<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 14, 1997
UNITED SHIELDS CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Colorado 33-11062-D 84-1049047
- ------------------------------ ----------------- --------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) file number) Identification No.)
655 Eden Park Drive, Cincinnati, Ohio 45202
-------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (513)241-7470
-------------
<PAGE> 2
ITEM 2. ACQUISITION OF DISPOSITION OF ASSETS.
- ------- -------------------------------------
Effective on November 14, 1997 (the "Effective Date"), United Shields
Corporation (the "Company") acquired all of the outstanding common stock of The
HeaterMeals Company ("HeaterMeals"), an Ohio-based manufacturer and packager of
electrochemical heaters and packaged food products (the "Acquisition"). The
principal assets of HeaterMeals include inventory, accounts receivable,
equipment, which will continue to be used as at present, licenses for patent
rights to produce electrochemical heaters, prepaid expenses and tax refunds and
cash. The total consideration for the Acquisition consisted of $2,576,763 cash
as follows: (i) $30,000 to HeaterMeals upon execution of the letter of intent;
(ii) $2 million to HeaterMeals' shareholders; and (iii) $546,763 to HeaterMeals'
lender as full payment for HeaterMeals' outstanding bank indebtedness. The cash
payments were provided by loans from Ramsay-Hughes, Inc. ("Ramsay-Hughes"). The
total indebtedness owed by the Company to Ramsay-Hughes, including accrued
interest through October 31, 1997, as of November 18, 1997 was approximately
$3,400,625. Ramsay-Hughes owns beneficially approximately 14.1% of the
outstanding common stock of the Company (including approximately 2.0% which is
owned individually by the directors and executive officers of Ramsay-Hughes).
The amount of consideration was determined through arm's-length negotiations
between the parties and is based on the value of HeaterMeals' assets and the
expected revenue from the sale of the heater product and meals. HeaterMeals had
annual revenues for 1996 of approximately $4.8 million.
The Company intends to continue to identify and evaluate other
potential acquisition candidates whose product or product lines could benefit
the operations of the Company. Management anticipates that such acquisition
candidates would be involved in plastics manufacturing, production, packaging,
distribution and/or production of various consumer beverage or food products.
The Company is presently engaged in negotiations to acquire several companies.
Management expects that it is possible that the Company will enter into
additional letters of intent to acquire some of those companies in the fourth
quarter of 1997. There can be no assurance that the Company will be successful
in consummating the acquisition of candidates or in integrating acquired
companies.
ITEM 5. OTHER EVENTS.
- ------- -------------
On November 12, 1997, the Company appointed Beverley R. Gill (age 48)
Treasurer. Mr. Gill has served as the Company's Chief Financial Officer since
July 15, 1997 and will continue to serve in this capacity.
As previously reported, the Company has entered into a definitive
agreement to acquire all of the stock of Master Molders, Inc., a South
Carolina-based manufacturer of plastic industrial parts pursuant to a merger
with a wholly-owned subsidiary of the Company (the "Merger"). The closing date
of the Merger, which was to occur on or before November 30, 1997, has been
extended to December 12, 1997 by mutual agreement of the parties.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
- ------- ----------------------------------
(a) Financial Statements of Business Acquired
See Addendum A attached hereto.
(b) Pro Forma Financial Information
See Addendum B attached hereto.
<TABLE>
<CAPTION>
(c) Exhibits Incorporated by Reference to:
-----------------------------
<S> <C>
2.1 Agreement and Plan of Share Exhibit 2.1 to the Company's
Exchange by and between Form 8-K filed on September
The HeaterMeals Company and 25, 1997
United Shields Corporation
dated September 12, 1997
</TABLE>
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED SHIELDS CORPORATION
By: /s/ T. J. Tully
---------------------------------------
T. J. Tully, Chairman of the Board and CEO
Date: November 26, 1997
4
<PAGE> 5
THE HEATERMEALS COMPANY
(FORMERLY ZESTOTHERM INC.)
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH
REPORT OF INDEPENDENT AUDITORS
<PAGE> 6
(H.K. Campbell & Company Letterhead)
Report of Independent Auditors
The Board of Directors
The HeaterMeals Company and Subsidiary
We have audited the accompanying consolidated balance sheets of The HeaterMeals
Company (formerly ZestoTherm Inc.) and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Companies' 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 audits 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The HeaterMeals
Company and Subsidiary at December 31, 1996 and 1995, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ H.K. Campbell & Company
Cincinnati, Ohio
February 7, 1997
<PAGE> 7
THE HEATERMEALS COMPANY AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Years ended December 31, 1996 and 1995
--------------------------------------
(See report of independent auditors)
------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 4,890,588 $ 4,639,073
Cost of sales 3,698,029 3,118,543
----------- -----------
Gross profit 1,192,559 1,520,530
Selling, general and administrative expenses 1,688,668 1,048,605
----------- -----------
Income (loss) from operations (496,109) 471,925
Other income (expense):
Interest income 1,847 11,179
Interest expense (34,198) (31,835)
----------- -----------
Income (loss) before income taxes (528,460) 451,269
Provision (benefit) for income taxes:
Current, federal (228,000) 233,500
Current, state and local (21,000) 58,000
Deferred, federal 47,500 (91,100)
Deferred, state and local (27,700) (17,100)
----------- -----------
(229,200) 183,300
----------- -----------
Net income (loss) $ (299,260) $ 267,969
=========== ===========
</TABLE>
See accompanying notes.
<PAGE> 8
THE HEATERMEALS COMPANY AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, 1996 and 1995
--------------------------
(See report of independent auditors)
------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 111,125 $ 399,047
Accounts receivable:
Trade, less allowance for doubtful accounts of $22,171
and $15,025 at December 31, 1996 and 1995,
respectively 361,365 307,462
Other -0- 591
Inventories:
Raw materials 219,915 341,401
Work in process 85,141 79,953
Finished goods 449,867 583,107
Prepaid expenses 12,494 4,171
Refundable income taxes 158,617 -0-
Public offering costs 79,768 -0-
Deferred income tax benefits 57,895 121,347
---------- ----------
Total current assets 1,536,187 1,837,079
Property and equipment, at cost:
Machinery and equipment 1,080,537 849,604
Office furniture and fixtures 98,108 92,028
Leasehold improvements 72,402 72,402
---------- ----------
1,251,047 1,014,034
Less accumulated depreciation 840,210 696,396
---------- ----------
Net property and equipment 410,837 317,638
Other assets:
Deposits 14,420 110,474
Non-compete agreements, net of accumulated
amortization 75,680 227,042
Deferred income tax benefits 60,981 17,329
---------- ----------
Total other assets 151,081 354,845
---------- ----------
$2,098,105 $2,509,562
========== ==========
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Note payable $ 50,000 $ -0-
Accounts payable 378,072 366,663
Accrued expenses:
Income taxes -0- 129,500
License fees 48,652 39,117
Other taxes 27,815 19,552
Other 85,979 35,839
Capital lease obligations due within one year 23,995 24,187
Long-term debt due within one year 26,460 220,142
---------- ----------
Total current liabilities 640,973 835,000
Capital lease obligations due after one year -0- 23,995
Long-term debt due after one year 105,825 -0-
---------- ----------
Total liabilities 746,798 858,995
Stockholders' equity:
Preferred stock, $.10 par value, 2,000,000 shares authorized,
no shares issued and outstanding -0- -0-
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,938,420 and 2,438,420 shares issued
and outstanding at December 31, 1996 and 1995, respectively
19,384 24,384
Additional paid-in capital 740,764 740,764
Retained earnings 591,159 1,082,807
---------- ----------
1,351,307 1,847,955
Less treasury stock, at cost, 500,000 shares at
December 31, 1995 -0- 197,388
---------- ----------
Total stockholders' equity 1,351,307 1,650,567
---------- ----------
$2,098,105 $2,509,562
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 10
THE HEATERMEALS COMPANY AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years ended December 31,1996 and 1995
-------------------------------------
(See report of independent auditors)
------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(299,260) $ 267,969
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation 143,814 117,031
Amortization 151,362 151,360
Deferred income taxes 19,800 (108,200)
Inventory obsolescence 53,362 56,000
Provision for bad debts 7,146 15,025
(Increase) decrease in accounts receivable (60,458) (38,634)
(Increase) decrease in refundable taxes (158,617) 32,724
(Increase) decrease in inventories 196,176 (361,437)
(Increase) decrease in prepaid expenses (8,323) (623)
Increase (decrease) in accounts payable 11,409 188,069
Increase (decrease) in accrued expenses (61,562) 134,174
--------- ---------
Net cash from operating activities (5,151) 453,458
Cash flows from investing activities:
Acquisition of property and equipment (237,013) (138,422)
(Increase) decrease in deposits 96,054 (93,804)
--------- ---------
Net cash from investing activities (140,959) (232,226)
--------- ---------
Cash flows from financing activities:
Increase in note payable 50,000 -0-
Proceeds from long-term debt 132,285 -0-
Increase in public offering costs (79,768) -0-
Issuance of common stock -0- 350,000
Increase in capital lease obligations -0- 65,000
Repayment of capital lease obligations (24,187) (23,039)
Repayment of long-term debt (220,142) (216,380)
--------- ---------
Net cash from financing activities (141,812) 175,581
--------- ---------
Net increase (decrease) in cash and cash equivalents (287,922) 396,813
Cash and cash equivalents at beginning of period 399,047 2,234
--------- ---------
Cash and cash equivalents at end of period $ 111,125 $ 399,047
========= =========
</TABLE>
See accompanying notes.
<PAGE> 11
THE HEATERMEALS COMPANY AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Years ended December 31, 1996 and 1995
--------------------------------------
(See report of independent auditors)
------------------------------------
<TABLE>
<CAPTION>
Additional
Shares Common Paid-in Retained Treasury
Issued Stock Capital Earnings Stock Total
------------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 2,088,420 $ 20,884 $ 394,264 $ 814,838 $ (197,388) $ 1,032,598
Issuance of common stock 350,000 3,500 346,500 350,000
Net income 267,969 267,969
------------- ----------- ----------- ------------ ----------- ------------
Balance, December 31, 1995 2,438,420 24,384 740,764 1,082,807 (197,388) 1,650,567
Retirement of treasury stock (500,000) (5,000) (192,388) 197,388
Net income (loss) (299,260) (299,260)
------------- ----------- ----------- ------------ ----------- ------------
Balance, December 31, 1996 1,938,420 $ 19,384 $ 740,764 $ 591,159 $ -0- $ 1,351,307
============= =========== =========== ============ =========== ============
</TABLE>
See accompanying notes.
<PAGE> 12
THE HEATERMEALS COMPANY AND SUBSIDIARY
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(See report of independent auditors)
------------------------------------
1. Significant accounting policies
-------------------------------
Business -
----------
The consolidated financial statements include the accounts of The
HeaterMeals Company (HMC) (formerly ZestoTherm Inc.) and its wholly-owned
subsidiary, HeaterMeals Inc. (HeaterMeals). All significant intercompany
accounts and transactions have been eliminated. In September 1996, HMC set
up a wholly-owned subsidiary, ZTI Corporation. HMC intends to transfer
substantially all of the assets and liabilities associated with its heating
technology business, including its military contracts, to this subsidiary
including the "ZestoTherm" name at which time the subsidiary will be
renamed ZestoTherm Inc. This transfer will transform HMC into a holding
company with two operating subsidiaries, ZestoTherm Inc. and HeaterMeals
Inc. HMC specializes in the research and development and the manufacture
and marketing of portable electrochemical heaters and packaged food
products incorporating such heaters. HMC was organized in 1984 but only
commenced commercially significant operation in September 1990. HMC's
principal product, the ZT Energy Pad, is sold to prepared food assemblers
who are suppliers to the United States military of "Meals, Ready-To-Eat"
("MREs"), which are individual field rations for soldiers. HeaterMeals Inc.
was formed in 1995 to assemble, market and distribute consumer food
products under the trademark name HeaterMeals(R). HeaterMeals(R) is an
assortment of shelf-stable (no refrigeration needed) food entrees packaged
with a ZT energy pad, utensil pack, and water pouch targeted for commercial
markets to provide a convenient hot meal for consumers where alternative
methods for heating food are unavailable or less convenient.
Estimates -
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories -
-----------
Inventories are stated at the lower of cost or market using the first-in,
first-out method. In prior years, HMC had written down certain inventories
to their estimated net realizable value. As of December 31, 1994, the
cumulative write down of these inventories from their original cost was
approximately $435,000. During 1995, HMC developed procedures to fully
recover the original cost of these inventories. Approximately half of these
inventories were sold in 1995, with the remaining half sold in the first
several months of 1996, resulting in improved gross profits for these
periods. For the years ended December 31, 1996 and 1995, HeaterMeals wrote
down certain inventories by $53,362 and $56,000, respectively, to their
estimated net realizable value.
Public offering costs -
---------------------
In 1997, HMC intends to sell its stock in a public offering. Upon issuance
of the stock, public offering costs will be recorded as a reduction of the
contributed capital associated with the public offering.
<PAGE> 13
Research and development -
--------------------------
Research and development costs are expensed in operations in the year
incurred. Research and development costs incurred for the years ended
December 31, 1996 and 1995 were $67,811 and $71,863, respectively.
Depreciation -
--------------
Depreciation of property and equipment is computed under accelerated and
straight-line methods using the following estimated useful lives:
Machinery and equipment 7 years
Office furniture and fixtures 5 to 7 years
Leasehold improvements 1 to 5 years
Advertising -
-------------
The production costs of advertising are expensed in the year the
advertising first takes place. Advertising expense was $274,021 and
$159,217 for the years ended December 31, 1996 and 1995, respectively.
Non-compete agreements -
------------------------
The non-compete agreements are being amortized over the length of the
agreement (five years) using the straight-line method.
Stock-based compensation -
--------------------------
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. This statement establishes a
fair value method of accounting for stock options. The Companies adopted
the provisions of the new standard in its financial statements for the year
ended December 31, 1996. Since the Companies have not granted any awards
after January 1, 1995, there has been no impact on the Companies' financial
statements from the adoption of this standard.
Cash equivalents -
------------------
For the purposes of the statements of cash flows, the Companies consider
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1996. At December 31, 1995, cash equivalents consisted of
repurchase agreements at a local financial institution.
2. Concentration of credit risk
----------------------------
For the years ended December 31, 1996 and 1995, a substantial portion (75%
and 85%, respectively) of the consolidated sales were made indirectly to
the United States military, including 62% and 71%, respectively, to one
customer. At December 31, 1996 and 1995, accounts receivable from customers
in the prepared food assembly industry accounted for 45% and 58%,
respectively, of the total accounts receivable, including 45% and 56%,
respectively, to one customer. The Companies perform ongoing credit
evaluations of their customers and generally do not require collateral.
Credit losses are provided for in the consolidated financial statements and
have consistently been within management's expectations. At December 31,
1995, the Companies had cash deposits of $117,887 in excess of federally
insured limits.
<PAGE> 14
3. Income taxes
------------
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting primarily for
depreciation, non-compete agreements, and state and local operating loss
carryforwards. Deferred taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
<S> <C> <C>
Deferred income tax assets $ 126,653 $ 151,634
Less deferred income tax liabilities 7,777 12,958
--------------------- ----------------------
Net deferred income tax asset $ 118,876 $ 138,676
===================== ======================
</TABLE>
Included in the accompanying consolidated balance sheet under the following
captions:
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
<S> <C> <C>
Current deferred income tax assets $ 57,895 $ 121,347
Non-current deferred income tax assets 60,981 17,329
--------------------- ----------------------
Net deferred income tax asset $ 118,876 $ 138,676
===================== ======================
</TABLE>
There is no valuation allowance for deferred income tax assets as of
December 31, 1996 and 1995.
HMC is under an IRS examination for the tax years 1992 through 1994. HMC
has received an initial tax assessment of approximately $30,000, including
interest, but is currently responding to the proposed tax changes.
Accordingly, HMC has not accrued a liability for the initial assessment.
4. Leases
------
The Companies lease their factory and office facility under a lease
classified as an operating lease. The lease expires in February 1998, with
an option to renew for an additional five years. Terms of the lease require
the Companies to pay additional rentals based on the lessor's operating
costs. Rent expense for the years ended December 31, 1996 and 1995 was
$161,040. There were no additional rentals in 1996 or 1995. The Companies
also lease certain equipment under capital leases which are included in the
accompanying consolidated balance sheets at December 31 as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
<S> <C> <C>
Machinery and equipment $ 74,000 $ 74,000
Accumulated depreciation (30,270) (12,778)
--------------------- ----------------------
$ 43,730 $ 61,222
===================== ======================
</TABLE>
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending Capital Operating
December 31, lease leases
------------ --------------------- ----------------------
<S> <C> <C>
1997 $ 25,176 $ 161,040
1998 -0- 26,840
--------------------- ----------------------
25,176 $ 187,880
======================
Less amounts representing interest 1,181
---------------------
Present value of capital lease payments $ 23,995
=====================
</TABLE>
<PAGE> 15
5. Note payable
------------
The Companies have a $1,000,000 line of credit with a bank with interest at
1/2% over the prime rate. Borrowings under the line of credit are limited
to 75% of accounts receivable as specifically defined and 50% of raw
material and finished goods inventory. At December 31, 1996, outstanding
borrowings were $50,000. There were no outstanding borrowings at December
31, 1995.
Substantially all assets are pledged as collateral. In December 1995, HMC
issued a $200,000 letter of credit to a vendor in exchange for 30 day
payment terms. The letter of credit is secured by the $1,000,000 line of
credit, thereby reducing the available line of credit.
The prime rate at December 31, 1996 and 1995 was 8 1/4% and 8 1/2%,
respectively.
6. Long-term debt
--------------
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Note payable to bank due in monthly installments of $2,205 plus interest at 3/4%
over the prime rate $132,285 $ -0-
Note payable to stockholder due in monthly installments of $4,230 including
interest at 9%, unpaid principal and interest due in full on June 30, 1996,
secured by the 500,000 shares of the Companies' treasury stock -0- 110,257
Notes payable to stockholders related to non-compete agreements, due in
monthly installments totaling $4,770 including interest at 5%, unpaid
principal and interest due in full on June 30, 1996, secured by the 500,000
shares of the Companies' treasury stock -0- 109,885
-------- -------------
$132,285 $ 220,142
======== =============
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997 $ 26,460
1998 26,460
1999 26,460
2000 26,460
2001 26,445
------------------
$ 132,285
==================
</TABLE>
Interest expense for the years ended December 31, 1996 and 1995 was $34,198
and $31,835, respectively, of which $5,654 and $21,621, respectively, was
attributable to notes payable to stockholders.
<PAGE> 16
7. Commitments
-----------
HMC licenses certain patented technology from a university and pays
royalties on all sales other than sales to the U.S. Government. Royalties
on sales other than to the U.S. Government are (i) 5% of the first
$1,000,000 each year until April 1998 and 7% thereafter and (ii) 3 1/2% on
sales in excess of $1,000,000. Minimum royalties are $40,000 for 1995 and
$50,000 thereafter. The agreement expires in June 2002. Terms of the
license agreement require HMC to pay all costs and expenses associated with
the issuance and maintenance of the patent. HMC also licenses certain
patented technology, on a partially exclusive basis, from the United States
Navy and pays royalties on all sales using this technology, other than
those to the U.S. Government. Royalties on sales other than to the U.S.
Government are (i) 3% of the first $1,000,000; (ii) 2% of the second
$1,000,000; (iii) 1% of the third $1,000,000; and, (iv) 1/2% of sales in
excess of $3,000,000. Minimum royalties are $2,000 for 1996 and 1995 and
$10,000 thereafter. The agreement, as revised in October 1996, provides
exclusive use to the patented technology for food and beverage applications
and expires in August 1999. Royalty expense for the years ended December
31, 1996 and 1995 was $62,584 and $49,820, respectively.
8. Incentive stock option plan
---------------------------
In 1984, HMC adopted an incentive stock option plan (1984 Plan) which
presently covers 60,000 shares of common stock. HMC has issued options to
two officers for the purchase of 60,000 shares of common stock at $1 per
share under the 1984 Plan, which expire in December 1997. No options have
been exercised under the 1984 Plan.
In 1993, HMC adopted a new incentive stock option plan (1993 Plan) whereby
a Compensation Committee appointed by HMC's Board of Directors is
authorized, at its own discretion, to issue options to purchase up to
250,000 shares of HMC's common stock to eligible employees at a price not
lower than the fair market value of the shares to be issued. Under the 1993
Plan, incentive stock options have been issued for the purchase of 116,000
shares at a price of $1 per share. The options expire between May 1998 and
July 2000. Options for 70,250 shares are exercisable as of December 31,
1996. Options for 29,000 shares will become exercisable in 1997, 10,250
shares in 1998, and 6,500 shares in 1999. No options have been exercised
under the 1993 Plan.
9. Stock purchase warrants
-----------------------
HMC has outstanding 250,000 stock purchase warrants expiring on March 20,
1997; each warrant entitles the holder to purchase one share of common
stock at an exercise price of $1 per share. HMC also has outstanding 5,000
stock purchase warrants to a stockholder expiring on July 31, 1999; each
warrant entitles the holder to purchase one share of common stock at an
exercise price of $2.75 per share.
10. Supplemental cash flow information
----------------------------------
<TABLE>
<CAPTION>
Supplemental disclosure with respect to cash flow information is as follows
for the years ended December 31:
1996 1995
----------- ---------
<S> <C> <C>
Cash paid for interest $ 34,198 $ 32,301
=========== =========
Cash paid for income taxes $ 39,117 $ 161,305
=========== =========
</TABLE>
<PAGE> 17
THE HEATERMEALS COMPANY & SUBSIDIARY
Consolidated Balance Sheet (Unaudited)
September 30, 1997
ASSETS
<TABLE>
<S> <C>
Cash 81,081
Accounts receivable 503,057
Inventory 396,985
Prepaid expense 20,007
----------
Total current assets 1,001,130
Property and equipment, at cost:
Factory equipment 1,096,196
Office & lab equipment 101,188
Leasehold improvements 72,402
----------
1,269,786
Less: Accumulated depreciation 954,402
----------
Net property and equipment 315,384
----------
Other assets
Deposits 14,420
Deferred tax benefits 155,660
----------
Total other assets 170,080
----------
$1,486,594
==========
</TABLE>
<PAGE> 18
THE HEATERMEALS COMPANY & SUBSIDIARY
Consolidated Balance Sheet (Unaudited)
September 30, 1997
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C>
Accounts payable $ 488,102
Accrued expenses 112,779
Income taxes payable 0
Current portion of debt 502,699
-----------
Total current liabilities 1,103,580
-----------
Notes payable 59,743
Capital lease obligations 6,239
-----------
65,982
-----------
Total liabilities 1,169,562
-----------
Stockholders' equity:
Common stock, par value $.0l per share,
10,000,000 shares authorized,
1,943,420 shares issued and outstanding 19,434
Additional paid -in capital 745,714
Retained earnings (448,116)
-----------
Total stockholders' equity 317,032
-----------
$ 1,486,594
===========
</TABLE>
<PAGE> 19
THE HEATERMEALS COMPANY & SUBSIDIARY
Consolidated Statement of Operations
Nine Months September 30,1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 3,578,422 3,573,298
Cost of sales 3,213,167 2,925,697
----------- -----------
Gross profit 365,255 647,601
Selling, general & admin. expenses 1,246,357 1,137,196
----------- -----------
Income (loss) from operations (881,102) (489,595)
Other income (expense):
Interest income 0 1,847
Interest expense (63,472) (29,646)
Public offering costs (115,620) 0
----------- -----------
Income (loss) before taxes (1,060,194) (517,394)
Benefit for income taxes 20,921 226,000
----------- -----------
Net income (loss) $(1,039,273) (291,394)
=========== ===========
</TABLE>
<PAGE> 20
HEATERMEALS COMPANY & SUBSIDIARY
Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended September 30,1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income (loss) (1,039,273)
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 189,872
Decrease (Increase) in accounts receivable (141,691)
Decrease (Increase) in inventory 357,937
Decrease (Increase) in prepaid expenses 22,699
Decrease (Increase) in other assets 189,801
(Decrease) Increase in accounts payable 107,418
(Decrease) Increase in accrued expenses (49,666)
(Decrease) Increase in taxes payable (15,803)
----------
Net cash used in operating activities (378,706)
Cash flow from investing activities:
Acquisition of property and equipment (18,739)
Cash flow from financing activities:
Proceeds from sale of common stock 5,000
Proceeds from loan borrowings 550,000
Payment on capital leases (17,756)
Payment on notes payable (169,843)
----------
367,401
Net decrease in cash (30,044)
Cash, beginning of period 111,125
----------
Cash, end of period 81,081
==========
</TABLE>
<PAGE> 21
UNITED SHIELDS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
USC HEATERMEALS
12 MOS. ENDED PRO FORMA PRO FORMA
12/31/96 12/31/96 ADJUSTMENTS COMBINED
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
- --------
NET SALES $0 $4,891 $0 $4,891
COST OF SALES 0 3,698 0 $3,698
------------- --------------- -------------- ---------------
GROSS PROFIT 0 1,193 0 1,193
OPERATING EXPENSES
- ------------------
SELLING, GENERAL & ADMIN EXP 362 1,689 (3) 107 $2,158
INCOME / (LOSS) FROM OPERATIONS (362) (496) (107) (965)
- -------------------------------
OTHER INCOME / (EXPENSE)
- ------------------------
INTEREST INCOME 0 2 0 $2
INTEREST EXPENSE (9) (34) (2) (238) ($281)
OTHER 0 0 0 $0
------------- --------------- -------------- ---------------
(9) (32) (238) (279)
EARNINGS / (LOSS) BEFORE INCOME TAXES (371) (528) (345) (1,244)
- -------------------------------------
INCOME TAXES 0 (229) 0 ($229)
------------- --------------- -------------- ---------------
NET EARNINGS / (LOSS) ($371) ($299) ($345) ($1,015)
- --------------------- ============= =============== ============== ===============
NET INCOME / (LOSS) PER COMMON SHARE ($0.04) ($0.11)
- ------------------------------------ ============= ===============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 9,215,640 9,215,640
============= ===============
</TABLE>
Footnotes:
(2) Reflects additional interest expense resulting from the purchase of
HeaterMeals.
(3) Reflects the amortization of estimated goodwill over 15 year period.
<PAGE> 22
UNITED SHIELDS CORPORATION
PRO FORMA BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
USC HEATERMEALS PRO FORMA PRO FORMA
9/30/97 9/30/97 ADJUSTMENTS COMBINED
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
CASH AND EQUIVALENTS $23 $81 $104
MARKETABLE SECURITIES 0 0 $0
TRADE RECEIVABLE 0 503 $503
OTHER RECEIVABLES 7 0 $7
INVENTORIES 0 397 (1) $40 $437
TAX BENEFITS 0 0 $0
PREPAID EXPENSES 15 20 $35
-------------- ---------------- --------------- ---------------
TOTAL CURRENT ASSETS 45 1,001 40 1,086
PROPERTY & EQUIPMENT 19 1,270 (1) 32 $1,321
LESS: ACCUMULATED DEPRECIATION (1) (954) ($955)
-------------- ---------------- --------------- ---------------
NET PROPERTY AND EQUIPMENT 18 316 32 366
DEPOSITS 4 14 $18
GOODWILL, net 48 0 (1) 1,610 $1,658
INVESTMENTS 715 0 $715
MARKETING AGREEMENT, net 67 0 $67
DEFERRED TAX BENEFITS 0 156 $156
-------------- ---------------- --------------- ---------------
TOTAL ASSETS $897 $1,487 $1,682 $4,066
- ------------ ============== ================ =============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
NOTES PAYABLE - stockholder $710 $0 $710
CURRENT LONG-TERM DEBT 0 503 (1) (503) $0
ACCOUNTS PAYABLE 23 488 $511
ACCRUED LIABILITIES 26 113 $139
-------------- ---------------- --------------- ---------------
TOTAL CURRENT LIABILITIES 759 1,104 (503) 1,360
LONG-TERM LIABILITIES
NOTES PAYABLE 0 60 (1) 2,502 $2,562
CAPITAL LEASE OBLIGATIONS 0 6 $6
DEFERRED TAXES 0 0 $0
SHAREHOLDER'S EQUITY
COMMON STOCK 1,031 19 (1) (19) $1,031
ADDITIONAL PAID IN CAPITAL 0 746 (1) (746) $0
RETAINED EARNINGS (893) (448) (1) 448 ($893)
-------------- ---------------- --------------- ---------------
TOTAL SHAREHOLDER'S EQUITY 138 317 (317) 138
-------------- ---------------- --------------- ---------------
TOTAL LIAB. & STOCKHOLDERS EQUITY $897 $1,487 $1,682 $4,066
- --------------------------------- ============== ================ =============== ===============
</TABLE>
Footnotes:
(1) Reflects the acquisition, issuance of debt to fund the acquisition
and the resulting goodwill from the transaction.
<PAGE> 23
UNITED SHIELDS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
USC HEATERMEALS
9 MOS. ENDED PRO FORMA PRO FORMA
9/30/97 9/30/97 ADJUSTMENTS COMBINED
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
- --------
NET SALES $0 $3,578 $0 $3,578
COST OF SALES 0 3,213 0 $3,213
-------------- ---------------- --------------- ---------------
GROSS PROFIT 0 365 0 365
OPERATING EXPENSES
- ------------------
SELLING, GENERAL & ADMIN EXP 468 1,246 (3) 81 $1,795
INCOME / (L0SS) FROM OPERATIONS (468) (881) (81) (1,430)
- -------------------------------
OTHER INCOME / (EXPENSE)
- ------------------------
INTEREST INCOME 1 0 0 $1
INTEREST EXPENSE (14) (63) (2) (178) ($255)
OTHER 0 (116) 0 ($116)
-------------- ---------------- --------------- ---------------
(13) (179) (178) (370)
EARNINGS / (LOSS) BEFORE INCOME TAXES (481) (1,060) (259) (1,800)
- -------------------------------------
INCOME TAXES 0 (21) 0 (21)
-------------- ---------------- --------------- ---------------
NET EARNINGS / (LOSS) ($481) ($1,039) ($259) ($1,779)
- --------------------- ============== ================ =============== ===============
NET INCOME / (LOSS) PER COMMON SHARE ($0.05) ($0.17)
- ------------------------------------ ============== ===============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 10,614,203 10,614,203
============== ===============
</TABLE>
Footnotes:
(2) Reflects additional interest expense resulting from the purchase of
HeaterMeals.
(3) Reflects the amortization of estimated goodwill over 15 year period.
