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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
(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, 1997 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. [ x ]
State issuer's revenues for its most recent fiscal year: $12,530,973.
State the aggregate market value of the voting stock held by
nonaffiliates (based on the closing price on January 23, 1998 of $0.625):
$1,805,503.
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
(January 23 , 1997): 5,082,503.
Documents Incorporated By Reference: None.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
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PART I
ITEM 1. BUSINESS.
Waste Technology Corp. ("Waste Tech") was incorporated on September 10,
1975 in the State of Delaware under the name B.W. Energy Systems, Inc. Its name
was changed to Waste Technology Corp. in August 1983. Waste Tech is a holding
company and maintains its executive offices at 5400 Rio Grande Avenue,
Jacksonville, Florida 32254 and its telephone number is (904) 355-5558. Unless
the context otherwise requires, the term "Company" as used herein, refers to
Waste Tech and its subsidiaries on a consolidated basis. The Company's fiscal
year end is October 31.
Subsidiaries
International Baler Corp.
International Baler Corp. ("IBC"), a non-reporting public company, has been
engaged in business for over 40 years manufacturing balers under the name
"International Baler". In September, 1986 Waste Tech acquired approximately 85%
of the outstanding shares of IBC.
On June 24, 1997, IBC entered into an Agreement of Merger (the "Merger
Agreement") with IBC Merger Corporation, a wholly owned subsidiary of the
Corporation (formed for the purpose of the merger) which provides for the merger
of IBC with and into IBC Merger Corporation. Subsequent to the merger, IBC
Merger Corporation changed its name to International Baler Corporation ("IBC").
In accordance with the provisions of section 228 of the Delaware General
Corporation Law, the Merger Agreement was approved by the Board of Directors of
IBC, IBC Merger Corporation, and the Company and consented to by the Company as
the sole shareholder of IBC Merger Corporation and the owner of 85.3% of the
outstanding and issued stock of IBC. The Merger became effective on June 27,
1997. As a result of the merger, the Company became the sole shareholder of IBC.
Pursuant to the Merger Agreement, each outstanding share of the Common
Stock, $.10 par value per share, of IBC (the "IBC Shares") was converted into
shares of the common stock, $.01 par value, of the Company (the "Company
Shares") according to the following formula: Each outstanding IBC Share was
valued at $.19 per share. The total number of IBC Shares held by a stockholder
of IBC as of the Effective Date was multiplied by $.19 (this number is hereafter
the "Total Dollar Value"). To determine the number of Company Shares each
shareholder of IBC was to receive, such shareholder's Total Dollar Value was
divided by the average of the closing bid and the ask price of the Company's
stock as reported by The Nasdaq Stock Market on the Effective Date. The average
of the closing bid and ask price of the Company's stock on the Effective
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Date was $0.78 per share. The Merger Agreement, however, gave each IBC
shareholder, pursuant to section 262 of the Delaware General Corporation Law,
the right to reject the merger and demand an appraisal proceeding in the
Delaware Chancery Court. Six IBC shareholders rejected the merger and demanded
an appraisal proceeding. This appraisal proceeding was subsequently settled.
See, "Item 3 - Legal Proceedings."
IBC's office and manufacturing facility is located at 5400 Rio Grande
Avenue, Jacksonville, Florida 32254 and its telephone number is (904) 358-3812.
Consolidated Baling Machine Co., Inc.
In February 1987 Waste Tech, through Consolidated Baling Machine Co., Inc.,
("Consolidated") a wholly-owned subsidiary, acquired all of the assets of N&J
Cavagnaro Machinery Corp., ("N&J) which, for more than 50 years, manufactured
balers in Brooklyn, New York under the name of "Consolidated Baler". The
acquisition also included the right to use and market products under the name
"Consolidated Baler". N&J had specialized in manufacturing and selling, under
the "Consolidated" name, rubber and medical waste balers which were produced by
only a few other companies. Consolidated is a marketing company, which sells
balers manufactured by, and purchased from, IBC.
International Press and Shear Corp.
In June 1995 the Company formed a new wholly-owned subsidiary,
International Press and Shear Corp. ("IPS"), and expanded its manufacturing
capacity by constructing and opening a 65,000 square foot manufacturing facility
in Baxley, Georgia, where IPS will manufacture, in addition to products
currently manufactured by the Company, high speed balers, two-ram presses, and
scrap metal shears, products that the Company did not previously manufacture.
Solid Waste & Recovery Systems, Inc.
In August 1990 Waste Tech entered into an agreement with Ted C. Flood, the
President of Waste Tech, who, at the time, was a director and executive
vice-president of Waste Tech and president of IBC and Consolidated, whereby
Waste Tech acquired all of the outstanding and issued stock of Solid Waste &
Recovery Systems, Inc. ("SWRS"), a Florida Corporation which is engaged in
Florida and Southern Georgia in the distribution of brand name waste management
and recycling equipment such as garbage trucks, containers, shredders, etc. Mr.
Flood is presently the President of Waste Technology. In January 1998 SWRS
entered into an exclusive
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distributorship agreement with DryVac Environmental, Inc. of Rio Vista,
California to sell a patented system which features a revolutionary drying
technique for sludge in southern Georgia, Alabama and Florida. This system
allows substantial operating savings to a wide variety of industries such as
paper and paint manufacturers and municipalities.
General
Since 1986, the Company's principal business has been the manufacture and
sale of balers, which are machines used to compress and compact various waste
materials. The Company manufactures approximately fifty (50) different types of
balers for use with municipal waste, cloth, metal drums, glass and other
products. It is one of the leading makers of balers designed to compact rubber,
plastic, cotton mote and textile waste products.
Since charges for transportation of waste material are generally based upon
the volume of waste, balers, by reducing volume substantially, also reduce
transportation costs substantially. Increases in the quantity of waste produced,
government restrictions on waste disposal and mandated recycling of waste
products, have greatly increased the need for transportation of waste and hence,
the need for balers.
Products
Balers utilize mechanical, hydraulic, and electrical mechanisms to compress
a variety of materials into bales for easier and low cost handling, shipping,
disposal, storage and/or bulk sales for recycling. Materials commonly baled
include scrap metal, corrugated boxes, newsprint, cans, plastic bottles and
other solid waste. More sophisticated applications include baling of textile
waste and rubber.
The Company offers a wide variety of balers, certain of which are
standardized and others of which are designed to specific customer requirements.
The Company's products include (i) general purpose horizontal and vertical
balers, (ii) specialty balers, such as those used for low level radioactive
waste, fifty-five gallon drums, aluminum cans, and rubber and textile waste, and
(iii) accessory equipment such as conveyors, rufflers, bale tying machines and
plastic bottle piercers (machines which puncture plastic bottles before
compaction for greater density).
General Purpose Balers
These balers are designed for general purpose compaction of waste
materials. They are manufactured in either vertical or horizontal loading
models, depending on available floor space and
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desired capacity. Typical materials that are handled by this equipment include
paper, corrugated boxes and miscellaneous solid waste materials. These balers
range in bale weight capacity from approximately 300 to 1,500 pounds and range
in price from approximately $5,000 to $250,000. General purpose baler sales
constituted approximately 65% of revenues on a consolidated basis for each of
the fiscal years ended October 31, 1996 and 1997.
Specialty Balers
These balers are designed for specific applications which require
modifications of the general baler configuration. The Company is attempting to
shift the emphasis in its product composition from general purpose to specialty
balers due to product profitability and broader geographic markets.
The scrap metal baler is designed to form a bale, referred to as a scrap
metal "briquet" of specified size and weight. The rubber baler is designed to
apply pressure in such a way as to compress the synthetic rubber into a
self-contained bale that does not require tying. The drum crusher baler is
capable of collapsing a standard fifty-five gallon drum into a "pancake"
approximately four (4) to eight (8) inches high, which also serves to contain
any remaining contents. The radioactive waste baler has a self-contained
ventilation system designed to filter and contain toxic dust and particles
released during compaction and baling. The textile baler is capable of
compressing and baling loose fibers, which do not ordinarily adhere to each
other under pressure. In addition, a double chamber baler has been designed for
use by the clothing and textile industries.
Specialty balers range in price from approximately $6,000 to $200,000, and
are less exposed to competitive pressures than are general purpose balers.
Specialty baler sales constituted approximately 35% of revenues on a
consolidated basis for each of the fiscal years ended October 31, 1996 and 1997.
Accessory Equipment
The Company has commenced manufacturing and marketing a number of accessory
equipment items in order to market a complete waste handling system. These
include conveyors, which carry waste from floor level to the top of large
horizontal balers; extended hoppers on such balers; rufflers, which break up
material to improve bale compaction; electronic start/stop controls and
hydraulic oil coolers and cleaners. At the present time accessory equipment does
not represent a significant percentage of consolidated revenues.
Manufacturing
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IBC manufactures its products, as well as products sold by Consolidated, in
its facility in Jacksonville, Florida, where it maintains a fully equipped and
staffed manufacturing plant. IBC purchases raw materials, such as steel sheets
and beams and components such as hydraulic pumps, valves and cylinders, and
certain controls and other electric equipment which are used in the fabrication
of the balers. The Company has no long term supply agreements, and has not
experienced unusual delay in obtaining raw materials or components.
The raw materials required by IBC to manufacture the balers, principally
steel, motors and hydraulic systems, are readily available from a number of
sources and IBC is not dependent on any particular source. IBC is not dependent
on any significant patents, trademarks, licenses or franchises in connection
with its manufacture of balers.
In December 1995 the Company expanded its manufacturing capacity by opening
a 65,000 square foot manufacturing facility in Baxley, Georgia, where IPS will
manufacture extensions to the Company's product line not previously possible due
to space constraints. IPS will manufacture, in addition to products currently
manufactured by the Company, high speed balers, two-ram presses, and scrap metal
shears. IPS uses substantially the same raw materials as IBC to manufacture its
products, and like IBC, such materials are readily available from a number of
sources and IPS is not dependent on any particular source. Also like IBC, IPS is
not dependent on any significant patents, trademarks, licenses or franchises in
connection with its manufacture of products.
While IBC maintains a large inventory of raw materials, most of it is
earmarked for specific orders and inventory turnover is relatively rapid.
Approximately 60% of its inventory turns over in 45 to 90 days and the balance,
consisting of customized equipment, turns over in 3 to 6 months. It is
anticipated that IPS will manage its inventory in substantially the same manner
as IBC. This rate of turn-over is believed to be somewhat better than most
manufacturers. Neither IBC's, IPS', nor Consolidated's business is seasonal.
Sales and Marketing
IBC, Consolidated and IPS sell their products throughout the United States
and to some extent in Europe, the Far East and South America to manufacturers of
rubber and polymers, plastic recycling facilities, power generating facilities,
textile mills, paper mills, cotton gins, supermarkets and other retail outlets,
paper recycling facilities and municipalities.
Most of the sales of IBC, Consolidated and IPS are made by its sales force
of nine (9) employees who rely upon responses to
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advertising, personal visits, attendance at trade shows, referrals from existing
customers and telephone calls to dealers and/or end users. Approximately fifteen
(15%) percent of sales are made through manufacturer's representatives and
dealers. The Company's general purpose balers are sold primarily in the eastern
United States to such end users as waste producing retailers (supermarkets and
liquor stores, for example), restaurants, manufacturing and fabricating plants,
bulk material producers, nuclear plants and solid waste recycling facilities.
Specialty balers are sold throughout the United States and to some extent in
Europe, the Far East and South America, to manufacturers of rubber and polymers,
plastic recycling facilities, paper recycling facilities, textile mills and
power generating facilities. Both types of balers are sold abroad. During fiscal
1997 foreign sales amounted to $2,000,000 or approximately 20% of consolidated
sales.
During fiscal 1997, IBC, Consolidated and IPS had baler sales to more than
250 customers, none of which accounted for more than ten percent (10%) of their
combined revenues for the year. The Company anticipates that no one customer
will account for more than 10% of revenues in fiscal year ending October 31,
1998.
The Company builds only a small quantity of balers for its inventory.
Generally, it builds based on booked orders. The Company's backlog of firm
booked orders at December 31, 1997 was $3,309,600 as compared with $1,950,640 at
December 31, 1996. The Company generally delivers its orders within four (4)
months of the date booked.
IBC, on a contract basis, supplies SWRS with parts and service which are
provided by trained employees of IBC.
Warranties and Service
IBC, Consolidated and IPS typically warrant their products for one (1) year
from the date of sale as to materials and six (6) months as to labor, and offer
a service plan for other required repairs and maintenance. Service is rendered
by repairing or replacing parts at IBC's Jacksonville, Florida facility, and by
on-site service provided by Company personnel who are based in Jacksonville,
Florida or by local service agents who are engaged as needed. Repair services
and spare parts sales represented approximately 15% of fiscal 1997 consolidated
revenues.
Competition
The potential market for the Company's balers is nationwide and overseas,
but the majority of general purpose baler sales are in the eastern United
States, primarily because of freight and service costs. The Company competes in
these markets with
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approximately eight (8) companies, none of which are believed to be dominant,
but some of which may have significantly greater sales and financial resources.
The Company is able to compete with these companies due to its reputation in the
market place, its ability to service the balers it manufactures and sells, as
well as its ability to custom design balers to a customer's particular needs.
The Company experiences intense competition with respect to its lower priced or
general purpose balers, based upon price, including freight, and based on
performance. The Company experiences less competition with respect to its
specialized baler equipment such as rubber, radioactive waste, scrap metal and
plastic balers.
Regulation
Machinery such as the Company's balers is subject to both Federal and state
regulation relating to safe design and operation. The Company complies with
design requirements and its balers include interlocks to prevent operation while
the loading door is open, and also include required printed safety warnings.
Real Estate Venture
In December 1990 Waste Tech 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 to build
residential single family homes on the property. 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 twenty-one (21%) percent interest in the profits and
losses of the joint venture. As of October 31, 1997, 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.
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Employees
As of December 31, 1997, the Company employed 107 persons as follows: 12 in
management and supervision; 14 in sales and service; 73 in manufacturing; and 8
in administration.
ITEM 2. DESCRIPTION OF PROPERTIES
IBC is the owner of the building located at 5400 Rio Grande Avenue,
Jacksonville, Florida which it acquired from the Company in partial satisfaction
of an obligation owing by the Company to IBC. The building contains
approximately 62,000 square feet and is situated on eight (8) acres. Prior to
the opening of the Company's newest manufacturing facility in Baxley, Georgia
(see below), IBC manufactured substantially all of the Company's products at
this location.
In 1995 and 1996 the Company expanded its manufacturing capacity by the
opening a 65,000 square foot manufacturing facility in Baxley, Georgia, where
IPS manufactures its products, and, in addition, will be able to manufacture
extensions to the Company's product line not previously possible due to space
constraints. The Company acquired the land for the facility for a nominal
amount, and constructed the manufacturing facility for approximately $1,500,000.
3. LEGAL PROCEEDINGS
Waste Tech Litigation
(i) Hilde Basch Fremont
The Company is a defendant in the matter entitled Hilde Basch Fremont,
et al., Plaintiffs v. Urban Waste Disposal Leasing Co., et al., 88 Civ. 7579
(DNE) commenced in the United States District Court for the Southern District of
New York. The eleven plaintiffs in this action are all investors in, and limited
partners of, Urban Waste Disposal Leasing Co. (the "Partnership"). The former
president of the Company is also a defendant in this action. The Partnership
purchased certain waste disposal equipment from GGC, Inc. which did business
under the name the Enterprise Company and for which the Company acted as its
marketing agent. This is the only connection between the Partnership and the
Company. Management is of the opinion that the claim asserted against the
Company is without merit and there is no reasonable likelihood of recovery. A
motion to dismiss the complaint has been denied, and although discovery
proceedings were commenced by the plaintiff, no action has been taken in this
case for several years.
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(ii) Gould and GGC, Inc.
The Company and one of its directors, Morton S. Robson, were recently
served with a summons and complaint in an action entitled Orval E. Gould and
GGC, Inc. d/b/a Enterprise Company, Plaintiffs v. Leslie N. Erber, et al.,
Defendants, 98 Civ. 0381 commenced in the United States District Court of the
Southern District of New York. The complaint consists of three causes of action
for malicious prosecution, intentional infliction of emotional distress and
fraud arising out of the Company's unsuccessful prosection of claims against
Gould and GGC, Inc. in an action entitled Spier v. Erber, et al., 89 Civ. 1657
(HB), United States District Court, Southern District of New York, to recover
approximately $1,900,000, representing the amount which it was obligated to pay
pursuant to its guarantee of a non-recourse loan made to GGC, Inc. by M & T Bank
in February 1986. A non-jury trial was held on March 4-7, 1996. On January 20,
1997, the Court issued an opinion dismissing the Company's claims and granting
judgment in favor of Gould and GGC, Inc. Gould and GGC, Inc. now claim that the
Company's claims against them were made with malice, in bad faith and with an
improper purpose. Gould and GGC, Inc. are each seeking damages against the
Company and the other defendants in the amount of $10,000,000. The Company
believes that these claims are completely without merit and will vigorously
defend the action.
IBC Litigation
(i) Feldman
On January 24, 1997, the Company, its president and one of its
directors were named as defendants in the matter entitled Jerome Feldman, C.
Irving Gall and Edgar Stromfeld, as shareholders of International Baler
Corporation, Plaintiffs, v. Theodore C. Flood, Russell McElroy and Waste
Technology Corporation, Defendants pending in the United States District Court
for the Middle District of Florida, Case No. 97-51-Civ.-J-10c. The action,
brought as a shareholders derivative action on behalf of International Baler
Corporation, sought damages against the defendants, including, the Company, for
breaches of fiduciary duty, negligence and wrongful usurpation of a corporate
opportunity. The action was recently settled and dismissed with prejudice. The
stipulation of settlement provided that the claims of the named plaintiffs and
the other shareholders who had dissented from the IBC merger would be resolved
in an appraisal proceeding commenced by IBC in the Delaware Chancery Court which
is hereinafter discussed.
(ii) Delaware Appraisal Proceeding
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Subsequent to the IBC merger, IBC commenced an action in the Delaware
Chancery Court to provide for the appraisal of the IBC shares held by the six
shareholders of IBC who had rejected the terms of the merger. In the Matter of
the Application of International Baler Corporation, Civil Action No. 15950. This
proceeding was settled in conjunction with the settlement of the Feldman
litigation. The stipulation of settlement provided that the Company would pay
the sum of $15,000 towards the legal fees of the plaintiffs in the Feldman
litigation and the IBC shares of the six dissenting shareholders would be valued
at $.23 per share rather than $.19 per share.
(iii) Wilson
Plaintiff, Wilson, has filed a complaint against IBC and others for
damages resulting from injuries he sustained while operating a baling machine in
1991 that was originally manufactured in 1974 in an action pending in Texas
State District Court, Kaufman County, 86th Judicial District, entitled, Ritchie
Wilson, Plaintiff v. Acco Trading Company, et al.,Defendants, Case No. 45636.
All defendants except IBC settled with plaintiff or were dismissed in 1994. The
trial court granted summary judgment in favor of IBC in 1995. The Court of
Appeals for the Fifth District of Texas, in Dallas, Texas, reversed the judgment
and remanded the case for further proceedings in the trial court in 1996. No
trial has been scheduled, and no activity has taken place in this case since it
was remanded. The Company intends to continue its vigorous defense of this case,
but remains open to settlement if acceptable terms can be negotiated. Although
there remains a risk that the trial will result in judgment against IBC for a
substantial sum, counsel for IBC believes that IBC has at least a reasonable
chance to prevail in its defense of this action.
Consolidated Litigation
(i) LaSalle
Edwin LaSalle v. Consolidated Baling Machine Company, et al., Docket
No. L-12814-95, pending in the Superior Court of New Jersey, Essex County,
Law Division, in which the plaintiff claims he was injured while operating
a baling machine during the course of his employment with ABC Textile
Company. The action was defended by the Company's insurance carrier and was
recently settled for the sum of $40,000. Of that amount, the Company was
responsible to pay $25,000 which was the deductible portion of Company's
insurance policy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a) The annual meeting of stockholders of Waste Tech was held on July 11,
1997.
(b) Alan Morrison and Russell McElroy were elected as Class I Directors and
Ted C. Flood and Morton S. Robson were elected as Class II Directors to hold
office for three (3) years and until their successors were elected and
qualified. The results of voting were as follows: 2,115,208 votes for Alan
Morrison and 101,268 withheld; 2,118,394 for Russell McElroy and 98,082
withheld; 2,118,406 for Ted C. Flood and 98,070 withheld; and, 2,118,406 for
Morton S. Robson and 98,070 withheld. Robert Roth continued as a Class III
Director.
(c) The next item of business was the proposal to ratify the appointment of
Coopers & Lybrand, the independent certified public accountants of the Company,
for the fiscal 1997. The results of the voting were as follows:
1,820,156 votes for the resolution,
3,875 votes against and
392,495 votes abstained.
A majority of the votes cast at the meeting have voted for the
resolution, the resolution was duly passed.
No other matters were voted on at the meeting.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Waste Tech's common stock is presently traded on The Nasdaq Stock Market,
Small Cap, under the symbol WTEK. As of December 31, 1997, the number of
shareholders of record of the Company's Common Stock was 844, and management
believes that there are approximately 2,050 beneficial owners of Waste Tech's
common stock.
The range of high and low bid quotations for the Company's common stock
during the fiscal years ended October 31, 1997 and 1996 are set forth below.
The bid price for the Common Stock shown below, as adjusted for the 2:1
stock spilt of the Company's stock effective as of June 16, 1997, is reported by
the National Association of Securities Dealers Automated Quotations System
("NASDAQ") represents prices between dealers without retail mark-up, mark-down
or commissions, and do not necessarily reflect actual transactions.
Fiscal Year Ended
October 31, 1997
First Quarter 1 1/16 5/8
Second Quarter 13/16 9/16
Third Quarter 1 1/16 11/16
Fourth Quarter 15/16 1/2
Fiscal Year Ended
October 31, 1996
First Quarter 1 21/32 1 1/8
Second Quarter 1 11/16 1 5/16
Third Quarter 1 19/32 31/32
Fourth Quarter 1 1/16 25/32
The Company has paid no dividends since its inception. Other than the
requirement of the Delaware Corporation law that dividends be paid out of
capital surplus only, and that the declaration and payment of a dividend not
render the Company insolvent, there are no restrictions on the Company's present
or future ability to pay dividends.
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The payment by the Company of dividends, if any, in the future, rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements, its financial
condition and other relevant factors. By reason of the Company's present
financial status and its contemplated financial requirements, the Company does
not anticipate paying any dividends on its common stock during the foreseeable
future, but intends to retain any earnings for future expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
For fiscal 1997 consolidated sales were $12,530,973 as compared to
consolidated sales of $13,982,903 for fiscal 1996, a decrease of 10.4%. The
decrease in sales was the result of lower shipments to the recycled products
markets attributable to the lower prices for recycled materials for most of the
year. Sales in fiscal 1996 increased $3,653,142, 35.4% over the prior fiscal
year due to sales at the International Press and Shear (IPS) subsidiary which
completed its first full year of operation.
Consolidated net income for fiscal 1997 was a loss of $281,654 as compared
to a loss of $565,680 in 1996. Operating losses at the IPS subsidiary were the
primary cause of the losses in both 1997 and 1996. The operations of all other
subsidiaries were profitable. Operating expenses were reduced by $608,754 which
included reductions of selling expenses of $429,712 and administration expenses
of $179,042. All of the losses in Fiscal 1997 occurred during the first three
quarters. In the fourth quarter, the Company earned $264,000 or $.06 per share.
Based on the Company's present backlog of orders it is anticipated that the the
Company will be profitable in 1998.
Although the Company had higher sales in fiscal 1996 due to products
manufactured at its IPS subsidiary, net income was lower than in 1995. 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 1996 was affected by certain non-recurring items. 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 a
deferred tax asset of $413,000 at October 31, 1996 which had been recorded as
income in 1995. The Company has net operating loss carryfowards for tax purposes
of approximately $2,000,000 which expire in the years 2007-2012.
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For fiscal 1997 and 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, due to market
saturation and competitive conditions in the southwestern U.S., the cotton mote
baler business will not return to 1995 levels.
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. In the fourth quarter of fiscal 1997 IPS reduced
its losses by approximately two thirds and has substantially increased its
backlog of orders. As a result, it is anticipated that it will reach a near
break even point and possibly be profitable during 1998.
Financial Condition
Working capital decreased from $1,333,765 at October 31, 1996 to $1,144,482
at October 31, 1997. This decrease is due to the overall operating results of
1997.
The revolving note payable to SouthTrust Bank in the amount of $1,000,000
was renewed in November 1997 at the prime rate. Interest is payable monthly and
all amounts borrowed are due in full on May 7, 1998. The balance due at October
31, 1997 was $626,652. At October 31, 1997, the Company is in violation of
certain covenants of the loan agreement related to liabilities to net 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 replace the
revolving note with a new revolving note of at least $1,000,000.
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.
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The Company also entered into financing in fiscal 1996 relating to the
financing of the IPS subsidiary which is not affected by the previously
mentioned loan arrangements. 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.
Management anticipates that the IPS subsidiary will attain or exceed the
sales levels of 1997 and with the cost structure in place this subsidiary should
perform substantially better in 1998 than in 1997. 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, KPMG Peat Marwick LLP, 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:
1. The Company continues 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 the covenant related to maximum debt
to net worth. As of the date of issuance of this report,
the lender has not waived these covenant violations nor
has it demanded repayment. Management is in the process
of obtaining financing to replace the revolving loan and
the term loan and expects to accomplish this prior to the
expiration date of the revolving loan, April 7, 1998.
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.
15
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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.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data commence on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) (1) Termination of Certifying Accountants
(i) On October 13, 1997, Coopers & Lybrand, the
Company's Certifying Accountants ("Former Accountants") resigned as
the Registrant's Certifying Accountants.
(ii) At the time of their resignation, the Former
Accountants were not conducting an audit of the Company's financial statements
for the year ending October 31, 1997. They did issue a report on the Company's
financial statement for the year ended October 31, 1996. The Former Accountants
did not state that a report, if issued, for 1997, would contain an adverse
opinion or disclaimer of opinion or would be qualified as to uncertainty, audit,
scope or accounting principles. The report of the Former Accountants for the
years ended 1995 and 1996 did not contain an adverse opinion or disclaimer of
opinion, nor was it qualified as to audit scope or accounting principles.
However, the report for the year ended 1996 was modified as to uncertainty with
respect to the Company's ability to continue as a going concern in the event, as
a result of its violation of certain financial covenants in a bank loan
agreement, the due date of the loan was accelerated. In that event, the Former
Accountants were concerned about the Company's ability to obtain the funds
necessary to satisfy the bank obligation.
(iii) The decision to retain the New Accountants was
approved by the Board of Directors of the Company
(iv) During the Company's two most recent fiscal
years and during the subsequent interim periods preceding their resignation,
there were no disagreements with the Former Accountants with respect to auditing
principles or practices, financial statement disclosures, or auditing scope or
procedure, which, if not resolved to the Former Accountants' satisfaction,
16
<PAGE>
would have caused them to make reference to the subject matter of the
disagreement in connection with its report
(v) During the two most recent fiscal years and any
subsequent interim periods preceding their resignation, the Former Accountants
have not advised the Registrant that:
A. internal controls necessary for the
Company to develop reliable financial statements did not exist;
B. information has come to their attention
that has led them to no longer be able to rely on management's representations
or that they were unwilling to be associated with the financial statements
prepared by management;
C. the scope of the audit should be expanded
significantly, or that information has come to their attention, that, if further
investigated, might materially impact the fairness or reliability of either a
previously issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that might prevent them from rendering an
unqualified audit report) on those financial statements.
D. the Former Accountants have not advised
the Company that information has come to their attention that caused them to
conclude materially impacts the fairness or reliability of either (i) a
previously issued audit report or the underlying financial statements, or (ii)
the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that unless resolved to the accountants
satisfaction, would prevent them from rendering an unqualified audit report on
those financial statements.
(a) (2) Engagement of New Certifying Accountants
On October 23, 1997, the Company engaged the firm of
KPMG Peat Marwick LLP (the "New Accountants") as its new certifying accountants.
The New Accountants were not consulted regarding:
(i) the application of accounting principles to a
specific transaction either completed or proposed; or
(ii) the type of audit opinion to be rendered with
regard to the Registrant's financial statements; or any disagreements or
reportable events as such terms are defined in Regulation S-K, Item 304.
(a) (3) The Former Accountant's were provided with a copy of the
disclosures being set forth herein and thereafter they
17
<PAGE>
furnished the Company with a letter addressed to the Securities and Exchange
Commission stating they agreed with the statements made by the Company.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The current executive officers and directors of the Company are as follows:
Name Position
Ted C. Flood President, Chief Executive
Officer and Director
Morton S. Robson Executive Vice President,
Secretary and Director
William E. Nielsen Chief Financial Officer
and Director
Charles C. Wildes President of IPS and Director
Robert Roth Director
Alan Morrison Director
The Board of Directors is divided into three (3) classes of directors
("Class I", "Class II", and "Class III"), with each class having as nearly the
same number of directors as practicable. Stockholders elect such class of
directors, Class I, Class II, or Class III, as the case may be, to succeed such
class directors whose terms are expiring, for a three (3) year term, and such
class of directors shall serve until the successors are elected and qualify.
The following is the apportionment of existing directors into classes:
No. of Class Term Expires Members
Class I 1997 Annual Alan Morrison
Stockholder's Meeting Charles C. Wildes
(to be held in 1998)
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Class II 1999 Annual Morton S. Robson
Stockholder's Meeting Ted C. Flood
Class III 1998 Annual Robert Roth
Stockholder's Meeting William E. Nielsen
Except for Mr. Flood who has an employment agreement with the Company,
officers serve at the pleasure of the Board of Directors.
Messrs. Robson and Morrison are members of the Company's audit and
compensation committees.
There are no family relationships between executive officers or directors
of the Company. However, Robert Roth is the husband of Patricia B. Roth, and
father of Steven F. Roth, major shareholders of the Company. See Item 12,
"Certain Relationships and Related Transactions".
For so long as Patricia Roth and Steven Roth are the owners of more than
one percent (1%) of the number of outstanding shares of Common Stock, the
Company has agreed to use its best efforts to cause the election of Robert Roth
as a member of the Board of Directors.
Except as noted above, there is no understanding or arrangement between any
director or any other persons pursuant to which such individual was or is to be
selected as a director or nominee of the Company.
Background of Executive Officers and Directors
The following is a brief account of the experience, during the past five
years, of each director and executive officer of the Company:
Ted C. Flood, age 67, was elected as the President and Chief Executive
Officer of the Company on February 23, 1993. He is also the President and Chief
Executive Officer of Consolidated, a wholly-owned subsidiary, and IBC, a
majority-owned subsidiary of the Company. He was elected as a Director of the
Company in May, 1989. From 1960 to 1972 he was president of Peabody Solid Waste
Management Company (EZ Pack). From 1972 to 1975 Mr. Flood was a corporate
vice-president of marketing for Browning Ferris Industries. During the period
from 1977 to 1988 he was the principal shareholder and president of Solid Waste
Recovery Systems.
Morton S. Robson, age 74, was elected a Director and the Secretary of the
Company in 1989. On February 23, 1993, he was elected Executive Vice President
of the Company. Since 1977 Mr.
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<PAGE>
Robson has been the senior partner of the law firm of Robson & Miller, LLP (and
its predecessor firms), which acts as general counsel to the Company. Mr. Robson
obtained an LLB degree from St. John's University School of Law.
Alan Morrison, age 71, has served as a Director of the Company since
January, 1986. Mr. Morrison has been a management consultant and private
investor since 1971. In 1970, he was the founder of SCA Services, Inc., a waste
disposal company. For more than 25 years, he has been a director of the Dauphin
Deposit Bank of Hanover, Pennsylvania. Mr. Morrison failed to file on a timely
basis a Form 5 disclosing one transaction, the grant of a stock option.
Charles C. Wildes, age 40, is President of the Company's subsidiary,
International Press and Shear Corporation, and was appointed by the Board Of
Directors as a Director of the Company in 1997. Prior to joining IPS he was the
General Manger of Selco Products, Inc. and Director of purchasing for the Harris
Group. Mr. Wildes was employed in various positions with Selco from 1978 to
1995, including Purchasing Director (5 years), Vice President of Manufacturing
(5 years) and Assistant General Manager (4 years). Mr. Wildes received a
Bachelor of Science Degree in Business Administration in 1978 from The Citadel.
Robert Roth, age 72, is the Chairman of the Board and Treasurer of
Georgetowne Electric, Ltd., and a director of Keystone Insurance Co., both
publicly held companies. For more than the past five (5) years, in addition to
being the Chairman of the Board and Treasurer of Georgetowne Electric, Ltd., he
has also been the President and Chief Executive Officer of Browning Weldon
Corp., a privately held financial company.
William E. Nielsen, age 50, joined the Company in June 1994 as its Chief
Financial Officer. Prior to joining the Company, Mr. Nielsen acted as a
financial consultant to Fletcher Barnun Inc., a privately held manufacturing
concern, from October 1993 through June 1994. From 1980 through July 1993 he was
the Vice President, Administration and Finance at Unison Industries, Inc. Mr.
Nielsen received a B.B.A in Finance and an M.B.A. at Western Illinois University
in 1969 and 1970, respectively.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation awarded to,
earned by or paid to, the Company's Chief Executive Officer and each of the
Company's executive officers whose compensation exceeded $100,000 per annum for
services rendered in all capacities to the Company and its subsidiaries during
fiscal
20
<PAGE>
years ended October 31, 1997, October 31, 1996 and October 31, 1995(1):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Awards
Name and Year Salary Bonus Other Annual Number All Other
Principal Position ($) ($) Compensation of Compensation
($) Options
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ted C. Flood, 1997 180,750(2) -0- -0- -0- -0-
Chief Executive
Officer and 1996 190,422(3) -0- -0- -0- -0-
President of
Company and IBC 1995 150,034(4) -0- -0- -0- 203,125(5)
</TABLE>
No director of the Company received remuneration for services as a director
during Fiscal 1997.
The following table sets forth certain information relating to stock option
grants during Fiscal 1997 to the Company's Chief Executive Officer and each of
the Company's most highly compensated
- -----------------------
(1) The law firm of Robson & Miller, LLP and its predecessor firms have
provided legal services for the Company. Morton S. Robson, the Executive Vice
President and Secretary and a director of the Company, is the senior partner of
Robson & Miller, LLP. During fiscal 1997, Robson & Miller, LLP received $60,000
from Waste Tech and $2,825 from IBC as payment for legal services rendered. as
of the end of fiscal 1997 accrued but unpaid legal fees due to Robson & Miller,
LLP from Waste Tech amounted to $358,754. Further, Robson & Miller exercised an
option in June, 1995 to purchase 250,000 shares of common stock at $1.00 per
share. See "certain relationships and related party transactions".
(2) Ted C. Flood, President of the Company and President of the Company's
subsidiaries received $156,500 in compensation from IBC during the fiscal year
ended October 31, 1997 and $24,250 from Consolidated during that period.
(3) Ted C. Flood, President of the Company and President of the Company's
subsidiaries received $164,340 in compensation from IBC and IPS during the
fiscal year ended October 31, 1996 and $26,082 from Consolidated during that
period.
(4) Ted C. Flood, President of the Company and President of the Company's
subsidiaries received $130,501 in compensation from IBC and IPS during the
fiscal year ended October 31, 1995 and $19,533 from Consolidated during that
period.
(5) Such other compensation is based upon Mr. Flood's exercise on June 13,
1995 of an option to purchase 250,000 shares of stock. The option price was
$1.00 per share and at the time of the exercise of the option the price per
share was $1.8125 per share. The figure set forth in the table is equal to the
difference between the fair market value of the Common Stock acquired on the
date of exercise ($1.8125 on June 13, 1995) and the exercise price ($1.00) of
the option.
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<PAGE>
executive officers whose compensation exceeded $100,000 for Fiscal 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individualized Grants
- --------------------------------------------------------------------------------------------------------------
Name Number of Securities Percent of Total Exercise or Expiration
Underlying Options/SARs Base Price Date
Options/SARs Granted to ($/Sh)
Granted (#) Employees in Fiscal
1997
<S> <C> <C> <C> <C>
Ted C. Flood(6) -0- NA NA NA
</TABLE>
No options were exercised during Fiscal 1997 by the Company's Chief
Executive Officer or any of the Company's most highly compensated executive
officers whose compensation exceeded $100,000 for Fiscal 1997.
Employment and Severance Agreements
On September 15, 1996, Ted C. Flood, the President and Chief Executive
officer of the Company entered into an employment agreement with the Company.
The agreement is for a term of five years commencing on October 1, 1996 and
terminating on September 30, 2001. Pursuant to the agreement, Mr. Flood shall
receive compensation of $150,034 for the first year with increases of 5% per
annum during the term of the agreement. However, in the event the Company is not
profitable in any year, the Company's Board of Directors has the right to defer
the 5% increase earned during that year. Such increase in income that is
deferred shall be carried forward and paid in the next profitable fiscal year at
the end of such fiscal year in a lump sum payment. The agreement further
provides that in the event of a merger, consolidation, sale of substantially all
of the Company's assets, or a sale of either a majority or plurality of the
Company's stock, Mr. Flood shall have
- ----------------
(6) In September 1988 Mr. Flood was granted an option to purchase 200,000
shares of IBC stock. This option expires on September 21, 1998. As a result of
the IBC merger, this option was converted to an option to purchase 48,622 shares
of the Company's stock at a price of $.6165 per shares. The conversion was
calculated based upon the conversion rate of IBC shares for the Company's shares
as set forth in the Merger Agreement.
22
<PAGE>
the option to allow the agreement to remain a binding obligation of the Company
or the surviving or successor corporation or at such time of such event receive
the balance due him under the agreement.
On June 3, 1989, IBC entered into a Severance Agreement (the "Agreement")
with Ted C. Flood, its President. The Agreement provides, among other things,
that, in the event of a change in control of IBC as that term is defined in the
Agreement, and the subsequent termination of Mr. Flood's employment by IBC other
than for cause or by Mr. Flood for good reason, (as such terms are defined in
the Agreement), IBC shall pay to Mr. Flood, in addition to his salary at the
date of termination, a lump-sum severance payment equal to 2.99 times the
greater of his annual salary rate in effect as of the date of termination or
such rate in effect immediately prior to the change in control, together with
compensation for other benefits to which he would have been entitled.
The initial term of the Agreement was from May 3, 1989 through April 30,
1991. It was, and thereafter it shall be, automatically extended for one year
periods, unless IBC shall give written notice of termination, at least one year
prior to the termination date, of its desire not to extend the Agreement. In the
event of a change in control of the Company, however, the Agreement shall
continue in effect for not less than 24 months after such change in control.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as of December 31, 1997 by (i) those
persons known by the Company to be the beneficial owners of more than 5% of the
total number of outstanding shares of Common Stock, (ii) each director and
executive officer, and (iii) all officers and directors as a group:
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<PAGE>
Amount of
Name and Address of Beneficial Approximate
Beneficial Owner Ownership(7) Percent of Class
Ted C. Flood 1,203,122(8) 23.7%
5400 Rio Grande Avenue
Jacksonville, Fla. 32254
Morton S. Robson 586,854(9) 11.5%
666 Third Avenue--18th Fl
New York, N.Y. 10017--4011
Alan Morrison 240,000(10) 4.7%
875 E. Camino Real,
Apt. 10-C
Boca Raton, Fla. 33432
Robert Roth 3,300(11) Less than 1%
Georgetown Electric, Ltd.
Unit 17, 2501 W. Third Street
Wilmington De., 19805
- ----------------
(7) Unless otherwise stated, all shares of Common Stock are directly held
with sole voting and dispositive power. The shares set forth in the table
reflect the 2:1 stock split of the Company's common stock effective as of May
15, 1997.
(8) Consists of 628,000 shares held directly; an option to purchase 48,662
shares; and, 526,460 shares owned by the Waste Technology Corp. Employees Profit
Sharing Trust of which Messrs. Flood, Robson and Morrison are Trustees.
(9) Consists of 78,454 shares held directly; 2,400 shares held as custodian
for his minor son; 505,000 shares held by Robson & Miller, of which Mr. Robson
is the senior partner; and 1,000 shares held by the Robson & Miller pension
plan. Excludes 89,728 shares held by Kenneth N. Miller, a partner of Mr. Robson
who is the beneficial and record owner of such shares. Does not include the
526,460 shares owned by the Waste Technology Corp Employees Profit Sharing Trust
of which Messrs. Flood, Robson and Morrison are trustees since these shares are
included in Mr. Flood's holdings and their inclusion here would be duplicative.
(10) Consists of options to purchase 240,000 shares. Does not include the
526,460 shares owned by the Waste Technology Corp Employees Profit Sharing Trust
of which Messrs. Flood, Robson and Morrison are trustees since these shares are
included in Mr. Flood's holdings and their inclusion here would be duplicative.
(11) Excludes an aggregate of 315,358 shares held by family members.
24
<PAGE>
William E. Nielsen 192,006(12) 3.8%
5400 Rio Grande Avenue
Jacksonville, Fla. 32254
Charles C. Wildes 392,000(13) 7.7%
396 Frost Industrial Blvd
Baxley, Ga. 31513
All Officers and
Directors as a
Group (6 persons) 2,617,282(14) 51.5%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
Loans to Officers and Directors
The Company and IBC entered into an agreement with Mr. Flood dated as
of December 29, 1995 pursuant to which IBC assigned all of its interest in a
life insurance policy it owned on Mr. Flood's life to Mr. Flood. In
consideration for this assignment Mr. Flood agreed to pay IBC the sum of
$145,727 which amount represented the cash surrender value of the policy as of
the date of the agreement. This amount is to be paid out of the proceeds Mr.
Flood or his Estate receives upon surrender of the policy or from the living
proceeds or death benefit proceeds from the policy, whichever occurs first.
Interest on Mr. Flood's obligation accrues at the rate of 6% per annum from the
date of the agreement to the date of payment. The agreement further provides
that no payment of principal or interest of this obligation shall be required to
be made until such time that Mr. Flood or his Estate shall receive the proceeds
from the policy. This obligation of Mr. Flood to IBC is
- -------------
(12) Consists of 142,006 shares held jointly with his spouse and options to
purchase 50,000 shares.
(13) Consists of 40,000 shares held directly; 42,000 shares held by the
Wildes Family Trust of which Mr. Wildes has a 20% ownership interest; 30,000
shares held indirectly as the executor of an estate, as a result of which Mr.
Wildes has voting power and control over the disposition of these shares, but
does not have any pecuniary interest in the shares; and, an option to purchase
280,000 shares.
(14) Includes shares owned by family members of Robert Roth as follows: his
wife, Patricia B. Roth (114,182), his son, Steven F. Roth (83,968), his
daughter, Kathie Cecile Roth (10,000) and his son Charles B. Roth and his wife,
Marta Roth (107,188).
25
<PAGE>
evidenced by a promissory note executed by Mr. Flood to the order of IBC.
The agreement further provides that all premiums due on the policy after
ownership has been transferred from IBC to Mr. Flood shall be advanced by the
Company. Each time that such advance is made for a premium by the Company, Mr.
Flood shall execute a promissory note to the order of the Company in the amount
of such premium advanced. Such note shall accrue interest at the rate of six per
cent per annum and no payment of principal or interest of such notes shall be
required to be made until such time that Mr. Flood or his Estate shall receive
the proceeds from the policy, either upon the surrender of the policy or from
the living proceeds or death benefit proceeds, whichever occurs first. As of the
date of this report, the Company had advanced funds to pay four premiums on the
policy each in the amount of $20,000. Mr. Flood has executed four promissory
notes, each in the amount of $20,000, to the order of the Company evidencing his
obligation to repay these loans to the Company.
As of the date of this report, Morton S. Robson, the Company's Executive
Vice President and Secretary and a Director and corporate counsel, was indebted
to the Company. The transaction giving rise to the obligations owed to the
Company by Mr. Robson is described below.
On April 12, 1990, four individuals, including Leslie N. Erber, then
Chairman of the Board and President of the Company, and Morton S. Robson entered
into an agreement with a group of dissident shareholders to purchase an
aggregate of 294,182 shares at a purchase price of $4.00 per share. Mr. Erber
and Mr. Robson each purchased 134,951 shares of stock. Such number of shares and
purchase price have been adjusted to reflect the one for four (1:4) reverse
stock split effected on November 13, 1991. The dissidents had previously filed
Forms 14B with the Commission indicating their intention of seeking control of
the Company through the solicitation of consents from shareholders to a
reduction in the number of directors and the replacement of the present
directors with directors nominated by the dissident group. As part of the
agreement to purchase the shares, the dissident shareholders who were selling
their shares agreed that, for a period of ten years, they would not seek to
obtain control of the Company or solicit proxies in opposition to the Board of
Directors on any matter.
Messrs. Erber and Robson and the two other persons borrowed the aggregate
amount of $1,244,328 from the Company in 1990 and 1991 to purchase these shares.
Most of the loan (91.5%) was made in equal amounts to the President and the
Secretary. Those advances were secured by a lien on the 294,182 shares of Common
Stock. In addition, Mr. Erber agreed to transfer to the Company as additional
collateral, 156,000 shares of stock of the Company. Approximately
26
<PAGE>
one-half of this sum was advanced on April 12, 1990 and the balance during 1991.
In April 1990, promissory notes evidencing the first half of the funds were
executed by these persons bearing interest at the rate of 9% per annum and
payable in three annual installments commencing on April 12, 1991. Thereafter,
independent members of Waste Tech's Board of Directors unanimously extended the
payment due date of each payment for one (1) year. New promissory notes to Waste
Tech were thereafter executed for the full amount of the advance, payable in
three annual installments commencing April 12, 1992. The notes were secured by a
lien on all of these shares which were acquired. In June 1992, $200,000 of the
principal amount of these loans was repaid to the Company through a sale of
100,000 of the acquired shares at $2.00 per share. Payment of the remainder of
the principal due in 1993 and 1994, together with the accrued interest, was
subsequently deferred for two years by the Company's Board of Directors, and
deferred again until 1997. It is anticipated that the obligation will again be
deferred.
Thereafter, Mr. Erber, in connection with his termination as President of
the Company, turned in all of his stock in to the Company and IBC in full
satisfaction of his obligation of $698,527.
In June 1995 Robson & Miller exercised a stock option to purchase 250,000
shares of Common Stock at $1.00 per share, by offsetting $250,000 of the fees
that were due and owing from the Company. As of the end of fiscal 1997, the
Company owed Mr. Robson's law firm the sum of $358,754 for legal fees and
disbursements. The Company has acquired a security interest in the shares
acquired by Robson & Miller by the exercise of the aforesaid option as
collateral security for repayment of the outstanding loan of Mr. Robson. As of
October 31, 1997 Mr. Robson still owed the Company $427,364 together with
accrued interest. The largest aggregate outstanding loan balance of Mr. Robson
during the past two (2) fiscal years was $719,721.
Related Party Transactions
Legal Services
The law firm of Robson & Miller, LLP and its predecessors have provided
legal services for the Company and its subsidiaries. Morton S. Robson, the
Secretary and a Director of the Company is a partner of Robson & Miller, LLP,
general counsel to the Company. During fiscal 1997, Robson & Miller, LLP
received $60,000 from Waste Tech and $2,825 from IBC as payment for legal
services rendered. As of the end of fiscal 1997 accrued but unpaid legal fees
due to Robson & Miller, LLP, from the Company amounted to $358,754. In fiscal
1994 Robson & Miller was granted an option to purchase 250,000 shares at $1.00
per share for a five year period, in consideration of forbearing collection of
past due legal fees. As noted above, on June 13, 1995, Robson & Miller exercised
a stock
27
<PAGE>
option to purchase the 250,000 Shares at $1.00 per share, by offsetting $250,000
of the fees that were due and owing form the Company.
Conflicts of Interest
Each of Messrs. Flood and Robson are directors of both Waste Tech and its
majority owned subsidiary, IBC. Conflicts of interest may arise for Messrs.
Flood and Robson in transactions between Waste Tech and IBC. Additionally,
counsel to the company is Robson & Miller, LLP, of which Mr. Robson is the
senior partner. Conflicts of interests may arise as the result of such
relationship.
Robert Roth
Members of the immediate family of Robert Roth, one of the Directors of the
Company own an aggregate of 6.2% of the Company's outstanding and issued stock.
The shares of stock are owned by his wife, Patricia B. Roth (114,182), his son,
Steven F. Roth (83,968), his daughter, Kathie Cecile Roth (10,000) and his son
Charles B. Roth and his wife, Marta Roth (107,188). Pursuant to the terms of an
agreement dated May 11, 1993 between Patricia Roth, Steven Roth and Robert Roth
so long as Patricia Roth and Steven Roth are the owners of more than one percent
(1%) of the number of outstanding shares of Common Stock, the Company has agreed
to use its best efforts to cause the election of Robert Roth as a member of the
Board of Directors.
28
<PAGE>
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K.
1. Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
2. Financial Statement Schedules:
Schedule II - Accounts Receivable from
Related Parties,
Underwriters, Promoters
and Employees other than
Related Parties
Schedule X - Supplementary Income Statement Information
3. Exhibits.
(a) - The following documents heretofore filed by the Company with the
commission are hereby incorporated by reference herein:
(i) from the Registration Statement on Form S-18 filed with the Commission in
April, 1985 (Registration No. 2-97045)
Exhibit Number and Description
3.0 Articles of Incorporation and by-laws and all amendments thereto.
4.0 All instruments defining the rights of security holders submitted as
exhibits therewith:
10.1 Agreement between the Company and International Baler Corp. dated September
8, 1986 relating to acquisition of assets and stock.
(ii) Annual Report on Form 10-K for fiscal year ended October 31, 1987:
Exhibit Number and Description
10.2 Agreement dated February 3, 1987 between the Company and N. J. Cavagnaro &
Sons and Machine Corp., Nicholas J. Cavagnaro Jr., George L. Cavagnaro, and
Pauline L. Cavagnaro together with the exhibits annexed thereto for the
acquisition of N. J. Cavagnaro & Sons Machine Corp.
29
<PAGE>
10.3 Non-Competition Agreement dated February 3, 1987 between the Company and N.
J. Cavagnaro & Sons Machine Corp., George L. Cavagnaro, Nicholas J. Cavagnaro,
Jr. and Pauline L. Cavagnaro.
(iii) Current Report on Form 8-K, Date of Report, June 1, 1989:
Exhibit Number and Description
10.6 Severance Agreement between International Baler Corporation and Ted C.
Flood dated May 17, 1989 and agreed to June 3, 1989.
10.7 Waste Technology Corp. Profit Sharing Plan including Agreement of Trust.
(iv) Current Report on Form 8-K, Date of Report, March 22, 1990:
Exhibit Number and Description
10.10 Agreement between Waste Technology Corp. and U. S. Environmental, Inc.
dated March 26, 1990.
(v) Current Report on Form 8-K, Date of Report, April 12, 1990:
Exhibit Number and Description
10.11 Stock Purchase Agreement dated April 12, 1990.
10.12 Standstill Agreement dated April 12, 1990.
(vi) Form 8 Amendment No. 1 to the Annual Report on Form 10-K for fiscal year
ended October 31, 1989:
Exhibit Number and Description
3.3 Certificate of Incorporation of International Baler Corporation f/k/a
National Compactor & Technology Systems, Inc. and all amendments thereto.
3.4 By-Laws of International Baler Corporation.
3.5 Certificate of Incorporation of Consolidated Baling Machine Company, Inc.
f/k/a Solid Waste Recovery Test Center, Inc. and all amendments thereto.
3.6 By-Laws of Consolidated Baling Machine Company, Inc.
30
<PAGE>
10.14 Plan and Agreement of Merger of American Baler Machine Company, Inc. into
National Compactor & Technology Systems, Inc.
(vii) Annual Report on Form 10-K for fiscal year ended October 31, 1990:
Exhibit Number and Description
3.7 Certificate of Incorporation of Waste Tech Real Estate Corp.
3.8 Certificate of Incorporation of Consolidated Baler Sales & Service, Inc.
10.19 Joint Venture Agreement between Waste Tech Real Estate and Rock-Tech Corp.
(viii) Current Report on Form 8-K, Date of Report April 2, 1991:
Exhibit Number and Description
10.20 Agreement among Waste Technology Corp., Ram Industrial Coating, Inc.,
Charles B. Roth and David Price dated April 2, 1991.
10.21 Agreement among Waste Technology Corp., Ram Coating Technology Corp.,
Eagle Tank Technology Corp., Ram Industrial Coating, Inc., Eagle Tank Services,
Inc. Charles B. Roth and David C. Price dated April 2, 1991.
(ix) Annual Report on Form 10K for the Fiscal Year ended October 31, 1991:
Exhibit Number and Description
3.1.1 Certificate of Amendment to Certificate of Incorporation of Waste
Technology Corp. as filed on November 4, 1991.
3.1.2 Certificate of Amendment to Certificate of Incorporation of Waste
Technology Corp. as filed November 21, 1991.
3.2 Revised and Restated By-Laws of Waste Technology Corp.
3.2.1 Amendment to Revised and Restated By-Laws of Waste Technology Corp.
3.11 Certificate of Incorporation of Solid Waste & Recovery
Systems, Inc.
10.22 Lease for 156 6th Street and 153 7th Street, Brooklyn, New York.
31
<PAGE>
10.24 Lease for 115 N. 5th Street, Brooklyn, New York.
10.25 Form of Deferred Compensation Agreement for Ted C. Flood.
10.26 Working Agreement dated June 17, 1990 for Local Union No. 164.
10.27 Industrial and Heavy Construction and Maintenance Contract dated September
1, 1990.
10.28 Amended and Restated Revolving Credit Loan and Security Agreement dated
July 12, 1991.
(x) Current Report on Form 8K, Date of Report September 2, 1992:
Exhibit Number and Description
10.30 Agreement between Waste Technology Corp. and Charles B. Roth, dated June
25, 1992.
(xi) Current Report on Form 8K, Date of Report May 7, 1993:
Exhibit Number and Description
10.31 Agreement between Waste Technology Corp., International Baler Corp. and
Leslie N. Erber dated February 23, 1993.
10.32 Agreement between Waste Technology Corp. and Charles Roth dated May 7,
1993.
10.33 Agreement between Waste Technology Corp., Patricia Roth, Steven Roth and
Robert Roth dated May 10, 1993.
(xii) Annual Report on Form 10K for the Fiscal Year ended October 31, 1994:
Exhibit Number and Description
10.34 Employment Agreement between International Baler Corporation and Ted C.
Flood dated as of September 1, 1993.
10.35.1 Term Loan and Security Agreement among International Baler Corporation,
Consolidated Baling Machine Company, Inc., Waste Technology Corp. and SouthTrust
Bank of Northeast Florida dated as of September 8, 1994
32
<PAGE>
10.35.2 Mortgage and Security Agreement between International Baler Corporation
and SouthTrust Bank of Northeast Florida dated as of September 8, 1994
10.35.3 Promissory Note among International Baler Corporation, Consolidated
Baling Machine Company, Inc. and SouthTrust Bank of Northeast Florida dated as
of September 8, 1994
10.35.4 Note Modification Agreement among International Baler Corporation,
Consolidated Baling Machine Company, Inc. and SouthTrust Bank of Northeast
Florida dated November 30, 1994
10.35.5 Unconditional Guaranty of Payment and Performance by Waste Technology
Corp. dated as of September 8, 1994
10.36.1 Business Loan Agreement between Ram Coating Technology Corp. and Barnett
Bank of Jacksonville, N.A., dated September 15, 1994
10.36.2 Amended and Restated Mortgage between Ram Coating Technology Corp. and
Barnett Bank of Jacksonville, N.A., dated September 15, 1994
10.36.3 Promissory Note between Ram Coating Technology Corp. and Barnett Bank of
Jacksonville, N.A., dated September 15, 1994
10.36.4 Continuing Unlimited Commercial Guaranty by International Baler
Corporation to Barnett Bank of Jacksonville, N.A. dated September 15, 1994
10.36.5 Continuing Unlimited Commercial Guaranty by Waste Technology Corp. to
Barnett Bank of Jacksonville, N.A. dated September 15, 1994
(xiii) Annual Report on Form 10K for the Fiscal Year ended October 31, 1995:
Exhibit Number and Description
4.1 1995 Stock Option Plan
(xiv) Annual Report on Form 10K for the Fiscal Year ended October 31, 1996:
Exhibit Number and Description
10.37 Employment Agreement between Waste Technology Corp. and Ted C. Flood dated
as of September 15, 1996
33
<PAGE>
10.38 Agreement between International Baler Corporation and Ted C. Flood dated
as December 29, 1995
10.38.1 Promissory Note made by Ted C. Flood to the order of International Baler
Corporation dated December 29, 1995.
10.38.2 Promissory Note made by Ted C. Flood to the order of Waste Technology
Corp. dated April 5, 1996.
10.38.3 Promissory Note made by Ted C. Flood to the order of Waste Technology
Corp. dated October 5, 1996.
(xv) Current Report on Form 8-K, Date of Report, June 27, 1997:
Exhibit Number and Description
10.39 Agreement of Merger between International Baler Corporation and IBC Merger
Corporation dated June 24, 1997.
10.39.1 Certificate of Merger of International Baler Corporation into IBC Merger
Corporation.
(xvi) Current Report on Form 8-KA, Date of Report, October 13, 1997:
Exhibit Number and Description
16.1 Letter dated October 30, 1997 from Morton S. Robson, Esq. of Robson &
Miller, LLP to James E. Newman of Coopers & Lybrand.
16.2 Letter Dated November 5, 1997 from Coopers & Lybrand L.L.P. to the
Securities and Exchange Commission.
The following exhibits are filed herewith:
10.40 Agreement between Solid Waste Recovery Systems, Inc. and DryVac
Environmental, Inc.
21 List of Subsidiaries
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASTE TECHNOLOGY CORP.
(Registrant)
By: /s/ Ted C. Flood
---------------------
Ted C. Flood, President
Dated: January 29, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in their capacities and on the dates indicated.
Signature Title Date
/s/ Ted C. Flood Chief Executive January 29, 1998
- ------------------------ Officer, and Director
Ted C. Flood
/s/ Morton S. Robson Director January 29, 1998
- -----------------------
Morton S. Robson
Director January 1998
- ------------------------
Alan Morrison
/s/ Charles C. Wildes Director January 29, 1998
- ------------------------
Charles C. Wildes
Director January , 1998
- ------------------------
Robert Roth
/s/ William E. Nielsen Director, Principal January 29, 1998
- ------------------------ Financial and
William E. Nielsen Accounting Officer
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Financial Statements
October 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets as of October 31, 1997 and 1996 F-2-3
Consolidated Statements of Operations for the years ended
October 31, 1997, and 1996 F-4
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
October 31, 1997, and 1996 F-6-7
Notes to Consolidated Financial Statements F-8
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
----------------------------
The Board of Directors
Waste Technology Corp.:
We have audited the accompanying consolidated balance sheet of Waste Technology
Corp. and Subsidiaries as of October 31, 1997 and the related consolidated
statements of operations, stockholders' 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
consolidated 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 Waste Technology
Corp. and Subsidiaries as of October 31, 1997 and the results of their
operations and their cash flows for the year 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 notes 1 and 7
to the financial statements, the Company has incurred operating losses in both
1997 and 1996 and 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 the 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 7. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
January 10, 1998
F-1
[LOGO]
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Waste Technology Corp.
We have audited the accompanying consolidated balance sheet of Waste
Technology Corp. and Subsidiaries (the Company) as of October 31, 1996
and the related consolidated statements of income, stockholders' equity
and cash flows for the year 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 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.
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 the consolidated results of
their operations and their cash flows for the year 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 7 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 7. 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 7,
for which the date is February 13, 1997
F-1a
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 80,783 140,000
Accounts receivable, net of allowance for
doubtful accounts of $86,000 and $91,000
for 1997 and 1996, respectively 2,019,435 1,410,956
Inventories (note 4) 2,379,278 3,162,208
Prepaid expenses and other current assets 77,825 43,208
------------- -------------
Total current assets 4,557,321 4,756,372
------------- -------------
Property, plant and equipment, net (note 6) 2,221,768 2,528,643
Other assets:
Intangible assets, net 60,885 67,152
Other assets 15,135 18,049
------------- -------------
Total other assets 76,020 85,201
------------- -------------
Total assets $ 6,855,109 7,370,216
============= =============
</TABLE>
(Continued)
F-2
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
October 31, 1997 and 1996
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Revolving promissory note (note 7) $ 626,652 531,652
Current portion of long-term debt and capital lease
obligation (notes 7 and 8) 572,331 678,123
Accounts payable 1,343,922 1,031,224
Accrued liabilities 442,912 498,284
Customer deposits 427,022 683,324
------------- -------------
Total current liabilities 3,412,839 3,422,607
------------- -------------
Accrued legal fees (note 3) - 315,696
Long-term debt (note 7) 177,126 210,324
Obligation under capital lease, less current maturities (note 8) 686,046 701,568
Minority interest in equity of subsidiary (note 14) 210,322 509,369
------------- -------------
Total liabilities 4,486,333 5,159,564
------------- -------------
Stockholders' equity (notes 2, 3, 11 and 14):
Common stock, $.01 par value; 25,000,000 shares authorized,
5,746,029 and 2,763,314 shares issued and outstanding in
1997 and 1996, respectively 57,461 27,634
Preferred stock, $.0001 par value; 10,000,000 shares
authorized, none issued - -
Additional paid-in capital 6,207,936 6,066,356
Accumulated deficit (2,870,589) (2,588,935)
------------- -------------
3,394,808 3,505,055
Less Treasury stock, 663,526 shares in 1997, 331,763 shares 419,306 419,306
in 1996, at cost
Less notes receivable from stockholders (note 3) 606,726 875,097
------------- -------------
Total stockholders' equity 2,368,776 2,210,652
------------- -------------
Commitments and contingencies (notes 8 and 9)
Total liabilities and shareholders' equity $ 6,855,109 7,370,216
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended October 31, 1997, and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales (note 13) $ 12,530,973 13,982,903
Cost of sales 9,802,477 10,502,750
------------ ------------
Gross profit 2,728,496 3,480,153
------------ ------------
Operating expenses:
Selling 1,143,881 1,573,593
General and administrative 1,753,687 1,932,729
------------ ------------
2,897,568 3,506,322
------------ ------------
Loss from operations (169,072) (26,169)
------------ ------------
Other income (expense):
Interest 65,581 63,645
Net gain (loss) on disposal of fixed assets - 24,985
Other 7,383 (8,531)
Interest expense (202,234) (150,023)
------------ ------------
(129,270) (69,924)
------------ ------------
(298,342) (96,093)
Minority interest in loss (earnings) of consolidated subsidiary 16,688 (27,587)
------------ ------------
Loss before income taxes (281,654) (123,680)
------------ ------------
Income tax provision (note 10):
Current - 29,000
Deferred - 413,000
------------ ------------
- 442,000
Net loss $ (281,654) (565,680)
============ ============
Net loss per share (note 2) $ (.06) (.12)
============ ============
Weighted average number of common and
common equivalent shares outstanding (note 2) 4,939,832 4,863,102
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1997, and 1996
<TABLE>
<CAPTION>
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, 1995 2,763,314 $ 27,634 6,069,995 (2,027,894) 331,763 (419,306) (663,011) 2,987,418
Adjustment of note receivable
from stockholders as reduction
of stockholders' equity - - - - - - (211,086) (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)
Two-for-one stock split 2,763,314 27,633 (27,633) - 331,763 - - -
Adjustment of note receivable
from stockholders(note 3) - - - - - - 268,371 268,371
Shares issued(note 14) 219,401 2,194 169,213 - - - - 171,407
Net loss - - - (281,654) - - - (281,654)
---------- -------- ---------- ----------- -------- --------- --------- ----------
Balance at October 31, 1997 5,746,029 $ 57,461 6,207,936 (2,870,589) 663,526 (419,306) (606,726) 2,368,776
========== ======== ========== =========== ======== ========= ========= ==========
</TABLE>
See accompanying notes to consoliated financial statements.
F-5
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1997, and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (281,654) (565,680)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Writedown on investment in joint venture - 49,840
Loss on disposal of property held for sale - 9,648
Dissolution of non-operating subsidiaries - 1,000
Gain from sale of equipment - (1,200)
Depreciation and amortization 271,873 270,270
Provision for doubtful accounts (5,000) 23,260
Insurance premiums paid on behalf of Company
president, plus interest - (47,181)
Minority interest in (loss) income of subsidiary (16,688) 27,587
Deferred income taxes - 413,000
(Increase) decrease in assets and liabilities:
Accounts receivable (603,479) (276,656)
Inventories 782,930 (817,522)
Prepaid expenses and other current assets (34,617) 14,708
Other assets 2,914 (125)
Accounts payable 312,698 129,780
Accrued liabilities and legal fees (12,314) 59,977
Customer deposits (256,302) (517,820)
Reserve for legal settlement - (162,000)
------------- --------------
Net cash provided by (used in) operating activities 160,361 (1,389,114)
------------- --------------
</TABLE>
(Continued)
F-6
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years ended October 31, 1997, and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flow from investing activities:
Increase in notes receivable from shareholders $ (90,383) (18,250)
Purchase of property and equipment (69,683) (639,100)
Proceeds from sale of property held for resale - 194,466
Proceeds from sale of equipment - 1,200
--------------- ----------------
Net cash used in investing activities (160,066) (461,684)
--------------- ----------------
Cash flow from financing activities:
Proceeds/drawings from long-term debt and credit facility 2,010,000 2,589,167
Payments of debt and capital leases (2,069,512) (1,712,711)
--------------- ----------------
Net cash (used in) provided by financing activities (59,512) 876,456
--------------- ----------------
Net decrease in cash and cash equivalents (59,217) (974,342)
Cash and cash equivalents at beginning of year 140,000 1,114,342
--------------- ----------------
Cash and cash equivalents at end of year $ 80,783 140,000
=============== ================
Supplemental cash flow information:
Cash paid for interest $ 179,650 132,740
=============== ================
Cash paid for income taxes $ - 39,500
=============== ================
</TABLE>
Supplemental disclosure of noncash transactions:
During 1997, the Company exchanged 219,401 shares of common stock for a
portion of the minority interest in equity of subsidiary (note 14).
During 1996, the Company transferred a life insurance policy to its
president, who is also a director, in exchange for a note receivable for
$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.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1997 and 1996
(1) Nature of Business
Waste Technology Corp. (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. Operating
losses at IPS are the primary cause of the consolidated losses in both
1997 and 1996. These losses occurred primarily as a result of start-up
costs and the significant drop in corrugated board and paper prices in
the recycled products markets. 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. Management will take actions, as considered necessary, to
reduce the operating and carrying costs of IPS to a level which will not
jeopardize the liquidity of the Company. The operations of all other
subsidiaries are profitable.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Waste Technology Corp. and all of its wholly owned and
majority owned subsidiaries. Intercompany balances and material
intercompany transactions have been eliminated in consolidation.
(b) Minority Interest
Minority interest represents the minority stockholders'
proportionate share of the equity of International Baler Corp.
(IBC). The Company owns 94.2% and 85.8% of the outstanding shares
of IBC, its primary operating subsidiary, at October 31, 1997 and
1996, respectively.
F-8
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies and Operations, continued
(c) Use 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is
primarily determined by the first-in, first-out method.
(e) 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
over the estimated lives of 5 years for machinery and equipment
and 31 years for buildings. Gain or loss upon retirement or
disposal of property, plant and equipment is recorded as income or
expense.
(f) 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, 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 $97,167 and $90,900 at
October 31, 1997 and 1996, respectively. Amortization expense
related to intangibles was $6,267 and $11,795 for the years ended
October 31, 1997 and 1996, respectively.
F-9
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies and Operations, continued
(g) Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," 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, 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.
(h) Earnings (Loss) Per Share and Stock Split
Earnings (loss) per share is 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 dilutive stock options. Options are not considered in
loss years as they would be antidilutive.
On May 15, 1997 the Board of Directors declared a two-for-one
stock split of the Company's Common Stock for holders of record on
June 2, 1997. All share information in note 11 and per share data
are restated to retroactively reflect the split.
The Company will adopt SFAS No. 128, "Earnings per Share,"
effective with the first quarter of fiscal year 1998. The adoption
of this statement should not materially impact the Company's
financial statements.
(i) Stock-Based Compensation
Prior to November 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price. On November 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for
employee stock option grants made in 1997 and future years as if
the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion 25 and provide the disclosure provisions
of SFAS No. 123.
F-10
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies and Operations, continued
(j) Reclassifications
Certain prior year amounts have been reclassified to conform with
the current year's presentation.
(3) Related Party Loan and Notes Receivable
On April 12, 1990, four individuals, including the former Chairman of the
Board and 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, 1992-1994 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 extended the initial installment date for the General
Counsel to begin on July 15, 1997. No payments were made during the year
ended October 31, 1997. The debt is collateralized by a lien on the
134,591 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 Corp. 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-11
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Related Party Loan and Notes Receivable, continued
The Company was indebted in the amount of $358,754 to the General Counsel
and his law firm at October 31, 1997. In 1996, accrued legal fees are
classified as a long-term liability. During 1997, the General Counsel and
his law firm authorized the Company to set off accrued legal fees against
the note receivable from the General Counsel at such time as the Board of
Directors shall determine. Accordingly, accrued legal fees are presented
as a reduction of note receivable from General Counsel at October 31,
1997.
On December 29, 1995, the Company transferred a life insurance policy,
covering the life of its president, to the president in exchange for a
note receivable. The amount of the note receivable from president 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 following presents notes receivable and accrued interest at October
31, 1997 which are included as a reduction of stockholders equity:
General Counsel, net of accrued legal fees $ 360,967
President 245,759
Others 86,688
Reserve (86,688)
-------------
$ 606,726
=============
The statement of operations includes interest income on officer and
director notes receivable of $50,383 and $47,359 for 1997 and 1996,
respectively. Legal expenses to the General Counsel and his law firm were
$96,288 and $105,231 for fiscal 1997 and 1996, respectively.
(4) Inventories
Inventories consisted of the following:
1997 1996
---- ----
Finished products $ 291,409 326,358
Work in process 506,095 1,347,229
Raw materials 1,581,774 1,488,621
------------- --------------
$ 2,379,278 3,162,208
============= ==============
F-12
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
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, 1997, 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. No charges were
made to income during the year ended October 31, 1997.
(6) Property, Plant and Equipment
The following is a summary of property, plant and equipment, at cost,
less accumulated depreciation:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 75,000 75,000
Buildings and improvements 2,264,675 2,264,675
Machinery and equipment 1,070,989 1,112,161
Vehicles 181,330 181,330
------------- -----------
3,591,994 3,633,166
Less accumulated depreciation and amortization 1,370,226 1,104,523
------------- -------------
$ 2,221,768 2,528,643
============= =============
</TABLE>
F-13
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Property, Plant and Equipment
Depreciation expense was $265,606 and $258,475 in 1997 and 1996,
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 $46,439 is included in
depreciation expense.
(7) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Term note payable to bank, at prime rate, due in equal monthly
installments of $9,028, plus interest,
through August 2002 $ 523,611 631,944
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 May 7, 1998 626,652 531,652
Term note payable to Appling County, Georgia at 4.0%,
due in monthly installments of $3,417, including
interest through July 2003 210,324 242,222
------------- -------------
1,360,587 1,405,818
Amounts classified as current 1,183,461 1,195,494
------------- -------------
$ 177,126 210,324
============= =============
</TABLE>
The bank's prime rate at October 31, 1997 was 8.5%. 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.
F-14
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Long-Term Debt, continued
The Company violated certain financial covenants of the above debt
agreement. 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.
For the period ending October 31, contractual maturities are as follows:
1998 $ 768,182
1999 142,883
2000 144,291
2001 145,756
2002 129,225
Beyond 30,250
-------------
$ 1,360,587
(8) Capital Lease
During 1996, International Press and Shear (IPS) 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.
F-15
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Capital Lease, continued
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, 1997:
1998 $ 73,618
1999 73,618
2000 73,618
2001 73,618
2002-2011 604,367
-------------
Total net minimum lease payments 898,839
Less amounts representing interest (197,271)
-------------
Present value of net minimum obligations 701,568
Less current portion (15,522)
-------------
Long-term obligations $ 686,046
=============
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 $59,337 and $32,658 for the period
ending October 31, 1997 and 1996, respectively.
The cost, accumulated amortization and net book value of equipment under
capital lease at October 31, 1997 are shown below. Cost represents the
Company's direct investment in the facility.
Cost $ 1,359,189
Accumulated amortization (90,086)
-------------
Net book value $ 1,269,103
=============
(9) 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.
F-16
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Contingent Liabilities and Commitments, continued
Other: The Company has an employment agreement with its president for a
term of five years commencing on September 15, 1996. Annual compensation
pursuant to the contract is $150,034, increased by 5% per year. 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 (see note 3).
Subsequent to October 31, 1997 the Company guaranteed a note payable in
the amount of $35,123. The note is secured by equipment and matures June
1, 1999.
(10) Income Taxes
The differences between the federal statutory tax rate and the Company's
effective rate are as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
<S> <C> <C>
Federal income tax benefit at statutory rate $ (95,800) (43,600)
State income tax benefit, net of
federal income tax effect (10,100) (3,000)
Other 8,900 (4,400)
Change in valuation allowance, net of correction
to prior years' deferred taxes 97,000 493,000
------------- -------------
Provision (benefit) for income taxes $ - 442,000
============= =============
</TABLE>
The Company files consolidated federal and state income tax returns with
its subsidiaries.
F-17
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Income Taxes, continued
The net change in the total valuation allowance for the year ended
October 31, 1997 was an increase of $208,000. 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,
1997 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Reserves and allowances $ 236,000 242,000
Property, plant and equipment 87,000 60,000
General business credit carryforward 37,000 41,000
Net operating loss carryforward 752,000 578,000
Other 111,000 94,000
------------- -------------
1,223,000 1,015,000
Valuation allowance 1,223,000 1,015,000
------------- -------------
$ - -
============= =============
</TABLE>
Net operating loss carryforwards for tax purposes are approximately
$2,000,000, which expire in years 2007 through 2012. IBC has general
business credit carryforwards of approximately $36,000, which expire in
the years 1997 through 2000. The Company has an Alternative Minimum Tax
Credit carryforward of approximately $30,000.
(11) 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, nonqualified stock options and 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 2,000,000 shares after
adjustment for the stock split in 1997 of the Company's common stock (the
Common Stock).
The Purpose of 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.
F-18
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Stock Options, continued
The maximum number of shares as to which options may be granted under the
1995 Plan (subject to adjustment as described below) is 2,000,000 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 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 1,760,000 non-qualified stock
options to purchase 1,760,000 shares of the Company's common stocks at
prices ranging from $.75 to $1.00 per share, respectively. 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 antidilutive rights in the event of a split, reverse split,
or recapitalization and are exercisable in whole or in part through 2002.
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 550,000
and 700,000 non-qualified stock options, respectively, to purchase
550,000 and 700,000 shares, respectively, of the Company's common stock
at $.50 per share. The options have antidilutive rights in the event of a
split, reverse split or recapitalization and are exercisable in whole or
in part through March 2003 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, 1997 are
50,000 and 200,000, respectively.
F-19
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Stock Options, continued
In 1993, the board of directors granted 130,000 options to a creditor in
satisfaction of a liability. The options are exercisable at $.8125, the
market value of the Company's stock at the date of the grant, and vested
upon issuance. The options have antidilutive rights in the event of a
split, reverse split or recapitalization and are exercisable in whole or
in part through December 1998.
A summary of the status of the Company's stock options is presented
below:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
------ --------------
<S> <C> <C>
Outstanding, October 31, 1996 and 1995 2,140,000 $ .8922
Granted 75,000 .8125
Options of subsidiary exchanged for options
on company stock 59,612 .6165
Canceled or surrendered (76,000) .5000
-------------
Outstanding, October 31, 1997 2,198,612 .9123
============= ========
Shares exercisable 1,407,212 $ .8885
============= ========
</TABLE>
The outstanding stock options at October 31, 1997, have an exercise price
ranging from $.50 to $1.00 per share and a remaining contractual term
ranging from one to six years. The fair value of the options granted
during 1997 is not considered material to the Company's financial
statements. The full impact of calculating compensation cost for stock
options under SFAS No. 123 is also not provided because compensation cost
is reflected over the options' vesting period and compensation cost for
options granted prior to November 1, 1996 is not considered.
(12) 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 made no
contributions to the plan in 1997 or 1996.
F-20
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Export Sales
Export sales were approximately 22% and 15% for the years ended October
31, 1997 and 1996, respectively. 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%.
(14) Purchase of Minority Interest in IBC
Effective June 27, 1997, the Company issued 219,401 shares to acquire an
additional 8.4% interest in International Baler Corp. (IBC). The
transaction has been accounted for as a purchase. Accordingly, the excess
minority interest liability recorded by the Company over the market value
of the shares issued of approximately $111,000 was recorded as a
reduction of machinery and equipment. The Company expects to purchase the
remaining minority interest of IBC during 1998 by issuing additional
common shares.
F-21
<PAGE>
DISTRIBUTORSHIP AGREEMENT
between
DryVac Environmental, Inc.
And
Solid Waste and Recovery Systems, Inc.
DryVac Environmental, Inc., hereinafter referred to as the "Company" and Solid
Waste and Recovery Systems, Inc., hereinafter referred to as the "Distributor",
in consideration of the promises made herein and intending to be legally bound,
agree as follows:
ARTICLE 1. RECITALS
Section 1.01. The Company is a corporation duly organized validly existing, and
in good standing under the laws of the State of Nevada, with corporate power to
own property and carry on its business as it is now being conducted. The Company
has its principal office and place of business at 101 Front Street, Rio Vista,
California.
Status of Distributor
Section 1.02. The Distributor is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Florida, with corporate
power to own property and carry on its business as contemplated by this
Agreement. Distributor has its principal office and place of business at 5400
Rio Grande Ave., Jacksonville, Florida 32254.
Company Business
Section 1.03. The Company is engaged in the manufacture and sale or leasing
(hereinafter collectively "sale" or "sales") of dewatering equipment and related
parts and other products from time to time manufactured and sold under the trade
name "DryVac" (collectively "Products").
Facilities, Ability, and Desire to Be Distributor
Section 1.04. (a) The distributor represents that it possesses the technical
facilities and ability to promote the sale and use of the Products manufactured
by the Company and is desirous of developing demand for and selling or leasing
such Products on an exclusive basis in the territory hereinafter described. (b)
Company is desirous of having Distributor develop demand for and sell or lease
its Products in such territory on the terms and conditions set forth herein.
1
<PAGE>
ARTICLE 2. DISTRIBUTORSHIP
Exclusive Appointment
Section 2.01. (a) The Company appoints the Distributor as the exclusive
wholesale distributor for the sale and/or leasing of its Products at retail
within the territory described in applicable Exhibit(s) attached hereto and made
a part hereof. The territory so described, and as may be subsequently enlarged,
reduced, or otherwise changed in area with the mutual consent of the parties
hereto, is hereinafter sometimes referred to as the "territory". (b) During the
continuance of this Agreement, the Company shall not appoint any other or
different person, firm, or corporation to sell the same products in the
territory, except as set forth in Section 3.15.
Section 2.02. The Company reserves the right to establish national accounts or
OEM's. The Company reserves the right to sell directly to these accounts. The
Distributor shall be notified of the existence of these accounts; the current
accounts are described in the applicable Exhibit(s). The commissions allotted to
the Distributor for these sales will be determined for each individual sale or
through an addendum to this agreement.
Acceptance
Section 2.03. The Distributor accepts the appointment to develop demand for and
to sell Company Products within the territory and will make all sales hereunder
in accordance with this Agreement. Distributor agrees not to purchase, sell,
promote, take on consignment, inventory, or otherwise distribute any product
which may, in the sole opinion of the Company, directly or indirectly compete
with the Company's Products.
Section 2.035. In the case of any products that the Company may hereafter
manufacture and sell which may be in conflict with or competitive to the
products of other manufacturers then being distributed by the Distributor, the
Distributor reserves the right by written advice to the Company to exclude such
Company products from the scope of this Agreement and thereby to consent to
their sale by others in the territory covered.
Term
Section 2.04. This Agreement shall continue in full force for the period of one
year from the date of this Agreement and, unless either of the parties hereto
has given to the other party written notice of its election to terminate this
Agreement at least Ninety (90) days prior to the end of any one year period,
thereafter for successive periods of one year each.
2
<PAGE>
ARTICLE 3. OPERATIONS
Acceptance of Orders; Filling
Section 3.01. (a) All orders the Company receives for its Products from the
Distributor are subject to acceptance by Company. All orders shall be made
pursuant to written Purchase orders in a form as shall be agreed by the parties.
All orders which result from purchases by end users shall also be evidenced by a
fully executed written contract in A form as shall be provided by the Company.
The terms of this Agreement and those of the Purchase Agreement shall control,
in all such events, the sale of Products by Company to Distributor and the terms
of any sales order, Purchase Order, or other document by Distributor shall be of
no force or effect. (b) The Company will use its best efforts to fill the
accepted orders as promptly as practicable, subject, however, to delays caused
by government orders or requirements, transportation conditions, labor or
material shortages, strikes, riots, fires, or any other cause beyond the
Company's control. In all cases, the company will use its best efforts to advise
the Distributor in advance of any inability to make full and timely delivery of
any products which the distributor has previously ordered.
Sales Subject to Company Quotation
Section 3.02. All sales of Products governed by this Agreement shall be subject
to the terms and conditions of a Company quotation. The Company shall have the
right to discontinue or change the production capabilities. Depending upon the
end user's needs, the Products may be sold in any one or a combination of the
following ways: product sales without installation; a total installed
("Turnkey") sale; installed unit plus a training program; and leasing or
rentals. Any of these sales possibilities will be quoted by the Company through
the Distributor. Sales will be developed directly by the Company or the
distributor or both.
Payment
Section 3.03. (a) The Distributor shall pay the Company for its Products the
Distributor's net price f.o.b. Rio Vista, California, according to the schedule
of prices as set forth in applicable Exhibit(s) attached hereto and incorporated
herein by this reference. (b) The Company may change the schedule of prices at
any time, but will give the Distributor 30-day notice prior to any price
increases. The Distributor shall have the benefit of any price reduction. (c)
Unless otherwise stated in applicable Exhibit(s) attached hereto and
incorporated herein by this reference, the Distributor shall pay the Company for
Products in full prior to delivery without offset, deduction, or withholding of
any kind. Any taxes in the Territory applicable to the goods provided or
services performed under this Agreement shall be paid by end user or
Distributor. If such terms do not require payment in full before shipment, then
distributor may, at the request of Company, be required to promptly execute any
agreements, instruments, or other documents necessary for creation and
perfection of a security interest in Company's favor for the Product sold to
secure full payment to Company by end user or Distributor. Any failure to make
any payment in full
3
<PAGE>
when due to Company or any failure to execute any document as required by
Company in connection with the sale of Products shall be a material breach of
this Agreement.
Initial Purchase
Section 3.04. Distributor shall initially purchase the Company's Products in the
quantities and for the prices set forth in applicable Exhibit(s) attached hereto
and incorporated herein by this reference which shall evidence a purchase order
for said initial purchase. Said purchase order shall be separately executed by
the parties in the form as set forth in applicable Exhibit(s).
Retention of Title as Security for Performance
Section 3.06. The Distributor shall be liable for payment of the purchase price
of any products covered by this Agreement pursuant to Section 3.02 hereinabove;
however, where applicable, until the purchase price has been paid in cash, title
to the Products shall remain in the Company; but such products, after delivery,
shall be at the risk and expense of the Distributor as to loss, destruction, or
damage, and taxes and charges of every kind. In the event that the Distributor
resells and delivers any of the Products prior to payment therefor, title to the
purchase price received by the Distributor shall be in the Company until the
full purchase price due the Company has been paid.
Further Security
Section 3.07. When Distributor is the purchaser and upon Company's request,
Distributor shall sign or cause to be signed all financing statements,
guarantees, and/or other instruments, agreements, and documents including but
not limited to UCC-1 financing statements that Company deems necessary to the
preservation and/or creation of Company's security interests, or to the
assurance of payment of any indebtedness or obligation due to Company by
Distributor. In addition, Distributor shall promptly notify Company should any
condition, act, or occurrence, imperil Company's security in said production or
indebtedness.
Section 3.08. When distributor acts as a sales representative, and upon
Company's request, Distributor shall use its best efforts to sign or cause to be
signed all financing statements, guarantees, and/or other instruments,
agreements, and documents including but not limited to UCC-1 statements that
Company deems necessary to the preservation and/or creation of Company's
security interests, or to the assurance of payment of any indebtedness or
obligation due to Company by the buyer. In addition, Distributor shall promptly
notify Company should any condition, act, or occurrence imperil Company's
security in said production or indebtedness.
Distributor's Efforts, Facilities, and Personnel
Section 3.08. The Distributor will use his best efforts to promote demand for
and sale of the Company's Products and will maintain adequate facilities and
sales, service, and field engineering personnel for the purpose. The Distributor
shall provide a technical support team trained by the Company to perform
installation, training and warranty work.
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Place of Business, Display Room, and Service Department
Section 3.09. The Distributor shall maintain a place of business, display room,
and service department satisfactory to the Company at all times, and the Company
shall have the right at all reasonable times during business hours to inspect
the place of business, display room, and service department. The Distributor
shall use and maintain a prospect generation and management program such as ACT
software and shall provide Requests for Proposals ("RFP") development assistance
as requested by prospects.
Service Obligations
Section 3.10. Installation Service. Distributor is required to have the
capability to correctly and timely install each Product sold by Distributor.
Section 3.11. Machine Start-Up Service and Training. Distributor is obligated to
perform machine Start-Up Service and Training for each product sold by
Distributor as well as for the Products not sold by Distributor but used within
the Territory. In the case the Distributor is not the Selling party, the selling
party and the Distributor will mutually agree upon the cost of the Start-Up
Service and Training prior to final quotation to the End User.
Section 3.12. Warranty Service. Distributor is obligated to provide Warranty
Service for each product sold by Distributor in the territory and for the
products not sold by Distributor but used within the Territory, with
compensation by Company as specified in applicable Exhibit(s). Warranty Service
shall be approved in writing by the Company prior to performance, using the
applicable exhibit.
Section 3.13. General Service. At the End User's request and expense,
Distributor is required to have the capability and to provide "breakdown"
maintenance service at the end user's expense for each Product sold by
Distributor or otherwise used within the Territory. Such service must be
provided in a manner meeting the requirements of the end user, consistent with
the service standards set forth in the applicable industrial standards for the
work being performed.
Section 3.14. Payment for Warranty Service. Company shall pay Distributor for
service performed in accordance with the foregoing within thirty (30) days of
Distributor's invoice therefore rendered after such services are completed to
Company's and End User's reasonable satisfaction. The rates to be paid to
Distributor for such warranty services are set forth in a separate written
agreement. All other service charges shall be charged by the Distributor or
Company, as the case maybe, directly to the End User. Failure to receive prior
written approval by the Company per Section 3.12 can be cause for non-payment of
the warranty services.
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Appointment of Dealers, Salesmen, or Other Representatives
Section 3.15. (a) The Distributor shall work and develop the territory to the
satisfaction of the Company, and in doing so shall utilize Distributor's best
dealers, salesmen, or other representatives to sell the Company's products. (b)
The Distributor shall file with the Company a copy of each agreement entered
into with such dealers, salesmen, or other representatives defining the
territory to be served, which agreements shall be on appropriate forms supplied
by the Company or as the parties may agree. The Distributor shall honor the
agreements, as set forth in the applicable Exhibit(s), between the Company and
the Sales Representatives established in the Distributor's territory prior to
this agreement. Termination of these agreements must have the Company's
approval. (c) Upon expiration or prior termination of any such agreement for any
cause, the Distributor shall furnish the company with notice thereof in order
that the Company's field personnel records will be up to date at all times. (d)
The Distributor shall represent the Products at all relevant trade shows within
the Territory and such other venues as the parties may agree. (e) The
Distributor shall provide assistance in procuring performance bonds as required
by any project.
Installation and Maintenance Service
Section 3.16. (a) The Distributor shall provide and maintain at its own expense
an efficient installation and maintenance service on all of the Company's
Products installed in the territory, in accordance with instructions issued from
time to time by the Company. (b) The Distributor shall (1) use his best efforts
and influence to enforce the wiring of buildings and the making of installations
in conformity with Underwriters Rulings and the National Code; (2) see that all
necessary repairs to and replacements of Company's Products are promptly and
properly made; and (3) use every reasonable effort to maintain a standard of
service consistent with policy of the Company. (c) In connection with the
maintenance of service on the Company's Products, the Distributor shall maintain
service vehicles adequate for the installed base of Products and shall carry in
stock an adequate quantity of repair and replacement parts, as the Company
stipulates. In stipulating the quantity of parts to be carried in stock, the
Company will be governed by the number of Products in the Distributor's
territory to be serviced. The Company shall have the right at any reasonable
time during business hours to inspect and check over Distributor's stock of
parts and, if in the Company's judgment a sufficient quantity of parts for
repair and replacement purposes are not then in the Distributor's stock, the
Distributor shall promptly order such parts as the Company recommends.
Freight and Installation Charges
Section 3.17. The Distributor may charge to and collect from each person to whom
he sells products acquired hereunder the following items:
(a) Freight charges as paid by him.
(b) Installation charges, to be set forth on the invoice which he renders
to the purchaser.
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Return of Products or Service Parts for Repair or Credit
Section 3.18. (a) Unless the Company shall have authorized or permitted the
return of any products or parts, the Company shall not be obligated to accept
from the Distributor by products or parts returned, nor to make any exchange
thereof, nor to credit the Distributor therefor. (b) Except in the case of
damage or defect attributable to the company, the Distributor shall not make any
claim against the Company for any damaged or defective product or part.
Common Carriers Agents of Distributor
Section 3.19. Whenever the company shall deliver or cause to be delivered to a
common carrier any goods ordered by the Distributor, whether the particular
carrier shall have been designated in the shipping or routing instructions of
the Distributor or not, the Company shall not be responsible for any delays or
damages in shipment and the common carrier, to which the Company shall deliver
goods shipped to the Distributor, is declared to be the agent of the
Distributor.
Report of Sales
Section 3.20. In order to enable the Company to have a complete record of all
Products sold, the Distributor shall furnish the Company weekly, or at such
intervals as the Company and the Distributor shall otherwise agree, a Prospect
contact list as well as a report of all sales of the Company's Products in the
territory.
Suggested Sales Price on Resale of Products
Section 3.21. The Company shall furnish to the Distributor a current list of
suggested retail prices for all of the Products of the Company. However, the
Distributor is under no obligation to sell the Products of the Company at the
prices specified in the price list nor any other price suggested by the Company.
Demonstrating Equipment
Section 3.22. The Distributor shall purchase and maintain at the expense of the
Distributor, at the expense of the Distributor, the demonstration units
scheduled in applicable Exhibit(s) attached hereto and incorporated herein by
this reference to be used for demonstration purposes in the territory of the
Distributor and such other dealer, salesman, or representative. The Company
shall not be liable for any expense in connection with the use or servicing of
any such unit.
Change of Design
Section 3.23. The Company reserves the right to change the design of any product
or part thereof at any time without notice to the Distributor. If any such
change is made, the Company may, but shall not be obligated to, make the change
upon any products or parts shipped thereafter on the orders of the Distributor,
nor shall the Company be obligated to make a similar change on any products or
parts previously shipped to the Distributor, or to install or furnish any other
or different parts than were thereon when shipment was
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made. The Company will make a best effort to notify the Distributor 30 days
prior to any design change affecting price or function.
Right to Use Name
Section 3.27. (a) Subject to the provisions of Subsection (b) and the prior
written approval of the Company, the Distributor may non-exclusively use the
name "DryVac" as applied to Company Products in any sign, advertising,
promotion, sale, lease, or servicing, during the continuance of this Agreement
and any use of the name "DryVac" by the Distributor shall only insure to the
Company's benefit. (b) In case of termination of this Agreement or upon request
of the Company, the Distributor shall forthwith discontinue use of such name in
any sign or advertising and thereafter shall not use the name directly or
indirectly in connection with its business, nor use any other name, title, or
expression so nearly resembling it as would be likely to lead to confusion or
uncertainty or to deceive the public. Upon Company's request. Distributor will
do such reasonable additional acts and execute such documents as Company, in its
sole discretion, deems necessary or desirable to relinquish and cancel any
rights which Distributor may acquire in any Mark as a result of this Agreement.
No DryVac or related Tradename or Trademark shall register in the Territory
without the prior written consent of the Company.
Proprietary Information
Section 3.28. Neither Distributor, nor Distributor's sub Distributor's, Agents,
employees, representatives, servants, or Distributor's third party contractors
shall use, cause to be used, share, disclose, transfer any Company proprietary
information, tradenames, trademarks, trade secrets, patent pending, or any other
confidential information or materials (collectively "Proprietary Information")
nor shall Distributor give, assign, or otherwise transfer or permit third
parties to receive any such Proprietary Information except in the strict
performance of Distributor's duties, obligations, and rights as set forth in
this Agreement. Information also includes but is not limited to: Distributor Net
Prices; customer or prospect lists, suppliers lists, distributor Sales Manual,
this Agreement, Distributor's Annual Sales Plan, Product details, pricing,
Company's business, the marketplace, competitors, etc; provided that such
confidential information shall not include information which is rightfully
generally public information supplied by a third party having the right to do
so. Upon the termination of this Agreement for any reason, Distributor will
return all Company confidential information to Company and cease using the same,
and, Distributor's obligations of confidentiality and non-use shall survive any
expiration, termination of amendment to this Agreement. All information that
Company has in its possession relating to Distributor's client lists and trade
secrets, shall likewise, be kept confidential by Company.
Catalogs and Advertising Matter
Section 3.29. The Company shall furnish to the Distributor from time to time as
they are prepared by the Company a reasonable quantity of its catalogs and other
advertising matter for use by the Distributor for display or mailing in the
advertising of Company Products. The Distributor will participate in cooperative
advertising and other promotional programs adopted by Company from time to time
in the Territory as set forth
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in the Distributor Policy Manual or other such documentation that Company may
use for such purposes, and pay a share of costs in connection with such
cooperative advertising as shall be agreed by Company and Distributor.
Insurance
Section 3.31. Distributor shall obtain and maintain insurance where applicable
(and when required by Federal, State, or local law) in types and amounts
customary in the trade of wholesale distribution of goods, comparable to
Products, including but not limited to: products liability, product replacement,
public liability fire, theft and vandalism coverage, premises liability,
automobile and worker's compensation coverage for all liabilities or potential
liabilities of Distributor relating to Products, including but not limited to:
Distributor's Warranty Service and/pr any modifications to Products by
Distributor. Distributor shall, on written request from Company, provide Company
written descriptions of the types and amounts of insurance in effect from time
to time together with such other information relating to Distributor's insurance
as Company may reasonably request. As to those Products with respect to which
Distributor acts as a sub-contractor to Company. Distributor will name Company
on its insurance policies as an "additional insured" relating to the Sale and/or
service of Products, as well as on all liability policies. Distributor shall
insure all Products during shipments to Distributor and/or end user at
Distributor's expense.
Notice of Safety Instructions
Section 3.32. Communicate to distributor's agents, employees, representative,
servants, third party contractors, and end users all warnings, safety
instructions, and notices regarding Product safety that Company may from
time-to-time require to be so communicated by Distributor.
Observance of Laws
Section 3.33. Comply with all laws and regulations applicable to Distributor's
business as well as those relating to distribution of Products and maintain all
necessary licenses and permits with respect to Distributor's business.
Distributor shall use Company's Products for lawful purposes.
Bonding
3.34. If an end user or potential end user of the Company products requires
bonding and the Distributor elects to have the Company bid directly for the sale
of the products, the Distributor shall cooperate with the Company's efforts to
acquire the required bonding. When bonding is required, the cost of the bonding
will be discussed for each individual occurrence.
Performance
Section 3.35. At the written request of the Company, provide satisfactory
guarantees of Distributor's performance of its obligations under this Agreement
by executing such documents as Company may require.
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Sale of By-Products
Section 3.36. Distributor shall promote, and sell the resultant by-products
created by the operation of Company Products to third parties for profit. These
by-products or remanufactured raw materials may be marketed and sold outside the
Territory.
Section 3.37. Distributor shall adhere to and perform all responsibilities of a
Company distributor set forth in the Distributor Policy Manual.
Section 3.38. Distributor will be provided access to any new products resulting
from continued Company research and development that are related to, relevant
to, an improvement of, or a logical extension of the existing product line.
Section 3.39. Distributor shall have no power or right to quote the final price,
establish sales or installation terms, determine product size, or contractually
bind Company in a sale of Products when Distributor acts as a representative in
a sale to a third party. In such a sale, Company will provide Distributor with a
final not-to exceed price quotation.
Section 3.40. Distributor will have the right to assemble any product, shipped
in part or in total by Company once Company has inspected Distributor's assembly
line and is satisfied that it meets all Company's standards.
Section 3.41. From time to time distributor may, with prior written authority
from Company, sell into a territory without a distributor. In such case, all
acts, rights, and responsibilities of Distributor will be governed by this
Agreement. Any and all sub-Distributor's appointed by Distributor shall be
approved by Company and agreed to in writing by Company prior to documents
authorizing use of trademarks, tradenames, and use of Proprietary Information
being in effect for sub-Distributor.
ARTICLE 4. COMPANY'S RESPONSIBILITIES
Company's Duties
Section 4.01; The Company's responsibilities, shall include, but not be limited
to the following:
(a) Produce products that meet committed performance standards.
(b) Provide installation, operating, and repair training and manuals in
English for translation (where necessary) and use by Distributor's technicians.
Distributor shall be wholly responsible for the translation and its
consequences.
(c) Pay Distributor for warranty work within thirty (30) days of
invoice.
(d) Provide for sales and project quotations within two (2) weeks of
written requests.
(e) Quote jobs through the Distributor in the manner requested by the
end users in accordance with the end user's needs as long as with the policies
as set by Company.
(f) Protect project pricing for the duration and terms of the sales
quotation.
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(g) Provide all necessary system sizing and engineering support to
integrate the Products into the sales prospect's existing system.
(h) Provide for delivery cycles not to exceed those quoted to any other
domestic distributor or sub-distributor.
(i) Suggest and assist with lead development through either
co-operative advertising, trade shows, and/or public relations.
(j) Provide sale tools and marketing support through cooperative
programs with the Distributor.
ARTICLE 5. TERMINATION
Right of Company to Cancel
Section 5.01. In case of the incapacity, death, or insolvency of the
Distributor, or in case an application is made to have the Distributor declared
bankrupt, or in case a receiver or trustee is appointed for the Distributor. The
Distributor has 30 days to resolve the situation to the Company's satisfaction.
If the situation is not resolved to the Company's satisfaction it may at its
option terminate this Agreement without any notice to the Distributor.
Termination by Either With or Without Cause
Section 5.02. The Company may terminate this Agreement for failure of the
Distributor to meet or abide by the provisions of the Agreement. If the Company
elects to terminate, it shall give ninety (90) days written notice of such
election to the Distributor during which time the Distributor may cure any
curable default otherwise the Agreement shall terminate without further notice.
Active prospecting outside the Territory without the prior express, written
permission of Company is grounds for loss of Distributor's exclusivity in the
Territory and is not subject to cure.
Applicability of Terms after Termination
Section 5.04. In the event of termination, this Agreement shall remain
applicable to any orders for Products which the Distributor has previously
placed and to any other orders which may be executed within ninety (90) days
subsequent to the effective date of termination except that the distributorship
shall become non-exclusive upon the receipt of notice of termination for cause,
uncured within said thirty (30) days.
Repurchase of Products on Termination
5.05. In the event of the termination of this Agreement by either party for any
reason, the Company may at its sole option repurchase from Distributor at the
fair market value, any Company Products and repair and replacement parts on hand
in the Distributor's place of business or in the possession of the Distributor.
On demand and the tender of the repurchase price, the Distributor shall be
obligated to deliver such goods to the Company forthwith. The Company reserves
the right, however, to reject any product, or repair or replacement part not in
first-class condition.
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Uninstalled Products on Termination
Section 5.06. In case of the termination of this Agreement by either party for
any reason and any Products have been sold but not yet installed, the Company
may install the products and charge all expenses to the Distributor's account,
to be deducted at time of final settlement.
Subrogation on Termination
Section 5.07. In case this Agreement shall be terminated for any reason, the
Company shall there upon at its option be subrogated immediately to any
agreements, rights, and relations of the Distributor with dealers, salesmen, or
other representatives appointed by the Distributor hereunder with regard to the
sale of Company Products and service parts, and all such agreements shall
contain a clause to make this provision effective in favor of the Company when
this Agreement shall be terminated.
ARTICLE 6. INTERPRETATION AND ENFORCEMENT
Notices
Section 6.01. Any notice, request, demand, or other communication required or
permitted hereunder shall be deemed to be properly given when personally served
or three (3) days after being deposited in the United States mail, postage
prepaid, or one (1) day after being fared, addressed:
(a) In the case of the Company, to Dan Simpson, President, DryVac, Inc.,
101 Front Street, Rio Vista, California 94571 and Robert K. Lane, 388
Seventeenth Street, Suite 250, Oakland, California 94612 or to such other person
or address as the Company may from time to time furnish in writing to the
Distributor.
(b) In the case of the Distributor, to Jan Randolph, General Manager, Solid
Waste and Recovery Systems, Inc., 5400 Rio Grande Ave., Jacksonville, Florida
32254 or to such other person or address as the Distributor may from time to
time furnish in writing to the Company.
Distributor Not Agent or Legal Representative
Section 6.02. This Agreement does not constitute the Distributor the employee,
agent, partner, joint venturer, franchisee, or legal representative of the
Company for any purpose whatsoever. The Distributor is and independent
contractor and is not granted any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of
the Company or to bind the Company in any manner. Distributor shall have the
sole right and obligations to control the manner in which it performs its duties
under this Agreement, subject to no control by Company except as otherwise
expressly provided in this Agreement. Distributor shall be solely responsible
for all of its costs and expenses in any way relating to this Agreement and for
the profitability or lack thereof, of its business.
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Warranty
Section 6.03. In connection with the sale of Products, Company provides a
limited warranty according to the Product involved in the form as is set forth
on applicable Exhibit(s) attached hereto. Company reserves the right to revise
its limited warranties from time to time. SUCH WARRANTY SHALL BE THE ONLY
WARRANTY MADE OR DEEMED TO BE MADE TO ANY PERSON BY COMPANY AND IS EXPRESSLY IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO MERCHANTABILITY. FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, THE REMEDIES SET FORTH IN SUCH LIMITED WARRANTY SHALL BE THE
ONLY REMEDIES AVAILABLE TO DISTRIBUTOR. SUB-DISTRIBUTOR OR ULTIMATE CUSTOMER OR
PERSON ARISING OUT OF THE SALE OF PRODUCTS BY COMPANY. Distributor shall not
have any authority to bind Company to any other representation or warranty. In
no event shall any warranty provided by Company apply to any Product that has
been modified by Distributor or any party, from standard Company specifications.
Distributor shall indemnify and hold Company harmless, including reasonable
attorney's fees and expert witness fees from and against any claim, demand,
action, cost, or liability of any nature arising from or relating to any Product
which has been altered in any way by or for Distributor or end user from Company
specifications.
Commission Due
Section 6.04. No commission, percentage of gross profit, or other compensation
(collectively "compensation") due Distributor as a result of any sale to an end
user shall be payable until and unless the Company has received and cleared full
payment for the Product(s) involved from the end user.
Notice of Claims
Section 6.05. (a) If during the term of this Agreement the Distributor shall
have reason to believe it has any claim against the Company in respect of any
transaction growing out of this Agreement, it shall notify company in writing
with ten (10) days after it knows or has reason to know the basis of any such
claim. (b) Failure to give the notice prescribed by Subsection (a) shall relieve
the Company from all liability on any claim in respect to any transaction
growing out of this Agreement. (c) The provisions of this section shall survive
the termination of any other portions of this Agreement.
Breach
Section 6.06. Should either party determine that there has been a breach of any
of the provisions of this contract, they shall notify the other party in writing
within ten (10) working days of such determination. The notification shall
specify the nature of the breach and ask for immediate cure. The party receiving
notification shall acknowledge receipt of the notice, in writing, within ten
(10) working days and state its intention to remedy the breach. Thereafter, the
party in breach shall have ninety (90) calendar days to
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correct the breach or present a plan, acceptable to both parties, specifying the
actions to be taken to correct the breach.
No Liability
Section 6.07. If either Company or Distributor terminates or fails to renew this
Agreement in accordance with its terms, neither Company nor Distributor shall be
liable merely by reason of such termination or failure to renew for:
compensation, reimbursement, or damages of any kind, consequential or otherwise,
whether on account of expenditures, investments, business losses or loss of
goodwill claimed by the other party.
Except as otherwise specifically set forth in this Agreement: Company shall
have no liability for any expenditure made, or loss of income incurred, by the
Distributor in the performance of Distributor's obligations under this
Agreement. Distributor further acknowledges and agrees that Company shall not be
liable to Distributor for any post-termination or post non-renewal payments or
financial penalties arising strictly out of the termination of this Agreement by
Company in accordance with the terms hereof. The Distributor shall hold the
Company harmless from any and all claims brought by the end user for which the
Distributor is responsible including payment of all Company's attorney's fees,
expert witness fees and costs.
Completeness of Agreement
Section 6.08. This Agreement contains all of the agreements, understandings,
representations, conditions, warranties, and covenants made between the parties
hereto. Unless set forth herein, neither party shall, be liable for any
representations made, and all modifications and amendments hereto must be in
writing and executed by all parties. All prior negotiations, discussions and
meeting regarding the terms of this Agreement are hereby merged and integrated
into this Agreement. This Agreement supersedes any and all prior distributor or
other agreements between agreement are contractual and any breach of this
agreement is deemed material.
Waiver
Section 6.09. The failure of either party at any time to require performance by
the other party of any provision hereof shall not affect in any way the full
right to require such performance at any time thereafter. Nor shall the waiver
of either party of a breach of any provision hereof be taken or held to be a
waiver of the provision itself.
Controlling Law
Section 6.10. The validity, interpretation, and performance of this Agreement
shall be controlled by and construed under the laws of the State of California
and venue for any litigation, contractual or in tort, shall be in the County of
Alameda, City of Oakland. It is understood, however, that this is a general form
of agreement, designed for use in the United States wherever the Company may
desire to sell its products and that any
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provision herein which in any way contravenes the substantive laws of any state
or jurisdiction shall be deemed not to be a part of this Agreement therein.
Section 6.11. The prevailing party in any legal proceeding whether in contract
or tort, shall be entitled to an award of reasonable attorney's fees, expert
witness fees, and costs incurred, whether incurred as a result of negotiations,
litigation, arbitration or otherwise.
Binding Agreement
Section 6.12. This Agreement shall be binding upon the parties and their
respective successors and assigns, included but not limited to mergers and
acquisitions, except that the Distributor may not transfer or assign this
Agreement or any right or obligation hereunder without the prior written consent
of Company.
Further Assurances
Section 6.13. At any time, and from time to time each party will execute such
additional instruments and take such action as may be reasonably requested by
the other party to carry out the intended purposes of this Agreement.
Cumulative Rights
Section 6.14. All remedies, rights, undertakings, obligations, and agreements
contained in this Agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation, or agreement of
either party.
Severability
Section 6.15. If any provision hereof as applied to either party or to any
circumstance shall be adjudged by a court to be void or unenforceable, the same
shall in no way affect any other provisions hereof, the application of such
provisions in any other circumstances or the validity or enforceability hereof.
Counterparts
Section 6.16. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
Notice
Section 6.17. Any change in address shall be communicated to the other party
within seven (7) working days. Any notice required to be given by either party
in connection with this Agreement shall be in writing and delivered personally
or deemed delivered by registered or certified mail or via overnight package
express to the party or parties to be so notified, as follows,
Dan Simpson, President
DryVac Environmental, Inc.
101 North Front Street
Rio Vista, California 94571
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Robert K. Lane
R. Kingsbury Lane, Inc.
388 Seventeenth Street
Suite 250
Oakland, California 94612 3335
Ambiguities
Section 6.18. Ambiguities shall not be construed against the draft or of this
Exhibits
Section 6.19. Any and all Exhibits attached to or referred to in this Agreement
are hereby incorporated herein.
Section 6.20. Each of the undersigned warrant that they are authorized, duly
empowered, and directed to execute this agreement on behalf of the entity
indicated.
IN WITNESS HEREOF, DryVac Environmental, Inc., as Company and Solid Waste
Recovery Systems, Inc., as Distributor have caused this Agreement to be duly
executed by their authorized officers as of the day and year first written above
and as acknowledged and notarized by their signatures below.
Executed on ______________________, 1998, at Rio Vista, California.
COMPANY: DryVac Environmental Co., Inc.
By:_________________________________
Daniel J. Simpson, President
DISTRIBUTOR: Solid Waste Recovery Systems, Inc.
By:_________________________________
By:_________________________________
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EXHIBITS
Territory
1. The territory shall consist of: the counties in Florida, north of and
including Hillsborough, Polk, Orange, Seminole, and Volusia; the counties
in Georgia, south of and including McIntosh, Wayne, Appling, Bacon, Coffee,
Irwin, Tift, Worth, Dougherty, Calhoun, and Clay. See the attached map.
For the nine months following the signing of this agreement, the
Distributor has the exclusive right to pursue sales at the following
locations:...........This right automatically becomes void at the end of
nine months unless extended in writing by the Company.
National Accounts
2. There currently are no national accounts in the established territory. The
Company reserves the right to modify this list.
Discount/Commission Schedule
3. The discount/commission schedule is as follows:
Quoted Amount % Discount/Commission
------------- ---------------------
$0-$250,000 18
$250,001-$500,000 15
$500,001-$1,000,000 13
$1,000,001-$2,000,000 11
$2,000,001-$3,000,000 9
Over $3,000,000 7
Discounts/Commissions will be earned on the incremental sales
amounts (i.e. a $350,000 sale would earn 18% on the first
$250,000 and 15% on the remaining $100,000).
For sales involving a third party in addition to the Company and the
Distributor, the dispersement of the discount/commission between the
Distributor and a third party shall be made as the two parties agree.
The split would normally be 50/50. The total discount/commission will
not exceed the average percentage of the discount/ commission rates for
the Distributor and the third party.
When equipment prices need to be discounted due to the competitive
nature of the sale, the Company and the Distributor will agree to
sharing of the discount. This will normally be shared equally by the two
parties.
17
<PAGE>
[GRAPHIC]
Map of the U.S. omitted
<PAGE>
Payment
4. When purchasing a unit directly from the Company, the schedule of payments
by the Distributor is a 50% deposit at time of order and 50% due prior to
shipment. Each payment shall include the discount applicable to the portion
of the payment. When payments are being made by the end user, the terms
shall be 50% deposit at time of order, 40% prior to shipment and 10% within
30 days of shipping. For system greater than 50 cubic feet, the terms shall
be 25% deposit at time of order, 25% at completion of manufacturer's
preliminary project drawings, 40% prior to shipment and 10% within 30 days
of shipping. When payments are made by the end user, commissions shall be
made in accordance with Section 6.04 of the main document.
Initial Purchases
5. As a minimum, the Distributor agrees to purchase a standard one cubic foot
trailer-mounted DryVac unit at a cost of $40,000.00. The required 50%
deposit shall be presented at the signing of this agreement unless a
separate financial agreement is made.
Warranty
6. The DryVac plates have a limited warranty for five years per the attached.
Other system components manufactured by DryVac have a warranty of one year.
System components purchased from a manufacturer have the warranty stated by
the manufacturer. The Company shall compensate the Distributor for warranty
work performed on Company components. The Company shall not compensate the
Distributor for warranty work performed on system components from other
manufacturers.
Sales Representatives
7. There are no previously established Sales Representatives in the stated
territory.
18
<PAGE>
Robert K. Lane
R. Kingsbury Lane, Inc.
388 Seventeenth Street
Suite 250
Oakland, California 94612 3335
Ambiguities
Section 6.18. Ambiguities shall not be construed against the draft or of this
Exhibits
Section 6.19. Any and all Exhibits attached to or referred to in this Agreement
are hereby incorporated herein.
Section 6.20. Each of the undersigned warrant that they are authorized, duly
empowered, and directed to execute this agreement on behalf of the entity
indicated.
IN WITNESS HEREOF, DryVac Environmental, Inc., as Company and Solid Waste
Recovery Systems, Inc., as Distributor have caused this Agreement to be duly
executed by their authorized officers as of the day and year first written above
and as acknowledged and notarized by their signatures below.
Executed on 1-23-98, 1998, at Rio Vista, California.
COMPANY: DryVac Environmental Co., Inc.
By: /s/ Daniel J. Simpson
------------------------------------------
Daniel J. Simpson, President
DISTRIBUTOR: Solid Waste Recovery Systems, Inc.
By: /s/ Ted C. Flood
----------------------------------
By: /s/ Jane M. Randolph
----------------------------------
16
<PAGE>
Exhibit 21
List of Subsidiaries
Name State Of Incorporation
International Baler Corp. Delaware
Waste Technology Leasing Corp. Delaware
Waste Technology Acquisitions Corp. Delaware
Consolidated Baling Machine Co., Inc. Florida
Solid Waste & Recovery Systems, Inc. Florida
Waste Tech Real Estate Corp. New York
Consolidated Baler Sales & Service Inc. New York
International Press and Shear Corp. Georgia
<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>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 80,783
<SECURITIES> 0
<RECEIVABLES> 2,105,435
<ALLOWANCES> 86,000
<INVENTORY> 2,379,278
<CURRENT-ASSETS> 4,557,321
<PP&E> 3,591,994
<DEPRECIATION> 1,370,226
<TOTAL-ASSETS> 6,855,109
<CURRENT-LIABILITIES> 3,412,839
<BONDS> 0
0
0
<COMMON> 57,461
<OTHER-SE> 2,311,315
<TOTAL-LIABILITY-AND-EQUITY> 6,855,109
<SALES> 12,530,973
<TOTAL-REVENUES> 12,530,973
<CGS> 9,802,477
<TOTAL-COSTS> 12,700,045
<OTHER-EXPENSES> (89,652)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,234
<INCOME-PRETAX> (281,654)
<INCOME-TAX> 0
<INCOME-CONTINUING> (281,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (281,654)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
