U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO__________
Commission File Number 0-22533
MERCURY WASTE SOLUTIONS, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1827776
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 North Riverfront Drive, Suite 100A
MANKATO, MINNESOTA 56001
------------------------
(Address of principal executive offices)
(507) 345-0522
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 _____.
The number of shares outstanding of each of the Issuer's Common Stock, $.01 Par
Value, as of June 30, 1999 was 3,480,097.
Transitional small business disclosure format:
Yes _____ No __X__.
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
FORM 10-QSB
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Operations for the three and
six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three and
six months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER,31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 53,132 $ 75,015
Accounts receivable, less allowance for doubtful accounts of $40,000
at June 30, 1999 and $55,000 at December 31, 1998 1,239,983 1,309,757
Insurance claim receivable 0 150,000
Other current assets 306,854 265,138
------------ ------------
TOTAL CURRENT ASSETS 1,599,969 1,799,910
------------ ------------
Property and Equipment, at cost
Leasehold improvements 466,484 420,160
Furniture, fixtures, and equipment 412,395 370,279
Plant equipment 1,958,746 1,915,910
Construction in progress 100,198 49,788
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 2,937,823 2,756,137
Less accumulated depreciation 843,010 610,700
------------ ------------
NET PROPERTY AND EQUIPMENT 2,094,813 2,145,437
------------ ------------
Other Assets
Cash restricted for closure 93,888 91,278
Intangible assets, net 2,491,655 2,711,897
------------ ------------
TOTAL OTHER ASSETS 2,585,543 2,803,175
------------ ------------
TOTAL ASSETS $ 6,280,325 $ 6,748,522
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit $ 525,000 $ 220,000
Current portion of long-term debt 480,000 462,393
Accounts payable 403,082 395,714
Accrued expenses 326,840 337,342
Deferred revenue 117,951 107,037
------------ ------------
TOTAL CURRENT LIABILITIES 1,852,873 1,522,486
------------ ------------
Long-Term Liabilities
Long-term debt, net of current portion 849,032 1,072,571
Closure fund 30,300 30,300
------------ ------------
TOTAL LONG-TERM LIABILITIES 879,332 1,102,871
------------ ------------
Shareholders' Equity
Common stock, $0.01 par value; shares issued and outstanding of
3,480,097 at June 30, 1999 and December 31, 1998 34,801 34,801
Additional paid-in capital 4,795,895 4,792,394
Accumulated deficit (1,282,576) (704,030)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,548,120 4,123,165
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,280,325 $ 6,748,522
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 1,477,763 $ 1,629,840 $ 2,758,299 $ 2,978,013
Cost of Revenues 1,037,487 731,065 1,972,195 1,398,041
------------- ------------- ------------- -------------
Gross Profit 440,276 898,775 786,104 1,579,972
------------- ------------- ------------- -------------
Operating Expenses
Sales & Marketing 302,330 296,896 605,241 523,318
General & Administrative 501,998 439,744 972,752 825,511
------------- ------------- ------------- -------------
804,328 736,640 1,577,993 1,348,829
------------- ------------- ------------- -------------
Operating Income (Loss) (364,052) 162,135 (791,889) 231,143
Business interruption claim recovery, net of
direct expenses 0 0 328,940 121,034
Interest Income 477 1,477 2,601 6,614
Interest Expense (61,715) (35,282) (118,198) (43,799)
------------- ------------- ------------- -------------
Net Income (Loss) before Income Taxes (425,290) 128,330 (578,546) 314,992
Income tax expense (benefit) 0 0 0 0
------------- ------------- ------------- -------------
Net Income (Loss) $ (425,290) $ 128,330 $ (578,546) $ 314,992
============= ============= ============= =============
Basic and diluted income (loss) per share $ (0.12) $ 0.04 $ (0.17) $ 0.09
Weighted average number of common and
common equivalent shares outstanding:
Basic 3,480,097 3,480,097 3,480,097 3,480,008
Diluted 3,480,097 3,543,080 3,480,097 3,585,054
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income(Loss) $ (578,546) $ 314,992
Adjustments to reconcile net income (loss) to net cash used in
(provided by) operating activities:
Depreciation 232,310 139,183
Amortization 230,234 142,162
Non cash compensation 3,500 3,500
Changes in assets and liabilities:
Receivables 219,774 (404,417)
Other current assets (41,716) (88,780)
Accounts payable 7,368 (144,951)
Accrued expenses (10,502) (12,865)
Deferred revenue 10,914 39,963
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 73,336 (11,213)
------------- -------------
Cash Flows from Investing Activities
Purchase of property and equipment and other assets (191,677) (466,763)
Acquisition of business 0 (1,377,899)
(Increase) decrease in restricted cash (2,610) 42,035
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (194,287) (1,802,627)
------------- -------------
Cash Flows From Financing Activities
Proceeds from long-term debt 0 1,200,000
Payments on long-term debt (205,932) (76,451)
Net borrowings on the line of credit 305,000 0
Net proceeds from exercise of stock options 0 8,000
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 99,068 1,131,549
------------- -------------
DECREASE IN CASH (21,883) (682,291)
Cash
Beginning 75,015 779,945
------------- -------------
Ending $ 53,132 $ 97,654
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 111,761 $ 20,035
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
Notes to Consolidated Financial Statements
June 30, 1999
Note 1. - Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-QSB. 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 and six month periods ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999, or any other period. For further information, refer to the
audited financial statements and footnotes thereto for the year ended December
31, 1998 contained in the Company's Annual Report on Form 10-KSB.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in connection with the
Company's consolidated financial statements and related notes thereto included
within this document.
RESULTS OF OPERATIONS
OVERVIEW. The Company provides services to mercury waste generators
to reduce the risk of liability associated with mercury waste disposal. The
Company currently operates a mercury waste retorting facility in Union Grove,
Wisconsin, a facility for recycling and storing fluorescent and other
mercury-containing lamps in Roseville, Minnesota and Union Grove, Wisconsin and
mercury waste storage and collection facilities in Kenosha, Wisconsin,
Indianapolis, Indiana, Atlanta, Georgia and Albany, New York.
REVENUES. Total revenues were $1,477,763 and $2,758,299 for the
three and six months ended June 30, 1999 compared to $1,629,840 and $2,978,013
for the three and six months ended June 30, 1998, a decrease of 9% and 7%,
respectively.
Mercury retorting revenues were $757,772 and $1,378,563 for the
three and six months ended June 30, 1999 compared to $872,404 and $1,557,311 for
the three and six months ended June 30, 1998, a decrease of 13% and 11%,
respectively. The Company believes the decrease in retort revenue in 1999 is
primarily due to the lack of one-time large retort projects secured. Retort
revenues can vary significantly from period to period due to the extent or lack
of one-time large retort projects, the nature and extent of which varies from
year to year. For the three and six months ended June 30, 1999, the Company had
large retort projects of $75,000 as compared to approximately $175,000 and
$275,000 for the three and six months ended June 30, 1998. The Company believes
revenue growth in 1999 has also been hindered by the October 1998 processing
incident at the Union Grove Facility, pricing decreases from 1998 to 1999 due to
increased competitive pressures and industry uncertainty regarding potential
revisions to mercury treatment standards (see "Legislative Update").
Lamp Recycling revenues were $719,991 and $1,379,736 for the three
six months ended June 30, 1999 compared to $757,436 and $1,420,702 for the three
and six months ended June 30, 1998, a decrease of 5% and 3%, respectively.
Strong revenue growth in the Southeast markets has been offset by decreases in
the Midwest markets.
COST OF REVENUES. Cost of revenues consists primarily of direct
labor costs to process the waste, transportation costs and direct facility
overhead costs. Gross profit as a percent of revenue was 30% and 28% for the
three and six months ended June 30, 1999 compared to 55% and 53% for the three
and six months ended June 30, 1998.
Mercury retorting gross profit percentages were 21% and 15% for the
three and six months ended June 30, 1999 compared to 69% and 66% for the three
and six months ended June 30, 1998. The decreases in mercury retorting gross
profit margin is due to the large fixed cost structure of the Union Grove
Facility, which significantly increased from 1998 to 1999. In 1998, the Company
expanded the Union Grove Facility, added processing capacity and related
staffing and added storage capability via the Mercury Refining Company, Inc.
("MERECO") acquisition to support larger anticipated revenues than those
realized in the 1999 period. In addition, the October 1998 processing incident
at the Union Grove Facility prompted the Company to implement additional
protocols and safeguards, resulting in increased costs. Lamp recycling gross
profit percentages were 39% and 42% for the three and six months ended June 30,
1999 compared to 39% and 39% for the three and six months ended June 30, 1998.
The improved lamp recycling gross profit margin in 1999 is due primarily to a
continued focus on higher margin products and services offset in part by
increased facility costs resulting from the expansion of the Atlanta facility.
SALES AND MARKETING. Sales and marketing expense was $302,330 and
$605,241 for the three six months ended June 30, 1999 compared to $296,896 and
$523,318 for the three and six months ended June 30, 1998, an increase of 2% and
16%, respectively. The increase in expense was due primarily to sales
<PAGE>
staff acquired through business acquisitions and an increase in marketing and
advertising related to the Company's lamp recycling products and services.
GENERAL AND ADMINISTRATIVE. General and administrative expense was
$501,998 and $972,752 for the three and six months ended June 30, 1999 compared
to $439,744 and $825,511 for the three and six months ended June 30, 1998, an
increase 14% and 18%, respectively. The increase in administrative expense in
1999 was principally due to increased amortization resulting from the MERECO
acquisition, increased professional fees related to the Company's regulatory
issues and increased bad debt expense.
BUSINESS INTERRUPTIONS. In October 1998, a processing incident at
the Union Grove Facility caused a business interruption for a significant part
of the 1998 fourth quarter. The Company experienced a loss of revenue due to
this incident and as a result, the Company filed a business interruption
insurance claim in February 1999. The claim, which was in excess of $750,000,
sought recovery of expenses incurred to repair the equipment damage and clean up
the facility as well as for lost revenue during the interruption period. The
Company settled this claim for approximately $684,000. Of this amount, $250,000
was recorded in 1998. As a result, for the six months ended June 30, 1999, the
Company recorded a net recovery on this claim of $328,940, which consisted of
gross proceeds received from the insurance company of $434,000, net of direct
expenses. The net recovery of $121,034 recorded for the six months ended June
30, 1998 represents net proceeds received from the insurance company related to
a 1997 business interruption insurance claim.
In January 1999, the U. S. Occupational Safety and Health
Administration ("OSHA") cited the Company for alleged violations of various OSHA
standards at its Union Grove Facility with proposed penalties that were not
material. The Company has contested these violations and is currently in
settlement negotiations with OSHA. In February 1999 and July 1999, the Company
received a Notice of Violation from the Wisconsin Department of Natural
Resources ("WDNR") alleging violation of certain state hazardous waste
regulations relating to its Union Grove Facility. The WDNR's letters identified
several alleged violations and informed the Company it has the authority to
impose monetary penalties. The Company has responded to these violations and is
working with the State of Wisconsin towards resolution of this civil proceeding.
To date, the State of Wisconsin has not initiated any legal proceedings against
the Company. It is not known at this time if this proceeding will result in
legal action, civil monetary penalty, or any other future regulatory
ramification that would have a material adverse effect on the Company's
business. While the Company believes it has taken all necessary steps to address
these regulatory concerns, these regulatory issues have and may continue to have
a negative impact on revenue growth and profitability.
INTEREST EXPENSE. Interest expense was $61,715 and $118,198 for the
three and six months ended June 30, 1999 compared to $35,282 and $43,799 for the
three and six months ended June 30, 1998. The 1999 increases are due to the debt
incurred in connection with the MERECO acquisition and increased line of credit
borrowings.
INCOME TAXES. There was no income tax expense (benefit) recorded in
1999 or in 1998. At June 30, 1999, the Company recorded a valuation allowance of
approximately $550,000 on its net deferred tax assets due to the uncertainty of
their realization. The realization of these deferred tax assets is dependent
upon generating sufficient taxable income during the period that deductible
temporary differences are expected to be available to reduce taxable income. At
December 31, 1998, the Company had net operating loss carryforwards of
approximately $610,000 that expire in 2012.
NET INCOME (LOSS). Resulting from the factors discussed above, the
Company recorded net losses of $425,290 and $578,546 for the three and six
months ended June 30, 1999 compared to net income of $128,330 and $314,992 for
the three and six months ended June 30, 1998. Basic and diluted loss per share
was $0.12 and $0.17 for the three and six months ended June 30, 1999 compared to
basic and diluted income per share of $0.04 and $0.09 for the three and six
months ended June 30, 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $73,336 for the six
months ended June 30, 1999, primarily resulting from a decrease in receivables
of $219,774 and depreciation and amortization of $462,544 offset by the net loss
of $578,546
Cash flows used in investing activities were $194,287 for the six
months ended June 30, 1999, consisting primarily of payments for capital
expenditures related to the Union Grove Facility.
Cash flows provided by financing activities were $99,068 for the six
months ended June 30, 1999, consisting of increased borrowings of $305,000 under
the Company's line of credit offset by payments on long-term debt of $205,932.
In conjunction with the acquisition of MERECO in May 1998, the
Company entered into a $2,000,000 loan agreement with Bankers American Capital
Corporation ("BACC"), a corporation wholly owned by Brad J. Buscher, its
Chairman of the Board and Chief Executive Officer. The $2,000,000 loan consists
of a $1,200,000 term loan used to fund the MERECO acquisition and an $800,000
revolving credit loan to be used for working capital purposes. The term loan has
a two-year term requiring quarterly payments, commencing on September 1, 1998,
of $60,000 plus interest with the balance due in May 2000 and the revolving
credit loan has a one-year term. Borrowings under the loans bear interest at 6%
over the prime rate and are secured by all Company assets. The Company renewed
the line of credit with BACC until November, 1999 under similar terms. At June
30, 1999, line of credit borrowings totaled $525,000.
The Company's capital requirements will be significant for the
balance of 1999 to fund operations, planned capital expenditures, debt service
and potential acquisitions. The Company anticipates that its availability under
its revolving credit loan and cash generated by its operations will be
sufficient to fund its working capital needs, debt service and capital
expenditures for at least 6 months, excluding any extraordinary expenses
associated with the Company's regulatory matters and any additional business
acquisitions and provided that revenues increase in the short-term, which cannot
be assured. To improve its short-term liquidity position, the Company is in the
process of increasing its line of credit from $800,000 with BACC and is
currently taking steps to reduce its overhead to be more in line with its actual
revenues realized. There can be no assurance that additional financing will be
available at all or that, if available, such financing would be obtainable on
terms favorable to the Company
LEGISLATIVE UPDATE
New Fluorescent Lamp Management Rule. The U.S. Environmental
Protection Agency (EPA) recently adopted new fluorescent lamp recycling rules.
On July 6, 1999, the EPA added hazardous waste lamps (fluorescent and other-
mercury-containing lamps) to the federal list of universal wastes regulated
under the Resource Conservation and Recovery Act (RCRA). The EPA concluded that
regulating spent hazardous waste lamps as a universal waste will lead to better
management of these lamps and will facilitate compliance with hazardous waste
requirements. Previously, the management of fluorescent lamps was primarily
regulated at the state level with only a handful of states requiring recycling
and/or hazardous waste treatment. The new federal regulation, effective January
2000, makes it easier and more cost-effective for generators to recycle
fluorescent lamps. Handlers of universal wastes are subject to less stringent
standards for storing, transporting and collecting these wastes, provided they
are taken to recycling centers and not dumped in landfills. According to the
EPA, the universal waste rule is designed to reduce the amount of hazardous
waste items in the municipal solid waste stream and encourage the recycling of
common hazardous wastes. Between 600 million to 1 billion fluorescent lamps are
discarded annually according to the EPA and industry estimates, the vast
majority of which are not recycled. While the Company believes this rule will
increase the recycling of fluorescent lamps in the future, there can be no
assurance that this will result in a significant increase in revenues.
Potential Revisions to the Land Disposal Restrictions Mercury
Treatment Standards. The Environmental Protection Agency (EPA), on May 28,
issued an advance notice of proposed rulemaking
<PAGE>
(ANPRM). The EPA is considering publication of a proposed rule to revise the 40
CFR part 268 Land Disposal Restrictions (LDR) treatment standards applicable to
mercury-bearing wastes. The ANPRM is intended to give advance notice of EPA's
comprehensive reevaluation of the treatment standards for mercury-bearing
hazardous wastes as well as various options, issues and data needs related to
potential mercury treatment standard revisions. The ANPRM focuses on several key
issues with the current LDR mercury treatment standards including: incineration,
retorting and source reduction options. The EPA has requested additional data
and comments on these issues and options. The comment period for this ANPRM has
been extended from July 27, 1999 to October 25, 1999.
The EPA wants to investigate restricting the types of mercury waste
that are incinerated under current standards and develop more information on the
environmental impact of the treatment standards for the waste. The Resource
Conservation and Recovery Act (RCRA) requires treatment of mercury-bearing
wastes before they can be land-disposed. The EPA has stated that potential
problems associated with mercury waste are significant, since mercury can leach
out of hazardous wastes and be emitted from treatment processes such as
incineration. The EPA has also noted that mercury and its compounds are mobile
in the environment. The ANPRM stated that some evidence exists that, because
mercury is a persistent, bioaccumulative, and toxic (BPT) substance, small
releases may contribute to the buildup of mercury in the environment especially
in the aquatic environment. These small releases may increase the potential for
environmental and human health impacts.
The nature, timing and extent of the amendments to the mercury
treatment standards have not yet been determined. The Company cannot predict a
likely outcome of this ANPRM due to its early stage, however, a lowering of the
mercury treatment standards would increase the amount of merecury-bearing waste
that could be directly land-disposed which in turn could have a future negative
impact on the Company's retorting revenues.
YEAR 2000 COMPLIANCE
The Company has completed several tasks related to year 2000
compliance and is on schedule to complete the remaining tasks before the end of
the year. In June 1998, the Company purchased, from a worldwide supplier and
developer of information systems, an enterprise-wide information system with
written assurance from the developer that the system will correctly function
across the year 2000. The Company is also in the process of upgrading its plant
production software to become year 2000 compliant. With respect to non-IT
applications, the Company is investigating issues related to the operation of
each of its facilities, such as utilities and security systems. Each facility is
being evaluated individually and upgrades to hardware and software are being
addressed as they are encountered. The Company considers risks in this area to
be minimal. Through June 30, 1999, the Company has spent approximately $70,000
in upgrading its hardware and software systems and plans to spend another
$30,000 in the next six months.
The Company has evaluated the extent to which it is vulnerable to
the failure of third parties to solve their own year 2000 compliance issues by
sending year 2000 compliance questionnaires to material vendors and evaluating
responses. Because of the diversity of sources available for the supplies and
services the Company needs to conduct its operations, the Company believes that
the year 2000 issue will not have a material adverse effect on the Company's
ability to provide its recycling services. Although the Company is not
economically dependent on any one customer, the most reasonably likely worst
case scenario for year 2000 problems would be the failure of a number of larger
customers to become year 2000 compliant which in turn could have an adverse
effect on the Company's financial position.
To supplement the above initiatives, the Company intends to prepare
a contingency plan so that the Company's critical business processes can be
expected to continue to function on January 1, 2000 and beyond. The Company's
contingency plan will be structured to address the continuity of its internal
recycling processes and information systems as well as overall business
operating risks, including potential external risks with vendors or customers.
The Company anticipates the contingency plan to be substantially completed by
September 1999.
<PAGE>
FORWARD LOOKING STATEMENTS
Statements contained in this report regarding the Company's future
operations, performance and results, and anticipated liquidity are
forward-looking and therefore are subject to certain risks and uncertainties,
including those discussed herein. In addition, any forward-looking information
regarding the operations of the Company will be affected by the ability of the
Company to implement its marketing strategies and increase revenues,
successfully operate its Union Grove Facility without interruption, receive
favorable resolutions in the Company's present regulatory matters with OSHA and
the WDNR, secure storage facilities at the Union Grove Facility and other parts
of the country, manage cash flow and maintain and/or secure adequate financing,
complete its year 2000 compliance initiatives and other Risk Factors included in
the Registration Statement on Form SB-2, as amended, filed with the Securities
and Exchange Commission (File No. 333-17399.)
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In January 1999, the U. S. Occupational Safety and Health
Administration ("OSHA") cited the Company for alleged violations of various OSHA
standards at its Union Grove Facility with proposed penalties that were not
material. The Company has contested these violations and is currently in
settlement negotiations with OSHA. In February 1999 and July 1999, the Company
received a Notice of Violation from the Wisconsin Department of Natural
Resources ("WDNR") alleging violation of certain state hazardous waste
regulations relating to its Union Grove Facility. The WDNR's letters identified
several alleged violations and informed the Company it has the authority to
impose monetary penalties. The Company has responded to these violations and is
working with the State of Wisconsin towards resolution of this civil proceeding.
To date, the State of Wisconsin has not initiated any legal proceedings against
the Company. It is not known at this time if this proceeding will result in
legal action, civil monetary penalty, or any other future regulatory
ramification that would have a material adverse effect on the Company's
business. While the Company believes it has taken all necessary steps to address
these regulatory concerns, these regulatory issues have and may continue to have
a negative impact on revenue growth and profitability.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Mercury Waste Solutions, Inc.
was held on May 26, 1999. There were 3,480,097 shares of Common Stock entitled
to vote at the meeting and a total of 3,191,744 shares were represented at the
meeting. The following matters were voted upon:
1. Election of directors
The following directors were elected, each with 3,185,544 votes for,
0 votes against and 6,200 votes withheld:
Brad J. Buscher
Mark G. Edlund
Alan R. Geiwitz
Joel H. Gottesman
Robert L. Etter
Frank F. Farrar
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.19 Amendment to Loan Agreement dated May 8, 1998 between
Bankers American Capital Corporation and Mercury Waste
Solutions, Inc.
27 Financial Data Schedule
(B) Reports on Form 8-K - no reports of Form 8-K were filed
during the quarter ended June 30, 1999.
<PAGE>
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
Mercury Waste Solutions, Inc.
(registrant)
Dated: August 13, 1999 \s\ BRAD J. BUSCHER
-------------------
Brad J. Buscher
Chairman of the Board and Chief Executive
Officer
Dated: August 13, 1999 \s\ TODD J. ANDERSON
--------------------
Todd J. Anderson
Chief Financial Officer
EXHIBIT 10.19
FIRST AMENDMENT TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT ("First Amendment"), made and
entered into as of the 8th day of May, 1999, by and between MERCURY WASTE
SOLUTIONS, INC., a Minnesota corporation ("Borrower") and BANKERS AMERICAN
CAPITAL CORPORATION, a Minnesota corporation ("Lender");
RECITALS
A. The Borrower and Lender are parties to that certain Loan Agreement
dated as of May 8, 1998 (the "Credit Agreement").
B. The Borrower has requested the Lender to extend the maturity date of
the revolving loan.
C. The parties hereto desire to amend the terms of the Credit Agreement
upon the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for one dollar and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby amend the Credit Agreement as follows:
1. Capitalized Terms. All capitalized terms not defined herein shall
have the meanings assigned such terms in the Credit Agreement.
2. Definitions.
2.1 The following definitions are hereby amended in their
entirety to read as follows:
"Maturity Date" means (i) May 1, 2000 with respect to the Term
Note, and (ii) November 8, 1999 with respect to the Revolving
Note.
3. Conditions Precedent. Prior to the effectiveness of this First
Amendment, the Borrower shall provide to the Lender as conditions precedent, the
following:
<PAGE>
a. Original counterpart of this First Amendment duly
executed by the Borrower;
b. Payment of all costs and expenses incurred by the
Lender in connection with this First Amendment,
including without limitation, all legal fees and
out-of-pocket expenses of Lender's counsel;
c. Consent of Guarantor in form and substance acceptable
to the Lender signed on behalf of the Guarantor;
d. Current resolutions of Borrower's board of directors
authorizing the First Amendment; and
4. References. Any references in any document to the Agreement
including, but not limited to, the Notes and other Loan Documents, are hereby
amended to refer to the Agreement as amended by this First Amendment.
5. Representations and Warranties. Borrower reaffirms and confirms all
of the representations and warranties contained in Article IV of the Agreement
as of the date of this First Amendment.
6. Covenants. Borrower reaffirms as of the date of this First Amendment
and covenants with the Lender all of the Covenants contained in Articles V and
VI of the Agreement.
7. Reaffirmation of Security Agreement. Borrower hereby acknowledges
and agrees that all of the obligations of Borrower under the Agreement, as
amended by this First Amendment, is secured by that certain Security Agreement
executed by Borrower in favor of Lender dated as of May 8, 1998.
8. Acknowledgments. The Borrower acknowledges that it has been advised
by the counsel of its choice in the negotiation, execution and delivery of this
First Amendment, that the Lender has no fiduciary relationship to or joint
venture with the Borrower, the relationship being solely that of borrower and
lender, and that the Lender does not undertake any responsibility to the
Borrower to review or inform the Borrower of any matter in connection with any
phase of the business or operations of the Borrower which shall rely entirely on
its own judgment.
9. Costs and Expenses. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the preparation of this First Amendment,
including, but not limited to, title insurance premiums and expenses, recording
fees, and the fees and expenses of Lender's special legal counsel, Briggs and
Morgan, P.A.
10. Entire Agreement. This First Amendment and the Agreement embody the
entire agreement between the parties and supersede all prior agreements and
understandings between the parties hereto.
<PAGE>
11. Full Force and Effect. Except as amended hereby, the provisions of
the Agreement shall remain unmodified and in full force and effect.
12. Counterparts. This First Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Second Amended and Restated Credit Agreement to be executed as of the day and
year first above written.
BORROWER: MERCURY WASTE SOLUTIONS, INC.,
A MINNESOTA CORPORATION
BY /s/ Todd J. Anderson
-------------------------------------
ITS CFO
----------------------------------
Todd J. Anderson
CFO
<PAGE>
LENDER: BANKERS AMERICAN CAPITAL
CORPORATION
A MINNESOTA CORPORATION
BY /s/ Brad J. Buscher
-------------------------------------
ITS Chairman
----------------------------------
Brad J. Buscher
Chairman
<PAGE>
CONSENT OF GUARANTOR
The undersigned, as guarantor of all obligations of Mercury Waste
Solutions, Inc. (the "Borrower") to Bankers American Capital Corporation
("Lender") pursuant to that certain Guaranty dated May 8, 1998 executed by the
undersigned in favor of Lender, as the same may be amended from time to time
(the "Guaranty"), hereby consents to the terms of the above First Amendment to
Loan Agreement, and agrees that the undersigned remains obligated to the Lender
for the payment of the indebtedness of the Borrower incurred pursuant to said
Agreement, as amended, including without limitation, the indebtedness evidenced
by the Revolving Note, as defined therein.
MWS NEW YORK, INC.
A MINNESOTA CORPORATION
BY /s/ Todd J. Anderson
-------------------------------------
ITS CFO
----------------------------------
Todd J. Anderson
CFO
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 53,132
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0
0
<COMMON> 34,801
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<SALES> 2,758,299
<TOTAL-REVENUES> 2,758,299
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<TOTAL-COSTS> 1,972,195
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<INTEREST-EXPENSE> 118,198
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<INCOME-CONTINUING> (578,546)
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<EPS-BASIC> (0.17)
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