-----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, MR2U0+vKYPQvlLDS1uoQnpdUhhpcCeGq/m9j5ZCbXKqGMZ2lxD7No73mjd5/i6FD d5ZFI6H48JT/Bl0hozybXw== 0000950123-97-007243.txt : 19970826 0000950123-97-007243.hdr.sgml : 19970826 ACCESSION NUMBER: 0000950123-97-007243 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970825 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25490 FILM NUMBER: 97668711 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/A 1 KIT, INC. 1 FORM 10-Q/A. - 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 10-Q/A (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 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 6,920,799 Shares as of August 12, 1997 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KTI, INC. CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31, 1997 1996 ------------------------------------- ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 3,179,148 $ 5,227,381 Restricted funds - current portion 4,693,649 5,163,965 Accounts receivable, net of allowances of $204,105 and $291,938 5,823,992 4,080,503 Management fees receivable - current portion 625,000 566,634 Consumables and spare parts 2,733,315 2,100,311 Notes receivable--officers/shareholders and affiliates - current 426,694 57,629 Other receivables - current portion 386,327 398,320 Other current assets 514,698 480,034 ------------------------------------- Total current assets 18,382,823 18,074,777 Restricted funds 4,369,214 2,903,761 Management fees receivable -- affiliates 1,747,106 2,175,203 Notes receivable - officers/shareholders and affiliates 264,680 212,835 Other receivables 208,959 711,783 Investment in PERC 3,839,073 3,792,429 Deferred costs, net of accumulated amortization of $419,817 and $208,096 2,662,219 1,930,118 Goodwill and other intangibles, net of accumulated amortization of $160,915 and $297,941 2,052,426 2,179,466 Other assets 414,014 238,893 Property, equipment and leasehold improvements, net of accumulated depreciation of $14,331,690 and $12,671,949 89,922,879 90,855,366 ------------------------------------- Total assets $ 123,863,393 $ 123,074,631 ===================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 2,588,517 $ 2,371,430 Accrued expenses 1,316,365 1,829,959 Current portion of long-term debt 2,121,586 4,123,840 Income taxes payable 200,000 200,000 Other current liabilities 50,000 465,585 ------------------------------------- Total current liabilities 6,276,468 8,990,814 Other liabilities 1,071,883 1,308,199 Long-term debt, less current portion 35,049,885 34,949,148 Minority interest 11,252,673 10,871,852 Deferred income 38,148,300 41,250,000 Commitments and contingencies Stockholders' equity Preferred stock; 10,000,000 shares authorized, 487,500 zero coupon convertible shares issued and outstanding 3,750,975 Common stock, no par value (stated value $.01 per share); authorized 20,000,000; issued and outstanding 6,900,799 in 1997 and 6,836,766 in 1996 69,008 68,368 Additional paid-in capital 39,044,769 38,575,892 Accumulated (deficit) (10,804,568) (12,939,642) ------------------------------------- Total stockholders' equity 32,064,184 25,704,618 ------------------------------------- Total liabilities and stockholders' equity $ 123,863,393 $ 123,074,631 =====================================
See accompanying notes. 1 3 KTI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended June 30, June 30, ----------------------------- ----------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Revenues: Electric power revenues $ 5,796,198 $ 4,877,252 $ 11,272,708 12,278,722 Gain on sale of capacity 33,203,252 -- 33,203,252 Waste processing revenues 3,145,092 1,917,398 6,298,768 4,007,858 Other waste handling revenues 3,369,804 1,758,571 6,505,743 2,474,358 ------------ ------------ ------------ ------------ Total revenues 12,311,094 41,756,473 24,077,219 51,964,190 ------------ ------------ ------------ ------------ Costs and expenses: Electric power and waste processing operating costs 10,107,290 8,847,139 18,849,803 15,334,184 Selling, general and administrative 964,611 1,168,331 1,855,415 2,027,717 Interest - net 599,442 1,218,649 1,074,314 3,257,169 ------------ ------------ ------------ ------------ Total costs and expenses 11,671,343 11,234,119 21,779,532 20,619,070 Equity in net income of PERC 162,221 107,222 218,208 132,794 ------------ ------------ ------------ ------------ Income from continuing operations before minority interest and extraordinary item 801,972 30,629,576 2,515,895 31,477,914 Minority interest (25,691) (16,570,318) (380,821) (17,401,571) ------------ ------------ ------------ ------------ Income from continuing operations before extraordinary item 776,281 14,059,258 2,135,074 14,076,343 Discontinued operations Income (loss) from operations of computer services -- (223,181) -- (218,166) ------------ ------------ ------------ ------------ Income before extraordinary item 776,281 13,836,077 2,135,074 13,858,177 Extraordinary item - loss on early extinguishment of debt, net of minority interest -- (2,247,377) -- (2,247,377) ------------ ------------ ------------ ------------ Net income $ 776,281 $ 11,588,700 $ 2,135,074 $ 11,610,800 ============ ============ ============ ============ Earnings (loss) per common share and common share equivalent Income (loss) from continuing operations $ .11 $ 2.37 $ .30 $ 2.37 Income (loss) from discontinued operations (0.04) (0.04) ------------ ------------ ------------ ------------ Income before extraordinary item .11 2.33 .30 2.33 Extraordinary item (0.38) (0.38) ------------ ------------ ------------ ------------ Net income $ .11 $ 1.95 $ .30 $ 1.95 ============ ============ ============ ============ Weighted average number of common shares and common share equivalents outstanding 7,190,818 5,946,800 7,174,969 5,947,200 ============ ============ ============ ============
See accompanying notes. 2 4 KTI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1997 1996 ------------ ------------ (Unaudited) OPERATING ACTIVITIES Net income $ 2,135,074 $ 11,610,800 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 1,659,741 3,049,797 Minority interest 380,821 17,401,571 Amortization (2,709,083) (412,982) Provision for losses on accounts receivable -- 150,412 Interest accrued and capitalized on debt 833,169 90,988 Equity in net income of PERC, net of distributions 46,644 2,070 Deferred revenue -- 45,000,000 Extraordinary item, net of minority interest -- 2,247,377 Loss (gain) on sale of assets (547) 53,981 Changes in operating assets and liabilities Increasing (decreasing) cash: Accounts receivable (1,743,491) 6,825,649 Consumables and spare parts (633,004) (242,902) Management fees receivable 369,731 359,362 Other receivables 439,817 160,469 Other assets (227,484) (1,024,254) Accounts payable 217,087 872,484 Accrued expenses (513,594) (3,111,944) Other liabilities (651,901) 115,912 ------------ ------------ Net cash provided by operating activities (397,020) 83,148,790 INVESTING ACTIVITIES Additions to property, equipment and leasehold improvements (728,754) (4,806,134) Proceeds from sale of assets 1,500 130,000 Decrease (increase) in restricted cash and cash equivalents (995,137) 6,265,383 Purchase of additional partnership interest in Maine Energy -- (1,239,867) Notes receivable--officers/shareholders and affiliates (420,910) 109,392 ------------ ------------ Net cash provided by (used in) investing activities (2,143,301) 458,774 FINANCING ACTIVITIES Deferred financing costs (997,718) (1,164,678) Proceeds from issuance of debt 14,133,440 4,124,111 Proceeds from sale of common stock 369,517 11,645 Proceeds from sale of preferred stock 3,854,975 Principal payments on debt (16,868,126) (92,270,440) ------------ ------------ Net cash provided by (used in) investing activities 492,088 (89,299,362) ------------ ------------ Increase (decrease) in cash and cash equivalents (2,048,233) (5,691,798) Cash and cash equivalents at beginning of period 5,227,381 6,454,558 ------------ ------------ Cash and cash equivalents at end of period $ 3,179,148 $ 762,760 ============ ============
-Continued- 3 5 KTI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $671,828 $3,307,200 ======== ========== NON-CASH INVESTING AND FINANCING ACTIVITIES Conversion of debt to equity $ 500,000
See accompanying notes. 4 6 KTI, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
ADDITIONAL COMMON STOCK PREFERRED STOCK PAID IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ------ ------ ------- ------- ----- Balance at December 31, 1994 3,376,617 $33,766 -- $-- $21,330,071 $(25,274,500) $(3,910,663) Net loss (1,331,494) (1,331,494) Issuance of common stock from exercise of options 73,980 740 256,077 256,817 Issuance of common stock in connection with business combination 1,801,044 18,010 8,983,708 9,001,718 Issuance of common stock 695,332 6,954 2,857,235 2,864,189 ----------------------------------------------------------------------------------------------- Balance at December 31, 1995 5,946,973 59,470 -- -- 33,427,091 (26,605,994) 6,880,567 Net income 13,666,352 13,666,352 Issuance of common stock from exercise of options 55,346 553 280,107 280,660 Issuance of common stock from exercise of warrants 41,183 412 225,114 225,526 Issuance of common stock upon conversion of debt 725,015 7,250 4,044,697 4,051,947 Issuance of stock purchase warrants 143,738 143,738 Issuance of common stock in connection with business combination 68,249 683 455,145 455,828 ----------------------------------------------------------------------------------------------- Balance at December 31, 1996 6,836,766 68,368 -- -- 38,575,892 (12,939,642) 25,704,618 Net income 2,135,074 2,135,074 Issuance of preferred stock and warrants 487,500 3,754,975 100,000 3,854,975 Issuance of common stock from exercise of options 1,399 14 9,647 9,661 Issuance of common stock from exercise of warrants 62,633 626 359,230 359,856 ----------------------------------------------------------------------------------------------- Balance at June 30, 1997 6,900,798 $69,008 487,500 $3,754,975 $39,044,769 $(10,804,568) $32,064,184 ===============================================================================================
5 7 KTI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 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, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. Certain 1996 financial information contained herein has been reclassified to conform with the 1997 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. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," which is required to be adopted for the Company's year ending December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options and warrants will be excluded. The impact upon adoption is expected to result in an increase in primary earnings per share for the six months ended June 30, 1997 of $.01 to $.31 and no change for the second quarter ended June 30, 1997, and is expected to have no material impact for the six months and quarter ended June 30, 1996. The impact of Statement 128 on the calculation of fully diluted earnings per share for all periods presented is not expected to be material. 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, 1997 1996 1997 1996 Revenues $8,170,265 $7,839,240 $14,835,084 $14,716,557 Operating expenses 4,047,057 3,844,041 8,065,989 7,944,072 Net income 2,161,202 1,748,343 3,117,260 2,330,245
7 8 4. DEBT The Company's debt consists of the following:
JUNE 30 DECEMBER 31, -------------------------------- 1997 1996 ----------- ----------- 8% convertible subordinated note payable $ 5,000,000 $ 5,000,000 12% term note payable to bank 531,543 1,657,448 10% note payable to Energy National, Inc. 964,098 1,353,479 $1,000,000 bank line of credit at bank prime rate plus .25% -0- 589,904 $300,000 bank line of credit at bank prime rate plus 1.5% 120,000 220,000 9.94% secured term notes payable 603,013 780,357 Notes payable to limited partners of Maine Energy -0- 490,063 8.63% secured term note payable 367,287 400,000 9.9% secured term notes payable to GE Capital 87,291 190,368 10.13% secured term notes payable 131,829 179,997 Note payable to former shareholder 97,226 127,137 Other 139,017 108,250 ----------- ----------- 8,041,304 11,097,003 Resource Recovery Revenue Bonds 13,736,161 13,400,000 12% Subordinated Notes Payable to Maine Energy Limited Partners 15,394,006 14,575,985 ----------- ----------- 37,171,471 39,072,988 Less current portion 2,121,586 4,123,840 =========== =========== $35,049,885 $34,949,148 =========== ===========
On June 4, 1997, the prior $13,400,000 of outstanding Resource Recovery Revenue Bonds for Timber Energy together with accrued interest were retired from the proceeds of $13,736,161 of Series 1997A and 1997B Resource Recovery Revenue Bonds. 5. PREFERRED STOCK On June 4, 1997, the Company consummated the private placement of 487,500 shares of its Series A Convertible Preferred Stock (the "Series A Preferred") for gross proceeds of $3,900,000. The Series A Preferred is convertible into shares of the Company's common stock, no par value (the "Common Stock"), at a price of $8.00 per share, subject to adjustment, and may be redeemed at $12.00 per share, subject to adjustment. Purchasers of the shares of Series A Preferred also received, in the aggregate, warrants to purchase 243,750 shares of Common Stock at $9.00 per share and warrants to purchase 32,500 shares of Common Stock at $10.00 per share. 6. CONTINGENCIES The Company is a defendant in certain lawsuits 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. 7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES Electric power revenues increased by $919,000 or 18.8% for the quarter ended June 30, 1997 and decreased by $1,006,000 or 8.2% for the six months ended June 30, 1997. Maine Energy Recovery Company restructured its Power Purchase Agreement ("PPA") on May 3, 1996, which resulted in a contract rate reduction from 16.3(cent) per kilowatt to 7.18(cent) per kilowatt effective that date. Electrical generation at Maine Energy decreased by 1.3% and 2.9% for the quarter and six months ended June 30, 1997, respectively, compared with the same period in 1996. The Maine Energy electric rate effective January 1, 1997 increased to 7.35(cent) per kilowatt. These net decreases were further offset by increased amortization of $1,227,500 and $2,165,000 of the deferred revenue associated with the PPA restructuring and electric power revenues from Timber Energy of $1,179,000 and $2,522,000 for the quarter and six months ended June 30, 1997, respectively. Timber Energy was acquired November 22, 1996. Revenues from the gain on sale of capacity for the quarter and six months ended June 30, 1996 were a result of the restructuring of the Maine Energy PPA on May 3, 1996. Revenues from waste processing increased $1,228,000 or 64% for the quarter ended June 30, 1997 and by $2,291,000 or 57.2% for the six months ended June 30, 1997 as compared to the same periods in 1996. The increase for the six months ended June 30, 1997 resulted from a 136% increase in specialty waste processed which increased revenue by $114,000; SEMCO revenues of $187,000 from 6,000 tons of waste delivered; and $1,929,000 of revenues from tipping and processing fees at Timber Energy. SEMCO and Timber Energy were formed or acquired after the second quarter of 1996. Maine Energy revenues from waste processing increased $22,000 and $47,000 for the quarter and six months ended June 30, 1997. The increase is principally from a 2,819 and 5,954 increase in tons of waste processed offset by a $1.57 and $1.33 decrease in average tipping fee per ton 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 materials handling revenues increased $1,611,000 or 91.6% for the quarter and $4,031,000 or 162.9% for the six months ended June 30, 1997 as compared to the same period for 1996. The increase for the six months ended June 30, 1997 as compared to the same period in 1996 is principally from an increase in revenues at KTI Bio Fuels of $475,000 as a result of improved weather conditions in Maine during the winter months allowing for increased tonnage; an increase of $412,000 in ash recycling revenues resulting from an additional 51,000 tons of ash processed at the Nashville, Tennessee facility; and from revenues generated by Manner Resins of $3,144,000. Manner Resins was acquired on November 24, 1996. AAR of Tennessee was acquired during the second quarter of 1996. COSTS AND EXPENSES Electric power and waste handling operating costs increased by $1,260,000 or 14.2% for the quarter and $3,516,000 or 22.9% for the six months ended June 30, 1997 as compared to the same period in 1996. The increase for the quarter ended June 30, 1997 as compared to the same period in 1996 is principally due to revenues generated by Manner of $1,871,000. The increase for the quarter is largely attributable to the operating costs of the newly acquired entities of Timber Energy and Manner Resins; which had combined operating expenses of $2,731,000 and $5,713,000, respectively, for the six months ended June 30, 1997. These increases were offset by decreases at Maine Energy, where operating costs were decreased by approximately $850,000 for the six months ended June 30, 1997 under the new operating strategy as a result of the restructured PPA with Central Maine Power and depreciation and amortization decreases of $1,256,000 primarily as a result of changes in useful lives at the plant and write off of deferred financing costs as a result of the retirement of the $64,500,000 in bonds. 8 10 Selling, general and administrative expenses decreased by $204,000 or 17.4% for the quarter ended June 30, 1997 and decreased by $172,000 or 8.5% for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996. The decrease in the quarter and six months are primarily attributable to reductions in corporate staff. INTEREST AND OTHER ITEMS Interest expense decreased $619,200 or 50.8% for the quarter and $2,183,000 or 67.0% for the six months ended June 30, 1997; principally because of the retirement of $64,500,00 of the Maine Energy bonds and related letter of credit, decrease in subordinated debt of $29,500,000 on May 3, 1996, and aggressive debt reduction during the first six months of 1997. The decrease in minority interest of $16,545,000 and $17,021,000 for the quarter and six months ended June 30, 1997 as compared to the same period in 1996, principally resulted from the minority interest share of Maine Energy's gain from sale of capacity during 1996. Extraordinary item of $2,247,000 for the quarter and six months ended June 30, 1996 resulted from the early retirement of the $64,500,000 Biddeford Bonds at Maine Energy, net of minority interest. Equity in the net income of PERC increased by $55,000 or 51.3% and $85,000 or 64% for the quarter and six months ended June 30, 1997 as compared to the same period in 1996 due to increased net income at PERC. The Company's ownership interest in PERC is 7%. LIQUIDITY AND CAPITAL RESOURCES The Company is a holding company and receives cash flow from its subsidiaries. Receipt of cash flow from its affiliate PERC is currently restricted by covenants under loan agreements, distribution restrictions under partnership agreements with its equity investors, and put-or-pay agreements with municipalities. Cash flow from Timber Energy is also restricted by covenants under loan agreements. Maine Energy's cash flow is required to retire the remaining outstanding balance of $15,394,000 of subordinated notes payable as of June 30, 1997 before partners cash distributions can begin; however, the Company is not obligated to pay any minimum amounts on such subordinated debt. As a result, the following discussion is organized to present liquidity and capital resources of the Company separate from Maine Energy, PERC and Timber Energy and liquidity and capital resources of each of Maine Energy, PERC and Timber Energy independently. THE COMPANY Through March 31, 1997, the Company has accumulated management fees receivable from PERC in the amount of $1,935,086. These fees are payable by PERC only out of cash flow after all current operating costs and debt service payments of the project. PERC has significant restrictions on the amount of cash flow that can be distributed to the Company. Also, management fees are only paid annually and only if the partnership meets certain operating results set forth in its loan documents. The Company has pledged to ENI, the other general partner of PERC, a portion of the Company's share of PERC management fees as a means of repaying a $1,693,000 advance ENI made on the Company's behalf to PERC to cover the Company's additional partnership capital requirement in 1989. While no assurance can be given, based upon current conditions, management of the Company expects annual management fees to be received on a current basis and accrued management fees from prior years to be paid from PERC's distributable cash flow as the project continues its recent trend of distribution of cash to its partners. The future operating results of PERC will determine the exact term over which the accrued management fees will be received by the Company. During 1996, the Company received $691,442 in current and accrued management fees on account of 1995 operations of which $298,311 was paid to ENI. The Company also received cash from PERC during May, 1997 on account of 9 11 1996 operations of $686,363 of which $389,381 was paid to ENI. As of June 30, 1997, the Company owed ENI $964,098. Since February 28, 1991, the Company has been receiving operating and management fees from Maine Energy on a current basis. During 1996 the Company received $548,080 for operating and management fees from Maine Energy on account of 1996 operations. The Company also received $857,534 for accrued management fees through February 28, 1990. For the six months ended June 30, 1997, the Company received $286,500 for operating and management fees from Maine Energy. On June 4, 1997, the Company consummated the private placement of $487,500 shares of its Series A Convertible Preferred Stock (the "Series A Preferred") for gross proceeds of $3,900,000. The Series A Preferred is convertible into shares of the Company's common stock, no par value (the "Common Stock"), at a price of $8.00 per share, subject to adjustment, and may be redeemed at $12.00 per share, subject to adjustment. Purchasers of the shares of Series A Preferred also received, in the aggregate, warrants to purchase 243,750 shares of Common Stock at $9.00 per share and warrants to purchase 32,500 shares of Common Stock at $10.00 per share. The Company has financed its operations and capital expenditures primarily from cash flow from its subsidiaries which are not contractually restricted from making distributions, collateralized equipment financing, unsecured subordinated debt, drawings under its lines of credit and proceeds from the sale of the Company's preferred and common stock. The Company and its subsidiaries, other than Maine Energy, PERC and Timber Energy, at June 30, 1997 had indebtedness maturing in the next year of $1,711,600. During the first six months of 1997, the Company, other than Maine Energy, PERC and Timber Energy, incurred additional debt of approximately $544,000, primarily as a result of drawings under its lines of credit, and retired approximately $3,600,000 of debt. As of June 30, 1997, the Company had cash on hand without regard to Maine Energy, PERC and Timber Energy of approximately $1,123,500 and $1,180,000 available in lines of credit from a bank. On July 14, 1997 the bank committed to increase the Company's line of credit to $6,000,000. The increased line is expected to be available to the Company during August, 1997. Also, on August 12, 1997 the Company completed a sale of $21,000,000 of Series B Convertible Exchangeable Preferred Stock. The Series B Preferred has an 8.75% dividend (payable quarterly in arrears in cash) and converts into common stock at the holders option at $11.75 per share. Management of the Company believes that cash flow from its subsidiaries and affiliates, the sale of preferred stock 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 assurance can be given in this regard. MAINE ENERGY During the last three years Maine Energy has financed its operations and capital expenditures from cash flows from operations. Cash provided by operations was $89,259,000 in 1996, as compared to $8,987,000 in 1995. During 1996 Maine Energy sold its generating capacity to CL One for a period through May 31, 2007. In exchange CL One has agreed to make a series of quarterly payments to Maine Energy including an initial payment of $85 million. Maine Energy capital expenditures were $2,939,000 and $2,121,000 for additions to property, plant and equipment during 1996 and 1995, respectively. During May 1996, Maine Energy retired the entire outstanding principal balance of $64.5 million of its tax exempt variable rate revenue bonds and $29.5 million of its subordinated loan accrued interest and principal from the proceeds from the sale of capacity. As of June 30, 1997, in addition to Maine Energy's operating cash of $936,000, Maine Energy, as required under the terms of the credit agreement with its letter of credit, has on account an additional $7,442,000 of reserves to be used for capital improvements, debt service, operating shortfalls and working capital requirements. 10 12 Management of the Company believes Maine Energy has adequate cash resources available to fund its future operations and anticipated capital expenditures. Capital expenditures for Maine Energy for the year ending December 31, 1997 are expected to be approximately $2,581,000, which has principally been set aside in the above mentioned reserves accounts. PERC PERC has financed its recent operations and capital expenditures primarily by cash flow from operations. Cash provided by operations was $8,493,000 in 1996 as compared to $10,328,000 in 1995. PERC's capital expenditures were $1,192,000 and $1,172,000 for additions to property, plant and equipment during 1996 and 1995, respectively. At June 30, 1997, PERC had outstanding tax-exempt, variable rate revenue bonds backed by bank letters of credit in the aggregate amounts of $50,300,000. The variable interest rate on the Orrington Bonds at June 30, 1997 was 3.5%. The bonds are payable pursuant to a schedule through May 2003. During the first six months of 1997 PERC made principal payments to bondholders of $3,200,000. As of June 30, 1997, in addition to PERC's operating cash of $3,166,000, PERC, as required under the terms of the credit agreement with its letter of credit banks and the trust indenture governing the Orrington Bonds, had on account an additional $9,273,000 of cash reserves to be used for capital improvements, debt service, operating shortfalls and working capital requirements. Company management believes PERC has adequate cash resources available to fund its current project operations and currently anticipated capital expenditures. PERC plans capital expenditures for the year ending December 31, 1997 of approximately $782,000. PERC intends to finance the requirements through cash flow from operations. TIMBER ENERGY Timber Energy has financed its operations and capital expenditures primarily from cash flow since it was acquired on November 22, 1996. Cash provided by operations during the six months ended June 30, 1997 was approximately $1,250,000. Timber Energy, during the second quarter, completed a month long shutdown and retrofit to complete an extensive overhaul of its boiler and turbine generator. Costs associated with the shutdown and retrofit, which were all of Timber's anticipated capital expenditures for 1997, totaled approximately $1,200,000. All of these costs were paid out of cash flow from operations and cash reserves held specifically for this retrofit. The Company was required to obtain the release of CNA's reimbursement obligation to Bank of Montreal as part of the Company's purchase agreement with CNA when Timber Energy was acquired on November 22, 1996. On June 4, 1997, the outstanding bonds, together with accrued interest and associated closing costs including an additional debt service reserve of $1,340,000 were paid or retired from the proceeds of $13,736,000 of Series 1997A and 1997B bonds and from cash totaling $993,000 provided by the Company. As of June 30, 1997, Timber Energy has outstanding tax exempt bonds with a fixed interest rate of 7% in the aggregate amount of $13,736,000. The bonds are payable pursuant to a mandatory redemption schedule through December 1, 2002. As of June 30, 1997, in addition to Timber's operating cash of $695,000, Timber, as required by the terms of the refinancing, had an additional $1,525,000 of cash reserves to be used for debt service. Company management believes Timber Energy has adequate cash resources available to fund its current operations. No significant additional capital expenditures are anticipated for 1997. 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 SIGNATURE 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. By: /s/ Martin J. Sergi ---------------------------- Name: Martin J. Sergi Title: President and Chief Financial Officer (Principal Accounting Officer and Duly Authorized Officer) Date: August 22, 1997 13 -----END PRIVACY-ENHANCED MESSAGE-----