SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995.
Commission file number 33-20954
KBF POLLUTION MANAGEMENT, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2687588
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(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1110-A Farmingdale Road, North Lindenhurst, New York 11757-1024
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(Address of principal executive offices) (Zip Code)
(516) 225-0007
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has 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 for such shorter period that the registrant as
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days-.Yes X No
--- ---
Based upon the average closing bid and asked price of the Registrant's common
stock, the aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 12, 1996 was $3,573,606.
The number of shares outstanding of each of the Registrant's classes of common
stock as of the latest practicable date is:
Common Stock
outstanding at March 12, 1996: 43,312,213
<PAGE>
PART I
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ITEM 1. BUSINESS.
INTRODUCTION
KBF Pollution Management, Inc., a New York corporation (the "Company"), was
organized in 1984 and is engaged in the environmental services business as a
waste water metal recovery facility specializing in the resource recovery of
hazardous and non hazardous metal bearing wastes. In the past the Company
reported on three segments: waste water recovery, equipment sales and service,
and laboratory analysis. The Company has ceased manufacturing and marketing new
equipment and had converted its commercial lab status to in-house industrial
laboratory. The Company's activities in equipment sales and service and in the
laboratory analysis are there to support the waste water recycling segment, and
are not separate divisions or profit centers.
INDUSTRY BACKGROUND
Most chemical wastes generated in the United States by industrial processes
have been handled 'on-site at the generators' facilities. Over the past 15 to 20
years, increased public awareness of the harmful effects of unregulated disposal
of chemical wastes on the environment and health has led to federal, state and
local regulation of chemical waste management activities. Some statutes
regulating the management of chemical wastes include the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Toxic Substances Control Act
("TSCA") and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("Superfund"), most are primarily administered by the
federal Environmental Protection Agency ("EPA"). This body of laws and
regulations by federal and state environmental regulatory agencies, impose
stringent standards for management of chemical wastes and provide penalties for
violators, as well as continuing liability by generators and others for past
disposal and environmental degradation. For example, under Superfund,
responsible parties may be subject to remedial costs at abandoned hazardous
waste sites and, in some instances, treble damages. As a result of the increased
liability exposure associated with chemical waste management activities and a
corresponding decrease in the availability of insurance and significant cost
increases in administering compliance and facility capital improvements, many
generators of chemical wastes have found it uneconomical to maintain their own
treatment and disposal facilities or to develop and maintain the technical
expertise necessary to assure regulatory compliance. Accordingly, many
generators have sought to have their chemical wastes managed by firms that
possess both the appropriate treatment and disposal facilities, as well as the
expertise and financial resources necessary to attain and maintain compliance
with applicable environmental regulatory requirements. At the same time,
governmental regulation has resulted in a reduction of the number of facilities
available for chemical waste treatment, storage or disposal, as many facilities
have been unable to meet the strict standards imposed by RCRA or other laws.
WASTE RECOVERY SERVICES
Since 1986, the Company has operated as a waste water metal recovery
facility for both non-hazardous and hazardous metal bearing wastes.
The waste is received at the facility, by the Company's licensed transport
vehicles or other unaffiliated licensed transporters in drums and or by tanker-
loads. The waste is then analyzed at the Company's own laboratory facilities to
determine compliance with the approved waste profile on file for the customer
and to verify proper waste classification for storage and recovery.
Once testing is completed, utilizing the Company's Patent Pending
"Selective Separation Technology", the heavy metals are separated from the
solutions (arsenic, selenium, nickel, silver, copper, zinc, chrome, lead,
cadmium, etc.). Once the recovery process is complete, the remaining effluent is
analyzed to assure that its contents fall within allowable discharge limits. The
effluent is then discharged into the Southwest Sewer District of Suffolk County
pursuant to an approved discharge certificate. The recovered metals are
recycled back into commerce.
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PROJECT ENSURE, CERTIFICATE OF RECOVERY. Under federal law, the prime generator
of hazardous waste remains liable for the waste for as long as it continues to
exist. Disposal of the waste by incineration, in a landfill or a deep injection
well does not eliminate the generator's liability for cleanup costs if leakage
or spillage of the waste occurs.
Utilization of the Company's Patent Pending "Selective Separation
Technology", however, terminates the generator's liability. Recovery of the
waste removes the waste from the environment, thereby terminating the
generator's liability and exempting the generator from the Superfund Generation
Tax. A certificate of recovery is issued by the Company to the customer.
METAL RECOVERY. During the Company's recovery process, the metals contained in
the waste are removed from solution. The metals, which include silver, copper,
nickel, lead, zinc and others, are processed into solid form (bricks, buttons,
bullion, powder) and recycled back into commerce. To date, revenues from the
sale of recovered metals have not been significant.
LABORATORY ANALYSIS. The Company maintains a New York State Department of Health
Certified Environmental Analytical Industrial laboratory. The laboratory is
utilized to continually monitor and analyze the ongoing waste recovery
operations. The Company performs the analysis on waste from new customers for
approvals and continually on each waste shipment received from the customer.
The Company also utilizes its laboratory facility to conduct research and
development activities. (See Research and Development and Patents and
Proprietary Information)
WASTE TRANSPORT. The Company is a New York State and Connecticut licensed
hazardous waste transporter. The Company also utilizes other unaffiliated
licensed Transport companies.
CONTRACTS; CUSTOMERS. The Company's waste recovery services are typically
provided pursuant to nonexclusive service agreements, based on the acceptance of
their waste. The fees charged by the Company for its services may be determined
by several factors, including but not limited to volume, type of waste, location
and method of shipment.
The Company currently has approximately 2200 active repeating customers for
its waste recovery services. For the years ended December 31, 1995 and December
31, 1994, no one customer accounted for 10% or more of the Company's total
revenues.
EQUIPMENT SALES AND SERVICES
The Company manufactures a patented waste volume reduction system which
enables users to reduce the volume of generated waste by 50% to 90%, depending
upon the type of waste, containment trays, recirculation systems and solution
transfer systems. This equipment is manufactured on an "as requested" basis.
The Company intends to continue to offer its waste volume reduction systems
for sale, until the present inventory has been depleted, and believes that
revenues from such activities, as a percentage of total revenues, will not be
significant in the future.
The Company's service department, covers the systems which have been
previously sold and any new equipment to be sold. The inventory is used to
supply the servicing of this equipment under contractual service agreements with
customers or on an "on call" basis. (See Manufacturing & Supplies)
GOVERNMENTAL REGULATION; PERMITS
The waste management industry is subject to regulation by federal, state
and local authorities. The Company makes a continuing effort to anticipate
regulatory, political and legal developments that might affect its operations
but is not always able to do so. The Company cannot predict the extent to which
any legislation or regulation that may be enacted or enforced in the future may
affect its operations.
In particular, the regulatory process requires firms in the Company's
industry to obtain and retain numerous governmental permits to conduct various
aspects of their operations, any of which permits may be subject to revocation,
modification or denial. In addition, changing governmental
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policies and regulations may affect the Company's ability to obtain the
necessary permits on a timely basis and to retain such permits. The inability or
failure of the Company to obtain and maintain all of the permits required for
its operations would have a material adverse effect on the Company's business.
The Company has applied for or obtained all necessary permits from
governmental agencies having jurisdiction over it, including the EPA, NYS DEC,
the New York State Department of Health, Suffolk County Department of Health
Services Hazardous Materials Division, Suffolk County Department of Public Works
and the Connecticut Department of Environmental Protection.
Prior to November 1991, the Company operated under the provisions of the
New York State Environmental Conservation Law (specifically Article 27, Title 9
and the 6 NYCRR Part 370 regulations promulgated pursuant thereto) which exempt
the recycling of hazardous wastes containing "economically significant" amounts
of precious metals from the permitting requirements applicable to hazardous
waste treatment facilities provided the Company complies with certain enumerated
conditions. In October 1990, the Company applied for a permit under 6 NYCRR 373
of these provisions in order to allow it to treat other types of hazardous
wastes. In response to the application, the NYS DEC made an unofficial
determination that the Company's operation may not qualify for the precious
metals exemption and that the Company may need to obtain a permit covering both
its present and proposed operations. In November 1991, the Company and the NYS
DEC entered into an Order of Consent permitting the Company to continue its
current operations pending the NYS DEC's finalization and issuance of the
Company's permit application. The permit application process is substantially
complete. According to NYS DEC regulations, the Company must operate its
facility as a "Picture in Time", with all equipment, personnel and systems in
place and operating as if the permit had been issued.
In mid 1994, on the basis of revised State regulations, KBF notified NYS
DEC that the Company intended to avail itself of the State regulations under
6NYCRR Sec. 373-1.1(d),(1),(iv),(vii),(viii),(xii) and Federal regulations,
40 CFR Sec. 261.6. These regulations state in part that Wastewater Treatment
Facilities handling characteristic hazardous waste for the sole purpose of
recycling are exempt from the need to obtain a permit for treatment operations.
In December 1994, the Company again notified NYS DEC of its intention to avail
itself of an additional exemption in the regulations that would become effective
on January 15, 1995. This additional exemption states in part, that Wastewater
Treatment Facilities handling listed hazardous waste for the sole purpose of
recycling are exempt from the need to obtain a permit for treatment operations.
Together, both of these exemptions will permit the Company to receive all of
the Listed and Characteristic Hazardous Waste found in the Company's Permit
Application. However, regulations require that any Wastewater Treatment
Facility that receives Hazardous Waste must have a permitted storage area
where the waste is stored prior to treatment. As a result of these
exemptions, it was necessary for the Company to submit applications to NYS DEC
to alter the Company's Transporter Permit. These revisions to the Company's
transporter permit were approved by NYS DEC in September 1994 and again in
January 1995 allowing the Company to transport each of the requested
Characteristic and Listed Hazardous Waste to the Facility for recovery.
In December 1994, the Company, with the consent of NYS DEC, altered its
pending 6NYCRR Sec. 373 (Federal Part B) Treatment and Storage Permit to a
Storage only Permit. As a result of this permit modification, NYS DEC informed
the Company in April 1995 that the NYS DEC completed its review and approval of
the permit application. Based on the approval of the permit application, NYS
DEC has prepared a complete Draft Permit Module. This Draft Permit was
submitted to the local administrative branch of NYS DEC in Stony Brook
("Region 1") on May 11, 1995 by the permit writers in Albany. In February of
1996, the Company was informed by the Deputy Regional Permit Administrator for
Region 1 that the permit and DEIS prepared by the Company were both to be placed
in a public commenting period within the near future. The public commenting
period lasts for 45 days during which time any interested party may review the
permit module as prepared by NYS DEC at locations chosen by the Administrator.
The public commenting period will commence upon direction from the
Administrator's office at which time the Company will publish in a local
newspaper and on a
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local radio station the Administrator's intention to issue a 6NYCRR Sec. 373
(Federal Part B) permit to the Company. The Administrator's office will publish
the announcement in the Environmental News Bulletin. These announcements will
inform the public that there is a 45 day comment period during which any
interested party may view the permit and issue in writing, comments to the
permit review section in Albany. At the end of the 45 day comment period,
public comments, if any, will be reviewed by the permit reviewer in Albany. As
long as any comments received are answered by the Permit Module which includes
the permit application, the permit will be issued to the Company within 30 days
after the end of the comment period. In the event that any comment is deemed to
be substantial in nature and cannot be responded to using text in the permit
module, the permit review section will contact the Company for a response to the
comment. This process will continue until all comments are answered, at which
time the permit will be issued. During the public comment period, any
interested party can request a public hearing be held on the issuance of the
permit. The final decision on a public hearing is made based on the validly of
the request by the permit review section in Albany. The Company has no control
over the procedures followed by NYS DEC to timely place the draft permit module
in the public commenting phase.
SALES AND MARKETING
The Company presently markets its waste recovery services primarily to
generators of metal bearing hazardous and non- hazardous waste. Generators of
these wastes include but are not limited to printed circuit board manufacturers,
photo offset printers, photographic developers, lithographers, photographers,
microfilm users, X-Ray users (dentists, doctors, hospitals, podiatrists,
orthopedic surgeons, veterinarians, radiologists and industrial X-Ray users),
relay manufacturers, oil companies, chemical companies, battery manufacturers,
anodizing operations, metal finishers, jewelry manufacturers and numerous other
waste generators.
The Company's sales and marketing efforts are performed by in-house
personnel, and outside "Waste Brokers". In-house sales efforts consist of
direct telephone and mail contact with the potential customers who are either
obtained through customer referrals, or are located through review of trade
journals and other industrial reference materials. The Company's services are
marketed by twelve unaffiliated independent sales representation companies,
(Waste Brokers). The organizations are not obligated to sell any specified
amount of services.
In January 1996, the Company signed a Marketing Agreement ("Agreement")
with Ward Consultancy and Oakton Consulting Group, jointly ("Consultants").
This Agreement stipulates the Consultants will act as marketing consultants to
the Company in regard to a "Project", that the Company has been pursuing. Under
this agreement the Consultants shall be paid a contingent fee based on any and
all payments received by the Company, under this Project. The fee shall be
calculated at the rate of five percent (5%) of the first Five Million Dollars
($5,000,000) received by the Company and two and one-half percent (2 1/2%) of
any and all amounts received over the first Five Million Dollars ($5,000,000).
The Company shall also reimburse the Consultants for travel and other out-of-
pocket expenses incurred by the Consultants in connection with rendering
services under this Agreement. Any additional consulting services not connected
with the "Project" which are authorized by the Company shall be paid at the rate
of Two Hundred Dollars ($200.00) per hour plus any out-of-pocket expenses
approved by the Company.
MANUFACTURING AND SUPPLIES
The Company manufactures a patented waste volume reduction system which
enables users to reduce the volume of generated waste by 50% to 90%, depending
upon the type of waste, containment trays, recirculation systems and solution
transfer systems. This equipment is manufactured on an "as requested" basis.
The Company sold no waste volume reduction systems for the year ended
December 31, 1995 and December 31, 1994 due, in the opinion of the Company, to
the effect of the continuing economic conditions and the customers' lack of
demand for this form of capital investment. The related manufacturing inventory
was reduced by an allowance of $104,410 in 1994, for its obsolescence. The
Company will to continue to offer its waste volume reduction system for sale
until the inventory is
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depleted, but believes that revenues from such activities, as a percentage of
total revenues, will not be significant in the future.
The Company operates its service department, covering the systems which
have been previously sold and any new equipment to be sold. The inventory is
used to supply the servicing of this equipment under contractual service
agreements with customers or on an "on call" basis. (See Equipment Sales &
Services).
In the later part of 1994, the chemical manufacturing companies, which
supply the chemical reagents to the Company, increased their prices due to the
shortages from depleted shipments and recent flooding of the manufacturing
facilities in the Mid West. Due to this increase in the Cost of Operations,
certain customers of the Company had their price per gallon increased in 1995.
COMPETITION
Competition in the waste treatment industry is intense and is characterized
by continued change and improvement in technology. The market is fragmented and,
in the opinion of the Company, no company holds a dominant position.
The Company believes that its waste recovery process, which results in the
recycling of virtually all of the metals present in the waste, is unique and
that the same or similar technology is not currently utilized by any other
competitor. In June 1995, the Company announced its submission of its patent
application on the Company's "Selective Separation Technology". (See Patents
and Proprietary Information)
The Company's competitors utilize a variety of other methods for the
treatment and disposal of hazardous and non-hazardous waste, including deep
injection wells, landfills, incineration and limited recovery of metals. The
Company believes that its recovery process provides a superior alternative to
these other methods. Many of the Company's competitors, however, are larger and
more established and have substantially greater financial and other resources
than the Company.
RESEARCH AND DEVELOPMENT
Research and Development of its Patent Pending "Selective Separation
Technology" occurred over the years, as a "on-going process". Only those costs
directly allocated to Research and Development are represented. For the year
ended December 31, 1995, the Company did not incur any costs directly related to
research and development. For the year ended December 31, 1994, the Company
incurred research and development costs of $6,415. The Company expects it may
incur research and development costs in 1996 in connection with additional waste
recovery technology. (See Patents and Proprietary Information)
PATENTS AND PROPRIETARY INFORMATION
The Company is the owner of a United States patent issued in 1988 covering
the design and function of the waste volume reduction system.
In the past, the Company had utilized its unpatented proprietary know-how
and techniques in its waste recovery operations. This information is crucial to
the Company's operations and business prospects. The Company decided after its
years of Research and Development, to begin the process of Patenting its
technology. A search was conducted by the Company's Patent attorney which
showed that no technologies with the same capabilities of that used by the
Company had been patented. In June 1995, the Company announced its submission
of its patent application on the Company's current technology "Selective
Separation Technology". To date, the Company has incurred costs of $10,437
directly related to its submission of its Patent.
LIABILITY INSURANCE
The Company maintains pollution legal liability insurance in the amount of
$1,000,000 per incident and $2,000,000 in total covering its premises, and
automobile liability insurance in the amount of $5,000,000 on its waste
transport fleet of two vehicles. To date, the Company has not experienced any
material liability claims.
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EMPLOYEES
The Company currently has 22 full-time and 2 part-time employees. In
addition to its two executive officers, the Company employs four chemists
(laboratory personnel), a service manager, a treatment manager, a maintenance
forman, seven waste treatment employees, five office personnel, one salesperson
and two drivers. The Company will hire additional personnel when necessary. None
of the Company's employees is represented by a union.
ITEM 2. PROPERTIES.
The Company is located in a leased building in North Lindenhurst, New York.
The Company occupies approximately 30,000 square feet of space, of the 70,000
square foot building. The Company was notified in February 1995 that the
landlord's mortgage holder had started foreclosure action against the landlord.
The Company pays, directly to the mortgage holder, the new negotiated rent of
$11,375.00 per month. The Company is presently beginning the process for the
negotiation on the purchasing of the building from the mortgage holder of the
building.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material legal proceedings.
On November 1, 1994, the environmental crime unit of Suffolk County
District Attorney's Office obtained and utilized a search warrant to initiate an
investigation at the Company's headquarters. The Company has hired Mr.
Frederick Eisenbud of Cahn Wishod & Lamb, LLP to represent the Company in this
matter. (See Note 14 To the Financial Statement: On Going Investigation.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
SECURITIES AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on the
National Association of Securities Dealers, Inc. Electronic Bulletin Board.
The following table sets forth, for the periods indicated, the range of
high and low bid prices for the Company's Common Stock as reported by the NASDAQ
Electronic Bulletin Board of the National Quotation Bureau, Incorporated.
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The bid quotations set forth below reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
High Low
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1993
----
First Quarter .12 .05
Second Quarter .25 .06
Third Quarter .12 .05
Fourth Quarter .09 .05
1994
----
First Quarter .09 .03
Second Quarter .10 .05
Third Quarter .12 .05
Fourth Quarter .11 .04
1995
----
First Quarter .09 .05
Second Quarter .17 .06
Third Quarter .4375 .14
Fourth Quarter .34375 .18
================= ====== ===
Approximate number of holders
Titles of Class of record (as of March 12, 1996)
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Common Stock, .00001 par value 2,500
The number of holders does not give effect to beneficial ownership of
shares held in the street name of stock brokerage houses or clearing agents and
does not necessarily reflect the actual ownership of the shares.
DIVIDENDS.
The Company has never paid a cash dividend on its Common Stock and
management has no present intention of paying dividends in the foreseeable
future. The policy of the Company is to retain earnings and utilize the funds
for Company operations. Further dividend policy will be determined by the Board
of Directors based on the Company's earnings, financial condition, capital
requirements and other existing conditions.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data pertaining to the financial condition and
operations of the Company for the years ended December 31, 1995, 1994, 1993,
1992 and 1991 has been obtained from the Companies financial statements. The
financial statements for the years ended December 31, 1995, 1994, 1993, 1992 and
1991 were audited by Shapiro Bress & Guidice, P.C., Independent Auditors. The
information set forth below should be read in conjunction with such financial
statements and the notes thereto.
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Year Ended December 31.
-----------------------
1995 1994 1993 1992 1991
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SUMMARY OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
Net Revenues 1,823 1,664 1,709 2,287 2,407
Net Income (357) (857) (712) (287) (37)
EARNINGS PER SHARE (0.0087) (0.0218) (0.020) (0.0100) 0.0013
SUMMARY OF
BALANCE SHEET
Current Assets 287 371 604 876 863
Current Liabilities 517 639 667 596 597
Working Capital (230) (268) (63) 280 266
Total Assets 1,941 2,267 2,889 2,725 2,627
Total Long-Term Debt 290 336 389 290 384
Total Liabilities 807 976 1,056 886 980
Stockholders' equity 1,133 1,291 1,834 1,838 1,647
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following discussion should be read in conjunction with the Company's
audited financial statements and notes thereto set forth elsewhere in this
annual report.
Results of operations for the year Ending
-----------------------------------------
December 31, 1995 as Compared to the Year Ended
-----------------------------------------------
December 31, 1994
-----------------
The Company's revenues increased 10% to $1,823,390 for the year ended
December 31, 1995 ("1995") from revenues of $1,664,974 for the year ended
December 31, 1994 ("1994"). The Company attributes such increase in revenues to
a number of factors. Management had refocused its emphasis on the waste water
recovery "segment" for the best long-term interest of the Company. During 1995
this continuing focus on waste water metal recovery combined with the ability to
recover additional wastes, provided for under the new exemptions, has allowed
the Company to increase its revenue base.
Cost of operations decreased to 69% of revenues for 1995 compared to 72%
for 1994. The Company attributes this decrease to the continued steps taken by
Management to reduce costs. Included in 1994 Cost of Operations is an allowance
of $104,410 representing obsolescence of inventory in connection with the
Equipment Manufacture and sales and Service segments of the Company's business.
In the later part of 1994, the chemical manufacturing companies, which supply
the chemical reagents to the Company, increased their prices due to the
shortages from depleted shipments and recent flooding of their manufacturing
facilities in the Mid West.
General and administrative expenses decreased by 3% to $859,234 for the
year ended December 31, 1995 from $882,613 for the year ended December 31, 1994
due primarily to decreased compensation to management during 1995 and other
steps taken by Management to reduce overhead expenses.
The Company continued to incur expenses related to obtaining the 6NYCRR
Sec.373 (Federal Part b) permit. In December 1994 and January 1995, the Company
further expanded their exemptions to include characteristic and listed hazardous
waste. Due to these changes, in January 1995, the permit application was
amended from treatment and storage to storage only. The review and approval of
the revised permit application has been completed and approved by New York State
Department of Environmental Conservation. The Company will be notified by the
Deputy Regional Permit Administrator for Region 1 when the permit will be placed
in the public commenting period. (See Governmental Regulation; Permit).
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Research and development expenses in 1995 were $0 as compared to $6,415 in
1994. These expenses were incurred in connection with the continuing development
of the Company's technology. In June 1995, the Company announced its submission
of its Patent Application for this technology. To date, the Company has
incurred costs of $10,437 directly related to this submission.
The Company incurred a net loss of $357,145 for the year ended December 31,
1995 as compared to a net loss of $857,383 for the year ended December 31, 1994,
a decrease of 58%. Depreciation Expense was $298,194 and $312,218 for the years
ended December 31, 1995 and 1994 respectively. The write-off certain
capitalized permit costs and the reduction by an allowance of certain
manufacturing inventory, contributed to the net loss in 1994. (See Note 3 to the
Financial Statement: Inventories and Note 18 to the Financial Statement:
Capitalized Permit Costs)
Results of operations for the year Ending
-----------------------------------------
December 31, 1994 as Compared to the Year Ended
-----------------------------------------------
December 31, 1993
-----------------
The Company's revenues decreased by 3% to $1,664,974 for the year ended
December 31, 1994 ("1994") from revenues of $1,709,364 for the year ended
December 31, 1993 ("1993"). The Company attributes such decline in revenues to a
number of factors. In the second quarter of 1994, the Company lowered its
pricing structure for its waste recovery services to become more competitive
with its competition. While the Company had increased its customer base during
1994, the current customer base is generating less of a volume due to poor
economic conditions in the industries which utilize the Company's services.
Furthermore, the Company continued its focus on the Waste Recovery segment of
its business as the primary source of revenues. Revenues from the Equipment
Manufacture, Sales and Service and Laboratory Analysis segments of its business
continued to decline as the Company abandoned its efforts to maintain and
increase sales in these areas. Management believes these changes in emphasis are
in the best long-term interest of the Company.
Cost of operations decreased to 72% of revenues for 1994 compared to 73%
for 1993. Included in 1994 Cost of Operations is an allowance of $104,410
representing obsolescence of inventory in connection with the Equipment
Manufacture and sales and Service segments of the Company's business. Included
in 1993 Cost of Operations is an allowance of $112,770 representing obsolescence
of inventory in connection with the Equipment Manufacture and Sales and Service
segments of the Company's business. In the later part of 1994, the chemical
manufacturing companies, which supply the chemical reagents to the Company,
increased their prices due to the shortages from depleted shipments and recent
flooding of their manufacturing facilities in the Mid West.
General and administrative expenses decreased by 19% to $882,613 for the
year ended December 31, 1994 from $1,092,255 for the year ended December 31,
1993 due primarily to decreased compensation to management during 1994 and other
steps taken by Management to reduce overhead expenses.
The Company continued to incur expenses related to obtaining the 6NYCRR
Sec.373 (Federal Part b) permit. In 1994 the regulations changed for companies
performing recycling. In the later part of 1994, the Company began receiving
characteristic hazardous waste in compliance with 6NYCRR Sec.373-1.1(d), (iv),
(vii), (viii), (xii) and EPA CFR 40-261.6 to begin neutralizing or treatment of
hazardous waste resulting from the recycling of characteristic hazardous wastes
for the sole purpose of metal recovery. In January 1995, the Company further
expanded the above exemption to include listed hazardous waste. Due to these
changes, in January 1995, the permit application was amended from treatment and
storage to storage only.
The Company is required, as a condition for obtaining the permit, to
operate as if the permit were already in place resulting in expenditures for
equipment, personnel and systems without the ability to generate any revenues
from the processing of the additional waste streams until the storage permit is
issued.
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Research and development expenses in 1994 were $6,415 as compared to
$29,131 in 1993. These expenses were incurred in connection with the continuing
development of the Company's technology. In April 1995, the Company will be
submitting its Patent Application for this technology.
The company incurred a net loss of $857,383 for the year ended December 31,
1994 as compared to a net loss of $711,714 for the year ended December 31, 1993,
an increase of 20%. This increase was attributed to the write-off of
Capitalized Permit costs of $366,285 and the manufacturing inventory being
reduced by an allowance of $104,410.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements during the past
five years from cash flow generated by operations, the proceeds of its initial
public offering in 1987, the proceeds of subsequent public warrant exercises and
private placements of Common Stock. The Company's original plant and equipment
needs were funded through an SBA loan, which has been paid in full, and the
Company borrows funds from a bank from time to time on a short-term or
installment basis. The Company also utilizes lease/purchase arrangements to
finance equipment acquisitions. All of the Company's current bank loans and
lease financing obligations are guaranteed by the Company's two executive
officers.
In December 1992, the Company commenced a private offering of 5,000,000
shares of Common Stock at $0.10 per share. Gross proceeds of $384,000 were
received by December 31, 1992, and an additional $216,000 was received
thereafter. Of the $568,636 net proceeds of the offering, $232,071 was used
for working capital purposes including reduction of accounts payable and
$63,787 was applied to the 1992 insurance premium, with the remaining $273,000
used for the purchase and lease of additional equipment under which the Company
obligated itself in the amount of $450,000 for the purpose of acquiring waste
treatment and recovery equipment needed to expand the facility. The Company
was required to provide collateral of $100,000 which was being held in an
interest-bearing certificate of deposit. The leasing company recorded a
perfected security interest on the equipment acquired under the lease
financing. The payment terms on the lease originally provided for monthly
payments of $9,625 over a 60 month period, bearing interest at 10.5%. In March
1994, the Company entered into a restructuring agreement with respect to this
capital lease obligation whereby the remaining balance due under the lease has
been reduced by $100,000 thereby reducing the monthly payments to $6,475 over
a 60-month period bearing interest at 10.51%. In February 1996, the Company
and the leasing company agreed to a one year modification of the lease,
starting in February 1996, to two monthly payments of $7,500.00 and each month
thereafter $5,000.00 and at which time the entire note will be rewritten.
In 1994, the Company began an additional private placement of 5,600,000
shares of Common Stock at $0.125 per share for an aggregate purchase price of
$700,000 and with underlying Class A and B warrants at $0.125 and $0.18
respectively. Gross proceeds of $576,500 were received by December 31, 1994,
with $123,500 in 1995. The proceeds of this offering were used to pay
expenditures incurred in connection with the 6NYCRR Sec.373 (Federal Part b)
permit application, working capital and retiring debt.
In February 1994, Robert Misa, a director of the Company furnished $60,000
and another stockholder furnished $25,000 as collateral for an $85,000 loan to
the Company from Fleet Bank. The loan bears interest at the prime rate, is
payable interest only for the first two years, and thereafter payments of
principal and interest will be required from the Company. In consideration for
furnishing the collateral, the Company will either issue Common Stock at a
purchase price of $.125 per share upon maturity of the loan or ten-year options
to purchase 30,000 shares of Common Stock at an exercise price of $.10 per share
for each $10,000 of collateral furnished. In April 1994, the stockholder who
furnished the $25,000 converted his loan to shares of common stock pursuant to
the 1994 private placement offering. It was agreed by the Company and Robert
Misa that in July 1995, the collateral was used to pay the loan in full. In
April 1996, Robert Misa will receive 484,000 shares of Common Stock under the
terms and conditions of the agreement.
- --------------------------------------------------------------------------------
-11-
<PAGE>
To date, the Company's operations have not been adversely affected by
inflation; however in the later part of 1994, the chemical manufacturing
companies increased their prices due to the shortages from depleted shipments
and recent flooding of the manufacturing facilities in the Mid West.
The Company had negative cash flow of -$893 at December 31, 1995 and a
negative cash flow of -$2,318 at December 31, 1994, primarily attributable to
decreases in operating losses, purchases of equipment, intangible and other
assets and a decrease in employee compensation.
Working capital at December 31, 1995 was -$229,881 as compared to -$267,995
at December 31, 1994.
At December 31, 1995 total long-term debt and capital lease obligations
were $0 and $290,157 respectively. The Company has no other material commitments
for capital expenditures.
The Company continues to take steps, which were started in March 1994 to
reduce overhead expenses and direct costs in an effort to eliminate the negative
cash flow from operations. The Company has restructured its capital lease
obligation to provide for lower monthly payments and negotiated with the
mortgage holder of the property for a lower monthly rent. If the cash flow is
not so improved and there is a significant delay in the Company's receipt of its
6NYCRR Sec.373 (Federal Part b) permit, the Company will require additional
working capital. There is no assurance that such funds will be available for
either long-term or short-term, or if available, on terms which will be
acceptable to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Exhibit A attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
IDENTIFICATION OF DIRECTORS.
Other Capacities
Period Served in which currently
Name Age as Director serving
- ---- --- ------------- ------------------
Larry Kreisler 49 Since 1984 Chairman
President
Kathi Kreisler 45 Since 1984 Vice President
Secretary, Treasurer
Robert Misa 40 Since 1991 Vice President
Arthur Holland 66 Since 1984 None
Kathi Kreisler is a Co-founder of the Company and served as its President
from 1984 through December 1994. She has been a Director since March 1984. In
January 1995, Ms. Kreisler accepted the Board nomination to serve as Vice
President, Secretary Treasurer of the Company. From 1979 to 1984, Ms. Kreisler
was a principal in Kreisler Bags (subsequently incorporated as Kreisler Bags and
Filtration, Inc.), the predecessor of the Company. Ms. Kreisler is the wife of
Larry Kreisler.
Larry Kreisler is a Co-founder of the Company and has been its Chairman of
the Board and a Director since March 1984. He served as Vice-President,
Secretary Treasurer from March 1984 through December 1994. In January 1995, Mr.
Kreisler accepted the Board nomination to serve as President of the Company.
From 1973 to 1984 Mr. Kreisler managed pollution treatment systems for several
companies in the metal finishing industries. Mr. Kreisler is the husband of
Kathi Kreisler.
- --------------------------------------------------------------------------------
-12-
<PAGE>
Arthur Holland has been a Director of the Company since March 1984. Mr.
Holland has been the owner and President of W&A Holland, Inc., a supplier and
service company for equipment to the metal finishing industry since 1975. Mr.
Holland is a chemical engineer.
Robert Misa has been a Director of the Company since January 1991 and Vice
President since January 1994. Mr. Misa has been the owner of Caro-Bob Plumbing
Supply, Inc. since 1974. Prior to that he owned and was engaged in various other
plumbing supply businesses.
The Directors of the Company are elected at the annual meeting of
stockholders, and serve until the next annual meeting of stockholders. The
Company's executive officers are appointed by and serve at the discretion of the
Board of Directors, subject to the terms and conditions of the employment
agreements described below. There are no arrangements or understandings between
any of the Directors of the Company and any other person pursuant to which such
person was selected as a Director of the Company. Other than Mr. and Ms.
Kreisler, there are no other family relations between any directors or officers
of the Company.
IDENTIFICATION OF EXECUTIVE OFFICERS.
Name Age Current Office Held
- ---- --- ------- ------ ----
Larry Kreisler 49 Chairman,
President
Kathi Kreisler 45 Vice President
Secretary, Treasurer
Robert Misa 40 Vice President
Currently, there is no fixed term of office for any executive officer and
all officers serve at the discretion of the Board of Directors. Each person
selected to become an executive officer has consented to act as such and there
are no arrangements or understandings between the executive officers or any
other persons pursuant to which he or she was or is to be selected as an
officer.
For a description of the backgrounds of Ms. Kreisler, Mr. Kreisler and Mr.
Misa see Identification of Directors.
The information in the above tables is based in part upon information
furnished by the respective persons listed above, and, in part, upon records of
the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning the
compensation paid or accrued by the Company during the fiscal year ended
December 31, 1995 to or on behalf of the Company's President and the one other
named executive officer of the Company (hereinafter referred to as the "named
executive officers") for services rendered in all capacities to the Company
whose total aggregate salary and bonus exceeded $100,000:
- --------------------------------------------------------------------------------
-13-
<PAGE>
<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Name and
Principal Salary ($) Bonus ($) Other Annual Awards, All Other
Position Year Compensation Options/SARs(#) Compensation
Kathi Kreisler, 1995 $2,153 - - - -
Vice President
1994 $17,308 - - - -
Larry Kreisler, 1995 $146,294 - $26,000 - $9,000
President
1994 $65,157 - $61,000 - -
</TABLE>
There were no stock options granted to the named executive officers for the
fiscal year ended December 31, 1995 No stock appreciation rights were granted or
exercised during such fiscal year.
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1995 with respect to the
Company's named executive officers. No stock appreciation rights were exercised
or outstanding during such fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE><CAPTION>
Value of Unexercised in-
Value Number of Securities the-Money Options at
Realized Underlying Unexercised FY-End Market Price of
Shares Market Options at Fiscal Year-End shares at FY-End($)
acquired price at FY (#) less exercise price
End
Name on exercise exercise Exercisable Unexercisable Exercisable Unexercisable
(#) less
exercise
price)
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler 0 - 172,500 7,500,000 N/A N/A
Larry Kreisler 0 - 172,500 7,500,000 N/A N/A
</TABLE>
EMPLOYMENT ARRANGEMENTS
The Company had entered into an employment agreement with Kathi Kreisler,
as President of the Company, effective January 1, 1993 (the "K. Kreisler
Employment Agreement"). The K. Kreisler Employment Agreement provided for a
five-year term and an annual base salary of $100,000 for the year ended December
31, 1993, $150,000 for the year ended December 31, 1994 and $175,000 for each
year thereafter. The K. Kreisler Employment Agreement also provided for a bonus
equal to 4% of the net income before taxes of the each calendar year commencing
January 1, 1993, reimbursement of business related expenses, use of a Company
automobile and participation in any employee benefits provided to all employees
of the Company. In March 1994, Kathi Kreisler voluntarily agreed to waive the
balance of her 1994 salary payments. In January 1995, under mutual agreement
between Kathi Kreisler and the Board, Kathi Kreisler became Vice President and
Secretary Treasurer of the Company and agreed to alter the existing employment
agreement as to Ms. Kreisler's title only. Kathi Kreisler again voluntarily
waived receipt of her 1995 salary except for $2153.00.
Kathi Kreisler's employment may be terminated by the Company at any time
for "cause" (as defined in the K. Kreisler Employment Agreement) and her
employment may be terminated at any time by the mutual consent of the Board of
Directors and Ms. Kreisler. If Ms. Kreisler is terminated by the Company for
"cause", the Company is obligated to pay her all amounts due under the K.
Kreisler Employment Agreement which have accrued but are unpaid as of the date
of termination.
The K. Kreisler Employment Agreement also includes non-competition
provisions which prevent Ms. Kreisler, during the term of the agreement, from
participating, directly or indirectly, in the ownership, control, management or
employ of any business entities other than the Company without the prior written
consent of the Board of Directors.
- --------------------------------------------------------------------------------
-14-
<PAGE>
The Company has entered into an employment agreement with Larry Kreisler,
as the Chairman of the Board, Vice President and Secretary-Treasurer of the
Company, effective January 1, 1993 (the "L. Kreisler Employment Agreement").
The L. Kreisler Employment Agreement provides for a five-year term and an annual
base salary of $100,000 for the year ended December 31, 1993, $150,000 for the
year ended December 31, 1994 and $175,000 for each year thereafter. The L.
Kreisler Employment Agreement also provides for a bonus equal to 4% of the net
income before taxes of the each calendar year commencing January 1, 1993,
reimbursement of business related expenses, use of a Company automobile and
participation in any employee benefits provided to all employees of the Company.
Larry Kreisler had waived his 1994 salary increase and in March 1994, agreed to
reduce his annual base salary. In January 1995, under mutual agreement between
Larry Kreisler and the Board, Larry Kreisler became President of the Company and
agreed to alter the existing employment agreement as to Mr. Kreisler's title
only.
Larry Kreisler's employment may be terminated by the Company at any time
for "cause" (as defined in the L. Kreisler Employment Agreement) and his
employment may be terminated at any time by the mutual consent of the Board of
Directors and Mr. Kreisler. If Mr. Kreisler is terminated by the Company for
"cause", the Company is obligated to pay him all amounts due under the L.
Kreisler Employment Agreement which have accrued but are unpaid as of the date
of termination. The L. Kreisler Employment Agreement also includes non-
competition provisions which prevent Mr. Kreisler, during the term of the
agreement, from participating, directly or indirectly, in the ownership,
control, management or employ of any business entities other than the Company
without the prior written consent of the Board of Directors.
STOCK OPTIONS.
In October 1992, the Company issued stock options to purchase an aggregate
of 690,000 shares of the Company's Common Stock at $.l25 per share to the
following individuals. The options are exercisable at any time, during the
period December 31, 1992 through December 31, 1997.
Name Number of Shares
---- ------ -- ------
Kathi Kreisler 172,500
Larry Kreisler 172,500
Arthur Holland 86,250
Robert Misa 86,250
Joseph Casuccio 86,250
David Halperin 86,250
In addition, the Company issued options to Kathi Kreisler and Larry
Kreisler to each purchase 7,500,000 shares of Common Stock for $.125 per share
over a five year period commencing on December 31, 1992, subject to the
following terms and conditions. The options to purchase 2,500,000 shares are
only exercisable if the Company has gross revenues of $3,000,000 for any
calendar year during the term of the option, commencing with the year ending
December 31, 1993. The options to purchase the second 2,500,000 shares are
exercisable only if the Company has gross revenues of $4,000,000 for any
calendar year during the term of the option and subsequent to a year in which
the Company has gross revenues of $3,000,000. The options to acquire the
remaining 2,500,000 shares are exercisable only if the Company has gross
revenues of $6,000,000 for any calendar year during the term of the option and
subsequent to a year in which the Company has gross revenues of $4,000,000.
The Company granted stock options under a severance agreement with Mr. Vito
Russo, the former executive Vice-President of Sales and Marketing. Under this
plan, Mr. Russo is granted 5 options to purchase 50,000 shares of common stock,
each at a price of $.125 per share. The first expired April 1, 1995 and each
subsequent option will expire on April 1 of each consecutive year thereafter.
(See Note 9 to the Financial Statement: Stockholders' Equity)
- --------------------------------------------------------------------------------
-15-
<PAGE>
STOCK OPTION PLAN
In January 1987, the Company adopted an Incentive Stock Option Plan (the
"ISO Plan") covering 5,000,000 shares of the Company's Common Stock, pursuant to
which employees, including officers, of the Company are eligible to receive
incentive stock options as defined under the Internal Revenue Code of 1986, as
amended. To date, no options have been granted under the ISO Plan. Under the ISO
Plan, options may be granted at not less than 100% (110% in the case of 10%
shareholders) of the fair market value (100% of the closing bid price on the
date of grant) of the Company's Common Stock on the date of grant. Options may
not be granted more than ten years from the date of adoption of the ISO Plan.
Options granted under the ISO Plan must be exercised within then (10) years from
the date of grant. The optionee may not transfer any option except by will or by
the laws of descent and distribution. Options granted under the ISO Plan must be
exercised within three months after termination of employment for any reason
other than death or disability, and within one year after termination of
employment due to death or disability. The Board of Directors of the Company has
the power to impose additional limitations, conditions and restrictions in
connection with the grant of any option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1995, certain
information concerning stock ownership by all persons known by the company to
own beneficially 5% or more of the outstanding shares of the Company's Common
Stock, each director, and all officers and directors of the Company as a group.
Name and Address of Amount and Percentage
Beneficial Nature of of
Holder or Identity of Beneficial Outstanding
Group Ownership Stock (7)
------------------------------------------------------------
Kathi Kreisler 5,398,175 12.8
23 Woodleigh Court (1) (2)
Holbrook NY 11741
Larry Kreisler 5,398,175 12.8
23 Woodleigh Court (1) (3)
Holbrook NY 11741
Arthur Holland 762,144 1.8
48 Roger Drive (4)
Port Washington NY
Robert Misa 1,367,554 3.2
289 Bay Avenue (5)
Huntington Bay, NY 11743
Stephen Jerome 2,009,000 4.8
18 Johnson Court
Cresskill NJ 07626
All Officers & Directors 12,449,744 29.5
as a group (four persons) (6)
1) Mr. and Ms. Kreisler each disclaim beneficial ownership of the shares of
Common Stock owned by the other.
2) Includes 172,500 shares of Common Stock underlying options exercisable
within 60 days of the date of this Offering Memorandum. Does not include
7,500,000 shares of Common Stock issuable upon exercise of non-currently
exercisable options.
- --------------------------------------------------------------------------------
-16-
<PAGE>
3) Includes 172,500 shares of Common Stock underlying options exercisable
within sixty (60) days of the date of this Offering Memorandum. Does not
include 7,500,000 shares of Common Stock issuable upon exercise of non-
currently exercisable options.
4) Includes 86,250 shares of Common Stock underlying options exercisable within
60 days of the date of this Offering Memorandum.
5) Includes 86,250 shares of Common Stock underlying options exercisable within
60 days of the date of this Offering Memorandum.
6) Includes the 517,500 shares of Common Stock subject to currently exercisable
options, as set forth in footnotes 2, 3, 4 and 5.
7) Does not include an aggregate of 5,172,500 shares of Common Stock issuable
upon exercise of (i) options available for grant under the Company's Stock
Option Plan and (ii) options granted to individuals other than officers,
directors and principal stockholders of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1992, the Company purchased supplies and components from Caro-Bob
Plumbing Supply, Inc. (Caro-Bob"), a company owned by Robert Misa, a director of
the Company, for an aggregate of approximately $37,693. In August 1992, the
Company issued 300,000 shares of Common Stock to Mr. Misa in payment of $30,000
of the outstanding amount due. In April 1996, Caro-Bob Plumbing Supply will
receive, as agreed, 480,000 shares, at $0.125 per share, in lieu of money for
purchases made by the Company for supplies and components during the past few
years.
In February 1991, the Company borrowed $187,000 from JC Associates, Inc.
Lenore Holland, the wife of Arthur Holland, a director of the Company, is a
principal stockholder of JC Associates, Inc. The note was payable in three
annual principal and interest (15% per annum) payments. At the option of the
lender payment was made in the form of Common Stock of the Company in lieu of
cash. In September 1992, the company issued 906,250 Shares of Common Stock to JC
Associates, Inc. in payment of $62,500 in principal plus accrued interest of
$28,125. In 1993, the Company issued 812,500 Shares of Common Stock to JC
Associates, Inc. in payment of $62,500 in principal plus accrued interest of
$18,750. In 1994, the Company issued 718,750 Shares of Common Stock to JC
Associates, Inc. in payment of $62,500 in principal plus accrued interest of
$9,375.
Kathi and Larry Kreisler have personally guaranteed the Company's
obligations under four capital leases and three operating leases. At December
31, 1995, the Company's obligations under such leases and note aggregated
$374,500 versus $604,133 at December 31, 1994.
In February 1994, Robert Misa, a director of the Company, furnished $60,000
and another stockholder furnished $25,000 as collateral for an $85,000 loan to
the Company from Fleet Bank. The loan bears interest at the prime rate, is
payable interest only for the first two years, and thereafter payments of
principal and interest will be required from the Company. In consideration for
furnishing the collateral, the Company will either issue Common Stock at a
purchase price of $.l25 per share upon maturity of the loan or ten-year options
to purchase 30,000 shares of Common Stock at an exercise price of $.10 per share
for each $10,000 of collateral furnished. In April 1994, the stockholder who
furnished the $25,000 converted his loan into shares of common stock pursuant to
the Company's 1993/94 private placement offering. It was agreed by the Company
and Robert Misa that in July 1995, the collateral was used to pay the loan in
full. In March 1996, Robert Misa will receive 484,000 shares of Common Stock
under the terms and conditions of the agreement.
The Company issued stock under S-8 Consulting agreement to RTP
Environmental Associates for consulting work done in relationship to the 6NYCRR
373 permit and other permits required by the Company. RTP Environmental
Associates received 400,000 shares of the Company's common stock, valued at
$.125 per share. The Company intends to issue stock to retire certain vendor
accounts payable debt in 1996 to Halperin & Halperin, P.C. and Steven Feldman,
Esq. (Patent Attorney).
In June of 1995, the Company signed an agreement with M.H. Meyerson & Co.
to perform investment banking services for the Company. Such services may
include but are not limited to
- --------------------------------------------------------------------------------
-17-
<PAGE>
assistance in mergers, acquisitions, internal capital structuring, placement of
new debt and equity issues all with the objective of accomplishing the Company's
business and financial goals. In consideration of the services previously
rendered and to be rendered by M.H. Meyerson, warrants to purchase a total of
1,500,000 shares of Company's Common Stock with an exercise price of $0.15 per
share with demand and piggy back registration rights.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) The following financial statements are included in Part II, Item 8 and
are attached hereto:
i) Balance Sheets
a) December 31, 1995
b) December 31, 1994
ii) Statements of Income Years Ended
a) December 31, 1995
b) December 31, 1994
c) December 31, 1993
iii) Statements of Stockholders' Equity
a) January 1, 1993 to December 31, 1995.
iv) Statements of Cash Flow Years Ended
a) December 31, 1995
b) December 31, 1994
c) December 31, 1993
v) Notes to Financial Statements
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K have been filed during the last quarter of the
Company's fiscal year.
(c) Exhibits.
---------
Exhibit
Number Description
- ------- -----------
10.1* - Lease for premises at 1110-A Farmingdale Road, North Lindenhurst,
New York, dated January 12, 1986.
10.2* - Lease/purchase agreement between the Company and Wasco Funding
Co. dated March 24, 1993.
10.3* - Loan Agreement between the Company and Apple Bank dated October
22, 1990.
10.4* - Loan Agreement between the Company and JC Associates, Inc. dated
February 15, 1991.
10.5* - Employment Agreement between the Company and Larry Kreisler dated
October 15, 1992.
10.6* - Employment Agreement between the Company and Kathi Kreisler dated
October 15, 1992.
10.7* - Employment Agreement between the Company and Vito M. Russo dated
as of February 1, 1993.
10.8** - Amended Lease/purchase agreement between the Company and Wasco
Funding Co. dated March 25,1994.
* Reference is made to the exhibits (bearing the same numbers as those set
forth above) to the annual report on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 33-20954).
** Reference is made to the exhibits (bearing the same numbers as those set
forth above) to the annual report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 33-20954).
- --------------------------------------------------------------------------------
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) KBF POLLUTION MANAGEMENT, INC.
--------------------------------------------------------------------
By (Signature and Title /s/ Larry Kreisler
---------------------------------------------------------
LARRY KREISLER, PRESIDENT
Date: MARCH 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title /s/ Larry Kriesler
---------------------------------------------------------
LARRY KREISLER, CHAIRMAN OF THE BOARD,
PRESIDENT,
DIRECTOR
Date: MARCH 15, 1996
By (Signature and Title /s/ Kathi Kriesler
---------------------------------------------------------
KATHI KREISLER, VICE PRESIDENT,
SECRETARY, TREASURER,
DIRECTOR
Date MARCH 15, 1996
- --------------------------------------------------------------------------------
-19-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND DECEMBER 31, 1994
- --------------------------------------------------------------------------------
-20-
<PAGE>
TABLE OF CONTENTS
-----------------
KBF POLLUTION MANAGEMENT, INC.
------------------------------
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . 22
BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) . . . . . . . . . . . . . . . . 24
STATEMENT OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
STATEMENT OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 29
- --------------------------------------------------------------------------------
-21-
<PAGE>
[LOGO] Shapiro Bress & Guidice P.C. Tel: 516-932-0404
CERTIFIED PUBIC ACCOUNTANTS Fax: 516-932-7882
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
of KBF Pollution Management, Inc.
We have audited the accompanying balance sheets of KBF Pollution Management,
Inc. as of December 31, 1995 and 1994, and the related statement of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of KBF Pollution Management, Inc.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
accordance with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. The Company has significant operating
losses, working capital deficiency, and is delinquent on its largest capital
lease obligation, raising substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Shapiro Bress & Guidice P.C.
Jericho, New York
February 24, 1996
-1-
366 N. Broadway Suite 317, Jericho, NV 11753
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC.
------------------------------
BALANCE SHEET
-------------
ASSETS
------
12/31/95 12/31/94
-------- --------
CURRENT ASSETS:
- --------------
Cash $ 11,025 $ 11,918
Cash - Restricted (Note 17) 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $26,657 & $24,523) 186,648 220,705
Inventories (Notes 2 & 3) 13,369 35,676
Prepaid Expendable Supplies 18,993 15,851
Other Prepaid Expenses
29,697 60,063
--------- --------
Total Current Assets 287,232 371,713
FIXED ASSETS (NOTES 4 & 8):
- --------------------------
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,248,829 & $1,039,205) 1,205,621 1,420,472
Leased Property under Capital Leases
(Net of Accumulated Depreciation &
Amortization of $369,881 & $304,592) 175,968 214,786
Non Expendable Stock, Parts & Drums 139,368 139,222
------- ---------
Total Fixed Assets, Net 1,520,957 1,774,480
OTHER ASSETS:
- ------------
Cash Surrender Value - OLI 8,957 11,639
Security Deposits 9,381 18,069
Patent (Net of Accumulated Amortization
of $8,772 & $7,576) (Note 5) 22,764 12,753
Capitalized Permit Costs (Note 18) 1,655 78,430
-------- --------
Total Other Assets 132,757 20,891
-------- --------
TOTAL ASSETS $1,940,946 $2,267,084
========== ==========
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-23-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC.
------------------------------
BALANCE SHEET
-------------
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------
12/31/95 12/31/94
--------- --------
CURRENT LIABILITIES:
- -------------------
Accounts Payable - Trade $ 335,419 $ 355,150
Accrued Expenses (Note 19) 76,062 83,429
Taxes Withheld & Accrued 13,259 13,771
Current Portion of Long-Term
Debt (Note 6) 21,637 67,971
Current Portion of Capital Lease
Obligations (Note 8) 70,736 119,387
---------- --------
Total Current Liabilities 517,113 639,708
LONG-TERM LIABILITIES:
- ---------------------
Long-Term Debt (Note 6 & 7) 0 11,986
Long-Term Lease Obligations (Note 8) 290,157 324,215
Total Long-Term Liabilities 290,157 336,201
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 9):
- ---------------------------------------
Com. Stock par value .00001 per sh.
Authorized - 500,000,000 shares
Issued & Outstanding
Dec. 31, 1995 - 42,216,213 423 407
Dec. 31, 1994 - 40,619,045
Capital in Excess of Par Value 4,201,061 4,001,431
Retained Earnings (Deficit) (3,067,808) (2,710,663)
---------- ----------
Total Stockholders' Equity (Deficit)
1,133,676 1,291,175
----------- -----------
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY (DEFICIT) $1,940,946 $2,267,084
========== ==========
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-24-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC.
------------------------------
STATEMENT OF INCOME
-------------------
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/94 12/31/93
-------- -------- --------
REVENUES $ 1,823,390 $ 1,664,974 $ 1,709,364
- --------
LESS: Cost of Operations 1,266,397 1,205,607 1,249,061
- ---- --------- --------- ---------
Gross Profit 556,993 459,367 460,303
LESS: General & Admin. Expenses 795,812 785,203 1,001,585
- ----
Research & Development Costs 0 6,415 29,131
Advertising 6,295 43,886 25,201
Maintenance & Repairs 57,127 53,524 65,472
---------- ---------- -----------
Operating Income (Loss) (302,241) (429,661) (661,086)
OTHER INCOME (EXPENSES):
- -----------------------
Other Income 6,608 34,808 31,914
Interest Income 975 1,098 6,733
Write-off of Capitalized
Permit Costs 0 (366,285) 0
Interest Expense (59,745) (92,048) (84,623)
---------- ---------- ----------
Income (Loss) before Provision
for Income Tax (354,403) (852,088) (707,062)
Less: Income Tax Provision 2,742 5,295 4,652
---------- ---------- ----------
NET INCOME (LOSS) $ (357,145) $ (857,383) $ (711,714)
======== ======== =========
EARNINGS PER COMMON SHARE: (NOTE 11)
- ------------------------------------
Income (Loss) from Continuing
Operations $ (.0087) $ (.0218) $ (.0200)
========== ========== ==========
NET INCOME (LOSS) $ (.0087) $ (.0218) $ (.0200)
========== ========== ==========
See accompanying notes and accountant's report
- --------------------------------------------------------------------------------
-25-
<PAGE>
KBF POLLUTION MANAGEMENT, INC
-----------------------------
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------
JANUARY 1, 1993 TO DECEMBER 31, 1995
------------------------------------
<TABLE><CAPTION>
Common Stock
Common Stock Purchase Warrants Capital In Retained
(Par Value $.00001) (Stated Value $.0001) Excess Earnings
Shares Amount Warrants Amount of Par (Deficit) Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE , January 1, 1993 32,064,658 $321 0 0 $2,979,499 ($1,141,564) $1,838,256
Common Stock issued 5,892,501 59 707,191 707,250
Rounding (1) (1)
NET LOSS for the Year Ended
December 31, 1993 (711,714) (711,714)
--------------------------------------------------------------------------------------------------
BALANCE, December 31, 1993 37,957,159 380 0 0 3,686,690 (1,853,279) 1,833,791
Common Stock issued 2,661,889 27 314,740 314,767
Rounding 1 (1) 0
NET LOSS for the Year Ended
December 31, 1994 (857,383) (857,383)
--------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 40,619,045 407 0 0 4,001,431 (2,710,663) 1,291,175
Common Stock issued 1,567,168 16 0 0 199,630 199,646
Rounding
NET LOSS for the Year Ended
December 31, 1995 (357,145) (357,145)
--------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 42,216,213 $423 0 0 $4,201,061 ($3,067,808) $1,133,676
</TABLE>
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-26-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC.
------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/94 12/31/93
-------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
<S> <C> <C> <C>
Cash Received from Customers $ 1,802,046 $ 1,675,277 $ 1,695,288
Cash Paid to Suppliers & Employees (1,742,432) (1,660,846) (1,805,843)
Interest & Dividends Received 975 1,380 255
Interest Paid (43,007) (90,382) (68,871)
Income Taxes Paid (4,215) (5,393) (9,842)
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities 13,367 (79,964) (189,013)
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Cash Purchases of Equipment (44,525) (54,359) (333,077)
Cash Purchases of Intangible &
Other Assets (13,062) (54,121) (142,895)
Proceeds from Disposal of Assets 0 0 4,369
----------- ----------- -----------
Net Cash Provided (Used) in Investing
Activities (57,587) (108,480) (471,603)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds from Sale of Stock &
Warrants 125,500 186,500 626,000
Proceeds from Long-Term Debt 0 101,586 0
Repayment of Long-Term Debt &
Capital Lease Obligations (82,173) (101,960) (112,787)
----------- ----------- -----------
Net Cash Provided (Used) by Financing
Activities 43,327 186,126 513,213
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (893) (2,318) (147,403)
CASH at Beginning of Year 11,918 14,236 161,639
----------- ----------- -----------
CASH at End of Year $ 11,025 $ 11,918 $ 14,236
=========== =========== ===========
</TABLE>
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-27-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC.
------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/94 12/31/93
------------------------------------
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
- ------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ (357,145) $ (857,383) $ (711,714)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 298,194 312,218 261,055
Amortization 1,196 1,196 1,196
Cash value of Officer's Life Ins. 2,682 1,986 1,550
Accounts Payable paid in stock 50,000 0 0
Consulting Fees Paid in Stock (31,392) 31,392 0
Interest Expense paid in stock 0 9,375 18,750
Bad Debts 2,134 (724) (18,569)
Write-off of Permit Costs 0 333,854 0
(Gain) Loss on Disposal of Equip. (6,000) 0 24,675
(Increase) Decrease in:
Trade Accounts Receivable 31,923 7,236 14,076
Inventories 22,307 83,680 132,619
Prepaid Expenses & Deposits 27,224 1,590 (1,558)
Interest Receivable 0 2,478 (2,478)
Non-Expendable Stock, Parts & Drums (146)
Increase (Decrease) in:
Accounts Payable (19,731) 44,715 88,358
Withholding Taxes Payable (512) (2,212) (7,219)
Accrued Expenses (7,367) (49,365) 10,246
---------- ---------- ----------
$ 13,367 $ (79,964) $ (189,013)
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
- ----------------------------------
Capital lease obligations incurred
for the lease of equipment. $ 0 $ 9,982 $ 362,651
========= ========== ==========
Common Stock issued for the repayment of
principal and interest on loan (Note 7). $ 0 $ 71,875 $ 81,250
========= ========== ==========
Common Stock issued for the payment of
accounts payable. $ 50,000 $ 0 $ 0
========= ========== ==========
</TABLE>
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-28-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
NOTE 1 - BUSINESS DESCRIPTION
- -----------------------------
KBF Pollution Management, Inc. (the Company) was incorporated in the State of
New York on March 15, 1984, with an initial authorized capitalization of 200
shares of No Par Common capital stock, which was later increased to 500,000,000
shares of .00001 Par Value Common stock. The Company is actively engaged in the
recovery, recycling and transportation of metal-bearing hazardous and non-
hazardous wastes predominantly in the Northeast region.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
Revenue Recognition
- -------------------
Recovery service revenues are recognized and invoiced as such services are
completed.
Inventories
- -----------
Inventories are valued at the lower of average cost or market, using the FIFO
method.
Depreciation and Amortization
- -----------------------------
Property and equipment are depreciated for financial reporting and tax purposes
using the straight line method over the estimated useful lives of the assets.
Leasehold improvements are removable and are amortized over their useful lives.
Useful lives are estimated between 5 and 10 years. The patent is being
amortized over 17 years.
Use of Estimates
- ----------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets and
liabilities , the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the estimates
that were used.
NOTE 3 - INVENTORIES
- ---------------------
Inventories are comprised of the following major categories:
12/31/95 12/31/94
-------- --------
Shipping Supplies 4,770 9,889
Reagents 8,599 25,787
----- ------
$ 13,369 $ 35,676
======= =======
The Company has reclassified its drum and service stock/parts inventory as fixed
assets to more accurately present these items in line with their actual use. The
Company did not purchase any drums or service parts in 1995. The drums and the
service stock/parts have an extended life and are being utilized by the Company
in its operations. The 1994 financial statements have been restated to conform
with the 1995 classification of drums and service stock/parts as fixed assets as
opposed to inventory.
Due to the Company's focus on its waste services as opposed to equipment
manufacture sales and service, the related inventory has been reduced by an
allowance of $104,410 in 1994.
- --------------------------------------------------------------------------------
-29-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
NOTE 4 - FIXED ASSETS
- ----------------------
<TABLE><CAPTION>
Fixed assets are categorized and listed below:
Balance Additions Retirements Balance
Property, Equipment & Improvements at 12/31/94 1995 1995 at 12/31/95
- ---------------------------------- ----------- ---- ---- -----------
<S> <C> <C> <C> <C>
Facility $ 1,550,250 $ 7,046 0 $ 1,557,296
Office Equipment, Computers
& Furnishings 214,523 2,208 0 216,731
Manufactured Equipment Leased Out 72,999 0 0 72,999
Equipment 472,836 3,023 (23,505) 452,354
Leasehold Improvements 149,069 6,000 0 155,069
----------- -------- ---------- -----------
SUB TOTAL 2,459,677 $ 18,277 $ (23,505) $ 2,454,449
======== ========== ---------
Less: Accumulated Depreciation
and Amortization (1,039,205) (1,248,828)
---------- -----------
NET $1,420,472 $ 1,205,621
========= ==========
Leased Equipment Under Capital Leases
- -------------------------------------
Office Equipment & Furniture 135,039 0 0 135,039
Equipment 384,339 26,471 0 410,810
----------- -------- ---------- ----------
SUB TOTAL 519,378 $ 26,471 $ 0 545,849
======== ========== ----------
Less: Accumulated Amortization (304,592) (369,881)
----------- ----------
NET $ 214,786 $ 175,968
========== ===========
</TABLE>
Depreciation Expense was $298,194 and $312,218 for the years ended December 31,
1995 and 1994 respectively.
NOTE 5 - PATENT
- ---------------
The Company obtained a United States patent on its waste volume reduction unit
and method in August, 1988. The costs incurred to obtain the patent have been
capitalized and are being amortized over a 17 year life.
The Company has decided to patent its previously unpatented proprietary know how
and techniques in waste recovery and recycling operations. In June 1995, the
Company announced its submission of its patent application relating to its
current selective separation technology. To date the Company has incurred
costs of $10,437 on submission of this patent.
NOTE 6 - LONG-TERM DEBT
- ------------------------
Long-term debt consists of the following:
<TABLE><CAPTION>
12/31/95 12/31/94
-------- --------
<S> <C> <C>
Note payable to Apple Bank payable monthly at
$833.33 plus interest at 2% over prime. This obligation is
personally guaranteed by two of the Company's Officer's $ 0 $ 2,502
Line of Credit with Fleet Bank bearing interest at a rate
of 8.5% per annum. 0 56,018
Note Payable to Vito Russo payable in weekly installments
of $200 for 120 weeks, bearing interest at 5.63%. 21,637 21,437
--------- --------
Total Long-Term Debt 21,637 79,957
Less: Current Portion 21,637 67,971
--------- --------
Long-Term Portion $ 0 $ 11,986
========= ========
</TABLE>
- --------------------------------------------------------------------------------
-30-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
NOTE 7 - NOTES PAYABLE
- ----------------------
In order to finance various costs in connection with the Company's Part 373(b)
permit, it borrowed $187,500 during the first quarter of 1991 from a corporation
whose shareholders include certain advisors of the Company. Principal and
interest were paid by the issuance of stock in lieu of cash. As of February 1994
the loan was satisfied. The terms are more fully described in Note 6.
The impact on stockholder's equity as caused by the lender's decision to receive
common stock in lieu of cash payments through February 15, 1994, is listed
below:
<TABLE><CAPTION>
Common Stock Capital In
Par Value .00001 Excess of
----------------
Shares Amount Par Total
------ ------ --- ------
<S> <C> <C> <C> <C>
Feb. 15, 1992 906,250 $ 9 $ 90,616 $ 90,625
Feb. 15, 1993 812,500 8 81,242 81,250
Feb. 15, 1994 718,750 7 71,868 71,875
------- ------ -------- --------
2,437,500 $ 24 $243,726 $ 243,750
========= ======= ======== ========
</TABLE>
NOTE 8 - LEASES
- ---------------
The Company leases various equipment under capital leases. It also leases
certain equipment under noncancellable operating leases which expire in various
years through 1996.
In March 1994, the Company entered into a restructuring agreement on their
largest capital lease obligation. Originally, the Company obligated itself on
this capital lease for $450,000 with collateral of $100,000 being held in a
restricted interest-bearing Certificate of Deposit. The payment terms on the
lease were for monthly payments of $9,625 over a sixty month period, bearing
interest at 10.5% per annum.
Upon restructuring, the balance of the lease was reduced by $100,000, utilizing
the restricted Certificate of Deposit. Under this modified lease, the payment
terms call for monthly payments of $6,475 over a sixty month period, bearing
interest at a rate of 10.51% per annum. The Company is in arrears on the payment
of this obligation, and is currently negotiating with the lessor to restructure
the debt.
The Company's base rent for the space it occupied during 1995 was $89,278.
Due to a foreclosure action involving the landlord and the landlord's mortgage
holder, the Company presently has no formal lease and is paying an agreed upon
rent from month to month.
Rental expense under non-cancelable operating leases is as follows:
1995 1994 1993
---- ---- ----
Vehicles and equipment 24,849 18,919 47,067
------ ------ ------
Total $ 24,849 $ 18,919 $ 47,067
====== ======== ========
Future minimum payments under capital leases and noncancellable operating leases
with initial terms of one year or more consisted of the following at
December 31, 1995.
Capital Operating
Leases Leases
------ ------
1996 $ 112,822 $ 13,606
1997 110,516 0
1998 95,464 0
1999 77,700 0
2000 58,275 0
Thereafter 0 0
--------- ---------
Total minimum lease payments 454,777 $ 13,606
==========
- --------------------------------------------------------------------------------
-31-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
Capital Operating
Leases Leases
------ ------
Amounts representing interest (93,884)
--------
Present value of net minimum
lease payments remaining 360,893
Less: Current portion 70,736
---------
Long -Term Portion $ 290,157
==========
On all capital leases, the equipment under lease is pledged toward the lease
- ----------------------------------------------------------------------------
obligation.
- -----------
NOTE 9 - STOCKHOLDERS' EQUITY
- -----------------------------
Public Offering of Company Common Stock
- ---------------------------------------
In June 1994, the Company offered for sale 5,600,000 units for an aggregate
price of $700,000 through a private offering. The offering price per unit was
$.125 per unit. Each investor was required to invest a minimum of $5,000
(40,000 units). Each unit consists of one share of common stock, with a par
value of $.00001 per share, and one redeemable Class A warrant. Each Class A
warrant entitles the holder to purchase one share of common stock and one
redeemable Class B warrant during the one year period, commencing with the
offering date, with an exercise price of $.125. Each Class B warrant entitles
the holder to purchase one share of common stock during the two year period
commencing with the offering date, at a price of $.18 per share.
There was no minimum proceed requirement to be met by the Company in order to
complete the offering.
At the financial statement date, all unexercised Class A warrants have expired.
All unexpired Class B warrants expire between August and October 1996.
Incentive Stock Plan
- --------------------
In January, 1987, the Company adopted an Incentive Stock Option Plan pursuant to
which 5,000,000 shares of common stock of the Company were reserved for
insurance upon exercise of options designated as "incentive stock options" under
Section 422A of the Internal Revenue Code of 1954, as amended. No options have
been granted as of December 31, 1995.
Stock Options
- -------------
In October, 1992, stock options were issued to officers, directors and certain
advisors of the company. The option holders in aggregate have the right to
purchase 690,000 shares of stock at the exercise price of $.125 per share, no
sooner than December 31, 1992, and no later than December 31, 1997.
In addition, the Company issued options to Kathi Kreisler and Larry Kreisler to
each purchase 7,500,000 shares of Common Stock for $.125 per share over a five
year period commencing on December 31, 1992, subject to the following terms and
conditions. The options to purchase 2,500,000 shares are only exercisable if
the Company has gross revenues of $3,000,000 for any calendar year during the
term of the option, commencing with the year ending December 31, 1993.
The options to purchase the second 2,500,000 shares are exercisable only if the
Company has gross revenues of $4,000,000 for any calendar year during the term
of the option and subsequent to a year in which the Company has gross revenues
of $3,000,000. The options to acquire the remaining 2,500,000 shares are
exercisable only if the Company has gross revenues of $6,000,000 for any
calendar year during the term of the option and subsequent to a year in which
the Company has gross revenues of $4,000,000.
- --------------------------------------------------------------------------------
-32-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
The Company granted stock options under a severance agreement with Mr. Vito
Russo, the former executive Vice - President of Sales and Marketing. Under this
plan, Mr. Russo is granted 5 options to purchase 50,000 shares of common stock,
each at a price of $.125 per share. The options provided for herein shall be
exercised as follows:
Option Exercisable Number of Price Per Expiration Date
Number Date Shares Share
1 April 1, 1995 50,000 $.125 Mar. 31,1996
2 April 1, 1996 50,000 $.125 Mar. 31,1997
3 April 1, 1997 50,000 $.125 Mar. 31,1998
4 April 1, 1998 50,000 $.125 Mar. 31,1999
5 April 1, 1999 50,000 $.125 Mar. 31,2000
The Company entered into an agreement with M.H. Meyerson & Company dated June 8,
1995, whereby Meyerson would provide planning, structuring, strategic and other
investment banking services to the Company. In consideration of services
previously rendered and future services to be rendered to the Company, Meyerson
has been granted warrants to purchase a total of 1,500,000 shares of common
stock with an exercise price of $.15 per share. To date 1,000,000 warrants have
been issued with the balance due to be issued in June 1996. The warrants and the
underlying shares can be sold anytime between June 1997 and June 2000. To date,
M.H. Meyerson & Co. have not exercised any of the warrants.
NOTE 10 - INCOME TAXES
- ----------------------
The Company has tax net operating loss carry forwards available to offset future
taxable income through 2010.
At December 31, 1995 the Company has tax net operating loss carry forwards
expiring as follows:
December 31, 2001 $ 71,403
2002 491,952
2003 120,270
2004 318,761
2005 116,490
2006 0
2007 279,456
2008 705,626
2009 850,743
2010 348,301
-------
$ 3,303,002
= =========
NOTE 11 - EARNINGS PER SHARE
Number of Shares
Common Stock outstanding: 1995 1994
------ -----
Beginning of Year 40,619,045 37,957,159
End of Year 42,216,213 40,619,045
Issued during the year 1,597,168 2,661,886
Common stock reserved under stock options 2,440,000 940,000
Weighted Average number of outstanding shares 40,922,951 39,297,131
Shares issuable under various stock options are excluded from the weighted
average number of shares on the assumption that their effect is non-diluting.
- --------------------------------------------------------------------------------
-33-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
NOTE 12 - RESEARCH & DEVELOPMENT
- --------------------------------
The Company spent sums on research and development of its selective separation
technology. All research and development costs are expended as incurred. The
costs incurred during 1995 and 1994 were $0 and $6,415 respectively.
NOTE 13 - SEGMENT INFORMATION
- -----------------------------
The Company operates in one principal segment - waste water recovery facility
specializing in recycling metal-bearing hazardous and non-hazardous wastes. In
the past the Company reported on three segments: waste water recovery, equipment
sales and service, and laboratory analysis. The Company has ceased manufacturing
and marketing new equipment and has abandoned its commercial lab operations. The
Company's activities in equipment sales and service and in the laboratory
analysis are there to support the waste water recycling segment, and are not
separate divisions or profit centers.
NOTE 14 - COMMITMENTS & CONTINGENCIES
- -------------------------------------
GOING CONCERN
- -------------
As shown in the accompanying financial statements, the Company has incurred
significant operating losses for each of the three years ended December 31,
1993, 1994 and 1995. At December 31, 1995, the Company's current liabilities
exceed its current assets by $229,881. Those factors, as well as the non-
performing capitalized lease obligation as discussed below, create an
uncertainty about the Company's ability to continue as a going concern.
Management of the Company is continuing its efforts towards obtaining the Part
373(b) Permit, which it believes will enhance the Company's ability to achieve
higher levels of sales volume. The Company received from the New York State
Department of Environment and Conservation notice of complete application for
the aforementioned permit, and is continuing its efforts toward final approval.
The ability of the Company to continue as a going concern is dependent on
achieving significantly higher levels of sales. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
ON GOING INVESTIGATION
- ----------------------
The environmental crime unit of the Suffolk County District Attorney's Office
obtained and utilized a search warrant to initiate an investigation at the
Company's headquarters on November 1, 1994.
Outside counsel has indicated that conversations with the District Attorney's
Office have revealed that the investigation was prompted by allegations that the
Company is soliciting and receiving waste which it is not authorized to receive,
and discharging that waste into the public sewer system without treatment.
The Company has denied any wrong doing and has cooperated fully with the
investigation by the District Attorney's Office since the inception. Larry
Kreisler, the Company's President has voluntarily met with representatives of
the District Attorney' and answered questions under oath. Mr. Kreisler has
offered to return at any time to answer additional questions.
Outside counsel to the Company has indicated that the District Attorney has not
yet made a decision whether to submit the case to a grand jury. Counsel has
notified the District Attorney that, in the event that the case is submitted to
a grand jury, Larry Kreisler would like to testify on behalf of the Company, and
will waive immunity from prosecution in order to do so.
Legal counsel has indicated that it is difficult to speculate at this time on
whether a grand jury proceeding will take place, and if it does, whether
findings will produce reasonable cause to believe that a crime or crimes have
been committed by the Company. It is equally as difficult to speculate on what
charges might be followed.
The ultimate outcome of this investigation and where it will lead cannot
presently be determined.
- --------------------------------------------------------------------------------
-34-
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
Accordingly, no provision for any liability or limitation on business as usual
have been made in the accompanying financial statements.
NON-PERFORMING LEASE OBLIGATION
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The Company is technically in default on its largest capital lease obligation
which calls for monthly payments of $6,475 over 60 months. At the balance sheet
date, the Company was delinquent in paying in excess of one years scheduled
installment payments. Effective February 26, 1996, the Company has structured an
agreement with the lessor covering the terms of payment of the obligation
through May 15, 1997. The payment terms call for a $7,500 payment on February
26, 1996, and on March 15, 1996, to be followed by twelve consecutive payments
of $5,000 to be paid on the fifteenth of each month thereafter. The lessor and
the Company have agreed to permanently restructure the obligation on or about
May 15, 1997, incorporating the remaining principal and interest. This lease
obligation is collateralized by facility equipment that was purchased through
the lease financing. Should the lessor commence an action against the Company
for non-payment, the collateralized assets are in jeopardy.
EMPLOYMENT CONTRACTS
- --------------------
The Company has entered into five year employment contracts with Kathi Kreisler
and Larry Kreisler, commencing January 1, 1993. The terms of the contracts call
for each one to receive an annual base salary of $100,000 in 1993, $150,000 in
1994 and $175,000 in year 1995, 1996 and 1997. The agreements also provide for
a bonus equal to 4% of the Company's net income before taxes for each calendar
year during the term of the agreement.
See Note 15 for events that have a material impact on these employment
contracts.
NOTE 15 - EMPLOYMENT CONTRACT WAIVERS
- -------------------------------------
In March of 1994, Kathi Kreisler and Larry Kreisler voluntarily waived certain
compensation due to them under their employment contracts (Note 14). In 1995
Kathi Kreisler received $2,153 in compensation, waiving the balance of the
compensation she was entitled to under her employment contract.
NOTE 16 - RESIGNATION OF OFFICER
- --------------------------------
Effective March 2, 1994, Vito M. Russo resigned as Executive Vice President of
Sales and Marketing. In conjunction with Mr. Russo's resignation, a severance
agreement was entered into whereby Mr. Russo is to receive 120 weekly payments
of $200 each. In addition, the Company granted stock options to Mr. Russo as
more fully discussed in Note 9. To date payments have not commenced nor have any
stock options been exercised.
NOTE 17 - CASH RESTRICTED
- -------------------------
As a requirement with respect to the Company's Part 373(b) permit application,
the Company had to establish an irrevocable letter of credit with a commercial
bank in the amount of $27,500. The letter of credit is collateralized 100% by a
Certificate of Deposit in the amount of $27,500. The Certificate of Deposit is
restricted to remain on deposit at the commercial bank which issued the letter
of credit.
NOTE 18 - CAPITALIZED PERMIT COSTS
- ----------------------------------
The Company has incurred costs as part of the application process required to
obtain a Part 373(b) Permit. Prior to a 1994 change in the law, that provided an
exemption on the handling of certain hazardous wastes, this permit would have
among other things, enabled the Company to process a broader category of waste
streams than it was then permitted to handle at the time. The exemption
provided by the change in the law effectively allowed the Company to process
additional hazardous waste streams without the need for the Part 373(b) Permit.
The Company is still pursuing approval of this permit, primarily for the
provisions in the permit that allow for increased storage of hazardous
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<PAGE>
KBF POLLUTION MANAGEMENT, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
waste prior to its being treated. Management considers the storage provisions of
the permit essential in attaining a greater level of sales volume. The Company
is continuing to incur costs during the approval process. Since the Company is
currently able to process a broader category of waste streams under the
exemption, those costs attributable to that phase of the permit application have
been written off against current operations. Those costs associated with the
efforts to allow the Company to store the waste within its facility have been
capitalized. These capitalized costs were $78,430 at December 31, 1994, with a
charge against 1994 income in the amount of $366,285. The capitalized permit
costs at December 31, 1995 were $91,655.
NOTE 19 - ACCRUED EXPENSES
- --------------------------
Accrued expenses are broken down into categories as follows:
Insurance Payable $ 7,233
Interest Payable 34,124
Audit Fee Payable 23,000
Other Accrued Expenses 11,705
--------
$ 76,062
========
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