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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, 1999 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: $10,138,428.
State the aggregate market value of the voting stock held by
nonaffiliates (based on the closing price on January 20, 2000 of $0.23):
$722,587.00.
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 20 , 2000): 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 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.
On December 10, 1999, IPS consummated the sale of all of its tangible
and intangible assets to a newly formed Georgia corporation, IPS Balers Inc
("IPS Balers"). The principals of IPS Balers are Sidney Wildes and Forest H.
Wildes, who until their recent resignations were officers of IPS. Sidney Wildes
was also formerly a Director of the Company.
The purchase price paid by IPS Balers for IPS' assets, which include
the right to IPS' name and logo, was $800,000, $640,000 of which was paid on
closing and the balance of $160,000 is to be paid sixty (60) days from the
closing.
In addition to purchasing all of IPS' assets, IPS Balers also agreed to
assume certain of IPS' liabilities, including IPS' obligations to Appling
County, Georgia relating to the construction of the Baxley facility; to SunTrust
Bank relating to the financing of equipment; and,the obligations of IPS pursuant
to the lease for the Baxley facility.
The agreement with IPS Balers also provides that the Company will
convey and relinquish to IPS Balers all rights it had to the hinged sidewall
baling equipment previously manufactured by the Company and IPS. However, the
Company has been granted a license to manufacture for its own sales purposes
seven and eight inch bore standard hinge side closed door and open end auto tie
products in exchange for the Company's agreement to pay its proportionate share
of royalties to the holder of the patent for such equipment. The agreement
further provides that the Company and IPS Balers each will manufacture baling
presses for the other as private labeled products.
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
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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. 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 reducing volume substantially and therefore,
reduce transportation costs. 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
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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 55% of
revenues on a consolidated basis for each of the fiscal years ended October 31,
1998 and 1999.
Specialty Balers
These balers are designed for specific applications which require
modifications of the general baler configuration. The Company is attempting to
shift the emphasis in its product composition from general purpose to specialty
balers due to product profitability and broader geographic markets.
The scrap metal baler is designed to form a bale, referred to as a
scrap metal "briquet" of specified size and weight. The rubber baler is designed
to apply pressure in such a way as to compress the synthetic rubber into a
self-contained bale that does not require tying. The drum crusher baler is
capable of collapsing a standard fifty-five gallon drum into a "pancake"
approximately four (4) to eight (8) inches high, which also serves to contain
any remaining contents. The radioactive waste baler has a self-contained
ventilation system designed to filter and contain toxic dust and particles
released during compaction and baling. The textile baler is capable of
compressing and baling loose fibers, which do not ordinarily adhere to each
other under pressure. In addition, a double chamber baler has been designed for
use by the clothing and textile industries.
Specialty balers range in price from approximately $6,000 to $200,000,
and are less exposed to competitive pressures than are general purpose balers.
Specialty baler sales constituted approximately 30% of revenues on a
consolidated basis for each of the fiscal years ended October 31, 1998 and 1999.
Accessory Equipment
The Company manufactures and markets a number of accessory equipment
items in order to market a complete waste handling system. These include
conveyors, which carry waste from floor level
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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.
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. Neither IBC's,
or Consolidated's business is seasonal.
Sales and Marketing
IBC and Consolidated 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 and Consolidated are made by its sales force
of seven (7) 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 twenty-five (25%) 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
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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 1999 foreign sales amounted to $1,250,000 or approximately
12% of consolidated sales. In fiscal 1998 foreign sales amounted to $1,700,000
or approximately 16% of consolidated sales.
During fiscal 1999, 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, 2000.
The Company builds only a small quantity of balers for its inventory
and generally builds based on booked orders. The Company's backlog of firm
booked orders at December 31, 1999 was $2,540,000 as compared with $1,805,000 at
December 31, 1998. 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 and Consolidated 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 1999 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 nine (9) companies, none of which
are believed to be dominant, but some of which may have significantly greater
sales and financial resources. It should be noted that the Company will also now
be facing competition from IPS Balers which purchased the assets of its IPS
subsidiary and is geographically located in the
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same area as the Company and will be selling many of the same products as the
Company. The Company is able to compete with these companies due to its
reputation in the market place, its ability to service the balers it
manufactures and sells, as well as its ability to custom design balers to a
customer's particular needs. The Company experiences intense competition with
respect to its lower priced or general purpose balers, based upon price,
including freight, and based on performance. The Company experiences less
competition with respect to its specialized baler equipment such as rubber,
radioactive waste, scrap metal and plastic balers.
Regulation
Machinery such as the Company's balers is subject to both Federal and
state regulation relating to safe design and operation. The Company complies
with design requirements and its balers include interlocks to prevent operation
while the loading door is open, and also include required printed safety
warnings.
Employees
As of December 31, 1999, the Company employed 62 persons as follows: 7
in management and supervision; 8 in sales and service; 39 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. IBC
manufactures substantially all of the Company's products at this location.
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
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action. The Partnership purchased certain waste disposal equipment from GGC,
Inc. which did business under the name the Enterprise Company and for which the
Company acted as its marketing agent. This is the only connection between the
Partnership and the Company. Management is of the opinion that the claim
asserted against the Company is without merit and there is no reasonable
likelihood of recovery. A motion to dismiss the complaint has been denied, and
although discovery proceedings were commenced by the plaintiff, no action has
been taken in this case for many years.
(ii) 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 has filed an appeal
from the decision. The Company's management believes that its appeal is
meritorious and will be successful.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No annual meeting of the stockholders of the Company was held in fiscal
1999.
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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, 1999, the number of shareholders
of record of the Company's Common Stock was approximately 800, and management
believes that there are approximately 1,200 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, 1998 and 1999 are set forth below.
Fiscal Year Ended
October 31, 1998 High Low
First Quarter 0.6785 0.50
Second Quarter 0.9375 0.50
Third Quarter 1.0938 0.50
Fourth Quarter 0.75 0.4375
Fiscal Year Ended
October 31, 1999 High Low
First Quarter 0.5156 0.25
Second Quarter 0.25 0.1719
Third Quarter 0.2188 0.1875
Fourth Quarter 0.23 0.1875
The Company has paid no dividends since its inception. Other than the
requirement of the Delaware Corporation law that dividends be paid out of
capital surplus only, and that the declaration and payment of a dividend not
render the Company insolvent, there are no restrictions on the Company's present
or future ability to pay dividends.
The payment by the Company of dividends, if any, in the future, rests
within the discretion of its Board of Directors and
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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 1999 consolidated sales were $10,138,428 compared to
consolidated sales of $11,999,311 for fiscal 1998, a decrease of 15.5%. The
decrease in sales was primarily the result of lower shipments at the IPS
subsidiary of the large two-ram balers and the smaller vertical balers. Sales in
fiscal 1998 decreased by $531,662, 4.2%, from fiscal 1997 due to lower shipments
of certain specially balers offset by increased shipments of balers to the
recycled products markets.
The Company had a net loss of $829,852 for fiscal 1999 as compared to a
loss of $1,385,328 in fiscal 1998. For fiscal 1999 and 1998, the Company, and
particularly its plant in Baxley, Georgia, did not achieve its expected sales
levels due to continuing depressed sales of corrugated cardboard balers because
of the low market prices of used corrugated board and paper. Operating losses at
the IPS subsidiary accounted for a significant percentage of the operating
losses in fiscal 1999 and 1998. 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 judgement is
being appealed.
Operating income in fiscal 1999 was a loss of $601,986 versus a loss
from operations of $798,902 in 1998. In fiscal 1998, excluding the judgement,
the Company lost $608,674 more than it lost in fiscal 1997 due to lower
shipments of specialty balers. Gross profit as a percentage of sales declined in
1999 due to the lower sales levels that resulted in lower absorption of
manufacturing overhead. Operating expenses for fiscal 1999 were $2,240,502 which
was a decrease of $730,717 from fiscal 1998 and were the result of cost cutting
actions including personnel eliminations, salary reductions and advertising
reductions. Operating expenses for fiscal 1998 were $2,971,219 which was an
increase of$73,631 over fiscal 1997.
In December 1999 the Company sold the assets of its IPS subsidiary to
two IPS officers for $800,000 and the assumption of the subsidiary's
liabilities. With the elimination of the IPS subsidiary, the Company anticipates
that operating results should
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be significantly improved in fiscal 2000. The Company has introduced new textile
balers, new corrugated balers and has been marketing the patented hinge-side
baler. The Company anticipates that these products will also have a significant
impact on sales in fiscal 2000.
Financial Condition
Working capital decreased from $32,866 at October 31, 1998, to
$(837,546) at October 31, 1999. This decrease is due to the overall operating
results of 1999, the decrease in accounts receivable and inventories, the
increase in accounts payable, partially offset by the decrease in the line of
credit.
With some of the proceeds from the sale of the assets of IPS, the
Company has paid the outstanding balance of the loan from Foothill Capital
Corporation which had an interest rate of 14.75%. The Company is in the process
of securing a new line of credit at a more favorable interest rate.
The term note with SouthTrust Bank had a balance of $306,944 at October
31, 1999, and is due in equal monthly installments of $9,028, plus interest at
the prime rate to August 2002.
The Company's auditors, KPMG LLP, have stated in the "Report of
Independent Accountants" for October 31, 1999, 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 have 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:
1. The Company has sold the assets of its IPS subsidiary and has
substantially improved the working capital position of the
Company. This transaction has allowed the Company to pay-off
their high cost line of credit (14.75% interest) and transfer
approximately, $1,900,000 of liabilities to the buyers of the IPS
assets.
2. The Company's backlog at December 31, 1999, was approximately
$2,540,000 versus $1,805,000 at December 31, 1998, a backlog
which included IPS orders.
3. The Company is in the process of securing a new line of credit at
a more favorable interest rate and believes that this can be
accomplished in the near future.
The Company has no commitments for any material capital expenditures.
Other than as set forth above, there are no unusual
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or infrequent events or transactions or significant economic changes which
materially affect the amount of reported income from continuing operations.
This "Management's Discussion and Analysis" contains forward-looking
statements within the meaning of Section 21B of the Securities and Exchange Act
of 1934, as amended. These forward-looking statements represent the Company's
present expectations or beliefs concerning future events. The Company cautions
that such statements are necessarily based on certain assumptions which are
subject to risks and uncertainties, including, but not limited to, changes in
general economic conditions and changing competition which could cause actual
results to differ materially from those indicated. 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 achieved Year 2000 compliance for all internal systems and
did not suffer any adverse effects with respect thereto. The Company does not
anticipate any such problems in the future.
Inflation
The costs of the Company and its subsidiaries are subject to the
general inflationary trends existing in the general economy. The Company
believes that expected pricing by its subsidiaries for balers will be able to
include sufficient increases to offset any increase in costs due to inflation.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data commence on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the Company's
Certifying Accountants, KPMG LLP, during the Company's past two fiscal years.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Identification of Directors and Officers
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
Robert Roth 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.
During fiscal 1999 Alan Morrison and Charles C. Wildes resigned as
Directors of the Company. Mr. Morrison resigned for health reasons and Mr.
Wildes resigned when IPS Balers, of which he is a principal, purchased the
assets of IPS.
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 Roth are members of the Company's audit and
compensation committees.
During fiscal 1999 the Board of Directors met two times.
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
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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 69, 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 76, 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. Mr. Robson is the senior partner of the law firm of
Robson Ferber Frost Chan & Essner, LLP, which acts as general counsel to the
Company. Mr. Robson obtained an LLB degree from St. John's University School of
Law.
Robert Roth, age 74, 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 52, joined the Company in June 1994 as its
Chief Financial Officer. Prior to joining the Company, Mr.
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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.
Involvement in Certain Legal Proceedings
To the knowledge of management, during the past five years, no
present or former director, executive officer, affiliate or person nominated to
become a director or an executive officer of the Company:
(1) Filed a petition under the federal bankruptcy laws or any
state insolvency law, nor had a receiver, fiscal agent or similar officer
appointed by a court for the business or property of such person, or any
partnership in which he or she was a general partner at or within two years
before the time of such filing, or any corporation or business association of
which he or she was an executive officer at or within two years before the time
of such filing;
(2) Was convicted in a criminal proceeding or named subject of
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or otherwise
limiting his or her involvement in any type of business, securities or banking
activities;
(4) Was found by a court of competent jurisdiction in a civil
action, by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state securities law, and the
judgment in such civil action or finding by the Securities and Exchange
Commission has not been subsequently reversed, suspended, or vacated.
Section 16(a) Beneficial Ownership Reporting Compliance
In fiscal 1999, the Company was not delinquent in filing of
any of its Form 3, 4 and 5 reports.
15
<PAGE>
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 $100,000 per annum for
services rendered in all capacities to the Company and its subsidiaries during
fiscal years ended October 31, 1999, October 31, 1998 and October 31, 1997(1):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Awards
Name and Year Salary Bonus Other Annual Number All Other
Principal Position ($) ($) Compensation of Compensation
($) Options
<S> <C> <C> <C> <C> <C> <C>
Ted C. Flood, 1999 157,866(2) -0- -0- -0- -0-
Chief Executive
Officer and 1998 186,854(3) -0- -0- -0- -0-
President of
Company and IBC 1997 180,750(4) -0- -0- -0- -0-
</TABLE>
- ---------------
(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 1999, Robson & Miller, LLP received $56,021
from Waste Tech for legal services rendered. As of the end of Fiscal 1999
accrued but unpaid legal fees and accrued interest due to Robson & Miller, LLP
from Waste Tech amounted to $416,995. 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 $133,608 in compensation from IBC during the
fiscal year ended October 31, 1999 and $24,258 from Consolidated during that
period.
(3) 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.
(4) Ted C. Flood, President of the Company and President of the
Company's subsidiaries received $156,500 in compensation from IBC and IPS during
the fiscal year ended October 31, 1997 and $24,250 from Consolidated during that
period.
16
<PAGE>
No director of the Company received remuneration for services as a
director during Fiscal 1999.
The following table sets forth certain information relating to stock
option grants during Fiscal 1999 to the Company's Chief Executive Officer and
each of the Company's most highly compensated executive officers whose
compensation exceeded $100,000 for Fiscal 1999.
OPTION GRANTS IN LAST FISCAL YEAR
Individualized Grants
<TABLE>
<CAPTION>
Name Number of Securities Percent of Total Exercise or Expiration
Underlying Options/SARs Base Price Date
Options/SARs Granted to ($/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 1999 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 1999.
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.
17
<PAGE>
On June 3, 1989, IBC entered into a Severance Agreement (the
"Agreement") with Ted C. Flood, its President. The Agreement provides, among
other things, that, in the event of a change in control of IBC as that term is
defined in the Agreement, and the subsequent termination of Mr. Flood's
employment by IBC other than for cause or by Mr. Flood for good reason, (as such
terms are defined in the Agreement), IBC shall pay to Mr. Flood, in addition to
his salary at the date of termination, a lump-sum severance payment equal to
2.99 times the greater of his annual salary rate in effect as of the date of
termination or such rate in effect immediately prior to the change in control,
together with compensation for other benefits to which he would have been
entitled.
The initial term of the Agreement was from May 3, 1989 through April
30, 1991. It was, and thereafter it shall be, automatically extended for one
year periods, unless IBC shall give written notice of termination, at least one
year prior to the termination date, of its desire not to extend the Agreement.
In the event of a change in control of the Company, however, the Agreement shall
continue in effect for not less than 24 months after such change in control.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as of December 31, 1999 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 as of January
20, 1999 with these computations based on 5,516,349 shares of common stock being
outstanding at that time and assumes the exercise of 330,000 shares vested under
options granted by the Company as of January 20, 1999:
18
<PAGE>
Five Percent Stockholders
-------------------------
<TABLE>
<CAPTION>
Amount of
Name and Address of Beneficial Approximate
Beneficial Owner Ownership(5) Percent of Class
<S> <C> <C>
Cosimo Tacopino 509,639(6) 9.2%
145 Connecticut Street
Staten Island, New York 10307
Charles S. Wildes 392,000(7) 7.1%
396 Frost Industrial Blvd.
Baxley, Ga. 31513
</TABLE>
- ---------------
(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 10,000 shares held directly; 455,864 shares owned
jointly with his wife, Erma Tacopino; and, 43,775 shares held directly by Erma
Tacopino of which 11,000 are held in an individual retirement account.
(7) 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 at an exercise price of $1.00 per share and which option expires
on March 9, 2000.
19
<PAGE>
Directors and Officers
<TABLE>
<CAPTION>
Amount of
Name and Address of Beneficial Approximate
Beneficial Owner Ownership(8) Percent of Class
<S> <C> <C>
Ted C. Flood 1,069,778(9) 19.4%
5400 Rio Grande Avenue
Jacksonville, Fla. 32254
Morton S. Robson 586,854(10) 10.6%
530 Fifth Avenue
New York, N.Y. 10036
Robert Roth 3,300(11) Less than 1%
Georgetown Electric, Ltd.
Unit 17, 2501 W. Third Street
Wilmington De., 19805
</TABLE>
- --------------
(8)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.
(9)Consists of 640,572 shares held directly and, 429,206 shares owned
by the Waste Technology Corp. Employees Profit Sharing Trust of which Messrs.
Flood, Robson and Morrison are Trustees.
(10)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 429,206 shares owned by the Waste Technology Corp Employees Profit Sharing
Trust of which Messrs. Flood, Robson and Morrison are trustees since these
shares are included in Mr. Flood's holdings and their inclusion here would be
duplicative.
(11) Excludes an aggregate of 315,358 shares held by family members.
20
<PAGE>
<TABLE>
<S> <C> <C>
William E. Nielsen 232,006(12) 4.2%
5400 Rio Grande Avenue
Jacksonville, Fla. 32254
All Officers and
Directors as a
Group (4 persons) 2,207,276(13) 40%
</TABLE>
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 in the face amount of $1,000,000 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
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
- --------------
(12) Consists of 182,006 shares held directly and options to purchase
50,000 shares.
(13) 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).
21
<PAGE>
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 eight premiums on the
policy each in the amount of $20,000. Mr. Flood has executed eight 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 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
22
<PAGE>
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 2000.
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 1999, the
Company owed Mr. Robson's law firm the sum of $416,995 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, 1999 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 $796,647.
Related Party Transactions
Legal Services
The law firm in which Morton S. Robson, the Secretary and a Director of
the Company, is a partner have provided services to the Company since 1975.
During fiscal 1999, Mr. Robson's law firm received $56,021 from Waste Tech as
payment for legal services rendered. As of the end of fiscal 1999 accrued but
unpaid legal fees and accrued interest due to Mr. Robson's law firm from the
Company amounted to $416,995.
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, Mr.
Robson is the senior partner of the law firm which is counsel to the Company.
Conflicts of interests may arise as the result of such relationship.
23
<PAGE>
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.
24
<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.
25
<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.
26
<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.
27
<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
28
<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
29
<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.
(xivii) Annual Report on Form 10K for the Fiscal Year ended October 31, 1998:
Exhibit Number and Description
10.40 Agreement between Solid Waste Recovery Systems, Inc. and DryVac
Environmental, Inc.
(xviii) Current Report on Form 8-K, Date of Report, November 2, 1999:
Exhibit Number and Description
10.40a Memorandum of Intent between Waste Technology Corp. and Sidney Wildes and
Forrest H. Wildes dated November 2, 1999.
30
<PAGE>
(xvi) Current Report on Form 8-K, Date of Report, December 10, 1999:
Exhibit Number and Description
10.41 Asset Purchase Agreement between International Press and Shear Corporation
and IPS Balers Inc. together with Exhibits.
10.41.1 Assignment of Lease and Option between International Press and Shear
Corporation, IPS Balers Inc. and Development Authority of Appling County.
10.41.2 Assignment of Equipment Warrantiesbetween International Press and Shear
Corporation and IPS Balers Inc.
10.41.3 Assignment of Interest in Patent between International Press and Shear
Corporation, Waste Technology Corp. and IPS Balers Inc.
10.41.4 Seller's Compliance Certificate
10.41.5 Certificate of Resolution and Certification of Incumbency of
International Press and Shear Corporation.
10.41.6 Certificate of Resolution and Certification of Incumbency of Waste
Technology Corp.
10.41.7 Affidavit of Title to Business and In Compliance with Bulk Transfer Act.
10.41.8 Certificate Regarding Broker
10.41.9 Buyer's Compliance Certificate
10.41.10 Assignment and Assumption of Accounts between International Press and
Shear Corporation and IPS Balers Inc.
10.41.11 Certification as to Payment of Taxes
10.41.12 Bill of Sale from International Press and Shear Corporation to IPS
Balers Inc.
The following exhibits are filed herewith:
21 List of Subsidiaries
31
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Financial Statements
October 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report 1
Consolidated Balance Sheets as of October 31, 1999 and 1998 2-3
Consolidated Statements of Operations for the years ended
October 31, 1999, and 1998 4
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 1999, and 1998 5
Consolidated Statements of Cash Flows for the years ended
October 31, 1999, and 1998 6-7
Notes to Consolidated Financial Statements 8
F-2
<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, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our 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, 1999 and 1998 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 a capital deficiency, 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.
January 7, 2000
F-3
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1999 and 1998
1999 1998
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 18,432 69,349
Accounts receivable, net of allowance for
doubtful accounts of $138,000
for 1999 and 1998 1,282,095 1,576,722
Inventories (note 4) 2,078,389 2,681,288
Prepaid expenses and other current assets 11,521 822
----------- ------------
Total current assets 3,390,437 4,328,181
----------- ------------
Property, plant and equipment, net (note 5) 1,933,069 2,057,089
Other assets:
Due from officer (note 3) 356,778 300,082
Other assets 31,818 98,611
----------- ------------
Total other assets 388,596 398,693
----------- ------------
Total assets $ 5,712,102 6,783,963
=========== ============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
October 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Revolving promissory note (note 6) $ 553,852 1,220,555
Current portion of long-term debt and capital lease
obligation (notes 7 and 8) 212,686 159,757
Accounts payable 1,613,837 1,276,045
Accrued liabilities 559,773 588,053
Accrued legal judgment (note 9) 519,000 495,000
Customer deposits 768,835 555,905
-------------- --------------
Total current liabilities 4,227,983 4,295,315
-------------- --------------
Long-term debt (note 7) 305,070 449,519
Obligation under capital lease, less current maturities (note 8) 652,849 669,175
-------------- --------------
Total liabilities 5,185,902 5,414,009
-------------- --------------
Stockholders' equity (notes 3 and 11):
Common stock, $.01 par value; 25,000,000 shares authorized,
6,179,875 shares issued and outstanding in
1999 and 1998 61,799 61,799
Preferred stock, $.0001 par value; 10,000,000 shares
authorized, none issued -- --
Additional paid-in capital 6,347,187 6,347,187
Accumulated deficit (5,085,769) (4,255,917)
-------------- --------------
1,323,217 2,153,069
Less Treasury stock, 663,526 shares in 1999 and
1998, at cost 419,306 419,306
Less notes receivable from stockholders, net (note 3) 377,711 363,809
-------------- --------------
Total stockholders' equity 526,200 1,369,954
-------------- --------------
Commitments and contingencies (note 9)
Total liabilities and shareholders' equity $ 5,712,102 6,783,963
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended October 31, 1999 and 1998
1999 1998
-------------- --------------
Net sales (note 13) $ 10,138,428 11,999,311
Cost of sales 8,499,912 9,826,994
-------------- --------------
Gross profit 1,638,516 2,172,317
-------------- --------------
Operating expenses:
Selling 924,412 1,334,762
General and administrative 1,316,090 1,636,457
-------------- --------------
2,240,502 2,971,219
-------------- --------------
Loss from operations (601,986) (798,902)
-------------- --------------
Other income (expense):
Interest (note 3) 61,474 66,255
Provision for legal judgment (note 9) (24,000) (495,000)
Other 16,717 63,758
Interest expense (282,057) (221,439)
-------------- --------------
(227,866) (586,426)
-------------- --------------
Loss before income taxes (829,852) (1,385,328)
Income tax provision (note 10):
Current -- --
Deferred -- --
-------------- --------------
-- --
Net loss $ (829,852) (1,385,328)
============== ==============
Basic and diluted loss per share $ (0.15) (0.25)
============== ==============
Weighted average number of shares 5,516,349 5,475,171
============== ==============
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1999 and 1998
<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, 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
Net adjustment of note
receivable from
stockholders (note 3) -- -- -- -- -- -- (13,902) (13,902)
Net loss -- -- -- (829,852) -- -- -- (829,852)
------------ ----------- ----------- ----------- ---------- ---------- ----------- ----------
Balance, October 31, 1999 6,179,875 $ 61,799 6,347,187 (5,085,769) 663,526 $(419,306) (377,711) 526,200
============ =========== =========== =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (829,852) (1,385,328)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 191,371 210,481
Provision for doubtful accounts -- (52,000)
(Increase) decrease in assets and liabilities:
Accounts receivable 294,627 442,713
Inventories 602,899 (302,010)
Prepaid expenses and other current assets (10,699) 77,003
Other assets (39,472) (93,868)
Accounts payable 337,792 (67,877)
Accrued liabilities and legal judgment (4,280) 640,143
Customer deposits 212,930 128,883
---------------- ---------------
Net cash provided by (used in) operating activities 755,316 (401,860)
---------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------ ---------------
<S> <C> <C>
Cash flow from investing activities:
Net investment in notes receivable from stockholders $ (13,902) (2,842)
Purchase of property and equipment (17,782) (28,583)
Purchase of minority interest -- (15,000)
------------------ ---------------
Net cash used in investing activities (31,684) (46,425)
------------------ ---------------
Cash flow from financing activities:
Proceeds/drawings from long-term debt and
revolving promissory note 10,328,167 4,857,689
Payments on long-term debt, revolving promissory
note and capital leases (11,102,716) (4,420,838)
------------------ ---------------
Net cash (used in) provided by financing activities (774,549) 436,851
------------------ ---------------
Net decrease in cash and cash equivalents (50,917) (11,434)
Cash and cash equivalents at beginning of year 69,349 80,783
------------------ ---------------
Cash and cash equivalents at end of year $ 18,432 69,349
================== ===============
Supplemental cash flow information:
Cash paid for interest $ 263,903 201,660
================== ===============
Cash paid for income taxes $ -- --
================== ===============
</TABLE>
Supplemental disclosure of noncash transactions:
During 1998, the Company exchanged 183,794 shares
of common stock for the remaining minority interest
in equity of subsidiary (note 14).
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(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. During fiscal 1999, the Company had two
manufacturing subsidiaries, International Baler Corp. (IBC), located in
Jacksonville, Florida, and International Press and Shear, Corp. (IPS),
located in Baxley, Georgia.
In December 1999, the Company sold the assets of its IPS subsidiary of
approximately $2,140,000 to two IPS officers for $800,000 and the
assumption of $1,970,000 liabilities. 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 1999 and 1998.
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 and continuing in 1999, the Company effectuated significant cost
reductions which exceeded $700,000 in fiscal 1999. These cost cutting
measures included personnel eliminations, salary reductions and
advertising reductions.
The Company's management and board of directors have substantial
concern over recent operating performances, however, it believes that
is has several viable options to continue as a going concern.
With the elimination of the IPS subsidiary, the Company anticipates
that operating results should be significantly improved in fiscal 2000.
The Company has introduced new textile balers, new corrugated balers
and has been marketing the patented hinge side baler. The Company's
backlog at December 31, 1999 is approximately $2,540,000. The Company
anticipates that these products will also have a significant impact on
sales in fiscal 2000.
With some of the proceeds from the sale of assets of IPS, the Company
has paid the outstanding balance of the loan from Foothill Capital
Corporation which had an interest rate of 14.75% (note 6). The Company
is in the process of securing a new line of credit at a more favorable
interest rate.
(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
subsidiaries. Intercompany balances and material intercompany
transactions have been eliminated in consolidation.
(continued)
F-10
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(b) 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.
(c) 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.
(d) 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.
(e) Depreciation
The cost of property, plant and equipment is depreciated over
the estimated useful lives of the related assets. Depreciation
is computed on the double-declining balance and straight line
methods over the estimated lives of 5 years for machinery and
equipment and 31 years for buildings. Gain or loss upon
retirement or disposal of property, plant and equipment is
recorded as other 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.
(continued)
F-11
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(f) 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.
(g) Earnings (Loss) Per Share and Stock Split
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.
(h) 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.
(continued)
F-12
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(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, 1999 or 1998. 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 of $377,711 and $363,809, are presented as a
reduction of stockholders' equity at October 31, 1999 and 1998,
respectively.
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 $356,778 and
$300,082 at October 31, 1999 and 1998, respectively.
(continued)
F-13
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
The statement of operations includes interest income on officer and
director notes receivable of $55,140 and $52,785 for 1999 and 1998,
respectively. Legal expenses to the General Counsel and his law firm
were $56,021and $65,758 for fiscal 1999 and 1998, respectively.
(4) Inventories
Inventories consisted of the following:
1999 1998
---------- -----------
Finished products $ 283,034 522,929
Work in process 408,464 643,170
Raw materials 1,386,891 1,515,189
---------- ----------
$ 2,078,389 2,681,288
========== ==========
(5) Property, Plant and Equipment
The following is a summary of property, plant and equipment, at cost,
less accumulated depreciation:
1999 1998
----------- -----------
Land $ 77,304 75,000
Buildings and improvements 2,264,729 2,264,729
Machinery and equipment 1,171,465 1,106,416
Vehicles 129,257 170,697
--------- -------------
3,642,755 3,616,842
Less accumulated depreciation and
amortization 1,709,686 1,559,753
----------- -----------
$1,933,069 2,057,089
=========== ===========
Depreciation expense was $191,371 and $193,262 in 1999 and 1998,
respectively. Included in buildings and improvements at October 31,
1999 and 1998 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 $43,677 and $43,926 is included in depreciation expense for
the years ended October 31, 1999 and 1998, respectively.
(continued)
F-14
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(6) Revolving Promissory Note
The Company had a $2,000,000 line of credit with $553,852 outstanding
at October 31, 1999. 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, 1999, 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 6.5% (14.75% at October 31, 1999)
with the principal amount payable on demand.
In December 1999, the Company paid the outstanding balance on the line
of credit. The Company is in the process of securing a new line of
credit at a more favorable interest rate.
(7) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<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 $ 306,944 415,278
Term note payable to bank at 9.75%,
due in monthly installments of $2,466, including 51,654 --
interest through September 2003
Term note payable to Appling County, Georgia at 4.0%,
due in monthly installments of $3,417, including
interest through July 2003 142,457 177,127
---------- ----------
501,055 592,405
Amounts classified as current 195,985 142,886
---------- ----------
$ 305,070 449,519
========== ==========
</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.
(continued)
F-15
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
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.
The Company violated certain financial covenants of the above term note
as of October 31, 1999. The lender has waived these covenant
violations. 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:
2000 $ 195,985
2001 145,757
2002 129,217
2003 30,096
Thereafter --
----------
$ 501,055
==========
(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, 1999:
2000 $ 73,618
2001 73,618
2002 73,618
2003 73,618
2004 73,618
2005-2011 383,513
----------
Total net minimum lease payments 751,603
Less amounts representing interest 82,053
----------
Present value of net minimum
obligations 669,550
Less current portion 16,701
----------
Long-term obligations $ 652,849
==========
(continued)
F-16
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
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 $57,122 and $58,096 for the period
ending October 31, 1999 and 1998, respectively.
The cost, accumulated amortization and net book value of the
manufacturing facility under capital lease at October 31, 1999 are
shown below. Cost represents the Company's direct investment in the
facility.
Cost $ 1,359,190
Accumulated amortization (177,690)
----------
Net book value $ 1,181,500
==========
(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
$519,000, is reflected on the balance sheet at October 31, 1999. The
Company has filed a devolutive appeal, with a decision expected in
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.
(continued)
F-17
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
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).
(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 1999 Fiscal 1998
<S> <C> <C>
Federal income tax benefit at statutory rate $ (282,000) (471,000)
State income tax benefit, net
federal income tax effect (32,900) (50,300)
Other 68,900 20,400
Change in valuation allowance, net of correction
to prior years' deferred taxes 246,000 500,900
------------- -------------
Provision (benefit) for income taxes $ -- --
============= =============
</TABLE>
The Company files consolidated federal and state income tax returns
with its subsidiaries.
(continued)
F-18
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
The net change in the total valuation allowance for the years ended
October 31, 1999 and 1998 was an increase of $246,000 and $500,900,
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,
1999 and 1998 are as follows:
1999 1998
Reserves and allowances $ 412,000 400,000
Property, plant and equipment 100,000 103,000
General business credit carryforward 20,000 20,000
Net operating loss carryforward 1,344,000 1,111,000
Other 93,000 89,000
----------- -----------
1,969,000 1,723,000
Valuation allowance 1,969,000 1,723,000
----------- -----------
$ -- --
=========== ===========
Net operating loss carryforwards for tax purposes are approximately
$3,571,000, which expire in years 2007 through 2013. IBC has general
business tax credit carryforwards of approximately $20,000, which
expires in the year 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.
(continued)
F-19
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
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. The options were
issued to key employees. 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, 1999 are 1,584,000.
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, 1999
are 50,000 and 200,000, respectively.
(continued)
F-20
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
A summary of the status of the Company's stock options is presented
below:
Weighted
average
Shares exercise price
------ --------------
Outstanding, October 31, 1997 $ 2,198,612 .9123
Canceled or surrendered (259,612) .7929
Outstanding, October 31, 1998 1,939,000 .9048
============ =========
Canceled or surrendered (105,000) .8393
Outstanding, October 31, 1999 1,834,000 .9085
============ =========
Shares exercisable 1,595,200 $ .8948
============ =========
The outstanding stock options at October 31, 1999, have an exercise
price ranging from $.50 to $1.00 per share and a remaining contractual
term ranging from two to five years. Compensation cost for stock
options under SFAS No. 123 is not provided because all options granted
during and after November 1, 1996 have been canceled or surrendered.
(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 1999 or 1998.
(continued)
F-21
<PAGE>
WASTE TECHNOLOGY CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1999 and 1998
(13) Export Sales
Export sales were approximately 12% and 16% for the years ended October
31, 1999 and 1998, respectively. The principal international markets
served by the Company, 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 January 22, 1998, the Company issued 183,794 shares to
acquire the remaining interest in IBC. This transaction has been
accounted for as a purchase. Accordingly, the excess minority interest
liability recorded by the Company over the market value of the shares
issued was recorded as a reduction of long-lived assets.
F-22
<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, 2000
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, 2000
- ---------------- Officer, and Director
Ted C. Flood
/s/ Morton S. Robson Director January 27, 2000
- --------------------
Morton S. Robson
Director January , 2000
- ---------------------
Robert Roth
/s/ William E. Nielsen Director, Principal January 27, 2000
- ---------------------- Financial and
William E. Nielsen Accounting Officer
<PAGE>
EXHIBIT 21
<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
<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-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 18,432
<SECURITIES> 0
<RECEIVABLES> 1,420,000
<ALLOWANCES> 138,000
<INVENTORY> 2,078,389
<CURRENT-ASSETS> 3,390,437
<PP&E> 3,642,755
<DEPRECIATION> 1,709,686
<TOTAL-ASSETS> 5,712,102
<CURRENT-LIABILITIES> 4,227,983
<BONDS> 0
0
0
<COMMON> 61,799
<OTHER-SE> 464,401
<TOTAL-LIABILITY-AND-EQUITY> 5,712,102
<SALES> 10,138,428
<TOTAL-REVENUES> 10,138,428
<CGS> 8,499,912
<TOTAL-COSTS> 10,740,414
<OTHER-EXPENSES> (54,191)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282,057
<INCOME-PRETAX> (829,852)
<INCOME-TAX> 0
<INCOME-CONTINUING> (829,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (829,852)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
