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SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
Commission File Number 0-14881
[LOGO]
WASTE RECOVERY, INC.
"Making Waste A Resource"
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(Exact Name of Registrant as Specified in its Charter)
State of Texas 75-1833498
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(State or Other Jurisdiction of (I.R.S Employer Identification #)
Incorporation or Organization)
309 S. Pearl Expressway, Dallas, Texas 75201
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Address of Principal Executive Offices (Zip Code)
Registrant's telephone number, including area code
(214) 741-3865
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 twelve 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 ninety days.
X
--- ----
Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as the latest practicable date. Common stock, no par value
7,149,509, May 11, 1995.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
WASTE RECOVERY, INC.
Consolidated Balance Sheets
Form 10-Q
Part I
Assets March 31, 1995 December 31, 1994
------ -------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 38,055 $ 261,118
Accounts receivable, less
allowance for doubtful accounts
of $30,475 and $25,000, respectively 1,810,450 1,919,004
Notes and other receivables 192,523 514,816
Inventories (note 3) 823,787 800,805
Deferred income taxes 447,543 447,543
Other current assets 287,098 243,765
----------- -----------
Total current assets 3,599,456 4,187,051
----------- -----------
Property, plant and equipment 10,294,147 9,442,172
Less accumulated depreciation 6,241,725 6,103,133
----------- -----------
Net property, plant and equipment 4,052,422 3,339,039
----------- -----------
Investment in Waste Recovery - Illinois 456,660 335,035
Restricted cash and cash equivalents 509,721 506,521
Industrial revenue bond issuance
costs, less accumulated amortization
of $113,751 and $101,786, respectively 214,582 226,547
Goodwill (note 5) 499,706 --
Other assets 139,731 150,884
----------- -----------
1,820,400 1,218,987
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$ 9,472,278 $ 8,745,077
=========== ===========
See accompanying notes to consolidated financial statements.
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WASTE RECOVERY, INC.
Consolidated Balance Sheets
Form 10-Q
Part I
Liabilities and Stockholders' Equity March 31, 1995 December 31, 1994
- - ------------------------------------ -------------- -----------------
(unaudited)
Current liabilities:
Notes payable $ 115,428 $ 170,915
Convertible subordinated debentures 800,000 -
Current installments of long-term debt 555,529 224,683
Current installments of capital leases 102,012 111,327
Accounts payable 2,071,609 2,318,365
Accrued wages and payroll taxes 293,892 374,881
Other accrued liabilities 317,040 283,502
------------ ------------
Total current liabilities 4,255,510 3,483,673
Long-term debt, excluding current installments 3,672,978 3,065,447
Note payable 135,095 -
Convertible subordinated debentures - 800,000
Obligations under capital leases, excluding
current installments 111,722 137,138
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Total liabilities 8,175,305 7,486,258
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Stockholders' Equity:
Cumulative preferred stock, $1.00 par
value, 250,000 shares authorized,
203,580 issued and outstanding in
1995 and 1994 (liquidating preference
$13.38 per share, aggregating $2,724,262) 203,580 203,580
Preferred stock, $1.00 par value, authorized
and unissued 9,750,000 shares in 1995
and 1994 - -
Common stock, no par value, authorized
30,000,000 shares; 7,149,509 and
7,137,143 shares issued and outstanding
in 1995 and 1994, respectively 407,800 407,800
Additional paid-in capital 10,765,402 10,753,402
Accumulated deficit (10,005,929) (10,032,083)
------------ ------------
1,370,853 1,332,699
Treasury stock, at cost, 103,760
common shares (73,880) (73,880)
------------ ------------
Total stockholders equity 1,296,973 1,258,819
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$ 9,472,278 $ 8,745,077
============ ============
See accompanying notes to consolidated financial statements.
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WASTE RECOVERY, INC.
Consolidated Statements of Operations
Form 10-Q
Part I
Three Months Ended March 31,
1995 1994
---- ----
(unaudited) (unaudited)
Revenues:
Tire-derived fuel sales $ 257,514 $ 343,330
Disposal fees, hauling and other revenue 2,927,198 2,015,382
------------ ------------
Total revenues 3,184,712 2,358,712
Operating expenses 2,306,079 1,648,484
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878,633 710,228
General and administrative expenses 524,986 401,301
Depreciation and amortization 211,083 159,548
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142,564 149,379
------------ ------------
Other income 15,672 4,021
Interest income 7,698 2,452
Interest expense (112,565) (85,059)
Equity in loss from partnership operations (27,215) -
------------ ------------
(116,410) (78,586)
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Net income before income taxes 26,154 70,793
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Provision for income taxes - -
------------ ------------
Net income $ 26,154 $ 70,793
============ ============
Undeclared cumulative preferred
stock dividends $ 35,138 $ 35,929
============ ============
Net income (loss) available to
common shareholders $ (8,984) $ 34,864
============ ============
Net income per common share (note 4) $ .00 $ .01
============ ============
Weighted average number of common
and dilutive common equivalent
shares outstanding 7,414,946 7,316,615
============ ============
See accompanying notes to consolidated financial statements.
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WASTE RECOVERY, INC.
Consolidated Statements of Cash Flows
Form 10-Q
Part I
<Caption
Three Months Ended March 31,
1995 1994
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 26,154 $ 70,793
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 299,933 285,007
Equity in loss from partnership operations 4,866 -
Compensation of stock awarded to Directors 12,000 -
Changes in assets and liabilities:
Accounts receivable 220,396 (261,452)
Inventories (116,005) (113,288)
Other current assets (30,023) 34,544
Other assets 10,125 25,490
Accounts payable (338,866) 19,512
Accrued liabilities (51,793) 5,520
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Net cash provided by operating activities 36,787 66,126
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Cash flows from investing activities:
Cash placed in restricted accounts (3,200) -
Proceeds received on note and other receivables 332,137 -
Investment in Waste Recovery - Illinois (121,625) -
Purchase of Domino Salvage, Tire Division,
Inc., net of cash received of $11,299 (121,205) -
Purchases of property, plant and equipment (256,535) (142,811)
------------ ------------
Net cash used by financing activities (170,428) (142,811)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 21,347 -
Payment of notes payable (76,834) (82,959)
Proceeds from long-term debt 44,114 -
Repayment of long-term debt (43,318) (9,862)
Repayment of capital lease obligations (34,731) (23,023)
Proceeds from issuance of common stock - 153,920
------------ ------------
Net cash provided (used) by financing activities (89,422) 38,076
------------ ------------
Net decrease in cash and cash equivalents (223,063) (38,609)
Cash and cash equivalents at beginning of period 261,118 139,964
------------ ------------
Cash and cash equivalents at end of period $ 38,055 $ 101,355
============ ============
See accompanying notes to consolidated financial statements.
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WASTE RECOVERY, INC.
Notes to Consolidated Financial Statements
March 31, 1995
Form 10-Q
Part I
Note 1: The interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a
fair statement of the financial position and results of operations for
the interim periods presented. These adjustments are of a normal,
recurring nature.
Note 2: The Company assesses the recoverability of goodwill by
determining whether the amortization of the asset balance over its
remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of impairment, if
any, is measured based on the estimated fair value of the operation.
Note 3: The components of inventories are as follows:
March 31, 1995 December 31, 1994
-------------- -----------------
Finished Inventory $ 274,454 $ 303,764
Work-In-Process 134,162 171,176
Parts Inventory 415,171 325,865
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$ 823,787 $ 800,805
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Note 4: Cumulative preferred stock dividends in arrears were $688,462
at March 31, 1995. Net income or loss is adjusted by the effect of
undeclared dividends on preferred stock of $35,138 and $35,929 at March
31, 1995 and 1994, respectively. The effect was to decrease net income
per common share by $.004 and $.005 for each of the three month
periods ending March 31, 1995 and 1994, respectively. Primary and
fully diluted earnings per share are the same in 1995 and 1994.
Note 5: On March 21, 1995, WRI acquired 100% of the outstanding stock
of Domino Salvage, Tire Division, Inc., (Domino), a scrap tire
recycling company located in Conshohocken, Pennsylvania, a suburb of
Philadelphia. WRI purchased Domino for $800,000 with an initial cash
payment of $100,000. The remaining debt bears interest at the rate of
1% over prime, interest is payable annually, and the note is secured by
assets and the stock of Domino.
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The acquisition was accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired and
liabilities assumed based on estimated fair values at the date of
acquisition. The results of operations of Domino have been included in
the Company's consolidated statements of operations from the date of
acquisition through March 31, 1995.
A summary of the assets acquired and liabilities assumed follows:
Current assets $ 146,295
Plant, property and equipment 650,765
Debt and notes payable (372,676)
Account payable and accrued liabilities (96,452)
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$ 327,932
=========
The following unaudited pro forma summary presents the consolidated
result of the Company's operations as if the acquisitions had
occurred at the beginning of the periods presented. The information
does not purport to be indicative of the results that actually would
have been obtained if the operations were combined during the periods
presented, and is not intended to be a projection of future results
or trends.
For the three months For the three months
ended March 31, 1995 ended March 31, 1994
-------------------- --------------------
Revenues $ 3,471,900 $ 2,358,712
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Net income $ (32,833) $ 58,800
=========== ===========
Earnings per share $ .00 $ .00
=========== ===========
The acquisition also includes a five year employment agreement with
the former President and owner of Domino. The goodwill associated with
this acquisition will be amortized on a straight line basis over ten
years.
Note 6: As of March 30, 1995, Waste Recovery, Inc. began proceedings
for a Rights Offering to distribute nontransferable subscription
rights to the eligible stockholders, as defined, to subscribe for the
Company's common stock at an offering price of $.75 per share. This
"Rights Offering" is expected to raise capital, which will be
utilized for specific equipment improvements at each of the Company's
facilities, including Domino, and is expected to be completed in June
1995.
Note 7: The registrant has no material pending legal proceedings.
Other notes have been omitted pursuant to Rule 10-01 (a)(5) of Regulation S-X.
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Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Waste Recovery, Inc., ("the Company") owns and operates plants in
Houston, Texas; Atlanta, Georgia; Portland, Oregon; and Conshohocken
(Philadelphia), Pennsylvania, which was purchased on March 21, 1995. Late in
1994, construction began in central and southern Illinois on two new tire
processing plants scheduled to begin operation by mid-1995. These plants are
owned by Waste Recovery - Illinois, a general partnership ("WR-Illinois") of
which the Company owns a 45% interest and is the managing partner. The Company
will operate the Illinois plants in close coordination with its national system
and expand its presence in this region of the United States.
Regional services are coordinated from the operating bases mentioned
above. Operations encompass full service scrap tire disposal and recycling tires
to a supplemental fuel form. The Company generates revenue from scrap tire
disposal fees and from the hauling of scrap tires and the sale of tire-derived
fuel (TDF). At the plants, scrap tires are converted and refined into a
high-BTU supplement fuel, which is sold primarily to major domestic cement and
paper manufacturers. As discussed below, the TDF output of the Illinois
facilities will initially be dedicated to use in electrical power generating
boilers of The Illinois Power Company.
To date the effects of inflation on the Company's operations have been
negligible.
General Comments
Results for the first quarter of 1995 were positive in that the Company
earned $26,154 on revenues of $3,184,712 as compared to net income of $70,793 on
revenues of $2,358,712 in the comparable period of 1994. Although 1995 results
were below 1994, it should be noted that the 1995 results include approximately
$27,000 of losses representing the Company's interest in the losses of the
operations of the Illinois partnership incurred during the preoperating phase.
Construction is in progress on plants in Marseilles and Dupo, Illinois, with an
estimated start-up of mid-1995. These two TDF plants owned by WR-Illinois were
financed by tax exempt industrial revenue bonds totaling $8.875 million and
supported by the Moral Obligation of the State of Illinois. In addition, the
Illinois Department of Energy and Natural Resources issued grants for these
facilities totaling $1 million. TDF output from the Illinois plants, up to a
minimum of 60,000 tons per year, is dedicated to fulfilling a purchase contract
from the Illinois Power Company. WR-Illinois is also in discussion with other
prospective customers for its TDF. A Regional Manager has been hired to oversee
operations of the Illinois facilities, coordinate relations with Illinois Power
and develop business with additional customers. Experienced management from the
Company's other operations has also been transferred to this area to help train
personnel and start up these facilities.
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Results of Operations
1st Quarter 1995 vs 1st Quarter 1994
The table below summarizes the physical activity of the Company as well
as the basic revenue categories for the first quarter of the last three years.
First Three Months Of:
1995 1994 1993
---- ---- ----
TDF Tons Sold 14,781 19,727 19,591
=========== =========== ===========
Passenger Tire Equivalents
Received (Tons) 23,554 24,319 20,434
=========== =========== ===========
TDF Sales $ 257,514 $ 343,330 $ 374,197
=========== =========== ===========
Disposal & Hauling Fees $ 2,927,198 $ 2,015,382 $ 1,789,464
=========== =========== ===========
Revenues from TDF tonnage sold decreased by approximately 25% during
the first quarter of 1995 when compared to the same period of 1994. This
decrease is primarily due to the contribution of TDF from the Company's
facilities to the Illinois partnership, to begin sales to Illinois Power. The
Company reported the contribution of inventory as an investment in the Illinois
partnership; thus, this tonnage was not available for sale to other customers.
Revenues received from disposal fees, hauling and other revenues
continue to strengthen as regulations requiring the proper disposal of scrap
tires are implemented. The Company's position in its operating regions allows
it to take significant advantage of this activity as demonstrated by a 45%
increase in disposal fees, hauling and other revenue during the first quarter
1995 over the same period in 1994. Contributing to this increase was the
continuation of a large tire pile abatement project for the State of West
Virginia. This project contributed 19% of total revenues. Tires associated
with the project were not received by the Company and therefore are not
included in passenger tire equivalents received. The Company completed the
first phase during the last quarter of 1994 having removed approximately two
million scrap tires. The Company's contract was renewed by the State of West
Virginia and a similar quantity should be done in 1995. The majority of these
scrap tires will be sent to Illinois to help start up one of the Illinois
Partnership facilities. As a result, the Company's consolidated operations
will reflect less revenue from this project in the last half of 1995 than for
the corresponding period in 1994. This accounts for the lack of increase in
PTE's received. These revenues will be adequately replaced if the Company's
allocations from the State of Texas are increased.
Operating expenses for the first quarter of 1995 were 72% of revenues,
up slightly from a level of 70% of revenues for the first quarter of 1994. As a
large portion of the increase in
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revenues was attributed to the relatively low capital intensive activity
associated with the large tire pile clean-up project in West Virginia, other
operating expense categories increase at a greater percentage than revenues.
However, this is a type of business that because it is less capital intensive,
provides high returns on investment and the Company can get in and out over a
much shorter time frame.
General and administrative expenses increased $123,685 but continued to
decrease as a percent of total revenues reaching 16% in 1995, down from 17% in
1994. Increases in general administrative expenses are primarily due to higher
insurance premiums and salaries associated with higher levels of operating and
expansion activities.
Depreciation and amortization expense increased 32% in 1995 primarily
as a result of rebuilding the Houston facility after the 1994 fire.
Interest expense for 1995 increased 32% from the amount experienced in
the first quarter of 1994 and is primarily due to the presence of subordinated
debentures in 1995 which were not in existence during the first quarter of 1994.
Financial Condition as of March 31, 1994
The Company's working capital balance of March 31, 1995, was a deficit
amount of $656,054. This deficit reflects the classification, to current, of
its convertible subordinated debentures in accordance with their terms.
Concurrently with the issuance of WR-Illinois bonds, referenced above, the
Company privately placed these convertible subordinated debentures in the
aggregate amount of $800,000 in September of 1994. Proceeds from the debentures
were used to meet collateral requirements related to another bond financing and
to provide corporate working capital.
Management remains sensitive to the risk that the Company will not have
the financial strength to take advantage of the opportunities that are
developing. It is anticipated that with operating results continuing their
improvement, the Company will be able to adequately fund its working capital
requirements and capital expenditures for at least the next twelve months.
However, to fully benefit from its leadership position and to capitalize on
relationships that have been developed throughout the past year, the Company
began proceedings for a Rights Offering to distribute non-transferable rights to
eligible stockholders, as defined, to subscribe to the Company's common stock at
an offering price of $.75 per share. This Rights Offering is expected to raise
approximately $2.4 million in capital and will be utilized for specific
equipment improvements at each of the Company's facilities, including the
Philadelphia operation. The Rights Offering is expected to be completed in June
1995 and will be offered to all shareholders of record on April 14, 1995. The
Rights Offering will also provide for the Company's net worth to reach levels to
qualify it to be listed on the NASDAQ's system and the Company has applied for
such relisting subject to the completion of the Rights Offering. The Company's
application was not approved because the Company fails to meet the standards for
capital and surplus and minimum bid price. Following completion of the
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"Rights Offering" the Company will request a hearing before the NASDAQ listing
qualification committee to appeal the rejection.
Capital expenditures for the remainder of 1995 will be subject to
completion of the aforementioned Rights Offering. If successful, amounts will
be expended at each facility to install wire recycling systems that will enable
the Company to avoid the portion of its cost of TDF production associated with
the disposal of this waste by-product. The Company will also be investing
approximately $600,000 into the Philadelphia facility to bring its processing
capacity up to levels existing at the Company's other facilities. In March
1995, WRI acquired 100% of the outstanding stock of Domino Salvage, Tire
Division, Inc. ("Domino") a scrap tire recycling company located in
Conshohocken, Pennsylvania, a suburb of Philadelphia. WRI purchased Domino for
$800,000 with an initial cash payment of $100,000. WRI is withholding an
additional $50,000 contingent upon certain events which, once resolved, will
become due and payable. The remaining payments will be made over a three year
term. The purchase note bears an interest rate of 1% over prime with interest
payable annually and is secured by the assets and the stock of Domino. The
acquisition also includes a five year employment agreement with the former
President and owner of Domino.
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Form 10-Q
Part II
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.026 Employment agreement, March 21, 1995, between
the Registrant and Andrew J. Sabia.
10.027 Incentive stock option agreement, March 21,
1995, between the Registrant and Andrew J. Sabia.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASTE RECOVERY, INC.
DATE: May 12, 1995 /s/ THOMAS L. EARNSHAW
--------------------------------------------
By: Thomas L. Earnshaw
President and Chief Executive Officer
(Principal Executive)
DATE: May 12, 1995 /s/ SHARON K. PRICE
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By: SHARON K. PRICE
Vice President of Finance
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Decription
- - ------- ----------
10.026 Employment agreement, March 21, 1995, between
the Registrant and Andrew J. Sabia.
10.027 Incentive stock option agreement, March 21,
1995, between the Registrant and Andrew J. Sabia.
27 Financial Data Schedule.