<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[Mark One]
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________.
Commission File No. 1-11822
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TRANSCOR WASTE SERVICES, INC.
----------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0369288
(State of incorporation) (I.R.S. Employer
Identification Number)
1502 Second Avenue, East, Tampa, Florida 33605
(Address of registrant's principal executive offices,
including zip code)
----------------------------------------
(Registrant's telephone number, including area code):
(813) 248-3878
Not applicable
----------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 [ ]<PAGE>
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by a check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
Applicable Only to Corporate Issuers
The number of shares of Common Stock outstanding on May 20, 1998, was
4,000,000 shares.<PAGE>
TRANSCOR WASTE SERVICES, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated balance sheets at
December 31, 1997 and March 31, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . 1-2
Consolidated statements of operations for
the three months ended March 31, 1997
and 1998 (unaudited) . . . . . . . . . . . . . . . . 3
Consolidated statements of cash flows for
the three months ended March 31, 1997
and 1998 (unaudited) . . . . . . . . . . . . . . . . 4
Notes to consolidated financial statement . . . . . 5-8
Item 2. Management's discussion and analysis of
financial condition and results of
operations . . . . . . . . . . . . . . . . . . . 9-11
PART II. OTHER INFORMATION
Item 1. Legal proceedings . . . . . . . . . . . . . . . . . 13
Item 2. Changes in securities . . . . . . . . . . . . . . . 13
Item 3. Defaults upon senior securities . . . . . . . . . . 13
Item 4. Submission of matters to a vote of security holders 13
Item 5. Other information . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 14<PAGE>
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Current assets:
Cash . . . . . . . . . . . . . . . . . . $ 2,115,510 $ 3,941,724
Accounts receivable - trade, net . . . . 5,170,966 4,691,367
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . 415,514 497,615
Income tax refund receivable . . . . . . 143,672 101,232
Deferred income taxes . . . . . . . . . . 720,410 720,410
Property held for sale . . . . . . . . . 733,659 410,681
Other current assets . . . . . . . . . . 186,017 566,285
------------- -------------
Total current assets . . . . . . . . . . 9,485,748 10,929,314
------------- -------------
Property and equipment, net . . . . . . . . 25,061,418 24,449,851
Intangible assets, net . . . . . . . . . . 606,975 584,700
Due from affiliate . . . . . . . . . . . . 4,040,110 3,247,889
Property held for sale . . . . . . . . . . 1,510,723 1,497,829
Other assets . . . . . . . . . . . . . . . 1,142,205 944,635
------------- -------------
$ 41,847,179 $ 41,654,218
============= =============
See accompanying notes.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Current liabilities:
Accounts payable, trade . . . . . . . . . $ 4,290,015 $ 3,597,619
Accrued expenses . . . . . . . . . . . . 3,163,819 3,979,255
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . 15,978 27,792
Current portion of long-term debt . . . . 4,662,310 5,090,576
------------- -------------
Total current liabilities . . . . . . . 12,132,122 12,695,242
------------- -------------
Long-term debt, including debt owed to KVN
of $2,003,258 at December 31, 1997 and
March 31, 1998 . . . . . . . . . . . . . 16,392,361 15,415,154
Deferred income taxes . . . . . . . . . . . 2,267,742 2,267,742
Commitments and contingencies . . . . . . . - -
Stockholders' equity:
Preferred stock, $.001 par value;
1,000,000 shares authorized; none issued
and outstanding . . . . . . . . . . . . - -
Capital stock, $.001 par value; 10,000,000
shares authorized; 4,010,000 shares
issued and outstanding . . . . . . . . . 4,010 4,010
Capital in excess of par value . . . . . 12,193,547 12,193,547
Retained earnings . . . . . . . . . . . . (1,094,597) (873,471)
------------- -------------
11,102,960 11,324,086
Less treasury stock, at cost
(10,000 shares) . . . . . . . . . . . . (48,006) (48,006)
------------- -------------
Total stockholders' equity . . . . . . . 11,054,954 11,276,080
------------- -------------
$ 41,847,179 $ 41,654,218
============= =============
See accompanying notes.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
March 31,
---------------------------
1997 1998
------------- -------------
(unaudited) (unaudited)
Revenue . . . . . . . . . . . . . . . . . . $ 12,342,968 $ 10,463,159
Expenses:
Operating expenses . . . . . . . . . . . 9,893,256 8,519,736
Selling, general, and administrative
expenses . . . . . . . . . . . . . . . . 2,107,788 1,374,734
------------- -------------
Operating income . . . . . . . . . . . . . 341,924 568,689
Interest expense . . . . . . . . . . . . . 308,669 305,122
------------- -------------
Income before provision for income taxes . 33,255 263,567
Provision for income taxes . . . . . . . . 12,970 42,441
------------- -------------
Net income . . . . . . . . . . . . . . . . $ 20,285 $ 221,126
============= =============
Share data:
Basic income per share . . . . . . . . . $ .01 $ .06
============= =============
Diluted income per share . . . . . . . . $ .01 $ .06
============= =============
Weighted average number of shares
outstanding used in computations:
Basic . . . . . . . . . . . . . . . . . 4,000,000 4,000,000
============= =============
Diluted . . . . . . . . . . . . . . . . 4,024,902 4,014,746
============= =============
See accompanying notes.<PAGE>
TRANSCOR WASTE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
---------------------------
1997 1998
------------- -------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . $ 20,285 $ 221,126
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . 960,709 1,061,738
Loss on disposal of equipment . . . . . 12,949 23,283
Changes in operating assets and
liabilities:
Accounts receivable . . . . . . . . (67,590) 352,175
Costs and estimated earnings in
excess of billings on uncompleted
contracts . . . . . . . . . . . . . (470,803) (82,101)
Income tax refund receivable . . . . 45,594 42,440
Other assets . . . . . . . . . . . . (312,021) (60,770)
Accounts payable . . . . . . . . . . 283,805 (692,396)
Accrued expenses . . . . . . . . . . 143,287 815,436
Billings in excess of costs and
estimated earnings on uncompleted
contracts . . . . . . . . . . . . . 11,366 11,814
------------- -------------
Total adjustments . . . . . . . . 607,296 1,471,619
Net cash provided by operating ------------- -------------
activities . . . . . . . . . . . . . . . 627,581 1,692,745
------------- -------------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . (1,423,743) (387,161)
Proceeds from sale of property and
equipment . . . . . . . . . . . . . . . 6,000 277,350
------------- -------------
Net cash used by investing activities . . (1,417,743) (109,811)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . 1,031,532 722,038
Repayment of long-term debt . . . . . . . (855,101) (1,270,979)
Repayment of advances from KVN . . . . . 504,045 792,221
------------- -------------
Net cash provided by financing
activities . . . . . . . . . . . . . . . 680,476 243,280
------------- -------------
Net increase (decrease) in cash . . . . . . (109,686) 1,826,214
Cash, beginning of period . . . . . . . . . 1,437,788 2,115,510
------------- -------------
Cash, end of period . . . . . . . . . . . . $ 1,328,102 $ 3,941,724
============= =============
See accompanying notes.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
Organization - TransCor Waste Services, Inc. (the "Company") was
formed on November 6, 1992, as a subsidiary of Kimmins Corp. ("KVN").
KVN owns approximately 74 percent of the outstanding common stock of the
Company. The Company provides solid waste management services to
commercial, industrial, residential, and municipal customers in the state
of Florida. The Company also provides demolition services in conjunction
with, and as an economic complement, to its solid waste management
services.
Basis of presentation - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do
not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31,
1998, are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. For further information, refer to
the consolidated financial statements and notes thereto as of and for the
year ended December 31, 1997, included in the Company's Form 10-K dated
December 31, 1997, as filed with the United States Securities and
Exchange Commission.
Certain amounts in the 1997 consolidated financial statements have
been reclassified to conform to the 1998 presentation.
Intangible assets - Intangible assets consist primarily of the excess
of cost over fair market value of the net assets of the acquired
business, which will be amortized on a straight-line basis over 20 years,
and customer contracts, which will be amortized on a straight-line basis
over 5 years. Amortization expense was approximately $34,000 and $22,000
for the three months ended March 31, 1997 and 1998, respectively.
Accumulated amortization was $245,000 and $267,000 at December 31, 1997,
and March 31, 1998, respectively.
Other assets - Other assets consist primarily of pre-contract costs
associated with residential solid waste management contracts obtained
during 1996 and 1997, which are being amortized on a straight-line basis
over five years, the term of the contracts, and loan costs, which are
amortized over the term of the loans. Amortization expense was $41,000
and $70,000 for the three months ended March 31, 1997 and 1998,
respectively. Accumulated amortization was $533,000 and $603,000 at
December 31, 1997, and March 31, 1998, respectively.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
(continued)
As of March 31, 1998, other assets include approximately $820,000 of
pre-contract costs. As explained above, these costs are currently being
amortized over the terms of the related contracts. However, the American
Institute of Certified Public Accountants ("AICPA") has recently issued
Statement of Position 98-5 ("SOP"), "Reporting on the Costs of Start-up
Activities," which requires all start-up costs, including pre-contract
costs, to be expensed as incurred. The SOP is effective in the first
quarter of 1999 and will require the Company to write off the remaining
unamortized balance of approximately $330,000.
Earnings per share - Net income (loss) per share is computed based on
the weighted average number of shares of capital stock and stock options
outstanding. Diluted earnings per share includes unexercised stock
options assuming an average stock price. The convertible subordinated
debt was not included in the computations because the assumed conversion
would be antidilutive.
2. Property held for sale
As a result of management's review of the Company's various regional
solid waste operating facilities, a decision was made to dispose of less
profitable operating assets. The Company sold its residential solid waste
services contract with St. Lucie County to a competitor and ceased
operations at its Lantana, Florida, facility. The Lantana and St. Lucie
facilities contributed losses of approximately $1,111,000 and $476,000,
respectively, of the $2,184,000 operating loss of the Company for the
year ended December 31, 1997. The Company wrote off intangible assets of
$183,000 associated with these operations. Also, in accordance with SFAS
No. 121, "Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," the Company wrote down certain land and buildings that
management believed had carrying amounts higher than their fair market
value.
The impairment loss of $590,000 was determined by comparing the
carrying amount of impaired assets of approximately $2,834,000 with
recent offers on the properties held for sale. The $590,000 impairment
loss is included in selling, general and administrative expenses on the
consolidated statements of operations for the year ended December 31,
1997. The land and buildings that were impaired at December 31, 1997, and
as of the date of these financial statements had executed contracts for
sale, are expected to be sold during 1998. Accordingly, the carrying
value of these assets of approximately $734,000, net of the impairment
loss of $90,000, is classified as a current asset under the caption
"Property Held for Sale" in this consolidated balance sheet.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and equipment, net
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Land . . . . . . . . . . . . . . . . . $ 3,019,969 $ 3,019,969
Buildings and improvements . . . . . . 4,068,476 4,086,676
Vehicles . . . . . . . . . . . . . . . 16,936,386 16,961,586
Waste containers and equipment . . . . 13,133,877 13,274,518
Furniture and fixtures . . . . . . . . 700,711 695,302
Construction in progress . . . . . . . 48,419 91,622
------------- -------------
37,907,838 38,129,673
Less accumulated depreciation . . . . . (12,846,420) (13,679,822)
------------- -------------
$ 25,061,418 $ 24,449,851
============= =============
Property and equipment is recorded at cost. Depreciation is provided
using the straight-line method over estimated useful lives, which range
from 3 to 30 years. Depreciation expense was $885,000 and $970,000 for
the three months ended March 31, 1997 and 1998, respectively.
On May 31, 1998, the Company sold its Jacksonville area waste
collection and recycling operations assets and certain assets of the
Miami front-end load and rear-load commercial waste and recycling
business to Eastern Environmental Services of Florida, Inc., for
$11,600,000 in cash, which exceeded the carrying value of the underlying
assets.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Long-term debt
December 31, March 31,
1997 1998
------------- -------------
(unaudited)
Notes payable, due through December 1,
2002, payable in monthly installments
with interest at varying rates up to
9.5 percent, collateralized by
equipment . . . . . . . . . . . . . . . $ 14,191,400 $ 13,905,017
Convertible subordinated term note with
KVN, interest payable in monthly
installments, principal due December 1,
2003, interest at bank's base rate plus
1 percent . . . . . . . . . . . . . . . 2,003,258 2,003,258
Mortgage notes, principal and interest
payable in monthly installments through
August 1, 2010, interest at varying
rates up to prime plus 1.5 percent,
collateralized by land and buildings . 4,860,013 4,597,454
------------- -------------
21,054,671 20,505,729
Less current portion . . . . . . . . . (4,662,310) (5,090,576)
------------- -------------
$ 16,392,361 $ 15,415,153
============= =============
As of March 31, 1998, the Company is a co-borrower with joint and
several liability on approximately $4,910,000 of financial institution
debt of Kimmins. The debt agreements contain certain covenants, the most
restrictive of which require, for Kimmins for 1998, maintenance of a
consolidated tangible net worth, as defined, of not less than $7,500,000
and net income not less than $3,000,000. In addition, the covenants
prohibit the payment of dividends by the Company without lender approval.
For all periods presented and for all of 1998, the Company believes that
Kimmins has complied with or obtained waivers for all loan covenants.
Francis M. Williams has guaranteed approximately $11,732,000 of the
total notes payable of $13,905,000.
The lenders' prime and base rates under the Company's notes were 8.5
percent at March 31, 1998.
Included in the notes payable of approximately $13,905,000 are
equipment notes of the Company for $5,400,000 that are due in July 1998.
The Company has executed a commitment agreement that refinances the
$5,400,000 until January 1, 2000 and, accordingly, has classified the
debt pursuant to the expected maturity schedule.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Stockholders' equity
The Company has authorized 1,000,000 shares of preferred stock with a
par value of $.001 per share, none of which has been issued. Such
preferred stock may be issued in series and will have such designations,
rights, preferences, and limitations as may be fixed by the Board of
Directors.
The convertible subordinated term note is convertible into 400,652
shares of the Company's capital stock at the time the market value per
share equals or exceeds $9.00 for 20 consecutive trading days.
Warrants to purchase 100,000 shares of the Company's common stock at
$6.00 per share were issued in 1993 to the underwriters of the Company's
initial public offering. Warrants to purchase 10,000 shares of common
stock were exercised during March 1998. The remaining warrants to
purchase 90,000 shares expired on March 25, 1998, without being
exercised.<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Earnings Per Share
As required by Financial Accounting Standards Board Statement No.
128, the following table sets forth the computation of basic and diluted
earnings per share:
Three months ended
March 31,
---------------------------
1997 1998
------------- -------------
Numerator:
Net income (loss) . . . . . . . . . . . $ 20,285 $ 221,126
Adjustment for basic earnings
per share . . . . . . . . . . . . . . 0 0
------------- -------------
Numerator for basic earnings per share -
income available to common
stockholders . . . . . . . . . . . . 20,285 221,126
Effect of dilutive securities:
Interest on convertible subordinated
term note . . . . . . . . . . . . . . 0 0
Less tax effect of interest . . . . . . 0 0
------------- -------------
Numerator for diluted earnings
per share - income available to
common stockholders after assumed
conversions . . . . . . . . . . . . . $ 20,285 $ 221,126
============= =============
Denominator:
Denominator for basic earnings
per share - weighted-average shares . 4,000,000 4,000,000
Effective of dilutive securities:
Stock options . . . . . . . . . . . . . 24,902 14,746
Warrants . . . . . . . . . . . . . . . 0 0
Convertible subordinated term note . . 0 0
------------- -------------
Dilutive potential common shares . . . 24,902 14,746
------------- -------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions . . . 4,024,902 4,014,746
============= =============
Basic earnings per share . . . . . . . $ .01 $ .06
============= =============
Diluted earnings per share . . . . . . $ .01 $ .06
============= =============<PAGE>
TRANSCOR WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Earnings per share (continued)
Unexercised options to purchase 92,000 and 160,000 shares of common
stock for 1997 and 1998, respectively, are included in the above
calculations. The convertible subordinated debt was not included in the
computations of diluted income per share because the assumed conversion
would be antidilutive.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenue for the three months ended March 31, 1998, was $10,463,000,
representing a decrease of $1,880,000, or approximately 15 percent, from
$12,343,000 for the three months ended March 31, 1997. The decrease in
total revenue was primarily attributable to the Company's demolition
operations, which generated revenue of approximately $1,868,000 for the
three months ended March 31, 1998, compared to approximately $3,937,000
for the same period in 1997.
Operating expenses for the three months ended March 31, 1998, were
$8,520,000, representing a decrease of $1,373,000, or approximately 14
percent, from $9,893,000 for the three months ended March 31, 1997.
Operating expenses include fees charged by landfills for waste disposal
(which to date has been the largest component of the Company's operating
expenses), direct labor costs associated with the collection, transfer,
and recycling of waste, and depreciation. The decrease in operating
expenses was attributable primarily to volume-related decreases in
certain major operational expenses; such as, landfill fees and direct
labor costs related to the Company's demolition operations.
Selling, general, and administrative expenses for the three months
ended March 31, 1998, were $1,375,000, representing a decrease of
$733,000, or approximately 35 percent, from $2,108,000 for the three
months ended March 31, 1997. The dollar and percentage decrease in
selling, general, and administrative expenses is primarily attributable
to reduced overhead costs, such as administrative, sales, marketing and
labor costs that were associated with facilities that have been closed or
sold and from management's actions to reduce overhead costs.
Interest expense, net of interest income, for the three months ended
March 31, 1998, was $305,000 as compared to $309,000 for the three months
ended March 31, 1997. The average amount of debt outstanding was
consistent between periods.
The Company's income tax provision was calculated using a rate of
approximately 16 and 39 percent for the three month periods ended March
31, 1998 and 1997, respectively.
As a result of the foregoing, the Company recorded net income of
$221,000 for the three months ended March 31, 1998, as compared to net
income of $20,000 for the three months ended March 31, 1997.<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had a working capital deficit of
$1,766,000 compared to a working capital deficit of $2,646,000 at
December 31, 1997. Working capital was impacted primarily by increases
in cash. Current financial resources, anticipated funds from operations,
and repayment of receivables from affiliate (if needed) are expected to
be adequate to meet cash requirements in the year ahead and the
foreseeable future. At March 31, 1998, the Company had cash of
$3,942,000. On May 31, 1998, the Company sold its Jacksonville area
operating assets and certain of its Miami area operating assets to
Eastern Environmental Services of Florida, Inc., for $11,600,000 in cash.
Net cash provided by operating activities during the three months
ended March 31, 1998, was $1,693,000 compared to $628,000 for the three
months ended March 31, 1997. The increase in cash provided by operating
activities was due primarily to net income earned during 1998, net of
changes in certain operating assets and liabilities (primarily costs and
estimated earnings in excess of billings on uncompleted contracts and
accounts payable, accounts receivable and accrued expenses). Net cash
used by investing activities during the three months ended March 31,
1998, was $110,000, as compared to $1,417,000 during the three months
ended March 31, 1997, primarily due to reduced capital expenditures for
the purchase of vehicles and equipment. Net cash provided by financing
activities during the three months ended March 31, 1998, was $243,000 as
compared to $680,000 for the three months ended March 31, 1997, primarily
as a result of lower levels of debt borrowings.
During the three months ended March 31, 1998 and 1997, the Company's
average trade receivables were outstanding for 41 and 47 days,
respectively. Both averages were based on first quarter revenue
annualized and compared to the trade receivable balances at quarter end.
Management believes that the number of days outstanding for its
receivables approximates industry norms. Credit is extended based on an
evaluation of the customer's financial condition. Credit losses are
provided for in the financial statements and have been within
management's expectations.
During the three months ended March 31, 1998 and 1997, the Company's
average trade payables were extended for 33 and 35 days, respectively.
Both averages were based on first quarter operating and selling, general,
and administrative expenses annualized and compared to trade payable
balances at quarter end.
As of March 31, 1998, the Company is a co-borrower with joint and
several liability on approximately $4,910,000 of financial institution
debt of Kimmins. The debt agreements contain certain covenants, the most
restrictive of which require, for Kimmins for 1998, maintenance of a
consolidated tangible net worth, as defined, of not less than $7,500,000
and net income not less than $3,000,000. In addition, the covenants
prohibit the payment of dividends by the Company without lender approval.
For all periods presented and for all of 1998, the Company believes that
Kimmins has complied with or obtained waivers for all loan covenants.<PAGE>
Francis M. Williams has guaranteed approximately $11,732,000 of the
total notes payable of $13,905,000.
The lenders' prime and base rates under the Company's notes were 8.5
percent at March 31, 1998.
Included in the notes payable of approximately $13,905,000 are
equipment notes of the Company for $5,400,000 that are due in July 1998.
The Company has executed a commitment agreement that refinances the
$5,400,000 until January 1, 2000 and, accordingly, has classified the
debt pursuant to the expected maturity schedule.
The Company has no current material commitments for capital
expenditures relating to any other new facilities, other than to acquire
vehicles and equipment estimated to be approximately $3,500,000 for the
City of Cape Coral Contract, which begins October 1, 1998.
Historically, inflation has not had a material effect on the
Company's operations. If inflation increases, the Company will attempt
to increase its prices to offset its increased expenses. No assurance
can be given, however, that the Company will be able to adequately
increase its prices in response to inflation.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. The Company adopted the provisions of Statement 128
No. effective December 31, 1997. All earnings per share accounts for all
periods presented have been restated to conform to the Statement No. 128
requirements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income ("SFAS No. 130"). SFAS
No. 130 requires that total comprehensive income and comprehensive income
per share be disclosed with equal prominence as net income and earnings
per share. Comprehensive income is defined as changes in stockholders'
equity exclusive of transactions with owners such as capital
contributions and dividends. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Management is currently assessing the
impact of SFAS No. 130, but does not expect its effect to be material.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which supercedes Financial
Accounting Standards No. 14. SFAS No. 131 uses a management approach to
report financial and descriptive information about a Company's operating
segments. Operating segments are revenue-producing components of the
enterprise for which separate financial information is produced
internally for the Company's management. SFAS No. 131 is effective for
fiscal years beginning after December 31, 1997. Management is currently
assessing the impact of SFAS No. 131, but does not expect its effect to
be material.<PAGE>
The American Institute of Certified Public Accountants recently
issued Statement of Position 98-5, Reporting on the Costs of Start-up
Activities. Start-up costs are defined broadly in the SOP as those one-
time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new
process in an existing facility, or commencing some new operation. Start-
up costs, including organizational costs, should be expensed as incurred
under the new SOP. The SOP would be effective for most entities for
fiscal years beginning after December 15, 1998. The SOP will require the
Company, upon adoption, to write off as a cumulative effect of a change
in accounting principle any previously capitalized start-up or
organization costs. Therefore, in the first quarter of 1999, the Company
may have to write off the remaining unamortized balance of contract
start-up costs of approximately $330,000 at December 31, 1998.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four digits to define the applicable year. As a
result, those computer programs have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year 2000.
This could cause a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project is estimated to be immaterial to the
financial statements. To date, the Company's incremental costs for
assessment of the Year 2000 issue, the development of a modification
plan, and the purchase of new software have been insignificant.
The majority of software used by the Company is licensed from various
software providers who are currently updating our programs to be Year
2000 compliant. In-house developed programs comprise a small portion of
the total software utilized, and the majority of these programs are
believed to be Year 2000 compliant.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating system.
The Company believes, with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to
which the Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 Issues. There is no
guarantee that the systems of other companies on which the Company's
systems rely will be timely converted and would not have an adverse
effect on the Company's systems.<PAGE>
The costs of the project and the date on which the Company believes
it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of
future events, including the continued availability of certain resources
and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
Forward-Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, that reflect management's current views with respect to
future events and financial performance. Such forward looking statements
include, without limitation, statements regarding the Company's future
capital expenditures, facility closures, service demand and market
growth, competitive position, expected revenues from new contracts,
ability to meet cash requirements, and other statements regarding
anticipated changes in the Company's Nasdaq listing, future plans and
strategies, anticipated events or trends, and similar expressions
concerning matters that are not historical facts. Such statements
involve risks and uncertainties, and there are certain important factors
that could cause actual results to differ materially from those
anticipated. Some of the important factors that could cause actual
results to differ materially from those anticipated include, but are not
limited to, economic conditions, competitive factors, increases in
landfill charges, the outcome of competitive bids, unanticipated costs in
connection with facility closures, and other uncertainties, all of which
are difficult to predict and many of which are beyond the control of the
Company. Due to such uncertainties and risk, readers are cautioned not
to place undue reliance on such forward-looking statements, which speak
only as of the date hereof.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact
upon the Company's operations. If inflation increases, the Company will
attempt to increase its prices to offset its increased expenses. No
assurance can be given, however, that the Company will be able to
adequately increase its prices in response to inflation.
Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not required pursuant to Item 305, General Instruction 1.<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
During June 1997, Kimmins Recycling Corp. ("KRC"), St. Lucie County,
a political subdivision of the State of Florida, and the City of Fort
Pierce, a municipality organized under the laws of the State of Florida,
were notified of a class action lawsuit filed in the Nineteenth Judicial
Circuit Court of Florida by three residents of St. Lucie County. This
action challenged the propriety of certain contract provisions included
in KRC's solid waste and recyclable materials collection service
agreement with St. Lucie County, which allow KRC to place liens on the
property of delinquent service recipients. The court, permitting KRC to
file counterclaims against the class members, has with KRC's consent
certified the existence of a class. KRC, the county, and the city have
filed motions for summary judgement against the class plaintiff's claim,
which was heard on May 26, 1998. On June 12, 1998, the Court granted
summary judgement in favor of KRC, the County, and the City. At December
31, 1997, the total amount of lien rights was approximately $474,000.
Item 2. Changes in securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other information
Effective with the close of business on June 10, 1998, the Company's
stock was delisted from the Nasdaq National Market because the Company
could not satisfy the market value public float requirement and was
delinquent in filing its 1997 Form 10-K and this 1998 first quarter Form
10-Q. The Company is in the processing of reapplying to Nasdaq to
transfer its listing to the Nasdaq SmallCap Market.
Item 6. Exhibits and reports on Form 8-K
(a) The following documents are filed as exhibits to this Form 10-Q:
27 - Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TRANSCOR WASTE SERVICES, INC.
By: /S/ JOSEPH M. WILLIAMS
---------------------------------------
Joseph M. Williams
President
July 13, 1998
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on July 13,
1998.
Date: July 13, 1998 By: /s/ JOSEPH M. WILLIAMS
------------- -------------------------------------
Joseph M. Williams
President
(Principal Executive Officer)
Date: July 13, 1998 By: /s/ NORMAN S. DOMINIAK
------------- -------------------------------------
Norman S. Dominiak
Treasurer and Chief Financial Officer
(Principal Accounting and
Financial Officer)<PAGE>
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