<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended January 31, 1999 .
-----------------------
- ----- Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 Incorporation or Organization)
Identification No.)
5400 Rio Grande Avenue
Jacksonville, Florida 32254
- --------------------------------------------------------------------------------
(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, 1999 Registrant had outstanding 5,516,349 shares of its
Common Stock.
Transitional small business disclosure format check one:
Yes No X
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1
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WASTE TECHNOLOGY CORP.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
o Consolidated Balance Sheets as of January 31, 1999 and
October 31, 1998................................................3
o Consolidated Statements of Income for the three months
ended January 31, 1999 and 1998.................................5
o Consolidated Statements of Changes in Stockholders' Equity
for the period from October 31, 1998 to January 31, 1999........6
o Consolidated Statements of Cash Flows for the three months
ended January 31, 1999 and 1998.................................7
o Notes to Financial Statements...................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................10
PART II. OTHER INFORMATION
o Signatures......................................................13
2
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/99 10/31/98
Unaudited
ASSETS
Current Assets:
Cash and cash equivalents $3,877 $69,349
Accounts receivable, net of allowance
for doubtful accounts of $138,000 1,026,047 1,576,722
Inventories 2,409,766 2,681,288
Prepaid expense and other current assets 1,611 822
-------------- --------------
Total current assets 3,441,301 4,328,181
Property, plant and equipment at cost 3,668,722 3,616,842
Less: accumulated depreciation 1,632,295 1,559,753
-------------- --------------
Net property, plant & equipment 2,036,427 2,057,089
Other assets:
Other assets 43,255 98,611
Due from Officer 304,100 300,082
-------------- --------------
Total other assets 347,355 398,693
-------------- --------------
TOTAL ASSETS $5,825,083 $6,783,963
See accompanying notes to consolidated financial statements
3
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
01/31/99 10/31/98
Unaudited
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $913,148 $1,220,555
Current maturities of long-term debt 168,230 142,886
Capital Lease obligation 17,230 16,871
Accounts payable 1,167,752 1,276,045
Accrued liabilities 490,490 588,053
Customer deposits 455,464 555,905
Accrued Judgment 500,000 495,000
------------- -------------
Total current liabilities 3,712,314 4,295,315
Long-term debt 413,582 449,519
Capital Lease obligation, less current
maturities 666,150 669,175
------------- -------------
Total liabilities 4,792,046 5,414,009
Stockholders' equity
Common stock, par value $.01
25,000,000 shares authorized; 6,179,875
shares issued in 1999 & 1998, respectively 61,799 61,799
Preferred stock, par value $.0001,
10,000,000 shares authorized, none issued - -
Additional paid-in capital 6,347,187 6,347,187
Accumulated deficit (4,603,618) (4,255,917)
------------- -------------
1,805,368 2,153,069
Less: Treasury stock, 663,526 shares at cost 419,306 419,306
Less: Note receivable from stockholders, net 353,025 363,809
------------- -------------
Total stockholders' equity 1,033,037 1,369,954
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $5,825,083 $6,783,963
See accompanying notes to consolidated financial statements
4
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three months ended: 01/31/99 01/31/98
Net Sales $2,171,154 $3,008,112
Cost of Sales 1,889,688 2,510,537
-------------- -------------
Gross Profit 281,466 497,575
Operating Expenses:
Selling 224,146 322,416
General and Administrative 359,017 440,259
-------------- -------------
Total operating expenses 583,163 762,675
Operating Income (Loss) (301,697) (265,100)
Other Income (Expense):
Interest 15,109 18,061
Interest Expense (60,307) (47,325)
Other Income 4,194 4,919
Provision for Judgment (5,000) -
-------------- -------------
Total Other Income (Expense) (46,004) (24,345)
-------------- -------------
Income (Loss) before income taxes (347,701) (289,445)
Income Tax Provision
Current - -
Deferred - -
-------------- -------------
NET INCOME (LOSS) ($347,701) ($289,445)
Basic and diluted net loss per share (0.06) (0.06)
Weighted average number of shares 5,516,349 5,102,481
See accompanying notes to consolidated financial statements
5
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for three months ended January 31, 1999
unaudited
<TABLE>
<CAPTION>
Common Stock
Par Value $.01 Authorized
25,000,000
NUMBER ADDITIONAL
OF SHARES PAR PAID-IN ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT
<S> <C> <C> <C> <C>
Balance at October 31, 1998 6,179,875 $61,799 $6,347,187 ($4,255,917)
Adjustment of Note Receivable
from shareholder - - - -
Net Income (Loss) - - - (347,701)
------------- ------------ ------------ --------------
Balance at January 31, 1999 6,179,875 $61,799 $6,347,187 ($4,603,618)
<CAPTION>
Treasury Stock
NUMBER TOTAL
OF STOCKHOLDERS'
SHARES COST OTHER EQUITY
<S> <C> <C> <C> <C>
Balance at October 31, 1998 663,526 ($419,306) ($363,809) $1,369,954
Adjustment of Note Receivable
from shareholder - - 10,784 10,784
Net Income (Loss) - - - (347,701)
------------ ------------- -------------- ---------------
Balance at January 31, 1999 663,526 ($419,306) ($353,025) $1,033,037
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
unaudited
<TABLE>
<CAPTION>
For Three Months Ended
01/31/99 01/31/98
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income ($347,701) ($289,445)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 78,322 69,631
Increase (decrease) from changes in:
Accounts receivable 550,675 52,925
Inventories 271,522 (476,831)
Prepaid expenses and other current assets (789) 53,475
Other assets - 117
Accounts payable (108,293) 438,606
Accrued liabilities (77,163) (8,763)
Customer deposits (100,441) 147,385
Accrued Judgment 5,000 -
------------- --------------
Net cash provided by (used in) operating activities 271,132 (12,900)
Cash flows from investing activities:
Increase in notes receivable from stockholders (13,634) (13,503)
Purchase of property and equipment (2,304) (6,781)
Purchase of Minority Interest - (15,000)
------------- --------------
Net cash used in investing activities (15,938) (35,284)
Cash flows from financing activities:
Increase (decrease) in Debt (320,666) 11,103
------------- --------------
Cash flows provided by (used in) financing activities (320,666) 11,103
Net increase (decrease) in cash (65,472) (37,081)
Cash at beginning of period 69,349 80,783
Cash at end of period 3,877 43,702
Supplemental schedule of disclosure of cash flow
information Cash paid during period for:
Interest 55,309 46,152
Income taxes - -
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
Waste Technology Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business:
Waste Technology Corp. (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, Europe and South America. The Company has two
manufacturing subsidiaries, International Baler Corp. (IBC), located in
Jacksonville, Florida, and International Press and Shear, Corp. (IPS), located
in Baxley, Georgia.
The IPS subsidiary was formed in the second quarter of fiscal 1995 and greatly
expanded the manufacturing capacity of the Company. Operating losses at IPS are
a significant cause of the consolidated losses in the first quarter of fiscal
1999 and 1998. These losses occurred primarily as a result of the continuing
depressed recycled products markets, as well as higher than anticipated costs of
sales and selling and administrative expenses. In the fourth quarter of 1998 the
Company effectuated significant cost reductions which will exceed $500,000 on an
annual basis. These cost cutting measures include personnel eliminations, salary
reductions and advertising reductions.
The Company is unable to predict how soon prices will recover, but, based on
previous cyclical dips in corrugated and paper prices, the Company believes that
prices could rise in the relatively near future with a resulting increase in
sales and profits. The Company has introduced new textile balers, new corrugated
balers and has been marketing the new patented hinge side baler. The Company
anticipates that these products will have a significant impact on sales in
fiscal 1999.
2. 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 January 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending October 31, 1999. For further information, refer to the Company's Annual
Report on form 10KSB for the year ended October 31, 1998 and the Management
Discussion included in this form 10QSB.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
8
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3. Summary of Significant Account Policies:
(a) Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of Waste
Technology Corp. and all of its wholly owned and majority owned subsidiaries.
Intercompany balances and material intercompany transactions have been
eliminated in consolidation.
(b) Basic and Diluted Earnings (Loss) Per Share:
Basic earnings (loss) per share is calculated using the weighted average number
of common shares outstanding during each period. Diluted earnings (loss) per
share includes the net additional number of shares that would be issued upon the
exercise of stock options using the treasury stock method. Options are not
considered in loss periods as they would be antidilutive.
4. Related Party Loan and Notes Receivable:
The Company was indebted in the amount of $414,775 to the General Counsel and
his law firm at January 31, 1999. During 1997, the General Counsel and his law
firm authorized the Company to set off accrued legal fees against the note
receivable from the General Counsel at such time as the Board of Directors shall
determine. Accordingly, accrued legal fees are presented as a reduction of notes
receivable from General Counsel at January 31, 1999.
On December 29, 1995, the Company transferred a life insurance policy, covering
the life of its president, to the president in exchange for a note receivable.
The amount of the note receivable from president is equal to the amount of the
cash surrender value of the policy at the time of the transfer. Interest accrues
at the rate of 6% per annum. No principal or interest is due until proceeds from
the policy are realized.
5. Revolving Promissory Note:
The Company has a $2,000,000 line of credit with $913,148 outstanding at January
31, 1999 and $1,220,555 outstanding at October 31, 1998. The line of credit is
secured by substantially all assets. Advances under the revolving line are
limited to the aggregate of up to 85% of eligible accounts receivable less than
90 days old and 30% of eligible raw materials and finished goods inventory. As
of January 31, 1999, the balance of the revolving line approximated the maximum
borrowing capacity available to the Company. The revolving line bears interest
at the prime rate plus 1.5% (9.25% at January 31, 1999) with the principal
amount payable on demand.
9
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6. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
01-31-99 10-31-98
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<S> <C> <C>
Term note payable to bank at prime rate, due
in equal monthly installments of $9,028, plus interest
through August 2002, secured by substantially all assets. $388,194 $415,278
Term note payable to Appling County, Georgia at
4.0% due in equal monthly installments of $3,417,
including interest through July 2003. 168,618 177,127
Note payable to director, payable on demand,
non-interest bearing. 25,000 -
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581,812 592,405
Amounts classified as current 168,230 142,886
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$ 413,582 $ 449,519
=========== =========
</TABLE>
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 1999 the Company had net sales of $2,171,154 as
compared to $3,008,112 for the first quarter of 1998. The lower sales were the
result of lower shipments to the recycled products markets at both the
International Baler and International Press and Shear operations.
The Company had a net loss of $347,701 in the first quarter of 1999 as compared
to a loss of $289,445 in the first quarter of 1998. The increase in the loss is
the result of the lower level of shipments partially offset by lower operating
expenses. Selling expenses were reduced by $98,270 and general and
administrative expenses were reduced by $81,242 in the first quarter 1999 versus
the same quarter in fiscal 1998. These cost reductions are the result of
personnel eliminations, salary reductions, and lower advertising and travel
expenses.
The Company is reviewing all aspects of its operations in order to determine
what additional actions may be taken in order to allow the Company to return to
profitability even if the recycled products markets remain depressed. The
Company has moved production of certain baler models to Jacksonville and has
also eliminated a number of support staff in Baxley maintaining only critical
personnel. As order activity increases full production can resume. The Company
has introduced new textile balers, new corrugated balers and has been marketing
a new patented hinge side baler. The Company anticipates that these products
will have a significant impact on sales in fiscal 1999.
The order backlog as of February 28, 1999 was $2,146,000 as compared with
$3,010,000 at February 28, 1998.
10
<PAGE>
Financial Condition:
Working capital decreased from $32,866 at October 31, 1998 to $(271,013) at
January 31, 1999. This decrease is due to the overall operating results of the
first quarter of 1999. The entire balance of the line of credit is included as a
current liability even through it is not due to be renewed or replaced until
July 31, 2000 because of the nature of this type of loan. This line of credit is
for a period of two years, accrues interest at 1 1/2% above the prime rate and
is secured primarily by accounts receivable and inventories. Also included in
current liabilities is the accrued legal judgement of $500,000 which relates to
the Company's former subsidiary, Ram Coating Technology.
The term note with SouthTrust Bank had a balance of $338,194 at January 31, 1999
and is due in equal monthly installments of $9,028, plus interest at the prime
rate to August 2002. The term note payable to Appling County, Georgia is due in
equal monthly installments of $3,417 including interest at 4.0% through July
2003.
Our auditors, KPMG LLP, have stated in the "Report of Independent Accountants"
for October 31, 1998 to the shareholders of Waste Technology Corporation that
there is "substantial doubt" about the Company's ability to continue as a going
concern. The Company's Management and Board of Directors has substantial concern
over recent operating performances, however, it believes that it has several
viable options to continue as a going concern for the following reasons:
1. In July 1998 the Company has replaced the $1,000,000 revolving
promissory note with SouthTrust Bank with a $2,000,000 (maximum)
revolving promissory note with a term of two years. Therefore, the
Company is no longer in violation of the SouthTrust revolving
promissory note loan covenants.
2. The Company has taken certain actions to reduce operating costs
including the elimination of personnel, implementing salary reductions
for management, and cutting expenditures wherever possible. These cost
cutting actions should result in annual savings in excess of $500,000
and were implemented in the fourth quarter of fiscal 1998. The Company
is also developing additional contingency plans to further reduce costs
in order that the Company can operate profitably in the future and have
positive cash flow from operations at a minimum.
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 economic charges which materially
affect the amount of reported income from continuing operations.
The above contains forward looking statements and is subject to many
variables over which the Company has no control such as inflation,
competition, and the general market conditions for its products.
Therefore the Company may have to consider additional financing and/or
operating alternatives to insure the Company will continue as a going
concern.
11
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Year 2000 Compliance:
The Company believes it has fully achieved Year 2000 compliance for all internal
systems. Costs associated with compliance were immaterial and have been fully
incurred. The Company is in the process of examining key vendor and customer
relationships to determine, to the extent practical, the degree of such parties'
Year 2000 compliance.
Should a key vendor or customer have a systems failure due to the century
change, the Company believes that the most significant impact would likely be
the inability to receive inventory on a timely basis. While the Company does not
expect any such impact to be material, it is developing contingency plans to
address this possibility.
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.
12
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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 14, 1999 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)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 3,877
<SECURITIES> 0
<RECEIVABLES> 1,164,047
<ALLOWANCES> 138,000
<INVENTORY> 2,409,766
<CURRENT-ASSETS> 3,441,301
<PP&E> 3,668,722
<DEPRECIATION> 1,632,295
<TOTAL-ASSETS> 5,825,083
<CURRENT-LIABILITIES> 3,712,314
<BONDS> 0
0
0
<COMMON> 61,799
<OTHER-SE> 971,238
<TOTAL-LIABILITY-AND-EQUITY> 5,825,083
<SALES> 2,171,154
<TOTAL-REVENUES> 2,171,154
<CGS> 1,889,688
<TOTAL-COSTS> 2,472,851
<OTHER-EXPENSES> (14,303)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,307
<INCOME-PRETAX> (347,701)
<INCOME-TAX> 0
<INCOME-CONTINUING> (347,701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (347,701)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
