<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 April 30, 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 May 31, 1996, Registrant had outstanding 2,431,551 shares of its
Common Stock.
Transitional small business disclosure format check one:
Yes ___ No X
1
<PAGE>
WASTE TECHNOLOGY CORP.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
o Balance Sheets as of April 30, 1996 and October 31, 1995 3
o Statements of Income for the three months and six months 5
ended April 30, 1996 and 1995
o Statements of Changes in Stockholders' Equity 7
for the period from October 31, 1994 to April 30, 1996
o Statements of Cash Flows for the three months and six months 8
ended April 30, 1996 and 1995
o Notes to Financial Statements 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 19
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
o Signatures 21
2
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
04/30/96 10/31/95
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $6,633 $1,114,342
Accounts receivable, net of allowance
for doubtful accounts of $90,446 1,655,003 1,157,560
Inventories 3,352,079 2,344,686
Prepaid expense and other current assets 71,377 57,916
Deferred income tax asset 493,000 413,000
Total current assets 5,578,092 5,087,504
Property, plant and equipment at cost 3,488,758 2,310,373
Less: accumulated depreciation 952,310 882,355
Net property, plant & equipment 2,536,448 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 73,048 78,946
Other assets 172,774 164,580
Total other assets 295,662 293,366
TOTAL ASSETS $8,410,202 $7,013,002
3
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
04/30/96 10/31/95
Unaudited
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $910,000 $296,878
Accounts payable 1,391,481 901,444
Accrued liabilities 461,411 483,659
Accrued legal fees 301,480 270,344
Customer deposits 685,865 1,201,144
Legal settlement 110,000 162,000
Total current liabilities 3,860,237 3,315,469
Long-term debt 133,333 228,333
Minority interest in equity of subsidiary 485,782 481,782
Capital Lease Obligation 700,000 0
Total liabilities 5,179,352 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 6,066,356 6,069,995
Accumulated deficit (1,781,645) (2,027,894)
4,312,345 4,069,735
Less: Treasury stock, 331,763 shares at cost 419,306 419,306
Less: Note receivable from shareholder 662,189 663,011
Total stockholders' equity 3,230,850 2,987,418
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $8,410,202 $7,013,002
4
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended: 04/30/96 04/30/95
Net Sales $3,951,750 $2,828,650
Cost of Sales 2,986,156 1,849,447
Gross Profit 965,594 979,203
Operating Expenses:
Selling 425,872 227,708
General and Administrative 526,833 326,174
Total operating expenses 952,705 553,882
Operating Income 12,889 425,321
Other Income (Expenses):
Interest and Dividends 12,094 12,395
Interest Expense (32,538) (49,323)
Other Income 6,550 13,159
Other Expense (8,208) (25,175)
Net Loss on Disposal of Fixed Assets 14,626 (600)
Total Other Income (Expenses) (7,476) (49,544)
Less minority interest in income of
consolidated subsidiary (9,000) 39,807
Income before income taxes 14,413 335,970
Income Tax Provision (benefit)
Current 12,900 12,000
Deferred 0 0
NET INCOME 1,513 323,970
Earnings per share 0.00 0.16
Average number of shares and equivalent 2,697,593 2,256,239
5
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Six months ended: 04/30/96 04/30/95
Net Sales $7,129,377 $4,674,475
Cost of Sales 5,143,202 3,102,632
Gross Profit 1,986,175 1,571,843
Operating Expenses:
Selling 774,146 435,727
General and Administrative 1,009,542 639,789
Total operating expenses 1,783,688 1,075,516
Operating Income 202,487 496,327
Other Income (Expenses):
Interest income 27,252 26,371
Interest Expense (51,447) (81,583)
Other Income 6,700 25,841
Other Expense (8,208) (25,175)
Net gain on Disposal of Fixed Assets 14,626 618
Total Other Income (Expenses) (11,077) (53,928)
Less minority interest in income of
consolidated subsidiary 4,000 43,070
Income before income taxes 187,410 399,329
Income tax provision (benefit)
Current 25,800 15,000
Deferred (80,000) 0
NET INCOME 241,610 384,329
Earnings per share 0.09 0.19
Average number of shares and equivalent 2,697,493 2,256,239
6
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for six months ended April 30,1996
<TABLE>
<CAPTION>
Common Stock
Par Value $.01 Authorized
25,000,000 Shares
------------------------------
NUMBER ADDITIONAL
OF SHARES PAR PAID-IN ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT
------------------------------ ------- -------
<S> <C> <C> <C> <C>
Balance at October 31, 1994 2,263,314 $ 22,634 $5,574,995 $(2,823,482)
Issuance of 500,000 shares of common
stock due to exercise of stock options 500,000 5,000 495,000 -
Adjustment of Note Receivable from
shareholder as a reduction of
stockholder's equity
Net income - - - 795,588
----------- ----------- ----------- ------------
Balance at October 31, 1995 2,763,314 $ 27,634 $6,069,995 $(2,027,894)
Adjustment of Note Receivable from
shareholder as a reduction of
stockholder's equity - - - -
Dissolution of non operating subsidiaries (3,639) 4,689
Net income - - - 241,610
----------- ----------- ----------- ------------
Balance at April 30, 1996 2,763,314 $ 27,634 $6,066,356 $(1,781,595)
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
-----------------------
NUMBER TOTAL
OF STOCKHOLDERS'
SHARES COST OTHER EQUITY
----------------------- ----- ------
<S> <C> <C> <C> <C>
Balance at October 31, 1994 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
Adjustment of Note Receivable from
shareholder as a reduction of
stockholder's equity (40,355) (40,355)
Net income - - - 795,588
--------- ---------- ---------- --------------
Balance at October 31, 1995 331,763 $(419,306) $(663,011) $ 2,987,418
Adjustment of Note Receivable from
shareholder as a reduction of
stockholder's equity - - 822 822
Dissolution of non operating subsidiaries 1,000
Net income - - - 241,610
--------- ---------- ---------- --------------
Balance at April 30, 1996 331,763 $(419,306) $(662,189) $ 3,230,850
========= ========== ========== ==============
</TABLE>
7
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For The Three Months Ended
04/30/96 04/30/95
Cash flow from operating activities:
Net income $ 1,513 $ 323,970
Adjustments to reconcile net income to
net cash provided by operating activities:
Items not requiring (providing) cash
included in income:
Depreciation and amortization 43,449 28,639
Minority interest in income of subsidiary (9,000) 39,807
Deferred income taxes 0 0
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (489,314) (435,202)
(Increase)/decrease in inventories (302,427) (6,445)
(Increase)/decrease in prepaid expenses 33,374 16,193
(Increase)/decrease in other assets (14,774) (12,592)
Increase/(decrease) in accounts payable 362,716 (73,370)
Increase/(decrease) in accrued liabilities 24,007 105,970
Increase/(decrease) in customer deposits (338,045) 27,183
Total adjustments (690,014) (309,817)
Net cash provided by (used in) operating activities (688,501) 14,153
Cash flows from investing activities:
(Additions) decreases in fixed assets (442,437) (5,888)
Increase/(Decrease) in officer notes receivable 10,911 0
Net cash provided by investing activities (431,526) (5,888)
Cash flows from financing activities:
Increase/(decrease) in officer loans 0 0
Increase/(decrease) in long-term liabilities 1,122,500 (51,465)
Proceeds from exercise of stock options 0 0
Dissolution of non operating subsidiaries 1,000
Cash flows provided by (used in) financing
activities 1,123,500 (51,465)
Net increase (decrease) in cash 3,473 (43,200)
Cash and cash equivalents at beginning of period 3,160 559,508
Cash and cash equivalents at end of period 6,633 516,308
Supplemental schedule of disclosure of cash flow
information
Cash paid during period for:
Interest 32,538 21,650
Income taxes 0 0
8
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For The Six Months Ended
04/30/96 04/30/95
Cash flow from operating activities:
Net income 241,610 384,329
Adjustments to reconcile net income to
net cash provided by operating activities:
Items not requiring (providing) cash
included in income:
Depreciation and amortization 86,898 57,278
Minority interest in income of subsidiary 4,000 43,070
Deferred income taxes (80,000) 0
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (497,443) (435,306)
(Increase)/decrease in inventories (1,007,393) (149,324)
(Increase)/decrease in prepaid expenses (13,461) 66,123
(Increase)/decrease in other assets (8,194) 4,017
Increase/(decrease) in accounts payable 490,037 69,462
Increase/(decrease) in accrued liabilities (43,112) 26,213
Increase/(decrease) in customer deposits (515,279) 155,097
Total adjustments (1,583,947) (163,370)
Net cash provided by(used in) operating
activities (1,342,337) 220,959
Cash flows from investing activities:
(Additions) decreases in fixed assets (985,316) (23,474)
(Increase)/Decrease in officer notes receivable 822 0
Net cash provided by investing activities (984,494) (23,474)
Cash flows from financing activities:
Increase/(decrease) in officer loans 0 (50,000)
Increase/(decrease) in long-term liabilities 1,218,122 (130,376)
Proceeds from exercise of stock options 0 0
Dissolution of non operating subsidiaries 1,000 0
Cash flows provided by (used in) financing
activities 1,219,122 (180,376)
Net increase (decrease) in cash (1,107,709) 17,109
Cash and cash equivalents at beginning of period 1,114,342 499,199
Cash and cash equivalents at end of period 6,633 516,308
Supplemental schedule of disclosure of cash
flow information
Cash paid during period for:
Interest 51,447 43,772
Income taxes 9,000 40,000
9
<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 April 30, 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
10
<PAGE>
Notes to Consolidated Financial Statements, Continued
1. Accounting Policies, Continued:
in value were to occur. Accumulated amortization was $85,003 and $70,782 at
April 30, 1996 and 1995, respectively. Amortization expense related to
intangibles was $2,949 and $3,139 for each of the quarters ended April 30,
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.
11
<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 General Counsel made a payment of $21,000 on the note in the second
quarter 1996.
The following is an analysis of the notes receivable and accrued interest
at April 30, 1996:
Accrued Total Net
Principal Interest Note Reserve Total
--------- -------- -------- ------- -----
General Counsel $427,364 $234,825 $662,189 $ 0 $662,189
Others 50,000 29,688 79,688 79,688 0
--------- --------- --------- ------- --------
$477,364 $264,513 $741,877 $79,688 $662,189
========= ========= ========= ======= ========
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 April 30, 1996
and 1995, respectively.
An officer and director is a partner in the law firm providing legal
services to the Company and as of April 30, 1996 the Company is indebted in
the amount of $301,480 to this firm.
3. Inventories:
Inventories consisted of the following:
April 30 1996 1995
Finished products $ 512,528 $ 189,332
Work in process $ 908,313 $ 402,579
Raw materials $ 1,931,239 $ 876,539
----------- -----------
$ 3,352,079 $ 1,468,458
=========== ===========
12
<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 April 30, 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 April 30, 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:
April 30, 1996 1995
Land $ 75,000 $ 75,000
Buildings and improvements 2,166,734 544,967
Machinery and equipment 1,040,487 599,266
Vehicles 206,537 156,972
----------- -----------
3,488,758 1,376,205
Less: accumulated depreciation 952,310 824,541
------------ -----------
$ 2,536,448 $ 551,664
============ ===========
Depreciation expense was $40,500 and $25,500 in the quarter ending April
30, 1996 and 1995, respectively.
13
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30, 1996 1995
<S> <C> <C>
Term note payable to bank at prime rate plus 1% due in equal monthly
installments of $15,833, plus
interest through November 1, 1997 $ 323,733 $513,333
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 0 205,579
Revolving promissory note payable to bank in the amount of $1,000,000,
at prime rate plus 1/2% interest.
Interest is payable monthly 700,000 0
Capital Lease - Baxley, Georgia 720,000 0
Present value of minimum capital lease obligation,
net of $303 interest, due in 1995 0 8,480
----------- ---------
Capital Lease Baxley, Georgia 1,743,333 727,392
Current maturities 910,000 904,059
------------ --------
$ 833,333 $323,333
=========== ========
</TABLE>
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.
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 November 6, 1996.
The Company has pledged substantially all of its assets as collateral under
the term loan and revolving loan agreement.
14
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt, Continued:
The Company entered into capital lease obligation relating to the sale and
lease-back of a facility in Baxley, Georgia. Lease payments are based on a
note with an interest rate of 8.25% for 20 years. Principal balance and
accrued interest are due on the fifteenth anniversary of this note.
Maturities of debt are as follows:
Aggregate
Period ending April 30 Obligation
---------------------- -----------
1997 $ 910,000
1998 15,120
1999 15,840
2000 - 2011 802,373
-----------
$1,743,333
===========
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.
15
<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 April 30, 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").
16
<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 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 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.
17
<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 April 30, 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.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations: Three Month Comparisons
For the second quarter of fiscal 1996 the Company had consolidated net sales of
$3,951,750 as compared to $2,828,650 for the second quarter 1995, an increase of
39.7 %. The increase in sales is the result of shipments at the company's new
International Press and Shear (IPS) operation which had no shipments in the
prior year, since it did not commence operations until the fourth quarter 1995.
Consolidated net income for the second quarter 1996 was $1,513 versus $323,970
in the corresponding quarter of the prior year. Earnings per share were $.00 for
the second quarter 1996 and $.16 for the second quarter 1995. The lower earnings
were primarily the result of continuing start-up related costs at the IPS
facility in Georgia, including large outlays for inventory and personnel whereas
shipments from the new facility did not commence until January 1996.
The decrease in gross profit margin is the direct result of the manufacturing
costs at the new Georgia operation which were not yet covered by shipments. The
same is true of the increased selling and administration expenses which are
directly related to the new subsidiary. Management anticipates that the
operating results at the IPS subsidiary will be profitable by fiscal year-end.
The change in the minority interest exclusion is the result of higher shipments
by the Consolidated Baling Machine Company and lower shipments by International
Baler Corporation which has the minority interest shareholders.
The backlog as of May 31, 1996 was $3,103,000 as compared with $2,828,000 as of
May 31, 1995, an increase of 9.7%.
Results of Operation: Six Month Comparisons
Net sales increased by 52.5% from $4,674,475 in 1995 to $7,129,377 for the first
half of 1996. The large increase in sales was due in significant part to the
sales at the start-up operation in Georgia.
Consolidated net income was $241,610 for the first six months of fiscal 1996 as
compared to $384,329 for the same period in 1995. The major factor in this
earnings decrease was the operating losses at the start-up of the IPS subsidiary
of approximately $500,000. Net income per share was $.09 per share in fiscal
1996 versus $.19 in 1995.
Financial Conditions:
Working capital decreased from $1,772,035 at October 31, 1995 to $1,717,855, but
increased from $1,474,693 at the end of the first quarter 1996. The increase in
inventories of over $1,000,000 was
19
<PAGE>
the result of the initial build-up of raw materials and work-in-process at the
new manufacturing plant in Georgia. The Company received $720,000 in the second
quarter 1996 from a sale and lease-back arrangement with the Development
Authority of Appling County, Georgia. The value of the building under the lease
arrangement has been included in the fixed assets of the company.
During the second quarter the term loan balance was reduced by $47,500 to
$323,333. 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. As of the end of the second quarter
1996 the Company had borrowed $700,000 against its $1,000,000 line of credit
with SouthTrust Bank.
Substantially all capital expenditures relating to the new Georgia facility and
Jacksonville plant expansion have been completed. Capital expenditures for the
remainder of fiscal 1996 are expected to be minimal.
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 cost 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.
20
<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: June 11, 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)
21
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<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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 6633
<SECURITIES> 0
<RECEIVABLES> 1745449
<ALLOWANCES> 90446
<INVENTORY> 3352079
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0
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