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UNITED STATES
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
INTERNATIONAL FOAM SOLUTIONS, INC.
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(Name of Small Business Issuer in its charter)
Florida 65-0412538
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1885 Southwest 4th Avenue, Building B-3, Delray Beach FL 33444
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Issuer's Telephone Number (561) 272-6900
Securities to be registered pursuant to Section 12(b) of the Act.
None
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Title of each class Name of each exchange on which registered
Securities to be registered pursuant to Section 12(g) of the Act.
None
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Title of each class Name of each exchange on which registered
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
International Foam Solutions, Inc., (the "Company") was incorporated
under the laws of the State of Florida in May 1993. The Company produces and
markets a self-contained system, termed the "Stryo Solve System," which
utilizes the Company's "Solution Machine" and a patented "Styro Solve"
solution, for disposing of and recycling polystyrene foam products. Polystyrene
is a lightweight plastic, composed of hydrogen and carbon atoms. It is derived
from petroleum and natural gas by-products, the most common of which,
styrofoam, is utilized in the packaging industry. The Company's Styro Solve
System can also recycle other polystyrene products, such as the material from
which many computer monitors and keyboards are made. To the Company's
knowledge, the Company offers the only safe, efficient, economical and
practical means of recycling such waste materials.
Since its inception, the Company has been primarily engaged in the
research and development of its Styro Solve System, including the development
of machinery required to process the Styro Solve solution and recycle
polystyrene. The Company, together with two outside manufacturers, have
developed four models of its Solution Machines, for use by various businesses,
depending on their respective polystyrene usage and recycling requirements. The
smallest of the Solution Machines is approximately the size of an outdoor U.S.
Government issued mail deposit box, suitable for smaller cafeterias serving up
to eight hundred meals per day, as well as other businesses which consume up to
thirty pounds of styrofoam per day; the largest of such machines can recycle
approximately one hundred pounds per hour.
Due to limited capital resources, the Company's sales activities to
date have been minimal for its Styro Solve System. Prior to commencing such
sales activities, the Company engaged in extensive beta site testing with a
variety of businesses in several locations, including a school district and
several major Fortune 500 companies, some of which continue to be current
Company customers. As a result of such beta site testing in prior years, the
Company believes it has now developed an effective product and system for the
recycling of polystyrene.
(b) Business of the Issuer
(1) Principal Products and Services and their Markets
The Company's principal products and services consist of two distinct
categories of products. One category is based on its Styro Solve System, for
consolidating, reducing and discarding polystyrene foam materials, which is
leased or sold to customers who have a need to discard used or excess
polystyrene products; the second category is the supply by the Company of
recycled polystyrene beads and chips that are sold to plastic manufacturers as
raw material.
The Styro Solve System is made up of four fundamental components: the
Solution Machine (four models); the Styro Solve solution which is added to the
Solution Machine and sprayed on the polystyrene as it is shredded within the
Solution Machine, causing the compression (by removing the air) of such
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polystyrene into a gel-like substance called "Polygel," the pick up and removal
of the Polygel; and finally, support services by the Company, including
extended warranties on equipment and a full educational program (videos,
posters, teacher and student guides, student questionnaires, training of food
service and custodial personnel) on the Styro Solve System.
Styro Solve is the Company's brand name for the solvent used in the
Solution Machine to reduce the volume of polystyrene foam by approximately 90%
and convert the material into the Polygel. Styro Solve is based on a compound
derived from citrus oils, which may be readily obtained from the rinds and
other natural products of the citrus industry. An additional proprietary patent
pending on the process is also used in the manufacture of the Styro Solve
solution.
The Styro Solve System provides for polystyrene materials to be placed
in a free-standing metal bin (the Solution Machine) that houses a shredder to
physically break down the foam materials, and a sprayer to douse the shredded
material with a non-toxic, environmentally safe solution (Styro Solve). The
Solution Machine is sold or leased to a customer and is physically located on
such customer's premises. The Solution Machine shreds the polystyrene and
automatically sprays Styro Solve solution on the shredded foam pieces.
Shredding the polystyrene speeds the reduction process because the small pieces
dissolve more quickly in the Styro Solve solution than large pieces. The Styro
Solve softens and dissolves the polystyrene. Air trapped in the foam is
released leaving the Polygel, which is deposited into a removable bag or
container at the base of the Solution Machine. The bags of Polygel are
collected periodically from the machine by the customer and placed in large
drums or gaylords (large square storage containers that rest on a single
pallet) supplied by the Company for a fee for later shipping at the Company's
expense. There is a minimum of eight hundred pounds of Polygel required prior
to the Company collecting the Polygel from its customers. The Polygel undergoes
a filtering and extrusion process, during which impurities and the Styro Solve
solution used earlier are removed, leaving condensed polystyrene material in
the form of hard plastic beads or chips. Such polystyrene beads or chips may
then be sold to plastic manufacturers for use in other polystyrene products. The
Styro Solve solution removed during this step may be repackaged, reused (up to
approximately eighteen times) and resold to customers. The Company is currently
storing the Polygel until such time as a recycling facility may be built. While
the Company has not constructed a recycling facility in the U.S., a Japanese
based licensee of the Company's patent is currently operating a recycling
facility on a limited basis in Japan. The Company believes, based upon its
current internal analysis, that the construction of a recycling facility in the
U.S. will not be viable until Polygel production reaches approximately four
million pounds per year. The Company currently stores approximately 100,000
pounds of Polygel. The cost estimated to construct a recycling facility is $1.5
million, based upon its current internal analysis; the Company has no immediate
plans or funds set aside for the construction of a recycling facility at this
time.
The Company does not presently manufacture or market its own recycled
products, but intends to do so, depending upon the availability of funding, of
which no assurances are given, in the event that a recycling facility may be
constructed. It is anticipated that such recycled products could include rebar
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chairs (for concrete), signage, paperclip holders, mechanical pencils,
electronics casings, etc., and that, depending upon funding availability, the
Company could either purchase or lease appropriate manufacturing equipment. The
Company has estimated that the cost to recycle the Polygel, which would include
overhead, machinery, shipping, labor and similar expenses, would be
approximately $.20 per pound of recycled product. This amount would increase to
approximately $.33 per pound if the cost of marketing activities for the end
product, which could entail utilizing Company employees and/or outside
distributors/independent contractors, were considered. It is estimated by the
Company that the end product could resell for approximately $4.00 per pound.
Generally, the Company plans to either sell or lease one of its four
models of its Solution Machines to prospective customers, depending upon their
particular polystyrene usage and recycling requirements. The retail price for
such machines are as follows: SM1100 (front load food service) -- $4,995.00;
SM2200 (top load food service) -- $5,995.00; SM 3300 (industrial grinder) --
$15,500.00; SM 3500 (industrial grinder/debulker combination) -- $29,995.00.
The Stryo Solve Solution is sold by the Company to its customers/end users on
an as needed basis, depending upon their particular polystyrene usage and
recycling requirements, in either five gallon containers at a suggested retail
price of $100, or in fifty-five gallon drums at a suggested retail price of
$990.00. Certain discounts are afforded to Company distributors. To date,
virtually all of the Company's current customers, which number 55, have
purchased Solution Machines from the Company. All of the models of Solution
Machines are currently being utilized. One of the Company's customers entered
into a lease-to-own arrangement to acquire a Solution Machine. The Company has
investigated several companies which have expressed interest in providing
lease-to-own financing to prospective customers, which companies the Company
plans to introduce to prospective customers should they desire to lease a
Solution Machine rather than purchase such machine outright.
The Company currently utilizes the services of two unaffiliated
subcontractors to manufacture all four models of the Solution Machines so as
not to be wholly reliant on a single source manufacturer. The Company assembles
the Solution Machines at its facility in Delray Beach, Florida. The Company has
found both subcontractors to be comparable in cost, reliable and comparable in
purchase/financing terms with 50% of purchase price payable with the order and
the balance due in 30 days.
Generally, the Company maintains several of its four Solution Machine
models in inventory. Depending upon the availability of additional funding, of
which no assurances are given, the Company plans to increase its inventory.
The Company believes its principal market consists primarily of
various institutions and businesses which utilize and have a need to dispose of
polystyrene products, including participants in the food service industry such
as school, hospital and business cafeterias, and to a lesser extent, consumers
and the general public.
Current customers of the Company include school districts located in
Albany and Warwick, New York, Time Warner, HBO, University of Pennsylvania
Hospital, Estee Lauder, Inc., Hewlett Packard, and Waste Management.
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The Company also plans to target regions and companies in foreign
countries, pursuant to which it intends to enter into licensing agreements or
other arrangement with foreign companies for the manufacture and sale of the
Company's products. The Company previously entered into a license agreement
with a Japanese entity pursuant to which the Company was paid one million
dollars in consideration for the Company granting such entity exclusive rights
to use and develop the Company's existing patents. Such agreement further
provides that if the Japanese entity builds recycling centers (termed
"reconverting facilities"), the Company will own fifty percent of such facility
and shall be paid a one time licensing fee based on recycling capacity
requirements which may apply to each facility. To date, such agreement has not
been further implemented by such Japanese entity due to local economic
conditions. Two regions initially targeted by the Company for foreign sales are
the Far East and European block countries, due to, among other things, the
falling Japanese Yen, the lack of capital by the Company, the Company has not
been able to operate in those regions.
The Company is currently testing its Styro Solve solution for other
proprietary applications.
(2) Distribution Methods
The Company distributes its products and services in essentially three
manners: (1) in-house employee and independent contractor sales, (2)
independent distributors and (3) outside independent contractors.
In-house sales are generated primarily from the Company's executive
offices located in Delray Beach, Florida, where the executive officers of the
Company actively pursue business leads for the Company's products. The Company
presently has one independent sales contractor who is viewed as an "in-house"
independent sales contractor as he focuses solely upon the Company's products
and services, located in the Chicago, Illinois area, who is primarily
responsible for securing customers in such area. The officers are currently
paid salaries, but no bonuses or commissions on their sales of the Company's
products. The "in-house" independent sales contractor is paid commissions only.
Currently, the Company has two distributors, one in the Anaheim,
California area and one in Houston, Texas. Distributors execute agreements with
the Company for the area in which they desire to market the Company's products.
Such distribution agreements currently provide for sales to such distributors
at wholesale prices. Distributors are essentially resellers, who purchase
products from the Company and resell such products to their customers at a
mark-up from the price charged by the Company to such distributors. Some
agreements grant such distributors partial exclusive territorial rights for
certain types of businesses (e.g. California public schools). The
distributorship agreements further provide, in some instances, that
distributors have options to distribute the Company's products on a
non-exclusive basis to other specified territories, provided that the
distributor meets certain sales conditions which may be established by the
distributor agreement.
Outside representatives are paid commissions on sales. There are
currently 8-9 Company representatives servicing four states, North Carolina,
South Carolina, Florida and Illinois. Representatives generally execute an
independent representative agreement, pursuant to which, among other things, a
commission
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is payable based on sales by the representative. Such agreements generally
provide that the Company will provide the sales representative with leads and
training, and that the representative shall not compete with the Company.
Depending upon the availability of additional funding, which may be
derived from operations as well from additional funding efforts, neither of
which are assured, the Company intends to retain, during approximately the next
twelve months, up to approximately four additional in-house sales
representatives, as well as to secure additional distributors and outside sales
representative relationships in other parts of the United States such as Texas,
Wisconsin, California, Washington, New York, New Jersey.
Due to limited capital resources, the Company has not engaged in any
media-type advertising, although Company personnel have performed
demonstrations of the Company's products and services before current and
prospective customers, as well as attended various industry trade shows.
Depending on the availability of additional funding, as discussed above, the
Company plans to engage in advertising for its products and services utilizing
infomercials, the internet, radio and co-operative advertising with other
companies including restaurants, environmental groups and foam product
manufacturers, as well as continue to attend and present its products and
services at industry trade shows. Emphasis will be placed on education
concerning the importance of recycling and protecting the environment as well
as promoting the Company's Styro Solve System as the preferred safe and
effective means of disposing of polystyrene waste.
(3) Status of Publicly Announced New Products or Services
The Company has no new publicly announced products or services.
(4) Competitive Business Conditions
At present, to the Company's knowledge, the Company's Styro Solve
System is the world's only environmentally safe and economically practical means
of recycling polystyrene products and materials. The Company potentially faces
competition from two primary fronts: competing companies (technologies) and
substitute products. Currently, the Company does not believe that it faces
significant competition from other companies. No assurances can be given,
however, that the Company will not face competition from new entrants into the
industry, having substantially greater financial and other resources than the
Company, in view of the substantial use of polystyrene products in the U.S.
economy and world-wide, and in the Company's view, the perceived need for
disposing of and recycling such products.
Three competing companies have participated or currently participate
in the polystyrene recycling market: National Polystyrene Recycling Company
("NPRC"), Dart Container Corporation ("Dart") and Resource Recovery Technology
("RRT"). One additional potential competitor, Styro Melt, was due to release
their line of recycling equipment, but has yet to do so.
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Until recently, the Company considered its largest competitor to be
NPRC, which was originally formed as a joint venture between several major
chemical and petroleum companies. NPRC recently discontinued operations as a
result of, to the Company's knowledge, and among other factors, customer
dissatisfaction in having to wash and repack polystyrene materials prior to
shipment to recycling centers, utilization of valuable warehouse space to store
original shipping containers, incurring of labor costs to clean and package
polystyrene materials and incurring a fifteen cent per pound fee to recycle
such materials.
Dart, based in Wisconsin, currently offers a compacting machine only
to the food service industry which compacts only Dart polystyrene products and
requires the compacted polystyrene to be returned to Dart for recycling when
full, with the required shipping charge. Additionally, Dart relied on NPRC for
its recycling needs.
RRT based in Lakeland, Florida, utilizes a system similar in nature to
the Styro Solve System. RRT provides its customers with a large, six-foot
stainless steel container with a solvent that resides at the base of the
container. As polystyrene material is discarded into the bin, the solution
melts the foam into a fluid which is later removed. However, the polystyrene
material is not shredded to maximize use of the solution, which is itself a
chlorine based chemical which is potentially hazardous with environmental
risks. Such system is also quite expensive to operate; RRT charges a five
thousand dollar fee to have a container placed in a customer's premises and one
hundred forty dollars to periodically remove the gel fluid from the machine.
Each one hundred forty dollar charge will process approximately 100 pounds of
polystyrene, amounting to one dollar forty cents per pound, which is
substantially higher than the cost per pound using the Company's Stryo Solve
System. Since direct access must be provided to RRT's containers in order to
pump out the waste, geographical limits are placed on the location of the
polystyrene container. Further, limits on the placement of the container may
also be imposed by requirements of the Environmental Protection Agency ("EPA")
due to the caustic nature of the solution.
The second competitive challenge to the Company is that of substitute
products; such products are primarily found in the food service industry where
three general categories of products compete. They include: disposable paper
products, disposable polystyrene foam products and non-disposable china
products (made from various materials).
Two concerns in the decision to use polystyrene foam products are the
environmental concerns and the related public relations impact, and the
economic concerns of the traditional waste management options. Due to public
relations and other concerns, certain large corporations, such as McDonalds,
have switched from utilizing polystyrene to paper based containers. Concerning
waste management, foam products consume a tremendous amount of space for their
weight. Very large dumpsters and frequent emptying, both of which are
expensive, are to be expected in any operation for which polystyrene foam is a
waste product.
Paper products generally cost more than polystyrene equivalents. The
U.S. Food and Drug Administration mandates that all paper-based food service
ware be made from virgin materials. The production of paper materials requires
more energy, creates three times more pollution and costs significantly more
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than analogous polystyrene products. Foam products are more sanitary, prevent
growth and spread of bacteria, more sturdy, more thermally efficient and can
be recycled instead of adding to landfills.
As to china and tableware, in addition to the high purchase price,
which will vary depending upon material and quality, non-disposable china and
tableware incur greater labor and clean up costs, including expensive
dish-washing equipment, detergents, water, electricity, labor, replacement of
broken pieces, inspection of sewage lines and inspection by local health
departments.
In view of the foregoing, the Company believes that polystyrene foam
products are economically superior to substitute products and that with the
development of the Styro Solve System, cafeterias and restaurants may have
little reason to avoid making use of these products.
Based upon 1998 production figures published by the Plastic News
Magazine, the total polystyrene market aggregates approximately $8 to $10
billion in sales each year. The overall market for polystyrene recycling
continues to remain underdeveloped and under-marketed due to lack of awareness
of market opportunity and the current availability of technology to address
polystyrene environmental concerns. In many cases, companies and institutions
are unaware of the option or possibility of polystyrene foam recycling. Of the
few participants in this market, none are, in the Company's opinion, adequately
marketing the advantages of their products or the importance of recycling.
(5) Sources and Availability of Raw Materials and Names of Principal
Suppliers. The specific chemical identities, other than the terpenes,
comprising the Company's Styro Solve solution, are considered by the Company to
be proprietary trade secrets. The ingredients comprising the Company's Styro
Solve solution are readily available from a number of suppliers, including Chem
Central, Inc., Florida Chemical, Inc., BASF, Inc., DuPont, Inc. The Company
utilizes two outside manufacturers to manufacture its four models of Solution
Machines and has found both manufacturers to be timely and responsive to the
Company's need for the Solution Machines.
(6) Dependence on Major Customers. The Company is not currently
dependent on one or more major customers. However, the Company's primary source
of revenue in 1997 was generated by the Company's sale of exclusive marketing
rights in Japan, to a Japanese entity, Styro Japan. This revenue is not
expected to recur.
(7) Intellectual Property. The Company owns a U.S. patent for the
process by which polystyrene is reduced to the Polygel. The patent is titled
"Reduction in Polystyrene with Activated Agent." Patent # 5223543 and expires in
2010. The Company has a patent pending for another process by which polystyrene
may be reduced to Polygel. This patent pending is titled "Reduction in
Polystyrene Foams with Dibastic Esters." The Company is in the process of
applying for patents on its Solution Machine design and for trademarks for the
Styrosolve Solution, Polygel and the Solution Machine, within approximately the
next two to three months.
(8) Governmental Approval. At this point in time, there is no need for
government approval of the Company's principal products or services.
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(9) Governmental Approval, Regulation and Environmental Compliance.
The Styro Solve solution utilized in the Styro Solve System is non-hazardous
and biodegradable and therefore not subject to state or federal regulations
that would otherwise apply to hazardous substances. The Company is and
otherwise will be subject to local, state and federal laws, rules and
regulations concerning the operation of businesses generally.
(10) Research and Development. The Company, on its own initiative, as
well as with third parties, is engaged in limited research and development
concerning potentially new proprietary applications for the Styro Solve
solution. Such amounts aggregated none and $81,344 in 1998 and 1997,
respectively, and $21,222 and none for the nine months ended September 30, 1999
and 1998, respectively.
(11) Employees. As of October 31, 1999, the Company had four (4)
full-time employees. The Company also engages sales representatives and
independent distributors. None of the Company's employees is represented by a
labor union, and the Company considers its employee relations to be good. The
Company does not anticipate the number of employees to grow significantly over
the next twelve months. The Company believes that its future success will depend
in part on its continued ability to attract, hire and retain qualified
personnel.
(c) Reports to Security Holders
Prior to filing this Form 10-SB, the Company has not been required to
deliver annual reports. To the extent that the Company is required to deliver
annual reports to security holders through its status as a reporting company,
the Company shall deliver annual reports. Also, to the extent the Company is
required to deliver annual reports by the rules or regulations of any exchange
upon which the Company's shares may be traded, the Company shall deliver annual
reports. If the Company is not required to deliver annual reports, the Company
will not go to the expense of producing and delivering such reports. If the
Company is required to deliver annual reports, they will contain audited
financial statements as required. Prior to the filing of this Form 10-SB, the
Company has not filed reports with the Securities and Exchange Commission. Once
the Company becomes a reporting company, management anticipates that appropriate
reports and other filings as may be required under the Securities Exchange Act
of 1934 will have to be filed as they become due. If the Company issues
additional shares, the Company may file additional registration statements for
those shares. The public may read and copy materials the Company files with the
Securities and Exchange Commission at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, 20549. The public may obtain information on
the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission. The Internet address of the
Commission's site is (http://www.sec.gov). The internet address of the Company's
site is (http://SOLUTIONS-net.com/IFS).
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(d) Year 2000 Disclosure
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Company does not believe that it has material exposure
to the Year 2000 issue with respect to its own information systems since its
existing systems correctly define the year 2000.
The Company does not anticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at its
facility. Management believes all of the Company's computer systems are Year
2000 compliant. The Company keeps current with all updates and revisions with
all software the Company currently uses. It is anticipated that the software
updates reflect required revisions to accommodate transactions in the Year 2000
and thereafter. Though it is not anticipated that the Company will have a
problem at the turn of the century, the Company intends to coordinate the
resolution of any Year 2000 problems with the vendors of the software the
Company utilizes. Nonetheless, the Company recognizes the problems which may
arise in connection with the Year 2000 issue.
The Company has informally surveyed its clients to determine the extent to
which their computer systems (insofar as they relate to the Company's business)
are Year 2000 compliant and, as a result of such informal survey, believes the
Year 2000 issue will not materially affect its clients. Notwithstanding the
foregoing, the failure of a major client, if any, subject to the Year 2000 issue
to become Year 2000 compliant, could have an adverse effect on the Company in
regards to such clients timely ability to process Company invoices, orders and
deliveries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
PLAN OF OPERATION
This Form 10-SB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
financial condition, results of operations and business of the Company, which
could cause actual results to differ materially from those anticipated. The
words "believe," "expect," "intend," "anticipate," "estimate," "plan" and
similar expressions identify certain of such forward looking statements, which
speak only as of the date of which they were made. All statements herein other
than those consisting solely of historical facts, that address activities,
events or development that the Company expects or anticipates will or may occur
in the future, including such things as business strategy, measures to implement
strategy, competitive strengths, goals, projected revenues, costs and other
financial results. References to future success and other events may be forward-
looking statements.
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(a) Financial Condition, Changes in Financial Condition and Results of
Operations.
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
Revenues
Revenues for the year ended December 31, 1998 decreased by
approximately $1.7 million from 1997 due primarily to actual and threatened
litigation which diverted the Company's management from its operations and
effectively curtailed the Company's marketing programs and related sales
efforts. In addition, during 1997 substantially all of the Company's sales were
to two Japanese companies, one of which entered into an exclusive licensing
agreement for Japan which resulted in the Company earning a $1 million licensing
fee. With respect to the other Japanese customer that purchased the Styro Solve
chemical product, the Company discounted its selling price on the expectation of
increased sales volume. This resulted in lower gross profit in 1997 as compared
to 1998. In 1998, the Company did not discount its selling prices for Styro
Solve.
Cost of Sales
Cost of sales for the year ended December 31, 1998 decreased by
approximately $792,000 from 1997. The decrease was attributable to the product
decrease primarily due to the absence of the Japanese sales made in 1997.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended
December 31, 1998 decreased by approximately $1.2 million from 1997. The
decrease was attributable to the decrease in sales volume as well as a decrease
in a one time commission of $250,000 which was paid to the sales person that
procured the $1 million license fee referred to above. In addition, there were
decreases in office expenses and sales, salaries and rent as a result of the
Company moving to less expensive premises and decreases in other related
expenses, offset by increases in professional fees and bad debt expenses.
Research and development
As a result of limited funds, there were no research and development
expenses incurred in 1998.
Other income (expense)
Other income-net in 1998 consists principally of a $100,000 premium
from its Japanese licensee net of interest expense. Other expense-net in 1997
principally consists of interest expense and loss on disposal of leasehold
improvements.
Provision for income taxes
No provision for income taxes was necessary in 1998 and 1997 due to
the loss reported for such years (see Note 4 to the financial statements).
Further, given the uncertainties as to realization, the deferred tax assets
have been fully reserved.
Liquidity and Capital Resources
The Company's sources of cash and financing activities during 1998 and
1997 were from the proceeds from the issuance of common stock, shareholder
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loans from the Company's officers and other borrowings. Operating activities
used such cash primarily due to the Company's inability to achieve a profitable
level of operations. Investing activities used cash primarily for the purchase
of property and equipment in each year.
The Company's financial statements are prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During 1998 and continuing
through 1999, due primarily to actual and threatened litigation, the Company's
management time was diverted from its operations and effectively curtailed the
Company's marketing programs and related sales efforts. In the latter part
1999, the Company was able to devote more time and focus on its core business.
The Company is in discussions with private investors to raise equity
capital. During 1999, the Company raised $574,000 from private investors. While
no assurances are given, the Company is also planning to raise funds from a
public offering during 2000.
SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998
Revenues
Revenues for nine months ended September 30, 1999 increased by
approximately $33,000 from 1998 as a result of the Company being able to focus
on its core operations and shift its focus from dealing with actual and
threatened litigation which diverted the Company attention in 1998. The Company
established relationships with several new customers during this period.
Cost of sales
Cost of sales for the year nine months ended September 30, 1999
increased by approximately $21,000 from 1998. The increase was directly
attributable to the increase in sales. For the same period, the gross profit
improved by 7%, which resulted from the Company being able to obtain higher
selling prices for its products.
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Selling general and administrative expenses
Selling, general and administrative for the nine months ended September
30, 1999 increased by approximately $74,000 from 1998. The increase was
primarily attributable to the recording of additional compensation expense from
the granting of certain stock options in 1999.
Research and development
Research and development expenses resumed in 1999. In 1999, the
Company incurred approximately $21,000 for activities relating to improving the
field performance of its Solution Machines by minimizing the customer's need
for repair and servicing.
Other income (expense)
Pursuant to a distribution agreement and as a result of the licensee
not reaching certain minimum order provisions, the Company was entitled to a
$100,000 premium from its Japanese licensee in 1998. In this connection, the
Company recorded the $100,000 premium as other income with a corresponding
reserve to the related receivable from the licensee. No other activity occurred
in 1999 between the Company and the licensee.
Provision for income taxes:
No provision for income taxes was provided in 1999 due to the recurring
losses reported for the period and related uncertainty as to the recovery of the
related deferred tax assets. (See Note 4 to the financial statements)
Liquidity and Capital Resources:
The Company's sources of cash, primarily from financing activities,
during nine months ended September 30, 1999 and 1998 were from the proceeds from
the issuance of common stock, shareholder loans from the Company's officers and
other borrowings. Operating activities used cash primarily due to the Company's
inability to achieve a profitable level of operations.
The Company is in discussion with private investors to raise equity
capital. Through September 30, 1999, the Company raised approximately $574,000
from private investors. While no assurances are given, the Company is also
planning to raise funds from a public offering during 2000.
13
<PAGE> 14
The Company's financial statements are prepared on a going concern
bases, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During 1998 and continuing
through 1999, due primarily to actual and threatened litigation, the Company's
time was diverted from its core operations and effectively curtailed the
Company's marketing programs and related sales efforts. In the latter part
1999, the Company was able to devote more time and focus on its core business.
The Company's continued existence is dependent upon its ability to
resolve its liquidity problems principally by obtaining positive results from
increased marketing efforts, of which no assurances are given. The financial
statements do not include any adjustments to reflect the possible future effect
on the recoverability and classification of assets or the amount of
classification of liabilities that may result from the possible inability of
the Company to continue as a going concern. There is no assurance that the
Company will be able to achieve its plan as described above (See Independent
Auditors' report which contains an explanatory paragraph regarding the
Company's ability to continue as a going concern).
14
<PAGE> 15
The Company has no material commitments for capital expenditures.
Solution Machines are purchased by the Company on an "as needed" basis based
upon orders received from the Company's customers.
Known trends, events or uncertainties that have had or are reasonably
expected to have a material impact on the net sales or revenues or income from
continuing operations include the following:
To the extent that the Company is able to obtain financing of at least
up to approximately $2,000,000, the Company intends to utilize such funds
primarily for sales and marketing activities as well as for reduction of
outstanding long and short term debt obligations and for the construction of a
recycling facility. Management anticipates that such funds, if obtained, of
which no assurances are given, together with cash flow from operations, will be
sufficient to finance the Company's working capital requirements for
approximately the next twelve months. To the extent the Company is unable to
secure such approximate amount of financing, the Company plans to utilize any
funds received for the same purposes and in the same order of priority on an
approximate pro-rata basis, subject to the discretion of management to
reallocate the usage of such funds. To the extent the Company is only able to
secure minimal financing, its level of operations will be materially and
adversely effected.
The Company is currently a party to several lawsuits, which are in
various stages of litigation. Any material adverse decision against the Company
in any of such lawsuits will, in all likelihood, have a material adverse effect
upon the Company and its operations. See "PART II- ITEM 2. LEGAL PROCEEDINGS."
Other than the Company's school customers, there are no seasonal
aspects that have had a material effect on the Company's financial condition or
results of operation.
From time to time the Company may evaluate potential acquisitions
involving complementary businesses, products or technologies. The Company has
no present agreements or understanding with respect to any such acquisition.
The Company's future capital requirements will depend on many factors,
including entry into strategic alliances, increases in advertising, marketing
and promotions, growth of the Company's customer base, general economic
conditions and other factors including the results of future operations. The
Company currently has four full time employees. Management does not currently
expect that it will be required to hire a significant number of additional
employees in the next 12 months. It is anticipated that additional independent
contractors and independent distributors will be retained for sales and
marketing purposes. As such personnel will be retained principally on a
commissioned basis, the cost associated with retaining such personnel is
expected to vary with the respective level of sales. The number of employees
hired will be based upon the Company's ability to support the increased cost
through cash flow generated by its business.
During the 12 month period following the filing of this Form 10-SB,
the Company intends to seek and obtain additional debt and/or equity financing
to further develop its business operations, principally sales and marketing. No
assurances are given that the Company will be able to successfully obtain
sufficient debt and/or equity financing on terms acceptable to the Company.
There are no current commitments for financing the Company's operations. The
Company's inability, for whatever reason, to secure additional financing on
terms acceptable to the Company will have a material adverse effect on the
Company and its operations.
Impact of Inflation
To the extent permitted by competition, the Company passes increased
costs attributable to inflation to its customers by increased sales prices over
a reasonable period of time. Also it is the Company's policy to place all of
its major supplier purchases out to bid.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. The statement applies to all entities and is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company did not engage in derivative instruments or hedging
activities in any periods presented in the financial statements and management
does not expect this statement to have a material impact on the Company's
financial position, results of operation, or cash flows.
15
<PAGE> 16
ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive offices are located in, and substantially all
of its operating activities are conducted from, its leased office space located
at 1885 Southwest 4th Avenue, Building B-3, Delray Beach, FL 33444. The Company
believes that it will be able to obtain suitable space as needed at competitive
market rates and has the physical ability to acquire additional office space at
its current location. The Company leases approximately 3,000 square feet of
office and warehouse space and does not own any real estate. The Company is not
in the business of investing in real estate or real estate mortgages.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of October 31, 1999
about each person who is known to the Company to be the beneficial owner of
more than 5% of the Company's Common Stock:
Security Ownership of Management:
<TABLE>
<S> <C> <C> <C>
Title of Class Name and Address Amount and Nature Percent of Class
Of Beneficial Owner of Beneficial Owner
Common Harvey Katz, 2,920,791(1) 21%
Chief Executive Officer/
Director
50 East Rd. #7E
Delray Beach, FL
Common Antonio Bianco 380,000 3%
Chief Operating Officer
5801 N.W. 74th Terr
Parkland FL
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Common Claudia Iovino 2,303,117(2) 17%
President/Director
6364 Amberwoods Dr.
Boca Raton, FL
Common Diane Lucien, Director 25,000(3) less than 1%
22732 S.W. 10th St.
Boca Raton, FL 33433
All directors and executive
officers as a group
(4 persons) 5,968,435(4) 40%
</TABLE>
(*) All percentages are calculated based upon 13,783,390 shares issued and
outstanding as of the date of filing this Form 10-SB plus exercisable
warrants and options within 60 days.
(1) Includes warrants to purchase 181,360 shares of common stock; See Item 8
"Warrants." See also, Item 6, "Executive Compensation."
(2) Includes warrants to purchase 158,167 shares of common stock; See Item 8
"Warrants." See also, Item 6, "Executive Compensation" plus 647,500 shares
of common stock jointly owned with husband plus 419,520 shares of common
stock owned by a Company that Mrs. Iovino has a controlling interest.
(3) Includes warrants to purchase 25,000 shares of common stock; See Item 8,
"Description of Securities; Warrants."
(4) Includes warrants to purchase 339,527 shares of Common Stock
(c) Changes in Control. There is no arrangement which may result in a change of
control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Directors and Executive Officers
As of October 31, 1999, the directors and executive officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
Period Served as Director/
Name Age Position Officer
---- --- -------- -------------------------
Harvey Katz 52 Chief Executive
Officer/Director 1993 to present
Claudia Iovino 61 President/Director 1993 to present
Antonio Bianco 50 Chief Operating
Officer April 1999 to present
Diane Lucien 44 Director February 1999 to present
17
<PAGE> 18
(b) Business Experience
HARVEY KATZ - CHIEF EXECUTIVE OFFICER. In addition to his duties at the
Company which commenced in 1993, Mr. Katz is a consultant to HKI, Inc., an
entity in which he is an investor, for which Mr. Katz previously served as
President from 1982 to 1998 (See also Item 7 below). As President of HKI, Inc.,
Mr. Katz developed that company's marketing plans for its NU Silver, Brass Plus,
and Dumpster Fresh products. Mr. Katz was formerly a Trust Accountant at
Continental Illinois National Bank, Assistant District Accountant at Berman
Truck Leasing, and President of both HKC Enterprises and HK Measure Service.
Mr. Katz was educated at Loop City College, Loyola University, and the
University of Chicago, all in Chicago, Illinois. He has had articles published
by the University of Florida Department of Plastics Information regarding the
Styro Solve method of Polystyrene reduction. Mr. Katz served in the US Army
National Guard, where he was activated for the Vietnam War and ultimately
received an Honorable Discharge. Mr. Katz is Co-Chairman of the Broward County
Recycling Committee (for commercial purposes).
CLAUDIA IOVINO - PRESIDENT AND DIRECTOR. Ms. Iovino has been employed
by and has served as a director of the Company since 1993 and currently serves
as the President of the Company. From 1982 until this year, Ms. Iovino was the
CEO of HKI, Inc., an entity in which she holds a controlling interest. Ms.
Iovino has experience in many aspects of operating a growing company involved in
the development, manufacturing and marketing of chemical products and has
experience in the day-to-day operation of a small chemical plant, including
sales coordination.
ANTONIO BIANCO - CHIEF OPERATING OFFICER. Prior to joining the Company
in April 1999, Mr. Bianco was self employed as a management consultant from 1997
to March 1999 and was Vice President/General Manager from 1993-1997 and Vice
President/Operations and Finance from 1989-1992 of Cool Care, Inc., a Deerfield
Beach, Florida based subsidiary of Dole Food Co., where he dealt with the design
and manufacture of equipment and refrigerated facilities for major retail and
wholesale food distributors internationally. Mr. Bianco is fluent in both French
and Italian.
DIANNE LUCIEN - DIRECTOR. Ms. Lucien has owned and operated her own
consulting firm for the past ten years which specializes in accounting software
and management consulting. She received her B.S. degree in accounting from
Arizona State University. Prior to her consulting business, she was employed by
Deloitte, Haskins and Sells (now Deloitte Touche) in Arizona, New York and
Florida, in the audit and emerging business consulting department. Her practice
specializes in the manufacturing, job shop, distribution and service industries.
18
<PAGE> 19
The Company's directors are elected at the annual meeting of stockholders
and hold office until their successors are elected and qualified. The Company's
officers are appointed by the Board of Directors and serve at the pleasure of
the Board and subject to employment agreements, if any, approved and ratified
by the Board.
(c) Directors of Other Reporting Companies
None of the Company's executive officers or directors is a director of any
company that files reports with the Securities and Exchange Commission.
(d) Significant Employees-Not applicable.
(e) Family Relationships
There are no family relationships between the directors, executive
officers or any other person who may be selected as a director or executive
officer of the Company.
(f) Involvement in Certain Legal Proceedings
None of the officers, directors, promoters or control persons of the
Company have been involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (2) Any conviction in
criminal proceedings or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) Being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
or any Court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or (4) Being found by a court of
competent jurisdiction (in a civil action), the Commission or the Commodity
Futures Trading Commission to have violated a federal or state securities laws
or commodities law, and the judgment has not been reversed, suspended, or
vacated.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
aggregate compensation paid to the Company's chief executive officers. No other
officer received compensation of $100,000 or more during the periods presented.
19
<PAGE> 20
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
- ------------------------------------------------------ ---------------------- -----------
Name Other Securities
And Annual Restricted Underlying
Principal Compen- Stock Options/ LTIP All other
Position Year Salary Bonus sation(1) Awards SARs Payouts Compensation
- --------- ---- -------- ----- --------- --------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harvey Katz 1998 $ 2,884 n/a $77,116 n/a n/a n/a n/a
Chief Executive 1997 $120,750 $6,360(2)
Officer n/a n/a n/a n/a n/a n/a
</TABLE>
(1) Represents stock issued in lieu of cash for salary.
(2) Represents auto allowance.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
on Exercise (#) Value Realized($) Unexercisable Unexercisable
-----------------------------------------------------------------------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey Katz None None 181,360 -- $ 0 $ --
</TABLE>
On or about October 1, 1996, the Company entered into an employment
agreement with Harvey Katz. Pursuant to such agreement, Mr. Katz was retained as
the Company's chief executive officer at an annual salary of $150,000, subject
to increases as provided therein, plus reimbursement for expenses, including,
but not limited to, automobile expenses. The agreement was amended in September
1998 to provide for Mr. Katz's salary to be $80,000.00 per year. The agreement
further provides that if Mr. Katz is terminated without cause as defined in the
agreement, he will be entitled to a severance payment equal to thirty six
months of employment.
On or about October 1, 1996, the Company executed an employment
agreement with Claudia Iovino. Pursuant to such agreement, Ms. Iovino was
retained as the president of the Company at an annual salary of $120,000,
subject to increases as provided therein, plus reimbursement for expenses,
including, but not limited to, automobile expenses. The agreement was amended in
September 1998 to provide for Ms. Iovino to serve as president of the Company at
an annual salary of $80,000 per year. The agreement further provides that if
Ms. Iovino is terminated without cause as defined in the agreement, she will be
entitled to a severance payment equal to thirty six months of employment.
On or about October 1, 1996, the Company entered into an employment
agreement with Anthony DiChiara. Pursuant to such agreement, Mr. DiChiara was
retained as the Company's treasurer at an annual salary, subject to increases
as provided therein, of $80,000. Mr. DiChiara later agreed to accepted a
position with the company as its controller. Mr. DiChiara has sued the Company
alleging that he is due a severance pay based on the agreement retaining him as
the treasurer. It is the Company's position that the agreement retaining Mr.
DiChiara was mutually terminated and no further obligations were due under the
agreement retaining him as treasurer.
20
<PAGE> 21
On or about April 5, 1999, the Company executed an employment agreement
with Antonio Bianco. Pursuant to such agreement, Mr. Bianco was retained as the
Company's chief operating officer at an annual salary of $50,000, subject to
increases as provided therein. The agreement also provides for Mr. Bianco to
exercise options to purchase the Company's common stock at a price of between
$.10 and $1.00 over a period of five years. The agreement further provides that
if Mr. Bianco is terminated without cause as defined in the agreement, Mr.
Bianco will be entitled to a severance payment equal to twelve months of
employment.
There is no standard or any other arrangements, pursuant to which any
director of the registrant was compensated for any services provided as a
director. Accordingly, no director was compensated for services provided as a
director for the periods presented.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two (2) years, the Company has not entered into a
transaction with a value in excess of $60,000 with a director, officer or
beneficial owner of 5% or more of the Company's Common Stock, except as
disclosed in the following paragraphs:
In or about May 20, 1993, the Company entered into a five year
agreement with HKI, Inc., whereby the Company granted to HKI the exclusive
manufacturing and bottling rights for the Styro Solve Solution. The agreement
provided that as long as HKI, Inc. could timely provide the Company with the
Styro Solve Solution, IFS would purchase the Styro Solve Solution from HKI,
Inc. The agreement provided for two renewal periods of five years each. Such
amounts aggregated $4,000 in 1998 and $441,000 in 1997. Neither company renewed
the agreement when it expired on or about May 20, 1998.
21
<PAGE> 22
On or about May 1, 1998, the Company executed an employment agreement
with Robert Kauffman for Mr. Kauffman to serve as the Company's chief executive
officer for a period of five years. The terms of the agreement generally
provided for Mr. Kauffman to act as chief executive officer at a $150,000
per year salary. The Company contends that Mr. Kauffman never assumed the
position for which he had been hired and had otherwise materially and repeatedly
breached the agreement. See, however, Part II, Item 2 below.
The Company currently shares office space with HKI, Inc., which is
currently owned primarily by Claudia Iovino, the Company's president. The
Company subleases space from HKI, Inc. at a rent of $12,000 per year, which
includes electricity. The companies maintain their own telephone lines and
currently pay their own office expenses.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
20,000,000 shares of Common Stock, $.01 par value per share. There is no
preferred stock authorized. Holders of shares of Common Stock are entitled to
one vote for each share on all matters to be voted on by the stockholders.
22
<PAGE> 23
Holders of shares of Common Stock are entitled to share ratably in dividends,
if any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the shares of
Common Stock issued and outstanding are fully paid and non assessable.
Warrants
Each purchaser who purchased the Company's common stock pursuant to
its Section 4(2) and 4(6) private placement of stock in 1996 received warrants
to purchase the Company's common stock, exercisable at a price of $2.50. Some
of the Company's employees and officers were issued warrants exercisable at
$1.50. All of the warrants expire May 31, 2001. The total number of shares
subject to warrants are 2,958,222.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information
The Company's Common Stock currently trades on the Over-The-Counter
Bulletin Board (OTC:BB) under the trading symbol "IFOS". The Company's Common
Stock was listed for trading on the OTC:BB on September 17, 1998, at which time
there was a trading market for such shares. Since such time there has been a
limited trading market for the Company's Common Stock. OTC Quotations presented
reflect inter-dealer prices with related retail mark-up or commission and may
not represent actual transactions. Effective November 15, 1999, the Company was
no longer in compliance with the National Association of Securities Dealers,
Inc. (NASD(R)) filing requirements. Accordingly, the letter "E" was appended to
the trading symbol. Once the NASD receives notification that the Company
complies with the filing requirement, the fifth character "E" will be removed.
The Company expects to be compliant in the near future.
The following table sets forth the average closing prices for the
Common Stock for each calendar quarter and subsequent interim period since the
Common Stock commenced actual trading, as reported by the National Quotation
Bureau, and represent the average closing price at the end of the business day:
Fiscal 1999 Closing Price
- ----------- -------------
First Quarter $.15
Second Quarter $.25
Third Quarter $.25
Fiscal 1998 Closing Price
- ----------- -------------
Third Quarter $.75
Fourth Quarter $.29
23
<PAGE> 24
There can be no assurance that an active public market for the Common
Stock will develop or be sustained. In addition, the shares of Common Stock are
subject to various governmental or regulatory body rules which affect the
liquidity of the shares.
Holders
There were approximately 186 holders of record of the Company's Common
Stock as of November 9, 1999.
Dividends
The Company has never paid cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. The Company currently intends to
retain its earnings for the operation and expansion of its business. The
Company's continued need to retain earnings for operations and expansion are
likely to limit the Company's ability to pay dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
The Company is involved in several legal proceedings as described below.
(1) Greenfield v. International Foam Solutions, Inc., et al., case no.
98-005083 in Palm Beach Circuit Court, Palm Beach County, Florida. Leo
Greenfield is an alleged Company stockholder who sued the Company for,
among other things, breach of fiduciary duty and related causes of action.
He has also sought to appoint a receiver of the corporation. He claims
that many IFS transactions involved conflicts of interest and seeks to
void same. The matter is in the discovery phase of the litigation. No
trial dates have been set. The Company and Mr. Greenfield have reached a
verbal agreement to fully resolve the matter, however, no written
agreements have been executed although same have been sent to Mr.
Greenfield for his signature several months ago. The Company intends to
continue to vigorously defend this matter in the event that settlement
documents are not executed.
(2) A.L. Garey v. International Foam Solutions, Inc., et al., case no.
97-18073 COCE 53 in Broward County Court, Broward County, Florida. A.L.
Garey was a prior manufacturer of the Solution Machines. The plaintiff
claims it is owed approximately $10,000 for parts which it allegedly
purchased in connection with the fulfillment of the Company's order, but
which were unassembled by it because of a mutual termination of their
agreement for the plaintiff to manufacture the Solution Machines. The
Company alleges that the plaintiff caused damages in excess of $10,000
by negligently designing and constructing the machines. A trial date has
been set for the end of December 1999 and the Company intends to
vigorously defend this matter.
24
<PAGE> 25
(3) Florida First Capital Finance Corporation v. International Foam Solutions,
Inc., et al., case no. C1099-371-35, Orange County Circuit Court, Orange
County, Florida. The plaintiff sued the Company alleging that it is in
default of a promissory note in the principal amount of $200,000. The
Company contends that only a relatively small portion of such amount is
actually due and owing.
(4) Northcutt, et al. v. International Foam Solutions, Inc., et al., case
number 98-001836 AB, Palm Beach County Florida Circuit Court. The
plaintiffs are shareholders of the Company and alleged certain causes of
action substantially similar to, and to the Company's belief in
cooperation with, Mr. Greenfield's litigation against the Company (see (#1)
above). However, this case was dismissed with leave to amend and the
plaintiffs failed to amend their complaint within the time allowed by the
judge. Accordingly, the matter is subject to dismissal; the Company
intends to file a motion for such dismissal on or about November 30, 1999.
(5) Keefer v. International Foam Solutions, Inc., case no. 98-006525, Palm
Beach County Florida Circuit Court. Mr. Keefer is a former employee who
has sued the Company for alleged breach of an employment contract. Mr.
Keefer claims he is entitled to a severance pay in the amount of
approximately $56,000.00 under the employment contract because he alleges
he was terminated without cause. However, it is the Company's position that
Mr. Keefer walked off the job and effectively quit, and accordingly, not
entitled to any severance under the employment agreement. A trial is
scheduled for the end of December 1999 and will be vigorously defended by
the Company.
(6) D'Agostino v. International Foam Solutions, Inc., case no. 98-6523 AB,
Palm Beach County, Florida Circuit Court. Mr. D'Agostino is a former
employee who has sued the Company for breach of an employment contract.
D'Agostino claims he is entitled to a severance pay in the amount of
approximately $42,000 under an employment contract because he alleges
he was terminated without cause. However, the Company terminated
D'Agostino with cause and accordingly, D'Agostino was not entitled to the
severance under the employment agreement. A trial is scheduled for the
middle of December and will be vigorously defended by the Company.
(7) DiChiara v. International Foam Solutions, Inc., case number CL 98-9930 AH,
in the Palm Beach County Florida Circuit Court. Mr. Dichiara is a former
employee who has sued the Company for, among other things, alleged breach
of an employment contract. Dichiara claims he is entitled to a severance
pay in the amount of approximately $80,000 under the employment contract
because he alleges he was terminated without cause. However, the Company
contends that it entered into a new agreement with Dichiara to be employed
in a different capacity, which was treated as a novation of the former
agreement with Dichiara, and as such Dichiara was not entitled to the
severance under the former employment agreement. A trial is scheduled for
sometime at the end of January to the middle of February 2000 and will be
vigorously defended by the Company.
25
<PAGE> 26
(8) Ecological Technologies, Inc. v. International Foam Solutions, Inc., case
number 98-003218 in the Palm Beach County Florida Circuit Court. The
plaintiff sued the Company for breach of a promissory note and is
attempting to foreclose on certain Japanese patent rights of the Company
which were pledged as collateral for the note. A judgment was entered
against the Company in the amount of approximately $11,000. However,
the Company has satisfied this in full. The plaintiff also sued the
Company for damages due to its allegation that the Company is doing
business in Japan, where the plaintiff claims it has exclusive territorial
rights, a claim which the Company denies. No trial date has been set and
the parties will engage in discovery on this separate claim for damages.
The Company will vigorously defend this lawsuit.
(9) Robert Kauffman v. International Foam Solutions, Inc., et al., case number
99012968, in the Broward County Florida Circuit Court. Mr. Kauffman, who
has alleged that he was the former CEO of the Company has sued the Company
for, among other things, breach of an employment agreement, claiming
damages in excess of $150,000 resulting from the Company's alleged breach
of the employment agreement. It is the Company's position that Mr.
Kauffman, although he executed the agreement, never assumed the role of CEO
and otherwise materially failed to perform under the agreement. This case
is in the discovery phase and the Company intends to vigorously defend this
matter.
(10) Sovis & Scholl v. International Foam Solutions, Inc., case number MC
99-14670 RE, in the Palm Beach County Florida Circuit Court. The
Plaintiffs claimed they were mislead by a former Company employee when
they purchased the Company's stock. They sought to rescind their stock
purchase. The plaintiffs and the Company have verbally agreed to settle
the case and the parties are in the process of executing settlement
agreements. The Company, without admitting the allegations of the
complaint, will pay the plaintiffs the sum of $12,000 over a three
month period.
(11) Waterview Resolution Corp. ("WRC"). WRC has sent the Company a demand
letter seeking the payment of $11,166.79 which WRC claims is a deficiency
balance owed by the Company when WRC sold certain equipment in connection
with an alleged default of an equipment lease. The Company denies that any
sums are due under any lease agreement.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- Not applicable -
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
From January 1999 through September 1999, the Company sold 3,594,759
shares of its common stock for $573,670. Such sales were effected to accredited
investors, pursuant to Rule 504 under the Securities Act and Section 3(b)
thereunder.
From January 1998 through December 1998, the Company sold 139,211
shares of its common stock for $63,454. Such sales were effected to both
accredited and unaccredited investors, in both cases previously known to the
Company and its principal officers, pursuant to Rule 504 under the Securities
Act and Section 3(b) thereunder.
From January 1997 through December 1997, the Company sold 55,401 shares
of the common stock for $125,245. Such sales were effected to both accredited
and unaccredited investors, pursuant to Rule 504 under the Securities Act of
Section 3(b) thereunder.
26
<PAGE> 27
Securities sold other than for cash are as follows:
Common
Shares Amount
----------- ----------
1997:
- ----
Compensation 447,971 $671,956
Professional Services 3,000 $ 4,500
Legal Settlement(1) 206,000 $345,188
1998(2):
- -------
Compensation 500,000 $ 5,000
Professional Services 370,000 $ 79,999
1999:
- -----
Compensation 600,000 $160,000
Professional Services 122,842 $ 50,454
(1) Accrued in 1996.
(2) 500,000 shares issued but not delivered in 1998 because
the related consideration was not received by the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporations Act contains provision entitling
directors and officers of the Company to indemnification from judgements,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, as the result of an action or proceeding in which they may be involved by
reason of being or having been a director or officer of the Company, provided
said officers or directors acted in good faith.
In so far as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment of the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being offered hereby, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
27
<PAGE> 28
PART F/S
PART III
Item 1
Item 2
SIGNATURES
Pursuant to the requirements of 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.
Date: November 24, 1999 International Foam Solutions, Inc.
By: /s/ Harvey Katz
--------------------------------
Harvey Katz, CEO
28
<PAGE> 29
EXHIBIT INDEX
27 Financial Data Schedule (for S.E.C. use only)
99.1 Articles of Incorporation
99.2 Company By-Laws
99.3 CMC financing agreement*
99.4 Promissory Note*
99.5 Warrants (form)
99.6 Japan Licensing Agreement
99.8 Form of Stock Certificate
99.9 Employment Agreement with Harvey Katz*
99.10 Employment Agreement with Claudia Iovino*
99.11 Employment Agreement with Tony Bianco*
* To be filed by amendment
29
<PAGE> 30
INTERNATIONAL FOAM SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants F-2
Balance Sheets at September 30, 1999 (unaudited) and December 31, 1998 F-3
Statements of Operations for the nine months ended September 30, 1999
(unaudited) and 1998 (unaudited) and for the years ended
December 31, 1998 and 1997 F-4
Statements of Stockholders' Equity (Deficit) for the nine months ended
September 30, 1999 (unaudited) and for the years ended
December 31, 1998 and 1997 F-5
Statements of Cash Flows for the nine months ended September 30, 1999
(unaudited) and 1998 (unaudited) and for the years ended
December 31, 1998 and 1997 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
International Foam Solutions, Inc.
We have audited the accompanying balance sheet of International Foam Solutions,
Inc. as of December 31, 1998 and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Foam Solutions,
Inc. at December 31, 1998 and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company had cumulative losses since inception in 1993 and is
dependent upon outside financing to expand its operations. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Miami, Florida
October 29, 1999, except for Note 13 BDO Seidman, L.L.P.
which is as of November 15, 1999
F-2
<PAGE> 32
INTERNATIONAL FOAM SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTES 5 AND 7)
CURRENT
Cash $ 64,954 $ 1,145
Accounts receivable, less allowance for doubtful accounts
$132,000 27,228 25,605
Inventories 366,117 419,560
Prepaid expenses and other 12,159 12,159
----------- -----------
Total current assets 470,458 458,469
PROPERTY AND EQUIPMENT, net (Note 3) 193,319 205,623
PATENTS, less accumulated amortization of $92,216 and $81,881 142,055 152,390
DEPOSITS AND OTHER 18,789 18,028
----------- -----------
$ 824,621 $ 834,510
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of notes payable (Note 5) 211,119 230,204
Current maturities of notes payable to stockholders (Note 5) 90,898 96,445
Accounts payable 201,574 263,534
Accrued expenses and other 222,892 309,616
----------- -----------
Total current liabilities 726,483 899,799
----------- -----------
Notes payable, less current portion (Note 5) 77,194 86,848
Notes payable to shareholders, less current portion (Note 5) 10,746 81,553
----------- -----------
Total liabilities 814,423 1,068,200
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 13)
STOCKHOLDERS' (DEFICIT) EQUITY (NOTE 8)
Common stock, par value $.01, 20,000,000
shares authorized, 13,673,390 and 9,450,264
shares issued and outstanding (Note 6) 136,734 94,503
Additional paid-in capital 5,741,379 4,856,276
Deficit (5,835,547) (5,174,311)
Stock subscriptions receivable for 80,525 and 25,000
shares of Common stock (32,210) (10,000)
Treasury stock, at cost (158) (158)
----------- -----------
Total stockholders' equity (deficit) 10,198 (233,690)
----------- -----------
$ 824,621 $ 834,510
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 33
INTERNATIONAL FOAM SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------
1999 1998 1998 1997
------------- ------------- ---------- ----------
(UNAUDITED) (UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C>
Product sales $ 59,728 $ 27,107 $ 47,543 $ 718,187
Licensing fee (Note 11) -- -- -- 1,000,000
----------- ---------- ---------- ----------
59,728 27,107 47,543 1,718,187
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of sales (Note 7) 42,062 21,021 35,168 827,027
Selling, general and administrative
(Notes 6 and 8) 579,819 505,271 595,112 1,835,658
Research and development 21,222 -- -- 81,344
Depreciation and amortization 43,067 57,935 68,502 31,945
----------- ---------- ---------- ----------
686,170 584,227 698,782 2,775,974
----------- ---------- ---------- ----------
LOSS FROM OPERATIONS (626,442) (557,120) (651,239) (1,057,787)
----------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income -- 32 32 12,622
Other income (Note 11) 548 100,000 100,000 --
Interest expense (35,342) (13,840) (30,759) (19,238)
Loss on disposal of assets -- (5,000) (5,000) (72,202)
----------- ---------- ---------- ----------
Total other income (expense) (34,794) 81,192 64,273 (78,818)
----------- ---------- ---------- ----------
NET LOSS (NOTE 4) $ (661,236) (475,928) (586,966) $(1,136,605)
----------- ---------- ---------- ----------
NET LOSS PER SHARE
Basic and diluted
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING SHARES $ (.06) $ (.06) $ (.07) $ (.14)
Basic and diluted 11,557,148 8,488,499 8,694,896 8,274,700
=========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 34
INTERNATIONAL FOAM SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(NOTE 8)
<TABLE>
<CAPTION>
Common Stock Additional Stock Total
---------------------- paid-in Subscriptions Treasury Stockholders'
Shares Amount Capital Deficit Receivable Stock Equity
--------- --------- ----------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 7,703,681 $ 77,037 $3,840,056 $(3,450,740) $ -- $ -- $ 466,353
Issuance of common stock for cash 55,401 554 124,691 -- -- -- 125,245
Compensation charges in connection
with issuance of warrants (Note 8) -- -- 71,472 -- -- -- 71,472
Issuance of common stock in
satisfaction of officers' accrued
compensation (Note 8) 447,971 4,480 667,476 -- -- -- 671,956
Issuance of common stock in
exchange for services 3,000 30 4,470 -- -- -- 4,500
Issuance of common stock in
connection with a legal
settlement agreement 206,000 2,060 -- -- -- -- 2,060
Net loss for year -- -- -- (1,136,605) -- -- (1,136,605)
---------- -------- ---------- ----------- -------- ----- --------
Balance at December 31, 1997 8,416,053 84,161 4,708,165 (4,587,345) -- -- 204,981
Issuance of common stock in
exchange for compensation and
professional services (Note 8) 870,000 8,700 76,299 -- -- -- 84,999
Issuance of common stock for cash 139,211 1,392 62,062 -- -- -- 63,454
Stock subscriptions receivable 25,000 250 9,750 -- (10,000) -- --
Treasury stock acquired -- -- -- -- -- (158) (158)
Net loss for year -- -- -- (586,966) -- -- (586,966)
---------- -------- ---------- ----------- -------- ----- --------
Balance at December 31, 1998 9,450,264 94,503 4,856,276 (5,174,311) (10,000) (158) (233,690)
Issuance of common stock for cash 3,594,759 35,948 537,722 -- -- -- 573,670
Issuance of common stock in
exchange for professional
services 122,842 1,228 49,226 -- -- -- 50,454
Exercise of options at $0.10 450,000 4,500 40,500 -- -- -- 45,000
Cancellation of shares issued in
1998 for compensation and
professional services (Note 8) (600,000) (6,000) -- -- -- -- (6,000)
Stock subscription receivable 55,525 555 21,655 -- (22,210) -- --
Issuance of common stock in
satisfaction of officers' accrued
compensation 600,000 6,000 154,000 -- -- -- 160,000
Compensation charges in connection
with issuance of options (Note 8) -- -- 82,000 -- -- -- 82,000
Net loss for the nine month
period -- -- -- (661,236) -- -- (661,236)
---------- -------- ---------- ----------- -------- ----- --------
Balance at September 30, 1999
(unaudited) 13,673,390 $136,734 $5,741,379 $(5,835,547) $(32,210) $(158) $ 10,198
---------- -------- ---------- ----------- -------- ----- --------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 35
INTERNATIONAL FOAM SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(NOTE 11)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------
1999 1998 1998 1997
------------- ------------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (661,236) $ (475,928) $ (586,966) $ (1,136,605)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization 43,067 57,935 68,502 31,945
Issuance of common stock in exchange for
professional services 50,454 80,409 84,999 4,500
Stock option and warrant compensation 82,000 -- -- 71,472
Loss on disposal of fixed assets -- 5,000 5,000 72,202
Issuance of common stock in connection with a legal
settlement agreement -- -- -- 2,060
(Increase) in accounts receivable (1,623) (15,513) (18,529) (7,076)
Decrease (increase) in inventories 53,443 (82,228) (22,491) (205,470)
Decrease (increase) in prepaids and other -- 30,202 27,542 (17,053)
Decrease (increase) in deposits and other (761) 9,179 6,402 187,536
(Decrease) increase in accounts payable (61,960) 58,418 29,755 101,279
Increase in accrued expenses and other 67,276 200,595 239,365 14,936
-------------- ---------- ---------- ------------
Total adjustments 231,896 343,997 420,545 256,331
-------------- ---------- ---------- ------------
Cash used in operating activities (429,340) (131,931) (166,421) (880,274)
-------------- ---------- ---------- ------------
INVESTING ACTIVITIES:
Capital expenditures (20,428) -- -- (192,524)
Acquisition of patents -- -- -- (9,036)
-------------- ---------- ---------- ------------
Cash used in investing activities (20,428) -- -- (201,560)
-------------- ---------- ---------- ------------
FINANCING ACTIVITIES:
Proceeds (payments) of notes payable, net (105,093) 108,135 101,057 393,993
Purchase of treasury stock -- (158) (158) --
Proceeds from issuance of common stock 618,670 22,353 63,454 125,245
-------------- ---------- ---------- ------------
Cash provided by financing activities 513,577 130,330 164,353 519,238
-------------- ---------- ---------- ------------
Net increase (decrease) in cash and cash equivalents (Note 12) 63,809 (1,601) (2,068) (562,596)
Cash at beginning of period 1,145 3,213 3,213 565,809
-------------- ---------- ---------- ------------
Cash at end of period $ 64,954 1,612 $ 1,145 $ 3,213
============== ========== ========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 36
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT Organization and Business
ACCOUNTING POLICIES
International Foam Solutions, Inc, ("the
Company"), was incorporated in May of 1993
to distribute a patented recycling
technology for polystyrenes. Pursuant to the
patent, the Company has developed a product
called "Styro Solve" which reduces
polystyrenes. Additionally, the Company has
developed a variety of machines for the
application of Styro Solve, and methods of
recycling both the Styro Solve and the
"polygel" which results from the reduction
of polystyrenes.
Substantially all the Company's 1997 sales
have been to two companies located in Japan,
one of which has entered into an exclusive
distribution agreement.
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 disclosure 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.
At September 30, 1999, a significant portion
of inventory is in excess of the Company's
requirements based on the recent level of
sales. Management has developed a program to
reduce this inventory to desired levels over
the near term and believes no loss will be
incurred on its disposition. No estimate can
be made of a range of amounts of loss that
are reasonably possible should the program
not be successful.
Interim Financial Statements
The financial statements for the nine months
ended September 30, 1999 and 1998 are
unaudited. In the opinion of management, such
financial statements include all adjustments
(consisting only of normal recurring
accruals) necessary for a fair presentation
of financial position and the results of
operations. The results of operations for the
nine months ended September 30, 1999 and 1998
are not necessarily indicative of the results
to be expected for the full year.
Inventories
Inventories consist principally of finished
goods and are stated at the lower of cost or
market. Cost is determined using the average
cost method.
Property and Equipment
Property and equipment is stated at cost
less accumulated depreciation and
amortization. Depreciation and amortization
are calculated on a straight line basis
based on the estimated useful lives of the
respective assets, generally 5 to 15 years.
F-7
<PAGE> 37
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Patents
Patent costs consist principally of
associated legal fees and are capitalized
and amortized over their expected useful
lives not to exceed estimated legal lives of
17 years.
Fair Value of Financial Instruments
The Company's financial instruments consist
principally of cash, accounts and notes
payable and accrued expenses. The carrying
amounts of such financial instruments as
reflected in the accompanying balance sheets
approximate their estimated fair value. The
estimated fair value is not necessarily
indicative of the amounts the Company could
realize in a current market exchange or of
future earnings or cash flows.
Revenue Recognition
Product sales revenue is generally
recognized when goods are shipped. License
fees are recognized over the period that the
Company is obligated to perform services, if
any.
Income Taxes
The Company accounts for income taxes
pursuant to the provisions of Statement of
Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which
requires, among other things, a liability
approach to calculating deferred income
taxes. The asset and liability approach
requires the recognition of deferred tax
liabilities and assets for the expected
future tax consequences of temporary
differences between the carrying amounts and
the tax bases of assets and liabilities.
Earnings Per Share
The Company has adopted Statement of
Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share". Under SFAS No. 128,
primary earnings per share has been replaced
F-8
<PAGE> 38
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
with a presentation of basic earnings per
share and fully diluted earnings per share
has been replaced with diluted earnings per
share. Basic earnings per share excludes
dilution and is computed by dividing income
or loss available to common shares
outstanding for the period by the weighted
average of common shares outstanding.
Diluted earnings per share is computed
similarly to fully diluted earnings per
share in accordance with the Accounting
Principles Board ("APB") Opinion No. 15. The
impact of the adoption of SFAS No. 128 has
not been material.
The Company's potentially issuable shares of
common stock pursuant to outstanding stock
purchase options and warrants are excluded
from the Company's diluted computation as
their effect would be antidilutive to the
Company's net loss.
Asset Impairment
The Company periodically reviews the carrying
value of certain of its assets in relation to
historical results, current business
conditions and trends to identify potential
situations in which the carrying value of
assets may not be recoverable. If such
reviews indicate that the carrying value of
such assets may not be recoverable, the
Company would estimate the undiscounted sum
of the expected future cash flows of such
assets to ascertain if a permanent impairment
exists. If a permanent impairment exists, the
Company would determine the fair value using
quoted market prices, if available, for such
assets, or if quoted market prices are not
available, the Company would discount the
expected future cash flows of such assets.
Impairments are recognized as a charge to
operations when the expected future operating
cash flows to be derived from such intangible
assets are less than their carrying values.
F-9
<PAGE> 39
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Recent Accounting Pronouncements
In June 1998, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes
accounting and reporting standards for
derivative instruments and for hedging
activities. It requires that an entity
recognizes all derivatives as either assets
or liabilities in the statement of financial
position and measures those instruments at
fair value. The statement applies to all
entities and is effective for all fiscal
quarters of fiscal years beginning after
June 15, 2000. The Company has not engaged in
derivative instruments or hedging activities
in any periods presented in the financial
statements and management does not expect
this statement to have a material impact on
the Company's financial position, results of
operations, or cash flows.
2. LIQUIDITY The accompanying financial statements have
been prepared assuming the Company will
continue as a going concern. This basis of
accounting contemplates the recovery of the
Company's assets and the satisfaction of its
liabilities in the normal course of
operations.
During the latter part of 1997 and 1998 the
Company experienced protracted litigation
which diverted management's efforts from its
core business, and effectively curtailed the
Company's marketing programs. During 1999
certain aspects of the previously mentioned
litigation were resolved and the Company was
able to refocus and continue its marketing
efforts.
The Company anticipates, based on current
plans and assumptions relating to revenues
from operations, that revenues from
operations and additional third party
funding or investment, if available, will be
sufficient to satisfy the Company's
estimated cash requirements to continue its
operations. The Company has no firm current
F-10
<PAGE> 40
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
arrangements with respect to, or sources of,
additional financing. There can be no
assurance that any such additional financing
will be available to the Company, and if
available, will enable the Company to attain
profitable operations or continue as a going
concern. Through September 30, 1999 and
December 31, 1998, the Company has incurred
losses totaling $5,835,547 and $5,174,311.
Negative working capital aggregated $256,025
at September 30, 1999 and $441,330 for
December 31, 1998. In addition, the Company
is in violation of certain of its loan
covenants.
3. PROPERTY AND EQUIPMENT Property and equipment is comprised of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- -----------
<S> <C> <C>
Warehouse equipment $ 111,869 $ 111,869
Office furniture 64,415 64,415
Computer hardware and equipment 50,118 47,951
Field demonstration units 63,261 45,000
Vehicles 24,353 24,353
-------------- -------------
314,016 293,588
Less accumulated depreciation (120,697) (87,965)
-------------- -------------
$ 193,319 $ 205,623
============== =============
</TABLE>
4. INCOME TAXES At September 30, 1999 and December 31, 1998,
the Company had Federal net operating loss
carryforwards of approximately $4,790,000
and $4,137,000 respectively, for income tax
purposes. The net operating losses expire in
varying amounts to 2019. Realization of any
portion of the approximate $1,988,000 or
$1,740,000 deferred tax asset at September
30, 1999 and December 31, 1998,
respectively, resulting from the net
operating loss carryforwards, is not
considered more likely than not and,
accordingly, a valuation allowance has been
established for the full amount of such
asset.
F-11
<PAGE> 41
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
5. NOTES PAYABLE The Company's notes payable consists of the
following:
<TABLE>
<CAPTION>
September 30,
1999
(Unaudited) December 31, 1998
----------------- -----------------
<S> <C> <C>
Equipment note payable in monthly
installments of $3,030 including
principal and interest at a fixed rate
of 6.5%, maturing July 1, 2004,
collateralized by equipment. The
Company is in default under the terms
of this loan and in violation of certain
covenants. $ 177,800 $ 200,000
Shareholder loan payable in monthly
principal installments of $5,000 and
interest computed at prime rate
(8.25% at September 30, 1999 and
7.75% at December 31, 1998)
due on March 1, 2001. 70,746 111,553
Equipment loan payable in monthly
installments of $3,555 including
principal and interest, maturing in
June 2003. (42% at September 30, 1999
and December 31, 1998) 90,513 97,052
Shareholder loan principal and
interest due 90 days after date of
note. All loans are past due and
accrue interest at a 10% annual
fixed rate. 30,898 66,445
Related party loan, principal and
interest due 90 days after date of
note. Loan is past due and accrues
interest at a 10% annual fixed rate 20,000 20,000
------------- --------------
Total 389,957 495,050
Less current portion (302,017) (326,649)
------------- --------------
87,940 168,401
============= ==============
</TABLE>
At September 30, 1999 annual maturities of
long term debt approximates the following:
Amount
-----------
1999 $ 247,000
2000 70,000
2001 21,000
2002 29,000
2003 22,000
-----------
$ 389,000
===========
As discussed in Note 7, the Company is a
guarantor for a shareholder's loan to the
bank. During 1999, both the shareholder and
the Company (as guarantor) were in default.
In this connection, the Company and its
shareholder's entered in a forbearance
agreement with the bank. Among other things,
the forbearance agreement provides for the
collaterization of all of the Company's
assets and a rescheduling of the amounts
due. The attached financial statements give
effect to the forbearance agreement.
F-12
<PAGE> 42
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
6. COMMITMENTS AND The Company occupies premises under a
CONTINGENCIES month-to-month lease for $1,000 a month
with HKI, Inc., a related party.
Rent expense for the nine months ended
September 30, 1999 and 1998 and the years
ended December 31, 1998 and 1997 was $34,745,
44,426, $52,188, and $214,439, respectively.
During May 1998 the Company's old lease for
its facility and office space was terminated,
and the Company entered into a new
month-to-month lease of $1,000 per month. In
connection with the Company's lease
termination, the Company settled with the
landlord for the balance of the rent relating
to the unexpired lease term.
On October 1, 1996, the Company entered into
employment agreements with two officers of
the Company. Each agreement provides for a
term of five years renewable annually upon
mutual consent, with base annual salaries
for the two officers aggregating
approximately $250,000. These employment
agreements provide that the officers may
receive an incentive bonus based upon
performance. In October 1997, such agreements
were modified to reduce annual salaries to
$160,000.
On April 5, 1999, the Company entered into
an employment agreement with its chief
operating officer. The agreement provides
for a term of three years with base annual
salary of $50,000. Under the terms of the
agreement, the chief operating officer is
entitled to a performance bonus based on
sales and earnings (as defined). In
connection with this agreement, the Company
issued 1,150,000 options to purchase
Company's common stock over five years at
exercise prices ranging from $0.10 to $1.00
through 2004. During 1999, 450,000 options
were granted.
F-13
<PAGE> 43
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
In May 1997, the Company and certain
stockholders entered into a settlement
agreement with an individual. The Company
agreed to issue the individual his
proportionate share of the 1995 stock
dividend and certain stockholders of the
Company agreed to transfer their ownership of
230,125 shares of the Company's common stock
to the individual in settlement of the
lawsuit. The $345,188 fair value of the
shares of common stock to be transferred by
the stockholders in settlement of the
litigation against the Company had been
recorded in selling, general and
administrative expenses and additional
paid-in capital in the 1995 financial
statements.
Four former employees have filed lawsuits
against the Company, all of which relate to
breach of contract issues. The Company
anticipates settling three of these lawsuits
prior to December 31, 1999. In connection
with the fourth employee lawsuit, an
individual has sued the Company for, among
other things, breach of an employment
contract, claiming damages in excess of
$150,000. The Company will vigorously defend
this lawsuit. Since this lawsuit is in its
early stages of discovery, the Company and
counsel are unable to predict the outcome at
this time.
The Company is or may become involved in
various lawsuits, claims and proceedings in
the normal course of its business, including
those pertaining to product liability,
environmental, safety and health, and
employment matters. The Company records
liabilities when loss amounts are determined
to be probable and reasonably estimatable.
Insurance recoveries are recorded only when
claims for recovery are settled. Although
generally the outcome of litigation cannot
be predicted with certainty and some
lawsuits, claims or proceedings may be
disposed of unfavorably to the Company,
management believes, based on facts
presently known, that the outcome of such
legal proceedings and claims, other than
those previously disclosed, will not have a
material adverse effect on the Company's
financial position, liquidity, or future
results of operations.
F-14
<PAGE> 44
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
7. RELATED PARTY TRANSACTIONS The Company entered into an agreement with
HKI, Inc. ("HKI") in a prior year, a company
related through common ownership. Under the
agreement, HKI acquired and resold the Styro
Solve solution to the Company. In
consideration for the solution HKI received a
bottling fee of 5% to 10% of the cost of the
solution depending on the volume of the
purchases. Included in cost of sales are the
gross purchases for the nine months ended
September 30, 1999 and 1998 and the years
ended December 31, 1998 and 1997 of
approximately $0, $4,000, $4,000 and
$441,000, respectively, pursuant to this
agreement. $5,900 and $28,000 was owed to HKI
at September 30, 1999, and December 31, 1998
respectively.
The Company has borrowed funds from two
shareholders with balances at September 30,
1999 and December 31, 1998 of $30,898 and
$66,450, respectively. The notes accrue
interest at a rate of 10% and are currently
past due. Additionally, the same shareholders
loaned the Company money they received from a
line of credit with a commercial bank. At
September 30, 1999 and December 31, 1998, the
balance of the loan was $71,000 and $112,000,
respectively. Under the terms of the
agreement with the commercial bank, the
Company is guarantor of the amounts due to
the bank by the two shareholders. In
addition, substantially all assets of the
Company are collateral for the loan.
F-15
<PAGE> 45
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
8. STOCKHOLDERS' EQUITY During 1996, the Company sold 1,548,663
(DEFICIT) units (of which 1,363,333 units were sold in
connection with a private placement)
consisting of 1 share of common stock and a
warrant to purchase 1 share of common stock
for $2.50 expiring May 31, 2001. The sales
of the units raised net proceeds of
$2,076,106. In connection with this private
placement, in January 1997, agents of the
underwriters were issued warrants to
purchase 411,333 shares of common stock,
exercisable at $1.50 per share through May
31, 2001.
During the year ended December 31, 1997, the
Company issued 447,971 shares of common stock
to the officers of the Company in
satisfaction of accrued compensation of
$671,956 that was recorded in 1996. The
Company also granted warrants to purchase
569,504 shares of common stock between $2.50
and $3.75 per share expiring on May 31, 2001
to certain employees and consultants (of
which 86,533 were granted to consultants). In
connection with the issuance of the warrants
to consultants, the Company recorded a charge
to consulting fees with a corresponding
credit to additional paid in capital in the
amount of $71,472. The Company valued these
warrants using the Black-Scholes Method.
During 1997, the Company issued an
additional 55,401 shares of common stock
raising proceeds of $125,245, in connection
with this issuance, the Company granted
warrants to purchase 13,000 shares of common
stock at $2.50 per share, expiring on May
31, 2001.
During 1998, the Company issued 139,211
shares of common stock raising proceeds of
$63,454. The Company issued 870,000 shares of
stock to individual and consultants for
services rendered of which 500,000 shares
were issued to an individual but not
delivered in 1998 because the related
consideration was not received by the
Company. In connection with the issuance of
the stocks, the Company rendered a charge to
consulting fees with a corresponding credit
to paid in capital in the amount of $84,999.
Additionally, 25,000 shares of common stock
were issued at $0.40 per share; such amount
is recorded as a subscription receivable of
$10,000.
During the nine month period ended September
30, 1999, the Company issued 3,594,759
shares of common stock raising proceeds of
$573,670. Additionally, 600,000 shares of
stock were issued to two officers for
services rendered aggregating $160,000.
Between April 1, 1999 and July 31, 1999, the
Company issued to an officer, options to
purchase 1,150,000 shares of the Company's
common stock at prices ranging from $.10 to
$1.00. The options vest from April 1999 to
April 2000 and have expiration dates ranging
from July 1999 to April 2002. The Company
valued these options using the Black-Scholes
Method. 450,000 options were exercised
during the nine month period ended September
30, 1999.
F-16
<PAGE> 46
9. STOCK BASED COMPENSATION The Company applies Accounting Principles
Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related
interpretations in accounting for warrants
issued to employees. Under APB Opinion 25,
because the exercise price of the Company's
employee warrants was equal to or greater
than the market price of the underlying
stock on the date of grant, no compensation
cost was recognized.
SFAS No. 123, Accounting for Stock-Based
Compensation, requires the Company to
provide pro forma information regarding net
income (loss) as if compensation costs for
the warrants issued to employees had been
determined in accordance with the fair value
based method prescribed in SFAS No. 123. The
Company estimates the fair value of each
warrant issued at the grant date by using
the Black-Scholes option-pricing model with
the following weighted-average assumptions
used for grants for the periods below:
<TABLE>
<CAPTION>
For the years
For the nine ended
months ended December 31,
September 30, ----------------------
1999 1998 1997
---------------- -----------------------
(Unaudited)
<S> <C> <C> <C>
Dividend yield None not applicable None
Expected volatility 46.10% not applicable 46.10%
Risk-free interest rates 5.58% not applicable 6.25%
</TABLE>
Under the accounting provisions of FASB
Statement No. 123, the Company's net loss
and loss per share would have been as
follows:
<TABLE>
<CAPTION>
For the years
ended
For the nine December 31,
months ended -------------------------------
September 30, 1999 1998 1997
------------------------- -------------------------------
(Unaudited)
<S> <C> <C> <C>
Pro forma net loss
As reported $ (661,236) $(586,966) $(1,136,605)
Pro forma (709,236) (586,966) (1,352,050)
---------- -------- -----------
Pro forma net loss per
common share - basic and
dilutive
As reported $ (.06) $ (.07) $ (.14)
Pro forma (.06) (.07) (.16)
========== ======== ===========
</TABLE>
F-17
<PAGE> 47
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
A summary of the status of the Company's warrants
as of September 30, 1999 (unaudited) and December
31, 1998 and 1997, and changes during the periods
ending on those dates, is presented below:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
(Unaudited)
--------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of the
period 2,993,154 $ 2.37 2,993,154 $ 2.37 2,103,317 $ 2.44
Granted -- -- -- -- 993,837 2.10
Exercised -- -- -- -- (4,000) 2.50
Forfeited -- -- -- -- (100,000) 1.25
---------- --------- --------- ---------- -------- ---------
Outstanding at the
end of the period 2,993,154 $ 2.37 2,993,154 $ 2.37 2,993,154 $ 2.37
---------- --------- --------- - --------- -------- ---------
Warrants exercisable
at the end of the 2,993,154 $ 2.37 2,993,154 $ 2.37 2,993,154 $ 2.37
period
Weighted average fair
value of warrants
granted during the
period -- -- -- -- $ .59 --
========== ========= ========= ========== ======== =========
</TABLE>
F-18
<PAGE> 48
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
The following table summarizes information
about the warrants outstanding at September
30, 1999 (unaudited) and December 31, 1998.
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
---------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Number Exercise
Prices Life Price Exercisable Price
-------------- ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
September 30, 1999 $1.50 - $3.75 1.67 $ 2.37 2,993,154 $ 2.37
December 31, 1998 $1.50 - $3.75 2.33 $ 2.37 2,993,154 $ 2.37
</TABLE>
11. LICENSING FEE During January 1997, the Company signed an
exclusive licensing agreement with Styro
Japan Co., Ltd., (SJC) for utilization of
the Company's recycling technology in Japan.
The agreement was amended in 1998 to, among
other things, grant SJC certain exclusive
distribution rights. The amended agreement
expires in 2008. Under the terms of the
agreement, among other things, the Company
was paid an initial nonrefundable fee of
$1,000,000, of which the Company paid a
commission totaling $250,000 to a sales
representative. In addition, pursuant to the
amended agreement, SJC is obligated to
purchase a minimum of $500,000 in product by
December 31, 1998. SJC is in default with
respect to the minimum order provision of its
amended agreement with the Company. According
to the amended agreement, in the event that
SJC does not order a minimum of $500,000, the
Company is entitled to a $100,000 premium
from SJC. During 1998, the Company recorded
the $100,000 premium as other income with a
corresponding allowance to doubtful accounts
for the related receivable from SJC. No other
sales occurred in 1997, 1998 or 1999 between
the Company and SJC.
F-19
<PAGE> 49
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
12. NON-CASH FINANCING During the year ended December 31, 1997, the
Company issued 447,971 shares of common
stock in satisfaction of accrued 1996
officers' compensation of approximately
$672,000. Cash paid for interest aggregated
$19,238 and $30,759 in December 31, 1997 and
1998, respectively and $23,070 and $35,342
for the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited),
respectively.
During the nine month period ended September
30, 1999, the Company issued 600,000 shares
of common stock as satisfaction of accrued
1998 officers' compensation of approximately
$160,000.
13. Subsequent Event Effective November 15, 1999, the Company was
no longer in compliance with the National
Association of Securities Dealers, Inc.
(NASD(R)) filing requirements. Accordingly,
the letter "E" was appended to the trading
symbol. Once the NASD receives notification
that the Company complies with the filing
requirement, the fifth character "E" will be
removed. The Company expects to be compliant
in the near future.
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,145
<SECURITIES> 0
<RECEIVABLES> 25,605
<ALLOWANCES> (132,000)
<INVENTORY> 419,560
<CURRENT-ASSETS> 458,469
<PP&E> 205,623
<DEPRECIATION> 87,965
<TOTAL-ASSETS> 834,510
<CURRENT-LIABILITIES> 899,799
<BONDS> 0
0
0
<COMMON> 94,503
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 834,510
<SALES> 47,543
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 698,782
<OTHER-EXPENSES> 64,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,759
<INCOME-PRETAX> (586,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (586,966)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
<PAGE> 1
Exhibit 1
ARTICLES OF INCORPORATION
OF
INTERNATIONAL FOAM SOLUTIONS, INC.
The undersigned, as incorporator of a corporation under the Florida
General Corporation Act, adopts the following Articles of Incorporation for
such Corporation.
I. The name of the Corporation is INTERNATIONAL FOAM SOLUTIONS, INC.
II. The period of its duration is perpetual.
III. The purpose is to engage in any activities or business permitted
under the law of the United States and Florida.
IV. The maximum authorized capital stock of this corporation shall be
Ten Million (10,000,000) shares of Common Stock with One Cent ($0.01) Par
Value.
V. The initial registered office of this corporation shall be 190 W.
Glades Road, Suite D, Boca Raton, Florida 33432, with the previlege of having
branch offices at any other place within or without the State of Florida. The
initial registered agent at such address shall be ANTHONY DICHIARA.
VI. The principal office is located at 190 W. Glades Road, Suite D,
Boca Raton, Florida 33432.
VII. The following are the names and post office addresses of the
incorporators:
ANTHONY DICHIARA, 2099 Wood Lakes Circle, Deerfield Beach, Florida
33442.
CLAUDIO IOVINO, 6364 Amberwood Drive, Boca Raton, Florida 33433.
VIII. The number of directors constituting its initial Board of
Directors are two. Their names and addresses are:
ANTHONY DICHIARA, 2099 Wood Lakes Circle, Deerfield Beach, Florida
33442.
CLAUDIO IOVINO, 6364 Amberwood Drive, Boca Raton, Florida 33433.
IX. These Articles of Incorporation may be amended in the manner as
provided by law. Every Amendment shall be approved by the stockholders by a
majority of the stock entitled to vote thereon unless all the stockholders sign
a written statement manifesting their intention that a certain amendment of
these Articles of Incorporation be made.
/s/ ANTHONY DICHIARA
----------------------------
ANTHONY DICHIARA
/s/ CLAUDIO IOVINO
----------------------------
CLAUDIO IOVINO
<PAGE> 2
STATE OF FLORIDA
COUNTY OF PALM BEACH
BEFORE ME, the undesigned authority, personally appeared ANTHONY
DICHIARA and CLAUDIO IOVINO, who is to me well known to be the persons
described in and who subscribed the above Articles of Incorporation, and they
did freely and voluntarily acknowledge before me, according to law, that they
made and subscribed the same for the uses and purposes therein mentioned and
set forth. ANTHONY DICHIARA is personally known to me or produced a Florida
Driver's License as identification. CLAUDIO IOVINO is personally known to me or
produced a Florida Driver's License as identification.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Boca Raton, in said County and State this 19th Day of May, 1998.
/s/ Arlan H. Birkman
----------------------------------
Printed Name: Arlan H. Birkman
Notary Public
My Commission Expires:
Commission No.:
[SEAL]
<PAGE> 1
Exhibit 2
BY-LAWS
OF
INTERNATIONAL FOAM SOLUTION, INC.
ARTICLES I. MEETING OF SHAREHOLDERS.
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of
this corporation shall be held at the time and place designated by the Board of
Directors of the corporation. The annual meeting of shareholders for any year
shall be held no later than thirteen months after the last preceding annual
meeting of shareholders. Business transacted at the annual meeting shall
include the election of directors to the corporation.
SECTION 2. SPECIAL MEETING. Special Meetings of the shareholders shall
be held when directed by the President or by the Board of Directors.
SECTION 3. PLACE. Meetings of shareholders may be held within or
without the State of Florida.
SECTION 4. NOTICE. Written notice stating the place, day and hour of
the meeting and, in case of special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten nor more than sixty
days before the meeting, either personally or by first class mail, by or at the
direction of the President, the Secretary, or the officer or persons calling
the meeting to each shareholder. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed at his address as
it appears on the stock transfer
1
<PAGE> 2
books of the corporation, with postage thereon prepaid.
SECTION 5. NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned
to another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have been
transacted on the original date of the meeting. If, however, after the
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given as provided in this
section to each shareholder of record on the new record date entitled to vote
at such meeting.
SECTION 6. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholder or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders
for any other purpose, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period but not to exceed, in any
case, sixty days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board
2
<PAGE> 3
of Directors may fix in advance a date as the record date for any determination
of shareholders, such date in any case to be not more than sixty days and, in
case of a meeting of shareholders, not less than ten days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.
If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjourned meeting.
SECTION 7. VOTING RECORD. The officers or agent having charge of the
stock transfer books for shares of the corporation shall make, at least ten
days before each meeting of shareholders, a complete list of shareholders
entitled to vote at such meeting or any adjournment thereof, with the address
and the number and class or series, if any, of shares held by each. The list
for a period of ten days
3
<PAGE> 4
prior to such meeting shall be kept on file at the registered office of the
corporation, at the principal place of business of the corporation or at the
office of the transfer agent or registrar of the corporation and any
shareholder shall be entitled to inspect the list at any time during usual
business hours. The list shall be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any shareholder at any
time during the meeting.
If the requirements of this section have not been substantially
complied with, the meeting on demand of any shareholder in person or by proxy,
shall be adjourned until the requirements are complied with. If no such demand
is made, failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
SECTION 8. SHAREHOLDER QUORUM AND VOTING. A majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. When a specified item of business is required to
be voted on by a class or series of stock, a majority of the shares of such
class or series shall constitute a quorum for the transaction of such item of
business by that class or series.
If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of
4
<PAGE> 5
the shareholders unless otherwise provided by law.
After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of
shareholders entitled to vote at the meeting below the number required for a
quorum, shall not effect the validity of any action taken at the meeting of any
adjournment thereof.
SECTION 9. VOTING OF SHARES. Each outstanding share regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders.
Treasury shares, shares of stock of this corporation owned by another
corporation the majority of the voting stock of which is owned or controlled by
this corporation, and shares of this corporation held it in a fiduciary
capacity shall not be voted, directly or indirectly, at any meeting, and shall
not be counted in determining the total number of outstanding shares at any
given time.
A shareholder may vote either in person or by proxy executed in
writing by the shareholder or his duly authorized attorney-in-fact.
At each election for directors every shareholder entitled to vote at
such election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected at
that time and for whose election he has a right to vote.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by
5
<PAGE> 6
proxy, without a transfer of such shares into his name. Shares outstanding in
the name of a trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee or his nominee shall be entitled to vote the shares so
transferred.
On and after the date on which written notice of the redemption of
the redeemable shares has been mailed to the holders thereof and a sum
sufficient to redeem shares has been deposited with a bank or trust company
with irrevocable instruction and authority to pay the redemption price to the
holders thereof upon surrender of certificates thereof, such shares shall not
be entitled to vote on any matter and shall not be deemed to be outstanding
shares.
SECTION 10. PROXIES. Every shareholder entitled to a vote at a meeting
of shareholders or to express consent or dissent without a meeting or a
shareholders' duly authorized attorney-in-fact may authorize another person or
persons to
6
<PAGE> 7
act for him as proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided by proxy. Every proxy shall be revocable at
the pleasure of the shareholder executing it, except as otherwise by law.
The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of shareholders.
If a proxy for the same shares confers authority upon two or more
person and does not otherwise provide, a majority of them present at the
meeting, or if only one is present, then that one, may exercise all the powers
conferred by the proxy, but if the proxy holders present at the meeting are
equally divided as to the right and manner of voting in any particular case,
the voting of such shares shall be pro-rated.
If a proxy expressly provides, any proxy holder may appoint in writing
a substitute to act in his place.
ARTICLE II. DIRECTORS.
SECTION 1. FUNCTION. All corporate powers shall be exercised by or
under the authority of, and the business and
7
<PAGE> 8
affairs of a corporation shall be managed under the direction of, the Board of
Directors.
SECTION 2. QUALIFICATION. The Directors of the corporation do not have
to be residents of this state or shareholders of this corporation.
SECTION 3. COMPENSATION. The Board of Directors shall have authority
to fix compensation for the directors.
SECTION 4. DUTIES OF DIRECTORS. A director shall perform his duties as
a director, including his duties as a member of any committee of the board upon
which he may serve, in good faith, in a manner he reasonably believes to be
in the best interests of the corporation, and with such care as an ordinary
prudent person in a like position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinion, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
a) one or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented,
b) counsel, public accountants or other persons as to the matters
which the director reasonably believes to be within such person's professional
or expert competence or
c) a committee of the board upon which he does not serve, duly
designated in accordance with a provision of the Articles of Incorporation or
by the By-Laws, as to matters
8
<PAGE> 9
the matters which the Director reasonably believes to be within such person's
professional or expert competence or,
c) a committee of the board upon which he does not serve, duly
designated in accordance with a provision of the Articles of Incorporation or
by the By-Laws, as to matters within its designated authority, which committee
the Director reasonably believes to merit confidence.
A Director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted.
SECTION 5. PRESUMPTION OF ASSENT. A Director of the corporation who is
present at a meeting of its Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
he votes against such action or abstains from voting in respect thereto because
of an asserted conflict of interest.
SECTION 6. NUMBER. This corporation shall have two Directors,
initially. The number of Directors may be increased or decreased from time to
time by a majority vote of all stockholders, but no decrease shall have the
effect of shortening the terms of any incumbent Directors. If the number of
Directors is increased it shall be increased to an odd number and the amount of
Directors shall not exceed seven.
SECTION 7. ELECTION AND TERM. Each person named in the Articles of
Incorporation as a member of the initial Board of Directors shall hold office
until the first annual
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directors to hold office until the next succeeding annual meeting. Each director
shall hold office for the term for which he is elected and qualified or until
his earlier resignation, removal from office, or death.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of the majority of the
remaining directors through less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall hold office only until the next
election of directors by the shareholders.
SECTION 9. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director of the entire Board of Directors may
be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote at an election of directors.
SECTION 10. QUORUM AND VOTING. A majority of the number of directors
fixed by these By-Laws shall constitute a quorum for the transaction of
business. The act of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors.
SECTION 11. DIRECTOR CONFLICTS OF INTEREST. No contract or other
transaction between this corporation and one or more of its directors of any
other corporation, firm association or entity in which one more of the directors
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or officers are financially interested, shall be either void or voidable
because of such relationship or interest because such director or directors are
present at the meeting of the Board of Directors or a committee thereof which
authorizes, approves, or ratifies such contract or transaction or because his
or their votes are counted for such purpose, if
a) the fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves, or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
b) the fact of such relationship or interest is disclosed or known to
the shareholders entitled to a vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
c) the contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
SECTION 12. PLACE OF MEETINGS. Regular and special meetings by the
Board of Directors may be held within or without the State of Florida.
SECTION 13. TIME, NOTICE AND CALL OF MEETINGS. Regular
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meetings of the Board of Directors shall be held annually no later than thirteen
months after the last preceding annual meeting of directors. Written notice of
the time and place of special meetings of Board of Directors shall be given to
each director by either personal delivery, telegram or cablegram at least two
days before the meeting or by notice mailed to the director at least five days
before the meeting.
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all obligations to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any obligation
to the transaction of business because the meeting is not lawfully called or
convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of waiver or notice of such meeting.
A majority of the directors present, whether or not a quorum exists,
may adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment, and unless the
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time and place of the adjourned meeting are announced at the time of the
adjournment to the other directors.
Meetings of the Board of Directors may be called by the chairman of
the board, by the president of the corporation, or by any two directors.
Members of the Board of Directors may participate in a meeting of such
board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
SECTION 14. ACTION WITHOUT A MEETING. Any action required to be taken
at a meeting of the directors of a corporation, or any action which may be
taken at a meeting of the directors or a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so to be
taken, signed by all of the directors, or all the members of the committee, as
the case may be, is filed in the minutes of the writing, setting forth the
action so to be taken, signed by all of the directors, or all the members of
the committee, as the case may be, is filed in the minutes of the proceedings
of the board or of the committee. Such consent shall have the same effect as an
unanimous vote.
ARTICLE III. OFFICERS.
SECTION 1. OFFICERS. The officers of this corporation shall consist of
a Chief Executive Officer, a President, a
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Secretary Treasurer, and a Vice-President, if elected, each of whom shall be
elected by the Board of Directors at the first meeting of directors immediately
following the annual meeting of shareholders of this corporation, and shall
serve until their respective successors are chosen and qualify. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors from time to time. Any two
or more offices may be held by the same person. The failure to elect a President
or Secretary-Treasurer shall not affect the existence of this corporation.
SECTION 2. DUTIES. The officers of this corporation shall have the
following duties:
a) The Chief Executive Officer (CEO) shall oversee and direct the
President, Vice-President, and Secretary/Treasurer in the operation of the
corporation.
b) The President shall be the President of the corporation, shall have
general and active management of the business and affairs of the corporation
subject to the directors of the Board of Directors, and shall preside at all
meetings of the stockholders and Board of Directors.
c) The Secretary-Treasurer, shall have custody of, and maintain all
of the corporate records, shall record the minutes of all meetings of the
stockholders and Board of Directors, and send out notices of all meetings, have
custody of corporate financial records, shall keep full and accurate accounts
of receipts and disbursements, and render accounts thereof at the annual
meetings of stockholders and
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whenever else required by the Board of Directors or the President, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President.
d) The Vice-President, if elected, shall be the person who shall
perform the President's functions when said President is absent or unable to
perform the President's functions and in addition, the vice president shall
assist in the general and active management of the business as the CEO,
President and/or the Board of Directors may direct.
SECTION 3. REMOVAL OF OFFICERS. Any officer or agent elected or
appointed by the Board of Directors may be removed by the board whenever in its
judgment the best interests of the corporation will be served thereby.
Any vacancy, however, occurring, in any office may be filled by the
Board of Directors unless the By-Laws shall have expressly reserved such power
to the shareholders.
Removal of any officer shall be without prejudice to the contract
rights, if any, of the person so removed however, election or appointment of an
officer or agent shall not of itself create contract rights.
ARTICLE IV. STOCK CERTIFICATES. Every holder of shares in this
corporation shall be entitled to have a certificate, representing all shares
to which he is entitled. Certificates may be issued without payment for the
same.
SECTION 2. FORM. Certificates representing shares in this corporation
shall be signed by the President or Vice President, if elected, and the
Secretary or an Assistant
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Secretary, and may be facsimiles if the certificate is manually signed on
behalf of a transfer agent or a registrar, other than the corporation itself or
an employee of the corporation. In case any officer who signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be used by the
corporation with the same effect as if he were such officer at the date of its
issuance.
Every certificate representing shares issued by this corporation shall
set forth or fairly summarize upon the face or back of the certificate, or shall
state that the corporation will furnish to any shareholder upon request and
without charge a full statement of, the designation, preferences, limitations
and relative rights of the shares of each class or series authorized to be
issued, and the Corporation will furnish to any shareholder upon request and
without charge a full statement of the designation, preferences, limitations,
and relative rights of the shareholders of each class of series authorized to
be issued and the variations in the relative rights and preferences between the
shares of each series so far as the same have been fixed and determined, and
the authority of the Board of Directors to fix and determine the relative
rights and preferences of subsequent series.
Every certificate representing shares which are restricted as to the
sale, deposition or other transfer of
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such shares shall state that such shares are restricted as to the transfer and
shall set forth or fairly summarize upon the certificate, or shall state that
the corporation will furnish to any shareholder upon request and without charge
a full statement of such restrictions.
Each certificate representing shares shall state upon the face
thereof: The name of the corporation, that the corporation is organized under
the laws of this state, the name of the person or persons to whom issued; the
number and class of series, if any, which such certificate represents; and the
par value of each share represented by such certificate or a statement that the
shares are without value.
SECTION 3. TRANSFER OF STOCK. The corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder of record or by his duly authorized attorney, and the signature of
such person has been guaranteed by a commercial bank or trust company or by a
member of the New York or American Stock Exchange.
ARTICLE V. BOOKS AND RECORDS.
SECTION 1. BOOKS AND RECORDS. This corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, Board of Directors, and committee of directors.
This corporation shall keep at its registered office or principal
place of business, or at the office of its
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transfer agent or registrar, a record of its shareholders, and the number,
class and series, if any, of the shares held by each.
Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
SECTION 2. SHAREHOLDERS' INSPECTION RIGHTS. Any person who shall have
been a holder of record of shares or of voting certificates therefore at least
six months immediately preceding his demand or shall be the holder of record of
voting trust certificates for, at least five percent of the outstanding shares
of any class or series of the corporation, upon written demand stating the
purpose thereof, shall have the right to examine, in person or by agent or
attorney, at any reasonable time or times, for any proper purpose its relevant
books and records of accounts, minutes and records of shareholders and to make
extracts therefrom.
SECTION 3. FINANCIAL INFORMATION. Not later than four months after the
close of each fiscal year, this corporation shall prepare a balance sheet
showing in reasonable detail the financial condition of the corporation as of
the close of the fiscal year, and a profit and loss statement showing the
results of the operation of the corporation during its fiscal year.
Upon written request of any shareholder or holder of voting trust
certificates for shares of the corporation, the
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corporation shall mail to such shareholder or holder of voting trust
certificates a copy of the most recent such balance sheet and profit and loss
statement.
The balance sheets and profit and loss statements shall be filed in
the registered office of the corporation in this state, shall be kept for at
least five years, and shall be subject to inspection during the business hours
by any shareholder or holder of voting trust certificates, in person or by
agent.
ARTICLE VI. DIVIDENDS.
The Board of Directors of this corporation may, from time to time,
declare and the corporation may pay dividends on its shares in cash, property
or its own shares, except when the corporation is insolvent or when the
declaration or payment thereof would be contrary to any restrictions contained
in the Articles of Incorporation, subject to the following provisions:
a) Dividends in cash or property may be declared and paid, except as
otherwise provided in this section, only out of the unreserved and unrestricted
earned surplus, howsoever arising but each dividend paid out of capital surplus
shall be identified as a distribution of capital surplus, and the amount per
share paid from such surplus shall be disclosed to the shareholders receiving
the same concurrently with the distribution.
b) Dividends may be declared and paid in the corporation's own treasury
shares.
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c) Dividends may be declared and paid in the corporation's own
authorized but unissued shares out of any unreserved and unrestricted surplus
of the corporation under the following conditions:
1) If a dividend is payable in shares having a par value, such shares
shall be reissued at not less than the par value thereof and there shall be
transferred to stated capital at the time such dividend is paid an amount
surplus equal to the aggregated par value of the shares to be issued as a
dividend.
2) If a dividend is payable in shares without a par value, such shares
shall be re-issued at such stated value as shall be fixed by the Board of
Directors by resolution adopted at the time such dividend is paid, and there
shall be transferred to stated capital at the time such dividend is paid an
amount of surplus equal to the aggregate stated value so fixed in respect of
such shares; and the amount per share so transferred to stated capital shall be
disclosed to the shareholders receiving such dividend concurrently with the
payment thereof.
d) No dividend payable in shares of any class shall be paid to the
holders of shares of any other class or series unless the Articles of
Incorporation so provide or such payment is authorized by the affirmative vote
or the written consent of the holders of at least a majority of the outstanding
shares of the class in which the payment is to be made.
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e) A split-up or division of the issued shares of any class into a
greater number of shares of the same class without increasing the stated
capital of the corporation shall not be construed to be a share dividend within
the meaning of this section.
ARTICLE VII. CORPORATE SEAL.
The Board of Directors shall provide a corporate seal which shall be
in circular form and shall have inscribed thereon the following:
INTERNATIONAL FOAM SOLUTION, INC.
1993
FLORIDA
ARTICLE VIII. AMENDMENT.
The By-Laws may be replaced or amended, and new By-Laws may be
adopted, by either the Board of Directors or the shareholders, but the Board of
Directors may not amend or repeal any By-Laws adopted by the shareholders if
the shareholders specifically provide such By-Law not subject to amendment or
repeal by the directors.
/s/ Claudia Iovino
----------------------------------
Claudia Iovino
/s/ Anthony J. Dichiara
----------------------------------
Anthony J. Dichiara
/s/ Jeff Marshall
----------------------------------
Jeff Marshall
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IN WITNESS WHEREOF, the undersigned subscribed have executed these
Articles of Incorporation this 16th day of June, 1993.
/s/ Harvey Katz
----------------------------------
Harvey Katz
/s/ Claudia Iovino
----------------------------------
Claudia Iovino
/s/ Anthony J. Dichiara
----------------------------------
Anthony J. Dichiara
/s/ Jeff Marshall
----------------------------------
Jeff Marshall
22
<PAGE> 1
Exhibit 5
INTERNATIONAL FOAM SOLUTIONS, INC.
COMMON STOCK PURCHASE WARRANT
This Warrant certifies that, for value received, ________ (the
"Warrant Holder") is entitled to purchase from INTERNATIONAL FOAM SOLUTIONS,
INC. (the "Company"), upon surrender of this Warrant at the principal offices of
the Company during the period hereinafter provided, up to _________ shares of
the $.01 par value common voting stock of the Company (the "Shares") at the
purchase price per share set forth herein.
WHEN EXERCISABLE. This Warrant shall be Exercisable at any time on or
before May 31, 2001.
PURCHASE PRICE. The purchase price for Shares purchased pursuant to
this Warrant shall be $____ per share.
EXPIRATION OF WARRANT. If at any time the company enters into a letter
of intent with an underwriter to make a public offering of its common stock, the
Company shall have the right to terminate this Warrant by providing not less
than 30 days prior written notice to the Warrant Holder. This written notice
shall state (i) that the Company has entered into a letter of intent to make a
public offering of its common stock, (ii) the book value per share of the
Company's common stock as of the end of the Company's most recently completed
fiscal quarter, (iii) the then current purchase price per share under the terms
of this Warrant, (iv) the Company's best good faith estimate of the anticipated
offering price in the public offering, and (v) the date upon which this Warrant
will terminate, which shall be not less than 30 days from the date of the
written notice. The Warrant Holder shall be entitled to exercise all or any
part of this Warrant at any time prior to the stated termination date. Any
portion of this Warrant not exercised as of the stated termination date shall
terminate as of that date and be null and void.
METHOD OF EXERCISE. This Warrant may be exercised in whole or in part
by surrendering this Warrant at the principal offices of the Company
accompanied by payment in cleared funds of the purchase price for the number of
Shares being purchased. Upon exercise, the Company will forthwith cause to be
executed, issued and delivered to the Warrant Holder a certificate or
certificates for the proper number of Shares.
Upon a partial exercise of this Warrant, the Company shall, in
addition to delivery of certificates for the Shares thereby purchased, deliver
to the Warrant Holder a new Warrant for the remaining Shares then subject to
the unexercised portion of the Warrant. The new Warrant shall be dated the date
hereof and shall contain the same terms and conditions as this Warrant.
Certificates for Shares issued upon exercise of this Warrant shall be
dated and effective as of the later of the date of surrender of this Warrant
for exercise or payment of the appropriate purchase price, notwithstanding any
delay in the actual execution, issuance or delivery of the certificates for the
Shares.
COVENANTS AS TO SHARES. The Company covenants that it will at all
times maintain an available and adequate reserve of duly authorized but
unissued shares of its common stock, free from preemptive rights, sufficient to
effect the full exercise of this Warrant in accordance with its terms. All
Shares issued upon exercise of this Warrant will be validly issued, fully paid
and non-assessable.
INTERNATIONAL FOAM SOLUTIONS, INC.
Date: By:
---------------------- --------------------------------
Harvey Katz, CEO
<PAGE> 1
Exhibit 6
LICENSE AGREEMENT FOR IFS RECYCLING TECHNOLOGY
IN JAPAN
This Agreement is entered into on January 11, 1997, between
INTERNATIONAL FOAM SOLUTIONS, INC., a corporation duly organized and existing
under the laws of Florida, having an office at 1701 NW Madrid Way, of Boca
Raton, Florida 33432, U.S.A. ("IFS") and STYRO JAPAN CO., LTD. a corporation
duly organized and existing under the laws of Japan, having an office at
_______________________________________ Japan ("Styro Japan").
WHEREAS, IFS holds United States Patent No. 5,223,543 issued June 29,
1993, and PCT No.___ both of which are entitled "Reduction in Polystyrene With
Activated Agent" and
WHEREAS, Styro Japan desires to obtain an exclusive license to use and
develop the above patents as well as any additional related patent applications
and related intellectual property know how and show how to use in Japan
(collectively the "Patents").
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein and for other good and valuation consideration, the
receipt and sufficiency of which is hereby acknowledged by both parties the
parties have agreed as follows:
SECTION 1. Grant of License
IFS hereby grants to Styro Japan the exclusive license to use and
develop the Patents, all of IFS proprietary technology related to the Patents
and all improvements and modifications thereto (collectively the "IFS
Technology") within the country of Japan. This license grants to Styro Japan
the right to use and develop the IFS Technology only in connection with the
reduction and reconversion of polystyrene, including the engineering design and
construction of reconverting facilities which will reconvert reduced
polystyrene into marketable raw materials ("Reconverting Facilities").
<PAGE> 2
SECTION 2. LICENSING FEE
Styro Japan shall pay to IFS an initial licensing fee in the amount of
U.S. $1,000,000, payable by wire transfer within 21 days of the date of this
Agreement. In addition, Styro Japan shall pay to IFS a one time licensing fee
for each Reconverting Facility in an amount equal to U.S. $60,000 for each 1,000
pounds (450 kilograms), or increment thereof, of hourly reconverting capacity of
the Reconverting Facility. As to each new Reconverting Facility, such payment
shall be made by wire transfer upon delivery of the reconverting equipment to
the Reconverting Facility.
SECTION 3. PROTECTION OF TECHNOLOGY
(1) At or prior to the execution of this Agreement, Styro Japan shall
deliver to IFS the approved IFS Japan Confidentiality Agreement which states
that Styro Japan will maintain in strict confidence all information received
with respect to the IFS Technology and will not disclose any of the IFS
Technology to any director, officer, employee or agent of Styro Japan or to any
third party, without first obtaining the written consent of IFS and a
confidentiality agreement from that person in favor of IFS.
(2) In order to obtain the written consent of IFS to disclose any
portion of the IFS Technology to any third party, Styro Japan must supply to
IFS in writing that person's name, employer and employment position, the nature
of the information to be disclosed to that person and the reason for disclosure
to that person. If IFS approves of such disclosure IFS shall so notify Styro
Japan in writing and shall supply to Styro Japan a confidentiality agreement
for execution by such person. Upon receipt by IFS of the confidentiality
agreement executed by such person, Styro Japan shall be authorized to disclose
to such person the information described in the request for approval.
SECTION 4. EXCHANGE AND OWNERSHIP OF TECHNOLOGY AND IMPROVEMENTS
(1) The parties confirm that it is their intention to exchange
information on any and all matters having to do with the technology with
respect to the Patents and the Reconverting Facilities during the term of this
Agreement. Styro Japan reserves the right to make changes in the Reconverting
Facilities which it considers appropriate or to replace the Reconverting
Facilities with similar specifications if technical progress manufacturing
techniques or requirements of the market call for such replacement or
modifications.
(2) All IFS Technology existing as of the date of this Agreement, and
all improvements and modifications thereto developed by IFS independently from
Styro Japan and any companies with which Styro Japan may collaborate in
performing this Agreement (the "Collaborating Companies"), and any additional
patents obtained by IFS outside Japan shall remain the sole and exclusive
property of IFS.
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<PAGE> 3
(3) All improvements and modifications of the IFS Technology developed
by Styro Japan and the Collaborating Companies pursuant to this Agreement, and
any additional patents obtained in Japan by Styro Japan or the Collaborating
Companies and related to the IFS Technology, shall be owned fifty percent (50%)
by IFS and fifty percent (50%) by Styro Japan and the Collaborating Companies,
and, all patent applications shall be filed in the name of IFS. Styro Japan and
Collaborating Companies to indicate the same percentage of ownership. Styro
Japan, at its own expense, shall file patents in Japan on behalf of IFS as to
any and all patentable improvements and modifications to the IFS Technology
whether developed independently from Styro Japan and the Collaborating
Companies or developed by Styro Japan and the Collaborating Companies pursuant
to this Agreement. IFS shall retain full ownership and rights outside of Japan
in all other countries for all patents filed in Japan.
(4) IFS shall be entitled to the unrestricted use of all improvements
and modifications to the IFS Technology developed by Styro Japan and the
Collaborating Companies and Styro Japan and the Collaborating Companies shall
be entitled to the unrestricted use of all improvements and modifications to
the IFS Technology developed by IFS without payment of any consideration other
than as set forth in this Agreement.
SECTION 5. SALES BASED UPON IMPROVEMENTS
Styro Japan is hereby authorized to manufacture and sell for use in
Japan only reconverting equipment the design of which is based upon improvements
and modifications to the IFS Technology developed by Styro Japan and the
Collaborating Companies pursuant to this Agreement and/or based upon any
additional patents obtained in Japan by Styro Japan or the Collaborating
Companies and related to the IFS Technology.
SECTION 6. PRIORITY AND USE OF PATENTS
(1) Styro Japan and IFS acknowledge the existence of certain
challenges to the priority of the Patents in Japan. IFS shall, at its own cost,
defend the priority of the Patents in Japan and diligently pursuant to
resolution all challenges thereto.
(2) IFS will indemnify Styro Japan against any liabilities and
expenses incurred by Styro Japan in connection with any claim made against
Styro Japan alleging that Styro Japan is not legally authorized to use the IFS
Technology in Japan. In order to be entitled to such indemnification, Styro
Japan shall notify IFS in writing within twenty (20) business days of the
receipt of any such claim and shall forward to IFS copies of all correspondence
received in connection with such claim. IFS shall then have thirty (30) days to
choose whether to assume defense of the claim or authorize Styro Japan to
defend the claim at IFS' expense. IFS shall notify Styro Japan of its choice
within such 30-day period. If Styro Japan has not received notification from
IFS within such 30-day period, Styro Japan shall be authorized to defend the
claim at IFS expense.
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<PAGE> 4
SECTION 7. RIGHT OF FIRST REFUSAL ON RECONVERSION PRODUCTS
(1) Prior to any sale by Styro Japan of any reconverted raw materials
produced by any Reconverting Facility, Styro Japan will first provide to IFS a
written offer to sell such materials to IFS or its designee. Such written offer
will state the raw materials to be produced by the Reconverting Facility,
specifications as to the quality of the reconverted raw materials to be
produced, the volume expected to be produced and the price and terms at which
Styro Japan proposes to sell the materials. IFS or its designee shall have the
first right and option to purchase the materials described in the written notice
from Styro Japan at the price and terms set forth in the notice. If IFS chooses
to exercise this right, IFS shall so notify Styro Japan within sixty (60) days
of receipt of the written notice from Styro Japan and IFS and Styro Japan shall
then enter into a written agreement pertaining to such sales.
(2) If IFS declines to exercise this right or fails to notify Styro
Japan of its acceptance within sixty (60) days of receipt of the written notice
from Styro Japan then Styro Japan may enter into one or more agreements to sell
the materials to third parties provided that the sales price is at least ninety
percent (90%) of the price set forth in the written notice to IFS. If the price
at which Styro Japan proposes to sell the materials to any third party is less
than ninety percent (90%) of the price set forth in the written notice to IFS
then Styro Japan shall first offer the materials to IFS in the manner set forth
above at the price at which Styro Japan proposes to sell to the third party.
SECTION 8. ARBITRATION
Any controversy or claim between the parties hereto arising out of or
relating to this Agreement shall be settled by binding arbitration in Palm
Beach County, Florida in accordance with the Commercial Arbitration Rules of
the American Arbitration Association and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be conducted before and by a single arbitrator selected by
the parties. If the parties have not selected an arbitrator within 10 days of
written demand for arbitration, the arbitrator shall be selected by the American
Arbitration Association pursuant to the then current rules of that Association.
The expenses of arbitration shall be divided equally between the parties. The
duty to arbitrate shall survive the cancellation or termination of this
Agreement.
SECTION 9. NOTICES
All notices, consents, approvals and other communications given or
made hereunder shall be in writing and shall be delivered (i) personally (to an
officer of the corporation if the recipient is a corporation), (ii) by express
courier, (iii) be telecopier or (iv) by registered or certified mail sent to
the recipient's address as set forth below or such other address as may be
specified by notice hereunder. All such notices, consents
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<PAGE> 5
approvals and other communications shall be deemed to have been given on (i)
the date of receipt if delivered personally or by express courier, (ii) the
date of transmission with confirmation answer back if transmitted by telecopier
or (iii) the tenth day following posting if transmitted by registered or
certified mail
IFS International Foam Solutions, Inc.
1701 NW Madrid Way
Boca Raton, FL 33432
Styro Japan Styro Japan Co., Ltd.
34 Gionnosu-cho
Kagoshima City, 892, Japan
SECTION 10. MISCELLANEOUS
(1) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida.
(2) The Section headings contained herein are for reference purposes
only and shall not in any way affect the meaning and interpretation of this
Agreement.
(3) This Agreement may be assigned by IFS to any entity to whom IFS
transfers the IFS Technology. This Agreement may not be assigned by Styro Japan
to any person or entity without the prior written consent of IFS which consent
may be withheld in the sole discretion of IFS.
(4) This Agreement shall be binding upon and shall operate for the
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns and nothing herein expressed or implied shall
be construed to give any other person or entity any legal or equitable rights
hereunder.
(5) This Agreement contains the entire agreement of the parties hereto
and all prior understanding and agreements whether written or oral between the
parties are merged into this Agreement. This Agreement cannot be altered,
amended, supplemented, modified or terminated except by an instrument in writing
signed by each party hereto.
(6) Should it become necessary for either party to institute legal
action to enforce the terms and conditions of this Agreement, the successful
party shall be awarded a reasonable attorneys' fee, which shall include a
reasonable attorneys' fee for any appellate proceedings, expenses, including any
accounting expenses and costs.
(7) The invalidity or unenforceability of any particular provision of
this Agreement shall not effect the other provisions hereof, and the Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
5
<PAGE> 6
CONFIDENTIALITY AGREEMENT
You have agreed to enter into key discussions with Ecological Technologies Inc.
the Exclusive Pacific Rim Distributor for International Foam Solutions, Inc.,
hereinafter referred to as the Company. The Company has made available and will
be making available certain information about the Company to you and you have
agreed this information subject to the following terms and conditions.
1. You will have access to confidential information, the disclosure of which
could be very detrimental to the Company. Confidential information includes,
without limitation, information and dates relating to the development, research,
testing, design, costs, marketing and uses of services and products of the
Company, the source of supplies for the special need of customers for the
services and products. In consequence of the aforesaid, you understand and
agree that any and all information received by you regarding the Company shall
be deemed to be confidential information and shall not be reproduced in any
manner or disclosed.
2. You shall not use the confidential information for any purposes other than
to assist you in working with the Company and shall take all reasonable
precautions necessary to
(a) safeguard the information from disclosure to anyone other than
a limited number of appropriate agents such as other employees or
professional advisors who have a need to have access to such
information, and to
(b) ensure that all such persons who have access will keep it
confidential.
3. It shall be agreed and understood that such confidential information does
not include information which
??????????????????????????????????????????????????????
??????????????????????????????????????????????????????
??????????????????????????????????????????????????????
4. If requested by the Company, you shall promptly return all information in
tangible form in your possession, however, you understand that the other
provisions of this agreement continue in perpetuity.
5. In case any provision of this agreement is held void or unenforceable by any
court then such provision shall be severable and shall not affect the remaining
provision hereof.
6. By your execution hereof you agree that a violation of any covenant in this
agreement will cause such damage to the Company as will be irreparable and
accordingly agree that the Company shall be entitled as a matter of right to an
injunction restraining any further violation of this agreement by you, your
employees, agents or associates. This right to injunction shall be cumulative
and in addition to whatever other remedies the Company may have for the
recovery of actual damages.
If the above meets with your understanding and approval, please sign this
agreement where indicated and return same to the undersigned. Thereafter, this
shall become a binding agreement between us and inure to the benefit of and be
binding upon ourselves and our heirs, legal representatives and assigns.
THE ABOVE IS HEREBY AGREED TO BY FOR INTERNATIONAL FOAM SOLUTIONS INC.
Styro Japan /s/ Dennis Paul
- --------------------------------- -------------------------------------
Your Company Name (Type or Print) Dennis Paul, President,
Ecological Technologies
Pacific Rim Distributor for
/s/ , President
- ----------------------------------
Individual & Title (Type or Print) IFS
INTERNATIONAL FOAM SOLUTIONS INC.
January 10th, 1997
- ------------------
Date
<PAGE> 1
<TABLE>
<CAPTION>
<S> <C>
NUMBER PAR VALUE $.01 SHARES
NO. 2518
INTERNATIONAL FOAM SOLUTIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
COMMON STOCK CUSIP 459525 10 1
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
SAMPLE
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, of International Foam Solutions, Inc.,
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Date Countersigned:
Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road
Tamarac, FL 33321 Transfer agent
INTERNATIONAL FOAM SOLUTIONS, INC.
CORPORATE
SEAL
1993
FLORIDA
/s/ ILLEGIBLE /s/ ILLEGIBLE
President Secretary
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
-----------------------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act
JT TEN - as joint tenants with rights
of survivorship and not as -------------------------
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For value received, hereby sell, assign and transfer unto
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated:
-------------------------
----------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
