SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
Commission file number 33-20954
(Exact name of registrant as specified in its charter)
(State of other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
(Address of principal executive offices)(Zip Code)
(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 No X
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 August 19, 1997 was $5,364,227.
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 August 19, 1997: 43,635,930
<PAGE>
PART I
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 laboratory analysis are 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 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.
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 and recycled back
into commerce. Revenues from the sale of recovered metals have 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 uses an affiliated waste transporter, METAL
RECOVERY TRANSPORTATION CORP. "MRTC", that is licensed in New York,
Connecticut and Rhode Island. MRTC has also applied for their New Jersey and
Massachusetts transporter permits. As of the date of this writing, Metal
Recovery Transportation, Corporation has been approved for it's A901 permit to
transporter hazardous waste in New Jersey. This permit will be issued within
30 days. 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 2000 active repeating customers
for its waste recovery services. For the years ended December 31, 1996 and
December 31, 1995, 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 will not continue to offer its waste volume reduction systems
for sale, the present inventory has been depleted, and revenues from such
activities, as a percentage of total revenues, has not been significant.
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
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 § 373-1.1(d),(1),(iv),(vii),(viii),(xii) and Federal regulations,
40 CFR § 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.
In December 1994, the Company, with the consent of NYS DEC, altered its
pending 6NYCRR §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 local radio station the
Administrator's intention to issue a 6NYCRR § 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. To date, the NYSDEC has not
initiated the public commenting period of either the DEIS or the Draft Permit.
There is no indication that the DEC will do so in the near future. This
permit along with all other permits are specific to the Companies present
operating location. The Company is in the process of seeking a second more
manageable location which will not require the majority of these permits. In
addition, the company is considering other alternatives to retain it present
operation..
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. To date, the Consultants
efforts have not produced any results.
Manufacturing and Supplies
The Company no longer manufactures it's 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. The Company does still manufacture
containment trays, recirculation systems and solution transfer systems. This
equipment is manufactured on an "as requested" basis.
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 flooding of the manufacturing facilities
in the Mid West. Due to this increase in the Cost of Operations, customers of
the Company had their price per gallon increased in 1995 and 1996.
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 the submission of a patent
application on the "Selective Separation Technology" utilized by the
Company. (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
well injection, 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 the 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
years ending December 31, 1996 and December 31, 1995, the Company did not
incur any costs directly related to research and development.
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 unpatented proprietary know-how and
techniques in its waste recovery operations. This information is crucial to
the Company's operations and business prospects. In June 1995, the Companies
President submitted a patent application on the current Selective Separation
Technology". The Company is currently negotiatinga licensing agreement with
regards to this pending 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
vehicle liability insurance in the amount of $5,000,000. To date, the Company
has not experienced any material liability claims.
Employees
The Company currently has 20 full-time and 2 part-time employees. In
addition to its two executive officers, the Company employs three chemists
(laboratory personnel), a treatment manager, a service-maintenance forman,
five 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
68,000 square foot building. The Company was notified in February 1995 that
the landlord's mortgage holder had started foreclosure action against the
landlord. Due to the foreclosure action involving the landlord's mortgage
holder, the Company presently has no formal lease and is paying an agreed upon
rent month to month. The Company entered into a stipulation with the bank in
July 1997, whereby the Company agreed to pay $11,375.00 per month until
December 31, 1997. At that time, the Company has agreed to vacate the
premises. In addition to these payments, the Company agreed to 2 additional
balloon payments due August 15, 1997 and October 15, 1997 for $32,000 each.
The August payment has been made. Should the Company fail to vacate the
premises on the agreed upon date, the rent will increase to $20,000 per month
under a three month extension. Purchase of the building is presently being
negotiated between an outside party and the Bank. The Company has meet with
this outside party and is negotiating an arrangement whereby the Company may
continue its present operations at this location, at the present base rent, in
conjunction with the outside parties operations. This new operation, if it
materializes, will make use of all of the Companies present and pending
operating permits.
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 hired Mr.
Frederick Eisenbud of Cahn Wishod & Lamb, LLP to represent the Company in this
matter. On June 27, 1997 this matter was resolved. All charges against Mr.
Kreisler have been dropped. All charges against the Company have also been
dropped in exchange for a guilty plea to a single Class A' misdemeanor
relating to laboratory record keeping and reporting which occurred prior to
October 2, 1992 and a payment of a $25,000 fine. The laboratory record
keeping and reporting deficiency, the result of criminally negligent actions
by former laboratory management personnel, occurred prior to October 2, 1992.
When management learned of this breakdown in its internal control procedures,
controls were put in place which management is satisfied have successfully
prevented any reoccurrence of the earlier problem.
KBF believes that the outcome of the intensive twenty-seven month joint
investigation by the District Attorney's office and investigative branch of the
New York State Department of Environmental Conservation, which lead to the
plea by the Company, reaffirms the integrity of the patent-pending technology
and operations employed by KBF (See Note 12 to the Financial Statement: Legal
Matters.)
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
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.
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. The information is complied with care from sources
believed to be reliable, but the Company cannot guarantee the accuracy nor
does it warrantee its use for any purpose.
High Low
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
1996
First Quarter .23 .1875
Second Quarter .25 .20
Third Quarter .375 .23
Fourth Quarter .375 .19
Approximate number of holders
Titles of Class of record as of August 12, 1997
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. Future 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, 1996, 1995, 1994,
1993 and 1992 has been obtained from the Companies financial statements. The
financial statements for the year ended December 31, 1996, were audited by
Irving Handel & CO., Independent Auditor, and for the years ended 1995, 1994,
1993 and 1992 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.
<PAGE>
Year Ended December 31.
1996 1995 1994 1993 1992
SUMMARY OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
Net Revenues 1,973 1,823 1,664 1,709 2,287
Net Income (468) (357) (857) (712) (287)
EARNINGS PER SHARE (0.0110) (0.0087) (0.0218) (0.020) (0.0100)
SUMMARY OF
BALANCE SHEET
Current Assets 432 287 371 604 876
Current Liabilities 821 517 639 667 596
Working Capital (389) (230) (268) (63)
Total Assets 1,859 1,941 2,267 2,889 2,725
Total Long-Term Debt 229 290 336 389 290
Total Liabilities 1,050 807 976 1,056 886
Stockholders' equity 809 1,133 1,291 1,834 1,838
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, 1996 as Compared to the Year Ended
December 31, 1995
The Company's revenues increased 8% to $1,972,964 for the year ended
December 31, 1996.("1996") from revenues of $1,823,390 for the year ended
December 31, 1995 ("1995"). 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 1996 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 68% of revenues for 1996 compared to 69%
for 1995. The Company attributes this decrease to the continued steps taken
by Management to reduce costs.
General and administrative expenses increased by 31% to $1,041,264 for
the year ended December 31, 1996 from $795,812 for the year ended December 31,
1995 due primarily to legal and settlement costs related to the recently
settled action and administrative salaries and expenses paid to the Acting
Chief Executive Officer, whose term of office ended May 1997. Management
believes that administrative expense levels are presently (post May 1997) at
or below the 1995 levels.
The Company also continued to incur expenses related to obtaining the
6NYCRR §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).
The Company incurred a net loss of $468,398 for the year ended December
31, 1996 as compared to a net loss of $357,145 for the year ended December 31,
1995, an increase of 31%. The 1996 loss is due primarily to the increase in
general and administrative expenses as explained above. Depreciation Expense
was $193,745 and $298,194 for the years ended December 31, 1996 and 1995
respectively. It should be noted that the Company is negotiating to move its
operating facility to a more advantageous location where business is more
easily obtained and costs further reduced.
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
§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).
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 1995 Financial
Statements: Capitalized Permit Costs)
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 the aforementioned $100,000 collateral 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 at $ 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 §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 carried interest at the prime
rate, was payable at interest only for the first two years, and thereafter
payments of principal and interest to be required from the Company. In
consideration for furnishing the collateral, the Company would 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 received 484,000 shares of
Common Stock under the terms and conditions of the agreement. During 1996,
the subsidizing of the former Acting Chief Executive Officer's salary and
expenses was accomplished through a $60,000 loan from certain shareholders,
which is due on demand and bears an interest rate of 10% per annum.
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 a positive cash flow of +$8149 at December 31, 1996 and a
negative cash flow of -$893 at December 31, 1995, The positive cash flow in
1996, while operating at a loss of -$468,398, is indicative of the subsidizing
of the former Acting Chief Executive Officer's salary and expenses through a
$60,00 loan from certain shareholders, the substantial excess by which
depreciation charges exceeds principle payment for long term debt, stock
issued for services, and increases in accounts payable and accrued expenses.
Working capital at December 31, 1996 was -$388,788 as compared to
- -$229,881 at December 31, 1995.
At December 31, 1996 total long-term debt and capital lease obligations
were $228,885 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 further improve cash
flow from operations. While this effort was interrupted in 1996, management
believes the 1997 overhead costs will reflect these reductions.
In conjunction with the stipulation entered into with apple bank (1996
Financial Statement Exhibit A, Note 7) the Company is considering a more
advantageous location as well as working to retain its present facility.
Management believes that the new or additional location would result in
additional business opportunities. In conjunction with this prospect, the
Company expects to incur material capital expenditures and related costs.
Management is in the process of raising additional capital for this
occurrence. 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.
Shapiro, Bress & Goldstein, L.L.P. (formerly known as Shapiro & Bress CPA's,
P.C. and Shapiro, Bress & Guidice CPA's, P.C.) was formerly engaged to audit
the financial statements of the Company. Effective January 10, 1997, Shapiro
Bress & Goldstein, L.L.P., resigned from this position. Shapiro Bress &
Goldstein, L.L.P.'s resignation is not due to any disagreements on any matter,
transaction or event, with respect to accounting principals or practices,
financial statements, disclosure or auditing scope or procedure, at any time
during the engagement of Shapiro Bress & Goldstein, L.L.P. as auditor of the
Company's financial statements. The Company's Board of Directors has approved
the hiring of Irving Handel & Co., 112 Irving Palce, Woodmere, New York 11599,
as the Company's new auditor, effective immediately.
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 50 Since 1984 Chairman
President
Kathi Kreisler 46 Since 1984 Vice President
Secretary, Treasurer
Robert Misa 41 Since 1991 Vice President
Arthur Holland 67 Since 1984 to None
November 4, 1996
James Aiello July 1996 to May 199 Acting Chief Executive Officer
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.
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.
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.
Arthur Holland was a Director of the Company from March 1984 to November
1996. Mr. Holland officially retired from the Board on November 4, 1996. 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.
James Aiello was a Director of the Company from July 1996 to May 1997.
Mr. Aiello has been affiliated with the Company since January 1996 in a number
of capacities. Mr. Aiello will from time to time advise the Board on domestic
and international business growth opportunities.
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 51 Chairman,
President
Kathi Kreisler 46 Vice President
Secretary, Treasurer
Robert Misa 42 Vice President
James Aiello 57 Acting Chief Executive Officer
(term July 1996 to May 1997)
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, 1996 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 $100,000:<PAGE> <PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name
and
Principal
Position Year Salary ($) Bonus ($) Other Annual
Compensation Awards All Other
Options/ Compensation
SARs(#)
Kathi
Kreisler,
Vice
President 1996 $8,325 - - - -
1995 $2,153 - - - -
Larry
Kreisler,
President 1996 $195,474 - -
1995 $146,294 $26,000 $9,000
James
Aiello,
Acting CEO 1996 - $24,000 -
There were no new
stock options granted to the named executive officers for the fiscal year
ended December 31, 1996. However, certain stock options granted to the
executive officers were revised and reallocated. (See "Stock Options" for
further information.) No stock appreciation rights were granted or exercised
during such fiscal year.
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1996 with respect
to the Company's named executive officers. No stock appreciation rights were
exercised or outstanding during such fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Shares Value Number of Value of Unexercised
Acquired Realized Securities in-the-Money Options
on Market price Underlying at FY-End Market Price
Exercise at FY End Unexercised of Shares at FY-End ($)
Exercise Options less exercise price
(Less at Fiscal
exercise Year-End
Price) (#)
Exerciseable Unexerciseable Ex-able unex-able
Kathi Kreisler 0 - 4,264,278 N/A N/A
Larry Kreisler 0 - 4,264,278 N/A N/A
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 voluntarily lowered the amount of her 1995 salary
to $2153.00 and 1996 salary to $8325.00. To date, during 1997, no salary has
been received by Ms. Kreisler.
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. By mutual agreement between the
Board and K. Kreisler, the existing Employment Agreement is being
renegotiated.
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.
Larry Kreisler voluntarily agreed to postpone his 1994 salary increase and in
March 1994, agreed to reduce his annual base salary. By mutual agreement
between the Board and L. Kreisler, for 1996 the salary allocation was
$195,000.00. In 1997, L. Kreisler salary allocation is $165,000.00. 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.. 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. By mutual
agreement between the Board and K. Kreisler, the existing Employment Agreement
is being renegotiated.
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
At the Annual Shareholders Meeting held on November 4, 1996, certain
options were revised and reallocated in accordance with the following table
and are immediately exercisable at $.10 per share for a period of 10 years,
ending November 4, 2006.
<PAGE>
Name Number of Shares
Larry Kreisler 4,091,778
Robert Misa 1,259,870
Arthur Holland 526,886
Kathi Kreisler 4,091,778
Joe Casuccio 642,300
David Halperin 1,210,209
Stephen Lewen 1,002,258
Stephen Jerome 1,537,076
Richard Moses 601,845
The Company set aside stock options under an unexecuted severance
agreement with Mr. Vito Russo, the former executive Vice-President of Sales
and Marketing. Under this unexecuted plan, Mr. Russo was to be granted 5
options to purchase 50,000 shares of common stock, each at a price of $.125
per share. The first was to expire April 1, 1995 and each subsequent option
would expire on April 1 of each consecutive year thereafter. (See Note 8 to
the Financial Statement: Stockholders' Equity)
In June 1996, the Company issued 83,871 common stock options, exercisable
at $.155 per share to Stephen Feldman, Esq. for services rendered. The
options shall expire in January 2001.
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. Under the agreement,
Meyerson was to be granted warrants to purchase a total of 1,500,000 shares of
common stock with an exercise price of $.15 per share. To date no warrants
have been issued. The warrants and the underlying shares would be exercisable
anytime between June 1997 and June 2000.
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, 1996, 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.<PAGE>
Name and Address of Amount and Percentage
Beneficial Nature of of
Holder or Identity of Beneficial Outstanding
Group Ownership Stock (7)
Kathi Kreisler 9,662,453 15.9
23 Woodleigh Court (1) (2)
Holbrook NY 11741
Larry Kreisler 9,662,453 15.9
23 Woodleigh Court (1) (3)
Holbrook NY 11741
Arthur Holland 1,289,030 2.1
48 Roger Drive (4)
Port Washington NY
Robert Misa 2,627,424 4.3
289 Bay Avenue (5)
Huntington Bay, NY 11743
Stephen Jerome 3,582,076 5.9
18 Johnson Court (6)
Cresskill NJ 07626
All Officers & Directors 23,241,360 38.3
as a group (four persons) (7)
Mr. and Ms. Kreisler each disclaim beneficial ownership of the shares of
Common Stock owned by the other.
Includes 4,262,278 shares of exercisable options for Common Stock.
Includes 4,262,278 shares of exercisable options for Common Stock.
Includes 613,136 shares of exercisable options for Common Stock.
Includes 1,346,120 shares of exercisable options for Common Stock.
Includes 1,573,076 shares of exercisable options for Common Stock.
Includes the 10,483,812 shares of exercisable options for Common, as set forth
in footnotes 2, 3, 4 and 5.
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 received, 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, 1996, the Company's obligations under such leases and note aggregated
$502,265 versus $374,500 at December 31, 1995.
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 carried interest at the prime
rate, and interest was payable only for the first two years, and thereafter
payments of principal and interest would be required from the Company. In
consideration for furnishing the collateral, the Company would 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 received 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. In 1996, the Company issued to Steven
Feldman, Esq. Stock options which upon exercise will retire the related
account payable debt. In 1996, the Company issued stock to retire certain
vendor accounts payable debt of $30,000.00 to Halperin & Halperin, P.C. and
$50,000.00 to Cahn Wishod & Lamb, L.L.P.
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 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 are to be granted. To date no warrants have been issued.
In May 1996, a new company was formed to handle the transportation needs
of KBF Pollution Management, Inc. The new company, Metal Recovery
Transportation Corporation, is solely owned by Lawrence M. Kreisler. Mr.
Kreisler, formed Metal Recovery Transportation, Corporation due to KBF's
inability to timely obtain necessary permits throughout the northeast. The
company was formed without any financial assistance from KBF and is presently
operating at a loss. The company will replace all outside transporters that
the KBF is presently using.<PAGE>
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, 1996
b) December 31, 1995
ii) Statements of Income Years Ended
a) December 31, 1996
b) December 31, 1995
c) December 31, 1994
iii) Statements of Stockholders' Equity
a) January 1, 1994 to December 31, 1996.
iv) Statements of Cash Flow Years Ended
a) December 31, 1996
b) December 31, 1995
c) December 31, 1994
v) Notes to Financial Statements
vi) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
i) Changes in the Registrant's Certifying Accountant-March 7, 1997
(c) Exhibits.
Exhibit
Number Description
10.1* - Lease/purchase agreement between the Company and Wasco Funding
Co. dated March 24, 1993.
10.2* - Employment Agreement between the Company and Larry Kreisler
dated October 15, 1992.
10.3* - Employment Agreement between the Company and Kathi Kreisler
dated October 15, 1992.
10.4** - Amended Lease/purchase agreement between the Company and
Wasco Funding Co. dated March 25,1994.
10.5 - Stipulation, dated June 26, 1997, between the Company and John
Spollen, Receiver f/b/o Apple Bank for Savings
*Reference is made to the exhibits 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 to the annual report on Form 10-K for
the fiscal year ended December 31, 1993 (File No. 33-20954).
<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
Larry Kreisler
LARRY KREISLER, President
Date: August 15, 1997
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 LARRY KREISLER
LARRY KREISLER,
Chairman of the Board,
President, Director
Date: August 15, 1997
By (Signature and Title KATHI KREISLER
KATHI KREISLER,
Vice President,
Secretary, Treasurer,
Director
Date August 15, 1997
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND DECEMBER 31, 1995
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
INDEPENDENT AUDITORS' REPORT23
BALANCE SHEET24
LIABILITIES & STOCKHOLDERS' EQUITY25
STATEMENT OF INCOME26
STATEMENT OF CASH FLOWS28
<PAGE>Irving Handel P.C. Tel: 516-932-0404
CERTIFIED PUBIC ACCOUNTANTS Fax' 516E932.7882
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of KBF Pollution Management, Inc.<PAGE>
KBF POLLUTION MANAGEMENT, INC.
BALANCE SHEET
ASSETS
12/31/96 12/31/95
CURRENT ASSETS:
Cash $ 19,174 $ 11,025
Cash - Restricted 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $29,563 & 26,657) 266,065 186,648
Other Receivables 69,912 0
Inventories 17,779 13,369
Prepaid Expendable Supplies 18,993 18,993
Other Prepaid Expenses 12,752 29,697
Total Current Assets 432,175 287,232
FIXED ASSETS :
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization
of $1,467,315 & $1,248,829) 1,027,102 1,219,592
Leased Property under Capital Leases
(Net of Accumulated Depreciation &
Amortization of
$345,141 & $369,881) 141,758 161,997
Non Expendable Stock,
Parts & Drums 139,368 139,368
Total Fixed Assets, Net 1,308,228 1,520,957
OTHER ASSETS:
Cash Surrender Value - OLI 0 8,957
Security Deposits 12,406 9,381
Patent (Net of Accumulated Amortization
of $9,968 & $8,772) 10,361 22,764
Capitalized Permit Costs 95,580 91,655
Total Other Assets 118,347 132,757
TOTAL ASSETS $1,858,750 $1,940,946
See accompanying notes and accountant's report.<PAGE>
KBF POLLUTION MANAGEMENT, INC.
BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY
12/31/96 12/31/95
CURRENT LIABILITIES:
Accounts Payable - Trade $ 491,156 $ 335,419
Accrued Expenses 157,270 76,062
Taxes Withheld & Accrued 13,127 13,259
Current Portion of Long-Term
Debt 81,637 21,637
Current Portion of Capital Lease
Obligations 77,773 70,736
Total Current Liabilities 820,963 517,113
LONG-TERM LIABILITIES:
Long-Term Lease Obligations 228,885 290,157
Total Long-Term Liabilities 228,885 290,157
STOCKHOLDERS' EQUITY :
Com. Stock par value .00001 per sh.
Authorized - 500,000,000 shares
Issued & Outstanding
Dec. 31, 1996 - 43,405,546 434
Dec. 31, 1995 - 42,216,213 423
Capital in Excess of Par Value 4,344,671 4,201,061
Retained Earnings (Deficit) (3,536,203) (3,067,808)
Total Stockholders' Equity 808,902 1,133,676
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY $1,858,750 $ 1,940,946
See accompanying notes and accountant's report.<PAGE>
KBF POLLUTION MANAGEMENT, INC.
STATEMENT OF INCOME
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/96 12/31/95 12/31/94
REVENUES $ 1,972,964 $ 1,823,390 $ 1,664,974
LESS: Cost of Operations 1,342,591 1,266,397 1,205,607
Gross Profit 630,373 556,993 459,367
LESS:
General & Admin. Expenses 1,041,264 795,812 785,203
Research & Development Costs 0 0 6,415
Advertising 7,986 6,295 43,886
Maintenance & Repairs 40,770 57,127 53,524
Operating Income (Loss) (459,647) (302,241) (429,661)
OTHER INCOME (EXPENSES):
Other Income 4,500 6,608 34,808
Interest Income 1,096 975 1,098
Write-off of Capitalized
Permit Costs 0 0 (366,285)
Interest Expense (11,254) (59,745) (92,048)
Income (Loss) before Provision
for Income Tax (465,305) (354,403) (852,088)
Less: Income Tax Provision 3,093 2,742 5,295
NET INCOME (LOSS) $ (468,398) $ (357,145) $ (857,383)
EARNINGS PER COMMON SHARE: (Note 11)
Income (Loss) from Continuing
Operations $(.0110) $ (.0087) $ (.0218)
NET INCOME (LOSS) $(.0110) $ (.0087) $ (.0218)
See accompanying notes and accountant's report
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1994 TO DECEMBER 31, 1996
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
BALANCE,
January 1,
1994 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 1,597,168 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
Common Stock
issued 1,189,333 11 178,925 0 178,936
Underwriting
Costs 0 0 0 0 (35,315) 0 (35,315)
Rounding 3 3
NET LOSS
for the Year
Ended
December 31,
1996 (468,398) (468,398)
BALANCE,
December 31,
1996 43,405,546 $434 0 0 $4,344,671 $(3,536,203) $808,902
See accompanying notes and accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/96 12/31/95 12/31/94
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Customers $1,943,907 $ 1,802,046$ 1,675,277
Cash Paid to Suppliers & Employees(1,917,696)(1,742,432) (1,660,846)
Interest & Dividends Received 1,096 975 1,380
Interest Paid (11,064) (43,007) (90,382)
Income Taxes Paid (3,595) (4,215) (5,393)
Net Cash Provided (Used) by
Operating Activities 12,648 13,367 (79,964)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Purchases of Equipment (25,995) (44,525) (54,359)
Cash Purchases of Intangible &
Other Assets (2,448) (13,062) (54,121)
Proceeds from Disposal of
Other Assets 53,494 0 0
Net Cash Provided (Used)
in Investing
Activities 25,051 (57,587) (108,480)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Stock &
Warrants 0 125,500 186,500
Underwriting Costs (35,315) 0 0
Proceeds from Long-Term Debt 60,000 0 101,586
Repayment of Long-Term Debt &
Capital Lease Obligations (54,235) (82,173) (101,960)
Net Cash Provided (Used) by Financing
Activities (29,550) 43,327 186,126
NET INCREASE (DECREASE) IN CASH 8,149 (893) (2,318)
CASH at Beginning of Year 11,025 11,918 14,236
CASH at End of Year $ 19,174 $ 11,025 $ 11,918
See accompanying notes and accountant's report.<PAGE>
KBF POLLUTION MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/96 12/31/95 12/31/94
Reconciliation of Net Income to Net
Cash from Operating Activities:
NET INCOME (LOSS) $ (468,398) $(357,145) $ (857,383)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 193,745 298,194 312,218
Amortization 1,196 1,196 1,196
Cash value of Officer's Life Ins. 442 2,682 1,986
Accounts Payable paid in stock 178,937 50,000 0
Consulting Fees Paid in Stock 0 (31,392) 31,392
Interest Expense paid in stock 0 0 9,375
Bad Debts 2,906 2,134 (724)
Write-off of Permit Costs 0 0 333,854
Write-off of Patent 11,207 0 0
Proceeds from Sale of Equipment (4,500) (6,000) 0
(Increase) Decrease in:
Trade Accounts Receivable (82,323) 31,923 7,236
Other Receivables (69,912) 0 0
Inventories (4,410) 22,307 83,680
Prepaid Expenses & Deposits 16,945 27,224 1,590
Interest Receivable 0 0 2,478
Non-Expendable Stock, Parts & Drums 0 (146) 0
Increase (Decrease) in:
Accounts Payable 155,737 (19,731) 44,715
Withholding Taxes Payable (132) (512) (2,212)
Accrued Expenses 81,208 (7,367) (49,365)
$ 12,648 $ 13,367 $ (79,964)
Supplemental schedule of non-cash
investing and financing activities:
Capital lease obligations incurred
for the lease of equipment. $ 0 $ 0 $ 9,982
Common Stock issued for the repayment of
principal and interest on loan. $ 0 $ 0 $ 71,875
Common Stock and Options issued for the
payment of accounts payable. $ 178,937 $ 50,000 $ 0
Security Deposit paid with proceeds from
sale of equipment. $ 4,500 $ 0 $ 0
See accompanying notes and accountant's report.
<PAGE>
NOTE 1 - BUSINESS DESCRIPTIONKBF 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:
12/31/96 12/31/95
Shipping Supplies 7,821 4,770
Reagents 9,958 8,599
$ 17,779 $ 13,369
<PAGE>
NOTE 4 - FIXED ASSETS
Fixed assets are categorized and listed below:
Balance Additions Retirements Balance
Property,
Equipment &
Improvements at 12/31/95 1996 1996 at 12/31/96
Facility $ 1,572,026 $ 25,996 0 $ 1,598,022
Office
Equipment,
Computers
& Furnishings 216,731 0 0 216,731
Manufactured
Equipment
Leased Out 72,999 0 0 72,999
Equipment 451,596 0 0 451,596
Leasehold
Improvements 155,069 0 0 155,069
SUB TOTAL 2,468,421 $ 25,996 $ 0 $ 2,494,417
Less: Accumulated
Depreciation
and Amortization (1,248,829) (1,467,315)
NET $1,219,592 $ 1,027,102
Leased
Equipment
Under Capital
Leases
Office Equipment
& Furniture 135,039 0 0 135,039
Equipment 396,839 0 (44,979) 351,860
SUB TOTAL 531,878 $ 0 $ (44,979) 486,899
Less: Accumulated
Amortization (336,881) (345,141)
NET $ 161,997 $ 141,758
Depreciation Expense was $193,745 and $298,194 for the years ended December
31, 1996 and 1995 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.
In 1995, the president of the Company submitted a patent application relating
to the current selective separation technology. The Company is currently
negotiating a licensing agreement with regards to this pending patent .
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
12/31/96 12/31/95
Note payable to certain significant shareholders who
advanced money to the Company. This obligation is due
on demand and bears an interest rate of 10% per annum. $60,000 $ 0
Note Payable to Vito Russo payable in weekly installments
of $200 for 120 weeks, bearing interest at 5.63%. 21,637 21,637
Total Long-Term Debt 81,637 21,637
Less: Current Portion 81,637 21,637
Long-Term Portion $ 0 $ 0
NOTE 7 - LEASES
The Company leases various equipment under capital leases. It also leases
certain equipment under non-cancellable operating leases which expire in
various years through 2003.
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.
As of February 1996, under a verbal agreement with the lessor, the lease was
renegotiated, whereby the Company made the following payments:
$7,500 - February 1996
$7,500 - March 1996
$5,000 - each month thereafter until July 1997.
At present, a meeting is pending between the lessor and the Company to
renegotiate the terms of the lease and the balance to be paid.
The Company's base rent for the space it occupied during 1996 was $133,917.
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.
The Company entered in to a stipulation with the bank in July 1997, whereby
the Company agreed to pay $11,375 per month until December 31, 1997. At that
time, the Company has agreed to vacate the premises. In addition to these
payments, the Company agreed to 2 additional balloon payments due in August
1997 and October 1997 for $32,000 each. Should the Company fail to vacate the
premises on the agreed upon date, the rent will increase to $20,000 per month
under a three month extension.
Rental expense under non-cancelable operating leases is as follows:
1996 1995 1994
Vehicles and equipment 40,453 24,849 18,919
Total $ 40,453 $ 24,849 $ 18,919
The Company is currently leasing two of its vehicles for the next 7 years at a
base rent of $610 per week. There are additional charges for mileage that are
not included in the minimum lease schedule below.<PAGE>NOTE 7 - LEASES
(continued)
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, 1996:
Capital Operating
Leases Leases
1997 $111,174 $ 31,720
1998 102,917 31,720
199 977,700 31,720
2000 71,225 31,720
2001 0 31,720
Thereafter 0 37,007
Total minimum lease payments 363,016 $195,607
Amounts representing interest ( 56,358)
Present value of net minimum
lease payments remaining 306,658
Less: Current portion 77,773
Long -Term Portion $228,885
On all capital leases, the equipment under lease is pledged toward the lease
obligation.
NOTE 8 - STOCKHOLDERS' EQUITY
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, 1996.
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 certain terms and
conditions.<PAGE>NOTE 8 - STOCKHOLDERS' EQUITY (continued)
Stock Options
At the Annual Shareholders Meeting held on November 4, 1996, these 15,000,000
options were revised and reallocated as indicated on the following table and
are immediately exercisable at .10 per share, for a period of 10 years, ending
November 4, 2006.
Name Number of Shares
Larry Kreisler 4,091,778
Robert Misa 1,259,870
Arthur Holland 526,886
Kathi Kreisler 4,091,778
Joseph Casuccio 642,300
David Halperin 1,210,209
Stephen Lewen 1,002,258
Stephen Jerome 1,573,076
Richard Moses 601,845
Subsequent to the report date, 130,384 of the foregoing options have been
exercised at a price of $.125.
The Company set aside stock options under an unexecuted severance agreement
with Mr. Vito Russo, the former executive Vice - President of Sales and
Marketing. Under this unexecuted plan, Mr. Russo was to be granted 5 options
to purchase 50,000 shares of common stock, each at a price of $.125 per share.
The options were to be exercisable as follows:
Option
Number Exercisable Date Number of Shares Price Per
Share Expiration Date
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 plans to execute an agreement in the future which may or may not
include said options.
In June 1996, the Company issued 83,871 common stock options, exercisable at
$.155 per share to Stephen Feldman, Esquire, for services rendered. The
options expire in January 2001.
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. Under the agreement,
Meyerson was to be granted warrants to purchase a total of 1,500,000 shares of
common stock with an exercise price of $.15 per share. To date no warrants
have been issued. The warrants and the underlying shares would be exercisable
anytime between June 1997 and June 2000.
NOTE 9 - INCOME TAXES
The Company has tax net operating loss carry forwards available to offset
future taxable income through 2011.
At December 31, 1996 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
2011 445,228
$ 3,748,230
NOTE 10- EARNINGS PER SHARE
Number of Shares
Common Stock outstanding: 1996 1995
Beginning of Year 42,216,213 40,619,045
End of Year 43,405,546 42,216,213
Issued during the year 1,189,333 1,597,168
Common stock reserved
under stock options 17,523,871 17,440,000
Weighted Average
number of outstanding shares 42,681,546 40,922,951
Shares issuable under various stock options are excluded from the weighted
average number of shares on the assumption that their effect is non-diluting.
NOTE 11 - SEGMENT INFORMATION
The Company operates in one principal segment - a 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 to support the waste water
recycling segment, and are not separate divisions or profit centers.
NOTE 12 - 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,
1994, 1995 and 1996. At December 31, 1996, the Company's current liabilities
exceed its current assets by $388,788. 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 has successfully concluded costly legal activities,
negotiated a stipulation agreement on its existing location existing
location, and has significantly reduced administrative salaries, utility
costs, and insurance, among other operating costs. <PAGE>
NOTE 12 - COMMITMENTS & CONTINGENCIES (continued)
GOING CONCERN
Management is in the process of considering a more manageable location where
business is more easily obtained and costs further reduced. The Company is
also negotiating the raising of additional capital with numerous underwriters.
The ability of the Company to continue as a going concern is dependent on the
foregoing items. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
LEGAL MATTERS
The previously reported investigation by the Suffolk County District
Attorney's Office, and the eventual indictment of the Company and certain
employees has been settled.
On June 27, 1997, KBF entered a plea of guilty to a single misdemeanor in full
satisfaction of all the charges against the Company, and was sentenced to pay
a fine of $25,000. The fine has been paid in full. In addition, all charges
against its president were dismissed. Thus the criminal investigation is
closed, and there no longer are any charges pending against KBF or any of its
officers or employees.
NON-PERFORMING LEASE OBLIGATION
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 July 1997. The payment terms call for a $7,500 payment on
February 26, 1996, and on March 15, 1996, to be followed by 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 August 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 agreements with Kathi
Kreisler and Larry Kreisler, commencing January 1, 1993. The terms of the
agreements 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. By
mutual agreement between the Board of Directors and the Kreisler's, the
existing employment agreements are being renegotiated.
See Note 13 for events that have a material impact on these employment
contracts.
NOTE 13 - EMPLOYMENT CONTRACT WAIVERS
In March of 1994, Kathi Kreisler and Larry Kreisler voluntarily waived certain
compensation due to them under their employment contracts (Note 12). In 1995
and 1996, Kathi Kreisler received $2,153 and $8,325 in compensation,
respectively, waiving the balance of the compensation she was entitled to
under the contract.<PAGE>NOTE 14 - 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 15 - 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
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 $3,925 at
December 31, 1996, and $91,655 for the period ended December 31, 1995.
It should be noted, this permit is related to the Long Island location, and
not transferable. While the Company is negotiating to move its operating
facility, management is pursuing means to possibly recover these costs.
NOTE 16 - ACCRUED EXPENSES
Accrued expenses are broken down into categories as follows:
Insurance Payable $ 20,279
Interest Payable 34,860
Professional Fees Payable 60,121
Penalties 25,000
Other Accrued Expenses 17,010
$ 157,270
