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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to ____________________
Commission file number 1-11097
3CI COMPLETE COMPLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0351992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1517 W. North Carrier Parkway, #104 Grand Prairie, Texas 75050
(Address of principal executive offices)
(Zip Code)
(972)375-0006
(Registrant's telephone number, including area code)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
The number of shares of Common Stock outstanding as of the close of
business on August 14, 2002, was 9,198,325.
3CI COMPLETE COMPLIANCE CORPORATION
I N D E X
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of
June 30, 2002 and September 30, 2001 ....................... 3
Statements of Operations for the three and nine months ended
June 30, 2002 and 2001 ..................................... 4
Statements of Cash Flows for the
nine months ended June 30, 2002 and 2001.................. 5
Notes to Financial Statements (unaudited)..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Changes in Securities.......................................... 12
Item 3. Defaults Upon Senior Securities................................ 12
Item 4. Submission of Matters to a Vote
Of Security Holders.......................................... 12
Item 5. Other Information.............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURES................................................................... 15
2
ITEM 1. FINANCIAL STATEMENTS
3CI COMPLETE COMPLIANCE CORPORATION
BALANCE SHEETS
June 30, September 30,
2002 2001
(unaudited)
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 817,050 $ 709,563
Accounts receivable, net allowances of $341,152 and $328,200
at June 30, 2002 and September 30, 2001, respectively 3,042,476 3,535,196
Inventory 91,504 66,425
Prepaid expenses 574,857 406,660
Other current assets 10,883 16,208
------------ ------------
Total current assets 4,536,770 4,734,052
------------ ------------
Property, plant and equipment, at cost 8,400,953 8,398,843
Accumulated depreciation (5,270,939) (4,815,092)
------------ ------------
Net property, plant and equipment 3,130,014 3,583,751
------------ ------------
Excess of cost over net assets acquired, net of accumulated amortization of
$238,988 at June 30, 2002 and September 30, 2001 318,243 318,243
Other assets 75,630 25,631
------------ ------------
Total assets $ 8,060,657 $ 8,661,677
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable $ 128,858 $ 193,676
Current portion of long-term debt to unaffiliated lenders -- 369,023
Accounts payable 298,146 367,700
Accounts payable and accrued interest to affiliated companies 721,083 504,653
Accrued liabilities 787,511 602,846
Dividends payable 1,883,154 1,404,937
Note payable majority shareholder 988,338 5,229,379
------------ ------------
Total current liabilities 4,807,090 8,672,214
------------ ------------
Long-term debt to unaffiliated lenders, net of current portion -- 334,416
Long-term debt to affiliated lenders, net of current portion 3,141,041 --
------------ ------------
Total liabilities 7,948,131 9,006,630
------------ ------------
Shareholders' Equity (deficit):
Preferred stock, $0 .01 par value, authorized 16,050,000 shares;
issued and outstanding 7,750,000 at June 30, 2002 and
September 30, 2001, respectively 77,500 77,500
Additional paid-in capital - preferred stock 7,672,500 7,672,500
Common stock, $0.01 par value, authorized 40,450,000 shares;
Issued and outstanding 9,232,825 at June 30, 2002
and September 30, 2001 92,329 92,329
Less cost of treasury stock 34,500 shares (51,595) (51,595)
Additional paid-in capital - common stock 20,471,145 20,471,145
Accumulated deficit (28,149,353) (28,606,832)
------------ ------------
Total shareholders' equity (deficit) 112,526 (344,953)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 8,060,657 $ 8,661,677
============ ============
The accompanying notes are an integral part of these financial statements.
3
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF OPERATION
(UNAUDITED)
For the three months For the nine months
ended June 30, ended June 30,
---------------------------- ------------------------------
2002 2001 2002 2001
----------- ----------- ------------ ------------
Revenues $ 3,785,274 $ 4,704,210 $ 12,090,685 $ 14,379,175
Expenses:
Cost of services 2,400,714 3,131,487 7,869,766 9,447,035
Depreciation and amortization 166,144 397,903 498,117 1,200,601
Selling, general and administrative expenses 739,212 747,938 2,170,413 2,107,053
Interest expense 94,930 196,904 411,154 686,235
Other expense-net 67,222 3,132 205,537 96,281
----------- ----------- ------------ ------------
Income before income taxes 317,052 226,846 935,698 841,912
Income taxes -- -- -- --
----------- ----------- ------------ ------------
Net income $ 317,052 $ 226,846 $ 935,698 $ 841,912
=========== =========== ============ ============
Dividends on preferred stock (159,406) (746,229) (478,218) (746,229)
----------- ----------- ------------ ------------
Net income applicable to common shareholders $ 157,646 $ (519,383) $ 457,480 $ 95,683
=========== =========== ============ ============
Basic earnings per share:
Basic net income per share $ 0.02 $ (0.06) $ 0.05 $ 0.01
=========== =========== ============ ============
Diluted earnings per share:
Diluted net income per share $ 0.02 $ (0.06) $ 0.05 $ 0.01
=========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
4
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
For the nine months
ended June 30,
----------------------------
2002 2001
----------- -----------
Cash flow from operating activities:
Net income $ 935,698 $ 841,912
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash interest expense -- 70,367
Gain on disposal of fixed assets (4,778) (67,816)
Depreciation and amortization 498,117 1,200,601
Changes in operating assets and liablilites:
(Increase) decrease in accounts receivable, net 492,720 (587,340)
Increase in inventory (25,078) (830)
Increase in prepaid expenses (168,198) (242,640)
(Increase) decrease in other current assets and other assets (44,676) 40,196
Decrease in accounts payable (69,554) (423,589)
Increase (decrease) in accounts payable, affiliated companies 216,430 (285,349)
Increase in accrued liabilities 184,664 52,081
----------- -----------
Total adjustments to net income 1,079,647 (244,319)
----------- -----------
Net cash provided by operating activities 2,015,345 597,593
----------- -----------
Cash flow from investing activities:
Proceeds from sale of intangible assets 67,816
Proceeds from sale of property, plant and equipment 15,259 --
Purchase of property, plant and equipment (54,861) (148,218)
----------- -----------
Net cash used in investing activites (39,602) (80,402)
----------- -----------
Cash flow from financing activities:
Proceeds from issuance of notes payable 227,456 779,291
Principal reduction of notes payable (292,243) (553,852)
Reduction of long-term debt, unaffiliated lenders (703,469) (347,735)
Reduction of note payable to majority shareholders (1,100,000) (400,000)
----------- -----------
Net cash used in financing activities (1,868,256) (522,296)
----------- -----------
Net increase (decrease) in cash and cash equivalents 107,487 (5,105)
----------- -----------
Cash and cash equivalents, beginning of period 709,563 561,189
----------- -----------
Cash and cash equivalents, end of period $ 817,050 $ 556,084
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the business of medical waste management services in
the southern and southeastern United States.
Effective October 1, 1998, after approval by the then properly
constituted 3CI Board of Directors, Stericycle Inc., a Delaware corporation
("Stericycle") acquired 100% of the common stock of Waste Systems, Inc. ("WSI")
for $10 million. As a result of the transaction, WSI became a wholly owned
subsidiary of Stericycle. WSI owns 55.5% or 5,104,448 shares of the outstanding
common stock and 100% of the outstanding preferred stock of the Company. In
addition, Stericycle owns 932,770 shares of common stock directly. Through its
ownership of WSI and shares owned directly, Stericycle owns 65.6% of the
outstanding common stock.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and nine-month period ended
June 30, 2002 are not necessarily indicative of the results that may be expected
for the year ended September 30, 2002.
The balance sheet at September 30, 2001, has been derived from the audited
finacial statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company's annual report on Form
10-K for the year ended September 30, 2001.
(2) NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of net income (loss) per common
share:
FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------
2002 2001 2002 2001
------------ ----------- ------------ ------------
Numerator:
Net income (loss) $ 317,052 $ 226,846 $ 935,698 $ 841,912
Less preferred dividends (159,406) (746,229) (478,218) (746,229)
------------ ----------- ------------ ------------
Net income (loss) after preferred
dividends 157,646 (519,383) 457,480 95,683
Denominator:
Denominator for basic earnings per share
--weighted average shares 9,198,325 9,198,325 9,198,325 9,198,325
------------ ----------- ------------ ------------
Effect of dilutive securities:
Preferred shares and warrants 8,265,862 -- 8,217,641 --
------------ ----------- ------------ ------------
Denominator for diluted earnings per
share-adjusted -weighted average
shares and assumed conversions 17,464,187 9,198,325 17,415,966 9,198,325
------------ ----------- ------------ ------------
Basic earnings (loss) per share $ 0.02 $ (0.06) $ 0.05 $ 0.01
------------ ----------- ------------ ------------
Diluted earnings per share $ 0.02 $ (0.06) $ 0.05 $ 0.01
------------ ----------- ------------ ------------
6
Included in the three and nine month period ended June 30, 2002, are
893,122 warrants that were issued to WSI with an exercise price between $0.10
and $0.20. These warrants were included in the computation of diluted earnings
per share for the period. Stock options were not included in the net income per
share computation because they were anti-dilutive, as the exercise prices
ranging from $0.594 to $1.50 were greater than the average price of the common
stock.
(3) BUSINESS CONDITIONS
On December 19, 2001, the Company made the decision to permanently close all of
its treatment facilities which consisted of two incinerators, and a chem-clav
unit in Springhill, Louisiana and an incinerator and a microwave unit located in
Birmingham, Alabama. Management, after considering the costs necessary to
upgrade and operate the existing facilities and treatment capacity available at
other sources, determined that this equipment had no remaining value and that it
would be more cost effective to use less expensive treatment available at other
sources. As a result, the treatment related assets were written down to zero.
The write down of fixed assets totaled $2,631,885 and was reflected in the
results for the fiscal year ended September 30, 2001.
The Company has historically financed its working capital needs, capital
expenditures, and acquisitions using advances from WSI, its majority
shareholder, internally generated funds, and borrowings from third parties. The
Company's indebtedness currently consists of amounts owed to WSI (which are
described below), and a portion of the Company's insurance premiums that are
financed over the course of each fiscal year.
On October 1, 1998, WSI and the Company amended and restated a revolving
promissory note (the Note) which was originally due September 30, 2000. As of
June 30, 2000, the Company notified WSI that it anticipated it would fail to
meet a net income requirement under the note for the quarter ended June 30,
2000. The note was renegotiated and extended at that time and the default was
waived. Since that time the note has been extended either quarterly or
semi-annually under terms ranging from prime plus 1.0% to prime plus 3.5% not to
exceed 13%. In connection with the Note extension on August 1, 2000, 3CI issued
warrants to WSI for the purchase of up to 351,836 shares of 3CI common stock at
an exercise price of $0.20 per share which expire on September 20, 2002. When
the Note was extended on October 1, 2000, 3CI issued warrants to WSI for the
purchase of up to 541,286 shares of 3CI common stock at an exercise price of
$.10 per share which expire on December 20, 2002. In each of these cases the
values of the warrants were included in the statement of operations for the
respective periods as interest expense.
An agreement effective October 1, 2001 extended the note's maturity to
July 1, 2002. The terms of this extension included a reduction of the interest
rate to the prime rate, currently 4.75%, plus 1.0% and called for a principal
payment of $200,000 at renewal and an additional $200,000 principal payment in
June 2002. The agreement also required the Company to achieve minimum levels of
EBITDA for each of the six-month periods ended March 31, 2002 and June 30, 2002.
This level was not achieved for the six months ended March 31, 2002 requiring
the Company to record an additional $120,404 in interest expense.
The note was renegotiated pursuant to an agreement dated May 23, 2002 by
which the note was extended to October 1, 2003. The terms of this extension
included an interest rate equal to the prime rate, currently 4.75%, plus 1.0%
and called for principal payment of $700,000 at renewal and additional monthly
payments of $100,000 to be applied to accrued interest and principal. The
agreement also required the Company to achieve a minimum level of EBITDA for the
six-month period ended June 30, 2002 and for each trailing six month period
thereafter until maturity. This level was achieved for the six months ended June
30, 2002.
7
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment of
which $106,626 and $203,883 had been utilized at June 30, 2002 and 2001,
respectively, and $1,000,000 for the financing of equipment, none of which was
being utilized at June 30, 2002 and $430,518 of which was utilized at June 30,
2001. This agreement is guaranteed by Stericycle, Inc. which owns 100% of WSI.
(4) PREFERRED STOCK
In June 1997, WSI converted $7,000,000 of their promissory note with the
Company to preferred stock. The Company issued 1,000,000 shares of Series A
cumulative convertible preferred stock, with no par value, at $7.00 per share or
$7,000,000, to WSI, the Company's majority shareholder.
In February 1998, Waste Systems, Inc., exchanged the 1,000,000 shares of
the Series A Preferred Stock for 7,000,000 shares of Series B cumulative
convertible preferred stock, with a par value $.01. The Series B preferred stock
holders are entitled to receive, when and if declared by the Corporation's Board
of Directors, cumulative dividends from the second anniversary of the original
issuance date, at the rate of $0.0825 per share per annum, payable quarterly.
In February 1998, the Company and WSI converted an additional $750,000
of debt under a 1995 Note, into 750,000 shares of Series C Convertible $0.01 par
value preferred stock which also call for cumulative dividends when, and if
declared by the Corporation's Board of Directors cumulative from the second
anniversary of the original issuance date, at the rate of $0.0825 per share per
annum, payable quarterly.
On June 30, the Board of Directors declared a dividend of $0.0206 per
share for the Series B preferred stock totaling $143,979.45 representing
dividends accrued through June 30, 2002. Also on June 30, 2002 the Board of
Directors declared a dividend of $0.0206 per share for the Series C preferred
stock totaling $15,426.37 and representing dividends accrued through June 30,
2002. The resolution called for payment in cash from funds legally available for
the payment of dividends, as and when the Board of Directors may direct by
further resolution.
During the nine months ended June 30, 2002 the Board of Directors
declared dividends on Series B and C preferred shares totaling $478,218. Total
dividends declared on the Series B and Series C preferred stock totaled
$1,883,154 at June 30, 2002. There were no undeclared dividends in arrears at
June 30, 2002.
(5) ADOPTION OF NEW ACCOUNTING STANDARDS
In June 2001, The Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
The Company elected for early adoption of the Statement.
The proforma impact of eliminating goodwill amortization on the
statements of income is as follows:
8
For the three For the nine
months ended months ended
June 30, 2001 June 30, 2001
------------- -------------
Reported net income $226,846 $841,912
Add back: Goodwill amortization 12,250 36,750
-------- --------
Adjusted net income $239,096 $878,662
Basic earnings per share
Reported net income $ (0.06) $ 0.01
Add back: Goodwill amortization -- --
-------- --------
Adjusted net earnings per share $ (0.06) $ 0.01
Diluted earnings per share
Reported net income $ (0.06) $ 0.01
Add back: Goodwill amortization -- --
-------- --------
Adjusted diluted earnings per share $ (0.06) $ 0.01
(6) COMMITMENTS AND CONTINGENCIES
The Company is subject to certain other litigation and claims arising in
the ordinary course of business. In the opinion of management of the Company,
the amounts ultimately payable, if any, as a result of such litigation and
claims will not have a materially adverse effect on the Company's financial
position or results of operations.
The Company operates within the regulated medical waste disposal
industry which is subject to intense governmental regulation at the federal,
state and local levels. The Company believes it is currently in compliance in
all material respects with all applicable laws and regulations governing the
medical waste disposal business. However, continuing expenditures may be
required in order for the Company to remain in compliance with existing and
changing regulations. Furthermore, because the medical waste disposal industry
is predicated upon the existence of strict governmental regulation, any material
relaxation of regulatory requirements governing medical waste disposal or of
their enforcement could result in a reduced demand for the Company's services
and have a material adverse effect on the Company's revenues and financial
condition. The scope and duration of existing and future regulations affecting
the medical waste disposal industry cannot be anticipated and are subject to
changing political and economic pressures.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is engaged in the business of medical waste management
services in the southern and southeastern United States. The Company's customers
include regional medical centers, major hospitals, clinics, medical and dental
offices, veterinarians, pharmaceutical companies, retirement homes, medical
testing laboratories and other medical waste generators. Services include
collection, bar code identification and transportation to treatment facilities.
9
RESULTS OF OPERATIONS
The following summarizes (in thousands) the Company's operations:
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------- ----------------------
2002 2001 2002 2001
------- ------- -------- --------
Revenues $ 3,785 $ 4,704 $ 12,091 $ 14,379
Cost of services (2,401) (3,131) (7,870) (9,447)
Depreciation and amortization (166) (398) (498) (1,201)
Selling, general and
administrative (739) (748) (2,170) (2,107)
------- ------- -------- --------
Net income from operations 479 427 1,553 1,624
------- ------- -------- --------
Interest expense (95) (197) (411) (686)
Other income (expense) net (67) (3) (206) (96)
------- ------- -------- --------
Net income $ 317 $ 227 $ 936 $ 842
======= ======= ======== ========
EBITDA* $ 578 $ 822 $ 1,845 $ 2,728
======= ======= ======== ========
(1) EBITDA is calculated as the sum of net income, plus interest expense, income
tax expense, depreciation expense, and amortization expense. We consider EBITDA
to be a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business. EBITDA is not
calculated in the same way by all companies, is not a measurement required by
generally accepted accounting principles and does not represent cash flow from
operations as defined by generally accepted accounting principles. EBITDA should
not be considered as an alternative to net income, as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
- ------------------------
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001:
REVENUES decreased by $918,936, or approximately 19.5%, to $3,785,274 during the
three months period ended June 30, 2002, from $4,704,210 for the three-month
period ended June 30, 2001. This decrease is primarily related to a reduction in
the volume of waste handled. The reduction in volume was attributable to the
Company's efforts to focus on small quantity generators which provide higher
pricing at lower volumes while reducing the focus on unprofitable larger
quantity generators which provide higher volume at typically lower average unit
price.
COST OF SERVICES decreased $730,773 or approximately 23.3%, to $2,400,714 during
the three months ended June 30, 2002, compared to $3,131,487 for the three month
period ended June 30, 2001. The decrease was primarily attributable to a
decrease in the volume of waste handled, lower treatment costs and
transportation costs. Costs of revenues as a percentage of revenues decreased to
63.4% for the quarter compared to 66.6% during the three months ended June 30,
2001.
DEPRECIATION AND AMORTIZATION expense decreased to $231,759 or 58.2% to $166,144
for the three months ended June 30, 2002, compared to $397,903, for the three
months ended June 30, 2001. The decrease was primarily the result of the Company
writing down certain treatment equipment in the fourth fiscl quarter ended
September 30, 2001. The Company made the decision to write down the treatment
related assets and take its waste to external facilities to reduce treatment
costs. In addition, amortization expense decreased $12,250 due to the adoption
of (SFAS) No. 142 on October 1, 2001.
10
Depreciation as a percentage of revenue totaled 4.4% for the three months ended
June 30, 2002 compared to 8.5% for the similar period in 2001.
SELLING, GENERAL AND ADMINISTRATIVE expenses for the quarter decreased $8,726 to
$739,212 compared to $747,938 for the three months ended June 30, 2001. The
decrease is primarily attributable to legal fees and settlements related to
certain employment issues in the 2001 quarter. Selling, general and
administrative expenses increased as a percentage of revenue to 19.5% for the
three months ended June 30, 2002, as compared to 15.9% for the three months
ended June 30, 2001, primarily due to the decrease in revenue.
INTEREST EXPENSE decreased by $101,974, or 51.8%, to $94,930 during the three
months ended June 30, 2002, as compared to $196,904 for the three month period
ended June 30, 2001. The primary reason for the reduction in interest was the
reduction of the interest rates for the note payable to WSI, which is variable
and tied to the prime rate, and the overall reduction in debt.
EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTIZATION ("EBITDA") totaled
$578,126 or 15.3% of revenue for the quarter ended June 30, 2002 compared to
$821,653 or 17.5% of revenue for the quarter ended June 30, 2001. This decrease
was primarily the result of the decrease in revenue
NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO NINE MONTHS ENDED JUNE 30, 2001:
REVENUES decreased by $2,288,432, or 15.9%, to $12,090,685 during the nine
months period ended June 30, 2002, from $14,379,117 for the nine month period
ended June 30, 2001. This decrease is primarily related to a reduction in the
volume of waste handled. The reduction in volume was attributable to the
Company's efforts to focus small quantity generators which provide higher
pricing at lower volumes while reducing the focus on unprofitable large quantity
generators which provide higher volume at typically lower average unit price.
COST OF SERVICES decreased $1,577,269, or 16.7%, to $7,869,766, during the nine
months ended June 30, 2002, compared to $9,447,035 for the nine month period
ended June 30, 2001. The decrease was primarily attributable to the decrease in
the volume of waste handled, treatment costs and transportation costs. Costs of
revenues as a percentage of revenues decreased to 65.1% for the quarter compared
to 65.7% during the three months ended June 30, 2001.
DEPRECIATION AND AMORTIZATION expense decreased $702,484 to $498,117 compared to
$1,200,601 for the nine months ended June 30, 2001. The decrease was primarily
the result of the Company writing down certain treatment equipment in the fourth
fiscl quarter ended September 30, 2001. The Company made the decision to write
down the treatment related assets and take its waste to external facilities to
reduce treatment costs. In addition, amortization expense decreased $36,750 due
to the adoption of (SFAS) No. 142 on October 1, 2001. Depreciation and
amortization as a percentage of revenue totaled 4.1% for the nine month period
compared to 8.4% for similar period in 2001.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased to $2,170,413 during the
nine months ended June 30, 2002 compared to $2,107,053 for nine months ended
June 30, 2001. This increase of $63,360, or 3.0%, is primarily attributable to
the increase in various selling expenses. Selling, general and administrative
expenses increased as a percentage of revenue to 18.0% for the nine months ended
June 30, 2002, as compared to 14.7% for the nine months ended June 30, 2001
primarily due to the decrease in revenue.
INTEREST EXPENSE decreased by $275,081 or 40.1% to $411,154 during the nine
months ended June 30, 2002 as compared to $686,235 during the nine months ended
June 30, 2001. This decrease was primarily due to a decrease in the interest
rate and an overall reduction in debt.
11
EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTIZATION ("EBITDA") totaled
$1,844,969 or 15.3% of revenue for the nine months ended June 30, 2002 compared
to $2,728,749 or 19.0% of revenue for the nine months ended June 30, 2001. The
decrease was primarily related to the decrease in revenue.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, the Company had net working capital, exclusive of the
note payable to its majority shareholder, of $718,018 compared to a net working
capital exclusive of the note payable to its majority shareholder of $1,291,217
at September 30, 2001. This decrease in net working capital of $573,199 is
primarily related to an increase in preferred dividends payable which do not
bear interest.
Net cash provided by operating activities was $2,015,345 during the
nine-month period ended June 30, 2002, compared to net cash provided by
operating activities of $597,593 for the nine-month period ended June 30, 2001.
This increase of $1,417,752 was due to the decrease in current assets, primarily
accounts receivable, and an increase in current liabilities primarily accounts
payable to affiliated companies.
Net cash used in investing activities for the nine months ended June 30,
2002, was $39,602 compared to $80,402 for the similar period in 2001. During the
period the Company invested $54,861 for purchases of furniture and equipment,
computer equipment and reusable containers.
As a result of improved cash provided by operating activities and reduced
capital expenditures described above, the Company was able to repay $1,868.257
in debt during the nine months ended June 30, 2002. The Company repaid
$1,100,000 in debt to WSI and repaid $768,256 in debt to unaffiliated lenders.
This compared to $522,296 used in financing activities during the nine month
period ended June 30, 2001, or an improvement of $1,345,960.
Over the past twelve months the Company has reduced its debt burden by a
total of $2,227,453. Of this total $1,127,453 was repaid to unaffiliated lenders
and $1,100,000 was repaid to WSI.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is subject to certain other litigation and claims arising in
the ordinary course of business. Management believes the amounts ultimately
payable, if any, as a result of such claims and assessments will not have a
materially adverse effect on the Company's financial position, results of
operations or net cash flows.
On July 16, 2002 a suit was filed in the First Judicial District Court in
Shreveport, Louisiana against Stericycle, Inc. and certain of 3CI's directors
which alleged minority shareholder oppression, breach of fiduciary duty and
unjust enrichment. While the Company is not party to the lawsuit, we have
contacted our insurance carrier and hired counsel to assist the Company in this
litigation. The defendants in the case have denied the allegations and intend to
defend the case vigorously.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K -
12
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1. Certificate of Incorporation as amended (incorporated by reference to
Exhibit 3(a) of 3CI's registration statement on Form S-1 (No. 33-45632)
effective April 14, 1992).
3.2. Amendment to 3CI's Certificate of Incorporation, as amended effective
June 13, 1995 (incorporated by reference to Exhibit 3.1 of 3CI's
Quarterly Report on Form10-Q for the quarterly period ended June 30,
1995).
3.3. Amendment to 3CI's Certificate of Incorporation, as amended effective
March 23, 1998 (incorporated by reference to Exhibit 3.3 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
3.4 Bylaws, effective May 14, 1995 (incorporated by reference to Exhibit 3.2
of 3CI's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995).
3.5 Amendment of Bylaws effective October 1, 1998.(incorporated by reference
to Exhibit 3.5 of 3CI's report on Form 10-K filed January 12, 1999)
3.6. Certificate of Designations of 3CI's Series A Preferred Stock without
par value (incorporated by reference to Exhibit 3.6 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
3.7. Certificate of Designations of 3CI's Series B Preferred Stock without
par value (incorporated by reference to Exhibit 3.7 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
3.8. Certificate of Designations of 3CI's Series C Preferred Stock without
par value (incorporated by reference to Exhibit 3.8 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
4.1 Amended and Restated Secured Promissory Note dated October 1, 1998, in
the principal amount of $5,487,307.13 between 3CI and Waste Systems,
Inc. (incorporated by reference to Exhibit 4.4 of 3CI's report on Form
10-K filed January 12, 1999).
4.2 Loan Agreement and Note Amendment dated December 18, 1998, by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's
report on Form 10-K filed January 12, 1999).
4.3 Letter Agreement and Note Amendment dated August 10, 2000 by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.3 of 3CI's
report on Form 10-K filed December 29, 2000).
4.4 Letter Agreement and Note Amendment dated December 20, 2000 by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4 of 3CI's
report on Form 10-K filed December 29, 2000).
4.5 Letter Agreement and Note Amendment dated March 5, 2001 by 3CI and Waste
Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's report
on Form 10K filed January 15, 2002)
4.6 Letter Agreement and Note Amendment dated June 26, 2001 by 3CI and Waste
Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's report
on Form 10K filed January 15, 2002)
4.7 Letter Agreement and Note Amendment dated December 20, 2001 by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's
report on Form 10K filed January 15, 2002)
4.8 Letter Agreement and Note Amendment dated May 23, 2002 by 3CI and Waste
Systems, Inc. Filed herewith
10.1 1992 Stock Option Plan of 3CI (incorporated by reference to Exhibit
10(m) of 3CI's registration statement on Form S-1 (No. 33-45632)
effective April 14, 1992).
13
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.2 Settlement Agreement dated January 1996 between James Shepherd, Michael
Shepherd and Richard T. McElhannon as Releassors, and the Company, Georg
Rethmann, Dr. Herrmann Niehues, Jurgen Thomas, Charles Crochet and Waste
Systems, Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's report on Form 10-K filed January 14, 1997).
10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated as of June
24, 1997 (incorporated by reference to Exhibit 10.12 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
10.4 Stock Purchase and Note Modification Agreement between 3CI and Waste
Systems, Inc. dated as of February 19, 1998 (incorporated by reference
to Exhibit 10.13 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).
10.5 Employment Agreement dated May 30, 1998, between 3CI and Charles D.
Crochet (incorporated by reference to Exhibit 10.9 of 3CI's registration
statement on Form S-1 (No. 333-48499), filed March 24, 1998).
10.6 Agreement dated September 30, 1998 among 3CI, Waste Systems, Inc. and
Stericycle, Inc. regarding Section 203 of the Delaware General
Corporation Law (incorporated by reference to Exhibit 10.14 of 3CI's
report on Form 10-K filed January 12, 1999).
10.7 Form of Indemnification Agreement dated August 26, 1998 entered into
between 3CI and Valerie Banner, David Schoonmaker, Charles Crochet,
Juergen Thomas, Dr. Werner Kook and Dr. Clemens Pues (incorporated by
reference to Exhibit 10.15 of 3CI's report on Form 10-K filed January
12, 1999).
10.8 Form of Indemnification Agreement dated June 3, 1999 entered into
between 3CI and Robert Waller (incorporated by reference to Exhibit
10.11 of 3CI's report on Form 10-K filed January 12, 2000).
10.9 LaSalle National Leasing master lease agreement dated June 18, 1999
between LaSalle National Leasing as lessor and the Company as lessee
(incorporated by reference to Exhibit 10.12 of 3CI's report on Form 10-K
filed January 12, 2000).
99.1 Certification of Otley L. Smith, III pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002)
99.2 Certification of John R. Weaver pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002)
- -------------------
REPORTS ON FORM 8-K - NONE
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
3CI COMPLETE COMPLIANCE
CORPORATION
(Registrant)
Dated: August 14, 2001
By: /s/ JOHN R WEAVER
------------------------
John R Weaver
Chief Financial Officer,
(Principal Financial Officer,
Principal Accounting Officer )
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1. Certificate of Incorporation as amended (incorporated by reference to
Exhibit 3(a) of 3CI's registration statement on Form S-1 (No. 33-45632)
effective April 14, 1992).
3.2. Amendment to 3CI's Certificate of Incorporation, as amended effective
June 13, 1995 (incorporated by reference to Exhibit 3.1 of 3CI's
Quarterly Report on Form10-Q for the quarterly period ended June 30,
1995).
3.3. Amendment to 3CI's Certificate of Incorporation, as amended effective
March 23, 1998 (incorporated by reference to Exhibit 3.3 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
3.4 Bylaws, effective May 14, 1995 (incorporated by reference to Exhibit 3.2
of 3CI's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995).
3.5 Amendment of Bylaws effective October 1, 1998.(incorporated by reference
to Exhibit 3.5 of 3CI's report on Form 10-K filed January 12, 1999)
3.6. Certificate of Designations of 3CI's Series A Preferred Stock without
par value (incorporated by reference to Exhibit 3.6 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
3.7. Certificate of Designations of 3CI's Series B Preferred Stock without
par value (incorporated by reference to Exhibit 3.7 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
3.8. Certificate of Designations of 3CI's Series C Preferred Stock without
par value (incorporated by reference to Exhibit 3.8 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
4.1 Amended and Restated Secured Promissory Note dated October 1, 1998, in
the principal amount of $5,487,307.13 between 3CI and Waste Systems,
Inc. (incorporated by reference to Exhibit 4.4 of 3CI's report on Form
10-K filed January 12, 1999).
4.2 Loan Agreement and Note Amendment dated December 18, 1998, by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's
report on Form 10-K filed January 12, 1999).
4.3 Letter Agreement and Note Amendment dated August 10, 2000 by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.3 of 3CI's
report on Form 10-K filed December 29, 2000).
4.4 Letter Agreement and Note Amendment dated December 20, 2000 by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4 of 3CI's
report on Form 10-K filed December 29, 2000).
4.5 Letter Agreement and Note Amendment dated March 5, 2001 by 3CI and Waste
Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's report
on Form 10K filed January 15, 2002)
4.6 Letter Agreement and Note Amendment dated June 26, 2001 by 3CI and Waste
Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's report
on Form 10K filed January 15, 2002)
4.7 Letter Agreement and Note Amendment dated December 20, 2001 by 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.5 of 3CI's
report on Form 10K filed January 15, 2002)
4.8 Letter Agreement and Note Amendment dated May 23, 2002 by 3CI and Waste
Systems, Inc. Filed herewith
10.1 1992 Stock Option Plan of 3CI (incorporated by reference to Exhibit
10(m) of 3CI's registration statement on Form S-1 (No. 33-45632)
effective April 14, 1992).
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.2 Settlement Agreement dated January 1996 between James Shepherd, Michael
Shepherd and Richard T. McElhannon as Releassors, and the Company, Georg
Rethmann, Dr. Herrmann Niehues, Jurgen Thomas, Charles Crochet and Waste
Systems, Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's report on Form 10-K filed January 14, 1997).
10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated as of June
24, 1997 (incorporated by reference to Exhibit 10.12 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed March 24,
1998).
10.4 Stock Purchase and Note Modification Agreement between 3CI and Waste
Systems, Inc. dated as of February 19, 1998 (incorporated by reference
to Exhibit 10.13 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).
10.5 Employment Agreement dated May 30, 1998, between 3CI and Charles D.
Crochet (incorporated by reference to Exhibit 10.9 of 3CI's registration
statement on Form S-1 (No. 333-48499), filed March 24, 1998).
10.6 Agreement dated September 30, 1998 among 3CI, Waste Systems, Inc. and
Stericycle, Inc. regarding Section 203 of the Delaware General
Corporation Law (incorporated by reference to Exhibit 10.14 of 3CI's
report on Form 10-K filed January 12, 1999).
10.7 Form of Indemnification Agreement dated August 26, 1998 entered into
between 3CI and Valerie Banner, David Schoonmaker, Charles Crochet,
Juergen Thomas, Dr. Werner Kook and Dr. Clemens Pues (incorporated by
reference to Exhibit 10.15 of 3CI's report on Form 10-K filed January
12, 1999).
10.8 Form of Indemnification Agreement dated June 3, 1999 entered into
between 3CI and Robert Waller (incorporated by reference to Exhibit
10.11 of 3CI's report on Form 10-K filed January 12, 2000).
10.9 LaSalle National Leasing master lease agreement dated June 18, 1999
between LaSalle National Leasing as lessor and the Company as lessee
(incorporated by reference to Exhibit 10.12 of 3CI's report on Form 10-K
filed January 12, 2000).
99.1 Certification of Otley L. Smith, III pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002)
99.2 Certification of John R. Weaver pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002)