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, 2000
( ) 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.
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(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1827776
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 North Riverfront Drive, Suite 100A
MANKATO, MINNESOTA 56001
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(Address of principal executive offices)
(507) 345-0522
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(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 .
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The number of shares outstanding of each of the Issuer's Common Stock, $.01 Par
Value, as of June 30, 2000 was 3,480,097.
Transitional small business disclosure format:
Yes No X .
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<PAGE>
MERCURY WASTE SOLUTIONS, INC.
FORM 10-QSB
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999
and Pro Forma Consolidated Balance Sheet as of June 30, 2000 3
Consolidated Statements of Operations for the three and six months
ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 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
</TABLE>
<PAGE>
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
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PRO FORMA
JUNE 30, JUNE 30, DECEMBER 31,
2000 (NOTE 3) 2000 1999
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ASSETS (unaudited) (unaudited)
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Current Assets
Cash $ 40,937 $ 40,937 $ 26,774
Accounts receivable, less allowance for doubtful accounts of $85,000
at June 30, 2000 and $90,000 at December 31, 1999 1,174,415 1,174,415 1,187,921
Other current assets 256,479 256,479 165,194
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TOTAL CURRENT ASSETS 1,471,831 1,471,831 1,379,889
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Property and Equipment, at cost
Leasehold improvements 505,415 505,415 485,825
Furniture, fixtures, and equipment 448,762 448,762 437,116
Plant equipment 2,072,541 2,072,541 2,034,369
Construction in progress 67,114 67,114 53,015
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TOTAL PROPERTY AND EQUIPMENT 3,093,832 3,093,832 3,010,325
Less accumulated depreciation 1,327,236 1,327,236 1,081,029
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NET PROPERTY AND EQUIPMENT 1,766,596 1,766,596 1,929,296
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Other Assets
Cash restricted for closure 97,743 97,743 94,516
Intangible assets, net 2,042,371 2,042,371 2,261,143
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TOTAL OTHER ASSETS 2,140,114 2,140,114 2,355,659
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TOTAL ASSETS $ 5,378,541 $ 5,378,541 $ 5,664,844
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit, net of discount of $73,800 in 2000 $ 1,121,200 $ 1,721,200 $ 1,000,000
Current portion of long-term debt 157,489 157,489 1,058,148
Accounts payable 576,243 576,243 352,561
Accrued expenses 318,991 318,991 446,413
Deferred revenue 236,067 236,067 127,299
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TOTAL CURRENT LIABILITIES 2,409,990 3,009,990 2,984,421
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Long-Term Liabilities
Long-term debt, net of current portion 0 0 19,430
Closure fund 30,300 30,300 30,300
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TOTAL LONG-TERM LIABILITIES 30,300 30,300 49,730
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Shareholders' Equity
Series A Convertible Preferred Stock, $0.01 par value, $600,000
liquidation value, 600 shares issued and outstanding 6 0 0
Common stock, $0.01 par value; shares issued and outstanding
of 3,480,097 34,801 34,801 34,801
Additional paid-in capital 5,402,888 4,802,894 4,799,394
Accumulated deficit (2,499,444) (2,499,444) (2,203,502)
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TOTAL SHAREHOLDERS' EQUITY 2,938,251 2,338,251 2,630,693
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,378,541 $ 5,378,541 $ 5,664,844
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
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Revenues $ 1,615,889 $ 1,477,763 $ 3,149,308 $ 2,758,299
Cost of Revenues 1,035,397 1,037,487 2,023,293 1,972,195
----------- ----------- ----------- -----------
Gross Profit 580,492 440,276 1,126,015 786,104
----------- ----------- ----------- -----------
Operating Expenses
Sales & Marketing 203,459 302,330 382,814 605,241
General & Administrative 439,775 501,998 843,899 972,752
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643,234 804,328 1,226,713 1,577,993
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Operating Loss (62,742) (364,052) (100,698) (791,889)
Insurance claim recovery, net of direct
expenses 0 0 0 328,940
Interest Income 3,685 477 4,117 2,601
Interest Expense (113,809) (61,715) (199,361) (118,198)
----------- ----------- ----------- -----------
Net Loss before Income Taxes (172,866) (425,290) (295,942) (578,546)
Income tax expense (benefit) 0 0 0 0
----------- ----------- ----------- -----------
Net Loss ($ 172,866) ($ 425,290) ($ 295,942) ($ 578,546)
=========== =========== =========== ===========
Basic and diluted loss per share ($ 0.05) ($ 0.12) ($ 0.09) ($ 0.17)
Basic and diluted weighted average number of
common and common equivalent shares
outstanding: 3,480,097 3,480,097 3,480,097 3,480,097
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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FOR THE SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
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Cash Flows From Operating Activities
Net loss ($295,942) ($578,546)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 248,438 232,310
Amortization of intangible assets 230,570 230,234
Amortization of debt discount 46,200 0
Non cash compensation 3,500 3,500
Changes in assets and liabilities:
Receivables 13,506 219,774
Other current assets (37,482) (41,716)
Accounts payable 103,682 7,368
Accrued expenses (127,422) (10,502)
Deferred revenue 108,768 10,914
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NET CASH PROVIDED BY OPERATING ACTIVITIES 293,818 73,336
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Cash Flows from Investing Activities
Purchase of property and equipment and other assets (97,536) (191,677)
Increase in restricted cash (3,227) (2,610)
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NET CASH USED IN INVESTING ACTIVITIES (100,763) (194,287)
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Cash Flows From Financing Activities
Payments on long-term debt (133,892) (205,932)
Net borrowings (repayments) on the line of credit (45,000) 305,000
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (178,892) 99,068
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INCREASE (DECREASE) IN CASH 14,163 (21,883)
Cash
Beginning 26,774 75,015
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Ending $ 40,937 $ 53,132
========= =========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 175,412 $ 111,761
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2000
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, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000, or any other period. For further information, refer to the
audited financial statements and footnotes thereto for the year ended December
31, 1999 contained in the Company's Annual Report on Form 10-KSB.
Note 2. - Tender Offer
In July 2000, the Company signed a letter of intent with
Environmental Technologies, Corp. ("EVTC") whereby EVTC agreed to purchase a
controlling interest in the Company through a friendly tender offer to acquire
up to a maximum of approximately 2.4 million (70%) of the Company's common
shares outstanding. Pursuant to the letter of intent, EVTC agreed to commence a
cash tender offer to purchase the Company's publicly held shares for $2.15 per
share and unregistered Company shares for $1.95 in cash and $.20 in restricted
EVTC Common Stock. If successful with the tender offer, EVTC will own up to 70%
(but not less than 50%) of the Company's outstanding shares, on a fully diluted
basis. The tender offer is being made subject to Company shareholder approval,
the completion of due diligence, EVTC's ability to obtain financing, certain
other related agreements and definitive offering documents to be filed with the
Securities and Exchange Commission. Certain members of the Company's management
and board of directors have entered or will enter into agreements under which
they have agreed to tender shares held by them to EVTC to ensure that at least
50% of the Company's outstanding shares are tendered to EVTC.
Note 3. - Subsequent Event - Debt Conversion and Pro Forma Balance Sheet
In order to maintain its minimum tangible net worth listing
requirement with NASDAQ, the Company increased its net tangible assets by
$600,000 by the date of this filing. As a result, BACC, in August 2000,
converted $600,000 of debt in exchange for $600,000 of Series A Convertible
Preferred Stock ("Preferred Stock") at $1,000 per share. The Preferred Stock has
a maximum holding period of 36 months, is convertible into common stock at a 25%
discount to the 20 day average of the closing price prior to conversion with a
conversion ceiling of $1.82 per share and carries a 12% dividend rate payable in
cash monthly. Because the Preferred Stock can be converted to common stock at a
25 percent discount to average market value, a "beneficial conversion feature,"
which is valued at $200,000, will be amortized over the period from the date of
issuance to the date of earliest conversion, which is the closing date of the
tender offer. In the event the tender offer is consummated by EVTC, EVTC will be
required to purchase the Preferred Stock from BACC.
In connection with this offering, BACC was granted a warrant for
the purchase of 70,000 shares of common stock of the Company at an exercise
price of $1.44 per share, the market price of the Company's common stock on the
date of issuance. The warrant carries a five-year term and is exercisable six
months after issuance.
The unaudited pro forma consolidated balance sheet as of June 30,
2000 has been prepared by using the unaudited consolidated balance sheet as of
June 30, 2000, adjusted to give effect to the debt conversion and related
Preferred Stock issuance as if it occurred on June 30, 2000.
<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 $1,615,889 and $3,149,308 for the
three and six months ended June 30, 2000 compared to $1,477,763 and $2,758,299
for the three and six months ended June 30, 1999, an increase of 9% and 14%,
respectively.
Mercury retorting revenues were $710,295 and $1,475,787 for the
three and six months ended June 30, 2000 compared to $757,772 and $1,378,563 for
the three and six months ended June 30, 1999, a decrease in the three month
period of 6% and an increase in the six month period of 7%. The decrease in
retort revenues for the three months ended June 30, 2000 was due, in part, to
storage constraints at the Union Grove Facility. In conjunction with obtaining
its final hazardous waste storage permit (See "Regulatory Matters"), the Union
Grove Facility was required to operate without storage capability for certain
hazardous wastes for the second half of the quarter. These storage constraints
required the Company to defer some customer shipments into third quarter when
the permit was received. In addition, the Company realized a decrease in
shipments in the three months ended June 30, 2000 period from a large retort
customer who filed bankruptcy in June 2000 (See below). The Company believes the
increase in retort revenue in the six month period is primarily due to the
increase in large retort projects. 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 six months
ended June 30, 2000, the Company had revenue from large retort projects of
approximately $130,000 as compared to $75,000 for the six months ended June 30,
1999.
In June 2000, one of the Company's larger retort customers declared
bankruptcy under Chapter 11 of the bankruptcy code. As of June 30, 2000, the
Company had pre-petition receivables due from this customer of approximately
$50,000, the majority of which has been reserved for in the bad debt allowance.
For the six months ended June 30, 2000 and 1999, revenues from this customer
totaled 9% and 12% of total revenues, respectively. The Company has continued to
receive shipments from this customer under what management believes are
acceptable terms to the Company. While the Company believes it is not
economically dependent on this customer and believes business from this customer
will continue, it cannot predict the ultimate resolution of the bankruptcy and
the resultant effect on the Company's future retort revenues.
Lamp Recycling revenues were $905,594 and $1,673,521 for the three
and six months ended June 30, 2000 compared to $719,991 and $1,379,736 for the
three and six months ended June 30, 1999, an increase of 26% and 21%,
respectively. The Company believes the increase in lamp recycling revenue is due
primarily to the continued growth of its turnkey lamp recycling container
programs. In addition to revenue growth generated from these products in its
current customer base, the Company has established strategic relationships in
2000 with large distributors to sell these products to their customers.
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 36% for the three and
six months ended June 30, 2000 compared to 30% and 28% for the three and six
months ended June 30, 1999.
<PAGE>
Mercury retorting gross profit percentages were 25% and 28% for the
three and six months ended June 30, 2000 compared to 21% and 15% for the three
and six months ended June 30, 1999. The Company believes the increase in the
mercury retorting gross profit margin was due, in part, to improved processing
efficiency in the 2000 periods coupled with increased sales in the six month
period, resulting in increased utilization of the fixed cost structure of the
Union Grove Facility. Lamp recycling gross profit percentages were 44% and 42%
for the three and six months ended June 30, 2000 compared to 39% and 42% for the
three and six months ended June 30, 1999. The Company believes the improvement
in lamp recycling gross margins is primarily due to increased sales, which
better leveraged the Company's fixed facility and personnel related costs.
SALES AND MARKETING. Sales and marketing expense was $203,459 and
$382,814 for the three and six months ended June 30, 2000 compared to $302,330
and $605,241 for the three and six months ended June 30, 1999, a decrease of 33%
and 37%, respectively. The decrease in 2000 is primarily due to sales personnel
and related cost cuts made in the second half of 1999. The Company has been able
to increase sales in 2000 despite a reduced sales staff due to focused efforts
to sell its turnkey lamp recycling container programs through distributors and a
focus on large quantity mercury waste generators.
GENERAL AND ADMINISTRATIVE. General and administrative expense was
$439,775 and $843,899 for the three and six months ended June 30, 2000 compared
to $501,998 and $972,752 for the three and six months ended June 30, 1999, a
decrease 12% and 13%, respectively. The decrease in 2000 is primarily due to
personnel and related cost cuts made in the second half of 1999.
INSURANCE CLAIM RECOVERY. The insurance claim recovery of $328,940
recorded for the six months ended June 30, 1999 represents net proceeds received
from the insurance company related to a 1998 business interruption insurance
claim.
INTEREST EXPENSE. Interest expense was $113,809 and $199,361 for the
three and six months ended June 30, 2000 compared to $61,715 and $118,198 for
the three and six months ended June 30, 1999. The increases in the 2000 periods
were due to increased line of credit borrowings, higher interest rates and the
amortization of the debt discount related to the refinancing of the line of
credit.
INCOME TAXES. There was no income tax expense (benefit) recorded in
2000 or in 1999. At December 31, 1999, the Company recorded a valuation
allowance of approximately $896,000 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 and net operating loss carryforwards are
expected to be available to reduce taxable income. At December 31, 1999, the
Company had net operating loss carryforwards of approximately $1,800,000, of
which $613,000 expire in 2012 and $1,187,000 expire in 2019.
NET INCOME (LOSS). Resulting from the factors discussed above, the
Company recorded net losses of $172,866 and $295,942 for the three and six
months ended June 30, 2000 compared to net losses of $425,290 and $578,546 for
the three and six months ended June 30, 1999. Basic and diluted loss per share
were $0.05 and $0.09 for the three and six months ended June 30, 2000 compared
to basic and diluted loss per share of $0.12 and $0.17 for the three and six
months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $293,818 for the six
months ended June 30, 2000, primarily resulting from depreciation and
amortization of $525,208 offset by the net loss of $295,942.
Cash flows used in investing activities were $100,763 for the six
months ended June 30, 2000, consisting primarily of payments for capital
expenditures related to the Union Grove Facility.
<PAGE>
Cash flows used in financing activities were $178,892 for the six
months ended June 30, 2000, consisting of repayments of $45,000 under the
Company's line of credit and payments on long-term debt of $133,892.
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, the Company's Chairman of the Board and Chief Executive
Officer. The $2,000,000 loan consisted of a $1,200,000 term loan used to fund
the Mercury Refining Company, Inc. acquisition and an $800,000 revolving credit
loan used for working capital purposes. The term loan had 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 had 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.
In March 2000, the term loan and the revolving credit loan, with a
combined outstanding balance of $1,910,000, were consolidated into one
$2,000,000 revolving credit loan ("Restructured Loan") with BACC. The
Restructured Loan requires monthly interest only payments at 6% over the prime
rate, is secured by all Company assets and matures on December 31, 2000. As
consideration for restructuring the loan, BACC required a $120,000 cash
commitment fee payable on December 31, 2000 or upon liquidation or sale of the
Company. The $120,000 fee has been recorded as a discount against the
Restructured Loan. In conjunction with this transaction, BACC also sold a
$1,000,000 participation in the Restructured Loan to the First National Bank of
Fulda, an entity owned by Frank Farrar, a member of the Company's Board of
Directors. At June 30, 2000, gross line of credit borrowings totaled $1,795,000,
net of the unamortized debt discount of $73,800.
In July 2000, the Company signed a letter of intent with
Environmental Technologies, Corp. ("EVTC") whereby EVTC agreed to purchase a
controlling interest in the Company through a friendly tender offer to acquire
up to a maximum of approximately 2.4 million (70%) of the Company's common
shares outstanding. Pursuant to the letter of intent, EVTC agreed to commence a
cash tender offer to purchase the Company's publicly held shares for $2.15 per
share and unregistered Company shares for $1.95 in cash and $.20 in restricted
EVTC Common Stock. If successful with the tender offer, EVTC will own up to 70%
(but not less than 50%) of the Company's outstanding shares, on a fully diluted
basis. The tender offer is being made subject to Company shareholder approval,
the completion of due diligence, EVTC's ability to obtain financing, certain
other related agreements and definitive offering documents to be filed with the
Securities and Exchange Commission. Certain members of the Company's management
and board of directors have entered or will enter into agreements under which
they have agreed to tender shares held by them to EVTC to ensure that at least
50% of the Company's outstanding shares are tendered to EVTC.
In order to maintain its minimum tangible net worth listing
requirement with NASDAQ, the Company increased its net tangible assets by
$600,000 by the date of this filing. As a result, BACC, in August 2000,
converted $600,000 of the Restructured Loan in exchange for $600,000 of Series A
Preferred Stock ("Preferred Stock") at $1,000 per share. The Preferred Stock has
a maximum holding period of 36 months, is convertible into common stock at a 25%
discount to the 20 day average of the closing price prior to conversion with a
conversion ceiling of $1.82 per share and carries a 12% dividend rate payable in
cash monthly. Because the Preferred Stock can be converted to common stock at a
25 percent discount to average market value, a "beneficial conversion feature,"
which is valued at $200,000, will be amortized over the period from the date of
issuance to the date of earliest conversion, which is the closing date of the
tender offer. In connection with this offering, BACC was granted a warrant for
the purchase of 70,000 shares of common stock of the Company at an exercise
price of $1.44 per share, the market price of the Company's common stock on the
date of issuance. The warrant carries a five-year term and is exercisable six
months after issuance.
<PAGE>
In the event the tender offer by EVTC is consummated, the future
cash liquidity of the Company will be in the control of EVTC. As a condition of
the tender offer, EVTC will be required to pay-off the Restructured Loan,
including any accrued interest and fees, to BACC. In addition, FVTC will be
required to purchase the Preferred Stock from BACC.
In the event the tender offer by EVTC is not consummated, 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 through at least December 31, 2000,
provided that revenues continue to increase in the short-term, which cannot be
assured. To improve its short-term liquidity position, the Company has
restructured its loan with BACC 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 December 31, 2000 will be
dependent on increased revenues and additional financing from BACC, which would
include the renewal of the Restructured Loan due December 31, 2000, or from
another source on terms affordable 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.
REGULATORY MATTERS
NOTICE OF VIOLATION. In February 1999 and July 1999, the Company
received Notices 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 that the WDNR has the authority to
impose monetary penalties. The Company responded to these violations and entered
into settlement negotiations with the State of Wisconsin of this civil
proceeding. In December 1999, agreement was reached on settlement terms
satisfactory to the State of Wisconsin and in May 2000, the final stipulation
agreement was executed. Those terms include payment of a civil fine of $75,000
to be paid over three years, commencing in July 2000.
UNION GROVE FACILITY STORAGE PERMIT. In May 1997, the Company
applied for a hazardous waste storage permit for 181 drums of storage from the
WDNR. In March 1998, the WDNR granted the Company a variance that allowed the
Company to store up to 181 drums of hazardous waste at the facility. In
September of 1998 the Company submitted a new permit application, which
requested 696 drums of waste storage. In July 2000, a ten-year permit, subject
to annual renewals, was issued to the Company by the WDNR which allows the
Company to store 696 drums of hazardous waste at the Union Grove Facility.
MERCURY SPILL. In March 1999, a customer of the Company spilled a
reportable amount of mercury at the Union Grove Facility. The spill was
immediately cleaned up, at the customer's expense, by an independent contractor.
The Company also notified the WDNR of this spill and continued to monitor its
property for further contamination. In May 1999, the Company determined there
was further contamination of its property from this spill and remediated, again
at the customer's expense, the affected areas. In September 1999, the Company
received a letter from the WDNR indicating that the Company may be a potential
responsible party ("PRP") for mercury contamination at its property and required
the Company to take comprehensive soil samples of its property and adjacent
properties. The results of the soil samples indicated no contamination to the
Company's property or adjacent properties. Accordingly, in January 2000, the
Company requested from the WDNR a letter which removes the Company as a PRP. In
March 2000, the WDNR responded with a letter requesting further information and
requiring the Company to continue to monitor its property for contamination. The
Company provided this additional information to the WDNR and has continued to
monitor the property for contamination. The Company again requested the WDNR to
issue a letter which removes the Company as a PRP. In May 2000, the Company
received a letter from the WDNR which removed the Company as a PRP.
<PAGE>
MARKET RISK AND IMPACT OF INFLATION
The Company is subject to certain risks related to interest rate
fluctuations since debt instruments are at variable rates. The Company believes
that inflation has not had a material impact on its results of operations.
However, there can be no assurance that future inflation will not have an
adverse impact on the Company's operating results and financial condition.
SEASONALITY
The Company is not subject to any significant seasonal factors.
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 EVTC
to complete the proposed tender offer and the ability of the Company to
implement its marketing strategies and continue to increase revenues,
successfully operate its Union Grove Facility without interruption, secure and
maintain storage facilities at the Union Grove Facility and other parts of the
country, manage cash flow and maintain and/or secure adequate financing 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 Notices 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 that the WDNR has the authority to impose monetary
penalties. The Company responded to these violations and entered into settlement
negotiations with the State of Wisconsin of this civil proceeding. In December
1999, agreement was reached on settlement terms satisfactory to the State of
Wisconsin and in May 2000, the final stipulation agreement was executed. Those
terms include payment of a civil fine of $75,000 to be paid over three years,
commencing in July 2000.
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 24, 2000. There were 3,480,097 shares of Common Stock entitled
to vote at the meeting and a total of 3,102,004 shares were represented at the
meeting. The following matters were voted upon:
1. Election of directors
The following directors were elected, each with 3,100,804 votes for,
0 votes against and 1,200 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
27 Financial Data Schedule
(B) Reports on Form 8-K - no reports of Form 8-K
were filed during the quarter ended
June 30, 2000.
<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 14, 2000 \s\ BRAD J. BUSCHER
-------------------
Brad J. Buscher
Chairman of the Board and Chief
Executive Officer
Dated: August 14, 2000 \s\ TODD J. ANDERSON
--------------------
Todd J. Anderson
Chief Financial Officer
