SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________to_____________
Commission file number 33-76200
ERD WASTE CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-3121813
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
Identification No.) Identification No.)
937 East Hazelwood Avenue, Bldg. 2, Rahway, NJ 07065
----------------------------------------------------
(Address of principal executive offices) Zip Code)
(908) 381-9229
----------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
Number of shares outstanding of the issuer's class of common stock, $.001
par value, as of February 14, 1997: 6,751,270
ERD WASTE CORP.
AND SUBSIDIARIES
Item 1 - Financial Statements.
---------------------
ERD Waste Corp. and Subsidiaries Consolidated Financial Statements for
the three months ended December 31, 1996 (Unaudited).
INDEX TO FINANCIAL STATEMENTS
PAGE #
------
Index to Financial Statements F-1
Consolidated Balance Sheets - December 31, 1996
(Unaudited) and September 30, 1996 F-2
Consolidated Statements of Operations - for the
three months ended December 31, 1996 and 1995 (Unaudited) F-3
Consolidated Statements of Stockholders' Equity -
December 31, 1996 (Unaudited) and September 30, 1996 F-4
Consolidated Statements of Cash Flows - for the
three months ended December 31, 1996 and 1995 (Unaudited) F-5
Notes to Consolidated Financial Statements F-6
F-1
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1996
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75,410 $ 61,725
Restricted certificates of deposit 1,606,426 1,655,363
Accounts receivable, less allowance
for doubtful accounts of $1,101,829
and $1,042,833 respectively 10,794,438 11,631,456
Prepaid expenses and other current assets 1,611,689 1,991,860
Inventory 370,903 335,595
Deferred income taxes 750,000 750,000
---------- ----------
TOTAL CURRENT ASSETS 15,208,866 16,425,999
---------- ----------
PROPERTY, PLANT and EQUIPMENT, less accumulated
depreciation of $650,563 and $458,902
respectively 8,477,036 8,315,235
---------- ----------
OTHER ASSETS:
Goodwill, less accumulated amortization 9,705,673 9,800,045
Covenants not to compete,
less accumulated amortization 200,665 214,665
Deferred tax benefit, less current portion 6,905,408 7,052,069
---------- ----------
TOTAL OTHER ASSETS 16,811,746 17,066,779
---------- ----------
$ 40,497,648 $ 41,808,013
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,337,079 $ 8,863,276
Accrued expenses and taxes payable 4,625,432 5,197,162
Current portion- notes payable 2,083,432 2,046,885
---------- ----------
TOTAL CURRENT LIABILITIES 14,045,943 16,107,323
---------- ----------
LONG-TERM DEBT, less current portion 14,205,683 14,255,499
---------- ----------
OTHER LONG TERM PAYABLES 4,963,000 5,088,000
---------- ----------
COMMITMENTS and CONTINGENCIES - -
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000
shares, $.001 par value; none issued
and outstanding - -
Common stock, authorized 15,000,000
shares, $.001 par value;
6,354,602 and 5,882,782 shares issued
and outstanding, respectively 6,355 5,883
Additional paid in capital 11,336,941 10,556,550
Retained earnings (deficit) (4,060,274) (4,205,242)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 7,283,022 6,357,191
---------- ----------
$ 40,497,648 $ 41,808,013
========== ==========
See notes to financial statements.
F-2
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended
December 31,
1996 1995
---- ----
REVENUES:
Net sales $ 8,995,567 $ 3,293,518
COST OF SALES 5,111,979 855,523
--------- ---------
GROSS PROFIT 3,883,588 2,437,995
--------- ---------
OPERATING EXPENSES:
Selling, general and
administrative expenses 3,128,334 1,513,038
Depreciation 191,661 110,430
Amortization 94,372 23,331
--------- ---------
TOTAL OTHER OPERATING EXPENSES 3,414,367 1,646,799
--------- ---------
INCOME FROM OPERATIONS 469,221 791,196
--------- ---------
OTHER INCOME AND EXPENSES:
Interest and dividend income 22,845 52,651
Interest expense (314,427) (33,762)
Other, net 63,974 16,651
--------- ---------
TOTAL OTHER INCOME AND EXPENSES (227,608) 35,540
--------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 241,613 826,736
PROVISION FOR INCOME TAXES 96,645 404,031
--------- ---------
INCOME FROM CONTINUING OPERATIONS 144,968 422,705
--------- ---------
DISCONTINUED OPERATIONS:
Income from operations,
net of income taxes of
approximately $ - , and
$124,850 respectively - 187,270
--------- ---------
INCOME FROM
DISCONTINUED OPERATIONS - 187,270
--------- ---------
NET INCOME $ 144,968 $ 609,975
========= =========
INCOME PER SHARE:
INCOME FROM
CONTINUING OPERATIONS $ 0.03 $ 0.07
========= =========
INCOME FROM
DISCONTINUED OPERATIONS $ - $ 0.03
========= =========
NET INCOME
PER COMMON SHARE $ 0.03 $ 0.10
========= =========
WEIGHTED AVERAGE
NUMBER OF SHARES 5,887,910 5,817,524
========= =========
See notes to financial statements.
F-3
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED
COMMON STOCK PAID IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- --------- ----------- ---------- --------
BALANCE-
JANUARY 31, 1995 3,837,500 $ 3,838 $ 169,266 $ 749,308$ 922,412
COMMON SHARES
ISSUED IN CONNECTION
WITH PUBLIC OFFERING 2,250,000 2,250 12,110,720 - 12,112,970
REACQUISITION OF
COMMON SHARES (300,000) (300) (2,018,600) (131,100)(2,150,000)
ISSUANCE OF COMMON
SHARES IN CONNECTION
WITH THE ACQUISITION
OF EATS, INC. 45,282 45 226,365 - 226,410
NET INCOME - - - 2,227,631 2,227,631
--------- -------- ----------- ---------- ----------
BALANCE-
JANUARY 31, 1996 5,832,782 5,833 10,487,751 12,845,839 13,339,423
ISSUANCE OF
COMMON STOCK 50,000 50 68,799 - 68,849
NET INCOME (LOSS) - - - (7,051,081)(7,051,081)
--------- -------- ----------- ----------- ---------
BALANCE-
SEPTEMBER 30, 1996 5,882,782 5,883 10,556,550 (4,205,242) 6,357,191
ISSUANCE OF
COMMON STOCK 471,820 472 780,391 - 780,863
NET INCOME - - - 144,968 144,968
--------- -------- ----------- ----------- ---------
BALANCE-
DECEMBER 31, 1996 6,354,602 $6,355 $11,336,941$(4,060,274)$7,283,022
========= ======== =========== =========== =========
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 144,968 $ 609,975
---------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
DEPRECIATION 191,661 110,430
AMORTIZATION 94,372 23,331
PROVISION FOR DEFERRED
INCOME TAX 146,665 -
ISSUANCE FOR COMMON STOCK
FOR SERVICES - 68,849
CHANGES IN ASSETS AND LIABILITIES
(NET OF EFFECTS FROM PURCHASE OF ENSA):
(INCREASE) DECREASE IN
ACCOUNTS RECEIVABLE 837,018 (351,043)
(INCREASE) IN INVENTORY ( 35,308) 104,183
(INCREASE) DECREASE IN
PREPAID EXPENSES AND
OTHER CURRENT ASSETS 380,171 767,912
(INCREASE) DECREASE IN OTHER ASSETS 13,996 (91,001)
INCREASE (DECREASE) IN
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES (2,097,927) 963,621
INCREASE IN INCOME
TAXES PAYABLE - (112,805)
---------- ----------
(469,352) 1,483,477
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (324,384) 2,093,452
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (353,462) (503,134)
---------- ----------
(353,462) (503,134)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
NOTES PAYABLE (138,269) (3,418,903)
ISSUANCE OF COMMON STOCK 780,863 226,365
DECREASE IN
RESTRICTED CERTIFICATES
OF DEPOSIT 48,937 1,750,000
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 691,531 (1,442,538)
--------- ----------
NET INCREASE IN CASH 13,685 147,780
CASH, AT BEGINNING OF PERIOD 61,725 1,102,559
--------- ---------
CASH, AT END OF PERIOD $ 75,410 $1,250,339
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 314,427 $ 33,762
========= =========
INCOME TAXES PAID $ - $ -
========= =========
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
ERD WASTE CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position, results
of operations, and cash flows for the periods presented. The results have been
determined on the basis of generally accepted accounting principles and
practices, applied consistently.
The condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the eight months
ended September 30, 1996, which is incorporated herein by reference.
Note 2 - Acquisition of Environmental Services of America, Inc. ("ENSA")
On May 5, 1996, ENSA Acquisition Corp. ("EAC"), a wholly owned subsidiary
of the Company, acquired approximately 93% of the Company's outstanding common
stock through a tender offer whereby the shareholders of ENSA received $1.66 for
each share owned. The Company intends to purchase the remaining outstanding
shares of ENSA in a subsequent "mop up". The total cost of the acquisition is
currently estimated at $10,000,000 which includes amounts paid to shareholders
of ENSA and related legal and other professional costs incurred in completing
the transaction. The transaction is accounted for as a purchase, and the
financial results of ENSA are reported prospectively beginning in May, 1996.
The net assets of ENSA at the time of acquisition, after adjustment for
environmental, accounts receivable, legal, and other reserves were $1,102,949.
The allocation of the purchase price and estimates of certain liabilities is
subject to revision.
Effective October 1, 1995, the Company acquired the assets and assumed
certain liabilities of Environmental Absorption Technologies, Inc., a
manufacturer of recyclable products used to absorb oil and petroleum spills.
The acquisition was recorded as a purchase. The initial purchase price of
approximately $592,000 was paid by the issuance of 45,282 shares of common
stock, cash of $343,000, and the assumption of specified liabilities.
The following summarized proforma financial information assumes the acquisitions
occurred at October 1, 1995, and does not purport to be indicative of what would
have occurred had the acquisitions been made as of that date:
Three Months Ended Three Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Net sales $ 8,995,567 $11,936,090
=========== ==========
Net income $ 144,968 $ 263,142
=========== ==========
Income per common share $ .03 $ .05
=========== ==========
Note 3 - Loan From Principal:
During the quarter ended December 31, 1996, the Company's Chairman and
Chief Executive Officer loaned the Company $300,000. The advance is secured by
a short term note bearing interest at 2% above the prime lending rate of the
Company's commercial bank.
Note 4 - Subsequent Event
In February 1997, the Company borrowed $500,000 from an affiliate of its
Chairman and Chief Executive Officer. The loan is secured by a short term note
bearing interest at 2% above the prime lending rate of the Company's commercial
bank.
Note 5 - Private Offering of Stock
In December 1996, the Company commenced a private offering if its common
stock in the form of Units. The private placement calls for the sale of up to
150 Units (but not less than 20 Units) at a price of $25,000 per Unit. The
Units consist of a number of common shares and an equal number of warrants to
purchase common shares. The number of shares (and warrants) is to be determined
by dividing the purchase price per Unit by 90% of the average closing bid price
for the Company's common stock for the ten trading days immediately preceeding
the date of the closing of the offering.
F-6
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company is a diversified waste management company specializing in the
management and disposal of municipal solid waste, industrial and commercial non-
hazardous solid waste and hazardous waste and provides brokerage, advisory,
consulting and technical services to generators of waste. The Company owns and
operates three strategically located RCRA part B permitted Treatment, Storage
and Disposal Facilities and provides environmental services including:
consulting, technical contracting, tank management, site remediation, indoor and
outdoor air quality testing and monitoring services and equipment; and technical
support services related to all of the foregoing. The Company also manufactures
absorbent products for use in various industrial, marine, automotive and
janitorial applications and recently began recycling oil filters.
Results of Operations:
The following table sets forth the operating data of the company as a
percentage of revenues for the periods indicated:
Three Months Ended
December 31,
1996 1995
------ ------
Revenues 100.0% 100.0%
Cost of sales 56.8 26.0
------ ------
Gross margin 43.2 74.0
------ ------
Selling, general and administrative
expenses 34.8 45.9
Depreciation and amortization 3.2 4.1
------ ------
38.0 50.0
------ ------
Income from operations 5.2 24.0
Other, net 2.5 1.1
------ ------
Income before income taxes 2.7 25.1
Provision for income taxes 1.1 12.3
------ ------
Net income from continuing operations 1.6 12.8
Discontinued operations - 5.7
------ ------
Net income 1.6% 18.5%
====== ======
Revenues: For the first quarter of fiscal 1997, revenues were $8,995,567,
an increase of $5,702,049 over revenues from the same quarter of the previous
year. The increase in sales was primarily due to the May, 1996 acquisition of
more that 90 percent of the outstanding common stock of Environmental Services
of America, Inc.
A summary of consolidated revenues by business segment is as follows:
Three Months Ended Three Months Ended
December 31,1996 December 31, 1995
------------------ ------------------
$ % $ %
--------- -------- --------- --------
ERD-IL 400,929 4.5% 2,611,760 79.3%
AMTI 296,808 3.3% 520,376 15.8%
ERD-IN 650,000 7.2% 161,382 4.9%
TSD Facilities 2,992,402 33.3% -- 0.0%
Consulting 3,682,424 40.9% -- 0.0%
Remediation 973,004 10.8% -- 0.0%
--------- -------- --------- --------
$8,995,567 100.0% $3,293,518 100.0%
========= ======== ========= ========
2
Cost of Sales: For the quarter ended December 31, 1996, cost of sales rose
$4,256,456 over the comparable period for the prior year. The increase is
primarily due to the increased sales. In addition, the businesses started and
acquired by the Company over the last year operate with higher direct costs as a
percentage of sales compared to the Company's other businesses.
Gross Profit: Compared to the same quarter of the prior year, gross profit
on sales increased $1,445,593 to $3,883,588 in the first quarter of fiscal 1997,
as a result of the increase in sales. Gross profit margins declined, however,
from 74 percent of sales to 43.2 percent of sales. The decline in the margin
percentage was primarily due to the Company's new acquisitions which operate at
lower profit margins.
Selling, general, and administrative expenses: Selling, general, and
administrative expenses were $3,128,334 in the first quarter of fiscal 1997,
compared to $1,513,038 in the same quarter of the previous fiscal year. As a
percentage of sales, selling, general and administrative expenses declined from
45.9 percent in the first quarter of fiscal 1996 to 34.8 percent in the first
quarter of fiscal 1997.
The Company reduced operating expenses as a percentage of sales by staff
reductions, consolidation of duplicative administrative/accounting departments,
and the implementation of strict fiscal controls at the acquired entities.
Similar efforts are expected to continue.
Depreciation and amortization: Depreciation and amortization rose from
$133,761 in the first quarter of fiscal 1996 to $286,033 in fiscal 1997.
Interest expense: Interest expense rose $280,665 in the first quarter of
fiscal 1997 as compared to the same quarter of fiscal 1996. The increase in
interest expense is primarily due to additional bank borrowings of $11,900,000
and indebtedness of ENSA of approximately $1,039,000 which the Company assumed
upon acquisition.
Net Income: For the three months ended December 31, 1996, net income was
$144,968 ($.03 per share) as compared to $609,975 ($0.10 per share) for the for
three months ended December 31, 1995, a 76 percent decrease. The decrease is
primarily attributable to the increase in the Company's interest expense and the
reduction in profits from the Company's discontinued operations.
Discontinued Operations: For the three months ended December 31, 1996, net
income from discontinued operations amounted to $75,029, net of income taxes of
approximately $50,020 on revenues of $1,387,730. At September 30, 1996, the Com-
pany had recorded a loss on disposal of its Long Beach Facility amounting to
$7,500,00 which included an estimate of operating income through the termination
date. As a result of this accrual at September 30, 1996, the net income from
discontinued operations for the three months ended December 31, 1996 has been
reflected as an increase in accrued expenses payable.
LIQUIDITY AND CAPITAL RESOURCES:
On December 31, 1996, the Company had working capital of $1,162,923 as
compared to working capital of $318,676 at September 30, 1996.
The Company is presently seeking other sources of funds needed to complete
the purchase of the remaining ENSA Common Stock, as well as to provide necessary
working capital for the Company. Among the sources of funds being pursued by
the Company are:
1) private placement of common stock;
2) additional funding from commercial banks;
3) replacement of restricted certificates of deposits with
payment bonds; and,
4) subordinated and/or convertible debt financing.
3
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
Item 2 Changes in Securities.
On December 31, 1996, the Company sold 271,820 shares of its Common
Stock and warrants to purchase an additional 271,820 shares of its
Common Stock. Net proceeds from the sale amounted to $420,636.
Item 3 Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other Information.
None.
Item 6 Exhibits and Reports on Form 8-K.
a) Exhibits - None
b) Reports on Form 8-K
None
4
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.
ERD WASTE CORP.
---------------
(Registrant)
February 19,1997 s/s Joseph Wisneski
- ----------------- ----------------------
Date Joseph Wisneski
President
February 19, 1997 s/s Kenneth S. Weiner
- ------------------ ----------------------
Date Kenneth S. Weiner
Chief Financial Officer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 75,410
<SECURITIES> 0
<RECEIVABLES> 10,794,438
<ALLOWANCES> 1,101,829
<INVENTORY> 370,903
<CURRENT-ASSETS> 15,208,866
<PP&E> 9,127,599
<DEPRECIATION> 650,563
<TOTAL-ASSETS> 40,497,648
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<COMMON> 6,355
<OTHER-SE> 11,336,941
<TOTAL-LIABILITY-AND-EQUITY> 40,497,648
<SALES> 8,995,567
<TOTAL-REVENUES> 8,995,567
<CGS> 5,111,979
<TOTAL-COSTS> 8,526,346
<OTHER-EXPENSES> 227,608
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<INTEREST-EXPENSE> 314,427
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