-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QvP6a14cD5+il9GNaxR9SMM3k/weEFw+GFY9uiXfWdzbJS+n0OoHEopucl5ZD8J3 OK4nV5H2ZbMtW/rqzfUv4A== 0000950135-96-002595.txt : 19960613 0000950135-96-002595.hdr.sgml : 19960613 ACCESSION NUMBER: 0000950135-96-002595 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960612 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOSAFE INTERNATIONAL INC CENTRAL INDEX KEY: 0000847468 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 954203626 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-93966 FILM NUMBER: 96579878 BUSINESS ADDRESS: STREET 1: 10 FAWCETT ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6174974500 MAIL ADDRESS: STREET 1: 10 FAWCETT ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 FORMER COMPANY: FORMER CONFORMED NAME: ZOE CAPITAL CORP DATE OF NAME CHANGE: 19920703 424B3 1 BIOSAFE INTERNATIONAL, INC. 1 BIOSAFE INTERNATIONAL, INC. PROSPECTUS SUPPLEMENT NO. 1 TO PROSPECTUS DATED NOVEMBER 6, 1995 Certain aspects of the business, management and financial condition of BioSafe International, Inc. (the "Company") have changed since November 6, 1995, and thus the information contained in the Company's Prospectus dated November 6, 1995 (the "Prospectus") has been updated. PERSONS OFFERING OR SELLING THE COMPANY'S SECURITIES UNDER THE PROSPECTUS MUST DELIVER COPIES OF BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT NO. 1 (THE "SUPPLEMENT") TO OFFEREES AND PURCHASERS. DELIVERY OF THE PROSPECTUS WITHOUT THE SUPPLEMENT, OR DELIVERY OF THE SUPPLEMENT WITHOUT THE PROSPECTUS, WILL NOT SATISFY THE PROSPECTUS DELIVERY REQUIREMENTS OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR SIMILAR STATE SECURITIES LAWS. The following information is incorporated into the Prospectus and supersedes any inconsistent information contained in the Prospectus This Prospectus Supplement is dated June 11, 1996 2 BIOSAFE INTERNATIONAL, INC. PROSPECTUS SUPPLEMENT NO. 1 BUSINESS AND MANAGEMENT CHANGES SINCE NOVEMBER 6, 1995 BioSafe International, Inc. (the "Company" or "BioSafe") is engaged in the business of rehabilitating landfills to permit their continued operation with increased capacity in an environmentally sound manner (referred to by BioSafe as "landfill remodeling"). BioSafe has developed technologies for size reduction and handling of waste materials for use in landfill remodeling. Prior to March 27, 1996, BioSafe had been actively developing other technologies with potential application in a number of business areas, including the manufacture of useful materials from tires and other recycled materials, contaminated soil cleanup and recycling, industrial sludge disposal, size reduction equipment design and manufacture (collectively, the "Ancillary Technologies"), infectious medical waste disposal and Major Sports Fantasies, Inc., a business unrelated to the environmental industry ("MSF"). On March 27, 1996, the Company announced its intention to take meaningful actions to conserve cash and working capital, including the restructuring of the Company's operations to focus its resources and activities on its core business of landfill remodeling and operation. BioSafe is not currently allocating its resources or activities to the development or commercial exploitation of the Ancillary Technologies. Restructuring Charge During the first quarter of 1996, the Company recorded a restructuring charge of $250,000 ($0.02 per share) for estimated restructuring costs associated with management's plan to focus on the core business of landfill remodeling and operation as announced on March 27, 1996. These costs included accruals for employee severance, non-cancelable lease commitments and professional fees. Cash flow expenditures will be funded by the Company's cash flow from operating and financing activities. The restructuring plan, when fully implemented, is expected to result in annual savings in excess of $1.0 million. The reserve is expected to be utilized by the end of 1996. Assets Held for Sale and Discontinued Operations During the fourth quarter of 1995, the Company recorded a non recurring charge to 1995 earnings of approximately $1.3 million primarily related to the write-down of assets to their estimated net realizable value. The aggregate carrying values of such property considered no longer necessary for the operation of the Company will be reviewed periodically and stated at the estimated net realizable value. During the first quarter of 1996, the Company recorded an additional charge of $49,000 to reduce the carrying value as of March 31, 1996. Net assets of the discontinued operations consists primarily of land of $403,000 and other property and equipment of $54,000, and are stated at their approximate net realizable value at March 31, 1996. As a result of discontinuance of these operations, the Company expects annual savings in excess of $2.0 million. The Company expects to dispose of these assets during 1996. On March 27, 1996, the Company ceased operations at its technology center in Woburn, Massachusetts and discharged all employees and consultants previously engaged in developing the Ancillary Technologies, and Major Sports Fantasies, Inc., a business unrelated to the environmental industry. In addition, the Company discharged certain employees involved in the Company's core landfill 2 3 remodeling and operation business, including administrative, marketing and sales, and operations. No substantial revenues have been received from the technology center operations and Major Sports Fantasies, Inc. activities. In the first quarter of 1996, the Company provided a reserve of $650,000 for estimated costs directly associated with disposing of the Ancillary Technologies and MSF. In addition, at March 31, 1996 the Company had $475,000 of liabilities related to these discontinued operations. No income tax expense or benefit was recognized due to the Company's net operating loss carryforwards. The Company is currently maintaining ownership of its infectious medical waste disposal technology (which is fully developed and requires no further development costs), which is outside the Company's core landfill remodeling and operations business, subject to the non-exclusive purchase option described in the following paragraph. On March 27, 1996, Dr. Richard H. Rosen resigned from the offices of Chairman of the Board of Directors, President, Chief Executive Officer and Treasurer of the Company and all of its subsidiaries and affiliates. The Board of Directors named Philip Strauss, Chief Operating Officer, to additional positions of Chief Executive Officer, President and Treasurer of the Company and named Jay Matulich as interim Chairman of the Board of Directors. In connection with Dr. Rosen's resignation, the Company granted Dr. Rosen a non-exclusive option to purchase the Company's medical waste technology, and the technology center operations described above, which are not used in the Company's core landfill remodeling and operation business, at a price to be determined by independent appraisal. The Company retains a right to accept a competing offer deemed preferable by the Company, subject to a right of first refusal by Dr. Rosen. As of April 29, 1996, BioSafe had approximately 25 full-time employees. BioSafe believes its future success will depend in part on its continued ability to recruit and retain highly qualified technical and managerial personnel. LITIGATION COMMENCED SINCE NOVEMBER 6, 1995 BioSafe, Inc. is a party to litigation pending in Superior Court in Bristol County captioned SUSAN ALLUA, ET AL. v. MASSACHUSETTS DEPARTMENT OF ENVIRONMENTAL PROTECTION, TOWN OF FAIRHAVEN AND BIOSAFE, INC. (Civil Litigation No. A95-01717) (the "Litigation"). Plaintiffs are 16 residents of Fairhaven, Massachusetts, who reside in the vicinity of the Bridge Street Sanitary Landfill (the "Landfill"). Plaintiffs commenced the Litigation on November 8, 1995. In the Litigation, plaintiffs seek an order annulling a permit issued by the Massachusetts Department of Environmental Protection (the "DEP") on October 11, 1996, authorizing one phase of the reclamation project undertaken by the Town of Fairhaven and BioSafe at the Landfill (the "Permit"). Plaintiffs also have brought claims alleging that the DEP violated the Massachusetts Environmental Policy Act in issuing the Permit (the "MEPA Claims"). Further, plaintiffs have brought certain common law claims against BioSafe for nuisance, trespass and strict liability based principally on alleged odor and dust conditions resulting from BioSafe's work at the Landfill. The common law claims seek compensatory damages and injunctive relief. Pursuant to the Massachusetts Administrative Procedure Act, the Permit Appeal will be heard by a Bristol County Superior Court Judge. Plaintiffs, the DEP, the Town and BioSafe each have submitted 3 4 briefs to the Court. The Court has scheduled a hearing on the Permit Appeal for June 19, 1996. The Company has challenged all of the alleged procedural and substantive grounds asserted by the Plaintiffs for the appeal. On January 12, 1996, the Company filed a motion to dismiss the MEPA Claims. The Town filed a similar motion. The Court heard oral argument on the motions to dismiss on April 9, 1996. On May 1, 1996, the Court issued a decision on the motions to dismiss in favor of BioSafe and the Town, dismissing the MEPA Claims in their entirety. Plaintiffs' common law claims for nuisance, trespass and strict liability are based principally on alleged odor and dust conditions resulting from BioSafe's excavation activities at the Landfill during the summer and early fall of 1995. The Company is pursuing factual discovery with regard to these claims. If the Plaintiffs pursue these claims after disposition of the Permit Appeal, a period of additional discovery and other pre-trial proceedings would take place prior to trial on the merits. 4 5 BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) SELECTED FINANCIAL DATA ( 1 ) (in thousands except for outstanding shares and earnings per share data)
3 Months Ended Fiscal Year Ended ========================== ====================================================== March 31, March 31, 1996 1995 Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, (Unaudited) (Unaudited(2) 1995(2) 1994(3) 1993(3) 1992(3) 1991(3) ============================================= =========== ============= ======== ======== ======== ======== ======= STATEMENT OF OPERATIONS DATA: Revenues Landfill revenues (1) $ 417 -- 1,344 -- -- -- -- Cost of landfill operations Operating expenses 228 -- 766 -- -- -- -- Depreciation 44 -- 72 -- -- -- -- ----------- --------- --------- --------- --------- --------- --------- Total cost of landfill operations 272 -- 838 -- -- -- -- ----------- --------- --------- --------- --------- --------- --------- Gross profit (loss) 145 -- 506 -- -- -- -- Selling, general and administrative expenses 1,169 581 4,275 1,485 936 561 779 Amortization of prepaid consulting fees 167 -- 500 -- -- -- -- Restructuring 250 -- -- -- -- -- -- ----------- --------- --------- --------- --------- --------- --------- Income (loss) from operations (1,441) (581) (4,269) (1,485) (936) (561) (779) ----------- --------- --------- --------- --------- --------- --------- Other income (expense) Royalty and other income 12 725 865 1,850 1,300 835 75 Interest income 73 16 289 14 27 54 -- Gain on sale of assets -- -- -- 223 -- -- -- Interest and financing cost (276) (40) (471) (166) (125) (116) (108) Equity in loss of affiliate (30) Write-off of accounts and notes receiva -- -- (2,975) -- -- -- -- Loss on investment in marketable securities (31) (91) (9) -- -- -- Write-off of assets -- -- -- -- -- (211) (30) ----------- --------- --------- --------- --------- --------- --------- Total other income (expense) (221) 670 (2,383) 1,912 1,202 562 (63) ----------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes, minority interest and discontinued operatio (1,662) 89 (6,652) 427 266 1 (842) Federal and state income taxes 25 15 (109) 185 103 -- -- ----------- --------- --------- --------- --------- --------- --------- Net income (loss) before minority interest and discontinued operations (1,687) 74 (6,543) 242 163 1 (842) Minority interest (6) -- 13 -- -- -- -- ----------- --------- --------- --------- --------- --------- --------- Net Income (loss) from continuing ope (1,681) 74 (6,556) 242 163 1 (842) Discontinued operations ( 2 ) (1,662) (53) (1,315) -- -- -- -- ----------- --------- --------- --------- --------- --------- --------- Net Income (loss) (3,343) 21 (7,871) 242 163 1 (842) Preferred stock dividend -- 10 10 108 -- -- -- ----------- --------- --------- --------- --------- --------- --------- Net income (loss) available for common shareholders $ (3,343) 11 (7,881) 134 163 1 (842) =========== ========= ========= ========= ========= ========= ========= Earnings (loss) per share ( 4 ): Income (loss) from continuing ope $ (0.14) 0.01 (0.68) 0.03 0.04 0.00 (0.51) Discontinued operations ( 2 ) (0.14) 0.00 (0.14) 0.00 0.00 0.00 0.00 ----------- --------- --------- --------- --------- --------- --------- Earnings (loss) per share $ (0.28) 0.01 (0.82) 0.03 0.04 0.00 (0.51) =========== ========= ========= ========= ========= ========= ========= Weighted average number of shares used in computation of earnings (loss) per share 11,745,765 5,625,365 9,664,046 4,498,635 3,645,903 3,522,094 1,640,625 BALANCE SHEET DATA (AT PERIOD END): Working capital $ (2,185) 2,585 2,393 659 (88) (1,778) (2,019) Total assets $ 20,070 9,212 23,508 4,369 1,289 979 822 Long-term debt, less current maturities $ 11,909 1,073 12,266 1,263 505 -- Total stockholder's equity (deficit) $ 69 6,663 3,292 597 (403) (1,730) (1,731) NOTES: 1. Certain amounts in the prior year financial statements have been reclassified to conform to the 1995 presentation related to landfill operations. 2. Certain amounts in the 1995 consolidated financial statements have been reclassified to conform to the 1996 presentation related to discontinued operations. See also the consolidated financial statements as previously reported in SEC Form 10Q for the quarterly period ended March 31, 1996, Note 4; and the Annual Report in SEC Form 10K for the fiscal year ended December 31, 1995, Notes 4 and 18. 3. Excludes BioSafe International, Inc. (formerly Zoe Capital Corp.) which is not material. 4. Earnings per common share are based on the weighted average number of common shares outstanding during each year adjusted for stock options and warrants. Such stock options and warrants have been included in the calculation of weighted average number of common shares and earnings per common share as if they were exercised at the beginning of the fiscal year they were issued or the date of issue, if later. Fully diluted earnings per share have been omitted since they are either the same as primary earnings per share, or are antidilutive.
5 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus Supplement No. 1 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference are discussed herein. The Company is engaged in the business of rehabilitating landfills to permit their continued operation with increased capacity in an environmentally sound manner (referred to by BioSafe as "landfill remodeling"). BioSafe has developed technologies for size reduction and handling of waste materials for use in landfill remodeling. Prior to March 27, 1996, BioSafe had been actively developing other technologies with potential application in a number of business areas, including the Ancillary Technologies and Major Sports Fantasies, Inc., a business unrelated to the environmental industry. BioSafe is not currently allocating its resources or activities to the development or commercial exploitation of the Ancillary Technologies or Major Sports Fantasies, Inc. THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 FINANCIAL POSITION - ------------------ BioSafe had $1,703,000 in cash as of March 31, 1996. This represented a decrease of $3,534,000 from December 31, 1995. Working capital deficiency as of March 31, 1996 was $(2,185,000) a decrease of $4,567,000 from December 31, 1995. This decrease was primarily due to the use of cash to fund the net loss for the three months ended March 31, 1996, additional property and equipment costs, and the restructuring and discontinued operations reserve which the Company expects to utilize by the end of 1996. During the three months ended March 31, 1996, the Company allocated resources to various project development and related activities. Additions to property and equipment, primarily related to landfill remodeling, of $1,119,000 were made during the three months ended March 31, 1996, including equipment purchase costs of $69,000. In February 1996 the Company entered into a licensing and services agreement with ScotSafe Limited, a Glasgow, Scotland company, for the exclusive rights to use the Company's continuous feed autoclave medical wast processing technology in the British Isles. The Company anticipates generating revenues from this agreement beginning in the second quarter of 1996. RESULTS OF OPERATIONS - --------------------- Through the first quarter of 1995, substantially all of the Company's revenue had been attributable to the sale and licensing of its medical waste treatment technology to BioMedical Waste Systems, Inc. ("BioMed"). On August 31, 1995 the Company terminated its agreement with BioMed in most territories as a result of BioMed's failure to make required payments. Revenues for the three months ended March 31, 1996 consisted of $417,000 received from operation of the Fairhaven landfill project which commenced on June 22, 1995. For three months ended March 31, 1996, the net loss was ($3,343,000), as compared to net income of $22,000 during the three months ended March 31, 1995. This decrease was primarily due to the increased level of the Company's selling, general and administrative expenses, the restructuring and discontinued operations charges, and an increase of $235,000 in interest expense and financing costs, 6 7 primarily related to the Fairhaven landfill and the convertible debenture issued in the fourth quarter of 1995, partially offset by net operating income from the Fairhaven landfill project. In addition, on March 29, 1995, the Company entered into a two-year agreement with Liviakis Financial Communications, Inc. ("Liviakis"), whereby Liviakis assists and consults with the Company on matters concerning mergers and acquisitions, corporate finance, investor relations and financial public relations. As compensation for services to be rendered by Liviakis, the Company issued 890,000 unregistered, restricted shares of Common Stock. As a result, on March 29, 1995, the Company recorded a prepaid asset of $1,335,000. The Company is amortizing this expense over the two years of the Agreement, at a rate of $167,000 per quarter. As adjusted for discontinued operations selling, general and administrative expenses consist of project development activities, marketing costs, salaries and benefits, and legal, accounting and other professional fees, and other administrative costs. These costs totaled $1,169,000 for the three months ended March 31, 1996. This represented an increase of 101% compared to the $581,000 incurred during the three months ended March 31, 1995. The increase was primarily associated with the development and marketing of the Company's landfill remodeling technology and financing activities. On March 27, 1996, the Company announced its intention to take meaningful action to conserve cash and working capital, including the restructuring of the Company's operations to focus its resources and activities on its core business of landfill remodeling and operation. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 FINANCIAL POSITION - ------------------ BioSafe had $5,237,000 in cash as of December 31, 1995. This represented an increase of $5,066,000 over December 31, 1994. Working capital as of December 31, 1995 was $2,393,000, an increase of $1,775,000 over December 31, 1994. This increase was largely due to the raising of net proceeds of $19,038,000 in equity and long-term debt during the year ended December 31, 1995. BioSafe had approximately $1.8 million in cash and nominal working capital as of March 31, 1996. During the year ended December 31, 1995, the Company devoted substantial resources to various project development and related activities. Additions to project development costs, primarily related to landfill remodeling, of $11,843,000 were made during the year ended December 31, 1995 including equipment purchase costs of $2,246,000. On August 1, 1995, BioSafe terminated the BioMedical Waste Systems, Inc. ("BioMed") technology license for BioSafe's patented continuous feed autoclave ("CFA") medical waste processing technology in most territories as a result of BioMed's failure to make required payments. Accordingly, the Company wrote off as uncollectible the outstanding accounts and notes receivable balances of $2,975,000 from BioMed. In December 1995 the Company entered into a licensing and royalty agreement with ScotSafe Limited for the exclusive rights to use BioSafe's continuous feed autoclave medical waste processing technology in the British Isles. ScotSafe is a Glasgow, Scotland based company. RESULTS OF OPERATIONS - --------------------- Through the first quarter of 1995, substantially all of BioSafe's revenue had been attributable to the sale and licensing of BioSafe's medical waste treatment technologies to BioMed. Revenues recorded during 7 8 the year ended December 31, 1995 consisted of $1,344,000 received from operation of the Fairhaven landfill project which commenced on June 22, 1995 as well as revenues from BioMed. For the year ended December 31, 1995, the net loss was ($7,871,000), as compared to net income of $241,000 during the year ended December 31, 1994. This decrease was primarily due to the write-off of the accounts and notes receivable from BioMed, the increased level of the Company's selling, general and administrative expenses, the nonrecurring charges related to the discontinuance of certain operations and an increase of $306,000 in interest expense and financing costs, primarily related to the Fairhaven landfill and the convertible debenture issued in the fourth quarter of 1995, partially offset by net operating income from the Fairhaven landfill project. In addition, on March 29, 1995, the Company entered into a two-year agreement with Liviakis Financial Communications, Inc. ("Liviakis"), whereby Liviakis assists and consults with the Company on matters concerning mergers and acquisitions, corporate finance, investor relations and financial public relations. As compensation for services to be rendered by Liviakis, the Company issued 890,000 unregistered, restricted shares of Common Stock. As a result, on March 29, 1985, the Company recorded a prepaid asset of $1,335,000. The Company is amortizing this expense over the two years of the Agreement, at a rate of $167,000 per quarter, or a total of $501,000 for the year ended December 31, 1995. Selling, general and administrative expenses consist of project development activities, marketing and sales costs, salaries and benefits, and legal, accounting and other professional fees, and other administrative costs. These costs totaled $4,275,000 for the year ended December 31, 1995, excluding $1,315,000 relating to the discontinued operations at March 31, 1996. This represented an increase of 188% compared to the $1,485,000 incurred during the year ended December 31, 1994. The increase was primarily associated with the development, marketing and sales of BioSafe's landfill remodeling technology, the Ancillary Technologies, Major Sports Fantasies, Inc.,and financing activities. ENVIRONMENTAL AND REGULATORY MATTERS The Company and its customers operate in a highly regulated environment, and in general the Company's landfill remodeling projects, such as the Fairhaven landfill, will be required to have federal, state and/or local government permits and approvals. Any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. In addition, if new environmental legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, BioSafe or its customers may be required to obtain additional operating permits or approvals. There can be no assurance that BioSafe will meet all of the applicable regulatory requirements. Any delay in obtaining required permits or approvals will tend to cause delays in the Company's ability to obtain bond or other project financings, resulting in increases in the Company's needs to invest capital in projects prior to obtaining financing, and will also tend to reduce project returns by deferring the receipt of project revenues. In the event that the Company is required to cancel any planned project as a result of the inability to obtain required permits or other regulatory impediments, the Company may lose any investment it has made in the project up to that point, and in the case of the Fairhaven and Moretown landfill projects, have a material adverse effect on the Company's financial condition and results of operations. To the extent possible, the Company intends to conduct its operations in such a manner as to minimize the impact of environmental issues on operating results. As a general matter, the Company will seek to avoid projects in which it would be required to handle or dispose of hazardous waste, although it is prepared to consider projects that may involve some cleanup of previously existing hazardous waste, subject to controls designed to minimize exposure to risk of liability and to assure an economic return from the activity. The Company's landfill projects will involve the installation and operation of extensive environmental monitoring systems to enable the Company to identify and deal with any potential 8 9 environmental problems, which systems have already been implemented at the Fairhaven and Moretown landfill projects. The cost of installing these systems will be included in the Company's total investment in the project. The Company's contract for the Fairhaven landfill project requires the Town, as owner of the landfill, to pay for the ultimate cost of closing the landfill, and provides for a set-aside of a part of the Town's share of project revenues to establish a sinking fund for payment of closure costs, so that the Company will not be required to establish any reserves for this purpose. The Company intends to implement similar arrangements for closure costs in its agreements for other landfill projects which it may enter into in the future. The Company's ownership of the Moretown landfill through its subsidiary, Waste Professionals of Vermont, Inc., involves a greater degree of exposure to potential environmental liabilities than is involved with landfills operated under a management contract. In conjunction with the acquisition of the Moretown project, the Company recorded $1.5 million in estimated closure and post-closure costs based on engineering estimates of the current condition of the landfill. CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS Initial Commercialization Stage; Limited Operating History. To date, although BioSafe has conducted significant testing of methods and processes based on its size reduction and materials handling technology, and has gained substantial experience in connection with the development and operation of the Fairhaven landfill project to date, BioSafe has not yet carried through a landfill remodeling project to completion. Final development and operation may be subject to engineering and construction problems such as cost overruns and start-up delays resulting from technical or mechanical problems, unfavorable conditions in the equipment or labor market, or environmental permitting and other regulatory problems, as well as other possible adverse factors. There can be no assurance that BioSafe will be successful in developing and implementing commercial landfill remodeling projects, or that any such development can be accomplished without excessive cost or delay. Operating Losses and Accumulated Deficit; Uncertainty of Future Profitability. BioSafe had an accumulated operating deficit at March 31, 1996 of $12,670,000. Prospects for future profitability are heavily dependent on the success of BioSafe's landfill remodeling projects. There can be no assurance that BioSafe will generate sufficient revenue to be profitable or, if profitable, to maintain profitability in future years. Risks of Limited Liquidity. The Company has limited liquidity in relation to its short-term capital commitments and operating cash requirements. The Company's ability to satisfy its commitments and operating requirements is dependent on a number of pending financing activities which are not assured of successful completion. Any failure of the Company to obtain sufficient financing in the short run would have a materially adverse effect on the Company's financial condition and results of operations. Potential Environmental Liability and Adverse Effect of Environmental Regulation. BioSafe's business exposes it to the risk that it will be held liable if harmful substances escape into the environment as a result of its operations and cause damages or injuries. Moreover, federal, state and local environmental legislation and regulations require substantial expenditures and impose significant liabilities for noncompliance. Future Capital will be Required. BioSafe will require substantial funds to complete and bring to commercial viability all of its currently planned projects. Unpredictability of Patent Protection and Proprietary Technology. BioSafe's success depends, in part, on its ability to obtain and enforce patents, maintain trade secret protection and operate without 9 10 infringing on the proprietary rights of third parties. While BioSafe has been issued a U.S. patent and certain related foreign patents on certain of its size reduction and materials handling technology, with particular reference to landfill remodeling, and on its CFA medical waste treatment system, there can be no assurance that others will not independently develop similar or superior technologies, duplicate any of BioSafe's processes or design around any processes on which BioSafe has or may obtain patents. In addition, it is possible that third parties may have or acquire licenses for other technology that BioSafe may use or desire to use, so that BioSafe may need to acquire licenses to, or to contest the validity of, such patents of third parties relating to BioSafe's technology. There can be no assurance that any license required under such patents would be made available to BioSafe on acceptable terms, if at all, or that BioSafe would prevail in any such context. Moreover, BioSafe could incur substantial costs in defending itself in suits brought against BioSafe or in bringing suits against other parties related to patent matters. In addition to patent protection, BioSafe also relies on trade secrets, proprietary know-how and technology which it seeks to protect, and confidentiality agreements with its collaborators, employees and consultants. There can be no assurance that these agreements and other steps taken by BioSafe will be effective to protect BioSafe's technology against unauthorized use by others. LIQUIDITY AND CAPITAL RESOURCES To date, BioSafe has financed its activities primarily through the issuance of equity securities and debt, including convertible notes and common stock warrants. As previously mentioned, during the year ended December 31, 1995 the Company raised net proceeds of $19,038,000 through private placements of equity securities and the issuance of long-term debt. The Company used $1,459,000 of such proceeds to repay existing indebtedness At present, BioSafe is focusing its resources and efforts on the development of its landfill remodeling business. BioSafe is currently engaged in a project with the Town of Fairhaven, Massachusetts to remodel its existing 28-acre landfill. Total investments in the Fairhaven landfill project through March, 1996 were approximately $7.0 million. The Company estimates that the total cost of development of the Fairhaven landfill project, including amounts invested to date, will be approximately $20 million. Since assuming responsibility for operation of the landfill in June 1995, the Company is receiving revenue from such operation. On October 11, 1995, the Company received a Major Modification Permit including an Authorization to Construct and remodel phase 1 of the first of three "cells" of the landfill. This permit has been challenged in state court by certain residents of the Town of Fairhaven. See "Litigation Commenced Since November 6, 1995." Construction of phase 1 of the first cell of the Fairhaven landfill has been completed, and the Company is awaiting an Authorization to Operate from the DEP to operate the cell as planned. Additional ATCs, ATOs and other minor permits will also be required for the second phase of the first cell and for the second and third cells. The Company believes that the issuance of a permit to remodel phase 1 of the first cell reflects substantial acceptance of its remodeling approach as applied at the Fairhaven landfill by the Massachusetts environmental authorities, but no assurance can be given that further required ATCs, ATOs and other permits will be obtained on a timely basis. Pending completion of remodeling of phase one of the first cell and issuance of the ATO for this phase, the Company is operating the landfill under prior permits. Revenue received during the period of completing the remodeling is expected to cover a portion of capital requirements for project completion, although the contribution will be small in proportion to total requirements. BioSafe may finance the Fairhaven landfill project in large part through a sale of approximately $15.0 million in tax-exempt industrial revenue bonds, and has received initial approval from the Massachusetts Industrial Finance Authority ("MIFA") for such financing. The Company has engaged Oppenheimer & Co., Inc. as placement agent to manage and sell the bonds, and Oppenheimer has identified a potential purchaser of the bonds, although no assurance can be given that such a purchase will be 10 11 consummated. A second landfill project involves the Moretown landfill, located in Moretown, Vermont. On July 5, 1995, WPV, a corporation 80% owned by the Company, acquired the property of the Moretown landfill, together with certain related assets. The remaining 20% of WPV is held by an individual not affiliated with BioSafe. The Moretown landfill was acquired from an entity in bankruptcy which had owned the real estate on which the landfill had operated pursuant to a lease. The Company's total investment in the Moretown landfill project was approximately $6.0 million at March 31, 1996. The Company estimates that the total cost to WPV of completing the Moretown landfill project as planned, including the cost of completing the landfill and its remodeling, including amounts invested to date, will be approximately $15.0 million. The Company is currently seeking to obtain project financing for acquisition, development and working capital costs of the Moretown landfill project from a local bank, and is also in the preliminary stages of investigating the availability of industrial development bond financing similar to the financing in connection with the Fairhaven landfill project. No assurance can be given that such financing can be obtained on terms satisfactory to the Company. The Company's ability to sell industrial revenue bonds for the Moretown landfill project is subject to normal uncertainties involved with project debt financing, including review of eligibility of project costs for bond financing, credit evaluation by prospective bond buyers and negotiation of mutually agreeable financing terms. In the event that such sale of industrial revenue bonds is not feasible, the Company believes that it would be able to carry out the remaining investments required to commence operation of the landfill, without additional remodeling to expand present capacity, with bank financing and use of general funds from corporate financings, and that remodeling could be completed by re-investment of cash flows from such operations. A third landfill project involves a landfill located on a 26-acre parcel in the Town of South Hadley, for which BioSafe and the Town recently entered into an agreement under which BioSafe will operate and remodel the landfill. Thirteen of the 26 acres may contain hazardous waste and will not be included in the first phase of the remodeling, subject to a feasibility study. Upon completion of landfill remodeling activities in the first 13-acre phase at this site by Company, the remodeled landfill is expected to have additional capacity of approximately 900,000 tons of waste. In addition, the Company's proposal to remodel and operate the 10-acre landfill of the Town of Buckland, Massachusetts has been approved by the Town, and a contract for this project has been negotiated. The Company has been chosen to remodel additional landfills in Massachusetts and has acquired an option to purchase a landfill in Pennsylvania. If the Company is successful in raising additional capital to meet existing commitments and to support additional capital investments, the Company intends to pursue and increase its landfill remodeling business, and therefore its capital requirements, during the next few years. Typically, the Company expects to be required to incur substantial capital costs in connection with feasibility studies, contracting, permitting and initial development, ranging from $500,000 up to $2.0 million, for any such landfill remodeling project in the initial phases of the project. After completion of these initial phases, the Company will generally seek to obtain project-level financing from the issuance of industrial revenue bonds or similar means, and to recapture a part of its initial investment from such project financing. The Company will therefore be required to commit substantial capital resources from internal sources in the case of any landfill remodeling project prior to being able to obtain outside financing or to derive material operating revenues from the project. To the extent practicable, the Company seeks in its projects to retain the flexibility to defer 11 12 scheduled capital investments. For example, the total investments required for the Fairhaven and Moretown landfill projects as described above assume completion of landfill remodeling over the entire site. The Company may stage remodeling investments over an extended period of time while still collecting projected project revenues from the utilization of existing space, although industrial revenue bond financing requirements applicable to projects such as the Fairhaven landfill project require full use of proceeds as planned within three years at the longest. In summary, the Company's total investment required to complete its Fairhaven and Moretown landfill projects, in addition to amounts already invested as of March 31, 1996, will be approximately $22.0 million, subject to possible cost overruns which cannot be predicted. The Company estimates that, of the $22.0 million estimated required investment, approximately $13 million will be invested in the Fairhaven landfill project, and approximately $9 million will be invested in the Moretown landfill. Furthermore, feasibility studies required under the Company's contracts with the Towns of South Hadley and Buckland, Massachusetts, are expected to cost approximately $1 million, and if either of these projects is determined to be feasible, substantial investments, comparable to those required for the Company's other landfill remodeling projects, would be required to complete the projects. The Company has under discussion and negotiation a number of additional landfill remodeling projects or acquisitions, and any contracts resulting from these discussions and negotiations would increase the Company's capital requirements accordingly. In addition, the Company requires cash to fund its corporate staff and other overhead expenses, which may grow significantly as the Company expands the scope of its operations. Although the Company has recently begun receiving cash revenues from operation of the Fairhaven landfill, such revenues are at this time small in relation to ultimate projections. The Company anticipates that it will be at least three months before the Company will begin realizing cash revenues from its investments in the Moretown landfill project and other pending projects. The Company will require additional financing in order to satisfy its existing and pending commitments. On May 31, 1996 the Company began an offering of such a number of shares of common stock under "Regulation S" of the Securities Act as will provide the Company gross proceeds of $5.0 million. The shares are being offered and will be issued and sold at a price equal to seventy-five percent (75%) of the average closing price of a share on the NASDAQ SmallCap Market on the first five or six trading days preceding, but not including, the date on which the shares are issued and sold in the offering. These shares have not been registered under the Securities Act and may not be sold in the Untied States without such registration or an applicable exemption from the requirement of registration. On May 31, 1996 the Company closed gross proceeds of $1.0 million under the offering at $2.50 per share. The Company's alternatives under consideration in this regard include: (a) the raising of additional equity or long-term debt financing; (b) exercising its call rights with respect to certain outstanding warrants when and if the applicable market price conditions are satisfied, with the expectation that proceeds of approximately $16.1 million may be realized from exercise of these warrants; (c) certain prospects for bank financing or other industrial revenue bond financing in relation to specific projects; and (d) the proposed MIFA financing of the Fairhaven landfill project. There can be no assurance that all or any of these financing plans and expectations will be realized. Failure of the Company to obtain required financing in the short term could have a materially adverse effect on the Company's financial condition and results of operations. INFLATION BioSafe does not believe its operations have been materially affected by inflation. 12 -----END PRIVACY-ENHANCED MESSAGE-----