|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous: CADMUS COMMUNICATIONS CORP/NEW, 8-K, 1999-11-19 |
Next: NOONEY REALTY TRUST INC, SC 13D, 1999-11-19 |
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, 1999
[ ] 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 (State or other jurisdiction of incorporation or organization) |
52-1507818 (IRS Employer Identification No.) |
205 S. Bickford Avenue, Oklahoma City, OK 73036
(Address of Principal Executive Offices)
(405) 262-0800
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 No X
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 153,329,250 shares of its Common Stock, $.01 par value, as of November 15, 1999.
<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, 1999 |
|
3 |
|
|
|
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998 |
|
5 |
|
|
|
Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 1999 |
|
6 |
|
|
|
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 |
|
7 |
|
|
|
Supplementary Disclosure of Non-cash Transactions |
|
9 |
|
|
|
Notes to Unaudited Consolidated Financial Statements for the Three Months Ended September 30, 1999 |
|
10 |
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation |
|
17 |
||
|
PART II. OTHER INFORMATION |
|
19 |
||
|
Item 1. Legal Proceedings |
|
19 |
||
|
Item 2. Changes in Securities |
|
19 |
||
|
Item 3. Defaults on Senior Securities |
|
19 |
||
|
Item 4. Submission of Matters to a Vote of Security Holders |
|
20 |
||
|
Item 5. Other Information |
|
20 |
||
|
Item 6. Exhibits and Reports on Form 8-K |
|
20 |
||
|
Signatures |
|
21 |
||
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Unaudited)
|
ASSETS |
September 30, 1999 |
|
Current Assets: |
|
|
Cash |
$ 27 |
|
Accounts receivable, net of allowance for doubtful accounts |
19,528 |
|
Total current assets |
19,555 |
|
|
|
|
Property, plant and equipment-net of depreciation |
20,209 |
|
Landfill facilities, net of amortization |
1,153,800 |
|
Net property, plant and equipment |
1,175,009 |
|
|
|
|
Other Assets: |
|
|
Long-term accounts receivable |
1,117,458 |
|
Marketable securities, long-term |
6,190,000 |
|
Other assets-net of amortization |
8,178 |
|
Total other assets |
7,315,636 |
|
Total assets |
$8,509,200 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
Accounts payable, accrued interest, and other liabilities |
$7,377,264 |
|
Short term notes payable |
2,946,660 |
|
Total current liabilities |
10,323,924 |
|
Accrued environmental and landfill costs |
183,000 |
|
Total long-term and deferred items |
183,000 |
|
Total liabilities |
10,506,924 |
The accompanying notes are an integral part of these financial statements.
<PAGE>
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET-CONTINUED
(Unaudited)
|
Stockholders' Equity: |
|
|
Conv. preferred stock, 5,000,000 shares auth. & outstanding |
50,000 |
|
Common stock, $.01 par value; 495,000,000 shares |
|
|
Authorized; 153,329,250 shares issued and outstanding |
1,533,293 |
|
Additional paid-in capital |
89,414,348 |
|
Accumulated deficit |
(92,995,365) |
|
Total stockholders' equity |
(1,997,725) |
|
Total liabilities and stockholders' equity |
$ 8,509,200 |
|
|
|
The accompanying notes are an integral part of these financial statements.
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months ended September 30 |
Nine Months ended September 30 |
||
|
|
1999 |
1998 (Restated) |
1999 |
1998 (Restated) |
|
|
|
|
|
|
|
Revenues |
$ 0 |
$3,488,042 |
$ 746,193 |
$7,455,215 |
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
Cost of sales |
0 |
2,499,686 |
592,012 |
6,718,378 |
|
SG and A |
264,039 |
2,264,903 |
4,660,705 |
4,082,747 |
|
Deprec. And amort. |
0 |
261,831 |
173,529 |
1,205,044 |
|
|
|
|
|
|
|
Loss from operations |
(264,039) |
(1,538,378) |
(4,680,053) |
(4,550,954) |
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
Interest expense, net |
133 |
(287,552) |
(283,973) |
(497,253) |
|
Write-off cap. Loan cost |
0 |
(241,355) |
0 |
(241,355) |
|
Gain on sale of subs. |
1,739,240 |
0 |
2,649,901 |
0 |
|
Loss on sale of assets |
0 |
0 |
(1,169) |
0 |
|
Loss on foreclosure |
0 |
0 |
(546,798) |
0 |
|
Other inc. (expense), net |
0 |
25 |
(15,824) |
0 |
|
Income tax benefit |
0 |
9,000 |
0 |
9,000 |
|
|
|
|
|
|
|
Total other expense |
1,739,373 |
(519,882) |
1,802,137 |
(729,608) |
|
|
|
|
|
|
|
Loss from Cont. Oper. |
$ 1,475,334 |
$(2,058,260) |
$(2,877,916) |
$(5,280,562) |
|
Income Tax Benefits |
0 |
0 |
0 |
8,903 |
|
Discont. Operations Net Loss Loss per share: Continuing operations |
0 $ 1,475,334
$.01 |
(7,065,496) $(9,123,756)
$(.01) |
0 $(2,877,916)
$(.02) |
(7,065,496) $(12,337,155)
$(.05) |
|
Discontinued operations |
.00 |
(.06) |
(.00) |
(.07) |
|
Net Loss Per Share |
$.01 |
$(.07) |
$(.02) |
$(.12) |
|
Weighted average number of com shs outstanding |
153,329,250 |
123,248,004 |
153,329,250 |
105,647,192 |
The accompanying notes are in integral part of these financial statements.
<PAGE>
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1999
(Unaudited)
Common and Preferred Stock
|
|
Common Shares Outstanding |
Preferred Shares Outstanding |
Common Stock At par |
Preferred Stock At par |
Additional Paid-in Capital |
Total Accumulated Deficit |
Stockholder Equity |
|
|
|
|
|
|
|
|
|
|
Balance at 12/ 31/98 |
134,710,110 |
5,000,000 |
$1,347,101 |
$50,000 |
$86,371,714 |
$(91,867,449) |
$(4,098,634) |
|
|
|
|
|
|
|
|
|
|
Net loss for period |
-0- |
-0- |
-0- |
-0- |
-0- |
(2,877,916) |
(2,877,916) |
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities |
-0- |
-0- |
-0- |
-0- |
-0- |
1,750,000 |
1,750,000 |
|
|
|
|
|
|
|
|
|
|
Settlement of debt |
11,629,140 |
-0- |
116,291 |
-0- |
1,259,382 |
-0- |
$1,375,673 |
|
|
|
|
|
|
|
|
|
|
Shares issued as compensation |
6,990,000 |
-0- |
69,900 |
-0- |
1,783,252 |
-0- |
1,853,152 |
|
|
|
|
|
|
|
|
|
|
Balance at 9/ 30/99 |
153,329,250 |
5,000,000 |
$1,533,292 |
$50,000 |
$89,414,348 |
$(92,995,365) |
$(1,997,725) |
The accompanying notes are an integral part of these financial statements.
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
(Unaudited)
|
|
1999 |
1998 (Restated) |
|
INCREASE (DECREASE) IN CASH |
|
|
|
Cash flows: |
|
|
|
Net loss |
$(2,588,385) |
$(12,337,155) |
|
Adjustments to reconcile net (loss) to net cash |
|
|
|
Provided by (used in) operating activities: |
|
|
|
Depreciation and amortization |
173,529 |
1,205,044 |
|
Stock issued in lieu of cash payment |
49,530 |
557,509 |
|
Stk issued in lieu of cash pay for litigation settle. |
0 |
209,250 |
|
Accrual for landfill closure costs |
0 |
387,570 |
|
Write down of assets from disc. operations |
0 |
7,065,496 |
|
Changes in assets and liabilities: |
|
|
|
Accounts receivable & prepaid expenses |
349,687 |
(333,938) |
|
Accts pay., accrued interest and other liabilities |
(4,606,866) |
4,349,670 |
|
Deferred income |
0 |
(58,282) |
|
Due to related parties |
(472,366) |
(432,946) |
|
Net cash provided by (used in) operating activities |
(7,094,871) |
612,218 |
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
Purchase of property, plant and equipment |
0 |
(1,787,898) |
|
Landfill development |
(293,330)0 |
0 |
|
Deposits on acquisitions |
0 |
447,371 |
|
Business acquisitions |
0 |
533,294 |
|
Assets lost in foreclosure |
1,947,628 |
0 |
|
Sale of subsidiaries |
6,139,240 |
0 |
|
Purchase of plant property and equipment |
0 |
71,938 |
|
Net cash provided by (used in) investing activities |
7,793,538 |
(735,295) |
<PAGE>
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
Nine Months Ended September 30
(Unaudited)
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
Repayment of loans |
(77,287) |
(2,413,230) |
|
Proceeds from issuance of stock |
3,179,294 |
2,191,500 |
|
Investment in Global Proceeds from loans |
(4,486,000) 509,560 |
0 429,623 |
|
Net cash provided by (used in) financing activities: |
(874,433) |
207,893 |
|
|
|
|
|
Net increase (decrease) in cash |
(175,766) |
84,816 |
|
Cash and cash equivalents at beginning of period |
175,793 |
908 |
|
Cash and cash equivalents at end of period |
$ 27 |
$ 85,724 |
The accompanying notes are an integral part of these financial statements.
WasteMasters, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Nine Months Ended September 30
(Unaudited)
|
|
||
|
|
1999 |
1998 (Restated) |
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH TRANSACTIONS Common stock issued in business acquisitions |
$ 0 |
$25,577,927 |
|
|
|
|
|
Common stock issued for services and cancellation of liabilities, accrued interest and penalties |
$3,228,824 |
$13,551,708 |
|
|
|
|
|
Assets lost in foreclosure less depreciation |
$1,947,629 |
$ 0 |
|
|
|
|
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.
WasteMasters, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (Unaudited)
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, 1998, as filed with the U. S. Securities and Exchange Commission.
The results of operations for the periods ended September 30, 1999 are not indicative of the results that may be expected for the full year. (See Results of Operations).
2. Consolidated Statements
The consolidated financial statements include the accounts of WasteMasters, Inc. and its wholly owned subsidiaries: 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.; and WasteMasters of Palm Beach, Inc. Significant inter-company transactions have been eliminated in consolidation.
The Company's interest in Atlas and its subsidiaries are accounted for under the equity method rather than as consolidated subsidiaries. The accounts of Sales Equipment Company, Inc., C.A.T. Recycling, Inc., C&D Recycling, Inc. and American Recycling and Management, Inc. are only included through September 30, 1999, the date of their disposition. The accounts of Wood Management, Inc.; Mini-Max Enterprises, Inc.; Southeastern Research & Recovery, Inc.; Tri-State Waste Disposal Company, Inc. and Atlantic Coast Demolition and Recycling, Inc. are only included through March 30, 1999, the date of their disposition.
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.
4. 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.
(a) Ability to Manage Growth
The Company's objective is to grow by expanding its services in markets where it can operate profitably as a solid waste services company. 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. The Company, under prior management, historically was not able to manage properly the companies it acquired, resulting in significant losses from operations.
(b) 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 integrate the operations of such acquired businesses with the Company. In addition, the Company competes for acquisition candidates with other entities 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.
(c) Uncertain Ability to Finance the Company's Growth
The Company anticipates that any future business acquisitions will be financed through cash from operations, borrowings, issuing 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. 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.
(d) 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.
(e) 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 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 exists 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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 environmental liability, if the Company were to incur liability for environmental damage, its business and financial condition could be materially adversely affected.
(j) 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.
(k) 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.
(l) Litigation Involving Company
The Company is a defendant in a considerable number of litigation matters, many of which have already resulted in judgments against the Company for material amounts. Substantially all of the judgments remain unsatisfied. The existence of the judgments substantially impairs the Company's ability to continue as a going concern and to raise capital to resume normal operations. Unless the Company is able to raise funds to satisfy the judgments and/or negotiate settlements of the judgments for amounts substantially less than the face amount of the judgments, the Company will not be able to continue in existence.
5. Sale of Subsidiaries to Third Party
During the quarter ended September 30, 1999, the Company sold Sales Equipment Company, Inc., C.A.T. Recycling, Inc., C&D Recycling Corporation and American Recycling and Management Corporation to an officer of the Company. All of these subsidiaries had been placed in bankruptcy during 1999, did not conduct active operations, and were not able to conduct operations in the future due to legal claims against them. In addition, substantially all of the assets of the subsidiaries had been foreclosed upon, sold by trustees in bankruptcy or repossessed by creditors. The Company recorded a gain on this sale of $1,739,240, which was the result of the elimination of liabilities in excess of assets of the subsidiaries from the Company's consolidated financial statements.
6. Issuance of Common Stock for Services and in Settlement of Claims
On February 23, 1999, the Company filed a registration statement on Form S-8 to register up to 10,000,000 shares of common stock for issuance for services rendered or to be rendered the Company under the Company's 1999 Employees, Consultants and Advisors Stock Compensation Plan (the "Plan"). On March 26, 1999, the Company amended the registration statement to increase the number of shares authorized for issuance under the Plan from 10,000,000 to 15,000,000. During the quarter ended September 30, 1999, the Company issued 2,250,000 shares of common stock under the Plan for consulting and brokerage services.
In addition, during the quarter ended September 30, 1999, the Company issued 100,000 shares of common stock to settle a judgment in the approximate amount of $20,000. The shares were issued in a private transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, and therefore were issued as "restricted securities" as such term is defined in Rule 144(a)(3) promulgated thereunder.
During the quarter ended June 30, 1998, the Company acquired a 51% interest in Atlas Environmental, Inc. ("Atlas") in exchange for 342,591 shares of common stock of the Company. Prior to the Company's acquisition of an interest in Atlas, Atlas and its subsidiaries had filed voluntary petitions for relief on January 14, 1997 under Chapter 11 of the U.S. Bankruptcy Code with the Bankruptcy Court for the Southern District of Florida. In November 1998, the Bankruptcy Court overseeing the Chapter 11 proceedings of Atlas and its subsidiaries appointed a Chapter 11 trustee, which eliminated any ability of the Company to control the management or affairs of Atlas and its subsidiaries. Prior to the appointment of the trustee for Atlas, the Company's ability to control the management and affairs of Atlas and its subsidiaries was limited severely by the provisions of the Bankruptcy Code and various orders of the bankruptcy court which prevented Atlas from taking many actions without approval of the bankruptcy court after notice to creditors and a hearing. Because of the Company's limited control over Atlas prior to the appointment of a trustee and its total loss of control over Atlas upon the appointment of the trustee, the Company has determined that it lacked the necessary control over Atlas to consolidated the assets, liabilities and operating results of Atlas and its subsidiaries with those of the Company. In addition, audited financial statements for Atlas and its subsidiaries are not available, both for the years prior to the time that the Company acquired an interest in Atlas as well as for fiscal 1998; therefore, it would be impossible for the Company to comply with its reporting obligations under the Securities Exchange Act of 1934 if it had to consolidate the assets, liabilities and operation results of Atlas and its subsidiaries with those of the Company. Accordingly, the Company has changed the method of accounting for its investment in Atlas on its 1998 financial statements. All items in the financial statements for 1998 have been restated to report the Company's interest in Atlas and its subsidiaries as an investment, rather than as consolidated subsidiaries.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Overview
In September 1997, the Company began a significant effort to restructure the Company and arrange for capital for operations and expansion through acquisitions. The intention was to develop Company-owned waste processing facilities and to arrange alliances or management contracts with independent waste processors, waste transporters, and waste generators to produce waste revenues for the Company. Therefore, the Company underwent an aggressive acquisition period during the first two quarters of 1998.
While the acquisitions strategy was a success, it was performed in a manner that was too aggressive for the Company's existing cash flow and its ability to raise capital from the sale of its common stock. In addition, the Company lacked the necessary management structure to manage the acquired companies properly, and utilized revenues from the acquired companies to satisfy excessive general and administrative obligations, thus rendering the acquired companies unable to satisfy their own bills in the ordinary course of business. Also, management did not anticipate the volume of litigation the Company experienced since September 1997, and found overwhelming the expense and time demands necessary to deal with and resolve those issues in addition to the time demands of operating acquisitions. As a result, the Company disposed of a number of its 1998 acquisitions to Global in order to allow the Company to focus its time and resources on its remaining assets, being SECO and the 1998 acquisitions in Florida.
In January 1999, the Company voluntarily ceased its Florida operations due to chronic cash flow difficulties, repossessions and regulatory violations. Since terminating the Florida operations, the Company's efforts in Florida have focused on disposing of non-core assets and attempting to refinance the secured indebtedness on its three remaining assets in Florida. In all three cases, the indebtedness has been accelerated and foreclosure actions filed. In one case, the asset has been foreclosed upon. In the other two cases, the mortgage holders hold foreclosure judgments and are expected to foreclose in the near future. There can be no assurance that the Company will be able to restructure or refinance such indebtedness prior to a foreclosure sale of the assets.
In May 1999, a Chapter 11 trustee was appointed for SECO. The trustee recently terminated operations at SECO and liquidated SECO's assets.
Finally, the Company has continued its efforts to settle the litigation claims against it, and other efforts to restructure its balance sheet, including the disposition of its interest in C.A.T. and SECO, which would eliminate significant liabilities from the balance sheet of the Company. Furthermore, the Company has evaluated a number of potential acquisitions, and has identified several in the waste disposal industry which it believes are viable candidates. However, the acquisitions are subject to a number of contingencies, including the negotiation and execution of definitive agreements, the resolution by the Company of certain of its litigation claims, and the resumption of trading of the Company's common stock on the NASDAQ Bulletin Board.
Results of Operations
Revenues for the three months ended September 30, 1999 were $0 as compared to $3,488,042 for the three months ended September 30, 1998. The dramatic decrease in revenue is the result of the sale of five subsidiaries and a landfill to Global on March 30, 1998, which were operated during the third quarter of 1998, the cessation of operations in Florida in the first quarter of 1999, and the cessation of operations at Sales Equipment Co., Inc. in the second quarter of 1999. Cost of revenues decreased from $2,499,686 to $0 as a result of a significantly lower level of operations due to the aforementioned dispositions. Selling, general and administrative expenses ("SG&A") decreased during the third quarter of 1999 as compared to the third quarter of 1998 from $2,264,903 to $264,039 as a result of lower overhead expenses incurred in connection with the significantly lower level of operations during the period, which was offset somewhat by additional expenses incurred as a result of the settlement of litigation claims against the Company through the issuance of common stock. The Company's net loss decreased during the third quarter of 1999 as compared to the third quarter of 1998 from $9,123,756 to a gain of $1,475,334 as a result of the aforementioned factors and a gain recorded from the sale of four subsidiaries that were in bankruptcy. (See Note 5.)
As disclosed in the Notes to Financial Statements, all amounts for 1998 have been restated to eliminate the assets, liabilities and operating results of Atlas and its subsidiaries from the consolidated financial statement amounts of the Company, as a result of the Company's decision to report its interest in Atlas and its subsidiaries as an investment, rather than as consolidated subsidiaries.
Liquidity and Sources of Capital
The Company's consolidated balance sheet as of September 30, 1999 reflects cash and equivalents of $27, total current assets of $19,555 at historical cost, total current liabilities of $10,323,924, and a working capital deficit of $10,304,369. All of the Company's long-term indebtedness has been classified as a current liability due to defaults thereon. Management is attempting to fully restructure or eliminate this debt by refinancing the indebtedness, satisfaction of the debt by conversion to equity, settlement of the debt in bankruptcy or the disposition of the subsidiary that is obligated on the debt. Assuming the Company is successful, the Company projects that current assets will approximately equal current liabilities. There can be no assurance that the Company will be successful in its efforts to restructure its indebtedness.
At this time the Company is not engaged in active operations. The Company's plan with regard to its remaining Florida assets is to raise the capital necessary to restructure or refinance the debt on the assets, to resolve the regulatory problems of the assets, and to provide sufficient working capital to resume normal operations. Since there can be no assurance that the necessary capital can be raised, the Company is also in negotiations with various parties to sell or joint venture the Florida assets. The Company does not expect to realize a material amount from any sale or joint venture of the Florida assets, if that becomes necessary. In addition, the Company plans to continue its efforts to resolve the litigation claims against it, largely through the conversion of such claims into equity.
Because the Company lacks active operations, the Company does not have any cash to satisfy routine administrative obligations. Consequently, the Company is currently dependent on the issuance of its common stock for managerial and legal services, and depends on short-term loans from third parties, including its officers and directors, for the funds to satisfy miscellaneous expenses. For the foreseeable future, the Company expects that it will be required to acquire necessary administrative services and satisfy its indebtedness by issuing shares of its common stock. However, the Company has identified a number of operating entities which it believes it can acquire in the event it is able to reduce its litigation claims to an immaterial amount. In addition, the Company is in negotiations to sell a controlling interest in the Company for equity capital. Any such agreement will be subject to the negotiation and execution of a definitive agreement, the completion of due diligence by the investor, and the Company's reaching agreements to settle substantially all of the litigation claims against the Company at a substantial discount to the amount claimed.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
The Company is a party to a considerable number of legal proceedings. The Company's disclosure of pending legal proceedings contained in Item 3 of its Annual Report on Form 10-KSB for the year ended December 31, 1998 is hereby incorporated by reference, as well as its disclosure of pending legal proceedings contained in Part II, Item 1 of its Quarterly Report on Form 10-QSB for the quarters ended March 31, 1999 and June 30, 1999. There have been no significant developments in any legal proceedings to which the Company is a party since the filing of the Form 10-QSB for the quarter ended June 30, 1999.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
The Company, through its American Recycling & Management, Inc. ("American Recycling") subsidiary, owned a landfill in Homestead, Florida consisting of approximately 40 acres. The landfill was previously permitted for use as a construction and demolition landfill, but lost the permit in January 1999, and is not currently operational. The landfill was subject to two mortgage liens totalling approximately $1,500,000. On April 23, 1999, American Recycling 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 in order to stay a foreclosure of the landfill by a mortgage holder. In July 1999, the bankruptcy court granted the mortgage holder relief from the automatic stay to foreclose on the landfill. During the quarter ended September 30, 1999, the mortgage holder foreclosed on the landfill. Also, effective September 30, 1999, the Company disposed of this subsidiary.
The Company, through its WasteMasters of Palm Beach, Inc. subsidiary, owned a ten (10) acre transfer and recycling facility previously permitted for 560 yards per day. The facility lost its permit to operate in January 1999 due to violations of environmental regulations. The facility was not operational. The facility was the subject of a mortgage in the original principal amount of $1,000,000, which was due and payable in full on July 31, 1999 in the amount of $1,500,000. The mortgage holder on the property obtained a judgment of foreclosure, and foreclosed on the property on November 18, 1999.
The Company, through its Sales Equipment Co., Inc. ("SECO") subsidiary, owns land and buildings in Oklahoma City, Oklahoma and Tyler, Texas, both of which are used for warehousing, parts distribution and manufacturing. Both properties are subject to blanket first mortgage with an approximate balance of $230,000, and a blanket second mortgage for $2,000,000, which also covers all of the subsidiary's other assets. A trustee was appointed to operate SECO on May 26, 1999. In July 1999, the trustee terminated operations at SECO, and has been liquidating its assets. The Company does not expect that it will receive any proceeds on its investment in SECO as a result of the trustee's liquidation of its assets. Also, effective September 30, 1999, the Company disposed of this subsidiary.
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.
(a) Furnish the exhibits required by Item 601 of Regulation S-B. None
(b) Reports on Form 8-K. None.
<PAGE>
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. |
|
Date: November 19, 1999 |
/s/ Douglas Holsted |
|
|
By: Douglas Holsted, President and Secretary |
|
|