10QSB 1 form10qsb_13354.txt FORM 10-QSB (JANUARY 31, 2005) ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended January 31, 2005. -------------------- [_] Transition report under 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 CORPORATION ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter) Delware 13-2842053 ------------------------------- --------------- (State or Other Jurisdiction of I.R.S. Employer Incorporation or Organization Identification No.) 5400 Rio Grande Avenue Jacksonville, Florida 32254 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (904)355-5558 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) Check whether issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] At February 28, 2005, Issuer had outstanding 5,516,349 shares of its Common Stock. Transitional small business disclosure format check one: Yes [_] No [X] ================================================================================ WASTE TECHNOLOGY CORPORATIONTABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION............................................... 3 ITEM 1. FINANCIAL STATEMENTS o Consolidated Condensed Balance Sheets as of January 31, 2005, and October 31, 2004..................... 3 o Consolidated Condensed Statements of Operations for the three months ended January 31, 2005, and January 31, 2004 . . ...................................... 4 o Consolidated Condensed Statements of Changes in Stockholders' Equity for the period from October 31, 2003, to January 31, 2005.............................. 5 o Consolidated Condensed Statements of Cash Flows for the three months ended January 31, 2005, and January 31, 2004........................................... 6 o Notes to Consolidated Condensed Financial Statements................................................. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 10 ITEM 3. CONTROLS AND PROCEDURES.................................... 11 PART II. OTHER INFORMATION................................................... 11 ITEM 6. EXHIBITS................................................... 12 SIGNATURES................................................................... 13 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS UNAUDITED
1/31/2005 10/31/2004 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents $ 294,621 $ 245,553 Accounts receivable, net of allowance for doubtful accounts of $50,000 and $40,000 in 2005 and 2004, respectively 915,087 984,128 Inventories 1,176,936 1,104,936 Prepaid expense and other current assets 34,451 63,831 ------------ ------------ Total current assets 2,421,095 2,398,448 Property, plant and equipment, at cost 1,877,409 1,877,409 Less: accumulated depreciation 1,397,179 1,388,779 ------------ ------------ Net property, plant and equipment 480,230 488,630 Other assets: Other assets 3,246 3,246 Due from Director 79,201 81,528 ------------ ------------ Total other assets 82,447 84,774 ------------ ------------ TOTAL ASSETS $ 2,983,772 $ 2,971,852 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving promissory note $ 18,188 $ 9,246 Accounts payable 521,420 515,485 Accrued liabilities 377,807 428,787 Current portion of deferred compensation 67,000 67,000 Customer deposits 456,302 430,765 ------------ ------------ Total current liabilities 1,440,717 1,451,283 Deferred compensation, net of current portion 343,948 353,321 ------------ ------------ Total liabilities 1,784,665 1,804,604 Stockholders' equity: Common stock, par value $.01 25,000,000 shares authorized; 6,179,875 shares issued in 2004 and 2003 61,799 61,799 Preferred stock, par value $.0001, 10,000,000 shares authorized, none issued -- -- Additional paid-in capital 6,347,187 6,347,187 Accumulated deficit (4,398,991) (4,434,092) ------------ ------------ 2,009,995 1,974,894 Less: Treasury stock, 663,526 shares at cost 419,306 419,306 Less: Note receivable from shareholders 391,582 388,340 ------------ ------------ Total stockholders' equity 1,199,107 1,167,248 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,983,772 $ 2,971,852 ============ ============
See accompanying notes to condensed consolidated financial statements. 3 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS UNAUDITED
Three months ended: 1/31/2005 1/31/2004 ------------------- ------------ ------------ Net Sales $ 1,713,494 $ 1,267,608 Cost of Sales 1,368,773 1,066,663 ------------ ------------ Gross Profit 344,721 200,945 Operating Expenses: Selling 130,285 121,948 General and Administrative 178,062 160,811 ------------ ------------ Total operating expenses 308,347 282,759 Operating Income (Loss) 36,374 (81,814) Other Income (Expense): Interest Income 3,417 3,790 Interest Expense (7,918) (6,976) Other Income 3,228 938 Other Expense -- -- ------------ ------------ Total Other Income (Expenses) (1,273) (2,248) ------------ ------------ Income (Loss) before income taxes 35,101 (84,062) Income Taxes Current -- -- Deferred -- -- ------------ ------------ Net Income (Loss) $ 35,101 $ (84,062) ============ ============ Basic and diluted Income (Loss) per share 0.01 (0.02) Weighted average number of shares 5,516,349 5,516,349
See accompanying notes to condensed consolidated financial statements. 4 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY For the Year Ended October 31, 2004 and the Three Months Ended January 31, 2005 unaudited
COMMON STOCK PAR VALUE $.01 AUTHORIZED 25,000,000 SHARES TREASURY STOCK ----------------------- ----------------------- NUMBER ADDITIONAL NUMBER NOTE RECEIVABLE TOTAL OF SHARES PAR PAID-IN ACCUMULATED OF FROM STOCKHOLDERS' ISSUED VALUE CAPITAL DEFICIT SHARES COST SHAREHOLDER EQUITY ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Balance at October 31, 2003 6,179,875 $ 61,799 $6,347,187 $(4,620,462) 663,526 $ (419,306) $ (379,792) $ 989,426 Net Adjustment of Note Receivable from shareholder -0- -0- -0- -0- -0- -0- (8,548) (8,548) Net Income (Loss) -0- -0- -0- 186,370 -0- -0- -0- 186,370 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Balance at October 31, 2004 6,179,875 61,799 6,347,187 (4,434,092) 663,526 (419,306) (388,340) 1,167,248 Net Adjustment of Note Receivable from shareholder -0- -0- -0- -0- -0- -0- (3,242) (3,242) Net Income (Loss) -0- -0- -0- 35,101 -0- -0- -0- 35,101 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- Balance at January 31, 2005 6,179,875 $ 61,799 $6,347,187 $(4,398,991) 663,526 $ (419,306) $ (391,582) $1,199,107 ========== ========== ========== =========== ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements. 5 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS unaudited
For The Three Months Ended 1/31/2005 1/31/2004 -------------------------- ------------ ------------ Cash flow from operating activities: Net (loss) income $ 35,101 $ (84,062) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,400 8,401 Changes in operating assets and liabilities: Accounts receivable 69,041 43,609 Inventories (72,000) 64,999 Prepaid expenses and other current assets 29,380 5,310 Accounts payable 5,935 51,205 Accrued liabilities, Deferred compensation (60,353) (24,204) Customer deposits 25,537 (62,220) Accrued judgment -- (28,500) ------------ ------------ Net cash provided by (used in) operating activities 41,041 (25,462) Cash flows provided by (used in) investing activities: (Increase)decrease in notes receivable from shareholders (915) 1,644 Purchase of property and equipment -- -- ------------ ------------ Net cash provided by (used in) investing activities (915) 1,644 Cash flows provided by (used in) financing activities - Net Drawings (payments) from revolving promissory note 8,942 57,448 Net increase (decrease) in cash and cash equivalents 49,068 33,630 Cash and cash equivalents at beginning of period 245,553 99,495 ------------ ------------ Cash and cash equivalents at end of period $ 294,621 $ 133,125 ============ ============ Supplemental schedule of disclosure of cash flow information: Cash paid during period for: Interest $ 7,918 $ 6,976 Income taxes -- --
See accompanying notes to condensed consolidated financial statements. 6 WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Nature of Business: Waste Technology Corporation (the Company) is a manufacturer of baling equipment which utilize technical, hydraulic and electrical mechanisms to compress a variety of materials into bales for easier handling, shipping, disposal, storage, and for recycling. Materials commonly baled include scrap metal, corrugated boxes, newsprint, aluminum cans, plastic bottles, and other solid waste. More sophisticated applications include baling of textile materials, fibers and synthetic rubber. The Company offers a wide variety of balers, standard models as well as custom models to meet specific customer requirements. The Company's customers include recycling facilities, paper mills, textile mills, and the companies which generate the materials for baling and recycling. The Company sells its products worldwide with 10% to 25% of its annual sales outside the United States. 2. Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all of the information footnotes required by United States 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 period ended January 31, 2005, are not necessarily indicative of the results that may be expected for the year ending October 31, 2005. The accompanying consolidated condensed balance sheet as of October 31, 2004 was derived from the audited consolidated financial statements as of and for the year ended October 31, 2004. For further information, refer to the Company's Annual Report on form 10-KSB for the year ended October 31, 2004, and the Management Discussion included in this Form 10-QSB. Certain prior year amounts have been reclassified to conform with the current year's presentation. 7 3. Summary of Significant Accounting Policies: (a) Principles of Consolidation: The accompanying consolidated condensed financial statements include the accounts of Waste Technology Corporation and all of its wholly owned subsidiaries. Intercompany balances and material intercompany transactions have been eliminated in consolidation. (b) Revenue Recognition: The Company recognizes revenue when products are shipped and the customer takes ownership and assumes the risk of loss. Parts sales are approximately 15% of total sales. Warranty parts shipments and warranty service repairs are expensed as they occur and the Company maintains an accrued liability in excess of six months expected warranty claims. (c) Basic and Diluted Earnings (Loss) Per Share: Basic earnings/(loss) per share is calculated using the weighted average number of common shares outstanding during each period. Diluted earnings/(loss) per share includes the net additional number of shares that would be issued upon the exercise of stock options using the treasury stock method. Options are not considered in loss periods as they would be antidilutive. 4. Related Party Transactions: The Company was indebted in the amount of $597,378 to the General Counsel and his law firm at January 31, 2005. During 1997, the General Counsel and his law firm authorized the Company to offset accrued legal fees against the note receivable from the General Counsel at such time as the Board of Directors shall determine. Accordingly, accrued legal fees are presented as a reduction of notes receivable from General Counsel at January 31, 2005. The notes receivable from the General Counsel, net of the amount the Company is indebted to the General Counsel, is shown as a reduction of stockholders' equity. On December 29, 1995, the Company transferred a life insurance policy, covering the life of its president, to the president in exchange for a note receivable. The amount of the note receivable from the former president was equal to the amount of the cash surrender value of the policy at the time of the transfer. During 2003, the former president signed over the life insurance policy to the Company, which then cashed in the policy and used the proceeds to reduce the note receivable from the former president. The note receivable from the former president was $94,079 at January 31, 2005. Interest accrues at 6% per annum. The Company has a deferred compensation agreement with the former president of the Company for deferred compensation payments. The Company will make deferred compensation payments with a present value of $410,948, payable over the next eight years, a portion of the deferred compensation payments will be used to repay the outstanding note receivable discussed above. 8 5. Inventories Inventories consisted of the following: January 31, 2005 October 31, 2004 ---------------- ---------------- Finished Products $ 210,137 $ 166,137 Work in process 533,540 510,540 Raw materials 433,259 428,259 $1,176,936 $1,104,936 6. Revolving Promissory Note: In August 2000, the Company entered into a line of credit agreement which allows the Company to borrow against certain equipment and 80% of eligible receivables or $500,000. The line of credit bears interest at prime rate plus one percent (1%) plus certain service charges. The line of credit had an outstanding balance of $18,188 and the unused line of credit was approximately $89,000 at January 31, 2005. 7. Income Taxes As of January 31, 2005, the Company's anticipated annual effective tax rate is zero as a result of current quarter results, and, if needed, the reduction in a portion of the valuation allowance equal to the utilization of net operating loss carry-forwards. As of January 31, 2005, the Company has approximately $3,200,000 of net operating loss carry-forwards for tax purposes, which expire in years 2007 through 2024. 8. Stock-Based Compensation The Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and are related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company has adopted the disclosure only provisions of SFAS No. 123. As such, had compensation expense for the Company's stock plan been determined based on fair value at the date of grant, the Company's net loss would have been as follows: Three Months ended January 31: ------------------------------ 2005 2004 -------- -------- Net income (loss) $ 35,101 $(84,062) Proforma compensation expense -- -- -------- -------- Proforma net income (loss) $ 35,101 $(84,062) ======== ======== Basic and diluted income per share $ 0.01 $ (0.02) 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Three Month Comparison --------------------------------------------- In the first quarter ending January 31, 2005, the Company had net sales of $1,713,494 as compared to net sales of $1,267,608 in the first quarter of fiscal 2004, an increase of 35.2%. The increase in sales was the result of the improved economic conditions in the first quarter of 2005 versus the prior year. The Company had net income of $35,101 in the first quarter of fiscal 2005, as compared to a net loss of $84,062 in the first quarter of fiscal 2004. The higher net income was the result of the higher volume of shipments resulting in higher gross profit, partially offset by higher selling and administration expenses. Although no assurances can be given, the Company believes that it will equal or exceed the results of the prior fiscal year due to the improved economic conditions over the prior year. The sold order backlog was approximately $2,500,000 at February 28, 2005 as compared to $2,000,000 at February 29, 2004. Financial Condition: -------------------- Net working capital at January 31, 2005 was $980,378 as compared to $947,165 at October 31, 2004. The Company currently believes that it will have sufficient cash flow to be able to make the balance of all installment payments and fund other operating activities for the next twelve months. The Company has a line of credit agreement with Presidential Financial Corporation which allows the Company to borrow up to $500,000. The line of credit bears interest at the prime rate plus one percent (1%) plus certain service charges. This agreement has a one year term with an automatic renewal unless either of the parties to the agreement gives written notice to terminate the agreement at least sixty (60) days prior to the annual renewal date. This agreement has been renewed three times and the Company is current under the obligations of the agreement. The Company had a loan balance of $18,188 and availability of $89,000 at January 31, 2005 on this line of credit. The Company has no commitments for any significant capital expenditures. Other than as set forth above, there are no unusual or infrequent events or transactions or significant economic changes which materially affect the amount of reported income from continuing operations. This "Management's Discussion and Analysis" contains forward-looking statements within the meaning of Section 21B of the Securities and Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are necessarily based on certain assumptions which are subject to risks and uncertainties including, but not limited to, changes in general economic conditions and changing competition which could cause actual results to differ materially from those indicated. 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 its products will be able to include sufficient increases to offset any increase in costs due to inflation. 10 ITEM 3. CONTROLS AND PROCEDURES Controls and procedures ----------------------- The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this report, and under the supervision and with the participation of the management, including the Company's Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the design and operation of these disclosure controls and procedures. Based on this evaluation and subject to the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in reaching a reasonable level of assurance of achieving management's desired controls and procedures objectives. There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to affect, the Company's internal control over financial reporting. As part of a continuing effort to improve the Company's business processes management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures. Changes in Internal Controls ---------------------------- There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Company's Chief Executive Officer and Chief Financial Officer completed his evaluation. There were no significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or taken. PART II. OTHER INFORMATION None 11 ITEM 6. EXHIBITS The following exhibits are submitted herewith: Exhibit 31 Certification of William E. Nielsen, Chief Executive Officer and Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 Certification of William E. Nielsen, Chief Executive Officer and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 12 SIGNATURES ---------- In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned there unto duly authorized. Dated: March 15, 2005 WASTE TECHNOLOGY CORPORATION BY: /s/ William E. Nielsen -------------------------- William E. Nielsen President and CEO and Chief Financial Officer (Principal Financial and Accounting Officer) BY: /s/ Morton S. Robson -------------------------- Morton S. Robson Secretary 13