<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 JUNE 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 August 11, 1998 was 6,128,127.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1998
As Restated
(See Note 1 and 6) December 31, 1997
------------------ -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $ 136,035 $ 984,708
Accounts Receivable, Net of Allowances $281,000
and $40,000 in 1998 and 1997 respectively 8,024,091 5,525,528
Net Assets of Discontinued Operations -- 2,632,909
Inventories 459,099 238,653
Prepaid Expenses and Other Current Assets 731,665 735,779
------------ ------------
Total Current Assets $ 9,350,890 $ 10,117,577
Property, Plant and Equipment, Net 14,717,233 10,636,803
Excess of Purchase Price over Net Assets Acquired, Net 15,901,235 11,919,106
Other Assets 1,183,720 2,095,578
Notes Receivable 298,589 --
============ ============
Total Assets $ 41,451,667 $ 34,769,064
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 3,849,276 $ 2,511,280
Current Portion of Notes Payables 12,704,980 4,094,861
Current Portion of Capital Lease Obligations 785,259 397,371
Income Tax Payable -- 116,000
Customer Deposits 41,727 23,640
------------ ------------
Total Current Liabilities $ 17,381,242 $ 7,143,152
Capital Lease Obligations, Less Current Portion 853,060 502,239
Notes Payable and Debentures Less Current Portion 3,874,224 8,496,605
Deferred Income Tax Liability and Other Liabilities 178,643 702,000
------------ ------------
$ 22,287,169 $ 16,483,996
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; 10,000,000
Shares Authorized; 5,909,695 and 4,629,699
Shares Issued and Outstanding 5,909 4,630
Additional Paid-in Capital 22,311,237 18,625,685
Warrant Subscriptions Receivable (208,003) (258,003)
Retained Earnings (deficit) (2,914,277) (417,017)
------------ ------------
19,195,155 17,955,725
Less Cost of Treasury Stock: 11,824 Shares (30,657) (30,657)
------------ ------------
Total Shareholders' Equity 19,164,498 17,925,068
------------ ------------
Total Liabilities and Shareholders' Equity $ 41,451,667 $ 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 Six Months Ended
June 30 June 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 $ 5,598,304 $ 2,326,290 $ 11,681,090 $ 4,989,150
Costs and expenses:
Operating costs 5,042,549 1,426,928 10,744,796 3,347,880
Administrative and selling expenses 2,085,513 704,577 3,379,730 1,310,886
Amortization of Intangibles 22,364 27,062 170,802 31,880
------------ ------------ ------------ -----------
Total 7,150,426 2,158,567 14,295,328 4,690,646
------------ ------------ ------------ -----------
Operating (loss) profit (1,552,122) 167,723 (2,614,238) 298,504
Other, net 24,890 (66,038) (334,613) (126,872)
------------ ------------ ------------ -----------
(Loss) Income from continuing
operations before income taxes (1,527,232) 101,685 (2,948,851) 171,632
Income taxes (benefit) (102,280) -- (580,835) --
------------ ------------ ------------ -----------
(Loss) Income from continuing
operations (1,424,952) 101,685 (2,368,016) 171,632
Discontinued operations, net of taxes 96,500 14,102 176,590
------------ ------------ ------------ -----------
Net (Loss) Income (1,424,952) 198,185 2,353,914 348,222
Preferred stock dividend (65,504) -- (143,346) --
------------ ------------ ------------ -----------
Net (loss) income available to common
shareholders $(1,490,456) $ 198,185 $ (2,497,260) $ 348,222
============ ============ ============ ===========
(Loss) earnings per share - basic
From continuing operations $ (.28) $ .05 $ (.49) $ .08
Discontinued operations, net of taxes .04 -- .07
------------ ------------ ------------ -----------
$ (.28) $ .05 $ (.49) $ .15
============ ============ ============ ===========
Weighted average shares outstanding 5,334,780 2,318,100 5,146,130 2,317,628
(Loss) earnings per share - diluted
From continuing operations $ (.28) $ .03 $ (.49) $ .06
Discounted operations, net of taxes .03 -- .05
------------ ------------ ------------ -----------
$ (.28) $ .06 $ (.49) $ .11
============ ============ ============ ===========
Weighted shares outstanding $ 5,334,780 $ 3,838,300 $ 5,146,130 $ 2,837,824
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 4
CONSOLIDATED FINANCIAL STATEMENTS
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings $(2,353,914) $ 348,222
Adjustments to reconcile net earnings to net cash (used) in operating
Depreciation and amortization 746,044 323,591
Provision for doubtful notes and accounts receivable 157,500 34,970
Issuance of stock, options, and warrants for services 351,639
Other (67,091)
Changes in operating assets and liabilities net of effects of
acquisitions:
Decrease (increase) in accounts receivable (1,030,187) (395,940)
(Increase) in notes receivables (195,021) (430,837)
Increase in inventories 204,430 (130,148)
Decrease (Increase) in prepaid expenses and other assets 513,874 (315,467)
(Decrease) in assets held for sale (176,592)
Increase in accounts payable and accrued
liabilities and income taxes payable 1,315,030
Increase in other assets and intangible assets (819,573)
(Decrease) increase in customer deposits 18,087 21,251
Decrease (increase) in accounts payable and accrued expenses 279,396
Increase in deferred income tax liability (580,835)
----------- -----------
Net cash provided by (used in) operating activities (920,444) 1,261,127
INVESTING ACTIVITIES:
Proceeds on sale of Kover 1,200,000
Purchase of operating equipment (1,464,106) (793,804)
Acquisition of businesses net of cash acquired (2,504,549)
----------- -----------
Net cash provided by investing activities (2,768,655) (793,804)
FINANCING ACTIVITIES:
Increase (decrease) in line of credit and notes payable-net 3,068,306 2,442,690
Increase (decrease) in capital leases, net (422,276) 12,411
Issuance of common stock 287,742 6,000
Payment of stock subscription receivable 50,000 32,235
Preferred stock dividend (143,346)
----------- -----------
Net cash (used) provided by financing activities 2,840,426 2,493,336
----------- -----------
Increase (decrease) in cash and cash equivalents (848,673) 438,405
Cash and cash equivalents at beginning of period 984,708 81,820
----------- -----------
Cash and cash equivalents at end of period $ 136,035 $ 520,225
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Notes received for sale of Kover $(1,500,000)
Notes issued for acquisition of Decatur 1,500,000
Fixed Assets acquired through capital leases 1,141,000
Common stock issued for the acquisition of Decatur 992,511
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 196,662
Notes received for exercising stock options 179,463
Conversion of debentures to common stock 839,000
Conversion of preferred to common stock 1,410,000
Cash paid during the period for interest 431,000 193,000
</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.
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<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.
3. DEBENTURES AND NOTES PAYABLE
Debentures and Notes payable consist of the following at June 30, 1998:
10% Convertible Redeemable Debentures due
July 1, 2000 $ 497,500
Term Loan 8,345,321
Line of Credit 3,968,416
Notes payable 3,767,967
-----------
Total notes payable 16,579,204
Less: current portion 12,704,980
-----------
Total $ 3,874,224
===========
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<PAGE> 7
During the six months ended June 30, 1998 and 1997 interest expense was
approximately $494,000 and $214,000 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 June 30, 1998, the Company had $3,968,416 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 June 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 June 30, 1998 as
current liabilities. (See Note 7)
4. NET INCOME PER COMMON SHARE
A reconciliation of the numerator and denominator of earnings per share for the
six months ended June 30 follows:
7
<PAGE> 8
<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 $(2,368,015) $348,222
Less: Preferred stock
dividends (143,346)
Basic EPS (Loss) income
available to common
shareholders (2,511,361) 5,146,130 $.49 348,222 2,317,628 $.15
---- ----
Effect of Dilutive
Securities
Warrants 105,926
Options 926,264
Reduction of Interest 153,905 923,077
------- -------
Diluted EPS
Income (loss) available
to common shareholders $(2,511,361) 5,146,130 $.49 $502,127 4,272,895 $.11
------------ --------- ---- -------- --------- ----
</TABLE>
Options to purchase 925,500 and 225,000 shares of common stockm $3.375 to
$6.00 per share were outstanding during 1998 and 1997, respecty, but were
not included in the computation of diluted EPS because the opt exercise
price was greater than the average market price of the common es for those
years. The options, which expire from 1998 to 2003, were stillstanding at
the end of June 1998. Stock warrants to purchase 91,000 sharescommon stock
at $8.70 per share were outstanding during 1998 and 1997, respvely, but were
not included in the computation of diluted EPS because the war exercise
price was greater than the average market price of the common es for those
years. The warrants, which expire from 1998 to 2003, were stiltstanding as
of June 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 six months ended June 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.
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<PAGE> 9
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 June 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 six months ended June 30,
1998 follows:
NEXT PAGE
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<PAGE> 10
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998
As Previously
Reported As Restated
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 136,035 136,035
Accounts Receivable, Net of Allowances 8,339,809 8,024,091
Inventories 459,099 459,099
Prepaid Expenses and Other Current Assets 1,787,264 731,665
------------ ------------
Total Current Assets $ 10,722,207 9,350,890
Property, Plant and Equipment, Net 14,853,084 14,717,233
Excess of Purchase Price over Net Assets Acquired, Net 16,458,550 15,901,235
Other Assets 1,674,720 1,183,720
Notes Receivable 702,892 298,589
------------ ------------
Total Assets $ 44,411,453 41,451,667
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 2,600,487 3,849,276
Current Portion of Notes Payables 391,243 12,704,980
Current Portion of Capital Lease Obligations 785,259 785,259
Income Tax Payable 116,000 --
Customer Deposits 23,640 41,727
------------ ------------
Total Current Liabilities $ 3,916,629 17,381,242
Capital Lease Obligations, Less Current Portion 853,060 853,060
Notes Payable and Debentures Less Current Portion 16,187,961 3,874,224
Deferred Income Tax Liability and Other Liabilities 1,141,477 178,643
------------ ------------
$ 22,099,127 22,287,169
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; 28,869 Outstanding 289 289
Common Stock, $.001 par value; 26,000,000 and 10,000,000
Shares Authorized; 5,969,695 and 4,629,699
Shares Issued and Outstanding 5,909 5,909
Additional Paid-in Capital 22,311,237 22,311,237
Warrant Subscriptions Receivable (208,003) (208,003)
Retained Earnings (deficit) 233,551 (2,914,277)
------------ ------------
22,342,983 19,195,155
Less Cost of Treasury Stock: 11,824 Shares (30,657) (30,657)
------------ ------------
Total Shareholders' Equity 22,312,326 19,164,498
------------ ------------
Total Liabilities and Shareholders' Equity $ 44,411,453 41,451,667
============ ============
</TABLE>
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MED/WASTE, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
As previously
Reported As Restated
-------------------------------
<S> <C> <C>
Revenues $ 6,061,929 $ 5,598,304
Costs and expenses:
Operating costs 4,555,535 5,042,549
Administrative and selling expenses 1,007,396 2,085,513
Amortization of Intangibles 36,248 22,364
----------- -----------
Total 5,599,179 7,150,426
----------- -----------
Operating (loss) profit 462,750 (1,552,122)
Other, net 24,890 24,890
----------- -----------
(Loss) Income from continuing before income taxes 487,640 (1,527,232)
Income taxes (benefit) 190,000 (102,280)
----------- -----------
(Loss) Income from continuing operations 297,640 (1,424,952)
Discontinued operations, net of taxes --
----------- -----------
Net (Loss) Income 297,640 (1,424,954)
Preferred stock dividend (65,504) (65,504)
----------- -----------
Net Income available to common shareholders $ 232,196 $(1,490,456)
=========== ===========
(Loss) Earnings per share - basic
From continuing operations $ .04 $ (.28)
Discontinued operations, net of taxes --
----------- -----------
$ .04 $ (.28)
=========== ===========
Weighted average shares outstanding 5,334,780 5,334,780
(Loss) earnings per share - diluted
from continuing operations .03 (.28)
Discounted operations, net of taxes --
----------- -----------
.03 (.28)
=========== ===========
Weighted shares outstanding 7,428,505 5,334,780
</TABLE>
11
<PAGE> 12
MED/WASTE, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
As previously
Reported As Restated
-----------------------------------
<S> <C> <C>
Revenues $ 12,266,373 $ 11,681,090
------------ ------------
Costs and expenses:
Operating costs 8,651,002 10,744,796
Administrative and selling expenses 1,804,375 3,379,730
Amortization of Intangibles 198,571 170,802
------------ ------------
Total 10,653,948 14,295,328
------------ ------------
Operating (loss) profit 1,612,425 (2,614,238)
Other, net (334,613) (334,613)
------------ ------------
(Loss) Income from continuing before income taxes 1,277,812 (2,948,851)
Income taxes 498,000 (580,835)
------------ ------------
(Loss) Income from continuing operations 779,812 (2,368,016)
Discontinued operations, net of taxes 14,102 14,102
------------ ------------
Net (Loss) Income 793,914 2,353,914
Preferred stock dividend (143,346) (143,346)
------------ ------------
Net Income available to common shareholders $ 650,568 $ (2,497,260)
============ ============
(Loss) Earnings per share - basic
From continuing operations $ .12 $ (.49)
Discontinued operations, net of taxes --
------------ ------------
$ .12 $ (.49)
============ ============
Weighted average shares outstanding 5,146,130 5,146,130
(Loss) earnings per share - diluted
from continuing operations .10 (.49)
Discounted operations, net of taxes -- --
------------ ------------
.10 (.49)
============ ============
Weighted shares outstanding 7,059,734 5,146,130
</TABLE>
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<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.
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<PAGE> 14
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH JUNE 30, 1997
REVENUES. For the six months ended June 30, 1998, the Company had revenues of
$11,681,090, an increase of 34% from the $4,989,150 for the same period in 1997.
The increase can be attributed primarily to the acquisitions of Incendere Inc.,
SDSPA and SDSGA in 1997 and to a lesser extent Target and Decatur in June of
1999.
OPERATING COSTS. Consolidated operating costs amounted to $10,744,796, or 92% of
revenues, for the six months ended June 30, 1998, as compared to $3,347,880, or
67% of revenues, for the same period in 1997. Substantially no benefits were
obtained from costs synergies relating to the acquisitions made in late 1997 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 $3,379,730 for the six months ended June 30, 1998 from $1,310,806
for the same period for 1997. These costs represent 29% of revenues in 1998 as
compared to 26% in 1997. This 11% 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 $2,614,238
for the six month period ended June 30, 1998 compared to a profit of $298,504 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 $334,613 in the six months ended June 30,
1998 as compared to an expense of $126,872 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.
14
<PAGE> 15
NET (LOSS) INCOME. The net loss for the six months ended June 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.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH JUNE 30, 1997
REVENUES. For the three months ended June 30, 1998, the Company had revenues of
$5,598,304, an increase of 140% from $2,326,290 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 $5,042,549, or 90% of
revenues, in the three months ended June 30, 1998, as compared to $1,426,928, or
61% of revenues, for the same period in 1997. This increase was attributable 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 $2,085,513 in the three months ended June 30, 1998 from $704,577
for the same period for 1997. These costs represent 37% of revenues in 1998
compared to 30% for the same period in 1997. Substantially no benefits were
obtained from costs synergies relating to the acquisitions. The resulting 23%
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 $1,552,122
for the three month period ended June 30, 1998 compared to a profit of $167,723
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 income of $24,890 in the three months ended
June 30, 1998 as compared to an expense of $66,038 for the same period in 1997,
due to the gain on sale of property during the period being offset against
interest expense.
NET (LOSS) INCOME. The net loss for the three month period ended June 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.
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 June 30, 1998 compared to $_2,974,425 at December 31, 1997. Cash
balances were reduced by $848,673, mainly due to operating activities utilizing
$920,444. Investing activity provided a portion of the cash, principally from
the proceeds from the sale of Kover of $1,200,000 reduced by $3,968,655 in
capital expenditures and acquisitions of businesses during the period. The
remaining cash needs were provided primarily from bank borrowings.
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
16
<PAGE> 17
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 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 third 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.
The Company held its 1998 annual meeting of shareholders on June 18,
1998 ("the Annual Meeting"). At the Annual Meeting, the Company's shareholders
voted on the following matters: (a) election of Directors; and (b) to amend the
Company's 1996 Employees Stock Option Plan.
17
<PAGE> 18
Two Class II directors were elected at the Annual Meeting with the vote as
indicated below:
For Withheld
--- --------
Richard Green 3.098,013 29,625
William Dolan 3.098,093 29,645
The amendment to the Company's 1996 Employee Stock Option Plan was approved at
the Annual Meeting by the following votes:
For: 1,765,163
Against: 146,343
Abstain: 44,974
Not voted: 1,444,595
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27: Financial Data Schedules for June 1998
The Company did not file a Form 8-K for the three months ended June 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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<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
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