U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934 (Fee required)
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 (No Fee Required)
For the transition period from ______ to _______.
Commission File Number 000-21627
Safe Alternatives Corporation of America, Inc.
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(Name of small business issuer in its charter)
Florida 06-1413994
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Governor Street, Ridgefield, Connecticut 06877
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (203) 438-8144
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
$.0001 Par Value Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $134,464
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock sold, or the average bid
and asked prices of such stock, as of a specified date within the past 60 days
(see definition of affiliate in Rule 12b-2 of the Exchange Act): As of July 31,
1998, the aggregate market value of the 11,327,797 shares of Common Stock held
by non-affiliates of the Registrant was $2,378,837.
As of June 30, 1998, there were 13,495,960 shares of Common Stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Safe Alternatives Corporation of America, Inc. (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 "Securities Act"). To the Company's best knowledge, there was no
market for trading of the Common Stock until the Company's Common Stock was
included for trading on the NASD's Electronic Bulletin Board in March, 1997. 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.
On September 15, 1995, 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 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"), and
commenced operations under its present business plan. Prior to the
Reorganization, the Company had no meaningful operations. On March 4, 1996, the
Company changed its name to Safe Alternatives Corporation of America, Inc. (a
Florida corporation).
In connection with the Reorganization, SAC-Delaware was liquidated, and
SAC-Delaware distributed to each stockholder 0.2736 shares of the Company's
Common Stock for each share of SAC-Delaware that was owned. Consequently, all of
the share and per-share figures included herein reflect the Reorganization. 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 of the Reorganization, and the cumulative total of all
Royalty payments is limited to a maximum of $8,500,000. The Royalty does not
apply to any revenues generated by the sale of the Company's paint stripping
product, AmeriStrip(TM), or its NaturalCool(TM) product, which technologies were
acquired after the Reorganization. The Company does not anticipate paying any
royalties as described above, as the Company's current and anticipated sales
efforts are focused on products not subject to the Royalty.
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
licenses non-exclusively, 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. AmeriStrip(TM) - 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
<PAGE>
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 is
biodegradable, water washable, non-caustic, and methylene chloride-free. See
"Technologies."
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 application 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 begin to market this
product in 1998. See "Technologies."
3. NaturalCool(TM) Systems - Ambient Air Exchanger (worldwide marketing and
manufacturing rights). The NaturalCool system is a patented, energy-saving air
circulation system, designed to supplement existing refrigeration systems for
commercial refrigeration units such as walk-in and reach-in coolers. The systems
operate by taking in relatively cold ambient air from outside, filtering the air
to remove particulates, and introducing the cooler air into an operating cooler,
and exhausting mild air from within the cooler back out to the outdoors. Each
system consists of a modular unit fabricated of non-corrosive stainless steel,
operates totally independently of the cooler's existing compressor, operates
without freon or other environmental pollutants, meets all applicable electrical
codes, and has received UL (Underwriters' Laboratories) approval. See
"Technologies."
The marks, NaturalCool(TM) and AmeriStrip(TM), are trademarks owned by the
Company.
Although the Company is currently actively marketing its paint-stripping
product, only nominal revenues have been generated from the sale of samples to
date. The Company is not currently marketing any of its products except
NaturalCool and AmeriStrip. The Company's timetable for research and development
of new products and other forward-looking statements contained herein include a
number of risks and uncertainties, and consequently, the Company cannot provide
any assurances with respect thereto. These statements are only predictions and
actual events or results may differ materially as a result of factors beyond the
Company's control. 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 management's best reasonable estimates given the information
available to them. In part, the time estimates are based upon the review and
analysis of the products (e.g., the foam product) by certain customers that have
sampled such product and provided the Company with their analyses.
In November and December, 1996, the Company entered into a series of
agreements with SSC Marketing, Inc. ("SSC"), a California-based marketing firm,
for the purpose of outsourcing the Company's sales and marketing efforts. See
"Marketing Agreement." SSC represented to the Company that it had substantial
experience in sales and marketing of similar products. Based upon
representations of SSC, the Company believed that products which the Company
would develop from the Technologies could be brought to market in a relatively
short time frame by SSC. Through December 31, 1997, however, SSC's efforts
produced only nominal sales of products. The Company terminated the SSC
agreements, and has brought in-house all of its sales and marketing efforts. On
May 29, 1998, SSC filed an action against the Company, and the Company has
responded to this suit and brought counterclaims against SSC. See "Item 3 -
Legal Proceedings."
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. In the case
of the paint stripping product, the Company contracts
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with private blenders to manufacture it. In the case of NaturalCool, the Company
manufactures the units at its Newport, Vermont facility. The Company intends to
contract with outside manufacturers to manufacture any additional products
derived from the Technologies, as they are brought to market. Although the
Company has identified certain companies that 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 December 31, 1997, the Company did not possess the financial
resources to operate its business, continue research and development or market
its products. The Company was at that time seeking additional capital from a
variety of potential sources. Since that time, the Company has relied for
working capital upon the proceeds of loans from shareholders and upon the
proceeds of a private placement of convertible notes consummated in April 1998.
See "Item 5. Market For Common Equity And Related Stockholder Matters - Recent
Sales Of Unregistered Securities."
The Company has and continues to provide information regarding its
Technologies to venture capital firms and other funding sources 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 "Item 6. Management's Discussion and Analysis or Plan of Operation."
The Company's principal executive offices are located at 27 Governor
Street, Ridgefield, CT 06877, and its telephone number is (203) 438-8144.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1997 and 1996, the Company spent
approximately $265,000 and $275,000, respectively, 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 NaturalCool and
AmeriStrip will be a fire retardant foam insulation product. During the two
years ended December 31, 1997, approximately $500,000, 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 1998 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. There can be no assurances
however, that the Company's research and development efforts will result in any
commercially viable products.
All of the Company's research and development efforts have been conducted
at the Company's laboratory facility in Brookfield, Connecticut. See "Item 2.
Properties." In February, 1998, the Company closed its research facility in
Brookfield, CT. The closing of the facility may have a material adverse effect
on the Company's ability to perform research and development on products other
than the paint stripper, NaturalCool and the foams. The Company is investigating
alternative research and development arrangements.
<PAGE>
TECHNOLOGIES
NATURALCOOL
In February, 1997, the Company entered into a License Agreement with
Natural Cool, Inc., providing the Company exclusive worldwide marketing rights
for NaturalCool(TM) Air Circulation Systems. The NaturalCool system is a
patented, energy-saving air circulation system, designed to supplement existing
refrigeration systems for commercial refrigeration units such as walk-in and
reach-in coolers. The systems operate by taking in relatively cold ambient air
from outside, filtering the air to remove particulates, and introducing the
cooler air into an operating cooler, and exhausting mild air from within the
cooler back out to the outdoors. Each system consists of a modular unit
fabricated of non-corrosive stainless steel, operates totally independently of
the cooler's existing compressor, operates without freon or other environmental
pollutants, meets all applicable electrical codes, and has received UL
(Underwriters' Laboratories) approval. The Company believes that in certain
climates in the northern part of the United States, the NaturalCool system can
save the user up to 50% on its energy costs associated with operating walk-in
and reach-in coolers. NaturalCool units are marketed primarily to convenience
and liquor stores, grocery chains, florists and the walk-in cooler industry. The
Company believes the systems not only reduce power consumption, but also will
prolong the life of existing compressors.
In November, 1997, the Company announced that it had discovered an
overstatement of income relating to its Natural Cool Division promptly following
the termination for cause of Mr. Clement Royer, formerly President of the
Company's Natural Cool Division. Following Mr. Royer's termination, the Company
was able to secure the marketing and manufacturing rights for NaturalCool
directly from the original inventors and patent holders of NaturalCool. Prior to
this new arrangement, the Company possessed only the marketing rights to the
products through Mr. Royer. The Company's Board of Directors appointed a
committee to investigate Mr. Royer's activities, and put into place additional
internal controls to decrease the likelihood that this type of activity will
occur in the future. The Company also brought a legal action against Mr. Royer,
which has been settled. See "Item 3. Legal Proceedings."
PAINT STRIPPING CHEMICALS - AMERISTRIP
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 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 to
contractors for the New York City Housing Authority, to the New York Port
Authority, to Sherwin Williams retail stores, and to contractors working for the
school construction authority in New York City to remove lead paint from the
City's public schools, as well as to other customers. The Company's sales
efforts to place its paint stripping product with contractors using the product
to de-lead New York City public schools accounts for more than fifty percent
(50%) of the Company's 1997 revenues. The Company believes that the sales effort
of the Company has been severely curtailed by the insufficient working capital
position of the Company.
FOAM
The Company has a license to commercially exploit the foam Technologies in
the continental United States. Additionally, the Company has developed its own
foam formulation which the Company believes is patentable, although no patent
has been applied for at present. The licensed foam Technologies
<PAGE>
are protected by a patent, which patent is valid through December 4, 1999. The
Company believes that with its foam technologies it will be able to manufacture
or have manufactured foam insulation products for the construction industry
containing no chlorofluorocarbons ("CFCs"). Additionally, the foam technologies
are 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 products. The
only remaining research for the Company's own proprietary foam product, which is
currently being conducted, concerns testing and evaluating the appropriate
mechanism for delivery of the product onto its intended surface. 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 or HCFCs. 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 independent tests, that the foam may be sold
as either Class I or Class II flame retardant foam. 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 begin to market this product in the
fourth quarter of 1998.
PROPRIETARY RIGHTS
Some of the Technologies which the Company has licensed are protected by a
patent or have a patent pending. Most of the Technologies involve trade secrets
that 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.
LICENSES
NATURALCOOL
In February, 1997, the Company sublicensed from Mr. Clement Royer, on a
worldwide basis, the right to market the NaturalCool system products, Mr. Royer
having previously received a license to market such products from Natural Cool,
Inc., a Vermont corporation. Natural Cool, Inc. holds a master license from the
inventors to market and manufacture the NaturalCool products on a worldwide
basis. In May, 1998, following the Company's termination of Mr. Royer, the
Company obtained a license to market and manufacture products covered by the
NaturalCool patent directly from the inventors and holders of the patent.
Subsequent to the termination of Royer, and prior to May, 1998, the license
required the Company to pay a royalty of $200 per unit, as each unit was
manufactured, and the Company was obligated to manufacture at least 500 units
per year. A payment of $20,000 was made to the licensor to initiate the license.
In May, 1998, the Company purchased the NaturalCool name, inventory and related
assets, and entered into a new license on the technology directly with the
inventors. Under the new license the Company is obligated to pay a royalty of
$100 for each NaturalCool unit sold, subject to a minimum annual payment of
$30,000, to be applied against royalties. The minimum royalty of $30,000 for the
period May, 1998 through April 30, 1999 has been prepaid by the Company.
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 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
<PAGE>
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 the exclusivity
of such license. Currently, the Company is out of compliance with the minimum
payment provisions and has a non-exclusive license. Mrs. Kennedy has threatened
legal action to obtain minimum payments which were not made. See "Item 3. Legal
Proceedings." The Company believes that should such a suit be brought it would
not have a material effect on the operations or financial condition of the
Company.
PAINT STRIPPING
The Company's paint stripping products are proprietary in nature. The
Company has developed a paint stripping compound which it believes better serves
its purposes than the product which it had previously been supplied.
Consequently, the Company does not intend to avail itself of that certain supply
agreement with Samax Enterprises, Inc., due also to product inconsistencies. 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. The compound has been sold, primarily in sample quantities, to
contractors for the New York City Housing Authority, to the New York Port
Authority, to Sherwin Williams retail stores, and to other customers. In 1997,
the majority of the Company's sales of this product were to contractors in the
lead abatement field. The Company believes that the sales effort of the Company
has been severely limited by the insufficient working capital position of the
Company.
FOAMS
The Company entered into a license agreement, dated December 9, 1992, with
Richard B. Kennedy (Mr. Kennedy has since deceased and his wife has succeeded in
interest), Richard J. Fricke and Patrick J. Crehan (collectively, "Licensor"),
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. Mr. Fricke has renounced
any and all of his interest in the license. For a more detailed description of
the financial terms of the license, see above.
MARKETING AND SALES
MARKETING AGREEMENT
In 1996 and 1997, the Company believed that its marketing resources would
most effectively be deployed by contracting an outside vendor to market its
products. Consequently, as of November 1, 1996, the Company replaced all of its
in-house sales force, consisting of five salesmen and three representatives,
with an outside vendor, SSC. SSC represented to the Company that it had
experience selling similar products on a national basis. SSC was to develop
sales in governmental markets and in the private sector.
The Company 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 was to provide the
<PAGE>
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. Under the Consulting Agreement, the Company
was to 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 the Company's annual
revenues would exceed $2,600,000, the Company would have been obligated to 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, the Company would have been obligated to 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 was to provide the Company
with order entry, billing, order tracking, sales forecasting and planning, and
information processing services. The agreement provides for the Company to pay
SSC an additional $5,000 per month for such services, provided that, if at any
time the volume of the Company's business exceeds SSC's ability to adequately
perform such services, the parties shall agree upon an increased fee. A failure
to so agree would result in termination of the Service Agreement. At the time it
entered into such agreements, based upon the Company's experience with its
in-house sales team, and based further upon the contacts, reputation and
experience of SSC, management believed that contracting for its marketing and
sales needs would provide the Company with a greater opportunity to market its
products to more customers in less time.
Through December 31, 1997, SSC's efforts produced aggregate sales of less
than $100 worth of products. The Company has terminated the SSC agreements, and
has brought in-house all of its sales and marketing efforts. On May 29, 1998,
SSC filed an action against the Company. See "Item 3. Legal Proceedings."
The Company no longer out-sources its sales and marketing functions. In
April, 1998, the Company hired Mr. Robert Berger to lead its sales and marketing
efforts and an additional salesperson to assist in such functions.
PAINT STRIPPING CHEMICALS - AMERISTRIP
The Company is focusing its sales and marketing efforts on a
product-by-product basis, with its paint stripping product having been the first
product to be offered in the marketplace. Prior to the severance of the
relationship between the Company and SSC, SSC was to have been seeking to
develop sales in governmental markets and in the private sector. In connection
with such efforts, the Company and SSC were contacting major chains and
providing them with literature, samples and demonstrations.
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. The Company is also offering its products for sale over the
Internet at its site, www.ameristrip.com.
NATURALCOOL
The Company's in-house sales staff is targeting a number of industries for
marketing of the NaturalCool products, focusing initially primarily on the
convenience store market. The Company has established relationships with
refrigeration distributors and suppliers, but has not entered into any formal
distribution agreements, and with restaurant equipment suppliers. In some cases,
the suppliers purchase units from the Company and install them in a new or
renovated restaurant facility. In these cases, the Company does not occur the
installation expenses associated with sales directly to the end-user.
<PAGE>
The Company also markets these products directly to the end-user customers
through advertising and trade association membership marketing. Also, the
Company has begun using utility company rebate programs as a means of generating
sales. Under these programs, certain utility companies offer rebates to their
customers for installing energy-saving equipment. Even where the utilities do
not offer rebates, in some cases the utility companies will recommend
energy-saving equipment to their customers. The Company is also offering the
NaturalCool products for sale over the Internet.
FOAMS
Since the Company is still experimenting with and conducting research on
the foam technologies, the Company does not actively market its foam products.
The Company intends to begin marketing its foam products in 1998 to companies
involved in the construction industry and through distributors.
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 potential products. Additionally,
management continues to seek to acquire other technologies for commercial
exploitation. The potential acquisitions may be structured as either direct
purchases or purchases of holding companies owning the technologies. Although
the Company is engaged in many discussions to acquire technologies, there can be
no assurances that the Company will be able to do so or to do so on acceptable
terms.
SUPPLY ARRANGEMENTS
NaturalCool. All of the raw materials for manufacturing these products are
off-the-shelf and readily available to the Company from numerous suppliers. The
Company does not anticipate any difficulty obtaining raw materials in quantities
and at prices acceptable to the Company. The units are assembled at the
Company's Newport, VT facility.
Paint Stripping. The Company uses its own formulation for its paint
stripper. The Company purchases the raw material used in the formulation from a
number of suppliers. The Company believes that there will be no shortage of raw
materials. The Company uses contract blenders to blend the formulation. The
Company believes that there exist sufficient contract blenders capable of
handling the Company's requirements.
Foam. The foam products require large amounts of MDI, the base chemical 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.
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 markets and 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 competes or will be competing: (1) Paint
Stripping Chemicals - Peel-A-Way Corp., Minnesota Mining and Manufacturing, and
Back to Nature; (2) Foams - Sealed Air Corporation, and Carpenter Foam; (3)
NaturalCool - Cool Breeze as well as several localized companies.
<PAGE>
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, foams and ambient air
exchange 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.
GOVERNMENT REGULATIONS
The manufacture and sale of paint stripping chemicals, carbohydrate foam
and ambient air exchanger 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 owns
or has licensed from third parties. 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 could have a materially adverse effect on the
Company. Under the revised terms of the various license agreements relating to
the foam, the Company is obligated to make minimum monthly payments of $5,000
and minimum weekly payments of $1,200, in the aggregate, to the licensor. The
failure by the Company to make such minimum weekly and monthly payments may
result in the licenses becoming non-exclusive to the Company; and, in fact, the
Company currently is in default under the license and is operating under a
non-exclusive license. 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 December 31, 1997, the Company had seven employees, including three
officers. As of such date, the Company had also engaged the services of two
consultants, in addition to its then-existing
<PAGE>
marketing arrangements with SSC which have since been terminated. See "Marketing
and Sales - Marketing Agreement."
None of the Company's employees is represented by a labor organization and
the Company considers its relationship with employees and consultants to be
satisfactory.
ITEM 2. PROPERTIES
The Company does not own any real property.
The Company formerly leased 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 used this facility for research and
development of products, marketing meetings and shipment of chemicals. The term
of the lease is for five years, commencing March 1, 1993 and ending February 28,
1998. The Company had the option to renew the lease for an additional five-year
period, but elected not to renew the lease. 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 lease was not 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 leases, on a month to month basis, property at Denby Road,
Newport, Vermont. The property contains approximately 12,000 square feet. The
Company currently pays rent of $3,000 per month, but the rent increases to
$4,000 per month effective September 15, 1998, at which time an additional
rental payment of $6,000 is also due.
The Company believes its facilities are suitable and adequate for its
existing operations and those reasonably expected in the next twelve months.
With the exception of the NaturalCool units which are manufactured in Newport,
VT, and the fulfillment of Internet sales and samples which is carried out in
Newport, VT, the Company's facilities are not suitable for manufacturing and
distributing 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. Although the Company has identified certain 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
this date. The AmeriStrip product is being manufactured on a batch-by-batch
basis.
ITEM 3. LEGAL PROCEEDINGS
On May 29, 1998, SSC filed an action against the Company in federal court
in the Southern District of New York. By agreement, the suit was moved to the
District of Connecticut. The complaint contains four counts, each requesting a
judgment for $180,880 plus interest and attorney's fees. The suit alleges breach
of contract, misrepresentation by the Company, unjust enrichment, and quantum
meruit. The Company does not believe SSC is entitled to any of the damages it is
seeking, has brought various counterclaims against SSC in the action, and
intends to defend itself vigorously. At the present time, the
<PAGE>
Company cannot determine the likely outcome of this matter; however, if SSC were
to prevail on its claims, and the Company were not to prevail on its
counterclaims, the matter could have a material adverse effect on the Company
and its financial condition.
The Company commenced an action against Mr. Clement Royer, the former
president of the Company's Natural Cool Division, in November, 1997, which was
settled in June 1998. The complaint sought the return of corporate records, test
data and the like, as well as compensatory damages and attorney's fees. The
terms of the settlement involved Mr. Royer's returning all corporate documents
and disclaiming any rights to the NaturalCool product.
An action brought against the Company in July, 1997, in U.S. Bankruptcy
Court for the District of Connecticut, by Richard Coan, Trustee for the
bankruptcy estate of Samuel E. Bernstein, is pending. The suit seeks a judgment
to recover accrued but unpaid wages totaling approximately $100,000 for 1995,
which Mr. Bernstein had waived his right to receive. The Trustee seeks to avoid
the waiver under the Bankruptcy Code and recover the value of the waiver. The
Company is defending itself in the matter, and cannot predict the outcome of the
matter or whether a settlement will be reached. However, the Company believes
that if the Trustee is successful in obtaining a judgment against the Company,
it should not be required to pay more than the total debt owed to the debtor's
creditors, plus related fees, which the Company believes to be approximately
$26,000. The Company's financial statements for the year ending December 31,
1997 include a provision for loss of $26,000 to reflect this matter.
Ms. Kathleen Kennedy, the licensor under certain technology licenses with
the Company, has threatened an action against the Company, claiming past due
minimum royalty payments of approximately $145,000. The Company believes that if
an action is brought, the Company has a meritorious defense and the matter will
not have a material adverse effect on the Company or its financial condition.
In July, 1998, the investor group that has loaned working capital to the
Company and holds the Company's promissory note in the principal amount of $1.3
million - which group includes Messrs. Sean McNamara, Nicky Hunt and Richard
Hill, directors of the Company - commenced legal action against certain former
officers, employees and consultants of the Company, including Messrs. Stephen
Thompson, Robert Thompson, Clement Royer and Paul Grillo. The action, initiated
in Superior Court for the Judicial District of Stamford/Norwalk at Stamford,
seeks compensatory damages of not less than $685,000, attachment on the
defendants' property to secure a judgment, and punitive damages. Pursuant to
Connecticut procedures, the matter first seeks a pre-judgment attachment of
defendants' property. The causes of action stated in the complaint to be filed
are fraud and violation of state securities law. The Company is not currently a
party to this matter, and at the present time the Company is unable to determine
if the Company will become a party with interests adverse to those of the
directors who are plaintiffs.
Other than as set forth herein, there are no legal actions pending against
the Company nor to the knowledge of the Company are any such proceedings
contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ending December 31, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
On March 6, 1997, the Company's Common Stock was accepted for trading on
the Electronic Bulletin Board of the NASD; however, the Company has not been
able to obtain any quoted prices for the stock prior to June 24, 1997. The
following table sets forth the range of sale prices for the Common Stock for the
periods shown. The information was obtained from the National Quotation Bureau,
which reports low closing bid prices and high closing bid prices for the periods
indicated.
There has not been an active market for the Company's securities. The
limited market has caused the securities to be subject to significant price
fluctuations. In addition, the price quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not represent actual
transactions.
Quarterly Period Low Bid High Bid
---------------- ------- --------
4/1/97 - 6/30/97* $.6875 $1.1875
7/1/97 - 9/30/97 $.34375 $2.00
10/1/97 - 12/31/97 $.125 $.59375
1/1/98 - 3/31/98 $.0625 $.1875
4/1/98 - 6/30/98 $.13 $.30
* On March 6, 1997, the Company's Common Stock was accepted for trading on
the Electronic Bulletin Board of the NASD; however, the Company has not been
able to obtain any quoted prices for the stock prior to June 24, 1997.
HOLDERS
The Company had approximately 1,648 holders of record of its Common Stock
as of June 30, 1998.
DIVIDEND POLICY
It is the policy of the Board of Directors to retain earnings, if any, for
use in the maintenance and expansion of the Company's business. The Company has
not declared any cash dividends to the holders of its capital stock and does not
anticipate declaring or paying dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Since the Reorganization, through December 31, 1997, 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 501of 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.
During 1997 and the first half of 1998, a group of investors, including
current shareholders and directors of the Company, advanced working capital
loans and committed to make loans to the Company
<PAGE>
in the aggregate amount of approximately $1.3 million. During the first quarter
of 1998, in consideration for, among other things, not demanding immediate
repayment of the loans, the Company and the investor group agreed to exchange
all of such outstanding indebtedness for a promissory note (the "Investor Note")
and stock options. The Investor Note is in the aggregate principal amount of
$1.3 million, and accrues interest at a rate of 8% per annum beginning January
1, 1998. In connection with the Investor Note, the Company has issued options to
acquire common stock as follows: options to purchase 2.6 million shares at an
exercise price of $.01 per share, 1.95 million shares at an exercise price of
$.25 per share, and 1.95 million shares at an exercise price of $.50, all of
which may be exercised at any time between June 30, 1999 and June 30, 2003, the
expiration date of the options. The Investor Note is repayable as follows:
$433,333 in principal amount is due and payable on or before September 9, 1998;
an additional $433,333 in principal amount on or before January 9, 1999; and an
additional $433,333 in principal amount on or before March 9, 1999. In addition
to any other remedies they may have, if the Company fails to make the principal
payment on the shareholder loans on September 9, 1998, the Company will be
obligated to issue to the lender options to acquire an additional 75,000 shares
of common stock, exercisable at a price of $.01 per share, for each 30 days that
the principal payments are in default.
In March and April, 1998, the Company issued its 6% Convertible Notes (the
"Notes") in the aggregate principal amount of $711,500 in a private placement
under Rule 505 of Regulation D. Interest on the Notes is payable semi-annually.
The principal amount of the Notes, together with unpaid interest thereon, is due
and payable, if not earlier converted, on March 3, 1999. The Notes are
convertible into shares of Common Stock at the option of the holder at any time
following the earlier of (i) 90 days after the filing of a registration
statement with the SEC covering the shares to be received upon conversion or
(ii) the date the SEC declares such registration statement effective. The
conversion price per share is the lesser of (i) 70% of the average closing bid
price per share of Common Stock for the five trading days prior to the
conversion date or (ii) $0.25. Upon conversion, any accrued and unpaid interest
is waived by the holder. The Company has the option to repurchase the Notes from
the holder prior to registration of the underlying shares at a premium of 10%
over the purchase price of the Notes. The Company has agreed to file with the
SEC not later than June 3, 1998, and use its best efforts to have declared
effective not later than July 3, 1998, a registration statement registering for
resale the shares that would be issued upon conversion of the Notes. The Company
technically is in default of the registration obligation at the present time,
but intends to file a registration statement as promptly as practicable. As
compensation to the placement agent, Alexander, Wescott & Co, Inc., the Company
paid cash fees of 10% of the gross proceeds. In addition, the Company paid a 3%
nonaccountable expense reimbursement, and certain other out-of-pocket expenses
of the agent. The Company also issued to the agent Warrants exercisable for
284,600 shares of Common Stock, at an exercise price of $.30 per share, expiring
June 28, 2003.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 and NaturalCool products. 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 1998, although no assurances thereof can be given. Based upon
the Company's current financial status, and the Company's emphasis on its paint
stripping and foam products, management does not believe that it will commence
any additional research and development in 1998.
The Company has had losses from operations since its inception. It is
likely that the Company will continue to have losses from operations in the
near-term future, including the year ending December 31,
<PAGE>
1998, as it is still in the early stages of marketing its initial products. In
addition, there is not any assurance that the Company will have profit from
operations at any time after 1998.
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 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. See Note 3 to the
Financial Statements included herein.
The Company does not anticipate any significant costs relating to upgrading
or reprogramming of its software for the year 2000.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1997 AND 1996
Sales; Gross Margins; Net Losses. For the year ended December 31, 1997,
sales increased to $134,464 from $63,854 in the prior year, an increase of 110%
due to modest sales growth of the Company's paint stripping product line and
modest initial sales of the Company's NaturalCool product.
The Company's gross margin on sales decreased from 38% in 1996 to 35% in
1997. The Company expects that, if it is successful in increasing its sales, its
gross margins in future periods should increase due to better pricing from
product manufacturers for larger manufacturing runs.
For the year ended December 31, 1997, the Company reported a net loss of
$(4,436,589), or $(.38) per share, as compared with $(3,917,765), or $(.47) per
share in the prior year, an increased loss of $518,824, or 13%, due primarily to
an extraordinary item totaling $(621,000) which is discussed below. The Company
has continued to incur net losses as sales of its products have not materialized
at levels sufficient to cover the Company's cost of marketing and selling, which
has included substantial non-cash expenses associated with compensating
marketing and selling personnel in shares of the Company's common stock. The
decline in the net loss per share in 1997 from 1996 is due to a larger number of
shares outstanding during 1997. Without the extraordinary item, the Company's
1997 operating loss was approximately $105,000 smaller than its 1996 operating
loss. As described in Footnote 10 to the financial statements for the year
ending December 31, 1997, the extraordinary item relates to issuances of common
stock, aggregating 464,000 shares, authorized by the Company's former President
under circumstances in which the Company's current management has not
ascertained whether there was adequate, or any, consideration for such
issuances.
Selling, General and Administrative Expenses. For the year ended December
31, 1997, the Company incurred selling, general and administrative expenses of
$3,506,715, as compared to $3,571,515 in the prior year, a decrease of
approximately 2%. As noted above, however, the Company's selling, general and
administrative expenses have included substantial non-cash expenses associated
with compensating marketing and selling personnel in shares of the Company's
common stock. Calculations with respect to the percentage of selling, general
and administrative expenses relative to sales are not meaningful.
During the fourth quarter of 1997 and the first half of 1998, the Company
and third parties have taken a number of actions which are and will continue to
have the result of significantly reducing the Company's selling, general and
administrative expenses. These include (1) termination of the Company's
agreements with SSC, pursuant to which the Company paid approximately $203,000
between November 1, 1996 and December 31, 1997, which savings will be offset in
part by selling expenses associated with the increase in the Company's in-house
sales staff; (2) resignation and termination of certain officers, employees and
consultants who had been compensated in 1997 and 1996 with substantial amounts
of common stock; and (3) closing the Company's laboratory facility which was
located in Brookfield, CT.
<PAGE>
Research and Development. For the year ended December 31, 1997, research
and development expenses were essentially stable relative to the prior year,
declining to $265,736 from $274,932. 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. In light
of the closing of the Brookfield, CT, research facility, the Company expects
these expenses to decline in 1998. Calculations with respect to the percentage
of research and development expenses relative to sales are not meaningful.
Extraordinary Item. For the year ended December 31, 1997, the Company
recorded an extraordinary expense item of $(621,000). As described in Footnote
10 to the Financial Statements, this expense reflects the issuance by the
Company of 464,000 shares of common stock to several third parties, which stock
issuances were authorized solely by the Company's previous Chief Executive
Officer. Management has been unable to ascertain from the records maintained by
the prior Chief Executive Officer and Chief Financial Officer, or through
independent investigation, the nature of the consideration which was to have
supported such stock issuances. In addition, to the extent that the Company may
learn the purported consideration for such issuances, management believes it
does not have any reasonable means of determining, particularly in the case of
non-cash consideration such as services rendered, whether the consideration was
in fact received by the Company. In that regard, promptly following the
resignation of the former Chief Executive Officer, management instituted certain
internal controls designed to reduce the likelihood of a future occurrence of
this problem. Specifically, requests to the Company's transfer agent to issue
stock must be signed by two officers, and no such stock issuance authorizations
will be delivered without a proper resolution of the Board of Directors
authorizing the issuance of stock.
BALANCE SHEETS
At December 31, 1997, the Company had current assets of $202,942, compared
to $49,265 at December 31, 1996. The increase in current assets was primarily
attributable to an increase in inventories from $13,187 to $159,473, due to the
manufacturing of inventories in 1997 in anticipation of larger sales of
NaturalCool products. Sales of those products did not materialize at levels that
the Company had anticipated. At December 31, 1997, the Company had cash of
$12,282, compared to cash of $3,994 at December 31, 1996, reflecting the slow
pace of sales of the Company's products to date.
Accounts payable and other accrued expenses declined to $104,769 at
December 31, 1997, from $260,972 at December 31, 1996, as a result of the
termination of certain employees and consultants in late 1997 as well as the
winding down of the Company's Brookfield, CT, research facility.
Stockholders' loans, net of current maturities, increased to $526,665 at
December 31, 1997, from $0 at December 31, 1996, as a result of loans having
been extended to the Company for operating purposes throughout 1997 by an
investor group including current directors of the Company.
As of December 31, 1997, the Company had an accumulated deficit of
$(16,120,834), which includes the net loss for fiscal year 1997 of $(4,436,589).
LIQUIDITY AND CAPITAL RESOURCES
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. At December 31, 1997, the Company had current assets of $202,942 and
current liabilities of $729,869. The Company's ability to continue as a going
concern in the near term is dependent upon obtaining additional financing. As of
December 31, 1997, the Company did not have the financial resources to operate
its business, continue research and development or market its products. The
Company has been financing its operations through loans from shareholders, which
aggregated approximately $1,151,765 as of June 30, 1998, and from the
<PAGE>
approximately $619,000 net proceeds of a private placement of convertible notes
completed in April, 1998. See "Item 5. Market For Common Equity And Related
Stockholder Matters - Recent Sales Of Unregistered Securities." 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 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 "Item 1. The Company - Licenses."
The Company estimates that it will require approximately $1.1 million in
financing in order to continue operations for fiscal 1998 and the first half of
fiscal 1999. Much of that financing has been provided to date through additional
shareholder loans, accruing interest at 8%, and convertible Notes issued in
April, 1998, in the aggregate principal amount of $711,500. See "Item 5. Market
For Common Equity And Related Stockholder Matters - Recent Sales Of Unregistered
Securities." The shareholders who have been lending funds to the Company do not
have any commitment to continue lending money, and, if additional loans or not
made, and if the Company is not successful raising capital from other sources,
the Company may be forced to scale back or cease its operations. In addition,
the Company has agreed to repay $433,333 in principal amount of the shareholder
loans on or before September 9, 1998; an additional $433,333 in principal amount
on or before January 9, 1999; and an additional $433,333 in principal amount on
or before March 9, 1999. The principal amount of the Convertible Notes, together
with unpaid interest thereon, is due and payable, if not earlier converted, on
March 3, 1999. At the present time the Company has not identified a source of
repayment of any of these obligations.
FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, which are intended
to be covered by the safe harbors created thereby. Investors are cautioned that
all forward-looking statements involve risks and uncertainties including,
without limitation, the growth of the Company, acceptance of the Company's
products, future financings and available working capital, acquisitions and
expenses, and general market conditions. A1though the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-KSB
will prove accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The audited financial statements of the Company as of and for the years
ending December 31, 1997 and 1996 are included beginning at Page F-1 below.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company reported a change in its principal independent auditors for the
year ending December 31, 1997, in current reports on Form 8-K filed January 23
and April 17, 1998.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following sets forth certain information with respect to the directors
and executive officers of the Company.
Name Age Position(s)
- ---- --- -----------
Richard J. Fricke 53 President & Chief Executive Officer (since
January, 1998); Director;
Secretary (until January, 1998)
Richard W. Hill 61 Director (since October, 1997)
Nicky Hunt 44 Director (since January, 1998)
Sean F. McNamara 40 Secretary (since January, 1998); Director
(since October, 1997)
Robert Percheski 46 Chief Financial Officer (since March 18, 1998)
Robert W. Berger 27 Vice President, Sales and Marketing (since
April 8, 1998)
Stephen J. Thompson 42 President and Chief Executive Officer (until
January, 1998); Director
(until March 10, 1998)
Robert F. Thompson 66 Executive Vice President, Chief Operating
Officer and Chief Financial
Officer (until January, 1998)
Mr. Sean F. McNamara has been a Director of the Company since October,
1997, and Secretary since January, 1998. He joined the Management Committee in
January, 1998 and is currently active in the management of the Company. Mr.
McNamara has spent the past 16 years as the owner of a proprietary derivative
trading firm with offices in New York, Chicago, and Dublin, Ireland. Mr.
McNamara served on the board of the New York Futures Exchange from 1984-88, as
Chairman of the New Products Committee and Floor Committee. In 1990, Mr.
McNamara began a four-year effort to establish a futures and options exchange
(FINEX Europe) in Dublin, Ireland. The Exchange opened in June 1994 and was the
first US-regulated futures exchange on foreign soil. Mr. McNamara served as
Chairman of the Exchange from 1994-96. In addition, Mr. McNamara serves as
Chairman of FINEX (a financial futures Exchange in NY and parent organization to
FINEX Europe). Mr. McNamara is also a principal in Capital Resources Advisors, a
privately-held consulting firm in Chicago, IL, serving pension funds. Mr.
McNamara is also a director of Financial Auction Network, a privately-held
software development company.
Richard W. Hill has been a director of the Company since October, 1997. He
joined the Management Committee in January, 1998 and is currently active in the
management of the Company. Mr. Hill retired from Prudential Insurance Company as
President, Small Business Operations (SBO) in 1996. As President of SBO he had
bottom-line responsibility for Prudential's group life and health insurance
programs for smaller employers countrywide. Mr. Hill joined Prudential in 1957
upon graduation from Rutgers University with a BS in Mathematics. During his
39-year career with the company he held a wide variety of actuarial, marketing
and senior management positions in Prudential's corporate, regional
<PAGE>
and subsidiary operations. From 1975 through 1981, he was senior vice president
in charge of marketing and operations for Prudential's newly formed Property and
Casualty Insurance subsidiary (PruPAC), which became one of the country's ten
largest auto and home insurers. Through the mid-1980s, he was vice president in
charge of individual insurance sales and marketing in Prudential's largest
region, the ten state SouthCentral Region headquartered in Jacksonsville,
Florida. Mr. Hill is a Trustee of Rutgers University and is a Board member and
chair of the finance committee of Bayshore Community Hospital, Holmdel, New
Jersey. He is a Fellow of the Society of Actuaries and a Chartered Financial
Consultant.
Mr. Nicky Hunt has been a director of the Company since January, 1998, and
now serves on its Management Committee. He is active in the management of the
company. Mr. Hunt began his career in Dublin in 1973 as a foreign exchange
dealer for the Central Bank of Ireland, followed by the Bank of America, and as
chief foreign exchange dealer at Allied Irish Investment Bank. He became
treasury manager of the Bank of Nova Scotia in 1979. From 1982-92 he was
Treasurer of the National Bank of Kuwait in Singapore. He was responsible for
establishing a 24-hour trading operation, expanding regional relationships and
significant profit generation. He was transferred to London in 1990 to assume
global treasury responsibilities during the Gulf War. In 1992, he was hired by
the Bank of Ireland as Treasurer of the London operation. In 1993 he was
appointed head of the Dublin trading operation and relocated to Dublin . Until
his retirement in March, 1997, Mr. Hunt was a director of Bank of Ireland Group
Treasury. He served as a member of the Senior Management Group and had
responsibilities in strategy, due diligence, and treasury operations in London,
Dublin and New York. He also managed relationships with First New Hampshire
Bank, Bank of Ireland Home mortgages and other subsidiaries. Mr. Hunt has a
number of business interests and is a principal and non-executive director of an
Irish Software company. Mr. Hunt is a resident of Dublin, Ireland.
Mr. Richard J. Fricke has served as President & Chief Executive Officer of
the Company since January, 1998. He is also a Director of the Company. He 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.
Mr. Robert Percheski has served as Chief Financial Officer of the Company
since March 18, 1998. Currently and since 1997 Mr. Percheski has been a
self-employed consultant in the area of financial operations and insurance. From
1974 to 1996, he worked for Prudential Insurance, most recently as Vice
President and Chief Financial Officer, Northeastern Operations, Prudential
Insurance & Financial Services, from 1993-96. Mr. Percheski holds a MBA degree
(accounting concentration) and a BS in Commerce (finance), from Rider
University. He also holds the following industry designations: Chartered
Financial Consultant, Chartered Life Underwriter, Certified Internal Auditor,
and Fellow Life Management Institute.
Mr. Robert W. Berger has served as Vice President, Sales and Marketing, of
the Company since April 8, 1998. From December, 1993, to April, 1998, Mr. Berger
was employed by Oxford Health Plans, a provider of group health plans, in
Edison, NJ, as Regional Manager from 1997 to 1998, Sales Manager from 1996 to
1997, and Sales Representative from 1993 to 1996. From May, 1992, to December,
1993, he was employed as Service Representative with Northwestern National Life
Insurance Company, in Bedminster, NJ.
<PAGE>
Mr. Stephen J. Thompson was President and Chief Executive Officer of the
Company from September 15, 1995, until January, 1998, the date of his
resignation as an officer of the Company. He resigned as a director of the
Company effective March 10, 1998. Prior to joining the Company, Mr. Thompson
worked primarily in municipal and state government. 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. Stephen J. Thompson is the son of Mr.
Robert F. Thompson.
Mr. Robert F. Thompson was Executive Vice President, Chief Financial
Officer and Chief Operating Officer of the Company from September 15, 1995,
until January, 1998, the date of his resignation. 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. Mr. Thompson served as President of the Credit Research
Foundation, Columbia, Maryland, from 1989 to 1993. Mr. Thompson serves as a
director of Morgan Foods, Inc., Austin, Indiana, and the New York Credit and
Financial Management Association, New York, New York. 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. Mr. Robert F.
Thompson is the father of Mr. Stephen J. Thompson.
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. Sean F. McNamara, Director & Secretary of the Company, is the
son-in-law of Richard W. Hill, a Director. Stephen J. Thompson and Robert F.
Thompson, former members of the Company's management, are father and son.
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.
Until January, 1998, Stephen J. Thompson, Richard J. Fricke and Robert F.
Thompson were the members of the Audit Committee. As of April 2, 1998, the
members are Sean F. McNamara, Nicky Hunt and Richard W. Hill.
Compensation Committee. The Compensation Committee of the Board of
Directors reviews and approves the compensation and benefits for the Company's
executive officers.
Until January, 1998, Stephen J. Thompson, Richard J. Fricke and Robert F.
Thompson were the members of the Compensation Committee. As of April 2, 1998,
the members are Sean F. McNamara, Nicky Hunt and Richard W. Hill.
Management Committee. The Management Committee of the Board of Directors
was formed during the first quarter of 1998 and currently consists of Messrs.
McNamara, Hunt and Hill. Since its formation, and until such time as the Company
has greater depth in its senior management, the Management Committee takes an
active role in day-to-day management decisions, corporate planning and corporate
transactions.
<PAGE>
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. 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, 1997, the full
Board of Directors participated in deliberations concerning executive officer
compensation.
DIRECTOR COMPENSATION
The Company's directors have not received any cash fees through December
31, 1997, for their services as Board members and committee members, but are
entitled to be reimbursed for expenses incurred in connection with attending
Board and committee meetings.
It is expected that directors will receive common stock and options to
acquire common stock of the Company in the future for their services as
directors and for serving on the Board's Management Committee. Specifically, the
Company has agreed to issue to each of Messrs. Sean McNamara and Richard Hill
200,000 shares of common stock for their services for 1997. In addition, the
Company has agreed for 1998 to issue stock options to: (1) all directors for
their services as directors pursuant to a formula in which a nominal $500 per
month will be converted into stock options, plus (2) members of the Board's
Management Committee (currently three persons) pursuant to a formula in which a
nominal $30,000 per year will be converted into stock options. In addition, for
1998, each member of the Management Committee is being granted 100,000 shares of
common stock as compensation for their services in that capacity.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company with respect to its most recent fiscal year, the
Company believes that (1) Mr. Sean F. McNamara and Mr. Richard W. Hill each
failed to file a Form 3 upon becoming directors of the Company in October, 1997,
(2) Mr. Hill failed to file a Form 4 or Form 5 reporting two transactions
involving the acquisition of shares of the Company's Common Stock, (3) Mr.
Richard J. Fricke failed to file timely an initial report on Form 3 statement of
initial ownership of shares of the Company's Common Stock, and has failed to
file any Forms 4 or a Form 5 reporting two transactions, one in February, 1997,
and one in August, 1997, involving the acquisition from the Company of shares of
Common Stock, and (4) Mr. Stephen Thompson and Mr. Robert Thompson, former
members of the Company's management, each failed to file a Form 3 statement of
initial ownership, and Mr. Stephen Thompson failed to file any Forms 4 or a Form
5 reporting two transactions, one in February, 1997, and one in August, 1997,
involving the acquisition from the Company of shares of Common Stock.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth compensation received by the Company's Chief
Executive Officer and the four remaining most highly paid executive officers
(except where such compensation does not exceed $100,000 per annum) for the
three fiscal years ended December 31, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation Awards
----------------------------------- -------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Other Annual Securities
Name and Compensation Restricted Underlying
Principal Position Year Salary ($) Bonus ($) ($)2, 3, 4 Stock Awards ($) Options/SARs(#)
- ------------------- ---- ---------- --------- ---------- ---------------- ------------------
<S> <C> <C> <C>
Stephen J. Thompson 1997 $18,000 1,2,3,4,5 $438,374
President, Chief
Executive Officer
(until 1/98) &
Director (until
3/10/98)
1996 $34,000 1,2,3,4,5 $190,425
1995 $50,000 1,2,3,4,5 $220,783
Richard J. Fricke 1997 $18,000 1,2,3,4,5,6 $438,374
President and Chief
Executive Officer
(since 1/98),
Director, Secretary
(until 1/98)
1996 $34,000 1,2,3,4,5,6 $190,425
1995 $50,000 1,2,3,4,5,6 $220,783
</TABLE>
- --------------------
1. Although the employment contracts for Stephen J. Thompson and Richard J.
Fricke each provide for compensation of $300,000 plus incentive bonuses for
the year ended December 31, 1996, these amounts were not actually paid
through December 31, 1996. In 1995 Mr. Stephen Thompson and Mr. Fricke each
received $50,000 in cash compensation, and in 1996 Stephen J. Thompson and
Richard F. Fricke each received $34,000 in cash compensation. Each of these
executive officers has waived his rights with respect to salary arrearages
through 1996.
2. In addition to their base salaries, the Company 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. The Company has not received
any requests for reimbursements under this plan.
3. The Company in 1997, 1996 and 1995 paid $14,093, $14,136 and $10,213,
respectively, for the health insurance premiums for Stephen J. Thompson and
Richard J. Fricke, in the aggregate. The Company in 1997, 1996 and 1995
paid $3,471, $7,289 and $2,070, respectively, for the life insurance
premiums for Stephen J. Thompson and Richard J. Fricke, in the aggregate.
4. Other Annual Compensation includes for each of Messrs. Fricke and Stephen
Thompson: for 1997, 250,000 shares of common stock valued at $1.125 per
share, and 93,040 shares valued at $1.50 per share; for 1996, 85,000 shares
valued at $1.99 per share of Common Stock; and for 1995, 84,750 shares
valued at $2.46 per share.
5. Under the terms of their respective employment agreements, each of Stephen
J. Thompson and Richard J. Fricke were originally entitled to (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. These agreements have been
terminated, and neither person is entitled to further compensation under
such arrangements.
6. Mr. Fricke receives office space and secretarial services from the Company
to support his independent law practice. The value of such services is
estimated to be approximately $1,800 annually, based on Mr. Fricke spending
less than 5% of his time on his independent law practice.
<PAGE>
EMPLOYMENT AGREEMENTS
Each of the executive officers of the Company has executed an employment
contract with substantially similar provisions concerning covenants not to
compete and confidentiality.
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. After the execution of the Fricke Employment Agreement, the
Board of Directors appointed Mr. Fricke to the additional position of Secretary
and Director. Mr. Fricke was subsequently succeeded as Secretary by Mr. Sean F.
McNamara. 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. Mr. Fricke's employment
agreement has been terminated, but he continues to be employed by the Company
without an employment agreement.
Stephen J. Thompson's employment agreement was executed on August 13, 1991
(the "Thompson Employment Agreement") and provided, other than the standard
provisions described above, that he would be Chief Executive Officer of the
Company for an undetermined term. After 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 was
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 provided that
the Company would pay for Mr. Thompson's automobile, health and major medical
insurance and life insurance. This agreement was terminated upon the resignation
of Mr. Thompson.
Robert F. Thompson's employment agreement was executed on January 31, 1996
and provided, other than the standard provisions described above, that he would
serve as the Company's Chief Operating Officer and Chief Financial Officer. This
agreement was terminated upon the resignation of Mr. Thompson.
The Company does not have any compensatory plan or arrangement with any
employee relating to the termination of employment of the employee, a
change-in-control of the Company, or a change in responsibilities following a
change-in-control.
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
<PAGE>
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 connection therewith.
Insofar as indemnification for liabilities arising under 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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of June 30, 1998, the shares of Common Stock
beneficially owned by the directors, executive officers and principal
shareholders (greater than 5%) of the Company individually and, as to the
directors and executive officers, as a group. The address of each person or
entity, unless otherwise noted, is c/o Safe Alternatives Corporation of America,
Inc., 27 Governor Street, Ridgefield, CT 06877.
The number of shares beneficially owned by each person or entity is
determined under rules of the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the person has the sole or shared voting power or investment power and also any
shares which the person has the right to acquire as of a date within 60 days
after the relevant date through the exercise of any stock option or other right.
<TABLE>
<CAPTION>
Beneficial Owner and Address Number of Shares Owned Percent of Class
- ---------------------------- ---------------------- ----------------
<S> <C> <C>
Sean F. McNamara 675,848 1,2 4.8
35 Spring House Lane
Basking Ridge, NJ 07920
Richard W. Hill 327,120 1,3 2.4
5 Barrister Lane
Middletown, NJ 07748
Nicky Hunt 140,000 1,4 1.0
Coolbawn, 2 Ailesbury Road
Ballsbridge, Dublin 4
Ireland
Richard J. Fricke 1,765,195 5 13.1
Robert Percheski 85,000 6 *
37 Cameron Drive
Marlborough, MA 01752
Robert W. Berger 115,000 7 *
1308 Centennial Avenue, Suite 108
Piscataway, NJ 08854
Stephen J. Thompson 1,614,071 8 11.9
11 Girolametti Court
Ridgefield, CT 06877
Robert F. Thompson 82,080 *
13 Flat Rock Drive
Ridgefield, CT 06877
Officers and Directors as a group 4,804,314 1,9 33.5
(8 persons)10
</TABLE>
<PAGE>
- ---------------
* Less than 1%
1. Does not include options which the Company has agreed to issue to an
investor group in relation to the $1.3 million note held by such group, as
such options are not first exercisable until June 30, 1999. The beneficial
owners of such options, all of which have an expiration date of June 30,
2003, will include: (i) Mr. McNamara to acquire options on 1,002,000 shares
with an exercise price of $.01, 765,000 shares with an exercise price of
$.25, and 765,000 shares with an exercise price of $.50, (ii) Mr. Hunt to
acquire options on 460,000 shares with an exercise price of $.01, 345,000
shares with an exercise price of $.25, and 345,000 shares with an exercise
price of $.50, and (iii) Mr. Hill to acquire options on 130,000 shares with
an exercise price of $.01, 97,500 shares with an exercise price of $.25,
and 97,500 shares with an exercise price of $.50.
2. Includes 300,000 shares of common stock which the Company has agreed to
issue to Mr. McNamara (but has not yet issued) in connection with his
services as a director and member of the Management Committee for 1997 and
1998, but does not include (i) options earned through June 30, 1998, to
acquire 227,851 shares, at exercise prices ranging from $.05 to $.15 per
share, which the Company has agreed to issue (but has not yet issued) to
Mr. McNamara for services as a director and member of the Management
Committee for 1998, because such options are not first exercisable until
the first anniversary of their grant date, or (ii) Mr. McNamara's
proportionate share of stock options which the Company has agreed to issue
to an investor group in relation to the $1.3 million note held by such
group (see footnote 1).
3. Includes 300,000 shares of common stock which the Company has agreed to
issue to Mr. Hill (but has not yet issued) in connection with his services
as a director and member of the Management Committee for 1997 and 1998, but
does not include (i) options earned through June 30, 1998, to acquire
227,851 shares, at exercise prices ranging from $.05 to $.15 per share,
which the Company has agreed to issue (but has not yet issued) to Mr. Hill
for services as a director and member of the Management Committee for 1998,
because such options are not first exercisable until the first anniversary
of their grant date, or (ii) Mr. Hill's proportionate share of stock
options which the Company has agreed to issue to an investor group in
relation to the $1.3 million note held by such group (see footnote 1).
4. Includes (i) 100,000 shares of common stock which the Company has agreed to
issue to Mr. Hunt (but has not yet issued) in connection with his services
as a member of the Management Committee for 1998, and (ii) 40,000 shares of
common stock which the Company has agreed to issue to Mr. Hunt (but has not
yet issued) for specific services performed for the Company in the second
quarter of 1998, but does not include (i) options earned through June 30,
1998, to acquire 227,851 shares, at exercise prices ranging from $.05 to
$.15 per share, which the Company has agreed to issue (but has not yet
issued) to Mr. Hunt for services as a director and member of the Management
Committee for 1998, because such options are not first exercisable until
the first anniversary of their grant date, or (ii) Mr. Hunt's proportionate
share of stock options which the Company has agreed to issue to an investor
group in relation to the $1.3 million note held by such group (see footnote
1).
5. Includes 136,800 shares which are owned by his spouse, Penny Fricke, and
82,080 shares owned by the Fricke Family Trust, but Mr. Fricke disclaims
beneficial ownership of such shares, but does not include options earned
through June 30, 1998, to acquire 37,975 shares, at exercise prices ranging
from $.05 to $.15 per share, which the Company has agreed to issue (but has
not yet issued) to Mr. Fricke for services as a director, because such
options are not first exercisable until the first anniversary of their
grant date.
6. Includes (i) 25,000 shares of common stock which the Company has agreed to
issue to Mr. Percheski in connection with his joining the Company, but
which have not yet been issued, and (ii) options which the Company has
agreed to issue (but has not yet issued) to Mr. Percheski to acquire 60,000
shares of common stock at an exercise price of $.10 per share.
<PAGE>
7. Includes 100,000 shares of common stock which the Company has agreed to
issue to Mr. Berger in connection with his joining the Company and as
compensation for his agreement to receive a below-market salary, but which
have not yet been issued.
8. Includes 205,200 shares owned by his spouse and The Thompson Family Trust.
Mr. Thompson has in the past disclaimed beneficial ownership of such
shares.
9. Includes (i) 205,200 shares which are owned by Stephen Thompson's spouse
and The Thompson Family Trust, (ii) 136,800 shares which are owned by Penny
Fricke, the spouse of Richard J. Fricke, (iii) 41,040 shares owned by Mr.
Fricke's daughter, Laura J. Main, (iv) 41,040 shares owned by Mr. Fricke's
son, Richard L. Fricke, and 41,040 shares owned by Mr. Fricke's daughter,
Amanda C. Fricke, and (v) 82,080 shares owned by the Fricke Family Trust.
Mr. Thompson and Mr. Fricke, respectively, disclaim beneficial ownership
with respect to such shares. Includes 21,124 shares which are owned by The
Ridge Group, a Connecticut general partnership in which Penny Fricke and
Stephen J. Thompson each owns a 50% equity interest. Mr. Fricke disclaims
beneficial ownership with respect to such shares.
10. This group includes Messrs. Stephen J. Thompson and Robert F. Thompson who
were members of the Company's management as of December 31, 1997, but not
as of June 30, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 and the first half of 1998, a group of shareholders, including
three current directors of the Company (Messrs. Sean McNamara, Richard Hill, and
Nicky Hunt), advanced working capital loans and committed to making additional
loans to the Company, aggregating approximately $1.3 million. See "Item 5.
Market For Common Equity And Related Stockholder Matters - Recent Sales Of
Unregistered Securities." During the first quarter of 1998, in consideration
for, among other things, not demanding immediate repayment of the loans, the
Company and the investor group agreed to exchange all of such outstanding
indebtedness for the Investor Note and stock options. In connection with the
Investor Note, the Company issued five-year options to the shareholder/directors
to acquire an aggregate of 6.5 million shares of common stock at exercise prices
of $.01, $.25 and $.50, with the options exercisable at any time after the first
anniversary of the grant date. In addition to any other remedies the
shareholder/directors may have, if the Company fails to make the principal
payment on the Investor Note due on September 9, 1998, the Company will be
obligated to issue to the shareholders/directors options to acquire an
additional 75,000 shares of common stock, exercisable at a price of $.01 per
share, for each 30 days that the principal payments are in default.
The Company has agreed to provide Richard J. Fricke, President, Chief
Executive Officer and Director 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 is estimated to be approximately $1,800 annually, based on Mr.
Fricke spending less than 5% of his time on his independent law practice.
Mr. Fricke also is one of the licensors under the foam Technology license;
however, he renounced his interest in the license in 1998. See "Item 1.
Description of Business - Licenses."
The Ridge Group, a Connecticut general partnership in which Mr. Fricke and
Stephen J. Thompson - a former Director, President and Chief Executive Officer
of the Company, and a beneficial owner of approximately 10% of the Common Stock
- - each owns a 50% equity interest, has loaned the Company approximately $384,000
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.
Mrs. Kathleen Kennedy, a shareholder of the Company, is licensor under the
Technology licenses for the Company's foam, coatings and sealants, and recycling
solvents Technologies.
<PAGE>
The Company believes that the terms of the transactions discussed herein
are at least as favorable to the Company as those which the Company could have
negotiated with unaffiliated parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith or incorporated by
reference herein.
Exhibit
No. Description
--- -----------
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
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
<PAGE>
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
10.14 License Agreement between Clement H. Royer and the Company dated as of
February 19, 1997, relating to NaturalCool technology
10.15 Chase-Royer Commercial Transaction among Rudolph L. Chase, Natural Cool,
Ltd., Natural Cool, Inc., and Clement H. Royer, dated as of March 1,
1997, relating to conveyance of rights to NaturalCool technology
10.16 Financial Accord among Rudolph L. Chase, Raymond C. Chase, and Clement
H. Royer, dated as of March 1, 1997, relating to royalties on
NaturalCool Technology
10.17 Agreement between Natural Cool, Inc., and the Company dated as of May 6,
1998, relating to acquisition of assets of Natural Cool, Inc.
10.18 License Agreement between Rudolph Chase and Raymond Chase, and the
Company dated as of May 6, 1998, relating to licensing of NaturalCool
patent rights
10.19 Promissory Note of Natural Cool, Inc., guaranteed by the Company, dated
as of May 6, 1998, relating to acquisition of assets of Natural Cool,
Inc.
10.20 Bill of Sale of Rudolph Chase and Raymond Chase, dated as of May 6,
1998, relating to sale of stock of Natural Cool, Inc. to the Company
10.21 Bill of Sale of Natural Cool, Inc, dated as of May 6, 1998, relating to
sale of assets of Natural Cool, Inc. to the Company
27 Financial Data Schedule
- -----------
* Incorporated by reference from the Registrant's Registration Statement on
Form 10-SB filed December 31, 1996.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1997.
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
TABLE OF CONTENTS
Report of Independent Auditors -
Green, Holman, Frenia and Company, LLP F-1
Report of Independent Auditors -
Ernst & Young LLP F-2
Balance Sheets,
December 31, 1997 and 1996 F-3
Statements of Operations,
For the Years Ended December 31, 1997 and 1996 F-4
Statements of Changes in Stockholders' Deficit, F-5
For the Years Ended December 31, 1997 and 1996
Statements of Cash Flows, F-6
For the Years Ended December 31, 1997 and 1996
Notes to Financial Statements F-7 - F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1997 and the related statements of
operations, changes in stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Safe Alternatives Corporation
of America, Inc. as of December 31, 1997 and the results of its operations,
stockholders' deficit and cash flows for the year then ended, 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 3, 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 classifications of liabilities that
may result from the outcome of this uncertainty.
/S/ GREEN, HOLMAN, FRENIA AND COMPANY, L.L.P.
Certified Public Accountants
Woodbridge, New Jersey
July 1, 1998
F-1
<PAGE>
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, 1996, and the related statements of
operations, changes in stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Safe Alternatives Corporation
of America, Inc. at December 31, 1996, and the results of its operations and its
cash flows for the year then ended, 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 3, 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, Connecticut
February 24, 1997
F-2
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 12,282 $ 3,994
Accounts receivable 31,187 12,162
Advances to employees 19,922
Inventories 159,473 13,187
------------ ------------
Total current assets 202,942 49,265
------------ ------------
Property, Plant and Equipment
Equipment 136,084 134,548
Leasehold improvements 64,722 64,722
Furniture and fixtures 107,142 107,032
------------ ------------
307,948 306,302
Less accumulated depreciation (190,621) (174,085)
------------ ------------
Property, plant and equipment, net 117,327 132,217
------------ ------------
Other Assets
Organization costs, less accumulated amortization of
$60,822 and $52,713 in 1997 and 1996, respectively 8,109
Deposits and other noncurrent assets 72,713 12,564
------------ ------------
Total other assets 72,713 20,673
------------ ------------
$ 392,982 $ 202,155
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and other accrued expenses $ 104,769 $ 260,972
Current maturities of stockholders' loans 625,100 467,065
------------ ------------
Total current liabilities 729,869 728,037
------------ ------------
Stockholders' Loans, Net of Current Maturities 526,665
------------ ------------
Loss Contingency 26,000
------------ ------------
Stockholders' Deficit
Common stock, $.0001 par value, 200,000,000 shares
authorized, 12,471,120 in 1997 and 9,304,000 issued
(including shares in treasury) 1,247 931
Additional paid-in capital 15,227,876 11,155,273
Accumulated deficit (16,120,834) (11,684,245)
Subscription issuable 2,160 2,160
------------ ------------
(889,551) (525,881)
Treasury stock (1) (1)
------------ ------------
Total stockholders' deficit (889,552) (525,882)
$ 392,982 $ 202,155
============ ============
</TABLE>
See independent auditors' report and notes to financial statements.
F-3
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 134,464 $ 63,854
------------ ------------
Costs and Expenses
Cost of goods sold 72,890 39,501
Selling, general and administrative 3,506,715 3,571,515
Research and development 265,736 274,932
Depreciation and amortization 57,806 66,680
------------ ------------
Total costs and expenses 3,903,147 3,952,628
------------ ------------
Loss from Operations (3,768,683) (3,888,774)
------------ ------------
Other Income and Expenses
Interest expense - stockholders (20,906) (28,991)
Estimated litigation settlement (26,000)
------------ ------------
Total other income and expenses (46,906) (28,991)
------------ ------------
Loss Before Extraordinary Item (3,815,589) (3,917,765)
Extraordinary Item (621,000)
------------ ------------
Net Loss $ (4,436,589) $ (3,917,765)
============ ============
Earnings (Loss) per Common Share:
Loss Before Extraordinary Item $ (0.33) $ (0.47)
Extraordinary Item (0.05) 0.00
------------ ------------
Net Loss per Common Share $ (0.38) $ (0.47)
============ ============
Average Number of Common Shares Outstanding 11,415,628 8,342,511
============ ============
</TABLE>
See independent auditors' report and notes to financial statements.
F-4
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Subscription
Shares Amount Capital Deficit Issuable
------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 8,500,000 $ 850 $ 7,413,260 $ (7,766,480) $ 2,160
Proceeds from sale of common stock,
net of expenses of $128,728 406,100 41 1,706,503
Issuance of common stock as
compensation 397,900 40 2,035,510
Net loss (3,917,765)
--------- --- ---------- ----------- -----
Balance at December 31, 1996 9,304,000 931 11,155,273 (11,684,245) 2,160
Proceeds from sale of common stock 878,840 88 1,042,062
Issuance of common stock as --
compensation 2,288,280 228 3,030,542
Net loss (4,436,589)
--------- --- ---------- ----------- -----
Balance at December 31, 1997 12,471,120 $ 1,247 $ 15,227,877 $(16,120,834) $ 2,160
========== ============ ============ ============ ============
<CAPTION>
Treasury Stock
Shares Amount Total
------ ------ -----
<S> <C> <C> <C>
Balance at December 31, 1995 (1,065,066) $ (107) $ (350,317)
Proceeds from sale of common stock,
net of expenses of $128,728 482,000 48 1,706,592
Issuance of common stock as
compensation 571,384 58 2,035,608
Net loss (3,917,765)
Balance at December 31, 1996 (11,682) (1) (525,882)
Proceeds from sale of common stock 1,042,150
Issuance of common stock as
compensation 3,030,770
---------- ------------ ------------
Net loss (4,436,589)
Balance at December 31, 1997 (11,682) $ (1) $ (889,551)
========== ============ ============
</TABLE>
See independent auditors' report and notes to financial statements.
F-5
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,436,589) $(3,917,765)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 57,811 66,680
Estimated litigation settlement 26,000
Non-cash compensation and commission 3,030,769 2,035,608
Changes in assets and liabilities
Accounts receivable (19,025) (953)
Advances to employees 19,922 (11,944)
Inventories (146,286) (9,219)
Prepaid expenses and other current assets 2,744
Deposits and other noncurrent assets (60,149) 11,494
Accounts payable (156,203) 161,249
----------- -----------
Net cash used in operating activities (1,683,750) (1,662,106)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to fixed assets (34,812) (45,588)
----------- -----------
Net cash used by investing activities (34,812) (45,588)
----------- -----------
ASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholders' loans 832,700 332,115
Repayments of stockholders' loans (148,000) (339,350)
Net proceeds from issuance of common
stock and subscriptions 1,042,150 1,706,592
----------- -----------
Net cash provided by financing activities 1,726,850 1,699,357
----------- -----------
Net Increase (Decrease) in Cash 8,288 (8,337)
Cash at Beginning of Year 3,994 12,331
----------- -----------
Cash at Ending of Year $ 12,282 $ 3,994
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-6
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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, 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, therefore, include the historical financial
statements of SAC Delaware prior to the Reorganization. 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, 1997 and 1996.
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. Such technologies are associated with paint stripping chemicals,
water-based foams, and an ambient air exchanger.
F-7
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The financial statements are prepared using the accrual basis of accounting.
Generally accepted accounting principles requires management, under certain
circumstances, to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Allowance for Doubtful Accounts
The Company considers trade receivables to be fully collectible; accordingly, no
allowance for doubtful accounts is required.
Inventories
Inventories, primarily finished goods, are stated at the lower of cost
(first-in, first-out method) or market value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided on
a straight-line basis over estimated useful lives of the respective assets.
Leasehold improvements are depreciated over the shorter of the lease term or
economic life of the related improvement. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized. When items
of property, plant and equipment are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in the results of operations. Depreciation expense was $49,696 and
$47,543 for the years ended December 31, 1997 and 1996, respectively.
Organization Costs
Organization costs are amortized over 60 months using the straight-line method.
Amortization expense was $8,110 and $12,165 for the years ended December 31,
1997 and 1996, respectively.
Earnings Per Share
The following data show the amounts used in computing earnings per share.
1997 1996
------------- --------------
Loss from continuing operations
before extraordinary items $(3,815,589) $(3,917,765)
Loss used in basic EPS (3,815,589) (3,917,765)
------------- --------------
Weighted average number of common
shares used in basic EPS 11,415,628 8,342,511
============= ==============
F-8
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
3. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has incurred recurring
operating losses and has a working capital deficiency. At December 31, 1997,
current liabilities exceed current assets by $526,927, and total liabilities
exceed total assets by $889,552. These conditions raise substantial doubt about
the Company's ability to continue as a going concern.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to obtain
sufficient financing, and the success of its future operations. Management plans
to finance its operations with a combination of sales of common stock and, in
the longer term, borrowings and revenues from product sales. Management believes
these actions provide the opportunity for the Company to continue as a going
concern.
4. LEASES
The Company rents its office space under a noncancelable operating lease
agreement which expires on September 30, 1998. In addition, the Company is also
leasing a laboratory and testing facility under a noncancelable operating lease
expiring on February 28, 1998.
Future minimum rental payments under the Company's operating leases are $44,181
in 1998. Rent expense was $138,868 and $113,885 for the years ended December 31,
1997 and 1996, respectively.
5. STOCKHOLDERS' DEFICIT
Treasury Stock
Treasury stock represents 1,682 shares (recorded at cost) being held in trust
(by Richard J. Fricke, an officer of the Company) 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 have
been recorded as treasury stock.
Shares Issued as Compensation and Commission
During 1997 and 1996, respectively, 1,098,200 and 799,284 fully vested shares of
the Company's Common Stock were issued to outside consultants. The fair value of
shares awarded, based upon the value of Common Stock sold during those periods,
were $1,508,150 and $1,697,608 for 1997 and 1996, respectively, and has been
recorded as compensation expense.
In addition, during 1997 and 1996, respectively, 686,080 and 170,000 fully
vested shares of the Company's Common Stock were issued to officers of the
Company. The fair value of shares awarded, based upon the value of Common Stock
sold during these periods, were $841,620 and $338,000 for 1997 and 1996,
respectively, and have been recorded as compensation expense.
F-9
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
6. INCOME TAXES
The Company has available unused operating loss carryforwards at December 31,
1997 of approximately $7,920,000 for federal purposes and $7,891,000 for state
purposes that may be applied against future taxable income for federal and state
liability, respectively. Cumulative net operating loss carryforwards as of
December 31, 1996 as reported on the Company's federal and state income tax
returns approximated $6,573,000. As a result of changes in ownership of the
Company, the future tax benefits from its net operating losses will be limited.
The tax benefit of the cumulative carryforwards as of December 31, 1997 is
approximately $2,690,000 for federal and approximately $828,000 for state,
offset in full by a valuation allowance.
The tax benefit of the cumulative carryforwards as of December 31, 1996 is
approximately $2,234,000 for federal and approximately $690,000 for state,
offset in full by a valuation allowance.
7. LICENSE AGREEMENTS
The Company maintains four significant exclusive licensing agreements. Each such
license has substantially the same terms and conditions. Each licensing
agreement 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
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. In addition, a weekly payment of $1,200 to Mrs.
Kathleen Kennedy during her lifetime is required in lieu of progressive sales
minimums due beginning in 1993. The four percent royalty payments described
above, however, would nonetheless survive.
During 1997, the Company modified the payment terms of the licensing agreements,
thus causing the agreements to become non-exclusive.
8. RELATED PARTY TRANSACTIONS
Stockholders' Loans
Stockholders' loans at December 31, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unsecured demand note to a Partnership of two stockholders,
bearing no interest. $ 352,965 $ 316,265
Unsecured demand note to a stockholder, bearing no interest.
$ 8,800 $ 15,800
Unsecured demand note to a stockholder, bearing no interest.
$ - $ 135,000
</TABLE>
F-10
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
8. RELATED PARTY TRANSACTIONS (CONTINUED)
Unsecured notes to five stockholders, bearing
interest at 8%. One-third of the outstanding
balance in due September 1998, including
interest. The remaining balance is due
January 1999, including interest. $ 790,000 $ -
---------- ----------
Total $1,151,765 $ 467,065
Less current maturities $ 625,100 $ 467,065
---------- ----------
Long-term debt, net of current maturities $ 526,665 $ -
========== ==========
Aggregate maturities required on stockholders' loans at December 31, 1997 are as
follows:
Year Amount
---- ------
1998 $ 625,100
1999 526,665
----------
Total $1,151,765
Officers' Compensation
The 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 1997 and 1996 amounted to $36,000 and $148,000 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.
In accordance with their employment agreements, the two executive 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. Based on these
agreements, the Company issued to each of these officers 85,000 shares of Common
Stock from Treasury in 1996 and recorded additional compensation expense to
officers of $338,000.
Licensing Agreement
An officer of the Company has an interest in one of the licenses discussed
above. For the years ended December 31, 1997 and 1996, there have been no
payments to such officer under the aforementioned agreements.
F-11
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
9. MARKETING AGREEMENT
The Company has entered into two agreements with SAC - 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. In the event the Company's annual revenues exceed $2,800,000, 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 an
additional $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.
In December 1997, the Company terminated this agreement for cause. Subsequently,
SSC Marketing filed a lawsuit for alleged breach of contract. The Company
believes the suit is completely without merit and intends to vigorously defend
its position.
10. EXTRAORDINARY ITEM
During the year ended December 31, 1997, the former President and Chief
Executive Officer of Safe Alternatives Corporation of America, Inc. issued
464,000 shares in the Company to several individuals and unrelated companies.
Management has not been able to ascertain if there was any known or documented
reason. The fair market value of these issued shares totaled $621,000.
Management has not determined if any legal action will be taken at the corporate
level.
11. CONTINGENCIES
The Company is a defendant in a lawsuit filed by the creditors of a former
salesman. In 1995, the salesman waived salaries totaling approximately $100,000.
The suit asks for a reinstatement of the waived salaries. Outside counsel for
the Company has advised that a favorable outcome is unlikely. Since the
plaintiffs can only be awarded the amount of debt owed, accordingly, a provision
for loss of $26,000 has been charged to operations in the accompanying financial
statements for 1997.
F-12
<PAGE>
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
12. SUBSEQUENT EVENTS
Convertible Notes
In March and April 1998, the Company issued $711,500 of 6% convertible notes
due, if not earlier converted, on March 3, 1999. The conversion price per share
is the lesser of 70% of the average closing bid price per share of common stock
for the five trading days prior to the conversion date or $0.25.
Natural Cool, Inc.
On May 5, 1998, the Company purchased the assets of Natural Cool, Inc. in
exchange for the Company's assumption of approximately $152,700 of the seller's
debts. The purchased assets consist of inventory, fixed assets, and all other
tangible and intangible property.
Norfield Corporation
On July 15, 1998, the Company entered into an agreement to purchase the assets
of Norfield Corporation. The total purchase price of the assets ranges between
$400,000 and $450,000, depending upon the future financial performance of this
new division. The purchase price will consist of $250,000 in cash and the
remainder in promissory notes. The assets include inventory, fixed assets,
leasing and licensing agreements, and all other tangible and intangible
property.
F-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
Date: August 27, 1998 By: /s/ Richard J. Fricke
--------------------------
Richard J. Fricke
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Richard J. Fricke
- ------------------------- President, Chief Executive August 27, 1998
Richard J. Fricke Officer & Director (Principal
Executive Officer)
/s/ Robert Percheski
- ------------------------ Chief Financial Officer August 27, 1998
Robert Percheski (Principal Financial and
Accounting Officer)
/s/ Richard W. Hill
- ------------------------- Director August 27, 1998
Richard W. Hill
/s/ Nicky Hunt
- ------------------------ Director August 27, 1998
Nicky Hunt
/s/ Sean F. McNamara
- ------------------------ Director & Secretary August 27, 1998
Sean F. McNamara
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
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
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
<PAGE>
10.13* Customer Service Agreement between SSC Marketing, Inc and the Company
dated as of November 1, 1996
10.14 License Agreement between Clement H. Royer and the Company dated as of
February 19, 1997, relating to NaturalCool technology
10.15 Chase-Royer Commercial Transaction among Rudolph L. Chase, Natural Cool,
Ltd., Natural Cool, Inc., and Clement H. Royer, dated as of March 1,
1997, relating to conveyance of rights to NaturalCool technology
10.16 Financial Accord among Rudolph L. Chase, Raymond C. Chase, and Clement
H. Royer, dated as of March 1, 1997, relating to royalties on
NaturalCool Technology
10.17 Agreement between Natural Cool, Inc., and the Company dated as of May 6,
1998, relating to acquisition of assets of Natural Cool, Inc.
10.18 License Agreement between Rudolph Chase and Raymond Chase, and the
Company dated as of May 6, 1998, relating to licensing of NaturalCool
patent rights
10.19 Promissory Note of Natural Cool, Inc., guaranteed by the Company, dated
as of May 6, 1998, relating to acquisition of assets of Natural Cool,
Inc.
10.20 Bill of Sale of Rudolph Chase and Raymond Chase, dated as of May 6,
1998, relating to sale of stock of Natural Cool, Inc. to the Company
10.21 Bill of Sale of Natural Cool, Inc, dated as of May 6, 1998, relating to
sale of assets of Natural Cool, Inc. to the Company
27 Financial Data Schedule
- -----------
* Incorporated by reference from the Registrant's Registration Statement on
Form 10-SB filed December 31, 1996.
(b) Reports on Form 8-K.
EXHIBIT 10.14
LICENSE AGREEMENT
AGREEMENT made this 19 day of February, 1997, by and between Clement H. Royer at
Natural Cool, Inc. a Vermont Corporation (herein referenced to as Licensor), and
Safe Alternatives Corporation of America, Inc. a Florida Corporation with its
principal place of business in Ridgefield, Connecticut (hereafter referred to as
Licensee) acting herein by Stephen J. Thompson its President.
WHEREAS: Licensor has exclusive worldwide marketing rights and manufacturing
rights to a patented product known as Natural Cool (hereafter referred to as the
Product; and
WHEREAS: Licensee is in the business of the commercial exploitation of
environmentally friendly products; and
WHEREAS: Licensor is desirous of licensing the world-wide exclusive marketing
rights to the product to license; and
WHEREAS: Licensee is desirous of obtaining said license;
NOW, THEREFORE, it is agreed as follows:
1. Licensor agrees to grant to license the exclusive worldwide
marketing rights for the Natural Cool system product as described in the United
States Patent attached hereto and made a part hereof. Licensor further agrees
that any improvements, trade secrets, alternatives or changes to said product
shall be included hereunder and the exclusive worldwide marketing rights shall
belong to Licensee.
2. Licensee agrees to pay Licensor a two (2%) percent royalty on gross
sales of the product. It is agreed and understood that the royalty percentage
will be reduced proportionately when the following benchmarks are not met:
A) The average retail price must be a minimum of four thousand
($4,000.00) dollars per unit.
B) Each unit must have a gross profit percentage of at least
sixty (60%) percent. Gross profit herein defined as the gross sales price less
all costs of manufacturing.
3. Licensee shall, upon the execution of this Agreement,
immediately escrow 250,000 shares of its common stock for the benefit of
Licensor. The stock escrowed shall be released on or before the 15th of March
1997.
<PAGE>
As a condition of this Agreement:
4. Licensee shall enter into a mutually agreed upon employment
contract with Clement H. Royer for the overseeing of the Natural Cool Division
of Licensee. Proof of the existence of said agreed to employment contract will
be the execution of this Agreement which shall not be executed until said
mutually agreed to employment contract is in full force and effect. This
Licensee may be terminated if the terms of the Employment Agreement attached
hereto and made a part hereof are not honored by Licensee and written notice of
any default under said Contract has been given Licensee by Clement H. Royer and
said default has not been cured within 120 days of receipt of said notice.
5. Licensee represents that it is able to provide
manufacturing capital for the product in the minimum amount of fifty (50%)
percent of all bona-fide purchase orders received from creditworthy customers,
not to be less than $3,000.00 per unit, up to a minimum of two million
($2,000,000.00) dollars at this time. Licensee's representations herein is
conditional on the assumption that the purchaser is creditworthy and that the
product is suitable for the purpose of which it is intended and free from defect
and in good working order.
6. It is understood and agreed that all representations herein by
Licensee and Licensor are material and are being relied upon by the other party.
7. Licensor hereby represents the following:
A) The product is patented under a United States Patent and a
Canadian patent, a copy of which is attached hereto.
B) Licensor or its principals know of no other patent which is
similar to the patent of Licensor and that Licensor's patent does not
infringe and will not infringe on any other United States Patent.
C) The product is approved and listed by Underwriter's
Laboratory and N.S.F. for the purpose for which it's used.
D) There currently exist a minimum of 200 installed units of
the product. All of said units are in good working order and
functionary for the purpose for which they were installed. Licensor
agrees to give Licensee all names, addresses and all information the
Licensor possesses. Said customers shall become customers of Licensee
for all purposes.
E) Licensor has a leasing company available for purchases of
the product, the terms of said leases being competitive with other
leasing companies.
F) Licensor projects, within a one year period, purchase
orders for 13,000 units of the product at a minimum sales price of
$4,000.00 per unit per year.
G) Licensor is the sole owner of the worldwide marketing
rights for the product. H) Licensor hereby represents the
following:
i) Licensse agrees to purchase minimum of 500 units
per year.
ii) 100 units will be funded on or before the 15th of
March 1997.
8. It is agreed by Licensor that Licensee shall have the right to
manufacture the product if Licensor ever fails to complete the manufacture of
all units ordered in a timely fashion, or the manufacturing entity increases
costs in excess of three (3%) percent of the established base cost in any one
year for purposes of this Paragraph the term timely fashion shall be defined as
one hundred twenty (120) days from the date of the placement of an order.
9. Licensee agrees to maintain complete records in accordance with
generally accepted principals which accurately reflect the activities of
Licensee under this Agreement as are pertinent to an
<PAGE>
accurate calculation of continuing royalties. Licensor shall have the right, at
its own expense, to have the records maintained by Licensee hereunder inspected
by a firm of nationally recognized certified public accountants for the purpose
of verifying the amount of continuing royalties due and payable hereunder, but
such rights of inspection shall be limited to no more than two inspections per
calendar year, and alt information provided or obtained by such certified public
accountant, except the total amount of continuing royalties accruing in each
calendar quarter, shall be held by them in strict confidence including as to
Licensor.
10. Licensor represents to Licensee that a U.S. Patent exists covering
this technology. Licensor and Licensee agree that it is important to this
Agreement that the Licensor Patent Rights be maintained.
A) For and in consideration of the right and license, Licensor
agrees to pay all maintenance fees, all fees for filing and prosecuting
pending patent applications, etc., for those Licensor Patent Rights and
Licensor Improvements.
B) Licensor shall have the option at its sole discretion of
maintaining the Patent Rights by the payment of all maintenance fees,
all fees for filing and prosecuting pending patent applications, etc.,
for those Patent Rights and Improvements which Licensor and SAC agree
are important to this Agreement in which event such Patent Rights and
Improvements shall remain the sole property of Licensor and SAC's only
rights therein are those granted by license herein. In the event
Licensor chooses not to maintain any of the Patent Rights at its own
expense, it shall notify SAC in writing thereof at least thirty (30)
days before the expiration of the relevant period for filing or
maintenance and SAC shall then have the option, at its sole discretion,
of filing or maintaining such Patent Rights. Should SAC choose to file
or maintain such Patent Rights at its own expense, the cost of filing
or maintaining said patent rights shall be deducted from payments due
Licensor. Licensor agrees to cooperate fully with SAC in such filing
and maintenance.
C) Similarly, Licensor shall be solely responsible for
enforcement of the Licensor's Patent Rights and shall pay all expenses
of and receive all recoveries from such enforcement. However, in the
event that Licensor falls to enforce the Licensor' 5 Patent Rights
against an infringer (in the opinion of SAC's patent counsel) within a
reasonable time after having notice thereof, then SAC may bring an
action for enforcement of the Licensor's Patent Rights in its own name,
at its own expense and for its own benefit, and Licensor shall
cooperate flilly with SAC in any such enforcement action.
11. The performance by the parties of their respective obligations
under this Agreement shall be suspended for such period of time as they are
prevented from performing such obligations by reason of acts of God, fire,
flood, explosion, insurrection, riot, enemy attach, malicious mischief, order of
the court or other governmental authority, inability to secure or delay in
securing rights of way, privileges, franchises, permits equipment and other
events reasonably beyond the control of the party subject thereto.
<PAGE>
12. All notices required or permitted to be given pursuant to this
Agreement shall be in writing and shall be deemed adequately given if delivered
in person or sent by registered or certified mail, return receipt requested, to
the following address:
Safe Alternatives Corporation of America, Inc.
C/o Richard J. Fricke
27 Governor Street
Ridgefield, CT 06877
Mr. Clement H. Royer and/or assigns
358 Phaeton Street
Windsor, CT 06095
or such other address as may be designated by a party, by a notice in compliance
with this article.
13. This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
14. This Agreement represents the complete agreement of the parties
with respect to the subject matter hereof, and all prior agreements and
negotiations are merged herein. This Agreement may be amended or changed only by
a written document purporting to do so and signed by both parties.
15. If it shall at any time appear that any right or obligation
provided in this Agreement is contrary to any law, treaty or regulation of a
government to which any party is subject, such right or obligation shall be
deemed annulled, or shall be modified to the extent required to comply with such
law, treaty or regulation.
16. 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.
17. This Agreement is being executed in duplicate original form, each
of which shall serve and function as an original agreement for all purposes.
<PAGE>
IN WITNESS WHEREOF the undersigned have set their hands and seals this
day of January, 1997.
In the presence of:
- ---------------------------
Witness
- ---------------------------
Witness
Safe Alternatives Corporation of America. Inc.
/s/ Stephen J. Thompson
- ---------------------------------
Stephen J. Thompson, its President
Natural Cool, Inc.
------------------------------
Clement H. Royer, its President
/s/ Clement H. Royer
-------------------------------
Clement H. Royer, as individual
Date: Feb. 19, 1997
EXHIBIT 10.15
CHASE-ROYER
COMMERCIAL TRANSACTION
1997
-------------------------------------------
CONVEYANCE OF ALTERNATIVE REFRIGERATION,
COOLING AND AIR PURIFICATION SYSTEMS
----------------------------------------------
We, Rudolph L. Chase, P.O. Box 10 - Main Street, Craftsbury, Vermont USA 05826,
and Raymond C. Chase, RR1 - Box 14, Craftsbury, Vermont, USA 05826, for
financial and other consideration received on this date, said consideration
recognized and acknowledged by us as being full, adequate and complete, do
hereby voluntarily and knowingly execute this legal instrument with the express
intention of effecting the absolute, full and forever release, relinquishment,
transfer and conveyance to Clement H. Royer, 358 Phaeton Street, Windsor,
Connecticut, USA 06095, of any and all equitable rights, titles and interests,
and any and all other rights, titles, patents and interests, of any kind or sort
whatsoever, related to or connected in any way, shape or form, to the business,
pursuit or commercial enterprise of developing, refining, manufacturing,
marketing and/or profiting from any and all alternative energy systems and
functions, and specifically, any and all systems, processes and functions that
utilize atmospheric air to cool, refrigerate and/or purify enclosures, said
herein-referenced rights, titles, patents and interests held by us individually
and/or held by Natural Cool, Inc., a Vermont corporation, and/or Natural Cool,
Ltd., a Connecticut corporation, two separate entities of which we are the sole
possessors and stockholders, and each corporate entity is being conveyed by us
in its entirety to Clement H. Royer, along with any and all of our residual and
remaining attendant private interests.
All manner of personal and corporate rights, titles and interests referenced
herein and ever possessed and enjoyed by us in and to any and all of the
property, patents, proprietary processes and knowledge, and any and all
commercial activity and matter referenced herein, are conveyed fully and
completely to Clement H. Royer of 358 Phaeton Street, Windsor Connecticut, USA
06095.
This legal instrument incorporates by reference the full and unfettered right to
exploit and commercially profit from the unrestricted use and application of
U.S. Patent Number 5,144,816, as evidenced and issued to Rudolph L. Chase on
September 8, 1992, and herein conveyed and assigned to Clement H. Royer.
We, Rudolph L. Chase and Raymond C. Chase, warrant that we will fully defend,
protect indemnify and save harmless Clement H. Royer, his successors, heirs and
assigns, from any and all adverse claims that may be made by any party against
said legal title herein conveyed.
We unequivocally and without reservation intend this legal instrument to fully
and completely bind us, our heirs, our legal representatives and all assigns.
<PAGE>
For consideration paid to us on this date, we further agree to not act to
circumvent, by any direct or indirect means, the letter and spirit of this
conveyance. We agree to refrain, cease and desist from any discussion,
dissemination or disclosure of any' information, knowledge or matter related in
any way to the business and commercial activity referenced herein and further
related to the entire body of rights and interests conveyed by us on this date.
IN WITNESS WHEREOF, this legal instrument is affirmed and executed on March 1,
1997, by our free acts and deeds.
/s/ Rudolph L. Chase
- ---------------------------------
Rudolph L. Chase
/s/ Rudolph L. Chase
- ----------------------------------
Natural Cool, Ltd.
Rudolph L. Chase, its President
/s/ Rudolph L. Chase
- ------------------------------------
Natural Cool, Inc.
Rudolph L. Chase, its President
THIS COMMERCIAL CONVEYANCE HAS BEEN ACCEPTED AND ASSENTED TO IN ITS ENTIRETY BY:
/s/ Clement H. Royer
- --------------------------------------
Clement H. Royer
3/1/97
- ---------------------------------------
Date
EXHIBIT 10.16
FINANCIAL ACCORD
It is established, known and recorded that Rudolph L. Chase and Raymond C.
Chase, hereinafter Chase, have conveyed all of their equitable and other
personal and corporate rights and interests, in and to, Natural Cool, Ltd., and
Natural Cool, Inc., to Clement H. Royer, hereinafter Royer.
This legal instrument serves to evidence and record the agreed-to financial
terrns and conditions that triggered said conveyance.
1. Royer will pay Chase, their heirs, successors or assigns, the sum of $20,000
USD on or before March 15, 1997.
2. Royer will pay Chase, their heirs, successors or assigns, the sum of $200 USD
on each base product, system or apparatus manufactured for the benefit and
advantage of Royer, his heirs, successors or assigns. Said payments will be made
contemporaneous with each order for manufacture.
3. Royer represents that he will cause no less than 500 units to be manufactured
each year during each of the succeeding five years (1997-2002).
If the herein-stated terms and conditions of conveyance are not satisfied and
fulfilled as set forth, Chase expressly reserves the right to set aside all of
the elements of the CHASE-ROYER COMMERCIAL TRANSACTION, as evidenced and dated
on March 1, 1997. A default, for purposes of this agreement, is defined as any
instance or event that causes a delay of 30 calendar days in the meeting of any
of the enumerated financial terms and conditions of conveyance. In the event of
such a default, all elements of the CHASE-ROYER COMMERCIAL TRANSACTION will
automatically revert, by operation and effect of this legal instrument, and
without the requirement of any formal legal proceedings and judicial action, to
Chase. In the event of such a default and a subsequent reversion, any and all
interests and rights conveyed in the referenced commercial transaction to Royer,
his heirs, successors and assigns, will be terminated and forfeited forever.
Beyond any reversion as herein defined, Royer, his heirs, successors or assigns
will remain financially liable for any measurable diminishment in the value of
the interests and rights conveyed in the herein-referenced CHASE-ROYER
COMMERCIAL TRANSACTION. Chase, their heirs, successors and assigns, retain the
option to waive any herein-defined contractual default and to cause the full
effect and force of their contract and commercial conveyance with Royer, his
successors and assigns, to remain alive.
<PAGE>
IN WITNESS WHEREOF, this legal instrument is affirmed and executed on March 1,
1997, by our free acts and deeds.
/s/ Rudolph L. Chase
- -----------------------------
Rudolph L. Chase
P.O. Box 10 - Main Street
Craftsbury, VT 05826
/s/ Raymond C. Chase
- ------------------------------
Raymond C. Chase
RR1 - Box 14
Craftsbury, VT 05826
/s/ Clement H. Royer
- ------------------------------
Clement H. Royer
358 Phaeton Street
Windsor, CT 06095
EXHIBIT 10.17
AGREEMENT
AGREEMENT made this 6th day of May, 1998, by and between Natural Cool, Inc., a
Vermont corporation, hereinafter called the SELLER and Safe Alternatives
Corporation of America, Inc., a Florida corporation, hereinafter called the
BUYER.
W I T N E S S E T H:
WHEREAS, the SELLER owns and operates the business known as Natural Cool,
hereinafter known as the BUSINESS at; and
WHEREAS, the BUYER wishes to purchase the business and the SELLER has agreed to
sell the business for the price and upon the terms and conditions set forth in
this AGREEMENT.
NOW THEREFORE, in consideration of the sum set forth hereinafter and other
valuable consideration, the BUYER and the SELLER hereby agree as follows:
1. Sale of the Business: The SELLER shall sell, free and clear of all
encumbrances, except (1) those listed on Schedule A attached hereto, which shall
become the obligation of the BUYER, (2) any and all claims made by or through
Clement Royer, which the BUYER agrees to assume and to save the SELLER harmless
therefrom, and (3) the BUYER agrees to purchase said business. Said sale shall
include all the inventory and the office equipment, merchandise, trade fixtures,
and other items of tangible personal property owned and used by the SELLER,
together with the goodwill, ongoing contracts, customer list, trade name, and
trademark.
2. Purchase Price: The purchase price for the sale of the business is to be paid
in the following manner:
(a) The sum of One Dollar ($1.00) in cash or a bank check or certified check
payable to the order of SELLER at closing; and
(b) The BUYER'S assumption of the debts listed in Schedule A attached hereto and
made a part hereof, which debts shall be paid within ten (10) days of the date
hereof.
3. SELLER'S Representations: The SELLER warrants and represents:
(a) That the SELLER is the owner of and has good title to all of the assets to
be sold, free and clear of all encumbrances, except those listed in Schedule A
attached hereto, and any and all claim made directly or indirectly by or through
Clement Royer, which the BUYER agrees to assume and pay and save the SELLER
harmless therefrom;
(b) There are no judgments, liens, actions or proceeding pending against it in
any court, except as to any claim of Clement Royer; and
(c) There are no violations of any kind pending or threatened against the
business which is subject matter of this AGREEMENT.
<PAGE>
All representations and warranties made by the SELLER shall survive the closing
of title.
4. Closing: The closing and transfer of title to and possession of the business
shall take place at 3:00 PM on May 6, 1998 at the office of SELLER'S attorney,
Gregory P. Howe, Esquire, Derby Road, Newport, Vermont, or at such other time
and place as may be mutually agreed upon by the parties. Each of the parties
will execute and deliver at the closing all instruments reasonably required to
carry out the terms and intent of this AGREEMENT.
Possession of the aforesaid business and all of the assets sold to the BUYER
shall be delivered to the BUYER at the time of the closing.
5. Books of Account: The SELLER shall have the right to retain copies of its
books of account, checks, cancelled checks, bills, vouchers and support thereof
and all records relating to taxes not assumed by the BUYER hereunder.
6. Inspection: BUYER agrees that it has fully inspected the personal property
and is fully satisfied with the physical condition thereon and it is accepting
said personal property "as is" and further that neither the SELLER nor any
representative of the SELLER has made any representation, warranty or promise
upon which the BUYER has relied except as herein expressly set forth. BUYER
further acknowledges that they have been in possession and control of the
business for several months and as such are familiar with all areas of the
business.
7. Hold Harmless: The BUYER does hereby agree to hold harmless and indemnify the
SELLER from any liability to any other person for any claim, cause of action or
right arising out of the operation of the aforesaid business after March 1,
1997.
The SELLER shall hold the BUYER safe and harmless from any and all claims of
liability of any kind whatsoever, including but not limited to, any tax
deficiencies arising out of the operation of said business by the SELLER herein
up to March 1, 1997. Notwithstanding the foregoing, SELLER shall not be
obligated to hold the BUYER safe and harmless from any claim made by Clement
Royer as referenced above.
8. Bulk Transfer: The SELLER agrees to indemnify and hold harmless the BUYER
from any and all claims, actions, suits, liabilities, legal fees, costs and
disbursements of any kind or nature arising out of any claim or suit instituted
by any person in connection with the assets conveyed by the SELLER to the BUYER
hereunder arising prior to March 1, 1997 and except for claims arising out of
those items set forth on Schedule A.
9. Interpretation: In construing this AGREEMENT, the singular shall include the
plural and the plural the singular, and the masculine gender shall include the
feminine gender and vice versa as the context may require.
10. Captions: The captions of this AGREEMENT are inserted for reference only and
do not constitute a part of this AGREEMENT and shall not be construed as
defining or limiting in any way the scope or intent of the provisions hereof.
<PAGE>
11. Entire AGREEMENT: This AGREEMENT sets forth the entire understanding of the
parties and may not be amended or changed or terminated orally.
12. Successors: This AGREEMENT shall bind the parties hereto, their legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT in duplicate
on the year and date first above written.
IN THE PRESENCE OF: NATURAL COOL, INC.
By /s/ Rodolph Chase
- ------------------------------- -------------------------------
Witness to Natural Cool, Inc. Rodolph Chase, President
- -------------------------------
Witness to Natural Cool, Inc.
SAFE ALTERNATIVES CORPORATION
OF AMERICA, INC.
By /s/ Richard J. Fricke
- ------------------------------- -------------------------------
Witness to SAC Richard J. Fricke
- -------------------------------
Witness to SAC
/S/ Rodolph Chase
- ------------------------------- -------------------------------
Witness to Rodolph Chase Rodolph Chase, Individually
- -------------------------------
Witness to Rodolph Chase
EXHIBIT 10.18
LICENSE AGREEMENT
AGREEMENT made this 6th day of May, 1998, by and between Rodolph Chase and
Raymond Chase, (herein referred to as LICENSOR) and Safe Alternatives
Corporation of America, Inc., a Florida corporation with its principal place of
business in Ridgefield, Connecticut (herein referred to as LICENSEE) acting
herein by Richard J. Fricke, its President.
WHEREAS, LICENSOR has exclusive patented rights to an alternative refrigeration
cooling and air purification system as shown in U.S. Patent Number 5,144,816
(hereafter referred to as the PRODUCT); and
WHEREAS, LICENSEE is in the business of the commercial exploitation of
environmentally friendly products; and
WHEREAS, LICENSOR is desirous of licensing the world-wide exclusive marketing
rights to the PRODUCT to license; and
WHEREAS, LICENSEE is desirous of obtaining said license.
NOW, THEREFORE, it is agreed as follows:
1. LICENSOR agrees to grant to license the exclusive world-wide manufacturing
and marketing rights for the PRODUCT as described in United States Patent Number
5,144,816. This AGREEMENT and all rights conferred hereunder shall expire and be
of no further force and affect ten (10) years from the date hereof.
2. LICENSEE agreed to pay LICENSOR a minimum royalty of $2,500.00 per month,
which entitled LICENSOR to 300 units royalty free during any one year. Any sales
in excess of 300 units per annum shall entitle the LICENSOR to a royalty of
$100.00 per unit sold. Said payments for additional units sold shall be made no
later than 30 days after invoice, and/or delivery, whichever is sooner. In the
event the LICENSOR neglects or fails to make any payments due hereinunder,
LICENSEE shall, in writing, notify LICENSEE of default. In the default is not
cured within 60 days, this license shall be deemed null and void and LICENSEE
shall have no further rights to manufacture and sell any of the PRODUCT with the
exception of any units already manufactured for which LICENSOR shall receive
$100.00 per unit when sold and for which payment has been received, but in no
event later than 30 days after delivery or invoice, whichever is sooner.
3. LICENSEE shall pay to the LICENSOR the first year's minimum royalty of
$30,000.00 by cash or certified check on the day this LICENSE AGREEMENT is
executed by the parties.
4. LICENSOR hereby represents the following:
(a) The PRODUCT is patented under a United States Patent, a copy of which is
attached hereto.
<PAGE>
(b) LICENSOR or its principals know of no other patent which is similar to the
patent of LICENSOR and that LICENSOR'S patent does not infringe and will not
infringe on any other United States Patent.
(c) The PRODUCT is approved and listed by Underwriter's Laboratory and N.S.F.
for the purpose for which it's used.
(d) There currently exist a minimum of 200 installed units of the PRODUCT. All
of said units are in good working order and functionary for the purpose for
which they were installed. LICENSOR agrees to give LICENSEE all names, addresses
and all information the LICENSOR possesses. Said customers shall become
customers of LICENSEE for all purposes.
(e) LICENSOR is the sole owner of the patent and manufacturing rights for the
PRODUCT, subject, however, to any claims legitimate or not legitimate of Clement
Royer which the LICENSEE agrees to assume and save the LICENSOR harmless
therefrom.
5. LICENSEE agrees to maintain complete records in accordance with generally
accepted principals which accurately reflect the activities of LICENSEE under
this AGREEMENT as are pertinent to an accurate calculation of continuing
royalties. LICENSOR shall have the right, as its own expense, to have the
records maintained by LICENSEE hereunder inspected by a firm of certified public
accountants for the purpose of verifying the amount of continuing royalties due
and payable hereunder, but such rights of inspection shall be limited to no more
than two inspections per calendar year, and all information provided or obtained
by such certified public accountant, except the total amount of continuing
royalties accruing in each calendar quarter, shall be held by them in strict
confidence including as to LICENSOR.
6. LICENSOR represents to LICENSEE that a U.S. Patent exists covering this
technology. LICENSOR and LICENSEE agree that it is important to this AGREEMENT
that the LICENSOR Patent Rights be maintained.
7. The performance by the parties of their respective obligations under this
AGREEMENT shall be suspended for such period of time as they are prevented from
performing such obligations by reason of acts of God, fire, flood, explosion,
insurrection, riot, enemy attach, malicious mischief, order of the court or
other governmental authority, inability secure or delay in securing rights of
way, privileges, franchises, permits, and other events reasonably beyond the
control of the party subject thereto.
8. All notices required or permitted to be given pursuant to this AGREEMENT
shall be in writing and shall be deemed adequately given if delivered in person
or sent by Registered or Certified Mail, Return Receipt Requested.
9. This AGREEMENT shall be governed by and construed in accordance with the laws
of the State of Vermont.
10. This AGREEMENT represents the complete agreement of the parties with respect
to the subject matter hereof, and all prior agreements and negotiations are
merged herein. This
<PAGE>
AGREEMENT may be amended or changed only by a written document purporting to do
so and signed by both parties.
11. If it shall at any time appear that any right or obligation provided in this
AGREEMENT is contrary to any law, treaty or regulation of a government to which
any party is subject, such right or obligation shall be deemed annulled, or
shall be modified to the extent required to comply with such law, treaty or
regulation.
12. This AGREEMENT is being executed in duplicate original form, each of which
shall serve and function as an original agreement for all purposes.
IN WITNESS WHEREOF, the undersigned have set their hands and seals this 6th day
of May, 1998.
IN PRESENCE OF: SAFE ALTERNATIVES CORPORATION
OF AMERICA, INC.
By /s/ Richard J. Fricke
- ------------------------------- -------------------------------
Witness to ALL signatures Richard J. Fricke
- -------------------------------
Witness to ALL signatures
/s/ Rodolph Chase
-------------------------------
Rodolph Chase, Individually
/s/ Raymond Chase
-------------------------------
Raymond Chase, Individually
EXHIBIT 10.19
PROMISSORY NOTE
$7,500.00 May 6, 1998
FOR VALUE RECEIVED, Natural Cool, Inc., a Vermont corporation, promises to pay
to Chase Refrigeration, or order, the principal sum of Seven Thousand Five
Hundred Dollars ($7,500.00), without interest. The said principal shall be
payable to the holder hereof at the rate of Six Hundred Twenty-five Dollars
($625.00) per month, and continuing monthly until paid in full. Provided,
however, that in the event that any one payment is more than thirty (30) days
late, then interest shall accrue on the unpaid balance thereafter at the rate of
twelve percent (12%) per annum.
Each such installment shall be applied to the reductio of principal.
If default is made in the payment of any installment of principal and interest
in this note, the entire unpaid principal balance and accrued interest shall at
once become due and payable without notice, and the holder of this note may
place the same in the hands of any attorney for collection, and, in such event,
in addition to the unpaid principal balance and accrued interest, the
undersigned promises and agrees to pay all costs and charges of suit, including
reasonable attorney fees. Failure to exercise this option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default.
All parties to this note, whether principal, surety, guarantor, endorser or
accommodation maker hereby waive presentment for payment, demand, protest,
notice of protest and notice of dishonor, and agree that the receipt of interest
in advance or the extension of time shall not relinquish or di a ge a ndorser,
surety, accommodation maker, or guarantor of this note.
NATURAL COOL, INC.
By: /s/ Richard J. Fricke
---------------------------------------------
Richard J. Fricke, Duly Authorized Agent of
Natural Cool, Inc.
In consideration of the loan evidenced by the within note made at the request of
the undersigned, on the terms and conditions thereof, the undersigned guarantee
the prompt payment of the note and each installment, when due, whether at stated
maturity, acceleration, or otherwise, and in accordance with all terms and
conditions of the note and [portion obliterated in original] and conditions and
affirm the waivers and consents [portion obliterated in original].
The liability of the undersigned under this guarantee shall be direct and not
conditional or contingent upon the pursuit of any remedies against any maker or
endorser, or against any collateral held as security for the payment of the
note.
<PAGE>
Notice of acceptance is waived. This shall be a continuing guarantee, extending
to any notes given in extension or renewal of this note, notwithstanding that
the original may have been surrendered, provided the liability of the
undersigned shall not be increased over the amount contained in the original
note plus accrued and unpaid interest, together with such other fees and amounts
as may be provided for in the within note.
Dated at Derby, Vermont, this 6 day of May, 1998.
SAFE ALTERNAT IVES CORPORATION
OF AMERICA, INC.
By: /s/ Richard J. Fricke
----------------------------------------
Richard J. Fricke, Duly Authorized Agent
EXHIBIT 10.20
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS that we, Rodolph Chase and Raymond Chase, in
consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration, in hand paid by Safe Alternatives Corporation of America, Inc.,
the receipt of which is hereby acknowledged, has granted, bargained, sold,
conveyed, transferred and delivered and, by these presents, does bargain, sell,
grant, convey, transfer and deliver unto the said Safe Alternatives Corporation
of America, Inc., all stock of Natural Cool, Inc., a Vermont corporation.
TO HAVE AND TO HOLD the same unto Safe Alternatives Corporation of America, Inc.
to warrant and defend title to the goods and chattels herein described and sold
unto Safe Alternatives Corporation of America, Inc., its successors and assigns
against each and every person or persons whomever, except any claims to be made
by Clement Royer, which Safe Alternatives Corporation of America, Inc. shall
assume and save Rodolph Chase and Raymond Chase harmless therefrom.
IN WITNESS WHEREOF, the SELLERS have hereunto set their hands and seals this 6
day of May, 1998.
IN PRESENCE OF:
/s/ Rodolph Chase
- ------------------------------- -------------------------------
Witness Rodolph Chase
/s/ Raymond Chase
- ------------------------------- -------------------------------
Witness Raymond Chase
EXHIBIT 10.21
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS that Natural Cool, Inc., a Vermont corporation,
in consideration of the sum of One Dollar ($1.00) and other good and valuable
consideration, in hand paid by Safe Alternatives Corporation of America, Inc.,
the receipt of which is hereby acknowledged, has granted, bargained, sold,
conveyed, transferred and delivered and, by these presents, does bargain, sell,
grant, convey, transfer and deliver unto the said Safe Alternatives Corporation
of America, Inc., all the inventory, merchandise, trade fixtures, office
equipment and other items of tangible personal property, together with the
goodwill, trade name, trademark, and ongoing contracts of the business now owned
by SELLER.
TO HAVE AND TO HOLD the same unto Safe Alternatives Corporation of America, Inc.
to warrant and defend title to the goods and chattels herein described and sold
unto Safe Alternatives Corporation of America, Inc., its successors and assigns
against each and every person or persons whomever, except any claims to be made
by Clement Royer, which Safe Alternatives Corporation of America, Inc. shall
assume and save Natural Cool, Inc. and Rodolph Chase harmless therefrom.
IN WITNESS WHEREOF, the SELLER has hereunto set its hand and seal this 6 day of
May, 1998.
IN PRESENCE OF: NATURAL COOL, INC.
By /s/ Rodolph Chase
- ------------------------------- -------------------------------
Witness to Natural Cool, Inc. Rodolph Chase, President
- -------------------------------
Witness to Natural Cool, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,282
<SECURITIES> 0
<RECEIVABLES> 31,187
<ALLOWANCES> 0
<INVENTORY> 159,473
<CURRENT-ASSETS> 202,942
<PP&E> 307,948
<DEPRECIATION> (190,621)
<TOTAL-ASSETS> 392,982
<CURRENT-LIABILITIES> 729,869
<BONDS> 526,665
0
0
<COMMON> 3,407
<OTHER-SE> (889,551)
<TOTAL-LIABILITY-AND-EQUITY> 392,982
<SALES> 134,464
<TOTAL-REVENUES> 134,464
<CGS> 72,890
<TOTAL-COSTS> 3,903,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (20,906)
<INCOME-PRETAX> (3,815,589)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,815,589)
<DISCONTINUED> 0
<EXTRAORDINARY> (621,000)
<CHANGES> 0
<NET-INCOME> (4,436,589)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
