UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
Commission file number 0-11426
PACKAGING RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF COLORADO 84-0750762
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2582 South Tejon Street, Englewood, Colorado 80110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code:(303) 936-2363
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 Par Value)
Common Stock Purchase Warrants
(Title of class)
Subordinated Convertible Debentures
($1,000 Par Value)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation SB is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuers revenues for its most recent fiscal year $17,881,000.
The aggregate market value of 689,554 shares of the registrant's
common stock held by non-affiliates on March 29, 1996 was
approximately $1,185,171.
At March 29, 1996 there were 3,096,993 shares of the Company's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference
and the Part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) Any annual report to
security holders; (2) Any proxy or information statement, and (3)
Any prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g. annual report to
security holders for fiscal year ended December 24, 1990).
PART I.
Item 1. Business
Introduction
Packaging Research Corporation, a Colorado corporation (the
"Company"), was organized on April 5, 1983. The principal executive
offices of the Company are located at 2582 South Tejon, Englewood,
Colorado 80110, and its telephone number is (303) 936-2363. The
Company is involved in two business segments: custom precision
equipment and the premium pasta sauce business.
The custom precision equipment business includes designing,
manufacturing, marketing and servicing a complete line of standard
and customized precision, high-speed filling, forming and pumping
equipment for a wide assortment of processed and non-processed food
and non-food applications. These processing and packaging
applications include pet food canning and treat forming; tuna fish
filling; and beef, pork and poultry filling, forming and stuffing.
Generally, the equipment is custom designed to meet the specific
applications needs of its customers where fast, gentle, durable,
reliable and accurate operation is required. The Company is
engaged in the development of additional equipment which
complements its present product line. The Company's equipment is
manufactured exclusively in the United States and marketed and sold
throughout the world.
On February 17, 1995, the Company, through a wholly owned
subsidiary, Mama Rizzo's, Inc. ("MRI"), a Colorado corporation,
consummated the purchase of the assets and certain liabilities of
Mama Rizzo's, Inc. and M.A. Yamin, Inc., (collectively "Mama
Rizzo's"), which were private related companies based in Houston,
Texas engaged in the business of manufacturing and distributing a
premium pasta sauce under the name "Mama Rizzo's."
Management expects that the acquisition of the assets and certain
liabilities of Mama Rizzo's will diversify and expand the Company's
revenue base as well as provide for long-term profitability. To
date, Mama Rizzo's has incurred substantial losses as it has
developed and grown the business. Management believes that the
cost of purchasing shelf space, and a great percentage of costs
associated with developing the customer base, are one-time in
nature, and, accordingly, will begin to decrease in the near
future. As a result, management expects operating results to
improve and profitability to be attained in 1996, although there is
no assurance that such improvements will result.
The long-term success of the pasta sauce business will be
contingent upon i) the Company's ability to arrange financing for
MRI's working capital and business growth, ii) the ability of MRI
to economically increase its market penetration and iii) the
ability of the Company to reduce the production costs associated
with the pasta sauce products.
Through December 31, 1994, the Company had entered into four
contracts with CTC Foods Corporation ("CTC"), a corporation then
under common beneficial ownership with the Company, for designing,
engineering, assembling and installing three complete dehydrated
potato processing systems and one set of storage and processing
structures for use in Russia. The contract price for the four
contracts aggregated $7,000,000, of which approximately $5,387,000
has been recognized as revenue cumulatively through December 1994.
The first system was shipped in May 1993 and the plant was
commissioned in April 1994. The second system shipped in the
second quarter of 1994. The third system was acquired and
currently is available for sale to a third party. The beneficial
shareholder of CTC is Oren L. Benton who filed for Chapter 11
bankruptcy protection on February 23, 1995. CTC was dependent upon
Mr. Benton for continued funding which was uncertain. As a result,
no revenue was recognized for the remainder of the contracts with
CTC in 1995. The Company has filed Proof of Claims before the
United States Bankruptcy Court for damages under the CTC contracts,
the CTC agreement to provide a line of credit and other matters.
The accompany financial statements do not reflect the unpaid CTC
contract balances nor claims filed. The Company will only
recognize such amounts upon receipt due to the apparent
uncertainties. Refer to "Management's Discussion and Analysis"
regarding further discussion of this situation.
On December 16, 1994, the Company's Board of Directors authorized
a quasi-reorganization of the Company's accounts effective January
1, 1995. The Board based this on the fact that the Company had
profitably changed its business from oil and gas to manufacturing.
Acquisition of Pasta Sauce Assets
On February 17, 1995, the Company through a wholly owned
subsidiary, MRI, consummated the purchase of the assets and certain
liabilities of Mama Rizzo's, pursuant to an acquisition agreement
dated September 16, 1994. As consideration for the purchase, the
Company issued 152,152 shares of the Company's common stock (valued
at approximately $950,000, based upon the quoted market price of
the Company's stock on the date of closing) to M.A. Yamin, Inc. and
assumed through its subsidiary approximately $16.5 million in
liabilities. The Company negotiated a settlement with Mama Rizzo's
principal creditor who was owed approximately $12.2 million for
monies borrowed over time including accrued interest thereon. In
satisfaction for the discharge of this debt, the Company paid
approximately $6.3 million in cash with the remaining balance of
$5.9 million discharged through the issuance of the Company's
common stock at $6.50 per share (the fair market value on such
date), $2,000,000 of which was contingent upon MRI achieving $15
million of sales during the year ended December 31, 1995. Since
MRI did not achieve those sales in 1995, 307,692 shares were
forfeitable at yearend 1995.
Custom Precision Equipment Operations
The Company's products comprise a complete line of standard and
customized precision, high-speed filling, forming and pumping
equipment for a wide assortment of processed and non-processed food
and non-food applications. A brief description of the traditional
product line is as follows: (i) pumping equipment supplies the
food products to the fillers, formers or other equipment under a
constant pressure or flow rate; (ii) forming equipment molds
products, including raw and processed poultry, beef, pork, fish,
potatoes, cheese, fruits and vegetables, into a variety of standard
or custom-designed shapes, including patties, nuggets, balls,
strips, chops, roasts, links, cubes and other shapes that provide
a homemade texture and appearance; and (iii) filling equipment
loads the products into a variety of types and sizes of containers,
including cans, glass jars, folding cartons, and plastic tubs and
trays.
The Company's equipment ranges in price from $100,000 to $800,000
each. The Company's major markets include gourmet pet food canning
and pet treat forming; tuna fish filling; and beef, pork and
poultry filling, forming and stuffing.
Products and Services
Products.
The Company's current product line of precision, high-speed
filling, forming and pumping machinery and associated processing
equipment for food and non-food applications includes: (i) two
models of VersaForm (TM) forming machines which gently and
accurately form a variety of products and product sizes and shapes.
The products include poultry, beef, pork, fish, potatoes, cheese,
fruits and vegetables. Product sizes range from 1.5 gram pieces to
two-pound portions. Standard shapes include patties, nuggets,
balls, strips, roasts, links and cubes. In addition, shapes can be
custom designed; (ii) five models of a WeightControl Top Filler
which fills a variety of products including raw fish, chunky meat,
pet food and leafy vegetables; (iii) a WeightControl Former-Filler
which forms and deposits a product shape directly into a container
(including cans, jars and cups), eliminating the need for a second
filling machine. An exact number of pieces and an exact fill
weight are guaranteed in each container; (iv) a WeightControl
Bottom Filler which fills from the bottom of the container to the
top for an airless fill. This filler eliminates air pockets in a
variety of dense viscous products, including luncheon meats, large
beef chunks and cooked chicken portions. It can also be used for
non-food products such as plastic, wood and putty; (v) a
WeightControl Carton Filler which fills product (primarily greens
and vegetables, such as whole-leaf spinach) into retail and
institutional-sized paper cartons. It features scuff-proof guide
rails which will not mar preprinted cartons; (vi) a WeightControl
Multiple Product Filler which utilizes two product infeed points to
fill up to four different products into a variety of container
types; and (vii) three models of a Pump/Stuffer which includes an
assortment of options, including vacuumizers which remove air from
the product which aids in supplying a constant product to the
pumping chambers. This enables the pumps to operate under a
constant pressure or a constant flow mode. The pumps supply the
product to the fillers, formers and other equipment.
All of the equipment is engineered to provide fast, gentle and
accurate handling of food products. The WeightControl line of
equipment provides weight accuracy to plus or minus 1/2% of the
desired weight.
New Product Design and Development.
The Company is engaged in continuing research and development to
improve the current line of equipment and to develop new machine
designs to meet market demands as identified. The Company recently
introduced a high volume pump/stuffer. Currently the Company is
working on incorporating the internal portioner into a high volume
pump/stuffer to meet market demands. The process of design,
development and testing of new products is time consuming and may
range from six to 18 months. As with new products developed by any
company, substantial expense can be incurred for design,
development and testing which may not be recouped through sales.
However, the Company bases its new product development upon
customer feedback and, hence, is relatively certain that market
demand will exist. Research and development costs incurred during
1995 and 1994 totaled $72,000 and $95,000, respectively.
Rebuilds, Parts and Customer Service.
Rebuilding and selling spare parts for previously sold equipment
are integral parts of the Company's business and are sources of
substantial revenue. Additionally, servicing previously sold
equipment provides another source of income. As the number of
pieces of equipment in the field increase each year, it is expected
that income from rebuilds and parts sales will increase
accordingly. As of March 1, 1995, approximately 177 separate items
of the Company's food processing equipment were installed and were
operational at facilities operated by approximately 91 active
customers of the Company.
The Company's internal sales and service department works closely
with most customers who desire proper maintenance and repair so as
to extend the useful life and performance of the equipment. With
proper maintenance and repair, the Company's equipment is expected
to have a useful life of as long as 15 years. The Company employs
experienced field service technicians who service both domestic and
international customers. The internal sales and service department
is available 24 hours per day by telephone and can respond
domestically to customer requests for a service technician within
ten hours of notice and can ship most parts within two hours of
notice. Additionally, as part of its customer-oriented approach,
field service technicians will visit customers free of charge when
in the area to provide consultation and to receive feedback on the
performance of the equipment.
Manufacture and Assembly.
The Company assembles the food processing equipment at a facility
in Englewood, Colorado. The Company's engineering department
reviews all orders received for major machinery and equipment and
then prepares blueprints and a bill of materials. If required
materials are not in stock, then the Company will order standard
components from commercial vendors and will order custom components
from local machine shops and fabricators. All parts undergo a
quality control inspection by the Company to ensure they meet
Company specifications. All machinery and equipment is assembled
by Company personnel. After assembly, the machinery and equipment
is tested by the Company before shipment.
The Company has numerous sources of supply of both off-the-shelf
and custom component parts and is not dependent upon any one or
more sources of supply. Management believes that the Company is
able to replace any of its sources of supply with other
subcontractors or vendors without a substantial increase in prices
or disruption in delivery schedules. The quality of customized
components supplied to the Company has generally been satisfactory.
To the knowledge of management, none of the Company's
subcontractors and vendors are experiencing financial difficulties
which would affect their ability to timely supply the Company.
Sales and Marketing
During the year ended December 31, 1995, approximately 72% of
equipment sales were domestic and 28% were international. Sales
have been made throughout the world, including to customers in
Australia, Canada, Europe, Africa, South America and Japan. There
are no known material regulations or restrictions adversely
affecting foreign sales and operations.
The Company's worldwide market is divided into three sales
territories. Domestically, two area sales managers and a network
of independent sales agents maintain direct contact with current
and prospective customers within their territories. The third
territory is the international market which is divided into the
countries of Africa, Australia, Canada, France, Japan, Mexico,
Argentina, Brazil and the United Kingdom. These territories are
covered by sales agents or distributors. The international sales
territory is managed by the Company's executive vice president.
Set forth below is a table of traditional product sales by products
and services (domestic and international) for the years ending
December 31, 1994 and 1995.
Year Ended December 31,
1994 1995
Domestic:
Fillers $1,436,000 $2,859,000
Formers 428,000 266,000
Pumps 680,000 693,000
Repair, rebuilds and other 1,161,000 1,367,000
$3,705,000 (77%) $5,185,000 (72%)
International:
Fillers $ 9,000 $1,490,000
Formers 121,000 259,000
Pumps 556,000 185,000
Repairs, rebuilds and other 433,000 61,000
$1,119,000 (23%) $1,995,000 (28%)
TOTAL $4,824,000 (100%) $7,180,000 (100%)
Competition
The manufacture and marketing of food processing equipment and
systems is highly competitive, both domestically and
internationally. Many of the Company's competitors are established
firms with greater financial resources and more experienced
personnel. No assurance can be given that the Company will be able
to successfully compete in the domestic or international market
places.
The Company serves a specialized niche in the market for food
processing equipment. Hema, based in France, is the Company's
major competitor regarding filling applications requiring gentle
handling, weight accuracy and speed. Formax, based in Illinois, is
the Company's major competitor regarding sales of forming
equipment. Marlen Research, Overland Park, Kansas, is the
Company's major competitor for pumps. The major competition for
stuffers are the Handtmann and Vemag brands located in Germany.
Pasta Sauce Operations
Mama Rizzo's, which commenced operations in 1991, produces six
varieties of a premium-quality pasta sauce; regular (tomato, basil,
garlic), regular with pepper, regular with mushroom and onions,
regular with pepper, mushroom and onions, primavera and pepper
primavera. The line was developed to take advantage of increasing
consumer demand for high-quality food products made from all
natural ingredients. Following market testing in the Houston area,
the product line, based on an old family recipe, was launched
nationally in 1993.
Manufacture and Assembly
Mama Rizzo's produces its sauce in a leased 54,000 square-foot
office/production/warehousing facility in Houston, Texas with an
annual production capability of three million cases.
Sales and Marketing
Competition in the pasta sauce market is intense and a large number
of new sauces are introduced each year. Few, however, succeed in
the marketplace. Retail sales in the category exceeded $1.2
billion in the past year, and the main recognized brands-Ragu and
Prego-control approximately 60 percent of retail pasta sauce sales.
Premium sauces are the fastest growing segment of the market,
increasing 100 percent in the past twelve months, while total pasta
sauce sales only increased by 7.2 percent. Sales in the premium
segment now account for over 15 percent of the entire sauce
category. Classico is the established leader in the premium
segment with a 51 percent share. In early 1995, Mama Rizzo's had
approximately a 8 percent share of the premium segment. Sales were
$2.1 million in 1992, $10.5 million in 1993, $12.8 million in 1994
and $12.7 million in 1995.
Mama Rizzo's markets its products through an inhouse sales force
headquartered in Denver, Colorado combined with local broker
networks responsible for sales to individual customers in specific
geographic areas. Mama Rizzo's distribution is primarily to
supermarkets, although the company is increasing its efforts to
penetrate the non-grocery marketplace which includes discount
warehouses such as Wal-Mart and K Mart. These companies are
gaining an increasing share of the retail food business and are
altering the traditional wholesale distribution channels by working
directly with producers and manufacturers. Past marketing efforts
have included discounts, cents-off coupons, and advertising
allowances for retailers. A major expense incurred in Mama Rizzo's
market launch has been "slotting fees" which are required to
purchase supermarket shelf space.
In November 1994, Mama Rizzo's replaced its 32-oz. jar with a 26-
oz. jar. The changeover, coupled with revised pricing and a strong
promotional program, was designed to increase gross margins while
reaching size and price parity with the leading premium brands.
Pasta sauce consumption is somewhat seasonal, rising slightly in
the first and fourth quarters and falling slightly during the
summer months. In addition, consumption varies by geographical
area, with per-capita consumption highest on the East Coast and
lowest in the Southwest and West.
Mama Rizzo's sauces are distributed in 45% of the A.C.V. (All
Commodity Volume) in the United States. The ACV refers to the
total volume measure of supermarket sales for all grocery products.
For example, Mama Rizzo's last reported ACV of 45 means it has
distribution in stores doing 45 percent of the total store volume
nationally. "Weighted ACV" means that the sample base of stores
selected to report retail sales is weighted to include high volume
as well as lower volume stores in the sample. This makes a more
accurate projection of the category's actual volume.
At October 28, 1995, Infoscan reported Mama Rizzo's ACV at 45
percent, which means that at least one flavor was carried by
supermarkets that represent 45 percent of U.S. grocery sales.
However, in key markets such as New York, Boston and Philadelphia
where Mama Rizzo's sales efforts have been concentrated, the ACV
ranged from 61 to 92 percent. By contrast, Classico had a national
ACV weighted distribution base of 96 percent. Classico was
introduced in 1986 and rolled out nationally in 1988. Mama Rizzo's
marketing strategy is to position its Italian sauces firmly in the
Premium category at a reasonable retail price while increasing
gross margins. The intent is to increase consumer "pull" through
coupons and other advertising, while reducing customer "push"
through pricing incentives to distributors and retailers.
The premium pasta sauce category has been priced at roughly a 35-
percent premium over the Prego/Ragu brand spaghetti sauces. Mama
Rizzo's strategy has been to price below Classico through the use
of deep discounting. Mama Rizzo's goal is to offer a value-priced
premium sauce, retailing from $2.49 to $2.69, which will be (at the
low end) within 20 cents of the mainstream Prego and Ragu sauces.
As consumer awareness of Mama Rizzo's products and their high
quality increases, it is believed that consumers will be willing to
pay a small premium (about 10 percent) over the dominant brands for
superior quality and taste.
Competition
Ragu (owned by Van Den Bergh Foods, a division of Unilever) and
Prego (owned by Campbell's) dominate the overall pasta sauce
market. Together these two national brands control approximately
56.5 percent of the total market share. Other pasta sauce
competitors include Heinz, Hunt's, Newman's Own (Paul Newman) and
various regional brands. At October 28, 1995, Classico, owned by
Borden's, was the dominant brand in the premium sauce segment
holding an estimated 51 percent market share. Mama Rizzo's
accounted for about 8 percent, while various regional brands
accounted for the remaining 41 percent. During 1995, competition
in the premium sauce category has increased dramatically with the
introduction of Ragu's Five Brothers, 22 percent, and Barilla, 19
percent.
Patents and Trademarks
The Company owns two United States patents and manufactures and
sells other equipment under four royalty agreements, three of which
carry associated license agreements permitting the Company's use of
technology protected by United States patents held by others. The
Company holds a registered trademark for the name "VersaForm" and
its logo. Additionally, MRI holds three trademarks.
The Company's license agreement granting it the right to
manufacture and sell a filling and molding system covered by U.S.
patents will expire in 1998. The license agreement requires
payment of royalties equal to 6% of net receipts from the sale or
lease of such equipment. Management does not believe that
termination of this license agreement would have a significant
adverse effect upon the Company. In 1987 the Company entered into
an agreement obligating the Company to pay 2% of its net sales
price of fillers, VersaForm forming machines and all other machines
and parts manufactured and sold by the Company utilizing in any
manner the design and characteristics of the machines and parts
then manufactured by PRC's predecessors.
In September 1989 the Company was granted an exclusive license to
manufacture and distribute in North, Central and South America and
in Europe Pump/Stuffers using technology covered by a U.S. patent.
The Company is obligated to pay the licensor a royalty equal to 3%
of the sales price for each Pump/Stuffer sold. The agreement was
effective for a five-year period ending in September 1994 but
continues automatically thereafter for successive one-year periods
unless terminated upon 90 days' notice given by either party.
Backlog
The Company has contracts for food processing equipment in the
various stages of completion as well as a backlog of parts orders.
The Company's backlog at December 31, 1995, is approximately
$1,000,000, all of which is expected to be recognized as revenue
during 1996.
Administrative and Operational Support
The Company was associated through common beneficial ownership with
CSI Enterprises, Inc. (CSI) which provided managerial, accounting,
computer, risk management and legal services to the Company through
1994. Amounts reimbursed by the Company for such services were
$5,000 and $215,000 in 1995 and 1994, respectively. In addition,
the Company incurred approximately $60,000 in advertising expense
during 1994 for services rendered by an affiliate of CSI. CSI
billed its services to entities at cost for payroll and benefit
expenses related to such services plus any direct out-of-pocket
expenses. The Company terminated this arrangement with CSI at the
beginning of 1995. On February 23, 1995, CSI filed for Chapter 11
Bankruptcy protection. The Company has obtained comparable
services at similar costs.
Major Customers
During 1995, Nestle, Kal Kan and Menu Foods accounted for 26%, 12%,
and 11% of custom precision equipment sales, respectively, and C
& S, Fleming, Stop & Shop, Super Value, Twin Country and Kroeger
accounted for 14%, 12%, 11%, 10% and 10% of pasta sauce sales,
respectively.
Insurance
The Company's and MRI's businesses are insured under insurance
policies that provide coverage for general liability, commercial,
property, worker's compensation, officers and directors, business,
auto, and crime. The Company has $2,000,000 of general liability
insurance coverage and an additional $1,000,000 of umbrella
liability insurance coverage, whereas MRI has $2,000,000 of general
liability insurance and an additional $5,000,000 of umbrella
liability coverage. The Company's and MRI's insurance may not
cover every potential risk associated with the manufacture and sale
of food processing equipment. The occurrence of a significant
adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on the Company's
and MRI's financial condition and the results of their operations.
Government Regulation
The Company's equipment to be used for meat, poultry and dairy
applications (for human consumption) is subject to regulation by
the United States Department of Agriculture ("USDA") and the
equipment to be used for fruit and vegetable applications (for
human consumption) is subject to regulation by the Food and Drug
Administration ("FDA"). Blueprints for the machines are submitted
to the USDA or FDA, as applicable, which must approve the design
and materials used in the manufacture of the machines. After the
machines are completed, the USDA or FDA, as applicable, inspects
each machine in test operations with the appropriate food
substance. The USDA or FDA must then give each machine final
approval before it can be put into operation by the customer.
There is no regulation of the Company's machines which are to be
used for seafood applications.
The food processing operations of MRI are also subject to certain
USDA and FDA regulations.
To the knowledge of management, the Company and MRI are in
substantial compliance with all material USDA and FDA rules and
regulations. Approval of the Company's equipment by those agencies
generally takes approximately three months. To the knowledge of
management, the Company is not subject to any laws, rules or
regulations relating to protection of the environment regarding its
food processing equipment and systems business.
Employees and Office Space
As of March 29, 1996, the Company's custom precision equipment
segment had 32 full-time employees none of which are subject to a
collective bargaining agreement. The Company considers its
relations with its employees to be good. The Company currently
leases approximately 9,000 square feet of office space and 14,000
square feet of warehouse and assembly space in Englewood, Colorado,
under a lease expiring on November 30, 1996. Additionally, the
Company leases 4,500 square feet of warehouse space under a lease
also expiring November 30, 1996.
The warehouse and assembly area is divided into two bays, one of
which is used for material and parts inventory storage, the second
for assembly of the Company's products. The Company's test kitchen
and quality control inspection areas are also in the warehouse
space. Shop personnel assemble the machinery using various shop
tools, lifts and welding equipment to the specifications provided
by the Company's engineers.
As of March 29, 1996, the pasta sauce segment had 26 full-time
employees none of which are subject to a collective bargaining
agreement. MRI considers its relations with its employees to be
good. MRI currently leases a 54,000 square foot
office/production/warehousing facility in Houston, Texas, under a
lease expiring in November 2000.
Item 2. Properties
See "Item 1. Business - Employees and Office Space."
Item 3. Legal Proceedings
In the acquisition by the Company's subsidiary MRI of the assets
and certain of the liabilities of Mama Rizzo's, certain liabilities
and claims were not assumed. Some of those creditors have filed
suit for the collection of their claims against P.S.M.S., Inc., the
Texas corporation formally known as Mama Rizzo's Inc., i.e.,
against the Corporation which owned the Mama Rizzo's business
acquired by the Company's subsidiary. P.S.M.S., Inc. does not
intend to defend those claims. The Company has been advised by
counsel that neither the Company nor its subsidiary will have
liability for those claims or for judgments emanating therefrom.
The Company has however agreed to indemnify Stephen and MaryAnn
Yamin, the former owners of Mama Rizzo's, for any personal
liability or expenses they may incur in connection with those
unassumed liabilities.
To date, four creditors of P.S.M.S., Inc., which liabilities were
not assumed by the Company or its subsidiary in the acquisition of
Mama Rizzo's, have commenced lawsuits against the Company. Two of
these claims have been settled for approximately one-third of the
unassumed liabilities, principally payable over approximately two
years without interest. Agreement has been reached, but not yet
finalized, for the settlement of a third such claim on the same
basis. The aggregate amount payable in these settlements is
$246,770.
A fourth claim with respect to a Mama Rizzo's unassumed liability
remains unresolved. This claim involves a liability of
approximately $130,000 and suit has been brought against the
Company and its subsidiary for the collection thereof. The Company
has commenced negotiations for the settlement of this claim on a
basis comparable to the settlements of the other three claims.
During 1995 the Company also settled an employment termination
lawsuit brought by Mr. Yamin, the former president of Mama Rizzo's.
A settlement was reached in which the Company paid $283,750 to Mr.
Yamin, and issued 100,000 shares of its common stock to Ms.
Peterson in settlement of Mr. Yamin's personal debt obligation to
her at that time. The Company received the return of 152,152
shares of stock, which the Company had previously been obligated to
repurchase at $6.50 per share and the cancellation of an option to
purchase 139,806 shares of the Company's stock.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock has been traded since December 8, 1983,
in the over-the-counter market. The NASDAQ trading symbol changed
to "PRCA" effective September 23, 1993.
The following table reflects the range of high and low closing bid
prices of the Company's Common Stock for the periods indicated as
reported by NASDAQ. Such prices are reported by the NASDAQ Inter-
Dealer Quotation System and reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
Common Stock
High Low
1995
First Quarter $ 6.50 $ 3.50
Second Quarter 3.88 1.88
Third Quarter 1.88 1.38
Fourth Quarter 1.88 1.13
1994
First Quarter $ 6.13 $ 4.88
Second Quarter 6.50 6.13
Third Quarter 6.88 6.50
Fourth Quarter 7.25 6.13
There were approximately 2,389 holders of record of the Company's
Common Stock as of March 29, 1996.
The Company has never paid a cash dividend on its Common Stock and
does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1995, the Company had a cash balance of $806,000
compared to $2,633,000 at December 31, 1994. Net cash of $256,000
was used in operating activities compared to net cash provided by
operating activities of $367,000 during 1994. The decrease in net
cash flow from operations between years is primarily due to the
decrease in operating income adjusted for non-cash charges between
years.
During 1995, $4,020,000 was used in investing activities. This was
primarily the net effect of note receivable collections of
$1,329,000 and cash consideration paid for the acquisition of Mama
Rizzo's ($5,324,000), (see discussion below). Cash flow of
$2,449,000 was provided by financing activities. This was the
result of the Company's borrowings under a convertible debenture
agreement which matures January 1, 2003, as well as repayment of
certain notes payable to vendors of $568,000 and payment of loan
costs of $183,000.
On February 17, 1995, the Company, through a wholly owned
subsidiary, Mama Rizzo's, Inc. ("MRI"), a Colorado corporation,
consummated the purchase of the assets and certain liabilities of
Mama Rizzo's, Inc. and M.A. Yamin, Inc., Texas corporations,
collectively referred to as "Mama Rizzo's", engaged in the business
of manufacturing and distributing pasta sauce under the brand name
"Mama Rizzo's." As consideration for the purchase, the Company
issued 152,152 shares of the Company's common stock (valued at
approximately $950,000 on the date of closing) to M.A. Yamin, Inc.
("MAY") and assumed through its subsidiary approximately $16.5
million in liabilities. The Company negotiated a settlement with
Mama Rizzo's principal creditor (the "Creditor") who was owed
approximately $12.2 million for monies borrowed over time including
accrued interest thereon. In satisfaction for the discharge of
this debt, the Company paid approximately $6.3 million in cash with
the remaining balance of $5.9 million discharged through the
issuance of the Company's common stock at $6.50 per share,
$2,000,000 of which was contingent upon MRI achieving $15 million
in sales during the year ended December 31, 1995. The sales were
not achieved and the stock was forfeitable at the end of 1995. The
cash paid consisted of offsetting a note receivable held by the
Company from the creditor (approximately $1.3 million), a cash
payment in 1995 ($3 million) and reimbursement of monies advanced
by the creditor to Mama Rizzo's from July 1, 1994 through December
31, 1994 ($2,000,000) using proceeds drawn under the line of
credit.
Management expects that the acquisition will diversify and expand
the Company's revenue base as well as provide for increase long-
term profitability. However, to date, Mama Rizzo's has incurred
losses as it has developed and grown the business. While revenues
have increased each year, the costs associated with purchasing
shelf space and establishing a customer base have increased as
well. Management believes that the cost of purchasing shelf space,
and a great percentage of the costs associated with developing a
customer base, are one-time in nature, and accordingly, will begin
to decrease in the future. As a result, management expects
operating results to improve and sustained profitability to be
attained, although there is no assurance that such improvements
will result.
In January 1995, the Company obtained a $3 million line of credit
commitment from a substantial shareholder of the Company which was
to be used to help finance the 1995 operations of MRI. However,
due to the subsequent bankruptcy of this shareholder, the Company
had concluded that this line of credit was not a viable source of
financing.
In April 1995, the Company obtained "bridge loans" totalling
$750,000 from certain private investors, including officers and
directors of the Company. These loans were to mature on January 5,
1996 or sooner, paid interest at an annual rate of 15% and were
secured by the fixed assets and inventories of the Company and MRI.
The makers of the loans also received 375,000 warrants to purchase
shares of the Company's common stock, exercisable at $2.00 per
share which was the market value on the date of the loans. The
terms of the loans were no less favorable than the proposed terms
the Company received from third party lenders. The loans were
partially paid in July, 1995 from bank financing and the remainder
paid in December, 1995 from Renaissance Capital Growth & Income
Fund III, Inc. ("Renaissance") financing.
In July, 1995, the Company entered into an asset based lending
agreement with Norwest Business Credit, Inc. The agreement
provided a line of credit up to $2,000,000, based upon collateral,
inventory, equipment and receivables, at a rate of prime plus 4%
and extended through July, 1998. The line of credit provided
working capital and was used to repay $500,000 of the bridge loans.
On December 19, 1995, the line was paid down with Renaissance
financing, but $1,000,000 was available as a facility for working
capital and could increase to $2,000,000 with Renaissance approval.
No balance was outstanding on the line of credit at the end of 1995
other than nominal interest and fees.
In December, 1995, the Company entered into a loan agreement with
Renaissance for $3,200,000, at an interest rate of 9%, convertible
into common stock at $1.50 per share, subject to adjustment of
conversion price at January 1, 1997 if the market price of PRC
stock for a period prior to that date is less than $1.50. If not
reduced or converted prior, the debentures will mature on January
1, 2003. The proceeds from the Convertible Debenture were used to
pay bridge debt, bank debt and for working capital.
MRI assumed certain liabilities of Mama Rizzo's which represent
trade payables due at the time of purchase. The Company has also
agreed under certain circumstances to indemnify Stephen and MaryAnn
Yamin, the former owners of Mama Rizzo's and MAY, for any personal
liability or expenses they may incur in connection with defending
Mama Rizzo's liabilities not assumed by MRI. Trade payables and
accrued liabilities include amounts due to those vendors, and in
several cases the amount due has been agreed to and supported by
notes payable over a period of time. At December 31, 1995, current
vendor notes payable was $1,013,000 and the long-term portion was
$53,000. Terms ranged from several months to 24 months, with
interest ranging from none to 11% per annum.
At December 31, 1995, there were no material commitments for
capital expenditures.
At December 31, 1995, the Company had total available remaining
borrowing capacity under its credit facilities of $1 million. As
discussed above, the borrowing capacity could increase by another
$1 million with Renaissance approval.
Results of Operations
Year Ended December 31, 1995, Compared with Year Ended December 31,
1994
A net loss of $2,426,000 was recorded by the Company for the year
ended December 31, 1995 compared to net income of $432,000 for the
year ended December 31, 1994.
The $2,858,000 decrease in operating results is primarily due to
1995 operating losses by the Company's pasta sauce segment of
$2,426,000 and a reduction of interest income in 1995 compared to
1994 of approximately $394,000. Income from operations of the
custom precision equipment segment increased by $48,000 in 1995.
The operating results of the custom precision equipment segment
were negatively impacted in 1995 by a provision for losses on
Russian Systems of approximately $348,000.
On a pro forma basis, assuming the pasta sauce segment had been
acquired on January 1, 1994 instead of February 17, 1995, the net
loss decreased $2,395,000 from $5,154,000 in 1994 to $2,759,000 in
1995. The decrease in the net loss primarily resulted from an
improvement in operating margins for the pasta sauce segment and an
approximate $1.7 million decrease in advertising, promotion and
selling expenses for this segment.
Revenues increased by $11,851,000 or 197% for the year ended
December 31, 1995 compared to the prior year. The increase is
primarily the result of revenues generated from pasta sauce sales
of $10,701,000. Precision equipment revenues increased $1,150,000
between years. Management attributes the increases in custom
precision equipment revenues to increased demand by the pet food
industry for the Company's precision high-speed filling equipment.
In 1994, the Company recognized revenue of $1,206,000 from CTC
Foods Corporation ("CTC"), however, no revenue from food processing
systems and structures was recognized by the Company during 1995.
This is the result of the bankruptcy of the beneficial shareholder
of CTC, a company that was dependent upon that shareholder for
continued funding and which was uncertain. CTC was the Company's
principal customer for these products. See Note 6 to Financial
Statements. The equipment on hand at the beginning of 1995 to
complete open contracts of food processing systems and structures
was proposed for sale to other third party customers as components
or a turnkey project. During 1995, the Company has recognized
losses totalling $368,000 to write down the book value of this
equipment to reflect actual sales or reduce valuation to estimated
realizable value.
The gross margin for the year ended December 31, 1995 was 38%
compared to 45% for the prior year. The decrease in gross margin
between years is primarily the result of a lower margin (35%) on
the pasta sauce segment of the business.
Operating expenses increased $6,432,00, or 268%, between years.
This increase is primarily the result of operating expense related
to the pasta sauce segment of $6,278,000. Operating expense
related to the custom precision equipment segment of the business
increased by $154,000, or 6%, for the year ended December 31, 1995,
as compared to the prior year. This was primarily attributable to
a provision for losses on Russian systems of $348,000 which was
offset by reductions in general and administrative expense of
$101,000, selling and marketing expense of $70,000, and research
and development expense of $23,000.
General and Administrative expenses increased by $1,538,000, or 92%
for the year ended December 31, 1995 compared to the prior year.
The increase is primarily attributable to general and
administrative expense related to the pasta sauce segment of
$1,639,000. General and administrative expenses were 18% of
revenue compared to 28% for the prior year.
Selling and marketing expenses increased $427,000, or 68% for the
year ended December 31, 1995 compared to the prior year. The
increase is primarily the result of selling and marketing expense
related to the pasta sauce segment of $497,000. Selling and
marketing expenses were 6% of revenue for the year ended December
31, 1995 compared to 10% for the prior year.
Research and development costs decreased by $23,000, or 2%, for the
year ended December 31, 1995, compared to the prior year.
During the year ended December 31, 1995, the Company reported other
expense of $428,000 compared to other income of $102,000 in the
prior year. The decrease in other income of $530,000 is primarily
the result of the decrease in interest income earned by the Company
of $394,000 on its excess cash balances. The Company had
substantial cash balances in 1994 due to proceeds realized from its
convertible subordinated debenture offering in the fourth quarter
of 1993 as well as proceeds received from the sale of its oil and
gas properties in the first quarter of 1994. During 1995, the
Company did not have comparable cash balances.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Packaging Research Corporation:
We have audited the accompanying consolidated balance sheet of
Packaging Research Corporation (a Colorado corporation) and its
wholly owned subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1995 and 1994. 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
Packaging Research Corporation and its subsidiary as of December
31, 1995, and the results of their operations and their cash flows
for the years ended December 31, 1995 and 1994 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 12, 1996.
PACKAGING RESEARCH CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1995
CURRENT ASSETS:
Cash and cash equivalents $ 806,000
Accounts receivable, net of allowance
for doubtful accounts of $54,000 1,843,000
Inventory, net 2,708,000
Prepaid expenses and other 63,000
Total current assets 5,420,000
PROPERTY, PLANT AND EQUIPMENT, at cost:
Machinery and equipment 1,220,000
Furniture and fixtures 596,000
Test and demonstration equipment 926,000
Leasehold improvements 1,164,000
Vehicles 11,000
3,917,000
Less- Accumulated depreciation
and amortization (1,496,000)
Net property, plant and equipment 2,421,000
OTHER ASSETS:
Goodwill, Net 13,648,000
DEFERRED LOAN AND OFFERING COSTS 372,000
Total assets $ 21,861,000
The accompanying notes to consolidated financial statements are an
integral part of these statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1995
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses $ 3,053,000
Customer deductions 1,362,000
Vendor notes payable 1,181,000
Other accrued liabilities 917,000
Total current liabilities 6,513,000
LONG-TERM DEBT
Convertible debentures, due 1999-2003 3,200,000
Convertible debentures, due 1999 1,791,000
Vendor notes payable 53,000
Total long-term debt 5,044,000
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
25,000,000 shares authorized;
3,095,405 shares issued
and outstanding 31,000
Additional paid-in capital 12,699,000
Accumulated deficit (readjusted to
reflect quasi-reorganization
effective January 1, 1995) (2,426,000)
Total shareholders' equity 10,304,000
Total liabilities and shareholders' equity $ 21,861,000
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
1995 1994
REVENUE:
Pasta sauce $10,701,000 $ -
Precision equipment sales
and service 7,180,000 6,030,000
Total revenue 17,881,000 6,030,000
COST OF GOODS SOLD:
Pasta sauce 6,799,000 -
Precision equipment sales
and service 4,249,000 3,301,000
Total cost of goods sold 11,048,000 3,301,000
Gross profit 6,833,000 2,729,000
OPERATING EXPENSES:
General and administrative 3,214,000 1,676,000
Selling and marketing 1,055,000 628,000
Advertising and promotion 3,840,000 -
Provision for losses on
Russian systems 348,000 -
Amortization of goodwill 302,000 -
Research and development 72,000 95,000
Total operating expenses 8,831,000 2,399,000
INCOME FROM OPERATIONS (1,998,000) 330,000
OTHER INCOME (EXPENSE):
Interest expense (452,000) (303,000)
Interest income 11,000 405,000
Miscellaneous income 13,000 -
Total other income (expense) (428,000) 102,000
Income taxes - -
NET INCOME (LOSS) $(2,426,000) $ 432,000
PRIMARY NET INCOME (LOSS)
PER COMMON SHARE $ (.89) $ .34
FULLY DILUTED NET INCOME
PER COMMON SHARE *N/A $ .30
WEIGHTED AVERAGE COMMON SHARES:
Primary 2,713,661 1,253,387
Fully diluted *N/A 2,440,453
*Fully diluted earnings per share is
not presented when the calculation
is anti-dilutive.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 and 1994
Common Stock Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit
Balance at
December 31, 1993 1,066,786 $ 11,000 $ 28,822,000 $(24,701,000)
Conversion of $1,519,000 of
debentures into 303,800
shares of common stock 303,800 3,000 1,516,000 -
Reclassification of
deferred offering
costs related to
debenture conversion - - (313,000) -
Conversion of $2,000,000
credit line into 666,667
shares of common stock 666,667 7,000 1,993,000 -
Net income for the year ended
December 31, 1994 - - - 432,000
Balance at
December 31, 1994 2,037,253 $ 21,000 $ 32,018,000 $(24,269,000)
Readjustment to reflect
quasi- reorganization
effective January 1, 1995 - - (24,269,000) 24,269,000
Conversion of $225,000 of
debentures into 45,000
shares of common stock 45,000 - 225,000 -
Reclassification of
deferred offering
costs related to
debenture conversion - - (46,000) -
Shares issued for
acquisition of Mama
Rizzo's, Inc. assets 705,460 7,000 5,233,000 -
Option receivable
from shareholder 307,692 3,000 (462,000) -
Net loss for the
year ended
December 31, 1995 - - - (2,426,000)
Balance at
December 31, 1995 3,095,405 $ 31,000 $ 12,699,000 $ (2,426,000)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,426,000) $ 432,000
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 921,000 380,000
Provision for obsolescence
and warranty reserves 116,000 55,000
Provision for losses on
accounts receivable 12,000 35,000
Provision for losses on
Russian systems 348,000 -
Changes in assets and liabilities:
Decrease in accounts and
affiliate receivables 274,000 935,000
(Increase) in inventory (420,000) (1,404,000)
(Increase) decrease in
prepaid expenses and other assets 142,000 (62,000)
Increase in trade accounts payable
and other liabilities 921,000 129,000
Increase (decrease) in
customer deposits (144,000) 23,000
Net cash used in operating
activities of discontinued
operations - (156,000)
Net cash provided by (used in)
operating activities (256,000) 367,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (202,000) (528,000)
Note receivable advances - (3,950,000)
Note receivable collections 1,329,000 5,500,000
Proceeds from disposal of oil
and gas properties - 841,000
Capitalized acquisition costs - (279,000)
Proceeds from disposal of assets 177,000 -
Consideration paid for
acquisition of subsidiary (5,324,000) (2,000,000)
Net cash used in investing
activities (4,020,000) (416,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term financing 3,200,000 2,000,000
Proceeds from bridge loans and
bank financing 2,563,000 -
Repayment of bridge loans and
bank financing (2,563,000) -
Repayment of vendor notes (568,000) -
Loan offering costs (183,000) -
Net cash provided by
financing activities 2,449,000 2,000,000
NET INCREASE (DECREASE) IN CASH (1,827,000) 1,951,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,633,000 682,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 806,000 $ 2,633,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
1995 1994
Cash received (paid) during
the year for:
Interest paid $ (383,000) $ (224,000)
Interest received $ 13,000 $ 324,000
Income taxes $ - $ -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. Organization:
Packaging Research Corporation, a Colorado corporation (the
"Company"), is involved in two business segments: custom precision
equipment and premium pasta sauce business. The custom precision
equipment business includes designing, manufacturing, marketing and
servicing a complete line of standard and customized precision,
high-speed filling, forming and pumping equipment for a wide
assortment of processed and non-processed food and non-food
applications. Generally, the equipment is custom designed to meet
the specific application needs of its customers where fast, gentle
and accurate operation is required. The Company's equipment is
manufactured exclusively in the United States and marketed and sold
throughout the world.
On February 17, 1995, the Company expanded its operations into the
premium pasta sauce business through a wholly owned subsidiary,
Mama Rizzo's, Inc. ("MRI"), a Colorado corporation. MRI acquired
the assets and certain liabilities of Mama Rizzo's, Inc. and M.A.
Yamin, Inc., (collectively known as "Mama Rizzo's"), which was
established in 1990 to produce a premium marinara spaghetti sauce
using a family recipe passed on from generation to generation. The
sauce is prepared at the Company's production facility located in
Houston, Texas, using only fresh, all natural ingredients. The
Company's products are sold throughout the United States under the
brand name "Mama Rizzo's Italian Marinara Sauce." This acquisition
is described more fully in Note 2.
2. Acquisitions and Restructurings:
1995 Restructuring
On December 16, 1994, the Company's Board of Directors authorized
a quasi-reorganization of the Company's accounts effective January
1, 1995. The Board based this decision on the fact that the
Company had profitably changed its business from oil and gas, which
was sold during 1994, to custom precision equipment.
1995 Acquisition
On February 17, 1995, the Company, through MRI consummated the
purchase of the assets and certain liabilities of Mama Rizzo's
which was engaged in the business of manufacturing and distributing
pasta sauce under the name "Mama Rizzo's".
As consideration for the purchase, the Company initially issued
152,152 shares of the Company's common stock (valued at
approximately $950,000 based upon the quoted market price on the
date of closing) to M.A. Yamin, Inc. and assumed through its
subsidiary approximately $16.5 million in liabilities including the
$2,000,000 owed to the Company. The Company negotiated a
settlement with Mama Rizzo's principal creditor ("Ms. Peterson")
who was owed approximately $12.2 million for monies borrowed over
time including accrued interest thereon. In satisfaction for the
discharge of this debt, the Company paid approximately $6.3 million
in cash with the remaining balance of $5.9 million discharged
through the issuance of 913,152 shares of the Company's common
stock at $6.50 per share, the fair market value on such date,
$2,000,000 of which was contingent upon MRI achieving $15 million
of sales during the year ended December 31, 1995. Since sales did
not achieve that level, 307,692 shares are forfeitable on January
1, 1996. As part of the final closing and in order to settle
certain disputes, additional Company common stock and cash
consideration were paid in 1995 as described in Note 10.
This acquisition was accounted for under the purchase method of
accounting. The Company recorded approximately $13,950,000 of
goodwill in connection with the acquisition. Management believes
the goodwill is realizable through the operations of the pasta
sauce segment which is expected to increase penetration in existing
markets and expand into new markets in the future.
Management expects that the acquisition will diversify and expand
the Company's revenue base as well as increase long-term
profitability. To date, Mama Rizzo's has incurred losses as it has
developed and grown the business. While revenues have increased
each year, the costs associated with purchasing shelf space and
establishing a customer base have increased as well. Management
believes that the cost of purchasing shelf space, and a great
percentage of the costs associated with developing the customer
base, are one-time in nature, and, accordingly, will begin to
decrease in the future. As a result, management expects operating
results to improve and profitability to be attained, although there
is no assurance that such improvements will result.
3. Summary of Significant Accounting Policies:
Basis of Presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses. Actual results could differ from
these estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid cash investments with
original maturities of three months or less to be cash equivalents.
Inventory
Inventory is valued at the lower of cost or net realizable value
under the first-in, first-out ("FIFO") method. At December 31,
1995, inventory consisted of the following:
Custom Precision Equipment
Parts and materials $ 1,203,000
Work-in-process 59,000
Finished goods 895,000
2,157,000
Reserve for obsolescence (20,000)
2,137,000
Pasta Sauce
Raw material 433,000
Finished goods 138,000
571,000
Total $ 2,708,000
Direct labor and overhead costs are included in yearend inventory
amounts.
Included in finished goods as of December 31, 1995, is $500,000 of
food processing system inventory that was purchased under contracts
with CTC Foods Corporation ("CTC") and is currently being offered
for sale to other third parties since CTC was unable to meet its
contract obligations (see Note 6). In 1995, the Company recorded
a provision for losses on Russian systems of $348,000 to recognize
losses on sale of equipment and to reflect remaining Russian
inventory at estimated net realizable value.
Property and Equipment
Depreciation is provided by using the straight-line method over the
estimated useful lives of the assets (three to seven years).
Maintenance and repairs are charged to expense as incurred while
major improvements are capitalized.
Test and demonstration equipment represents equipment loaned to
third party customers, or specifically designated for testing and
demonstration purposes. Depreciation is provided using the
straight-line method over a three-year period.
Customer Deposits
The Company's standard terms on the sale of major machinery and
equipment are 30% due at the time the order is placed, 60% prior to
shipment and 10% thirty days after shipment.
Goodwill
The cost of the acquisition of the pasta sauce business, including
the recipes, in excess of the fair values of net assets acquired is
being amortized using the straight-line method over a 40-year life.
The Company assesses the realizability of this asset on a periodic
basis. Impairments, if any, would be recognized as expense
immediately.
Revenue Recognition
For major machinery and equipment and food processing systems
manufactured for sale under contract, the Company recognizes
revenues and the related costs from manufacturing under the
percentage of completion method of accounting. Under this method,
revenues and the related costs are recognized as work is completed.
For major machinery and equipment sold out of finished goods
inventory, revenue is recognized upon shipment. Rebuilds and parts
revenue is also recognized upon shipment.
The Company denominates all international sales in U.S. dollars and
therefore is not subject to foreign currency risks.
Revenue for the pasta sauce business is recognized upon shipment.
At the time of sale, an estimated allowance for discounts and
returns is made.
Research and Development
Research and development costs are expensed as incurred.
Warranty Costs
The Company warrants its machinery and equipment against defects in
material and workmanship for one year from the date of the machine
installation. The reserve for warranty costs is based upon
estimated repair costs for each unit sold.
Advertising and Promotion Costs
Advertising costs are expensed as incurred. Such costs are nominal
for the precision equipment business, but for the pasta sauce
segment, these costs are significant to normal operations and to
expanding market position in the United States. Costs referred to
in the industry as "slotting" are also expensed when incurred.
Approximately $470,000 included in advertising and promotion
expenses for the year ended December 31, 1995 is for slotting
charges.
Other pasta sauce promotional costs include coupons. An accrual is
made at the time of each coupon distribution for the estimated
redemption costs expected to be incurred based upon estimated
redemption rates. Approximately $253,000 are included in
advertising and promotion expenses for the year ended December 31,
1995 for coupon charges.
MRI also issues credits against outstanding invoices or directly
pays customers to perform certain services on behalf of MRI. Such
services would include placing advertisements in local newspapers,
in-store promotions and displays, or temporary price reductions.
These costs, referred to in the industry as "billbacks", are
expensed when incurred. Approximately $2,322,000 is included in
advertising and promotion expenses for the year ended December 31,
1995 for billback charges.
Income Taxes
The Company has net operating loss carryforwards totaling
approximately $7,169,000 at December 31, 1995 which are available
to offset future taxable income. The Company's tax net operating
losses expire in varying amounts in the years 1996 through 2010.
Utilization of the net operating loss carryforwards will be limited
in each year for which they are available pursuant to IRC Section
382. The Company also has available a depletion carryover of
approximately $1,100,000. No benefit for such tax losses or
depletion carryover has been recorded in the accompanying financial
statements due to the uncertainty of the realization of the related
tax benefits.
Deferred income tax assets and liabilities are recognized based on
enacted tax laws for all temporary differences between the
financial reporting and tax bases of assets and liabilities. The
deferred tax asset is offset by a valuation allowance for the
amount of any net tax benefit that is not expected to be realized.
As of December 31, 1995, the net deferred tax asset is as follows:
Deferred tax liabilities:
Depreciation and amortization $ (121,000)
Deferred tax assets:
Operating reserves 97,000
Net operating loss carryforwards 2,674,000
Statutory depletion carryforward 410,000
3,060,000
Valuation Allowance (3,060,000)
Net Deferred Tax Asset $ -
The Company has established a valuation allowance due to the
uncertainty that the full amount of the operating loss
carryforwards will be utilized due to expiration, limitation due to
IRC Section 382 and other factors. Although management expects
future results of operations to be profitable, it emphasized past
performance rather than growth projections when determining the
valuation allowance. Any subsequent adjustments to the valuation
allowance, if deemed appropriate due to changed circumstances, will
be recognized as a separate component of the provision for income
taxes for tax attributes generated subsequent to the quasi-
reorganization. All unrecognized tax attributes that existed at
the date of the quasi-reorganization will be reported as a direct
addition to paid-in capital when recognized subsequent to the date
of the quasi-reorganization. Prior to consideration of the
valuation allowance, the Company's effective tax rate approximates
the statutory federal and state tax rates.
Earnings Per Share
Earnings (loss) per common share is computed by dividing income
(loss) by the weighted average number of shares outstanding. For
primary earnings per share, the weighted average impact of the
common stock issued pursuant to conversion of the debentures and
issued in connection with the acquisition of MRI were considered in
the calculation. Conversion of the remaining $2,016,000 of
debentures into common stock at $5.00 per share and conversion of
the Convertible Debenture Notes payable at $1.50 per share were
assumed for the fully diluted calculation in 1994. The fully
diluted earnings per share were anti-dilutive in 1995.
4. Pro Forma Statements
PRC and Mama Rizzo's
The following table sets forth condensed unaudited pro forma
operating results of the Company and Mama Rizzo's for the year
ended December 31, 1995 and 1994. The condensed pro forma
operating results assume that the acquisition of the assets and
certain liabilities by the Company had occurred on January 1, 1994,
instead of February 17, 1995. The condensed pro forma results are
not necessarily indicative of the results of operations had the
acquisition been consummated on January 1, 1994, and may not
necessarily be indicative of future performance.
Years Ended December 31,
1995 1994
(unaudited)
Revenues $19,851,000 $18,829,000
Operating loss $(2,331,000) $(5,256,000)
Net loss $(2,759,000) $(5,154,000)
Net loss per common share $ (.89) $ (2.27)
Weighted average common shares
outstanding 3,088,750 2,266,539
5. Debt
Convertible Subordinated Debentures
In 1993, the Company issued 3,910 units, each unit consisting of
one 8% convertible subordinated debenture of $1,000 due December
31, 1999, and 100 three-year warrants, each for the purchase of one
share of the Company's common stock at an exercise price of $6.50
per share. The debentures are convertible at any time prior to
maturity, unless earlier redeemed, into common stock at a
conversion price of $5.00 per share. In addition to certain
redemption options commencing September 28, 1995, the Company may
redeem the debentures in the event that the closing price of the
common stock equals or exceeds 130% of the conversion price per
share for at least 20 of 30 trading days.
As of December 31, 1995, $2,119,000 of debentures had been
converted by the debenture holders into approximately 424,000
shares of the Company's common stock. Approximately $192,000 and
$303,000 is reflected as interest expense in the accompanying
financial statements, which includes $100,000 and $52,000 in
amortization of deferred offering costs for the years ended
December 31, 1995 and 1994, respectively.
Convertible Line of Credit
In 1993, a substantial stockholder of the Company made available to
the Company an unsecured line of credit due December 31, 1994, in
the principal amount of $2,000,000, bearing interest at prime plus
2%, convertible under certain circumstances, into the Company's
common stock at $3.00 per share, (the fair market value of the
Company's common stock on the date of the agreement). In December
1994, the Company borrowed $2,000,000 under the line to reimburse
the Creditor for monies advanced to Mama Rizzo's by the Creditor
from July 1, 1994 through December 31, 1994, (the Creditor
conversely agreed not to charge interest on these advances). The
Company's principal stockholder converted the $2,000,000 borrowed
under the line into 666,667 shares of the Company's common stock
prior to December 31, 1994.
In January 1995, the Company obtained a $3,000,000 line of credit
commitment from the same shareholder which was unsecured and
convertible into shares of the Company's common stock at $7.00 per
share (the quoted market value of the Company's common stock on the
date of the agreement). This line of credit was intended to help
finance MRI (see Note 2). However, on February 23, 1995, this
individual filed for Chapter 11 bankruptcy protection. As a
result, the Company concluded that the line of credit is not a
viable financing source. As discussed in Note 6, the Company has
filed claims for damages as a result of non-performance under the
line of credit.
Bridge Loan Financing
In April 1995, the Company obtained loans from certain private
investors, including officers and directors of the Company, to loan
the Company $750,000. These loans were to mature on January 5,
1996 or sooner if certain conditions were met. The loans paid
interest at an annual rate of 15% and were secured by the fixed
assets and inventories of the Company and MRI. The makers of the
loans also received a total of 375,000 warrants to purchase shares
of the Company's common stock, exercisable at $2.00 per share,
which was the market value on the date of the loans. These
warrants expire 24 months from the date of the loans. The terms of
the loans were no less favorable than the proposed terms the
Company received from third party lenders. The loans were
partially paid in July, 1995 from bank financing and the remainder
paid in December, 1995 from Renaissance Capital Growth & Income
Fund III, Inc. ("Renaissance") financing.
Bank Financing
In July, 1995, the Company entered into an asset based lending
agreement with Norwest Business Credit, Inc. The agreement
provided a line of credit up to $2,000,000, based upon collateral,
inventory, equipment and receivables, at a rate of prime plus 4%
and extended through July, 1998. The line of credit provided
working capital and was used to repay $500,000 of the bridge loans.
On December 19, 1995, the loan was paid off with the proceeds of
the Renaissance financing, but $1,000,000 remains available as a
facility for working capital. A fee of 5% per annum is payable
monthly on the unused amount of the facility. The available credit
can be increased to $2,000,000 with Renaissance approval. No
balance was outstanding on the line of credit at the end of 1995
other than nominal interest and fees.
Convertible Debenture Loan
In December, 1995, the Company entered into a loan agreement with
Renaissance Capital Growth & Income Fund III, Inc. ("Renaissance"),
for $3,200,000, at an interest rate of 9%, convertible into common
stock at $1.50 per share, subject to adjustment of conversion price
at January 1, 1997 if the market price of PRC stock for a specified
period prior to that date is less than $1.50. If not reduced or
converted prior, the debentures will mature on January 1, 2003,
although mandatory principal payments will commence on January 1,
1999. The proceeds from the Convertible Debenture were used to pay
bridge debt, bank debt and for working capital. The outstanding
Renaissance loan balance is $3,200,000 at December 31, 1995. The
loan is secured by all the assets of the Company. The loan
agreement limits the amount of additional indebtedness incurred by
the Company and also requires that certain financial performance
ratios be met. Under certain limited circumstances, including a
change in control, the par value of the debenture loan will be
automatically increased.
Vendor Notes Payable
MRI assumed certain liabilities of Mama Rizzo's which represent
trade payables due at the time of purchase. The Company has also
agreed under certain circumstances to indemnify Stephen and MaryAnn
Yamin, the former owners of Mama Rizzo's and M.A. Yamin, Inc. for
any personal liability or expenses they may incur in connection
with defending Mama Rizzo's liabilities, trade payables and accrued
liabilities not assumed by MRI. In several cases the amount due
has been agreed to and supported by notes payable over a period of
time. At December 31, 1995, current vendor notes payable was
$1,013,000 and the long-term portion was $53,000. Terms ranged
from several months to 24 months, with interest ranging from none
to 11% per annum.
At December 31, 1995, principal amounts of debt due during each of
the five succeeding fiscal years were as follows (in thousands):
Year Amount
1996 $ 1,181,000
1997 53,000
1998 -
1999 2,155,000
2000 322,000
Thereafter 2,514,000
6,225,000
Less current portion (1,181,000)
$ 5,044,000
6. RELATED PARTY TRANSACTIONS
CSI Enterprises, Inc.
The Company received managerial, accounting, computer, risk
management and legal services from CSI Enterprises, Inc. (formerly
Concord Services, Inc.) ("Concord") which is an affiliate of the
Company through common beneficial ownership. The 1994 statement of
operations reflects $215,000 charged by Concord for such services.
The Company believes that the methodology used in allocating these
expenses was reasonable. Additionally, the 1994 operations
reflected approximately $60,000 for advertising services charged by
an affiliate of Concord. The agreement with Concord was terminated
subsequent to yearend 1994. The Company has obtained comparable
services at similar costs.
On February 23, 1995, Concord filed for Chapter 11 bankruptcy
protection.
Additionally, the Company has been advised that Concord has
advanced $3,938,000 to MRI on behalf of Ms. Peterson. As discussed
in Note 2, this advance to MRI was extinguished as part of the
Company's acquisition of the assets and certain liabilities of MRI.
Management does not believe Concord or any of its creditors has any
recourse against MRI or the Company as a result of the
extinguishment of the advance.
CTC Foods Corporation
CTC Foods Corporation ("CTC") was an affiliate of the Company
through common beneficial ownership. In 1994 and prior years, the
Company incurred certain costs on behalf of CTC to research, design
and market various food processing systems in Russia. These costs
were reimbursed to the Company at cost plus 10%. Approximately
$453,000 of costs were reimbursed to the Company by CTC during 1994
of which $193,000 was repaid during 1994. The remaining
receivables were fully paid in 1995.
At the beginning of 1995, a food processing system was in process
at the Company's manufacturing facility. The beneficial
shareholder of CTC filed for Chapter 11 bankruptcy protection on
February 23, 1995, and as a result, the future of CTC, the status
of the remaining contracts, and the Company's prospects for future
sales to CTC were all uncertain. At the beginning of 1995, but
prior to the bankruptcy filing, the Company stopped all work under
these contracts and on behalf of CTC, as it became concerned about
the financial condition of CTC which was dependent upon the
stockholder for continued funding. The equipment and materials
purchased under this contract were written down to estimated net
realizable value. Management expects to sell the items remaining
in the December 31, 1995 inventory during 1996.
The Company has demanded payment in full from CTC for all unpaid
invoices, and although CTC is not in bankruptcy, its owner is
personally in bankruptcy. On September 6, 1995, the Company filed
Proof of Claims against the owner and CSI Enterprises, Inc., in
which the unpaid balance from CTC of $1,180,000 is listed, as well
as damages from not being able to provide the line of credit needed
in connection with the MRI acquisition. There are other
miscellaneous amounts also listed in the Proof of Claims filing,
but no amount is recorded in the accompanying financial statements
for the unpaid invoices, damages related to the line of credit or
other claims due to the uncertainty of any recovery.
The accompanying statement of operations reflects $1,206,000 of
revenue recognized during 1994 under contracts with CTC.
7. Employee Benefit Plan
Company employees participated in a 401(k) plan, the "Concord
Employee Savings and Investment Plan" (the "Plan") that was
administered by Concord. Voluntary employee contributions to the
Plan were matched by the Company at its discretion. The Company's
total contributions to the Plan were $49,000 for the year ended
December 31, 1994.
During 1995, a new plan was formed, the "Packaging Research
Corporation 401(k) Plan", which received distributions of the
assets that were in the Concord 401(k) Plan applicable to the
Company's employees. The new plan provided for voluntary employee
contributions beginning June 1, 1995 and thereafter and
contributions matched by the Company at its discretion. As with
the previous plan, the Company recognized expenses of $30,500 for
matching contributions due to plan participants for the year ended
December 31, 1995.
8. Stock Options
Employees and Directors
At the Board Meeting on February 16, 1995, and reaffirmed at the
Board Meeting on March 15, 1995, there was unanimous approval to
adopt an MRI Option Plan exercisable for five years from the date
of grant, commencing February 17, 1995 for 500,000 options of MRI.
As of February 17, 1995, grants were approved for 365,000 options.
At subsequent Board Meetings in 1995, the remainder of the grants
were awarded. However, to avoid a minority interest in MRI, a
conversion to the Company's option plan was made available to
option holders in early 1996, and all but options for 78,700 shares
of MRI elected conversion to the Company options. All options were
granted at estimated fair market value on the date of grant.
In March 1995, the Board of Directors of the Company approved by
unanimous vote, subject to shareholder approval, the Company's 1995
Employee Stock Incentive Plan (the "Employee Plan") and the 1995
Nonstatutory Directors Stock Option Plan (the "Directors Plan").
Options granted under the plans will be granted at the price equal
to the fair market value of the stock at the date of grant. During
the first quarter of 1995, 400,000 options were authorized under
the Employee Plan and 220,000 options were authorized under the
Directors Plan. As of the board meeting on December 15, 1995, the
Employee Plan had granted nearly the entire 400,000 shares, but
because most grants were for $2.00 per share, and vested over a 3
year period, some had expired due to termination or election not to
exercise. The Directors Plan was also granted up to the authorized
shares of 220,000 shares. At the February 29, 1996 Board Meeting,
the authorized options were increased to 500,000 and 600,000, for
the Employee Plan and Directors Plan, respectively. The Directors
Plan is the nonstatutory plan and the increases were largely to
accommodate option conversions from the MRI plan. Through December
31, 1995, no vested options were exercised under either plan, and
the plans must be submitted to shareholders for approval prior to
the issuance of any shares pursuant to the plans.
Shareholder Option
Until June 30, 1997, the significant shareholder, Ms. Peterson, who
acquired her shares in connection with the Mama Rizzo's
acquisition, has agreed to vote her shares in accordance with the
recommendations to shareholders by management of PRC on all matters
submitted for a shareholder vote, if in her good faith discretion
she reasonably determines that any such management recommendation
is in the best interests of PRC. In consideration of this
agreement and certain other matters, the Board of Directors issued
307,692 shares to the creditor subject to an option. The option
allows the Ms. Peterson to retain the 307,692 shares until December
31, 1996, but with an option to retain the shares indefinitely
beyond 1996 upon the further payment of $1.50 per share at any time
during 1996. The $1.50 price was the then current market value.
The stock is shown as outstanding at December 31, 1995, with an
off-setting receivable for the option price in the capital section
of the balance sheet.
Other
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 will be
effective for year 1996 and recommends a fair value based method of
accounting for employee stock compensation, including stock
options. However, companies may choose to account for stock
compensation using the intrinsic value based method as prescribed
by Accounting Principles Board Opinion No.25, "Accounting for Stock
Issued to Employees" and provide pro forma disclosures of net
income and earnings per share as if the fair value based method had
been applied. The Company anticipates it will continue to account
for stock compensation using the intrinsic value based method, and
thus SFAS 123 will not have any impact on reported operating
results.
9. Major Customers
Custom Precision Equipment
1995 sales had only three customers that represented over 10% of
total custom precision equipment sales; Nestle, Kal Kan and Menu
Foods, at 26%, 12% and 11% respectively. Included in 1994 sales
are four major customers: CTC (see Note 6), Nestle, Fast Food
Merchandisers and H. J. Heinz who accounted for 20%, 17%, 17% and
15% of sales, respectively.
Pasta Sauce
Pasta sauce products are marketed through a number of brokers who
in turn market to wholesalers and retail chain outlets. The major
customers for 1995 are: C & S, Fleming, Stop & Shop, Super Value,
Twin Country and Kroeger, representing 14%, 12%, 11%, 11%, 10% and
10%, respectively.
10. Geographic Sales
Custom Precision Equipment
The Company sales of custom precision equipment are spread
throughout the following geographic regions:
REGION 1995 1994
United States $5,204,000 $5,004,000
Africa - 488,000
Asia 754,000 126,000
Canada 800,000 260,000
Europe 422,000 38,000
South America - 114,000
$7,180,000 $6,030,000
Included in United States' sales is $1,206,000 which represents
sales to CTC for systems designated for Russian joint ventures for
the year ended December 31, 1994.
Pasta Sauce
The sales of pasta sauces were within the United States during
1995.
11. Commitments and Contingencies
Lease Commitments
Custom Precision Equipment
The Company leases office and warehouse space under a
noncancellable operating lease expiring on November 30, 1996 with
an option to renew the lease for an additional two years. The
Company also leases certain office equipment on a month-to-month
basis. The Company leases some additional warehouse space on an
annual basis expiring at the same time as the office lease.
Operating lease payments for the years ended December 31, 1995 and
1994 were $110,000 and $108,000, respectively.
At December 31, 1995, future minimum lease payments under
noncancellable operating leases are as follows:
1996 $90,000
Thereafter -
$ 90,000
Pasta Sauce
MRI leases office and warehouse space under a noncancellable
operating lease expiring on November 30, 2000. Further, the
Company leases certain office and production equipment. Operating
lease payments for the year ended December 31, 1995 totaled
$282,000. At December 31, 1995, future minimum lease payments
under noncancellable operating leases are as follows:
1996 $ 229,000
1997 211,000
1998 208,000
1999 208,000
2000 78,000
$ 934,000
License and Royalty Commitments
The Company manufactures and sells its custom precision equipment
under four royalty agreements, three of which carry associated
license agreements. The agreements require the Company to make
royalty payments based on either a percent of the equipment's sales
price or on a fixed dollar amount per machine sold.
Expenses recognized pursuant to the royalty and license agreements
approximated $163,000 and $135,000 for the years ended December 31,
1995 and 1994, respectively.
MRI has no such commitments.
Yamin Settlement
Under the Purchase Agreement dated September 16, 1994, the Company
agreed to employ Mr. Yamin as President of the business but
retained the right to terminate him at any time for any reason.
The Agreement provided that if the termination were without cause,
Mr. Yamin would be entitled to a severance payment of $150,000.
The Company terminated Mr. Yamin's employment for cause. Mr. Yamin
subsequently asserted that there was not cause for his termination
and that he was entitled to severance and, under the Agreement, to
borrow certain funds from the Company and to cause a corporation
controlled by him to sell back to the Company shares of the
Company's stock which had been received in the Mama Rizzo's
acquisition. The Company disputed these claims and on March 21,
1995 filed in Texas an action for a declaratory judgment confirming
its position. Mr. Yamin filed a counterclaim against the Company
for allegedly misleading him in connection with its acquisition of
Mama Rizzo's.
In May 1995, the Company reached an agreement with Mr. Yamin
whereby all litigation initiated by the Company and Mr. Yamin was
dismissed (the "Yamin Agreement"). Under the terms of the Yamin
Agreement, the Company paid M.A.Yamin, Inc. ("MAY") $100,000 in
cash and executed a promissory note in the principal amount of
$183,750 bearing interest at the rate of 8% per annum, payable in
equal weekly installments of principal and interest of $6,500.
Such promissory note was secured by all of the outstanding capital
stock of MRI. In return for the above mentioned consideration, Mr.
Yamin caused MAY to deliver to the Company the 152,152 shares of
the Company's common stock issued to MAY pursuant to the Agreement
(which the Company recorded at $2.00 per share, the market value on
the date of the Yamin Agreement). Additionally, the stock option
agreement between the Company and MAY dated February 16, 1995 for
139,806 shares of the Company's common stock was cancelled.
In conjunction with entering into the Yamin Agreement, the Company
entered into an agreement with Ms. Peterson (the "Creditor
Agreement"), who was owed monies by Mr. Yamin and had commenced
litigation to collect such debts. Under the terms of the Creditor
Agreement, the Company issued 100,000 unregistered shares of its
common stock to Ms. Peterson in return for her dismissing the
litigation against Mr. Yamin. Further, under the terms of the
Creditor Agreement, the Company has agreed to provide good faith
assistance to the Creditor in attempting to resell such stock once
registered. After January 1, 1997, the Company shall be obligated
to purchase all or any portion of the 100,000 shares (to the extent
not already resold) at a price of $2.00 per share upon thirty days
prior notice.
Mama Rizzo's Debt Extinguishment
The Company has become aware that a $2,970,000 note payable from
Mama Rizzo's to Ms. Peterson that was to be assigned to the Company
is no longer held by her but is held by a third party. The Company
believes that the third party is not a holder in due course of the
note and, therefore, should be unable to assert the note against
the Company or MRI because it was past due at the time of the third
party's acquisition. Ms. Peterson remains liable for a prior
representation and warranty in favor of the Company assuring it of
her ownership of the above described note.
Litigation
In the acquisition by the Company's subsidiary MRI of the assets
and certain of the liabilities of Mama Rizzo's, certain liabilities
and claims were not assumed. Some of those creditors have filed
suit for the collection of their claims against P.S.M.S., Inc., the
Texas corporation formally known as Mama Rizzo's Inc., i.e.,
against the Corporation which owned the Mama Rizzo's business
acquired by the Company's subsidiary. P.S.M.S., Inc. does not
intend to defend those claims. The Company has been advised by
counsel that neither the Company nor its subsidiary should have
liability for those claims or for judgments emanating therefrom.
The Company has however agreed under certain circumstances to
indemnify Stephen and MaryAnn Yamin, the former owners of Mama
Rizzo's and MAY, for any personal liability or expenses they may
incur in connection with those unassumed liabilities as well as
MAY.
To date, four creditors of P.S.M.S., Inc., which liabilities were
not assumed by the Company or its subsidiary in the acquisition of
Mama Rizzo's, have commenced lawsuits against the Company. Two of
these claims have been settled for approximately one-third of the
unassumed liabilities, principally payable over approximately two
years without interest. Agreement has been reached, but nit yet
finalized, for the settlement of a third such claim on the same
basis. The aggregate amount payable in these settlements is
$246,770.
A fourth claim with respect to a Mama Rizzo's unassumed liability
remains unresolved. This claim involves a liability of
approximately $130,000 and suit has been brought against the
Company and its subsidiary for the collection thereof. The Company
has commenced negotiations for the settlement of this claim on a
basis comparable to the settlements of the other three claims.
Benton Bankruptcy
As previously discussed, Oren L. Benton, a significant shareholder
of the Company, filed for Chapter 11 bankruptcy protection on
February 23, 1995. The Company has conducted business with Mr.
Benton and his affiliates in the past. Management does not expect
the bankruptcy of Mr. Benton to have a material adverse affect on
the future operations of the Company.
12. Business Segment Information
The Consolidated Statement of Operations includes the operations of
the pasta sauce segment since its acquisition on February 17, 1995.
Since its operations are considerably different from the Company,
the following segment information is presented:
Year Ended December 31, 1995
Custom
Precision
Pasta Sauce Equipment Consolidated
Operating
revenue $ 10,701,000 $ 7,180,000 $ 17,881,000
Operating (loss)
income $ (2,376,000) $ 378,000 $ (1,998,000)
Identifiable
assets $ 17,133,000 $ 4,729,000 $ 21,861,000
Depreciation and
amortization
expense $ 696,000 $ 251,000 $ 947,000
Capital
expenditures $ 156,000 $ 46,000 $ 202,000
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth certain information with respect to
directors and executive officers of the Company, including, with
respect to each individual, his age, his position with the Company,
and the year in which he first became a director, officer or
employee of the Company. Additional information concerning each of
these individuals follows the table.
The officers and directors of the Company are as follows:
Name Age Positions Date Began
Position
Robert A. 61 Chairman of the Board, 1983
Fillingham President and Chief
Executive Officer
Noel D. Chrisman 62 Executive Vice 1993
President
Robert H. 60 Chief Financial 1995
Porter Officer and Secretary
Director 1993
Kevin B. Jordan 35 MRI President, Director 1994
Ronald W. Marsh 49 MRI President & COO 1995
Larry A. Call 62 Director 1994
Albert Krueger 66 Director 1993
F. Bruce Krysiak 73 Director 1995
All directors of the Company hold office until their successors
have been elected and qualified. Officers serve at the discretion
of the Board of Directors. The Company has an Investment Committee
consisting of Messrs. Fillingham and Porter and an Audit Committee
consisting of Messrs. Call (Chairman), Krueger and Krysiak. The
Company does not have standing nominating or compensation
committees of the Board of Directors, or committees performing
similar functions.
The Company has agreed that it will include a person designated by
Maverik Country Stores, Inc., formerly Caribou Four Corners, Inc.
("Maverik"), a shareholder of the Company, who is approved by the
Company as a member of the Company's slate of directors and will
use its best efforts to cause such person to be elected to the
Company's Board of Directors so long as Maverik (or any single
successor or assignee of Maverik) owns at least 8,333 shares of
Common Stock. Larry A. Call is the director presently serving as
the designee of Maverik.
Six meetings of the Board of Directors of the Company (including
regularly scheduled and special meetings) were held during the last
full fiscal year. No member of the Board of Directors attended
fewer than 85% of the aggregate of the total number of meetings of
the Board of Directors and the total number of meetings held by all
committees of the Board on which he served.
Robert A. Fillingham, age 61, served as Chairman of the Board of
the Company from the Company's incorporation in 1983 until December
1987 and has served as Chief Executive Officer of the Company since
1983. He was elected President of the Company on March 7, 1984. He
was a Director, President and Chief Executive Officer of the
Company's predecessor, Greenwood Resources Ltd. from its formation
in 1977 until 1983. In March 1989, Mr. Fillingham again became
President, Chief Executive Officer and a Director of the Company.
Mr. Fillingham expects to devote approximately 50% of his time to
the custom precision equipment business and 50% to the pasta sauce
business.
Noel D. Chrisman, age 62, was a consultant to the Company from
September 1991 until June 1992 when he was employed as Executive
Vice President with responsibility for the day-to-day operations of
the Company. From May 1989 to September 1991, he owned and
operated Swimline, Inc., a wholesale distributor of swimming pool
equipment and supplies. Previously, he was employed for over 20
years with Kliklok Corporation with the final position of Vice
President of sales. Mr. Chrisman devotes all of his time to the
business of the Company. Mr. Chrisman has indicated his intention
to elect early retirement in 1996.
Robert H. Porter, age 60, became a director of the Company in
February 1993. Mr. Porter was elected Chief Financial Officer in
October 1995 to fill the vacancy caused by the resignation of the
Chief Financial Officer in August, 1995. Mr. Porter had previously
served as Chief Financial Officer for the Company from April 1994
through March 1995. From June 1991 through April 1995, he was
Senior Vice President of CSI Enterprises, Inc. For the prior 33
years, Mr. Porter was in the audit division of Arthur Andersen &
Co., most recently as a general partner, where he specialized in
regulated industries and other large, publicly held corporations.
Kevin B. Jordan, age 35, has been President and CEO of MRI since
February 1995. Previously he was employed by CSI Enterprises, Inc.
since 1985. He is a C.P.A. and was formerly employed with Coopers
and Lybrand in Denver, Colorado. Mr. Jordan submitted his
resignation in November, 1995 from MRI, and as a director.
Ronald W. Marsh, age 49, became President and Chief Operating
Officer of MRI in November, 1995. Mr. Marsh has had over 24 years
of successful experience in the food industry with responsibilities
in managing, selling and developing branded products for the retail
grocery and food service trade. During this period he was
affiliated with Swift, Kraft, Wilson and Lykes.
Larry A. Call, age 62, serves as the Chief Operations Officer for
Maverik Country Stores, Inc., formerly Caribou Four Corners, Inc.
Maverik operates 129 convenience stores in 7 western states. Mr.
Call has been with Maverik for more than 25 years and has served as
a member of their board for 20 years.
Albert Krueger, age 66, has been a consultant to the Company since
1985 in the areas of manufacturing and engineering management.
From 1947 through 1983, he was director of operations-engineering
for Continental Can Co. Since 1983, he has been engaged in
business as an independent consultant.
F. Bruce Krysiak, age 73, was elected a director at the October 12,
1995 board meeting. Mr Krysiak has over 30 years of leadership
experience in the supermarket and food distribution industry and
was a former executive of Arden-Mayfair of Los Angeles, Loblaw
Companies of Toronto and National Tea of St. Louis. He served as
president and chief executive officer of Loblaw and National Tea.
He was also a member of the U.S. Food Industry's National Board of
Directors. He most recently was an organizer of the Giant Food
Systems in Vladivostok, Russia, an American-Russian joint venture
to establish American-style supermarkets in Russia. He serves as
an advisor to various large corporations in the U.S. in domestic
and international projects.
The Company does not have employment or consulting agreements with
its executive officers, nor does it maintain key man insurance on
their lives. CSI Enterprises, Inc., associated with the Company
through common control, provided certain administrative and other
services to the Company prior to 1995.
Mr. Krueger entered into a consulting agreement June 1994 whereby
he agreed to spend one week per month at the Company's principal
executive offices providing advisory and consulting services. He
is compensated at the rate of $2,800 per month for these services,
plus $75 per hour for any additional work performed for the
Company. For the years ended December 31, 1995 and 1994, payments
to Mr. Krueger under the consulting agreement aggregated
approximately $67,000 and $150,000, respectively.
Item 11. Executive Compensation
The following table sets forth the aggregate cash compensation paid
by the Company to the executive officers of the Company who
received in excess of $60,000 for services rendered during the
years ended December 31, 1995 and 1994, and to all executive
officers as a group.
Name of Individual Capacities in Which Cash
or Number in Group Served Compensation
1995 1994
Robert A. Fillingham President and Chief $110,000(1) $100,000(1)
Executive Officer
Noel D. Chrisman Executive Vice $107,000(2) $115,000(2)
President
Kevin B. Jordan(3) MRI President $115,000 $ -
All executive
officers as a
group (8 persons) $503,000 $215,000
(1) Mr. Fillingham's cash compensation consisted of salary of
$100,000 and $90,000 for the years ended December 31, 1995 and
1994, respectively. Deferred compensation of $10,000 and $10,000
including premiums paid pursuant to a split-dollar life insurance
agreement providing $200,000 of death benefits to his designees,
plus benefits through increase in cash surrender value used to
purchase fully paid insurance, during the years ended December 31,
1995 and 1994, respectively.
(2) Mr. Chrisman's cash compensation consisted of salary of
$105,000 and $105,000 and a bonus of $2,000 and $10,000 during the
years ended December 31, 1995 and 1994, respectively.
(3) Mr. Jordan resigned effective at the end of 1995, and was
replaced by Mr. Ronald W. Marsh as President of MRI in November,
1995.
Stock Options
At the Board Meeting on February 16, 1995, and reaffirmed at the
Board Meeting on March 15, 1995, there was unanimous approval to
adopt an MRI Option Plan exercisable for five years from the date
of grant, commencing February 17, 1995 authorizing options for
500,000 shares. As of February 17, 1995, grants were approved for
365,000 options. At subsequent Board Meetings in 1995, the
remainder of the grants were awarded. However, to avoid a minority
interest in MRI, a conversion to the Company's option plan was made
available to MRI option holders in early 1996, and all but options
for 78,700 shares of MRI elected conversion to the Company options.
In March 1995, the Board of Directors of the Company approved by
unanimous vote, subject to shareholder approval, the Company's 1995
Employee Stock Incentive Plan (the "Employee Plan") and the 1995
Nonstatutory Directors Stock Option Plan (the "Directors Plan").
Options granted under the plans will be granted at the price equal
to the fair market value of the stock at the date of grant. During
the first quarter of 1995, 400,000 options were authorized under
the Employee Plan and 220,000 options were authorized under the
Directors Plan.
As of the board meeting on December 15, 1995, the Employee Plan had
granted nearly the entire 400,000 options, but because most grants
were for $2.00 per share, and vested over a 3 year period, some had
expired due to termination or election not to exercise. The
Directors Plan was also granted up to the authorized options of
220,000 shares. At the February 29, 1996 Board Meeting, the
authorized options were increased to 500,000 and 600,000, for the
Incentive Plan and Directors Plan, respectively. The Directors
Plan is the nonstatutory plan and the increases were largely to
accommodate option conversions from the MRI plan. Through December
31, 1995, no vested options were exercised under either plan, and
the plans must be submitted to shareholders for approval.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth as of December 31, 1995, certain
information with respect to the record and beneficial ownership of
the Company's Common Stock by all stockholders known by the Company
to own more than 5% of its outstanding Common Stock, and by
directors and officers individually and as a group.
Name, Address and Number of Shares Percentage of
Position Held Beneficially Owned(1) Outstanding
Common Stock
Larry A. Call
P.O. Box 457
Afton, WY 83110
Director 33,880(2) 1.1%
Ray Hand
310 Radford Place
Knoxville, TN 37927 200,000 6.5%
Oren L. Benton
Three Park Central
Suite 1000
1515 Arapahoe Street
Denver, CO 80202 1,194,287(3) 38.6%
Miriam Peterson
4550 Post Oak Place
Houston, TX 77027 1,013,152 32.7%
All Officers and
directors as a
group (1 person) 33,880(2) 1.1%
(1) None of the present officers or directors other than Mr. Call
are owners of any outstanding shares. There are no outstanding
exercisable options or warrants to purchase shares of the Company's
Common Stock.
(2) Includes all shares held by Maverick Country Stores, Inc., as
to which Mr. Call may be deemed to be the beneficial owner.
(3) Includes 466,440 shares held by Concord International Mining
and Management Corporation as to which Mr. Benton may be deemed to
be the beneficial owner.
Item 13. Certain Relationships and Related Transactions
Acquisition of Control
Through a series of transactions, Oren L. Benton acquired
significant ownership of the Company through personal ownership and
ownership of Companies or general partnerships that he controlled.
As of January 1, 1994, Mr. Benton held 62,328 Company shares in
PRCo., an entity controlled by Mr. Benton, 404,112 Company shares
in Premier Management Ltd., a Colorado Limited Partnership
("Premier") in which Mr. Benton was the managing general partner,
and direct ownership of 119,015 shares, for a total of 585,455
Company shares of the total outstanding shares of 1,075,536, or
54.4% of voting outstanding shares.
In 1994, Mr. Benton transferred the 62,328 shares from PRCo. to
Premier, and that total along with the Premier shares of 404,112
were transferred to six URI Partnerships controlled by Concord
International Mining Management Corporation. In addition, 57,835
of direct ownership shares were transferred to an individual not
controlled by Mr. Benton.
In March, 1993, Mr. Benton, then the beneficial owner of a majority
of the shares of the Company's Common Stock, made available to the
Company an unsecured line of credit due December 31, 1994, in the
principal amount of $2,000,000. Advances thereunder bore interest
at the prime rate plus 2% per year, payable quarterly. The lender
had the right, exercisable on December 31, 1994, to purchase up to
666,667 shares of Common Stock at $3.00 per share. He also had the
right to convert any advances taken under the credit line at the
same price. The closing bid price for the Company's common stock
was $2.88 on March 16, 1993, the day the line of credit agreement
was signed. In December 1994, the Company borrowed $2,000,000
under this line which the lender then converted into 666,667 shares
of the Company's common stock. The shares of Common Stock acquired
by the lender will not be registered under the Securities Act of
1933, as amended, and will therefore constitute restricted stock.
After conversion of the line of credit, Mr. Benton owned
approximately 58.6% of the outstanding common stock of the Company.
Because of the shares issued for the acquisition of MRI operations,
and the conversion of the debentures, Mr. Benton's share of the
issued and outstanding shares of the Company's Common Stock at the
end of 1995 was 38.6%, thus there was no single majority control
relationship.
In 1995, in connection with the acquisition of the assets and
certain liabilities of Mama Rizzo's, Inc. and M.A. Yamin, Inc.
(collectively "Mama Rizzo's), the Company issued 913,152 shares of
the Company's common stock to Miriam Peterson, the largest creditor
of Mama Rizzo's in satisfaction of approximately $5,900,000 of debt
that was held by Ms. Peterson. Included in this debt was
$3,938,000 of advances from Concord that were made on behalf of
Miriam Peterson. $2,000,000 of the stock issued is contingent upon
the Company's wholly owned subsidiary, MRI, achieving at least $15
million in sales during 1995. Since MRI did not achieve those
sales in 1995, 307,692 shares were forfeited at yearend 1995. The
Board of Directors permitted Ms. Peterson to have the benefit and
voting rights of the contingent and issued shares through 1996,
with the option to purchase the contingent shares at any time in
1996 for $1.50 per share. Ms. Peterson also owns 100,000 shares
from a settlement from Yamin. At the end of 1995, Ms. Peterson has
a total of 1,013,152 shares of the 3,095,405 issued and outstanding
stock, or 32.7%. Until June 30, 1997, Ms. Peterson has agreed to
vote her shares in accordance with the recommendations to
shareholders by management of PRC on all matters submitted for a
shareholder vote, if in her good faith discretion she reasonably
determines that any such management recommendation is in the best
interests of PRC.
For information regarding a shareholder's right to designate a
person to serve on the Board of Directors of the Company, see
"Management - Directors and Executive Officers of the Company."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Financial Statements (included in Item 8, Part II hereof):
Report of Independent Public Accountants 18
Balance Sheet - December 31, 1995 19
Statements of Operations - For the Years
Ended December 31, 1995 and 1994 21
Statements of Shareholders' Equity -
For the Years Ended December 31, 1995 and 1994 23
Statements of Cash Flows - For the Years
Ended December 31, 1995 and 1994 24
Notes to Financial Statements 26
b) Reports on Form 8-K
The registrant filed a Report on Form 8-K dated February 11, 1994
with regard to the completion of the sale on January 31, 1994 of
all of its discontinued oil and gas properties.
The registrant filed a Report on Form 8-K dated November 3, 1994
with regard to entering into a conditional agreement (the
"Acquisition Agreement") dated September 16, 1994, for the
acquisition of the assets and the assumption of certain of the
liabilities of Mama Rizzo's, Inc. ("Mama Rizzo's") and M.A. Yamin,
Inc. ("MAY"), which are private related companies based in Houston,
Texas, engaged in the business of manufacturing and distributing
pasta sauce under the name "Mama Rizzo's".
The registrant filed a report on Form 8-K dated March 3, 1995 with
regard to the consummation on February 17, 1995 of the purchase of
the assets and certain liabilities of Mama Rizzo's, Inc. pursuant
to an acquisition agreement dated September 16, 1994.
The registrant filed a Report on Form 8-K dated April 28, 1995 with
regard to the financial statements and pro forma financial
information of the business acquired on February 17, 1995.
The registrant filed a Report on Form 8-K dated December 19, 1995
with regard to entering into a Convertible Debenture Loan Agreement
(the "Loan Agreement") dated December 14, 1995 between the
registrant and Renaissance Capital Growth & Income Fund III, Inc.
(c) Exhibits
3.1 Articles of Incorporation of the Registrant dated April 5,
1983, as amended (filed as Exhibits 3.1, 3.3 and 3.4 to the
Registrant's Registration Statement on Form S-1 (File No. 2-83288)
and incorporated herein by reference thereto)
3.2 Articles of Amendment to Articles of Incorporation of the
Registrant dated August 13, 1987 (filed as Exhibit 3.1 to the
Registrant's Form 10-Q for the quarter ended June 30, 1987 and
incorporated herein by reference thereto)
3.3 Articles of Amendment to Articles of Incorporation of the
Registrant dated June 7, 1988
3.4 Articles of Amendment to Articles of Incorporation of
Registrant dated March 5, 1993
3.5 Restated ByLaws of the Registrant dated January 23, 1990
(filed as Exhibit 3.3 to the Registrant's Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference
thereto)
3.6 Articles of Merger of Greenwood Resources Ltd. and Greenwood
Resources Inc.-Colorado dated December 7, 1983
4.3 Letter Agreement dated July 8, 1992, between the Registrant
and Paul Slayton, personally and as president of Slayton Oil
Corporation, and Patricia Slayton
10.1 Amended Non-Statutory Stock Option Plan of the Registrant
amended as of April 11, 1988 (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 (file no. 33-22319)
and incorporated herein by reference thereto)
10.2 Form of Stock Option Agreement with directors of the
Registrant (filed as Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8 (file no. 33-22318) and incorporated herein
by reference thereto)
10.3 Stock Purchase Agreement dated effective as of March 31,
1989, between the Registrant and Premier Management Ltd. (filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
March 31, 1989, and incorporated herein by reference thereto)
10.4 Stock Exchange Agreement date effective as of March 31, 1989,
between the Registrant and PR Co. (filed as Exhibit 10.2 to the
Registrant's Current Report on Form 8-K dated March 31, 1989, and
incorporated herein by reference thereto)
10.5 10% Convertible Note, as amended, due January 15, 1993, dated
effective as of March 31, 1989, between PR Co., debtor, and Premier
Management Ltd., lender (filed as Exhibit 10.3 to the Registrant's
Current Report on Form 8-K dated March 31, 1989, and incorporated
herein by reference thereto)
10.6 Stock Purchase Agreement effective as of March 31, 1989,
between Oren L. Benton and Robert A. Fillingham (filed as Exhibit
10.4 to the Registrant's Current Report on Form 8-K dated March 31,
1989, and incorporated herein by reference thereto)
10.7 Promissory Note dated effective as of March 31, 1989, in the
principal amount of $750,000 between Oren L. Benton, debtor, and
Robert A. Fillingham, lender (filed as Exhibit 10.5 to the
Registrant's Current Report on Form 8-K dated March 31, 1989, and
incorporated herein by reference thereto)
10.8 Asset Purchase Agreement dated as of October 30, 1992,
between the Registrant and DEM
10.9 Agreement dated April 20, 1990, between Intercontinental
Energy Corporation Employee Stock Ownership Trust, Intercontinental
Energy Corporation and the Registrant, as amended by the Amendment
dated September 15, 1992
10.10 License and Know-How Agreement dated September 1989 by and
between Higashimoto Kikai Co., Ltd., DEM and Nosawa & Co., Ltd., as
amended by the Agreement on Memorandum on License and Know-How
Agreement dated May 1992
10.11 Agreement dated February 22, 1977, between Armour and
Company and DEM regarding DEM's license to utilize certain patent
rights held by Armour
10.12 Royalty Agreement dated July 13, 1970, by and between Max A.
Zelinger and DEM
10.13 Commission Agreement dated August 1, 1987, by and between PR
Co. and Rodney D. Wicklund
10.14 Equipment Sales Agreement dated September 22, 1992, by and
between DEM and CTC Foods Corporation
10.15 Equipment Sales Agreement dated January 29, 1993, by and
between DEM and CTC Foods Corporation
10.16 Consulting Agreement dated March 31, 1989, by and between
Oren L. Benton and Robert A. Fillingham
10.17 Split-Dollar Life Insurance Agreement dated March 31, 1988,
by and between the Registrant and Robert A. Fillingham
10.18 Deferred Compensation Agreement dated March 31, 1988, by and
between the Registrant and Robert A. Fillingham
10.19 Consulting Agreement dated March 31, 1989, by and between
DEM and Robert A. Fillingham
10.20 Lease dated August 11, 1983, by and between Tejon Warehouses
and DEM
10.21 Lease Extension Agreement dated June 1, 1990, by and between
First Interstate Bank of Denver, not personally, but as Ancillary
Trustee under Trust Agreement dated September, 14, 1979, and the
Registrant
10.22 Non-Compete Agreement dated February 4, 1993, by and between
DEM and the Registrant
10.23 Assignment dated February 4, 1993, from DEM to the
Registrant regarding certain patent rights
10.24 Assignment dated February 4, 1993, from DEM to the
Registrant regarding certain trademark rights
10.25 Assumption Agreement dated February 4, 1993, by and between
PR Co., the Registrant and Rodney D. Wicklund
10.26 Form of Line of Credit Agreement and related promissory note
dated March 16, 1993, between the Registrant and Oren L. Benton.
10.27 Note Extension and Line of Credit Modification Agreement
dated June 14,1993 between the Registrant and Oren L. Benton
(incorporated by reference from Registration Statement on Form S-1
(File No. 33-60080) declared effective September 28, 1993)
10.28 Purchase order from John Morrell & Co. to Registrant dated
March 25, 1993 (incorporated by reference from Registration
Statement on Form S-1 (File No. 33-60080) declared effective
September 28, 1993)
10.29 Purchase order from Nestle Food Company to Registrant dated
February 16, 1993, with Addendum No. 1 thereto dated March 29, 1993
(incorporated by reference from Registration Statement on Form S-1
(File No. 33-60080) declared effective September 28, 1993)
10.30 Purchase order from Nosawa New York, Inc. with Registrant
dated May 7, 1993 (incorporated by reference from Registration
Statement on Form S-1 (File No. 33-60080) declared effective
September 28, 1993)
10.31 Consulting Agreement between Registrant and Mr. Krueger
dated May 15, 1987, as clarified by memo dated October 24, 1989
(incorporated by reference from Registration Statement on Form S-1
(File No. 33-60080) declared effective September 28, 1993)
10.32 Equipment Sales Agreement dated December 17, 1993, by and
between the Registrant and CTC Foods Corporation
10.33 Steel Building Contract Agreement dated March 21, 1994, by
and between the Registrant and CTC Foods Corporation
10.34 Acquisition Agreement dated September 16, 1994, by and
between the Registrant and Mama Rizzo's, Inc. (filed as Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated November
3, 1994, and incorporated herein by reference thereto)
10.35 Convertible Debenture Loan Agreement dated December 14,
1995, by and between the Registrant and Renaissance Capital Growth
& Income Fund III, Inc. (filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K dated December 19, 1995, and
incorporated herein by reference thereto)
23.1 Consent of Independent Public Accountants
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this amended report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Arapahoe, State of
Colorado, on April 12, 1996.
PACKAGING RESEARCH CORPORATION
By: /s/ ROBERT A. FILLINGHAM
Robert A. Fillingham, President
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ ROBERT A. FILLINGHAM Chairman of the Board, April 12, 1996
Robert A. Fillingham President and Director
(Principal Executive
Officer)
/s/ ROBERT H. PORTER Vice President - April 12, 1996
Robert H. Porter Secretary and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
incorporation by reference of our report included in this Annual
Report on Form 10-K of Packaging Research Corporation for the year
ended December 31, 1995, into the previously filed Registration
Statement Nos. 2-93075, 33-22318 and 33-22319.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 12, 1996.
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