<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____________________________________________
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-12914
_________________________________________________
WASTEMASTERS, INC.
(Exact name of small business issuer as specified in its charter)
MARYLAND 52-1507818
(State of (IRS Employer
Incorporation) Identification No.)
1230 PEACHTREE STREET SUITE 2545 ATLANTA, GA 30309
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (404) 888-0158
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
----- -----
As of November 17, 1998, the registrant had outstanding 128,281,703 shares of
its Common Stock, $.01 par value.
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
FORM 10-QSB REPORT INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet as of September 30, 1998....... 3
Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 1998 and 1997....... 4
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 1998.................... 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997........... 6
Notes to Unaudited Consolidated Financial Statements
September 30, 1998...................................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................... 18
ITEM 5. OTHER INFORMATION......................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 20
SIGNATURES.............................................................. 20
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
WASTEMASTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 763,047
Accounts receivable, net of $79,888 allowance for
doubtful accounts 3,999,651
Inventories 1,781,371
Other current assets 451,589
------------
Total current assets 6,995,658
Property, plant and equipment-net of depreciation 42,586,157
Landfill facilities, net of amortization 3,349,834
------------
Net property, plant and equipment 45,935,991
Other assets:
Investments 7,853,352
Goodwill - net of amortization 22,424,494
Other assets - net of amortization 3,076,468
------------
Total other assets 33,354,314
------------
Total assets $ 86,285,963
============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable, accrued interest, and other liabilities $ 19,408,130
Short term notes payable 7,581,390
Current maturities of long-term debt 23,764,753
Liabilities to related parties, net 545,630
------------
Total current liabilities 51,299,903
Long-term and deferred items:
Long-term debt, less current maturities 13,318,977
Deferred income taxes 16,400
Long term debt due to related parties 1,815,300
Accrued environmental and landfill costs 731,070
Total long-term and deferred items 15,881,747
------------
Total liabilities 67,181,650
Minority interest (1,034,760)
Stockholders' equity:
Convertible preferred stock, 5,000,000 shares authorized and
outstanding 50,000
Common stock, $.01 par value; 495,000,000 shares
authorized; 127,531,703 shares issued and outstanding 1,275,317
Additional paid-in capital 76,899,674
Accumulated deficit (58,085,918)
------------
Total stockholders' equity 20,139,073
------------
Total liabilities and stockholders' equity $ 86,285,963
============
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 7,386,105 $ 183,208 $ 13,956,636 $ 407,064
Expenses
Cost of sales 6,180,676 270,799 12,098,984 471,196
Selling, general and administrative 3,003,497 272,604 5,099,884 1,879,426
Depreciation and amortization 1,690,031 397,993 2,906,760 1,187,345
------------ ----------- ----------- -----------
Loss from operations (3,488,099) (758,188) (6,148,992) (3,130,903)
Other income (expense)
Interest expense, net (313,753) (84,827) (501,075) (234,375)
Other income, net 96,583 - (195,522) -
Gain (loss) from sale of assets 9,000 (1,209,379) 9,000 (1,209,379)
------------ ----------- ------------ -----------
Total other expense (208,170) (1,294,206) (687,597) (1,443,754)
Loss from continuing operations before taxes
and minority interest (3,696,269) (2,052,394) (6,836,589) (4,574,657)
Income tax benefit - - 8,903 -
------------ ----------- ------------ -----------
Loss from continuing operations
before minority interest (3,696,269) (2,052,394) (6,827,686) (4,574,657)
Minority interest loss (733,226) - (733,226) -
------------ ----------- ------------ -----------
Loss from continuing operations (2,963,043) (2,052,394) (6,094,460) (4,574,657)
Loss from discontinued operations, net (6,183,199) - (7,065,496) -
------------ ----------- ------------ -----------
Net loss $ (9,146,242) $(2,052,394) $(13,159,956) $(4,574,657)
============ =========== ============ ===========
Loss per share:
Primary: Loss from continuing operations $ (.02) $ (.07) $ (.06) $ (.16)
Loss from discontinued operations (.05) 0 (.07) 0
------------ ----------- ------------ -----------
Net loss common per share basic $ (.07) $ (.07) $ (.12) $ (.16)
============ =========== ============ ===========
Weighted average number of
common shares outstanding 123,248,004 30,660,419 105,647,192 28,107,417
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
COMMON AND PREFERRED STOCK
<TABLE>
<CAPTION>
COMMON PREFERRED COMMON PREFERRED ADDITIONAL TOTAL
SHARES SHARES STOCK STOCK PAID-IN ACCUMULATED STOCKHOLDER'S
OUTSTANDING OUTSTANDING AT PAR AT PAR CAPITAL DEFICIT EQUITY
----------- ----------- ---------- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 34,967,126 5,000,000 $ 349,671 $50,000 $35,645,461 $(44,925,962) $ (8,880,830)
Net loss for period -0- -0- -0- -0- -0- (13,159,956) (13,159,956)
Shares issued upon
exercise of warrants 5,250,000 -0- 52,500 -0- 2,139,000 -0- 2,191,500
Shares issued in connection
with acquisitions 23,318,700 -0- 233,187 -0- 25,344,740 -0- 25,577,927
Settlement of debt 967,377 -0- 9,674 -0- 849,050 -0- 858,724
Shares issued as compensation 28,500 -0- 285 -0- 37,080 -0- 37,365
Shares issued in cancellation
of liabilities for debentures,
accrued interest, and penalties 63,000,000 -0- 630,000 -0- 12,884,343 -0 13,514,343
----------- --------- ---------- ------- ----------- ------------ ------------
BALANCE AT SEPTEMBER 30, 1998 127,531,703 5,000,000 $1,275,317 $50,000 $76,899,674 $(58,085,918) $ 20,139,073
=========== ========= ========== ======= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS:
Net loss $(13,159,956) $(4,574,657)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,481,363 1,187,345
Stock issued in lieu of cash payment 766,759 1,543,524
Loss on write-off of capitalized loan costs 241,355 0
Accrual for landfill closure costs 387,570 0
Write down of assets from discontinued operations 5,665,504 0
Increase (decrease) in minority interest (733,226) 0
Changes in assets and liabilities:
Accounts receivable & prepaid expenses (70,665) 59,691
Bond issuance cost, net 0 821,924
Accounts payable, accrued interest and other liabilities 2,608,414 516,757
Deferred income (116,280) 0
Due to related parties (442,275) 236,136
------------ -----------
Net cash(used in) operating activities (1,371,437) (209,280)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,826,920) 0
Deposits on acquisitions 447,371 0
Business acquisitions 533,294 0
Investments 0 (7,840,000)
Sale of property, plant and equipment 771,938 750,188
------------ -----------
Net cash (used in) investing activities (74,317) (7,089,812)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of loans (2,413,230) 0
Proceeds from issuance of stock 2,191,500 7,776,300
Proceeds from convertible debentures 0 (476,300)
Proceeds from loans 2,429,623 0
------------ -----------
Net cash provided by financing activities: 2,207,893 7,300,000
------------ -----------
Net increase (decrease) in cash 762,139 908
Cash and cash equivalents at beginning of period 908 0
Cash and cash equivalents at end of period $ 763,047 $ 908
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
1998 1997
----------- ----------
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
- ---------------------------------------------------
Cash paid during period for interest $ 684,805 $ 40,000
SUPPLEMENTARY DISCLOSURE OF NON-CASH TRANSACTIONS
- ---------------------------------------------------
Common stock issued in business acquisitions $25,577,927 -
Common stock issued for services $ 37,365 $1,543,524
Preferred Stock issued in exchange for investments - $4,710,000
Common Stock issued in exchange for investments - $1,170,000
During the nine months ended September 30, 1998, the Company completed
acquisitions of companies and/or assets in exchange for common stock of the
Company. The assets acquired and liabilities assumed in connection with those
acquisitions were non-cash transactions and are therefore not included in the
cash flow statement above.
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
WASTEMASTERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
NOTE A
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared by
WasteMasters, Inc. (the "Company" or "WasteMasters") pursuant to the rules and
regulations of the U. S. Securities and Exchange Commission. Certain
information and disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments and disclosures necessary for a fair presentation
of these financial statements have been included. Such adjustments consist of
normal recurring adjustments. This Form 10-QSB Report should be read in
conjunction with the Form 10-KSB Report of WasteMasters, Inc. for the fiscal
year ended December 31, 1997, as filed with the U. S. Securities and Exchange
Commission.
The results of operations for the periods ended September 30, 1998 are not
indicative of the results that may be expected for the full year. (See Results
of Operations on pages 15 through 17).
2. Consolidated Statements
-----------------------
The consolidated financial statements include the accounts of WasteMasters,
Inc. and its wholly owned subsidiaries: WasteMasters of Pennsylvania, Inc.;
WasteMasters of New York, Inc.; WasteMasters of Michigan, Inc.; WasteMasters
of Louisiana, Inc.; F&E Resource Systems Technology for Baltimore, Inc.;
WasteMasters of South Carolina, Inc.; Sales Equipment Company, Inc., C.A.T.
Recycling, Inc., Wood Management, Inc.; Mini-Max Enterprises, Inc.;
Southeastern Research & Recovery, Inc.; C&D Recycling Corporation; American
Recycling and Management Corporation; Tri-State Waste Disposal Company, Inc.;
Atlantic Coast Demolition and Recycling, Inc.; WasteMasters of Palm Beach,
Inc. and the Company's partially-owned subsidiary, Atlas Environmental, Inc.
Significant intercompany transactions have been eliminated in consolidation.
3. Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - BUSINESS
1. The Company
-----------
WasteMasters, Inc. is a non-hazardous solid waste services company that
provides collection, transfer, disposal and recycling services. The Company
was incorporated in Maryland in July 1981. In 1998, the Company initiated an
aggressive acquisition program in order to take advantage of the consolidation
of the solid waste industry. Thus far, WasteMasters has added 5 landfills, 4
hauling companies, 11 recycling
-8-
<PAGE>
NOTE B - BUSINESS - Continued
facilities, and a industrial sludge processing facility as a result of the
acquisition of companies that are now WasteMasters subsidiaries. The Company
believes that additional acquisition candidates meeting the Company's
acquisition criteria, including "tuck-in" opportunities, exist within its
current and adjacent market areas and in other prospective markets.
2. Industry Overview
-----------------
The Company believes that the United States non-hazardous solid waste services
industry generated estimated revenues of approximately $37 billion in calendar
1997, of which approximately $26 billion was generated by publicly-traded or
privately-owned waste companies with the remaining revenues generated by
municipal, county and district operators.
Currently, the solid waste services industry is experiencing significant
consolidation and integration. The Company believes that this consolidation
and integration has been driven primarily by four factors: (i) stringent
environmental regulations resulting in increased capital requirements; (ii)
the inability of many smaller operators to achieve the economies of scale
necessary to compete effectively with large integrated solid waste service
providers; (iii) the competitive advantages of integrated companies generated
by providing integrated collection, transfer and disposal capabilities; and
(iv) privatization of solid waste services by municipalities. Despite the
considerable consolidation and integration that has occurred in the solid
waste industry in recent years, the Company believes the industry remains
highly fragmented both within its target markets and nationally.
Stringent environmental regulations, such as the Subtitle D Regulations, have
resulted in rising costs for owners of landfills. Subtitle D specifies design,
siting, operating, monitoring, closure and financial security requirements for
landfill operations. The permits required for landfill development, expansion
or construction have also become increasingly difficult to obtain. In
addition, Subtitle D requires more stringent engineering of solid waste
landfills including the installation of liners and leachate and gas collection
and monitoring. These ongoing costs are coupled with increased financial
reserve requirements for closure and post-closure monitoring. Certain of the
smaller industry participants have found these costs and regulations
burdensome and have decided either to close their operations or to sell them
to larger operators. As a result, the number of operating landfills has
decreased while the size of landfills has increased.
Economies of scale, driven by the high fixed costs of landfill assets and the
associated profitability of each incremental ton of waste, have led to the
development of higher volume, regional landfills. Larger integrated operators
achieve economies of scale in the solid waste collection and disposal industry
through vertical integration of their operations that may generate a
significant waste stream for these high-volume landfills.
Integrated companies gain further competitive advantage over non-integrated
operators by being able to control the waste stream. The ability of these
companies to internalize the collected solid waste (i.e., collecting the waste
at the source, transferring it through their own transfer stations and
disposing of it at their own disposal facility), coupled with access to
significant capital resources to make acquisitions, has created an environment
in which large integrated companies can operate more cost effectively and
competitively than non-integrated operators.
The trend toward consolidation in the solid waste services industry is further
supported by the increasing tendency of a number of municipalities to
privatize their waste disposal operations. Privatization is often an
attractive alternative for municipalities due, among other reasons, to the
ability of integrated operators to
-9-
<PAGE>
NOTE B - BUSINESS - Continued
leverage their economies of scale to provide the community with a broader
range of services while enabling the municipality to reduce its own capital
asset requirements. The Company believes that the financial condition of
municipal landfills in the United States was adversely affected by the 1994
United States Supreme Court decision which declared "flow control" laws
unconstitutional. These laws had required waste generated in counties or
districts to be disposed of at the respective county or district-owned
landfills or incinerators. The reduction in the captive waste stream to these
facilities, resulting from the invalidation of such laws, forced the counties
that owned them to increase their per ton tipping fees to meet municipal bond
payments. The Company believes that these market dynamics are factors causing
municipalities to consider the privatization of public facilities.
3. Strategy
--------
The Company's objective is to continue to grow by expanding its services in
markets where it can be one of the largest and most profitable solid waste
services companies. The Company is currently operating in certain regions of
Florida, South Carolina, New Jersey, Pennsylvania, Texas, Oklahoma and Ohio,
and believes that these markets and other markets with similar characteristics
present significant opportunities for achieving its objectives. The Company
focuses its efforts on markets which are characterized by: (i) a
geographically dispersed population; (ii) disposal capacity which the Company
anticipates may be available for acquisition by the Company; (iii) significant
environmental regulation which has resulted in a decrease in the total number
of operating landfills; and (iv) a lack of significant competition from other
well-capitalized and established waste management companies. The Company
believes that these characteristics result in significant market opportunities
for the first well-managed market entrant, and create economic and regulatory
barriers to entry by additional competitors in these markets.
The Company's strategy for achieving its objective is: (i) to acquire solid
waste collection businesses and disposal capacity in new markets, and to make
"tuck-in" acquisitions in existing markets; (ii) to generate internal growth
through increased sales penetration and the marketing of additional services
to existing customers; and (iii) to implement operating enhancements and
efficiencies. The Company intends to implement this strategy as follows:
Expansion through Acquisitions. The Company intends to continue to expand by
acquiring solid waste collection companies and disposal capacity in new
markets, and increasing its revenues and operational efficiencies in it
existing markets through "tuck-in" and other acquisitions of solid waste
collection operations. In considering new markets, the Company evaluates the
opportunities to acquire or otherwise control sufficient collection operations
and disposal facilities which would enable it to generate a captive waste
stream and achieve the disposal economies of scale necessary to meet its
market share and financial objectives. The Company has established criteria
which enable it to evaluate the prospective acquisition opportunity and the
target market. In the near future, the Company intends to enter new markets
which are adjacent to its existing markets; however, the Company may consider
new markets in non-contiguous geographic areas which meet its criteria. The
Company is also targeting additional "tuck-in" acquisitions within its current
markets to allow the Company to further improve its market penetration and
density and to further increase the internalization rate of its waste streams.
Internal Growth. In order to generate continued internal growth, the Company
intends to focus on increasing sales penetration in its current and adjacent
markets, soliciting new commercial, industrial, and residential customers,
marketing upgraded services to existing customers and, where appropriate,
raising prices. As
-10-
<PAGE>
NOTE B - BUSINESS - Continued
customers are added in existing markets, the Company's revenue per routed
truck is improved, which generally increases the Company's collection
efficiencies and profitability. The Company uses transfer stations, which
serve to link disparate collection operations with Company-operated landfills,
as an important part of its internal growth strategy.
NOTE C - DISCLOSURE REGARDING RISK FACTORS AND FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended ("Forward
Looking Statements"). All statements other than statements of historical fact
included in this report are Forward Looking Statements. In the normal course
of its business, the Company, in an effort to help keep its shareholders and
the public informed about the Company's operations, may from time to time
issue certain statements, either in writing or orally, that contain or may
contain Forward Looking Statements. Although the Company believes that the
expectations reflected in such Forward Looking Statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Generally, these statements relate to business plans or strategies, projected
or anticipated benefits or other consequences of such plans or strategies
(past and possible future), acquisitions and projected or anticipated benefits
from acquisitions made by or to be made by the Company, or projections
involving anticipated revenues, earnings, level of capital expenditures or
other aspects of operating results. Forward-looking statements by the Company
and its management are based on estimates, projections, beliefs and
assumptions of management and are not guarantees of future performance. The
Company disclaims any obligation to update or revise any forward-looking
statement based on the occurrence of future events, the receipt of new
information, or otherwise. All phases of the Company's operations are subject
to a number of uncertainties, risks and other influences, many of which are
outside the control of the Company and any one of which, or a combination of
which, could materially affect the results of the Company's proposed
operations and whether Forward Looking Statements made by the Company
ultimately prove to be accurate. Such important risk factors ("Important Risk
Factors") and other factors could cause actual results to differ materially
from the Company's expectations. All prior and subsequent written and oral
Forward Looking Statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Important Risk
Factors described below that could cause actual results to differ materially
from the Company's expectations as set forth in any Forward Looking Statement
made by or on behalf of the Company.
(1) Ability to Manage Growth
------------------------
The Company's objective is to continue to grow by expanding its services in
markets where it can be one of the largest and most profitable solid waste
services companies. Consequently, the Company may experience periods of rapid
growth. Such growth, if it were to occur, could place a significant strain on
the Company's management and on its operational, financial and other
resources. Any failure to expand its operational and financial systems and
controls or to recruit appropriate personnel in an efficient manner at a pace
consistent with such growth would have a material adverse effect on the
Company's business, financial condition and results of operations.
(2) Ability to Identify, Acquire and Integrate Acquisition Targets
--------------------------------------------------------------
The Company's strategy envisions that a substantial part of the Company's
future growth will come from acquiring and integrating independent solid waste
collection, transfer and disposal operations. There can be no assurance that
the Company will be able to identify suitable acquisition candidates and, once
identified, to negotiate successfully their acquisition at a price or on terms
and conditions favorable to the Company, or to
-11-
<PAGE>
NOTE C - DISCLOSURE REGARDING RISK FACTORS AND FORWARD LOOKING STATEMENTS -
Continued
integrate the operations of such acquired businesses with the Company. In
addition, the Company competes for acquisition candidates with other entities,
many of which have greater financial resources than the Company. Failure by
the Company to implement successfully its acquisition strategy would limit the
Company's growth potential.
The consolidation and integration activity in the solid waste industry in
recent years, as well as the difficulties, uncertainties and expenses relating
to the development and permitting of solid waste landfills and transfer
stations, has increased competition for the acquisition of existing solid
waste collection, transfer and disposal operations. Increased competition for
acquisition candidates may result in fewer acquisition opportunities being
made available to the Company as well as less advantageous acquisition terms,
including increased purchase prices. The Company also believes that a
significant factor in its ability to consummate acquisitions will be the
relative attractiveness of shares of the Company's Common Stock as
consideration for potential acquisition candidates. This attractiveness may,
in large part, be dependent upon the relative market price and capital
appreciation prospects of the Company's Common Stock compared to the equity
securities of the Company's competitors. If the market price of the Company's
Common Stock were to decline, the Company's acquisition program could be
materially adversely affected.
(3) Uncertain Ability to Finance the Company's Growth
-------------------------------------------------
The Company anticipates that any future business acquisitions will be financed
through cash from operations, borrowings, the issuance of shares of the
Company's Common Stock and/or seller financing. If acquisition candidates are
unwilling to accept, or the Company is unwilling to issue, shares of the
Company's Common Stock as part of the consideration for such acquisitions, the
Company would be required to utilize more of its available cash resources or
potential borrowings in order to effect such acquisitions. To the extent that
cash from operations or borrowings is insufficient to fund such requirements,
the Company will require additional equity and/or debt financing in order to
provide the cash to effect such acquisitions. Additionally, growth through the
development or acquisition of new landfills, transfer stations or other
facilities, as well as the ongoing maintenance of such landfills, transfer
stations or other facilities, will require substantial capital expenditures.
There can be no assurance that the Company will have sufficient existing
capital resources or will be able to raise sufficient additional capital
resources on terms satisfactory to the Company, if at all, in order to meet
any or all of the foregoing capital requirements.
In order to satisfy the liquidity needs of the Company for the following
twelve months, the Company will be primarily dependent upon proceeds from the
sale of the Company's capital stock and cash flow from the operations of other
companies which have been acquired or may be acquired as part of the company's
expansion plans. Historically, revenues from the existing operations have not
been adequate to fund the operations of the Company. If the Company is unable
to obtain adequate funds from the sale of its stock in public offerings,
private placements or alternative financing arrangements, it may be necessary
to postpone any additional acquisitions and continue to consolidate the
operations of the acquisitions already completed and use cash flow for
internal growth. Because of potential political, legal, bureaucratic, and
other factors, there can be no assurance that the Company will be able to
accomplish any of its goals within a reasonable period of time.
(4) Geographic Concentration Risks
------------------------------
The Company's operations and customers are primarily located in Florida, South
Carolina, New Jersey, Pennsylvania, Texas, Oklahoma and Ohio. Therefore, the
Company's business, financial condition and results
-12-
<PAGE>
NOTE C - DISCLOSURE REGARDING RISK FACTORS AND FORWARD LOOKING STATEMENTS -
Continued
of operations are susceptible to downturns in the general economy in these
states and other factors such as state regulations and potential severe
weather conditions. In addition, as the Company expands in its existing
markets, opportunities for growth within these regions will become more
limited. The costs and time involved in permitting and the scarcity of
available landfills may make it difficult for the Company to expand vertically
in these markets. There can be no assurance that the Company will be able to
complete a sufficient number of acquisitions in other markets to lessen its
geographic concentration.
(5) Fluctuations in Quarterly Results; Potential Stock Price Volatility
-------------------------------------------------------------------
The market price of the Company's Common Stock has been volatile and may
continue to be volatile in the future. The trading price of the Company's
Common Stock could be subject to wide fluctuations in response to quarter-to-
quarter variations in operating results, changes in revenue and earnings
estimates by securities analysts, announcements by the Company or its
competitors, developments in the Company's acquisition program, government
regulatory action, challenges associated with integration of businesses and
other events or factors. Also, the market price of the Common Stock may be
affected by factors affecting the waste management industry in which the
Company competes. Due in part to the high level of public awareness of the
business in which the Company is engaged, regulatory enforcement proceedings
or other potentially unfavorable developments involving the Company's
operations or facilities, including those in the ordinary course of business,
may be expected to engender publicity which could, from time to time, have an
adverse impact upon the market price for the Company's Common Stock. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations.
The Company believes that period-to-period comparisons of its operating
results should not be relied upon as an indication of future performance. Due
to a variety of factors including general economic conditions, governmental
regulatory action, acquisitions, capital expenditures and other costs related
to the expansion of operations and services and pricing changes (including the
market prices of commodities such as recycled materials), it is possible that
in some future quarter the Company's operating results will be below the
expectations of securities analysts and investors. In such event, the
Company's Common Stock price could be materially adversely affected.
(6) Highly Competitive Industry
---------------------------
The solid waste services industry is highly competitive and fragmented, and
requires substantial labor and capital resources. Certain of the markets in
which the Company competes or will likely compete are served by one or more of
the large national solid waste companies, as well as numerous regional and
local solid waste companies of varying sizes and resources. The Company also
competes with operators of alternative disposal facilities, including
incinerators, and with counties, municipalities, and solid waste districts
that maintain their own waste collection and disposal operations. These
counties, municipalities, and solid waste districts may have financial
advantages due to the availability to them of user fees, similar charges or
tax revenues and the greater availability to them of tax-exempt financing.
Intense competition exists not only to provide services to customers but also
to acquire other businesses within each market. Many of the Company's
competitors have significantly greater financial and other resources than the
Company. From time to time, these or other competitors may reduce the price of
their services in an effort to expand market share or to win a competitively
bid municipal contract. These practices may either require the Company to
reduce the pricing of its services or result in the Company's loss of
business. Municipal contacts are subject to periodic competitive bidding.
There can be no assurance that the Company will be the successful bidder to
obtain or retain such contracts. The Company's inability to compete with
larger and better capitalized companies, or to replace
-13-
<PAGE>
NOTE C - DISCLOSURE REGARDING RISK FACTORS AND FORWARD LOOKING STATEMENTS -
Continued
municipal contracts lost through the competitive bidding process with
comparable contracts or other revenue sources within a reasonable time period,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Intense competition exist within the industry not only for collection,
transportation and disposal volume, but also for acquisition candidates. The
Company competes for acquisition candidates with numerous solid waste
management companies, many of which are significantly larger and have greater
access to capital and greater financial, marketing or technical resources than
the Company.
(7) Economic Conditions
-------------------
The Company's businesses may be affected by general economic conditions. There
can be no assurance that an economic downturn would not result in a reduction
in the volume of waste that might be disposed of at the Company's facilities
and/or the price that the Company would charge for its services.
(8) Weather Conditions
------------------
Protracted periods of inclement weather may adversely affect the Company's
existing and potential operations by interfering with collection and landfill
operations, delaying the development of landfill capacity and/or reducing the
volume of waste generated by the Company's existing and potential customers.
In addition, particularly harsh weather conditions may result in the temporary
suspension of certain of the Company's existing and potential operations. The
Forward Looking Statements do not assume that such weather conditions will
occur.
(9) Influence of Government Regulation
----------------------------------
The Company's existing and potential operations are and would be subject to
and substantially affected by extensive federal, state and local laws,
regulations, orders and permits, which govern environmental protection, health
and safety, zoning and other matters. These regulations may impose
restrictions on operations that could adversely affect the Company's results,
such as limitations on the expansion of disposal facilities, limitations on or
the banning of disposal of out-of-state waste or certain categories of waste
or mandates regarding the disposal of solid waste. Because of heightened
public concern, companies in the waste management business may become subject
to judicial and administrative proceedings involving federal, state or local
agencies. These governmental agencies may seek to impose fines or to revoke or
deny renewal of operating permits or licenses for violations of environmental
laws or regulations or to require remediation of environmental problems at
sites or nearby properties, or resulting from transportation or predecessors'
transportation and collection operations, all of which could have a material
adverse effect on the Company. Liability may also arise from actions brought
by individuals or community groups in connection with the permitting or
licensing of operations, any alleged violations of such permits and licenses
or other matters. The Forward Looking Statements assume that there will be no
materially negative impact on its operations due to governmental regulation.
(10) Potential Environmental Liability
---------------------------------
The Company may incur liabilities for the deterioration of the environment as
a result of its existing and potential operations. Any substantial liability
for environmental damage could materially adversely affect the operating
results and financial condition of the Company. Due to the limited nature of
insurance coverage of
-14-
<PAGE>
NOTE C - DISCLOSURE REGARDING RISK FACTORS AND FORWARD LOOKING STATEMENTS -
Continued
environmental liability, if the Company were to incur liability for
environmental damage, its business and financial condition could be materially
adversely affected.
(11) Year 2000 (Y2K) Compliance
--------------------------
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such Y2K requirements. The
Company is currently in the process of evaluating its information technology
infrastructure for Year 2000 compliance. The Company does not expect that the
cost to modify its information technology infrastructure to be Y2K compliant
will be material to its financial condition or results of operations.
(12) History of Losses
-----------------
The Company has incurred substantial net losses in the past and may continue
to lose money as a result of the adverse effects of one or more of the risk
factors discussed in this Note C.
NOTE D - NEW ACCOUNTING PRONOUNCEMENT
In the fourth quarter of 1997, the Company adopted the provisions of Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS 128). In
accordance with SFAS 128, the Company computes basic earnings per share based
on the weighted-average number of common shares outstanding during each period
presented. Diluted earnings per share is computed based on the weighted average
number of common shares plus the dilutive effect of all potential dilutive
securities, principally stock options and warrants, outstanding during each
period presented. In all periods presented, all potential common shares were
anti-dilutive. Accordingly, the adoption of SFAS 128 had no effect on loss per
share amounts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
Revenues for the nine months ended September 30, 1998 were $13,956,636 as
compared to $407,064 for the nine months ended September 30, 1997. This increase
in revenues was the result of the acquisitions that have occurred during 1998.
As of September 30, 1998, the Company has added 5 landfills, 4 hauling
companies, 11 recycling facilities, and a state-of-the-art industrial sludge
processing facility as a result of the takeover of companies that are now
WasteMasters subsidiaries. (The Company believes that additional acquisition
candidates meeting the Company's acquisition criteria, including "tuck-in"
opportunities, exist within its current and adjacent market areas and in other
prospective markets.)
Cost of revenues increased as a result of a significantly higher level of
operations due to the aforementioned acquisitions. Selling, general and
administrative expenses ("SG&A") increased from $1,879,426 in the nine months
ended September 30, 1997 to $5,099,844 in the nine months ended September 30,
1998 because additional overhead incurred in connection with the acquisitions.
Net interest expense increased from $234,375 in the nine months ended September
30, 1997 to $501,075 in the nine months ended September 30, 1998 as a result of
the indebtedness of the acquired entities. Depreciation and amortization for the
nine months ended September 30, 1998 was $2,906,760, as compared to the nine
months ended September 30, 1997 of $1,187,345. Other non-cash expenses included
the following; a restructuring charge for
-15-
<PAGE>
discontinued operations at one of the South Carolina locations of $5,664,504
(this operation has been shut down after filing for protection under chapter 11
of the U.S. Bankruptcy Code); accruals for landfill closure and post closure
costs of $387,570 and a write-off of capitalized loan costs of $241,355. Net
loss for the nine months ended September 30, 1998 was $13,159,956 as compared to
a net loss of $4,574,657 during the nine months ended September 30, 1997.
Revenues for the quarter ended September 30, 1998 were $7,386,105 as compared
to $183,208 for the quarter ended September 30, 1997. This increase in revenues
was the result of the acquisitions that have occurred during 1998. As of
September 30, 1998, the Company has added 5 landfills, 4 hauling companies, 11
recycling facilities, and a industrial sludge processing facility as a result of
the takeover of companies that are now WasteMasters subsidiaries. (The Company
believes that additional acquisition candidates meeting the Company's
acquisition criteria, including "tuck-in" opportunities, exist within its
current and adjacent market areas and in other prospective markets.)
Cost of revenues increased as a result of a significantly higher level of
operations due to the aforementioned acquisitions. Selling, general and
administrative expenses ("SG&A") increased from $272,604 in the quarter ended
September 30, 1997 to $3,003,497 in the quarter ended September 30, 1998. This
increase was caused by the additional overhead incurred in connection with the
acquisitions. Net interest expense increased from $84,827 in the quarter ended
September 30, 1997 to $313,753 in the quarter ended September 30, 1998 as a
result of the indebtedness of the acquired entities. Depreciation and
amortization expense for the three months ended September 30, 1998 was
$1,690,031, as compared to $397,993 for the three months ended September 30,
1997. Other non-cash expenses included an accrual for landfill closure costs of
$131,070 and the restructuring charge of $5,664,504, as described above. Net
loss during the three months ended September 30, 1998 was $9,146,242 as compared
with a net loss of $2,052,394 during the three months ended September 30, 1997.
Net loss from continuing operations during the three months and nine months
ended September 30, 1998 were $2,963,043 and $6,094,460, respectively. This
compares to $2,052,394 and $4,574,657 for the three months and nine months ended
September 30, 1997.
Significantly, however, as the purchase method of accounting has been used
for all acquisitions, as a result of the requirements of generally accepted
accounting principles, operating results for each acquisition did not begin to
be reflected on the Company's financial statements until their respective dates
of acquisition. Therefore, the Company's nine months results do not reflect the
potential annualized "run rate" of such acquisitions. Nor do the statements of
operations reflect the anticipated efficiencies and cost of savings that the
Company expects to ultimately realize as a result of the economies of scale and
synergies that are expected to occur.
ACQUISITIONS
- ------------
During the third quarter of 1998, the Company made 2 significant
acquisitions. These acquisitions were completed primarily in exchange for
restricted Common Stock of the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's balance sheet as of September 30, 1998 showed cash of $763,047,
total current assets of $6,995,658 and total current liabilities of $51,299,903.
However, $40,143,212 of total current liabilities consisted of debts of Company
subsidiaries which are currently in bankruptcy. Another 3,712,633 of current
liabilities are owed by a subsidiary of the Company which is not involved in the
waste disposal industry and which, therefore, will likely ultimately be disposed
of. And, finally, $545,630 of current liabilities consist of debts to "related
parties" which, by their very nature, are not of immediate concern. $545,630 of
current liabilities, net of current receivables, consist of debts to "related
parties" which, by their very nature, are not of immediate concern. As per a
management contract between the Company and Continental Investment Corporation,
Continental was paid a monthly fee up to September 1, 1998 of $50,000 to manage
the affairs and operations of the Company.
-16-
<PAGE>
Significantly, even though the Company owns only 51% of the outstanding
common stock of Atlas Environmental, Inc., generally accepted accounting
principles require that 100% of the $31,491,211 of Atlas' current liabilities be
included on the Company's balance sheet. (An additional $11,791,400 of Atlas
long-term debt is also included on the Company's September 30, 1998 balance
sheet.) Obviously, should Atlas be successful in its Chapter 11 reorganization
efforts, all or part of that $31,491,211 may be eliminated as a current
liability. Similarly, another $5,926,869 of current liabilities consisted of
debt owed by two other subsidiaries of the Company which are currently
reorganizing under Chapter 11 of the U. S. Bankruptcy Code. An additional
$2,725,132 of current liabilities consisted of the indebtedness of five
subsidiaries of the Company which, on February 16, 1998, filed petitions for
protection under Chapter 7 of the U. S. Bankruptcy Code. Active business for
each of these subsidiaries had ceased during 1996 and their assets had been
liquidated as the result of various voluntary dispositions, foreclosure
proceedings or other creditor actions. No assets exist in these five
subsidiaries to satisfy the creditors' claims, and the parent company,
WasteMasters, Inc., is believed to have no obligation in connection with the
indebtedness of these subsidiaries. The bankruptcy proceedings are pending;
however, the Company believes that the debts of these subsidiaries will be
discharged in their entirety upon the completion of the bankruptcy proceedings.
The Company has determined that liabilities of these six subsidiaries which
appear on the Company's September 30, 1998 balance sheet in the aggregate amount
of $7,921,977 will likely be extinguished.
Additional financing will be required in order to complete planned
improvements to the Company's acquisitions. 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.
The Company has issued shares of its Common Stock from time to time in the
past to satisfy certain obligations, and expects in the future to also acquire
certain services, satisfy indebtedness and/or make acquisitions utilizing
authorized shares of the capital stock of the Company.
The Company anticipates that any future business acquisitions will be
financed through cash from operations, borrowings, the issuance of shares of the
Company's Common Stock and/or seller financing. If acquisition candidates are
unwilling to accept, or the Company is unwilling to issue shares of the
Company's Common Stock as part of the consideration for such acquisitions, the
Company would be required to utilize more of its available cash resources or
potential borrowings in order to effect such acquisitions. Additionally, growth
through the development or acquisition of new landfills, transfer stations or
other facilities, as well as the ongoing maintenance of such landfills, transfer
stations or other facilities, will require substantial capital expenditures.
There can be no assurance that the Company will have sufficient existing capital
resources or will be able to raise sufficient additional capital resources on
terms satisfactory to the Company, if at all, in order to meet any or all of the
foregoing capital requirements.
In order to satisfy the liquidity needs of the Company for the following
twelve months, the Company will be primarily dependent upon proceeds from the
sale of the Company's capital stock and cash flow from the operations of
companies which have been acquired or may be acquired as part of the Company's
expansion plans. Historically, revenues from the existing operations have not
been adequate to fund the operations of the Company. If the Company is unable to
obtain adequate funds from the sale of its stock in public offerings, private
placements or alternative financing arrangements, it may be necessary to
postpone any additional acquisitions and to continue to consolidate the
operations of the acquisitions already completed and use cash flow for internal
growth. Because of potential political, legal, bureaucratic, and other factors,
there can be no assurance that the Company will be able to accomplish any of its
goals within a reasonable period of time.
-17-
<PAGE>
Potential Discharge of Indebtedness in Bankruptcy Proceedings
- -------------------------------------------------------------
On February 11, 1998, the Company's wholly-owned subsidiary, WasteMasters of
South Carolina, Inc., filed a voluntary petition for reorganization under
Chapter 11 of the U S Bankruptcy Code with the Bankruptcy Court for the Northern
District of Georgia.
On February 16, 1998 five (5) wholly-owned subsidiaries of the Company filed
petitions for protection under Chapter 7 of the United States Bankruptcy Code
with the Bankruptcy Court for the Northern District of Georgia. The subsidiaries
are: F&E Resource Systems Technology for Baltimore, Inc., WasteMasters of
Louisiana, Inc., WasteMasters of Michigan, Inc., WasteMasters of New York, Inc.
and WasteMasters of Pennsylvania, Inc.
On July 9, 1998, C&D Recycling, Inc., a wholly-owned subsidiary of the
Company, filed a voluntary petition for reorganization under Chapter 11 of the
U. S. Bankruptcy Code with the Bankruptcy Court for the Northern District of
Texas.
Active business for each of the five (5) subsidiaries which filed petitions
for protection under Chapter 7 of the U. S. Bankruptcy Code had ceased during
1996, and the assets had been liquidated as the result of various voluntary
dispositions, foreclosure proceedings, or other creditor actions. No assets
exist in the respective subsidiaries to satisfy the creditors claims, and the
parent company, WasteMasters, Inc. is believed to have no obligation in
connection with the indebtedness of these subsidiaries. The bankruptcy
proceedings are pending; however, the Company believes the debt of these
subsidiaries will be discharged upon the completion of the bankruptcy
proceedings. Accordingly, the Company has determined that debt in the aggregate
amount of approximately $2,725,132 will be extinguished, which will result in a
gain to be recorded by the Company.
Prior to the Company's involvement with it, Atlas Environmental, Inc., a
partially-owned subsidiary of the Company, filed a voluntary petition for
reorganization under Chapter 11 of the U. S. Bankruptcy Code with the Bankruptcy
Court for the Southern District of Florida on January 14, 1997.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
Beginning in September 1997, new management has aggressively sought to
identify, evaluate, and resolve many of the numerous creditor's claims and legal
proceedings against the Company which arose under prior management. Although the
ultimate disposition of legal proceedings cannot be predicted with certainty, it
is the present opinion of the Company's management that the outcome of any of
these claims which is pending or threatened, either individually or on a
combined basis, will not have a material adverse effect on the consolidated
financial condition of the Company, but could materially affect consolidated
results of operations in a given period.
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company may periodically
become subject to various judicial and administrative proceedings involving
Federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company or to revoke, or to deny renewal of, an operating
permit held by the Company. In addition, the Company may become party to various
claims and suits pending for alleged damages to persons and property, alleged
violation of certain laws and for alleged liabilities arising out of matters
occurring during the normal operations of the waste management business.
However, there is no such current proceeding or litigation involving the Company
that it believes will have a material adverse effect upon the Company's
business, financial condition and results of operations.
-18-
<PAGE>
The Company is periodically involved in certain routine litigation. The
Company believes that all such litigation arose in the ordinary course of
business and that costs of settlements or judgments arising from such suits will
not have a materially adverse effect on the Company's consolidated liquidity,
financial position or results of operations.
Rickel & Associates, Inc. v. WasteMasters, Inc. U.S. District Court for the
-----------------------------------------------
Southern District of New York. Rickel filed suit against WasteMasters based on a
1995 broker agreement and sought damages in excess of $2,600,000. WasteMasters
has since settled this matter.
Mudge Rose Guthrie Alexander & Ferdon v. Ronald W. Pickett, F&E Resource
------------------------------------------------------------------------
Systems Technology, Inc. and WasteMasters, Inc. United States District Court for
- -----------------------------------------------
the District of New York. The Plaintiff's claim is based upon legal services
rendered to F&E Resource Systems Technology and other subsidiaries. The
Plaintiff has demanded the outstanding amount of $885,466.80 plus interest at
the maximum rate provided, plus the cost of the lawsuit and other and further
relief. The complaint was filed on September 24, 1997, yet dismissed in the
Southern District of New York for lack of subject matter jurisdiction.
Potential Discharge of Indebtedness in Bankruptcy Proceedings
- -------------------------------------------------------------
On February 11, 1998, the Company's wholly-owned subsidiary, WasteMasters of
South Carolina, Inc., filed a voluntary petition for reorganization under
Chapter 11 of the U S Bankruptcy Code with the Bankruptcy Court for the Northern
District of Georgia.
On February 16, 1998 five (5) wholly-owned subsidiaries of the Company filed
petitions for protection under Chapter 7 of the United States Bankruptcy Code
with the Bankruptcy Court for the Northern District of Georgia. The subsidiaries
are: F&E Resource Systems Technology for Baltimore, Inc., WasteMasters of
Louisiana, Inc., WasteMasters of Michigan, Inc., WasteMasters of New York, Inc.
and WasteMasters of Pennsylvania, Inc.
On July 9, 1998, C&D Recycling, Inc., a wholly-owned subsidiary of the
Company, filed a voluntary petition for reorganization under Chapter 11 of the
U. S. Bankruptcy Code with the Bankruptcy Court for the Northern District of
Texas.
Prior to the Company's involvement with it, Atlas Environmental, Inc., a
partially-owned subsidiary of the Company, filed a voluntary petition for
reorganization under Chapter 11 of the U. S. Bankruptcy Code with the Bankruptcy
Court for the Southern District of Florida on January 14, 1997.
ITEM 5. OTHER INFORMATION.
Resignation of Directors
- -------------------------
Effective September 25, 1998 Mr. William L. Hutchinson resigned from the
board. Effective October 7, 1998 Mr. S. Theis Rice resigned from the board. The
company has not filled these seats as of this report.
Executive Appointments
- ----------------------
At the October 29, 1998, Board Meeting, the Company appointed Mr. Michael J.
Smith as President and Chief Administrative Officer. Mr. Smith was a co-founder
and former co-owner of Southeastern Research & Recovery, Inc., which was
acquired by the company in the first quarter of 1998. At the October 14, 1998
Board Meeting, Mr. Douglas Holsted, Chief Financial Officer, was additionally
named as Secretary/Treasurer of the Company.
-19-
<PAGE>
Acquisitions
- ------------
The Company purchased the operating assets of an operating landfill in
Lisbon, Ohio ("Lisbon") for cash. Lisbon is a 141.154 acres construction and
demolition debris landfill with a potential remaining capacity of 10,300,000
cubic yards.
Atlantic Coast Demolition & Recycling, Inc. ("Atlantic") was acquired for
941,433 restricted shares of the Company's Common Stock and options to purchase
an additional 1,200,000 restricted shares of the Company's Common Stock at an
exercise price of $1.25 per share and another 1,000,000 restricted shares at a
exercised price $1.75. Also, 1,147,500 restricted shares were issued as a pledge
on the payment of indebtedness of the acquired company; however these shares are
contingent in nature and the issuance has not been recorded in the accounting
records because the company expects the shares to be returned without any
financial consequences. Additionally, one of the former shareholders of Atlantic
is now a Director of the Company.
Atlantic owns a 7 acre transfer station in the heart of Philadelphia,
Pennsylvania, which is permitted to process 3,000 tons of waste per day. It is
anticipated that approximately 70% of the throughput of Atlantic will consist of
wood product which will be processed by the New Jersey based Wood Management,
Inc. subsidiary of the Company, with the balance to be disposed of at the
Company's "Lisbon Landfill" in Lisbon, Ohio. The trucking of material between
the aforementioned subsidiaries of the Company will be performed by two other
Company subsidiaries, Mini-Max Enterprises, Inc. and Tri-State Waste Disposal
Co., Inc.
During the quarter the Company issued 1,616,000 shares in connection with an
acquisition which was not consummated and may be reversed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Furnish the exhibits required by Item 601 of Regulation S-B.
None
(b) 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.
By: /S/ R. Dale Sterritt, Jr.
------------------------
R. Dale Sterritt, Jr.
Chairman and CEO
Date: November 20, 1998
-20-
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