<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSBA
(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, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT.
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
6175 NW 153 STREET, SUITE 324, MIAMI LAKES, FL 33014
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(305) 819-8877
- --------------------------------------------------------------------------------
(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 [ ] No [X]
The number of shares outstanding of the registrant's common stock $.001 par
value as of November 12, 1998 was 6,665,966.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1998
As Restated
(See Notes December 31,
1 and 6) 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 461,406 $ 984,708
Accounts Receivable, Net of Allowances of 350,000 and
40,000 in 1998 and 1997 respectively 6,069,254 5,525,528
Net Assets of Discontinued Operations 2,632,909
Inventories 354,391 238,653
Prepaid Expenses and Other Current Assets 1,271,814 735,779
------------ ------------
Total Current Assets $ 8,156,865 $ 10,117,577
Property, Plant and Equipment, Net 13,808,465 10,636,803
Excess of Purchase Price over Net Assets Acquired, Net 18,221,320 11,919,106
Other Assets 139,663 2,095,578
Notes Receivable 150,000 --
------------ ------------
Total Assets $ 40,476,313 $ 34,769,064
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 4,775,204 $ 2,511,280
Current Portion of Notes Payables 13,346,654 4,094,861
Current Portion of Capital Lease Obligations 648,825 397,371
Income Tax Payable 116,000
Customer Deposits 23,640
------------ ------------
Total Current Liabilities $ 18,770,683 $ 7,143,152
------------ ------------
Capital Lease Obligations, Less Current Portion 799,803 502,239
Notes Payable and Debentures Less Current Portion 3,296,869 8,496,605
Deferred Income Tax Liability and Other Liabilities -- 702,000
------------ ------------
$ 22,867,355 $ 16,843,996
------------ ------------
Shareholders' Equity:
Series A Preferred Stock, .01 par value; 60,000
shares authorized, 28,869 and 42,969 shares
outstanding at 1998 and 1997 respectively 289 430
Common Stock, $.001 par value; 26,000,000 and 10,000,000
Shares Authorized; 5,176,959 and 4,629,699
Shares Issued and Outstanding 6,149 4,630
Additional Paid-in Capital 23,031,351 18,625,685
Warrant Subscriptions Receivable (208,003) (258,003)
Retained Earnings (deficit) (5,190,171) (417,017)
------------ ------------
17,639,615 17,955,725
Less Cost of Treasury Stock: 11,824 Shares (30,657) (30,657)
------------ ------------
Total Shareholders' Equity 17,608,958 17,925,068
------------ ------------
Total Liabilities and Shareholders' Equity $ 40,476,313 $ 34,769,064
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
MED/WASTE, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------- ---------------------------------
As Restated As Restated
(See Notes 1 and 6) (See Notes 1 and 6)
1998 1997 1998 1997
------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 6,790,677 $ 2,391,126 $ 18,471,767 $ 7,380,271
Costs and expenses:
Operating costs 4,730,114 1,490,671 15,474,910 4,838,551
Administrative and selling expenses 3,035,622 580,917 6,415,352 1,891,803
Amortization of Intangibles 211,442 27,506 382,244 59,386
----------- ----------- ------------ -----------
Total 7,977,178 2,099,094 22,372,506 6,789,740
----------- ----------- ------------ -----------
Operating (loss) profit (1,186,501) 292,032 (3,800,739) 590,536
Other, net (1,023,876) (118,810) (1,358,489) (245,682)
----------- ----------- ------------ -----------
(Loss) Income from continuing before income taxes (2,210,377) 173,222 (5,159,228) 344,584
Income taxes (benefit) -- -- 580,835 --
(Loss) Income from continuing operations (2,210,377) 173,222 (4,578,393) 344,854
----------- ----------- ------------ -----------
Discontinued operations, net of taxes -- 202,690 14,102 379,285
Net (Loss) Income (2,210,377) 375,912 (4,564,291) 724,139
Preferred stock dividend (65,518) -- (208,864) --
----------- ----------- ------------ -----------
Net Income available to common shareholders $(2,275,895) $ 375,912 $ (4,773,155) $ 724,139
=========== =========== ============ ===========
(Loss) earnings per share - basic
From continuing operations $ (0.37) $ 0.05 $ (0.98) $ 0.08
Discontinued operations, net of taxes 0.05 0.09
=========== =========== ============ ===========
$ (0.37) $ 0.10 $ (0.44) $ 0.17
=========== =========== ============ ===========
Weighted average shares outstanding 6,130,548 4,657,849 5,477,568 4,496,137
(Loss) earnings per share - diluted
From continuing operations $ (0.37) $ 0.05 $ (0.98) $ 0.10
Discounted operations, net of taxes
=========== =========== ============ ===========
$ (0.37) $ 0.09 $ (0.98) $ 0.17
=========== =========== ============ ===========
Weighted shares outstanding $ 6,130,548 $ 5,680,490 $ 5,477,568 $ 5,521,778
</TABLE>
3
<PAGE> 4
CONSOLIDATED FINANCIAL STATEMENTS
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30
-------------------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings $(4,564,291) $ 344,854
Adjustments to reconcile net earnings to net cash (used) in operating
activities:
Depreciation and amortization 1,338,193 405,342
Provision for doubtful notes and accounts receivable 310,000 36,126
Issuance of stock, options, and warrants for services 439,138 38,233
Other 195,168 --
Changes in operating assets and liabilities net of effects of
acquisitions:
Decrease (increase) in accounts receivable (429,261) (1,259,823)
(Increase) in notes receivables -- (662,000)
Increase in inventories (90,313) 11,962
Decrease (Increase) in prepaid expenses (335,719) (517,002)
(Increase) Decrease in other assets (731,172) (2,029,417)
(Decrease) in assets held for sale -- (82,441)
Increase in accounts payable and accrued liabilities and income taxes
payable 2,062,316 (945,397)
(Decrease) increase in customer deposits (23,638) 103,571
Increase in deferred income tax liability (580,835) --
----------- -----------
Net cash provided by (used in) operating activities (2,410,414) (1,498,737)
INVESTING ACTIVITIES:
Proceeds on sale of Kover 1,200,000 --
Proceeds on note for sale of Kover 1,350,000 --
Write off of equipment from fire damage -- 3,259,600
Payment for purchase of Environmental Waste Reductions ("EWR") -- (1,825,000)
Increase of net assets and liabilities of EWR -- (1,840,508)
Purchase of operating equipment (1,524,814) (2,736,476)
Acquisition of businesses net of cash acquired (2,504,549) --
----------- -----------
Net cash provided by investing activities (1,479,363) (2,736,476)
FINANCING ACTIVITIES:
Increase (decrease) in line of credit and notes payable-net 3,630,762 898,013
Increase (decrease) in capital leases, net (611,967) 495,349
Proceeds from 10% convertible redeemable debentures -- 2,692,709
Proceeds from assignment of Notes Receivable -- 251,000
Issuance of common stock 506,544 2,183,651
Payment of stock subscription receivable 50,000 --
Preferred stock dividend (208,864) --
----------- -----------
Net cash (used) provided by financing activities 3,366,475 6,520,722
----------- -----------
Increase (decrease) in cash and cash equivalents (523,302) 2,059,947
Cash and cash equivalents at beginning of period 984,708 81,820
----------- -----------
Cash and cash equivalents at end of period $ 461,406 $ 8,662,489
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Notes received for sale of Kover $ (1,500.00) $ --
Notes issued for acquisition of Decatur 1,500.00 --
Common stock issued for the acquisition of Decatur 992,500 --
Common stock issued for the acquisition of Med-Waste, Inc. 310,000 --
Common stock issued for the acquisition of Biomade assets 550,000 --
Common stock issued for the acquisition of Biotech 196,000 --
Notes received for exercising stock options 179,000 --
Conversion of debentures to common stock 1,335,000 --
Conversion of preferred to common stock 1,410,000 --
Fixed assets acquired through capital leases 1,140,000 266,000
Cash paid during the period for interest 641,000 --
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
MED/WASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OPERATIONS AND BASIS OF PRESENTATION
ORGANIZATION
Med/Waste, Inc. (the "Company") is a holding company incorporated in November
1991 under the laws of the State of Delaware. The Company and through its
subsidiaries, is engaged in the businesses of medical waste management. The
Company commercial cleaning services operations, conducted through The Kover
Group, Inc. ("Kover") were sold on January 30, 1998.
The medical waste management operations are conducted primarily through the
following subsidiaries, collectively referred to as the "Waste Companies":
Safety Disposal System, Inc. ("SDS")
Safety Disposal System of South Carolina, Inc. ("SDSSC")
Safety Disposal System of Pennsylvania, Inc. ("SDSPA")
Safety Disposal System of Georgia, Inc. ("SDSGA")
Safety Disposal System of Virginia, Inc. ("SDSVA)
Incendere, Inc. ("Incendere")
Target Medical Waste Services, LLC ("Target")
Med-Waste, Inc. ("Decatur")
BASIS OF PRESENTATION
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. These
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Company's Annual report on Form
10-KSB for both 1998 and 1997 (See RESTATEMENT below). These interim results of
operations are not necessarily indicative of results for the entire year.
RESTATEMENT
On March 8, 1999, the Company announced that it may be required to restate the
earnings reported during 1998. After a further investigation and the
recommendation of new management, the Audit Committee of the Board of Directors
appointed an independent counsel to review its accounting and reporting
practices. Such investigation has since been completed and as a result of its
findings, the Company is restating its previously issued financial statements
for the first three quarters of 1998.
5
<PAGE> 6
These statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Company's Annual report on Form
10-KSB for both 1998 and 1997.
2. ACQUISITIONS.
On March 31, 1998, the Company purchased the capital stock of Med Waste, Inc, an
unrelated Pennsylvania corporation. The purchase price was payable in 41,000
shares of the Company's common stock at closing. The stock issued for the
purchase is guaranteed by the Company to have a fair market value at the end of
two years for $7.50 per share.
In June 1998, the Company purchased from Biomade Plastics, Inc. a subsidiary of
ARK Industries, Inc. (formerly Bio-Medical Waste Systems, Inc.) molds for the
manufacture of reusable sharps containers, lids and accessories used in the
"Sharps Express" program, together with all proprietary knowledge, patents, 510K
approvals, trade secrets, referral lists, technical information, quality control
data, processes (whether secret or not), methods and other similar know how or
rights. Biomade Plastics, Inc. operated a reusable sharps container program
through licensing territories to third parties. The Company received an
assignment of all license agreements as well as all inventories of such
containers.
In June 1998, the Company acquired Target based in Mobile, Alabama. Target
operates a medical waste microwave facility and provides medical waste
management services to customers in Alabama, Florida, Louisiana and Mississippi.
In June 1998, the Company acquired certain assets and assumed certain
liabilities of Biotech Disposal, Inc. ("Biotech"). Biotech provided medical
waste management services to generators of medical waste in Broward County,
Florida. In connection with the purchase, the Company issued 26,666 shares of
common stock with a guaranteed value after one year of $6.50.
In June 1998, the Company acquired Decatur an unrelated Alabama corporation
based in Decatur, Alabama. Decatur owns and operates a medical waste autoclave
facility and provides medical waste management services to medical waste
generators in the states of Alabama, Georgia and Tennessee. As part of the
purchase price, the Company issued 133,334 shares of common stock of which the
Company guaranteed fair value of 120,000 shares after two years of $7.50 per
share.
In September 1998, the Company purchased BMW, a medical waste transportation
company operating in West Virginia, Eastern Ohio and Western Pennsylvania. As
part of the purchase price, the Company issued 16,000 shares of common stock
valued at the then market value.
6
<PAGE> 7
3. DEBENTURES AND NOTES PAYABLE
Debentures and Notes payable consist of the following at September 30, 1998:
Term Loan $ 8,346,030
Line of Credit 4,609,381
Notes payable 3,688,112
Total notes payable 16,643,523
-----------
Less: current portion 13,346,654
-----------
Total $ 3,296,869
===========
During the six months ended September 30, 1998 and 1997 interest expense was
approximately $641,000 and $266,000 respectively.
The Company has a line of credit with a bank for $5,000,000. The line of credit
is a demand note and bears interest at prime plus 1%. Interest is payable
monthly. At September 30, 1998, the Company had $4,609,381 in outstanding
borrowings under the line. Substantially all of the Company's assets are
collateral for the loan. In addition, the Company is a party to a term loan,
with its bank. The term loan bears interest at a rate of prime plus 1%, and is
payable $83,333 in principal plus interest monthly with a balloon payment on
April 30, 1999.
Due to the losses incurred during the six month ended September 30, 1998 the
Company is in violation of the financial covenants pertaining to the Credit
Agreement with its bank. The Company has not obtained waivers from the bank and
as such, has classified the line of credit and term loans outstanding at
September 30, 1998 as current liabilities. (See Note 7)
7
<PAGE> 8
4. NET INCOME PER COMMON SHARE
A reconciliation of the numerator and denominator of earnings per share for the
quarters ended September 30 follows:
<TABLE>
<CAPTION>
1998 1997
Income Shares Pre-Share Income Shares Pre-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
discontinued operations (5,159,228) 344,854
Less: Preferred stock
dividends (208,864)
Basic EPS (Loss) income
available to common
shareholders (5,368,092) 5,477,568 (.98) 344,854 4,496,137 .08
Effect of Dilutive
Securities 1,337,731
Warrants
Options
Reduction of Interest 205,679 1,025,641
---------- ---------
Diluted EPS
Income (loss) available
to common shareholders (5,368,092) 5,477,568 (.98) 534,533 6,859,509
----------- --------- ---------- ---------- ---------
</TABLE>
Options to purchase 946,500 and 946,500 shares of common stock from $2.75 to
$8.50 per share were outstanding during 1998 and 1997, respectively, but were
not included in the computation of diluted EPS because the options exercise
price was greater than the average market price of the common shares for those
years. The options, which expire from 1998 to 2002, were still outstanding at
the end of September 1998. Stock warrants to purchase 141,000 and 116,000 shares
of common stock from $4.25 to $8.70 per share were outstanding during 1998 and
1997, respectively, but were not included in the computation of diluted EPS
because the warrant exercise price was greater than the average market price of
the common shares for those years. The warrants, which expire from 1998 to 2002,
were still outstanding as of September 30,1998.
5. SALE OF KOVER
On January 30, 1998, the Company sold 100% of the common stock of a wholly owned
subsidiary, the Kover Group, Inc. ("Kover") to MPK Holdings, LP ("MPK"), MPK is
owned by Phillip W. Kubec. Mr. Kubec was the president and chief executive
officer of Kover and a director of the Company. The selling price approximated
the book value of Kover. Accordingly, no material gain or loss is expected in
1998. The Company received aggregate consideration for the sale of Kover of $2.7
million, payable $1.2 million in cash at closing and the balance of $1.5 million
in promissory notes. The Company received two promissory notes, one for $960,000
from MPK (the "MPK Note") and one for $540,000 from Kover (the "Kover Note").
For the nine months ended September 30, 1998, the net loss from Kover was $2,948
with the sale of Kover creating a gain of $17,050; both are reported as
discontinued operations.
8
<PAGE> 9
In July 1998, MPK prepaid the MPK Note and Kover Note plus accrued interest. The
Company received $1,350,000 in cash and a new $150,000 promissory note from MPK
("the New Note"). The New Note is payable interest only monthly at the rate of
8.25% per annum, with the principal balance due at the end of eleven years
6. RESTATEMENT
In July of 1999 after an investigation by new management and special counsel
appointed by the Audit Committee of the Board of Directors the Company
determined that in the 1998 financial statements included in Form 10-QSB for
each of the quarters of 1998, certain revenues were improperly recognized,
certain costs and allowances were not accrued or were improperly recorded and
certain costs were improperly deferred. As a result, the accompanying
consolidated financial statements as of September 30, 1998 and for the three and
six month then ended, present restated results. The investigation concluded that
no restatement is necessary for the same period in 1997.
A summary of the effects of the restatement for the nine months ended
September 30, 1998 follows:
NEXT PAGE
9
<PAGE> 10
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1998
------------------------------
As Previously
Reported As Restated
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 455,285 461,406
Accounts Receivable, Net of Allowances 8,261,340 6,069,254
Net Assets of Discontinued Operations
Inventories 354,391 354,391
Prepaid Expenses and Other Current Assets 2,280,452 1,271,814
------------ -----------
Total Current Assets $ 11,351,468 8,156,865
Property, Plant and Equipment, Net 14,228,913 13,808,465
Excess of Purchase Price over Net Assets Acquired, Net 19,367,356 18,221,320
Other Assets 630,663 139,663
Notes Receivable 607,398 150,000
------------ -----------
Total Assets $ 46,185,798 40,476,313
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 3,392,938 4,775,204
Current Portion of Notes Payables 391,243 13,346,654
Current Portion of Capital Lease Obligations 648,825 648,825
Income Tax Payable 116,000
Customer Deposits --
------------ -----------
Total Current Liabilities $ 4,549,006 18,770,683
Capital Lease Obligations, Less Current Portion 799,803 799,803
Notes Payable and Debentures Less Current Portion 16,252,280 3,296,869
Deferred Income Tax Liability and Other Liabilities 1,002,000
------------ -----------
$ 22,603,089 22,867,355
Shareholders' Equity:
Series A Preferred Stock, $.01 par value; 60,000
Shares Authorized; 28,869 and 42,969 Shares Outstanding
at 1998 and 1997 respectively 289 289
Common Stock, $.001 par value; 26,000,000 Shares Authorized;
and 6,149,154 Shares Issued and Outstanding 6,149 6,149
Additional Paid-in Capital 22,948,851 23,031,351
Warrant Subscriptions Receivable (208,003) (208,003)
Retained Earnings (deficit) 866,080 (5,190,171)
------------ -----------
23,613,366 17,639,615
Less Cost of Treasury Stock: 11,824 Shares (30,657) (30,657)
------------ -----------
Total Shareholders' Equity 23,582,709 17,608,958
------------ -----------
Total Liabilities and Shareholders' Equity $ 46,185,798 40,476,313
============ ===========
</TABLE>
10
<PAGE> 11
MED/WASTE, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------
As previously
Reported As Restated
---------------- ------------------
<S> <C> <C>
Revenues $ 8,389,733 6,790,677
Costs and expenses:
Operating costs 3,798,542 4,730,114
Administrative and selling expenses 2,996,007 3,035,622
Amortization of Intangibles 165,082 211,442
----------- ----------
Total 6,950,631 7,977,178
----------- ----------
Operating (loss) profit 1,430,102 (1,186,501)
Other, net (641,008) (1,023,876)
----------- ----------
(Loss) Income from continuing before income taxes 789,094 (2,210,377)
Income taxes 361,538 --
----------- ----------
(Loss) Income from continuing operations 427,556 (2,210,377)
Discontinued operations, net of taxes -- --
----------- ----------
Net (Loss) Income 427,556 (2,210,377)
Preferred stock dividend (65,518) (65,518)
----------- ----------
Net Income available to common shareholders $ 362,058 (2,275,895)
=========== ==========
(Loss) Earnings per share - basic
From continuing operations $ 0.06 (0.37)
Discontinued operations, net of taxes
----------- ----------
$ 0.06 (0.37)
=========== ==========
Weighted average shares outstanding 6,130,548 6,130,548
(Loss) earnings per share - diluted
from continuing operations 0.05 (0.37)
Discounted operations, net of taxes
----------- ----------
0.05 (0.37)
=========== ==========
Weighted shares outstanding 6,130,548 6,130,549
</TABLE>
11
<PAGE> 12
MED/WASTE, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------
As previously
Reported As Restated
------------ -----------
<S> <C> <C>
Revenues $ 20,656,106 18,471,767
Costs and expenses:
Operating costs 12,449,544 15,474,910
Administrative and selling expenses 4,508,905 6,415,352
Amortization of Intangibles 363,653 382,244
------------ -----------
Total 17,722,102 22,372,506
------------ -----------
Operating (loss) profit 2,934,004 (3,800,739)
Other, net (975,621) (1,358,489)
------------ -----------
(Loss) Income from continuing before income taxes 1,958,383 (5,159,228)
Income taxes benefit 611,538 580,835
------------ -----------
(Loss) Income from continuing operations 11,346,845 (4,578,393)
Discontinued operations, net of taxes 14,102 14,102
------------ -----------
Net (Loss) Income 1,360,947 (4,564,291)
Preferred stock dividend 208,864 (208,864)
------------ -----------
Net Income available to common shareholders $ 1,152,083 (4,773,159)
============ ===========
(Loss) Earnings per share - basic
From continuing operations $ 0.21 (0.10)
Discontinued operations, net of taxes
------------ -----------
$ 0.21 (0.44)
============ ===========
Weighted average shares outstanding 5,477,568 5,477,568
(Loss) earnings per share - diluted
from continuing operations 0.017 (0.98)
Discounted operations, net of taxes --
------------ -----------
0.017 (0.98)
============ ===========
Weighted shares outstanding 6,859,509 5,477,568
</TABLE>
12
<PAGE> 13
7. SUBSEQUENT EVENTS
GENERAL
In March 1999 the Company determined that the financial information released in
their filings with the Securities and Exchange Commission (SEC) misstated actual
results of operations. At that time the Company's bank credit facility was
placed on hold. Since that time the Company has operated with no readily
available operating credit facility. The Banks have not demanded payment on the
existing loan balance, as they are allowed to do under the terms of the
agreement, due to the existing violations of financial covenants. It is not
determinable at this time if the Banks will demand payment or if the loan
agreement will be revised. In December 1998 and/or subsequent to December 31,
1998 the Company's top management was terminated and/or resigned and an
investigation of the financial reporting and control systems were conducted by
an independent counsel. The Company also voluntarily withdrew from listing its
securities in the NASDAQ Small Cap Market Stock Exchange (NASDAQ) because of the
delays in complying with the filing requirements of the SEC and because it no
longer met certain continued listing criteria of NASDAQ.
SEC INQUIRY
By letter dated July 19, 1999, the Securities and Exchange Commission ("SEC")
advised the Company that it is conducting an informal inquiry into the
accounting procedures utilized by the Company. The SEC has requested that the
Company voluntarily provide certain records and other information by August 19,
1999. The Company intends to comply fully with such request and cooperate with
the SEC in its inquiry.
LITIGATION
On June 16, 1999, a complaint was filed against the Company, and certain former
officers and directors. The Plaintiff seeks to certify a class action against
the Defendants for the purported securities violations. Specifically, the
complaint seeks relief for violations of Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10(b)-5, promulgated
thereunder, as well a purported violations violation of Section 20(a) of the
Exchange Act. The complaint alleges that the Defendants purportedly issued false
and misleading statements as to the Company's results of operations and that,
specifically, earnings and earnings per share of the Company for each of the
quarterly reports issued for the first, second and third quarters of the 1998
fiscal year were fraudulently misstated. Plaintiff seeks to recover damages on
behalf of himself and the putative class he represents purportedly sustained as
a result of the violations of the securities law alleged in the Complaint.
Plaintiff also seeks to recover attorney's fees and costs incurred in the
litigation. No discovery has commenced and the size of the plaintiff class is
not yet determined. Accordingly, the Company and counsel are unable to predict
the outcome of this case.
ACQUISITIONS
In January 1999 the Company terminated its agreement to acquire Health Care
Services Corp. of New York City.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH SEPTEMBER 30, 1997
REVENUES. For the nine months ended September 30, 1998, the Company had revenues
of $18,471,761, an increase of 150% from the $7,389,276 for the same period in
1997. The increase can be attributed primarily to the acquisitions of Incendere
Inc., SDSPA and SDSGA in 1997 and Target and Decatur in June of 1999.
OPERATING COSTS. Consolidated operating costs amounted to $15,474,910, or 84% of
revenues, for the nine months ended September 30, 1998, as compared to
$4,838,551, or 65% of revenues, for the same period in 1997. Substantially no
benefits were obtained from costs synergies relating to the acquisitions made in
late 1997 and in 1998 due to the Company's inability to consolidate the new
organizations into the existing financial and operational structure.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling expenses
increased to $6,415,352 for the nine months ended September 30, 1998 from
$1,891,803 for the same period for 1997. These costs represent 35% of revenues
in 1998 as compared to 25% in 1997. This 40% increase is attributed to
substantially no benefits being obtained from costs synergies relating to the
acquisitions principally due to the Company's inability to consolidate the
acquisitions into the existing organizational structure. Instead, many of the
costs were duplicated by having similar overhead departments at the various
locations. In addition, as a result of rapid expansion and administrative
inaccuracies, substantial expenses were incurred in administrative expenses
relating to professional services, financial consulting and auditing fees. Other
administrative costs were allowed to increase due to delays in billing, computer
problems, duplicative employee positions and other administrative inadequacies
(i.e. collection of receivables).
OPERATING (LOSS) PROFIT. The Company reported an operating loss of $3,800,739
for the nine month period ended September 30, 1998 compared to a profit of
$590,536 in 1997. This is attributable to the Company's inability to obtain
costs synergies from the acquisitions made in late 1997 and in 1998. In
addition, substantial increases in administrative costs were incurred at the
Corporate Office location for professional services, financial consulting and
auditing fees.
OTHER, NET. Other, net amounted to an expense of $1,358,489 in the nine months
ended September 30, 1998 as compared to an expense of $245,682 for the same
period in 1997. The increase can be attributed to the higher debt in 1998 and
was partially offset by a gain in the sale of property during the period.
NET (LOSS) INCOME. The net loss for the nine months ended September 30, 1998
resulted primarily from the Company's inability to consolidate the acquisitions
made in late 1997 and during 1998 into the existing organizational structure.
14
<PAGE> 15
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH SEPTEMBER 30, 1997
REVENUES. For the three months ended September 30, 1998, the Company had
revenues of $6,790,677, an increase of 184% from the $2,391,126 for the same
period in 1997. The increase can be attributed primarily to the acquisitions of
Incendere Inc., SDSPA and SDSGA in 1997 and Target, Decatur in 1998.
OPERATING COSTS. Consolidated operating costs amounted to $4,730,114, or 70% of
revenues, in the three months ended September 30, 1998, as compared to
$1,490,671, or 62% of revenues, for the same period in 1997. This can be
attributed to substantially no benefits being obtained from costs synergies
relating to the acquisitions made in late 1997 and 1998 due to the Company's
inability to consolidate the new organizations into the existing financial and
operational structure.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling expenses
increased to $3,035,622 in the three months ended September 30, 1998 from
$580,917 for the same period for 1997. These costs represent 45% of revenues in
1998 compared to 24% for the same period in 1997. Substantially no benefits were
obtained from costs synergies relating to the acquisitions made in 1997 and
1998. The resulting 101% increase in expenses was principally due to the
Company's inability to consolidate the acquisitions into the existing
organizational structure. In addition, as a result of rapid expansion and
administrative inaccuracies, substantial expenses were incurred in
administrative expenses relating to professional services, financial consulting
and auditing fees. Other administrative costs were allowed to increase due to
delays in billing, computer problems, duplicative employee positions and other
administrative inadequacies (i.e. collection of receivables).
OPERATING (LOSS) PROFIT. The Company reported an operating loss of $1,186,521
for the three month period ended September 30, 1998 compared to a profit of
$292,032 in 1997. This is attributable to the Company's inability to obtain
costs synergies from the acquisitions made in late 1997 and in 1998. In
addition, substantial increases in administrative costs were incurred at the
Corporate Office location for professional services, financial consulting and
auditing fees.
OTHER, NET. Other, net resulted in an expense of $1,023,876 in the three months
ended September 30, 1998 as compared to an expense of $118,810 for the same
period in 1997. This can be primarily attributed to the increase in interest
costs due to the higher amount of debt incurred in relationship to the
acquisitions made in late 1997 and 1998.
NET (LOSS) INCOME. The net loss for the three month period ended September 30,
1998 resulted primarily from the Company's inability to consolidate the
acquisitions made in late 1997 and in 1998 into the existing organizational
structure and the higher costs of carrying the additional debt.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
On January 30, 1998, the Company sold 100% of the common stock of Kover to MPK
holdings, LP ("MPK") MPK is owned by Phillip W. Kubec. The selling price
approximated the book value of Kover. Accordingly there was no material gain or
loss. The Company received aggregate consideration for the sale of Kover of $2.7
million, payable $1.2 million in cash at closing and the balance of $1.5 million
in promissory notes
Due to the classification of the bank loan as a current liability to reflect the
Company's non compliance with existing loan covenants, working capital was
negative at September 30, 1998 compared to $2,974,425 at December 31, 1997. Cash
balances were reduced by $523,302, mainly due to operating activities utilizing
$2,410,414. Investing activity provided the cash, principally from the proceeds
from the sale of Kover of $1,200,000 and proceeds from the note from Kover,
$1,350,000 reduced by $1,524,814 in capital expenditures during the period.
On March 31, 1998, the Company purchased the capital stock of Med Waste, Inc, an
unrelated Pennsylvania corporation. The purchase price was payable in 41,000
shares of the Company's common stock at closing. The stock issued for the
purchase is guaranteed by the Company to have a fair market value at the end of
two years for $7.50 per share.
In June 1998, the Company purchased from Biomade Plastics, Inc. a subsidiary of
ARK Industries, Inc. (formerly Bio-Medical Waste Systems, Inc.) molds for the
manufacture of reusable sharps containers, lids and accessories used in the
"Sharps Express" program, together with all proprietary knowledge, patents, 510K
approvals, trade secrets, referral lists, technical information, quality control
data, processes (whether secret or not), methods and other similar know how or
rights. Biomade Plastics, Inc. operated a reusable sharps container program
through licensing territories to third parties. The Company received an
assignment of all license agreements as well as all inventories of such
containers.
In June 1998, the Company acquired Target based in Mobile, Alabama. Target
operates a medical waste microwave facility and provides medical waste
management services to customers in Alabama, Florida, Louisiana and Mississippi.
In June 1998, the Company acquired certain assets and assumed certain
liabilities of Biotech Disposal, Inc. ("Biotech"). Biotech provided medical
waste management services to generators of medical waste in Broward County,
Florida. In connection with the purchase, the Company issued 26,666 shares of
common stock with a guaranteed value after one year of $6.50.
In June 1998, the Company acquired Decatur an unrelated Alabama corporation
based in Decatur, Alabama. Decatur owns and operates a medical waste autoclave
facility and provides medical waste management services to medical waste
generators in the states of Alabama, Georgia and Tennessee. In connection with
the purchase, the Company issued 133,334 shares of common stock of which the
Company guaranteed fair value of 120,000 shares after two years of $7.50 per
share.
In July 1998, the Company entered into an agreement to acquire Health Care Waste
Services Corp., ("HCWS") a medical waste hauling company based in New York City.
The Company anticipates
16
<PAGE> 17
the closing to occur in the fourth quarter of 1998 upon approval of the New York
City Trade Commission. HCWS provides medical waste hauling and sharps reusable
programs to hospitals and small quantity generators in the greater metropolitan
New York City area. (See Subsequent Event Note 7 to the Financial Statements)
In August 1998 the Company entered into an agreement to acquire Sanford Motors,
Inc. ("SMI") and its related companies. The closing is anticipated to occur in
the fourth quarter of 1998, SMI operates a medical waste hauling operation in
the Delaware Valley region of Pennsylvania and owns a 49% interest in an
incineration facility in North Carolina.
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS
This Form 10-QSBA contains certain forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations and business of Med/Waste, Inc., and
its subsidiaries, including statements made under Management's Discussion and
Analysis of Financial Condition and Results of Operations. These forward looking
statements involve certain risks and uncertainties. No assurance can be given
that any of such matters will be realized. Factors that may cause actual results
differ materially from those contemplated by such forward looking statements
include, among others, the following: the competitive pressure in the industry;
general economic and business conditions; the ability to implement and the
effectiveness of business strategy and development plans; quality of management;
business abilities and judgement of personnel; and availability of qualified
personnel; labor and employee benefit costs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS- See note 7 to the financial statements
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
NONE
17
<PAGE> 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27: Financial Data Schedules for September 1998
The Company did not file a Form 8-K for the three months ended September 30,
1998.
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, hereunto duly
authorized.
Med/Waste, Inc.
Date: August 17, 1999 /s/ Carlos Campos
------------------- ---------------------------------------
President and Chief Executive Officer
Date: August 17, 1999 /s/ George Mas
------------------- ---------------------------------------
George Mas,
Vice President and Chief
Financial Officer
19
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 461,406
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