SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For The Quarter Ended September 30, 1996
Commission File Number 0-14881
WASTE RECOVERY, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-1833498
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
309 S. PEARL EXPRESSWAY, DALLAS, TX 75201
(Address of Principal Executive Offices) (Zip Code)
(214) 741-3865
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 { }
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, at the latest practicable date. Common stock, no par
value 11,634,400, November 8, 1996.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
WASTE RECOVERY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
Assets September 30, 1996 December 31, 1995
------ ------------------ -----------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 318,501 $ 726,562
Accounts receivable, less allowance for doubtful accounts
of $36,926 and $27,083, respectively 1,714,979 1,887,426
Other receivables (note 2) 657,010 5,758
Inventories (note 3) 972,834 645,651
Other current assets 495,199 149,912
-------------- --------------
Total current assets 4,158,523 3,415,309
-------------- --------------
Property, plant and equipment 12,871,308 11,700,255
Less accumulated depreciation 7,581,618 6,840,820
-------------- --------------
Net property, plant and equipment 5,289,690 4,859,435
-------------- --------------
Restricted cash and cash equivalents (note 2) 523,528 998,035
Investment in Waste Recovery - Illinois (338,150) 258,539
Bond and debt issuance costs, less accumulated amortization of
$177,198 and $153,287, respectively 151,136 175,046
Deferred income taxes 447,543 447,543
Goodwill, less accumulated amortization of $82,329 and
$41,164, respectively 466,530 507,695
Other assets (note 2) 574,820 70,797
-------------- --------------
$ 11,273,620 $ 10,732,399
============== =============
See accompanying notes to consolidated financial statements.
2
</TABLE>
<PAGE>
WASTE RECOVERY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities and Stockholders' Equity September 30, 1996 December 31, 1995
------------------------------------ ------------------ -----------------
(unaudited)
Current Liabilities:
Notes payable $ 235,957 $ 28,945
Convertible subordinated debentures (note 4) - 40,000
Current installments of long-term debt (note 5) 2,250,446 427,552
Current installments of capital lease obligations 103,312 93,423
Accounts payable 2,528,676 1,996,857
Accrued wages and payroll taxes 203,694 174,753
Other accrued liabilities 454,978 372,800
Deferred revenue 43,476 43,476
----------- ------------
Total current liabilities 5,820,539 3,177,806
----------- ------------
Convertible subordinated debentures, noncurrent (note 4) - 495,000
Long-term debt, excluding current installments (note 5) 1,548,387 3,591,376
Obligations under capital leases, excluding current
installments 131,454 178,797
Deferred revenue, noncurrent 213,734 246,338
Note payable 157,583 144,076
----------- ------------
Total liabilities 7,871,697 7,833,393
----------- ------------
Stockholders' Equity (notes 4 and 7):
Cumulative preferred stock, $1.00 par value, 250,000 shares authorized,
203,580 issued and outstanding in 1996 and 1995 (liquidating preference
$14.43 per share, aggregating
$2,938,606) 203,580 203,580
Preferred stock, $1.00 par value, authorized and unissued
9,750,000 shares in 1996 and 1995
Common stock, no par value, authorized 30,000,000 shares,
11,584,400 and 10,830,170 shares issued and outstanding
in 1996 and 1995, respectively 407,800 407,800
Additional paid-in capital 13,897,917 13,320,410
Accumulated deficit (11,033,494) (10,958,904)
3,475,803 2,972,886
Treasury stock, at cost, 103,760 common shares (73,880) (73,880)
Total stockholders' equity 3,401,923 2,899,006
$ 11,273,620 $ 10,732,399
=========== ===========
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements Of Operations
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended September 30,
-------------------------------
1996 1995
---- ----
Revenues:
Tire-derived fuel sales $ 402,737 $ 254,729
Wire sales (note 6) 146,146 -
Disposal fees, hauling and other revenue 3,698,062 3,279,874
------------ -----------
Total revenues 4,246,945 3,534,603
Operating expenses 2,763,814 2,675,095
------------ -----------
1,483,131 859,508
General and administrative expenses 758,307 671,351
Depreciation and amortization 273,170 257,292
------------ -----------
451,654 (69,135)
Other income (expense):
Other income (note 7) 12,207 324,775
Interest income 36,972 27,174
Interest expense (107,793) (118,885)
Gain on sale of property and equipment 2,400 -
Equity in loss from partnership operations (192,506) 505
------------ -----------
(248,270) 233,569
Net income before income taxes 203,384 164,434
Provision for income taxes - 21,750
------------ -----------
Net income $ 203,384 $ 142,684
============ ===========
Undeclared cumulative preferred stock dividends (note 8) $ 35,919 $ 35,919
============ ===========
Net income available to common shareholders $ 167,465 $ 106,765
============ ===========
Net income per common share (note 8) $ 0.01 $ 0.01
============ ===========
Weighted average number of common and dilutive 11,966,896 11,241,983
common equivalent shares outstanding ============ ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements Of Operations
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Revenues:
Tire-derived fuel sales $ 991,968 $ 752,089
Wire sales (note 6) 263,855 -
Disposal fees, hauling and other revenue 10,582,023 9,203,883
------------ -----------
Total revenues 11,837,846 9,955,972
Operating expenses 8,064,243 7,303,635
------------ -----------
3,773,603 2,652,337
General and administrative expenses 2,196,284 1,734,083
Depreciation and amortization 811,202 720,219
------------ -----------
766,117 198,035
------------ -----------
Other income (expense):
Other income (note 7) 61,768 362,520
Interest income 56,620 42,039
Interest expense (369,923) (350,342)
Gains on sales of property and equipment 7,457 -
Equity in loss from partnership operations (596,629) (56,350)
------------ -----------
(840,707) (2,133)
Net income (loss) before income taxes (74,590) 195,902
Provision for income taxes 21,750
-
Net income (loss) $ (74,590) $ 174,152
============ ===========
Undeclared cumulative preferred stock dividends (note 8) $ 106,977 $ 106,585
============ ===========
Net income available to common shareholders $ (181,567) $ 67,567
============ ===========
Net income per common share (note 8) $ (0.02) $ 0.01
============= ===========
Weighted average number of common and dilutive
common equivalent shares outstanding 11,046,395 9,247,134
============ ===========
See accompanying notes to consolidated financial statements.
5
</TABLE>
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $ (74,590) $ 174,152
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Deferred income taxes - 21,750
Depreciation and amortization 772,165 1,092,467
Gain on sale of property, plant and equipment (7,457) -
Amortization of goodwill 41,165 -
Interest imputed on discounted note payable 13,507 4,502
Earnings from Partnership development fee - (412,500)
Equity in loss from partnership operations 596,689 56,350
Stock issued to Directors 13,995 12,000
Changes in assets and liabilities:
Accounts receivable 172,447 185,786
Note and other receivables (4,822) -
Inventories (327,183) (759,431)
Other current assets (345,287) (33,495)
Other assets (4,023) 19,899
Accounts payable 462,056 (518,521)
Accrued liabilities 111,119 14,204
Deferred revenue (32,604) -
------------ -------------
Net cash provided (used) by operating activities 1,387,177 (142,837)
------------ ------------
Cash flows from investing activities:
Proceeds received on note and other receivables - 408,204
Proceeds received on sale of property, plant and equipment 6,000 -
Purchases of property, plant and equipment (1,010,749) (1,328,987)
Purchase of Domino Salvage, Tire Division, Inc.,
net of cash received of $16,165 - (151,441)
Cash placed in restricted accounts (25,493) (30,200)
Cash payments out of restricted accounts 500,000 -
Receivable from affiliate (1,201,667) (59,274)
---------- ----------
Net cash used by investing activities (1,731,909) (1,161,698)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 298,405 69,034
Payment of notes payable (91,393) (196,531)
Proceeds from issuance of convertible subordinated debentures 85,000 -
Payment upon maturity of convertible subordinated debentures (85,000) -
Proceeds from issuance of long-term debt - 88,230
Repayment of long-term debt (220,095) (169,678)
Repayment of capital lease obligations (78,758) (100,712)
Proceeds from issuance of common stock 28,512 2,205,208
------------ ------------
Net cash provided (used) by financing activities (63,329) 1,895,551
------------ ------------
Net increase (decrease) in cash and cash equivalents (408,061) 591,016
Cash and cash equivalents at beginning of period 726,562 261,118
------------ ------------
Cash and cash equivalents at end of period $ 318,501 $ 852,134
============ ============
See accompanying notes to consolidated financial statements.
6
</TABLE>
<PAGE>
WASTE RECOVERY, INC.
Notes to Consolidated Financial Statements
September 30, 1996
Note 1: Adjustments
The financial information presented as of any date other than December
31 has been prepared from the Company's books and records without audit.
Financial information as of December 31 has been derived from the audited
financial statements of the Company, but does not include all disclosures
required by generally accepted accounting principles. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
indicated, have been included. The results of operations for the three months
and nine months ended September 30, 1996, are not necessarily indicative of
operating results for the entire year. For further information regarding the
Company's accounting policies, refer to the consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Note 2: Note and Other Receivables
On January 30, 1996, the Company advanced Waste Recovery - Illinois
$500,000 for the Illinois partnership's February 1, 1996 debt payment (the
Company owns a 45% interest in this partnership). The loan was approved by the
Executive Committee of the Illinois partnership (the "Partnership"). The funds
advanced were included in restricted cash at December 31, 1995, and at September
30, 1996 included in other noncurrent assets as a note receivable. Upon
repayment by Waste Recovery - Illinois, the funds will be restricted as to use
and included in restricted cash. The note bears interest at a rate of prime plus
1% with principal and interest due at maturity. The note matures upon the first
to occur of (i) determination by the Partnership's Executive Committee that
there exists adequate funds available to make payment to the Company of all
outstanding principal and interest, or (ii) December 31, 1997.
Note 3: Inventories
The components of inventories are as follows:
September 30, 1996 December 31, 1995
------------------ -----------------
Finished Inventory $ 298,136 $ 228,303
Work-In-Process 182,484 12,324
Parts Inventory 492,214 405,024
----------------- -----------------
$ 972,834 $ 645,651
================= =================
Note 4: Convertible Subordinated Debentures
As of the original maturity date, March 15, 1996, $40,000 of the
convertible subordinated debentures plus interest of $1,995 were converted at
the rate of $.875 per share into 47,994 shares of common stock. The remaining
$495,000 in debentures were exchanged for new debentures which carry an interest
rate of 18% and mature on January 31, 1997. Other terms and conversion
privileges are the same as in the original debentures. On July 1, 1996, the
outstanding $495,000 in debentures plus accrued interest of $46,564 were
converted at the rate of $.875 per share into 618,930 shares of common stock.
Upon conversion, the debenture holders also received warrants to purchase an
additional 304,425 shares of common stock with an exercise price equal to market
at the date of conversion. The warrants expire July 1, 1998.
Note 5: Long-term Debt
As of September 30, 1996, the Company was in technical default due to
noncompliance with its current ratio calculation required by the 10.5%
industrial development revenue bond debt covenants. As a result of this
technical default, $1,560,000 of long-term debt on the bonds was reclassified to
current debt. This default position is not due to nonpayment, but is the result
of noncompliance with certain financial covenants. Management of the Company
believes that the direction of current operations combined with actions
currently being taken should cure the technical noncompliance within the fourth
quarter.
Note 6: Wire Sales
As of September 30, 1996, the Company has completed installation of
bead wire recycling systems in two plants. The first system was installed in
February 1996 at the Baytown plant, with the second system installed in early
June 1996 at the Atlanta plant. These systems allow the Company to process the
bead wire which was removed from the tires during
7
<PAGE>
the TDF process into a marketable material. For the three months and nine months
ended September 30, 1996, the Company had $146,146 and $263,855 in wire sales,
respectively.
Note 7: Other Income
At September 30, 1995, the Company earned a $750,000 development fee
from Waste Recovery-Illinois. Per the Partnership Agreement, at the completion
and successful operation of the two Illinois plants, the Company was to be paid
a $750,000 fee. Fifty-five percent of this fee, representing the percentage of
the Partnership not owned by the Company, was recognized in income for the nine
months ending September 30, 1995. The remaining 45% was recorded as deferred
revenue to be recognized such that it will offset the Company's interest in the
excess depreciation expense recorded by the Partnership related to this portion
of the plant cost.
Note 8: Preferred Stock Dividends
Undeclared and therefore not payable cumulative preferred stock
dividends were $902,806 at September 30, 1996. Net income or loss is adjusted by
the effect of undeclared dividends on preferred stock of $106,977 and $106,585
for the nine months ended September 30, 1996 and 1995, respectively, and by
$35,919 and $35,919 for the three months ended September 30, 1996 and 1995,
respectively. The effect was to increase net loss per common share by $.009, and
decrease net income per common share by $.012 for the nine months ended
September 30, 1996 and 1995, respectively, and decrease net income per common
share by $.003 and $.003 for the three months ended September 30, 1996 and 1995,
respectively. Primary and fully diluted earnings per share are the same in 1996
and 1995.
Note 9: Purchase of Domino Salvage, Tire Division, Inc.
The following unaudited pro forma summary presents the consolidated
results of the Company's operations as if the acquisition of Domino Salvage,
Tire Division, Inc. as of March 21, 1995, had occurred at the beginning of the
period presented. The information does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented and is not intended to be a projection of future
results or trends.
For the nine months
ended September 30, 1995
Revenues $ 10,190,000
============
Net income (loss) $ 137,000
============
Earnings per share $ .01
============
Note 10: The registrant has no material pending legal proceedings.
Other notes have been omitted pursuant to Rule 10-01 (a)(5) of Regulation S-X.
<PAGE>
Item 2: Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Waste Recovery, Inc., ("the Company") owns and operates plants in Baytown
(Houston), Texas; Atlanta, Georgia; Portland, Oregon; and Conshohocken
(Philadelphia), Pennsylvania, the latter plant being owned by a subsidiary
("Domino") which was purchased on March 21, 1995. Two new tire processing plants
in central and southern Illinois ("the Illinois facilities") began operations in
September 1995. These plants are owned by Waste Recovery Illinois, a general
partnership ("WR-Illinois") in which the Company owns a 45% interest and is the
managing partner. The Company operates the Illinois facilities in close
coordination with its national system.
Regional services are coordinated from the operating bases mentioned above.
Operations encompass full-service scrap tire disposal and the recycling of tires
into a supplemental fuel form. The Company generates revenues from scrap tire
disposal fees, from the hauling of scrap tires, from the sale of tire-derived
fuel ("TDF"), and most recently, from the sale of bead wire removed from the
tires. At the plants, scrap tires are converted and refined into TDF, a high BTU
supplemental fuel that is sold primarily to major domestic cement and paper
manufacturers and, commencing recently, also sold to electric power companies.
To date, the effects of inflation on the Company's operations have been
negligible.
General Comments
----------------
Results for the third quarter of 1996 improved as the Company earned net income
of $203,384 on revenues of $4,246,945 compared to net income of $142,684 on
revenues of $3,534,603 for the same period in 1995. Revenues were up as a result
of increased TDF sales, higher tire flow, and sales of recycled bead wire, which
represents a new source of revenue for the Company in 1996. TDF sales increased
at every plant Company wide to $402,737 in 1996 from $254,729 for the same
period in 1995. While tire flow was flat at the Portland and Atlanta plants, the
Baytown and Philadelphia plants showed strong increases for a Company total of
over 41,400 tons in 1996 from approximately 36,500 tons for the comparable
period in 1995. The largest increase occurred at the Baytown facility primarily
due to the fact that the State of Texas' allocation program, which limited the
facility's tire flow to a certain pre-determined level last year, is no longer
in effect.
The Portland facility continues to maintain its strong position in the scrap
tire market in the Northwest. As previously reported, the Company began a tire
pile clean-up project in the State of Washington in April 1996. This project
involves the clean-up of approximately four million passenger tire equivalents
("PTE's") and 22 million pounds of shredded tires, and has an expected duration
of approximately two years if the State dedicates adequate funds to finish the
project. A wire recycling system like those installed in the Baytown and Atlanta
facilities is currently being installed in the Portland plant with an expected
completion date in November 1996.
The Baytown facility showed strong improvement in TDF sales and disposal fees
primarily as a result of the elimination of the State of Texas allocation
program. Within Texas, the Company is now allowed to collect as many scrap tires
as can be processed and sold. As the Baytown facility entered its second full
quarter of wire production, sales were strong as the response from the scrap
steel industry for the Company's wire product has been very favorable and has
allowed inventories to turn over quickly. The Company maintains its position of
being the only processor in the State of Texas to completely recycle all scrap
tires received under the Texas program.
The Atlanta facility had increased TDF sales with the addition of a new customer
and increased consumption by the facility's existing customer base. With the
continued acceptance of TDF as a supplemental fuel by solid-fuel burning
industries in the region, TDF sales are expected to remain consistent and could
continue to strengthen in the future. Tire flow for the Atlanta facility was
flat for the third quarter of 1996 when compared to 1995; however, 1995 flow
included tires from the West Virginia abatement project as well as a separate
Atlanta cleanup project, both of which did not affect the results of the third
quarter of 1996. The absence of scrap tire flow from these sources in 1996 while
maintaining the same in-flow level reflects the growth achieved in Atlanta's
recurring tire flow customer base.
9
<PAGE>
Although the Philadelphia facility continues to suffer from a depressed TDF
market in the Northeast with heavy competition resulting in soft demand and
lower prices, TDF sales were improved for the third quarter in 1996 compared to
the same period in 1995. Tire flow also increased as the result of a more stable
pricing structure.
In late May 1996, legislative changes in the State of Illinois had a significant
impact on WR-Illinois' operations. The repeal of certain legislation made it
unprofitable for some Illinois competitors to collect and process scrap tires.
The impact on WR-Illinois' has been very favorable resulting in a substantial
increase in tire flow. PTE's received by both Illinois plants increased
significantly in the third quarter of 1996. Tire flow for the Southern Illinois
tire processing plant also increased due to two tire pile cleanup projects
undertaken for the State of Kentucky, both of which were completed in the third
quarter of 1996. WR-Illinois TDF sales also increased significantly in the third
quarter of 1996. Although WR-Illinois has recently experienced very favorable
changes in the marketplace as described above, purchases of finished TDF
inventory from the Company in the third quarter caused WR-Illinois to suffer a
net loss. In order to ensure an adequate TDF inventory to fulfill supply
contract requirements during the winter months, WR-Illinois purchased TDF from
the Company in accordance with the terms of WR-Illinois' general partnership
agreement. Associated TDF transportation costs in excess of TDF market prices
were expensed, thus resulting in a net loss for the third quarter. Due to the
steady increase of scrap tire flow into the Company's Illinois facilities, the
Company does not expect that similar movements should be necessary in future
periods.
Results of Operations
---------------------
Third Quarter Ended September 30, 1996 Compared
-----------------------------------------------
with Third Quarter Ended September 30, 1995
-------------------------------------------
Total revenues of $4,246,945 for the third quarter of 1996 were 20% higher than
the $3,534,603 earned for the same period in 1995. During this period, disposal
fees, hauling and other revenues increased due to increased tire flow. Increased
TDF sales also contributed as did wire sales from wire systems installed in
1996. Elimination of Texas' allocation program boosted the Baytown plant's tire
flow, and an increase in the Portland facility's tipping fees combined with the
Washington clean-up project contributed to increased revenues for the quarter.
Overall TDF sales increased by approximately 58% for the third quarter of 1996
when compared to 1995.
Operating expenses for the third quarter of 1996 were $2,763,814 or 65% of
revenues, down from $2,675,095 or 76% of revenues for the third quarter of 1995.
The decrease in operating expenses is the result of production efficiencies
achieved through an increase in TDF production and the avoidance of wire
disposal costs that historically were incurred. With an increase in tire flow,
TDF production increased over 10% in the third quarter of 1996 when compared to
1995, resulting in the utilization of excess production capacity and thereby
yielding a lower cost per ton for TDF produced. Operating costs for Domino were
improved for the third quarter of 1996 compared to 1995 primarily from these
production efficiencies as well as cost reductions in the hauling operation
achieved since the acquisition of Domino at the end of the first quarter of
1995. Operating expenses were also positively affected by the higher-margin
cleanup project at the Portland plant.
General and administrative expenses for the third quarter of 1996 were higher
when compared to the same period in 1995 ($758,307 to $671,351); however, they
decreased as a percent of total revenues from 18.9% in 1995 to 17.9% in 1996.
General and administrative expenses increased due to increases in staff,
personnel costs, selling expenses, and other administrative costs resulting from
higher levels of operating activities.
Depreciation and amortization expense increased 6% to $273,170 from $257,292 in
the third quarter of 1996 compared to the same period in 1995 primarily as a
result of the new wire recycling systems installed in the Baytown and Atlanta
plants.
Other income decreased in the third quarter of 1996 compared to the same period
in 1995 due to the $750,000 development fee earned by the Company in September
1995. Fifty-five percent of the fee was recognized in income, with the remaining
45% recorded as deferred revenue.
Interest expense decreased 9% to $107,793 in the third quarter of 1996 compared
to $118,885 in the third quarter of 1995 primarily due to the conversion of the
Company's new subordinated debentures on July 1, 1996.
WR-Illinois, in which the Company has a 45% equity interest, generated a greater
loss in the third quarter of 1996 compared to 1995 as the Illinois plants were
under the final stages of construction and not operational until the end of
September 1995.
10
<PAGE>
Results of Operations
---------------------
Nine Months Ended September 30, 1996 Compared
---------------------------------------------
with Nine Months Ended September 30, 1995
-----------------------------------------
The Company's total revenues of $11,837,846 for the nine months ended September
30, 1996 were 19% higher than the $9,955,972 received by the Company for the
same nine-month period in 1995. This increase is the result of a 32% increase in
TDF sales, a 15% increase in disposal fees, hauling and other revenues generated
by increased tire flow, and sales of recycled bead wire product from the newly
installed wire recycling systems. While tire flow was flat for the Atlanta
plant, the Portland, Baytown, and Domino plants showed greater improvement for
an overall increase in PTE's received of 17% for the first nine months of 1996
compared to the same period in 1995.
Operating expenses for the first nine months of 1996 were $8,064,243 or 68% of
total revenues compared to $7,303,635 or 73% for the comparable period in 1995.
Higher tire flow and increased production efficiency, as well as the elimination
of wire disposal costs at the Baytown and Atlanta plants, contributed to the
improvement over the equivalent period in 1995. General and administrative
expenses increased $462,201 to $2,196,284 for the first nine months of 1996 from
$1,734,083 in the comparable period in 1995, and as percent of total revenues
increased to 18.6% in the first nine months of 1996 from 17.4% in the comparable
1995 period. The increase is primarily due to the addition of the Domino plant
which was purchased in March 1995, increased staffing at the plant and the
corporate levels, higher salaries and health insurance costs, and other
administrative costs resulting from increased operating activities. Depreciation
and amortization expense increased 13% due to the acquisition of Domino as well
as capital expenditures for the new wire systems at the Baytown and Atlanta
plants. Depreciation and amortization expense as a percent of total revenues was
unchanged at 7%.
Other income decreased in the first nine months of 1996 compared to the same
period in 1995 due to the development fee earned by the Company from WR-Illinois
in September 1995. Interest expense for the first nine months of 1996 increased
6% to $369,923 or 3% of total revenues from $350,342 or 4% of total revenues due
to the addition of debt in connection with the Domino acquisition, as well as an
increase in the rate carried by the new convertible subordinated debentures that
replaced the original debentures which matured on March 15, 1996. The new
convertible subordinated debentures were subsequently converted into common
stock on July 1, 1996.
The Company's equity in the loss of WR-Illinois increased in 1996 compared to
1995 as the partnership was not operational until late September 1995. Low tire
flow levels experienced in the initial phases of operations of the Illinois
plants operated by WR-Illinois resulted in a net operating loss.
Financial Condition as of September 30, 1996
--------------------------------------------
The Company's working capital balance at September 30, 1996, was a deficit
amount of $1,662,016. This deficit reflects the current classification of
$1,560,000 from long-term debt of the 10.5% industrial revenue bonds as a result
of the Company's technical noncompliance with bond debt covenants and the
classification of over $350,000 of the Domino debt in current liabilities. In
February 1996, the Company also restructured its long-term debt of $1.1 million
with a different financial institution, which, while decreasing the annual
interest rate by 1.5 percent, increased the current portion of the amount due.
Accounts payable and accrued liabilities are also higher due to increased
capital expenditures for the wire systems. Although the Company was in technical
default on certain debt covenants, management believes that based upon the
current trend of its operations the Company should be able to correct this
situation within the fourth quarter.
Management continues to remain sensitive to the risk that the Company will not
have the financial strength to take advantage of the opportunities that are
developing. It is anticipated that with operating results improving, the Company
will be able to adequately fund its working capital requirements and capital
expenditures for at least the next twelve months. However, the Company is aware
that each facility must remain closely monitored and costs must be controlled.
The Company has gone through a very difficult expansion period; however, based
upon the noted recent improvement in the Company's operating results, management
believes that future periods should reflect the value that has been created.
The Company believes that significant capital expenditures for the remainder of
1996 will be limited to completing the installation of the wire system at the
Portland plant which is scheduled for November 1996.
<PAGE>
PART II
Other Information
Form 10-Q
Part II
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Form of Convertible Debenture Agreement as of
March 15, 1996
(b) Reports on Form 8-K
None
Item 27. Financial Data Schedule
-----------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASTE RECOVERY, INC.
DATE: November 13, 1996 /s/THOMAS L. EARNSHAW
---------------------
By: THOMAS L. EARNSHAW
President and Chief Executive Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 318,501
<SECURITIES> 0
<RECEIVABLES> 2,408,915
<ALLOWANCES> (36,926)
<INVENTORY> 972,834
<CURRENT-ASSETS> 4,158,523
<PP&E> 12,871,308
<DEPRECIATION> 7,581,618
<TOTAL-ASSETS> 11,273,620
<CURRENT-LIABILITIES> 5,820,539
<BONDS> 0
0
203,580
<COMMON> 407,800
<OTHER-SE> 2,790,543
<TOTAL-LIABILITY-AND-EQUITY> 11,273,620
<SALES> 4,246,945
<TOTAL-REVENUES> 4,298,524
<CGS> 2,763,814
<TOTAL-COSTS> 3,795,291
<OTHER-EXPENSES> 192,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,793
<INCOME-PRETAX> 203,384
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,384
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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