U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1996
Commission file number 0-12914
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
(Name of Small Business Issuer in Its Charter)
Maryland 52-1507818
(State of Incorporation) (IRS Employer Identification No.)
147 OLD SOLOMON'S ISLAND ROAD 5TH FLOOR
(Address of Principal Executive Offices)
(410)573-5800
Issuer's Telephone Number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:14,919,405 shares of Common
Stock ($.01 par value) as of July 31, 1996.
Transitional small business disclosure format: Yes No x
---
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending June 30, 1996
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Statements of Operations: Three Months
Ended June 30, 1996 and 1995; Six Months Ended
June 30, 1996 and 1995
Consolidated Balance Sheets: June 30, 1996 and
December 31, 1995
Consolidated Statements of Cash Flows: Six months
ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements:
June 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
ii
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
REVENUES:
Sales $948,786 $ 50,601 $2,800,603 $ 499,430
Fees and other 6,720 776,139 7,587 776,139
Interest income 2,388 - 2,388 -
---------- ---------- ----------- ----------
957,894 825,873 2,810,578 1,275,569
---------- ---------- ----------- ----------
EXPENSES:
Costs of Sales 740,112 479,714 2,756,786 2,164,580
Selling, General and
Administrative 1,656,680 105,829 3,122,567 818,234
Interest Expense 421,396 627,923 426,366 1,229,480
---------- ---------- ----------- ----------
2,818,188 1,213,466 6,305,719 4,212,294
Loss Before Income
Taxes,Limited Partners'
Interest and Extraordinary
Item (1,860,294) (387,593) (3,495,141) (2,936,725)
Limited Partners' Interest
in Consolidated
Partnership Loss - 304,357 - 1,998,248
---------- ---------- ----------- ----------
Loss Before Income
Taxes (1,860,294) (83,236) (3,495,141) (938,477)
Income Tax Expense - - - -
---------- ---------- ----------- ----------
NET LOSS BEFORE
EXTRAORDINARY ITEM (1,860,294) (83,236) (3,495,141) (938,477)
Extraordinary item:
Gain from disposal of
asset, net of tax 1,214,582 - 1,214,582 -
---------- ---------- ----------- ----------
NET LOSS $ (645,712) $ (83,236) $(2,280,559) $(983,477)
========== ========== =========== ==========
Loss per share:
Primary:
Loss before extraordinary
item $ (.14) $ (.02) $ (.26) $ (.29)
Extraordinary item .09 - .09 -
---------- ---------- ---------- ----------
Net loss $ (.05) $ (.02) $(.17) $(.29)
Weighted Average
Number of Shares
Outstanding 13,288,889 3,275,697 13,301,636 3,275,697
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS June 30, December 31,
1996 1995
Current assets
Cash $ 827,641 $ 47,327
Accounts receivable, net of
allowance for doubtful accounts 192,247 -
Prepaid expenses 19,830 -
------- -----
Total current assets 1,039,718 47,327
Property, Machinery and
Equipment, net 4,664,830 34,965,056
Other Assets
Deferred loan costs, net 1,606,750 3,959,775
Excess of costs over net assets
acquired, net 17,498,714 10,477,000
Deposits and other assets 114,250 35,602
---------- ---------
19,219,714 14,472,377
---------- ---------
$24,924,262 $49,484,760
=========== ===========
The accompanying notes are an integral part of these statements.
2
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
<S> <C>
Current Liabilities:
Current maturities of long-term debt $ 546,343 $34,567,989
Accounts payable and accrued
liabilities 1,777,422 6,644,915
--------- ---------
Total current liabilities 2,323,765 41,212,904
Long-term debt 4,992,838 4,899,000
Convertible debentures 4,450,000 -
Deferred income - 46,560
Limited partners' investment in
consolidated partnership - 8,000,000
Limited partners' interest in losses
of consolidated partnership - (8,000,000)
------------ ----------
Total liabilities 11,766,603 46,158,444
Stockholders' Equity
Preferred stock, $.01 par value;
5,000,000 shares authorized; - -
none issued
Common Stock, $.01 par value;
35,000,000 shares authorized;
7,599,947 shares issued and
outstanding for the year ended
December 31, 1995; - 76,000
14,754,577 shares issued and
outstanding for the period ended
June 30, 1996 147,545 -
Additional capital 24,639,608 12,599,251
Accumulated deficit (11,629,494) (9,348,935)
----------- ----------
Total stockholders' equity 13,157,659
3,326,316
------------ ---------
$24,924,262 $49,484,760
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net loss $(2,280,559) $ (938,477)
Adjustments to reconcile net (loss)
earnings to net cash provided by
operating activities:
Depreciation and amortization 477,221 398,290
Limited partners' interest
in losses - (1,998,248)
Issuance of stock options - 530,000
Changes in assets and liabilities
Accounts receivable (192,247) 402,924
Inventory and prepaid expenses (19,830) 496
Bond issuance costs, net 3,959,775 -
Other assets (78,648)
Accounts payable and accrued
liabilities (4,867,493) (648,438)
Deferred income (46,540) (868)
----------- ------------
Net cash provided by (used in)
operating activities (3,048,321) (2,254,321)
----------- ------------
Cash flows from investing activities
Construction and development costs - 14,255
Purchase of property, plant & equipment (3,242,240)
Disposal of property, plant &
equipment,net 32,860,394 -
Business acquisitions (7,209,358) -
Decrease in marketable securities - 19,084
----------- ------------
Net cash provided by (used in)
investing activities 22,408,796 33,339
----------- -----------
Cash flows from financing activities
Repayment of loans (34,221,717) (637,721)
Proceeds from issuance of stock 12,111,902 344,793
Proceeds from loans 364,654 -
Proceeds from convertible debentures, net 3,165,000 -
Limited partners' investment - 2,043,844
----------- ------------
Net cash provided by (used in)
financing activities (18,580,161) 1,750,916
------------ ----------
Net increase (decrease) in cash
and short-term investments 780,314 (470,066)
Cash and short-term investments
at beginning of period 47,327 531,730
---------- -----------
Cash and short-term investments
at end of period $ 827,641 $ 61,664
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Six Months Ended June 30,
1996 1995
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period
for interest $ 60,277 $ 652,190
SUPPLEMENTAL DISCLOSURE OF
NONCASH TRANSACTIONS
Interest accrued on Limited
Partners' investment $ - 533,586
Common stock issued in
exchange for services $ 3,629,207 -
Issuance of stock options $ - $ 530,000
The accompany notes are an integral part of these statements
5
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB, and
therefore, do not include all the information necessary for a fair presentation
of financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
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 six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnoted thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 1995.
Consolidated Statements
The consolidated financial statements include the accounts of
WasteMasters, Inc. (formerly F&E Resource Systems Technology, Inc.) and its
wholly owned subsidiaries, F&E Resource Systems Technology for Baltimore, Inc.
(FERST for Baltimore, Inc.), FERST for St. Mary's, Inc., FERST O&M, Inc., and
Chemical Road Investments, Inc., WasteMasters of South Carolina, Inc., Trantex,
Inc., WasteMasters of Georgia, Inc. as well as the accounts of Baltimore FERST
Limited Partnership (the "Partnership") in which FERST's subsidiary, FERST for
Baltimore, Inc., is a general partner (collectively "the Company"). Significant
intercompany transactions have been eliminated in consolidation.
NOTE B- ACQUISITIONS
In January, 1996, the Company acquired all of the outstanding common
shares of Trantex, Inc., which owns the Rye Creek Landfill in Kirksville,
Missouri, for 2,173,913 shares of the Company's common stock, valued at
$5,000,000, or $2.30 per share. The shares are restricted pursuant to SEC Rule
144. Prior to the acquisition, Trantex,Inc. was an entity controlled by members
of the Company's Board of Directors and Officers. The fair market value of the
common stock for financial statement purposes was valued at $1.52 per share
resulting in a decrease in the acquisition price of $1,695,652. The acquisition
did not have a material pro forma impact on operations.
In March, 1996, the Company acquired all of the outstanding common
shares of WasteMasters of Georgia, Inc., which owns the Steele Brothers Landfill
in Walker County, Georgia, for 2,173,913 shares of common stock valued at
$5,000,000, or $2.30 per share. The shares are restricted pursuant to SEC Rule
144. Prior to the acquisition, WasterMasters of Georgia, Inc. was an entity
controlled by members of the Company's Board of Directors and Officers. The fair
market value of the common stock for financial statement purposes was valued at
$1.52 per share resulting in a decrease in the acquisition price of $1,695,652.
The acquisition did not have a material pro forma impact on the Company's
operations.
6
<PAGE>
WASTEMASTERS, INC.
(FORMERLY F & E RESOURCE SYSTEMS TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE B- ACQUISITIONS (CONTINUED)
The acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets acquired
based on their fair values. The total costs in excess of identifiable net assets
acquired of $7,209,358 is being amortized on a straight line basis over 40
years. No separate independent values were assigned to permits, goodwill, and
other intangibles.
In May, 1996, the Company signed an agreement with Equinox Associates,
Inc. to operate a newly re-permitted construction & demolition (C&D) transfer
station in Bronx, New York. Equinox Associates, Inc. was purchased by the
Company subsequent to June 30, 1996 for $1,545,000 in the form of cash and
shares of the Company's common stock. The acquisition did not have a material
pro-forma impact on the Company's operations.
NOTE B- DISPOSITIONS
On May 17, 1996, the Company's Baltimore recycling and composting
facility was sold at foreclosure. Assets sold include the facility,
improvements, bond issuance costs and land of the Baltimore FERST Limited
Partnership. The net book value of the assets sold was approximately
$40,780,000. The Company retired non-recourse secured and unsecured liabilities
related to the facility in the amount of $42,000,000. In addition, on April 12,
1996, FERST O & M, Inc. filed a voluntary petition under the U. S. Bankruptcy
Code.
NOTE C- CONVERTIBLE DEBENTURES
In April, 1996, the Company sold $3,000,000 of 8% debentures for
$1,755,000 net, convertible into the Company's common stock at any time during
the period beginning forty (40) days and ending two years from date of issuance.
In June, 1996, the Company sold $2,000,000 of 8% debentures for $1,410,000 net,
convertible into the Company's common stock at any time during the period
beginning forty (40) days and ending two years from date of issuance. The
debentures, plus accrued interest are due and payable two years from the date of
issuance.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Six Months Ended June 30, 1996 and 1995
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, included
elsewhere within this Report.
7
<PAGE>
INTRODUCTION
The Company has significantly improved its direction since its
acquisition of WasteMasters, Inc. on December 28, 1995. The Company has embarked
on raising capital to acquire and put into operation waste related businesses,
reduce indebtedness, and fully poise the Company for upcoming growth. The
Company has transitioned to new leadership. The Company is acquiring and
developing landfills and transfer stations to provide convenient, cost-effective
and ecologically proper solid waste processing, transportation and disposal.
The core Company focus is acquiring and developing its waste
processing, transportation and disposal capacities. It has embarked on
expansions and Sub-Title D permitting of its landfills, while developing
processing capabilities upstream to supply its landfills.
The Company has shifted its revenue base from sole dependence on
composting to broader based waste processing, recycling, transportation and
landfill development. The Company has transitioned from a single customer
seeking composting to many customers seeking waste processing and disposal.
During the quarter ended June 30, 1996, the Company discontinued operations at
its Baltimore composting and recycling center. During the same period the
Company began operations at its first C&D waste transfer station, in New York.
These events mark the shift of the Company towards the development of waste
processing capabilities in large markets. This transformation positions the
Company to expand market share, establish internal growth, and become
increasingly profitable.
The Company' growth strategy is to establish a strong niche in the
United States waste disposal market. The Company plans to acquire and develop an
array of waste processing plants which receives waste, maximizes reutilization
of selected portions of the waste stream, and sends residue waste to Company
disposal sites. Financial performance will progress as facilities are brought on
line and full profit potential of the Company's landfills are achieved.
During the first six months of 1996, the Company operated four revenue
generating facilities- two landfills, a construction and demolition ("C & D")
waste transfer station, and the Baltimore recycling and composting facility.
Financial performance will progress as facilities are brought on line, revenues
are increased, efficiencies are created, and full potential of the Company's
landfills are achieved.
The two landfills that operated during the six months ended June 30,
1996 were the Rye Creek Landfill in Kirksville, Missouri and the Appleton
Sanitary Landfill in Allendale, South Carolina. The Company plans to expand
their respective waste permits to allow greater volumes and extended landfill
lives.
The C&D waste transfer station which began operations during the second
quarter of 1996, is located in the Bronx, New York, and is permitted to receive
up to 3,000 yards of C&D waste plus 3,000 yards of dirt and rock per day.
As previously reported, the Company reopened the Baltimore recycling
and compost facility in January, 1996. Shortly thereafter the facility's
principal customer, Browning-Ferris Industries, Inc. ceased honoring its
contractual obligations to deliver waste, failed to make payments on account as
contractually required, and requested arbitration to attempt to break its
contract with the Company. In addition, the facility's lender sought to
foreclose on the facility and sell it to Browning-Ferris Industries, Inc. After
the Company exhausted all of its legal remedies to stay the foreclosure sale,
8
<PAGE>
the Baltimore facility was sold at foreclosure on May 17, 1996 to
Browning-Ferris Industries, Inc.
The Company expects to operate a second C&D transfer station located in
Philadelphia, Pennsylvania under a one year renewable operating contract. The
Philadelphia facility is serviced by CSX rail which connects to the Company's
South Carolina landfill. The facility is permitted to accept up to 3,000 tons of
C&D waste per day.
The Company continues to pursue opportunities to purchase waste
facilities in Hollywood, Florida, Staten Island, New York, Baltimore, Maryland
and other densely populated markets to supply its existing landfill operations.
Results of Operations
The Company's revenues increased by $132,021 to $ $957,894 for the
second quarter of 1996, from $825,873 during the same period in 1995. The
increase in revenues is a result of the receipt of disposal fees (`tipping
fees") at its South Carolina and Missouri landfills and New York City C&D
transfer station. These assets were not owned by the Company during the quarter
ended June 30, 1995.
The Company's revenues increased by 220.2% to $2,810,578 for the first
six months of 1996, from $ 1,275,569 during the same period in 1995. The
increase in revenues is due to bringing new facilities on line. In addition, the
Company reopened the Baltimore recycling facility in early January and
recognized revenues from its operation until shortly prior to the sale of the
facility at foreclosure. The plant was closed and did not receive waste during
most of the six months ended June 30, 1995
Expenses increased by 232% or $ 1,604,722 for the second quarter of
1996 compared to the same period in 1995. Expenses as a percentage of revenues
were 294.2% in the current second quarter compared to 146.9% for the prior year
second quarter. Cost of sales increased by $ 260,398 for the second quarter of
1995. This increase is the result of the Company reopening the Baltimore
facility and the operating the South Carolina and Missouri landfills and the New
York City transfer station. Selling, general and administrative expenses
increased by $1,550,851 for the second quarter of 1995. The increase is due to
additional management and staff compensation and professional fees associated
with the development and operation of the new landfills and transfer station
facilities. Interest expense decreased 32.9%, or $206,527 to $ 421,396 for the
second quarter of 1996 compared to the second quarter of 1995. The decrease
reflects the extinguishment of the debt related to the Company's Baltimore
facility.
Expenses increased by 49.7% or $2,093,425 for the first six months of
1996 compared to the same period in 1995. Expenses as a percentage of revenues
were 224.3% in the first six months compared to 330.2% for the first six months
of 1995. Cost of sales increased by $ 529,206 for the first six months of 1996.
This increase is a result of the Company reopening the Baltimore facility after
the facility was idle for most of 1995 and the costs of operating the Company's
two new landfills and transfer station. Selling, general and administrative
expenses increased $2,304,333 or 281.6% from the first six months of 1995. The
increase is a result of additional management compensation, clerical salaries,
and professional fees incurred in connection with the Company's new business
operations. Interest expense decreased 166.5%, or $803,114 to $ 426,366 for the
first six months of 1996 compared to the first six months of 1995. The decrease
reflects the extinguishment of the debt related to the disposal of the Baltimore
facility.
9
<PAGE>
Liquidity and Capital Resources
The Company's balance sheet at June 30, 1996 reflects a working
capital deficit of $1,284,047 as compared to a deficit of 47,165,577 at December
31, 1995.
The Company's ratio of indebtedness to equity of .89 at June 30, 1996
improved significantly from 13.87 at December 31, 1995. This change was due to
the Company issuing common stock in exchange for cash, services, and other
assets. In addition, the Company disposed of its Baltimore facility and
extinguished the related debt.
During the first six months of 1996, the Company's working capital
deficiency decreased $ 45,881,530. This was as a result of the disposal of the
Company's Baltimore facility and the extinguishment of the related debt.
Accounts receivable increased $192,247 as a result of the Company recognizing
revenues from its landfill operations.
The Company met a portion of its working capital needs through the sale
of common stock. On January 4, 1996, the Company sold 1,000,000 restricted
shares of its common stock for $1.2 million in cash. On January 12, 1996, the
Company issued 527,333 restricted shares of its common stock with registration
rights to various employees, directors, officers, consultants and advisors in
exchange for the cancellation of compensation claims of $1,582,000. Also on that
date, the Company issued 70,000 restricted shares of common stock in exchange
for cancellation of $200,000 in debt on its Rye Creek Landfill and 40,000
restricted shares of common stock in exchange for cancellation of a $100,000
debt for engineering consulting services. On March 15, 1996, for $500,000 in
cash, the Company issued 100,000 restricted shares of common stock and a
promissory note for $400,000 which was repaid in 30 days without interest. On
April 12, 1996, the Company sold $3,000,000 of debentures for $1,755,000 net,
convertible into the Company's commons stock at any time during the period
beginning after 40 days and ending two years from issuance.
The debentures are convertible into the Company's common stock at
market prices at the date of conversion. As of June 30, 1996, the holders of the
debentures had converted $550,000 of debt into 234,443 shares of the Company's
common stock. On June 27, 1996 the Company sold $2,000,000 of debentures for
$1,410,000 net, convertible into the Company's common stock at any time during
the period beginning after 40 days and ending two years from issuance. The
debentures are convertible into the Company's common stock at market prices at
the date of conversion.
While the Company as raised capital to meet its working capital and
financing needs, additional financing is required in order to complete the
planned improvements necessary to the Company's landfills and transfer station
to make them fully operational. The Company is seeking financing in the form of
equity and debt in order to make the necessary improvements and provide working
capital. There are no assurances the Company will be successful in raising the
funds required.
INFLATION
Inflation has been considered in establishing the revenue and cost
contracts for construction and operation of the Baltimore facility. The Company
believes the assumed rates are reasonable.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported, on February 29, 1996, Baltimore FERST limited
Partnership (the "Partnership"), which owned the Company's Baltimore composting
and recycling facility, filed a voluntary petition under Chapter 11 of the
United States Bankruptcy Code in the U. S. Bankruptcy Court in Baltimore,
Maryland. On April 25, 1996, the Bankruptcy Court granted the motion of the
holder of the senior lien on the facility to modify the bankruptcy stay to allow
it to proceed with a foreclosure sale of the facility. The Company first
reported on the proceeding in Item 3 of its Annual Report on Form 10-KSB for the
year ended December 31, 1995.
After the Company exhausted all of its legal remedies to stay the
foreclosure sale, the Baltimore facility was sold at foreclosure sale on May 17,
1996 to Browning-Ferris Industries, Inc. The foreclosure sale was ratified by
the Circuit Court for Baltimore City, Maryland on June 27, 1996.
On April 12, 1996, FERST O & M , Inc. filed a voluntary bankruptcy
petition under Chapter 7 of the United States Bankruptcy Code. The filing stayed
all actions against FERST O & M, Inc.
The Partnership is involved in extensive litigation with PWT Waste
Solutions, Inc. ("PWT"), the facility's construction contractor. The contractor
claims to be due approximately $1.5 million from retainage claimed by the
Partnership when the contractor failed to comply with various performance tests,
timely completion, and numerous warranty claims. The Partnership is claiming
liquidated damages far in excess of the retainage. Subsequently, the contractor
expanded the lawsuit to include Credit Suisse, Chrysler, and the parent company.
Management does not believe the lawsuit will adversely affect the Company.
On June 4, 1996, Michael Reis and Lawrence Katz filed a complaint in
the United States District Court for the District of New Jersey. The Complaint
seeks unspecified damages based on a purported contract between the Plaintiffs
and the Company for a financing placement and corporate development fee. The
Company believes the complaint is completely without merit and intends to
vigorously defend its position.
On June 28, 1996, the Company instituted a Complaint for Declaratory
Relief in the United States District Court for the Southern District of New York
against Diversified Investors Services of North America, Inc. in response to a
demand by Diversified for issuance of warrants for 500,000 shares of the
Company's stock. Diversified claims it is entitled to the warrants by virtue of
having obtaining certain financing for the Company as required by a December 8,
1994 contract between Diversified and the Company. The filing of a counterclaim
by Diversified for the warrants is anticipated.
11
<PAGE>
Item 2. Changes in Securities.
See Item 4 (number 4)
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting f Shareholders of WasteMasters, Inc. was held
on May 22, 1996. The following five matters were voted on and approved at such
meeting:
(1) The election of six members to the Board of Directors of the Company.
Director Votes cast Votes cast Votes Abstentions
for against Withheld
Richard D. Masters 10,287,897 4,658 19,455 0
A. Leon Blaser 10,287,897 4,658 19,455 0
Julius W. Basham, II 10,287,897 4,658 19,455 0
Ronald W. Pickett 10,283,352 4,658 19,455 0
Robert E. Fahey 10,287,352 4,658 19,455 0
Paul Williamson 10,287,352 4,658 19,455 0
(2) Amend the Charter of the Corporation to provide for a change in
the name of the Company from F & E Resource Systems Technology, Inc. to
WasteMasters, Inc.
Votes cast for 10,295,303
Votes cast against 589
Abstentions 20,663
(3) To amend the Charter of the Corporation to provide for an increase in
authorized capital stock of the Company by increasing the authorized shares
of Common Stock from 19,000,000 to 35,000,000 and increasing the number of
authorized shares of Preferred Stock from 1,000,000 to 5,000,000.
Votes cast for 10,273,986
Votes cast against 19,591
Abstentions 22,978
(4) To amend the Charter of the Corporation to eliminate the limited pre-emptive
rights of stockholders.
Votes cast for 10,272,778
Votes cast against 16,590
Abstentions 27,187
12
<PAGE>
(5) Ratification of the appointment of Turner, Jones & Associates, P.C. as
independent auditors for the fiscal year ended December 31, 1996.
Votes cast for 10,289,639
Votes cast against 1,413
Abstentions 25,503
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WASTEMASTERS, INC.
Registrant
August 16, 1996 By: s/ Paul Williamson
- ------------------ -------------------
Date Paul Williamson
President
August 16, 1996 By: s/ Dennis O'Leary
- ------------------ -------------------
Dennis O'Leary
Treasurer
Chief Financial and Accounting
Officer
13
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3(i)(1) Articles of Amendment to Corporate Charter
dated May 22, 1996
14
Exhibit 3(i)(1)
F&E RESOURCE SYSTEMS TECHNOLOGY, INC.
ARTICLES OF AMENDMENT
---------------------
F&E RESOURCE SYSTEMS TECHNOLOGY, INC., a Maryland corporation having its
principal office in Baltimore, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking out in
its entirety Article SECOND of the Charter and inserting in lieu thereof the
following:
SECOND: The name of the Corporation, which is hereinafter called the
"Corporation", is:
WasteMasters, Inc.
SECOND: The Charter of the Corporation is hereby amended by striking out in
its entirety Paragraph (A) only of Article FIFTH of the Charter and inserting
in lieu thereof the following:
FIFTH: (A) The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 40,000,000 shares of
par value of $.01 per share, and an aggregate par value of $400,000, of which
5,000,000 shares shall be shares of Preferred Stock of $.01 par value each, or
such other par value set by the Board of Directors (hereinafter called
"Preferred Stock") and 35,000,000 shares shall be shares of Common Stock of
$.01 par value each (hereinafter called "Common Stock").
THIRD: The Charter of the Corporation is hereby amended by inserting the
following immediately after Article SEVENTH:
EIGHTH: No holder of stock or any other security of the Corporation
shall have any preemptive right to subscribe to or purchase any additional
shares of stock of any class, or other securities of any nature; provided,
however, that the Board of Directors may, in authorizing the issuance of stock
of any class, confer any preemptive right that the Board of Directors may deem
advisable in connection with such issuance, and set the price and any other
terms the Board of Directors, in its sole discretion, may fix.
<PAGE>
FOURTH: (a) The total number of shares of all classes of capital stock of
the Corporation heretofore authorized, and the number and par value of the
shares of each class of capital stock, are as follows:
Twenty Million (20,000,000) shares of capital stock of the
Corporation divided into:
One Million (1,000,000) shares of Preferred Stock of One Cent
($.01) par value per share, aggregate par value of Ten Thousand
Dollars ($10,000).
Nineteen Million (19,000,000) shares of Common Stock of One
Cent ($.01) par value per share, aggregate par value of One
Hundred Ninety Thousand Dollars ($190,000).
The aggregate par value of all classes of capital stock is Two
Hundred Thousand Dollars ($200,000).
(b) The total number of shares of all classes of capital stock of the
Corporation, as increased by this Amendment, and the number and par value of the
shares of each class of capital stock, are as follows:
Forty Million (40,000,000) shares of capital stock of the
Corporation divided into:
Five Million (5,000,000) shares of Preferred Stock of One Cent
($.01) par value per share, aggregate par value of Fifty Thousand
Dollars ($50,000).
Thirty Five Million (35,000,000) shares of Common Stock of One
Cent ($.01) par value per share, aggregate par value of Three
Hundred Fifty Thousand Dollars ($350,000).
The aggregate par value of all classes of capital stock is Four
Hundred Thousand Dollars ($400,000).
2
<PAGE>
(c) The description of each class of capital stock, as provided in
Paragraph (B) of Article FIFTH of the Charter, including preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption was not amended by
these Amendments.
FIFTH: This foregoing amendments of the Corporation's Charter were duly
advised by the Board of Directors and approved by the Stockholders of the
Corporation at the Annual Meeting of Stockholders held on May 22, 1996.
IN WITNESS WHEREOF, F&E Resource Systems Technology, Inc., has caused
theses Articles of Amendment to be signed in its name and on its behalf by its
President and attested to by its Secretary, this 30th day of May, 1996. Each of
the undersigned officers of F&E Resource Systems Technology, Inc., acknowledges,
under the penalties for perjury, that these Articles of Amendment are the
corporate act of the Corporation and that the matters and facts set forth herein
are true in all material respects, to the best of his or her knowledge,
information and belief.
ATTEST: F&E RESOURCE SYSTEMS
TECHNOLOGY, INC.
/s/ Robert P. Crabb By: /s/ Paul Williamson
- ------------------------------ ------------------------------
Robert P. Crabb, Secretary Paul Williamson, President
3
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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