THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO
RULE 901(G) OF REGULATION S-T
June 20, 1996
VIA FEDERAL EXPRESS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
RE: QUARTERLY REPORT ON FORM 10-QSB OF ERD WASTE CORP.
COMMISSION FILE NO. 33-76200
Dear Sir/Madam:
On behalf of ERD Waste Corp. (the "Company") and in accordance with Section
13 (a) (2) of the Securities Exchange Act of 1934, as amended, there are
enclosed herewith for filing eight (8) copies of the Company's Quarterly Report
on Form 10-QSB for the quarter ending April 30, 1996 one of which has been
manually signed.
Please acknowledge receipt of the enclosed by stamping the enclosed copy of
this letter and returning the same to the undersigned in the envelope enclosed
for that purpose.
Sincerely,
Kathleen P. LeFevre
Chief Financial Officer
Enclosures:
cc: Richard Marlin, Esquire - Counsel to Company
Feldman, Radin & Co. C.P.A. - Accountants to Company
Joseph Wisneski, COO, President, Director
Robert M. Rubin - Chairman of the Board & CEO
Marc McMenamin - Director
D. David Cohen - Director
Carl Frischling - Director
Peter Reuter - Director
NASDAQ, Washington, D.C.
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO
RULE 901(G) OF REGULATION S-T
June 20, 1996
VIA FEDERAL EXPRESS
National Association of Securities
Dealers, Inc.
Attn: NASDAQ Reports Section
1735 K Street, N.W.
Washington, D.C. 20006-1506
RE: QUARTERLY REPORT ON FORM 10-QSB OF ERD WASTE CORP.
Dear Sir/Madam:
On behalf of ERD Waste Corp. (the "Company") and in accordance with Section
13 (a) (2) of the Securities Exchange Act of 1934, as amended, there are
enclosed herewith for filing three (3) copies of the Company's Quarterly Report
on Form 10-QSB for the quarter ending April 30, 1996, one of which has been
manually signed.
Please acknowledge receipt of the enclosed by stamping the enclosed copy of
this letter and returning the same to the undersigned in the envelope enclosed
for that purpose.
Sincerely,
Kathleen P. LeFevre
Chief Financial Officer
Enclosures:
cc: Richard Marlin, Esquire - Counsel to Company
Feldman, Radin Co. C. P. A. Accountants to Company
Joseph Wisneski, COO, President, Director
Robert M. Rubin - Chairman of the Board & CEO
Marc McMenamin - Director
D. David Cohen - Director
Carl Frischling - Director
Peter Reuter - Director
SEC, Washington, D.C.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-76200
ERD WASTE CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-3121813
(State or other jurisdiction of (I.R.S. Employer
Identification No.) Identification No.)
937 East Hazelwood Avenue, Bldg. 2, Rahway, NJ 07065
(Address of principal executive offices) Zip Code)
(908) 381-9229
(Registrant's 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
Number of shares outstanding of the issuer's class of common stock, $.001
par value, as of June 12, 1996: 5,882,782
ERD WASTE CORP.
AND SUBSIDIARIES
Item 1 - Financial Statements.
ERD Waste Corp. and Subsidiaries Consolidated Financial Statements
For the Three Months Ended April 30, 1996 (Unaudited).
INDEX TO FINANCIAL STATEMENTS
PAGE #
Index to Financial Statements F-1
Consolidated Balance Sheets - April 30, 1996
(Unaudited) and January 31, 1996 F-2
Consolidated Statements of Operations - for the
three months ended April 30, 1996 and 1995 (Unaudited) F-3
Consolidated Statements of Cash Flows - for the three
months ended March 31, 1996 and 1995 F-4
Notes to Consolidated Financial Statements F-5 to F-6
F-1
Item 1. Financial Information
ERD WASTE CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, January 31,
1996 1996
ASSETS
CURRENT ASSETS
Cash $ 257,838 $1,422,214
Restricted Certificates of deposit 800,000 800,000
Accounts Receivable 3,542,127 2,491,731
Inventory 250,240 160,636
Other Current Assets 274,319 168,393
TOTAL CURRENT ASSETS 5,124,524 5,042,974
PROPERTY AND EQUIPMENT
Cost 12,959,489 12,305,122
less: accumulated depreciation 758,209 617,547
NET EQUIPMENT 12,201,280 $11,687,575
OTHER ASSETS
Restricted certificates of deposit 795,922 950,000
Goodwill less accumulated amortization 1,022,848 1,031,628
Covenant not to compete,
less amortization 287,619 316,938
Loan receivable-ENSA 500,000 500,000
Other 626,076 315,638
TOTAL OTHER ASSETS 3,232,465 3,114,204
TOTAL ASSETS $20,558,269 $19,844,753
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,081,065 $ 1,868,743
Accrued expenses 686,036 1,130,420
Notes Payable, Current Portion 1,269,784 1,271,667
Accrued Income Taxes 1,083,169 740,012
TOTAL CURRENT LIABILITIES 5,120,054 5,010,842
LONG TERM DEBT, LESS CURRENT PORTION 1,339,857 1,244,488
Deferred Income taxes 250,000 250,000
TOTAL OTHER LIABILITIES
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock - -
Common Stock 5,833 5,833
Additional Paid in Capital 10,356,651 10,356,651
Retained Earnings 3,485,874 2,976,939
TOTAL STOCKHOLDERS' EQUITY 13,848,358 13,339,423
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 20,558,269 $ 19,844,753
ERD WASTE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For Three For Three
Months Ended Months Ended
April 30, 1996 April 30, 1995
REVENUES $3,984,405 $2,255,047
COST OF SALES 1,901,215 852,245
GROSS PROFIT 2,083,190 1,402,802
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,088,544 637,424
DEPRECIATION & AMORTIZATION 140,662 102,000
1,229,206 739,424
INCOME FROM OPERATIONS 853,984 663,378
OTHER, NET 5,049 3,787
INCOME BEFORE
INCOME TAXES 848,935 659,591
PROVISION FOR INCOME TAXES 340,000 254,000
NET INCOME $ 508,935 $ 405,591
INCOME PER SHARE
NET INCOME
PER COMMON SHARE $ .09 $0.10
WEIGHTED AVERAGE NUMBER
OF SHARES 5,907,782 4,028,500
The accompanying notes are an integral part of these financial statements.
F-3
ERD WASTE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarters Ended April 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $508,935 $405,590
Adjustment to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 149,442 102,000
Changes in assets and liabilities:
(Increase)Decrease in receivables (1,050,396) 78,125
(Increase)Decrease in prepaid expenses
and advances - (64,404)
Increase in Inventory ( 89,604) -
(Increase)Decrease in other current assets (105,926) (5,932)
(Increase)Decrease in other assets (127,039) (126,748)
Increase(Decrease) in accounts payable 212,322 (14,830)
(Decrease) in accrued expenses (444,384) (98,751)
Increase(Decrease) in income taxes payable 343,157 254,000
Total adjustments and changes in assets and
liabilities (1,112,428) 123,460
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (603,493) 529,050
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (654,367) (208,112)
NET CASH (USED) FOR INVESTING ACTIVITIES (654,367) (208,112)
CASH FLOWS FROM FINANCING ACTIVITIES
(Increase)Decrease in deferred registration
costs - (96,056)
Increase (Decrease) in borrowings 93,484 (21,651)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 93,484 (117,707)
NET INCREASE (DECREASE) IN CASH (1,164,376) 203,231
CASH, at beginning of period 1,422,214 280,458
CASH, at end of period $ 257,838 $483,689
The accompanying notes are an integral part of these financial statements
F-4
ERD WASTE CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position, results
of operations, and cash flows for the periods presented. The results have been
determined on the basis of generally accepted accounting principles and
practices, applied consistently.
The condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KSB for the year ended
January 31, 1996, which is incorporated herein by reference.
Note 2 - Acquisition of Environmental Services of America, Inc. ("ENSA")
On May 5, 1996, ENSA Acquisition Corp. ("EAC"), a wholly owned subsidiary
of the Company, acquired approximately 93% of the Company's outstanding common
stock through a tender offer whereby the shareholders of ENSA received $1.66 for
each share owned. The Company intends to purchase the remaining outstanding
shares of ENSA in a subsequent "mop up". The total cost of the acquisition is
currently estimated at $9,925,000 which includes amounts paid to shareholders of
ENSA and related legal and other professional costs incurred in completing the
transaction. The transaction will be accounted for as a purchase, and the
financial results of ENSA will be reported prospectively beginning in May, 1996.
In connection with its execution of a merger agreement with ENSA, the
Company provided a $500,000 loan to ENSA for working capital purposes. In
addition, included in revenues and accounts receivable as of and for the period
ended April 30, 1996, is a $375,000 management fee due from ENSA for pre
acquisition professional services provided by the Company.
Note 3 - Financing:
In order to finance the purchase of ENSA in April, 1996, the Company
obtained a $7.5 million revolving credit facility (the "Revolving Facility")
from Chemical Bank (the "Bank") pursuant to a loan agreement (the "Loan
Agreement"), dated March 29,1996.
The Loan is secured by the granting of a first priority interest in all
of the Company's and the Subsidiaries' present and future accounts, contract
rights, chattel paper, general intangibles, instruments and documents then owned
or thereafter acquired, and in all machinery and equipment acquired by the
Company and the Subsidiaries after the date of the Loan Agreement.
The revolving facility will be available until April 1, 1998 (the
"Conversion Date"), at which time, all outstanding principal and accrued
interest under the revolving facility shall be due and payable. At that time,
the Company may, upon request, be granted a term loan in an amount equal to the
lesser of the Bank's Commitment or the aggregate principal amount of Revolving
Loans then outstanding. The maturity date of the Term Loan is the third
anniversary date of the Conversion Date. The proceeds of the Term Loan are to
be used by ERD exclusively to satisfy obligations to the Bank under any
Revolving Loans existing at the Conversion Date.
F-5
ERD WASTE CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Additionally, on June 6, 1996, the Company received an additional
$4,000,000 loan from its commercial lender. The proceeds of this loan were used
to fully pay and discharge all principal, interest, fees and other financial
obligations owed by ENSA to its commercial bank. The borrowing is secured by a
$4.4 million letter of credit issued by a corporation in which the Chairman and
CEO of ERD is Chairman and CEO. As a fee for the letter of credit financing,
ERD agreed to pay interest on the $4,000,000 at a commercial rate and issued
100,000 shares of ERD common stock to the corporation providing security for the
loan.
Note 4 - Public Offering of Stock:
On May 17, 1995, the Company publicly offered two million shares of its
common stock for sale pursuant to the prospectus contained in the Registration
Statement. The closing took place on May 25, 1995. Proceeds of the offering,
net of Underwriters discounts, commissions and costs, were $11.7 million. Debt,
expenses and obligations of the Company totaling approximately $10.0 million
were paid from the proceeds. The remaining $1.7 million was used for working
capital and capital construction.
Note 5 - Acquisition of Environmental Absorbent Technologies, Inc.:
Effective October 1, 1995, the Company acquired the assets and assumed
certain liabilities of Environmental Absorption Technologies, Inc., a
manufacturer of recyclable products used to absorb oil and petroleum spills.
The acquisition was recorded as a purchase. The initial purchase price of
approximately $592,000 was paid by the issuance of 45,282 shares of common
stock, cash of $343,000, and the assumption of specified liabilities.
The following summarized pro forma information assumes the acquisitions had
occurred at February 1, 1995 and does not purport to be indicative of what would
have occurred had the acquisitions been made as of that date:
Three Months Ended
April 30, 1995
Unaudited
Net sales $ 2,814,908
Net income $ 384,400
Income per common share $ 0.09
F-6
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company is a diversified waste management business specializing in the
management and disposal of municipal solid waste, industrial and commercial non-
hazardous solid waste, and hazardous waste. The Company incinerates municipal
solid waste and industrial and commercial non-hazardous solid waste at its own
facility in Long Beach, New York, utilizes the steam produces thereby to
cogenerate electricity, and provides brokerage, advisory, consulting, and
technical services to generators of waste.
The Company has grown through acquisitions and the start up in October
1995, of a transfer station for the storage of non-hazardous waste. Its
operations are conducted through the parent corporation and its wholly owned
subsidiaries which are summarized below:
ENTITY FUNCTION ACQUIRED
- ----------------------------- --------------------------------- ------------
ERD Waste Corp. ("ERD") Parent Corporation and --
Operations for Specialty Waste
Environmental Waste Operates the Company's Incinerator August, 1994
Incineration, Inc. ("EWII")
ERD of Illinois, Inc. Brokerge and waste management August, 1994
("ERD-IL")
Absorbent Manufacturing & Manufactures absorbent materials October, 1995
Technologies, Inc. ("AMTI")
ERD Waste Corp. (Indiana) Own and operate transfer station October, 1995
("ERD-IN") in Indiana (start up)
1
RESULTS OF OPERATIONS:
The following sets forth the operating data of the company as a percentage
of revenues for the periods indicated:
Quarter Ended Quarter Ended
April 30, 1996 April 30, 1995
Revenues 100.0% 100.0%
Cost of Sales 47.7 37.8
Gross margin 52.3 62.2
Selling, general and administrative
expenses 27.3 28.3
Depreciation and amortization 3.6 4.5
30.9 32.8
Income from operations 21.4 29.4
Other, net ( 0.1) ( 0.1)
Income before income taxes 21.3 29.3
Provision for income taxes 8.5 11.3
Net income 12.8% 18.0%
Revenues: For the first quarter of fiscal 1997, revenues increased by
$1,729,358 or approximately 77 percent, to $3,984,405, compared to $2,255,047
for the first quarter of fiscal year 1996. The increase was due to 1) growth
in the Company's businesses, 2) the October 1995 acquisition pf AMTI, and
3) the start-up in October 1995 of the Company's transfer station. A summary
of consolidated revenues by business segment is as follows:
1996 % 1995 %
ERD-Specialty Waste $ 796,266 20.0% $ 378,848 16.8%
Division
EWII 1,089,765 27.4 1,156,839 51.3%
ERD-IL 1,087,405 27.3 719,360 31.9%
AMTI 846,630 21.2 - - - -
ERD-IN 164,339 4.1 - - - -
__________ ______ __________ ______
$3,984,405 100.0% $2,255,047 100.0%
Included in ERD Specialty Waste division revenues is a $375,000 management
fee due from ENSA for pre acquisition professional services provided by the
Company.
Cost of Sales: For the quarter ended April 30, 1996, cost of sales rose
$1,048,970 or 123 percent from the same quarter of the prior year. This
increase is primarily due to the increase in the Company's sales. In addition,
the businesses acquired and started by the Company in October, 1995, operate
with higher direct costs as a percentage of sales compared to the Company's
other businesses.
Gross Profit: Gross profit margins on sales declined from 62.2 percent of
sales in the first quarter of fiscal 1996 to 52.2 percent in fiscal 1997. The
decline in the margin percentage was primarily due to the Company's new
acquisitions which operate at lower profit margins; these acquisitions will,
however, contribute to an increase in the Company's overall sales and
profitability.
Selling, general, and administrative expenses: Selling, general, and
administrative expenses were $1,088,544 or 27.3 percent of sales in the first
quarter of fiscal 1997, compared to $637,424 for the first quarter of fiscal
1996. The increases are directly attributable to sales and operating costs
associated with the start-up of the Company's transfer station and the
acquisition of AMTI and incremental costs incurred in expanding the
Company's business. The increases in selling, general, and administrative
expenses are directly correlated to the Company's growth in sales.
Operating income and net income: Income from operations for the
quarter ended April 30, 1996 was 853,984, a $190,607 increase over income from
operations of $663,377 for the first quarter of the previous year. The
increase is primarily attributable to the increase in the Company's revenues
in fiscal 1997.
For the quarter ended April 30, 1996, net income was $508,935 ($0.09 net
income per share) as compared to $405,590 ($0.10 net income per share) for the
quarter ended April 30, 1996.
Liquidity and Capital Resources:
The Company completed the initial public offering of 2,250,000 shares of
its common stock in May 1995 and received net proceeds of approximately $12.1
million. In connection with the public offering the Company repaid (i) $7.0
million attributable to outstanding Industrial Revenue Bonds related to the
Company's Long Beach incineration facility, (ii) approximately $1.6 million
attributable to obligations payable to the prior owner of the Long Beach
incinerator, union pension claims, and Mr. Robert Rubin, the Chairman of the
Board; (iii) $250,000 attributable to a settlement with American Medical Waste
Systems Inc., (iv) approximately $500,000 attributable to outstanding accounts
payable; and (v) $300,000 attributable to income taxes payable for the fiscal
1995.
At April 30, 1996, the Company had working capital of $4,470, as compared
to $32,132 at January 31, 1996. Cash declined $1,164,376 over the quarter to
$257,838. Cash was utilized to fund $ 475,000 in capital improvements at the
company's incinerator and to support the Company's operating growth. Accounts
receivable rose $1,050,396 during the quarter to $3,542,127 at April 30, 1995.
On May 1, 1996 the Company completed the Offer for all outstanding shares
of ENSA Common Stock, securing over 90% of the outstanding shares of ENSA
Common Stock. On May 5, 1996, the Company paid $7,166,577 to the shareholders
of ENSA to complete the acquisition of the ENSA Common Stock purchased through
the Offer and the ENSA Preferred Stock acquired through the Stock Purchase
Agreement. Funds for the purchase were obtained from a $7.5 million revolving
credit loan (See Note 3). An additional $520,000 will be required to purchase
the remaining outstanding capital stock of ENSA. In addition, on June 6, 1996,
the Company received and additional $4,000,000 loan from its commercial lender.
The proceeds were used to fully pay and discharge all principal, interest,
fees, and other financial obligations owed by ENSA to its commercial bank.
(See Note 3 to the Financial Statements.)
The Company is presently seeking other sources of funds needed to complete
the payment for the remaining ENSA Common Stock, as well as to provide working
capital for the Company. In addition, the Company plans approximately $
3,500,000 of capital expenditures in the upcoming fiscal year. Among the
sources of funds being actively pursued by the Company at this time:
1) private placement of up to 500,000 shares of common stock;.
2) replacement of restricted certificates of deposits with payment
bonds; and,
3) subordinated and/or convertible debt financing.
Inflation
Inflation has not been a material factor affecting the Company's business.
General operating expenses such as salaries and employee benefits are, however,
subject to normal inflationary pressures.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
None.
Item 2 Changes in Securities.
None.
Item 3 Defaults Upon Senior Securities.
None.
Item 4 Submission of Matters to a Vote of Security Holders.
None.
Item 5 Other Information.
None.
Item 6 Exhibits and Reports on Form 8-K.
a) Exhibits - None
b) Reports on Form 8-K
On April 17, 1996, the Company filed a Current Report on Form 8-K
concerning the $7,000,000 loan facility with Chemical Bank.
On May 21, 1996, the Company filed a Current Report on Form 8-K
concerning the acquisition of Environmental Services of America, Inc.
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.
ERD WASTE CORP.
(Registrant)
Date Joseph Wisneski
President
Date Kathleen P. LeFevre
Chief Financial Officer