<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 0-21054
SYNAGRO TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Nevada 88-0219860
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16000 Stuebner Airline Rd., Suite 420 Spring, Texas 77379
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (713) 370-6700
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 is required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at July 29, 1996
- ------------------------------- -------------------------------
Common stock, par value $.002 6,352,102
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SYNAGRO TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets as of
June 30, 1996 (Unaudited) and December 31, 1995 3
Condensed Consolidated Statements of Income
for the Three Months and Year To Date Ended June 30, 1996
and 1995 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995
(Unaudited) 5
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II - OTHER INFORMATION 9
</TABLE>
2
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SYNAGRO TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (including certificates of deposit $ 2,265,913 $ 3,703,367
of $1,542,272 and $1,015,743, respectively)
Restricted cash, current portion 80,000 80,000
Accounts receivable, net 2,048,198 1,723,937
Note Receivable 621,150 -
Inventory 450,729 448,977
Prepaid expenses and other assets 435,315 725,849
----------- -----------
Total current assets 5,901,305 6,682,130
Property, Machinery & Equipment, net 6,889,326 7,953,081
Agency rights, net 1,159,680 1,178,325
Cost in excess of fair value of net assets acquired, net 3,943,560 4,059,599
Restricted cash, long-term portion 297,014 260,257
Other assets 73,041 78,994
----------- -----------
$18,263,926 $20,212,386
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,086,126 $ 2,058,263
Notes payable 380,166 220,069
Current portion of notes payable related parties 125,000 489,952
Current portion of long-term debt 1,880,902 2,024,408
----------- -----------
Total current liabilities 3,472,194 4,792,692
Long term debt 3,303,890 4,448,041
Stockholders' Equity
Preferred stock, $.002 par value 10,000,000 shares authorized,
no shares issued or outstanding - -
Common Stock, $.002 par value, shares authorized 100,000,000, 12,394 12,106
6,197,102 and 6,052,757 issued and outstanding
Additional paid-in capital 22,350,290 22,160,585
Accumulated deficit (10,874,842) (11,201,038)
----------- -----------
Total stockholders' equity 11,487,842 10,971,653
----------- -----------
$18,263,926 $20,212,386
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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SYNAGRO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30,
---------------------------- ---------------------------
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $4,379,988 $4,457,155 $8,491,413 $8,989,624
Cost of goods sold 3,368,215 3,637,513 6,801,919 7,182,774
---------- ---------- ---------- ----------
Gross Profit 1,011,773 819,642 1,689,494 1,806,850
Selling, general and administrative expenses 737,609 900,512 1,420,001 1,776,450
---------- ---------- ---------- ----------
Income (loss) from operations 274,164 (80,870) 269,493 30,400
Other income (expenses)
Other Income 154,732 (31,655) 344,157 95,583
Interest Expense (166,008) (260,750) (287,455) (477,154)
---------- ---------- ---------- ----------
Net Income (Loss) $ 262,888 $ (373,275) $ 326,195 $ (351,171)
========== ========== ========== ==========
Net Income (Loss) per share $ 0.04 $ (0.19) $ 0.05 $ ( 0.18)
========== ========== ========== ==========
Weighted average shares outstanding 6,197,102 2,009,535 6,193,912 1,983,726
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE> 5
SYNAGRO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from operating activities:
Net Income (Loss) $ 326,195 $ (351,171)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 933,734 1,053,769
Loss (Gain) on sale of equipment (248,454) 5,004
Equity loss in Pan-American N-Viro, Inc. - 54,293
Stock issued for payment of interest & services - 26,799
Payment of notes receivable by services provided 88,800 33,533
Gain from legal settlement - (119,028)
Increase (decrease) in cash due to changes in
assets and liabilities:
Accounts receivable (324,261) 85,518
Inventory (1,752) 93,420
Prepaid expenses and other 248,659 (41,770)
Accounts payable/accrued liabilities (972,136) (285,599)
---------- ----------
Total adjustments (275,410) 905,939
---------- ----------
Net cash provided by (used in) operating activities $ 50,785 $ 554,768
Cash flows from investing activities:
Additions to property, machinery and equipment (577,686) (920,567)
Proceeds from sale of machinery and equipment 443,491 368,916
Deposits and deferred acquisition costs (14,768) (33,715)
---------- ----------
Net cash used in investing activities (148,963) (585,366)
Cash flows from financing activities:
Payments on notes payable (619,910) (177,300)
Proceeds from notes payable 780,007 402,000
Proceeds from long-term debt 700,000 2,066,284
Payments on long-term debt (2,162,610) (1,847,487)
Decrease (increase) in restricted cash (36,757) (118,934)
Payments on deferred offering costs - (147,929)
Proceeds from issuance of common stock (6) 52,716
---------- ----------
Net cash used in investing activities (1,339,276) 229,350
---------- ----------
Net decrease in cash (1,437,454) 198,752
Cash at beginning of period 3,703,367 322,062
---------- ----------
Cash at end of period 2,265,913 520,814
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
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SYNAGRO TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
Supplemental Cash Flow Information - (Unaudited) 1996 1995
-------- --------
<S> <C> <C>
Interest paid during the period $304,819 $392,005
Taxes paid during the period - -
</TABLE>
Non Cash Investing and Financing Activities
In January, 1996, $190,000 of debentures were converted to 144,344 shares of
common stock. In the first half of 1995, 8% convertible debentures in the face
amount of $525,000, and accrued interest in the amount of $8,499, was converted
into 67,287 shares of common stock.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
General
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Registrant ("Synagro Technologies, Inc." or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. These condensed consolidated financial statements reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for the fair presentation of such financial statements for the periods
indicated. Certain information relating to the Company's organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted in this Form 10-Q pursuant to Rule 10-01 of Regulation S-X for interim
financial statements required to be filed with the Securities and Exchange
Commission. However, the Company believes that the disclosures herein are
adequate to make the information presented not misleading. The results for the
six months ended June 30, 1996 are not necessarily indicative of future
operating results. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The accounting policies followed by the Company in preparing interim
consolidated financial statements are similar to those described in the "Notes
to Consolidated Financial Statements" in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
Earnings per common share is based on the weighted average number of
common shares.
Organization
Synagro Technologies, Inc., engages in the business of management of
biosolids through beneficial reuse of organic materials. The Company offers a
variety of services with respect to this business, including the
transportation, processing, regulatory compliance and marketing of end products
from these materials.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform with the June 30, 1996 presentation.
(2) INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
Wood Shavings $ 90,666 $ 49,775
Truck Parts 360,063 399,202
-------- --------
$450,729 $448,977
======== ========
</TABLE>
(3) Reorganization. On July 3, 1995 the Company effected a
recapitalization that included a 1-for-15 reverse stock split of
common stock. The common stock outstanding and weighted average
shares outstanding for
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all periods presented have been adjusted for this stock split. The
financial statements give effect to these transactions for all periods
presented.
(4) Subsequent Events.
As of July 1, 1996, the Company purchased all of the common stock of
Pima Gro Systems, Inc. and Pima Gro Systems 2, Inc. (collectively
referred to hereafter as "Pima Gro"), which provides biosolids
management services to the west coast area. The purchase price was
$3,095,561 (subject to certain adjustments) which was paid for
$1,277,265 cash, $1,595,561 in a promissory note, and 155,000 shares
of the Company's common stock valued at $1.437 per share. The
acquisition was accounted for as a purchase.
As of July 25, 1996, the Company renegotiated a working capital
facility in the amount of $1,200,000. Current utilization of the
credit line is approximately $463,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
attached condensed consolidated financial statement and notes thereto, and with
the Company's audited financial statements and notes thereto for the fiscal
year ended December 31, 1995.
RESULTS OF OPERATIONS. Net sales in the second quarter of 1996
decreased to $4,379,988 from $4,457,155 in the second quarter of 1995. For the
first half of 1996, net sales decreased approximately 6% to $8,491,413 from
$8,989,624 for the same period in 1995. This decrease is primarily the result
of a lack of sales from a pelletized organic waste division which was closed
in July 1995 and the Ft. Smith, Arkansas waste treatment plant closing due to
tornado damage.
Cost of goods sold and gross profit in the second quarter of 1996 were
$3,368,215 and $1,011,773, respectively, compared with $3,637,513 and $819,642,
respectively, in the second quarter of 1995. Gross margin increased to 23%
from 18% in the second quarter of 1995. Cost of goods sold and gross profit in
the first half of 1996 decreased to $6,801,919 and $1,689,494, respectively,
from $7,182,774 and $1,806,850, respectively, for the same period in 1995. The
decrease in cost of goods sold and gross profit was attributable to costs
eliminated as a result of the sale of the sawmill in March 1996 and the closing
of the pelletized organic waste division.
Selling, general and administrative expenses decreased $162,903 for
the quarter and $356,449 year to date. This decrease is directly the result of
management's cost reduction efforts throughout fiscal 1996.
Second quarter interest expense decreased to $166,008 from $260,750 in
the second quarter of 1995. Interest expense for the first six months of 1996
was $287,455, or a decrease of $189,699 from the same period in 1995. This
decrease was attributable to the retirement of certain debt obligations.
8
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As a result of the foregoing, the second quarter 1996 reflects net
income of $262,888, as compared to a net loss of $(373,275) in the second
quarter of 1995. Year to date net income of $326,195 compares favorably to a
net loss of $(351,171) in 1995.
As a result of the Company's cumulative operating losses, the Company
has not paid income tax since inception. As of December 31, 1995, the Company
had net operating loss carryforwards totaling approximately $5,500,000.
Utilization of the Company's net operating loss may be subject to limitation
under certain circumstances.
LIQUIDITY AND CAPITAL RESOURCES. The Company has historically
financed its operations principally through the sale of equity and debt
securities and through funds provided by operating activities. Cash and cash
equivalents decreased by $1,437,454 as of June 30, 1996. The primary
utilization of cash was for equipment purchases and significant reductions in
accounts payable and long term debt.
During the period ended June 30, 1996, the Company expended
approximately $577,686 for capital equipment purchases. Additionally, the
Company completed sales of certain assets associated with the pelletizing
facility and a sawmill in Arkansas for gross proceeds of $991,200. These
assets had an aggregate net book value of $696,223, resulting in a recognized
gain of approximately $251,000.
As of June 30, 1996, the Company had long-term borrowings in the
aggregate amount of $5,309,792, the current portion of which was $2,005,902.
The Company reduced its long-term borrowings by approximately $1,650,000 during
the first half of 1996. This reduction in debt was serviced through a use of
working capital, the conversion of $190,000 of debt to common stock and an
increase in short term borrowings of $160,097.
At June 30, 1996, the Company had positive working capital of
approximately $2,429,111. Management believes that the Company will be able to
continue to reflect positive working capital throughout 1996.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of Synagro Technologies, Inc. was
held on June 10, 1996 and reconvened on June 28, 1996, for the purpose of (1)
electing a board of directors and voting on proposals to (2) change the
Company's state of incorporation to Delaware, (3) adopt the Company's Amended
and Restated 1993 Stock Option Plan, (4) approve the form of indemnification
agreements between the Company and the members of the Board of Directors and
(5) approve the appointment of independent auditors. Proxies for the meeting
were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934
and there was no solicitation in opposition to management's solicitations.
9
<PAGE> 10
The proposals were approved by the following votes:
<TABLE>
<CAPTION>
Shares Shares
Voted Voted
"FOR" "AGAINST" "ABSTAINING"
------------ ------------ ------------
<S> <C> <C> <C>
Don L. Thone 4,447,915 162,688
Daniel L. Shook 4,516,893 118,710
Tony D. Childers 4,516,893 118,710
Irwin I. Gelbart 4,516,893 118,710
Change the state of incorporation 3,299,565 124,025 37,127
to Delaware
Adopt the Amended and Restated
1993 Stock Option Plan 2,336,175 229,008 99,226
Approve the form of indemnification
agreements 3,091,226 877,333 100,859
Ratification of Independent Auditors,
Singer, Lewak, Greenbaum 4,573,405 8,477 53,721
& Goldstein, LLP
</TABLE>
10
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ITEM 6. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
(27) Financial Data Schedule
b. Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
11
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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.
SYNAGRO TECHNOLOGIES, INC.
Date: July 29, 1996 By: Donald L. Thone /S/
------------------------------
Chief Executive Officer
Date: July 29, 1996 By: Daniel L. Shook /S/
------------------------------
Chief Financial Officer
12
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INDEX TO EXHIBITS
a. Exhibits
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,265,913
<SECURITIES> 0
<RECEIVABLES> 2,669,348
<ALLOWANCES> 0
<INVENTORY> 450,729
<CURRENT-ASSETS> 5,901,305
<PP&E> 6,889,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,263,926
<CURRENT-LIABILITIES> 3,472,194
<BONDS> 3,303,890
<COMMON> 12,394
0
0
<OTHER-SE> 11,475,448
<TOTAL-LIABILITY-AND-EQUITY> 18,263,926
<SALES> 8,491,413
<TOTAL-REVENUES> 8,491,413
<CGS> 0
<TOTAL-COSTS> 6,801,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287,455
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326,195
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
