<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K / A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
Commission file number 33-20954
KBF POLLUTION MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New York 11-2687588
(State of other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
1110-A Farmingdale Road, North Lindenhurst, New York 11757-1024
(Address of principal executive offices) (Zip Code)
</TABLE>
(800) 366-1426
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding- 12 months (or for such shorter period that the registrant as
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days-.Yes X No
Based upon the average closing bid and asked price of the Registrant's common
stock, the aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 27, 1998 was $21,762,936.
The number of shares outstanding of each of the Registrant's classes of common
stock as of the latest practicable date is:
Common Stock
Outstanding at March 27, 1998: 56,388,565
1
<PAGE>
PART I
Item 1. BUSINESS.
Introduction
KBF Pollution Management, Inc., a New York corporation (the
"Company"), was organized in 1984 and is engaged in the environmental
services business as a waste water metal recovery facility specializing in
the resource recovery of hazardous and non hazardous metal bearing wastes for
the sole purpose of recycling the product produced (ionic metal(s)) back into
commerce. The Company operates an in-house certified laboratory to support
the recycling process and perform research and development. The Company also
provides waste handling equipment and compliance support service to their
customers. In May 1997, the Company formed American Metals Recovery, Corp.,
Gryphon Industries, Inc., and AMR, Inc. pursuant to the laws of the State of
Nevada. These wholly owned subsidiaries of KBF Pollution Management, Inc.
were formed in conjunction with the move to New Jersey to create flexibility
within the corporate organization. American Metals Recovery Corp. has been
active in terms of expending capital related costs in setting up the facility
in New Jersey.
Industry Background
Most chemical wastes generated in the United States by industrial
processes have been handled 'on-site at the generators' facilities. Over the
past 15 to 20 years, increased public awareness of the harmful effects of
unregulated disposal of chemical wastes on the environment and health has led
to federal, state and local regulation of chemical waste management
activities. Some statutes regulating the management of chemical wastes
include the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Toxic Substances Control Act ("TSCA") and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("Superfund"),
most are primarily administered by the federal Environmental Protection
Agency ("EPA"). This body of laws and regulations by federal and state
environmental regulatory agencies, impose stringent standards for management
of chemical wastes and provide penalties for violators, as well as continuing
liability by generators and others for past disposal and environmental
degradation. For example, under Superfund, responsible parties may be subject
to remedial costs at abandoned hazardous waste sites and, in some instances,
treble damages. As a result of the increased liability exposure associated
with chemical waste management activities and a corresponding decrease in the
availability of insurance and significant cost increases in administering
compliance and facility capital improvements, many generators of chemical
wastes have found it uneconomical to maintain their own treatment and
disposal facilities or to develop and maintain the technical expertise
necessary to assure regulatory compliance. Accordingly, many generators have
sought to have their chemical wastes managed by firms that possess both the
appropriate treatment and disposal facilities, as well as the expertise and
financial resources necessary to attain and maintain compliance with
applicable environmental regulatory requirements. At the same time,
governmental regulation has resulted in a reduction of the number of
facilities available for chemical waste treatment, storage or disposal, as
many facilities have been unable to meet the strict standards imposed by RCRA
or other laws.
Waste Recovery Services
Since 1986, the Company has operated as a wastewater metal recovery
facility for metal bearing wastes to recycle the metals recovered back into
commerce.
The waste is received at the facility, by the Company's related
transport vehicles or other unaffiliated licensed transporters in drums and
or by tanker-loads. The waste is then analyzed at the Company's own
laboratory facilities to determine compliance with the approved waste profile
on file for the customer and to verify proper waste classification.
Once testing is completed, utilizing the Patent Allowed (see Patents
and Proprietary Information) "Selective Separation Technology", the metals
are separated from the solutions. Once the recovery process is complete, the
remaining effluent is analyzed to assure that its contents fall within
allowable discharge limits. The effluent is then discharged into the sewer
pursuant to an approved discharge certificate. The recovered metals are
recycled back into commerce.
2
<PAGE>
Project Ensure, Certificate of Recovery. Under federal law, the prime generator
of hazardous waste remains liable for the waste for as long as it continues to
exist. Disposal of the waste by incineration, in a landfill or a deep injection
well does not eliminate the generator's liability for cleanup costs if leakage
or spillage of the waste occurs.
Utilization of the Company's Patent Allowed "Selective Separation
Technology", however, terminates the generator's liability. KBF's process
removes the waste from the environment, thereby terminating the generator's
liability and exempting the generator from the Superfund Generation Tax. The
Company issues a certificate of recovery to the customer.
Metal Recovery. During the Company's recovery process, the metals contained in
the waste are removed from solution. The metals, which include silver, copper,
nickel, lead, zinc and others, are processed into solid form and recycled back
into commerce. Revenues from the sale of recovered metals have been significant.
Laboratory Analysis. The Company maintains a New York State Department of
Health Certified Environmental Analytical Laboratory and application has been
submitted for New Jersey. The laboratory is utilized to continually monitor
and analyze the ongoing waste recovery operations. The Company performs the
analysis on waste from new customers for approvals and continually on each
waste shipment received from the customer. The Company also utilizes its
laboratory facility to conduct research and development activities. (See
Research and Development and Patents and Proprietary Information).
Waste Transport. The Company uses a related waste transporter, METAL RECOVERY
TRANSPORTATION CORP. "MRTC", that is licensed in New York, Connecticut, Rhode
Island, New Jersey, Massachusetts and New Hampshire. The Company also
utilizes other unaffiliated licensed Transport companies.
Contracts; Customers. The Company's waste recovery services are typically
provided pursuant to nonexclusive service agreements, based on the acceptance
of their waste. The fees charged by the Company for its services may be
determined by several factors, including but not limited to volume, type of
waste, location and method of shipment.
The Company currently has approximately 2000 active repeating
customers for its waste recovery services. For the years ended December 31,
1997 and December 31, 1996, no one customer accounted for 10% or more of the
Company's total revenues.
Equipment Services
The Company provides waste handling equipment to its customers. This
equipment is supplied on an "as requested" basis. The Company's service
department covers the systems, which have been previously sold, and any new
equipment to be sold. The inventory is used to supply the servicing of this
equipment under contractual service agreements with customers or on an "on
call" basis. (See Manufacturing & Supplies)
Governmental Regulation; Permits
The waste management industry is subject to regulation by federal,
state and local authorities. The Company makes a continuing effort to
anticipate regulatory, political and legal developments that might affect its
operations but is not always able to do so. The Company cannot predict the
extent to which any legislation or regulation that may be enacted or enforced
in the future may affect its operations.
In particular, the regulatory process requires firms in the
Company's industry to obtain and retain numerous governmental permits to
conduct various aspects of their operations, any of which permits may be
subject to revocation, modification or denial. In addition, changing
governmental policies and regulations may affect the Company's ability to
obtain the necessary permits on a timely basis and to retain such permits.
The inability or failure of the Company to obtain and maintain all of the
permits required for its operations would have a material adverse effect on
the Company's business.
3
<PAGE>
The Company had applied for or obtained all necessary permits
regarding the New York facility. However, the Company has moved to Paterson,
New Jersey. The New York facility will close upon approval by New York State
Department of Environmental Conservation.
The New Jersey facility has applied for all necessary permits
required for its operations.
Sales and Marketing
The Company presently markets its waste recovery services primarily
to generators of metal bearing hazardous and non- hazardous waste. Generators
of these wastes include but are not limited to printed circuit board
manufacturers, photo offset printers, photographic developers, lithographers,
photographers, microfilm users, x-ray users (dentists, doctors, hospitals,
podiatrists, orthopedic surgeons, veterinarians, radiologists and industrial
x-ray users), relay manufacturers, oil companies, chemical companies, battery
manufacturers, anodizing operations, metal finishers, jewelry manufacturers
and numerous other waste generators.
The Company's sales and marketing efforts are performed by in-house
personnel, and unaffiliated independent outside "Waste Brokers". In-house
sales efforts consist of direct telephone and mail contact with the potential
customers who are either obtained through customer referrals, or are located
through review of trade journals and other industrial reference materials.
In January 1996, the Company signed a Marketing Agreement
("Agreement") with Ward Consultancy and Oakton Consulting Group, jointly
("Consultants"). This Agreement stipulates the Consultants will act as
marketing consultants to the Company in regard to a "Project", that the
Company has been pursuing. As of May 1997, this agreement was cancelled and
the Consultants efforts have not produced any results.
In March of 1998, the Company signed an exclusive worldwide License
Agreement with Solucorp Industries Ltd., for the utilization of the Company's
patent allowed technology. The terms of the agreement call for an initial
license fee of $500,000 plus an additional license fee of $0.0005 per
processed gallon. The agreement also requires royalty payments of 50% of
gross per gallon receipts, not to be less than $3 million at the end of the
first two years from the signing of the contract and $2 million by the end of
each year thereafter. The initial agreement is for a five-year term, with
automatic five-year continuous renewal.
Manufacturing and Supplies
The Company no longer manufactures it's patented waste volume
reduction system. The Company still manufactures containment trays,
recirculation systems and solution transfer systems. This equipment is
manufactured on an "as requested" basis.
The Company has a service department, covering the systems, which
have been previously sold, and any new equipment to be sold. The inventory is
used to supply the servicing of this equipment under contractual service
agreements with customers or on an "on call" basis. (See Equipment Sales &
Services).
4
<PAGE>
Competition
Competition in the waste treatment industry is intense and is
characterized by continued change and improvement in technology. The market
is fragmented and, in the opinion of the Company, no company holds a dominant
position.
The Company believes that its waste recovery process, which results
in the recycling of virtually all of the metals present in the waste, is
unique and that the same or similar technology is not currently utilized by
any other competitor. On February 3, 1998, the Company announced that the
United States Patent and Trademark Office issued a Notice of Allowance for
the patent application on the "Selective Separation Technology" utilized by
the Company. (See Patents and Proprietary Information)
The Company's competitors utilize a variety of other methods for the
treatment and disposal of hazardous and non-hazardous waste, including deep
well injection, landfills, incineration and limited recovery of metals. The
Company believes that its recovery process provides a superior alternative to
these other methods. Many of the Company's competitors, however, are larger
and more established and have substantially greater financial and other
resources than the Company.
Research and Development
Research and Development of the Patent Allowed (See Patents and
Proprietary Information) "Selective Separation Technology" occurred over the
years, as a daily "on-going process". Only those costs directly allocated to
Research and Development are represented. For the years ending December 31,
1997 and December 31, 1996, the Company did not incur any costs directly
related to research and development.
Patents and Proprietary Information
In the past, the Company had utilized unpatented proprietary
know-how and techniques in its waste recovery operations. This information is
crucial to the Company's operations and business prospects. In June 1995, the
Company's President submitted a patent application on the current "Selective
Separation Technology". Under agreement with the Company's President, L.
Kreisler, KBF is utilizing the Patent in its operations. On February 3, 1998,
the Company announced that the United States Patent and Trademark Office
issued a Notice of Allowance for the patent application for the Selective
Separation Technology ("SST"). On March 25, 1998, the Company executed a
worldwide license agreement with Solucorp Industries, LTD for the utilization
of the Company's technology.
The Company is the owner of a United States patent issued in 1988
covering the design and function of the waste volume reduction system.
Liability Insurance
The Company maintains pollution legal liability insurance in the
amount of $1,000,000 per incident and $2,000,000 in total covering the
premises, and vehicle liability insurance in the amount of $5,000,000. To
date, the Company has not experienced any material liability claims.
Employees
The Company currently has 26 full-time and 2 part-time employees. In
addition to its two executive officers, the Company employs three chemists
(laboratory personnel), a recovery manager, seven recovery employees, a
service-maintenance manager, two maintenance technicians, nine office
personnel, one salesperson. The Company will hire additional personnel when
necessary. None of the Company's employees is represented by a union.
Item 2. PROPERTIES.
As of December 1, 1997, the Company began the relocation of its
corporate offices, laboratory and main operational facility to Paterson, New
Jersey. The new lease terms, which include a purchase option, are for
$1,218,600 base rent to be paid monthly over 6 years commencing December
1997.
5
<PAGE>
The Company will occupy the entire building of 60,000 square feet of space.
The Company's New York facility is located in a leased building in
North Lindenhurst, New York. The Company occupies approximately 30,000 square
feet of space, of the 68,000 square foot building. The Company will be
occupying the building until closure of the facility is accepted by New York
State Department of Environmental Conservation.
Item 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material legal
proceedings.
On November 1, 1994, the environmental crime unit of Suffolk County
District Attorney's Office obtained and utilized a search warrant to initiate
an investigation at the Company's headquarters. The Company hired Mr.
Frederick Eisenbud of Cahn Wishod & Lamb, LLP to represent the Company in
this matter. On June 27, 1997 this matter was resolved. All charges against
Mr. Kreisler have been dropped. All charges against the Company have also
been dropped in exchange for a guilty plea to a single Class `A' misdemeanor
relating to laboratory record keeping and reporting which occurred prior to
October 2, 1992 and a payment of a $25,000 fine. The laboratory record
keeping and reporting deficiency, the result of criminally negligent actions
by former laboratory management personnel, occurred prior to October 2, 1992.
When management learned of this breakdown in its internal control procedures,
controls were put in place which management is satisfied have successfully
prevented any reoccurrence of the earlier problem.
KBF believes that the outcome of the intensive twenty-seven month
joint investigation by the District Attorney's office and investigative
branch of the New York State Department of Environmental Conservation, which
lead to the plea, relating to the laboratory record keeping, by the Company,
reaffirms the integrity of the patent allowed technology and operations
employed by KBF (See Note 12 to the Financial Statement: Legal Matters.)
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
SECURITIES AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market
on the National Association of Securities Dealers, Inc. Electronic Bulletin
Board.
The following table sets forth, for the periods indicated, the range
of high and low bid prices for the Company's Common Stock as reported by the
NASDAQ Electronic Bulletin Board of the National Quotation Bureau,
Incorporated.
6
<PAGE>
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 .09 .05
Second Quarter .17 .06
Third Quarter .4375 .14
Fourth Quarter .34375 .18
1996
First Quarter .23 .1875
Second Quarter .25 .20
Third Quarter .375 .23
Fourth Quarter .375 .19
1997
First Quarter .25 .09
Second Quarter .17 .08
Third Quarter .25 .13
Fourth Quarter .40 .16
</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 earnings and utilize the funds
for Company operations. Future dividend policy will be determined by the
Board of Directors based on the Company's earnings, financial condition,
capital requirements and other existing conditions.
Item 6. SELECTED FINANCIAL DATA.
The selected financial data pertaining to the financial condition
and operations of the Company for the years ended December 31, 1997, 1996,
1995, 1994 and 1993 has been obtained from the Companies financial
statements. The financial statements for the year ended December 31, 1997,
and December 31, 1996 were audited by Irving Handel & CO., Independent
Auditor, and for the years ended 1995, 1994 and 1993 were audited by Shapiro
Bress & Guidice, P.C., Independent Auditors. The information set forth below
should be read in conjunction with such financial statements and the notes
thereto.
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31.
1997 1996 1995 1994 1993
------------------------------------------------------------------
SUMMARY OF OPERATIONS(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Revenues 1,927 1,973 1,823 1,664 1,709
Net Income (208) (468) (357) (857) (712)
EARNINGS PER SHARE (0.0042) (0.0110) (0.0087) (0.0218) (0.020)
SUMMARY OF
BALANCE SHEET
Current Assets 762 432 287 371 604
Current Liabilities 631 821 517 639 667
Working Capital 131 (389) (230) (268) (63)
Total Assets 1,949 1,859 1,941 2,267 2,889
Total Long-Term Debt 190 229 290 336 389
Total Liabilities 821 1,050 807 976 1,056
Stockholders' equity 1,128 809 1,133 1,291 1,834
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The following discussion should be read in conjunction with the
Company's audited financial statements and notes thereto set forth elsewhere
in this annual report.
Results of operations for the year Ending
December 31, 1997 as Compared to the Year Ended
December 31, 1996
The Company's revenues decreased by 2% to $1,926,895 for the year
ended December 31,1997. ("1997") from revenues of $1,972,895 for the year
ended December 31, 1996 ("1996"). While sales appear virtually unchanged,
certain significant low profit revenues, which could only be serviced at a
Long Island facility, have been replaced by higher profit revenues, which
will be maintained at the New Jersey facility. During 1997 this continuing
focus on wastewater metal recovery has allowed the Company to increase its
revenue base.
Cost of operations decreased to 66% of revenues for 1997 compared to
68% for 1996. The Company attributes this decrease to the continued steps
taken by Management to reduce costs.
General and administrative expenses decreased by 23% to $806,027 for
the year ended December 31, 1997 from $1,041,264 for the year ended December
31, 1996 due primarily to the continued efforts by Management to reduce costs.
The Company will continue to incur expenses related to the closure
of the New York facility under New York State Department of Environmental
Conservation regulations, 6NYCRR ss.373.
The Company incurred a net loss of $207,635 for the year ended
December 31, 1997 as compared to a net loss of $468,398 for the year ended
December 31, 1996, a decrease of 56%. The 1997 loss is due primarily to the
legal expenses incurred by June 1997 settlement and the low profit revenues
mentioned above. Depreciation Expense was $237,368 and $193,745 for the years
ended December 31, 1997 and 1996 respectively. It should be noted that the
Company has relocated its facility to a more advantageous location, in
Paterson, New Jersey, where business is more easily obtained and costs will
be further reduced.
8
<PAGE>
Results of operations for the year Ending
December 31, 1996 as Compared to the Year Ended
December 31, 1995
The Company's revenues increased 8% to $1,972,964 for the year ended
December 31, 1996. ("1996") from revenues of $1,823,390 for the year ended
December 31, 1995 ("1995"). The Company attributes such increase in revenues
to a number of factors. Management had refocused its emphasis on the waste
water recovery "segment" for the best long-term interest of the Company.
During 1996 this continuing focus on wastewater metal recovery combined with
the ability to recover additional wastes, provided for under the new
exemptions, has allowed the Company to increase its revenue base.
Cost of operations decreased to 68% of revenues for 1996 compared to
69% for 1995. The Company attributes this decrease to the continued steps
taken by Management to reduce costs.
General and administrative expenses increased by 31% to $1,041,264
for the year ended December 31, 1996 from $795,812 for the year ended
December 31, 1995 due primarily to legal and settlement costs related to the
recently settled action and administrative salaries and expenses paid to the
Acting Chief Executive Officer, whose term of office ended May 1997.
Management believes that administrative expense levels are presently post May
1997 at or below the 1995 levels.
The Company also continued to incur expenses related to obtaining
the 6NYCRR ss.373 (Federal Part b) permit. In December 1994 and January 1995,
the Company further expanded their exemptions to include characteristic and
listed hazardous waste. Due to these changes, in January 1995, the permit
application was amended from treatment and storage to storage only. The
review and approval of the revised permit application has been completed and
approved by New York State Department of Environmental Conservation. The
Company will be notified by the Deputy Regional Permit Administrator for
Region 1 when the permit will be placed in the public commenting period. (See
Governmental Regulation; Permit).
The Company also continued to incur expenses related to obtaining
the 6NYCRR ss.373 (Federal Part b) permit. In December 1994 and January 1995,
the Company further expanded their exemptions to include characteristic and
listed hazardous waste. Due to these changes, in January 1995, the permit
application was amended from treatment and storage to storage only. The
review and approval of the revised permit application has been completed and
approved by New York State Department of Environmental Conservation. The
Company will be notified by the Deputy Regional Permit Administrator for
Region 1 when the permit will be placed in the public commenting period. (See
Governmental Regulation; Permit).
The Company incurred a net loss of $468,398 for the year ended
December 31, 1996 as compared to a net loss of $357,145 for the year ended
December 31, 1995, an increase of 31%. The 1996 loss is due primarily to the
increase in general and administrative expenses as explained above.
Depreciation Expense was $193,745 and $298,194 for the years ended December
31, 1996 and 1995 respectively. It should be noted that the Company is
negotiating to move its operating facility to a more advantageous location
where business is more easily obtained and costs further reduced.
Liquidity and Capital Resources
The Company has funded its working capital requirements during the
past five years from cash flow generated by operations, the proceeds of its
initial public offering in 1987, the proceeds of subsequent public warrant
exercises and private placements of Common Stock. The Company's original
plant and equipment needs were funded through an SBA loan, which has been
paid in full, and the Company borrows funds from a bank from time to time on
a short-term or installment basis. The Company also utilizes lease/purchase
arrangements to finance equipment acquisitions. All of the Company's current
bank loans and lease financing obligations are guaranteed by the Company's
two executive officers.
9
<PAGE>
In February 1994, Robert Misa, a director of the Company furnished
$60,000 and another stockholder furnished $25,000 as collateral for an
$85,000 loan to the Company from Fleet Bank. In April 1994, the stockholder
who furnished the $25,000 converted his loan to shares of common stock
pursuant to the 1994 private placement offering. It was agreed by the Company
and Robert Misa that in July 1995, the collateral was used to pay the loan in
full. In April 1996, Robert Misa received 484,000 shares of Common Stock
under the terms and conditions of the agreement. During 1996, the subsidizing
of the former Acting Chief Executive Officer's salary and expenses was
accomplished through a $60,000 loan from certain shareholders, which is due
on demand and bears an interest rate of 10% per annum.
In October 1997, pursuant to Rule 504, the Company offered on a
private placement of $1,000,000 consisting of 12,500,000 shares of common
stock with accredited investors. As of December 31, 1997, $417,930 was sold
and the balance of $582,070 was sold in 1998.
To date, the Company's operations have not been adversely affected
by inflation; however in the later part of 1994, the chemical manufacturing
companies increased their prices due to the shortages from depleted shipments
and recent flooding of the manufacturing facilities in the Mid West.
The Company had a positive cash flow of +$205,469 at December 31,
1997 and a positive cash flow of +$8149 at December 31, 1996. The positive
cash flow in 1997, while operating at a loss of -$207,635 is indicative of
the funds received through the 504 Offering Memorandum.
Working capital at December 31, 1997 was +$131,736 as compared to
- - -$388,788 at December 31, 1996.
At December 31, 1997 total long-term debt and capital lease
obligations were $189,977 as compared to $228,885 at December 31, 1996. Any
capital expenditures for the New Jersey facility will be financed through
proceeds from the 504 Offering Memorandum and future warrants exercised.
The Company has relocated its recovery facility to Paterson, New
Jersey. Management believes that the new location will result in additional
business opportunities and lower operating costs. In conjunction with this
move, the Company will incur material capital expenditures and related costs.
Management has raised additional capital for this occurrence through a 504
Offering Memorandum.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Exhibit A attached hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Shapiro, Bress & Goldstein, L.L.P. (formerly known as Shapiro & Bress CPA's,
P.C. and Shapiro, Bress & Guidice CPA's, P.C.) was formerly engaged to audit
the financial statements of the Company. Effective January 10, 1997, Shapiro
Bress & Goldstein, L.L.P., resigned from this position. Shapiro Bress &
Goldstein, L.L.P.'s resignation is not due to any disagreements on any
matter, transaction or event, with respect to accounting principals or
practices, financial statements, disclosure or auditing scope or procedure,
at any time during the engagement of Shapiro Bress & Goldstein, L.L.P. as
auditor of the Company's financial statements. The Company's Board of
Directors has approved the hiring of Irving Handel & Co., 112 Irving Place,
Woodmere, New York 11598, as the Company's new auditor, effective immediately.
10
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification of Directors.
<TABLE>
<CAPTION>
Other Capacities
Period Served in which currently
Name Age as Director serving
<S> <C> <C> <C>
Larry Kreisler 51 Since 1984 Chairman
President
Kathi Kreisler 47 Since 1984 Vice President
Secretary, Treasurer
Robert Misa 42 Since 1991 Vice President
James Aiello 57 July 1996 to May 1997 Acting Chief Executive Officer
</TABLE>
Larry Kreisler is a Co-founder of the Company and has been its
Chairman of the Board and a Director since March 1984. He served as
Vice-President, Secretary Treasurer from March 1984 through December 1994. In
January 1995, Mr. Kreisler accepted the Board nomination to serve as
President of the Company. From 1973 to 1984 Mr. Kreisler managed pollution
treatment systems for several companies in the metal finishing industries.
Mr. Kreisler is the husband of Kathi Kreisler.
Kathi Kreisler is a Co-founder of the Company and served as its
President from 1984 through December 1994. She has been a Director since
March 1984. In January 1995, Ms. Kreisler accepted the Board nomination to
serve as Vice President, Secretary Treasurer of the Company. From 1979 to
1984, Ms. Kreisler was a principal in Kreisler Bags (subsequently
incorporated as Kreisler Bags and Filtration, Inc.), the predecessor of the
Company. Ms. Kreisler is the wife of Larry Kreisler.
Robert Misa has been a Director of the Company since January 1991
and Vice President since January 1994. Mr. Misa has been the owner of
Caro-Bob Plumbing Supply, Inc. since 1974. Prior to that he owned and was
engaged in various other plumbing supply businesses.
James Aiello was a Director of the Company from July 1996 to May
1997. Mr. Aiello has been affiliated with the Company since January 1996 in a
number of capacities. Mr. Aiello will from time to time advise the Board on
domestic and international business growth opportunities.
The Directors of the Company are elected at the annual meeting of
stockholders, and serve until the next annual meeting of stockholders. The
Company's executive officers are appointed by and serve at the discretion of
the Board of Directors, subject to the terms and conditions of the employment
agreements described below. There are no arrangements or understandings
between any of the Directors of the Company and any other person pursuant to
which such person was selected as a Director of the Company.
At the December 23, 1997 Annual Shareholders meeting the following
persons were elected to the Board of Directors for the year 1998: Larry
Kreisler, Kathi Kreisler, Robert W. Misa, Jr., Joseph Casuccio, Jr. and
Anthony Leteri. In January 1998, the Board of Directors approved Frederick
Eisenbud to the Board and in February 1998, the Board of Directors further
approved Steven Lewen to the Board.
Identification of Executive Officers.
<TABLE>
<CAPTION>
Name Age Current Office Held
<S> <C> <C>
Larry Kreisler 51 Chairman, President
Kathi Kreisler 46 Vice President, Secretary, Treasurer
Robert W. Misa, Jr. 42 Vice President
James Aiello 57 Acting Chief Executive Officer
(term July 1996 to May 1997)
</TABLE>
11
<PAGE>
Currently, there is no fixed term of office, for any executive
officer and all officers serve at the discretion of the Board of Directors.
Each person selected to become an executive officer has consented to act as
such and there are no arrangements or understandings between the executive
officers or any other persons pursuant to which he or she was or is to be
selected as an officer. In addition to the above named officers, in 1998, the
Board of Directors named Joseph Casuccio and Kevin Kreisler to serve as Vice
Presidents.
For a description of the backgrounds of Ms. Kreisler, Mr. Kreisler
and Mr. Misa, see Identification of Directors.
The information in the above tables is based in part upon
information furnished by the respective persons listed above, and, in part,
upon records of the Company.
Item 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning
the compensation paid or accrued by the Company during the fiscal year ended
December 31, 1996 to or on behalf of the Company's President and the one
other named executive officer of the Company (hereinafter referred to as the
"named executive officers") for services rendered in all capacities to the
Company whose total aggregate salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Name and Principal Salary ($) Bonus ($) Other Annual Awards, All Other
Position Year Compensation Options/SARs(#) Compensation
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler, Vice 1997 $3500 - - - -
President
1996 $8,325 - - - -
Larry Kreisler, President 1997 $152,503 - -
1996 $195,474
James Aiello, 1997 - $20,000 -
Acting CEO
1996 $24,000
</TABLE>
There were new stock options granted to the named executive
officers. In January 1998, K. Kreisler was issued 8 million options for past
services rendered. (See Employment Arrangements). L. Kreisler was issued an
additional 400,000 options for past services rendered. Certain stock options
granted to the executive officers were revised and reallocated. (See "Stock
Options" for further information.) No stock appreciation rights were granted
or exercised during such fiscal year.
The following table sets forth information concerning option
exercises and option holdings for the fiscal year ended December 31, 1997
with respect to the Company's named executive officers. No stock appreciation
rights were exercised or outstanding during such fiscal year.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised in-
Value Number of Securities the-Money Options at
Underlying Unexercised FY-End Market Price of
Realized Options at Fiscal Year-End shares at FY-End ($)
Shares Market (#) less exercise price
acquired price at FY
End
Name on exercise Exercise Exercisable Unexercisable Exercisable Unexercis
(#) less -able
exercise
price)
<S> <C> <C> <C> <C> <C>
Kathi Kreisler 0 - 4,262,278 N/A N/A
Larry Kreisler 0 - 4,262,278 N/A N/A
</TABLE>
12
<PAGE>
Employment Arrangements
The Company has entered into an employment agreement with Larry
Kreisler, as the Chairman of the Board, President Company, in November 1997.
The L. Kreisler Employment Agreement provides for a five-year term from the
date signed and shall be extended automatically each day for an additional
day so that the remaining term of this agreement will continue to be five
years at all times. Either party may by written notice fix the term of this
Agreement at five years without additional extension and would then end on a
date five years from the date of notice. The annual base salary of $165,000,
with cost of living adjustments. L. Kreisler will be entitled to receive an
annual bonus equal to 6% of the Company's annual net income before taxes,
reimbursement of business related expenses, use of a Company automobile and
participation in any employee benefits provided to all employees of the
Company. The Company shall contribute 4% of the base weekly salary to the L.
Kreisler's 401k savings plan.
Larry Kreisler's employment may be terminated by the Company at any
time for "cause" (as defined in the L. Kreisler Employment Agreement) and his
employment may be terminated at any time by the mutual consent of the Board
of Directors and Mr. Kreisler. If Mr. Kreisler is terminated by the Company
for "cause", the Company is obligated to pay him all amounts due under the L.
Kreisler Employment Agreement, which have accrued but are unpaid as of the
date of termination. The L. Kreisler Employment Agreement also includes
non-competition provisions which prevent Mr. Kreisler, during the term of the
agreement, from participating, directly or indirectly, in the ownership,
control, management or employ of any business entities other than the Company
without the prior written consent of the Board of Directors.
The Company had entered into an employment agreement with Kathi
Kreisler, as Vice President and Secretary Treasurer, in November 1997. The K.
Kreisler Employment Agreement provides for a five-year term from the date
signed and shall be extended automatically each day for an additional day so
that the remaining term of this agreement will continue to be five years at
all times. Either party may by written notice fix the term of this Agreement
at five years without additional extension and would then end on a date five
years from the date of notice. The annual base salary of $80,000, with cost
of living adjustments. K. Kreisler will be entitled to receive an annual
bonus equal to 4% of the Company's annual net income before taxes,
reimbursement of business related expenses, use of a Company automobile and
participation in any employee benefits provided to all employees of the
Company. The Company shall contribute 4% of the base weekly salary to the K.
Kreisler's 401k savings plan.
Kathi Kreisler's employment may be terminated by the Company at any
time for "cause" (as defined in the K. Kreisler Employment Agreement) and her
employment may be terminated at any time by the mutual consent of the Board
of Directors and Ms. Kreisler. If Ms. Kreisler is terminated by the Company
for "cause", the Company is obligated to pay her all amounts due under the K.
Kreisler Employment Agreement, which have accrued but are unpaid as of the
date of termination. The K. Kreisler Employment Agreement also includes
non-competition provisions which prevent Ms. Kreisler, during the term of the
agreement, from participating, directly or indirectly, in the ownership,
control, management or employ of any business entities other than the Company
without the prior written consent of the Board of Directors.
Kathi Kreisler voluntarily lowered the amount of her 1997 salary to
$3,500 and her 1996 salary to $8,325.00. In January 1998, K. Kreisler
received 8 million options convertible at $0.08 per share for a period of 10
years, to purchase Common Stock of the Company for past services rendered. L.
Kreisler received 400,000 options convertible at $0.08 per share for a period
of 10 years, to purchase Common Stock of the Company for past services
rendered.
13
<PAGE>
Stock Options.
In October 1992, the Company issued stock options to purchase an
aggregate of 690,000 shares of the Company's Common Stock at $.l25 per share
to the following individuals. The options are exercisable at any time, during
the period December 31, 1992 through December 31, 1997. In December 1997, the
Board of Directors voted to extend the exercisable time for another five
years to December 31, 2002.
<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
David Halperin 1,210,209
Stephen Lewen 1,002,258
Stephen Jerome 1,537,076
Richard Moses 601,845
</TABLE>
On January 2, 1998, K. Kreisler was also issued 7,500,000 options to
purchase shares of Common Stock for $0.08 per share over a 10-year period
commencing January 1998 for unpaid wages from March 1993 through December
1996. Additional, commencing on January 2, 1998, K. Kreisler was issued
500,000 options to purchase shares of Common Stock for $0.08 per share over a
10 year period for the year 1997.
L. Kreisler was issued, on January 1998, 400,000 options to purchase
shares of Common Stock for $0.08 per share over a 10-year period commencing
on January 1998 for unpaid wages for the year 1997.
The Company issued options, on December 20, 1997, to certain
employees to purchase 800,000 shares of Common Stock for $0.125 per share
over a 10-year period beginning December 31, 1997. In January 1998, an
additional 200,000 options were granted to employees under the same terms as
mentioned above.
Directors, who are not employees of the Company, receive stock
options pursuant to the Company's Director Plan adopted in January 1998. The
Director's Plan provides for automatic grants of options to the Company's
eligible non-employee directors upon their election to the Board of Directors
of the Company. As of January 1998, 100,000 options at an exercise price of
80% of the price of the stock as selling on January 1, 1998, have been
granted to each Director under the Directors Plan. The options are
exercisable for a period of 10 years, none of which have been exercised.
In June 1996, the Company issued 83,871 common stock options,
exercisable at $.155 per
14
<PAGE>
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 issued.
In January 1998, the Company issued 125,000 options to purchase
common stock exercisable at $0.25, callable at $0.01 a share one year from
the date of issuance to Universal Process Equipment in exchange for
equipment. These options expire in December 2003.
Stock Option Plan
In January 1987, the Company adopted an Incentive Stock Option Plan
(the "ISO Plan") covering 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. To date, no options have been granted under the ISO
Plan. Under the ISO Plan, options may be granted at not less than 100% (110%
in the case of 10% shareholders) of the fair market value (100% of the
closing bid price on the date of grant) of the Company's Common Stock on the
date of grant. Options may not be granted more than ten years from the date
of adoption of the ISO Plan. Options granted under the ISO Plan must be
exercised within then (10) years from the date of grant. The optionee may not
transfer any option except by will or by the laws of descent and
distribution. Options granted under the ISO Plan must be exercised within
three months after termination of employment for any reason other than death
or disability, and within one year after termination of employment due to
death or disability. The Board of Directors of the Company has the power to
impose additional limitations, conditions and restrictions in connection with
the grant of any option.
15
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1997, certain
information concerning stock ownership by all persons known by the company to
own beneficially 5% or more of the outstanding shares of the Company's Common
Stock, each director, and all officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
Name and Address of Amount and Percentage
Beneficial Nature of of
Holder or Identity of Beneficial Outstanding
Group Ownership Stock (6)
<S> <C> <C>
Kathi Kreisler 9,474,953 17
23 Woodleigh Court (1) (2)
Holbrook NY 11741
Larry Kreisler 9,474,953 17
23 Woodleigh Court (1) (3)
Holbrook NY 11741
Robert Misa 2,627,424 4.7
289 Bay Avenue (4)
Huntington Bay, NY 11743
Stephen Jerome 3,582,076 6.4
18 Johnson Court (5)
Cresskill, NJ 07626
All Officers & Directors 21,577,330 38.7
as a group (three persons) (6)
</TABLE>
1) Mr. and Ms. Kreisler each disclaim beneficial ownership of the shares
of Common Stock owned by the other.
2) Includes 4,262,278 shares of exercisable options for Common Stock.
3) Includes 4,262,278 shares of exercisable options for Common Stock.
4) Includes 1,346,120 shares of exercisable options for Common Stock.
5) Includes 1,573,076 shares of exercisable options for Common Stock.
6) Includes the 11,443,752 shares of exercisable options for Common, as
set forth in footnotes 2, 3, 4 and 5.
7) Does not include an aggregate of 5,172,500 shares of Common Stock
issuable upon exercise of (i) options available for grant under the
Company's Stock Option Plan and (ii) options granted to individuals
other than officers, directors and principal stockholders of the
Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1992, the Company purchased supplies and components from Caro-Bob
Plumbing Supply, Inc. (Caro-Bob"), a company owned by Robert Misa, a director
of the Company, for an aggregate of approximately $37,693. In August 1992,
the Company issued 300,000 shares of Common Stock to Mr. Misa in payment of
$30,000 of the outstanding amount due. In April 1996, Caro-Bob Plumbing
Supply received, as agreed, 480,000 shares, at $0.125 per share, in lieu of
money for purchases made by the Company for supplies and components during
the past few years.
Kathi and Larry Kreisler have personally guaranteed the Company's
obligations under four capital leases and three operating leases. At December
31, 1997, the Company's obligations under such leases and note aggregated
$290,760 versus $502,265 at December 31, 1996. Under an
16
<PAGE>
agreement signed November 7, 1997, the Kreisler's are to receive minimum
compensation for these personal guarantees.
In February 1994, Robert Misa, a director of the Company, furnished
$60,000 and another stockholder furnished $25,000 as collateral for an
$85,000 loan to the Company from Fleet Bank. The loan carried interest at the
prime rate, and interest was payable only for the first two years, and
thereafter payments of principal and interest would be required from the
Company. In consideration for furnishing the collateral, the Company would
either issue Common Stock at a purchase price of $.l25 per share upon
maturity of the loan or ten-year options to purchase 30,000 shares of Common
Stock at an exercise price of $.10 per share for each $10,000 of collateral
furnished. In April 1994, the stockholder who furnished the $25,000 converted
his loan into shares of common stock pursuant to the Company's 1993/94
private placement offering. It was agreed by the Company and Robert Misa that
in July 1995, the collateral was used to pay the loan in full. In March 1996,
Robert Misa received 484,000 shares of Common Stock under the terms and
conditions of the agreement.
The Company issued stock under S-8 Consulting agreement to RTP
Environmental Associates for consulting work done in relationship to the
6NYCRR 373 permit and other permits required by the Company. RTP
Environmental Associates received 400,000 shares of the Company's common
stock, valued at $.125 per share. In 1996, the Company issued to Steven
Feldman, Esq. stock options, which upon exercise will retire the related
account payable debt. In 1996, the Company issued stock to retire certain
vendor accounts payable debt of $30,000.00 to Halperin & Halperin, P.C. and
$50,000.00 to Cahn Wishod & Lamb, L.L.P.
In June of 1995, the Company signed an agreement with M.H. Meyerson
& Co. to perform investment-banking services for the Company. Such services
may include but are not limited to assistance in mergers, acquisitions,
internal capital structuring, placement of new debt and equity issues all
with the objective of accomplishing the Company's business and financial
goals. In consideration of the services previously rendered and to be
rendered by M.H. Meyerson, warrants to purchase a total of 1,500,000 shares
of Company's Common Stock with an exercise price of $0.15 per share with
demand and piggy back registration rights are to be granted. To date no
warrants have been issued.
In May 1996, a new company was formed to handle the transportation
needs of KBF Pollution Management, Inc. The new company, Metal Recovery
Transportation Corporation, is solely owned by Lawrence M. Kreisler. Mr.
Kreisler, formed Metal Recovery Transportation, Corporation due to KBF's
inability to timely obtain necessary permits throughout the northeast. The
company was formed without any financial assistance from KBF and is presently
operating at a breakeven. Metal Recovery Transportation has permits in New
York, New Jersey, Connecticut, Rhode Island, Massachusetts and New Hampshire.
The company will replace all outside transporters that the KBF is presently
using at a significant cost savings to KBF.
In May 1997, the Company formed American Metals Recovery, Corp.,
Gryphon Industries, Inc., and AMR, Inc. pursuant to the laws of the State of
Nevada. These wholly owned subsidiaries of KBF Pollution Management, Inc.
were formed in conjunction with the move to New Jersey to create flexibility
within the corporate organization. American Metals Recovery Corp. has been
active in terms of expending capital related costs in setting up the facility
in New Jersey.
In November 1997, the Company ("Licensee") executed a License
Agreement with Larry Kreisler, ("Licensor") President and Chairman of the
Board of the Company. The Licensor granted the Licensee a worldwide,
exclusive license to the Licensor's Patent Rights that are defined as "The
Selective Separation Technology for the purpose of resource recovery of
industrial metal bearing waste. The license applies to any improvements or
related inventions. The Licensee may assign or sub-license the License with
prior written consent which shall not be unreasonably withheld. The Licensor
shall receive $10,000 for all prior use of the technology and a royalty fee
based on a per gallon rate but differs according to the type and quantity.
The License Agreement has a minimum 15-year term after which time changes to
5-year evergreen term.
17
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C> <C>
(a) The following financial statements are included in
Part II, Item 8 and are attached hereto:
i) Balance Sheets
a) December 31, 1997
b) December 31, 1996
ii) Statements of Income Years Ended
a) December 31, 1997
b) December 31, 1996
c) December 31, 1995
iii) Statements of Stockholders' Equity
a) January 1, 1995 to December 31, 1997.
iv) Statements of Cash Flow Years Ended
a) December 31, 1997
b) December 31, 1996
c) December 31, 1995
v) Notes to Financial Statements
vi) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
i) Changes in the Registrant's Certifying
Accountant-March 7, 1997
(c) Exhibits.
Exhibit
Number Description
10.1* - Lease/purchase agreement between the Company and Wasco
Funding Co. dated March 24, 1993.
10.2* - Employment Agreement between the Company and Lawrence
Kreisler dated October 15, 1992.
10.3* Employment Agreement between the Company and Kathi Kreisler
dated October 15, 1992
10.4** - Amended Lease/purchase agreement between the Company and
Wasco Funding Co. dated March 25,1994.
10.5 - Stipulation, dated June 26, 1997, between the Company and
John Spollen, Receiver f/b/o Apple Bank for Savings
</TABLE>
* Reference is made to the exhibits to the annual report on Form 10-K for
the fiscal year ended December 31, 1992 (File No. 33-20954).
** Reference is made to the exhibits to the annual report on Form 10-K for
the fiscal year ended December 31, 1993 (File No. 33-20954).
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) KBF POLLUTION MANAGEMENT, INC.
By (Signature and Title LAWRENCE KREISLER
LAWRENCE KREISLER, President
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title LAWRENCE KREISLER
LAWRENCE KREISLER, Chairman of the Board,
President,
Director
Date: March 27, 1998
By (Signature and Title KATHI KREISLER
KATHI KREISLER, Vice President,
Secretary, Treasurer,
Director
Date March 27, 1998
19
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND DECEMBER 31, 1996
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT................................................22
BALANCE SHEET............................................................23-24
STATEMENT OF INCOME.........................................................25
STATEMENT OF STOCKHOLDERS' EQUITY...........................................26
STATEMENT OF CASH FLOWS..................................................27-28
</TABLE>
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. & SUBSIDIARIES
<TABLE>
<S> <C>
Irving Handel P.C. Tel: 516-932-0404
CERTIFIED PUBIC ACCOUNTANTS Fax' 516E932.7882
</TABLE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of KBF Pollution Management, Inc.
22
<PAGE>
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
12/31/97 12/31/96
CURRENT ASSETS:
<S> <C> <C>
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.
23
<PAGE>
BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
12/31/97 12/31/96
CURRENT LIABILITIES:
<S> <C> <C>
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.
24
<PAGE>
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>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
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.
<PAGE>
26
<PAGE>
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.
27
<PAGE>
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.
28
<PAGE>
EXHIBIT A
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BUSINESS DESCRIPTION
KBF Pollution Management, Inc. (the Parent)("KBF") was incorporated in the
State of New York on March 15, 1984, with an initial authorized
capitalization of 200 shares of No Par Common capital stock, which was later
increased to 500,000,000 shares of .00001 Par Value Common stock. The Company
is actively engaged in the environmental services business as a waste water
metal recovery facility specializing in the resource recovery of hazardous
and non-hazardous metal bearing wastes for the sole purpose of recycling the
product produced (ionic metals) back into commerce. The Company operates an
in-house industrial laboratory to support the recycling process and
performance of research and development. The Company also provides waste
handling equipment and compliance support service to their customers. The
Company operates predominantly in the Northeast region. As of May 6, 1997
Gryphon Industries, Inc., American Metals Recovery Corp., and AMR, Inc. (the
Subsidiaries) were formed pursuant to the laws of the State of Nevada. These
wholly owned subsidiaries of KBF Pollution Management, Inc. were formed in
conjunction with their move to New Jersey to create flexibility within the
corporate organization. American Metals Recovery Corp. has been active in
terms of expending capital related costs in setting up the facility in New
Jersey. In addition, Metal Recovery Transportation Corp. (owned by KBF's
President and Chairman, Lawrence Kreisler) entered into an agreement with KBF
to handle all of KBF's transportation needs. Metal Recovery Transportation
Corp. will assume the liability and provide transportation services to KBF at
a rate below market price.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Recovery service revenues are recognized and invoiced as such services are
completed.
INVENTORIES
Inventories are valued at the lower of average cost or market, using the FIFO
method.
DEPRECIATION AND AMORTIZATION
Property and equipment are depreciated for financial reporting and tax
purposes using the straight line method over the estimated useful lives of
the assets. Leasehold improvements are removable and are amortized over their
useful lives. Useful lives are estimated between 5 and 10 years. The patent
is being amortized over 17 years.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets and
liabilities , the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the estimates
that were used.
RECENT PRONOUNCEMENTS
The Company has complied with all recent pronouncements which have effective
dates preceding the dates relating to these financial statements.
SFAS No. 130, relating to reporting comprehensive income and SFAS No. 131,
29
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENT PRONOUNCEMENTS (continued)
relating to segments of an enterprise and related information, are both
effective for financial statements for years beginning after December 15,
1997.
Had Statements No. 130 and 131 been in effect for the year ended December 31,
1997, there would have been no change in the statements presented herein.
EARNINGS PER SHARE
In accordance with SFAS No. 128, the Company computes basic earnings (loss)
per share on a daily weighted average basis, as described in Note 10.
Non-diluting earnings (loss) per share are unchanged from basic, as the
consideration of any and all options are dilutive.
PRIOR PERIOD STATEMENTS
The 1995 and 1996 financial statements may have been reclassified to conform
with current year's classifications.
NOTE 3 - INVENTORIES
Inventories are comprised of the following major categories:
<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 $193,745 for the years ended December 31,
1997 and 1996 respectively.
NOTE 5 - PATENT
The Company obtained a United States patent on its waste volume reduction
unit and method in August, 1988. The costs incurred to obtain the patent have
been capitalized and are being amortized over a 17 year life.
30
<PAGE>
NOTE 5 - PATENT (continued)
In June 1995, the Company's President, Lawrence Kreisler, submitted a patent
application on the "Selective Separation Technology" technique currently
being used. On February 3, 1998, the US Patent and Trademark Office issued a
Notice of Allowance for this patent. Under an agreement with Mr. Kreisler,
the Company is utilizing the patent in its operations.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Note payable to certain significant shareholders who
advanced money to the Company. This obligation is due
on demand and bears an interest rate of 10% per annum.$ 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:
$6,000 each (payments 1-6)
$7,000 each (payments 7-12)
$5,910 each (payments 13-48)
Future minimum payments under capital leases with initial terms of one year
or more consisted of the following at December 31, 1997:
<TABLE>
<S> <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>
On all capital leases, the equipment under lease is pledged toward the lease
obligation.
31
<PAGE>
NOTE 7 LEASES (continued)
OPERATING LEASES
The Company's New York facility is located in a leased building in North
Lindenhurst, New York. The Company occupies approximately 30,000 square feet
of space, of the 68,000 square foot building. The Company will be occupying
the building until closure of the facility has been accepted by New York
State Department of Environmental Conservation.
As of December 1, 1997, the Company relocated its corporate offices,
laboratory and main operational facility to Paterson, New Jersey. The new
lease terms, which includes a purchase option, are for $1,218,600 base rent
to be paid monthly over 6 years commencing December 1997. The Company
occupies the entire building of 60,000 square feet of space. The lease
obligations are as follows:
<TABLE>
<S> <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>
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 options to Kathi Kreisler and Larry Kreisler
for each to purchase 7,500,000 shares of Common Stock for $.125 per share
over a five year period commencing on December 31, 1992, subject to certain
terms and conditions.
At the Annual Shareholders Meeting held on November 4, 1996, these 15,000,000
options were revised and reallocated as indicated on the following table and
are immediately exercisable at .10 per share, for a period of 10 years,
ending November 4, 2006.
32
<PAGE>
NOTE 8 - STOCKHOLDERS' EQUITY (continued)
<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>
Subsequent to the report date, 130,384 of the foregoing options have been
exercised at a price of $.125.
On January 2, 1998, Kathi Kreisler was also issued an additional 8,000,000
options to purchase shares of common stock for $.08 per share over a 10 year
period commencing January 1998. Lawrence Kreisler was also issued an
additional 400,000 options to purchase common stock under the same terms as
Mrs. Kreisler.
On December 20, 1997, the Company also issued options to certain employees to
purchase 800,000 shares of common stock for $.125 per share over a 10 year
period beginning December 31, 1997. In January 1998, an additional 200,000
options were granted to employees under the same terms as mentioned above.
Directors, who are not employees of the Company, receive stock options
pursuant to the Company's Directors Plan, adopted in January 1998. The
Directors Plan provides for automatic grants of options to the Company's
eligible non-employee directors upon their election to the Board of Directors
of the Company. As of January 1998, 100,000 options at an exercise price of
$.22 per share have been granted to each director under the Directors Plan.
The options are 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.
33
<PAGE>
NOTE 8 - STOCKHOLDERS' EQUITY (continued)
Stock options issued for services to non-employees are accounted for in
accordance with SFAS No. 123. The Company values such options using the
Black-Scholes option valuation model and expenses the value over the expected
life of the option. The amount charged to the current period was $45,290.
KBF Pollution Management, Inc. follows APB Opinion No. 25 to account for
stock options issued to employees(intrinsic value)in its published financial
statements. In accordance with SFAS No. 123, the Company discloses the
Black-Scholes value of these options and the proforma impact of expensing
such value over the vesting period of the options, in the footnotes to its
financial statements.
In an effort to aid understanding of the impact of the Company's stock option
plan, proforma "look-through" income statements are provided below as an
alternative presentation of accounting for stock options.
This proforma income statement is not required by generally accepted
accounting principles , but offers an additional method of considering stock
options. In this presentation, the expense of employee options, based on the
Black-Scholes value of the options is reflected in the income statement
operating expense line items in the year that the options are granted. Shares
issuable under various stock options are excluded from the weighted average
number of shares outstanding on the assumption that their effect is
non-diluting.
Alternative Presentation Of Accounting For Stock Options:
<TABLE>
<CAPTION>
Year Ended 12/31/97 12/31/96 12/31/95
Reported Proforma Reported Proforma Reported Proforma
<S> <C> <C> <C> <C> <C> <C>
REVENUE $1,926,895 $1,926,895 $1,972,964 $1,972,964 $1,823,390 $1,823,390
OPERATING EXPENSES:
COST OF REVENUE 1,277,974 1,818,613 1,342,591 1,450,082 1,266,397 1,288,097
MAINT & REPAIR 42,246 42,246 40,770 40,770 57,127 57,127
ADVERTISING 7,519 7,519 7,986 7,986 6,295 6,295
GENERAL & ADMIN 806,027 806,027 1,041,264 1,041,264 795,812 795,812
TOTAL OPERATING 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>
34
<PAGE>
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>
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>
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.
35
<PAGE>
NOTE 11 - SEGMENT INFORMATION (continued)
In the past the Company reported on three segments: waste water recovery,
equipment sales and service, and laboratory analysis. The Company has ceased
manufacturing and marketing new equipment and has abandoned its commercial
lab operations. The Company's activities in equipment sales and service and
in the laboratory analysis are to support the waste water recycling segment,
and are not separate divisions or profit centers.
NOTE 12 - COMMITMENTS & CONTINGENCIES
LEGAL MATTERS
As noted in prior financial statements, the investigation by the Suffolk
County District Attorney's Office, and the eventual indictment of the Company
and certain employees has been settled.
On June 27, 1997, KBF entered a plea of guilty to a single misdemeanor in
full satisfaction of all the charges against the Company, and was sentenced
to pay a fine of $25,000. The fine has been paid in full. In addition, all
charges against its president were dismissed. Thus the criminal investigation
is closed, and there no longer are any charges pending against KBF or any of
its officers or employees.
EMPLOYMENT CONTRACTS
The Company has entered into five year employment agreements with Kathi
Kreisler and Larry Kreisler, commencing November 1997. The terms of the Larry
Kreisler agreement call for him to receive an annual base salary of $165,000,
with cost of living adjustments. He will also be entitled to an annual bonus
equal to 6% of the Company's annual net income before taxes, reimbursement of
business related expenses, use of a Company automobile and participation in
any employee benefits provided to all employees of the Company. The Company
shall contribute 4% of the base weekly salary to L. Kreisler's 401K savings
plan.
The Kathi Kreisler employment contract calls for an annual base salary of
$80,000, with cost of living adjustments. K. Kreisler will be entitled to an
annual bonus equal to 4% of the Company's net income before taxes,
reimbursement of business expenses, use of a Company automobile and
participation in any employee benefits provided to all employees of the
Company. The Company shall contribute 4% of the base weekly salary to K.
Kreislers 401K savings plan.
See Note 13 for events that have a material impact on these employment
contracts.
NOTE 13 - EMPLOYMENT CONTRACT WAIVERS
Kathi Kreisler and Larry Kreisler have voluntarily waived certain
compensation due to them under their employment contracts. In 1996 and 1997,
Kathi Kreisler received $8,325 and $3,500 in compensation, respectively,
waiving the balance of the compensation she was entitled to under the
existing contract.
In January 1998, Kathi Kreisler was also issued an additional 8,000,000
options to purchase shares of common stock for $.08 per share over a 10 year
period commencing January 1998 for unpaid wages from March 1993 through
December 1997.
Lawrence Kreisler was also issued 400,000 options to purchase common stock
for past performance under the same terms as Kathi Kreisler above.
36
<PAGE>
NOTE 14 - CASH RESTRICTED
As a requirement with respect to the Company's Part 373(b) permit
application, the Company had to establish an irrevocable letter of credit
with a commercial bank 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.
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>
<CAPTION>
<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 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.
37
<PAGE>
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.
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.
38
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS DATED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 252,143
<SECURITIES> 0
<RECEIVABLES> 267,823
<ALLOWANCES> (26,782)
<INVENTORY> 11,670
<CURRENT-ASSETS> 762,452
<PP&E> 3,130,072
<DEPRECIATION> (2,049,823)
<TOTAL-ASSETS> 1,948,707
<CURRENT-LIABILITIES> 630,716
<BONDS> 0
0
0
<COMMON> 491
<OTHER-SE> 1,127,523
<TOTAL-LIABILITY-AND-EQUITY> 1,948,707
<SALES> 1,926,895
<TOTAL-REVENUES> 1,926,895
<CGS> 1,277,974
<TOTAL-COSTS> 2,133,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,656
<INCOME-PRETAX> (207,291)
<INCOME-TAX> (207,635)
<INCOME-CONTINUING> (207,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207,635)
<EPS-PRIMARY> (.004)
<EPS-DILUTED> (.004)
</TABLE>
