<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FIX-CORP INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
FIX-CORP INTERNATIONAL, INC.
3637 S. GREEN ROAD, SUITE 201
BEACHWOOD, OH 44122
TELEPHONE (216) 292-3182
March 30, 1998
Dear Fellow Shareholders:
The Annual Meeting of the Stockholders (the "Annual Meeting") of
Fix-Corp International, Inc., a Delaware corporation (the "Company"), will be
held at 8:00 a.m., local time, on Wednesday, April 22, 1998, at the Marriott
Hotel (Ball Room 6), 3663 Park East Drive, Beachwood, Ohio 44122. The
enclosed Notice of Annual Meeting of Stockholders and Proxy Statement contain
detailed information about the business to be transacted at the Annual
Meeting.
In November, 1997 the Company filed a Registration Statement on Form
10-SB pursuant to which its common stock is to be registered under Section
12(g) of the Securities Exchange Act of 1934. As of the date of this letter,
the Company is responding to comments of the Securities and Exchange
Commission and otherwise finalizing such registration so that it becomes a
public reporting company.
In light of such development, the Board of Directors has proposed that
the number of directors be increased and has nominated six (6) persons for
election as directors, each for a term to expire at the Annual Meeting in the
year 1999. The Board of Directors recommends that you vote FOR the increase
and the nominees.
On behalf of the Board of Directors and management, I cordially invite
you to attend the Annual Meeting. Whether or not you plan to attend the
Annual Meeting, the prompt return of your proxy in the enclosed return
envelope will save the Company additional expenses of solicitation and will
help ensure that as many shares as possible are represented.
Sincerely,
/s/ Mark Fixler
Mark Fixler
Chairman, President and Chief Executive Officer
<PAGE>
FIX-CORP INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 22, 1998
Dear Stockholder:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Fix-Corp International, Inc., a Delaware corporation
(the "Company"), will be held at the Marriott Hotel (Ball Room 6) 3663 Park
East Drive, Beachwood, Ohio on April 22, 1998 at 8:00 a.m. local time. The
purposes of the Annual Meeting are:
1. To establish the number of directors at six (6);
2. To elect six (6) directors, each for a term to expire at the annual
meeting of stockholders of the Company in 1999;
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 30,
1998, as the record date for determining the stockholders entitled to notice
of, and to vote at, the Annual Meeting and at any adjournment or postponement
thereof.
By order of the Board of Directors,
/s/ Mark Fixler
Mark Fixler
Chairman of the Board of Directors
Dated: March 30, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, SIGN AND
PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE. PROXIES MAY BE
REVOKED BY WRITTEN NOTICE OF REVOCATION, THE SUBMISSION OF A LATER PROXY, OR
BY ATTENDING THE MEETING AND VOTING IN PERSON. (If your shares are held of
record by a broker, bank or other nominee and you wish to attend the Annual
Meeting, you must obtain a letter from the broker, bank or other nominee
confirming your beneficial ownership of the shares and bring it to the
meeting. In order to vote your shares at the Annual Meeting, you must obtain
from the record holder a proxy issued in your name.)
<PAGE>
FIX-CORP INTERNATIONAL, INC.
3637 S. GREEN ROAD, SUITE 201
BEACHWOOD, OH 44122
TELEPHONE (216) 292-3182
PROXY STATEMENT
Annual Meeting of Stockholders
April 22, 1998
GENERAL
The Board of Directors and management of Fix-Corp International, Inc.
("Fix-Corp" or the "Company") is requesting your proxy for use at the Annual
Meeting of Stockholders to be held on April 22, 1998 (the "Annual Meeting"),
and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders.
This Proxy Statement and the accompanying form of proxy are first being
mailed to stockholders on or about March 30, 1998. The expense of preparing,
printing and mailing proxy materials to the Company's stockholders will be
borne by the Company. In addition, proxies may be solicited personally or by
telephone, mail or telegram. Officers or employees of the Company may assist
with personal or telephone solicitation and will receive no additional
compensation therefor. The Company will also reimburse brokerage houses and
other nominees for their reasonable expenses in forwarding proxy materials to
beneficial owners of the Company's common stock.
OUTSTANDING VOTING SECURITIES, RECORD DATE AND QUORUM
As of March 30, 1998, the record date for determining stockholders
entitled to notice of and to vote at the Annual Meeting, Fix-Corp had
29,957,269 shares of common stock, par value $.001 per share ("Common Stock")
outstanding. Each share is entitled to one vote. Only stockholders of
record at the close of business on March 30, 1998 will be entitled to vote at
the Annual Meeting. A quorum for the Annual Meeting is one-third of the
voting shares outstanding.
VOTING PROCEDURES
Stockholders may vote in person or by proxy at the Annual Meeting.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors. Stockholders do not have
cumulative voting rights with respect to the election of
<PAGE>
directors. For all other matters to be voted upon at the meeting, the
affirmative vote of a majority of shares present in person or represented by
proxy, and entitled to vote on the matter, is necessary for approval.
For purposes of determining the number of shares of Common Stock present
in person or represented by proxy on a voting matter, all votes cast "for,"
"against" or "abstain" are included, as are shares of Common Stock
represented by proxy where the authority to vote has been withheld.
Stockholders may withhold authority to vote for the entire slate as
nominated or, by writing the name of one or more nominees in the space
provided in the proxy card, withhold the authority to vote for such nominee
or nominees. Shares of Common Stock as to which the authority to vote is
withheld will be counted for quorum purposes but will not be counted toward
the election of directors, or toward the election of the individual nominees
specified on the form of proxy.
Broker/dealers who hold their customers' stock in street name may, under
the applicable rules of the exchange and other self-regulatory organizations
of which the broker/dealers are members, sign and submit proxies for such
stock and may vote such stock on routine matters, which, under such rules,
typically include the election of directors, but broker/dealers may not vote
such stock on other matters, which typically include amendments to the
certificate of incorporation of the Company and the approval of stock
compensation plans, without specific instructions from the customer who owns
such stock. Proxies signed and submitted by broker/dealers which have not
been voted on certain matters as described in the previous sentence are
referred to as "broker non-votes."
All shares will be voted as specified on each properly executed proxy
card. If no choice is specified, the shares will be voted as recommended by
the Board of Directors in favor of Proposals No. 1 and No. 2 (i.e., "FOR" the
increase in the number of directors and "FOR" the nominees for directors
named herein), and on all other matters that properly come before the Annual
Meeting for a vote in the discretion of the person holding proxy unless
otherwise specified on the proxy card, unless authority to vote for one or
more nominees, or on a proposal, is withheld.
Proxies given may be revoked at any time by filing with the Company
either a written revocation or a duly executed proxy card bearing a later
date, or by appearing at the Annual Meeting and voting in person. Attendance
at the Annual Meeting will not, in itself, constitute revocation of the proxy.
2
<PAGE>
ELECTION OF DIRECTORS
(PROPOSALS NO. 1 AND NO. 2 ON PROXY CARD)
The Company's Bylaws provide that the number of directors to constitute
the Board of Directors shall be determined by the stockholders at each Annual
Meeting. There currently are three (3) directors elected at the Annual
Meeting in 1997.
The Board of Directors and Management of the Company is recommending
that at the Annual Meeting (i) the size of the Board be increased to six
(6), and (ii) six (6) directors be elected to hold office for one year and
until their successors are elected at the next Annual Meeting and shall have
qualified. The Board is nominating for election all three of its current
directors, namely Mark Fixler, Gary M. DeLaurentiis and Lawrence C.
Schmelzer, and is also nominating Andrew I. Press, Michael DiSanto, and S.
Darwin Noll for election as directors. The shares of Common Stock voted by
the proxies will be voted for their election unless authority to do so is
withheld as provided in the proxy card. All nominees have consented to serve
if elected. The Board of Directors has no reason to believe that any of the
nominees will not serve if elected, but if any of the nominees become unable
to serve, proxies will be voted for any substitute nominee designated by the
Board of Directors. Nominees receiving the highest number of votes cast for
the positions to be filled will be elected. Proxies solicited by the Board
of Directors will be voted for the election of these nominees.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
INCREASE IN THE NUMBER OF DIRECTORS AND FOR THE ELECTION OF ITS NOMINEES FOR
DIRECTORS, WHICH ARE DESIGNATED AS PROPOSAL NO. 1 AND PROPOSAL NO. 2,
RESPECTIVELY, ON THE ENCLOSED PROXY CARD.
INFORMATION ABOUT THE NOMINEES
The following information, as of the Record Date, with respect to the
principal occupation or employment, other affiliations and business
experience of each director during the last five years has been furnished to
the Company by each director.
NAME, AGE AND PRINCIPAL OCCUPATION OR EMPLOYMENT DURING THE PAST 5 YEARS
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 President of the Village Counsel of his home community,
Mayfield Village, Ohio.
GARY M. DELAURENTIIS, 53, is the President of Fixcor Industries, Inc., a
wholly owned subsidiary of the Company and a Vice President of the Company.
Mr. DeLaurentiis joined the Company after it acquired the Facility. Mr.
DeLaurentiis has 21 years of management
3
<PAGE>
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.
MICHAEL DISANTO, 52, is owner and President of DiSanto Enterprises Inc.,
a land development company established in 1994. From 1978 to 1994, Mr.
DiSanto was president of Transco Construction Co. Inc., a building and
development company which specialized in custom home construction and
developing communities. Mr. DiSanto received a Bachelor of Business
Administration from Ohio University in 1969. He is a member of the Builder
Industry Association of Cleveland and sits on the Committee for Land
Developers. Mr. DiSanto has also applied his business expertise to the
ownership of several restaurants in the Cleveland and Atlanta areas.
S. DARWIN NOLL, 77, is Chairman and Chief Executive Officer of Cardinal
American Corporation, with which he has been affiliated for over 50 years.
During his work career, he served in executive capacities at 17 manufacturing
plants world wide. He has also served on the boards of Vocational Guidance
Services, Youth Opportunities Unlimited at the Cleveland Health Museum, The
Achievement Center for Children, St. Vincent Charity Hospital, The Jewish
Community Federation and the Cleveland 500 Foundation. Mr. Noll was recently
appointed to the Board of the Palm Beach Fellowship of Christians & Jews,
Inc. In May 1994, Mr. Noll was granted an Honorary Doctor of Laws Degree from
John Carroll University.
ANDREW I. PRESS, 49, has recently been appointed as Chief Financial
Officer of the Company. Mr. Press is a certified public accountant, and for
the past ten years has been affiliated with Bick-Fredman & Co. CPA's. He
also has served as officer and director of a Ohio-based venture capital
company. He is a member of the American Institute of C.P.A.'s (AICPA) and
the Ohio Society of C.P.A.'s (OSCPA) and serves on AICPA's Small Business
Taxation Committee and OSCPA's State Taxation Committee. In addition to
being a public speaker in the areas of financial and tax planing, Mr. Press
is presently a member of the Board of Trustees and Treasurer for the Multiple
Sclerosis Society of N.E. Ohio.
LAWRENCE C. SCHMELZER, 61, is the retired 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.
4
<PAGE>
DIRECTORS COMPENSATION AND COMMITTEES
DIRECTOR COMPENSATION
Directors did not receive any compensation for their services in such
capacity during 1997. Directors are reimbursed for their reasonable
out-of-pocket expenses in connection with attending meetings of the Board.
BOARD COMMITTEES
The Board of Directors currently does not have any committees comprised
of members thereof. Following the Annual Meeting, it is expected that the
Board of Directors will create three standing committees, an Executive
Committee, a Compensation Committee and an Audit Committee.
EXECUTIVE COMMITTEE. The Executive Committee will exercise all the
power and authority of the Board of Directors in the management and affairs
of the Company between meetings of the Board of Directors, to the extent
permitted by law.
COMPENSATION COMMITTEE. The Compensation Committee will make
recommendations to the Board of Directors concerning compensation, including
incentive arrangements, of the Company's officers and key employees and
others.
AUDIT COMMITTEE. The Audit Committee will (i) review the accounting and
financial reporting practices of the Company and the adequacy of its system
of internal controls, (ii) review the scope and results of any outside audit
of the Company and the fees therefor and (iii) make recommendations to the
Board of Directors or management concerning auditing and accounting matters
and the selection of outside auditors.
5
<PAGE>
INFORMATION REGARDING SECURITY HOLDERS
The Common Stock is the Company's only outstanding class of voting
securities.
PRINCIPAL SECURITY HOLDERS
The following table sets forth beneficial ownership of Common Stock as
of March 30, 1998 by each person known by the Company to be the beneficial
owner of more than five percent of the Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ---------- --------
<S> <C> <C>
Mark Fixler 9,968,725 (1) 29.4%
3637 South Green Road
Suite 201
Beachwood, Ohio 44122
</TABLE>
(1) Includes 4,000,000 shares which are subject to options granted by the
Company to Mr. Fixler and exercisable during the term of his current
employment agreement with the Company.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth beneficial ownership of outstanding
Common Stock as of March 30, 1998 by each (i) director and nominee for
director, (ii) each of the executive officers included in the Summary
Compensation Table (see "COMPENSATION OF EXECUTIVE OFFICERS" below), and
(iii) all directors, nominees for director and executive officers of the
Company as a group.
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------------ ---------- --------
<S> <C> <C>
Mark Fixler 9,968,725 (1) 29.4% (1)
Gary W. DeLaurentiis 28,000 .08%
Michael DiSanto 400,000 1.2%
S. Darwin Noll 622,000 1.8%
Andrew I. Press 100,000 .29%
Lawrence C. Schmelzer 39,000 .11%
All Directors and Officers
as a Group 11,157,725 (1) 32.9% (1)
</TABLE>
(1) Includes 4,000,000 shares which are subject to options granted by the
Company to Mr. Fixler and exercisable during the term of his current
employment agreement with the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information regarding compensation paid
by the Company since its inception to its Chief Executive Officer and the
other most highly compensated executive officers whose annual compensation
exceeded $100,000 for the fiscal year ended December 31, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
NAME AND SALARY BONUS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) OPTIONS COMPENSATION
- ------------------ ---- ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark Fixler 1997 $200,000 - 4,000,000 -
Chairman of the Board
of Directors, Chief
Executive Officer and 1996 $119,000 - - -
President
Gary M. DeLaurentiis 1997 $125,000 - - -
Vice President
</TABLE>
7
<PAGE>
EMPLOYMENT AGREEMENTS
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.
Mr. Yoram Aisenberg is a party to a five year employment contract with
the Company dated March 5, 1998, pursuant to which Mr. Aisenberg serves as
Vice president of Development of the Company and President of Poly Style
Industries, Inc., a subsidiary of the Company, at an annual salary of
$150,000. Under the agreement, Mr. Aisenberg was granted an option to
purchase 200,000 shares of common stock of the Company at a price of $3.05
per share, exercisable at any time during the employment period. Mr.
Aisenberg is also entitled to expense reimbursement and other benefits
customarily given to executive officers, and to a $150,000 severance benefit
if the employment agreement is terminated prematurely.
The Company currently has no stock appreciation rights, long-term
incentive, stock option plans or similar benefit plans for its executives or
other employees.
INDEPENDENT AUDITORS
Harmon & Company, CPA, Inc. has served as the Company's independent
auditors since 1997, and it is expected that Harmon & Company, CPA, Inc. will
be appointed as the Company's independent auditors for the 1998 fiscal year
following the Annual Meeting. Representatives of such accounting firm are
expected to be present at the Annual Meeting and will be given an opportunity
to comment, if they so desire, and to respond to appropriate questions that
may be asked by stockholders.
8
<PAGE>
The reports of Harmon & Company, CPA, Inc. on the consolidated financial
statements of the Company as of December 31, 1997 and for each of the two
years in the period then ended did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principle. With respect to the two years ended
December 31, 1997, there were no disagreements between the Company and Harmon
& Company, CPA, Inc. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Harmon & Company, CPA,
Inc. would have caused Harmon & Company, CPA, Inc. to make reference to the
subject matter of such disagreements in connection with its reports.
OTHER MATTERS
The Board of Directors knows of no other matters which will be presented
at the meeting, but if any other matters do properly come before the Annual
Meeting, including adjournment, they would require, unless otherwise stated,
the affirmative vote of a majority of shares voting. If any other matters
come before the Annual Meeting or any adjournment, each proxy will be voted
in the discretion of the individuals named as proxies on the proxy card,
according to their best judgments in light of conditions then prevailing.
STOCKHOLDER PROPOSALS
Stockholders who desire to have proposals included in the notice for the
annual meeting of stockholders of the Company to be held in 1999 must submit
their proposals in writing to the Company, Attention: Secretary, at its
offices on or before January 15, 1999.
FINANCIAL STATEMENTS
The Company's audited financial statements for the 1997 fiscal year are
being mailed to all shareholders of record with these proxy materials. The
Company has not prepared an Annual Report to shareholders for 1997.
9
<PAGE>
AVAILABLE INFORMATION
In November, 1997, the Company filed with the U.S. Securities and
Exchange Commission a Registration Statement on Form 10-SB pursuant to which
it will become subject to the informational requirements of the Securities
and Exchange Act of 1934 and the rules and regulations promulgated thereunder
and, in accordance therewith, will file reports, proxy statements and other
information with the SEC. As of the date hereof the Company is responding to
comments of the SEC and otherwise finalizing such registration. The Form
10-SB, and reports, proxy statements and other information to be filed in the
future by the Company, may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the SEC at Seven World
Trade Center, Suite 1300, New York, New York and at Suite 1400, 500 West
Madison Street, Chicago, Illinois. Copies of such information can be
obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Access to such
information is also available on the Internet from the SEC's "EDGAR" World
Wide Web page, using a World Wide Web browser and the following address (in
effect prior to and as of the Record Date): http://www.sec.gov
10
<PAGE>
DIRECTIONS TO MARRIOTT HOTEL
[TO BE COMPLETED]
<PAGE>
-------------------------------------
FIX-CORP INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
&
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1996 & 1997
-------------------------------------
----------------------------------
HARMON & COMPANY, CPA, INC.
COLUMBUS, OHIO
----------------------------------
<PAGE>
----------------------------
FIX-CORP INTERNAIONAL, INC.
AND SUBSIDIARIES
----------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................. 2
CONSOLIDATED BALANCE SHEETS ............................................. 3
CONSOLIDATED STATEMENTS OF OPERATIONS ................................... 4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ............... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................... 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS........................... 7
</TABLE>
-1-
<PAGE>
[LETTERHEAD]
[LOGO]
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS OF
FIX-CORP INTERNATIONAL, INC.
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF FIX-CORP
INTERNATIONAL, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1997 AND 1996 AND THE
RELATED CONSOLIDATED 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 1997 FINANCIAL STATEMENTS REFERRED TO
ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1997 AND
1996 AND THE RESULTS OF ITS OPERATIONS AND ITS CASH FLOWS FOR THE YEARS
THEN ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
/s/ Harmon & Company, CPA, Inc.
- -------------------------------------
HARMON & COMPANY, CPA, INC.
MARCH 26, 1998
-2-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $224,539 $6,895,619
INVESTMENT IN MARKETABLE SECURITIES 130,692 108,287
TRADE ACCOUNTS RECEIVABLE, NET 88,763 1,309,503
OTHER RECEIVABLES - 0 - 334,000
PURCHASE ORDER FINANCING CONTRACTS 221,672 30,000
INVENTORY 96,002 2,910,220
PREPAID EXPENSES - 0 - 45,285
----------- -----------
TOTAL CURRENT ASSETS 761,668 11,632,914
----------- -----------
PROPERTY, PLANT & EQUIPMENT
LAND & LAND HELD FOR DEVELOPMENT 750,000 750,000
BUILDINGS 2,000,000 2,000,000
PLANT EQUIPMENT 6,642,000 17,600,841
OFFICE FURNITURE & FIXTURES 122,500 137,655
----------- -----------
9,514,500 20,488,496
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (6,428) (680,310)
----------- -----------
TOTAL PROPERTY, PLANT & EQUIPMENT 9,508,072 19,808,186
----------- -----------
DEFERRED INCOME TAXES 412,150 820,050
----------- -----------
OTHER ASSETS & DEFERRED CHARGES 212,226 1,228,948
----------- -----------
TOTAL ASSETS $10,894,116 $33,490,098
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
SHORT-TERM BORROWINGS $3,548,000 $320,000
EQUIPMENT PURCHASE CONTRACTS - 0 - 1,875,000
ACCOUNTS PAYABLE 68,008 2,064,137
ACCRUED EXPENSES 44,317 148,406
CURRENT PORTION OF LONG-TERM DEBT - 0 - 3,500,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,660,325 7,907,543
----------- -----------
LONG-TERM DEBT
4% CONVERTIBLE DEBENTURES - 0 - 8,000,000
$7,000,000 REVOLVING TERM NOTE - 0 - 6,780,489
----------- -----------
- 0 - 14,780,489
LESS CURRENT PORTION OF LONG-TERM DEBT - 0 - (3,500,000)
----------- -----------
TOTAL LONG-TERM DEBT - 0 - 11,280,489
----------- -----------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $.001 PAR VALUE, 2,000,000 SHARES AUTHORIZED, -0- - 0 - - 0 -
SHARES ISSUED AND OUTSTANDING
COMMON STOCK, $.0001 PAR VALUE IN 1996 AND $.001 IN 1997, 100,000,000 SHARES
AUTHORIZED, 20,974,024 AND 30,058,289 ISSUED AND OUTSTANDING IN 1996 AND 1997 20,974 30,058
ADDITIONAL PAID IN CAPITAL 8,227,529 15,786,304
UNREALIZED HOLDING LOSS ON INVESTMENTS (68,673) (21,173)
RETAINED EARNINGS (DEFICIT) (946,039) (1,493,123)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,233,791 14,302,066
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,894,116 $33,490,098
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-3-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
----------- ------------
<S> <C> <C>
REVENUE
SALES, NET $232,824 $8,020,304
FEES ON PURCHASE ORDER CONTRACT FINANCING 408,337 191,795
COMMISSION & SHARED FINANCE FEES 102,442 157,711
----------- ------------
TOTAL REVENUE 743,603 8,369,810
----------- ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS
COST OF SALES & PLANT OPERATING COSTS 126,153 6,907,858
CONSULTING FEES & SHARED COMMISSIONS 42,939 37,181
INTEREST EXPENSE, CONTRACT FINANCING 250,822 156,100
DEFERRED PREOPERATING PLANT STARTUP COSTS, NET OF AMORTIZATION (36,750) (108,310)
----------- ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS 419,914 6,992,829
----------- ------------
GROSS PROFIT 323,689 1,376,981
----------- ------------
OPERATING EXPENSES
ADMINISTRATIVE SALARIES, WAGES AND RELATED COSTS 277,317 436,372
DEPRECIATION & AMORTIZATION 19,514 728,044
LEGAL & PROFESSIONAL, INCLUDING CONSULTING FEES 98,513 309,452
OTHER GENERAL & ADMINISTRATIVE 96,039 571,898
----------- ------------
TOTAL EXPENSES 491,383 2,045,767
----------- ------------
OPERATING INCOME (LOSS) (167,694) (668,786)
----------- ------------
OTHER INCOME (EXPENSE)
INTEREST INCOME - 0 - 85,498
INTEREST EXPENSE AND FINANCING COSTS, OTHER (32,730) (340,707)
OTHER EXPENSE - 0 - (30,989)
----------- ------------
(32,730) (286,198)
----------- ------------
NET (LOSS) BEFORE INCOME TAXES (200,423) (954,984)
----------- ------------
LESS PROVISION FOR DEFERRED INCOME TAXES
FEDERAL (43,000) (332,000)
STATE (9,850) (75,900)
----------- ------------
TOTAL DEFERRED INCOME TAXES (52,850) (407,900)
----------- ------------
NET LOSS ($147,573) ($547,084)
----------- ------------
NET LOSS PER COMMON SHARE
PRIMARY (0.011) (0.021)
----------- ------------
FULLY DILUTED (0.008) (0.018)
----------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
PRIMARY 14,040,040 26,139,451
----------- ------------
FULLY DILUTED 18,040,040 30,139,451
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-4-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 7,106,056 $711 $ 641,230 ($835,216) ($193,275)
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT 6,521,074 652 5,999,348 6,000,000
PRIVATE PLACEMENT OF COMMON STOCK, NET OF
RELATED ISSUANCE COST 5,746,894 575 1,605,827 1,606,402
ISSUANCE OF SHARES TO SECURE BRIDGE FINANCING AND
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
ADJUSTMENT TO REFLECT CHANGE IN PAR VALUE - 0 - 18,877 (18,877) - 0 - - 0 -
--------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 AS RESTATED 20,974,024 $20,974 $8,227,529 ($946,039) 7,302,464
--------------------------------------------------------------------------
UNREALIZED HOLDING LOSS ON INVESTMENTS (68,673)
---------------
$7,233,791
---------------
PREFERRED STOCK PRIVATE PLACEMENT PROCEEDS:
ISSUANCE OF COMMON STOCK UPON CONVERSION 1,925,000 1,925 1,923,075 1,925,000
PROCEEDS FROM EXCERCISE OF RELATED WARRANRTS 1,925,000 1,925 1,923,075 1,925,000
PROCEEDS FROM VARIOUS PRIVATE PLACEMENT
OFFERINGS INCLUDING SHARES ISSUED FOR SERVICES
AND FINANCING COSTS 3,980,265 3,980 2,396,814 2,400,794
PROCEEDS FROM EXERCISE OF WARRANTS 500,000 500 62,000 62,500
CANCELLATION AND REISSUANCE OF COMMON SHARES ISSUED
IN 1996 TO SECURE BRIDGE FINANCING AS FOLLOWS:
CANCELLATION OF ORIGINAL SHARES (1,600,000) (1,600) - 0 - (1,600)
CONVERSION OF BRIDGE NOTE PAYABLE 33,000 33 49,967 50,000
CONVERSION OF BRIDGE NOTE PAYABLE 350,000 350 199,650 200,000
CONVERSION OF BRIDGE NOTE PAYABLE 200,000 200 99,800 100,000
SHARES ISSUED IN LIEU OF INTEREST 100,000 100 44,900 45,000
SHARES ISSUED IN LIEU OF INTEREST 100,000 100 28,025 28,125
PROCEEDS FROM EXERCISE OF RELATED WARRANTS 1,000,000 1,000 124,000 125,000
ACQUISTION OF EQUIPMENT 571,000 571 707,469 708,040
NET LOSS FOR THE PERIOD (547,084) (547,084)
--------------------------------------------------------------------------
30,058,289 $30,058 $15,786,304 ($1,493,123) $14,323,239
----------------------------------------------------------
UNREALIZED HOLDING LOSS ON INVESTMENTS (21,173)
---------------
$14,302,066
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-5-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ($110,823) ($547,084)
-------------- --------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION & AMORTIZATION EXPENSE 19,514 728,044
INVESTMENT IN MARKETABLE SECURITIES (199,365) 22,405
(INCREASE) DECREASE IN TRADE ACCOUNTS RECEIVABLES (29,327) (1,220,740)
(INCREASE) DECREASE IN OTHER RECEIVABLES - 0 - (334,000)
(INCREASE) DECREASE IN PURCHASE ORDER FINANCING CONTRACTS (148,872) 191,672
(INCREASE) IN INVENTORY (96,002) (2,814,218)
(INCREASE) IN PREPAID EXPENSES - 0 - (45,285)
(INCREASE) IN DEFERRED TAX ASSET (52,850) (407,900)
INCREASE IN EQUIPMENT PURCHASE CONTRACTS - 0 - 1,875,000
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (45,176) 1,996,129
INCREASE IN ACCRUED EXPENSES 3,717 104,089
-------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (659,184) (451,887)
-------------- --------------
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) (10,250,801)
PURCHASE OF OFFICE FURNITURE & FIXTURES (100,000) (15,155)
ADDITIONS TO OTHER ASSETS (152,700) (951,859)
-------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (3,744,700) (11,217,815)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM SALE OF STOCK 1,606,402 6,438,294
PROCEEDS (PAYMENTS) ON SHORT-TERM BORROWINGS 2,950,000 (2,878,000)
PROCEEDS FROM CONVERTIBLE DEBENTURES - 0 - 8,000,000
PROCEEDS FROM GORDON BROTHERS FINANCINGS 198,161 6,780,489
PAYMENTS ON LONG-TERM DEBT (160,000) - 0 -
-------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,594,563 18,340,783
-------------- --------------
NET INCOME INCREASE (DECREASE) IN CASH $190,679 6,671,081
-------------- --------------
CASH AT BEGINNING OF PERIOD $33,860 $224,539
-------------- --------------
CASH AT END OF PERIOD $224,539 $6,895,619
-------------- --------------
SUPPLEMENTAL DISCLOSURES
INTEREST PAID, EXCLUDING PURCHASE ORDER CONTRACT FINANCING $32,730 $368,832
ISSUANCE OF COMMON STOCK FOR:
EQUIPMENT - 0 - 708,040
CONVERSION OF NOTES PAYABLE - 0 - 350,000
INTEREST EXPENSE - 0 - 28,125
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. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 & 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF THE BUSINESS - FIX-CORP INTERNATIONAL,
INC. ("FIX-CORP") WAS ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE ON
OCTOBER 27, 1995. A PREDECESSOR OF THE COMPANY WAS INITIALLY INCORPORATED ON
AUGUST 11,1995 UNDER THE LAWS OF THE STATE OF UTAH AND UNDER THE NAME
LIFECHOICE, INC. THE ACQUISITION BY THE COMPANY OF A COMPANY ORGANIZED BY
MARK FIXLER, THE COMPANY'S CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN OF
ITS BOARD OF DIRECTORS, INVOLVED SEVERAL EVENTS IN OR ABOUT OCTOBER, 1995,
INCLUDING THE FOLLOWING: (i) THE COMPANY CHANGED ITS NAME FROM LIFECHOICE,
INC. TO FIX-CORP INTERNATIONAL, INC.; (ii) MR. FIXLER ASSUMED CONTROL OF THE
COMPANY WITH 90% OF ITS THEN-OUTSTANDING COMMON STOCK; (iii) THE COMPANY WAS
REDOMICILED FROM BEING A CORPORATION ORGANIZED UNDER UTAH LAW TO ONE
ORGANIZED IN DELAWARE; AND (iv) THE COMPANY WAS TRANSFORMED, FROM BEING A
PUBLIC SHELL (UNDER ITS PRIOR NAME) WITH SHAREHOLDERS BUT NO OPERATIONS OR
ASSETS, TO A CORPORATION WITH THE OPERATIONS DESCRIBED BELOW.
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 INCORPORATED ON DECEMBER 17, 1996. DURING JANUARY, 1998 THE
COMPANY COMMENCED THE MANUFACTURING OF PLASTIC PALLETS FROM RECYCLED RESIN
THROUGH ITS WHOLLY-OWNED SUBSIDIARY, PALLET TECHNOLOGIES, INC., A DELAWARE
CORPORATION, INCORPORATED ON JULY 7, 1997. PALLET TECHNOLOGIES WAS
ORIGINALLY INCORPORATED UNDER THE NAME PALLETECH, INC. BUT AMENDED ITS
CERTIFICATE OF INCORPORATION ON DECEMBER 15, 1997 TO CHANGE ITS NAME.
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 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.
IN DECEMBER, 1996, THE COMPANY ACQUIRED A RECYCLING PLANT IN HEATH,
OHIO, ALSO KNOWN AS THE HEATH RESOURCE RECOVERY PLANT, FROM QUANTUM CHEMICAL
CORPORATION. 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 PALLET TECHNOLOGIES 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 PALLET TECHNOLOGIES
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.
THE FOLLOWING IS A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED
IN THE PREPARATION OF THESE CONSOLIDATED 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.
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.
-7-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PRINCIPLES OF CONSOLIDATION - THE FINANCIAL STATEMENTS INCLUDE THE
ACCOUNTS OF FIX-CORP INTERNATIONAL, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
FIXCOR INDUSTRIES, INC. AND PALLET TECHNOLOGIES, INC.. ALL SIGNIFICANT
INTERCOMPANY BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED.
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.
CASH AND CASH EQUIVALENTS - CASH INCLUDES CASH EQUIVALENTS. THE COMPANY
CONSIDERS ALL HIGHLY LIQUID WITH AN ORIGINAL MATURITY OF THREE MONTHS OR LESS
TO BE CASH EQUIVALENTS.
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.
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.
PROPERTY, PLANT 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 WERE CHANGED SUBSEQUENT TO THE ISSUANCE OF
THIS REPORT. THE DOLLAR EFFECT OF THE CHANGE IS MINOR IN NATURE, AS
SUBSTANTIALLY ALL ASSETS AFFECTED WERE ACQUIRED IN LATE DECEMBER, 1996, NOT
PLACED IN SERVICE DURING THE YEAR AND THEREFOR NO DEPRECIATION EXPENSE WAS
RECORDED. THE FOLLOWING IS A SUMMARY OF APPLICABLE LIVES:
<TABLE>
<CAPTION>
LIFE IN YEARS LIFE IN YEARS
DESCRIPTION AS PREVIOUSLY REPORTED AS CHANGED
- -------------------------------------------------------------------------
<S> <C> <C>
BUILDINGS 10-25 YEARS 39 YEARS
PLANT MACHINERY AND EQUIPMENT 5-10 YEARS 10 YEARS
OFFICE FURNITURE AND FIXTURES 5-7 YEARS 10 YEARS
</TABLE>
DEPRECIATION CHARGED AGAINST OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1997 WERE $3,214 AND $675,382, RESPECTIVELY.
ORGANIZATIONAL COSTS - ORGANIZATIONAL COSTS ARE BEING AMORTIZED OVER A
PERIOD OF 60 MONTHS AND IS PRESENTED NET OF ACCUMULATED AMORTIZATION OF $32,600
AND $48,900 IN 1996 AND 1997, RESPECTIVELY. AMORTIZATION EXPENSE CHARGED AGAINST
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 $16,300 AND $16,300,
RESPECTIVELY.
-8-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DEFERRED TAXES AND INCOME TAXES - DURING 1995, THE COMPANY ADOPTED
FINANCIAL ACCOUNTING STANDARDS NO. 109, "ACCOUNTING FOR INCOME TAXES" AND ALL
YEARS PRESENTED REFLECT THE ADOPTION OF THIS METHOD, THE TOTAL EFFECT OF WHICH
WAS THE RECORDING OF A DEFERRED TAX ASSET OF $412,150 AND $820,050 IN 1996 AND
1997, RESPECTIVELY, NET OF A VALUATION ALLOWANCES OF $137,500 AND $137,500 IN
1996 AND 1997, RESPECTIVELY, WHICH ARISES SOLELY FROM THE ESTIMATED FUTURE
BENEFIT OF THE NET OPERATING LOSS CARRY-FORWARD OF APPROXIMATELY $2,233,300.
REVENUE RECOGNITION - REVENUE FROM 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.
LOSS PER COMMON SHARE - AS OF DECEMBER 31, 1996 AND 1997, 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 2 - INVESTMENT IN MARKETABLE SECURITIES
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. THE UNREALIZED HOLDING LOSS ON INVESTMENTS OF $68,673 AND $21,173
WAS RECOGNIZED DIRECTLY TO CAPITAL IN 1996 AND 1997, RESPECTIVELY.
NOTE 3 - 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. INVENTORIES AT DECEMBER 31, BY MAJOR CLASSIFICATION, WERE AS FOLLOWS:
<TABLE>
<CAPTION>
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS $96,002 $2,457,209
WORK IN PROCESS - 0 - 86,210
FINISHED GOODS - 0 - 303,990
SUPPLIES & CHEMICALS - 0 - 62,811
----- ------
TOTAL INVENTORY $96,002 $2,910,220
------- ----------
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
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.
-9-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
THE PURCHASE PRICE, AND ALLOCATION THEREOF, IS SUMMARIZED AS FOLLOWS: AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
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
----------
</TABLE>
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.
<TABLE>
<CAPTION>
THE PURCHASE PRICE WAS PAID AS FOLLOWS AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
CASH $900,000
SECURED EQUIPMENT LOAN 2,500,000
COMMON STOCK (6,521,740 RESTRICTED SHARES) 6,000,000
---------
TOTAL PAYMENTS $9,400,000
----------
</TABLE>
AT CLOSING, THE COMPANY RECEIVED A GENERAL WARRANTY DEED 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.
IN AUGUST, 1997, THE COMPANY ISSUED 471,000 SHARES OF COMMON STOCK (AT A
VALUE OF $1.24 PER SHARE) IN CONSIDERATION OF AN EQUIPMENT PURCHASE FROM A
COMMERCIAL ENTERPRISE.
PALLET TECHNOLOGIES HAS ORDERED A SPECIALIZED, STATE-OF-THE-ART, INJECTION
MOLDING MACHINE WHICH TRANSFORMS RESIN PELLETS, PRODUCED BY FIXCOR, INTO PLASTIC
PELLETS. INSTALLATION OF THIS EQUIPMENT WAS COMPLETED DURING JANUARY, 1998 AND
MANAGEMENT EXPECTS TO HAVE IT OPERATING AT FULL CAPACITY BY THE END OF THE FIRST
QUARTER OF FISCAL YEAR 1998. THE APPROXIMATE COST OF THE EQUIPMENT, MOLDS,
TRANSPORTATION AND INSTALLATION OF THE EQUIPMENT FOR PALLET TECHNOLOGIES'
OPERATION AT THE FACILITY IS $4,000,000, AND THE APPROXIMATE COST OF EQUIPMENT,
TRANSPORTATION AND INSTALLATION AT THE FLORIDA PLANT, MORE FULLY DESCRIBED IN
NOTE 13, IS EXPECTED TO BE $3,000,000, IN ADDITION TO APPROXIMATELY $1,000,000,
FOR THE COST OF MOLDS. PERMANENT FINANCING FOR THE PALLET TECHNOLOGIES
EQUIPMENT FOR INSTALLATION AT THE FACILITY WAS SECURED FROM GORDON BROTHERS
CAPITAL CORP.
-10-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - OTHER ASSETS AND DEFERRED CHARGES
<TABLE>
<CAPTION>
OTHER ASSETS AND DEFERRED CHARGES CONSIST OF THE FOLLOWING: 1996 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
UNAMORTIZED DEBT ISSUE COSTS (NET OF ACCUMULATED AMORTIZATION OF
$-0- AND $52,593 IN 1996 AND 1997, RESPECTIVELY) $-0- $894,082
DEFERRED PREOPERATING PLANT STARTUP COSTS (NET OF ACCUMULATED
AMORTIZATION OF $-0- AND $36,362 IN 1996 AND 1997, RESPECTIVELY 36,750 145,060
DISPUTED FINANCE DEPOSIT CLAIM, NET OF VALUATION ALLOWANCE OF
$30,000 IN 1997 90,000 60,000
LICENSE AGREEMENT -0- 30,000
NOTE RECEIVABLE FROM AFFILIATED COMPANY 26,000 26,000
ORGANIZATIONAL COSTS (NET OF ACCUMULATED AMORTIZATION OF $32,600
AND $48,900 IN 1996 AND 1997, RESPECTIVELY) 48,900 32,600
DEPOSITS 900 31,530
OTHER ASSETS 9,676 9,676
----- -----
TOTAL OTHER ASSETS AND DEFERRED CHARGES $212,226 $1,228,948
-------- ----------
</TABLE>
UNAMORTIZED DEBT ISSUE COSTS - UNAMORTIZED DEBT ISSUE COSTS CONSISTS OF
LEGAL AND ACCOUNTING FEES, PRINTING COSTS AND OTHER EXPENSES ASSOCIATED WITH
ISSUANCE OF DEBT AND FINANCING INSTRUMENTS, INCLUDING THE CONVERTIBLE
DEBENTURES. THE COSTS ARE BEING AMORTIZED OVER THE LIFE OF THE RELATED FINANCING
INSTRUMENT. AMORTIZATION EXPENSE CHARGED TO OPERATIONS WAS $-0- AND $36,362 IN
1996 AND 1997, RESPECTIVELY.
NOTE RECEIVABLE FROM AFFILIATED COMPANY - 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.
DISPUTED FINANCE DEPOSIT CLAIM - 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 - 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 PERIOD STARTING ON THE DATE THAT THE PLANT BECAME FULLY
OPERATIONAL IN FEBRUARY, 1997.
PATENTS, TRADEMARKS AND LICENSES - PALLET TECHNOLOGIES HAS ENTERED
INTO A LICENSING AND MARKETING AGREEMENT WITH NITRO PLASTICS TECHNOLOGIES.
UNDER THAT AGREEMENT, PALLET TECHNOLOGIES IS THE SUB-LICENSEE OF CERTAIN
PROPRIETARY INJECTION MOLDING TECHNOLOGY FOR THE MANUFACTURING OF PLASTIC
PALLETS AND OTHER PRODUCTS FROM RECYCLED PLASTIC. PALLET TECHNOLOGIES USES THE
TRADEMARK POWER-PAL 2000U WITH RESPECT TO ITS PALLETS, BUT HAS NOT REGISTERED
OR APPLIED FOR REGISTRATION OF THAT TRADEMARK.
IN FEBRUARY, 1998, NITRO, MR. AISENBERG AND PALLET TECHNOLOGIES ENTERED
INTO THE FIRST AMENDED LICENSING AND MARKETING AGREEMENT UNDER WHICH THE ROYALTY
RATE OF $2.50 PER PALLET SOLD UNDER PALLET TECHNOLOGIES' ORIGINAL AGREEMENT WITH
NITRO IS REDUCED TO $0.50 DURING THE FIRST FIVE YEARS AND $0.25 DURING THE NEXT
FIVE YEARS.
-11-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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. 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.
NOTE 6 - DEFERRED TAXES AND INCOME TAXES
AS MORE FULLY DESCRIBED IN NOTE 1, THE COMPANY ADOPTED FINANCIAL ACCOUNTING
STANDARDS NO. 109, "ACCOUNTING FOR INCOME TAXES" AND ALL YEARS PRESENTED
REFLECT THE ADOPTION OF THIS METHOD. THE DEFERRED TAX ASSET OF $820,050, NET OF
A VALUATION ALLOWANCE OF $137,500, WHICH ARISES SOLELY FROM THE ESTIMATED FUTURE
BENEFIT OF THE NET OPERATING LOSS CARRY-FORWARD OF APPROXIMATELY $2,233,300.
<TABLE>
<CAPTION>
THE COMPONENTS OF THE DEFERRED TAX ASSET ARE AS FOLLOWS: 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
TAX ASSET ARISING FORM NET OPERATING LOSS CARRYFORWARD:
FEDERAL $447,375 $779,375
STATE 102,275 178,175
-------- --------
TOTAL DEFERRED TAX ASSET 549,650 957,550
LESS VALUATION FOR DEFERRED TAX ASSETS (137,500) (137,500)
-------- --------
DEFERRED TAXES - NET $412,150 $820,050
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
THE COMPONENTS OF THE PROVISION FOR TAXES WERE AS FOLLOWS: 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
PROVISION FOR DEFERRED TAXES:
FEDERAL $57,250 $332,000
STATE 13,100 75,900
VALUATION ALLOWANCE (17,500) - 0 -
------- -----
TOTAL $52,850 $407,900
------- --------
------- --------
</TABLE>
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------
<S> <C> <C>
LOSS FOR THE YEAR ENDED DECEMBER 31, 1995 $1,114,642 2010
LOSS FOR THE YEAR ENDED DECEMBER 31, 1996 163,674 2011
LOSS FOR THE YEAR ENDED DECEMBER 31, 1997 954,984 2012
-------
TOTAL NET OPERATING LOSS CARRYFORWARD $2,233,300
----------
</TABLE>
-12-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - SHORT-TERM BORROWINGS
SHORT-TERM BORROWINGS AT DECEMBER 31 CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
SECURED EQUIPMENT NOTE PAYABLE $2,500,000 $- 0 -
CONVERTIBLE BRIDGE FINANCING NOTES PAYABLE 250,000 - 0 -
6.07% CONVERTIBLE BRIDGE FINANCING NOTES PAYABLE 200,000 - 0 -
NOTES PAYABLE TO SHAREHOLDERS 418,000 180,000
12% NOTE PAYABLE 80,000 80,000
NOTES PAYABLE TO OTHERS 100,000 60,000
------- ------
$3,548,000 $320,000
---------- --------
</TABLE>
SECURED EQUIPMENT LOAN PAYABLE - AT DECEMBER 31,1996 THE COMPANY WAS 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 WAS FOR $2,500,000 BEARING INTEREST AT 12 1/2% AND WAS
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.
AS PART OF THAT AGREEMENT, GORDON BROTHERS WAS ENTITLED TO PURCHASE FROM
THE COMPANY AFTER DECEMBER 16, 1997 BUT BEFORE DECEMBER 16, 1999, FIVE HUNDRED
THOUSAND (500,000) SHARES OF THE COMPANY'S $.001 VALUE COMMON STOCK AT A PRICE
OF TWENTY-FIVE CENTS ($0.25) PER SHARE. SUCH SHARES UNDER OPTION ARE
RESTRICTED SHARES. GORDON BROTHERS CAPITAL CORPORATION EXERCISED THEIR OPTION
DURING 1997.
IN ADDITION TO THIS OPEN-END MORTGAGE, GORDON BROTHERS WAS 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 WAS DEFINED 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 LOAN CONTRACT CONTAINED 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 THE BORROWER WAS 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.
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. CERTAIN
PROCEEDS OF THIS LOAN WERE USED TO RETIRE THE PREVIOUSLY DESCRIBED SECURED
EQUIPMENT LOAN PAYABLE GORDON BROTHERS.
-13-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BRIDGE FINANCING NOTES PAYABLE - DURING 1996 AND SUBJECT TO A CERTAIN
"CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM", MORE FULLY DESCRIBED IN NOTE 10,
THE COMPANY SOLD $250,000 IN BRIDGE NOTES TO QUALIFIED ACCREDITED INVESTORS.
THE PROCEEDS OF THE BRIDGE NOTES WERE 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 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.
ON DECEMBER 11, 1996, FOR VALUE RECEIVED, THE COMPANY PROMISED TO PAY TO
THE ORDER OF GENERATION CAPITAL ASSOCIATES, A NON AFFILIATED NEW YORK LIMITED
PARTNERSHIP OR ITS ASSIGNS, THE PRINCIPAL AMOUNT OF TWO HUNDRED THOUSAND
DOLLARS ($200,000). THE PRINCIPAL THEREOF AND ANY UNPAID ACCRUED INTEREST
THEREON BECAME DUE AND PAYABLE ON JUNE 31,1997. THE NOTE BEARS INTEREST AT THE
RATE OF 6.07% PERCENT PER ANNUM ON THE OUTSTANDING PRINCIPAL BALANCE, PAYABLE
QUARTERLY COMMENCING JANUARY 1,1997.
DURING 1997, $350,000 OF THE BRIDGE NOTES, INCLUDING CERTAIN INTEREST
ACCRUALS WERE CONVERTED INTO A TOTAL OF 783,000 SHARES OF COMMON STOCK. IN
ADDITION, CERTAIN WARRANTS RELATED TO THESE DEBT INSTRUMENTS WERE EXERCISED
RESULTING IN THE ISSUANCE OF 1,000,000 SHARES OF COMMON STOCK FOR $125,000.
NOTES PAYABLE - 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 1% PER MONTH. ALL NOTES ARE
CURRENT.
NOTE 8 - LONG-TERM DEBT
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
DEBENTURES BEARING INTEREST AT THE RATE OF 6% PER ANNUM, PAYABLE QUARTERLY IN
ARREARS, AND DUE OCTOBER 24, 2000.
ON NOVEMBER 25, 1997, PURSUANT TO AN AMENDED AND RESTATED CONVERTIBLE
DEBENTURE PURCHASE AGREEMENT AND COLLATERAL DOCUMENTS, THE INTEREST RATE TO THE
OCTOBER DEBENTURES WAS REDUCED TO 5% (RETAINING THE ORIGINAL OCTOBER 24,1997
EFFECTIVE DATE OF THE OCTOBER DEBENTURES), AND THE COMPANY ISSUED NEW DEBENTURES
IN THE PRINCIPAL AMOUNT OF $3,000,000 TO ONE OF THE OCTOBER, 1997 INVESTORS,
BEARING A RATE OF 5% PER ANNUM, PAYABLE QUARTERLY IN ARREARS, AND DUE NOVEMBER
25, 2000.
THE COMPANY EXPECTS TO USE THE NET PROCEEDS OF THE TRANSACTIONS PRIMARILY
FOR THE ACQUISITION OF EQUIPMENT FOR THE START-UP AND EXPANSION OF PALLET
TECHNOLOGIES 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
(1) $3.91 (110% OF THE AVERAGE CLOSING BID PRICE FOR THE 5 TRADING DAYS
PRECEDING CLOSING), OR (2) 84% (PREVIOUSLY 85% UNDER THE OCTOBER DOCUMENTS) 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. ONE OF THE
PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 198,840 SHARES OF
COMMON STOCK AT THAT SAME PRICE, EXERCISABLE AT ANY TIME THROUGH NOVEMBER 25,
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
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.
-14-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
IN JANUARY, 1998, THE COMPANY ISSUED TO THE SAME TWO PURCHASERS $2,500,000
AGGREGATE PRINCIPAL AMOUNT OF THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE
(TOGETHER WITH INTEREST THEREON) AT ANY TIME INTO SHARES OF COMMON STOCK AT A
CONVERSION PRICE EQUAL TO THE LESSER OF (1) $3.34, OR (2) 83% OF THE AVERAGE OF
THE 5 LOWEST CLOSING BID PRICES FOR 'THE 10 TRADING DAYS PRECEDING CONVERSION.
THE PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 198,413 SHARES OF
COMMON STOCK AT AN EXERCISE PRICE EQUAL TO $3.34 PER SHARE. THE WARRANTS ARE
EXERCISABLE AT ANY TIME THROUGH JANUARY 22, 2001. THE COMPANY IS REQUIRED TO
AMEND THE REGISTRATION STATEMENT ON FORM SB-2 TO INCLUDE RESALE BY THE HOLDERS
OF SHARES ISSUABLE UPON CONVERSION OF SUCH DEBENTURES AND EXERCISE OF SUCH
WARRANTS.
UNDER GENERALLY THE SAME TERMS AND CONDITIONS IN MARCH, 1998, THE COMPANY
ISSUED TO THE SAME TWO PURCHASERS $1,500,000 AGGREGATE PRINCIPAL AMOUNT OF
THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE (TOGETHER WITH INTEREST
THEREON) AT ANY TIME INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE AS
PREVIOUSLY DEFINED. THE COMPANY IS REQUIRED TO AMEND THE REGISTRATION STATEMENT
ON FORM SB-2 TO INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION
OF SUCH DEBENTURES AND EXERCISE OF SUCH WARRANTS.
THE DEBENTURE TRANSACTION DOCUMENTS INCLUDE ADDITIONAL REPRESENTATIONS,
WARRANTIES, COVENANTS AND DEFAULT PROVISIONS NOT ATYPICAL FOR SUCH FINANCINGS.
$7,000,000 REVOLVING-TERM NOTE - IN JULY, 1997, THE COMPANY, FIXCOR AND
PALLET TECHNOLOGIES, AS BORROWERS, SECURED FINANCING FROM GORDON BROTHERS
CAPITAL CORP., IN THE FORM OF A $3,500,000 LINE OF CREDIT, BEARING INTEREST AT
12%, THE PROCEEDS OF WHICH ARE INTENDED TO FINANCE THE ACQUISITION OF EQUIPMENT
FOR USE IN THE OPERATIONS OF PALLET TECHNOLOGIES. IN ADDITION, THE LENDERS ALSO
RECEIVED WARRANTS TO PURCHASE 500,000 SHARES OF COMMON STOCK AT AN EXERCISE
PRICE EQUAL TO $.125 PER SHARE. THIS FACILITY IS SECURED BY SUBSTANTIALLY ALL
OF THE ASSETS OF THE COMPANY AND ITS SUBSIDIARIES. MR. FIXLER IS THE GUARANTOR
OF THIS LINE OF CREDIT IN AN AMOUNT UP TO $1,000,000.
ALL FINANCING FROM NATIONSCREDIT COMMERCIAL CORPORATION WAS REFINANCED
THROUGH GORDON BROTHERS CAPITAL, LLC (SUCCESSOR TO GORDON BROTHERS CAPITAL
CORP.) IN DECEMBER, 1997. THIS RESULTED IN THE COMPANY, FIXCOR AND PALLET
TECHNOLOGIES BEING THE BORROWERS ON A REVOLVING CREDIT FACILITY IN THE PRINCIPAL
AMOUNT OF $7,000,000, $3,500,000 OF WHICH PRINCIPAL MATURES IN OCTOBER, 1998.
NOTE 9 - LEASE COMMITMENTS
ON OCTOBER 17, 1997, THE COMPANY ENTERED INTO A THREE (3) YEAR 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 FOR THE YEAR ENDED DECEMBER 31, 1996. MONTHLY RENTALS
THROUGH DECEMBER 31, 1997 ARE $1,393 PER MONTH.
DURING 1997, THE COMPANY ENTERED INTO A "FEDERAL RAILCAR MASTER CAR LEASING
AGREEMENT AND SERVICE CONTRACT" TO FACILITATE SHIPMENTS TO CUSTOMERS. THE
VARIOUS RENTAL AGREEMENTS ARE FOR UP TO TWENTY (20) CARS AND ARE GENERALLY FOR A
TERM OF ONE (1) YEAR AND RENEWABLE AT THE OPTION OF THE COMPANY. RENT EXPENSE
UNDER THE VARIOUS CONTRACTS AMOUNTED TO $20,411 FOR THE YEAR ENDED DECEMBER 31,
1997. MONTHLY RENTALS THROUGH DECEMBER 31, 1997 WERE APPROXIMATELY $2,700 PER
MONTH. SUBSEQUENT TO DECEMBER 31, 1997, THE COMPANY ACCEPTED ADDITIONAL CARS
AND RENTALS UNDER THE MASTER AGREEMENT WHICH INCREASED TO APPROXIMATELY $23,000
PER MONTH.
PURSUANT TO A 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.
-15-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ON AUGUST 5, 1997, TO FACILITATE A PLANNED INCREASE IN INVENTORY, THE
COMPANY ENTERED INTO A ONE (1) YEAR LEASE FOR 73,000 SQUARE FEET OF WAREHOUSE
SPACE AT A MONTHLY RENTAL OF $15,330. RENTAL EXPENSE FOR THE YEAR ENDED DECEMBER
31, 1997 AMOUNTED TO $76,650 .
NOTE 10 - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - 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 $200,000 IN 1997.
MR. DELAURENTIIS, PRESIDENT OF FIX-COR INDUSTRIES, 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 ALSO A VICE PRESIDENT
OF THE COMPANY. HE WAS NOT EMPLOYED BY THE COMPANY OR FIXCOR DURING FISCAL YEAR
1996.
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 SUBJECT TO AN ADMINISTRATIVE ORDER ISSUED IN AUGUST, 1997 BY
THE OHIO DIVISION OF SECURITIES, AND RELATING TO CERTAIN MATTERS DEEMED TO
CONSTITUTE VIOLATIONS OF OHIO SECURITIES LAWS. THE COMPANY WAS ORDERED TO
'CEASE AND DESIST' FROM ACTS AND PRACTICES FOUND TO VIOLATE THE OHIO REVISED
CODE AS TO THE SALES OF SECURITIES. THERE WERE NO FURTHER RESTRICTIONS IMPOSED
PURSUANT TO THE ORDER. 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.
NOTE 11 - STOCKHOLDERS' EQUITY
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. 30,053,289 SHARES OF COMMON STOCK WERE ISSUED AND OUTSTANDING AS OF
DECEMBER 31, 1997..
PREFERRED STOCK - NO SHARES OF PREFERRED STOCK OF THE COMPANY (THE
"PREFERRED STOCK") WERE ISSUED AND OUTSTANDING AS OF DECEMBER 31, 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.
RECENT SALES OF UNREGISTERED SECURITIES - DURING THE PERIOD NOVEMBER,
1995 THROUGH AUGUST, 1996, PURSUANT TO RULE 504 OF REGULATION D, THE COMPANY
OFFERED AND SOLD TO APPROXIMATELY 160 PURCHASERS 2,000,000 SHARES OF COMMON
STOCK AT $.50 PER SHARE.
-16-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DURING THE PERIOD NOVEMBER, 1996 THROUGH MAY, 1997, THE COMPANY ISSUED
APPROXIMATELY 4,000,000 ADDITIONAL SHARES OF COMMON STOCK FOR VARIOUS PURPOSES
AND CONSIDERATION. THE COMPANY TREATED ALL SUCH ISSUANCES AS EXEMPT FROM
REGISTRATION UNDER RULE 504 OF REGULATION D, AND THE MAJOR TRANSACTIONS
REFLECTED THEREIN INCLUDED THE FOLLOWING:
(1.) IN 1997, THE COMPANY SOLD 3,980,265 SHARES SOLD FOR APPROXIMATELY
$2,400,000 OR $.60 PER SHARE.
(2.) 550,000 SHARES ISSUED TO SECURE CERTAIN BRIDGE FINANCING FROM
GENERATION CAPITAL ASSOCIATES..
(3.) IN SEPTEMBER, 1996, PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT
THE COMPANY SOLD TO SIX PURCHASERS 575,000 SHARES OF COMMON STOCK
AT A PURCHASE PRICE OF $.50 PER SHARE.
(4.) IN DECEMBER, 1996 IN CONNECTION WITH CERTAIN BRIDGE FINANCING IN
THE AMOUNT OF $200,000, 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, WHICH WERE EVENTUALLY EXERCISED
AT THAT PRICE.
(5.) IN DECEMBER, 1996 AND JULY, 1997 IN CONNECTION WITH DEBT FINANCING
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 $.125 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.
(6.) IN 1996 PURSUANT TO THE ACQUISITION AGREEMENT, THE COMPANY ISSUED
TO MR. FIXLER 6,063,036 SHARES OF COMMON STOCK (AT A VALUE OF $1.01
PER SHARE) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION
4(2) OF THE SECURITIES ACT.
(7.) FROM JUNE, 1997 TO OCTOBER 1, 1997, PURSUANT TO AN OFFERING UNDER
SECTION 4(2) OF THE SECURITIES ACT, 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 1,925,000 SHARES OF COMMON
STOCK WERE ISSUED PURSUANT TO EXERCISE OF SUCH RIGHTS.
(8.) IN AUGUST, 1997, PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT THE
COMPANY ISSUED 571,000 SHARES OF COMMON STOCK (AT A VALUE OF $1.24
PER SHARE) IN CONSIDERATION OF AN EQUIPMENT PURCHASE FROM A
COMMERCIAL ENTERPRISE.
(9.) IN NOVEMBER, 1997, PURSUANT TO RULE 506 OF REGULATION D, THE
COMPANY ISSUED TO TWO INSTITUTIONAL INVESTORS $8,000,000 AGGREGATE
PRINCIPAL AMOUNT OF THREE-YEAR 5% CONVERTIBLE DEBENTURES. THE
TRANSACTION REFLECTED A REISSUANCE OF $5,000,000 CONVERTIBLE
DEBENTURES IN EXCHANGE FOR SIMILAR DEBENTURES ISSUED TO THE SAME
PURCHASERS IN OCTOBER, 1997, AND A NEW ISSUANCE OF $3,000,000
CONVERTIBLE DEBENTURES TO ONE OF SUCH PURCHASERS. 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) 84% OF THE AVERAGE OF THE SLOWEST CLOSING BID
PRICES DURING THE 10 TRADING DAYS PRECEDING CONVERSION. THE
PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 530,240
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 (AS TO 331,400 SHARES) AND NOVEMBER 25,2000 (AS TO 198,840
SHARES). PURSUANT TO THE TERMS OF THE DEBENTURES AND WARRANTS, THE
COMPANY HAS FILED WITH THE SEC A REGISTRATION STATEMENT ON FORM
SB-2 WITH RESPECT TO RESALE
-17-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BY THE HOLDERS OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THE DEBENTURES AND EXERCISE OF THE WARRANTS.
(10.) IN JANUARY, 1998, PURSUANT TO RULE 506 OF REGULATION D, THE COMPANY
ISSUED TO THE SAME TWO PURCHASERS $2,500,000 AGGREGATE PRINCIPAL
AMOUNT OF THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE
(TOGETHER WITH INTEREST THEREON) AT ANY TIME INTO SHARES OF COMMON
STOCK AT A CONVERSION PRICE EQUAL TO THE LESSER OF (I) $3.34, OR
(II) 83% OF THE AVERAGE OF THE 5 LOWEST CLOSING BID PRICES FOR THE
10 TRADING DAYS PRECEDING CONVERSION. THE PURCHASERS ALSO RECEIVED
WARRANTS TO PURCHASE AN AGGREGATE 198,413 SHARES OF COMMON STOCK AT
AN EXERCISE PRICE EQUAL TO $3.34 PER SHARE. THE WARRANTS ARE
EXERCISABLE AT ANY TIME THROUGH JANUARY 22, 2001. THE COMPANY IS
REQUIRED TO AMEND THE REGISTRATION STATEMENT ON FORM SB-2 TO
INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION OF
SUCH DEBENTURES AND EXERCISE OF SUCH WARRANTS.
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 12 - SEGMENT INFORMATION
THE COMPANY'S CORPORATE AWARDS JEWELRY MARKETING BUSINESS ACTIVITY IS STILL
CONTINUING ON A LIMITED BASIS. REVENUES FROM CORPORATE AWARDS JEWELRY MARKETING
BUSINESS FOR FISCAL YEAR 1997 WERE APPROXIMATELY 2.3% OF THE COMPANY'S REVENUE.
THE PURCHASE ORDER FINANCING BUSINESS IS BEING PHASED OUT. AS OF DECEMBER 31,
1997 THE AGGREGATE PRINCIPAL OF THE PURCHASE ORDER FINANCING CONTRACTS WAS
REDUCED TO APPROXIMATELY $30,000, AND THE COMPANY IS NOT ENTERING AND DOES NOT
INTEND TO ENTER INTO ANY ADDITIONAL PURCHASE ORDER FINANCING ARRANGEMENTS.
REVENUES FROM THE PURCHASE ORDER FINANCING BUSINESS FOR FISCAL YEAR 1997 WERE
APPROXIMATELY 4% OF THE COMPANY'S REVENUE.
NOTE 13 - SUBSEQUENT EVENTS
POLY STYLE INDUSTRIES, INC - IN FEBRUARY, 1998, THE COMPANY ENTERED INTO
AN AGREEMENT ON FEBRUARY 3, 1998 WITH UNIVERSAL VINYL CORP. ("UV"), A FLORIDA
CORPORATION, AS SELLER, AND YORAM AISENBERG AND AVRAHAM WEINSTEIN, JOINTLY AND
SEVERALLY AS GUARANTORS OF UV'S OBLIGATIONS. UNDER THE UV AGREEMENT, CERTAIN
CONDITIONS HAVING BEEN SATISFIED, ON FEBRUARY 28, 1998, THE COMPANY ACQUIRED THE
ASSETS OF UV, WHOSE OPERATIONS ARE LOCATED AT A PLANT IN MEDLEY, FLORIDA, A
SUBURB OF MIAMI. THE PURCHASE PRICE OF THESE ASSETS IS $1.04 MILLION. THE
SOURCE OF FUNDS FOR THIS ACQUISITION IS CASH ON HAND, ARISING FROM THE VARIOUS
CAPITAL RAISING ACTIVITIES OF THE COMPANY.
THE COMPANY INTENDS TO UTILIZE THE ASSETS ACQUIRED UNDER THE UV AGREEMENT
THROUGH ITS WHOLLY-OWNED SUBSIDIARY, POLY STYLE INDUSTRIES, INC. ("POLY STYLE"),
INCORPORATED UNDER DELAWARE LAW ON FEBRUARY 18, 1998. THE COMPANY INTENDS THAT
POLY STYLE WILL MOVE AND OPERATE THOSE ASSETS TO AND AT SPACE TO BE IDENTIFIED
AND TO BE LEASED IN MEDLEY, FLORIDA. THE LEASE AND RELOCATION IS NOT EXPECTED TO
BE FINALIZED UNTIL APPROXIMATELY THE END OF APRIL, 1998.
IN ADDITION TO BEING THE PRESIDENT OF UV, MR. AISENBERG IS A DIRECTOR OF
NITRO PLASTIC TECHNOLOGIES OF ISRAEL ("NITRO"). NITRO OWNS THE PROPRIETARY
INJECTION MOLDING PROCESS LICENSED TO AND USED BY PALLET TECHNOLOGIES IN
MANUFACTURING PALLETS. IN FEBRUARY, 1998, NITRO, MR. AISENBERG AND PALLET
TECHNOLOGIES ENTERED INTO THE FIRST AMENDED LICENSING AND MARKETING AGREEMENT
UNDER WHICH THE THE ROYALTY RATE OF $2.50 PER PALLET SOLD UNDER PALLET
TECHNOLOGIES' ORIGINAL AGREEMENT WITH NITRO IS REDUCED TO $0.50 DURING THE FIRST
FIVE YEARS AND $0.25 DURING THE NEXT FIVE YEARS. PALLET TECHNOLOGIES, IN
ADDITION TO CONTINUING ITS OPERATIONS AT THE FACILITY, HAS ORDERED (AT AN
AGGREGATE INSTALLED COST OF APPROXIMATELY $4.0 MILLION) AND, DURING
APPROXIMATELY THE THIRD QUARTER OF FISCAL 1998 EXPECTS TO INSTALL EQUIPMENT AT
THE FLORIDA PLANT, AND TO COMMENCE THE PRODUCTION OF PALLETS FROM PLASTIC RESIN
PELLETS ACQUIRED FROM THIRD PARTY SUPPLIERS.
-18-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PALLET TECHNOLOGIES, INC - DURING JANUARY, 1998 THE COMPANY COMMENCED THE
MANUFACTURING OF PLASTIC PALLETS FROM RECYCLED RESIN THROUGH ITS WHOLLY-OWNED
SUBSIDIARY, PALLET TECHNOLOGIES, INC., A DELAWARE CORPORATION, INCORPORATED ON
JULY 7, 1997. PALLET TECHNOLOGIES WAS ORIGINALLY INCORPORATED UNDER THE NAME
PALLETECH, INC. BUT AMENDED ITS CERTIFICATE OF INCORPORATION ON DECEMBER 15,
1997 TO CHANGE ITS NAME.
CONVERTIBLE DEBENTURES - IN JANUARY, 1998, THE COMPANY ISSUED TO THE
SAME TWO PURCHASERS $2,500,000 AGGREGATE PRINCIPAL AMOUNT OF THREE-YEAR, 4%
CONVERTIBLE DEBENTURES, CONVERTIBLE (TOGETHER WITH INTEREST THEREON) AT ANY TIME
INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE EQUAL TO THE LESSER OF (1)
$3.34, OR (2) 83% OF THE AVERAGE OF THE 5 LOWEST CLOSING BID PRICES FOR 'THE 10
TRADING DAYS PRECEDING CONVERSION. THE PURCHASERS ALSO RECEIVED WARRANTS TO
PURCHASE AN AGGREGATE 198,413 SHARES OF COMMON STOCK AT AN EXERCISE PRICE EQUAL
TO $3.34 PER SHARE. THE WARRANTS ARE EXERCISABLE AT ANY TIME THROUGH JANUARY
22, 2001. THE COMPANY IS REQUIRED TO AMEND THE REGISTRATION STATEMENT ON FORM
SB-2 TO INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION OF SUCH
DEBENTURES AND EXERCISE OF SUCH WARRANTS.
UNDER GENERALLY THE SAME TERMS AND CONDITIONS IN MARCH, 1998, THE COMPANY
ISSUED TO THE SAME TWO PURCHASERS $1,500,000 AGGREGATE PRINCIPAL AMOUNT OF
THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE (TOGETHER WITH INTEREST
THEREON) AT ANY TIME INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE AS
PREVIOUSLY DEFINED. THE COMPANY IS REQUIRED TO AMEND THE REGISTRATION STATEMENT
ON FORM SB-2 TO INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION
OF SUCH DEBENTURES AND EXERCISE OF SUCH WARRANTS.
-19-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Stockholder to be Held April 22, 1998
Revoking all prior proxies, the undersigned, a stockholder of Fix-Corp
International, Inc. (the "Company"), hereby appoints Mark Fixler and
Andrew I. Press, and each of them, attorneys and agents of the undersigned,
with full power of substitution, to vote all shares of the Common Stock, par
value $.001 per share ("Common Stock"), of the undersigned of the Company at
the Annual Meeting of Stockholders of the Company to be held at the Marriott
Hotel, Beachwood, Ohio on April 22, 1998 at 8:00 a.m., local time, and at any
adjournment thereof, as fully and effectively as the undersigned could do if
personally present and voting, hereby approving, ratifying and confirming all
that said attorneys and agents or their substitutes may lawfully do in place
of the undersigned as indicated on the reverse.
IMPORTANT: SIGNATURE REQUIRED ON THE REVERSE SIDE
<PAGE>
1. NUMBER OF DIRECTORS
FOR INCREASING
the number of AGAINST ABSTAIN
directors to six (6)
/ / / / / /
2. ELECTION OF DIRECTORS
FOR all nominees listed to right WITHHOLD
(Except as marked to the contrary ALL
by striking out name of nominee) NOMINEES
/ / / /
Mark Fixler
Gary M. DeLaurentiis
Lawrence C. Schmelzer
S. Darwin Noll
Andrew I. Press
Michael DiSanto
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE INCREASE IN NUMBER
OF DIRECTORS AND FOR THE ELECTION OF THE LISTED NOMINEES AS DIRECTORS.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Signature Date
----------------------------------------- -----------------
Signature Date
----------------------------------------- -----------------
NOTE: Please sign exactly as name appears in ownership record. When
shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
