ERD Waste Corp.
937 East Hazelwood Avenue
Rahway, New Jersey 07065
March 3, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
RE: Amended Report on Form 10-KSB of ERD Waste Corp.
Dear Sir/Madam:
On behalf of ERD Waste Corp. (the "Company") and in accordance with
Section 13 (a) (2) of the Securities Exchange Act of 1934, as amended,
enclosed herewith for filing is the Company's amended Report on Form
10-KSB-A for the period ending September 30, 1996.
The sole amendment involves the designation of Joseph Wisneski as
Principal Accounting Officer on the signature page.
Sincerely,
T. Kevin Sheehy
General Counsel
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB-A
ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from February 1, 1996 to September 30, 1996
Commission File No. 33-76200
ERD WASTE CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-3121813
- ------------------------ ------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
937 E. Hazelwood Ave., Bldg. 2, Rahway, NJ 07065
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 908-381-9229
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The aggregate market value as of February 7, 1997 the common stock held by non-
affiliates of the registrant was approximately $6,751,270
As of February 7, 1997 there were 6,494,669 shares of the registrant's common
stock, $.001 par value, outstanding.
Documents Incorporated by Reference: None
ERD WASTE CORP.
Form 10-KSB
Period Ended September 30, 1996
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 20
Item 4 Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . 22
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . 23
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 24
Item 7 Financial Statements and Supplementary Data . . . . . . . . . . 32
Item 8 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . 32
PART III
Item 9 Directors and Executive Officers of the Registrant . . . . . . . 33
Item 10 Executive Compensation . . . . . . . . . . . . . . . . . . . . . 35
Item 11 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . 39
Item 12 Certain Relationships and Related Transactions . . . . . . . . . 40
PART IV
Item 13 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 42
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
ERD Waste Corp. (the "Company or "ERD") 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, and
provides brokerage, advisory, consulting and technical services to generators of
waste. The Company owns and operates three strategically located hazardous
waste treatment, storage and disposal ("TSD") facilities, and provides
environmental services including: consulting , technical contracting, tank
management, site remediation, indoor and outdoor air quality testing and
monitoring services and equipment, and technical support services related to all
of the foregoing. In addition, the Company incinerated municipal solid wastes
and industrial and commercial non-hazardous solid wastes at its Long Beach, New
York facility. As a result of a complaint filed against the Company by the New
York Department of Environmental Conservation, the Company agreed, among other
things to cease the incineration operation of the facility by March 31, 1997.
The Company anticipates that the facility at Long Beach will be converted to a
solid waste transfer station. The Company also manufactures various sorbent
products for use in various industrial marine, automotive and janitorial
applications at its plant in East Stroudsburg, Pennsylvania and recycles oil
filters at its facility in Waco, Texas.
The Company has been in control of the operations of Environmental
Services of America, Inc. ("ENSA") since May 6, 1996. During this time,
management of the two entities has been integrated and certain steps have been
taken to achieve operating efficiencies.
(A) BUSINESS DEVELOPMENT
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 "Long Beach 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 and
increase marketing efforts.
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. ("ERD-IL"). ERD-IL provides brokerage,
advisory, consulting and technical services to generators of non-hazardous
industrial and commercial solid waste and hazardous waste.
On July 1, 1994, the Company assumed the management of the Long Beach
Facility pursuant to a management agreement with LBRR and in August 1994 the
Company acquired the Long Beach Facility through the acquisition of the capital
stock of C&J Enterprises, Inc. ("C&J"), the parent of LBRR. 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. Since the foreclosure, all the operations at the Long Beach
Facility have been conducted by EWII.
In January, 1995, the Company acquired secured indebtedness of
Envirovision, Inc. and subsequently foreclosed upon the collateral securing such
indebtedness primarily accounts receivable and contracts in process. To
complete certain contracts in process, ERD-ENV employed a number of former
employees of Envirovision and began storage tank management (removal and
installation) consulting, remediation, and ancillary operations in Congers, New
York and Baltimore, Maryland.
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 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.
In April, 1996, the Company and its subsidiary, ENSA Acquisition Corp
("EAC") entered into an Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") with ENSA. In order to facilitate the acquisition of ENSA
and pursuant to the terms of the Merger Agreement, the Company and EAC launched
a tender offer (the "Tender 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 Tender Offer and on May
6, 1996 the Company purchased the tendered shares at an aggregate purchase price
of $5,865,967 as well as more than 90% of each class of preferred stock of ENSA
(the "ENSA Preferred Stock") for a purchase price of $1,253,614. The Company
expects to acquire the remaining Common and Preferred Stock of ENSA through a
merger of EAC into ENSA in 1997.
ENSA was incorporated in 1981, and had conducted substantially all
operations through the following subsidiary corporations organized or acquired
since 1987 which ERD required pursuant to the Merger Agreement:
ERD ENVIRONMENTAL, INC. ("ERD-ENV") (formerly ENSA Environmental, Inc.)
functions as the Company's consulting, environmental engineering, air monitoring
and testing and technical contracting division. ERD-ENV was incorporated in
August 1994 coincident with the Company's acquisition of certain assets and
liabilities of Earth Science Technologies, Inc. ("EST"), an environmental
consulting and remediation firm with offices in Kentucky, West Virginia, Ohio
and Illinois. The assets acquired from EST were transferred to ERD-ENV and,
effective January 1, 1995, the following subsidiaries and operations of the
Company were merged into ERD-ENV completing a consolidation of the Company's
environmental engineering, consulting, air monitoring and testing and technical
contracting operations:
ENSI, INC. ("ENSI"), acquired in July 1987, provides environmental
management, transportation and cleanup services to generators and handlers of
hazardous waste materials, primarily in New Jersey and adjacent states.
TRI-S, INCORPORATED ("TRI-S"), acquired in March 1992,is a hazardous
waste management, transportation and disposal company with offices in Ellington,
Connecticut.
NORTHEAST ENVIRONMENTAL SERVICES, INC. ("NES"), acquired in November
1988, owns and operates a Part-B permitted hazardous waste storage, treatment
and transfer facility located in Canastota, New York pursuant to the Resource
Conservation and Recovery Act of 1976 ("RCRA"). NES's treatment capabilities
include fuel blending, bulking, acid base neutralization and consolidation,
aqueous liquid pretreatment and lab pack processing. The NES facility is one of
a limited number in the northeast which specializes in serving generators of
small to medium sized quantities (less than a truckload) of drummed and bulk
waste.
ENVIRONMENTAL SERVICES OF AMERICA-IN, INC. ("ENSA-IN") acquired in
April 1994, owns and operates a RCRA Part-B permitted hazardous waste storage,
treatment and transfer facility located in South Bend, Indiana. ENSA-IN's
treatment capabilities include fuel blending especially in conjunction with
liquification of drummed solids and sludges, consolidation, transfer, and
shredding of consumer goods. The site has an above ground tank farm with a
capacity of 178,000 gallons giving the site excellent capabilities in blending
and bulk receiving. The site has a mechanized drum processing system which, in
conjunction with the tank farm, allows drummed solids and sludges to be
liquified and maintained in the tank farm.
ENVIRONMENTAL SERVICES OF AMERICA-MO, INC. ("ENSA-MO"), acquired in
April 1994, owns and operates a RCRA Part-B permitted hazardous waste storage,
treatment and transfer facility located in Scott City, Missouri. ENSA-MO's
treatment capabilities include fuel blending, bulking and consolidation, and
extensive solid fuel processing capabilities. The site was originally a
reclamation facility turning hazardous wastes into beneficial fuels used to
power cement kilns. Although these resource recovery operations are now
governed by the Resource Conservation and Recovery Act of 1976 ("RCRA"), the
site's primary focus remains the same. ENSA-MO's permit allows for the
liquification of sludge and solids into a liquid fuel, the conventional form
accepted by cement kilns. Sludge and solids not amenable to liquification can be
processed through a series of drying operations, followed by grinding and
shredding to create a solid fuel used at a limited number of cement kilns as an
alternate fuel. One of the site's buildings was destroyed by a fire in 1991,
prior to ENSA's acquisition, and will require rebuilding.
INTERNATIONAL EXPLORATION, INC., since its inception in 1973, is an
environmental consulting firm specializing in environmental engineering,
remedial design and construction, geophysics and hydrogeology, primarily in the
states of New York, New Jersey and Pennsylvania.
ENSI OF DELAWARE, INC., since its inception in 1992, specializes in air
quality testing, sampling measurement and monitoring, primarily in New
York, New Jersey, Pennsylvania, Delaware, and Maryland from its offices in
Plumsteadville, PA.
THE ALMEGA CORPORATION, an Illinois-based consulting firm specializing in
air quality testing, sampling, measurement and monitoring, primarily in the
Midwest and California. This company's California office and operations were
sold to a former employee in December 1994, prior to the consolidation with
ENSA-ENV.
TRI-S VT, since its inception in 1980, has been providing environmental
consulting and remediation in the New England region.
(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 "Competition" and "Environmental Regulation."
General
The services provided by the Company fit generally within the following
categories: (1) hazardous waste management services; (2) environmental
remediation services; (3) environmental engineering, air testing, air
monitoring, and consulting services; (4) sorbent products manufacturing, and
(5) oil filter recycling.
(1) Hazardous Waste Management Services
The Company's hazardous waste management services include waste treatment
and resource recovery, transportation, and transfer, storage and disposal
coordination. These services are provided through NES, ENSA-IN and ENSA-MO and,
to a lesser extent, by ENSI and TRI-S (transportation and disposal
coordination). The wastes handled by the Company include substances which are
classified as "hazardous" by RCRA and/or exhibit the characteristics of a
hazardous substance, i.e., corrosive, ignitable, reactive or toxic properties,
as well as other substances subject to federal and state environmental
regulations, other than radioactive wastes, explosive materials and infectious
wastes.
The Company provides the following hazardous waste management services:
TREATMENT AND RESOURCE RECOVERY
The Company uses physical methods such as decanting, blending and acid-
base neutralization in its treatment and resource recovery operations. The
nonrecoverable residual materials produced by the Company's treatment operations
are disposed off-site by either incineration or stabilization for subsequent
burial in secure disposal cells in licensed chemical secure landfills owned and
operated by unrelated businesses. The recoverable organic liquids from these
treatment operations which have sufficient heat value are blended by the Company
to meet strict specifications for use as supplemental fuels for cement kilns,
blast furnaces and other high-efficiency boilers. The Company has established
relationships with a number of supplemental fuel users that are licensed to
accept the blended fuel material. Although the Company pays a fee to the users
who accept this product from the Company, this disposal method is substantially
less costly than incineration at a commercial hazardous waste treatment
facility.
TRANSPORTATION
Transportation and disposal is offered as an adjunct to the remediation
activities and on-going removal and disposal of industrial process waste. The
Company, through its subsidiaries, is presently licensed to transport hazardous
waste in approximately 45 states, including the New England states, New Jersey
and New York, as well as the Canadian provinces of Quebec and Ontario.
DISPOSAL COORDINATION
The Company does not own or operate any landfills or incinerators for the
disposal of hazardous waste. The Company arranges for disposal of its
customers' hazardous waste primarily at incinerators, chemical secure landfills
or other disposal facilities for treatment or reclamation operated by other
businesses.
DRUMMED WASTE HANDLING AND REPACKAGING
Drummed waste handling and repackaging projects involve the handling of
bulk drums and the handling and repackaging of laboratory packaged chemicals.
Drummed waste handling and repackaging services typically are performed
under service agreements or purchase orders that obligate the Company to accept
waste material from the customer conforming to the specifications in the
agreement. Before signing a service agreement with a customer, the Company
arranges to have a representative sample of the waste analyzed by the one of the
Company's three treatment, storage and disposal ("TSD") facilities or another
certified laboratory which has been pre-qualified by the Company. The
analytical profile of the waste material enables the Company to recommend an
appropriate method of transportation, treatment and disposal and to designate a
treatment and disposal facility licensed to accept the waste.
TREATMENT STORAGE AND DISPOSAL FACILITIES
At the present time, the Company owns three TSD facilities. NES is
located in Canastota, New York. ENSA-IN is located in South Bend, Indiana.
ENSA-MO is located in Scott City, Missouri. When one of the Company's TSD's
is designated as the treatment and disposal facility, prior to acceptance of the
waste by the Company's facility, a representative sample of the waste is
analyzed in order to insure that it conforms to the customer's waste profile
sheet. Once the waste materials have been characterized, compatible groups are
consolidated to achieve economies in storage, handling, transportation and
ultimate treatment and disposal.
The Company uses its TSD facilities to conduct treatment operations and
temporarily store waste material for later off-site resource recovery,
incineration and disposal. Facilities engaged in the treatment, storage and
disposal of hazardous waste are subject to the licensing procedures established
under RCRA and the regulations promulgated thereunder. On November 1, 1991 the
state and federal permits required by RCRA for the operation of the NES facility
became effective. On January 22, 1993 ENSA-IN was issued its Part B RCRA
permit, and on January 10, 1994 ENSA-MO was issued its Part B RCRA Permit. See
"Environmental Regulation" below, for additional information regarding the TSDs
and their state and federal permits. Currently, NES is processing a permit
renewal application.
(2) Environmental Remediation Services
Environmental remediation involves activities such as site assessment and
development of a management plan including clean-up, materials handling,
draining, flushing, decommissioning, packaging, loading, unloading, pumping and
preparing waste for storage, shipment and disposal. The Company's remediation
services are provided primarily to companies in the chemical, petroleum,
transportation and utility industries and to governmental agencies. The Company
provides environmental remediation services to industrial customers with
operations throughout New England and the Midwestern and Mid-Atlantic states.
The Company provides the following environmental remediation services:
SURFACE REMEDIATION
The Company's surface remediation projects generally involve the planned
clean-up of hazardous waste sites or the clean-up of accidental spills and
discharges of hazardous materials, such as those resulting from transportation
and industrial accidents. Some surface remediation projects involve recurring
maintenance and clean-up activities at industrial wastewater treatment
facilities. The Company also provides 24 hour emergency response services for
industrial entities, federal, state and local agencies in connection with land-
related and waterway incidents that require clean-up.
FACILITIES DECONTAMINATION
Facilities decontamination involves the clean-up and restoration of
buildings and other property and related equipment that have been contaminated
by exposure to hazardous materials during a manufacturing process, or by fire,
process malfunction, spills or other accidents. The Company's projects have
included decontamination of chemical, metallurgical, industrial, manufacturing,
commercial, educational, and utility facilities.
UNDERGROUND STORAGE TANK MANAGEMENT
In regulations promulgated under RCRA which took effect during 1988, leaks
from underground commercial storage tanks were identified as a serious
environmental hazard and specific timetables for the testing and monitoring of
such tanks were established. The Company provides a wide range of services to
facilitate compliance with such regulations, including services designed to
locate and evaluate the condition of underground tanks, detect and correct
underground leaks, evaluate groundwater and soil contamination and prevent,
minimize, and/or remediate impacted groundwater and soil and replace and upgrade
tanks. In addition, the Company provides assistance with governmental
recordkeeping requirements.
(3) Environmental Engineering, Air Testing, Air Monitoring and Consulting
Services
The Company's environmental consulting services include: problem
definition, strategy development and investigation; remedial investigation and
feasibility studies; remedial design, project management and construction,
implementation, operations and maintenance of in-situ systems; monitoring and
recovery well design and installation; site closure planning and implementation;
waste minimization and alternative disposal assessments; hazardous waste and
discharge permit preparation; air discharge permit applications; site
assessments, geophysical investigations, regulatory planning and coordination;
groundwater restoration and resource development, underground and above- ground
storage tank design, upgrade and management, asbestos and lead sampling and
analysis. The Company's subsidiary, ERD-ENV, employs approximately 170
professional and technical personnel whose expertise includes hydrogeology,
engineering geology, geophysics, chemistry, biology, remedial design and
computer modeling.
In addition, the consulting group also provides indoor and outdoor air
management: field services, consulting, and continuous emissions monitoring
system ("CEMS") design and monitoring. The field services include source
emissions testing and ambient air quality monitoring. Source emissions testing
involves the collection and analysis of samples of exhaust gases obtained from a
wide variety of industrial processes, including hazardous waste incinerators,
municipal waste incinerators, boilers, surface coating operations,
microelectronic manufacturing operations and various chemical plant and refinery
operations. Most often these services are performed to demonstrate compliance
of the process with applicable regulatory requirements. Ambient air quality
monitoring involves the evaluation of concentrations of various pollutants and
may be done for a number of reasons, including, without limitation, permitting
purposes and odor assessments, health and safety purposes, and asbestos and lead
monitoring. Additionally, each air office operates its own analytical laboratory
to support its field service activities.
CONSULTING SERVICES AND BROKERAGE OF WASTE
The Company, 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 disposal facilities for incineration,
recycling, or other disposal.
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.
(4) Absorbent Products
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. The Company in January, 1997 took steps to
consolidate operations formerly conducted at its Bedford Park, Illinois facility
with its operations at its East Stroudsburg, Pennsylvania facility and to close
the Bedford Park facility.
(5) Oil Filter Recycling
The Company commenced operation of its oil filter recycling facility in
Waco, Texas in September 1996. The plant's processing line has been designed
to separate the individual components (metal, oil and filter media) from the
used filters and spent sorbents. The metals and oil are able to be recycled
back into usable materials while the oily filter media is reused as an
alternative energy source by local power utility. This process provides the
generator of used oil filters and spent sorbents with a reasonable solution to
potential environmental liabilities. With a 60,000 square foot building located
on five acres, the facility is able to accept and process a substantial volume
of waste product.
MARKETING
The Company's primary marketing areas include New England, the Mid-
Atlantic and the Mid-West States. In addition to "Fortune 500" companies with
facilities in the Company's marketing area, the Company has targeted small and
medium size businesses which typically do not possess internal environmental
departments and recognize the value of hiring a full service environmental and
hazardous waste management company. The Company has regionalized its marketing
program with offices in the East and Midwest, and uses its 20 person sales
force, trained in cross-selling of various services, to promote all of the
Company's services. The Company's officers also devote a portion of their time
to sales activities on behalf of the Company.
The Company recognizes the market's need for "one-stop shopping" for
integrated services ranging from consulting and planning to actual "hands-on"
clean-up, treatment, transportation and disposal. The Company markets and
provides its services on an integrated basis and, in many instances, the
performance of services in one discipline has lead to the performance of
additional work in other disciplines. For example, the results of an
environmental consulting and sampling program could dictate the need for
excavation, transportation and disposal of contaminated material identified in
the site assessment. In addition, the Company provides turnkey services for Lab
Packs to hospitals, colleges and universities.
The Company, as well as other companies, have access through the Freedom
of Information Act and the right to know to access hazardous waste activity
reports in all states in order to concentrate marketing efforts.
As part of its marketing efforts, the Company identifies projects by
accessing hazardous waste activity reports which are available under the Freedom
of Information Act. The Company advertises on local radio, in trade journals
and participates in regional trade and industry shows. The company also relies
upon the recommendations of clients, subcontractors, affiliates, and the
Company's position on the "recommended contractors list" or "approved vendors
list" of various governmental agencies and "Fortune 500" companies.
SEASONALITY
The Company's revenues are impacted by severe winter weather conditions
which affect the ability to 1) perform site remediation and field service
activities, and 2) transport waste to its TSD facilities for treatment, i.e.,
equeous waste which can not be processed due to ambient freezing conditions.
This has resulted in the postponement of projects and a decline in revenues
primarily during the months of January and February. Other than severe winter
weather, management does not believe the Company has experienced any significant
seasonality in its business in the past, and does not anticipate seasonality to
have a significant impact on its operations in the future.
CUSTOMERS
On a consolidated basis, the majority of the Company's revenues have
arisen out of competitive bid contracts awarded by customers involved in the
chemical industry and by customers in a wide range of manufacturing industries.
During 1995, a significant portion of the Company's revenues were derived from
customers who repeatedly utilize the Company's services.
The Waco, Texas facility, opened in September 1996, markets oil filter,
recycling services to national accounts. Although only currently servicing the
Southeast, the Company will continue its efforts to develop national contracts.
The customers of the Company's TSDs who require waste handling and
transportation services are a diverse mix of several hundred industrial and
manufacturing entities and a number of waste brokers. Since the Company is
Superfund and DRMO approved, a large portion of the Company's TSD business is
derived from government contracts. A substantial portion of the revenue is
originated from services performed by other subsidiaries of the Company.
TRI-S and ENSI together service customers in need of transportation,
clean-up, consulting or remediation services throughout New England,
Metropolitan New York City and New Jersey. Typical customers are chemical
processing companies, industrial manufacturers, petroleum services, real estate
and lending institutions, and governmental agencies. The services provided
range from non-recurring projects to repeat service work requiring environmental
expertise such as technical in-plant services.
ERD-ENV performs environmental engineering, air testing, air monitoring
and consulting services for a diverse range of industrial and governmental
customers located primarily in New England, Mid Atlantic and Mid-West states.
In addition, ERD-ENV has worked for numerous civil engineering firms involved in
a wide variety of industries, as well as corporations in the pharmaceutical,
petrochemical, microelectronic and printing industries.
ERD-IL provides marketing services for the Waco, Texas facility as well as
the TSD facilities located in Scott City, Mo. and South Bend, Ind. It also
provides remediaton services and brokerage services for the disposal of
industrial and hazardous waste.
COMPETITION
The hazardous and non-hazardous waste management industry involves a few
large companies which provide integrated services and numerous smaller companies
which provide some or all of the same services. Large companies with extensive
resources are able to directly provide field services, waste transportation and
disposal through their own secure landfills and incineration facilities.
Examples of some of the Company's largest competitors are Chemical Waste
Management; Clean Harbors, Inc.; International Technology Corp.; Laidlaw
Environmental Services, Inc.; and Rollins Environmental Services. Other
competitors either provide one aspect of waste management, or, like the Company,
provide integrated services by subcontracting portions of their services to
other companies. Examples of some of the Company's comparably sized competitors
are Cycle Chem, Inc.; Philip Environmental; S&W Waste, Inc.; Advanced
Environmental Technology Corp.; Franklin Environmental; Northland
Environmental; Essex Waste Management, Inc.; PCIA, Inc.; EWR; Petrochem; and
Safety Kleen. The waste management and disposal industry is highly
competitive and requires substantial capital. Competition in the waste
management industry is based, primarily on price, technical performance,
services, and reliability.
The waste management consulting and remediation industry is also highly
competitive. Competition is based on the basis of price, experience, and
custom service and to a lesser extent, expertise.
ENVIRONMENTAL REGULATION
The activities of the Company are regulated by federal, state and local
environmental laws. The following is a summary of the regulatory framework
under which the Company operates. It is not possible to predict all the effects
of governmental regulation on the Company and its subsidiaries. The Company
believes that the environmental laws and acts described below and the
regulations promulgated under them, as well as state and local environmental
laws and regulations, will be materially significant in the development of the
Company's business. Environmental laws and regulations could expose the Company
or one or more of its subsidiaries to strict joint and several liability,
because it transports, treats and disposes of hazardous substances, wastes and
chemicals. The Company could be held liable for the costs of governmental
removal and remediation actions, costs to the government in assessing damages
and he cost of damages in connection with the destruction or loss of natural
resources. Liability under certain environmental laws can arise without
reference to traditional notions of "fault".
Environmental Laws
The Toxic Substances Control Act of 1976 ("TSCA"). TSCA gives broad
authority to the EPA to regulate the manufacture, processing, distribution in
commerce, use and disposal of various chemical substances and mixtures. The EPA
can require testing of chemical substances that may present an unreasonable risk
to health or the environment. If testing reveals an unreasonable risk, the EPA
must take steps to reduce the risk. Options available to the EPA include
requiring appropriate labeling, prohibition of manufacture of the harmful
chemical, and mandating the manner in which the chemical must be disposed.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA," also referred to as the "Superfund Act"). CERCLA established a
comprehensive scheme of environmental liability without regard to fault for
abandoned waste sites, leaking active sites, and spills which have released or
may release hazardous substances into the environment. The class of "hazardous
substances" includes numerous materials which are commonly used by industrial,
manufacturing and commercial operations and includes, but is much broader than,
the class of "hazardous waste" regulated by RCRA.
1986 Superfund Amendment and Reauthorization Act ("SARA"). SARA amended
CERCLA by, among other things, authorizing another tax on the chemical industry
to refinance the Superfund to enable the EPA to undertake clean-ups of sites
where hazardous substances have been or may be released into the environment
when private parties are either unknown or unable or unwilling to do so. In
addition, SARA includes the Emergency Planning and Community Right to Know Act
which mandates extensive reporting requirements for use or storage of hazardous
substances and releases of hazardous substances, either accidental or permitted,
into the environment.
Hundreds of sites across the country have been targeted for clean-up in a
list known as the National Priorities List propounded under CERCLA and SARA.
The EPA may order a private party to conduct clean-up activities or it may
conduct a clean-up itself using the Superfund monies and then seek to recover
those funds from parties liable under the statute. Further regulations
establish a National Contingency Plan, which was substantially revised in March,
1990, for dealing with the release of hazardous substances into the environment.
This Plan governs the conduct of remediation undertaken by the government.
Private parties must also substantially comply with the provisions of the Plan
as a prerequisite to a contribution claim against another potentially liable
person. Present and past owners and/or operators of sites on which hazardous
substances have been released, generators of hazardous substances and
transporters who select the site for disposal may all be liable jointly and
severally for clean-up costs and for remedying any harmful effects to the
environment or public health, such as pollution of groundwater, without regard
to fault.
CERCLA is up for Reauthorization before Congress this year and it can not be
anticipated at this time what changes may be made to the current statute or what
effect such reauthorization may have on the Company.
The Clean Air Act Amendments of 1990 ("CAA"). These amendments substantially
revise and expand the Clean Air Act originally enacted in 1967. The CAA will
have significant and far reaching effects on small and large businesses and
industrial operations, public utilities and transportation systems, both public
and private. EPA and the states are presently developing the extensive
regulations necessary to implement the CAA. The effects and costs to the
regulated community will be felt and incurred over a lengthy phase-in period.
The Hazardous Materials Transportation Act ("HMTA"). The HMTA and the
extensive regulations promulgated thereunder regulate the transportation of
"hazardous materials." This very broad category of substances includes but is
not limited to CERCLA "hazardous substances" and RCRA "hazardous wastes." The
HMTA and the regulations thereunder are enforced by the Department of
Transportation and specify labeling, placarding, shipping papers, packaging,
spill reporting and employee training requirements which vary with the nature of
the material being shipped.
The Clean Water Act (Federal Water Pollution Control Act). Through the
1950's and 1960's emphasis was on the states setting ambient water quality
standards and developing plans to achieve these standards. In 1972, the Federal
Water Pollution Control Act was significantly amended. These changes emphasized
a new approach, combining water quality standards and effluent limitations
(i.e., technology-based standards). The amendments called for compliance by all
point-source dischargers with technology-based standards. A strong Federal
enforcement program was created and substantial monies were made available for
construction of sewage treatment plants. The Federal Water Pollution Control
Act was amended in 1977 to address toxic water pollutants and in 1987 to refine
and strengthen priorities under the Act as well as enhance EPA's enforcement
authority. Since the 1977 amendments, the Federal Water Pollution Act has been
commonly referred to as the Clean Water Act ("CWA").
OSHA Hazard Communication Standard ("HCS"). The HCS was developed by the
Occupational Safety and Health Administration ("OSHA"). It requires the
identification and dissemination of information about hazardous chemicals to
employees in the workplace. The category of "hazardous chemicals" is extremely
broad. Employers are obligated to make available to their employees Material
Safety Data Sheets for each hazardous chemical used in the workplace.
Containers must also be properly labeled and employees trained in workplace
safety.
The Company also provides consulting services with respect to the remediation
and removal of asbestos and lead based paint from buildings. Federal regulation
of asbestos removal consists of the Asbestos Hazard Emergency Response Act, 15
U.S.C. section 2641 et seq. which deals with asbestos in school buildings, and
regulations promulgated by both OSHA and the EPA. OSHA administers workplace
and employee protection rules and EPA administers demolition and removal rules.
In addition, many states have enacted more stringent rules including contractor
certification and accreditation requirements.
Remediation
The Company's three TSD facilities are on sites that have been contaminated
as a result of prior uses of the site or by prior uses at an adjacent property.
The Company has cooperated with the government regulatory agencies that have
jurisdiction over its facilities to investigate, assess, and implement
appropriate remediation measures to address these conditions. The Company has
projected potential expenditures that may be required to conduct further
investigations or studies and to remediate the sites to satisfy regulatory
requirements. In developing these projections, ERD has relied on studies
prepared by its subsidiary, ERD Environmental, Inc. and by EMCON, an independent
environmental engineering firm. Below is a summary of environmental issues at
each applicable facility.
Canastota, New York. This TSD facility has on-site soil and groundwater that
have been impacted by volatile organic chemicals. The extent of this impacted
soil and groundwater has been delineated and reported to the NYSDEC and United
States Environmental Protection Agency ("USEPA") in RCRA Facility Investigation
("RFI") Reports, as required by the RCRA Part B Hazardous Waste Management
("Part B") permit. The RFI reports for both soil and groundwater have been
accepted by the NYSDEC/USEPA. Corrective action will continue until the
NYSDEC/USEPA confirms completion of such corrective action.
Groundwater corrective action was begun in May of 1993, when a remediation
system was installed in accordance with a NYSDEC/USEPA approved Corrective
Measures Implementation ("CMI") Plan. Operation of this system continues at
present and reporting is made to the NYSDEC/USEPA on a periodic basis in
accordance with the schedule in the CMI plan.
A CMI plan for soil remediation was submitted to the NYSDEC/USEPA in June of
1996 and was appoved. Installation and startup of the remediation system is
expected to commence during the 1997 construction season.
Scott City, Missouri. As required by the RCRA part B permit for this TSD
facility, an RFI is to be performed. This requirement was based upon the
findings of a RCRA Facility Assessment performed at the facility by a USEPA
contractor in September of 1989. An RFI Work Plan has been approved by the
Missouri Department of National Resources ("MDNR")/USEPA for investigation and
sampling of soil and groundwater in Areas of Concern outlined by the regulatory
agencies. Results of the investigation and sampling are pending and,
accordingly, subsurface conditions are presently unknown. The possibility
exists that impacted soil and/or groundwater will be detected, requiring further
investigation and/or corrective action.
South Bend, Indiana. This TSD facility contains soils which are impacted
principally with volatile organic chemicals and petroleum hydrocarbons. These
occur primarily in the area known as the Old Tank Farm.
In December of 1994, a Revised Partial Closure Plan was submitted to the
Indiana Department of Environmental Management ("IDEM") for approval. This plan
included a conceptual design for remediation of these soils. To date, no
approval or disapproval of this plan has been received from IDEM and
consequently no related remediation of these soils has taken place.
This facility has four on-site groundwater monitoring wells. Groundwater
samples collected from these wells have indicated that the groundwater beneath
the site has been impacted principally by volatile organic chemicals. There is
evidence to suggest that some of these volatile organic chemicals have migrated
from off-site sources. To date, there has been no directive from IDEM requiring
any action on the groundwater other than periodic sampling and monitoring.
Because impacted soil and groundwater is present, the possibility exists that
IDEM or USEPA may at some future date require an RFI and investigation and
corrective action additional to that outlined in the Revised Partial Closure
Plan.
Table 1 presents a summary of the projected expenditures in connection with
existing contamination at the TSD facilities. However, there is no set
timetable for incurring any of the projected expenses and no assurance can be
given that such projected expenses will not increase or decrease depending on
the circumstances.
Table 1
Projected Remedial Costs
South Bend, Indiana $ 942,000
Canastota, New York 1,427,000
Scott City, Missouri 100,000
$2,469,000
In addition to expenditures associated with above referenced existing site
contamination, ERD will also be required to upgrade its TSD facilities to meet
new regulatory and permit requirements, including the installation of emission
controls for volatile organic compounds on the storage tanks at each of these
facilities to meet requirements with respect to air emissions. The projected
costs of meeting new regulatory and permit requirements are presented in Table
2, and as with Table 1, there is no set timetable for incurring any of the
projected expenses and no assurance can be given that such expenses will not
increase or decrease depending on the circumstances.
Table 2
Projected Compliance and Other Costs
South Bend, Indiana $ 430,000
Canastota, New York 330,000
Scott City, Missouri 496,000
Total $1,256,000
In addition, as a result of new regulations and/or operating needs, the
Company may be required to expend funds for capital improvements at any or all
of its facilities. No reserves have been established for these improvements
because management expects that any capital improvements would increase the
value of the facilities. However, there can be no assurance that required
expenditures would result in an increase in the property/facility value.
In addition to the TSD facilities, the Company may be liable for some or
all of the cost of potential remediation and closure of the Long Beach, New York
facility. The real property on which that facility operates is owned by the
City of Long Beach. The only sampling that has been conducted concerning site
conditions at Long Beach, other than limited sampling of stained soils dates
from 1990 -- prior to the Company's involvement with the site.
Permitting
The Company operates three TSD facilities and an oil filter recycling
facility, which are subject to permitting, licenses and authorization required
for the operation of the facilities.
South Bend, Indiana. This TSD facility is required to obtain federal, state and
local licenses, permits, and/or approvals including a RCRA Part B permit. On
January 22, 1993, the IDEM, in conjunction with the USEPA, granted this facility
its Part B permit for a term of five years. Further, there are two permitted
process air pollution control units in operation at the facility, a wet scrubber
and a bag house.
Recent changes to the Clean Air Act may require upgrades to the emission
controls at the site. The facility has begun evaluating its requirements under
Title V of the Clean Air Act Amendments of 1990 ("CAAA") and an emissions
inventory has been performed. Assuming the significant air emission sources
(the tank farm and drum storage and processing area) continue to be in
compliance with existing state regulations and RCRA regulations found at 40 CFR
Part 264 Subpart BB, the regulations that likely will have the most significant
impact on this facility in the near future will be requirements under Title V
(40 CFR Part 70 and related state regulations) and RCRA 40 CFR 264 Subpart CC.
Scott City, Missouri. This TSD facility is required to obtain federal, state
and local license, permits and approvals, including a RCRA Part B permit. The
MDNR, in conjunction with the USEPA, granted the facility its RCRA Part B permit
on January 10, 1994, for a term of ten years.
Recent changes to the Clean Air Act may require upgrades to the emission
controls at the site. The facility has begun evaluating its requirements under
Title V of the CAAA and an emissions inventory has been performed. Assuming the
significant air emission sources are in compliance with existing state
regulations and RCRA regulations found at 40 CFR Part 264 Subpart BB, the
regulations that likely will have the most significant impact on this facility
in the near future will be Title V permitting (40 CFR Part 70 and related state
regulations) and RCRA 40 CFR 264 Subpart CC.
On April 1, 1994, the MDNR issued an operating permit for stormwater
discharges from the facility. This permit expires on March 31, 1999, and covers
three outfalls. The three outfalls are basically the two ditches on either side
of the facility and stormwater which may be pumped from the secondary
containment unit on the Above Ground Storage Tank Farm. The facility has, on
occasion, exceeded its discharge limits for total suspended solids and chemical
oxygen demand. There has been no historical enforcement action as a result of
these occasions.
Canastota, New York. This TSD facility is required to obtain federal,
state and local licenses approvals and permits, including a NYSDEC RCRA Part B
permit, a State Pollution Discharge Elimination System ("SPDES") permit,
certain transporter permits, and an air permit. The Company's draft air permit
with the NYSDEC is currently awaiting final approval. The Company is in the
process of renewing the RCRA Part B permit and the SPDES permit, which were
both issued to the facility on November 1, 1991 and have a term of five years.
The facility filed applications for renewal of these permits prior to November
1, 1996, and a decision with respect to such renewal application is
currently pending.
This facility is responsible for complying with all Federal air emission
regulations and for determining if the facility is a potential major source
under the State and Federal Title V program. The Title V program requires that
a major source of Volatile Organic Compound or Hazardous Air Pollutants submit a
Title V permit for the facility. The anticipated deadline for submission of
this facility's Title V permit application is the latter part of 1997. Further,
the air emission standards for equipment leaks and air emission standards for
tanks, surface impoundments and containers (40 CFR Part 264 Subpart BB and CC)
may have a significant impact on the facility as may the requirements under
Title V.
East Chicago, Indiana. On August 18, 1996, the Company's East Chicago, Indiana
non-hazardous waste transfer station was destroyed by fire. Authorities have
indicated the origin of the fire was electrical in nature. In addition to loss
of equipment, the Company incurred certain cleanup expenses. The Company is
currently in negotiation with the owner of the property from whom the property
was leased, regarding compensation for its losses. It is expected that most of
the customers serviced at the East Chicago facility can continue to be serviced
at the Company's South Bend facility.
Waco, Texas. The present operations at the Waco, Texas facility are exempt
from air quality permitting requirements.
TRANSPORTATION PERMITS
Any entity engaging in the transportation of hazardous wastes is subject
to regulation under various state and federal laws. Duties of hazardous waste
transporters include, but are not necessarily limited to, obtaining hazardous
waste and solid waste transporter licenses and the use and operation of approved
equipment. The Company, through NES and TRI-S, is a permitted transporter of
hazardous waste in forty-five (45) states and two provinces of Canada. All of
the transportation permits held by NES and TRI-S are subject to annual renewal.
Factors considered in evaluating a renewal application vary from state to state,
but include, among other things, the permitted entity's compliance status, its
record of traffic incidents, and the qualifications of the personnel managing
transportation operations. To the knowledge of the Company's management, none
of the Company's subsidiaries have ever been denied renewal of any of their
respective transportation permits. However, each such permit is also subject to
revocation in the event of a failure to comply with the state's applicable rules
and regulations. Of the transportation permits held by the Company, those
granted by the states of New York, Connecticut, New Jersey, Indiana, Missouri,
and Pennsylvania are most critical to operations.
INSURANCE
ERD, ERD-ENV, TRI-S, NES, ENSA-IN, ENSA-MO, ERD-IL, and ERD-RR are
included under one general liability insurance policy in the amount of $10
million per occurrence/$10 million dollars aggregate liability arising in
connection with their activities. Five million dollars of such insurance is
required by the State of New York in order to maintain NES' permit as a waste
transporter. Higher amounts of general liability insurance have been obtained
for specific customers/projects, where necessary. Additionally, these
subsidiaries have obtained pollution impairment liability and professional
liability insurance in the amount of $1 million per occurrence/$2 million
aggregate covering liability resulting from the sudden and non-sudden
discharge or release of hazardous substances related to their contracting and
professional service operations.
ERD and its subsidiaries are protected by a Contractors
Pollution/Professional Liability Policy better know as a Consultants
Environmental Liability Policy (CEL) with Limits of Liability of $5 million per
occurrence/$5 million aggregate. This policy would cover certain claims by
reason of any act, error or omission in professional services rendered or that
should have been rendered by the Company.
In addition to the above, NES, ENSA-IN, and ENSA-MO have obtained
pollution liability insurance for their TSD facilities in the amount of $1
million per occurrence/$2 million aggregate, covering liability resulting from
the sudden and non-sudden discharge or release of hazardous substances from the
facilities' premises. The facilities maintain all insurance required for the
maintenance of their permits, however, no assurance can be give that difficulty
will not be encountered in maintaining such insurance in the future. Moreover,
if the facilities fail to maintain such insurance, permits could be revoked,
which could result in the closure of a facility and the cessation of substantial
operations.
All of the Company's vehicles are insured under a $5,000,000 commercial
automobile policy covering transportation of hazardous waste and other services
performed in Company vehicles. In addition, the Company maintains workers
compensation insurance as required from state to state.
EMPLOYEES
As of January 31, 1997, the Company and its subsidiaries had approximately
375 employees of which approximately 25 are employed at the Company's
discontinued operations.
ITEM 2 - PROPERTIES.
The Company has offices at various owned and leased locations throughout
the United States. Each branch office is generally identified with one of the
Company's subsidiaries; however, most locations perform multiple services. The
table below summarizes the premises from which the Company operates.
Location Own/ Building
Rent Square Lease Annual Description/
Footage Expires Rental Primary Service
937 E. Hazelwood Rent 10,000 Sep. '97 $50,000 Company headquarters
Rahway, NJ office space for
executive and adm
staff, warehouse
operations and
parking space for
remediation
operations.
356 Veteran's Hwy Rent 1,500 Feb. '97 22,500 Office space,
Commack, NY formerly Company
headquarters, vacated
1996.
70 Water Street Rent 173,644 Dec. '07 173,644 Incinerator opers.
Long Beach, NY discontinued
as of March 31, 1997.
Canal Road Own 30,000 - - - - TSD facility located
Wampsville, NY on three acres of
land used for the
handling and storage
of waste
materials; a small
portion of the
building is devoted
to offices.
Marguerite Own 4,000 - - - - Administrative office
Drive West space on approx.
Casastota, NY three acres near TSD
facility.
604 Scott St. Own 40,015 - - - - TSD facility used for
South Bend, IN handling and storage
of waste materials;
a portion of the
building is devoted
to offices.
The facility is Part
B permitted, and has
a Tank Farm with the
capacity to hold
approximately 176,000
gallons.
3100 Industrial Own 21,600 - - - - Part B equivalent
Fuels Drive permitted facility on
Scott City, MO 5 acres of land.
6205 Route 611 Rent 10,500 May '02 Offices and warehouse
Pippersville, PA consulting operations
and air testing,
consulting, and
monitoring.
331 Route 9W Rent 12,600 Mar. '98 102,600 Office and warehouse
Congers, NY space for consulting
and remediation
operations.
601A County Club Rent 4,200 Jun. '97 27,500 Office and warehouse
Drive for consulting and
Bensenville, IL air testing
operations.
205 Main Street Rent 3,082 Dec. '98 23,000 Office and warehouse
Brattleboro, VT space for consulting
services.
410 W. Chestnut Rent 7,000 Aug. '97 48,000 Office and warehouse
Street space for consulting
Louisville, KY services.
826 North Road Rent 9,000 Oct. '98 60,000 In January, 1997, the
Lewis Road Company terminated
Royersford, PA. this lease for a lump
sum payment of
$30,000. Personnel
will be relocated
to a nearby office.
465 East 170th Rent 2,145 Oct. '97 28,956 Sales and adm offices
South Holland, IL
6840 West 66th PlRent Oct '00 136,324 The Company will
Bedford Park ,IL consolidate this
manufacturibg
facility into its
Pa. office. The
landlord agreed
to a mutual
termination of the
lease.
1 Foundry StreetRent 13,200 Oct. '99 52,800 Manufacturing and
East Srroudsburg, PA warehouse site for
the company's sorbent
products operation.
615 Forrest Rent 12,000 May '97 21,600 Recycling facil. and
Waco, TX storage of used oil
filters.
2480 Creekway Rent 8,000 Dec. '98 28,000 Office and warehouse
Drive space for consulting
Columbus, OH services.
Madison Ave. & Rent 4,420 Apr. '98 27,200 Office and warehouse
Eight Street W. space for consulting
Huntington, WV services.
25 and 34 Pinney Rent 8,400 Dec. '98 23,000 The company is
Street is currently in
Ellington, CT litigation and has
not made payments
during 1996.
It is expected
that 25 Pinney St.
will be terminated in
1997.
3 - LEGAL PROCEEDINGS.
On September 4, 1996, the New York State Department of Environmental
Conservation ("NYSDEC") filed an administrative complaint alleging multiple
violations of the Long Beach facility's permits and various environmental laws
and regulations. The complaint seeks revocation of the facility's permits and
penalties of $500,000. On November 6, 1996, the Company entered into an
agreement with the New York State Attorney General, acting on behalf of the
NYSDEC, pursuant to which the Company agreed to (i) voluntarily cease
incineration at such facility by March 31, 1997, (ii) continue operations on an
interim basis as a solid waste transfer station after March 31, 1997, pursuant
to a consent order and to apply to the NYSDEC for a formal modification of the
facility's permit to operate as a transfer station and (iii) to disconnect the
incinerator apparatus by March 31, 1998. Pursuant to such agreement,
Environmental Waste Incineration, Inc., the Company's subsidiary operating the
facility, agreed to plead guilty to a single violation of Section 71-2703(2) of
the Environmental Conservation Law, and the State of New York agreed that it
would not further prosecute the Company or any of its affiliates or subsidiaries
in any civil or criminal proceedings in connection with any acts related to the
operation and/or management of the facility as of November 6, 1996. As the
Company is in the process of negotiating with the State of New York a
comprehensive consent order, there can be no assurances regarding the ultimate
impact of the Consent Order on the Company's financial condition and results of
operations, or that the Company will reach a final agreement with the State of
New York on terms favorable to the Company. As the City of Long Beach has
indicated that it presently intends to oppose the Company's permit application
for a transfer station, there also can be no assurances that the Company's
application for such a permit will be granted.
The City of Long Beach represents the largest customer at the Long Beach
facility. The City of Long Beach delivers its solid waste to the facility
pursuant to a contract it entered into with Long Beach Recycling & Recovery
Corp. dated May 13, 1992. There can be no assurances that the Company will be
successful in enforcing the contract with the City of Long Beach or that the
City will continue its delivery of solid waste to the facility. The Company
believes that upon cessation of incineration on March 31, 1997, at the Long
Beach facility, it is unlikely for the foreseeable future that such facility
could operate profitably as a transfer station without the revenue from the City
of Long Beach.
On January 2, 1997, the City of Long Beach served Notices of Default under
the disposal contract with the City of Long Beach dated May 13, 1992 (the
"Long Beach Agreement") as well as leases of the facility premises dated May 13,
1992 and November 16, 1984. The Notices of Default seek to terminate each of
these agreements. Counsel for the Company and the City of Long Beach agreed on
January 14, 1997 to three week "standstill" during which the time for cure of
the alleged defaults and the initiation of litigation will be suspended pending
settlement discussions between the parties. Settlement discussions are expected
to continue until at least the middle of February, 1997. There is no assurance
that the parties can achieve a mutually acceptable settlement or that the
Company can successfully prevent the termination of the Long Beach Agreement
and the leases of the facility premises by the City of Long Beach.
In 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 LBRR facility pursuant to a contract among PJV, LBRR, 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 and EMC in the amount of
$214,000. The decision against LBRR was upheld on appeal, but was reversed with
respect to EMC and judgment dismissing the claims against EMC was granted by the
appeals court.
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 the $214,000 judgment in favor of PJV. The
complaint also seeks punitive damages. The Company has denied all material
allegations of the complaint and intends to vigorously defend against this
lawsuit.
On February 16, 1989, 5200 Enterprises, Ltd .("Enterprises")
commenced an action in the Supreme Court of Kings County, New York against
Hasnas, Empire Electric Co., Wastex Industries, Inc., ENSI, Inc., Environmental
Services, Inc., Enviropact, Inc., Enviropact Northeast, Inc., Professional
Engineering Associates, Inc. and Elias. Enterprises, as the owner of a
building, sued the prior owner and all persons and companies hired by the prior
owner to clean-up contaminated spills existing on the property prior to sale
and, in connection therewith, to conduct certain tests. The suit contends that
the clean-up and/or the testing, some of which was done by ENSA subsidiaries,
was conducted negligently, and that misrepresentations were made by the prior
owner concerning the true level of remaining contamination. The suit seeks $3.5
million in damages. The Company is defending the suit and also seeking
indemnity from co-defendants for any liability. A trial is currently scheduled
for March 1997.
On June 24, 1996, Mr. Jon Colin, a former officer of ENSA, served a Demand
for Arbitration on the Company, alleging that the Company breached its
obligation to enter into an employment agreement with him and to issue stock
options to him. Mr. Colin has demanded damages of $675,000, plus interest, an
award directing the Company to issue the stock options to him, and punitive
damages in an unspecified amount. The Company has filed an action in Supreme
Court, New York County, seeking a permanent stay of the arbitration and a
decision on that matter is pending.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(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 $ 8 3/4 $ 6 1/2
(trading started on
May 7, 1995)
Third Quarter $ 10 1/8 $ 7
Fourth Quarter $ 8 7/8 $ 6 3/4
1996
First Quarter $ 9 3/4 $ 7 3/8
Second Quarter $ 10 1/2 $ 7 5/8
Third Quarter $ 9 1/4 $ 3 3/8
Fourth Quarter $ 4 7/8 $ 1 5/8
1997
First Quarter (through
January 31, 1997 $ 2 3/8 $ 1 13/16
(B) HOLDERS:
As of January 31, 1997, there were approximately 54 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 foreseeble 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. Pursuant to the loan agreement with the Bank, the Company
may not declare or pay any dividends during the life of the loan without the
written consent of the Bank.
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, and provides brokerage,
advisory, consulting and technical services to generators of waste. The
Company owns and operates three strategically located RCRA part B permitted
Treatment, Storage and Disposal Facilities and provides environmental services
including: consulting, technical contracting, tank management, site remediation,
indoor and outdoor air quality testing and monitoring services and equipment,
and technical support services related to all of the foregoing. The Company
also manufactures various sorbent products for use in various industrial,
marine, automotive and janitorial applications and, in September, 1996, began
recycling used oil filters.
The Company has grown primarily through acquisitions. Its operations
are conducted through the parent corporation and its subsidiaries which are
summarized below:
The Company acquired ERD-IL 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.
Listed below are the active operating subsidiaries of the Company:
Acquired
ERD Waste Corp. ("ERD") Parent Corporation and
Operations for Specialty Waste - -
ERD of Illinois, Inc. Brokerage and waste management August, 1994
("ERD-IL") consulting
Absorbent Manufacturing & Manufactures absorbent materials October, 1995
Technologies, Inc. ("AMTI")
ERD Resource Recovery, Inc. Recycles oil filters Start-up in
("ERD-RR") September 1996
On May 5, 1996, the Company acquired more than 90% of the capital stock of
Environmental Services of America, Inc., ("ENSA"). The Company conducts its
operations described below through the following wholly owned subsidiares of
ENSA:
Northeast Environmental Services, Inc. Part-B permitted treatment,
storage and disposal facility
Environmental Services of America-IN, Inc. Part-B permitted treatment,
storage and disposal facility
Environmental Services of America-MO, Inc. Part-B permitted treatment,
storage and disposal facility
ERD Environmental, Inc. Environmental consulting and
(formerly ENSA Environmental, Inc.) technical engineering,
remediation, and contracting
All of the above mentioned acquisitions were accounted for as purchases.
Accordingly, the company's results of operations include the operations of each
acquired entity from the respective dates of each acquisition. The ENSA
acquisition dramatically impacted the results of operation due to the size of
the operating entity acquired. ERD reported net revenues of $15,217,000 for
the fiscal year ended January 31, 1996 and ENSA reported net revenues of
$36,559,000 for the fiscal year ended December 31, 1995.
The Company changed its fiscal year end from January 31 to September 30
effective with the eight months ended September 30, 1996. Accordingly, the
Company's financial statements present the operating results for the eight month
period ended September 30, 1996, the twelve months ended January 31, 1996, and
the twelve months ended January 31, 1995.
RESULTS OF OPERATION:
The following table sets forth the operating data of the Company,
excluding the operations of ENSA prior to the date of acquisition, as a
percentage of revenues for the periods indicated:
EIGHT MONTHS YEAR ENDED
Ended Jan 31, 1996 Jan 31, 1995
September 30, 1996
Revenues 100.0% 100.0% 100.0%
Cost of sales 63.5 64.9 57.2
Gross profit 36.5 35.1 42.8
Operating expenses 33.2 31.3 19.3
Income from operations 3.3 3.8 23.5
Other income and (expenses) (2.4) ( .9) (1.7)
Income from continuing operations
before income taxes .9 4.7 21.8
Provison for income taxes .3 1.9 8.7
Income from continuing operations .6 2.8 13.1
Discontinued operations (35.6) 41.6 14.6
Net income (loss) (35.0)% 44.4% 27.7%
EIGHT MONTHS ENDED SEPTEMBER 30, 1996 VS. YEAR ENDED JANUARY 31, 1996
Revenues
During the eight months ended September 30, 1996, revenues from continuing
operations were $20,130,375, an increase of $15,119,410 over revenues for the
year ended January 31, 1996. The increase in revenues occurred primarily as a
result of the acquisition of ENSA in May, 1996.
Revenues from the Company's incinerator operations of $4,312,224 for the
eight months ended September 30, 1996 and $3,847,707 for the year ended January
31, 1996 are not included in revenues. Those revenues, along with relevant
operating expenses are classified as part of discontinued operations in the
company's consolidated statements of operations.
A summary of consolidated revenues by business segment is as follows:
EIGHT MONTHS TWELVE MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 JANUARY 31, 1996
$ % $ %
ERD-IL $2,287,360 11.4 $3,626,732 72.4
AMTI 1,940,072 9.6 1,053,122 21.0
ERD-IN 501,580 2.5 331,111 6.6
TSD Facilities 4,981,522 24.7 --
Consulting 8,339,345 41.4 --
Remediation 2,080,496 10.4 --
================= ===============
$20,130,375 100.0 5,010,965 100.0
Cost of Sales
For the eight months ended September 30, 1996, cost of sales was $12,778,257
or 63.5% of revenues which compares to cost of sales of $3,253,046 or 64.9% of
revenues for the twelve months ended January 31, 1996. The increase of
$9,525,211 is primarily attributed to costs associated with the ENSA companies
acquired.
Cost of sales includes direct labor, transporation, as well as the costs of
disposal of waste and subcontractor's costs. Cost of sales does not include any
expenditures related to incineration which are included in discontinued
operations.
Operating Expenses
During the eight months ended September 30, 1996, operating expenses were
$6,681,725. The primary reason for the increase in operating expenses over
prior periods is the acquisition of ENSA. For the period May through September,
1996, ENSA's operating expenses totalled $ 3,863,670. In addition, goodwill
generated from the acquisition is currently recorded at $9,097,051 which will be
expensed over 30 years beginning in May, 1996. Amortization of goodwill expense
included in the eight month statement of operations was $127,141.
Operating expenses also include two transactions of a nonrecurring nature.
In August, 1996, the Company's transfer station for non-hazardous waste located
in Indiana was destroyed in a fire. The Company has made claims seeking
recovery of its losses. The resolution of these claims is still unclear. The
Company has transferred its non-hazardous waste operation to its facility in
South Bend, Indiana. The Company wrote off all assets and start up costs
associated with the transfer station, amounting to $423,352 during the eight
months ended September 30, 1996.
Also included in operating expenses are $437,241 of operating expenses
related to the Company's start up of ERD Resource Recovery, Inc., the Company's
oil recycling facility in Waco, Texas which began in September, 1996.
Income from Operations
Income from operations was $670,393 or 3.3 percent of revenues for the eight
months ended September 30, 1996, as compared to $189,507 or 3.8 percent of
revenues for the twelve months ended January 31, 1996.
Income from continuing operations for the eight month period ended September
30, 1996 was $194,583 ($0.02 per share) as compared to $238,712 ($0.03 per
share) for the fiscal year ended January 31, 1996. As a result of the
Company's substantial growth in sales, it has incurred additional borrowings as
discussed above. Such borrowings have significantly increased the Company's
interest expense, which has impacted income from continuing operations.
Interest Expense
Interest expense was $602,407 for the eight month period ended September 30,
1996, as compared to $62,765 for the twelve months ended January 31, 1996. The
Company's indebtedness to its commercial bank (the "Bank") was initially
$7,500,000. The $7,500,000 was used to finance the acquisition of ENSA. The
$7,500,000 indebtedness was subsequently increased through additional loans to
$11,900,000. There are no current plans to reduce the amount of borrowings
outstanding. The Company currently pays approximately $90,000 per month in
interest to the Bank.
Discontinued Operations
As described in legal proceedings, the Company agreed to voluntarily
shutdown its Long Beach, New York incinerator on or before March 31, 1997. As
a result of the shutdown, the Company has recorded a $7,167,998 loss from
discontinued operations.
The Company has also recorded a loss on disposal of the facility of
$7,500,000 calculated as follows:
Net book value of Long Beach Facility $ 11,500,000
Costs to dismantle and professional fees 2,000,000
Estimated salvage value of equipment (500,000)
Operating profits through termination date (500,000)
12,500,000
Estimated income taxes 5,000,000
Net income (loss) 7,500,000
For the eight months ended September 30, 1996 the Company's net loss was
$7,051,081 ($1.20 per share) as compared to net income of $2,227,631 ($0.41 per
share) for the fiscal year ended January 31, 1996.
The largest factor influencing the Company's results in the current period
was the loss from discontinued operations of the Long Beach Facility.
FISCAL YEAR ENDED JANUARY 31, 1996 VS. FISCAL YEAR ENDED JANUARY 31, 1995:
Revenues
During the fiscal ended January 31, 1996, the Company's revenues increased
by approximately $2,150,463 or approximately 175%, to $5,010,965, compared to
$2,860,502 for the fiscal year ended January 31, 1995. Of such increase,
approximately $765,338, or approximately 36%, was attributable to additional
revenues of ERD-IL and the remaining 64% increase of $1,384,233 was
attributable to the acquisiton of AMTI and ERD-IN during the fiscal year ended
January 31, 1996.
A summary of consolidated revenues by line of business/division/other
classification is as follows:
Year Ended Year Ended
January 31, January 31,
1996 % 1995 %
ERD-IL $ 3,626,732 72 $ 2,860,502 100
AMTI 1,053,122 21 - -
ERD-IN 331,111 7 - -
$ 5,010,965 100% $ 2,860,502 100%
Revenues of $10,205,133 and $3,847,707 for fiscal years ended January 31,
1996 and 1995 from discontinued operations of the incinerator at the Long Beach
Facility are not reflected in the above.
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 the fiscal year ended
Janaury 31, 1995, the cost of sales of ERD-IL during the period from April 16,
1994 through January 31, 1995.
During the fiscal year ended January 31, 1996, cost of sales increased by
$1,615,851 or 99% to $3,253,046 as compared to $1,637,195 for the fiscal year
ended January 31, 1995. Such increase was attributable to the substantial
increase in sales of AMTI and ERD-IN during fiscal year ended January 31, 1996
and the aforementioned inclusion of the operations of ERD-IL for an entire year
in the fiscal year ended January 31, 1996. Notwithstanding the foregoing, cost
of sales increased as a percentage of revenues from 57.2% for the fiscal year
ended Janaury 31, 1995 to 64.9% for the fiscal year ended January 31, 1996.
Selling, General and Administrative Expenses
During the fiscal year ended January 31, 1996, selling, general, and
administrative expense increased by approximately $1,016,096 or 284%, to
$1,568,412 for the fiscal year ended January 31, 1996 from $552,312 for the
fiscal year ended January 31, 1995. Notwithstanding the foregoing, such expense
as a percentage of net revenues increased during the fiscal year ended January
31, 1996 to 31.3% from 19.3% for the fiscal year ended January 31, 1995.
Operating Income and Net Income
During the fiscal year ended January 31, 1996, operating income decreased
$481,484, or 87.2% from $670,991 for the fiscal year ended January 31, 1995.
This decrease is attributable to the costs of expantion offering and
acquisition.
Net income increased by $1,436,338, or 182%, to $2,227,631 for the fiscal
year ended January 31, 1996 from $791,293 for the fiscal year ended January 31,
1995. Of such increase, approximately $1,769,000, or 123%, was attributable to
the net income of EWII which is included in discontinued operations and $136,000
was attributable to the operation of ERD-IN. Brokerage operations reported a
decrease in net income of approximately $469,000 in the fiscal year ended
January 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES:
On May 1, 1996 the Company completed its Tender Offer for all outstanding
shares of ENSA Common Stock, and on May 6, 1996 it purchased over 90% of the
outstanding shares of ENSA Common Stock and ENSA Preferred Stock for an
aggregate purchase price of $7,166,577. Funds for the purchase were obtained
from a $7.5 million revolving credit loan from the Bank. An additional
$520,000 will be required to purchase the remaining outstanding capital stock of
ENSA. On June 6, 1996, the Company received an additional $4,000,000 loan from
the Bank and on August 20, 1996, the Bank loaned an additional $400,000. The
proceeds were used to fully pay and discharge all principal, interest, fees, and
other financial obligations owed by ENSA to United Jersey Bank.
At September 30, 1996, the Company's working capital was $318,676 as
compared to working capital of $32,132 at January 31, 1996. Included in working
capital is a deferred tax benefit of $750,000 and $542,000 representing refunds
expected in the fiscal year ending September 30, 1997 for carryback of net
operating losses and refunds of estimated payments made.
The Company's unrestricted cash declined $1,360,489 to $61,725 over the
eight month period ending September 30, 1996. During the eight months, the
largest uses of cash were the May 1996 acquisition of ENSA and capital
expenditures of $2,149,472, of which $935,242 was for improvements at the
Company's now discontinued incinerator.
Throughout the eight month period, the Company has sought additional
sources of funding.
In order to provide working capital to the Company during 1996 Messrs.
Rubin and Wisneski, officers and directors of the Company, made various loans,
secured by interest bearing notes. The outstanding loans from Mr. Rubin at
September 30, 1996 and December 31, 1996 are zero and $300,000 respectively.
The outstanding loans from Mr. Wisneski are $500,000 at September 30, 1996 and
$400,000 at December 31, 1996. Mr. Rubin's note was due on January, 17, 1997,
but has been extended. Mr. Wisneski's notes are due in 1998. See item 12,
Certain Relationships and Related Transactions.
In addition, Messrs. Rubin, Wisneski, and Marc McMenamin (the Company's
chief operations manager) deferred the payment of certain compensation and
related expense payments to which they were contractually entitled. During
1996, these amounts totalled $107,692, $80,769, and $13,462 for Messrs. Rubin,
Wisneski and McMenamin, respectively. Such amounts remain unpaid and are
accrued in the Company's financial statements.
On December 20, 1996, the Company, through M.S. Farrell and Co. and Network
One Securities Corp., issued a private placement memorandum offering Units
consisting of shares of the Company's Common Stock and accompanying warrants.
The offering provides for shares to be priced at 90 percent of the average
closing price of the Company's Common Stock for the ten day period immediately
prior to the closing and warrants to purchase a like number of shares at a
warrant exercise price of $3.50 per share, subject to certain adjustments. The
minimum offering will provide $385,000 and the maximum will provide $3,212,500
in cash proceeds. The Company sold $500,000 of such Units on December 31, 1996,
and an additional $260,000 of such Units on January 29, 1997 providing net
proceeds of $644,926. The Company continues to offer the remaining Units,
however no assurance can be given that the Company will be successful in
endeavor.
As a result of its loss from discontinued operations, the Company is in
violation of certain loan agreement covenants with the Bank. The Bank and the
Company are currently working on a restatement of the covenants to provide for
financial assurances for the remaining term of the loan. As of September 30,
1996, and currently, the Company's outstanding indebtedness on its revolving
loans totals $11,900,000, the maximum available credit. As discussed in the
notes to the financial statements, $7,500,000 matures on April 1, 1998. The
remaining $4,400,000 is due June 6, 1997, however, the Company has requested
that the Bank extend the maturity date to 1998 in consideration of continuation
of the Company's ability to continue to provide collateral in the form of a
letter of credit.
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-21 of this Report.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages, along with certain biographical information (based
solely on information supplied by them), of the directors and executive officers
of the Company are as follows:
NAME AGE POSITION
Joseph J. Wisneski 43 Director, President,and Chief
Operating Officer
Robert M. Rubin 56 Chairman of the Board and Chief
Executive Officer
Joseph T. Jacobsen 38 Director, Executive
Vice President
Carl Frischling 61 Director
Marc P. McMenamin 35 Director, Chief
Operations Manager
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 for serving as an
independent director, Mr. Frischling receives 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 compensation and audit committees consisting of Carl
Frischling 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 a Masters of Business Administration 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. Mr. Rubin has served since October 1990 as Chairman of the
Board, Chief Executive Officer and President of AUGI, a public company
engaged in the manufacture and distribution of high tech communications
software. Mr. Rubin was the founder, President, Chief Executive Officer,
and a director of Superior from its inception in 1976 until May 1986 and
continued as a director of SCI (now known as Olsten Corporation ("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 resorting to bankruptcy proceedings. Mr. Rubin is also
the Chairman of the Board of Western Power & Equipment Corp., 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 public company
engaged in the food distribution business; Med Emerg International Inc., a
company involved in managing emergency rooms in Ontario, Canada; and Kaye
Kotts Associates Inc., a public company engaged in providing tax
preparation and assistance services.
JOSEPH T. JACOBSEN has served as a Director of the Company since November
1996, and as an Executive Vice President of the Company and as
President of ERD Environmental Inc., the Company's
wholly-owned subsidiary which specializes in air and environmental
consulting, since May 1996. Prior to that, Mr. Jacobsen served as
Executive Vice President from November 1989, and as Secretary from June
1990, of ENSA. Since August 1994, Mr. Jacobsen has been President of ENSA
Environmental, Inc., a wholly-owned subsidiary of
ENSA which owns and operates all consulting assets and activities of
ENSA. Mr. Jacobsen holds a Masters of Science degree from the School
of Engineering of the University of Pittsburgh, a B.S. degree in
Business from LaSalle University and a B.A. degree in Geology from
Temple University.
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.
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
Agust 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. Mr. Frischling holds B.A,
Juris Doctorate, and Masters of Business Administration degrees from
Columbia University.
ITEM 10 - EXECUTIVE COMPENSATION
The following table set forth the annual and long-term compensation for
services in all capacities to the Company for the eight months ended September
30, 1996 and the fiscal years ended January 31, 1996 and 1995 of the Chief
Executive Officer of the Company and the other executive officers of the Company
(together, the "Named Executive Officers") who received over $100,000 in
annualized compensation in the form of salary and bonus for the eight months
ended September 30, 1996.
SUMMARY COMPENSATON TABLE
Annual Compensation Long Term Compensation
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name Other Long
and Annual Restricted Term All Other
Principal Period Compen- Stock Options/ Incentative Compen-
Position Ended Salary(1) Bonus sation(1) Awards SARs Plan Payouts sation
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin 9-30-96 $30,769(2) - - - - - - - - - - - -
Chaiman of the
Board 1-31-96 103,000 - - - - - - - - - - - -
Chief Executive
Officer 1-31-95 56,250 - - - - - - - - - - - -
Joseph J. Wisneski9-30-96 $132,692(3) $55,000(3) $40,000(5) - - - - - - - -
President & Chief 1-31-96 150,273 - - - - - - - - 125,000(4) - -
Operating Officer 1-31-95 58,750 - - - - - - - - - - - -
Marc McMenamin 9-30-96 $67,692(6) $25,000(4) 4,000(5) - - - - - - - -
Chief Operations 1-31-96 93,320 15,000(4) - - - - 100,000(6) - - - -
Officer 1-31-95 44,596 - - - - - - - - - - - -
Joseph T. Jacobsen9-30-96 (7) - - - - 2,600 - - - - - -
Executive Vice
President
(1) Data shown is for the eight months ended September 30, 1996, twelve months
ended January 31, 1996, and twelve months ended January 31, 1995.
(2) Effective January 1, 1997, Mr. Rubin is compensated at $160,000 per annum
(see Employment Agreements). During 1996 Mr. Rubin voluntarily deferred
compensation payments totalling $ 107,692.
(3) Effective January 1, 1997, Mr. Wisneski is compensated at $275,000 per
annum. (see Employment Agreements). During 1996 Mr. Wisneski voluntarily
defferred compensation payments of $ 80,769.
(4) Bonus relates to services rendered in the prior year fiscal period.
(5) Messrs. Wisneski, McMenamin and Jacobsen receive travel and entertainment
allowances of $5,000, $500, and $650 per month.
(6) Effective January, 1997, Mr. McMenamin is compensated at $130,000 per annum
(see Employment Agreements). During 1996, Mr. McMenamin deferred
compensation payments of $ 13,462.
(7) Effective June 1996, Mr. Jacobsen is compensated at $125,000 per annum
(See Employment Agreements).
(B) OPTIONS/SAR GRANTS
There were no SAR grants in 1996.
The following table provides information regarding option grants during
1996 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Number of Securities Percent of Total Options Exercise or
Underlying Options Granted to Employees in Base Price per
Name Granted Fiscal Year Share Expiration Date
Joseph T. Jacobsen (1) 60,000 40% $ 2.00 2002
(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 values of such officers'
unexercised options.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES (1)
<S> <C> <C> <C> <C>
Number of Number of Securities Value of Unexpected
Shares Underlying Unexercised In-the-Money Options at
Acquired on Options at September 30, 1996 September 30, 1996
Names Exercise Value Realized Exercisable/Unexercisable(1) Exercisable/Unexercisable(1)
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 0 $ 0 0 N/A
Joseph T. Jacobsen 0 $ 0 0 N/A
(1) All options were granted at an exercise price equal to the fair
market value of the Common Stock on the date of the grant.
Compensation of Directors
Outside Directors are entitled to a $1,500 quarterly fee. No fees were
paid as of September 30, 1996. During 1996, no Director of the Company
received any compensation for his services in such capacity. Outside directors
are reimbursed for expenses incurred by them in connection with their
activities on behalf of the Company.
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 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,
1998. The employment agreement, as amended, provides for a salary of $100,000
per annum for 1995, $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 Joseph T.
Jacobsen pursuant to which Mr. Jacobsen will serve as Executive Vice President
of the Company and as President of ERD Environmental, Inc. through May 1999, at
a salary of $125,000 per annum. Under his employment agreement Mr. Jacobsen has
use of an automobile and has received options to purchase 60,000 shares of
Common Stock.
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., the Company's discontinued operation, 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 and $130,000 for 1997.
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 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, if
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.
The board of directors has authorized, and will recommend that the
stockholders of ERD approve, an amendment to the Plan to (i) increase the number
of authorized options thereunder from 500,000 shares to 1,000,000 shares and
(ii) permit the grant of non-qualified stock options.
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, based on reports
filed with the SEC, (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.
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned Percentage of Class
Robert M. Rubin(1) 1,397,225 21.43%
Joseph J. Wisneski(1) 961,675(2) 14.75%
Marc McMenamin(1) 137,475(3) 2.11%
Carl Frischling 15,500(4) *
170 East 83rd Street
New York, New York 10028
Joseph T. Jacobsen (1)(5) 16,500 *
All directors and 2,528,375 38.79%
executive officers of the
Company as a group
(five persons)(2)
(3)(4)(5)
Hampshire Securities, Inc.
and affiliates
(including one related
person)(7)
640 Fifth Avenue
New York, New York 10019 397,620 6.1%
* Indicates beneficial ownership of less than one (1%) percent.
(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
Plan, of which 93,750 are exercisable within 60 days of the date
hereof.
(3) Does not include options to purchase 190,000 shares, in the aggregate,
granted under the 1994 Plan, of which 142,000 are exercisable within
60 days of the date hereof.
(4) Includes 7,500 shares presently exercisable out of 30,000 shares
granted pursuant to the Option Agreement between the Company and Mr.
Frischling.
(5) Includes 16,500 shares presently exerisable out of 60,000 shares
granted under the 1994 Plan.
(6) Outstanding shares do not include 200,000 shares and warrants to
purchase an additional 200,000 shares issued to Kramer Levin.
(7) Does not include warrants to purchase 120,000 shares of Common Stock.
Each of Hampshire's affiliates disclaims beneficial ownership of the
others' shares of Common Stock.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 30, 1996, the Company entered into a Financial Accommodations
Agreement with AUGI, an affiliate of Robert Rubin, in connection with the Letter
of Credit issued on behalf of the Company by AUGI in favor of the Bank to secure
a $4.4 million loan from the Bank to the Company.
The Company borrowed $4,400,000 from the Bank which is secured by certain
assets of the Company and its subsidiaries, including ENSA and its subsidiaries,
as well as by a stand-by letter of credit issued in favor of the Bank (the
"Letter of Credit"). The Letter of Credit was obtained by American United
Global, Inc. ("AUGI"), an affiliate of Robert Rubin, on behalf of the Company.
In consideration of AUGI obtaining the Letter of Credit, the Company entered
into an agreement with AUGI, dated May 30, 1996, as amended and restated by
letter agreement dated October 8, 1996 (the "Financial Accommodations
Agreement"). Pursuant to the terms of the Financial Accommodations Agreement,
the Company agreed to (i) pay interest and other charges to AUGI, for so long as
the Letter of Credit remains outstanding, in amounts equal to amounts of
interest or other charges paid by AUGI to Citibank, N.A. in connection with the
Letter of Credit or any payments made by Citibank, N.A. thereunder; (ii) pay all
fees and disbursements of AUGI, including $10,000 of legal fees to AUGI's
counsel; and (iii) if and to the extent the Letter of Credit is called for
payment; the Company will issue to AUGI a convertible note in the aggregate
principal amount of the note payable at 12% interest due on the earliest of (a)
May 31, 1999, (b) receipt of proceeds by ERD from any public or private
placement of debt or equity securities subsequent to the calling of the Letter
of Credit, or (c) completion of any bank financing by ERD to the extent of all
proceeds available after payment of all other secured indebtedness, provided
that any of the Company's notes issued to AUGI will be convertible, at any time
and at the option of AUGI, into shares of common stock of the Company at a
conversion price equal to $4.40 per share. As security for the obligations of
the Company under the Financial Accommodations Agreement, ENSA and certain of
its subsidiaries have agreed to grant to AUGI a security interest, subordinate
to the first priority security interest granted to the Bank, in all of their
machinery and equipment.
During the quarter ended July 31, 1996, the Company's President and Chief
Operating Officer loaned the Company $600,000. The advances are evidenced by
notes in the amount of $500,000 and $100,000 from the Company bearing an
interest rate equal to the interest rate charged by the Bank on its loan to the
Company. Interest and principal are due in full at maturity on July 12, 1998
for the $500,000 note and on June 10, 1998 for the $100,000 note. At December
31, 1996, $400,000 remains outstanding.
On December 17, 1996, Robert Rubin, the Company's Chairman of the Board and
Chief Executive Officer loaned the Company $300,000. The advance is secured by
a short term note bearing interest at 2% above the prime lending rate of the
Bank. On February 5, 1997, AUGI, an affiliate of Robert Rubin, loaned $500,000
to the Company which is also secured by a short term note bearing interest at 2%
above the prime lending rate of the Bank.
The Company has issued 200,000 Units, consisting of shares of Common Stock
and warrants to purchase an additional 200,000 shares of Common Stock to Kramer
Levin, counsel to the Company. Additionally, 30,000 shares of Common Stock are
issuable upon exercise of options granted to each of Carl Frischling, an outside
director and a member of Kramer Levin, and Peter Reuter, a former director,
pursuant to certain option agreements.
PART IV
ITEM 13 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) (1) AND (2) FINANCIAL STATEMENTS AND SCHEDULES:
Independent Auditors' Report F-2
Consolidated Balance Sheets -
September 30, 1996 and January 31, 1996 and 1995 F-3
Consolidated Statements of Operations - for the eight months ended September
30, 1996 and the years ended January 31, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity -
for the eight months ended September 30, 1996, and the years ended
January 31, 1996 and 1995. F-5
Consolidated Statements of Cash Flows - for the eight months ended September
30, 1996 and the years ended January 31, 1996 and 1995. F-6
Notes to Consolidated Financial Statements F-7 to F-17
(A) (3) Exhibits:
EXHIBIT DESCRIPTION
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.
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).
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
REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company in two months ended
September 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ERD WASTE CORP.
(Registrant)
By /s/ Joseph J. Wisneski
Joseph J. Wisneski, President and Chief Operating Officer
and Principal Accounting Officer
February 12, 1997
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Joseph J. Wisneski
Joseph J. Wisnski, President and Chief Operating Officer
and Principal Accounting Officer
February 12, 1997
Date
/s/ Robert Rubin
Robert Rubin, Director and Chief Executive Officer
February 12, 1997
Date
/s/ Joseph T. Jacobsen
Joseph T. Jacobsen, Director
February 12, 1997
Date
/s/ Carl Frischling
Carl Frischling, Director
February 12, 1997
Date
EXHIBIT 21.1
SUBSIDIARIES OF ERD WASTE CORP.
ADDITIONAL NAMES
STATE OF UNDER WHICH
NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY DOES BUSINESS
ENSA/Government Services, DE
Inc.
ENSI of Pennsylvania, Inc. PA NES-PA
ENSI, Inc. NJ ENSI
Environmental Services of MO ENSA-MO
America-MO, Inc.
Environmental Services of IN ENSA-IN
America-IN, Inc.
Northeast Environmental NY NES
Services, Inc.
Tri-S, Incorporated CT TRI-S
ERD Environmental, Inc. DE ERD-ENV
Environmental Services of America,
Inc. DE ENSA
ERD Waste Incineration, Inc. DE
ERD Waste Corp. of Illinois IL "ECT"
ERD Waste Corp.
Indiana IN
ENSA Acquisition Corp. DE
Absorbent Manufacturing
& Technology, Inc. IL
C & J Enterprises, Inc. DE
Long Beach Recycling
& Recovery Corp. NY
ERD Management Corp. NY
ERD Resource Recovery, Inc. DE
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 September 30, 1996 and January 31, 1996 and the related
statement of operations, stockholders' equity and cash flows for the eight
months ended September 30, 1996 and the years ended January 31, 1996
and 1995. 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 September 30, 1996 and January 31, 1996 and the results of
its operations and cash flows for the eight months ended September 30, 1996 and
the years ended January 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
January 22, 1997 (February 12, 1997 as to the eighth paragraph of Note 10)
F-2
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, January 31,
1996 1996
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,725 $ 1,422,214
Restricted certificates of deposit 1,655,363 800,000
Accounts receivable, less allowance
for doubtful accounts of
$1,042,833 and $90,000, respectively 11,631,456 2,491,731
Prepaid expenses and
other current assets 1,991,860 168,393
Inventory 335,595 160,636
Deferred income taxes 750,000 -
---------- ----------
TOTAL CURRENT ASSETS 16,425,999 5,042,974
---------- ----------
PROPERTY, PLANT and EQUIPMENT, less accumulated
depreciation of $1,547,016 and
$617,547, respectively 8,315,235 11,687,575
---------- ----------
OTHER ASSETS:
Restricted certificates of deposit - 950,000
Goodwill, less accumulated amortization 9,800,045 1,031,628
Covenants not to compete,
less accumulated amortization 214,665 316,938
Loan receivable -
Environmental Services
of America, Inc. - 500,000
Deferred permit costs and other - 315,638
Deferred tax benefit,
less current portion 7,052,069 -
TOTAL OTHER ASSETS 17,066,779 3,114,204
---------- ----------
$ 41,808,013 $ 19,844,753
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,863,276 $ 1,868,743
Accrued expenses and taxes payable 5,197,162 1,870,432
Current portion- notes payable 2,046,885 1,271,667
---------- ----------
TOTAL CURRENT LIABILITIES 16,107,323 5,010,842
---------- ----------
LONG-TERM DEBT, less current portion 14,255,499 1,244,488
---------- ----------
OTHER LONG TERM PAYABLES 5,088,000 -
---------- ----------
DEFERRED INCOME TAXES - 250,000
---------- ----------
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000
shares, $.001 par value; none issued
and outstanding - -
Common stock, authorized 15,000,000
shares, $.001 par value;
5,882,782 and 5,832,782 shares issued
and outstanding, respectively 5,883 5,833
Additional paid in capital 10,556,550 10,487,751
Retained earnings (deficit) (4,205,242) 2,845,839
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 6,357,191 13,339,423
---------- ----------
$ 41,808,013 $ 19,844,753
========== ==========
See notes to financial statements.
F-3
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Eight months
ended
September 30, Year ended January 31,
------------- ----------------------
1996 1996 1995
---- ---- ----
REVENUES:
Net sales $ 20,130,375 $ 5,010,965 $ 2,860,502
COST OF SALES 12,778,257 3,253,046 1,637,195
---------- ---------- ----------
GROSS PROFIT 7,352,118 1,757,919 1,223,307
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and
administrative expenses 5,821,132 1,568,412 552,316
Fire loss 423,352 0 0
Start-up costs 437,241 0 0
---------- ---------- ----------
TOTAL OTHER OPERATING EXPENSES 6,681,725 1,568,412 552,316
---------- ---------- ----------
INCOME FROM OPERATIONS 670,393 189,507 670,991
---------- ---------- ----------
OTHER INCOME AND EXPENSES:
Interest and dividend income 72,091 99,652 0
Interest expense (602,407) (62,765) (46,588)
Other, net 54,506 12,318 0
---------- ---------- ----------
TOTAL OTHER INCOME AND EXPENSES (475,810) 49,205 (46,588)
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 194,583 238,712 624,403
PROVISION FOR INCOME TAXES 77,666 95,500 250,000
---------- --------- ----------
INCOME FROM CONTINUING OPERATIONS 116,917 143,212 374,403
---------- --------- ----------
DISCONTINUED OPERATIONS:
Income from operations,
net of income taxes of
approximately $221,000,
$1,385,000 and $277,000
respectively 332,002 2,084,419 416,890
Loss on disposal, net of
income tax benefit
of $5,000,000 (7,500,000) 0 0
--------- --------- ----------
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (7,167,998) 2,084,419 416,890
--------- --------- ----------
NET INCOME (LOSS) $ (7,051,081) $ 2,227,631 $ 791,293
========= ========= ==========
INCOME (LOSS) PER SHARE:
INCOME FROM
CONTINUING OPERATIONS $ 0.02 $ 0.03 $ 0.09
==== ==== ====
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS $ (1.22) $ 0.38 $ 0.11
==== ==== ====
NET INCOME (LOSS)
PER COMMON SHARE $ (1.20) $ 0.41 $ 0.20
==== ==== ====
WEIGHTED AVERAGE
NUMBER OF SHARES 5,857,782 5,490,487 3,963,000
========= ========= =========
See notes to financial statements.
F-4
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit) Total
------------ ------- -------- --------- ---------
Balance-
January 31, 1994 3,525,000 $ 3,500 $ - $ (41,985) $ (38,485)
Common shares
issued in connection
with acquisition 312,500 338 169,266 - 169,604
Net income - - - 791,293 791,293
--------- ------- -------- --------- --------
Balance-
January 31, 1995 3,837,500 3,838 169,266 749,308 922,412
Common shares
issued in connection
with public offering 2,250,000 2,250 12,110,720 - 12,112,970
Reacquisition of
common shares (300,000) (300)(2,018,600) (131,100)(2,150,000)
Issuance of common
shares in connection
with the acquisition
of EATS, Inc. 45,282 45 226,365 - 226,410
Net income - - - 2,227,631 2,227,631
--------- ------- --------- --------- ---------
Balance-
January 31, 1996 5,832,782 5,833 10,487,75 12,845,839 13,339,423
Issuance of
common stock 50,000 50 68,799 68,849
Net income - - - (7,051,081)(7,051,081)
--------- ------- -------- --------- ---------
Balance-
September 30, 1996 5,882,782 5,883 10,556,550 (4,205,242) 6,357,191
========= ====== ========== ========= =========
See notes to financial statements.
F-5
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Eight months
ended
September 30, Year ended January 31,
------------- ----------------------
1996 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,051,081) $ 2,227,631 $ 791,293
----------- ----------- ---------
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 930,604 441,719 160,000
Amortization 245,677 93,322 0
Provision for loss on
discontinued operations,
net of tax benefit 7,500,000 0 0
Provision for deferred
income tax (2,670,782) (44,906) 527,000
Issuance for common stock
for services 68,849
Changes in assets and liabilities
(net of effects
from purchase of ENSA):
(Increase) decrease in
accounts receivable (1,870,836) (1,407,332) 191,200
(Increase) in inventory 367,908 (160,636) -
(Increase) decrease in
prepaid expenses and
other current assets (1,607,893) (123,870) 323,615
(Increase) in other assets (1,798,548) (442,325) (11,474)
Increase (decrease) in
accounts payable and
accrued expenses 1,749,255 777,942 (282,532)
Increase in income
taxes payable - 507,918 -
----------- ----------- ---------
2,914,234 (358,168) 907,809
----------- ----------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (4,136,847) 1,869,463 1,699,102
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of ENSA (8,085,181)
Capital expenditures (2,149,472) (904,718) (1,642,230)
------------ ----------- -----------
(10,234,653) (904,718) (1,642,230)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 12,916,275 (8,876,929) (48,906)
Borrowings - 859,750 181,350
Issuance of common stock - 10,444,190 31,807
Advances to Environmental
Services of America, Inc. - (500,000) -
Decrease (increase) in
restricted certificates
of deposit 94,736 (1,750,000) -
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 13,011,011 177,011 164,251
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (1,360,489) 1,141,756 221,123
CASH, at beginning of period 1,422,214 280,458 59,335
----------- ---------- -----------
CASH, at end of period $ 61,725 $ 1,422,214 $ 280,458
=========== ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 602,000 $ 51,030 $ 46,588
=========== ========== ===========
Income taxes paid $ - $ 975,633 $ -
=========== ========== ===========
See notes to financial statements.
F-6
ERD WASTE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EIGHT MONTHS ENDED SEPTEMBER 30, 1996 AND YEAR ENDED JANUARY 31, 1996
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 September 30.
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
As a result of the acquisition of Environmental Services of America,
Inc. ("ENSA") the Company operates as 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.
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 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 continues to apply APB Opinion No. 25 to its stock
based compensation awards to employees.
F-7
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 the period ended September 30,
1996 did not have a material impact on the consolidated financial
statements of the Company.
i. Fair value of financial instruments - The amounts reported in the
balance sheet for cash, trade receivables, accounts payable and accrued
expenses approximate fair value based on the short-term maturities of
these instruments.
4. BUSINESS COMBINATIONS
a. Effective May 1, 1996 the Company, ENSA Acquisition Corp. ("EAC"),
and ENSA 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 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.
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"), acquired 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, initiated 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 was conditioned
upon, and closed 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.
b. 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).
c. In October, 1995, a newly fomed wholly owned subsidiary, Absorption
Manufacturing and Technologies, 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.
F-8
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 1,044,000
acquired
Current liabilities (529,287)
Other liabilities (766,574)
Value of ERD common
shares issued to EATS
shareholders $ 226,410
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:
Eight
months Years
ended Ended
September January January
30, 1996 31, 1996 31, 1995
Revenues $27,422,306 $46,538,810 $39,848,267
Net income $(8,621,533) $ (483,211) $ 753,469
Net income per share $ (1.47) $ (0.09) $ 0.19
Number of shares used
in calculation 5,882,782 5,490,487 3,963,000
5. 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 $1,150,000 at September 30, 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. 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.
6. DISCONTINUED OPERATIONS
On September 4, 1996, the Company received a complaint from the New
York State Department of Environmental Conservation ("DEC") citing a number
of alleged violations at the Company's Long Beach, New York incinerator
("Facility"). The DEC's complaint also indicated its intent to have the
Facility closed. On November 7, 1996 the Company announced that it had
reached an agreement with the New York State Attorney General acting on
F-9
behalf of the DEC concerning the resolution of a complaint filed by the DEC
on September 4, 1996 regarding the Company's operation of its incinerator
in Long Beach, New York ("Facility"). The agreement reached on November 7,
1996 includes a voluntary discontinuance of incineration at the Facility.
In addition, the agreement includes modification of the Facility's permit
to allow it to continue to operate as a solid waste transfer station for
the waste streams it has previously processed as a waste to energy
incinerator. In return for the resolution of all legal issues, the Company
agreed to voluntarily cease incineration activities by March 31, 1997.
The plan to convert the facility to a solid waste transfer station
will involve the dismantling of a significant portion of the existing
structure, and the remediation of the soil on and around the Facility. In
addition, the Company estimates that significant legal and other consulting
fees will be incurred in the management of the project. The estimated loss
on the abandonment of the waste to energy facility includes the net book
value of the Facility, the estimated costs to dismantle the facility, the
legal and other fees associated with the project, partially offset by the
estimated salvage value of the Facility's equipment and projected operating
profits through the termination date of March 31, 1997. The following table
is a calculation of the estimated loss on abandonment:
Net book value of Facility $11,500,000
Costs to dismantle and 2,000,000
professional fees
Estimated salvage value of (500,000)
equipment
Operating profits through (500,000)
termination date
Loss on disposal $12,500,000
The following table sets forth, for the periods indicated, the revenues and
results of operations of the Facility.
Eight
months Years
ended Ended
September January January
30, 1996 31, 1996 31, 1995
Revenues $ 4,651,085 $10,205,133 $ 3,847,707
Net income $(7,167,998)(a) $ 2,084,419 $ 416,890
(loss)
(a) Includes estimated loss on disposal, net of tax benefit, of $7,500,000
ERD acquired the facilities prior owner,C&J Enterprises, Inc. in a
transaction accounted for as a purchase. 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
F-10
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.
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.
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, which was previously
included in revenues. 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, and management's 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.
7. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of the following at September 30, 1996:
Environmental Costs $2,833,000
Severance costs 650,000
Costs related to discontinued operations 850,000
Accrued acquisition costs 345,000
Accrued professional fees and salaries 410,000
5,088,000
(a) The three transfer stations operated by ENSA are on sites that
have been contaminated as a result of prior useof the site or by prior use
at an adjacent site. The Company is cooperating with the government
regulatory agencies that have jurisdiction over its facilities to
investigate, assess, and implement appropriate remediation measures to
address these conditions. The Company has projected potential expenditures
that may be required to conduct further investigations or studies and to
remediate the sites to satisfy regulatory requirements. In developing these
projections of potential remediation and compliance costs, the Company has
relied, in part, on studies prepared by itself and an independent
environmental engineering and consulting firm.
The Company will also be required to upgrade its transfer stations to
meet new regulatory and permit requirements, including the installation of
emission controls for volatile organic compounds on the storage tanks at
each facility to meet requirements with respect to air emissions.
F-11
Estimates of potential costs related to these environmental matters is
subject to significant inherent uncertainty. Estimates of costs of
compliance and remediation are subject to a number of factors beyond the
Company's control; therefore, actual costs could differ from these
estimates and the differences could be material.
(b) The former CEO of ENSA has alleged that the Company breached its
obligations pursuant to an unsigned employment agreement providing for
$225,000 per year for three years. In addition, the Company has agreed to
pay the former CEO $200,000 per year for the nest two years.
(c) Costs related to the discontinuance of the Company's incinerator
in Long Beach, New York consist of estimated costs to dismantle the
Facility, as well as estimated legal and other professional fees to be
incurred in the process. The costs are stated net of estimated income from
incineration operations through the date that the Company must cease
incineration activities at the site, March 31, 1997.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under the terms of operating
leases with varying maturities through 2007. Minimum lease commitments
under all operating leases for each of the next five years and thereafter
are as follows:
1997 $ 1,490,000
1998 478,000
1999 344,000
2000 290,000
2001 300,000
Thereafter 1,593,000
Certain of the leases contain renewal options ranging from five to ten
years. Additionally, two leases provide the Company with an option to
purchase the related property. Rent expense aggregated approximately
$594,000, $256,000 and $175,000 for the eight months ended September 30,
1996 and the years ended January 31, 1996 and 1995, respectively.
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.
9. PROPERTY, PLANT AND EQUIPMENT
The following is a summary for property, plant and equipment:
September January
30, 1996 31, 1996
Vehicles and equipment $ 4,221,326 $ 637,898
Waste facility - 9,341,645
Building and building
improvements 4,959,040 2,220,440
Other 681,885 102,139
9,862,251 12,302,122
Accumulated depreciation (1,547,016) (614,547)
$ 8,315,235 $11,687,575
F-12
10. LONG TERM DEBT
The long term debt is summarized as follows:
September January
30, 1996 31, 1996
Revolving credit note payable,
bank, due April 1, 1998, (a) $ 7,500,000 $ -
1998, (a)
Note payable, bank (a) 4,400,000 -
Note Payable- Catalyst, payable in
equal annual installments through
1999 400,000 400,000
Note payable - officer, due on
demand, with interest at prime
plus 1% 642,949 -
Notes Payable - Former 1,150,000 1,750,000
Stockholders payable in quarterly
installments of $200,000 with a
final installment of $150,000 in
February, 1998 at 6% per annum
Various equipment and other 2,209,435 296,415
installment notes payable in
varying monthly amounts including
interest ranging from 8% to 18.3%,
with varying maturities through
November 2001
Other - 69,740
16,302,384 2,516,155
Less current portion 2,046,885 1,271,667
$14,255,499 $1,244,488
(a) In order to partially finance the purchase of the common stock and
preferred stock of ENSA, in April 1996, the Company obtained and utilized
the availability of a $7.5 million revolving credit facility (the
"Revolving Facility") from Chemical Bank (the "Bank"and/or "lender")
pursuant to a loan agreement (the "Loan Agreement"), dated March 29, 1996.
The funds were actually borrowed on May 2, 1996. The Loan Agreement
provides, among other things, for the payment by ERD 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) 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).
F-13
Subject to the terms of the Loan Agreement, the Revolving Facility
will be available until April 1, 1998, at which time, all outstanding
principal and accrued interest under the Revolving Facility shall be due
and payable.
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 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).
At September 30, 1996 the Company was in technical violation of a
number of the covenants contained in the agreement. As of February 12,
1997, these violations were waived. Concurrently, the lender and the
Company agreed on revised financial covenants for the remainder of the year
ending September 30, 1997. The Company expects to be in compliance with the
revised covenants at each measurement date.
On June 6, 1996 and in August 1996, the Company borrowed an additional
$4,400,000 (in the aggregate) from this lender pursuant to a demand
promissory note (the "Note"). The Note bears interest at 1% above the
lender's prime rate, as that term is defined in the agreement. The proceeds
of the loan were utilized to repay existing credit facilities of ENSA
(those in existence at the time of the acquisition of ENSA by ERD). The
Note is collateralized by certain assets of the Company and its
subsidiaries, as well as by a stand by letter of credit issued in favor of
the mlender by American United Global, Inc. ("AUGI"), an affiliate of one
of the Comapny's directors. In consideration for the letter of credit, the
Company entered into an agreement with AUGI, dated May 30, 1996, as amended
and restated by letter agreement dated October 8, 1996. Pursuant to the
agreement, the Company agreed to pay interest and other charges incurred by
AUGI with respect to the letter of credit. It was also agreed that should
the letter of credit be called for payment, the Company would issue to AUGI
its 12% note payable due the earlier of May 31, 1999, or the receipt of
proceeds by the Company from any public or private placement of debt or
equity securities subsequent to the calling of the letter of credit, or the
completion of any bank financing by the Company to the extent of proceeds
available after the repayment of previously oustanding collateralized
indebtedness. Any of such notes issued pursuant to this agreement will be
convertible by AUGI into shares of the Company's common stock at $4.40 per
share.
F-14
11. INCOME TAXES
The provision for income taxes consists of the following:
Eight
months Year
ended ended
September January
30, 1996 31, 1996
Current tax expense:
U.S. Federal $ 66,000 $ 935,000
State and local 11,666 296,000
77,666 1,231,000
Deferred tax expense:
U.S. Federal 0 200,000
State and local 0 50,000
0 250,000
Total provision $ 77,666 $1,481,000
Temporary differences and carryforwards which give rise to deferred
tax assets and liabilities at September 30, 1996 and January 31, 1996 are
as follows:
September January
30, 1996 31, 1996
Deferred tax asset:
Net operating loss $ 1,592,000 $
carryfowards
Environmental 2,200,000
liabilities
Write-off of 5,000,000
incinerator
8,792,000
Less:Valuation 740,000
allowance
Deferred tax asset 8,052,000
Deferred tax liability:
Insurance proceeds
received treated as a 250,000 250,000
basis reduction for tax
purposes.
Net deferred tax asset $ 7,802,000 $ (250,000)
(liability)
Realization of deferred tax assets is dependent upon generating
sufficient taxable income prior to the expiration of net operating loss
carryforwards. Management believes that there is a risk that certain
amounts may not be realized, and accordingly, has established a reserve
against a portion of the deferred tax asset. Management believes that it is
more likely than not that the net deferred tax asset will be realized
through future pre-tax earnings or alternative tax strategies. However, the
net deferred tax assets could be reduced in the future if management's
estimates of near term pre-tax earnings are significantly reduced or
alternative tax strategies are no longer viable.
F-15
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:
Eight
months Year
ended ended
September January
30, 1996 31, 1996
Income tax provision at 34% $ 66,000 $ 1,261,000
State and local income 11,666
taxes, net of Federal income 220,000
effect
77,666 1,481,000
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 annual increase 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
$100,000 per annum commencing January 1, 1994.
The Company has also entered into an agreement with the President of
ECT which extends through March 3, 1996. The employment agreement
provides for an annual salary of $60,000 plus additional compensation based
on the pre-tax earnings of ECT through the relevant period. In addition,
the Company is obligated to pay such shareholders certain amounts pursuant
to a non compete agreement signed in connection with the common stock
repurchase described in Note 6.
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, 445,000 options were
granted pursuant to the plan, exercisable at $4.00 per share for two years.
14. MAJOR CUSTOMERS
During the eight months ended September 30, 1996, one customer
accounted for approximately 17.4% of consolidated revenues.
15. SUBSEQUENT EVENT
In December 1996 the Company commenced a private offering of its
common shares in the form of units. The private placement calls for the
sale of up to 150 units (but not less than 20 units) at a price of $25,000
per unit. The units will consist of a number of common shares and an equal
number of warrants to purchase common shares. The number of shares (and
warrants) is to be dtermined by dividing the purchase price per unit by 90%
of the average closing bid price for the Company's common stock for the ten
trading days immediately preceding the date of the closing of the offering.
16. EIGHT MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
The following table sets forth the Company's unaudited summarized results
of operations for the eight months ended September 30, 1995:
F-16
Revenues $7,929,036
Gross profit 5,252,879
Selling, general and
administrative 2,405,375
Income from operations 2,847,504
Income taxes 1,090,953
Net income $1,781,763
F-17
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