<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 JUNE 30, 2000
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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 65-0297759
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6175 NW 153 STREET, SUITE 324, MIAMI LAKES, FL 33014
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(Address of principal executive offices)
(305) 819-8877
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(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 July 15, 2000 was 6,731,956.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 101,378 $ 69,225
Accounts Receivable, Net of Allowances of
$705,400 and $668,000 in 2000 and 1999, respectively 5,504,341 5,457,676
Inventories 457,189 210,544
Prepaid Expenses and Other Current Assets 427,126 153,780
------------ ------------
Total Current Assets $ 6,490,034 5,891,225
Property, Plant and Equipment, Net 12,029,876 12,908,410
Goodwill, net 18,353,728 18,774,945
Other Intangibles, net 7,223,976 7,469,018
Other Assets 421,302 294,827
Investment in unconsolidated subsidiary 606,050 737,284
------------ ------------
Total Assets $ 45,124,966 $ 46,075,709
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Liabilities $ 5,416,138 $ 7,332,110
Current Portion of Notes Payables 23,497,019 23,731,306
Current Portion of Capital Lease Obligations 486,797 710,249
------------ ------------
Total Current Liabilities 29,399,954 31,773,665
Capital Lease Obligations, Less Current Portion 268,020 318,074
Notes Payable Less Current Portion 106,945 162,091
Subordinated Secured Convertible Notes Payable 3,638,000
------------ ------------
33,412,919 32,253,830
Shareholders' Equity:
Series A Preferred Stock, $.01 par value; 60,000 shares
Authorized; 31,345 Shares Outstanding 313 311
Common Stock, $.001 par value; 10,000,000 Shares
Authorized; 6,731,956 Shares Issued and Outstanding
in 2000 and 1999 6,732 6,732
Additional Paid-in Capital 31,251,647 30,475,847
Warrant Subscriptions Receivable (80,000) (382,113)
Deficit (19,435,988) (16,248,241)
------------ ------------
11,742,704 13,852,536
Less Cost of Treasury Stock: 11,824 Shares (30,657) (30,657)
------------ ------------
Total Shareholders' Equity 11,712,047 13,821,879
------------ ------------
Total Liabilities and Shareholders' Equity $ 45,124,966 $ 46,075,709
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
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MED/WASTE, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 6,479,253 $ 6,892,875 $ 12,893,012 $ 13,956,313
Costs and expenses:
Operating costs 5,032,123 5,548,743 10,140,164 11,406,835
Administrative and selling expenses 1,565,736 1,918,609 3,170,743 4,098,717
Amortization of Intangibles 334,272 343,249 666,260 686,504
------------ ------------ ------------ ------------
Total 6,932,131 7,810,601 13,977,167 16,192,056
------------ ------------ ------------ ------------
Operating loss (452,878) (917,726) (1,084,155) (2,235,743)
Interest Expense, net 818,499 560,868 1,596,980 1,031,103
Other, net 201,268 (84,823) 365,559 181,192
------------ ------------ ------------ ------------
Net loss (1,472,645) (1,393,771) (3,046,694) (3,448,038)
Preferred stock dividend (70,527) (65,517) (141,053) (131,034)
------------ ------------ ------------ ------------
Net loss available to common shareholders $ (1,543,172) $ (1,459,288) $ (3,187,747) $ (3,579,072)
============ ============ ============ ============
Loss per share - basic and diluted $ (0.23) $ (0.22) $ (0.47) $ (0.54)
Weighted average shares outstanding 6,731,956 6,652,828 6,731,956 6,652,575
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MED/WASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
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2000 1999
------------------ --------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $(3,046,694) $(3,448,038)
Adjustments to reconcile net loss to net cash (used) in
operating activities,
Depreciation and amortization 1,789,320 1,649,009
Provision for doubtful accounts receivable 37,260 84,422
Equity in net loss (income) of unconsolidated subsidiary 131,234 (83,940)
Issuance of stock, options, and warrants for services 15,800 36,002
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (83,925) 165,195
(Increase) decrease in inventories (246,645) 81,439
(Increase) decrease in prepaid expenses and other assets (273,346) 471,059
Increase in other assets (8,198) (258,187)
(Decrease) increase in accounts payable and accrued expenses (1,915,972) 466,533
Other decrease (increase) (19,566)
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Net cash used in operating activities (3,601,166) (856,072)
INVESTING ACTIVITIES:
Purchase of operating equipment (55,402) (354,850)
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Net cash used by investing activities (55,402) (354,850)
FINANCING ACTIVITIES:
(Decrease) increase in line of credit and notes payable-net (289,433) 1,541,928
(Decrease) in capital leases, net (273,506) (261,977)
Net proceeds from subordinated notes 4,090,600 --
Payment of stock subscription receivable 302,113 41,412
Preferred stock dividend (141,053) (67,595)
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Net cash provided by financing activities 3,688,721 1,253,768
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Increase in cash and cash equivalents 32,153 42,846
Cash and cash equivalents at beginning of period 69,225 113,146
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Cash and cash equivalents at end of period $ 101,378 $ 155,992
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Preferred stock issued as payment of dividend 0 $ 63,439
Cash paid during the period for interest $ 442,000 $ 991,000
Cash paid during the period for dividends on preferred stock $ 135,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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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 the
year ended December 31, 1999. These interim results of operations are
not necessarily indicative of results for the entire year. The December
31, 1999 balance sheet was derived from the audited financial
statements as of that date.
2. ACQUISITIONS.
The Company made no acquisitions during the six months ended June 30,
2000.
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3. NOTES PAYABLE
Notes payable consist of the following at June 30, 2000:
Term Loan $16,200,000
Line of Credit 3,500,000
Notes payable 3,903,964
-----------
Total notes payable 23,603,964
Less: current portion 23,497,019
-----------
Long Term Portion $ 106,945
===========
In January 1999, the Company refinanced the line of credit and term
loan with a Credit Agreement consisting of a $10 million revolving
credit loan and a $25 million Convertible Credit Loan. Borrowings under
the line are restricted to 80% of 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 would be 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 would be due on July 31, 2004.
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 revolving credit loan was originally due on July 31,
1999 but was extended by the Bank to May 30, 2000. The Company received
waivers from the bank for such violations which extended through May
30, 2000 and as such, has classified the line of credit and term loans
outstanding at June 30, 2000 and December 31, 1999 as current
liabilities. The Company has been negotiating with its lenders for the
purposes of restructuring the Company's debt and these lenders have not
called the outstanding balances notwithstanding expiration of the
waivers. Because of the default condition, all borrowings under the
Credit Agreement currently bear interest at a default rate provided by
the Agreement (2 1/2% over the normal rate) which at June 30, 2000 was
approximately 12%. The revolving credit loan and the convertible credit
loan are collateralized by substantially all of the Company's assets.
4. SUBORDINATED SECURED CONVERTIBLE NOTES PAYABLE
In February 2000, the Company through its placement agents and certain
of the Company's officers and directors, successfully completed a
private placement of $4.4 million subordinated secured convertible
promissory notes ("Notes"). The Notes are subordinated in payment and
security to the Company's lenders under its $35 million credit
6
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facility. The Notes are also subordinate to any senior credit facility
up to $35 million, which refinances such obligations. Interest is
payable quarterly at 10% per annum. In the event of default, the
interest rate is to be increased to 15%. The Company has granted the
note holders a second lien security interest in all of its tangible
personal property. The Notes are convertible at each holder's option
into shares of common stock at any time prior to redemption or
maturity, at a conversion price of $.543 per share. Each note holder
was also granted one warrant for every $2.00 of principal amount of
Notes purchased. Each warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $.68 per share through
December 31, 2005.
The placement agents received a commission equal to 9% of the gross
proceeds of any Notes directly placed by the agents. In addition, the
placement agents received warrants to purchase shares of common stock
equal to 10% of the shares of common stock underlying the Notes
directly placed by the agents. Each warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $.68 through
December 31, 2005. The value of the warrants ($700,000 valued using the
Black-Sholes method), issued to the note holders, are treated as a
discount, and amortized over the two-year term of the notes. The value
of the warrants ($60,000) and cash ($149,400) paid to the placement
agents, are treated as deferred financing costs and amortized over the
two-year term of the notes. This treatment is consistent with that
prescribed by APB 14. For purposes of balance sheet presentation, the
un-amortized discount on the notes ($602,000) and loans granted to
participating key employees ($200,000), are netted against the
outstanding balance due to the note holders.
The net proceeds of the private placement to the Company, net of
placement agents fees ($149,400) and loans ($200,000), granted to
participating key employees was $4,051,000. These funds were used by
the Company to reduce outstanding accounts payable, amounts due to
former owners of acquired businesses, for working capital, and to repay
certain obligations to related parties, including amounts owed to
members of management and a law firm in which the Chairman of the Board
is a shareholder.
5. NET INCOME PER COMMON SHARE
A reconciliation of the numerator and denominator of earnings per share
for the quarters ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------------- --------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net loss (3,046,693) (3,448,038)
Less: Preferred stock
dividends (141,053) (131,034)
Basic and diluted EPS and
loss available to common
shareholders (3,187,747) 6,731,956 (0.47) (3,579,072) 6,652,575 (0.54)
</TABLE>
7
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Options to purchase 1,388,750 shares of common stock with exercise
prices ranging from $.72 to $8.50 per share were outstanding as of
June 30, 2000. The options expire at various dates through 2010. Stock
warrants, to purchase 3,426,726 shares of common stock with exercise
prices ranging from $.68 to $8.00, were outstanding as of June 30,
2000. The warrants expire at various dates through 2005. In both 2000
and 1999, no options or warrants were included in the computation of
earnings per share because their inclusion would have an anti-dilutive
effect.
6. SEC INQUIRY
In 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. The Company cannot
predict how long the investigation will last or its outcome. In
addition, the Company cannot determine what actions, if any, the SEC
might take against the Company, or what effect any such action might
have on the Company's operations.
7. LITIGATION
In January 1999, the former stockholders of Med-Waste, Inc., an Alabama
corporation acquired by the Company in June 1998, 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 filed a counterclaim
for breach of contract, fraud and misrepresentation in connection with
the purchase of the corporation. Two different attorneys representing
the plaintiff have withdrawn from the case. One Plaintiff is now
representing himself, and two others have engaged separate counsel. In
view of these circumstances and the early stage of discovery, the
Company and counsel are unable to predict the outcome of this case at
this time.
On April 9, 1999, W. Fred Bonham filed a complaint against the Company.
On January 7, 1999, the Company terminated Mr. Bonham's employment for
"cause". Mr. Bonham alleges in his complaint that the Company violated
his employment agreement by failing to pay Mr. Bonham certain
compensation after his discharge from the Company. In his complaint,
Mr. Bonham seeks compensatory damages, pre-judgment interest, costs,
and reasonable attorney's fees. Specifically, Bonham seeks his base
salary ($175,000) due for the remaining term of his employment
agreement, as well as various stock options. In March 2000, Plaintiff's
counsel withdrew from the case. Substitute counsel was identified by
the Plaintiff, but the new counsel has also withdrawn. Mr. Bonham is
now representing himself. The litigation is in the discovery stage. The
Company and its counsel are unable to predict the outcome of this case
at this time.
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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 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 as purported
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. The Company filed a motion to dismiss the case, which is
pending. No discovery has commenced and the size of the plaintiff class
is not yet determined as class certification has not been granted to
date. Accordingly, the Company and its counsel are unable to predict
the outcome of this case.
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. Dean is claiming unspecified
compensatory damages, punitive damages and court costs. The Company is
vigorously defending the lawsuit and a counterclaim by the Company for
breach of covenants and misrepresentation has been filed. Accordingly,
the Company is unable to predict the outcome of this case at this time
Any of the above matters, if determined adverse to the Company, may
have a material adverse effect on the Company's operations or financial
condition.
The Company is or may become involved in various lawsuits, claims and
proceedings in the normal course of its business, including those
pertaining to product liability, environmental, safety and health, and
employment matters. The Company records liabilities when loss amounts
are determined to be probable and reasonably estimatable. Insurance
recoveries are recorded only when claims for recovery are settled.
Although generally the outcome of litigation cannot be predicted with
certainty and some lawsuits, claims or proceedings may be disposed of
unfavorably to the Company, management believes, based on facts
presently known, that the outcome of such legal proceedings and claims,
other than those previously disclosed, will not have a material adverse
effect on the Company's financial position, liquidity, or future
results of operations.
8. NEW ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING
STOCK COMPENSATION, AN INTERPRETATION OF APB OPINION NO. 25. The
Company is required to adopt the Interpretation on July 1, 2000. The
Interpretation requires, among other things, that stock options that
have been modified be accounted for as variable. Management anticipates
the implementation of FASB Interpretation No. 44 will not have a
material effect on the Company's financial position or results of
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH JUNE 30, 1999
REVENUES. For the six months ended June 30, 2000, the Company had revenues of
$12,893,012, a decrease from $13,956,313 for the same period in 1999. During
1999, the Company discontinued providing autoclave services at it's Marcus Hook
facility to certain low margin customers resulting in approximately $381,000 of
the decrease in revenues in the quarter ended June 30, 2000 compared to June 30,
1999. Also, 1999 included approximately $227,000 in sterilization equipment
revenues. As part of the Company's new marketing strategy, the sale of such
equipment was discontinued during the second half of 1999. The remaining loss of
revenues is attributed to customers lost during 1999 when the Company was
attempting to reorganize under new management. During this time, unprofitable
accounts were identified and discontinued and internal growth was limited due to
significant working capital constraints.
OPERATING COSTS. Operating costs amounted to $10,140,164 or 79% of revenues, in
the six months ended June 30, 2000, as compared to $11,406,835, or 82% of
revenues for the same period in 1999. This improvement was evident throughout
1999 but was slowed during the six month ended June 30, 2000 primarily due to
49% higher fuel costs representing approximately $183,500.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling expenses
decreased to $3,170,743 in the six months ended June 30, 2000 from $4,098,717
for the same period in 1999. These costs represent 25% of revenues in 2000
compared to 29% in 1999. The many changes implemented by new management during
1999-2000 have helped reduce these costs for the six months ended June 30, 2000
as compared to 1999. These cost reduction initiatives continue and two large
support operations not yet centralized will be moved to the Company's Miami
Lakes, Florida, Service Center during 2000.
OPERATING LOSS. The Company reported an operating loss of $1,084,155 for the
six-month period ended June 30, 2000 compared to an operating loss of $2,235,743
in 1999. The changes in operations implemented by new management caused the
improvement over the result of 1999. Cost reduction initiatives are expected to
continue to improve the results of operations in future periods.
INTEREST EXPENSE, NET. Interest costs increased to $1,596,980 for the six month
period ended June 30, 2000 from $1,031,103 for the same period in 1999 because
of higher interest rates charged by the banks in 2000 due to the increase in the
prime rate and the non-compliance condition of the loans. Also, during 2000 all
other notes payable of the Company are accruing interest at default rates. The
Company also had significantly more debt accruing interest during the six month
period June 30, 2000 than it did during the same period in 1999, including the
$4.4 million of 10% Subordinated Convertible Secured Notes issued in a private
placement on February 1, 2000.
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OTHER, NET. Other, net represents an expense of $365,559 for the six months
ended June 30, 2000 as compared to $181,192 for the same period in 1999. During
the six-month ended June 30, 1999, approximately $280,000 in loan fees incurred
in the refinancing of the loan agreement with its banks in January 1999 were
expensed due to the non-compliance condition of the agreement. The expense for
the six-month period ended June 30, 2000 includes approximately $234,325 in
amortization of discounts and fees related to the private placement of the
subordinated notes completed in February 2000. Also included in the results for
2000 is approximately $130,000 of losses from a 49% owned unconsolidated
subsidiary. During the same period in 1999, this subsidiary provided $83,940 in
equity earnings.
NET LOSS. The net loss of $3,046,694 for the six-month period ended June 30,
2000 compares to a net loss of $3,448,038 during the same period in 1999. The
loss is significantly reduced from the loss over the same period in 1999 due to
the many changes implemented by new management in 1999 and 2000, which have had
a positive effect on the performance of the Company.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH JUNE 30, 1999
REVENUES. For the three months ended June 30, 2000, the Company had revenues of
$6,479,253, a decrease from the $6,892,875 for the same period in 1999. During
1999, the Company discontinued providing autoclave services at it's Marcus Hook
facility to certain low margin customers resulting in approximately $216,000 of
the decrease in revenues in the quarter ended June 30, 2000 compared to June 30,
1999. Also, 1999 included approximately $117,000 in sales of sterilization
equipment. As part of the Company's new marketing strategy, the sale of such
equipment was discontinued during the second half of 1999. The remaining loss of
revenues is attributed to customers lost during the second half of 1999 when the
Company was attempting to reorganize under new management. During this time
unprofitable accounts were identified and discontinued and internal growth was
limited due to significant working capital constraints.
OPERATING COSTS. Consolidated operating costs amounted to $5,032,123 or 78% of
revenues, in the three months ended June 30, 2000, as compared to $5,548,743, or
80% of revenues for the same period in 1999. This improvement was evident
throughout 1999, but was slowed during the three months ended June 30, 2000,
primarily due to higher fuel costs representing approximately $108,000.
ADMINISTRATIVE AND SELLING EXPENSES. Administrative and selling expenses
decreased to $1,565,736 in the three months ended June 30, 2000 from $1,918,609
for the same period in 1999. These costs represent 24% of revenues in 2000
compared to 28% in 1999. The many changes implemented by new management during
1999-2000 have helped reduce these costs for the three months ended June 30,
2000 as compared to 1999. These cost reduction initiatives continue and two
large support operations not yet centralized will be moved to the Company's
Miami Lakes, Florida, Service Center during 2000.
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OPERATING LOSS. The Company reported an operating loss of $452,878 for the
three-month period ended June 30, 2000 compared to an operating loss of $917,726
in 1999. The changes in operations implemented by new management caused the
improvement over the results of 1999. Cost reduction initiatives are expected to
continue to improve the results of operations in future periods.
OTHER, NET. Other, net represents an expense of $201,268 for the three months
ended June 30, 2000, compared to income of ($84,823) for the same period in
1999. The expense for the three-month period ended June 30, 2000 includes
approximately $137,675 in amortization of discounts and fees related to the
private placement of the subordinated notes completed in February 2000. Also
included in the results for 2000 is approximately $63,000 of losses from a 49%
owned unconsolidated subsidiary. During the same period in 1999 this subsidiary
provided approximately $42,000 in equity earnings.
NET LOSS. The net loss of $1,472,645 for the three-month period ended June 30,
2000 compares to a net loss of $1,393,771 during the same period in 1999. The
loss increase is attributed to the higher interest and discount amortization
costs which were mitigated by the savings obtained from the many cost reductions
initiatives implemented by management during 1999-2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's bank borrowings during 1999 were restricted to $1,500,000 during
the first quarter of 1999. At that time, due to the reporting and operational
deficiencies uncovered by new management, all lines of credit were frozen and
the Company's only principal source of cash was from its own operations. During
1999, approximately $297,000 was borrowed from the Chairman of the Board and the
Chief Executive Officer to meet certain financial obligations that could no
longer be delayed. Payments to vendors were routinely delayed and payments on
long term debt were not made on time. All bank loans and other significant debt
are currently in default and the due date of the line of credit from the bank
was extended to May 30, 2000.
During the six months ended June 30, 2000 the Company successfully completed a
private placement of $4,400,000 of convertible secured notes which netted the
Company approximately $4,050,000 in additional capital. These funds were used
primarily to reduce the amount of accounts payable to vendors and suppliers and
bring past due lease payments up to date. In addition $720,000 was used to
retire a past due debt to a former owner of business acquired in 1998.
The Company must make improvements at the SDSSC incinerator during 2000-2002 to
meet new air emission standard requirements. Although expected expenditures were
deferred in 1999 and required State of South Carolina Tests were successfully
completed, management still expects to incur approximately $6,000,000 in
improvements to this facility in order to maximize its waste throughput and
obtain significant economies of scale and meet the 2002 Federal air emission
standards. The Company expects to obtain those funds from additional bank
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borrowings and/or equity capital. There can be no assurances that the Company
will be able to obtain such funds. In such event, the Company may be required to
reduce the amount of waste processed or close the facility until the funds to
make the renovations become available. During 2000, the Company anticipates
incurring approximately $1 million in company wide improvements as well as
significant legal costs to defend its on going litigation.
The Company is presently not in compliance with minimum tangible net worth and
other financial covenants set forth in its bank credit facility and certain
other notes payable. The Lenders have not declared the Company in formal default
or demanded full payment of the Company's indebtedness thereunder. There can be
no assurance that they will not do so in the future. The Company is engaged in
discussions with prospective sources of additional working capital and with its
current lenders. There can be no assurance that the Company will successfully
negotiate a new credit facility or obtain additional working capital. The
Company's current credit facility, which would have provided a maximum of $35
million in financing, has been placed on hold by the lenders. The revolving
portion of the credit facility expired on May 30, 2000. The Company is currently
in negotiations with its lenders to extend the terms of the credit facility.
During 1999, the Company's new management team implemented a series of cost
reduction and performance enhancing measures which reduced considerably the
operating expenses of the Company. These cost reduction efforts are continuing
and management expects continued improved results during 2000 and beyond.
The Company's consolidated financial statements are presented on a 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 in
1997 and 1998, 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. In early 1999, with
new management the Company began its plan to aggressively control costs, control
expansion efforts, and focus on the Company's core business.
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. (See Independent
Auditor's report in its Annual Report on Form 10-KSB for the year ended December
31, 1999 which contains an explanatory paragraph regarding the Company's ability
to continue as a going concern.)
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SUBSEQUENT EVENT
During July-August 2000 the Company's main incinerating facility in Hampton,
South Carolina was shut down for approximately 15 days due to the failure of
certain key equipment which was apparently struck by lightning. Due to
environmental concerns, the Company and the regulatory agency of the State of
South Carolina shut down the facility until the equipment was replaced. The
Company was also required to pass certain tests by the regulatory agency before
it was allowed to resume normal operations. The Company and its insurance
carrier are in the process of determining how much of the damage caused by this
event, including loss of business, is covered by insurance. Losses during this
period could amount to approximately $350,000 in damages and lost revenue.
On August 4, 2000, the Company was forced to close down its autoclave facility
in Marcus Hook, Pennsylvania because its processing permit from the State
expired and the renewal process was not completed. As of August 10, 2000 the
renewal was granted and the plant resumed normal operations. Although the
expense of the temporary shutdown has not been fully determined, it is not
expected to exceed $50,000.
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 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.
INFLATION
The Company has not been materially affected by the impact of inflation.
YEAR 2000 COMPLIANCE
The potential for software failure due to the Year 2000 calculations is a known
risk. The Company recognizes the need to ensure that its operations, products
and services are not adversely impacted by the Year 2000 risks. The Company has
been advised by its' major vendors that they are Year 2000 compliant. The
Company does not anticipate any significant future costs relating to Year 2000,
but continues to monitor the situation for any disruptions, due to Year 2000
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related issues. The Company has not had its operations, products or services
disrupted with any Year 2000 issues and does not expect any material disruptions
related to Year 2000 issues, for the year 2000.
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
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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 11, 2000 /s/ CARLOS CAMPOS
--------------- -----------------------------------------
President and Chief Executive Officer
Date: August 11, 2000 /s/ GEORGE MAS
--------------- -----------------------------------------
George Mas,
Vice President and Chief
Financial Officer
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