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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-K
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended OCTOBER 31, 2008 or
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______.
Commission File No. 0-14443
WASTE TECHNOLOGY CORP.
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(Name of registrant as specified in its charter)
DELAWARE 13-2842053
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 RIO GRANDE AVENUE, JACKSONVILLE, FLORIDA 32254
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (904) 358-3812.
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE PER SHARE.
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined by Rule 405 of the Securities Act. Yes [_] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X]
Indicate by check mark whether the registrant (1) 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 was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation SK is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [_] Accelerated Filer [_] Non-accelerated Filer [_]
Smaller Reporting Company [X]
(Do not check if a Smaller Reporting Company)
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Indicate by checkmark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter (April 30, 2008 closing price $2.03): $4,341,872
State the number of shares outstanding of the registrant's $.001 par value
common stock as of the close of business on the latest practicable date (January
15, 2009): 4,933,895
Documents incorporated by reference: None.
TABLE OF CONTENTS
Page
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PART I
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Item 1. Business..................................................... 2
Item 2 Properties................................................... 6
Item 3. Legal Proceedings............................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.......... 7
PART II
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Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities............ 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation..................................... 8
Item 8. Financial Statements and Supplementary Data.................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 13
Item 9A(T) Controls and Procedures...................................... 13
Item 9B. Other Information............................................ 15
PART III
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Item 10. Directors and Executive Officers and Corporate Governance ... 15
Item 11. Executive Compensation....................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................... 23
Item 13. Certain Relationships and Related Transactions, and
Director Independence........................................ 24
Item 14. Principal Accountant Fees and Services....................... 26
PART IV
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Item 15. Exhibits, Financial Statement and Schedules.................. 27
SIGNATURES .................................................................. 30
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PART I
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ITEM 1. BUSINESS
Waste Technology Corp. ("Waste Tech") was incorporated on September 10, 1975, in
the State of Delaware under the name B.W. Energy Systems, Inc. Its name was
changed to Waste Technology Corp. in August 1983. Waste Tech is a holding
company which operates through its wholly owned subsidiary International Baler
Corp. ("IBC"), also a Delaware corporation. On July 30, 2004, Waste Tech's other
two operating wholly owned subsidiaries, Consolidated Baling Machine Company,
Inc. ("CBMC") and Florida Waste Systems, Inc. ("FWS") were merged into and
became part of IBC. CBMC previously sold balers manufactured for it by IBC under
the "Consolidated Baler" name and FWS had sold replacement parts to users of
waste hauling equipment. The operations of CBMC and FWS have been taken over and
continued by IBC.
Waste Tech and IBC maintain their executive offices and manufacturing facilities
at 5400 Rio Grande Avenue, Jacksonville, Florida 32254. Waste Tech's telephone
number is (904) 358-3812. Unless the context otherwise requires, the term
"Company" as used herein, refers to Waste Tech and its subsidiary on a
consolidated basis. The Company's fiscal year end is October 31.
General
The Company's principal business is the manufacture and sale of balers, which
are machines used to compress and compact various waste materials. The Company
manufactures approximately fifty (50) different types of balers for use with
corrugated, paper, municipal waste, textiles, scrap metal, and other products.
It is one of the leading manufacturers of balers designed to compact rubber,
plastic, cotton mote and textile waste products.
Since charges for transportation of waste material are generally based upon the
volume of waste, balers reduce volume substantially and therefore, reduce
transportation costs. Increases in the quantity of waste produced, government
restrictions on waste disposal, and mandated recycling of waste products have
greatly increased the need for transportation of waste and therefore, the need
for balers.
Products
Balers utilize mechanical, hydraulic, and electrical mechanisms to compress a
variety of materials into bales for easier and low cost handling, shipping,
disposal, storage, and/or bulk sales for recycling. Materials commonly baled
include scrap metal, corrugated boxes, newsprint, cans, plastic bottles, and
other solid waste. More sophisticated applications include baling of textile
waste and rubber.
The Company offers a wide variety of balers, certain types that are standardized
and others that are designed to specific customer requirements. The Company's
products include (i) general purpose
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horizontal and vertical balers, (ii) specialty balers, such as those used for
textile materials, used clothing, aluminum cans, 55-gallon drums and synthetic
rubber, and (iii) accessory equipment such as conveyors, fluffers, bale tying
machines, and plastic bottle piercers (machines which puncture plastic bottles
before compaction for greater density).
General Purpose Balers
These balers are designed for general purpose compaction of waste materials.
They are manufactured in either vertical or horizontal loading models, depending
on available floor space and desired capacity. Typical materials that are
handled by this equipment include paper, corrugated boxes, and miscellaneous
solid waste materials. These balers range in bale weight capacity from
approximately 300 to 2,000 pounds and range in price from approximately $5,000
to $400,000. General purpose baler sales constituted approximately 66% and 55%
of net sales on a consolidated basis for the fiscal years ended October 31, 2008
and 2007, respectively.
Specialty Balers
Specialty balers are designed for specific applications which require
modifications of the general baler configuration. The Company is attempting to
shift the emphasis in its product composition from general purpose to specialty
balers due to product profitability and broader geographic markets.
The scrap metal baler is designed to form a bale, referred to as a scrap metal
"briquette" of specified size and weight. The rubber baler is designed to apply
pressure in such a way as to compress the synthetic rubber into a self-contained
bale that does not require tying. The drum crusher baler is capable of
collapsing a standard 55-gallon drum into a "pancake" approximately four (4) to
eight (8) inches high, which also serves to contain any remaining contents. The
textile baler is capable of compressing and baling loose fibers, which do not
ordinarily adhere to each other under pressure. In addition, a double chamber
baler has been designed for use by the clothing and textile industries.
Specialty balers range in price from approximately $3,000 to $300,000, and are
less exposed to competitive pressures than are general purpose balers. Specialty
baler sales constituted approximately 21% and 30% of net sales on a consolidated
basis for the fiscal years ended October 31, 2008 and 2007,respectively.
Accessory Equipment
The Company manufactures and markets a number of accessory equipment items in
order to market a complete waste handling system. These include conveyors, which
carry waste from floor level to the top of large horizontal balers; extended
hoppers on such balers; rufflers, which break up material to improve bale
compaction; electronic start/stop controls and hydraulic oil coolers and
cleaners. At the present time, accessory equipment does not represent a
significant percentage of net sales.
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Manufacturing
IBC manufactures its products, in its facility in Jacksonville, Florida, where
it maintains a fully equipped and staffed manufacturing plant. IBC purchases raw
materials, such as steel sheets and beams and components such as hydraulic
pumps, valves and cylinders, and certain controls and other electric equipment
which are used in the fabrication of the balers. The Company has no long-term
supply agreements, and has not experienced unusual delay in obtaining raw
materials or components.
The raw materials required by IBC to manufacture the balers, principally steel,
motors, and hydraulic systems, are readily available from a number of sources
and IBC is not dependent on any particular source. IBC is not dependent on any
significant patents, trademarks, licenses, or franchises in connection with its
manufacture of balers.
While IBC maintains an inventory of raw materials, most of it is intended for
specific orders and inventory turnover is relatively rapid. Approximately 60% of
its inventory turns over in 45 to 90 days and the balance, consisting of
customized equipment, turns over in 3 to 6 months. IBC's business is not
seasonal.
Sales and Marketing
IBC sells its products throughout the United States and to some extent in
Europe, the Far East, and South America to manufacturers of synthetic rubber and
polymers, plastic recycling facilities, power generating facilities, textile
mills, paper mills, cotton gins, supermarkets and other retail outlets, paper
recycling facilities, and municipalities.
Most of the sales of IBC are made by its sales force of four (4) employees who
rely upon responses to advertising, personal visits, attendance at trade shows,
referrals from existing customers and telephone calls to dealers and/or end
users. Approximately 35% of net sales are made through manufacturer's
representatives and dealers. Sales made through the Company's dealers are
generally discounted and sales are recorded net of the discount amount.
Occasionally sales are made with a commission payment, selling expense, through
a representative who is not a dealer.
The Company's general purpose balers are sold primarily in the eastern United
States to such end users as waste producing retailers (supermarkets and liquor
stores, for example), restaurants, manufacturing and fabricating plants, bulk
material producers, nuclear plants, and solid waste recycling facilities.
Specialty balers are sold throughout the United States and to some extent in
Europe, the Far East, and South America to manufacturers of rubber and polymers,
plastic recycling facilities, paper recycling facilities, textile mills and
power generating facilities. Both types of balers are sold abroad. During fiscal
2008, foreign sales amounted to $3,114,130 or approximately 24% of consolidated
sales. In fiscal 2007, foreign sales amounted to $3,320,734, approximately 34%
of the Company's net sales.
During fiscal 2008, IBC had sales to more than 600 customers, none of which
accounted for more than 10% of net sales for the year. In fiscal 2007 the
Company had one customer which accounted for 17% of its net sales.
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The Company builds only a small quantity of balers for its inventory and
generally builds based on firm sales orders. The Company's open sales orders at
October 31, 2008 were $2,414,000 and at October 31, 2007 were $3,444,000. The
Company generally delivers its orders within four (4) months of the date booked.
Warranties and Service
IBC typically warranties its products for one year from the date of sale as to
materials and six months as to labor, and offers services for other required
repairs and maintenance. Service is rendered by repairing or replacing parts at
IBC's Jacksonville, Florida, facility, and by on-site service provided by
Company personnel who are based in Jacksonville, Florida, or by local service
agents who are engaged as needed. Repair services and spare parts sales
represented approximately 11% and 13% of the Company's consolidated net sales
for fiscal 2008 and 2007, respectively.
Competition
The potential market for the Company's balers is nationwide and overseas, but
the majority of the Company's general purpose baler sales are in the eastern
United States, primarily because of freight and service costs. The Company
competes in these markets with approximately 20 companies, none of which are
believed to be dominant, but some of which may have significantly greater sales
and financial resources than the Company. The Company is able to compete with
these companies due to its reputation in the market place, its ability to
service the balers it manufactures and sells, as well as its ability to custom
design balers to a customer's particular needs. The Company experiences intense
competition with respect to its lower priced or general purpose balers, based
upon price, including freight, and based on performance. The Company experiences
less competition with respect to its specialized baler equipment, such as
synthetic rubber, scrap metal, and textile balers.
Regulation
Machinery, such as the Company's balers, is subject to both federal and state
regulation relating to safe design and operation. The Company complies with
design requirements and its balers include interlocks to prevent operation while
the loading door is open, and also include required printed safety warnings.
Research and Development
The Company has the broadest line of products in the baler industry and
continues to provide its customers with new products and product improvements.
The Company invests a minimal amount on general research and development of new
products.
Compliance With Environmental Laws
The Company believes that it has complied with and is in compliance, with all
Federal, State, and Local environmental laws. The Company's expenditures to
remain in compliance are considered to be minimal.
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Employees
As of October 31, 2008, the Company employed 62 persons as follows: 6 in
management and supervision; 7 in sales and service; 43 in manufacturing; and, 6
in administration.
Available Information
The Company is a reporting company, as that term is defined under the Securities
Acts, and therefore, files reports, including, Quarterly Reports on Form 10-Q
and Annual Reports on Form 10-K and other information with the Securities and
Exchange Commission (the "Commission"). In addition, the Company will provide,
without charge to its stockholders, upon written or oral request by such
stockholder, a copy of any information referred to herein that is incorporated
by reference except exhibits to such information that are incorporated by
reference unless the exhibits are themselves specifically incorporated by
reference. All such requests should be directed to William E. Nielsen, at Waste
Technology Corp., 5400 Rio Grande Avenue, Jacksonville, Florida 32254, telephone
number (904) 358-3812.
The Company is an electronic filer. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission, including all of
the Company's filings with the Commission. The address of such site is
(http://www.sec.gov).
The Company's website is located at http://www.intl-baler.com. Under the
"Corporate Information" section of the website, you may access, free of charge,
the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, Section 16 filings (Form 3, 4 and 5) and any
amendments to those reports as reasonably practicable after the Company
electronically files such reports with the SEC. The information contained on the
Company's website is not part of this Report or any other report filed with the
SEC.
ITEM 2. PROPERTIES
IBC is the owner of the buildings and property located at 5400 Rio Grande
Avenue, Jacksonville, Florida. The building contains approximately 62,000 square
feet and is situated on eight (8) acres. IBC manufactures all of the Company's
products at this location. The property has no mortgage. However, the Company's
primary lender, First Guaranty Bank & Trust Company, has a security interest in
the property as part of the collateral for the line of credit and promissory
note which it provides to the Company. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Company has completed the preliminary planning for a potential plant
expansion of approximately 30,000 square feet of manufacturing space. Initial
estimates indicate that this project would require an investment of
approximately $2,000,000. The Company has not contracted to go forward with this
plant expansion. The Company's buildings and property are well maintained and
are adequately covered by insurance.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company which would have a
result materially adverse to the Company. To the knowledge of management, no
director, executive officer or affiliate of the Company or owner of record or
beneficially owned interest of more than 5% of the Company's common stock is a
party adverse to the Company or has a material interest adverse to the Company
in any proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter ending October 31, 2008.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's stock is presently traded on the OTC Electronic Bulletin Board of
NASDAQ under the symbol WTEK.OB. As of October 31, 2008, the number of
shareholders of record of the Company's Common Stock was approximately 500, and
management believes that there are approximately 1,000 beneficial owners of the
Company's common stock.
The range of high and low bid quotations for the Company's common stock during
the fiscal years ended October 31, 2008 and 2007, are set forth below.
Fiscal Year Ended
October 31, 2008 High Low
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First Quarter $ 1.35 $ 0.95
Second Quarter 2.05 1.17
Third Quarter 2.20 1.44
Fourth Quarter 2.01 1.05
Fiscal Year Ended
October 31, 2007 High Low
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First Quarter $ 1.03 $ 0.40
Second Quarter 2.00 0.58
Third Quarter 0.80 0.70
Fourth Quarter 1.25 0.60
The Company has paid no dividends since its inception. Other than the
requirement of the Delaware Corporation law that dividends be paid out of
capital surplus only, and that the declaration and payment of a dividend not
render the Company insolvent, there are no restrictions on the Company's present
or future ability to pay dividends.
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The payment by the Company of dividends, if any, in the future, rests within the
discretion of its Board of Directors and will depend, among other things, upon
the Company's earnings, its capital requirements, its financial condition and
other relevant factors. By reason of the Company's present financial status and
its contemplated financial requirements, the Company does not anticipate paying
any dividends on its common stock during the foreseeable future, but intends to
retain any earnings for future expansion of its business.
Recent Sales of Unregistered Securities
During the past two years ended October 31, 2008, the Company has not sold any
unregistered securities.
Purchases of Equity Securities
During the fiscal year ended October 31, 2008, neither the Company, nor anyone
on its behalf, repurchased any of the Company securities.
Securities authorized for issuance under equity compensation plans.
None
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations
For the fiscal year ending October 31, 2008, net sales were $12,768,868 compared
to $9,634,221 in fiscal 2007, an increase of 32.5%. The increased net sales were
the result of improved market conditions at the end of fiscal 2007 and in the
first ten months of 2008. In fiscal 2008 the Company shipped twenty-one auto-tie
balers as compared to seven in 2007 and shipped eight rubber baler systems in
2008 versus six in 2007.
The Company had net income of $2,055,282 in fiscal 2008 compared to net income
of $602,460 in fiscal 2007. Net income included the release of $1,190,000 of the
valuation allowance against accumulated deferred tax assets. Pre-tax income was
$1,399,722 in 2008 versus $607,559 in 2007. The higher pre-tax income in 2008
was the result of the higher shipments than in the prior year. Gross profit
margins improved to 22.6% in 2008 from 20.5% in 2007 due primarily to the higher
level of shipments and the additional absorption of fixed costs.
Selling and administrative expenses increased by $204,669 in 2008, a 15.2%
increase from the prior year, however, these expenses as a percentage of sales
decreased from 14.0% in 2007 to 12.1% in 2008. The primary increase in
administrative expense in fiscal 2008 was the result of the hiring of an "Acting
President", Mr. Greg Kirkpatrick in July 2007 through December 2007, and the
hiring of a new president, Roger Griffin,
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in February 2008. The Company paid directors fees of $44,000 in fiscal 2008 and
$34,000 in fiscal 2007 to directors who were not employees of the Company.
Liquidity and Capital Resources
The Company's net working capital at October 31, 2008, was $3,449,519 as
compared to $1,689,292 at October 31, 2007. The Company currently believes that
it will have sufficient cash flow from operations to be able to make the balance
of all of its installment payments and fund other operating activities for the
next twelve months.
In February 2007 the Company entered into a $202,722 term loan agreement with
First Guaranty Bank and Trust of Jacksonville. This loan is for a period of five
years with a fixed rate of interest of 8.5% and monthly payments of principal
and interest of $4,172. Collateral for this loan includes all assets of the
Company.
In March 2007, the Company had its $500,000 line of credit agreement with First
Guaranty Bank and Trust of Jacksonville increased to $1,000,000. The line of
credit allows the Company to borrow against the Company's assets. The line of
credit bears interest at the prime rate plus one-half percent and has a
remaining term of three years to March 2010. The line of credit had an
outstanding balance of $5,654 at October 31, 2008 and 2007, and the unused line
of credit was $994,346 at October 31, 2008. The Company has a certificate of
deposit which is security for a letter of credit with Wachovia Bank of $224,100
which expires on July 31, 2010.
The Company made additions to its manufacturing equipment of $108,192 and
improvements to its buildings of $96,380 in fiscal 2008. As stated previously,
(see Item 2) the Company has completed the preliminary planning for a potential
plant expansion of approximately 30,000 square feet of manufacturing space which
would require an investment of approximately $2,000,000. The cost of the plant
expansion planning, $65,000, includes civil plans and architectural drawings.
Other than as set forth above, there are no unusual or infrequent events or
transactions or significant economic changes which materially affect the amount
of reported income. The Company believes that its cash, line of credit, and
results of operations are sufficient to fund future operations.
The Company is unaware of any events or uncertainties which are reasonably
likely to have a material impact on the Company's short-term or long-term
liquidity or the net sales, or net income. The Company has no known or
anticipated significant elements of income or loss that do not arise from the
Company's operations.
Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements.
9
Inflation
The costs of the Company and its subsidiary are subject to the general
inflationary trends existing in the general economy. The Company believes that
expected pricing by its subsidiary for balers will be able to include sufficient
increases to offset any increase in costs due to inflation. During fiscal 2008
the Company experienced substantial increases in steel prices, a major component
of its products, and the Company was able to increase prices to cover the
additional cost.
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires our management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and
expenses, as well as related disclosures of contingent assets and liabilities.
We evaluate our estimates on an ongoing basis and we base our estimates on
historical experience and various other assumptions we deem reasonable to the
situation. These estimates and assumptions form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Changes in our estimates could materially impact
our results of operations and financial condition in any particular period.
We consider our critical accounting policies and estimates to be as follows
based on the high degree of judgment or complexity in their application:
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses on
trade receivables resulting from the inability to collect outstanding accounts
due from its customers. The allowances include estimates of specific amounts for
those accounts that are likely to be uncollectible, such as bankruptcies, and
general allowances for those accounts that management currently believes to be
collectible but may later become uncollectible. Management believes the
estimates used in determining the allowance for doubtful accounts are critical
accounting estimates because changes in credit worthiness and economic
conditions, including bankruptcies, could have a material impact on operating
results.
The estimates used to determine the allowances for doubtful accounts are based
on historical collection experience, current economic trends, credit-worthiness
of customers, and changes in customer payment terms. The Company reviews its
allowance for doubtful accounts monthly. Past due balances are reviewed
individually for collectibility. Account balances are charged off against the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote.
10
Inventory Allowance
The Company maintains an allowance for excess or slow moving inventory based on
the expectation that this inventory will become obsolete or unusable within a
reasonable time period. Company personnel review the potential usage of
inventory components on a regular basis and all inventory is reviewed annually.
The allowance is estimated based on factors such as historical trends, current
market conditions and management's assessment of when the inventory would likely
be sold and the quantities and prices at which the inventory would likely be
sold in the normal course of business. Changes in product specifications,
customer product preferences or the loss of a customer could result in
unanticipated impairment in net realizable value that may have a material impact
on cost of goods sold, gross margin and net income. Obsolete or damaged
inventory is disposed of or written down to net realizable value on a quarterly
basis. Additional adjustments, if necessary, are made based on management's
specific review of inventory on-hand. Management believes the estimates used in
determining the allowance for excess and slow moving inventory are critical
accounting estimates as changes in the estimates for both segments could have a
material impact on net income and the estimates involve a high degree of
judgment.
Warranty Allowance
The Company warrants its products for one (1) year from the date of sale as to
materials and six (6) months as to labor, and offers a service plan for other
required repairs and maintenance. Warranty parts shipments and warranty service
repairs are expensed as they occur and the Company maintains an accrued
liability for expected warranty claims. The warranty allowance is based on
historical warranty costs, the amount of prior year shipments, and known
potential warranty issues.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
There were no valuation allowances on the $650,760 of deferred tax assets at
October 31, 2008 as management believes it will fully utilize them.
Beginning with the adoption of FASB Interpretation No. 48, ACCOUNTING FOr
UNCERTAINTY IN INCOME TAXES (FIN 48) as of November 1, 2007, the Company
recognizes the effect of income tax positions only if those positions are more
likely than not of being sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes
in recognition or measurement are reflected in the period in which the change in
judgment occurs. Prior to the adoption of FIN 48, the Company recognized the
effect of income tax positions only if such positions were probable of being
sustained.
11
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
"SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS No. 157 does not require any new fair value
measurements. SFAS No. 157 becomes effective for fiscal years beginning after
November 15, 2007, which is the Company's 2009 fiscal year beginning on November
1, 2008. In February 2008, the FASB issued FASB staff position No. 157-2,
effective date of FASB statement No. 157 (FSP 157-2), which delayed the
effective date of SFAS 157 for certain non-financial assets and non-financial
liabilities to fiscal years beginning after November 15, 2008. The Company
continues to evaluate the impact of SFAS No. 157 and FSP 157-2 on its
consolidated financial statements, but at this time does not expect the
potential impact of adopting this standard to have a material effect on the
Company's financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115. "SFAS No. 159 permits companies to measure many financial
instruments and certain other items at fair value at specified election dates.
Unrealized gains and losses on these items will be reported in earnings at each
subsequent reporting date. The fair value option may be applied instrument by
instrument (with a few exceptions), is irrevocable and is applied only to entire
instruments and not to portions of instruments. This new standard becomes
effective for fiscal years that begin after November 15, 2007, which is the
Company's 2009 fiscal year beginning on November 1, 2008. The Company continues
to evaluate the impact of SFAS No. 159 on its consolidated financial statements.
In December 2007, FASB issued FASB Statement No. 141R, BUSINESS COMBINATIONS
(Statement 141R) and FASB Statement No. 160, NONCONTROLLING INTEREST IN
CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT TO ARB NO. 51 (Statement 160).
Statements 141R and 160 require most identifiable assets, liabilities,
noncontrollig interests, and goodwill acquired in a business combination to be
recorded at "full fair value" and require noncontrolling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest
holders. Both Statements are effective for periods beginning on or after
December 15, 2008, and earlier adoption is prohibited. Statement 141R will be
applied to business combinations occurring after the effective date. Statement
160 will be applied prospectively to all noncontrolling interests, including any
that arose before the effective date. The Company is currently evaluating the
impact of adopting Statement 141R and Statement 160 on its results of operations
and financial position.
12
This "Management's Discussion and Analysis" contains forward-looking statements
within the meaning of Section 21B of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions that such
statements are necessarily based on certain assumptions which are subject to
risks and uncertainties, including, but not limited to, changes in general
economic conditions and changing competition which could cause actual results to
differ materially from those indicated.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data commence on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the Company in reports it
files or submits under the Securities Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and that such information is accumulated and communicated to the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. As of the end of the period covered by this report, and under the
supervision and with the participation of management, including its Chief
Financial Officer, management evaluated the effectiveness of the design and
operation of these disclosure controls and procedures. Based on this evaluation
and subject to the foregoing, the Company's Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective in reaching
a reasonable level of assurance of achieving management's desired controls and
procedures objectives.
As part of a continuing effort to improve the Company's business processes
management is evaluating its internal controls and may update certain controls
to accommodate any modifications to its business processes or accounting
procedures.
13
Internal Control over Financial Reporting
(a) Management's Annual Report on Internal Control Over Financial
Reporting
The Company's management is responsible for establishing and maintaining
effective internal controls over financial reporting, as such terms is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. The Company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company;(ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the Company's financial
statements.
Management, with the participation of the Company's principal executive and
principal financial officers, assessed the effectiveness of the Company's
internal control over financial reporting as of October 31, 2008. This
assessment was performed using the criteria established under the Internal
Control-Integrated Framework established by the Committee of Sponsoring
Organization of the Treadway Commission ("COSO").
Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations,
including the possibility of human error or circumvention or overriding of
internal control. Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to financial
statement preparation and reporting and may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Based on the assessment performed using the criteria established by COSO,
management has concluded that the Company maintained effective internal control
over financial reporting as of October 31, 2008.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
14
(b) Changes in Internal Control over Financial Reporting
During the year ended October 31, 2008, there have not been any changes in the
Company's internal controls that have materially affected or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
At a Board of Directors meeting held on January 5, 2009 the Board of Directors
named Mr. John J. Martorana to the Board of Directors of the Company. Most
recently Mr. Martorana has been a consultant to several divisions of Wastequip,
Inc. since 2007. Mr. Martorana was the President of Wastequip of Florida from
1994 to 2007 after joining the Company in 1991 as Vice President. From 1984 to
1991 he was responsible for sales and steel purchasing for Industrial Refuse
Sales Inc., a family owned business which was sold to Wastequip, Inc. Prior to
joining Industrial Refuse Sales Mr. Martorana worked in the steel industry. He
graduated from Butler University, Indianapolis, Indiana in 1972.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Officers
The current executive officers and directors of the Company are as follows:
DATE OF INITIAL
ELECTION OR
NAME AGE POSITIONS HELD DESIGNATION
- ---- --- -------------- ---------------
Roger Griffin 47 Director 4/21/08
5400 Rio Grande Ave. President &
Jacksonville, FL 32254 Chief Executive Officer
LaRita Boren 72 Director 3/09/05
9315 South 950 East
Upland, IN 46989
Leland E. Boren 85 Director 3/09/05
9315 South 950 East
Upland, IN 46989
Ronald L. McDaniel 69 Director 5/16/06
2700 West 36th Place Chairman of the Board
Chicago, IL 60632
William E. Nielsen 61 Director 11/20/97
5400 Rio Grande Ave. Chief Financial Officer 6/14/94
Jacksonville, FL 32254
Matthew M. Price 41 Director 5/11/07
2700 Market Tower
10 West Market Street
Indianapolis, IN 46204
David B. Wilhelmy 54 Director 9/01/02
5400 Rio Grande Ave. Vice President Sales
Jacksonville, FL 32254 and Marketing
John J. Martorana 58 Director 1/5/09
5148 Hanover Lane
Lakeland, FL 33817
15
The Board of Directors is divided into three (3) classes of directors ("Class
I", "Class II", and "Class III"), with each class having as nearly the same
number of directors as practicable. Stockholders elect such class of directors,
Class I, Class II, or Class III, as the case may be, to succeed such class
directors whose terms are expiring, for a three (3) year term, and such class of
directors shall serve until the successors are elected and qualify. Officers of
the Company serve at the pleasure of the Board of Directors.
During fiscal 2008 the Board of Directors met three times.
There are no family relationships between executive officers or directors of the
Company except that LaRita Boren and Leland E. Boren are husband and wife.
Except as noted above, there is no understanding or arrangement between any
director or any other persons pursuant to which such individual was or is to be
selected as a director or nominee of the Company.
Background of Executive Officers and Directors
The following is a brief account of the experience, during the past five years,
of each director and executive officer of the Company:
Roger Griffin joined the Company in February 2008 as President and Chief
Executive Officer. Previously Mr. Griffin was Vice President of Operations at
Schaefer Interstate Railing in Salisbury, NC. Prior to that Mr. Griffin spent
several years with Metaldyne which acquired the Whitsett, NC plant of Dana
Corporation and before that he spent eleven years in management with Dana
Corporation at their Whitsett, NC and Jonesboro, AR facilities.
LaRita R. Boren is the Executive Director of Avis Industrial Corporation. She
has served as a member of the Board of Directors of Avis since 1979 and as
Vice-President from 1986 until April, 2006 when she was elected Executive
Director. She is also on the Board of Directors of The Boren Foundation, Inc.,
Citizens Plaza Building, LLC, Citizens Travel Agency, The Heartland Film
Festival, Lyford Cay Foundation Inc., J.M. Music, Inc., Taylor University,
LeLaLo Foundation, Inc., and Spring Hill Music Group, Inc. Mrs. Boren received a
Bachelors of Science degree from Oklahoma State University in 1957. She has an
honorary Doctor of Business Management degree from Indiana Wesleyan University
and a Doctor of Humane Letters degree from Taylor University. Mrs. Boren has
been married to Leland E. Boren, also a Director of Avis Industrial Corporation
since 1958.
Leland E. Boren is the Chairman, Chief Executive Officer and President of Avis
Industrial Corporation located in Upland, Indiana. From 1945 through
16
1971 Mr. Boren was employed by The Pierce Company (formerly The Pierce Governor
Company) in various capacities. He became President of The Pierce Governor
Company in 1958. The Pierce Company merged with Avis Industrial Corporation in
1971 and Mr. Boren became President of Avis at that time. Mr. Boren has been
married to LaRita R. Boren, who is also a Director of Avis Industrial
Corporation since 1958.
Ronald L. McDaniel has been president of Western-Cullen-Hayes, Inc. since 1980.
He was Vice President and General Manager of Western-Cullen-Hayes from 1975 to
1980. From 1957 to 1975 Mr. McDaniel worked for Western-Cullen-Hayes and Burro
Crane, an affiliated company, in various capacities including division
controller. Mr. McDaniel has a bachelor's degree from the University of Dayton
and an MBA from the University of Chicago.
William E. Nielsen prior to joining the Company, acted as a financial consultant
to Fletcher Barnum Inc., a privately held manufacturing concern, from October
1993 through June 1994. From 1980 through July 1993, he was the Vice President,
Administration and Finance at Unison Industries, Inc. Mr. Nielsen received a BBA
in Finance and an M.B.A. at Western Illinois University in 1969 and 1970,
respectively.
David B. Wilhelmy prior to joining the Company, Mr. Wilhelmy was Vice
President/Sales and Acquisitions for Consolidated Packaging Systems, a joint
venture with Gryphon Investors to consolidate the packaging systems distribution
industry, from January 2000 through August 2002. Mr. Wilhelmy was the Southeast
Regional Vice President of Sales and Marketing for Packaging for Unisource
Distribution Company from 1993 to 2000. Mr. Wilhelmy received a Bachelor Degree
in Business Administration from Madison University.
Mathew M. Price is an attorney with the law firm of Bingham McHale LLP since
1993. Mr. Price received a BA degree from Wabash Collage in 1990 and a J.D. from
Indiana University School of Law in 1993. Mr. Price is a member of the American
Bar Association, Indiana State Bar Association and the Indianapolis Bar
Association. Mr. Price is a member of his law firm's manufacturing industry
team, and his practice focus is on issues relating primarily to manufacturers.
John J. Martorana has been a consultant to several divisions of Wastequip, Inc.
since 2007. Mr. Martorana was the President of Wastequip of Florida from 1994 to
2007 after joining that company in 1991 as Vice President. From 1984 to 1991 he
was responsible for sales and steel purchasing for Industrial Refuse Sales Inc.,
a family owned business which was sold to Wastequip, Inc. Prior to joining
Industrial Refuse Sales Mr. Martorana worked in the steel industry. He graduated
from Butler University in 1972.
Involvement in Certain Legal Proceedings
To the knowledge of the Company's management, during the past five years, no
director, person nominated to become a director or an executive officer of the
Company:
17
(1) Filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer
appointed by a court for the business or property of such
person, or any partnership in which he or she was a general partner at
or within two years before the time of such filing, or any corporation
or business association of which he or she was an executive officer at
or within two years before the time of such filing;
(2) Was convicted in a criminal proceeding or named subject of pending
criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Was the subject of any order, judgment, or decree not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or
otherwise limiting his or her involvement in any type of business,
securities, or banking activities;
(4) Was found by a court of competent jurisdiction in a civil action by
the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any Federal or State Securities
laws, and the judgment in such civil action of finding by the
Securities and Exchange Commission has not been subsequently reversed,
suspended, or vacated.
Section 16 (a) Beneficial Ownership Reporting Compliance
In fiscal 2008, none of the Company's officers, directors, and beneficial owners
of more than ten percent of the company's common stock were delinquent in filing
of any of their Form 3, 4, and 5 reports.
Code of Ethics
The Company has adopted a code of business conduct and ethics for directors,
officers (including the Company's principal executive officer, principal
financial officer and controller) and employees, known as the Standards of
Business Conduct. The Standards of Business Conduct are available on the
Company's website at http://www.intl-baler.com. The Company intends to disclose
any Amendments to its Code of Ethics and any waiver from a provision of the Code
of Ethics granted to the Company's Chief Executive Officer, Chief Financial
Officer, or other persons performing similar functions, on the Company's website
within five business days following such amendment or waiver. Stockholders may
request a free copy of the Standards of Business Conduct from:
Waste Technology Corp.
Attention: William E. Nielsen
5400 Rio Grande Avenue
Jacksonville, Florida 32254
(904)358-3812
18
Committees
The Company's Board of Directors consists of eight members, three of whom the
Board has determined are independent, Ronald McDaniel, Mathew Price and John
Martorana. The Company has sought and continues to seek appropriate individuals
to serve on the Board of Directors who meet the requirements necessary to
qualify as independent directors to serve on the Company's Board of Directors.
The Company has encountered difficulty in finding such independent directors
because it does not have sufficient funds to purchase directors and officers
insurance or compensate such independent directors for their services.
Ronald McDaniel, Mathew Price and LaRita Boren are members of Board's Audit
Committee. Mr. McDaniel serves as the audit committee's "financial expert" as
that term is defined by applicable Securities and Exchange Commission ("SEC")
regulations. Mr. McDaniel's qualifications for this position are based upon his
educational background and work experience as set forth above. The Company's
Audit Committee Charter is posted on the Company's website.
LaRita Boren and Mathew Price are members of the nominating committee. In
identifying Board candidates, the committee will seek recommendations from
existing Board members, executive officers of the Company and all persons who
own more than five percent (5%) of the Company's outstanding stock. The Board
has no stated specific minimum qualifications that must be met by a candidate
for a position on the Board of Directors. The Board will consider a variety of
factors in evaluating the qualifications of a candidate including the
candidate's professional experience, educational background, knowledge of the
Company's business and personal qualities. The Board may, when appropriate,
retain an executive search firm and other advisors to assist it in identifying
candidates for the Board. In addition, the Board will consider any candidates
that may have been recommended by any of the Company's stockholders who have
made those recommendations in accordance with the Company's procedures described
in the Company's last notice of annual meeting and proxy statement (the
"Notice"). There have been no changes to those procedures since the mailing of
the Notice. In addition, such stockholder recommendation must be accompanied by
(1) such information about each prospective director nominee as would have been
required to be included in a proxy statement filed pursuant to the rules of the
SEC had the prospective director nominee been nominated by the Board of
Directors and (2) that the prospective director nominee has consented to be
named, if nominated, as a nominee and, if elected, to serve as a director.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The objective of the Company's compensation program is to attract and retain
qualified and talented professional individuals to perform the duties of the
Company's executive offices. The Company's compensation program is designed to
fairly reward the Company's executive officers for their overall performance
19
in the management of the affairs of the Company. The measurement of successful
performance has significant elements of subjective judgment in view of the lack
of any directly comparable single element or group of elements to which the
Company and its performance may be readily compared from time to time.
The elements of compensation of the Company's compensation programs include
salary, health insurance, stock options, and in certain circumstances the award
of a cash bonus. As of the present time, the Company compensation plan does not
include any defined benefit retirement plan; any social club memberships or dues
or any payments for housing, cars, boats, or other property of any kind to any
person. The Company has not entered into any employment contracts with its
executive officers nor any contracts for compensation to any person in the event
of a change in control of the Company. The Company pays no other elements of
compensation to its executive officers. The relatively small size of the Company
in comparison to other entities presents the Company with additional risks in
meeting its objectives of attracting and retaining qualified and talented
professional individuals.
The salary component of the compensation is most important and the Company
attempts to be competitive with what it believes to be the compensation of other
companies of similar size and scope of operations. To date the Company has not
engaged the services of a compensation review consultant or service in view of
the cost of such services compared to the size and revenues of the Company. The
award of a bonus upon review of Company performance provides an additional
incentive. The Company determines the amount for each element to pay by
reviewing annually the compensation levels of the Company's executive officers
and determining from the performance of the Company during that time since the
last review what an appropriate compensation level may be during the upcoming
annual period. The Company has no existing formula for determination of the
salary, stock options, or bonus elements of compensation.
Executive Officer Compensation
The following table sets forth a summary of all compensation awarded to, earned
by or paid to, the Company's Chief Executive Officer, Chief Financial Officer
and each of the Company's executive officers whose compensation exceeded
$100,000 per annum for services rendered in all capacities to the Company and
its subsidiaries during fiscal years ended October 31, 2008 and 2007:
20
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM AWARDS
==================================================================================================================
OTHER ANNUAL
NAME AND SALARY BONUS COMPENSATION NUMBER OF ALL OTHER TOTAL
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS COMPENSATION COMPENSATION
==================================================================================================================
Roger Griffin 2008 91,500 50,000 -0- -0- -0- 141,500
President & CEO
William E. Nielsen 2008 133,302 22,000 -0- -0- -0- 155,302
Chief Financial 2007 131,440 17,500 -0- -0- -0- 148,940
Officer(1)
David B. Wilhelmy 2008 132,305 22,000 -0- -0- -0- 154,305
Vice President Sales 2007 129,602 17,500 -0- -0- -0- 147,102
and Marketing
Greg Kirkpatrick 2008 29,475 -0- -0- -0- -0- 29,475
Acting President(2) 2007 58,950 -0- -0- -0- -0- 58,950
==================================================================================================================
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS STOCK AWARDS
====================================================================================================================================
Name Number Number of Equity Option Option Number Market Value Equity Equity
of Securities Incentive Exercise Expiration of of Shares or Incentive Incentive
Securities Underlying Plan Price Date Shares Units of Plan Plan Awards:
Underlying Unexercised Awards: ($) or Units Stock That Awards: Market or
Unexercised Options Number of Stock Have Not Number of Payout Value
Options (#) of That Vested Unearned of Unearned
(#) Unexercisable Securities Have Not (#) Shares, Shares,
Exercisable Underlying Vested Unitsor Units or
Unexercised (#) Other Other Rights
Unearned Rights That That Have
Options Have Not Not Vested
Vested (#)
(#) (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
====================================================================================================================================
William E. 250,000 -0- -0- $0.30 2/7/2012 -0- -0- -0- -0-
Nielsen
Chief
Financial
Officer
====================================================================================================================================
_____________________
1. William Nielsen was President and CEO until September 18, 2007.
2. Greg Kirkpatrick was acting President from September 18, 2007 to
December 19, 2007.
21
None of the Company's other Executive Officers earned compensation in fiscal
2008 and 2007 in excess of $100,000 for services rendered to the Company in any
capacity.
Option Grants and Exercises in Last Fiscal Year
No options were granted or exercised during fiscal 2008 by the Company's Chief
Executive Officer or any of the Company's most highly compensated executive
officers whose compensation exceeded $100,000 for Fiscal 2008.
Compensation of Directors
The Board of Directors of the Company has resolved to compensate non-employee
directors $1,000 per month, together with direct out-of-pocket expenses incurred
to attend meetings.
Members of the Board of Directors may also be requested to perform consulting or
other professional services for the Company from time to time. The Board of
Directors has reserved to itself the right to review all directors' claims for
compensation on an ad hoc basis.
Directors who are on the Company's Audit, Compensation, and Nominating
Committees do not receive any consulting, advisory or compensatory fees from the
Company. However, such Board members may receive fees from the Company for their
services on those committees.
- -------------------------------------------------------------------------------------------------------------------------------
DIRECTOR COMPENSATION FOR FISCAL 2008
- -------------------------------------------------------------------------------------------------------------------------------
Change in All Other Total
Name Fees Stock Option Non Pension Value Compensation
Earned or Awards Awards Equity and Nonqualified
Paid Incentive Deferred
in Cash Plan Compensation
Compensation Earnings
($) ($) ($) ($) ($) ($) ($)
- ------------------ ------- ------ ------ ------ ------ ------ -------
Ronald L. McDaniel 12,000 -0- -0- -0- -0- -0- 12,000
- ------------------ ------- ------ ------ ------ ------ ------ -------
Mathew M. Price 12,000 -0- -0- -0- -0- -0- 12,000
- ------------------ ------- ------ ------ ------ ------ ------ -------
LaRits Boren 10,000 -0- -0- -0- -0- -0- 10,000
- ------------------ ------- ------ ------ ------ ------ ------ -------
Leland Boren 10,000 -0- -0- -0- -0- -0- 10,000
- ------------------ ------- ------ ------ ------ ------ ------ -------
Employment Contracts
The Company does not have employment contracts with the Chief Executive Officer
or any other member of management.
Compensation Committee Interlocks and Insider Participation
There are no interlocking relationships between any member of the Company's
Compensation Committee and any member of the compensation committee of any other
company, nor has any such interlocking relationship existed in the past. No
member of the Compensation Committee is or was formerly an officer or an
employee of the Company.
22
Compensation Committee Report
The Compensation Committee reviews with management the Compensation Discussion &
Analysis section of the Company's 2008 Form 10-K, Item 11, and Proxy Statement.
Based on its review and discussions with management the Compensation Committee
recommends to the Board of Directors that the Compensation Discussion and
Analysis be included in the Company's Proxy Statement for 2008 and in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2008.
The Compensation Committee
LaRita Boren
Ronald L. McDaniel
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information with respect to the ownership
of the Company's Common Stock as of December 31, 2008 by (i) those persons known
by the Company to be the beneficial owners of more than 5% of the total number
of outstanding shares of Common Stock, (ii) each director and executive officer,
and (iii) all officers and directors as a group as of December 31, 2008 with
these computations based on 4,933,895 shares of common stock being outstanding
at that time.
AMOUNT OF APPROXIMATE
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER TITLE HELD OWNERSHIP(1) OF CLASS
Roger Griffin President None -0-
5400 Rio Grande Ave. & CEO
Jacksonville, FL 32254
LaRita Boren Director 2,423,853 46.8%
9315 South 950 East
Upland, IN 46989
Leland E. Boren Director 220,768 4.3%
9315 South 950 East
Upland, IN 46989
Ronald L. McDaniel Director None -0-
Western-Cullen-Hayes, Inc.
2700 W. 36th Place
Chicago, IL 60632
William E. Nielsen Director 250,000(2) 4.8%
5400 Rio Grande Avenue Chief Financial
Jacksonville, FL 32254 Officer
Mathew M. Price Director None -0-
Bingham McHale LLP
10 West Market Street
Indianapolis, IN 46204
23
Alexander C. Toppan Stockholder 496,050(3) 10.1%
40 Spectacle Ridge Road
South Kent, CT 06785
David B. Wilhelmy Director None -0-
5400 Rio Grande Avenue Vice President Sales
Jacksonville, FL 32254 and Marketing
Waste Technology Corporation Stockholder 150,421(4) 2.9%
Profit Sharing Trust
5400 Rio Grande Avenue
Jacksonville, FL 32254
All Officers and Directors 3,045,042(5) 58.7%
as a Group (5 persons)
________________
(1) Unless otherwise stated, all shares of common stock are directly held with
sole voting power and dispositive power.
(2) Consists of fully exercisable options to purchase 250,000 shares.
(3) Shares are held in joint tenancy with his wife, Mary Anne T. Toppan.
(4) Employees' Profit Sharing Trust of which William Nielsen is Trustee.
(5) Consists of 2,644,621 shares held directly; fully exercisable options to
purchase 250,000 shares; and 150,421 shares held by Waste Technology
Corporation Employee Profit Sharing Trust.
Changes In Control
To the knowledge of the Company's management, there are no present arrangements
or pledges of the Company's securities which may result in a change in control
of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Transactions with Management and Others
LaRita Boren and Leland E. Boren, both, shareholders and directors of the
Company, are the owners of Avis Industrial Corporation (Avis). Together the
Borens own 53.6% of the outstanding shares of the Company. Avis owns 100% of
American Baler Company, a competitor of the Company's wholly-owned subsidiary,
IBC. These baler companies operate completely independent of each other.
In the fiscal years ending October 31, 2008 and 2007 IBC had equipment sales to
American Baler Company totalling $ 224,440 and $361,729, respectively. These
sales included types of products American Baler does not manufacture. These
sales were made under the Company's normal dealer discount schedule. IBC
purchased no equipment from American Baler.
24
In July of 2007 the Company hired a consultant thru Avis, Mr. Greg Kirkpatrick,
for the purpose of improving the Company's manufacturing operations. Mr.
Kirkpatrick was named "Acting President" in September 2007. The cost of the
professional service and related expense to the Company was approximately
$48,000 and $70,000 in fiscal 2008 and 2007, respectively. Kirkpatrick completed
his consulting project and left the Company in December of 2007.
Indebtedness of Management
No officer, director or security holder known to the Company to own of record or
beneficially more than 5% of the Company's common stock or any member of the
immediate family of any of the foregoing persons is indebted to the Company.
Parent of the Issuer
The Company has no parent.
Independence of Directors
Rule 4350 (c) (1) of The Nasdaq Stock Market rules requires that a majority of
the members of the Company's Board of Directors be independent in that they are
not officers or employees of the Company and are free of any relationship that
would interfere with the exercise of their independent judgment.
The Board of Directors has determined that and three of the Company's eight
Directors, Ronald L. McDaniel, Matthew M. Price and John Martorana are
independent as defined by the listing standards of the Nasdaq Stock Market
Rules, Section 10A(m)(3) of the Securities Exchange Act of 1934 and the rules
and regulations of the Securities and Exchange Commission.
However, Rule 4350(c)(5) provides an exemption from the requirement that a
majority of the Company's Directors be independent if the Company is considered
a "controlled company". A controlled company is defined as a company of which
more than 50% of the voting power is held by an individual, a group or another
company. LaRita Boren and Leland E. Boren, who are husband and wife and members
of the Company's Board of Directors, have a verbal agreement or understanding to
vote their shares in a like manner. As Mr. And Mrs. Boren together beneficially
own more than 50% of the outstanding shares of the Company's common stock, the
Company is considered a "controlled company" under the applicable rules of The
Nasdaq Stock Market and as such is exempt from certain of the corporate
governance rules of The Nasdaq Stock Market, such as the requirement that the
board of directors consist of a majority of independent directors.
25
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents the fees for professional audit services rendered
by KPMG LLP for the audit of the Company's annual consolidated financial
statements for the fiscal years ended October 31, 2008 and 2007, and fees for
other services rendered by KPMG LLP during those periods:
Fee Category Fiscal 2008 Fiscal 2007
------------ ----------- -----------
Audit Fees $ 70,000 $ 70,000
Audit-Related Fees 0 0
Tax Fees $ 11,000 10,000
All Other Fees 0 0
Total Fees $ 81,000 $ 80,000
Audit fees include fees related to the services rendered in connection with the
annual audit of the Company's consolidated financial statements, the quarterly
reviews of the Company's quarterly reports on Form 10-Q and the reviews of and
other services related to registration statements and other offering memoranda.
Audit-related fees are for assurance and related services by the independent
registered public accounting firm that are reasonably related to the performance
of the audit or review of the Company's financial statements.
Tax Fees include (i) tax compliance, (ii) tax advice, (iii) tax planning and
(iv) tax reporting.
All Other Fees includes fees for all other services provided by the principal
accountants not covered in the other categories such as litigation support, etc.
All of the 2008 services described above were approved by the Audit Committee in
accordance with the SEC rule that requires audit committee pre-approval of audit
and non-audit services provided by the Company's independent registered public
accounting firm. The Audit Committee has considered whether the provisions of
such services, including non-audit services, by KPMG LLP is compatible with
maintaining KPMG LLP's independence and has concluded that it is.
26
ITEM 15. EXHIBITS
The Following Documents are Filed as Part of this Report
1. Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Exhibits
The following exhibits are filed with, or incorporated by reference
into this report.
Exhibit
Number Description
- ------- -----------------------------------------------------------------------
2.1 Agreement of Merger between International Baler Corporation and IBC
Merger Corporation dated June 24, 1997 (Incorporated by reference to
Exhibit 10.39 to Company's Current Report on Form 8-K, Date of Report
June 27, 1997["Report on Form 8-K June 27, 1997"]).
2.2 Certificate of Merger of International Baler Corporation into IBC
Merger Corporation (Incorporated by reference to Exhibit 10.39.1 to
Report on Form 8-K June 27, 1997).
2.3 Certificate of Merger merging Consolidated Baling Machine Company, Inc.
and Florida Waste Systems, Inc. Into International Baler Corporation
filed July 30, 2004.
3.1 Articles of Incorporation and by-laws of Waste Technology Corp. and
amendments (Incorporated by reference to the Company's Registration
Statement on Form S-18 filed in April, 1985, Registration No.
2-97045[the "Statement on Form S-18"])
3.2 Certificate of Incorporation of International Baler Corporation f/k/a
National Compactor & Technology Systems, Inc. and all amendments
thereto (Incorporated by reference to Exhibit 3.3 to Form 8 Amendment
No.1 to the Company's Annual Report on Form 10-K for the year ended
October 31, 1989["Amendment No. 1 to 1989 Form 10-K"]).
3.3 By-laws of International Baler Corporation (Incorporated by reference
to Exhibit 3.4 to Amendment No. 1 to 1989 Form 10-K).
27
3.4 Certificate of Incorporation of Consolidated Baling Machine Co., Inc.
f/k/a Solid Waste Recovery Test Center, Inc. and all amendments thereto
(Incorporated by reference to Exhibit 3.5 to Amendment No. 1 to 1989
Form 10-K).
3.5 By-laws of Consolidated Baling Machine Co., Inc. (Incorporated by
reference to Exhibit 3.6 to Amendment No. 1 to 1989 Form 10-K).
3.7 Certificate of Amendment to Certificate of Incorporation of Waste
Technology Corp. Filed on November 4, 1991(Incorporated by reference to
Exhibit 3.1.1 to Company's Annual Report on Form 10-K for the year
ended October 31, 1991[the "1991 Form 10-K"]
3.8 Certificate of Amendment to Certificate of Incorporation of Waste
Technology Corp. Filed on November 21 1991(Incorporated by reference to
Exhibit 3.1.2 to Company's 1991 Form 10-K).
3.9 Revised and restated by-laws of Waste Technology Corp. (Incorporated by
reference to Exhibit 3.2 to Company's 1991 Form 10-K).
3.10 Amendment to revised and restated by-laws of Waste Technology Corp.
(Incorporated by reference to Exhibit 3.2.1 to Company's 1991 Form
10-K).
3.11 Certificate of Incorporation of Waste Tech Real Estate Corp.
(Incorporated by reference to Exhibit 3.7 to Company's Annual Report on
Form 10-K for year ended October 31, 1990).
4.1 1995 Stock Option Plan (Incorporated by reference to Exhibit 4.1 to
Annual Report on Form 10-K for the year ended October 31, 1995).
10.1 Agreement between the Company and International Baler Corp. dated
September 8, 1986, relating to acquisition of assets and stock
(Incorporated by reference to Exhibit 10.1 to Statement on Form S-18).
10.2 Agreement dated February 3, 1987, between the Company and N. J.
Cavagnaro & Sons and Machine Corp., Nicholas J. Cavagnaro Jr., George
L. Cavagnaro, and Pauline L. Cavagnaro together with the exhibits
annexed thereto for the acquisition of N. J. Cavagnaro & Sons Machine
Corp. (Incorporated by reference to Exhibit 10.2 to Company's Annual
Report on Form 10-K for the year ended October 31, 1987 [the "1987 Form
10-K"]).
10.3 Waste Technology Corp. Profit Sharing Plan including Agreement of Trust
(Incorporated by reference to Exhibit 10.7 to Report on Form 8-K June
1, 1989).
10.4 Form of Deferred Compensation Agreement for Ted C. Flood (Incorporated
by reference to Exhibit 10.25 to the Company's Annual Report on Form
10K for the year ended October 31, 1991).
28
10.5 Agreement between International Baler Corporation and Ted C. Flood
dated as December 29, 1995 (Incorporated by reference to Exhibit 10.38
to the Company's Annual report on Form 10-KSB for the year ended
October 31, 1996 [the "1996 Form 10-KSB"]).
10.6 Promissory Note made by Ted C. Flood to the order of International
Baler Corporation dated December 29, 1995 (Incorporated by reference to
Exhibit 10.38.1 to the 1996 Form 10-KSB).
10.7 Promissory Note made by Ted C. Flood to the order of Waste Technology
Corp. dated April 5, 1996 (Incorporated by reference to Exhibit 10.38.2
to the 1996 Form 10-KSB).
10.8 Promissory Note made by Ted C. Flood to the order of Waste Technology
Corp. dated October 5, 1996(Incorporated by reference to Exhibit
10.38.3 to the 1996 Form 10-KSB).
14 Code of Ethics (Incorporated by reference to Exhibit 14 to the
Company's Annual Report on Form 10-KSB for the year ended October 31,
2003).
21* List of the Company's subsidies
31* Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Rule 13a-14(a)/15d-14(a)
32* Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
* Exhibit filed with this Report.
29
SIGNATURES
----------
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WASTE TECHNOLOGY CORP.
(Registrant)
By: /s/ Roger Griffin
---------------------------
Chief Executive Officer
Dated: January 20, 2009
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in their capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- -------------------------- ----------------------- ----------------
/s/ Ronald L. McDaniel Director January 20, 2009
- -------------------------- Chairman of the Board
Ronald L. McDaniel
/s/Roger Griffin Director January 20, 2009
- -------------------------- President and Chief
Roger Griffin Executive Officer
/s/ LaRita Boren Director January 20, 2009
- --------------------------
LaRita Boren
/s/ Leland E. Boren Director January 20, 2009
- --------------------------
Leland E. Boren
/s/ William E. Nielsen Director January 20, 2009
- -------------------------- Chief Financial Officer
William E. Nielsen
/s/ Mathew M. Price Director January 20, 2009
- --------------------------
Mathew M. Price
/s/ David B. Wilhelmy Director January 20, 2009
- -------------------------- Vice President Sales
David B. Wilhelmy and Marketing
30
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008 AND 2007
(WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THEREON)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Waste Technology Corp.:
We have audited the accompanying consolidated balance sheets of Waste Technology
Corp. and Subsidiary as of October 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Waste Technology
Corp. and Subsidiary as of October 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
KPMG LLP
January 20, 2009
Jacksonville, Florida
Certified Pubic Accountants
F-1
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2008 AND 2007
OCTOBER 31, 2008 OCTOBER 31, 2007
---------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,245,930 $ 1,264,782
Accounts receivable, net of allowance for doubtful accounts
of $20,000 and $40,000 in 2008 and 2007, respectively 1,152,270 581,886
Inventories 1,734,261 2,205,160
Prepaid expense and other current assets 81,476 59,888
Deferred Income Taxes 529,465 --
---------------- ----------------
Total current assets 5,743,402 4,111,716
Property, plant and equipment, at cost: 2,343,743 2,223,748
Less: accumulated depreciation 1,437,405 1,431,130
---------------- ----------------
Net property, plant and equipment 906,338 792,618
Other assets:
Restricted cash 224,100 224,100
Other assets 16,064 24,860
Due from former Director 40,702 51,842
Deferred Income Taxes 114,495 --
---------------- ----------------
Total other assets 395,361 300,802
TOTAL ASSETS $ 7,045,101 $ 5,205,136
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $ 5,654 $ 5,654
Current maturities of long term debt 39,109 35,886
Accounts payable 553,268 774,372
Accrued liabilities 404,177 488,110
Accrued payroll and commissions 295,402 131,647
Current portion of deferred compensation 67,000 67,000
Customer deposits 929,273 919,755
---------------- ----------------
Total current liabilities 2,293,883 2,422,424
Long Term Debt 105,324 144,479
Deferred compensation, net of current portion 183,641 231,262
---------------- ----------------
Total liabilities 2,582,848 2,798,165
Stockholders' equity:
Preferred stock, par value $.0001, 10,000,000 shares
authorized, none issued -- --
Common stock, par value $.01, 25,000,000 shares
authorized; 6,179,875 shares issued in 2008 and 2007 61,799 61,799
Additional paid-in capital 6,347,187 6,347,187
Accumulated deficit (1,265,323) (3,320,605)
---------------- ----------------
5,143,663 3,088,381
Less: Treasury stock, 1,245,980 shares in 2008 and 2007,
at cost (681,410) (681,410)
---------------- ----------------
Total stockholders' equity 4,462,253 2,406,971
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,045,101 $ 5,205,136
================ ================
See accompanying notes to consolidated financial statements.
F-2
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2008 AND 2007
2008 2007
---------------- ----------------
Net Sales
Equipment $ 11,335,565 $ 8,396,470
Parts and Service 1,433,303 1,237,751
---------------- ----------------
Total Net Sales 12,768,868 9,634,221
Cost of Sales 9,879,182 7,661,519
---------------- ----------------
Gross Profit 2,889,686 1,972,702
Operating Expense:
Selling Expense 573,806 556,772
Administrative Expense 974,335 786,700
---------------- ----------------
Total Operating Expense 1,548,141 1,343,472
Operating Income 1,341,545 629,230
Other Income (Expense):
Interest Income 36,462 13,576
Interest Expense (22,928) (51,535)
Other Income 44,643 16,288
---------------- ----------------
Total Other Income (Expense) 58,177 (21,671)
Income Before Income Taxes 1,399,722 607,559
Income Tax Provision (Benefit) (655,560) 5,099
---------------- ----------------
Net Income $ 2,055,282 $ 602,460
================ ================
Basic income per share $ 0.42 $ 0.12
Diluted income per share 0.40 0.12
Weighted average number of shares outstanding - Basic 4,933,895 4,933,895
- Diluted 5,136,125 5,093,534
See accompanying notes to consolidated financial statements.
F-3
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 2008 AND 2007
COMMON STOCK TREASURY STOCK
------------------------- -------------------------
NUMBER ADDITIONAL NUMBER TOTAL
OF SHARES PAR PAID-IN ACCUMULATED OF STOCKHOLDERS'
ISSUED VALUE CAPITAL DEFICIT SHARES COST EQUITY
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 2006 6,179,875 61,799 6,347,187 (3,923,065) 1,245,980 (681,410) 1,804,511
Net Income -0- -0- -0- 602,460 -0- -0- 602,460
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 2007 6,179,875 61,799 6,347,187 (3,320,605) 1,245,980 (681,410) 2,406,971
Net Income -0- -0- -0- 2,055,282 -0- -0- 2,055,282
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 2008 6,179,875 $ 61,799 $ 6,347,187 $(1,265,323) 1,245,980 $ (681,410) $ 4,462,253
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2008 AND 2007
2008 2007
---------------- ----------------
Cash flow from operating activities:
Net income $ 2,055,282 $ 602,460
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 99,648 83,819
Gain on sale of equipment (7,600) (35,000)
Provision for Doubtful Accounts, net of recoveries (20,000) 10,000
Deferred Income Taxes (643,960) --
Changes in operating assets and liabilities:
Accounts receivable (550,384) 510,428
Inventories 470,899 (897,000)
Prepaid expenses and other current assets (21,588) 2,081
Accounts payable (221,104) 153,180
Accrued liabilities, payroll, commissions and
deferred compensation 32,201 (73,127)
Customer deposits 9,518 638,482
---------------- ----------------
Net cash provided by operating activities 1,202,912 995,323
Cash flows from investing activities:
Proceeds from notes receivable from former Director 11,140 10,493
Proceeds from sale of equipment 7,600 35,000
Purchase of property and equipment (204,572) (128,573)
Proceeds from short-term and long-term Investments -- (156,355)
---------------- ----------------
Net cash used in investing activities (185,832) (239,435)
Cash flows from financing activities:
Net receipts from revolving promissory note -- 917
Proceeds from long-term debt -- 202,722
Debt issue costs -- (13,638)
Repayments of long term debt (35,932) (22,357)
---------------- ----------------
Net cash (used in) provided by financing activities (35,932) 167,644
Net increase in cash and cash equivalents 981,148 923,532
Cash and cash equivalents at beginning of period 1,264,782 341,250
---------------- ----------------
Cash and cash equivalents at end of period $ 2,245,930 $ 1,264,782
================ ================
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 14,132 $ 41,042
Income taxes 24,100 --
See accompanying notes to consolidated financial statements.
F-5
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
(1) NATURE OF BUSINESS
Waste Technology Corporation and subsidiary (the Company) is a manufacturer
of baling equipment which utilizes technical, hydraulic and electrical
mechanisms to compress a variety of materials into bales for easier
handling, shipping, disposal, storage, and for recycling. Materials
commonly baled include scrap metal, corrugated boxes, newsprint, aluminum
cans, plastic bottles, and other solid waste. More sophisticated
applications include baling of textile materials, fibers and synthetic
rubber. The Company offers a wide variety of balers, standard models as
well as custom models to meet specific customer requirements.
The Company's customers include recycling facilities, paper mills, textile
mills, and the companies which generate the materials for baling and
recycling. The Company sells its products worldwide with 20% to 35% of its
annual net sales outside the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Waste Technology Corporation and its wholly owned
subsidiary. Significant intercompany balances and transactions have
been eliminated in consolidation.
(b) USE OF ESTIMATES
The preparation of the financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Significant
items subject to such estimates and assumptions include allowances for
doubtful accounts, valuation of deferred tax assets, valuation of
inventory, and estimates for warranty claims. Actual results could
differ from those estimates.
(c) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash on hand, bank demand accounts and money
market accounts having original maturities of less than three months.
(d) RESTRICTED CASH
Restricted cash consist of a money market account that is the security
for a letter of credit. This letter of credit expires on July 31,
2010.
(e) ACCOUNTS RECEIVABLE & ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and do
not bear interest. Amounts collected on trade accounts receivable are
included in net cash provided by operating activities in the
consolidated statements of cash flows. The Company maintains an
allowance for doubtful accounts for estimated
F-6
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
losses inherent in its accounts receivable. The Company reviews its
allowance for doubtful accounts monthly. Past due balances are
reviewed individually for collectibility. Account balances are charged
off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
(f) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by a method that approximates the first-in, first-out
method. Work in process and finished goods are valued based on
underlying costs to manufacture balers which includes direct
materials, direct and indirect labor, and overhead. The Company
maintains an allowance for excess or slow moving inventory based on
the expectation that this inventory will become obsolete or unusable
within a reasonable time period. Company personnel review the
potential usage of inventory and inventory components on a regular
basis.
(g) PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. The cost of
property, plant, and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
double-declining balance and straight-line methods over the estimated
lives of 5-20 years for machinery and equipment and 31-40 years for
buildings.
The Company applies the provisions of SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that
long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by
the assets. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of by sale are reported at the lower of
the carrying amount or fair value less costs to sell, and depreciation
ceases.
(h) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
F-7
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
Beginning with the adoption of FASB Interpretation No. 48, ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES (FIN 48) as of November 1, 2007, the
Company recognizes the effect of income tax positions only if those
positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in
judgement occurs. Prior to the adoption of FIN 48, the Company
recognized the effect of income tax positions only if such positions
were probable of being sustained.
The Company records interest related to unrecognized tax benefits in
interest expense and penalties in selling, general, and administrative
expenses.
(i) REVENUE RECOGNITION
The Company recognizes revenue when finished products and/or parts are
shipped and the customer takes ownership and assumes the risk of loss.
Revenue from installation services is recognized on completion of the
service. The Company recognizes revenue from repair services in the
period in which the service is provided.
(j) WARRANTIES AND SERVICE
The Company typically warrants its products for one (1) year from the
date of sale as to materials and six (6) months as to labor, and
offers services for other required repairs and maintenance. Service is
rendered by repairing or replacing parts at the Company's
Jacksonville, Florida, facility, by on-site service provided by
Company personnel who are based in Jacksonville, Florida, or by local
service agents who are engaged as needed. Warranty parts shipments and
warranty service repairs are expensed as they occur and the Company
maintains an accrued liability for expected warranty claims.
Warranty and service expense and accrual consisted of the following:
2008 2007
---------- ----------
Beginning balance of warranty accrual $ 58,059 $ 86,147
Warranty costs paid (231,875) (73,267)
Provision for warranty 249,875 45,179
---------- ----------
Ending balance of warranty accrual $ 76,059 $ 58,059
========== ==========
(k) EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average
number of common shares outstanding during each year. Diluted earnings
per share includes the net number of shares that would be issued upon
the exercise of stock options using the treasury stock method. Options
are not considered in loss years as they would be anti-dilutive. The
dilutive impact of options outstanding was 202,230 shares and 159,639
shares for the years ending October 31, 2008 and 2007.
F-8
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
(l) STOCK-BASED COMPENSATION
The Company applies FASB Statement No. 123(R), Share-Based Payment
(Statement 123(R)). This statement requires that all stock-based
compensation be recognized as an expense in the financial statements
and that such cost be measured at the fair value of the award. In June
2002, the Company granted 250,000 nonqualified stock options to
purchase shares of the Company's common stock. These options, which
vested immediately, have an exercise price of $0.30 and a term of 10
years. The options or shares purchased thereunder may be registered
pursuant to the Securities Act of 1933. The Company has no remaining
authorized shares available for grant under existing stock option
plans. As of October 31, 2008, the Company has no options outstanding
under previously authorized plans and no options were issued during
the years ended October 31, 2008 or 2007. The outstanding stock
options at October 31, 2008 have a remaining contractual term of 4
years. As all options are fully vested, there is no impact to net
income for the year ended October 31, 2008 and 2007.
Statement 123(R) also requires that excess tax benefits related to
stock option exercises be reflected as financing cash inflows. There
were no stock options exercised during the years ended October 31,
2008 and 2007.
(m) BUSINESS REPORTING SEGMENTS
Based on the information monitored by the Company's operating decision
makers to manage the business, the Company has identified that its
operations are within one reportable segment. Accordingly, financial
information on separate segments is omitted because, apart from the
principal business of manufacturing baling machines, the Company has
no other reportable segments.
(n) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, accrued liabilities, revolving promissory note, and
customer deposits, approximate their fair value due to the short-term
nature of these assets and liabilities. The term loan and the carrying
amount of deferred compensation approximates fair value, based on
current rates available to the Company for loans with similar
maturities.
(o) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements.
SFAS No. 157 does not require any new fair value measurements. SFAS
No. 157 becomes effective for fiscal years beginning after November
15, 2007, which is the Company's 2009 fiscal year beginning on
November 1, 2008. In February 2008, the FASB issued FASB staff
position No. 157-2, effective date of FASB statement No. 157 (FSP
157-2), which delayed the effective date of SFAS 157 for certain
non-financial assets and non-financial liabilities to fiscal years
beginning after November 15, 2008. The Company continues to evaluate
the impact of SFAS No. 157 and FSP 157-2 on its
F-9
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
consolidated financial statements, but at this time does not expect
the potential impact of adopting this standard to have a material
effect on the Company's financial position, results of operations or
cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities - Including an
amendment of FASB Statement No. 115. "SFAS No. 159 permits companies
to measure many financial instruments and certain other items at fair
value at specified election dates. Unrealized gains and losses on
these items will be reported in earnings at each subsequent reporting
date. The fair value option may be applied instrument by instrument
(with a few exceptions), is irrevocable and is applied only to entire
instruments and not to portions of instruments. This new standard
becomes effective for fiscal years that begin after November 15, 2007,
which is the Company's 2009 fiscal year beginning on November 1, 2008.
The Company continues to evaluate the impact of SFAS No. 159 on its
consolidated financial statements.
In December 2007, FASB issued FASB Statement No. 141R, BUSINESS
COMBINATIONS (Statement 141R) and FASB Statement No. 160,
NONCONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS - AN
AMENDMENT TO ARB NO. 51 (Statement 160). Statements 141R and 160
require most identifiable assets, liabilities, noncontrollig
interests, and goodwill acquired in a business combination to be
recorded at "full fair value" and require noncontrolling interests
(previously referred to as minority interests) to be reported as a
component of equity, which changes the accounting for transactions
with noncontrolling interest holders. Both Statements are effective
for periods beginning on or after December 15, 2008, and earlier
adoption is prohibited. Statement 141R will be applied to business
combinations occurring after the effective date. Statement 160 will be
applied prospectively to all noncontrolling interests, including any
that arose before the effective date. The Company is currently
evaluating the impact of adopting Statement 141R and Statement 160 on
its results of operations and financial position.
(3) RELATED PARTY TRANSACTIONS
The Company has a note receivable from the former president and director
totaling $55,540 and $66,680 at October 31, 2008 and 2007, respectively.
Interest accrues at the rate of 6% per annum.
The Company has a deferred compensation agreement with the former president
and director of the Company for deferred compensation payments. The Company
will make deferred compensation payments with a present value of $250,641,
payable over the next five years. A portion of the deferred compensation
payments will be used to repay the outstanding note receivable discussed
above.
The consolidated statements of operations includes interest income on a
previous officer and director note receivable of $3,698 and $4,345 for 2008
and 2007, respectively.
F-10
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
LaRita Boren and Leland E. Boren, both shareholders and directors of the
Company, are the owners of Avis Industrial Corporation (Avis). Together the
Borens own 53.6% of the outstanding shares of the Company. Avis owns 100%
of American Baler Company, a competitor of the Company's International
Baler Corporation. These baler companies operate independent of each other.
In the fiscal year ending October 31, 2008 and 2007 International Baler
Corporation had equipment sales to American Baler Company totalling
$224,440 and $361,729, respectively. These sales included types of products
American Baler does not manufacture. These sales were made under the
Company's normal dealer discount schedule. International Baler Corporation
purchased no equipment or services from American Baler.
In July of 2007 the Company hired a consultant, Mr. Greg Kirkpatrick, for
the purpose of improving the Company's manufacturing operations. Mr.
Kirkpatrick was named "Acting President" in September 2007. The cost of
this professional service and related expense to the Company paid through
Avis, was approximately $48,000 in the first quarter of fiscal 2008, Mr.
Kirkpatrick completed his consulting project and left the Company in
December of 2007. Roger Griffin was named president of the Company February
2008.
(4) INVENTORIES
Inventories consisted of the following:
2008 2007
---------- ----------
Raw Materials $ 745,830 $ 688,113
Work in Process 716,949 1,260,094
Finished Products 271,842 256,953
---------- ----------
$1,734,261 $2,205,160
========== ==========
(5) PROPERTY, PLANT, AND EQUIPMENT
The following is a summary of property, plant, and equipment, at cost, less
accumulated depreciation and amortization:
2008 2007
---------- ----------
Land $ 82,304 $ 82,304
Building and Improvements 864,758 811,269
Machinery and Equipment 1,230,003 1,133,009
Vehicles 54,866 128,244
Construction in Progress 111,812 68,922
2,343,743 2,223,748
Less accumulated depreciation 1,437,405 1,431,130
---------- ----------
$ 906,338 $ 792,618
========== ==========
Depreciation expense was $90,852 and $76,416 in 2008 and 2007, respectively.
F-11
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
(6) DEBT
In February 2007 the Company entered into a $202,722 term loan agreement
with First Guaranty Bank. This loan is for a period of five years with a
fixed rate of interest of 8.5% and monthly payments of $4,172 which
includes principal and interest. Collateral for this loan includes all
assets of the Company.
In March 2007, the Company had its $500,000 line of credit agreement with
First Guaranty Bank and Trust Company of Jacksonville increased to
$1,000,000. The line of credit allows the Company to borrow against the
Company's property, plant and equipment. The line of credit bears interest
at the prime rate plus one-half percent (0.5%) and has a term of three
years expiring in March 2010. The line of credit had an outstanding balance
of $5,654 at October 31, 2008 and 2007, and the unused line of credit was
$994,346 at October 31, 2008.
For the period ending October 31, contractual maturities are as following:
2009 39,109
2010 42,621
2011 46,448
2012 16,255
---------
$ 144,433
(7) COMMITMENTS AND CONTINGENCIES
The Company in the ordinary course of business, is subject to claims made
under, and from time to time are named as defendants in legal proceedings
relating to the operations of its business, including the sale of its
products. The Company believes that the reserves reflected in its
Consolidated Financial Statements are adequate to pay losses and loss
adjustment expenses which may result from such claims and proceedings;
however, such estimates may be more or less than the amount ultimately paid
when the claims are settled. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or
liquidity.
At October 31, 2008, the Company had a letter of credit totaling $224,100
issued for warranty guarantees, which is secured by restricted cash.
F-12
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
(8) INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of:
2008 2007
---------- ----------
Current income tax expense/(benefit):
Federal $ (11,600) $ 5,099
State -- --
---------- ----------
(11,600) 5,099
Deferred income tax expense/(benefit):
Federal (581,840) --
State (62,120) --
---------- ----------
(643,960) --
---------- ----------
Income tax provision (benefit) $ (655,560) $ 5,099
========== ==========
The differences between income taxes as provided at the federal statutory
tax rate of 34% and the Company's actual income taxes are as follows:
2008 2007
---------- ----------
Expected federal income tax expenses at
statutory rate $ 475,905 $ 206,570
State income tax expense, net federal
income tax effect 50,810 22,054
Other - meals and entertainment 10,910 18,200
Change in valuation allowance (1,190,283) (212,100)
Other (20,392) (18,344)
Alternative Minimum Tax 17,490 5,099
---------- ----------
Income tax provision (benefit) $ (655,560) $ 5,099
========== ==========
As required by Statement of Financial Accounting Standard No. 109, tax
assets are recognized in the balance sheet if it is more likely than not
that they will be realized on future tax returns. Through the first quarter
of 2008, a full valuation allowance against accumulated deferred tax assets
was provided, reflecting the uncertainty associated with future
profitability. In the second quarter of 2008 the valuation allowance
previously established against deferred tax assets was reassessed. Factors
considered included, historical results of operations, volatility of the
economic conditions and projected earnings based on current operations.
Based on this evidence, it is more likely than not that a portion of the
deferred tax assets would be realized. Accordingly, $1,190,283 of the
valuation allowance was reversed which resulted in an income tax benefit of
$655,560 during the year ended October 31, 2008. However, if it is
determined that all or part of the deferred tax assets will not be used in
the future, an adjustment to the deferred tax assets would be charged
against net income in the period such determination is made. As of October
31, 2008, the deferred tax assets were $650,760. The realization of
deferred tax assets will depend on the Company's ability to continue to
generate taxable income in the future.
F-13
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
The significant components of the net deferred income taxes at October 31,
2008 and 2007 are as follows:
2008 2007
---------- ----------
Deferred tax assets
Reserves and allowance $ 283,284 $ 332,286
Property, plant, and equipment -- 52,242
Alternative minimum tax credit carryforwards 52,192 39,801
Net operating loss carryforwards 315,284 765,953
---------- ----------
Total gross deferred tax assets 650,760 1,190,283
Less valuation allowance -- 1,190,283
---------- ----------
Net deferred tax assets 650,760 --
Deferred tax liabilities
Property, plant, and equipment (6,800) --
---------- ----------
Total gross deferred tax liabilities (6,800) --
Net deferred income taxes $ 643,960 $ --
========== ==========
Net federal operating loss carryforwards for income tax purposes are
$837,854 and expire in years 2018 through 2027. The Company has an
alternative minimum tax credit carryforward of $52,192.
We have adopted the provisions of FIN 48 on November 1, 2007. No liability
for unrecognized tax benefits was recorded as a result of implementing FIN
48. For the year ended October 31, 2008, we did not have any unrecognized
tax benefits as a result of tax positions taken during a prior period or
during the current period. No interest or penalties have been recorded as a
result of tax uncertainties. Our evaluation was performed for the tax years
ended October 31, 2005 through October 31, 2008, the tax years which remain
subject to examination by tax jurisdictions as of October 31, 2008.
(9) STOCK OPTIONS
In June 2002, the Company granted 250,000 nonqualified stock options to
purchase shares of the Company's common stock. These options, which vested
immediately, have an exercise price of $0.30 and a term of 10 years. The
options or shares purchased thereunder may be registered pursuant to the
Securities Act of 1933. The Company has no remaining authorized shares
available for grant under existing stock option plans. As of October 31,
2008, the Company has no remaining options to grant under previously
authorized plans. The outstanding stock options at October 31, 2008 have a
remaining contractual term of 4 years.
F-14
WASTE TECHNOLOGY CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
October 31, 2008 and 2007
(10) EMPLOYEES' BENEFIT PLAN
The Company has a defined contribution plan and profit sharing program for
its employees. The Company made no contributions to the plan in 2008 or
2007.
(11) BUSINESS AND CREDIT CONCENTRATIONS
Export sales were approximately 24% and 34% for the years ended October 31,
2008 and 2007, respectively. The principal international markets served by
the Company, include Canada, China, United Kingdom, India, Korea, Japan,
Russia, and Brazil. In 2008 and 2007, the Company had a percentage of total
net sales of 7% and 17% to customers in China. In 2008 no single customer
accounted for over 10% of the Company's sales. In 2007, one customer
accounted for over 10% of the Company's sales.
F-15