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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
Commission file number 33-20954
KBF POLLUTION MANAGEMENT, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2687588
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(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1 JASPER STREET, PATERSON, NEW JERSEY 07522
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(Address of principal executive offices) (Zip Code)
(973) 942-7700
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
0.00001 par value
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB (__).
State issuer's revenues for its most recent fiscal year: $3,078,567
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 26, 1999 was $16,736,258.
The number of outstanding shares common stock as of March 26, 1999 was:
68,257,315
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
KBF Pollution Management, Inc., a New York corporation (the "Company"),
was organized in 1984 under the name Kreisler Bags & Filtration, Inc., which
name was changed to KBF Pollution Management, Inc. in 1986. The Company is
engaged in the environmental services business as a wastewater metal recovery
facility specializing in the resource recovery of hazardous and non hazardous
metal bearing wastes for the sole purpose of recycling the product produced
(metal(s)) back into commerce. The Company operates an in-house laboratory
certified in New Jersey to support the recycling process and perform research
and development. The Company also provides compliance support service to its
customers.
In December 1997, the Company began relocation of its facilities from
North Lindenhurst, New York to Paterson, New Jersey (See "Description of
Property"). As a result of the loss of the Company's lease (See Item 2,
PROPERTIES, 1996 Form 10K), in the Fall of 1997, the Company notified the New
York State Department of Environmental Conservation ("NYSDEC") that the Company
was withdrawing the 6 NYCRR ss. 373 (Federal Part B) Permit application and
simultaneously commencing Closure. The Closure plan used by the company was
taken directly from the permit application. According to the NYSDEC, the permit
application was approved and therefore, closure must proceed according to the
approved Closure Plan. However, prior to commencing with the closure, the plan
had to be approved by the public through a public commenting period. Once this
process was complete, the Company negotiated an expedited Closure with the
State. Closure sampling commenced in August and was completed on November 2,
1998. The Company has received written acceptance of the Closure from NYSDEC and
therefore, the Closure is now complete. The Company incurred direct cost for
closure of approximately $50,000. It is not expected that any significant
additional cost will be incurred due to the closure of the Long Island plant. On
April 15, 1998, the Company received the requisite permits to allow it to
operate its waste recovery services from the New Jersey facility. Since April
15, 1998, all of the Company's waste recovery business has been located in its
New Jersey facility except for storm water.
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. In late 1998, AMR,INC., a wholly owned subsidiary
of the Company became active raising capital for an expansion project. As of the
date hereof, only Gryphon Industries, Inc remains inactive and no stock has been
issued. In the foreseeable future, the Company plans to utilize Gryphon for the
distribution and possible manufacturing of the reagents used in the Company's
technology. It is presently anticipated that Gryphon Industries, Inc. will be a
wholly owned subsidiary of the Company.
American Metals Recovery Corp. was capitalized by the Company in
conjunction with the transfer of the base of the Company's principle operations.
Most costs associated with this transfer were borne by the Company and
simultaneously exchanged for 100% of the outstanding stock of American Metals
Recovery Corp., thereby making American Metals Recovery Corp. a wholly owned
subsidiary of the Company.
On June 24, 1998, the Company formed KBF-LI, Inc., pursuant to the laws
of the State of New Jersey. This corporation was formed to take over all
operations including closure and processing of incoming material shipments
(certain wastewater shipments could be received at the facility without any
impact on the closure operation). The Company transferred the remaining assets
and improvements, relating to the Long Island location to KBF-LI in exchange for
100% of the issued and outstanding stock of KBF-LI, in accordance with a Board
of Directors resolution on July 30, 1998. The Company is presently negotiating
with an unrelated third party the sale of KBF-LI for an amount which expected to
result in no significant loss to the company.
<PAGE>
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 a wastewater metal recovery
facility. In May 1998, the US Patent Office issued to Lawrence M. Kreisler a
patent for `Selective Separation Technology' (`SST'). In November 1997 the
Company and Mr. Kreisler entered into a license agreement through which the
Company, 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 "SST", 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. When required, 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, as product, back into commerce. Revenues from the sale of recovered
metals have been significant.
<PAGE>
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")
When closing the operations at the New York facility, the Company also
closed the Laboratory and cancelled its New York State Department of Health
Certification.
WASTE TRANSPORT. The Company uses a waste transporter, Metal Recovery
Transportation Corp. ("MRTC") that is licensed in New York, Connecticut, Rhode
Island, New Jersey, Massachusetts and New Hampshire. Lawrence Kreisler,
President of the Company, is the president and sole shareholder of Metal
Recovery Transportation Corp. The Company has an oral agreement with Metal
Recovery Transportation Corp to handle the Company's transportation needs. There
is no formal agreement existing between the Company and Metals Recovery
Transportation Corp. Metals Recovery Transportation Corp. charges the Company an
hourly rate based on the type of equipment required and bills monthly for
services rendered. The Company also utilizes other unaffiliated licensed
transport companies. (See "Certain Relationships and Related Transactions.")
CONTRACTS; CUSTOMERS. The Company's waste recovery services are
typically provided pursuant to nonexclusive service agreements, based on the
acceptance of a potential customer's waste. The fees charged by the Company for
its services are determined by several factors, including but not limited to
volume, type of waste, location and method of shipment.
The Company currently has approximately 2000 active repeating customers
for its waste recovery services. For the years ended December 31, 1998 and
December 31, 1997, no single 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.
The Company had applied for or obtained all necessary permits for its
current facility in New Jersey. All permits for the closed New York facility
have been cancelled.
<PAGE>
SALES AND MARKETING
The Company primarily markets its waste recovery services to generators
of metal bearing hazardous and non-hazardous waste. Generators of these wastes
include but are not limited to, printed circuit board manufacturers, photo
offset printers, photographic developers, lithographers, photographers,
microfilm users, x-ray users (dentists, doctors, hospitals, podiatrists,
orthopedic surgeons, veterinarians, radiologists and industrial x-ray users),
relay manufacturers, oil companies, chemical companies, battery manufacturers,
anodizing operations, metal finishers, jewelry manufacturers and numerous other
waste generators.
The Company's sales and marketing efforts are performed by in-house
personnel, and unaffiliated independent outside "Waste Brokers." In-house sales
efforts consist of direct telephone and mail contact with potential customers
whose names are received through customer referrals, or are located through
review of trade journals and other industrial reference materials.
In March of 1998, the Company signed a limited exclusive worldwide
license agreement with EPS Environmental, Inc., dba Solucorp Industries, a
publicly traded company, trading on the NASDAC electronic bulletin board
("SLUP") for the utilization of the Company's Patented Selected Separation
Technology. The terms of the agreement called for an initial license fee of
$500,000 plus an additional license fee of $0.0005 per processed gallon of
wastewater. The initial licensing fee was to be paid in unrestricted, free
trading Solucorp stock. Solucorp represented that it had the ability to issue
free-trading shares and the License Agreement contained representations and
warranties to that effect. Instead, Solucorp issued restricted and unregistered
shares and had agreed in May 1998 to pay for and register the shares and to
repurchase, with cash, at least $100,000 worth of the License Fee shares per
month. (See the "Legal Proceedings: General Comments with Reference to
Solucorp"). Solucorp's stock price has fallen as low as $ 0.333 at the end of
December 1998. No additional payments under the agreement were to be in the form
of shares of Solucorp stock. The agreement also required 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 were to be due and payable in cash on
December 31, 1999. Minimum royalty payments for each year after 1999 were to be
$2,000,000 per year payable at the end of each year in which the payment accrues
and was due in cash. The agreement, which had a five-year term, with automatic
five-year continuous renewal, was terminated on September 23, 1998.
The Solucorp agreement had been slated for modification removing the
worldwide exclusivity and the minimum royalty payments due to Management's
discovery of certain facts. (See the "Legal Proceedings: General Comments with
Reference to Solucorp"). All royalties and fees that had accrued prior to
termination remain outstanding and payable in full. No modified agreement was
executed. (See the "Legal Proceedings: General Comments with Reference to
Solucorp" for the reasons underlying the intent to modify the agreement).
MANUFACTURING AND SUPPLIES
The Company no longer manufactures equipment, however it does
distribute for resale other manufacturers equipment. This equipment is
ordered/manufactured on an "as requested" basis.
The Company has an outside service department, covering the systems,
which have been previously sold, and any new equipment to be sold. (See
Equipment Sales & Services.)
COMPETITION
Competition in the waste treatment industry is intense and is
characterized by continued change and improvement in technology. The market is
fragmented and, in the opinion of the Company, no company holds a dominant
position.
The Company believes that its waste recovery process, which results in
the recycling of virtually all of the metals present in the waste, is unique,
and that the same or similar technology is not currently utilized by any
competitor. On May 19, 1998, the United States Patent and Trademark Office
issued a Patent for the "Selective Separation Technology" utilized by the
Company (patent number 5,735,125). (See "Description of Business - Patents and
Proprietary Information"). In December 1998, the United
<PAGE>
States Patent and Trademark Office issued a "Notice of Allowability" on a second
patent for the Company's "Selective Separation Technology" ("SST"). The new
patent essentially broadens the coverage of the principal SST patent issued in
May 1998. The Company anticipates receipt of the new patent in the second
quarter 1999.
The Company has filed for additional patents on several new resource
recovery technologies, three of which have been commercialized and are presently
available for use. These three technologies are SST-LiquidOre, SST-Tellus and
SST-Toxicure. Additional technologies and improvements for which patents are
currently pending remain in development.
The Company's competitors utilize a variety of methods for the
treatment and disposal of hazardous and non-hazardous waste, including deep well
injection, landfills, incineration and limited recovery of metals. The Company
believes that its recovery process provides a superior alternative to these
other methods. Many of the Company's competitors, however, are larger and more
established and have substantially greater financial and other resources than
the Company. The Company may compete for the same customers as these better
financed companies.
RESEARCH AND DEVELOPMENT
Research and Development of the Patented "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, 1998 and December 31, 1997, the Company did not incur
any costs directly related to research and development.
PATENTS AND PROPRIETARY INFORMATION
In the past, the Company had utilized proprietary know-how and
techniques in its waste recovery operations. In June 1995, Lawrence M. Kreisler,
the Company's President submitted a patent application on the current Selective
Separation Technology that was initially developed by Mr. Kreisler prior to the
Company's formation.
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). In December 1998, the United States Patent and Trademark
Office issued a "Notice of Allowability" on a second patent for the Company's
"Selective Separation Technology" ("SST"). The new patent essentially broadens
the coverage of the principal SST patent issued in May 1998. The Company
anticipates receipt of the new patent in the second quarter 1999.
The Company has filed for additional patents on several new resource
recovery technologies, three of which have been commercialized and are presently
available for use. These three technologies are SST-LiquidOre, SST-Tellus and
SST-Toxicure. Additional technologies and improvements for which patents are
currently pending remain in development.
Pursuant to a license agreement between Mr. Kreisler and the Company,
executed in November 1997 upon ratification by the shareholders of the Company,
the Company is able to utilize the Selective Separation Technology in its
operations, as well as other related technologies for which patents are
currently pending. In accordance with Schedule B of the relevant License
Agreement, the conditions upon which royalty payments begin to accrue have not
yet been attained by the Company. Accordingly, no royalty payments have been
made or accrued. The Company anticipates the relevant conditions to be satisfied
by the Company in the second quarter 1999.
The Company is the owner of a United States patent issued in 1988
covering the design and function of its waste volume reduction system. The
Company has ceased manufacturing such systems, but continues to service those
systems previously sold. (See "Description of Business - Manufacturing and
Supplies.").
LIABILITY INSURANCE
The Company maintains pollution legal liability insurance in the amount
of $1,000,000 per incident and $2,000,000 in total covering the premises, and
vehicle liability insurance in the amount of
<PAGE>
$5,000,000. To date, the Company has not experienced any material liability
claims.
EMPLOYEES
The Company currently has 29 full-time employees. In addition to its
three executive officers, the Company employs two chemists and a chemical
technician (laboratory personnel), a recovery manager, nine recovery employees,
three facility maintenance technicians, six office personnel, four salesperson.
The Company will hire additional personnel when necessary. None of the Company's
employees is represented by a union. The Company considers the relations with
its employees to be satisfactory.
ITEM 2. SELECTED FINANCIAL DATA
The selected financial data pertaining to the financial condition and
operations of the Company for the years ended December 31, 1998 and 1997.has
been obtained from the Companies financial statements. The financial statements
for the year ended December 31, 1998 and December 31, 1997 were audited by
Irving Handel & CO., Independent Auditor. The information set forth below should
be read in conjunction with such financial statements and the notes thereto.
Year Ended December 31.
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1998 1997
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SUMMARY OF OPERATIONS(IN THOUSANDS EXCEPT PER SHARE DATA)
Net Revenues 3,079 1,927
Net Income 386 (208)
EARNINGS PER SHARE 0.01 (0.01)
SUMMARY OF
BALANCE SHEET
Current Assets 921 762
Current Liabilities 688 631
Working Capital 233 131
Total Assets 3,486 1,949
Total Long-Term Debt 160 190
Total Liabilities 848 821
Stockholders' equity 2,637 1,128
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
Company's audited financial statements and notes thereto set forth elsewhere in
this annual report.
Results of operations for the year Ending
December 31, 1998 as Compared to the Year Ended
December 31, 1997
Total revenues for the year ended December 31, 1998 increased to
$3,078,567 as compared to $1,926,895 for the same period in 1997, an increase of
60%. The Company attributes the increase to a rise in sales volume, along with
the collection of the licensing fee and royalty income accrued in 1998 (see
Footnotes 9 & 17). Management anticipates this trend to continue due to its
recent move to New Jersey where there are increased business opportunities. In
addition, the Company anticipates continuing revenue from licensing agreements.
<PAGE>
Despite the increase in sales volume, accounts receivable has remained
relatively constant. Current trade accounts receivable are as follows:
0-30 days $ 143,020
30-45 days 60,038
45-60 days 18,725
60-90 days 12,425
90-120 days 5,065
120 + days 72,559
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$ 311,832
Trade accounts receivable collected in cash subsequently through March
26,1999 was $431,450.
Cost of sales for the year ended December 31, 1998 decreased to 46% of
revenues from 66% of revenues for the same period in 1997. This decrease is the
result of the increase in sales volume and collection of the royalty and
licensing fees as mentioned above.
General and administrative expenses increased by 53% to $1,221,375 for
the year ended December 31, 1998 from $806,027 for 1997. This increase is due to
the continued operation of two facilities, legal fees to register as a reporting
company (approx. $15,000) and litigation fees (approx. $65,000) regarding
Solucorp. In addition, there were costs (approx. $50,000) related to the closure
of the New York facility under New York State Department of Environmental
Conservation regulations. These costs, along with certain costs associated with
the licensing revenue may continue to occur during 1999 and affect this trend.
The Company incurred a net profit of $386,609 for the year ended 1998,
a 286% increase from the net loss of -$207,635 for the same period in 1997, due
to the increase in sales and other revenue and reduced costs mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relocated its facility to Paterson, New Jersey in March
1998. Management believes that this new location will result in additional
business opportunities and lower operating costs. Management believes that
current operations will provide adequate cash flow to meet current obligations.
The Company has working capital of $232,722 at December 31, 1998 as
compared to $131,736 at December 31, 1997. Further, the Company had cash flow of
$75,570 for the year ended December 31, 1998 as compared to cash flow of
$205,469 for the year ended December 31, 1997.
The decrease in cash flow is due to the increase in capital
expenditures incurred to relocate to its new facility in New Jersey, the
operation of the Long Island facility at a loss, costs associated with the New
York State closure, and the legal expenses mentioned above. In addition, the
Company incurred additional expenditures as a result of good faith reliance on
the Solucorp agreement and contract damages also associated with this agreement.
With the exception of the legal fees related to the Solucorp suit, these costs
should conclude in the foreseeable future. As a result, the Company expects
improved cash flow in future periods.
The Company is exploring areas to raise capital which include both debt
and equity sources. In that regard, as of the date of this report $1,000,000 of
debt financing has been concluded.
THE SOLUCORP AGREEMENT
In March of 1998, the Company signed a limited exclusive worldwide
license agreement with EPS Environmental, Inc., dba Solucorp Industries, a
publicly traded company, trading on the NASDAC electronic bulletin board
("SLUP") for the marketing and utilization of the Company's Patented Selected
Separation Technology. This License Agreement was terminated on September 23,
1998. (See the "Legal Proceedings: General Comments with Reference to
Solucorp").
<PAGE>
LONG ISLAND FACILITY
On June 24, 1998, the Company formed KBF-LI, Inc., pursuant to the laws
of the State of New Jersey. This corporation was formed to take over all
operations including closure and processing of incoming material shipments
(certain wastewater shipments could be received at the facility without any
impact on the closure operation). The Company has transferred the remaining
assets and improvements, relating to the Long Island location to KBF-LI in
exchange for 100% of the issued and outstanding stock of KBF-LI, in accordance
with a Board of Directors resolution on July 30, 1998. The Company is a party to
a Letter of intent to sell the operation.
The Company received acceptance from New York State Department of
Environmental Conservation of the closure of the Long Island Facility. There
will be no further additional closure costs. In addition, the Long Island
operation is no longer subject to any lease provisions or obligations. KBF's
operation facilitated the closure of the facility, which is to the benefit of
the landlord, therefore no rent was being charged. There has been no lease
provision between the parties since December 1997.
The following is a schedule of the anticipated cost savings associated
with the Companies move to Paterson New Jersey.
<TABLE>
<CAPTION>
Expense Savings Comments
- ------- ------- --------
<S> <C> <C>
Office and Facility Labor $ 60,000 Cheaper Hourly rates
Rent $ 0,00 Same monthly expense for twice the space
Utilities $ 25,000 Cheaper Electric Rates and Incentives
Real-estate Tax $ 30,000 Cheaper Tax Rate
Telephones $ 15,000 Cheaper rates
Sewer Usage charge $ 25,000 Built into real estate tax.
</TABLE>
CERTAIN EVENTS
The Company filed suit against Solucorp Industries, Ltd. (Solucorp) on
October 7, 1998 for the Company's contract and fraud damages arising out of its
now-terminated License Agreement with Solucorp. The Company is represented by
the national law firm of Greenberg Traurig in this matter (See Item #2: Legal
Proceedings: General Comments with Reference to Solucorp).
Solucorp holds itself out to be an environmental service organization
devoted to the development and marketing of innovative environmental
technologies. The Company was introduced to Solucorp and its consultant, Joseph
Kemprowski, by the Company's former investment banker, M.H. Meyerson & Co., Inc.
in December 1997. The Company had no affiliation with Solucorp, or any of its
affiliates, preceding this introduction. This agreement remains the only
affiliation the Company had with Solucorp. At this time, Solucorp and Kemprowski
claimed to have executed contracts with the Chinese government for the
remediation of contaminated sites in mainland China from which revenues would be
made. Furthermore, Solucorp and Kemprowski made it clear that they had an
extensive, global sales and marketing infrastructure. Management performed due
diligence on the basis of publicly available information, Solucorp's filings and
press releases, Meyerson's analyst's reports on Solucorp, and numerous meetings
with Solucorp executives, which included significant technical discussions
covering a number of sites. In addition, there were discussions with Solucorp's
Chinese marketing affiliates. There were other limited documents that Solucorp
and Kemprowski disclosed. The Company was precluded from reviewing the executed
Chinese contracts due to what Solucorp and Kemprowski represented to be as
confidentiality agreements. Principals of M.H. Meyerson & Co., Inc., however,
represented that they reviewed the pertinent agreements and advised the Company
that the agreements had in fact been executed. After several months of
negotiation, and with the recommendation of Meyerson, the Company and Solucorp
entered into an exclusive worldwide license for the marketing and sale of the
Company's patented SST process.
The agreement called for a license fee of $500,000 due upon execution
on March 20, 1998. The license fee was to be paid for with the issuance of
190,550 shares of free-trading, unrestricted Solucorp stock due upon execution.
Solucorp represented that it had the ability to issue free-trading shares prior
to execution and the License Agreement contained representations and warranties
to that effect. Instead, in the end of May 1998, the Company received 190,550
shares of restricted,
<PAGE>
unregistered stock - after having been given assurances that Solucorp and
Kemprowski would register, repurchase and assist with the liquidation of the
license fee stock at a rate of at least $100,000 per month. The shares were
issued after the Securities and Exchange Commission had suspended Solucorp's
stock. Despite countless requests and demands, Solucorp and Kemprowski never
attempted to register the license fee stock, and they repurchased less than
$50,000 worth of shares between March and September 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1998, Lawrence M. Kreisler, a director and officer of the
Company, reported six transactions on a late Form 4 filing. During 1998, Kathi
A. Kreisler, a director and officer of the Company, reported five transactions
on a late Form 4 filing. During 1998, Kevin E. Kreisler, a director and officer
of the Company, reported three transactions on a late Form 4 filing. During
1998, Stephen Lewen, a director of the Company, reported one transaction on a
late Form 4 filing.
YEAR 2000
The Company's State of Readiness
- --------------------------------
The Company's information technology systems are presently year 2000
compliant. All internal programs were written by Company's management with the
year 2000 issue incorporated into the initial writing of the programs. The
programs have been tested and management is satisfied that they are working
properly.
Year 2000 compliance of the Company's non-information technology system
has been addressed and management feels that systems in place are year 2000
compliant.
Management has received verbal confirmation from many of the third
parties that provide services or products to the Company, and have been assured
that they are year 2000 compliant. The Company is presently developing
questionnaires to be answered by the third parties regarding their level of year
2000 compliance so that management has written confirmation as to their status
before the year is complete.
The Costs to Address the Company's Year 2000 Issues
- ---------------------------------------------------
Management believes the estimated costs in connection with the third
party compliance will not be significant.
The Risks of the Company's Year 2000 Issues
- -------------------------------------------
Given the nature of the business, management does not believe there is
any significant risk and will not be any negative impact on their operations
from any source.
The Company's Contingent Plans
- ------------------------------
Due to management's comfort with internal control over the information
technology and non-information technology, the Company does not have a
contingency plan. Regarding third parties, management believes any potential
problems or losses arising from the unknown should be minimal.
Officer Employment Contracts
- ----------------------------
The Contracts signed in November of 1997, (see Item 6, Employment
Agreements) call for combined annual salaries for Lawrence M. Kreisler and Kathi
A. Kreisler of $245,000. This amount will exceed the compensation presented in
the 1997 financial statements by $89,000, mostly due to Kathi A. Kreisler's
payment of salary in stock options in 1997. The Company believes that it will be
able to meet this increase with cash payments rather than options in the
foreseeable future.
ITEM 4. DESCRIPTION OF PROPERTY
On December 1, 1997, the Company began the relocation of its corporate
offices, laboratory and main operational facility to Paterson, New Jersey. The
new lease terms, which include a purchase
<PAGE>
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 was located in a leased building in
North Lindenhurst, New York. The Company occupied approximately 30,000 square
feet of space, of the 68,000 square foot building. The Company occupied the
building until November 19, 1998 and closure of the facility was accepted by New
York State Department of Environmental Conservation in February 1999.
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of Dec 31, 1998, certain information
concerning stock ownership by all persons known by the company to own
beneficially 5% or more of the outstanding shares of the Company's Common Stock,
each director, and all officers and directors of the Company as a group.
NAME AND ADDRESS OF PERCENTAGE
BENEFICIAL AMOUNT AND OF
HOLDER OR IDENTITY OF NATURE OF OUTSTANDING
GROUP BENEFICIAL OWNERSHIP STOCK
----- ---------- ---------------
KATHI KREISLER 15,971,953 21.35%
One East Park Drive (1) (2)
Paterson, NJ 07504
LAWRENCE KREISLER 15,936,970 21.68%
One East Park Drive (1) (3)
Paterson, NJ 07504
STEVEN LEWEN 2,302,258 3.54%
10 Cabriolet Lane (4)
Melville, NY 11747
KEVIN KREISLER 1,255,000 1.92%
One East Park Drive (5)
Paterson, NJ 07504
JOSEPH J. CASUCCIO, JR., CPA 1,608,656 2.48%
7 North Equestrian Court (6)
Hauppauge, New York 11789
FREDERICK EISENBUD 409,013 0.64%
7 Bradshaw Lane
Fort Salonga, NY 11768
ANTHONY LETERI 433,000 0.68%
18 Allenby Drive
Northport, NY 11768
ALL OFFICERS & DIRECTORS 37,916,750 52.30%
as a group seven persons.
KREISLER FAMILY AS A GROUP 34,018,823 45.94%
(7)
- -----------
1) Mr. and Ms. Kreisler each disclaim beneficial ownership of the shares of
Common Stock owned by the other.
2) Includes 10,759,270 shares of exercisable options for Common Stock.
3) Includes 9,474,278 shares of exercisable options for Common Stock.
<PAGE>
4) Includes 1,002,258 shares of exercisable options for Common Stock.
5) Includes 1,250,000 shares of exercisable options for Common Stock.
6) Includes 728,550 shares of exercisable options for Common Stock.
7) Includes stock and options held by Lawrence M. Kreisler, Kathi A. Kreisler,
Kevin E. Kreisler and Scott C. Kreisler.
ITEM 6. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
IDENTIFICATION OF DIRECTORS.
<TABLE>
<CAPTION>
CAPACITIES
PERIOD SERVED IN WHICH CURRENTLY
NAME AGE AS DIRECTOR SERVING
---- --- ----------- -------
<S> <C> <C>
Lawrence Kreisler 52 Since 1984 Chairman
President
Kathi Kreisler 48 Since 1984 Vice President
Secretary, Treasurer
Director
Kevin Kreisler 26 Since July 1998 Vice President
Director
Frederick Eisenbud 52 Since January 1998 Director
Stephen Lewen 46 Since January 1998 Director
Joseph J. Casuccio, Jr., CPA 47 Since January 1998 Chief Financial Officer
Vice President
Director
Anthony Leteri 48 January to December 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
<PAGE>
Lawrence Kreisler, President and Chairman of the Board of the Company, and Kathi
Kreisler, a Vice President, Secretary, Treasurer and a director of the Company.
Robert Misa became a Director of the Company in January 1991 and Vice
President in 1994. Mr. Misa has been the owner of Caro-Bob Plumbing Supply, Inc.
since 1974. Prior to that he owned and was engaged in various other plumbing
supply businesses. Mr. Misa resigned from the Board in February 1998. He was
succeeded by Kevin Kreisler.
Frederick Eisenbud has been a director of the Company since January
1998. Since April 1998, Mr. Eisenbud has been the sole proprietor of the Law
Office of Frederick Eisenbud in Hauppaugue, New York, which law office currently
represents the Company in certain environmental matters. From 1990 until April
1998, Mr. Eisenbud was a partner of Cahn, Wishod & Lamb, L.L.P., a law firm
specializing in environmental law and civil litigation, which firm represented
the Company. In April 1998, Mr. Eisenbud resigned from that law firm. Cahn,
Wishod & Lamb, L.L.P. no longer represents the Company. Since March 1998, Mr.
Eisenbud has been President of Metal Recovery Marketing, L.L.P., a firm which
seeks to market the Company's technology to environmental consultants (See
"Certain Relationships and Related Transactions.") Mr. Eisenbud is a graduate of
New York University and Hofstra Law School.
Dr. Stephen Lewen has served as a director of the Company since
February 1998. Since 1982, Dr. Lewen has been a physician, and a member of
Suffolk Opthamology Associates, P.C. in Bayshore, New York. Dr. Lewen is a
graduate of Cornell University, Columbia University and Chicago Medical School.
Joseph J. Casuccio, Jr., CPA has served as a Chief Financial Officer of
the Company since July 1998, and as Vice-President and director since January
1998. Since 1985, Mr. Casuccio has been a partner at Werblin, Casuccio & Moses,
a public accounting firm, which provides accounting services to the Company (See
"Certain Relationships and Related Transactions"). Mr. Casuccio is a graduate of
Suffolk County Community College and Long Island University.
Anthony Leteri had served as a director of the Company for the 1998
term only, January through December. Mr. Leteri has been president of Friendly
Carting/USA Recycling, a private sanitation and recycling company, since 1980.
Mr. Leteri attended the City University of New York at Queensborough and the
State University of New York at Stony Brook.
The Directors of the Company are elected at the annual meeting of
stockholders, and serve until the next annual meeting of stockholders. The
Company's executive officers are appointed by and serve at the discretion of the
Board of Directors, subject to the terms and conditions of the employment
agreements described below. There are no arrangements or understandings between
any of the Directors of the Company and any other person pursuant to which such
person was selected as a Director of the Company.
At the December 23, 1997 Annual Shareholders meeting the following
persons were elected to the Board of Directors for the year 1998: Lawrence M.
Kreisler, Kathi Kreisler, Robert W. Misa, Jr., Joseph J. Casuccio, Jr., CPA and
Anthony Leteri. In January 1998, the Board of Directors approved Frederick
Eisenbud to the Board and in February 1998, the Board of Directors further
approved Steven Lewen to the Board. In July 1998, the Board of Directors
approved Kevin Kreisler to succeed Robert Misa for the remainder of his term.
Mr. Misa resigned from the Board in February 1998.
IDENTIFICATION OF EXECUTIVE OFFICERS.
Name Age Current Office Held
- ---- --- -------------------
Lawrence Kreisler 52 Chairman, President
Kathi Kreisler 48 Vice President, Secretary, Treasurer
Kevin Kreisler 26 Vice President
Joseph J. Casuccio Jr. 47 Vice President, Chief Financial Officer
<PAGE>
Both Kathi Kreisler and Lawrence Kreisler entered into employment
agreements with the Company on November 7, 1997 (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 December
31,1998, the Company has not entered into any employment agreements with Joseph
J. Casuccio, Jr., CPA or Kevin Kreisler. Agreements are presently being
negotiated.
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.
<PAGE>
ITEM 7. 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, 1998 to or on behalf of the Company's President and the one other
named executive officer of the Company (hereinafter referred to as the "named
executive officers") for services rendered in all capacities to the Company
whose total aggregate salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ --------------
NAME AND PRINCIPAL OTHER ANNUAL AWARDS, ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS/SARS(#) COMPENSATION
- -------- ---- ---------- --------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Kathi A. Kreisler 1998 $65,267 - - 7,500,000 -
Vice President 1997 $3,500 - See Below 500,000
1996 $8,325 See Below -
Lawrence Kreisler, 1998 $167,791 - - 5,400,000 -
President 1997 $152,503 - See Below - -
1996 $195,474 See Below -
James Aiello, 1997 - - $20,000 - -
Acting CEO 1996 - - $24,000 - -
Kevin Kreisler 1998 $30,000 - See Below - -
Vice President
</TABLE>
There were new stock options granted to the named executive officers.
In January 1998, Kathi Kreisler was issued 7,500,000 options for past services
rendered and unpaid salary (See "Employment Arrangements") totaling $600,000,
which value is determined to be $0.08 per option. Lawrence Kreisler was issued
400,000 options for past services rendered and unpaid salary totaling $32,000,
which value is determined to be $0.08 per option. It should be noted that
utilizing the Black-Scholes model, these options would be valued at $0.0467 per
share, however the Company decided to utilize a more conservative valuation to
prevent any appearance of impropriety. Certain stock options granted to the
executive officers were revised and reallocated. (See "Stock Options" for
further information.)
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1998 with respect to
the Company's named executive officers. No stock appreciation rights were
exercised or outstanding during such fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE
REALIZED
MARKET VALUE OF UNEXERCISED
PRICE AT NUMBER OF SECURITIES IN-THE-MONEY OPTIONS AT
FY END UNDERLYING UNEXERCISED FY-END MARKET PRICE OF
EXERCISE OPTIONS AT FISCAL YEAR-END SHARES AT FY-END ($)
SHARES LESS (#) LESS EXERCISE PRICE
ACQUIRED ON EXERCISE --------------------------- -------------------------
NAME EXERCISE (#) PRICE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCIS-ABLE
- ---- ------------ ----- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kathi Kreisler 0 - 10,759,270 $321,615 N/A
Lawrence Kreisler 0 - 9,474,278 $403,115 N/A
Kevin E. Kreisler 0 - 1,250,000 $125,000 N/A
Joseph Casuccio 728,550 $70,699 N/A
</TABLE>
In 1997 the Company issued 1,500,000 incentive options to certain
employees exercisable at $0.10 per share for a period of the (10) years from the
date of grant. On January 2, 1998, the Company issued Kathi Kreisler 7,500,000
million incentive options for past services rendered. These options are
exercisable at $0.40 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
<PAGE>
incentive options for past services rendered. These options are exercisable at
$0.40 per share for a period of ten (10) years from the date of grant. (See
"Employment Arrangements"). No stock appreciation rights were exercised during
such fiscal year.
EMPLOYMENT ARRANGEMENTS
The Company has entered into an employment agreement with Lawrence M.
Kreisler, as the Chairman of the Board and President of the Company, on November
7, 1997 (the "Lawrence Kreisler Employment Agreement"). The Lawrence Kreisler
Employment Agreement provides for a five-year term and shall be extended
automatically each day for an additional day so that the remaining term of this
agreement will continue to be five years at all times. Either party may by
written notice, fix the term of the Lawrence Kreisler Employment Agreement at
five years without additional extension and would then end on a date five years
from the date of notice. Pursuant to the Lawrence Kreisler Employment Agreement,
Mr. Kreisler's annual base salary shall be $165,000, with annual cost of living
adjustments. Mr. Kreisler is entitled to receive an annual bonus equal to 6% of
the Company's annual net income before taxes, reimbursement of business related
expenses, use of a Company automobile and participation in any employee benefits
provided to all employees of the Company. The Company shall contribute 6% of the
base weekly salary to Lawrence Kreisler's 401(k) savings plan.
Lawrence Kreisler's employment may be terminated by the Company at any
time for cause (as defined in the Lawrence Kreisler Employment Agreement) and
his employment may be terminated at any time by the mutual consent of the Board
of Directors and Mr. Kreisler. If Mr. Kreisler is terminated by the Company for
cause, the Company is obligated to pay him all amounts due under the Lawrence
Kreisler Employment Agreement, which have accrued but are unpaid as of the date
of termination. The Lawrence Kreisler Employment Agreement also includes
non-competition provisions which prevent Mr. Kreisler, during the term of the
agreement, from participating, directly or indirectly, in the ownership,
control, management or employ of any business entities other than the Company
without the prior written consent of the Board of Directors.
The Company entered into an employment agreement with Kathi Kreisler,
as Vice President and Secretary Treasurer, on November 7, 1997 (the "Kathi
Kreisler Employment Agreement"), which provides for a five-year term from the
date signed and shall be extended automatically each day for an additional day
so that the remaining term of this agreement will continue to be five years at
all times. Either party may by written notice fix the term of this Agreement at
five years without additional extension and would then end on a date five years
from the date of notice. Pursuant to this agreement, Ms. Kreisler shall receive
an annual base salary of $80,000, with cost of living adjustments. Ms. Kreisler
is entitled to receive an annual bonus equal to 4% of the Company's annual net
income before taxes, reimbursement of business related expenses, use of a
Company automobile and participation in any employee benefits provided to all
employees of the Company. The Company shall contribute 6% of the base weekly
salary to Ms. Kreisler's 401(k) savings plan.
Kathi Kreisler's employment may be terminated by the Company at any
time for cause (as defined in the Kathi Kreisler Employment Agreement) and her
employment may be terminated at any time by the mutual consent of the Board of
Directors and Ms. Kreisler. If Ms. Kreisler is terminated by the Company for
cause, the Company is obligated to pay her all amounts due under the Kathi
Kreisler Employment Agreement, which have accrued but are unpaid as of the date
of termination. The Kathi Kreisler Employment Agreement also includes
non-competition provisions, which prevent Ms. Kreisler, during the term of the
agreement, from participating, directly or indirectly, in the ownership,
control, management or employ of any business entities other than the Company
without the prior written consent of the Board of Directors.
Kathi Kreisler voluntarily lowered the amount of her 1997 salary to
$3,500, her 1996 salary to $8,325.00, her 1995 salary to $2,153, her 1994 salary
to $20,000 and deferred all 401k payments. In January 1998, the Company issued
Ms. Kreisler 7,500,000 stock options, each convertible to one share of common
stock at $0.40 per share for a period of ten (10) years from the date of
issuance for past services rendered.
<PAGE>
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 $0.40 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 $0.125 per share to
the following individuals. The options are exercisable at any time, during the
period December 31, 1992 through December 31, 1997. In December 1997, the Board
of Directors voted to extend the exercisable time for another five years to
December 31, 2002.
Name Number of Shares
---- ----------------
Kathi Kreisler 172,500
Larry Kreisler 172,500
Arthur Holland 86,250
Robert Misa 86,250
Joseph Casuccio 86,250
David Halperin 86,250
At the Annual Shareholders Meeting held on November 4, 1996, 15 million
options previously granted to Lawrence M. Kreisler and Kathi A. Kreisler were
revised and reallocated in accordance with the following table and are
immediately exercisable at $.10 per share for a period of 10 years, ending
November 4, 2006.
Name Number of Shares
---- ----------------
Larry Kreisler 4,091,778
Robert Misa 1,259,870
Arthur Holland 526,886
Kathi Kreisler 4,091,778
Joe Casuccio 642,300
David Halperin 1,210,209
Stephen Lewen 1,002,258
Stephen Jerome 1,573,076
Richard Moses 601,845
In 1997, the Company issued 1,500,000 options to certain employees, as
an incentive to move to New Jersey along with the Company corporate relocation,
to purchase shares of Common Stock for $0.10 per share over a 10-year period.
Kathi Kreisler and Kevin Kreisler, affiliates of the Company, received 500,000
and 200,00 of such options respectively.
In 1998, the Company issued, for unpaid prior years salaries, Kathi
Kreisler and Lawrence Kreisler were issued 7,500,000 and 400,000 options
respectively. The options are exercisable for a period of ten years, exercisable
at $0.40 per share, equal to the market value at grant date. Mr. Lawrence
Kreisler was issued 5,000,000 options for new patent technology, (See Patents
and Proprietary Information). The options are exercisable for a period of ten
years, exercisable at $0.20 per share, equal to the market value at grant date.
Unrelated third parties were issued 2,775,000 options for the arranging
of the debt financing for the AMR expansion project. The options are exercisable
for a period of five years and execrable at $0.15-$0.21 per share, equal to the
market value at grant date.
<PAGE>
To unrelated third parties in payment of services rendered in
connection to various consulting services, 325,000 options were issued that are
exercisable for a period of five years at $0.20 per share, equal to the grant
date. In addition, to unrelated third parties in payment of services rendered in
connection to various consulting services, 1,300,000 options were issued that
are exercisable for a period of ten years at $0.10 per share, equal to the grant
date.
To unrelated third parties in payment of services rendered in
connection with facility construction, 812,000 options were issued that are
exercisable for a period of ten years at $0.10 - 0.21 per share, with a market
value of a lesser amount at grant date.
In connection with previously reported capital raises, 2,695,000
options were issued for an exercisable period of five years and exercisable at
$0.15-$0.25 per share with a market value of $0.25-$0.32 at grant date. These
options include the renegotiated M.H. Meyerson options.
The Company issued to Kevin Kreisler, for prior years salaries and
various projects, 1,050,000 options. The options are exercisable for ten years
at $0.10 per share, equal to market value at grant date.
The Company issued to Scott Kreisler, for prior years salaries, 850,000
options. The options are exercisable for ten years at $0.10 per share, equal to
market value at grant date.
Directors, who are not employees of the Company, are to 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 have not yet been issued. The options
are exercisable for a period of 10 years, none of which have been exercised.
In June 1996, the Company issued 83,871 common stock options,
exercisable at $0.155 per share to Stephen Feldman, Esq. for services rendered.
The options shall expire in January 2001.
The Company entered into an agreement with M.H. Meyerson & Company
("Meyerson") dated June 8, 1995, whereby Meyerson would provide planning,
structuring, strategic and other investment banking services to the Company.
This agreement was terminated on August 27, 1998 for reasons impacting on
various issues of non-performance and conflicts of interest.
Under the agreement, Meyerson was to be granted warrants to purchase a
total of 1,500,000 shares of common stock with an exercise price of $0.15 per
share. The warrants and the underlying shares would be exercisable anytime
between June 1997 and June 2000. In March 1998, the Company agreed to issue
additional warrants to purchase a total of 2,500,000 shares of common stock with
an exercise price of $0.25 per share in exchange for investment banking
services. The warrants and underlying shares will expire by March 2003. To date
no warrants have been exercised.
On September 8, 1998, both Meyerson agreements were replaced with a new
warrant agreement to purchase total of 1,500,000 shares at $0.15 and 250,000
shares of restricted stock. The warrants and the underlying shares would be
exercisable at anytime between September 8, 1998 and August 30, 2003. And are
callable by the Company on November 8, 1999 @ $0.01 per option.
Lawrence M. Kreisler and Kathi A. Kreisler received options in 1998
pursuant to employment arrangements as disclosed above.
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
<PAGE>
the date of grant) of the Company's Common Stock on the date of grant. Options
may not be granted more than ten years from the date of adoption of the ISO
Plan. Options granted under the ISO Plan must be exercised within then (10)
years from the date of grant. The optionee may not transfer any option except by
will or by the laws of descent and distribution. Options granted under the ISO
Plan must be exercised within three months after termination of employment for
any reason other than death or disability and within one year after termination
of employment due to death or disability. The Board of Directors of the Company
has the power to impose additional limitations, conditions and restrictions in
connection with the grant of any option. The ISO expired in November of 1992.
In November of 1994 the Company revised and renewed the Incentive Stock
Option Plan to cover Employees, Officers and Directors. The revised plan covers
the same 50,000,000 shares of the Company's Common Stock as the expired plan,
pursuant to which employees, including Officers and Directors of the company are
eligible to receive incentive stock options as defined under the Internal
Revenue Code of 1986, as amended. Under the plan, options may be issued as an
incentive for services rendered. Optionees shall not be restricted as to
assignment or transferability. The Board of Directors has the authority to set
the price of the option at the time of the grant. Options may be exercised for a
period of 10 years from the date of grant and will expire if not exercised
during this period of time.
On December 16, 1998, the Company filed a registration statement on
Form S-8 for the Company's revised Stock Option Plan (the "1998 SOP"). The
revised plan covers 50,000,000 shares of the Company's common stock, 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. The plan also makes grants of non-qualified options eligible
to consultants of the Company. Pursuant to the 1998 SOP, 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. The 1998 SOP amends and supercedes the
prior ISO Plan. The 1998 SOP will be submitted for ratification by the
shareholders of the Company at the Company's next subsequent annual
shareholder's meeting.
ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1996, a new company was formed to handle the transportation
needs of KBF Pollution Management, Inc. The new company, Metal Recovery
Transportation Corp. is owned solely by Lawrence Kreisler. (See "Certain
Relationships and Related Transactions.") Metal Recovery Transportation
Corporation was formed without any financial assistance from KBF. Metal Recovery
Transportation has permits in New York, New Jersey, Connecticut, Rhode Island,
Massachusetts and New Hampshire.
In November 1997, the Company executed a License Agreement with
Lawrence Kreisler, President of the Company. Mr. Kreisler granted the Company a
worldwide, exclusive license to Mr. Kreisler's Patent Rights that are defined as
"The Selective Separation Technology" for the purpose of resource recovery of
industrial metal bearing waste." (See "Description of Business - Patents and
Proprietary Information"). The license applies to any improvements or related
inventions. The Company may assign or sub-license the License with prior written
consent which shall not be unreasonably withheld. Mr. Kreisler shall receive
$10,000 for all prior use of the technology and a royalty fee based on a per
gallon rate which differs according to the type and quantity of material
processed. The License Agreement has a minimum 15-year term after which time
changes to 5-year evergreen term. In accordance with Schedule B of the relevant
License Agreement, the condition upon which royalty payments begin to accrue has
not yet been satisfied by the Company. Accordingly, no royalty payments have
been made or accrued. The Company anticipates the relevant condition to be
satisfied by the Company in the second quarter 1999.
Joseph J. Casuccio, Jr., CPA, Chief Financial Officer, Vice President
and a director of the Company, is a partner of the accounting firm, Werblin,
Casuccio & Moses, which firm is the internal
<PAGE>
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 9. 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.
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 closing bid prices for the Company's Common Stock as reported by
the National Association of Securities Dealers composite feed or other qualified
inter-dealer quotation medium and obtained from the National Quotation Bureau,
LLC.
<PAGE>
High Low
---- ---
1995
FIRST QUARTER 0.09 0.05
SECOND QUARTER 0.17 0.06
THIRD QUARTER 0.4375 0.14
FOURTH QUARTER 0.34375 0.18
1996
FIRST QUARTER 0.23 0.1875
Second Quarter 0.25 0.20
THIRD QUARTER 0.375 0.23
Fourth Quarter 0.375 0.19
1997
FIRST QUARTER 0.25 0.09
SECOND QUARTER 0.17 0.08
THIRD QUARTER 0.25 0.13
FOURTH QUARTER 0.40 0.16
1998
FIRST QUARTER 0.74 0.29
SECOND QUARTER 0.49 0.32
THIRD QUARTER 0.39 0.20
FOURTH QUARTER 0.23 0.15
Approximate number of holders
Titles of Class of record as of March 26, 1999
--------------- ------------------------------
COMMON STOCK, .00001 PAR VALUE 2,260
THE NUMBER OF HOLDERS DOES NOT GIVE EFFECT TO BENEFICIAL OWNERSHIP OF SHARES
HELD IN THE STREET NAME OF STOCK BROKERAGE HOUSES OR CLEARING
AGENTS AND DOES NOT NECESSARILY REFLECT THE ACTUAL OWNERSHIP OF THE SHARES.
DIVIDENDS.
The Company has never paid a cash dividend on its Common Stock and
management has no present intention of paying dividends in the foreseeable
future. The policy of the Company is to retain earnings and utilize the funds
for Company operations. Future dividend policy will be determined by the Board
of Directors based on the Company's earnings, financial condition, capital
requirements and other existing conditions.
ITEM 2. LEGAL PROCEEDINGS
The Company has filed suit against Solucorp Industries, Ltd. for the
Company's contract and fraud damages arising out of its now-terminated License
Agreement with Solucorp. The Company is represented by the national law firm of
Greenberg Traurig and the New York-New Jersey law firm of Sonageri & Fallon, LLC
in this matter.
In November 1998, Solucorp filed a motion to dismiss the Company's
complaint for grounds based on the inconvenience of Solucorp. Solucorp's motion
to dismiss was denied in December 1998.
In January 1999, Solucorp filed an answer, counterclaim and third-party
complaint which denied all claims asserted by the Company and alleged
counterclaims against the Company seeking damages in excess of $350,000,000 in
compensatory damages and $500,000,000 in punitive damages. The third-party
complaint personally named two of the Company's directors and executive
officers, Lawrence M. Kreisler and Kevin E. Kreisler, and asserted further
claims against other third parties with whom the Company has no agreement.
In February 1999, the Company filed its answer to Solucorp's
counterclaim and third-party complaint. At this time, the Company further filed
a motion to dismiss Solucorp's counterclaims and third-party complaint on the
basis that Solucorp's responsive pleading violated New Jersey court rules
<PAGE>
which prohibit the assertion of specific monetary amounts of unliquidated money
damages and the practice of reciting enormous sums of money for damages. The
Company's motion in this regard was granted and Solucorp's counterclaims and
third-party complaint were dismissed without prejudice.
Simultaneously with the grant of the Company's motion to dismiss, the
court hearing the matter entered a mediation order. An initial, non-binding
mediation session has been scheduled for April 1999.
GENERAL COMMENTS WITH REFERENCE TO SOLUCORP:
Solucorp holds itself out to be an environmental service organization
devoted to the development and marketing of innovative environmental
technologies. The Company was introduced to Solucorp and its consultant, Joseph
Kemprowski, by the Company's former investment banker, M.H. Meyerson & Co., Inc.
last December. The Company had no affiliation with Solucorp, or any of its
affiliates, preceding this introduction. This agreement remains the only
affiliation the Company had with Solucorp. At this time, Solucorp and Kemprowski
claimed to have executed contracts with the Chinese government for the
remediation of contaminated sites in mainland China from which revenues would be
made. Furthermore, Solucorp and Kemprowski made it clear that they had an
extensive, global sales and marketing infrastructure. Management performed due
diligence on the basis of publicly available information, Solucorp's filings and
press releases, Meyerson's analyst's reports on Solucorp, and numerous meetings
with Solucorp executives, which included significant technical discussions
covering a number of sites. In addition, there were discussions with Solucorp's
Chinese marketing affiliates. There were other limited documents that Solucorp
and Kemprowski disclosed. KBF was precluded from reviewing the executed Chinese
contracts due to what Solucorp and Kemprowski represented to be as
confidentiality agreements. Principals of M.H. Meyerson & Co., Inc., however,
represented that they reviewed the pertinent agreements and advised the Company
that the agreements had in fact been executed (Meyerson was the Company's
investment banker at the time).
After several months of negotiation, and with the recommendation of
Meyerson, the Company and Solucorp entered into an exclusive worldwide license
for the marketing and sale of the Company's patented SST process. The agreement
called for a license fee of $500,000 due upon execution on March 20, 1998. The
license fee was to be paid for with the issuance of 190,550 shares of
free-trading, unrestricted Solucorp stock due upon execution. Solucorp
represented that it had the ability to issue free-trading shares prior to
execution and the License Agreement contained representations and warranties to
that effect. Instead, in the end of May 1998, the Company received 190,550
shares of restricted, unregistered stock - after having been given assurances
that Solucorp and Kemprowski would register, repurchase and assist with the
liquidation of the license fee stock at a rate of at least $100,000 per month.
The shares were issued after the U.S. Securities and Exchange Commission had
suspended Solucorp's stock. Despite countless requests and demands, Solucorp and
Kemprowski never attempted to register the license fee stock, and they
repurchased less than $50,000 worth of shares between March and September 1998.
Solucorp's breach of these, and many other terms of the license
agreement was at considerable cost to the Company. In good faith reliance on the
agreement, the Company expended several hundred thousand dollars in supporting
Solucorp's sales efforts. According to the agreement, the Company was never
supposed to expend any of its capital derived from sources other than the two
fees in providing Solucorp with support.
Further, Management discovered that much of what had been represented
to the Company by Solucorp and Kemprowski with reference to Solucorp's executed
agreements in China, the extent of its sales and marketing capabilities and its
ability to register, repurchase and liquidate the shares was not true.
In August 1998, in a final attempt to turn the Solucorp relationship
into a profitable venture, Management negotiated a modification that accounted
accurately for Solucorp's ability to pay the fees and to market SST. The
modification would have stripped Solucorp of the license to the technology
<PAGE>
and required the payment of additional compensation to remedy the damages the
Company had suffered by that time. A letter of intent was executed and the
modification was drafted but negotiations broke down in the following weeks. On
September 23, 1998, the Company formally noticed Solucorp of Termination and the
Company filed suit against Solucorp and Kemprowski for breach of contract and
fraud damages.
The Company will pursue its interests against Solucorp and Kemprowski
and is seeking damages commensurate with the Company's good faith expenditures,
contract damages (which include the license fee and the first year's worth of
accrued minimum royalty) and fraud damages.
In March 1999, Solucorp filed a current report on Form 8-K pursuant to
section 13 or 15(d) of the Securities Exchange Act of 1934, which allegedly sets
forth the current status of the aforementioned, purportedly executed Chinese
remediation contracts. The filing confirms that no such contracts were ever
executed.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
NONE.
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:
<PAGE>
Independent Auditor's Report;
Balance Sheet as of; December 31, 1998 (audited) and December 31, 1997 (audited)
Statements of Income for the periods; January 1, 1997 to December 31, 1997
(audited); and January 1, 1998 to December 31, 1998 (audited);
Statements of Cash Flows for the periods; January 1, 1997 to December 31, 1997
(audited); and January 1, 1998 to December 31, 1998 (audited);
Statement of Changes in Stockholders Equity for the period; January 1, 1997 to
December 31, 1998 (audited);
Notes to Financial Statements.
Financial data schedule-December 31, 1998 - exhibit 27
<PAGE>
PART III
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following financial statements are included in Part II, Item 8 and
are attached hereto:
i) Balance Sheets
a) December 31, 1998
b) December 31, 1997
ii) Statements of Income Years Ended
a) December 31, 1998
b) December 31, 1997
iii) Statements of Stockholders' Equity a)
January 1, 1997 to December 31, 1998.
iv) Statements of Cash Flow Years Ended
a) December 31, 1998
b) December 31, 1997
v) Notes to Financial Statements
(b) Reports on Form 8-K.
i) None.
(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
10.6*** - 1998 Stock Option Plan
10.7**** - License Agreement as and between Lawrence M. Kreisler and the
Company
27 - Financial Data Schedule
- -----------
* Incorporated by reference to the exhibit of the same title in the annual
report on Form 10-K for the fiscal year ended December 31, 1992 (File
No. 33-20954).
** Incorporated by reference to the exhibit of the same title in the annual
report on Form 10-K for the fiscal year ended December 31, 1993 (File
No. 33-20954).
*** Incorporated by reference to the exhibit of the same title in the
Registration Statement on Form S-8 (File No. 333-69011).
**** Incorporated by reference to the exhibit of the same title in the
Registration Statement on Form 10-SB, as amended filed December 24, 1998
(File No. 000-24841).
***** Incorporated by reference to the exhibit of the same title in the annual
report on Form 10-K for the fiscal year ended December 31, 1997 (File
No. 033-20954).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
(Registrant) KBF POLLUTION MANAGEMENT, INC.
By (Signature and Title LAWRENCE KREISLER
------------------------------
LAWRENCE KREISLER, PRESIDENT
Date: March 30, 1999
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,
CHIEF EXECUTIVE OFFICER,
PRESIDENT, DIRECTOR
Date: March 30, 1999
By (Signature and Title JOSEPH J. CASUCCIO, JR.
------------------------------
JOSEPH J. CASUCCIO, JR., CHIEF FINANCIAL OFFICER
VICE PRESIDENT, DIRECTOR
(ALSO CHIEF ACCOUNTING OFFICER)
Date March 30, 1999
By (Signature and Title KATHI KREISLER
------------------------------
KATHI KREISLER, CHIEF ADMINISTRATIVE OFFICER
VICE PRESIDENT,
SECRETARY, TREASURER, DIRECTOR
Date March 30, 1999
By (Signature and Title KEVIN KREISLER
------------------------------
KEVIN KREISLER, VICE PRESIDENT,
DIRECTOR
Date March 30, 1999
</TABLE>
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT........................................23
BALANCE SHEET...................................................... 24-25
STATEMENT OF INCOME.................................................26
STATEMENT OF STOCKHOLDERS' EQUITY...................................27
STATEMENT OF CASH FLOWS.............................................28-29
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
Irving Handel P.C. Tel: 516-295-9290
CERTIFIED PUBLIC ACCOUNTANTS Fax 516-295-9298
INDEPENDENT AUDITOR'S 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, 1998 and 1997, 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 reasonable 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, 1998 and 1997, 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 24, 1999
Woodmere, NY 11598
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
12/31/98 12/31/97
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 300,213 $ 224,643
Cash - Restricted 27,500 27,500
Marketable Securities 86,591 0
Accounts Receivable (Net of allowance 421,411 290,613
for doubtful accounts of $31,183 and $26,782)
Inventories 12,707 11,670
Prepaid Expendable Supplies 13,821 14,246
Other Prepaid Expenses 58,924 193,780
--------------- --------------
Total Current Assets 921,167 762,452
FIXED ASSETS:
Property, Equipment & Improvements
(Net of Accumulated Depreciation &
Amortization of $1,371,641 and $1,670,954) 1,923,229 832,851
Leased Property under Capital Lease Obligations
(Net of Accumulated Depreciation &
Amortization of $287,226 and $378,869) 88,527 108,030
Non-Expendable Stock, Parts & Drums 137,768 139,368
--------------- --------------
Total Fixed Assets, Net 2,149,524 1,080,249
OTHER ASSETS:
Security Deposits 2,844 7,662
Other Receivable 350,820 0
License/Patent (Net of Accumulated Amortization
of $1,000 and $11,164) 13,922 9,165
Capitalized Permit Costs 47,279 89,179
--------------- --------------
Total Other Assets 414,865 106,006
--------------- --------------
TOTAL ASSETS $ 3,485,556 $ 1,948,707
=============== ==============
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
BALANCE SHEET
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
12/31/98 12/31/97
-------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable - Trade $ 383,367 $ 454,657
Accrued Expenses 191,509 52,354
Taxes Withheld & Accrued 5,801 11,873
Deposit Payable 40,000 0
Current Portion of Long-Term Debt 0 60,000
Current Portion of Capital Lease Obligations 67,768 51,832
-------------- ------------
Total Current Liabilities 688,445 630,716
LONG-TERM LIABILITIES:
Capital Lease Obligations (Net of Current Portion) 160,085 189,977
-------------- ------------
Total Long-Term Liabilities 160,085 189,977
STOCKHOLDERS' EQUITY:
Com. Stock par Value .00001 per Share
Authorized - 500,000,000 Shares Issued
And Outstanding
December 31, 1998 - 64,034,660 640
December 31, 1997 - 49,112,690 491
Capital in Excess of Par Value 6,367,040 4,871,362
Unrealized Loss on Available-for-Sale-Securities (373,430) 0
Retained Earnings (Deficit) (3,357,224) (3,743,839)
-------------- ------------
Total Stockholders' Equity 2,637,026 1,128,014
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,485,556 $ 1,948,707
============== ============
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
-------- --------
<S> <C> <C>
REVENUES: $ 3,078,567 $ 1,926,895
- --------
Less:
Cost of Operations 1,438,639 1,277,974
-------------- -------------
Gross Profit 1,639,928 648,921
Less:
General and Administrative Expenses
Advertising 1,221,375 806,027
Maintenance and Repairs 4,218 7,519
27,134 42,246
-------------- -------------
Operating Income (Loss) 387,201 (206,871)
OTHER INCOME (EXPENSES):
Interest Income 31,035 1,236
Interest Expense (25,740) (1,656)
-------------- -------------
Income (Loss) before Provision for Income Tax 392,496 (207,291)
Less: Income Tax Provision 5,887 344
-------------- -------------
NET INCOME (LOSS) $ 386,609 $ (207,635)
============== =============
OTHER COMPREHENSIVE INCOME (LOSS) (373,430) 0
============== =============
COMPREHENSIVE INCOME (LOSS) $ 13,179 $ (207,635)
============== =============
EARNINGS PER COMMON SHARE:
Basic $ .01 $ (.01)
============== =============
Diluted $ .01 $ (.01)
============== =============
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
JANUARY 1, 1997 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED LOSS ON CAPITAL IN RETAINED
(PAR VALUE $.0001) AVAILABLE-FOR-SALE- EXCESS EARNINGS
SHARES AMOUNT SECURITIES OF PAR (DEFICIT) TOTAL
---------------------- --------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 43,405,546 $434 $ 0 $ 4,344,671 $ (3,536,203) $ 808,902
Common Stock issued 5,707,144 57 0 586,291 586,348
Rounding (1) (1)
Underwriting Costs (59,600) (59,600)
NET LOSS for the Year Ended
December 31, 1997 (207,635) (207,635)
------------- -------- --------------- ------------------ ------------------ -------------
BALANCE, December 31, 1997 49,112,690 491 0 4,871,362 (3,743,839) 1,128,014
Common Stock issued 14,921,970 149 0 1,415,356 0 1,415,505
Options Granted 238,222 238,222
Underwriting Costs 0 0 0 (157,900) 0 (157,900)
Rounding 6 6
Unrealized Loss on Available-
for-Sale-Securities (373,430) 0 (373,430)
NET INCOME for the Year Ended
December 31, 1998 386,609 386,609
------------- -------- --------------- ------------------ ------------------ -------------
BALANCE, December 31, 1998 64,034,660 $640 $ (373,430) $ 6,367,040 $ (3,357,224) $ 2,637,026
========== ==== =========== =========== ============= ===========
</TABLE>
See accompanying notes an accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
----------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from Customers $ 2,092,548 $ 1,954,700
Cash Paid to Suppliers and Employees (1,662,180) (2,078,014)
Interest and Dividends Received 31,035 1,236
Interest Paid (25,955) (34,601)
Income Taxes Paid (4,068) (604)
----------------- -------------
Net Cash Provided (Used) by Operating Activities 431,380 (157,283)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Patent (3,201) 0
Cash Purchases of Equipment (1,241,738) (9,390)
----------------- -------------
Net Cash Provided (Used) in Investing Activities (1,244,759) (9,390)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Stock and Warrants 1,028,305 518,228
Underwriting Costs (75,400) (59,600)
Repayment of Long-Term Debt and Capital Lease
Obligations (63,956) (86,486)
----------------- -------------
Net Cash Provided (Used) by Financing Activities 888,949 372,142
----------------- -------------
NET INCREASE (DECREASE) IN CASH 75,570 205,469
CASH at Beginning of Year 224,643 19,174
================= =============
CASH at End of Year $ 300,213 $ 224,643
================= =============
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
-------- --------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 386,609 $ (207,635)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 360,392 237,368
Amortization 164 1,196
Accounts Payable Paid in Stock 0 22,830
Expenses Paid in Stock/Options 59,923 45,290
Bad Debts 4,401 (2,781)
Write-Off of Permit Costs 0 6,401
(Increase) Decrease in:
Trade Accounts Receivable (135,199) 27,805
Other Receivables (810,841) 20,340
Inventories (612) 6,109
Prepaid Expenses & Deposits 186,744 (171,537)
Increase (Decrease) in:
Accounts Payable 206,710 (36,499)
Withholding Taxes Payable (6,072) (1,254)
Deposit Payable 40,000 0
Accrued Expenses 139,161 (104,916)
$ 431,380 $ (157,283)
========= ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common Stock and Options issued for the payment of
accounts payable and accrued expenses. $ 244,700 $ 22,830
========== ==========
Common Stock issued for the payment of notes payable. $ 60,000 $ 0
========= ========
Common Stock received for the payment of other receivables.
$ 500,000 $ 0
========== ========
Common Stock and Options issued for the payment of
Underwriting costs, equipment and expenses. $ 320,722 $ 463,220
========== ==========
Revaluation of Common Stock received. $ (373,430) $ 0
=========== ========
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. On 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. In the
third quarter of 1998, the Company formed KBF-LI, Inc.
The Company, through American Metal Recovery Corp., a wholly owned subsidiary,
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 back into commerce. It 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 predominately in the Northeast region.
AMR, Inc. (AMR) became active in 1998 when KBF incurred capitalized costs to
initiate debt financing for it, which were exchanged for stock, thereby making
it a wholly owned subsidiary of KBF. The financing (see Note 21 - Subsequent
Events) will be for AMR's purchase of equipment, which will be utilized in an
expansion project set to begin operations in 1999.
KBF-LI, Inc.(KBF-LI), exchanged stock with KBF for the remaining assets at the
Long Island, New York facility, thereby making it a wholly owned subsidiary of
KBF. Operations on Long Island have now ceased, however KBF-LI is party to a
letter of intent to sell the operation.
Gryphon Industries, Inc. is inactive and available for future use.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Environmental Services
Recovery service revenues are recognized and invoiced as such services are
completed.
License Agreements
License agreements transfer rights, for a specified period of time, for the use
of the Company's patent and related processes, similar to franchise agreements.
Accordingly, the Company recognizes income from license agreements 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.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 license is being
amortized over 10 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.
All pronouncements with effective dates subsequent to the dates relating to
these financial statements, had they been in effect, would have had no impact on
these financial statements.
EARNINGS PER SHARE
In accordance with SFAS No. 128, the Company computes basic and fully diluted
earnings (loss) per share on a daily weighted average basis, as described in
Note 17.
PRIOR PERIOD STATEMENTS
The 1996 and 1997 financial statements may have been reclassified to conform
with current year's classifications.
NOTE 3 - MARKETABLE SECURITIES
In conjunction with the license agreement discussed in Notes 7 & 9, and further
to an unenforceable modification to the license agreement, the Company received
190,550 shares of restricted (under Section 144) common shares of Solucorp
Industries, Ltd. as payment against the $500,000 for the initial license fee due
to the Company, pursuant to the terms of its (now terminated) license agreement
with Solucorp. The issuance of the restricted shares
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - MARKETABLE SECURITIES (CONTINUED)
did not constitute satisfaction of the license agreement terms and conditions
and was moreover precipitated through what the Company believes to be the
fraudulent representations of Solucorp Industries, Ltd. and Joseph Kemprowski.
The shares, however, do retain some minimal market value, which value is being
recognized herein. The Company is currently pursuing full payment of the license
fee in its pending litigation against Solucorp Industries, Ltd. (see Note 18).
The Company has presented these securities herein as available-for-sale
securities, adjusted to market value. Since trading of these shares has been
suspended, market value has been determined to be the closest gray market price
per share at December 31, 1998, less a 25% lack of marketability discount.
Because the Section 144 restriction expires on May 21, 1999, within twelve
months of the balance sheet date, and the shares can, under certain
circumstances, be sold even though restricted, the securities are presented as
current assets. Based on the foregoing and in conjunction with FAS 115 & 130,
these securities are presented at a fair market value of $86,591 and the
unrealized loss is presented as other comprehensive income (loss).
NOTE 4 - INVENTORIES
Inventories are comprised of the following major categories:
12/31/98 12/31/97
-------- --------
Shipping Supplies $ 2,857 $ 4,985
Reagents 9,850 6,685
----- -----
$12,707 $11,670
======= =======
NOTE 5 - OTHER PREPAID EXPENSES
The items included in other prepaid expenses are as follows:
1998 1997
Prepaid Insurance $ 11,854 $ 7,682
Prepaid Finance Costs 47,070 0
Prepaid Construction Costs 0 186,098
---------- ----------
Total Prepaid Expenses $ 58,924 $ 193,780
========== =========
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6 - FIXED ASSETS
Fixed assets are categorized and listed below:
<TABLE>
<CAPTION>
BALANCE ADDITIONS RETIREMENTS BALANCE
Property, Equipment & Improvements AT 12/31/97 1998 1998 AT 12/31/98
- ---------------------------------- ----------- ---- ---- -----------
<S> <C> <C> <C> <C>
Facility $ 1,604,772 $ 1,392,271 138,974 $ 2,858,069
Office Equipment, Computers
& Furnishings 219,369 35,085 150,147 104,307
Manufactured Equipment Leased Out 72,999 0 0 72,999
Equipment 451,596 0 241,267 210,329
Leasehold Improvements 155,069 49,166 155,069 49,166
--------------- ------------- --------------- ---------------
SUB TOTAL 2,503,805 $ 1,476,522 $ 685,457 3,294,870
============== ===============
Less: Accumulated Depreciation
and Amortization (1,670,954) (1,371,641)
---------- -----------
NET $ 832,851 $ 1,923,229
============ ==============
Leased Equipment Under Capital Leases
Office Equipment & Furniture $ 135,039 $ 0 $ 90,112 $ 44,927
Equipment 351,860 0 21,034 330,826
--------------- ------------- -------------- ---------------
SUB TOTAL 486,899 $ 0 $ 111,460 375,753
============= =============== ---------------
Less: Accumulated Amortization (378,869) (287,226)
---------------- ----------------
NET $ 108,030 $ 88,527
=============== ===============
</TABLE>
Depreciation charged to operations, which includes amortization of capital lease
obligations, was $360,392 and $237,368 for the years ended December 31, 1998 and
1997, respectively. Leased equipment secures the related capital lease
obligations.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - OTHER RECEIVABLES
In conjunction with the license agreement discussed in Notes 3 & 9, the Company
accrued minimum royalties of $750,000 which are due on December 31, 1999. This
receivable and the related revenue has been presented in the financial
statements at present value along with related interest earned to date. The
Company has considered all information available at this time concerning
Solucorp Industries, Ltd. and has presented the receivable and the related
revenue net of an allowance for doubtful accounts as detailed below:
Minimum Royalty $ 750,000
Discount to Present Value (107,753)
--------
Present Value of Minimum Royalty 642,247
Interest Earned through December 31, 1998 29,697
--------
Total Other Receivable & Revenue
Before Allowance 671,944
Allowance for Doubtful Accounts (321,124)
--------
Total Other Receivable Presented
And Revenue Reflected Herein $ 350,820
==========
NOTE 8 - PATENT
The Company obtained a United States patent on its waste volume reduction unit
and method in August, 1988. The costs incurred to obtain the patent have been
capitalized and are being amortized over a 17 year life.
In June 1995, the Company's President, Lawrence Kreisler, submitted a patent
application on the "Selective Separation Technology" technique currently being
used. Mr. Kreisler had developed this process prior to the formation of KBF
Pollution Management, Inc. On February 3, 1998, the US Patent and Trademark
Office issued a Notice of Allowance for this patent. On May 19, 1998, the US
Patent and Trademark Office issued the final patent on the technology (Patent
No.: 5,735,125). Under a licensing agreement with Mr. Kreisler, the Company is
utilizing the patent in its operations. The agreement calls for royalty payments
commencing when the Company has processed in excess of 1.5 million gallons of
chargeable waste in a given year. At that point, royalties are paid at rates
beginning at $.10 per gallon and decreasing to $.03 per gallon at a processing
rate of 6,050,000 annually.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - LICENSE AGREEMENT
In March 1998, the Company signed an exclusive worldwide License Agreement with
Solucorp Industries, Ltd., for the utilization of the Company's patent
technology. The terms of the agreement called for an initial license fee of
$500,000, plus an additional license fee of $.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
agreement was for a five-year term, with automatic five-year continuous renewal.
The payment as against the initial fee described in Note 3 was recognized as
income in the current period.
On September 30, 1998, the Company formally terminated this contract and brought
suit against Solucorp Industries, Ltd. for breach of contract and fraud damages
(see Note 18- Commitments & Contingencies). As the transaction satisfies the
(FAS 45) criteria as set forth in Note 2 - Revenue Recognition, the payment as
against the initial license fee represented payment for the right to use and
sell the Company's technology, which had been transferred. The related revenue
is included on the Statement of Income in the revenue from normal operations.
While the contract has been terminated, the partial payment against the initial
license fee continues to be recognized as revenue as the fee is non-refundable,
and the criteria for recognition discussed above has been met.
In June 1998, the Company filed for patent protection on four new technologies
developed by Lawrence M. Kreisler, which the Company has been and is presently
using. Pursuant to the terms of Mr. L. Kreisler's license agreement with the
Company, Mr. L. Kreisler is to receive a license fee for the Company's right to
use each technology. Mr. L. Kreisler was issued a total of 5,000,000 options in
lieu of cash for this fee (Note 14).
NOTE 10 - 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 permit
still has value, primarily for the provisions in the permit that allow for
increased storage of hazardous waste prior to its being treated.
It should be noted, that these permit costs are related to the Long Island
location, and have been transferred to KBF-LI. They are included in the assets
to be sold under a "letter of intent" to sell the Long Island operation.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 11 - ACCRUED EXPENSES
Accrued expenses are broken down into categories as follows:
1998 1997
---- ----
Insurance $ 25,409 $ 11,535
Utilities 3,000 5,770
Professional Fees 25,250 8,600
Facility Equipment 100,476 0
Other Accrued Expenses 37,374 26,449
------- --------
$ 191,509 $ 52,354
========== =========
NOTE 12 - LONG-TERM DEBT
Long-term debt consists of the following:
12/31/98 12/31/97
-------- --------
Notes 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. $ 0 $ 60,000
(In the third quarter of 1998, this note was paid by
the issuance of common stock at $.10 per share).
Less: Current Portion 0 60,000
------ ---------
Long-Term Portion $ 0 $ 0
====== =========
NOTE 13 - LEASES
CAPITAL LEASE OBLIGATIONS
The Company leases equipment with lease terms expiring through April 2002.
Future minimum payments under capital leases with initial terms of one year or
more consisted of the following at December 31, 1998:
1999 $ 85,502
2000 85,502
2001 85,502
2002 4,861
Thereafter 0
------------
Total minimum lease payments 261,367
Amounts representing interest ( 33,514)
Present value of net minimum
lease payments remaining 227,853
Less: Current portion 67,768
---------
Long -Term Portion $ 160,085
=============
On all capital leases, the equipment under lease is pledged toward the lease
obligation.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 13 - LEASES (CONTINUED)
OPERATING LEASES
As of December 1, 1997, the Company relocated its corporate offices, laboratory
and main operational facility to Paterson, New Jersey. The lease terms, which
includes a purchase option, provide for the 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:
1999 $ 193,200
2000 200,500
2001 208,600
2002 213,550
2003 201,300
Thereafter 0
-----------
$1,017,150
==========
NOTE 14 - STOCKHOLDERS' EQUITY
INCENTIVE STOCK 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 the
adoption of the ISO Plan. Options granted under the ISO Plan must be exercised
within ten 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 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 1992.
In November 1994, the Company revised and renewed the ISO 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, the options may be issued as an incentive for services
rendered. Optionees shall not be restricted as to assignment or
NOTE 14 - STOCKHOLDERS' EQUITY (CONTINUED)
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
ten years from the date of grant and will expire if not exercised during this
period of time.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
STOCK OPTIONS
In 1997 the Company issued 1,500,000 options to employees as an incentive to
move to New Jersey along with the company corporate relocation. Of the 1,500,000
options, Kathi Kreisler and Kevin Kreisler, affiliates of the Company, received
500,00 and 200,000, respectively. These options are exercisable for ten years,
at .10 per share, equal to the market value at grant date. In accordance with
FAS 123, the Company elected to value these employee options at their intrinsic
value, as set forth in ARB No. 25, of zero, for financial statement purposes
In 1998, the Company issued 19,507,000 options. These options were issued as
follows:
1) 7,500,000 options to Kathi Kreisler and 400,000 options to Lawrence Kreisler
for unpaid prior years' salaries. The options are exercisable for a period of
ten years, at $.40 per share, equal to the market value at grant date. In
accordance with FAS 123, the Company elected to value these employee options at
their intrinsic value, as set forth in ARB No. 25, of zero, for financial
statement purposes.
2) 5,000,000 options to Lawrence Kreisler for new patent technology (Note 8).
The options are exercisable for a period of ten years, exercisable at $.20 per
share, equal to the market value at grant date. In accordance with FAS 123, the
Company elected to value these employee options at their intrinsic value, as set
forth in ARB No. 25, of zero, for financial statement purposes.
3) 2,775,000 options to unrelated third parties to arrange for debt financing
for the AMR project (Note 1). The options are exercisable for a period of five
years, at $.15 - $.20 per share, equal to the market value at grant date. In
accordance with FAS 123 these options have been valued utilizing the
Black-Scholes model and included in the financial statements presented herein at
$47,070, as prepaid financing costs (Note 5).
4) 2,695,000 options to unrelated third parties in payment for services rendered
in connection with previous capital raises. The options are exercisable for a
period of five years, exercisable at $.15 - $.25 per share, with a market value
of $.25 - $.32 at grant date. In accordance with FAS 123 these options have not
been valued.
5) 812,000 options to unrelated third parties in payment for services rendered
in connection with the facility construction. The options are exercisable for a
period of ten years, exercisable at $.10 - $.21 per share, with a market value
of a lesser amount at grant date. In accordance with FAS 123 these options have
been valued utilizing the Black-Scholes model and included
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 14 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (continued)
in the financial statements presented herein at $137,929, as facility costs.
6) 325,000 options to unrelated third parties in payment for services rendered
in connection various consulting services. The options are exercisable for a
period of five years, exercisable at $.20 per share, equal to the market value
at grant date. In accordance with FAS 123 these options have been valued
utilizing the Black-Scholes model and included in the financial statements
presented herewith at $53,223, as general & administrative expenses.
All employee stock options valued under APB 25 are presented in the following
Pro-forma Income statements utilizing the Black-Scholes model value.
Alternative Presentation Of Accounting For Stock Options:
<TABLE>
<CAPTION>
12/31/98 12/31/97
------------------------------- --------------------------------
REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE $ 3,078,567 $ 3,078,567 $ 1,926,895 $ 1,926,895
OPERATING EXPENSES:
COST OF REVENUE 1,438,639 1,438,639 1,277,974 1,883,413
MAINT & REPAIR 27,134 27,134 42,246 42,246
ADVERTISING 4,218 4,218 7,519 7,519
GENERAL & ADMIN 1,221,375 4,696,635 806,027 862,727
--------- --------- ------- -------
TOTAL OPERATING EXP 2,691,366 6,166,626 2,133,766 2,795,905
--------- --------- --------- ---------
OPERATING INCOME 387,201 (3,088,059) (206,871) (869,010)
INTEREST INCOME 31,035 31,035 1,236 1,236
OTHER INCOME/EXP (25,740) (25,740) (1,656) (1,656)
-------- -------- ------- -------
INCOME BEFORE TAX 392,496 (3,082,764) (207,291) (869,430)
TAX PROVISION 5,887 5,887 344 344
----- ----- --- ---
NET INCOME/(LOSS)
AVAIL FOR COMMON S/H
$ 386,609 $(3,088,651) $ (207,635) $ (869,774)
========= ============= =========== ===========
EARNINGS PER SHARE .01 (.05) (.01) (.02)
WEIGHTED AVERAGE
SHARES OUTSTANDING 56,438,560 56,438,560 44,993,841 44,993,841
OPTIONS GRANTED 19,507,000 19,507,000 1,500,000 1,500,000
</TABLE>
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 14 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (continued)
Additional Disclosures under SFAS 123
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
NO. OF PRICE PER NO. OF PRICE PER
SHARES SHARE SHARE SHARE
------ ----- ----- -----
<S> <C> <C> <C> <C>
Outstanding Beginning of Year 20,207,621 $ .120 18,707,621 $ .1267
Outstanding End of Year 39,714,621 $ .174 20,207,621 $ .1200
Exercisable at End of Year 39,714,621 $ .174 20,207,621 $ .120
Granted/Exercised/Forfeited/Expired 19,507,000 $ .228 1,500,000 $ .081
During Year
Weighted Average Granted $ .240 $ .280
Date Fair Value Options Granted during Year
Risk-Free Interest Rate 5.4% 5.4%
Average Expected Life 10 10
Average Expected Volatility 102.69% 72.67%
Expected Dividends $ 0 $ 0
Total Compensation Cost in Income $ 53,223 $45,290
Significant Modifications of Outstanding Awards
N/A N/A
Range of Exercise Prices for Options Outstanding $.0800-.4000 $.1000-.1000
Weighted Average Remaining 8.62 Years 8.85 Years
</TABLE>
NOTE 15 - GENERAL & ADMINISTRATIVE EXPENSES
The following is a list of the major general & administrative categories:
1998 1997
---- ----
Selling Expenses $ 121,492 $ 129,519
Professional Fees 158,459 129,319
Salaries 350,464 254,551
Allocated Payroll Costs 81,291 39,483
Insurance 95,334 80,074
Other General & Administrative Expenses 414,335 173,081
------- -------
Total General & Administrative Costs $ 1,221,375 $ 806,027
=========== ===========
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 16 - INCOME TAXES
Temporary differences and carryforwards which give rise to deferred tax assets
are as follows:
Deferred Tax Assets: 1998 1997
------- ----
Net Operating Loss Carry Forward $1,213,547 $1,344,994
Allowance for Doubtful Accounts 10,602 9,106
-------------- ------------
1,224,149 1,354,100
Valuation Allowance 1,224,149 1,354,100
------------ -----------
Deferred Tax Assets $ 0 $ 0
============ ===========
Change in Valuation Allowance $ (129,951) $ 69,561
============= ============
The benefit for income taxes is as follows:
1998 1997
------- ----
Current:
Federal $ 0 $ 0
State 5,887 334
Deferred:
Federal 0 0
State 0 0
----------- ----------
Total $ 5,887 $ 334
=========== ==========
At December 31, 1998 the Company's operating loss carry forward expires as
follows:
December 31,2002 $ 176,746
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
----------
$ 3,569,256
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 17 - EARNINGS PER SHARE
Number of Shares
Common Stock outstanding: 1998 1997
------ -----
Beginning of Year 49,112,690 43,405,546
End of Year 64,034,660 49,112,690
Issued during the year 13,072,053 5,707,144
Weighted Average number of options outstanding 29,559,204 19,207,621
Weighted Average number of outstanding shares 57,026,019 44,993,841
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 18 - COMMITMENTS & CONTINGENCIES
LEGAL MATTERS
The Company filed suit against Solucorp Industries, Ltd. (Solucorp) for the
Company's contract and fraud damages arising out of its now-terminated License
Agreement with Solucorp. The Company is represented by the national law firm of
Greenberg Traurig and the New York- New Jersey law firm of Sonageri & Fallon,
LLC in this matter.
In November 1998, Solucorp filed a motion to dismiss the Company's complaint for
grounds based on the inconvenience of Solucorp. Solucorp's motion to dismiss was
denied in December 1998.
In January 1999, Solucorp filed an answer, counterclaim and third-party
complaint which denied all claims asserted by the Company and alleged
counterclaims against the Company seeking damages in excess of $350,000,000 in
compensatory damages and $500,000,000 in punitive damages. The third-party
complaint personally named two of the Company's officers, Lawrence M. Kreisler
and Kevin E. Kreisler, and asserted further claims against other third parties
with whom the Company has no agreement.
In February 1999, the Company filed its answer to Solucorp's counterclaim and
third-party complaint. At this time, the Company further filed a motion to
dismiss Solucorp's counterclaims and third party complaint on the basis that
Solucorp's responsive pleading violated New Jersey court rules which prohibit
the assertion of specific monetary amounts of unliquidated money damages and the
practice of reciting enormous sums of money for damages. The Company's motion in
this regard was granted and Solucorp's counterclaims and third-party complaint
were dismissed without prejudice.
Simultaneously with the grant of the Company's motion to dismiss, the court
hearing the matter entered a mediation order. An initial, non-binding mediation
session has been scheduled for April 1999.
The Company plans to aggressively pursue its interest against Solucorp and is
seeking damages commensurate with the Company's good faith expenditures,
contract damages and fraud.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 18 - COMMITMENTS & CONTINGENCIES (CONTINUED)
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 401(k) 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 401(k) savings plan.
See Note 19 for events that have a material impact on these employment
contracts.
NOTE 19 - 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 issued 7,500,000 options to purchase shares
of common stock for $.40 per share over a 10 year period commencing January 1998
for unpaid wages from March 1993 through December 1997.
Lawrence Kreisler was also issued 400,000 options to purchase common stock for
past performance under the same terms as Kathi Kreisler above.
NOTE 20 - 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.
<PAGE>
KBF POLLUTION MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 21 - SUBSEQUENT EVENTS
As of the date of this report, the Company concluded $1,000,000 of debt
financing through AMR, Inc., its wholly owned subsidiary. The package calls for
debt re-payment out of AMR, Inc.'s net pre-tax revenues only and includes a
business-unit-specific profit participation component for the lender.
The Company has engaged in negotiations with various management officials, both
present and prospective, for performance based employment. In February, 1999,
the Board of Directors of the Company has approved approximately four million
options to compensate same, which will vest upon performance.
NOTE 22- 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 $235,097 in 1998 and 59,914 in 1997. As of December
31, 1998, the Company owed MRTC $26,589.
2) Lawrence Kreisler, President and Chairman of KBF loaned the Company
$53,702 during 1997. The balance owed to Mr. Kreisler at December 31, 1998 is
$0.
3) Certain members of the Board of Directors and advisors to the Company
loaned the Company $60,000. Stock has been issued in repayment of this loan in
1998. (See Note 8 for additional information).
NOTE 23 - 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 1998.
NOTE 24 - CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances at one financial institution located in
Paterson, New Jersey. The Federal Deposit Insurance Corporation insures accounts
in each institution up to $100,000. Uninsured balances aggregated $330,717 at
December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements dated December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 327,713
<SECURITIES> 86,591
<RECEIVABLES> 452,594
<ALLOWANCES> (31,183)
<INVENTORY> 12,707
<CURRENT-ASSETS> 921,167
<PP&E> 3,808,391
<DEPRECIATION> (1,658,867)
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0
0
<COMMON> 640
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<CGS> 1,438,639
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<INTEREST-EXPENSE> 25,740
<INCOME-PRETAX> 392,496
<INCOME-TAX> 386,609
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