-----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, Ap+gR4ywkmGbv0mI4pGrHI9Le8lhAlH//IIAZfPdofDE7QpWJyYw4D7hz/1ftLlo IrCagoMT/0YzPo/di02bEw== 0000889812-96-000241.txt : 19960312 0000889812-96-000241.hdr.sgml : 19960312 ACCESSION NUMBER: 0000889812-96-000241 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960311 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: 96533526 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 January 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 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 January 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 PART I. FINANCIAL INFORMATION Page ITEM I. FINANCIAL STATEMENTS o Balance Sheets as of January 31, 1996 and October 31, 1995 3 o Statements of Income for the three months 5 ended January 31, 1996 and 1995 o Statements of Changes in Stockholders' Equity 6 for the period from October 31, 1994 to January 31, 1996 o Statements of Cash Flows for the three months 7 ended January 31, 1996 and 1995 o Notes to Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 17 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION o Signatures 19 2 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 01/31/96 10/31/95 Unaudited ASSETS Current Assets: Cash and cash equivalents $3,160 $1,114,342 Accounts receivable, net of allowance for doubtful accounts of $92,447. 1,165,689 1,157,560 Inventories 3,049,652 2,344,686 Prepaid expense and other current assets 104,751 57,916 Deferred income tax asset 493,000 413,000 Total current assets 4,816,252 5,087,504 Property, plant and equipment at cost 3,046,321 2,310,373 Less: accumulated depreciation 911,810 882,355 Net property, plant & equipment 2,134,511 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 75,997 78,946 Other assets 158,000 164,580 Total other assets 283,837 293,366 TOTAL ASSETS $7,234,600 $ 7,013,002 3 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 01/31/96 10/31/95 Unaudited LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 440,000 $ 296,878 Accounts payable 1,028,765 901,444 Accrued liabilities 444,602 483,659 Accrued legal fees 294,282 270,344 Customer deposits 1,023,910 1,201,144 Legal settlement 110,000 162,000 Total current liabilities 3,341,559 3,315,469 Long-term debt 180,833 228,333 Minority interest in equity of subsidiary 494,782 481,782 Total liabilities 4,017,174 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 6,069,995 6,069,995 Accumulated deficit (1,787,797) (2,027,894) 4,309,832 4,069,735 Less: Treasury stock, 331,763 shares at cost 419,306 419,306 Less: Note receivable from shareholder 673,100 663,011 Total stockholders' equity 3,217,426 2,987,418 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $7,234,600 $7,013,002 4 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME UNAUDITED Three months ended: 01/31/96 01/31/95 Net Sales $3,177,627 $1,845,825 Cost of Sales 2,157,046 1,253,185 Gross Profit 1,020,581 592,640 Operating Expenses: Selling 348,274 208,019 General and Administrative 482,709 313,615 Total operating expenses 830,983 521,634 Operating Income 189,598 71,006 Other Income (Expenses): Interest income 15,158 13,976 Interest Expense (18,909) (32,260) Other Income 150 12,682 Other Expense -- -- Net gain on Disposal of Fixed Assets -- 1,218 Total Other Income (Expenses) (3,601) (4,384) Less minority interest in income of consolidated subsidiary 13,000 3,263 Income before income taxes 172,997 63,359 Income tax provision (benefit) Current 12,900 3,000 Deferred (80,000) -- NET INCOME 240,097 60,359 Earnings per share 0.09 0.03 Average number of shares and equivalent 2,697,593 2,256,239 5 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for three months ended January 31,1996
Common Stock Par Value $.01 Authorized 25,000,000 Shares Treasury Stock ------------------ ------------------ NUMBER ADDITIONAL NUMBER TOTAL OF SHARES PAR PAID-IN ACCUMULATED OF STOCKHOLDERS' ISSUED VALUE CAPITAL DEFICIT SHARES COST OTHER EQUITY Balance at October 31, 1994 2,263,314 $22,634 $5,574,995 $(2,823,482) 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 5,000 495,000 -- -- -- -- 500,000 Adjustment of Note Receivable from shareholder as a reduction of stockholder's equity (40,355) (40,355) Net income -- -- -- 795,588 -- -- -- 795,588 ----------- -------- ----------- ------------ --------- ---------- ---------- ----------- Balance at October 31, 1995 2,763,314 $27,634 $6,069,995 $(2,027,894) 331,763 $(419,306) $(663,011) $2,987,418 Adjustment of Note Receivable from shareholder as a reduction of stockholder's equity -- -- -- -- -- -- (10,089) (10,089) Net income -- -- -- 240,097 -- -- -- 240,097 ----------- -------- ----------- ------------ --------- ---------- ---------- ----------- Balance at January 31, 1996 2,763,314 $27,634 $6,069,995 $(1,787,797) 331,763 $(419,306) $(673,100) $3,217,426 =========== ======== =========== ============ ========= ========== ========== ===========
6 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For The Three Months Ended 01/31/96 01/31/95 Cash flow from operating activities: Net income $ 240,097 $ 60,359 Adjustments to reconcile net income to net cash provided by operating activities: Items not requiring (providing) cash included in income: Depreciation and amortization 32,404 28,639 Minority interest in income of subsidiary 13,000 3,263 Deferred income taxes (80,000) -- Changes in operating assets and liabilities: (Increase)/decrease in accounts receivable (8,129) (104) (Increase)/decrease in inventories (704,966) (142,879) (Increase)/decrease in prepaid expenses (46,835) 49,930 (Increase)/decrease in other assets 6,580 26,697 Increase/(decrease) in accounts payable 127,321 142,832 Increase/(decrease) in accrued liabilities (67,119) (79,757) Increase/(decrease) in customer deposits (177,234) 127,914 Total adjustments (904,978) 156,535 Net cash provided by (used in) operating activities (664,881) 216,894 Cash flows from investing activities: (Additions) decreases in fixed assets (531,834) (17,586) Increase/(Decrease) in officer notes receivable (10,089) (10,088) Net cash provided by investing activities (541,923) (27,674) Cash flows from financing activities: Increase/(decrease) in officer loans -- (50,000) Increase/(decrease) in long-term liabilities 95,622 (78,911) Proceeds from exercise of stock options -- -- Cash flows provided by (used in) financing activities 95,622 (128,911) Net increase (decrease) in cash (1,111,182) 60,309 Cash and cash equivalents at beginning of period 1,114,342 499,199 Cash and cash equivalents at end of period 3,160 559,508 Supplemental schedule of disclosure of cash flow information Cash paid during period for: Interest 18,402 14,403 Income taxes 9,000 30,000 7 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 January 31, 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 8 Notes to Consolidated Financial Statements, Continued 1. Accounting Policies, Continued: in value were to occur. Accumulated amortization was $82,054 and $67,643 at January 31, 1996 and 1995, respectively. Amortization expense related to intangibles was $2,949 and $3,139 for each of the quarters ended January 31, 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. 9 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 following is an analysis of the notes receivable and accrued interest at January 31, 1996:
Accrued Total Net Principal Interest Note Reserve Total General Counsel $448,364 $224,736 $673,100 $ 0 $673,100 Others 50,000 29,688 79,688 79,688 0 -------- -------- -------- ------- -------- $498,364 $254,424 $752,788 $79,688 $673,100 ======== ======== ======== ======= ========
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 January 31, 1996 and 1995, respectively. An officer and director is a partner in the law firm providing legal services to the Company and as of January 31, 1996 the Company is indebted in the amount of $294,282 to this firm. 3. Inventories: Inventories consisted of the following: January 31 1996 1995 Finished products $ 212,528 $ 394,332 Work in process $ 908,313 $ 272,579 Raw materials $ 1,928,811 $ 795,095 ----------- ----------- $ 3,049,652 $ 1,462,005 =========== =========== 10 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 January 31, 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 January 31, 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: January 31, 1996 1995 Land $ 75,000 $ 75,000 Buildings and improvements 1,793,356 544,967 Machinery and equipment 971,428 593,378 Vehicles 206,537 156,972 ---------- ---------- 3,046,321 1,370,317 Less: accumulated depreciation 911,810 799,041 ---------- ---------- $2,134,511 $ 571,276 ========== ========== Depreciation expense was $29,455 and $25,500 in the quarter ending January 31, 1996 and 1995, respectively. 11 Notes to Consolidated Financial Statements, Continued 6. Long-Term Debt: Long-term debt consists of the following: January 31, 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 $370,833 $560,833 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 0 209,544 Revolving promissory note payable to bank in the amount of $1,000,000, at prime rate plus 1/2% interest. Interest is payable monthly $250,000 0 Present value of minimum capital lease obligation, net of $303 interest, due in 1995 0 8,480 -------- -------- 620,833 778,857 Current maturities 440,000 408,023 -------- -------- $180,833 $370,834 ======== ======== 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. The Company failed to achieve the current ratio covenant. 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 May 30, 1996. The Company has pledged substantially all of its assets as collateral under the term loan and revolving loan agreement. 12 Notes to Consolidated Financial Statements, Continued 6. Long-Term Debt, Continued: Maturities of debt are as follows: Aggregate Obligation Period ending January 31: 1967 $440,000 1998 180,833 -------- $620,833 ======== 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. 13 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 January 31, 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"). 14 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 of 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 to 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. 15 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 January 31, 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. 16 ITEM 2. MANAGEMENT'S'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Three Month Comparisons For the first quarter of fiscal 1996 the Company had consolidated net sales of $3,177,627 as compared to $1,845,825 for the first quarter 1995, an increase of 72.2%. The increase in sales is the result of strong shipments in certain niche markets including crumb rubber, cotton and clothing balers. Also, sales in the first quarter of Fiscal 1995 were lower due to the delay of shipments from January to February at customer's request. Consolidated net income in the first quarter 1996 was $240,097 versus net income of $60,359 in the corresponding quarter of the prior year. Earnings per share were $.09 for the first quarter 1996 and $.03 for the first quarter 1995. The earnings per share increase was achieved even though the average number of shares outstanding increased by 441,354 shares. The company continues to experience significant start-up costs related to the new International Press and Shear (IPS) subsidiary which amounted to over $300,000 in the quarter. The Company also had income of $80,000 due to the recording of a deferred tax asset. Management anticipates that operations for fiscal 1996 will result in higher sales and earnings than in fiscal 1995. The backlog as of February 29, 1996 was $3,456,000 as compared with $2,250,000 as of February 28, 1995, an increase of approximately 53.6%. Financial Condition: Working capital decreased from $1,772,035 at October 31, 1995 to $1,474,693 at the end of the first quarter 1996. This decrease was directly related to expenditures incurred in connection with the start-up of the IPS subsidiary which included an inventory increase of approximately $724,000 and capital expenditures of approximately $496,000. The Company is in the process of obtaining mortgage financing for the facility in Baxley, Georgia. During the first quarter the term loan balance was reduced by $47,500 to $370,833. 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. The property held for sale, in which a discontinued subsidiary had operated, was sold in December 1995 and the mortgage loan balance of $106,878 was paid off. As of the end of the first quarter 1996 the Company had borrowed $250,000 against its $1,000,000 line of credit with SouthTrust Bank. 17 Fixed asset expenditures for the remainder of fiscal 1996 will include approximately $200,000 for the facility in Baxley and $50,000 for the facility in Jacksonville. These capital improvements and equipment additions should be completed prior to the third quarter of fiscal 1996. 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 costs 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. 18 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: March 6, 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) 19 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. 3-MOS OCT-31-1996 JAN-31-1996 3,160 0 1,258,136 92,447 3,049,652 4,816,252 3,046,321 911,810 7,234,600 3,341,559 0 0 0 27,634 3,189,792 7,234,600 3,177,627 3,177,627 2,157,046 2,988,029 16,601 0 18,909 172,997 (61,700) 240,097 0 0 0 240,097 .09 .09
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