U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
INTEGRATED TECHNOLOGY GROUP
(Name of Srna11 Business Issuer)
Date of Report (Date of earliest event reported) July 27, 2000
Nevada 333-63063 87-058319
(State or Other Commission I.R.S. Employer
Jurisdiction of File No. Identification
Incorporation or Number
Organization)
301 West Main Suite 500 Ardmore, OK 73401
(580-226-0511)
Item 1.
CHANGES IN CONTROL OF REGISTRANT
Introduction. On July 31, 2000 the registrant closed a Plan and Agreement of
Reorganization by Exchange by Integrated Technology Group, a Nevada Corporation
of its Voting Stock for Stock in and of Safe Tire Disposal Corp., a Delaware
Corporation which was signed on or about June 30, 2000. Under this agreement and
related resolutions of the Board of Directors, the registrant has taken the
following actions:
1. Sold the assets of the company which consisted of assets related to the
conduct of the Living Card Company to John F. Lund and R. Blair Lund in exchange
for cancellation of 5,900,000 restricted common shares of the Company, thus
reducing to 2,100,000 the number of common shares outstanding; and
2. Issued 9,000,000 common shares of the registrant constituting 80.89% of the
shares of the registrant outstanding after the close, to the owners of 100% of
the outstanding shares of Safe Tire Disposal Corp., an Oklahoma corporation. A
copy of this agreement is attached hereto as Exhibit 2.
On July 28, 2000, acting pursuant to the Plan and Agreement of Reorganization,
the new Board of Directors adopted a Resolution by Unanimous Consent by which it
directed Interwest Transfer Company, Inc., the registrants transfer agency, to
issue certificates representing restricted common shares of the company
registered as follows:
Safe Tire Disposal Corp. 9,000,000
James N. Barber, Trustee 25,000
Total: 9,025,000
1
<PAGE>
The 9,000,000 shares registered to Safe Tire Disposal Corp. are the
consideration for the transfer to the registrant of 100% of the outstanding
common shares of Safe Tire Disposal Corp. The 25,000 shares registered to James
N. Barber, Trustee are issued in consideration of legal and finders' fees
incurred in connection with the Plan and Agreement of Reorganization. A copy of
this Resolution by Unanimous Consent is attached hereto as Exhibit 6. The
9,000,000 shares in exchange for 100% of Safe Tire Disposal Corp. have been
transferred to the following registered owners, each of whom was the prior owner
of 50% of the outstanding shares of Safe Tire. As a result of the issuance of
the foregoing 9,000,000 shares, 80.89% of the registrant's outstanding shares
are held as follows:
Name and address of Amount and nature of Percent
Title of Class beneficial owner beneficial ownership Of Class
-------------- ------------------- -------------------- --------
Common H. Scott Holden
1993 Trust 4,500,000 shares 40.45%
Common Harold H. Holden
1995 Trust 4,500,000 shares 40.45%
Officers and
Directors as a
group 9,000,000 shares 80.89%
Item 2. Acquisition or Disposition of Assets
The closing of the reorganization agreement and the July 28,2000 Resolution by
Unanimous Consent authorizing the issuance of the shares required thereby made
effective a Resolution adopted by the former Board on June 19,2000 in
anticipation of the reorganization agreement, by which all the assets of the
corporation on that date, which were assets related to the operation of the
living card business conducted by the registrant since inception, were sold to
John F. Lund and R. Blair Lund in exchange for cancellation of 5,900,000
restricted shares of the company registered to them. By its terms, this
resolution became effective contemporaneously with issuance of the shares called
for by the reorganization agreement.
As a result of these transactions the only remaining asset of the registrant if
100% of the issued and outstanding common stock of Safe Tire Disposal Corp.
Integrated Technology Group ("ITG"), through Safe Tire Disposal Corp., its
wholly owned subsidiary, operates one plant in Oklahoma and four plants in Texas
at which it recycles tires. ITG is paid to accept waste tires from tire
retailers, service stations, salvage yards and from clean-up jobs with
governmental agencies, private individuals and companies. It has developed a
process in which it uses shredders to reduce the tires to chips or pieces of
rubber ranging from 2 inch to 1/2 inch in diameter. These chips can be used for
energy recovery as "Tire Derived Fuel", or for manufacturing and engineering
applications (referred to as Tire Derived Product). ITG has effected proprietary
improvements in its technology which it believes will permit it to increase
production by shortening the production cycle, and thus lower the cost of the
end product.
Safe Tire has also developed and patented a "Gasification" process which is a
close-loop method of deriving petro-fuels from ground tire scraps by thermal
degrading them and thereby producing smaller, less complex molecules. The
process produces gas, oil and carbon. The carbon is refined to remove ash and
other waste and can then be palletized or bagged and marketed to end users. The
gas from the process, which has a heating value as high as 2375 Btu/cubic foot
compared to natural gas that averages 1000 Btu/cubic foot, goes through a
condenser to produce oil. The oil, which has the consistency of fuel oil, can be
further refined into gasoline or other fuels, sold to blenders who use it to
produce other petroleum products, or as a fuel to run specially designed motors
for the production of electricity. The Gasification process produces extra gas
that does not condense into oil which can be used to provide thermal energy to
heat the tire chips. The process produces 500 pounds of carbon, 300 pounds of
steel and 2.5 barrels of oil per ton of used tires.
The registrant's plants are environmentally friendly and produce virtually zero
emissions.
2
<PAGE>
The uses for products that can be derived from tire scraps are immense. TDF can
be used to power cement and power plants. Tire chips can be further reduced into
crumb rubber, which is used in the manufacture of rubberized asphalt, roofing
materials, siding, automotive parts including hoses and body parts, electrical
insulators and floor tiles. Crumb Rubber is also useful as an end product in
barns and stables, as a surface for racing tracks and horse arenas, and as a
resilient, safer surface for playgrounds. Beyond these and other present uses
there is a growing industry of entrepreneurial people developing new
technologies and ways to improve old methodologies for application to a new
generation of rubber products. The market is being encouraged by recent
governmental rules requiring agencies to purchase recycled rubber and plastic
products.
Recycled rubber is a growing industry with Integrated Technology Group emerging
as one of its leaders.
The 9,025,000 shares issued pursuant to the Reorganization Agreement and the
July 28, 2000 resolution have not been have been registered under the Securities
Act of 1933, as amended (the " Act"), but have been issued in reliance on the
exemption from registration provided by § 4(2) of the Act which exempts
transactions by an issuer not involving any public offering from the
registration provisions of the Act. In support of its reliance on this
exemption, the Board of Directors found as follows:
1. The only remaining asset of the corporation is its 100% position in the
common shares of Safe Tire Disposal Corp. Safe Tire Disposal Corp. and its
constituent stockholders who are the registered owners of the 9,000,000 shares
of the registrant issued pursuant to the agreement are fully aware of the
financial and business posture of that Company and its predecessor Living Card
Company. Mr. Barber has advised the parties in connection with this transaction
and is fully aware of the financial and business posture of Safe Tire Disposal
Corp. and its predecessor Living Card Company.
2. The Purchasers are sophisticated investors who are able to evaluate the risks
of their respective investments in common shares of this Corporation.
3. The Purchasers have sufficient information about the issuer and its
predecessor, and sufficient business skill and acumen that they are not in need
of the protection which would be afforded by registration of the shares being
issued to them under the Securities Act of 1933.
4. The Purchasers have acknowledged that they are aware that the shares to be
issued to them will constitute "restricted securities" under paragraph (a)(3) of
SEC Rule 144 under the Act and that they are aware of the resale restrictions
imposed upon restricted securities by the provisions of & sect;& sect; 4(1) of
the Act, and SEC Rule 144 thereunder.
5. The Purchasers have acknowledged that they are purchasing their shares for
investment, and not with a view to distribution except in compliance with some
applicable exemption from registration. Each has agreed that the certificates
representing the shares will bear a standard form restrictive legend, that stop
transfer instructions may be lodged against the shares, and have agreed, at the
request of the Company, to execute representations that they are purchasing the
shares for investment, and not with a view to distribution.
Item 6. Resignations of Registrant's Directors
June 20,2000, in preparation for the closing of this agreement, John F. Lund and
R. Blair Lund, the only two directors of the corporation, appointed H. Scott
Holden to fill the existing vacancy in the Board of Directors. On July 27,2000,
John F. Lund and R. Blair Lund resigned as officers and directors of the
registrant and appointed the following persons as the directors and officers of
the registrant to fill their unexpired terms.
H. Scott Holden, Director, President and Chief Executive Officer C. Sue Rushing,
Director, Secretary/treasurer and Comptroller Harold H. Holden, Director,
Advisor to the Board Jeffrey C. Bruteyn, Director Only James N. Chatham II,
Director Only
This slate of officers and directors is the same as the officers and directors
of Safe Tire Disposal Corp. A copy of the Resolutions by Unanimous Consent by
which these changes were effected are attached hereto as Exhibits 4 and 5,
respectively.
3
<PAGE>
The new directors and officers assumed control of the Corporation from John F.
Lund and R. Blair Lund, former directors and officers of the corporation who
resigned effective upon the appointment of their successors.
Under the Bylaws of the corporation, officers and directors serve terms of one
(1) year or until their successors have been elected and accepted their
positions.
There are no arrangements or understandings among members of both the former and
new control groups and their associates with respect to election of directors or
related matters. There are no arrangements known to the registrant, including
any pledge by any person of securities of the registrant or any of its parents,
the operation of which may at a subsequent date result in a change in control of
the registrant. Harold H. Holden is the father of H. Scott Holden. The
resignation of the former directors was not related to any disagreement with the
registrant on any matter relating to the registrant's operations, policies or
practices. They were occasioned exclusively by the business reorganization.
Item 7. Financial Statements and Exhibits
The required accompanying financial statements begin on page F-1 of this
document.
4
<PAGE>
SAFE TIRE DISPOSAL CORP. AND SUBSIDIARIES
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENT OF OPERATIONS F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENT OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-13
F-1
<PAGE>
Lane Gorman Trubitt L.L.P
Certified Public Accountants
2626 Howell
The Seventh Floor
Dallas, TX 75204
214.871.7500
fax 214.871.0011
Toll Free 77-231.7500
www.lgt-cpa.com
Report for Independent Certified Public Accountants
The Board of Directors and Stockholder
Safe Tire Disposal Corp.
We have audited the accompanying consolidated balance sheet of Safe Tire
Disposal Corp. and subsidiaries (Safe Tire) as of December 31,1999, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Safe Tire Disposal
Corp. and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Lane Gorman Trubitt, L.L.P. Dallas, Texas
February 2,2000
F-2
<PAGE>
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash and Cash equivalents 355,669
Accounts receivable, net allowance of $68,034 690,102
Other receivables 21,552
Prepaid expenses 88,723
Deposits 118,000
Deferred taxes 15,032
------------
Total current assets 1,289,078
------------
PROPERTY, PLANT and EQUIPMENT
Land 467,040
Buildings and improvements 2,562,146
Transportation equipment 7,789,268
Plant equipment 12,432,901
------------
23,251,355
------------
Less accumulated depreciation (17,119,061}
------------
Net property, plant and equipment 6,132,294
------------
OTHER ASSETS
Other Assets 126,799
Long-term advances -related party 443,893
Deferred taxes 2,608,192
------------
3,178,884
------------
10,600,256
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 366,473
Current installments of long-term debt 2,686,914
Other current liabilities and accrued expenses 436,131
------------
Total current liabilities 3,489,518
------------
LONG-TERM DEBT, excluding current installments 18,904
------------
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock; $1.00 par value; 50,000 shares authorized,
1,000 issued and outstanding 1,000
Preferred, $0.10 cumulative dividend, $0.01 par value;
9,535,000 authorized, issued and outstanding 95,350
Additional paid-in capital 15,372,796
Accumulated deficit (8,377,312)
------------
Total stockholders' equity 7,091,834
------------
10,600,256
============
F-3
<PAGE>
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
Revenues
Tire processing revenue 10,969,565
Other revenue 1,160,738
------------
Total revenues 12,130,303
============
Operating expenses
Facility and processing 2,781,744
Transportation 3,754,909
General and administrative 2,229,168
Depreciation and amortization 1,309,168
------------
Total operating expenses 10,074,989
------------
Operating expenses 2,055,314
------------
Other income (expenses)
Interest expense (560,619)
Interest income 9,791
Gain on sale of assets 6,628
Income before income taxes 1,511,114
Deferred tax benefit 2,623,224
------------
Net income 4,134,338
============
F-4
<PAGE>
<TABLE>
<CAPTION>
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31, 1999
Corporation
Shares Amount Shares Amount Capital Deficit Equity Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 1,000 1,000 -- -- 8,579,205 (12,487,475) (24,175) (3,931,445)
Issuance of
preferred stock to retire
debt -- -- 9,535,000 95,350 6,793,591 -- -- 6,888,941
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Foregiveness advance to Recycled
Energy Power
Corporation -- -- -- -- -- (24,175) 24,175 --
Net
Income -- -- -- -- -- 4,134,338 -- 4,134,338
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance December 31,1999 1,OOO l,OOO 9,535,OOO 95,350 15,372,796 (8,377,312) -- 7,091,834
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
F-5
<PAGE>
<TABLE>
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1999
<S> <C>
Cash flows from operating activities:
Net Income $ 4,134,338
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 1,309,168
Gain on sale of assets (6,628)
Deferred income taxes (2,623,224)
Changes to assets and liabilities related to
Operating activities:
Accounts and other receivables 136,480
Prepaid expenses, deposits and other assets (125,125)
Accounts Payable (493,707)
Other liabilities and accrued expenses (224,689)
-----------
Net cash provided by operating activities 2,106,613
-----------
Cash flows from investing activites:
Purchases of plant and equipment (773,736)
Purchase of other assets (99,392)
Proceeds on sales of assets 7,682
Advances to related party (337,264)
-----------
Net cash used in investing activities (1,202,710)
-----------
Cash flows from financing activities:
Repayment of long-term debt (579,383)
-----------
Net cash used in financing activites (579,383)
-----------
Net increase in cash and cash equivalents 324,520
Cash and cash equivalents at beginning of year 31,149
Cash and cash equivalents at end of year 355,669
===========
Supplemental cash flow information:
Cash paid for interest expense 527,413
===========
Supplemental schedule of non cash investing and financing activities:
Forgiveness of long-tern debt to Recycled Energy
Corporation through the issuance of preferred stock 6,888,941
===========
Forgiveness of advance to Recycled Energy Power Corporation 24,175
===========
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
Safe Tire Disposal Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Safe Tire Disposal Corp. and subsidiaries (the "Company") collect and dispose of
waste tires. The process involves converting the whole waste tire into shredded
chips available for sale as a by-product. The Company owns and operated one
processing plant in the state of Oklahorna and four processing plants in the
state of Texas. The Company's significant sources of revenues are from the
states of Oklahorna and Texas for the collecting and shredding of waste tires.
The Company's operations and revenues are impacted by laws and regulations of
the states of Oklahorna and Texas.
In 1995, the Company diverted processing operations at it Cleveland, Texas plant
to two of its other Texas processing plants, and processing operations at the
plant were suspended. All assets were transferred to the Company's other Texas
processing plants and the Cleveland plant is now being used by an affiliated
company. Also in 1995, the Company indefinitely suspended processing operations
at it Odessa, Texas plant in order to pressure the state of Texas for increased
fees for collecting and disposing of waste tires in western Texas. There are no
definite plans to reopen this plant.
Beginning January 1, 1998, the State of Texas relinquished control over funding
of, setting rates for, and the payment of waste tire collection and disposal.
Individual tire dealers are now responsible for ensuring waste tires are
appropriately collected and disposed. Therefore, beginning January 1, 1998, tire
dealers are responsible for negotiating with and paying waste tire processors
for collecting and disposing of waste tires. The Company is unable to determine
whether the change in the revenue source for collecting and disposing of waste
tires will significantly impact its future results from operations or liquidity.
The Company sells tire chips to buyers. The Company is actively exploring new
markets for the shredded chips which could increase the sales of the shredded
chips in future years.
A summary of the Company's significant accounting policies are as follows: Basis
of Presentation and Principles of Consolidation
The accompanying consolidated financial statements included the financial
statements of the Company and its subsidiaries. Intercompany balances and
transactions between the Company and its subsidiaries have been eliminated in
consolidation.
Use of Estimates in Preparation or Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement, and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid short-term
investments in money market accounts.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation. All material property, plant, and equipment additions are
capitalized and depreciated on a straight-1ine basis over the estimated useful
lives of the assets. Estimated useful lives range from 5 to 30 years. As assets
are disposed of, cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations.
Income Taxes
The Company provides for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recorded or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-7
<PAGE>
Chip Inventory
The Company has approximately 244,000 tire chips on hand at December 31, 1999.
As noted above, the Company receives a fee for collecting, transporting, and
shredding waste tires for the states of Oklahoma and Texas. In order to make the
tire chips marketable to end users, the Company processes waste tires to a size
smaller than required by the states. The Company is currently unable to
accurately measure the incremental costs of processing waste tires below the
size required by the states. Therefore, the Company does not record the tire
chips as inventory on its consolidated balance sheet.
2. LONG- TERM DEBT
Long-term debt of the Company consisted for the following at December 31, 1999:
Note payable to investment company on demand. Note expired April 1 , 1998 and
bank has not drafted new note. Company is making payments of $88,246 per month,
including interest. Interest rate is the bank's prime rate plus 5% (13.5% at
December 31, 1999). The note is collateralized by the assets of the Company.
$2,683,350
Borrowing under financing agreement for property acquisition, payable in monthly
installments of $453, including interest of 9%, through February 1, 1005.
The borrowing is secured by a deed of trust. 22,468
2,705,818
Less current installments of long-term debt (2,686,914)
18,904
The aggregate maturities of long-term debt for each of the five years subsequent
to December 31, 1999 (excluding debt payable to REC), are as follows: 2000,
$2,686,913; 2001, $3,897; 2002, $4,263; 2003, $4,662, and 2004, $5,995.
3. Income Taxes The components of the deferred tax assets and liabilities at
December 31,1999, are as follows:
Deferred tax assets--tax effect of:
Allowance for doubtful accounts $ 25,173
Net operating loss carryforward 3,367,862
Total deferred tax assets 3,393,035
Deferred tax liabilities--tax effect of:
Property, plant, and equipment (759,670)
Forbearance fee (10,141)
Total deferred tax liabilities (769,811)
Net deferred tax asset/liability $ 2,623,224
The net change in the total valuation allowance for the year ended December 31,
1999, was a decrease of $2,998,127. In assessing the recoverability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $9,102,000, which are available to
offset future federal taxable income generated, if any. The carryforwards expire
as follows: $618,000 in 2009; $2,051,000 in 2010, $3,393,000 in 2011, $1,542,000
in 2017, and $1,498,000 in 2018.
4. Related party Transactions During 1995, the Company advanced $1,298,000 to
Recycled Energy Power Corporation ("REPC"), a subsidiary of REC. The advance is
interest free and has no associated repayment schedule. During 1997 and 1996,
the Company was repaid $445,000 and $828,825, respectively, of the advance made
to REPC by REC on behalf of REPC. At December 31, 1998 the advance to REPC is
reflected as a decrease in stockholder's equity in the accompanying balance
sheet due to the uncertainty regarding repayment of the remaining advance
balance. During 1999, the Company wrote off the remaining balance of $24,175.
F-8
<PAGE>
Included in other long-term receivables at December 31, 1999 is an advance paid
to Rubber Recycling Resources for $343,060 for working capital purposes. Rubber
Recycling Resources is affiliated through common ownership. The advance is
interest free and has no associated repayment schedule. No repayments have been
made as of December 31, 1999. Included in other long-term receivables at
December 31, 1999 is an advance paid to Safe Tire Recycling for $100,833 for
working capital purposes. Safe Tire Recycling is affiliated through common
ownership. The advance is interest free and has no associated repayment
schedule. As of December 31,1999, no repayments have been made.
5. Lease commitments The Company leases land and transportation equipment under
noncancellable operating leases. The land lease agreement provides for five
successive five-year renewal options, each with increased annual lease payments,
and options to purchase the leased land. Rental expense for all operating leases
approximated $233,000 for the year ended December 31, 1999. Future minimum lease
payments under noncancellable operating leases (with initial or remaining lease
terms in excess of one year) as of December 31, 1999, are:
Year ending December 31: 2000 $ 182,000 2001 182,000 2002 182,000 2003 156,000
Total minimum lease payments $ 702,000
6. Letters of Credit As of December 31, 1999, the company was contingently
liable for outstanding letters of credit totaling approximately $245,000. The
letters of credit expire during 2000.
7. Contingent Liabilities
In the normal course of business, various actions and claims have been brought
or asserted against the Company. Management does not consider these legal
actions to be material to the Company's financial position, liquidity, or
results of operations, except those discussed below.
Texas Natural Resource Conservation Commission ("TNRCC")
During 1994, a claim was made against Safe Tire Disposal Corporation of Texas
("Safe Tire- Texas"), a wholly-owned subsidiary of the Company, by TNRCC
regarding overpayments to Safe Tire-Texas as a result of falsification of
records and reports to TNRCC by certain employees of Safe Tire-Texas' Cleveland,
Texas facility. The Company conducted its own investigation and determined that
the dollar amount which had been overpaid was substantially less than the TNRCC
claim. However, the Company compromised and settled the TNRCC claim by agreeing
to allow consolidated revenues and receivables by approximately $796,000 as the
period of falsified reports was primarily 1993. In September 1995, three Safe
Tire-Texas employees were convicted of criminal offenses involving falsified
state documents.
On December 21, 1995, the executive director of TNRCC issued a preliminary
report concluding that safe Tire-Texas had committed violations of the state of
Texas health and safety laws and TNRCC rules. As a result, the executive
director of TNRCC recommended that TNRCC issue an order requiring Safe
Tire-Texas to pay $470,480 in administrative penalties.
In February 1998, the Company and TNRCC settled the claims for assessed
penalties approximating $445,000. The settlement requires the Company to pay
cash penalties approximating $225,000. TNRCC will recover the cash penalties by
application of amounts withheld from the Company in 1996. In 1996, the Company
recorded as expense a provision for uncollectible accounts receivable, relating
to such amounts being withheld by TNRCC.
F-9
<PAGE>
The settlement also requires the Company to assist certain Texas counties,
cities and other governmental entities with the collection, processing and
proper disposal of illegally dumped tires, referred to as Supplemental
environmental Projects ("SEP"), valued at $220,000. The specific SEP's to be
performed will be mutually agreed upon by the Company and TNRCC on an ongoing
basis and are to completed within 18 months of TNRCC approving the settlement.
In the event the Company does not satisfy its obligations under the SEP in a
timely or satisfactorily manner, TNRCC may require the Company to pay all or
part of the $220,000 assessed penalty in cash. Under the settlement, for each
qualifying SEP, the Company will receive credit of $1 per mile for transporting
waste tires and $.66 per waste tire (18. 71bs.) processed, which will reduce the
SEP obligation to TNRCC. In 1997, the Company recorded $220,000 as expense
(included in settlement of litigation and claims in the consolidated statement
of operations) for the SEP obligation. As of December 31,1999, $107,314 of the
SEP obligation is included in other current liabilities and accrued expenses.
The Company has paid off $112,686 through SEP's.
United States Environmental Protection Agency ("EPA")
On January 11, 1996, the EP A notified the Company of its potential liability
with respect to response costs incurred by the EP A as a result of a fire on
December 2, 1995, at the Company's Midlothian, Texas facility and made demand
for payment of costs incurred through December 15, 1995 of $97,853. In June
1996, the EPA made demand upon the Company for approximately $1.2 million for
response costs allegedly incurred in connection with the incident. The EP A has
also indicated it will seek to recover interest on any amounts due from the
Company with interest accruing from the later of (i) the date that a specified
amount is demanded in writing or (ii) the date of the actual expenditure.
In December 1999, as a result of a mediation session, a Consent Decree was
negotiated, whereby the Company will pay $100,000 in exchange for release of
claims and dismissal of the lawsuit. The sum has been recorded as an expense in
the 1999 consolidated statement of operations and has been accrued for in other
current liabilities and accrued expenses.
Other Claims
Worker's compensation claims and related litigation have been asserted against
the Company. The Company maintains workers' compensation insurance coverage up
to a specified loss limit. Settlement of unfavorable judgment rendered against
the Company in excess of the Company's insurance policy limits would be the
responsibility of the Company.
The Company has not accrued any amounts related to these claims as the Company
and its legal counsel are unable to determine the possible outcome or estimate
the amount or possible range of loss limit. Settlement or unfavorable judgment
against the Company of the workers compensation claims in excess of the
Company's insurance coverage could have a material impact on the financial
position and future results of operations of the Company.
The Company is a defendant in a breach contract claim filed by a party who
provided services in response to the December 1995 fire at the Company's
Midlothian, Texas facility. The party is seeking from the Company $197,000
relating to services provided as well as for interest and legal fees. In 1997,
the Company filed a motion to abate the lawsuit based on the existence of an
arbitration provision in the party's work order. The district court granted the
motion to abate contingent on the Company's initiation of an arbitration
proceeding. The Company initiated an arbitration proceeding with the American
Arbitration Association ("AM"). The party subsequently filed a petition in the
United States Bankruptcy Court for Liquidation under Chapter 7 of the US
Bankruptcy Code. Following receipt of notice of the bankruptcy filing, the AM
issued notice that it would close the arbitration proceedings. The party's
bankruptcy case is ongoing and the bankruptcy trustee could reopen the
arbitration proceedings. The Company has not accrued any amount related to this
claim as the Company and its legal counsel are unable to determine the possible
outcome or estimate the amount or possible range of loss. The ultimate outcome
of this claim could have a material impact on the financial position and future
results of operations of the Company.
F-10
<PAGE>
In early 1998, the company settled three lawsuits for $161,000. The lawsuits
were filed by three residents of Ellis County, Texas, who asserted various
claims against the Company, all of which arose as a result of a fire on December
2, 1995, at the Company's Midlothian Texas facility. The terms of the settlement
included a lump sum payment of $15,000 on the settlement date and payments of
$6,083 per month for 24 months beginning in March 1998. The Company and its
legal counsel believe the claims are covered under the Company's commercial
general liability Insurance policy in effect at the time of the fire. The
Company's commercial general liability insurance carrier at such time has denied
coverage. The Company filed a lawsuit in the lOth District Court, Ellis County,
Texas seeking a judgment interpreting the terms of the policy, and compensating
the Company for damages incurred as a result of the insurance carrier's breach
of contract. A judgment of $133,963 was obtained by the Company, but the
insurance carrier appealed the judgment to the lOth District Court of Appeal in
Waco, Texas. Oral arguments were heard on May 19, 1999, but the Court of Appeals
has not yet rendered a decision on the appeal. The insurance carrier has filed a
counterclaim seeking recovery of its legal fees incurred in the lawsuit. The
Company intends to vigorously pursue its claims against the insurance carrier.
The Company and its legal counsel are currently unable to determine the outcome
of this lawsuit. The Company recorded $165,000 as expense in its 1997
consolidated statement of operations (included in settlement of litigation and
claims) relating to the settlement of the lawsuit. As of December 31, 1999,
$12,167 is included in other current liability and accrued expenses.
Index of Exhibits
Item
----
Exhibit 2. Reorganization Agreement
Exhibit 99. (i) Consent Resolution June 19, 2000
Exhibit 99.(ii). Consent Resolution June 20, 2000
Exhibit 99.(iii). Consent Resolution July 27, 2000
Exhibit 99.(iv). Consent Resolution July 28, 2000
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 hereunto duly authorized. There are no letters or other documents
related to the resignations except the Consent Resolution of July 27, 2000.
INTEGRATED TECHNOLOGY GROUP
By: /s/ H. Scott Holden
---------------------------------------------
H. Scott Holden, CEO, President and Director
By:/s/ C. Sue Rushing
---------------------------------------------
C. Sue Rushing, Director, Secretary/Treasurer
and Comptroller
