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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
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Exchange Act of 1934
For the quarterly period ended January 31, 1998.
Transition report pursuant to Section 13 or 15 (d) of the Securities
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Exchange Act of 1934
For the transition period from to
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Commission File Number 0-14443
WASTE TECHNOLOGY CORP.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-2842053
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5400 Rio Grande Avenue
Jacksonville, Florida 32254
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(Address of Principal Executive Offices) (Zip Code)
(904) 355-5558
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(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
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At February 28, 1998, Registrant had outstanding 5,266,297 shares of
its Common Stock.
Transitional small business disclosure format check one:
Yes No X
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WASTE TECHNOLOGY CORP.
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
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o Balance Sheets as of January 31, 1998 and October 31, 1997.......................................3
o Statements of Income for the three months........................................................5
ended January 31, 1998 and 1997
o Statements of Changes in Stockholders' Equity....................................................6
for the period from October 31, 1997 to January 31, 1998
o Statements of Cash Flows for the three months....................................................7
ended January 31, 1998 and 1997
o Notes to Financial Statements...................................................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS...................................................10
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II. OTHER INFORMATION
o Signatures.....................................................................................12
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/98 10/31/97
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $43,702 $80,783
Accounts receivable, net of allowance
for doubtful accounts of $86,000 1,966,510 2,019,435
Inventories 2,856,109 2,379,278
Prepaid expense and other current assets 24,350 77,825
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Total current assets 4,890,671 4,557,321
Property, plant and equipment at cost 3,547,042 3,591,994
Less: accumulated depreciation 1,438,290 1,370,226
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Net property, plant & equipment 2,108,752 2,221,768
Other assets:
Intangible assets, net 59,318 60,885
Other assets 15,018 15,135
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Total other assets 74,336 76,020
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TOTAL ASSETS $7,073,759 $6,855,109
See accompanying notes
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/98 10/31/97
Unaudited
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
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Revolving promissory note $676,652 $626,652
Current maturities of long-term debt 530,058 556,809
Capital Lease Obligation 16,827 15,522
Accounts payable 1,782,528 1,343,922
Accrued liabilities 412,235 442,912
Customer deposits 574,407 427,022
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Total current liabilities 3,992,707 3,412,839
Long-term debt 168,618 177,126
Capital Lease Obligation, less current maturities 681,103 686,046
Minority interest in equity of subsidiary 0 210,322
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Total liabilities 4,842,428 4,486,333
Stockholders' equity
Common stock, par value $.01
25,000,000 shares authorized, 5,929,823 and
5,746,029 shares issued in 1998 & 1997 respectively 59,299 57,461
Preferred stock, par value $.0001,
10,000 shares authorized, none issued 0 0
Additional paid-in capital 6,349,687 6,207,936
Accumulated deficit (3,160,034) (2,870,589)
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3,248,952 3,394,808
Less: Treasury stock, 663,526 shares at cost 419,306 419,306
Less: Note receivable from shareholders 598,315 606,726
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Total stockholders' equity 2,231,331 2,368,776
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $7,073,759 $6,855,109
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See accompanying notes
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended: 01/31/98 01/31/97
Net Sales $3,008,112 $3,399,974
Cost of Sales 2,510,537 2,644,617
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Gross Profit 497,575 755,357
Operating Expenses:
Selling 322,416 248,252
General and Administrative 440,259 453,973
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Total operating expenses 762,675 702,225
Operating Income (265,100) 53,132
Other Income (Expense):
Interest Income 18,061 15,062
Interest Expense (47,325) (43,598)
Other Income 4,919 1,822
Other Expense 0 0
Net Gain on Disposal of Fixed Assets 0 0
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Total Other Income (Expense) (24,345) (26,714)
Less minority interest in income of
consolidated subsidiary 0 3,689
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Income before income taxes (289,445) 22,729
Income Tax Provision (benefit)
Current 0 12,900
Deferred 0 0
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NET INCOME (LOSS) ($289,445) $9,829
Earnings per share- Basic (0.06) 0.00
Average number of shares and equivalent 5,102,481 4,970,976
See accompanying notes
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for three months ended January 31,1998
Unaudited
Common Stock
Par Value $.01 Authorized Treasury Stock
25,000,000 Shares
Number Additional Number
of Shares Par Paid-in Accumulated of
Issued Value Capital Deficit Shares Cost
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Balance at October 31, 1997 5,746,029 $ 57,461 $ 6,207,936 $ (2,870,589) 663,526 $ (419,306)
Shares issued 183,794 1,838 141,751 - - -
Adjustment of Note Receivable
from shareholder - - - - - -
Net income (loss) - - - (289,445) - -
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Balance at January 31, 1998 5,929,823 $ 59,299 $ 6,349,687 $ (3,160,034) 663,526 $ (419,306)
=========== ======== =========== ============= ========= ===========
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Total
Other Stockholders'
Equity
Balance at October 31, 1997 $ (606,726) $ 2,368,776
Shares issued - 143,589
Adjustment of Note Receivable
from shareholder 8,411 8,411
Net income (loss) - (289,445)
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Balance at January 31, 1998 $ (598,315) $ 2,231,331
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See accompanying notes to consolidated financial statements
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Unaudited
For Three Months Ended
1/31/98 01/31/97
Cash flow from operating activities:
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Net (loss)income ($289,445) $9,829
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization 69,631 64,988
Minority interest in income of subsidiary 0 3,689
Increase (decrease) from changes in:
Accounts receivable 52,925 (764,959)
Inventories (476,831) 415,161
Prepaid expenses and other current assets 53,475 67,354
Other assets 117 6,728
Accounts payable 438,606 345,008
Accrued liabilities and legal fees (8,763) (79,014)
Customer deposits 147,385 (443,186)
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Total adjustments 276,545 (384,231)
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Net cash (used in) provided by operating activities (12,900) (374,402)
Cash flows from investing activities:
Increase in notes receivable from shareholders (13,503) (12,898)
Purchase of property and equipment (6,781) (4,491)
Purchase of minority interest (15,000) 0
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Net cash used in investing activities (35,284) (17,389)
Cash flows from financing activities:
Increase (decrease) in Debt 11,103 301,726
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Cash flows used in financing activities 11,103 301,726
Net (decrease) increase in cash (37,081) (90,065)
Cash at beginning of period 80,783 140,000
Cash at end of period 43,702 49,935
Supplemental schedule of disclosure of cash flow information
Cash paid during period for:
Interest 46,152 43,598
Income taxes 0 0
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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, 1998 are not necessarily indicative of
the results that may be expected for the year ending October 31, 1998. For
further information, refer to the Company's Annual Report on form 10KSB for
the year ended October 31, 1997 and the Management Discussion included in
this form 10QSB.
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
2. Accounting Policies:
Stock-Based Compensation - On November 2, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1997 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
25 and provide the disclosure provisions of SFAS No. 123. No stock options
were granted during the quarter ended January 31, 1998.
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.
The Company adopted SFAS No. 128, "Earnings per Share," effective with the
first quarter of fiscal year 1998. The adoption of this statement did not
materially impact the Company's statements.
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Notes to Consolidated Financial Statements, Continued
4. Long-Term Debt:
Long-term debt consists of the following:
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01-31-98 10-31-97
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Term note payable to bank at prime rate plus, due in equal monthly
installments of $9,028, plus interest through August 2002. 496,527 $523,611
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
May 7, 1998. 676,652 626,652
Term note payable to Appling County, Georgia at 4.0% due in equal
monthly installments of $3,417, including interest
through July 2003. 202,149 210,324
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1,375,328 1,360,587
Amounts classified as current 1,206,710 1,183,461
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$ 168,618 $ 177,126
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The bank's prime rate at January 31, 1998 was 8.50%. 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 certain financial covenants of the above debt
agreement. 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 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 sell certain assets of the Company or seek
equity financing. 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.
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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 1998 the Company had net sales of $3,008,112 as
compared to $3,399,974 for the first quarter of 1997, a decrease of 11.5%. The
decrease in sales was caused by lower shipments at all operating units of the
Company and was directly related to continued weakness in the corrugated board
and paper markets for recycled materials. Corrugated and paper market prices
have recently shown substantial increases which should result in increased
orders in the remainder of fiscal 1998.
Consolidated net income was a loss in the first quarter of $289,445 versus a
profit of $9,829 in the same quarter in the prior year. Earnings (Loss) per
share were $(.06) and $(.00), for the first quarter 1998 and 1997 respectively.
The loss in the first quarter was the result of the lower shipments mentioned
above, more favorable product mix in fiscal 1997 and higher selling expense in
1998. The increase in selling expense in the quarter is the result of adding
additional sales and marketing personnel and increasing the overall marketing
efforts of the Company.
The backlog as of February 28, 1998 was $3,010,000 as compared with $2,092,000
as of January 31, 1997, an increase of 43.9%. Therefore, with this backlog, the
second quarter of fiscal 1998 and the remainder of fiscal 1998 are anticipated
to show improved results over the corresponding prior periods.
Financial Condition:
Net working capital decreased from $1,144,482 at October 31, 1997 to $897,964 at
January 31, 1998. This decrease in working capital is considered to be temporary
and should be reversed in the balance of fiscal 1998 based on management's
expectations from the previously mentioned backlog increase.
The revolving note payable to SouthTrust Bank in the amount of $1,000,000 was
renewed in November 1997 at the prime rate. Interest is payable monthly and all
amounts borrowed are due in full on May 7, 1998. The balance due at January 31,
1998 was $676,652. At January 31, 1998, the Company is in violation of the
covenant of the loan agreement related to the ratio of liabilities to net 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 replace the
revolving note with a new revolving note of at least $1,000,000.
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Financial Condition Continued:
The term note with SouthTrust Bank had a balance of $496,527 at January 31, 1998
and is due in equal monthly installments of $9,018, plus interest at the prime
rate to August 2002. 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.
For the three months ended January 31, 1998 the Company had negative $12,900
cash flow from operations while in the same period in fiscal 1997 the Company
had negative operating cash flow of $374,402. The negative cash flow in fiscal
1997 was due to the start-up operations of IPS, cash requirements for inventory
and accounts receivable which have not continued at the same rate in fiscal
1998.
Our auditors, KPMG Peat Marwick LLP, have stated in the "Report of Independent
Accountants" for October 31, 1997 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 operations of the IPS subsidiary have been operating at a much
reduced deficit and are expected to be profitable by the end of 1998.
2. The Company violated the covenant related to maximum debt to net worth.
As of the date of issuance of this report, the lender has not waived
these covenant violations nor has it demanded repayment. Management is
in the process of obtaining financing to replace the revolving loan and
the term loan and expects to accomplish this prior to the expiration
date of the revolving loan, May 7, 1998. 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 sell certain
assets of the Company or seek equity financing. Management believes its
available collateral to be sufficient so as acceptable financing can be
obtained.
The Company has no commitments for any material capital expenditures. Other than
as set forth above, there are no unusual or infrequent events or transactions or
significant economy changes which materially effect the amount of reported
income from continuing operations.
Inflation:
The costs of the Company and its subsidiaries are subject to the general
inflationary trends existing in the general economy. The Company believes that
expected pricing by its subsidiaries for balers will be able to include
sufficient increases to offset any increase in costs due to inflation.
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PART II-OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by undersigned
hereto duly authorized.
Dated: March 12, 1998 WASTE TECHNOLOGY CORPORATION
BY: /s/ Ted C. Flood
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Ted C. Flood, President
(Chief Executive Officer)
BY: /s/ William E. Nielsen
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William E. Nielsen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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