Filed by the Company x |
Filed by a Party other than the Company o |
Check the appropriate box: |
o | Preliminary Proxy Statement. |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)). |
x | Definitive Proxy Statement. |
o | Definitive Additional Materials. |
o | Soliciting Material Pursuant to §240.14a-12. |
GENERAL ENVIRONMENTAL MANAGEMENT, INC. | |
(Name of Company as Specified In Its Charter) | |
(Name of Person(s) Filing Proxy Statement, if other than the Company) | |
Payment of Filing Fee (Check the appropriate box): | |
o | No fee required. |
x | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: | |
(2) | Aggregate number of securities to which transaction applies: | |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): The filing fee is calculated based on $14,000,000 of aggregate consideration. The purchase price payable under the Agreement is $14,000,000, and may be reduced by a reasonable estimate of the Net Working Capital Deficiency Amount and an amount defined as the Holdback Fund, as more fully described in Sections 2.5 and 2.6 of the Agreement. Such obligations are estimated to be $1,000,000. | |
(4) | Proposed maximum aggregate value of transaction: $14,000,000 | |
(5) | Total fee paid: $781.20 |
x | Fee paid previously with preliminary materials. |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |
(1) | Amount Previously Paid: | |
(2) | Form, Schedule or Registration Statement No.: | |
(3) | Filing Party: | |
(4) | Date Filed: |
1. | To approve the sale of the Company's wholly owned subsidiary, General Environmental Management, Inc. a Delaware corporation, pursuant to a Agreement, dated as of November 25, 2009, by and between Luntz Acquisition (Delaware), LLC. and the Company, a copy of which is attached as Annex A to the accompanying proxy statement. |
2. | To consider and vote upon an adjournment of the Special Meeting, if necessary for a period of not more than 30 days, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Sale. |
Page | |
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE SALE | |
SUMMARY OF THE SALE | |
Information about the Parties | |
Summary of the Sale | |
Recommendation of Our Board of Directors | |
Reasons for the Sale | |
Overview of the Agreement | |
Material U.S. Federal income Tax Consequences of the Sale | |
Required Approvals | |
Anticipated Accounting Treatment | |
Appraisal Rights | |
RISK FACTORS | |
Risks Related to the Sale | |
Risks Related to the Business after the Sale | |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION | |
THE SPECIAL MEETING | |
Date, Time and Place | |
Purposes of the Special Meeting | |
Recommendation of the Company’s Board of Directors | |
Record Date and Voting Power | |
Voting and Revocation of Proxies | |
Quorum and Required Vote | |
Solicitation of Proxies | |
Delivery of Proxy Materials to Households Where Two or More Stockholders Reside | |
Other Matters | |
THE SALE | |
Background of the Sale | |
Reasons for the Sale; Recommendations of the Company’s Board of Directors | |
Buyer and Parent | |
Required Approvals | |
Material U.S. Federal Income Tax Consequences of the Sale | |
Anticipated Accounting Treatment | |
Appraisal Rights | |
THE AGREEMENT | |
Sale of Purchased Interests and Liabilities to be Assumed | |
Assets and Liabilities to be Retained by the Company | |
Purchase Price | |
No Solicitation of Conflicting Transaction | |
Conduct of Business Pending the Completion of the Sale | |
Conditions to the Completion of the Sale | |
Other Agreements | |
Termination of the Agreement | |
Effect of Termination of the Agreement | |
Representations and Warranties of the Company | |
Representations and Warranties of the Buyer | |
Indemnification | |
Indemnification by the Company | |
Indemnification by the Buyer | |
Special Indemnification Provision Regarding Environmental Matters | |
DESCRIPTION OF GENERAL ENVIRONMENTAL MANAGEMENT, INC. | |
Page | |
DESCRIPTION OF LUNTZ ACQUISITION (DELAWARE), LLC AND PSC ENVIRONMENTAL SERVICES, LLC. | |
BUSINESS | |
Proposed Sale to the Buyer | |
Overview of Business | |
Company Background | |
Business Strategy Prior to the Sale | |
Governmental Regulation | |
State and Local Regulations | |
Industry | |
Products and Services | |
Business Operations | |
Marketing | |
Customers | |
Competition | |
Insurance and Financial Assurance | |
Employees | |
Business Strategy After the Sale | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
Business Overview | |
Recent Developments | |
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 | |
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 | |
UNAUDITED PRO FORMA CONSOLIDATES FINANCIAL INFORMATION | |
MATTERS BEING SUBMITTED TO A VOTE OF STOCKHOLDERS | |
Proposal No. 1: Approval of the Sale | |
Proposal No. 2: Approval of Possible Adjournment of the Special Meeting | |
MARKET PRICE AND DIVIDEND INFORMATION | |
PRINCIPAL STOCKHOLDERS OF THE COMPANY | |
FUTURE STOCKHOLDERS PROPOSALS | |
WHERE YOU CAN FIND MORE INFORMATION | |
GENERAL ENVIRONMENTAL MANAGEMENT, INC. CONSOLIDATED FINANCIAL STATEMENTS | |
Annex A: Stock Purchase Agreement | Attached |
Annex B: Management Voting Agreement | Attached |
Annex C: CVC Voting Agreement | Attached |
Q: | What proposal will be voted on at the Company’s Special Meeting? |
A: | The following proposals will be voted on at the Special Meeting: |
1. | The proposal to be voted on is whether to approve the sale of the Company's wholly owned subsidiary, General Environmental Management, Inc. a Delaware corporation ("GEM DE") to Luntz Acquisition (Delaware), LLC. (“Buyer”) pursuant to the terms of a Agreement, dated as of November 25, 2009, (the "Agreement") attached as Annex A. See the Section below entitled “The Sale” for a more detailed description of the transaction with Buyer. |
2. | The second proposal to be voted on is whether to adjourn the meeting, if necessary, for a period of not more than 30 days, to solicit additional proxies if there are not sufficient votes in favor of the first proposal |
Q: | What is the Company’s Board of Directors’ recommendation with respect to the proposals? |
A: | After careful consideration, the Board of Directors (the "Board") has unanimously approved the Sale and the Agreement and has determined that it is advisable, fair to and in the best interests of the Company’s stockholders. Accordingly, the Board unanimously recommends that stockholders vote FOR the proposals. |
Q: | Why does the Company’s Board of Directors believe the Sale is in the best interests of the Company’s stockholders? |
A: | The Company’s Board conducted a process to consider strategic alternatives and the risks and challenges facing the Company in the future, and concluded that the Sale was the best alternative for seeking to maximize value to stockholders. See “The Sale—Reasons for the Sale; Recommendation of the Company’s Board of Directors” for more information. |
Q: | What factors were considered by the Company’s management and Board of Directors in deciding to sell the stock? |
A: | The Company’s management and Board considered a number of factors before deciding to enter into the Agreement, including, but not limited to, the price to be paid by Buyer, the strategic alternative evaluation process that led to entering into the Agreement, the Company’s business prospects and the terms and conditions of the Agreement. The Board also considered, and balanced against the potential benefits of the Sale, certain adverse factors. See “The Sale—Reasons for the Sale; Recommendation of the Company’s Board of Directors” for more information. |
A: | Buyer and the Company have entered into the Agreement, which contains the terms and conditions of the proposed Sale. Pursuant to the Agreement, the Company has agreed, as a condition of the Sale, to: l ) form a Delaware corporation that shall be wholly-owned by the Company and named GEM NewCo, Inc. (“GEM NewCo”), b) form a Delaware limited partnership, the sole limited partner of which shall be the Company, and the sole general partner of which shall be GEM NewCo, which limited partnership shall be named GEM Pomona LP (“GEM LP”), c) effect a merger between GEM LP and GEM DE, whereby GEM LP will be the surviving entity, d) sell to Luntz the limited partner interests of GEM LP and all of the outstanding shares of stock of GEM NewCo (the “Purchased Interests”). |
A: | The Company does not currently intend to distribute any of the proceeds from the Sale or the Agreement to the Company’s stockholders. |
A: | The Buyer is Luntz Acquisition (Delaware), LLC. Buyer is a Delaware private limited liability company that is owned by PSC Environmental Services, LLC (“PSC”). |
PSC and its subsidiaries, including Luntz Acquisition (Delaware), LLC are a leading provider of integrated environmental services, operating a network of facilities that spans the United States, Mexico and Puerto Rico. PSC provides waste management services, lab pack, transportation, household hazardous waste, e-waste, emergency response, pollution prevention and retail services. |
A: | Buyer has agreed to pay the Company $14.0 million. The purchase price will be reduced by a reasonable estimate of a Net Working Capital Deficiency Amount as defined in Section 2.5 of the Agreement, such that the net working capital amount shall be zero. In addition an amount defined as the Holdback Fund will be retained by Luntz for a period of one year, as collateral for certain indemnification provisions of the Agreement. Such amount is estimated to be $1,000,000. |
A: | If the Company’s stockholders approve the Sale set forth in the Agreement, the Company will consummate the sale of the purchased interests subject to satisfaction or waiver of the closing conditions set forth in the Agreement. The Company anticipates that the Sale will close on or before March 1, 2009. |
A: | The net cash proceeds from the transaction will be used by the Company to retire senior debt and other obligations of the Company, and to pursue its announced strategy of participating in the water treatment and waste-to-energy business. Total reduction in indebtedness to the Company’s senior lender and other indebtedness could amount to more than $9 million. In addition, the Company will use $250,000 to pay its obligations to United States Environmental Response, LLC, a California limited liability company pursuant to which the Company has purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company (the "CLW Stock Purchase"). CLW owns all of the issued and outstanding capital stock of Santa Clara Waste Water Company (“SCWW") a California corporation. CLW's only operating subsidiary is SCWW. SCWW had |
. | The Company does not intend to go private or terminate its Securities Exchange Act of 1934 (“Exchange Act”) reporting obligations. |
Q: | What will happen if the Sale to Buyer is not approved or the Sale is not completed for other reasons? |
A: | If the Sale to Buyer is not approved or if the Company does not complete the Sale for other reasons, the Company will attempt to continue to execute its current business strategy, provided the Company would be able to raise additional capital to fund its operations. If the Company were not able to raise additional capital, then the Company would have to make a determination whether it would be able to continue in business. Further, if the Company does not pay off its senior lender by March 12, 2010, the Company's purchase of CLW is subject to rescission. |
A: | The Company and Buyer must meet certain conditions or waive them prior to the close of the Sale. The Company’s stockholders must approve the Sale. The Company must also reaffirm the representations and warranties that are contained in the Agreement, no proceeding or litigation may have been initiated to prevent the closing of the Sale and other customary conditions must be met. Buyer must also reaffirm the representations and warranties that are contained in the Agreement. Further, there can be no material adverse change in the Company’s financial condition, assets, business or results of operations, and other customary conditions must be met. |
A: | The Company will recognize a taxable gain on the Sale equal to the difference between the amount realized from the Sale and the adjusted tax basis of the assets sold and liabilities assumed. The Company expects to have sufficient federal net operating losses to offset the gain expected to be realized from the Sale for regular federal income tax purposes. The Company will pay federal alternative minimum tax on the gain on Sale. The Company will not be able to use California net operating losses to offset the gain from the Sale because California suspended the use of net operating losses in 2009. The Company expects to pay California regular income tax on the gain on Sale. |
A: | The proposal to approve the Sale to Buyer requires the affirmative vote of holders of a majority of the Company’s outstanding shares in order to be approved by stockholders. An abstention or “broker non-vote” will have the effect of a vote against the proposal to approve the Sale. In connection with the execution of the Agreement, certain directors, executive officers and their affiliates entered into stockholder voting agreements to vote their shares of the Company’s common stock in favor of approval of the Sale and against the approval or adoption of any alternative transactions. These directors, executive officers and their affiliates also granted to Buyer a proxy to vote their shares of the Company’s common stock in favor of approval of the Sale and agreed not to transfer its shares of the Company’s common stock prior to the expiration of the stockholder voting agreements. These directors, executive officers and their affiliates together own or control an aggregate of less than 1% of the Company’s outstanding common stock. A copy of the voting agreement by the Company’s management (the “Management Voting Agreement”) is attached as Annex B, and a copy of the voting agreement by CVC California, LLC, (the “CVC Voting Agreement”) our senior lender, is attached as Annex C. |
Q: | What happens if we do not have a quorum or enough affirmative votes at the Special Meeting? |
A: | If we do not have a quorum at the Special Meeting or if we do not have sufficient affirmative votes in favor of the proposal, we may seek to adjourn the Special Meeting to a later time to permit further solicitation of proxies if necessary to obtain additional votes in favor of the foregoing item. We may seek to adjourn the Special Meeting without notice, other than by the announcement made at the Special Meeting. Under our Bylaws, we can adjourn the Special Meeting by approval of the holders of a majority of the shares of our common stock present in person or represented by proxy at the Special Meeting and entitled to vote. We are soliciting proxies to vote in favor of the adjournment of the Special Meeting, regardless of whether a quorum is present, if necessary to provide additional time of up to 30 days to solicit votes in favor of approval of the Sale. If adjourning the Special Meeting does not enable a quorum to be established, the proposal will not pass. Further, if adjourning the Special Meeting does not enable us to attract sufficient affirmative votes in favor of the proposal, such proposal will not pass. |
A: | You are receiving this proxy statement because you have been identified as a Company stockholder as of the record date for the Special Meeting, and thus you are entitled to vote at the Special Meeting. This document serves as a proxy statement of the Company, used to solicit proxies for the Company’s Special Meeting of stockholders. This document contains important information about the Sale and the Special Meeting of stockholders, and you should read it carefully. |
A: | The Company urges you to read this proxy statement carefully, including its annexes, and to consider how the proposed Sale affects you. |
A: | The failure to return your proxy card or otherwise provide proxy instructions will have the same effect as voting against approval of the Sale, and your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting. |
A: | If your shares of Company common stock are registered directly in your name with the Company’s transfer agent, you are considered with respect to those shares to be the stockholder of record, and the proxy materials and proxy card are being sent directly to you. If you are a Company stockholder of record, you may attend the Special Meeting of stockholders to be held on February |
Q: | If my Company shares are held in “street name” by my broker, will my broker vote my shares for me? |
A: | Your broker will not be able to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedure provided by your broker. |
A: | Stockholders of record, other than those stockholders who have executed a voting agreement, may change their vote at any time before their proxy is voted at the Special Meeting. Stockholders of record, other than stockholders who have executed a voting agreement, can do this in one of three ways. First, a stockholder of record can send a written notice stating that the stockholder would like to revoke its proxy. Second, a stockholder of record can submit new proxy instructions either on a new proxy card, by telephone or via the Internet. Third, a stockholder of record can attend the Special Meeting and vote in person. Attendance alone will not revoke a proxy. If a stockholder of record has instructed a broker to vote its shares, the stockholder must follow the directions received from its broker to change those instructions. |
A: | The Company will pay the cost of soliciting proxies, including the printing, mailing and filing of this proxy statement, the proxy card and any additional information furnished to stockholders. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Company common stock for the forwarding of solicitation materials to the beneficial owners of common stock. The Company will reimburse these brokers, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. |
A: | If you would like additional copies, without charge, of this proxy statement or if you have questions about the Sale, including the procedures for voting your shares, you should contact: |
Buyer: | Parent: |
Luntz Acquisition (Delaware), LLC. | PSC, LLC. |
5151 San Felipe, Suite 1600 | 5151 San Felipe, Suite 1600 |
Houston, TX 77056 | Houston, TX 77056 |
(713) 625-7019 | (713) 625-7019 |
§ | General Environmental Management of Rancho Cordova, LLC, a California limited liability company and the real property owned by General Environmental Management of Rancho Cordova, LLC. |
§ | Island Environmental Services, Inc., a California corporation; |
§ | GEMWare – proprietary software for managing environmental services; |
§ | Service contracts; and |
§ | Tangible personal property; |
§ | $14 million in cash and assume $1.1 million of long term lease obligations. |
§ | Restricted cash ($900,046) for the financial closure assurance for the Rancho Cordova, CA TSDF |
§ | California Living Waters, Inc., and its wholly owned subsidiary Southern California Waste Water Company. |
• | the representations and warranties of each party in the Agreement are true and correct in all material respects as of the closing date of the Sale; |
• | the Sale is approved by the Company stockholders; |
• | neither the Company, GEM DE, or any of GEM DE’s subsidiaries shall have commenced a voluntary proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law; |
• | no injunction or other order or statute, rule, regulation or executive order by any government entity prevents the completion of the Sale; |
• | all required filings with governmental agencies are made and approvals of the Sale, if any, are obtained. |
§ | encourage, solicit, initiate, engage (including by way of furnishing or disclosing information) or participate in any negotiations with any Person (other than Buyer) concerning any merger, consolidation or other business combination involving GEM DE, GEM DE’s subsidiaries, or acquisition of any portion of their respective assets or business, or encourage, solicit, initiate or entertain inquires or proposal concerning, or which could reasonable be expected to lead to, any of the foregoing; |
§ | negotiate or take any other action intended or designed to facilitate the efforts of any person other than Buyer relating to a possible acquisition transaction; |
§ | enter into any arrangements, agreements or understanding requiring any of them to abandon, terminate or fail to consummate the transactions contemplated by the Agreement. |
· | that a broker or dealer approve a person's account for transactions in penny stocks; and | |
· | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
· | sets forth the basis on which the broker or dealer made the suitability determination; and | |
· | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
· | Our board of directors are authorized to issue of up to 100,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions of those shares without any further vote or action by the stockholders, which may be used by the board to create voting impediments or otherwise delay or prevent a change in control or to modify the rights of holders of our common stock; and | |
· | Limitations on who may call annual and special meetings of stockholders. |
• | may significantly reduce the equity interest of investors; |
• | may subordinate the rights of holders of common stock if we issue preferred stock with rights senior to those afforded to our common stock; |
• | will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards; and |
• | may adversely affect the market price for our common stock. |
• | default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations; |
• | acceleration of our obligations to repay the indebtedness (even if we make all principal and interest payments when due) if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
• | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and |
• | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding. |
| greater name recognition and larger marketing budgets and resources; | |
| established marketing relationships and access to larger customer bases; |
| substantially greater financial, technical and other resources; and | |
| larger technical and support staffs. |
§ | the ability of the Company to complete the proposed Sale; |
§ | the satisfaction of the conditions to consummate the Sale, including the approval of the Sale by the Company’s stockholders; |
§ | the occurrence of any event, change or other circumstance that could give rise to the termination of the Agreement; |
§ | the outcome of any legal proceeding that may be instituted against the Company or others following the announcement of the Agreement; |
§ | the amount of the costs, fees and expenses related to the Sale; |
§ | indemnification amounts potentially payable by the Company in connection with the Sale; |
§ | the potential value created by the proposed Sale for the Company’s stockholders; |
§ | the Company’s results of operations, financial condition and businesses, and the expected impact of the Sale on the Company’s financial and operating performance; and |
§ | general industry, market and competitive conditions. |
1. | To approve the sale of the Purchased Interests, pursuant to the Agreement, dated as of November 25, 2009, by and between Luntz Acquisition (Delaware), LLC and the Company, a copy of which is attached as Annex A to the accompanying proxy statement. |
2. | To consider and vote upon an adjournment of the Special Meeting, if necessary for a period of not more than 30 days, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Sale. |
§ | Over the Internet. Go to the website of the Company’s vote tabulator, Colonial Stock Transfer, at http://www.colonialstock.com/GEMSpecial2010 and follow the instructions you will find there. You must specify how you want your shares voted or your Internet vote cannot be completed and you will receive an error message. Your shares will be voted according to your instructions. |
§ | By Telephone. Call (877) 285-8605 toll-free from the U.S. or Canada and follow the instructions. You must specify how you want your shares voted and confirm your vote at the end of the call or your telephone vote cannot be completed. Your shares will be voted according to your instructions. |
§ | By Mail. Complete, sign and date the enclosed proxy card and mail it in the enclosed postage-paid envelope to Colonial Stock Transfer. Your proxy will be voted according to your instructions. |
§ | In Person at the Meeting. If you attend the meeting, you may deliver your completed proxy card in person or you may vote by completing a ballot, which will be available at the meeting. |
§ | Over the Internet or By Telephone. You will receive instructions from your bank, broker or other nominee if you are permitted to vote over the Internet or by telephone. |
§ | By Mail. You will receive instructions from your bank, broker or other nominee explaining how to vote your shares. |
§ | In Person at the Meeting. Contact the bank, broker or other nominee that holds your shares to obtain a proxy card and bring it with you to the meeting. A broker’s proxy is not the form of proxy enclosed with this proxy statement. You will not be able to vote shares you hold in “street name” at the meeting unless you have a proxy from your broker issued in your name giving you the right to vote the shares. |
§ | the value of the consideration to be received by the Company pursuant to the SPA |
§ | the inability of the Company to achieve profitability with the Company's debt obligations. |
§ | the inability of the Company to raise capital to sustain operations at its current levels. |
§ | the ability of the Company to reduce its indebtedness to CVC by more than $9 million |
§ | the possibility of increasing shareholder value beginning with a profitable SCWW as the foundation for growth and development; |
§ | the continued economic slowdown affecting the general state of the base business with the need for greater volume in waste and revenue to successfully implement the original strategic plan; |
§ | the potential for the Company’s employees to join a larger and better financed organization; |
§ | the financial and other terms and conditions of the SPA and the fact that they were the product of negotiations between the parties: and |
§ | the terms of the SPA, including : |
1. | the cash purchase price of $14 million for the stock of GEM DE; |
2. | the retention of $900,000 in cash from the trust account for the TSDF facility; |
3. | the ongoing liabilities and obligations Buyer will assume and the impact that will have on the Company’s future risk profile and underlying costs; |
4. | Buyer’s intent to keep majority of personnel for continuity of business and work security; and |
5. | the requirement that the sale be approved by the holders of a majority of the Company’s common stock outstanding on the record date. |
§ | the risk that the sale might not be completed in a timely manner, or at all; |
§ | the exclusivity of negotiations and communication of the Company with only PSC which will delay or prevent the Company from exploring an additional interested buyer if PSC should decide to change or withdraw it’s offer to purchase GEM DE; |
§ | the conditions to the completion of the Sale must be satisfied or waived; and |
§ | the risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the sale. |
§ | SMH Capital’s quarterly Environmental Services Industry Updates, an Environmental Industry trade publication; |
§ | daily and weekly industry trade information from other Environmental Industry trade publications; |
§ | industry information published by publicly traded companies in the environmental services business; |
§ | the Wall Street Journal and |
§ | other printed and broadcast media |
Buyer: | Parent: |
Luntz Acquisition (Delaware), LLC. | PSC Environmental Services, LLC ("PSC") |
5151 San Felipe, Suite 1600 | 5151 San Felipe, Suite 1600 |
Houston, TX 77056 | Houston, TX 77056 |
(713) 625-7019 | (713) 625-7019 |
· | all of GEW DE and its subsidiaries’ customer contracts and service agreements; |
· | all information collected about GEW DE and its subsidiaries’ customers; |
· | GEMWare and all other intellectual property rights; |
· | all software or other intellectual property rights that the GEM DE has licensed from third parties; |
· | substantially all tangible personal property owned by GEM DE; |
· | all rights in and under any contracts relating to GEM DE’s business; |
· | all permits, authorizations, consents and approvals of any governmental entity to the extent transferable by applicable law; |
· | all books, records, files and papers, whether in hard copy or electronic format, used in the business; |
· | all goodwill associated with the business or the purchased assets; and |
· | all accounts receivable due from GEM DE as of the close of the sale. |
· | all long term lease obligations |
· | all documents relating to the organization, maintenance and existence of the Company and each of its subsidiaries; |
· | restricted cash which is posted as a bond with the State of California Department of Toxic Substance Control for the financial closure assurance of GEM DE’s subsidiary General Environmental Management of Rancho Cordova, LLC; |
· | all insurance policies and bonds and all prepaid expenses and deposits related thereto and all prepaid expenses relating to the Company; |
· | all issued and outstanding shares of GEMEM, CLW, and SCWW; |
· | all assets and operations of SCWW; |
· | all rights and obligations relating to the sale of MTS including the back up guarantee of $5.6 million due to CVC; and |
· | all public company related contracts. |
· | any obligation, duty or liability relating to the Company’s business as of the closing date; |
· | all employment obligations including all employee benefit plans and employee severance arrangements, and all director and officer indemnification obligations relating to the Company; |
· | the Company’s corporate offices in Pomona, CA; |
· | any obligation, duty or liability under the contracts and assets retained by the Company; |
· | the Company’s fees and expenses of creating the SPA and related ancillary agreements; and |
· | any liability or obligation for taxes for the period prior to the closing date. |
· | encourage, solicit, initiate, engage (including by way of furnishing or disclosing information) or participate in any negotiations with any entity (other than Buyer) concerning any merger, consolidation o other business combination involving GEM DE and its subsidiaries or acquisition of any portion of their respective assets or business, or encourage, solicit, initiate or entertain inquiries or proposals concerning, or which could reasonably be expected to lead to, any of the foregoing; |
· | negotiate or take any other action intended or designed to facilitate the efforts of any other entity relating to a possible transaction; or |
· | enter into any arrangements, agreements or understanding requiring any of them to abandon, terminate or fail to consummate the transactions contemplated by the Agreement. |
· | any amendment to the organizational documents of GEM DE or any of the GEM DE subsidiaries; |
· | any contingent liability incurred by the GEM DE or any of the GEM DE subsidiaries, as guarantor or otherwise, with respect to the obligations of others; |
· | except as listed, to the Knowledge of the Company and GEM DE, any encumbrance placed on the GEM DE Shares or any of the properties of the GEM DE or any of the GEM DE subsidiaries; |
· | any obligation or liability incurred by the GEM DE or any of the GEM DE subsidiaries other than obligations and liabilities incurred in the ordinary course of business (none of which is a claim, as defined by GAAP, for breach of contract, breach of duty, breach of warranty, tort or infringement of an Intellectual Property Right); |
· | any sale or other disposition, or any agreement or other arrangement for the sale or other disposition, of any of the properties or assets of the GEM DE or any of the GEM DE Subsidiaries other than in the ordinary course of business; |
· | any capital expenditure or commitment in excess of $5,000 with respect to any individual item, or in excess of $25,000 with respect to all such items; |
· | any lease or agreement to lease any assets with an annual rental in excess of $5,000 with respect to any individual item or in excess of $25,000 with respect to all such items; |
· | any damage, destruction or loss, whether or not covered by insurance, of any of the assets or business of the GEM DE or any of the GEM DE Subsidiaries; |
· | any (i) declaration, setting aside or payment of any dividend on, or (ii) the making of any other distribution in respect of, or (iii) any direct or indirect redemption, purchase or other acquisition by the GEM DE of, the capital stock of the GEM DE or GEM DE subsidiaries Equity, or by GEM DE subsidiaries of the GEM DE subsidiaries Equity; |
· | any issuance of any securities of the GEM DE or any of the GEM DE subsidiaries; |
· | any labor trouble or claim of unfair labor practices involving the GEM DE or any of the GEM DE subsidiaries; |
· | any obligation or liability incurred by the GEM DE or any of the GEM DE subsidiaries to, or any loans or advances made by the GEM DE or any of the GEM DE subsidiaries to, any of its officers, directors, members, affiliates, employees or stockholders, except normal compensation and expense allowances payable to officers; |
· | any change in (i) the compensation or other amounts payable or to become payable by the GEM DE or any of the GEM DE subsidiaries to any of its officers, employees or agents; (ii) any bonus arrangements with any of such officers, employees or agents; (iii) any severance or termination arrangements; (iv) the terms of any employment agreement; or (v) the benefits payable under any benefit plan; |
· | any change with respect to the management or supervisory personnel of the GEM DE or any of the GEM DE subsidiaries; |
· | any payment or discharge of a material Encumbrance or liability of the GEM DE or any of the GEM DE subsidiaries which was not shown on the Base Balance Sheet or incurred in the ordinary course of business thereafter; |
· | any write-downs or write-offs as uncollectible of any notes or accounts receivable in excess of allowance for doubtful accounts, except for write-downs or write-offs that are in the aggregate less than $10,000 incurred in the ordinary course of business; |
· | any disposal, sale, assignment, license or lapse of any rights to the use of any intellectual property right, or disclosure to any person other than Buyer of any business information or other information not theretofore a matter of public knowledge other than pursuant to confidentiality agreements; |
· | any change in any method of accounting or accounting practice, whether or not such change was permitted by GAAP; or |
· | any agreement, whether in writing or otherwise, to take any action described above in this section. |
· | the Company’s representations and warranties in the Agreement are true and correct in all material respects as of the closing date of the Sale; |
· | the Sale is approved by the Company’s stockholders; |
· | no suit, action, claim, proceeding or formal investigation is brought by a governmental entity seeking to prevent the completion of the asset sale and no injunction or other order or statute, rule, regulation or executive order by any government entity prevents the completion of the asset sale; |
· | neither, the Company, GEM NewCo, GEM LP or any of the Company subsidiaries shall (i) have commenced a voluntary Proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, or (ii) have an involuntary Proceeding commenced against it seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereinafter in effect or seeking the appointing of a trustee, receiver, liquidator, custodian or similar official of it or substantially all of its property, or (iii) have consented to any such relief or to the appointment of or taking possession by any such official against it, or (iv) have made a general assignment for the benefit of its creditors, or (v) have an attachment placed on any of its properties or assets; |
· | At or prior to the Closing, the following actions shall have been completed and/or documents shall have been delivered, in each case in form and substance satisfactory to Buyer in its sole and absolute discretion: |
· | All claims, demands, liabilities, and obligations of Company or the Company subsidiaries (or of GEM NewCo or GEM LP) pursuant to, under, or in respect of the Amended and Restated Revolving Credit and Term Loan Agreement dated as of September 4, 2009 by and between the Company's Senior Secured Lender, CVC California, LLC (“CVC”) and the Company (as it may be amended from time to time) and the Collateral Agreement dated as of August 31, 2008 by and among CVC, the Company and its subsidiaries (as it may be amended from time to time), including but not limited to Company and Company Subsidiaries (and GEM NewCo and GEM LP), together with the Convertible Term Note, the Revolving Credit Note, and the Warrant referenced therein, and any guaranties or pledges in respect thereof, shall have been fully terminated, discharged, released, and satisfied, and the Company Shares, Purchased Interests and all assets of the Company and the Company subsidiaries (and GEM NewCo and GEM LP) shall be free and clear of encumbrances held by CVC; |
· | CVC shall have executed and delivered to the Company and Buyer a Paydown and Release Letter, and shall have caused the other parties thereto to have executed and delivered the Paydown and Release Letter. The Paydown and Release Letter shall have remained in full force and effect through the Closing; |
· | CVC shall have executed and delivered to and the Buyer a support and voting agreement (the “CVC Voting Agreement”), and shall have caused the parties thereto to have executed and delivered the CVC Voting Agreement. The CVC Voting Agreement shall have remained in full force and effect through the Closing; |
· | Any and all promissory notes in favor of Randy Costales, Gloria Costales, NCF Corporation, as Trustee, and/or NCF Charitable Trust (collectively, the “Island Sellers”) shall have been assigned to and assumed by Seller, and each of the Island Sellers shall have executed releases in connection therewith in favor of the Company and the Company Subsidiaries; |
· | Any and all obligations of the Company or the Company subsidiaries to Randy Costales pursuant to that certain Employment Agreement between Island Environmental Services, Inc. and Randy Costales dated August 31, 2008 shall have been assigned to and assumed by the Company and Mr. Costales shall have executed a release in connection therewith in favor of the GEM DE and the GEM DE subsidiaries; |
· | In connection with Company’s consummation of the purchase of California Living Waters, Inc. the Company shall have permitted Buyer to conduct diligence and inspection of California Living Waters, Incorporated, its subsidiary and their respective business, assets and liabilities to the same extent as provided for in the SPA with respect to GEM DE and the GEM DE's subsidiaries, and Buyer shall have become satisfied that no liabilities or obligations of California Living Waters, Incorporated and its subsidiaries adversely affect GEM DE and its subsidiaries; |
· | Any obligations of GEM DE or its subsidiaries pursuant to the MTS Agreement shall have been released, and GEM DE shares, Purchased Interests and all assets of GEM DE and its subsidiaries shall be free and clear of encumbrances |
· | Each of the leases regarding the Real Property located at 2490 Pomona Blvd, Pomona, CA; 7821 S. 198th Street, Kent, WA; and 11--- White Rock Road, Rancho Cordova, CA shall have been validly assigned to GEM DE, and any associated landlord or other consents necessary or, in the Buyer’s discretion, desirable to effect such assignment shall have been obtained; |
· | The lease regarding the leased real property at Temple Avenue, Pomona, shall have been assigned to and assumed by the Company and a release in connection therewith shall have been executed in favor of GEM DE and its subsidiaries; |
· | The Company shall have caused the Company and the Company’s subsidiaries to deliver an executed Board resolution terminating the 401(k) plan effective no later than the day prior to closing, and the 401(k) plan shall have been terminated; |
· | Any long-term debt of GEM DE, and its subsidiaries, GEM NewCo and GEM LP, other than those capitalized leases set forth on a schedule in the SPA, shall have been assigned to and assumed by the Company and a release in connection therewith in favor of GEM DE and its subsidiaries shall have been executed and delivered to GEM DE; |
· | Buyer’s lenders and agent under its credit facility shall have consented in writing to the consummation of the transactions contemplated hereby and shall have waived any defaults or events of default in connection therewith; |
· | As of the date hereof, management shall have executed and delivered to Buyer of a support and voting agreement (the “Management Voting Agreement”), and shall have caused the other parties party thereto to have executed and delivered the Management Voting Agreement. The Management Voting Agreement shall have remained in full force and effect through the Closing; and |
· | The Company and GEM DE shall have formed a Delaware corporation that shall be wholly-owned by GEM DE and named GEM NewCo, Inc. (“GEM NewCo”), b) formed a Delaware limited partnership, the sole limited partner of which shall be GEM DE, and the sole general partner of which shall be GEM NewCo, which limited partnership shall be named GEM Pomona LP (“GEM LP”), c) effect a merger between GEM LP and GEM DE, whereby GEM LP will be the surviving entity, d) sell to Buyer the limited partner interests of GEM LP and all of the outstanding shares of stock of GEM NewCo (the “Purchased Interests”). |
· | Each of GEM NewCo and GEM LP shall have executed and delivered to Buyer a Joinder Agreement. |
· | Buyer’s representations and warranties in the Agreement are true and correct in all material respects as of the closing date of the Sale; |
· | no suit, action, claim, proceeding or formal investigation is brought by a governmental entity seeking to prevent the completion of the Sale and no injunction or other order or statute, rule, regulation or executive order by any government entity prevents the completion of the Sale; |
· | the Company will not within the United States of America, either directly or indirectly, as principal, agent, owner, seller, partner, investor, shareholder (other than solely as a holder of not more than 1% of the issued and outstanding shares of any public corporation), consultant, advisor or otherwise howsoever own, operate, carry on or engage in the operation of or have any financial interest in or provide, directly or indirectly, financial assistance to or lend money to or guarantee the debts or obligations of any Person carrying on or engaged in any business that is competitive with or identical to the business conducted by Buyer or any of its affiliates which are in the similar business with Buyer. Notwithstanding the foregoing, Seller shall not be, by virtue of this Agreement, constrained from engaging in the wastewater treatment and related services business. |
· | the Company shall not directly, or indirectly, for itself or for any other Person: a) solicit, interfere with or endeavor to entice away from Buyer or any of its affiliates, any employee, customer or client; b) attempt to direct or solicit any employee, customer or client away from Buyer or any of its affiliates; or advise any Person not to do business with Buyer or any of its affiliates. |
· | Payroll services; |
· | Employee benefits services; |
· | Issue W-2’s for 2009; |
· | Assistance from Company employees for the purposes of executing checks on behalf of GEM NewCo and GEM LP; |
· | Services of a network engineer to ensure network connectivity, system access, email access and printing capabilities remain operational; to assist in migration activities required to transfer users to the Buyer network; and to respond to help desk requests; |
· | Assistance from knowledgeable employees of the Company regarding accounting and billing activities of GEM DE and its subsidiaries; |
· | Normal accounting for all time periods prior to Closing, and provision of any associated information, including but not limited to data conversion; |
· | there is an event which results in a major casualty loss in excess of $250,000; |
· | the conditions to Close have not been satisfied at or prior to the Closing; |
· | the Closing shall not have occurred and the transactions contemplated by the Agreement consummated by March 12, 2010; and |
· | the Company or GEM DE breaches the exclusive dealings agreement between the Company and Buyer. |
· | The Company may terminate the Agreement if: |
· | Buyer breaches certain of the covenants or warranties set forth in the Agreement; |
· | there is an injunction, restraining order or other court order issued by any court of competent jurisdiction which directs that the Agreement or any material transaction contemplated thereby shall not be consummated; or |
· | the Closing shall not have occurred within thirty (30) days from obtaining the stockholder approval for the transaction contemplated in the Agreement. |
· | any breaching party shall remain liable to a non-breaching party for its damages; |
· | Buyer shall be entitled to be paid, and the Company shall pay to Buyer immediately upon such termination, a termination fee of $500,000 if the Company and GEM DE breach the exclusive dealings provision of the SPA; and |
· | notwithstanding any termination of the SPA, the following articles shall survive the termination of the Agreement: |
· | Covenants of the Company; |
· | Covenants of the Buyer; |
· | Conditions to Closing of Buyer |
· | Conditions to Closing of Company |
· | Indemnification of Buyer; |
· | Indemnification of Company; |
· | Termination of the Agreement; and |
· | Other miscellaneous items; |
· | for the purchase of any commodity, material, equipment or asset, except contracts or agreements (except for purchase orders in the ordinary course of business involving payments of less than $5,000 each); |
· | for the sale or lease of its products or services not made in the ordinary course of business; |
· | which is otherwise material to the assets or business of GEM DE or any of its subsidiaries. |
· | each benefit plan complies and has complied in the past, as to form and in operation, with the provisions of all applicable Laws; |
· | all required filings, reports, and notices to governmental authorities or to employees have been properly and timely made, and all such filings and employee disclosures required to be made within 30 days after closing that are based in whole or in part upon the period prior to the closing shall have been prepared and delivered to Buyer on or before the closing; |
· | no such Benefit Plan is currently under audit or investigation by any Governmental Authority and no correction procedures have been initiated or completed with the IRS for any ERISA Benefit plan meant to be qualified under Section 401 of the Code or with the Department of Labor for any ERISA Benefit plan; |
· | there are no actions, suits or claims (other than routine claims for benefits) pending or threatened against any of the Benefit plans or against the assets of any Benefit plan; |
· | all premiums or amounts due in connection with any Benefit plan, including without limitation premiums due the PBGC and premiums for life and health insurance and annuity contracts, stop-loss insurance policies, and any third party administrative expenses, and there are no such premiums or amounts due that are attributable to any period of time before the Closing that will not have been paid or accrued for on or before the Closing; |
· | that has been commenced by or against GEM DE or any of its subsidiaries or that otherwise relates to or may affect the business of, or any of the assets owned or used by, GEM DE or any of its subsidiaries; or |
· | that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereby and by the Agreement or any ancillary agreements. |
· | any breach of any of the representations or warranties made by the Company or GEM DE in or pursuant to the Agreement or any schedule thereto, or any other agreement, document, instrument or certificate delivered by the Company or GEM DE pursuant to or in connection with the Agreement, including without limitation any ancillary agreement; |
· | any breach of any covenant made or obligation incurred by the Company or GEM DE in or pursuant to the Agreement or any ancillary agreement; |
· | any liability, payment or obligation for or in respect of taxes owing by the Company ,or any tax affiliate, DE or its subsidiaries or Buyer, as successor to GEM DE's and GEM DE's subsidiaries’ businesses for all periods, or portions thereof, up to and including the closing date; |
· | any penalties for fines owning or accessed for violations resulting from inspections of the operations of GEM DE or its subsidiaries by the Department of Toxic Substances Control; |
· | any liability, payment or obligation related to the claims alleged in the (a) the lawsuit brought by Romic against the Company, et al. (Case No. BC373769 in the Superior Court of the State of California, County of Los Angeles), (b) the lawsuit brought by Clean Harbors against the Company, et al. (Case No. 2009-CV-00355 in the Superior Court of the State of California, County of Norfolk), or (c) the lawsuit brought by Francis Passarelli against GEM DE, et al (Case No. 07-CC-04029 in the Superior Court of California, County of Orange).; |
· | any liability, payment or obligation for or in respect of any condition to the Closing contained in Article 7 to the Agreement to the extent any such conditions had not been satisfied as provided therein at or prior to the closing; |
· | any breach of any of the representations or warranties made by Buyer in or pursuant to the Agreement or in another agreement, document, instrument or certificate delivered to the Company pursuant hereto or in connection with the Closing; or |
· | any breach of any covenant made or obligation incurred by Buyer in or pursuant to the Agreement. |
Buyer: | Parent: |
Luntz Acquisition (Delaware), LLC. | PSC Environmental Services, LLC. |
5151 San Felipe, Suite 1600 | 5151 San Felipe, Suite 1600 |
Houston, TX 77056 | Houston, TX 77056 |
(713) 625-7019 | (713) 625-7019 |
§ | Hazpak Environmental Services, Inc. (HES), |
§ | the assets of EnVectra, Inc. (EnV), |
§ | the assets of Firestone Environmental Services Company (dba Prime Environmental Services Company), and Firestone Associates, Inc. (dba Firestone Energy Company), and |
§ | 100% of the membership interest in Pollution Control Industries of California, LLC. |
• | Highly Odorous |
• | High Oil/Solvent Content |
• | High Viscosity |
• | Sanitary Sources |
• | Biomedical Sources |
• | Plating Etching Sources |
• | Surface preparation Sources |
• | Alkaline or acid cleaning Sources |
• | Metal Finishing Sources |
• | Anodizing operations |
• | Hazardous Wastewater |
• | Domestic Wastewater: Local septic cleaning and chemical toilet operators have the choice of using the SCWW Facility or transporting their wastewaters to the nearest competing facility located 90-plus miles away at the Los .Angeles County's facility. The Company estimates that it has 70-75% of the Ventura County septic and chemical toilet markets. Regionally, municipalities from as far as San Luis Obispo and as close as Santa Paula have been utilizing SCWW to treat their secondary digester sludge. |
• | Industrial Wastewater: There are a number of competitors in the broad spectrum of industrial waste treatment business. However, these competing facilities are located in the Los Angeles Metropolitan area. The industrial business is very specialized and, within it, SCWW competes by accepting only non-hazardous wastewater, by providing quick off-loading, and providing its convenient and accessible location to industrial waste generators along the Central Coast of California. |
• | Oil & Gas Wastewater: SCWW was initially developed to be a major service provider to this segment and continues to service the high oil content, low viscosity wastes from Los Angeles County north to Kern County. SCWW provides quicker acceptance and offloading of oil and gas wastewater then it’s single local competitor. |
• | Private water treatment facilities that discharge to a public municipal water treatment plant are subject to Federal Regulation §437, which (i) sets national discharge limits for each chemical contained in the discharge and (ii) compliance standards for sampling and maintaining records. |
• | Under Title 14 and Title 17 of the California Code focuses solely on the solids recovered through the treatment process, how they may be disposed and on what basis they may and may not be recycled, with the recycling rules varying sharply depending on: |
o | If the waste is being recycled for resale, there is no regulation; or |
o | If the waste is being given away as compost, there is regulation. |
• | The State Water Resources Board monitors the adequacy of rainwater drainage. |
• | The County Environmental Health Board is the agency charged with supervising all state regulations governing solid wastes and their disposal. |
• | The County Planning Division monitors site land use and issues Conditional Use Permits. |
• | The County Air Pollution District monitors nuisance orders under Rule 95. |
PAGE | 65 | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
PAGE | 66 | BALANCE SHEETS AS OF OCTOBER 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
PAGE | 67 | STATEMENTS OF OPERATIONS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2008 |
PAGE | 68 | STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 |
PAGE | 69 | STATEMENTS OF CASH FLOWS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 |
PAGES | 70 | NOTES TO FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 |
October 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 492,193 | $ | 466,028 | ||||
Accounts receivable, net of allowance for doubtful accounts of $10,000 and $ 10,000 | 1,331,224 | 1,254,936 | ||||||
Prepaid expenses and other current assets | 85,361 | 108,162 | ||||||
Total Current Assets | 1,908,778 | 1,829,126 | ||||||
PROPERTY AND EQUIPMENT – net of accumulated depreciation of $1,767,135 and $ 1,339,212 | 10,777,655 | 12,459,449 | ||||||
Other assets : | ||||||||
Permits and franchises, net of accumulated amortization of $781,801 and $647,193 | 1,486,503 | 1,621,111 | ||||||
Deferred loan fees, net of accumulated amortization of $109,284 and $80,766 | 162,854 | 191,372 | ||||||
Other noncurrent assets | 179,707 | 149,428 | ||||||
TOTAL ASSETS | $ | 14,515,497 | $ | 16,250,486 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 635,665 | $ | 771,977 | ||||
Accrued expenses | 128,232 | 217,093 | ||||||
Current portion of long – term debt | 716,488 | 587,873 | ||||||
Total Current Liabilities | 1,480,385 | 1,576,943 | ||||||
LONG-TERM LIABILITIES | ||||||||
Non-current portion of long-term debt | 3,736,203 | 5,188,987 | ||||||
Subordinated related party notes payable | 1,800,000 | 1,800,000 | ||||||
Deferred income taxes | 2,659,933 | 2,672,336 | ||||||
Total Liabilities | 9,676,521 | 11,238,266 | ||||||
COMMITMENTS & CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, no par value, 1,000 shares authorized, 600 shares issued and outstanding | - | - | ||||||
Paid-in capital | 4,946,236 | 5,100,877 | ||||||
Accumulated deficit | (107,260 | ) | ( 88,657 | ) | ||||
Total Stockholders' Equity | 4,838,976 | 5,012,220 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 14,515,497 | $ | 16,250,486 |
Ten Months Ended | Year ended | |||||||||||
October 31, | October 31, | December 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
REVENUES | $ | 5,291,866 | $ | 6,217,063 | $ | 7,615,880 | ||||||
COST OF REVENUES | 3,650,471 | 3,729,312 | 4,593,040 | |||||||||
GROSS PROFIT | 1,641,395 | 2,487,751 | 3,022,840 | |||||||||
OPERATING EXPENSES | 988,259 | 1,602,758 | 1,992,184 | |||||||||
LOSS ON SALE OF PROPERTY | 305,129 | - | - | |||||||||
OPERATING INCOME | 348,007 | 884,993 | 1,030,656 | |||||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest income | 413 | 5,341 | - | |||||||||
Interest expense | (379,486 | ) | (431,199 | ) | (521,882 | ) | ||||||
Other non-operating income | 60 | - | 5,256 | |||||||||
Total other expenses | (379,013 | ) | (425,858 | ) | (516,626 | ) | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | (31,006 | ) | 459,135 | 514,030 | ||||||||
Provisions for income taxes | 12,403 | (183,654 | ) | (205,612 | ) | |||||||
NET INCOME (LOSS) | $ | (18,603 | ) | $ | 275,481 | $ | 308,418 |
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, January 1, 2008 | 600 | $ | - | $ | 5,100,877 | $ | (397,075 | ) | $ | 4,703,802 | ||||||||||
Net income for the year ended December 31, 2008 | - | 308,418 | 308,418 | |||||||||||||||||
Balance, December 31, 2008 | 600 | - | 5,100,877 | (88,657 | ) | 5,012,220 | ||||||||||||||
Net loss for the ten months ended October 31, 2009 | (18,603 | ) | (18,603 | ) | ||||||||||||||||
Distribution to shareholder | (154,641 | ) | (154,641 | ) | ||||||||||||||||
Balance, October 31, 2009 (Unaudited) | 600 | $ | - | $ | 4,946,236 | $ | (107,260 | ) | $ | 4,838,976 |
Ten Months Ended | Year Ended | |||||||||||
October 31, | October 31, | December 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES : | ||||||||||||
Net income (loss) | $ | (18,603 | ) | $ | 275,481 | $ | 308,418 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Loss on disposal of Property | 305,129 | - | - | |||||||||
Depreciation and Amortization | 562,531 | 662,884 | 760,057 | |||||||||
Amortization of deferred financing fees | 28,518 | 19,835 | 17,434 | |||||||||
Amortization of note discount | 20,893 | - | 38,513 | |||||||||
Deferred income taxes | (12,403 | ) | 191,210 | 213,168 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in: | ||||||||||||
Accounts receivable | (76,288 | ) | (729,798 | ) | (646,936 | ) | ||||||
Prepaid and other current assets | (7,478 | ) | (162,882 | ) | (40,666 | ) | ||||||
Increase (decrease) in: | ||||||||||||
Accounts payable | (136,312 | ) | 498,803 | 730,585 | ||||||||
Accrued expenses and other liabilities | (88,861 | ) | 332,903 | 31,190 | ||||||||
Net cash provided by Operating Activities | 577,126 | 1,088,436 | 1,411,763 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property and equipment | (251,773 | ) | (1,073,345 | ) | (1,305,827 | ) | ||||||
Net Cash Used In Investing Activities | (251,773 | ) | (1,073,345 | ) | (1,305,827 | ) | ||||||
CASHF LOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from borrowings on long – term debt | 400,267 | - | 230,00 | |||||||||
Payments of notes payable | (544,814 | ) | (260,990 | ) | (359,311 | ) | ||||||
Distribution to shareholders | (154,641 | ) | - | - | ||||||||
Net Cash Used In Financing Activities | (299,188 | ) | (260,990 | ) | (129,311 | ) | ||||||
NET INCREASE (DECREASE) IN CASH | 26,165 | (245,899 | ) | (23,375 | ) | |||||||
CASH – BEGINNING OF YEAR | 466,028 | 489,403 | 489,403 | |||||||||
CASH – END OF PERIOD | $ | 492,193 | $ | 243,504 | $ | 466,028 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION: | ||||||||||||
Cash paid for: | ||||||||||||
Interest expense | $ | 399,269 | $ | 431,199 | $ | 521,882 | ||||||
Income Taxes | $ | - | $ | - | $ | - | ||||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Assumption of Notes Payable upon purchase of Property | $ | - | $ | - | $ | 1,200,515 | ||||||
Assumption of Notes Payable by purchaser upon sale of Property | $ | 1,200,515 | $ | - | $ | - |
Vehicles | 5 - 6 Years | |
Machinery and Equipment | 7 - 22 Years | |
Furniture and fixtures | 10 Years | |
Plant and Pipeline | 20 - 22 years | |
Land improvements | 20 years |
October 31, 2009 | December 31, 2008 | |||||||
Plant and Equipment | $ | 6,953,406 | $ | 6,953,406 | ||||
Land | 3,225,000 | 4,730,644 | ||||||
Machinery & Equipment | 1,927,121 | 1,675,348 | ||||||
Land Improvements | 241,569 | 241,569 | ||||||
Vehicles | 122,090 | 122,090 | ||||||
Construction in progress | 62,543 | 62,543 | ||||||
Furniture and Fixtures | 13,061 | 13,061 | ||||||
12,544,790 | 13,798,661 | |||||||
Less accumulated depreciation | (1,767,135 | ) | (1,339,212 | ) | ||||
Property and equipment net of accumulated depreciation | $ | 10,777,655 | $ | 12,459,449 |
October 31, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
(a) Notes Payable, National Bank of California | $ | 4,120,707 | $ | 3,911,425 | ||||
(b) Note payable, Wiker Trust | 280,000 | 330,000 | ||||||
(c) Note payable, Saticoy | - | 549,493 | ||||||
(d) Note payable, Avalon Real Estate | - | 651,022 | ||||||
(e) Note payable, Agua de Oro 2 | 57,146 | 103,030 | ||||||
(f) Note payable, So. Calif. Management Services, Inc. (“SCM”) | - | 230,000 | ||||||
(g) Note payable, OMNI Bank | 25,854 | 48,799 | ||||||
(h) Note payable, Carol Cole | 28,900 | 33,900 | ||||||
Total notes payable | 4,512,607 | 5,857,669 | ||||||
Less Note discount | 59,916 | 80,809 | ||||||
Less current portion | 716,488 | 587,873 | ||||||
Notes payable, net of current portion | $ | 3,736,203 | 5,188,987 |
(i) Note payable, National Bank of California 1 | $ | 1,788,776 | $ | 1,846,295 | ||||
(ii) Note payable, National Bank of California 2 | 1,710,400 | 1,759,666 | ||||||
(iii) Note payable, National Bank of California 3 | 66,883 | 110,970 | ||||||
(iv) Note payable, National Bank of California 4 | 154,381 | 194,494 | ||||||
(v) Note payable , National Bank of California 5 | 400,267 | - | ||||||
Total | $ | 4,120,707 | $ | 3,911,425 |
Year Ended December 31, | ||||
Remainder of 2009 | ||||
2009 | $ | 587,873 | ||
2010 | 1,651,348 | |||
2011 | 1,375,868 | |||
2012 | 1,157,970 | |||
2013 | 315,467 | |||
Thereafter | 2,569,143 | |||
$ | 7,657,669 |
(a) Note payable, Wiker Trust | $ | 800,000 | $ | 800,000 | ||||
(b) Note payable, US Environmental Response | 1,000,000 | 1,000,000 | ||||||
Total | $ | 1,800,000 | $ | 1,800,000 |
Years ending December 31, | ||||
Remainder of 2009 | $ | 160,904 | ||
2010 | 160,904 | |||
2011 | 160,904 | |||
2012 | 160,904 | |||
2013 | 160,904 | |||
Thereafter | 816,591 | |||
$ | 1,621,111 |
§ | Transportation, Logistics Management, and Collection – specialized handling, packaging, transportation and disposal of industrial waste, laboratory quantities of hazardous chemicals, household hazardous wastes, and pesticides; |
§ | Incineration – the preferred method for treatment of organic hazardous waste because it effectively destroys the contaminants; |
§ | Landfill Disposal – used primarily for the disposal of inorganic wastes; |
§ | Physical Waste Treatment – used to reduce the volume or toxicity of waste to make it suitable for further treatment, reuse, or disposal; |
§ | Reuse/Recycle and Fuels Blending – removes impurities to restore suitability for an intended purpose and to reduce the volume of waste; |
§ | Wastewater Treatment – separates wastes including industrial liquid wastes containing heavy metals, organics and suspended solids through physical and chemical treatment so that the treated water can be discharged to local sewer systems under permits; |
§ | Remediation and Site Services – includes the maintenance of industrial facilities and equipment such as recurring cleaning in order to continue operations, maintain and improve operating efficiencies, and satisfy safety requirements; the planned cleanup of hazardous wastes sites and the cleanup of accidental spills and discharges, such as those resulting from transportation accidents; and the cleanup and restoration of buildings, equipment, and other sites and facilities that have been contaminated. |
§ | On-Site Services – the provision of professional and fully trained staff to manage clients’ environmental needs on location. |
§ | Lab Packing – the proper combination and packaging of hazardous waste in approved containers to eliminate the potential for reactions among chemical components. |
§ | Bulk Waste – the managing and transportation of waste in bulk quantities, either as liquids in vacuum tankers or as solids in dumpster type roll off containers. |
§ | LTL Program - the managing and transportation of containerized waste in Department of Transportation/United Nations approved drums and containers. |
§ | Transportation – the transportation of clients’ waste streams in fully permitted and environmentally outfitted vehicles |
§ | Emergency Response – the immediate response to hazardous materials or waste incidents for government and industry, including providing quick and appropriate response for potential homeland security incidents. |
§ | Remediation – project work to clean up contaminated sites facing environmental issues. |
§ | Provide application software to profile, track any waste streams, and routinely process all compliance reporting requirements with various regulatory agencies. |
§ | All services may be provided electronically through our software offering. |
§ | Assist clients with Environmental Health and Safety (“EHS”) compliance. |
§ | Provide necessary and mandated training on environmental issues. |
§ | Provide report generation for documentation to agencies overseeing environmental issues. |
§ | Provide digital and hard copy waste tracking of all waste activity. |
§ | Provide permit writing and management for the acquisition and tracking of necessary permits for clients. |
§ | Write manuals and plans required by all companies with hazardous materials and waste. |
§ | Provide legislative and regulatory analysis pertaining to current and proposed legislation as it pertains to the hazardous waste industry and how that affects our clients. |
§ | Provide electronic record keeping of all EHS documents and information. |
§ | Provide outsource staffing for all EHS requirements eliminating the need for clients to hire in house personnel. |
§ | Provide alternative solutions to clients where certain chemicals or waste streams can be recycled or reused in another capacity thereby eliminating the disposal expense and exposure for our clients. |
§ | Develop a program where clients look to us as the leader in providing fully integrated solutions to limit their liability on waste streams and chemicals. |
§ | Provide on-site services for government installations meeting all the requirements to manage, transport, and track waste streams from government contracts. |
§ | The Rancho Cordova Facility enables us to offer more efficient and cost-effective recycling/disposal options while enhancing our corporate profitability. |
§ | Ground Water treatment on-site – treatment of ground water contaminated with toxic chemicals, particularly perchlorate. |
§ | On-site treatment option for clients – treatment of waste at large volume waste clients. |
§ | Permanent non-hazardous wastewater treatment facility provides cost savings for clients and enhanced margin for us in the managing and treatment of waste streams. |
§ | managing waste streams and chemicals; |
§ | supervising and managing the handling, paperwork, tracking, and transportation of waste streams and chemicals on a client’s location; |
§ | labeling, collecting, and transporting containerized wastes; |
§ | bulk waste pick ups and transportation; |
§ | emergency response to spill incidents; |
§ | industrial cleaning of equipment or processes, tank cleaning; |
§ | parts washer fluid removal and replenishment; |
§ | chemical process dismantling; |
§ | mobile waste water treatment; and |
§ | enterprise software for worldwide integration of environmental management and tracking requirements; |
§ | regulatory/legislative analysis; |
§ | development and maintenance of an EHS procedure manual; |
§ | participation in regulatory rulemaking process; |
§ | maintaining a waste and permit database; |
§ | report preparation and submittal of permits; |
§ | developing required environmental plans and updates; |
§ | regulatory agency interaction; |
§ | training and development of client personnel; |
§ | research and reduction of regulatory requirements; and |
§ | engineering plan review assistance with respect to EHS impacts. |
PAGE | 65 | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
PAGE | 66 | BALANCE SHEETS AS OF OCTOBER 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008 |
PAGE | 67 | STATEMENTS OF OPERATIONS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2008 |
PAGE | 68 | STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 |
PAGE | 69 | STATEMENTS OF CASH FLOWS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 |
PAGES | 70 | NOTES TO FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 |
October 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 492,193 | $ | 466,028 | ||||
Accounts receivable, net of allowance for doubtful accounts of $10,000 and $ 10,000 | 1,331,224 | 1,254,936 | ||||||
Prepaid expenses and other current assets | 85,361 | 108,162 | ||||||
Total Current Assets | 1,908,778 | 1,829,126 | ||||||
PROPERTY AND EQUIPMENT – net of accumulated depreciation of $1,767,135 and $ 1,339,212 | 10,777,655 | 12,459,449 | ||||||
Other assets : | ||||||||
Permits and franchises, net of accumulated amortization of $781,801 and $647,193 | 1,486,503 | 1,621,111 | ||||||
Deferred loan fees, net of accumulated amortization of $109,284 and $80,766 | 162,854 | 191,372 | ||||||
Other noncurrent assets | 179,707 | 149,428 | ||||||
TOTAL ASSETS | $ | 14,515,497 | $ | 16,250,486 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 635,665 | $ | 771,977 | ||||
Accrued expenses | 128,232 | 217,093 | ||||||
Current portion of long – term debt | 716,488 | 587,873 | ||||||
Total Current Liabilities | 1,480,385 | 1,576,943 | ||||||
LONG-TERM LIABILITIES | ||||||||
Non-current portion of long-term debt | 3,736,203 | 5,188,987 | ||||||
Subordinated related party notes payable | 1,800,000 | 1,800,000 | ||||||
Deferred income taxes | 2,659,933 | 2,672,336 | ||||||
Total Liabilities | 9,676,521 | 11,238,266 | ||||||
COMMITMENTS & CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, no par value, 1,000 shares authorized, 600 shares issued and outstanding | - | - | ||||||
Paid-in capital | 4,946,236 | 5,100,877 | ||||||
Accumulated deficit | (107,260 | ) | ( 88,657 | ) | ||||
Total Stockholders' Equity | 4,838,976 | 5,012,220 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 14,515,497 | $ | 16,250,486 |
Ten Months Ended | Year ended | |||||||||||
October 31, | October 31, | December 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
REVENUES | $ | 5,291,866 | $ | 6,217,063 | $ | 7,615,880 | ||||||
COST OF REVENUES | 3,650,471 | 3,729,312 | 4,593,040 | |||||||||
GROSS PROFIT | 1,641,395 | 2,487,751 | 3,022,840 | |||||||||
OPERATING EXPENSES | 988,259 | 1,602,758 | 1,992,184 | |||||||||
LOSS ON SALE OF PROPERTY | 305,129 | - | - | |||||||||
OPERATING INCOME | 348,007 | 884,993 | 1,030,656 | |||||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest income | 413 | 5,341 | - | |||||||||
Interest expense | (379,486 | ) | (431,199 | ) | (521,882 | ) | ||||||
Other non-operating income | 60 | - | 5,256 | |||||||||
Total other expenses | (379,013 | ) | (425,858 | ) | (516,626 | ) | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | (31,006 | ) | 459,135 | 514,030 | ||||||||
Provisions for income taxes | 12,403 | (183,654 | ) | (205,612 | ) | |||||||
NET INCOME (LOSS) | $ | (18,603 | ) | $ | 275,481 | $ | 308,418 |
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, January 1, 2008 | 600 | $ | - | $ | 5,100,877 | $ | (397,075 | ) | $ | 4,703,802 | ||||||||||
Net income for the year ended December 31, 2008 | - | 308,418 | 308,418 | |||||||||||||||||
Balance, December 31, 2008 | 600 | - | 5,100,877 | (88,657 | ) | 5,012,220 | ||||||||||||||
Net loss for the ten months ended October 31, 2009 | (18,603 | ) | (18,603 | ) | ||||||||||||||||
Distribution to shareholder | (154,641 | ) | (154,641 | ) | ||||||||||||||||
Balance, October 31, 2009 (Unaudited) | 600 | $ | - | $ | 4,946,236 | $ | (107,260 | ) | $ | 4,838,976 |
Ten Months Ended | Year Ended | |||||||||||
October 31, | October 31, | December 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES : | ||||||||||||
Net income (loss) | $ | (18,603 | ) | $ | 275,481 | $ | 308,418 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Loss on disposal of Property | 305,129 | - | - | |||||||||
Depreciation and Amortization | 562,531 | 662,884 | 760,057 | |||||||||
Amortization of deferred financing fees | 28,518 | 19,835 | 17,434 | |||||||||
Amortization of note discount | 20,893 | - | 38,513 | |||||||||
Deferred income taxes | (12,403 | ) | 191,210 | 213,168 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in: | ||||||||||||
Accounts receivable | (76,288 | ) | (729,798 | ) | (646,936 | ) | ||||||
Prepaid and other current assets | (7,478 | ) | (162,882 | ) | (40,666 | ) | ||||||
Increase (decrease) in: | ||||||||||||
Accounts payable | (136,312 | ) | 498,803 | 730,585 | ||||||||
Accrued expenses and other liabilities | (88,861 | ) | 332,903 | 31,190 | ||||||||
Net cash provided by Operating Activities | 577,126 | 1,088,436 | 1,411,763 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property and equipment | (251,773 | ) | (1,073,345 | ) | (1,305,827 | ) | ||||||
Net Cash Used In Investing Activities | (251,773 | ) | (1,073,345 | ) | (1,305,827 | ) | ||||||
CASHF LOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from borrowings on long – term debt | 400,267 | - | 230,00 | |||||||||
Payments of notes payable | (544,814 | ) | (260,990 | ) | (359,311 | ) | ||||||
Distribution to shareholders | (154,641 | ) | - | - | ||||||||
Net Cash Used In Financing Activities | (299,188 | ) | (260,990 | ) | (129,311 | ) | ||||||
NET INCREASE (DECREASE) IN CASH | 26,165 | (245,899 | ) | (23,375 | ) | |||||||
CASH – BEGINNING OF YEAR | 466,028 | 489,403 | 489,403 | |||||||||
CASH – END OF PERIOD | $ | 492,193 | $ | 243,504 | $ | 466,028 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION: | ||||||||||||
Cash paid for: | ||||||||||||
Interest expense | $ | 399,269 | $ | 431,199 | $ | 521,882 | ||||||
Income Taxes | $ | - | $ | - | $ | - | ||||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Assumption of Notes Payable upon purchase of Property | $ | - | $ | - | $ | 1,200,515 | ||||||
Assumption of Notes Payable by purchaser upon sale of Property | $ | 1,200,515 | $ | - | $ | - |
Vehicles | 5 - 6 Years | |
Machinery and Equipment | 7 - 22 Years | |
Furniture and fixtures | 10 Years | |
Plant and Pipeline | 20 - 22 years | |
Land improvements | 20 years |
October 31, 2009 | December 31, 2008 | |||||||
Plant and Equipment | $ | 6,953,406 | $ | 6,953,406 | ||||
Land | 3,225,000 | 4,730,644 | ||||||
Machinery & Equipment | 1,927,121 | 1,675,348 | ||||||
Land Improvements | 241,569 | 241,569 | ||||||
Vehicles | 122,090 | 122,090 | ||||||
Construction in progress | 62,543 | 62,543 | ||||||
Furniture and Fixtures | 13,061 | 13,061 | ||||||
12,544,790 | 13,798,661 | |||||||
Less accumulated depreciation | (1,767,135 | ) | (1,339,212 | ) | ||||
Property and equipment net of accumulated depreciation | $ | 10,777,655 | $ | 12,459,449 |
October 31, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
(a) Notes Payable, National Bank of California | $ | 4,120,707 | $ | 3,911,425 | ||||
(b) Note payable, Wiker Trust | 280,000 | 330,000 | ||||||
(c) Note payable, Saticoy | - | 549,493 | ||||||
(d) Note payable, Avalon Real Estate | - | 651,022 | ||||||
(e) Note payable, Agua de Oro 2 | 57,146 | 103,030 | ||||||
(f) Note payable, So. Calif. Management Services, Inc. (“SCM”) | - | 230,000 | ||||||
(g) Note payable, OMNI Bank | 25,854 | 48,799 | ||||||
(h) Note payable, Carol Cole | 28,900 | 33,900 | ||||||
Total notes payable | 4,512,607 | 5,857,669 | ||||||
Less Note discount | 59,916 | 80,809 | ||||||
Less current portion | 716,488 | 587,873 | ||||||
Notes payable, net of current portion | $ | 3,736,203 | 5,188,987 |
(i) Note payable, National Bank of California 1 | $ | 1,788,776 | $ | 1,846,295 | ||||
(ii) Note payable, National Bank of California 2 | 1,710,400 | 1,759,666 | ||||||
(iii) Note payable, National Bank of California 3 | 66,883 | 110,970 | ||||||
(iv) Note payable, National Bank of California 4 | 154,381 | 194,494 | ||||||
(v) Note payable , National Bank of California 5 | 400,267 | - | ||||||
Total | $ | 4,120,707 | $ | 3,911,425 |
Year Ended December 31, | ||||
Remainder of 2009 | ||||
2009 | $ | 587,873 | ||
2010 | 1,651,348 | |||
2011 | 1,375,868 | |||
2012 | 1,157,970 | |||
2013 | 315,467 | |||
Thereafter | 2,569,143 | |||
$ | 7,657,669 |
(a) Note payable, Wiker Trust | $ | 800,000 | $ | 800,000 | ||||
(b) Note payable, US Environmental Response | 1,000,000 | 1,000,000 | ||||||
Total | $ | 1,800,000 | $ | 1,800,000 |
Years ending December 31, | ||||
Remainder of 2009 | $ | 160,904 | ||
2010 | 160,904 | |||
2011 | 160,904 | |||
2012 | 160,904 | |||
2013 | 160,904 | |||
Thereafter | 816,591 | |||
$ | 1,621,111 |
§ | Transportation, Logistics Management, and Collection – specialized handling, packaging, transportation and disposal of industrial waste, laboratory quantities of hazardous chemicals, household hazardous wastes, and pesticides; |
§ | Incineration – the preferred method for treatment of organic hazardous waste because it effectively destroys the contaminants; |
§ | Landfill Disposal – used primarily for the disposal of inorganic wastes; |
§ | Physical Waste Treatment – used to reduce the volume or toxicity of waste to make it suitable for further treatment, reuse, or disposal; |
§ | Reuse/Recycle and Fuels Blending – removes impurities to restore suitability for an intended purpose and to reduce the volume of waste; |
§ | Wastewater Treatment – separates wastes including industrial liquid wastes containing heavy metals, organics and suspended solids through physical and chemical treatment so that the treated water can be discharged to local sewer systems under permits; |
§ | Remediation and Site Services – includes the maintenance of industrial facilities and equipment such as recurring cleaning in order to continue operations, maintain and improve operating efficiencies, and satisfy safety requirements; the planned cleanup of hazardous wastes sites and the cleanup of accidental spills and discharges, such as those resulting from transportation accidents; and the cleanup and restoration of buildings, equipment, and other sites and facilities that have been contaminated. |
§ | On-Site Services – the provision of professional and fully trained staff to manage clients’ environmental needs on location. |
§ | Lab Packing – the proper combination and packaging of hazardous waste in approved containers to eliminate the potential for reactions among chemical components. |
§ | Bulk Waste – the managing and transportation of waste in bulk quantities, either as liquids in vacuum tankers or as solids in dumpster type roll off containers. |
§ | LTL Program - the managing and transportation of containerized waste in Department of Transportation/United Nations approved drums and containers. |
§ | Transportation – the transportation of clients’ waste streams in fully permitted and environmentally outfitted vehicles |
§ | Emergency Response – the immediate response to hazardous materials or waste incidents for government and industry, including providing quick and appropriate response for potential homeland security incidents. |
§ | Remediation – project work to clean up contaminated sites facing environmental issues. |
§ | Provide application software to profile, track any waste streams, and routinely process all compliance reporting requirements with various regulatory agencies. |
§ | All services may be provided electronically through our software offering. |
§ | Assist clients with Environmental Health and Safety (“EHS”) compliance. |
§ | Provide necessary and mandated training on environmental issues. |
§ | Provide report generation for documentation to agencies overseeing environmental issues. |
§ | Provide digital and hard copy waste tracking of all waste activity. |
§ | Provide permit writing and management for the acquisition and tracking of necessary permits for clients. |
§ | Write manuals and plans required by all companies with hazardous materials and waste. |
§ | Provide legislative and regulatory analysis pertaining to current and proposed legislation as it pertains to the hazardous waste industry and how that affects our clients. |
§ | Provide electronic record keeping of all EHS documents and information. |
§ | Provide outsource staffing for all EHS requirements eliminating the need for clients to hire in house personnel. |
§ | Provide alternative solutions to clients where certain chemicals or waste streams can be recycled or reused in another capacity thereby eliminating the disposal expense and exposure for our clients. |
§ | Develop a program where clients look to us as the leader in providing fully integrated solutions to limit their liability on waste streams and chemicals. |
§ | Provide on-site services for government installations meeting all the requirements to manage, transport, and track waste streams from government contracts. |
§ | The Rancho Cordova Facility enables us to offer more efficient and cost-effective recycling/disposal options while enhancing our corporate profitability. |
§ | Ground Water treatment on-site – treatment of ground water contaminated with toxic chemicals, particularly perchlorate. |
§ | On-site treatment option for clients – treatment of waste at large volume waste clients. |
§ | Permanent non-hazardous wastewater treatment facility provides cost savings for clients and enhanced margin for us in the managing and treatment of waste streams. |
§ | managing waste streams and chemicals; |
§ | supervising and managing the handling, paperwork, tracking, and transportation of waste streams and chemicals on a client’s location; |
§ | labeling, collecting, and transporting containerized wastes; |
§ | bulk waste pick ups and transportation; |
§ | emergency response to spill incidents; |
§ | industrial cleaning of equipment or processes, tank cleaning; |
§ | parts washer fluid removal and replenishment; |
§ | chemical process dismantling; |
§ | mobile waste water treatment; and |
§ | enterprise software for worldwide integration of environmental management and tracking requirements; |
§ | regulatory/legislative analysis; |
§ | development and maintenance of an EHS procedure manual; |
§ | participation in regulatory rulemaking process; |
§ | maintaining a waste and permit database; |
§ | report preparation and submittal of permits; |
§ | developing required environmental plans and updates; |
§ | regulatory agency interaction; |
§ | training and development of client personnel; |
§ | research and reduction of regulatory requirements; and |
§ | engineering plan review assistance with respect to EHS impacts. |
Historical | Pro Forma Adjustments (a) | Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments(m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||||
Cash in bank | $ | 39,676 | $ | 2,229,453 | Note 2(b) | $ | 2,269,129 | $ | 668,065 | $ | - | $ | 2,937,194 | ||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 2,989,745 | (2,989,745 | ) | - | 1,334,659 | - | 1,334,659 | ||||||||||||||||||
Prepaid expenses and current other assets | 768,852 | (768,852 | ) | - | 402,615 | - | 402,615 | ||||||||||||||||||
Total current assets | 3,798,273 | (1,529,144 | ) | 2,269,129 | 2,405,339 | - | 4,476,468 | ||||||||||||||||||
Property and equipment, net of accumulated depreciation | 5,191,212 | (5,091,212 | ) | 100,000 | 12,891,650 | 2,250,922 | 15,242,572 | ||||||||||||||||||
OTHER ASSETS | |||||||||||||||||||||||||
Buyer holdback | - | 1,000,000 | 1,000,000 | - | - | 1,000,000 | |||||||||||||||||||
Restricted cash | 900,039 | 900,039 | - | - | 900,039 | ||||||||||||||||||||
Intangibles, net | 547,232 | (547,232 | ) | - | 1,056,255 | - | 1,056,255 | ||||||||||||||||||
Goodwill | 84,505 | (84,505 | ) | - | - | - | - | ||||||||||||||||||
Deferred financing fees | 369,015 | (369,015 | ) | - | - | - | - | ||||||||||||||||||
Deposits | 191,686 | (191,686 | ) | - | 304,683 | - | 304,683 | ||||||||||||||||||
Assets of discontinued operations | 1,089,341 | 1,089,341 | - | 1,089,341 | |||||||||||||||||||||
Total assets | $ | 12,171,303 | $ | (6,812,794 | ) | $ | 5,358,509 | $ | 16,657,927 | $ | 2,250,922 | $ | 24,267,358 |
Historical | Pro Forma Adjustments (a) | Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments(m) | Pro Forma Consolidated (p) | |||||||||||||||||||||
(In thousands, except par value amounts) | ||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||
Accounts payable | $ | 4,082,904 | $ | (2,982,903 | ) | Note 2(f) | $ | 1,100,001 | $ | 734,871 | - | $ | 1,834,872 | |||||||||||||
Payable to related party | 741,719 | (472,500 | ) | 269,219 | - | - | 269,219 | |||||||||||||||||||
Deferred rent | 35,254 | (25,000 | ) | 10,254 | - | - | 10,254 | |||||||||||||||||||
Accrued expenses | 2,405,394 | (2,405,394 | ) | - | 96,298 | - | 96,298 | |||||||||||||||||||
Accrued disposal costs | 536,519 | (536,519 | ) | - | - | - | - | |||||||||||||||||||
Derivative liabilities | 4,931,579 | (4,931,579 | ) | - | - | - | - | |||||||||||||||||||
Deferred incomes taxes | - | 425,000 | Note 2(e) | 425,000 | 20,257 | - | 445,257 | |||||||||||||||||||
Current portion of financing agreement | 4,858,771 | (4,858,771 | ) | - | - | - | - | |||||||||||||||||||
Current portion of long term obligations | - | - | - | 750,700 | - | 750,700 | ||||||||||||||||||||
Current portion of capital lease obligations | 277,372 | (277,372 | ) | Note 2(d) | - | - | - | - | ||||||||||||||||||
Total current liabilities | 17,869,512 | (16,065,038 | ) | 1,804,474 | 1,602,126 | 3,406,600 | ||||||||||||||||||||
LONG – TERM LIABILITIES | ||||||||||||||||||||||||||
Financing agreement, net of current portion | $ | 8,720,557 | $ | (3,120,557 | ) | $ | 5,600,000 | $ | 5,600,000 | |||||||||||||||||
Long term obligations, net of current portion | 1,758,473 | - | 1,758,473 | 8,303,723 | 9,003,000 | 19,065,196 | ||||||||||||||||||||
Valuation discounts – convertible debt | (3,294,879 | ) | 3,294,879 | - | - | - | - | |||||||||||||||||||
Capital leases, net of current portion | 734,430 | (734,430 | ) | Note 2(d) | - | - | - | - | ||||||||||||||||||
Total long – term liabilities | 7,918,581 | (5,696,251 | ) | 7,358,473 | 8,303,723 | 9,003,000 | 24,665,196 | |||||||||||||||||||
Stockholders’ equity (deficiency) | ||||||||||||||||||||||||||
Stockholders’ equity | $ | 14,570 | $ | - | $ | 14,570 | $ | 6,509,555 | $ | (6,509,555 | ) | $ | 14,570 | |||||||||||||
Additional paid-in capital | 54,450,995 | (2,425,895 | ) | Note 2(k) | 52,025,100 | - | - | 52,025,100 | ||||||||||||||||||
Accumulated deficit | (68,082,355 | ) | 1,662,890 | (66,419,465 | ) | - | - | (66,419,465 | ) | |||||||||||||||||
Current income | - | 10,575,357 | 10,575,357 | 242,523 | (242,523 | ) | 10,575,357 | |||||||||||||||||||
Total stockholders’ equity | (13,616,790 | ) | 9,812,352 | Note 2(c) | (3,804,438 | ) | 6,752,078 | (6,752,078 | ) | (3,804,438 | ) | |||||||||||||||
Total liabilities and stockholders’ equity (deficiency) | $ | 12,171,303 | $ | (6,812,794 | ) | $ | 5,358,509 | $ | 16,657,927 | $ | 2,250,922 | $ | 24,267,358 |
GEM Nevada Historical (a) | GEM Pro Forma Adjustments (a) | Adjusted Consolidated Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
Revenue | $ | 12,589,161 | $ | (12,589,161 | ) | $ | $ | 4,937,424 | $ | $ | 4,937,424 | ||||||||||||||
Cost of revenue | 12,906,589 | (12,906,589 | ) | Note 2(h) | - | 3,360,537 | 84,400 | Note 2(n) | 3,444,937 | ||||||||||||||||
Gross profit | (317,428 | ) | 317,428 | - | 1,576,887 | 84,400 | 1,492,487 | ||||||||||||||||||
Operating expenses | 6,607,657 | (1,923,891 | ) | Note 2(h) | 4,683,766 | (Note 2(g) | 834,755 | - | 5,518,521 | ||||||||||||||||
Operating gain (loss) | (6,925,085 | ) | 2,241,319 | (4,683,766 | ) | 742,132 | (84,400 | ) | (3,941,634 | ) | |||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest income | 19,403 | - | 19,403 | - | - | 19,403 | |||||||||||||||||||
Interest and financing costs | (3,724,968 | ) | (5,579,337 | ) | Note 2(j) | (9,304,305 | ) | (499,534 | ) | (342,821) | Note 2(o) | (10,146,660 | ) | ||||||||||||
Gain (loss) on disposal of fixed assets | 66,050 | - | 66,050 | - | - | 66,050 | |||||||||||||||||||
Gain (loss) on derivative financial instruments | 988,342 | 4,931,579 | Note 2(i) | 5,919,921 | - | - | 5,919,921 | ||||||||||||||||||
Loss on extinguishment of debt | (4,039,358 | ) | - | (4,039,358 | ) | - | - | (4,039,358 | ) | ||||||||||||||||
Other non- operating income | 27,758 | - | 27,758 | (75 | ) | - | 27,683 | ||||||||||||||||||
Loss from continuing operations | (13,587,858 | ) | 1,593,561 | (11,994,297 | ) | 242,523 | (427,221 | ) | (12,178,995 | ) | |||||||||||||||
Loss per common share, basic and diluted: | (1.02) | (.90) | (.91) | ||||||||||||||||||||||
Weighted average shares of common stock outstanding, basic and diluted | 13,348,530 | 13,348,530 | 13,348,530 |
GEM Nevada Historical (a) | GEM Pro Forma Adjustments (a) | Adjusted Consolidated Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
Revenue | $ | 24,307,848 | $ | (24,307,848 | ) | $ | $ | 7,359,124 | $ | $ | 7,359,124 | ||||||||||||||
Cost of revenue | 22,422,611 | (22,422,611 | ) | Note 2(h) | - | 4,593,040 | 112,536 | Note 2(n) | 4,705,576 | ||||||||||||||||
Gross profit | 1,885,237 | (1,885,237 | ) | - | 2,766,084 | (112,536 | ) | 2,653,548 | |||||||||||||||||
Operating expenses | 7,658,639 | (2,340,900 | ) | Note 2(h) | 5,317,739 | Note 2(g) | 1,992,184 | - | 7,309,923 | ||||||||||||||||
Operating gain (loss) | (5,773,402 | ) | 455,663 | (5,317,739 | ) | 773,900 | (112,536 | ) | (4,656,375 | ) | |||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest income | 17,569 | (17,569 | ) | - | - | - | - | ||||||||||||||||||
Interest and financing costs | (4,569,813 | ) | 4,569,813 | Note 2(j) | (521,882 | ) | (457,904) | Note 2(o) | (978,976 | ) | |||||||||||||||
Gain (loss) on disposal of fixed assets | - | - | - | - | - | - | |||||||||||||||||||
Gain (loss) on derivative financial instruments | - | - | - | - | - | - | |||||||||||||||||||
Loss on extinguishment of debt | - | - | - | - | - | - | |||||||||||||||||||
Other non- operating income | 40,324 | (40,324 | ) | - | 5,256 | - | 5,256 | ||||||||||||||||||
Loss from continuing operations | (10,285,322 | ) | 4,967,583 | (5,317,739 | ) | 257,274 | (569,630 | ) | (5,630,095 | ) | |||||||||||||||
Loss per common share, basic and diluted: | (.82 | ) | (.42 | ) | (.45 | ) | |||||||||||||||||||
Weighted average shares of common stock outstanding, basic and diluted | 12,578,104 | 12,578,104 | 12,578,104 |
GEM Nevada Historical (a) | GEM Pro Forma Adjustments (a) | Adjusted Consolidated Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
Revenue | $ | 25,481,220 | $ | (25,481,220 | ) | $ | $ | 4,581,722 | $ | $ | 4,581,722 | ||||||||||||||
Cost of revenue | 20,669,444 | (20,669,444 | ) | Note 2(h) | - | 3,170,382 | 112,536 | Note 2 (n) | 3,282,918 | ||||||||||||||||
Gross profit | 4,811,776 | (4,811,776 | ) | - | 1,411,340 | (112,536 | ) | 1,298,804 | |||||||||||||||||
Operating expenses | 12,105,418 | (3,890,481 | ) | Note 2(h) | 8,214,937 | Note 2(g) | 453,228 | - | 8,668,165 | ||||||||||||||||
Operating gain (loss) | (7,293,642 | ) | (921,295 | ) | (8,214,937 | ) | 958,112 | (112,536 | ) | (7,369,361 | ) | ||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest income | 39,667 | (39,667 | ) | - | 10,076 | - | 10,076 | ||||||||||||||||||
Interest and financing costs | (2,475,529 | ) | 2,475,529 | Note 2(j) | - | (614,794 | ) | (457,094 | ) | Note 2(o) | (1,071,888 | ) | |||||||||||||
Gain (loss) on disposal of fixed assets | - | - | - | - | - | - | |||||||||||||||||||
Gain (loss) on derivative financial instruments | - | - | - | - | - | - | |||||||||||||||||||
Costs to induce conversion of related party debt | (6,797,639 | ) | 6,797,639 | - | - | - | - | ||||||||||||||||||
Other non- operating income | 148,890 | (148,890 | ) | - | 27,381 | - | 27,381 | ||||||||||||||||||
Loss from continuing operations | (16,378,253 | ) | 8,163,316 | (8,214,937 | ) | 380,775 | (569,630 | ) | (8,403,792 | ) | |||||||||||||||
Loss per common share, basic and diluted: | (1.58 | ) | (.79 | ) | (.81 | ) | |||||||||||||||||||
Weighted average shares of common stock outstanding, basic and diluted | 10,360,712 | 10,360,712 | 10,360,712 |
September 30, 2009 | ||||
Gross proceeds from asset sale | $ | 14,000 | ||
Transaction costs | (100 | ) | ||
Debt reduction and payments to senior lender | (8,479 | ) | ||
Funding of Working Capital deficit | (2,167 | ) | ||
Income taxes | (425 | ) | ||
Buyer holdbacks for estimated contingencies | (575 | ) |
Period 2009 | High | Low |
2009 First Quarter | 0.75 | 0.55 |
2009 Second Quarter | 0.99 | 0.35 |
2009 Third Quarter | 0.90 | 0.30 |
Period 2008 | High | Low |
2008 First Quarter | 1.99 | 1.31 |
2008 Second Quarter | 1.99 | 1.02 |
2008 Third Quarter | 1.15 | 0.88 |
2008 Fourth Quarter | 1.05 | 0.32 |
Period 2007 | High | Low |
2007 First Quarter | 2.88 | 1.80 |
2007 Second Quarter | 3.60 | 1.86 |
2007 Third Quarter | 3.15 | 2.50 |
2007 Fourth Quarter | 2.90 | 1.51 |
PAGE | 65 | |||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
|
No. of | |||
Shares | % of Stock | ||
Name and Address | owned | Outstanding (1) | |
Kevin P. O’Connell (2) | |||
660 Newport Center Drive, Suite 720 | 1,576,733 | (3) | 10.83% |
Newport Beach, CA 92660 | |||
Timothy J. Koziol | |||
3191 Temple Ave., Suite 250 | 1,435,623 | (4) | 9.86% |
Pomona CA 91768 | |||
Douglas B. Edwards | |||
3191 Temple Ave., Suite 250 | 284,750 | (5) | 1.96% |
Pomona CA 91768 | |||
James Stapleton | |||
3191 Temple Ave., Suite 250 | 114,392 | (6) | 0.79% |
Pomona CA 91768 | |||
Brett M. Clark | |||
3191 Temple Ave., Suite 250 | 1,169,163 | (7) | 8.03% |
Pomona CA 91768 | |||
William James Mitzel | |||
3191 Temple Ave., Suite 250 | 446,875 | (8) | 3.07% |
Pomona CA 91768 | |||
Laurus Capital Management, LLC | |||
825 Third Avenue, 14th Floor | 1,099,994 | (9) | 7.56% |
New York, NY 10022 | |||
CVC California LLC | |||
525 Okeechobee Blvd., Suite 1050 | 4,804,900 | (10) | 33.01% |
West Palm Beach, FL 33401 | |||
Directors and Officers as a Group | 3,450,803 | 23.70% |
PAGE | |||
67 | STATEMENTS OF OPERATIONS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2008 | ||
68 | STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008 | ||
69 | STATEMENTS OF CASH FLOWS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 | ||
70 | NOTES TO FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 | ||
October 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 492,193 | $ | 466,028 | ||||
Accounts receivable, net of allowance for doubtful accounts of $10,000 and $ 10,000 | 1,331,224 | 1,254,936 | ||||||
Prepaid expenses and other current assets | 85,361 | 108,162 | ||||||
Total Current Assets | 1,908,778 | 1,829,126 | ||||||
PROPERTY AND EQUIPMENT – net of accumulated depreciation of $1,767,135 and $ 1,339,212 | 10,777,655 | 12,459,449 | ||||||
Other assets : | ||||||||
Permits and franchises, net of accumulated amortization of $781,801 and $647,193 | 1,486,503 | 1,621,111 | ||||||
Deferred loan fees, net of accumulated amortization of $109,284 and $80,766 | 162,854 | 191,372 | ||||||
Other noncurrent assets | 179,707 | 149,428 | ||||||
TOTAL ASSETS | $ | 14,515,497 | $ | 16,250,486 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 635,665 | $ | 771,977 | ||||
Accrued expenses | 128,232 | 217,093 | ||||||
Current portion of long – term debt | 716,488 | 587,873 | ||||||
Total Current Liabilities | 1,480,385 | 1,576,943 | ||||||
LONG-TERM LIABILITIES | ||||||||
Non-current portion of long-term debt | 3,736,203 | 5,188,987 | ||||||
Subordinated related party notes payable | 1,800,000 | 1,800,000 | ||||||
Deferred income taxes | 2,659,933 | 2,672,336 | ||||||
Total Liabilities | 9,676,521 | 11,238,266 | ||||||
COMMITMENTS & CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, no par value, 1,000 shares authorized, 600 shares issued and outstanding | - | - | ||||||
Paid-in capital | 4,946,236 | 5,100,877 | ||||||
Accumulated deficit | (107,260 | ) | ( 88,657 | ) | ||||
Total Stockholders' Equity | 4,838,976 | 5,012,220 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 14,515,497 | $ | 16,250,486 |
2008 | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 375,983 | $ | 954,581 | ||||
Accounts receivable, net of allowance for doubtful accounts | ||||||||
of $174,834 and $236,781 respectively | 6,729,743 | 6,495,736 | ||||||
Prepaid expenses and other current assets | 537,289 | 156,340 | ||||||
Total Current Assets | 7,643,015 | 7,606,657 | ||||||
Property and Equipment – net of accumulated depreciation of | ||||||||
$2,917,056 and $1,854,141, respectively | 7,783,208 | 3,950,253 | ||||||
Restricted cash | 1,199,784 | 1,184,835 | ||||||
Intangible assets, net | 864,781 | 1,028,044 | ||||||
Deferred financing fees | 513,412 | 394,082 | ||||||
Deposits | 291,224 | 282,070 | ||||||
Goodwill | 946,119 | 946,119 | ||||||
TOTAL ASSETS | $ | 19,241,543 | $ | 15,392,060 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 3,499,178 | $ | 4,314,515 | ||||
Accrued expenses | 2,620,224 | 2,263,519 | ||||||
Accrued disposal costs | 743,474 | 478,833 | ||||||
Payable to related party | 706,868 | 31,871 | ||||||
Deferred rent | 41,202 | 37,769 | ||||||
Current portion of financing agreement | 10,366,544 | 662,719 | ||||||
Current portion of long term obligations | 794,278 | 1,274,464 | ||||||
Current portion of capital lease obligations | 623,007 | 187,015 | ||||||
Total Current Liabilities | 19,394,775 | 9,250,705 | ||||||
LONG-TERM LIABILITIES : | ||||||||
Financing agreements, net of current portion | - | 3,708,694 | ||||||
Long term obligations, net of current portion | 535,689 | 79,842 | ||||||
Capital lease obligations, net of current portion | 1,751,854 | 1,046,920 | ||||||
Convertible Notes payable | 489,605 | 520,208 | ||||||
Total Long-Term Liabilities | 2,777,148 | 5,355,664 | ||||||
STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
Common stock, $.001 par value, 1,000,000,000 shares authorized, | ||||||||
12,691,409 and 12,473,885 shares issued and outstanding | 12,692 | 12,474 | ||||||
Additional paid in capital | 53,585,035 | 50,151,615 | ||||||
Accumulated deficit | (56,528,107 | ) | (49,378,398 | ) | ||||
Total Stockholders' Equity (Deficiency) | (2,930,380 | ) | 785,691 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | $ | 19,241,543 | $ | 15,392,060 |
Ten Months Ended | Year ended | |||||||||||
October 31, | October 31, | December 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
REVENUES | $ | 5,291,866 | $ | 6,217,063 | $ | 7,615,880 | ||||||
COST OF REVENUES | 3,650,471 | 3,729,312 | 4,593,040 | |||||||||
GROSS PROFIT | 1,641,395 | 2,487,751 | 3,022,840 | |||||||||
OPERATING EXPENSES | 988,259 | 1,602,758 | 1,992,184 | |||||||||
LOSS ON SALE OF PROPERTY | 305,129 | - | - | |||||||||
OPERATING INCOME | 348,007 | 884,993 | 1,030,656 | |||||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest income | 413 | 5,341 | - | |||||||||
Interest expense | (379,486 | ) | (431,199 | ) | (521,882 | ) | ||||||
Other non-operating income | 60 | - | 5,256 | |||||||||
Total other expenses | (379,013 | ) | (425,858 | ) | (516,626 | ) | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | (31,006 | ) | 459,135 | 514,030 | ||||||||
Provisions for income taxes | 12,403 | (183,654 | ) | (205,612 | ) | |||||||
NET INCOME (LOSS) | $ | (18,603 | ) | $ | 275,481 | $ | 308,418 |
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, January 1, 2008 | 600 | $ | - | $ | 5,100,877 | $ | (397,075 | ) | $ | 4,703,802 | ||||||||||
Net income for the year ended December 31, 2008 | - | 308,418 | 308,418 | |||||||||||||||||
Balance, December 31, 2008 | 600 | - | 5,100,877 | (88,657 | ) | 5,012,220 | ||||||||||||||
Net loss for the ten months ended October 31, 2009 | (18,603 | ) | (18,603 | ) | ||||||||||||||||
Distribution to shareholder | (154,641 | ) | (154,641 | ) | ||||||||||||||||
Balance, October 31, 2009 (Unaudited) | 600 | $ | - | $ | 4,946,236 | $ | (107,260 | ) | $ | 4,838,976 |
Ten Months Ended | Year Ended | |||||||||||
October 31, | October 31, | December 31, | ||||||||||
2009 | 2008 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES : | ||||||||||||
Net income (loss) | $ | (18,603 | ) | $ | 275,481 | $ | 308,418 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Loss on disposal of Property | 305,129 | - | - | |||||||||
Depreciation and Amortization | 562,531 | 662,884 | 760,057 | |||||||||
Amortization of deferred financing fees | 28,518 | 19,835 | 17,434 | |||||||||
Amortization of note discount | 20,893 | - | 38,513 | |||||||||
Deferred income taxes | (12,403 | ) | 191,210 | 213,168 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in: | ||||||||||||
Accounts receivable | (76,288 | ) | (729,798 | ) | (646,936 | ) | ||||||
Prepaid and other current assets | (7,478 | ) | (162,882 | ) | (40,666 | ) | ||||||
Increase (decrease) in: | ||||||||||||
Accounts payable | (136,312 | ) | 498,803 | 730,585 | ||||||||
Accrued expenses and other liabilities | (88,861 | ) | 332,903 | 31,190 | ||||||||
Net cash provided by Operating Activities | 577,126 | 1,088,436 | 1,411,763 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property and equipment | (251,773 | ) | (1,073,345 | ) | (1,305,827 | ) | ||||||
Net Cash Used In Investing Activities | (251,773 | ) | (1,073,345 | ) | (1,305,827 | ) | ||||||
CASHF LOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from borrowings on long – term debt | 400,267 | - | 230,00 | |||||||||
Payments of notes payable | (544,814 | ) | (260,990 | ) | (359,311 | ) | ||||||
Distribution to shareholders | (154,641 | ) | - | - | ||||||||
Net Cash Used In Financing Activities | (299,188 | ) | (260,990 | ) | (129,311 | ) | ||||||
NET INCREASE (DECREASE) IN CASH | 26,165 | (245,899 | ) | (23,375 | ) | |||||||
CASH – BEGINNING OF YEAR | 466,028 | 489,403 | 489,403 | |||||||||
CASH – END OF PERIOD | $ | 492,193 | $ | 243,504 | $ | 466,028 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION: | ||||||||||||
Cash paid for: | ||||||||||||
Interest expense | $ | 399,269 | $ | 431,199 | $ | 521,882 | ||||||
Income Taxes | $ | - | $ | - | $ | - | ||||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Assumption of Notes Payable upon purchase of Property | $ | - | $ | - | $ | 1,200,515 | ||||||
Assumption of Notes Payable by purchaser upon sale of Property | $ | 1,200,515 | $ | - | $ | - |
Vehicles | 5 - 6 Years | |
Machinery and Equipment | 7 - 22 Years | |
Furniture and fixtures | 10 Years | |
Plant and Pipeline | 20 - 22 years | |
Land improvements | 20 years |
October 31, 2009 | December 31, 2008 | |||||||
Plant and Equipment | $ | 6,953,406 | $ | 6,953,406 | ||||
Land | 3,225,000 | 4,730,644 | ||||||
Machinery & Equipment | 1,927,121 | 1,675,348 | ||||||
Land Improvements | 241,569 | 241,569 | ||||||
Vehicles | 122,090 | 122,090 | ||||||
Construction in progress | 62,543 | 62,543 | ||||||
Furniture and Fixtures | 13,061 | 13,061 | ||||||
12,544,790 | 13,798,661 | |||||||
Less accumulated depreciation | (1,767,135 | ) | (1,339,212 | ) | ||||
Property and equipment net of accumulated depreciation | $ | 10,777,655 | $ | 12,459,449 |
October 31, | December 31, | |||||||
2009 | 2008 | |||||||
(unaudited) | ||||||||
(a) Notes Payable, National Bank of California | $ | 4,120,707 | $ | 3,911,425 | ||||
(b) Note payable, Wiker Trust | 280,000 | 330,000 | ||||||
(c) Note payable, Saticoy | - | 549,493 | ||||||
(d) Note payable, Avalon Real Estate | - | 651,022 | ||||||
(e) Note payable, Agua de Oro 2 | 57,146 | 103,030 | ||||||
(f) Note payable, So. Calif. Management Services, Inc. (“SCM”) | - | 230,000 | ||||||
(g) Note payable, OMNI Bank | 25,854 | 48,799 | ||||||
(h) Note payable, Carol Cole | 28,900 | 33,900 | ||||||
Total notes payable | 4,512,607 | 5,857,669 | ||||||
Less Note discount | 59,916 | 80,809 | ||||||
Less current portion | 716,488 | 587,873 | ||||||
Notes payable, net of current portion | $ | 3,736,203 | 5,188,987 |
(i) Note payable, National Bank of California 1 | $ | 1,788,776 | $ | 1,846,295 | ||||
(ii) Note payable, National Bank of California 2 | 1,710,400 | 1,759,666 | ||||||
(iii) Note payable, National Bank of California 3 | 66,883 | 110,970 | ||||||
(iv) Note payable, National Bank of California 4 | 154,381 | 194,494 | ||||||
(v) Note payable , National Bank of California 5 | 400,267 | - | ||||||
Total | $ | 4,120,707 | $ | 3,911,425 |
Year Ended December 31, | ||||
Remainder of 2009 | ||||
2009 | $ | 587,873 | ||
2010 | 1,651,348 | |||
2011 | 1,375,868 | |||
2012 | 1,157,970 | |||
2013 | 315,467 | |||
Thereafter | 2,569,143 | |||
$ | 7,657,669 |
(a) Note payable, Wiker Trust | $ | 800,000 | $ | 800,000 | ||||
(b) Note payable, US Environmental Response | 1,000,000 | 1,000,000 | ||||||
Total | $ | 1,800,000 | $ | 1,800,000 |
Years ending December 31, | ||||
Remainder of 2009 | $ | 160,904 | ||
2010 | 160,904 | |||
2011 | 160,904 | |||
2012 | 160,904 | |||
2013 | 160,904 | |||
Thereafter | 816,591 | |||
$ | 1,621,111 |
§ | Transportation, Logistics Management, and Collection – specialized handling, packaging, transportation and disposal of industrial waste, laboratory quantities of hazardous chemicals, household hazardous wastes, and pesticides; |
§ | Incineration – the preferred method for treatment of organic hazardous waste because it effectively destroys the contaminants; |
§ | Landfill Disposal – used primarily for the disposal of inorganic wastes; |
§ | Physical Waste Treatment – used to reduce the volume or toxicity of waste to make it suitable for further treatment, reuse, or disposal; |
§ | Reuse/Recycle and Fuels Blending – removes impurities to restore suitability for an intended purpose and to reduce the volume of waste; |
§ | Wastewater Treatment – separates wastes including industrial liquid wastes containing heavy metals, organics and suspended solids through physical and chemical treatment so that the treated water can be discharged to local sewer systems under permits; |
§ | Remediation and Site Services – includes the maintenance of industrial facilities and equipment such as recurring cleaning in order to continue operations, maintain and improve operating efficiencies, and satisfy safety requirements; the planned cleanup of hazardous wastes sites and the cleanup of accidental spills and discharges, such as those resulting from transportation accidents; and the cleanup and restoration of buildings, equipment, and other sites and facilities that have been contaminated. |
§ | On-Site Services – the provision of professional and fully trained staff to manage clients’ environmental needs on location. |
§ | Lab Packing – the proper combination and packaging of hazardous waste in approved containers to eliminate the potential for reactions among chemical components. |
§ | Bulk Waste – the managing and transportation of waste in bulk quantities, either as liquids in vacuum tankers or as solids in dumpster type roll off containers. |
§ | LTL Program - the managing and transportation of containerized waste in Department of Transportation/United Nations approved drums and containers. |
§ | Transportation – the transportation of clients’ waste streams in fully permitted and environmentally outfitted vehicles |
§ | Emergency Response – the immediate response to hazardous materials or waste incidents for government and industry, including providing quick and appropriate response for potential homeland security incidents. |
§ | Remediation – project work to clean up contaminated sites facing environmental issues. |
§ | Provide application software to profile, track any waste streams, and routinely process all compliance reporting requirements with various regulatory agencies. |
§ | All services may be provided electronically through our software offering. |
§ | Assist clients with Environmental Health and Safety (“EHS”) compliance. |
§ | Provide necessary and mandated training on environmental issues. |
§ | Provide report generation for documentation to agencies overseeing environmental issues. |
§ | Provide digital and hard copy waste tracking of all waste activity. |
§ | Provide permit writing and management for the acquisition and tracking of necessary permits for clients. |
§ | Write manuals and plans required by all companies with hazardous materials and waste. |
§ | Provide legislative and regulatory analysis pertaining to current and proposed legislation as it pertains to the hazardous waste industry and how that affects our clients. |
§ | Provide electronic record keeping of all EHS documents and information. |
§ | Provide outsource staffing for all EHS requirements eliminating the need for clients to hire in house personnel. |
§ | Provide alternative solutions to clients where certain chemicals or waste streams can be recycled or reused in another capacity thereby eliminating the disposal expense and exposure for our clients. |
§ | Develop a program where clients look to us as the leader in providing fully integrated solutions to limit their liability on waste streams and chemicals. |
§ | Provide on-site services for government installations meeting all the requirements to manage, transport, and track waste streams from government contracts. |
§ | The Rancho Cordova Facility enables us to offer more efficient and cost-effective recycling/disposal options while enhancing our corporate profitability. |
§ | Ground Water treatment on-site – treatment of ground water contaminated with toxic chemicals, particularly perchlorate. |
§ | On-site treatment option for clients – treatment of waste at large volume waste clients. |
§ | Permanent non-hazardous wastewater treatment facility provides cost savings for clients and enhanced margin for us in the managing and treatment of waste streams. |
§ | managing waste streams and chemicals; |
§ | supervising and managing the handling, paperwork, tracking, and transportation of waste streams and chemicals on a client’s location; |
§ | labeling, collecting, and transporting containerized wastes; |
§ | bulk waste pick ups and transportation; |
§ | emergency response to spill incidents; |
§ | industrial cleaning of equipment or processes, tank cleaning; |
§ | parts washer fluid removal and replenishment; |
§ | chemical process dismantling; |
§ | mobile waste water treatment; and |
§ | enterprise software for worldwide integration of environmental management and tracking requirements; |
§ | regulatory/legislative analysis; |
§ | development and maintenance of an EHS procedure manual; |
§ | participation in regulatory rulemaking process; |
§ | maintaining a waste and permit database; |
§ | report preparation and submittal of permits; |
§ | developing required environmental plans and updates; |
§ | regulatory agency interaction; |
§ | training and development of client personnel; |
§ | research and reduction of regulatory requirements; and |
§ | engineering plan review assistance with respect to EHS impacts. |
Historical | Pro Forma Adjustments (a) | Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||||
Cash in bank | $ | 39,676 | $ | 2,229,453 | Note 2(b) | $ | 2,269,129 | $ | 492,193 | $ | - | $ | 2,761,322 | ||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 2,989,745 | (2,989,745 | ) | - | 1,331,224 | - | 1,331,224 | ||||||||||||||||||
Prepaid expenses and current other assets | 768,852 | (768,852 | ) | - | 85,361 | - | 85,361 | ||||||||||||||||||
Total current assets | 3,798,273 | (1,529,144 | ) | 2,269,129 | 1,908,778 | - | 4,177,907 | ||||||||||||||||||
Property and equipment, net of accumulated depreciation | 5,191,212 | (5,091,212 | ) | 100,000 | 10,777,655 | 5,332,999 | 16,210,654 | ||||||||||||||||||
OTHER ASSETS | |||||||||||||||||||||||||
Buyer holdback | - | 1,000,000 | 1,000,000 | - | - | 1,000,000 | |||||||||||||||||||
Restricted cash | 900,039 | 900,039 | - | - | 900,039 | ||||||||||||||||||||
Intangibles, net | 547,232 | (547,232 | ) | - | 1,486,503 | - | 1,486,503 | ||||||||||||||||||
Goodwill | 84,505 | (84,505 | ) | - | - | - | - | ||||||||||||||||||
Deferred financing fees | 369,015 | (369,015 | ) | - | 162,854 | - | 162,854 | ||||||||||||||||||
Deposits and other assets | 191,686 | (191,686 | ) | - | 179,707 | - | 179,707 | ||||||||||||||||||
Assets of discontinued operations | 1,089,341 | 1,089,341 | - | 1,089,341 | |||||||||||||||||||||
Total assets | $ | 12,171,303 | $ | (6,812,794 | ) | $ | 5,358,509 | $ | 14,515,497 | $ | 5,332,999 | $ | 25,207,005 |
Historical | Pro Forma Adjustments (a) | Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||||
Accounts payable | $ | 4,082,904 | $ | (2,982,903 | ) | Note 2 (f) | $ | 1,100,001 | $ | 635,665 | - | $ | 1,834,872 | ||||||||||||
Payable to related party | 741,719 | (472,500 | ) | 269,219 | - | - | 269,219 | ||||||||||||||||||
Deferred rent | 35,254 | (25,000 | ) | 10,254 | - | - | 10,254 | ||||||||||||||||||
Accrued expenses | 2,405,394 | (2,405,394 | ) | - | 128,233 | - | 128,233 | ||||||||||||||||||
Accrued disposal costs | 536,519 | (536,519 | ) | - | - | - | - | ||||||||||||||||||
Derivative liabilities | 4,931,579 | (4,931,579 | ) | - | - | - | - | ||||||||||||||||||
Deferred incomes taxes | - | 425,000 | Note 2(e) | 425,000 | - | - | - | ||||||||||||||||||
Current portion of financing agreement | 4,858,771 | (4,858,771 | ) | - | - | - | - | ||||||||||||||||||
Current portion of long term obligations | - | - | - | 716,488 | 698,908 | 1,415,396 | |||||||||||||||||||
Current portion of capital lease obligations | 277,372 | (277,372 | ) | Note 2(d) | - | - | - | - | |||||||||||||||||
Total current liabilities | 17,869,512 | (16,065,038 | ) | 1,804,474 | 1,480,386 | 698,908 | 3,983,768 | ||||||||||||||||||
LONG – TERM LIABILITIES | |||||||||||||||||||||||||
Financing agreement, net of current portion | $ | 8,720,557 | $ | (3,120,557 | ) | $ | 5,600,000 | $ | 5,600,000 | ||||||||||||||||
Long term obligations, net of current portion | 1,758,473 | - | 1,758,473 | 5,536,203 | 8,304,092 | 15,598,768 | |||||||||||||||||||
Valuation discounts – convertible debt | (3,294,879 | ) | 3,294,879 | - | - | - | - | ||||||||||||||||||
Capital leases, net of current portion | 734,430 | (734,430 | ) | Note 2(d) | - | - | - | - | |||||||||||||||||
Deferred Income Taxes | - | - | - | 2,659,932 | (2,659,932 | ) | - | ||||||||||||||||||
Total long – term liabilities | 7,918,581 | (560,108 | ) | 7,358,473 | 8,196,135 | 5,644,160 | 21,198,768 | ||||||||||||||||||
Stockholders’ equity (deficiency) | |||||||||||||||||||||||||
Stockholders’ equity | $ | 14,570 | $ | - | $ | 14,570 | $ | - | $ | - | $ | 14,570 | |||||||||||||
Additional paid-in capital | 54,450,995 | (2,425,895 | ) | Note 2(k) | 52,025,100 | 4,946,236 | (4,841,236 | ) | 52,130,100 | ||||||||||||||||
Accumulated deficit | (68,082,355 | ) | 1,662,890 | (66,419,465 | ) | - | - | (66,419,465 | ) | ||||||||||||||||
Current income | - | 10,575,357 | 10,575,357 | (107,260 | ) | 3,831,167 | Note 2(q) | 14,299,264 | |||||||||||||||||
Total stockholders’ equity | (13,616,790 | ) | 9,812,352 | Note 2(c) | (3,804,438 | ) | 4,838,976 | (1,010,069 | ) | 24,469 | |||||||||||||||
Total liabilities and stockholders’ equity (deficiency) | $ | 12,171,303 | $ | (6,812,794 | ) | $ | 5,358,509 | $ | 14,515,497 | $ | 5,332,999 | $ | 25,207,005 |
GEM Nevada Historical (a) | GEM Pro Forma Adjustments (a) | Adjusted Consolidated Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | |||||||||||||||||||
(In thousands, except par value amounts) | ||||||||||||||||||||||||
Revenue | $ | 12,589,161 | $ | (12,589,161 | ) | $ | $ | 5,291,866 | $ | $ | 5,291,866 | |||||||||||||
Cost of revenue | 12,906,589 | (12,906,589 | ) | Note 2(h) | - | 3,650,472 | 62,671 | Note 2 (n) | 3,713,143 | |||||||||||||||
Gross profit | (317,428 | ) | 317,428 | - | 1,641,394 | (62,671 | ) | 1,578,723 | ||||||||||||||||
Operating expenses | 6,607,657 | (1,923,891 | ) | Note 2(h) | 4,683,766 | Note 2 (g) | 988,259 | - | 5,672,025 | |||||||||||||||
Loss on sale of property | - | - | - | 305,129 | 305,129 | |||||||||||||||||||
Operating gain (loss) | (6,925,085 | ) | 2,241,319 | (4,683,766 | ) | 348,006 | (62,671 | ) | (4,398,431 | ) | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||
Interest income | 19,403 | - | 19,403 | 414 | - | 19,817 | ||||||||||||||||||
Interest and financing costs | (3,724,968 | ) | (5,579,337 | ) | Note 2 (j) | (9,304,305 | ) | (379,486 | ) | (342,821) | Note 2 (o) | (10,026,612 | ) | |||||||||||
Gain (loss) on disposal of fixed assets | 66,050 | - | 66,050 | - | ) | - | 66,050 | |||||||||||||||||
Gain (loss) on derivative financial instruments | 988,342 | 4,931,579 | Note 2 (i) | 5,919,921 | - | - | 5,919,921 | |||||||||||||||||
Loss on extinguishment of debt | (4,039,358 | ) | - | (4,039,358 | ) | - | - | (4,039,358 | ) | |||||||||||||||
Other non- operating income | 27,758 | - | 27,758 | 60 | - | 27,818 | ||||||||||||||||||
Net Loss | (13,587,858 | ) | 1,593,561 | (11,994,297 | ) | (31,006 | ) | (405,492 | ) | (12,430,795 | ) | |||||||||||||
Loss per common share, basic and diluted: | (1.02) | (.90) | (.93) | |||||||||||||||||||||
Weighted average shares of common stock outstanding, basic and diluted | 13,348,530 | 13,348,530 | 13,348,530 |
GEM Nevada Historical (a) | GEM Pro Forma Adjustments (a) | Adjusted Consolidated Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
Revenue | $ | 25,481,220 | $ | (25,481,220 | ) | $ | $ | 4,581,722 | $ | $ | 4,581,722 | ||||||||||||||
Cost of revenue | 20,669,444 | (20,669,444 | ) | Note 2 (h) | - | 3,170,382 | 75,204 | Note 2(n) | 3,245,586 | ||||||||||||||||
Gross profit | 4,811,776 | (4,811,776 | ) | - | 1,411,340 | (75,204 | ) | 1,336,136 | |||||||||||||||||
Operating expenses | 12,105,418 | (3,890,481 | ) | Note 2 (h) | 8,214,937 | Note 2(g) | 453,228 | - | 8,668,165 | ||||||||||||||||
Operating gain (loss) | (7,293,642 | ) | (921,295 | ) | (8,214,937 | ) | 958,112 | (75,204 | ) | (7,332,029 | ) | ||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest income | 39,667 | (39,667 | ) | - | 10,076 | - | 10,076 | ||||||||||||||||||
Interest and financing costs | (2,475,529 | ) | 2,475,529 | Note 2 (j) | - | (614,794 | ) | (457,094 | ) | Note 2 (o) | (1,071,888 | ) | |||||||||||||
Gain (loss) on disposal of fixed assets | - | - | - | - | - | - | |||||||||||||||||||
Gain (loss) on derivative financial instruments | - | - | - | - | - | - | |||||||||||||||||||
Costs to induce conversion of related party debt | (6,797,639 | ) | 6,797,639 | - | - | - | - | ||||||||||||||||||
Other non- operating income | 148,890 | (148,890 | ) | - | 27,381 | - | 27,381 | ||||||||||||||||||
Net Loss | (16,378,253 | ) | 8,163,316 | (8,214,937 | ) | 380,775 | (532,298) | (8,366,460 | ) | ||||||||||||||||
Loss per common share, basic and diluted: | (1.58 | ) | (.79 | ) | (.81 | ) | |||||||||||||||||||
Weighted average shares of common stock outstanding, basic and diluted | 10,360,712 | 10,360,712 | 10,360,712 |
GEM Nevada Historical (a) | GEM Pro Forma Adjustments (a) | Adjusted Consolidated Pro Forma | CLW / SCWW Pro Forma (l) | Pro Forma Adjustments (m) | Pro Forma Consolidated (p) | ||||||||||||||||||||
(In thousands, except par value amounts) | |||||||||||||||||||||||||
Revenue | $ | 25,481,220 | $ | (25,481,220 | ) | $ | $ | 4,581,722 | $ | $ | 4,581,722 | ||||||||||||||
Cost of revenue | 20,669,444 | (20,669,444 | ) | Note 2 (h) | - | 3,170,382 | 75,204 | Note 2 (n) | 3,245,586 | ||||||||||||||||
Gross profit | 4,811,776 | (4,811,776 | ) | - | 1,411,340 | (75,204 | ) | 1,336,136 | |||||||||||||||||
Operating expenses | 12,105,418 | (3,890,481 | ) | Note 2 (h) | 8,214,937 | Note 2 (g) | 453,228 | - | 8,668,165 | ||||||||||||||||
Operating gain (loss) | (7,293,642 | ) | (921,295 | ) | (8,214,937 | ) | 958,112 | (75,204 | ) | (7,332,029 | ) | ||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest income | 39,667 | (39,667 | ) | - | 10,076 | - | 10,076 | ||||||||||||||||||
Interest and financing costs | (2,475,529 | ) | 2,475,529 | Note 2 (j) | - | (614,794 | ) | (457,094 | ) | Note 2 (o) | (1,071,888 | ) | |||||||||||||
Gain (loss) on disposal of fixed assets | - | - | - | - | - | - | |||||||||||||||||||
Gain (loss) on derivative financial instruments | - | - | - | - | - | - | |||||||||||||||||||
Costs to induce conversion of related party debt | (6,797,639 | ) | 6,797,639 | - | - | - | - | ||||||||||||||||||
Other non- operating income | 148,890 | (148,890 | ) | - | 27,381 | - | 27,381 | ||||||||||||||||||
Net Loss | (16,378,253 | ) | 8,163,316 | (8,214,937 | ) | 380,775 | (532,298) | (8,366,460 | ) | ||||||||||||||||
Loss per common share, basic and diluted: | (1.58 | ) | (.79 | ) | (.81 | ) | |||||||||||||||||||
Weighted average shares of common stock outstanding, basic and diluted | 10,360,712 | 10,360,712 | 10,360,712 |
(a) | GEM Historical excludes the operations of GEM Mobile Treatment Services that has been classified as a discontinued operation due to its sale in August 2009. The pro forma adjustments include the sale to the Buyer of 100% of the Company’s stock in its wholly owned subsidiary, GEM DE and the resulting entries from the retirement of term debt and convertible debt with the Company’s senior lender. |
(b) | Cash proceeds from the sale ($2.254 million) are $14.0 million less $2.167 million which is the estimated amount needed to fund the working capital deficit related to the companies being sold, $7.979 million which is the estimated reduction of senior debt and a $0.5 million payment to the senior lender upon sale of GEM DE, $0.1 million for transaction costs and $1 million being held by Buyer for estimated income tax liabilities resulting from the sale ($0.425 million) and potential contingencies post sale ($0.575 million). The $1 million buyer holdback will be returned to the Company at the end of one year if no liabilities are identified. The adjustment of $2.23 million consists of the estimated net cash proceeds of $2.254 million less $0.024 million transferred to Buyer with the assets and liabilities of GEM DE. For purposes of these unaudited pro forma financial statements, Buyer is assumed to have made a $14.0 million payment at closing. |
(c) | The adjustment of $9.812 million includes the transfer to Buyer of assets and liabilities with a net book value of $2.735 million as of September 30, 2009, the conversion of $1.972 million of long term debt into equity of the Company and an estimated gain on sale of GEM Delaware of $10.575 million. The gain on sale of $10.575 million consists of the proceeds of $14.0 million less the reduction of senior debt deferred fees and valuation discounts related to the senior debt ($3.664 million), a gain on derivative liabilities related to the retirement of the senior convertible debt ($4.932 million), a payment to the senior lender in common stock ($1.5 million) and cash ($.5 million) upon the sale of GEM Delaware, estimated taxes ($.425 million), estimated transaction costs ($.1 million) and funding the working capital deficit at closing as required in the purchase agreement ($2.167 million). The funding of the working capital deficit could vary based on the performance of GEM Delaware up to the date of closing. Based on recent results, management believes that this adjustment is fairly estimated in the proforma statements. If the estimate of the working capital deficit increases to $2.709 million, an increase of 25%, the Company would still realize a gain of $10.033 million and estimated net cash proceeds of $1.712 million. |
(d) | The sale includes the transfer to Buyer of $1,011,802 of long term lease obligations as of September 30, 2009. |
(e) | The estimated tax liability on the gain on the sale, calculated at the federal alternative minimum tax rate and California regular income tax rate is $425,000 as of September 30, 2009. |
(f) | Transaction costs related to the asset sale consist of legal fees, accounting fees and proxy costs. |
(g) | The operating expenses remaining consist of corporate costs such as salaries, legal, professional, consulting and stock compensation costs. |
(h) | The revenues and expenses related to the assets sold to and liabilities assumed by Buyer. |
(i) | Proceeds from the sale will be used to retire convertible debt held by the Company’s senior lender. This retirement generates a gain on derivative financial instruments at September 30, 2009 of $4,931,579. |
(j) | The amended agreement with our senior lender also provides that in the event that and at such time as the Company or any of its subsidiaries or stockholders enters into a binding agreement with respect to any sale of all or any material portion of the Company’s assets or the sale of a majority of the outstanding capital stock or (if sooner) on that date which is thirty (30) days prior to any payment or required payment in full of the outstanding obligations to the senior lender, the senior lender shall have the right and option, exercisable effective at any time upon or after the consummation of such sale or payment, or upon and after the occurrence, to require the Company to redeem and purchase any or all warrant shares or rights to purchase warrant shares hereunder, for a cash purchase price of $0.75 per warrant share. This value of the warrant shares ( $2,025,000) to be put to the Company has been included in interest expense for these pro forma statements at September 30, 2009. Valuation discounts ($3,294,879) computed in connection with the initial financing with the senior lender in 2008 and later modified as a result of amendments to the debt have been charged to interest expense for these pro forma statements at September 30, 2009. Deferred financing fees ($369,015) computed in connection with the initial financing with the senior lender in 2008 and later modified as a result of amendments to the debt have been charged to interest expense for these pro forma statements at September 30, 2009. |
(k) | Company employees that go to work for Buyer or otherwise leave the Company after the sale closes have 90 days to exercise vested stock options. There are no stock options that become fully vested as a result of the Sale. To the extent that employees exercise stock options and sell the acquired common stock within one year, the Company will receive an income tax deduction for the amount of the gain realized by the employee. No pro forma adjustments have been have been included in unaudited pro forma consolidated balance sheet because the pro forma amounts would be speculative. |
(l) | The following sets out the balance sheet as of October 31, 2009 and the operating results for the ten months ended October 31, 2009, the fiscal years ended December 31, 2008 and 2007 for California Living Waters Inc., (“CLW”) and its wholly owned subsidiary, Santa Clara Waste Water Company, (“SCWW”). The ten months’ operating results for CLW added to the nine months’ results for the Company are representative on a pro forma basis of the operating performance of the combined companies. |
(m) | The following sets out the pro forma adjustments had the acquisition of CLW occurred as of January 1, 2009, January 1, 2008 and January 1, 2007. |
(n) | The additional expense classified to Cost of Revenue includes additional depreciation related to the allocation of purchase price over the net assets acquired to fixed assets. |
(o) | Additional interest expense related to long term debt issued in conjunction with the purchase of California Living Waters. |
(p) | The following sets out the pro forma balance sheet and the pro forma operating results for the Company and its wholly owned subsidiary, CLW after the sale of its wholly owned subsidiary, GEM DE. |
(q) | Acquisition adjustment related to deferred income taxes. |
September 30, 2009 | ||||
Gross proceeds from asset sale | $ | 14,000 | ||
Transaction costs | (100 | ) | ||
Debt reduction and payments to senior lender | (8,479 | ) | ||
Funding of Working Capital deficit | (2,167 | ) | ||
Income taxes | (425 | ) | ||
Buyer holdbacks for estimated contingencies | (575 | ) |
Estimated net cash proceeds | $ | 2,254 |
Period 2009 | High | Low |
2009 First Quarter | 0.75 | 0.55 |
2009 Second Quarter | 0.99 | 0.35 |
2009 Third Quarter | 0.90 | 0.30 |
Period 2008 | High | Low |
2008 First Quarter | 1.99 | 1.31 |
2008 Second Quarter | 1.99 | 1.02 |
2008 Third Quarter | 1.15 | 0.88 |
2008 Fourth Quarter | 1.05 | 0.32 |
Period 2007 | High | Low |
2007 First Quarter | 2.88 | 1.80 |
2007 Second Quarter | 3.60 | 1.86 |
2007 Third Quarter | 3.15 | 2.50 |
2007 Fourth Quarter | 2.90 | 1.51 |
Common Stock Closing Price | ||||
December 1, 2009 | $ | 0.34 | ||
January 28, 2010 | $ | 0.23 |
No. of | |||
Shares | % of Stock | ||
Name and Address | owned | Outstanding (1) | |
Kevin P. O’Connell (2) | |||
660 Newport Center Drive, Suite 720 | 1,576,733 | (3) | 10.83% |
Newport Beach, CA 92660 | |||
Timothy J. Koziol | |||
3191 Temple Ave., Suite 250 | 1,435,623 | (4) | 9.86% |
Pomona CA 91768 | |||
Douglas B. Edwards | |||
3191 Temple Ave., Suite 250 | 284,750 | (5) | 1.96% |
Pomona CA 91768 | |||
James Stapleton | |||
3191 Temple Ave., Suite 250 | 114,392 | (6) | 0.79% |
Pomona CA 91768 | |||
Brett M. Clark | |||
3191 Temple Ave., Suite 250 | 1,169,163 | (7) | 8.03% |
Pomona CA 91768 | |||
William James Mitzel | |||
3191 Temple Ave., Suite 250 | 446,875 | (8) | 3.07% |
Pomona CA 91768 | |||
Laurus Capital Management, LLC | |||
825 Third Avenue, 14th Floor | 1,099,994 | (9) | 7.56% |
New York, NY 10022 | |||
CVC California LLC | |||
525 Okeechobee Blvd., Suite 1050 | 4,804,900 | (10) | 33.01% |
West Palm Beach, FL 33401 | |||
Directors and Officers as a Group | 3,450,803 | 23.70% |
(1) Based upon 12,691,409 shares outstanding. |
(2) Kevin P. O’Connell is the Managing Member of Billington Brown Acceptance, LLC, Revete MAK, LLC, Lapis Solutions, LLC and General Pacific Partners, LLC. |
(3) Includes 1,374,475 warrants to purchase common stock at $0.60, 168,250 warrants to purchase common stock at $1.19, and 26,250 warrants to purchase common stock at $1.05. |
(4) Includes 703,125 options to purchase common stock at $1.19 per share, 18,746 options to purchase common stock at $1.70 per share, 43,750 options to purchase common stock at $0.75 per share and 6,667 options to purchase common stock at $30.00 per share. Includes 650,000 warrants to purchase common stock at $1.19 |
(5) Includes 284,750 warrants to purchase common stock at $4 per share. |
(6) Includes 35,000 warrants to purchase common stock at $1.19 per share and 70,000 warrants to purchase common stock at $0.75 per share. |
(7) Includes 562,500 options to purchase common stock at $1.19 per share, 56,246 options to purchase common stock at $1.70 per share, 43,750 options to purchase common stock at $0.75 per share, and 6,667 options to purchase common stock at $39.00 per share. Includes 500,000 warrants to purchase common stock at $1.19 |
(8) Includes 328,125 options to purchase common stock at $1.19 per share, 75,000 options to purchase common stock at $1.70 per share and 43,750 options to purchase common stock at $0.75 per share. |
(9) Laurus Capital Management, LLC, a Delaware limited liability company (“Laurus Capital”), serves as the investment manager of Laurus Master Fund, LTD., Valens U.S. SPV I, LLC and Valens Offshore SPV I, LTD (together, the “Laurus Funds”) and possesses the sole power to vote and the sole power to direst the disposition of all securities of the Company held by Laurus Funds, which, as of the date hereof, constitute an aggregate of 1,099,994 shares upon exercise of warrants. Mr. Eugene Grin and Mr. David Grin, through other entities, are the controlling principals of Laurus Capital. Laurus Capital, Mr. Eugene Grin and Mr. David Grin each disclaim beneficial ownership of such shares, except to the extent of its or his pecuniary interest therein, if any. |
(10) Includes 1,350,000 warrants to purchase common stock at $0.60 per share, 1,350,000 warrants to purchase common stock at $0.70 per share and 2,104,900 shares of common stock issuable on conversion of debt. Mr. Gary Jaggard is the controlling principal of CVC California, LLC. Mr. Gary Jaggard disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any. |
Page | |
Report of Independent Registered Public Accounting Firm | 108 |
Consolidated Financial Statements | |
Consolidated Balance Sheets as of December 31, 2008 and 2007 | 109 |
Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007 | 110 |
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2008 and 2007 | 111-112 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007 | 113-114 |
Notes to the Consolidated Financial Statements | 115-146 |
Page | |
Financial Statements (Unaudited) | |
Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008 | 147-148 |
Condensed Unaudited Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2009 and 2008 | 149 |
Condensed Unaudited Consolidated Statement of Stockholders’ Deficiency for the Nine Months Ended September 30, 2009 | 150 |
Condensed Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 | 151-152 |
Notes to the Unaudited Condensed Consolidated Financial Statements | 153-176 |
/s/ Weinberg & Company, P.A. | ||||
Weinberg & Company, P.A. | ||||
2008 | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 375,983 | $ | 954,581 | ||||
Accounts receivable, net of allowance for doubtful accounts | ||||||||
of $174,834 and $236,781 respectively | 6,729,743 | 6,495,736 | ||||||
Prepaid expenses and other current assets | 537,289 | 156,340 | ||||||
Total Current Assets | 7,643,015 | 7,606,657 | ||||||
Property and Equipment – net of accumulated depreciation of | ||||||||
$2,917,056 and $1,854,141, respectively | 7,783,208 | 3,950,253 | ||||||
Restricted cash | 1,199,784 | 1,184,835 | ||||||
Intangible assets, net | 864,781 | 1,028,044 | ||||||
Deferred financing fees | 513,412 | 394,082 | ||||||
Deposits | 291,224 | 282,070 | ||||||
Goodwill | 946,119 | 946,119 | ||||||
TOTAL ASSETS | $ | 19,241,543 | $ | 15,392,060 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 3,499,178 | $ | 4,314,515 | ||||
Accrued expenses | 2,620,224 | 2,263,519 | ||||||
Accrued disposal costs | 743,474 | 478,833 | ||||||
Payable to related party | 706,868 | 31,871 | ||||||
Deferred rent | 41,202 | 37,769 | ||||||
Current portion of financing agreement | 10,366,544 | 662,719 | ||||||
Current portion of long term obligations | 794,278 | 1,274,464 | ||||||
Current portion of capital lease obligations | 623,007 | 187,015 | ||||||
Total Current Liabilities | 19,394,775 | 9,250,705 | ||||||
LONG-TERM LIABILITIES : | ||||||||
Financing agreements, net of current portion | - | 3,708,694 | ||||||
Long term obligations, net of current portion | 535,689 | 79,842 | ||||||
Capital lease obligations, net of current portion | 1,751,854 | 1,046,920 | ||||||
Convertible Notes payable | 489,605 | 520,208 | ||||||
Total Long-Term Liabilities | 2,777,148 | 5,355,664 | ||||||
STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
Common stock, $.001 par value, 1,000,000,000 shares authorized, | ||||||||
12,691,409 and 12,473,885 shares issued and outstanding | 12,692 | 12,474 | ||||||
Additional paid in capital | 53,585,035 | 50,151,615 | ||||||
Accumulated deficit | (56,528,107 | ) | (49,378,398 | ) | ||||
Total Stockholders' Equity (Deficiency) | (2,930,380 | ) | 785,691 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | $ | 19,241,543 | $ | 15,392,060 |
For the years ended December 31, | ||||||||
2008 | 2007 | |||||||
REVENUES | $ | 34,864,714 | $ | 30,445,608 | ||||
COST OF REVENUES | 28,981,325 | 23,756,677 | ||||||
GROSS PROFIT | 5,883,389 | 6,688,931 | ||||||
OPERATING EXPENSES | 8,397,355 | 13,617,277 | ||||||
OPERATING LOSS | (2,513,966 | ) | (6,928,346 | ) | ||||
OTHER INCOME (EXPENSE): | ||||||||
Interest income | 17,569 | 39,667 | ||||||
Interest and financing costs | (4,695,041 | ) | (2,548,609 | ) | ||||
Other non-operating income | 41,729 | 148,890 | ||||||
Costs to induce conversion of related party debt | - | (6,797,639 | ) | |||||
NET LOSS | $ | (7,149,709 | ) | $ | (16,086,037 | ) | ||
Net loss per common share, basic and diluted | $ | (.57 | ) | $ | (1.55 | ) | ||
Weighted average shares of common stock outstanding, basic and diluted | 12,578,104 | 10,360,712 |
Preferred Stock | Additional | |||||||||||||||||||||||||||
Common Stock | Series B | Paid-in | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance, January 1, 2007 | 5,920,408 | $ | 5,920 | 2,480,500 | $ | 2,481 | $ | 33,430,095 | $ | (33,292,361 | ) | $ | 146,135 | |||||||||||||||
Issuance of common stock for settlement of payable to related party | 184,874 | 185 | - | - | 219,815 | - | 220,000 | |||||||||||||||||||||
Issuance of common stock on conversion of debt | 377,308 | 378 | - | - | 451,225 | - | 451,603 | |||||||||||||||||||||
Issuance of common stock on conversion of preferred stock | 2,067,106 | 2,067 | (2,480,500 | ) | (2,481 | ) | 414 | - | - | |||||||||||||||||||
Issuance of common stock on conversion of notes payable to related party | 3,278,250 | 3,278 | - | - | 8,676,411 | - | 8,679,689 | |||||||||||||||||||||
Issuance of common stock for cash | 1,152 | 1 | - | - | 1,887 | - | 1,888 | |||||||||||||||||||||
Issuance of common stock pursuant to advisory agreement with related party | 426,500 | 427 | - | - | 507,108 | - | 507,535 | |||||||||||||||||||||
Issuance of common stock on conversion of interest on notes payable | 165,083 | 165 | - | - | 196,607 | - | 196,772 | |||||||||||||||||||||
Issuance of common stock for services | 53,104 | 53 | - | - | 98,887 | - | 98,940 | |||||||||||||||||||||
Issuance of common stock on exercise of stock options | 100 | - | - | - | 119 | - | 119 | |||||||||||||||||||||
Fair value of modification of warrants terms with related entity | - | - | - | - | 136,082 | - | 136,082 | |||||||||||||||||||||
Valuation of warrants issued to related entity as inducement to convert debt to equity | - | - | - | - | 2,095,904 | - | 2,095,904 | |||||||||||||||||||||
Stock compensation cost for value of vested options | - | - | - | - | 1,199,301 | - | 1,199,301 | |||||||||||||||||||||
Fair value of warrants issued in connection with advisory fee agreement with related party | - | - | - | - | 357,750 | - | 357,750 | |||||||||||||||||||||
Valuation of beneficial conversion & warrants issued in connection with issuance of financing agreement | - | - | - | - | 1,245,209 | - | 1,245,209 | |||||||||||||||||||||
Valuation of warrants issued in connection with conversion of debt | - | - | - | - | 62,163 | - | 62,163 | |||||||||||||||||||||
Valuation of warrants issued in connection with conversion of interest | - | - | - | - | 36,865 | - | 36,865 | |||||||||||||||||||||
Valuation of warrants issued to related party in connection with lease | - | - | - | - | 187,128 | - | 187,128 | |||||||||||||||||||||
Valuation of warrants issued for consulting services | - | - | - | - | 1,248,645 | - | 1,248,645 | |||||||||||||||||||||
Net loss for year 2007 | - | - | - | - | - | (16,086,037 | ) | (16,086,037 | ) | |||||||||||||||||||
Balance, December 31, 2007 | 12,473,885 | 12,474 | - | - | 50,151,615 | (49,378,398 | ) | 785,691 |
Preferred Stock | Additional | |||||||||||||||||||||||||||
Common Stock | Series B | Paid-in | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Issuance of stock to related party for extension of debt | 200,000 | 200 | - | - | 219,800 | - | 220,000 | |||||||||||||||||||||
Issuance of warrants to related party for extension of debt, financial and advisory services | - | - | - | - | 459,887 | - | 459,887 | |||||||||||||||||||||
Fair value of warrants issued for financing | - | - | - | - | 1,674,036 | - | 1,674,036 | |||||||||||||||||||||
Fair value of warrants issued for services | - | - | - | - | 99,675 | - | 99,675 | |||||||||||||||||||||
Issuance of stock on exercise of warrants | 5,000 | 5 | - | - | 2,995 | - | 3,000 | |||||||||||||||||||||
Issuance of common stock for services | 12,524 | 13 | - | - | 13,137 | - | 13,150 | |||||||||||||||||||||
Fair value of extension of warrants | - | - | - | - | 128,333 | - | 128,333 | |||||||||||||||||||||
Stock compensation cost for value of vested options | - | - | - | - | 835,557 | - | 835,557 | |||||||||||||||||||||
Net loss for year 2008 | - | - | - | - | - | (7,149,709) | (7,149,709 | ) | ||||||||||||||||||||
Balance, December 31, 2008 | 12,691,409 | $ | 12,692 | - | $ | - | $ | 53,585,035 | $ | (56,528,107) | $ | (2,930,380 | ) |
Years Ended December 31, | ||||||||
2008 | 2007 | |||||||
OPERATING ACTIVITIES | ||||||||
Net loss | $ | (7,149,709 | ) | $ | (16,086,037 | ) | ||
Adjustments to reconcile net loss to cash | ||||||||
used in operating activities: | ||||||||
Depreciation and amortization | 1,226,178 | 769,227 | ||||||
Amortization of discount on notes | 388,285 | 1,008,619 | ||||||
Fair value of warrants issued to related party for | ||||||||
financing services | 57,405 | - | ||||||
Fair value of extension of warrants | 128,333 | 606,475 | ||||||
Fair value of vested options | 835,557 | 1,199,301 | ||||||
Fair value of shares and warrants issued for services | 112,826 | 1,606,395 | ||||||
Costs to induce conversion of notes payable | - | 6,797,641 | ||||||
Accrued interest on notes payable | 36,897 | 77,797 | ||||||
Amortization of discount on convertible debt | 2,439,863 | - | ||||||
Amortization of deferred financing fees | 458,259 | 264,540 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts Receivable | 808,248 | (955,667 | ) | |||||
Prepaid and other current assets | (159,651 | ) | 21,794 | |||||
Deposits and restricted cash | 159,720 | (407,995 | ) | |||||
Accounts Payable | (1,376,193 | ) | 559,251 | |||||
Fair value of warrants issued to modify debt | - | 279,202 | ||||||
Accrued expenses and other liabilities | 447,596 | 511,842 | ||||||
NET CASH USED IN OPERATING ACTIVITIES | (1,586,386 | ) | (3,747,615 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Acquisitions, net of cash received | (2,218,559 | ) | - | |||||
Additions to property and equipment | (478,583 | ) | (343,254 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (2,697,142 | ) | (343,254 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net advances from (repayment of) Laurus notes | (6,413,605 | ) | 1,449,585 | |||||
Net advances from Comvest | 11,642,908 | - | ||||||
Payments on deferred fees | (147,607 | ) | - | |||||
Payments on notes payable | (1,289,964 | ) | (385,745 | ) | ||||
Issuance of notes payable to related parties | 472,500 | - | ||||||
Payments on capital leases | (554,567 | ) | - | |||||
Repayment of convertible notes | (67,500 | ) | - | |||||
Proceeds from issuance of common stock | - | 1,888 | ||||||
Proceeds from exercise of warrants | 3,000 | 119 | ||||||
Advances from related parties | 59,765 | 3,360,949 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 3,704,930 | 4,426,796 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (578,598 | ) | 335,927 | |||||
Cash and cash equivalents at beginning of year | 954,581 | 618,654 | ||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 375,983 | $ | 954,581 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest expense | $ | 1,159,526 | $ | 982,015 |
Years Ended December 31, | ||||||||
2008 | 2007 | |||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES : | ||||||||
Fair value of warrants issued to related party for extension of debt | $ | 222,500 | $ | - | ||||
Fair value of shares issued to related party for extension of debt | 220,000 | - | ||||||
Acquisition of leased equipment and capital lease obligations | 1,658,066 | - | ||||||
Valuation of warrants allocated to deferred fees | 179,982 | - | ||||||
Value of warrants issued in connection with lease | - | 187,128 | ||||||
Conversion of related party debt to common stock | - | 3,933,861 | ||||||
Conversion of investor interest to common stock | - | 196,772 | ||||||
Conversion of fees due to related party to common stock | - | 220,000 | ||||||
Issuance of note payable on acquisition | 1,250,000 | - | ||||||
Issuance of capital lease obligations | - | 1,294,363 | ||||||
Value of warrants and beneficial conversion feature on notes | 1,674,035 | 1,245,209 | ||||||
Closing fees due to related party included as deferred financing fees | 250,000 | - | ||||||
Issuance of common stock for accrued expenses | - | 451,602 |
Transportation | 5 Years |
Equipment | 5 – 7 Years |
Furniture and fixtures | 5 – 7 Years |
Building and Improvements | 20 - 40 Years |
2008 | 2007 | |||||||
Risk free rate of return | 4.78 | % | 4.78 | % | ||||
Option lives in years | 8.0 | 8.0 | ||||||
Annual volatility of stock price | 33.17 | % | 83.5 | % | ||||
Dividend yield | -- | % | -- | % |
Current assets and liabilities | $ | 809,339 | ||
Property and Equipment | 2,759,220 | |||
Total | $ | 3,568,559 |
Pro Forma (Unaudited) Years ended December 31, | ||||||||
2008 | 2007 | |||||||
Net sales | $ | 42,162,233 | $ | 38,154,055 | ||||
Cost of sales | 33,514,560 | 28,436,331 | ||||||
Gross profit | 8,647,673 | 9,717,724 | ||||||
Operating expenses | 12,457,460 | 16,429,236 | ||||||
Operating loss | (3,809,787 | ) | (6,711,512 | ) | ||||
Other income (expense): | ||||||||
Interest income | 54,597 | 97,277 | ||||||
Interest expense and amortization of deferred financing costs | (4,701,849 | ) | (2,548,609 | ) | ||||
Cash to induce conversion of related party debt | - | (6,797,639 | ) | |||||
Other non-operating income | 119,744 | 112,333 | ||||||
Net Loss | $ | (8,337,295 | ) | $ | (15,848,150 | ) | ||
Loss per weighted average share, basic and diluted | $ | (.66 | ) | $ | (1.53 | ) |
2008 | 2007 | |||||||
Land | $ | 905,000 | $ | 905,000 | ||||
Building and improvements | 1,140,656 | 1,074,642 | ||||||
Vehicles | 2,687,128 | 849,783 | ||||||
Equipment and furniture | 411,064 | 369,218 | ||||||
Warehouse equipment | 5,277,892 | 2,561,858 | ||||||
Leasehold improvements | 242,678 | 8,047 | ||||||
Asset retirement obligations | 35,846 | 35,846 | ||||||
10,700,264 | 5,804,394 | |||||||
Less accumulated depreciation and amortization | 2,917,056 | 1,854,141 | ||||||
Property and equipment net of accumulated depreciation and amortization | $ | 7,783,208 | $ | 3,950,253 |
2008 | 2007 | |||||||
Rancho Cordova – permits | $ | 475,614 | $ | 475,659 | ||||
Prime acquisition – customers | 400,422 | 400,422 | ||||||
K2M Acquisition – customers | 438,904 | 438,904 | ||||||
K2M Acquisition – permits | 27,090 | 27,090 | ||||||
Total Cost | 1,342,030 | 1,342,075 | ||||||
Accumulated amortization | (477,249 | ) | (314,031 | ) | ||||
$ | 864,781 | $ | 1,028,044 |
Year Ended December 31, | Amount | ||
2009 | $ | 163,218 | |
2010 | 163,218 | ||
2011 | 163,218 | ||
2012 | 13,398 | ||
2013 | 13,398 | ||
Thereafter | 348,331 | ||
$ | 864,781 |
2008 | 2007 | |||||||
Goodwill – Prime Acquisition | $ | 84,505 | $ | 84,505 | ||||
Goodwill – K2M Acquisition | 861,614 | 861,614 | ||||||
$ | 946,119 | $ | 946,119 |
2008 | 2007 | |||||||
Notes from GPP | $ | 472,500 | $ | - | ||||
Financing Fees | 250,000 | - | ||||||
Accrued Interest | 93,692 | 31,871 | ||||||
Valuation Discount | (109,324 | ) | - | |||||
$ | 706,868 | $ | 31,871 |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(a) Secured notes from Laurus and affiliated entities | $ | - | $ | 6,413,605 | ||||
(b) Secured Notes from CVC California | 13,547,909 | - | ||||||
Valuation Discount | (3,181,365 | ) | (2,042,192 | ) | ||||
10,366,544 | 4,371,413 | |||||||
Less current portion | (10,366,544 | ) | (662,719 | ) | ||||
Financing agreement, net of current portion | $ | 0 | $ | 3,708,694 |
Year Ended December 31, | Amount | |||
2009 | $ | 13,547,909 | ||
2010 | - | |||
2011 | - | |||
Total | $ | 13,547,909 |
December 31, 2008 | December 31, 2007 | |||||||
(a) Vehicle note | $ | 12,865 | $ | 22,303 | ||||
(b) Notes Payable, Alliance | - | 1,250,000 | ||||||
(c) Equipment notes | 67,102 | 97,628 | ||||||
(d) Notes Payable, Island Acquisition | 1,250,000 | - | ||||||
1,329,967 | 1,369,931 | |||||||
Loan Discount | - | (15,625 | ) | |||||
1,329,967 | 1,354,306 | |||||||
Less current portion | 794,278 | 1,274,464 | ||||||
Notes payable, net of current portion | $ | 535,689 | $ | 79,842 |
Year Ended December 31, | Amount | |||
2009 | $ | 794,278 | ||
2010 | 35,689 | |||
2011 | 500,000 | |||
$ | 1,329,967 |
Years Ending December 31, | Amount | |||
2009 | $ | 893,149 | ||
2010 | 723,857 | |||
2011 | 679,137 | |||
2012 | 571,962 | |||
2013 | 193,361 | |||
Thereafter | 56,274 | |||
Total payments | 3,117,740 | |||
Less: amount representing interest | (742,879 | ) | ||
Present value of minimum lease payments | 2,374,861 | |||
Less: current portion | (623,007 | ) | ||
Non-current portion | $ | 1,751,854 |
Weighted Avg. | ||||||||
Options | Exercise Price | |||||||
Options outstanding, January 1, 2007 | 67,067 | $ | 28.20 | |||||
Options granted | 5,233,268 | 1.33 | ||||||
Options exercised | (100 | ) | 1.19 | |||||
Options cancelled | (300,042 | ) | 2.10 | |||||
Options, December 31, 2007 | 5,000,193 | 1.64 | ||||||
Options granted | 173,000 | 1.35 | ||||||
Options exercised | - | - | ||||||
Options cancelled | (385,853 | ) | 1.44 | |||||
Options outstanding, December 31, 2008 | 4,787,340 | $ | 1.65 | |||||
Options exercisable, December 31, 2008 | 3,183,704 | $ | 1.75 |
Range of exercise prices | Total options outstanding | Weighted average remaining life in years | Total weighted average exercise price | Options exercisable | Exercisable weighted average exercise price | |||||||||||||||||
$ | 30.00 | 36,870 | 4.17 | $ | 30.00 | 36,115 | $ | 30.00 | ||||||||||||||
48.00 | 134 | 4.25 | 48.00 | 120 | 48.00 | |||||||||||||||||
39.00 | 9,335 | 4.50 | 39.00 | 7,936 | 39.00 | |||||||||||||||||
35.10 | 451 | 4.75 | 35.10 | 361 | 35.10 | |||||||||||||||||
25.80 | 2,501 | 5.25 | 25.80 | 1,751 | 25.80 | |||||||||||||||||
6.60 | 5,838 | 5.58 | 6.60 | 3,797 | 6.60 | |||||||||||||||||
2.50 | 328,000 | 8.83 | 2.50 | 163,988 | 2.50 | |||||||||||||||||
1.99 | 14,000 | 9.33 | 1.99 | 5,250 | 1.99 | |||||||||||||||||
1.70 | 466,000 | 9.01 | 1.70 | 255,430 | 1.70 | |||||||||||||||||
1.19 | 3,819,275 | 8.25 | 1.19 | 2,679,463 | 1.19 | |||||||||||||||||
1.10 | 63,000 | 9.83 | 1.10 | 15,750 | 1.10 | |||||||||||||||||
1.05 | 41,936 | 9.58 | 1.05 | 13,743 | 1.05 | |||||||||||||||||
$ | 1.05-$48.00 | 4,787,340 | 8.36 | $ | 1.65 | 3,183,704 | $ | 1.75 |
Warrants | Range of Exercise Prices | Intrinsic Value | ||||||||||
Warrants outstanding, January 1, 2007 | 1,183,989 | $ | 0.60-$120.00 | - | ||||||||
Warrants granted | 4,900,467 | $ | 0.60-$2.75 | - | ||||||||
Warrants exercised | - | - | - | |||||||||
Warrants expired | (102,821 | ) | $ | 0.30- $60.00 | - | |||||||
Warrants outstanding, December 31, 2007 | 5,981,635 | $ | 0.60-$120.00 | $ | 4,205,800 | |||||||
Warrants granted | 3,762,000 | $ | 0.60-$2.25 | - | ||||||||
Warrants exercised | (5,000 | ) | 0.60 | - | ||||||||
Warrants expired | (210,741 | ) | $ | 1.20-$120.00 | - | |||||||
Warrants outstanding, December 31, 2008 | 9,527,894 | $ | 0.60-$37.50 | $ | 451,813 |
Range of exercise prices | Total warrants outstanding | Weighted average remaining life in years | Total weighted average exercise price | Warrants exercisable | Exercisable weighted average exercise price | |||||||||||||||||
$ | 37.50 | 12,584 | 0.39 | $ | 37.50 | 12,584 | $ | 37.50 | ||||||||||||||
30.00 | 9,112 | 0.25 | 30.00 | 9,112 | 30.00 | |||||||||||||||||
26.10 | 125,072 | 4.17 | 26.10 | 125,072 | 26.10 | |||||||||||||||||
2.75 | 330,909 | 5.83 | 2.75 | 330,909 | 2.75 | |||||||||||||||||
2.25 | 300,000 | 5.67 | 2.25 | 300,000 | 2.25 | |||||||||||||||||
1.70 | 50,000 | 5.00 | 1.70 | 50,000 | 1.70 | |||||||||||||||||
1.38 | 661,818 | 5.83 | 1.38 | 661,818 | 1.38 | |||||||||||||||||
1.20 | 412,770 | 2.23 | 1.20 | 412,770 | 1.20 | |||||||||||||||||
1.19 | 3,072,500 | 5.42 | 1.19 | 3,072,500 | 1.19 | |||||||||||||||||
1.05 | 35,000 | 9.58 | 1.05 | 35,000 | 1.05 | |||||||||||||||||
0.60 | 4,518,129 | 4.45 | 0.60 | 4,518,129 | 0.60 | |||||||||||||||||
$ | 0.60-$37.50 | 9,527,894 | 4.86 | $ | 0.60-$37.50 | 9,527,894 | $ | 0.60-37.50 |
Year Ended December 31, | Amount | |||
2009 | $ | 1,452,296 | ||
2010 | 1,381,358 | |||
2011 | 1,202,955 | |||
2012 | 1,014,028 | |||
2013 | 800,416 | |||
Thereafter | 3,213,560 | |||
$ | 9,064,613 |
2008 | 2007 | |||||||
Deferred tax asset, net operating loss | $ | 14,184,661 | $ | 11,677,897 | ||||
Less valuation allowance | (14,184,661 | ) | (11,677,897 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
2008 | 2007 | |||||||
Tax expense at U.S. statutory income tax rate | (34.0) | % | (34.0) | % | ||||
Increase in the valuation allowance | 34.0 | 34.0 | ||||||
Effective rate | - | - |
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 39,676 | $ | 375,983 | ||||
Accounts receivable, net of allowance for doubtful accounts of $121,972 and $174,834, respectively | 2,989,745 | 6,729,743 | ||||||
Prepaid expenses and other current assets | 768,852 | 537,289 | ||||||
Total Current Assets | 3,798,273 | 7,643,015 | ||||||
Property and Equipment – net of accumulated depreciation $2,761,186 and $2,917,056, respectively | 5,191,212 | 7,783,208 | ||||||
Restricted cash | 900,039 | 1,199,784 | ||||||
Intangible assets, net | 547,232 | 864,781 | ||||||
Deferred financing fees | 369,015 | 513,412 | ||||||
Deposits | 191,686 | 291,224 | ||||||
Goodwill | 84,505 | 946,119 | ||||||
Net assets of operations held for sale | 1,089,341 | - | ||||||
TOTAL ASSETS | $ | 12,171,303 | $ | 19,241,543 | ||||
(Continued) | ||||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 4,082,904 | $ | 3,499,178 | ||||
Accrued expenses | 2,405,394 | 2,620,224 | ||||||
Accrued disposal costs | 536,519 | 743,474 | ||||||
Payable to related party | 741,719 | 706,868 | ||||||
Deferred rent | 35,254 | 41,202 | ||||||
Derivative liabilities | 4,931,579 | - | ||||||
Current portion of financing agreement | 4,858,771 | 10,366,544 | ||||||
Current portion of long term obligations | - | 794,278 | ||||||
Current portion of capital lease obligations | 277,372 | 623,007 | ||||||
Liabilities of discontinued operations | - | - | ||||||
Total Current Liabilities | 17,869,512 | 19,394,775 | ||||||
LONG-TERM LIABILITIES : | ||||||||
Financing agreement, net of current portion | 5,425,678 | - | ||||||
Long term obligations, net of current portion | 1,758,473 | 1,025,294 | ||||||
Capital lease obligations, net of current portion | 734,430 | 1,751,854 | ||||||
Total Long-Term Liabilities | 7,918,581 | 2,777,148 | ||||||
STOCKHOLDERS’ DEFICIENCY | ||||||||
Common stock, $.001 par value, 1,000,000,000 shares authorized, 14,557,653 and 12,691,409 shares issued and outstanding | 14,570 | 12,692 | ||||||
Additional paid in capital | 54,450,995 | 53,585,035 | ||||||
Accumulated deficit | (68,082,355 | ) | (56,528,107 | ) | ||||
Total Stockholders' Deficiency | (13,616,790 | ) | (2,930,380 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | $ | 12,171,303 | $ | 19,241,543 | ||||
See accompanying notes to the condensed consolidated financial statements. |
Nine months ended | Three months ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
REVENUES | $ | 12,589,161 | $ | 17,217,566 | $ | 4,046,961 | $ | 5,540,990 | ||||||||
COST OF REVENUES | 12,906,589 | 15,548,592 | 3,839,343 | 4,981,391 | ||||||||||||
GROSS PROFIT (LOSS) | (317,428 | ) | 1,668,974 | 207,618 | 559,599 | |||||||||||
OPERATING EXPENSES | 6,607,657 | 5,104,099 | 2,351,196 | 1,667,630 | ||||||||||||
OPERATING LOSS | (6,925,085 | ) | (3,435,125 | ) | (2,143,578 | ) | (1,108,031 | ) | ||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||
Interest income | 19,403 | 15,894 | 18,794 | 6,082 | ||||||||||||
Interest and financing costs | (3,724,968 | ) | (3,655,714 | ) | (1,800,800 | ) | (2,058,799 | ) | ||||||||
Gain on disposal of fixed assets | 66,050 | - | - | - | ||||||||||||
Gain on derivative financial instruments | 988,342 | - | 2,688,452 | - | ||||||||||||
Loss on extinguishment of debt | (4,039,358 | ) | - | (1,858,007 | ) | - | ||||||||||
Other non-operating income | 27,758 | 35,173 | 8,569 | 18,479 | ||||||||||||
LOSS FROM CONTINUING OPERATIONS | (13,587,858 | ) | (7,039,772 | ) | (3,086,570 | ) | (3,142,269 | ) | ||||||||
GAIN (LOSS) FROM DISCONTINUED OPERATIONS | 1,077,337 | 2,351,962 | (68,561 | ) | 1,004,679 | |||||||||||
NET LOSS | $ | (12,510,521 | ) | $ | (4,687,810 | ) | $ | (3,155,131 | ) | $ | (2,137,590 | ) | ||||
Loss per common share, basic and diluted: | ||||||||||||||||
Continuing operations | $ | (1.02 | ) | $ | (.56 | ) | $ | (0.22 | ) | $ | (.25 | ) | ||||
Discontinued operations | .08 | 0.19 | - | .08 | ||||||||||||
Net loss | $ | (.94 | ) | $ | (.37 | ) | $ | (.22 | ) | $ | (.17 | ) | ||||
Weighted average shares of common stock outstanding, basic and diluted | 13,348,530 | 12,673,885 | 14,283,470 | 12,673,885 |
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, December 31, 2008 | 12,691,409 | $ | 12,692 | $ | 53,585,035 | $ | (56,528,107 | ) | $ | (2,930,380 | ) | |||||||||
Cumulative effect of change in accounting principle January 1, 2009 reclassification of embedded feature of equity linked financial instruments to derivative liabilities | (1,674,036 | ) | 956,273 | (717,763 | ) | |||||||||||||||
Stock compensation cost for value of vested options | 642,843 | 642,843 | ||||||||||||||||||
Issuance of shares on exercise of options | 250 | 187 | 187 | |||||||||||||||||
Issuance of shares on exercise of warrants | 6,250 | 6 | 3,744 | 3,750 | ||||||||||||||||
Issuance of shares on conversion of debt | 1,009,744 | 1,022 | 639,456 | 640,478 | ||||||||||||||||
Issuance of shares to secured lender | 600,000 | 600 | 449,400 | 450,000 | ||||||||||||||||
Issuance of warrants on conversion of interest | 231,140 | 231,140 | ||||||||||||||||||
Fair value of warrants for services | 458,476 | 458,476 | ||||||||||||||||||
Issuance of shares for services | 250,000 | 250 | 114,750 | 115,000 | ||||||||||||||||
Net loss | (12,510,521 | ) | (12,510,521 | ) | ||||||||||||||||
Balance, September 30, 2009 | 14,557,653 | $ | 14,570 | $ | 54,450,995 | $ | (68,082,355 | ) | $ | (13,616,790 | ) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (12,510,521 | ) | $ | (4,687,810 | ) | ||
Gain from discontinued operations | (1,077,337 | ) | (2,351,962 | ) | ||||
Net loss from continuing operations | (13,587,858 | ) | (7,039,772 | ) | ||||
Adjustments to reconcile net loss to cash provided by (used in) operating activities | ||||||||
Depreciation and amortization | 738,534 | 420,294 | ||||||
Amortization of discount on financing agreement | 1,657,287 | 2,141,610 | ||||||
Fair value of vested options | 642,843 | 634,213 | ||||||
Issuance of shares and warrants for services | 573,476 | 57,405 | ||||||
Amortization of discount on notes | 137,393 | 210,281 | ||||||
Amortization of deferred financing fees | 144,397 | 410,127 | ||||||
Cost to induce conversion of debt | 388,333 | - | ||||||
Gain on change in derivative instruments | (988,342 | ) | - | |||||
Loss on extinguishment of debt | 4,039,358 | - | ||||||
Changes in assets and liabilities: | ||||||||
Accounts Receivable | 2,187,903 | 2,162,436 | ||||||
Prepaid and other current assets | (275,303 | ) | (198,422 | ) | ||||
Deposits and restricted cash | 352,840 | (52,526 | ) | |||||
Accounts Payable | 914,314 | (1,598,916 | ) | |||||
Accrued interest on related party notes | 35,340 | - | ||||||
Accrued interest on notes payable | 224,896 | 28,141 | ||||||
Accrued expenses and other liabilities | (169,057 | ) | (368,949 | ) | ||||
NET CASH USED IN CONTINUING OPERATIONS | (2,983,646 | ) | (3,194,078 | ) | ||||
NET CASH PROVIDED BY DISCONTINUED OPERATIONS | 3,366,451 | 2,147,483 | ||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 382,805 | (1,046,595 | ) | |||||
INVESTING ACTIVITIES | ||||||||
Acquisitions, net of cash received, and notes payable issued to seller | - | (2,150,000 | ) | |||||
Proceeds from sale of property and equipment | 30,674 | - | ||||||
Additions to property and equipment | - | (76,598 | ) | |||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS | 30,674 | (2,226,598 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS | (269,571 | ) | (214,348 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (238,897 | ) | (2,440,946 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net advances from notes payable – financing agreement | (132,581 | ) | 4,511,596 | |||||
Advances from related parties | 204,943 | 505,101 | ||||||
Proceeds from exercise of options and warrants | 3,937 | - | ||||||
Payment for deferred financing fees | (147,607 | ) | ||||||
Payment of notes payable | (37,500 | ) | (1,302,500 | ) | ||||
Repayment of convertible notes | - | - | ||||||
Payment on capital leases | (202,142 | ) | (164,631 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS | (163,343 | ) | 3,401,959 | |||||
NET CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS | (316,872 | ) | (264,473 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (480,215 | ) | 3,137,486 | |||||
DECREASE IN CASH AND CASH EQUIVALENTS | (336,307 | ) | (350,055 | ) | ||||
(continued) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Cash at beginning of period | 375,983 | 954,581 | ||||||
CASH AT END OF PERIOD | $ | 39,676 | $ | 604,526 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest Expense | $ | 1,075,928 | $ | 852,648 | ||||
SUPPLEMENTAL DISCLOSURE OF NON – CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Acquisition of leased equipment and capital lease obligations | $ | - | $ | 1,658,066 | ||||
Conversion of debt to common stock | 483,284 | - | ||||||
Issuance of common stock to related party for extension of debt | - | 220,000 | ||||||
Issuance of note payable on acquisition | - | 1,250,000 | ||||||
Valuation of warrants allocated to deferred fees | - | 179,982 | ||||||
Fair value of warrants and valuation discount after modification | 8,826,697 | - | ||||||
Fair value of warrants issued to related party for extension of debt | - | 222,500 | ||||||
Closing fees due to related party included as deferred financing fees | - | 250,000 | ||||||
Cumulative effect of adoption of accounting principle and establishment of derivative liability on: | ||||||||
Notes payable | 1,408,828 | - | ||||||
Stockholders’ deficiency | 717,763 | - | ||||||
See accompanying notes to the condensed consolidated financial statements |
Level 1 | Level 2 | Level 3 | Total | |
Fair value of warrants and embedded derivatives | - | - | $ 4,931,579 | $ 4,931,579 |
Nine months ended | Three months ended | |||||||
September 30, 2008 | September 30, 2008 | |||||||
Net sales | $ | 24,515,085 | $ | 10,038,594 | ||||
Cost of sales | 20,081,827 | 7,754,888 | ||||||
Gross profit (Loss) | 4,433,258 | 2,283,706 | ||||||
Operating expenses | 9,164,204 | 4,367,031 | ||||||
Operating loss | (4,730,946 | ) | (2,083,325 | ) | ||||
Other income (expense): | ||||||||
Interest income | 52,922 | 28,424 | ||||||
Interest expense and amortization of deferred financing costs | (3,662,522 | ) | (2,062,208 | ) | ||||
Other non-operating income | 113,188 | 77,929 | ||||||
Loss from operations | (8,227,358 | ) | (4,039,180 | ) | ||||
Gain (loss) from discontinued operations | 2,351,965 | 1,004,679 | ||||||
Net Loss | $ | (5,875,393 | ) | $ | (3,034,501 | ) | ||
Loss per weighted average share, basic and diluted | $ | (.46 | ) | $ | (.24 | ) |
Nine months ended | Three months ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
Net sales | $ | 7,124,237 | $ | 7,771,644 | $ | 661,195 | $ | 3,089,985 | ||||||||
Cost of sales | 5,432,842 | 4,779,397 | 635,180 | 1,878,884 | ||||||||||||
Gross profit (Loss) | 1,691,395 | 2,992,247 | 26,015 | 1,211,101 | ||||||||||||
Operating expenses | 524,816 | 547,007 | 81,726 | 177,548 | ||||||||||||
Operating profit (loss) | 1,166,579 | 2,445,240 | (55,711 | ) | 1,033,553 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 151 | - | - | - | ||||||||||||
Interest expense and financing costs | (89,068 | ) | (93,278 | ) | (12,850 | ) | (28,874 | ) | ||||||||
Gain on disposal of fixed assets | (325 | ) | - | - | - | |||||||||||
Gain (loss) from discontinued operations | $ | 1,077,337 | $ | 2,351,962 | $ | (68,561 | ) | $ | 1,004,679 |
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
Land | $ | 905,000 | $ | 905,000 | ||||
Building and improvements | 1,140,656 | 1,140,656 | ||||||
Vehicles | 2,518,815 | 2,687,128 | ||||||
Equipment and furniture | 422,240 | 411,064 | ||||||
Warehouse equipment | 2,719,960 | 5,277,892 | ||||||
Leasehold improvements | 209,881 | 242,678 | ||||||
Asset retirement obligations | 35,846 | 35,846 | ||||||
7,952,398 | 10,700,264 | |||||||
Less accumulated depreciation and amortization | 2,761,186 | 2,917,056 | ||||||
Property and equipment net of accumulated depreciation and amortization | $ | 5,191,212 | $ | 7,783,208 |
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
Rancho Cordova acquisition – permit | $ | 475,614 | $ | 475,614 | ||||
Prime acquisition – customers | 400,422 | 400,422 | ||||||
GMTS acquisition – customers | - | 438,904 | ||||||
GMTS acquisition – permits | - | 27,090 | ||||||
Accumulated amortization | (328,804 | ) | (477,249 | ) | ||||
$ | 547,232 | $ | 864,781 |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(a) Secured notes from Laurus and affiliated entities | $ | - | $ | 6,413,605 | ||||
(b) Secured Notes from CVC California | 13,547,909 | - | ||||||
Valuation Discount | (3,181,365 | ) | (2,042,192 | ) | ||||
10,366,544 | 4,371,413 | |||||||
Less current portion | (10,366,544 | ) | (662,719 | ) | ||||
Financing agreement, net of current portion | $ | 0 | $ | 3,708,694 |
Year Ended December 31, | Amount | |||
2009 | $ | 13,547,909 | ||
2010 | - | |||
2011 | - | |||
Total | $ | 13,547,909 |
December 31, 2008 | December 31, 2007 | |||||||
(a) Vehicle note | $ | 12,865 | $ | 22,303 | ||||
(b) Notes Payable, Alliance | - | 1,250,000 | ||||||
(c) Equipment notes | 67,102 | 97,628 | ||||||
(d) Notes Payable, Island Acquisition | 1,250,000 | - | ||||||
1,329,967 | 1,369,931 | |||||||
Loan Discount | - | (15,625 | ) | |||||
1,329,967 | 1,354,306 | |||||||
Less current portion | 794,278 | 1,274,464 | ||||||
Notes payable, net of current portion | $ | 535,689 | $ | 79,842 |
Year Ended December 31, | Amount | |||
2009 | $ | 794,278 | ||
2010 | 35,689 | |||
2011 | 500,000 | |||
$ | 1,329,967 |
Years Ending December 31, | Amount | |||
2009 | $ | 893,149 | ||
2010 | 723,857 | |||
2011 | 679,137 | |||
2012 | 571,962 | |||
2013 | 193,361 | |||
Thereafter | 56,274 | |||
Total payments | 3,117,740 | |||
Less: amount representing interest | (742,879 | ) | ||
Present value of minimum lease payments | 2,374,861 | |||
Less: current portion | (623,007 | ) | ||
Non-current portion | $ | 1,751,854 |
Weighted Avg. | ||||||||
Options | Exercise Price | |||||||
Options outstanding, January 1, 2007 | 67,067 | $ | 28.20 | |||||
Options granted | 5,233,268 | 1.33 | ||||||
Options exercised | (100 | ) | 1.19 | |||||
Options cancelled | (300,042 | ) | 2.10 | |||||
Options, December 31, 2007 | 5,000,193 | 1.64 | ||||||
Options granted | 173,000 | 1.35 | ||||||
Options exercised | - | - | ||||||
Options cancelled | (385,853 | ) | 1.44 | |||||
Options outstanding, December 31, 2008 | 4,787,340 | $ | 1.65 | |||||
Options exercisable, December 31, 2008 | 3,183,704 | $ | 1.75 |
Range of exercise prices | Total options outstanding | Weighted average remaining life in years | Total weighted average exercise price | Options exercisable | Exercisable weighted average exercise price | |||||||||||||||||
$ | 30.00 | 36,870 | 4.17 | $ | 30.00 | 36,115 | $ | 30.00 | ||||||||||||||
48.00 | 134 | 4.25 | 48.00 | 120 | 48.00 | |||||||||||||||||
39.00 | 9,335 | 4.50 | 39.00 | 7,936 | 39.00 | |||||||||||||||||
35.10 | 451 | 4.75 | 35.10 | 361 | 35.10 | |||||||||||||||||
25.80 | 2,501 | 5.25 | 25.80 | 1,751 | 25.80 | |||||||||||||||||
6.60 | 5,838 | 5.58 | 6.60 | 3,797 | 6.60 | |||||||||||||||||
2.50 | 328,000 | 8.83 | 2.50 | 163,988 | 2.50 | |||||||||||||||||
1.99 | 14,000 | 9.33 | 1.99 | 5,250 | 1.99 | |||||||||||||||||
1.70 | 466,000 | 9.01 | 1.70 | 255,430 | 1.70 | |||||||||||||||||
1.19 | 3,819,275 | 8.25 | 1.19 | 2,679,463 | 1.19 | |||||||||||||||||
1.10 | 63,000 | 9.83 | 1.10 | 15,750 | 1.10 | |||||||||||||||||
1.05 | 41,936 | 9.58 | 1.05 | 13,743 | 1.05 | |||||||||||||||||
$ | 1.05-$48.00 | 4,787,340 | 8.36 | $ | 1.65 | 3,183,704 | $ | 1.75 |
Warrants | Range of Exercise Prices | Intrinsic Value | ||||||||||
Warrants outstanding, January 1, 2007 | 1,183,989 | $ | 0.60-$120.00 | - | ||||||||
Warrants granted | 4,900,467 | $ | 0.60-$2.75 | - | ||||||||
Warrants exercised | - | - | - | |||||||||
Warrants expired | (102,821 | ) | $ | 0.30- $60.00 | - | |||||||
Warrants outstanding, December 31, 2007 | 5,981,635 | $ | 0.60-$120.00 | $ | 4,205,800 | |||||||
Warrants granted | 3,762,000 | $ | 0.60-$2.25 | - | ||||||||
Warrants exercised | (5,000 | ) | 0.60 | - | ||||||||
Warrants expired | (210,741 | ) | $ | 1.20-$120.00 | - | |||||||
Warrants outstanding, December 31, 2008 | 9,527,894 | $ | 0.60-$37.50 | $ | 451,813 |
Range of exercise prices | Total warrants outstanding | Weighted average remaining life in years | Total weighted average exercise price | Warrants exercisable | Exercisable weighted average exercise price | |||||||||||||||||
$ | 37.50 | 12,584 | 0.39 | $ | 37.50 | 12,584 | $ | 37.50 | ||||||||||||||
30.00 | 9,112 | 0.25 | 30.00 | 9,112 | 30.00 | |||||||||||||||||
26.10 | 125,072 | 4.17 | 26.10 | 125,072 | 26.10 | |||||||||||||||||
2.75 | 330,909 | 5.83 | 2.75 | 330,909 | 2.75 | |||||||||||||||||
2.25 | 300,000 | 5.67 | 2.25 | 300,000 | 2.25 | |||||||||||||||||
1.70 | 50,000 | 5.00 | 1.70 | 50,000 | 1.70 | |||||||||||||||||
1.38 | 661,818 | 5.83 | 1.38 | 661,818 | 1.38 | |||||||||||||||||
1.20 | 412,770 | 2.23 | 1.20 | 412,770 | 1.20 | |||||||||||||||||
1.19 | 3,072,500 | 5.42 | 1.19 | 3,072,500 | 1.19 | |||||||||||||||||
1.05 | 35,000 | 9.58 | 1.05 | 35,000 | 1.05 | |||||||||||||||||
0.60 | 4,518,129 | 4.45 | 0.60 | 4,518,129 | 0.60 | |||||||||||||||||
$ | 0.60-$37.50 | 9,527,894 | 4.86 | $ | 0.60-$37.50 | 9,527,894 | $ | 0.60-37.50 |
Year Ended December 31, | Amount | |||
2009 | $ | 1,452,296 | ||
2010 | 1,381,358 | |||
2011 | 1,202,955 | |||
2012 | 1,014,028 | |||
2013 | 800,416 | |||
Thereafter | 3,213,560 | |||
$ | 9,064,613 |
2008 | 2007 | |||||||
Deferred tax asset, net operating loss | $ | 14,184,661 | $ | 11,677,897 | ||||
Less valuation allowance | (14,184,661 | ) | (11,677,897 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
2008 | 2007 | |||||||
Tax expense at U.S. statutory income tax rate | (34.0) | % | (34.0) | % | ||||
Increase in the valuation allowance | 34.0 | 34.0 | ||||||
Effective rate | - | - |
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 39,676 | $ | 375,983 | ||||
Accounts receivable, net of allowance for doubtful accounts of $121,972 and $174,834, respectively | 2,989,745 | 6,729,743 | ||||||
Prepaid expenses and other current assets | 768,852 | 537,289 | ||||||
Total Current Assets | 3,798,273 | 7,643,015 | ||||||
Property and Equipment – net of accumulated depreciation $2,761,186 and $2,917,056, respectively | 5,191,212 | 7,783,208 | ||||||
Restricted cash | 900,039 | 1,199,784 | ||||||
Intangible assets, net | 547,232 | 864,781 | ||||||
Deferred financing fees | 369,015 | 513,412 | ||||||
Deposits | 191,686 | 291,224 | ||||||
Goodwill | 84,505 | 946,119 | ||||||
Net assets of operations held for sale | 1,089,341 | - | ||||||
TOTAL ASSETS | $ | 12,171,303 | $ | 19,241,543 | ||||
(Continued) | ||||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 4,082,904 | $ | 3,499,178 | ||||
Accrued expenses | 2,405,394 | 2,620,224 | ||||||
Accrued disposal costs | 536,519 | 743,474 | ||||||
Payable to related party | 741,719 | 706,868 | ||||||
Deferred rent | 35,254 | 41,202 | ||||||
Derivative liabilities | 4,931,579 | - | ||||||
Current portion of financing agreement | 4,858,771 | 10,366,544 | ||||||
Current portion of long term obligations | - | 794,278 | ||||||
Current portion of capital lease obligations | 277,372 | 623,007 | ||||||
Liabilities of discontinued operations | - | - | ||||||
Total Current Liabilities | 17,869,512 | 19,394,775 | ||||||
LONG-TERM LIABILITIES : | ||||||||
Financing agreement, net of current portion | 5,425,678 | - | ||||||
Long term obligations, net of current portion | 1,758,473 | 1,025,294 | ||||||
Capital lease obligations, net of current portion | 734,430 | 1,751,854 | ||||||
Total Long-Term Liabilities | 7,918,581 | 2,777,148 | ||||||
STOCKHOLDERS’ DEFICIENCY | ||||||||
Common stock, $.001 par value, 1,000,000,000 shares authorized, 14,557,653 and 12,691,409 shares issued and outstanding | 14,570 | 12,692 | ||||||
Additional paid in capital | 54,450,995 | 53,585,035 | ||||||
Accumulated deficit | (68,082,355 | ) | (56,528,107 | ) | ||||
Total Stockholders' Deficiency | (13,616,790 | ) | (2,930,380 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | $ | 12,171,303 | $ | 19,241,543 | ||||
See accompanying notes to the condensed consolidated financial statements. |
Nine months ended | Three months ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
REVENUES | $ | 12,589,161 | $ | 17,217,566 | $ | 4,046,961 | $ | 5,540,990 | ||||||||
COST OF REVENUES | 12,906,589 | 15,548,592 | 3,839,343 | 4,981,391 | ||||||||||||
GROSS PROFIT (LOSS) | (317,428 | ) | 1,668,974 | 207,618 | 559,599 | |||||||||||
OPERATING EXPENSES | 6,607,657 | 5,104,099 | 2,351,196 | 1,667,630 | ||||||||||||
OPERATING LOSS | (6,925,085 | ) | (3,435,125 | ) | (2,143,578 | ) | (1,108,031 | ) | ||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||
Interest income | 19,403 | 15,894 | 18,794 | 6,082 | ||||||||||||
Interest and financing costs | (3,724,968 | ) | (3,655,714 | ) | (1,800,800 | ) | (2,058,799 | ) | ||||||||
Gain on disposal of fixed assets | 66,050 | - | - | - | ||||||||||||
Gain on derivative financial instruments | 988,342 | - | 2,688,452 | - | ||||||||||||
Loss on extinguishment of debt | (4,039,358 | ) | - | (1,858,007 | ) | - | ||||||||||
Other non-operating income | 27,758 | 35,173 | 8,569 | 18,479 | ||||||||||||
LOSS FROM CONTINUING OPERATIONS | (13,587,858 | ) | (7,039,772 | ) | (3,086,570 | ) | (3,142,269 | ) | ||||||||
GAIN (LOSS) FROM DISCONTINUED OPERATIONS | 1,077,337 | 2,351,962 | (68,561 | ) | 1,004,679 | |||||||||||
NET LOSS | $ | (12,510,521 | ) | $ | (4,687,810 | ) | $ | (3,155,131 | ) | $ | (2,137,590 | ) | ||||
Loss per common share, basic and diluted: | ||||||||||||||||
Continuing operations | $ | (1.02 | ) | $ | (.56 | ) | $ | (0.22 | ) | $ | (.25 | ) | ||||
Discontinued operations | .08 | 0.19 | - | .08 | ||||||||||||
Net loss | $ | (.94 | ) | $ | (.37 | ) | $ | (.22 | ) | $ | (.17 | ) | ||||
Weighted average shares of common stock outstanding, basic and diluted | 13,348,530 | 12,673,885 | 14,283,470 | 12,673,885 |
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, December 31, 2008 | 12,691,409 | $ | 12,692 | $ | 53,585,035 | $ | (56,528,107 | ) | $ | (2,930,380 | ) | |||||||||
Cumulative effect of change in accounting principle January 1, 2009 reclassification of embedded feature of equity linked financial instruments to derivative liabilities | (1,674,036 | ) | 956,273 | (717,763 | ) | |||||||||||||||
Stock compensation cost for value of vested options | 642,843 | 642,843 | ||||||||||||||||||
Issuance of shares on exercise of options | 250 | 187 | 187 | |||||||||||||||||
Issuance of shares on exercise of warrants | 6,250 | 6 | 3,744 | 3,750 | ||||||||||||||||
Issuance of shares on conversion of debt | 1,009,744 | 1,022 | 639,456 | 640,478 | ||||||||||||||||
Issuance of shares to secured lender | 600,000 | 600 | 449,400 | 450,000 | ||||||||||||||||
Issuance of warrants on conversion of interest | 231,140 | 231,140 | ||||||||||||||||||
Fair value of warrants for services | 458,476 | 458,476 | ||||||||||||||||||
Issuance of shares for services | 250,000 | 250 | 114,750 | 115,000 | ||||||||||||||||
Net loss | (12,510,521 | ) | (12,510,521 | ) | ||||||||||||||||
Balance, September 30, 2009 | 14,557,653 | $ | 14,570 | $ | 54,450,995 | $ | (68,082,355 | ) | $ | (13,616,790 | ) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (12,510,521 | ) | $ | (4,687,810 | ) | ||
Gain from discontinued operations | (1,077,337 | ) | (2,351,962 | ) | ||||
Net loss from continuing operations | (13,587,858 | ) | (7,039,772 | ) | ||||
Adjustments to reconcile net loss to cash provided by (used in) operating activities | ||||||||
Depreciation and amortization | 738,534 | 420,294 | ||||||
Amortization of discount on financing agreement | 1,657,287 | 2,141,610 | ||||||
Fair value of vested options | 642,843 | 634,213 | ||||||
Issuance of shares and warrants for services | 573,476 | 57,405 | ||||||
Amortization of discount on notes | 137,393 | 210,281 | ||||||
Amortization of deferred financing fees | 144,397 | 410,127 | ||||||
Cost to induce conversion of debt | 388,333 | - | ||||||
Gain on change in derivative instruments | (988,342 | ) | - | |||||
Loss on extinguishment of debt | 4,039,358 | - | ||||||
Changes in assets and liabilities: | ||||||||
Accounts Receivable | 2,187,903 | 2,162,436 | ||||||
Prepaid and other current assets | (275,303 | ) | (198,422 | ) | ||||
Deposits and restricted cash | 352,840 | (52,526 | ) | |||||
Accounts Payable | 914,314 | (1,598,916 | ) | |||||
Accrued interest on related party notes | 35,340 | - | ||||||
Accrued interest on notes payable | 224,896 | 28,141 | ||||||
Accrued expenses and other liabilities | (169,057 | ) | (368,949 | ) | ||||
NET CASH USED IN CONTINUING OPERATIONS | (2,983,646 | ) | (3,194,078 | ) | ||||
NET CASH PROVIDED BY DISCONTINUED OPERATIONS | 3,366,451 | 2,147,483 | ||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 382,805 | (1,046,595 | ) | |||||
INVESTING ACTIVITIES | ||||||||
Acquisitions, net of cash received, and notes payable issued to seller | - | (2,150,000 | ) | |||||
Proceeds from sale of property and equipment | 30,674 | - | ||||||
Additions to property and equipment | - | (76,598 | ) | |||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS | 30,674 | (2,226,598 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS | (269,571 | ) | (214,348 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (238,897 | ) | (2,440,946 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net advances from notes payable – financing agreement | (132,581 | ) | 4,511,596 | |||||
Advances from related parties | 204,943 | 505,101 | ||||||
Proceeds from exercise of options and warrants | 3,937 | - | ||||||
Payment for deferred financing fees | (147,607 | ) | ||||||
Payment of notes payable | (37,500 | ) | (1,302,500 | ) | ||||
Repayment of convertible notes | - | - | ||||||
Payment on capital leases | (202,142 | ) | (164,631 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS | (163,343 | ) | 3,401,959 | |||||
NET CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS | (316,872 | ) | (264,473 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (480,215 | ) | 3,137,486 | |||||
DECREASE IN CASH AND CASH EQUIVALENTS | (336,307 | ) | (350,055 | ) | ||||
(continued) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Cash at beginning of period | 375,983 | 954,581 | ||||||
CASH AT END OF PERIOD | $ | 39,676 | $ | 604,526 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest Expense | $ | 1,075,928 | $ | 852,648 | ||||
SUPPLEMENTAL DISCLOSURE OF NON – CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Acquisition of leased equipment and capital lease obligations | $ | - | $ | 1,658,066 | ||||
Conversion of debt to common stock | 483,284 | - | ||||||
Issuance of common stock to related party for extension of debt | - | 220,000 | ||||||
Issuance of note payable on acquisition | - | 1,250,000 | ||||||
Valuation of warrants allocated to deferred fees | - | 179,982 | ||||||
Fair value of warrants and valuation discount after modification | 8,826,697 | - | ||||||
Fair value of warrants issued to related party for extension of debt | - | 222,500 | ||||||
Closing fees due to related party included as deferred financing fees | - | 250,000 | ||||||
Cumulative effect of adoption of accounting principle and establishment of derivative liability on: | ||||||||
Notes payable | 1,408,828 | - | ||||||
Stockholders’ deficiency | 717,763 | - | ||||||
See accompanying notes to the condensed consolidated financial statements |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
(a) Secured notes from Laurus and affiliated entities | $ | - | $ | 6,413,605 | ||||
(b) Secured Notes from CVC California | 13,547,909 | - | ||||||
Valuation Discount | (3,181,365 | ) | (2,042,192 | ) | ||||
10,366,544 | 4,371,413 | |||||||
Less current portion | (10,366,544 | ) | (662,719 | ) | ||||
Financing agreement, net of current portion | $ | 0 | $ | 3,708,694 |
Year Ended December 31, | Amount | |||
2009 | $ | 13,547,909 | ||
2010 | - | |||
2011 | - | |||
Total | $ | 13,547,909 |
December 31, 2008 | December 31, 2007 | |||||||
(a) Vehicle note | $ | 12,865 | $ | 22,303 | ||||
(b) Notes Payable, Alliance | - | 1,250,000 | ||||||
(c) Equipment notes | 67,102 | 97,628 | ||||||
(d) Notes Payable, Island Acquisition | 1,250,000 | - | ||||||
1,329,967 | 1,369,931 | |||||||
Loan Discount | - | (15,625 | ) | |||||
1,329,967 | 1,354,306 | |||||||
Less current portion | 794,278 | 1,274,464 | ||||||
Notes payable, net of current portion | $ | 535,689 | $ | 79,842 |
Year Ended December 31, | Amount | |||
2009 | $ | 794,278 | ||
2010 | 35,689 | |||
2011 | 500,000 | |||
$ | 1,329,967 |
Years Ending December 31, | Amount | |||
2009 | $ | 893,149 | ||
2010 | 723,857 | |||
2011 | 679,137 | |||
2012 | 571,962 | |||
2013 | 193,361 | |||
Thereafter | 56,274 | |||
Total payments | 3,117,740 | |||
Less: amount representing interest | (742,879 | ) | ||
Present value of minimum lease payments | 2,374,861 | |||
Less: current portion | (623,007 | ) | ||
Non-current portion | $ | 1,751,854 |
Weighted Avg. | ||||||||
Options | Exercise Price | |||||||
Options outstanding, January 1, 2007 | 67,067 | $ | 28.20 | |||||
Options granted | 5,233,268 | 1.33 | ||||||
Options exercised | (100 | ) | 1.19 | |||||
Options cancelled | (300,042 | ) | 2.10 | |||||
Options, December 31, 2007 | 5,000,193 | 1.64 | ||||||
Options granted | 173,000 | 1.35 | ||||||
Options exercised | - | - | ||||||
Options cancelled | (385,853 | ) | 1.44 | |||||
Options outstanding, December 31, 2008 | 4,787,340 | $ | 1.65 | |||||
Options exercisable, December 31, 2008 | 3,183,704 | $ | 1.75 |
Range of exercise prices | Total options outstanding | Weighted average remaining life in years | Total weighted average exercise price | Options exercisable | Exercisable weighted average exercise price | |||||||||||||||||
$ | 30.00 | 36,870 | 4.17 | $ | 30.00 | 36,115 | $ | 30.00 | ||||||||||||||
48.00 | 134 | 4.25 | 48.00 | 120 | 48.00 | |||||||||||||||||
39.00 | 9,335 | 4.50 | 39.00 | 7,936 | 39.00 | |||||||||||||||||
35.10 | 451 | 4.75 | 35.10 | 361 | 35.10 | |||||||||||||||||
25.80 | 2,501 | 5.25 | 25.80 | 1,751 | 25.80 | |||||||||||||||||
6.60 | 5,838 | 5.58 | 6.60 | 3,797 | 6.60 | |||||||||||||||||
2.50 | 328,000 | 8.83 | 2.50 | 163,988 | 2.50 | |||||||||||||||||
1.99 | 14,000 | 9.33 | 1.99 | 5,250 | 1.99 | |||||||||||||||||
1.70 | 466,000 | 9.01 | 1.70 | 255,430 | 1.70 | |||||||||||||||||
1.19 | 3,819,275 | 8.25 | 1.19 | 2,679,463 | 1.19 | |||||||||||||||||
1.10 | 63,000 | 9.83 | 1.10 | 15,750 | 1.10 | |||||||||||||||||
1.05 | 41,936 | 9.58 | 1.05 | 13,743 | 1.05 | |||||||||||||||||
$ | 1.05-$48.00 | 4,787,340 | 8.36 | $ | 1.65 | 3,183,704 | $ | 1.75 |
Warrants | Range of Exercise Prices | Intrinsic Value | ||||||||||
Warrants outstanding, January 1, 2007 | 1,183,989 | $ | 0.60-$120.00 | - | ||||||||
Warrants granted | 4,900,467 | $ | 0.60-$2.75 | - | ||||||||
Warrants exercised | - | - | - | |||||||||
Warrants expired | (102,821 | ) | $ | 0.30- $60.00 | - | |||||||
Warrants outstanding, December 31, 2007 | 5,981,635 | $ | 0.60-$120.00 | $ | 4,205,800 | |||||||
Warrants granted | 3,762,000 | $ | 0.60-$2.25 | - | ||||||||
Warrants exercised | (5,000 | ) | 0.60 | - | ||||||||
Warrants expired | (210,741 | ) | $ | 1.20-$120.00 | - | |||||||
Warrants outstanding, December 31, 2008 | 9,527,894 | $ | 0.60-$37.50 | $ | 451,813 |
Range of exercise prices | Total warrants outstanding | Weighted average remaining life in years | Total weighted average exercise price | Warrants exercisable | Exercisable weighted average exercise price | |||||||||||||||||
$ | 37.50 | 12,584 | 0.39 | $ | 37.50 | 12,584 | $ | 37.50 | ||||||||||||||
30.00 | 9,112 | 0.25 | 30.00 | 9,112 | 30.00 | |||||||||||||||||
26.10 | 125,072 | 4.17 | 26.10 | 125,072 | 26.10 | |||||||||||||||||
2.75 | 330,909 | 5.83 | 2.75 | 330,909 | 2.75 | |||||||||||||||||
2.25 | 300,000 | 5.67 | 2.25 | 300,000 | 2.25 | |||||||||||||||||
1.70 | 50,000 | 5.00 | 1.70 | 50,000 | 1.70 | |||||||||||||||||
1.38 | 661,818 | 5.83 | 1.38 | 661,818 | 1.38 | |||||||||||||||||
1.20 | 412,770 | 2.23 | 1.20 | 412,770 | 1.20 | |||||||||||||||||
1.19 | 3,072,500 | 5.42 | 1.19 | 3,072,500 | 1.19 | |||||||||||||||||
1.05 | 35,000 | 9.58 | 1.05 | 35,000 | 1.05 | |||||||||||||||||
0.60 | 4,518,129 | 4.45 | 0.60 | 4,518,129 | 0.60 | |||||||||||||||||
$ | 0.60-$37.50 | 9,527,894 | 4.86 | $ | 0.60-$37.50 | 9,527,894 | $ | 0.60-37.50 |
Year Ended December 31, | Amount | |||
2009 | $ | 1,452,296 | ||
2010 | 1,381,358 | |||
2011 | 1,202,955 | |||
2012 | 1,014,028 | |||
2013 | 800,416 | |||
Thereafter | 3,213,560 | |||
$ | 9,064,613 |
2008 | 2007 | |||||||
Deferred tax asset, net operating loss | $ | 14,184,661 | $ | 11,677,897 | ||||
Less valuation allowance | (14,184,661 | ) | (11,677,897 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
2008 | 2007 | |||||||
Tax expense at U.S. statutory income tax rate | (34.0) | % | (34.0) | % | ||||
Increase in the valuation allowance | 34.0 | 34.0 | ||||||
Effective rate | - | - |
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 39,676 | $ | 375,983 | ||||
Accounts receivable, net of allowance for doubtful accounts of $121,972 and $174,834, respectively | 2,989,745 | 6,729,743 | ||||||
Prepaid expenses and other current assets | 768,852 | 537,289 | ||||||
Total Current Assets | 3,798,273 | 7,643,015 | ||||||
Property and Equipment – net of accumulated depreciation $2,761,186 and $2,917,056, respectively | 5,191,212 | 7,783,208 | ||||||
Restricted cash | 900,039 | 1,199,784 | ||||||
Intangible assets, net | 547,232 | 864,781 | ||||||
Deferred financing fees | 369,015 | 513,412 | ||||||
Deposits | 191,686 | 291,224 | ||||||
Goodwill | 84,505 | 946,119 | ||||||
Net assets of operations held for sale | 1,089,341 | - | ||||||
TOTAL ASSETS | $ | 12,171,303 | $ | 19,241,543 | ||||
(Continued) | ||||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 4,082,904 | $ | 3,499,178 | ||||
Accrued expenses | 2,405,394 | 2,620,224 | ||||||
Accrued disposal costs | 536,519 | 743,474 | ||||||
Payable to related party | 741,719 | 706,868 | ||||||
Deferred rent | 35,254 | 41,202 | ||||||
Derivative liabilities | 4,931,579 | - | ||||||
Current portion of financing agreement | 4,858,771 | 10,366,544 | ||||||
Current portion of long term obligations | - | 794,278 | ||||||
Current portion of capital lease obligations | 277,372 | 623,007 | ||||||
Liabilities of discontinued operations | - | - | ||||||
Total Current Liabilities | 17,869,512 | 19,394,775 | ||||||
LONG-TERM LIABILITIES : | ||||||||
Financing agreement, net of current portion | 5,425,678 | - | ||||||
Long term obligations, net of current portion | 1,758,473 | 1,025,294 | ||||||
Capital lease obligations, net of current portion | 734,430 | 1,751,854 | ||||||
Total Long-Term Liabilities | 7,918,581 | 2,777,148 | ||||||
STOCKHOLDERS’ DEFICIENCY | ||||||||
Common stock, $.001 par value, 1,000,000,000 shares authorized, 14,557,653 and 12,691,409 shares issued and outstanding | 14,570 | 12,692 | ||||||
Additional paid in capital | 54,450,995 | 53,585,035 | ||||||
Accumulated deficit | (68,082,355 | ) | (56,528,107 | ) | ||||
Total Stockholders' Deficiency | (13,616,790 | ) | (2,930,380 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | $ | 12,171,303 | $ | 19,241,543 | ||||
See accompanying notes to the condensed consolidated financial statements. |
Nine months ended | Three months ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
REVENUES | $ | 12,589,161 | $ | 17,217,566 | $ | 4,046,961 | $ | 5,540,990 | ||||||||
COST OF REVENUES | 12,906,589 | 15,548,592 | 3,839,343 | 4,981,391 | ||||||||||||
GROSS PROFIT (LOSS) | (317,428 | ) | 1,668,974 | 207,618 | 559,599 | |||||||||||
OPERATING EXPENSES | 6,607,657 | 5,104,099 | 2,351,196 | 1,667,630 | ||||||||||||
OPERATING LOSS | (6,925,085 | ) | (3,435,125 | ) | (2,143,578 | ) | (1,108,031 | ) | ||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||
Interest income | 19,403 | 15,894 | 18,794 | 6,082 | ||||||||||||
Interest and financing costs | (3,724,968 | ) | (3,655,714 | ) | (1,800,800 | ) | (2,058,799 | ) | ||||||||
Gain on disposal of fixed assets | 66,050 | - | - | - | ||||||||||||
Gain on derivative financial instruments | 988,342 | - | 2,688,452 | - | ||||||||||||
Loss on extinguishment of debt | (4,039,358 | ) | - | (1,858,007 | ) | - | ||||||||||
Other non-operating income | 27,758 | 35,173 | 8,569 | 18,479 | ||||||||||||
LOSS FROM CONTINUING OPERATIONS | (13,587,858 | ) | (7,039,772 | ) | (3,086,570 | ) | (3,142,269 | ) | ||||||||
GAIN (LOSS) FROM DISCONTINUED OPERATIONS | 1,077,337 | 2,351,962 | (68,561 | ) | 1,004,679 | |||||||||||
NET LOSS | $ | (12,510,521 | ) | $ | (4,687,810 | ) | $ | (3,155,131 | ) | $ | (2,137,590 | ) | ||||
Loss per common share, basic and diluted: | ||||||||||||||||
Continuing operations | $ | (1.02 | ) | $ | (.56 | ) | $ | (0.22 | ) | $ | (.25 | ) | ||||
Discontinued operations | .08 | 0.19 | - | .08 | ||||||||||||
Net loss | $ | (.94 | ) | $ | (.37 | ) | $ | (.22 | ) | $ | (.17 | ) | ||||
Weighted average shares of common stock outstanding, basic and diluted | 13,348,530 | 12,673,885 | 14,283,470 | 12,673,885 |
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, December 31, 2008 | 12,691,409 | $ | 12,692 | $ | 53,585,035 | $ | (56,528,107 | ) | $ | (2,930,380 | ) | |||||||||
Cumulative effect of change in accounting principle January 1, 2009 reclassification of embedded feature of equity linked financial instruments to derivative liabilities | (1,674,036 | ) | 956,273 | (717,763 | ) | |||||||||||||||
Stock compensation cost for value of vested options | 642,843 | 642,843 | ||||||||||||||||||
Issuance of shares on exercise of options | 250 | 187 | 187 | |||||||||||||||||
Issuance of shares on exercise of warrants | 6,250 | 6 | 3,744 | 3,750 | ||||||||||||||||
Issuance of shares on conversion of debt | 1,009,744 | 1,022 | 639,456 | 640,478 | ||||||||||||||||
Issuance of shares to secured lender | 600,000 | 600 | 449,400 | 450,000 | ||||||||||||||||
Issuance of warrants on conversion of interest | 231,140 | 231,140 | ||||||||||||||||||
Fair value of warrants for services | 458,476 | 458,476 | ||||||||||||||||||
Issuance of shares for services | 250,000 | 250 | 114,750 | 115,000 | ||||||||||||||||
Net loss | (12,510,521 | ) | (12,510,521 | ) | ||||||||||||||||
Balance, September 30, 2009 | 14,557,653 | $ | 14,570 | $ | 54,450,995 | $ | (68,082,355 | ) | $ | (13,616,790 | ) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (12,510,521 | ) | $ | (4,687,810 | ) | ||
Gain from discontinued operations | (1,077,337 | ) | (2,351,962 | ) | ||||
Net loss from continuing operations | (13,587,858 | ) | (7,039,772 | ) | ||||
Adjustments to reconcile net loss to cash provided by (used in) operating activities | ||||||||
Depreciation and amortization | 738,534 | 420,294 | ||||||
Amortization of discount on financing agreement | 1,657,287 | 2,141,610 | ||||||
Fair value of vested options | 642,843 | 634,213 | ||||||
Issuance of shares and warrants for services | 573,476 | 57,405 | ||||||
Amortization of discount on notes | 137,393 | 210,281 | ||||||
Amortization of deferred financing fees | 144,397 | 410,127 | ||||||
Cost to induce conversion of debt | 388,333 | - | ||||||
Gain on change in derivative instruments | (988,342 | ) | - | |||||
Loss on extinguishment of debt | 4,039,358 | - | ||||||
Changes in assets and liabilities: | ||||||||
Accounts Receivable | 2,187,903 | 2,162,436 | ||||||
Prepaid and other current assets | (275,303 | ) | (198,422 | ) | ||||
Deposits and restricted cash | 352,840 | (52,526 | ) | |||||
Accounts Payable | 914,314 | (1,598,916 | ) | |||||
Accrued interest on related party notes | 35,340 | - | ||||||
Accrued interest on notes payable | 224,896 | 28,141 | ||||||
Accrued expenses and other liabilities | (169,057 | ) | (368,949 | ) | ||||
NET CASH USED IN CONTINUING OPERATIONS | (2,983,646 | ) | (3,194,078 | ) | ||||
NET CASH PROVIDED BY DISCONTINUED OPERATIONS | 3,366,451 | 2,147,483 | ||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 382,805 | (1,046,595 | ) | |||||
INVESTING ACTIVITIES | ||||||||
Acquisitions, net of cash received, and notes payable issued to seller | - | (2,150,000 | ) | |||||
Proceeds from sale of property and equipment | 30,674 | - | ||||||
Additions to property and equipment | - | (76,598 | ) | |||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS | 30,674 | (2,226,598 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS | (269,571 | ) | (214,348 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES | (238,897 | ) | (2,440,946 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net advances from notes payable – financing agreement | (132,581 | ) | 4,511,596 | |||||
Advances from related parties | 204,943 | 505,101 | ||||||
Proceeds from exercise of options and warrants | 3,937 | - | ||||||
Payment for deferred financing fees | (147,607 | ) | ||||||
Payment of notes payable | (37,500 | ) | (1,302,500 | ) | ||||
Repayment of convertible notes | - | - | ||||||
Payment on capital leases | (202,142 | ) | (164,631 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS | (163,343 | ) | 3,401,959 | |||||
NET CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS | (316,872 | ) | (264,473 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (480,215 | ) | 3,137,486 | |||||
DECREASE IN CASH AND CASH EQUIVALENTS | (336,307 | ) | (350,055 | ) | ||||
(continued) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
Cash at beginning of period | 375,983 | 954,581 | ||||||
CASH AT END OF PERIOD | $ | 39,676 | $ | 604,526 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for: | ||||||||
Interest Expense | $ | 1,075,928 | $ | 852,648 | ||||
SUPPLEMENTAL DISCLOSURE OF NON – CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Acquisition of leased equipment and capital lease obligations | $ | - | $ | 1,658,066 | ||||
Conversion of debt to common stock | 483,284 | - | ||||||
Issuance of common stock to related party for extension of debt | - | 220,000 | ||||||
Issuance of note payable on acquisition | - | 1,250,000 | ||||||
Valuation of warrants allocated to deferred fees | - | 179,982 | ||||||
Fair value of warrants and valuation discount after modification | 8,826,697 | - | ||||||
Fair value of warrants issued to related party for extension of debt | - | 222,500 | ||||||
Closing fees due to related party included as deferred financing fees | - | 250,000 | ||||||
Cumulative effect of adoption of accounting principle and establishment of derivative liability on: | ||||||||
Notes payable | 1,408,828 | - | ||||||
Stockholders’ deficiency | 717,763 | - | ||||||
See accompanying notes to the condensed consolidated financial statements |
Level 1 | Level 2 | Level 3 | Total | |
Fair value of warrants and embedded derivatives | - | - | $ 4,931,579 | $ 4,931,579 |
Nine months ended | Three months ended | |||||||
September 30, 2008 | September 30, 2008 | |||||||
Net sales | $ | 24,515,085 | $ | 10,038,594 | ||||
Cost of sales | 20,081,827 | 7,754,888 | ||||||
Gross profit (Loss) | 4,433,258 | 2,283,706 | ||||||
Operating expenses | 9,164,204 | 4,367,031 | ||||||
Operating loss | (4,730,946 | ) | (2,083,325 | ) | ||||
Other income (expense): | ||||||||
Interest income | 52,922 | 28,424 | ||||||
Interest expense and amortization of deferred financing costs | (3,662,522 | ) | (2,062,208 | ) | ||||
Other non-operating income | 113,188 | 77,929 | ||||||
Loss from operations | (8,227,358 | ) | (4,039,180 | ) | ||||
Gain (loss) from discontinued operations | 2,351,965 | 1,004,679 | ||||||
Net Loss | $ | (5,875,393 | ) | $ | (3,034,501 | ) | ||
Loss per weighted average share, basic and diluted | $ | (.46 | ) | $ | (.24 | ) |
Nine months ended | Three months ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
Net sales | $ | 7,124,237 | $ | 7,771,644 | $ | 661,195 | $ | 3,089,985 | ||||||||
Cost of sales | 5,432,842 | 4,779,397 | 635,180 | 1,878,884 | ||||||||||||
Gross profit (Loss) | 1,691,395 | 2,992,247 | 26,015 | 1,211,101 | ||||||||||||
Operating expenses | 524,816 | 547,007 | 81,726 | 177,548 | ||||||||||||
Operating profit (loss) | 1,166,579 | 2,445,240 | (55,711 | ) | 1,033,553 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 151 | - | - | - | ||||||||||||
Interest expense and financing costs | (89,068 | ) | (93,278 | ) | (12,850 | ) | (28,874 | ) | ||||||||
Gain on disposal of fixed assets | (325 | ) | - | - | - | |||||||||||
Gain (loss) from discontinued operations | $ | 1,077,337 | $ | 2,351,962 | $ | (68,561 | ) | $ | 1,004,679 |
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
Land | $ | 905,000 | $ | 905,000 | ||||
Building and improvements | 1,140,656 | 1,140,656 | ||||||
Vehicles | 2,518,815 | 2,687,128 | ||||||
Equipment and furniture | 422,240 | 411,064 | ||||||
Warehouse equipment | 2,719,960 | 5,277,892 | ||||||
Leasehold improvements | 209,881 | 242,678 | ||||||
Asset retirement obligations | 35,846 | 35,846 | ||||||
7,952,398 | 10,700,264 | |||||||
Less accumulated depreciation and amortization | 2,761,186 | 2,917,056 | ||||||
Property and equipment net of accumulated depreciation and amortization | $ | 5,191,212 | $ | 7,783,208 |
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
Rancho Cordova acquisition – permit | $ | 475,614 | $ | 475,614 | ||||
Prime acquisition – customers | 400,422 | 400,422 | ||||||
GMTS acquisition – customers | - | 438,904 | ||||||
GMTS acquisition – permits | - | 27,090 | ||||||
Accumulated amortization | (328,804 | ) | (477,249 | ) | ||||
$ | 547,232 | $ | 864,781 |
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Secured Notes from CVC California | $ | 13,579,328 | $ | 13,547,909 | ||||
Valuation Discount | (3,294,879 | ) | (3,181,365 | ) | ||||
10,284,449 | 10,366,544 | |||||||
Less current portion | (4,858,771 | ) | (10,366,544 | ) | ||||
Financing agreement, net of current portion | $ | 5,425,678 | $ | - |
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
(a) Vehicle notes | $ | - | $ | 12,865 | ||||
(b) Equipment notes | - | 67,102 | ||||||
(c) Notes Payable, Island Acquisition | 1,250,000 | 1,250,000 | ||||||
(d) Notes Payable | 508,473 | 489,605 | ||||||
1,758,473 | 1,819,572 | |||||||
Less current portion | - | (794,278 | ) | |||||
Notes payable, net of current portion | $ | 1,758,473 | $ | 1,025,294 |
Years Ending December 31, | ||||
2009 | 95,433 | |||
2010 | 376,760 | |||
2011 | 349,262 | |||
2012 | 258,970 | |||
2013 | 138,187 | |||
Thereafter | 46,906 | |||
Total payments | 1,265,518 | |||
Less: amount representing interest | (253,716 | ) | ||
Present value of minimum lease payments | 1,011,802 | |||
Less: current portion | (277,372 | ) | ||
Non-current portion | $ | 734,430 |
September 30, 2009 | September 4, 2009 | June 30, 2009 | June 1, 2009 | December 31, 2008 | August 31, 2008 | ||||||
Conversion feature: | |||||||||||
Risk-free interest rate | .40% | .42% | 1.14% | 1.14% | 1.66% | 1.66% | |||||
Expected volatility | 133.39% | 115.22% | 88.02% | 88.02% | 78.66% | 78.57% | |||||
Expected life (in years) | 0.75 | 0.83 | 2.17 | 2.25 | 2.67 | 3.00 | |||||
Expected dividend yield | 0.0% | 0.0% | 0.0% | 0.0% | 0.00% | 0.0% | |||||
Warrants: | |||||||||||
Risk-free interest rate | - | - | 2.66% | 2.66% | 4.78% | 4.78% | |||||
Expected volatility | - | - | 88.02% | 88.02% | 78.66% | 78.57% | |||||
Expected life (in years) | - | - | 5.17 | 5.25 | 5.67 | 6.00 | |||||
Expected dividend yield | - | - | 0.00% | 0.00% | 0.00% | 0.00% | |||||
Fair Value: | |||||||||||
Conversion feature | $2,906,579 | $1,635,977 | $4,779,927 | $3,637,437 | $624,385 | $1,145,544 | |||||
Warrants | 2,025,000 | 2,025,000 | 1,912,871 | 1,528,283 | 1,502,205 | 2,113,423 | |||||
$4,931,579 | $3,660,977 | $6,692,798 | $5,165,720 | $2,126,590 | $3,258,967 |
Additional | Accumulated | Derivative | Convertible | |||||||||||||
Derivative Instrument: | Paid-in Capital | Deficit | Liability | Note | ||||||||||||
Conversion feature | $ | - | $ | 393,875 | $ | 624,385 | $ | (1,018,261 | ) | |||||||
Warrants | $ | (1,674,036 | ) | $ | 562,398 | $ | 1,502,205 | $ | (390,567 | ) | ||||||
$ | (1,674,036 | ) | $ | 956,273 | $ | 2,126,590 | $ | (1,408,828 | ) |
Weighted Avg. | Weighted Avg. | Weighted Avg. | ||||||||||
Options | Exercise Price | Life in Years | ||||||||||
Options outstanding, January 1, 2009 | 4,787,340 | 1.64 | 8.36 | |||||||||
Options granted | 604,500 | 0.75 | 9.33 | |||||||||
Options exercised | (250 | ) | 0.75 | - | ||||||||
Options cancelled | (786,915 | ) | 1.65 | - | ||||||||
Options outstanding, September 30, 2009 | 4,604,675 | 1.53 | 7.78 | |||||||||
Options exercisable, September 30, 2009 | 3,836,308 | 1.58 | 7.67 |
Range of exercise prices | Weighted Avg. in Years | |||||||||||
Warrants outstanding, January 1, 2009 | 9,527,894 | $ | 0.60-$37.50 | 4.86 | ||||||||
Warrants granted | 4,598,014 | $ | 0.01-$1.70 | 4.30 | ||||||||
Warrants exercised | (6,250 | ) | $ | 0.60 | - | |||||||
Warrants expired | (4,074,432 | ) | $ | 0.60-$37.50 | - | |||||||
Warrants outstanding, September 30, 2009 | 10,045,226 | $ | 0.01-$37.50 | 4.64 |
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
Deferred tax asset, net operating loss | $ | 18,180,198 | $ | 14,184,661 | ||||
Less valuation allowance | (18,180,198 | ) | (14,184,661 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
Nine months ended September 30, | ||||||
2009 | 2008 | |||||
Tax expense at U.S. statutory income tax rate | (34.0) % | (34.0) % | ||||
Increase in the valuation allowance | 34.0 | 34.0 | ||||
Effective rate | - | - |
Control #: 0000 0000 0000 |
Dated: ________________, 2010 | Signature | |
Signature (if held jointly) |
Page | ||
ARTICLE 1 | ||
GENERAL | 2 | |
Section 1.1 | General Definitions | 2 |
Section 1.2 | Special Definitions Related To ERISA | 9 |
Section 1.3 | Special Definitions Related to Environmental Matters | 10 |
Section 1.4 | Special Definitions Related to Indemnification | 12 |
Section 1.5 | Usage | 12 |
ARTICLE 2 | ||
PURCHASE AND SALE OF PURCHASED INTERESTS | 14 | |
Section 2.1 | Purchase of Purchased Interests | 14 |
Section 2.2 | Purchase Price and Payment | 14 |
Section 2.3 | Instruments of Conveyance | 14 |
Section 2.4 | Time and Place of Closing | 15 |
Section 2.5 | Net Working Capital Adjustment of Purchase Price | 15 |
Section 2.6 | Further Adjustment to Purchase Price | 16 |
ARTICLE 3 | ||
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLER | 18 | |
Section 3.1 | Organization and Qualification | 18 |
Section 3.2 | Capitalization of Company | 18 |
Section 3.3 | Title to Company Shares | 19 |
Section 3.4 | Subsidiaries; Partnerships; Investments | 19 |
Section 3.5 | Authorization of Transaction | 20 |
Section 3.6 | No Conflict of Transaction With Obligations and Laws | 20 |
Section 3.7 | Books and Records; Internal Controls | 21 |
Section 3.8 | Financial Statements | 21 |
Section 3.9 | Absence of Undisclosed Liabilities | 22 |
Section 3.10 | Conduct of Business; Absence of Certain Changes | 22 |
Section 3.11 | Taxes | 24 |
Section 3.12 | Property | 26 |
Section 3.13 | Collectability of Receivables | 29 |
Section 3.14 | Contracts and Commitments | 29 |
Section 3.15 | Labor and Employee Relations | 31 |
Section 3.16 | ERISA and Employee Benefits | 32 |
Section 3.17 | Intellectual Property Rights | 35 |
Section 3.18 | Environmental Matters | 37 |
Section 3.19 | Warranty or Other Claims | 39 |
Section 3.20 | Compliance With Legal Requirements; Governmental Authorizations | 39 |
Section 3.21 | Legal Proceedings; Court Orders | 40 |
Section 3.22 | Borrowings and Guarantees | 41 |
Section 3.23 | Financial Service Relations and Powers of Attorney | 41 |
Section 3.24 | Insurance | 42 |
Section 3.25 | Finder’s Fee | 43 |
Section 3.26 | Transactions With Related Parties | 43 |
Section 3.27 | Absence of Sensitive Payments | 44 |
Section 3.28 | Disclosure of Material Information | 44 |
Section 3.29 | Copies of Documents | 45 |
Section 3.30 | Adequacy of Consideration | 45 |
Section 3.31 | Representations and Warranties Regarding GEM NewCo and GEM LP | 45 |
ARTICLE 4 | ||
REPRESENTATIONS AND WARRANTIES OF BUYER | 47 | |
Section 4.1 | Organization of Buyer | 47 |
Section 4.2 | Authorization of Transaction | 47 |
Section 4.3 | No Conflict of Transaction With Obligations and Laws | 47 |
ARTICLE 5 | ||
COVENANTS OF THE COMPANY AND THE SELLER PRIOR TO CLOSING | 48 | |
Section 5.1 | Access to Information | 48 |
Section 5.2 | Affirmative Covenants with Respect to Ordinary Course of Business | 48 |
Section 5.3 | Negative Covenants with Respect to Ordinary Course of Business | 50 |
Section 5.4 | Governmental Permits and Approvals; Consents | 51 |
Section 5.5 | Assignment of Contracts | 51 |
Section 5.6 | Notification of Breach of Representations and Warranties | 52 |
Section 5.7 | Consummation of Agreement | 52 |
Section 5.8 | Exclusive Dealing | 52 |
Section 5.9 | ERISA Benefit Plan | 53 |
Section 5.10 | Welfare Plan | 53 |
Section 5.11 | Formation of GEM NewCo and GEM LP; Joinder; Merger | 54 |
Section 5.12 | Settlement of Proceedings | 54 |
Section 5.13 | Stockholder Meeting | 55 |
Section 5.14 | Payroll and Reimbursement | 55 |
ARTICLE 6 | ||
COVENANTS OF BUYER PRIOR TO CLOSING | 56 | |
Section 6.1 | Governmental Permits and Approvals | 56 |
Section 6.2 | Consummation of Agreement | 56 |
ARTICLE 7 | ||
CONDITIONS TO OBLIGATIONS OF BUYER | 56 | |
Section 7.1 | Due Diligence Review | 56 |
Section 7.2 | Representations; Warranties; Covenants | 57 |
Section 7.3 | No Bankruptcy | 57 |
Section 7.4 | Absence of Certain Litigation | 57 |
Section 7.5 | Resignations of Officers and Directors; Releases | 57 |
Section 7.6 | Consents and Authorizations | 58 |
Section 7.7 | Certain Actions Completed | 58 |
Section 7.8 | Formation of GEM LP and GEM NewCo; Merger | 62 |
Section 7.9 | Execution of Instruments of Conveyance and Additional Documents | 63 |
Section 7.10 | Real Estate Matters | 63 |
Section 7.11 | Closing Certificate of Company and Seller | 64 |
Section 7.12 | Opinion of Seller’s Counsel | 64 |
ARTICLE 8 | ||
CONDITIONS TO OBLIGATIONS OF SELLER | 65 | |
Section 8.1 | Representations; Warranties; Covenants | 65 |
Section 8.2 | Absence of Certain Litigation | 65 |
ARTICLE 9 | ||
INDEMNIFICATION | 65 | |
Section 9.1 | Survival; Right To Indemnification Not Affected By Knowledge or Materiality | 65 |
Section 9.2 | Indemnification By Seller | 66 |
Section 9.3 | Indemnification by Buyer | 67 |
Section 9.4 | Special Indemnification Provision Regarding Environmental Matters | 67 |
Section 9.5 | Defense of Third Party Actions | 69 |
Section 9.6 | Payment of Indemnification | 70 |
Section 9.7 | Miscellaneous | 71 |
ARTICLE 10 | ||
AGREEMENTS AFTER CLOSING | 71 | |
Section 10.1 | Further Assurances | 71 |
Section 10.2 | Transition Services | 71 |
Section 10.3 | Collected Receivables. To the extent that Company collects any amounts owing on the receivables listed on Schedule 3.13(a) after Closing, Company shall remit such funds, less any expenses incurred in effecting such collection, to Seller on a quarterly basis. | 72 |
Section 10.4 | Merger Expenses. Buyer shall reimburse Seller for all reasonable incurred expenses incurred by Seller or Company, as applicable, in connection with the formation of GEM NewCo, the formation of GEM LP, and the Merger of Company into GEM LP. Provided however, such expenses shall not include any Taxes. | 72 |
Section 10.5 | Non-Compete; Non-solicitation | 72 |
Section 10.6 | Customer And Other Business Relationships | 72 |
Section 10.7 | Assistance In Proceedings | 73 |
Section 10.8 | Retention Of And Access To Records | 73 |
Section 10.9 | Use of GEM logo | 73 |
Section 10.10 | Employees and Employee Benefits | 73 |
Section 10.11 | Confidentiality | 74 |
Section 10.12 | Actions with Respect to Closure Deposit | 75 |
ARTICLE 11 | ||
TAX MATTERS | 75 | |
Section 11.1 | Allocation of Tax Liabilities | 75 |
Section 11.2 | Tax Characterization | 76 |
Section 11.3 | Allocation of Purchase Price | 76 |
Section 11.4 | Cooperation | 76 |
Section 11.5 | Tax Refunds | 76 |
Section 11.6 | Transfer Taxes | 76 |
ARTICLE 12 | ||
TERMINATION OF AGREEMENT | 77 | |
Section 12.1 | Termination | 77 |
Section 12.2 | Casualty Loss | 77 |
Section 12.3 | Effect of Termination | 77 |
Section 12.4 | Right to Proceed | 78 |
ARTICLE 13 | ||
MISCELLANEOUS | 78 | |
Section 13.1 | Fees and Expenses | 78 |
Section 13.2 | Notices | 78 |
Section 13.3 | Publicity and Disclosures | 79 |
Section 13.4 | Time Period | 79 |
Section 13.5 | Entire Agreement | 79 |
Section 13.6 | Severability | 80 |
Section 13.7 | Assignability and No Third Party Beneficiary | 80 |
Section 13.8 | Amendment and Waiver | 80 |
Section 13.9 | Governing Law and Jurisdiction | 81 |
Section 13.10 | Counterparts | 81 |
Section 13.11 | Effect of Table of Contents and Headings | 81 |
Exhibits | |
1.1(a) | Closing Net Working Capital Calculation |
3.31(a) | Form of Organizational Documents |
5.11(b) | Form of Joinder Agreement |
7.5(a) | Form of Resignations of Directors and Officers |
7.5(b) | Form of Releases |
7.7(a)(i) | Form of Paydown and Release Letter |
7.7 (a)(ii) | Form of CVC Voting Agreement |
7.7(z) | Form of Management Voting Agreement |
7.12 | Form of Opinion of Seller’s Counsel |
LUNTZ ACQUISITION (DELAWARE), LLC | |
By: _____________________________ Name: Title: | |
STOCKHOLDER: | |
Timothy J. Koziol |
STOCKHOLDER: | |
Brett M. Clark |
STOCKHOLDER: | |
William J. Mitzel |
STOCKHOLDER: | |
M. Danae Fahey |
STOCKHOLDER: | |
Douglas B. Edwards |
STOCKHOLDER: | |
James P. Stapleton |
Stockholder Name and Address | Common Stock | Preferred Stock | Options | Warrants | ||||
Timothy J. Koziol 7552 Avila La Verne, CA 91750 | 13,335 | - | 881,667(1) | 650,000(2) | ||||
James P. Stapleton PO Box 50066 Bellevue, WA 98015 | 9,392 | - | - | 105,000(3) | ||||
William J. Mitzel 2477 Costa Del Sol La Verne, CA 91750 | - | - | 550,000(4) | - | ||||
Brett M. Clark 54 Ashwood Irvine, CA 92604 | - | - | 781,667(5) | 500,000(6) | ||||
Douglas B. Edwards 4255 Harbour Island Lane Oxnard, CA 93035 | - | - | - | 284,750(7) | ||||
M. Danae Fahey 541 E Harvard Place Ontario, CA 91764 | - | - | 123,334(8) | - |
1. | Includes 6,667 incentive options exercisable at $30.00; 750,000 incentive options exercisable at $1.19; 25,000 incentive options exercisable at $1.70; and 100,000 incentive options exercisable at $0.75. |
2. | Includes 650,000 warrants exercisable at $1.19. |
3. | Includes 70,000 warrants exercisable at $0.75 and 35,000 warrants exercisable at $1.19. |
4. | Includes 350,000 incentive options exercisable at $1.19; 100,000 incentive options exercisable at $1.70; and 100,000 incentive options exercisable at $0.75. |
5. | Includes 6,667 incentive options exercisable at $39.00; 600,000 incentive options exercisable at $1.19; 75,000 incentive options exercisable at $1.70; and 100,000 incentive options exercisable at $0.75. |
6. | Includes 500,000 warrants exercisable at $1.19. |
7. | Includes 284,750 warrants exercisable at $4.00. |
8. | Includes 3,334 incentive options exercisable at $30.00; 100,000 incentive options exercisable at $1.19; and 20,000 incentive options exercisable at $0.75. |
LUNTZ ACQUISITION (DELAWARE), LLC | |
By: _____________________________ Name: Title: | |
CVC CALIFORNIA, LLC | |
By: _____________________________ Name: Title: |
1. | 600,000 shares of Common Stock. |
2. | Amended and Restated Warrant (No. CV-4) to purchase 2,700,000 shares of Common Stock at an exercise price of $.01 per share (such number of shares and exercise price are subject to adjustment in accordance with such warrant). |
3. | Amended and Restated Convertible Term Note dated September 4, 2009 in the principal amount of $6,314,699.59, convertible into Common Stock at a conversion price of $.60 per share (subject to adjustment in accordance with such note). |