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 June 18, 1996 was approximately $1,185,171.
At June 18, 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
Years Ended December 31,
1995 1994
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 11.
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 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.
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 compensation paid by the Company to the
executive officers of the Company who received in excess of $60,000 for services
rendered during the years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name and Securities
Principal Fiscal Other Annual Underlying
Position Year Salary($) Bonus($) Compensation Option(s)
Robert A.
Fillingham 1995 $100,000 $ - $ 10,000 (1) 130,000
President 1994 $ 90,000 $ - $ 10,000 (1) -
and CEO 1993 $ 90,000 $ - $ 10,000 (1) -
Noel D.
Chrisman
Executive 1995 $105,000 $ 2,500 $ - 55,000
Vice 1994 $105,000 $ 10,000 $ - -
President(2) 1993 $100,000 $ 10,000 $ - -
Kevin B.
Jordan 1995 $115,000 $ - $ - -
MRI 1994 $ - $ - $ - -
President(3) 1993 $ - $ - $ - -
(1) Mr. Fillingham's other annual compensation consists of deferred compensation
of $10,000 premiums paid pursuant to a spilt-dollar life insurance agreement
providing $200,000 of death benefits to his designees, plus benefits through
increase in cash surrender value used to purchase fully paid insurance, during
each of the years 1995, 1994 and 1993.
(2) Mr. Chrisman elected to retire in April 1996.
(3) Mr. Jordan resigned effective at the end of 1995, and was
replaced by Mr. Ronald W. Marsh as President of MRI in November,
1995.
The following table sets forth certain information concerning individual grants
of stock options during the fiscal year ended December 31, 1995 to each of the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Granted(#)(1) Fiscal Year ($/Share) Date
Robert A.
Fillingham 20,000 (2) $2.00 7/10/2005
20,000 (2) $1.50 7/10/2005
90,000 18% (3) $2.00 7/10/2000
Noel D.
Chrisman 55,000 11% (3) $2.00 7/10/2000
(1) Excludes MRI options which were converted to Company options in 1996.
(2) Directors Plan Options under the Nonstatutory Plan which was limited to
directors during 1995. Vesting is 50% at time of grant, and 25% on the
anniversary date in each of the next two years. The plan is subject to
shareholder approval in 1996.
(3) Employee Stock Incentive Plan: 25% vested at time of grant
and 25% on the anniversary date in each of the next three years.
The plan is subject to shareholder approval in 1996.
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. The
percentage ownership information set forth in the right hand column of the
following table has been computed in accordance with Securities and Exchange
Commission ("SEC") guidelines as described in note (1).
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Beneficial Ownership Ownership
Renaissance Capital Growth
& Income Fund III, Inc.
8080 North Central Expressway
Dallas, TX 75206-1857 2,133,333(2) 40.8%
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(4) 32.7%
Ray Hand
310 Radford Place
Knoxville, TN 37927 262,500(5) 8.3%
Robert A. Fillingham
2582 S. Tejon St.
Englewood, CO 80110 55,000(6) 1.8%
Larry A. Call
P.O. Box 457
Afton, WY 83110 33,880(7) 1.1%
Albert Krueger
9814 Harborview Place
Gig Harbor, WA 98332 27,200(8) .9%
Robert H. Porter
400 S. Steele St., #71
Denver, CO 80209 25,000(8) .8%
F. Bruce Krysiak
2014 E. Stratford Court
Englewood, CO 80111 5,000 .2%
All Officers and
directors as a
group (5 persons) 146,080(9) 4.6%
(1) The percentages shown include the shares of Common Stock actually owned as
of December 31, 1995, and the shares of Common Stock with respect to which the
person had the right to acquire beneficial ownership within 60 days of such date
pursuant to options, warrants and the conversion of the convertible debentures
issued in 1995. All shares of Common Stock that the identified person had the
right to acquire within 60 days of December 31, 1995 upon the exercise of
options or warrants, or the conversion of the Renaissance debentures, are deemed
to be outstanding when computing the percentage of the shares of Common Stock
owned by such person, but are not deemed to be outstanding when computing the
percentage of the shares of Common Stock owned by any other person.
(2) Convertible debenture issued in 1995.
(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.
(4) Includes 307,692 shares subject to option.
(5) Included warrants to purchase 62,500 shares.
(6) Includes warrants to purchase 50,000 shares.
(7) Includes all shares held by Maverik Country Stores, Inc., as to which Mr.
Call may be deemed to be the beneficial owner.
(8) Includes warrants to purchase 25,000 shares.
(9) Includes warrants to purchase 100,000 shares.
(10) No options are included that were awarded under the Employee and Directors
Plans since the plans are subject to stockholder approval in 1996 before they
are exercisable.
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 June 18, 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, June 18, 1996
Robert A. Fillingham President and Director
(Principal Executive
Officer)
/s/ ROBERT H. PORTER Vice President - June 18, 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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