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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
FIX-CORP INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 34-1783774
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27040 CEDAR ROAD / SUITE 218
BEACHWOOD, OHIO 44122
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (216) 292-3182
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $ 0.001 PER SHARE
(Title of class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Fix-Corp International, Inc. (the "Company") is organized under the
laws of the state of Delaware. A predecessor of the Company was initially
incorporated in 1995 under the laws of the state of Utah and under the name
Lifechoice, Inc. In 1995, in connection with the acquisition by the Company
of a company organized by Mark Fixler, the Company's Chief Executive Officer
and President and Chairman of its Board of Directors, the Company changed its
name from Lifechoice, Inc. to Fix-Corp International, Inc., and was
redomociled from being a corporation organized under Utah law to one
organized in Delaware. (See notes 1 and 11 to the Financial Statements.)
The Company's principal business is the manufacturing of recycled
plastic (in particular, high-density polyethylene or "HDPE") resin, through
its wholly-owned subsidiary, Fixcor Industries, Inc. ("Fixcor"), a Delaware
corporation. The Company expects before the end of fiscal year 1997 to
commence the manufacturing of plastic pallets from recycled resin through its
wholly-owned subsidiary, Palletech, Inc. ("Palletech"), a Delaware
corporation.
The Company also markets jewelry products for corporate awards and
gifts and extends financing to small businesses collateralized by purchase
orders. These two businesses constituted substantially all of the businesses
of the Company prior to the end of fiscal year 1996. During the first nine
months of fiscal year 1997, however, revenues from these businesses
constituted less than 10% of the Company's total revenues, with more than 90%
of its revenues generated by the manufacturing of recycled plastic resin.
(See Part I, Item 2, Management's Discussion and Analysis or Plan of
Operations.)
In December, 1996, the Company acquired a recycling plant in Heath,
Ohio, also known as the Heath Resource Recovery Plant (the "Facility"), from
Quantum Chemical Corporation ("Quantum"). In connection with this
acquisition, in December, 1996, the Company formed Fixcor to own and operate
the Facility. On January 8, 1997, the first processing line at the Facility
became operational. During July, 1997, the Company formed Palletech to
manufacture plastic pallets from recycled plastic resin. The Company expects
that it will dedicate significantly less resources to the corporate awards
jewelry marketing and purchase order financing businesses, that the plastic
recycling business will continue to grow, and that the operations of Fixcor
and Palletech will generate a greater percentage and, eventually,
substantially all of the revenue of the Company in fiscal year 1998, such
that the Company is considered primarily to be in the plastic recycling and
recycled products business.
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SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
Certain statements contained in this Registration Statement,
including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: international, national and local
general economic and market conditions; demographic changes; the size and
growth of the plastic packaging markets for both consumer and industrial
uses; the ability of the Company to sustain, manage or forecast its growth;
the ability of the Company to successfully make and integrate acquisitions;
raw material costs and availability; new product development and
introduction; existing government regulations and changes in, or the failure
to comply with, government regulations; adverse publicity; competition; the
loss of significant customers or suppliers; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other factors referenced in
this Registration Statement. Certain of these factors are discussed in more
detail elsewhere in this Registration Statement. Given these uncertainties,
readers of this Registration Statement and investors are cautioned not to
place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce
the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
THE COMPANY
The Company has two wholly-owned subsidiaries, Fixcor and Palletech.
Fixcor owns and operates the Facility, located in the Mid-Ohio Industrial
Park at 1835 James Parkway in Heath, Ohio 43056. Palletech's operations will
also take place at the Facility. The closest major metropolitan area is
Columbus, Ohio, about 30 miles away. Within the plastics industry, the
Company intends to establish itself as a high volume supplier of recycled
HDPE resin. Simultaneously the Company intends to pursue a program of
vertical integration whereby it has the capacity to utilize its own resin
product and fabricate a value-added plastic end product.
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ACQUISITION OF THE FACILITY
In December, 1996, the Company consummated the acquisition of the
Facility pursuant to the Purchase and Sale Agreement (the "Quantum
Agreement"), a copy of which is attached to this Registration Statement. The
Facility was acquired from Quantum, a Virginia corporation with its principal
place of business located in Cincinnati, Ohio. The Facility includes a
stand-alone post-consumer plastic recycling operation involving two parallel
recycling lines inside a 50,000 square foot building on its own plot of
ground with access to an adjoining railroad spur and truck scale, plus
various other support equipment.
In connection with the acquisition of the Facility, the Company
obtained bridge financing from Gordon Brothers Capital Corp., a commercial
lender with its principal place of business located in Boston, Massachusetts.
This bridge financing was in the amount of $2,500,000 and was secured by a
first mortgage on the Facility and a security interest in all inventory,
accounts receivables and contracts with customers. Mr. Fixler also
guaranteed the Company's obligations under the bridge financing agreement.
Upon consummation of the purchase of the Facility and prior to the
securing of permanent financing, the Company entered into a formal
Acquisition Agreement (the "Acquisition Agreement") under which the Company
conveyed the Facility to Fixcor in connection with its original subscription
to all of the shares of common stock of Fixcor. Mr. Fixler was also a party
to this Acquisition Agreement. Before the Company acquired the Facility
under the Quantum Agreement, he had an option to purchase the Facility. He
waived his option to purchase and allowed the Company to make the
acquisition. In addition, he personally guaranteed the bridge financing for
the purchase of the Facility, and the Company issued to him 6,521,740 shares
of common stock of the Company (the "Common Stock"), all of which were
restricted shares.
In May, 1997, Fixcor secured financing for the Facility from
NationsCredit Commercial Corporation. This consisted of revolving loans up
to $7,000,000 for inventory and account receivable financing, permanent
financing, and equipment acquisition. This financing included a mortgage
security agreement which encumbered substantially all of the assets of the
Facility. Mr. Fixler is the guarantor of this facility in an amount up to
$750,000 plus expenses.
OPERATIONS AT THE FACILITY
The Facility produces post-consumer high density polyethylene (HDPE)
plastic resin pellets. The Facility has three recycling lines which are
capable of producing approximately 66,000,000 to 72,000,000 pounds of
post-consumer plastic resin per year. The Company expects that the average
selling price of this resin can be maintained at the current level of
approximately $0.35 per pound, resulting in annual gross sales of
approximately $23,000,000 to $25,200,000 per year with all three processing
lines operating.
The manufacturing process is substantially automated and runs around
the clock, permitting Fixcor to utilize three shifts. Fixcor's current
production (i.e., output that it
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expects to produce through approximately the end of fiscal year 1997) is sold
out. With the third line operating as of October, 1997, Fixcor expects its
capacity to come closer to meeting the demand for the HDPE resin. The
Company believes that it can sell all of the resin that the Facility can and
will produce in the near future. Company management believes that the
recycling of HDPE is not generally a seasonal business, either with respect
to the supply of raw materials or with respect to customers' demand. The
demand is one that the Company believes is not currently being met. While
Fixcor's business is not concentrated on any one region of the United States,
the Company believes that it may be advantageous in the future to expand by
opening plants in the Western and Southeastern United States to be closer to
suppliers and customers. The Company expects to open a second HDPE recycling
facility during fiscal year 1998, and has ordered equipment for that
facility. Fixcor currently has no sales to foreign customers. Its customers
are generally companies with annual sales revenue of between $50,000,000 and
$250,000,000. In addition, management believes that Fixcor enjoys a
competitive advantage over its competitors due to an advantageous rate for
electric power from Ohio Power. Fixcor owns its own substation that
regulates and supplies its power. The national rate charged to commercial
customers is $0.09 per kilowatt hour. Fixcor pays $0.032 per kilowatt hour
for use at the Facility. This differential translates into a cost of $0.011
per pound of plastic produced. In addition, the Facility has its own waste
water treatment plant. This permits the Facility to recycle 50% to 75% of
the water that it consumes per day and aids in lowering the cost of producing
resin pellets.
The Facility is designed to produce recycled HDPE. HDPE is a
constituent ingredient of many consumer packaging plastic products. The
prices of raw materials are a function of, among other things, the
manufacturing capacity for such raw materials of such consumer products. In
the event of cost increases for raw materials, failure to achieve
corresponding sales price increases in a timely manner, sales price erosion
without a corresponding reduction in raw material costs or failure to
renegotiate favorable raw material supply contracts could have a material
adverse effect on the Company.
Lot numbers are assigned to each incoming shipment for quality
control purposes. As the material for a given lot progresses through the
recycling process, sample material from each lot is tracked and checked a
minimum of five times. The bales are first split apart and thoroughly washed
to remove any contaminants, then sorted and prepared to enter the shredding
process. The shredder turns all of the material into small flakes, which
are then washed again in hot water. Once the flakes are dried, they are
fed into the extruder, which converts the plastic flakes into a liquid and
then squeezes the liquid plastic out through narrow openings under pressure.
The extrusion process involves technology in the public domain and does not
involve any technology that is licensed. This is the process which brings
recycled plastic to its finished form, namely a small plastic pellet called a
"resin." To assure quality, samples of these resin pellets are tested for
every 1,000 pounds of raw material produced and a sample is retained of each
lot.
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PALLETECH, INC.
Palletech is a recently formed subsidiary which will specialize in
the production of plastic pallets. Palletech is ordering a specialized,
state-of-the-art injection molding machine which will transform resin pellets
into plastic pallets. This will enable the Company to be less dependent on
commodity pricing and instead achieve pricing which reflects the value added
properties of a finished good. The pallets will be produced from recycled
plastic resin produced by Fixcor at the Facility. The Company believes that
the engineering work is complete and that the product is ready to go into
production. The Company believes that plastic possesses numerous advantages
over wood, the material currently used for pallets: plastic is extremely
durable, has historically been less expensive, possesses greater strength,
will serve for a much longer term of service and, when its life is finally
over, can itself be recycled.
In July, 1997, the Company, Fixcor and Palletech, as borrowers,
secured financing from Gordon Brothers Capital Corp., in the form of a
$3,500,000 line of credit, intended to finance the acquisition of equipment
for use in the operations of Palletech. Like the facility from NationsCredit
Commercial Corporation, this facility is secured by substantially all of the
assets of the Company and its subsidiaries. The two lenders have entered
into an Intercreditor Agreement with respect to their respective security
interests. Mr. Fixler is the guarantor of this line of credit in an amount
up to $1,000,000.
LEVERAGE
As discussed above, the Company is significantly leveraged. It has
entered into security agreements with two lenders which substantially
encumber all of the Company's assets. The Company's future operating
performance and ability to service or refinance its indebtedness will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond its control, and consequently the Company
may be unable to service all of its debt in the future. There can be no
assurance that the Company's future operating performance will be sufficient
to service such indebtedness or that the Company will be able to refinance
its indebtedness in whole or in part.
The degree to which the Company is leveraged can have significant
effects on the Company, including the following: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may
be limited; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of the principal of and interest
on its existing indebtedness, thereby reducing funds available for
operations; (iii) the agreements governing the Company's indebtedness and
convertible debentures contain certain restrictive covenants. The Company's
ability to make scheduled payments of the principal of, or interest on, or to
refinance, its indebtedness will depend on its future operating performance
and cash flow, which are subject to prevailing economic conditions, primarily
interest rate levels and financial, competitive, business and other factors,
many of which are beyond its control.
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CUSTOMERS
Fixcor ships the resin it produces to its customers by rail and
truck. The resin is used by Fixcor's customers for manufacturing plastic
pipe and for containers for household cleaners such as laundry detergent and
bleach (but not for containers of items for human consumption). Generally,
in manufacturing the plastic containers from the resin, customers mix the
resin with other materials, but do not do so in the manufacturing of plastic
pipe.
Fixcor's accounts payable, as well as its accounts receivable, are
generally due within 35 days of invoice. The Company believes that this is
consistent with industry practice. Fixcor's operations and budget account
for the delay between paying for the raw materials and being paid for the
resin produced. Again, the Company believes that this is consistent with
industry practice.
No customer of Fixcor purchases 30% or more of Fixcor's production.
The one customer that approaches purchasing 30% of the production is H.
Muehlstein & Co., to whom Fixcor sells resin for further distribution. No
other customer purchases more than 10% of Fixcor's production. The Company
believes that Palletech's operations will be commenced before the end of
fiscal year 1997 and will be fully operational during the first quarter of
fiscal year 1998. At that time, the Company expects Palletech to use
approximately 25% of Fixcor's output.
Management expects that the customers of Palletech will be
closed-loop warehouses and distribution centers, such as large retailers who
are directly involved in much of the manufacturing, warehousing and retail
distribution of their products. Palletech has not yet entered into agreements
for the sale of its products. The Company expects to ship Palletech's
products through traditional rail and truck channels.
RAW MATERIALS
Polyethylene constitutes the principal raw material used in the
recycling of plastic processed by the Company's subsidiaries. This raw
material must be sorted and baled before it can be utilized. Generally,
there has been no problem obtaining sorted and baled HDPE raw materials,
which are available from a wide variety of suppliers, including but not
limited to major waste haulers and landfills. Costs for these raw materials
used by Fixcor tend to fluctuate with various economic factors which
generally affect the Company and its competitors. The availability of raw
materials was adequate in 1996 and 1997 and management expects it to remain
adequate throughout the remainder of 1997 and 1998. The Company believes
that there is adequate inventory of raw materials to meet Fixcor's production
requirements, and that its practices are consistent with industry norms.
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PATENTS, TRADEMARKS AND LICENSES
Palletech has entered into a Licensing and Marketing Agreement with
Nitro Plastics Technologies of Israel, a copy of which is attached to this
Registration Statement. Under that agreement, Palletech is the sub-licensee
of certain proprietary injection molding technology for the manufacturing of
plastic pallets and other products from recycled plastic. The Company
believes that otherwise it and its subsidiaries have all rights necessary to
carry on their operations. In particular, in connection with the acquisition
of the Facility from Quantum, the Company purchased equipment and other
tangible assets that it believes are necessary for Fixcor's operations. The
Company is not the holder of any letters patent, trademark or copyright
registrations, and has not applied for any of the foregoing.
CALIFORNIA GRANT AND ALLIED SIGNAL AGREEMENT
In June, 1997, the Company was awarded a $256,868 research grant
from the Integrated Waste Management Board of the State of California to
develop a solution to the problems associated with non-recyclable HDPE motor
oil containers, which have historically been sent to landfills. The solution
will involve the separation of the remaining oil from the "empty" container,
and then the recycling of the HDPE container and the separate recycling of
the remaining oil. To do this, in September, 1997, Fixcor entered into a
license agreement with The Federal Manufacturing & Technologies business unit
of AlliedSignal Inc. ("AlliedSignal") under which AlliedSignal licenses to
Fixcor certain technology and Fixcor pays a license fee and ongoing royalties
based principally on sales of products sold arising out of use of the
licensed technology. A copy of the license agreement between Fixcor and
AlliedSignal is attached to this Registration Statement.
The Company has not spent significant amounts on research and
development in the past and, except for the grant from the State of
California, does not expect its research and development budget in the future
to be material.
EMPLOYMENT AGREEMENTS
Mr. Fixler has entered into a written employment agreement with the
Company with a term of three years commencing January 1, 1997 and Gary
M. DeLaurentiis has entered into an employment agreement with the Company
with a term of five years commencing January 1, 1997. See Part I,
Item 6, "Executive Compensation." No other employees have written employment
or collective bargaining agreements with the Company or any of its
subsidiaries. A copy of each employment agreement is attached to this
Registration Statement.
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COMPETITION
Fixcor sells a commodity (recycled HDPE plastic) in a commodity
market. As is true with all commodity markets, this market is highly
competitive, although Fixcor has experienced no difficulty in running at full
capacity and selling its full production. Nevertheless, many of its
competitors are considerably larger than the Company and have substantially
greater financial and other resources than the Company, while others are
significantly smaller with lower fixed costs and greater operating
flexibility. The Company has approximately 15 competitors. With the
addition of Palletech's operations and production of an end product, the
Company expects to be less dependent on the market for the plastic resin that
Fixcor produces.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The business operations of the Company and the ownership and
operations of real property by the Company are subject to extensive and
changing federal, state, local and foreign environmental laws and regulations
pertaining to the discharge of materials into the environment, the handling
and disposition of wastes (including solid and hazardous wastes) or otherwise
relating to the protection of the environment. As is the case with
manufacturers in general, if a release of hazardous substances occurs on or
from the Company's properties or any associated offsite disposal location, or
if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable. From time to time, the Company
is involved in inquiries relating to compliance with environmental laws,
permits and other environmental matters. In the future, the Company may be
identified as a potentially responsible party and be subject to liability
under applicable law. No assurances can be given that additional
environmental issues will not require future expenditures.
The plastics industry, in general, and the Company also are subject
to existing and potential federal, state, local and foreign legislation
designed to reduce solid wastes by requiring, among other things, plastics to
be degradable in landfills, minimum levels of recycled content, various
recycling requirements, disposal fees and limits on the use of plastic
products. In addition, various consumer and special interest groups have
lobbied from time to time for the implementation of these and other such
similar measures. Although the Company believes that the legislation
promulgated to date and such initiatives to date have not had a material
adverse effect on the Company, there can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on the Company.
Fixcor's current expenses for compliance with environmental laws and
regulations is approximately $300,000 per year, primarily the cost of water
treatment. Two environmental "Phase I" examinations were done in connection
with the purchase of the Facility and the reports from those examinations did
not reveal any contamination.
Fixcor has made no material capital expenditures, and expects to
make none, for environmental control facilities in connection with the
recently installed third operating line, and Palletech expects to make none
in connection with its operations, at the Facility.
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The United States Food and Drug Administration (the "FDA") regulates
the content of direct-contact food containers and packages, including
containers and packages made from recycled plastics and paper products. The
FDA currently limits the amount of recycled materials that can be used in
such containers and packages.
EMPLOYEES
As of November 10, 1997, the Company and its subsidiaries had a
total of 75 employees, all of whom were full-time employees. Of these,
Fixcor had 65 production personnel and a support staff of five at the
Facility. The Company had another five employees at its headquarters office
in Beachwood. The Company has no collective bargaining agreement with its
employees and no union represents them. There have been no interruptions or
curtailments of operations due to labor disputes and the Company believes
that relations with its and its subsidiaries' employees are good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
DEVELOPMENT STAGE ACTIVITIES
In December, 1996, the Company formed Fixcor, a wholly-owned
subsidiary. This entity acquired the Facility, a stand-alone post-consumer
plastic recycling operation. The acquisition significantly changed the focus
of the Company from corporate awards jewelry marketing and financing to the
manufacturing of plastic resin.
With this acquisition, the Company's business plan may be divided
into four phases based upon the services performed, the products produced,
and the products and services to be performed and produced.
PHASE 1
This phase of the business plan relates to the source of the
Company's revenues prior to acquisition of the Facility now owned and
operated by Fixcor. The sources of these revenues were corporate awards
jewelry marketing and the extension of financing to small businesses
collateralized by purchase orders.
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PHASE 2
With the acquisition of the Facility in Heath, Ohio, the Company,
through its wholly-owned subsidiary, became the owner and operator of a
stand-alone post-consumer plastic recycling operation. This operation
contains three operating lines. The first became operational January 8,
1997, the second March 4, 1997, and the third October 22, 1997. Since the
acquisition of this Facility, the corporate awards jewelry marketing and the
financing of purchase orders has become an immaterial portion of the revenues
and operations of the Company. Funding of the Facility acquisition was made
by obtaining bridge financing in the amount of $2.5 million from Gordon
Brothers Capital Corp., and the issuance of 6,521,740 restricted common
shares of the Company. The bridge financing was secured by a mortgage on the
Facility, and a security interest in all inventory, accounts receivables and
contracts with customers, and a personal guarantee of Mr. Fixler. On May 14,
1997, the Company replaced this bridge financing with permanent financing
from NationsCredit Commercial Corporation for up to $7,000,000. This
financing consisted of a security agreement on all of Fixcor's assets, and a
credit line based upon a percentage of inventory and accounts receivable.
See Part I, Item 1, "DESCRIPTION OF BUSINESS; THE COMPANY; ACQUISITION OF THE
FACILITY."
PHASE 3
On July 7, 1997, the Company formed another wholly-owned subsidiary,
Palletech. The purpose of this subsidiary is to specialize in the production
of plastic pallets. Palletech, Inc., has ordered a specialized,
state-of-the-art, injection molding machine which will transform resin
pellets, produced by Fixcor, into plastic pallets. Management expects to
install this equipment during December, 1997 and to have it operating at full
capacity by February, 1998. The Company conservatively estimates that
Palletech revenues for 1998 will be $13.0 million.
Bridge financing for this equipment has been secured from Gordon
Brothers Capital Corp. Management is currently reviewing proposals from
financial institutions for the source of financing that will permanently
provide funds for the acquisition of the equipment and working capital. See
Part I, Item 1, "DESCRIPTION OF BUSINESS; THE COMPANY; CALIFORNIA GRANT AND
ALLIEDSIGNAL AGREEMENT."
PHASE 4
During September, 1997, the Company's wholly-owned subsidiary, Fixcor
entered into an agreement with AlliedSignal. Under the licensing agreement,
Fixcor is entitled to utilize technology owned by Allied in the recovery of
oil and plastic from shredded motor oil containers. This process produces two
useable products from a previous waste stream. The Company expects to
commence these operations during fiscal year 1998. The agreement requires
Fixcor to pay royalties to Allied based upon the volume of recycling
performed by Fixcor under these licenses.
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RESULTS OF OPERATIONS--FOR THE YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO
SEPTEMBER 30, 1997
Substantially all revenues for fiscal year 1996 were from corporate
awards jewelry marketing and financing of purchase orders. The Company had no
revenues for this period from the Fixcor or the Palletech operations.
Revenues for the twelve months in fiscal year 1996 from the purchase order
financing were $510,779 versus $191,795 for the nine months ended September
30, 1997, an annualized decrease of approximately 50 percent. The 1997
revenue represents the funds the Company had available for these purposes
before startup of the Fixcor operations. As the year has continued, these
investments have declined due to the Company's emphasis on the operations at
the Fixcor Facility. For the year ended December 31, 1996 revenues from
merchandise sales were $232,824. For the nine months ended September 30,
1997 revenues from these sales were $187,964. On an annualized basis, this
represents a 7.6% percent increase in revenues. This increase is a result of
an increase in staffing and sales efforts in this area.
The revenues of Fixcor through the nine months ended September 30, 1997,
are $5,441,225. As previously noted, these revenues are not reflected in the
1996 net income since operations did not begin until 1997. Cost of goods sold
for these sales was $4,089,419 reflecting a gross profit of 24.8%.
General and administrative expenses for the year ended December 31, 1996,
were $454,632, compared with $1,523,379 for the nine months ended September 30,
1997. The increase reflects the operations of Fixcor for the period in
operation during fiscal year 1997 against the pre-Fixcor-operation year of 1996.
LIQUIDITY AND CAPITAL RESOURCES AS OF SEPTEMBER 30, 1997
The Company's cash balance increased by $2,174,002 to $2,398,541 from
December 31, 1996 to September 30, 1997 and working capital increased by
$4,473,009 to $11,706,800 from December 31, 1996 to September 30, 1997. The
increases are the result of three occurrences. First, funds were generated by
internal operations and formula borrowings on inventories (up to 55%) and
receivables (up to 85%)
The second source of funds was from the issuance of capital stock. During
the nine months ended September 30, 1997, 3,490,986 shares were issued resulting
in additional funds of $4,751,475. These monies were used to acquire additional
equipment and fund working capital needs in Fixcor's operations.
Management believes that the present cash balances and funding available
through the permanent financing and line of credit will be sufficient to meet
the needs of the Fixcor operations. However, additional funding may be
necessary with regard to the Palletech operations when they start up during
1998. Management is working with financial institutions to ensure that
sufficient monies are available to meet these needs, and it is believed that
those monies will be available. See the discussion of the "CONVERTIBLE
DEBENTURES" below.
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CONVERTIBLE DEBENTURES
On October 24, 1997, pursuant to a Convertible Debenture Purchase Agreement
the Company issued and sold in a private placement to two institutional
investors an aggregate $5,000,000 principal amount of convertible debentures
bearing interest at the rate of 6% per annum, payable quarterly in arrears, and
due October 24, 2000. The Company expects to use the net proceeds of the
transactions primarily for such things as the acquisition of equipment for the
start-up and expansion of Palletech and Fixcor operations. The principal amount
of the debentures, together with any accrued and unpaid interest thereon, are
convertible at any time into shares of Common Stock at a conversion price equal
to the lesser of (i) $3.91 (110% of the average closing bid price for the 5
trading days preceding closing), or (ii) 85% of the average of the 5 lowest
closing bid prices during the 10 trading days preceding conversion. Except in
limited circumstances, the conversion rights are subject to an aggregate limit
of 4.9% of the Company's outstanding Common Stock.
The purchasers also received warrants to purchase an aggregate 331,400
shares of Common Stock at an exercise price equal to $3.91 per share. The
warrants are exercisable at any time through October 24, 2000. The Company
has reserved authorized shares of Common Stock sufficient to cover conversion
of debentures (and payment of interest thereon in shares of Common Stock) and
the exercise of the warrants, and is required to effect and maintain for
three years a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales by the holders of such shares
following conversion of debentures (and payment of interest thereon in shares
of Common Stock) and exercise of warrants.
The debenture transaction documents include additional representations,
warranties, covenants and default provisions not atypical for such
financings. The principal debenture transaction documents are attached to
this Registration Statement.
ITEM 3. DESCRIPTION OF PROPERTY
The Facility is located in an industrial park which is about three miles
from Interstate 70 and two miles from U.S. Highway 40, within the city limits of
Heath (Licking County), Ohio. The closest metropolitan area is Columbus, Ohio,
about 30 miles away. There is vacant land to the north which has been zoned for
additional industrial buildings. The site is approximately 10 acres.
The Facility was constructed in 1991 and includes 48,000 square feet of
space for manufacturing and an additional 1,643 square feet for a finished
office area. In connection with the third operating line, Fixcor put into
service 7,000 of these 48,000 square feet. There is also a concrete slab in
the rear with a portion of it covered by a canopy. The site is served by a
railroad spur to the south.
Fixcor holds the title to the real estate and real estate improvements
constituting the Facility. To secure its permanent financing, Fixcor granted
the lender a continuing security interest in all of Fixcor's property,
including the Facility.
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The book value of the Facility represented more than 10% of the total
assets of the Company as of the end of fiscal year 1996. Currently, the only
planned material renovation, improvement or further development of the
Facility is the installation of equipment related to Palletech operations.
The estimated cost of this improvement is approximately $4,000,000, and the
Company is examining several options to finance this cost, including but not
limited to a lease arrangement or using certain of the proceeds of the
convertible debentures. The Company believes that the value of the real
estate and improvements at the Facility are subject to general economic
conditions. In the opinion of management, the Facility is adequately covered
by insurance. The Company has no current plans to lease out any portion of
the Facility. With respect to each component of the Facility upon which
depreciation is taken, the following table sets forth the projected federal
tax basis, life claimed and method for purposes of depreciation.
BASIS LIFE CLAIMED METHOD
Building $2,000,000 39 years Straight-line
Equipment $12,500,000 7 years MACRS
The projected realty tax rate on the Facility is $51.90 per $1,000 of
valuation. The land is valued at $87,500. The gross annual real estate tax
is approximately $4,500 per year which is reduced by rebates to a net amount
of approximately $3,300.
The Company leases 1,200 sq. ft. of office space at 27040 Cedar Road,
Suite 218, Beachwood, Ohio 44122 at a lease rate of $900 per month. The
lease has a term of one year commencing January 1, 1997. Beachwood is a
suburb of Cleveland, Ohio.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
principal stockholders, defined as parties that own five percent or more of the
common stock, as of November 10, 1997.
COMMON STOCK
Amount and
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Owner Percent of Class
Mark Fixler 10,244,067* 30.0%
27040 Cedar Road
Suite 218
Beachwood, Ohio 44122
- -----------------------------
* Includes 4,000,000 shares which are subject to options granted by the
Company to Mr. Fixler, which are exercisable during the term of his current
employment agreement with the Company.
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The following table sets forth information with respect to the beneficial
ownership of the Common Stock by the Directors of the Company and the Directors
and officers of the Company as a group.
COMMON STOCK
Amount and
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Owner Percent of Class
Mark Fixler 10,244,067* 30.0%
27040 Cedar Road
Suite 218
Beachwood, Ohio 44122
All Directors and
Officers as a Group 10,368,067* 30.4%
* Includes 4,000,000 shares which are subject to options granted by the
Company to Mr. Fixler, which are exercisable during the term of his current
employment agreement with the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MARK FIXLER, 41, is the Company's Chief Executive Officer and President
and the Chairman of its Board of Directors. Prior to founding Fix-Corp
International, Inc., Mr. Fixler served as President of several retail
businesses chiefly engaged in the jewelry business. He was President of
Richard's Jewelers, Inc. from November, 1989 until October, 1994. From
October, 1994 to October, 1995 Mr. Fixler was President of Fix-Corp
International, Inc., an Ohio corporation and a predecessor of the Company.
He is currently Council President of his home community, Mayfield Village.
See Part I, Item 6, "EXECUTIVE COMPENSATION."
GARY M. DELAURENTIIS, 53, is the President of Fixcor and a Vice
President of the Company. Mr. DeLaurentiis joined the Company after it
acquired the Facility. Mr. DeLaurentiis has 21 years of management
experience and 10 years of experience in the plastic resin industry. Prior
to joining the Company, he operated his own consulting firm, GMD &
Associates, from June, 1995 to December, 1996. Prior to being a consultant,
from 1991 to June, 1995, Mr. DeLaurentiis developed another start-up company
in the plastic resin field, ANEW Corporation, which was subsequently sold.
Mr. DeLaurentiis also negotiated with the Chinese government to develop a
plastic recycling plant as part of a pilot project in a Free Trade Zone of
Southern China. This occurred when he was employed by RPX Resins, Inc.,
another firm which he founded and managed from 1987 to 1992.
BOARD OF DIRECTORS
The Board of Directors is composed of three individuals, Mr. Fixler, Mr.
DeLaurentiis and Lawrence Schmelzer. A brief biography of Mr. Schmelzer
follows. Each of the directors is serving a one-year term expiring at the
annual meeting of the Company's stockholders in 1998.
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LAWRENCE C. SCHMELZER, 61, is the Chairman of 1st Cleveland Securities,
Inc., a full service brokerage firm in Cleveland, Ohio, and has held that
position since 1991. He is a graduate of the Wharton School of Finance and
he has also studied at the New York Institute of Finance, the London School
of Economics and New York University. Mr. Schmelzer has been active in the
securities industry since 1959, with experience in venture capital funding,
portfolio management, mergers and acquisitions. Through family partnership,
he is also active in commercial real estate investment and management.
None of the directors currently receives compensation from the Company
for his service in such capacity.
DEPENDENCE ON MANAGEMENT
The Company's success is principally dependent on its current management
personnel for the operation of its business. In particular, Mr. Fixler, its
President and Chief Executive Officer and Chairman of its Board of Directors,
has played a significant role in the development and management of the
Company. There is no assurance that additional managerial assistance will not
be required. The Company has entered into an employment agreement with each
of Mr. Fixler and Mr. DeLaurentiis. If the Company should lose the services
of either Mr. Fixler or Mr. DeLaurentiis, the Company may be significantly
affected.
ITEM 6. EXECUTIVE COMPENSATION
Mr. Fixler is party to a three year employment contract with the Company
dated January 1, 1997. Under this agreement, the Company pays him a salary
of $200,000 during the first year, $250,000 during the second year and
$300,000 during the final year. In addition, Mr. Fixler receives a car
allowance and reasonable car phone expenses, plus other benefits customarily
given to executive officers. Under this agreement, Mr. Fixler is also
granted an option to purchase 4,000,000 shares of common stock of the Company
at a fixed price of $.50 per share and this option may be exercised at any
time during the employment period. Finally, in the event of a consolidation
or purchase of assets to another company or termination of employment for any
other reason, Mr. Fixler is entitled to a $2,000,000 severance benefit.
Prior to 1997, Mr. Fixler was not subject to a written employment agreement
with the Company. He was paid a salary of $119,000 in 1996 and $64,000 in
1995.
Mr. DeLaurentiis is party to a five year employment contract with the
Company dated January 1, 1997. Under this agreement, the Company pays him a
salary of $125,000 per year. He is also eligible for annual bonuses subject
to the approval of the Board of Directors of the Company. In addition, Mr.
DeLaurentiis receives a car allowance and other benefits customarily given to
executive officers. He is President of Fixcor and Vice President of the
Company. He was not employed by the Company or Fixcor during fiscal year
1996.
The Company currently has no stock appreciation rights, long-term
incentive, stock option plans or similar benefit plans for its executives or
other employees.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, the Company loaned to Fix-Sports, Inc., a company partially
owned by Mr. Fixler $26,000. This note bears interest at 10% per year and is
collateralized by 52,000 shares of the Company's Common Stock. Otherwise, no
director, officer, promoter or control person is, or has been, in debt to the
Company. Mr. Fixler has guaranteed certain bridge and permanent financing of
the Company.
Upon consummation of the purchase of the Facility and prior to the
securing of permanent financing, the Company entered into a formal
Acquisition Agreement (the "Acquisition Agreement") under which the Company
conveyed the Facility to Fixcor in connection with its original subscription
to all of the shares of common stock of Fixcor. Mr. Fixler was also a party
to this Acquisition Agreement. Before the Company acquired the Facility
under the Quantum Agreement, he had an option to purchase the Facility. He
elected to forego that opportunity and to allow the Company to make the
acquisition. In addition, he personally guaranteed the bridge financing for
the purchase of the Facility, and the Company issued to him 6,521,740 shares
of Common Stock (valued at $6,000,000 or $.92 per share), all of which were
restricted shares. Mr. Fixler also has guaranteed up to $1,000,000 of the
July, 1997 financing from Gordon Brothers Capital Corp.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock with a par value of $0.001 per share, and 2,000,000
shares of Preferred Stock with a par value of $0.001 per share.
COMMON STOCK
30,053,289 shares of Common Stock were issued and outstanding as of
November 10, 1997.
Holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common
Stock carries no conversion rights and is not subject to redemption or to any
sinking fund provisions. All shares of Common Stock are entitled to share
equally in dividends from sources legally available therefor when, as and if
declared by the Board of Directors and, upon liquidation or dissolution of
the Company, whether voluntary or involuntary, to share equally in the assets
of the Company available for distribution to stockholders. The Board of
Directors is authorized to issue additional shares of Common Stock on such
terms and conditions and for such consideration as the Board may deem
appropriate without further stockholder action. Reference is made to the
Company's Amended and Restated Certificate of Incorporation and Bylaws which
are attached as exhibits to this Registration Statement, as well as to the
applicable statutes of the State of Delaware for a more complete description
concerning the rights and liabilities of stockholders.
Each holder of Common Stock is entitled to one vote per share, either in
person or by proxy, on all matters that may be voted on by the owners thereof
at meetings of the stockholders. Since the shares of Common Stock do not
have cumulative voting rights, the holders of more than 50% of the shares
voting for the election of directors can elect all the directors
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and, in such event, the holders of the remaining shares will not be able to
elect any person to the Board of Directors. At its last annual meeting, the
stockholders approved a provision whereby a quorum shall be deemed present
for the conduct of business at either an annual meeting of the stockholders
or at a special meeting of the stockholders with only one-third of the
outstanding shares represented, either in person or through proxy.
PREFERRED STOCK
No shares of preferred stock of the Company (the "Preferred Stock") were
issued and outstanding as of October 1, 1997. Shares of Preferred
Stock were issued during the second and third quarters of fiscal year 1997,
but all have been converted to Common Stock by the holders thereof.
Subject to the Company's Amended and Restated Certificate of
Incorporation and the Delaware General Corporation Law, the terms of one or
more classes or series of Preferred Stock, including dividend rights,
conversion prices, voting rights, redemption prices and similar matters will
be determined by the Board of Directors.
TRANSFER AGENT
The registrar and transfer agent for the Common Stock is CDR Transfer
Inc., located at 412 Main Street, Old Saybrook, Connecticut 06475.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded over-the-counter ("OTC") on the
Electronic Bulletin Board (the "Bulletin Board") maintained by the National
Association of Securities Dealers ("NASD") under the Symbol "FIXC."
As of November 10, 1997, 30,058,289 shares of Common Stock were issued
and outstanding, and there were approximately 300 record holders of Common
Stock. As of that date, no shares of Preferred Stock were issued and
outstanding. (See Part I, Item 8, "Description of Securities.") Mr. Fixler
holds certain options to purchase shares of Common Stock under his employment
agreement with the Company. (See Part I, Item 6, "EXECUTIVE COMPENSATION.")
The following table sets forth the range of high and low sales prices
for the Common Stock on the OTC Bulletin Board for each quarter for the
fiscal year 1996 and the first three quarters of 1997.
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Quarter Ending High Low
9/30/97 4-1/4 1-3/8
6/30/97 3/4 1/2
3/31/97 7/8 1/2
12/31/96 15/16 7/16
9/30/96 13/16 5/8
6/30/96 1-9/16 11/16
3/31/96 1-1/2 13/16
The source of this information is America Online quotation services.
These prices reflect inter-dealer prices, without retail markup, mark-down or
commission and may not represent actual transactions.
RESTRICTED SECURITIES
A significant portion of the Company's Common Stock is held by insiders
and persons who acquired shares in private offerings. These are "restricted
securities," as that term is defined in Rule 144 promulgated under the
Securities Act. In general, Rule 144 provides that, during any three-month
period, each person holding restricted securities can sell an amount of such
securities equal to the greater of (a) 1% of the number of outstanding
shares, or (b) the average weekly reported trading volume of those securities
during the preceding four calendar week period, provided that certain
conditions are met. One of these conditions is that the stock must be
purchased for investment purposes and held for a minimum period of one year,
and in some instances even longer. Sales of these restricted securities
under Rule 144 or otherwise by current stockholders of the Company could have
a depressive effect on any trading market for Common Stock. No predictions
can be made of the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of the Common Stock
of the Company in the public market may adversely affect market prices, and
may impair the Company's ability to raise capital at that time through
additional sale of its equity securities.
NO DIVIDENDS
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The Company has not declared or paid any dividends on its Common Stock
and there is no assurance that the Company will pay dividends in the future.
The Company currently intends to retain future earnings to fund the
development and growth of its businesses, to repay indebtedness and for
general corporate purposes, and, therefore, does not anticipate paying any
cash dividends in the foreseeable future. Any future determination to
declare and pay dividends will be made by the Board of Directors of the
Company in light of the Company's earnings, financial position, capital
requirements, credit agreements and such other factors as the Board of
Directors deems relevant. Any decision to pay dividends is subject to
Delaware law, under which the Company is permitted to pay cash dividends to
the Company only (i) out of the Company's capital surplus (the excess of net
assets over stated capital) or (ii) out of the net income of the Company for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year.
SECONDARY TRADING RESTRICTIONS
The Common Stock is governed by a Securities and Exchange Commission
rule for "penny stocks" (defined as stocks that cost $5.00 or less per share)
that imposes additional sales practice burdens and requirements upon
broker-dealers which sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000
or annual income exceeding $200,000 or $300,000 jointly with their spouse).
For transactions covered by this penny stock rule, broker-dealers must make a
special suitability determination for the unaccredited purchaser and receive
the purchaser's written agreement to the transaction prior to the sale.
Consequently, the penny stock rule may affect the ability of broker-dealers
to sell the Company's securities and also may affect the ability of persons
now owning or subsequently acquiring the Company's securities to resell such
securities in any trading market that may develop. Although the Company's
goal is to have its securities included in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), which would exempt
such securities from the above rule, there is no assurance that the Company
will meet the NASDAQ listing requirements.
PRICE VOLATILITY OF THE COMPANY'S SHARES
The Common Stock is traded on the NASD OTC Electronic Bulletin Board.
Because of the limited market for Bulletin Board stocks, even mild
expressions of interest may have a profound impact upon the stock's price on
any given day. Accordingly, Bulletin Board stock customarily experience above
average price fluctuations and volatility. Accordingly, the Company's common
stock should be expected to experience substantial price changes in short
periods of time, owing to the vagaries of the Bulletin Board exchange for
stocks. Even if the Company is performing according to its plan and there is
no legitimate financial component for this volatility, it must still be
expected that substantial percentage price swings will occur in these
securities for the foreseeable future, and percentage changes in stock
indices (such as the Dow Jones Industrial Average) could be magnified,
particularly in downward movements of the markets.
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ITEM 2. LEGAL PROCEEDINGS
The Company is from time to time made a party to legal proceedings
arising in the ordinary course of business. The Company does not believe
that the results of such legal proceedings, even if unfavorable to the
Company, will have a materially adverse impact on its financial condition or
the results of its operations.
The Company is a third party defendant in a lawsuit pending in the
Common Pleas Court of Cuyahoga County, Ohio, GLOBAL INVESTMENTS & ADVISORY
GROUP, INC. V. 3DM, LIMITED LIABILITY CO., ET AL. V. FIX-CORP INTERNATIONAL,
ET AL. This case arises out of the relationship between the Company and 3DM,
Limited Liability Co. ("3DM"), which the Company believes has been terminated
and settled, and the relationship between 3DM and Quantum. The latter
relationship was the subject of prior litigation in which the Company was
also joined as a third party defendant. The Company subsequently was
dismissed from this earlier litigation. 3DM did not bring any claim against
the Company in the prior litigation, and a default judgment was entered
against 3DM on the matter of its breach of its agreement with Quantum. The
Company does not believe that the pending litigation involving 3DM will have
a material adverse affect on the Company or its operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company did not engage an independent accountant until during fiscal
year 1997, when it engaged Harmon & Company, CPA, Inc., Columbus, Ohio,
generally, and in particular for purposes of preparing the Financial
Statements included with this Registration Statement. The Company has had no
material disagreements with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In October, 1995, pursuant to the reorganization involving the Company
and following a reverse stock split and other transactions, the outstanding
shares of Common Stock of the Company were held as follows: 3,600,000
restricted shares held by Mr. Fixler, 204,020 restricted shares held by an
affiliate and consultant of the Company's predecessor, and 195,980 shares
held by the public shareholders of the Company's predecessor.
In April, 1997, pursuant to the Acquisition Agreement, the Company
issued to Mr. Fixler 6,521,740 shares of Common Stock (at a value of $.92 per
share) in a transaction exempt from registration under Section 4(2) of the
Securities Act. During the period November, 1995 through August, 1997, the
Company issued, in other private placement transactions exempt from
registration under Section 4(2) of the Securities Act, additional shares of
Common Stock at prices ranging from $.35 per share to $1.00 per share.
During the period November, 1995 through March, 1996, pursuant to Rule
504 of Regulation D, the Company offered and sold 2,000,000 shares of Common
Stock at $.50 per
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share. During the period November, 1996 through March, 1997, the Company,
pursuant to Rule 504 of Regulation D, offered and sold approximately
4,000,000 additional shares of Common Stock for an aggregate consideration of
$1,000,000.
In December, 1996 in connection with certain bridge financing, the
Company granted to Generation Capital Associates, a New York limited
partnership, warrants for the purchase of an aggregate of 100,000 shares of
Common Stock at an exercise price of $.65 per share.
In December, 1996 and July, 1997 in connection with debt financings from
Gordon Brothers Capital Corporation and pursuant to Section 4(2) of the
Securities Act, the Company granted to the lender warrants for the purchase
of an aggregate of 1,000,000 shares of Common Stock at an exercise price of
$1.25 per share, which the lender exercised in November, 1997. Certain
"piggyback" and other registration rights with respect to the warrant shares
were also granted to Gordon Brothers Capital Corporation.
From June, 1997 to October 1, 1997, pursuant to an offering under Rule
506 of Regulation D, the Company sold 1,925,000 shares of Preferred Stock at
$1.00 per share. Each share of Preferred Stock was convertible into one
share of Common Stock, and as of October 1, 1997 all of the Preferred Stock
had been converted into 1,925,000 shares of Common Stock. In addition,
holders of Preferred Stock were granted rights to acquire additional shares
of Common Stock at $1.00 per share, and 1,100,000 shares of Common Stock were
issued pursuant to exercise of such rights.
In October, 1997, pursuant to Rule 506 of Regulation D, the Company
issued to two institutional investors $5,000,000 aggregate principal amount
of 6% convertible debentures. The principal amount of the debentures,
together with any accrued and unpaid interest thereon, are convertible at any
time into shares of Common Stock at a conversion price equal to the lesser of
(i) $3.91 (110% of the average closing bid price for the 5 trading days
preceding closing), or (ii) 85% of the average of the 5 lowest closing bid
prices during the 10 trading days preceding conversion. The purchasers also
received warrants to purchase an aggregate 331,400 shares of Common Stock at
an exercise price equal to $3.91 per share. The warrants are exercisable at
any time through October 24, 2000.
The Company is subject to an administrative "cease and desist" order
(the "Order") issued in August, 1997 by the Ohio Division of Securities, and
relating to certain matters deemed to constitute violations of Ohio
securities laws, including unregistered sales of securities and false
representations in connection with a registration application. The Company
believes that such violations resulted principally from miscommunication
between the Company and its legal counsel at the time as to certain
information communicated to the Ohio Division of Securities in connection
with an application for registration by description filed in December, 1995
with respect to sales of the Company's common stock in Ohio. The Company
believes that it is in compliance with the Order.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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On May 16, 1997, at the Company's Annual Meeting, the stockholders
adopted Amended and Restated Certificate of Incorporation. Article X of
those Articles provides, in accordance with Section 145 of the General
Corporation Law of Delaware, that a director shall not be personally liable
to the Company or its stockholders for breach of duty or care or other duty
as a director, except for liability for acts not in good faith or which
involve intentional misconduct, or any transaction in which the director
derived an improper personal benefit or for any type of liability not
contemplated by Section 145 of the General Corporation Law of Delaware. As a
result of the Company's Certificate of Incorporation and Delaware law,
stockholders may have more limited rights to recover against directors for
breach of fiduciary duty than as compared to the standard of care imposed
upon a director in the state where the investor resides. In addition, to the
fullest extent permitted by Delaware law, the Company shall indemnify its
corporate officers. Section 145 of the General Corporation Law of Delaware
reads as follows:
Section 145 Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to
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the corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a present or future director or officer of
a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b)
of this section, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or future director or officer is proper
in the circumstances because the person has met the applicable standard
of conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made with respect to a person who is a director
or officer at the time of such determination (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) by committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any
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liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this section shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a corporation's
obligation to advance expenses (including attorneys' fees).
24
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIX-CORP INTERNATIONAL, INC.
By
-------------------------------------------
Mark Fixler, Chief Executive Officer and President
Date: November 13, 1997
---
25
<PAGE>
PART F/S
The Company's Financial Statements and Independent Auditor's Report for
the fiscal years ending December 31, 1996 and December 31, 1995, and
unaudited consolidated balance sheet and consolidated income statement and
statement of retained earnings for the nine month period ending September 30,
1997, are included.
____________________________
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
FINANCIAL STATEMENTS
&
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1996 & 1995
____________________________
_____________________________
HARMON & COMPANY, CPA, INC.
COLUMBUS, OHIO
_____________________________
<PAGE>
____________________________
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
____________________________
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 2
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . 7
</TABLE>
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS OF
FIX-CORP INTERNATIONAL, INC.
We have audited the accompanying Balance Sheets of Fix-Corp International,
Inc. as of December 31, 1996 and 1995 and the related statements of operations,
cash flow, and stockholders' equity for the years then ended. These financial
statements are the responsibility of the management of Fix-Corp International,
Inc. Our responsibility is to express an opinion on these financial statements
based on our audit.
We have 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 statements are free of material
misstatements. 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 1996 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of Fix-Corp
International, Inc. as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
_____________________________
HARMON & COMPANY, CPA, INC.
APRIL 16, 1997
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 224,539 $ 33,860
Investment in Marketable Securities 130,692 -0-
Trade Accounts Receivable, net 88,763 59,436
Purchase Order Financing Contracts 221,672 72,800
Inventory 96,002 -0-
------------ ------------
Total Current Assets 761,668 166,096
------------ ------------
PROPERTY, PLANT & EQUIPMENT
(at cost less accumulated depreciation and amortization)
Land & Land Held for Development 750,000 -0-
Buildings 2,000,000 -0-
Plant Equipment 6,642,000 -0-
Office Furniture & Fixtures 122,500 22,500
------------ ------------
9,514,500 22,500
Less Accumulated Depreciation and Amortization (6,428) (3,214)
------------ ------------
Total Property, Plant & Equipment 9,508,072 19,286
------------ ------------
DEFERRED INCOME TAXES 412,150 359,300
------------ ------------
OTHER ASSETS & DEFERRED CHARGES 212,226 75,826
------------ ------------
Total Assets $10,894,116 $ 620,508
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Secured Equipment Loan Payable $ 2,500,000 $ -0-
Bridge Financing Notes Payable 450,000 -0-
Notes Payable 598,000 500,000
Accounts Payable 68,008 113,183
Accrued Interest Payable 44,317 40,600
------------ ------------
Total Current Liabilities 3,660,325 653,783
------------ ------------
LONG-TERM DEBT
Notes Payable to Officers -0- 160,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 2,000,000 shares
authorized, -0- shares issued or outstanding - -
Common Stock, $.0001 par value, 100,000,000 shares
authorized, 7,106,056 and 20,974,024 issued and
outstanding in 1995 and 1996 2,097 711
Additional Paid in Capital 8,246,406 641,230
Unrealized Holding Loss on Investments (68,673) -0-
Retained Earnings (Deficit) (946,039) (835,216)
------------ ------------
Total Stockholders' Equity 7,233,791 (193,275)
------------ ------------
Total Liabilities and Stockholders' Equity $10,894,116 $ 620,508
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-3-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
REVENUE
Fees on Purchase Order Contract Financing $ 408,337 $ 530,629
Commission & Shared Finance Fees 102,442 133,123
Merchandise Sales 232,824 91,812
------------ ------------
Total Revenue 743,603 755,564
------------ ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS
Interest Expense, Contract Financing 250,822 398,087
Bad Debts -0- 962,471
Consulting Fees & Shared Commissions 42,939 135,180
Cost of Merchandise Sales, Including Freight 126,153 47,340
------------ ------------
Cost of Sales and Contract Financing Operations 419,914 1,543,078
------------ ------------
Gross Profit 323,689 (787,514)
------------ ------------
OPERATING EXPENSES
Salaries, Wages and Related Costs 277,317 114,447
Depreciation & Amortization 19,514 19,514
Legal & Professional, Including Consulting Fees 98,513 91,454
Other General & Administrative 96,038 71,564
Deferred Preoperating Plant Startup Costs (36,750) -0-
------------ ------------
Total Expenses 454,632 296,979
------------ ------------
Operating Income (Loss) (130,943) (1,084,493)
------------ ------------
OTHER INCOME (EXPENSE)
Interest Expense and Financing Costs, Other 32,730 30,149
------------ ------------
Net (Loss) Before Income Taxes (163,673) (1,114,642)
LESS PROVISION FOR DEFERRED INCOME TAXES
Federal (43,000) (292,500)
------------ ------------
State (9,850) (66,800)
------------ ------------
Total Deferred Income Taxes (52,850) (359,300)
------------ ------------
Net Loss $ (110,823) $ (755,342)
------------ ------------
Net Loss Per Common Share (0.008) (0.124)
------------ ------------
Weighted Average Common Shares Outstanding 14,040,040 6,084,546
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-4-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------ PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
----------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995, as originally reported 400,000 $ 40 $1,960 $(100) $ 1,900
Conversion of Notes Payable 250,000 25 124,975 125,000
Effect of Merger With Fix-Corp International, Inc.
(a Delaware corporation) 4,413,036 441 -0- (79,774) (79,333)
----------- -------- ---------- ---------- -------------
Balances at January 1, 1995, as restated 5,063,036 506 126,935 (79,874) 47,567
----------- -------- ---------- ---------- -------------
Private Placement of Common Stock, net of
issuance cost 1,249,000 125 461,875 462,000
Issuance of Common Stock for payment of
Professional Fees 599,020 60 149,940 150,000
Loss on Stock Subscriptions 195,000 20 (97,520) (97,500)
Net loss for the period (755,342) (755,342)
----------- -------- ---------- ---------- -------------
Balances at December 31, 1995 7,106,056 711 641,230 (835,216) (193,275)
----------- -------- ---------- ---------- -------------
Acquisition of Ohio Resources Recovery Plant 8,000,000 800 5,999,200 6,000,000
Private Placement of Common Stock, net of
issuance cost 4,267,968 426 1,605,976 1,606,402
Issuance of shares to secure bridge financing,
held in escrow subject to loan agreements 1,600,000 160 -0- 160
Net loss for the period (110,823) (110,823)
----------- -------- ---------- ---------- -------------
Balances at December 31, 1996 20,974,024 $2,097 $8,246,406 $(946,039) $7,302,464
----------- -------- ---------- ----------
Unrealized Holding Loss on Investments (68,673)
-------------
Total Stockholders' Equity $7,233,791
-------------
-------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-5-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (110,823) $ (755,342)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation & Amortization Expense 19,514 19,514
Investment in Marketable Securities (199,365) -0-
(Increase) Decrease in Trade Accounts Receivable (29,327) 3,064
(Increase) Decrease in Purchase Order Financing Contracts (148,872) 456,636
(Increase) in Inventory (96,002) -0-
(Increase) in Deferred Tax Asset (52,850) (359,300)
Increase (Decrease) in Accounts Payable (45,176) 31,659
Increase in Accrued Interest Payable 3,717 40,600
------------ ------------
Net Cash Provided (Used) by Operating Activities (659,184) (563,169)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Land & Land Held for Development (500,000) -0-
Purchase of Buildings (1,000,000) -0-
Purchase of Plant Equipment (1,992,000) -0-
Purchase of Office Furniture & Fixtures (100,000) (22,500)
Additions to Other Assets (152,700) (95,203)
------------ ------------
Net Cash Provided (Used) by Investing Activities (3,744,700) (117,703)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Stock 1,606,402 612,000
Proceeds from Secured Equipment Loan Payable 2,500,000 -0-
Proceeds from Bridge Financing Notes Payable 450,000 -0-
Proceeds from Notes Payable, net 198,161 36,777
Payments on long-term debt (160,000) (500)
------------ ------------
Net Cash Provided (Used) by Financing Activities 4,594,563 648,277
------------ ------------
Net Income Increase (Decrease) in Cash $190,679 $ (32,595)
------------ ------------
Cash at Beginning of Period $ 33,860 $ 66,454
------------ ------------
Cash at End of Period $ 224,539 $ 33,860
------------ ------------
SUPPLEMENTAL DISCLOSURES
INTEREST PAID, EXCLUDING PURCHASE ORDER CONTRACT FINANCING $ 32,730 $30,149
------------ ------------
ISSUANCE OF COMMON STOCK FOR:
Professional Fees & Services -0- 150,000
------------
Conversion of Notes Payable -0- 125,000
------------
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT, HEATH, OHIO FOR
COMMON STOCK AND ALLOCATED AS FOLLOWS:
Land & Land Held for Development 250,000 -0-
Buildings 1,000,000 -0-
Plant Equipment 4,650,000 -0-
Office Furniture & Fixtures 100,000 -0-
------------ ------------
6,000,000 -0-
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 & 1995
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Lifechoice, Inc. (Lifechoice) was incorporated on August 11, 1995 under
the laws of the State of Utah. On or about October 23, 1995, Fix-Corp
International, Inc. (Fix-Corp), a newly-formed Delaware corporation was
acquired by Lifechoice preparatory to a reverse merger in which Fix-Corp
assumed control over Lifechoice, a publicly traded company listed on the NASD
Bulletin Board. Lifechoice possessed no assets and no liabilities and was, in
effect, a shell corporation. The company assumed the name of Fix-Corp
International, Inc. and was redomiciled to Delaware.
Effective with the company's $9,400,000 acquisition of the Heath Resource
Recovery plant and manufacturing facility, more fully described in Note 4,
the Company's primary business will be plastic resin recycling. The Company's
business, therefor, consists of three (3) distinct segments: the recycling of
post consumer polyethylene and other plastic resins, merchandise or product
sales and purchase order contract financing. Prior to December 1996, the
Company was in the business of extending financing to small businesses,
collateralized by a Purchase Order issued by a reputable business. In effect,
the Company funds a portion of this Purchase Order in advance, then stands in
the place of its client, the Vendor, and becomes the owner of this Purchase
Order and its requisite proceeds.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these financial statements. The financial statements and
notes are the representation of the Company's Management, who is responsible
for their integrity and objectivity. The policies conform to generally
accepted accounting principles and have been consistently applied.
(A.) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B.) Effect of New Accounting Pronouncements
Effective in 1996, Fix-Corp adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under Statement No. 115, debt and marketable equity securities
are required to be classified in one of three categories: trading,
available-for-sale, or held to maturity. Fix-Corp's equity securities qualify
under the provisions of Statement No. 115 as available-for-sale. Such
securities are recorded at fair value, unrealized holding gains and losses,
net of the related tax effect, are not reflected in earnings but are reported
as a separate component of stockholders' equity until realized. A decline in
the market value of an available-for-sale security below cost that is deemed
other than temporary is charged to earnings and results in the establishment
of a new cost basis for the security.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that long-lived assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also
establishes the procedures for review of recoverability, and measurement of
impairment, if necessary, of long-lived assets. Fix-Corp, with the
acquisition of the Heath Resource Recovery plant, adopted SFAS No.121 and
determined that no impairment provision of the carrying cost of the plant was
necessary.
(C.) Allowance for Doubtful Accounts
It is the opinion of Management that all accounts receivable are
collectible, therefore an allowance for doubtful accounts is not necessary. The
Company incurred a bad debt of $962,471 charged against current operations in
1995.
-7-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(D.) Inventory
Inventory is stated at the lower of cost or market, using the First-in,
First-out, (FIFO), method of accounting, and consists of plastic recycled
products.
(E.) Property and Equipment
Property and equipment are stated at cost. Costs of maintenance and repairs
are charged to expense as incurred. Major improvements and renewals, in
general, are capitalized. Acquisitions to fixed assets are depreciated on the
straight-line method. The estimated useful lives used in computing depreciation
are as follows:
DESCRIPTION LIFE IN YEARS
- -------------------------------------------------------------------------------
Buildings 10-25 Years
Plant Machinery and Equipment 5-10 Years
Office Furniture and Fixtures 5-7 Years
Depreciation charged against operations for the years ended December 31,
1995 and 1996 were $3,214 and $3,214, respectively.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that long-lived assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also
establishes the procedures for review of recoverability, and measurement of
impairment, if necessary, of long-lived assets. Fix-Corp, with the
acquisition of the Heath Resource Recovery plant, adopted SFAS No.121 and
determined that no impairment provision of the carrying cost of the plant was
necessary.
(F.) Organizational Costs
Organizational costs are being amortized over a period of 60 months and is
presented net of accumulated amortization of $16,300 and $32,600 in 1995 and
1996, respectively. Amortization expense charged against operations for the
years ended December 31, 1995 and 1996 $16,300 and $16,300, respectively.
(G.) Investment in Life Insurance
In December 1995, the Company obtained certain life insurance policies on
the life of an unrelated third party as partial settlement for certain factored
purchase order financing contracts. At December 31, 1995 and 1996, the
investments in the policies was $9,676 and $9,676 respectively, with no policy
loans thereon. The ongoing policy premiums are paid out of the cash surrender
value of the policies. life insurance expense of $-0- and $-0- in 1995 and 1996
respectively, was included in other expense.
(H.) Deferred Taxes and Income Taxes
During 1995 and effective with the reverse merger, more fully described in
Notes 1 and 4, the Company adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and all years presented reflect the adoption of
this method. The Company has restated 1995 financial statements for comparative
purposes. The effect of this restatement is the recording of a deferred tax
asset of $359,300, net of a valuation allowance of $120,000, which arises solely
from the estimated future benefit of the net operating loss carry-forward of
approximately $1,114,000. The effect of this restatement was to reduce the net
loss for the year ended December 31, 1995 by $359,300 and to reduce the net
loss per common share by $.059 per share.
In prior years, the Company had elected to be taxed under Subchapter S of
the Internal Revenue Code. Effective with reverse merger and reincorporation
this election was discontinued and all adjustments, which were minor in nature
were included as a capital adjustment "Effect of Merger with Fix-Corp
International, Inc." in the Statement of Stockholders' Equity.
-8-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(I.) Revenue Recognition
Revenue from merchandise sales is generally recognized upon shipment,
provided that no significant vendor obligations remain and collection of the
resulting receivable is deemed probable. Fees on purchase order contract
financing, commissions and shared finance fees are recognized upon finalization
and collection of the related financing project.
(J.) Loss per Common Share
As of December 31, 1995 and 1996, loss per common share and common share
equivalent were computed by dividing the net loss by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year.
NOTE 3 - INVESTMENT IN MARKETABLE SECURITIES
Effective in 1996, the Fix-Corp adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under Statement No. 115, debt and marketable equity securities
are required to be classified in one of three categories: trading,
available-for-sale, or held to maturity. Fix-Corp's equity securities qualify
under the provisions of Statement No. 115 as available-for-sale. Such
securities are recorded at fair value, unrealized holding gains and losses,
net of the related tax effect, are not reflected in earnings but are reported
as a separate component of stockholders' equity until realized. A decline in
the market value of an available-for-sale security below cost that is deemed
other than temporary is charged to earnings and results in the establishment
of a new cost basis for the security. During 1996 an $68,673 unrealized
holding loss on investments was charged directly to capital.
NOTE 4 - PLANT PURCHASE AND SALE AGREEMENT
On December 16, 1996 the Company acquired, subject to a certain Purchase
and Sale Agreement, a plant in Central Ohio, hereinafter referred to as the
"Resource Recovery" plant. The assets consist of a post-consumer plastic
recycling operation involving two parallel recycling lines under a single roofed
structure on its own plot of ground with a permanent easement for ingress and
egress to an adjoining railroad spur and truck scale and various other support
equipment permitting this business to function as an independent entity. The
purchase price, and allocation thereof, is summarized as follows:
AMOUNT
- -------------------------------------------------------------------------------
Land & Land Held for Development $750,000
Buildings 2,000,000
Plant Equipment 6,550,000
Office Furniture & Fixtures 100,000
---------
Total Purchase Price $9,400,000
---------
---------
As more fully described in Note 7, included in the acquisition of the
Resource Recovery plant was a Track Lease Agreement for 200' of railroad siding
(including land) for the sole purpose of the storage of railroad cars owned,
leased or consigned to the Company. The term of the lease is for a period of ten
(10) years beginning August 14, 1996 and expiring August 14, 2006, with an
option for an additional ten (10) years expiring August 14, 2016. Annual
rentals, paid in advance, are $1,000 per year. The price was paid as follows
AMOUNT
- -------------------------------------------------------------------------------
CASH $900,000
SECURED EQUIPMENT LOAN 2,500,000
COMMON STOCK (8,000,000 RESTRICTED SHARES) 6,000,000
---------
TOTAL PAYMENTS $9,400,000
---------
---------
-9-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At closing, the Company received a general warranty deed (fee simple
title) for the ground and its improvements (i.e. the physical plant), and a
bill of sale for the remainder of the assets. The seller extended no express
or implied warranties for the equipment transferred and disclaimed any
implied warranty of merchantability and implied warranty of fitness for a
particular purpose. The seller did stipulate however, that the plant was not
subject to any contract or agreement with any labor union or linked to any
collective bargaining agreement, and that the plant was not subject to any
employee benefit or retirement programs. In addition, the seller agreed to
provide personnel to consult with Fix-Corp for up to one year and assist in
re-starting the facility. In addition, all blueprints, customer lists,
drawings and equipment specifications were made available.
NOTE 5 - OTHER ASSETS AND DEFERRED CHARGES
<TABLE>
<CAPTION>
OTHER ASSETS AND DEFERRED CHARGES CONSIST OF THE FOLLOWING: 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Note Receivable from Affiliated Company $ 26,000 $ -0-
Disputed Finance Deposit Claim 90,000 -0-
Deferred Preoperating Plant Startup Costs 36,750 -0-
Organizational Costs 48,900 65,200
Investment in Life Insurance 9,676 9,676
Deposits 900 950
--------- -------
$212,226 $75,826
--------- -------
--------- -------
</TABLE>
The note receivable from affiliated company results from a loan to
Fix-Sports, Inc., a company partially owned by the Company's President. The
note bears interest at 10% and is signed personally by the president and
collateralized by 52,000 shares of the Company's Common Stock.
The Disputed Finance Deposit Claim results from a deposit that the
Company placed with a finance company in order to obtain financing for the
Resource Recovery acquisition. No consideration was received and the Company
intends to pursue action to recover the deposit. The Company's counsel
believes that they have a legitimate collectible claim .
Deferred preoperating plant startup costs consists of certain consulting,
labor and maintenance costs incurred by the Company subsequent to the
acquisition of the Resource Recovery plant, more fully described in Note 4. The
deferred costs will be amortized over a three (3) year (36 month) period
starting on the date that the plant became fully operational in February, 1997.
Additional deferred preoperating plant startup costs were incurred subsequent to
the balance sheet date, however, these costs are considered minor in nature.
As discussed in Note 2, in December 1995, the Company obtained certain
life insurance policies on the life of an unrelated third party as partial
settlement for certain factored purchase order financing contracts. The ongoing
policy premiums are paid out of the cash surrender value of the policies. Life
insurance expense of $-0- and $-0- in 1995 and 1996 respectively, was included
in other expense.
NOTE 6 - DEFERRED TAXES AND INCOME TAXES
During 1995 and effective with the reverse merger, more fully described in
Notes 1 and 2, the Company adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and all years presented reflect the adoption of
this method. The Company has restated 1995 financial statements for comparative
purposes. The effect of this restatement is the recording of a deferred tax
asset of $359,300, net of a valuation allowance of $120,000, which arises solely
from the estimated future benefit of the net operating loss carry-forward of
approximately $1,114,000. The effect of this restatement was to reduce the net
loss for the year ended December 31, 1995 by $359,300 and to reduce the net
loss per common share by $.059 per share.
-10-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
THE COMPONENTS OF THE DEFERRED TAX ASSET ARE AS FOLLOWS: 1996 1995
- --------------------------------------------------------------------------------
Tax asset arising form net operating loss carryforward:
Federal $447,375 $390,125
State 102,275 89,175
Total Deferred Tax Asset 549,650 479,300
Less valuation for deferred tax assets (137,500) (120,000)
--------- ---------
Deferred Taxes - net $412,150 $359,300
--------- ---------
--------- ---------
In prior years, the Company had elected to be taxed under Subchapter S of
the Internal Revenue Code. Effective with reverse merger and reincorporation,
this election was discontinued and all adjustments, which were minor in
nature, were included as a capital adjustment "Effect of Merger with Fix-Corp
International, Inc." in the Statement of Stockholders' Equity. The components
of the provision for taxes were as follows:
1996 1995
- -------------------------------------------------------------------------------
Provision for Deferred Taxes:
Federal $57,250 $390,125
State 13,100 89,175
Valuation Allowance (17,500) (120,000)
--------- ---------
Total $52,850 $359,300
--------- ---------
--------- ---------
The amounts and expiration dates of the net operating loss carryforward
available to the Company at December 31, 1996 are as follows:
AMOUNT EXPIRATION DATE
- -------------------------------------------------------------------------------
Loss for the year ended December 31, 1995 $1,114,642 2010
Loss for the year ended December 31, 1996 163,674 2011
-----------
Total Net Operating Loss Carryforward $1,278,316
-----------
-----------
NOTE 7 - SECURED EQUIPMENT LOAN PAYABLE
The Company is a party to a Loan and Security Agreement with Gordon
Brothers Capital Corporation, a Delaware company, and Mark Fixler, a principal
shareholder, President and CEO, personally. The loan is for $2,500,000 bearing
interest at 12 1/2% and is secured by an Open-End Mortgage to the premises
located at 1835 James Parkway, Heath, Ohio, namely the post consumer plastics
recycling facility or Resource Recovery plant.
In addition to this Open-End Mortgage, Gordon Brothers has been granted a
security interest, including a lien on and a pledge of all inventory, all
accounts and accounts receivables, contract rights, and all customer lists and
goodwill. Mr. Fixler has been required to sign as a guarantor for Fix-Corp
International. The schedule of payments required under the Loan portion of this
agreement is skewed so as to allow a modest initial payment, then a payment of
approximately $79,734 for the next five months, followed by a payment of
$123,000, then $250,000, then $394,000 for the final four months.
The contract contains a number of Negative Covenants, including but not
limited to, certain limitations on the issuance any additional evidences of
indebtedness; the creation, assumption, guarantee of indebtedness in addition
to the indebtedness of the lender; there can be no sale or transfer of
ownership without the Lender's prior written consent; and
-11-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
the borrower is barred from making any loans or advances to any individual or
officer of the Borrower. In addition, the Company is prohibited from paying
Dividends without the prior written permission of the Lender and may not make
any investments without the lender's prior written permission; the Borrower
may not merge or consolidate with or into any other corporation; the Borrower
may not sell, lease or dispose of its assets without the lender's prior
written consent and the Borrower may not grant any security interest in or
mortgage of any of its properties that are included in the lender's
collateral. Finally, the Borrower is barred from engaging in any business
other then the business in which it is currently engaged or a business
reasonably allied thereto.
NOTE 8 - BRIDGE FINANCING NOTES PAYABLE
1996 1995
- -------------------------------------------------------------------------------
Bridge Notes Payable to shareholders (5 individuals) $250,000 $ -0-
Bridge Notes Payable to others (1 individual) 200,000 -0-
------- -----
Total $450,000 $ -0-
-------- ------
-------- ------
Subject to a certain "Confidential Private Placement Memorandum", more
fully described in Note 10, the Company has sold $450,000 in Bridge Notes to
qualified accredited investors. The proceeds of Bridge Notes was used for the
purpose of acquiring the Resource Recovery Plant. The note holders are
entitled to a twenty-two (22%) percent return on investment as well as an
stock dividend of eighteen (18%) percent of monies invested at $.50 per share
or 18,000 shares of common stock, which was issued and held in escrow. The
Company retains the right to "repurchase" the shares upon payment of the
notes. The term of the loan is generally 120 to 180 days from closing.
In addition, The Company has communicated its intention to spin the
plant off in a public offering within a year. Should that plan become a
reality the Bridge note holders would receive 15,000 warrants at a price to
be set by the Underwriter.
Subsequent to the balance sheet date, $150,000 representing three (3)
Bridge Notes were retired in full. The corresponding stock was reacquired
from escrow at that time.
NOTE 9 - NOTES PAYABLE
1996 1995
- --------------------------------------------------------------------------------
Notes Payable to shareholders (3 individuals) $418,000 $190,000
12% Note Payable 80,000 -0-
Notes Payable to others (4 individuals) 100,000 310,000
------- -------
Total $598,000 $500,000
-------- --------
-------- --------
The proceeds of the notes have generally been used for working capital
and purchase order financing contracts. The notes are generally short-term
renewable notes bearing interest at from 1% to 4% per month. All notes are
current.
Interest Expense on the notes, including all contract financing, is
included as a separate line item in the Statements of Operations under Cost
of Sales and Contract Financing Operations, and totaled $398,087 and $250,822
for the years ended 1995 and 1996, respectively.
NOTE 10 - LEASE COMMITMENTS
On December 9, 1996, the Company entered into a one (1) year renewal
lease for office space that houses the corporate offices, purchase order and
merchandise sales segments of the business. Rent expense under prior lease
arrangements amounted to $10,800 and $10,800 for the years ended December 31,
1996 and 1995, respectively. Monthly rentals through December 31, 1997 are
$900 per month.
-12-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Pursuant to that certain Purchase and Sale Agreement, more fully
described in Note 4, involving the acquisition of the Resource Recovery Plant
in Heath, Ohio, the Company entered into a Track Lease Agreement for 200' of
railroad siding (including land) for the sole purpose of the storage of
railroad cars owned, leased or consigned to the Company. The term of the
lease is for a period of ten (10) years beginning August 14, 1996 and
expiring August 14, 2006, with an option for an additional ten (10) years
expiring August 14, 2016. Annual rentals, paid in advance, are $1,000 per
year.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
(A.) Bridge Note Financing
In conjunction with the $450,000 in Bridge Note financing, more fully
described in Note 8 , the note holders are entitled to a twenty-two (22%)
percent return on investment as well as a stock dividend of eighteen (18%)
percent of monies invested at $.50 per share or 18,000 shares of common
stock, which was issued and held in escrow. The Company has retained the
right to "repurchase" the shares upon payment of the notes. The term of the
loan is generally 120 to 180 days from closing.
In addition to the above, the Company has communicated its intention to
spin the plant and the related operations off in a public offering within a
year. Should that plan become a reality the Bridge note holders would receive
15,000 warrants at a price to be set by the Underwriter.
(B.) Merger with Lifechoice, Inc.
As indicated in Note 1, on or about October 23, 1995, Fix-Corp
International was acquired by Lifechoice, Inc., preparatory to a reverse
merger in which Fix-Corp assumed control over Lifechoice, Inc. and imbued
Lifechoice, Inc. with its operations and management. Lifechoice, Inc. was a
publicly traded company listed on the NASD Bulletin Board and possessed no
assets and no liabilities, in effect a shell corporation.
Lifechoice, Inc. was brought to the attention of Fix-Corp. by a business
in Florida called LBI Group, Inc. and by a firm in New York called the Accord
Group, Inc. These parties relied upon representations made by the seller of
the shell, namely a firm called the Worthington Company. Lifechoice, Inc. had
previously filed an Issuer Information Statement with NASD in compliance with
Rule 15c2-11 of Securities and Exchange Commission's rules. This Issuer
Information Statement was never rescinded and this permitted Lifechoice, Inc.
to remain listed with the NASD Bulletin Board and possess all of the overt
characteristics of a public company.
In actuality, the charter of Lifechoice, Inc. had previously been
canceled by the State of Utah and the seller had created a new Lifechoice,
Inc. under a different charter number and represented this new company as the
same entity listed on the NASD Bulletin Board. In the State of Utah, the
corporation, as defined by its charter number, is viewed as the owner of the
registration when this registration is procured. Consequently, the company
represented by the seller did not own any registration statement.
When the State of Utah opened an active investigation into this practice,
the seller recommended a redomiciling of the company from Utah to Delaware.
The movement of a company from one domicile to another does not cure the
defect consisting of a charter that cannot be linked to a registration
statement. As a consequence of this action, the seller has been barred by the
Securities and Exchange Commission from the securities business.
The State of Utah has reviewed the merger between Fix-Corp. and
Lifechoice, Inc. and they have determined that Fix-Corp is a victim of this
fraud. Accordingly, the State of Utah has opted to take no action against
Fix-Corp International.
The Company is aware of this flaw in its shell and has taken steps to
remedy the situation. The Company has filed two registration statements in
the State of New York, thus aligning registrations with its current charter.
The Company has also procured a secondary trading exemption from Standard &
Poor's. The Company further intends to file a registration statement in Utah
and thereby rectify the flaw which the Company unknowingly acquired when it
entered into this merger transaction with Lifechoice, Inc.
-13-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 12 - STOCKHOLDER'S EQUITY
Common Stock and Incorporation - On or about October 23, 1995, Fix-Corp
International, Inc. (Fix-Corp), a newly-formed Delaware corporation, was
acquired by Lifechoice preparatory to a reverse merger in which Fix-Corp
assumed control over Lifechoice, a publicly traded company listed on the NASD
Bulletin Board. Lifechoice possessed no assets and no liabilities and, was in
effect, a shell corporation. The Company assumed the name of Fix-Corp
International, Inc. and was redomiciled to Delaware. See Note 11.
Preferred Stock - The Company's Articles of Incorporation authorize the
issuance, upon resolution of the Board of Directors and without further
shareholder approval, of up to 2,000,000 shares of Preferred Stock with a par
value of $.001 per share, including any terms of one or more of the classes
or series of Preferred Stock, including dividend rights, conversion prices as
stipulated by the Board.
Stock Dividend and Shares Held in Escrow - In conjunction with the Bridge
Notes, more fully described in Note 11, the Company has committed to a stock
dividend of eighteen (18%) percent of monies invested at $.50 per share or
18,000 shares of common stock, which was issued and held in escrow. The
Company retains the right to "repurchase" the shares upon payment of the
notes.
Additional Equity Commitments - In addition to the above, the Company has
communicated its intention to spin the plant and the related operations off
in a public offering within a year. Should that plan become a reality the
Bridge note holders would receive 15,000 warrants at a price to be set by the
Underwriter.
Stock Option - An employment agreement was executed on January 3, 1997
with Mark Fixler, the Company's President, CEO and principal shareholder
that includes, among other provisions, an Option to the Employee to purchase
four million shares of stock at the fixed price of fifty cents per share.
This Option can be exercised at any time during the employment period. The
Company is similarly obligated to purchase $2 million dollars of Key Man
Insurance.
NOTE 13 - SEGMENT INFORMATION
As discussed in Note 1, the Company operates in three (3) major segments
of business: Recycled plastic, merchandise sales and purchase order contract
financing. Information concerning operations in these businesses at December
31, 1996 and 1995, and for the years then ended, is presented below:
For the year ended
December 31, Contract Product Recycled
1996 Financing Sales Plastic Total
- -------------------------------------------------------------------------------
Net Revenue $510,780 $232,823 $-0- $743,603
Cost of Sales and
Financing 293,761 126,153 -0- 419,914
------- ------- ----- -------
Gross Profit $217,019 $106,670 $-0- $323,689
------- ------- ----- -------
------- ------- -----
Other Costs & Expenses 434,512
-------
Net Loss ($110,823)
----------
----------
Capital Expenditures $-0- $-0- $9,492,000 $9,492,000
----- ----- --------- ----------
----- ----- --------- ----------
Deferred Plant
Startup Costs $-0- $-0- $36,750 $36,750
----- ----- ------- -------
----- ----- ------- -------
Depreciation &
Amortization $9,757 $9,757 $-0- $19,514
------- ------- ----- -------
------- ------- ----- -------
-14-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED CONTRACT PRODUCT RECYCLED
DECEMBER 31, 1995 FINANCING SALES PLASTIC TOTAL
- -------------------------------------------------------------------------------
Net Revenue $663,752 $91,812 $-0- $755,564
Cost of Sales
and Financing 1,495,738 47,340 -0- 1,543,078
--------- ------ --- ---------
Gross Profit ($831,986) $44,472 $-0- ($787,514)
---------- ------- ----- ----------
---------- ------- ----- ----------
Other Costs & Expenses 327,128
-------
Net Loss ($1,114,642)
-----------
-----------
Capital Expenditures $11,250 $11,250 $-0- $22,500
------- ------- ----- -------
------- ------- ----- -------
Depreciation &
Amortization $9,757 $9,757 $-0- $19,514
------- ------- ----- -------
------- ------- ----- -------
NOTE 14 - SUBSEQUENT EVENTS
(A.) Bridge Notes Payable
Subsequent to the balance sheet date, $150,000 representing three (3)
Bridge Notes were retired in full. The corresponding stock was reacquired
from escrow at that time.
(B.) EMPLOYMENT AGREEMENTS
An employment agreement was executed on January 3, 1997 with Mark
Fixler, the Company's President, CEO and principal shareholder that
contemplates a three year term. Mr. Fixler's annual base salary was set at
$200,000 for 1997, $250,000 for the second year and $300,000 for the third
year. If the full term of the employment agreement is not honored, then the
Company is obligated to a $2,000,000 severance payment. The contract provides
for a $20,000 allowance for reasonable travel and other out-of-pocket
expenses, to be supported by bills and receipts, a $750 per month automobile
allowance plus reasonable car phone expenses and reasonable car maintenance
expenses, plus Health and Dental insurance and three weeks of paid vacation.
In addition, the contract provides for an Option to the Employee to
purchase four million shares of stock at the fixed price of fifty cents per
share. This Option can be exercised at any time during the employment period.
The Company is similarly obligated to purchase $2 million dollars of Key Man
Insurance.
-15-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
FIXCOR, INC.
CONSOLIDATED BALANCE SHEET
NINE MONTHS TWELVE MOS.
9/30/97 12/31/96
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS
CASH $2,398,541 $224,539
INVESTMENT IN MARKETABLE SECURITIES 128,287 130,692
TRADE ACCOUNTS RECEIVABLE-NET 1,236,177 88,763
SPECIAL TRADE ACCOUNT 300,000 0
PURCHASE ORDER FINANCING CONTRACTS 215,500 221,672
INVENTORIES 877,876 96,002
OTHER CURRENT ASSETS 75,367 0
TOTAL CURRENT ASSETS 5,231,748 761,668
PROPERTY PLANT AND EQUIPMENT
LAND AND LAND HELD FOR DEVELOPMENT 750,000 750,000
BUILDINGS 2,000,000 2,000,000
EQUIPMENT 10,595,431 6,764,500
------- -------
13,345,431 9,514,500
LESS ACCUMULATED DEPRE/AMORT (550,000) (6,428)
PROPERTY, PLANT AND EQUIPMENT-NET 12,795,431 9,508,072
---------- ----------
OTHER ASSETS
LICENSING AGREEMENTS 30,000 0
DEFERRED INCOME TAXES 491,121 412,150
OTHERS ASSETS AND DEFERRED CHARGES 193,750 212,226
------- -------
TOTAL OTHER ASSETS 714,871 624,376
TOTAL ASSETS $18,742,050 $10,894,116
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
NOTES PAYABLE $1,748,582 $598,000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,415,478 112,325
LINE OF CREDIT 1,037,843 2,950,000
--------- ---------
TOTAL CURRENT LIABILITIES 4,201,903 3,660,325
--------- ---------
LONG-TERM DEBT 3,383,347 0
---------
SHAREHOLDERS' EQUITY
PREFERRED STOCK, $.001 par value,
2,000,000 shares authorized, -0- shares
issued or outstanding
COMMON STOCK, $.001 par value. 2,646 2,097
100,000,000 shares
authorized and 22,465,010 issued
and outstanding as of September 30,1997
ADDITIONAL PAID-IN CAPITAL 12,997,332 8,246,406
UNREALIZED LOSS ON INVESTMENTS (68,673) (68,673)
RETAINED EARNINGS (DEFICIT) (1,774,505) (946,039)
TOTAL SHAREHOLDERS' EQUITY 11,156,800 7,233,791
----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $18,742,050 $10,894,116
----------- -----------
----------- -----------
NOTE: All adjustments, in management's opinion, have been made that are
necessary in order to make the financial statements not misleading.
<PAGE>
FIXCORP INTERNATIONAL, INC.
FIXCOR, INC.
CONSOLIDATED INCOME STATEMENT AND
RETAINED EARNINGS
NINE MONTHS TWELVE MOS.
9/30/97 12/31/96
(UNAUDITED) (AUDITED)
INCOME STATEMENT
REVENUE
FEES ON PURCHASE ORDER FINANCING $191,795 $510,779
MERCHANDISE SALES 5,629,189 232,824
SPECIAL ACCOUNT 500,000 0
-------
TOTAL REVENUE 6,320,984 743,603
---------
COST OF SALES
COST OF MERCHANDISE SALES 4,236,567 126,153
-------
GROSS PROFIT 2,084,417 617,450
-------
OPERATING EXPENSES
SALARIES, WAGES AND RELATED COSTS 240,998 277,317
LEGAL, PROFESSIONAL, AND CONSULTING FEES 170,338 98,513
OTHER GENERAL AND ADMINISTRATIVE 1,744,337 353,049
--------- -------
TOTAL OPERATING EXPENSES 2,155,673 728,879
OPERATING INCOME (LOSS) (71,256) (111,429)
-------- --------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE AND FINANCING COSTS (205,710) (32,730)
DEPRECIATION AND AMORTIZATION (551,500) (19,514)
-------- --------
(757,210) (52,244)
--------- -------
NET INCOME (LOSS) BEFORE INCOME TAXES (828,466) (163,673)
PROVISION FOR INCOME TAXES 0 (52,850)
NET INCOME (LOSS) ($828,466) ($110,823)
RETAINED EARNINGS (DEFICIT) BEGINNING (946,038) (835,216)
RETAINED EARNINGS (DEFICIT) END ($1,774,505) ($946,039)
------------ ----------
------------ ----------
NOTE: All adjustments, in management's opinion, have been made that are
necessary in order to make the financial statements not misleading.
<PAGE>
PART III - INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NAME OF NAMES OF DATE OF
NUMBER DOCUMENT PARTIES TO DOCUMENT DOCUMENT
- ------ -------- ------------------- --------
<S> <C> <C> <C>
1 Amended and Restated Fix-Corp International, Inc. 05/27/97
Articles of Incorporation
2 Bylaws Fix-Corp International, Inc. 11/14/95
3 Acquisition Agreement Fix-Corp, Inc. and Lifechoice, Inc. 10/95
4 Purchase and Sale Agreement Quantum Chemical Corporation and 08/14/96
Fix-Corp International, Inc.
5 Amendment No. 1 to Quantum Chemical Corporation and 10/29/96
Purchase and Sale Agreement Fix-Corp International, Inc.
6 Employment Contract Fix-Corp International, Inc. and Mark 01/01/97
Fixler
7 Employment Agreement Fix-Corp International, Inc. and Gary 01/01/97
DeLaurentiis
8 Acquisition Agreement Fix-Corp International, Inc., Fixcor 04/16/97
Industries, Inc. and Mark Fixler
9 Loan and Security Agreement NationsCredit Commercial 05/14/97
Corporation through its NationsCredit
Commercial Funding Division, Lender
and Fixcor Industries, Inc., Borrower
10 Guaranty NationsCredit Commercial 05/14/97
Corporation through its NationsCredit
Commercial Funding Division, Lender
and Fixcor Industries, Inc., Borrower,
and Mark Fixler, Guarantor
26
<PAGE>
11 First Amendment to Loan and NationsCredit Commercial 07/16/97
Security Agreement Corporation through its NationsCredit
Commercial Funding Division, Lender
and Fixcor Industries, Inc., Borrower
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NAME OF NAMES OF DATE OF
NUMBER DOCUMENT PARTIES TO DOCUMENT DOCUMENT
- ------ -------- ------------------- --------
<S> <C> <C> <C>
12 Term Note Palletech Inc., Fixcor Industries, Inc. 07/09/97
and Fix-Corp International, Inc.,
Borrowers and Gordon Brothers
Capital Corporation, Lender
13 Loan and Security Agreement Palletech Inc., Fixcor Industries, Inc. 07/09/97
and Fix-Corp International, Inc.,
Borrowers and Gordon Brothers
Capital Corporation, Lender
14 Purchase Warrant and Fix-Corp International, Inc. and 07/09/97
Agreement Gordon Brothers Capital Corporation
15 Intercreditor Agreement Gordon Brothers Capital Corporation 07/09/97
and NationsCredit Commercial
Corporation, through its NationsCredit
Commercial Funding Division
16 License and Marketing Nitro Plastics Technologies of Israel 07/07/97
Agreement and Palletech Inc.
17 Patent License Agreement Fixcor Industries, Inc. and 09/25/97
AlliedSignal, Inc.
18 Convertible Debenture Fix-Corp International, Inc., JNC 10/24/97
Purchase Agreement Opportunity Fund Ltd. and Diversified
Strategies Fund, L.P.
19 6% Convertible Debenture Fix-Corp International, Inc. and 10/24/97
Due October 24, 2000 Holder
20 Registration Rights Fix-Corp International, Inc., JNC 10/24/97
Agreement Opportunity fund Ltd., and Diversified
Strategies Fund, L.P.
21 Escrow Agreement Fix-Corp International, Inc., JNC 10/24/97
Opportunity Fund Ltd., Diversified
27
<PAGE>
Strategies Fund, L.P. and Robinson
Silverman Pearce Aronsohn & Berman
LLP
22 Warrant Fix-Corp International, Inc. and 10/24/97
Holder
</TABLE>
28
