-----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, JRku6QuAjASjm3locWYlTevCEK58lPvcbh/PgPeHPazolslqL5voz+vJAtysubi1 sjMKKFgaxkbbTCvTvcsoHQ== 0000950123-96-004392.txt : 19960814 0000950123-96-004392.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950123-96-004392 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KTI INC CENTRAL INDEX KEY: 0000931581 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 222665282 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25490 FILM NUMBER: 96611266 BUSINESS ADDRESS: STREET 1: 7000 BLVD E CITY: GUTTENBERG STATE: NJ ZIP: 07093 BUSINESS PHONE: 2018547777 MAIL ADDRESS: STREET 1: 7000 BOULEVARD EAST CITY: GUTTENBERG STATE: NJ ZIP: 07093 10-Q 1 KTI, INC. 1 FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 Commission File No. 0-25490 KTI, INC. (Exact name of registrant as specified in its charter) New Jersey 22-2665282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 7000 Boulevard East Guttenberg, New Jersey 07093 (Address of principal executive offices) (Zip code) (201) 854-7777 (Registrants telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Common Stock, No Par Value 5,753,305 Shares as of August 9, 1996 2 TABLE OF CONTENTS
Item Number and Caption Page Number - ----------------------- ----------- PART I Item 1. Financial Statements 2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8K 14
1 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KTI, INC. CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31, 1996 1995 ----------------------------------------------- ASSETS (Unaudited) Current Assets Cash and cash equivalents $762,760 $6,454,558 Restricted funds - current portion 7,130,657 7,042,404 Accounts receivable, net of allowances of $330,250 and $480,662 in 1996 and 1995. 5,359,834 8,983,699 Notes receivable--officers/shareholders and affiliates - current 143,340 96,225 Other receivables - current portion 265,386 295,723 Other current assets 521,200 742,638 ----------------------------------------------- Total current assets 14,183,175 23,615,247 Restricted funds 148,591 6,502,227 Management fees receivable--affiliates 2,573,912 2,933,274 Notes receivable - officers/shareholders and affiliates 67,931 224,438 Other receivables 410,769 495,901 Investment in PERC 3,592,568 3,594,638 Deferred costs, net of accumulated amortization of $575,933 and $524,236. 165,967 3,818,732 Goodwill and other intangibles, net of accumulated amortization of $514,715 and $539,483. 1,662,818 3,613,621 Other assets 1,687,470 486,778 Property, equipment and leasehold improvements, net of accumulated depreciation of $12,280,605 and $10,108,341 82,234,821 87,621,577 ----------------------------------------------- Total assets $106,728,022 $132,906,433 =============================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $3,384,593 $2,512,109 Accrued expenses 2,210,070 5,322,013 Current portion of long-term debt 9,266,408 7,977,899 Income taxes payable 290,000 290,000 Other current liabilities 634,769 614,837 ----------------------------------------------- Total current liabilities 15,785,838 16,716,858 Other liabilities 166,348 70,368 Long-term debt, less current portion 17,327,216 107,398,263 Minority interest 10,383,110 1,840,377 Deferred income 44,062,500 Commitments and contingencies Stockholders' equity Preferred stock; 10,000,000 shares authorized, no shares issued or outstanding Common stock, no par value (stated value $.01 per share); authorized 11,992,000; issued and outstanding 5,737,417 in 1996 and 5,663,784 in 1995 57,375 56,638 Additional paid-in capital 33,940,831 33,429,923 Accumulated (deficit) (14,995,196) (26,605,994) ----------------------------------------------- Total stockholders' equity 19,003,010 6,880,567 ----------------------------------------------- Total liabilities and stockholders' equity $106,728,022 $132,906,433 ===============================================
See accompanying notes. 2 4 KTI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended June 30, June 30, ------------------------------- ------------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Revenues: Electric power revenues 3,607,647 $ 5,592,697 11,009,117 $ 12,558,735 Gain on sale of capacity 32,057,359 -- 32,057,359 -- Waste processing revenues 1,917,398 1,797,273 4,007,858 3,838,672 Other waste handling revenues 1,758,571 1,026,129 2,474,358 1,865,831 ------------ ------------ ------------ ------------ Total revenues 39,340,975 8,416,099 49,548,692 18,263,238 ------------ ------------ ------------ ------------ Costs and expenses: Electric power and waste processing operating costs 7,279,644 5,913,333 13,766,689 11,816,511 Selling, general and administrative 320,329 605,942 3,595,213 1,284,849 Interest - net 1,218,649 2,399,442 3,257,169 4,775,478 ------------ ------------ ------------ ------------ Total costs and expenses 11,234,119 8,918,717 20,619,070 17,876,838 Equity in net income of PERC 107,222 103,274 132,794 179,561 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before minority interest and extraordinary item 30,629,576 (399,344) 31,477,914 565,961 Minority interest (16,420,963) 175,937 (17,252,216) (523,733) ------------ ------------ ------------ ------------ Income (loss) from continuing operations before extraordinary item 14,208,613 (223,407) 14,225,698 42,228 Discontinued operations Income (loss) from operations of computer services (223,181) 249,184 (218,166) 341,915 ------------ ------------ ------------ ------------ Income before extraordinary item 13,985,431 25,777 14,007,531 384,143 Extraordinary item - loss on early extinguishment of debt, net of minority interest (2,396,731) -- (2,396,731) ------------ ------------ ------------ ------------ Net income $ 11,588,700 $ 25,777 $ 11,610,800 $ 384,143 ============ ============ ============ ============ Earnings (loss) per common share and common share equivalent Income (loss) from continuing operations $ 2.39 ($ 0.05) $ 2.39 $ 0.01 Income (loss) from discontinued operations (0.04) 0.05 (0.04) 0.07 ------------ ------------ ------------ ------------ Income before extraordinary item 2.35 0.01 2.36 0.08 Extraordinary item (0.40) 0.00 (0.40) 0.00 ------------ ------------ ------------ ------------ Net income $ 1.95 $ 0.01 $ 1.95 $ 0.08 ============ ============ ============ ============ Weighted average number of common shares and common share equivalents outstanding 5,946,800 4,934,200 5,947,200 4,571,800 ============ ============ ============ ============
See accompanying notes 3 5 KTI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 1995 ------------ ------------ (Unaudited) OPERATING ACTIVITIES Net income $ 11,610,800 $ 384,143 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 3,049,797 3,196,897 Minority interest 17,252,216 523,733 Amortization 523,718 553,503 Provision for losses on accounts receivable 150,412 (54,391) Interest accrued and capitalized on debt 90,988 273,454 Equity in net income of PERC, net of distributions 2,070 (179,561) Proceeds from sale of capacity 79,472,857 -- Gain from sale of capacity (32,057,359) -- Extraordinary item, net of minority interest 2,396,731 -- Loss on sale of assets 53,981 7,415 Changes in operating assets and liabilities Increasing (decreasing) cash: Accounts receivable 3,473,452 (1,457,507) Management fees receivable 359,362 255,535 Other receivables 160,469 457,721 Deferred financing costs (1,164,678) (155,899) Other assets (1,024,254) 220,130 Accounts payable 872,484 (971,634) Accrued expenses (3,111,944) (752,318) Other liabilities 115,912 (94,815) ------------ ------------ Net cash provided by operating activities 82,227,014 2,206,406 INVESTING ACTIVITIES Additions to property, equipment and leasehold improvements (5,049,036) (1,744,167) Proceeds from sale of assets 130,000 175,636 Decrease (increase) in restricted cash and cash equivalents 6,265,383 (1,270,748) Costs incurred in connection with merger -- (447,535) Cash acquired in merger with Convergent Solutions, Inc. -- 2,838,188 Purchase of additional partnership interest in Maine Energy (1,239,867) -- Notes receivable--officers/shareholders and affiliates 109,392 (21,649) ------------ ------------ Net cash provided by (used in) investing activities 215,872 (470,275) FINANCING ACTIVITIES Proceeds from issuance of debt 4,124,111 350,000 Proceeds from sale of common stock 11,645 26,607 Principal payments on debt (92,270,440) (5,592,857) ------------ ------------ Net cash used in financing activities (88,134,684) (5,216,250) ------------ ------------ Decrease in cash and cash equivalents (5,691,798) (3,480,119) Cash and cash equivalents at beginning of period 6,454,558 7,386,214 ------------ ------------ Cash and cash equivalents at end of period $ 762,760 $ 3,906,095 ============ ============
-Continued- 4 6 KTI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 3,307,200 $ 4,011,164 =========== =========== NON CASH INVESTING AND FINANCING ACTIVITIES Common Stock issued in connection with the merger with Convergent Solutions, Inc. $ 9,001,718 Liquidation of debt payable to Convergent Solutions, Inc. (4,492,604) Conversion of debt to equity $ 500,000
See accompanying notes. 5 7 KTI, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ------- ------- ----- Balance at December 31,1994 3,215,826 $32,158 $21,331,679 ($25,274,500) ($3,910,663) Net loss (1,331,494) (1,331,494) Issuance of common stock from exercise of stock options 70,457 705 256,112 256,817 Issuance of common stock in connection with business combination 1,715,280 17,153 8,984,565 9,001,718 Sale of common stock 662,221 6,622 2,857,567 2,864,189 ---------- ---------- ------------ ------------- ------------ Balance at December 31, 1995 5,663,784 56,638 33,429,923 (26,605,994) 6,880,567 Net income 11,610,798 11,610,798 Issuance of common stock from exercise of stock options 2,332 24 11,621 11,645 Issuance of common stock upon coversion of debt 71,301 713 499,287 500,000 ---------- ---------- ------------ ------------- ------------ Balance at June 30, 1996 5,737,417 $57,375 $33,940,831 ($14,995,196) $19,003,010 ========== ========== ============ ============= ============
See accompanying notes. 6 8 KTI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months or six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Certain 1995 financial information contained herein has been reclassified to conform with the 1996 presentation. 2. EARNINGS (LOSS) PER SHARE Earnings (loss) per share have been computed based on the weighted average number of shares outstanding as well as the dilutive effect of outstanding options and warrants during the periods presented computed in accordance with a Staff Accounting Bulletin ("SAB") of the Securities and Exchange Commission. The SAB requires that all stock issued within a twelve month period prior to an initial public offering of common stock must be treated as outstanding for all periods presented whether dilutive or anti-dilutive. 3. INFORMATION REGARDING PENOBSCOT ENERGY RECOVERY COMPANY The following financial information of Penobscot Energy Recovery Company is provided in accordance with Article 10.01(b)(1) of Regulation S-X:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1996 1995 1996 1995 Revenues $ 7,839,240 $ 7,348,409 $14,716,557 $14,366,942 Operating expenses 3,844,041 3,527,270 7,944,072 7,187,023 Net income 1,748,343 1,698,146 2,330,245 3,003,964
7 9 4. DEBT The Company's debt consists of the following:
JUNE 30, DECEMBER 31, 1996 1995 ---- ---- 12% term note payable to a bank $2,507,448 $2,607,448 10% note payable to Energy National, Inc. 1,218,029 1,455,430 Subordinated note payable to Davstar Managed Investments Corporation, net of unamortized original issue discount of $25,096 and $55,911 1,025,205 1,426,182 Note payable to former shareholder 155,877 183,494 12% subordinated notes payable 2,428,590 2,295,000 9.9% secured term notes payable to GE Capital 288,463 382,699 10-13% secured term notes payable to Associates Commercial Corp. 309,050 428,193 9.11% secured term note payable to KDC Financial Limited 140,263 170,801 Notes payable to limited partners of Maine Energy 490,063 326,063 11% secured note payable to PENPAC, Inc. 296,500 530,128 Notes payable ash recycling subsidiary 1,446,797 Bank line of credit 220,000 8% term notes payable 2,243,314 Other 338,221 754,629 ------------ ------------ 13,107,820 10,560,067 Resource Recovery Revenue Bonds Payable 64,500,000 12% Subordinated Notes Payable to Maine Energy Limited Partners 13,485,804 40,316,095 ------------ ------------ 26,593,624 115,376,162 Less current portion 9,266,408 7,977,899 ------------ ------------ $ 17,327,216 $107,398,263 ============ ============
5. RESTRUCTURING OF POWER PURCHASE AGREEMENT On May 3, 1996, the Company's 50.38% owned subsidiary, Maine Energy Recovery Company LP ("Maine Energy") completed a restructuring of its Power Purchase Agreement (the "PPA") with Central Maine Power Company ("CMP") and the sale of its electrical generating capacity to CL Power Sales One, L.L.C. ("CL One"). At closing Maine Energy Received a payment from CL One of $85,000,000 and the PPA was amended, retroactive to November 6, 1995, to reflect a reduction in CMP's purchase price per kWh from $0.16 to $0.0718. In addition, the PPA was extended from the year 2007 to 2012. Based upon certain contingencies in the agreements, Maine Energy will defer $45,000,000 of the proceeds of the sale of its capacity and will recognize it as revenue ratably in the future as the contingencies are eliminated. Maine Energy recognized a one time gain of $32,057,359 from this transaction. Maine Energy has used the proceeds from the sale of its capacity to repay the $64,500,000 Resource Recovery Bonds and to retire the bank letter of credit issued to enhance the credit of the bonds. The remaining proceeds were used together with unrestricted cash balances to repay $29,500,000 of the total of subordinated notes payable to limited partners. 8 10 6. INVESTMENT IN ASH RECYCLING FACILITIES In separate transactions, the Company purchased 60% limited partnership interests in two ash recycling facilities from Environmental Capital Holdings, Inc. and its subsidiary, American Ash Recycling Corp. One of the facilities is located in Nashville, TN and operates under the name American Ash Recycling of Tennessee. The second partnership is for a facility proposed to be built in the State of Maine which will operate as American Ash Recycling of Maine. 7. CONTINGENCIES The Company is a defendant in certain law suits alleging various claims incurred in the ordinary course of business. Management of the Company does not believe that the outcome of these matters, individually or in the aggregate, will have a material effect on the Company's financial condition, cash flows or results of operations. 8. SUBSEQUENT EVENT On July 19, 1996, the Company and its wholly-owned subsidiary, DataFocus Incorporated ("DataFocus"), executed an Agreement with CIBER, Inc. ("CIBER"). Pursuant to the Agreement, DataFocus sold substantially all of the assets of DataFocus' Business Systems Division, other than cash and accounts receivable, to CIBER for $5,000,000 in cash, subject to certain adjustments for liabilities on July 26, 1996. Additionally, on July 29, 1996, the Company sold the stock of DataFocus to certain members of the management of DataFocus. Pursuant to the sale, the Company will receive $5,000 cash, the cancellation of stock options issued to DataFocus management to purchase 132,328 shares of the Company's common stock, the cancellation of an option to purchase 20% of the common stock of DataFocus, and a royalty agreement. Under the royalty agreement , the Company will receive a monthly base royalty of $5,000 and quarterly payments of additional royalties, equal to 5% of net revenue from the sale of NuTCRACKER software product in excess of $4,000,000 per year. DataFocus will have the right to repurchase the royalty agreement pursuant to certain defined conditions. 9 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES Electric power revenues decreased by for the quarter and six months ended June 30, 1996 compared to the same period in 1995. The decreased revenue was a result of a reduced contract rate per kilowatt hour under the new PPA from 15.53(cent) to 7.18(cent) per kWh resulting in decreased revenues of $1,985,000 and $1,550,000 for the quarter and six months compared to the same period in 1995. Also, as a result of the sale of capacity under the PPA, the Company has deferred $45,000,000 of revenue from this transaction which will be amortized through May 31, 2007. Revenues from the gain on the sale of capicity were $32,057,000 for the quarter and six months ended June 30, 1996 arising from the sale of capacity under our Power Purchase Agreement("PPA"). Revenues from waste processing increased by $120,000 and $169,000 for the quarter and six months ended June 30, 1996 compared to the same periods in 1995. The increase principally from a 5,328 and 8,329 increase in tons of waste processed which resulted in increased revenues of $198,000 and $299,000 for the 1996 quarter and six months, respectively. This increase was offset by an $1.46 and $1.13 decrease in the average tipping fee which resulted in decreased revenues of $78,000 and $130,000 for the quarter and six months resulting from a reduction in the charter and host communities tipping fees as required upon the retirement of the $64,500,000 in bonds at Maine Energy. Other waste handling revenues increased by $732,000 and $609,000 for the quarter and six months ended June 30, 1996, respectively compared to the same period 1995. The increase in the quarter and six months is primarily from the inclusion of ash recycling revenues of $524,000 and $608,000 in the quarter and six months, respectively. Additional increases resulted principally from an increase in specialty waste revenues of $215,000 and $369,000 for the quarter and six months compared to the same period in 1995. KTI Bio Fuels revenues increased by $49,000 for the quarter as a result of increased supply of woodwaste while for the six months revenues have decreased $267,000 principally as a result of a shutdown for four weeks during the first quarter of 1996 as the result of deminished supply of woodwaste and severe weather conditions. Lease revenue from transportation equipment decreased by $56,000 and $101,000 for the quarter and six months, respectively as the result of the sale of equipment. COSTS AND EXPENSES Operating costs increased by $1,366,000 and $1,950,000 for the quarter and six months ended June 30,1996 compared to the same period in 1995. The increase in the quarter and six months results principally from a $362,000 and $803,000 increase in maintenance expense and a $536,000 and $661,000 increase in payroll and related costs for the quarter and six months ended June 30, 1996, respectively, compared to the same periods in 1995, both at Maine Energy. An additional increase in the quarter and six months arises from the inclusion of ash recycling expenses of $486,000. Selling, general and administrative expenses decreased by $286,000 and $105,000 for the quarter and six months ended June 30, 1996 compared to the same periods in 1995 principally as result of a decrease in amortization expense resulting from the write off of deferred costs related to the PPA in the quarter. INTEREST AND OTHER ITEMS Interest expense decreased by $1,181,000 and $1,518,000 for the quarter and six months compared to the same periods in 1995, principally because of the retirement of $64,500,000 of bonds and $29,500,000 subordinated note payment on May 3, 1996, lower interest rates on bonds while they were outstanding, and a decrease in letter of credit fees all at Maine Energy. 10 12 Minority interest of $14,060,000 and $14,892,000 for the quarter and six months ended June 30, 1996, respectively, principally results from the elimination of 49.38% of Maine Energy's net income through May 2, 1996 and 25.85% after May 2, 1996, net of amortization. The Company reported a loss from discontinued operations of $223,000 and $218,000 for the quarter and six months ended June 30, 1996, respectively, compared to income of $249,000 and $342,000 for the same periods in 1995. The discontinued operations relates to the computer service division which, as described in the notes to the financial statements was sold on July 26, 1996. The extraordinary loss of $4,757,000 for the quarter and six months ended June 30, 1996 resulted from the early extinguishment of bonds at Maine Energy as related to the sale of capacity under the PPA. The Company had net income of $11,589,000 and $11,611,000 for the quarter and six months ended June 30, 1996, respectively, compared to net income of $26,000 and $384,000 for the same periods in 1995. LIQUIDITY AND CAPITAL RESOURCES Since December 31, 1995, the Company has made private placements of $2,503,314 of notes together with 400,458 warrants to purchase shares of the Company's Common Stock at $6.00 per share of which $2,003,314 has been repaid prior to maturity. The remaining notes are due November 1, 1996. The warrants expire on March 31, 2001. The Company used the proceeds of the offerings to fund its AART obligation and fund working capital. On June 30, 1996, the Company's current portion of long-term debt was $9,266,000. As a result of the sale of assets on July 26, 1996, the Company repaid approximately $2,694,000 of the current portion of long-term debt. While it may be necessary for the Company to raise additional funds through capital or debt, management is confident that it will meet all of its short term obligations. Maine Energy used the proceeds from the sale of its capacity to repay the $64,500,000 Resource Recovery Bonds and to retire the bank letter of credit issued to enhance the credit of the bonds. The remaining proceeds were used together with unrestricted cash balances to repay $29,500,000 of the total of subordinated notes payable to limited partners. Subordinated notes payable after the repayment aggregate $13,485,804. As mentioned in the notes to the financial statements, the Company received a liquidating dividend of $3,503,000 in cash and approximately $900,000 in accounts receivable from its wholly-owned subsidiary, DataFocus Incorporated. These proceeds were and will be used to retire the private placements mentioned above and working capital purposes. Significant restrictions exist as to the amount of cash flow that can be distributed to the Company by Maine Energy and PERC. As of June 30, 1996, the Company had $763,000 of cash and cash equivalents of which $538,000 is held by Maine Energy, and limited to use in Maine Energy's operations so long as existing subordinated debt remains outstanding. The Company has available unused lines of credit aggregating $850,000. Management of KTI believes that available cash flow from subsidiaries and affiliates and unused lines of credit will meet its current needs for liquidity. Moreover, management believes that the Company has the ability to access additional borrowing facilities if needed although no assurances can be given in this regard. 11 13 FORWARD LOOKING STATEMENTS All statements contained herein which are not historical facts including but not limited to statements regarding the Company's plans for future cash flow and its uses are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to vary materially is the availability of sufficient capital to finance the Company's business plan and other capital needs on terms satisfactory to the Company. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which statements are made pursuant to the Private Litigation Reform Act of 1995 and as such speak only as of the date made. 12 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS PENPAC, Inc. ("PENPAC") filed a complaint in Superior Court of New Jersey, Passaic County, Law Division against the Company and KTI Energy, Inc. ("Energy") on April 25, 1995 in which PENPAC alleged the breach of an equipment lease agreement dated April 8, 1994 under which the Company leased-purchased sixty trailers from PENPAC. Energy guaranteed the performance of the Company under this lease. The Company and PENPAC executed a Settlement Agreement under which the Company was to pay $500,000 to PENPAC. All such payments have been made. The case has been dismissed with prejudice and releases exchanged among the parties to the litigation. The Port Authority of New York and New Jersey ("Port Authority") sued Energy and KES, Inc. ("KES"), a wholly-owned subsidiary of Energy, in the Supreme Court of the State of New York, New York County on April 11, 1995. Port Authority sought damages in the amount of $439,819 for the cost of the storage and removal of wood recyclables that were delivered to the Howland Hook Marine Terminal ("Howland Hook") located on Staten Island and leased by Port Authority from the City of New York. The Company and the Port Authority have executed a settlement agreement for such litigation. Pursuant to the settlement agreement, the Company has paid $75,000 to the Port Authority. Additional payments of $25,000 and $32,000 are due in October, 1996 and April, 1997, respectively. Anthony Buonaguro, a former officer of the Company, has instituted arbitration proceedings against the Company for alleged breaches of an employment agreement between Mr. Buonaguro and the Company more than five years prior to the filing of the arbitration proceedings. The amount of damages requested is approximately $220,000. The Company believes that it has meritorious defenses against this claim and will litigate the matter. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable 13 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K During the quarter for which this report is filed the Company filed the following reports on Form 8-K: (i) Report on Form 8-K dated May 3, 1996 reporting under Item 2 the restructuring of a Power Purchase Agreement between Central Maine Power Company and its 50.38% owned subsidiary, Maine Energy Recovery Company LP("Maine Energy"). Subsequent to the transaction, the Company acquired additional partnership interests in Maine Energy aggregating 23.77% from existing limited partners. 14 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KTI, Inc. ------------------ (Registrant) By: /s/Robert E. Wetzel ------------------- Name: Robert E. Wetzel Title: Senior Vice President By: /s/Martin J. Sergi ------------------ Name: Martin J. Sergi Title: President, Chief Financial Officer and Chief Operating Officer (Principal Accounting Officer) Date: August 12, 1996 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 762,760 0 7,130,657 330,250 0 14,183,175 94,515,426 12,280,605 106,728,022 15,785,838 17,327,216 0 0 57,315 18,945,635 106,728,022 0 49,548,692 0 13,766,689 3,595,213 0 3,257,169 14,225,698 0 14,225,698 (218,166) (2,396,731) 0 11,610,800 1.95 0
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