<PAGE>
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 June 30, 1997
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 [ ]
At August 1, 1997, 17,442,621 shares of the registrant's common stock, no
par value per share, were outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WASTE RECOVERY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
------ ------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 165,329 $ 1,892,427
Accounts receivable, less allowance for doubtful accounts
of $80,559 and $51,017, respectively 3,035,734 2,736,388
Other receivables (note 2) 468,023 1,061,958
Inventories (note 3) 882,596 1,239,483
Other current assets 332,258 355,958
Restricted cash and cash equivalents 240,606 -
----------- ------------
Total current assets 5,124,546 7,286,214
----------- ------------
Property, plant and equipment 25,817,563 24,226,392
Less accumulated depreciation (9,209,681) (7,923,939)
----------- ------------
Net property, plant and equipment 16,607,882 16,302,453
----------- ------------
Restricted cash and cash equivalents 1,953,460 1,914,795
Bond and debt issuance costs, less accumulated
amortization of $189,427 and $181,275, respectively 138,907 147,059
Deferred income taxes 447,543 447,543
Goodwill, less accumulated amortization of $170,652 and
$102,787, respectively 1,827,813 1,895,678
Other assets 430,939 398,058
----------- ------------
$26,531,090 $28,391,800
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
WASTE RECOVERY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1997 December 31, 1996
------------------------------------ ------------- -----------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Current installments of bonds payable $ 942,126 $ 883,024
Notes payable 414,850 632,003
Current installments of long-term debt (note 4) 939,281 998,719
Current installments of capital lease obligations 136,005 111,982
Accounts payable 3,401,854 3,269,300
Bond interest payable 197,167 219,781
Accrued wages and payroll taxes 164,489 247,576
Other accrued liabilities 771,919 637,836
Deferred revenue 30,071 16,071
Deferred grant revenue 386,820 296,940
----------- -----------
Total current liabilities 7,384,582 7,313,232
----------- -----------
Bonds payable, noncurrent 6,676,895 7,567,795
Long-term debt, excluding current installments
(note 4) 3,943,955 4,069,498
Obligations under capital leases,
excluding current installments 104,689 104,017
Deferred grant revenue, noncurrent 412,760 696,050
Notes payable 382,737 312,085
----------- -----------
Total liabilities 18,905,618 20,062,677
----------- -----------
Commitments and contingencies
Stockholders' Equity (note 5):
Cumulative preferred stock, $1.00 par value, 250,000 shares
Authorized, 203,580 issued and outstanding in 1997 and 1996
(liquidating preference $14.96 per share, aggregating
$3,045,193, and $14.61 per share, aggregating $2,974,525,
in 1997 and 1996, respectively) 203,580 203,580
Preferred stock, $1.00 par value, authorized and unissued
9,750,000 shares in 1997 and 1996 - -
Common stock, no par value, authorized 30,000,000 shares,
17,442,621 and 17,322,121 shares issued and outstanding
in 1997 and 1996, respectively 407,800 407,800
Additional paid-in capital 18,530,332 18,467,427
Accumulated deficit (11,442,360) (10,675,804)
----------- -----------
7,699,352 8,403,003
Treasury stock, at cost, 103,760 common shares (73,880) (73,880)
----------- -----------
Total stockholders' equity 7,625,472 8,329,123
----------- -----------
$26,531,090 $28,391,800
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements Of Operations
(Unaudited)
Three Months Ended June 30,
---------------------------
1997 1996
------------ ----------
Revenues:
Tire-derived fuel sales $ 1,000,109 $ 249,038
Wire sales 231,399 84,264
Disposal fees, hauling and other revenue 6,366,942 4,074,029
------------ -----------
Total revenues 7,598,450 4,407,331
Operating expenses 5,611,768 2,815,294
General and administrative expenses 1,382,377 728,098
Depreciation and amortization 723,583 273,838
------------ -----------
(119,278) 590,101
------------ -----------
Other income (expense):
Interest income 29,558 7,537
Interest expense (232,108) (133,713)
Other income - 4,949
Grant income 96,705 -
Gains on sales of property and equipment 8,510 -
Gain on involuntary conversion of assets
(note 8) 104,918 -
Equity in loss from partnership operations - (162,438)
------------ -----------
7,583 (283,665)
------------ -----------
Net income (loss) before income taxes (111,695) 306,436
Provision for income taxes - -
------------ -----------
Net income (loss) (111,695) 306,436
Undeclared cumulative preferred stock dividends
(note 5) 35,529 35,529
------------ -----------
Net income (loss) available to common
shareholders $ (147,224) $ 270,907
------------ -----------
------------ -----------
Net income (loss) per share $ (0.01) $ 0.02
------------ -----------
------------ -----------
Weighted average number of common and dilutive
common equivalent shares outstanding 17,338,861 11,568,655
------------ -----------
------------ -----------
See accompanying notes to consolidated financial statements.
4
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements Of Operations
(Unaudited)
Six Months Ended June 30,
-----------------------------
1997 1996
------------ -----------
Revenues:
Tire-derived fuel sales $ 1,810,274 $ 589,231
Wire sales 357,021 117,709
Disposal fees, hauling and other revenue 11,285,614 6,879,359
------------ -----------
Total revenues 13,452,909 7,586,299
Operating expenses 10,237,844 5,295,826
General and administrative expenses 2,687,319 1,437,978
Depreciation and amortization 1,395,166 538,032
------------ -----------
(867,420) 314,463
------------ -----------
Other income (expense):
Interest income 68,036 19,648
Interest expense (464,758) (262,130)
Other income 130,748 49,562
Grant income 193,410 -
Gain on involuntary conversion of assets (note 8) 164,918 -
Gains on sales of property and equipment 8,510 5,057
Equity in loss from partnership operations - (404,574)
------------ -----------
100,864 (592,437)
------------ -----------
Net loss before income taxes (766,556) (277,974)
Provision for income taxes - -
------------ -----------
Net loss (766,556) (277,974)
------------ -----------
Undeclared cumulative preferred stock dividends
(note 5) 70,668 71,058
------------ -----------
Net loss available to common shareholders $ (837,224) $ (349,032)
------------ -----------
------------ -----------
Net loss per share $ (0.05) $ (0.03)
------------ -----------
------------ -----------
Weighted average number of common and dilutive
common equivalent shares outstanding 17,304,755 10,835,312
------------ -----------
------------ -----------
See accompanying notes to consolidated financial statements.
5
<PAGE>
WASTE RECOVERY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (766,556) $ (277,974)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,320,904 511,549
Provision for losses on accounts receivable 48,000 -
Gain on sale of property, plant and equipment (8,510) (5,057)
Amortization of goodwill 67,865 27,443
Interest imputed on discounted note payable 6,652 9,004
Amortization of bond premium (26,798) -
Equity in loss from partnership operations - 404,633
Stock issued to Directors and on debenture conversion - 13,995
Other (18,500) -
Changes in assets and liabilities:
Accounts receivable (347,346) 309,116
Note and other receivables 593,935 (6,571)
Inventories 356,887 (72,973)
Other current assets 23,700 (299,625)
Other assets (32,881) (4,081)
Accounts payable 374,054 157,258
Accrued liabilities 50,996 (16,778)
Bond interest payable (22,614) -
Deferred grant revenue (193,410) -
Deferred revenue 14,000 (21,736)
------------ ------------
Net cash provided by operating activities 1,440,378 728,203
------------ ------------
Cash flows from investing activities:
Proceeds received on sale of property, plant and equipment 8,510 6,000
Purchases of property, plant and equipment (1,477,935) (770,988)
Cash placed in restricted accounts (1,348,093) (19,200)
Cash payments out of restricted accounts 1,068,822 500,000
Receivable from affiliate - (818,623)
------------ ------------
Net cash used by investing activities (1,748,696) (1,102,811)
------------ ------------
Cash flows from financing activities:
Payment of bonds payable (805,000) -
Proceeds from issuance of notes payable 211,484 32,953
Payment of notes payable (606,137) (56,406)
Proceeds from issuance of convertible subordinated debentures - 85,000
Payment upon maturity of convertible subordinated debentures - (85,000)
Repayment of long-term debt (184,981) (118,512)
Repayment of capital lease obligations (97,051) (53,674)
Proceeds from issuance of common stock 62,905 17,186
------------ ------------
Net cash used by financing activities (1,418,780) (178,453)
------------ ------------
Net decrease in cash and cash equivalents (1,727,098) (553,061)
Cash and cash equivalents at beginning of period 1,892,427 726,562
------------ ------------
Cash and cash equivalents at end of period $ 165,329 $ 173,501
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WASTE RECOVERY, INC.
Notes to Consolidated Financial Statements
June 30, 1997
Note 1: ADJUSTMENTS
The financial information presented as of any date other than December 31
has been prepared from the 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 six months
ended June 30, 1997, 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, 1996.
Note 2: OTHER RECEIVABLES
Other receivables at June 30, 1997 includes approximately $383,000 due from
an insurance company for property damage and business interruption insurance
related to the Atlanta fire (see note 8). The Company received payment for the
full amount in July 1997.
Note 3: INVENTORIES
The components of inventories are as follows:
June 30, 1997 December 31, 1996
------------- -----------------
Manufactured fuel inventory $ 155,159 $ 281,938
Manufactured wire inventory 15,324 27,761
Work-in-process 101,083 293,070
Parts inventory 611,030 636,714
$ 882,596 $1,239,483
Note 4: LONG-TERM DEBT
Although the Company was not in compliance with its current ratio
calculation as of June 30, 1997 which is required by the 10.5% industrial
development revenue bond debt covenants, the Company received a waiver from the
bond holder. The waiver expires August 31, 1998. If the covenant is not
satisfied upon expiration of the waiver, then $1,480,000 of long-term debt on
the Atlanta bonds must be reclassified to current debt; no other debt would be
affected.
Note 5: PREFERRED STOCK DIVIDENDS
Cumulative preferred stock dividends in arrears were $1,009,393 at June 30,
1997. Net income or loss is adjusted by the effect of undeclared dividends on
preferred stock of $70,668 and $71,058 for the six months ended June 30, 1997
and 1996, respectively, and by $35,529 and $35,529 for the three months ended
June 30, 1997 and 1996, respectively. The effect was to increase net loss per
common share by $.004 and $.007 for the six months ended June 30, 1997 and 1996,
respectively, and increase net loss per common share by $.002, and decrease net
income per common share by $.003 for the three months ended June 30, 1997 and
1996, respectively. Primary and fully diluted earnings per share are the same
in 1997 and 1996.
Note 6: ACQUISITIONS
In December 1996, the Company acquired from Riverside Caloric Company (RCC)
its 55% interest in the Waste Recovery-Illinois general partnership, in which
the Company had owned the remaining 45% interest. The Company also acquired in
December 1996, all of the partnership interests in U.S. Tire Recycling Partners,
L.P. (U.S. Tire), which collects and processes scrap tires, and operates a scrap
tire monofill near Charlotte, North Carolina.
7
<PAGE>
Note 7: EARNINGS PER SHARE
In February 1997, the FASB issued FAS No. 128, Earnings per Share ("FAS
128"), which is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Effective December 31,
1997, the Company will adopt FAS 128, which establishes standards for computing
and presenting earnings per share (EPS). The statement requires dual
presentation of basic and diluted EPS on the face of the income statement for
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation, to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes the effect of
potentially dilutive securities while diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue common stock
were exercised, converted into, or resulted in the issuance of common stock that
then shared in the earnings of the entity. For the three months and six months
ended June 30, 1997 and 1996, the pro forma basic and diluted EPS amounts
calculated assuming adoption of this statement would be the same as EPS
presented on the consolidated statements of operations.
Note 8: INVOLUNTARY CONVERSION OF ASSETS
On November 26, 1996 the Atlanta plant sustained damage due to a mechanical
fire. As a result, TDF and wire production ceased. The shredding machinery and
equipment was not damaged, thus allowing the plant to continue accepting scrap
tires for disposal which were then shredded and disposed of. The rebuild was
completed in early May 1997, at which time the plant became fully operational.
This involuntary conversion of assets was estimated and recognized in the year
ending December 31, 1996. An additional $104,918 gain for property damage was
recognized in the three months ended June 30, 1997 in connection with this
involuntary conversion of assets, as well as $83,333 in insurance proceeds from
business interruption insurance.
Note 9: STATEMENT OF CASHFLOWS
The Company paid $523,412 and $239,622 for interest for the six months
ended June 30, 1997 and 1996, respectively. No income taxes were paid during
the six months ended June 30, 1997 and 1996.
Note 10: LITIGATION
The registrant has no material pending legal proceedings.
Other notes have been omitted pursuant to Rule 10-01 (a)(5) of Regulation S-X.
[End of Page]
8
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q under "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations", constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of Waste
Recovery, Inc. (the "Company" or "Registrant") to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions; competition; success of
operating initiatives; development and operating costs; adverse publicity;
changes in business strategy or development plans; quality of management;
availability, terms and deployment of capital; business abilities and
judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; changes in, or failure to comply with, government
regulations; and other factors referenced in this Form 10-Q.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company owns and operates plants in or geographically near Houston,
Texas, Atlanta, Georgia, Portland, Oregon, Philadelphia, Pennsylvania, St.
Louis, Missouri, Chicago, Illinois, and Charlotte, North Carolina. Until
December 1996, the St. Louis and Chicago plants were owned by a partnership
(Waste Recovery-Illinois) in which the Company held a 45% partnership
interest. In December 1996, the Company acquired the remaining 55%
partnership interest at which time Waste Recovery-Illinois (WR-Illinois)
became a wholly-owned subsidiary. Prior to the acquisition, the Company did
not consolidate WR-Illinois' financial statements; the investment in
WR-Illinois was accounted for under the equity method of accounting. The
Company also acquired U.S. Tire Recycling Partners, L.P. (U.S. Tire) in
December 1996. U.S. Tire owns and operates a scrap tire processing facility
and shredded tire monofill in Charlotte, North Carolina.
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 processed
rubber product for civil engineering purposes, from the sale of shredded tires
as tire-derived fuel ("TDF"), and from the sale of bead wire removed from the
tires.
To date, the effects of inflation on the Company's operations have been
negligible.
GENERAL COMMENTS
The Company suffered a net loss of $111,695 on revenues of $7,598,450 in the
second quarter of 1997, compared to net income of $306,436 on revenues of
$4,407,331 during the same period in 1996. The increase in total revenues from
the prior period was primarily due to the acquisition of the 55% partnership
interest in WR-Illinois not owned by the Company and the resulting consolidation
of its financial results and the acquisition of U.S. Tire. Similarly, the
increase in TDF sales to $1,000,109 for the second quarter of 1997 from $249,038
for the same period in 1996, and the increase in scrap tire flow to 71,575 tons
for the second quarter of 1997 from 40,870 tons for the same period in 1996,
were also attributable to these acquisitions. Tire flow was down at the
Portland and Atlanta plants, whereas the Houston and Philadelphia plants had an
increased tire flow for an overall decrease of approximately 450 tons for these
plants combined for the three months ended June 30, 1997 compared to the same
period in 1996.
The Portland facility continues to maintain a strong position in the scrap tire
market in the Northwest; however, TDF markets in this region continue to be
weak, thus limiting the Company's ability to sell all of the TDF produced at
this facility. Consequently, the Company's efforts have been focused on
managing tire inflow to achieve an equilibrium between TDF demand and tire
inflow so as to mitigate costly diversion costs. The facility began a 5 million
PTE tire remediation project located in the State of Washington in April 1996
that is expected to be completed at the end of the third quarter of this year.
The Houston facility showed improvement in TDF sales and disposal fees and
increased tire flow for the second quarter of 1997 compared to the same period
in 1996. The Company continues to focus its efforts on tire
9
<PAGE>
procurement throughout the State of Texas as a result of the elimination of
the State's allocation program last year which had limited the number of
scrap tires the Company could collect. Scrap tire collection efforts have
expanded into areas of North and South Texas. Increased demand from TDF
customers have increased sales, and margins have improved as hauling costs
have decreased due to the proximity of these customers to the Houston plant.
Although wire sales continue to be strong, wire sales were flat for the
quarter ending June 30, 1997 compared to the same period last year.
Due to damage from the mechanical fire in November, 1996, operations of the
Atlanta facility were limited to producing six inch tire chips during the first
and second quarters of 1997. These shreds were transported to the Company's
U.S. Tire facility where a portion were further processed and sold as drainfill
material, and the balance landfilled there. The Atlanta facility was rebuilt
with insurance proceeds and recommenced full operation in May 1997. The
Company recorded approximately $83,000 of income from business interruption
insurance during the second quarter of 1997 in connection with the Atlanta fire
insurance claim. TDF sales were strong in June 1997 as the Atlanta facility
returned to full operation, with an increase of over 50% compared to June 1996.
The Philadelphia plant continues to suffer from a weak TDF market. The Company
is continuing its efforts to obtain new TDF customers in the Northeast region.
Tire flow and disposal fees for the second quarter of 1997 were significantly
higher compared to the same period last year primarily due to a scrap tire
remediation project for the Commonwealth of Pennsylvania. A significant portion
of these tires were sent to the Company's St. Louis facility for processing into
TDF.
The Illinois facilities continue to show improvement with increases in TDF sales
and tire flow for the second quarter 1997 compared to the same period last year.
Although the Illinois plants have shown improvement in these areas, tire flow
continues to be too low to prevent the facilities from incurring a net loss.
Management is strongly focusing its efforts on improving tire flow at both
Illinois facilities in order to achieve the Company's goal of profitability at
these plants. TDF sales continue to be strong at the St. Louis plant with sales
for the second quarter of 1997 comparable to the same period last year. TDF
sales for the Chicago plant were significantly improved in the second quarter of
1997 compared to the same period in 1996 due to new TDF customers obtained in
1997. While TDF sales at the Illinois plants continue to be strong, there
exists an excess demand for the product from the current customer base as well
as other potential customers. Management's primary focus on improving tire flow
should provide the Illinois plants with the ability to take advantage of this
demand for TDF.
U.S. Tire which was acquired in December 1996, is a scrap tire processor located
near Charlotte, North Carolina, and operates a scrap tire collection network
throughout the state and surrounding Eastern corridor as well as a scrap tire
monofill. The U.S. Tire facility also generates revenues through tire grading
activities where collected tires are sold in used tire markets, and the sale of
processed scrap tires as tire-derived product primarily for civil engineering
purposes. The U.S. Tire facility continues to show a very strong tire flow,
collecting over 5 million PTE's annually.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 1997 COMPARED
WITH SECOND QUARTER ENDED JUNE 30, 1996
Total revenues of $7,598,450 for the second quarter of 1997 were 72% higher than
the $4,407,331 earned for the same period in 1996. The increase is due
primarily to the acquisitions of WR-Illinois and U.S. Tire. TDF and wire sales
were down at the Atlanta plant due to the Company's rebuilding efforts, which
was completed in May 1997, in connection with the November 1996 fire. TDF sales
for the Portland plant were flat for the second quarter of 1997 compared to the
same period last year as the TDF market in that region continues to be soft.
With the exception of the Atlanta plant, wire sales were up with the acquisition
of WR-Illinois, a second full quarter of wire production from the Portland
plant, and continued strong wire sales from the Houston plant.
Operating expenses for the second quarter of 1997 were $5,611,768 or 74% of
revenues, up from $2,815,294 or 64% of revenues for the second quarter of 1996.
Operating expenses increased primarily due to the acquisitions of WR-Illinois
and U.S. Tire. Operating costs as a percentage of revenues were up at the
Atlanta facility primarily as a result of the rebuild resulting from the
November 1996 fire. Although the Portland plant's operating costs were flat for
the second quarter of 1997 compared to the same period last year, operating
expense as a percentage of revenues
10
<PAGE>
increased due to a decreased tire flow and weaker TDF sales. The Houston
plant also experienced an increase in operating expenses with an increased
tire flow and the establishment of a tire collection site in South Texas.
General and administrative expenses of $1,382,377 for the second quarter of 1997
were higher when compared to $728,098 for the same period in 1996. The increase
is primarily due to the acquisitions of WR-Illinois and U.S. Tire, as well as
increases in corporate management, staff, personnel costs, professional fees,
and other administrative costs resulting from the Company's expansion and higher
levels of operating activities. General and administrative expenses as a
percentage of revenues increased to 18% for the second quarter of 1997 compared
to 17% for the same period last year.
Depreciation and amortization expense increased to $723,583 from $273,838 in the
second quarter of 1997 compared to the same period in 1996. The increase is
primarily the result of the acquisitions of WR-Illinois and U.S. Tire, as well
as the additions of the new wire recycling systems installed in 1996.
Interest income and interest expense in the second quarter of 1997 increased
compared to the same period last year primarily as a result of the WR-Illinois
acquisition. Interest expense increased 74% primarily due to the bonds payable
assumed in the acquisition of WR-Illinois. Grant income represents the
amortization of deferred grant revenue received by WR-Illinois from the State of
Illinois in connection with the construction of the Illinois plants. The
Company recognized a $104,918 gain on involuntary conversion of assets in the
second quarter of 1997 as a result of the final settlement of the Company's
insurance claim in connection with the Atlanta fire.
Equity from partnership operations is not reflected in the second quarter of
1997 since this partnership, WR-Illinois, was acquired in December 1996, and as
a wholly-owned subsidiary was consolidated in the financial statements of the
Company for the three month and six month period ending June 30, 1997.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED
WITH SIX MONTHS ENDED JUNE 30, 1996
Total revenues for the Company of $13,452,909 for the six months ended June 30,
1997 were significantly higher than the $7,586,299 received by the Company for
the same six-months period in 1996. This increase is primarily the result of
the WR-Illinois and U.S. Tire acquisitions, which accounted for 37% of total
revenues for the six months ended June 30, 1997. TDF sales at the Portland
facility were flat for the six months ended June 30, 1997 compared to the same
period last year, while disposal fees decreased due to a decrease in related
tire flow. TDF sales and disposal fees decreased at the Atlanta plant due to
the rebuilding efforts as a result of the November 1996 fire. The Houston plant
had increased TDF sales, increased tire flow, and higher disposal fees for the
six months ended June 30, 1997 compared to the same period in 1996. The
Philadelphia plant also showed improvement in tire flow as a result of as tire
cleanup project for the Commonwealth of Pennsylvania. Wire sales for the six
months ended June 30, 1997 were also up compared to the same period last year
with all wire systems in operation with the exception of the Atlanta plant.
Operating expenses for the first half of 1997 were $10,237,844 or 76% of total
revenues compared to $5,295,826 or 70% of total revenues for 1996. Operating
expenses were higher with the acquisitions of WR-Illinois and U.S. Tire.
Operating expenses as a percentage of revenues increased primarily as a result
of the Atlanta plant rebuild, a decreased tire flow in Portland, and increased
operating costs at the Houston plant due to further expansion and increased tire
collection efforts in Texas. General and administrative expenses increased
$1,249,341 to $2,687,319 for the first half of 1997 from $1,437,978 in the
comparable period in 1996, and as a percent of total revenues increased to 20%
in the first six months of 1997 from 19% in the comparable 1996 period. The
increase in general and administrative expenses is primarily due to the
acquisitions of WR-Illinois and U.S. Tire, as well as increases in corporate
activities as a result of the Company's expansion. Depreciation and
amortization expense increased significantly primarily as a result of the
consolidation of WR-Illinois and U.S. Tire, as well as the installation of the
wire systems in the Houston and Portland plants.
Interest expense increased 77% for the six months ended June 30, 1997 compared
to the same period in 1996 primarily due to the bonds payable assumed by the
Company in connection with the acquisition of WR-Illinois.
11
<PAGE>
Other income increased in the six months ended June 30, 1997 compared to the
same period in 1996 due to the sale of a metering unit to an electric power
utility. Grant income also increased due to the amortization of deferred grant
revenue acquired in connection with the acquisition of WR-Illinois. Gain on
involuntary conversion of assets represents the gain recognized upon settlement
of the Company's insurance claim in connection with the Atlanta fire.
FINANCIAL CONDITION AS OF JUNE 30, 1997
The Company's working capital balance at June 30, 1997 was a deficit amount of
$2,260,036. This deficit is in part the result of the assumption of bonds
payable and deferred revenue in connection with the acquisition of WR-Illinois,
as well as increased accounts payable and accrued liabilities. As discussed in
note 4 in the accompanying financial statements, the Company was out of
technical compliance with its current ratio calculation which is required by the
Atlanta bonds debt covenants. However, the Company received a waiver from the
bond holder for non-compliance with this covenant. If the covenant is not
satisfied upon expiration of the waiver, then $1,480,000 of long-term debt on
the Atlanta bonds must be reclassified to current debt; no other debt would be
affected.
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 beginning to improve,
the Company will be able to adequately fund its working capital requirements and
capital expenditures for at least the next twelve months. Cash flow from
operations for the Company improved for the six months ended June 30, 1997
compared to the same period in 1996. Management is also considering other
sources of capital to meet the Company's future commitments, as well as the
Company's future working capital needs. The Company is aware that each facility
must remain closely monitored and costs must be controlled. More importantly,
additional revenues must be generated to cover fixed costs and allow the Company
a chance to improve its profit margin with its existing capabilities.
The Company does not anticipate any significant capital expenditures for the
remainder of 1997.
12
<PAGE>
PART II: OTHER INFORMATION
Item 5. OTHER INFORMATION
On July 30, 1997, the Company's Board of Directors appointed Thomas L.
Earnshaw, formerly President and Chief Executive Officer of the Company, as Vice
Chairman of the Board of Directors. David Greenstein, formerly President of the
Company's U.S. Tire subsidiary, was appointed President and Chief Executive
Officer of the Company.
On August 6, 1997 and August 4, 1997, respectively, David Walls and Andrew
Bodner resigned from the Board of Directors to focus on their outside business
activities. At August 14, 1997, the Company had not appointed successor
directors to fill these vacancies.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
Item 27. FINANCIAL DATA SCHEDULE
13
<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: August 14, 1997 /s/ THOMAS L. EARNSHAW
--------------------------------
By: THOMAS L. EARNSHAW
Vice Chairman
(Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S JUNE 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 165,329
<SECURITIES> 0
<RECEIVABLES> 3,116,293
<ALLOWANCES> (80,559)
<INVENTORY> 882,596
<CURRENT-ASSETS> 5,124,546
<PP&E> 25,817,563
<DEPRECIATION> (9,209,681)
<TOTAL-ASSETS> 26,531,090
<CURRENT-LIABILITIES> 7,384,582
<BONDS> 6,676,895
0
203,580
<COMMON> 407,800
<OTHER-SE> 7,014,092
<TOTAL-LIABILITY-AND-EQUITY> 26,531,090
<SALES> 13,452,909
<TOTAL-REVENUES> 14,018,531
<CGS> 10,237,844
<TOTAL-COSTS> 14,320,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48,000
<INTEREST-EXPENSE> (464,758)
<INCOME-PRETAX> (766,556)
<INCOME-TAX> 0
<INCOME-CONTINUING> (766,556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (766,556)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
