-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GCViXgpTgf3t3UeWEkqlyEd92I5rKRGPtbIPl4zihiYrY0TFjt3x7UicD1dy4PPa im0T5gGsbfs2RDFRgGzv9A== 0000889812-96-000675.txt : 19960617 0000889812-96-000675.hdr.sgml : 19960617 ACCESSION NUMBER: 0000889812-96-000675 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960614 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE TECHNOLOGY CORP CENTRAL INDEX KEY: 0000781902 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 132842053 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14443 FILM NUMBER: 96581164 BUSINESS ADDRESS: STREET 1: 5400 RIO GRANDE AVENUE CITY: JACKSONVILLE STATE: FL ZIP: 32254 BUSINESS PHONE: 9043555558 MAIL ADDRESS: STREET 1: 5400 RIO GRANDE AVENUE CITY: JACKSONVILLE STATE: FL ZIP: 32254 10QSB 1 QUARTERLY REPORT FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) X Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 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 0-14443 WASTE TECHNOLOGY CORP. (Exact Name of Small Business Issuer as Specified in its Charter) Delaware 13-2842053 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 5400 Rio Grande Avenue Jacksonville, Florida 32254 (Address of Principal Executive Offices) (Zip Code) (904) 355-5558 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ At May 31, 1996, Registrant had outstanding 2,431,551 shares of its Common Stock. Transitional small business disclosure format check one: Yes ___ No X 1 WASTE TECHNOLOGY CORP. TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS o Balance Sheets as of April 30, 1996 and October 31, 1995 3 o Statements of Income for the three months and six months 5 ended April 30, 1996 and 1995 o Statements of Changes in Stockholders' Equity 7 for the period from October 31, 1994 to April 30, 1996 o Statements of Cash Flows for the three months and six months 8 ended April 30, 1996 and 1995 o Notes to Financial Statements 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 19 CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION o Signatures 21 2 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 04/30/96 10/31/95 Unaudited ASSETS Current Assets: Cash and cash equivalents $6,633 $1,114,342 Accounts receivable, net of allowance for doubtful accounts of $90,446 1,655,003 1,157,560 Inventories 3,352,079 2,344,686 Prepaid expense and other current assets 71,377 57,916 Deferred income tax asset 493,000 413,000 Total current assets 5,578,092 5,087,504 Property, plant and equipment at cost 3,488,758 2,310,373 Less: accumulated depreciation 952,310 882,355 Net property, plant & equipment 2,536,448 1,428,018 Real estate held for sale 0 204,114 Other assets: Loan to joint venture, including accrued interest 49,840 49,840 Intangible assets, net 73,048 78,946 Other assets 172,774 164,580 Total other assets 295,662 293,366 TOTAL ASSETS $8,410,202 $7,013,002 3 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 04/30/96 10/31/95 Unaudited LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $910,000 $296,878 Accounts payable 1,391,481 901,444 Accrued liabilities 461,411 483,659 Accrued legal fees 301,480 270,344 Customer deposits 685,865 1,201,144 Legal settlement 110,000 162,000 Total current liabilities 3,860,237 3,315,469 Long-term debt 133,333 228,333 Minority interest in equity of subsidiary 485,782 481,782 Capital Lease Obligation 700,000 0 Total liabilities 5,179,352 4,025,584 Stockholders' equity Common stock, par value $.01 25,000,000 shares authorized; 2,763,314 shares issued and outstanding 27,634 27,634 Preferred stock, par value $.0001, 10,000 shares authorized, none issued Additional paid-in capital 6,066,356 6,069,995 Accumulated deficit (1,781,645) (2,027,894) 4,312,345 4,069,735 Less: Treasury stock, 331,763 shares at cost 419,306 419,306 Less: Note receivable from shareholder 662,189 663,011 Total stockholders' equity 3,230,850 2,987,418 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $8,410,202 $7,013,002 4 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED Three months ended: 04/30/96 04/30/95 Net Sales $3,951,750 $2,828,650 Cost of Sales 2,986,156 1,849,447 Gross Profit 965,594 979,203 Operating Expenses: Selling 425,872 227,708 General and Administrative 526,833 326,174 Total operating expenses 952,705 553,882 Operating Income 12,889 425,321 Other Income (Expenses): Interest and Dividends 12,094 12,395 Interest Expense (32,538) (49,323) Other Income 6,550 13,159 Other Expense (8,208) (25,175) Net Loss on Disposal of Fixed Assets 14,626 (600) Total Other Income (Expenses) (7,476) (49,544) Less minority interest in income of consolidated subsidiary (9,000) 39,807 Income before income taxes 14,413 335,970 Income Tax Provision (benefit) Current 12,900 12,000 Deferred 0 0 NET INCOME 1,513 323,970 Earnings per share 0.00 0.16 Average number of shares and equivalent 2,697,593 2,256,239 5 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED Six months ended: 04/30/96 04/30/95 Net Sales $7,129,377 $4,674,475 Cost of Sales 5,143,202 3,102,632 Gross Profit 1,986,175 1,571,843 Operating Expenses: Selling 774,146 435,727 General and Administrative 1,009,542 639,789 Total operating expenses 1,783,688 1,075,516 Operating Income 202,487 496,327 Other Income (Expenses): Interest income 27,252 26,371 Interest Expense (51,447) (81,583) Other Income 6,700 25,841 Other Expense (8,208) (25,175) Net gain on Disposal of Fixed Assets 14,626 618 Total Other Income (Expenses) (11,077) (53,928) Less minority interest in income of consolidated subsidiary 4,000 43,070 Income before income taxes 187,410 399,329 Income tax provision (benefit) Current 25,800 15,000 Deferred (80,000) 0 NET INCOME 241,610 384,329 Earnings per share 0.09 0.19 Average number of shares and equivalent 2,697,493 2,256,239 6 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for six months ended April 30,1996
Common Stock Par Value $.01 Authorized 25,000,000 Shares ------------------------------ NUMBER ADDITIONAL OF SHARES PAR PAID-IN ACCUMULATED ISSUED VALUE CAPITAL DEFICIT ------------------------------ ------- ------- Balance at October 31, 1994 2,263,314 $ 22,634 $5,574,995 $(2,823,482) Issuance of 500,000 shares of common stock due to exercise of stock options 500,000 5,000 495,000 - Adjustment of Note Receivable from shareholder as a reduction of stockholder's equity Net income - - - 795,588 ----------- ----------- ----------- ------------ Balance at October 31, 1995 2,763,314 $ 27,634 $6,069,995 $(2,027,894) Adjustment of Note Receivable from shareholder as a reduction of stockholder's equity - - - - Dissolution of non operating subsidiaries (3,639) 4,689 Net income - - - 241,610 ----------- ----------- ----------- ------------ Balance at April 30, 1996 2,763,314 $ 27,634 $6,066,356 $(1,781,595) =========== =========== =========== ============
Treasury Stock ----------------------- NUMBER TOTAL OF STOCKHOLDERS' SHARES COST OTHER EQUITY ----------------------- ----- ------ Balance at October 31, 1994 331,763 $(419,306) $(622,656) $ 1,732,185 Issuance of 500,000 shares of common stock due to exercise of stock options - - - 500,000 Adjustment of Note Receivable from shareholder as a reduction of stockholder's equity (40,355) (40,355) Net income - - - 795,588 --------- ---------- ---------- -------------- Balance at October 31, 1995 331,763 $(419,306) $(663,011) $ 2,987,418 Adjustment of Note Receivable from shareholder as a reduction of stockholder's equity - - 822 822 Dissolution of non operating subsidiaries 1,000 Net income - - - 241,610 --------- ---------- ---------- -------------- Balance at April 30, 1996 331,763 $(419,306) $(662,189) $ 3,230,850 ========= ========== ========== ==============
7 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For The Three Months Ended 04/30/96 04/30/95 Cash flow from operating activities: Net income $ 1,513 $ 323,970 Adjustments to reconcile net income to net cash provided by operating activities: Items not requiring (providing) cash included in income: Depreciation and amortization 43,449 28,639 Minority interest in income of subsidiary (9,000) 39,807 Deferred income taxes 0 0 Changes in operating assets and liabilities: (Increase)/decrease in accounts receivable (489,314) (435,202) (Increase)/decrease in inventories (302,427) (6,445) (Increase)/decrease in prepaid expenses 33,374 16,193 (Increase)/decrease in other assets (14,774) (12,592) Increase/(decrease) in accounts payable 362,716 (73,370) Increase/(decrease) in accrued liabilities 24,007 105,970 Increase/(decrease) in customer deposits (338,045) 27,183 Total adjustments (690,014) (309,817) Net cash provided by (used in) operating activities (688,501) 14,153 Cash flows from investing activities: (Additions) decreases in fixed assets (442,437) (5,888) Increase/(Decrease) in officer notes receivable 10,911 0 Net cash provided by investing activities (431,526) (5,888) Cash flows from financing activities: Increase/(decrease) in officer loans 0 0 Increase/(decrease) in long-term liabilities 1,122,500 (51,465) Proceeds from exercise of stock options 0 0 Dissolution of non operating subsidiaries 1,000 Cash flows provided by (used in) financing activities 1,123,500 (51,465) Net increase (decrease) in cash 3,473 (43,200) Cash and cash equivalents at beginning of period 3,160 559,508 Cash and cash equivalents at end of period 6,633 516,308 Supplemental schedule of disclosure of cash flow information Cash paid during period for: Interest 32,538 21,650 Income taxes 0 0 8 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For The Six Months Ended 04/30/96 04/30/95 Cash flow from operating activities: Net income 241,610 384,329 Adjustments to reconcile net income to net cash provided by operating activities: Items not requiring (providing) cash included in income: Depreciation and amortization 86,898 57,278 Minority interest in income of subsidiary 4,000 43,070 Deferred income taxes (80,000) 0 Changes in operating assets and liabilities: (Increase)/decrease in accounts receivable (497,443) (435,306) (Increase)/decrease in inventories (1,007,393) (149,324) (Increase)/decrease in prepaid expenses (13,461) 66,123 (Increase)/decrease in other assets (8,194) 4,017 Increase/(decrease) in accounts payable 490,037 69,462 Increase/(decrease) in accrued liabilities (43,112) 26,213 Increase/(decrease) in customer deposits (515,279) 155,097 Total adjustments (1,583,947) (163,370) Net cash provided by(used in) operating activities (1,342,337) 220,959 Cash flows from investing activities: (Additions) decreases in fixed assets (985,316) (23,474) (Increase)/Decrease in officer notes receivable 822 0 Net cash provided by investing activities (984,494) (23,474) Cash flows from financing activities: Increase/(decrease) in officer loans 0 (50,000) Increase/(decrease) in long-term liabilities 1,218,122 (130,376) Proceeds from exercise of stock options 0 0 Dissolution of non operating subsidiaries 1,000 0 Cash flows provided by (used in) financing activities 1,219,122 (180,376) Net increase (decrease) in cash (1,107,709) 17,109 Cash and cash equivalents at beginning of period 1,114,342 499,199 Cash and cash equivalents at end of period 6,633 516,308 Supplemental schedule of disclosure of cash flow information Cash paid during period for: Interest 51,447 43,772 Income taxes 9,000 40,000 9 Waste Technology Corp. and Subsidiaries Notes to Consolidated Financial Statements 1. Accounting Policies: Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Waste Technology and all of its wholly owned and majority owned subsidiaries (Company). Intercompany balances and material intercompany transactions have been eliminated in consolidation. Description of the Business - The Company is a manufacturer of baling machines which utilize mechanical, hydraulic and electrical mechanisms to compress a variety of materials into bales. The Company's customers include plastic recycling facilities, paper mills, textile mills and paper recycling facilities throughout the United States, the Far East and South America. Minority Interest - The Company owns 85.8% of the outstanding shares of International Baler Corp. (IBC) at April 30, 1996 and 1995. IBC is the Company's primary operating subsidiary. The parent company theory has been applied in the presentation of the minority interest, whereby minority interest is separately stated as a liability on the consolidated balance sheet at an amount equal to the minority ownership percentage of the book value of the subsidiary's net assets. The minority interest in the consolidated income statement is equal to the minority ownership percentage of the subsidiary's net income or loss. Pervasiveness of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories - Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Depreciation - The cost of property, plant and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed on the double-declining balance and straight line methods for financial reporting and other accelerated methods for income tax purposes. Gain or loss upon retirement or disposal of property, plant and equipment is recorded as income or expense. Intangibles - The cost over fair value of net tangible assets of an acquired business is amortized on the straight-line method over a period of 20 years. Other intangible assets, primarily patents and a covenant not to compete, are amortized on the straight-line basis over their estimated lives of six to seventeen years. The Company periodically reviews intangibles to assess recoverability, and impairments would be recognized in operating results if a permanent decline 10 Notes to Consolidated Financial Statements, Continued 1. Accounting Policies, Continued: in value were to occur. Accumulated amortization was $85,003 and $70,782 at April 30, 1996 and 1995, respectively. Amortization expense related to intangibles was $2,949 and $3,139 for each of the quarters ended April 30, 1996 and 1995. Income Taxes - The Company adopted the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No. 109") in fiscal 1994, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method of deferred tax, assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. The adoption of SFAS No. 109 did not have a material impact on the Company's financial position or results of operations in the year of adoption. Reclassifications - Certain 1995 items have been reclassified to conform to the 1996 presentation. 2. Loan and Notes Receivable-Officers and Directors: On April 12, 1990, four individuals, including the former Chairman of the Board, and the Executive Vice President, General Counsel, Secretary and Director of the Company, entered into an agreement with a group of dissident shareholders to purchase an aggregate of 294,182 shares at a purchase price of $4 per share. The former Chairman and the General Counsel each purchased 134,591 shares of common stock and the other two individuals purchased an aggregate of 25,000 shares. On July 15, 1991, the purchase of shares was finalized by the payment to the selling shareholders of the balance of the purchase price plus accrued interest. The financing of the transactions was paid with funds borrowed from the Company with the unanimous approval of the Company's Board of Directors. The four individuals executed promissory notes in favor of the Company, originally payable in three annual installments due July 15, 1992--94 plus accrued interest from July 15, 1991 at the rate of 9% per annum. The former Chairman's promissory note was satisfied in 1993. The Company has extended the initial installment date of the remaining notes to begin on July 15, 1996. The debt is collateralized by a lien on the 104,591 shares of the Company's common stock and a personal guarantee of each borrower to the extent of his loan and the guarantee of General Counsel's law firm to the extent of his loan. 11 Notes to Consolidated Financial Statements, Continued 2. Loan and Notes Receivable-Officers and Directors, Continued: On June 13, 1995 the General Counsel and his law firm exercised their option to purchase 250,000 shares of Waste Technology Corporation common stock at $1.00 per share, whereby, the Company reduced the legal fees payable to the law firm in lieu of cash. These shares are also being held as collateral for the note receivable from the General Counsel. The General Counsel made a payment of $21,000 on the note in the second quarter 1996. The following is an analysis of the notes receivable and accrued interest at April 30, 1996: Accrued Total Net Principal Interest Note Reserve Total --------- -------- -------- ------- ----- General Counsel $427,364 $234,825 $662,189 $ 0 $662,189 Others 50,000 29,688 79,688 79,688 0 --------- --------- --------- ------- -------- $477,364 $264,513 $741,877 $79,688 $662,189 ========= ========= ========= ======= ======== The Company expects that a primary source for repayment of the above notes will be from the sale of the collateralized shares of the Company stock. The notes receivable from the General Counsel, who is also a major stockholder of the Company, is presented as a reduction of stockholders' equity. The income statement includes interest income on officer and director notes receivable of $10,089 and $10,088 for the quarters ending April 30, 1996 and 1995, respectively. An officer and director is a partner in the law firm providing legal services to the Company and as of April 30, 1996 the Company is indebted in the amount of $301,480 to this firm. 3. Inventories: Inventories consisted of the following: April 30 1996 1995 Finished products $ 512,528 $ 189,332 Work in process $ 908,313 $ 402,579 Raw materials $ 1,931,239 $ 876,539 ----------- ----------- $ 3,352,079 $ 1,468,458 =========== =========== 12 Notes to Consolidated Financial Statements, Continued 4. Real Estate Venture: In December 1990, the Company formed a wholly owned subsidiary, Waste Tech Real Estate Corp. ("WT Real Estate"), for the purpose of having that corporation enter into a joint venture with a non-affiliated company, Roch-Tech Realty Corp. ("RT"), to purchase a parcel of land in Far Rockaway, Queens, New York and to build residential single family homes on the property. RT had previously entered into a contract to purchase the property for $625,000, $50,000 being paid on the execution of the contract and the balance to be paid $200,000 on closing and $375,000 by a purchase money mortgage to the seller. RT has assigned the contract to the joint venture. WT Real Estate has a 21% interest in the profits and losses of the joint venture. As of April 30, 1996, the Company had committed to fund up to $175,000 for its share of loans and loaned the sum of $166,980 to the joint venture on behalf of WT Real Estate. Management does not believe that it will be required to advance funds in excess of such commitment. WT Real Estate has a mortgage lien on the property as collateral for all sums it advances to the joint venture except that mortgage shall be subordinated to any purchase money mortgage or construction loan mortgage. The Company was to receive interest at 10% per annum, but since no interest has been received, the loan no longer accrues interest. As of April 30, 1996 accrued interest in the amount of $51,032 is included in the total of $218,012. The Company has established a reserve of $168,172 as an estimate for potential uncollectible amounts. 5. Property, Plant and Equipment: The following is a summary of property, plant and equipment, at cost, less accumulated depreciation: April 30, 1996 1995 Land $ 75,000 $ 75,000 Buildings and improvements 2,166,734 544,967 Machinery and equipment 1,040,487 599,266 Vehicles 206,537 156,972 ----------- ----------- 3,488,758 1,376,205 Less: accumulated depreciation 952,310 824,541 ------------ ----------- $ 2,536,448 $ 551,664 ============ =========== Depreciation expense was $40,500 and $25,500 in the quarter ending April 30, 1996 and 1995, respectively. 13 Notes to Consolidated Financial Statements, Continued 6. Long-Term Debt: Long-term debt consists of the following:
April 30, 1996 1995 Term note payable to bank at prime rate plus 1% due in equal monthly installments of $15,833, plus interest through November 1, 1997 $ 323,733 $513,333 Note payable to bank, at prime rate plus 2.5%, due in equal monthly installments of $4,000, including interest, with the remaining balance due in January 1996, collateralized by real estate with a net book value of $204,114 0 205,579 Revolving promissory note payable to bank in the amount of $1,000,000, at prime rate plus 1/2% interest. Interest is payable monthly 700,000 0 Capital Lease - Baxley, Georgia 720,000 0 Present value of minimum capital lease obligation, net of $303 interest, due in 1995 0 8,480 ----------- --------- Capital Lease Baxley, Georgia 1,743,333 727,392 Current maturities 910,000 904,059 ------------ -------- $ 833,333 $323,333 =========== ========
The Term Note contains certain covenants, whereby the Company must maintain, among other things, specified levels of tangible net worth and working capital, and maintain a specified ratio of debt to tangible net worth, and current ratio. In 1995, the Company signed a revolving promissory note with a bank in the amount of $1,000,000. Interest at prime plus 1/2% is due monthly and all amounts borrowed are due in full on November 6, 1996. The Company has pledged substantially all of its assets as collateral under the term loan and revolving loan agreement. 14 Notes to Consolidated Financial Statements, Continued 6. Long-Term Debt, Continued: The Company entered into capital lease obligation relating to the sale and lease-back of a facility in Baxley, Georgia. Lease payments are based on a note with an interest rate of 8.25% for 20 years. Principal balance and accrued interest are due on the fifteenth anniversary of this note. Maturities of debt are as follows: Aggregate Period ending April 30 Obligation ---------------------- ----------- 1997 $ 910,000 1998 15,120 1999 15,840 2000 - 2011 802,373 ----------- $1,743,333 =========== 7. Contingent Liabilities and Commitments: Litigation - The Company was a defendant in a wrongful death action, whereby the complainant alleges that the plaintiff's decedent was injured while operating a baling machine during his employment and he died as a result of those injuries. Subsequent to year-end, a jury determined the Company has no liability to the plaintiffs. There are various other litigation proceedings in which the Company is involved. Any liability which the Company may have under many of these proceedings is believed to be covered by insurance. The results of other litigation proceedings cannot be predicted with certainty, however, the Company believes that the results of any litigation will not have a material adverse effect on the Company's financial condition or results of operations. Other - The Company has an employment agreement with its President for a term of five years commencing on August 1, 1993 and ending August 1, 1998. Annual compensation pursuant to the contract is $100,627, increased 5% per year for the years 1996 to 1998. Additionally, the Company has a severance agreement with its President, whereby in the event of change of control of IBC and the subsequent termination of employment of him for any reason other than cause, IBC shall be required to pay to him an amount equal to 2.99 times his salary at IBC prior to any change in control. Pursuant to an agreement with the former shareholders of a subsidiary of the Company, the shareholders have the right to require the Company to purchase 186,230 shares of the Company's stock owned by the shareholders for $2.00 per share. If the current market price at the time the right is exercised is less than $2.00 per share, the Company is required to provide additional shares to the shareholders. The agreement expires in 1996. 15 Notes to Consolidated Financial Statements, Continued 8. Income Taxes: The Company files consolidated federal income tax returns with its subsidiaries and separate corporate state income tax returns. The Company has reduced its valuation of temporary differences, which has resulted in the recognition of an additional deferred tax asset of $80,000 at January 31, 1996. Realization is dependent on generating sufficient taxable income in the future. Although realization is not assured, management believes it is more likely than not that the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, would be reduced in the near term if estimates of future taxable income is reduced. The significant components of the net deferred tax asset at April 30, 1996 are as follows: Reserves and allowances $254,000 Property, Plant and equipment 52,000 General business credit carryforward 40,000 Net operating loss carryforward 516,000 Other 73,000 ---------- 935,000 Valuation allowance 442,000 ---------- $493,000 ========== 9. Net Earnings Per Common and Common Equivalent Share: Net earnings per common and common equivalent share are calculated using the weighted average number of common share outstanding during each year and on the net additional number of shares which would be issuable upon the exercise of stock options, assuming that the Company used the proceeds received to purchase additional shares at market value. 10. Stock Options: On June 13, 1995 the Board of Directors of the Company adopted, subject to the approval of the Company's shareholders, the 1995 Stock Option Plan. Under the 1995 Plan, incentive stock options within the meaning of Section 442A of the Internal Revenue Code of 1986, as amended (the "Code"), may be granted to key employees, including officers and/or stock appreciation rights ("SARs") may be granted to key employees, officers, directors and consultants of the Company and its present and future subsidiaries to purchase an aggregate of 1,000,000 shares of the Company's common stock (the "Common Stock"). 16 Notes to Consolidated Financial Statements, Continued 10. Stock Options, Continued: The purpose of the 1995 Plan is to aid the Company in attracting and retaining key employees, officers, directors and consultants and to secure for the Company the benefits of the incentive inherent in equity ownership by such persons who are responsible for causing the Company's growth and success. Accordingly, the Board of Directors unanimously recommended that shareholders approve the 1995 Plan. The 1995 Plan was approved by the shareholders at the Annual Meeting held on November 18, 1995. The maximum number of shares as to which options may be granted under the 1995 Plan (subject to adjustment as described below) is 1,000,000 shares of Common Stock. Upon expiration, cancellation or termination of unexercised options, the shares with respect to which such options shall have been granted will again be available for grant under the 1995 Plan. The 1995 Plan is administered by the Board of Directors, or if appointed, by a stock option committee consisting of at least two members of the Board of Directors, none of whom is eligible to participate under the 1995 Plan. (The group administering the 1995 Plan is referred to as the "Committee"). The Committee has the authority under the 1995 Plan to determine the terms of options and/or SARs granted under the 1995 Plan, including, among other things, whether an option shall be an incentive or a nonqualified stock option, the individuals who shall receive them, whether an SAR shall be granted separately, in tandem with or in addition to options, the number of shares to be subject to each option and/or SAR, the date or dates each option or SAR shall become exercisable and the exercise price or base price of each option and SAR; provided, however, that the exercise price of an incentive stock option may not be less than 100% of the fair market value of the Common Stock on the date of grant and not less than 110% of the fair market value in the case of an optionee who at the time of grant owns more than ten percent of the total combined voting power of the Company, or of any subsidiary or parent of the Company. During 1995, the Board of Directors granted non-qualified stock options to purchase an aggregate 880,000 shares of the Company's common stock at prices ranging from $1.50 to $2.00 per share, respectively. Options to purchase 20,000 shares granted to a director are not to be subject to the Company's stock option plan. The options were issued to key employees and a director. The options grant the right to purchase shares of the Company's common stock at the date of the grant. The options have anti-dilutive rights in the event of a split, reverse split, or recapitalization and are exercisable in whole or in part through 2005. 17 Notes to Consolidated Financial Statements, Continued 11. Employees' Benefit Plan: The Company instituted a profit sharing plan for its employees in 1989 by contributing 375,000 shares of its stock to the trust, having a fair market value of $165,000 on the transfer date. The Company contributed $50,000 to the plan in fiscal 1995 and no contributions were made in fiscal 1994. 12. Unaudited Financial Statements: 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-QSB and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information footnotes 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 periods ended April 30, 1996 are not necessarily indicative of the results that may be expected the year ending October 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto contained herein. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Three Month Comparisons For the second quarter of fiscal 1996 the Company had consolidated net sales of $3,951,750 as compared to $2,828,650 for the second quarter 1995, an increase of 39.7 %. The increase in sales is the result of shipments at the company's new International Press and Shear (IPS) operation which had no shipments in the prior year, since it did not commence operations until the fourth quarter 1995. Consolidated net income for the second quarter 1996 was $1,513 versus $323,970 in the corresponding quarter of the prior year. Earnings per share were $.00 for the second quarter 1996 and $.16 for the second quarter 1995. The lower earnings were primarily the result of continuing start-up related costs at the IPS facility in Georgia, including large outlays for inventory and personnel whereas shipments from the new facility did not commence until January 1996. The decrease in gross profit margin is the direct result of the manufacturing costs at the new Georgia operation which were not yet covered by shipments. The same is true of the increased selling and administration expenses which are directly related to the new subsidiary. Management anticipates that the operating results at the IPS subsidiary will be profitable by fiscal year-end. The change in the minority interest exclusion is the result of higher shipments by the Consolidated Baling Machine Company and lower shipments by International Baler Corporation which has the minority interest shareholders. The backlog as of May 31, 1996 was $3,103,000 as compared with $2,828,000 as of May 31, 1995, an increase of 9.7%. Results of Operation: Six Month Comparisons Net sales increased by 52.5% from $4,674,475 in 1995 to $7,129,377 for the first half of 1996. The large increase in sales was due in significant part to the sales at the start-up operation in Georgia. Consolidated net income was $241,610 for the first six months of fiscal 1996 as compared to $384,329 for the same period in 1995. The major factor in this earnings decrease was the operating losses at the start-up of the IPS subsidiary of approximately $500,000. Net income per share was $.09 per share in fiscal 1996 versus $.19 in 1995. Financial Conditions: Working capital decreased from $1,772,035 at October 31, 1995 to $1,717,855, but increased from $1,474,693 at the end of the first quarter 1996. The increase in inventories of over $1,000,000 was 19 the result of the initial build-up of raw materials and work-in-process at the new manufacturing plant in Georgia. The Company received $720,000 in the second quarter 1996 from a sale and lease-back arrangement with the Development Authority of Appling County, Georgia. The value of the building under the lease arrangement has been included in the fixed assets of the company. During the second quarter the term loan balance was reduced by $47,500 to $323,333. This loan is due in equal monthly installments of $15,833 plus interest through November 1, 1997. All assets of the Company are pledged as security for the repayment of this note. As of the end of the second quarter 1996 the Company had borrowed $700,000 against its $1,000,000 line of credit with SouthTrust Bank. Substantially all capital expenditures relating to the new Georgia facility and Jacksonville plant expansion have been completed. Capital expenditures for the remainder of fiscal 1996 are expected to be minimal. Other than as set forth above, the Company has no commitments for any material capital expenditures. Other than as set forth above, there are no unusual or infrequent events of transactions or significant economy changes which materially effect the amount of reported income from continuing operations. Inflation: The cost of the Company and its subsidiaries are subject to the general inflationary trends existing in the general economy. The Company believes that expected pricing by its subsidiaries for balers will be able to include sufficient increases to offset any increase in costs due to inflation. 20 PART II-OTHER INFORMATION None. 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 undersigned hereto duly authorized. Dated: June 11, 1996 WASTE TECHNOLOGY CORPORATION BY: /s/Ted C. Flood --------------------------- Ted C. Flood, President (Chief Executive Officer) BY: /s/William E. Nielsen --------------------------- William E. Nielsen Chief Financial Officer (Principal Financial and Accounting Officer) 21 EX-27 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the financial statements and is qualified in its entirety by reference to such financial statements. 6-MOS OCT-31-1996 APR-30-1996 6633 0 1745449 90446 3352079 5578092 3488758 952310 8410202 3860237 0 0 0 27634 3203216 8410202 7129377 7129377 5143202 6926890 36370 0 51447 187410 (54200) 241610 0 0 0 241610 .09 .09
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