<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB/A
(Mark one)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1996 or
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
----------- ------------
Commission File No. 0-14443
WASTE TECHNOLOGY CORP.
(Name of small business issuer in its charter)
Delaware 13-2842053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Rio Grande Avenue, Jacksonville, Florida 32254
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (904) 355-5558.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value per share.
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $13,982,903.
State the aggregate market value of the voting stock held by
nonaffiliates (based on the closing price on February 10, 1997 of $1.375):
$1,802,536.
State the number of shares outstanding of the registrant's $.01 par
value common stock as of the close of business on the latest practicable date
(February 10 , 1997): 2,431,551.
Documents Incorporated By Reference: None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
For fiscal 1996, consolidated sales were $13,982,901 as compared to
consolidated sales of $10,329,759 for fiscal 1995, an increase of approximately
35.4%. The increase in sales was the result of sales at the International Press
and Shear (IPS) subsidiary in Baxley, Georgia which completed its first full
year of operation. Sales in 1995 increased $1,259,288, 13.9% over 1994 due to
increased economic activity in certain niche markets including textiles and
rubber.
Although the Company had higher sales in fiscal 1996 due to products
manufactured at its IPS subsidiary, net income was lower than in 1995.
Consolidated net income for fiscal 1996 was a loss of $526,680 as compared to
net income of $759,588 in fiscal 1995. Operating losses at the IPS subsidiary
were the primary cause of the loss for the year. The operations of all other
subsidiaries of the Company were profitable. Operating expenses were up by
$936,442, 36.4% in 1996 and $470,632, 22.4% in 1995 due primarily to the costs
of IPS which commenced production in the fourth quarter of 1995.
Net income in 1995 and 1996 was affected by certain non-recurring
items. In 1995 start-up costs at the new facility at Baxley, Georgia, were in
excess of $300,000 in the fourth quarter of 1995, while only limited shipments
were made by that facility in fiscal 1995. Second, the Company established a
reserve of $162,000 for settlement of the Cavagnaro v. Waste Technology Corp.
Litigation. (See Item 3, Legal Proceedings -- Waste Tech Litigation@). Also,
in fiscal 1995 the Company recorded a deferred tax asset of $413,000 which was
related to the Company's net operating loss carry forwards based on
managements' estimate of future taxable income. In fiscal 1996 the Company set
up a reserve of $49,840 for the receivable related to a real estate joint
venture. Based on the results of operations in 1996 and current short term
expectations, the Company reversed the recognition of the deferred tax asset
discussed previously, at October 31, 1996.
<PAGE>
For fiscal 1996, the Company, and particularly its new plant in
Baxley, Georgia, did not achieve its expected sales levels due to a drop in
sales of corrugated cardboard balers because of the sharp drop in the market
price of used corrugated board and paper. The Company is unable to predict how
soon prices will recover, but, based on previous cyclical dips in corrugated
and paper prices, the Company believes that prices will rise in the relatively
near future with a resulting increase in sales and profits. Similarly, a severe
drought in the southwestern United States caused a substantial drop in cotton
production which resulted in a substantial reduction in sales of cotton mote
balers. It is anticipated that sales of such balers will increase in fiscal
1997.
The losses incurred by the new subsidiary were the result of start-up
costs and the significant drop in corrugated board and paper prices in the
recycled products market which caused actual sales to fall short of
projections. IPS operations are now running efficiently and the number of
employees have been reduced to a level which is commensurate with sales levels
anticipated in view of current market conditions. It is the objective of the
Company to get IPS to a profitable or near break-even level by the end of 1997.
The decision by the Company to eliminate the deferred tax asset was
based on the inability of the Company to predict whether any profit in the near
future would be large enough to enable it to use the amount of net operating
loss carry-forward which would result in such a large tax benefit.
Financial Condition
Working capital has decreased from $1,772,035 at October 31, 1995 to
$1,541,678 at October 31, 1996. This decrease is the result of the reversal of
the deferred tax asset and an increase in current maturities of long-term debt,
partially offset by a decrease in customer deposits. The decrease in cash of
approximately $975,000 was used to fund higher accounts receivable and
inventory required by the IPS subsidiary.
The term note with SouthTrust Bank was renewed in August 1996,
increased by $375,167 and extended to August 2002. The original note balance of
$418,333 at October 31, 1996 was due in November 1997. Monthly payments on the
original note were $15,833 per month, plus interest at the prime rate + 1%. The
new note is due in equal monthly installments of $9,018, plus interest at the
prime rate. The entire balance of this term note was classified as a current
liability because the term loan has callable provisions relating to the
revolving note described below.
<PAGE>
The note payable balance of $106,878 with Barnett Banks was paid off
in December 1995 as the Company sold the related land and buildings of a
discontinued subsidiary.
The revolving note payable to SouthTrust Bank in the amount of
$1,000,000 was renewed in July 1996 at the prime rate. Interest is payable
monthly and all amounts borrowed are due in full on July 7, 1997. The balance
due at October 31, 1996 was $531,652. At October 31, 1996, the Company is in
violation of the covenants of the loan agreement related to minimum net worth
and maximum debt to worth. As of the filing date, the lender has not waived
these covenant violations nor has it demanded repayment. While no assurance can
be given, management believes its available collateral to be sufficient to
allow the Company to renegotiate an extension of the revolving debt and its
covenant requirements prior to its expiration date or obtain alternative
financing. It is anticipated that the note will be renewed in July, 1997.
The Company also entered into financing arrangements in relation to
the financing of the IPS subsidiary. First, a term note for $250,000 with
Appling County, Georgia was entered into in July 1996 at a rate of 4%. Monthly
payments of $3,417 including interest are payable for a period extending to
July, 2003. Second, the Company entered into a capital lease agreement with
Development Authority of Appling County, Georgia. Payments on this lease are
$6,134.87 per month through April, 2011.
For the year ended October 31, 1996 the Company had negative cash flow
from operations. Management has taken actions to improve cash flows from
operations primarily by reducing personnel to a minimum level and cutting
operating costs at the IPS subsidiary where possible. Management anticipated
that the IPS subsidiary will attain or exceed the sales levels of 1996 and with
the cost structure in place this subsidiary should perform substantially better
in 1997 than in 1996. However, if orders at IPS are not sufficient to sustain a
minimum cash outflow rate, management will take further action as necessary to
maintain the liquidity position of the entire company.
Our auditors, Coopers & Lybrand, have stated in the Report of
Independent Accountants to the shareholders of Waste Technology Corporation
that there is substantial doubt about the Company's ability to continue as a
going concern. While the Company understands why the accountants report had to
include the explanatory paragraph, (the absence of a loan default waiver), and
though the Company's Management and Board of Directors has substantial concern,
it believes that it has several viable options to continue as a going concern
for the following reasons:
<PAGE>
1. The Company has the ability to take actions to reduce the operating
and carrying costs of its IPS subsidiary to a level which will not
jeopardize the liquidity of the company.
2. The Company violated covenants related to minimum net worth and
maximum debt to worth. As of the date of issuance of this report, the
lender has not waived these covenant violations nor has it demanded
repayment. Management plans to negotiate an extension of the revolving
debt and covenant requirements prior to the expiration date of the
debt or obtain alternative financing. However, no assurance can be
given that the Company will be successful. If the Company were unable
to negotiate an extension or obtain alternative financing and the
lender called the debt, Management would be required to shut-down
and/or sell certain assets of the Company. Management believes its
available collateral to be sufficient so as acceptable financing can
be obtained.
Inflation
The costs of the Company and its subsidiaries are subject to the
general inflationary trends existing in the general economy. The Company
believes that expected pricing by its subsidiaries for balers will be able to
include sufficient increases to offset any increase in costs due to inflation.
<PAGE>
Waste Technology Corp.
and Subsidiaries
REPORT ON AUDITS OF
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended October 31, 1996 and 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Pages
<S> <C>
Report of Independent Accountants F-1
Consolidated Financial Statements:
F-2
Consolidated Balance Sheets at October 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended
October 31, 1996 and 1995
F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended October 31, 1996 and 1995
F-4
Consolidated Statements of Cash Flows for the Years Ended October 31, 1996 and 1995
F-5
Notes to Consolidated Financial Statements F-6-F-15
</TABLE>
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
Report of Independent Accountants
To the Stockholders of
Waste Technology Corp.
We have audited the accompanying consolidated balance sheets of Waste
Technology Corp. and Subsidiaries (the Company) as of October 31, 1996 and 1995
and the related consolidated statements of income, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
As more fully discussed in Note 3, the Company has significant transactions
with the Company's General Counsel and a member of senior management, who are
also directors of the Company.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
October 31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to
the financial statements, the Company is in violation of certain debt
covenants, which could result in nonrenewal of the Company's revolving
promissory note and acceleration of the due date of the related term note
payable to bank, which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans, should the lender choose to
accelerate the due date or choose not to renew the revolving debt, are also
described in Note 8. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
Jacksonville, Florida
December 20, 1996, except as to Note 8,
for which the date is February 13, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of October 31, 1996 and 1995
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash $ 140,000 $ 1,114,342
Accounts receivable, net of allowance for doubtful accounts of $91,000 and $92,447 1,410,956 1,157,560
Inventories 3,162,208 2,344,686
Prepaid expenses and other current assets 43,208 57,916
Deferred income tax asset 413,000
------------- -------------
Total current assets 4,756,372 5,087,504
------------- -------------
Property, plant and equipment 2,528,643 1,428,018
Real estate and other property held for sale 204,114
------------- -------------
2,528,643 1,632,132
------------- -------------
Other assets:
Loan to joint venture, including accrued interest (Note 4) 49,840
Intangible assets, net 67,152 78,946
Other assets 18,049 164,580
------------- -------------
85,201 293,366
------------- -------------
Total assets $ 7,370,216 $ 7,013,002
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $ 531,652 $ 296,878
Current portion of long-term debt and capital lease obligation 678,123
Accounts payable 1,031,224 901,444
Accrued liabilities 498,284 483,659
Customer deposits 683,324 1,201,144
Legal settlement payable 162,000
------------- -------------
Total current liabilities 3,422,607 3,045,125
Accrued legal fees 315,696 270,344
Long-term debt 210,324 228,333
Obligation under capital lease, less current maturities 701,568
Minority interest in equity of subsidiary 509,369 481,782
------------- -------------
Total liabilities 5,159,564 4,025,584
------------- -------------
Contingent liabilities and commitments (Note 9, 10)
Stockholders' equity:
Common stock, par value $.01;25,000,000 shares authorized;
2,763,314 and 2,763,314 shares issued and outstanding
27,634 27,634
Preferred stock, par value $.0001, 10,000,000 shares authorized; none issued
Additional paid-in capital 6,066,356 6,069,995
Accumulated deficit (2,588,935) (2,027,894)
------------- -------------
3,505,055 4,069,735
Less: Treasury stock, 331,763 shares, at cost 419,306 419,306
Less: Notes receivable from shareholders 875,097 663,011
------------- -------------
Total stockholders' equity 2,210,652 2,987,418
------------- -------------
Total liabilities and stockholders' equity $ 7,370,216 $ 7,013,002
============= =============
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended October 31, 1996 and 1995
1996 1995
<S> <C> <C>
Net sales $ 13,982,903 $ 10,329,759
Cost of sales 10,502,750 7,061,919
--------------- ----------------
Gross profit 3,480,153 3,267,840
--------------- ----------------
Operating expenses:
Selling 1,573,593 948,530
General and administrative 1,859,629 1,515,350
Provision for doubtful accounts and loan to joint venture 73,100 106,000
--------------- ----------------
3,506,322 2,569,880
--------------- ----------------
Operating income (26,169) 697,960
--------------- ----------------
Other income (expenses):
Interest 63,645 58,335
Net gain (loss) on disposal of fixed assets 24,985 1,994
Other (8,531) 67,383
Interest expense (150,023) (184,986)
Provision for legal settlement (162,000)
--------------- ----------------
(69,924) (219,274)
--------------- ----------------
(96,093) 478,686
Minority interest in income of consolidated subsidiary (27,587) (52,098)
--------------- ----------------
(Loss) income before income taxes (123,680) 426,588
--------------- ----------------
Income tax provision (benefit):
Current 29,000 44,000
Deferred 413000 (413,000)
--------------- ----------------
442,000 (369,000)
--------------- ----------------
Net (loss) income $ (565,680) $ 795,588
=============== ================
Earnings (loss) per share $ (.23) $ .33
=============== ================
Weighted average number of common and common equivalent
shares outstanding
2,431,551 2,430,732
=============== ================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended October 31, 1996 and 1995
Common Stock
Par Value $.01
Authorized
25,000,000 Shares Treasury Stock
------------------ ------------------ Notes Total
Number Additional Accumu- Number Receivable Stock-
of Shares Par Paid-In lated of From holders'
Issued Value Capital Deficit Shares Cost Stockholder Equity
------------------ ---------- ------------ ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 2,263,314 $22,634 $5,574,995 $(2,823,482) 331,763 $(419,306) $(622,656) $1,732,185
Issuance of 500,000 shares of common stock 500,000 5,000 495,000 500,000
Adjustment of note receivable from
shareholder as a reduction of
stockholders' equity
(40,355) (40,355)
Net income 795,588 795,588
---------- ------- ---------- ------------ --------- ---------- ---------- ----------
Balance at October 31, 1995 2,763,314 27,634 6,069,995 (2,027,894) 331,763 (419,306) (663,011) 2,987,418
Adjustment of notes receivable from
shareholders as a reduction of
stockholders' equity
(212,086) (212,086)
Other (3,639) 4,639 1,000
Net loss (565,680) (565,680)
---------- ------- ---------- ------------ --------- ---------- ---------- ----------
Balance at October 31, 1996 2,763,314 $27,634 $6,066,356 $(2,588,935) 331,763 $(419,306) $(875,097) $2,210,652
========== ======= ========== ============ ========= ========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended October 31, 1996 and 1995
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (565,680) $ 795,588
------------- --------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Writedown on land and building held for sale 10,775
Writedown on investment in joint venture 49,840
Loss on disposal of property held for sale 9,648
Gain from sale of equipment (1,200) (1,994)
Gain from sale of equity securities (12,101)
Dissolution of non-operating subsidiaries 1,000
Depreciation and amortization 270,270 125,820
Provision for doubtful accounts 23,260 106,000
Increase in cash surrender value of key man life insurance policy (37,450)
Insurance premiums paid on behalf of Company president, plus interest (47,181)
Minority interest in income of subsidiary 27,587 52,098
Deferred income taxes 413,000 (413,000)
Increase (decrease) from changes in:
Accounts receivable (276,656) 7,603
Inventories (817,522) (1,025,560)
Prepaid expenses and other current assets 14,708 24,674
Other assets (125) 5,658
Accounts payable 129,780 637,889
Accrued liabilities and legal fees 59,977 126,888
Customer deposits (517,820) 1,143,511
Reserve for legal settlement (162,000) 162,000
------------- --------------
Total adjustments (823,434) 912,811
------------- --------------
Net cash (used in) provided by operating activities (1,389,114) 1,708,399
------------- --------------
Cash flows from investing activities:
Increase in notes receivable from shareholders (18,250) (40,355)
Repayment of notes payable--other (50,000)
Purchase of property and equipment (639,100) (960,233)
Proceeds from sale of marketable securities 37,101
Proceeds from sale of property held for resale 194,466
Proceeds from sale of equipment 1,200 2,181
------------- --------------
Net cash used in investing activities (461,684) (1,011,306)
------------- --------------
Cash flows from financing activities:
Proceeds from debt 2,589,167
Issuance of common stock 250,000
Principal payments of long-term debt agreements and capital leases (1,712,711) (332,557)
------------- --------------
Cash flows used in financing activities 876,456 (82,557)
------------- --------------
Net (decrease) increase in cash (974,342) 614,536
Cash at beginning of period 1,114,342 499,806
------------- --------------
Cash at end of period $ 140,000 $ 1,114,342
============= ==============
Supplemental Schedule of Disclosure of Cash Flow Information Cash paid during
period for:
Interest $ 132,740 $ 85,665
============= ==============
Income taxes $ 39,500 $ 9,586
============= ==============
</TABLE>
Supplemental Disclosures of Non-Cash Transactions
During 1996, the Company transferred a life insurance policy to its
president, who is also a director, in exchange for a note receivable of
$193,836, which represents the cash surrender value of the policy at date
of transfer, plus premiums paid and interest.
During 1996, the Company entered into a capital lease agreement in the
amount of $720,000 relating to a new manufacturing facility.
The General Counsel, who is also a director, exercised $250,000 of
options during 1995 and the Company reduced the liability for legal fees
payable to the director by $250,000.
See accompanying notes.
F-5
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business:
The Company is a manufacturer of baling machines which utilize
mechanical, hydraulic and electrical mechanisms to compress a variety of
materials into bales. The Company's customers include plastic recycling
facilities, paper mills, textile mills and paper recycling facilities
throughout the United States, the Far East and South America. The
Company has two manufacturing subsidiaries, International Baler Corp.
(IBC), located in Jacksonville, Florida, and International Press and
Shear, Corp. (IPS), located in Baxley, Georgia. The IPS subsidiary was
formed in the second quarter of fiscal 1995 and greatly expanded the
manufacturing capacity of the Company.
2. Accounting Policies:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Waste Technology and all of its
wholly owned and majority owned subsidiaries (Company). Intercompany
balances and material intercompany transactions have been eliminated in
consolidation.
Minority Interest - Minority interest represents the minority
stockholders' proportionate share of the equity of International Baler
Corp. (IBC). The Company owns 85.8% of the outstanding shares of IBC,
its primary operating subsidiary, at October 31, 1996 and 1995.
Pervasiveness of Estimates - 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 statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.
Depreciation - The cost of property, plant and equipment is depreciated
over the estimated useful lives of the related assets. Depreciation is
computed on the double-declining balance and straight line methods for
financial reporting and other accelerated methods for income tax
purposes. Gain or loss upon retirement or disposal of property, plant
and equipment is recorded as income or expense.
Intangibles - The cost over fair value of net tangible assets of an
acquired business is amortized on the straight-line method over a period
of 20 years. Other intangible assets, primarily patents and a covenant
not to compete, are amortized on the straight-line basis over their
estimated lives of six to seventeen years. The Company periodically
reviews intangibles to assess recoverability, and impairments would be
recognized in operating results if a permanent decline in value were to
occur. Accumulated amortization was $90,900 and $79,105 at October 31,
1996 and 1995, respectively. Amortization expense related to intangibles
was $11,795 and $14,600 for the years ended October 31, 1996 and 1995,
respectively.
F-6
<PAGE>
Notes to Consolidated Financial Statements, Continued
2. Accounting Policies, Continued:
Income Taxes - The Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS No. 109"), which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statement or tax returns. Under this method of deferred tax,
assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the years in which the differences are
expected to reverse.
Stock-Based Compensation - In 1997, the Company will adopt SFAS No. 123,
"Accounting for Stock-Based Compensation." This standard establishes a
fair value method for accounting for stock-based compensation plans
either through recognition or disclosure. The Company intends to adopt
this standard by disclosing the pro forma net income and earnings per
share amounts assuming the fair value method was adopted on November 1,
1996. The adoption of this standard will not impact its results of
operations, financial position or cash flows.
3. Loan and Notes Receivable--Officers and Directors:
On April 12, 1990, four individuals, including the former Chairman of
the Board, and the Executive Vice President, General Counsel, Secretary
and Director of the Company, entered into an agreement with a group of
dissident shareholders to purchase an aggregate of 294,182 shares of the
Company at a purchase price of $4 per share. The former Chairman and the
General Counsel each purchased 134,591 shares of common stock and the
other two individuals purchased an aggregate of 25,000 shares.
On July 15, 1991, the purchase of shares was finalized by the payment to
the selling shareholders of the balance of the purchase price plus
accrued interest. The financing of the transactions was paid with funds
borrowed from the Company with the unanimous approval of the Company's
Board of Directors. The four individuals executed promissory notes in
favor of the Company, originally payable in three annual installments
due July 15, 1992-94 plus accrued interest from July 15, 1991 at the
rate of 9% per annum. The former Chairman's promissory note was
satisfied in 1993. The Company has extended the initial installment date
for the General Counsel to begin on July 15, 1997. The debt is
collateralized by a lien on the 104,591 shares of the Company's common
stock and a personal guarantee of each borrower to the extent of his
loan and the guarantee of General Counsel's law firm to the extent of
his loan. The Company expects that a primary source for repayment of the
notes will be from the sale of the collateralized shares of the Company
stock. The notes receivable from the General Counsel, who is also a
major stockholder of the Company, is presented as a reduction of
stockholders' equity.
On June 13, 1995 the General Counsel and his law firm exercised their
option to purchase 250,000 shares of Waste Technology Corporation common
stock at $1.00 per share, whereby, the Company reduced the legal fees
payable to the law firm in lieu of cash. These shares are also being
held as collateral for the note receivable from the General Counsel.
F-7
<PAGE>
Notes to Consolidated Financial Statements, Continued
3. Loan and Notes Receivable--Officers and Directors, Continued:
On December 29, 1995, the Company transferred a life insurance policy on
the life of its president to the president in exchange for a note
receivable. The amount of the note receivable is equal to the amount of
the cash surrender value of the policy at the time of the transfer.
Interest accrues at the rate of 6% per annum. No principal or interest
is due until proceeds from the policy are realized. The note receivable
from the president, who is also a major stockholder of the Company, is
presented as a reduction of stockholders' equity.
The following is an analysis of the notes receivable and accrued
interest at October 31, 1996:
<TABLE>
<CAPTION>
Accrued Total Net
Principal Interest Note Reserve Total
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
General Counsel $ 427,364 $ 253,897 $ 681,261 $ $ 681,261
President 185,727 8,109 193,836 193,836
Others 50,000 34,188 84,188 84,188
-------------- -------------- -------------- -------------- --------------
$ 663,091 $ 296,194 $ 959,285 $ 84,188 $ 875,097
============== ============== ============== ============== ==============
</TABLE>
The income statement includes interest income on officer and director
notes receivable of $47,359 and $44,855 for 1996 and 1995, respectively.
An officer and director is a partner in the law firm providing legal
services to the Company and as of October 31, 1996 the Company is
indebted in the amount of $315,695 to this firm. Accrued legal fees are
classified as long-term as they will not be paid until the note
receivable from the General Counsel has been satisfied.
Legal expenses to the General Counsel and his law firm were $105,231 and
$113,347 for fiscal 1996 and 1995, respectively.
4. Inventories:
Inventories consisted of the following:
1996 1995
Finished products $ 326,358 $ 262,528
Work in process 1,347,229 574,528
Raw materials 1,488,621 1,507,630
---------------- -----------------
$ 3,162,208 $ 2,344,686
================ =================
5. Real Estate Venture:
In December 1990, the Company formed a wholly owned subsidiary, Waste
Tech Real Estate Corp. ("WT Real Estate"), for the purpose of having
that corporation enter into a joint venture with a non-affiliated
company, Rock-Tech Realty Corp. ("RT"), to purchase a parcel of land in
Far Rockaway, Queens, New York and to build residential single family
homes on the property.
F-8
<PAGE>
Notes to Consolidated Financial Statements, Continued
5. Real Estate Venture, Continued:
RT had previously entered into a contract to purchase the property for
$625,000, $50,000 being paid on the execution of the contract and the
balance to be paid $200,000 on closing and $375,000 by a purchase money
mortgage to the seller. RT has assigned the contract to the joint
venture.
WT Real Estate has a 21% interest in the profits and losses of the joint
venture. As of October 31, 1996, the Company had committed to fund up to
$175,000 for its share of loans and loaned the sum of $166,980 to the
joint venture on behalf of WT Real Estate. Management does not believe
that it will be required to advance funds in excess of the amount loaned
to date. WT Real Estate has a mortgage lien on the property as
collateral for all sums it advances to the joint venture except that
mortgage shall be subordinated to any purchase money mortgage or
construction loan mortgage. The Company was to receive interest at 10%
per annum, but since no interest has ever been received, accrual of
interest was suspended prior to the periods covered by these financial
statements. As of October 31, 1996, the total receivable balance of
$218,012 has been reserved as uncollectible with related charges to
income of $49,840 and $50,000 in 1996 and 1995, respectively.
6. Property, Plant and Equipment:
The following is a summary of property, plant and equipment, at cost,
less accumulated depreciation:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 75,000 $ 75,000
Buildings and improvements 2,264,675 1,274,339
Machinery and equipment 1,112,161 743,452
Vehicles 181,330 217,582
----------------- -----------------
3,633,166 2,310,373
Less: accumulated depreciation and amortization 1,104,523 882,355
----------------- -----------------
$ 2,528,643 $ 1,428,018
================= =================
</TABLE>
Depreciation expense was $258,475 and $111,219 in 1996 and 1995,
respectively. Included in buildings and improvements are assets recorded
under a capital lease in the amount of $1,359,189. Amortization of the
assets under capital lease in the amount of $43,647 is included in
depreciation expense.
7. Notes Payable--Other:
In August 1991, a note was issued by the Company to the father of the
former owner of Ram Industrial Coating, Inc., a former subsidiary of the
Company, in consideration of a loan in the amount of $150,000 carrying
interest at 10 1/2% per annum. The remaining balance of the note payable
of $50,000 was repaid in fiscal 1995.
F-9
<PAGE>
Notes to Consolidated Financial Statements, Continued
8. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Term note payable to bank, at prime rate, due in equal monthly
installments of $9,028, plus interest, through August 2002.
$ 631,944 $ 418,333
Note payable to bank, at prime rate plus 2.5%, due in equal monthly
installments of $4,000, including interest, with the remaining
balance due in January 1996, collateralized by real estate with a
net book value of $204,114.
106,878
Revolving promissory note payable to bank in the amount of $1,000,000.
Interest at prime payable monthly. All amounts borrowed are due in
full on July 7, 1997.
531,652
Term note payable to Appling County, Georgia at 4.0%, due in monthly
installments of $3,417, including interest through July 2003.
242,222
----------------- -----------------
1,405,818 525,211
Amounts classified as current 1,195,494 296,878
----------------- -----------------
$ 210,324 $ 228,333
================= =================
</TABLE>
The bank's prime rate at October 31, 1996 was 8.25%. The carrying value
of the Company's debt approximates fair value.
The term note payable to bank and the revolving promissory note contain
certain covenants, whereby the Company must maintain, among other
things, specified levels of minimum net worth and working capital, and
maintain a specified ratio of maximum debt to worth, and current ratio.
The term note payable contains cross default provisions as related to
the revolving promissory note and other debt agreements.
The Company violated covenants related to minimum net worth and maximum
debt to worth. As of the date of issuance of these financial statements,
the lender has not waived these covenant violations nor has it demanded
repayment. Management plans to negotiate an extension of the revolving
debt and covenant requirements prior to the expiration date of the debt
or obtain alternative financing. However, no assurance can be given that
the Company will be successful. If the Company were unable to negotiate
an extension or obtain alternative financing and the lender called the
debt, management would be required to shut down and/or sell certain
assets of the Company. Management believes its available collateral to
be sufficient so as acceptable financing can be obtained.
The Company has pledged substantially all of its assets as collateral
under the term loan and revolving loan agreement.
F-10
<PAGE>
Notes to Consolidated Financial Statements, Continued
8. Long-Term Debt, Continued:
Contractual maturities are as follows:
Aggregate
Obligation
----------------
Period ending October 31:
1997 $ 671,883
1998 141,531
1999 142,883
2000 144,291
2001 145,756
Beyond 159,474
----------------
$ 1,405,818
================
9.Capital Lease:
During 1996, the International Press and Shear (IPS) subsidiary entered
into a lease agreement for its manufacturing facility, which has been
accounted for as a capital lease, as the ownership of the facility is
transferred to IPS when the lease obligation is satisfied.
The following schedule provides for the minimum future lease payments
and the present value of the commitment for the capital lease as of October 31,
1996:
1997 $ 73,618
1998 73,619
1999 73,618
2000 73,619
2001-2011 677,983
----------------
Total net minimum lease payments 972,457
Less: Amounts representing interest (256,608)
----------------
Present value of net minimum obligations 715,849
Less current portion (14,281)
----------------
Long-term obligations $ 701,568
================
The present value of minimum future obligations shown above are
calculated based on an 8.25% interest rate determined to be applicable
at the inception of the lease. Interest expense on the outstanding
obligations under capital leases was $32,658 for the period ending
October 31, 1996.
The cost, accumulated amortization and net book value of equipment
under capital lease at October 31, 1996 are shown below. Cost represents
the Company's direct investment in the facility.
Cost $ 1,359,189
Accumulated amortization (43,647)
----------------
Net book value $ 1,315,542
================
F-11
<PAGE>
Notes to Consolidated Financial Statements, Continued
10. Contingent Liabilities and Commitments:
Litigation - The Company is subject to legal proceedings and claims
which arise in the ordinary course of business. While any litigation
contains an element of uncertainty, management, based upon the opinion
of the Company's General Counsel and other attorneys acting on behalf of
the Company, presently believes that the outcome or cost of defending
such proceedings or claims individually and in the aggregate, which are
pending or threatened, will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
Other - The Company had an employment agreement with its president for a
term of five years commencing on August 1, 1993 and ending August 1,
1998. Annual compensation pursuant to the contract was $100,627,
increased 5% per year for the years 1993 to 1998. Effective October 1,
1996, the Company has amended its employment agreement with its
president. The new agreement has a term of five years and the annual
compensation is $150,034 in year one with a 5% increase each year in the
term. In the event of a change in ownership of the Company and the
president is not retained, he shall receive as a lump sum the
compensation owed for the remaining term of the agreement.
Additionally, the Company has a severance agreement with its president,
whereby in the event of change of control of IBC and the subsequent
termination of employment of him for any reason other than cause, IBC
shall be required to pay to him an amount equal to 2.99 times his salary
at IBC prior to any change in control.
The Company has also committed to pay premiums on a life insurance
policy owned by its president to keep the policy in force. Annual
premiums approximate $40,000.
11. Income Taxes:
The differences between the federal statutory tax rate and the Company's
effective rate are as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
----------------------------- ----------------------------
Amount Percentage Amount Percentage
------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate $ (43,600) (34)% $ 145,000 34%
State income taxes (benefit), net of
federal income tax effect
(3,000) (2) 15,000 4
Non-utililization of operating losses 43,600 34
Benefit of operating loss carryforwards (145,000) (34)
Alternative minimum taxes 7,000 2
Other 32,000 25 22,000 5
Change in valuation allowance 413,000 (413,000) (97)
------------- --------------- ------------ --------------
Provision (benefit) for income taxes $ 442,000 23% $ (369,000) (86)%
============= =============== ============ ==============
</TABLE>
The Company files consolidated federal income tax returns with its
subsidiaries and separate corporate state income tax returns.
F-12
<PAGE>
Notes to Consolidated Financial Statements, Continued
11. Income Taxes, Continued:
The net change in the total valuation allowance for the year ended
October 31, 1996 was an increase of $493,000. Realization of net
deferred tax assets is dependent on generating sufficient taxable income
in the future. Based on current and anticipated future economic
condition, management cannot ascertain that it is more likely than not
that any portion of the net deferred tax asset will be realized.
The significant components of the net deferred tax asset at October 31,
1996 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Reserves and allowances $ 242,000 $ 254,000
Property, Plant and equipment 60,000 52,000
General business credit carryforward 41,000 40,000
Net operating loss carryforward 578,000 516,000
Other 94,000 73,000
---------------- ---------------
1,015,000 935,000
Valuation allowance 1,015,000 522,000
---------------- ---------------
$ $ 413,000
================ ===============
</TABLE>
Net operating loss carryforwards for tax purposes are $1,401,000, which
expire in years 2005 through 2007. The difference in net operating
losses results primarily from recognition of bad debt expense and
accrued expenses for financial reporting purposes, not recognized for
tax purposes. IBC has general business credit carryforwards of
approximately $41,000, which expire in the years 1997 through 2000. The
Company has an Alternative Minimum Tax Credit of approximately $15,000.
12. Earnings (Loss) Per Common and Common Equivalent Share:
Earnings (loss) per common and common equivalent share are calculated
using the weighted average number of common shares outstanding during
each year and on the net additional number of shares which would be
issuable upon the exercise of stock options, assuming that the Company
used the proceeds received to purchase additional shares at market value
in the case of income. Options are not considered in loss years as they
would be antidultive.
13. Stock Options:
Effective in fiscal 1995, the Board of Directors of the Company adopted
the 1995 Stock Option Plan ("1995 Plan"). Under the 1995 Plan, incentive
stock options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, may be granted to key employees, including
officers, and/or stock appreciation rights ("SARs") may be granted to
key employees, officers, directors and consultants of the Company and
its present and future subsidiaries to purchase an aggregate of
1,000,000 shares of the Company's common stock (the "Common Stock").
F-13
<PAGE>
Notes to Consolidated Financial Statements, Continued
13. Stock Options, Continued:
The purpose of the 1995 Plan is to aid the Company in attracting and
retaining key employees, officers, directors and consultants and to
secure for the Company the benefits of the incentive inherent in equity
ownership by such persons who are responsible for causing the Company's
growth and success.
The maximum number of shares as to which options may be granted under
the 1995 Plan (subject to adjustment as described below) is 1,000,000
shares of Common Stock. Upon expiration, cancellation or termination of
unexercised options, the shares with respect to which such options shall
have been granted will again be available for grant under the 1995 Plan.
The 1995 Plan is administered by the Board of Directors, or if
appointed, by a stock option committee consisting of at least two
members of the Board of Directors, none of whom is eligible to
participate under the 1995 Plan. (The group administering the 1995 Plan
is referred to as the "Committee").
The Committee has the authority under the 1995 Plan to determine the
terms of options and/or SARs granted under the 1995 Plan, including,
among other things, whether an option shall be an incentive or a
nonqualified stock option, the individuals who shall receive them,
whether a SAR shall be granted separately, in tandem with or in addition
to options, the number of shares to be subject to each option and/or
SAR, the date or dates each option or SAR shall become exercisable and
the exercise price or base price of each option and SAR; provided,
however, that the exercise price of an incentive stock option may not be
less than 100% of the fair market value of the Common Stock on the date
of grant and not less than 110% of the fair market value in the case of
an optionee who at the time of grant owns more than ten percent of the
total combined voting power of the Company, or of any subsidiary or
parent of the Company.
During 1995, the Board of Directors issued 880,000 non-qualified stock
options to purchase 880,000 shares of the Company's common stock at
prices ranging from $1.50 to $2.00 per share, respectively. The stock
options granted are not to be subject to the Company's stock option
plan. The options were issued to key employees. The options grant the
right to purchase shares of the Company's common stock at the date of
the grant. The options have anti-dilutive rights in the event of a
split, reverse split, or recapitalization and are exercisable in whole
or in part through 2005. The options or shares purchased thereunder may
be registered pursuant to the Securities Act of 1933.
In March 1994 and February 1993, the Board of Directors issued 275,000
and 350,000 non-qualified stock options, respectively, to purchase
275,000 and 350,000 shares, respectively, of the Company's common stock
at $1 per share. The options have anti-dilutive rights in the event of a
split, reverse split or recapitalization and are exercisable in whole or
in part through March 2004 and September 1, 2002, respectively. The
options or shares purchased thereunder may be registered pursuant to the
Securities Act of 1933. Options outstanding as of October 31, 1996 are
25,000 and 100,000, respectively.
F-14
<PAGE>
Notes to Consolidated Financial Statements, Continued
13. Stock Options, Continued:
In 1993, the board of directors granted 65,000 options to a creditor in
satisfaction of a liability. The options are exercisable at $1 5/8, the
market value of the Company's stock at the date of the grant, and vested
upon issuance. The options have anti-dilutive rights in the event of a
split, reverse split or recapitalization and are exercisable in whole or
in part through December 1998.
Stock option activity is shown below:
<TABLE>
<CAPTION>
Option Price
Per Share
Shares
---------------- -----------------
<S> <C> <C>
Outstanding, October 31, 1994 690,000 $1.00-$1.625
Granted 880,000 $1.50-$2.00
Exercised (500,000) $1.00
Canceled or surrendered
----------------
Outstanding, October 31, 1995 1,070,000
Granted
Exercised
Canceled or surrendered
----------------
Outstanding, October 31, 1996 1,070,000
================
Shares exercisable 710,000 $1.00-$2.00
================
</TABLE>
14. Employees' Benefit Plan:
The Company instituted a profit sharing plan for its employees in 1989
by contributing 375,000 shares of its stock to the trust, having a fair
market value of $165,000 on the transfer date. The Company contributed
$50,000 to the plan in fiscal 1995 and no contributions were made in
fiscal 1996.
15. Export Sales:
Export sales were approximately 15% for each of the years ended October
31, 1996 and 1995. The principal international markets served by the
Company, among others include Canada, India, Japan, China and Korea. No
sales in one geographic region exceed 10%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The schedule contains summary financial information extracted
from the financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 140,000
<SECURITIES> 0
<RECEIVABLES> 1,501,956
<ALLOWANCES> 91,000
<INVENTORY> 3,162,208
<CURRENT-ASSETS> 4,756,372
<PP&E> 3,633,166
<DEPRECIATION> 1,104,523
<TOTAL-ASSETS> 7,370,216
<CURRENT-LIABILITIES> 2,898,996
<BONDS> 0
0
0
<COMMON> 27,634
<OTHER-SE> 2,138,018
<TOTAL-LIABILITY-AND-EQUITY> 7,370,216
<SALES> 13,982,903
<TOTAL-REVENUES> 13,982,903
<CGS> 10,502,750
<TOTAL-COSTS> 14,009,072
<OTHER-EXPENSES> (52,512)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,023
<INCOME-PRETAX> (123,680)
<INCOME-TAX> 442,000
<INCOME-CONTINUING> (565,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (565,680)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
