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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________.
COMMISSION FILE NUMBER: 0-22294
MED/WASTE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as
Specified in its Charter)
Delaware 65-0297759
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3890 N.W. 132nd Street, Suite K, Opa Locka, Florida 33054
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(305) 688 - 3931
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 outstanding of the registrant's common stock $.001 par
value as of August 10, 1997 was 2,336,166.
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 526,492 $ 116,054
Accounts receivable, net of allowances of $71,000 and $40,000 2,080,254 1,837,763
Current portion of notes receivable from autoclaves 152,306 43,000
Current portion of notes receivable from franchisees 1,096,604 1,110,104
Inventories 321,102 273,423
Prepaid expenses 419,088 207,944
Other current assets 214,309 --
------------ ------------
Total current assets 4,810,155 3,588,288
Notes receivable from autoclaves net of current portion 693,837 263,000
Notes receivable from franchisees, net of current
portion, less allowance of $58,000 and $54,000 1,181,837 1,032,671
Property, plant and equipment, net 5,605,209 5,122,612
Intangible assets, net 403,981 398,616
Other assets 881,195 121,250
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Total assets $ 13,576,214 $ 10,526,437
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,308,982 $ 2,055,830
Current portion of capital lease obligations 191,989 169,427
Current portion of notes payable 428,436 929,599
Deferred revenue on franchise sales 61,853 82,441
Customer deposits 59,815 38,564
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Total current liabilities 3,051,075 3,275,861
Capital lease obligations, less current portion 364,844 385,594
10% Convertible Redeemable Debentures due July 1, 2000 3,000,000 --
Note payable, less current portion 2,089,468 2,180,615
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8,505,387 5,842,070
Shareholders' equity:
Preferred stock, $. 10 Par value; 4,000,000 and 1,000,000
shares authorized; none outstanding -- --
Common stock, $.001 Par value; 26,000,000 and 10,000,000
shares authorized; 2,330,912 and 2,328,499
shares issued and outstanding 2,331 2,329
Additional paid-in capital 6,876,428 6,870,430
Warrant subscriptions receivable (255,768) (288,003)
Deficit (1,521,507) (1,869,732)
------------ ------------
5,101,484 4,715,024
Less cost of treasury stock: 11,824 shares (30,657) (30,657)
------------ ------------
Total shareholders' equity 5,070,827 4,684,367
------------ ------------
Total liabilities and shareholders' equity $ 13,576,214 $ 10,526,437
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 5,210,600 $ 4,253,233 $ 10,675,320 $ 8,667,305
Costs and expenses:
Operating costs 3,630,708 3,120,861 7,733,090 6,339,419
Administrative and selling expenses 1,317,377 1,047,163 2,495,216 2,181,816
Amortization of intangibles 27,062 10,695 31,880 21,389
------------ ------------ ------------ ------------
Total 4,975,147 4,178,719 10,260,186 8,542,624
------------ ------------ ------------ ------------
Operating profit 235,453 74,514 415,134 124,681
Other, net (37,268) 22,103 (66,912) 59,694
------------ ------------ ------------ ------------
Net income $ 198,185 $ 96,617 $ 348,222 $ 184,375
============ ============ ============ ============
Earnings per share - primary $ .07 $ .05 $ .12 $ .09
============ ============ ============ ============
Earnings per share - fully diluted $ .07 $ .05 $ .12 $ .09
============ ============ ============ ============
Weighted average shares outstanding - primary 3,350,295 2,690,861 3,349,818 2,688,267
============ ============ ============ ============
Weighted average shares outstanding - fully
diluted 4,273,372 2,690,861 4,272,895 2,688,267
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income $ 348,222 $ 184,375
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 319,406 132,276
Provision for doubtful notes and accounts receivable 56,122 64,571
Insurance proceeds, net of payouts 256,330 --
Issuance of warrants for services 38,233 --
Changes in operating assets and liabilities:
Increase in accounts receivable (298,613) (535,743)
Increase in notes receivables (926,809) (189,474)
Increase in inventories (47,679) (34,458)
Increase in prepaid expenses (211,144) (90,088)
Increase in other current assets (214,309) --
Increase in other assets (56,541) (27,668)
(Decrease) increase in accounts payable and
accrued expenses (3,160) 87,672
Decrease in deferred franchise sales (20,588) (147,262)
Increase in customer deposits 21,251 4,234
----------- -----------
Net cash used in operating activities (739,279) (551,565)
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES
Purchases of property plant and equipment, net (770,138) (62,778)
Deposits on acquisitions (429,066) --
Sale of fixed income investments -- 238,405
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Net cash (used in) provided by investing activities (1,199,204) 175,627
</TABLE>
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from 10% Convertible Redeemable Debentures $ 2,692,709 --
Proceeds from assignment of notes receivable 251,000 --
(Payment of) proceeds from line of credit (376,770) $ 310,000
Payment of note payable - Chambers (157,500) --
Payoff of interim financing for autoclaves (89,393) --
Payoff of note payable - Broward Floor (35,000) --
Proceeds from capital leases, net 63,873 24,554
Issuance of common shares and warrants for cash -- 14,700
----------- -----------
Net cash provided by financing activities 2,348,919 349,254
----------- -----------
Increase (decrease) in cash and cash equivalents 410,438 (26,684)
Cash and cash equivalents at beginning of year 116,054 120,917
----------- -----------
Cash and cash equivalents at end of year $ 526,492 $ 94,233
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 139,076 $ 38,036
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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MED/WASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB. and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Med/Waste, Inc. (the "Company") is a holding company which, through its
subsidiaries, is engaged in two businesses: medical waste management and
commercial cleaning services. The medical waste management operations are
conducted through Safety Disposal System, Inc. ("SDS"), Safety Disposal System
of South Carolina, Inc. ("SDSSC") and Safety Disposal System of Pennsylvania,
Inc. ("SDSPA"). SDS, SDSSC and SDSPA are sometimes collectively referred to
herein as the "Waste Companies". SDSPA manages a medical waste autoclave
treatment facility located in Marcus Hook, Pennsylvania (the "KS Facility")
pending the possible purchase of such facility. The commercial cleaning services
operations are conducted through The Kover Group, Inc. ("Kover").
Effective June 1, 1997, SDSPA assumed operational control of the KS Facility,
pursuant to a management agreement with Bonham Management Group, Inc. ("BMG"),
pending the closing of the purchase, if any ( see Note 2 to Notes to
Consolidated Financial Statements). SDSPA records net management fee revenue
under this arrangement based on the net operating cash flows derived from the
operations of the KS Facility. SDSPA is a wholly-owned subsidiary of the Company
and is accounted for on a consolidated basis.
Operating results for the six-month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1997. The significant accounting principles are the same as
those used to prepare the annual audited financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1996.
2. ACQUISITIONS.
On October 15, 1996, the Company, through its subsidiary SDSSC, purchased
certain assets of Chambers Medical Technologies of South Carolina, Inc.
("Chambers"). The following unaudited pro forma consolidated results of
operations for the six months ended June 30, 1996 has been prepared as if the
acquisition by SDSSC had occurred at the beginning of 1996:
PRO FORMA
Revenues $12,154,772
Net earnings $ 273,889
Net earnings per share $ .14
6
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The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisition been in effect for the periods
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
The Company has entered into agreements to purchase the 2.9 acre industrial site
located in Marcus Hook, Pennsylvania, together with related autoclave equipment
used at such site, from KS Processing Company, Inc. The KS Facility is a medical
waste autoclave treatment center operated by BMG, a Virginia corporation
pursuant to a five (5) year management agreement with a five (5) year renewal
option. The Company has also entered into an asset purchase agreement with BMG
to purchase certain of the assets of BMG, including the right to manage the KS
Facility. The closing on each of the purchase agreements are subject to certain
contingencies, including the transfer of operating permits, and completion of
environmental studies satisfactory to the Company. Effective June 1, 1997, SDSPA
assumed operational control of the KS Facility pursuant to a management
agreement with BMG, pending the closing of the purchase. SDSPA records net
management fee revenue under this arrangement based on the net operating cash
flows derived from the operations of the KS Facility.
The KS Facility consists of two (2) 25 ton per day autoclaves, a 10,000 square
foot processing center and a 2,400 square foot administrative building. The KS
Facility receives medical waste from generators located throughout New York, New
Jersey, Connecticut, Pennsylvania, Maryland and Virginia and currently operates
at full capacity. BMG has approximately 50 operating and management personnel.
SDSPA has retained all of BMG's personnel in connection with its management
agreement. The KS Facility is currently the only medical waste autoclave
facility in Pennsylvania.
The Company has agreed to pay $1.4 million for the KS Facility, payable $900,000
cash at closing and the balance payable over a five (5) year period without
interest. The Company has agreed to pay $600,000 in cash, plus 200,000 shares of
common stock for the purchase of the assets of BMG. The Company anticipates
closing the acquisitions described above, if at all, following approval of the
transfers of the necessary operating permits. Under the terms of the above
agreements, the Company has made payments of approximately $400,000 in escrow
deposits and advances as of June 30, 1997.
In June 1997, the Company terminated its previously-announced contract to become
a reorganization plan funder of Biomedical Waste Systems, Inc. ("Biomed")
because it was unable to reach final agreement with Biomed's creditors and
prospective lenders to Biomed. The Company is continuing to negotiate with the
creditors for the purchase of individual assets of Biomed. Biomed filed chapter
11 bankruptcy proceedings approximately two years ago.
3. DEBENTURES AND NOTES PAYABLE
Debentures and Notes payable consist of the following at June 30, 1997:
10% Convertible Redeemable Debentures
due July 1, 2000 $3,000,000
Line of Credit 346,230
Note payable - Chambers 2,171,674
----------
Total notes payable 5,517,904
Less: current portion 428,436
----------
Total $5,089,468
==========
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During the six months ended June 30, 1997 and 1996 interest expense aggregated
$205,719 and $38,036, respectively.
On February 13, 1997, the Company completed a private placement of 10%
Convertible Redeemable Debentures due July 1, 2000 ("the Debentures") raising
net proceeds of approximately $2.7 million. Interest is payable semiannually on
July 1 and January 1 of each year. The Debentures are convertible into shares of
common stock at the holder's option any time prior to redemption or maturity at
a conversion price of $3.25 in principal amount for each share of common stock.
The Debentures are redeemable by the Company after December 31, 1997, but only
if the Company's common stock is trading at $6.50 per share for twenty trading
days in a thirty trading day period immediately prior to redemption. The Company
registered the common stock underlying the Debentures on July 29, 1997. A
portion of the proceeds from the Debentures was used to reduce the outstanding
balance on the Company's line of credit.
The Company has an agreement with a bank, whereby the Company can borrow up to
$2,000,000 under a revolving line of credit. At June 30, 1997, the Company had
approximately $346,000 in borrowings under the line. Other terms and conditions
of the loan remained unchanged. Interest is payable monthly with principal
payable upon demand. The interest rate on the line of credit is prime plus 1%.
Substantially all of the Company's assets other than the incineration facility,
are collateral for the loan.
In January 1997, Kover paid-off an unsecured note in the amount of $35,000. The
note was related to Kover's purchase of Broward Floor Care and Supply, Inc. in
June 1995.
4. LEASES
In February 1997, the Company entered into an agreement with a leasing company,
whereby the Company assigned with recourse two autoclave leases to which it was
a lessor. The leases were discounted at a rate of 9.75%. The Company received
approximately $251,000, under this agreement. A portion of the proceeds from
this arrangement was used to payoff $89,393 in interim loans related to the
manufacture of the two autoclaves.
5. STOCK OPTIONS
In April 1997 the Company granted options to two of its employees under the 1996
Employee Stock Option Plan (the "1996 Plan") to purchase an aggregate of 200,000
shares of common stock. The exercise price of the options was the fair market
value of the underlying common stock at the date of grant, which was $2.75 per
share. The options vest 25% at the end of six months following grant and an
additional 25% on each anniversary date of the grant date thereafter.
On June 10, 1997, the Company's shareholders approved an amendment to the
Company's Directors Stock Option Plan (the "Directors Plan") whereby the number
of shares of Common Stock underlying future grants of options automatically
granted under the Directors Plan were reduced by approximately one-half of the
number of shares (the "Directors Plan Amendment"). The Directors Plan Amendment
was effective as of the 1997 automatic grant date. Each Eligible Director
continues to receive automatic, non-discretionary annual grants of options based
upon specific criteria set forth in the Directors Plan. Effective with the 1997
grants, each Eligible Director now receives options to purchase 3,000 shares of
8
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Common Stock for service on the Board, options to purchase 3,000 shares for
service on each permanent committee (other than the Executive Committee) and
options to purchase 3,000 shares for services as a committee chairman (other
than the Executive Committee). Eligible Directors who serve on the Executive
Committee will receive options to purchase 6,000 shares, with additional options
to purchase 6,000 shares for the Chairman of the Executive Committee.
The Directors Plan Amendment is prospective in its application only and only
affects options that are automatically granted on June 2, 1997 and for future
years.
6. NET INCOME PER COMMON SHARE
Weighted average shares outstanding include all common and dilutive common
equivalent shares for the periods they were outstanding. The effect of stock
options and warrants (common stock equivalents) have been included in the
computation for the periods presented (see Exhibit 11).
NEW FASB PRONOUNCEMENTS. In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings per Share" ("SFAS No. 128") which when
adopted, will replace the current methodology for calculating and presenting
earnings per share. Under SFAS No. 128, primary earnings per share will be
replaced with a presentation of basic earnings per share and fully diluted
earnings per share will be replaced with diluted earnings per share. Basic
earnings per share excludes dilution and is computed by dividing income
available to common shares outstanding for the period. Diluted earnings per
share is computed similarly to fully diluted earnings per share. The Statement
will be effective for the Company's December 31, 1997 financial statements.
7. FIRE DAMAGE
On June 1, 1997, a fire occurred at the Company's incineration facility in
Hampton, South Carolina. Damage occurred in various parts of the facility,
causing the facility to shut down operations. During the shut down period, the
Company continued to accept medical waste, re-package such waste and route the
waste to other facilities for disposal, including the autoclave facility managed
by the Company in Marcus Hook, Pennsylvania. Repairs on the facility were
completed and the facility became fully operational on June 30, 1997.
In August 1997, the Company reached a settlement with one of its insurance
companies for approximately $3.3 million. During June 1997, the Company was
advanced $950,000 of such settlement and made payments of approximately $700,000
for the repair of the incineration facility and other fire related damages. The
Company received the balance of the insurance settlement and will continue to
make disbursements for the repair of the incineration facility and other fire
related damages during the third quarter of 1997. At June 1997, the Company has
recorded an approximately $250,000 liability representing the excess of
insurance proceeds over payments for the repair of the incineration facility and
other fire related damages to date. Such liability has been included in
"Accounts payable and accrued liabilities" in the accompanying June 30, 1997
balance sheet. Any gain will be recognized upon settlement with all insurance
companies.
8. LEGAL PROCEEDINGS
Prior to July 1, 1997, the State of South Carolina restricted the Company's
incineration facility's permitted incineration capacity for medical waste to the
greater of (I) 50 tons per day or (ii) on a monthly basis 1/12 of the estimated
amount of medical waste generated within the State of South Carolina within
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one year. The prior owner of the facility instituted litigation against the
State of South Carolina contesting the state's imposition of the limitation, as
well as certain provisions of the South Carolina Infectious Waste Management Act
and the regulations promulgated thereunder. At the trial level, the Company's
prior owner was successful in its challenge to certain fee requirements under
the regulations. However, it was not successful in having the volume limitation
ruled unconstitutional. When the Company purchased the facility, it continued
the litigation on appeal. In June 1997, the Company and the State of South
Carolina entered into a settlement agreement, whereby the South Carolina State
Legislature approved legislation removing the limitation on medical waste and
the Company dismissed all litigation related to the matter. Effective July 1,
1997, the incinerator is now permitted to incinerate up to its full 100 ton per
day permitted capacity of medical waste.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH JUNE 30, 1996
REVENUES. For the three months ended June 30, 1997, the Company had
revenues of $5,210,600 up 23% from $4,253,233 for the comparable period in 1996.
The second quarter results were achieved despite the fire at the Company's South
Carolina medical and special waste disposal facility on June 1, 1997. While the
fire kept the plant closed for 30 days, the Company continued to accept waste
and diverted such waste to other facilities for treatment. The inclusion and
strong performance of the facility for the first two months of the quarter, the
net management fee income from the KS Processing plant in Marcus Hook,
Pennsylvania, which has been under the Company's management since June 1, 1997,
as well as continued sales of Envirosafe TM autoclaves, accounted for the growth
in revenues.
OPERATING COSTS. Consolidated operating costs amounted to $3,630,708 in
the three months ended June 30, 1997 period as compared to $3,120,861 for the
same period in 1996. The increase is primarily attributable to the inclusion of
SDSSC's results in 1997, which the Company acquired in October 1996.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling
expenses as a percentage of revenue remained unchanged at 25% in the three
months ended June 30, 1997 as compared to the same period for 1996.
OPERATING PROFIT. The Company recorded an operating profit of $235,453
for the three months ended June 30, 1997 as compared to $74,514 in the
comparable 1996 period. The increase was primarily attributable to the inclusion
of revenue from the SDSSC incinerator facility, which the Company acquired in
October 1996, the net management fee income from the KS Processing plant in
Marcus Hook, Pennsylvania, which has been under the Company's management since
June 1, 1997, as well as continued sales of Envirosafe TM autoclaves, accounted
for the growth.
OTHER, NET. Other, net decreased to an expense of ($37,268) in the
three months ended June 30, 1997 as compared to income of $22,103 for the same
period in 1996 primarily due to the interest expense on the Debentures. The
Debentures were issued on February 13, 1997.
NET INCOME. Net income for the second quarter of 1997 rose to $198,185,
or $.07 per share, compared to $96,617, or $.05 per share for the same period in
1996. The increase was primarily attributable to the inclusion of revenue from
the SDSSC incinerator facility, which the Company acquired in October 1996, the
net management fee income from the KS Processing plant in Marcus Hook,
Pennsylvania, as well as continued sales of Envirosafe TM autoclaves, offset
partially by the 1997 interest expense on the Debentures issued on February 13,
1997. The earnings per share results were achieved based on 23% more shares
outstanding in fiscal 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH JUNE 30, 1996
REVENUES. For the six months ended June 30, 1997, the Company had
revenues of $10,675,320 up 23.2% from $8,667,305 for the comparable period in
1996. The increase was primarily attributable to the inclusion of revenue from
the SDSSC incinerator facility, the net management fee income from the KS
Processing plant, as well as continued sales of Envirosafe TM autoclaves,
accounted for the growth in revenues.
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OPERATING COSTS. Consolidated operating costs amounted to $7,733,090 in
the six months ended June 30, 1997 period as compared to $6,339,419 for the same
period in 1996. The increase is primarily attributable to the inclusion of South
Carolina incinerator's results in 1997.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling
expenses as a percentage of revenue decreased to 23.4% in the six months ended
June 30, 1997 from 25.2% for the same period for 1996 primarily due to
synergistic cost savings in corporate overhead that resulted from the October
1996 acquisition of SDSSC.
OPERATING PROFIT. The Company recorded an operating profit of $415,134
for the six months ended June 30, 1997 as compared to $124,681 in the comparable
1996 period. The increase was primarily attributable to the inclusion of revenue
from the SDSSC incinerator facility, the net management fee income from the KS
Processing plant, as well as continued sales of Envirosafe TM autoclaves,
accounted for the growth.
OTHER, NET. Other, net decreased to an expense of ($66,912) in the six
months ended June 30, 1997 as compared to income of $59,694 for the same period
in 1996 primarily due to the interest expense on the Debentures. The Debentures
were issued on February 13, 1997.
NET INCOME. Net income for the first quarter of 1997 rose to $348,222,
or $.12 per share, compared to $184,375, or $.09 per share for the same period
in 1996. The increase was primarily attributable to the inclusion of revenue
from the SDSSC incinerator facility, the net management fee income from the KS
Processing plant, as well as continued sales of Envirosafe TM autoclaves, offset
partially by the 1997 interest expense on the Debentures issued on February 13,
1997. The earnings per share results were achieved based on 22% more shares
outstanding in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1997 amounted to $1,759,080
compared to $312,427 at December 31, 1996. During the six months ended June 30,
1997, cash increased by $410,438 to $526,492. The Company's source of cash
during 1997 has primarily been the proceeds of the Debentures, the assignment
with recourse of two autoclave leases to which the Company was a lessor, and
approximately $250,000 in advance insurance proceeds net of payments for
incineration repair and fire related damages (see discussion of fire damages and
insurance proceeds below). Operating activities used $739,279 of cash,
principally due to the increase in accounts receivable and prepaid expenses
related to the net management fee income from the KS Processing plant in Marcus
Hook, Pennsylvania, which has been under Med/Waste management since June 1,
1997; and the increase in notes receivable related to the five-year agreement
with Baptist Hospital of Miami to provide on-site treatment of medical waste
utilizing the Company's Envirosafe TM autoclave treatment system, offset
partially by advance insurance proceeds net of payments for incineration repair
and fire related damages (see discussion of fire damages and insurance proceeds
below). Investing activities used $1,199,204 in cash principally due to capital
expenditure projects at SDSSC and deposits on acquisitions; and Financing
activities provided $2,348,919 of cash, principally due to the proceeds of the
Debentures; the assignment with recourse of two autoclave leases to which the
Company was a lessor and payments on the Company's line of credit.
In January 1997, Kover paid-off an unsecured note in the amount of
$35,000. The note was related to Kover's purchase of Broward Floor Care and
Supply, Inc. in June 1995.
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In February 1997, the Company entered into an agreement with a leasing
company, whereby the Company assigned with recourse two autoclave leases to
which it was a lessor. The leases were discounted at a rate of 9.75%. The
Company received approximately $251,000, under this agreement. A portion of the
proceeds from this arrangement was used to payoff $89,393 in interim loans
related to the manufacture of the two autoclaves.
On February 13, 1997, the Company completed a private placement of the
Debentures raising net proceeds of approximately $2.7 million. Interest is
payable semiannually on July 1 and January 1 of each year. The Debentures are
convertible into shares of common stock at the holder's option any time prior to
redemption or maturity at a conversion price of $3.25 in principal amount for
each share of common stock. The Debentures are redeemable by the Company after
December 31, 1997, but only if the Company's common stock is trading at $6.50
per share for twenty trading days in a thirty trading day period immediately
prior to redemption. A portion of the proceeds from the Debentures was used to
reduce the outstanding balance on the Company's line of credit.
The Company has an agreement with a bank, whereby the Company can
borrow up to $2,000,000 under a revolving line of credit. At June 30, 1997, the
Company had approximately $346,000 in borrowings under the line. Other terms and
conditions of the loan remained unchanged. Substantially all of the Company's
assets, other than the incineration facility, are collateral for the loan.
The Company has entered into agreements to purchase a 2.9 acre
industrial site located in Marcus Hook, Pennsylvania, together with related
autoclave equipment used at such site, from K.S. Processing Company, Inc. (The
"KS Facility"). The KS Facility is a medical waste autoclave treatment center
operated by Bonham Management Group, Inc. ("BMG"), a Virginia corporation
pursuant to a five (5) year management agreement with a five (5) year renewal
option. The Company has also entered into an asset purchase agreement with BMG
to purchase certain of the assets of BMG, including the right to manage the KS
Facility. The closing of such purchase is subject to certain contengencies
including transfer of operating permits and environmental studies satisfactory
to the Company. Effective June 1, 1997, SDSPA assumed operational control of the
KS Facility pursuant to a management agreement with BMG, pending the closing of
the purchase. SDSPA records net management fee revenue under this arrangement
based on the net operating cash flow derived from the operations of the KS
Facility.
The KS Facility consists of two (2) 25 ton per day autoclaves, a 10,000
square foot processing center and a 2,400 square foot administrative building.
The KS Facility receives medical waste from generators located throughout New
York, New Jersey, Connecticut, Pennsylvania, Maryland and Virginia and currently
operates at full capacity. The Company has retained BMG's approximately 50
operating and management personnel in connection with the management agreement.
The KS Facility is currently the only medical waste autoclave facility in
Pennsylvania.
The Company has agreed to pay $1.4 million for the KS Facility, payable
$900,000 cash at closing and the balance payable over a five (5) year period
without interest. The Company has agreed to pay $600,000 in cash, plus 200,000
shares of Common Stock for the purchase of the assets of BMG. The Company
anticipates closing the acquisitions described above following approval of the
transfers of the necessary operating permits. Under the terms of the above
agreements, the Company has made payments of approximately $400,000 in escrow
deposits and advances as of June 30, 1997 from internally generated working
capital.
In June 1997, the Company terminated its previously-announced contract
to become a
13
<PAGE> 14
reorganization plan funder of Biomedical Waste Systems, Inc. ("Biomed") because
it was unable to reach final agreement with Biomed's creditors and prospective
lenders to Biomed. The Company is planning to continue to negotiate with the
creditors for the purchase of individual assets of Biomed. Biomed filed chapter
11 bankruptcy proceedings approximately two years ago.
On June 1, 1997, a fire occurred at the Company's incineration facility
in Hampton, South Carolina. Damage occurred in various parts of the facility,
causing the facility to shut down operations. During the shut down period, the
Company continued to accept medical waste, re-package such waste and route the
waste to other facilities for disposal, including the autoclave facility managed
by the Company in Marcus Hook, Pennsylvania. Repairs on the facility were
completed and the facility became fully operational on June 30, 1997.
In August 1997, the Company reached a settlement with one of its
insurance companies for approximately $3.3 million. During June 1997, the
Company was advanced $950,000 of such settlement and made payments of
approximately $700,000 for the repair of the incineration facility and other
fire related damages. The Company received the balance of the insurance
settlement and will continue to make disbursements for the repair of the
incineration facility and other fire related damages during the third quarter of
1997. At June 1997, the Company has recorded an approximately $250,000 liability
representing the excess of insurance proceeds over disbursements for the repair
of the incineration facility and other fire related damages to date. Such
liability has been included in "Accounts payable and accrued liabilities" in the
accompanying June 30, 1997 balance sheet. Any gain will be recognized upon
settlement with all insurance companies.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Prior to July 1, 1997, the State of South Carolina restricted the
Company's incineration facility's permitted incineration capacity for medical
waste to the greater of (i) 50 tons per day or (ii) on a monthly basis 1/12 of
the estimated amount of medical waste generated within the State of South
Carolina within one year. The prior owner of the facility instituted litigation
against the State of South Carolina contesting the state's imposition of the
limitation, as well as certain provisions of the South Carolina Infectious Waste
Management Act and the regulations promulgated thereunder. The Company's prior
owner was successful in its challenge to certain fee requirements under the
regulations. However, it was not successful in having the volume limitation
ruled unconstitutional. When the Company purchased the facility, it continued
the litigation on appeal. In June 1997, the Company and the State of South
Carolina entered into a settlement agreement, whereby the South Carolina State
Legislature approved legislation removing the limitation on medical waste and
the Company dismissed all litigation related to the matter. Effective July 1,
1997, the incinerator is now permitted to incinerate up to its full 100 ton per
day permitted capacity of medical waste.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company held its 1997 annual meeting of shareholders on June 10, 1997 (the
"Annual Meeting"). At the Annual Meeting, the Company's shareholders voted on
the following matters: (a) election of directors; (b) to amend the Company's
Certificate of Incorporation in order to increase the number of authorized
shares of Common and Preferred Stock; (c) to amend the Company's Certificate of
Incorporation to provide for a Staggered Board of Directors; and (d) to amend
the Company's Directors
14
<PAGE> 15
Stock Option Plan.
Seven (7) directors were elected at the Annual Meeting with the votes as
indicated below:
<TABLE>
<CAPTION>
NON-
NAME IN FAVOR AGAINST WITHHELD VOTE
---- -------- ------- -------- ----
<S> <C> <C> <C> <C>
Milton J. Wallace 1,902,572 -- 24,711 -
Daniel A. Stauber 1,902,572 -- 24,711 -
Arthur G. Shapiro 1,899,793 -- 27,490 -
Richard Green 1,902,572 -- 24,711 -
Phillip W. Kubec 1,902,572 -- 24,711 -
William D. Dolan 1,902,572 -- 24,711 -
Kendrick Meek 1,902,222 -- 25,061 -
</TABLE>
The increase in authorized Common and Preferred Stock was approved by
shareholders at the Annual Meeting by the following vote:
For 1,166,955
Against 44,276
Withheld 6,100
Not voted 709,952
The Staggered Board of Directors was approved at the Annual Meeting by the
following vote:
For 1,180,760
Against 22,121
Withheld 14,450
Not voted 709,952
The amendment to the Company's Directors Stock Option Plan was approved at the
Annual Meeting by the following vote:
For 1,853,577
Against 57,006
Withheld 16,700
Not voted --
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 - Statement re: computation of earnings per share
Exhibit 27 - Financial Statement Schedule
(b) Reports on Form 8-K.
The Company did not file a Form 8-K during the three months ended June
30, 1997.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Med/Waste, Inc.
Date: September 10, 1997 /s/ Daniel A. Stauber
------------------------- ---------------------------
Daniel A. Stauber,
President and Chief
Executive Officer
Date: September 10, 1997 /s/ Michael D. Elkin
------------------------- ---------------------------
Michael D. Elkin,
Vice President and Chief
Financial Officer
17
<PAGE> 1
MED/WASTE INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Primary:
Weighted average number of common shares outstanding 2,318,105 1,898,014
Common equivalent shares outstanding - options and warrants 1,496,008 1,172,450
Common equivalent shares outstanding - 20% of outstanding shares (463,818) (379,603)
----------- -----------
Total common and common equivalent shares outstanding 3,350,295 2,690,861
Net income $ 198,185 $ 96,617
Interest expense $ 51,067 $ 31,497
----------- -----------
Adjusted net income $ 249,252 $ 128,114
=========== ===========
Primary earnings per share $ .07 $ .05
=========== ===========
Fully diluted:
Weighted average number of common shares outstanding 2,318,105 1,898,014
Common equivalent shares outstanding - options and warrants 1,496,008 1,172,450
Common equivalent shares outstanding - convertible debentures 923,077 --
Common equivalent shares outstanding - 20% of outstanding shares (463,818) (379,603)
----------- -----------
Total common and common equivalent shares outstanding 4,273,372 2,690,861
Net income $ 198,185 $ 96,617
Interest expense $ 101,953 $ 27,644
----------- -----------
Adjusted net income $ 300,138 $ 124,261
=========== ===========
Fully diluted earnings per share $ .07 $ .05
=========== ===========
</TABLE>
<PAGE> 2
MED/WASTE INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (CONTD.)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Primary:
Weighted average number of common shares outstanding 2,317,628 1,895,420
Common equivalent shares outstanding - options and warrants 1,496,008 1,172,450
Common equivalent shares outstanding - 20% of outstanding (463,818) (379,603)
shares
----------- -----------
Total common and common equivalent shares outstanding 3,349,818 2,688,267
Net income $ 348,222 $ 184,375
Interest expense $ 69,403 $ 62,994
----------- -----------
Adjusted net income $ 417,625 $ 247,369
=========== ===========
Primary earnings per share $ .12 $ .09
=========== ===========
Fully diluted:
Weighted average number of common shares outstanding 2,317,628 1,895,420
Common equivalent shares outstanding - options and warrants 1,496,008 1,172,450
Common equivalent shares outstanding - convertible debentures 923,077 --
Common equivalent shares outstanding - 20% of outstanding (463,818) (379,603)
shares
----------- -----------
Total common and common equivalent shares outstanding 4,272,895 2,688,267
Net income $ 348,222 $ 184,375
Interest expense $ 153,905 $ 55,288
----------- -----------
Adjusted net income $ 502,127 $ 239,663
=========== ===========
Fully diluted earnings per share $ .12 $ .09
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 526,492
<SECURITIES> 0
<RECEIVABLES> 2,080,254
<ALLOWANCES> (71,000)
<INVENTORY> 321,102
<CURRENT-ASSETS> 4,810,155
<PP&E> 6,675,785
<DEPRECIATION> (1,070,576)
<TOTAL-ASSETS> 13,576,214
<CURRENT-LIABILITIES> 3,051,075
<BONDS> 5,454,312
0
0
<COMMON> 2,331
<OTHER-SE> 5,068,496
<TOTAL-LIABILITY-AND-EQUITY> 13,576,214
<SALES> 5,464,720
<TOTAL-REVENUES> 10,675,320
<CGS> 7,733,090
<TOTAL-COSTS> 2,495,216
<OTHER-EXPENSES> 66,912
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348,222
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
