<PAGE> 1
FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 0-25490
KTI, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2665282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7000 Boulevard East
Guttenberg, New Jersey 07093
(Address of principal executive offices) (Zip code)
(201) 854-7777
(Registrants 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 ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, No Par Value 5,753,305 Shares as of August 9, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number and Caption Page Number
- ----------------------- -----------
<S> <C> <C>
PART I
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II
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 8K 14
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KTI, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-----------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $762,760 $6,454,558
Restricted funds - current portion 7,130,657 7,042,404
Accounts receivable, net of allowances of
$330,250 and $480,662 in 1996 and
1995. 5,359,834 8,983,699
Notes receivable--officers/shareholders and affiliates - current 143,340 96,225
Other receivables - current portion 265,386 295,723
Other current assets 521,200 742,638
-----------------------------------------------
Total current assets 14,183,175 23,615,247
Restricted funds 148,591 6,502,227
Management fees receivable--affiliates 2,573,912 2,933,274
Notes receivable - officers/shareholders and affiliates 67,931 224,438
Other receivables 410,769 495,901
Investment in PERC 3,592,568 3,594,638
Deferred costs, net of accumulated amortization
of $575,933 and $524,236. 165,967 3,818,732
Goodwill and other intangibles, net of accumulated amortization
of $514,715 and $539,483. 1,662,818 3,613,621
Other assets 1,687,470 486,778
Property, equipment and leasehold improvements, net of
accumulated depreciation of $12,280,605 and $10,108,341 82,234,821 87,621,577
-----------------------------------------------
Total assets $106,728,022 $132,906,433
===============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $3,384,593 $2,512,109
Accrued expenses 2,210,070 5,322,013
Current portion of long-term debt 9,266,408 7,977,899
Income taxes payable 290,000 290,000
Other current liabilities 634,769 614,837
-----------------------------------------------
Total current liabilities 15,785,838 16,716,858
Other liabilities 166,348 70,368
Long-term debt, less current portion 17,327,216 107,398,263
Minority interest 10,383,110 1,840,377
Deferred income 44,062,500
Commitments and contingencies
Stockholders' equity
Preferred stock; 10,000,000 shares authorized,
no shares issued or outstanding
Common stock, no par value (stated value $.01 per share);
authorized 11,992,000; issued and outstanding
5,737,417 in 1996 and 5,663,784 in 1995 57,375 56,638
Additional paid-in capital 33,940,831 33,429,923
Accumulated (deficit) (14,995,196) (26,605,994)
-----------------------------------------------
Total stockholders' equity 19,003,010 6,880,567
-----------------------------------------------
Total liabilities and stockholders' equity $106,728,022 $132,906,433
===============================================
</TABLE>
See accompanying notes.
2
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KTI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Electric power revenues 3,607,647 $ 5,592,697 11,009,117 $ 12,558,735
Gain on sale of capacity 32,057,359 -- 32,057,359 --
Waste processing revenues 1,917,398 1,797,273 4,007,858 3,838,672
Other waste handling revenues 1,758,571 1,026,129 2,474,358 1,865,831
------------ ------------ ------------ ------------
Total revenues
39,340,975 8,416,099 49,548,692 18,263,238
------------ ------------ ------------ ------------
Costs and expenses:
Electric power and waste processing operating costs 7,279,644 5,913,333 13,766,689 11,816,511
Selling, general and administrative 320,329 605,942 3,595,213 1,284,849
Interest - net 1,218,649 2,399,442 3,257,169 4,775,478
------------ ------------ ------------ ------------
Total costs and expenses
11,234,119 8,918,717 20,619,070 17,876,838
Equity in net income of PERC 107,222 103,274 132,794 179,561
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before minority interest and extraordinary item 30,629,576 (399,344) 31,477,914 565,961
Minority interest (16,420,963) 175,937 (17,252,216) (523,733)
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before extraordinary item 14,208,613 (223,407) 14,225,698 42,228
Discontinued operations
Income (loss) from operations of computer services (223,181) 249,184 (218,166) 341,915
------------ ------------ ------------ ------------
Income before extraordinary item 13,985,431 25,777 14,007,531 384,143
Extraordinary item - loss on early
extinguishment of debt, net of minority interest (2,396,731) -- (2,396,731)
------------ ------------ ------------ ------------
Net income $ 11,588,700 $ 25,777 $ 11,610,800 $ 384,143
============ ============ ============ ============
Earnings (loss) per common share and
common share equivalent
Income (loss) from continuing operations $ 2.39 ($ 0.05) $ 2.39 $ 0.01
Income (loss) from discontinued operations (0.04) 0.05 (0.04) 0.07
------------ ------------ ------------ ------------
Income before extraordinary item 2.35 0.01 2.36 0.08
Extraordinary item (0.40) 0.00 (0.40) 0.00
------------ ------------ ------------ ------------
Net income $ 1.95 $ 0.01 $ 1.95 $ 0.08
============ ============ ============ ============
Weighted average number of common shares and
common share equivalents outstanding 5,946,800 4,934,200 5,947,200 4,571,800
============ ============ ============ ============
</TABLE>
See accompanying notes
3
<PAGE> 5
KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,610,800 $ 384,143
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 3,049,797 3,196,897
Minority interest 17,252,216 523,733
Amortization 523,718 553,503
Provision for losses on accounts receivable 150,412 (54,391)
Interest accrued and capitalized on debt 90,988 273,454
Equity in net income of PERC, net of distributions 2,070 (179,561)
Proceeds from sale of capacity 79,472,857 --
Gain from sale of capacity (32,057,359) --
Extraordinary item, net of minority interest 2,396,731 --
Loss on sale of assets 53,981 7,415
Changes in operating assets and liabilities
Increasing (decreasing) cash:
Accounts receivable 3,473,452 (1,457,507)
Management fees receivable 359,362 255,535
Other receivables 160,469 457,721
Deferred financing costs (1,164,678) (155,899)
Other assets (1,024,254) 220,130
Accounts payable 872,484 (971,634)
Accrued expenses (3,111,944) (752,318)
Other liabilities 115,912 (94,815)
------------ ------------
Net cash provided by operating activities 82,227,014 2,206,406
INVESTING ACTIVITIES
Additions to property, equipment and leasehold improvements (5,049,036) (1,744,167)
Proceeds from sale of assets 130,000 175,636
Decrease (increase) in restricted cash and cash equivalents 6,265,383 (1,270,748)
Costs incurred in connection with merger -- (447,535)
Cash acquired in merger with Convergent Solutions, Inc. -- 2,838,188
Purchase of additional partnership interest in Maine Energy (1,239,867) --
Notes receivable--officers/shareholders and affiliates 109,392 (21,649)
------------ ------------
Net cash provided by (used in) investing activities 215,872 (470,275)
FINANCING ACTIVITIES
Proceeds from issuance of debt 4,124,111 350,000
Proceeds from sale of common stock 11,645 26,607
Principal payments on debt (92,270,440) (5,592,857)
------------ ------------
Net cash used in financing activities (88,134,684) (5,216,250)
------------ ------------
Decrease in cash and cash equivalents (5,691,798) (3,480,119)
Cash and cash equivalents at beginning of period 6,454,558 7,386,214
------------ ------------
Cash and cash equivalents at end of period $ 762,760 $ 3,906,095
============ ============
</TABLE>
-Continued-
4
<PAGE> 6
KTI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 3,307,200 $ 4,011,164
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES
Common Stock issued in connection with the merger
with Convergent Solutions, Inc. $ 9,001,718
Liquidation of debt payable to Convergent Solutions, Inc. (4,492,604)
Conversion of debt to equity $ 500,000
</TABLE>
See accompanying notes.
5
<PAGE> 7
KTI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31,1994 3,215,826 $32,158 $21,331,679 ($25,274,500) ($3,910,663)
Net loss (1,331,494) (1,331,494)
Issuance of common stock
from exercise of stock options 70,457 705 256,112 256,817
Issuance of common stock
in connection with
business combination 1,715,280 17,153 8,984,565 9,001,718
Sale of common stock 662,221 6,622 2,857,567 2,864,189
---------- ---------- ------------ ------------- ------------
Balance at December 31, 1995 5,663,784 56,638 33,429,923 (26,605,994) 6,880,567
Net income 11,610,798 11,610,798
Issuance of common stock
from exercise of stock options 2,332 24 11,621 11,645
Issuance of common stock
upon coversion of debt 71,301 713 499,287 500,000
---------- ---------- ------------ ------------- ------------
Balance at June 30, 1996 5,737,417 $57,375 $33,940,831 ($14,995,196) $19,003,010
========== ========== ============ ============= ============
</TABLE>
See accompanying notes.
6
<PAGE> 8
KTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited 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 and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months or six months ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Certain 1995 financial information contained herein has been reclassified to
conform with the 1996 presentation.
2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share have been computed based on the weighted
average number of shares outstanding as well as the dilutive effect of
outstanding options and warrants during the periods presented computed in
accordance with a Staff Accounting Bulletin ("SAB") of the Securities and
Exchange Commission. The SAB requires that all stock issued within a twelve
month period prior to an initial public offering of common stock must be treated
as outstanding for all periods presented whether dilutive or anti-dilutive.
3. INFORMATION REGARDING PENOBSCOT ENERGY RECOVERY COMPANY
The following financial information of Penobscot Energy Recovery
Company is provided in accordance with Article 10.01(b)(1) of Regulation S-X:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 7,839,240 $ 7,348,409 $14,716,557 $14,366,942
Operating expenses 3,844,041 3,527,270 7,944,072 7,187,023
Net income 1,748,343 1,698,146 2,330,245 3,003,964
</TABLE>
7
<PAGE> 9
4. DEBT
The Company's debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
12% term note payable to a bank $2,507,448 $2,607,448
10% note payable to Energy National, Inc. 1,218,029 1,455,430
Subordinated note payable to Davstar
Managed Investments Corporation, net of
unamortized original issue discount of $25,096
and $55,911 1,025,205 1,426,182
Note payable to former shareholder 155,877 183,494
12% subordinated notes payable 2,428,590 2,295,000
9.9% secured term notes payable to GE Capital 288,463 382,699
10-13% secured term notes payable to Associates
Commercial Corp. 309,050 428,193
9.11% secured term note payable to KDC
Financial Limited 140,263 170,801
Notes payable to limited partners of Maine Energy 490,063 326,063
11% secured note payable to PENPAC, Inc. 296,500 530,128
Notes payable ash recycling subsidiary 1,446,797
Bank line of credit 220,000
8% term notes payable 2,243,314
Other 338,221 754,629
------------ ------------
13,107,820 10,560,067
Resource Recovery Revenue Bonds Payable 64,500,000
12% Subordinated Notes Payable to Maine Energy
Limited Partners 13,485,804 40,316,095
------------ ------------
26,593,624 115,376,162
Less current portion 9,266,408 7,977,899
------------ ------------
$ 17,327,216 $107,398,263
============ ============
</TABLE>
5. RESTRUCTURING OF POWER PURCHASE AGREEMENT
On May 3, 1996, the Company's 50.38% owned subsidiary, Maine Energy
Recovery Company LP ("Maine Energy") completed a restructuring of its Power
Purchase Agreement (the "PPA") with Central Maine Power Company ("CMP") and the
sale of its electrical generating capacity to CL Power Sales One, L.L.C. ("CL
One"). At closing Maine Energy Received a payment from CL One of $85,000,000 and
the PPA was amended, retroactive to November 6, 1995, to reflect a reduction in
CMP's purchase price per kWh from $0.16 to $0.0718. In addition, the PPA was
extended from the year 2007 to 2012.
Based upon certain contingencies in the agreements, Maine Energy will
defer $45,000,000 of the proceeds of the sale of its capacity and will recognize
it as revenue ratably in the future as the contingencies are eliminated. Maine
Energy recognized a one time gain of $32,057,359 from this transaction.
Maine Energy has used the proceeds from the sale of its capacity to
repay the $64,500,000 Resource Recovery Bonds and to retire the bank letter of
credit issued to enhance the credit of the bonds. The remaining proceeds were
used together with unrestricted cash balances to repay $29,500,000 of the total
of subordinated notes payable to limited partners.
8
<PAGE> 10
6. INVESTMENT IN ASH RECYCLING FACILITIES
In separate transactions, the Company purchased 60% limited
partnership interests in two ash recycling facilities from Environmental Capital
Holdings, Inc. and its subsidiary, American Ash Recycling Corp. One of the
facilities is located in Nashville, TN and operates under the name American Ash
Recycling of Tennessee. The second partnership is for a facility proposed to be
built in the State of Maine which will operate as American Ash Recycling of
Maine.
7. CONTINGENCIES
The Company is a defendant in certain law suits alleging various
claims incurred in the ordinary course of business. Management of the Company
does not believe that the outcome of these matters, individually or in the
aggregate, will have a material effect on the Company's financial condition,
cash flows or results of operations.
8. SUBSEQUENT EVENT
On July 19, 1996, the Company and its wholly-owned subsidiary,
DataFocus Incorporated ("DataFocus"), executed an Agreement with CIBER, Inc.
("CIBER"). Pursuant to the Agreement, DataFocus sold substantially all of the
assets of DataFocus' Business Systems Division, other than cash and accounts
receivable, to CIBER for $5,000,000 in cash, subject to certain adjustments for
liabilities on July 26, 1996.
Additionally, on July 29, 1996, the Company sold the stock of
DataFocus to certain members of the management of DataFocus. Pursuant to the
sale, the Company will receive $5,000 cash, the cancellation of stock options
issued to DataFocus management to purchase 132,328 shares of the Company's
common stock, the cancellation of an option to purchase 20% of the common stock
of DataFocus, and a royalty agreement. Under the royalty agreement , the Company
will receive a monthly base royalty of $5,000 and quarterly payments of
additional royalties, equal to 5% of net revenue from the sale of NuTCRACKER
software product in excess of $4,000,000 per year. DataFocus will have the right
to repurchase the royalty agreement pursuant to certain defined conditions.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Electric power revenues decreased by for the quarter and six months
ended June 30, 1996 compared to the same period in 1995. The decreased revenue
was a result of a reduced contract rate per kilowatt hour under the new PPA from
15.53(cent) to 7.18(cent) per kWh resulting in decreased revenues of $1,985,000
and $1,550,000 for the quarter and six months compared to the same period in
1995. Also, as a result of the sale of capacity under the PPA, the Company has
deferred $45,000,000 of revenue from this transaction which will be amortized
through May 31, 2007.
Revenues from the gain on the sale of capicity were $32,057,000 for
the quarter and six months ended June 30, 1996 arising from the sale of capacity
under our Power Purchase Agreement("PPA").
Revenues from waste processing increased by $120,000 and $169,000 for
the quarter and six months ended June 30, 1996 compared to the same periods in
1995. The increase principally from a 5,328 and 8,329 increase in tons of waste
processed which resulted in increased revenues of $198,000 and $299,000 for the
1996 quarter and six months, respectively. This increase was offset by an $1.46
and $1.13 decrease in the average tipping fee which resulted in decreased
revenues of $78,000 and $130,000 for the quarter and six months resulting from a
reduction in the charter and host communities tipping fees as required upon the
retirement of the $64,500,000 in bonds at Maine Energy.
Other waste handling revenues increased by $732,000 and $609,000 for
the quarter and six months ended June 30, 1996, respectively compared to the
same period 1995. The increase in the quarter and six months is primarily from
the inclusion of ash recycling revenues of $524,000 and $608,000 in the quarter
and six months, respectively. Additional increases resulted principally from an
increase in specialty waste revenues of $215,000 and $369,000 for the quarter
and six months compared to the same period in 1995. KTI Bio Fuels revenues
increased by $49,000 for the quarter as a result of increased supply of
woodwaste while for the six months revenues have decreased $267,000 principally
as a result of a shutdown for four weeks during the first quarter of 1996 as the
result of deminished supply of woodwaste and severe weather conditions. Lease
revenue from transportation equipment decreased by $56,000 and $101,000 for the
quarter and six months, respectively as the result of the sale of equipment.
COSTS AND EXPENSES
Operating costs increased by $1,366,000 and $1,950,000 for the
quarter and six months ended June 30,1996 compared to the same period in 1995.
The increase in the quarter and six months results principally from a $362,000
and $803,000 increase in maintenance expense and a $536,000 and $661,000
increase in payroll and related costs for the quarter and six months ended June
30, 1996, respectively, compared to the same periods in 1995, both at Maine
Energy. An additional increase in the quarter and six months arises from the
inclusion of ash recycling expenses of $486,000.
Selling, general and administrative expenses decreased by $286,000
and $105,000 for the quarter and six months ended June 30, 1996 compared to the
same periods in 1995 principally as result of a decrease in amortization expense
resulting from the write off of deferred costs related to the PPA in the
quarter.
INTEREST AND OTHER ITEMS
Interest expense decreased by $1,181,000 and $1,518,000 for the
quarter and six months compared to the same periods in 1995, principally because
of the retirement of $64,500,000 of bonds and $29,500,000 subordinated note
payment on May 3, 1996, lower interest rates on bonds while they were
outstanding, and a decrease in letter of credit fees all at Maine Energy.
10
<PAGE> 12
Minority interest of $14,060,000 and $14,892,000 for the quarter and
six months ended June 30, 1996, respectively, principally results from the
elimination of 49.38% of Maine Energy's net income through May 2, 1996 and
25.85% after May 2, 1996, net of amortization.
The Company reported a loss from discontinued operations of $223,000
and $218,000 for the quarter and six months ended June 30, 1996, respectively,
compared to income of $249,000 and $342,000 for the same periods in 1995. The
discontinued operations relates to the computer service division which, as
described in the notes to the financial statements was sold on July 26, 1996.
The extraordinary loss of $4,757,000 for the quarter and six months
ended June 30, 1996 resulted from the early extinguishment of bonds at Maine
Energy as related to the sale of capacity under the PPA.
The Company had net income of $11,589,000 and $11,611,000 for the
quarter and six months ended June 30, 1996, respectively, compared to net income
of $26,000 and $384,000 for the same periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since December 31, 1995, the Company has made private placements of
$2,503,314 of notes together with 400,458 warrants to purchase shares of the
Company's Common Stock at $6.00 per share of which $2,003,314 has been repaid
prior to maturity. The remaining notes are due November 1, 1996. The warrants
expire on March 31, 2001. The Company used the proceeds of the offerings to fund
its AART obligation and fund working capital.
On June 30, 1996, the Company's current portion of long-term debt was
$9,266,000. As a result of the sale of assets on July 26, 1996, the Company
repaid approximately $2,694,000 of the current portion of long-term debt. While
it may be necessary for the Company to raise additional funds through capital or
debt, management is confident that it will meet all of its short term
obligations.
Maine Energy used the proceeds from the sale of its capacity to repay
the $64,500,000 Resource Recovery Bonds and to retire the bank letter of credit
issued to enhance the credit of the bonds. The remaining proceeds were used
together with unrestricted cash balances to repay $29,500,000 of the total of
subordinated notes payable to limited partners. Subordinated notes payable after
the repayment aggregate $13,485,804.
As mentioned in the notes to the financial statements, the Company
received a liquidating dividend of $3,503,000 in cash and approximately $900,000
in accounts receivable from its wholly-owned subsidiary, DataFocus Incorporated.
These proceeds were and will be used to retire the private placements mentioned
above and working capital purposes.
Significant restrictions exist as to the amount of cash flow that can
be distributed to the Company by Maine Energy and PERC. As of June 30, 1996, the
Company had $763,000 of cash and cash equivalents of which $538,000 is held by
Maine Energy, and limited to use in Maine Energy's operations so long as
existing subordinated debt remains outstanding. The Company has available unused
lines of credit aggregating $850,000. Management of KTI believes that available
cash flow from subsidiaries and affiliates and unused lines of credit will meet
its current needs for liquidity. Moreover, management believes that the Company
has the ability to access additional borrowing facilities if needed although no
assurances can be given in this regard.
11
<PAGE> 13
FORWARD LOOKING STATEMENTS
All statements contained herein which are not historical facts
including but not limited to statements regarding the Company's plans for future
cash flow and its uses are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to vary materially is the availability of sufficient capital to finance
the Company's business plan and other capital needs on terms satisfactory to the
Company. The Company wishes to caution readers not to place undue reliance on
any such forward looking statements, which statements are made pursuant to the
Private Litigation Reform Act of 1995 and as such speak only as of the date
made.
12
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PENPAC, Inc. ("PENPAC") filed a complaint in Superior Court of New
Jersey, Passaic County, Law Division against the Company and KTI Energy, Inc.
("Energy") on April 25, 1995 in which PENPAC alleged the breach of an equipment
lease agreement dated April 8, 1994 under which the Company leased-purchased
sixty trailers from PENPAC. Energy guaranteed the performance of the Company
under this lease. The Company and PENPAC executed a Settlement Agreement under
which the Company was to pay $500,000 to PENPAC. All such payments have been
made. The case has been dismissed with prejudice and releases exchanged among
the parties to the litigation.
The Port Authority of New York and New Jersey ("Port Authority") sued
Energy and KES, Inc. ("KES"), a wholly-owned subsidiary of Energy, in the
Supreme Court of the State of New York, New York County on April 11, 1995. Port
Authority sought damages in the amount of $439,819 for the cost of the storage
and removal of wood recyclables that were delivered to the Howland Hook Marine
Terminal ("Howland Hook") located on Staten Island and leased by Port Authority
from the City of New York. The Company and the Port Authority have executed a
settlement agreement for such litigation. Pursuant to the settlement agreement,
the Company has paid $75,000 to the Port Authority. Additional payments of
$25,000 and $32,000 are due in October, 1996 and April, 1997, respectively.
Anthony Buonaguro, a former officer of the Company, has instituted
arbitration proceedings against the Company for alleged breaches of an
employment agreement between Mr. Buonaguro and the Company more than five years
prior to the filing of the arbitration proceedings. The amount of damages
requested is approximately $220,000. The Company believes that it has
meritorious defenses against this claim and will litigate the matter.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
13
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter for which this report is filed the Company filed
the following reports on Form 8-K:
(i) Report on Form 8-K dated May 3, 1996 reporting under Item 2 the
restructuring of a Power Purchase Agreement between Central Maine Power Company
and its 50.38% owned subsidiary, Maine Energy Recovery Company LP("Maine
Energy"). Subsequent to the transaction, the Company acquired additional
partnership interests in Maine Energy aggregating 23.77% from existing limited
partners.
14
<PAGE> 16
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.
KTI, Inc.
------------------
(Registrant)
By: /s/Robert E. Wetzel
-------------------
Name: Robert E. Wetzel
Title: Senior Vice President
By: /s/Martin J. Sergi
------------------
Name: Martin J. Sergi
Title: President, Chief Financial Officer
and Chief Operating Officer
(Principal Accounting Officer)
Date: August 12, 1996
15
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