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 SEPTEMBER 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 September 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 September 30, 1999 and
December 31, 1998 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three and nine
months ended September 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 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash $ 31,473 $ 75,015
Accounts receivable, less allowance for doubtful accounts of $50,000
at September 30, 1999 and $55,000 at December 31, 1998 1,103,901 1,309,757
Insurance claim receivable 0 150,000
Other current assets 263,211 265,138
------------- -------------
TOTAL CURRENT ASSETS 1,398,585 1,799,910
------------- -------------
Property and Equipment, at cost
- -------------------------------
Leasehold improvements 473,600 420,160
Furniture, fixtures, and equipment 414,050 370,279
Plant equipment 2,040,848 1,915,910
Construction in progress 49,788 49,788
------------- -------------
TOTAL PROPERTY AND EQUIPMENT 2,978,286 2,756,137
Less accumulated depreciation 965,608 610,700
------------- -------------
NET PROPERTY AND EQUIPMENT 2,012,678 2,145,437
------------- -------------
Other Assets
- ------------
Cash restricted for closure 94,344 91,278
Intangible assets, net 2,376,399 2,711,897
------------- -------------
TOTAL OTHER ASSETS 2,470,743 2,803,175
------------- -------------
TOTAL ASSETS $ 5,882,006 $ 6,748,522
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
- -------------------
Line of credit $ 735,000 $ 220,000
Current portion of long-term debt 1,160,000 462,393
Accounts payable 232,364 395,714
Accrued expenses 443,040 337,342
Deferred revenue 133,362 107,037
------------- -------------
TOTAL CURRENT LIABILITIES 2,703,766 1,522,486
------------- -------------
Long-Term Liabilities
- ---------------------
Long-term debt, net of current portion 104,154 1,072,571
Closure fund 30,300 30,300
------------- -------------
TOTAL LONG-TERM LIABILITIES 134,454 1,102,871
------------- -------------
Shareholders' Equity
- --------------------
Common stock, $0.01 par value; shares issued and outstanding of
3,480,097 at September 30, 1999 and December 31, 1998 34,801 34,801
Additional paid-in capital 4,797,645 4,792,394
Accumulated deficit (1,788,660) (704,030)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 3,043,786 4,123,165
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,882,006 $ 6,748,522
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 1,330,067 $ 1,821,444 $ 4,088,366 $ 4,799,457
Cost of Revenues 982,390 852,495 2,954,584 2,250,584
-------------- -------------- -------------- --------------
Gross Profit 347,677 968,949 1,133,782 2,548,873
-------------- -------------- -------------- --------------
Operating Expenses
Sales & Marketing 254,544 340,288 859,786 863,606
General & Administrative 521,596 524,742 1,494,348 1,350,255
-------------- -------------- -------------- --------------
776,140 865,030 2,354,134 2,213,861
-------------- -------------- -------------- --------------
Operating Income (Loss) (428,463) 103,919 (1,220,352) 335,012
Business interruption claim recovery, net of
direct expenses 0 348,794 328,940 469,878
Interest Income 789 932 3,391 7,546
Interest Expense (78,410) (66,761) (196,609) (110,560)
-------------- -------------- -------------- --------------
Net Income (Loss) before Income Taxes (506,084) 386,884 (1,084,630) 701,876
Income tax expense (benefit) 0 0 0 0
-------------- -------------- -------------- --------------
Net Income (Loss) $ (506,084) $ 386,884 $ (1,084,630) $ 701,876
============== ============== ============== ==============
Basic and diluted income (loss) per share $ (0.15) $ 0.11 $ (0.31) $ 0.20
Weighted average number of common and
common equivalent shares outstanding:
Basic 3,480,097 3,480,097 3,480,097 3,480,038
Diluted 3,480,097 3,585,226 3,480,097 3,585,111
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPT. 30, 1999 SEPT. 30, 1998
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net Income(Loss) $ (1,084,630) $ 701,876
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation 354,908 228,942
Amortization 345,490 270,756
Non cash compensation 5,251 5,250
Changes in assets and liabilities:
Receivables 355,856 (1,313,151)
Other current assets 1,927 (79,517)
Accounts payable (163,350) (123,082)
Accrued expenses 105,698 61,237
Deferred revenue 26,325 36,316
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (52,525) (211,373)
-------------- --------------
Cash Flows from Investing Activities
- ------------------------------------
Purchase of property and equipment and other assets (232,141) (691,494)
Acquisition of business 0 (1,436,925)
(Increase) decrease in restricted cash (3,066) 40,986
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (235,207) (2,087,433)
-------------- --------------
Cash Flows From Financing Activities
- ------------------------------------
Proceeds from long-term debt 0 1,200,000
Payments on long-term debt (270,810) (199,139)
Net borrowings on the line of credit 515,000 510,000
Net proceeds from exercise of stock options 0 8,000
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 244,190 1,518,861
-------------- --------------
DECREASE IN CASH (43,542) (779,945)
Cash
Beginning 75,015 779,945
-------------- --------------
Ending $ 31,473 $ 0
============== ==============
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 198,693 $ 92,450
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
Notes to Consolidated Financial Statements
September 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 nine month periods ended September 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 $1,330,067 and $4,088,366 for the three
and nine months ended September 30, 1999 compared to $1,821,444 and $4,799,457
for the three and nine months ended September 30, 1998, a decrease of 27% and
15%, respectively.
Mercury retorting revenues were $575,695 and $1,954,256 for the three
and nine months ended September 30, 1999 compared to $1,048,905 and $2,607,101
for the three and nine months ended September 30, 1998, a decrease of 45% and
25%, 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 nine months ended September 30, 1999, the
Company had large retort projects of $0 and $75,000, respectively, as compared
to approximately $525,000 and $800,000 for the three and nine months ended
September 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 $754,372 and $2,134,110 for the three and
nine months ended September 30, 1999 compared to $772,539 and $2,192,356 for the
three and nine months ended September 30, 1998, a decrease of 2% 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 26% and 28% for the three and
nine months ended September 30, 1999 compared to 53% and 53% for the three and
nine months ended September 30, 1998.
Mercury retorting gross profit percentages were 0% and 10% for the
three and nine months ended September 30, 1999 compared to 55% and 58% for the
three and nine months ended September 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 46% and 44% for the three and nine months ended
September 30, 1999 compared to 51% and 47% for the three and nine months ended
September 30, 1998. The decreased gross profit margin in 1999 is due primarily
to increased facility costs resulting from the expansion of the Atlanta facility
coupled with lower sales.
SALES AND MARKETING. Sales and marketing expense was $254,544 and
$859,786 for the three and nine months ended September 30, 1999 compared to
$340,288 and $863,606 for the three and nine months
<PAGE>
ended September 30, 1998, a decrease of 25% and 0%, respectively. The decrease
in expense in the 1999 three month period was due primarily to a reduction in
sales staff and one-time consulting and travel costs incurred in 1998 related to
transitioning customers acquired in the MERECO acquisition. The decreased third
quarter costs were offset by increased marketing costs related to the Company's
lamp recycling products and services in the 1999 nine month period.
GENERAL AND ADMINISTRATIVE. General and administrative expense was
$521,596 and $1,494,348 for the three and nine months ended September 30, 1999
compared to $524,742 and $1,350,255 for the three and nine months ended
September 30, 1998, resulting in a decrease in the three month period of 1% and
an increase in the nine month period of 11%. The decrease in expense in the
three month period is the result of cost-cutting measures implemented in the
third quarter consisting primarily of personnel and related costs, offset in
part by legal costs and accruals for potential penalties related to certain
regulatory matters (see discussion below). The increase in administrative
expense in the nine month period was principally due to increased amortization
resulting from the MERECO acquisition, costs related the Company's regulatory
matters and increased bad debt expense.
BUSINESS INTERRUPTIONS AND REGULATORY MATTERS. 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 nine months
ended September 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 $348,794 and $469,878
recorded for the three and nine months ended September 30, 1998, respectively,
represents net proceeds received from the insurance company related to a 1997
business interruption insurance claim.
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 currently negotiating a
settlement with the State of Wisconsin of this civil proceeding. It is not known
at this time the amount of any monetary penalty or if this proceeding will
result in any further legal action or 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 $78,410 and $196,609 for the
three and nine months ended September 30, 1999 compared to $66,761 and $110,560
for the three and nine months ended September 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 September 30, 1999, the Company recorded a valuation
allowance of approximately $725,000 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 $506,084 and $1,084,630 for the three and nine
months ended September 30, 1999 compared to net
<PAGE>
income of $386,884 and $701,876 for the three and nine months ended September
30, 1998. Basic and diluted loss per share was $0.15 and $0.31 for the three and
nine months ended September 30, 1999 compared to basic and diluted income per
share of $0.11 and $0.20 for the three and nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $52,525 for the nine months
ended September 30, 1999, primarily resulting from the net loss of $1,084,630,
offset by a decrease in receivables of $355,856 and depreciation and
amortization of $700,398.
Cash flows used in investing activities were $235,207 for the nine
months ended September 30, 1999, consisting primarily of payments for capital
expenditures related to the Union Grove Facility.
Cash flows provided by financing activities were $244,190 for the nine
months ended September 30, 1999, consisting of increased borrowings of $515,000
under the Company's line of credit offset by payments on long-term debt of
$270,810.
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 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. In May, 1999 the line of
credit was extended to November, 1999 and in September, 1999, the line of credit
was further extended to May, 2000 and increased from $800,000 to $1,000,000
under similar terms. At September 30, 1999, line of credit borrowings totaled
$735,000.
The Company's capital requirements will be significant for the next
twelve months 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 unanticipated 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 it's short-term liquidity position, the Company has increased the
availability under its line of credit from $800,000 to $1,000,000 as discussed
above and has taken steps to reduce its overhead to be more in line with its
actual revenues realized. In addition to the factors indicated above, liquidity
beyond the six month period will be dependent on increased revenues and
additional financing from BACC, which would include the renewal and
restructuring of the line of credit and term loan due May, 2000, or another
source on affordable terms to the Company. 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. Failure to
obtain additional financing could have a material adverse effect on 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
<PAGE>
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 (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 was 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 substantially completed its year 2000 compliance
initiatives. 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 has also upgraded its plant production
software to become year 2000 compliant. With respect to non-IT applications, the
Company has investigated issues related to the operation of each of its
facilities, such as utilities and security systems. Each facility was evaluated
individually and upgrades to hardware and software were addressed as they are
encountered. The Company considers risks in this area to be minimal. Through
September 30, 1999, the Company has spent approximately $70,000 in upgrading its
hardware and software systems and is substantially complete with these
investments.
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. All of the Company's significant vendors have responded to the
<PAGE>
questionnaires. 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 is preparing 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.
As of September 30, 1999, the Company's contingency plan has been substantially
completed.
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 the State
of Wisconsin, 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 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 currently negotiating a
settlement with the State of Wisconsin of this civil proceeding. It is not known
at this time the amount of any monetary penalty or if this proceeding will
result in any further legal action or 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 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.20 Second Amendment to Loan Agreement dated May 8, 1998 between
Bankers American Capital Corporation and Mercury Waste
Solutions, Inc. and related Promissory Note.
27 Financial Data Schedule
(B) Reports on Form 8-K - no reports on Form 8-K were filed during
the quarter ended September 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: November 12, 1999 /s/ BRAD J. BUSCHER
-------------------
Brad J. Buscher
Chairman of the Board and Chief Executive
Officer
Dated: November 12, 1999 /s/ TODD J. ANDERSON
--------------------
Todd J. Anderson
Chief Financial Officer
EXHIBIT 10.20
SECOND AMENDMENT TO
LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT ("Second Amendment"), made and
entered into as of the 30th day of September, 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, as amended by First Amendment dated May 7, 1999 (the
"Credit Agreement").
B. The Borrower has requested the Lender increase the amount available
under the revolving loan to $1,000,000.
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) May 1, 2000 with respect to the Revolving Note.
"Revolving Commitment Amount" means $1,000,000.
<PAGE>
"Revolving Note" means that certain Revolving Credit
Promissory Note dated as of September 30, 1999 in the
principal amount of $1,000,000 made payable by Borrower to the
order of Lender as the same may be amended, executed, renewed
or replaced from time to time.
3. Conditions Precedent. Prior to the effectiveness of this Second
Amendment, the Borrower shall provide to the Lender as conditions precedent, the
following:
a. Original counterpart of this Second Amendment duly
executed by the Borrower;
b. Original executed Revolving Note;
c. Payment of all costs and expenses incurred by the
Lender in connection with this Second Amendment,
including without limitation, all legal fees and
out-of-pocket expenses of Lender's counsel; and
d. Current resolutions of Borrower's board of directors
authorizing the Second Amendment.
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 Second 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 Second Amendment.
6. Covenants. Borrower reaffirms as of the date of this Second
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 Second 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
Second 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.
2
<PAGE>
9. Costs and Expenses. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the preparation of this Second 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 Second Amendment and the Agreement embody
the entire agreement between the parties and supersede all prior agreements and
understandings between the parties hereto.
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 Second 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 Second Amendment to
Loan 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
------------------------------------
3
<PAGE>
LENDER: BANKERS AMERICAN CAPITAL
CORPORATION, A MINNESOTA CORPORATION
BY /s/ Brad J. Buscher
---------------------------------------
ITS Chairman
------------------------------------
4
<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 Second 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
------------------------------------
5
<PAGE>
REVOLVING CREDIT
PROMISSORY NOTE
$1,000,000.00 September 30, 1999
Minneapolis, Minnesota
FOR VALUE RECEIVED, the undersigned, MERCURY WASTE SOLUTIONS, INC.,
Minnesota corporation ("Maker") promises to pay to the order of BANKERS AMERICAN
CAPITAL CORPORATION, ("Lender") at its office at 302 N. Riverfront Drive,
Mankato, MN 56001, or any other place subsequently designated in writing by the
holder hereof, the principal sum of up to ONE MILLION AND No/100 Dollars
($1,000,000), or if less, the aggregate unpaid principal outstanding hereon,
together with interest at a variable rate equal to the Prime Rate plus six
percent (6%) per annum. Interest shall be computed on the actual days elapsed in
a year of 360 days. For purposes of this Note, "Prime Rate" shall mean the rate
of interest published from time to time in the Money Rates Column of the Money &
Investing Section of the WALL STREET JOURNAL as the "Prime Rate", as the same
may change from time to time.
Interest accruing on this Note shall be payable monthly, commencing
October 1, 1999, and on the first day of each month thereafter until the
Maturity Date (as defined in the Loan Agreement), at which time the entire
principal balance outstanding plus all unpaid accrued interest shall be due and
payable in full.
Maker may borrow and repay and reborrow against this Note, up to the
maximum principal amount outstanding at any one time of $1,000,000 to fund
Maker's working capital needs.
Both principal and interest are payable in lawful money of the United
States of America to Lender at the office of Lender at the location described
above.
This Note may be prepaid in whole or in part at any time without
penalty or premium.
This Note is issued pursuant to the terms of that certain Loan
Agreement by and between Maker and Lender dated May 8, 1998, as amended by First
Amendment to Loan Agreement dated May 7, 1999, as further amended by Second
Amendment to Loan Agreement dated September 30, 1999, as the same may be amended
from time to time (the "Loan Agreement") to which reference is made for the
terms and conditions under which this Note was issued and the events upon the
occurrence of which the Lender may declare all sums outstanding hereon due and
payable in full immediately. This Note is secured by the assets of the Maker
pursuant to that certain Security Agreement dated May 8, 1998 executed by Maker
in favor of Lender, as the same may be amended from time to time (the "Security
Agreement"), and the other collateral, as set forth in the Loan Agreement, and
is guaranteed by MWS New York, Inc., a wholly owned subsidiary of Maker,
pursuant to the terms of a certain Guaranty dated May 8, 1998 in favor of Lender
(the "Guaranty").
<PAGE>
$1,000,000 September 30, 1999
Minneapolis, Minnesota
Maker hereby waives demand, presentment for payment, notice of
nonpayment, protest and notice of protest hereon, agrees that when or at any
time after this Note becomes due, the holder hereof may, without notice, offset
or charge this Note against any Lender account or other account when maintained
by Maker with the holders hereof, and agrees to pay, upon the occurrence of an
Event of Default (as defined in the Loan Agreement) all costs of collection,
including, but not limited to, reasonable attorneys' fees, whether or not suit
is commenced.
This Note shall be governed by, interpreted and construed in accordance
with the internal laws of the State of Minnesota. The undersigned hereby
consents to the personal jurisdiction of the state and federal courts located in
the State of Minnesota in connection with any controversy related to this Note,
waives any argument that venue in such forums is not convenient and agrees that
any litigation instigated by the undersigned against the Lender in connection
with this Note, or any document or instrument securing payment of this Note
shall be venued in either the District Court of Hennepin County, Minnesota or
the United States District Court for the District of Minnesota, Fourth Division.
[insert]
MERCURY WASTE SOLUTIONS, INC.,
A MINNESOTA CORPORATION
BY /s/ Todd J. Anderson
---------------------------------------
ITS CFO
------------------------------------
2
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 31,473
<SECURITIES> 0
<RECEIVABLES> 1,153,901
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0
0
<COMMON> 34,801
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<SALES> 4,088,366
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