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 March 31, 1997
[ ] 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 May 12, 1997: 6,896,743
ERD WASTE CORP.
AND SUBSIDIARIES
Item 1 - Financial Statements.
ERD Waste Corp. and Subsidiaries Consolidated Financial Statements for
the six month and three month periods ended March 31, 1997 (Unaudited).
INDEX TO FINANCIAL STATEMENTS
PAGE #
Index to Financial Statements F-1
Consolidated Balance Sheets - March 31, 1997
(Unaudited) and September 30, 1996 F-2
Consolidated Statements of Operations - for the
six months ended March 31, 1997 and 1996 (Unaudited) F-3
Consolidated Statements of Operations - for the
three months ended March 31, 1997 and 1996 (Unaudited) F-4
Consolidated Statements of Stockholders' Equity -
March 31, 1997 (Unaudited) and September 30, 1996 F-5
Consolidated Statements of Cash Flows - for the
six months ended March 31, 1997 and 1996 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7
F-1
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 211,478 $ 61,725
Restricted certificates of deposit 1,207,282 1,655,363
Accounts receivable, less allowance
for doubtful accounts of $708,734
and $1,042,833 respectively 10,154,611 11,631,456
Prepaid expenses and other current assets 1,862,750 1,991,860
Inventory 272,764 335,595
Deferred income taxes 750,000 750,000
TOTAL CURRENT ASSETS 14,458,885 16,425,999
PROPERTY, PLANT and EQUIPMENT, less accumulated
depreciation of $840,109 and $458,902
respectively 8,299,152 8,315,235
OTHER ASSETS:
Goodwill, less accumulated amortization 9,642,078 9,800,045
Covenants not to compete,
less accumulated amortization 186,665 214,665
Deferred tax benefit, less current portion 7,291,208 7,052,069
TOTAL OTHER ASSETS 17,119,951 17,066,779
$ 39,877,988 $ 41,808,013
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,349,437 $ 8,863,276
Accrued expenses and taxes payable 3,900,536 5,197,162
Current portion- notes payable 3,185,264 2,046,885
TOTAL CURRENT LIABILITIES 13,435,237 16,107,323
LONG-TERM DEBT, less current portion 14,159,164 14,255,499
OTHER LONG TERM PAYABLES 4,654,371 5,088,000
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;
6,896,743 and 5,882,782 shares issued
and outstanding, respectively 6,897 5,883
Additional paid in capital 12,186,269 10,556,550
Retained earnings (deficit) (4,563,950) (4,205,242)
TOTAL STOCKHOLDERS' EQUITY 7,629,216 6,357,191
$ 39,877,988 $ 41,808,013
See notes to financial statements.
F-2
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months ended
March 31,
1997 1996
(Unaudited)
REVENUES:
Net sales $ 16,671,256 $ 5,494,052
COST OF SALES 10,413,588 1,919,645
GROSS PROFIT 6,257,668 3,574,407
OPERATING EXPENSES:
Selling, general and
administrative expenses 5,779,265 2,171,858
Depreciation 402,593 220,860
Amortization 236,984 46,662
TOTAL OTHER OPERATING EXPENSES 6,418,842 2,439,380
INCOME (LOSS) FROM OPERATIONS ( 161,174) 1,135,027
OTHER INCOME AND EXPENSES:
Interest and dividend income 32,744 70,119
Interest expense (574,045) (67,524)
Other, net 104,628 33,302
TOTAL OTHER INCOME AND EXPENSES (436,673) 35,897
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ( 597,847) 1,170,924
PROVISION FOR INCOME TAXES ( 239,139) 550,078
INCOME (LOSS) FROM CONTINUING OPERATIONS ( 358,708) 620,846
DISCONTINUED OPERATIONS:
Income from operations,
net of income taxes of
approximately $ -, and
$124,850 respectively - 263,161
INCOME FROM
DISCONTINUED OPERATIONS - 263,161
NET INCOME (LOSS) $ ( 358,708) $ 884,007
INCOME (LOSS) PER SHARE:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ ( 0.06) $ 0.10
INCOME FROM
DISCONTINUED OPERATIONS $ - $ 0.05
NET INCOME (LOSS)
PER COMMON SHARE $ ( 0.06) $ 0.15
WEIGHTED AVERAGE
NUMBER OF SHARES 6,209,362 5,825,111
See notes to financial statements.
F-3
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended
March 31,
1997 1996
(Unaudited)
REVENUES:
Net sales $ 7,675,689 $ 2,200,534
COST OF SALES 5,301,609 1,064,122
GROSS PROFIT 2,374,080 1,136,412
OPERATING EXPENSES:
Selling, general and
administrative expenses 2,650,931 658,820
Depreciation 210,932 110,430
Amortization 142,612 23,331
TOTAL OTHER OPERATING EXPENSES 3,004,475 792,581
INCOME (LOSS) FROM CONTINUING OPERATIONS ( 630,395) 343,831
OTHER INCOME AND EXPENSES:
Interest and dividend income 9,899) 17,468
Interest expense ( 259,618) ( 33,762)
Other, net 40,654 16,651
TOTAL OTHER INCOME AND EXPENSES ( 209,065) 357
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ( 839,460) 344,188
PROVISION FOR INCOME TAXES ( 335,784) 146,047
INCOME FROM CONTINUING OPERATIONS ( 503,676) 198,141
DISCONTINUED OPERATIONS:
Income from operations,
net of income taxes of
approximately $ -, and
$124,850 respectively - 75,891
INCOME FROM
DISCONTINUED OPERATIONS - 75,891
NET INCOME (LOSS) $ ( 503,676) $ 274,132
INCOME (LOSS) PER SHARE:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ ( 0.08) $ 0.03
INCOME FROM
DISCONTINUED OPERATIONS $ - $ 0.01
NET INCOME (LOSS)
PER COMMON SHARE $ ( 0.08) $ 0.04
WEIGHTED AVERAGE
NUMBER OF SHARES 6,537,957 5,832,782
See notes to financial statements.
F-4
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 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 1,013,961 1,014 1,629,719 - 1,630,733
Net loss - - - ( 358,708) (358,708)
Balance-
March 31, 1997 6,896,743 $6,897 $12,186,269 $(4,563,950) $7,629,216
(Unaudited)
See notes to financial statements.
F-5
ERD WASTE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
March 31,
1997 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (358,708) $884,007
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 402,593 220,860
Amortization 236,984 46,662
Gain on sale of assets ( 8,058) -
Provision for deferred
income tax (239,139) -
Changes in assets and liabilities
(net of effects from purchase of ENSA):
(Increase) decrease in
accounts receivable 1,476,845 (1,401,439)
Decrease in inventory 62,831 (193,787)
(Increase) decrease in
prepaid expenses and
other current assets 129,110 (661,986)
(Increase) decrease in other assets - 80,838
Increase (decrease) in
accounts payable and
accrued expenses (3,861,482) 3,275,362
Increase in income
taxes payable - (455,962)
----------- ----------
(1,800,316) 910,548
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES (2,159,024) 1,794,555
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 476,452) (1,157,500)
Proceeds from sale of assets 98,000 -
( 378,452) (1,157,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 608,415 (3,420,786)
Issuance of common stock 1,630,733 295,214
Decrease (increase) in
restricted certificates
of deposit 448,081 1,609,338
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,687,229 (1,516,234)
NET INCREASE (DECREASE) IN CASH 149,753 ( 879,179)
CASH, at beginning of period 61,725 1,102,559
CASH, at end of period $ 211,478 $ 223,380
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 630,423 $ 67,524
Income taxes paid $ - $ -
See notes to financial statements.
F-6
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 ENSA'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.
Note 3 - Loan From Principals and Affiliates
During the six months ended March 31, 1997, 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.
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 4 - 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 preceding
the date of the closing of the offering. Through March 31, 1997, the Company
has issued 813,961 shares of its common stock and received $1,269,492 in net
proceeds from the private placement.
F-7
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:
Six Months Ended
March 31,
1997 1996
Revenues 100.0% 100.0%
Cost of sales 62.5 34.9
Gross margin 37.5 65.1
Selling, general and administrative
expenses 34.7 39.5
Depreciation and amortization 3.8 4.9
38.5 44.4
Income from operations (1.0) 20.7
Other, net (2.6) 0.6
Income before income taxes (3.6) 21.3
Provision for income taxes (1.4) 10.0
Net income from continuing operations (2.2) 11.3
Discontinued operations - 4.8
Net income (2.2)% 16.1%
Revenues: For the first six months of fiscal 1997, revenues were
$16,671,256, an increase of $11,177,204 over revenues from the same period 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. The Company typically reports reduced
revenues during the winter months. Revenues during the winter months of 1997
were further reduced primarily as a result of adverse industry reaction to the
discontinuance of the Company's Long Beach Facility as well as the strain on
the Company's resources, both in terms of the expenses incurred and the
management time required in addressing the issues related to the Long Beach
Facility. The Company believes it has adequately addressed this issue and
does not anticipate continued adverse reaction.
A summary of consolidated revenues by business segment is as follows:
Six Months Ended Six Months Ended
March 31,1997 March 31, 1996
$ % $ %
ERD-IL 531,585 3.2% 827,401 37.6%
AMTI 384,103 2.3% 642,556 29.2%
ERD-IN 650,000 3.9% 125,430 5.7%
TSD Facilities 5,460,977 32.8% - 0.0%
Consulting 6,960,119 41.7% - 0.0%
Remediation 2,684,472 16.1% 605,147 27.5%
$16,671,256 100.0% $2,200,534 100.0%
On a proforma basis, sales for the six months ended March 31, 1997 declined
approximately $5,500,000 from the comparable period the prior year. Management
believes the decline in sales is due, in part, to the negative publicity
generated from the closure of the Long Beach Facility.
The following summarized proforma financial information from continuing
operations 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:
Six Months Ended Six Months Ended
March 31, 1997 March 31, 1996
Net sales $16,671,256 $21,105,549
Net loss $ (358,708) $ (509,445)
Loss per common share $ (.06) $ (.09)
2
Cost of Sales: For the six months ended March 31, 1997, cost of sales rose
$8,493,943 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. The Company
also encountered higher than expected costs during the winter months of 1997.
The Company does not expect this trend to continue.
Gross Profit: Compared to the same period of the prior year, gross profit
on sales increased $2,683,261 to $6,257,668 in the first six months of fiscal
1997, as a result of the increase in sales. Gross profit margins declined,
however, from 65.1 percent of sales to 37.5 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 $5,779,265 in the first six months of fiscal 1997,
compared to $2,171,858 in the same period of the previous fiscal year. As a
percentage of sales, selling, general and administrative expenses declined from
39.5 percent in the first six months of fiscal 1996 to 34.7 percent in the first
six months 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
$267,522 in the first six months of fiscal 1996 to $639,677 in fiscal 1997.
Interest expense: Interest expense rose $506,521 in the first six months
of fiscal 1997 as compared to the same period 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 from Continuing Operations: For the six months ended March 31,
1997, net loss was $358,708 ($.06 per share) as compared to net income of
$620,846 ($0.10 per share) for the for six months ended March 31, 1996, a 158
percent decrease. The decrease is primarily attributable to the increase in the
Company's interest expense and increased costs during the winter months.
Discontinued Operations: For the six months ended March 31, 1997, net loss
from discontinued operations amounted to $19,463, net of income taxes of
approximately $12,976 on revenues of $2,359,906. At September 30, 1996, the
Company had recorded a loss on disposal of its Long Beach Facility amounting to
$7,500,000 which included an estimate of operating income through the
termination date. As a result of this accrual at September 30, 1996, the net
loss from discontinued operations for the six months ended March 31, 1997 has
been reflected as a decrease in accrued expenses payable.
LIQUIDITY AND CAPITAL RESOURCES:
On March 31, 1997, the Company had working capital of $(1,026,648) as
compared to working capital of $318,676 at September 30, 1996. At March 31,
1997, the Company did not meet some of its covenants under the loan
agreement and the bank was unable to produce waivers in time for the filing of
this Form 10QSB. Based on discussions with an appropriate bank officer,
management believes that it will be able to obtain the appropriate waivers
within the next two weeks. In the event the bank does not issue the waivers,
the $7,500,00 loan from the bank due on April 1, 1998 will be reclassified as a
current liability.
During the six months ended March 31, 1997, the Company utilized
approximately $1,800,000 of cash in it's operating activities. This was
primarily a result of the reduction in accounts payable and accrued expenses
amounting to approximately $3,860,000. This reduction was partially funded by
equity funds raised in the Company's private placement, loans from principals
and affiliates and collection of accounts receivable. The Company is currently
seeking to refiance its long term credit facility and provide the Company with
additional working capital.
The Company needs additional financing to support its operations, 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.
On April 10, 1997, the Company entered into a Consent Order with the
Attorney General of the State of New York and the New York State Department of
Environmental Conversation. The Order provides that the Company will
permanently cease operation of its Long Beach, New York facility both as an
incinerator and as a solid waste transfer station, effective April 10, 1997.
The Consent Order also defines the obligations of the Company with respect to
the closure of the site pursuant to its permit, the cost of which the Company
does not anticipate at this time to be material. Upon completion and approval
of the implimentation of the closure plan provided for in the Consent Order,
the Company will receive a Release and Covenant Not to Sue by the State for
any investigation or remediation of site conditions addressed by the closure
plan. The Consent Order does not resolve the claims between the Company and
the City of Long Beach, including all claims arising under the Disposal
Agreement and the leases relating to the facility.
Item 2 Changes in Securities.
During the three months ended March 31, 1997, the Company sold
542,121 shares of its Common Stock and warrants to purchase an additional
542,121 shares of its Common Stock. Net proceeds from the sale amounted to
$849,870.
Item 3 Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other Information.
Effective May 9, 1997, the listing of the Company's shares was
switched to the NASDAQ Small Cap Market from the NASDAQ
National Market.
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)
May 20, 1997 s/s Joseph Wisneski
Date Joseph Wisneski
President
May 20, 1997 s/s Kenneth S. Weiner
Date Kenneth S. Weiner
Chief Financial Officer
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