<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, 2000 .
--------------------------
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 CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-2842053
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(State or Other Jurisdiction of (I.R.S. Employer Incorporation or
Organization Identification No.)
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
----- -----
At February 29, 2000, 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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WASTE TECHNOLOGY CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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PAGE
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PART I. FINANCIAL INFORMATION ......................................................3
ITEM I. FINANCIAL STATEMENTS
o Consolidated Balance Sheets as of January 31, 2000,
and October 31, 1999 .........................................................3
o Consolidated Statements of Income for the three
months ended January 31, 2000, and
January 31, 1999 .............................................................5
o Consolidated Statements of Changes in Stockholders' Equity for the
period from October 31, 1998, to January 31, 2000 ............................6
o Consolidated Statements of Cash Flows for the three
months ended January 31, 2000, and
January 31, 1999. ............................................................7
o Notes to Financial Statements ................................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................11
PART II. OTHER INFORMATION
o Signatures ..................................................................13
</TABLE>
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
01/31/00 10/31/99
Unaudited
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $10,178 $18,432
Accounts receivable, net of allowance for
doubtful accounts of $86,000 and $138,000 respectively 982,119 1,282,095
Inventories 1,600,853 2,078,389
Prepaid expense and other current assets 3,492 11,521
Receivable from sale of assets 90,972 0
--------------- ---------------
Total current assets 2,687,614 3,390,437
Property, plant and equipment at cost 1,831,567 3,642,755
Less: accumulated depreciation 1,180,706 1,709,686
--------------- ---------------
Net property, plant & equipment 650,861 1,933,069
Other assets:
Other assets 9,353 31,818
Due from Officer 361,402 356,778
--------------- ---------------
Total other assets 370,755 388,596
--------------- ---------------
TOTAL ASSETS $3,709,230 $5,712,102
</TABLE>
See accompanying notes to consolidated financial statements
3
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
01/31/00 10/31/99
Unaudited
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $0 $553,852
Current maturities of long-term debt 108,333 195,985
Capital Lease obligation 0 16,701
Accounts payable 573,607 1,613,837
Accrued liabilities 521,830 559,773
Customer deposits 597,378 768,835
Accrued Judgment 526,000 519,000
--------------- ---------------
Total current liabilities 2,327,148 4,227,983
Long-term debt 171,528 305,070
Capital Lease obligation, less current maturities 0 652,849
--------------- ---------------
Total liabilities 2,498,676 5,185,902
Stockholders' equity
Common stock, par value $.01
25,000,000 shares authorized; 6,179,875
shares issued in 2000 & 1999, 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 (4,416,655) (5,085,769)
--------------- ---------------
1,992,331 1,323,217
Less: Treasury stock, 663,526 shares at cost 419,306 419,306
Less: Note receivable from shareholders 362,471 377,711
--------------- ---------------
Total stockholders' equity 1,210,554 526,200
--------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $3,709,230 $5,712,102
</TABLE>
See accompanying notes to consolidated financial statements
4
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended: 01/31/00 01/31/99
Net Sales $2,457,308 $2,171,154
Cost of Sales 1,901,892 1,889,688
--------------- ---------------
Gross Profit 555,416 281,466
Operating Expenses:
Selling 173,491 224,146
General and Administrative 299,120 359,017
--------------- ---------------
Total operating expenses 472,611 583,163
Operating Income (Loss) 82,805 (301,697)
Other Income (Expense):
Interest & Dividends 18,934 15,109
Interest Expense (55,167) (60,307)
Other Income 2,613 4,194
Net Gain on Disposal of Fixed Assets 626,929 0
Provision for Judgment (7,000) (5,000)
--------------- ---------------
Total Other Income (Expense) 586,309 (46,004)
--------------- ---------------
Income (Loss) before income taxes 669,114 (347,701)
Income Tax Provision
Current
Deferred
--------------- ---------------
NET INCOME (LOSS) $669,114 ($347,701)
Basic and diluted Income (Loss) per share 0.12 (0.06)
Weighted average number of shares 5,516,349 5,516,349
</TABLE>
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, 2000
unaudited
<TABLE>
<CAPTION>
Common Stock
Par Value $.01 Authorized
25,000,000 Treasury Stock
NUMBER ADDITIONAL NUMBER
OF SHARES PAR PAID-IN ACCUMULATED OF
ISSUED VALUE CAPITAL DEFICIT SHARES
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1998 6,179,875 $ 61,799 $ 6,347,187 $ (4,255,917) 663,526
Net Adjustment of Note Receivable
from shareholder - - - - -
Net Income (Loss) - - - (829,852) -
-------------- ----------- ------------ -------------- ---------------
Balance at October 31, 1999 6,179,875 $ 61,799 $ 6,347,187 $ (5,085,769) 663,526
Net Adjustment of Note Receivable
from shareholder
Net Income (loss) 669,114
-------------- ----------- ------------ -------------- ---------------
Balance at January 31, 2000 6,179,875 $ 61,799 $ 6,347,187 $ (4,416,655) 663,526
<CAPTION>
TOTAL
STOCKHOLDERS'
COST OTHER EQUITY
<S> <C> <C> <C>
Balance at October 31, 1998 $ (419,306) $ (363,809) $ 1,369,954
Net Adjustment of Note Receivable
from shareholder - (13,902) (13,902)
Net Income (Loss) - - (829,852)
------------ ----------- -----------
Balance at October 31, 1999 (419,306) (377,711) $ 526,200
Net Adjustment of Note Receivable
from shareholder 15,240 15,240
Net Income (loss) 669,114
------------ ----------- -----------
Balance at January 31, 2000 $ (419,306) $ (362,471) $ 1,210,554
</TABLE>
See accompanying notes to consolidated financial statements
6
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WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited
<TABLE>
<CAPTION>
<S> <C> <C>
For Three Months Ended 01/31/00 01/31/99
Cash flow from operating activities:
Net (loss) income $ 669,114 $ (347,701)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 32,437 78,322
Gain from sale of equipment (626,929) 0
Increase (decrease) from changes in:
Accounts receivable 39,705 550,675
Inventories 116,608 271,522
Prepaid expenses and other current assets (101,762) (789)
Other assets 9,987 0
Accounts payable (728,242) (108,293)
Accrued liabilities 3,420 (77,163)
Customer deposits 480,721 (100,441)
Accrued Judgment 7,000 5,000
-------------- -------------
Net cash provided by (used in) operating activities (97,941) 271,132
Cash flows from investing activities:
Increase in notes receivable from shareholders 15,240 (13,634)
Purchase of property and equipment 0 (2,304)
Proceeds from sale of assets and liabilities 661,220 -
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Net cash provided by (used in) investing activities 676,460 (15,938)
Cash flows from financing activities:
Increase (decrease) in Debt (586,773) (320,666)
---------------- -------------
Cash flows provided by (used in) financing activities (586,773) (320,666)
Net increase (decrease) in cash (8,254) (65,472)
Cash at beginning of period 18,432 69,349
Cash at end of period 10,178 3,877
Supplemental schedule of disclosure of cash flow information
Cash paid during period for:
Interest 44,214 55,309
Income taxes 0 0
</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 Corporation (the Company) is a manufacturer of baling machines
which utilize technical, 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. During
fiscal 1999, the Company had two manufacturing subsidiaries, International Baler
Corp. (IBC), located in Jacksonville, Florida, and International Press and
Shear, Corp. (IPS), located in Baxley, Georgia.
In December 1999, the Company sold the assets of its IPS subsidiary of
approximately $2,000,000 to two IPS officers for $800,000 and the assumption of
$1,900,000 liabilities. 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
both 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 and continuing in 1999 and the first quarter of fiscal
2000, the Company effectuated significant cost reductions which exceeded
$700,000 in fiscal 1999. These cost cutting measures included personnel
eliminations, salary reductions and advertising reductions.
The Company's management and Board of Directors have substantial concern over
recent operating performances, however, it believes that it has several viable
options to continue as a going concern.
With the elimination of the IPS subsidiary, the Company anticipates that
operating results should be significantly improved in fiscal 2000. The Company
has introduced new textile balers, new corrugated balers and has been
manufacturing the patented hinge side baler and marketing it under the trade
name "Expando Hopper." The Company's backlog at February 29, 2000, is
approximately $1,670,000.
With some of the proceeds from the sale of assets of IPS, the Company has paid
the outstanding balance of the loan from Foothill Capital Corporation which had
an interest rate of 14.75% (note 5). The Company is in the process of securing a
new line of credit at a more favorable interest rate.
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
8
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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, 2000, are not necessarily indicative of the results
that may be expected for the year ending October 31, 2000. For further
information, refer to the Company's Annual Report on form 10-KSB for the year
ended October 31, 1999, and the Management Discussion included in this form
10-QSB.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
3. Summary of Significant Account Policies:
(a) Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of Waste
Technology Corporation 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 or in periods in which options are "out of the
money", as they would be antidilutive.
4. Related Party Loan and Notes Receivable:
The Company was indebted in the amount of $443,791 to the General Counsel and
his law firm at January 31, 2000. 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, 2000.
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 the 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.
9
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5. Revolving Promissory Note:
The Company had a $2,000,000 line of credit with $553,852 outstanding at October
31, 1999. The line of credit was secured by substantially all assets. In
December 1999, the Company paid the outstanding balance on the line of credit.
The Company is in the process of securing a new line of credit at a more
favorable interest rate.
6. Term Notes and Capital Leases:
The term note payable to Appling County, Georgia, the term note payable to a
bank ($51,654) and the capital lease related to the Baxley facility were assumed
by purchasers of the assets of the IPS operations.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
01-31-00 10-31-99
<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. $279,861 $306,944
Term note payable to Appling County, Georgia at
4.0% due in equal monthly installments of $3,417,
including interest through July 2003. --- 142,457
Term Note payable to bank at 9.75%. Due in monthly
installments of $2,466, including interest through
September, 2003. --- 51,654
-------- --------
279,861 501,055
Amounts classified as current 108,333 195,985
-------- --------
$171,528 $305,070
======== ========
</TABLE>
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three Month Comparisons
In the first quarter of 2000, the Company sold the assets of its International
Press and Shear Corporation (IPS) subsidiary to two IPS officers for $800,000
and the assumption of the subsidiary's liabilities. With the elimination of the
IPS subsidiary, the Company anticipates that operating results should be
significantly improved in fiscal 2000. The Company has introduced new textile
balers, new corrugated balers and has been marketing the patented hinge-side
baler. The Company anticipates that these products will also have a significant
impact on sales in fiscal 2000.
For the first quarter ending January 31, 2000, the Company had net sales of
$2,457,308, as compared to $2,171,154 in the first quarter of 1999, an increase
of 13.2%. The increase in shipments was the result of higher shipments at the
International Baler Corporation (IBC) and Consolidated Baling Machine Company
(CBM) operations partially offset by lower shipments at IPS.
The Company had net income of $669,114 in the first quarter of 2000, as compared
to a loss of $347,701 in the first quarter of 1999. The net income in the first
quarter included a gain on the sale of the IPS assets of $626,929. Operating
income in the quarter improved from a loss of $301,697 in 1999, to operating
income of $82,805 in 2000. The higher operating income is the result of higher
gross profit margins relating to the sales of specialty balers at IBC and CBM
and lower selling and administrative expenses, due in part to the sale and
discontinuance of the IPS operations.
The order backlog as of February 29, 2000, was $1,670,000 as compared to
$2,146,000 at February 28, 1999. In the prior year the backlog included IPS
orders of $375,000.
Financial Condition:
Net working capital increased from a deficit of $837,546 at October 31, 1999, to
$360,466 at January 31, 2000. This improvement is primarily due to the sale of
the IPS assets including the assumption of the liabilities of IPS by the buyers.
With some of the proceeds from the sale of the assets of IPS, the Company has
paid the outstanding balance of the loan from Foothill Capital Corporation,
which had an interest rate of 14.75%. The Company is in the process of securing
a new line of credit at a more favorable interest rate.
The term note with SouthTrust Bank had a balance of $279,861 at January 31,
2000, and is due in equal monthly installments of $9,028, plus interest at the
prime rate to August 2002.
11
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Our auditors, KPMG LLP, have stated in the "Report of Independent Accountants"
for October 31, 1999, 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 have substantial
concern over recent operating performances, however, it believes that it will
prove to be profitable in the future. The company continues to make efforts to
reduce costs and improve marketing.
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 changes which materially affect the amount of reported
income from continuing operations.
This "Management's Discussion and Analysis" contains forward-looking statements
within the meaning of Section 21B of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions that such
statements are necessarily based on certain assumptions which are subject to
risks and uncertainties, including, but not limited to, changes in general
economic conditions and changing competition which could cause actual results to
differ materially from those indicated. Therefore, the Company may have to
consider additional financing and/or operating alternatives to insure the
Company will continue as a going concern.
Year 2000 Compliance:
The Company achieved Year 2000 compliance for all internal systems and did not
suffer any adverse effects with respect thereto. The Company does not anticipate
any such problems in the future.
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 10, 2000 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-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 10,178
<SECURITIES> 0
<RECEIVABLES> 1,068,119
<ALLOWANCES> 86,000
<INVENTORY> 1,600,853
<CURRENT-ASSETS> 2,687,614
<PP&E> 1,831,567
<DEPRECIATION> 1,180,706
<TOTAL-ASSETS> 3,709,230
<CURRENT-LIABILITIES> 2,327,148
<BONDS> 0
0
0
<COMMON> 61,799
<OTHER-SE> 1,148,755
<TOTAL-LIABILITY-AND-EQUITY> 3,709,230
<SALES> 2,457,308
<TOTAL-REVENUES> 2,457,308
<CGS> 1,901,892
<TOTAL-COSTS> 2,374,503
<OTHER-EXPENSES> (641,476)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,167
<INCOME-PRETAX> 669,114
<INCOME-TAX> 0
<INCOME-CONTINUING> 669,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 669,114
<EPS-BASIC> .12
<EPS-DILUTED> .12
</TABLE>
