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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
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
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ITEM 1. DESCRIPTION OF BUSINESS
Introduction
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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"). The Company is in the process of closing its New York facility in
compliance with New York State Department of Environmental Conservation closure
plans, which it expects to complete by July 1999. 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. 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.,
its wholly owned subsidiary.
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, Inc. All of the Company's
operations of its New York facility, including closure proceedings of such
facility, are conducted through KBF-LI, Inc.
Industry Background
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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.
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Waste Recovery Services
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Since 1986, the Company has operated as a wastewater metal recovery
facility. The Company, through it's patented processes, is able to recover
metals from metal-bearing wastewater, which metals can then be recycled.
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," however, terminates the waste generator's liability. 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. The Company issues a certificate of recovery to the customer.
Metal Recovery. During the Company's recovery process, the metals
contained in the waste are removed from solution. The metals, which include
silver, copper, nickel, lead, zinc and others, are processed into solid form and
recycled back into commerce. 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 agreement with Metal Recovery
Transportation Corp to handle the Company's transportation needs. The Company
also utilizes other unaffiliated licensed transport companies. (See "Certain
Relationships and Related Transactions.") The Company intends to acquire Metal
Recovery Transportation, Corp., but as of the date hereof, no agreement has been
reached. The Company can not guarantee that such an acquisition will occur.
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.
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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
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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:
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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
("Solucorp") 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 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 on December 31, 1999.
Minimum royalty payments for each year after 1999 shall be $2,000,000 per year.
The initial agreement is for a five-year term, with automatic five-year
continuous renewal.
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The Solucorp agreement is in the process of being modified removing the
worldwide exclusivity and the minimum royalty payments. All royalties and fees
that have accrued to date shall remain payable in full. Solucorp will continue
to market the Company's Patented Selective Separation Technology and will enter
into site specific arrangements with the Company and the Company's direct
licensees.
Manufacturing and Supplies
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The Company no longer manufactures the equipment for its patented waste
volume reduction system. (See "Description of Business - Patents and Proprietary
Information"). 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
Company's 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
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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
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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
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In the past, the Company had utilized unpatented proprietary know-how
and techniques in its waste recovery operations. In June 1995, Lawrence
Kreisler, the Company's President submitted a patent application on the current
Selective Separation Technology that was initially developed by Mr. Kreisler.
Pursuant to an 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.
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
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continues to service those systems previously sold. (See "Description of
Business - Manufacturing and Supplies.")
Liability Insurance
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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
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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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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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
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December 31, 1997 as Compared to the Year Ended
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December 31, 1996
-----------------
The Company's revenues decreased by 2% to $1,926,895 for the year ended
December 31,1997. ("1997") from revenues of $1,972,895 for the year ended
December 31, 1996 ("1996"). While sales appear virtually unchanged, certain
significant low profit revenues, which could only be serviced at a Long Island
facility, have been replaced by higher profit revenues, which will be maintained
at the New Jersey facility. During 1997 this continuing focus on wastewater
metal recovery has allowed the Company to increase its revenue base.
Cost of operations decreased to 66% of revenues for 1997 compared to
68% for 1996. The Company attributes this decrease to the continued steps taken
by Management to reduce costs.
General and administrative expenses decreased by 23% to $806,027 for
the year ended December 31, 1997 from $1,041,264 for the year ended December 31,
1996 due primarily to the continued efforts by Management to reduce costs.
The Company will continue to incur expenses related to the closure of the
New York facility under New York State Department of Environmental Conservation
regulations, 6NYCRR Section373.
The Company incurred a net loss of $207,635 for the year ended December
31, 1997 as compared to a net loss of $468,398 for the year ended December 31,
1996, a decrease of 56%. The 1997 loss is due primarily to the legal expenses
incurred by June 1997 settlement and the low profit revenues mentioned above.
Depreciation Expense was $237,368 and $193,745 for the years ended December 31,
1997 and 1996 respectively. It should be noted that the Company has relocated
its facility to a more advantageous location, in Paterson, New Jersey, where
business is more easily obtained and costs will be further reduced.
Results of operations for the year Ending
December 31, 1996 as Compared to the Year Ended
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December 31, 1995
-----------------
The Company's revenues increased 8% to $1,972,964 for the year ended
December 31, 1996. ("1996") from revenues of $1,823,390 for the year ended
December 31, 1995 ("1995"). The Company attributes such increase in revenues to
a number of factors. Management had refocused its emphasis on the waste water
recovery "segment" for the best long-term interest of the Company. During 1996
this continuing focus on wastewater metal recovery combined with the ability to
recover additional wastes, provided for under the new exemptions, has allowed
the Company to increase its revenue base.
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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 Section373 (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 Section373 (Federal Part b) permit. In December 1994 and January 1995,
the Company further expanded their exemptions to include characteristic and
listed hazardous waste. Due to these changes, in January 1995, the permit
application was amended from treatment and storage to storage only. The review
and approval of the revised permit application has been completed and approved
by New York State Department of Environmental Conservation. The Company will be
notified by the Deputy Regional Permit Administrator for Region 1 when the
permit will be placed in the public commenting period. (See Governmental
Regulation; Permit).
The Company incurred a net loss of $468,398 for the year ended December
31, 1996 as compared to a net loss of $357,145 for the year ended December 31,
1995, an increase of 31%. The 1996 loss is due primarily to the increase in
general and administrative expenses as explained above. Depreciation Expense was
$193,745 and $298,194 for the years ended December 31, 1996 and 1995
respectively. It should be noted that the Company is negotiating to move its
operating facility to a more advantageous location where business is more easily
obtained and costs further reduced.
Liquidity and Capital Resources
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The Company has funded its working capital requirements during the past
five years from cash flow generated by operations, the proceeds of its initial
public offering in 1987, the proceeds of subsequent public warrant exercises and
private placements of Common Stock. The Company's original plant and equipment
needs were funded through an SBA loan, which has been paid in full, and the
Company borrows funds from a bank from time to time on a short-term or
installment basis. The Company also utilizes lease/purchase arrangements to
finance equipment acquisitions. All of the Company's current bank loans and
lease financing obligations are guaranteed by the Company's two executive
officers.
In February 1994, Robert Misa, a director of the Company furnished
$60,000 and another stockholder furnished $25,000 as collateral for an $85,000
loan to the Company from Fleet Bank. In April 1994, the stockholder who
furnished the $25,000 converted his loan to shares of common stock pursuant to
the 1994 private placement offering. It was agreed by the Company and Robert
Misa that in July 1995, the collateral was used to pay the loan in full. In
April 1996, Robert Misa received 484,000 shares of Common Stock under the terms
and conditions of the agreement. During 1996, the subsidizing of the former
Acting Chief Executive Officer's salary and expenses was accomplished through a
$60,000 loan from certain shareholders, which is due on demand and bears an
interest rate of 10% per annum.
In October 1997, pursuant to Rule 504, the Company offered on a private
placement of $1,000,000 consisting of 12,500,000 shares of common stock with
accredited investors. As of December 31, 1997, $417,930 was sold and the balance
of $582,070 was sold in 1998.
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To date, the Company's operations have not been adversely affected by
inflation; however in the later part of 1994, the chemical manufacturing
companies increased their prices due to the shortages from depleted shipments
and recent flooding of the manufacturing facilities in the Mid West.
The Company had a positive cash flow of $205,469 at December 31, 1997
and a positive cash flow of $8,149 at December 31, 1996. The positive cash flow
in 1997, while operating at a loss of -$207,635 is indicative of the funds
received through the 504 Offering Memorandum.
Working capital at December 31, 1997 was $131,736 as compared to
($388,788) at December 31, 1996.
At December 31, 1997 total long-term debt and capital lease obligations
were $189,977 as compared to $228,885 at December 31, 1996. Any capital
expenditures for the New Jersey facility will be financed through proceeds from
the 504 Offering Memorandum and future warrants exercised.
The Company has relocated its recovery facility to Paterson, New
Jersey. Management believes that the new location will result in additional
business opportunities and lower operating costs. In conjunction with this move,
the Company will incur material capital expenditures and related costs.
Management has raised additional capital for this occurrence through a 504
Offering Memorandum.
ITEM 3. DESCRIPTION OF PROPERTY
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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
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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.
<TABLE>
<CAPTION>
Name and Address of Amount and Percentage
Beneficial Nature of of
Holder or Identity of Beneficial Outstanding
Group Ownership Stock (10)
--------------------- ----------- -----------
<S> <C> <C>
Kathi Kreisler 17,476,953 23.16%
One East Park Drive (1) (2)
Paterson, NJ 07504
Lawrence Kreisler 9,474,953 13.09%
One East Park Drive (1) (3)
Paterson, NJ 07504
Steven Lewen 2,290,258 3.04%
10 Cabriogt Lane (4)
Melville, NY 11747
Kevin Kreisler 413,500 0.55%
</TABLE>
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<TABLE>
<S> <C> <C>
One East Park Drive (5)
Paterson, NJ 07504
Joseph J. Casuccio, Jr., CPA 1,548,842 2.05%
7 North Equestrian Court (6)
Hauppauge, New York 11789
Anthony Leteri 433,000 0.57%
18 Allenby Drive
Northport, NY 11768
Frederick Eisenbud 409,013 0.54%
7 Bradshaw Lane
Fort Salonga, NY 11768
All Officers & Directors 32,448,519 43.01%
as a group Seven persons. (7)
</TABLE>
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 75,447,929, utilized for
this percentage computation.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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Identification of Directors.
- ----------------------------
<TABLE>
<CAPTION>
Capacities
Period Served in which currently
Name Age as Director serving
- ------ ----- -------------- ------------------
<S> <C> <C> <C>
Lawrence Kreisler 51 Since 1984 Chairman
President
Kathi Kreisler 47 Since 1984 Vice President
Secretary, Treasurer
Director
Kevin Kreisler 25 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 46 Since January 1998 Chief Financial Officer
Vice President
Director
Anthony Leteri 48 Since January 1998 Director
</TABLE>
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.
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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.
<TABLE>
<CAPTION>
Name Age Current Office Held
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence Kreisler 51 Chairman, President
Kathi Kreisler 46 Vice President, Secretary, Treasurer
Kevin Kreisler 25 Vice President
Joseph J. Casuccio Jr. 46 Vice President, Chief Financial Officer
</TABLE>
Both Kathi Kreisler and Lawrence Kreisler entered into employment
agreements with the Company on November 7, 1998 (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 "evergreen" provision of the Employment Agreements will cease, and
the final five- (5) year period will commence on the date of such written
notice. (See "Executive Compensation Employment Arrangement"). As of the date
hereof, the Company has not entered into any employment agreements with Joseph
J. Casuccio, Jr., CPA or Kevin Kreisler.
11
<PAGE>
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 $100,000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
-------------------
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
Name and Year Salary ($) Bonus ($) Other Annual Awards, All Other
Principal Compensation Options/SARs(#) Compensation
Position
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler, 1997 $3,500 - - - -
Vice President
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
1996 $8,325 - - - -
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
Lawrence 1997 $152,503 - -
Kreisler,
President
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
1996 $195,474
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
James Aiello 1996 $20,000
Acting CEO
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
1997 $24,000
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
Kevin Kreisler 1997 $20,000
- ------------------- ---------------- ---------------- --------------- ---------------- ---------------- ----------------
</TABLE>
There were new stock options granted to the named executive officers.
In January 1998, Kathi. Kreisler was issued 8 million options for past services
rendered and unpaid salary. (See Employment Arrangements). Lawrence Kreisler was
issued 400,000 options for past services rendered and unpaid salary. Certain
stock options granted to the executive officers were revised and reallocated.
(See "Stock Options" for further information.) No stock appreciation rights were
granted or exercised during such fiscal year.
12
<PAGE>
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1997 with respect to
the Company's named executive officers. No stock appreciation rights were
exercised or outstanding during such fiscal year.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- ------------------------------- -------------- ------------- ------------------------------ --------------------------
Value of Unexercised in-
Value Number of Securities the-Money Options at
Realized Underlying Unexercised FY-End Market Price of
Market Options at Fiscal Year-End shares at FY-End ($)
Shares price at FY (#) less exercise price
- ------------------------------- acquired End ------------------------------ --------------------------
Name on exercise Exercise Exercisable Unexercisable Exercisable Unexercisable
(#) less
exercise
price)
- ------------------------------- -------------- ------------- ------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler 0 - 4,262,278 N/A N/A
- ------------------------------- -------------- ------------- ------------- ---------------- ------------ -------------
Lawrence Kreisler 0 - 4,262,278 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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 teh (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, in November
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 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.
13
<PAGE>
The Company entered into an employment agreement with Kathi Kreisler,
as Vice President and Secretary Treasurer, in November 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 and her 1996 salary to $8,325.00. 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.
<TABLE>
<CAPTION>
Name Number of Shares
- ---------------------------------------------------------------------------------------
<S> <C>
Kathi Kreisler 172,500
Larry Kreisler 172,500
Arthur Holland 86,250
Robert Misa 86,250
Joseph Casuccio 86,250
David Halperin 86,250
</TABLE>
At the Annual Shareholders Meeting held on November 4, 1996, certain
options were revised and reallocated in accordance with the following table and
are immediately exercisable at $.10 per share for a period of 10 years, ending
November 4, 2006.
<TABLE>
<CAPTION>
Name Number of Shares
- ---------------------------------------------------------------------------------------
<S> <C>
Larry Kreisler 4,091,778
Robert Misa 1,259,870
Arthur Holland 526,886
Kathi Kreisler 4,091,778
Joe Casuccio 642,300
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
David Halperin 1,210,209
Stephen Lewen 1,002,258
Stephen Jerome 1,537,076
Richard Moses 601,845
</TABLE>
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.
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.
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.
15
<PAGE>
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.
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.
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 received 484,000 shares
of Common Stock under the terms and conditions of the agreement.
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 June of 1995, the Company signed an agreement with M.H. Meyerson &
Co. to perform investment-banking services for the Company. Such services may
include but are not limited to assistance in mergers, acquisitions, internal
capital structuring, placement of new debt and equity issues all with the
objective of accomplishing the Company's business and financial goals. In
consideration of the services previously rendered and to be rendered by M.H.
Meyerson, warrants to purchase a total of 1,500,000 shares of Company's Common
Stock with an exercise price of $0.15 per share with demand and piggy back
registration rights are to be granted. To date no warrants have been issued.
16
<PAGE>
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.") The Company plans on acquiring Metal
Recovery Transportation Corporation, but as of the date hereof, no agreement has
been reached. The Company can not guarantee that such an acquisition will occur
in the near future, if at all. 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, Inc. Effective July 1, 1998,
all of the operations of the Company's 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. To date, no payments have been made, however
payments are accruing.
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 Company' 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.
17
<PAGE>
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 Company's 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. The information is complied with care from sources believed to be
reliable, but the Company cannot guarantee the accuracy nor does it warrantee
its use for any purpose.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Approximate number of holders
Titles of Class of record as of March 27, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, .00001 par value 2,500
</TABLE>
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
18
<PAGE>
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 is not presently involved in any material legal
proceedings.
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;
19
<PAGE>
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.
20
<PAGE>
IRVING HANDEL P.C. TEL: 516-295-9290
CERTIFIED PUBIC ACCOUNTANTS FAX: 516-295-9298
112 IRVING PLACE - WOODMERE, NY 11598
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders of KBF Pollution Management, Inc.
We have audited the accompanying balance sheet of KBF Pollution
Management, Inc. as of December 31, 1997 and 1996, and the related statement of
income, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a responsible basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of KBF Pollution
Management, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Irving Handel & Co.
IRVING HANDEL & CO.
March 20, 1998
Woodmere, NY 11598
21
<PAGE>
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
---------------------------------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
See accompanying notes and accountant's report.
22
<PAGE>
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
---------------------------------------------
BALANCE SHEET
-------------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
<S> <C> <C>
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
------------- -------------
------------- -------------
</TABLE>
See accompanying notes and accountant's report.
23
<PAGE>
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
---------------------------------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
06/30/98 12/31/97
-------- --------
<S> <C> <C>
CURRENT ASSETS:
- ---------------
Cash $ 116,444 $ 224,643
Cash - Restricted 27,500 27,500
Trade Accounts Receivable (Net of
allowance for doubtful accounts
of $42,561 & $29,563) 383,062 241,041
Marketable Securities - Restricted (Note 4) 388,759 0
Other Receivables 74,600 49,572
Inventories 12,721 11,640
Prepaid Expendable Supplies 14,246 14,246
Other Prepaid Expenses 39,490 193,780
------------- -------------
Total Current Assets 1,056,822 762,452
FIXED ASSETS:
- -------------
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,670,954 & $1,467,315) 1,798,474 832,851
Leased Property under Capital Lease
(Amortization of $388,628 & $378,869) 98,278 108,030
Non Expendable Stock, Parts & Drums 139,367 139,368
------------- -------------
Total Fixed Assets, Net 2,036,119 1,080,249
OTHER ASSETS:
- -------------
Security Deposits 8,002 7,662
Other Receivables 289,814 0
Patent (Net of Accumulated Amortization
of $11,762 & $11,164) 8,567 9,165
Capitalized Permit Costs 89,179 89,179
------------- -------------
Total Other Assets 395,562 106,006
------------- -------------
TOTAL ASSETS $ 3,488,503 $ 1,948,707
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
---------------------------------------------
BALANCE SHEET
-------------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<TABLE>
<CAPTION>
06/30/98 12/31/97
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
- --------------------
Accounts Payable - Trade $ 719,561 $ 454,657
Accrued Expenses 87,884 52,354
Taxes Withheld & Accrued 4,440 11,873
Current Portion of Long-Term
Debt 60,000 60,000
Current Portion of Capital Lease
Obligations 63,361 51,832
------------- -------------
Total Current Liabilities 935,246 630,716
LONG-TERM LIABILITIES:
- ----------------------
Long - Term Lease 202,519 189,977
------------- -------------
Total Long - Term Liabilities 202,519 189,977
STOCKHOLDERS' EQUITY:
- ---------------------
Com. Stock par value .00001 per share
Authorized - 500,000,000 shares
Issued & Outstanding
June 30, 1998 - 56,388,565 564
Dec. 31, 1997 - 49,112,690 491
Capital in Excess of Par Value 5,37,959 4,871,362
Retained Earnings (Deficit) (2,956,523) (3,743,839)
-------------- --------------
Total Stockholders' Equity 2,956,738 1,128,014
------------- -------------
TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY $ 3,488,503 $ 1,948,707
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
---------------------------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
REVENUES $ 1,926,895 $ 1,972,964 $ 1,823,390
- --------
LESS: Cost of Operations 1,277,974 1,342,591 1,266,397
- ---- --------------- ---------------- ---------------
Gross Profit 648,921 630,373 556,993
LESS:
- -----
General & Admin. Expenses 806,027 1,041,264 795,812
Advertising 7,519 7,986 6,295
Maintenance & Repairs 42,246 40,770 57,127
--------------- ---------------- ---------------
Operating Income (Loss) (206,871) (459,647) (302,241)
OTHER INCOME (EXPENSES):
- ------------------------
Other Income 0 4,500 6,608
Interest Income 1,236 1,096 975
Interest Expense (1,656) (11,254) (59,745)
--------------- ---------------- ---------------
Income (Loss) before Provision
for Income Tax (207,291) (465,305) (354,403)
Less: Income Tax Provision 344 3,093 2,742
--------------- ---------------- ---------------
NET INCOME (LOSS) $ (207,635) $ (468,398) $ (357,145)
--------------- ---------------- ---------------
--------------- ---------------- ---------------
EARNINGS PER COMMON SHARE: (Note 11)
- ------------------------------------
BASIC $ (.0042) $ (.0110) $ (.0087)
--------------- ---------------- ---------------
--------------- ---------------- ---------------
DILUTED $ (.0042) $ (.0110) $ (.0087)
--------------- ---------------- ---------------
--------------- ---------------- ---------------
</TABLE>
See accompanying notes and accountant's report
26
<PAGE>
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
---------------------------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
06/30/98 06/30/97
-------- --------
<S> <C> <C>
REVENUES $ 1,944,771 $ 930,345
- --------
LESS: Cost of Operations 647,142 669,544
- ----- ------------------ -------------
Gross Profit 1,297,629 260,801
LESS: General & Admin. Expenses 501,074 413,027
Advertising 242 0
------------------ -------------
Operating Income (Loss) 796,313 (152,226)
OTHER INCOME (EXPENSES):
- ------------------------
Interest Income 7,336 500
Interest Expense (14,173) (16,012)
Income Tax Provision (1,494) (1,674)
------------------- --------------
NET INCOME (LOSS) $ 787,972 $ (169,412)
- ----------------- ------------------ -------------
------------------ -------------
Number of Shares Outstanding 56,388,565 43,643,565
Earnings Per Share from Operations $ 0.0141 $ (0.0035)
------------------ -------------
------------------ -------------
Earnings Per Share - Net Income (Loss) $ 0.0140 $ (0.0039)
------------------ -------------
------------------ -------------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
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
---------------- --------------- ---------------
---------------- --------------- ---------------
</TABLE>
See accompanying notes and accountant's report.
28
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
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
---------------- --------------- -------------
---------------- --------------- -------------
</TABLE>
See accompanying notes and accountant's report.
29
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
06/30/98 06/30/97
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash Received from Customers $ 1,786,971 $ 990,314
Cash Paid to Suppliers & Employees (1,355,043) (987,915)
Interest & Dividends Received 7,228 500
Interest Paid (14,370) (16,012)
Income Taxes Paid (2,493) (699)
Net Cash Provided (Used) by
Operating Activities 422,291 (13,812)
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Purchases of Equipment (1,060,698) 0
------------------- ---------------
Net Cash Provided (Used) in Investing
Activities (1,060,698) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from Sale of Stock & Warrants 506,670 48,297
Proceeds from Long-Term Dept 50,000 0
Repayment of Long-Term Dept &
Capital Lease Obligations (26,462) (25,345)
------------------- ----------------
Net Cash Provided (Used) by Financing
Activities 530,208 22,952
------------------ ---------------
NET INCREASE (DECREASE) IN CASH (108,199) 9,140
CASH at Beginning of Period 224,643 19,174
------------------ ---------------
CASH at End of Period $ 116,444 $ 28,314
------------------ ---------------
------------------ ---------------
</TABLE>
30
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
-----------------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
06/30/98 06/30/97
-------- --------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 787,872 $ (169,412)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 104,828 118,119
Amortization 598 598
Accounts Payable Paid in Stock 0 4,893
Bad Debts (11,003) (5,997)
(Increase) Decrease:
Trade Accounts Receivable (131,018) 59,969
Other Receivables (774,866) 39,937
Inventories (1,051) 2,724
Prepaid Expenses & Deposits 153,930 11,643
Increase (Decrease) In:
Accounts Payable 264,904 12,894
Withholding Taxes Payable (7,433) (1,381)
Accrued Expenses 35,530 87,799
------------------ ---------------
$ 422,291 $ (13,812)
------------------ ---------------
------------------ ---------------
Supplemental schedule of non-cash
Investing and financing activities:
- -----------------------------------
Common Stock and Options issued for the
Payment of accounts payable. $ 0 $ 4,893
------------------ ---------------
------------------ ---------------
Common Stock received for the
Payment of other receivables. $ 500,000 $ 0
------------------ ---------------
------------------ ---------------
Revaluation of Common Stock received $ (71,262) $ 0
------------------ ---------------
------------------ ---------------
</TABLE>
See accompanying notes to financial statement
31
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------
JANUARY 1, 1995 TO DECEMBER 31, 1997
------------------------------------
<TABLE>
<CAPTION>
Common Stock
Common Stock Purchase Warrants Capital In Retained
(Par Value $.00001) (Stated Value $.0001) Excess Earnings
Shares Amount Warrants Amount of Par (Deficit) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 40,619,045 $ 407 0 0 $ 4,001,431 $(2,710,663) $ 1,291,175
Common Stock issued 1,597,168 16 199,630 199,646
Rounding 0
NET LOSS for the Year Ended
December 31, 1995 (357,145) (357,145)
------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 42,216,213 423 0 0 4,201,061 (3,067,808) 1,133,676
Common Stock issued 1,189,333 11 0 0 178,925 178,936
Rounding 3 3
Underwriting Costs (35,315) (35,315)
NET LOSS for the Year Ended
December 31, 1996 (468,398) (468,398)
------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 43,405,546 434 0 0 4,344,671 (3,536,203) 808,902
Common Stock issued 5,707,144 57 0 586,291 0 586,348
Underwriting Costs 0 0 0 0 (59,600) 0 (59,600)
Rounding (1) (1)
NET LOSS for the Year Ended
December 31, 1997 (207,635) (207,635)
------------------------------------------------------------------------------------------------------
BALANCE , December 31, 1997 49,112,690 $ 491 $ 0 0 $ 4,871,362 $(3,743,839) $ 1,128,014
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes and accountant's report.
32
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BUSINESS DESCRIPTION
- -----------------------------
KBF Pollution Management, Inc. (the Parent) ("KBF") was incorporated in the
State of New York on March 15, 1984, with an initial authorized capitalization
of 200 shares of No Par Common capital stock, which was later increased to
500,000,000 shares of .00001 Par Value Common stock. The Company is actively
engaged in the environmental services business as a waste water metal recovery
facility specializing in the resource recovery of hazardous and non-hazardous
metal bearing wastes for the sole purpose of recycling the product produced
(ionic metals) back into commerce. The Company operates an in-house industrial
laboratory to support the recycling process and performance of research and
development. The Company also provides waste handling equipment and compliance
support service to their customers. The Company operates predominantly in the
Northeast region. As of May 6, 1997 Gryphon Industries, Inc., American Metals
Recovery Corp., and AMR, Inc. (the Subsidiaries) were formed pursuant to the
laws of the State of Nevada. These wholly owned subsidiaries of KBF Pollution
Management, Inc. were formed in conjunction with their move to New Jersey to
create flexibility within the corporate organization. American Metals Recovery
Corp. has been active in terms of expending capital related costs in setting up
the facility in New Jersey. In addition, Metal Recovery Transportation Corp.
(owned by KBF's President and Chairman, Lawrence Kreisler) entered into an
agreement with KBF to handle all of KBF's transportation needs. Metal Recovery
Transportation Corp. will assume the liability and provide transportation
services to KBF at a rate below market price.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
REVENUE RECOGNITION
- -------------------
Recovery service revenues are recognized and invoiced as such services are
completed.
INVENTORIES
- -----------
Inventories are valued at the lower of average cost or market, using the FIFO
method.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Property and equipment are depreciated for financial reporting and tax purposes
using the straight line method over the estimated useful lives of the assets.
Leasehold improvements are removable and are amortized over their useful lives.
Useful lives are estimated between 5 and 10 years. The patent is being amortized
over 17 years.
USE OF ESTIMATES
- ----------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets and
liabilities , the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the estimates
that were used.
RECENT PRONOUNCEMENTS
- ---------------------
The Company has complied with all recent pronouncements which have effective
dates preceding the dates relating to these financial statements.
SFAS No. 130, relating to reporting comprehensive income and SFAS No. 131,
relating to segments of an enterprise and related information, are both
effective for financial statements for years beginning after December 15, 1997.
33
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Had Statements No. 130 and 131 been in effect for the year ended December 31,
1997, there would have been no change in the statements presented herein.
EARNINGS PER SHARE
In accordance with SFAS No. 128, the Company computes basic earnings (loss) per
share on a daily weighted average basis, as described in Note 10. Non-diluting
earnings (loss) per share are unchanged from basic, as the consideration of any
and all options are dilutive.
PRIOR PERIOD STATEMENTS
The 1995 and 1996 financial statements may have been reclassified to conform
with current year's classifications.
NOTE 3 - INVENTORIES
Inventories are comprised of the following major categories:
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
<S> <C> <C>
Shipping Supplies $ 4,985 $ 7,821
Reagents 6,685 9,958
----------- ----------
$ 11,670 $ 17,779
----------- ----------
----------- ----------
</TABLE>
NOTE 4 - FIXED ASSETS
Fixed assets are categorized and listed below:
<TABLE>
<CAPTION>
BALANCE ADDITIONS RETIREMENTS BALANCE
PROPERTY, EQUIPMENT & IMPROVEMENTS AT 12/31/96 1997 1997 AT 12/31/97
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Facility $ 1,598,022 $ 6,750 0 $ 1,604,772
Office Equipment, Computers
& Furnishings 216,731 2,638 0 219,369
Manufactured Equipment Leased Out 72,999 0 0 72,999
Equipment 451,596 0 0 451,596
Leasehold Improvements 155,069 0 0 155,069
-------------- -------------- ----------- --------------
SUB TOTAL $ 2,494,417 $ 9,388 $ 0 $ 2,503,805
-------------- -----------
-------------- -----------
Less: Accumulated Depreciation
and Amortization (1,467,315) (1,670,954)
--------------- ---------------
NET $ 1,027,102 $ 832,851
-------------- --------------
-------------- --------------
LEASED EQUIPMENT UNDER CAPITAL LEASES
Office Equipment & Furniture 135,039 0 0 135,039
Equipment 351,860 0 0 351,860
-------------- -------------- ----------- --------------
SUB TOTAL $ 486,899 $ 0 $ 0 $ 486,899
-------------- -----------
-------------- -----------
Less: Accumulated Amortization (345,141) (378,869)
-------------- ---------------
NET $ 141,758 $ 108,030
-------------- -------------- ----------- --------------
-------------- -------------- ----------- --------------
</TABLE>
Depreciation charged to operations, which includes amortization of capital lease
obligations was $237,368 and $193,745 for the years ended December 31, 1997
and 1996 respectively.
34
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. 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.
NOTE 6 - LONG-TERM DEBT
- ------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
<S> <C> <C>
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
------------- -------------
------------- -------------
</TABLE>
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:
<TABLE>
<S> <C>
$6,000 each (payments 1-6)
$7,000 each (payments 7-12)
$5,910 each (payments 13-48)
</TABLE>
Future minimum payments under capital leases with initial terms of one year or
more consisted of the following at December 31, 1997:
<TABLE>
<S> <C> <C>
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
-------------
-------------
</TABLE>
35
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
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:
<TABLE>
<S> <C> <C>
1998 - $ 186,000
1999 - 193,200
2000 - 200,500
2001 - 208,600
2002 - 213,550
Thereafter - 201,300
-------------
$ 1,203,150
-------------
-------------
</TABLE>
Rental expense under non-cancelable operating leases is as follows:
<TABLE>
<S> <C> <C>
1995 - $ 114,127
1996 - 174,370
1997 - 143,034
</TABLE>
NOTE 8 - STOCKHOLDERS' EQUITY
- -----------------------------
INCENTIVE STOCK PLAN
- --------------------
In January, 1987, the Company adopted an Incentive Stock Option Plan pursuant to
which 5,000,000 shares of common stock of the Company were reserved for issuance
upon exercise of options designated as "incentive stock options" under Section
422A of the Internal Revenue Code of 1954, as amended.
STOCK OPTIONS
- -------------
In October, 1992, stock options were issued to officers, directors and certain
advisors of the Company. The option holders in aggregate have the right to
purchase 690,000 shares of stock at the exercise price of $.125 per share, no
sooner than December 31, 1992, and no later than December 31, 1997. On December
4, 1997, the Board of Directors voted to extend the exercise date an additional
five years.
In addition, the Company issued incentive options to Kathi Kreisler and Lawrence
Kreisler for each to purchase 7,500,000 shares of Common Stock for $.125 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.
<TABLE>
<CAPTION>
Name Number of Shares
--------------------------------------------------------
<S> <C>
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
</TABLE>
36
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Subsequent to the report date, 130,384 of the foregoing options have been
exercised at a price of $0.125.
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.
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. 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.
37
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Alternative Presentation Of Accounting For Stock Options:
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended 12/31/97 12/31/96 12/31/95
- ---------- -------- -------- --------
Reported Pro forma Reported Pro forma Reported Pro forma
<S> <C> <C> <C> <C> <C> <C>
REVENUE $ 1,926,895 $ 1,926,895 $ 1,972,964 $ 1,972,964 $ 1,823,390 $ 1,823,390
OPERATING EXPENSES:
COST OF REVENUE 1,277,974 1,818,613 1,342,591 1,450,082 1,266,397 1,288,097
MAINT & REPAIR 42,246 42,246 40,770 40,770 57,127 57,127
ADVERTISING 7,519 7,519 7,986 7,986 6,295 6,295
GENERAL & ADMIN 806,027 806,027 1,041,264 1,041,264 795,812 795,812
------------- ------------- --------- --------- ------------- --------------
TOTAL OPERATING 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 44,993,841 42,681,546 42,681,546 40,922,951 40,922,951
OPTIONS GRANTED 800,000 800,000 15,083,881 15,083,881 1,500,000 1,500,000
</TABLE>
NOTE 9 - INCOME TAXES
- ---------------------
The significant components of the Company's deferred tax assets and liabilities
for the year ended December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets:
Net Operating Loss Carry Forward $ 3,955,865
Valuation Allowance 3,955,865
----------------
Deferred Tax Assets $ 0
----------------
----------------
</TABLE>
At December 31, 1997 the Company's operating loss carry forward expires as
follows:
<TABLE>
<S> <C> <C>
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
----------------
----------------
</TABLE>
38
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 10- EARNINGS PER SHARE
- ---------------------------
<TABLE>
<CAPTION>
Number of Shares
Common Stock outstanding: 1997 1996
---- ----
<S> <C> <C>
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
</TABLE>
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. Kreisler's 401K savings plan.
The Kathi Kreisler employment contract calls for an annual base salary of
$80,000, with cost of living adjustments. K. Kreisler will be entitled to an
annual bonus equal to 4% of the Company's net income before taxes, reimbursement
of business expenses, use of a Company automobile and participation in any
employee benefits provided to all employees of the Company. The Company shall
contribute 4% of the base weekly salary to K. Kreisler's 401K savings plan.
See Note 13 for events that have a material impact on these employment
contracts.
39
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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:
<TABLE>
<S> <C>
Insurance Payable $ 11,535
Utilities 5,770
Professional Fees Payable 8,600
Other Accrued Expenses 26,449
-----------
$ 52,354
-----------
-----------
</TABLE>
NOTE 17 - SUBSEQUENT EVENTS
In March 1998, the Company signed an exclusive world-wide License Agreement with
Solucorp Industries Ltd., for the utilization of the Company's patent allowed
technology. The terms of the agreement call for an initial license fee of
$500,000, plus an additional license fee of $.005 per
40
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
processed gallon. The agreement also requires royalty payments of 50% of gross
per gallon receipts, not to be less than $3 million at the end of the first two
years from the signing of the contract, and $2 million by the end of each year
thereafter. The initial agreement is for a five year term, with automatic five
year continuous renewal.
In March 1998, the Company entered into an agreement with M.H. Meyerson & Co.,
whereby Meyerson is to be granted 2,500,00 warrants to purchase common stock at
an exercise price of $.25 in exchange for investment banking services rendered
in relation to the Solucorp Industries Ltd. transaction.
NOTE 18- RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has the following related party transactions:
1) Metal Recovery Transportation Corp. (owned by KBF's President and
Chairman, Lawrence Kreisler) entered into an agreement with KBF to handle
all of KBF's transportation needs. Metal Recovery Transportation Corp.
(MRTC) will assume the liability and provide transportation services to
KBF at a rate below market price. KBF paid MRTC $59,914 in 1997. As of
December 31, 1997, the Company owed MRTC $8,051.
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.
41
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE 1 - BASIS OF PRESENTATION:
- -------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for the interim financial
information and with the instructions and Article 10 of Regulation S-X.
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 six months ended June 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
there to included in the Company's annual report on Form 10-K for the year ended
December 31, 1997.
NOTE 2 - INVENTORIES
- --------------------
Inventories are comprised of the following major categories:
<TABLE>
<CAPTION>
6/30/98 12/31/97
------- --------
<S> <C> <C>
Shipping Supplies $ 3,801 $ 4,985
Reagents 8,920 6,685
------------- -------------
$ 12,721 $ 11,670
------------- -------------
------------- -------------
</TABLE>
NOTE 3 - LICENSE AGREEMENT
- --------------------------
In March 1998, the Company signed an exclusive world-wide License Agreement with
Solucorp Industries, LTD., for the utilization of the Company's patent allowed
technology. The terms of the agreement call for an initial license fee of
$500,000, plus an additional license fee of $.005 per processed gallon. The
agreement also requires royalty payments of 50% of gross per gallon receipts,
not 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.
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 for 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, 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.
NOTE 5 - MARKETABLE SECURITIES (RESTRICTED)
- -------------------------------------------
In conjunction with the license agreement discussed in Note 3, 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 Company has presented these securities herein as
available-for-sale securities, adjusted to market value. Market value has been
determined to be the quoted market price per share at June 30, 1998, less a 25%
lack of marketability discount. Because the Section 144 restriction expires on
May 21, 1999, within
42
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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.
NOTE 6 - OTHER RECEIVABLES
- --------------------------
In conjunction with the license agreement discussed in Note 3, the Company
accrued minimum royalties of $333,333, which are receivable on December 31,
1999. The receivable has been presented at its present value, as a long-term
receivable.
43
<PAGE>
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
44
