U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1996
Commission file number 0-12914
F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
(Name of Small Business Issuer in Its Charter)
Maryland 52-1507818
(State of Incorporation) (IRS Employer Identification No.)
5800 Chemical Road, Baltimore, MD 21226
(Address of Principal Executive Offices)
(410)354-3000
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:14,520,134 shares of Common
Stock ($.01 par value) as of April 30, 1996.
Transitional small business disclosure format: Yes No x
--- ---
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending March 31, 1996
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Statements of Operations: Three months
ended March 31, 1996 and 1995
Consolidated Balance Sheets: March 31, 1996 and
December 31, 1995
Consolidated Statements of Cash Flows: Three months
ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements:
March 31, 1996
Item 2. Management's Discussion and Analysis.
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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1996 1995
---- ----
(RESTATED)
REVENUES
Sales $ 1,851,817 $ 448,829
Development Income 867 867
---------- ---------
1,852,684 449,696
EXPENSES
Cost of sales 2,016,674 1,684,866
Selling, General and
Administrative 1,465,887 712,405
Interest Expense 4,970 601,557
-------- --------
3,487,531 2,998,828
Loss Before Income Taxes and
Limited Partners' Interest (1,634,847) (2,549,132)
Limited Partners' Interest in
Consolidated Partnership Loss - 1,698,891
Loss Before Income Taxes (1,634,847) (855,241)
Income Tax Expense
- -
--------- -------
NET LOSS $(1,634,847) $ (855,241)
========= ========
Loss per
Share (Primary and
Fully Diluted): $ (.14) $ (.26)
Weighted Average
Number of
Shares Outstanding 11,694,932 3,275,697
The accompanying notes are an integral part of these statements.
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS March 31, December 31,
1996 1995
Current Assets
Cash $ 15,784 $ 47,327
Accounts Receivable, net of
allowance for doubtful accounts 397,591 47,327
-------- ------
Total Current Assets 413,375 47,327
Property, Machinery and
Equipment - at cost
Physical Plant 32,934,907 32,934,907
Machinery and Equipment 291,767 286,562
Patterns and Moulds 48,560 48,560
Vehicles 5,100 5,100
----------- -----------
33,280,334 33,275,129
Less Accumulated Depreciation (2,449,338) (2,223,160)
----------- -----------
30,830,996 31,051,969
Construction in Process 682,072 682,072
Land 4,771,631 3,231,015
----------- -----------
36,284,699 34,965,056
Other Assets
Bond Issuance Costs 3,881,169 3,959,775
Excess of costs over net assets
acquired 16,018,696 10,477,000
Advances and other 325,791 35,602
---------- ---------
20,225,656 14,472,377
$56,923,730 $49,484,760
=========== ===========
The accompanying notes are an integral part of these statements.
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1996 1995
Current Liabilities:
Current Maturities of Long-Term Debt $34,764,172 $34,567,989
Accounts Payable and Accrued
Liabilities 3,647,379 6,644,915
----------- ---------
Total Current Liabilities 38,411,551 41,212,904
Long-Term Debt 4,899,000 4,899,000
Deferred Income 46,323 46,540
Limited Partners' Investment in
Consolidated Partnership 8,000,000 8,000,000
Limited Partners' Interest in Losses
of Consolidated Partnership (8,000,000) (8,000,000)
----------- -----------
Total Liabilities 43,356,874 46,158,444
Stockholders' Equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; - -
none issued
Common Stock, $.01 par value; 19,000,000
shares authorized; 7,599,947 shares
issued and outstanding for the year ended
December 31, 1995 and 19,000,000
shares authorized;14,520,134 shares
issued and outstanding for the
period ended March 31, 1996 145,201 76,000
Additional Capital 24,405,437 12,599,251
Accumulated Deficit (10,983,782) (9,348,935)
------------ -----------
Total Stockholders' Equity 13,566,856 3,326,316
----------- ---------
$56,923,730 $49,484,760
========== ==========
The accompanying notes are an integral part of these statements.
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1996 1995
---- ----
(RESTATED)
Increase (decrease) in cash
Cash flows from operating activities
Net loss $ (1,634,847) $ (855,241)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and Amortization 304,783 285,708
Limited Partners' Interest
in Losses - (1,693,891)
Issuance of stock options - 530,000
Stock issued in lieu of cash
payment 3,942,752 -
Changes in assets and liabilities
Accounts receivable (397,591) 407,691
Inventory and prepaid expenses - (76,287)
Accounts payable and accrued
liabilities (2,997,536) (999,300)
Other assets (290,189) -
Deferred income (217) (907)
----------- -----------
Net cash provided by (used in)
operating activities (1,072,845) (2,402,227)
----------- ----------
Cash flows from investing activities
Construction and Development Costs - 25,121
Purchase of land and improvements (1,540,676) -
Additions to property, plant and
equipment (5,205) -
Business acquisitions (5,541,696)
Net cash provided by (used in) ----------- --------
investing activities (7,087,577) 25,121
The accompanying notes are an integral part of these statements.
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Three Months Ended March 31,
1996 1995
(RESTATED)
Cash flows from financing activities
Repayment of loans (203,817) (26,191)
Proceeds from issuance of stock 7,932,696 344,793
Proceeds from debt 400,000 -
Limited partners' Investment - 2,043,843
---------- ---------
Net cash provided by (used in)
financing activities 8,128,879 2,362,445
---------- ---------
Net Increase (Decrease) in cash
and short-term investments (31,543) (14,661)
Cash and Short-Term Investments
at beginning of period 47,327 546,391
---------- -----------
Cash and Short-Term Investments
at end of period $ 15,784 $ 531,730
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period
for interest $ 34,970 $ 305,954
SUPPLEMENTAL DISCLOSURE OF
NONCASH TRANSACTIONS
Interest accrued on Limited
Partners' investment $ - $ 299,603
Common Stock Issued in
Exchange for Services $ 3,942,752 -
Issuance of stock options $ - 530,000
Common stock issued in business
acquisition $ 6,608,696 -
The accompanying notes are an integral part of these statements
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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 only
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month
period ended March 31, 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
footnotes 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 F&E
Resource Systems Technology, Inc. (FERST) 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, 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.
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE B- ACQUISITIONS
On January 19, 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 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.
On March 13, 1996, the Company acquired all of the outstanding common
shares of WasteMasters of Georgia, Inc., a Georgia corporation (WM-Georgia), and
related parties in exchange for 2,173,913 shares of common stock valued per
agreement at $2.30 per share for a total of $5,000,000. The purchase price
represents an amount significantly in excess of cost to the related party
seller. WM-Georgia owns a landfill of approximately 300 acres in Walker County,
Georgia known as the Steele Brothers Landfill. 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.
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 $5,541,696 is being amortized on a straight line basis over 20
years. No separate independent values were assigned to permits, goodwill, and
other intangibles.
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE C- 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 $36,268,932 . The Company
retired non-recourse secured and unsecured liabilities related to the facility
in the amount of $ 37,308,222. In addition, on April 12, 1996, FERST O & M, Inc.
filed a voluntary petition under the U. S. Bankruptcy Code.
Pro forma data is provided below for comparative purposes only and does
not purport to be indicative of the results which actually would have been
obtained if the disposition and the FERST O & M, Inc., Chapter 7 filing had been
effected on the pro forma dates, or of the results which may be obtained in the
future.
The following pro forma consolidated statement of operations presents
the results of operations arising from the disposition of the Baltimore facility
and the Chapter 7 filing of FERST O & M, Inc. as of January 1, 1996.
March 31, 1996 Historical Pro Forma
(Unaudited)
Revenues $ 1,852,684 $ 104,773
Cost of sales 2,016,674 179,761
Selling, general and
administrative expenses 1,465,887 913,786
Interest 4,970 4,970
---------- ---------
Loss before income taxes and
Limited Partners' Interest (1,634,847) (993,744)
Limited Partners' Interest in
Consolidated Partnership Loss - -
---------- --------
Net loss before extraordinary
item (1,634,847) (993,744)
Extraordinary item-net gain on
disposition of assets and
extinguishment of debt - 1,085,613
Income taxes expense - -
---------- ---------
NET INCOME (LOSS) $ (1,634,847) $ 91,869
=========== =========
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F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE C- DISPOSITIONS (CONTINUED)
The following pro forma consolidated balance sheet is presented to show
the financial condition of the Company at March 31, 1996 if these transactions
had occurred at the balance sheet date.
March 31, 1996 Historical Pro Forma
(Unaudited)
Cash $ 15,784 $ 15,784
Accounts Receivable 397,591 397,591
------- -------
Total current assets 413,375 413,375
Property, machinery and
Equipment 30,830,996 51,173
Construction in Process 682,072 682,072
Land 4,771,631 3,163,691
Bond issuance costs 3,881,169 -
Excess of costs over net assets
Acquired 16,018,696 16,018,696
Advances and other 325,791 325,791
---------- -----------
TOTAL ASSETS $ 56,923,730 $20,654,798
========== ==========
Current maturities of long-term
debt $ 34,764,172 $ 527,050
Accounts payable and accrued
liabilities 3,647,379 576,279
---------- --------
Total current liabilities 38,411,551 1,103,329
Long-term debt 4,899,000 4,899,000
Deferred income 46,323 -
Stockholders' equity 13,566,856 14,652,469
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 56,923,730 $20,654,798
========== ==========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations Three Months Ended March 31, 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.
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 subsidiaries to provided 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 capability upstream to supply its landfills.
Over the short term, the Company is shifting its revenue dependence
from a single source, its Baltimore composting and recycling facility, to a
broader based array of landfills and upstream processing centers. Over the long
term, the Company plans to develop waste processing capabilities in large
markets which enable it to expand market share and significantly increase
profitability.
The Company plans a growth strategy whereby it establishes a strong
niche in the United States waste disposal market. The Company plans to acquire
and develop an array of waste processing plants which receive wastes, maximize
reutilization of selected portions of the waste stream, and send residue waste
to Company disposal sites. Financial performance will progress as facilities are
brought on line and the full profit potential of the Company's landfills is
achieved.
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GENERAL
During the first quarter of 1996, the Company operated and received
revenues from three facilities- two landfills and the Baltimore recycling and
composting facility. The Company expects to acquire three additional facilities
during the quarter ended June 30, 1996. It is anticipated two of the facilities
will generate revenues during the quarter ended June 30, 1996 and the third
facility generating revenues during the quarter ended September 30, 1996.
In January, 1996, the Company, through its subsidiary partnership,
Baltimore FERST Limited Partnership (the "Partnership"), reopened its Baltimore
recycling and composting facility. Shortly thereafter, the facility's principal
customer ceased honoring its contractual obligations to deliver waste in
accordance with the provisions of a Waste Supply Agreement, failed to make
payments on account as contractually required, and requested arbitration to
attempt to break its contract with the Partnership. Negotiations with the
Partnership's secured lender to restructure the facility's debt and an offer
tendered. The Lender, Credit Suisse, responded by moving to foreclose on the
property and sell it to the Partnership's customer, Browning-Ferris Industries,
Inc. In late February, 1996, the Company caused the Partnership to seek
protection under Chapter 11 of the United States Bankruptcy Code. The
Partnership sought protection to allow for the reorganization of its affairs. A
foreclosure sale is scheduled for May 17, 1996, which sells off all of the
Partnership's assets, including, but not limited to land, improvements,
equipment, permits, contracts, and receivables. This disposition is expected to
significantly curtail any future revenues from the Partnership. The sale of the
Partnership's assets will result in a disposition of approximately $36,269,000
of assets and the extinguishment of approximately $37,308,000 of non-recourse
liabilities. The Company expects to recognize this transaction during the
quarter ended June 30, 1996.
The other two revenue producing operations during the first quarter of
1996 were the Rye Creek Landfill in Kirksville, Missouri and the Appleton
Sanitary Landfill in Allendale, South Carolina. These facilities are expanding
their waste permits to allow for greater volumes and extended landfill life.
The Company expects to begin operating two construction and demolition
(C & D) waste transfer stations during the quarter ended June 30, 1996 following
a recent acquisition and contract signing. The facilities position the Company
to service the Philadelphia, Pennsylvania, New York and New Jersey markets. The
first facility, which is being purchased for a combination of stock and cash, is
located in the Bronx, New York and may receive
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up to 1,000 tons of C & D per day. The second facility is located in
Philadelphia, Pennsylvania and is being operated 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 may receive
up to 3,000 tons of C & D per day. As previously disclosed, the Company has
contracted to purchase the Richmond Sanitary landfill in Reed City,
Michigan. The Company expects to close the transaction during the quarter
ending June 30, 1996. These events will be described in greater detail in
the Company's Form 10-QSB for quarter ended June 30, 1996.
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 312% to $1,852,684 for the
first quarter of 1996, from $ 449,696 during the same period in 1995. The
increase in revenues is a result of the reopening of the Company's Baltimore
recycling and compost facility and the new revenue contribution from the South
Carolina and Missouri landfill operations during the quarter ended March 31,
1996. The facility was closed during most of the quarter ended March 31, 1995.
Expenses for the period increased by 16% or $488,703 for the
first quarter of 1996 compared to the same period in 1995. The Company's
operating loss (revenues less cost of sales) decreased from $1,235,170 during
the quarter ended March 31, 1995 to $163,990 during the quarter ended March 31,
1996. This was a result of increased revenues from the Baltimore facility and
the revenue contribution from the South Carolina and Missouri landfills. Cost of
sales increased by $331,808, or 20%, for the first quarter of 1996 as compared
to the first quarter of 1995. This increase is the result of the Company
recognizing an allowance for a potentially uncollectible debt from
Browning-Ferris Industries, Inc. in the amount of $1,261,107 that is in dispute.
Selling , general and administrative expenses increased $753,482 or 106% from
the first quarter of 1995. This increase is the result of the costs incurred in
connection with the Company's acquisitions of three landfills during the fourth
quarter of 1995 and the first quarter of 1996. Interest expense decreased 99%,
or $586,587 to $ 4,970 for the first quarter of 1996 compared to the first
quarter of 1995. The decrease reflects the Company's decision not to accrue
interest on the debt associated with the financing of the Baltimore facility.
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BALTIMORE FERST LIMITED PARTNERSHIP
The reorganization of the Company's Baltimore composting and recycling
facility has been blocked by a court ruling which allows foreclosure on the
Partnership's principal assets by Credit Suisse, the secured lender. The Court's
ruling is being appealed. This ruling follows negotiations during the quarter
ended March 31, 1996 between Credit Suisse and the Company whereby an offer was
tendered to buy the Lender's debt at a discounted amount. The Lender responded
by secretly negotiating with the Partnership's primary customer, Browning-Ferris
Industries. Inc. to sell the Partnership's assets to the customer following a
sale of foreclosure.
Foreclosure will eliminate asset ownership of the Partnership's general
partner (FERST for Baltimore, Inc., a wholly-owned subsidiary of the Company,
which itself owns 14% of the Partnership) and of the Limited Partners (Compost
I, Inc. and Compost II, Inc., subsidiaries of Chrysler Capital Corp., which
combined hold an 86% share in the Partnership). Partnership assets include land,
improvements, equipment, a long term disposal contract with Browning-Ferris
Industries, Inc. and permits to operate the plant as a composting and recycling
facility.
The sale of the Partnership's assets through foreclosure will cause the
Company to dispose of these assets. However, the Company will also recognize an
extinguishment of related debt that exceeds the net book value of the assets
sold. This will result in a gain being recognized during the quarter ended June
30, 1996 and the strengthening of the Company's financial condition (see Note
C).
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet at March 31, 1996 reflects a working
capital deficit of $37,999,176. As a result of the Company not complying with
certain debt covenants, substantially all the Company's long term debt is
classified as current.
The Company's ratio of indebtedness to equity of 3.20 decreased from
13.87 from December 31, 1995. This change was due to the Company issuing common
stock in exchange for cash, services and other assets.
During the first three months of 1996, the Company's working capital
deficiency decreased $3,167,401. This was due to the
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reopening of the Baltimore composting and recycling facility and the
operations of the South Carolina and Missouri landfills during the first
quarter of 1996. Accounts receivable increased $397,591 primarily because of
the reopening of the Baltimore facility during the three months ended March 31,
1996. In addition, 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 18, 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 in exchange
for cancellation of a $100,000 debt for engineering consulting services.
On March 15, 1996, the Company issued 100,000 restricted shares of common
stock and a promissory note for $400,000 payable in 30 days without interest
for $500,000 in cash. On April 12, 1996, the Company sold $3,000,000 of
debentures for $1,755,000 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.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On February 29, 1996, Baltimore FERST Limited Partnership (the
"Partnership"), which owns 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. This
filing stayed all legal actions against the Partnership, including a proposed
foreclosure sale of the facility which was scheduled to occur on May 17, 1996.
On May 2, 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 fiscal year
ended December 31, 1995.
After the Company exhausted all of its legal remedies to stay
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the foreclosure sale, the Baltimore facility was sold at foreclosure sale on May
17, 1996 to Browning-Ferris Industries, Inc.
In December, 1994, the Limited Partner of the Partnership that owns the
Company's Baltimore facility, of which the Company's subsidiary serves as
General Partner, commenced action to remove and replace the General Partner.
Management has vigorously contested the action and believes the Limited
Partner's claims are without merit. The Company has obtained a court order
prohibiting the General Partner's removal and the court has ordered the Limited
Partner's claim to be submitted to arbitration. An arbitration claim has been
filed by the limited partner. Both parties have agreed to stay the arbitration.
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, including the litigation filed by PWT.
All of the above matters stand to cease following the foreclosure sale
scheduled for May 17, 1996. After this date the Company has no future interest
or liability in any of the proceedings except to assert claims for its share of
pre- and post-petition amounts due the Company and to seek damages under appeal
of the U. S. Bankruptcy Court's order to allow foreclosure of Court-protected
assets. In addition, a foreclosure sale does not remove the rights of the
Company to seek damages from the Partnership's secured lender, Credit Suisse for
lender liability and tortious interference and from the Partnership's primary
customer Browning-Ferris Industries, Inc. for tortious interference and contract
abridgment.
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 as specified in the construction contract as well as other
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 outcome of the lawsuit will adversely affect the
Company.
Item 2. Changes in Securities.
Not applicable
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Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter
for which this report is filed:
Form 8-K filed dated January 2, 1996, announcing the reopening
of the Company's recycling and composting facility in
Baltimore, Maryland.
Form 8-K filed dated January 12, 1996, announcing the
Company's obtaining the necessary permits to activate a
landfill "Host Agreement" with Allendale County, South
Carolina.
Form 8-K filed January 26, 1996, announcing a change in
control of the Company.
Form 8-K filed March 19, 1996, announcing the Company's
acquisition of a landfill in Walker County, Georgia.
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.
F & E RESOURCE SYSTEMS TECHNOLOGY, INC.
Date: May 17, 1996 By: Richard D. Masters
Chairman of the Board, President
and Chief Executive Officer
(Duly Authorized Officer and Principal
Accounting and Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF F & E RESOURCE SYSTEMS TECHNOLOGY, INC. AS OF MARCH 31, 1996 AND THE
RELATED STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE THREE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,784
<SECURITIES> 0
<RECEIVABLES> 397,591
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 413,375
<PP&E> 33,280,334
<DEPRECIATION> (2,449,338)
<TOTAL-ASSETS> 56,923,730
<CURRENT-LIABILITIES> 38,411,551
<BONDS> 0
0
0
<COMMON> 13,566,856
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 56,923,730
<SALES> 1,851,817
<TOTAL-REVENUES> 1,852,684
<CGS> 2,016,674
<TOTAL-COSTS> 2,016,674
<OTHER-EXPENSES> 1,465,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,970
<INCOME-PRETAX> (1,684,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,684,847)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
