SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file number 1-11097
3CI COMPLETE COMPLIANCE CORPORATION
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0351992
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
910 Pierremont, #312 Shreveport, LA. 71106
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(318)869-0440
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(Registrant's telephone number, including area code)
----------------------
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 the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
The number of shares of Common Stock outstanding as of the close of
business on May 15, 2002, was 9,198,325.
3CI COMPLETE COMPLIANCE CORPORATION
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of
March 31, 2002 (unaudited) and September 30, 2001 .......... 3
Statements of Operations for the three and six months ended
March 31, 2002 and 2001 (unaudited) ........................ 4
Statements of Cash Flows for the
six months ended March 31, 2002 and 2001 (unaudited)........ 5
Notes to Financial Statements ................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 13
Item 2. Changes in Securities.......................................... 13
Item 3. Defaults Upon Senior Securities................................ 13
Item 4. Submission of Matters to a Vote
Of Security Holders.......................................... 13
Item 5. Other Information.............................................. 13
Item 6. Exhibits and Reports on Form 8-K............................... 13
SIGNATURES................................................................... 15
2
ITEM 1. FINANCIAL STATEMENTS
3CI COMPLETE COMPLIANCE CORPORATION
BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2002 2001
(UNAUDITED)
------------ ------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 937,581 $ 709,563
ACCOUNTS RECEIVABLE, NET ALLOWANCES OF $328,200 AND $346,231
AT MARCH 31, 2002 AND SEPTEMBER 30, 2001, RESPECTIVELY 3,023,117 3,535,196
INVENTORY 49,480 66,425
PREPAID EXPENSES 698,042 406,660
OTHER CURRENT ASSETS 9,167 16,208
------------ ------------
TOTAL CURRENT ASSETS 4,717,387 4,734,052
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST 8,390,686 8,398,843
ACCUMULATED DEPRECIATION (5,104,444) (4,815,092)
------------ ------------
NET PROPERTY, PLANT AND EQUIPMENT 3,286,242 3,583,751
------------ ------------
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET OF ACCUMULATED AMORTIZATION OF
$238,988 AT MARCH 31, 2002 AND SEPTEMBER 30, 2001 318,243 318,243
OTHER ASSETS 75,630 25,631
------------ ------------
TOTAL ASSETS $ 8,397,502 $ 8,661,677
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE $ 203,983 $ 193,676
CURRENT PORTION OF LONG-TERM DEBT TO UNAFFILIATED LENDERS 140,998 369,023
ACCOUNTS PAYABLE 187,808 367,700
ACCOUNTS PAYABLE AND ACCRUED INTEREST TO AFFILIATED COMPANIES 525,889 504,653
ACCRUED LIABILITIES 638,475 602,846
DIVIDENDS PAYABLE 1,723,748 1,404,937
NOTE PAYABLE MAJORITY SHAREHOLDER 4,829,379 5,229,379
------------ ------------
TOTAL CURRENT LIABILITIES 8,250,280 8,672,214
------------ ------------
LONG-TERM DEBT TO UNAFFILIATED LENDERS, NET OF CURRENT PORTION 192,342 334,416
------------ ------------
TOTAL LIABILITIES 8,442,622 9,006,630
------------ ------------
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, $0 .01 PAR VALUE, AUTHORIZED 16,050,000 SHARES;
ISSUED AND OUTSTANDING 7,750,000 AT MARCH 31, 2002 AND SEPTEMBER 30, 2001, RESPECTIVELY 77,500 77,500
ADDITIONAL PAID-IN CAPITAL - PREFERRED STOCK 7,672,500 7,672,500
COMMON STOCK, $0.01 PAR VALUE, AUTHORIZED 40,450,000 SHARES;
ISSUED AND OUTSTANDING 9,232,825 AT MARCH 31, 2002 AND SEPTEMBER 30, 2001 92,329 92,329
LESS COST OF TREASURY STOCK 34,500 SHARES (51,595) (51,595)
ADDITIONAL PAID-IN CAPITAL - COMMON STOCK 20,471,145 20,471,145
ACCUMULATED DEFICIT (28,306,999) (28,606,832)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (45,120) (344,953)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,397,502 $ 8,661,677
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF OPERATION
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------------------------- ----------------------------
2002 2001 2002 2001
----------- ---------- ----------- ----------
REVENUES $ 4,035,817 $5,129,220 $ 8,305,411 $9,674,948
EXPENSES:
COST OF SERVICES 2,639,472 3,051,815 5,469,052 6,315,547
DEPRECIATION AND AMORTIZATION 160,662 399,840 331,973 802,700
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 727,568 690,987 1,431,202 1,359,114
INTEREST EXPENSE 217,518 201,215 316,753 489,331
OTHER EXPENSE-NET 65,595 47,269 137,786 93,149
----------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES 225,002 738,094 618,645 615,107
INCOME TAXES -- -- -- --
----------- ---------- ----------- ----------
NET INCOME $ 225,002 $ 738,094 $ 618,645 $ 615,107
=========== ========== =========== ==========
DIVIDENDS ON PREFERRED STOCK (157,654) -- (318,812) --
----------- ---------- ----------- ----------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 67,348 $ 738,094 $ 299,833 $ 615,107
=========== ========== =========== ==========
BASIC EARNINGS PER SHARE:
BASIC NET INCOME PER SHARE $ 0.01 $ 0.08 $ 0.03 $ 0.07
=========== ========== =========== ==========
DILUTED EARNINGS PER SHARE:
DILUTED NET INCOME PER SHARE $ 0.01 $ 0.04 $ 0.04 $ 0.04
=========== ========== =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED MARCH 31,
-----------------------------
2002 2001
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME $ 618,645 $ 615,107
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
NON-CASH INTEREST EXPENSE -- 70,367
GAIN ON DISPOSAL OF FIXED ASSETS (3,000) --
DEPRECIATION AND AMORTIZATION 331,973 802,700
CHANGES IN OPERATING ASSETS AND LIABLILITES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE, NET 512,079 (1,279,822)
DECREASE IN INVENTORY 16,945 29,252
INCREASE IN PREPAID EXPENSES (291,382) (405,672)
(INCREASE) DECREASE IN OTHER CURRENT ASSETS AND OTHER ASSETS (42,958) 50,837
DECREASE IN ACCOUNTS PAYABLE (179,892) (350,116)
INCREASE IN ACCOUNTS PAYABLE, AFFILIATED COMPANIES 21,236 35,857
INCREASE (DECREASE) IN ACCRUED LIABILITIES 35,629 (157,167)
----------- -----------
TOTAL ADJUSTMENTS TO NET INCOME (LOSS) 400,630 (1,203,764)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,019,275 (588,657)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT 3,000 --
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (34,464) (101,152)
----------- -----------
NET CASH USED IN INVESTING ACTIVITES (31,464) (101,152)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF NOTES PAYABLE 222,449 735,453
PRINCIPAL REDUCTION OF NOTES PAYABLE (212,142) (307,761)
REDUCTION OF LONG-TERM DEBT, UNAFFILIATED LENDERS (370,100) (249,036)
REDUCTION OF NOTE PAYABLE TO MAJORITY SHAREHOLDERS (400,000) --
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (759,793) 178,656
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 228,018 (511,153)
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 709,563 561,189
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $937,581.00 $ 50,036
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(1) ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a
Delaware Corporation, is engaged in the collection, transportation, and disposal
of biomedical waste in the southern and southeastern United States.
Effective October 1, 1998, after approval by the then properly
constituted 3CI Board of Directors, Stericycle Inc., a Delaware corporation
("Stericycle") acquired 100% of the common stock of Waste Systems, Inc. ("WSI")
for $10 million. As a result of the transaction, WSI became a wholly owned
subsidiary of Stericycle. WSI owns 55.5% or 5,104,448 shares of the outstanding
common stock and 100% of the outstanding preferred stock of the Company.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
six-month period ended March 31, 2002 are not necessarily indicative of the
results that may be expected for the year ended September 30, 2002.
The balance sheet at September 30, 2001, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company's annual report on Form
10-K for the year ended September 30, 2001.
(2) NET INCOME PER COMMON SHARE
The following table sets forth the computation of net income per common share:
FOR THE THREE AND SIX MONTHS ENDED,
------------------------------------------------------------------
2002 2001 2002 2001
------------ ----------- ------------ -----------
Numerator:
Net income $ 225,002 $ 738,094 $ 618,645 $ 615,107
Less preferred dividends (157,654) -- (318,812) --
------------ ----------- ------------ -----------
Net income applicable to common shareholders $ 67,348 $ 738,094 $ 299,833 $ 615,107
Denominator:
Denominator for basic earnings per share
-- weighted average shares 9,198,325 9,198,325 9,198,325 9,198,325
------------ ----------- ------------ -----------
Effect of dilutive securities:
Preferred shares and warrants 8,200,724 8,038,686 8,176,711 7,971,818
------------ ----------- ------------ -----------
Denominator for diluted earnings per share-adjusted
Weighted average shares and assumed conversions 17,399,249 17,237,011 17,375,036 17,170,143
------------ ----------- ------------ -----------
Basics earnings per share $ 0.01 $ 0.08 $ 0.03 $ 0.07
------------ ----------- ------------ -----------
Diluted earnings per share $ 0.01 $ 0.04 $ 0.04 $ 0.04
------------ ----------- ------------ -----------
6
Included in the computation for the three and six month periods ended
March 31, 2002, are 893,122 warrants that were issued to WSI with an exercise
price between $0.10 and $0.20. Stock options were not included in the net income
per share computation because they are anitdilutive.
(3) BUSINESS CONDITIONS
On December 19, 2001, the Company made the decision to permanently close
all of its treatment facilities which consisted of two incinerators, and a
chem-clave unit in Springhill, Louisiana and an incinerator and a microwave unit
located in Birmingham, Alabama. Management, after considering the costs
necessary to upgrade and operate the existing facilities and treatment capacity
available at other sources, determined that this equipment had no remaining
value and that it would be more cost effective to use less expensive treatment
available at other sources. As a result, the treatment related assets were
written down to zero. The write down of fixed assets totaled $2,631,885 and was
reflected in the results for the fiscal year ended September 30, 2001.
The Company has historically financed its working capital needs, capital
expenditures, and acquisitions using internally generated funds as well as
borrowings from third parties and advances from its majority shareholder, WSI.
The Company's indebtedness currently consists of amounts owed to WSI (which are
described below), a portion of the Company's insurance premiums that are
financed over the course of each fiscal year, and debt incurred in connection
with the leasing of the Chem-Clav unit.
On October 1, 1998, WSI and the Company amended and restated a revolving
promissory note (the Note) which was originally due September 30, 2000. As of
June 30, 2000, the Company notified WSI that it anticipated it would fail to
meet a net income requirement under the note for the quarter ended June 30,
2000. The note was renegotiated and extended at that time and the default was
waived. Since that time the note has been extended either quarterly or
semi-annually under terms ranging from prime plus 1.0% to prime plus 3.5% not to
exceed 13%. In connection with the Note extension on August 1, 2000, 3CI issued
warrants to WSI for the purchase of up to 351,836 shares of 3CI common stock at
an exercise price of $0.20 per share which expire on September 20, 2002. When
the Note was extended on October 1, 2000, 3CI issued warrants to WSI for the
purchase of up to 541,286 shares of 3CI common stock at an exercise price of
$.10 per share which expire on December 20, 2002. In each of these cases the
values of the warrants were included in the statement of operations for the
respective periods as interest expense.
Currently, pursuant to an agreement effective October 1, 2001 the note
was extended to July 1, 2002. The terms of this extension included a reduction
of the interest rate to the prime rate, currently 4.75%, plus 1.0% and called
for a principal payment of $200,000 at renewal and an additional $200,000
principal payment in June 2002. The agreement also requires the Company to
achieve minimum levels of EBITDA for each of the six-month periods ended March
31, 2002 and June 30, 2002. This level was not achieved for the six months ended
March 31, 2002 requiring the Company to record an additional $120,404 in
interest expense.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment of
which $130,940 and $228,197 had been utilized at March 31, 2002 and 2001,
respectively, and $1,000,000 for the financing of equipment, of which $333,339
and $461,490 had been utilized at March 31, 2002 and 2001 respectively. This
agreement is guaranteed by Stericycle, Inc. which owns 100% of WSI.
(4) PREFERRED STOCK
7
On June 1, 2000 the Company declared a $0.0705 dividend on the series B
preferred stock which totaled $493,500 and represented the undeclared dividends
accrued for the period from June 24, 1999 through April 30, 2000. On June 30,
2001 the Company declared a dividend of $0.0963 per share of Series B preferred
stock which totaled $674,014 and represented the undeclared dividends accrued
for the period from May 1, 2000 through June 30, 2001. On September 30, 2001 the
Company declared a $0.0208 dividend on the series B preferred stock which
totaled $145,562 and represented the undeclared dividends accrued for the period
from July 1, 2001 to September 30, 2001. On December 31, 2001 the Company
declared a $0.0208 per share dividend on the series B preferred stock which also
totaled $145,562 and represented the undeclared dividends for the period from
October 1 2001, to December 31, 2001. On March 31, 2002 the Company declared a
dividend on the series B preferred stock of $0.0203 per share which totaled
$142,397 and represented dividends through March 31, 2002. These resolutions
called for payment in cash from funds of the Corporation legally available for
the payment of dividends, as and when the Board of Directors may direct by
further resolution.
On June 1, 2000 the Board of Directors declared a dividend of $0.0054
for the Series C preferred stock totaling $4,050 and representing dividends
accrued for the period from April 6, 2000 to April 30, 2000. On June 30, 2001
the Company declared a dividend of $0.0963 per share of Series C preferred stock
which totaled $72,216 and represented the undeclared dividends accrued for the
period from May 1, 2000 through June 30, 2001. On September 30, 2001 the Board
of Directors declared a dividend of $0.0208 for the Series C preferred stock
which totaled $15,596. On December 31, 2001 the Board of Directors declared a
dividend of $0.0208 for the Series C preferred stock which also totaled $15,596
and which represented undeclared dividends through December 31, 2001. On March
31, 2002 the Company declared a dividend of $0.0203 per share for the Series C
preferred stock which totaled $15,257 and represented dividends through March
31, 2002. These resolutions called for payment in cash from funds of the
Corporation legally available for the payment of dividends, as and when the
Board of Directors may direct by further resolution.
(5) ADOPTION OF NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
The Company elected for early adoption of the Statement.
Proforma impact of eliminating goodwill amortization on the statements of income
is as follows:
For the three For the six
months ended months ended
March 31, 2001 March 31, 2001
-------------- --------------
Reported net income $ 738,094 $ 615,107
Add back: Goodwill amortization 12,250 24,500
----------- -----------
Adjusted net income $ 750,344 $ 639,607
Basic earnings per share
Reported net income $ 0.08 $ 0.07
Add back: Goodwill amortization -- --
----------- -----------
Adjusted net earnings per share $ 0.08 $ 0.07
Diluted earnings per share
Reported net income $ 0.04 $ 0.04
Add back: Goodwill amortization -- --
----------- -----------
Adjusted diluted earnings per share $ 0.04 $ 0.04
8
(6) COMMITMENTS AND CONTINGENCIES
The Company is subject to certain other litigation and claims arising in
the ordinary course of business. In the opinion of management of the Company,
the amounts ultimately payable, if any, as a result of such litigation and
claims will not have a materially adverse effect on the Company's financial
position or results of operations.
The Company operates within the regulated medical waste disposal
industry which is subject to intense governmental regulation at the federal,
state and local levels. The Company believes it is currently in compliance in
all material respects with all applicable laws and regulations governing the
medical waste disposal business. However, continuing expenditures may be
required in order for the Company to remain in compliance with existing and
changing regulations. Furthermore, because the medical waste disposal industry
is predicated upon the existence of strict governmental regulation, any material
relaxation of regulatory requirements governing medical waste disposal or of
their enforcement could result in a reduced demand for the Company's services
and have a material adverse effect on the Company's revenues and financial
condition. The scope and duration of existing and future regulations affecting
the medical waste disposal industry cannot be anticipated and are subject to
changing political and economic pressures.
(7) SUBSEQUENT EVENTS
On May 1, 2002 Stericycle, Inc completed a transaction in which they
purchased from James H. Shepherd, James Michael Shepherd and Richard T.
McElhannon (the "sellers") certain profit-sharing rights, put rights, and other
rights of the sellers under a settlement agreement entered into with the company
in January 1996. The purchase included interest in all security agreements,
mortgages and other instruments securing the Company's various obligations to
the sellers under the settlement agreement, and 932,770 shares of the Company's
common stock owned by the sellers.
Stericycle, Inc. ownes 100% of WSI which ownes 5,104,448 shares of the
Company's common stock. Together with the 932,770 shares purchased in the
transaction described above, Stericycle beneficially ownes a total of 6,037,218
shares of the Company's common stock. These shares represent 65.6% of the
9,198,325 shares of common stock outstanding.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is engaged in the business of medical waste management
services in the southern and southeastern United States. The Company's customers
include regional medical centers, major hospitals, clinics, medical and dental
offices, veterinarians, pharmaceutical companies, retirement homes, medical
testing laboratories and other medical waste generators. Services include
collection, transportation, and disposal of regulated medical waste.
RESULTS OF OPERATIONS
The following summarizes (in thousands) the Company's operations:
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Revenues $ 4,036 $ 5,129 $ 8,305 $ 9,675
Cost of services (2,639) (3,052) (5,469) (6,316)
Depreciation and amortization (161) (400) (332) (803)
Selling, general and
administrative (728) (691) (1,431) (1,359)
------- ------- ------- -------
Net income from operations 508 986 1,073 1,197
------- ------- ------- -------
Interest expense (218) (201) (317) (489)
Other income (expense) net (66) (47) (138) (93)
------- ------- ------- -------
Net income $ 225 $ 738 $ 619 $ 615
======= ======= ======= =======
EBITDA* $ 604 $ 1,339 $ 1,267 $ 1,907
======= ======= ======= =======
(1) EBITDA is calculated as the sum of net income, plus interest expense, income
tax expense, depreciation expense, and amortization expense. We consider EBITDA
to be a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business. EBITDA is not
calculated in the same way by all companies, is not a measurement required by
generally accepted accounting principles and does not represent cash flow from
operations as defined by generally accepted accounting principles. EBITDA should
not be considered as an alternative to net income, as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
- ------------------------
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001:
REVENUES decreased by $1,093,403 or approximately 21.3%, to $4,035,817 during
the three months period ended March 31, 2002, from $5,129,220 for the
three-month period ended March 31, 2001. The decrease in revenue is primarily
related to a reduction in the volume of waste handled. The reduction in volume
was attributable to the Company's efforts to focus on the professional market
segments which provide higher pricing at lower volumes while reducing the focus
on the hospital segment which provides higher volume at a typically lower
average unit price.
COST OF SERVICES decreased $412,343 or approximately 13.5%, to $2,639,472 during
the three months ended March 31, 2002, compared to $3,051,815 for the three
month period ended March 31, 2001. The reasons for the decrease were primarily
attributable to a decrease in processing fees and transportation costs. Cost of
revenues as a percentage of revenues increased to 65.4% during the three months
ended March 31, 2002, as compared to 59.5% during the three months ended March
31, 2001 due to the decrease in revenue.
10
DEPRECIATION AND AMORTIZATION expense decreased to $160,662 for the three months
ended March 31, 2002, from $399,840 for the three months ended March 31, 2001.
The decrease was primarily the result of the Company writing down certain
treatment equipment in the fourth fiscal quarter ended September 30, 2001. The
Company made the decision to write down the treatment related assets and take
its waste to external facilities to reduce treatment costs. Total depreciation
related to treatment equipment during the quarter ended March 31, 2001 was
$218,598. In addition, amortization expense decreased $12,250 due to the
adoption of (SFAS) No. 142 on October 1, 2001.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased to $727,568, during the
three months ended March 31, 2002, from $690,987, during the three months ended
March 31, 2001. This increase of $36,581, or 5.29%, is primarily attributable to
increased selling expenses net of an overall reduction in various administrative
expenses. Selling, general and administrative expenses increased as a percentage
of revenue to 18.0% for the three months ended March 31, 2002, as compared to
13.5% for the three months ended March 31, 2001 primarily due to the decrease in
revenue.
INTEREST EXPENSE increased by $16,303, or 8.1%, to $217,518 during the three
months ended March 31, 2002, as compared to $201,215 for the three months period
ended March 31, 2001. This increase was due to additional interest recorded in
the quarter ended March 31, 2002 pursuant to a minimum EBITDA level not being
achieved for the six month period ended March 31, 2002. This is partially offset
by lower interest rates and lower principal debt balances.
EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTIZATION ("EBITDA") totaled
$603,182 or 14.9% of revenue for the three months ended March 31, 2002 compared
to $1,339,149 or 26.1% of revenue for the quarter ended March 31, 2002. This
decrease was primarily the result of the reduced revenue as referred to above.
SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001:
REVENUES decreased by $1,369,537 or 14.2%, to $8,305,411 during the six months
period ended March 31 2002, from $9,674,948 for the six month period ended March
31, 2001. This decrease is primarily due to a decrease in the volume of waste
handled. This reduction in the volume was attributable to the Company's efforts
to focus on the professional market segments which provide higher pricing at
lower volumes while reducing the focus on the hospital segment which provides
higher volume at a typically lower average unit price.
COST OF SERVICES decreased $846,495, or 13.4%, to $5,469,052, during the six
months ended March 31, 2002, compared to $6,315,547 for the six month period
ended March 31, 2001. The decrease in cost of services is attributable to the
decreased waste processing costs. Cost of revenues as a percentage of revenues
increased to 65.8% during the six months ended March 31, 2002, as compared to
65.3% during the six months ended March 31, 2001. This increase was due to the
decrease in revenue.
DEPRECIATION AND AMORTIZATION expense decreased to $331,973 for the six months
ended March 31, 2002, from $802,700 for the six months ended March 31, 2001. The
decrease was primarily the result of the Company writing down certain treatment
equipment in the fourth fiscal quarter ended September 30, 2001. The Company
made the decision to write down the treatment related assets and take its waste
to external facilities to reduce treatment costs. Total depreciation related to
treatment equipment during the six month period ended March 31, 2001 was
$435,168. In addition amortization expense decreased $24,500 due to the adoption
of (SFAS) No. 142 on October 1, 2001.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased to $1,431,202 during the
six months ended March 31, 2002, from $1,359,114 during the six months ended
March 31, 2001. This increase of $72,088, or 5.3%, is primarily attributable to
increased selling expenses net of an overall reduction in administrative
expenses. Selling, general and administrative expenses increased as a percentage
of
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revenue to 17.2% for the six months ended March 31, 2002, as compared to 14.0%
for the six months ended March 31, 2001 primarily due to the decrease in
revenue.
INTEREST EXPENSE decreased by $172,578 or 35.3% to $316,753 during the six
months ended March 31, 2002 as compared to $489,331 during the six months ended
March 31, 2001. This decrease was due to reduced debt and a reduction in the
interest rate for the WSI promissory note, which is variable and tied to the
prime interest rate. This effect was partially offset by additional interest
recorded in the period ended March 31, 2002 required when the Company failed to
achieve a minimum EBITDA level required for the period.
EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTOZATION ("EBITDA") totaled
$1,267,371 or 15.3% of revenue for the six months ended March 31, 2002 compared
to $1,907,138 or 19.7% of revenue for the six months ended March 31, 2001. This
decrease was primarily the result of the decrease in revenue as referred to
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital needs, capital
expenditures, and acquisitions using internally generated funds as well as
borrowings from third parties and advances from its majority shareholder, WSI.
The Company's indebtedness currently consists of amounts owed to WSI described
below, insurance premiums that are financed over the course of each fiscal year,
debt incurred in connection with the leasing of the equipment, and the
indebtedness incurred in connection with the purchase of rolling stock.
On October 1, 1998, WSI and the Company amended and restated a revolving
promissory note (the Note) which was originally due September 30, 2000. As of
June 30, 2000, the Company notified WSI that it anticipated it would fail to
meet a net income requirement under the note for the quarter ended June 30,
2000. The note was renegotiated and extended at that time and the default was
waived. Since that time the note has been extended either quarterly or
semi-annually under terms ranging from prime plus 1.0% to prime plus 3.5% not to
exceed 13%. In connection with the Note extension on August 1, 2000, 3CI issued
warrants to WSI for the purchase of up to 351,836 shares of 3CI common stock at
an exercise price of $0.20 per share which expire September 20, 2002. When the
Note was extended October 1, 2000 3CI issued warrants to WSI for the purchase of
up to 541,286 shares of 3CI common stock at an exercise price of $.10 per share
which expire December 20, 2002.
Currently, pursuant to an agreement effective October 1, 2001 the note
was extended to July 1, 2002. The terms of this extension included a reduction
of the interest rate to the prime rate, currently 4.75% plus 1.0% and called for
a principal payment of $200,000 at renewal and an additional $200,000 principal
payment in June 2002. The agreement also requires the Company to achieve minimum
levels of EBITDA for each of the six-month periods ended March 31, 2002 and June
30, 2002. This level was not achieved requiring the Company to accrue an
additional $120,404 in interest expense.
At March 31, 2002, the Company had net working capital, exclusive of the
note payable to its majority shareholder, of $1,296,486 compared to a net
working capital exclusive of the note payable to its majority shareholder of
$1,291,217 at September 30, 2001. This increase in net working capital of $5,269
was due primarily to the reduction in the current debt and other current
liabilities.
Net cash provided by operating activities was $1,019,275 during the six
month period ended March 31, 2001, compared to $588,657 of net cash used in
operating activities for the six month period ended March 31, 2001. This
increase of $1,607,932 reflects the improved profitability for the 2002 period
and the reduction in accounts receivable compared an increase in accounts
receivable in the 2001 period.
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Net cash used in investing activities for the six months ended March 31,
2002, was $31,464 compared to $101,152 for the same period in 2001. The $69,688
decrease reflected reduced investment in capital equipment. The Company utilized
the $31,464 for the purchases of computer equipment and reusable containers.
Net cash used in financing activities was $759,793 during the six month
period ended March 31, 2002, as compared to net cash provided by financing
activities of $178,656 during the six month period ended March 31, 2001. The
$938,449 fluctuation is reflective of reduced borrowings and the repayment of
notes payable, long term debt, and the note payable to WSI.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is subject to certain other litigation and claims arising in
the ordinary course of business. Management believes the amounts ultimately
payable, if any, as a result of such claims and assessments will not have a
materially adverse effect on the Company's financial position, results of
operations or net cash flows.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K -
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1. Certificate of Incorporation as amended (incorporated by
reference to Exhibit 3(a) of 3CI's registration statement on Form
S-1 (No. 33-45632) effective April 14, 1992).
3.2. Amendment to 3CI's Certificate of Incorporation, as amended
effective June 13, 1995 (incorporated by reference to Exhibit 3.1
of 3CI's Quarterly Report on Form10-Q for the quarterly period
ended June 30, 1995).
3.3. Amendment to 3CI's Certificate of Incorporation, as amended
effective March 23, 1998 (incorporated by reference to Exhibit
3.3 of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.4 Bylaws, effective May 14, 1995 (incorporated by reference to
Exhibit 3.2 of 3CI's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
3.5 Amendment of Bylaws effective October 1, 1998.(incorporated by
reference to Exhibit 3.5 of 3CI's report on Form 10-K filed
January 12, 1999)
3.6. Certificate of Designations of 3CI's Series A Preferred Stock
without par value (incorporated by reference to Exhibit 3.6 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
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3.7. Certificate of Designations of 3CI's Series B Preferred Stock
without par value (incorporated by reference to Exhibit 3.7 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
3.8. Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
4.1 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4 of
3CI's report on Form 10-K filed January 12, 1999).
4.2 Loan Agreement and Note Amendment dated December 18, 1998, by 3CI
and Waste Systems, Inc. (incorporated by reference to Exhibit 4.5
of 3CI's report on Form 10-K filed January 12, 1999).
4.3 Letter Agreement and Note Amendment dated August 10, 2000 by 3CI
and Waste Systems, Inc. (incorporated by reference to Exhibit 4.3
of 3CI's report on Form 10-K filed December 29, 2000).
4.4 Letter Agreement and Note Amendment dated December 20, 2000 by
3CI and Waste Systems, Inc. (incorporated by reference to Exhibit
4.4 of 3CI's report on Form 10-K filed December 29, 2000).
4.5 Letter Agreement and Note Amendment dated March 5, 2001 by 3CI
and Waste Systems, Inc. (incorporated by reference to Exhibit 4.5
of 3CI's report on Form 10K filed January 15, 2002)
4.6 Letter Agreement and Note Amendment dated June 26, 2001 by 3CI
and Waste Systems, Inc. (incorporated by reference to Exhibit 4.5
of 3CI's report on Form 10K filed January 15, 2002)
4.7 Letter Agreement and Note Amendment dated December 20, 2001 by
3CI and Waste Systems, Inc. (incorporated by reference to Exhibit
4.5 of 3CI's report on Form 10K filed January 15, 2002)
10.1 1992 Stock Option Plan of 3CI (incorporated by reference to
Exhibit 10(m) of 3CI's registration statement on Form S-1 (No.
33-45632) effective April 14, 1992).
10.2 Settlement Agreement dated January 1996 between James Shepherd,
Michael Shepherd and Richard T. McElhannon as Releassors, and the
Company, Georg Rethmann, Dr. Herrmann Niehues, Jurgen Thomas,
Charles Crochet and Waste Systems, Inc., as Releasees
(incorporated by reference to Exhibit 10.23 of 3CI's report on
Form 10-K filed January 14, 1997).
10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated as
of June 24, 1997 (incorporated by reference to Exhibit 10.12 of
3CI's registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
10.4 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998 (incorporated
by reference to Exhibit 10.13 of 3CI's registration statement on
Form S-1 (No. 333-48499), filed March 24, 1998).
10.5 Employment Agreement dated May 30, 1998, between 3CI and Charles
D. Crochet (incorporated by reference to Exhibit 10.9 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March
24, 1998).
10.6 Agreement dated September 30, 1998 among 3CI, Waste Systems, Inc.
and Stericycle, Inc. regarding Section 203 of the Delaware
General Corporation Law (incorporated by reference to Exhibit
10.14 of 3CI's report on Form 10-K filed January 12, 1999).
10.7 Form of Indemnification Agreement dated August 26, 1998 entered
into between 3CI and Valerie Banner, David Schoonmaker, Charles
Crochet, Juergen Thomas, Dr. Werner Kook and Dr. Clemens Pues
(incorporated by reference to Exhibit 10.15 of 3CI's report on
Form 10-K filed January 12, 1999).
10.8 Form of Indemnification Agreement dated June 3, 1999 entered into
between 3CI and Robert Waller (incorporated by reference to
Exhibit 10.11 of 3CI's report on Form 10-K filed January 12,
2000).
14
10.9 LaSalle National Leasing master lease agreement dated June 18,
1999 betweenLaSalle National Leasing as lessor and the Company as
lessee (incorporated by reference to Exhibit 10.12 of 3CI's
report on Form 10-K filed January 12, 2000).
- -------------------
REPORTS ON FORM 8-K - NONE
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 thereunto duly authorized.
3CI COMPLETE COMPLIANCE CORPORATION
(Registrant)
Dated: May 15, 2002
By: /s/John R. Weaver
--------------------------------
John R. Weaver
Chief Financial Officer,
(Principal Financial Officer and
Principal Accounting Officer)
15