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, 1997.
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)
(800)366-1426
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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 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 March 27, 1998 was $21,762,936.
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 27, 1998: 56,388,565
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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 for the sole purpose of
recycling the product produced (ionic metal(s)) back into commerce. The Company
operates an in-house certified laboratory to support the recycling process and
perform research and development. The Company also provides waste handling
equipment and compliance support service to their customers. In May 1997, the
Company formed American Metals Recovery, Corp., Gryphon Industries, Inc., and
AMR, Inc. pursuant to the laws of the State of Nevada. These wholly owned
subsidiaries of KBF Pollution Management, Inc. were formed in conjunction with
the move to New Jersey to create flexibility within the corporate organization.
American Metals Recovery Corp. has been active in terms of expending capital
related costs in setting up the facility in New Jersey.
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 wastewater metal recovery
facility for metal bearing wastes to recycle the metals recovered back into
commerce.
The waste is received at the facility, by the Company's related
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.
Once testing is completed, utilizing the Patent Allowed (see Patents
and Proprietary Information) "Selective Separation Technology", the metals are
separated from the solutions. 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 sewer 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 Allowed "Selective Separation
Technology", however, terminates the generator's liability. KBF's process
removes the waste from the environment, thereby terminating the generator's
liability and exempting the generator from the Superfund Generation Tax. The
Company issues a certificate of recovery 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 Laboratory and application has been submitted
for New Jersey. 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 a related waste transporter, METAL RECOVERY
TRANSPORTATION CORP. "MRTC", that is licensed in New York, Connecticut, Rhode
Island, New Jersey, Massachusetts and New Hampshire. 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, 1997 and
December 31, 1996, no one customer accounted for 10% or more of the Company's
total revenues.
EQUIPMENT SERVICES
The Company provides waste handling equipment to its customers. This
equipment is supplied on an "as requested" basis. 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.
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<PAGE>
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 had applied for or obtained all necessary permits regarding
the New York facility. However, the Company has moved to Paterson, New Jersey.
The New York facility will close upon approval by New York State Department of
Environmental Conservation.
The New Jersey facility has applied for all necessary permits required
for its operations.
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 unaffiliated independent 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.
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. As of May
1997, this agreement was cancelled and the Consultants efforts have not produced
any results.
In March of 1998, the Company signed an exclusive worldwide License
Agreement with Solucorp Industries Ltd., for the utilization of the Company's
patent allowed technology. The terms of the agreement call for an initial
license fee of $500,000 plus an additional license fee of $0.0005 per processed
gallon. The agreement also requires royalty payments of 50% of gross per gallon
receipts, not to be less than $3 million at the end of the first two years from
the signing of the contract and $2 million by the end of each year thereafter.
The initial agreement is for a five-year term, with automatic five-year
continuous renewal.
MANUFACTURING AND SUPPLIES
The Company no longer manufactures it's patented waste volume reduction
system. The Company still manufactures containment trays, recirculation systems
and solution transfer systems. This equipment is manufactured on an "as
requested" basis.
The Company has a 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).
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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. On February 3, 1998, the Company announced that the United States
Patent and Trademark Office issued a Notice of Allowance for the 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 Allowed (See Patents and
Proprietary Information) "Selective Separation Technology" occurred over the
years, as a daily "on-going process". Only those costs directly allocated to
Research and Development are represented. For the years ending December 31, 1997
and December 31, 1996, the Company did not incur any costs directly related to
research and development.
PATENTS AND PROPRIETARY INFORMATION
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 Company's
President submitted a patent application on the current "Selective Separation
Technology". Under agreement with the Company's President, L. Kreisler, KBF is
utilizing the Patent in its operations. On February 3, 1998, the Company
announced that the United States Patent and Trademark Office issued a Notice of
Allowance for the patent application for the Selective Separation Technology
("SST"). On March 25, 1998, the Company executed a worldwide license agreement
with Solucorp Industries, LTD for the utilization of the Company's technology.
The Company is the owner of a United States patent issued in 1988
covering the design and function of the waste volume reduction system.
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 the 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 26 full-time and 2 part-time employees. In
addition to its two executive officers, the Company employs three chemists
(laboratory personnel), a recovery manager, seven recovery employees, a
service-maintenance manager, two maintenance technicians, nine office personnel,
one salesperson. The Company will hire additional personnel when necessary. None
of the Company's employees is represented by a union.
ITEM 2. PROPERTIES.
As of December 1, 1997, the Company began the relocation of its
corporate offices, laboratory and main operational facility to Paterson, New
Jersey. The new lease terms, which include a purchase
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option, are for $1,218,600 base rent to be paid monthly over 6 years commencing
December 1997. The Company will occupy the entire building of 60,000 square feet
of space.
The Company's New York facility 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 will be occupying
the building until closure of the facility is accepted by New York State
Department of Environmental Conservation.
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,
relating to the laboratory record keeping, by the Company, reaffirms the
integrity of the patent allowed 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
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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, markdown 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
---- ---
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
1997
----
First Quarter .25 .09
Second Quarter .17 .08
Third Quarter .25 .13
Fourth Quarter .40 .16
Approximate number of holders
TITLES OF CLASS of record as of March 27, 1998
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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. 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, 1997, 1996, 1995,
1994 and 1993 has been obtained from the Companies financial statements. The
financial statements for the year ended December 31, 1997, and December 31, 1996
were audited by Irving Handel & CO., Independent Auditor, and for the years
ended 1995, 1994 and 1993 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,
-----------------------
1997 1996 1995 1994 1993
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SUMMARY OF OPERATIONS(IN THOUSANDS EXCEPT PER SHARE DATA)
Net Revenues 1,927 1,973 1,823 1,664 1,709
Net Income (208) (468) (357) (857) (712)
EARNINGS PER SHARE (0.0042) (0.0110) (0.0087) (0.0218) (0.020)
SUMMARY OF
BALANCE SHEET
Current Assets 762 432 287 371 604
Current Liabilities 631 821 517 639 667
Working Capital 131 (389) (230) (268) (63)
Total Assets 1,949 1,859 1,941 2,267 2,889
Total Long-Term Debt 190 229 290 336 389
Total Liabilities 821 1,050 807 976 1,056
Stockholders' equity 1,128 809 1,133 1,291 1,834
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, 1997 AS COMPARED TO THE YEAR ENDED
-----------------------------------------------
DECEMBER 31, 1996
-----------------
The Company's revenues decreased by 2% to $1,926,895 for the year ended
December 31,1997. ("1997") from revenues of $1,972,895 for the year ended
December 31, 1996 ("1996"). While sales appear virtually unchanged, certain
significant low profit revenues, which could only be serviced at a Long Island
facility, have been replaced by higher profit revenues, which will be maintained
at the New Jersey facility. During 1997 this continuing focus on wastewater
metal recovery has allowed the Company to increase its revenue base.
Cost of operations decreased to 66% of revenues for 1997 compared to
68% for 1996. The Company attributes this decrease to the continued steps taken
by Management to reduce costs.
General and administrative expenses decreased by 23% to $806,027 for
the year ended December 31, 1997 from $1,041,264 for the year ended December 31,
1996 due primarily to the continued efforts by Management to reduce costs.
The Company will continue to incur expenses related to the closure of
the New York facility under New York State Department of Environmental
Conservation regulations, 6NYCRR ss.373.
The Company incurred a net loss of $207,635 for the year ended December
31, 1997 as compared to a net loss of $468,398 for the year ended December 31,
1996, a decrease of 56%. The 1997 loss is due primarily to the legal expenses
incurred by June 1997 settlement and the low profit revenues mentioned above.
Depreciation Expense was $237,368 and $193,745 for the years ended December 31,
1997 and 1996 respectively. It should be noted that the Company has relocated
its facility to a more advantageous location, in Paterson, New Jersey, where
business is more easily obtained and costs will be further reduced.
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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 wastewater 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 ss.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 also continued to incur expenses related to obtaining the
6NYCRR ss.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.
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.
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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. 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.
In October 1997, pursuant to Rule 504, the Company offered on a private
placement of $1,000,000 consisting of 12,500,000 shares of common stock with
accredited investors. As of December 31, 1997, $417,930 was sold and the balance
of $582,070 was sold in 1998.
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 +$205,469 at December 31, 1997
and a positive cash flow of +$8149 at December 31, 1996. The positive cash flow
in 1997, while operating at a loss of -$207,635 is indicative of the funds
received through the 504 Offering Memorandum.
Working capital at December 31, 1997 was +$131,736 as compared to
- -$388,788 at December 31, 1996.
At December 31, 1997 total long-term debt and capital lease obligations
were $189,977 as compared to $228,885 at December 31, 1996. Any capital
expenditures for the New Jersey facility will be financed through proceeds from
the 504 Offering Memorandum and future warrants exercised.
The Company has relocated its recovery facility to Paterson, New
Jersey. Management believes that the new location will result in additional
business opportunities and lower operating costs. In conjunction with this move,
the Company will incur material capital expenditures and related costs.
Management has raised additional capital for this occurrence through a 504
Offering Memorandum.
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 Place, Woodmere, New York 11598, as the
Company's new auditor, effective immediately.
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PART III
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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 51 Since 1984 Chairman
President
Kathi Kreisler 47 Since 1984 Vice President
Secretary, Treasurer
Robert Misa 42 Since 1991 Vice President
James Aiello 57 July 1996 to May 1997 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.
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.
At the December 23, 1997 Annual Shareholders meeting the following
persons were elected to the Board of Directors for the year 1998: Larry
Kreisler, Kathi Kreisler, Robert W. Misa, Jr., Joseph Casuccio, Jr. and Anthony
Leteri. In January 1998, the Board of Directors approved Frederick Eisenbud to
the Board and in February 1998, the Board of Directors further approved Steven
Lewen to the Board.
IDENTIFICATION OF EXECUTIVE OFFICERS.
NAME AGE CURRENT OFFICE HELD
- ---- --- -------------------
Larry Kreisler 51 Chairman, President
Kathi Kreisler 46 Vice President, Secretary, Treasurer
Robert W. Misa, Jr. 42 Vice President
James Aiello 57 Acting Chief Executive Officer
(term July 1996 to May 1997)
- --------------------------------------------------------------------------------
-11-
<PAGE>
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. In addition to the above named officers, in 1998, the Board of
Directors named Joseph Casuccio and Kevin Kreisler to serve as Vice Presidents.
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 $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
ANNUAL COMPENSATION Compensation
- ------------------- ----------------- -------------------------------------------------- ----------------- -----------------
Name and Salary ($) Bonus ($) Other Annual Awards, All Other
Principal Year Compensation Options/SARs(#) Compensation
Position
- ------------------- ----------------- ----------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler, 1997 $3500 - - - -
Vice President
- ------------------- ----------------- ----------------- ---------------- ----------------- ----------------- -----------------
1996 $8,325 - - - -
- ------------------- ----------------- ----------------- ---------------- ----------------- ----------------- -----------------
Larry Kreisler, 1997 $152,503 - -
President
- ------------------- ----------------- ----------------- ---------------- ----------------- ----------------- -----------------
1996 $195,474
James Aiello, 1997 - $20,000 -
Acting CEO
- ------------------- ----------------- ----------------- ---------------- ----------------- ----------------- -----------------
1996 $24,000
=================== ================= ================= ================ ================= ================= =================
</TABLE>
There were new stock options granted to the named executive officers.
In January 1998, K. Kreisler was issued 8 million options for past services
rendered. (See Employment Arrangements). L. Kreisler was issued an additional
400,000 options for past services rendered. Certain stock options granted to the
executive officers were revised and reallocated. (See "Stock Options" for
further information.) No stock appreciation rights were granted or exercised
during such fiscal year.
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1997 with respect to
the Company's named executive officers. No stock appreciation rights were
exercised or outstanding during such fiscal year.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------------------
Value of Unexercised in-
Value Number of Securities the-Money Options at
Realized Underlying Unexercised FY-End Market Price of
Shares Market price Options at Fiscal Year-End shares at FY-End ($) less
acquired at FY End (#) exercise price
- ------------------------------ ------------------------------- ----------------------------
Name on exercise Exercise Exercisable Unexercisable Exercisable Unexercis-
(#) less able
exercise
price)
- ------------------------------ --------------- -------------- -------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler 0 - 4,262,278 N/A N/A
- ------------------------------ --------------- -------------- -------------- ----------------- ------------- --------------
Larry Kreisler 0 - 4,262,278 N/A N/A
============================== =============== ============== ============== ================= ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
-12-
<PAGE>
EMPLOYMENT ARRANGEMENTS
The Company has entered into an employment agreement with Larry
Kreisler, as the Chairman of the Board, President Company, in November 1997. The
L. Kreisler Employment Agreement provides for a five-year term from the date
signed and shall be extended automatically each day for an additional day so
that the remaining term of this agreement will continue to be five years at all
times. Either party may by written notice fix the term of this Agreement at five
years without additional extension and would then end on a date five years from
the date of notice. The annual base salary of $165,000, with cost of living
adjustments. L. Kreisler will be entitled to receive an annual bonus equal to 6%
of the Company's annual net income before taxes, reimbursement of business
related expenses, use of a Company automobile and participation in any employee
benefits provided to all employees of the Company. The Company shall contribute
4% of the base weekly salary to the L. Kreisler's 401k savings plan.
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.
The Company had entered into an employment agreement with Kathi
Kreisler, as Vice President and Secretary Treasurer, in November 1997. The K.
Kreisler Employment Agreement provides for a five-year term from the date signed
and shall be extended automatically each day for an additional day so that the
remaining term of this agreement will continue to be five years at all times.
Either party may by written notice fix the term of this Agreement at five years
without additional extension and would then end on a date five years from the
date of notice. The annual base salary of $80,000, with cost of living
adjustments. K. Kreisler will be entitled to receive an annual bonus equal to 4%
of the Company's annual net income before taxes, reimbursement of business
related expenses, use of a Company automobile and participation in any employee
benefits provided to all employees of the Company. The Company shall contribute
4% of the base weekly salary to the K. Kreisler's 401k savings plan.
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.
Kathi Kreisler voluntarily lowered the amount of her 1997 salary to
$3,500 and her 1996 salary to $8,325.00. In January 1998, K. Kreisler received 8
million options convertible at $0.08 per share for a period of 10 years, to
purchase Common Stock of the Company for past services rendered. L. Kreisler
received 400,000 options convertible at $0.08 per share for a period of 10
years, to purchase Common Stock of the Company for past services rendered.
- --------------------------------------------------------------------------------
-13-
<PAGE>
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. In December 1997, the Board
of Directors voted to extend the exercisable time for another five years to
December 31, 2002.
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.
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
On January 2, 1998, K. Kreisler was also issued 7,500,000 options to
purchase shares of Common Stock for $0.08 per share over a 10-year period
commencing January 1998 for unpaid wages from March 1993 through December 1996.
Additional, commencing on January 2, 1998, K. Kreisler was issued 500,000
options to purchase shares of Common Stock for $0.08 per share over a 10 year
period for the year 1997.
L. Kreisler was issued, on January 1998, 400,000 options to purchase
shares of Common Stock for $0.08 per share over a 10-year period commencing on
January 1998 for unpaid wages for the year 1997.
The Company issued options, on December 20, 1997, to certain employees
to purchase 800,000 shares of Common Stock for $0.125 per share over a 10-year
period beginning December 31, 1997. In January 1998, an additional 200,000
options were granted to employees under the same terms as mentioned above.
Directors, who are not employees of the Company, receive stock options
pursuant to the Company's Director Plan adopted in January 1998. The Director's
Plan provides for automatic grants of options to the Company's eligible
non-employee directors upon their election to the Board of Directors of the
Company. As of January 1998, 100,000 options at an exercise price of 80% of the
price of the stock as selling on January 1, 1998, have been granted to each
Director under the Directors Plan. The options are exercisable for a period of
10 years, none of which have been exercised.
- --------------------------------------------------------------------------------
-14-
<PAGE>
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
("Meyerson") 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 $0.15 per share. The
warrants and the underlying shares would be exercisable anytime between June
1997 and June 2000. In February 1998, the Company agreed to issue M.H. Meyerson
& Co additional warrants to purchase a total of 1,250,000 shares of common stock
with an exercise price of $0.21 per share in exchange for investment banking
services. The warrants and underlying shares will expire by February 2003. In
March 1998, the Company agreed to issue additional warrants to purchase a total
of 2,500,000 shares of common stock with an exercise price of $0.25 per share in
exchange for investment banking services. The warrants and underlying shares
will expire by March 2003. To date no warrants have been issued.
In January 1998, the Company issued 125,000 options to purchase common
stock exercisable at $0.25, callable at $0.01 a share one year from the date of
issuance to Universal Process Equipment in exchange for equipment. These options
expire in December 2003.
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.
- --------------------------------------------------------------------------------
-15-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1997, 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 (6)
-----------------------------------------------------------------------
Kathi Kreisler 9,474,953 17
23 Woodleigh Court (1) (2)
Holbrook NY 11741
Larry Kreisler 9,474,953 17
23 Woodleigh Court (1) (3)
Holbrook NY 11741
Robert Misa 2,627,424 4.7
289 Bay Avenue (4)
Huntington Bay, NY 11743
Stephen Jerome 3,582,076 6.4
18 Johnson Court (5)
Cresskill, NJ 07626
All Officers & Directors 21,577,330 38.7
as a group (three persons) (6)
1) Mr. and Ms. Kreisler each disclaim beneficial ownership of the shares of
Common Stock owned by the other.
2) Includes 4,262,278 shares of exercisable options for Common Stock.
3) Includes 4,262,278 shares of exercisable options for Common Stock.
4) Includes 1,346,120 shares of exercisable options for Common Stock.
5) Includes 1,573,076 shares of exercisable options for Common Stock.
6) Includes the 11,443,752 shares of exercisable options for Common, 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 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.
Kathi and Larry Kreisler have personally guaranteed the Company's
obligations under four capital leases and three operating leases. At December
31, 1997, the Company's obligations under such leases and note aggregated
$290,760 versus $502,265 at December 31, 1996. Under an
- --------------------------------------------------------------------------------
-16-
<PAGE>
agreement signed November 7, 1997, the Kreisler's are to receive minimum
compensation for these personal guarantees.
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 breakeven. Metal Recovery Transportation has permits in New York,
New Jersey, Connecticut, Rhode Island, Massachusetts and New Hampshire. The
company will replace all outside transporters that the KBF is presently using at
a significant cost savings to KBF.
In May 1997, the Company formed American Metals Recovery, Corp.,
Gryphon Industries, Inc., and AMR, Inc. pursuant to the laws of the State of
Nevada. These wholly owned subsidiaries of KBF Pollution Management, Inc. were
formed in conjunction with the move to New Jersey to create flexibility within
the corporate organization. American Metals Recovery Corp. has been active in
terms of expending capital related costs in setting up the facility in New
Jersey.
In November 1997, the Company ("Licensee") executed a License Agreement
with Larry Kreisler, ("Licensor") President and Chairman of the Board of the
Company. The Licensor granted the Licensee a worldwide, exclusive license to the
Licensor's Patent Rights that are defined as "The Selective Separation
Technology for the purpose of resource recovery of industrial metal bearing
waste. The license applies to any improvements or related inventions. The
Licensee may assign or sub-license the License with prior written consent which
shall not be unreasonably withheld. The Licensor shall receive $10,000 for all
prior use of the technology and a royalty fee based on a per gallon rate but
differs according to the type and quantity. The License Agreement has a minimum
15-year term after which time changes to 5- year evergreen term.
- --------------------------------------------------------------------------------
-17-
<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, 1997
b) December 31, 1996
ii) Statements of Income Years Ended
a) December 31, 1997
b) December 31, 1996
c) December 31, 1995
iii) Statements of Stockholders' Equity
a) January 1, 1995 to December 31, 1997.
iv) Statements of Cash Flow Years Ended
a) December 31, 1997
b) December 31, 1996
c) December 31, 1995
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.
---------
<PAGE>
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 Lawrence
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).
- --------------------------------------------------------------------------------
-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/ LAWRENCE KREISLER
----------------------------
LAWRENCE KREISLER, PRESIDENT
Date: March 27, 1998
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/ LAWRENCE KREISLER
----------------------------
LAWRENCE KREISLER, CHAIRMAN OF THE BOARD,
PRESIDENT,
DIRECTOR
Date: March 27, 1998
By (Signature and Title /s/ KATHI KREISLER
----------------------------
KATHI KREISLER, VICE PRESIDENT,
SECRETARY, TREASURER,
DIRECTOR
Date March 27, 1998
- --------------------------------------------------------------------------------
-19-
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT .............................................. 22
BALANCE SHEET............................................................23-24
STATEMENT OF INCOME.........................................................25
STATEMENT OF STOCKHOLDERS' EQUITY ..........................................26
STATEMENT OF CASH FLOWS..................................................27-28
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
<PAGE>
IRVING HANDEL P.C. TEL: 516-295-9290
CERTIFIED PUBIC ACCOUNTANTS FAX: 516-295-9298
112 IRVING PLACE - WOODMERE, NY 11598
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders
of KBF Pollution Management, Inc.
We have audited the accompanying balance sheet of KBF Pollution Management,
Inc. as of December 31, 1997 and 1996, and the related statement of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a responsible 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, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Irving Handel & Co.
IRVING HANDEL & CO.
March 20, 1998
Woodmere, NY 11598
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
BALANCE SHEET
-------------
ASSETS
------
12/31/97 12/31/96
-------- --------
CURRENT ASSETS:
- ---------------
Cash $ 224,643 $ 19,174
Cash - Restricted 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $26,782 & 29,563) 241,041 266,065
Other Receivables 49,572 69,912
Inventories 11,670 17,779
Prepaid Expendable Supplies 14,246 18,993
Other Prepaid Expenses 193,780 12,752
---------- ----------
Total Current Assets 762,452 432,175
FIXED ASSETS :
- --------------
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,670,954 & $1,467,315) 832,851 1,027,102
Leased Property under Capital Lease
Obligations(Net of Accumulated
Depreciation & Amortization of
$378,869 & $345,140) 108,030 141,758
Non Expendable Stock, Parts & Drums 139,368 139,368
---------- ----------
Total Fixed Assets, Net 1,080,249 1,308,228
OTHER ASSETS:
- -------------
Security Deposits 7,662 12,406
Patent (Net of Accumulated Amortization
of $11,164 & $9,968) 9,165 10,361
Capitalized Permit Costs 89,179 95,580
---------- ----------
Total Other Assets 106,006 118,347
---------- ----------
TOTAL ASSETS $1,948,707 $1,858,750
========== ==========
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-23-
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
BALANCE SHEET
-------------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
12/31/97 12/31/96
-------- --------
CURRENT LIABILITIES:
- -------------------
Accounts Payable - Trade $ 454,657 $ 491,156
Accrued Expenses 52,354 157,270
Taxes Withheld & Accrued 11,873 13,127
Current Portion of Long-Term
Debt 60,000 81,637
Current Portion of Capital Lease
Obligations 51,832 77,773
----------- -----------
Total Current Liabilities 630,716 820,963
LONG-TERM LIABILITIES:
- ---------------------
Capital Lease Obligations (Net of
Short Term Portion) 189,977 228,885
----------- -----------
Total Long-Term Liabilities 189,977 228,885
STOCKHOLDERS' EQUITY:
- --------------------
Com. Stock par value .00001 per sh
Authorized - 500,000,000 shares
Issued & Outstanding
Dec. 31, 1997 - 49,112,690 491 --
Dec. 31, 1996 - 43,405,546 -- 434
Capital in Excess of Par Value 4,871,362 4,344,671
Retained Earnings (Deficit) (3,743,839) (3,536,203)
----------- -----------
Total Stockholders' Equity 1,128,014 808,902
----------- -----------
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY $ 1,948,707 $ 1,858,750
=========== ===========
See accompanying notes and accountant's report.
- --------------------------------------------------------------------------------
-24-
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
STATEMENT OF INCOME
-------------------
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
REVENUES $ 1,926,895 $ 1,972,964 $ 1,823,390
LESS: Cost of Operations 1,277,974 1,342,591 1,266,397
- ---- ----------- ----------- -----------
Gross Profit 648,921 630,373 556,993
LESS:
- ----
General & Admin. Expenses 806,027 1,041,264 795,812
Advertising 7,519 7,986 6,295
Maintenance & Repairs 42,246 40,770 57,127
----------- ----------- -----------
Operating Income (Loss) (206,871) (459,647) (302,241)
OTHER INCOME (EXPENSES):
- ----------------------
Other Income 0 4,500 6,608
Interest Income 1,236 1,096 975
Interest Expense (1,656) (11,254) (59,745)
----------- ----------- -----------
Income (Loss) before Provision
for Income Tax (207,291) (465,305) (354,403)
Less: Income Tax Provision 344 3,093 2,742
----------- ----------- -----------
NET INCOME (LOSS) $ (207,635) $ (468,398) $ (357,145)
=========== =========== ===========
EARNINGS PER COMMON SHARE: (NOTE 11)
- -----------------------------------
BASIC $ (.0042) $ (.0110) $ (.0087)
=========== =========== ===========
DILUTED $ (.0042) $ (.0110) $ (.0087)
=========== =========== ===========
See accompanying notes and accountant's report
- --------------------------------------------------------------------------------
-25-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1995 TO DECEMBER 31, 1997
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, 1995 40,619,045 $407 0 0 $ 4,001,431 $(2,710,663) $ 1,291,175
Common Stock issued 1,597,168 16 - - 199,630 199,646
Rounding -- -- - - 0
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 0 0 178,925 -- 178,936
Rounding -- -- - - -- 3 3
Underwriting Costs
-- -- - - -- (35,315) (35,315)
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
Common Stock issued 5,707,144 57 0 - 586,291 0 586,348
Underwriting Costs 0 0 0 0 (59,600) 0 (59,600)
Rounding -- -- - - -- (1) (1)
NET LOSS for the Year Ended December 31, 1997 -- -- - - -- (207,635) (207,635)
------------------------------------------------------------------------------------
BALANCE , December 31, 1997 49,112,690 $491 $ 0 0 $ 4,871,362 $(3,743,839) $ 1,128,014
---------- ---- - - - ----------- ----------- -----------
</TABLE>
See accompanying notes and accountant's report.
-26-
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C> <C>
Cash Received from Customers $ 1,954,700 $ 1,943,907 $ 1,802,046
Cash Paid to Suppliers & Employees (2,078,014) (1,917,696) (1,742,432)
Interest & Dividends Received 1,236 1,096 975
Interest Paid (34,601) (11,064) (43,007)
Income Taxes Paid (604) (3,595) (4,215)
----------- ----------- -----------
Net Cash Provided (Used) by
Operating Activities (157,283) 12,648 13,367
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Purchases of Equipment (9,390) (25,995) (44,525)
Cash Purchases of Intangible &
Other Assets 0 (2,448) (13,062)
Proceeds from Disposal of Other Assets 0 53,494 0
----------- ----------- -----------
Net Cash Provided (Used) in Investing
Activities (9,390) 25,051 (57,587)
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from Sale of Stock &
Warrants 518,228 0 125,500
Underwriting Costs (59,600) (35,315) 0
Proceeds from Long-Term Debt 0 60,000 0
Repayment of Long-Term Debt &
Capital Lease Obligations (86,486) (54,235) (82,173)
----------- ----------- -----------
Net Cash Provided (Used) by Financing
Activities 372,142 (29,550) 43,327
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 205,469 8,149 (893)
CASH at Beginning of Year 19,174 11,025 11,918
----------- ----------- -----------
CASH at End of Year $ 224,643 $ 19,174 $ 11,025
=========== =========== ===========
</TABLE>
See accompanying notes and accountant's report.
-27-
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
- -------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $(207,635) $(468,398) $(357,145)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 237,368 193,745 298,194
Amortization 1,196 1,196 1,196
Cash value of Officer's Life Ins 0 442 2,682
Accounts Payable Paid in Stock 22,830 178,937 50,000
Consulting Fees Paid in Stock/Options 45,290 0 (31,392)
Bad Debts (2,781) 2,906 2,134
Write-off of Patent 0 11,207 0
Write-off of Permit Costs 6,401 0 0
Proceeds from Sale of Equipment 0 (4,500) (6,000)
(Increase) Decrease in:
Trade Accounts Receivable 27,805 (82,323) 31,923
Other Receivables 20,340 (69,912)
Inventories 6,109 (4,410) 22,307
Prepaid Expenses & Deposits (171,537) 16,945 27,224
Non-Expendable Stock, Parts & Drums 0 0 (146)
Increase (Decrease) in:
Accounts Payable (36,499) 155,737 (19,731)
Withholding Taxes Payable (1,254) (132) (512)
Accrued Expenses (104,916) 81,208 (7,367)
--------- --------- ---------
$(157,283) $ 12,648 $ 13,367
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Options & Warrants issued for the
payment of consulting fees $ 463,220 $ 0 $ 0
========= ========= =========
Common Stock and Options issued for the
payment of accounts payable $ 22,830 $ 178,937 $ 50,000
========= ========= =========
Security Deposit paid with proceeds from
sale of equipment $ 0 $ 4,500 $ 0
========= ========= =========
</TABLE>
See accompanying notes and accountant's report.
-28-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 1 - BUSINESS DESCRIPTION
- -----------------------------
KBF Pollution Management, Inc. (the Parent)("KBF") 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
environmental services business as a waste water metal recovery facility
specializing in the resource recovery of hazardous and non-hazardous metal
bearing wastes for the sole purpose of recycling the product produced (ionic
metals) back into commerce. The Company operates an in-house industrial
laboratory to support the recycling process and performance of research and
development. The Company also provides waste handling equipment and compliance
support service to their customers. The Company operates predominantly in the
Northeast region. As of May 6, 1997 Gryphon Industries, Inc., American Metals
Recovery Corp., and AMR, Inc. (the Subsidiaries) were formed pursuant to the
laws of the State of Nevada. These wholly owned subsidiaries of KBF Pollution
Management, Inc. were formed in conjunction with their move to New Jersey to
create flexibility within the corporate organization. American Metals Recovery
Corp. has been active in terms of expending capital related costs in setting up
the facility in New Jersey. In addition, Metal Recovery Transportation Corp.
(owned by KBF's President and Chairman, Lawrence Kreisler) entered into an
agreement with KBF to handle all of KBF's transportation needs. Metal Recovery
Transportation Corp. will assume the liability and provide transportation
services to KBF at a rate below market price.
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.
RECENT PRONOUNCEMENTS
- ---------------------
The Company has complied with all recent pronouncements which have effective
dates preceding the dates relating to these financial statements.
SFAS No. 130, relating to reporting comprehensive income and SFAS No. 131,
relating
- --------------------------------------------------------------------------------
-29-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------------------
RECENT PRONOUNCEMENTS (CONTINUED)
- ---------------------------------
to segments of an enterprise and related information, are both effective for
financial statements for years beginning after December 15, 1997.
Had Statements No. 130 and 131 been in effect for the year ended December 31,
1997, there would have been no change in the statements presented herein.
EARNINGS PER SHARE
- ------------------
In accordance with SFAS No. 128, the Company computes basic earnings (loss) per
share on a daily weighted average basis, as described in Note 10. Non-diluting
earnings (loss) per share are unchanged from basic, as the consideration of any
and all options are dilutive.
PRIOR PERIOD STATEMENTS
- -----------------------
The 1995 and 1996 financial statements may have been reclassified to conform
with current year's classifications.
NOTE 3 - INVENTORIES
- ---------------------
Inventories are comprised of the following major categories:
12/31/97 12/31/96
-------- --------
Shipping Supplies $4,985 $7,821
Reagents 6,685 9,958
----- -----
$ 11,670 $ 17,779
====== ===========
NOTE 4 - FIXED ASSETS
- ---------------------
Fixed assets are categorized and listed below:
<TABLE>
<CAPTION>
BALANCE ADDITIONS RETIREMENTS BALANCE
PROPERTY, EQUIPMENT & IMPROVEMENTS AT 12/31/96 1997 1997 AT 12/31/97
- ---------------------------------- ----------- ---- ---- -----------
<S> <C> <C> <C> <C>
Facility $ 1,598,022 $ 6,750 0 $1,604,772
Office Equipment, Computers
& Furnishings 216,731 2,638 0 219,369
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 $ 2,494,417 $ 9,388 $0 $2,503,805
===================================== =========== =========== ========== ----------
Less: Accumulated Depreciation
and Amortization (1,467,315) (1,670,954)
----------
NET $ 1,027,102 $ 832,851
==========
LEASED EQUIPMENT UNDER CAPITAL LEASES
Office Equipment & Furniture 135,039 0 0 135,039
Equipment 351,860 0 0 351,860
----------- ----------- --------- ----------
SUB TOTAL 486,899 $ 0 $0 486,899
=========== ========= ----------
Less: Accumulated Amortization (345,141) (378,869)
----------- ----------
NET $ 141,758 $ 108,030
=========== ===========
</TABLE>
Depreciation charged to operations, which includes amortization of capital lease
obligations was $237,368 and $193,745 for the years ended December 31, 1997 and
1996 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
- --------------------------------------------------------------------------------
-30-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 5 - PATENT (CONTINUED)
- ---------------------------
capitalized and are being amortized over a 17 year life.
In June 1995, the Company's President, Lawrence Kreisler, submitted a patent
application on the "Selective Separation Technology" technique currently being
used. On February 3, 1998, the US Patent and Trademark Office issued a Notice of
Allowance for this patent. Under an agreement with Mr. Kreisler, the Company is
utilizing the patent in its operations.
NOTE 6 - LONG-TERM DEBT
- ------------------------
Long-term debt consists of the following:
12/31/97 12/31/96
-------- --------
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 $ 60,000
Note Payable in weekly installments
of $200 for 120 weeks, bearing interest at 5.63%. 0 21,637
--------- ---------
Total Long-Term Debt 60,000 81,637
Less: Current Portion 60,000 81,637
--------- ---------
Long-Term Portion $ 0 $ 0
========= =========
NOTE 7 - LEASES
- ---------------
CAPITAL LEASE OBLIGATIONS
- -------------------------
The Company leases equipment with lease terms expiring through January 2002. As
of February 3, 1998, the Company entered into a formal restructuring agreement
with the lessor. The modified terms, beginning January 1998, call for 48 monthly
payments as follows:
$6,000 each (payments 1-6)
$7,000 each (payments 7-12)
$5,910 each (payments 13-48)
Future minimum payments under capital leases with initial terms of one year or
more consisted of the following at December 31, 1997:
1998 $ 78,000
1999 70,920
2000 70,920
2001 70,920
2002 0
Thereafter 0
------------
Total minimum lease payments 290,760
Amounts representing interest ( 48,951)
Present value of net minimum ------------
lease payments remaining 241,809
Less: Current portion 51,832
-------------
Long -Term Portion $ 189,977
=============
On all capital leases, the equipment under lease is pledged toward the lease
obligation.
- --------------------------------------------------------------------------------
-31-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 7 LEASES (CONTINUED)
- -------------------------
OPERATING LEASES
- ----------------
The Company's New York facility 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 will be occupying the
building until closure of the facility has been accepted by New York State
Department of Environmental Conservation.
As of December 1, 1997, the Company relocated its corporate offices, laboratory
and main operational facility to Paterson, New Jersey. The new lease terms,
which includes a purchase option, are for $1,218,600 base rent to be paid
monthly over 6 years commencing December 1997. The Company occupies the entire
building of 60,000 square feet of space. The lease obligations are as follows:
1998 - $ 186,000
1999 - 193,200
2000 - 200,500
2001 - 208,600
2002 - 213,550
Thereafter - 201,300
----------
$1,203,150
==========
Rental expense under non-cancelable operating leases is as follows:
1995 - $114,127
1996 - 174,370
1997 - 143,034
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 issuance
upon exercise of options designated as "incentive stock options" under Section
422A of the Internal Revenue Code of 1954, as amended.
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. On December
4, 1997, the Board of Directors voted to extend the exercise date an additional
five years.
In addition, the Company issued options to Kathi Kreisler and Larry Kreisler for
each to 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.
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.
- --------------------------------------------------------------------------------
-32-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
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.
On January 2, 1998, Kathi Kreisler was also issued an additional 8,000,000
options to purchase shares of common stock for $.08 per share over a 10 year
period commencing January 1998. Lawrence Kreisler was also issued an additional
400,000 options to purchase common stock under the same terms as Mrs. Kreisler.
On December 20, 1997, the Company also issued options to certain employees to
purchase 800,000 shares of common stock for $.125 per share over a 10 year
period beginning December 31, 1997. In January 1998, an additional 200,000
options were granted to employees under the same terms as mentioned above.
Directors, who are not employees of the Company, receive stock options pursuant
to the Company's Directors Plan, adopted in January 1998. The Directors Plan
provides for automatic grants of options to the Company's eligible non-employee
directors upon their election to the Board of Directors of the Company. As of
January 1998, 100,000 options at an exercise price of $.22 per share have been
granted to each director under the Directors Plan. The options are excercisable
for a period of 10 years, none of which have been exercised.
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 (Meyerson)
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. The warrants
and the underlying shares would be exercisable anytime between June 1997 and
June 2000. In addition, on February 1, 1998, the Company agreed to issue
Meyerson additional warrants to purchase 1,250,000 shares of common stock with
an exercise price of $.21 per share in exchange for investment banking services.
The warrants and underlying shares will expire in February 2003. In March 1998,
the Company agreed to issue Meyerson additional warrants for their investment
banking services in relation to a licensing agreement(See Note 17 Subsequent
Events). To date, no warrants have been issued under these Meyerson agreements.
In January 1998, the Company issued 125,000 options to purchase common stock
exercisable at $.25, callable at $.01 a share one year from the date of issuance
to
- --------------------------------------------------------------------------------
-33-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
one of their suppliers in exchange for equipment. These options expire in
December 2003.
Stock options issued for services to non-employees are accounted for in
accordance with SFAS No. 123. The Company values such options using the
Black-Scholes option valuation model and expenses the value over the expected
life of the option. The amount charged to the current period was $45,290.
KBF Pollution Management, Inc. follows APB Opinion No. 25 to account for stock
options issued to employees(intrinsic value)in its published financial
statements. In accordance with SFAS No. 123, the Company discloses the
Black-Scholes value of these options and the proforma impact of expensing such
value over the vesting period of the options, in the footnotes to its financial
statements.
In an effort to aid understanding of the impact of the Company's stock option
plan, proforma "look-through" income statements are provided below as an
alternative presentation of accounting for stock options.
This proforma income statement is not required by generally accepted accounting
principles , but offers an additional method of considering stock options. In
this presentation, the expense of employee options, based on the Black-Scholes
value of the options is reflected in the income statement operating expense line
items in the year that the options are granted. Shares issuable under various
stock options are excluded from the weighted average number of shares
outstanding on the assumption that their effect is non-diluting.
<TABLE>
<CAPTION>
ALTERNATIVE PRESENTATION OF ACCOUNTING FOR STOCK OPTIONS:
- ---------------------------------------------------------
YEAR ENDED 12/31/97 12/31/96 12/31/95
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE $ 1,926,895 $ 1,926,895 $ 1,972,964 $ 1,972,964 $ 1,823,390 $ 1,823,390
OPERATING EXPENSES:
COST OF REVENUE 1,277,974 1,818,613 1,342,591 1,450,082 1,266,397 1,288,097
MAINT & REPAIR 42,246 42,246 40,770 40,770 57,127 57,127
ADVERTISING 7,519 7,519 7,986 7,986 6,295 6,295
GENERAL & ADMIN 806,027 806,027 1,041,264 1,041,264 795,812 795,812
TOTAL OPERATING 2,133,766 2,674,405 2,432,611 2,540,102 2,125,631 2,147,331
EXP
OPERATING INCOME (206,871) (747,510) (459,647) (567,138) (302,241) (323,941)
INTEREST INCOME 1,236 1,236 1,096 1,096 975 975
OTHER INCOME/EXP (1,656) (1,656) (6,754) (6,754) (53,137) (53,137)
INCOME BEFORE TAX (207,291) (747,930) (465,305) (572,796) (354,403) (376,103)
TAX PROVISION 344 344 3,093 3,093 2,742 2,742
NET INCOME/(LOSS)
AVAIL FOR COMMON
S/H (207,635) (748,274) (468,398) (575,889) (357,145) (378,845)
EARNINGS PER SHARE (.0042) (.0042) (.0110) (.0110) (.0087) (.0087)
WEIGHTED AVERAGE
SHARES OUTSTANDING 44,993,841 44,993,841 42,681,546 42,681,546 40,922,951 40,922,951
OPTIONS GRANTED 800,000 800,000 15,083,881 15,083,881 1,500,000 1,500,000
</TABLE>
- --------------------------------------------------------------------------------
-34-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 9 - INCOME TAXES
- ---------------------
The significant components of the Company's deferred tax assets and liabilities
for the year ended December 31, 1997 are as follows:
Deferred Tax Assets:
Net Operating Loss Carry Forward $3,955,865
Valuation Allowance 3,955,865
----------
Deferred Tax Assets $ 0
==========
At December 31, 1997 the Company's operating loss carry forward expires 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
2012 207,635
------------
$ 3,955,865
============
NOTE 10- EARNINGS PER SHARE
- ---------------------------
Number of Shares
Common Stock outstanding: 1997 1996
------ ----
Beginning of Year 43,405,546 42,216,213
End of Year 49,112,690 43,405,546
Issued during the year 5,707,144 1,189,333
Common stock reserved under stock options 18,073,881 17,523,871
Weighted Average number of outstanding shares 44,993,841 42,681,546
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 the resource recovery of hazardous and non-hazardous metal
bearing wastes for the sole purpose of recycling the product produced (ionic
metals) back into commerce. The Company operates an in-house industrial
laboratory to support the recycling process and performance of research and
development. The Company also provides waste handling equipment and compliance
support service to their customers.
- --------------------------------------------------------------------------------
-35-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 11 - SEGMENT INFORMATION (CONTINUED)
- -----------------------------------------
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
- -------------------------------------
LEGAL MATTERS
- -------------
As noted in prior financial statements, the 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.
EMPLOYMENT CONTRACTS
- --------------------
The Company has entered into five year employment agreements with Kathi Kreisler
and Larry Kreisler, commencing November 1997. The terms of the Larry Kreisler
agreement call for him to receive an annual base salary of $165,000, with cost
of living adjustments. He will also be entitled to an annual bonus equal to 6%
of the Company's annual net income before taxes, reimbursement of business
related expenses, use of a Company automobile and participation in any employee
benefits provided to all employees of the Company. The Company shall contribute
4% of the base weekly salary to L. Kreisler's 401K savings plan.
The Kathi Kreisler employment contract calls for an annual base salary of
$80,000, with cost of living adjustments. K. Kreisler will be entitled to an
annual bonus equal to 4% of the Company's net income before taxes, reimbursement
of business expenses, use of a Company automobile and participation in any
employee benefits provided to all employees of the Company. The Company shall
contribute 4% of the base weekly salary to K. Kreislers 401K savings plan.
See Note 13 for events that have a material impact on these employment
contracts.
NOTE 13 - EMPLOYMENT CONTRACT WAIVERS
- -------------------------------------
Kathi Kreisler and Larry Kreisler have voluntarily waived certain compensation
due to them under their employment contracts. In 1996 and 1997, Kathi Kreisler
received $8,325 and $3,500 in compensation, respectively, waiving the balance of
the compensation she was entitled to under the existing contract.
In January 1998, Kathi Kreisler was also issued an additional 8,000,000 options
to purchase shares of common stock for $.08 per share over a 10 year period
commencing January 1998 for unpaid wages from March 1993 through December 1997.
Lawrence Kreisler was also issued 400,000 options to purchase common stock for
past performance under the same terms as Kathi Kreisler above.
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 for $27,500. The Certificate of Deposit is being held as collateral for the
letter of credit, and is required to remain on deposit at the commercial bank
which issued the letter of credit.
- --------------------------------------------------------------------------------
-36-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
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.
It should be noted, this permit is related to the Long Island location, and not
transferable. While the Company is moving its facility to Paterson New Jersey,
management is pursuing means to possibly recover these costs.
NOTE 16 - ACCRUED EXPENSES
- --------------------------
Accrued expenses are broken down into categories as follows:
Insurance Payable $ 11,535
Utilities 5,770
Professional Fees Payable 8,600
Other Accrued Expenses 26,449
--------
$ 52,354
========
NOTE 17 - SUBSEQUENT EVENTS
- ---------------------------
In March 1998, the Company signed an exclusive world-wide License Agreement with
Solucorp Industries Ltd., for the utilization of the Company's patent allowed
technology. The terms of the agreement call for an initial license fee of
$500,000, plus an additional license fee of $.005 per processed gallon. The
agreement also requires royalty payments of 50% of gross per gallon receipts,
not to be less than $3 million at the end of the first two years from the
signing of the contract, and $2 million by the end of each year thereafter. The
initial agreement is for a five year term, with automatic five year continuous
renewal.
In March 1998, the Company entered into an agreement with M.H. Meyerson & Co.,
whereby Meyerson is to be granted 2,500,00 warrants to purchase common stock at
an exercise price of $.25 in exchange for investment banking services rendered
in relation to the Solucorp Industries Ltd. transaction.
NOTE 18- RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has the following related party transactions:
1) Metal Recovery Transportation Corp. (owned by KBF's President and Chairman,
Lawrence Kreisler) entered into an agreement with KBF to handle all of
KBF's transportation needs. Metal Recovery Transportation Corp. (MRTC)will
assume the liability and provide transportation services to KBF at a rate
below market price. KBF paid MRTC $59,914 in 1997. As of December 31, 1997,
the Company owed MRTC $8,051.
- --------------------------------------------------------------------------------
-37-
<PAGE>
EXHIBIT A
---------
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
NOTE 18- RELATED PARTY TRANSACTIONS (CONTINUED)
- -----------------------------------------------
2) Lawrence Kreisler, President and Chairman of KBF loaned the Company $53,702
during 1997. The balance owed to Mr. Kreisler at December 31, 1997 is
$21,692.
3) Certain members of the Board of Directors and advisors to the Company
loaned the Company $60,000. (See Note 6 for additional information).
NOTE 19 - RETIREMENT PLAN
- -------------------------
The Company maintains a retirement plan pursuant to Section 401(k) of the
Internal Revenue Code covering substantially all employees. While the Company
may elect to match employee contributions, it did not do so in 1997.
NOTE 20 - CONCENTRATIONS OF CREDIT RISK
- ---------------------------------------
The Company maintains all its cash balances at one financial institution located
in Lindenhurst, New York. The Federal Deposit Insurance Corporation insures
accounts in each institution up to $100,000. Uninsured balances aggregated
$139,780 at December 31, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements dated December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000810162
<NAME> KBF POLLUTION MANAGEMENT, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<CASH> 252,143
<SECURITIES> 0
<RECEIVABLES> 267,823
<ALLOWANCES> (26,782)
<INVENTORY> 11,670
<CURRENT-ASSETS> 762,452
<PP&E> 3,130,072
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0
<COMMON> 491
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<TOTAL-LIABILITY-AND-EQUITY> 1,948,707
<SALES> 1,926,895
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<CGS> 1,277,974
<TOTAL-COSTS> 2,133,766
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<INTEREST-EXPENSE> 1,656
<INCOME-PRETAX> (207,291)
<INCOME-TAX> (207,635)
<INCOME-CONTINUING> (207,635)
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<EXTRAORDINARY> 0
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<NET-INCOME> (207,635)
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