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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
AMENDMENT NUMBER 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
Safe Alternatives Corporation of America, Inc.
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(Exact name of registrant as specified in its charter)
Florida 06-1413994
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
27 Governor Street, Ridgefield, Connecticut 06877
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 438-8144
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
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(Title of Class)
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(Title of Class)
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AVAILABLE INFORMATION
Subsequent to the date of this Registration Statement the Company will be
subject to the information requirements of the Securities Exchange Act of 1934,
as amended ("Exchange Act") and in accordance therewith will file reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington
D.C. 20549, and at the Commission's New York Regional Office at Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates.
This Registration Statement, as well as all amendments thereto and
subsequent reports, have been and will be filed through the Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. Documents filed through
EDGAR are publicly available through the Commission's Web site at
http:/www.sec.gov.
The Company has filed with the Commission this Registration Statement on
Form 10 (together with all amendments and exhibits filed or to be filed in
connection herewith, the "Registration Statement") under the Securities Act of
1934, as amended, with respect to the Company's common stock, $.0001 par value
per share (the "Common Stock"). Statements contained herein as to the contents
of any document are necessarily summaries of such documents and, in each
instance, reference is hereby made to the copy of such document filed as an
exhibit to the Registration Statement, and each such statement is qualified in
all respects by such reference. The Registration Statement may be inspected and
copied at the places set forth above.
In addition to the foregoing, the Company will furnish to registered
holders of its Common Stock annual reports containing audited financial
statements, with an opinion expressed by the Company's independent auditors.
Such audited financial statements will be prepared in conformity with generally
accepted accounting principals ("GAAP"). The Company intends to furnish to
registered holders of its Common Stock unaudited financial statements on a
quarterly basis, such unaudited financial statements to be prepared in
conformity with GAAP. The Company will also furnish to registered holders all
notices of stockholder's meetings and other reports and communications of the
Company.
The Company's principal executive offices are located at 27 Governor
Street, Ridgefield, Connecticut 06877, and its telephone number is (203)
438-8144.
As of November 30, 1996 there were 1,228 holders of record of shares of
Common Stock of the Company.
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ITEM 1. BUSINESS
THE COMPANY
The Company was organized in 1976, under the name Knight Airlines, Inc., to
engage in the commuter airline business. In October, 1978 the Company engaged in
an initial public offering of its Common Stock in Florida, pursuant to an
exemption from registration under Regulation A promulgated under the Securities
Act of 1933, as amended (the "Act"). No market for trading of the Common Stock
has ever developed. The Company operated as a commuter airline from its
inception through April, 1983, when it ceased operations and all of the assets
of the Company were sold to satisfy all outstanding indebtedness. From April
1983 through September 1995 the Company was dormant. In May, 1994, the name of
the Company was changed to Portsmouth Corporation. In September, 1995, pursuant
to the Reorganization, the Company acquired all of the assets of SAC-Delaware
and commenced operations. On March 4, 1996 the Company changed its name to Safe
Alternatives Corporation of America, Inc. (a Florida corporation).
Since the Reorganization, the Company has changed its focus from being a
"public shell", without assets or a business, to a company concentrating its
resources on the research, development and commercial exploitation of certain
technologies (the "Technologies") which it either owns, exclusively licenses, or
in which it has exclusive marketing rights. See "Technologies". The products
which the Company has developed and/or intends to develop, as the case may be,
from the Technologies are primarily in the following areas:
1. Paint stripping chemicals (world-wide license.) This product is
currently being marketed and sold in limited sample quantities. The Company's
paint stripping product is used to remove lead-based paints, latex, alkyd,
varnish, polyurethane, and epoxy resin coatings from structural metal, cement,
fiberglass, wood, mica and plaster. The Company's paint stripping product is
applied using an airless spray gun, paint brush or spatula. For most
applications, the Company believes, based on its research and in-house testing,
that the stripper will remove substantially all of the paint, exposing the bare
surface within a 24-hour period. The Company's line of paint strippers are
biodegradable, water washable, non-caustic, and methylene chloride free.
2. Water-based foams for insulation material (continental United States
license). This product is in the final stages of development and the Company is
currently evaluating the appropriate mechanism for delivery of the product onto
its intended surface. Subject to the successful completion of its research and
the ability of the Company to obtain additional financing, the Company expects,
although there can be no assurances, that it will market this product in 1997.
3. Radon barrier and flame retardant coatings (continental United States
license). These products are substantially developed and exist in working
prototype form. It is unlikely that the Company will market and sell such
products by the end of 1997, as they are subject to further testing and
development, as well as limitations with respect to the Company's ability to
finance such additional product introductions in 1997.
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4. Recycling solvents (continental United States license). Possible
products from this technology continue to be subject to further research and
development, and consequently, no products derived therefrom are expected to be
marketed in 1997. The Company anticipates that research and development with
respect to such products will continue subject to the Company's ability to
finance such research.
5. Sealants (continental United States license). Possible products from
this technology are not as far along in the research and development process as
the Company's other technologies, products and prototypes. The Company
anticipates that, subject to sufficient financing, research with respect to the
sealants will continue in 1997. The Company does not anticipate marketing its
sealant products, if any, derived from this technology in 1997.
Although the Company is currently actively marketing its paint stripping
product, only nominal revenues have been generated from the sale of samples as
of the date of this Registration Statement. The Company is not marketing any of
its other products as of the date of this Registration Statement. The time
frames which the Company has indicated above with respect to the dates when such
products, if any, may be brought to market are based upon managements' best
reasonable estimates given the information available to them, as of the date of
this Registration Statement. In part the time estimates are based upon the
review and analysis of the products (i.e. the foam) by certain customers which
have sampled such product and provided the Company with their analyses. Based
upon the experience of SSC Marketing, Inc., ("SSC") a California-based marketing
firm with experience in sales and marketing of similar products, the Company has
entered into a series of agreements with SSC and believes that any products
which the Company may develop from the Technologies can be brought to market in
a relatively short time frame by SSC. See "Marketing Agreement". Certain of the
Technologies are unpatented proprietary technologies and in certain cases,
because (i) the Company's financial resources are insufficient to adequately
protect and/or prosecute such patents, and (ii) the Company believes that
information which may become available to competitors during the patent process
could put the Company's products at competitive risk, neither the inventor nor
the Company believes that seeking patent protection is prudent. The Company does
not currently manufacture its paint stripping product, but contracts with the
licensor of the paint stripping Technology to manufacture it. The Company
currently does not possess the capacity to manufacture any of its products in
anything more than sample quantities in a laboratory facility. The Company
therefore intends to contract with outside manufacturers to manufacture any
products derived from the Technologies, as they are brought to market. Although
the Company has identified certain of the companies which it would consider
engaging for the purpose of manufacturing some of the Company's intended
products, no such agreements have been entered into as of the date of this
Registration Statement.
The Company does not have the financial resources as of the date of this
Registration Statement to operate its business, continue research and
development or market its products. The Company is electing to become a
reporting company under the Securities Exchange Act of 1934, as amended, in
order to attract capital. The Company continues to seek additional capital from
an array of potential sources. The Company has provided information regarding
its Technologies to venture capital firms and is in discussions with some of
them, although there can be no assurances that any such discussions will result
in the Company obtaining any additional capital. Even if the Company is able to
obtain additional capital there can be no assurances that the structure or terms
of such proposed financing will be on acceptable terms. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operations--
Liquidity; and Offering."
BACKGROUND
On September 15, 1995 (the "Closing Date"), pursuant to the terms of an
Asset Purchase Agreement and Plan of Reorganization dated as of August 21, 1995
(the "Agreement") between Safe Alternatives Corporation of America, Inc., a
Delaware corporation ("SAC-Delaware") and Safe Alternatives Corporation of
America, Inc., a Florida corporation, then operating under the name Portsmouth
Corporation (the "Company"), the Company purchased the business (the
"Business"), including, without limitation, all of the assets of SAC-Delaware,
and assumed all of the liabilities of SAC-Delaware (the "Reorganization"). Prior
to the Reorganization, the Company had no meaningful operations.
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Immediately prior to the closing of the Reorganization (the "Closing"), the
Company undertook a 28 for 1 reverse stock split; consequently, all of the
calculations included herein reflect this split. The Agreement provided for the
Company's purchase of all of SAC-Delaware's assets in consideration for, among
other things, (i) the assumption of all of SAC-Delaware's liabilities, (ii) the
issuance and delivery to SAC-Delaware of 8,000,000 shares of the Common Stock,
representing approximately 94% of the then issued and outstanding shares of
Common Stock as of the date of the Closing; and (iii) a six percent royalty (the
"Royalty") on the gross revenues of the Company attributable to the assets
acquired by the Company pursuant to the terms of the Agreement, payable on a pro
rata basis to the stockholders of SAC-Delaware. The Royalty is payable on a
quarterly basis during the sixty months immediately following the Closing Date,
and the cumulative total of all Royalty payments is limited to a maximum of
$8,500,000. The Royalty does not apply to the revenues generated by the sale of
The Company's paint stripping product which technology was acquired after the
Reorganization.
RESEARCH AND DEVELOPMENT
During the three years ended December 31, 1995, 1994 and 1993,
respectively, the Company spent approximately $273,000, $370,000 and $343,000 in
connection with its research and development efforts. The Company has not
completed its research and development on any potential products, other than the
paint stripping product, derived from the Technologies, and therefore, there can
be no assurances that such potential products will be developed or that they
will perform as intended. Management believes that the next marketable product
to follow the Company's paint stripping product will be a fire retardant foam
insulation product. During the three years ended December 31, 1995,
approximately $802,000, in the aggregate, has been devoted to research and
development with respect to the foam technology. The Company is in the final
stages of its research and development with respect to the foam product, and is
currently evaluating the appropriate mechanism for delivery of the product onto
its intended surface. Subject to the successful completion of its research and
the ability of the Company to obtain additional financing, management believes,
although there can be no assurances, that sometime in 1997 the Company will be
in a position to bring the Company's foam product to market. The Company
believes that this product will be ready for market in this time frame, based in
part upon the test results which it has been achieving in its laboratory but
also from the positive response it has been receiving from certain customers
which have been requested to analyze it for themselves. The Company continues to
conduct research with respect to the Technologies in order to develop marketable
products.
All of the Company's research and development efforts are conducted at the
Company's laboratory facility in Brookfield, Connecticut. The Company leases
12,000 square feet in a building located at 91 Commerce Drive in Brookfield,
Connecticut. The term of the lease is for five (5) years, commencing March 1,
1993 and ending February 28, 1998. The Company has the option to renew the
lease for an additional five (5) year period. The base rent on an annual basis
is $55,350 for the period through February 28, 1994, $73,800 the next twelve
months, $76,752 for the twelve months thereafter, $79,822 for the next twelve
months and $83,015 until the lease expires or is renewed.
TECHNOLOGIES
PAINT STRIPPING CHEMICALS
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The Company has obtained worldwide marketing rights to a proprietary
paint stripping compound. The proprietary compound is not patented but is
protected by trade secrets. Based upon the Company's research, in-house testing,
and customer feed-back, the Company believes its
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paint stripping product is effective in removing lead-based paints, latex,
alkyd, varnish, polyurethane, and epoxy resin coatings from structural metal,
cement, fiberglass, wood, mica and plaster. The Company's paint stripping
product is applied using an airless spray gun, paint brush or spatula. For most
applications, the Company believes, based on its research, in-house testing and
customer feed-back, that the stripper will remove substantially all of the
paint, exposing the bare surface within a 24-hour period. The Company's paint
stripping product line is biodegradable, water washable, non-caustic, and
methylene chloride free. The product has been sold, primarily in sample
quantities, to a contractor for the New York City Housing Authority, to the New
York Port Authority, to Sherwin Williams retail stores, and to other customers.
The Company's sales efforts to place its paint stripping product in Sherwin
Williams retail stores accounts for more than fifty percent (50%) of the
Company's 1996 revenues. While the Company experienced limited success in its
initial efforts to sell its paint stripping product through Sherwin Williams
retail stores, the Company has been unable to expand on such efforts, and sales
to Sherwin Williams have been minimal since April 1996. The Company believes
that the sales effort of the Company has been severely curtailed by the
insufficient working capital position of the Company.
FOAM
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The Company has a license from Mrs. Kathleen Kennedy, Mr. Richard J.
Fricke, a director and secretary of the Company, and Mr. Patrick J. Crehan, to
commercially exploit the foam Technologies in the continental United States.
The foam Technologies are protected by a patent, which patent is valid through
December 4, 1999. The Company believes that with its foam Technology it will be
able to manufacture foam insulation product for the construction industry
containing no chlorofluorocarbohydrants ("CFCs"). Additionally, the foam
Technology is water-based, unlike most foam products currently on the market.
As of January 1, 1996, federal law prohibits the sale of products containing
CFCs due to their damaging effect on the earth's ozone layer. The Company is in
the final stages of its research and development with respect to the foam
product. The Company's only remaining research for the foam product, which is
currently being conducted, concerns testing and evaluating the appropriate
mechanism for delivery of the product onto its intended surface. The Company
believes that this product will be ready for market in early 1997 based, in
part, upon the test results which the Company has been achieving in its
laboratory but also from the positive response it has been receiving from
certain customers which have been requested to analyze it for themselves. The
foam products will be water-based, and therefore, management believes, comply
with the government's mandate. Management also expects these products to be less
expensive to produce than comparable products containing CFCs . The Company
bases this belief on the fact that the major ingredient in its foam product is
corn syrup rather than petroleum products, which are the major ingredients for
many of its competitors' products. Because corn syrup is substantially less
expensive than petroleum products, the Company's foam product should, upon
achieving economies of scale in the manufacturing process, be cheaper to produce
than many comparable products. The Company believes that its foam products will
conform to substantially the same performance standards as other foam products.
In addition to its application as an insulation product, the Company believes,
based on its preliminary research, that combining the foam Technology with the
proprietary coating described below, the foam may be fire retardant. The
Company's foam product is in the final stages of development. Assuming that the
Company successfully completes its research with respect to the foam Technology,
and subject to the Company's ability to obtain additional financing, the Company
expects, although there can be no assurances, that it will market this product
in 1997. See "Marketing Agreement."
COATINGS AND SEALANTS
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The Company has an exclusive license from Mrs. Kathleen Kennedy to
commercially exploit certain
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chemical compounds which management believes can be used to manufacture the
following products: (i) a fire retardant coating, (ii) a vapor barrier and (iii)
a radon barrier. Based upon the Company's analysis and testing, it believes that
(i) the fire retardant coating should be able to be used with a regular paint
brush or paint gun and should be effective in preventing against fire with most
building surfaces, (ii) the vapor barrier viscous plastic coating should be an
effective water tight coating for use on cement foundations, and (iii) the radon
barrier should effectively encapsulate radon.
The Radon barrier and flame retardant coatings products are substantially
developed and exist in working prototype form. Final testing of the physical
properties and performance of this product, as well as optimization of the
formulation, remain to be done. It is unlikely that the Company will market
and sell such products by the end of 1997, as they are subject to some further
testing and development, as well as limitations with respect to the Company's
ability to finance such additional product introductions in 1997. The products
to be derived from the sealant technology are not as far along in the research
and development process as the Company's other products and prototypes. The
Company anticipates that, subject to sufficient financing, research with respect
to the potential sealant products will continue in 1997. The Company does not
anticipate marketing its sealant products in 1997.
RECYCLING SOLVENTS
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The Company has an exclusive license from Mrs. Kathleen Kennedy to
commercially exploit certain chemical compounds in the continental United States
which management believes can be used to recycle polyurethane, plastics,
polystyrene and possibly disposable diapers. The recycling solvents products
continue to be subject to further research and development. They will not be
marketed or sold in 1997, and the Company anticipates that research and
development with respect to such products will continue subject to the Company's
ability to finance such research.
PROPRIETARY RIGHTS
Many of the Technologies which the Company licenses are protected by a
patent or have a patent pending. Most of the Technologies involve trade secrets
which are considered proprietary to the respective licensors of the
Technologies. The Company takes all reasonable measures to protect the
Technologies, including the timely update of patent related innovations to the
respective processes, if applicable, compliance with the terms of each license
agreement and through the requirement that each employee or consultant execute a
confidentiality and nondisclosure agreement.
LICENSES
The following is a summary of certain of the Company's material licenses
with Mrs. Kathleen Kennedy, the successor-in-interest to the estate of Mr.
Richard B. Kennedy. Each such license has substantially the
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same terms and conditions and each is valid until April 17, 2050, unless the
Company fails to pay a royalty of four percent (4%) of the gross sales derived
from the exploitation of the respective Technology, with certain limitations for
sales derived from inter-company transfers or transactions with subsidiaries.
The Company has also agreed to pay all maintenance fees and fees for filing and
prosecuting patent applications pending at the time the licenses were executed.
All rights under the licenses are freely assignable by the Company. The licenses
were amended on August 23, 1993 to collectively provide for a required minimum
monthly payment of $5,000, in the aggregate, and a required weekly payment of
$1,200 to Mrs. Kathleen Kennedy during her lifetime in lieu of progressive sales
minimums due beginning in 1993. The royalty payments described above nonetheless
survive. Failure by the Company to pay the minimum weekly and/or monthly
payments when due may result in the loss of exclusivity of such licenses.
Failure to pay royalties due under any license may result in the termination of
such license.
PAINT STRIPPING
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The Company's paint stripping products are proprietary in nature, with the
Company having a worldwide marketing license with the manufacturer of the
products. Under the terms of the supply agreement (the "Supply Agreement")
dated January 5, 1996 between the Company and Samax Enterprises, Inc. (the
"Supplier"), the Supplier has agreed to sell to the Company all of the Company's
paint stripping product necessary to fill the Company's orders. In addition,
the Supplier has granted the Company a right of first refusal to market any
other products developed by the Supplier. Pursuant to the terms of the Supply
Agreement, the Supplier has agreed not to sell its products to any direct
competitor of the Company, although the Supplier retains the right to sell its
products to distributors, which may ultimately sell to competitors of the
Company. The Supply Agreement provides for the parties to agree upon minimum
purchase requirements in a further agreement, and that failure to so agree shall
void the Supplier's obligations not to directly compete with the Company. As
the Company and the Supplier have not agreed to minimum purchase requirements as
of the date of this Registration Statement, the Supplier is free to directly
compete with the Company in the sale of the paint stripping products. See
"Competition". The paint stripping products are not patented, but are covered
by trade secrets. It has been determined by the Company and the manufacturer
that it is preferable not to seek patent protection, but rather to protect this
Technology through trade secrets. For a more detailed description of the
financial terms of the license refer to the section "Licenses" above. The
compound has been sold, primarily in sample quantities, to a contractor for the
New York City Housing Authority, to the New York Port Authority, to Sherwin
Williams retail stores, and to other customers. The Company's sales efforts to
place its paint stripping product in Sherwin Williams retail stores accounts for
more than fifty percent (50%) of the Company's 1996 revenues. While the Company
experienced limited success in its initial efforts to sell its paint stripping
product through Sherwin Williams retail stores, the Company has been unable to
expand on such efforts and sales to Sherwin Williams, which have been minimal
since April 1996. The Company believes that the sales effort of the Company has
been severely curtailed by the insufficient working capital position of the
Company.
FOAMS
-----
The Company entered into a license agreement, dated December 9, 1992, by
and between Richard B. Kennedy, (Mr. Kennedy has since deceased and his wife has
succeeded in interest) Richard J. Fricke and Patrick J. Crehan (collectively
referred to therein as "Licensor") and the Company, as licensee, whereby the
Licensor granted the Company: (i) an exclusive right to exploit within the
continental United States certain inventions, technology, know-how and patent
rights relating to fire retardant urethane foam with reduced smoke toxicity, and
improvements thereto, excluding those applications which are utilized in the
packaging foam industry and (ii) the joint patent rights to manufacture, use,
sell and sublicense the Technology. For a more detailed description of the
financial terms of the license refer to the section "Licenses" above.
COATINGS AND SEALANTS
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The Company entered into a license agreement, dated December 9, 1992, by
and between Richard B. Kennedy, as licensor (Mr. Kennedy has since deceased and
his wife has succeeded in interest), and the
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Company, as licensee, whereby the licensor granted to the Company: (i) an
exclusive right to exploit within the continental United States, certain
inventions, technology, know-how and patent rights relating to a fire retardant
urethane coating which provides a vapor barrier, and improvements thereto, and
(ii) the joint patent rights to manufacture, use, sell and sublicense the
Technology. For a more detailed description of the financial terms of the
license refer to the section "Licenses" above.
RECYCLING SOLVENTS
------------------
The Company entered into a license agreement, dated December 9, 1992, by
and between Richard B. Kennedy, as licensor (Mr. Kennedy has since deceased and
his wife has succeeded in interest), and the Company, as licensee, whereby the
licensor has granted the Company: (i) an exclusive right to exploit within the
continental United States certain inventions, technology, know-how and patent
rights relating to the disposal and reuse of plastic bags, polyurethane,
plastics, polystyrene, diapers and the like, and improvements thereto, and (ii)
the joint patent rights to manufacture, use, sell and sublicense the Technology.
For a more detailed description of the financial terms of the license refer to
the section "Licenses" above.
MARKETING AND SALES
MARKETING AGREEMENT
-------------------
The Company believes that its marketing resources are most effectively
deployed by contracting an outside vendor to market its products. Consequently,
the Company has replaced all of its in-house sales force, consisting of five (5)
salesmen and three (3) representatives with an outside vendor, SSC Marketing,
Inc., a California-based marketing firm ("SSC"), which vendor has experience
selling similar products on a national basis. SSC is actively seeking to
develop sales not only in governmental markets but also in the private sector.
In connection with such efforts, the Company and SSC are contacting major chains
and providing them with literature, samples and demonstrations. The Company has
entered into two agreements with SSC -- a consulting agreement (the "Consulting
Agreement") dated as of November 1, 1996 and a customer service agreement (the
"Service Agreement") dated as of December 15, 1996. Under the terms of the
Consulting Agreement, SSC will provide the Company with a comprehensive sales
and marketing program for the Company's products, including hiring sales
representatives, developing sales contacts, marketing plans, advertising
campaigns, customer service programs, and sales accounting and reporting
systems. The Company will pay SSC a flat fee of $8,000 per month, an additional
fee of $4,000 for each sales manager engaged by SSC to service the Company's
account, with a minimum of three such sales managers to be so engaged, plus
approved expenses of SSC and its sales managers. In addition, in the event SAC's
annual revenues exceed $2,600,000, the Company shall pay each sales manager a 2%
commission on gross revenues generated in their respective territories, and, in
the event the Company's annual revenues exceed $2,800,000, plus the Company
shall pay SSC a 5.5% commission on the Company's gross revenues, with the $8,000
monthly payments to be credited against the payment of such commissions. Under
the terms of the Service Agreement, SSC will provide the Company with order
entry, billing, order tracking, sales forecasting and planning, and information
processing services. The Company will pay SSC $5,000 per month for such
services, provided that, if at any time the volume of SAC's business exceeds
SSC's ability to adequately perform such services, the parties shall agree upon
an increased fee. A failure to so agree will result in termination of the
Service Agreement. Based upon the Company's experience with its in-house sales
team, and based further upon the contacts, reputation of and experience of SSC,
management believes that contracting for its marketing and sales needs will
provide the Company with a greater opportunity to market its products to more
customers in less time.
PAINT STRIPPING CHEMICALS.
-------------------------
The Company, through SSC, is focusing its sales and marketing efforts on a
product-by-product basis, with its paint stripping product being the first
product to be offered in the marketplace. SSC is actively seeking to develop
sales
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not only in governmental markets but also in the private sector. In
connection with such efforts, the Company and SSC are contacting major chains
and providing them with literature, samples and demonstrations. Based upon the
Company's experience with its in-house sales team, and based further upon the
contacts, reputation of and experience of SSC, management believes that
contracting for its marketing and sales needs will provide the Company with a
greater opportunity to market its products to more customers in less time. See
"Marketing Agreement".
The Company has devoted substantial sales efforts in 1996 to sales in
limited quantities of the Company's paint stripping product to Sherwin Williams
retail stores. The Company's sales efforts to place its paint stripping
product in Sherwin Williams retail stores accounts for more than fifty percent
(50%) of the Company's 1996 revenues. While the Company experienced limited
success in its initial efforts to sell its paint stripping product through
Sherwin Williams retail stores, the Company has been unable to expand on such
efforts and sales to Sherwin Williams have been minimal since April 1996.
The Company has placed advertisements in several magazines, including
magazines intended for commercial contractors as well as the do-it-yourself
market. The Company is in the process of establishing a direct sales unit where
orders will be taken by a telephone representative of the Company and shipped to
the end-user.
FOAMS.
-----
Since the Company is still experimenting with and conducting research on
the foam Technology, the Company does not actively market its foam product. The
Company intends to begin marketing the foams in 1997 through SSC to companies
involved in the construction industry. See "Marketing Agreement".
OTHER TECHNOLOGIES.
------------------
Until the other Technologies have been fully researched and
commercializable products have been developed the Company will not establish
marketing strategies for the sale of these possible products.
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SUPPLY ARRANGEMENTS
Paint stripping -- the Company purchases all of the Company's paint
stripping product it needs to satisfy orders from the inventor who licenses this
Technology to the Company. Under the terms of the Supply Agreement, the
inventor reserved for itself the right to engage in direct sales of the paint
stripping product. The Supply Agreement provides for the parties to agree upon
minimum purchase requirements in a further agreement, and that failure to so
agree shall void the Supplier's obligations not to directly compete with the
Company. As the Company and the Supplier have not agreed to minimum purchase
requirements as of the date of this Registration Statement, the Supplier is free
to directly compete with the Company in the sale of the paint stripping
products. Although the Company believes that the inventor's facilities have
sufficient capacity to satisfy the existing and future needs of the Company for
the next twelve months, there can be no assurances thereof. In the event that
the inventor experiences any financial difficulties and/or does not fill the
Company's orders in a timely manner, the Company believes that it would be
materially adversely effected. Furthermore, the Company may not purchase the
product elsewhere since the paint stripping product is the proprietary property
of the inventor.
Foam -- the foam products require large amounts of MDI, the base chemical
(polyisocyanate) of which is manufactured and distributed by several large
companies, including BASF and W.R. Grace & Co. The Company does not anticipate
any difficulties obtaining the necessary amounts of MDI or production equipment,
although there can be no assurances thereof.
Coatings and Sealants -- the Company does not anticipate any difficulties
obtaining the necessary chemicals and materials for the various potential
coating products. The Company believes that there are many suppliers of these
chemicals, available on reasonable terms.
COMPETITION
There are many other companies that offer similar or competitive products
to the products either developed or under development by the Company. The
industries in which the Company intends to market its products are characterized
by substantial and intense competition. Almost all of the companies offering
similar or competitive products, both domestic and foreign, are substantially
larger and have substantially greater resources, distribution capabilities and
experience than the Company. It is also likely that there will be other
competitors in the future. The following is a list of certain of the companies
with which the Company will be competing: Paint Stripping Chemicals- Peel-A-Way
-------------------------
Corp., Minnesota Mining and Manufacturing ("3M") and Thomas Back to Nature; and
Foams; Coatings and Sealants- Sealed Air Corporation, Carpenter Foam, Thompson's
- ----------------------------
Water Sealer and miscellaneous radon venting companies.
Under the terms of the Company's Supply Agreement, the manufacturer of the
Company's paint stripping product reserved for itself the right to engage in
direct sales of the paint stripping product.. The Company's supplier,
therefore, may compete directly with the Company in sales of the paint stripping
product under different product labels. See "Licenses -- Paint
Stripping"
The Company's objective is to develop environmentally-friendly products
which will compete with the existing paint stripping, coatings, sealants,
recycling solvents, foams and sterilization technologies available that are
produced by competitors of the Company. The Company cannot provide any
assurances that the Company will develop competitive products, that a market for
such products (assuming that they are developed), will develop, that the Company
will be able to develop marketing or distribution channels, or that competitors
having greater financial and other resources will not, or have not, devoted
those resources to the research and development of new or existing products
which will compete with the Company's products. There can be no assurance that
the Company will effectively compete against any competitor.
11
<PAGE>
GOVERNMENT REGULATIONS
The manufacture and sale of paint stripping chemicals, coatings, sealants
and sterilization equipment are subject, to varying degrees, to federal, state
and local regulation. The predominance of the regulatory burden however is
imposed upon the manufacturer, such as the inventor/supplier, of the Company's
paint stripping product and not the Company. The Company must comply with
federal labeling requirements for the Company's paint stripping product, which
require a description of the various chemicals included in the product and the
hazards attendant to the use thereof. The foam, for construction purposes, is
regulated by state and local building codes. Failure to properly comply with
all regulations applicable to the Company's products could result in the Company
incurring substantial costs in order to comply or cessation of manufacture of
the offending products and the possible imposition of civil and criminal
penalties.
INTELLECTUAL PROPERTY
The Company's business is dependent upon its ability to commercially
exploit certain patented and unpatented proprietary technologies which it has
licensed from inventors. The ability of the Company to exploit the Technologies
depends on many circumstances beyond its control. No assurances can be given
that the Company will be able to commercially exploit such intellectual property
rights and develop marketable products. The inability of the Company to satisfy
the terms and conditions of the licenses with the holders of the proprietary
Technology rights would have a materially adverse effect on the Company. The
Company has an exclusive arrangement with respect to the paint stripping
chemical used in the Company's paint stripping products, except for the supplier
of the chemicals who also maintains the right to market such product. The
Company does not pay any license fees in connection with this license but agrees
to purchase the chemicals from the supplier thereof. Under the revised terms of
the various license agreements relating to the foams, coatings and solvents, the
Company is obligated to make minimum monthly payments of $5,000 and minimum
weekly payments of $1,200, in the aggregate, to Mrs. Kathleen Kennedy. The
failure by the Company to make such minimum weekly and monthly payments to Mrs.
Kennedy may result in the licenses becoming non-exclusive to the Company. The
failure of the Company to make royalty payments due under any license may result
in termination of such license. Certain of the Technologies are unpatented
proprietary technologies and in certain cases, because (i) the Company's
financial resources are insufficient to adequately protect and/or prosecute such
patents, and (ii) the Company believes that information which may become
available to competitors during the patent process could put the Company's
products at competitive risk, neither the inventor nor the Company believes that
seeking patent protection is prudent.
EMPLOYEES
As of November 30, 1996, the Company had ten (10) employees, including
three (3) officers. The Company has also engaged the services of four (4)
consultants, in addition to its marketing arrangements with SSC. See "Marketing
Agreement".
None of the Company's employees is represented by a labor organization and
the Company considers its relationship with employees to be satisfactory.
12
<PAGE>
ITEM 2. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data, as of and for the fiscal years ended
December 31, 1995, 1994 and 1993, are derived from the audited financial
statements of the Company, certain of which are included herein. The selected
financial data for the nine month periods ended September 30, 1996 and 1995 are
derived from the unaudited financial statements of the Company. The unaudited
financial statements include all adjustments, consisting only of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may expected for the year ended
December 31, 1996. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations" and the financial statements of the Company, including the notes
thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30 DECEMBER 31
1996 1995 1995 1994 1993
------------------ ------------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Sales................ $ 53,616 $ 28,948 $ 38,359 $ 16,425 $ -----------
Net loss............. 2,866,443 2,093,649 2,441,613 2,994,619 1,946,294
Net loss per
share of Common
Stock............... $ (0.36) $ (0.32) $ (0.36) $ (0.49) $ (0.36)
Weighted average
number of shares
of Common Stock
outstanding......... 8,050,491 6,575,160 6,862,688 6,137,128 5,380,597
BALANCE SHEET
DATA
Total Assets......... $ 389,202 $ 295,184 $ 223,706 $ 271,598 $ 442,319
Total Liabilities.... 343,680 401,837 574,023 316,840 114,957
Total Stockholders'
Equity (Deficit)... 45,522 (106,653) (350,317) (45,242) 327,362
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS.
GENERAL
Since the Reorganization, management of the Company has concentrated a
significant portion of its efforts on the marketing and sale of the Company's
paint stripping product. Additionally, subject to the Company's successful
completion of its research with regard to evaluating the appropriate mechanism
for delivery of the foam product onto its intended surface, and subject to the
Company's ability to obtain additional financing, management believes that the
Company's foam products could be ready for marketing during 1997, although no
assurances thereof can be given. Based upon the Company's current financial
status, the need to continue research and development and the Company's emphasis
on its paint stripping and foam products, management does not believe that it
will market any of its sealants, coatings or solvents in 1997.
The report of the Company's independent auditor, contains a paragraph as
to the Company's ability to continue as a going concern. Among the factors cited
by the auditors ( See note 1 to the financial statements) as raising substantial
doubt as to the Company's ability to continue as a going concern are (i) the
Company has incurred recurring operating losses and (ii) the Company has a
working capital deficiency.
COMPARISON OF THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30,
1995
Sales and Net Losses. For the three month period ended September 30, 1996,
--------------------
sales increased to $15,955 from $11,186 in the same period of the prior year, an
increase of 43% due to continued growth in the Company's paint stripping product
line. For the three month period ended September 30, 1996, the Company reported
net losses of $1,569,687 compared to $557,098 in the prior period, an increased
loss of 182%, due primarily to an increase in selling, general, and
administrative expenses as discussed below.
Selling, General and Administrative. For the three month period ended
-----------------------------------
September 30, 1996, the Company incurred selling, general and administrative
expenses of $1,505,870 compared to $500,826 in the same period of the prior
year, an increase of 201% due primarily to an increase of approximately
$970,000 in compensation expense associated with the issuance of approximately
440,000 shares of Common Stock, to various individuals for professional services
performed. The value of such services was based upon the fair market value of
Common Stock sold during the period. Calculations with respect to the percentage
of selling, general and administrative expenses relative to sales are not
meaningful.
Research and Development. For the three month period ended September 30,
------------------------
1996,
14
<PAGE>
research and development expenses increased to $58,413 from $52,197 in the
same period of the prior year, an increase of 12%. Calculations with respect to
the percentage of research and development expenses relative to sales are not
meaningful.
15
<PAGE>
COMPARISON OF THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30,
1995
Sales and Net Losses. For the nine month period ended September 30, 1996,
--------------------
sales increased to $53,616 from $28,948 in the same period of the prior year, an
increase of 85% due to continued growth in the Company's paint stripping product
line. For the nine month period ended September 30, 1996, the Company reported
net losses of $2,866,443 compared to $2,093,649 in the prior period, an
increased loss of 37%, due primarily to an increase in selling, general, and
administrative expenses, partially offset by a decrease in research and
development expenses as described below.
Selling, General and Administrative. For the nine month period ended
-----------------------------------
September 30, 1996, the Company incurred selling, general and administrative
expenses of $2,680,225 compared to $1,812,476 in the same period of the prior
year, an increase of 48% due primarily to an increase of approximately
$1,050,000 in compensation expense associated with the issuance of approximately
706,000 shares of Common Stock to various individuals for professional services
performed, (the value of such services was based upon the fair market value of
Common Stock sold during the period) and various increases in selling expenses
as the Company continues to increase its sales efforts related to its paint
stripping product line, partially offset by a $100,000 decrease in other
expenses related to the company's reorganization in 1995 and a decrease of
$147,000 in royalties due to the termination of one of the license agreements.
Calculations with respect to the percentage of selling, general and
administrative expenses relative to sales are not meaningful.
Research and Development. For the nine month period ended September 30,
------------------------
1996, research and development expenses decreased to $171,697 from $264,768 in
the same period of the prior year, a decrease of 35%, due primarily to a
decrease of $23,000 in research and development consulting expenses and
decreases in various other research and development expenses. As the Company's
paint stripping product line has come to market, and other product lines are
further along in their development, research and development expenses have
tended to decrease. Calculations with respect to the percentage of research and
development expenses relative to sales are not meaningful.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Sales and Net Losses. For the year ended December 31, 1995, sales
--------------------
increased to $38,359, from $16,425 in the prior year, an increase of 134% due to
the continued growth of the Company's paint stripping product line. For the
year ended December 31, 1995, the Company reported net losses of $2,441,613
from $2,994,619 in the prior year, a decreased loss of 18%, due primarily to
decreases in selling, general and administrative expenses, and research and
development expenses described below.
Selling, General and Administrative. For the year ended December 31,
-----------------------------------
1995, the Company incurred selling, general and administrative expenses of
$2,131,560 as compared to $2,578,653 in the prior year, a decrease of $17%, due
primarily to a $517,000 decrease in non-cash compensation and commission
expenses, related to the fewer number and value of shares of Common Stock issued
as compensation. Calculations with respect to the percentage of selling, general
and administrative expenses relative to sales are not meaningful.
Research and Development. For the year ended December 31, 1995, research
------------------------
and development expenses decreased to $273,150 as compared to $369,791 in the
prior year, a decrease of 26%, due primarily to the following; a decrease of
$18,000 in laboratory fees, a decrease of $41,000 in research and development
consulting expenses, and a decrease of $36,000 in research and development
salaries. As the Company's paint stripping product line has come to market, and
other product lines are further along in their development, research and
development fees have continued to decrease. Calculations with respect to the
percentage of research and development expenses relative to sales are not
meaningful.
16
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
Sales and Net Losses. For the year ended December 31, 1994, the Company
--------------------
recognized revenues of $16,425 due to initial sales of the Company's paint
stripping product line. There were no revenues in 1993. For the year ended
December 31, 1994, the Company reported net losses of $2,994,619 up from
$1,946,294 in the prior year, an increased loss of 54%, due primarily to
increases in selling, general and administrative expenses, and research and
development expenses as described below.
Selling, General and Administrative. For the year ended December 31,
-----------------------------------
1994, the Company incurred selling, general and administrative expenses of
$2,578,653 up from $1,566,492 in the prior year, an increase of 65% due
primarily to a $669,000 increase in non-cash compensation and commission
expenses, related to the greater number of shares of Common Stock issued as
compensation. In addition, in 1993, the Company received $385,000 pursuant to a
contract for funding of marketing efforts for their products. This funding was
used to offset the related expenses. The contract for funding was mutually
terminated in 1993. The balance of the increases is due to Royalty payments of
$247,000 which began in 1994, a decrease of $122,000 in officers salaries,
offset by various decreases to other selling, general and administrative
expenses. Calculations with respect to the percentage of selling, general and
administrative expenses relative to sales are not meaningful.
Research and Development. For the year ended December 31, 1994, research
------------------------
and development expenses increased to $369,791 up from $342,867 in the prior
year, an increase of 8%. Calculations with respect to research and development
expenses relative to sales are not meaningful.
LIQUIDITY
The Company has never generated sufficient revenues to finance its
operations and has been able to remain in business solely as a result of raising
capital. The Company's ability to continue as a going concern in the near term
is dependent upon obtaining additional financing. The Company does not have the
financial resources as of the date of this Registration Statement to operate its
business, continue research and development or market its products. The Company
is currently financing its operations through loans from shareholders, which
aggregated approximately $465,000 as of the date of this Registration Statement.
The Company is electing to become a reporting company under the Securities
Exchange Act of 1934, as amended, in order to attract capital. The Company
continues to seek additional capital from an array of potential sources. The
Company has provided information regarding its Technologies to venture capital
firms and is in discussions with some of them, although there can be no
assurances that any such discussions will result in the Company obtaining any
additional capital. Even if the Company is able to obtain additional capital
there can be no assurances that the structure or terms of such proposed
financing will be on acceptable terms.
The Company has entered into agreements with SSC for sales and marketing
services and with the respective licensors under the licenses with respect to
the various Technologies under which the Company has undertaken substantial
ongoing financial commitments. Unless the Company is able to obtain additional
financing, the Company will be unable to meet its commitments under such
agreements. See "Marketing and Sales -- Marketing Agreement" and "Licenses."
The Company estimates that it will require approximately $1,800,000 in
additional financing in order to continue operations for the next twelve months,
and an additional $1,900,000 in order to fund overhead, complete research with
respect to all of the Technologies, commercially exploit the products derived
therefrom and market each such product. The Company anticipates that, of the
minimum of $1,800,000 needed to continue operations, approximately $650,000 will
be allocated to salaries, $200,000 to rent, utilities and insurance expenses,
$250,000 to consulting fees, $250,000 to royalties, $350,000 to taxes and
operating expenses, and $100,000 to capital improvements. If the Company is able
to obtain an additional $1,900,000 and fully execute its business plan, the
Company estimates that approximately $300,00 will be allocated to sales
commissions and expenses, $450,000 to research, development and product testing,
$200,000 to marketing and advertising expenses, and $750,000 to working capital
and repayment of debt.
OFFERING
The Company intends to raise up to Ten Million Dollars ($10,000,000), at an
offering price per share to be determined by the Company, in a private offering
of shares of Common Stock.
17
<PAGE>
The securities to be offered in the Offering will not be registered under the
Securities Act of 1933, as amended (the "Securities Act") but rather shall be
issued pursuant to an exemption from such registration under Regulation D
promulgated thereunder or another available exemption from registration
thereunder. Such securities may not be offered or sold in the United States
absent registration under the Securities Act or an applicable exemption from
registration requirements under the Securities Act.
ITEM 3. PROPERTIES
The Company owns no real property. The Company has entered into two office
leases.
The Company leases 12,000 square feet in a building located at 91 Commerce
Drive in Brookfield, Connecticut (the "Brookfield Lease"). The Brookfield Lease
was executed by and between a trustee acting on behalf of Brookfield Commerce, a
Connecticut partnership, as lessor, and the Company, as lessee, on February 22,
1993. The Company uses this facility for research and development of products,
marketing meetings and shipment of chemicals. The term of the lease is for five
(5) years, commencing March 1, 1993 and ending February 28, 1998. The Company
has the option to renew the lease for an additional five (5) year period. The
base rent on an annual basis is $55,350 for the period through August 31, 1993,
$73,800 the next twelve months, $76,752 for the twelve months thereafter,
$79,822 for the next twelve months and $83,015 until the lease expires or is
renewed.
The Company's corporate headquarters are located in approximately 6,000
square feet of space leased by the Company in a building located at 27 Governor
Street, Ridgefield, Connecticut (the "Ridgefield Lease"). The Ridgefield Lease
was executed by and between a trustee acting on behalf of the Joseph H. and
Ellen Ann Donnelly Trust, as lessor, and the Company, as lessee, on September
30, 1992. The term of the Ridgefield Lease is for three years, commencing
October 1, 1995 and ending September 30, 1998. The base rent on an annual basis
is $40,517 for the first twelve months, $42,543 the next twelve months and
$44,500 for the twelve months thereafter until the lease expires or is renewed.
The Company believes its facilities are suitable and adequate for its
existing operations and those reasonably expected in the next twelve months.
The Company's facilities however are not suitable for manufacturing its products
in significant quantities, therefore, the Company intends to rely on outside
manufacturers to manufacture its products as they are developed and marketed.
The Company currently does not possess the capacity to manufacture any of its
products in anything more than sample quantities in a laboratory facility. The
Company therefore intends to contract with outside manufacturers to manufacture
any products derived from the Technologies, as they are brought to market.
Although the Company has identified certain of the companies which it would
consider engaging for the purpose of manufacturing some of the Company's
intended products, no such agreements have been entered into as of the date of
this Registration Statement.
18
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 1,
1996 known to the Company regarding beneficial ownership of the Company's Common
Stock by the officers and directors and any shareholder of more than ten percent
(10%) of the Company's issued and outstanding Common Stock, and the total number
of shares of Common Stock owned by the directors and officers of the Company as
a group.
<TABLE>
<CAPTION>
Name and address Number of Shares Percent
of owner Owned(1) of Class
- ------------------------------------------------------------------
<S> <C> <C>
Stephen J. Thompson 1,475,931(2) 15.83%
- ------------------------------------------------------------------
Robert F. Thompson 82,080 0.88%
- ------------------------------------------------------------------
Richard J. Fricke 1,556,285(3) 16.69%
- ------------------------------------------------------------------
Penny Fricke 1,556,285(4) 16.69%
- ------------------------------------------------------------------
Officers and Directors as a group 3,014,046(5) 32.33%
- ------------------------------------------------------------------
</TABLE>
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934. Accordingly, except as noted, all of the Company's securities over
which the officers and directors named, or as a group, directly or
indirectly have, or share voting or investment power, have been deemed
beneficially owned.
(2) Includes 197,850 shares owned by his wife and The Thompson Family Trust.
Mr. Thompson disclaims beneficial ownership of such shares. Includes
100,250 shares which are owned by The Ridge Group, a Connecticut general
partnership in which Penny Fricke and Stephen J.Thompson each own a 50%
equity interest.
(3) Includes (i) 1,105,882 shares which are owned by his wife, Penny Fricke,
(ii) 41,040 shares owned by his daughter, Laura J. Fricke, (iii) 41,040
shares owned by his daughter, Amanda C. Frick, (iv) 183,073 shares owned by
the Fricke Family Trust, and (v)100,250 shares which are owned by The Ridge
Group, a Connecticut general partnership in which Penny Fricke and Stephen
J. Thompson each own a 50% equity interest. Mr. Fricke disclaims
beneficial ownership of such shares.
(4) Includes (i) 85,000 shares owned by her husband, Richard J. Fricke, (ii)
41,040 shares owned by her step-daughter, Laura J. Fricke, (iii) 41,040
shares owned by her step-daughter, Amanda C. Fricke, and (iv) 183,073
shares owned by the Fricke Family Trust . Mrs. Fricke disclaims beneficial
ownership of such shares. Includes 100,250 shares owned by The Ridge
Group, a Connecticut general partnership in which Penny Fricke and Stephen
J. Thompson each own a 50% equity interest.
(5) Includes (i) 197,850 shares which are owned by Stephen Thompson's wife and
The Thompson Family Trust, (ii) 1,105,882 shares which are owned by
Richard J. Fricke's wife, Penny Fricke, (iii) 41,040 shares owned by Mr.
Fricke's daughter, Laura J. Fricke, (iv) 41,040 shares owned by Mr.
Fricke's daughter, Amanda C. Fricke, and (v) 183,073 shares owned by the
Fricke Family trust. Mr. Thompson and Mr. Fricke, respectively, disclaim
beneficial ownership with respect to such shares. Includes 100,250 shares
which are owned by The Ridge Group, a Connecticut general partnership in
which Penny Fricke and Stephen J. Thompson each own a 50% equity interest.
Mr. Fricke disclaims beneficial ownership with respect to such shares.
19
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position(s)
- ------------------------- --- -----------------------------
<S> <C> <C>
Stephen J. Thompson 42 President, Chief Executive
Officer and Director
Richard J. Fricke 51 Secretary and Director
Robert F. Thompson 66 Executive Vice President,
Chief Operating Officer
and Chief Financial
Officer
</TABLE>
Stephen J. Thompson began his career in the government in 1977 as the
Mayor's Aide for the Municipality of Ridgefield, Connecticut. Mr. Thompson
served in several positions having broad exposure to State and Federal
Government Regulatory Agencies, including the Department of Energy ("DOE"),
Housing and Urban Development ("HUD") and the Department of Environmental
Protection ("DEP"). In 1979, Mr. Thompson was elected to the position of
Municipal Treasurer of the Town of Ridgefield, Connecticut. As Treasurer, he
managed the disbursement of tax proceeds, payroll and accounts payable and was
responsible for audits. In 1981, Mr. Thompson was retained by Perkin Elmer
Corporation as a consultant on issues of inventory audit and control for their
Micro-lithography Division. In 1982, Mr. Thompson worked at the Northeastern
Division of BMW of America as an in-house new business consultant, handling
franchise relations, floor plan finance and supervising department managers. In
1986, Mr. Thompson and a partner formed Olympic Enterprises, Inc. to conduct
business in land development and commercial construction, including zoning and
DEP issues. In 1993, a property holding company, Olympic of Venice Place &
Evers, Inc., a Connecticut corporation in which Mr. Thompson had been involved
as president and treasurer, voluntarily petitioned for bankruptcy protection
under Chapter 11 of the Federal bankruptcy laws. Mr. Thompson graduated from
Ridgefield High School and attended the University of Miami from 1972-1973 and
Western Connecticut State College, Ancell School of Business from 1977-1979.
Mr. Thompson's wife is an employee of the Company.
Richard J. Fricke has been a practicing general practice attorney in
the State of Connecticut since 1970 and was admitted to the bar the same year.
From 1970-73, he worked with the law firm of Gregory & Adams, in Wilton,
Connecticut. From 1973 to 1990, he was a partner in the Law Firm of Crehan &
Fricke, in Ridgefield, Connecticut. Mr. Fricke filed for protection under
Chapter 7 of the federal bankruptcy laws in 1996. In addition to private
practice, Mr. Fricke was Town Counsel for the town of Ridgefield, Connecticut.
From 1973-81, he served as Director of Village Bank & Trust Company and for the
Ridgefield Community Center and the Ridgefield Montessori School. Mr. Fricke
received his undergraduate and law degrees from Cornell University in 1967 and
1970, respectively. Mr. Fricke's biographies can be found in Marquis Who's Who
-----------------
in America, Who's Who in the World, Who's Who in Business and Finance, and
- ---------- ---------------------- ---------------------------------
Who's Who in the East.
- ---------------------
Robert F. Thompson is Executive Vice President, Chief Financial
Officer and Chief Operating Officer of the Company. Mr. Thompson is a retired
Corporate Officer of American Can Co. He completed twenty-nine years with
American Can Co. and at retirement in 1988 was Assistant Treasurer and Chief
Credit Officer with functional responsibility for Credit, Payroll, Real Estate
and Claims within the Treasury Department. Mr. Thompson served as President of
the Credit Research Foundation, Columbia, Maryland, from 1989 to 1993. The
Foundation is an education and research organization affiliated with the
National Association of Credit Management. He directed the Foundation's formal
program activities at Dartmouth College and Stanford University and all research
projects in the area of credit and financial management. Mr. Thompson serves as
a director of Morgan Foods, Inc., Austin, Indiana, and the New York Credit and
Financial Management
20
<PAGE>
Association, New York, New York. He has served as a Trustee of the Credit
Research Foundation and as a Director of the National Association of Credit
Management. Mr. Thompson holds a B.A. degree in Economics from St. Francis
College, the Executive Award from the Graduate School of Credit and Financial
Management, Dartmouth College, and attended the Graduate School of Business at
New York University.
Currently all directors hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified.
Officers are elected by and serve at the discretion of the Board of
Directors. Other than Stephen J. Thompson and Robert F. Thompson, who are father
and son, there are no family relationships among the directors or officers of
the Company.
BOARD COMMITTEES
Audit Committee. The Audit Committee of the Board of Directors was
formed in December 1995 to review the results and scope of the annual audit and
other services provided by the Company's independent accountants, to review and
evaluate the Company's control functions and to monitor transactions between the
Company and its employees, officers and directors. Stephen J. Thompson, Richard
J. Fricke and Robert F. Thompson are the members of the Audit Committee.
Compensation Committee. The Compensation Committee of the Board of
Directors reviews and approves the compensation and benefits for the Company's
executive officers. Stephen J. Thompson, Richard J. Fricke and Robert F.
Thompson are the members of the Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in October, 1996, to
review and approve the compensation and benefits of the Company's executive
officers and make recommendations to the Board of Directors regarding such
matters. Stephen J. Thompson, Richard J. Fricke and Robert F. Thompson are the
members of the Compensation Committee. No interlocking relationship exists
between any member of the Company's Board of Directors or Compensation Committee
and any member of the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past. In the
year ended December 31, 1995, the full Board of Directors participated in
deliberations concerning executive officer compensation.
DIRECTOR COMPENSATION
The Company's directors do not receive any fees for their services as Board
members and committee members, but are reimbursed for expenses incurred in
connection with attending Board and committee meetings.
21
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth aggregate annual remuneration of the
three directors and officers of the Company, as a group, during the Company's
last three fiscal years, and the projected remuneration for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Aggregate
remunera- remunera- remunera- remunera-
tion for tion for tion for tion for
Capacities in fiscal fiscal fiscal fiscal
Name of which year year year year
individual or identity of group remuneration ended ended ended ended
was received December December December December
31, 1993 31, 1994 31, 1995 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stephen J. Thompson President, $ 99,250 $ 58,500 $ 50,000 $512,500
Chief (1)(2)(3) (1)(2)(3) (1)(2)(3) (1)(2)(3)
Executive and (4)(5)
Director
Richard J. Fricke Secretary and $ 99,250 $ 58,500 $ 50,000 $513,800
Director (1)(2)(3) (1)(2)(3) (1)(2)(3) (1)(2)(3)
(6) (6) (6) (4)(5)(6)
Robert F. Thompson Chief $ 115,685 $ 85,960 $ 83,444 $125,000
Operating (1) (1) (1) (1)
Officer and
Chief Financial
Officer
Samuel E. Bernstein Vice President $ 52,020 $ 41,200 --- ---
All directors and officers as a Directors and $ 366,205 $ 244,160 $ 183,444 $1,151,300
group (3 individuals) Officers (1)(2)(3) (1)(2)(3) (1)(2)(3) (1)(2)(3)
(6) (6) (6) (4)(5)(6)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
(1) Although the employment contracts for Stephen J. Thompson and Richard J.
Fricke each call for compensation of $300,000 plus incentive bonuses for the
year ended December 31, 1995, these amounts were not actually paid through
December 31, 1995. In 1995 Mr. Thompson and Mr. Fricke each received $50,000 in
compensation, and to date in 1996 Stephen J. Thompson and Richard F. Fricke have
each received $24,000 in compensation. Additionally, Robert F. Thompson received
$83,444 in compensation during 1995, and to date in 1996 Robert F. Thompson has
received $56,000. Each of these executive officers have waived their rights
with respect to salary arrearages prior to January 1, 1996.
(2) In addition to their base salaries, the Company has established a Medical
and Dental Reimbursement Plan for each of Stephen J Thompson and Richard J.
Fricke providing for reimbursement of up to $10,000 of medical and dental
expenses annually incurred by such officers. As of the date of this Memorandum,
the Company has not received any requests for reimbursements under this plan.
(3) The Company in 1995 paid and currently pays $5,381 and $9,921 for the
health insurance premiums of each of Stephen J. Thompson, and Richard J. Fricke,
respectively. The respective figures for such payments in 1994 were $2,914 and
$4,974, respectively. In 1993 such payments were $2,415 and $4,175,
respectively. In addition, in 1994 the Company paid $2,382 in legal malpractice
insurance premiums on behalf of Richard J. Fricke.
(4) Includes 85,000 shares valued at $2.50 per share of Common Stock issued as
additional compensation to each of Mr. Richard J. Fricke and Mr. Stephen J.
Thompson for the year ended December 31, 1996,.
22
<PAGE>
(5) Under the terms of their respective employment agreements, each of Stephen
J. Thompson and Richard J. Fricke are granted (i) an annual bonus equal to ten
percent (10%) of the Company's net income, and (ii) an annual Common Stock
option bonus of stock options exercisable for ten years at an exercise price of
$.01 per share for one percent (1%) of the number of shares of Common Stock.
issued and outstanding as of the end of the fiscal year for which such options
are granted.
(6) Mr. Fricke receives office space and secretarial services from the Company
for the operation of his independent law practice. The value of such services
are estimated to be approximately $1,800 annually, based on the Mr. Fricke
spending less than 5% of his time on his law practice.
23
<PAGE>
EMPLOYMENT AGREEMENTS
Each of the officers of the Company has executed an employment contract with
substantially similar provisions concerning covenants not to compete and
confidentiality.
Stephen J. Thompson's employment agreement was executed on August 13, 1991
(the "Thompson Employment Agreement") and provides, other than the standard
provisions described above, that he will be Chief Executive Officer of the
Company for an undetermined term. Since the execution of the Thompson Employment
Agreement, the Board of Directors appointed Mr. Thompson to the additional
position of President and Director. Pursuant to the terms of the Thompson
Employment Agreement, in addition to his stated salary, Mr. Thompson is entitled
to a bonus of ten percent (10%) of the annual net income of the Company and an
annual stock option bonus of options to purchase 1% of the number of shares of
Common Stock. issued and outstanding as of the end of the fiscal year for which
such options are granted, exercisable for ten years at an exercise price of $.01
per share. The Thompson Employment Agreement also provides that the Company
shall pay for Mr. Thompson's automobile, health and major medical insurance and
life insurance.
Richard J. Fricke's employment agreement was executed on August 13, 1991 (the
"Fricke Employment Agreement") and provides, other than the standard provisions
described above, that he will be Corporate Counsel for an undetermined term.
Since the execution of the Fricke Employment Agreement, the Board of Directors
appointed Mr. Fricke to the additional position of Secretary and Director.
Pursuant to the terms of the Fricke Employment Agreement, in addition to his
salary, Mr. Fricke is entitled to a bonus of ten percent (10%) of the annual net
income of the Company and an annual stock option bonus of options to purchase 1%
of the number of shares of Common Stock. issued and outstanding as of the end of
the fiscal year for which such options are granted, exercisable for ten years at
an exercise price of $.01 per share. The Fricke Employment Agreement also
provides that the Company shall pay for Mr. Fricke's automobile, health and
major medical insurance and life insurance.
Robert F. Thompson's employment agreement was executed on January 31, 1996
and provides, other than the standard provisions described above, that he will
serve as the Company's Chief Operating Officer and Chief Financial Officer.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's By-Laws provide for the indemnification, to the full extent
allowed by Florida law, of its directors, officers, employees and agents who are
or were a party, or are threatened to be made a party to any threatened, pending
or completed legal action, suit or proceeding by reason of the fact that he or
she is or was serving a director, officer, employee or agent of the Company or
is or was serving in such capacity at another entity at the Company's request.
The extent, amount and eligibility for such indemnification are determined by a
majority vote of a quorum of disinterested directors, or by a majority vote of a
quorum of disinterested shareholders.
Section 607.0850 of the Florida Business Corporation Act empowers a Florida
corporation to indemnify any person who is a party to any proceeding (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise,
provided that he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Florida corporation may indemnify any person who is a
party to any proceeding by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable in the proceeding.
Where an officer, director, employee or agent of a corporation is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which he actually and
reasonably incurred in
24
<PAGE>
connection therewith.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has agreed to provide Richard J. Fricke, a Director and Secretary
of the Company, with office space, facilities, fixtures, equipment supplies and
secretarial services and to allow him to operate and maintain a legal practice
independent of the Company. The value of such services are estimated to be
approximately $1,800 annually, based on the Mr. Fricke spending less than 5% of
his time on his law practice.
Mr. Fricke is one of the licensors under the foam Technology license. See
"Business - Licenses"
The Ridge Group, a Connecticut general partnership in which Mr. Fricke's
wife, Penny Fricke, a beneficial owner of more than 16 % of the outstanding
Common Stock, and Stephen Thompson, a Director and the President and Chief
Executive Officer of the Company and a beneficial owner of more than 15% of the
Common Stock, each own a 50% equity interest, has loaned the Company $221,624 in
demand obligations at no interest. In addition, Stephen Thompson has in his
individual capacity loaned the Company an additional $108,100 in demand
obligations at no interest.
The Company employs Stephen J. Thompson as the President and Chief Executive
Officer of the Company; Richard J. Fricke as Secretary and General Counsel of
the Company; and Mr. Thompson's father, Robert F. Thompson, as Chief Financial
Officer and Chief Operating Officer of the Company. See "Management".
Mrs. Kathleen Kennedy, a holder of approximately three percent (3%) of the
issued and outstanding shares of Common Stock, is licensor under the Technology
licenses for the Company's foam, coatings and sealants, and recycling solvents
Technologies.
The Company believes that the terms of the transactions discussed herein are
better than those which the Company could have negotiated with unaffiliated
parties.
ITEM 8. LEGAL PROCEEDINGS
There are no legal actions pending against the Company nor to the knowledge
of the Company are any such proceedings contemplated.
25
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET
The Company's Common Stock is an over the counter "pink sheets" security. To
the best of the Company's knowledge, there is no public market for the Company's
Common Stock, and the Company is not aware of any trading activity in the Common
Stock.
DIVIDEND POLICY
It is the policy of the Board of Directors to retain earnings for use in the
maintenance and expansion of the Company's business. The Company has not
declared any cash dividends to the shareholders of its capital stock and does
not intend to declare such dividends in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since the Reorganization, the Company issued 923,726 shares of Common Stock
to approximately 202 individuals, for the aggregate consideration of
approximately $1,650,000. The Company believes, based upon representation
letters provided to it from such investors, that such issuances were made to
approximately 135 "accredited investors" as such term is defined under Rule 501
of Regulation D promulgated under the Securities Act and to approximately 67
non-accredited investors. The Company made such sales with the intention of
relying upon the exemption afforded by Rule 506 of Regulation D; however, the
Company has never filed a Form D with the Securities and Exchange Commission,
nor has the Company complied with filing requirements, if any, of the states in
which sales were made. In certain instances, the Company paid what it believed
to be finder's fees to individuals who introduced investors to the Company.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMMON STOCK
The Company is authorized to issue Two Hundred Million (200,000,000) shares
of Common Stock, $.0001 par value per share, of which Nine Million Three Hundred
Twenty Four Thousand One Hundred Twenty Six (9,324,126) shares are issued and
outstanding as of the date of this Registration Statement. All of the issued and
outstanding shares of Common Stock are fully paid, validly issued and non-
assessable.
Five Hundred Thousand (500,000) shares of Common Stock are freely
transferable by the holders thereof because they are either subject to the
exemption from registration provided in the original Regulation A offering or
the holders have been holding such shares for longer than the two year statutory
holding period described in Rule 144 under the Securities Act of 1933, as
amended. Additionally, all of the Eight Million (8,000,000) shares of Common
Stock issued to SAC-Delaware and subsequently distributed to SAC-Delaware's
stockholders will be available for transfer two years from the date of
acquisition pursuant to the exemptions from registration pursuant to Rule 144 of
the Securities Act of 1933, as amended.
Holders of shares of Common Stock of the Company are entitled to share
equally on a per share basis
26
<PAGE>
in such dividends as may be declared by the Board of Directors out of funds
legally available therefor. There are presently no plans to pay dividends with
respect to the Common Stock. See "Market Price of and Dividends on the
Registrant's Common Equity and Related Stockholder Matters -Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, the assets of
the Company will be divided pro rata on a per share basis among the holders of
the shares of Common Stock. The Common Stock is not subject to any liability for
further assessments. There are no conversion or redemption privileges nor any
sinking fund provisions with respect to the Common Stock and the Common Stock is
not subject to call. The holders of Common Stock do not have any preemptive or
other subscription rights. See "Directors and Executive Officers" for a
discussion of the Company's Board of Directors.
Holders of shares of Common Stock are entitled to cast one vote for each
share held at all stockholders' meetings including the Annual Meeting, for all
purposes, including the election of directors. The Common Stock does not have
cumulative voting rights.
SHARES ELIGIBLE FOR FUTURE SALE
RULE 144 As of the date of this Registration Statement, there are Nine
Million Three Hundred Twenty Four Thousand One Hundred Twenty Six (9,324,126)
shares of Common Stock issued and outstanding. Of these shares, Five Hundred
Thousand (500,000) shares of Common Stock are freely tradeable without
restrictions under the Securities Act. The remaining Eight Million Eight
Hundred Twenty Four Thousand One Hundred twenty Six (8,824,126) shares of Common
Stock are "restricted securities" within the meaning of Rule 144 and are
eligible for sale in public markets subject to the resale limitations of Rule
144.
In general, under Rule 144, a person (or persons whose shares are aggregated)
including persons who may be deemed to be "affiliates" of the Company, as that
term is defined under the Securities Act, is entitled to sell within any three
(3) month period, the amount of shares beneficially owned for at least two (2)
years that does not exceed the greater of (i) 1% of then outstanding shares of
Common Stock, or (ii) the average weekly trading volume in the Common Stock in
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and
availability of certain public information about the Company. A person who has
not been an affiliate of the Company for the three months prior to any proposed
sale, and has beneficially owned such shares for at least three years is
entitled to sell all such shares without regard to the volume, manner of sale,
notice requirements or any restrictions.
No predictions can be made as to the effect, if any, that sales of shares
under Rule 144 or the availability of shares for sale will have on the market,
if any, prevailing from time to time. Sales of substantial amounts of Common
Stock pursuant to Rule 144 may adversely affect the market price of the Common
Stock, assuming any such market develops.
TRANSFER AGENT AND REGISTRAR
The Company serves as its own transfer agent and registrar for the Common
Stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act provides as follows:
(1) A corporation shall have power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of
27
<PAGE>
any proceeding by judgement, order, settlement, or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the corporation or,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person who was or is a
party to any proceeding by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation , partnership, joint venture, trust, or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application, that, despite the adjudication
of liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsection (1) or subsection (2), or in defense of
any claim, issue, or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsection (1) or (2).
Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by majority
vote of a committee duly designated by the board of directors (in which
directors who are parties may participate) consisting solely of two or more
directors not at the time parties to the proceeding;
(c) By independent legal counsel:
1. Selected by the board of directors prescribed in paragraph (a) or the
committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtained for paragraph (a) and
the committee cannot be designated under paragraph (b), selected by majority
vote of the full board of directors (in which directors who are parties may
participate); or
(d) By the shareholders by a majority vote of a quorum consisting of
shareholders who were not parties to such proceeding or, if no such quorum is
obtainable, by a majority vote of shareholders who were not parties to such
proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
28
<PAGE>
(6) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant to this
section are not exclusive, and a corporation may make any other or further
indemnification or advancement of expenses of any of its directors, officers,
employees, or agents, under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was lawful or had
no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or agent
derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the liability
provisions of s. 607.0834 are applicable;
(d) Willful misconduct or a conscious disregard for the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this section
shall continue as, unless otherwise provided when authorized or ratified, to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person, unless otherwise provided when authorized or ratified.
(9) Unless the corporation's articles of incorporation provide otherwise,
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary determination of the board or of the shareholders in the
specific case, a director, officer, employee, or agent of the corporation who is
or was a party to a proceeding may apply for indemnification or advancement of
expenses, or both, to the court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice tit considers
necessary, may order indemnification or advancement of expenses, if it
determines that:
(a) The director, officer, employee, or agent is entitled to mandatory
indemnification under subsection (3), in which case the court shall also order
the corporation to pay the director reasonable expenses incurred in obtaining
court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and reasonably
entitled to indemnification or advancement of expenses, or both, in view of all
the relevant circumstances, regardless of whether such person met the standard
of conduct set forth in subsection (1), subsection (2), or subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, is in the same position
under this section with respect to the
29
<PAGE>
resulting or surviving corporation as he would have been with respect to such
constituent corporation if its separate existence had continued.
(11) For purposes of this section:
(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to any
employee benefit plan), and expenses actually and reasonably incurred with
respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit, or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes any
service as a director, officer, employee, or agent of the corporation that
imposes duties on such persons, including duties relating to an employee benefit
plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner he
reasonably believes to be in the best interests of the participants and
beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
Article IX of the Bylaws of the Company provides as follows:
The Corporation shall indemnify any person:
(1) Who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by, or in the
right of, the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against such
costs and expenses, and to the extent and in the manner provided under Florida
Law.
(2) Who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against such costs and expenses, and to the extent and in the manner
provided under Florida law.
The extent, amount, and eligibility for the indemnification provided herein
will be made by the Board of Directors. Said determinations will be made by a
majority vote to a quorum consisting of directors who were not parties to such
action, suit, or proceeding or by the shareholders by a majority vote of a
quorum consisting of shareholders who were not parties to such action, suit, or
proceeding.
30
<PAGE>
The corporation will have the power to make further indemnification as
provided under Florida Law except to indemnify any person against gross
negligence or willful misconduct.
The corporation is further authorized to purchase and maintain insurance for
indemnification of any person as provided herein and to the extent provided
under Florida Law.
31
<PAGE>
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
To the Board of Directors and Stockholders
Safe Alternatives Corporation of America, Inc.
We have audited the accompanying balance sheet of Safe Alternatives Corporation
of America, Inc., as of December 31, 1995 and 1994, and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Safe Alternatives Corporation
of America, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring operating losses and has a working capital
deficiency. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Stamford, CT
September 27, 1996
F-1
<PAGE>
Safe Alternatives Corporation of America, Inc.
Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 12,331 $ 21,622
Accounts receivable 11,209 15,888
Inventories 3,968 14,128
Prepaid expenses and other current
assets 10,722 1,244
---------------------------
Total current assets 38,230 52,882
Fixed assets
Equipment 93,775 74,387
Leasehold improvements 64,722 61,315
Furniture and fixtures 102,217 101,344
---------------------------
260,714 237,046
Less accumulated depreciation 119,570 72,027
---------------------------
141,144 165,019
Other assets
Organization costs, less accumulated
amortization of $40,548 and
$28,384 in 1995 and 1994, respectively 20,274 32,439
Deposits and other noncurrent assets 24,058 21,258
---------------------------
44,332 53,697
---------------------------
Total assets $ 223,706 $ 271,598
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities
Accounts payable and other accrued
expenses $ 99,723 $ 69,340
Stockholders' loans 474,300 247,500
---------------------------
Total liabilities 574,023 316,840
Stockholders' equity (deficit)
Common stock, $.0001 par value,
200,000,000 shares authorized:
Issued (including shares in treasury)
8,500,000 shares in 1995 and
7,163,811 in 1994 850 717
Additional paid-in capital 7,413,260 5,156,835
Accumulated deficit (7,766,480) (5,324,867)
Subscriptions issuable 2,160 122,160
---------------------------
(350,210) (45,155)
Common stock in treasury at par
value--1,065,066 shares in 1995
and 862,005 shares in 1994 (107) (87)
---------------------------
Total stockholders' equity (deficit) (350,317) (45,242)
---------------------------
Total liabilities and stockholders'
equity $ 223,706 $ 271,598
===========================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Safe Alternatives Corporation of America, Inc.
Statement of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
<S> <C> <C> <C>
Sales $ 38,359 $ 16,425 $ --
Costs and expenses:
Cost of goods sold 15,554 9,170 -
Selling, general and administrative 2,131,560 2,578,653 1,566,492
Research and development 273,150 369,791 342,867
Depreciation and amortization 59,708 53,430 36,935
-----------------------------------------
2,479,972 3,011,044 1,946,294
-----------------------------------------
Net loss $(2,441,613) $(2,994,619) $(1,946,294)
=========================================
Net loss per common share $(.36) $(.49) $(.36)
=========================================
Average number of common shares
outstanding 6,862,688 6,137,128 5,380,597
=========================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Safe Alternatives Corporation of America, Inc.
Statement of Changes in Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Additional
Stock Paid-in Accumulated Subscriptions Treasury Stock
----------------------- --------------------------------------
Shares Amount Capital Deficit Issuable Shares Amount Total
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 5,281,106 $530 $ 875,757 $ (383,954) $ 492,333
Issuance of common stock
to treasury 820,800 82 (820,800) $ (82) --
Proceeds from sale of
common stock, net of
expenses of $20,030 234,858 23 790,747 790,770
Common stock held for
issuance (91,200 shares) $ 250,000 250,000
Issuance of common stock
as compensation 280,358 28 740,525 740,553
Net loss (1,946,294) (1,946,294)
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1993 6,617,122 663 2,407,029 (2,330,248) 250,000 (820,800) (82) 327,362
Issuance of common stock
to treasury 273,600 27 (273,600) (27) --
Proceeds from sale of
common stock, net of
expenses of $35,700 44,478 4 1,090,682 136,142 13 1,090,699
Issuance of common stock
previously subscribed 91,200 9 249,991 (250,000) --
Common stock held for
issuance (27,557 shares) 122,160 122,160
Issuance of common stock
as compensation 137,411 14 1,409,133 96,253 9 1,409,156
Net loss (2,994,619) (2,994,619)
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1994 7,163,811 717 5,156,835 (5,324,867) 122,160 (862,005) (87) (45,242)
Issuance of common stock
to treasury 498,678 50 (498,678) (50) --
Proceeds from sale of
common stock, net of 223,557 22 1,244,668 77,063 8 1,244,668
expenses of $46,500
Issuance of common stock
previously subscribed 119,997 (120,000) 27,360 3 --
Issuance of common stock
as compensation 113,954 11 891,810 191,194 19 891,840
Shares issued related to
business acquisition 500,000 50 (50) --
Net loss (2,441,613) (2,441,613)
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1995 8,500,000 $850 $7,413,260 $(7,766,480) $ 2,160 (1,065,066) $(107) $ (350,317)
=========================================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Safe Alternatives Corporation of America, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,441,613) $(2,994,619) $(1,946,294)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 59,708 53,430 36,935
Write-off of obsolete inventory 10,802
Non-cash compensation and commission 891,840 1,409,156 740,553
Changes in operating assets and
liabilities:
Accounts receivable 4,679 (15,888)
Inventories (642) (14,128)
Prepaid expense and other current assets (9,478) 26,250
Deposits and other noncurrent assets (2,800) (15,425)
Accounts payable and accrued expenses 30,383 28,883 35,134
----------------------------------------
Net cash used in operating activities (1,457,121) (1,533,166) (1,122,847)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (23,668) (39,019) (128,127)
----------------------------------------
Net cash used by investing activities (23,668) (39,019) (128,127)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) 226,800 173,000 74,500
stockholders' loans
Proceeds from issuance of common stock
and subscriptions 1,291,198 1,248,559 1,060,800
Less expenses from sale of common stock (46,500) (35,700) (20,030)
----------------------------------------
Net cash provided by financing
activities 1,471,498 1,385,859 1,115,270
Net decrease in cash (9,291) (186,326) (135,704)
Cash at beginning of year 21,622 207,948 343,652
----------------------------------------
Cash at end of year $ 12,331 $ 21,622 $ 207,948
=========================================
Supplemental disclosure of cash paid:
State income taxes paid $ 760 $ 703 $ 1,017
=========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements
December 31, 1995
1. REORGANIZATION AND BASIS OF PRESENTATION
On September 15, 1995, the stockholders of Safe Alternatives Corporation of
America, Inc., a Delaware corporation, ("SAC Delaware") approved an Asset
Purchase Agreement and Plan of Reorganization (the "Reorganization") whereby the
assets of SAC Delaware were sold to Safe Alternatives of America, Inc., a
Florida corporation then operating under the name Portsmouth Corporation (the
"Company"), in exchange for 8,000,000 shares of the Common Stock of the Company
and the assumption of SAC Delaware's liabilities. Subsequent to the
Reorganization, SAC Delaware was liquidated. Pursuant to such liquidation, SAC
Delaware distributed to each stockholder 0.2736 shares of the Company's Common
Stock for each share of SAC Delaware that was owned. As a result of the
Reorganization and subsequent liquidation of SAC Delaware, the stockholders of
SAC Delaware controlled 94% of the issued and outstanding Common Stock of the
Company and therefore, the Reorganization has been accounted for as the
acquisition of the Company by SAC Delaware. The financial statements presented
are, therefore, the historical financial statements of SAC Delaware. Prior to
the Reorganization, the Company had been an inactive public entity with no
assets, liabilities, or net worth. The costs of this transaction have been
charged to expense.
In addition, as part of the Reorganization, the Company agreed to pay a six
percent royalty (the "Royalty") on the gross revenues of the Company
attributable to the assets of the Company acquired in the Reorganization,
payable to the stockholders of SAC Delaware of record as of September 15, 1995
(representing 8,000,000 of the 8,500,000 common shares outstanding as of
December 31, 1995). The Royalty is payable on a quarterly basis during the sixty
months beginning September 28, 1995, and the cumulative total of all royalty
payments is limited to $8,500,000. No Royalty payments have been made as of
December 31, 1995.
The issuance of 8,000,000 shares of the Company's Common Stock in connection
with the Reorganization has been treated as a reverse stock split and the shares
of issued and outstanding Common Stock of the Company prior to the
Reorganization have been restated for all periods presented.
Subsequent to the Reorganization, the Company changed its name to Safe
Alternatives Corporation of America, Inc.
OPERATIONS
The Company has secured exclusive manufacturing, marketing, and distribution
rights to certain patented, patent pending and application-in-process
technologies in the chemical and biosterilization fields.
The Company has incurred significant losses since inception and expects to incur
additional losses in 1996. The Company plans to continue to finance its
operations with a combination of sales of common stock and, in the longer term,
borrowings and revenues from product sales. The Company's ability to continue as
a going concern, in the near term, is dependent upon obtaining additional
financing. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern, and do not include any adjustments
that might result from the outcome of this uncertainty.
F-6
<PAGE>
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is computed on a
straight-line basis over the following estimated useful lives: furniture and
fixtures, 5 years; machinery and equipment, 7 years.
Leasehold improvements are depreciated over the shorter of the lease term or
economic life of the related improvement.
ORGANIZATION COSTS
Organization costs are amortized over 60 months using the straight-line method.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of shares of
Common Stock outstanding in each period.
INVENTORIES
Inventories, primarily finished goods, are stated at the lower of cost (first-
in, first-out) or market value.
SHAREHOLDERS' LOANS
Shareholders' loans are unsecured, non-interest bearing, demand notes.
3. LEASES
The Company maintains its headquarters at offices that are leased under a
noncancelable operating lease expiring on September 30, 1998. In addition, the
Company is leasing a laboratory and testing facility under a noncancelable
operating lease expiring on February 28, 1998.
F-7
<PAGE>
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements (continued)
3. LEASES (CONTINUED)
The following is a schedule of future minimum rental payments under the
Company's operating leases as of December 31, 1995:
<TABLE>
<CAPTION>
Year ending December 31 Amount
- -----------------------------------
<S> <C>
1996 $126,768
1997 116,268
1998 44,181
</TABLE>
Rental expenses were $113,885, $111,009, $98,236 for 1995, 1994 and 1993,
respectively.
4. STOCKHOLDERS' EQUITY
TREASURY STOCK
In 1995, 1994 and 1993, respectively, the Company issued 498,678, 273,600, and
820,800 shares of Common Stock to Richard J. Fricke, trustee. Mr. Fricke is also
an officer of the Company. The shares (recorded at par value) are being held in
trust to be used for future issuance to employees, investors, and other
potential funding sources. As the Company directly benefits from the sales of
the shares in the trust, these shares (1,065,066 at December 31, 1995) have been
recorded as treasury stock.
REDUCTION IN PAR VALUE AND INCREASE IN NUMBER OF AUTHORIZED SHARES
In connection with the Transaction, the shareholders of the Company approved an
amendment to the Certificate of Incorporation (the "Amendment") reducing the par
value of the Common Stock from $.00025 per share to $.0001 per share, and
increasing the number of authorized shares of Common Stock from 30,000,000 to
200,000,000. As a result of the reduction in par value, the Common Stock account
was reduced by $4,385, the treasury stock account was reduced by $607, and the
additional paid in capital account was increased by $3,778. All share and per
share amounts presented herein reflect the Amendment.
SHARES ISSUED AS COMPENSATION AND COMMISSION
During 1995, 1994 and 1993, respectively, 305,148, 233,664 and 280,358 fully
vested shares of the Company's Common Stock were issued to certain employees and
outside consultants. The fair value of shares awarded; based upon the value of
Common Stock sold during those periods, was $891,840, $1,409,156, and $740,553
for 1995, 1994 and 1993, respectively, and has been recorded as compensation
expense.
5. INCOME TAXES
At December 31, 1995 and 1994, the Company had deferred tax assets relating
primarily to net operating loss carryforwards of $5,600,000, and $3,100,000,
respectively, offset by a valuation allowance.
The Company has reported net operating loss carryforwards for federal income tax
purposes of approximately $5,600,000 expiring during the period from 2007 to
2010. As a result of changes in ownership of the Company, the future tax
benefits from its net operating loss will be limited.
F-8
<PAGE>
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements (continued)
6. MARKETING RIGHTS
In January 1993 the Company entered into a joint marketing, operating and
research and development agreement with Integrated Labs, Inc. ("Integrated").
Integrated agreed to fund the Company's operating costs based upon pre-agreed
operating budgets. In return, the Company agreed to grant Integrated an
exclusive right and license to exploit the Company's technologies including the
sale, marketing and distribution of products. The initial funding, $55,000 per
month, continued for a period of seven months (total $385,000) at which time the
agreement was mutually terminated. These amounts have been recorded in the
December 31, 1993 statement of operations as a reduction of the related
expenses.
7. LICENSE AGREEMENTS
The Company maintains four significant licensing agreements. Each such license
has substantially the same terms and conditions and each is valid until April
17, 2050, unless the Company fails to pay a royalty of four percent of the gross
sales derived from the exploitation of the respective technology, with certain
limitations for sales derived from intercompany transfers or transactions with
subsidiaries. The Company has also agreed to pay all maintenance fees and fees
for filing and prosecuting patent applications pending at the time the licenses
were executed. All rights under the licenses are freely assignable by the
Company. The licenses were amended on August 23, 1993 to collectively provide
for a required minimum monthly payment of $5,000, in the aggregate, and a
required weekly payment of $1,200 to Mrs. Kathleen Kennedy during her lifetime
in lieu of progressive sales minimums due beginning in 1993. The royalty
payments described above however, would nonetheless survive.
8. RELATED PARTY TRANSACTIONS
The three officers of the Company have employment contracts entitling them to
aggregate cash compensation of $725,000 plus incentive bonuses. Amounts actually
paid to the officers in 1995, 1994, and 1993 amounted to $183,000, $244,000, and
$366,000 in each of the years, respectively. Each of the officers has waived his
rights with respect to salary arrearages. No bonuses have been paid out in any
of the years. Beginning January 1, 1996, two officers are entitled to options to
purchase (at par value) 1% of the outstanding Common Stock of the Company at
December 31 of the prior year in accordance with their employment agreements.
In addition to the above, two executives were each given 169,500 shares of the
Company's Common Stock in 1995, resulting in additional compensation expense to
officers of $417,000.
An officer of the Company has an interest in one of the licenses discussed
above. Through December 31, 1995 there have been no payments to such officer
under the aforementioned agreements.
F-9
<PAGE>
Safe Alternatives Corporation of America, Inc.
Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30
1996
--------------
ASSETS
Current assets
<S> <C>
Cash $ 145,807
Accounts receivable 12,913
Inventories 13,930
Prepaid expenses and other current assets 37,666
---------------
Total current assets 210,316
Fixed assets
Equipment 119,036
Leasehold improvements 64,722
Furniture and fixtures 103,030
---------------
286,788
Less accumulated depreciation 144,811
---------------
141,977
Other assets
Organization costs, less accumulated
amortization of $49,672 11,151
Deposits and other noncurrent assets 25,758
---------------
36,909
---------------
Total assets $ 389,202
===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and other accrued expenses $ 90,730
Stockholders' loans 252,950
---------------
Total liabilities 343,680
Stockholders' equity (deficit)
Common stock, $.0001 par value,
200,000,000 shares authorized: Issued
(including shares in treasury) 9,084,000 shares 909
Additional paid-in capital 10,685,377
Accumulated deficit (10,632,923)
Subscriptions issuable (7,840)
---------------
45,523
Common stock in treasury at par (1)
value-11,682 shares
---------------
Total stockholders' equity (deficit) 45,522
---------------
Total liabilities and stockholders' equity $ 389,202
===============
</TABLE>
See accompanying notes.
F-10
<PAGE>
Safe Alternatives Corporation of America, Inc.
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1996 1995
-------------------------------
<S> <C> <C>
Sales $ 15,955 $ 11,186
Costs and expenses:
Cost of goods sold 9,905 3,807
Selling, general and administrative 1,505,870 500,826
Research and development 58,413 52,197
Depreciation and amortization 11,454 11,454
----------------------------------
1,585,642 568,284
----------------------------------
Net loss $(1,569,687) $ (557,098)
==================================
Net loss per common share $ (.18) $ (.08)
Average number of common shares 8,723,374 6,884,912
outstanding
==================================
</TABLE>
See accompanying notes.
F-11
<PAGE>
Safe Alternatives Corporation of America, Inc.
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
-------------------------------
<S> <C> <C>
Sales $ 53,616 $ 28,948
Costs and expenses:
Cost of goods sold 33,773 10,989
Selling, general and administrative 2,680,225 1,812,476
Research and development 171,697 264,768
Depreciation and amortization 34,364 34,364
---------------------------------
2,920,059 2,122,597
---------------------------------
Net loss
$(2,866,443) $(2,093,649)
=================================
Net loss per common share $ (.36) $ (.32)
=================================
Average number of common shares
outstanding 8,050,491 6,575,160
=================================
</TABLE>
See accompanying notes.
F-12
<PAGE>
Safe Alternatives Corporation of America, Inc.
Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,866,443) $(2,093,649)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 34,364 34,364
Non-cash compensation and 1,810,538 891,840
commission
Changes in operating assets
and liabilities:
Accounts receivable (1,704) 2,929
Inventories (9,962) (395)
Prepaid expense and other (26,944) (9,478)
current assets
Deposits and advances (1,700) (2,800)
Accounts payable and accrued (8,993) 18,197
expenses ----------------------------
Net cash used in operating activities (1,070,844) (1,158,992)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (26,074) (5,626)
----------------------------
Net cash used by investing activities (26,074) (5,626)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) (221,350) 66,800
stockholders' loans
Proceeds from issuance of common stock 1,580,472 1,169,198
and subscriptions
Expenses for sale of common stock (128,728) (28,800)
----------------------------
Net cash provided by financing 1,230,394 1,207,198
activities
Net increase in cash 133,476 42,580
Cash at beginning of period 12,331 21,622
----------------------------
Cash at end of period $ 145,807 $ 64,202
============================
</TABLE>
See accompanying notes.
F-13
<PAGE>
Safe Alternatives Corporation of America, Inc.
Notes to Unaudited Financial Statements
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
2. STOCKHOLDER'S EQUITY
In accordance with employment contracts for the Company's two executive
officers, the Company issued 85,000 shares of common stock from treasury to each
of these officers and recorded a pro rata portion of the annual compensation
expense which approximated $255,000 during the nine month period ($88,000
during the three month period). In addition to the aforementioned issuance, the
Company issued 706,484 shares of common stock to various individuals and
recognized $1,520,886 as compensation for services based upon the value of
Common Stock sold during those periods. This amount has been recorded in
selling, general, and administrative expenses in the statement of operations.
During the period the Company sold 760,900 shares of common stock and received
gross proceeds of $1,580,472.
F-14
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
32
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
INDEX TO AUDITED FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors F-1
Balance Sheet at December 31, 1995 and 1994 F-2
Statement of Operations for the years
ended December 31, 1995, 1994, and 1993 F-3
Statement of Changes in Stockholders' Equity
(Deficit) for the years ended December 31,
1995, 1994, and 1993 F-4
Statement of Cash Flows for the years ended
December 31, 1995, 1994, and 1993 F-5
Notes to Financial Statements F-6
UNAUDITED FINANCIAL STATEMENTS
Balance sheet at September 30, 1996 F-10
Statement of Operations for the nine months
ended September 30, 1996 and 1995 F-11
Statement of Cash Flows for the nine months
ended September 30, 1996 and 1995 F-12
Notes to Unaudited Financial Statements F-13
33
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4 Copy of specimen certificate representing
shares of common stock, $.0001 par
value per share, of the Company
10.1 Asset Purchase Agreement and
Plan of Reorganization between
the Company and SAC Delaware
dated August 21, 1995
10.2 Lease Agreement between Nicholas
R. Dinapoli, Jr., as Trustee for
Brookfield Commerce and the
Company for property located at
27 Governor Street, Ridgefield, Connecticut,
dated February 22, 1993
10.3 Lease Agreement between Nicholas R. Dinapoli,
as trustee for Brookfield Commerce,
and the Company for property located at
91 Commerce Drive, Brookfield, Connecticut,
dated February 22, 1993
10.4 Supply Agreement for paint stripping
products between Samax Enterprises, Inc.
and the Company dated January 5, 1996
10.5 License Agreement for coatings and sealants
Technologies between Richard B.Kennedy
and the Company as licensee dated
December 9, 1992
10.6 License Agreement for packaging applications
of foam Technologies between Richard B.
Kennedy, Patrick J. Crehan and Richard J.
Fricke as licensors and the Company as
licensee dated December 9, 1992
34
<PAGE>
10.7 License Agreement for fire retardant applications
of foam Technologies between Richard B.
Kennedy, Patrick J. Crehan and Richard J.Fricke
as licensors and the Company as licensee dated
December 9, 1992
10.8 Amendment to Technology License Agreements
of foam Technologies between Richard B.Kennedy,
Patrick J. Crehan and Richard J.Fricke as licensors
and the Company as licensee dated August 23, 1993
10.9 Employment Agreement between
the Company and Mr. Stephen J.
Thompson dated August 13, 1991,
as amended.
10.10 Employment Agreement between
the Company and Mr. Richard J.
Fricke dated August 13, 1991, as
amended.
10.11 Employment Agreement between
the Company and Mr. Robert F.
Thompson dated January 31, 1996.
10.12 Consulting Agreement between SSC
Marketing, Inc and the Company
dated as of November 1, 1996.
10.13 Customer Service Agreement between SSC
Marketing, Inc and the Company
dated as of November 1, 1996.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
Date: December 13, 1996 By: s/Stephen J. Thompson
-------------------------------
Stephen J. Thompson
President and Chief Executive Officer
36
<PAGE>
Exhibit 10.12
-------------
CONSULTING AGREEMENT
This Agreement is made effective as of November 1, 1996, by and between Safe
Alternatives Corporation of America, Inc. of 27 Governor Street, Ridgefield,
Connecticut 06877, and SSC Marketing, Inc., 2615 Pacific Coast Highway, Suite
300, Hermosa Beach, California 90254.
In this Agreement, the party who is contracting to receive services shall be
referred to as "SAC", and the party who will be providing the services shall be
referred to as "SSC".
SSC has a background in creating, developing, implementing and managing
marketing and sales programs, organizations and distribution channels. SSC is
skilled in integrating these productive elements into company structures to best
benefit all parties, and is willing to provide services to SAC based on this
background.
SAC desires to have services provided by SSC.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Beginning on November 1, 1996, SSC will provide the
following services, (collectively the "Services"). Create and be responsible
for the correct sales coverage structure for each class of trade that will
purchase SAC's products. Interview, select, contract and manage the best
available sales agencies to represent SAC's products to the marketplace.
Interview and select for approval the best available regional sales managers who
shall report to SSC. Create, implement and be responsible for the correct
marketing program that will drive each sales project. Develop and oversee a
complete daily services program to handle all customer service needs. Develop a
complete sales accounting program and integrate it into SAC. Develop a
comprehensive sales management reporting system. Develop with the approval of
SAC an advertising support campaign to compliment SAC's products. Identify and
implement the best available distribution channel(s) for each of SAC's products.
Assist when requested by SAC in the development of all packaging, collateral
material, point-of-sale materials and the underlying advertising message for
SAC. Develop with approval by SAC sales education methodology for all
contractors.
<PAGE>
It is understood and agreed that SSC shall be the sales agency for SAC with the
job of creating and increasing sales. All decisions with respect to the
description of services and the services provided shall be first approved by
SAC.
It is further understood and agreed that SSC shall provide a sales force
structured in accordance with exhibit A attached hereto and made a part hereof,
with a constant minimum staffing of three zone managers who shall be paid an
additional sum of $4,000.00 each per month together with expenses which have
been pre-approved by SAC together with an override commission not to exceed 2%
of gross sales of their zone after total sales of 2.6 million dollars by SAC has
been achieved.
2. PERFORMANCE OF SERVICES. The manner in which the services are to be
performed and the specific hours to be worked by SSC shall be determined by SSC.
SAC will rely on SSC to work as many hours as may be reasonably necessary to
fulfill SSC's obligations under this Agreement. It is an integral part of this
agreement that a comprehensive sales effort be initiated and generate
substantial sales. SSC shall be responsible for the generation of sales for SAC
and continuous increases in sales of SAC products.
3. PAYMENT. SAC will pay a fee to SSC based on $8,000.00 per month for
services provided by SSC. This fee shall be payable semi-monthly, no later than
the fifteenth and last day of the month, each payment corresponding to the semi-
monthly period that ended approximately fifteen days prior to the payment date.
Upon termination of this Agreement, payments under this paragraph shall cease;
provided, however, that SSC shall be entitled to payments and commissions for
periods or partial periods that occurred prior to the date of termination and
for which SSC has not yet been paid.
(3a). COMMISSION PAYMENTS. SAC will make commission payments to SSC based on
5.5% of all gross sales of SAC products generated by SSC after SAC has achieved
an annual sales volume of 2.8 million dollars. When the commission is achieved
the semi-monthly payments shall be deducted from the commission on a monthly
basis. If the semi-monthly payments exceed the amount of commission in a given
month, SAC shall not be entitled to any credit against said payment.
(3b). PAYMENT SCHEDULE. The commission payments shall be
<PAGE>
payable monthly, no later than the 30th day of the following month.
(3c). ACCOUNTING. SAC shall maintain records in sufficient detail for purposes
of determining the amount of the commission. SAC shall provide to SSC a written
accounting that sets forth the manner in which the commission payment was
calculated.
(3d). RIGHT TO INSPECT. SSC, or SSC's agent, shall have the right to inspect
SAC's records during normal office hours for the limited purpose of verifying
the calculation of the commission payments, subject to such restrictions as SAC
may reasonably impose to protect the confidentiality of the records. Such
inspections shall be made during reasonable business hours as may be set by SAC.
4. EXPENSE REIMBURSEMENT. SSC shall be entitled to reimbursement from SAC for
all "out-of-pocket" expenses, provided, however, any expense is pre-approved by
SAC.
5. SUPPORT SERVICES. SAC will provide the following support services for the
benefit of SSC:
- staff and secretarial support on SAC premises
- company stationery and business cards
6. TERM/TERMINATION. This Agreement may be terminated by either party upon 45
days written notice to the other party, unless the termination is for cause.
7. RELATIONSHIP OF PARTIES. It is understood by the parties that SSC is an
independent contractor with respect to SAC, and not an employee of SAC. SAC
will not provide fringe benefits, including health insurance benefits, paid
vacation, or any other employee benefit, for the benefit of SSC.
8. DISCLOSURE. SSC is required to disclose any outside activities or
interests, including ownership or participation in the development of prior
inventions, that conflict or may conflict with the best interests of SAC.
Prompt disclosure is required under this paragraph if the activity or interest
is related, directly or indirectly, to:
- a product or product line of SAC
- a manufacturing process of SAC
<PAGE>
- any activity that SSC may be involved with on behalf of SAC
Failure to disclose shall be deemed cause for termination
9. Except to the extent permitted under and necessary to enjoy the full
benefits of the Agreement, it is agreed that without prior written approval of
the other party, neither party will during the term of this Agreement disclose
or permit to be disclosed to others or used for, its own benefit, any know-how
and unpublished information relating to the business, engineering, research
activities or trade secrets of the other acquired by the party during the term
of this Agreement, provided that such know-how and unpublished information has
been designated and marked as "CONFIDENTIAL" by the party to whom the know-how
and information belongs prior to its acquisition by the receiving party; and
provided further that the know-how or unpublished information has not fallen
into the public domain through no fault of the receiving party and has not been
received by the receiving party from another source.
10. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed delivered when delivered in person or deposited
in the United States mail, postage prepaid, addressed as follows:
Company: Safe Alternatives Corporation of America, Inc.
Paul Grillo, or his successor
27 Governor Street
Ridgefield, Connecticut 06877
Consultant: SSC Marketing, Inc.
Steven S. Cady
President
2615 Pacific Coast Highway, Suite 300
Hermosa, California 90254
Such address may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or
<PAGE>
conditions in any other agreement whether oral or written. This Agreement
supersedes any prior written or oral agreements between the parties.
12. AMENDMENT. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
13. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid and enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of the State
of Connecticut.
IN WITNESS WHEREOF, the parties have set their hand and seal this _______ day of
1996.
Safe Alternatives Corporation
of America, Inc.
by: s/Stephen J. Thompson
- ------------------------- ---------------------------
Witness Stephen J. Thompson,
its President
SSC Marketing, Inc.
by: s/Steven Cady
- ------------------------- --------------------------
Witness Steven Cady
<PAGE>
Exhibit 10.13
-------------
CUSTOMER SERVICE AGREEMENT
This Agreement is made effective as of December 15, 1996, by and between SSC
Marketing, Inc. of 2615 Pacific Coast Highway, Suite 300, Hermosa Beach,
California 90254 and Safe Alternatives Corporation of America, Inc., of 27
Governor Street, Ridgefield, Connecticut 06877.
In this Agreement, the party which is contracting to receive services shall be
referred to as "SAC", and the party who will be providing the services shall be
referred to as "SSC".
SSC has a background in performing all customer service functions to support all
marketing, sales and distribution requirements of a manufacturer of goods. SSC
is skilled in accounting, communications and electronic information systems
utilization, and is willing to provide services to SAC based on this background.
SAC desires to have services provided by SSC.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Beginning on December 15, 1996, SSC will
provide the following services, (collectively the "Services"). Customer setup
for sales order entry. Invoicing, order tracking, distribution center
coordination, all daily accounting functions (credits, debits, taxes, multi-
currency interchanges, customer accrual, cash discount management, journal
postings, general ledger transactions, overdue receivable management, aged trial
balance reporting), sales forecasting and planning, category budgeting and any
other normal daily service that is reasonably expected by SAC. Implement
"GoldMine" contact management system into SAC's information flow. Implement
Lotus CC Mail connectively between SSC and SAC. SSC shall keep current in
computer technology and update SAC's computer systems when appropriate.
2. PERFORMANCE OF SERVICES. The manner in which services are to be
performed and the specific hours to be worked by SSC shall be determined by SSC.
SAC will rely on SSC to work as many hours as may be reasonably necessary to
fulfill SSC's obligations under this Agreement.
<PAGE>
3. PAYMENT. SAC will pay a fee to SSC based on five thousand ($5,000.00)
per month for services provided by SSC. This fee shall be payable semi-monthly,
no later than fifteen days after the end of each applicable two week period
during which Services were performed until such time that SAC's needs and volume
of business outstrip SSC's ability to perform all tasks at the agreed to monthly
fee. At such time, SSC requires that the fee be reviewed and a new fee be
agreed upon that compensates SSC for the new level or volume of services
rendered of, if an agreement cannot be reached, this agreement shall be deemed
null and void and all SAC data, including all computer disks and paperwork,
shall be returned immediately to SAC. Should SSC unreasonably delay the process
of turning over the information to SAC, SSC shall be liable for any damages
suffered by SAC. Upon termination of this Agreement, payments under this
paragraph shall cease; provided, however, that SSC shall be entitled to payments
for periods or partial periods that occurred prior to the date of termination
and for which SSC has not yet been paid. SAC shall reimburse SSC for postage and
computer related telephone charges.
4. SUPPORT SERVICES. SAC will provide the following support services for the
benefit of SSC:
- company stationery and business cards for managers. No literature shall
be distributed without prior approval of SAC.
5. NEW PROJECT ARRIVAL. SSC and SAC recognizes that SSC's services will
include working on various projects for SAC. SSC shall obtain the approval of
SAC prior to the commencement of a new project.
6. TERM/TERMINATION. This Agreement may be terminated by either party upon 45
days written notice to the other party, unless the termination is for cause.
7. RELATIONSHIP OF PARTIES. It is understood by the parties that SSC is an
independent contractor with respect to SAC, and not an employee of SAC. SAC
will not provide fringe benefits, including health insurance benefits, paid
vacation, or any other employee benefit, for the benefit of SSC. SSC shall
provide appropriate liability insurance and worker's compensation insurance.
<PAGE>
8. DISCLOSURE. SSC is required to disclose any outside activities or
interests, including ownership or participation in the development of prior
inventions, that conflict or may conflict with the best interests of SAC.
Prompt disclosure is required under this paragraph if the activity or interest
is related, directly or indirectly, to:
- a product or product line of SAC
- a manufacturing process of SAC
- any activity that SSC may be involved with on behalf of SAC
Failure to disclose shall be deemed cause for termination.
9. EMPLOYEES. SSC's employees, if any, who perform services for SAC under this
Agreement shall also be bound by the provisions of this Agreement.
10. INJURIES. SSC acknowledges SSC's obligation to obtain appropriate insurance
coverage for the benefit of SSC (and SSC's employees, if any). SSC waives any
rights to recover from SAC for any injuries that SSC (and SSC's employees) may
sustain while performing services under this Agreement and that are a result of
the negligence of SSC or SSC's employees.
11. RETURN OF RECORDS. Upon termination of this Agreement, SSC shall deliver
all records, notes, data, memorandums, models and equipment of any nature that
are in SSC's possession or under SSC's control and that are SAC's property or
relate to SAC's business.
12. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be deemed delivered when delivered in person or deposited in
the United States mail, postage prepaid, addressed as follows:
Company: Safe Alternatives Corporation of America, Inc.
Paul Grillo, or his successor
27 Governor Street
Ridgefield, Connecticut 06877
Consultant: SSC Marketing, Inc.
Steven S. Cady
President
2615 Pacific Coast Highway, Suite 300
Hermosa, California 90254
<PAGE>
Such address may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
14. AMENDMENT. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
15. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid and enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
16. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
17. APPLICABLE LAW. This Agreement shall be governed by the laws of the State
of Connecticut.
IN WITNESS WHEREOF, the parties have set their hand and seal this _______ day of
December, 1996.
Safe Alternatives Corporation
of America, Inc.
By: s/Stephen J. Thompson
- ------------------- -------------------------
Witness Stephen J. Thompson,
its President
<PAGE>
SSC Marketing, Inc.
by: s/Steven Cady
- ------------------------- -------------------------
Witness Steven Cady
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 12,331 145,807
<SECURITIES> 0 0
<RECEIVABLES> 11,209 12,913
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<INVENTORY> 3,968 13,930
<CURRENT-ASSETS> 38,230 210,316
<PP&E> 260,714 286,788
<DEPRECIATION> 119,570 144,811
<TOTAL-ASSETS> 223,706 389,202
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0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 223,706 389,202
<SALES> 38,359 53,616
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<TOTAL-COSTS> 2,479,972 2,920,059
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<INCOME-PRETAX> (2,441,613) (2,866,443)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,441,613) (2,866,443)
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<NET-INCOME> (2,441,613) (2,866,443)
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