U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
INTEGRATED TECHNOLOGY GROUP
(Name of Small 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)
1174 East 2700 South, #16, Salt Lake City, UT 84106
(Address of Principal Executive Offices Zip Code)
(801)485-0430
(Registrant's Telephone Number)
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.,
an Oklahoma 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
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
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
as 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 developeed a
process in which it uses shredders to reduce the tires to chips or pieces of
rubber ranging from 2 inch to ½ inch in diamter. 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 produced 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.
The uses for products which can be derived from tire scraps is
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
§§ 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 5. Other events
On July 14, 2000 the Company filed with the State of Nevada a Certificate of
Amendment to the Articles of Incorporation wherein it changed its name from
Living Card Company, Inc. to Integrated Technology Group.
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.
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
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 wether 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 Tunbitt, L.L.P.
Dallas, Texas
February 2, 2000
SAFE TIRE DISPOSAL CORP.
AND SUBSIDIARIES
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET 2
CONSOLIDATED STATEMENT OF OPERATIONS 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 4
CONSOLIDATED STATEMENT OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-12
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSESTS
Cash and Cash equivalents 355,669
Accounts reveivable, 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
Otehr 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
The accompanying notes are an integrated part of these statements.
2
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 adminstrative 2,229,168
Depreciation and amortization 1,309,168
Total operating expenses 10,074,989
Operating expenses 2,055,314
Oterh 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
The accompanying notes are an integral part of these statements
3
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Year ended December 31, 1999
Shares Amount Shares Amount Capital Deficit Corporation Equity
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 1,000 1,000 9,535,000 95,350 15,372,796 (8,377,312) 24,175 7,091,834
The accompanying notes are an integral part of these statements
4
Safe Tire Disposal Corp. And Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1999
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
The accompanying notes are an integral part of these statements
5
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 inot
shredded ships available for sale as a by-product. The Company owns and
operated one processing plant in the state of Oklahoma and four processing
plants in the state of Texas. The Company's significant sources of revenues
are from the states of Oklahoma 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 Oklahoma and Texas.
In 1995, the Company diverted processing operations at it Cleveland, Texas
plant to two of it other Texas processing plants, and processing operations at
the plant were suspended. Al 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 of 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.
6
Safe Tire Disposal Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS (Continued)
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-line 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 los 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.
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
7
Safe Tire Disposal Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Long-term debt (Continued)
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.
8
Safe Tire Disposal Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Related Party Transactions (Continued)
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.
9
Safe Tire Disposal Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
19993. 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.
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 th $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 (18.7 lbs.)
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.
A
of December 31, 1999, $107,314 of the SEP obligation is included in other
current liabilites and accrued expenses. The Company has paid off $112,686
through SEP's.
10
Safe Tire Disposal Corp. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CONTINGENT LIABILITIES (Continued)
United States Environmental Protection Agency ("EPA")
On January 11, 1996, the EPA notified the Company of its potential liability
with respect to response costs incurred by the EPA 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 EPA
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 ("AAA"). 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 AAA 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.
11
Safe Tire Disposal Corp. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CONTINGENT LIABILITIES (Continued)
Other Claims (Continued)
In early 1998, the company settled three lawsuit 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 10th
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 10th District Court of Appeal in Waco, Texas. Oral arguments were heard
on May 19, 1999, buy 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 int he 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 3.(i) Certificate of Amendment to the Articles of
Incorporation
Exhibit 99.(i) Consent Resolution June 19, 2000
Exhibit 99.(ii). Consent Resolution June 20, 2000
Exhibit 99.(iii). Consent Resolution June 27, 2000
Exhibit 99.(iv). Consent Resolution June 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
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