SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 31, 1996
____ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NO.: 33-76200
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ERD WASTE CORP.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 13-3121813
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
937 E. Hazelwood Ave., Building 2, Rahway, New Jersey 07065
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number: (908) 381-9226
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Classes on Which Registered
Common Stock, $.001 par value NASDAQ - NMS
Securities registered under Section 12(g) of the Exchange Act: NONE
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form 10-KSB, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $15,216,098
As of May 1, 1996 Registrant had 5,832,782 shares of Common Stock
outstanding ($.001 par value). On that date, the aggregate market value of the
Common Stock held by persons other than those who may be deemed affiliates of
Registrant was $27,710,776 (based on the average of the reported high and low
sales prices on NASDAQ on such date).
Transitional Small Business Disclosure Format (check one):
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of Registrant's
Prospectus dated May 17, 1996, filed as part of its Registration Statement on
Form SB-2 (Registration No. 33-76200), are incorporated by reference into Part
III of this report.
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ITEM 1 BUSINESS
(a) BUSINESS DEVELOPMENT.
ERD Waste Corp. (the "Company") has been engaged in business as
a diversified waste management company specializing in the management and
disposal of municipal solid waste, non-hazardous industrial and commercial solid
waste, and hazardous waste. The Company incinerates municipal solid waste and
non-hazardous industrial and commercial solid waste, utilizes the steam produced
thereby to cogenerate electricity, and provides brokerage, advisory, consulting,
and technical services to generators of waste. In addition to its waste
incineration operations, the Company operates a transfer station located in East
Chicago, Indiana, for the packaging and transfer of non-hazardous waste. The
Company also operates a manufacturing facility in Bedford Park, Illinois, which
manufactures absorbent materials for commercial and industrial waste control.
Background
The Company was formed in May 1992 and initially provided
brokerage, consolidation, and other services to generators, transporters, and
brokers of non-hazardous industrial and commercial solid waste. At such time the
Company's ability to provide such services was dependent primarily upon the
Company's ability to arrange for the incineration of waste at a facility located
in Long Beach, New York (the "Facility") pursuant to a long-term contract with
Long Beach Recycling and Recovery Corp. ("LBRR"), which was then owned by third
parties unaffiliated with the Company. In February 1993, present management
assumed control of the Company and proceeded to reduce overhead, increase
marketing efforts, and develop a working relationship with the New York
Department of Environmental Conservation ("NYDEC"), which is primarily
responsible for the regulation of waste and incineration companies.
1995 Initial Public Offering
In May, 1995, the Company consummated an initial public offering
of its common stock (the "IPO"). The net proceeds to the Company of the offering
was approximately $11,000,000.
Acquisitions
On April 1, 1994, the Company acquired Environmental Controls
Technology, Inc., an Illinois corporation ("ECT"), and changed ECT's name to
Environmental Resources and Disposal of Illinois, Inc. ("ERDI")). On July 1,
1994, the Company assumed the management of the Facility pursuant to a
management agreement with LBRR and in August 1994 the Company acquired the
Facility through the acquisition of the capital stock of C&J Enterprises, Inc.
("C&J"), the parent of LBRR. Since the consummation of the C&J Acquisition, the
Company made substantial repairs and upgrades to the Facility. Shortly after the
consummation of the IPO, $7,000,000 of the proceeds were used to purchase,
through the Company's wholly owned subsidiary, Environmental Waste Incineration,
Inc. ("EWII"), $12,335,000 of Industrial Revenue Bonds (the "Bonds") issued by
the Nassau County Industrial Development Agency in favor of LBRR. All of LBRR's
assets were pledged as collateral security for the payment of the Bonds. As the
purchaser of the Bonds, EWII acquired a security interest in all of LBRR's
assets. In August, 1995, all of the assets of LBRR were transferred to EWII
pursuant to a non-judicial foreclosure. EWII accepted the transfer of those
assets pursuant to the foreclosure in lieu of payment on the Bonds and
extinguished LBRR's obligation on the Bonds, which was in excess of $12,335,000.
LBRR no longer has any assets and does no business. Since the foreclosure, all
the operations at the Facility have been conducted by EWII.
In October, 1995 the Company, through its subsidiary Absorbent
Manufacturing & Technology, Inc. ("AMTI"), purchased substantially all of the
assets of Environmental Absorbent Technologies, Inc. ("EATI"), an absorbent
materials manufacturer, in consideration of an aggregate of 45,282 shares of the
Company's Common Stock, the assumption of certain of EATI's accounts payable,
the assumption of EATI's payroll expenses and taxes of EATI's
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employees up to $18,000 and up to an additional 6,250 shares of the Company's
Common Stock based on the earnings of the Company in 1997, 1998 and 1999.
Current Operations
Currently, the Company, through EWII, owns and operates a 200
ton per day rated capacity incineration and cogeneration facility located in
Long Beach, New York (the "Facility"), at which the Company incinerates
municipal solid waste and non-hazardous industrial and commercial solid waste.
The Company incinerates substantially all of the municipal solid waste of the
City of Long Beach, New York under a contract which expires in 2007. In
addition, the Facility incinerates waste from other municipal and private waste
generators located in the State of New York, 15 other states in the eastern and
midwestern United States, and Canada. Since the Facility's operating permits do
not restrict the geographic origin of this waste, the Company has entered a
niche market in which certain types of industrial and commercial solid waste
deemed non-hazardous under the laws of the State of New York, are transported
from locations outside of New York State to the Facility, where they are
consolidated, and incinerated in accordance with applicable state regulatory
guidelines. The Company utilizes steam produced in the incineration process to
generate electricity which is sold to the Long Island Lighting Company
("LILCO"), the local electric utility.
The Company, together with its subsidiary, ERDI, provides
brokerage, advisory, consulting, and technical services to generators of
non-hazardous industrial and commercial solid waste and hazardous waste. The
focus of the Company's service business is to provide cost-effective waste
management solutions to its clients by (i) training clients to implement
non-hazardous and hazardous waste preparation techniques designed to lower waste
disposal costs, (ii) utilizing the Company's proprietary computer database to
determine the optimal hazardous waste disposal solution, and (iii) coordinating
all aspects of the removal and disposal of the client's waste and arranging with
one or more qualified waste transporters for delivery from the point of
generation, through other jurisdictions, if necessary, to the Facility for
incineration or to other facilities for incineration, recycling, or other
disposal.
Since October, 1995, the Company has been operating the AMTI
business of manufacturing absorbent materials for commercial and industrial use
in connection with waste cleanup. The Company also, in October 1995, began
operating a waste transfer station in East Chicago, Indiana. The waste transfer
station receives non-hazardous waste, consolidates the materials and sends it to
more permanent disposal sites.
RECENT DEVELOPMENTS
Acquisition of Environmental Services of America, Inc.
In January, 1996, the Company and its newly formed subsidiary,
ENSA Acquisition Corp ("EAC") entered into an agreement and plan of merger (the
"Original Merger Agreement") whereby EAC would be merged with and into
Environmental Services of America, Inc. ("ENSA"), a diversified environmental
services company specializing in the identification, management, treatment,
transportation and disposal of hazardous and non-hazardous waste, remediation of
hazardous waste sites, air quality testing and monitoring services and
equipment, and consulting and technical support services related to all of the
foregoing. In April, 1996, the Original Merger Agreement was amended and
restated in its entirety and is discussed below, as amended and restated.
Simultaneously with the execution of the Original Merger
Agreement and in contemplation of the acquisition of ENSA by the Company, the
Company executed a securities purchase agreement (the "Securities Purchase
Agreement") providing for the loan by the Company to ENSA of $500,000 for
working capital purposes (the "Bridge Loan"). The Securities Purchase Agreement
also provided for the issuance to the Company of 500,000 shares of common stock
of ENSA ("ENSA Common Stock"), which were placed in escrow pending repayment of
amounts due under the Bridge Loan or the consummation of the acquisition of
ENSA.
In April, 1996, the Company, EAC and ENSA amended the Original
Merger Agreement pursuant to an Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement"). In order to facilitate the
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acquisition of ENSA and pursuant to the terms of the Merger Agreement, the
Company and EAC launched a tender offer (the "Offer") on April 4, 1996 for the
purchase of ENSA Common Stock at a purchase price of $1.66 per share. On May 1,
1996, after receiving tenders of in excess of 90% of the issued and outstanding
shares of ENSA Common Stock, the Company successfully closed the Offer and on
May 6, 1996 the Company purchased those shares at an aggregate purchase price of
$5,865,967. Simultaneously with its entry into the Merger Agreement, the Company
entered into a stock purchase agreement (the "Stock Purchase Agreement") with
the holders of more than 90% of each class of preferred stock of ENSA (the "ENSA
Preferred Stock"). The Company closed the Stock Purchase Agreement on May 6,
1996. The aggregate purchase price for the shares of ENSA Preferred Stock
purchased pursuant to the Stock Purchase Agreement was $1,253,614. The Company
contemplates the completion of the merger of EAC into ENSA in the near future,
which merger would make ENSA a wholly owned subsidiary of the Company.
Acquisition Financing
In order to partially finance the purchase of the ENSA Common
Stock and ENSA Preferred Stock, in April, 1996, the Company obtained a $7.5
revolving credit facility (the "Revolving Facility") from Chemical Bank (the
"Bank") pursuant to a loan agreement (the "Loan Agreement"), dated March 29,
1996. The Loan Agreement provides, among other things, for the payment by the
Company of a commitment fee, payable monthly, computed at the rate of one
quarter of one percent (1/4%) per annum (computed on the actual number of days
elapsed over 360 days) on the average daily unused amount of the Bank's $7.5
million commitment. Revolving loans in respect of the Revolving Facility
("Revolving Loans") shall be, at the Company's request, either (i) Alternate
Base Rate Loans (as defined) which bear interest calculated at the Alternate
Base Rate (as defined) plus one half of one percent (1/2%) or (ii) Eurodollar
Loans (as defined) which bear interest calculated at the adjusted LIBOR Rate (as
defined) plus three and one half percent (3 1/2%)(or a combination thereof).
The Loan Agreement provides for the granting by the Company and
each of EAC, LBRR, C&J, EWII, ERDI, AMTI, ERD Waste Corp. (Indiana) and ERD
Management Corp. (collectively, the "Subsidiaries") of a first priority security
interest in all of the Company's and the Subsidiaries' present and future
accounts, contract rights, chattel paper, general intangibles, instruments and
documents then owned or thereafter acquired, and in all machinery and equipment
acquired by the Company and the Subsidiaries after the date of the Loan
Agreement.
Subject to the terms of the Loan Agreement, the Revolving
Facility will be available until April 1, 1998 (the "Conversion Date"), at which
time, all outstanding principal and accrued interest under the Revolving
Facility shall be due and payable. At that time, the Company may, upon request,
be granted a term loan (the "Term Loan") in an amount equal to the lesser of the
Bank's Commitment (as defined) or the aggregate principal amount of Revolving
Loans then outstanding. The maturity date of the Term Loan is the third
anniversary date of the Conversion Date. The proceeds of the Term Loan are to be
used by ERD exclusively to satisfy obligations to the Bank under any Revolving
Loans existing at the Conversion Date.
The Loan Agreement contains traditional and customary
representations, warranties, events of default and indemnification provisions
and traditional and customary conditions to the making advances under the
Revolving Facility.
It is anticipated that the indebtedness incurred by the Company
under the Loan Agreement will be repaid from funds generated internally by the
Company and its subsidiaries and from other sources. No final decisions have
been made concerning the method the Company will employ to repay such
indebtedness. Such decisions will be based on the Company's review from time to
time of the advisability of particular actions, as well as on prevailing
interest rates and financial and other economic conditions.
The foregoing summary of the Loan Agreement is qualified in its
entirety by reference to the text of the Loan Agreement, which is filed as an
exhibit to the Company's report on Form 8-K, filed on April 17, 1996, which is
incorporated herein by reference.
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(b) BUSINESS OF ISSUER
Industry Background
The waste disposal market has two basic segments: municipal
waste, generated primarily by residences, institutions and non-industrial
commercial business activity, and industrial waste. The industrial waste segment
is further divided into hazardous and non-hazardous waste. These terms are
defined by various federal, state, county, and municipal environmental laws and
the regulations issued by the agencies in response to technological advances and
increased concerns over environmental issues. The proper management and disposal
of waste has become a major issue of national public concern in recent years.
Over the last several years, relatively few new disposal facilities have been
opened, because, among other things, of substantial capital requirements,
increased federal, state, county and municipal regulatory requirements,
increased governmental monitoring, requirements of financial assurance from
owners of waste treatment facilities and other barriers to entering the waste
disposal business. See Item 1(b) "Competition" and "Environmental Regulation."
General
The Company incinerates municipal solid waste and non-hazardous
industrial and commercial solid waste, utilizes the steam produced thereby to
cogenerate electricity, and provides brokerage, advisory, consulting, and
technical services to generators of waste. In addition to its waste incineration
and electricity cogeneration operations, the Company owns and operates a
transfer station located in East Chicago, Indiana, for the packaging and
transfer of non-hazardous waste. The Company also operates a manufacturing
facility in Bedford Park, Illinois, which manufactures absorbent materials for
commercial and industrial use in connection with waste cleanup.
For the fiscal year ended January 31, 1996 ("fiscal 1996"),
incineration services constituted approximately 53.27% of the Company's sales,
cogeneration of electricity constituted approximately 5.03% of such sales,
consulting services and brokerage of waste constituted approximately 30.17% of
such sales, transfer facility services accounted for 2.76% of such sales and
absorbent materials manufacturing for 8.76% of such sales.
Incineration Services
The Company, through EWII, owns and operates the Facility on an
approximately 1.5 acre site leased from, and located in, the City of Long Beach,
New York. See Item 2 -- "Description of Property." The most common types of
non-hazardous industrial and commercial solid waste delivered to the Facility
are oil-related products, pharmaceutical, cosmetics, non-leaded paints, and ink
debris. Waste is delivered to the Facility by the Company's customers by truck,
emptied into a storage pit and later incinerated in a furnace. The resulting ash
residue is removed for further processing or disposal.
Of the Facility's 200 ton per day rated capacity, approximately
80 tons per day is currently committed to the City of Long Beach, New York,
pursuant to a solid waste disposal agreement between LBRR and the City of Long
Beach (the "Long Beach Agreement"). The Long Beach Agreement provides that the
City of Long Beach is required to provide the Facility with municipal solid
waste and non-hazardous industrial and commercial solid waste to be processed at
the Facility up to the 200 ton per day capacity of the Facility in exchange for
fees ("Tipping Fees"). This Agreement expires on March 16, 2008. Pursuant to the
Long Beach Agreement, the City of Long Beach pays to the Company (i) monthly
Tipping Fees in the amount of approximately $167,000 (the "Base Amount") and
(ii) annually an amount equal to the product of (A) the then current Tipping Fee
per ton and (B) the number of tons of municipal solid waste in excess of 22,000
tons delivered by the City of Long Beach to the Facility during the prior 12
month period. The remaining approximately 120 tons per day of capacity is
available for other municipal, commercial, or industrial waste. The Company
estimates that, on average during the period from July 1, 1994 to January 31,
1996, 165 tons of 200 ton capacity was utilized daily. During such period, of
165 tons of rated capacity utilized daily, the Company estimates that, on
average, approximately 91% of such capacity was utilized to incinerate municipal
solid waste and approximately 9% of such capacity was utilized to incinerate
non-hazardous industrial and commercial solid
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waste. Because incineration of non-hazardous industrial and commercial solid
waste commands significantly higher fees than the incineration of municipal
solid waste, the Company is endeavoring to maximize the amount of the Facility's
available capacity devoted to the incineration of non-hazardous industrial and
commercial solid waste, subject to applicable regulations and regulatory
approvals.
As the daily volume of non-hazardous industrial and commercial
solid waste incinerated by the Facility increases, the Company will be required
to ensure that the emissions created do not exceed air pollution limitations
imposed by environmental authorities. See Item 1(b) -- "Environmental
Regulation." A stack test, which measures air emissions, is required to be taken
at the Facility annually. No precise estimate can be given by the Company as to
the maximum daily volume of non-hazardous industrial and commercial solid waste
that can be incinerated by the Facility without affecting air pollution levels.
If the Facility is unable to incinerate the industrial and commercial
non-hazardous solid waste delivered by the Company's clients because of the
effects of any additional incineration on air pollution levels or otherwise, the
Company believes that it can make other satisfactory arrangements for the
permanent disposal of such material. The Company has arrangements with two
operators of facilities pursuant to which the Company may deliver 1,600 tons per
day and 3,500 tons per day, respectively, of industrial non-hazardous and
commercial nonhazardous waste at fixed prices.
Cogeneration of Electricity
A by-product of the incineration of waste at the Facility is the
generation of electricity. The Company sells this electricity, net of in-plant
usage, to LILCO pursuant to a 20-year agreement expiring on September 25, 2007.
Pursuant to such agreement and subject to certain limitations, LILCO is required
to purchase such electricity at prices established from time to time and on file
with the State of New York Public Service Commission and the Company is required
to pay certain expenses of LILCO incurred in installing, operating, maintaining,
replacing, and repairing the facilities interconnecting its system with the
Facility. The maximum power which the Facility can cogenerate is limited by the
design rating of its turbine generator of 3.8 megawatts.
During periods when LILCO is unable to purchase all or a portion
of the Company's available energy, the Company has the right to sell its energy
to third party users outside of LILCO's service territory, provided that
transmission capacity is available and that transmission service has been
arranged. Notwithstanding the foregoing, LILCO is not obligated to transmit
energy from the Company to third party users. To date, LILCO has purchased all
of the available electricity generated by the Company.
Consulting Services and Brokerage of Waste
The Company, together with ERDI, provides brokerage, advisory,
consulting, and technical services to generators of non-hazardous industrial and
commercial solid waste and hazardous waste. The focus of the Company's service
business is to provide cost-effective waste management solutions to its clients
by (i) training clients to implement non-hazardous and hazardous waste
preparation techniques designed to lower waste disposal costs, (ii) utilizing
the Company's proprietary computer database to determine the optimal hazardous
waste disposal solution, and (iii) coordinating all aspects of the preparation,
removal, and disposal of the client's waste and arranging with one or more
qualified waste transporters for delivery from the point of generation, through
other jurisdictions, if necessary, to the Facility for incineration or to other
facilities for incineration, recycling, or other disposal. With respect to
nonhazardous industrial and commercial solid waste delivered to the Facility,
the Company reviews with its customers all the paperwork required by, and
processes such documentation at, the local office of the NYDEC.
The Company's proprietary computer database contains profiles of
the hazardous waste of each customer, the location of such waste, licensed
transporters, and the authorized recycling and incineration facilities best
suited for the specific waste products in question. The Company believes that
this database provides it and its clients with increased flexibility in
determining the optimal hazardous waste disposal solution.
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Of the hazardous waste managed by ERDI, approximately 15% is in
liquid form and is blended by authorized third party owned and operated
facilities with other liquids and chemicals to formulate a substitute for
natural gas. The remaining approximately 85% of the hazardous waste is in solid
form and is blended by third party fuel blenders with other solid matter and
chemicals to form a material which can replace coal. At times, solid form
hazardous waste is recycled in other ways at authorized third party owned and
operated facilities, or totally incinerated. The recycling facilities must meet
strict operating guidelines of the Environmental Protection Agency ("EPA").
Absorbent Materials
The Company, through its subsidiary AMTI, manufactures and
distributes products designed for the absorption and containment of commercial
and industrial liquid waste. These products include booms, socks, pads and bilge
balls. Examples of the use of these products include the containment of chemical
spills and the clean up of oil and chemicals in connection with automobiles,
boats and manufacturing operations. After the absorbent products are used, the
Company offers disposal services for the removal of the waste and the used
absorbent products.
Transfer Station
The Company's transfer facility is used to collect waste at a
single location and "bulks" the collected waste. Bulking is essentially the
combination of the contents of smaller waste containers into a larger container.
Once waste is sufficiently bulked, it is transferred to the Company's
incineration facility or other facilities for the final disposal.
Customers
The Company's primary customers are the City of Long Beach, New
York, manufacturing concerns, and waste brokers who manage and arrange for the
disposal and recycling of waste. Rates charged by the Company vary according to
the quantity of the waste, the nature thereof, the method of shipment of the
waste, and the payment history of the client and are negotiated and proprietary.
Usually there is no distinction between the rates charged to industrial and
commercial waste generators and waste brokers.
The Company deals with approximately 40 independent waste
brokers who represent over 500 industrial concerns with operations located in 23
states (including New York) and Canada. During fiscal 1996, the City of Long
Beach represented approximately 19% of the Company's total revenues. Pursuant to
its agreement with the Company, the City of Long Beach is obligated to dispose
of all of its municipal solid waste at the Facility until the year 2007. Other
than the City of Long Beach, for the fiscal year ended January 31, 1995 ("fiscal
1995") and for fiscal 1996, no one customer of the Company accounted for more
than 5% of the Company's revenues.
Competition
The waste management and disposal industry is highly competitive
and requires substantial capital. The Company competes with, and will compete
with, numerous waste brokers, national waste management companies, and local and
regional companies, many of which have significantly larger operations and
greater financial, marketing, human, and other resources than the Company. The
Company also competes with counties and municipalities that maintain their own
recycling and disposal operations. Such counties and municipalities have
material financial advantages over commercial waste management companies,
including the Company, as a result of the availability of tax revenues and tax
exempt financing. In addition, the Company plans to expand into new geographic
markets. No assurance can be given that the Company will successfully compete in
any market in which it conducts or may conduct operations.
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The Company believes that it is able to compete effectively by
reason of the following: (i) price; (ii) ownership of the Facility; (iii)
absence of a geographic limitation in its solid waste permit; and (iv) ability
to serve the needs of both small and large waste generators. The industry is
characterized by significant barriers to entry, including federal, state, county
and municipal regulatory and permitting requirements, increased governmental
monitoring and requirements of financial assurance from owners of waste
treatment facilities.
Environmental Regulation
Beginning in October 1993, specific regulations enacted by the
EPA under Subtitle D of the Resource Conservation and Recovery Act of 1976
("RCRA") became effective. Such regulations regulate the handling,
transportation, and disposal of waste and mandate that the states develop their
own programs to ensure the safe disposal of solid waste. Accordingly,
substantial new requirements have been imposed regulating the location, design,
and operation of landfills. Many landfill operations will be required to upgrade
their facilities or close if they cannot comply with the new regulations. Those
landfill operations which meet the new regulations may also be required to incur
additional costs which will make their use less economical.
Furthermore, those manufacturers that generate and dispose of
waste have found that disposing of such material in landfills will not terminate
their responsibility or potential future liability. Under existing environmental
laws, particularly CERCLA, strict joint and several liability is imposed on
generators, transporters, and those who arrange the disposal of wastes
containing hazardous substances as well as the present owners and operators of
facilities where the wastes were disposed of and the past owners and operators
of facilities where the waste was disposed of, if the facility to which the
waste was delivered becomes a source of a release of hazardous substances into
the environment. This liability remains whether or not the waste was deemed
hazardous or non-hazardous at the time it was dumped in the landfill.
Over 700 substances are defined as "hazardous" under CERCLA and
their presence at a facility from which there has been a release of hazardous
substances to the environment can result in substantial liability to the
generators of such waste material, regardless of the amount delivered. Under
CERCLA, "hazardous substances" include many waste materials not regulated as
hazardous waste under various other federal, state, county or municipal laws,
including some "non-hazardous" waste under New York State law and RCRA, which
the Company's customers presently deliver for incineration at the Facility.
Responsibility and potential liability under CERCLA applies to
the Company, each of its Subsidiaries, their customers, and any others who deal
with industrial and commercial waste. Although the Facility issues certificates
of destruction when the solid waste is incinerated and the residual ashes
disposed of, there can be no assurance that this method will eliminate potential
future responsibility and liability of those who generate and deal with waste
for the residual effects of such material. Furthermore, liability under CERCLA
is not eliminated by virtue of the fact that the waste is defined as "hazardous"
or "non-hazardous" under other present or future federal, state, county, or
municipal environmental regulations. The Company's present or future activities
could result in substantial liabilities under CERCLA or under other federal,
state, county, or municipal laws. The imposition of any such liabilities would
have a material adverse affect on the business and financial condition of the
Company.
In addition to CERCLA, the Facility is also subject to numerous
other federal, state, county, and municipal environmental laws covering its
incineration and other operations. Strict maintenance and rehabilitation
standards are applicable to the Facility's physical plant, as well as its
incineration operations. Such laws include the federal Water Pollution
Prevention Control Act, which prohibits the release of pollution into waterways,
the Resource Conservation and Recovery Act of 1976, as amended, which establish
a strict and comprehensive "cradle-to-grave" regulatory program applicable to
solid and liquid hazardous waste, and the Federal Toxic Substances Control Act,
which governs the use and storage of certain materials. Another such law is the
federal Clean Air Act (the "CAA"), which provides for evolving federal, state,
and municipal regulation of the emission of air pollutants. The CAA is intended
to control outdoor air pollution through the regulation of industrial emissions.
Due to the nature of the incineration industry, the Company will be subject to
strict regulations governing air pollution limitations. The imposition of such
limitations could have a material adverse effect on the Company's operations.
Emissions from the incineration of
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municipal solid waste and non-hazardous industrial and commercial solid waste at
the Facility are monitored continuously for opacity, both manually and by
computer. The percentage of pollutants emitted into the air from the Facility's
smoke stack is graphically displayed and continuously recorded for NYDEC,
representatives of which visit the Facility on a regular basis. The Facility
must undergo a stack test each year to renew its "air permit" and must obtain a
"solid waste permit" allowing it to operate the Facility every three years. The
Company is currently in the process of renewing its air permit. Pending such
renewal, the Company is permitted to continue operations. There can be no
assurance that such permit will be renewed on a timely basis or at all. In the
event such permit is not renewed, the Company could be materially adversely
affected. As part of the renewal process, the Company conducted a stack test in
March 1995. The results of the stack test indicate that although the emissions
measured at the Facility comply with the current permit, the emission rates
exceed the limits set forth in proposed federal regulations applicable to
existing municipal waste combustion units such as the Facility (which
regulations are described below).
In December, 1995, the United States Environmental Protection
Agency ("USEPA") promulgated standards of performance for new municipal waste
combustors ("MCWs") and emission guidelines for existing MCWs. The guidelines
apply to existing MCWs at plants with an aggregate capacity to combust greater
than 35 metric tons (approximately 40 tons) per day. Under this rule, existing
MCWs having a capacity to combust 35 metric tons per day or more, but less than
225 metric tons ("small MCWs"), which category includes the Facility, will be
subject to new performance standards for emissions, including particulates,
lead, cadmium, mercury, carbon monoxide, hydrogen chloride, sulfur dioxide,
dioxins and furans. Additional standards will require operator training and
certification, installation of continuous emission monitoring and installation
of controls on fugitive ash emission. Each affected state is required to submit
a plan to implement these guidelines by December 19, 1996.
Existing small MCWs will have 3 years from the date of approval
of the state plan or, if no plan for implementing the emission guidelines is
adopted until December 19, 2000,to be in compliance with the guidelines.
Additional federal environmental regulations have been proposed
which, if adopted, would be applicable to the Company. Such proposed regulations
would establish emission limits for existing municipal waste combustors with
capacities in excess of 35.0 tons per day, such as the Facility, for acid gases,
particulate matter, cadmium, lead, mercury, dioxins, furans, nitrogen oxides,
and fugitive fly ash and bottom ash emissions. They would also establish
operating practices for combustion efficiency, combustion temperature and flue
gas temperature, and operator training and certification. Although the effective
date of compliance is not expected to occur before September 1998, and possibly
later, implementation of the regulations is expected to require installation of
new air pollution control systems, including acid gas scrubbers, fabric filters,
continuous emission monitors and possibly specialized systems to control
nitrogen oxide and mercury emissions. Based on the results of the March 1995
stack test, the emission rates of the Facility currently exceed the limits set
forth in such proposed regulations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Employees
On January 31, 1996, the Company, including the Subsidiaries,
had an aggregate of 107 full time employees.
ITEM 2 DESCRIPTION OF PROPERTY
The Company leases, from an unaffiliated third party, 1,500
square feet of office space for its executive offices located in Commack, New
York, at an annual rent of $22,500 subject to adjustments based on the Consumer
Price Index, plus payment of a proportionate share of electric expenses and any
increased property taxes. The lease with respect to this facility expires on
February 28, 1997.
The Company, through EWII, leases the Facility from the City of
Long Beach pursuant to two leases, each covering a portion of the Facility (the
"Facility Leases"). The Facility Leases provide for initial terms, which
terminate on December 1, 2007 and are renewable at the option of the tenant for
an additional 20-year term. The annual
8
<PAGE>
aggregate base rent under the Facility Leases is approximately $13,125; pursuant
to the terms of the Facility Leases, base rent increases by 5% annually.
The Company, through ERDI, leases, from an unaffiliated third
party, approximately 2,155 square feet of office space located at 465 East 170th
Street, South Holland, Illinois. The lease provides for rent at the rate of
$2,413 per month and expires on October 31, 1997.
The Company also leases, from an unaffiliated third party, a
facility in Bedford Park, Illinois for its absorbent products manufacturing
operations. The lease provides for rent at the rate of $124,000 per annum until
October 31, 1996, at which time the rate will be increased to $136,234 per
annum, and expires on October 31, 1995.
The Company subleases, from an unaffiliated third party, an
8,600 square foot property located at the East Chicago Terminal of Mobil Oil
Corporation in East Chicago, Indiana. The property is used for the Company's
non-hazardous waste transfer station operations in East Chicago, Indiana. The
sublease provides for rent at the rate of $30,100 per annum and expires on June
30, 1997.
ITEM 3 LEGAL PROCEEDINGS
On November, 1994, P.J.V Transport, Inc. ("PJV") and Concord
Trucking Inc. ("Concord") commenced an action in the New York Supreme Court,
Nassau County, against LBRR, ERD Management Corp. ("EMC"), and the City of Long
Beach, New York. PJV has alleged non-payment in the amount of approximately
$185,000 for services rendered in connection with the disposal by PJV of solid
waste ash generated at the Facility pursuant to a contract among PJV, LBRR, EMC,
and the City of Long Beach (the "PJV Contract") and has alleged additional
damages of approximately $200,000 in lost profits under the PJV Contract.
Concord has alleged non-payment for services rendered in the amount of
approximately $51,000 in connection with the leasing by LBRR of trailers for the
storage of incineration ash pursuant to a contract between Concord and LBRR.
Upon motion by PJV, summary judgment was entered against LBRR in the amount of
$214,000. The Company has appealed the summary judgment decision and intends to
continue to vigorously defend against such claims.
In March, 1996, PJV commenced a separate lawsuit against LBRR,
EMC and EWII in Supreme Court, Nassau County. PJV has alleged that the transfer
of assets by EMC (as successor in interest to LBRR) to EWII was a fraudulent
conveyance in order to frustrate the collection of $214,000 judgment in favor of
PJV. The Company intends to vigorously defend against this lawsuit.
On March, 1996, the law firm of Jenner and Block brought a suit
against the Company, C&J, and EWII, in the United States District Court for the
Eastern District of New York, for legal services rendered in an amount of
approximately $154,000. No answer has been filed yet. The Company intends to
vigorously defend against this lawsuit.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) MARKET INFORMATION
Since May 17, 1995, the Company's Common Stock has been included
in the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") under the symbol "ERDI". In May, 1995, the Company's Common
Stock became a part of NASDAQ's National Market System. The following sets forth
certain information with respect to the high and low "bid" prices quoted for the
Common Stock during the periods shown.
HIGH LOW
---- ---
1995
Second Quarter $ 7.50 $ 6.50
(trading started on
May 7, 1995)
Third Quarter $ 10.50 $ 7.00
Fourth Quarter $ 9.75 $ 6.75
1996
First Quarter $ 8.75 $ 8.50
Second Quarter $ 8.25 $ 8.00
(through May 13, 1996)
(b) HOLDERS
As of May 13, 1996, there were approximately 53 record holders
of the Company's Common Stock, including brokerage firms and/or clearing houses
holding shares of the Company's Common Stock for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
(c) DIVIDENDS
The Company has never paid or declared any dividends upon its
Common Stock and does not contemplate or anticipate paying any dividends upon
its Common Stock in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. The
declaration of dividends in the future will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements, and financial
position of the Company, general economic conditions, and other pertinent
factors.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) GENERAL
The Company is a diversified waste management company
specializing in the management and disposal of municipal solid waste, industrial
and commercial non-hazardous solid waste, and hazardous waste. The Company owns
an incinerator on Long Beach, New York which incinerates municipal solid waste
and industrial and commercial
10
<PAGE>
non-hazardous solid waste and utilizes the steam produced thereby to cogenerate
electricity. Further, the Company provides brokerage, advisory, consulting, and
technical services to generators of waste.
The Company has experienced substantial growth since inception
on May 29, 1992, as a result of management's implementation of a program of
internal growth and acquisitions. Upon assuming control of the Company in
February 1993, management proceeded to reduce overhead and increase marketing
efforts to generators of industrial and commercial non-hazardous solid waste.
The Company acquired ERDI in April 1994, C&J Enterprises, Inc.
in August 1994, the business of Environmental Absorbent Technologies, Inc in
October, 1995 and began a transfer station operation in Indiana through an
entity named ERD Waste Corp. (Indiana) ("ERD-IN"). Each of the aforementioned
acquisitions has been treated as a purchase for financial accounting purposes.
Accordingly, the Company's results of operations include the operations of each
acquired entity from the respective dates of each acquisition and, in the case
of the transfer status, from the date of commencement of operations. In
addition, effective May 6, 1996, the Company acquired 92% of the issued and
outstanding shares of ENSA Common Stock and more than 90% of the issued and
outstanding shares of ENSA Preferred Stock.
As of the end of fiscal 1996, the following were the operating
subsidiaries of the Company:
ERD Waste Corp. ("ERD") Parent Company and East Coast Brokerage
Environmental Waste Incineration,
Inc. ("EWII") Owns and operates the Company's incinerator
ERD of Illinois, Inc. ("ERDI") Brokerage and waste management consulting
Absorbent Manufacturing &
Technologies, Inc. ("AMTI") Manufactures absorbent materials
ERD Waste Corp. (Indiana) Own and operate a transfer station in Indiana
("ERD-IN")
(b) FISCAL YEARS ENDED JANUARY 31, 1996 AND 1995
The following table sets forth operating data of the Company as
a percentage of revenues for the periods indicated.
Year Ended Year Ended
January 31, 1996 January 31, 1995
("fiscal 1996") ("fiscal 1995")
---------------------------------------
Revenues 100% 100%
--- ---
Net sales 79% 100%
Insurance Proceeds 21% --
Cost of sales (including costs
related to the fire damage) 40% 47%
Selling, general, and
administrative expenses 36% 32%
Operating income 24% 20%
Other income (expense) 3% 2%
Income before provision for
income taxes 25% 20%
Provision for income taxes 10% 8%
--- ---
Net income 15% 12%
=== ===
The above presentation excludes the results of operations of the acquired
entities prior to their respective acquisitions.
11
<PAGE>
Revenues
During fiscal 1996 the Company's revenues increased by
approximately $8,508,000 or approximately 127%, to $15,216,098, compared to
$6,708,209 for fiscal 1995. Of such increase, approximately $6,581,000, or
approximately 77% of the increase for the year, was attributable to additional
revenues of ERDI and EWII included for an entire year in fiscal 1996, as
compared to only parts of fiscal 1995. Included in fiscal 1996 revenues for EWII
is approximately $3,200,000 representing insurance proceeds as a result of a
major fire at the Company's Facility in Long Beach, New York. The insurance
proceeds included both casualty reimbursement and business interruption.
Additionally, the acquisition of AMTI in fiscal 1996 added revenues of
approximately $1,053,000 in fiscal 1996.
A summary of consolidated revenues by line of business /
division / other classification is as follows:
1996 % 1995 %
---- - ---- -
ERD $ 1,690,185 11 $1,914,212 29
EWII 8,514,948 56 1,933,495 29
ERDI 3,625,840 24 2,860,502 42
AMTI 1,053,122 7 - -
ERD-IN 331,111 2 - -
------------- ----- ------------ -------
$15,216,098 100 $6,708,209 100
============= ===== ============ =======
Cost of Sales
Cost of sales for each such period includes costs associated
with the handling of municipal solid waste and industrial and commercial
non-hazardous solid waste. Additionally, cost of sales includes, for fiscal
1995, the cost of sales of ERDI during the period from April 16, 1994 through
January 31, 1995 and the cost of operations of EWII during the period from
August 31, 1994 through January 31, 1995.
During fiscal 1996, cost of sales increased by $2,930,315, or
93%, to $6,098,030, from $3,167,715 for fiscal 1995. Such increase was
attributable to the substantial increase in sales during fiscal 1996 and the
aforementioned inclusion of the operations of ERDI and EWII for an entire year
in fiscal 1996. Notwithstanding the foregoing, cost of sales decreased as a
percentage of revenues from 47.2% for fiscal 1995 to 40.0% for fiscal 1996.
Selling, General and Administrative Expenses
During fiscal 1996, selling, general, and administrative expense
increased by approximately $3,280,000 or 151%, to $5,455,197 for fiscal 1996,
from $2,175,613 for fiscal 1995. Notwithstanding the foregoing, such expense as
a percentage of net revenue increased during fiscal 1996 to 35.9% from 32.4% for
fiscal 1995.
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<PAGE>
Operating Income and Net Income
During fiscal 1996, operating income increased by $2,297,990, or
168%, from $1,364,881 for fiscal 1995. Of such increase, approximately
$2,948,000, or 128%, was attributable to the operating income of EWII.
Net income increased by $1,436,338, or 182%, to $2,227,631 for
fiscal 1996 from $791,293 for fiscal 1995. Of such increase, approximately
$1,769,000, or 123%, was attributable to the net income of EWII and $136,000 was
attributable to the operation of ERD-IN. Brokerage operations reported a
decrease in net income of approximately $469,000 in fiscal 1996 as compared to
fiscal 1995.
Improved consolidated results of operations during fiscal 1996
are attributable primarily to (i) significantly improved operating and net
margins resulting from increased sales by the Company, and (ii) the expansion of
the Company's client base to entities outside of the New York metropolitan
region.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Company completed the initial public offering of 2,250,000
shares of its common stock in May 1995 and received net proceeds of
approximately $12.1 million. In connection with the public offering the Company
repaid (i) $7.0 million attributable to outstanding Industrial Revenue Bonds
related to the Company's Long Beach incineration facility, (ii) approximately
$1.6 million attributable to obligations payable to the prior owner of the Long
Beach incinerator, union pension claims, and Mr. Robert Rubin, the Chairman of
the Board; (iii) $250,000 attributable to a settlement with American Medical
Waste Systems Inc., (iv) approximately $500,000 attributable to outstanding
accounts payable; and (v) $300,000 attributable to income taxes payable for the
fiscal 1995.
The Company has relied upon the generation of funds from
operations to provide working capital. The Company generated approximately
$700,000 of cash from operating activities during the fiscal 1996. As of January
31, 1996, the Company had approximately $3.2 million cash and cash equivalents,
and working capital of approximately $272,000. Of the Company's current asset
balance of approximately $6.0 million at January 31, 1996 approximately $2.5
million or approximately 42%, was attributable to net accounts receivable.
On May 1, 1996 the Company completed the Offer for all
outstanding shares of ENSA Common Stock, securing over 90% of the outstanding
shares of ENSA Common Stock. On May 5, 1996, the Company paid $7,166,577 to the
shareholders of ENSA to complete the acquisition of the ENSA Common Stock
purchased through the Offer and the ENSA Preferred Stock acquired through the
Stock Purchase Agreement. An additional $992,500 will be required to purchase
the remaining outstanding capital stock of ENSA and to make other payments as
specified in the Merger Agreement.
On May 6, 1996 the Company borrowed $7,500,000 pursuant to its
$7,500,000 credit facility with its commercial lender. The funds were utilized
for the purchase of stock of ENSA. The Company is presently seeking other
sources of funds needed to complete the payment for the remaining ENSA Common
Stock upon consummation of the contemplated merger of EAC into ENSA, as well as
to provide a source of funds for planned capital expenditures in the upcoming
fiscal year. Management is highly confident as to the Company's ability to
secure the necessary financing for such purposes.
During October 1992, the Company borrowed approximately $520,000
from Mr. Rubin, the Chairman of the Board, Chief Executive Officer, and a
principal stockholder of the Company for working capital purposes. The
outstanding balance of such loans with accrued interest, aggregating
approximately $480,000, was repaid from the proceeds of the Company's initial
public offering in May 1995.
In connection with the acquisition of EWII, the Company acquired
from the prior owner secured promissory notes of in the aggregate principal
amount of $6.25 million in exchange for a promissory note of ERDM in the
principal amount of $4.0 million (the "ERDM Note"). As of March 20, 1995, the
Company and the prior owner agreed to amend the ERDM Note to provide that,
simultaneous with the closing of the initial public offering the
13
<PAGE>
Company paid $1.0 million and thereafter an additional $500,000 in five equal
annual installments of $100,000 commencing on December 31, 1995 in full payment
of the ERDM Note. To secure such obligation, the Company has pledged to the
prior owner of the Long Beach incinerator all of the issued and outstanding
common stock of ERDM.
On July 25, 1995, the Company had a fire at the Long Beach
incinerator. The fire significantly damaged the incinerator and reduced or
prevented its use for approximately two months. After the fire, the Company
devoted a major effort to repairing the incinerator, upgrading it where
appropriate and servicing its customers when the incinerator could not properly
function. Other disposers had to be utilized for waste which otherwise would
have been incinerated by the Company. In addition to the loss of incineration
income, the Company lost significant sales of electricity.
The Company was covered by insurance for both damage and
business interruption. In November 1995, the Company settled its claim with the
insurance company, collecting a total of $3,200,000. Because of the inability to
determine exactly what costs it expended during the year for the incinerator and
the appropriate portion of the recovery representing reimbursement for business
interruption, the financial statements reflect the insurance recovery as
revenues. All expenditures relating to the fire, the repair of the incinerator,
management effort to both repair the incinerator and service customers have been
included in expenses.
Management believes that the incinerator has been brought back
to its operating capability prior to the fire. Accordingly, the incinerator has
been recorded at its cost through July 24, 1996 less appropriate depreciation.
As a result of the deferral of maintenance of the Facility by
the prior owners and subsequent necessary equipment upgrades by the Company, the
Facility has experienced disruptions and suspensions in its operations. During
fiscal 1996, the Company expended approximately $1.6 million to repair and
upgrade the Facility. In the upcoming fiscal year, the Company expects to invest
$3,500,000 in capital improvements. Approximately $1,600,000 will be expended at
the Company's incinerator for a waste receiving building, a materials recovery
building and to provide long-term upgrades/replacements to the combustion
system. Another $750,000 is anticipated to be utilized to make improvements at
the Company's four transfer facilities. The Company plans to expend
approximately $275,000 to complete the start up of a new absorbent materials
manufacturing plant in Pennsylvania, which is scheduled to begin operations
during the second quarter of fiscal 1997. The remainder will be used to acquire
other assets utilized by the Company's remedial, consulting, and recycling
businesses.
The Company leases office space and the Facility under operating
leases and has entered into the Facility Leases with the City of Long Beach, New
York, with respect to the Facility, which expire in December 2007. Rental
expense is based on the volume of solid waste burned at the Facility.
Additionally, the Company and ERDI have leases on office space and warehouse
space expiring in 1997. Minimum lease commitments under all operating leases for
each of the next five years and thereafter are as follows:
1996 $256,000
1997 271,000
1998 252,000
1999 237,000
2000 247,000
Thereafter 1,890,000
Certain liabilities of the predecessors of EWII and EMC are
contained in the consolidated balance sheet of the Company included elsewhere
herein. However, these liabilities are strictly those of the predecessor
entities. As a result of the restructuring discussed elsewhere, the predecessor
entities have no material assets and no operations to generate cash with which
to satisfy these obligations. Creditors of such predecessor entities may pursue
some or all of such claims against the Company and certain of its subsidiaries.
These claims may include, but are not
14
<PAGE>
limited to, obligations for amounts due under any collective bargaining
agreements, as a result of environmental liabilities, or to trade creditors.
Hence, notwithstanding the restructuring, the Company may be required to defend
or settle certain material obligations of such predecessor entities.
In addition to the liabilities described above the Company is
subject to a number of lawsuits arising from the alleged conduct of the prior
owners of the incinerator. While the ultimate results of the litigation
commenced and potential litigation cannot be determined, the Company does not
expect that any of these lawsuits will have a material adverse effect on the
consolidated financial position of the Company.
Incineration of solid waste has taken place at the Facility
since 1951. Various past practices, although they may have been fully lawful and
within standard engineering practices at the time, have resulted in ash
constituents being present in the soils and upper level groundwater beneath the
Facility. In April and May, 1990, the incinerator's prior owners had conducted a
phase I and phase II environmental assessment of the level of constituents
present and the remedial actions which may be needed at the Facility. The
Company is currently examining this issue to determine whether remediation is
necessary. In the event that the Company determines that such remediation is
necessary, the Company could be materially adversely effected. With respect to
the foregoing, the Company has established a $200,000 accounting reserve.
(d) INFLATION
Inflation has not been a material factor affecting the Company's
business. General operating expenses such as salaries and employee benefits are,
however, subject to normal inflationary pressures.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial information required in response to this Item of Form
10-KSB is set forth at pages F-1 through F-18 of this Report.
ITEM 8 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company, their
positions held with the Company, and their ages are as follows:
NAME AGE POSITION
- ------------------------------- ----- ------------------------------------
Joseph J. Wisneski 42 Director, President, and Chief
Operating Officer
Robert M. Rubin 55 Chairman of the Board and Chief
Executive Officer
D. David Cohen 56 Director
Carl Frischling 60 Director
Marc P. McMenamin 34 Director, Chief Operations Manager
of the Company
Peter Reuter 69 Director
Each director is elected for a period of one year at the
Company's annual meeting of stockholders and serves until the next meeting and
until his successor is duly elected and qualified. Officers are elected by, and
serve at the discretion of, the Board of Directors. In consideration of serving
as independent directors, Messrs. Frischling and Reuter each receive
compensation of $5,000 per annum and, subject to stockholder approval, will
receive options to purchase 30,000 shares of common stock at an exercise price
of $7.125 per share. These options vest at the rate of 10,000 shares per annum.
The Company has a compensation committee consisting of Carl
Frischling, Peter Reuter and Robert Rubin. The Company has an audit committee
consisting of Carl Frischling, David Cohen and Robert Rubin.
The following is a brief summary of the background of each
director, executive officer, and key employee of the Company:
JOSEPH J. WISNESKI has been President, Chief Operating Officer,
and a Director of the Company since February 1993, was Vice
President of the Company from November 1992 through January
1993, and was one of the Company's founding stockholders. From
April 1990 to November 1992, Mr. Wisneski served as a senior
manager for Superior Contractors Network, Inc. ("Superior"), a
private service broker in the general construction field. From
January 1987 to April 1990, he served as President of Asbestos
Services of America, a private marketing company, and from July
1986 to January 1987, he served as President of National
Asbestos Removal Corporation, a private asbestos removal
company. From 1979 to 1986, Mr. Wisneski was a Vice President in
the lending divisions of a number of commercial banks, including
European American Bank, Chase Manhattan Bank, and National
Westminster Bank. Mr. Wisneski holds a B.B.A. degree from Pace
University and an M.B.A. degree from Fordham University.
ROBERT M. RUBIN has served as the Chairman of the Board and
Chief Executive Officer of the Company since February 1993. Mr.
Rubin has served since May 1991 as the Chairman of the Board and
a director of Universal Self Care, Inc., a public company
engaged in the distribution of diabetic health products. Between
October 1990 and January 1, 1994, he served as the Chairman of
the Board and Chief Executive Officer of American United Global,
Inc. ("AUG"), a public company engaged in the manufacture and
distribution of sealing devices for automotive, aerospace, and
general industrial applications and a distributor of Case
construction equipment. From January 1, 1994 to January 19,
1996, he served as Chairman of the Board of AUG and its
subsidiaries. Mr. Rubin was the founder, President, Chief
Executive Officer, and a director of Superior Care, Inc. ("SCI")
from its inception in 1976 until May 1986 and continued as a
director of SCI (now known as Olsten Corporation
16
<PAGE>
("Olsten")) until the latter part of 1987. Olsten, a New York
Stock Exchange listed company, is engaged in providing home care
and institutional staffing services and health care management
services. Mr. Rubin is a former director and Vice-Chairman, and
currently a minority stockholder of American Complex Care,
Incorporated ("ACC") (formerly Legend Foods, Inc.), a public
company formerly engaged in the provision of on-site health care
services, including intra-dermal infusion therapies. In April,
1995, ACC's operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy
proceedings. Mr. Rubin is also Chairman of the Board and a
minority stockholder of Universal Self Care, Inc., a public
company engaged in the sale of products used by diabetics. Mr.
Rubin is also the Chairman of the Board of Western Power &
Equipment Corp. ("Western"), a public company engaged in the
distribution of construction equipment, principally manufactured
by Case Corporation. Mr. Rubin is also a director and minority
stockholder of Response USA, Inc., a public company engaged in
the sale and distribution of personal emergency response
systems; Diplomat Corporation, a public company engaged in the
manufacture and distribution of baby products; Help at Home,
Inc., a public company which provides home health care
personnel; Arzan International (1991) Ltd., a publicly held food
distribution business; and Kay Kotts Associates, Inc., a public
company engaged in providing tax preparation and assistance
services.
D. DAVID COHEN has served as a director of the Company since
January 1994. Mr. Cohen is engaged in the private practice of
law in New York. Mr. Cohen is also a director of Elephant &
Castle Group Inc. Mr. Cohen also served as a director of Data
Switch Corporation, a publicly owned company in the electronics
industry until November, 1995 when it merged with General Signal
Corporation.
MARC P. MCMENAMIN has served as Chief Operations Manager of the
Company since June 1992. From February 1991 until June 1992, Mr.
McMenamin served as construction manager of, and was a partner
in, Superior. From March 1987 until February 1991, Mr. McMenamin
served as general manager of Romark Environmental Services, a
private asbestos abatement company. Mr. McMenamin holds a B.B.A.
degree from Hofstra University.
PETER REUTER has been a director of ERD since October, 1995. Mr.
Reuter is also a director of Lamp Technology, Inc., an importer
and distributor of specialty light bulbs located in Bohemia, New
York. Since 1979, Mr. Reuter has been President of Peter J.
Reuter Incorporated, a marketing consultant company. Mr. Reuter
hods a Bachelor of Electronic Engineering degree from
Polytechnic Institute of Brooklyn and an M.B.A. from New York
University.
CARL FRISCHLING has served as a director of ERD since September,
1995. Mr. Frischling is a partner at the New York law firm of
Kramer, Levin, Naftalis & Frankel, which he joined in September,
1994. From September, 1992 to August, 1994, he was a partner at
the law firm of Reid & Priest. Prior to that, Mr. Frischling had
been a partner at the law firm of Spengler Carlson Gubar Brodsky
& Frischling from November 1979.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
To the Company's knowledge, based solely on review of the copies
of reports furnished to it on Forms 3 and 4 and amendments thereto pursuant to
Rule 16a-3(e) of the Securities Exchange Act of 1934 (the "Exchange Act") and
written representations that no other reports are required to be filed, all
reports required to be filed pursuant to Section 16(a) of the Exchange Act of by
its officers, directors and greater-than-ten-percent beneficial owners have been
filed in a timely manner during fiscal 1996, except for a report on Form 4
required to be filed by Robert Rubin with respect to the sale of 65,000 shares
from Robert M. Rubin to D. David Cohen in May, 1995, which was inadvertently
omitted and will be filed on Form 5.
17
<PAGE>
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term
compensation for services in all capacities to the Company for fiscal 1996,
1995, and 1994 of the Chief Executive Officer of the Company at January 31, 1996
and the other executive officer of the Company (together, the "Named Executive
Officers") who received over $100,000 in compensation in the form of salary and
bonus for fiscal 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
LONG
TERM
RESTRICTED INCENTIVE
NAME AND OTHER ANNUAL STOCK OPTIONS PLAN ALL OTHER
PRINCIPAL POSITION YEAR Salary BONUS COMPENSATION AWARD(S) SARS PAYOUT COMPENSATION
------------------ ---- ------ ----- ------------ -------- ---- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin 1996 $103,028 -- -- -- -- -- --
Chairman of the Board 1995 $56,250(1) -- -- -- -- -- --
and Chief Executive Officer 1994 -- -- -- -- -- -- --
1993 -- -- -- -- -- -- --
Joseph J. Wisneski 1996 $150,273 35,000(3) (5) -- -- -- --
President and Chief 1995 $58,750(2) -- -- -- 125,000(4) -- --
Operating Officer 1994 -- -- -- -- -- -- --
1993 -- -- -- -- -- -- --
Marc McMenamin (3) 1996 $93,310 15,000(3) (5) -- 100,000(6) -- --
1995 $44,596 -- -- -- -- -- --
1994 -- -- -- -- -- -- --
</TABLE>
- ----------------------------
(1) Increased to $150,000 per annum effective January 1, 1995. See
"Employment Agreements."
(2) Increased to $175,000 per annum effective January 1, 1995 with
annual increases of a minimum of $25,000 per annum thereafter. Mr.
Wisneski is currently compensated at $230,000 per annum. See
"Employment Agreements."
(3) Bonus relates to services rendered in the prior year. In addition,
in March, 1996, Messrs. Wisneski and McMenamin were paid bonuses of
$55,000 and $25,000 respectively for their services during fiscal
1996.
(4) In May 1994, the Company granted to Mr. Wisneski options under the
Plan to acquire 125,000 shares of Common Stock at an exercise price
of $4.00 per share.
(5) Beginning in fiscal 1997, Messrs. Wisneski and McMenamin receive
travel and entertainment allowances of $60,000 and $5,000 per annum
respectively.
(6) Options granted under Employee Stock Option Plan. See Item 10
--"Stock Option Plan".
18
<PAGE>
The following table provides information regarding option grants
during fiscal 1996 to the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF SECURITIES PERCENTAGE OF TOTAL OPTIONS EXERCISE OR
Underlying Options GRANTED TO EMPLOYEES IN BASE PRICE PER
NAME Granted FISCAL YEAR SHARE EXPIRATION Date
---- ------- ----------- ----- ---------------
<S> <C> <C> <C> <C> <C>
Marc McMenamin(1) 100,000 100 $7.12 January, 2006
</TABLE>
(1) Options granted under Employee Stock Option Plan. See Item 10 --
"Stock Option Plan".
The following table provides information regarding option
exercises during fiscal 1996 by the Named Executive Officers and the values of
such officers' unexercised options.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES (1)
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXPECTED
Shares UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
Acquired on OPTIONS AT JANUARY 31, 1996 JANUARY 31, 1996
NAME Exercise VALUE REALIZED EXERCISABLE/UNEXERCISABLE (1)EXERCISABLE/UNEXERCISABLE (1)
---- ------------- -------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Robert M. Rubin
Chairman of the
Board and Chief
Executive Officer....... 0 $0 0 N/A
Joseph J. Wisneski
President and Chief
Operating Officer....... 0 $0 0 N/A
Marc McMenamin
Chief Operations
Office.................. 0 $0 0 N/A
</TABLE>
- -----------------
(1) All options were granted at an exercise price equal to
the fair market value of the Common Stock on the date
of grant.
Compensation of Directors. See Item 9 -- "Directors, Executive Officers,
Promoters and Control Persons"
The Company has obtained directors and officers liability
insurance in an amount of not less than $1.0 million.
Employment Agreements
The Company has entered into an employment agreement with Joseph
J. Wisneski pursuant to which Mr. Wisneski has agreed to serve as President and
Chief Operating Officer of the Company, through December 31, 1997. The agreement
provides for a base salary of $175,000 per annum from January 1 through December
31, 1995, with annual increases of $25,000 per annum in each year thereafter,
subject to additional increase by the Board of Directors in its discretion. The
agreement requires Mr. Wisneski to devote substantially all of his business time
to
19
<PAGE>
the performance of his duties and responsibilities to the Company. In May, 1996
Mr. Wisneski and the Company agreed to a one-year extension of the employment
agreement with a salary of $230,000 per annum in 1996 and $275,000 per annum in
1997.
The Company has entered into an employment agreement with Robert
M. Rubin, pursuant to which Mr. Rubin has agreed to serve as Chairman of the
Board and Chief Executive Officer of the Company from January 1, 1995 through
December 31,1997. The employment agreement provided for a salary of $100,000 per
annum for 1995 and the Company has agreed to increase the salary to $150,000 per
annum for 1996, $160,000 per annum for 1997 and $170,000 per annum for 1998. Mr.
Rubin has interests in a number of other businesses which are not competitive
with the Company. Under his employment agreement, he is not required to spend
any specific amount of time on the Company's affairs. Mr. Rubin has not stated
whether he intends to devote a specific amount of time to the Company.
The Company has entered into an employment agreement with Marc
McMenamin, pursuant to which Mr. McMenamin will serve as President of
Environmental Waste Incineration, Inc. and Chief of Operations of the Company.
In 1995, Mr. McMenamin received $100,000 in salary and options to purchase
100,000 shares of Common Stock. Mr. McMenamin's salary was increased to $110,000
for 1996.
Stock Option Plan
On March 2, 1994, the Board of Directors of the Company and
stockholders of the Company adopted the Plan. The Plan provides for the grant of
options to purchase up to 500,000 shares of Common Stock to employees of the
Company. Options granted under the Plan are "incentive stock options" within the
meaning of Section 422 of the United States Internal Revenue Code of 1986, as
amended (the "Code"). Incentive stock options may be granted only to employees
of the Company.
The Plan will be administered by "disinterested members" of the
Board of Directors (as defined by Rule 16b-3 under the Exchange Act), who
determine, among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of shares of Common Stock issuable upon the exercise of each option, and
the option exercise price.
The exercise price per share of Common Stock subject to an
incentive option may not be less than the fair market value per share of Common
Stock on the date the option is granted. The aggregate fair market value
(determined as of the date the option is granted) of Common Stock for which any
person may be granted incentive stock options which first become exercisable in
any calendar year may not exceed $100,000. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to such
person, 10% or more of the total combined voting power of all classes of stock
of the Company (a "10% Stockholder") shall be eligible to receive any incentive
stock options under the Plan unless the exercise price is at least 110% of the
fair market value of the shares of Common Stock subject to the option,
determined on the date of grant.
No stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and, during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option, unless otherwise determined by the
Board of Directors. Upon termination of employment of an optionee by reason of
death or permanent and total disability, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination.
Options under the Plan must be issued within ten years from the
effective date of the Plan. The effective date of the Plan is March 2, 1994.
Incentive stock options granted under the Plan cannot be exercised more than ten
years from the date of grant. Incentive stock options issued to a 10%
Stockholder are limited to five-year terms. Options granted under the Plan
generally provide for the payment of the exercise price in cash and may provide
for the payment of the exercise price by delivery to the Company of shares of
Common Stock already owned
20
<PAGE>
by the optionee having a fair market value equal to the exercise price of the
options being exercised, or by a combination of such methods. Therefore, it so
provided in an optionee's options, such optionee may be able to tender shares of
Common Stock to purchase additional shares of Common Stock and may theoretically
exercise all of his stock options with no additional investment other than the
purchase of his original shares.
Shares subject to unexercised options that expire or that
terminate upon an employee's ceasing to be employed by the Company become
available again for issuance under the Plan.
To date, options to purchase 225,000 shares of Common Stock have
been granted under the Plan. Of such options, options to purchase 125,000 shares
of Common Stock and 100,000 shares of Common Stock were granted under the Plan
to Mr. Wisneski and Mr. McMenamin, respectively. Mr. Wisneski's options granted
under the Plan to date have an exercise price of $4.00 per share and expire in
November, 1999. Mr. McMenamin's options granted under the Plan to date have an
exercise price of $7.12 expire in January, 2006.
Pursuant to the Merger Agreement, ERD covenanted to ENSA that
the board of directors of ERD would authorize, and recommend that the
stockholders of ERD approve, an amendment to the Plan to (i) increase the number
of authorized options thereunder to a number which will be sufficient for the
grant of options required to be granted to Messrs. Jon Colin and Joseph
Jacobsen, officers of ENSA; and (ii) permit the grant of options to consultants.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Stockholders
The following table sets forth, as of the date hereof, the
ownership of the Common Stock by (i) each person who is known by the Company to
own of record or beneficially more than 5% of the outstanding Common Stock, (ii)
each of the Company's directors and executive officers, and (iii) all directors
and executive officers of the Company as a group. Except as otherwise indicated,
the stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated. Such table does not include an aggregate of
397,620 shares of Common Stock (representing approximately 6.8% of the
outstanding Common Stock owned by affiliates and a related person of Hampshire
Securities Corporation ("Hampshire"). Such affiliates are Jeffrey M. Berman, Leo
T. Abbe, and Richard K. Abbe, and such related person is Colman Abbe, the
father-in-law of Jeffrey M. Berman and the father of Leo T. Abbe and Richard K.
Abbe. Each such individual disclaims beneficial ownership of the others' shares
of the Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF SHARES OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- -- ---------------- ------------------ -----
<S> <C> <C>
Robert M. Rubin (1) 1,462,225 25.1%
Joseph J. Wisneski (2) 961,675 (2) 16.5%
D. David cohen 208,050 (3) 3.6%
500 North Broadway, Suite 133
Jericho, New York 11753
Mark McMenamin (1) (4)
Peter Reuter (1) 500 - %
Carl Frischling 800 - %
170 East 83rd Street
New York, New York 10028
All directors and executive officers of the Company as a group 2,640,450 45.3%
(six persons)
</TABLE>
21
<PAGE>
- ---------------------------------------------
(1) The address of each of the referenced individuals is c/o ERD Waste
Corp., 937 East Hazelwood Avenue, Building 2, Rahway, New Jersey
07065.
(2) Does not include options to purchase 125,000 shares under the 1994
Stock Option Plan.
(3) Includes 50,000 Shares of Common Stock owned or record by Mr. Cohen's
wife and 10,000 Shares of Common Stock owned by Mr. Cohen's mother as
to which he disclaims beneficial ownership.
(4) Does not include options to purchase 100,000 Shares of Common Stock,
in the aggregate, granted under the 1994 Stock Option Plan (See Item
10 -- Executive Compensation).
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the information set forth below, information with
respect to Item 12 is set forth in the Company's prospectus dated May 17, 1996
which was filed as part of its Registration Statement on Form SB-2 (Registration
No. 33-76200) and is incorporated herein by reference.
In August, 1995, after a difference of opinion regarding the
operations of ERDI the Company entered into a settlement agreement with the two
prior owners of ERDI (the ("Prior Owners"), (the "Settlement Agreement"),
including John Herzog, who was a director of the Company at that time. Pursuant
to the terms of the Settlement Agreement, and in consideration of the sum of
2,150,000 (1,075,000 to each of the Prior Owners of ERDI) the Company
repurchased an aggregate of 300,000 shares of Common Stock and the former ERDI
Stockholders assigned their rights to receive an aggregate of 150,000 shares of
Common Stock. The purchase price for those shares is payable in installments of
$200,000 payable each November, February, May and August of 1996, and 1997 and
one final installment of $150,000 in February 1998.
The Company also agreed to pay the Prior Owners $225,000 in
consideration of the cancellation of 140,000 of the 150,000 options to purchase
shares of Common Stock issued to the Prior Owners. The payment for the
cancellation of those options is in installments of $11,250,000 to each Prior
Owner to be paid in each May, August, November, and February until the final
payment in November, 2001.
See Item 11 -- "Employment Agreements" for information with
respect to employment agreements between the Company and the officers thereof.
ITEM 13 EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS.
(1) Financial Statements of the Company for the Fiscal Years Ended
January 31, 1995 and 1996.
(B) EXHIBITS.
EXHIBIT DESCRIPTION OF EXHIBIT
2.1 Amended and Restated Agreement and Plan of Merger
between the Company, EAC and ENSA, incorporated by
reference to Exhibit (C)(1) to the Schedule 14d-1
filed by the Company on April 4, 1996.
22
<PAGE>
2.2 Loan Agreement with Chemical Bank, incorporated by
reference to Exhibit 1 the Form 8-K filed by the
Company on April 17, 1996.
3.1 Certificate of Incorporation as amended, of the
Company, incorporated by reference to Exhibit 3.1 to
the Company's Registration Statement on Form SB-2
(Registration No.
33-76200).
3.2 By-laws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement
on Form SB-2 (Registration No. 33-76200).
3.3 Certificate of Amendment of Certificate of
Incorporation of the Company, incorporated by
reference to Exhibit 3.3 to Amendment No. 3 to the
Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
4.1 Form of Underwriters Warrant, incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the
Company's Registration Statement on Form SB-2
(Registration No. 33- 76200).
4.2 1994 Stock Option Plan, incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement
on Form SB-2 (Registration No. 33-76200).
4.3 Form of Stock Certificate, incorporated by reference
to Exhibit 4.3 to Amendment No. 3 to the Company's
Registration Statement on Form SB-2 (Registration
No. 33-76200).
10.1 Indenture of trust, dated as of December 1, 1984, as
amended and supplemented by a First Supplemental
Indenture of trust, dated as of September 1, 1986, a
Second Supplemental Indenture of trust, dated as of
August 1, 1987, a Third Supplemental Indenture of
Trust, dated as of September 1, 1986,a Fourth
Supplemental Indenture of Trust, dated as of October
1, 1990, between United States Trust Company of New
York and Nassau County Industrial Development
Agency, incorporated by reference to Exhibit 10.1 to
the Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.2 Solid Waste Disposal Agreement, dated as of April
15, 1986, between the City of Long Beach and S&S
Incinerator Joint Venture, incorporated by reference
to Exhibit 10.1 to the Amendment No. 1 to the
Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
10.3 Power Purchase Agreement, dated as of September 25,
1987, between Long Island Lighting Company and
Catalyst Waste-to-Energy Corporation of Long Beach,
incorporated by reference to Exhibit 10.3 to the
Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.4 Installment Sale Agreement, dated as of December 1,
1984, as amended by an Amendatory Sale Agreement,
dated as of September 1, 1987, and a Second
Amendatory Sale Agreement, dated as of October 1,
1990, between Nassau County Industrial Development
Agency and Catalyst Waste-to-Energy Corporation of
Long Beach, incorporated by reference to Exhibit
10.4 to the Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (Registration
No. 33-76200).
10.5 Lease Agreement, dated as of November 16, 1984,
between the City of Long Beach and S&S Incinerator
Joint Venture, together with the Assignment thereof
to the Nassau County Industrial Development Agency,
incorporated by reference to Exhibit 10.5 to the
Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.6 Employment Agreement with Robert M. Rubin,
incorporated by reference to Exhibit 10.2 to the
Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.7 Employment Agreement with Joseph J. Wisneski,
incorporated by reference to Exhibit 10.7 to the
Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.8 Letter Agreement, dated January 3, 1995, between
Catalyst Energy Corporation and the Company,
incorporated by reference to Exhibit 10.8 to the
Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
23
<PAGE>
10.9 Form of Forbearance Agreement, among the Company and
the other parties named therein, incorporated by
reference to Exhibit 10.9 to the Amendment No. 1 to
the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
10.10 Solid Waste Disposal Agreement, dated as of May 13,
1992, between the City of Long Beach and Long Beach
Recycling and Recovery Corp., incorporated by
reference to Exhibit 10.10 to the Amendment No. 1 to
the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
10.11 Promissory Note, dated March 1, 1995, from the
Company to American Medical Waste, incorporated by
reference to Exhibit 10.11 to the Amendment No. 3 to
the Company's Registration Statement on Form SB-2
(Registration No. 33-76200).
10.12 Form of Settlement Agreement, between LBRR and the
Union, incorporated by reference to Exhibit 10.12 to
the Amendment No. 3 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.13 Lease Agreement, dated as of May 13, 1992, between
the City of Long Beach, New York, Nd LBRR,
incorporated by reference to Exhibit 10.13 to the
Amendment No. 3 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-76200).
10.14 Special Waste Disposal Agreement, dated April 5,
1995, between American Ref-Fuel Company of Hempstead
and ERD Waste Corp., incorporated by reference to
Exhibit 10.14 to the Amendment No. 3 to the
Company's Registration Statement on Form SB-2
(Registration No. 33-76200)
10.15 Letter from Philip L. Pascale, on change in
certifying accountant, incorporated by reference to
Exhibit 16.1 to the Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (Registration
No. 33-76200).
21.1 Subsidiaries of the Registrant.
24.1 Power of Attorney, incorporated by reference to
Exhibit 24.1 to the Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (Registration
No. 33-76200).
27 Financial Data Schedule
(c) REPORTS ON FROM 8-K.
No reports on Form 8-K have been filed during the last quarter
of the Fiscal Year ended January 31, 1996.
24
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 14, 1996 ERD WASTE CORP.
By:_/s/ Robert M.Rubin
__________________
Robert M. Rubin
Chairman of the Board
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
indicated.
Signature Title
/s/ Robert M. Rubin Chairman of the Board and
- ------------------- Chief Executive Officer
Robert M. Rubin
/s/ Joseph J. Wisneski Director, President, and
- ---------------------- Chief Operating Officer
Joseph J. Wisneski
/s/ Marc P. McMenamin Director, Chief Operations Manager
- --------------------- of the Company
Marc P. McMenamin
/s/ D. David Cohen Director
- ------------------
D. David Cohen
/s/ Carl Frischling Director
- -------------------
Carl Frischling
/s/ Peter Reuter Director
- ----------------
Peter Reuter
25
<PAGE>
ERD WASTE CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
Report of Independent Auditors F-2
Consolidated Balance Sheets as
at January 31, 1995 and 1996 F-3
Consolidated Statements of
Income for the years ended
January 31, 1995 and 1996 F-4
Consolidated Statements of
Stockholders' Equity for the
years ended February 1,
1993, January 31, 1994, January
31, 1995 and January 31, 1996 F-5
Consolidated Statements of Cash
Flows for the years ended
January 31, 1995 and 1996 F-6
Notes to Consolidated Financial
Statements for the years ended
January 31, 1996 and 1995 F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
ERD Waste Corp.
We have audited the accompanying balance sheet of ERD Waste Corp. and
Subsidiaries as of January 31, 1996 and 1995 and the related statement of
operations, stockholders' equity and cash flows for the years then ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ERD Waste Corp. and
Subsidiaries as of January 31, 1996 and 1995 and the results of its operations
and cash flows for the two years ended January 31, 1996 in conformity with
generally accepted accounting principles.
/s/Feldman Radin & Co., P.C.
----------------------------
Certified Public Accountants
New York, New York
April 19, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
------------------------------
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1422214 $ 280458
Restricted certificates of deposit 800000
Accounts receivable, less allowance for doubtful accounts of
$90,000 and $53,000, respectively 2491731 1084399
Prepaid expenses and other current assets 168393 44523
Inventory 160636 0
------------ ------------
TOTAL CURRENT ASSETS 5042974 1409380
------------ ------------
PROPERTY, PLANT and EQUIPMENT, less accumulated
depreciation of $617,600 and $172,828, respectively 11687575 11324576
------------ ------------
OTHER ASSETS:
Restricted certificates of deposit 950000
Goodwill, less accumulated amortization 1031628 0
Covenants not to compete, less accumulated amortization 316938 0
Loan receivable - Environmental Services of America, Inc. 500000 0
Deferred registration costs 0 201011
Deferred permit costs 136058 0
Other assets 179580.19 0
------------ ------------
TOTAL OTHER ASSETS 3114204.19 201011
------------ ------------
$19844753.19 $ 12934967
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1868743 $ 1790403
Accrued expenses 1130420 530818
Income taxes payable 740012 527000
Current portion- notes payable 1271667 8000000
Notes payable- stockholder 0 479813
------------ ------------
TOTAL CURRENT LIABILITIES 5010842 11328034
------------ ------------
LONG-TERM DEBT, less current portion 1244488 684521
------------ ------------
DEFERRED INCOME TAXES 250000 0
------------ ------------
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000 shares, $.001 par value;
none issued and outstanding 0 0
Common stock, authorized 15,000,000 shares, $.001 par value;
5,832,782 and 3,837,500 shares issued and outstanding,
respectively 5833 3838
Additional paid in capital 10356651.19 169266
Retained earnings 0 0
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10362484.19 173104
------------ ------------
$16867814.19 $ 12185659
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended January 31,
---------------------------
1996 1995
------------ ------------
REVENUES:
Net sales $ 12016098 $ 6708209
Insurance Proceeds 3200000 0
------------ ------------
TOTAL REVENUES 15216098 6708209
COST OF SALES 6098030 3167715
------------ ------------
GROSS PROFIT 9118068 3540494
SELLING, GENERAL and ADMINISTRATIVE EXPENSES 5455197 2175613
------------ ------------
INCOME FROM OPERATIONS 3662871 1364881
------------ ------------
OTHER INCOME AND EXPENSES:
Interest and dividend income 100370 0
Interest expense (71015) (46588)
Other, net 16651 0
------------ ------------
TOTAL OTHER INCOME AND EXPENSES 46006 (46588)
------------ ------------
INCOME BEFORE INCOME TAXES 3708877 1318293
PROVISION FOR INCOME TAXES 1481245 527000
------------ ------------
NET INCOME $ 2227631 $ 791293
============ ============
INCOME PER SHARE:
NET INCOME PER COMMON SHARE $ 0.41 $ 0.20
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 5490487 3963000
============ ============
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance- February 1, 1993 3525000 $ 3500 $ 0 $ (112248) $ (108748)
Net income 0 0 0 70263 70263
------- ---- -------- ------- --------
Balance- January 31, 1994 3525000 3500 0 (41985) (38485)
Common shares issued in connection
with acquisition 312500 338 169266 0 169604
Net income 0 0 0 791293 791293
------- ---- -------- ------- --------
Balance- January 31, 1995 3837500 3838 169266 749308 922412
Common shares issued in connection
with public offering 2250000 2250 12110720 0 12112970
Reacquisition of common shares (300000) (300) (2018600) (131100) (2150000)
Issuance of common shares in
connection with the acquisition
of EATS, Inc. 45282 45 226365 0 226410
Net income 0 0 0 0 0
------- ---- -------- ------- --------
Balance- January 31, 1996 5832782 $ 5833 $ 10487751 $ 618208 $11111792
======= ========= ========== ========= =========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 31,
-------------------------
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 0 $ 0
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 441719 160000
Amortization 93322 0
Provision for uncollectible accounts receivable 37000 0
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1444332) 191200
(Increase) in inventory (160636) 0
(Increase) decrease in prepaid expenses and other current assets (123870) 323615
Increase in other assets (442325) (11474)
(Increase) decrease in deferred income taxes (44906) 527000
Increase (decrease) in accounts payable and accrued expenses 777942 (282532)
Increase in income taxes payable 507918 0
(358168) 907809
NET CASH PROVIDED BY ( USED IN) OPERATING ACTIVITIES (358168) 907809
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (904718) (1642230)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable- repayment (8876929) (48906)
Borrowings 859750 181350
Issuance of common stock 10444190 31807
Advances to Environmental Services of America, Inc. (500000) 0
Increase in restricted certificates of deposit (1750000) 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 177011 164251
NET INCREASE IN CASH (1085875) (570170)
CASH, at beginning of period (510835) 59335
CASH, at end of period $ (1596710) $ (510835)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 51030 $ 46588
Income taxes paid $ 975633 $ 0
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ERD WASTE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
1. ORGANIZATION AND INITIAL PUBLIC OFFERING OF COMMON SHARES
On March 1, 1994, ERD Waste Corp., formerly Environmental Resources and
Disposal, Inc. ("ERD") merged with a Delaware corporation organized for the
purpose of changing the Company's situs to Delaware and effecting a
recapitalization of stock. In the merger and recapitalization, each share of
common stock was exchanged for 1,762.5 shares of common. All share amounts have
been restated to give effect to this recapitalization. ERD has adopted a fiscal
year ended January 31.
The Company has authorized 2,000,000 shares of preferred stock $.001
par value per share.
In May 1995, the Company completed an Initial Public Offering (the
"Offering") of 2,250,000 shares of its Common Stock. Net proceeds to the Company
from the Offering, after deduction of associated expenses, were approximately
$12,113,000.
2. LINE OF BUSINESS
The Company is a diversified waste management company specializing in
the management and disposal of municipal solid waste, industrial and commercial
non-hazardous solid waste, and industrial and commercial hazardous waste. The
Company's activities focus upon the incineration of municipal solid waste and
industrial and commercial non-hazardous waste and the utilization of the steam
produced thereby in the cogeneration of electricity, the brokerage and
transportation of waste, and the provision of advisory, consulting, and
technical services to generators of waste with respect to the waste site
investigation, waste analysis, and the recycling and disposal of industrial and
commercial hazardous waste in accordance with applicable regulatory guidelines.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated.
b. Accounting Estimates- The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and
F-7
<PAGE>
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 reported
period. Actual results could differ from those estimates.
c. Revenue Recognition- Revenue is recognized at the date the related
service is rendered. Income is charged with an allowance for doubtful
receivables based on prior collection experience and a review of the
collectibility of specific accounts.
d. Cash and Cash Equivalents- Cash and cash equivalents consist of cash
and temporary investments with maturities of three months or less when
purchased.
e. Property, Plant and Equipment and Depreciation- Property, plant and
equipment are stated at cost. Depreciation is computed using the straight-line
method over the useful lives of the asset. Assets range in useful lives from 7
years for equipment to 30 years for building and waste facility.
f. Earnings per share- Earnings per share is based upon the average
shares outstanding during the period increased by the effect, if dilutive, of
common stock equivalents. The options to purchase common stock referred to in
Note 11 are also included in the computation of outstanding shares and common
stock equivalents.
g. Stock options - In October 1995 the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation", which is effective for the
Company beginning with the fiscal year ending January 31, 1996. SFAS No. 123
requires expanded disclosures of stock-based compensation arrangements with
employees and encourages compensation cost to be measured based on the fair
value for the equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes compensation cost based
on the intrinsic value of the instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees.
h. Recent pronouncements - In March 1995 the FASB issued SFAS
No.121,"Accounting for the Impairment of Long Lived Assets and For Long-Lived
Assets to be Disposed Of", which is effective for fiscal years beginning after
December 15, 1995. This statement requires that long-lived assets and certain
identifiable intangible assets to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The adoption by the Company of this
statement in Fiscal 1997 is not expected to have any material impact on the
consolidated financial statements of the Company.
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<PAGE>
4. BUSINESS COMBINATIONS
a. On April 16, 1994, ERD acquired ECT in a transaction accounted for
as a purchase. Results of ECT's operations subsequent to the date are included
in these consolidated financial statements. In the transaction, ERD issued
312,500 of its common shares in exchange for all of ECT's issued and outstanding
common shares. The acquisition was recorded at the historical cost of ECT's net
assets acquired (approximately $170,000).
b. As discussed in Note 1, on August 31, 1994, ERD acquired C&J
Enterprises, Inc. in a transaction accounted for as a purchase. Results of C&J's
operations subsequent to that date are included in these consolidated financial
statements. ERD paid and agreed to assume specified liabilities of C&J
Enterprises, Inc. and its wholly owned subsidiary (Long Beach Recycling and
Recovery Corp., (LBRR)), subject to certain adjustments. Among the liabilities
assumed were certain Industrial Revenue Bonds. Cost of the acquisition was
determined by totaling the amount of the liabilities assumed. The following
summarizes the amounts allocated to the assets acquired and liabilities assumed
in the transaction:
Industrial Revenue Bonds $ 7,000,000
Note Payable 1,500,000
Other Liabilities assumed, net 1,109,029
Costs of the Transaction 105,375
-----------
Cost of Property, Plant and
Equipment acquired $ 9,714,404
===========
c. In October, 1995, a newly formed wholly owned subsidiary, Now known as
Absorbent Manufacturing Technology, Inc. ("AMT"), acquired certain assets and
assumed certain liabilities of Environmental Absorbent Technologies, Inc. in
exchange for 45,282 shares of the Company's common stock. These acquisition
shares have not been registered under the Securities Act of 1933 and may not be
sold or transferred by the seller otherwise than in compliance with the
registration requirements of the Securities Act of 1933 or pursuant to an
exemption from such requirements.
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<PAGE>
The following summarizes the amounts allocated to the assets acquired
and liabilities assumed in this transaction:
Current assets $ 313,115
Property and equipment 165,156
Value of goodwill acquired 1,044,000
Current liabilities (529,287)
Other liabilities (766,574)
---------
Value of ERD common shares
issued to EATS shareholders $ 226,410
==========
Each of the aforementioned transactions have been accounted for as
purchases, and accordingly, the Company's results of operations includes the
results of the acquired entities from their respective dates of acquisition.
Pro-forma results of operations for the Company as if the aforementioned
acquisitions took place on February 1, 1994 are as follows:
Years ended January 31,
-----------------------
1996 1995
----------- ----------
Revenues $16,269,000 $9,169,359
Net income $ 2,179,000 $ 672,425
Net income per share $ 0.40 $ 0.11
Number of shares used in
calculation 5,490,487 6,028,500
5. INSURANCE PROCEEDS
On July 25, 1995, the Company had a major fire at the Long Beach
Facility. The fire significantly damaged the incinerator and reduced or
prevented its operation for approximately two months. After the fire, the
Company devoted a major effort to repairing the incinerator, upgrading it where
appropriate and servicing its customers when the incinerator could not properly
function. Other disposers had to be utilized for waste which otherwise would
have been incinerated by the Company. In addition to the loss of incineration
income, the Company lost significant sales of electricity.
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<PAGE>
The Company was covered by insurance for both damage and business
interruption. In November 1995, the Company settled its claim with the insurance
company, collecting a total of $3,200,000. Because of the inability to determine
exactly what costs it expended during the year for the incinerator and the
appropriate portion of the recovery representing reimbursement for business
interruption, the financial statements reflect the insurance recovery as
revenues. All expenditures relating to the fire, the repair of the incinerator,
management effort to both repair the incinerator and service customers have been
included in expenses.
Management believes that the incinerator has been brought back to its
operating capability prior to the fire. Accordingly, the incinerator has been
recorded at its cost through July 24, 1996 less appropriate depreciation.
6. STOCK REPURCHASE
On August 31, 1995 the Company entered into to an agreement to
reacquire the stock of two former officers of ECT. The Company purchased 300,000
common shares from these officers for $2,150,000. In connection with the
repurchase of such shares, the Company issued promissory notes to the two former
stockholders, each in the original amount of $1,075,000. The promissory notes
are collateralized by certificates of deposit owned by the Company in the amount
of $1,750,000 at January 31, 1996. The notes, which bear interest at 6% per
annum, are repayable in quarterly installments of $200,000 in the aggregate,
with a final installment of $150,000 due February 1998. As the Company makes the
required quarterly installments, an equal amount of collateral is released and
becomes available for the Company's general use. Accordingly, $800,000 of such
restricted certificates of deposit have been classified as a current asset as
the related liability is classified as a current liability. The repurchased
shares were not retired, and are available for future issuance by the Company.
In connection with the stock repurchase the employees right to exercise
certain qualified options relative to 150,000 additional common shares of the
Company were canceled, except with respect to 10,000 shares which remain
available to each shareholder for exercise to and until February 17, 1997,
provided that the former stockholder is still serving as a consultant to the
Company, as provided in the settlement agreement.
7. PROPOSED ACQUISITION OF ENVIRONMENTAL SERVICES OF AMERICA, INC.
In January, 1996, the Company, ENSA Acquisition Corp. ("EAC"), a wholly
owned subsidiary of the Company, and Environmental Services of America, Inc.
("ENSA"), a diversified environmental services company specializing in the
identification, management, treatment, transportation and disposal of hazardous
and non-hazardous waste, remediation of hazardous waste sites, air quality
testing and monitoring services and equipment, and consulting and technical
support services related to all of the foregoing, entered into an agreement and
plan of merger (the "Original Merger Agreement") whereby EAC would be merged
with and into ENSA, the result of which would be that ENSA would become a
subsidiary of the Company. In April, 1996, the Original Merger Agreement was
amended and restated in its entirety and is discussed below, as amended and
restated.
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<PAGE>
In January, 1996, simultaneously with the execution of the Original
Merger Agreement and in contemplation of the acquisition of ENSA by the Company,
the Company executed a securities purchase agreement (the "Securities Purchase
Agreement") providing for the loan by the Company to ENSA (the "Bridge Loan") of
$500,000 for working capital purposes. The Securities Purchase Agreement also
provided for the issuance to the Company of 500,000 shares of common stock of
ENSA. Pursuant to the terms of the Securities Purchase Agreement, such shares of
common stock have been placed in escrow. In the event ENSA is not acquired by
the Company prior to the dates referenced in this sentence, one half of such
shares will be released to the Company on December 31, 1996 if the Bridge Loan
is not repaid on or before such date, and on December 31, 1997, one half of such
shares will be released to the Company if the Bridge Loan or any portion
thereof, remains unpaid and there occurs a Change of Control Event (as defined)
occurs under the Bridge Loan and ERD declares the Bridge Loan immediately due
and payable. Otherwise, such shares will be delivered to ENSA upon the repayment
in full of the Bridge Loan, if prior to the acquisition of ENSA by the Company.
In April 1996, the Company entered into an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") with ENSA. Pursuant to the
terms of the Merger Agreement, the Company, through its subsidiary ENSA
Acquisition Corp. ("EAC"), will acquire ENSA and its subsidiaries through the
merger of EAC with and into ENSA. In order to facilitate the acquisition of
ENSA, the Company, through EAC, launched a tender offer (the "Offer") on April
4, 1996 for the purchase of shares of common stock of ENSA at a purchase price
of $1.66 per share. The aggregate purchase price for all outstanding shares of
common stock of ENSA, other than shares currently owned by the Company is
$6,358,718. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer, a
number of shares of common stock of ENSA representing at least a majority of the
total number of outstanding shares of ENSA, other than those shares held by the
Company, on a fully diluted basis as of the date such shares of common stock are
accepted for payment pursuant to the Offer.
Simultaneously with its entry into the Merger Agreement, the Company
entered into a stock purchase agreement with in excess of 90% of the holders of
each class of preferred stock of ENSA (the "Stock Purchase Agreement"). The
aggregate purchase price for the shares of preferred stock of ENSA to be
purchased pursuant to the Stock Purchase Agreement is $1,253,614. The closing of
the Stock Purchase Agreement is conditioned upon, and will close simultaneously
with, the consummation of the tender offer.
On May 1, 1996, over 90% of ENSA's outstanding shares were tendered to
the Company. On May 6, 1996, the formal closing was held and the Company made
payment for the purchase of the tendered preferred and common stock.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and its waste facility under
operating leases. One of the Company's subsidiaries has entered into a lease
agreement with its local municipality
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customer with respect to the underlying the waste facility. The operating lease
has a twenty year term which expires in December, 2007. Rental expense is based
on the volume of solid waste burned at the facility. Additionally, ERD and ECT
have leases on office space; both leases expire in 1997. Minimum lease
commitments under all operating leases for each of the next five years and
thereafter are as follows:
1997 $271,000
1998 252,000
1999 237,000
2000 247,000
2001 247,000
Thereafter 1,643,000
The Company is subject to a number of lawsuits arising from the conduct
of the prior owners of the waste facility. While the ultimate results of the
litigation commenced and potential litigation cannot be determined, management
does not expect that any of the matters will have a material adverse effect on
the consolidated financial position of the Company.
Incineration of solid waste has taken place at the Facility Site since
1951. Various past practices, although they may have been fully lawful and
within standard engineering practices at the time, have resulted in ash
constituents being present in the soils and upper level groundwater beneath the
Facility. LBRR has had conducted a phase I and phase II environmental assessment
of the level of constituents present and the remedial actions which may be
needed at the Facility Site. The Company is currently examining this issue to
determine a possible plan for such remediation and is in the process of
contracting the City of Long Beach, New York, the owner of the Facility Site, as
well as predecessor operators of the Facility regarding such plan and the
funding thereof. Based upon information known to date, the Company has
established a reserve of $300,000 related to the estimated costs of remediation
and compliance.
9. PROPERTY, PLANT AND EQUIPMENT
The following is a summary for property, plant and equipment:
January 31,
--------------------------
1996 1995
----------- -----------
Machinery $ 637,898 $ 590,650
Waste Facility 9,341,645 8,544,893
Building and
Building Improvements 2,220,440 2,220,440
Other 102,139 141,421
12,302,122 11,497,404
Accumulated Depreciation (614,547) (172,828)
---------- ----------
$11,687,575 $11,324,576
=========== ===========
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<PAGE>
10. LONG TERM DEBT
The long term debt is summarized as follows on January 31, 1996:
January 31,
--------------------------
1996 1995
----------- -----------
Note Payable-Catalyst, payable in equal
annual installments through 1999 $400,000 $500,000
Note Payable in equal monthly installments
of $4,067 including interest at 8.5%,
commencing on January 5, 1995 182,325
Notes Payable - Former Stockholders payable
in quarterly installments of $200,000 with
a final installment of $150,000 in February,
1998 at 6% per annum 1,750,000 --
Notes Payable in equal monthly installments
of 10,700 including interest at 8% commencing
February, 1996 296,415 --
Other 69,740 2,196
--------- -------
2,516,155 684,521
Less current portion 1,271,667 --
--------- ---------
$1,244,488 $684,521
========== ========
In order to partially finance the purchase of the common stock and
preferred stock of ENSA, in April 1996, the Company obtained a $7.5 million
revolving credit facility (the "Revolving Facility") from Chemical Bank (the
"Bank") pursuant to a loan agreement (the "Loan Agreement"), dated March 29,
1996. The Loan Agreement provides, among other things, for the payment by ERD of
a commitment fee, payable monthly, computed at the rate
F-14
<PAGE>
of one quarter of one percent (1/4%) per annum (computed on the actual number of
days elapsed over 360 days) on the average daily unused amount of the Bank's
$7.5 million commitment. Revolving loans in respect of the Revolving Facility
("Revolving Loans") shall be, at the Company's request, either (i) Alternative
Base Rate Loans (as defined) which bear interest calculated at the Alternative
Base Rate (as defined) plus one half of one percent (1/2%) or (ii) Eurodollar
Loans (as defined) which bear interest calculated at the adjusted LIBOR Rate (as
defined) plus three and one half percent (3 1/2%)(or a combination thereof).
Subject to the terms of the Loan Agreement, the Revolving Facility will
be available until April 1, 1998 (the "Conversion Date"), at which time, all
outstanding principal and accrued interest under the Revolving Facility shall be
due and payable.
Provided no Event of Default (as defined) exists, on the Conversion
Date, the Company may, upon request by it, be granted a term loan (the "Term
Loan") in an amount equal to the lesser of the Bank's Commitment (as defined) or
the aggregate principal amount of Revolving Loans then outstanding. The proceeds
of the Term Loan are to be used by ERD exclusively to satisfy obligations to the
Bank under any Revolving Loan existing at the Conversion Date. The Term Loan
shall, at the option of the Company, be an Alternative Base Rate Loan or a
Eurodollar Loan (or a combination thereof). If the Term Loan is an Alternative
Base Rate Loan, it will bear interest at the Alternative Base Rate plus one
percent (1%). If the Term Loan is a Eurodollar Loan, it will bear interest at
the Adjusted LIBOR Rate plus three and one half percent (3 1/2%).
The Loan Agreement allows the Company, on or after the Conversion Date
and subject to the terms of the Loan Agreement, to (i) continue any Eurodollar
Loan or portion thereof into a subsequent Interest Period (as defined) or (ii)
convert an Alternative Base Rate Loan into a Eurodollar Loan.
The Loan Agreement provides for the granting by the Company and each of
the Guarantors listed above of a first priority security interest in all present
and future accounts, contract rights, chattel paper, general intangibles,
instruments and documents of the Company and such Guarantors then owned or
thereafter acquired, and in all machinery and equipment acquired by the Company
and such Guarantors after the date of the Loan Agreement.
The obligations of the Bank to make each Revolving Loan under the
Revolving Facility are conditioned on certain conditions, including the
following: (i) delivery of a certificate from the Company and each of the
Guarantors stating the representations and warranties contained in the Loan
Agreement are true and correct; (ii) no default or material adverse change in
the Company or any Guarantor has occurred; and (iii) the purpose for which the
proceeds of such Revolving Loan is being made.
The Loan Agreement contains traditional and customary representations,
warranties and events of default.
The Company has agreed to indemnify Chemical against any loss or
expense which
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<PAGE>
Chemical may sustain or incur as a consequence of any default in payment or
prepayment of the principal amount of any Loan (as defined) or any part thereof
or interest accrued thereon, as and when due and payable on the occurrence of
any Event of Default (as defined).
Subject to the terms of the Loan Agreement, the Company has the right
at any time and from time to time to prepay any Alternate Base Rate Loan, in
whole or in part, without premium or penalty, on the same day that telephonic
notice is given to Chemical advising it of prepayment. In addition, the Company
has the right to prepay any Eurodollar Loan, in whole or in part, on three
Business Days' prior irrevocable notice, provided, however, that such prepayment
may only be made on an Interest Determination Date (as defined).
On May 2, 1996, the Company borrowed $7,500,000 under the
aforementioned facility, which amount remains outstanding.
11. INCOME TAXES
The provision for income taxes consists of the following:
Year Ended January 31,
----------------------
1996 1995
---- ----
Current tax expense:
U.S. Federal $ 935,000 $ 400,000
State and local 296,000 127,000
--------- -------
1,231,000 527,000
--------- -------
Deferred tax expense:
U.S. Federal 200,000 --
State and local 50,000 --
--------- -------
250,000 --
--------- -------
Total provision $ 1,481,000 $ 527,000
=========== =========
Temporary differences and carryforwards which give rise to deferred tax
liabilities at January 31, 1996 are as follows:
Deferred tax liabilities:
Insurance proceeds received treated as a basis
reduction for tax purposes $250,000
========
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<PAGE>
The difference between the actual income tax provision and the tax provision
computed by applying the statutory Federal income tax rate to earnings before
taxes is attributable to the following:
Year Ended January 31,
----------------------
1996 1995
---- ----
Income tax provision at 34% $ 1,261,000 $ 448,000
State and local income taxes,
net of Federal income effect 220,000 79,000
--------- -------
1,481,000 527,000
========= =======
12. EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with its President and
Chief Operating Officer of the Company, through December 31, 1998. The agreement
provides for a salary of $175,000 per annum commencing January 1, 1995, with an
annual increase of a minimum of $25,000 per annum through the term of the
agreement.
The Company has also entered into an employment agreement with its
Chairman of the Board and Chief Executive Officer of the Company, through
December 31, 1998. The employment agreement provides for a salary of $150,000
per annum commencing January 1, 1995.
13. EMPLOYEE STOCK OPTIONS
The Company has established the 1994 Stock Option Plan under which
employees of the Company may receive incentive stock options for up to 500,000
shares of common stock. During May, 1994, 225,000 options were granted pursuant
to the plan, exercisable at $4.00
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<PAGE>
per share for two years.
14. MAJOR CUSTOMERS
During the year ended January 31, 1996, one customer accounted for
approximately 17.4% of consolidated net sales.
F-18
EXHIBIT 21.1
SUBSIDIARIES OF ERD WASTE CORP. AT JANUARY 31, 1996
Name State Additional Names
of of Under Which
Subsidiary Incorporation Subsidiary Does Business
- ---------- ------------- ------------------------
Environmental Waste DE
Incineration, Inc.
ERD Waste Corp. of Illinois IL "ECT"
ERD Waste Corp. DE
Indiana
ENSA Acquisition Corp. DE
Absorbent Manufacturing & IL
Technology, Inc.
C & J Enterprises, Inc. DE
Long Beach Recycling & NY
Recovery Corp.
ERD Management Corp. NY
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<NAME> ERD WASTE CORP.
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<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-1-1995
<PERIOD-END> JAN-31-1996
<CASH> 1,422,214
<SECURITIES> 0
<RECEIVABLES> 2,491,731
<ALLOWANCES> 90,000
<INVENTORY> 160,636
<CURRENT-ASSETS> 5,042,974
<PP&E> 12,302,122
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<OTHER-EXPENSES> 46,006
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<INTEREST-EXPENSE> 71,015
<INCOME-PRETAX> 3,708,877
<INCOME-TAX> 1,481,246
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