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, 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.
-----------------------------
(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, 2000 was 3,500,097.
Transitional small business disclosure format:
Yes ( ) No (X).
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999 3
Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
nine months ended September 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 2. Changes in Securities and Use of Proceeds 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 SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 13,736 $ 26,774
Accounts receivable, less allowance for doubtful accounts of $100,000
at September 30, 2000 and $90,000 at December 31, 1999 1,915,414 1,187,921
Other current assets 223,682 165,194
---------- ----------
TOTAL CURRENT ASSETS 2,152,832 1,379,889
---------- ----------
Property and Equipment, at cost
Leasehold improvements 520,115 485,825
Furniture, fixtures, and equipment 480,612 437,116
Plant equipment 2,093,635 2,034,369
Construction in progress 99,823 53,015
---------- ----------
TOTAL PROPERTY AND EQUIPMENT 3,194,185 3,010,325
Less accumulated depreciation 1,452,172 1,081,029
---------- ----------
NET PROPERTY AND EQUIPMENT 1,742,013 1,929,296
---------- ----------
Other Assets
Cash restricted for closure 98,053 94,516
Intangible assets, net 2,004,492 2,261,143
---------- ----------
TOTAL OTHER ASSETS 2,102,545 2,355,659
---------- ----------
TOTAL ASSETS $5,997,390 $5,664,844
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit, net of discount of $36,900 in 2000 $1,338,100 $1,000,000
Current portion of long term debt 84,670 1,058,148
Accounts payable 705,643 352,561
Accrued expenses 455,990 446,413
Deferred revenue 265,707 127,299
---------- ----------
TOTAL CURRENT LIABILITIES 2,850,110 2,984,421
---------- ----------
Long-Term Liabilities
Long-term debt, net of current portion 0 19,430
Closure fund 45,000 30,300
---------- ----------
TOTAL LONG-TERM LIABILITIES 45,000 49,730
---------- ----------
Shareholders' Equity
Series A Convertible Preferred Stock, $0.01 par value, $600,000
liquidation value, 600 shares issued and outstanding (Note 2) 6 0
Common stock, $0.01 par value; shares issued and outstanding of
3,500,097 at September 30, 2000 and 3,480,097 at December 31, 1999 35,001 34,801
Additional paid in capital 5,445,294 4,799,394
Accumulated deficit (2,378,021) (2,203,502)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 3,102,280 2,630,693
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,997,390 $5,664,844
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,197,101 $ 1,330,067 $ 5,346,409 $ 4,088,366
Cost of revenues 1,184,218 982,390 3,207,511 2,954,584
----------- ----------- ----------- -----------
Gross profit 1,012,883 347,677 2,138,898 1,133,782
----------- ----------- ----------- -----------
Operating expenses
Sales & marketing 256,816 254,544 639,631 859,786
General administrative 469,617 521,596 1,313,517 1,494,348
----------- ----------- ----------- -----------
726,433 776,140 1,953,148 2,354,134
----------- ----------- ----------- -----------
Operating income (loss) 286,450 (428,463) 185,750 (1,220,352)
Insurance claim recovery, net of direct
expenses 0 0 0 328,940
Interest income 778 789 4,896 3,391
Interest expense (106,205) (78,410) (305,565) (196,609)
----------- ----------- ----------- -----------
Net income (loss) before income taxes 181,023 (506,084) (114,919) (1,084,630)
Income tax expense (benefit) 0 0 0 0
----------- ----------- ----------- -----------
Net income (loss) 181,023 (506,084) (114,919) (1,084,630)
Cash dividends on preferred stock (Note 2) (9,600) 0 (9,600) 0
Deemed dividend resulting from amortization
of beneficial conversion feature (Note 2) (50,000) 0 (50,000) 0
----------- ----------- ----------- -----------
Net income (loss) applicable to common
shareholders $ 121,423 ($ 506,084) ($ 174,519) ($1,084,630)
=========== =========== =========== ===========
Basic and diluted income (loss) per share $ 0.03 ($ 0.15) ($ 0.05) ($ 0.31)
Weighted average number of common and
common equivalent shares outstanding
Basic 3,490,314 3,480,097 3,483,503 3,480,097
Diluted 3,541,068 3,480,097 3,483,503 3,480,097
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPT. 30, 2000 SEPT. 30, 1999
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss ($ 114,919) ($1,084,630)
Adjustments to reconcile net loss to net
Depreciation 373,373 354,908
Amortization of intangible assets 346,000 345,490
Amortization of debt discount 83,100 0
Non cash compensation 5,250 5,251
Changes in assets and liabilities:
Receivables (727,493) 355,856
Other current assets (4,685) 1,927
Accounts payable 233,082 (163,350)
Deferred expenses 9,577 105,698
Deferred revenue 138,408 26,325
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 341,693 (52,525)
------------ ------------
Cash Flows from Investing Activities
Purchase of property and equipment and other assets (260,739) (232,141)
Increase in restricted cash (3,537) (3,066)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (264,276) (235,207)
------------ ------------
Cash Flows From Financing Activities
Payments on long term debt (206,711) (270,810)
Net borrowings on the line of credit 135,000 515,000
Cash dividends paid on preferred stock (9,600) 0
Stock issuance costs (9,144) 0
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (90,455) 244,190
------------ ------------
DECREASE IN CASH (13,038) (43,542)
Cash
Beginning 26,774 75,015
------------ ------------
Ending $ 13,736 $ 31,473
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 244,718 $ 198,693
============ ============
Supplemental Schedule of Noncash Investing and Financing Activities
Conversion of line of credit to Series A Preferred Stock $ 600,000 $ 0
Amortization of beneficial conversion feature $ 50,000 $ 0
============ ============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2000
Note 1. - Summary of Significant Accounting Policies
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, 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.
REVENUE RECOGNITION - In December 1999, the staff of the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements". SAB No. 101 summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
for revenue recognition. The Company will adopt SAB No. 101 when required in the
fourth quarter of 2000. Management believes the adoption of SAB No. 101 will not
have a significant affect on its financial statements.
EARNINGS PER SHARE - Basic income (loss) per share of common stock is
computed by dividing the net income (loss) applicable to common shareholders by
the weighted average shares of common stock outstanding during the period.
Diluted per share results reflect the potential dilution from the exercise or
conversion of securities into common stock. For the three months ended September
30, 2000, the weighted average shares of common stock used to compute diluted
earnings per share included 50,754 shares reflecting the potential dilution from
the exercise of options and warrants. However, options, warrants and common
shares issuable from conversion of preferred stock totaling 977,619 and
1,061,619 for the three and nine months ended September 30, 2000 and 737,771 for
the 1999 periods were excluded from the calculation of diluted per share results
because their effect was antidilutive.
Note 2. - Debt Conversion
In order to maintain its minimum tangible net worth listing requirement
with NASDAQ, Bankers American Capital Corporation, a corporation wholly-owned by
Brad J. Buscher, the Company's Chairman and CEO, ("BACC"), in August 2000,
converted $600,000 of secured debt in exchange for $600,000 of Series A
Convertible Preferred Stock ("Preferred Stock") at $1,000 per share. The
Preferred Stock carries a 12% dividend rate payable in cash monthly and six
months following issuance 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. The Company cannot issue more than 696,000 shares of
common stock upon conversion of the Preferred Stock unless the Company receives
shareholder approval from the holders of the Company's common stock.
Furthermore, all of the Preferred Stock must be converted within 36 months of
issuance. 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 six months. Amortization
related to this beneficial conversion feature totaled $50,000 for the three and
nine months ended September 30, 2000. As consideration for the debt conversion,
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. In addition, the Company has
committed to file a registration statement with the Securities and Exchange
Commission, within six months of issuance, covering the common shares issuable
upon conversion of the Preferred Stock and upon exercise of the warrant.
<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 $2,197,101 and $5,346,409 for the three
and nine months ended September 30, 2000 compared to $1,330,067 and $4,088,366
for the three and nine months ended September 30, 1999, an increase of 65% and
31%, respectively.
Mercury retorting revenues were $1,259,341 and $2,735,128 for the three
and nine months ended September 30, 2000 compared to $575,695 and $1,954,256 for
the three and nine months ended September 30, 1999, an increase 119% and 40%,
respectively. The Company believes the increase in retort revenues for the three
and nine months ended September 30, 2000 was due in part 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 three and nine months
ended September 30, 2000, the Company had revenue from large retort projects of
approximately $286,000 and $416,000, respectively as compared to $0 and $75,000
for the three and nine months ended September 30, 1999. In addition, retort
revenues increased in the third quarter due to significant shipments
(approximately $250,000) received from a major competitor due to their own
operating constraints.
In June 2000, one of the Company's larger retort customers declared
bankruptcy under Chapter 11 of the bankruptcy code. For the nine months ended
September 30, 2000 and 1999, revenues from this customer totaled 7% and 10% of
total revenues, respectively. As of September 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. 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 $937,760 and $2,611,281 for the three and
nine months ended September 30, 2000 compared to $754,372 and $2,134,110 for the
three and nine months ended September 30, 1999, an increase of 24% and 22%,
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 46% and 40% for the three and
nine months ended September 30, 2000 compared to 26% and 28% for the three and
nine months ended September 30, 1999.
Mercury retorting gross profit percentages were 44% and 36% for the
three and nine months ended September 30, 2000 compared to 0% and 10% for the
three and nine months ended September 30, 1999. The Company believes the
increase in the mercury retorting gross profit margin was due primarily to
increased revenues coupled with improved processing efficiency in the 2000
periods, resulting in increased
<PAGE>
utilization of the fixed cost structure of the Union Grove Facility. Lamp
recycling gross profit percentages were 49% and 45% for the three and nine
months ended September 30, 2000 compared to 46% and 44% for the three and nine
months ended September 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 $256,816 and
$639,631 for the three and nine months ended September 30, 2000 compared to
$254,544 and $859,786 for the three and nine months ended September 30, 1999, an
increase of 1% in the three month period and a decrease of 26% in the nine month
period. The increase in the three month period is due to increased sales
commissions, offset in part by sales personnel and related cost cuts made in the
second half of 1999. The decrease in the nine month period is due to the costs
cuts mentioned above. 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
$469,617 and $1,313,517 for the three and nine months ended September 30, 2000
compared to $521,596 and $1,494,348 for the three and nine months ended
September 30, 1999, a decrease 10% and 12%, respectively. The decrease in the
three month period is primarily due to a net decrease in one-time costs
incurred, from approximately $150,000 in 1999 compared to approximately $50,000
in 2000. One-time costs in the third quarter of 1999 consisted of legal costs
and penalties related to certain regulatory matters and in the current period,
consisted of costs related to the failed tender offer by Environmental
Technologies Corp. (See "Liquidity and Capital Resources"). The decrease in the
nine month period is further 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 nine months ended September 30, 1999 represents net proceeds
received from the insurance company related to a 1998 business interruption
insurance claim.
INTEREST EXPENSE. Interest expense was $106,205 and $305,565 for the
three and nine months ended September 30, 2000 compared to $78,410 and $196,609
for the three and nine months ended September 30, 1999. The increases in the
2000 periods were due to higher interest rates and the amortization of the debt
discount related to the refinancing of the line of credit in March 2000.
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 $1,960,000, of
which $613,000 expire in 2012 and $1,347,000 expire in 2019.
PREFERRED STOCK DIVIDENDS. Preferred stock dividends for the three and
nine months ended September 30, 2000 totaled $59,600 and consisted of the
following: i) cash dividends paid on the Series A Preferred Stock that was
issued in August, 2000 ($9,600) and ii) a deemed dividend resulting from the
amortization of the beneficial conversion feature related to the Series A
Preferred Stock ($50,000). See "Liquidity and Capital Resources."
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS. Resulting from the
factors discussed above, the Company recorded net income applicable to common
shareholders of $121,423 and a net loss applicable to common shareholders of
$174,519 for the three and nine months ended September 30, 2000 compared to net
losses of $506,084 and $1,084,630 for the three and nine months ended September
30, 1999. Basic and diluted income (loss) per share was $0.03 and ($0.05) for
the three and nine months ended September 30, 2000 compared to basic and diluted
income (loss) per share of ($0.15) and ($0.31) for the three and nine months
ended September 30, 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $341,693 for the nine
months ended September 30, 2000, primarily resulting from depreciation and
amortization of $719,373 offset by the net loss of $114,919 and an increase in
net current assets of $351,111. The increase in net current assets is due
primarily to a significant increase in accounts receivable, which increased in
proportion to the 65% increase in quarterly revenues.
Cash flows used in investing activities were $264,276 for the nine
months ended September 30, 2000, consisting primarily of payments for capital
expenditures related to the Union Grove Facility.
Cash flows used in financing activities were $90,455 for the nine
months ended September 30, 2000, consisting primarily of payments on long-term
debt of $206,711 offset by borrowings of $135,000 under the Company's line of
credit.
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.
In order to maintain its minimum tangible net worth listing requirement
with NASDAQ, BACC, in August 2000, converted $600,000 of the Restructured Loan
in exchange for $600,000 of Series A Convertible Preferred Stock ("Preferred
Stock") at $1,000 per share. The Preferred Stock carries a 12% dividend rate
payable in cash monthly and six months following issuance 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. The Company cannot
issue more than 696,000 shares of common stock upon conversion of the Preferred
Stock unless the Company receives shareholder approval from the holders of the
Company's common stock. Furthermore, all of the Preferred Stock must be
converted within 36 months of issuance. 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 six months. Amortization related to this beneficial conversion feature
totaled $50,000 for the three and nine months ended September 30, 2000. 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. In addition, the Company has committed to file a registration
statement with the Securities and Exchange Commission, within six months of
issuance, covering the common shares issuable upon conversion of the Preferred
Stock and upon exercise of the warrant.
<PAGE>
In conjunction with the debt conversion, the total amount available
under the Restructured Loan was reduced from $2,000,000 to $1,500,000. At
September 30, 2000, gross line of credit borrowings totaled $1,375,000, net of
the unamortized debt discount of $36,900.
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 had 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. In October, 2000, the letter of intent was terminated
primarily due to EVTC's inability to raise the required capital following the
decline in the per share price of its common stock and other disagreements on
the terms of the tender offer. There are currently no future discussions planned
between EVTC and the Company.
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 six
months, 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, future liquidity will be dependent on
maintaining financing with 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 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.
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, other
than large retort projects, which tend to occur in the second and third
quarters.
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 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.)
<PAGE>
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In August 2000, BACC converted $600,000 of the Restructured Loan in
exchange for $600,000 of Series A Convertible Preferred Stock ("Preferred
Stock") at $1,000 per share. The Preferred Stock carries a 12% dividend rate
payable in cash monthly and six months following issuance 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. The Company cannot
issue more than 696,000 shares of common stock upon conversion of the Preferred
Stock unless the Company receives shareholder approval from the holders of the
Company's common stock. Furthermore, all of the Preferred Stock must be
converted within 36 months of issuance. 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. In addition, the Company has
committed to file a registration statement with the Securities and Exchange
Commission, within six months of issuance, covering the common shares issuable
upon conversion of the Preferred Stock and upon exercise of the warrant.
This offering was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
3.1 Certificate of Designation of Series A Convertible
Preferred Stock
10.23 Fourth Amendment to the Loan Agreement dated May 8,
1998 between Bankers American
Capital Corporation and Mercury Waste Solutions, Inc.
10.24 Warrant Agreement dated August 14, 2000 between
Bankers American Capital Corporation
and Mercury Waste Solutions, Inc.
27 Financial Data Schedule
(B) Reports on Form 8-K - On July 27, 2000, the Company
filed a Form 8-K regarding the letter of intent
signed between Environmental Technologies Corp. and
the Company.
<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 13, 2000 /s/ BRAD J. BUSCHER
-----------------------------------------
Brad J. Buscher
Chairman of the Board and Chief Executive
Officer
Dated: November 13, 2000 /s/ TODD J. ANDERSON
-----------------------------------------
Todd J. Anderson
Chief Financial Officer
