<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (For the transition period from to ).
-------------- -------------
WASTE SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420
(Address of principal executive offices) (zip code)
(781) 862-3000 Phone
(781) 862-2929 Fax
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the Registrant's common stock, par value
$.01 per share, outstanding as of August 10, 1998 was 11,255,290.
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WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997. 1-2
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1998 and 1997. 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 4-5
Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations. 13-25
PART II. Other Information
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 27
Item 3. Defaults on Senior Securities 27
Item 4. Submission of Matters to a Vote of
Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27-28
Signatures 29
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WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
1998 December 31,
Assets (Unaudited) 1997
--------------- --------------
Current assets:
Cash and cash equivalents $23,623,485 $2,964,274
Accounts and notes receivable, net 2,196,327 944,793
Assets held for sale 75,000 125,000
Due from former employee (Note 9) - 300,000
Prepaid expenses and
other current assets 1,253,415 941,092
---------------- --------------
Total current assets 27,148,227 5,275,159
Restricted cash and
securities 232,247 254,000
Property and equipment, net (Notes 2 and 4) 19,114,474 12,487,183
Intangible assets, net (Note 5) 25,233,196 96,832
Other assets 2,476,483 447,080
---------------- --------------
Total assets $74,204,627 $18,560,254
================ ==============
See accompanying notes to consolidated financial statements.
1
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WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
1998 December 31,
Liabilities and Stockholders' Equity (Unaudited) 1997
------------------------------------ ---------------- --------------
Current liabilities:
Current portion of long-term debt
and notes payable (Note 6) $721,010 $843,831
Accounts payable 1,035,088 353,937
Accrued expenses 1,798,501 1,766,386
Deferred revenue 207,982 -
Restructuring and current liabilities
related to discontinued operations 287,349 778,609
---------------- --------------
Total current liabilities 4,049,930 3,742,763
Long-term debt and notes payable (Note 6) 64,673,696 7,201,262
Landfill closure and post-closure costs 1,781,688 1,644,000
---------------- ---------------
Total liabilities 70,505,314 12,588,025
---------------- ---------------
Commitments and Contingencies (Note 9)
Stockholders' equity (Notes 7, 8 and 10):
Common stock, $.01 par value. Authorized
30,000,000 shares; 4,918,610 and
3,893,415 shares issued and
outstanding at June 30, 1998 and
and December 31, 1997, respectively 49,186 38,934
Preferred stock, $.001 par value.
Authorized 1,000,000 shares:
Series A Convertible Preferred Stock;
200,000 shares designated, 88,790
and 92,580 shares issued and
outstanding at June 30, 1998
and December 31, 1997, respectively 8,878,807 9,257,807
Series B Convertible Preferred Stock;
100,000 shares designated, 0 and
40,488 shares issued and outstanding
at June 30, 1998 and December 31, 1997,
respectively - 4,048,750
Additional paid-in capital 26,480,773 21,432,437
Accumulated deficit (31,709,453) (28,805,699)
---------------- ---------------
Total stockholders' equity 3,699,313 5,972,229
---------------- ---------------
Total liabilities and stockholders'
equity $74,204,627 $18,560,254
================ ===============
See accompanying notes to consolidated financial statements.
2
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WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<C> <C> <C> <C>
Three months ended Six months ended
---------------------------------- ---------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues $4,132,833 $636,459 $5,660,803 $1,032,768
--------------- --------------- --------------- ---------------
Cost of operations
Operating expenses 2,203,052 387,474 3,066,632 629,956
Depreciation and amortization 1,005,884 145,694 1,380,126 257,871
Acquisition integration costs (Note 3) 270,862 - 590,862 -
Write-off of project development costs 235,284 837,423 235,284 837,423
--------------- --------------- --------------- ---------------
Total cost of operations 3,715,082 1,370,591 5,272,904 1,725,250
--------------- --------------- --------------- ---------------
Gross profit (loss) 417,751 (734,132) 387,899 (692,482)
Selling, general and administrative expenses 1,123,613 475,718 1,780,826 1,038,323
--------------- --------------- --------------- ---------------
Loss from operations (705,862) (1,209,850) (1,392,927) (1,730,805)
--------------- --------------- --------------- ---------------
Other income (expense):
Royalty and other income (expense), net (1,324) (10,804) (15,450) (8,751)
Interest income 182,906 24,609 210,891 59,261
Interest expense and financing costs (1,038,193) (382,307) (1,472,238) (686,983)
--------------- --------------- --------------- ---------------
Total other income (expense) (856,611) (368,502) (1,276,797) (636,473)
--------------- --------------- --------------- ---------------
Loss before extraordinary item (1,562,473) (1,578,352) (2,669,724) (2,367,278)
Extraordinary item - Loss on extinguishment
of debt (Note 6) (234,030) (133,907) (234,030) (133,907)
--------------- --------------- --------------- ---------------
Net loss (1,796,503) (1,712,259) (2,903,754) (2,501,185)
Preferred stock dividends (Note 8) 234,508 - 477,032 -
--------------- --------------- --------------- ---------------
Net loss available for common shareholders ($2,031,011) ($1,712,259) ($3,380,786) ($2,501,185)
=============== =============== =============== ===============
Basic net loss per share:
Loss from continuing operation ($0.36) ($0.45) ($0.64) ($0.67)
Extraordinary item (0.05) (0.04) (0.06) (0.04)
--------------- --------------- --------------- ---------------
Basic net loss per share ($0.41) ($0.49) ($0.70) ($0.71)
=============== =============== =============== ===============
Weighted average number of shares used in
computation of basic net loss per share 4,387,802 3,532,514 4,144,576 3,512,558
=============== =============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
---------------------------------
June 30, June 30,
1998 1997
---- ----
Cash flows from operating activities:
Net loss ($2,903,754) ($2,501,185)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,477,595 375,870
Extraordinary loss on extinguishment
of debt 234,030 133,907
Write-off of project development costs 235,284 837,423
Issuance of common stock for services - 44,854
Landfill closure and post-closure costs 137,688 44,000
Allowance for doubtful accounts 103,742 -
Changes in assets and liabilities:
Accounts and notes receivable (393,181) 564,616
Due from former employee 300,000 -
Prepaid expenses and other current assets (143,611) (250,884)
Accounts payable 681,151 (995,636)
Accrued expenses (153,168) (342,480)
Unearned revenue 207,982 -
------------ ------------
Net cash used by continuing operations (216,242) (2,089,515)
Net cash used by restructuring and
discontinued operations (491,260) (189,537)
------------ ------------
Net cash used by operating activities (707,502) (2,279,052)
------------ ------------
Cash flows from investing activities:
Net assets acquired through acquisitions (30,835,675) -
Restricted cash and securities 21,753 (44,375)
Landfills (44,953) (61,675)
Landfill development projects (79,206) 16,205
Buildings, facilities and improvements (23,976) (8,315)
Machinery and equipment (359,817) (70,980)
Rolling stock (777,703) (246,805)
Containers (39,571) (122,640)
Furniture and fixtures (209,738) (10,702)
Proceeds on the sale of equipment - 800,000
Advances and deposits - acquisitions (323,469) -
Intangible assets (3,964) (1,465)
Other assets (192,960) 6,094
------------ ------------
Net cash (used) provided by investing
activities (32,869,279) 255,342
------------ ------------
Cash flows from financing activities:
Deferred financing and registration costs (1,673,679) (56,798)
Repayments of notes payable and
long-term debt (11,067,475) (1,959,215)
Borrowings from notes payable and
long-term debt 67,069,466 1,234,064
Proceeds from issuance of common stock 8,445 399,000
Proceeds from issuance of Series A preferred
stock - 7,688,543
Dividends paid (100,765) -
------------ ------------
Net cash provided by financing
activities 54,235,992 7,305,594
------------ ------------
Increase in cash and cash equivalents 20,659,211 5,281,884
Cash and cash equivalents, beginning of period 2,964,274 264,776
------------ ------------
Cash and cash equivalents, end of period $23,623,485 $5,546,660
============ ============
See accompanying notes to consolidated financial statements.
4
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Supplemental disclosures of cash flow information:
For the six months ended June 30, 1998 and 1997, cash paid for interest was
$1,472,238 and $686,983, respectively.
Supplemental disclosures of noncash activities:
For the six months ended June 30, 1998 and 1997, the Company
acquired assets of $1,113,591 and $449,330, respectively, under
capital lease obligations.
On May 14, 1998, the Company converted 40,488 shares or $4,048,750 of
its Series B Preferred Stock into 647,808 shares of its Common Stock.
During the quarter ended June 30, 1998, the Company converted 3,790
shares or $379,000 of its Series A Preferred Stock into 269,511 shares of
its Common Stock.
On May 22, 1998, the Company issued 111,110 shares of its Common Stock in
connection with the acquisition of Eagle Recycling, Inc. and Horvath
Sanitation, Inc.
5
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WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Waste
Systems International, Inc. and its subsidiaries ("WSI" or the "Company")
include the accounts of the Company after elimination of all significant
intercompany accounts and transactions. These consolidated financial statements
have been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) considered
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 1998 and for all periods presented have been made. The
results of operations for the period ended June 30, 1998 are not necessarily
indicative of the operating results for the full year. Certain information and
footnote disclosure normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these consolidated financial
statements presented herein be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K, as amended, for the year ended December 31, 1997.
The Independent Auditors' Report of KPMG Peat Marwick LLP for the
fiscal year ended December 31, 1997, stated that "the Company must raise
substantial additional capital and must achieve a level of revenues adequate to
support the Company's cost structure, which raises substantial doubt about its
ability to continue as a going concern." On May 13, 1998, the Company closed an
offering of $60.0 million in Subordinated Notes (the "Notes"), which resulted in
net proceeds to the Company of approximately $58.3 million, also the Company has
been generating positive EBITDA, excluding non-recurring charges, and expects to
continue generating positive EBITDA, excluding non-recurring charges. The
Company used the proceeds from the Notes to repay approximately $10.3 million
of existing debt, complete several acquisitions and has retained the balance
for general corporate purposes and future acquisitions. The Company believes
that a combination of internally generated funds, the proceeds from the Note
and an anticipated expanded bank facility will provide adequate funds to
support the Company's cost structure, acquisition strategy and working
capital requirements for the foreseeable future. The Company does not believe
that the going concern uncertainty has materially affected its ability to
finance and conduct its business operations.
Note 2. Summary of Significant Accounting Policies
For a complete description of the Company's accounting policies in
addition to the policies listed below, see Note 2 to Consolidated Financial
Statements in the Company's 1997 Annual Report on Form 10-K, as amended.
Use 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 disclosures of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Property and Equipment: Property and equipment are stated at cost. The
costs of all repairs and maintenance are charged to operations as incurred.
Depreciation for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets as follows:
Buildings, facilities and improvements 10-30 years
Machinery and equipment 3-10 years
Rolling stock 5-10 years
Containers 5-10 years
Furniture and fixtures 5-10 years
Rolling stock are vehicles used in the collection of solid waste from
customers of the Company, and includes both front and rear loading packer
trucks, long-haul trailers, trucks capable of picking up and dropping off
commercial waste containers, waste recycling vehicles and also general purpose
vehicles.
Capitalization of landfill development costs begins upon determination
by the Company of the economic feasibility or extended useful life of each
landfill acquired as a result of comprehensive engineering and profitability
6
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studies, and with the signing of landfill management contracts for facilities
operated by the Company that are not owned. Capital costs include acquisition,
engineering, legal, and other direct costs associated with the permitting and
development of new landfills, expansions at existing landfills, and cell
development. These costs are capitalized and not amortized until all permits are
obtained and operations have commenced.
Interest is capitalized on landfill development costs related to
permitting, site preparation, and facility construction during the period that
these assets are undergoing activities necessary for their intended use.
Capitalized interest costs for the three months ended June 30, 1998 and 1997
were $0 and $15,000, respectively. Capitalized interest costs for the six months
ended June 30, 1998 and 1997 were $0 and $15,000, respectively.
Landfill development costs are amortized using the unit-of-production
method, which is calculated using the total units of airspace filled during the
year in relation to total estimated permitted airspace capacity. The
determination of airspace usage and remaining airspace capacity is an essential
component in the amortization calculation. The determination is performed by
conducting annual topography surveys of the Company's landfill facilities to
determine remaining airspace capacity in each landfill. The surveys are reviewed
by the Company's consulting engineers, the Company's internal operating and
engineering staff, and its financial and accounting staff. Current year-end
remaining airspace capacity is compared with prior year-end remaining airspace
capacity to determine the amount of airspace used during the current year. The
result is compared against the airspace consumption figures used during the
current year for accounting purposes to ensure proper recording of the
amortization provision. The reevaluation process did not materially impact
results of operations for any periods presented.
The Company performs assessments for each landfill of the
recoverability of capitalized costs which requires considerable judgment by
management with respect to certain external factors, including, but not limited
to, anticipated future revenues, estimated economic life and changes in
environmental regulation. It is the Company's policy to periodically review and
evaluate that the benefits associated with these costs are expected to be
realized and therefore capitalization and amortization is justified. Capitalized
costs related to landfill development for which the Company determines have no
future economic benefit are expensed in the period in which such determination
is made.
Landfill Closure and Post-Closure Costs: The Company has a material
financial obligation relating to future landfill closure and post-closure
activities for landfills it owns or operates. Accordingly, the Company estimates
and accrues closure and post-closure costs on a unit-of-production basis over
each landfill's estimated remaining permitted airspace capacity. The accrual is
based on final capping of the site, site inspection, leachate management,
methane gas control and recovery, groundwater monitoring, and operation and
maintenance costs to be incurred during the period after the facility closes.
The estimated costs are expressed in current dollars and are not discounted to
reflect timing of future expenditures. The Company has accrued approximately
$1.8 million and $1.6 million for closure and post-closure costs at June 30,
1998 and December 31, 1997, respectively. The engineering and accounting staff
of the Company periodically review its future obligation for closure and
post-closure costs. If estimates of the permitted air space capacity or the
estimated costs of closure and post-closure have changed, the Company revises
the rates at which it accrues the future costs.
The Company records reserves for landfill closure and post-closure
costs, as necessary, as a component of the purchase price of facilities
acquired, in acquisitions accounted for under the purchase method, when the
acquisition is consummated.
Revenue Recognition: The Company's revenues are derived primarily
from its collection, recycling, transfer and disposal services. The Company
records revenues when the services are performed.
Cost of Operations: Cost of operations includes accruals for future
landfill closure and post-closure costs, direct labor and related taxes and
benefits, fuel, repairs and maintenance of vehicles and equipment, insurance,
depreciation and amortization of equipment and landfill development costs, and
other routine maintenance and operating costs directly related to landfill and
collection operations. Also included in cost of operations are payments made to
the towns in which each landfill is located in the form of "Host Town Fees",
which are negotiated on a rate per ton basis as part of the contract with the
Town. In Towns where landfills are operated under management contracts, the Town
is responsible for the closure and post-closure costs related to the landfill.
7
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Earnings Per Share: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Loss per
share amounts for all periods have been presented and where appropriate,
restated to conform to the SFAS 128 requirements. Dilutive earnings per share
has not been presented, as the computation would be anti-dilutive. Weighted
average number of common and common equivalent shares outstanding and loss per
common and common equivalent shares for the three and six months ended June 30,
1997 have been restated to give effect to a one-for-five reverse stock split
effective Februray 13, 1998. See Note 7.
Intangible Assets: The Company records the excess of the purchase price
over the fair market value of the net identifiable assets of an acquired company
as goodwill. Goodwill is amortized on a straight-line basis over twenty-five
years. Other intangible assets include customer lists and covenants not to
compete which are amortized on a straight-line basis over a period not to exceed
ten years and over the term of the agreement, respectively. The Company will
evaluate the periods of amortization continually to determine whether later
events and circumstances warrant revised estimates of useful lives. If estimates
are changed, the unamortized cost shall be allocated to the remaining period in
the revised useful life.
Reclassifications: Certain amounts in prior year financial statements
have been reclassified to conform to their 1998 presentation.
Note 3. Acquisitions
During the first six months of 1998, WSI acquired 10 collection
companies and a transfer station in Vermont, and 4 collection companies in
Pennsylvania. The aggregate cost of the acquisitions was approximately $30.8
million consisting of $29.0 million in cash, $800,000 in stock and $1.0 million
in assumed liabilities. See the chart in Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations - Introduction. The
acquisitions have combined annual revenues of approximately $16.0 million. The
acquisitions have been accounted for using the purchase method of accounting.
The excess of the purchase price over the fair value of the net identifiable
assets acquired of approximately $19.2 million has been recorded as goodwill and
is being amortized on a straight-line basis over 25 years. See Note 5.
Acquisition integration costs include severance, and other termination
and retention costs as well as costs related to integrating the acquired
companies (i.e. truck painting, sign changes, lease terminations, etc.) into the
Company's operations. For the three and six months ended June 30, 1998, the
Company recorded charges of approximately $271,000 and $591,000 respectively,
related to acquisition integration costs.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the aggregate of the acquired
entities for the six months of 1998 as if the acquisitions had occurred as of
January 1, 1998, after giving effect to certain adjustments, including
amortization of intangibles and additional depreciation of property and
equipment. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the Company and the aggregate
of the acquired entities constituted a single entity during such period.
June 30,1998
(unaudited)
Net revenues $ 10,566,000
==============
Net loss $ (2,500,000)
==============
Basic loss per share $ (0.60)
==============
8
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On June 2, 1998, WSI signed a definitive agreement to acquire the
approximate 513 acre, permitted "greenfields," Mosteller solid waste landfill
located in Somerset County, Pennsylvania. The Mosteller Landfill is permitted to
operate at an average of 2,000 tons of waste per day, including municipal solid
waste, construction and demolition waste, sludge and residual wastes. The
landfill consists of 7 cells having in excess of 14 million cubic yards of
permitted capacity with expected additional room for expansion on the 513 acre
site. This transaction is expected to close by the end of August 1998.
On July 31, 1998, WSI closed on the acquisition of a 700-acre, 3
million cubic yard permitted municipal solid waste landfill in Hopewell,
Pennsylvania. The purchase price was approximately $6.5 million. The Company's
collection operations in Pennsylvania will be integrated with this landfill.
On August 7, 1998, WSI closed on the acquisition of Worthy Refuse
Services, a collection operation based in Huntingdon, Pennsylvania. This
acquisition will be integrated into the Company's Pennsylvania operations.
Note 4. Property and Equipment
Property and equipment are stated at cost and consist of the following;
June 30, December 31,
1998 1997
--------------- -----------------
Landfills $ 8,456,963 $ 8,412,010
Landfill development projects 770,431 691,225
Buildings, facilities and
improvements 2,273,911 1,624,764
Machinery and equipment 2,653,217 1,513,720
Rolling stock 4,494,148 662,595
Containers 2,083,710 401,941
Furniture and fixtures 408,955 199,217
--------------- -------------------
21,141,335 13,505,472
Less: accumulated depreciation
and amortization (2,026,861) (1,018,289)
--------------- -------------------
Property and equipment, net $ 19,114,474 $ 12,487,183
=============== ===================
Note 5. Intangible assets
Intangible assets consist of the following:
June 30, December 31,
1998 1997
--------------- --------------------
Goodwill $ 19,235,655 $ 94,873
Non-compete agreements 3,479,133 -
Customer lists 2,897,646 -
Other 7,318 3,354
--------------- -------------------
25,619,752 98,227
Less: accumulated amortization (386,556) (1,395)
--------------- -------------------
Intangible assets, net $ 25,233,196 $ 96,832
=============== ===================
9
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Note 6. Long-term debt and notes payable
Long-term debt and notes payable consists of:
June 30, December 31,
1998 1997
--------------- --------------------
7% Subordinated Notes $ 60,000,000 $ -
Capital leases and equipment
notes payable 3,247,399 2,626,700
10% Subordinated debentures 2,025,000 4,425,000
Howard Bank Term Loan - 748,000
Mortgages - 189,350
Other notes payable 122,307 56,043
--------------- -------------------
65,394,706 8,045,093
Less:current portion 721,010 843,831
--------------- -------------------
Long-term portion $ 64,673,696 $ 7,201,262
=============== ===================
On May 13, 1998, the Company closed an offering of $60.0 million in 7%
Subordinated Notes (the "Notes" or "7% Subordinated Notes"), which resulted in
net proceeds to the Company of approximately $58.3 million. The Notes will
mature in May 2005, and bear interest at 7.0% per annum, payable semi-annually
in arrears on each June 30 and December 31. Subject to prior approval of the
stockholders of the Company on or before December 31, 1998, the Notes and any
accrued but unpaid interest will be convertible into Common Stock at a
conversion price of $10.00 per share. Following receipt of stockholder approval,
the shares will be convertible at the option of the holder at any time and can
be mandatorily converted by the Company after 2 years if the Company's Common
Stock closing price equals or exceeds the conversion price of $10.00 per share
for a period of 20 consecutive trading days. If stockholder approval is not
received by December 31, 1998, the interest rate of the Notes will increase to
12.0% effective retroactively to September 1, 1998. The Company used the net
proceeds from the Notes to repay existing debt of approximately $10.3
million, complete several acquisitions and has retained the balance for general
corporate purposes and future acquisitions. As a result of the debt payoff,
the Company recorded an extraordinary loss on extinguishment of debt of
approximately $234,000.
At June 30, 1998, the Company has a credit facility with the Howard
Bank of Vermont. The credit facility allows the Company to borrow up to $4.2
million. At June 30, 1998, the Company had no outstanding borrowings under the
credit facility.
In July and August 1998, the Company repayed approximately $1 million
of additional debt.
Note 7. Common Stock
On February 13, 1998, the shareholders of the Company approved a one
for five reverse stock split of the Company's Common Stock at a special
shareholders' meeting. No fractional shares were issued in connection with the
reverse stock split, and shareholders received cash in payment for any
fractional shares otherwise issuable. The weighted average shares outstanding as
of June 30, 1997 have been restated to reflect the one for five reverse stock
split.
On May 14, 1998, the Company issued 647,808 shares of its Common Stock
in connection with the conversion of all of the Company's Series B Preferred
Stock. See Note 8.
On May 21, 1998, the Company issued 111,110 shares of its Common
Stock in connection with the acquisition of Eagle Recycling, Inc. and Horvath
Sanitation, Inc.
During the quarter ended June 30, 1998, the Company issued 269,511
shares of its Common Stock in connection with the conversion of 3,790 shares of
its Series A Preferred Stock. See Note 8.
Note 8. Preferred Stock
On May 14, 1998, the Company met the mandatory conversion trading
requirements and elected to convert all of the shares of the Series B Preferred
Stock into 647,808 shares of Common Stock and the Board of Directors declared
and paid cash dividends of approximately $101,000.
10
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On July 27, 1998, the Company met the mandatory conversion trading
requirements and elected to convert all of the remaining shares of Series A
Preferred Stock into 6,321,066 shares of the Company's Common Stock and the
Board of Directors declared and paid cash dividends of approximately $787,000.
Note 9. Commitments and Contingencies
In the normal course of its business, and as a result of the extensive
governmental regulation of the solid waste industry, the Company periodically
may become subject to various judicial and administrative proceedings involving
federal, state, or local agencies. In these proceedings, the agency may seek to
impose fines on the Company or to revoke or deny renewal of an operating permit
held by the Company. From time to time, the Company also may be subjected to
actions brought by citizens' groups in connection with the permitting of its
landfills or transfer stations, or alleging violations of the permits pursuant
to which the Company operates. Certain federal and state environmental laws
impose strict liability on the Company for such matters as contamination of
water supplies or the improper disposal of waste. The Company's operation of
landfills subjects it to certain operational, monitoring, site maintenance,
closure and post-closure obligations which could give rise to increased costs
for monitoring and corrective measures.
The Company has a $5.0 million environmental impairment liability
insurance policy covering claims for sudden or gradual onset of environmental
damage. If the Company were to incur liability for environmental damage in
excess of its insurance limits, its financial condition could be adversely
affected. The Company carries a comprehensive general liability insurance policy
which management considers adequate at this time to protect its assets and
operations from other risks.
None of the Company's landfills are currently connected with the
Superfund National Priorities List or potentially responsible party issues.
The Company is party to pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
the Company's management, after consultation with outside legal counsel, is of
the opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity,
and are summarized as follows:
a)In July 1996, the Company commenced arbitration proceedings against
Dr. Richard Rosen (Rosen), former Chairman, Chief Executive Officer and
President of the Company, seeking to recover amounts, excluding interest and
litigation costs, which the Company believes it was owed by Rosen. This action
was undertaken at the direction of the Board of Directors following its receipt
of a report by a special committee of the Board appointed to investigate Rosen's
financial dealings with the Company, in consultation with independent counsel
retained in connection with its investigation. Rosen resigned from all offices
with the Company on March 27, 1996. Amounts which the Company sought to recover
included unreimbursed advances and amounts which the Company believed
constituted improper expense reimbursements and payments of Company funds for
personal benefit. As of June 30, 1998, the Company had collected the total
amount due from Rosen that it had been carrying on its books.
On March 27, 1997, Rosen commenced an action against the Company in
Middlesex County (Massachusetts) Superior Court, seeking an award of damages
resulting from the Company's alleged breach of a Memorandum of Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's employment with the Company, in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business. The
Company believes this claim to be frivolous and is vigorously defending this
action.
b) In October 1997 in the Middlesex Superior Court, the Company
commenced an action against Marguerite A. Piret, a former director of the
Company and the wife of Rosen, seeking damages against Ms. Piret for her
11
<PAGE>
independent breaches of fiduciary duty as a former director of the Company. This
case is in the discovery stage and no trial date has yet been set. If the
Company is successful in its claims, the Company may recover direct and
consequential damages from Ms. Piret.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, with respect to, among other things, the
Company's future revenues, operating income, or earnings per share. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar expression. The Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference are discussed
herein. See "Certain Factors Affecting Future Operating Results".
Introduction
Waste Systems International, Inc. (the "Company" or "WSI") is a
regional integrated non-hazardous solid waste management company that provides
solid waste collection, recycling, transfer and disposal services to commercial,
industrial, residential and municipal customers.
WSI's objective is to expand the current geographic scope of its
operations primarily within the Northeast and Mid-Atlantic regions of the United
States and to become one of the leading providers of non-hazardous solid waste
management services in each market that it serves. The Company's primary growth
strategy is to acquire landfills in or near urban metropolitan areas, and to
secure dedicated waste streams for such landfills by acquisition or development
of collection operations and transfer stations. The internalization of waste
streams is a major component of the Company's strategy. The Company believes
that significant opportunities exist to expand its operations in each of its
current and targeted markets. In connection with its growth strategy, the
Company currently is and at any given time will be involved in potential
acquisitions that are in various stages of negotiation and consummation (ranging
from initial discussions to the execution of definitive agreements), some of
which may be material.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
13
<PAGE>
The following table sets forth the acquisitions completed by the
Company through June 30, 1998:
<TABLE>
<C> <C> <C> <C> <C>
Acquisition Month Acquired Principal Business Location Market Area
- ---------------------- -------------- ------------------ ---------------- ---------------
Moretown Landfill July 1995 Landfill Moretown, VT Central Vermont
Waitsfield Transfer Station October 1995 Transfer station Waitsfield, VT Central Vermont
The Hartigan Company January 1997 Solid waste collection Stowe, VT Central Vermont
CSWD Transfer Station October 1997 Transfer Station Burlington, VT N.W. Vermont
Doyle Rubbish
Removal January 1998 Solid waste collection Barre, VT Central Vermont
Perkins Rubbish
Removal January 1998 Solid waste collection St. Johnsbury, VT N. E. Vermont
Rapid Rubbish Solid waste collection/
Removal, Inc. February 1998 Transfer Station St. Johnsbury, VT N. E. Vermont
Greenia Trucking February 1998 Solid waste collection St. Albans, VT N.W. Vermont
John Leo & Sons, LTD. March 1998 Solid waste collection Essex, VT N.W. Vermont
Horvath Sanitation, Inc./
Eagle Recycling, Inc. May 1998 Solid waste collection Altoona, PA Central Pennsylvania
Pleasant Valley Hauling May 1998 Solid waste collection Altoona, PA Central Pennsylvania
Patterson's Hauling May 1998 Solid waste collection Altoona, PA Central Pennsylvania
Fortin's Trucking of
Williston May 1998 Solid waste collection Willistion, VT N.W. Vermont
McCardle Refuse Company May 1998 Solid waste collection Burnham, PA Central Pennsylvania
Surprenant Rubbish, Inc. June 1998 Solid waste collection Newport, VT N.E. Vermont
Austin Rubbish Removal June 1998 Solid waste collection Newport, VT N.E. Vermont
Vincent Moss June 1998 Solid waste collection Newport, VT N.E. Vermont
Cota Sanitation June 1998 Solid waste collection Newport, VT N.E. Vermont
</TABLE>
On July 31, 1998, the Company closed the acquisition of the previously
announced Hopewell Landfill, a 700-acre, 3 million cubic yard permitted
municipal solid waste landfill in Hopewell, Pennsylvania. The Company will
integrate its collection operations in Pennsylvania with the Hopewell landfill.
Additionally, in June 1998, the Company signed a definitive agreement to acquire
the Mosteller Landfill, a 513-acre solid waste landfill located in Somerset
County, Pennsylvania.
On August 7, 1998, WSI closed on the acquisition of Worthy Refuse
Services, a collection operation based in Huntingdon, Pennsylvania. This
acquisition will be integrated with the Company's central Pennsylvania
operations.
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<PAGE>
The Company established its first integrated solid waste management
operations in the geographical area surrounding its landfill in Moretown,
Vermont. In addition to the landfill in Moretown, Vermont, the Company currently
owns and/or operates three transfer stations and collection operations serving
over 8,600 commercial, industrial, residential and municipal customers in the
Burlington, St. Albans, St. Johnsbury, Barre-Montpelier, and Newport, Vermont
areas. During the first six months of 1998, the Company completed ten
acquisitions of collection companies and a transfer station in Vermont. The
first cell ("Cell 1") at the Company's landfill is currently operating at
approximately 400 tons per day ("TPD") with remaining estimated permitted
capacity at June 30, 1998 of approximately 150,000 cubic yards. The Company
received all of the permits required for development and operation of Cell 2
and began construction on Cell 2 in July 1998. Cell 2 will increase
the permitted landfill capacity by an estimated additional 1.3 million cubic
yards. The Company expects that Cell 2 will be ready to accept solid waste by
the end of the fourth quarter of 1998.
On May 13, 1998, the Company expanded its geographic scope and commenced
operations in Central Pennsylvania through the acquisition of Horvath
Sanitation, Inc. and Eagle Recycling, Inc, which are based in Altoona,
Pennsylvania, with an established base of approximately 21,000 commercial,
industrial, residential and municipal customers representing annual revenues of
approximately $9.0 million on waste collections of approximately 275 tons
per day. The Company will integrate these operations with the acquisition of
the Hopewell landfill and the pending acquisition of the Mosteller landfill.
The aggregate cost of the acquisitions in Vermont and Pennsylvania were
approximately $30.8 million consisting of $29.0 million in cash, $800,000 in
stock and $1.0 million in assumed liabilities. The acquisitions have combined
annual revenues of approximately $16.0 million.
WSI and the Town of South Hadley, Massachusetts have entered into a
contract whereby the Company will operate the Town's 30-acre municipal solid
waste landfill. The Town of South Hadley will retain full ownership of the
landfill while the Company operates the facility. In March 1997, the Company
received a landfill disruption permit from the MDEP, which enabled WSI to begin
engineering work and feasibility studies at the South Hadley landfill. On May 1,
1998 the Company's draft environmental impact report was accepted by the MDEP
and the Company anticipates receiving all of its operating and construction
permits during the third or fourth quarter of 1998, which would allow WSI to
begin accepting solid waste at the first 6-acre lined cell during the first or
second quarter of 1999. The South Hadley landfill project is currently expected
to have approximately 2.0 million cubic yards of new capacity for future
disposal.
Results of Operations
During the six months ended June 30, 1998, the Company acquired 14 solid waste
collection companies and a transfer station. Because of the relative
significance of the acquired business' operations to the Company's financial
performance, the Company does not believe that its historical financial
statements are necessarily indicative of future performance and as a result will
affect the comparability of the financial information included herein.
Revenues:
Revenues represent fees charged to customers for solid waste
collection, transfer, landfill, recycling and disposal services provided.
Revenues for the periods presented in the consolidated statement of operations
were derived from the following sources:
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
------------------------------- ----------------------------
Collection 70.0% 14.3% 61.4% 13.8%
Landfill 12.8 85.7 16.9 86.2
Transfer 17.2 - 21.7 -
--------- --------- ---------- --------
Total Revenue 100.0% 100.0% 100.0% 100.0%
========= ========= ========== ========
15
<PAGE>
Revenues increased $3,496,000, or 549%, and $4,628,000, or 448%, for
the three and six month periods ended June 30, 1998, respectively, compared with
the same periods in 1997. The increases for each period were primarily due to
the impact of operations acquired since January 1, 1998. See Note 3 to the
Consolidated Financial Statements. The Company continues to focus on
internalization of waste. During the first and second quarters of 1998, over
90% of the waste collected by the Company's Vermont collection operation was
being disposed of at the Company's landfill. Internalization at the Company's
Pennsylvania operation will commence in the third quarter through the
acquisition of the Hopewell landfill.
Operating Expenses:
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statement of Operations, expressed as a
percentage of revenues:
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
----------------------------- --------------------------
Revenues 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ----------
Operating expenses 53.3 60.9 54.2 61.0
Depreciation
and amortization 24.3 22.9 24.4 25.0
Acquisition integration
costs 6.6 - 10.3 -
Write-off of project
development costs 5.7 131.5 4.2 81.1
---------- ---------- ---------- -------
Total cost of
operations 89.9 215.3 93.1 167.1
---------- ---------- ---------- -------
Gross profit (loss) 10.1 (115.3) 6.9 (67.1)
Selling, general and
administrative
expenses 27.2 74.8 31.5 100.5
---------- ---------- ---------- -------
Loss from operations (17.1) (190.1) (24.6) (167.6)
Royalty and other
income (expense), net - (1.7) (0.3) (0.8)
Interest income 4.4 3.9 3.7 5.7
Interest expense and
financing costs (25.1) (60.1) (26.0) (66.5)
---------- ---------- ---------- --------
Loss before
Extraordinary item (37.8) (247.9) (47.2) (229.2)
Extraordinary item (5.7) (21.1) (4.1) (13.0)
---------- ---------- --------- --------
Net loss (43.5)% (269.0)% (51.3)% (242.2)%
========== ========== ========= ========
Operating expenses increased $1,816,000, or 469%, and $2,437,000 or
387%, for the three and six month periods ended June 30, 1998, respectively,
compared with the same periods in 1997. As a percentage of revenues, operating
expenses decreased from 61% in the second quarter of 1997 to 53% in the second
quarter of 1998, and from 61% in the first half of 1997, to 54% in the first
half of 1998. Operating expenses increased in both comparative periods primarily
due the acquisition of Eagle in Pennsylvania as well as various other "tuck-in"
acquisitions in both Pennsylvania and Vermont. Additionally, the improvement in
operating expenses as a percentage of revenues resulted from increased volumes
at the Company's landfill and collection operations creating better economies of
scale.
Depreciation and amortization expense includes depreciation of property
and equipment over their useful lives using the straight-line method,
amortization of goodwill and other intangible assets over their useful lives
16
<PAGE>
using the straight-line method, and amortization of landfill airspace assets
using the units-of-production method. Depreciation and amortization expense
increased $860,000, or 590%, and $1,122,000, or 435% for the three and six month
periods ended June 30, 1998, respectively, compared to the same periods in 1997.
The increases in both comparable periods are the result of increased
depreciation costs of the additional assets acquired through acquisition and
increased amortization due to substantial increases in intangible assets related
to acquisitions. Additionally, amortization of landfill development costs
increased as a result of the increase in the amount of waste accepted at the
Company's Vermont landfill.
Acquisition integration costs include severance, and other termination
and retention costs as well as costs related to integrating the acquired
companies (i.e. truck painting, sign changes, lease terminations, etc.) into the
Company's operations. For the three and six months ended June 30, 1998, the
Company incurred acquisition integration costs of $271,000 and $591,000
respectively. There were no acquisition integration costs for the comparable
periods in 1997.
Selling, general and administrative expenses consist of corporate
development activities, marketing and public relations costs, administrative
compensation and benefits, legal and accounting and other professional fees as
well as other administrative costs and overhead. Selling, general and
administrative costs increased $648,000, or 136%, and $743,000, or 72%, for the
three and six month periods ended June 30, 1998, respectively compared to the
same periods in 1997. The increase was due to the building of an infrastructure
necessary to support increases in acquisition, operating and administrative
activities. As a percent of revenues, selling, general and administrative
expenses decreased from 75% in the second quarter of 1997 to 27% in the second
quarter of 1998, and from 101% in the first half of 1997, to 32% in the first
half of 1998. The decrease was due largely to an expanding revenue base that
leveraged our selling, general and administrative expenses. The Company
anticipates that in future periods its selling, general and administrative
expenses should decrease substantially as a percentage of revenue as it
leverages its current corporate overhead to revenue growth primarily
through acquisitions.
Interest income increased $158,000, or 643%, and $152,000, or 256%, for
the three and six month period ended June 30, 1998, respectively. The increase
was the result of higher average cash and investment balances due to the
proceeds from the 7% Subordinated Notes that closed on May 13, 1998. See Note 6
to the Consolidated Financial Statements.
Interest expense and financing costs increased $656,000, or 172%, and
$785,000, or 114%, for the three and six month period ended June 30, 1998,
respectively. The increase resulted primarily from increased indebtedness
incurred in connection with the 7% Subordinated Notes, the bridge loan,
equipment loans and the Howard Bank facility. See Note 6 to the Consolidated
Financial Statements.
The net loss for the three and six months ended June 30, 1998 and 1997,
included non-recurring charges, in addition to acquisition integration costs
of approximately $236,000 and $837,000, respectively, to settle obligations
relating to the closure of the Fairhaven landfill and $234,000 and $477,000 for
the three and six months ended June 30, 1998, respectively, for the
extraordinary loss on extinguishment of debt.
EBITDA:
EBITDA is defined as operating income from continuing operations plus
depreciation and amortization, which includes depreciation and amortization
included in selling, general and administrative expenses. EBITDA does not
represent, and should not be considered as an alternative to net income or cash
flow from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not necessarily
indicate whether cash flow will be sufficient for such items as working capital,
capital expenditures, or to react to changes in the Company's industry or to the
economy in general. The Company believes that EBITDA is a measure commonly used
by lenders and certain investors to evaluate a company's performance in the
solid waste industry. The Company also believes that EBITDA data may help to
understand the Company's performance because such data may reflect the company's
ability to generate cash flows, which is an indicator of its ability to satisfy
its debt service, capital expenditures and working capital requirements.
However, functional or legal requirements may require the conservation of funds
for uses other than those previously described. Because EBITDA is not calculated
by all companies and analysts in the same fashion, investors should consider,
among other factors: the non-GAAP nature of EBITDA; actual cash flows; the
actual availability of funds for debt service, capital expenditures and working
capital; and the comparability of the Company's EBITDA data to similarly-titled
measures reported by other companies. Adjusted EBITDA consists of EBITDA, as
defined above, excluding non-recurring charges.
17
<PAGE>
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statement of Operations, to determine
EBITDA and Adjusted EBITDA:
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
---------------------------- ------------------------
Loss from operations ($705,862)($1,209,850) ($1,392,927)($1,730,805)
Depreciation and
amortization 1,071,479 250,997 1,477,595 375,870
----------- ----------- ----------- ----------
EBITDA 365,617 (958,853) 84,688 (1,354,935)
Write-off of project
development costs 235,284 837,423 235,284 837,423
Acquisition integration
costs 270,862 - 590,862 -
----------- ----------- ----------- ----------
Adjusted EBITDA $871,763 ($121,430) $910,814 ($517,512)
=========== ============ =========== ==========
EBITDA as a % of revenue 8.9% (150.7%) 1.5% (131.2%)
=========== ============ =========== ==========
Adjusted EBITDA
as a % of revenue 21.1% (19.08%) 16.1% (50.1%)
=========== ============ =========== ==========
Financial Position
WSI had $23.6 million in cash as of June 30, 1998. This represented an
increase of $20.7 million from December 31, 1997. Working capital as of June 30,
1998, was $23.1 million, an increase of $21.6 million over December 31, 1997.
This increase was primarily due to the proceeds from the 7% Subordinated Notes,
the increased level of operations and the payoff of debt.
The aggregate cost of the acquisitions in Vermont and Pennsylvania was
approximately $30.8 milion consisting of $29.0 million in cash, $800,000 in
stock and $1.0 million in assumed liabilities. The acquisitions have combined
annual revenues of approximately $16.0 million.
At June 30, 1998, the Company had approximately $2.3 million in trade
accounts receivables. The Company has estimated an allowance for doubtful
accounts of approximately $150,000, which is considered sufficient to cover
future bad debts.
During the quarter ended June 30, 1998, the Company devoted substantial
resources to various corporate development activities. Additions to property and
equipment during the six months ended June 30, 1998 were approximately $7.7
million, which included assets purchased through acquisition of approximately
$5.1 million.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's capital
requirements, which are substantial, include acquisitions, property and
equipment purchases and capital expenditures for landfill cell construction,
landfill development and landfill closure activities. Principally due to these
factors, the Company may incur working capital deficits. The Company plans to
meet its capital needs through various financing sources, including internally
generated funds, equity securities and debt. On May 13, 1998, the Company closed
on an offering of $60.0 million Subordinated Notes which resulted in net
proceeds to the Company of approximately $58.3 million (See Note 6 to the
Consolidated Financial Statements).
18
<PAGE>
WSI expects to grow primarily through acquisition. The Company
maintains an acquisitions department that is responsible for the identification,
due diligence, negotiation and closure of acquisitions. As the Company expands
into additional geographic regions, the number of acquisitions completed by the
Company is also expected to dramatically increase. The Company believes that a
combination of internally generated funds, the proceeds from the Notes and an
anticipated expanded bank facility will provide adequate funds to support the
Company's cost structure, acquisition strategy and working capital requirements
for the foreseeable future.
In connection with its growth strategy, the Company currently is and at
any given time will be involved in potential acquisitions that are in various
stages of negotiation and consummation (ranging from initial discussions to the
execution of definitive agreements), some of which may be material. If the
Company is successful in executing its acquisition strategy, the Company may
incur substantial costs in the form of cash or issuance of stock. However, there
can be no assurance that the Company will be successful in executing its
acquisition strategy.
Through June 30, 1998 the Company acquired 10 collection companies and
a transfer station in Vermont and 4 collection companies in Pennsylvania. The
aggregate cost of these acquisitions was approximately $30.8 million consisting
of approximately $29.0 million in cash, $800,000 in stock and approximately $1.0
million in assumed liabilities. Acquisition integration costs related to the
acquisitions in Vermont and Pennsylvania were approximately $591,000.
To date, WSI has financed its activities primarily through the issuance
of debt and equity securities, including convertible subordinated notes,
preferred stock and bank financing. WSI intends to aggressively pursue and
develop an integrated solid waste management company. There can be no assurance
that additional debt or equity financing will be available, or available on
terms acceptable to the Company. Any failure of the Company to obtain required
financing would have a material adverse effect on the Company's financial
condition and operation.
Net cash used by operating activities for the six months ended June 30,
1998 and 1997 was approximately $708,000 and $2.3 million, respectively. The
net cash used by operating activities of $708,000 in 1998 consisted primarily
of the net loss and the growth of the Company's operations in Vermont and
Pennsylvania.
Net cash (used) provided by investing activities for the six months
ended June 30, 1998 and 1997 was ($32.9) million and $255,000, respectively.
Of the net cash used by investing activities in 1998, approximately $30.8
million was used for the acquisition of the collection and transfer
operations in Vermont and Pennsylvania, and the balance primarily for
increases in capital expenditures to increase operating efficiencies at the
Company's Vermont and Pennsylvania operations. The net cash used by investing
activities for the same period in 1997 was primarily the result of the
increasing operating activities at the Moretown, Vermont landfill.
The Company's capital expenditures and capital needs for acquisitions
have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets, and will increase
further as the Company continues to complete acquisitions. Total capital
expenditures are expected to further increase in 1998 due to acquisitions, such
as the Hopewell Landfill and Worthy Refuse Services acquisitions, in addition to
the Mosteller Landfill, which will close in the third quarter of 1998. Once the
acquisitions are complete, substantial additional capital expenditures will
be required in connection with the acquired businesses.
Net cash provided by financing activities for the six months ended June
30, 1998 and 1997 was approximately $54.2 million and $7.3 million,
respectively. The increase for the first six months of 1998 is due primarily to
the receipt of the proceeds of $58.3 million related to the 7% Subordinated
Notes.
At June 30, 1998, the Company had approximately $65.4 million of
short-term and long-term debt. See Note 6 to the Consolidated Financial
Statements. At June 30, 1998, the Company has a credit facility with the Howard
Bank of Vermont. The credit facility allows the Company to borrow up to $4.2
million. At June 30, 1998, the Company had no outstanding borrowings under the
credit facility.
WSI does not believe its operations have been materially affected by
inflation.
19
<PAGE>
Certain Factors Affecting Future Operating Results
The following factors, as well as others mentioned in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, could cause
actual results to differ materially from those indicated by forward-looking
statements made in this Quarterly Report on Form 10-Q.
Uncertain Ability to Finance the Company's Growth. The Company has
limited liquidity in relation to its short-term capital commitments and
operating cash requirements. Additionally, WSI will require substantial funds to
complete and bring to commercial viability all of its currently planned
projects. The Company also anticipates that any future acquisitions will be
financed through cash from operations, borrowings under its bank line of credit,
the issuance of the Company's common stock or seller financing, or additional
equity or debt financings. Therefore, WSI's ability to satisfy its capital
commitments and operating requirements are dependent on a number of pending or
future financing activities, none of which are assured successful completion.
Any failure of the Company to obtain sufficient financing in the future would
have a material adverse effect on the Company's financial condition and
operations.
The Company may choose to finance future acquisitions by issuing shares
of Common Stock for a portion or all of the consideration to be paid. In the
event the Company's Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company might
not be able to utilize Common Stock as consideration for acquisitions and would
be required to utilize more of its cash resources, if available, in order to
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it could obtain additional capital
through debt or equity financings. In addition, growth through the development
or acquisition of existing and new landfills, transfer stations, collection
companies or other facilities, as well as the ongoing maintenance of such
landfills, transfer stations, collection companies or other facilities, will
require substantial capital expenditures. While the Company has excess proceeds
from its offering of Subordinated Notes which closed on May 13, 1998 to finance
its operations and future acquisitions, there can be no assurance that such
resources will be sufficient for the Company's financing needs in the near term,
or that additional financing will be available if and when needed or on terms
acceptable to the Company. The inability of the Company to use its Common Stock
as consideration for acquisitions or to obtain additional financing for capital
projects and acquisitions could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, future
issuances of Common Stock in connection with acquisitions would be dilutive to
the Company's stockholders.
History of Losses. During the fiscal years ending December 31, 1997,
1996 and 1995, the Company incurred net losses (including non-recurring charges)
of approximately ($5,589,000), ($13,890,000) and ($7,880,000) respectively, on
revenues of $3,458,000, $1,496,000, and $1,344,000 respectively. For the three
and six months ended June 30, 1998, the Company incurred a net loss of
approximately ($1,797,000) on revenues of $4,133,000, and ($2,904,000) on
revenues of $5,661,000, respectively. As of June 30, 1998, the Company's
accumulated deficit was approximately $31,709,000. Following its restructuring
in 1996, the Company implemented a business strategy based on aggressive growth
through acquisitions. The Company's ability to become profitable, and to
maintain such profitability, as it pursues its business strategy will depend
upon several factors, including its ability to (i) execute its acquisition
strategy and expand its revenue generating operations while not proportionately
increasing its administrative overhead, (ii) locate sufficient financing to fund
acquisitions, and (iii) continually adapt to changing conditions in the
competitive market in which it operates. Outside factors, such as the economic
and regulatory environments in which it operates, will also have an effect on
the Company's business.
The Independent Auditors' Report of KPMG Peat Marwick LLP for the
fiscal year ended December 31, 1997, stated that "the Company must raise
substantial additional capital and must achieve a level of revenues adequate to
support the Company's cost structure, which raises substantial doubt about its
ability to continue as a going concern." On May 13, 1998, the Company closed an
offering of $60.0 million in Subordinated Notes (the "Notes"), which resulted in
net proceeds to the Company of approximately $58.3 million. Through June 30,
1998, the Company has been generating positive EBITDA, excluding
non-recurring charges, and expects to continue generating positive EBITDA
excluding non-recurring charges in 1998. The Company used the proceeds from the
Notes to repay existing debt, complete several acquisitions and to increase
working capital for general corporate purposes. The Company believes that a
20
<PAGE>
combination of internally generated funds, the proceeds from the Notes and an
anticipated expanded bank facility will provide adequate funds to support the
Company's cost structure, acquisition strategy and working capital requirements
for the foreseeable future. The Company does not believe that the going concern
uncertainty has materially affected its ability to finance and conduct its
business operations.
Substantial Increased Leverage. In connection with its business
strategy, the Company will incur substantial indebtedness resulting in a highly
leveraged capital structure. The Company's total indebtedness as of June 30,
1998 was $65.4 million and its total stockholders' equity was $3.6 million.
Following the offering of the subordinated notes, the Company intends to expand
its bank credit facility which will increase its leverage and likely contain
various covenants that will limit, among other things, the Company's ability to
engage in mergers and acquisitions, incur additional indebtedness, make interest
payments on subordinated debt, and pay dividends or make other distributions.
The Company's substantial leverage could have important consequences, including
limiting its ability to obtain additional financing, increasing the Company's
vulnerability to changes in economic conditions and competitive pressures, and
limiting the Company's ability to realize some or all of the benefits of
significant business opportunities. The 7% Subordinated Notes are convertible
into Common Stock at a conversion price of $10.00 per share. See Note 6 to the
Consolidated Financial Statements. Any default by the Company under the terms
of its indebtedness could have a material adverse effect on the Company's
business, financial condition, and results of operations.
The Company may not presently generate sufficient cash from operations
to satisfy the principal and interest payment requirements of its outstanding
indebtedness (including the $60 million in Subordinated Notes issued on May 13,
1998) until maturity. Unless the Company's cash flow from operations grows
sufficiently in the future, which will depend upon financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control, the Company will be required to refinance all or a portion of its debt,
or to obtain additional financing. There can be no assurance that any
refinancing would be possible or that any additional financing would be
obtained.
Dependence on Management. The Company's future success is highly
dependent upon the services of its executive officers, particularly, Philip W.
Strauss, Chairman, Chief Executive Officer and President of the Company, and
Robert Rivkin, Executive Vice President--Acquisitions, Chief Financial Officer,
Treasurer and Secretary of the Company. The loss of the services of Mr. Strauss
or Mr. Rivkin could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not currently
maintain key man insurance on any of its personnel.
The Company's future success is also highly dependent upon its
continuing ability to identify, hire, train and motivate highly qualified
personnel. The Company faces competition for hiring such personnel from other
companies, government entities and other organizations. There can be no
assurances that the Company will be successful in attracting and retaining
qualified personnel as required for its projected operations. The inability to
attract and retain qualified personnel could have a material adverse effect upon
the Company's business, financial condition and results of operations.
Risk of Growth through Acquisition. Pursuant to its business strategy,
the Company is experiencing a period of significant growth from recent
acquisitions. In 1998, the Company completed ten acquisitions in Vermont and
four in Pennsylvania. The Company expects significant additional expansion in
the size and geographic scope of the Company's operations as a result of the
closing of the Hopewell Landfill acquisition and the planned acquisition of the
Mosteller Landfill. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional businesses in existing or
targeted expansion markets or successfully integrate any acquired businesses
into the Company without substantial costs, delays, or other operational or
financial problems. Further, the Company will continue to recognize a
significant amount of amortization of intangible asset charges in connection
with its acquisitions of landfills, collection businesses and transfer stations
that are accounted for under the "purchase" method of accounting. Such
intangibles are amortized over a specified period depending on the business
acquired, resulting in an annual noncash charge to earnings during that period.
Certain risks inherent in an acquisition strategy, such as increasing leverage
and debt service requirements (to the extent the Company elects to finance its
acquisitions with debt) and difficulties associated with combining disparate
company systems and cultures (including the potential loss of key employees from
acquired companies), could adversely affect the Company's ability to integrate
acquired businesses. The process of integrating acquired companies may involve
21
<PAGE>
unforeseen difficulties and may require a disproportionate amount of
management's attention and financial and other resources. Identifying suitable
acquisition candidates involves risks inherent in assessing the values,
strengths, weaknesses, risks and profitability of such candidates, including
effects on the Company's operating results, diversion of management's attention
and risks associated with unanticipated problems or latent liabilities.
Moreover, the Company competes for acquisition candidates with other
corporations in its industry that are employing similar acquisition strategies.
These competitors include larger, more established corporations with
significantly greater resources than the Company. As a result, fewer acquisition
opportunities may be available to the Company and acquisition costs for
opportunities that are available may increase. There can be no assurance that
any business that the Company acquires in the future will achieve anticipated
revenues and earnings. In addition, the size, timing and integration of
acquisitions may cause substantial fluctuations in the Company's operating
results from quarter to quarter.
Sustaining the Company's growth and expansion will require substantial
enhancements to the Company's operational and financial systems and controls as
well as additional administrative, operational and financial resources. There
can be no assurance that the Company will be able to manage its expanding
operations successfully or that it will be able to maintain or accelerate its
growth; and any failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations.
Competition. The solid waste management industry is highly competitive,
very fragmented and requires substantial labor and capital resources.
Competition exists for collection, recycling, transfer and disposal services,
and acquisition targets. The markets in which the Company competes or is likely
to compete are usually served by one or more of the large national, regional or
local solid waste companies who may have greater financial, marketing or
technical resources than the Company and who may have accumulated substantial
goodwill. The Company also competes with counties, municipalities and operators
of alternative disposal facilities that operate their own waste collection and
disposal facilities. The availability of tax revenues and tax-exempt financing
may provide a competitive advantage to public sector competitors. Additionally,
alternative disposal facilities such as recycling and incineration may reduce
the demand for the disposal of solid waste in landfills. Competition for waste
collection and disposal business is based on the quality of operation, price and
geographical location. From time to time, competitors may reduce the price of
their services in an effort to expand or maintain market share or to win
competitively bid contracts. There can be no assurance that the Company will be
able to successfully bid such contracts or compete with the larger and
better-capitalized companies.
Limitations on Landfill Permitting and Expansion. The Company's
existing operations depend on its ability to expand the landfills it owns or
operates and develop new landfill sites. In some areas, suitable land for new
sites or expansion of the Company's existing landfill sites may be unavailable.
There can be no assurance that the Company will be successful in obtaining new
landfill sites or expanding the permitted capacity of the landfills it currently
owns or operates. The process of obtaining required permits and approvals to
operate and expand landfills and transfer stations has become increasingly
difficult and expensive. The process can take several years and involves
hearings and compliance with zoning, environmental and other requirements. There
can be no assurance that the Company will be successful in obtaining and
maintaining required permits. Even when granted, final permits to expand a
landfill are often not approved until the remaining capacity of such landfill is
very low. In the event the Company exhausts its permitted capacity at a landfill
or its permits expire or are revoked, the Company's ability to expand internally
will be limited and the Company will be required to cap and close the landfill
at potentially significant cost. In addition, the Company could be forced to
dispose of its waste at landfills operated by its competitors. The additional
costs could have a material adverse effect on the Company's business.
Geographic Concentration of Operations. The Company initially
established integrated solid waste management operations in Vermont and is
developing integrated solid waste management operations in Central Pennsylvania
and Western Massachusetts. Since the Company's current primary source of
revenues will be concentrated in these geographic locations, the Company's
business, financial condition and results of operations could be materially
effected by, among other factors, downturns in the local economy, severely harsh
weather conditions, and state regulations. There can be no assurance that the
Company will be able to continue to increase the waste stream to its landfills,
or be able to expand its geographic markets to lessen the effects of adverse
events that may occur in any of these regions.
22
<PAGE>
Seasonality. The Company's revenues and results of operations tend to
vary seasonally. The winter months of the fourth and first quarters of the
calendar year tend to yield lower revenues than those experienced in the warmer
months of the second and third quarters. The primary reasons for lower revenues
in the winter months include, but are not limited to: (i) harsh winter weather
conditions which can interfere with collection and transportation; (ii) the
construction and demolition activities that generate landfill waste are
primarily performed in the warmer seasons; and (iii) the volume of waste in the
region is generally lower in comparison to that which occurs in warmer months.
The Company believes that the seasonality of the revenue stream will not have a
material adverse effect on the Company's business, financial condition and
results of operations on an annualized basis.
Year 2000 Issues. The company uses well-regarded nationally known
software vendors for both its general accounting applications and
industry-specific customer information and billing systems. The Company will be
implementing a new general accounting package in fiscal 1998 which will be fully
year 2000 compatible, and the provider of the solid waste industry customer
information and billing system has made a commitment to be year 2000 compatible
by August 1998.
The Company's banking arrangements are with an international banking
institution which is taking all necessary steps to insure its customers'
uninterrupted service throughout applicable year 2000 timeframes. The Company's
payroll is performed out-of-house by the largest provider of third party payroll
sevices in the country, which has made a commitment of uninterrupted service to
their customers throughout applicable year 2000 timeframes.
Government Permitting Requirements and Regulations. The Company and its
customers operate in a highly regulated environment, and in general the
Company's landfill projects will be required to have federal, state and/or local
government permits and approvals. Any of these permits or approvals may be
subject to denial, revocation or modification under various circumstances. In
addition, if new environmental legislation or regulations are enacted or
existing legislation or regulations are amended or are interpreted or enforced
differently, the Company or its customers may be required to obtain additional
operating permits or approvals. There can be no assurance that the Company will
meet all of the applicable regulatory requirements. Any delay in obtaining
required permits or approvals will tend to cause delays in the Company's ability
to obtain bond or other project financing, resulting in increases in the
Company's needs to invest working capital in projects prior to obtaining more
permanent financing, and will also tend to reduce project returns by deferring
the receipt of project revenues. In the event that the Company is required to
cancel any planned project as a result of the inability to obtain required
permits or other regulatory impediments, the Company may lose any investment it
has made in the project up to that point, and the cancellation of any landfill
projects may have a materially adverse effect on the Company's financial
condition and results of operations.
Potential Environmental Liability. The Company may be subject to
liability for environmental damage, including personal injury and property
damage, that its solid waste facilities may cause to neighboring property
owners, particularly as a result of the contamination of drinking water sources
or soil, possibly including damage resulting from conditions existing or
commencing before the Company acquired the facilities. The Company may also be
subject to liability for similar claims arising from off-site environmental
contamination caused by pollutants or hazardous substances if the Company or its
predecessors arranged to transport, treat or dispose of those materials. Any
substantial liability incurred by the Company arising from environmental damage
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), imposes strict, joint and several liability
on the present owners and operators of facilities from which a release of
hazardous substances into the environment has occurred, as well as any party
that owned or operated the facility at the time of disposal of the hazardous
substances, regardless of when the hazardous substance was first detected.
Similar liability is imposed upon the generators of waste that contains
hazardous substances and upon hazardous substance transporters that select the
treatment, storage or disposal site. All such persons, who are referred to as
potentially responsible parties ("PRPs"), generally are jointly and severally
liable for the expense of the waste site investigation, waste site cleanup costs
and natural resource damages, regardless of whether they exercised due care and
complied with all relevant laws and regulations. These costs can be very
substantial. Furthermore, such liability can be based upon the existence of only
very small amounts of "hazardous substances," as defined in CERCLA, which is a
broader category of substances than "hazardous wastes," as defined in the
23
<PAGE>
Resource Conservation Recovery Act of 1976 ("RCRA"). The states in which the
Company operates have laws similar to CERCLA, which also impose environmental
liability on broad classes of parties. Although the Company is not in the
business of transporting or disposing of hazardous waste, it is possible that
hazardous substances have in the past, or may in the future, come to be located
in landfills with which the Company has been associated as a generator or
transporter of waste or as an owner or operator of the landfill. If the U.S.
Environmental Protection Agency ever determines that remedial measures under
CERCLA or RCRA are appropriate at any of these sites or operations, if a state
agency makes such a finding under similar state law, or if a third party brings
a private cost-recovery or contribution action with respect to remedial costs
incurred or to be incurred, the Company could be subject to substantial
liability which could have a material adverse effect on the Company's business,
financial condition and results of operations.
With respect to each business that the Company acquires or has
acquired, there may be liabilities that the Company fails to or is unable to
discover, including liabilities arising from waste transportation or disposal
activities or noncompliance with environmental laws by prior owners or
operators, and for which the Company, as a successor owner, may be legally
responsible. Representations, warranties and indemnities from the sellers of
such businesses, if obtained and if legally enforceable, may not cover fully the
resulting environmental or other liabilities due to their limited scope, amount
or duration, the financial limitations of the warrantor or indemnitor or other
reasons. Certain environmental liabilities, even though expressly not assumed by
the Company, may nonetheless be imposed on the Company under certain legal
theories of successor liability, particularly under CERCLA. An uninsured claim
against the Company, if successful and of sufficient magnitude, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Potential Adverse Community Relations. The Company has experienced, and
may in the future experience, unexpected delays, costs and litigation resulting
from community resistance and concerns relating to specific projects in various
communities. There can be no assurance that such delays, costs, and litigation
will not arise in the future in connection with any existing or acquired
landfill projects.
Failure to Obtain Performance or Surety Bonds and Letters of Credit;
Adequacy of Accruals for Closure and Post-Closure Costs. Municipal solid waste
collection contracts and landfill closure obligations may require performance or
surety bonds, letters of credit, or other means of financial assurance to secure
contractual performance. If the Company were unable to obtain performance or
surety bonds or letters of credit in sufficient amounts or at acceptable rates,
it could be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits. Any
future difficulty in obtaining insurance could also impair the Company's ability
to secure future contracts conditioned upon the contractor having adequate
insurance coverage. Accordingly, the failure of the Company to obtain
performance or surety bonds, letters of credit, or other means of financial
assurance or to maintain adequate insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company has material financial obligations relating
to closure and post-closure costs of its existing landfills and any landfill it
may purchase or operate in the future. The Company estimates and accrues closure
and post-closure costs based on engineering estimates of airspace usage and
remaining airspace capacity. There can be no assurances that the Company's
financial obligations for closure and post-closure costs will not exceed the
amount accrued, and that this may have a material adverse effect on the
Company's business, financial condition and results of operations.
Environmental Impairment Insurance. The Company has a $5.0 million
environmental impairment liability insurance policy covering claims for sudden
or gradual onset of environmental damage. If the Company were to incur a
liability for environmental damage in excess of its insurance limits, its
financial condition could be adversely affected. The Company carries a
comprehensive general liability insurance policy which management considers
adequate at this time to protect its assets and operations from other risks.
Capital Expenditures. The Company capitalizes, in accordance with
generally accepted accounting principles, certain expenditures and advances
relating to acquisitions, pending acquisitions and landfill projects.
Capitalization of landfill development costs begins upon determination by the
Company of the economic feasibility or extended useful life of each landfill
acquired as a result of comprehensive engineering and profitability studies and
with the signing of landfill management contracts for facilities operated by the
Company that are not owned. Capital costs include acquisition, engineering,
legal, and other direct costs associated with the permitting and development of
new landfills, expansions at existing landfills, and cell development. These
costs are capitalized and not amortized until all permits are obtained and
24
<PAGE>
operations have commenced. Interest is capitalized on landfill development costs
related to permitting, site preparation, and facility construction during the
period that these assets are undergoing activities necessary for their intended
use.
Following the commencement of operations at a particular landfill, or
upon consummation of the acquisition of an operating landfill, the Company
amortizes its landfill development costs using the unit-of-production method,
which is calculated using the total units of airspace filled during the year in
relation to total estimated permitted airspace capacity. Under this method,
current year-end remaining airspace capacity is compared with prior year-end
remaining airspace capacity to determine the amount of airspace used during the
current year. The result is compared against the airspace consumption figures
used during the current year for accounting purposes to ensure proper recording
of the amortization provision. There can be no assurance that an incorrect
estimate of total permitted airspace capacity would not materially impact the
Company's results for operations of future periods.
The Company's policy is to expense in the current period unamortized
capital expenditures and advances relating to any operation that is permanently
shut down or any acquisition that will not be consummated and any landfill
project that is terminated. Thus, the Company may be required to incur a charge
against earnings in future periods that could have a material adverse effect on
the Company's business, financial conditions and results of operations.
25
<PAGE>
PART II
Item 1. Legal Proceedings
The Company is party to pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
the Company's management, after consultation with outside legal counsel, is of
the opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity,
and are summarized as follows:
a) In July 1996, the Company commenced arbitration proceedings against
Dr. Richard Rosen (Rosen), former Chairman, Chief Executive Officer and
President of the Company, seeking to recover amounts, excluding interest and
litigation costs, which the Company believes it was owed by Rosen. This action
was undertaken at the direction of the Board of Directors following its receipt
of a report by a special committee of the Board appointed to investigate Rosen's
financial dealings with the Company, in consultation with independent counsel
retained in connection with its investigation. Rosen resigned from all offices
with the Company on March 27, 1996. Amounts which the Company sought to recover
included unreimbursed advances and amounts which the Company believed
constituted improper expense reimbursements and payments of Company funds for
personal benefit. As of June 30, 1998, the Company had collected the total
amount due from Rosen that it had been carrying on its books.
On March 27, 1997, Rosen commenced an action against the Company in
Middlesex County (Massachusetts) Superior Court, seeking an award of damages
resulting from the Company's alleged breach of a Memorandum of Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's employment with the Company, in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business. The
Company believes this claim to be frivolous and is vigorously defending this
action.
b) In October 1997 in the Middlesex Superior Court, the Company
commenced an action against Marguerite A. Piret, a former director of the
Company and the wife of Rosen, seeking damages against Ms. Piret for her
independent breaches of fiduciary duty as a former director of the Company. This
case is in the discovery stage and no trial date has yet been set. If the
Company is successful in its claims, the Company may recover direct and
consequential damages from Ms. Piret.
The Company is not aware of any other non-routine or incidental
material legal proceedings.
26
<PAGE>
Item 2. Changes in Securities
On May 13, 1998, the Company closed an offering of $60.0 million in 7%
Subordinated Notes (the "Notes" or "7% Subordinated Notes"), which resulted in
net proceeds to the Company of approximately $58.3 million. The Notes will
mature in May 2005, and bear interest at 7.0% per annum, payable semi-annually
in arrears on each June 30 and December 31. Subject to prior approval of the
stockholders of the Company on or before December 31, 1998, the Notes and any
accrued but unpaid interest will be convertible into Common Stock at a
conversion price of $10.00 per share. Following receipt of stockholder approval,
the shares will be convertible at the option of the holder at any time and can
be mandatorily converted by the Company after 2 years if the Company's Common
Stock closing price equals or exceeds the conversion price of $10.00 per share
for a period of 20 consecutive trading days. If stockholder approval is not
received by December 31, 1998, the interest rate of the Notes will increase to
12.0% effective retroactively to September 1, 1998.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) 1. Financial Statements
The financial statements are listed under Part I, Item 1 of this
Report.
2. Financial Statement Schedules
None.
3. Exhibits
None.
(B) Reports on Form 8-K
Waste Systems International, Inc. filed a Current Report on Form 8-K
dated May 13, 1998 reporting under Item 5 the close of an offering of
$60.0 million in Subordinated Notes, which resulted in net proceeds to
the Company of approximately $58.3 million. The report included under
Item 7 exhibits related to the Form of 7% Subordinated Notes due 2005,
the Registration Rights Agreement by and between Waste Systems
International, Inc. and First Albany Corporation, dated May 13, 1998,
and the Press Release of Waste Systems International, Inc., dated May
13, 1998.
Waste Systems International, Inc. filed a Current Report on Form 8-K
dated May 22, 1998 reporting under Item 2 the close of the acquisition
27
<PAGE>
of Eagle Recycling, Inc. and Horvath Sanitation, Inc. pursuant to
the terms of a stock purchase agreement dated March 3, 1998.
Financial statements of the businesses acquired and pro forma
financial information was filed with the commission on August 4, 1998.
Waste Systems International, Inc. filed a Current Report on Form 8-K
dated June 2, 1998 reporting under Item 5 the acquisition of an
approximate 513 acre, permitted "greenfields," Mosteller solid waste
landfill located in Somerset County, Pennsylvania. The report included
the Press Release of Waste Systems International, Inc., dated June 2,
1998 as an exhibit.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: August 12, 1998 By: /s/ Philip Strauss
--------------------- ------------------
Philip Strauss
Chairman, Chief Executive
Officer and President
(Principal Executive
Officer)
Date: August 12, 1998 By: /s/ Robert Rivkin
--------------------- -----------------
Robert Rivkin
Executive Vice President-
Acquisitions, Chief
Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
29
<PAGE>
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