SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-KSB
__________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file
December 31, 1997 number 33-11062-D
UNITED SHIELDS CORPORATION
A Colorado Corporation I.R.S. Employer
Identification No. 84-1049047
655 Eden Park Drive, Suite 260, Cincinnati, Ohio 45202
Telephone Number (513) 241-7470
__________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 past 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 S-B is not contained in this
form, and no disclosure will 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]
__________________
As of April 3, 1998, the latest practicable date, 12,076,526
shares of Common Stock were outstanding. The aggregate market
value of Common Stock held by non-affiliates was approximately
$14,458,260 at that date.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the part of the Form 10-KSB into which the document
is incorporated: None.
Transitional Small Business Disclosure Format (Check one): Yes
No X
PART I.
Item 1. Description of Business.
Background, History of Company.
United Shields Corporation (the "Company") was incorporated
under the laws of the State of Colorado on October 22, 1986 under
the name O.T.C. Capital Corporation. On March 15, 1995, the name
of the Company was changed to Capital 2000, Inc. In June 1997,
the name of the Company was changed to United Shields Corporation
after the Company's acquisition of the outstanding shares of a
corporation with that name. The Company was originally formed for
the primary purpose of seeking out acquisitions of properties,
businesses, or merger candidates, without limitation as to the
nature of the business operations or geographic area of the
acquisition candidates. From inception through the date of
completion of its initial public offering of securities, the
Company's activities were directed toward the acquisition of
operating capital.
The Company completed its initial public offering in June,
1987, receiving net proceeds of $140,726 from the sale of
40,000,000 shares of the Company's common stock, $.001 par value
per share (the "Common Stock"). During 1987, most of the offering
proceeds were expended, and during February 1988, all of the
officers and directors resigned and new officers and directors
were appointed. From that date until February 1997, the Company
had virtually no assets or liabilities and no business operations.
On March 24, 1995, the Company completed a 1 for 250 reverse stock
split.
Effective February 12, 1997, the Company acquired all of the
outstanding shares of United Shields Corporation, renamed UNSC,
Inc. in June 1997 ("UNSC"), in exchange for restricted shares of
Common Stock pursuant to a Share Exchange Agreement between the
Company and UNSC. The directors and officers of UNSC became the
directors and officers of the Company.
Effective November 14, 1997, the Company acquired all of the
outstanding common stock of The HeaterMeals Company
("HeaterMeals"), an Ohio-based firm which specializes in the
research, development, manufacturing and marketing of portable
electrochemical heaters and their incorporation in packaged food
products. The principal assets of HeaterMeals included inventory,
accounts receivable, equipment, licenses for patent rights to
produce portable electrochemical heaters, prepaid expenses and tax
refunds and cash. The total consideration for the acquisition
consisted of $2,000,000 in cash plus repayment of $576,763 in
indebtedness of HeaterMeals, which was provided by loans from
NAVICAP Corporation, fka Ramsay-Hughes, Inc. ("NAVICAP").
The Company acquired all of the outstanding common stock of
R.P. Industries, Inc. ("R.P.I.") through the merger of R.P.I. into
a wholly-owned subsidiary of the Company, with an accounting
effective date of December 31, 1997. R.P.I. is engaged in the
manufacture and sale of custom injection molded plastic products,
and it owns two manufacturing facilities (and related plant and
equipment). The total consideration for the acquisition consisted
of (i) $6,100,000.00 in cash and (ii) 993,384 shares of the
Company's common stock. The cash portion of the purchase price
was provided as follows: (i) loans from NAVICAP to the Company in
the principal amount of $350,000.00, (ii) a loan from First Union
National Bank to R.P.I. in the principal amount of $4,551,000.00,
(iii) proceeds from a private placement of common stock of the
Company in the amount of $762,037.00 and (iv) proceeds from the
sale/leaseback of equipment between HeaterMeals and Information
Leasing Corporation in the approximate amount of $438,000.00. In
connection with the sale/leaseback transaction, the Company issued
to Information Leasing Corporation a warrant to purchase 250,000
shares of the Company's common stock at a purchase price of $4.00
per share exercisable at any time on or before December 31, 2007.
In addition, on March 13, 1998, the Company entered into a
letter of intent to purchase a Massachusetts-based plastic
injection molding company for an aggregate purchase price of
$10,000,000. If consummated, the acquisition would result in the
Company owning a 60,000 square foot facility designed and built
specifically for injection molding and mold making. The company
to be acquired had revenues of approximately $5,000,000 during
1997 and supplies such industries as the medical, automotive,
computer, recording and telephone industries.
On April 3, 1998, the Company entered into a letter of intent
to purchase a New Jersey-based plastic injection molding company
for an aggregate purchase price of approximately $40,000,000 in
cash and stock. The company to be acquired had revenues of
approximately $50,000,000 during 1997.
Growth Strategy
The Company intends to continue to identify and evaluate
other potential acquisition candidates in the injection molding
industry whose products and services could benefit the operations
of the Company. The Company plans to become a fully integrated
injection molding provider, acquiring companies with the capacity
to provide a full range of injection molding products and services
with a concentration in high growth segments of the plastics
industry. Management believes this will provide the Company with
a strategic advantage over its competitors. By utilizing the
various capacities of each of its facilities, the Company's goal
is to provide a one-stop source to meet all of its customers'
injection molding needs. However, there can be no assurance that
the Company will be successful in consummating the acquisition of
candidates or in integrating acquired companies, nor in the
successful implementation of its strategic plans.
Business Overview
The Company is engaged in business utilizing various
injection molding plastics technologies. The Company's latest
acquisition, RPI, through two of its subsidiaries, Richmond
Plastics, Inc. ("Richmond Plastics") and Windmill Investments,
Inc. d.b.a. Granville Plastics ("Granville Plastics"), engages
primarily in the business of injection molded plastics
manufacturing. Richmond Plastics manufactures component parts and
finished products primarily for original equipment manufacturers
in the southeast and mid-Atlantic regions, operating 15 to 20
molding machines ranging from 75 tons to 700 tons of clamp
pressure. Granville Plastics operates between 20 and 25 machines
ranging from 22 tons to 300 tons of clamp pressure, and serves
markets in Indiana, Illinois and Canada. Secondary operations
include hot stamping, sonic welding, pad printing, chemical
bonding, heat transfer decal application, spray painting, drilling
and assembly.
HeaterMeals manufactures and markets portable electrochemical
heating devices and a line of shelf-stable meals with a patented
self-heating device. The self-heating device is comprised of
metallic alloy powder embedded with plastic which generates heat
when activated by water, but is flameless, non-toxic and flexible
in design. Since 1990, the Company has sold over 80 million
flameless ration heaters ("FRH") to government contractors which
incorporate the FRH into Meals-Ready-to-Eat, or MRE's, for the
United States military. Since 1996, the Company has sold over 1.2
million shelf-stable meals under the trademark "HeaterMeals"(R).
HeaterMeals(R) is an assortment of breakfast and dinner entrees
packaged with the patented self-heating device, utensil pack and
water activation pouch, distributed to truckstops throughout the
United States, approximately 1200 grocery stores located in
Kentucky, Ohio, Indiana and Michigan and various specialty retail
outlets and catalogues. The Company intends to expand its
marketing and sales of the HeaterMeals(R) brand by broadening the
geographic distribution of the products, creating new meals for
new target audiences where the convenience of the self-heating
feature is important, developing direct marketing opportunities,
and exploiting the self-heating technology in other commercial
categories.
UNSC holds marketing rights for a patented collapsible
plastic bottle (the "Bottle"). When empty, the Bottle folds into
a compressible flat package approximately four inches by five
inches by two inches; when filled with liquid, the compressed
plastic Bottle expands as filled and remains semi-rigid, standing
on its own. The Company is exploring commercial uses for the
Bottle, including for retail/consumer sale of water and water-based beverages
and pre-packed powdered instant drink mixes.
However, on March 26, 1998, the Company received notice from the
licensor of the Bottle, In-Flo Liquid Dispensing Corporation ("In-Flo") that
the Company was in default of its agreement providing
marketing rights to the Bottle as a result of the Company's
failure to purchase any Bottles as of January 31, 1998. In-Flo
has asserted that it has a right to terminate its agreement with
the Company and demand liquidated damages in the amount of CDN
$3,225,000 (approximately U.S. $2,206,000). The Company disagrees
with In-Flo's interpretation of the agreement. In-Flo has stated
that it is not their intent to demand liquidated damages as the
parties are currently discussing amending the agreement.
Employees. As of December 31, 1997, the Company had 5
employees, all of whom were full-time employees. As of such date,
HeaterMeals had an additional 48 employees, of whom 30 employees
were full-time. As of such date, RPI had an additional 125
employees, of whom 124 employees were full-time.
Patents. HeaterMeals is the owner of a patent for an
exothermic heater device for wrapping around a pipe joint. The
patent covers the use of a liquid activated exothermic heater
within a liquid impervious flexible envelope configured to wrap
around a pipe joint to heat and accelerate the cure of an epoxy
adhesive around the joint. When appropriately wrapped around a
pipe joint, water (or other liquid) is poured into the envelope to
activate the heating material. The patent requires the use of an
elongated pressure sensitive adhesive strip with a removable
protective cover for securing the envelope to the pipe joint.
This patent will expire on May 16, 2014.
HeaterMeals also is the licensee of a patent for a flexible
electrochemical heater in the form of a composite structure that
includes a supercorroding metallic alloy powder dispersed in
porous matrix. The license is a worldwide exclusive license in
commercial (non-military) market. Non-commercial market rights
are subject to reservation of rights of University of Cincinnati
for its personnel and students under direct administrative control
of university, and subject to rights of U.S. Navy and other U.S.
governmental agencies for government use and contracts with U.S.
Navy and other U.S. governmental agencies. Countries covered by
the license include Japan, Austria, Belgium, France, Italy,
Lichtenstein, Luxembourg, Netherlands, Sweden, Switzerland, United
Kingdom, German Federal Republic, and Canada. The license will
expire November 3, 2003.
The Bottle and bottle processing equipment are protected by
patents in the United States, Canada, France, Spain, Austria,
Germany, Switzerland, Belgium, Sweden, Great Britain and
Australia. The patents will expire in approximately 12-15 years.
Trademarks. Except for HeaterMeals (R) which is registered
with the U.S. Patent and Trademark Office, the Company's
trademarked names have not yet been formally registered. It is
the Company's intention to claim a trademark on certain names
under common law by using the "TM" symbol. The duration of such
trademarks under common law is the length of time the Company
continues to use them.
Competition. With respect to RPI, the Company competes with
hundreds of plastics injection molders throughout its sales
territories, including in some cases the Company's own customers
which maintain or elect to develop molding capabilities in-house.
With respect to HeaterMeals and UNSC, the Company believes
its products are different from those which currently exist in the
marketplace because of the incorporation of its plastics
technologies into its products, including the FRH used in
HeaterMeals' products and the Bottles. Further, the Company is
protected by certain patents and license rights. Consequently, the
Company believes it currently has no specific competitors with
respect to its products. To the extent its products are to be sold
in the food and beverage industry, that industry is highly
competitive and is dominated by many competitors who are
substantially larger and have greater financial resources than the
Company. In addition, the Company will compete with numerous
manufacturers of water and beverage products for extremely limited
grocery shelf space.
Item 2. Properties.
The Company through its wholly-owned subsidiary, RPI, owns
manufacturing facilities in Chester, Virginia and the Durham,
North Carolina area. Each such facility is encumbered by a
mortgage in favor of First Union National Bank. The Company
through its wholly-owned subsidiary, HeaterMeals, also leases its
facility in Cincinnati, Ohio. Additionally, the Company leases its
executive office located in Cincinnati, Ohio.
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The following table sets forth, for the periods indicated,
the high and low bid price for the Common Stock for the quarters
indicated as reported on the OTC Bulletin Board. The high and low
bid prices were taken from the OTC Monthly Trading Summary for the
Company, supplied by Trading & Market Services, The Nasdaq Stock
Market, Inc. The common stock did not trade in the first two
quarters of 1996.
1996 1997
--------------------- ------------------
High Low High Low
------ ------ ------ -------
First Quarter -- -- $4.00 $0.75
Second Quarter -- -- 3.75 2.00
Third Quarter $1.00 $0.75 4.125 2.6875
Fourth Quarter 1.00 0.75 4.625 3.25
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As of April 3, 1998, the Company had approximately 213
shareholders of record.
The Company has never paid a cash dividend on the Common
Stock and does not expect to pay a cash dividend in the
foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of
Operations.
The following description of "Management's Plan of Operation"
constitutes forward- looking statements for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as
amended, and as such involves known and unknown risks,
uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be
materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements. The words "expect," "estimate," "anticipate,"
"predict," and similar expressions are intended to identify
forward-looking statements. Important factors that could cause the
actual results, performance or achievement of the Company to
differ materially from the Company's expectations include the
following: 1) one or more of the assumptions or other factors
discussed in connection with particular forward-looking statements
prove not to be accurate; 2) the Company is unsuccessful in
increasing sales through its anticipated marketing efforts; 3)
mistakes in cost estimates and cost overruns; 4) the Company's
inability to obtain financing for one or more acquisitions and/or
for general operations including the marketing of the Bottle and
the Company's other products; 5) the Company's inability to
establish a successful alliance with a major marketer to the
supermarket and convenience store markets; 6) the Company's
inability to obtain significant shelf space in supermarkets and
convenience stores due to competition for space by all food
products, requirements to sell through specific distributors,
commission or other rate structures which prevent the Company from
achieving adequate profit margins and other similar factors; 7)
non-acceptance of one or more products of the Company in the
marketplace due to costs or other reasons; 8) the Company's
inability to supply any product to meet market demand; 9)
generally unfavorable economic conditions which would adversely
effect purchasing decisions by retailers or consumers; 10)
development of a similar competing product with the Bottle and/or
HeaterMeals (R) which is not an infringement of any of the patents
pertaining to those products; 11) inability of the owner of any of
the patents to protect against infringement; 12) the inability to
successfully integrate one or more acquisitions with the Company's
operations (including the inability to successfully integrate
several acquisitions at the same time, integrate businesses which
may be diverse as to type of business, geographic area, or
customer base and the diversion of management's attention among
several acquired businesses) without substantial costs, delays or
other problems; 13) if the Company experiences labor and/or
employment problems such as work stoppages, inability to hire
and/or retain competent personnel, etc.; 14) a shortage in the
supply of significant raw materials, such as resin and magnesium,
which would significantly increase the cost of goods sold; and 15)
if the Company experiences unanticipated problems (including but
not limited to accidents, fires, acts of God, etc.), or is
adversely affected by problems of its suppliers, shippers,
customers or others. All written or oral forward-looking
statements attributable to the Company are expressly qualified in
their entirety by such factors.
The Company intends to operate as a holding and marketing
company, acquiring operating companies engaged in blow molding and
injection molding plastics businesses in a range of press
capacities from 20 ton to 3000 ton clamp pressure, providing a
fully integrated company which can provide its customers with
"one-stop shopping" for their blow molding and injection molding
needs. Additionally, the Company intends to further develop its
existing food and beverage packaging business. The Company is
seeking potential acquisition candidates involved in blow molding
and injection molding plastics manufacturing, production,
packaging, and distribution that will complement the Company's
business and increase the Company's asset and revenue base.
Management expects that it is possible that in the first two
quarters of 1998 the Company will enter into letters of intent to
acquire some of those companies. Acquisitions may involve a number
of risks some of which could have a material adverse effect on the
Company's operations and financial results including, without
limitation, the ability to successfully integrate several
acquisitions at the same time (if the Company is able to acquire
several companies within a short period of time); the ability to
integrate businesses which may be diverse as to type of business,
geographic area, or customer base; the diversion of management's
attention among acquired businesses and in seeking additional
acquisition opportunities; dependence on retaining, hiring and
training key personnel; and adverse short-term effects on
operating results and amortization of acquired intangible assets.
There can be no assurance that the Company will be successful in
consummating the acquisition of candidates or in integrating
acquired businesses.
Plastics Division
The Plastics Division is currently comprised of RPI. The
Company has operations in Chester, Virginia and Oxford, North
Carolina, with approximately 40 molding machines ranging in
capacity from 22 tons to 700 tons of clamp pressure. The Company
manufactures component parts and finished products primarily for
original equipment manufacturers in the southeast and mid-Atlantic
regions and markets in Indiana, Illinois and Canada. Secondary
operations include hot stamping, sonic welding, pad printing,
chemical bonding, heat transfer decal application, spray painting,
drilling and assembly.
The Company intends to continue acquiring operating companies
engaged blow molding and injection molding plastics businesses in
an effort to create a fully integrated company which can provide
its customers with "one-stop shopping" for their blow molding and
injection molding needs. The Company expects to target
financially sound acquisition candidates that have developed a
unique process, design or product within the blow molding and
injection molding industry. The Company believes that
consolidation within such industry will occur as a result of what
it believes is a trend of customers desiring to reduce the number
of vendors they use. As the Company increases its holdings within
the industry, it believes it will benefit from the ability to
adequately service a broad range of blow molding and injection
molding needs, thereby providing customers with an option not
currently readily available within the industry. Additionally, by
targeting acquisition candidates with a unique process, design or
product, the Company believes it will be able to offer a unique
range of plastics blow molding and injection molding services not
currently available.
Food and Beverage Packaging
HeaterMeals manufactures and markets portable electrochemical
heating devices and a line of shelf-stable meals with a patented
self-heating device. The self-heating device is comprised of
metallic alloy powder embedded with plastic which generates heat
when activated by water, but is flameless, non-toxic and flexible
in design. Since 1990, the Company has sold over 80 million
flameless ration heaters ("FRH") to government contractors which
incorporate the FRH into Meals-Ready-to-Eat, or MRE's, for the
United States military. Since 1996, the Company has sold over 1.2
million shelf-stable meals under the trademark "HeaterMeals"(R).
HeaterMeals(R) is an assortment of breakfast and dinner entrees
packaged with the patented self-heating device, utensil pack and
water activation pouch, distributed to truckstops throught the
United States, approximately 1200 grocery stores located in
Kentucky, Ohio, Indiana and Michigan and various specialty retail
outlets and catalogues. The Company intends to expand its
marketing and sales of the HeaterMeals(R) brand by broadening the
geographic distribution of the products, creating new meals for
new target audiences where the convenience of the self-heating
feature is important, developing direct marketing opportunities,
and exploiting the self-heating technology in other commercial
categories.
Although not the only contemplated use for the Company's
collapsible Bottle, the Company, through UNSC, owns marketing
rights for the Bottle for retail/consumer sale of water and water-based
beverages and pre-packed powdered instant drink mixes. The
Bottle can be shipped and stored in its collapsible state and
water or other liquids can be added manually, without the use of
special equipment. The Company believes that the convenience of
being able to add liquids to the Bottle at any stage in the sales
and distribution chain will enable the Company to market the
Bottle for a variety of uses. The Company believes that in
addition to uses within the food and beverage industry, the Bottle
may provide the medical industry with a clean, safe and
inexpensive alternative to glass containers.
Results of Operations
The following is a discussion of the results of operations
for the year ended December 31, 1997, compared with the year ended
December 31, 1996, and changes in financial condition during the
year ended December 31, 1997.
On November 14, 1997 the Company purchased all the
outstanding stock of The HeaterMeals Company. The Company paid
$2,000,000 cash and paid off bank debt of $576,763.00.
On December 31, 1997 the Company acquired all the outstanding
stock of R.P. Industries, Inc. through a forward merger with R.P.
Industries of Ohio, Inc. a wholly owned subsidiary of the Company.
The Company paid $6,100,000 cash and issued 993,384 shares of
common stock of the Company.
Net sales for fiscal year 1997 were $632,664, which compares
to zero sales for fiscal 1996. The Company did not own any
revenue producing companies in fiscal 1996. The HeaterMeals
Company from November 1, 1997 through December 31, 1997 produced
all fiscal 1997 sales. The net loss in fiscal 1997 was
($1,595,833) which significantly exceeds the net loss of fiscal
1996 of ($371,237). The fiscal 1997 net loss was due to:
increased selling, general and administrative expenses of
$1,412,093 and The HeaterMeals Company net loss of ($110,996) for
the period of November 1, 1997 through December 31, 1997.
Fiscal 1997 costs of sales were $572,333, which compares to
zero costs of sales for fiscal 1996. All of fiscal 1997 cost of
sales were incurred by The HeaterMeals Company for the period
November 1, 1997 through December 31, 1997.
In fiscal 1997 the company incurred net interest of $74,287
compared with net interest expense of $8,705 for fiscal 1996. The
company incurred a significant amount of borrowing to acquire The
HeaterMeals Company, November 14, 1997, which led to the net
increase in interest expense for 1997.
The tax rates for the year 1997 and the year 1996 are zero
due to a net loss in each year.
The total current assets of the Company were $3,583,363 at
December 31, 1997, an increase of $3,576,301 compared to $7,062 at
December 31, 1996. Working capital was $803,413 as of December
31, 1997, compared with ($298,056) as of December 31, 1996. These
changes are due to the acquisition of The HeaterMeals Company and
R.P. Industries, Inc.
Total assets of the company increased by $15,674,933 from
$88,729 at December 31, 1996 to $15,763,662 at December 31, 1997.
This increase is attributable to: investment in potential
acquisitions of $540,000 and the acquisition of The HeaterMeals
Company and R.P. Industries, Inc.
The total current liabilities of the Company were $2,779,950
at December 31, 1997, up $2,472,832 compared to $305,118 at
December 31, 1996. Long term liabilities were $9,044,333 at
December 31, 1997 compared to zero at December 31, 1996. The
current and long term liabilities increases are attributable to:
debt incurred in order to finance the acquisitions of The
HeaterMeals Company and R.P. Industries, Inc. and the liabilities
assumed in these acquisitions.
Total stockholders' equity increased by $4,155,768 during the
year ended December 31, 1997. The Company is currently involved
in a private placement of the Company's common stock and as of
December 31, 1997, the net proceeds received were $1,095,631. The
Company issued or will issue 546,152 shares of common stock
through the private placement as of December 31, 1997. The
Company also issued or will issue 1,133,384 shares of common stock
for completed and potential acquisitions. The Company is
evaluating various financing options, including issuing debt and
equity to finance future acquisitions.
On April 10, 1998, the Company and First Union National Bank
amended the Revolving Credit and Security Agreement, dated
December 30, 1997, pursuant to which the bank waived the Company's
breach of certain financial covenants.
Financing Management's Plan of Operation
The Company has borrowed funds from NAVICAP to finance
ongoing operations while the Company is seeking acquisition
candidates and pursuing the necessary financing to complete those
acquisitions. NAVICAP is a Cincinnati-based merchant banking firm
which invests in various companies, including the Company. NAVICAP
currently owns 1,274,220 shares of Common Stock of the Company.
In addition, the directors and officers of NAVICAP own 243,270
shares of Common Stock. The Company borrowed $85,000 from NAVICAP
on December 12, 1995 pursuant to a promissory note, which was due
and payable on March 31, 1997, and bears interest at the rate of
8% per annum. As of December 31, 1997, the principal balance due
to NAVICAP on this note was $63,318.70. As of the date hereof,
NAVICAP has not made a demand for payment. On May 22, 1997, the
Company signed an open-ended promissory note with NAVICAP to
borrow up to $3,000,000, with interest at 12% per annum, due on or
before September 24, 1997. On December 1, 1997, the Company and
NAVICAP amended this note to increase the principal amount to
$3,500,000 and to make the note payable on demand. On December
31, 1997, the Company and NAVICAP amended and restated the note to
permit the Company to borrow up to $4 million from NAVICAP. On
March 30, 1998, the Company and NAVICAP again amended the note to
provide for a maturity date of September 30, 1999, but NAVICAP
reserved the right to call the note in the event that the Company
receives third-party funding or has free cash flow in excess of
$50,000, in which case NAVICAP may call the note to the extent of
an amount equal to 80% of the third-party funding or free cash
flow. The note bears interest at 12% per annum. This note has
been secured by the pledge by Mr. T. J. Tully and certain of his
family members of 3,000,000 shares of Common Stock. In connection
with the note, the Company has granted NAVICAP a warrant to
purchase 500,000 shares at an exercise price of $4.00 per share,
exercisable at any time up to March 30, 2003. As of March 11,
1998, the principal due under the open-ended note was
$3,386,181.29. The total interest due NAVICAP, including under
both promissory notes, as of March 11, 1998, was $169,313.10. In
addition, NAVICAP has advised the Company that it may continue to
loan funds against the open-ended promissory note for the purpose
of completing additional acquisitions.
The Company is currently seeking a combination of debt and
equity financing to complete additional acquisitions and provide
needed working capital. It has entered into a non-binding letter
agreement with a large Phoenix-based lending institution, whereby
the Company expressed its intent to submit potential acquisitions
for the lending institution's consideration and the lending
institution agreed to consider providing up to $50 million in
acquisition financing. There is no assurance that the Company
will be successful in obtaining any such financing.
Item 7. Financial Statements.
The consolidated financial statements for the year ended
December 31, 1997 are included in this Report on Form 10-KSB in
their entirety immediately following the signature pages hereto.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers
The following individuals serve as the Company's directors
and executive officers:
Thomas J. Tully, age 68, Mr. Tully has been a director,
Chairman and Chief Executive officer of the Company since February
12, 1997. In 1993, Mr. Tully founded the Company's subsidiary,
UNSC, Inc. (formerly Health United Shields, Inc.) and has served
as its Chief Executive Officer since inception. From 1985 to
1993, Mr. Tully served as president and owner of American
Marketing/Financial Industries, Inc., a marketing firm. Prior to
this, Mr. Tully served as president of Sperti Drug Co., Inc.,
vice president of Corporate Development for Trans Union
Corporation, and president/equity owner of International
Agricultural Corporation, a joint venture with three Fortune 500
companies to establish agricultural operations in the Middle East
and Far East.
Donald T. Zimmerman, Jr., age 44, has been Executive Vice
President and Chief Operating Officer of the Company since
January 1998. From 1996 until January 1998, Mr. Zimmerman
served as a marketing consultant. From 1983 through 1996, Mr.
Zimmerman served in various capacities at the Andrew Jergens
Company, with his last position being Senior Vice President. Mr.
Zimmerman is also President of The HeaterMeals Company, a wholly
owned subsidiary of the Company.
Beverley R. Gill, age 48, has been Chief Financial Officer
and Treasurer of the Company since July 15, 1997. From October
1996 through June 1997, Mr. Gill served as a personal business
consultant for Newman Co., a private investment firm. From 1984
through 1996, Mr. Gill was controller of The Cincinnati Concrete
Pipe Company. Mr. Gill is also Vice President of R.P. Industries,
Inc. and Vice President, Secretary and Treasurer of The
HeaterMeals Company, each a wholly owned subsidiary of the
Company.
Granville G. Valentine III, age 43, has been Senior Vice
President of the Company since December 1997. Mr. Valentine had
been an officer of R.P. Industries, Inc., including serving as
President and Chief Executive Officer, from July 1993 until the
Company completed its acquisition of that subsidiary in January
1998. Mr. Valentine was employed by James River Corporation from
1978 until July 1993. Mr. Valentine is also President and Chief
Executive Officer of R.P. Industries of Ohio, Inc., a wholly owned
subsidiary of the Company.
Richard Hughes, age 51, has been President of the Company
since July 15, 1997. From 1990 to 1997, he served as the
superintendent of public schools in Montgomery County, Kentucky.
Currently, he is a director NAVICAP. Mr. Hughes is the father of
Rick Hughes, a principal, director and officer of NAVICAP, which
owns beneficially approximately 12.7% of the outstanding common
stock of the Company (including approximately 2.2% which is owned
individually by the directors and executive officers of NAVICAP).
Edward L. Bonin, age 52, has been the Vice President of
Engineering and Quality Control since July 15, 1997. Mr. Bonin is
currently the Vice President and Production Manager of Master
Molders, Inc. and has been employed by Master Molders since 1995.
From 1993 to 1995, Mr. Bonin was a consultant in the plastics
industry. From 1984 to 1993, Mr. Bonin served as the Vice
President of Operations of Nepco, Inc., a proprietary molder of
single use closures and containers for the dairy industry. Mr.
Bonin has 33 years of experience in the plastics industry.
William Smetana, age 49, has been the Vice President of
Production since July 15, 1997. He is also currently the
President of Master Molders, Inc., which position he has held
since 1995. From 1992 to 1995, he was project manager of Mexican
operations for Pacific Coast Mills, Co. Los Angeles.
Anthony G. Covatta, age 53, has been a director of the
Company since February 1997. Mr. Covatta has been a partner in
the law firm of Drew & Ward in Cincinnati, Ohio since February 17,
1997. Drew & Ward provides legal services to the Company. Mr.
Covatta was a partner in the law firm of Benesch, Friedlander,
Coplan & Aronoff from 1994 to 1997, and a member of the law firm
of Graydon, Head & Ritchey from 1985 to 1994.
Section 16(a) Beneficial Ownership Reporting Compliance
Not applicable.
Item 10. Executive Compensation.
Summary
The following table summarizes, for the fiscal years
indicated, all annual compensation earned by or granted to the
Company's Chief Executive Officer and all executive officers whose
compensation exceeded $100,000 for all services rendered to the
Company in all capacities during the last fiscal year:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
--------------------
Annual Compensation Awards Payouts
---------------------- -------- ---------
Other
Name and Annual Restricted Securities All Other
Principal Compen- Stock Underlying LTIP Compen-
Position Year Salary sation Award(s) Options Payouts sation
- -------- ---- ------ ------ ------- ------- ------- ------
Thomas J. 1997 $70,000 -- -- -- -- --
Tully, 1996 -- -- -- -- -- --
Chairman 1995 -- -- -- -- -- --
and Chief
Executive
Officer
Director Compensation
Directors of the Company are not entitled to compensation.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information with respect to
the beneficial ownership of shares of all classes of the Company's
voting securities as of April 3, 1998 of each executive officer,
each director, and each stockholder known to be the beneficial
owner of 5% or more of any class of the Company's voting
securities and all officers and directors as a group.
Amount and
Title of Class Name and Address of Nature of Percent of
- -------------- Benefical Owner Beneficial Class
-------------------- Owner ----------
----------
Common Stock Thomas J. Tully,
Chairman and Chief
Executive Officer 2,453,186 1 20.3%
Common Stock Donald T.
Zimmerman, Jr.,
Executive Vice
President and Chief
Operating Officer 75,000 0.6%
Common Stock Beverley R. Gill,
Treasurer -- --
Common Stock Granville G. Valentine,
Senior Vice President 102,024 2 0.8%
Common Stock Richard Hughes 1,530,029 3 12.7%
Common Stock Edward L. Bonin 28,000 0.2%
Common Stock William Smetana 112,000 0.9%
Common Stock Anthony G. Covatta 10,176 0.08%
Common Stock NAVICAP 1,530,029 3 12.7%
Common Stock Gay N. Tully 2,453,186 1 20.3%
Common Stock Andrew T. Tully 1,112,205 9.2%
Common Stock Nola E. Tully 1,112,205 9.2%
Common Stock James F. Tully 1,926,886 16.0%
________________________
1 Includes 1,340,981 shares owned by Mr. Tully, and 1,112,205
shares of Gay N. Tully
2 Includes 67,124 shares issued and outstanding and options to
purchase an additional 30,000 shares.
3 Includes 1,274,220 shares owned by NAVICAP, 76,320 shares
owned by John Ramsay, 101,760 shares owned by Rick Hughes and
65,190 shares beneficially owned by Greg Pitner, each directors,
officers, and shareholders of NAVICAP, and an additional 12,539
shares owned by employees and other affiliates of NAVICAP.
Item 12. Certain Relationships and Certain Transactions.
As of March 11, 1998, the Company was indebted in the amount
of $3,555,494.30 in principal and interest to NAVICAP. Mr.
Richard Hughes is both President of the Company and a director and
27.2% shareholder of NAVICAP. Mr. Anthony G. Covatta, a director
and shareholder of the Company, is also a director and shareholder
of NAVICAP.
In addition, Mr. Covatta's law firm Drew & Ward, serves in
various capacities as legal counsel for the Company.
Messrs. Edward L. Bonin and William Smetana are each officers
of Master Molders, Inc., which company is currently a party to an
acquisition agreement between it and the Company.
UNSC acquired the rights to the Bottle by assignment from
Diverse Products Incorporated ("Diverse"). As consideration for
the assignment, Subsidiary agreed to pay to Diverse $250,000 which
was amended to $0.05 for each Bottle sold by or through UNSC with
a maximum of $250,000. The consideration was subsequently reduced
to $0.04 for each Bottle sold by or through UNSC with a maximum of
$200,000. In consideration for this reduction, the Company agreed
to prepay (on behalf of UNSC) $40,000 of the $200,000 total,
payable at the rate of $5,000 per month for eight months beginning
on July 30, 1997. The Company completed payment of the entire
$40,000 in February 1998. Mr. T.J. Tully and his brother, Mr.
James F. Tully, are the sole shareholders, directors and officers
of Diverse. T.J. Tully is a director, Chairman of the Board, CEO
and stockholder of the Company; James F. Tully is a stockholder of
the Company.
As previously reported, the Company has entered into a
definitive agreement to acquire all outstanding stock of Master
Molders, Inc. ("Master Molders"), a South Carolina-based
manufacturer of plastic industrial parts, pursuant to a merger
with a wholly-owned subsidiary of the Company. Upon execution of
the agreement, the Company paid a deposit of $25,000 to Master
Molders and issued 140,000 shares of its Common Stock to
shareholders of Master Molders. The closing date of the merger,
which was to occur on or before December 12, 1997, was extended to
January 31, 1998 by mutual agreement of the parties. In exchange
for this extension, the Company loaned Master Molders an
additional $65,000 on an interest-free basis. The parties
intended that the cash loaned to Master Molders would be credited
against the purchase price upon closing. However, the parties
have been unable to agree on an additional extension on terms
satisfactory to both parties. The Company has informed Master
Molders that it believes that Master Molders has suffered a
material adverse change as a result of the loss of a major
customer, which material adverse change constitutes a condition to
the Company's obligation to close. Master Molders has informed
the Company that it believes the Company has defaulted under the
definitive agreement because of its failure to close prior to
January 31, 1998, and that Master Molders intends to retain both
the amounts loaned to Master Molders and the shares issued to its
shareholders. The Company believes that both the amounts loaned
and the shares should be returned to the Company under the
definitive agreement. The Company is currently considering its
response in an effort to reach a resolution of this dispute.
Mr. Richard Hughes has been paid a one-time bonus of $79,000
in consideration of his employment as President of the Company.
PART IV.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Sequentially
Number Description of Exhibit Numbered Page
3.1 Articles of Incorporation of Registrant, including
subsequent updates
Note (a)
3.2 Bylaws of Registrant
10.1 Sales Agreement between In-Flo Liquid Dispensing (c)
Corporation and Diverse Products Incorporated
dated May 5, 1995
10.2 Assignment of Sales Agreement between Diverse (c)
products Incorporated and Health Shields
Corporation dated May 9, 1995
10.3 Assignment of Sales Agreement between Inflo-Liquid (c)
Dispensing Corporation and Inflo North America
Limited dated January 22, 1996
10.4 Addendum to Assignment of Sales Agreement between (c)
Diverse Products Incorporated and Health Shields
Corporation dated August 8, 1996
10.5 Amending Agreement between Inflo North America (c)
Limited and Health Shields Incorporated dated
February 1, 1996
10.6 Second Addendum to Assignment of Sales Agreement (c)
between Diverse Products Incorporated and USC
dated April 10, 1997
10.7 Promissory Note of USC dated December 12, 1995 (c)
in favor of Ramsay-Hughes, Inc.
10.8 Letter of Ramsay-Hughes, Inc. dated December 1, (c)
1996 extending Promissory Note dated
December 12, 1995
10.9 Promissory Note of USC dated December 1, 1996 (c)
in favor of Ramsay-Hughes, Inc.
10.10 Agreement and Plan of Share Exchange by and (d)
between The HeaterMeals Company and United
Shields Corporation dated September 12, 1997
10.11 Merger Agreement by and among R.P. Industries, (e)
Inc. and United Shields Corporation and its
wholly owned subsidiary dated October 22, 1997
10.12 Third Addendum to Assignment of Sales Agreement (f)
dated as of July 29, 1997 between Diverse
Products Incorporated and United Shields
Corporation (Subsidiary)
10.13 Promissory Note of the Company dated May 22, (g)
1997 in favor of Ramsay-Hughes, Inc.
10.14 Stock Pledge Agreement dated May 29, 1997 (g)
between T.J. Tully and Ramsay-Hughes, Inc.
10.15 Stock Pledge Agreement dated May 29, 1997 (g)
between James F. Tully and Ramsay-Hughes, Inc.
10.16 Stock Pledge Agreement dated May 29, 1997 (g)
between Gay N. Tully and Ramsay-Hughes, Inc.
10.17 Agreement dated August 7, 1997 between Master (g)
Molders, Inc. and the Company
10.18 Management Agreement dated August 7, 1997 (g)
between Master Molders, Inc. and the Company
10.19 Share Exchange Agreement by and between (h)
Capital 2000, Inc. and United Shields
Corporation dated February 12, 1997
10.20 Sale and Leaseback Agreement dated as of (i)
December 29, 1997 between The HeaterMeals
Company and Information Leasing Corporation
10.21 Lease Agreement dated as of December 29, 1997 (i)
between The HeaterMeals Company and Information
Leasing Corporation
10.22 Unconditional Guaranty dated December 29, 1997 (i)
by United Shields Corporation to Information
Leasing Corporation
10.23 Subordination Agreement dated as of December 29, (i)
1997 by and between The HeaterMeals Company,
United Shields Corporation, Information Leasing
Corporation and Ramsay-Hughes, Inc.
10.24 Warrant to Purchase Common Stock of United Shields (i)
Corporation dated December 29, 1997 issued to
Information Leasing Corporation
10.25 Registration Rights Agreement dated December 29, (i)
1997 between United Shields Corporation and
Information Leasing Corporation
10.26 Revolving Credit and Security Agreement dated (i)
December 30, 1997 by and among R.P. Industries
of Ohio, Inc., United Shields Corporation,
Furniture Plastics of Forest City, Inc., Granville
Plastics Company, Inc., R.P. Enterprises, Inc.,
Richmond Plastics, Inc., R.P. Real Estate, Inc.
and First Union National Bank
10.27 Environmental Liabilities Agreement dated December (i)
30, 1997 by and among R.P. Industries of Ohio, Inc.
and First Union National Bank
10.28 Environmental Liabilities Agreement dated December (i)
30, 1997 by and among Granville Plastics, Inc. and
First Union National Bank
10.29 Pledge Agreement dated December 30, 1997 by and (i)
among R.P. Industries of Ohio, Inc., United Shields
Corporation, Furniture Plastics of Forest City,
Inc., Granville Plastics Company, Inc., R.P.
Enterprises, Inc., Richmond Plastics, Inc., R.P.
Real Estate, Inc. and First Union National Bank
10.30 Revolving Promissory Note dated December 30, 1997 (i)
from R.P. Industries of Ohio, Inc. to First Union
National Bank
10.31 Credit Line Deed of Trust and Assignment of Rents (i)
by R.P. Industries of Ohio, Inc. to First Union
National Bank
10.32 Deed of Trust and Assignment of Rents by Granville (i)
Plastics Company, Inc. to First Union National Bank
10.33 Letter agreement dated December 11, 1997 between (i)
United Shields Corporation and Master Molders, Inc.
10.34 Promissory Note dated December 18, 1997 from Master (i)
Molders, Inc. to United Shields Corporation
10.35 Amended and Restated Promissory Note dated December (i)
29, 1997 from United Shields Corporation to NAVICAP
Corporation
10.36 Letter agreement dated January 6, 1998 between (i)
United Shields Corporation and Donald T. Zimmerman
21 Subsidiaries of Registrant
24 Powers of Attorney Note (b)
27 Financial Data Schedule
NOTE REFERENCE:
(a) Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 22-11062-D and Exhibits
3.1(a) and (b) to the Company's Form 10-K for the year ended
December 31, 1995.
(b) Contained on the first page of the signature pages
contained in this report.
(c) Incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996.
(d) Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed November 26, 1997.
(e) Incorporated by reference to Exhibit 2.3 to the
Company's Form 8-K filed October 31, 1997.
(f) Incorporated by reference to Exhibit 10.3 to the
Company's Form 8-K filed August 22, 1997.
(g) Incorporated by reference to Exhibit 10(i) to the
Company's Form 10-QSB for the period ended June 30, 1997.
(h) Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed April 1, 1997.
(i) Incorporated by reference to Exhibits 99.1 through
99.17 to the Company's Form 8-K filed January 20, 1998.
(b) Reports on Form 8-K
On November 5, 1997, the Company filed a Current Report on
Form 8-K in which it reported that it had issued a press release
pursuant to the Rule 135c safe harbor provisions for reporting
issuers announcing that it proposed to make an unregistered
offering of up to 2,000,000 shares of its common stock at a price
of $4.00 per share.
On November 26, 1997, the Company filed a Current Report on
Form 8-K in which it reported that it had acquired all of the
outstanding common stock of The HeaterMeals Company for a total of
$2,000,000 in cash plus repayment of $576,763 of indebtedness of
the The HeaterMeals Company pursuant to an Agreement and Plan of
Share Exchange. The Consolidated Financial Statements of The
HeaterMeals Company for the years ended December 31, 1996 and
1994 were included as an exhibit to such Form 8-K. In addition, a
pro forma statement of operations for the year ended December 31,
1996 and the nine month period ended September 30, 1997, and a pro
forma balance sheet as of September 30, 1997 were included as an
exhibit to such Form 8-K.
On January 20, 1998, the Company filed a Current Report on
Form 8-K in which it reported that it had acquired all of the
outstanding common stock of R.P. Industries, Inc. for a total
consideration of $6,100,000 in cash and 993,384 shares of the
Company's common stock. The Consolidated Financial Statements of
R.P. Industries, Inc. for the years ended July 31, 1997 and 1996
and the Consolidated Balance Sheet and Statements of Operations of
R.P. Industries, Inc. for the three months ended October 31, 1997
were included as an Exhibit to such Form 8-K. In addition, a pro
forma statement of operations for the years ended December 31,
1996 and the nine month period ended September 30, 1997, and a pro
forma balance sheet as of September 30, 1997 were included as an
exhibit to such Form 8-K.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, United Shields Corporation, the Registrant,
has duly caused this report on Form 10-KSB dated April 15, 1998 to
be signed on its behalf by the undersigned, thereunto duly
authorized.
United Shields Corporation
Date: April 15, 1998 By: /s/ T.J. TULLY
------------------------
T.J. Tully
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints T.J.
Tully, Chairman and Chief Executive Officer of United Shields
Corporation, his or her true and lawful attorney-in-fact and
agent, with full power of substitution, and with power to act
alone, to sign and execute on behalf of the undersigned any
amendment or amendments to this report on Form 10-KSB, and to
perform any acts necessary to be done in order to file such
amendment or amendments, with exhibits thereto and other documents
in connection therewith with the Securities and Exchange
Commission and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
<PAGE>
In accordance with the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer: Date:
/s/ T.J. TULLY Chairman and April 15, 1998
T.J. Tully Chief Executive
Officer
Principal Financial and
Accounting Officer:
/s/ BEVERLEY R. GILL Chief Financial April 15, 1998
Beverley R. Gill Officer
Directors:
/s/ T.J. TULLY Director April 15, 1998
T.J. Tully
/s/ ANTHONY G. COVATTA Director April 15, 1998
Anthony G. Covatta
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) 6
STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
United Shields Corporation
We have audited the accompanying consolidated balance sheets of
United Shields Corporation (a Nevada Corporation) as of December
31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of United Shields Corporation as of December 31, 1997 and
1996, and the results of its operations and its consolidated cash
flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Cincinnati, Ohio
March 11, 1998, except for Notes D, F and M as to which the date
is April 2, 1998
<PAGE>
<TABLE>
United Shields Corporation
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash $ 512,839 $ 107
Accounts receivable:
Trade, net 1,375,475 -
Other 45,247 6,955
Inventory 1,424,661 -
Prepaid expenses 101,701 -
Refundable income taxes 123,440 -
------------- ---------
Total current assets 3,583,363 7,062
Property, plant and equipment,
at cost:
Land 224,045 -
Machinery and equipment 3,435,526 -
Office furniture and fixtures 106,482 -
Vehicles 21,850 -
Building improvements 1,415,956 -
------------- ---------
5,203,859 -
Less accumulated depreciation 1,915 -
------------- ---------
Net property, plant and
equipment 5,201,944 -
Other assets:
Deposits 58,647 -
Cash surrender value of life
insurance policies, net of
policy loans 1,030,365 -
Investment in potential
acquisitions (non-refundable) 540,000 -
Other 1,403 -
Goodwill and other intangible
assets, net 5,347,940 81,667
------------- ---------
Total other assets 6,978,355 81,667
------------- ---------
TOTAL ASSETS $15,763,662 $88,729
============= =========<PAGE>
LIABILITIES 1997 1996
CURRENT LIABILITIES
Capital lease obligation
current portion $ 121,635 $ -
Notes payable - 79,919
Accounts payable 2,146,478 213,368
Accrued expenses 455,892 11,831
Accrued income taxes 55,945 -
------------- ----------
Total current liabilities 2,779,950 305,118
Deferred compensation 625,357 -
Capital lease obligations 140,895 -
Long-term debt 8,278,081 -
------------- ---------
Total liabilities 11,824,283 305,118
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock authorized
33,050,000 shares without par
value; issued and outstanding
11,530,100 and 9,215,640 at
December 31, 1997 and 1996,
respectively 115,301 63,102
Common stock paid for but not
yet issued 415,176 and 105,735 at
December 31, 1997 and 1996,
respectively, no par value 1,594,166 133,000
Paid in capital 4,238,236 -
Accumulated deficit (2,008,324) (412,491)
----------- ----------
Total in stockholders' equity
(deficit) 3,939,379 (216,389)
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,763,662 $ 88,729
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
United Shields Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 632,664 $ - $ -
Cost of sales 572,333 - -
------------- ------------- -------------
Gross profit 60,331 - -
Operating expenses:
Selling, general and administrative 1,581,638 362,532 17,626
------------- ------------- -------------
Loss from operations (1,521,307) (362,532) (17,626)
Other (income) expense:
Interest income (3,083) - -
Interest expense 77,370 8,705 2,222
Other 239 - -
------------- ------------- -------------
Total other expense 74,526 8,705 2,222
Loss before income taxes (1,595,833) (371,237) (19,848)
Provision for income taxes - - -
------------- ------------- -------------
NET LOSS $ (1,595,833) $ (371,237) $ (19,848)
============ =========== ============
Weighted average share outstanding:
Basic 10,516,268 8,924,287 3,736,461
============ =========== ============
Diluted 10,516,268 8,924,287 3,736,461
============ =========== ============
Net loss per common share:
Basic $(.15) $(.04) $(.01)
===== ===== =====
Diluted $(.15) $(.04) $(.01)
===== ===== =====
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
United Shields Corporation
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
For the years ended December 31,
Common
Paid stock paid for
Common in but not yet Accumulated
stock capital issued deficit Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ - $ - $ - $ (21,406) $ (21,406)
8,902,887 shares of common stock
issued in exchange for $ 35,002 35,002 - - - 35,002
Net loss during the development
stage - - - (19,848) (19,848)
-------- -------- -------- --------- ---------
Balance at December 31, 1995 35,002 - - (41,254) (6,252)
312,753 shares of common stock
issued at estimated value 28,100 - - - 28,100
Common stock paid for but not yet
issued - 105,735 shares of common
stock - - 133,000 - 133,000
Net loss during the development stage - - - (371,237) (371,237)
-------- -------- -------- --------- ---------
Balance at December 31, 1996 63,102 - 133,000 (412,491) (216,389)
324,360 shares of common stock
issued in private offering 407,965 - (133,000) - 274,965
1,133,384 shares of common stock
issued or to be issued for
completed and potential
acquisitions 3,620,000 - 773,536 - 4,393,536
1,050,100 shares of common stock
issued in connection with
reverse acquisition - - - - -
Common stock paid for but not
yet issued - 221,792 shares
of common stock - - 820,630 - 820,630
250,000 warrants issued in connection
with capital lease transaction - 262,470 - - 262,470
Adjust common stock to reflect stated
value of $.01 per share (3,975,766) 3,975,766 - - -
Net loss - - - (1,595,833) (1,595,833)
-------- -------- -------- --------- ---------
Balance at December 31, 1997 $ 115,301 $4,238,236 $1,594,166 $(2,008,324) $3,939,379
=========== ========== ========== =========== ==========
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<TABLE>
United Shields Corporation
STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net cash flows provided by (used in) operating
activities:
Net loss $ (1,595,833) $(371,237) $(19,848)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Amortization and depreciation 125,091 20,000 13,333
Stock issued for compensation - 28,100 -
Changes in working capital accounts,
net of effects of subsidiary companies purchased:
Accounts receivable 259,185 (6,955) -
Inventory (174,474) - -
Prepaid expenses (33,762) - -
Income taxes (9,687) - -
Deposits (44,227) - -
Accounts payable 438,748 213,368 -
Accrued liabilities 129,670 8,705 2,222
----------- --------- --------
Net cash used in operating activities (905,289) (108,019) (4,293)
Cash flows used in investing activities:
Capital expenditures (28,051) - -
Acquisition of marketing agreement - - (110,000)
Investment in potential acquisitions
(non-refundable) (120,000) - -
Acquisition of subsidiary companies, net
of cash acquired (7,678,306) - -
Proceeds from sale of equipment in connection
with sale/leaseback 500,000 - -
----------- --------- --------
Net cash used in investing activities (7,326,357) - (110,000)
Cash flows provided by (used in) financing
activities:
Borrowings on debt 8,486,162 73,119 99,257
Payments on debt (837,415) (109,959) (8,000)
Net proceeds from issuance of stock 275,000 - 35,002
Proceeds from stock paid for not yet issued 820,631 133,000 -
----------- --------- --------
Net cash provided by financing activities 8,744,378 96,160 126,259
----------- --------- --------
Net increase (decrease) in cash 512,732 (11,859) 11,966
Cash at beginning of period 107 11,966 -
----------- --------- --------
Cash at end of period $ 512,839 $ 107 $ 11,966
============= =========== =========
Supplemental non cash disclosures:
Increase in equipment under capital lease $ 525,000 $ - $ -
============= =========== =========
Increase in capital lease obligation $ 262,530 $ - $ -
============= =========== =========
Stock issued for investment in potential
acquisition $ 420,000 $ - $ -
============= =========== =========
Increase in paid in capital for issuance
of warrants $ 262,470 $ - $ -
============= =========== =========
Acquisition of subsidiary companies:
Assets acquired, including goodwill $ 14,691,276 $ - -
Liabilities assumed (3,039,470) - -
Common stock issued (3,973,500) - -
------------- ----------- ---------
Net cash paid $ 7,678,306 $ - $ -
============= =========== =========
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
United Shields Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A COMPANY DESCRIPTION
United Shields Corporation (the Company) is a holding company
which operates two subsidiaries. The HeaterMeals Company
(HeaterMeals), located in Cincinnati, assembles, markets and
distributes portable electrochemical heaters and packaged food
products incorporating such heaters. RP Industries of Ohio, Inc.
(RP) is engaged primarily in the production of injection molded
plastic components. RP has plants located in Virginia and North
Carolina.
Prior to 1997, the Company was a development stage
enterprise. In February 1997, Capital 2000, Inc. (a public
development stage enterprise) acquired all of the outstanding
shares of the Company in exchange for restricted shares of common
stock of Capital 2000, Inc. (the Exchange) pursuant to a Share
Exchange Agreement between Capital 2000, Inc. and the Company.
Capital 2000, Inc. exchanged 9,540,000 shares of common stock for
all of the Company's issued and outstanding 6,000,000 shares of
common stock. For accounting purposes, the Exchange was treated
as a recapitalization of the Company where the Company is the
accounting acquiror. All periods have been restated to give the
effect of the recapitalization. The historical statements for
1996 and 1995 are those of the Company. Pro forma information is
not presented since this combination is not considered to be a
business combination. In connection with the Exchange, the
directors and officers of the Company became the directors and
officers of Capital 2000, Inc. Also, Capital 2000, Inc. changed
its name to United Shields Corporation. After the Exchange, the
Company's shareholders own approximately 90% of the outstanding
common stock of Capital 2000, Inc.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, since acquisition,
HeaterMeals and RP. All significant intercompany transactions
have been eliminated.
2. Revenue Recognition
Sales and related cost of goods sold are recognized upon
shipment to the customers.
3. Goodwill and Other Intangible Assets
Goodwill is amortized using the straight-line method over a
period of fifteen years. In accordance with SFAS No. 121,
Accounting for The Impairment of Long-Lived Assets, the Company
evaluates its goodwill on an ongoing basis to determine potential
impairment by comparing the carrying value to the undiscounted
estimated expected future cash flows of the related assets. Other
intangible assets are amortized using the straight-line method
over periods up to six years.
4. Receivables
The Company values its accounts receivable on the reserve
method. The reserve balance was immaterial for the years ended
December 31, 1997 and 1996.
5. Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation of plant and equipment is computed using the
straight-line method over a 30 year period for plant and 3-10 year
periods for equipment. Expenditures for repairs and maintenance
are charged to expense as incurred and additions and improvements
that significantly extend the lives of assets are capitalized.
Upon sale or retirement of depreciable property, the cost and
accumulated depreciation are removed from the related accounts and
any gain or loss is reflected in the results of operations.
6. Income Taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are
expected to be recovered or settled.
7. Inventories
Inventories are stated at the lower of FIFO (first-in, first-out) cost
or market.
8. Advertising Costs
Advertising costs are charged to expense as incurred.
Expenses are minimal for the three fiscal years ended December 31,
1997.
9. Use of Estimates in Financial Statements
In preparing financial statements in conformity with
generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10. Net Loss Per Share
The Company has adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS No. 128).
The Company's basic net loss per share amount has been
computed by dividing net loss by the weighted average number of
outstanding common shares. The Company's diluted net loss per
share has been computed by dividing net loss by the weighted
average number of outstanding common shares and common share
equivalents relating to stock warrants, when diluted. For the
year ended December 31, 1997, no common stock equivalents were
included in the computation of diluted net earnings per share.
Warrants to purchase 250,000 shares of common stock with an
exercise price of $4 were outstanding at December 31, 1997, but
were excluded from the computation because their exercise price
was greater than the average market price of the common shares
during 1997.
11. Fair Value of Financial Instruments
The carrying value of financial instruments approximates fair
market value.
12. New Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130), with an effective date for
fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for the reporting of comprehensive income in
a company's financial statements. Comprehensive income includes
all changes in a company's equity during the period that result
from transactions and other economic events other than
transactions with its stockholders. The Company does not believe
the additional disclosure will be material to the financial
statements.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS No.
131), with an effective date for fiscal years beginning after
December 15, 1997. A reportable segment, referred to as an
operating segment, is a component of an entity about which
separate financial information is produced internally, that is
evaluated by the chief operating decision-maker to assess
performance and allocate resources. The Company does not believe
that adoption will have a significant effect on the financial
statements.
NOTE C INVENTORIES
Inventories as of year-end consisted of the following:
1997 1996
Raw materials $ 806,979 $ -
Work-in-process 44,336 -
Finished goods 573,346 -
---------- ---------
$1,424,661 $ -
========== =========
<PAGE>
NOTE D GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following
at December 31, 1997 and 1996, net of accumulated amortization of
$15,418 and $33,333, respectively:
1997 1996
Goodwill $5,347,940 $ -
Marketing agreement - 81,667
---------- -------
$5,347,940 $81,667
========== =======
In 1997 the Company acquired all of the assets and
liabilities of The HeaterMeals Company, a privately held
manufacturer of portable electrochemical heaters and packaged food
products incorporating such heaters and R.P. Industries, Inc., a
privately held manufacturer of injection molded plastic component
parts. The Company recorded goodwill of $1,516,687 and $3,796,671
in connection with those acquisitions, respectively.
The Company has obtained, indirectly, from In-Flo Liquid
Dispensing Corporation (In-Flo) the exclusive world-wide marketing
rights to sell a collapsible plastic bottle. The Company was
assigned the marketing rights and related sales agreement by a
related party which is owned by two of the majority shareholders
of the Company. The Company paid $115,000 for these rights which
was the cost to the related party. The value of these rights was
written-off at December 31, 1997 as the Company's rights are now
non-exclusive. The agreement with In-Flo requires minimum
purchase commitments of bottles during each of the contract years
as specified in the agreement in order to maintain exclusive
rights to sell the collapsible bottle. The purchase price of the
bottles is defined in the agreement based on raw material costs
and margin.
The Company has also committed to pay the related party an
amount equal to $.04 for each collapsible bottle sold by the
Corporation for the first five million bottles sold, up to a
maximum of $200,000.
<PAGE>
On March 26, 1998, the Company received notice from In-Flo
that it believes the Company was in default of the above agreement
as the Company had not made any bottle purchases as of January 31,
1998. In-Flo has stated that it has the right to terminate the
agreement and the right to demand liquidated damages in the amount
of CDN $3,225,000 (approximate U.S. $2,206,000). The Company
disagrees with In-Flo on the interpretation of the agreement and
believes the failure to purchase the minimum bottle requirements
results only in the loss of exclusivity. In-Flo has stated,
however, that it does not intend to demand the liquidated damages
as the two parties are currently discussing amending the
agreement.
NOTE E INVESTMENT IN POTENTIAL ACQUISITIONS (NON-REFUNDABLE)
The Company has issued letters of intent for two potential
acquisitions. In connection with these letters of intent, the
Company made deposits and issued stock to the sellers of the
potential acquisitions. These payments are to be applied to the
purchase price of the acquisitions upon closing. At December 31,
1997 deposits of $120,000 and 140,000 common shares of the Company
have been paid to the sellers. Substantially all deposits are non
refundable in the event of default of the Company. $65,000 of the
deposits is refundable if an acquisition is not completed as
intended.
NOTE F DEBT
Debt consists of the following: 1997 1996
Note payable to merchant banker
(stockholder of the Company),
principally at 12% interest, due
September 30, 1999, collateralized
by 3,000,000 common shares of the
Company pledged by other
stockholders $3,727,081 $79,919
Revolving line of credit 4,551,000 -
---------- -------
$8,278,081 $79,919
========== ========
The note payable to merchant banker was amended on March 30,
1998. Previously, this note payable was due on demand. The note
payable is now due in full on September 30, 1999. The amended
note includes a provision that, if the Company obtains third party
financing or generates net cash flows in excess of $50,000, the
merchant banker has the right to demand payment equal to 80% of
the third party financing or net cash flows. The amended terms
have been reflected in the financial statements as of December 31,
1997.
The Company has a maximum revolving line of credit of
$6,000,000 of which $4,551,000 is outstanding at December 31,
1997. The maximum amount available to the Company is based upon a
percentage of eligible receivables, inventory and manufacturing
equipment of the Company's RP subsidiary. The maximum amount
available is also reduced on a quarterly basis by a predetermined
dollar amount. The revolving line of credit incurs interest at
the lower of prime plus .75% or LIBOR plus 3.5%. The interest
rate at December 31, 1997 is 9.22%. Principal and interest are
due in full in April 2000. Substantially all assets of RP are
pledged as collateral.
The line of credit is subject to a loan agreement which
contains certain operating and financial covenants. At December
31, 1997 the Company violated certain financial covenants
concerning net worth and ratio of total liabilities to net worth.
The Company has obtained waivers from the bank for violation of
these covenants.
NOTE G LEASE OBLIGATIONS
In December 1997, the Company entered into a sale/leaseback
transaction for the equipment located at its HeaterMeals
subsidiary. The leaseback of the equipment has been accounted for
as a capital lease. The amount recorded for the equipment under
the capital lease ($525,000) represents the present value of the
minimum lease payments, using the Company's incremental borrowing
rate. Depreciation of the equipment will begin in January 1998.
In connection with this transaction, 250,000 warrants were
also issued to the leasing company. These warrants are
exercisable immediately at $4 per share for a period of up to 5
years. The total proceeds received under the sale/leaseback
transaction were $500,000 and the proceeds were allocated to the
capital lease obligation and the warrants based upon their
relative fair values. Additionally, the Company has agreed to
repurchase the equipment at lease termination for $25,000. As a
result, a value of $262,470 was allocated to the warrants and
recorded as paid in capital at December 31, 1997. The capital
lease obligation was valued at $262,530. The amount allocated to
the warrants has been treated as a discount on the capital lease
obligation and will be amortized as additional interest expense
over the term of the lease.
The following is a schedule of future minimum lease payments
under the capital lease, together with the present value of the
lease payments as of December 31, 1997, after giving effect to the
value assigned to the warrants:
1998 $389,240
1999 219,620
--------
Total minimum lease payments 608,860
Less: Executory costs 33,048
Less: Interest at Company's
incremental borrowing rate 50,812
-------
Present value of minimum lease payments 525,000
Less: Proceeds allocated to warrants 262,470
-------
262,530
Less: Current portion of capital
lease obligation 121,635
-------
Long-term portion of capital
lease obligation $140,895
========
<PAGE>
The Company leases facilities and equipment under operating
leases. The leases expire on various dates through February 2002.
The future minimum lease payments are as follows:
1998 $ 248,017
1999 246,258
2000 239,920
2001 239,959
2002 54,156
----------
$1,028,310
==========
Total rent expense was approximately $47,940 and $0 in 1997
and 1996, respectively.
NOTE H INCOME TAXES
The net deferred tax components consisted of the following:
1997 1996
Deferred tax liabilities:
Depreciation $ (3,826) $ -
Deferred tax assets:
Start-up costs 112,198 140,247
Deferred compensation 244,940 -
AMT credit carryforward 33,463 -
Tax credit carryforward 343,371 -
Net operating loss carryforward 785,820 -
Other 214,528 -
------------ --------
1,734,320 140,247
Valuation allowance (1,730,494) (140,247)
------------ --------
3,826 -
------------ --------
Net deferred tax components $ - $ -
============ =========
For tax reporting purposes, the Company has approximately
$33,000 of alternative minimum tax (AMT) credits available for an
indefinite period. The regular net operating loss of
approximately $2,311,000 can be carried forward and used to reduce
future taxable income through 2012. Additionally, tax credits of
approximately $343,000 can be carried forward and these credits
begin to expire in the 2005 at a rate of approximately $48,000 per
year. The utilization of credits and losses will be limited due
to federal tax law involving greater than 50% ownership changes
and consolidated return regulations.
The valuation allowance, which increased by approximately
$1,590,000 in 1997, is required due to the uncertainty of
realizing the net deferred tax asset through future operations.
Approximately $1,082,000 of the valuation allowance relates to
deferred tax assets of the acquired subsidiaries of the Company.
Any subsequently recognized tax benefits will be allocated to
reduce goodwill.
NOTE I BUSINESS AND CREDIT CONCENTRATIONS
Sales to two companies approximated 65% of the Company's net
sales for 1997. The Company's 1997 sales were derived solely from
the HeaterMeals Subsidiary. A loss of one or more of the
Company's major customers could have a material adverse impact on
the Company's consolidated financial position or results of
operations.
The Company generally grants credit based upon the customer's
financial position.
NOTE J ACQUISITIONS
In November 1997, the Company acquired all of the assets and
liabilities of HeaterMeals, a Cincinnati based privately held
manufacturer of portable electrochemical heaters and packaged food
products incorporating such heaters. The purchase price consisted
of $2,000,000 in cash. The acquisition was accounted for as a
purchase, accordingly the purchase price was allocated to the
assets and liabilities based on their estimated value as of the
date of acquisition. The results of HeaterMeals' operations are
included in the consolidated statement of operations from the date
of the acquisition.
On December 31, 1997, the Company acquired all of the assets
and liabilities of RP, a Virginia based privately held
manufacturer of injection molded plastic component parts. The
purchase price consisted of $6,100,000 in cash and 993,384
unregistered shares of the Company's common stock with an
approximate value of $3,974,000. The acquisition was accounted
for as a purchase. The price of the stock to the acquiring
shareholders was used to value the assets and liabilities. The
results of RP's operations will be included in the consolidated
statement of operations from the date of the acquisition.
The following table summarizes, on an unaudited pro forma
basis, the estimated combined results of the Company, HeaterMeals
and RP assuming the acquisitions had occurred on January 1, 1996.
These results include certain adjustments, primarily goodwill
amortization and interest expense, and are not necessarily
indicative of what results would have been had the Company owned
HeaterMeals and RP during the periods presented:
1997 1996
Net sales $14,657,497 $16,095,809
Net loss $ (3,787,835) $ (1,613,552)
Net loss per common share:
Basic $(.33) $(.16)
Diluted $(.33) $(.16)
NOTE K BUSINESS SEGMENTS
The Company's operations have been classified into two
business segments: plastics injection molding and portable
electrochemical heaters. The Company entered the plastics
injection molding segment through the purchase of RP on December
31, 1997. All sales, operating loss, depreciation and capital
expenditures for 1997 were due to the portable electrochemical
heaters segment and corporate charges.
Identifiable assets at December 31, 1997 are as follows:
Portable electrochemical heaters $ 3,172,681
Plastics injection molding 11,976,204
Corporate 4,477,317
Eliminations (3,862,540)
------------
Consolidated $15,763,662
============
NOTE L CONTINGENCIES
The Company is involved in litigation and other matters which
involves routine matters incident to the Company's business. In
the opinion of management, the ultimate disposition of such
litigation and matters will not have a material effect upon the
Company's financial statements.
NOTE M SUBSEQUENT EVENTS
As of March 11, 1998, 56,250 shares of the Company's stock
have been sold through a private offering for consideration of
$225,000.
Effective March 30, 1998, the Company issued 500,000 warrants
to a merchant banker in connection with the amendment of a note
payable (see Note F). These warrants are exercisable immediately
at $4 per share for a period of up to 5 years. The total value
of the note payable will be allocated to the note payable and
warrants based upon their relative fair value. The value
allocated to the warrants, approximately $900,000, will be
recorded as paid in capital and the present value of the note
payable will be reduced accordingly.
The Company has informed one of its acquisition candidates,
Master Molders, Inc. (Master Molders) a South Carolina based
manufacturer of plastic industrial parts that it believes that
Master Molders has suffered a material adverse change as a result
of the loss of a major customer, which material adverse change
constitutes a condition to the Company's obligation to close.
Master Molders informed the Company on April 2, 1998 that Master
Molders believes the Company has defaulted under a definitive
agreement whereby the Company would acquire the outstanding stock
of Master Molders. The Company believes that the deposits of cash
and common shares of the Company paid to Master Molders (Note E)
will be returned to the Company under the definitive agreement.
The Company is currently considering its response in an effort to
reach a resolution of this dispute, including the possibility of
completing the acquisition under a proposed modification to the
definitive agreement.
Exhibit 3.2
BY-LAWS
OF
UNITED SHIELDS CORPORATION
(a Colorado Corporation)
(Adopted May 19, 1997, Amended July 14, 1997,
Amended February 13, 1998)<PAGE>
ARTICLE I
Shareholders
Section 1.1 Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such
date, time and place, either within or without the State of
Colorado as may be designated by resolution of the Board of
Directors. Any other proper business may be transacted at the
annual meeting.
Section 1.2 Special Meetings. Special meetings of
stockholders for any purpose or purposes, may be called at any
time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors
and whose power and authority, as expressly provided in a
resolution of the Board of Directors, includes the power to call
such meetings, but such special meetings may not be called by any
other person or persons.
Section 1.3 Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written
notice of the meeting shall be given which shall state the place,
date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, the certificate of incorporation
or these by-laws, the written notice of any meeting shall be given
not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in
the mail, postage prepaid and directed to the stockholder at his
address as it appears on the records of the corporation.
Section 1.4 Adjournments. Any meeting of stockholders,
annual or special, may adjourn from time to time to reconvene at
the same or some other place, and notice need not be given of any
such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which
could have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5 Quorum. Except as otherwise provided by law, the
certificate of incorporation of these by-laws, at each meeting of
stockholders the presence in person or by proxy of the holders of
shares of stock having a majority of the votes which could be cast
by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a
quorum. In the absence of a quorum, the stockholders so present
may, by majority vote thereof, adjourn the meeting from time to
time in the manner provided in Section 1.4 of these by-laws until
a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares
entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit
the right of the corporation to vote stock, including but not
limited to its own stock, held by it in a fiduciary capacity.
Section 1.6 Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his
absence by the Vice Chairman of the Board, if any, or in his
absence by the President, or in his absence by a Vice President,
or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary
shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 1.7 Voting; Proxies. Except as otherwise provided by
the certificate of incorporation, each stockholder entitled to
vote at any meeting of stockholders shall be entitled to one vote
for each share of stock held by him which has voting power upon
the matter in question. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides
for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is
not irrevocable by attending the meeting and voting in persor4 or
by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the
Secretary of the corporation. Voting at meetings of stockholders
need not be by written ballot and need not be conducted by
inspectors of election unless so determined by the holders of
shares of stock having a majority of the votes which could be cast
by the holders of all outstanding shares of stock entitled to vote
thereon which are present in person or by proxy at such meeting.
At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by
law, the certificate of incorporation or these by-laws, be decided
by the vote of the holders of shares of stock having a majority of
the votes which could be cast by the holders of all shares of
stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
Section 1.8 Fixing Date for Determining Stockholders of
Record. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of
any other lawful action, The Board of Directors may fix a record
date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not
be more than sixty nor less than ten days before the date of such
meeting; (2) in the case of determining stockholders entitled to
express consent to corporate action in writing without a meeting,
shall not be more than ten days fi7om the date upon which the
resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action shall not be
more than sixty days prior to such other action. If no record
date is fixed: (1) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining
stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of
Directors is required by law shall be the first date on which a
signed written consent setting forth the action taken or proposed
to be taken is delivered to the corporation in accordance with
applicable law, or, if prior action by the Board of Directors is
required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such
prior action; and (3) the record date for determining stockholders
for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
1.09 Action by Consent of Stockholders. Unless otherwise
restricted by the certificate of incorporation, any action
required or permitted to be taken at any annual or special meeting
of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would
be necessary to authorize to take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Prompt notice of taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
Section 2.1 Number; Qualifications. The property interests,
business and transactions of the Corporation shall be managed and
conducted by the Board of Directors which shall consist of not
less than three (3), nor more than seven (7) persons, as shall be
fixed from time to time by the Board of Directors, as hereinafter
provided. The Board of Directors shall be elected annually by a
ballot of the holders of the shares of the Corporation entitled to
vote thereon for the term of one (1) year, and shall serve until
the election and qualification of their successors, unless they
sooner resign and are replaced as hereinafter provided. The
number of directors may be fixed or changed from time to time
within the range, set forth above, by the shareholders or the
Board of Directors. Directors need not be shareholders.
Section 2.2 Election; Resignation; Removal; Vacancies. At
the annual meeting of shareholders, the shareholders shall elect
directors, each of whom shall hold office for a term of one (1)
year or until their successors are elected and qualified. Any
director may resign at any time upon written notice to the
Corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective. Any newly created directorship or any vacancy
occurring in the Board of Directors for any cause may be filled by
the Board of Directors, or if the directors remaining in office
constitute fewer than a quorum of the Board, they may fill the
vacancy by the affirmative vote of the majority of all the
directors remaining in office or the shareholders may fill the
vacancy, and each director selected shall hold office until the
expiration of the term of office of the director whom he has
replaced or until his successor is elected and qualified.
Section 2.3 Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the
State of Nevada and at such times as the Board of Directors may
from time to time determine, and if so determined notices thereof
need not be given.
Section 2.4 Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without
the State of Nevada whenever called by the President, any Vice
President, the Secretary, or by any member of the Board of
Directors. Notice of a special meeting of the Board of Directors
shall be given by the person or persons calling the meeting at
least twenty-four hours before the special meeting.
Section 2.5 Telephonic Meetings Permitted. Members of the
Board of Directors, or any committee designed by the Board of
Directors, may participate in a meeting thereof by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this by-law
shall constitute presence in person at such meeting.
Section 2.6 Quorum; Vote Required for Action. At all
meetings of the Board of Directors a majority of the whole Board
of Directors shall constitute a quorum for the transaction of
business. Except in cases in which the certificate of
incorporation or these by-laws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
Section 2.7 Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in
his absence by the Vice Chairman of the Board, if any, or in his
absence by the President, or in his absence by a chairman chosen
at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8 Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws,
any action required or permitted to be taken at any meeting of
the. Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of
the Board of Directors or such committee.
ARTICLE III
Committees
Section 3.1 Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one
or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or
disqualification of a member of the committee and the absence or
unavailability of any alternate member of the committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board
of Directors establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all
papers which may require it.
Section 3.2 Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of
Directors may make, alter and repeal rules for the conduct of its
business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors
conducts its business pursuant to Article HI of these by-laws.
ARTICLE IV
Officers
Section 4.1 Executive Officers; Election; Qualifications;
Term of Office; Resignation; Removal; Vacancies. The Board of
Directors shall elect a President, Secretary and Treasurer, and it
may, if it so determines, choose a Chairman of the Board of a Vice
Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers. Each
such officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and
qualified or until his earlier resignation or removal. Any
officer may resign at any time upon written notice to the
corporation. The Board of Directors may remove any officer with
or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with
the corporation. Any number of offices may be held by the same
person. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any
regular or special meeting.
Section 4.2 Powers and Duties of Executive Officers. The
officers of the corporation shall have such powers and duties in
the management of the corporation as may be prescribed by the
Board of Directors and, to the extent not so provided, as
generally pertain to their respective offices, subject to the
control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE V
Stock
Section 5.1 Certificates. Every holder of stock shall be
entitled to have a certificate signed by or in the name of the
corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or a Vice President, and by
the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the corporation, certifying the number of
shares of stock owned by him in the corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before
such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
Section 5.2 Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The corporation may issue a new
certificate of stock in the place of any certificate theretofore
issued by it and alleged to have been lost, stolen or destroyed.
The corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new
certificate.
ARTICLE VI
Indemnification
Section 6.1 Right to Indemnification. The corporation shall
indemnify and hold harmless, to the full extent permitted by
applicable law as amended or interpreted from time to time, any
person who it may indemnify pursuant to such laws. The
corporation shall be required to indemnify a person in connection
with a proceeding initiated by such person only if the proceeding
was authorized by the Board of Directors of the corporation.
Section 6.2 Prepayment of Expenses. The corporation shall pay the
expenses incurred in defending any proceeding in advance of its
final disposition, provided, however, that the payment of expenses
incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of
an undertaking by the director of officer to repay all amounts
advanced if it should be ultimately determined that the director
or officer is not entitled to be indemnified under this Article or
otherwise.
Section 6.3 Claims. If a claim for indemnification or
payment of expenses under this Article is not paid in full within
s@ days after a written claim therefor has been received by the
corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall
be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving
that the claimant was not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 6.4 Non-Exclusivity of Rights. The rights conferred
on any person by this Article VI shall not be exclusive of any
other rights which such person may have or hereafter acquire under
any statute, provision of the certificate of incorporation, these
by-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 6.5 Other Indemnification. The corporation's
obligation, if any, to indemnify any person who was or is serving
at its request as a director, officer, employee or agent of
another corporation partnership, joint venture, trust, enterprise
or non-profit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or non-profit
enterprise.
Section 6.6 Amendment or Repeal. Any repeal or modification
of the foregoing provisions of this Article VI shall not adversely
affect any right or protection hereunder of any person in respect
of any act or omission occurring prior to the time of such repeal
or modification.
ARTICLE VII
Miscellaneous
Section 7.1 Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
Section 7.2 Seal. The corporate seal, if any, shall have the
name of the corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of
Directors.
Section 7.3 Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Any written waiver of notice, signed by
the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice.
Section 7.4 Interested Directors; Quorum. No contract or
transaction between the
corporation and one or more of its directors or officers, or
between the corporation and any other corporation partnership,
association, or other organization in which one or more of its
directors of officers are directors or officers, or have a
financial interest shall be void or voidable solely for this
reasons, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose,
if- (1) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to
his relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by a vote of the stockholders; or (3) the contract
or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
7.5 Form of Records. Any records maintained by the
corporation in the regular course of its business, including its
stock ledger, books of account and minute books, may be kept on,
or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device,
provided that the records so kept can be converted into a clearly
legible form within a reasonable time. The corporation shall so
convert any records so kept upon the request of any person
entitled to inspect the same.
7.6 Amendment of By-Laws. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors, but the
stockholders may make additional by-laws and may alter and repeal
any by-laws whether adopted by them or otherwise.<PAGE>
Exhibit 21
SUBSIDIARIES OF THE COMPANY
R.P. Industries of Ohio, Inc.
Furniture Plastics of Forest City, Inc.
Granville Plastics Company, Inc.
R.P. Enterprises, Inc.
R.P. Real Estate, Inc.
Century Woods Limited Partnership (99% Partnership Interest
held by R.P. Real Estate, Inc.)
Richmond Plastics, Inc.
UNSC, Inc.
The HeaterMeals Company
HeaterMeals, Inc.
Zestotherm, Inc.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 512,839
<SECURITIES> 0
<RECEIVABLES> 1,375,475
<ALLOWANCES> 34,634
<INVENTORY> 1,424,661
<CURRENT-ASSETS> 3,583,363
<PP&E> 5,203,859
<DEPRECIATION> 1,915
<TOTAL-ASSETS> 15,763,662
<CURRENT-LIABILITIES> 2,779,950
<BONDS> 0
0
0
<COMMON> 115,301
<OTHER-SE> 5,832,402
<TOTAL-LIABILITY-AND-EQUITY> 15,763,662
<SALES> 632,664
<TOTAL-REVENUES> 632,664
<CGS> 572,333
<TOTAL-COSTS> 572,333
<OTHER-EXPENSES> 1,581,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,370
<INCOME-PRETAX> (1,595,833)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,595,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,595,833)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
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