<PAGE> 1
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, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to _____________
COMMISSION FILE NUMBER: 0-22294
MED/WASTE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 65-0297759
- ------------------------------- ---------------------------
(State or other jurisdiction 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 [X] No [ ]
The number of shares outstanding of the registrant's common stock $.001 par
value as of November 1, 1999 was 6,745,047.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 57,545 $ 113,146
Accounts Receivable, Net of Allowances of $574,733
and $740,000 in 1999 and 1998 respectively 5,747,364 5,713,044
Inventories 203,786 352,941
Prepaid Expenses and Other Current Assets 831,767 1,359,436
------------ ------------
Total Current Assets 6,840,462 7,538,567
Property, Plant and Equipment, Net 13,265,883 14,172,260
Goodwill - net 19,219,152 19,906,832
Other Intangibles, net 6,622,271 6,955,707
Other Assets 552,898 715,279
Investment in unconsolidated subsidiary 783,354 717,399
Notes Receivable 150,000 150,000
------------ ------------
Total Assets $ 47,434,020 $ 50,156,044
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 7,227,672 $ 6,679,770
Current Portion of Notes Payables 23,419,765 20,120,645
Current Portion of Capital Lease Obligations 930,310 679,935
Customer Deposits 19,566
------------ ------------
Total Current Liabilities 31,577,747 27,449,916
Capital Lease Obligations, Less Current Portion 419,207 901,634
Notes Payable, Less Current Portion 73,067 1,957,023
------------ ------------
32,070,021 30,358,573
Shareholders' Equity:
Series A Preferred Stock, $.01 par value; 60,000
Shares Authorized; 31,311 and 28,869 Shares
Outstanding in 1999 and 1998 respectively 313 289
Common Stock, $.001 par value; 10,000,000 Shares
Authorized; 6,727,874 and 6,651,647 Shares
Issued and Outstanding in 1999 and 1998
respectively 6,727 6,651
Additional Paid-in Capital 30,391,833 30,289,507
Warrant Subscriptions Receivable (343,553) (387,466)
Retained Earnings (deficit) (14,660,664) (10,080,853)
------------ ------------
15,394,656 19,828,128
Less Cost of Treasury Stock: 11,824 Shares (30,567) (30,657)
------------ ------------
Total Shareholders' Equity 15,363,999 19,797,471
------------ ------------
Total Liabilities and Shareholders' Equity $ 47,434,020 $ 50,156,044
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 6,921,107 $ 6,790,677 $ 20,877,420 $ 18,471,767
Costs and expenses:
Operating costs 5,382,482 4,730,114 16,789,318 15,474,910
Administrative and selling expenses 1,590,403 3,035,622 5,689,120 6,415,352
Amortization of Intangibles 356,250 211,442 1,842,754 382,244
----------- ----------- ------------ ------------
Total 7,329,135 7,977,178 23,521,192 22,372,506
----------- ----------- ------------ ------------
Operating loss (408,028) (1,186,501) (2,643,772) (3,800,739)
Other, net (526,711) (1,023,876) (1,739,005) (1,344,387)
----------- ----------- ------------ ------------
Loss before income taxes (934,739) (2,210,377) (4,382,777) (5,145,126)
Income taxes (benefit) -- (580,835)
----------- ----------- ------------ ------------
Net loss (934,739) (2,210,377) (4,382,777) (4,564,291)
Preferred stock dividend (66,000) (65,518) (197,034) (208,864)
----------- ----------- ------------ ------------
Net loss available to common
shareholders $(1,000,739) $(2,275,895) $ (4,579,811) $ (4,773,155)
=========== =========== ============ ============
Loss per share - basic and diluted $ (0.15) $ (0.37) $ (0.68) $ (0.98)
Weighted average shares outstanding 6,658,202 6,130,548 6,727,874 5,477,568
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $(4,382,777) $(4,564,291)
Adjustments to reconcile net earnings to net cash (used) in operating
activities,
Depreciation and amortization 2,493,559 1,338,193
Provision for doubtful notes and accounts receivable 99,422 310,000
Issuance of stock, options, and warrants for services 38,997 439,138
Equity in net income of unconsolidated subsidiary (65,955)
Other 75,023 195,168
Changes in operating assets and liabilities net of effects of acquisitions:
Decrease (increase) in accounts receivable (133,742) (429,261)
Decrease (increase) in inventories 149,155 (90,313)
Decrease (increase) in prepaid expenses and other assets 52,669 (335,719)
Increase (decrease) in accounts payable and accrued expenses 547,902 (731,172)
Decrease in other assets 138,788 2,062,316
(Decrease) in customer deposits (19,566) (23,638)
Increase in deferred income tax liability (580,835)
----------- -----------
Net cash provided by (used in) operating activities (670,313) (2,410,414)
INVESTING ACTIVITIES:
INVESTING ACTIVITIES:
Proceeds on sale of Kover 1,200,000
Proceeds on note for sale of Kover 1,350,000
Purchase of operating equipment (544,418) (1,524,814)
Acquisition of businesses net of cash acquired (2,504,549)
----------- -----------
Net cash provided by investing activities (1,479,363)
FINANCING ACTIVITIES:
Increase (decrease) in line of credit and notes payable-net 1,415,164 3,630,762
(Decrease) in capital leases, net (232,052) (611,967)
Issuance of common stock 506,544
Payment of stock subscription receivable 43,913 50,000
Preferred stock dividend (67,595) (208,864)
----------- -----------
Net cash (used) provided by financing activities 1,093,421 3,366,475
----------- -----------
(Decrease) in cash and cash equivalents (55,301) (523,302)
Cash and cash equivalents at beginning of period 113,146 984,708
----------- -----------
Cash and cash equivalents at end of period $ 57,545 $ 461,406
=========== ===========
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 1,140,000
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
Preferred stock issued as payment of dividend $ 129,514
Cash paid during the period for interest 1,529,000 641,000
</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, through its
subsidiaries, is engaged in the businesses of medical waste management.
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")
Sanford Motors, Inc. ("SMI")
BMW Medtec of West Virginia ("BMW")
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 1998. 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 it's accounting and reporting
practices. The Company restated its previously issued financial statements for
three quarters ended in March 31, June 30 and September 30, 1998. These
statements should be read in conjunction
5
<PAGE> 6
with the consolidated financial statements and related notes contained in the
Company's Annual Report on Form 10-KSB for 1998. The financial statements
presented for the period ended September 30, 1998 are the restated financial
statements.
2. ACQUISITIONS.
No acquisitions were made by the Company during the nine months ended September
30, 1999. In January 1999, the Company terminated its Agreement to acquire
Health Care Waste Services Corp. of New York City. All capitalized costs related
to this activity were expensed in the fourth quarter of 1998.
3. NOTES PAYABLE
Notes payable consist of the following at September 30, 1999:
Term Loan $16,200,000
Line of Credit 3,500,000
Notes payable 3,792,837
-----------
Total notes payable 23,492,837
Less: current portion 23,419,765
-----------
Long Term Portion $ 73,067
===========
During the nine months ended September 30, 1999 and 1998, interest expense was
approximately $1,868,500 and $641,000 respectively.
In January 1999, the Company refinanced the line of credit and term loans with
its existing bank through a new Credit Agreement. The Credit Agreement includes
a revolving credit loan for $10,000,000 and a convertible credit loan of
$25,000,000. Generally, borrowings under the revolving credit loan may not
exceed 80% of the Company's eligible accounts receivable, as defined. Provided
that no default or event of default, as defined, has occurred, the total
principal balance of the convertible credit loan would be converted to a term
loan on July 31, 2000 and is payable monthly in an amount equal to one
eighty-fourth (1/84th) of the aggregate principal balance of the converted loan.
Final payment plus accrued interest is due on July 31, 2004. The revolving
credit loan was due July 31, 1999 but was extended by the participating banks to
November 30, 1999. Interest on the revolving credit loan and convertible credit
loan is payable monthly at a rate equal to the Prime Rate or the LIBOR Rate plus
or minus an applicable margin as defined in the Credit Agreement. The Credit
Agreement requires the Company to maintain minimum levels of liquidity,
profitability and net worth. The Company is currently in violation of all of the
financial covenants pertaining to the Credit Agreement. 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, 1999 and December 31, 1998 as
current liabilities. Because of the violations, the Company is not currently
eligible to convert the term loan as described above. The Company has been
negotiating with its lenders for the purposes of restructuring the Company's
debt, has paid interest currently and these lenders have not demanded payment of
the outstanding balances. The line of credit has not been available for use
since March of 1999 when the banks
6
<PAGE> 7
were first notified of a potential restatement of the 1998 financial results.
Since that time, the Company has funded, from its own cash flow, approximately
$1,500,000 in the payments of extraordinary expenses involving the restatement
of financial statements and related investigations and reorganizations.
4. NET INCOME PER COMMON SHARE
A reconciliation of the numerator and denominator of earnings per share for the
quarters ended September 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(4,382,777) $(4,564,261)
Less: Preferred stock
dividends (197,034) (208,264)
Basic and diluted EPS
and loss available to
common shareholders $(4,579,811 6,727,874 $(0.68) $(4,773,155) 5,477,568 $(0.87)
----------- --------- ------ ----------- --------- ------
</TABLE>
Options to purchase 1,289,150 shares of common stock from $2.125 to $8.50 per
share were outstanding as of September 30, 1999. The options expire at various
dates through 2003. Stock warrants to purchase 688,494 shares of common stock
from $2.75 to $8.00 were outstanding as of September 30, 1999. The warrants
expire at various dates through 2004. In both 1999 and 1998, no options or
warrants were included in the computation of earnings per share because their
inclusion would have an anti-dilutive effect.
5. RESTATEMENT
In July 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
nine months then ended, present restated results as previously filed.
6. 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. The Company
is complying fully with such request and will continue to cooperate with the SEC
in its inquiry.
7
<PAGE> 8
7. 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 is unable to predict the outcome of
this case.
In January 1999, the former stockholders of Med-Waste, Inc., an Alabama
corporation, filed a lawsuit against the Company. The lawsuit alleges fraud,
misrepresentations, breach of contract and failure to pay on a promissory note
given as part of the purchase price. In June 1999, the Company terminated the
employment of the former stockholders for "cause". The Company intends to
vigorously defend the lawsuit and believes it has meritorious defenses to the
claims. In addition, the Company expects to file a counterclaim for breach of
contract, fraud and misrepresentation in connection with the purchase of the
corporation. The Company is unable to predict the outcome of this case at this
time.
On January 7, 1999, the Company terminated Mr. William F. Bonham's employment as
Vice President/Chief Operating Officer, for "cause". On April 9, 1999, Mr.
Bonham filed a complaint against the Company, alleging that the Company violated
his Employment Agreement by failing to pay Bonham certain compensation after his
discharge from the Company. In his complaint, Bonham seeks compensatory damages,
pre-judgment interest, costs and reasonable attorney's fees. Specifically,
Bonham seeks his base salary due for the remaining term of his Employment
Agreement, as well as various stock options. This case is in the early stages of
discovery. Accordingly, the Company is unable to predict the outcome of this
case at this time.
On October 8, 1999, the Company was served with a lawsuit by Richard Anthony
Dean, alleging fraud, breach of contract and misrepresentation, among other
charges, associated with the acquisition of Target Medical Waste Services, LLC,
in Mobile, Alabama. The Company intends to vigorously defend itself and
counterclaim for breach of covenants and misrepresentation. Dean is claiming
unspecified compensatory damages, punitive damages and court costs. The Company
will be filing its answer, affirmative defenses and counter claims in
mid-November. Accordingly, the Company is unable to predict the outcome of this
case at this time.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH SEPTEMBER 30, 1998
REVENUES. For the three months ended September 30, 1999, the Company had
revenues of $6,921,107, an increase from $6,790,677 for the same period in 1998.
This increase is substantially less than what would be expected after the
acquisitions of SMI and BMW in the fourth quarter of 1998. Prior management's
inability to consolidate the acquisitions into its existing operational
structure contributed to the limited growth gained from these acquisitions.
Operational problems throughout the organization have resulted in negative
internal growth, which negated the already limited growth brought about from the
acquisitions. This trend is expected to be reversed by the actions taken by new
management during the second and third quarter of 1999. These actions have
reversed the negative trend as can be seen by comparing sales for the three
quarters of 1999:
Quarter ended March 31, 1999 $7,063,438
Quarter ended June 30, 1999 $6,892,875
Quarter ended September 30, 1999 $6,921,107
The revenue growth has been controlled by management because of the capital that
would be required to put on additional large customers. This situation will be
resolved if management is successful in obtaining additional operating capital.
The improvement was also delayed by the negative effects of Hurricane Floyd in
the Mid Atlantic area during the third quarter, which the Company estimates
caused a negative impact in revenues of approximately $70,000.
OPERATING COSTS. Consolidated operating costs amounted to $5,382,482 or 78% of
revenues, in the three months ended September 30, 1999, as compared to
$4,730,114, or 70% of revenues, for the same period in 1998. The 1998 ratio
cannot be properly compared to the 1999 results because the temporary benefits
of the acquisitions made in 1998, which later became a negative impact to
operating costs due to management's inability to integrated these acquisitions
into the existing operating structure. This ratio was also temporarily impacted
in 1998 by the sale of autoclave units, which are one-time events. The proper
comparison can be done by using the 1998 operating cost average for the year of
85% of revenues compared to the average for the first two quarters of 1999 of
82% of revenues. The 78% operating costs as a percent of revenues for the third
quarter continues to show an improving trend. This trend is expected to continue
as the operating changes implemented by new management take full effect and
operations are streamlined.
In addition, several other changes in operations are planned to provided
additional cost savings but these changes will not be possible until additional
working capital is obtained.
9
<PAGE> 10
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling expenses
decreased to $1,590,403 in the three months ended September 30, 1999 from
$3,035,622 for the same period in 1998. These costs represent 23% of revenues in
1999 compared to 45% in 1998. The many changes implemented by management during
the nine month period ended September 30, 1999 have helped reduce these costs as
compared to 1998. The full effect of these changes and other planned changes to
come should help continue this positive trend in future periods.
OPERATING LOSS. The Company reported an operating loss of $408,028 for the
three-month period ended September 30, 1999 compared to a loss of $1,186,501 in
1998. The changes in operations implemented by new management resulted in the
improvement over the results in 1998. These changes are expected to continue to
improve the results of operations in future periods.
OTHER, NET. Other, net decreased to an expense of $526,711 in the three months
ended September 30, 1999 as compared to $1,023,876 for the same period in 1998.
The 1998 expense included a write offs of fixed assets of approximately
$262,000, Goodwill of $113,000 and other adjustments of approximately $100,000.
NET LOSS. The net loss of $934,739 for the three-month period ended September
30, 1999 compares to a net loss of $2,210,377 the same period in 1998. The loss
is significantly reduced from the loss over the same period in 1998 due to the
many changes implemented by management in 1999, which had a positive effect on
the performance of the Company during the period. Depreciation and amortization
included in these results amounted to $844,540 in 1999 and $592,149 in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH SEPTEMBER 30, 1998
REVENUES. For the nine months ended September 30, 1999, the Company had revenues
of $20,877,420, an increase of 13% from $18,471,767 for the same period in 1998.
This increase is substantially less from what would be expected after the
acquisitions of Target, Decatur, SMI and BMW in 1998. Prior management's
inability to consolidate the acquisitions into its existing operational
structure contributed to the limited growth gained from these acquisitions.
Operational problems throughout the organization resulted in negative internal
growth in some markets, which negated the already limited growth brought about
from the acquisitions. During the nine months ended September 30, 1999,
management made significant changes in the marketing and customer service areas
that should reverse the negative internal growth rate. These efforts were
somewhat negated during the third quarter due to revenue lost in September of
approximately $70,000 from problems resulting from Hurricane Floyd in the Mid
Atlantic area. The positive trend in revenues is expected to continue during the
fourth quarter of 1999 and most of the revenues lost from problems encountered
after the hurricane will be recovered during the fourth quarter of 1999.
OPERATING COSTS. Consolidated operating costs amounted to $16,789,318, or 80% of
revenues, in the nine months ended September 30, 1999, as compared to
$15,474,910 or 84% of revenues, for the same period in 1998. Although the costs
as a percent of revenues improved by 5%, the reduction is not considered
sufficient to what should be expected from synergies to be obtained from the
acquisitions made
10
<PAGE> 11
during 1998. During the nine-months ended September 30, 1999, various changes
were made by management to reduce costs. Included in these changes were
re-negotiation of the American Waste Industries disposal contract announced in
May of 1999, the beginning of establishing a national service center concept,
which consolidates all support operations in one central location, consolidation
of routes, closing of several transfer stations, a reduction of personnel of
approximately 25%, reduction of leased equipment, and many others. The cost
reduction efforts are continuing and the measures are expected to continue to
help reduce operating costs significantly.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling expenses
decreased to $5,689,120 in the nine months ended September 30, 1999 from
$6,415,352 for the same period for 1998. These costs represent 27% of revenues
in 1999 compared to 34% 1998, a reduction of 20%. The cost reduction measures
implemented by management during the nine month period ended September 30, 1999
have resulted in this positive trend, which is expected to continue.
OPERATING LOSS. The Company reported an operating loss of $2,643,772 for the
nine-month period ended September 30, 1999 compared to a loss of $3,800,739 in
1998. The synergies, which were expected from the acquisitions made in 1997 and
1998 and never materialized, is the primary reason for the poor performance.
These synergies are expected to materialize once the Company is properly
reorganized and the national service center concept fully operational as
demonstrated by the significant improvement from 1998 results.
OTHER NET. Other, net increased to an expense of $1,739,005 in the nine months
ended, September 30, 1999 as compared to an expense of 1,344,387 for the same
period in 1998. The increase can be attributed to an increase of interest
expense due to higher debt and the $280,000 in loan fees and expenses normally
amortized over the life of the loan, which were expensed due to the bank loans
being in default. Also, in 1998 this category of expense was offset with a gain
from the sale of property.
NET LOSS. The net loss of $4,382,777 for the nine-month period ended September
30, 1999 compares to a net loss of $4,564,291 for the same period in 1998. The
loss for the 1998 period was reduced by the effect of an income tax benefit of
$580,835 resulting from the reversal of certain deferred tax liabilities. The
loss for 1999 can be attributed to the Company's inability in the past to
consolidate acquisitions and obtain the synergy's expected from such
acquisitions. The many operational changes made by management during the nine
month period ended September 30, 1999 have initiated a significant positive
effect on the results of operations and this trend is expected to continue.
LIQUIDITY AND CAPITAL RESOURCES
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, 1999 and at December 31, 1998. Cash balances remained
relatively unchanged from December 31, 1998 to September 30, 1999 as the Company
operated without a line of credit and under severe operational constraints
11
<PAGE> 12
resulting from its announcement in March 1999 that it would be required to
restate its results for the first three quarters of 1998. During the period, the
Company met its obligations only through extreme cash management measures that
included delaying payments to certain vendors and re-negotiating payment terms.
Prior to uncovering the erroneous accounting and reporting that transpired
during 1998 the Company borrowed $600,000 from its acquisition line of credit
negotiated in January 1999. Substantially all proceeds were used to pay for
capital expenditures and related expenses incurred in 1998. After the
determination was made that a restatement would be required and the Company
immediately notified its banks, the Company was allowed to draw $500,000 from
its line of credit in March of 1999. These proceeds were used to meet pressing
accounts payable requirements. Since that time, the line of credit has been
frozen and the Company has met its obligations from cash provided by operations.
Since March of 1999, approximately $1,500,000 in extraordinary expenses
involving the restatement of financial statements and related investigations and
reorganizations were funded from the Company's cash flow.
12
<PAGE> 13
MANAGEMENT CHANGES AND OTHER MATTERS
On January 5, 1999, the Company announced the appointment of George Mas as Vice
President of Finance and Chief Financial Officer.
On January 7, 1999, the Company terminated the employment of W. Fred Bonham as
Vice President and Chief Operating Officer.
On January 11, 1999, the Company announced the appointment of Carlos Campos as
Executive Vice President and Chief Operating Officer. Mr. Campos was appointed
Acting CEO on March 17, 1999 and appointed President and CEO and appointed to
the Board of Directors on July 15, 1999.
On January 26, 1999, Ross Johnston was appointed Vice President Legal Affairs.
On March 17, 1999, Daniel Stauber took a leave of absence as President and Chief
Executive Officer of the Company. Effective June 10, 1999, Mr. Stauber resigned
as President and CEO and also as a member of the Board of Directors of the
Company.
During the period ended September 30, 1999, new management spent a significant
part of its time dealing with the investigation of the events of 1998. Most of
the cost reduction and operational efficiency measures taken to reverse the
negative trends established in 1998 did not occur until late March 1999 or
thereafter. It is expected that these measures will have a substantial positive
effect on results of operations in future periods.
In June of 1999, the Company announced it was voluntarily removing its stock
from trading on the NASDAQ Stock Market in anticipation of not meeting the
NASDAQ Small Stock Market listing criteria. Since June 10, 1999, the Company's
stock has traded on the over the counter market with quotations reported on the
Pink Sheets maintained by the National Quotation Bureau, Inc.
GOING CONCERN
The Company's consolidated financial statements are presented on the going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During 1997 and 1998, the
Company purchased several companies in the medical waste business in
contemplation of integrating the acquisitions into the Company's core business.
Unfortunately, the Company was unable to successfully integrate and achieve
profitability from these acquisitions. In addition, internal growth was limited
due to the Company's inability to formulate an effective marketing plan,
integrate its acquisitions and manage the Company's growth. During the six
months ended September 30,1999 and thereafter, new management replaced prior
management, and the Company began its plan to aggressively control costs,
control expansion efforts and focus on the Company's core business. The Company
is currently seeking additional working capital for operations and capital of
approximately $6 million for required improvement components to the SDSSC
incinerator during 1999 to 2000 to meet new emission standards. In addition, the
Company is seeking another $1 million for other company-wide improvements.
13
<PAGE> 14
The Company is in discussion with several lenders for additional funds, as well
as obtaining a waiver to cure its financial covenant violations in its existing
credit facility. Discussions are also being held with private investors to raise
equity capital. The Company believes the additional loan and equity proceeds, if
obtained, will be adequate to fund its on-going operations.
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems principally by implementing cost reduction strategies and
obtaining positive results from increased marketing efforts.
The financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets for the amount
of classification of liabilities that may result from the possible inability of
the Company to continue as a going concern. There is no assurance that the
Company will be able to achieve its recovery plan as described above.
YEAR 2000 COMPUTER ISSUES
The Company believes itself to be Year 2000 compliant. Management believes that
any further future costs associated with year 2000 compliance issues regarding
its own computer systems will not be significant.
The Company is exposed to the risk that one or more of its vendors or customers,
including financial institutions, could experience Year 2000 problems that
impact their abilities to meet obligations to the Company. The Company has
investigated mission critical operational vendors, and to date, the Company is
not aware of any vendor or customer "Year 2000" issue that would have a material
adverse impact on the Company's operations. Although the Company has engaged in
significant efforts to communicate with vendors regarding this issue, it has no
means of ensuring that its vendors and customers will be Year 2000 ready. The
inability of such vendors and customers to complete their Year 2000 resolution
process in a timely fashion could have an adverse impact on the Company. The
effect of non-compliance by vendors and customers is not determinable at this
time. The Company's Year 2000 risks are considered minimal and has an
operational contingency plan for communication and medical waste treatment in
place.
Widespread disruptions in the national or international economy, including
disruption affecting the financial markets, resulting from Year 2000 issues, or
in certain industries, such as commercial or investment banks, could also have
an adverse impact on the Company. The likelihood and effect of such disruptions
is not determinable at this time.
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS
This Form 10-QSB 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
14
<PAGE> 15
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
judgment of personnel; and availability of qualified personnel; labor and
employee benefit costs.
15
<PAGE> 16
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 -- Financial Data Schedule (for SEC use only)
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: November 12, 1999 /s/ Carlos Campos
------------------- ----------------------------------
President and Chief Executive Officer
Date: November 12, 1999 /s/ George Mas
------------------- ---------------------------------
George Mas, Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 57,545
<SECURITIES> 0
<RECEIVABLES> 6,322,097
<ALLOWANCES> (574,733)
<INVENTORY> 703,786
<CURRENT-ASSETS> 6,840,462
<PP&E> 13,265,883
<DEPRECIATION> (2,943,723)
<TOTAL-ASSETS> 47,434,020
<CURRENT-LIABILITIES> 31,577,747
<BONDS> 0
0
313
<COMMON> 6,727
<OTHER-SE> 15,356,959
<TOTAL-LIABILITY-AND-EQUITY> 47,434,020
<SALES> 0
<TOTAL-REVENUES> 20,877,420
<CGS> 0
<TOTAL-COSTS> 23,521,192
<OTHER-EXPENSES> (129,495)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,868,500
<INCOME-PRETAX> (4,382,777)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,382,777)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
</TABLE>
