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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, 1998 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: $11,999,311.
State the aggregate market value of the voting stock held by
nonaffiliates (based on the closing price on January 22, 1999 of $0.1875):
$1,034,315.
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 22, 1999): 5,516,349.
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"), 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. The last minority shareholders' shares of IBC stock were acquired in
January 1998. As a result, the Company is now the sole shareholder of IBC.
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
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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 Tech. In January 1998 SWRS entered
into an exclusive 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
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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 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,
1997 and 1998.
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
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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, 1997 and 1998.
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
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
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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 eight (8) employees who rely upon responses to 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 1998 foreign
sales amounted to $1,900,000 or approximately 16% of consolidated sales. In
fiscal 1997 foreign sales amounted to $2,000,0000, also 16% of consolidated
sales.
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During fiscal 1998, 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, 1999.
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, 1998 was $1,805,210 as compared with $3,309,600 at
December 31, 1997. 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
1998 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 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.
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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.
Employees
As of December 31, 1998, the Company employed 84 persons as follows: 11
in management and supervision; 12 in sales and service; 53 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
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denied, and although discovery proceedings were commenced by the plaintiff, no
action has been taken in this case for several years.
(ii) Gould and GGC, Inc.
The Company and one of its directors, Morton S. Robson, are
named as defendants 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 has made a motion for summary
judgment dismissing the complaint which has been fully submitted. As of this
date, the Court has not yet heard argument of the Company's motion.
(iii) L & A Contracting Company
On June 5, 1998, a judgment (the "Judgment") was
rendered against the Company's former wholly owned subsidiary, Ram Coating
Technology Corporation ("Ram"), and Transamerica Premier Insurance Corporation
("Transamerica") in the amount of $360,194 in favor of L & A Contracting Company
in the 19th Judicial District Court of the State of Louisiana in the case of L &
A Contracting Company v. Ram Industrial Coatings, Inc., et al., Case No.
382,924, Division F. Transamerica had issued a performance and payment bond (the
"Bond") for Ram in connection with the contract which was the subject of the
action and which was the basis of the Judgment against Ram. The Company had
agreed to indemnify Transamerica for any payments it was required to make
pursuant to the Bond. As a result of this indemnification agreement, the Company
is liable to Transamerica for the amount of the Judgment. The Company believes
that the Court was in error in rendering the Judgment and intends to appeal. The
Company's management believes that its appeal is meritorious and will be
successful.
IBC Litigation
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(i) Wilson
Plaintiff, Ritchie Wilson, 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. The
Company recently settled this case for the sum of $80,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Waste Tech was held on May
28, 1998.
(b) Robert Roth and William Nielsen 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: 4,387,826 votes for Robert
Roth and 76,975 withheld; and, 4,395,180 for William Nielsen and 69,624
withheld.
(c) The next item of business was a proposal to authorize the Board of
Directors of the Company to approve a 2:1 reverse stock split of the Company's
Common Stock, if in its discretion such action was appropriate. The results of
the voting were as follows: 4,154,325 votes for the resolution; 289,573 votes
against; and, 20,907 votes abstained. The Board of Directors did not enact the
reverse stock split in 1998.
(d) The next item of business was the proposal to ratify the
appointment of KPMG LLP, the independent certified public accountants of the
Company, for fiscal 1998. The results of the voting were as follows:
4,437,091 votes for the resolution,
11,224 votes against and
16,489 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 was traded on The Nasdaq Stock Market, Small
Cap, under the symbol WTEK until January 7,1999 when the Company's stock was
delisted because the Company failed to meet the net tangible assets, market
capitalization, net income and bid price and market float requirements of
NASDAQ. The Company's stock is presently traded on the OTC Bulletin Board of the
NASD under the symbol WTEK. As of December 31, 1998, the number of shareholders
of record of the Company's Common Stock was approximately 800, and management
believes that there are approximately 1,800 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 1998 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, 1998
First Quarter 11/16 1/2
Second Quarter 15/16 1/2
Third Quarter 1 3/32 1/2
Fourth Quarter 3/4 7/16
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
The Company has paid no dividends since its inception. Other
than the requirement of the Delaware Corporation law that dividends
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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.
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 1998 consolidated sales were $11,999,311 compared to
consolidated sales of $12,530,973 for fiscal 1997, a decrease of 4.2%. The
decrease in sales was the result of lower shipments of certain specialty balers
offset by increased shipments of balers to the recycled products markets. Sales
in fiscal 1997 decreased $1,431,930, 10.4% due to lower shipments to the
recycled products markets which was attributable to lower prices in that market
for most of the year.
The Company had a net loss of $1,385,328 for fiscal 1998 as compared to
a loss of $281,654 in fiscal 1997. The 1998 loss included the recording of a
reserve for a judgement of $495,000 including interest thereon related to the
Company's former subsidiary, Ram Coating Technology, Inc. This judgment is being
appealed. Excluding the judgment, the Company lost $608,674 more than it lost in
fiscal 1997 due to lower shipments of specialty balers in fiscal 1998. Gross
profit as a percentage of sales also declined due to the lower sales of
specialty balers, primarily rubber balers.
Operating expenses for fiscal 1998 were up by $73,631, 2.5% over fiscal
1997. However, in the fourth quarter of 1998 the Company effectuated significant
cost reductions which will exceed $500,000 on an annual basis. These cost
cutting measures include personnel eliminations, salary reductions and
advertising reductions. Operating expenses were down by $608,754 in fiscal 1997
versus 1996 due to reductions in selling expenses of $429,712 and administration
expenses of $179,042.
For fiscal 1998 and 1997, the Company, and particularly its new plant
in Baxley, Georgia, did not achieve its expected sales
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levels due to continuing depressed sales of corrugated cardboard balers because
of the low market prices 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.
The Company has introduced new textile balers, new corrugated balers and has
been marketing a new patented hinge side baler. The Company anticipates that
these products will have a significant impact on sales in fiscal 1999.
Financial Condition
Working capital decreased from $1,559,730 at October 31, 1997 to
$32,866 at October 31, 1998. This decrease is due to the overall operating
results of 1998 and the accrued legal judgement of $495,000.
The entire balance of the line of credit is included as a current
liability even though it is not due to be renewed or replaced until July 31,
2000 because of the nature of this type of loan. The revolving note payable to
SouthTrust in the amount of $1,000,000 was replaced with a Foothill Capital
Corporation line of credit of $2,000,000. This line of credit is for a period of
two years, accrues interest at 1 1/2% above the prime rate and is secured
primarily by accounts receivable and inventories.
The term note with SouthTrust Bank had a balance of $415,278 at October
31, 1998 and is due in equal monthly installments of $9,028, plus interest at
the prime rate to August 2002.
The Company also entered into an agreement 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.
Our auditors, KPMG LLP, have stated in the "Report of Independent
Accountants" for October 31, 1998 to the shareholders of Waste Technology
Corporation that there is "substantial doubt" about the Company's ability to
continue as a going concern. The Company's Management and Board of Directors has
substantial concern over recent operating performances, however, it believes
that it has several viable options to continue as a going concern for the
following reasons:
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1. The Company has replaced the $1,000,000 revolving
promissory note with SouthTrust Bank with a $2,000,000 (maximum) revolving
promissory note with a term of two years. Therefore, the Company is no longer in
violation of the SouthTrust revolving promissory note loan covenants.
2. The Company has taken certain actions to reduce operating
costs including the elimination of personnel, implementing salary reductions for
management, and cutting expenditures wherever possible. These cost cutting
actions should result in annual savings in excess of $500,000 and were
implemented in the fourth quarter of fiscal 1998. The Company is also developing
additional contingency plans to further reduce costs in order that the Company
can operate profitably in the future and have positive cash flow from operations
at a minimum.
The Company has no commitments for any material capital expenditures.
Other than as set forth above, there are no unusual or infrequent events or
transactions or significant economic charges which materially affect the amount
of reported income from continuing operations.
The above contains forward looking statements and is subject to many
variables over which the Company has no control such as inflation, competition,
and the general market conditions for its products. Therefore the Company may
have to consider additional financing and/or operating alternatives to insure
the Company will continue as a going concern.
Year 2000 Compliance:
The Company believes it has fully achieved Year 2000 compliance for all
internal systems. Costs associated with compliance were immaterial and have been
fully incurred. The Company is in the process of examining key vendor and
customer relationships to determine, to the extent practical, the degree of such
parties' Year 2000 compliance.
Should a key vendor or customer have a systems failure due to the
century change, the Company believes that the most significant impact would
likely be the inability to receive inventory on a timely basis. While the
Company does not expect any such impact to be material, it is developing
contingency plans to address this possibility.
Inflation
The costs of the Company and its subsidiaries are subject to the
general inflationary trends existing in the general economy.
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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, would
have caused them to make reference to the subject matter of the disagreement in
connection with its report
14
<PAGE>
(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 now known as KPMG 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 furnished the Company
with a letter addressed to the Securities and
15
<PAGE>
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 S. 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 1998 Annual Alan Morrison
Stockholder's Meeting Charles S. Wildes
(to be held in 1999)
Class II 1999 Annual Morton S. Robson
16
<PAGE>
Stockholder's Meeting Ted C. Flood
Class III 2000 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 68, 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 75, 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. Robson has been the senior partner of
the law firm of Robson & Miller, LLP (and its predecessor firms), which acts as
general
17
<PAGE>
counsel to the Company. Mr. Robson obtained an LLB degree from St. John's
University School of Law.
Alan Morrison, age 72, 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 41, 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 73, 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 51, 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 Barnum 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 $100,000 per annum for
services rendered in all capacities to the Company and its subsidiaries during
fiscal
18
<PAGE>
years ended October 31, 1998, October 31, 1997 and October 31, 1996(1):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Awards
=============================================================================================================
Name and Year Salary Bonus Other Annual Number All Other
Principal Position ($) ($) Compensation of Compensation
($) Options
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ted C. Flood, 1998 186,854(2) -0- -0- -0- -0-
Chief Executive
Officer and 1997 180,750(3) -0- -0- -0- -0-
President of
Company and IBC 1996 190,422(4) -0- -0- -0- -0-
=============================================================================================================
</TABLE>
No director of the Company received remuneration for services as a
director during Fiscal 1998.
The following table sets forth certain information relating to stock
option grants during Fiscal 1998 to the Company's Chief Executive Officer and
each of the Company's most highly compensated executive officers whose
compensation exceeded $100,000 for Fiscal 1998:
- --------
(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 1998, Robson & Miller, LLP received $65,758
from Waste Tech for legal services rendered. As of the end of Fiscal 1998
accrued but unpaid legal fees and accrued interest due to Robson & Miller, LLP
from Waste Tech amounted to $394,375. 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 $160,730 in compensation from IBC during the fiscal year
ended October 31, 1998 and $26,124 from Consolidated during that period.
(3) 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.
(4) 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 $26,082 from Consolidated during that
period.
19
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individualized Grants
- ------------------------------------------------------------------------------------------------------
======================================================================================================
Name Number of Securities Percent of Total Exercise or Expiration
Underlying Options/SARs Base Price Date
Options/SARs Granted to ($/Sh)
Granted (#) Employees in Fiscal
1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ted C. Flood -0- NA NA NA
======================================================================================================
</TABLE>
No options were exercised during Fiscal 1998 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 1998.
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 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
20
<PAGE>
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, 1998 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:
21
<PAGE>
Amount of
Name and Address of Beneficial Approximate
Beneficial Owner Ownership(5) Percent of Class
Ted C. Flood 1,166,939(6) 21.2%
5400 Rio Grande Avenue
Jacksonville, Fla. 32254
Morton S. Robson 586,854(7) 10.6%
666 Third Avenue--18th Fl.
New York, N.Y. 10017--4011
Alan Morrison 240,000(8) 4.4%
875 E. Camino Real,
Apt. 10-C
Boca Raton, Fla. 33432
Robert Roth 3,300(9) Less than 1%
Georgetown Electric, Ltd.
Unit 17, 2501 W. Third Street
Wilmington De., 19805
William E. Nielsen 232,006(10) 4.2%
- ---------------------
(5) 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.
(6) Consists of 640,572 shares held directly and, 526,367 shares owned by
the Waste Technology Corp. Employees Profit Sharing Trust of which Messrs.
Flood, Robson and Morrison are Trustees.
(7) 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.
(8) 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.
(9) Excludes an aggregate of 315,358 shares held by family members.
22
<PAGE>
5400 Rio Grande Avenue
Jacksonville, Fla. 32254
Charles S. Wildes 392,000(11) 7.1%
396 Frost Industrial Blvd.
Baxley, Ga. 31513
All Officers and
Directors as a
Group (6 persons) 2,936,437(12) 53.2%
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
- -------------------
(10) Consists of 182,006 shares held directly and options to purchase
50,000 shares.
(11) 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.
(12) 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).
23
<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 has advanced funds to pay six premiums
on the policy each in the amount of $20,000. Mr. Flood has executed six
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
24
<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 1998. 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 1998, the
Company owed Mr. Robson's law firm the sum of $394,375 for legal fees and
accrued interest. 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, 1998 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 $758,184.
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 1998, Robson & Miller, LLP
received $65,758 from Waste Tech as payment for legal services rendered. As of
the end of fiscal 1998 accrued but unpaid legal fees and accrued interest due to
Robson & Miller, LLP, from the Company amounted to $394,375. 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
25
<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 to it from the Company at that time.
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.
26
<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.
27
<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.
28
<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.
29
<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
30
<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
31
<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:
21 List of Subsidiaries
32
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Financial Statements
October 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report 1
Consolidated Balance Sheets as of October 31, 1998 and 1997 2-3
Consolidated Statements of Operations for the years ended
October 31, 1998, and 1997 4
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 1998, and 1997 5
Consolidated Statements of Cash Flows for the years ended
October 31, 1998, and 1997 6-8
Notes to Consolidated Financial Statements 9
<PAGE>
Independent Auditors' Report
To the Board of Directors
Waste Technology Corp.:
We have audited the accompanying consolidated balance sheets of Waste
Technology Corp. and Subsidiaries as of October 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended October 31, 1998 and 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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, 1998 and 1997 and the results of their
operations and their cash flows for the years 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 1 to
the financial statements, the Company has suffered recurring losses from
operations and has limited availability of capital, which raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
December 18, 1998
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1998 and 1997
1998 1997
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 69,349 80,783
Accounts receivable, net of allowance for
doubtful accounts of $138,000 and $86,000
for 1998 and 1997, respectively 1,576,722 2,019,435
Inventories (note 4) 2,681,288 2,379,278
Prepaid expenses and other current assets 822 77,825
------------ ------------
Total current assets 4,328,181 4,557,321
------------ ------------
Property, plant and equipment, net (note 5) 2,057,089 2,221,768
Other assets:
Due from officer (note 3) 300,082 245,759
Other assets 98,611 76,020
------------ ------------
Total other assets 398,693 321,779
------------ ------------
Total assets $ 6,783,963 7,100,868
============ ============
See accompanying notes to consolidated financial statements.
2
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Revolving promissory note (note 6) $ 1,220,555 626,652
Current portion of long-term debt and capital lease
obligation (notes 7 and 8) 159,757 157,054
Accounts payable 1,276,045 1,343,922
Accrued liabilities 588,053 442,912
Accrued legal judgment (note 9) 495,000 --
Customer deposits 555,905 427,022
----------------- -----------------
Total current liabilities 4,295,315 2,997,562
----------------- -----------------
Long-term debt (note 7) 449,519 592,403
Obligation under capital lease, less current maturities (note 8) 669,175 686,046
Minority interest in equity of subsidiary (note 14) -- 210,322
----------------- -----------------
Total liabilities 5,414,009 4,486,333
----------------- -----------------
Stockholders' equity (notes 3, 11 and 14):
Common stock, $.01 par value; 25,000,000 shares authorized,
6,179,875 and 5,996,081 shares issued and outstanding in
1998 and 1997, respectively 61,799 59,961
Preferred stock, $.0001 par value; 10,000,000 shares
authorized, none issued -- --
Additional paid-in capital 6,347,187 6,205,436
Accumulated deficit (4,255,917) (2,870,589)
----------------- -----------------
2,153,069 3,394,808
Less Treasury stock, 663,526 shares in 1998 and
1997, at cost 419,306 419,306
Less notes receivable from stockholders, net (note 3) 363,809 360,967
----------------- -----------------
Total stockholders' equity 1,369,954 2,614,535
----------------- -----------------
Commitments and contingencies (note 9)
Total liabilities and shareholders' equity $ 6,783,963 7,100,868
================= =================
</TABLE>
3
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended October 31, 1998, and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net sales (note 13) $ 11,999,311 12,530,973
Cost of sales 9,826,994 9,802,477
------------- -------------
Gross profit 2,172,317 2,728,496
------------- -------------
Operating expenses:
Selling 1,334,762 1,143,881
General and administrative 1,636,457 1,753,687
------------- -------------
2,971,219 2,897,568
------------- -------------
Loss from operations (798,902) (169,072)
------------- -------------
Other income (expense):
Interest 66,255 65,581
Provision for legal judgment (note 9) (495,000) --
Other 63,758 7,383
Interest expense (221,439) (202,234)
------------- -------------
(586,426) (129,270)
------------- -------------
(1,385,328) (298,342)
Minority interest in loss of consolidated subsidiary -- 16,688
------------- -------------
Loss before income taxes (1,385,328) (281,654)
------------- -------------
Income tax provision (note 10):
Current -- --
Deferred -- --
------------- -------------
-- --
------------- -------------
Net loss $ (1,385,328) (281,654)
============= =============
Basic and diluted loss per share $ (0.25) (.06)
============= =============
Weighted average number of shares 5,475,171 4,939,832
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
Par Value $.01 Authorized
25,000,000 Shares Treasury Stock
---------------------- ---------------------- Notes
Number Additional Number Receivable
of Shares Par Paid-in Accumulated of from
Issued Issued Capital Deficit Shares Cost Stockholder Totals
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996 2,888,340 $ 28,884 6,065,106 (2,588,935) 331,763 $ (419,306) (681,261) 2,404,488
Two-for-one stock split 2,888,340 28,883 (28,883) -- 331,763 -- -- --
Net adjustment of note receivable
from stockholders (note 3) -- -- -- -- -- -- 320,294 320,294
Shares issued (note 14) 219,401 2,194 169,213 -- -- -- -- 171,407
Net loss -- -- -- (281,654) -- -- -- (281,654)
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Balance, October 31, 1997 5,996,081 59,961 6,205,436 (2,870,589) 663,526 (419,306) (360,967) 2,614,535
Net adjustment of note receivable
from stockholders (note 3) -- -- -- -- -- -- (2,842) (2,842)
Shares issued (note 14) 183,794 1,838 141,751 -- -- -- -- 143,589
Net loss -- -- -- (1,385,328) -- -- -- (1,385,328)
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
Balance, October 31, 1998 6,179,875 $ 61,799 6,347,187 (4,255,917) 663,526 $ (419,306) (363,809) 1,369,954
========== ========== ========== ========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1998, and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,385,328) (281,654)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 210,481 271,873
Provision for doubtful accounts (52,000) (5,000)
Minority interest in loss of subsidiary -- (16,688)
(Increase) decrease in assets and liabilities:
Accounts receivable 442,713 (603,479)
Inventories (302,010) 782,930
Prepaid expenses and other current assets 77,003 (34,617)
Other assets (93,868) 2,914
Accounts payable (67,877) 312,698
Accrued liabilities and legal judgment 640,143 (12,314)
Customer deposits 128,883 (256,302)
----------- -----------
Net cash provided by (used in) operating activities (401,860) 160,361
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years ended October 31, 1998, and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flow from investing activities:
Net investment in notes receivable from shareholders $ (2,842) (90,383)
Purchase of property and equipment (28,583) (69,683)
Purchase of minority interest (15,000) --
----------- -----------
Net cash used in investing activities (46,425) (160,066)
----------- -----------
Cash flow from financing activities:
Proceeds/drawings from long-term debt and
revolving promissory note 4,857,689 2,010,000
Payments on long-term debt, revolving promissory
note and capital leases (4,420,838) (2,069,512)
----------- -----------
Net cash provided by (used in) financing activities 436,851 (59,512)
----------- -----------
Net decrease in cash and cash equivalents (11,434) (59,217)
Cash and cash equivalents at beginning of year 80,783 140,000
----------- -----------
Cash and cash equivalents at end of year $ 69,349 80,783
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 201,660 179,650
=========== ===========
Cash paid for income taxes $ -- --
=========== ===========
</TABLE>
Supplemental disclosure of noncash transactions:
During 1998 and 1997, the Company exchanged 183,794 and 219,401 shares,
respectively, of common stock for the remaining minority interest in
equity of subsidiary (note 14).
During 1997, the Company transferred a life insurance policy to its president,
who is also a director, in exchange for a note receivable of $193,836
which represents the cash surrender value of the policy at date of
transfer, plus premiums paid and interest.
7
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(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 a significant cause of the consolidated losses in
both 1998 and 1997. These losses occurred primarily as a result of the
continuing depressed recycled products markets, as well as higher than
anticipated costs of sales and selling and administrative expenses. In
the fourth quarter of 1998 the Company effectuated significant cost
reductions which will exceed $500,000 on an annual basis. These cost
cutting measures include personnel eliminations, salary reductions and
advertising reductions.
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 could rise in the relatively near future
with a resulting increase in sales and profits. The Company has
introduced new textile balers, new corrugated balers and has been
marketing the new patented hinge side baler. The Company anticipates
that these products will have a significant impact on sales in fiscal
1999.
The Company has replaced the $1,000,000 revolving promissory note with
SouthTrust Bank with a $2,000,000 (maximum) revolving promissory note
with a term of two years. Therefore, the Company is no longer in
violation of the SouthTrust revolving promissory note loan covenants.
The Company has no commitments for any material capital expenditures.
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.
(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.
8
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(b) Minority Interest
Minority interest at October 31, 1997 represents the minority
stockholders' proportionate share of the equity of
International Baler Corp. (IBC). During 1998, the Company
issued shares to acquire the remaining minority interest of
IBC. The Company owns 100% and 94.2% of the outstanding
shares of IBC, its primary operating subsidiary, at October
31, 1998 and 1997, respectively.
(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) Cash and cash equivalents
For purposes of cash flows, cash and cash equivalents include
cash on hand, bank demand accounts and money market accounts
having original maturities of less than three months.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost
is determined by a method that approximates the first-in,
first-out method.
(f) 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.
The Company evaluates its long-lived assets for impairment
when indicators of impairment are present and undiscounted
cash flows estimated to be generated by those assets are less
than the assets' carrying value.
9
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(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
The Company adopted SFAS No. 128, "Earnings per Share,"
during the first quarter of fiscal year 1998. The adoption of
this statement did not effect the Company's earnings per
share.
Basic earnings (loss) per share is calculated using the
weighted average number of common shares outstanding during
each year. Diluted earnings (loss) per share includes the net
number of shares that would be issued upon the exercise of
stock options using the treasury stock method. 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.
(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.
10
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(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 years ended October 31, 1998 or 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. 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.
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, notes receivable from the General Counsel, net
of accrued legal fees, are presented as a reduction of stockholders'
equity.
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 the 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 note receivable from the president was $300,082 and
$245,759 at October 31, 1998 and 1997, respectively.
11
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
Notes receivable and accrued interest due from the general counsel,
net of accrued legal fees, of $363,809 is included as a reduction of
stockholders equity at October 31, 1998.
The statement of operations includes interest income on officer and
director notes receivable of $52,785 and $50,383 for 1998 and 1997,
respectively. Legal expenses to the General Counsel and his law firm
were $65,758 and $96,288 for fiscal 1998 and 1997, respectively.
(4) Inventories
Inventories consisted of the following:
1998 1997
------------- -----------
Finished products $ 522,929 291,409
Work in process 643,170 506,095
Raw materials 1,515,189 1,581,774
------------- -----------
$ 2,681,288 2,379,278
============= ===========
(5) Property, Plant and Equipment
The following is a summary of property, plant and equipment, at cost,
less accumulated depreciation:
1998 1997
----------- ----------
Land $ 75,000 75,000
Buildings and improvements 2,264,729 2,264,675
Machinery and equipment 1,106,416 1,070,989
Vehicles 170,697 181,330
----------- -----------
3,616,842 3,591,994
Less accumulated depreciation
and amortization 1,559,753 1,370,226
----------- -----------
$ 2,057,089 2,221,768
=========== ===========
Depreciation expense was $193,262 and $265,606 in 1998 and 1997,
respectively. Included in buildings and improvements at October 31,
1998 and 1997 are assets recorded under a capital lease in the amount
of $1,359,190. Amortization of the assets under capital lease in the
amount of $43,926 is included in depreciation expense.
12
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(6) Revolving Promissory Note
The Company has a $2,000,000 line of credit with $1,220,555
outstanding at October 31, 1998. The line of credit is secured by
substantially all assets. Advances under the revolving line are
limited to the aggregate of up to 85% of eligible accounts receivable
less than 90 days old and 30% of eligible raw materials and finished
goods inventory. As of October 31, 1998, the balance of the revolving
line approximated the maximum borrowing capacity available to the
Company. The revolving line bears interest at the prime rate plus 1.5%
(9.5% at October 31, 1998) with the principal amount payable on
demand.
The above line of credit replaced a $1,000,000 revolving promissory
note payable with $626,652 outstanding as of October 31, 1997. The
note payable was paid in full in July 1998.
(7) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Term note payable to bank, at prime rate, due in equal monthly
installments of $9,028, plus interest, through August 2002,
secured by substantially all assets $ 415,278 523,611
Term note payable to Appling County, Georgia at 4.0%,
due in monthly installments of $3,417, including
interest through July 2003 177,127 210,324
---------- ----------
592,405 733,935
Amounts classified as current 142,886 141,532
---------- ----------
$ 449,519 592,403
========== ==========
</TABLE>
Based on recent negotiations with financial institutions the Company's
debt substantially approximates fair value, except for the term note
payable to Appling County due to the nature of the instrument.
The term note payable to bank contains 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.
13
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
The Company violated the debt to net worth financial covenant of the
above term note as of October 31, 1998. The lender has waived this
covenant violation. There is no assurance that the lender will provide
future waivers should the Company continue to experience covenant
violations. If such events occurred and the lender called the debt,
management would be required to obtain alternative financing sources.
For the period ending October 31, contractual maturities are as
follows:
1999 $ 142,886
2000 144,291
2001 145,757
2002 129,217
2003 30,254
Thereafter --
-------------
$ 592,405
=============
(8) Capital Lease
During 1996, International Press and Shear (IPS) entered into a
capital lease agreement for its manufacturing facility.
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, 1998:
1999 $ 73,618
2000 73,618
2001 73,618
2002 73,618
2003-2011 530,749
----------
Total net minimum lease payments 825,221
Less amounts representing interest 139,175
----------
Present value of net minimum obligations 686,046
Less current portion 16,871
----------
Long-term obligations $ 669,175
==========
14
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
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 $58,096 and $59,337 for the
period ending October 31, 1998 and 1997, respectively.
The cost, accumulated amortization and net book value of the
manufacturing facility under capital lease at October 31, 1998 are
shown below. Cost represents the Company's direct investment in the
facility.
Cost $ 1,359,190
Accumulated amortization (134,012)
----------
Net book value $ 1,225,178
==========
(9) Contingent Liabilities, Commitments and Year 2000 Compliance
Litigation: The Company is subject to legal proceedings and claims
which arise in the ordinary course of business, some of which are
substantial. 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, except for the legal judgment discussed below, 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.
The Company is a defendant in a suit against its former subsidiary,
RAM Coating Technology Corporation (RAM), claiming breach of contract.
In September 1998, a judgment against the Company and RAM's former
insurance carrier, was given in the amount of $250,194 in damages,
$110,000 in attorney's fees, all costs of proceedings, plus interest.
The total amount of the legal judgment, including interest, of
$495,000, is reflected on the balance sheet at October 31, 1998. The
Company has filed a devolutive appeal, with a decision expected in
late 1999 or early 2000. The Company will continue to vigorously
defend the action.
Other: The Company has an employment agreement with its president for
a term of five years commencing on October 1, 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.
15
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
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).
The Company is a guarantor of a note payable in the amount of $35,123.
The note is secured by equipment and matures June 1, 1999.
Year 2000 Compliance: The Company believes it has fully achieved Year
2000 compliance for all internal systems. Costs associated with
compliance were immaterial and have been fully incurred. The Company
is in the process of examining key vendor and customer relationships
to determine, to the extent practical, the degree of such parties'
Year 2000 compliance.
Should a key vendor or customer have a system failure due to the
century change, the Company believes that the most significant impact
would likely be the inability to receive inventory on a timely basis.
While the Company does not expect any such impact to be material, it
is developing contingency plans to address this possibility.
(10) Income Taxes
The differences between income taxes as provided at the federal
statutory tax rate of 34% and the Company's effective rate are as
follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
----------- -----------
<S> <C> <C>
Federal income tax benefit at statutory rate $ (471,000) (95,800)
State income tax benefit, net of
federal income tax effect (50,300) (10,100)
Other 20,400 8,900
Change in valuation allowance, net of correction
to prior years' deferred taxes 500,900 97,000
------------ -----------
Provision (benefit) for income taxes $ -- --
============ ===========
</TABLE>
The Company files consolidated federal and state income tax returns
with its subsidiaries.
16
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
The net change in the total valuation allowance for the years ended
October 31, 1998 and 1997 was an increase of $500,000 and $208,000,
respectively. Realization of net deferred tax assets is dependent on
generating sufficient taxable income in the future. Based on current
and anticipated future economic conditions, management cannot
ascertain when it will become 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, 1998 and 1997 are as follows:
1998 1997
---------- ----------
Reserves and allowances $ 400,000 236,000
Property, plant and equipment 103,000 87,000
General business credit carryforward 20,000 37,000
Net operating loss carryforward 1,111,000 752,000
Other 89,000 111,000
---------- ----------
1,723,000 1,223,000
Valuation allowance 1,723,000 1,223,000
---------- ----------
$ -- --
========== ==========
Net operating loss carryforwards for tax purposes are approximately
$2,950,000, which expire in years 2007 through 2012. IBC has general
business tax credit carryforwards of approximately $20,000, which
expire in the years 1998 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 the 1995 Plan is to aid the Company in attracting and
retaining key employees, officers, directors and consultants and to
secure for the Company the benefits of the incentive inherent in
equity ownership by such persons who are responsible for causing the
Company's growth and success.
17
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
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. Outstanding options
as of October 31, 1998 are 1,614,000.
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, 1998 are 50,000 and 200,000, respectively.
18
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
A summary of the status of the Company's stock options is presented
below:
Weighted
average
Shares exercise price
------ --------------
Outstanding, October 31, 1996 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
Canceled or surrendered (259,612) .7929
------------
Outstanding, October 31, 1998 1,939,000 .9048
============ =======
Shares exercisable 1,407,212 $ .8885
============ =======
The outstanding stock options at October 31, 1998, have an exercise
price ranging from $.50 to $1.00 per share and a remaining contractual
term ranging from two to five 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 1998 or 1997.
19
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
(13) Export Sales
Export sales were approximately 16% for the years ended October 31,
1998 and 1997. The principal international markets served by the
Company, among others include Canada, China, England, India, Korea,
Japan and Thailand. 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). In
addition, effective January 22, 1998, the Company issued 183,794
shares to acquire the remaining interest in IBC. These transactions
have been accounted for as a purchase. Accordingly, the excess
minority interest liability recorded by the Company over the market
value of the shares issued was recorded as a reduction of long-lived
assets.
20
<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 27, 1999
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 27, 1999
- ---------------- Officer, and Director
Ted C. Flood
/s/ Morton S. Robson Director January 27, 1999
- --------------------
Morton S. Robson
- ----------------- Director January 1999
Alan Morrison
/s/ Charles C. Wildes Director January 27, 1999
- ---------------------
Charles C. Wildes
- ------------------- Director January , 1999
Robert Roth
/s/ William E. Nielsen Director, Principal January 29, 1999
- ---------------------- Financial and
William E. Nielsen Accounting Officer
<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-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 69,349
<SECURITIES> 0
<RECEIVABLES> 1,714,722
<ALLOWANCES> 138,000
<INVENTORY> 2,681,288
<CURRENT-ASSETS> 4,328,181
<PP&E> 3,616,842
<DEPRECIATION> 1,559,753
<TOTAL-ASSETS> 6,783,963
<CURRENT-LIABILITIES> 4,295,315
<BONDS> 0
0
0
<COMMON> 61,799
<OTHER-SE> 6,071,836
<TOTAL-LIABILITY-AND-EQUITY> 6,783,963
<SALES> 11,999,311
<TOTAL-REVENUES> 11,999,311
<CGS> 9,826,994
<TOTAL-COSTS> 12,798,213
<OTHER-EXPENSES> 364,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221,439
<INCOME-PRETAX> (1,385,328)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,385,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,385,328)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
