<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 July 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 August 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
PAGE
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
o Balance Sheets as of July 31, 1996 and October 31, 1995 3
o Statements of Income for the three months and nine months 5
ended July 31, 1996 and 1995
o Statements of Changes in Stockholders' Equity 7
for the period from October 31, 1994 to July 31, 1996
o Statements of Cash Flows for the three months and nine 8
months ended July 31, 1996 and 1995
o Notes to Financial Statements 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 19
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II. OTHER INFORMATION
o Signatures 21
2
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
07/31/96 10/31/95
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $115,537 $1,114,342
Accounts receivable, net of allowance
for doubtful accounts of $91,000 2,260,209 1,157,560
Inventories 3,161,554 2,344,686
Prepaid expense and other current assets 45,238 57,916
Deferred income tax asset 493,000 413,000
Total current assets 6,075,538 5,087,504
Property, plant and equipment at cost 3,594,835 2,310,373
Less: accumulated depreciation 1,008,360 882,355
Net property, plant & equipment 2,586,475 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 70,100 78,946
Other assets 184,215 164,580
Total other assets 304,155 293,366
TOTAL ASSETS $8,966,168 $7,013,002
3
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
07/31/96 10/31/95
Unaudited
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $1,211,581 $296,878
Capital Lease 13,955 0
Accounts payable 1,322,276 901,444
Accrued liabilities 584,446 483,659
Accrued legal fees 308,676 270,344
Customer deposits 801,906 1,201,144
Legal settlement 0 162,000
Total current liabilities 4,242,840 3,315,469
Long-term debt 304,252 228,333
Minority interest in equity of subsidiary 485,782 481,782
Capital Lease Obligation 705,159 0
Total liabilities 5,738,033 4,025,584
Stockholders' equity
Common stock, par value $.01
25,000,000 shares authorized;
2,763,314 shares issued 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 (1,774,271) (2,027,894)
4,319,719 4,069,735
Less: Treasury stock, 331,763 shares at cost 419,306 419,306
Less: Note receivable from shareholder 672,278 663,011
Total stockholders' equity 3,228,135 2,987,418
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $8,966,168 $7,013,002
4
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended: 07/31/96 07/31/95
Net Sales $3,821,563 $2,744,780
Cost of Sales 2,869,457 1,836,706
Gross Profit 952,106 908,074
Operating Expenses:
Selling 423,044 217,503
General and Administrative 474,626 358,779
Total operating expenses 897,670 576,282
Operating Income 54,436 331,792
Other Income (Expenses):
Interest and Dividends 12,107 12,718
Interest Expense (47,099) (49,559)
Other Income 829 34,210
Other Expense (9,159) 0
Net Loss on Disposal of Fixed Assets 9,159 0
Total Other Income (Expenses) (34,163) (2,631)
Less minority interest in income of
consolidated subsidiary 0 32,820
Income before income taxes 20,273 296,341
Income Tax Provision (benefit)
Current 12,900 10,000
Deferred 0 0
NET INCOME 7,373 286,341
Earnings per share 0.00 0.10
Average number of shares and equivalent 2,689,844 2,456,395
5
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Nine months ended: 07/31/96 07/31/95
Net Sales $10,950,940 $7,419,255
Cost of Sales 8,012,659 4,939,338
Gross Profit 2,938,281 2,479,917
Operating Expenses:
Selling 1,197,190 653,230
General and Administrative 1,484,168 998,568
Total operating expenses 2,681,358 1,651,798
Operating Income 256,923 828,119
Other Income (Expenses):
Interest Income 39,359 39,089
Interest Expense (98,546) (131,142)
Other Income 7,529 60,051
Other Expense (17,367) (25,175)
Net gain on Disposal of Fixed Assets 23,785 618
Total Other Income (Expenses) (45,240) (56,559)
Less minority interest in income of
consolidated subsidiary 4,000 75,890
Income before income taxes 207,683 695,670
Income tax provision (benefit)
Current 38,700 25,000
Deferred (80,000) 0
NET INCOME 248,983 670,670
Earnings per share 0.09 0.29
Average number of shares and equivalent 2,695,010 2,316,846
6
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for nine months ended July 31,1996
<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) 4,639
Net income - - - 248,984
--------- ------------ ----------- --------------
Balance at July 31, 1996 2,763,314 $ 27,634 $ 6,066,356 $ (1,774,271)
========= ============ =========== ==============
<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 - - (9,267) (9,267)
Dissolution of non operating subsidiaries 1,000
Net income - - - 248,984
------- ----------- ------------ -------------
Balance at July 31, 1996 331,763 $ (419,306) $ (672,278) $ 3,228,135
======= =========== ============ =============
</TABLE>
7
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For The Three Months Ended
07/31/96 07/31/95
Cash flow from operating activities:
Net income $ 7,373 $ 286,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Items not requiring (providing) cash
included in income:
Depreciation and amortization 58,998 28,635
Minority interest in income of subsidiary 0 32,820
Deferred income taxes 0 0
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (605,206) 113,683
(Increase)/decrease in inventories 190,525 (142,549)
(Increase)/decrease in prepaid expenses 26,139 (34,145)
(Increase)/decrease in other assets (11,441) 222,700
Increase/(decrease) in accounts payable (69,205) 59,896
Increase/(decrease) in accrued liabilities 20,231 (271,835)
Increase/(decrease) in customer deposits 116,041 115,921
Total adjustments (273,918) 125,126
Net cash provided by (used in) operating activities (266,545) 411,467
Cash flows from investing activities:
(Additions) decreases in fixed assets (106,077) (133,630)
Increase in note receivable reserve (10,088) (249,967)
Net cash provided by investing activities (116,165) (383,597)
Cash flows from financing activities:
Increase/(decrease) in officer loans 0 0
Increase/(decrease) in long-term liabilities 491,614 (92,937)
Proceeds from exercise of stock options 0 500,000
Dissolution of non operating subsidiaries 0 0
Cash flows provided by (used in) financing
activities 491,614 407,063
Net increase (decrease) in cash 108,904 434,933
Cash and cash equivalents at beginning of period 6,633 516,308
Cash and cash equivalents at end of period 115,537 951,241
Supplemental schedule of disclosure of cash
flow information
Cash paid during period for:
Interest 49,671 18,402
Income taxes 13,500 0
8
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For The Nine Months Ended
07/31/96 07/31/95
Cash flow from operating activities:
Net income 248,983 670,670
Adjustments to reconcile net income to net
cash provided by operating activities:
Items not requiring (providing) cash
included in income:
Depreciation and amortization 145,896 85,913
Minority interest in income of subsidiary 4,000 75,890
Deferred income taxes (80,000) 0
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (1,102,649) (321,623)
(Increase)/decrease in inventories (816,868) (291,873)
(Increase)/decrease in prepaid expenses 12,678 31,978
(Increase)/decrease in other assets (19,635) 237,047
Increase/(decrease) in accounts payable 420,832 129,358
Increase/(decrease) in accrued liabilities (22,881) (245,622)
Increase/(decrease) in customer deposits (399,238) 271,018
Total adjustments (1,857,865) (27,914)
Net cash provided by(used in) operating activities (1,608,882) 642,756
Cash flows from investing activities:
(Additions) decreases in fixed assets (1,091,393) (157,104)
Increase in note receivable reserve (9,266) (260,297)
Net cash provided by investing activities (1,100,659) (417,401)
Cash flows from financing activities:
Increase/(decrease) in officer loans 0 (50,000)
Increase/(decrease) in long-term liabilities 1,709,736 (223,313)
Proceeds from exercise of stock options 0 500,000
Dissolution of non operating subsidiaries 1,000 0
Cash flows provided by (used in) financing
activities 1,710,736 226,687
Net increase (decrease) in cash (998,805) 452,042
Cash and cash equivalents at beginning of period 1,114,342 499,199
Cash and cash equivalents at end of period 115,537 951,241
Supplemental schedule of disclosure of cash
flow information
Cash paid during period for:
Interest 101,118 58,730
Income taxes 39,500 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 July 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
10
<PAGE>
Notes to Consolidated Financial Statements, Continued
1. Accounting Policies, Continued:
in value were to occur. Accumulated amortization was $87,951 and $75,452 at
July 31, 1996 and 1995, respectively. Amortization expense related to
intangibles was $2,948 and $3,650 for each of the quarters ended July 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, 1997. 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
quater 1996.
The following is an analysis of the notes receivable and accrued interest
at July 31, 1996:
Accrued Total Net
Principal Interest Note Reserve Total
--------- -------- ----- ------- -----
General Counsel $427,364 $244,914 $672,278 $ 0 $672,278
Others 50,000 29,688 79,688 79,688 0
-------- -------- -------- ------- --------
$477,364 $274,602 $751,966 $79,688 $672,278
======== ======== ======== ======= ========
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 July 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 July 31, 1996 the Company is indebted in
the amount of $308,676 to this firm.
3. Inventories:
Inventories consisted of the following:
July 31 1996 1995
Finished products $ 307,527 $ 241,332
Work in process $ 983,313 $ 482,079
Raw materials $ 1,860,714 $ 914,588
----------- -----------
$ 3,151,554 $ 1,610,999
=========== ===========
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 July 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 July 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:
July 31, 1996 1995
Land $ 75,000 $ 75,000
Buildings and improvements 2,258,466 544,967
Machinery and equipment 1,054,832 599,266
Vehicles 206,537 188,628
----------- -----------
3,594,835 1,407,891
Less: accumulated depreciation 1,008,360 850,041
----------- -----------
$ 2,586,475 $ 557,820
=========== ===========
Depreciation expense was $56,050 and $25,500 in the quarter ending July 31,
1996 and 1995, respectively.
13
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt:
Long-term debt consists of the following:
July 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 $ 275,833 $465,833
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 0 168,622
Revolving promissory note payable to
bank in the amount of $1,000,000,
at prime rate plus 1/2% interest.
Interest is payable monthly 990,000 0
Term note payable to Appling County,
Georgia at 4.0 % due in equal
monthly installments of $3,417
through July 22, 2001 250,000 0
Capital Lease - Baxley, Georgia 719,114 0
---------- --------
TOTAL 2,234,947 727,392
Current maturities 1,225,536 904,059
---------- --------
$1,009,411 $323,333
========== ========
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 August, 1996 the term note was renewed for an
additional $374,167 and extended for six years to September 2001. Monthly
payments on the entire note ($650,000) will be $9,028 plus interest at the
prime rate.
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 July 7, 1997.
14
<PAGE>
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt, Continued:
The Company has pledged substantially all of its assets as collateral under
the term loan and revolving loan agreement.
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 July 31 Obligation
--------------------- ----------
1997 $1,225,536
1998 133,900
1999 50,728
2000 - 2011 771,381
----------
$2,234,947
==========
7. Contingent Liabilities and Commitments:
Litigation - There are various litigation proceedings in which the Company
is involved. Most of the 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.
15
<PAGE>
Notes to Consolidated Financial Statements, Continued
7. Contingent Liabilities and Commitments, Continued:
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.
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 July 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.
16
<PAGE>
Notes to Consolidated Financial Statements, Continued
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").
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.
17
<PAGE>
Notes to Consolidated Financial Statements, Continued
10. Stock Options, Continued:
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.
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 period ended July 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.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations: Three Month Comparisons
For the third quarter of fiscal 1996 the Company had consolidated net sales of
$3,821,563 as compared to $2,744,780 for the third quarter 1995, an increase of
39.2 %. The increase in sales is the result of shipments by the company's new
subsidiary, International Press and Shear (IPS), which had no shipments in the
prior year, since it did not commence operations until the fourth quarter 1995.
Consolidated net income for the third quarter 1996 was $7,373 versus $286,341 in
the corresponding quarter of the prior year. Earnings per share were $.00 for
the third quarter 1996 and $.10 for the third quarter 1995. The lower earnings
and 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 August 31, 1996 was $3,144,000 as compared with $2,984,000 as
of August 31, 1995, an increase of 5.4%.
Results of Operation: Nine Month Comparisons
Net sales increased by 47.6% from $7,419,255 in 1995 to $10,950,940 for the
first nine months 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 $248,983 for the first nine months of fiscal 1996 as
compared to $670,670 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 $600,000. Net income per share was $.09 per share in fiscal
1996 versus $.29 in 1995.
Financial Conditions:
Working capital increased from $1,772,035 at October 31, 1995 to $1,832,698. The
increase in inventories of approximately $800,000 was 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 of 1996 from a sale
and lease-back arrangement with the Development Authority of
19
<PAGE>
Financial Conditions, Continued:
Appling County, Georgia. The value of the building under the lease arrangement
has been included in the fixed assets of the company. The Company entered into a
six year term loan agreement with the State of Georgia for $250,000 at 4.0%
which is being used to help finance the new Georgia facility.
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: September 10, 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
<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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 115,537
<SECURITIES> 0
<RECEIVABLES> 2,351,209
<ALLOWANCES> 91,000
<INVENTORY> 3,161,554
<CURRENT-ASSETS> 6,075,538
<PP&E> 3,594,835
<DEPRECIATION> 1,008,360
<TOTAL-ASSETS> 8,966,168
<CURRENT-LIABILITIES> 4,242,840
<BONDS> 0
0
0
<COMMON> 27,634
<OTHER-SE> 3,200,501
<TOTAL-LIABILITY-AND-EQUITY> 8,966,168
<SALES> 10,950,940
<TOTAL-REVENUES> 10,950,940
<CGS> 8,012,659
<TOTAL-COSTS> 10,694,017
<OTHER-EXPENSES> (53,306)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,546
<INCOME-PRETAX> 207,683
<INCOME-TAX> (41,300)
<INCOME-CONTINUING> 248,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,983
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
