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 ---- PART I ------ 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 ------- 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 -------- 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 ------- Item 15. Exhibits, Financial Statement and Schedules.................. 27 SIGNATURES .................................................................. 30 i PART I ------ 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 2 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. 3 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. 4 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. 5 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. 6 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 ------- 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 ------ ------ 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 ------ ------ 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. 7 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, 8 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 $100,000 per annum for services rendered in all capacities to the Company and its subsidiaries during fiscal years ended October 31, 2008 and 2007: 20 SUMMARY COMPENSATION TABLE <TABLE><CAPTION> ANNUAL COMPENSATION LONG TERM AWARDS ================================================================================================================== OTHER ANNUAL NAME AND SALARY BONUS COMPENSATION NUMBER OF ALL OTHER TOTAL PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS COMPENSATION COMPENSATION ================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> 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 ================================================================================================================== </TABLE> OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END <TABLE><CAPTION> 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) ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> William E. 250,000 -0- -0- $0.30 2/7/2012 -0- -0- -0- -0- Nielsen Chief Financial Officer ==================================================================================================================================== </TABLE> _____________________ 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 $1,000 per month, together with direct out-of-pocket expenses incurred to attend meetings. Members of the Board of Directors may also be requested to perform consulting or other professional services for the Company from time to time. The Board of Directors has reserved to itself the right to review all directors' claims for compensation on an ad hoc basis. Directors who are on the Company's Audit, Compensation, and Nominating Committees do not receive any consulting, advisory or compensatory fees from the Company. However, such Board members may receive fees from the Company for their services on those committees. <TABLE><CAPTION> ------------------------------------------------------------------------------------------------------------------------------- DIRECTOR COMPENSATION FOR FISCAL 2008 ------------------------------------------------------------------------------------------------------------------------------- Change in All Other Total Name Fees Stock Option Non Pension Value Compensation Earned or Awards Awards Equity and Nonqualified Paid Incentive Deferred in Cash Plan Compensation Compensation Earnings ($) ($) ($) ($) ($) ($) ($) ------------------ ------- ------ ------ ------ ------ ------ ------- <S> <C> <C> <C> <C> <C> <C> <C> 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 ------------------ ------- ------ ------ ------ ------ ------ ------- </TABLE> 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 <TABLE><CAPTION> OCTOBER 31, 2008 OCTOBER 31, 2007 ---------------- ---------------- <S> <C> <C> 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 ================ ================ </TABLE> 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 <TABLE><CAPTION> 2008 2007 ---------------- ---------------- <S> <C> <C> 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 </TABLE> 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 <TABLE><CAPTION> COMMON STOCK TREASURY STOCK ------------------------- ------------------------- NUMBER ADDITIONAL NUMBER TOTAL OF SHARES PAR PAID-IN ACCUMULATED OF STOCKHOLDERS' ISSUED VALUE CAPITAL DEFICIT SHARES COST EQUITY ----------- ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> 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 =========== =========== =========== =========== =========== =========== =========== </TABLE> 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 <TABLE><CAPTION> 2008 2007 ---------------- ---------------- <S> <C> <C> 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 -- </TABLE> 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 </TEXT> </DOCUMENT>