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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 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
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MED/WASTE, INC.
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(Exact Name of Small Business Issuer as
Specified in its Charter)
Delaware 65-0297759
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3890 N.W. 132nd Street, Suite K, Opa Locka, Florida 33054
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(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 November 12, 1997 was 3,942,040.
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash And Cash Equivalents $ 2,149,129 $ 116,054
Accounts Receivable, Net Of Allowances Of $121,000
And $40,000 3,643,650 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 171,869 273,423
Prepaid Expenses 422,192 207,944
Other Current Assets 342,246 --
------------ ------------
Total Current Assets 7,977,996 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 $100,000 And $54,000 1,330,388 1,032,671
Property, Plant And Equipment, Net 4,926,886 5,122,612
Intangible Assets, Net 1,901,519 398,616
Other Assets 798,822 121,250
------------ ------------
Total Assets 17,629,448 $ 10,526,437
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable And Accrued Liabilities $ 1,014,570 $ 2,055,830
Current Portion Of Capital Lease Obligations 525,866 169,427
Current Portion Of Notes Payable 2,532,993 929,599
Deferred Revenue On Franchise Sales 56,853 82,441
Customer Deposits 59,694 38,564
------------ ------------
Total Current Liabilities 4,189,976 3,275,861
Capital Lease Obligations, Less Current Portion 685,951 385,594
10% Convertible Redeemable Debentures Due July 1, 2000 3,000,000 --
Note Payable, Less Current Portion 2,061,256 2,180,615
------------ ------------
9,937,183 5,842,070
Shareholders' Equity:
Preferred Stock, $. 10 Par Value; 4,000,000 And 1,000,000
Shares Authorized; None Outstanding -- --
Preferred Stock, $.01 Par Value; 40,000 And No Shares
Authorized; 24,310 Outstanding 243 --
Common Stock, $.001 Par Value; 26,000,000 And 10,000,000
Shares Authorized; 2,491,748 And 2,328,499
Shares Issued And Outstanding 2,491 2,329
Additional Paid-In Capital 9,053,676 6,870,430
Warrant Subscriptions Receivable (187,895) (288,003)
Deficit (1,145,593) (1,869,732)
------------ ------------
7,722,922 4,715,024
Less Cost Of Treasury Stock: 11,824 Shares (30,657) (30,657)
------------ ------------
Total Shareholders' Equity 7,692,265 4,684,367
------------ ------------
Total Liabilities And Shareholders' Equity $ 17,629,448 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 5,400,744 $ 4,024,289 $ 16,076,376 $ 12,691,595
Costs and expenses:
Operating costs 3,722,453 2,945,416 11,487,361 9,284,837
Administrative and selling expenses 1,181,362 1,105,427 3,645,073 3,287,233
Amortization of intangibles 27,507 10,695 59,381 32,084
------------ ------------ ------------ ------------
Total 4,931,322 4,061,538 15,191,815 12,604,154
------------ ------------ ------------ ------------
Operating profit (loss) 469,422 (37,249) 884,561 87,441
Other, net (93,510) (12,061) (160,422) 47,634
------------ ------------ ------------ ------------
Net income (loss) $ 375,912 $ (49,310) $ 724,139 $ 135,075
============ ============ ============ ============
Earnings (loss) per share:
Primary earnings (loss) per share $ .10 $ (.01) $ .17 $ .07
============ ============ ============ ============
Fully diluted earnings (loss) per share $ .09 $ (.01) $ .17 $ .07
============ ============ ============ ============
Weighted average shares outstanding - primary 4,654,849 2,991,799 4,496,137 2,691,618
============ ============ ============ ============
Weighted average shares outstanding -
fully diluted 5,680,490 2,991,799 5,521,778 2,691,618
============ ============ ============ ============
</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>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income $ 724,139 $ 135,075
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 458,362 196,817
Provision for doubtful notes and accounts receivable 115,346 133,365
Insurance proceeds 3,258,600 --
Issuance of warrants for services 38,233 --
Changes in operating assets and liabilities:
Increase in accounts receivable (1,387,758) (547,316)
Increase in notes receivables (1,013,485) (288,147)
Decrease (increase) in inventories 101,554 (42,244)
Increase in prepaid expenses (158,248) (127,111)
Increase in other current assets (342,246) --
Increase in other assets (2,029,417) (23,906)
(Decrease) increase in accounts payable and accrued
expenses (1,041,260) 46,257
Decrease in deferred franchise sales (25,588) (270,868)
Increase in customer deposits 21,130 11,896
---------- ---------
Net cash used in operating activities (1,280,638) (776,182)
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES
Write off of Equipment for Fire Damage 3,258,600 --
Purchases of property plant and equipment, net (2,749,609) (77,083)
Payment for purchase of Environmental Waste Reduction (EWR) (1,825,000) --
Increase of net assets and liabilities of EWR (1,840,508) --
Sale of fixed income investments -- 750,238
--------- ---------
Net cash (used in) provided by investing activities (3,156,517) 678,155
</TABLE>
4
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 (1,197,406) $ (119,599)
Payment Of Note Payable - Chambers (210,000) --
Payoff Of Interim Financing For Autoclaves (89,393) --
Payoff Of Note Payable - Broward Floor (35,000) --
Proceeds From Capital Leases, Net 479,857 (17,914)
Proceeds From Common Shares And Preferred Shares 2,183,651 716,221
----------- -----------
Net Cash Provided By Financing Activities 6,470,230 578,708
----------- -----------
Increase (Decrease) In Cash And Cash Equivalents 2,033,075 480,681
Cash And Cash Equivalents At Beginning Of Year 116,054 120,917
----------- -----------
Cash And Cash Equivalents At End Of Year $ 2,149,129 $ 601,598
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR INTEREST $ 300,000 $ 54,000
=========== ===========
ISSUANCE OF COMMON STOCK FOR NOTES RECEIVABLE $ 0 288,000
=========== ===========
</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"), Safety Disposal System of Georgia, Inc.
("SDSGA"), Safety Disposal System of Virginia, Inc. ("SDSVA") and Safety
Disposal System of Pennsylvania, Inc. ("SDSPA"). SDS, SDSSC, SDSGA, SDSVA and
SDSPA are sometimes collectively referred to herein as the "Waste Companies".
SDSPA managed a medical waste autoclave treatment facility located in Marcus
Hook, Pennsylvania (the "KS Facility") pending the Company's purchase of such
facility which was completed in November 1997. 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 Company's purchase of BMG's assets. SDSPA recorded 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. The KS Facility and
the assets of Bonham Management Group, Inc. were acquired in November 1997.
Operating results for the nine-month period ended September 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 nine months ended September 30, 1996 has been prepared as if
the acquisition by SDSSC had occurred at the beginning of 1996:
PRO FORMA
Revenues $17,922,795
Net earnings $ 269,346
Net earnings per share $ .13
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On September 25, 1997 the SDSGA purchased substantially all the assets of
Environmental Waste Reduction Inc, a company operating under a Chapter 11
bankruptcy proceeding as a debtor in possession. The selling price amounted to
$2,669,644, payable in $1,825,000 in cash, $734,634 in assumed liabilities, and
$90,010 credit against amounts due the Company. The purchase price was paid
through the Company's available working capital. The following unaudited pro
forma consolidated results of operations for the nine months ended September 30,
1997 and 1996 has been prepared as if the acquisition by SDSGA had occurred at
the beginning of each year:
PRO FORMA 1997 1996
Revenues $ 15,083,814 $ 19,063,724
Net earnings $ (1,078,545) $ 350,346
Net earnings per share $ (.23) $ .11
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.
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 September 30, 1997:
10% Convertible Redeemable Debentures
due July 1, 2000 $3,000,000
Line of Credit 1,920,406
Note payable - Chambers 2,143,463
----------
Total notes payable 7,063,869
Less: current portion 2,002,612
----------
Total $5,061,257
==========
During the nine months ended September 30, 1997 and 1996 interest expense
aggregated $266,000 and $54,000, respectively.
On February 13, 1997, the Company completed a private placement of the 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 $2.925 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 $5.85 (200% of the conversion price)
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
7
<PAGE> 8
reduce the outstanding balance on the Company's line of credit. As of October
24, 1997, $774,209 of the Debentures were converted into shares of common stock
at the conversion price of $2.925 in principal amount for each share of common
stock.
The Company has an agreement with a bank, whereby the Company can borrow up to
$4,000,000 under a revolving line of credit. At September 30, 1997, the Company
had approximately $1,920,000 in borrowings under the line. Substantially all of
the Company's assets, other than the incineration facility, are collateral for
the loan. In November 1997, the bank issued a $5,000,000 term loan in connection
with the Company's acquisition of Incendere Inc.
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 AND PREFERRED STOCK
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
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. In June
1997, the Company granted options to purchase 59,000 shares of common stock to
eligible directors under the Director's Plan at an exercise price of $3.59.
The Directors Plan Amendment is prospective in its application and only
affects options that are automatically granted on June 2, 1997 and for future
years.
In September 1997, the Company closed on the first stage of a private placement
of the Preferred Stock, raising approximately $2.1 million, net of expenses. The
Company raised an additional $1.4 million in Preferred Stock net proceeds in
October 1997. The Preferred Stock may be redeemed by the Company
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under certain circumstances.
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. The insurance proceeds were equal to
the fire loss at the incineration plant. The insurance proceeds were used to
make payments for the repair of the incineration facility and other fire related
damages.
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 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.
9
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9. SUBSEQUENT EVENTS
On November 6, 1997, the Company purchased the real property and improvements
from KS Processing, Inc., an autoclave treatment facility located near Marcus
Hook, PA. The Company paid aggregate consideration of $1.4 million, consisting
of $900,000 in cash at the closing and a $500,000 purchase money note secured by
the real property. The purchase money note is payable monthly over five years
without interest. The cash portion of the purchase price was paid from the net
proceeds of the private placement of Series A preferred stock completed in
October 1997.
On November 7, 1997, the Company purchased 100% of the capital stock of
Incendere, Inc, a wholly owned indirect subsidiary of Republic Industries. The
purchase price amounted to $12 million, payable $10,000,000 in cash at closing
and $2,000,000 in cash held in escrow, subject to achievement of certain revenue
levels of Incendere, Inc. for a four month period prior to closing. The purchase
price was paid from a $4 million equity financing consummated on November 7,
1997, cash on hand and available borrowings under the Company's line of credit
and a term loan with a bank.
On November 7, 1997, the Company issued an aggregate of 1,103,449 shares of its
common stock and common stock purchase warrants to purchase an aggregate of
40,128 shares of common stock pursuant to exemptions from registration
promulgated under the Securities Act of 1933 were sold for cash. Each warrant
entitles the holder to purchase one share of common stock at a purchase price of
$3.625 per share until November 6, 2002.
On November 10, 1997 the Company purchased substantially all the assets and
business of Bonham Management Group, Inc. The purchase price for the business
and a non-competition agreement amounted to $850,000 in cash and 200,000 shares
of the Company's common stock. The cash portion of the purchase price was paid
from the net proceeds of the Preferred Stock completed in October 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH SEPTEMBER 30, 1996
REVENUES. For the three months ended September 30, 1997, the Company
had revenues of $5,400,744 up 34% from $4,024,289 for the comparable period. The
higher revenues for the current three month period was primarily due to the
inclusion of revenue from the SDSSC incinerator facility, which the Company
acquired in October 1996 and the management fee revenue from the Marcus Hook,
Pennsylvania site, which has been under the company's management since June
1,1997.
OPERATING COSTS. Consolidated operating costs amounted to $3,722,453 in
the three months ended September 30, 1997 period as compared to $2,945,416 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 decreased to 22% in the three months ended
September 30, 1997 from 28% for the same period for 1996 due to synergistic cost
savings in corporate overhead and the 1996 write-off of costs associated with
unsuccessful acquisitions.
OPERATING PROFIT. The Company recorded an operating profit of $375,912
for the three months ended September 30, 1997 as compared to a loss of ($49,310)
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 and 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.
OTHER, NET. Other, net decreased to an expense of ($93,510) in the
three months ended September 30, 1997 as compared to expense of ($12,061) for
the same period in 1996 primarily due to the interest expense on the 10%
Convertible Redeemable Debentures due July 1, 2000 ("the Debentures"). The
Debentures were issued on February 13, 1997.
NET INCOME. Net income for the third quarter of 1997 rose to $375,912
or $.10 per share, compared to a net loss of ($49,310), or ($.02) 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, the 1996 write-off of costs associated with
unsuccessful acquisitions, offset partially by the 1997 interest expense on the
Debentures issued on February 13, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH SEPTEMBER 30, 1996
REVENUES. For the nine months ended September 30, 1997, the Company had
revenues of $16,076,376 up 26% from $12,691,595 for the comparable period in
1996. The increase in revenue for the current nine month period 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.
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OPERATING COSTS. Consolidated operating costs amounted to $11,487,361
in the nine months ended September 30, 1997 period as compared to $9,284,837 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% in the nine months ended
September 30, 1997 from 26% for the same period for 1996 primarily due to
synergistic cost savings in corporate overhead that resulted from the October
1996 acquisition of SDSSC and the 1996 write-off of costs associated with
unsuccessful acquisitions.
OPERATING PROFIT. The Company recorded an operating profit of $884,561
for the nine months ended September 30, 1997 as compared to $87,441 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.
OTHER, NET. Other, net decreased to an expense of ($160,422) in the
nine months ended September 30, 1997 as compared to income of $47,634 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 nine months ended September 30, 1997
rose to $724,139 or $.17 per share, compared to $135,075, or $.07 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 1997 amounted to
$3,788,020 compared to $312,427 at December 31, 1996. During the nine months
ended September 30, 1997, cash increased by $2,033,075 to $2,149,129. The
Company's source of cash during 1997 has primarily been the proceeds of the
Debentures, proceeds of the Preferred Stock issuance, the assignment with
recourse of two autoclave leases to which the Company was a lessor, and
approximately $3.3 million in advance insurance proceeds (see discussion of fire
damages and insurance proceeds below). Operating activities used $1,280,638 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 $3,156,517 in cash principally due to the
acquisition of Environmental Waste Reduction, Inc. ("EWR"), capital expenditure
projects at SDSSC and deposits on acquisitions; and Financing activities
provided $6,470,230 of cash, principally due to the proceeds of the Debentures
and Preferred Stock; 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.
In February 1997, the Company entered into an agreement with a leasing
company, whereby the
12
<PAGE> 13
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
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 $2.925 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 $5.85
(200% of the conversion price) 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. As of October 24, 1997, $774,209 of the Debentures were
converted into shares of common stock at the conversion price of $2.925 in
principal amount for each share of common stock.
The Company has an agreement with a bank, whereby the Company can
borrow up to $4,000,000 under a revolving line of credit. At September 30, 1997,
the Company had approximately $1,920,000 in borrowings under the line.
Substantially all of the Company's assets, other than the incineration facility,
are collateral for the loan. In November 1997, the bank issued a $5,000,000 term
loan in connection with the Company's acquisition of Incendere Inc., as
discussed below.
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 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. The insurance proceeds were
equal to the fire loss at the incineration plant. The insurance proceeds were
used to make payments for the repair of the incineration facility and other fire
related damages.
On September 25, 1997 the SDSGA purchased substantially all the assets
of EWR, a company operating under a Chapter 11 bankruptcy proceeding as a debtor
in possession. The selling price amounted to $2,649,644, payable in $1,825,000
in cash, $734,634 in assumed liabilities, and $90,010 credit against amounts due
the Company. The purchase price was paid through the Company's available working
capital.
13
<PAGE> 14
In September 1997, the Company closed on the first stage of a private
placement of the Preferred Stock, raising approximately $2.1 million, net of
expenses. The Company raised an additional $1.4 million in Preferred Stock net
proceeds in October 1997. The Preferred Stock may be redeemed by the Company
under certain circumstances.
On November 6, 1997, the Company purchased the real property and
improvements from KS Processing, Inc., an autoclave treatment facility located
near Marcus Hook, PA. The Company paid aggregate consideration of $1.4 million,
consisting of $900,000 in cash at the closing and a $500,000 purchase money note
secured by the real property. The purchase money note is payable monthly over
five years without interest. The cash portion of the purchase price was paid
from the net proceeds of the private placement of Series A preferred stock
completed in October 1997.
On November 7, 1997, the Company purchased 100% of the capital stock of
Incendere, Inc, a wholly owned indirect subsidiary of Republic Industries. The
purchase price amounted to $12 million, payable $10,000,000 in cash at closing
and $2,000,000 in cash held in escrow, subject to achievement of certain revenue
levels of Incendere, Inc. for a four month period prior to closing. The purchase
price was paid from a $4 million equity financing consummated on November 7,
1997, cash on hand and available borrowings under the Company's line of credit
and a term loan with a bank.
On November 7, 1997, the Company issued an aggregate of 1,103,449
shares of its common stock and common stock purchase warrants to purchase an
aggregate of 40,128 shares of common stock pursuant to exemptions from
registration promulgated under the Securities Act of 1933 were sold for cash.
Each warrant entitles the holder to purchase one share of common stock at a
purchase price of $3.625 per share until November 6, 2002.
On November 10, 1997 the Company purchased substantially all the assets
and business of Bonham Management Group, Inc. The purchase price for the
business and a non-competition agreement amounted to $850,000 in cash and
200,000 shares of the Company's common stock. The cash portion of the purchase
price was paid from the net proceeds of the Preferred Stock completed in October
1997.
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.
14
<PAGE> 15
Item 2. Changes in Securities.
On September 30, 1997, the Company sold an aggregate of 24,310 shares of
Series A Preferred Stock pursuant to Regulation D as promulgated pursuant to the
Securities Act of 1933, as amended. The securities were sold for cash at $100
per share to the following entities:
NUMBER OF
SHARES
OF PREFERRED
NAMES OF PURCHASERS STOCK
- ---------------------------------------------------- ------------------
A Raymond Abt 100
Robert W. Allen 500
Applebaum Family Limited Partnership 150
Gary P. Arnold 200
John Bertsch 150
Joseph M. Billy 100
Corbert L. Clark 200
Robert L. and Tracey H. DeBruyn 100
EBS Microcap Partners LP 1,200
Smith Barney as Custodian for EBS 3,400
Partners, L.P.
The Equity Group Inc. Profit Sharing Plan & 1,000
Trust
Margaret & Albert J. Esposito 100
Harry M. Farnham III or Cynthia Farnham 250
Denis Fortin 500
Keith M. Ganzer 100
B. Kent Garlinghouse 250
Ben Genet 250
James Gerchow 250
David Gilbertson 300
Jack C. Goldstein and Leslie S. Goldstein, 100
JTWROS
John R. Graham, Trustee 100
Donald Gross 100
Grover, Ciment, Weinstein, Stauber & 250
Friedman P.A Money Purchase Pension
Plan and Trust F.B.O. Robert Grover
Ervin Hendricks 250
Billy P. Hudson 100
Paine Webber as IRA Custodian for Frank 250
D. Hutchinson, III
Ronnie Johnson 1,000
Howard Kalka 250
Richard J. Kasten 200
Gustave L. Levinson 500
Ronald N. Magruder 1,000
David F. McCartney 100
15
<PAGE> 16
NUMBER OF
SHARES
OF PREFERRED
NAMES OF PURCHASERS STOCK
- ---------------------------------------------------- -----------------
Donald B. And Jacqueline M. McCulloch 100
Anthony R. Medici 100
Rudolph Miles 150
R. Mike Miller 150
Thomas P. Morrissey 200
Fred Ostad 100
Robert G. Paul 400
S.R. Penn Jr. 500
Smith Barney as Custodian for 3,400
R & D Investment Partnership, L.P.
Louis Randle 100
David Random 200
Jeffrey L. Sadar and Barbara A. Sadar 100
Lawrence S. Smith 100
W. C. Smith Jr. 100
George Souaid 250
Robert G. Souaid 250
Sharon Feldman Stauber 500
Grover, Ciment, Weinstein, Stauber & 250
Friedman, P.A. Money Purchase
Pension Plan and Trust F.B.O. Sherwin
Stauber
Arthur D. Sterling 500
Dr. Herbert Swerdlow 200
Eugene Szczepanski 250
James L. Tadych 500
Michael Taglich 110
Michael Taglich IRA 290
Robert F. Taglich 400
EMJAY Co. F.B.O. Thuemling Industrial 250
Products
Milton J. Wallace and Regina T. Wallace, 250
Joint Tenants
Grover, Ciment, Weinstein, Stauber & 250
Friedman, P.A. Money Purchase Pension
Plan and Trust F.B.O. Marvin Weinstein
Wheat First Butcher Singer, Inc. 510
Ann W. Williamson 150
John R. Worthington 400
-----------------
Total 24,310
=================
Total offering proceeds from the sale of common stock and warrants pursuant to
Regulation S was $2,431,000. Taglich Brothers, D'Amedeo, Wagner & Company,
Incorporated served as the placement agent in connection with the offering and
received a commission of $218,790. In addition, Taglich Brothers, D'Amedeo,
Wagner & Company, Incorporated received warrants to purchase 57,200 shares of
16
<PAGE> 17
common stock. Each warrant entitled the holder to purchase one share of common
stock at $4.25 until October 31, 2002.
TERMS OF SERIES A PREFERRED STOCK
Holders of the Series A Preferred Stock are entitled to cumulative
preferential dividends payable quarterly in cash on April 1, July 1, October 1
and January 2 of each year at the rate of $9.00 per share per annum, with the
first dividend payment declared on a pro rata basis being due and payable on
October 1, 1997. Through and including July 1, 1998, the Company has the option
to pay such dividends in cash or in shares of Series A Preferred Stock.
Each share of Series A Preferred Stock is convertible at each holder's
option into shares of Common Stock, at any time prior to the effective date of
the forced conversion or redemption at the conversion rate of $4.25 per share,
subject to adjustment (the "Conversion Price").
The holders of the Series A Preferred Stock shall be entitled to vote,
on all matters in which holders of Common Stock are entitled to vote, voting
together with the Common Stock without regard to class. The holders of the
Series A Preferred Stock shall have the number of votes that they would have had
assuming conversion of the Series A Preferred Stock into Common Stock as of the
record date for the meeting of the Company's shareholders, without taking into
account fractional shares.
The Company can redeem all of the outstanding shares of Series A
Preferred Stock at any time commencing thirty (30) months after the Final
Closing Date (as hereinafter defined) upon thirty (30) days notice at a
redemption price of $100.00 per share, plus accrued and unpaid dividends to the
date of redemption. Holders of Series A Preferred Stock called for redemption
may exercise their right to convert any or all of their shares into Common Stock
at any time prior to the close of business on the date set for redemption.
The Company shall have the right to force conversion of the Series A
Preferred Stock into shares of Common Stock at any time after issuance of the
Series A Preferred Stock, provided that on the day that notice of forced
conversion is given and on the Forced Conversion Date (as defined below) the
following conditions are satisfied: (i) the underlying Common Stock has been
registered pursuant to the Act and such registration is then currently
effective; and (ii) the average of the closing bid price of the Common Stock is
at least 175% of the Conversion Price for twenty (20) trading days within a
thirty (30) consecutive trading day period.
The Company has agreed to prepare and file with the SEC a registration
statement (the "Registration Statement") on the appropriate form under the Act,
with respect to the shares of Common Stock issued or issuable upon conversion of
the Series A Preferred Stock, as well as the shares of Common Stock issuable
upon the exercise of the Placement Agent Warrants (as defined below), within
sixty (60) days following the Final Closing Date (as defined below).
17
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 11 - Statement re: computation of earnings (loss) per share
Exhibit 27 - Financial Statement Schedule
(b) Reports on Form 8-K.
None
18
<PAGE> 19
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: November 12, 1997 /s/ Daniel A. Stauber
-------------------------- ------------------------------------
Daniel A. Stauber,
President and Chief
Executive Officer
Date: November 12, 1997 /s/ Michael D. Elkin
------------------------- ------------------------------------
Michael D. Elkin,
Vice President and Chief
Financial Officer
19
<PAGE> 1
MED/WASTE INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS (LOSS) PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Primary:
Weighted average number of common shares outstanding 2,399,506 2,113,480
Common equivalent shares outstanding - options and warrants 1,759,358 1,344,108
Common equivalent shares outstanding - 20% of outstanding shares (495,985) (465,789)
----------- -----------
Total common and common equivalent shares outstanding 4,654,849 2,991,799
Net income (loss) $ 375,912 $ (49,310)
Interest expense $ 66,054 $ 33,460
----------- -----------
Adjusted net income (loss) $ 441,966 $ (15,850)
=========== ===========
Primary earnings (loss) per share $ .10 $ (.01)
=========== ===========
Fully diluted:
Weighted average number of common shares outstanding 2,399,506 2,113,480
Common equivalent shares outstanding - options and warrants 1,759,358 1,344,108
Common equivalent shares outstanding - convertible debentures 1,025,641 --
Common equivalent shares outstanding - 20% of outstanding shares (495,985) (465,789)
----------- -----------
Total common and common equivalent shares outstanding 5,680,490 2,991,799
Net income (loss) $ 375,912 $ (49,310)
Interest expense $ 114,766 $ 32,319
----------- -----------
Adjusted net income (loss) $ 490,678 $ (16,991)
=========== ===========
Fully diluted earnings (loss) per share $ .09 $ (.01)
=========== ===========
</TABLE>
<PAGE> 2
MED/WASTE INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS (LOSS) PER SHARE (CONT'D)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Primary:
Weighted average number of common shares outstanding 2,372,045 2,039,049
Common equivalent shares outstanding - options and warrants 1,628,108 1,118,358
Common equivalent shares outstanding - 20% of outstanding
shares (495,985) (465,789)
----------- -----------
Total common and common equivalent shares outstanding 4,496,137 2,691,618
Net income $ 724,134 $ 135,075
Interest expense $ 59,625 $ 52,190
----------- -----------
Adjusted net income $ 783,759 $ 187,265
=========== ===========
Primary earnings per share $ .17 $ .07
=========== ===========
Fully diluted:
Weighted average number of common shares outstanding 2,372,045 2,039,049
Common equivalent shares outstanding - options and warrants 1,628,108 1,118,358
Common equivalent shares outstanding - convertible debentures 1,025,641 --
Common equivalent shares outstanding - 20% of outstanding
shares (495,985) (465,789)
----------- -----------
Total common and common equivalent shares outstanding 5,521,778 2,691,618
Net income $ 724,134 $ 135,075
Interest expense $ 205,679 48,816
----------- -----------
Adjusted net income $ 928,813 $ 183,891
=========== ===========
Fully diluted earnings per share $ .17 $ .07
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,149,129
<SECURITIES> 0
<RECEIVABLES> 3,764,650
<ALLOWANCES> (121,000)
<INVENTORY> 171,869
<CURRENT-ASSETS> 7,977,996
<PP&E> 6,128,490
<DEPRECIATION> (1,201,604)
<TOTAL-ASSETS> 17,629,448
<CURRENT-LIABILITIES> 4,189,976
<BONDS> 3,000,000
0
243
<COMMON> 2,491
<OTHER-SE> 7,689,531
<TOTAL-LIABILITY-AND-EQUITY> 17,629,448
<SALES> 16,076,376
<TOTAL-REVENUES> 16,076,376
<CGS> 11,487,361
<TOTAL-COSTS> 15,191,815
<OTHER-EXPENSES> (160,422)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 724,139
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 724,139
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
