Zeev:
oops! I gues there is too much text, the post didn't work, so this is 2 of 3:
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL BUSINESS ENVIRONMENT
Thermo TechT is listed and trades on NASDAQ under the symbol "TTRIF". The Company was incorporated in 1983 pursuant to the laws of the Province of British Columbia, Canada and has traded in the public market since 1987. The Company has continued into the Canadian federal jurisdiction under the Canada Business Corporations Act, effective December 2, 1997. The continuation is reflective of the Company's expansion and evolution as a Company with national and international business interests. The Company has an exclusive license to develop and commercially exploit a patented aerobic thermophilic microbial fermentation process which efficiently and effectively converts organic waste materials to value added products including animal feeds and fertilizers. The Company has trademarked the terms Thermo TechT and Thermo MasterT as they are applied to its products, process and plants.
Our main goal remains the same and is described by the Company's mission statement: to effectively assist the global environmental crisis in waste management by utilizing our patented thermophilic fermentation process to convert wet organic waste to valuable end products, in a way which provides financial benefits to our shareholders, venture partners and communities where we operate. This overall approach enables the Company to continually grow, to construct new plants and to attract the interest of corporations, governments and individuals on a global basis.
Our business strategy is clear. Thermo MasterT Plants will be marketed in North America and Internationally through Thermo TechT Waste Systems Inc. providing shareholders maximum benefit from delivery of Thermo MasterT Plants to the world market.
The Company continues to build a top management team by building on its strengths and adding experienced professional individuals who base their careers on a reputation for performance. The recent appointment of Karl Gonnsen, P.Eng. as Manager of Engineering in charge of operations demonstrates the latter point. Further details of this appointment are found in the following section.
As the Thermo MasterT Plant has now proven itself with respect to profitability through operations at Hamilton Bio Conversion, priority is being given to identifying and securing attractive debt financing for plant development and to marketing plants. The Company is in the final stages of arranging 100% non-recourse debt financing for its projects in Niagara Falls and Oshawa Ontario and plans to use this type of financing whenever possible.
RECENT BUSINESS ADVANCES BY THE COMPANY
In the first three quarters of the current fiscal year, the Company realized many significant advances.
ú Hamilton Bio Conversion Inc. has operated profitably, exceeding its financial targets, through the first nine months of the current fiscal year. Third quarter results show Hamilton returning profit before amortization of $1,688,000 and Hamilton is projected to achieve $2,251,000 by fiscal year end. Third quarter profit is $359,000 ahead of financial projections. Hamilton Bio was designed and built as a 200 ton per day facility but operational experience showed the fermentation process/thermophilic plant capable of performing at 300 tons per day. Upgrades and retrofits which will be complete by April 30, 1998 will allow the remainder of the plant to consistently process at 300 tons per day. This provides for an increase in revenue of 50%, with only minimal increase in overheads and cost of operations.
ú Installation and start-up of a highly efficient evaporator has been completed at the Hamilton Thermo MasterT Plant. The new evaporator is increasing finished product yields and revenue, while eliminating the cost for removal of excess process water. This effectively completes a major component of the program to eliminate engineering deficiencies in the plant.
ú Hamilton Bio Conversion expansion construction is proceeding on schedule. The expansion at Hamilton to 300 tons per day will be completed in April. The new Model 4 Thermo MasterT Plant will be completed in June. It is located immediately adjacent to the existing Model 3 Hamilton plant. Total daily capacity will be 700 tons. Sewage sludge will be processed in the new Model 4 plant with a shorter retention time which will increase capacity.
ú Hamilton Bio Conversion Inc. is now 100% owned by the Company. The purchase of the remaining minority interest in Hamilton Bio Conversion and the land on which the Hamilton plant is located was completed on January 16, 1998.
ú Ontario Thermo TechT creates vertical integration of business and major new revenue streams for the Company. This new company results from a 50/50 joint venture between Ontario Disposal and Thermo TechT Waste Systems. The Company acquired a half interest in two transfer stations, Northwood Recycling and Energy Inc. and Power Grow Systems Inc. Each of these will in turn own and operate a 400 ton per day Thermo MasterT Plant, expandable to 600 ton per day capacity to be constructed by Oshawa Bio Conversion and Niagara Bio Conversion.
Ontario Thermo TechT currently receives revenue from both the transfer stations and will receive future revenue from the Thermo MasterT Plants, which will commence operations at total capacity of 800 tons per day able to expand to total tonnage of 1200 tons per day as soon as the market indicates. Northwood is permitted to receive 800 tons per day of waste at current tipping fees of $75/ton. This alone represents revenue of $60,000 per day, growing to $75,000 per day over the next two years. The Oshawa Thermo MasterT Plant, which will be part of the package, is projected to contribute another $24,000 per day. Tipping fees in Durham Region are expected to increase to $93/ton by the year 2000. The nearest landfill (Brock Road) has shut down and Toronto's Keele Valley Landfill is to close in the next 3-4 years, assuring a large supply of waste materials.
Power Grow is the only transfer station in Canada which is permitted to receive waste from the United States and is in an ideal location to serve New York State. Power Grow is permitted to have 100,000 tons of waste under management on its 66 acre site in Niagara Falls, Ontario. Niagara Bio Conversion is siting its Thermo MasterT Plant there.
Ontario Thermo TechT will also provide administrative services for the entire Ontario operation of Thermo TechT, thus providing greater operational efficiency and coordination of waste sourcing. This is anticipated to enhance the profitability of the Company's Ontario operations due to the success of Harvey Ambrose and Todd Dupuis in the waste management business.
Ontario Thermo MasterT plants in operation and under construction have total tonnage capability of up to 1,900 tons per day. The Company projects annual revenue potential from Ontario Thermo TechT in excess of $100,000,000, upon completion of the Oshawa and Niagara Thermo MasterT Plants.
The partner in this venture, Mr. Harvey Ambrose, has 35 years experience in the waste industry, especially the management of biosolids with over 200,000 acres permitted for land application of sludge. The Thermo MasterT solution is seen by Mr. Ambrose as a major improvement in this business.
ú 100% Non-recourse debt financing is being finalized for both the Oshawa and Niagara Falls Thermo MasterT Plants. This package will provide 100% debt financing for these plants. But, more importantly, the process that has produced this financing program will be able to be used to complete financing for future projects. When fully completed, this non-recourse debt financing will represent a full endorsement of the soundness of the Thermo MasterT Plant design and the thermophilic process, the access to raw materials at attractive prices, a market for finished products, the profitability of the Thermo MasterT Plant operating model and above all, the strength of the management team.
ú Construction of the new model 6 Thermo MasterT Plant in Richmond, Canada began January 13, 1998. This state-of-the-art Model 4 Thermo MasterT Plant combines the patented Thermo MasterT Process with four other major technologies that make the Thermo MasterT Plant. The project engineer, Stothert Engineering has provided the detailed construction schedule, with each stage locked in and leading to plant start-up in late July. The Company has scheduled the plant opening for July 26, 1998. Richmond is to serve the Vancouver market of more than 1.6 Million people. Richmond will be built to 600 ton per day capacity. By August, Hamilton and Richmond will have combined current operating capacity of 1,300 tons per day. When combined with Oshawa Bio and Niagara Bio later in the year, the Company's total capacity will rise to 2,100 tons per day with expansion capability to 2,500 tons per day. Full capacity expansion is seen to be achievable in both markets.
ú Halifax Bio Conversion received the official environmental permit from the Nova Scotia Department of the Environment on January 15, 1998. Completion of this project later in the year will add another 600 tons per day capacity bringing the Company total to 2,700 tons per day, with expansion capacity to 3,100 tons per day, excluding any of the other plants expected to be completed within the calendar year.
ú The Company has contracted Clarke & Company to provide services in the area of public and investor relations as well as issues management. Clarke & Company is a highly respected firm in its field and enjoys an extensive client list filled with corporate leaders in virtually every sector of commerce from North America and around the world. The public list of clients provided by Clarke & Company includes Industry giants such as IBM, Miller Brewing and W.R. Grace as well as the Boston Marathon, Massachusetts Port Authority and Tiffany and Company employ Clarke and Company to assist them. Clarke and Company is an important part of Thermo TechT's strategy to increase awareness for major analysts and institutions, and to expand its business.
Thermo TechT has made itself fully ready to deliver Thermo MasterT Plants. It has operated "the plant" profitably, exceeding the projections of the Thermo MasterT Model. It has refined its Thermo MasterT Plant design to be highly effective, efficient and unique in the world. It has been carefully building the management team it needs to market and deliver plants to a waiting market. Clarke and Company helping management share this news with the market and the world.
ú Continental Capital has been contracted to increase awareness in the investor and brokerage community. Continental Capital and Equity states that it "was founded to bridge the gap between publicly traded company's, investors and the brokerage community." The role of Continental Capital is to tell the financial community about Thermo TechT, an undiscovered and undervalued gem in the marketplace. Continental publishes Inside Wall Street, a well recognized journal for investors, brokers and the financial community. Thermo TechT will be featured in an upcoming issue.
ú Stothert Engineering has become new project managers for the Company. Stothert Engineering Ltd, is a well respected engineering firm which has worked with the Company over a period of many years. They will provide project management for Thermo MasterT Plant construction and ensure that it is efficient and effective. As project managers they will see that individual Thermo MasterT Plants are built to specification, on time and on schedule, regardless of where they may be located. Effective project management is a key element in the Company strategy for the rapid roll-out of new plants in North America and around the world.
Stothert will oversee and coordinate detailed feasibility studies which are to be conducted prior to approval of each new plant project. These studies are a key aspect of assuring that each project is viable and attractive for the Company and the partner. Both parties can be assured that all the critical aspects of the project and market conditions are properly researched and assessed prior to the commitment to proceed.
ú Mr. Karl Gonnsen, P.Eng. joined the Company as Manager of Engineering. Mr. Gonnsen is President of Metropolitan Planning and Engineering. Karl Gonnsen spent 21 years as project manager for the City of Burlington in Ontario. Mr. Gonnsen and Metropolitan have served the Company for approximately 7 years in providing services related to acquisition of environmental permits and site selection. Metropolitan continues to provide this service. Mr. Gonnsen made the decision to move to Vancouver in order to provide engineering management services so the Company can meet better meet its objectives. This commitment is a large endorsement of the Company.
ú The Company announced the incorporation of U.S. Thermo TechT Inc. which will lead the way to the U.S. market. It will open its Head Office in Washington State. U.S. Thermo TechT will focus on effective marketing of Thermo MasterT Plants and rapid penetration of the U.S. market.
ú The Company is receiving many international contacts as its reputation spreads. Partnership potentials, agency agreements and financing possibilities are rapidly emerging for firms in Japan, Korea, the United Kingdom, Saudi Arabia and Russia. Interest is global in scope with every corner of the Earth represented. Hyundai Precision & Ind. Co. Ltd, an affiliate company of the Hyundai Business Group, is just one of the many firms working with the Company to develop working relationships and establish Thermo MasterT Plants.
Summary of plant operations and development of new plants.
Hamilton Bio Conversion Inc. The flagship Thermo MasterT Plant of Hamilton Bio Conversion has exceeded projected profitability throughout this fiscal year. Despite the difficulties of working around retrofit and expansion construction, Hamilton has produced profit before amortization that exceeds projections. $359,000 more profit before amortization was achieved than was projected for the end of the third quarter. $479,000 more profit before amortization is projected over over the model by year end. The plant was designed, permitted and built to 200 ton per day capacity. With the retrofit and the expansion, Hamilton will have 3.5 times that capacity. $12,000,000 or more in annual revenue is projected due to Increases in capacity. This plant, alone, will provide sufficient profit to bring the Company to profitable operations.
The new evaporator is in full operation. The upgraded Hamilton Plant is a Model 3 Thermo MasterT Plant. Construction is well advanced on the new Model 4 Thermo MasterT Plant which is located on the Hamilton site. The Model 4 plant will be dedicated to processing biosolids residuals. By July, Hamilton will be able to process 700 tons per day.
Brampton Bio Conversion Inc. Brampton continues to expand its business and has added a third receiving bay to handle its capacity. Brampton provides fast, efficient and secure depackaging services to an expanding list of name brand manufacturers such as Coca Cola, Mead Johnson, Wyeth Ayerst, Nestl‚, Pepsi Cola, Nabisco, Beatrice Foods, Quaker Oats, Ault Foods, Campbell Soups, and others. Secure depackaging and full recycling capability make this service highly attractive to clients. This full recycling capability is what makes Brampton successful. Finally, generators have an option that gives them recycling not only of the container, but of the contents as well. The recycling "loop" is truly closed.
The Company is receiving demands for depack facilities in association with Thermo MasterT Plants. The success of Brampton is a model for other locations where manufacturers require this modern, sophisticated approach to full recycling and responsible "destruction" services for over-date and out of specification products.
Richmond Bio Conversion Inc. . Site work commenced in the second half of January after an official ribbon cutting on January 13, 1998. Stothert Engineering, the project managers have provided the Company a firm construction schedule. The construction is ongoing according to the schedule. Commissioning and start-up are set for July.
Richmond Bio Conversion is the Company's showcase plant for its state-of-the-art, third generation Model 6 Thermo MasterT Plant. With completion of this plant the Company will have a full group of flagship plants, including the Model 3, Model 4 and Model 6 Thermo MasterT Plants. |
