<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended January 31, 1996
___ 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 0-14443
WASTE TECHNOLOGY CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-2842053
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5400 Rio Grande Avenue
Jacksonville, Florida 32254
(Address of Principal Executive Offices) (Zip Code)
(904) 355-5558
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
At January 31, 1996, Registrant had outstanding 2,431,551 shares of its
Common Stock.
Transitional small business disclosure format check one:
Yes ___ No X
1
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WASTE TECHNOLOGY CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
ITEM I. FINANCIAL STATEMENTS
o Balance Sheets as of January 31, 1996 and October 31, 1995 3
o Statements of Income for the three months 5
ended January 31, 1996 and 1995
o Statements of Changes in Stockholders' Equity 6
for the period from October 31, 1994 to January 31, 1996
o Statements of Cash Flows for the three months 7
ended January 31, 1996 and 1995
o Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 17
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II. OTHER INFORMATION
o Signatures 19
2
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/96 10/31/95
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $3,160 $1,114,342
Accounts receivable, net of allowance
for doubtful accounts of $92,447. 1,165,689 1,157,560
Inventories 3,049,652 2,344,686
Prepaid expense and other current assets 104,751 57,916
Deferred income tax asset 493,000 413,000
Total current assets 4,816,252 5,087,504
Property, plant and equipment at cost 3,046,321 2,310,373
Less: accumulated depreciation 911,810 882,355
Net property, plant & equipment 2,134,511 1,428,018
Real estate held for sale 0 204,114
Other assets:
Loan to joint venture, including
accrued interest 49,840 49,840
Intangible assets, net 75,997 78,946
Other assets 158,000 164,580
Total other assets 283,837 293,366
TOTAL ASSETS $7,234,600 $ 7,013,002
3
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/96 10/31/95
Unaudited
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 440,000 $ 296,878
Accounts payable 1,028,765 901,444
Accrued liabilities 444,602 483,659
Accrued legal fees 294,282 270,344
Customer deposits 1,023,910 1,201,144
Legal settlement 110,000 162,000
Total current liabilities 3,341,559 3,315,469
Long-term debt 180,833 228,333
Minority interest in equity of subsidiary 494,782 481,782
Total liabilities 4,017,174 4,025,584
Stockholders' equity
Common stock, par value $.01
25,000,000 shares authorized;
2,763,314 shares issued and outstanding 27,634 27,634
Preferred stock, par value $.0001,
10,000 shares authorized, none issued
Additional paid-in capital 6,069,995 6,069,995
Accumulated deficit (1,787,797) (2,027,894)
4,309,832 4,069,735
Less: Treasury stock, 331,763 shares at cost 419,306 419,306
Less: Note receivable from shareholder 673,100 663,011
Total stockholders' equity 3,217,426 2,987,418
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $7,234,600 $7,013,002
4
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended: 01/31/96 01/31/95
Net Sales $3,177,627 $1,845,825
Cost of Sales 2,157,046 1,253,185
Gross Profit 1,020,581 592,640
Operating Expenses:
Selling 348,274 208,019
General and Administrative 482,709 313,615
Total operating expenses 830,983 521,634
Operating Income 189,598 71,006
Other Income (Expenses):
Interest income 15,158 13,976
Interest Expense (18,909) (32,260)
Other Income 150 12,682
Other Expense -- --
Net gain on Disposal of Fixed Assets -- 1,218
Total Other Income (Expenses) (3,601) (4,384)
Less minority interest in income of
consolidated subsidiary 13,000 3,263
Income before income taxes 172,997 63,359
Income tax provision (benefit)
Current 12,900 3,000
Deferred (80,000) --
NET INCOME 240,097 60,359
Earnings per share 0.09 0.03
Average number of shares and equivalent 2,697,593 2,256,239
5
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for three months ended January 31,1996
<TABLE>
<CAPTION>
Common Stock
Par Value $.01
Authorized
25,000,000 Shares Treasury Stock
------------------ ------------------
NUMBER ADDITIONAL NUMBER TOTAL
OF SHARES PAR PAID-IN ACCUMULATED OF STOCKHOLDERS'
ISSUED VALUE CAPITAL DEFICIT SHARES COST OTHER EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 2,263,314 $22,634 $5,574,995 $(2,823,482) 331,763 $(419,306) $(622,656) $1,732,185
Issuance of 500,000 shares
of common stock due to
exercise of stock options 500,000 5,000 495,000 -- -- -- -- 500,000
Adjustment of Note Receivable
from shareholder as a
reduction of stockholder's
equity (40,355) (40,355)
Net income -- -- -- 795,588 -- -- -- 795,588
----------- -------- ----------- ------------ --------- ---------- ---------- -----------
Balance at October 31, 1995 2,763,314 $27,634 $6,069,995 $(2,027,894) 331,763 $(419,306) $(663,011) $2,987,418
Adjustment of Note Receivable
from shareholder as a
reduction of stockholder's
equity -- -- -- -- -- -- (10,089) (10,089)
Net income -- -- -- 240,097 -- -- -- 240,097
----------- -------- ----------- ------------ --------- ---------- ---------- -----------
Balance at January 31, 1996 2,763,314 $27,634 $6,069,995 $(1,787,797) 331,763 $(419,306) $(673,100) $3,217,426
=========== ======== =========== ============ ========= ========== ========== ===========
</TABLE>
6
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For The Three Months Ended
01/31/96 01/31/95
Cash flow from operating activities:
Net income $ 240,097 $ 60,359
Adjustments to reconcile net income to
net cash provided by operating activities:
Items not requiring (providing) cash included
in income:
Depreciation and amortization 32,404 28,639
Minority interest in income of subsidiary 13,000 3,263
Deferred income taxes (80,000) --
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (8,129) (104)
(Increase)/decrease in inventories (704,966) (142,879)
(Increase)/decrease in prepaid expenses (46,835) 49,930
(Increase)/decrease in other assets 6,580 26,697
Increase/(decrease) in accounts payable 127,321 142,832
Increase/(decrease) in accrued liabilities (67,119) (79,757)
Increase/(decrease) in customer deposits (177,234) 127,914
Total adjustments (904,978) 156,535
Net cash provided by (used in) operating
activities (664,881) 216,894
Cash flows from investing activities:
(Additions) decreases in fixed assets (531,834) (17,586)
Increase/(Decrease) in officer notes
receivable (10,089) (10,088)
Net cash provided by investing activities (541,923) (27,674)
Cash flows from financing activities:
Increase/(decrease) in officer loans -- (50,000)
Increase/(decrease) in long-term liabilities 95,622 (78,911)
Proceeds from exercise of stock options -- --
Cash flows provided by (used in) financing
activities 95,622 (128,911)
Net increase (decrease) in cash (1,111,182) 60,309
Cash and cash equivalents at beginning of
period 1,114,342 499,199
Cash and cash equivalents at end of period 3,160 559,508
Supplemental schedule of disclosure of cash
flow information
Cash paid during period for:
Interest 18,402 14,403
Income taxes 9,000 30,000
7
<PAGE>
Waste Technology Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. Accounting Policies:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Waste Technology and all of its wholly
owned and majority owned subsidiaries (Company). Intercompany balances and
material intercompany transactions have been eliminated in consolidation.
Description of the Business - The Company is a manufacturer of baling
machines which utilize mechanical, hydraulic and electrical mechanisms to
compress a variety of materials into bales. The Company's customers include
plastic recycling facilities, paper mills, textile mills and paper
recycling facilities throughout the United States, the Far East and South
America.
Minority Interest - The Company owns 85.8% of the outstanding shares of
International Baler Corp. (IBC) at January 31, 1996 and 1995. IBC is the
Company's primary operating subsidiary. The parent company theory has been
applied in the presentation of the minority interest, whereby minority
interest is separately stated as a liability on the consolidated balance
sheet at an amount equal to the minority ownership percentage of the book
value of the subsidiary's net assets. The minority interest in the
consolidated income statement is equal to the minority ownership percentage
of the subsidiary's net income or loss.
Pervasiveness 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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.
Depreciation - The cost of property, plant and equipment is depreciated
over the estimated useful lives of the related assets. Depreciation is
computed on the double-declining balance and straight line methods for
financial reporting and other accelerated methods for income tax purposes.
Gain or loss upon retirement or disposal of property, plant and equipment
is recorded as income or expense.
Intangibles - The cost over fair value of net tangible assets of an
acquired business is amortized on the straight-line method over a period of
20 years. Other intangible assets, primarily patents and a covenant not to
compete, are amortized on the straight-line basis over their estimated
lives of six to seventeen years. The Company periodically reviews
intangibles to assess recoverability, and impairments would be recognized
in operating results if a permanent decline
8
<PAGE>
Notes to Consolidated Financial Statements, Continued
1. Accounting Policies, Continued:
in value were to occur. Accumulated amortization was $82,054 and $67,643 at
January 31, 1996 and 1995, respectively. Amortization expense related to
intangibles was $2,949 and $3,139 for each of the quarters ended January
31, 1996 and 1995.
Income Taxes - The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No. 109")
in fiscal 1994, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statement or tax returns. Under this method
of deferred tax, assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. The adoption of SFAS No. 109 did not
have a material impact on the Company's financial position or results of
operations in the year of adoption.
Reclassifications - Certain 1995 items have been reclassified to conform to
the 1996 presentation.
2. Loan and Notes Receivable-Officers and Directors:
On April 12, 1990, four individuals, including the former Chairman of the
Board, and the Executive Vice President, General Counsel, Secretary and
Director of the Company, entered into an agreement with a group of
dissident shareholders to purchase an aggregate of 294,182 shares at a
purchase price of $4 per share. The former Chairman and the General Counsel
each purchased 134,591 shares of common stock and the other two individuals
purchased an aggregate of 25,000 shares.
On July 15, 1991, the purchase of shares was finalized by the payment to
the selling shareholders of the balance of the purchase price plus accrued
interest. The financing of the transactions was paid with funds borrowed
from the Company with the unanimous approval of the Company's Board of
Directors. The four individuals executed promissory notes in favor of the
Company, originally payable in three annual installments due July 15,
1992--94 plus accrued interest from July 15, 1991 at the rate of 9% per
annum. The former Chairman's promissory note was satisfied in 1993. The
Company has extended the initial installment date of the remaining
notes to begin on July 15, 1996. The debt is collateralized by a lien on
the 104,591 shares of the Company's common stock and a personal guarantee
of each borrower to the extent of his loan and the guarantee of General
Counsel's law firm to the extent of his loan.
9
<PAGE>
Notes to Consolidated Financial Statements, Continued
2. Loan and Notes Receivable-Officers and Directors, Continued:
On June 13, 1995 the General Counsel and his law firm exercised their
option to purchase 250,000 shares of Waste Technology Corporation common
stock at $1.00 per share, whereby, the Company reduced the legal fees
payable to the law firm in lieu of cash. These shares are also being held
as collateral for the note receivable from the General Counsel.
The following is an analysis of the notes receivable and accrued interest
at January 31, 1996:
<TABLE>
<CAPTION>
Accrued Total Net
Principal Interest Note Reserve Total
<S> <C> <C> <C> <C> <C>
General Counsel $448,364 $224,736 $673,100 $ 0 $673,100
Others 50,000 29,688 79,688 79,688 0
-------- -------- -------- ------- --------
$498,364 $254,424 $752,788 $79,688 $673,100
======== ======== ======== ======= ========
</TABLE>
The Company expects that a primary source for repayment of the above notes
will be from the sale of the collateralized shares of the Company stock.
The notes receivable from the General Counsel, who is also a major
stockholder of the Company, is presented as a reduction of stockholders'
equity.
The income statement includes interest income on officer and director notes
receivable of $10,089 and $10,088 for the quarters ending January 31, 1996
and 1995, respectively.
An officer and director is a partner in the law firm providing legal
services to the Company and as of January 31, 1996 the Company is indebted
in the amount of $294,282 to this firm.
3. Inventories:
Inventories consisted of the following:
January 31 1996 1995
Finished products $ 212,528 $ 394,332
Work in process $ 908,313 $ 272,579
Raw materials $ 1,928,811 $ 795,095
----------- -----------
$ 3,049,652 $ 1,462,005
=========== ===========
10
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Real Estate Venture:
In December 1990, the Company formed a wholly owned subsidiary, Waste Tech
Real Estate Corp. ("WT Real Estate"), for the purpose of having that
corporation enter into a joint venture with a non-affiliated company,
Roch-Tech Realty Corp. ("RT"), to purchase a parcel of land in Far
Rockaway, Queens, New York and to build residential single family homes on
the property. RT had previously entered into a contract to purchase the
property for $625,000, $50,000 being paid on the execution of the contract
and the balance to be paid $200,000 on closing and $375,000 by a purchase
money mortgage to the seller. RT has assigned the contract to the joint
venture.
WT Real Estate has a 21% interest in the profits and losses of the joint
venture. As of January 31, 1996, the Company had committed to fund up to
$175,000 for its share of loans and loaned the sum of $166,980 to the joint
venture on behalf of WT Real Estate. Management does not believe that it
will be required to advance funds in excess of such commitment. WT Real
Estate has a mortgage lien on the property as collateral for all sums it
advances to the joint venture except that mortgage shall be subordinated to
any purchase money mortgage or construction loan mortgage. The Company was
to receive interest at 10% per annum, but since no interest has been
received, the loan no longer accrues interest. As of January 31, 1996
accrued interest in the amount of $51,032 is included in the total of
$218,012. The Company has established a reserve of $168,172 as an estimate
for potential uncollectible amounts.
5. Property, Plant and Equipment:
The following is a summary of property, plant and equipment, at cost, less
accumulated depreciation:
January 31, 1996 1995
Land $ 75,000 $ 75,000
Buildings and improvements 1,793,356 544,967
Machinery and equipment 971,428 593,378
Vehicles 206,537 156,972
---------- ----------
3,046,321 1,370,317
Less: accumulated depreciation 911,810 799,041
---------- ----------
$2,134,511 $ 571,276
========== ==========
Depreciation expense was $29,455 and $25,500 in the quarter ending January
31, 1996 and 1995, respectively.
11
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt:
Long-term debt consists of the following:
January 31, 1996 1995
Term note payable to bank at prime rate plus 1%
due in equal monthly installments of $15,833,
plus interest through November 1, 1997 $370,833 $560,833
Note payable to bank, at prime rate plus
2.5%, due in equal monthly installments of
$4,000, including interest, with the
remaining balance due in January 1996,
collateralized by real estate with a net
book value of $204,114 0 209,544
Revolving promissory note payable to bank
in the amount of $1,000,000, at prime
rate plus 1/2% interest. Interest is
payable monthly $250,000 0
Present value of minimum capital lease obligation,
net of $303 interest, due in 1995 0 8,480
-------- --------
620,833 778,857
Current maturities 440,000 408,023
-------- --------
$180,833 $370,834
======== ========
The Term Note contains certain covenants, whereby the Company must
maintain, among other things, specified levels of tangible net worth and
working capital, and maintain a specified ratio of debt to tangible net
worth, and current ratio. The Company failed to achieve the current ratio
covenant.
In 1995, the Company signed a revolving promissory note with a bank in the
amount of $1,000,000. Interest at prime plus 1/2% is due monthly and all
amounts borrowed are due in full on May 30, 1996.
The Company has pledged substantially all of its assets as collateral under
the term loan and revolving loan agreement.
12
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt, Continued:
Maturities of debt are as follows:
Aggregate
Obligation
Period ending January 31:
1967 $440,000
1998 180,833
--------
$620,833
========
7. Contingent Liabilities and Commitments:
Litigation - The Company was a defendant in a wrongful death action,
whereby the complainant alleges that the plaintiff's decedent was injured
while operating a baling machine during his employment and he died as a
result of those injuries. Subsequent to year-end, a jury determined the
Company has no liability to the plaintiffs.
There are various other litigation proceedings in which the Company is
involved. Any liability which the Company may have under many of these
proceedings is believed to be covered by insurance. The results of other
litigation proceedings cannot be predicted with certainty, however, the
Company believes that the results of any litigation will not have a
material adverse effect on the Company's financial condition or results of
operations.
Other - The Company has an employment agreement with its President for a
term of five years commencing on August 1, 1993 and ending August 1, 1998.
Annual compensation pursuant to the contract is $100,627, increased 5% per
year for the years 1996 to 1998. Additionally, the Company has a severance
agreement with its President, whereby in the event of change of control of
IBC and the subsequent termination of employment of him for any reason
other than cause, IBC shall be required to pay to him an amount equal to
2.99 times his salary at IBC prior to any change in control.
Pursuant to an agreement with the former shareholders of a subsidiary of
the Company, the shareholders have the right to require the Company to
purchase 186,230 shares of the Company's stock owned by the shareholders
for $2.00 per share. If the current market price at the time the right is
exercised is less than $2.00 per share, the Company is required to provide
additional shares to the shareholders. The agreement expires in 1996.
13
<PAGE>
Notes to Consolidated Financial Statements, Continued
8. Income Taxes:
The Company files consolidated federal income tax returns with its
subsidiaries and separate corporate state income tax returns.
The Company has reduced its valuation of temporary differences, which has
resulted in the recognition of an additional deferred tax asset of $80,000
at January 31, 1996. Realization is dependent on generating sufficient
taxable income in the future. Although realization is not assured,
management believes it is more likely than not that the deferred tax asset
will be realized. The amount of the deferred tax asset considered
realizable, however, would be reduced in the near term if estimates of
future taxable income is reduced.
The significant components of the net deferred tax asset at January 31,
1996 are as follows:
Reserves and allowances $254,000
Property, Plant and equipment 52,000
General business credit carryforward 40,000
Net operating loss carryforward 516,000
Other 73,000
--------
935,000
Valuation allowance 442,000
--------
$493,000
========
9. Net Earnings Per Common and Common Equivalent Share:
Net earnings per common and common equivalent share are calculated using
the weighted average number of common share outstanding during each year
and on the net additional number of shares which would be issuable upon the
exercise of stock options, assuming that the Company used the proceeds
received to purchase additional shares at market value.
10. Stock Options:
On June 13, 1995 the Board of Directors of the Company adopted, subject to
the approval of the Company's shareholders, the 1995 Stock Option Plan.
Under the 1995 Plan, incentive stock options within the meaning of Section
442A of the Internal Revenue Code of 1986, as amended (the "Code"), may be
granted to key employees, including officers and/or stock appreciation
rights ("SARs") may be granted to key employees, officers, directors and
consultants of the Company and its present and future subsidiaries to
purchase an aggregate of 1,000,000 shares of the Company's common stock
(the "Common Stock").
14
<PAGE>
Notes to Consolidated Financial Statements, Continued
10. Stock Options, Continued:
The purpose of the 1995 Plan is to aid the Company in attracting and
retaining key employees, officers, directors and consultants and to secure
for the Company the benefits of the incentive inherent in equity ownership
by such persons who are responsible for causing the Company's growth and
success. Accordingly, the Board of Directors unanimously recommended that
shareholders approve the 1995 Plan. The 1995 Plan was approved by the
shareholders at the Annual Meeting held on November 18, 1995.
The maximum number of shares as to which options may be granted under the
1995 Plan (subject to adjustment as described below) is 1,000,000 shares of
Common Stock. Upon expiration, cancellation or termination of unexercised
options, the shares with respect to which such options shall have been
granted will again be available for grant under the 1995 Plan.
The 1995 Plan is administered by the Board of Directors, or if appointed,
by a stock option committee consisting of at least two members of the Board
of Directors, none of whom is eligible to participate under the 1995 Plan.
(The group administering the 1995 Plan is referred to as the "Committee").
The Committee has the authority under the 1995 Plan to determine the terms
of options and/or SARs granted under the 1995 Plan, including, among other
things, whether an option shall be an incentive or a nonqualified stock
option, the individuals who shall receive them, whether an
SAR shall be granted separately, in tandem with or in addition to options,
the number of shares to be subject to each option and/or SAR, the date or
dates each option or SAR shall become exercisable and the exercise price or
base price of each option and SAR; provided, however, that the exercise
price of an incentive stock option may not be less than 100% of the fair
market value of the Common Stock on the date of grant and not less than
110% of the fair market value in the case of an optionee who at the time of
grant owns more than ten percent of the total combined voting power of the
Company, or of any subsidiary or parent of the Company.
During 1995, the Board of Directors granted non-qualified stock options to
purchase an aggregate of 880,000 shares of the Company's common stock at
prices ranging from $1.50 to $2.00 per share, respectively. Options to
purchase 20,000 shares granted to a director are not to be subject to the
Company's stock option plan. The options were issued to key employees and
to a director. The options grant the right to purchase shares of the
Company's common stock at the date of the grant. The options have
anti-dilutive rights in the event of a split, reverse split, or
recapitalization and are exercisable in whole or in part through 2005.
15
<PAGE>
Notes to Consolidated Financial Statements, Continued
11. Employees' Benefit Plan:
The Company instituted a profit sharing plan for its employees in 1989 by
contributing 375,000 shares of its stock to the trust, having a fair market
value of $165,000 on the transfer date. The Company contributed $50,000 to
the plan in fiscal 1995 and no contributions were made in fiscal 1994.
12. Unaudited Financial Statements:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month periods ended January 31, 1996 are not necessarily indicative
of the results that may be expected the year ending October 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto contained herein.
16
<PAGE>
ITEM 2. MANAGEMENT'S'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations: Three Month Comparisons
For the first quarter of fiscal 1996 the Company had consolidated net sales of
$3,177,627 as compared to $1,845,825 for the first quarter 1995, an increase of
72.2%. The increase in sales is the result of strong shipments in certain niche
markets including crumb rubber, cotton and clothing balers. Also, sales in the
first quarter of Fiscal 1995 were lower due to the delay of shipments from
January to February at customer's request.
Consolidated net income in the first quarter 1996 was $240,097 versus net income
of $60,359 in the corresponding quarter of the prior year. Earnings per share
were $.09 for the first quarter 1996 and $.03 for the first quarter 1995. The
earnings per share increase was achieved even though the average number of
shares outstanding increased by 441,354 shares.
The company continues to experience significant start-up costs related to the
new International Press and Shear (IPS) subsidiary which amounted to over
$300,000 in the quarter. The Company also had income of $80,000 due to the
recording of a deferred tax asset.
Management anticipates that operations for fiscal 1996 will result in higher
sales and earnings than in fiscal 1995. The backlog as of February 29, 1996 was
$3,456,000 as compared with $2,250,000 as of February 28, 1995, an increase of
approximately 53.6%.
Financial Condition:
Working capital decreased from $1,772,035 at October 31, 1995 to $1,474,693 at
the end of the first quarter 1996. This decrease was directly related to
expenditures incurred in connection with the start-up of the IPS subsidiary
which included an inventory increase of approximately $724,000 and capital
expenditures of approximately $496,000. The Company is in the process of
obtaining mortgage financing for the facility in Baxley, Georgia.
During the first quarter the term loan balance was reduced by $47,500 to
$370,833. This loan is due in equal monthly installments of $15,833 plus
interest through November 1, 1997. All assets of the Company are pledged as
security for the repayment of this note.
The property held for sale, in which a discontinued subsidiary had operated, was
sold in December 1995 and the mortgage loan balance of $106,878 was paid off.
As of the end of the first quarter 1996 the Company had borrowed $250,000
against its $1,000,000 line of credit with SouthTrust Bank.
17
<PAGE>
Fixed asset expenditures for the remainder of fiscal 1996 will include
approximately $200,000 for the facility in Baxley and $50,000 for the facility
in Jacksonville. These capital improvements and equipment additions should be
completed prior to the third quarter of fiscal 1996.
Other than as set forth above, the Company has no commitments for any material
capital expenditures. Other than as set forth above, there are no unusual or
infrequent events of transactions or significant economy changes which
materially effect the amount of reported income from continuing operations.
Inflation:
The costs of the Company and its subsidiaries are subject to the general
inflationary trends existing in the general economy. The Company believes that
expected pricing by its subsidiaries for balers will be able to include
sufficient increases to offset any increase in costs due to inflation.
18
<PAGE>
PART II-OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by undersigned
hereto duly authorized.
Dated: March 6, 1996 WASTE TECHNOLOGY CORPORATION
BY: /s/ Ted C. Flood
Ted C. Flood, President
(Chief Executive Officer)
BY: /s/ William E. Nielsen
William E. Nielsen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 3,160
<SECURITIES> 0
<RECEIVABLES> 1,258,136
<ALLOWANCES> 92,447
<INVENTORY> 3,049,652
<CURRENT-ASSETS> 4,816,252
<PP&E> 3,046,321
<DEPRECIATION> 911,810
<TOTAL-ASSETS> 7,234,600
<CURRENT-LIABILITIES> 3,341,559
<BONDS> 0
0
0
<COMMON> 27,634
<OTHER-SE> 3,189,792
<TOTAL-LIABILITY-AND-EQUITY> 7,234,600
<SALES> 3,177,627
<TOTAL-REVENUES> 3,177,627
<CGS> 2,157,046
<TOTAL-COSTS> 2,988,029
<OTHER-EXPENSES> 16,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,909
<INCOME-PRETAX> 172,997
<INCOME-TAX> (61,700)
<INCOME-CONTINUING> 240,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240,097
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
