Page 1 of 164
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB12G/A
General Form for Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
KBF POLLUTION MANAGEMENT, INC.
(Exact Name of Small Business Issuer in its Charter)
NEW YORK 11-2687588
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
KBF Plaza, One Jasper St., Paterson, NJ 07522
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (973) 942-7700
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.00001, par value
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
KBF Pollution Management, Inc., a New York corporation (the
"Company"), was organized in 1984 under the name Kreisler Bags &
Filtration, Inc., which name was changed to KBF Pollution Management, Inc.
in 1986. The Company is engaged in the environmental services business as a
wastewater 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 (metal(s)) back into commerce. The Company
operates an in-house laboratory certified in New York and New Jersey to
support the recycling process and perform research and development. The
Company also provides compliance support service to its customers.
In December 1997, the Company began relocation of its facilities from
North Lindenhurst, New York to Paterson, New Jersey (See "Description of
Property"). As a result of the lose of the Companies lease (See Item
2.PROPERTIES, 1996 Form 10K), in the Fall of 1997, the Company notified
the New York State Department of Environmental Conservation ("NYSDEC") that
the Company was withdrawing the 6 NYCRR º 373 (Federal Part B)
Permit application and simultaneously commencing Closure. The Closure plan
used by the company was taken directly from the permit application. According
to the NYSDEC, the permit application was approved and therefore, closure must
proceed according to the approved Closure Plan. However, prior to
commencing with the closure, the plan had to be approved by the public
through a public commenting period. Once this process was complete, the
Company negotiated an expedited Closure with the State. Closure sampling
commenced in August and was completed on November 2, 1998. Based on
information and belief received from the NYSDEC, the facility is deemed
clean and closure is complete. The Company incurred direct cost for closure
of approximately $50,000. It is not expected that any additional cost will
be incurred due to the closure of the Long Island plant . On April 15,
1998, the Company received the requisite permits to allow it to operate its
waste recovery services from the New Jersey facility. Since April 15, 1998,
all of the Company's waste recovery business has been located in its New
Jersey facility.
On May 6, 1997, the Company formed three corporations, Gryphon
Industries, Inc., AMR, Inc., and American Metal Recovery Corp. pursuant to
the laws of the State of Nevada. As of the date hereof, Gryphon Industries,
Inc and AMR, Inc are inactive corporations and no stock has been issued
from either. In the foreseeable future, the Company plans to utilize
Gryphon for the distribution and possible manufacturing of the reagents
used in the Company's technology. AMR, Inc will be use to manage, source
and distribute the recovered products from all SST operations. It is
presently anticipated that Gryphon Industries, Inc. and AMR, Inc. will be
holly owned subsidiaries of the Company. The cost of the formation of these
two corporations was born solely by the Company and they have not yet been
capitalized.
American Metals Recovery Corp. was capitalized by the Company in
conjunction with the transfeer of the base of the Company's principle
operations. Most costs associated with this transfer were borne by the
Company and simultaneously exchanged for 100% of the outstanding stock of
American Metals Recovery Corp., thereby making American Metals Recovery
Corp. a wholly owned subsidiary of the Company. Upon formal completion of
the sale and closure of the Long Island Facility, all facility operations
will be conducted by American Metals Recovery Corp.
On June 24, 1998, the Company formed KBF-LI, Inc., pursuant to the
laws of the State of New Jersey. This corporation was formed to take over
all operations including closure and processing of incoming material
shipments (certain wastewater shipments could be received at the facility
without any impact on the closure operation). The Company is in the process
of transferring the remaining assets and improvements, relating to the Long
Island location to KBF-LI in exchange for 100% of the issued and
outstanding stock of KBF-LI, in accordance with a Board of Directors
resolution on July 30, 1998. The Company is presently negotiating with an
unrelated third party the sale of KBF-LI for an amount which will result in
no significant loss to the company.
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. In May 1998, the US Patent Office issued to Lawrence M. Kreisler
a patent for 'Selective Separation Technology' ('SST'). In November 1997
the Company and Mr. Kreisler entered into a license
agreement through which t he Company, is able to recover metals from
metal-bearing wastewater, which metals can then be recycled. The
Company is able to utilize SST in its operations pursuant to a license
agreement dated November 1997 covering the pre-patent technology .
The wastewater is received at the facility, transported in drums
and/or by tanker loads. (See "Description of Business - Waste Transport"
and "Certain Transactions"). The waste is then analyzed at the Company's own
laboratory facilities to determine compliance with the approved waste
profile which the Company keeps on file for each customer, and to verify
proper waste classification. Currently, all testing is done from the
Company's New Jersey facility.
Once testing is completed, utilizing the Patented "Selective
Separation Technology" the metals are separated from the solutions.
(See "Description of Business - Patents and Proprietary Information").
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.
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 Patented "Selective Separation
Technology," terminates the waste generator's liability by turning the
waste materials into commodities which are then placed into commerce in
place of virgin material used in a manufacturing process. The Company's
waste management services chemically transform hazardous waste into a
commodity. Once the hazardous waste no longer exists, the attached cradle
to grave liability terminates. The Company's patented process removes
the waste from the environment, thereby terminating the waste
generator's liability and exempting the waste generator from the Superfund
Generation Tax (where applicable) . The Company ,upon request of the
generator, issues a certificate of recovery as evidence that the
generators waste no longer exists in the environment. This certificate, in
conjunction with shipment documentation has been accepted by regulators that
the generators waste has been recycled. The Company's certificate of
recovery is not formally endorsed by the United States Environmental
Protection Agency, but does however serve to certify the elimination of
the aforementioned generator liability and the Company's recycling of the
waste.
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. The Company derives revenues from the
sale of recovered metals.
Laboratory Analysis: Prior to the Company's relocation to Paterson,
New Jersey, all laboratory analysis was conducted in laboratories located
in the Company's New York facility. On April 15, 1998, the Company received
all necessary permits and certificates to allow it to commence waste
recovery from its New Jersey facility. The laboratory located in the
Company's New Jersey facility, like its predecessor in the New York
facility is utilized to continually monitor and analyze the ongoing waste
recovery operations. The Company performs an initial analysis on waste from
new customers, and continually on each waste shipment received from the
customer. The Company also utilizes its laboratory facility to conduct
research and development. (See "Description of Business - Research and
Development and Patents and Proprietary Information")
Waste Transport: The Company uses a waste transporter, Metal Recovery
Transportation Corp. ("MRTC") that is licensed in New York, Connecticut,
Rhode Island, New Jersey, Massachusetts and New Hampshire. Lawrence
Kreisler, President of the Company, is the president and sole shareholder
of Metal Recovery Transportation Corp. The Company has an oral
agreement with Metal Recovery Transportation Corp to handle the
Company's transportation needs. There is no formal agreement existing
between the Company and Metals Recovery Transportation Corp. Metals
Recovery Transportation Corp. charges the Company an hourly rate based on
the type of equipment required and bills monthly for services rendered.
The Company also utilizes other unaffiliated licensed transport
companies. (See "Certain Relationships and Related Transactions.")
Contracts and Customers: The Company's waste recovery services are
typically provided pursuant to nonexclusive service agreements, based on
the acceptance of a potential customer's waste. The fees charged by the
Company for its services are 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 single customer accounted for 10% or more of
the Company's total revenues.
Equipment Services
In 1996, the Company ceased manufacturing its waste volume reduction
equipment. However, the Company will continue to service any equipment
previously sold to its customers. (See "Description of Business -
Manufacturing & Supplies")
Governmental regulation; Permits
The waste management industry is subject to regulation by federal,
state and local authorities. The Company makes a continuing effort to
anticipate regulatory, political and legal developments that might affect
its operations, but is not always able to do so. The Company cannot predict
the extent to which any legislation or regulation that may be enacted or
enforced in the future may affect its operations.
In particular, the regulatory process requires firms in the Company's
industry to obtain and retain numerous governmental permits to conduct
various aspects of their operations, any of which 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.
Since 1986, the Company has held all the necessary permits and
licenses to operate its New York facility. The New York facility will close
upon approval by New York State Department of Environmental Conservation.
The Company expects to receive such approval by July 1999, but can not
guarantee the approval by such date.
On April 15, 1998, the Company was issued all permits and certificates
required by Federal, State and local laws and regulations to allow it to
operate its New Jersey facility. The Company, through its wholly owned
subsidiary, American Metal Recovery, Corp., runs all waste recovery
operations out of its New Jersey facility.
Sales and Marketing:
The Company primarily markets its waste recovery services 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 potential
customers whose names are received through customer referrals, or are
located through review of trade journals and other industrial reference
materials.
In March of 1998, the Company signed a limited exclusive worldwide
license agreement with EPS Environmental, Inc., dba Solucorp Industries ,
a publicly traded company, trading on the NASDAC electronic bulletin
board ("S LUP ")for the utilization of the Company's Patented
Selected Separation 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 of wastewater. The initial licensing fee was
to be paid in unrestricted, free trading Solucorp stock.
Solucorp represented that it had the ability to issue free-trading shares
and the License Agreement contained representations and warranties to that
effect. Instead, Solucorp issued restricted and unregistered shares and had
agreed in May 1998 to pay for and register the shares and to repurchase, with
cash, at least $100,000 worth of the License Fee shares per month. (See the
"Legal Proceedings: General Comments with Reference to Solucorp"). Solucorp's
stock price has fallen to a low of $ 0.625 at the end of
October 1998. No additional payments under the agreement were to be in the
form of shares of Solucorp stock . The agreement also requires royalty
payments of 50% of gross per gallon receipts, not to be less than
$1,000,000 for the year ending December 31, 1998 and $2,000,000 for the
year ending December 31, 1999. Pursuant to this agreement, all royalty
payments due to the Company from Solucorp for the years ended December 31,
1998 and 1999 shall be due and payable in cash on December 31, 1999.
Minimum royalty payments for each year after 1999 shall be $2,000,000 per
year payable at the end of each year in which the payment accrues and is
due in cash . The agreement , which had a
five-year term, with automatic five-year continuous renewal. , was
terminated on September 23, 1998 .
The Solucorp agreement had been slated for modification
removing the worldwide exclusivity and the minimum royalty payments
due to Management's discovery of certain facts. (See the "Legal
Proceedings: General Comments with Reference to Solucorp") . All
royalties and fees that had accrued to date shall remain
payable in full. No modified agreement was executed. (See the
"Legal Proceedings: General Comments with Reference to Solucorp" for the
reasons underlying the intent to modify the agreement) .
Manufacturing and Supplies
The Company no longer manufactures the equipment for its patented
waste volume reduction system. (See ôDescription of Business - Patents
and Proprietary Informationö). However, the Company still
manufactures containment trays, recirculation systems and solution transfer
systems. This equipment is manufactured on an "as requested" basis.
All manufacturing is conducted in the CompanyÆs New Jersey facility.
The Company has a service department, pursuant to which the Company
continues to service waste reduction systems equipment previously sold by
the Company, as well as any new equipment to be sold. Existing inventory is
used to supply the servicing of this equipment under contractual service
agreements with customers or on an "on call" basis. (See "Description
of Business -Equipment Sales & Services" and "Description of
Business - Equipment Services").
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 competitor. On May 19, 1998, the United States Patent and Trademark
Office issued a Patent for the "Selective Separation Technology" utilized
by the Company (patent number 5,735,125). (See "Description of Business -
Patents and Proprietary Information")
The Company's competitors utilize a variety of 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. The Company may compete for the same
customers as these better financed companies.
Research and Development
Research and Development of the Patent Allowed "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. In June 1995, Lawrence M.
Kreisler , the Company's President submitted a patent
application on the current Selective Separation Technology that was
initially developed by Mr. Kreisler. Pursuant to a n license
agreement between Mr. Kreisler and the Company, the Company is able to
utilize the Selective Separation Technology in its operations. On March 25,
1998, after receiving a Notice of Allowance for the patent, the Company
executed a worldwide license agreement with Solucorp Industries for the
utilization of the Company's patented Selective Separation Technology (See
"Sales and Marketing"). On May 19, 1998, the United States Patent and
Trademark Office issued a Patent for the Selective Separation Technology
utilized by the Company. In accordance with Schedule B of the relevant
License Agreement, the conditions upon which royalty payments
begin to accrue have not yet been attained by the Company.
Accordingly, no royalty payments have been made or accrued. The Company
anticipates the relevant conditions to be satisfied by the
Company in the second quarter 1999 .
The Company is the owner of a United States patent issued in 1988
covering the design and function of its waste volume reduction system. The
Company has ceased manufacturing such systems, but continues to service
those systems previously sold. (See "Description of Business -
Manufacturing and Supplies")
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 employees. In addition to its
three executive officers, the Company employs three chemists (laboratory
personnel), a recovery manager, seven recovery employees, a
service-maintenance manager, eight office personnel, and two salespeople.
The Company will hire additional personnel when necessary. None of the
Company's employees is represented by a union.
ITEM 2. MANAGEMENTÆS DISCUSSION AND ANALYSIS OR PLAN 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.
During 1996 low profit revenues, largely leachate, accounted for
5.75% of revenue, while in 1997, it accounted for 9.41% of revenue.
This reduction, along with the reductions in operating cost discussed
below, account for the 2% increase in gross profit .
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 following is a schedule of the material cost reductions taken by
management in 1997
Expense 1996 1997 Savings Comments
Salaries $429,000 $357,000 $72,000 Operated on skeleton crew.
Utilities $100,000 $ 75,000 $25,000 Energy Conservation.
Bank Charges $ 15,000 $ 5,000 $10,000 Eliminated all unnecessary
accounts.
Auto Expense $ 19,000 $ 9,000 $10,000 Eliminated Company owned Cars.
Officers Salaries $204,000 $156,000 $48,000 Eliminated One Officer.
General Insurance $104,000 $ 80,000 $24,000 Change of Insurance Carriers.
Security $ 7,000 $ 2,000 $ 5,000 Change of Security operations.
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 º373.
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 of approximately $ 50,000 incurred in
conjunction with the 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.
Prepaid expenses at December 31, 1997 were $193,780 verses $12,752 at
December 31, 1996, an increase of $181,028. This increase is related to
facility project costs incurred in conjunction with the Companies move to
it's New Jersey facility. These costs were reclassified as "Facility
Costs" in the fixed asset section upon completion in the first quarter of
1998 .
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 ôsegmentö 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 action
brought by the Suffolk County, New York, District Attorney's office
against the Company and its president, Larry Kreisler, which action was
settled in June 1997 (See "Legal Proceedings"), and administrative
salaries and expenses paid to the Acting Chief Executive Officer, whose
term of office ended May 1997.
The Company also continued to incur expenses related to obtaining the
6NYCRR 373 (Federal Part b) permit. In December 1994 and January 1995,
the Company further expanded their exemptions to include characteristic and
listed hazardous waste. Due to these changes, in January 1995, the permit
application was amended from treatment and storage to storage only. The
review and approval of the revised permit application has been completed
and approved by New York State Department of Environmental Conservation.
The Company will be notified by the Deputy Regional Permit Administrator
for Region 1 when the permit will be placed in the public commenting
period. (See Governmental Regulation; Permit).
The Company also continued to incur expenses related to obtaining the
6NYCRR 373 (Federal Part b) permit. In December 1994 and January 1995,
the Company further expanded their exemptions to include characteristic and
listed hazardous waste. Due to these changes, in January 1995, the permit
application was amended from treatment and storage to storage only. The
review and approval of the revised permit application has been completed
and approved by New York State Department of Environmental Conservation.
The Company will be notified by the Deputy Regional Permit Administrator
for Region 1 when the permit will be placed in the public commenting
period. (See Governmental Regulation; Permit).
The Company incurred a net loss of $468,398 for the year ended
December 31, 1996 as compared to a net loss of $357,145 for the year ended
December 31, 1995, an increase of 31%. The 1996 loss is due primarily to
the increase in general and administrative expenses as explained above.
Depreciation Expense was $193,745 and $298,194 for the years ended December
31, 1996 and 1995 respectively. It should be noted that the Company is
negotiating to move its operating facility to a more advantageous location
where business is more easily obtained and costs further reduced.
Results of operations for the nine months Ending
September 30, 1998 as Compared to the nine months Ended
September 30, 1997
Total revenues for the nine months ended September 30, 1998 increased to
$2,568,115 as compared to $1,443,271 for the same period in 1997, an
increase of 77%. The Company attributes the increase to a rise in sales
volume, along with the collection of the licensing fee and royalty income
accrued in 1998 (see Footnotes 3, 4 & 6). Management anticipates this
trend to continue due to its recent move to New Jersey where there are
increased business opportunities. In addition, the Company anticipates
continuing revenue from licensing agreements.
Despite the increase in sales volume, trade accounts receivable has
remained relatively constant. This is due primarily to the fact that the
license fee/royalty income mentioned above is presented as other
receivables on the balance sheet. Current trade accounts receivable are as
follows:
0-30 days $157,060
30-45 days 30,381
45-60 days 8,495
60-90 days 2,650
90-120 days 40,776
120 + days 39,343
$278,705
Trade accounts receivable collected in cash subsequently through November
10, 1998 was $221,265.
Cost of sales for the nine months ended September 30, 1998 decreased to
39% of revenues from 69% of revenues for the same period in 1997. This
decrease is the result of the increase in sales volume and collection of
the royalty and licensing fees as mentioned above. Along with the increase
in revenue, the Company also attributes this decrease to the continued
efforts taken by Management to reduce costs.
General and administrative expenses increased by 44% to $712,244 for the
nine months ended September 30, 1998 from $491,736 for 1997. This increase
is due to the continued operation of two facilities, legal fees to
register as a reporting company and litigation fees regarding Solucorp. In
addition, there were costs related to the closure of the New York facility
under New York State Department of Environmental Conservation regulations.
These costs, along with certain costs associated with the licensing revenue
may continue to occur during 1998 and affect this trend.
Selling expenses decreased by 17% to $74,397 for the nine months ended
September 30, 1998 as compared to $89,444 for the comparable period in
1997. This decrease is due to the continued efforts taken by management to
cut back costs.
The Company incurred a net profit of $788,235 for the first nine months of
1998, a 606% increase from the net loss of -$155,684 for the same period in
1997, due to the increase in sales and other revenue and reduced costs
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relocated its facility to Paterson, New Jersey in March
1998. Management believes that this new location will result in additional
business opportunities and lower operating costs. Management believes that
current operations will provide adequate cash flow to meet current
obligations.
The Company has working capital of $78,620 at September 30,1998 as compared
to $131,736 at December 31, 1997. In addition, the Company has a negative
cash flow of -$136,689 at September 30, 1998 as compared to the positive
cash flow of $205,469 at December 31, 1997. This is due to the increase in
capital expenditures incurred to relocate to its new facility in New
Jersey, the operation of the Long Island facility at a loss, costs
associated with the New York State closure, and the legal expenses
mentioned above. Further, the Company incurred additional expenditures as
a result of good faith reliance on the Solucorp agreement and contract
damages also associated with this agreement. With the exception of the
legal fees related to the Solucorp suit, these costs should conclude in the
foreseeable future. As a result, the Company expects positive cash flow in
future periods. The Company is also exploring areas to raise capital which
include both debt and equity sources.
THE SOLUCORP AGREEMENT
In March of 1998, the Company signed a limited exclusive worldwide license
agreement with EPS Environmental, Inc., dba Solucorp Industries, a publicly
traded company, trading on the NASDAC electronic bulletin board ("SLUP")
for the utilization of the Company's Patented Selected Separation
Technology. This License Agreement was terminated on September 23, 1998.
(See the "Legal Proceedings: General Comments with Reference to Solucorp").
LONG ISLAND FACILITY
KBF has operated the Long Island, New York and New Jersey facility
simultaneously to date. The New York facility has been handling non-
hazardous storm water during the closure process, which is not affecting
the closure operation. The Long Island facility is in the process of
transferring the Long Island assets to a wholly owned subsidiary (KBF-LI,
Inc.). KBF-LI, Inc. will continue to operate the facility with the
intention of selling it. The Company is presently party to a letter of
intent with anticipated sale immediately following the closure of the
facility. The letter of intent calls for a total price of $100,000, of
which $40,000 has been received and is presented as a deposit payable on
the balance sheet.
As of the date of this report, management is expecting to receive the
closure certificate from the New York State Department of Environmental
Conservation imminently. The New York State Department of Environmental
Conservation informed the Company during the first week in November that
the facility is free of any environmental contaminants.
Management believes that there will be no significant additional costs
during the closure. In addition, the Long Island operation is no longer
subject to any lease provisions or obligations. KBFÆs operation
is facilitating the closure of the facility, which is to the benefit of the
landlord, therefore no rent is being charged. There has been no lease
provision between the parties since December 1997. Further, management
believes that the sale of the Long Island facility will substantially
mitigate any losses from the tangible and intangible assets remaining at
the Long Island facility. The Long Island Facility is closed.
New Jersey Facility
The following is a schedule of the anticipated cost savings associated with
the Companies move to Paterson New Jersey.
Expense Savings Comments
Office and Facility Labor $60,000 Cheaper Hourly rates
Rent $ 0,00 Same monthly expense for twice the
space
Utilities $25,000 Cheaper Electric Rates and Incentives
Real-estate Tax $30,000 Cheaper Tax Rate
Telephones $15,000 Cheaper rates
Sewer Usage charge $25,000 Built into real estate tax.
The Company increased depreciation resulting from the move of approximately
$65,000 per annum.
CERTAIN EVENTS
The Company filed suit against Solucorp Industries, Ltd. (Solucorp) on
October 7, 1998 for the Company's contract and fraud damages arising out of
its now-terminated License Agreement with Solucorp. The Company is
represented by the national law firm of Greenberg Traurig in this matter.
Solucorp has yet to file an answer to the Company's complaint (See Item #2:
Legal Proceedings: General Comments with Reference to Solucorp).
Solucorp holds itself out to be an environmental service organization
devoted to the development and marketing of innovative environmental
technologies. KBF Pollution Management, Inc. (KBF) was introduced to
Solucorp and its consultant, Joseph Kemprowski, by KBFÆs former
investment banker, M.H. Meyerson & Co., Inc. in December 1997. KBF had no
affiliation with Solucorp, or any of its affiliates, preceding this
introduction. This agreement remains the only affiliation the Company had with
Solucorp. At this time, Solucorp and Kemprowski claimed to have executed
contracts with the Chinese government for the remediation of contaminated
sites in mainland China from which revenues would be made. Furthermore, Solucorp
and Kemprowski made it clear that they had an extensive, global sales and
marketing infrastructure. Management performed due diligence on the basis
of publicly available information, Solucorp's filings and press releases,
MeyersonÆs analyst's reports on Solucorp, and numerous meetings
with Solucorp executives, which included significant technical discussions
covering a number of sites. In addition, there were discussions with
Solucorp's Chinese marketing affiliates. There were other limited documents
that Solucorp and Kemprowski disclosed. KBF was precluded from reviewing
the executed Chinese contracts due to what Solucorp and Kemprowski
represented to be as confidentiality agreements. Principals of M.H.
Meyerson & Co., Inc., however, represented that they reviewed the pertinent
agreements and advised KBF that the agreements had in fact been executed.
After several months of negotiation, and with the recommendation of
Meyerson, KBF and Solucorp enetered into an exclusive worldwide license for
the marketing and sale of KBF's patented SST process.
The agreement called for a license fee of $500,000 due upon execution on
March 20, 1998. The license fee was to be paid for with the issuance of
190,550 shares of free-trading, unrestricted Solucorp stock due upon
execution. Solucorp represented that it had the ability to issue free-
trading shares prior to execution and the License Agreement contained
representations and warranties to that effect. Instead, in the end of May
1998, KBF received 190,550 shares of restricted, unregistered stock û
after having been given assurances that Solucorp and Kemprowski would register,
repurchase and assist with the liquidation of the license fee stock at a
rate of at least $100,000 per month. The shares were issued after the
Securities and Exchange Commission had suspended SolucorpÆs stock.
Despite countless requests and demands, Solucorp and Kemprowski never
attempted to register the license fee stock, and they repurchased less
than $50,000 worth of shares between March and September 1998.
YEAR 2000
The Company's State of Readiness
The Company's information technology systems are presently year 2000
compliant. All internal programs were written by Company's management with
the year 2000 issue incorporated into the initial writing of the programs.
The programs have been tested and management is satisfied that they are
working properly.
Year 2000 compliance of the Company's non-information technology system has
been addressed and management feels that systems in place are year 2000
compliant.
Management has received verbal confirmation from many of the third parties
that provide services or products to the Company, and have been assured
that they are year 2000 compliant. The Company is presently developing
questionnaires to be answered by the third parties regarding their level of
year 2000 compliance so that management has written confirmation as to
their status before the year is complete.
The Costs to Address the Company's Year 2000 Issues
Management believes the estimated costs in connection with the third party
compliance will not be significant.
The Risks of the Company's Year 2000 Issues
Given the nature of the business, management does not believe there is any
significant risk and will not be any negative impact on their operations
from any source.
The Company's Contingent Plans
Due to management's comfort with internal control over the information
technology and non-information technology, the Company does not have a
contingency plan. Regarding third parties, management believes any
potential problems or losses arising from the unknown should be minimal.
OFFICER EMPLOYMENT CONTRACTS
The Contracts signed in November of 1997, (see Item 6, Employment
Agreements) call for combined annual salaries for Lawrence M. Kreisler and
Kathi A. Kreisler of $245,000. This amount will exceed the compensation
presented in the 1997 financial statements by $89,000, mostly due to Kathi
A. Kreisler's payment of salary in stock options in 1997. The
Company believes that it will be able to meet this increase in cash rather
than options in the foreseeable future .
ITEM 3. DESCRIPTION OF PROPERTY
On 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 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.
Currently, all of the Company's waste recovery operations are conducted
from the New Jersey facility.
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. The Company expects
such acceptance to occur by July 1999.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, 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 (10)
Kathi Kreisler 17,476,953 19.66%
One East Park Drive (1) (2)
Paterson, NJ 07504
Lawrence Kreisler 9,876,953 11.11%
One East Park Drive (1) (3)
Paterson, NJ 07504
Steven Lewen 2,290,258 2.58%
10 Cabriogt Lane (4)
Melville, NY 11747
Kevin Kreisler 413,500 0.47%
One East Park Drive (5)
Paterson, NJ 07504
Joseph J. Casuccio, Jr., CPA 1,548,842 2.051.47%
7 North Equestrian Court (6)
Hauppauge, New York 11789
Anthony Leteri 433,000 0.49%
18 Allenby Drive
Northport, NY 11768
Frederick Eisenbud 409,013 0.46%
7 Bradshaw Lane
Fort Salonga, NY 11768
All Officers & Directors 32,448,519 36.50%
as a group Seven persons. (7)
Kreisler Family as A Group 27,972,406 31.46%
(11)
1) Mr. and Ms. Kreisler each disclaim beneficial ownership of the shares
of Common Stock owned by the other.
2) Includes 12,264,278 shares of exercisable options for Common Stock.
3) Includes 4,664,278 shares of exercisable options for Common Stock.
4) Includes 1,002,258 shares of exercisable options for Common Stock.
5) Includes 400,000 shares of exercisable options for Common Stock.
6) Includes 728,550 shares of exercisable options for Common Stock.
7) Does not include an aggregate of 40,000,000 shares of Common Stock
issuable upon exercise of (i) options available for grant under the
Company's Stock Option Plans and (ii) options granted to
individuals other than officers, directors and principal stockholders of
the Company.
8) Includes options exercisable for Common Stock, as set forth in
footnotes 2,3,4,5, and 6.
9) There are currently 56,388,565 shares of Common Stock issued and
outstanding as of the date hereof.
10) Assumes exercise of options denoted in numbers 2 through 6 above
totaling 19,059,364, for a total outstanding of 88,903,436 ,
utilized for this percentage computation.
11)Includes stock and options held by Lawrence M. Kreisler, Kathi A.
Kreisler, Kevin E. Kreisler and Scott C. Kreisler .
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Identification of Directors.
Capacities
Period Served in which currently
Name Age as Director serving
Lawrence Kreisler 52 Since 1984 Chairman
President
Kathi Kreisler 48 Since 1984 Vice President
Secretary, Treasurer
Director
Kevin Kreisler 26 Since July 1998 Vice President
Director
Robert Misa 42 1991 to February 1998 Vice President
Director
Frederick Eisenbud 52 Since January 1998 Director
Stephen Lewen 46 Since January 1998 Director
Joseph J.
Casuccio,Jr.,CPA 4 7 Since January 1998 Chief Financial Officer
Vice President
Director
Anthony Leteri 48 Since January 1998 Director
Lawrence M. Kreisler, President of the Company, is a Co-founder of the
Company and has been its Chairman of the Board and a Director since March
1984. Mr. Kreisler invented the technology with which the Company transacts
its principal businesses (See "Patents and Proprietary
Information"). He served as Vice President, Secretary and 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, Vice President, Secretary, Treasurer and a director
of the Company. He is the father of Kevin Kreisler, Vice President and a
director of the Company.
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 became Vice President, Secretary
and Treasurer of the Company. From 1979 to 1984, Ms. Kreisler was a
principal in Kreisler Bags (subsequently incorporated as Kreisler Bags and
Filtration, Inc., which name was subsequently changed to KBF Pollution
Management, Inc.). Ms. Kreisler is the wife of Lawrence Kreisler, President
and Chairman of the Board of the Company. She is the mother of Kevin
Kreisler, a Vice President and a director of the Company.
Kevin Kreisler has been Vice President since January 1998 and director
since July 1998. Mr. Kreisler has continuously worked for the Company in
various part and full time capacities since 1990. He has also worked as a
law clerk for several law firms and clinics during his tenure at law school
(September 1995 to December 1997). Mr. Kreisler is a graduate of Rutgers
University College of Engineering (B.S., Civil and Environmental
Engineering, 1994), Rutgers University Graduate School of Management
(M.B.A., 1995), and Rutgers University School of Law (J.D., 1997). He is
the son of Lawrence Kreisler, President and Chairman of the Board of the
Company, and Kathi Kreisler, a Vice President, Secretary, Treasurer and a
director of the Company.
Robert Misa became a Director of the Company in January 1991 and Vice
President in 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. Mr. Misa resigned from the Board in February
1998. He was succeeded by Kevin Kreisler.
Frederick Eisenbud has been a director of the Company since January
1998. Since April 1998, Mr. Eisenbud has been the sole proprietor of the
Law Office of Frederick Eisenbud in Hauppaugue, New York, which law office
currently represents the Company in certain environmental matters. From
1990 until April 1998, Mr. Eisenbud was a partner of Cahn, Wishod & Lamb,
L.L.P., a law firm specializing in environmental law and civil litigation,
which firm represented the Company. In April 1998, Mr. Eisenbud resigned
from that law firm. Cahn, Wishod & Lamb, L.L.P. no longer represents the
Company. Since March 1998, Mr. Eisenbud has been President of Metal
Recovery Marketing, L.L.P., a firm which seeks to market the Company's
technology to environmental consultants (See "Certain Relationships
and Related Transactions.") Mr. Eisenbud is a graduate of New York
University and Hofstra Law School.
Dr. Stephen Lewen has served as a director of the Company since
February 1998. Since 1982, Dr. Lewen has been a physician, and a member of
Suffolk Opthamology Associates, P.C. in Bayshore, New York. Dr. Lewen is a
graduate of Cornell University, Columbia University and Chicago Medical
School.
Joseph J. Casuccio, Jr., CPA has served as a Chief Financial Officer
of the Company since July 1998, and as Vice-President and director since
January 1998. Since 1985, Mr. Casuccio has been a partner at Werblin,
Casuccio & Moses, a public accounting firm, which provides accounting
services to the Company (See "Certain Relationships and
Related Transactions"). Mr. Casuccio is a graduate of Suffolk County
Community College and Long Island University.
Anthony Leteri has served as a director of the Company since January
1998. Mr. Leteri has been president of Friendly Carting/USA Recycling, a
private sanitation and recycling company, since 1980. Mr. Leteri attended
the City University of New York at Queensborough and the State University
of New York at Stony Brook.
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: Lawrence
M. Kreisler, Kathi Kreisler, Robert W. Misa, Jr., Joseph J. Casuccio, Jr.,
CPA 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. In July 1998, the
Board of Directors approved Kevin Kreisler to succeed Robert Misa for the
remainder of his term. Mr. Misa resigned from the Board in February 1998.
Identification of Executive Officers.
Name Age Current Office Held
Lawrence Kreisler 52 Chairman, President
Kathi Kreisler 48 Vice President, Secretary, Treasurer
Kevin Kreisler 26 Vice President
Joseph J.
Casuccio Jr. 47 Vice President, Chief Financial Officer
Both Kathi Kreisler and Lawrence Kreisler entered into employment
agreements with the Company on November 7, 199 7
(collectively, the "Employment Agreements"). Pursuant to the Employment
Agreements, both Ms. Kreisler and Mr. Kreisler shall serve the Company
in their individual capacities for a five year period; however, the
Employment Agreements shall be extended automatically each day for an
additional day so the remaining term of the Employment Agreements will
continue to be five (5) years at all times. Upon written notice by either
party, the ôevergreenö provision of the Employment Agreements
will cease, and the final five- (5) year period will commence on the
date of such written notice. (See ôExecutive Compensation -
Employment Arrangementö). As of the date hereof, the Company has
not entered into any employment agreements with Joseph J. Casuccio, Jr.,
CPA or Kevin Kreisler.
Each person selected to become an executive officer has consented to
act as such and there are no arrangements or understandings between the
executive officers or any other persons pursuant to which he or she was or
is to be selected as an officer.
For a description of the backgrounds of Ms. Kreisler, Mr. Lawrence
Kreisler, Mr. Kevin Kreisler and Mr. Casuccio, 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 6. 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 $100,000:
SUMMARY COMPENSATION TABLE
Long
Annual Compensation Term
Compensation
Name and Salary Bonus Other Awards, All Other
Principal Year ($) ($) Annual Options/SARs Compensation
Position Compensation
Kathi A. 1997 $3,500 - See Below - -
Kreisler
Vice
President
1996 $8,325 - - - -
1995 $2,153
Lawrence 1997 $152,503 - See Below -
Kreisler,
President
1996 $195,474
1995 $146,294
James 1996 0 $20,000
Aiello
Acting
CEO
1997 0 $24,000
1995 0
Kevin 1997 0 $20,000
Kreisler
1996 0
1995 0
There were new stock options granted to the named executive officers.
In January 1998, Kathi. Kreisler was issued 8 million options for past
services rendered and unpaid salary. (See " Employment
Arrangements " ) totaling $640,000, which value is determined to be
$0.08 per option . Lawrence Kreisler was issued 400,000 options for past
services rendered and unpaid salary totaling $32,000, which value is
determined to be $0.08 per option. It should be noted that utilizing the
Black-Scholes model, these options would be valued at $0.0467 per share,
however the Company decided to utilize a more conservative valuation to
prevent any appearance of impropriety . Certain stock options granted to
the executive officers were revised and reallocated. (See "Stock Options"
for further information.) No stock appreciation rights were granted or
exercised during such fiscal year.
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1997 with
respect to the Company's named executive officers. No stock appreciation
rights were exercised or outstanding during such fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value Value of
Realiz Number of Unexercised in-
ed Securities the-Money
Shares Market Underlying Options at FY-
acquir price Unexercised End Market
ed at FY Options at Price of
End Fiscal Year-End shares at FY-
(#) End ($) less
exercise price
Name on Exercise Exerci Unexerc Exerci Unexer
exercise(#) less sable isable sable cisable
exercise
price)
Kathi Kreisler 0 - 4,262,278 N/A N/A
Lawrence 0 - 4,262,278 N/A N/A
Kreisler
Since November 1994, there have been several grants of the Company's
stock options. In December of 1997 the Company issued 800,000 incentive
options to certain employees exercisable at $0.10 per share for a period of
the (10) years from the date of grant. On January 2, 1998, the Company
issued Kathi Kreisler 8,000,000 million incentive options for past services
rendered. These options are exercisable at $0.08 per share for a period of
ten (10) years from the date of grant. (See "Employment Arrangements"). On
January 2, 1998, the Company issued Lawrence Kreisler 400,000 incentive
options for past services rendered. These options are exercisable at $0.08
per share for a period of ten (10) years from the date of grant. (See
"Employment Arrangements"). No stock appreciation rights were exercised
during such fiscal year.
Employment Arrangements
The Company has entered into an employment agreement with Lawrence M.
Kreisler, as the Chairman of the Board and President of the Company,
on November 7 , 1997 (the "Lawrence Kreisler Employment
Agreement"). The Lawrence Kreisler Employment Agreement provides for a
five-year term 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 the Lawrence Kreisler Employment Agreement at five years
without additional extension and would then end on a date five years from
the date of notice. Pursuant to the Lawrence Kreisler Employment Agreement,
Mr. Kreisler's annual base salary shall be $165,000, with annual
cost of living adjustments. Mr. Kreisler is 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 6% of the base weekly salary to
Lawrence Kreisler's 401(k) savings plan.
Lawrence Kreisler's employment may be terminated by the Company at any
time for cause (as defined in the Lawrence 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 Lawrence Kreisler Employment Agreement, which have accrued but
are unpaid as of the date of termination. The Lawrence 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 entered into an employment agreement with Kathi Kreisler,
as Vice President and Secretary Treasurer, on November
7 ,1997 (the "Kathi Kreisler Employment Agreement"), which 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.
Pursuant to this agreement, Ms. Kreisler shall receive an annual base
salary of $80,000, with cost of living adjustments. Ms. Kreisler is
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 6% of the base
weekly salary to Ms. Kreisler's 401(k) savings plan.
Kathi Kreisler's employment may be terminated by the Company at any
time for cause (as defined in the Kathi 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 Kathi Kreisler Employment Agreement, which have accrued but are
unpaid as of the date of termination. The Kathi 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 , her 1996 salary to $8,325.00 , her 1995 salary to
$2,153, her 1994 salary to $20,000 and deferred all 401k payments . In
January 1998, the Company issued Ms. Kreisler 8,000,000 stock options, each
convertible to one share of common stock at $0.08 per share for a period of
ten (10) years from the date of issuance for past services rendered.
In January 1998, the Company issued 400,000 stock options to Lawrence
Kreisler for past services rendered as a result of voluntarily reducing his
salary. Each of these stock options is convertible into one share of
common stock at $0.08 per share, for a period of ten (10) years from the
date of issuance.
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 $0.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, 15
million options previously granted to Lawrence M. Kreisler
and Kathi A. Kreisler 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
The Company issued options on December 20, 1997, to certain employees
to purchase 800,000 shares of Common Stock for $0.10 per share over a 10-
year period beginning December 20, 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. For the fiscal year ending December 31, 1998,
100,000 options at an exercise price of 80% of the price of the stock as
selling on January 1, 1998, will be granted to each Director who has served
as a director for the entire year under the Directors Plan. The options
will be issued December 31, 1998. The options are exercisable 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 $0.155 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. This agreement was terminated on August 27, 1998 for reasons
impacting on various issues of non-performance and conflicts of interest .
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 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 exercised.
On September 8, 1998, both Meyerson agreements were replaced with a
new warrant agreement to purchase total of 1,500,000 shares at $0.15 and
250,000 shares of restricted stock. The warrants and the underlying shares
would be exercisable at anytime between September 8, 1998
and August 30, 2003. And are callable by the Company on November 8, 1999
@ $0.01 per option .
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 50,000,000 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. Under the ISO Plan, options may be
granted at not less than 80% (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. The
ISO expired in November of 1992.
In November of 1994 the Company revised and renewed the Incentive
Stock Option Plan to cover Employees, Officers and Directors. The revised
plan covers the same 50,000,000 shares of the CompanyÆs Common Stock as
the expired plan, pursuant to which employees, including Officers and Directors
of the company are eligible to receive incentive stock options as defined
under the Internal Revenue Code of 1986, as amended. Under the plan,
options may be issued as an incentive for services rendered. Optionees
shall not be restricted as to assignment or transferability. The Board of
Directors has the authority to set the price of the option at the time of
the grant. Options may be exercised for a period of 10 years from the date
of grant and will expire if not exercised during this period of time.
ITEM 7. 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 lieu of 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 in previous years. The shares were valued at $.125 per share.
Kathi Kreisler and Lawrence 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 as compared to $502,265 at December 31, 1996. Under an
agreement signed November 7, 1997, both Lawrence Kreisler and Kathi
Kreisler are to receive one percent (1%) per annum of the average amount of
the Company's indebtedness outstanding in each month to which Lawrence
Kreisler and Kathi Kreisler are guarantors, or $3,000.00 per month,
whichever is greater. To date, no payment on this agreement has been made.
Pursuant to the mutual agreement of the Company and Mr. Kreisler and Ms.
Kreisler, this agreement was terminated on January 1, 1998. No payments
shall be payable to Mr. Kreisler and Ms. Kreisler .
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 $0.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 , who furnished the $60,000,
received 484,000 shares of Common Stock under the terms and conditions
of the agreement. These shares were valued at $0.125 per share .
The Company issued stock under a 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 $0.125 per share. In 1996, the Company issued to Steven
Feldman, Esq. 83,871 stock options, which upon exercise will retire the
related account payable debt. In 1996, the Company issued 86,250 options 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. Frederick
Eisenbud, a director of the Company, was a partner of Cahn, Wishod & Lamb,
L.L.P.
In May 1996, a new company was formed to handle the transportation
needs of KBF Pollution Management, Inc. The new company, Metal Recovery
Transportation Corp. is owned solely by Lawrence Kreisler. (See "Certain
Relationships and Related Transactions.") Metal Recovery
Transportation Corporation was formed without any financial assistance from
KBF and is not yet profitable. Metal Recovery Transportation has permits in
New York, New Jersey, Connecticut, Rhode Island, Massachusetts and New
Hampshire.
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. On May 6, 1997, the Company acquired 100% of the shares of each
of these three (3) corporations. As of the date hereof, Gryphon
Industries, Inc. and AMR, Inc. are inactive. The Company conducts all of
the operations of its New Jersey facility through American Metals Recovery
Corp.
On June 24, 1998, the Company formed KBF-LI, Inc., pursuant to the
laws of the State of New Jersey. On June 24, 1998, the Company acquired
100% of the issued and outstanding common stock of KBF-LI, Inc21. Effective
July 1, 1998, all of the operations of the CompanyÆs New York
facility, including closure proceedings of such facility, are conducted
through KBF-LI, Inc.
In November 1997, the Company executed a License Agreement with
Lawrence Kreisler, President of the Company. Mr. Kreisler granted the
Company a worldwide, exclusive license to Mr. Kreisler's Patent Rights that
are defined as "The Selective Separation Technology" for the purpose of
resource recovery of industrial metal bearing waste." (See "Description of
Business - Patents and Proprietary Information"). The license applies to
any improvements or related inventions. The Company may assign or
sub-license the License with prior written consent which shall not be
unreasonably withheld. Mr. Kreisler shall receive $10,000 for all prior use
of the technology and a royalty fee based on a per gallon rate which
differs according to the type and quantity of material processed. The
License Agreement has a minimum 15-year term after which time changes to
5-year evergreen term. In accordance with Schedule B of
the relevant License Agreement, the condition upon which
royalty payments begin to accrue has not yet been satisfied by
the Company. Accordingly, no royalty payments have been made or accrued.
The Company anticipates the relevant condition to be
satisfied by the Company in the second quarter 1999 .
Joseph J. Casuccio, Jr., CPA, Chief Financial Officer, Vice President
and a director of the Company, is a partner of the accounting firm,
Werblin, Casuccio & Moses, which firm is the internal accountant for the
Company. (See "Management.")
Since March 1998, Frederick Eisenbud, a director of the Company, has
been President of Metal Recovery Marketing, L.L.P., a firm which seeks to
market the Company's technology to environmental consultants. The Company
has entered into an agreement with Metal Recovery Marketing, L.L.P.,
pursuant to which Metal Recovery Marketing, L.L.P. will seek to market the
Company's technology. Additionally, from April 1990 to April 1998, Mr.
Eisenbud was a partner at the law firm of Cahn, Wishod & Lamb, L.L.P.,
which firm represented the Company. In April 1998, Mr. Eisenbud resigned
from that law firm. Cahn, Wishod & Lamb, L.L.P. no longer represents the
Company. The Law Firm of Frederick Eisenbud, of which Mr. Eisenbud is sole
proprietor, currently represents the Company on certain environmental
matters. (See "Management.")
ITEM 8. DESCRIPTION OF SECURITIES
Qualification: The following statements constitute brief summaries of the
Company's Certificate of Incorporation and Bylaws, as amended. Such
summaries do not purport to be complete and are qualified in their entirety
by reference to the full text of the Certificate of Incorporation and
Bylaws.
Common Stock: The CompanyÆ articles of incorporation authorize it to
issue up to 500,000,000 shares of Common Stock, $.00001 par value per share.
All outstanding shares of Common Stock are legally issued, fully-paid and
non-assessable.
Liquidation Rights: Upon liquidation or dissolution, each outstanding share
of Common Stock will be entitled to share equally in the assets of the
Company legally available for distribution to shareholders after the
payment of all debts and other liabilities.
Dividend Rights: There are no limitations or restrictions upon the rights
of the Board of Directors to declare dividends out of any funds legally
available therefor. The Company has not paid dividends to date and it is
not anticipated that any dividends will be paid in the foreseeable future.
The Board of Directors initially may follow a policy of retaining earnings,
if any, to finance the future growth of the Company. Accordingly, future
dividends, if any, will depend upon, among other considerations, the
Company's need for working capital and its financial conditions at the
time.
Voting Rights: Shares of Common Stock are not redeemable, have no
conversion rights and carry no preemptive or other rights to subscribe to
or purchase additional shares of Common Stock in the event of a subsequent
offering.
Transfer Agent: The CompanyÆs transfer agent is American Stock
Transfer & Trust.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on
the National Association of Securities Dealers, Inc. Electronic Bulletin
Board.
The following table sets forth, for the periods indicated, the range
of high and low bid prices for the Company's Common Stock as reported by
the NASDAQ Electronic Bulletin Board of the National Quotation Bureau,
Incorporated.
The bid quotations set forth below reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
High Low
1995
First Quarter 0.09 0.05
Second Quarter 0.17 0.06
Third Quarter 0.4375 0.14
Fourth Quarter 0.34375 0.18
1996
First Quarter 0.23 0.1875
Second Quarter 0.25 0.20
Third Quarter 0.375 0.23
Fourth Quarter 0.375 0.19
1997
First Quarter 0.25 0.09
Second Quarter 0.17 0.08
Third Quarter 0.25 0.13
Fourth Quarter 0.40 0.16
1998
First Quarter 0.81 0.41
Second Quarter 0.17 0.16
Third Quarter 0.25 0.16
Approximate number of holders
Titles of Class of record as of March 27, 1998
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 2. LEGAL PROCEEDINGS
The Company has filed suit against Solucorp Industries, Ltd.
for the Company's contract and fraud damages arising out of its
now-terminated License Agreement with Solucorp. The Company is represented
by the national law firm of Greenberg Traurig in this matter. Solucorp has yet
to file an answer to the Company's complaint.
General Comments with Reference to Solucorp:
Solucorp holds itself out to be an environmental service organization
devoted to the development and marketing of innovative environmental
technologies. KBF was introduced to Solucorp and its consultant, Joseph
Kemprowski, by KBF's former investment banker, M.H. Meyerson & Co., Inc.
last December. KBF had no affiliation with Solucorp, or any of its
affiliates, preceding this introduction. This agreement remains the only
affiliation the Company had with Solucorp. At this time, Solucorp and
Kemprowski claimed to have executed contracts with the Chinese government
for the remediation of contaminated sites in mainland China from which
revenues would be made. Furthermore, Solucorp and Kemprowski made it clear
that they had an extensive, global sales and marketing infrastructure.
Management performed due diligence on the basis of publicly available
information, Solucorp's filings and press releases, Meyerson's analyst's
reports on Solucorp, and numerous meetings with Solucorp executives, which
included significant technical discussions covering a number of sites. In
addition, there were discussions with Solucorp's Chinese marketing
affiliates. There were other limited documents that Solucorp and Kemprowski
disclosed. KBF was precluded from reviewing the executed Chinese contracts
due to what Solucorp and Kemprowski represented to be as confidentiality
agreements. Principals of M.H. Meyerson & Co., Inc., however, represented
that they reviewed the pertinent agreements and advised KBF that the
agreements had in fact been executed (Meyerson was our investment banker at
the time and we enjoyed a fiduciary relationship with them pursuant to
which Meyerson had an affirmative obligation to perform this additional due
diligence on our behalf).
After several months of negotiation, and with the recommendation of
Meyerson, KBF and Solucorp entered into an exclusive worldwide license for
the marketing and sale of KBF's patented SST process. The agreement called
for a license fee of $500,000 due upon execution on March 20, 1998. The
license fee was to be paid for with the issuance of 190,550 shares of free-
trading, unrestricted Solucorp stock due upon execution. Solucorp
represented that it had the ability to issue free-trading shares prior to
execution and the License Agreement contained representations and
warranties to that effect. Instead, in the end of May 1998, KBF received
190,550 shares of restricted, unregistered stock û after having been
given assurances that Solucorp and Kemprowski would register, repurchase and
assist with the liquidation of the license fee stock at a rate of at least
$100,000 per month. The shares were issued after the U.S. Securities and
Exchange Commission had suspended Solucorp's stock. Despite countless
requests and demands, Solucorp and Kemprowski never attempted to register
the license fee stock, and they repurchased less than $50,000 worth of
shares between March and September 1998.
SolucorpÆs breach of these, and many other terms of the license
agreement was at considerable cost to KBF. In good faith reliance on the
agreement, KBF expended several hundred thousand dollars in supporting
SolucorpÆs sales efforts. According to the agreement, KBF was never
supposed to expend any of its capital derived from sources other than the
two fees in providing Solucorp with support.
Further, Management discovered that much of what had been represented
to KBF by Solucorp and Kemprowski with reference to SolucorpÆs executed
agreements in China, the extent of its sales and marketing capabilities and
its ability to register, repurchase and liquidate the shares was not true.
In August 1998, in a final attempt to turn the Solucorp relationship
into a profitable venture, Management negotiated a modification that
accounted accurately for SolucorpÆs ability to pay the fees and to
market SST. The modification would have stripped Solucorp of the license to the
technology and required the payment of additional compensation to remedy
the damages KBF had suffered by that time. A letter of intent was executed
and the modification was drafted but negotiations broke down in the
following weeks. On September 23, 1998, KBF formally noticed Solucorp of
Termination and KBF filed suit against Solucorp and Kemprowski for breach
of contract and fraud damages.
The Company will pursue its interests against Solucorp and Kemprowski
and is seeking damages commensurate with the Company's good faith
expenditures, contract damages (which include the license fee and the first
yearÆs worth of accrued minimum royalty) and fraud damages. Despite its
pending litigation and anticipated receipt of damages, the Company has
serious doubts as to whether Solucorp will remain a going concern and will
have the ability to remedy KBF's damages .
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
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.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Commencing November 1997, the Company offered up to 12,500,000 shares
of common stock at $0.08 per share. This offering was made pursuant to an
exemption from registration pursuant to Rule 504 of Regulation D of the
Securities Act of 1933, as amended. The offering was approved and/or
exempted by the required states and the appropriate Form D was filed with
the Securities and Exchange Commission.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification: The Company shall indemnify to the fullest extend
permitted by, and in the manner permissible under the laws of the State of
New York, any person made, or threatened to be made, a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he is or was a director or officers of the Company,
or served any other enterprise as director, officer or employee at the
request of the Company. The Board of Directors, in its discretion, shall
have the power on behalf of the Company to indemnify any person, other than
a director or officer, made a party to any action, suit or proceeding by
reason of the fact that he/she is or was an employee of the Company.
Insofar as indemnification for liabilities arising under the Act may
be permitted to director, officers and controlling person of the Company,
the Company has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act, and is therefor, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceedings) is asserted by such director, officer or controlling
person in connection with any securities being registered, the Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by its is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE CORPORATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IS HELD
TO BE AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION, AND
IS THEREFOR UNENFORCEABLE.
PART F/S
The following financial statements required by Item 310 of Regulation S-B
are furnished below:
Independent Auditor's Report;
Balance Sheet as of December 31, 1996 (audited); December 31, 1997
(audited); June 30, 1998 (unaudited);
Statements of Income for the periods January 1, 1996 to December 31, 1996
(audited); January 1, 1997 to December 31, 1997 (audited); and January 1,
1998 to June 30, 1998 (unaudited);
Statements of Cash Flows for the periods January 1, 1996 to December 31,
1996 (audited); January 1, 1997 to December 31, 1997 (audited); and January
1, 1998 to June 30, 1998 (unaudited);
Statement of Changes in Stockholders Equity for the period January 1, 1996
to December 31, 1996 (audited); January 1, 1997 to December 31, 1997
(audited);
Notes to Financial Statements.
Financial data schedule-December 31, 1997 - exhibit 27
Financial data schedule-September 30, 1998 - exhibit 27
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
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.
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.
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
September 30, 1998
BALANCE SHEET
ASSETS
9/30/98 12/31/97
Unaudited Audited
CURRENT ASSETS:
Cash $ 87,954 $ 224,643
Cash - Restricted 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $27,870 & $26,782) 265,835 241,041
Marketable Securities -
Restricted (Note 5) 137,447 0
Other Receivables 87,900 49,572
Inventories 22,473 11,670
Prepaid Expendable Supplies 14,246 14,246
Other Prepaid Expenses 14,309 193,780
Total Current Assets 657,664 762,452
FIXED ASSETS:
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,841,061 &
$1,670,954) 1,770,501 832,851
Leased Property under Capital Leases
(Amortization of $396,004 & $378,869) 140,902 108,030
Non Expendable Stock, Parts & Drums 139,367 139,368
Total Fixed Assets, Net 2,050,770 1,080,249
OTHER ASSETS:
Security Deposits 8,002 7,662
Other Receivables (Note 6) 344,212 0
Patent (Net of Accumulated
Amortization of $12,061 & $11,164) 13,189 9,165
Capitalized Permit Costs 87,279 89,179
Total Other Assets 452,682 106,006
TOTAL ASSETS $3,161,116 $1,948,707
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
September 30, 1998
BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
9/30/98 12/31/97
Unaudited Audited
CURRENT LIABILITIES:
Accounts Payable - Trade $422,231 $ 454,657
Accrued Expenses 48,163 52,354
Taxes Withheld & Accrued 5,289 11,873
Deposit Payable 40,000 0
Current Portion of Long - Term
Debt 0 60,000
Current Portion of Capital Lease
Obligations 63,361 51,832
Total Current Liabilities 579,044 630,716
LONG-TERM LIABILITIES:
Long - Term Lease Obligations 183,721 189,977
Total Long - Term Liabilities 183,721 189,977
STOCKHOLDERS' EQUITY (DEFICIT) :
Com. Stock par value .00001 per sh.
Authorized - 500,000,000 shares
Issued & Outstanding
September 30, 1998 - 58,501,160 585
Dec. 31, 1997 - 49,112,690 491
Capital in Excess of Par Value 5,675,938 4,871,362
Unrealized Gain (Loss)on
Available-for-Sale Securities (322,574) 0
Retained Earnings (Deficit) (2,955,598) (3,743,839)
Total Stockholders'
Equity (Deficit) 2,398,351 1,128,014
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY (DEFICIT) $3,161,116 $1,948,707
See accompanying notes to financial statements.
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 $(.0 1 ) $(.01 ) $(.0 1 )
DILUTED $(.0 1 ) $(.01 ) $(.0 1 )
See accompanying notes and accountant's report
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
STATEMENT OF INCOME
SEPTEMBER 30, 1998
STATEMENT OF INCOME
(Unaudited)
NINE MONTHS ENDED
9/30/98 9/30/97
REVENUES $2,568,115 $1,443,271
LESS: Cost of Operations 992,345 992,172
Gross Profit 1,575,770 451,099
LESS: General & Admin. Expenses 712,244 491,736
Selling Expenses 74,397 89,444
Operating Income (Loss) 789,129 (130,081)
OTHER INCOME (EXPENSES):
Interest Income 24,032 750
Interest Expense (20,139) (23,949)
Income Tax Provision (4,787) (2,404)
NET INCOME (LOSS) 788,235 (155,684)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized Holding Losses (322,574) 0
COMPREHENSIVE INCOME (LOSS) $ 465,661 $(155,684)
Number of Shares Outstanding 58,501,160 43,743,565
Earnings Per Share from Operations $ .01 $ (.01)
Earnings Per Share - Net Income (Loss) $ .01 $ (.01)
See accompanying notes to financial statements.
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
CASH FLOWS FROM OPERATING ACTIVITIES:
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
See accompanying notes and accountant's report.
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
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:
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
See accompanying notes and accountant's report.
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
9/30/98 9/30/97
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Customers $ 1,338,870 $1,488,803
Cash Paid to Suppliers & Employees (806,286) (1,521,646)
Interest & Dividends Received 1,420 750
Interest Paid (20,207) (7,587)
Income Taxes Paid (4,672) (604)
Net Cash Provided (Used) by
Operating Activities 509,125 (40,284)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Purchases of Equipment (1,107,757) (758)
Net Cash Provided (Used) in Investing
Activities (1,107,757) (758)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Stock &
Warrants 506,670 93,298
Payment of Underwriting Costs 0 (5,000)
Repayment of Long-Term Debt &
Capital Lease Obligations (44,727) (38,858)
Net Cash Provided (Used) by Financing
Activities 461,943 49,440
NET INCREASE (DECREASE) IN CASH (136,689) 8,398
CASH at Beginning of Period 224,643 19,174
CASH at End of Period $ 87,954 $ 27,572
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
9/30/98 9/30/97
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $788,235 $(155,684)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 187,242 177,180
Amortization 897 897
Consulting & Professional Fees
Paid in Stock 0 15,330
Bad Debts 1,088 (4,554)
(Increase) Decrease :
Trade Accounts Receivable (25,882) 45,532
Other Receivables (842,561) (14,388)
Inventories (10,803) 2,339
Prepaid Expenses & Deposits 176,110 8,785
Increase (Decrease) in:
Accounts Payable 155,574 (12,908)
Withholding Taxes Payable (6,584) 431
Deposit Payable 40,000 0
Accrued Expenses 45,809 (103,244)
$509,125 $(40,284)
Supplemental schedule of non-cash
investing and financing activities:
Common Stock and Options issued for the
payment of accounts payable and
accrued expenses. $238,000 $ 5,330
Common Stock issued for the payment
of notes payable. $ 60,000 $ 0
Common Stock received for the
payment of other receivables. $500,000 $ 0
Revaluation of Common Stock received. $(322,574) $ 0
See accompanying notes to financial statement
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
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 99,630 199,646
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
See accompanying notes and accountant's report.
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 to segments of an enterprise and related
information, are both effective for financial statements for
years beginning after December 15, 1997. Accordingly the Company
adopted SFAS No.130 on January 1, 1998 .
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 , as comprehensive income (loss) for
each year presented was equal to the amount net income .
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:
BALANCE ADDITIONS RETIREMENTS BALANCE
PROPERTY, EQUIPMENT & IMPROVEMENTS AT 12/31/96 1997 1997 AT 12/31/97
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
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 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. Mr. Kreisler developed this process
prior to the formation of KBF Pollution Management, Inc. On February 3,
1998, the US Patent and Trademark Office issued a Notice of Allowance for
this patent. On May 19, 1998, the US Patent and Trademark Office issued the
final patent on the technology (Patent No.: 5,735,125). Under an agreement
with Mr. Kreisler, the Company is utilizing the patent in its operations.
The agreement calls for royalty payments commencing when the Company has
processed in excess of 1.5 million gallons of chargeable waste in a given
year. At that point, royalties are paid at rates beginning at 0.10 per gallon
and decreasing to 0.03 per gallon at a processing rate of 6,050,000
annually.
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
This long-term debt was not secured by any collateral.
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.
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. KBF's
operation is facilitating the closure of the facility, which is to the
benefit of the landlord, therefore no rent is being charged. There has
been no lease provision between the parties since December 1997 . 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 include 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
Stock Option Plan
In January 1987, the Company adopted an Incentive Stock Option Plan
(the "ISO Plan") covering 50,000,000 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. Under the ISO Plan, options may be granted at
not less than 80% (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. The ISO
expired in November of 1992.
In November of 1994 the Company revised and renewed the Incentive Stock
Option Plan to cover Employees, Officers and Directors. The revised plan
covers the same 50,000,000 shares of the Company's Common Stock as the
expired plan, pursuant to which employees, including Officers and Directors
of the company are eligible to receive incentive stock options as defined
under the Internal Revenue Code of 1986, as amended. Under the plan,
options may be issued as an incentive for services rendered. Optionees
shall not be restricted as to assignment or transferability. The
Board of Directors has the authority to set the price of the option at the
time of the grant. Options may be exercised for a period of 10 years from
the date of grant and will expire if not exercised during this period
of time.
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. Subsequent
to the report date, 130,384 of the foregoing options have been exercised at
a price of $0.125.
In addition, the Company issued incentive options to Kathi Kreisler
and Lawrence Kreisler for each to purchase 7,500,000 shares of Common
Stock for $.1 0 per share over a ten 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 $0.10 per share, for a
period of 10 years, ending November 4, 2006.
Name Number of Shares
Larry Kreisler 4,091,778
Robert Misa 1,259,870
Arthur Holland 526,886
Kathi Kreisler 4,091,778
Joseph Casuccio 642,300
David Halperin 1,210,209
Stephen Lewen 1,002,258
Stephen Jerome 1,573,076
Richard Moses 601,845
On January 2, 1998, Kathi Kreisler was issued an additional
8,000,000 options to purchase shares of common stock for $0.08 per share
over a 10 year period commencing January 1998. Lawrence Kreisler was also
issued 400,000 options to purchase common stock under the same terms as Mrs.
Kreisler.
On December 20, 1997, the Company issued options to certain
employees to purchase 800,000 shares of common stock for $0.10 per share
over a 10 year period beginning December 31, 1997. In January 1998, 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 $0.22 per share 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.
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 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.
On September 8, 1998, both Meyerson agreements were replaced with
a new warrant agreement to purchase total of 1,500,000 shares at
$0.15 and 250,000 shares of restricted stock. The warrants and
the underlying shares would be exercisable at anytime between
September 8, 1998 and August 30, 2003. And are callable by the
Company on November 8, 1999 @ $0.01 per option.
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 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 pro forma 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, pro forma "look-through" income statements are provided below as
an alternative presentation of accounting for stock options.
This pro forma 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 over the estimated life of the options . Shares
issuable under various stock option plans are excluded from the weighted
average number of shares outstanding on the assumption that their effect is
non-diluting.
Alternative Presentation Of Accounting For Stock Options:
Year Ended 12/31/97 12/31/96 12/31/95
Reported Pro forma Reported Pro forma Reported Pro forma
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
EXP 2,133,766 2,674,405 2,432,611 2,540,102 2,125,631 2,147,331
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 44,993,8 41 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
Additional Disclosures under SFAS 123
1997 1997 1996 1996 1995 1995
#Shares PricePerShare #Shares PricePerShare #Shares PricePerShare
Outstanding Beginning
Year 15,773,871 $0.1267 15,690,000 $0.1125 15,690,000 $0.1125
Outstanding-End of
Year 16,573,871 $0.1200 15,773,871 $0.1267 15,890,000 $0.1125
Exercisable at End of
Year 16,573,871 $0.1200 15,773,871 $0.1267 0 $0.0000
Granted/Exercised/Forfeited-
Expired During
Year 800,000 $0.1000 83,871 $0.1550 0 $0.0000
Weighted Average Granted-
Date Fair Value Options
Granted During
Year $0.2800 $0.2250 0 $0.0000
Risk-Free Interest Rate 5.4% N/A N/A
Expected Life 10 N/A N/A
Expected Volatility 0.726783 N/A N/A
Expected Dividends 0 N/A N/A
Total Compensation Cost
In Income $45,290 N/A N/A
Significant Modifications of
Outstanding Awards N/A N/A N/A
Range of Exercise Prices for
Options Outstanding $0.1000 -- $0.1550 $0.1000 -- $0.1550 $0.1000 -- $0.1550
Weighted Average
Remaining 8.85 Years 9.60 Years 7.75 Years
NOTE 9 - INCOME TAXES
The significant components of the CompanyÆs 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.
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 Lawrence Kreisler, commencing November 1997. The terms of the
Lawrence 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.
KreislerÆs 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. Kreisler's 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 Lawrence 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 issued
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.
In January 1998, Lawrence Kreisler was issued 400,000 options to
purchase common stock for past performance and unpaid salary 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. The Certificate
will be released when the Long Island facility has been closed and signed
off by the New York State Department of Environmental Conservation.
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 of 1998, the Company signed a limited exclusive
worldwide license agreement with EPS Environmental, Inc., dba Solucorp
Industries, a publicly traded company, trading on the NASDAC electronic
bulletin board ("SLUP") for the utilization of the Company's Patented
Selected Separation 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 of wastewater. The initial licensing fee was to be
paid in unrestricted, free trading Solucorp stock. Solucorp represented
that it had the ability to issue free-trading shares and the License
Agreement contained representations and warranties to that effect. Instead,
Solucorp issued restricted and unregistered shares and had agreed in May
1998 to pay for and register the shares and to repurchase, with cash, at
least $100,000 worth of the License Fee shares per month. (See the "Legal
Proceedings: General Comments with Reference to Solucorp"). Solucorp's stock
price has fallen to a low of $ 0.625 at the end of October, 1998. No
additional payments under the agreement were to be in the form of shares of
Solucorp stock. The agreement also requires royalty payments of 50% of gross
per gallon receipts, not to be less than $1,000,000 for the year ending
December 31, 1998 and $2,000,000 for the year ending December 31,
1999. Pursuant to this agreement, all royalty payments due to the Company
from Solucorp for the years ended December 31, 1998 and 1999 shall be due
and payable in cash on December 31, 1999. Minimum royalty payments for each
year after 1999 shall be $2,000,000 per year payable at the end of each year
in which the payment accrues and is due in cash. The agreement, which had a
five-year term, with automatic five-year continuous renewal, was terminated
on September 23, 1998.
In March 1998, the Company entered into an agreement with M.H.
Meyerson & Co., whereby Meyerson was 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. The Company's initial agreement with M.H.Meyerson & Co.,
Inc. was terminated on August 27, 1998 for reasons impacting on
various issues of non-performance and conflicts of interest. The March
1998 agreement was terminated at this time as well. On September 8, 1998,
both
Meyerson warrant agreements were replaced with a new warrant agreement
to purchase total of 1,500,000 shares at $0.15 and 250,000 shares of
restricted stock. The warrants and the underlying shares would be
exercisable at anytime between September 8, 1998 and August 30, 2003 and
are callable by the Company on November 8, 1999 @ $0.01 per option.
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 KBFÆs 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.
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 As of the date of this filling, no repayment has been made.
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.
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions and item
310(b) of Regulations S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's 1997 annual report filed on form
10-K and Form 10-SB.
NOTE 2 - INVENTORIES
Inventories are comprised of the following major categories:
9/30/98 12/31/97
Shipping Supplies $ 2,897 $ 4,985
Reagents 19,576 6,685
$ 22,473 $ 11,670
NOTE 3 - LICENSE AGREEMENT
In March 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 $.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. On September 30, 1998, the
Company formally terminated this contract and brought suit against Solucorp
industries, Ltd. for breach of contract and fraud damages (see Note 7 - Legal
Proceedings).
NOTE 4 - REVENUE RECOGNITION
The foregoing License Agreement transfers rights, for a specified
period of time, for the use of the Company's patent and related processes,
similar to a franchise agreement. Accordingly, the Company is recognizing
income from this agreement as required by FAS-45 (Accounting for Franchise
Fee Revenue). Under FAS-45, the initial fee is recognized upon the
consummation of the transaction, when substantially all material services
or conditions have been met. The transaction has met the above criteria as
the initial license fee represents payment for the right to use and
sell the Company's technology, which had been transferred; therefore the
Company has recognized the initial fee of $500,000 in the current period.
The related revenue is reported on the Statement of Income in the
revenue from normal operations. While the contract has been terminated, the
$500,000 continues to be recognized as revenue as the fee is
non-refundable, (see Note 5), and the criteria for recognition discussed
above have been met.
NOTE 5 - MARKETABLE SECURITIES (RESTRICTED)
In conjunction with the license agreement discussed in Note 3 & 4, and
further to an unenforceable modification to the license agreement, the
Company received 190,550 shares of restricted (under Section 144) common
shares of Solucorp Industries, Ltd. as payment against the $500,000 due for
the initial license fee. The issuance of the restricted shares did not
constitute satisfaction of the license agreement terms and conditions and
was moreover precipitated through what the Company believes to be
the fraudulent representations of Solucorp Industries, Ltd. and
Joseph Kemprowski. The shares, however, do retain some minimal market
value, which value is being recognized herein. The Company is currently
pursuing full payment of the license fee in its pending litigation against
Solucorp Industries, Ltd. (See Note 7). The Company has presented
these securities herein as available-for-sale securities, adjusted to
market value. Since trading of these shares has been suspended, market value
has been determined to be the closest gray market price per share at
September 30, 1998, less a 25% lack of marketability discount. Because
the Section 144 restriction expires on May 21, 1999, within twelve months
of the balance sheet date, and the shares can, under certain circumstances,
be sold even though restricted, the securities are presented as current
assets. Based upon the foregoing and in conjunction with FAS
NOTE 5 - MARKETABLE SECURITIES (RESTRICTED) (continued)
115 & 130, these securities are presented at a fair market value of
$137,447and the unrealized loss is presented as other comprehensive
income (loss).
NOTE 6 - OTHER RECEIVABLES
In conjunction with the license agreement discussed in Note 3, 4, & 5, the
Company accrued minimum royalties of $750,000 which are receivable on December
31, 1999. This receivable and the related revenue has been presented in the
financial statements at present value along with the related interest earned
to date. The Company has considered all the information available at
this time concerning Solucorp Industries, Ltd. and has presented the
receivable and the related revenue net of an allowance for doubtful
accounts as detailed below:
Minimum Royalty $750,000
Discount to Present Value (107,753)
Present Value of Minimum Royalty 642,247
Interest Earned through 9/30/98 23,089
Total Other Receivable & Revenue
Before Allowance 665,336
Allowance for Doubtful Accounts (321,124)
Total Other Receivable Presented
And Revenue Reflected Herein $344,212
NOTE 7 - LEGAL PROCEEDINGS
The Company filed suit against Solucorp Industries, Ltd. (Solucorp)
on October 7, 1998 for the CompanyÆs contract and fraud damages
arising out of its now-terminated License Agreement with Solucorp. The
Company is represented by the national law firm of Greenberg Traurig in
this matter. Solucorp has yet to file an answer to the CompanyÆs
complaint. Solucorp holds itself out to be an environmental service
organization devoted to the development and marketing of innovative
environmental technologies. KBF Pollution Management, Inc. (KBF) was
introduced to Solucorp and its consultant, Joseph Kemprowski, by KBF's
former investment banker, M.H. Meyerson & Co., Inc. last December.
KBF had no affiliation with Solucorp, or any of its affiliates, preceding
this introduction. This agreement remains the only affiliation the Company
had with Solucorp. At this time, Solucorp and Kemprowski claimed to have
executed contracts with the Chinese government for the remediation of
contaminated sites in mainland China from which revenues would be made.
Furthermore, Solucorp and Kemprowski made it clear that they had an extensive,
global sales and marketing infrastructure. Management performed due
diligence on the basis of publicly available information, Solucorp's filings
and press releases, Meyerson's analyst's reports on Solucorp, and
numerous meetings with Solucorp executives, which included significant
technical discussions covering a number of sites. In addition, there were
discussions with Solucorp's Chinese marketing affiliates. There were other
limited documents that Solucorp and Kemprowski disclosed. KBF was precluded
from reviewing the executed Chinese contracts due to what Solucorp and
Kemprowski represented to be as confidentiality agreements. Principals of
M.H. Meyerson & Co., Inc., however, represented that they reviewed the
pertinent agreements and advised KBF that the agreements had in fact been
executed. After several months of negotiation, and with the
recommendation of Meyerson, KBF and Solucorp enetered into an exclusive
worldwide license for the marketing and sale of KBFÆs patented
SST process.
The agreement called for a license fee of $500,000 due upon
execution on March 20, 1998. The license fee was to be paid for with the
issuance of 190,550 shares of free-trading, unrestricted Solucorp stock due
upon execution. Solucorp represented that it had the ability to issue
free-trading shares prior to execution and the License Agreement
contained representations and warranties to that effect. Instead, in the
end of May 1998, KBF received 190,550 shares of restricted, unregistered
stock - after having been given assurances that Solucorp and Kemprowski
would register, repurchase and assist with the liquidation of the
license fee stock at a rate of at least $100,000 per month. The shares were
issued after the Securities and Exchange Commission had suspended
Solucorp's stock. Despite countless requests and demands, Solucorp and
Kemprowski never attempted to register the license fee stock, and they
repurchased less than $50,000 worth of shares between March and September
1998.
In addition, KBF was to receive $500,000 in cash as a
mobilization fee to gear up to provide Solucorp with sales and technical
support. This fee was never paid. Solucorp's breach of these, and many other
terms of the license agreement was at considerable cost to KBF. In good faith
reliance on the agreement, KBF expended significant dollars in supporting
Solucorp's efforts. According to the agreement, KBF was never to expend any
of its capital derived from sources other than the two fees in providing
Solucorp with support.
Further, management discovered that much of what had been
represented to KBF by Solucorp and Kemprowski with reference to
Solucorp's executed agreements in China, the extent of its sales and
marketing capabilities and its ability to register, repurchase and
liquidate the shares was not true.
In August 1998, in a final attempt to turn the Solucorp
relationship into a profitable venture, management negotiated a modification
that accounted accurately for Solucorp's ability to pay the fees and to
market the SST. The modification would have stripped Solucorp of the license
to the technology and required the payment of additional compensation to
remedy the damages KBF had suffered by that time. A letter of intent was
executed and the modification was drafted but negotiations broke down in
the following weeks. On September 23, 1998, KBF formally noticed
Solucorp of Termination and KBF filed suit against Solucorp and Kemprowski
for breach of contract and fraud damages.
The Company plans to aggressively pursue its interest against Solucorp
and Kemprowski and is seeking damages commensurate with the Company's good
faith expenditures, contract damages and fraud damages.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(unaudited)
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.
Period-Type Year
Fiscal-Year-End Dec-31-1997
Period-End Dec-31-1997
Cash 252,143
Securities 0
Receivables 267,823
Allowances (26,782)
Inventory 11,670
Current-Assets 762,452
PP&E 3,130,072
Depreciation (2,049,823)
Total-Assets 1,948,707
Current -Liabilities 630,716
Bonds 0
Preferred-Mandatory 0
Preferred 0
Common 491
Other-SE 1,127,523
Total-Liability and Equity 1,948,707
Sales 1,926,895
Total-Revenues 1,926,895
CGS 1,277,974
Total-Costs 2,133,766
Other Expenses 0
Loss Provision 0
Interest-Expense 1,656
Income-Pretax (207,291)
Income-Tax (207,635)
Income-Continuing (207,635)
Discontinued 0
Extraordinary 0
Changes 0
Net-Income (207,635)
EPS-Primary (.01)
EPS-Diluted (.01)
SEPTEMBER 30, 1998
EXHIBIT 27
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
unaudited financial statements dated September 30, 1998 and is qualified in
its entirety by reference to such financial statements.
Period-Type 9 months
Fiscal-Year End Dec31-1998
Period-End September 30 -1998
Cash 115,454
Securities 137,447
Receivables 353,735
Allowances (27,870)
Inventory 14,246
Current-Assets 657,664
PP&E 4,287,835
Depreciation (2,237,065)
Total Assets 3,161,116
Current Liabilities 579,044
Bonds 0
Preferred-Mandatory 0
Preferred 0
Common 585
Other-SE 5,353,364
Total-Liability and Equity 3,161,116
Sales 2,568,115
Total Revenues 2,568,115
CGS 992,345
Total 992,345
Other Expenses 786,641
Loss Provision 0
Interest-Expense 20,139
Income-Pre tax 793,022
Income-Tax 4,787
Income-Continuing 788,235
Discontinued 0
Extraordinary 0
Changes 0
Net Income 788,235
EPS-Primary .01
EPS - Diluted .01
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
KBF POLLUTION MANAGEMENT, INC.
By: Lawrence Kreisler, President
Dated: Wednesday, August 26, 1998
_______________________________
1 Item # 1
2 Item # 2
3 Item # 3
4 Item # 4
5 Item # 5
6 Item # 6
7 Item # 7
8 Item # 8 The acquisition of MRTC was approved by the Board of Directors
but later decided not to proceed with the transaction. In addtion, MRTC is
a privately held company, as such the financial data of the company is not
for public disclosure in this document.
9 Item # 9 No agreement exist with MRTC and therefore there is no terms to
discuss.
10 Item # 10
11 Item # 11
12 Item # 13
13 Item # 12
14 Item # 14
15 Item # 15 Attach Copies of Lawrence M. Kreisler license agreement and
amendments.
16 Item # 17 The Summary Compensation Table on Page 17 was revised to show
this information
17 Item # 18. Valuation of Stock Options
18 Item # 19. Date of KreislerÆs Employment Contracts. This Information
is also on page 16 under Identification of Executive Officers
19 Item # 20
20 Item # 21
21 change to conform w/ page #2
22 Item # 22. Clarification of the royalties due Lawrence M. Kreisler under
the licensing agreement
2324
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