-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TiYN4tRdhejB9eh8zX0gv27oPABaU4rXGFJMFbIOTMfYWhX5mIAyMMAw9JM49oT1 /I///sZc6CyjXWqqO0ciKA== 0000819977-96-000019.txt : 19960514 0000819977-96-000019.hdr.sgml : 19960514 ACCESSION NUMBER: 0000819977-96-000019 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960229 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCON CENTRAL INDEX KEY: 0000819977 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 941738964 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16225 FILM NUMBER: 96560946 BUSINESS ADDRESS: STREET 1: 400 S EL CAMINO REAL STE 1200 CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 4153751522 MAIL ADDRESS: STREET 1: P O BOX 349014 CITY: SACRAMENTO STATE: CA ZIP: 95834-9014 FORMER COMPANY: FORMER CONFORMED NAME: EMCON ASSOCIATES /CA/ DATE OF NAME CHANGE: 19910611 8-K/A 1 AMENDMENT NO. 2 TO ORIGINAL 8-K DATED 2/29/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 2) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): February 29, 1996 EMCON (Exact name of registrant as specified in its charter) California (State or other jurisdiction of incorporation) 0-16225 94-1738964 - --------------------------- ------------------- (Commission File Number) (IRS Employer Identification No.) 400 S. El Camino Real, Suite 1200 San Mateo, California 94402 - -------------------------------------------- ------- (Address of principal executive offices) (Zip Code) (415) 375-1522 (Registrant's telephone number, including area code) Page 1 of 33 pages. Exhibit Index appears on Page 2 1 INFORMATION TO BE INCLUDED IN THE REPORT Amendment No. 2 The undersigned registrant hereby amends the following items of its Current Report on Form 8-K dated February 29, 1996, as previously amended by Form 8-K/A (Amendment No. 1) dated April 15, 1996. Item 7. Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired Organic Waste Technologies, Inc. and Subsidiaries ("OWT") audited consolidated balance sheets as of December 31, 1995 and 1994; audited consolidated statements of income, common stock and other stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995, are attached hereto as exhibits. Organic Waste Technologies, Inc. and Subsidiaries unaudited consolidated condensed statement of operations for the three month periods ended March 31, 1996 and 1995, are attached hereto as exhibits. (b) Pro Forma Financial Information Unaudited pro forma consolidated condensed statements of operations of EMCON for the three months ended March 31, 1996 and the twelve months ended December 31, 1995, are attached hereto as exhibits. (c) Exhibits: Exhibit No. Description 2.1* Stock Purchase Agreement dated January 30, 1996, among EMCON, OWT and the Sellers (the "Stock Purchase Agreement"), incorporated by reference from Exhibit 2.1 of that certain Form 8-K/A (Amendment No. 1) dated April 15, 1996. 10.1* Note Agreement dated February 29, 1996 among EMCON, OWT and certain Sellers, incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated February 29, 1996 (the "February 1996 8-K"). 10.2* Credit Agreement dated February 29, 1996 between EMCON and the Bank of California, N.A. (the "Bank"), incorporated by reference from Exhibit 10.2 of the February 1996 8-K. 2 10.3* Security Agreement dated February 29, 1996 by EMCON in favor of the Bank, incorporated by reference from Exhibit 10.3 of the February 1996 8-K. 10.4* Pledge Agreement dated February 29, 1996 by EMCON in favor of the Bank, incorporated by reference from Exhibit 10.4 of the February 1996 8-K. 10.5* Eurodollar Rate Option Agreement dated February 29, 1996 between EMCON and the Bank, incorporated by reference from Exhibit 10.5 of the February 1996 8-K. 10.6* Fixed Rate Amortizing Option Agreement dated February 29, 1996 between EMCON and the Bank, incorporated by reference from Exhibit 10.6 of the February 1996 8-K. 99.2 Organic Waste Technologies, Inc. and Subsidiaries audited consolidated balance sheets as of December 31, 1995 and 1994; audited consolidated statements of income, common stock and other stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 99.3 Organic Waste Technologies, Inc. and Subsidiaries unaudited consolidated condensed statements of operations for the three month periods ended March 31, 1996 and 1995. 99.4 Unaudited pro forma consolidated condensed statements of operations of EMCON for the three months ended March 31, 1996 and the twelve months ended December 31, 1995. 99.5 Consent of Independent Accountants. --------------- * Incorporated by reference. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EMCON Date: May 10, 1996 By: /s/ R. Michael Momboisse ------------------------ R. Michael Momboisse Chief Financial Officer and Vice President - Legal 4 EX-99.2 2 EXHIBIT 99.2 CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 99.2 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 5 Report of Independent Accountants To the Board of Directors and Stockholders, Organic Waste Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Organic Waste Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in common stock and other stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of Organic Waste Technologies, Inc. and Subsidiaries' 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 consolidated financial position of Organic Waste Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 15 of the Notes to Consolidated Financial Statements, Organic Waste Technologies, Inc. and Subsidiaries was sold to EMCON, a public registrant, effective February 29, 1996 in a stock transaction. COOPERS & LYBRAND L.L.P. Cleveland, Ohio April 5, 1996 6 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets as of December 31, 1995 and 1994
1995 1994 ASSETS ---- ---- Current assets: Cash and cash equivalents .............................................. $ 198,716 $ 168,336 Accounts receivable, trade, net ........................................ 4,306,979 3,775,405 Accounts receivable, other ............................................. 14,905 18,173 Costs and estimated earnings in excess of billings on uncompleted contracts .............................................. 302,231 126,960 Inventories ............................................................ 851,617 694,482 Prepaid expenses ....................................................... 79,712 40,566 Deferred income taxes .................................................. 146,414 15,211 ----------- ----------- Total current assets .......................................... 5,900,574 4,839,133 ----------- ----------- Property, plant and equipment: Buildings and equipment ................................................ 3,795,732 Field equipment and tools .............................................. 2,678,805 2,120,244 Office equipment ....................................................... 220,342 192,656 Vehicles ............................................................... 198,523 220,058 Uncompleted energy recovery systems and facilities ..................... 1,289,799 3,493,773 ----------- ----------- 8,183,201 6,026,731 Less accumulated depreciation .......................................... 2,127,214 1,527,678 ----------- ----------- Total property, plant and equipment, net ............................... 6,055,987 4,499,053 ----------- ----------- Other assets: Debt issuance costs, net ............................................... 124,982 128,651 Organization and software costs, net ................................... 2,867 20,331 Deferred project procurement costs ..................................... 145,647 150,000 Deferred income taxes .................................................. 41,616 Other .................................................................. 14,953 16,029 ----------- ----------- Total other assets ............................................ 288,449 356,627 ----------- ----------- Total assets .................................................. $12,245,010 $ 9,694,813 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 7 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued as of December 31, 1995 and 1994
LIABILITIES AND COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY 1995 1994 Current liabilities: Accounts payable, trade ................................................. $ 2,197,702 $ 1,851,971 Billings in excess of costs and estimated earnings on uncompleted contracts ............................................ 376,208 391,395 Note payable to bank .................................................... 250,000 668,969 Current portion of subordinated and long-term debt ...................... 428,572 217,499 Due to minority stockholder of consolidated subsidiary .................. 10,000 Income taxes payable .................................................... 508,360 75,000 Accrued expenses ........................................................ 853,793 652,442 ------------ ------------ Total current liabilities ...................................... 4,614,635 3,867,276 Long-term debt, less current portion ......................................... 3,335,029 1,956,988 Subordinated long-term debt, less current portion ............................ 300,000 Deferred income taxes ........................................................ 67,063 5,476 ------------ ------------ Total liabilities .............................................. 8,016,727 6,129,740 ------------ ------------ Commitments and contingencies Minority interest in consolidated subsidiaries ............................... 125,467 86,440 ------------ ------------ Series A convertible redeemable preferred stock, $.01 par value; 1,360,000 shares authorized, issued and outstanding .............. 1,683,907 1,683,907 Series B convertible redeemable preferred stock, $.01 par value; 740,740 shares authorized, issued and outstanding ................ 995,617 995,617 Series C convertible redeemable preferred stock, $.01 par value; 740,741 shares authorized, issued and outstanding ................ 990,098 990,098 ------------ ------------ Total convertible redeemable preferred stock ................... 3,669,622 3,669,622 ------------ ------------ Common stock and other stockholders' equity: Common stock, par value $.01/share, at stated value; 7,500,000 shares authorized in 1995 and 1994, 712,000 shares issued and outstanding in 1995 and 1994 ........................................ 236,256 236,256 Retained earnings (accumulated deficit) ................................. 548,468 (211,835) ------------ ------------ 784,724 24,421 Less treasury stock, 546,000 in 1995 and 364,507 in 1994, of common shares, at cost ........................................... (351,530) (215,410) ------------ ------------ Total common stock and other stockholders' equity ................... 433,194 (190,989) ------------ ------------ Total liabilities and common stock and other stockholders' equity ... $ 12,245,010 $ 9,694,813 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
8 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 Revenues: Contracts ................................................... $ 13,072,939 $ 10,292,805 $ 7,331,534 Other ....................................................... 4,445,744 2,820,715 1,893,858 ------------ ------------ ------------ Total revenues ..................................... 17,518,683 13,113,520 9,225,392 Total direct cost of revenues .................................... 13,590,180 10,911,302 7,604,575 ------------ ------------ ------------ Gross profit ..................................................... 3,928,503 2,202,218 1,620,817 Selling, general and administrative expenses ..................... 2,200,614 1,535,566 1,292,518 ------------ ------------ ------------ Income from operations ........................................... 1,727,889 666,652 328,299 ------------ ------------ ------------ Other income (expenses): Interest income ............................................. 1,750 2,231 2,859 Interest expense ............................................ (350,860) (126,501) (74,768) Gain (loss) on sale of equipment ............................ 2,032 19,441 (91,696) ------------ ------------ ------------ Total other (expenses), net ........................ (347,078) (104,829) (163,605) ------------ ------------ ------------ Income before minority interest in consolidated subsidiaries and income taxes ............................... 1,380,811 561,823 164,694 Minority interest in consolidated subsidiaries ................... (39,027) (37,468) (24,680) ------------ ------------ ------------ Income before provision for income taxes ......................... 1,341,784 524,355 140,014 ------------ ------------ ------------ Provision for income taxes ....................................... (566,800) (23,649) ------------ ------------ ------------ Net income .............................................. $ 774,984 $ 500,706 $ 140,014 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 9 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Common Stock and Other Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993
Paid-In Capital, Retained Common Earnings Treasury Stock (Accumulated Stock, Common Warrants Deficit) at Cost Total Balances at December 31, 1992 ........................... $ 236,256 $ 9,000 $(852,555) $(113,706) $(721,005) Net income ......................................... 140,014 140,014 --------- --------- --------- --------- --------- Balances at December 31, 1993 ........................... 236,256 9,000 (712,541) (113,706) (580,991) Purchase of 214,507 shares of treasury stock ....... (101,704) (101,704) Expiration of common stock warrants ................ (9,000) (9,000) Net income ......................................... 500,706 500,706 --------- --------- --------- --------- Balances at December 31, 1994 ........................... 236,256 (211,835) (215,410) (190,989) Purchase of 181,493 shares of treasury stock ....... (136,120) (136,120) Net income ......................................... 774,984 774,984 Dividends .......................................... (14,681) (14,681) --------- --------- --------- --------- --------- Balances at December 31, 1995 ........................... $ 236,256 $ -- $ 548,468 $(351,530) $ 433,194 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 10 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 Cash flows from operating activities: Net income ........................................................... $ 774,984 $ 500,706 $ 140,014 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................................ 845,569 512,708 462,852 Deferred income taxes ................................................ (28,000) (51,351) Minority interest in consolidated subsidiaries ....................... 39,027 37,468 24,680 (Gain) loss on sale of equipment ..................................... (2,032) (19,441) 91,696 Changes in other current assets and liabilities: Accounts receivable, trade, net .................................. (531,574) (1,277,586) (1,042,227) Accounts receivable, other ....................................... 3,268 18,897 (21,624) Costs and estimated earnings in excess of billings on uncompleted contracts .................................... (175,271) 401,251 (483,086) Inventories ...................................................... (258,277) (433,523) (190,085) Prepaid expenses ................................................. (39,146) 24,035 (4,302) Accounts payable, trade .......................................... (141,691) 6,816 1,143,961 Billings in excess of costs and estimated earnings on uncompleted contracts .................................... (15,187) 391,395 (9,740) Income taxes payable ............................................. 433,360 75,000 Accrued expenses ................................................. 186,670 327,582 130,239 Other, net ....................................................... 1,078 (5,550) (1,019) ----------- ----------- ----------- Net cash provided by operating activities ................... 1,092,778 508,407 241,359 ----------- ----------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment ............................ (502,785) (469,660) (163,328) Proceeds from sale of equipment ...................................... 48,166 135,683 195,351 Costs incurred related to energy recovery systems and facilities ....................................................... (1,289,799) (3,143,838) (87,253) Proceeds from repayment of notes receivable, stockholders ............ 22,913 Payment of debt issuance costs ....................................... (29,972) (79,716) (26,316) Payment of organization and software costs ........................... (6,386) (19,723) (8,866) Payment of deferred project procurement costs ........................ (5,647) ----------- ----------- ----------- Net cash used in investing activities ............................ (1,786,423) (3,577,254) (67,499) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from debt ................................................... 4,868,687 4,306,440 830,083 Payment of debt ...................................................... (3,998,542) (1,938,271) (1,047,005) Payment of amount due to minority stockholder in consolidated subsidiary .......................................... (10,000) (60,000) (79,000) Payment of fees related to the issuance of Series A and B preferred stock .................................................. (3,000) Payment of fees related to the issuance of Series C preferred stock .................................................. (9,902) Purchase of shares of treasury stock ................................. (136,120) (101,704) Proceeds from issuance of preferred stock ............................ 1,000,000 ----------- ----------- ----------- Net cash provided by (used in) financing activities .............. 724,025 3,196,563 (298,922) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ...................... 30,380 127,716 (125,062) Cash and cash equivalents at beginning of year ............................ 168,336 40,620 165,682 ----------- ----------- ----------- Cash and cash equivalents at end of year .................................. $ 198,716 $ 168,336 $ 40,620 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 11 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 Supplemental disclosures of cash flows information: Cash paid during the year for: Income taxes ........................................................................ $161,440 ======== Interest ............................................................................ $337,469 $126,501 $ 74,768 ======== ======== ======== Non-cash operating and investing activities: Amounts not paid and recognized in accounts payable for costs incurred related to energy recovery systems and facilities ...................................................................... $487,422 $262,682 ======== ======== Non-cash financing activities: Incurrance of a liability to minority shareholder less $1,000 for subsidiary's issuance of KRI Class B Common Stock related to project procurement costs; see Note 5 .................................... $ 11,088 $149,000 ======== ======== Dividends declared and accrued ...................................................... $ 14,681 ========
The accompanying notes are an integral part of these consolidated financial statements. 12 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies: Company's Formation and Activities: Organic Waste Technologies, Inc. was incorporated on August 31, 1987 for the purpose of engaging in the business of constructing methane gas recovery systems primarily for the landfill industry. On July 5, 1989, Organic Waste Technologies, Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement") with Organic Waste Technologies, Inc., a Delaware corporation ("OWT Delaware"). Under the terms of the Merger Agreement, Organic Waste Technologies, Inc. merged into OWT Delaware, with OWT Delaware being the surviving corporation to be known as Organic Waste Technologies, Inc. (the "Company" and/or "OWT"). On October 22, 1990, the Company acquired the remaining 49% minority interest in one of its subsidiaries valued at $13,174 in consideration for 27,000 shares of the Company's common stock. Concurrent with the transaction, the Company issued 10% of the majority-owned subsidiary's common stock to its President. On May 21, 1993, the Company formed a new subsidiary, Omni Gen Technologies, Inc. ("OGT"). OGT is 100% owned and operated by the Company and was formed for the purpose of engaging in the business of recovering landfill gas for conversion to alternate forms of energy and for the operation and maintenance of other completed construction contracts. On June 24, 1993, OGT purchased 95% of Keystone Recovery, Inc. ("KRI"). KRI constructed a 5.25 megawatt capacity electric generating facility fueled by landfill gas from a landfill site in eastern Pennsylvania (the "KRI Project"). In 1994, KRI entered into a twenty year agreement with Pennsylvania Power and Light for the sale of electricity produced by KRI. The KRI Project began operations in January 1995. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its Subsidiaries. All significant intercompany accounts and transactions are eliminated. Minority interests are presented under the parent company method and are not considered part of common stock and other stockholders' equity. Income Recognition: Profits on contracts are recorded on the basis of the Company's estimates of the percentages of completion of the individual contracts, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. That portion of the total contract price is accrued which is allocable to contract expenditures incurred and work performed on the basis of the Company's estimates of the percentage of completion. Revisions in cost and profit estimates of contracts are reflected in the accounting period in which the facts which require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued (see Note 3). The work is performed primarily under fixed price contracts. The length of the contracts vary, but is typically less than one year. 13 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. Summary of Significant Accounting Policies, Continued: Other revenues represent non-contract revenues resulting from the sale of inventories and the short-term, month-to-month rentals of finished goods inventories. Revenues are recognized when inventories are shipped or a rental agreement is completed. A material part of the Company's business is with two customers. Revenues from each customer were $4,968,865 and $2,486,567 in 1995, $2,751,328 and $2,912,130 in 1994, and $1,542,823 and $3,442,395 in 1993. Amounts due from each customer and included in "Accounts receivable, trade, net" were $419,309 and $1,336,979 at December 31, 1995 and $271,660 and $783,792 at December 31, 1994. Inventories: Inventories, consisting of material and supplies for construction jobs, are stated at lower of cost or market, with cost being determined on the first-in, first-out basis. Property, Plant and Equipment and Depreciation: Property, plant and equipment are carried at cost. Maintenance and repairs are charged to expense as incurred. Interest is capitalized during periods of construction with approximately $44,000 capitalized to property, plant and equipment during 1994. Depreciation is charged over the estimated useful lives of all depreciable assets using the straight-line method over periods ranging from 3 to 15 years. Any gains or losses on disposition are credited or charged to income. Any gains on trade-ins are reflected as an adjustment to the basis of the acquired asset, while losses on trade-ins are charged to income. Energy Recovery Systems and Facilities: Costs incurred to: (1) explore, drill, and equip wells and pipelines that are not yet completed for landfill gas to energy projects, including costs of topographical and geophysical studies, rights of access to properties to conduct studies, and other related expenses; and (2) acquire or construct equipment and facilities that are not yet completed and installed are capitalized and classified as "Uncompleted energy recovery systems and facilities". Upon completion, these costs will be depreciated using the straight-line method over the estimated useful life of 15 years. Deferred Project Procurement Costs: Costs incurred in connection with the procurement of a project, including finder's fees or other similar costs are deferred and amortized over the estimated life of the project. Income Taxes: In 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". SFAS No. 109 requires the use of the liability method of computing deferred income taxes, whereby deferred income taxes are recorded to reflect the income tax consequences on future years of temporary differences between the income tax and financial reporting bases of assets and liabilities as of the balance sheet date. Under the liability method, deferred income taxes are adjusted for tax rate changes as they occur. This method also provides for the current recognition of the expected income tax benefits from net operating losses if it is expected such income tax benefits are more likely than not to be realized. The effects of the adoption of SFAS No. 109 in 1993 were not material. 14 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. Summary of Significant Accounting Policies, Continued: Debt Issuance Costs: Debt issuance costs are associated with the issuance of the Subordinated Notes and other borrowing arrangements. These costs are being amortized on a straight-line basis over the number of years the debt is expected to be outstanding. Organization and Software Costs: Organization and software costs are being amortized on a straight-line basis over five years. Earnings Per Share: Earnings per share is not presented for the Company as it is a nonpublic company and management believes such presentation would not be meaningful. Cash and Cash Equivalents: The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents for purposes of the statements of cash flows. Use of Estimates: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Fair Value of Financial Instruments: Information about specific valuation techniques and related fair value is provided for in Note 6, "Debt", Note 7, "Credit Facilities" and Note 8, "Capital Transactions and Convertible Redeemable Preferred Stock". All financial instruments are carried at amounts which approximate fair value. New Accounting Standards: In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 introduces a fair value based method of accounting for stock-based compensation and encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments based on the new fair value accounting rules. If companies elect not to adopt the new fair value accounting rules, SFAS No. 123 requires them to provide expanded disclosures in the footnotes. As the Company has been sold, effective February 29, 1996 (see Note 15), it presently believes the requirements of this SFAS would not have a significant effect on the Company's consolidated financial statements. However, management will continue to evaluate the effects of this SFAS in 1996 and make a determination at that time as to the potential financial statement disclosure effects, if any, of this SFAS. In addition, 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". SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to these assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. Although management has not evaluated the effects, if any, of this SFAS, it intends to do so in 1996 and will adopt any effects of this SFAS, if material, in its 1996 consolidated financial statements. 15 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 1. Summary of Significant Accounting Policies, Continued: Reclassifications: Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 1995 presentation. Additionally, certain amounts in the prior years' consolidated financial statements, principally the Company's convertible redeemable preferred stock, have been reclassified to conform with certain Regulation S-X provision effects as presented within the 1995 presentation. 2. Accounts Receivable, Trade, Net: Accounts receivable, trade, net at December 31, consists of: 1995 1994 Billed accounts receivable $4,453,653 $3,387,389 Unbilled accounts receivable 409,738 ---------- ---------- 4,453,653 3,797,127 Allowance for doubtful accounts (146,674) (21,722) ---------- ---------- Accounts receivable, trade, net $4,306,979 $3,775,405 ========== ========== Included in accounts receivable, trade, net, are retainages of $595,273 in 1995 and $379,178 in 1994. 3. Contracts in Progress: Information related to contracts in progress as of December 31, is as follows: 1995 1994 Costs incurred on uncompleted contracts $3,086,691 $4,911,686 Estimated earnings on uncompleted contracts 323,880 770,412 ---------- ---------- 3,410,571 5,682,098 Less billings to date on uncompleted contracts 3,484,548 5,946,533 ---------- ---------- Total $ (73,977) $ (264,435) ========== ========== Included in the accompanying balance sheets on an individual contract basis are: 1995 1994 Costs and estimated earnings in excess of billings on uncompleted contracts $ 302,231 $ 126,960 Billings in excess of costs and estimated earnings on uncompleted contracts (376,208) (391,395) --------- -------- Total $ (73,977) $(264,435) ========= ========= 16 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 3. Contracts in Progress, Continued: During the first quarter of 1994, the Company experienced a significant decline in the estimated gross profits on several contracts in progress at December 31, 1993. The change in estimated gross profits resulted from delays and other difficulties caused by severe, adverse weather conditions during the period of January through March 1994. These conditions resulted in project work stoppages for approximately 30% of the normal work schedule. The estimated pro forma effects on the Company's financial position, revenues and net income at December 31, 1993 had these events been recognized at this date are as follows:
Estimated Recorded Effects Net Costs and estimated earnings in excess of billings on uncompleted contracts ............................................ $ 528,211 $ (120,000) $ 408,211 Revenues ............................................................ 9,225,392 (120,000) 9,105,392 Net income .......................................................... 140,014 (120,000) 20,014 4. Accrued Expenses: Accrued expenses as of December 31, consist of: 1995 1994 Accrued commissions and bonus ....................................... $ 232,821 $ 159,465 Accrued job costs ................................................... 89,422 191,263 Accrued required maintenance ........................................ 106,671 Accrued wages ....................................................... 43,197 52,667 Accrued workers' compensation ....................................... 45,719 52,566 Accrued warranty .................................................... 50,456 23,015 Accrued other ....................................................... 285,507 173,466 ---------- ---------- $ 853,793 $ 652,442 ========== ==========
5. Related Party Transactions: An officer of the Company was provided a loan of $36,500 at an interest rate of 9% on February 24, 1989. During 1994, the $11,088 unpaid balance of the loan was paid through an exchange of the Company's common stock owned by the officer. On June 24, 1993, the Earth Environmental Irrevocable Trust ("EEIT") acquired $1,000 of KRI (an OWT consolidated subsidiary) common stock in connection with the formation of KRI. EEIT is a 5% owner of KRI and does not participate in the management or operation of the Company. 17 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 5. Related Party Transactions, Continued: On August 24, 1993, OGT agreed to pay EEIT $150,000 related to project procurement costs of the KRI project ($1,000 of the total amount due was offset for the amount of KRI common stock acquired by EEIT). As of December 31, 1994, OGT had paid $49,000 in advances and $90,000 in monthly payments. The remaining $10,000 was paid during 1995. See Notes 11 and 15. 6. Debt: Long-term debt consists of the following at December 31,:
1995 1994 Note payable to a financial institution bearing interest at the one year treasury rate plus 3.5% (9.78% at December 31, 1995), collateralized by certain equipment of KRI and guaranteed by the Company. (See Notes 7 and 15.) ............................................................................... $2,830,063 Notes payable, banks, fixed interest rates ranging from 8.49% to 8.99% interest and principal payable in various installments through December 2000, collateralized by certain field equipment .......................................... 860,380 $1,916,204 Notes payable, finance companies, interest ranging from 8.90% to 18.09%, interest and principal payable in various installments through February 1999, collateralized by certain vehicles and field equipment ............................. 20,415 16,372 Capital lease obligations .................................................................... 52,743 91,911 ---------- ---------- 3,763,601 2,024,487 Subordinated notes, 12.00%, interest payable quarterly and principal was due in forty-eight monthly equal installments from January 15, 1994 to January 15, 1998. Amount was refinanced during 1995 with a note payable to a bank. (See Note 8.) ............................................ 450,000 ---------- ---------- 3,763,601 2,474,487 Less current maturities ...................................................................... 428,572 217,499 ---------- ---------- $3,335,029 $2,256,988 ========== ==========
All debt instruments are carried at amounts which approximate fair value. The aggregate maturities for long-term debt are as follows: 1996 $ 428,572 1997 422,048 1998 431,006 1999 453,059 2000 446,271 Thereafter 1,582,645 ---------- $3,763,601 ========== 18 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 6. Debt, Continued: The Company's Convertible Note, Subordinated Note and Common Stock Warrant Purchase Agreement (the "Agreement") (see Note 8) contain certain provisions which, among other things, limit: the payment of dividends as defined in the Agreement; the purchase, redemption, or otherwise acquiring or retiring any class of the Company's common stock now or hereafter outstanding; the return of capital or distributions of assets to stockholders except for the repurchase of capital stock pursuant to a Stockholders Agreement and a Repurchase Agreement; and the maintenance of certain financial covenants. During 1995, the Company redeemed all of the outstanding Subordinated Notes together with all accrued and unpaid interest due on the amounts with a note payable to a bank. See Note 15. 7. Credit Facilities: At December 31, 1995, the Company has a $3,070,000 revolving credit facility with a bank. The credit facility has a sublimit of $700,000 for standby letters of credit to be used for bonding purposes. Cash draws under the revolving credit facility bear interest at the prime rate (8.5% at December 31, 1995) plus 1.5% (as of January 16, 1996, the revolving credit facility bears interest at the prime rate plus 1%). Fees for outstanding letters of credit are 1.5% per year. Principal is payable upon demand and interest is payable monthly. The revolving credit facility is collateralized by accounts receivable, inventory, furniture, fixtures, and unencumbered machinery and equipment. The Company had $250,000 and $668,969 outstanding under this credit facility at December 31, 1995 and 1994, respectively. The revolving credit facility contains, among others, covenants relating to maintenance of a positive consolidated cash flow, as defined, of at least $275,000; a minimum ratio of cash flow, as defined, to debt service of 1.1 to 1; maintenance of a consolidated tangible net worth of $1,685,000 at December 31, 1994 to increase in increments of $185,000 each year thereafter ($1,870,000 at December 31, 1995); and a maximum ratio of indebtedness to tangible net worth to be less than 2.25 to 1. Letters of credit issued under the revolving credit facility at December 31, 1995 were as follows: Expiration Issue Date Amount Amwest Surety Insurance Company 9/11/91 12/31/96 $250,000 Browning-Ferris Industries, Inc. 9/11/91 6/30/96 50,000 -------- Total letters of credit at December 31, 1995 $300,000 ======== 19 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 7. Credit Facilities, Continued: On December 14, 1993, KRI entered into a line of credit arrangement (the "KRI Credit Facility") for $1.85 million at a floating rate determined by a publicly announced bank rate plus 1.75%. Non-refundable commitment fees of $18,500 were paid related to this arrangement as of December 31, 1994. The outstanding balance under the KRI Credit Facility as of December 31, 1994 was $1.85 million. On January 11, 1995, KRI received proceeds from a financial institution in the amount of $3 million related to a financing arrangement entered into on December 3, 1993. A portion of the proceeds was used to pay off the outstanding balance under the KRI Credit Facility. The remaining proceeds were used to finance the acquisition of certain equipment and to pay down other outstanding debt as of December 31, 1994. The arrangement was to be paid in equal monthly installments over a ten year period, at an adjustable rate at the one year Treasury Note rate plus 3.5%. KRI had a monthly option to convert the adjustable rate to a fixed rate based on the weighted average of one year, three year, five year, and ten year U.S. Treasury Note rates, plus 3.5%. Non-refundable commitment fees of $10,000 were paid during 1993. Additional commitment fees paid upon the close of the loan were $20,000. The loan was collateralized by certain equipment of KRI and guaranteed by the Company. Additionally, the Company was to maintain at least $1 million of net worth during the term of the loan. All credit facilities are carried at amounts which approximate fair value. See Note 15. 8. Capital Transactions and Convertible Redeemable Preferred Stock: On June 12, 1990, a Series A Convertible Participating Preferred Stock, Series B Convertible Participating Preferred Stock, and Common Stock Warrant Purchase Agreement (the "June 12, 1990 Purchase Agreement") was entered into by and among the Company and six investors (the "Investors"). Under the June 12, 1990 Purchase Agreement, the Company authorized and issued 1,360,000 shares of Series A Convertible Redeemable Participating Preferred Stock (the "Series A Preferred Stock"), $.01 par value per share, to the Investors in exchange for $500,000 in cash and cancellation of $1,200,000 of previously issued Convertible Notes. On September 5, 1990, a Series B Convertible Participating Preferred Stock Purchase Agreement (the "Series B Preferred Stock Purchase Agreement") was entered into by and among the Company and the Investors. Under the Preferred Stock Purchase Agreement, the Company authorized and issued 370,370 shares of Series B Convertible Redeemable Participating Preferred Stock (the "Series B Preferred Stock"), $.01 par value, to the Investors at $1.35 per share subject to certain adjustments as defined in the June 12, 1990 Agreement. On March 28, 1991, the Company issued an additional 370,370 shares of Series B stock under these same terms. 20 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 8. Capital Transactions and Convertible Redeemable Preferred Stock, Continued: On March 4, 1994, a Series C Convertible Participating Preferred Stock Purchase Agreement (the "Series C Preferred Stock Purchase Agreement") was entered into by and among the Company and five purchasers (the "Purchasers"). Under the Series C Preferred Stock Purchase Agreement, the Company authorized and issued 740,741 shares of Series C Convertible Participating Preferred Stock, $.01 par value, to the Purchasers at $1.35 per share subject to certain adjustments as defined in the June 12, 1990 Agreement, as amended. Certain payment provisions contained in the Agreement were modified with respect to principal payment installments and timing (see Note 6). In connection with the Series A Preferred Stock and Preferred Stock Purchase Agreement, the Company increased the authorized shares of common stock to 4,269,630 on September 5, 1990. In connection with the March 28, 1991 Purchase Agreement, the Company increased the number of authorized shares to 4,399,260. Authorized shares were increased to 7,500,000 shares concurrent with the March 4, 1994 Purchase Agreement. Increases are made for prospective conversions of the various series of preferred stock. The holder of any of the Series A, Series B, and Series C Preferred Stock ("Preferred Stock") has the right, at their option, on June 8, 1996, to require the Company to redeem 100% of the Shares of Preferred Stock. The redemption price of the Series A, Series B and Series C Preferred Stock is $1.25, $1.35, and $1.35 per share, respectively. The Shares of Preferred Stock not redeemed as of June 8, 1996 will remain outstanding and will only be redeemed when additional funds of the Company are legally available for redemption. Each holder of Preferred Stock shall be entitled to vote on all matters of the Company and shall be entitled to voting rights equal to each common stock share assuming the Preferred Stock is converted. Dividends are payable on the Preferred Stock only upon declaration by the Company's Board of Directors, and only if dividends are declared payable on the outstanding shares of common stock. In the event of a qualified public offering, all outstanding shares of Preferred Stock and, at the option of the holder, all dividends declared but unpaid will be converted automatically into the number of shares of common stock to which a holder of Preferred Stock shall be entitled upon conversion as defined in the Agreement. In the event of any liquidation, dissolution, or winding up of the Company, the Preferred Stock Shareholders shall be entitled to be paid first out of the assets of the Company available for distribution to stockholders of the Company's capital stock of all classes in accordance with the Company's Certificate of Incorporation. The carrying amounts of the Series A, Series B and Series C Preferred Stock represent the original net proceeds received by the Company for each particular Preferred Stock issue These carrying amounts approximate fair value. 21 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 8. Capital Transactions and Convertible Redeemable Preferred Stock, Continued: In connection with the various Agreements previously described, a Stockholders' Agreement and a Repurchase Agreement were entered into by the Stockholders of the outstanding common stock of the Company, the two founders (the "Founders"), and the Investors. Under the Stockholders Agreement, the Company has the right of first refusal to purchase any or all shares of stock offered for sale by the Stockholders and Founders. The shares not purchased by the Company can be purchased by the Founders and Investors as defined in the Agreement. Under the Repurchase Agreement, any person holding or having the right to acquire an aggregate of at least 50% of the Subordinated Notes (the "Notes") and any other equity or debt security of the Company (the "Securities") may, after February 24, 1996, notify the Company that they intend to offer to sell to the Company any or all of the Notes and Securities. The Company is obligated to repurchase the Notes and Securities at a fair market value price as defined in the Repurchase Agreement. The Company is then obligated to offer to repurchase at the same price the Notes and Securities from any other person holding or having the right to acquire Notes and Securities. See Note 15 with respect to the above mentioned "Capital Transactions and Convertible Redeemable Preferred Stock" and the related provisions. 9. Stock Options and Warrants: The Company has set aside 932,030 shares of common stock for issuance under a stock option plan. Common stock options can be granted to any officer, key management employee, or director of the Company. The option price of the stock is determined by the Stock Option Plan Committee. The options vest to the option holder over a three-year period and are exercisable over a period of ten years from the grant date. A summary of certain stock option information for the years ended December 31, follows:
1995 1994 1993 Option Option Option Shares Price Shares Price Shares Price Shares granted and outstanding ............ 468,199 $.50 558,521 $.50 578,521 $.50 Shares granted and outstanding ............ 160,000 .75 161,500 .75 Exercisable ............................... 448,462 .50 506,388 .50 489,795 .50 Exercisable ............................... 78,750 .75 40,375 .75 Reserved for future options ............... 303,831 212,009 353,509
Under the Agreement (see Note 6), the Company issued 90,000 common stock purchase warrants (the "Warrants") to the Investors, and 60,000 warrants to officers of the Company. No warrants were exercised and all warrants expired on February 27, 1994. 22 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 9. Stock Options and Warrants, Continued: As part of issuing the Series A Preferred Stock, the Company also issued 50,000 Common Stock Warrants (the "1990 Warrants") to the Investors as consideration in cancellation of the interest on the Subordinated Notes for 1990. Each warrant could be converted into one share of common stock at a price of $1.25 per share if done before June 12, 1995, subject to certain adjustments as defined in the June 12, 1990 Purchase Agreement. There were no warrants converted in 1995. There was no value assigned to these warrants in the consolidated financial statements as a market value was not determinable. See Note 15 with respect to the above mentioned "Stock Options and Warrants" and the related provisions. 10. Income Taxes: The Company files a consolidated income tax return which includes its subsidiaries. The components of the Company's deferred income tax assets and deferred income tax (liabilities) consisted of the following: 1995 1994 Deferred income tax assets: Allowance for doubtful accounts $ 58,582 $ 7,385 AMT tax credit 41,616 Warranty reserve 62,754 7,826 Other non-deductible accruals 25,078 -------- ------- Deferred income tax assets $146,414 $56,827 ======== ======= Deferred income tax liabilities: Tax over book depreciation $(67,063) $(5,476) ======== ======= As of December 31, 1995 and 1994, the Company was able to demonstrate that the benefit of the deferred tax assets was fully realizable. Accordingly, the Company has not recorded a deferred tax asset valuation allowance as of these dates. The components of the provision for income taxes are as follows: 1995 1994 Current income tax $594,800 $ 75,000 Deferred income tax, net (28,000) (51,351) -------- -------- Provision for income taxes $566,800 $ 23,649 ======== ======== There was no provision for income taxes for the year ended December 31, 1993. 23 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 10. Income Taxes, Continued: A reconciliation of income taxes provided at the statutory rate to actual income taxes provided is as follows:
1995 1994 1993 Tax at the statutory rate ............................................. $ 456,207 $ 178,281 $ 47,604 Taxes associated with minority interest ............................... 13,269 12,739 8,392 Utilization of tax operating loss carryforwards ....................... (190,246) (65,778) State and local income taxes, net of federal income tax benefit ........................................................... 77,286 28,294 9,782 Travel and entertainment .............................................. 8,741 8,536 Officer's life insurance .............................................. 11,297 873 Net other change in valuation allowance ............................... (14,828) --------- --------- --------- Provision for income taxes ................................................. $ 566,800 $ 23,649 $ -- ========= ========= =========
11. Operating Leases: In October 1993, the Company began leasing land and buildings from a former officer of the Company under a cancellable lease agreement for approximately $2,400 per month. The Company leases its offices under an escalating lease agreement that expires on February 28, 1998. The Company pays an average rent of approximately $4,250 per month under this lease agreement. The Company also has several operating leases for a warehouse, vehicles and field equipment. Rental expense for these leases was $436,609, $320,194 and $290,643 for 1995, 1994 and 1993, respectively. Minimum future rental payments under noncancellable operating leases as of December 31, 1995 are as follows: 1996 $395,881 1997 317,734 1998 109,382 1999 10,208 2000 8,284 Total rental expense amounted to $1,851,928, $1,366,861 and $977,581 for the years ended December 31, 1995, 1994 and 1993, respectively. 12. Medical Insurance Coverage: On February 1, 1992, the Company entered into a stop-loss insurance agreement for medical claims arising under their health and welfare benefit plan. Under this agreement placed with an insurance carrier, the Company's maximum liability on individual medical claims was $25,000 as of December 31, 1994. Effective February 1, 1995, the maximum liability on individual medical claims was changed to $20,000. 24 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 12. Medical Insurance Coverage, Continued: The maximum liability for all medical claims was approximately $155,000 and $168,000 at December 31, 1995 and 1994, respectively. Total claims paid by the Company were approximately $110,000, $91,000 and $100,000 for the years ended December 31, 1995, 1994 and 1993, respectively. If the Company decides to cancel this plan, additional premiums would be payable to the insurance carrier for a period beyond the date of cancellation. 13. 401(k) Retirement Savings Plan: The Company provides for a 401(k) Retirement Savings Plan (the "Plan") for all full time employees who have completed three months of service effective January 1, 1994. Effective April 1, 1995, the Plan was amended to require twelve months of service. Employees can contribute 1% to 15% of their compensation, subject to IRS limitations. The Company may make discretionary contributions based on the profitability of the Company. Employees vest in Company contributions as follows: Years of Service % Vested 1 10% 2 25% 3 45% 4 70% 5 100% Accrued contributions by the Company amounted to $20,000 at December 31, 1995 and 1994. 14. Industry Segments and Geographic Area Information: The Company's major operations are in Landfill Services, Landfill Products, and Landfill Energy Recovery. Landfill Services includes the installation of landfill gas and leachate control systems and provides continuing operations and maintenance services for control systems installed by the Company and others. Landfill Products manufactures and, or sells various components for landfill and industrial applications. Landfill Energy Recovery develops, owns and operates an electric generating facility fueled by landfill gas and is pursuing other commercial uses of landfill gas. All operations are prevalent throughout the United States, with additional revenues, to a lesser extent, generated in Canada and Asia. The Company attempts to minimize its foreign currency risks associated with foreign contracts by requiring such contracts to be paid principally in U.S. dollars. 25 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. Industry Segments and Geographic Area Information, Continued: Revenues, income from operations after interest expense, identifiable assets, capital expenditures and depreciation and amortization pertaining to the major operations are presented below for the years ended December 31,:
1995 1994 1993 Total revenues: Landfill Services ........................................................... $ 11,475,315 $ 10,513,100 $ 7,331,534 Landfill Products ........................................................... 5,701,571 4,141,701 2,485,168 Landfill Energy Recovery .................................................... 1,628,604 Intercompany eliminations ................................................... (1,286,807) (1,541,281) (591,310) ------------ ------------ ------------ $ 17,518,683 $ 13,113,520 $ 9,225,392 Income from operations after interest expense: Landfill Services ........................................................... $ 1,360,135 $ 656,458 $ 370,344 Landfill Products ........................................................... 422,753 366,546 246,795 Landfill Energy Recovery .................................................... 245,524 ------------ ------------ ------------ $ 2,028,412 $ 1,023,004 $ 617,139 ============ ============ ============ Included in income from operations after interest expense is interest expense as follows: Landfill Services ...................................................... $ 24,440 $ 62,095 $ 2,151 Landfill Products ...................................................... 4,979 692 2,163 Landfill Energy Recovery ............................................... 276,413 ------------ ------------ ------------ $ 305,832 $ 62,787 $ 4,314 ============ ============ ============ Identifiable assets: Landfill Services ........................................................... $ 5,750,648 $ 5,420,954 $ 4,067,304 Landfill Products ........................................................... 1,814,900 1,663,931 827,104 Landfill Energy Recovery .................................................... 4,415,327 2,252,052 90,000 Intercompany eliminations ................................................... (19,000) (19,000) (19,000) ------------ ------------ ------------ $ 11,961,875 $ 9,317,937 $ 4,965,408 ============ ============ ============ Capital expenditures: Landfill Services ........................................................... $ 602,433 $ 355,858 $ 143,083 Landfill Products ........................................................... 199,589 65,871 19,826 Landfill Energy Recovery .................................................... 1,472,644 3,162,619 87,253 ------------ ------------ ------------ $ 2,274,666 $ 3,584,348 $ 250,162 ============ ============ ============ Depreciation and amortization: Landfill Services ........................................................... $ 358,550 $ 338,057 $ 292,325 Landfill Products ........................................................... 162,233 129,766 130,853 Landfill Energy Recovery .................................................... 294,294 ------------ ------------ ------------ $ 815,077 $ 467,823 $ 423,178 ============ ============ ============
26 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 14. Industry Segments and Geographic Area Information, Continued: The differences of income from operations after interest expense, identifiable assets, capital expenditures and depreciation and amortization from the consolidated financial statements are due to the exclusion of the general office subsidiary of the Company. This subsidiary performs the general and administrative services for the Company and is not a revenue producing subsidiary. Also, see Note 3 for discussion of various effects caused by severe, adverse weather conditions on the Company's financial position, revenues and net income for the years ended December 31, 1994 and 1993, respectively. 15. Subsequent Events: On April 5, 1996, KRI received proceeds from a bank in the amount of $4,850,000. The proceeds were used to pay off the outstanding balance under the January 11, 1995 KRI credit facility and to fund the construction of the Phase II expansion of the KRI electric generating facility. The new credit facility has a 10 year term, bearing interest at 7.99% for three years, thereafter converting to an adjustable rate based on a constant maturity of three year Treasury Securities, plus 3%. (See Notes 6 and 7.) Effective February 29, 1996, the Company and certain stockholders of the Company (the "Sellers") entered into a Stock Purchase Agreement (the "transaction") with EMCON (the "Buyer"), a public registrant and a California Corporation and international consulting firm providing services in environmental engineering, waste management, air and water quality management and construction. The Company and certain stockholders sold all shares and/or options held for an aggregate gross purchase price of approximately $15,750,000 (net proceeds amounted to approximately $14,906,000, including a financial advisor fee of $623,165 (including expenses of approximately $23,000) paid to Raymond James & Associates, Inc., which had a representative serving on the Company's Board of Directors). Amounts were paid to the Company and the stockholders in the form of cash and the issuance of convertible notes payable that can be exchanged for EMCON stock or Company stock in the event of a public offering of the Company. The convertible notes provide for annual interest at 8% and mature March 1, 2001 and include provisions for early repayment. Included in the purchase price was $180,000 in which EMCON agreed to pay for the Company's buyout of the minority interests in certain of the Company's subsidiaries. The acquisition will be accounted for under the purchase method of accounting by EMCON, and the Company will continue to account for its financial position, results of operations and cash flows on a historical basis. All purchase adjustments related to this transaction are to be reflected in the Buyer's consolidated financial statements. 27 ORGANIC WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 15. Subsequent Events, Continued: The following provides the unaudited pro forma capital accounts of the Company as of December 31, 1995, assuming that the transaction between the Sellers and the Buyer had occurred on December 31, 1995: Common stock, pro forma (unaudited), no par value, at stated value; 7,500,000 shares authorized, 3,008,481 shares issued and outstanding $ 30,085 Paid-in capital, pro forma (unaudited) 3,524,263 Retained earnings, pro forma (unaudited) 548,468 ---------- $4,102,816 ========== 28 EX-99.3 3 OWT CONSOLIDATED CONDENSED STATEMENTS OF OPS. EXHIBIT 99.3
ORGANIC WASTE TECHNOLOGIES, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) ------------------------------------------------------------------------------------------------------------------- Three months ended March 31, ---------------------------------- (In thousands, except per share amounts) 1996 1995 ------------------------------------------------------------------------------------------------------------------- Gross revenue $ 4,574 $ 3,352 Outside services, at cost -- -- ----------- ------------ Net revenue 4,574 3,352 Costs and expenses: Direct expenses 3,385 2,366 Indirect expenses 1,181 634 ------- --------- Income from operations 8 352 Interest income (expense), net (79) (88) Equity in loss of affiliates (2) (7) ----------- ----------- Income (loss) before provision (benefit) for income taxes (73) 257 Provision (benefit) for income taxes (39) 97 ----------- --------- Net income (loss) $ (34) $ 160 =========== ========
See accompanying notes to pro forma consolidated condensed financial statements. 29 EX-99.4 4 EMCON PRO FORMA CONSOL. CONDENSED STTMNTS. OF OPS EXHIBIT 99.4 EMCON PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
- ----------------------------------------- -------------------------------------------------------------------------- Three months ended March 31, 1996 ------------------------------------------------------------------------- Pro Forma Pro Forma EMCON OWT Adjustments Consolidated (In thousands, except share amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited) - -------------------------------------------------------------------------------------------------------------------- Gross revenue ................................ $ 26,889 $ 4,574 $ -- $ 31,463 Outside services, at cost .................... 3,957 -- -- 3,957 -------- -------- -------- -------- Net revenue ......................... 22,932 4,574 -- 27,506 Costs and expenses: Direct expenses ......................... 8,544 3,385 -- 11,929 Indirect expenses ....................... 14,459 1,181 66 (1) 15,706 -------- -------- -------- -------- Income (loss) from operations .......................... (71) 8 (66) (129) Interest income (expense), net ............... 3 (79) (186) (2,3,4) (262) Equity in loss of affiliates ................. (41) (2) -- (43) -------- -------- -------- -------- Loss before benefit for income taxes ......... (109) (73) (252) (434) Benefit for income taxes ..................... (38) (39) (75) (5) (152) -------- -------- -------- -------- Net loss ..................................... $ (71) $ (34) $ (177) $ (282) ======== ======== ======== ======== Loss per share ............................... $ (0.03) ========
See accompanying notes to pro forma consolidated condensed financial statements. 30 EMCON PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
------------------------------------------------------------------------------------------------------------------------- Twelve months ended December 31, 1995 ---------------------------------------------------------------------------- Pro Forma Pro Forma EMCON OWT Adjustments Consolidated (In thousands, except share amounts) (Audited) (Audited) (Unaudited) (Unaudited) ------------------------------------------------------------------------------------------------------------------------- Gross revenue .......................... $ 122,542 $ 17,519 $ -- 140,061 Outside services, at cost .............. 19,133 -- -- 19,133 --------- --------- --------- --------- Net revenue ................... 103,409 17,519 -- 120,928 Costs and expenses: Direct expenses ................... 39,473 13,590 -- 53,063 Indirect expenses ................. 61,481 2,199 408 (1) 64,088 --------- --------- --------- --------- Income from operations ........ 2,455 1,730 (408) 3,777 Interest income (expense), net ......... 188 (349) (1,032) (2,3,4) (1,193) Equity in loss of affiliates ........... (74) (39) -- (113) --------- --------- --------- --------- Income before provision for income taxes 2,569 1,342 (1,440) 2,471 Provision for income taxes ............. 783 567 (485) (5) 865 --------- --------- --------- --------- Net income ............................. $ 1,786 $ 775 $ (955) $ 1,606 ========= ========= ========= ========= Income per share ....................... $ 0.20 =========
See accompanying notes to pro forma consolidated condensed financial statements.. 31 EMCON NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- The pro forma consolidated statements of operations/income assume the acquisition took place as of the beginning of each period presented. The pro forma statements of operations/income for the three months ended March 31, 1996 and twelve months ended December 31, 1995 reflect the combination of the EMCON and Organic Waste Technologies, Inc., and Subsidiaries ("OWT") historical consolidated financial statements of income/operations for those periods. This pro forma financial information should be read in conjunction with the accompanying notes and historical audited consolidated financial statements of the Registrant included in its Annual Report on Form 10-K for year ended December 31, 1995, the historical audited consolidated financial statements of OWT and the unaudited condensed consolidated statement of operations for the three months ended March 31, 1996 included herein, and the unaudited consolidated financial statements of the Registrant included in its Quarterly Report on Form 10-Q for the three months ended March 31, 1996. The pro forma adjustments are based on currently available information; however, actual adjustments will be based on management's further evaluation and estimates of fair values. It is expected that certain of the actual adjustments will differ from the pro forma adjustments contained herein. The above pro forma results do not purport to reflect the actual results of operations had the Company actually acquired OWT as of the beginning of the periods presented.
Three months ended Twelve months ended Statements of Operations March 31, 1996 December 31, 1995 ------------------------ -------------- ----------------- (in thousands) (1) Represents amortization expense of purchased intangibles ................................................ $ 66 $ 408 (2) To recognize interest expense on a $10,000,000 bank note, incurred in ................................... 128 684 conjunction with the acquisition of OWT (3) To recognize interest income lost due to use of cash in the purchase of OWT ................................... 34 204 (4) To reflect interest expense on notes payable to certain OWT officers ...................................... 24 144 (5) To reflect income tax benefits due to the above pro forma adjustments ...................................... (75) (485)
32 EX-99.5 5 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 99.5 CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders, EMCON: We consent to the inclusion in this Form 8-K/A of EMCON, of our report dated April 5, 1996, which includes an explanatory paragraph with respect to the sale of Organic Waste Technologies, Inc. and Subsidiaries to EMCON, effective February 29, 1996, on our audits of the consolidated financial statements of Organic Waste Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995. COOPERS & LYBRAND L.L.P. Cleveland, Ohio May 10, 1996 -----END PRIVACY-ENHANCED MESSAGE-----