. Franceschini.
(12) Includes 1,755,453 shares of Common Stock subject to stock options held by
the officers and directors and exercisable within 60 days.
Change in Control Following Fusion Networks Merger
In April 2000, it is expected that control of IDM will be transferred
pursuant to the terms of the reorganization and merger whereby IDM will become a
wholly-owned subsidiary of Fusion Networks Holdings, Inc.
38
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since July of 1988, the Company has leased its executive offices and yard
storage facilities from L&G Associates, a partnership controlled by Joel
Freedman and Frank Falco, the Company's founders and senior officers and
directors. On March 1, 1993, the Company entered into a new five year lease on
such property, including two additional parcels with storage buildings
previously leased to a third party. Pursuant to such lease, the Company pays
base rent of $270,000 annually subject to annual adjustments based on the
Consumer Price Index, plus all costs of maintenance, insurance and taxes.
In 1994, the Company and L&G entered into an agreement regarding the
construction and/or renovation of expanded facilities on the premises leased by
the Company from L&G and the renovation and leasing of an adjoining property.
The expanded facilities were needed to support current operations and
anticipated future growth. The Board of Directors formed a Building Committee to
review the terms and fairness of such proposed expansion. In November of 1994,
the parties agreed in principal with respect to the terms of the proposed
expansion and the Building Committee determined that such expansion met the
Company's needs and was on terms which were fair to the Company. Based on such
agreement and determination, the Company in November of 1994 commenced
renovation and construction on such sites of which one facility, office space
(7,600 square feet), was completed during the third quarter of 1995, and the
second facility, warehouse space (5,700 square feet), was completed during the
third quarter of 1996. Renovation of such office space by the Company at an
approximate cost of $303,000 constitutes payment in full of rent for the initial
term of the lease of such office space. The Company, however, is responsible for
all taxes, utilities, insurance and other costs of occupying the office space
during the initial term. Construction of such warehouse space by the Company at
an estimated cost of $145,000 constitutes payment in full of rent for the
initial term of the lease of such warehouse space. The Company, however, is
responsible for all taxes, utilities, insurance and other costs of occupying the
warehouse space during the initial term. The total cost of the renovations was
to be amortized over the initial terms of the lease. On May 16, 1996 the leases
were amended and extended fifteen years to May 31, 2011. The amortization
associated with the cost of the renovation was extended through the terms of the
modified lease. Amortization expense related to these costs for the years ended
December 31, 1999 and 1998 was $93,320 and $93,320, respectively. For the years
ended December 31, 1999 and 1998, the rent paid totaled $315,130 and $308,948,
respectively.
The Company believes that its existing lease with L&G Associates, as
modified, is on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
Prior to the September 1997 amendment, the employment agreements of Messrs.
Freedman and Falco provided that Messrs. Freedman and Falco would receive a draw
of salary and bonus based on projected earnings. Because actual earnings were
below projected earnings, Messrs. Freedman and Falco were indebted to the
Company for excess draws at December 31, 1996 and at prior years end. In
addition to amounts owed to the Company relating to excess draws, the Company
has periodically paid certain personal expenses of Messrs. Freedman and Falco.
At December 31, 1998, the Company's receivables from Mr. Freedman and Mr. Falco
had been repaid in full. At December 31, 1997, the Company's receivable from Mr.
Freedman totaled $7,965 and the Company's receivable from Mr. Falco totaled
$361,576. All amounts owed to the Company by Messrs. Freedman and Falco were
repayable on demand with interest accruing at 7%.
During 1998, the Company purchased 8,250 shares of common stock of Life
International Products, Inc. from Joel Freedman for $178,125, Mr. Freedman's
cost basis in those shares.
During 1999, the Company's two principal officers, Joel Freedman and Frank
Falco advanced funds to the Company from time to time. At December 31, 1999, we
owed a total of $159,376 to Mr. Freedman and $58,027 to Mr. Falco. There are no
definitive repayment terms on such amounts.
39
<PAGE>
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) Consolidated Financial Statements: See Index to Financial Statements
on page44 of this report for financial statements and supplementary
data filed as part of this report.
(2) Financial Statement Schedules
None
(3) Exhibits
Exhibit
Number Description of Exhibit
--------- ---------------------------
2.1 Plan of Reorganization and Merger dated as of August 18, 1999, by and
among the Registrant, IDM Environmental Corp. and IDM Merger
Subsidiary (9)
2.2 Agreement and Plan of Merger dated as of August 18, 1999, by and among
the Registrant, Fusion Networks, Inc., IDM Environmental Corp. and
IDM/FNI Acquisition Corporation (9)
2.3 First Amendment to Agreement and Plan of Merger dated as of August 31,
1999, by and among the Registrant, Fusion Networks, IDM Environmental
Corp. and IDM/FNI Acquisition Corporation (9)
2.4 Second Amendment to Agreement and Plan of Merger dated as of September
21, 1999, by and among the Registrant, Fusion Networks, Inc., IDM
Environmental Corp. and IDM/FNI Acquisition Corporation (9)
2.5 Third Amendment to Agreement and Plan of Merger dated as of November
2, 1999, by and among the Registrant, Fusion Networks, IDM
Environmental Corp. and IDM/FNI Acquisition Corporation (9)
2.6 Fourth Amendment to Agreement and Plan of Merger dated as of December
8, 1999, by and among the Registrant, Fusion Networks, IDM
Environmental Corp. and IDM/FNI Acquisition Corporation (9)
3.1 Restated Certificate of Incorporation of IDM Environmental Corp. (1)
3.2 Bylaws, as amended, of IDM Environmental Corp. (3)
4.1 Specimen Common Stock Certificate (1)
4.2 Specimen Class A Warrant Certificate (1)
4.3 Form of Warrant Agreement (1)
4.4 Certificate of Designation fixing terms of Series A Junior
Participating Preferred Stock (2)
4.5 Certificate of Designation fixing terms of Series B Preferred Stock
(6)
4.6 Certificate of Designation fixing terms of Series C Preferred Stock
(8)
4.7 Warrant Agreement dated February 12, 1997 (6)
10.1 Lease Agreement between International Dismantling & Machinery
Corporation and L&G Associates dated March 1, 1993 for site in South
River, New Jersey (1)
10.2+ 1993 Incentive Stock Option Plan, as amended (3)
10.3+ 1995 Incentive Stock Option Plan (3)
10.4+ 1998 Comprehensive Stock Option and Award Plan, as amended (9)
10.5+Employment Agreement between the Company and Joel Freedman, as
amended, dated February 1, 1996 (3)
10.6+Employment Agreement between the Company and Frank Falco, as amended,
dated February 1, 1996 (3)
10.7+Amendment, dated September of 1997, to Employment Agreement between
the Company and Joel Freedman (8)
10.8+Amendment, dated September of 1997, to Employment Agreement between
the Company and Frank Falco (8)
40
<PAGE>
10.9+Second Amendment, dated February 1998, to Employment Agreement
between the Company and Joel Freedman (8)
10.10+ Second Amendment, dated February 1998, to Employment Agreement
between the Company and Frank Falco (8)
10.11+ Nonqualified Stock Option Agreement between the Company and Joel
Freedman (8)
10.12+ Nonqualified Stock Option Agreement between the Company and Frank
Falco (8)
10.13 Alexander Charles Lentes Stock Option (7)
10.14 Bernd Muller Stock Option (7)
10.15Stock Option Agreement with M.H. Meyerson & Co., Inc. dated August,
1997 (8)
10.16Nonqualified Stock Option Grant between the Company and The Boston
Group (8)
10.17Amended and Restated Warrant Agreement with Rochon Capital Group Ltd.
(7)
10.18Consulting Agreement dated May 23, 1997 between the Company and Ron
Logerwell (8)
10.19Form of Agreement regarding confidential information and competition
by employees (1)
10.20 Form of Severance Agreement (3)
10.21 Voting Agreement (1)
10.22 Share Rights Agreement dated April 1, 1996 (2)
10.23License Agreement dated June 30, 1996 with Life International
Products (4)
10.24Agreement dated July 19, 1996 with Continental Waste Conversion, Inc.
(4)
10.25License Agreement dated July 18, 1996 with Continental Waste
Conversion, Inc. and Continental Waste Conversion International, Inc.
(4)
10.26Promissory Note in the amount of $160,000 (Canadian) dated July 22,
1996 from Continental Waste Conversion, Inc. to Continental Waste
Conversion International (4)
10.27Pledge and Security Agreement dated July 19, 1996 between Continental
Waste Conversion, Inc. and Continental Waste Conversion International,
Inc. (4)
10.28 Form of 7% Convertible Note due January 31, 1999 (5)
10.29 Form of Three Year $3.00 Warrant (5)
10.30Protocol of Intention dated January 20, 1998 re: Georgia power plant
(8)
10.31License Agreement dated December 15, 1997 between Life International
Products, Inc. and Seven Star International Holding, Inc. (8)
10.32 Form of Lock-Up Agreement (8)
10.33 Form of Lock-Up Warrant (8)
10.34 Form of Four Year $5.00 Warrant (8)
10.35 Consulting Agreement dated March 1997 with SAGA Promotions, Inc. (8)
10.36 Stock Option Grant dated February 1998 to SAGA Promotions, Inc. (8)
10.37 Stock Option Grant dated February 1998 to Aaron Lehman (8)
10.38Revised Memorandum of Understanding dated March 1998 re: Taiwan
waste-to-energy project (8)
10.39Modification to Power Purchase Contract dated November 1997 re: El
Salvador power project (8)
21.1 List of subsidiaries (8)
23.1* Consent of Samuel Klein and Company
27.* Financial Data Schedule
- ---------------
+ Compensatory plan or management agreement.
* Filed herewith
(1) Incorporated by reference to the respective exhibits filed with
Registrant's Registration Statement on Form SB-2 (Commission File No.
33-66466) declared effective by the Securities and Exchange Commission on
April 20, 1994
(2) Incorporated by reference to the respective exhibits filed with
Registrant's Current Report on Form 8-K dated April 1, 1996
(3) Incorporated by reference to the respective exhibits filed with
Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1995
(4) Incorporated by reference to the respective exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996
(5) Incorporated by reference to the respective exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997
41
<PAGE>
(6) Incorporated by reference to the respective exhibits filed with
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996
(7) Incorporated by reference to the respective exhibits filed with
Registrant's Registration Statement on Form S-3 (Commission File No.
333-28485) declared effective by the Securities and Exchange Commission on
January 9, 1998
(8) Incorporated by reference to the respective exhibits filed with
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998
(9) Incorporated by reference to the respective exhibits filed with the Form
S-4 Registration Statement of Fusion Networks Holdings, Inc. (Commission
File No. 333-92949) declared effective by the Securities and Exchange
Commission on February 15, 2000
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
42
<PAGE>
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, thereunto duly authorized.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
-----------------------
Joel Freedman
President
Dated: April 10, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
----------- ------- ------
/s/ Joel A. Freedman
- --------------------- President, Chief Executive Officer April 10, 2000
Joel A. Freedman (Principal Executive Officer) and
Director
/s/ Frank A. Falco
- --------------------- Executive Vice President, Chief April 10, 2000
Frank A. Falco Operating Officer and Chairman
of the Board of Directors
/s/ Michael B. Killeen
- --------------------- Treasurer (Principal Accounting April 10, 2000
Michael B. Killeen and Financial Officer) and Director
/s/ Richard Keller
- --------------------- Director April 10, 2000
Richard Keller
- --------------------- Director ________, 2000
Frank Patti
/s/ Robert McGuinness
- --------------------- Director April 10, 2000
Robert McGuinness
- --------------------- Director ________, 2000
Mark Franceschini
43
<PAGE>
IDM ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
------
Independent Auditor's Report............................................... F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998............... F-2
Consolidated Statements of Operations for the Years ended December
31, 1999, 1998 and 1997.................................................... F-3
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1999, 1998 and 1997........................................... F-4
Consolidated Statements of Cash Flows for the Years ended December
31, 1999, 1998 and 1997.................................................... F-5
Notes to Consolidated Financial Statements................................. F-7
44
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
IDM Environmental Corp. and Subsidiaries
South River, New Jersey
We have audited the accompanying consolidated balance sheets of IDM
Environmental Corp. and Subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 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 IDM Environmental
Corp. and Subsidiaries as of December 31, 1999 and 1998, and the results of
operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
April 3, 2000
F-1
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
ASSETS 1999 1998
- ----------- -------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 511,552 $ 384,292
Accounts receivable 4,548,531 2,572,951
Notes receivable - current - 367,198
Inventory - 582,517
Costs and estimated earnings in excess of billings - 1,900,336
Recoverable income taxes 650,242 -
Prepaid expenses and other current assets 1,124,790 906,137
------------ ------------
Total Current Assets 6,835,115 6,713,431
Investments in and Advances to Unconsolidated Affiliates 979,266 2,454,521
Investment in Affiliate, at cost 1,853,125 1,853,125
Debt Discount and Issuance Costs - 16,124
Property, Plant and Equipment 1,903,321 3,133,404
Other Assets 979,925 979,925
------------ ------------
$ 12,550,752 $15,150,530
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 18, 701 $ 622,794
Accounts payable and accrued expenses 8,847,937 6,578,070
Billings in excess of costs and estimated earnings 912,699 -
Due to officers 217,403 -
------------ ------------
Total Current Liabilities 9,996,740 7,200,864
Long-Term Debt 16,864 64,544
------------ ------------
Total Liabilities 10,013,604 7,265,408
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 7,500,000 shares $.01 par value, issued
and outstanding 3,768,945 in 1999 and 2,947,298 in 1998 37,689 29,473
Additional paid-in capital 59,236,502 57,215,536
Convertible preferred stock, authorized 1,000,000 shares $1.00 par value
Series B, Issued and outstanding 0 shares in 1999 and 0 shares in
1998, stated at a conversion value of $10,000 per share - -
Series RR, Issued and outstanding 0 shares in 1999 and 215 shares
in 1998, stated at a conversion value of $1,000 per share - 215,000
Retained earnings (deficit) (56,737,043) (49,574,887)
------------ ------------
2,537,148 7,885,122
------------ ------------
$ 12,550,752 $15,150,530
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the Years Ended December 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenue:
Contract income $13,581,298 $ 20,018,564 $ 17,825,849
Sale of equipment - - 96,050
------------ ------------ ------------
13,581,298 20,018,564 17,921,899
------------ ------------ ------------
Cost of Sales:
Direct job costs 13,366,165 20,257,642 17,002,308
Cost of equipment sales - - 47,057
Write-down of inventory surplus 582,517 - 600,000
------------ ------------ ------------
13,948,682 20,257,642 17,649,365
------------ ------------ ------------
Gross Profit (Loss) (367,384) (239,078) 272,534
------------ ------------ ------------
Operating Expenses:
General and administrative expenses 7,054,208 12,871,481 10,537,677
Depreciation and amortization 334,617 626,766 723,415
Equity in net loss of unconsolidated partnerships 105,757 194,243 -
Write-down on investment in unconsolidated affiliates 176,814 - -
------------ ------------ ------------
7,671,396 13,692,490 11,261,092
------------ ------------ ------------
Loss from Operations (8,038,780) (13,931,568) (10,988,558)
------------ ------------ ------------
Other Income (Expense):
Loss on disposal of property, plant and equipment (285,194) - -
Interest income (expense) (172,519) (4,321,714) (512,768)
Miscellaneous income (expense) 145,626 - -
------------ ------------ ------------
(312,087) (4,321,714) (512,768)
------------ ------------ ------------
Loss before Provision (Credit) for Income Taxes (8,350,867) (18,253,282) (11,501,326)
Provision (Credit) for Income Taxes (1,200,000) 4,170,000 (1,561,000)
------------ ------------ ------------
Net Loss (7,150,867) (22,423,282) (9,940,326)
Preferred Stock Dividends including amortization of beneficial
conversion feature of $ 0, $3,830,000, and $1,109,589 in 1999
1998 and 1997 11,289 4,018,774 1,284,097
------------ ------------ ------------
Net Loss on Common Stock $ (7,162,156) $(26,442,056) $(11,224,423)
============ ============ ============
Loss per Share:
Basic loss per share $ (2.21) $ (13.31) $ (10.01)
============ ============ ============
Diluted loss per share $ (2.21) $ (13.31) $ (10.01)
============ ============ ============
Basic common shares outstanding 3,243,493 1,987,264 1,121,269
============ ============ ============
Diluted common shares outstanding 3,243,493 1,987,264 1,121,269
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
Additional Convertible Retained
Common Stock Paid-in Preferred Earnings
Shares Amount Capital Stock (Deficit)
-------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balances - January 1, 1997 960,273 $ 9,603 $25,359,465 $ - $(11,908,408)
Issuance of Convertible
Preferred Stock February 1997 - - - 3,000,000 -
Conversion of Preferred Stock
to Common Stock 19,292 193 289,237 (300,000) -
Class A Warrants Exercised 451,703 4,517 6,166,483 - -
Stock Option Plan Exercised 4,539 45 62,996 - -
Issuance of Non-Qualified Options,
pursuant to consulting agreements - - 456,340 - -
Preferred Stock Beneficial Conversion feature - - 1,109,589 - -
Exercise of Non-Qualified Consulting Options 15,500 155 234,845 - -
Preferred Stock Dividends - - - - (1,284,097)
Discounted Conversion feature on
Convertible Notes and Warrants - - 4,818,750 - -
Net Loss for the year ended
December 31, 1997 - - - - (9,940,326)
----------- -------- ------------ ----------- ------------
Balances - December 31, 1997 1,451,307 14,513 38,497,705 2,700,000 (23,132,831)
Issuance of Series C Convertible
Preferred Stock February 1998 - - - 3,600,000 -
Issuance of Series RR Convertible
Preferred Stock August 1998 - - - 1,500,000 -
Conversion of Series B Preferred
Stock to Common Stock 135,944 1,360 2,752,618 (2,700,000) -
Conversion of Series C Preferred
Stock to Common Stock 640,747 6,407 3,508,564 (3,600,000) -
Conversion of Series RR Preferred
Stock to Common Stock 359,981 3,600 1,192,693 (1,285,000) -
Warrants Exercised 243,731 2,437 2,620,531 - -
Stock Option Plan Exercised 321 3 6,411 - -
Conversion of Convertible Debt 115,267 1,153 2,908,464 - -
Preferred Stock Dividends - - - - (4,018,774)
Discounted Conversion Feature
on Preferred Stock and Warrants - - 3,830,000 - -
Issuance of Non-Qualified Options
Pursuant to Consultants Agreements - - 1,898,550 - -
Net loss for the year ended
December 31, 1998 - - - - (22,423,282)
----------- -------- ------------ ----------- ------------
Balances - December 31, 1998 2,947,298 29,473 57,215,536 215,000 (49,574,887)
Warrants Exercised 115,049 1,150 317,727 - -
Warrants issued for Repayment of Stockholder's Loan 97,525 975 264,147 - -
Issuance of Restricted Stock to Induce Grant of Note
Payable 125,000 1,250 (1,250) - -
Discounted Conversion Feature on Restricted Stock - - 109,380 - -
Issuance of Restricted Stock as Deposit in Lieu of Bond 118,070 1,181 489,439 - -
Issuance of Restricted Stock for Debt 100,073 1,001 468,629 - -
Conversion of Series RR Preferred Stock to Common
Stock 130,788 1,308 213,969 (215,000) -
Stock Options Exercised 67,476 674 118,448 - -
Exercise of Non-Qualified Options 67,666 677 (677) - -
Issuance of Non-Qualified Options Pursuant to
Consultant Agreements - - 41,154 - -
Preferred Stock Dividends (11,289)
Net Loss for the Year Ended December 31, 1999 - - - - (7,150,867)
----------- -------- ------------ ----------- ------------
Balances - December 31, 1999 3,768,945 $37,689 $59,236,502 $ - $(56,737,043)
=========== ======== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Years Ended December 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss on common stock $(7,162,156) $(26,442,056) $(11,224,423)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes - 4,170,000 (1,561,000)
Depreciation and amortization 472,396 661,469 713,717
Amortization of debt discount 16,124 169,053 118,220
Amortization of beneficial conversion feature on convertible notes - 4,205,886 612,864
Amortization of beneficial conversion feature on preferred stock - 3,830,000 1,109,589
Amortization of beneficial conversion feature on restricted common stock 109,380 - -
Interest expense on convertible debt converted to common stock - 63,621 -
Dividend on convertible preferred stock converted to common stock 11,289 188,774 8,517
Compensation cost of consultant stock options 41,154 1,898,550 456,340
Write-down on investment in unconsolidated affiliates 176,814 - -
Write-down of surplus inventory 582,517 - 600,000
Provision for loss on notes receivable - 1,004,815 1,300,000
Equity in net loss of unconsolidated affiliates 105,757 194,243 -
Loss on disposal of assets 285,194 - -
Decrease (Increase) In:
Accounts receivable (1,975,580) 1,521,457 1,531,800
Notes receivable 367,198 125,599 49,399
Costs and estimated earnings in excess of billings 1,900,336 (1,444,513) 1,199,931
Prepaid expenses and other current assets 280,967 536,088 498,224
Recoverable income taxes from sale of State loss carryforwards (650,242) - -
Increase (Decrease) In:
Accounts payable and accrued expenses 2,596,753 1,660,001 (1,946,192)
Billings in excess of costs and estimated earnings 912,699 (86,604) 108
----------- ----------- -----------
Net cash used in operating activities (1,929,400) (7,743,617) (6,532,906)
----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (2,444) (517,757) (305,533)
Disposal of property and equipment 496,017 - -
Investment in affiliate - (138,125) (415,000)
Investment in and advances from (to) unconsolidated affiliates 1,192,684 804,545 (3,453,309)
Acquisition of other assets - (99,179) (567,500)
Loans and advances (to) from officers 217,403 369,541 (160,865)
----------- ----------- -----------
Net cash provided by (used in) investing activities 1,903,660 419,025 (4,902,207)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from note payable from stockholder - 265,122 -
Net proceeds from convertible note issuance - - 2,780,000
Net proceeds from convertible preferred stock issuances - 4,590,000 2,722,500
Proceeds from equipment financing - 156,238 -
Proceeds from short-term financing 400,000 - -
Principal payments on short-term debt (400,000) - -
Principal payments on long-term debt (268,345) (534,101) (676,819)
Purchase and retirement of common stock - - -
Contribution from minority interest - - -
Repurchase of minority interest - - (258,621)
Proceeds from exercise of stock options and warrants 421,345 2,629,383 6,469,041
----------- ----------- -----------
Net cash provided by financing activities 153,000 7,106,642 11,036,101
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 127,260 (217,950) (399,012)
Cash and Cash Equivalents, beginning of year 384,292 602,242 1,001,254
----------- ----------- -----------
Cash and Cash Equivalents, end of year $ 511,552 $ 384,292 $ 602,242
=========== =========== ===========
</TABLE>
F-5
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
For the Years Ended December 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 109,065 $ 106,259 $ 184,631
========= ========== ==========
Income taxes $ - $ - $ -
========= ========== ==========
Supplemental Disclosure of Noncash Investing and Financing Activities:
Property, plant and equipment financing $ 21,080 $ - $ 961,737
========= ========== ==========
Cancellation of stock subscription receivable $ - $ - $ 775,862
========= ========== ==========
Conversion of preferred stock to common stock $ 215,000 $7,585,000 $ 300,000
========= ========== ==========
Conversion of interest payable on convertible notes to common stock $ - $ 144,840 $ -
========= ========== ==========
Conversion of dividends payable from convertible preferred stock to
common stock $ - $ 349,121 $ 8,517
========= ========== ==========
Beneficial conversion feature of debt discount on convertible notes $ - $ - $4,818,750
========= ========== ==========
Repayment of stockholders note payable through issuance of common stock $ 265,122 $ - $ -
========= ========== ==========
Beneficial conversion feature of issuance of restricted common stock $ 109,380 $ - $ -
========= ========== ==========
Issuance of restricted stock for deposits in lieu of bond $ 490,620 $ - $ -
========= ========== ==========
Issuance of restricted common stock for debt $ 469,630 $ - $ -
========= ========== ==========
Payment of dividend payable on preferred stock through conversion
to common stock $ 16,933 $ - $ -
========= ========== ==========
Exercise of Non-Qualified Options $ 677 $ - $ -
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
IDM Environmental Corp. (collectively with its subsidiaries referred to herein
as the "Company") is a global, diversified services and project development
company offering a broad range of design, engineering, construction, project
development and management, and environmental services and technologies to
government and private industry clients. The Company utilizes those same
capabilities to build, own or lease, and operate energy, waste management and
similar facilities. The Company, through its domestic and international
affiliates and subsidiaries, offers services and technologies, and operates in
three principal areas: Energy and Waste Project Development and Management,
Environmental Remediation and Plant Relocation.
Environmental remediation services, the Company's historical core business,
encompasses a broad array of environmental consulting, engineering and
remediation services with an emphasis on the "hands-on" phases of remediation
projects. The Company is a provider of full-service turnkey environmental
remediation and plant decommissioning services and has established a track
record in the performance of projects for a wide range of private sector, public
utility and governmental clients worldwide. The Company has melded its core
expertise in engineering, decommissioning and dismantlement services in
environmentally sensitive settings in an effort to establish a position in the
forefront of the nuclear power plant decommissioning, site remediation and
re-industrialization market.
Plant relocation services encompass a broad array of non-traditional engineering
projects, with an emphasis on plant dismantlement, relocation and re-erection.
The Company employs a proprietary, integrated matchmarking, engineering,
dismantling and documentation program in plant relocation services that provide
clients with significant cost and schedule benefits when compared to traditional
alternatives for commencing plant operations.
On August 18, 1999 the Company entered into a non-binding merger agreement that
provided for the formation of a holding company known as Fusion Networks
Holdings, Inc. ("FNH") by the Company and the merger of Fusion Networks, Inc.
("Fusion") a Florida based privately held corporation. As a result both the
Company and Fusion will become wholly owned subsidiaries of FNH. The
stockholders of Fusion will receive one share of common stock of FNH for each
share of Fusion's common stock held and the stockholders of the company will
receive one share of FNH for each share of the Company's common stock held,
resulting in the current stockholders of Fusion owning approximately 90% of FNH
common stock.
The proposed reorganization was approved by the shareholders of the Company and
Fusion in March 2000 and the reorganization is expected to be completed in
April, 2000. As a result of the reorganization, the Company and Fusion Networks
will become wholly-owned subsidiaries of FNH. Both the Company and Fusion plan
to continue their historical operations for the foreseeable future.
Principles of Consolidation and Basis of Presentation
- -----------------------------------------------------
The accompanying financial statements consolidate the accounts of the parent
company and all of its wholly owned and majority owned subsidiaries. Investments
in unconsolidated affiliated joint ventures in which the ownership of the
venture is between 20% and 50% and for which the following conditions exist: (i)
the investees in the ventures have an undivided interest in the venturers'
assets; (ii) each investee is severally liable for the indebtedness of the
venture; and (iii) each investor is only entitled to its pro rata share of
income and is responsible to pay only its pro rata share of expenses, are
accounted for under the equity method for balance sheet presentation and the
proportionate consolidation method for revenues and expenses of the joint
venture. Investments in affiliates representing less than 20% of the ownership
of such companies are typically accounted for under the cost method.
F-7
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation and Basis of Presentation (Continued)
- -----------------------------------------------------
The Company has not consolidated its 80% owned entity in the Republic of Georgia
of the former Soviet Union due to lack of control as provided under Statement of
Financial Accounting Standards No. 94, "Consolidation of all Majority-Owned
Subsidiaries" (SFAS 94) due primarily as a result of restrictions imposed by
local law in this country on the Company's ability to provide direction and
exert influence over local management. Because of these circumstances the
Company was unable to obtain financial information on the operations of this
entity and as a result they have not been consolidated within these financial
statements and the Company has written off its investment of approximately
$200,000.
Translation of Foreign Currencies
- ---------------------------------
Assets and liabilities of foreign operations, where the functional currency is
the local currency, are translated into U.S. dollars at the fiscal year end
exchange rate. The related translation adjustments are required to be recorded
as cumulative translation adjustments, a separate component of shareholders'
equity. Revenues and expenses are required to be translated using average
exchange rates prevailing during the year. Foreign currency transaction gains
and losses, as well as translation adjustments for assets and liabilities of
foreign operations where the functional currency is the dollar, are included in
net income (loss). Foreign currency realized and unrealized gains and losses for
the years presented were not material.
Revenue Recognition
- -------------------
The consolidated financial statements have been prepared on the basis of the
percentage of completion method of accounting. Under this method contract
revenue is determined by applying to the total estimated income on each
contract, a percentage which is equal to the ratio of contract costs incurred to
date to the most recent estimate of total costs which will have been incurred
upon the completion of the contract. Costs and estimated earnings in excess of
billings represents additional earnings over billings, based upon percentage
completed, as outlined above. Similarly, billings in excess of costs and
estimated earnings represent excess of amounts billed over income recognized.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Billings on long-term contracts are done on
a monthly basis. Unbilled amounts on long-term contracts include amounts
recognized in revenues under the percentage of completion method of accounting,
but not billed to the customer at year end. It is expected that such billings
will be made as contracts are completed. Unbilled amounts on long-term contracts
are not separately stated as they are not material. Retentions on long-term
contracts are balances billed but not paid by customers which, pursuant to
retainage provisions in contracts, are due upon completion of the contract and
acceptance by the customer. Substantially all retentions are deemed collectible
within one year.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
For financial statement purposes, short-term investments with a maturity of
ninety days or less and highly liquid investments are considered cash
equivalents.
F-8
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory
- ---------
Inventory consists of used equipment and is stated at the lower of cost
(specific identification) or market.
Unamortized Debt Discount and Issuance Costs
- --------------------------------------------
Costs in connection with the issuance of debt and equity instruments are
amortized and charged to operations using the straight line method over the
terms of the respective issues. Upon conversion, any unamortized costs are
charged to additional paid in capital net of tax effect.
Property, Plant and Equipment
- -----------------------------
Property plant and equipment are recorded at cost. Depreciation has been
calculated using the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. The depreciation method and estimated
useful lives of the assets are generally as follows:
Estimated Method of
Asset Useful Life Depreciation
------- ------------- --------------
Office equipment 3 - 10 Straight-line
Furniture and fixtures 3 - 10 Straight-line
Leasehold improvements 5 - 31.5 Straight-line
Transportation equipment 3 - 5 Straight-line
Job equipment 7 - 10 Straight-line
Costs of repairs and maintenance are charged to operations as incurred and
additions and betterments are capitalized. Upon retirement or disposition of
assets, the cost and accumulated depreciation are eliminated from the accounts
and any gain or loss is reflected in the statement of operations.
Income Taxes
- ------------
Income taxes have been provided for based on the provisions of Statement of
Financial Accounting Standards Board No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Accounting for Stock-Based Compensation
- ---------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
employee stock options plans. Under APB 25, when the exercise price of the
Company's employee stock options equals or is above the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
F-9
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Stock-Based Compensation (Continued)
- ---------------------------------------
In accounting for options granted to persons other than employees, the
provisions of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") were applied. According
to SFAS 123 the fair value of these options was estimated at the grant date
using Black-Scholes option pricing model.
Impairment of Long-Lived Assets
- -------------------------------
The Company accounts for impairment of long lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires that if facts and circumstances indicate that the cost of
fixed assets or other assets may be impaired, an evaluation of recoverability
would be performed by comparing the estimated future undiscounted pre-tax cash
flows associated with the asset to the asset's carrying value to determine if a
write-down to market value or discounted pre-tax cash flow value would be
required.
Comprehensive Income
- --------------------
As of December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This statement
establishes rules for the reporting of comprehensive income and its components
which require that certain items such as foreign currency translations
adjustments, unrealized gains and losses on certain investments in debt and
equity securities, minimum pension liability adjustments and unearned
compensation expense related to stock issuances to employees be presented as
separate components of stockholders' equity. The adoption of SFAS 130 had no
material impact on total stockholders' equity for any of the years presented in
these consolidated financial statements.
Earnings (Loss) Per Share
- -------------------------
As of December 31, 1997 the Financial Accounting Standards Board issued
Statement No. 128 "Earnings Per Share" (SFAS 128) replacing the calculation of
primary and fully diluted earnings per share with Basic and Diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes the
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Diluted earnings per share reflects the potential dilution
that could occur if securities or other agreements to issue common stock were
exercised or converted into common stock. Dilutive earnings per share is
computed based upon the weighted average number of common shares and dilutive
common equivalent shares outstanding. Common stock options, which are common
stock equivalents, had an anti-dilutive effect on earnings per share and no
effect on the weighted average number of common shares. All net loss per share
amounts for all periods presented have been restated to conform to SFAS 128
requirements.
Reverse Stock Split
- -------------------
On March 11, 1999, the Company's Board of Directors authorized a 1 for 10
reverse stock split of its common stock effective April 16, 1999 for
shareholders of record at the close of business on April 16, 1999. All share and
per-share amounts in the accompanying consolidated financial statements have
been restated to give effect to the 1 for 10 reverse stock split.
Reclassifications
- -----------------
Certain reclassifications have been made to the prior year balances to conform
to the current year presentation.
F-10
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Special Charges
- ---------------
During the fourth quarters of 1998 and 1997, the Company recorded significant
charges of approximately $5,855,000 and $3,200,000, respectively, to operations,
primarily related to write downs of inventory, notes receivable and other
assets. In addition, the Company increased the valuation allowance for deferred
tax assets based on management's assessment of future operations.
2. MANAGEMENT'S PLANS, FINANCIAL RESULTS AND LIQUIDITY
The Company has suffered recurring losses from operations and at December 31,
1999, the Company had a working capital deficit of approximately $3.2 million
and a cash balance of approximately $0.5 million. As a result of the loss
incurred during 1999, operating activities used $1.9 million in cash. The
Company was provided $1.9 million in cash from investing activities (i) disposal
of property and equipment for $0.5 million, (ii) repayment of advances from
unconsolidated affiliates of $1.2 million, and (iii) advances from officers of
$0.2 million. Cash flows from financing activities totaled $0.2 million during
1999 and consisted principally of $0.4 million in proceeds received from the
exercise of various warrants and options less $0.2 million used to reduce
principal payments on long-term debt.
The Company requires substantial working capital to support its ongoing
operations. As is common in the environmental services industry, payment for
services rendered are generally received pursuant to specific draw schedules
after services are rendered. Thus, pending the receipt of payments for services
rendered, the Company must typically fund substantial project costs, including
significant labor and bonding costs, from financing sources within and outside
of the Company. Certain contracts, in particular those within the United States
governmental agencies, may provide for payment terms of up to 90 days or more
and may require the posting of substantial performance bonds which are generally
not released until completion of a project.
Operations were historically funded through a combination of operating cash
flows, term notes and bank lines of credit. Since April of 1994, the Company has
carried no bank debt and has funded operations principally through the sale of
equity securities and securities convertible into equity securities. At December
31, 1999, the Company had no bank debt and no significant long term debt and was
funding operations entirely through cash on hand and operating cash flow.
At December 31, 1999, the Company had a backlog of approximately $5 million of
signed services contracts as compared to a backlog of approximately $8 million
at December 31, 1998. The largest portion of projects in their backlog at
December 31, 1999 was attributable to the Bound Brook Project which began in
August 1999 and is scheduled to be completed May 2001. The backlog at December
31, 1999 does not include services expected to be rendered in connection with
the Company's involvement in the revitalization of the EWN site in Germany which
anticipated the privatization of the government owned site to a group which
included the Company. Contract negotiations for the acquisition of the
state-owned corporation continued during 1999 and into the first quarter of 2000
at which time the Germany Government indicated its intent to forego
privatization of the EWN project and to move forward on the project under
government control. The Company will now be required to submit proposals to
perform services on each of the phases of the project which the Company would
have otherwise performed under the contemplated privatization plan. In addition
to existing contracts, the Company continues bidding on, or proposes to bid on,
numerous projects in order to replace revenue from projects which will be
completed during 2000 and to increase the total dollar volume of projects under
contract. The Company anticipates that its efforts to bid on and secure new
contracts will focus on projects which can be readily serviced from the regional
offices as well as certain large international plant relocation projects and
nuclear decommissioning projects which they intend to pursue. Their regional
offices, particularly the Oak Ridge Tennessee office, are strategically located
in areas having a high concentration of prospective governmental and private
remediation sites. While bidding to perform services at such sites is expected
to be highly competitive, the Company believes that their existing presence on
adjacent projects combined with their proven expertise and resources will allow
them to successfully bid on and perform substantial additional projects based
out of their regional offices.
F-11
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. MANAGEMENT'S PLANS, FINANCIAL RESULTS AND LIQUIDITY (Continued)
While the Company anticipates that entry into the energy production, waste
treatment and nuclear facilities decommissioning and site revitalization market
will provide significant opportunities for sustainable growth in both revenues
and operating profits, entry into those markets requires substantial capital
commitments and involves certain risks. Undertaking energy production, waste
treatment and nuclear decommissioning projects can be expected to require
capital expenditures of as little as several million dollars to hundreds of
millions of dollars per project. The Company does not currently have the
necessary capital resources to undertake such ventures without third party
financing. The Company anticipates that it will take on equity partners and seek
third party debt financing to finance substantial portions of the projects which
it expects to undertake. The Company has no commitments from potential partners
and financing sources to provide funding for future projects and there is no
assurance that such partners and financing sources will be available, or will
provide financing on acceptable terms, if and when the Company commences future
projects.
In an effort to deal with these concerns, the Company is continuing to evaluate
the sale or other liquidation of various long-term assets which it believes can
provide adequate funding to support future operations including properties in
Poland and El Salvador, and the potential compromise of various claims for
additional compensation. The Company believes that its working capital, combined
with the expected receipt of funds from exercise of stock options and warrants
estimated at $1.5 million is sufficient to meet its anticipated needs, other
than project financing requirements discussed above, for at least the following
twelve months, including the performance of all existing contracts of the
Company. However, as there is no assurance as to the timing or amount of the
receipt of funds from change orders, litigation or other sources, the Company
may be required to seek new bank lines of credit or other financing in order to
facilitate the performance of jobs. While the Company is conducting ongoing
discussions with various potential lenders with a view to establishing available
credit facilities, the Company presently has no commitments from any bank or
other lender to provide financing if such financing becomes necessary to support
operations. Other than funds provided by operations and the potential receipt of
funds from the exercise of outstanding warrants and options, the Company
presently has no sources of financing or commitments to provide financing.
However, management believes that the Company will be able to finance its
anticipated needs for 2000.
In light of the Company's continued losses sustained during 1999 and the
continued uncertainty affecting operations at the end of 1999, management
evaluated various options outside its traditional businesses to return the
Company to profitability and to increase shareholder value. Pursuant to those
efforts, on August 18, 1999, the Company entered into a Plan of Reorganization
and Merger and an Agreement and Plan of Merger with Fusion. Pursuant to the
terms of the Plan of Reorganization, the Company agreed to form a new holding
company. The Company agreed to merge with a wholly-owned subsidiary of FNH with
the shareholders of the Company receiving one share of common stock of FNH for
each share of common stock of the Company held immediately prior to the
reorganization. Fusion agreed to merge into another wholly-owned subsidiary of
FNH with the shareholders of Fusion receiving one share of common stock of FNH
for each share of common stock of Fusion held immediately prior to the
reorganization. Following the reorganization, the shareholders of the Company
were expected to own approximately 10% of the common stock of FNH with the
shareholders of Fusion owing approximately 90% of the common stock of the FNH.
Fusion is a newly formed company, based in Miami, Florida, which is in the
process of building a portal-type web with an initial emphasis on Latin America
and the Hispanic market in the United States. Fusion launched its initial site,
on a pilot basis, in Bogota, Columbia, in October, 1999 followed by a formal
launch of the site in Bogota and in Miami with additional site launches planned
in Latin America, the United States, Spain and Portugal during 2000.
The proposed reorganization was approved by the shareholders of the Company and
Fusion in March 2000 and the reorganization is expected to be completed in April
2000. As a result of the reorganization, the Company and Fusion will become
wholly-owned subsidiaries of FNH. The Company and Fusion both plan to continue
their historical operations for the foreseeable future.
F-12
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. MANAGEMENT'S PLANS, FINANCIAL RESULTS AND LIQUIDITY (Continued)
The Company believes that its working capital, combined with the expected
receipt of funds from the exercise of warrants and options and resolution of
certain change orders and litigation, is sufficient to meet our anticipated
needs, other than project financing requirements discussed above for at least
the following twelve months, including the performance of all existing
contracts.
3. ACQUISITIONS AND INVESTMENTS IN AFFILIATES
Life International Products
- ---------------------------
On July 11, 1996, effective June 30, 1996, the Company, pursuant to a license
agreement entered into between the Company and Life International Products
("Life"), acquired a 10% interest (100,000 shares) in Life for $1,300,000. In
addition to acquiring a 10% interest, the Company entered into an exclusive
licensing agreement with Life pursuant to which the Company shall market and
employ Life's patented environmental remediation technology for long term
bioremediation of contaminated ground water throughout North America. On
November 3, 1997, the Company invested an additional $375,000 (10,000 shares) in
Life to maintain its 10% interest. On April 21, 1998, the Company purchased an
additional 8,250 shares for $178,125 from its chief executive officer. The
Company has recorded its investment at cost and the investment is presented in
the balance sheet classification "Investment in Affiliate, at cost".
Pursuant to such license agreement, the Company agreed to fund the operation and
expenses associated with the marketing plan and allocate revenues from such
agreement for (1) repayment of Life's cost in connection with manufacturing and
(2) any actual expenses of both the Company and Life regarding the sale and
marketing of this technology. The balance (the "Net Revenues") shall be shared
between the Company and Life, 20% and 80% respectively, with a minimum net
revenue payment of $400,000 due to Life. This agreement, as amended November 1,
1996, provides that Life is to be paid this minimum net revenue relating to and
for the period of amendment to October 1, 1998. Subsequent to such time, the
Company and Life agree to negotiate in good faith as to future minimum revenues
and agreement terms. For the years ended December 31, 1999, 1998 and 1997, no
revenues have been recognized by the investee, nor have any payments under this
license agreement been made by the Company.
Global Waste and Energy
- -----------------------
On July 19, 1996 the Company, through a newly formed 90% owned subsidiary,
Global Waste & Energy, Inc. ("Global Delaware"), a Delaware corporation, entered
into an agreement with Enviropower Industries Inc. (formerly Continental Waste
Conversion, Inc.) ("CWC"). Pursuant to this agreement, Global Delaware acquired,
in exchange for a 10% interest in Global Delaware and a loan through a wholly
owned subsidiary of Global Delaware of $160,000 (Canadian) or approximately
$116,550 (U.S.), the exclusive worldwide rights (excluding Canada) to CWC's
proprietary Kocee Gas Generator waste treatment technology that converts
municipal solid waste, including tires and plastics, into electrical energy. In
addition, the Company committed to loan up to $1,350,000 over a four month
period to Global Delaware to carry on this newly acquired waste-to-energy
business.
At closing the Company made an initial loan of $600,000 to Global Delaware
repayable upon demand with interest at 9.25%. As of December 31, 1999 and 1998
the Company had loans and advances totaling $3,428,000 and $3,341,000,
respectively, to Global Delaware. The consolidated financial statements include
results of operations of Global Delaware and its subsidiaries from July 19,
1996, and therefore all intercompany loans and transactions have been eliminated
within the consolidated financial statements of the Company.
F-13
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. ACQUISITIONS AND INVESTMENTS IN AFFILIATES (Continued)
Global Waste and Energy (Continued)
- -----------------------
In conjunction with the July 19, 1996 agreement, Global Delaware formed a wholly
owned Alberta, Canada subsidiary, Global Waste & Energy, Inc. ("Global Alberta")
and through this company acquired from CWC through assignment the rights, title
and interest of certain contracts and agreements and two inactive corporations
domiciled in El Salvador and East Asia. These companies were acquired to market
and develop systems relating to the disposal of domestic, industrial and
agricultural waste and generation of electrical energy by means of gas generator
technology.
On October 18, 1996, Global Alberta entered into a subscription agreement with a
minority investor, pursuant to which the minority investor had committed to
purchase a 45% interest in the El Salvador corporation for approximately
$1,000,000 U.S. As of December 31, 1996, $258,621 had been received from the
minority investor. During 1997 the Company repurchased from this investor their
45% equity interest for their initial investment of $258,621 and a cancellation
of the stock subscription receivable.
As further discussed in Note 11, CWC has filed a claim against the Company
disputing the agreements. On March 20, 1998 Enviropower Industries Inc. filed an
assignment in bankruptcy. As a result, the Company wrote off the $116,550 loan
as of December 31, 1997.
Construction Joint Ventures
- ---------------------------
During 1996 and 1997, the Company entered into joint venture agreements for the
purposes of completing construction related projects, totaling as completed
approximately $18,717,000 through December 31, 1999, specifically for work to be
performed on the Eastside Reservoir Project for the Water District of Southern
California and building decommissioning and equipment removal at IBM
Microelectronics Hudson Valley Research Park, East Fishkill, N.Y.
These joint ventures, in which the Company holds equity interests of 49% and
50%, respectively, are accounted for using the equity method of accounting for
balance sheet presentation and are presented in the balance sheet classification
"Investments in and Advances to Unconsolidated Affiliates". The Company has
included their proportionate share of revenues and expenses related to these
joint ventures within its statement of operations for the years ended December
31, 1999, 1998 and 1997. Included in contract income and direct job costs for
each of the years ended are approximately $650,000 and $799,000, $5,118,000 and
$6,433,000, and $3,304,000 and $3,040,000, respectively.
Seven Star International Holdings, Inc.
- ---------------------------------------
In January of 1998, the Company made a $300,000 payment representing its one
half share of the capital of Seven Star. Seven Star is a joint venture between
the Company and Jin Xin and is incorporated in the British Virgin Islands. Seven
Star has entered into a license agreement with Life for the right to process,
produce, promote and sell Life products in the Peoples Republic of China
(including Hong Kong), Taiwan, Indonesia and Singapore, and elsewhere in
southeast Asia. The license agreement requires a minimum royalty fee of $400,000
for the first year which was paid upon execution of the license agreement. The
Company recognized its one half share of losses equaling its investment under
the equity method of accounting for this investment (See Note 1) of $105,757 and
$194,243 for 1999 and 1998, at which point it converted to the cost method.
F-14
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
1999 1998
Trade accounts receivable $5,048,531 $3,072,951
Allowance for doubtful accounts (500,000) (500,000)
---------- ---------
$4,548,531 $2,572,951
========== =========
5. NOTES RECEIVABLE
On September 29, 1995, the Company entered into two agreements for the sale of
equipment inventory with Universal Process Equipment, Inc. and their affiliate,
Bethlehem Corporation (collectively "UPE"), a non-public company with principal
operations in North America, and one of the world's largest marketers of new and
processed equipment. Pursuant to the terms of such agreements, the Company sold
substantially all of its glass lined equipment and process equipment for an
aggregate minimum consideration of $4 million. The purchase price of such
equipment was payable from one third of the net sales proceeds of such equipment
received by UPE. The unpaid portion of the purchase price of such equipment was
to bear interest at the average LIBOR base rate over the previous twelve month
period and any amounts not previously paid under the agreement was to be payable
in full on September 29, 2000. In March of 1999, the Company agreed to accept
$300,000 in full settlement of the note receivable from UPE resulting in a write
down of $2,834,815 against the prior allowance of $2,834,815. The settlement
called for an initial installment payment of $150,000 at closing with the
balance payable in monthly installments over the following eight months which
were all received as of December 31, 1999.
On June 7, 1996, the Company loaned $250,000 to Solucorp Industries, Ltd.
("Solucorp"), an environmental company with which the Company had entered into a
September 7, 1995 Joint Marketing and Operation Agreement relating to the cross
marketing of Solucorp's soil remediation process and the Company's products and
services. The note executed June 7, 1996 (and further amended October 4, 1996),
is secured by shares of Solucorp's common stock. The terms of the note as
amended required the repayment of principal with interest at 10.25% per annum in
eleven consecutive monthly payments of $22,448 commencing November 1, 1996, with
an initial payment of $23,202 due upon the signing of the amended agreement.
During November 1998, the Company liquidated the collateral and applied the
proceeds of $41,607 against the note. The Company did not receive any payments
during 1999.
Notes receivable consists of the following:
1999 1998
------ ------
Note receivable $ 167,198 $ 3,302,013
Allowance for doubtful accounts (167,198) (2,934,815)
--------- ----------
$ - $ 367,198
========= ==========
During the years ended December 31, 1999, 1998 and 1997 the Company provided
$67,198, $1,104,815 and $1,200,000, respectively, as bad debt against the
outstanding loans.
Because of the unsatisfactory performance of these notes, the Company recognized
no interest income on them during 1999 and 1998. Total interest income earned
from these notes for the years ended December 31, 1999, 1998 and 1997 was $0,
$0, and $184,394, respectively.
F-15
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information with respect to the billing status of uncompleted contracts is as
follows:
December 31,
1999 1998
------ -------
Costs incurred on uncompleted contracts $2,087,471 $14,617,961
Estimated earnings (loss) 878,683 (389,867)
----------- ------------
2,966,154 14,228,094
Less: Billings to date 3,878,853 12,327,758
----------- ------------
$ (912,699) $ 1,900,336
=========== ============
Included in the accompanying balance sheets under the following captions:
December 31,
1999 1998
------ ------
Costs and estimated earnings in excess of billings $ - $ 1,900,336
Billings in excess of costs and estimated earnings (912,699) -
---------- -----------
$(912,699) $ 1,900,336
========== ===========
7. INVENTORY
Inventory consists of the following:
December 31,
1999 1998
------ ------
Purchased equipment ready for sale, at cost $1,482,517 $ 1,482,517
Allowance for write downs (1,482,517) (900,000)
------------ -----------
$ - $ 582,517
============ ===========
During the years ended December 31, 1999, 1998 and 1997 the Company provided
write-downs against the Company's inventory of surplus power generating
equipment of $582,517, $ 0 and $600,000, respectively, which has been classified
as a component of cost of goods sold. Management believes the write-downs were
necessary due to the lack of sales activity and delays in the utilization of
this equipment within projects currently being negotiated by the Company.
F-16
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31,
1999 1998
------- -------
Land $ 475,023 $ 475,023
Office equipment 420,728 418,784
Furniture and fixtures 396,261 437,803
Leasehold improvements 1,018,885 1,018,885
Transportation equipment 792,208 823,866
Job equipment 3,561,131 4,898,064
Land Improvements 131,968 131,968
----------- ------------
6,796,204 8,204,393
Less: Accumulated depreciation and
amortization 4,892,883 5,070,989
----------- ------------
$1,903,321 $3,133,404
=========== ============
Depreciation and amortization expense is reflected in direct job costs and in
operating expenses including general and administrative expenses. Depreciation
and amortization expense for the years ended December 31, 1999, 1998, and 1997
was $472,396, $661,469 and $713,717, respectively.
For the years ended December 31, 1999, 1998 and 1997, $137,779, $156,608 and
$148,526, respectively, of total depreciation and amortization expense was
reflected in direct job costs.
9. LONG-TERM DEBT
7% Convertible Notes, Due September 1997
- ----------------------------------------
During the quarter ended September 30, 1995, the Company completed a $5,000,000
private placement offering of 7% convertible notes pursuant to Regulation S
under the Securities Act of 1933, as amended. The notes were due September 15,
1997. The holders of the notes were entitled, at their option, to convert on or
after November 15, 1995 one third of the original principal amount of the notes
into shares of common stock of the Company at a conversion price for each share
equal to the lessor of the closing bid price of the common stock on September
15, 1995 ($50.00) or 82% of the market price of the common stock at the date of
conversion. The remaining two thirds of the principal amount of notes could be
converted on the same terms, one third after December 15, 1995 and one third
after January 15, 1996, respectively. In the event the notes were converted
within one year of their issuance, no interest was payable on the converted
portion of such shares. As of December 31, 1997, all the notes had been
converted into 159,727 shares of the Company's common stock.
Due to the lack of a fixed conversion price or other mechanism to limit the
total number of shares exercisable upon conversion of the debt, an inadvertent
violation of the rules applicable to NASDAQ National Market Securities was
determined to have occurred during the first quarter of 1996. To remedy such
problem, the Company imposed a cap on conversions which could not be exceeded
unless the shareholders of the Company first approved the issuance of shares on
conversion in an aggregate amount exceeding 20% of the outstanding shares on the
date of the convertible note issuances. Consequently, the balance of the
Convertible Notes outstanding at March 31, 1996 amounting to $1,750,000 were
subject to a cap on conversions imposed by the Company to assure compliance with
NASDAQ rules. The Company submitted a proposal to its shareholders at its 1996
annual shareholders meeting to permit the conversion of the remaining
Convertible Notes. The proposal was approved and the remaining Notes became
convertible with the conversion price being reduced from 82% of the closing bid
price to 80% of such price and all interest accrued on such Convertible Notes
being payable in shares of common stock.
F-17
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT (Continued)
7% Convertible Notes, Due September 1997 (Continued)
- ----------------------------------------
In connection with the issuance of the convertible notes, the Company paid total
offering costs of approximately $815,000. Such costs were capitalized as
deferred issuance costs and were amortized over the term of the notes. To the
extent the notes were converted, all or an allocable portion of such costs were
charged against paid in capital net of tax effect. As of December 31, 1996,
$201,775 was amortized and $613,225 of unamortized deferred issuance costs and
$103,668 in accrued interest (net of the tax effect of $69,117) was charged
(credited) to paid in capital in connection with the conversion of the
$5,000,000 of convertible notes.
7% Convertible Notes, Due January 1999
- --------------------------------------
On August 13, 1997, the Company completed a private placement of $3,025,000 of
7% Convertible Notes (the "Convertible Notes") and 267,500 three year Warrants
(the "Three Year Warrants").
The Convertible Notes are convertible into common stock at the lesser of (i)
$27.50 per share or (ii) 75% of the average closing bid price of the common
stock during the five trading days prior to conversion. The Three Year Warrants
are exercisable for a three year period at the lesser of $30.00 per share or the
lowest conversion price of the Convertible Notes. Conversion of the Convertible
Notes and exercise of the Three Year Warrants was subject to the issuance of a
maximum of 199,713 shares of common stock on conversion unless the shareholders
of the Company approved issuance beyond that level upon conversion. Shareholder
approval of issuance beyond 199,713 shares was received on November 4, 1997.
Further, the Company had the right, upon notice to the holders, to redeem any
Convertible Notes submitted for conversion at a price of $27.50 or less at 125%
of the principal amount of such Convertible Notes. The Convertible Notes pay
interest at 7% payable quarterly and on conversion or at redemption in cash or
common stock, at the Company's option. In the event that a registration
statement covering the shares underlying the Convertible Notes has not been
declared effective within 90 days or 180 days after the issuance of the
Convertible Notes, the interest rate on the Convertible Notes was to be
increased to 18% and 24%, respectively, from those dates until such registration
statement became effective. As a registration was not declared effective within
the 90 days required under the terms of the agreement, the company incurred
$46,215 in additional interest. On January 8, 1998 the registration was declared
effective and during the first quarter of 1998 all outstanding notes were
converted.
The difference between the market price of the Company's common stock, the
discounted beneficial conversion feature and the fair market value of the
granted warrants totaled $4,818,750 and is being accounted for as additional
interest reflected in debt discount and paid-in-capital. The debt discount has
been calculated as the fixed discount from the market at the date of sale based
upon the common stock's trading price of $40.00 per share on August 13, 1997.
This interest is being amortized over the three year life of the debt. During
1998 and 1997, $4,205,886 and $612,864 has been amortized and recorded as
interest expense.
F-18
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT (continued)
Long-term debt consists of the following:
<TABLE>
December 31,
1999 1998
------ ------
<S> <C> <C>
Note Payable:
Demand note payable in connection with locking in an amended warrant
exercise price, convertible into common stock $ - $265,122
Notes Payable:
Note, payable in monthly installments of $450 including interest at approximately
9.9% per annum through December 2004, secured by auto 21,080 -
Note, payable in monthly installments of $1,476 including interest at approximately
8.25% per annum through September 2000, secured by equipment 14,485 28,971
Note, payable in monthly installments of $1,082 including interest at approximately
24% per annum through April, 2001, secured by equipment. During 1999 the loan
was assumed by a third party in exchange for the equipment. - 22,673
Note, payable in monthly installments of $793 including interest at approximately
10.2% per annum through February 2000, secured by equipment. During April 1999,
the loan was paid off from proceeds received from the liquidation of the equipment
totaling approximately $9,000. - 9,409
Capital Lease Obligations:
Capital lease, payable in monthly installments of $3,569 including interest at
approximately 12.0% per annum through March 2001, secured by equipment. - 76,350
As discussed in the following paragraph the balance due on this capital lease
obligation has been reclassified as a current obligation within accounts payable
and accrued expense.
Capital lease, payable in monthly installments of $32,959 including interest at
approximately 11.8% per annum through March 1999, secured by equipment. - 127,285
As discussed in the following paragraph the balance due on this capital lease
obligation has been reclassified as a current obligation within accounts payable
and accrued expense.
Capital lease, payable in monthly installments of $6,138 including interest at
approximately 10.8% per annum through August 1999, secured by equipment. - 53,369
As discussed in the following paragraph the balance due on this capital lease
obligation has been reclassified as a current obligation within accounts payable
and accrued expense.
Capital lease, payable in monthly installments of $6,866 including interest at
approximately 12.6% per annum through March 2000, secured by equipment - 104,159
As discussed in the following paragraph the balance due on this capital lease
obligation has been reclassified as a current obligation within accounts payable
and accrued expense. --------- ---------
35,565 687,338
Less: Current portion 18,701 622,794
--------- ---------
$16,864 $ 64,544
========= =========
</TABLE>
F-19
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT (Continued)
During 1999, the Company sold collateral securing the capital lease obligations
reflected in the table above. Approximately $200,000 of proceeds from the sale
of this equipment was used to pay down the capital lease obligations. However,
since the Company liquidated a substantial portion of the collateral and is
currently delinquent on the balance due on these lease obligations, the Company
has reclassified the remaining balance of approximately $178,000 (including
interest of approximately $39,000 accrued through December 31, 1999) as a
current liability within accounts payable and accrued expenses.
At December 31, 1999, maturities of long-term debt (including capital lease
obligations) are as follows:
2000 18,701
2001 2,935
2002 4,193
2003 4,631
2004 5,105
--------
$ 35,565
========
10. PROVISION (CREDIT) FOR INCOME TAXES
Provision (Credit) for income taxes is as follows:
Years Ended December 31,
1999 1998 1997
------ ------ ------
Deferred:
Federal $ - $ 3,870,000 $(1,906,000)
State (1,200,000) 300,000 230,000
Foreign - - 115,000
------------ ----------- ------------
(1,200,000) 4,170,000 (1,561,000)
------------ ----------- ------------
$ (1,200,000) $ 4,170,000 $(1,561,000)
============ =========== ============
There was no current portion of the provision (credit) for income taxes in 1999,
1998 or 1997.
F-20
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. PROVISION (CREDIT) FOR INCOME TAXES (Continued)
A reconciliation between income tax expense (benefit) shown in the statement of
operations and expected income tax expense (benefit) using statutory federal
income tax rates applicable to the Company is as follows:
<TABLE>
Years Ended December 31,
1999 1998 1997
Amount Amount Amount
-------- -------- --------
<S> <C> <C> <C>
Taxes at Statutory rate $(2,839,000) $(6,206,000) $(3,910,000)
State taxes net of federal tax effect (635,000) (607,000) (480,500)
Foreign tax loss carryforward 218,000 415,000 390,500
Non-deductible items 95,000 1,430,000 (40,300)
Increase in valuation allowance 1,961,000 9,138,000 2,479,300
----------- ----------- ------------
$(1,200,000) $ 4,170,000 $ (1,561,000)
=========== =========== ============
</TABLE>
Certain items of income and expense are recognized in different years for
financial reporting and income tax purposes. Deferred income taxes are provided
in recognition of these temporary differences. The components of these deferred
income tax assets are as follows:
<TABLE>
December 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Deferred Tax Assets:
Current:
Accounts and notes receivable allowances $ 1,393,000 $ 1,369,000 $ 1,028,800
Inventory allowance 609,000 378,000 401,000
Consultant expense 875,000 860,000 110,100
Net operating loss carryforwards 14,835,000 13,184,000 9,135,400
Less: Valuation allowance (17,492,000) (15,531,000) (6,357,000)
------------ ------------ -----------
220,000 260,000 4,318,300
Non-current:
Fixed assets (220,000) (260,000) (148,300)
------------ ------------ -----------
Total deferred tax assets $ - $ - $ 4,170,000
============ ============ ===========
</TABLE>
F-21
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. PROVISION (CREDIT) FOR INCOME TAXES (Continued)
At December 31, 1999 the Company had net operating loss carryforwards for
federal income tax purposes of approximately $36,500,000 which expires as
follows:
Year Ending
December 31,
2010 $ 2,300,000
2011 9,100,000
2012 8,600,000
2013 10,600,000
2014 5,900,000
-----------
$ 36,500,000
===========
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible and the net operating losses can
be carried forward. In determining such projected future taxable income,
management has considered the Company's historical results of operations, the
current economic environment within the Company's core industries and future
business activities in which the Company has positioned itself. At December 31,
1999 and 1998, in view of the Company's substantial losses over the past several
years and uncertainties regarding future operations, the Company's valuation
allowance is equal to their deferred tax assets, net of deferred tax
liabilities. The increase in the valuation allowance during 1998 resulted in a
tax provision of $4,170,000.
In November 1999, the Company received approval from State of New Jersey
Technology Tax Certificate Transfer Program (TTCTP) of their application for the
sale of New Jersey Corporate Net Operating Losses relating to the years ended
December 31, 1995 and 1996. Due to the sale of these net operating losses, the
Company recorded a tax benefit of $1,200,000 reflected in the statement of
operations. In December, 1999 the Company received approximately $550,000
against this tax benefit with the balance of $650,000 to be received in the year
2000.
11. COMMITMENTS AND CONTINGENCIES
Employment Contracts and Agreements
- -----------------------------------
On February 18, 1998 the February 1, 1996 employment agreements between the
Company and Joel A. Freedman and Frank A. Falco were amended. Pursuant to such
amended agreements, effective September 1, 1997, Mr. Freedman and Mr. Falco each
receive (i) a base salary of $480,000 per year plus 2% of net operating profits;
(ii) bonuses as determined by the Board of Directors; (iii) participation in any
employee benefit plans and fringe benefit arrangements generally available to
the Company's employees; and (iv) an entertainment expense allowance of $45,000
per year. For purposes of computing the salary of Messrs. Freedman and Falco,
operating profits are defined as net income from operations before deduction of
interest expense, income taxes, depreciation and amortization and other non-cash
charges to income. Pursuant to the February 18, 1998 amendment to their
employment agreements, Messrs. Freedman and Falco were each granted 225,000
stock options exercisable at $6.75 per share, as amended, and expiring February
17, 2003. The Company obtained a fairness opinion and valuation report from
independent sources that estimated the fair market value for each of these
options to be $7,017,750 at the date of grant using the Black-Scholes value
option pricing model. Exercise of the options is not permitted until the closing
bid price of the Company's common stock equals or exceeds 120% of the applicable
option price in existence prior to December 11, 1998.
F-22
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
Employment Contracts and Agreements (Continued)
- -----------------------------------
For the years ended December 31, 1999, 1998 and 1997 the compensation expense
for the two officers, including board approved bonuses, was $480,000, $480,000
and $480,000 each, respectively.
The employment agreements prohibit Mr. Freedman and Mr. Falco from competing,
directly or indirectly, with the Company or disclosing confidential matters with
respect to the Company for two years after termination of employment. Each of
such agreements expires on March 31, 2005 and are thereafter automatically
extended for one-year periods unless there is a notice of termination from
either the Company or the employee.
In the event of their disability, Messrs. Freedman and Falco are entitled to
continue their full salary at the date of disability for a period of one year
after which time the Company may terminate the employment of such disabled
employee without further compensation. In the event of death during the term of
employment, the estate of Mr. Freedman and Mr. Falco, as appropriate, shall be
entitled to three months salary. In the event of the termination of Mr.
Freedman's or Mr. Falco's employment within one year of the occurrence of
various change in control events, or in the event of termination of their
employment by the Company for any reason other than death or disability, the
Company must pay or provide to Mr. Freedman and/or Mr. Falco, as appropriate;
(i) a lump sum payment equal to 2.99 times his average annual gross income from
the company for the five tax year period ending before the date of such
termination; (ii) a lump sum payment equal to three times the value of all
"in-the-money" stock options held by such persons at the date of termination;
and (iii) continued participation in all employee benefit programs for a period
of three years, provided that the employee may, at his election, receive a lump
sum cash payment equal to the value of such benefits in lieu of continued
participation in such benefit plans. Additionally, in the event of a change in
control during the term of their contracts, Messrs. Freedman and Falco will be
deemed to have earned in full the Stock Bonuses provided for in their employment
contracts. As used in the employment agreements of Messrs. Freedman and Falco, a
"change in control" is defined to be (i) the acquisition of 15% of the Company's
common stock; (ii) a change in majority composition of the Board of Directors
within any two year period; or (iii) a failure to elect either of such employees
to the Board when such employee is standing for election; provided, however,
that such events shall not constitute a change in control if a majority of the
Directors immediately prior to such "change in control" approve the transaction
or event otherwise constituting a "change of control."
On July 19, 1996, Global Alberta entered into employment agreements with the two
principal officers of Global Alberta for terms through June 30, 1999. Pursuant
to such agreement, the two officers each are to receive an annual salary of
$240,000 (Canadian) through the term of the agreement. These agreements were not
renewed, but one of the officers has continued in the employment of the Company.
On February 11, 1996, the Company entered into agreements with its executive
employees pursuant to which such employees have agreed to maintain the
confidentiality of certain information and have agreed to not compete with the
Company within 250 miles of the Company's principal places of business for a
period of three years following the termination of such persons' employment with
the Company. Additionally, the Company has entered into agreements with each of
its executive officers, other than Messrs. Freedman and Falco, which provide
that such officers shall be entitled to (i) a lump sum payment equal to 2.99
times his average annual gross income from the company for the three tax-year
period ending before the date of such termination; (ii) a lump sum payment equal
to three times the value of all "in-the-money" stock options held by such
persons at the date of termination; and (iii) continued participation in all
employee benefit plans or programs for a period of three years, provided that
the employee may, at his election, receive a lump sum cash payment equal to the
value of such benefits in lieu of continued participation in such benefit plans.
F-23
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
Employment Contracts and Agreements (Continued)
- -----------------------------------
For purposes of such agreements, a change in control is defined in the same
manner as in the employment agreements of Messrs. Freedman and Falco, except
that failure of either Mr. Freedman or Mr. Falco to be elected when standing for
election as a director shall not constitute a "change in control" for purposes
thereof.
In addition to the foregoing employment and change of control arrangements, the
Company's 1993 and 1995 and 1998 Stock Option Plans provide that all outstanding
options shall become fully vested and exercisable in the event of a change in
control.
On March 28, 2000 a merger was approved by the stockholders of the Company with
FNH (See Note 17). This merger had been previously approved by a vote of the
Board of directors and therefore was not deemed to be a "change of control" as
defined in the employment agreements. Also, pursuant to the merger agreement
with FNH, FNH and Fusion are guaranteeing up to $50,000 of the salary payable
under the employment agreements of Messrs. Freedman and Falco, for a period of
three years from the date of the merger.
Operating Leases
- ----------------
The Company currently leases its office and warehouse facilities from L&G
Associates ("L&G"), a related partnership owned by principal officers of the
Company, as further discussed in Note 13, Related Parties. The Company has also
entered into leases for other facilities outside of New Jersey under operating
lease agreements with terms ranging from two to five years.
A schedule of the future minimum payments under operating leases is as follows:
Year Ending December 31, Related Party Other Operating
2000 $ 316,164 $177,018
2001 316,164 123,237
2002 316,164 -
2003 316,164 -
2004 316,164 -
Thereafter 1,896,984 -
---------- ----------
$3,477,804 $300,255
========== ==========
As further discussed in Note 13, the Company incurred renovation and
construction costs at their New Jersey facility which premises are leased from a
related party. The cost of these improvements, totaling approximately $448,000,
by agreement entered into in 1994 and amended May 16, 1996, are being charged
over fifteen (15) years, through May 31, 2011, in lieu of lease payments. The
cost allocation is reflected as amortization at a rate equal to the lease terms.
F-24
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
- ----------
The Company is periodically subject to lawsuits and administrative proceedings
arising in the ordinary course of business. Management believes that no pending
lawsuits or administrative proceeding is likely to have a material adverse
effect on the condition or results of operations of the Company.
On August 15, 1996, the U.S. Department of Labor, Occupational Safety and Health
Administration ("OSHA") issued wilfull citations 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. A hearing was conducted in the matter in April 1997. In
June 1998, the Company received a copy of the written decision filed by OSHA's
Review Commission. The Commission vacated the first alleged wilfull citation,
but affirmed each of the second and third wilfull citations, imposing a penalty
in the amount of $70,000 for each citation. The Company strongly objected to the
Commission's finding on the basis that it cannot be sustained as matters of fact
or law and filed a timely Notice of Appeal with the OSHA Review Commission for
Discretionary Review, which body has accepted jurisdiction of the matter on
administrative appeal. The Company is contesting the Citations and Notification
of Penalty.
Also in connection with this accidental death, the employee's estate filed a
complaint for wrongful death against the subcontractor and the Company on
February 11, 1997. The estate seeks damages in the amount of $45 million. The
Company is being defended by the subcontractor's insurance carrier pursuant to
the subcontractor's obligation to defend and indemnify the Company with respect
to the actions of its (subcontractor's) employees and agents. The Company will
be fully indemnified for any liability, if any, for any potential judgement or
settlement in this matter by the subcontractor's carrier and, if necessary by
its own general liability insurance carrier and, therefore, the action is not
expected to have any material effect on the Company's consolidated financial
statements.
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, as subsequently amended in
June 1997, alleged that the Company disseminated false and misleading financial
information to the investing public between March 8, 1996 and November 18, 1996
and sought damages in an unspecified amount to compensate investors who
purchased the Company's securities between the indicated dates, as well as the
disgorgement of profits allegedly received by some of the individual defendants
from sales of common stock during that period. A written settlement agreement
was executed by plaintiff's counsel on behalf of the class and was approved by
the court. The matter was settled and finally resolved with the payment of
$1,125,000 to the class. The entire settlement sum was paid by the Company's
director's and officer's ("D&O") insurance policy carrier pursuant to the
obligations owed by the carrier under the Company's existing D&O policy. The
settlement covered the class period March 8, 1996 to June 5, 1997. The
settlement, as expressly reflected in the settlement documents, has been made as
a business accommodation only, and neither the Company, nor any director,
officer or employee of the Company has admitted or will admit any wrong doing of
any kind. With the closing of the settlement, the action was dismissed with
prejudice and the Company and each of the individuals who have been named as
defendants were released from any and all claims for the entire class period.
F-25
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
- ----------
On April 1, 1997, Enviropower Industries Inc., formerly Continental Waste
Conversion Inc. ("Enviropower"), commenced an action in court in Calgary,
Alberta against IDM Environmental Corp. and it's subsidiaries, Global Waste &
Energy Inc., formerly Continental Waste Conversion International, Inc., a
Delaware Corporation ("Global Delaware"), Global Waste and Energy, Inc.,
formerly Continental Waste Conversion International Inc., an Alberta Corporation
("Global Alberta") together with two former officers and directors of
Enviropower who were then subsequently employed by Global Alberta. The action
arose from the agreements entered into between Enviropower and IDM on or about
July 19, 1996 (the "Agreements"), which provided, among other things, for the
grant to Global Alberta of Enviropower's right, title and interest in certain
worldwide marketing and sales agreements and to an exclusive, irrevocable
license granted to Global Delaware to market and use certain technology outside
Canada in connection with the environmentally safe conversion of certain
domestic industrial and agricultural solid waste into energy (the "Technology").
Enviropower sought to set aside the Agreements on the alleged basis that its
shareholders did not approve the transaction. In addition, Enviropower claimed
damages for loss of its right to market and use the Technology outside of Canada
resulting in an alleged estimated loss of $30 million. Enviropower also sought
indemnification for liabilities allegedly incurred by Global Alberta in the name
of Enviropower in the amount of $363,000, a declaration that all profits,
interest and benefits arising from the Agreements be paid to Enviropower,
punitive damages of $1 million, costs and interest plus such further and other
relief as is more particularly set out in the Statement of Claim. In June of
1997, the Company filed a separate cause of action against Enviropower seeking
injunctive relief against Enviropower, seeking to enforce the agreements with
Enviropower and to collect amounts owed to the Company by Enviropower. On
September 19, 1997, the Company was awarded an interim injunction against
Enviropower recognizing it's exclusive rights to the licensed technology
throughout the pendency of the action and until further order of the court.
Enviropower has since filed for protection under Canadian bankruptcy laws,
staying all proceedings between the Company and Enviropower. On or about January
13, 1999 the Company entered into a comprehensive settlement of the matter with
the bankruptcy Trustee. Among other things, the settlement provided for the
entry of a Permanent Injunction in favor of the Company which, in essence,
recognizes the Company's exclusive rights to the Technology and the validity of
the Agreements that were at issue in the litigation.
In July of 1998, Kasterka Vrtriebs GmbH ("Kasterka") filed a cause of action
suit against the Company, it's subsidiary, Global Waste & Energy and certain
affiliates and officers in the Court of Queen's Bench of Alberta, Judicial
District of Calgary. The plaintiff alleges that the Company and it's affiliates
breached a marketing agreement that had been entered into between Kasterka and
Enviropower. Kasterka also alleges that the defendants failed to supply the
required plans and specifications relating to the gasification technology
originally developed by Enviropower and that, as a result, Kasterka was unable
to manufacture and market gasification units in the territories designated in
the marketing agreement. Kasterka asserts a variety of claims for damages in the
aggregate amount of approximately $42 million. The Company believes the suit is
without merit and intends to vigorously contest the cause of action.
In September of 1998, Balerna Concrete Corporation ("Balerna") filed a cause of
action against the Company in the United States District Court of Massachusetts.
The plaintiff alleges that the Company, and others, engaged in a pattern of
illegal conduct to divert funds from Balerna through the operation of a concrete
finishing business. Balerna has asserted various claims under RICO, common law
fraud, conversion, breach of contract and other basis seeking damages in an
amount expected to exceed $450,000. The case was dismissed in February, 2000,
however, Balerna has filed an appeal of the decision.
F-26
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
Other
- -----
The Company is contingently liable to sureties under general indemnity
agreements. The Company agrees to indemnify the sureties for any payments made
on contracts of suretyship, guaranty or indemnity. The Company believes that all
contingent liabilities will be satisfied by their performance on the specific
bonded contracts involved.
12. RETIREMENT SAVINGS PLAN
In July of 1992, the Company amended an existing profit sharing plan to convert
such plan to a retirement savings plan (the "401(k) Plan") under section 401(k)
of the Internal Revenue Code. The 401(k) Plan generally covers all employees of
the Company who have completed two years of service with the Company. Employees
may elect to defer, in the form of contributions to the 401(k) Plan, up to 15%
of their annual compensation, subject to the federal maximum limit. The Company
may, at its own discretion, contribute to the plan. The Company did not
contribute to the 401(k) Plan during the years ended December 31, 1999, 1998 and
1997.
13. RELATED PARTIES
Officer Loans and Advances
- --------------------------
From time to time the Company has made loans and advances to two of its
directors and officers of the Company.
On September 1, 1995, Joel Freedman, the President and Chief Executive Officer
of the Company, surrendered to the Company 3,662 shares of his common stock of
the Company at $52.50 per share, the average closing market price for the
previous month, as payment in full of loans from the Company in the amount of
$192,260. Such shares have been canceled.
At December 31, 1995, the Company had a receivable due from Frank Falco,
chairman of the Board of Directors and Chief Operating Officer of the Company,
of $552,479 including interest at 7% per annum. On April 1, 1996, Mr. Falco
surrendered to the Company 9,221 shares of his common stock of the Company at
$72.72 per share, the average closing market price for the previous month, as
payment in full of loans from the Company in the amount of $670,580, the then
current balance. Such shares have been canceled.
At December 31, 1997, the company had receivables due from Mr. Freedman and Mr.
Falco for $7,965 and $361,576, respectively, including interest at 7% per annum,
which were repaid during 1998.
During 1998, Frank Falco, Chairman of the Board of Directors and Chief Operating
Officer of the Company, paid the Company $490,000, which represented payment in
full of all amounts due from officers to the Company.
During 1998, the Company purchased 8,250 shares of common stock of Life
International Products, Inc. from Joel Freedman for $178,125, Mr. Freedman's
cost basis in those shares.
F-27
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. RELATED PARTIES (Continued)
Officer Loans and Advances (Continued)
- --------------------------
During 1999 the Company borrowed funds from various parties, including officers,
and have issued stock in payment of certain trade payables. At December 31, 1999
the Company owed a total of $217,000 primarily to two principal officers for
funds advanced. There are no definitive repayment terms on such amounts. In June
1999, the Company borrowed $400,000 from existing stockholders. That loan was
repayable in August 1999 with interest at 6.5%. As inducement for making that
loan, the Company issued 125,000 shares of common stock to the lenders. The loan
has been repaid at December 31, 1999.
Leases
- ------
The Company leases its offices and yard storage facilities from L & G
Associates, a related partnership owned by the principal stockholders of the
Company.
On March 1, 1993, the Company entered into a five year lease agreement on such
property, which includes two additional parcels of land. Pursuant to such lease,
the Company will pay base rent of $270,000 annually subject to annual
adjustments based on the consumer price index, plus costs of maintenance,
insurance and taxes.
In 1994, the Company and L&G Associates ("L&G") entered into an agreement
regarding the construction and/or renovation of expanded facilities on the
premises presently leased by the Company from L&G and the renovation and leasing
of an adjoining property. The expanded facilities were needed to support current
operations and anticipated future growth. The Board of Directors formed the
Building Committee to review the terms and fairness of such proposed expansion.
In November of 1994, the parties agreed in principal with respect to the terms
of the proposed expansion and the Building Committee determined that such
expansion met the Company's needs and was on terms which were fair to the
Company. Based on such agreement and determination, the Company in November of
1994 commenced renovation and construction on such sites of which one facility,
office space (7,600 square feet), was completed during the third quarter of
1995, and the second facility, warehouse space (5,700 square feet), was
completed during the third quarter of 1996. Renovation of such office space by
the company at an approximate cost of $303,000 constitutes payment in full of
rent for the initial term of the lease of such office space. The Company shall
also be responsible for all taxes, utilities, insurance and other costs of
occupying the office space during the initial term. Construction of such
warehouse space by the Company at an estimated cost of $145,000 constitutes
payment in full of rent for the initial term of the lease of such warehouse
space. The Company shall also be responsible for all taxes, utilities, insurance
and other costs of occupying the warehouse space during the initial term. The
total cost of the renovations was to be amortized over the initial terms of the
lease. On May 16, 1996 the leases were amended and extended 15 years to May 31,
2011. The amortization associated to the cost of the renovation was extended
through the terms of the modified lease. Amortization expense related to these
costs for each of the years ended December 31, 1999, 1998 and 1997 was $93,320.
For the years ended December 31, 1999, 1998 and 1997 the Company recorded rent
expense associated with this lease of $315,130, 308,948 and $302,412,
respectively. Future minimum rental obligations are reflected in Note 11,
Commitments and Contingencies. As of December 31, 1999, the Company had a
balance due L&G of approximately $104,000.
14. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company earned more than 10% of its revenue from each of three customers in
1999, each of four customers in 1998 and two customers in 1997. For the years
ended December 31, 1999, 1998 and 1997 total revenues derived from these
customers were approximately $10,784,000, $13,560,000 and $8,443,000,
respectively.
F-28
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK (Continued)
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade receivables, notes receivable and
investments in affiliates. Management believes that the risk associated with
each of these assets has been adequately provided for in the allowance for
doubtful accounts and write downs of investments to fair value.
15. STOCKHOLDERS' EQUITY
Preferred Stock
- ---------------
In July of 1993, the Company offered and sold ten units at $50,000 per unit, for
an aggregate of $500,000. Each unit consisted of 500 shares of Series A
Preferred Stock, 600 shares of common stock and 500 warrants, exercisable to
purchase one share of common stock at $50 per share until July 31, 1996. The
preferred stock had a 9% per annum cumulative dividend, payable quarterly. The
holders of the Series A Preferred Stock had the right to "put" such shares to
the Company at a price of $100 per share after the Company attained a net worth
of $3,000,000 or more or at any time after January 15, 1994. The Company had the
right to redeem the Series A Preferred Stock at $100 per share on or after
August 1, 1995. The Company had also agreed to include the shares underlying the
warrants included in such units in any registration statement filed by the
Company following the Company's initial public offering at no cost to such unit
holders. On April 29, 1994, the Company redeemed all of the outstanding
Preferred Stock at the request of the preferred shareholders.
On July 14, 1997, the Company filed an amendment to their corporate charter
authorizing it to issue up to 1,000,000 shares of Preferred Stock, $1.00 par
value.
Convertible Preferred Stock
- ---------------------------
On February 12, 1997 (the "closing date") the Company entered into a private
placement wherein it offered and sold 300 shares of $10,000 Series "B"
Convertible Preferred Stock (the "preferred shares") in private transactions to
selected investors who qualify as "accredited investors" (within the meaning of
Rule 501(a) promulgated under the Securities Act of 1933, as amended). The
preferred shares were convertible into shares of the Company's common stock
beginning on the 91st calendar day after the closing date according to the
following:
Lower of x or y
x y
Calendar Days Closing Date Conversion Date
After Closing Average Times Average Times
91 - 120 120% 82%
121 - 150 110% 79%
151 - 180 100% 76%
- 180 100% 73%
F-29
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Convertible Preferred Stock (Continued)
- ---------------------------
The conversion date average was the average closing bid price of the common
stock as calculated over the five trading day period ending on the trading day
preceding the date on which the holder transmits (by telecopier) his notice to
convert. Each preferred share was convertible into the Company's common stock
(the "conversion shares") determined by dividing $10,000 by the applicable
conversion price. The preferred shares were due to mature on February 12, 2000,
and on that date each preferred share then outstanding would automatically
convert into conversion shares at the then current conversion price. The
preferred shares pay an annual 7% dividend. The dividends were payable only upon
conversion or redemption of the preferred shares and were payable either in
shares of common stock (the "dividend shares") at the average market price of
the common stock over the five trading days preceding the conversion date or in
cash, at the option of the Company. The difference between the market price of
the Company's common stock and the applicable conversion rate, the beneficial
conversion feature, totaled $1,109,589, and was recorded as additional dividends
amortizable over a 180 day period from February 12, 1997, the issue date of the
convertible preferred stock. The Company agreed to register the dividend shares,
the conversion shares and penalty shares in a registration statement filed by
the Company at no cost to the holders of such shares. The registration statement
was declared effective on January 9, 1998.
In connection with this transaction the Company paid a fee of $195,000 and
$25,000 in expenses to the placement agent. In addition, the Company granted
10,000 warrants to the placement agent. Each warrant is exercisable to purchase
one share of common stock at $24.00 per share, as amended by agreement dated
November 21, 1997, commencing on February 12, 1998 and expiring on February 12,
2002. The Company has granted demand and piggy-back registration rights to the
holders of these warrants.
During the year ended December 31, 1997, 30 shares with a stated value of
$300,000 were converted into 19,292 shares of the Company's common stock. During
the first quarter of 1998 the remaining 270 shares with a stated value of
$2,700,000 were converted into 135,944 shares of the Company's common stock.
On February 13, 1998 (the "closing date") the Company entered into a private
placement wherein it offered and sold 3,600 shares of Series C 7% Convertible
Preferred Stock and 235,000 Four Year $50.00 Warrants (amended on June 2, 1998
to $37.50). The securities were issued to five accredited investors. The
aggregate sales price of such securities was $3,600,000. Commissions totaling
10% were paid in connection with the placement. The securities were offered
pursuant to Regulation D. The offer was directed exclusively to a limited number
of accredited investors without general solicitation or advertising and based on
representations from the investors that such investors were acquiring for
investment. The securities bear legends restricting the resale thereof. The
Series C Preferred Stock was convertible into Common Stock at the lesser of (i)
$45.00 (amended on June 2, 1998 to $32.50) per share or (ii) 75% of the average
closing bid price of the Common Stock during the five trading days prior to
conversion. The Four Year $50.00 Warrants were exercisable for a four year
period at the lesser of $37.50 per share or the lowest conversion price of the
Series C Preferred Stock. Conversion of the Series C Preferred Stock and
exercise of the Four Year $50.00 Warrants was subject to the issuance of a
maximum of 328,544 shares of Common Stock on conversion unless the shareholders
of the Company have approved issuance beyond that level upon conversion. Such
approval was granted at the Company's annual meeting of shareholders on June 2,
1998. Further, the Company had the right, upon notice to the holders, to redeem
any Series C Preferred Stock submitted for conversion at a price or $27.50 or
less at 125% of the principal amount of such Series C Preferred Stock plus
accrued and unpaid dividends. The Series C Preferred Stock paid dividends at 7%
per annum payable quarterly and on conversion or at redemption in cash or Common
Stock, at the Company's option. During the year ended December 31, 1998 all
Series C Preferred stock was converted into 640,747 shares of the Company's
common stock.
F-30
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Convertible Preferred Stock (Continued)
- ---------------------------
On August 11, 1998 (the "closing date") the Company entered into a private
placement wherein it offered and sold 1,500 shares of Series RR 6% Convertible
Preferred Stock. The securities were issued to one accredited investor. The
aggregate sales price of such securities was $1,500,000. Commissions totaling
10% were paid in connection with the placement. The securities were offered
pursuant to Regulation D. The offer was directed exclusively to a single
accredited investor without general solicitation or advertising and based on
representation from the investor that such investor was acquiring for
investment. The Series RR Preferred Shares are convertible into Common Stock at
the lesser of (i) $22.50 per share or (ii) 75% of the average closing bid price
of the common stock during the five trading days prior to conversion. The
Preferred Shares pay an annual dividend of 6% payable semi-annually or on
conversion or at redemption in cash or Common Stock, at the Company's option.
During the year ended December 31, 1998, 1,285 shares of Series RR Preferred
Stock were converted into 359,981 shares of the Company's common stock. During
1999, demand for conversion or redemption of the remaining 215 shares of Series
RR Preferred Stock had been submitted and on July 26, 1999 the Company issued
130,788 shares of its common stock in full settlement of the 215 Preferred RR
shares.
Common Stock
- ------------
On June 2, 1998, the Company filed an amended and restated Certificate of
Incorporation increasing the authorized shares of common stock the Company is
authorized to issue from 30,000,000 to 75,000,000 shares with a par value of
$0.001. On March 11, 1999, the Company's Board of Directors authorized a 1 for
10 reverse stock split of its common stock and amended the par value of the
common stock to $0.01 and reduced the authorized shares to 7,500,000 effective
April 16, 1999 for shareholders of record at the close of business on April 16,
1999. All share and per-share amounts in the accompanying consolidated financial
statements have been restated to give effect to the 1 for 10 reverse stock
split.
In January of 1994, the principal shareholders of the Company surrendered for
cancellation an aggregate of 66,667 shares of common stock. All references to
number of shares, except shares authorized, and to per share information in the
financial statements, have been adjusted to reflect the surrender and
cancellation of such shares on a retroactive basis.
The Company completed an initial public offering of 345,000 units (including
units sold pursuant to the underwriter's over allotment options) in April of
1994. Each Unit consisted of one share of the Company's common stock and one
Class A Warrant. The Company received $11,792,588 from the proceeds of the
offering, net of the payment of all offering costs.
On September 1, 1995, Joel Freedman, a principal shareholder, director and Chief
Executive Officer of the Company surrendered 3,662 shares of common stock in
repayment of his officer's loan.
From November 1995 through December 31, 1996, the Company issued 159,727 shares
of common stock in exchange for the cancellation of $5,000,000 of the Company's
7% convertible notes.
On April 1, 1996, Frank Falco, a principal shareholder, director and Chief
Operating Officer of the Company, surrendered 9,221 shares of common stock in
repayment of his officer's loan.
F-31
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock (Continued)
- ------------
On November 15, 1996, the board of directors of the Company approved a stock
repurchase plan whereby the Company may, from time to time, repurchase on the
open market shares of its common stock in an amount up to $750,000. During the
year ended December 31, 1996, the Company repurchased for retirement 10,000
shares at a price of $216,500.
During the year ended December 31, 1997 $300,000 of the Company's Convertible
Preferred Stock were converted into 19,292 shares of the Company's common stock.
During March 1999, 97,525 of the $30 warrants were converted into 97,525 shares
of the Company's common stock. The exercise price of the warrants paid in full
the loan from shareholders of $265,122 outstanding at December 31, 1998. In
addition, during 1999 holders of 115,049 Three Year Warrants exercised their
rights which resulted in the issuance of 115,049 shares of the Company's common
stock and the Company received proceeds of $318,877.
During June 1999, the Company issued 125,000 shares of its common stock as an
inducement on a $400,000 6.5% promissory note received from stockholders of the
Company. The note which was payable in full on August 2, 1999 was repaid in full
by November 1999. The shares issued in conjunction with this note have
registration rights. The Company recorded $109,380, the estimated fair market
value of the 125,000 shares at the date of issuance, as additional interest
expense.
On July 26, 1999, the Company reached an agreement with the holder of the
remaining 215 shares of Series RR Preferred Stock to allow conversion into
130,788 shares of the Company's common stock in full and final settlement of the
215 Preferred RR Shares.
During 1999, the Company issued 218,143 shares of restricted common stock in
settlement of accounts payable and as collateral to their surety in lieu of
performance bonds on the Oak Ridge, Tennessee contract. The total amount of
accounts payable settlement and collateral was $960,250.
During the fourth quarter of 1999 holders of 67,476 options issued under the
1993, 1995 or 1998 stock option plans exercised the rights and the Company
issued 67,476 shares of its common stock and received proceeds of $119,122.
In December of 1999, the holder of the 112,500 $6.75 option which were granted
to a consultant during 1998 exercised the rights granted under the option to
utilize the cashless exercise which resulted in the Company issuing 67,666
shares of its common stock and canceled the option for the remaining 44,834
shares.
Common Stock Purchase Warrants and Options
- ------------------------------------------
The Company has authorized and in July of 1993, issued 5,000 warrants (the
"Private Placement Warrants") to purchase common stock. The Private Placement
Warrants were exercisable to purchase one share of common stock per warrant at a
price of $50.00 per share until August 1, 1996 and are not redeemable. In
January of 1994, the Company granted to the holders of the Private Placement
Warrants "piggy-back" registration rights pursuant to which the holders of such
warrants may include the shares underlying such warrants in any registration
statement subsequently filed by the Company at no cost to the holders of the
Private Placement Warrants. During the year ended December 31, 1996, 750 Private
Placement Warrants were exercised, 750 shares were issued in connection with the
exercises and resulted in net proceeds to the Company of $33,750. The remaining
4,250 Private Placement Warrants expired and were canceled.
F-32
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
The Company's Class A Warrants are separately transferrable and entitle the
holder to purchase two shares of common stock at $45.00 per share (subject to
adjustment, which occurred). The Class A Warrants are exercisable commencing on
April 20, 1995 and expiring April 20, 1999. Any or all of the Class A Warrants
may be redeemed by the Company at a price of $.50 per warrant, upon the giving
of 30 days written notice and provided that the closing bid price of the common
stock for a period of twenty (20) consecutive trading days ending within ten
(10) days of the notice of redemption has equaled or exceeded $90.00 per share.
During the year ended December 31, 1996, 1997 and 1998, 105,100, 225,851 and
9,790 Class A Warrants were exercised, 210,200, 451,703 and 19,580 shares were
issued in connection with these exercises and resulted in net proceeds to the
Company of $6,956,450, $6,171,000 and $184,500.
A total of approximately 34,000 Class A Warrants were outstanding and
exercisable at December 31, 1998. As part of the 1 for 10 reverse stock split of
the Company's Common Stock and Class A Warrants, the term of the Class A
Warrants was extended to April of 2000.
In connection with the Offering, the Company sold to the Underwriter for nominal
consideration, an option for the purchase of up to 30,000 units (the "option
units"). Each option unit consisted of one share of the Company's common stock
and one Class A Warrant. Each option unit was exercisable at a price of $66.00
per option unit during the period beginning April 20, 1996 and continuing until
April 20, 1999. The option units could be exercised as to all or any lesser
number of option units and contained provisions which required, under certain
circumstances, the Company to register the option units underlying such options
for sale to the public. The option units were nontransferable except to officers
of the Underwriter, members of the underwriting group and their respective
officers and partners. The option unit exercise price and the number of option
units covered by the option were subject to adjustment to protect the holders
thereof against dilution in certain events. During May 1996, all the option
units were exercised and the company received net proceeds of $1,979,700 and
issued 30,000 shares of the Company's common stock. As of December 31, 1998 all
30,000 Class A Warrants issued in connection with the underwriter option
remained outstanding.
In February of 1998, the Company issued 270,000 Three Year $45.00 Warrants (the
"Lock-Up Warrants"). The Lock-Up Warrants were issued in conjunction with the
execution of Lock-Up Agreements by the holders of $30.00 Warrants whereby the
holders of such warrants agreed not to resell any shares underlying those
warrants prior to July 30, 1998. The Lock-Up Warrants are exercisable for a
three year period at $45.00 (amended on November 10, 1998 to $3.30 until
December 31, 1998 and $10.00 thereafter) per share.
In June of 1998, the Company issued 26,688 $60.00 Warrants and 26,688 $67.50
Warrants (collectively the "Reload Warrants"). The Reload Warrants were issued
as an inducement for early exercise by the holders of certain $30.00 Warrants
and are exercisable to the extent of one $60.00 Warrant and one $67.50 Warrant
for each $30.00 Warrant previously exercised. The $60.00 Warrants and $67.50
Warrants are exercisable for a period of one year commencing June 8, 1998 to
purchase common stock at $60.00 and $67.50 (amended on November 10, 1998 to
$3.30 until December 31, 1998 and $10.00 thereafter) per share, respectively.
Exercise of the $60.00 Warrants and $67.50 Warrants is subject to the
restrictions that the holders, individually, will not beneficially own in excess
of 4.99% of the Common Stock following any exercise.
During the fourth quarter of 1998, the Company agreed to amend the terms of
certain warrants to reduce the exercise price of those warrants for certain
warrant holders who had indicated a willingness to exercise currently
outstanding warrants. Pursuant to such agreement, the exercise price of those
warrants was reduced to $3.30 per share until December 31, 1998, and $10.00 per
share thereafter, and the Company obtained the right to call the warrants for
redemption. In total, the exercise prices were reduced on 117,651 of the $30.00
Warrants, 67,000 of the Lock-Up Warrants, 15,750 of the $60.00 Reload Warrants,
and 15,750 of the $67.50 Reload Warrants.
F-33
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
On December 11, 1998 the Company's common stock option holders were offered a
repricing of their options to $6.75 per share. With the exception of one
consultant the repricing excluded all Directors and consultants. Exercise of the
repriced options is not permitted until the closing bid price of the Company's
common stock equals or exceeds 120% of the applicable option price in existence
prior to December 11, 1998.
On July 18, 1999, the Board of Directors of the Company approved a proposal to
reduce the exercise price of the consultants options from $37.19 per share to
$6.75 per share for 112,500 shares. The market price of the Company's common
stock at the date of this action was $1.156. In addition, on this date the
Company issued 6,200 options to consultants and the additional compensation
expense recognized under SFAS 123 for these actions was $41,154.
On June 17, 1993, the Company adopted the IDM Environmental Corp. 1993 Stock
Option Plan (formerly International Dismantling & Machinery Corp. 1993 Stock
Option Plan) (the "Stock Option Plan"). Pursuant to the Stock Option Plan, the
Company has reserved 47,500 shares of common stock for issuance pursuant to the
grant of incentive stock options and nonqualified stock options.
On April 11, 1994, the Board of Directors granted options under the Company's
1993 Stock Option Plan to certain employees and a Director to purchase 44,540
and 500 shares, respectively, of the Company's common stock at $40.00 per share,
the market price of the Company's common stock at the date of grant. The options
are incentive stock options, except for the Director's stock option which is a
nonqualified stock option. The options are exercisable until April 2004. Twenty
percent of the options vest three months from the date of grant. The balance of
the options vest at a rate of twenty percent per year on each of the four
anniversary dates subsequent to the grant of the options. The option exercise
price was reduced to $20.00 per share on May 22, 1997. Holders of 20,808
outstanding options at the date of the aforementioned repricing under this grant
accepted the repricing. The balance of the outstanding options remained at
$20.00.
On June 2, 1994, the Company granted a total of 500 non qualified stock options
to two of the directors to purchase common stock at $62.50 per share, the market
price of the Company's common stock at the date of the grant. The options vest
at the same rate as the initial grant. The option exercise price was reduced to
$20.00 per share on May 22, 1997. Holders of 1,485 outstanding options at the
date of the aforementioned repricing under this grant accepted the repricing.
The balance of the outstanding options remained at $20.00.
On December 28, 1994, the Company granted options to certain employees to
purchase 2,970 shares of the Company's common stock at $43.80 per share, the
market price of the Company's common stock at the date of the grant. On August
9, 1995, the Company granted an option to a new employee to purchase 500 shares
of the Company's common stock at $52.50 per share, the market price of the
Company's common stock at the date of grant. The options vest at the same rate
as the first grant. The option exercise price was reduced to $20.00 per share on
May 22, 1997.
On January 8, 1996, the Company amended the terms of its 1993 Stock Option Plan
to add provisions allowing for the cashless exercise of options issued under the
plan and providing for the automatic vesting of all options granted under the
plan in the event of certain changes in control of the Company. Pursuant to such
cashless exercise provisions, holders of options may, as payment of the exercise
price, have the Company withhold the number of shares of common stock at the
then market price of the Company's common stock, less the exercise price, which
is equal to the aggregate exercise price of the shares of common stock issuable
upon exercise of the option. Under such provision of the accelerated vesting,
notwithstanding any vesting schedule set forth in any individual option
agreement, all options granted under the 1993 Plan will become fully vested and
exercisable in the event a person or group, other than Joel Freedman or Frank
Falco, acquire in excess of 15% of common stock of the Company unless such
acquisition is approved by the Board.
F-34
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
On January 8, 1996, the Company's Compensation Committee and Board of Directors
adopted and approved a new stock option plan for the Company, the IDM
Environmental Corp. 1995 Stock Option Plan (the "1995 Plan"), under which stock
option awards may be made to employees, directors and consultants of the
Company. The 1995 Plan became effective on the date it was adopted by the Board
of Directors and it will remain effective until the tenth anniversary of the
effective date unless terminated earlier by the Board of Directors. Pursuant to
the plan, the Company has reserved 50,000 shares of common stock for issuance
pursuant to the grant of incentive stock options and non qualified stock
options. On January 8, 1996, the Company granted options to certain employees
and consultants to purchase 6,900 shares of the Company's common stock at $29.40
per share, the market price of the Company's common stock at the date of the
grant (4,150 have vested). In addition, on January 8, 1996, the Company
approved, effective November 20, 1995, the granting of 4,000 options to purchase
common stock at $37.20 per share, the market price of the Company's common stock
at the date of the grant, to certain consultants (all options were vested). The
balance of the 6,900 options vest at a rate of twenty percent per year on each
of the four anniversary dates subsequent to the grant of the options. Also on
January 8, 1996, the Company granted 7,500 options each to Messrs., Falco and
Freedman at $32.30 per share, 110% of the market price of the Company's common
stock at the date of grant. The option exercise price was reduced to $20.00 per
share on May 22, 1997. Holders of 6,900 outstanding options at the date of the
aforementioned repricing under this grant accepted the repricing. The balance of
the outstanding options remained at $20.00.
On May 23, 1996, the Company granted vested options to the outside directors, a
consultant and an employee to purchase 5,000 shares at $82.50 per share, the
market price of the Company's common stock at the date of grant. The option
exercise price was reduced to $20.00 per share on May 22, 1997.
On June 28, 1996 the Company adopted and approved a new stock option plan (the
"1996 consulting options") under which nonqualified stock options have been
granted to a consultant for the right to acquire 5,000 shares of its common
stock at $32.30 per share. The options, which are fully vested and exercisable
through June 28, 2006, were granted pursuant to a consultant agreement. The fair
market value of these shares at the date of grant was $74.40. The difference
between the exercise price and the market price of the Company's common stock at
date of grant (the "intrinsic value") reflects the compensation for the
consulting services. The option exercise price was reduced to $20.00 per share
on May 22, 1997.
On May 22, 1997, the Company granted vested options to certain of its employees
to purchase 5,295 shares at $20.00 a share, the market price of the Company's
common stock at the date of grant. In addition, the Company agreed to reprice
all options granted on or before May 22, 1997 to the same $20.00 per share.
Holders of 3,420 outstanding options at the date of the aforementioned repricing
under this grant accepted the repricing. The balance of the outstanding options
remained at $20.00.
On June 10, 1997, the Company granted vested options to three of its outside
directors for each to purchase 500 shares at $25.312, the market price of the
Company's common stock at date of grant.
On July 23, 1997, the Company granted vested options in the amount of 500 shares
for a consultant, and 500 shares for each of three officers at $25.625, the
market price of the Company's common stock at date of grant. In addition, the
Company granted a vested option to purchase 10,000 shares each to Messrs. Falco
and Freedman at $28.1875 per share, 110% of the market price of the Company's
common stock at the date of grant. Holders of 1,500 outstanding options at the
date of the aforementioned repricing under this grant accepted the repricing.
The balance of the outstanding options remained at $25.625 and $28.1875.
F-35
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
On August 26, 1997, the Company granted a vested option to its proposed nominee
for director for 500 shares at $46.875, the market price of the Company's common
stock at the date of grant.
During 1997, 4,539 options issued under the stock option plans were exercised
resulting in net proceeds of $63,041.
During 1997 the Company issued to six consultants options to purchase 39,500
shares of the Company's common stock at exercise prices ranging from $12.50 to
$45.00. In accordance with SFAS 123 the fair value of these options were
estimated at the grant date using the Black-Scholes value option pricing model
resulting in the recording of $456,340 as compensation costs of consultants
options. During 1997 15,500 of these options were exercised resulting in net
proceeds to the Company of $235,000.
On January 8, 1998 the Company granted vested options to certain employees to
purchase 7,380 shares of the Company's common stock at $37.19 per share, the
market price of the Company's common stock at the date of grant. These options
are exercisable until January 2008. Holders of 6,520 outstanding options, at the
date of the aforementioned repricing, under this grant accepted the repricing.
The balance of the outstanding options remained at $37.19.
On January 8, 1998, the Company adopted and approved the 1998 Comprehensive
Stock Option and Award Plan (the "1998 Plan"), and reserved 100,000 shares of
its common stock for issuance under the 1998 Plan.
Under the 1998 Plan, stock options, shares of restricted stock, stock awards or
performance shares, or a combination of any such awards (collectively,
"Awards"), may be granted from time to time to Eligible Persons (hereinafter
defined), all generally in the discretion of the Committee responsible for
administering the 1998 Plan (hereinafter described). Each Award under the 1998
Plan will be evidenced by a separate written agreement which sets forth the
terms and conditions of the Award. "Eligible Persons" generally include any
employee of the Company or its subsidiaries, members of the Board of Directors
of the Company and any consultant or other person whose participation the
Committee determines is in the best interest of the Company. Grants under the
1998 Plan to non-employee directors are limited to an initial grant of
non-qualified stock options in an amount equal to 500 shares multiplied by the
number of years remaining in the term of each non-employee director commencing
with the first annual shareholders meeting following the adoption of the 1998
Plan and additional grants on like terms on each subsequent reelection of a
non-employee director. There is no maximum number of persons eligible to receive
Awards under the 1998 Plan, nor is there any limit on the amount of Awards that
may be granted to any such person, except as described below with respect to
incentive stock options. The Company intends that stock options or other grants
of Awards under the 1998 Plan to persons subject to Section 16 of the Exchange
Act will satisfy the requirements of Rule 16b-3 under the Exchange Act ("Rule
16b-3").
During 1998 the Company granted under the 1998 plan, 18,380 options to
employees.
On February 10, 1999 the Company granted additional 1998 plan options entitling
the holders to purchase 22,540 shares of the Company's common stock.
On July 18, 1999, the Board of Directors of the Company approved a proposal
increasing the number of shares issuable under the Company's 1998 Stock Option
Plan ("1998 Plan") by 1,600,000 shares, subject to stockholder approval. In
addition the Board of Directors also approved a proposal to grant 1,000,000
options under the Plans to various officers, directors and consultants and
400,000 options outside the 1998 Plan to a consultant. The consultant's stock
option was granted with an exercise price of $1.15, the market price at the date
of grant and vest upon the completion of the merger. The estimated fair market
value of $450,000 for the consultant's option is based on the Black Scholes
value option pricing model and will be recorded in 2000 as a merger expense.
F-36
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
On June 2, 1998 the Company granted options to certain officers of the Company
and one consultant to purchase 11,000 shares of the Company's common stock at
$35.00 per share, the market price of the Company's common stock at the date of
grant. The options have vesting periods as follows: (i) 1,500 of the officers
options are fully vested at the date of grant; (ii) 3,500 of the officers
options vest 50% at the date of grant with the balance vesting on the first
anniversary of the date of grant; (iii) the remaining 4,500 of the officers
options and the 1,500 consultants options vest one third at the date of grant
and one third per year on each of the two anniversary dates subsequent to the
date of grant. These options are exercisable until June 2008. Holders of 4,500
outstanding options, at the date of the aforementioned repricing, under this
grant accepted the repricing. The balance of the outstanding options remained at
$35.00.
During the year ended December 31,1998, the Company granted immediately
exercisable options to consultants to purchase 126,500 shares of common stock at
the market price of the Company's common stock at the date of the grants. During
the years ended December 31, 1998, 1997 and 1996 the Company recorded non-cash
compensation expense of $1,898,550, $456,340 and $63,094, respectively in
connection with the grants of these options.
As referred to in Note 1, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting provided for
under FASB Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company's 1993, 1995 and 1998 Stock Option and Award Plans have authorized
the granting of options to key employees, management personnel, Company
Directors and consultants for up to 197,500 shares of the Company's common
stock. Options granted pursuant to the 1993 and 1995 plans have terms between 5
and 10 years and become fully exercisable ranging from 0 to 4 years of continued
employment. The 1998 Plan grants have terms of 5 and 10 years and become fully
exercisable ranging from 0 to 2 years and are granted at no less than the fair
market value of the Company's common stock at the grant date.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for the
employee stock options under the fair value method of that statement. The fair
value for these options was estimated on the date of grant for options granted
during 1999, 1998 and 1997 using the Black-Scholes option pricing model with the
following weighted average assumptions for 1999, 1998 and 1997, respectively,
with ranges as follows:
<TABLE>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Risk-Free interest 5.47% 4.15 - 5.55% 5.65%
Dividend yields 0% 0% 0%
Volatility factors of the expected market price
of the Company's Common Stock 115 - 122% 92 - 105% 92%
Expected life of options .7 - 10 years 3 - 10 years 1 - 5 years
</TABLE>
F-37
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options. In management's opinion
existing stock option valuation models do not provide a reliable single measure
of the fair value of employee stock options that have vesting provisions and are
not transferable. ( In addition, option pricing models require the input of
highly subjective assumptions, including expected stock price volatility).
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. In accordance with
SFAS 123, only stock options granted during the years ended December 31, 1999,
1998 and 1997 have been included for the Company's pro forma information as
follows:
<TABLE>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Pro forma net loss on common stock $(8,355,006) $(40,901,556) $(11,885,575)
Pro forma loss per share:
Basic $(2.58) $(20.58) $(10.60)
Diluted $(2.58) $(20.58) $(10.60)
</TABLE>
An additional $1,192,850, $14,459,500 and $661,152 of compensation expense (net
of tax effect) would be recognized under implementation of SFAS 123.
F-38
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
A summary of changes in common stock options under the 1993 plan during 1999,
1998 and 1997 is as follows:
<TABLE>
Weighted
Number Price per Average
of Shares Share Exercise Price
------------ ----------- ----------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 37,065 $20.00 $20.00
Granted during 1997 9,295 $20.00 - $46.90 $20.80
Canceled during 1997 (2,017) $20.00 $20.00
Exercised during 1997 (3,876) $20.00 $20.00
---------
Outstanding at December 31, 1997 40,467 $20.00 - $46.90 $20.00
Granted during 1998 - $ - $ -
Canceled during 1998 (37) $20.00 $20.00
Exercised during 1998 (321) $20.00 $20.00
---------
Outstanding at December 31, 1998 40,109 $6.75 - $46.90 $ 9.30
Granted during 1999 10,775 $1.16 $ 1.16
Canceled during 1999 (9,791) $6.75 $ 6.75
Exercised during 1999 (10,536) $1.16 - $6.75 $ 2.50
----------
Outstanding at December 31, 1999 30,557 $1.16 -$ 6.75 $ 6.24
==========
Options exercisable at December 31, 1999 30,557 $1.16 - $46.90 $ 6.24
==========
Available for Future Grant 119
==========
</TABLE>
At December 31, 1999 the remaining outstanding shares weighted average
contractual life was 5.41.
F-39
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
A summary of changes in common stock options under the 1995 plan which occurred
during 1999, 1998 and 1997 is as follows:
<TABLE>
Weighted
Number Price per Average
of Shares Share Exercise Price
------------ --------- ----------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 27,900 $20.00 $ 20.00
Granted during 1997 20,000 $28.19 $ 28.19
Exercised during 1997 (663) $20.00 $ 20.00
Canceled during 1997 (337) $20.00 $ 20.00
---------
Outstanding at December 31, 1997 46,900 $6.75 - $28.19 $ 21.50
Granted during 1998 - $ - $ -
Exercised during 1998 - $ - $ -
Canceled during 1998 - $ - $ -
---------
Outstanding at December 31, 1998 46,900 $6.75 - $28.19 $21.50
Granted during 1999 3,850 $1.16 $ 1.16
Exercised during 1999 (3,950) $1.16 -$ 6.75 $ 1.30
Canceled during 1999 (3,750) $6.75 $ 6.75
--------
Outstanding at December 31, 1999 43,050 $1.16 - $28.19 $ 17.94
========
Options Exercisable at December 31, 1999 43,050 $1.16 - $28.19 $ 17.94
========
Available for future grants 282
========
</TABLE>
At December 31, 1999 the remaining outstanding shares weighted average
contractual life was 2.71.
F-40
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
A summary of changes in common stock options under the 1998 plan which occurred
during 1999 and 1998 is as follows:
<TABLE>
Weighted
Number Price per Average
of Shares Share Exercise Price
------------ ----------- -------------------
<S> <C> <C> <C>
Outstanding, January 1, 1998 - $ - $ -
Granted during 1998 18,380 $6.75 - $37.20 $18.20
Exercised during 1998 - $ - $ -
Canceled during 1998 (40) $37.20 $37.20
----------
Outstanding at December 31, 1998 18,340 $6.75 - $37.20 $18.10
Granted during 1999 1,007,915 $1.16 - $6.75 $1.28
Exercised during 1999 (52,990) $1.16 - $6.75 $1.34
Canceled during 1999 16,600) $6.75 $6.75
----------
Outstanding at December 31, 1999 956,665 $1.16 - $35.00 $1.48
==========
Options Exercisable at December 31, 1999 955,180 $1.16 - $35.00 $1.43
==========
Available for future grants 690,345
==========
</TABLE>
At December 31, 1999 the remaining outstanding shares weighted average
contractual life was 9.44.
F-41
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
A summary of changes in common stock options issued to the consultant for
services rendered is as follows:
<TABLE>
Weighted
Number Price per Average
of Shares Share Exercise Price
----------- --------- ----------------
<S> <C> <C> <C>
Outstanding, January 1, 1997 5,000 $32.30 $32.30
Granted during 1997 59,500 $12.50 - $45.00 $26.05
Exercised during 1997 - $ - $ -
Canceled during 1997 - $ - $ -
---------
Outstanding, December 31, 1997 64,500 $12.50 - $45.00 $26.53
Granted during 1998 132,000 $37.19 - $48.13 $38.18
Exercised during 1998 (15,500) $12.50 - $32.00 $19.13
Canceled during 1998 - $ - $ -
---------
Outstanding, December 31, 1998 181,000 $37.19 - $48.13 $35.66
Granted during 1999 112,500 $6.75 $6.75
Exercised during 1999 (112,500) $6.75 $6.75
Canceled during 1999 (124,000) $30.00 - $37.19 $36.52
---------
Outstanding, December 31, 1999 57,000 $6.75 - $48.13 $33.93
=========
Options Exercisable at December 31, 1999 57,000 $6.75 - $48.13 $33.93
=========
</TABLE>
At December 31, 1999 the remaining outstanding shares weighted average
contractual life was 1.63.
F-42
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCKHOLDERS' EQUITY (Continued)
Common Stock Purchase Warrants and Options (Continued)
- ------------------------------------------
The weighted average fair value of options granted during the years ended
December 31, 1999, 1998 and 1997 for the 1993, 1995 and 1998 plan, and the
various consulting options were as follows:
1999 1998 1997
---- ---- ----
Stock Prices Equal to Exercise Price 1.11 2.56 1.29
Stock Prices in Excess of Exercise Price - - 2.53
Stock Prices Less than Exercise Price 0.72 0.79 0.78
Shareholder's Rights Plan
- -------------------------
On April 1, 1996, the Board of Directors adopted and approved a "Shareholder
Rights Plan" in order to preserve for stockholders the long-term value of the
Company in the event of a take-over. To put the Plan into effect, the Board
declared a dividend of one Right for each share of common stock outstanding to
stockholders of record at the close of business on April 1, 1996. Each right
represents the right to purchase one one-hundredth of a share of a new series of
preferred stock without voting rights par value $1.00 per share. The exercise
price for each right is $20.00. Each right expires December 31, 2005.
The rights are not exercisable and are not transferable apart from the Company's
common stock until the tenth day after such time as a person or group acquires
beneficial ownership of 15% or more of the Company's common stock or the tenth
business day (or such later time as the board of directors may determine) after
a person or group announces its intention to commence or commences a tender or
exchange offer the consummation of which would result in beneficial ownership by
a person or group of 15% or more of the Company's common stock. As soon as
practicable after the rights become exercisable, separate right certificates
would be issued and the rights would become transferable apart from the
Company's common stock. In the event a person or group were to acquire a 15% or
greater position in the Company, each right then outstanding would "flip in" and
become a right to receive that number of shares of common stock of the Company
which at the time of the 15% acquisition had a market value of two times the
exercise price of the rights. The acquirer who triggered the rights would become
excluded from the "flip-in" because his rights would become null and void upon
his triggering the acquisition. The rights are redeemable by the Company's Board
of Directors at a price of $.01 per right at any time prior to the acquisition
by a person or group of beneficial ownership of 15% or more of the Company's
common stock. The redemption of the rights may be effective at such time, on
such basis, and with such conditions as the board of directors in its sole
discretion may establish. Thus, the rights would not interfere with a negotiated
merger or a white knight transaction, even after a hostile tender offer has been
commenced.
F-43
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. EARNINGS PER SHARE
For the years reported in within these consolidated financial statements
weighted average shares for basic and dilutive computations are the same due to
losses reported for each of the years.
Options and warrants to purchase 1,311,547, 804,350 and 661,367 shares of common
stock at exercise prices ranging from $2.72 to $48.13 per share were outstanding
during the years ended December 31, 1999, 1998 and 1997, respectively, and were
not included in the computation of diluted earnings per share in accordance with
SFAS 128, as the potential shares are considered anti-dilutive due to the
Company's losses from continuing operations.
17. MERGER WITH FUSION NETWORKS HOLDING, INC.
On August 18, 1999 the Company entered into a non-binding merger agreement that
provides for the formation of a holding company known as FNH by the Company and
the merger of Fusion, a Florida based privately held corporation. As a result
both the Company and Fusion will become wholly owned subsidiaries of FNH. The
stockholders of Fusion will receive one share of common stock of FNH for each
share of Fusion's common stock held and the stockholders of the Company will
receive one share of FNH for each share of the Company's common stock held,
resulting in the current stockholders of Fusion owning approximately 90% of FNH
common stock.
Fusion is a newly formed company, based in Miami, Florida, which is in the
process of building a portal-type web site with an initial emphasis on Latin
America and the Hispanic market in the United States. Fusion launched its
initial site, on a pilot basis, in Bogota, Colombia, in October, 1999 followed
by a formal launch of the site in Bogota and in Miami with additional site
launches planned in Latin America, the United States, Spain and Portugal during
2000.
The proposed reorganization was approved by the shareholders of the Company and
Fusion in March 2000 and the reorganization is expected to be completed in
April, 2000. As a result of the reorganization, the Company and Fusion will
become wholly-owned subsidiaries of FNH. The Company and Fusion Networks both
plan to continue their historical operations for the foreseeable future.
The following unaudited pro forma condensed financial information presents the
combined results of operations of the Company and Fusion, including the
amortization of goodwill, as if the merger had occurred at the beginning of
1999.
Pro forma revenues $ 13,581,298
============
Pro forma net loss $(29,556,570)
============
Pro forma net loss on common stock $(29,567,859)
============
Pro forma basic and diluted net loss per share $ (0.80)
============
Number of shares used in basic and diluted
Pro forma share calculation 36,882,345
============
The pro forma results of operations are not necessarily indicative of the
results that would have occurred had the merger occurred at the beginning of
1999, and are not intended to be indicative of future results of operations.
F-44
<PAGE>
IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. SUBSEQUENT EVENTS
During the first quarter of 2000 the Company issued an additional 149,452 shares
of its common stock, 22,095 resulting from the exercise of stock options and
warrants, and 127,357 issued in connection with the settlement of accounts
payable obligations amounting to $1,585,303.
F-45
CONSENT OF SAMUEL KLEIN AND COMPANY
We consent to the incorporation by reference in Registration Statement Nos.
33-92972, 333-04703 and 333-087049 of IDM Environmental Corp. on Form S-8 and in
Registration Statement No. 333-66841 on Form S-3 of our report dated April 3,
2000 appearing in this Annual Report on Form 10-K of IDM Environmental Corp. for
the year ended December 31, 1999.
/s/ Samuel Klein and Company
SAMUEL KLEIN AND COMPANY
Newark, New Jersey
April 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 511,552
<SECURITIES> 0
<RECEIVABLES> 5,048,531
<ALLOWANCES> 500,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,835,115
<PP&E> 6,796,204
<DEPRECIATION> 4,892,883
<TOTAL-ASSETS> 12,550,752
<CURRENT-LIABILITIES> 9,996,740
<BONDS> 0
0
0
<COMMON> 37,689
<OTHER-SE> 2,499,459
<TOTAL-LIABILITY-AND-EQUITY> 12,550,752
<SALES> 13,581,298
<TOTAL-REVENUES> 13,581,298
<CGS> 13,366,165
<TOTAL-COSTS> 13,948,682
<OTHER-EXPENSES> 7,671,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,519
<INCOME-PRETAX> (8,350,867)
<INCOME-TAX> (1,200,000)
<INCOME-CONTINUING> (7,150,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,150,867)
<EPS-BASIC> (2.21)
<EPS-DILUTED> (2.21)
</TABLE>
