<PAGE>
FORM 10-QSB/A
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, 1997.
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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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 February 28, 1997, 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 January 31, 1997 and October 31, 1996..........3
o Statements of Income for the three months...........................5
ended January 31, 1997 and 1996
o Statements of Changes in Stockholders' Equity.......................6
for the period from October 31, 1995 to January 31, 1997
o Statements of Cash Flows for the three months.......................7
ended January 31, 1997 and 1996
o Notes to Financial Statements.......................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS................................11
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II. OTHER INFORMATION
o Signatures.........................................................14
2
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/97 10/31/96
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $ 49,935 $ 140,000
Accounts receivable, net of allowance
for doubtful accounts of $91,000 2,175,915 1,410,956
Inventories 2,747,047 3,162,208
Prepaid expense and other current assets (24,146) 43,208
Deferred income tax asset -- --
Total current assets 4,948,751 4,756,372
Property, plant and equipment at cost 3,637,767 3,633,276
Less: accumulated depreciation 1,168,054 1,104,633
Net property, plant & equipment 2,469,713 2,528,643
Real estate held for sale -- --
Other assets:
Loan to joint venture, including
accrued interest -- --
Intangible assets, net 65,585 67,152
Other assets 11,321 18,049
Total other assets 76,906 85,201
TOTAL ASSETS $7,495,370 $7,370,216
See accompanying notes
3
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/97 10/31/96
Unaudited
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $ 871,652 $ 531,652
Current maturities of long-term debt 637,079 663,842
Capital Lease Obligation 14,584 14,281
Accounts payable 1,376,232 1,031,224
Accrued liabilities 399,681 498,284
Customer deposits 240,138 683,324
Total current liabilities 3,539,366 3,422,607
Accrued legal fees 335,285 315,696
Long-term debt 202,149 210,324
Capital Lease Obligation, less current maturities 697,929 701,568
Minority interest in equity of subsidiary 513,058 509,369
Total liabilities 5,287,787 5,159,564
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 6,066,356
Accumulated deficit (2,579,106) (2,588,935)
3,514,884 3,505,055
Less: Treasury stock, 331,763 shares at cost 419,306 419,306
Less: Note receivable from shareholders 887,995 875,097
Total stockholders' equity 2,207,583 2,210,652
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,495,370 $ 7,370,216
See accompanying notes
4
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended: 01/31/97 01/31/96
Net Sales $ 3,399,974 $ 3,177,627
Cost of Sales 2,644,617 2,157,046
----------- -----------
Gross Profit 755,357 1,020,581
Operating Expenses:
Selling 248,252 348,274
General and Administrative 453,973 482,709
----------- -----------
Total operating expenses 702,225 830,983
Operating Income 53,132 189,598
Other Income (Expenses):
Interest and Dividends 15,062 15,158
Interest Expense (43,598) (18,909)
Other Income 1,822 150
Other Expense -- --
Net Loss on Disposal of Fixed Assets -- --
----------- -----------
Total Other Income (Expenses) (26,714) (3,601)
Less minority interest in income of
consolidated subsidiary 3,689 13,000
----------- -----------
Income before income taxes 22,729 172,997
Income Tax Provision (benefit)
Current 12,900 12,900
Deferred -- (80,000)
NET INCOME 9,829 240,097
Earnings per share 0.00 0.09
Average number of shares and equivalent 2,485,488 2,697,593
See accompanying notes
5
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for three months ended January 31,1997
<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, 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 (loss) -- -- -- (565,680)
----------- ----------- ----------- -----------
Balance at October 31, 1990 2,763,314 $ 27,634 $ 6,066,356 $(2,588,935)
=========== =========== =========== ===========
Adjustment of Note Receivable from
shareholder as a reduction of
stockholder's equity -- -- -- --
Net income (loss) -- -- -- 9,829
----------- ----------- ----------- -----------
Balance at January 31, 1997 2,763,314 $ 27,634 $ 6,066,356 $(2,579,106)
=========== =========== =========== ===========
<CAPTION>
Treasury Stock
------------------------
NUMBER TOTAL
OF STOCKHOLDERS'
SHARES COST OTHER EQUITY
------------------------- ----------- -----------
<S> <C> <C> <C> <C>
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 -- -- (212,086) (212,086)
Dissolution of non operating subsidiaries 1,000
Net income (loss) -- -- -- (565,680)
----------- ----------- ----------- -----------
Balance at October 31, 1990 331,763 $ (419,306) $ (875,097) $ 2,210,652
=========== =========== =========== ===========
Adjustment of Note Receivable from
shareholder as a reduction of
stockholder's equity -- -- (12,898) (12,898)
Net income (loss) -- -- -- 9,829
----------- ----------- ----------- -----------
Balance at January 31, 1997 331,763 $ (419,306) $ (887,995) $ 2,207,583
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For The Three Months Ended 01/31/97 01/31/96
<S> <C> <C>
Cash flow from operating activities:
Net (loss)income $ 9,829 $ 240,097
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Writedown on investment in joint venture 0 0
Loss on disposal of property held for sale 0 9,648
Gain from sale of equipment 0 0
Dissolution of non-operating subsidiaries 0 0
Depreciation and amortization 64,988 32,404
Provision for doubtful accounts 0 0
Insurance premiums paid on behalf of Company president 0 0
Minority interest in income of subsidiary 3,689 13,000
Deferred income taxes 0 (80,000)
Increase(decrease) from changes in:
Accounts receivable (764,959) (8,129)
Inventories 415,161 (704,966)
Prepaid expenses and other current assets 67,354 (46,835)
Other assets 6,728 6,580
Accounts payable 345,008 127,321
Accrued liabilities and legal fees (79,014) (67,119)
Customer deposits (443,186) (177,234)
Reserve for legal settlement 0 0
Total adjustments (384,231) (895,330)
Net cash (used in) provided by operating activities (374,402) (655,233)
Cash flow from operating activities:
Increase in notes receivable from shareholders (12,898) (10,089)
Purchase of property and equipment (4,491) (735,948)
Proceeds from sale of property held for resale 0 194,466
Proceeds from sale of equipment 0 0
Net cash used in investing activities (17,389) (551,571)
Cash flows from financing activities:
Proceeds from debt 340,000 250,000
Issuance of common stock 0 0
Principal payments of long-term debt agreements and capital leases (38,274) (154,378)
Cash flows used in financing activities 301,726 95,622
Net (decrease) increase in cash (90,065) (1,111,182)
Cash at beginning of period 140,000 1,114,342
Cash at end of period 49,935 3,160
Supplemental Schedule of Disclosure of Cash Flow Information
Cash paid during period for:
Interest 43,598 18,402
Income taxes 0 9,000
</TABLE>
See accompanying notes
7
<PAGE>
Waste Technology Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation:
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 January 31, 1997 are not necessarily indicative of
the results that may be expected the year ending October 31, 1997. For
further information, refer to the Company's Annual Report on form 10KSB for
the year ended October 31, 1996 and the Management Discussion included in
this form 10QSB.
2. Accounting Policies:
Stock-Based Compensation - In 1997, the Company will adopt SFAS No. 123,
"Accounting for Stock-Based Compensation." This standard establishes a fair
value method for accounting for stock-based compensation plans either
through recognition or disclosure. The Company intends to adopt this
standard by disclosing the pro forma net income and earnings per share
amounts assuming the fair value method was adopted on November 1, 1996. The
adoption of this standard will not impact its results of operations,
financial position or cash flows.
3. Earnings (Loss) Per Common and Common Equivalent Share:
Earnings (loss) 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 in the case of
income. Options are not considered in loss periods as they would be
antidilutive.
4. Long-Term Debt:
Long-term debt consists of the following:
January 31, 1997 1996
Term note payable to bank at prime rate plus,
due in equal monthly installments of $9,028,
plus interest through August 2002. $ 604,861 $370,833
8
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Long-Term Debt, Continued:
<TABLE>
<CAPTION>
January 31, 1997 1996
<S> <C> <C>
Revolving promissory note payable to bank in the
amount of $1,000,000. Interest at prime payable
monthly. All amounts borrowed are due in full
July 7, 1997 871,652 250,000
Term note payable to Appling County, Georgia at 4.0 % due in equal
monthly installments of $3,417,
including interest through July 2003 234,367 --
---------- --------
1,710,880 620,833
Amounts classified as current 1,508,731 440,000
---------- --------
$ 202,149 $180,833
========== ========
</TABLE>
The bank's prime rate at January 31, 1997 was 8.25%. The carrying value of
the Company's debt approximates fair value.
The term note payable to bank and the revolving promissory note contain
certain covenants, whereby the Company must maintain, among other things,
specified levels of minimum net worth and working capital, and maintain a
specified ratio of maximum debt to worth, and current ratio. The term note
payable contains cross default provisions as related to the revolving
promissory note and other debt agreements.
The Company violated covenants related to minimum net worth and maximum
debt to worth. As of the date of issuance of these financial statements,
the lender has not waived these covenant violations nor has it demanded
repayment. Management plans to negotiate an extension of the revolving debt
and covenant requirements prior to the expiration date of the debt or
obtain alternative financing. However, no assurance an be given that the
Company will be successful. If the Company were unable to negotiate an
extension or obtain alternative financing and the lender called the debt,
management would be required to shut down and/or sell certain assets of the
Company. Management believes its available collateral to be sufficient so
as acceptable financing can be obtained.
The Company has pledged substantially all of its assets as collateral under
the term loan and revolving loan agreement.
9
<PAGE>
Notes to Consolidated Financial Statements, Continued
4. Long-Term Debt, Continued:
Contractual maturities are as follows:
Aggregate
Period ending January 31 Obligation
------------------------ ----------
1998 $ 1,012,203
1999 141,863
2000 143,230
2001 144,652
2002 146,131
Beyond 122,801
------------
$ 1,710,880
============
10
<PAGE>
Notes to Consolidated Financial Statements, Continued
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three Month Comparisons
For the first quarter of fiscal 1997 the Company had consolidated net sales of
$3,399,974 as compared to $3,177,627 for the first quarter 1996, an increase of
7.0 %. The increase in sales is primarily the result of higher shipments at the
company's new subsidiary, International Press and Shear (IPS), which started
operations in the fourth quarter of 1995.
Consolidated net income for the first quarter 1997 was $9,829 versus $240,097 in
the first quarter of 1996. Earnings per share for the first quarter were $.00
and $.09 for 1997 and 1996 respectively. The lower earnings and the decrease in
the gross profit margin is directly related to the operations at the IPS
subsidiary in Baxley, Georgia. The losses incurred by the new subsidiary were
the result of costs related to a start-up operation and the continuing weakness
in the corrugated board and paper prices in the recycled products markets. Also,
the first quarter results for 1996 included income of $80,000 due to the
recording of a deferred tax asset which was reversed in the fourth quarter of
1996. The deferred tax asset was reversed due to the results of operations in
1996 and current short-term expectations.
The IPS operations have been pared down to a level which is commensurate with
the current corrugated and paper recycling market conditions. This subsidiary is
now running efficiently and it is the objective of the Company to get IPS to a
profitable or near break-even level by the end of the fiscal 1997.
The backlog as of February 28, 1997 was $2,092,000 as compared with $3,456,000
as of February 29, 1996, a decrease of 39.5%.
Financial Condition:
Net working capital increased from $1,333,765 at October 31, 1996 to $1,409,385.
This increase is the result of an increase in accounts receivable partially
offset by lower inventories and higher accounts payable, notes payable and
accrued liabilities.
The term note with SouthTrust Bank was renewed in August 1996, increased by
$375,167 and extended to August 2002. The original note balance of $418,333 at
October 31, 1996 was due in November 1997. Monthly payments on the original note
were $15,833 per month, plus interest at the prime rate + 1%. The new note is
due in equal monthly installments of $9,018, plus interest at the prime rate.
The entire balance of this term note was classified as a current liability
because the term loan has callable provisions relating to the revolving note
described below.
11
<PAGE>
Notes to Consolidated Financial Statements, Continued
Financial Condition, Continued:
The revolving note payable to SouthTrust in the amount of $1,000,000 was renewed
in July 1996 at the prime rate. Interest is payable monthly and all amounts
borrowed are due in full on July 7, 1997. The balance due at January 31, 1997
was $871,652. At January 31, 1997, the Company is in violation of the covenants
of the loan agreement related to minimum net worth and maximum debt to worth. As
of the filing date, the lender has not waived these covenant violations nor has
it demanded repayment. While no assurance can be given, management believes its
available collateral to be sufficient to allow the Company to renegotiate an
extension of the revolving debt and its covenant requirements prior to its
expiration date or obtain alternative financing. It is anticipated that the note
will be renewed in July 1997.
For the year ended October 31, 1996 and the quarter ended January 31, 1997 the
Company had negative cash flow from operations. Management has taken actions to
improve cash flows from operations primarily by reducing personnel to a minimum
level and cutting operating costs at the IPS subsidiary where possible.
Management anticipated that the IPS subsidiary will attain or exceed the sales
levels of 1996 and with the cost structure in place this subsidiary should
perform substantially better in 1997 than in 1996. However, if orders at IPS are
not sufficient to sustain a minimum cash outflow rate, management will take
further action as necessary to maintain the liquidity position of the entire
company.
Our auditors, Coopers & Lybrand, have stated in the "Report of Independent
Accountants" to the shareholders of Waste Technology Corporation that there is
"substantial doubt" about the Company's ability to continue as a going concern.
While the Company understands why the accountants report had to include the
explanatory paragraph, (the absence of a loan default waiver), and though the
Company's Management and Board of Directors has substantial concern, it believes
that it has several viable options to continue as a going concern for the
following reasons:
1. The Company has the ability to take actions to reduce the operating and
carrying costs of its IPS subsidiary to a level which will not
jeopardize the liquidity of the company.
2. The Company violated covenants related to minimum net worth and maximum
debt to worth. As of the date of issuance of this report, the lender
has not waived these covenant violations nor has it demanded repayment.
Management plans to negotiate an extension of the revolving debt and
covenant requirements prior to the expiration date of the debt or
obtain alternative financing. However, no assurance can be given that
the Company will be successful. If the Company were unable to negotiate
an extension or obtain alternative financing and the lender called the
debt, Management would be required to shut-down and/or sell certain
assets of the Company. Management believes its available collateral to
be sufficient so as acceptable financing can be obtained.
12
<PAGE>
Notes to Consolidated Financial Statements, Continued
Financial Condition, Continued:
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 increased to offset any increase in costs due to inflation.
13
<PAGE>
Notes to Consolidated Financial Statements, Continued
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 6, 1997 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)
14
<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>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 49,935
<SECURITIES> 0
<RECEIVABLES> 2,266,915
<ALLOWANCES> 91,000
<INVENTORY> 2,747,047
<CURRENT-ASSETS> 4,948,751
<PP&E> 3,637,767
<DEPRECIATION> 1,168,054
<TOTAL-ASSETS> 7,495,370
<CURRENT-LIABILITIES> 3,539,366
<BONDS> 0
0
0
<COMMON> 27,634
<OTHER-SE> 2,179,949
<TOTAL-LIABILITY-AND-EQUITY> 7,495,370
<SALES> 3,399,974
<TOTAL-REVENUES> 3,399,974
<CGS> 2,644,617
<TOTAL-COSTS> 3,346,842
<OTHER-EXPENSES> (13,195)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,598
<INCOME-PRETAX> 22,729
<INCOME-TAX> 12,900
<INCOME-CONTINUING> 9,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,829
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
