________________________________________________________________________
1996
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended March 31, 1996
Commission File No. 0-16251
GALAXY FOODS COMPANY
(name of small business issuer as specified in its charter)
Delaware 25-1391475
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
2441 Viscount Row
Orlando, Florida 32809
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (407) 855-5500
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 _____
Check if a disclosure of delinquent filers in response 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. [ ]
State issuer's revenues for its most recent fiscal year. $3,950,455
The aggregate market value of the voting stock held by non-affiliates as of
June 20, 1996 was $49,515,599 based on the closing sales price of $1.625 per
share on such date.
The number of shares outstanding of Galaxy Foods Company's Common Stock as of
June 20, 1996 was 54,775,112.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format. Yes ______ No X
________________________________________________________________________
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PART I
Item 1. Description of Business.
GENERAL
Galaxy Foods Company (the "Company") was originally organized in Pennsylvania in
1980 under the name "Galaxy Cheese Company," and was subsequently
reincorporated in Delaware in 1987. In February 1992, the Company formally
changed its name to "Galaxy Foods Company." The Company is principally
engaged in the development, manufacturing and marketing of a variety of
healthy cheese and cheese related products, as well as substitute and
imitation cheeses. The healthy cheese and cheese related products, sold
under the Company's formagg, Soyco, and Soymage brand names, are low fat,
cholesterol free and lactose (milk sugar) free, vitamin and mineral enriched,
and contain one-third fewer calories and more calcium than conventional
cheese. These healthy cheese and cheese related products have the flavor,
appearance and texture of conventional cheeses and products that use
conventional cheeses, and are nutritionally equal or superior to such
cheeses and products. The Company's substitute and imitation cheeses have
either no or low cholesterol but are not nutritionally equivalent or superior
to conventional cheeses. The Company also manufactures and markets non-
branded and private label process and blended cheese products, as well as
branded soy-based and rice-based cheese products. All of these products are
made using the Company's formulas, processes and manufacturing equipment
which are believed to be proprietary.
In June 1991, the Company suffered a complete loss, due to fire, of its sole-
existing manufacturing facility located in New Castle, Pennsylvania. The
fire was ruled an arson by the Pennsylvania Fire Marshall of the Pennsylvania
State Police, and the investigation of the circumstances surrounding the fire
is still open according to that agency. After the fire, the Company used the
$11 million of insurance proceeds from its property and business interruption
insurance to refurbish and equip a comprehensive manufacturing facility in
Orlando, Florida. The Company has relocated its entire operations from New
Castle, Pennsylvania, to its new facility in Orlando, Florida.
In June 1992, the Company resumed its production and shipment of its products
directly from its Orlando plant to customers in each of the Company's three
principal markets--retail stores, such as supermarket chains and health food
stores; food service operations, such as restaurant chains, cafeterias,
hospitals and schools; and industrial food manufacturers of products such as
frozen pizza and desserts.
As the Company continues its operations, it plans to focus its sales effort
to retailers, to take advantage of what it perceives to be an increased
consumer emphasis on nutrition, by offering a diverse line of no cholesterol,
no lactose, low and non-fat substitute cheese products. These include
shredded cheeses, grated pasta toppings, deli cheeses, individually wrapped
cheese slices, and soft cheeses like sour cream and cream cheese. The Company
also offers the Lite Bakery program which uses formagg as a base ingredient.
This program includes bakery products for use by commercial and in-store
bakeries which include cookies, pies, icings, danishes and cheesecakes
utilizing formagg and substituting other healthy ingredients to reduce or
eliminate cholesterol, fat, lactose, sodium, and excessive calories
associated with traditional bakery products.
The Company's strategy for the future is to focus its primary marketing efforts
in the retail market to capitalize on the continuing interest among consumers
in reducing their cholesterol levels and saturated fat intake. The Company
believes that one of the leading contributors of cholesterol and saturated
fat in the American diet is cheese. By providing
<PAGE>
good tasting cheese alternatives available in diverse forms and flavors, the
Company believes it will be able to attract an increasing number of consumers
interested in improving their health and eating habits.
In order to accelerate cash flow, the Company has entered into a factoring
agreement with J.T.A. Factors, Inc. of Greenville, South Carolina, whereby
the Company sells certain of its accounts receivable to a factor on a pre-
approved full recourse basis. The factoring charge equals .73% of the
receivables sold. The Company is permitted to receive advances up to 85% of
uncollected accounts factored at the time the receivables are placed with the
factoring agent, with the remaining 15%, less the .73% factoring charge,
being paid to the Company upon collection. Angelo S. Morini, the Company's
President and Chief Executive Officer, has personally guaranteed the repayment
to the factoring agent of any advanced and uncollected sums. At March 31,
1996, the Company was not factoring any of its accounts receivable.
PRODUCTS
The Company's products include the following:
formagg Substitute Cheese -- the Company's top line of vitamin and mineral
enriched substitute cheeses sold under the brand name "formagg," which
contain all of the characteristics of conventional cheeses but have no
cholesterol, lactose or butterfat, and one-third fewer calories and more
calcium than conventional cheeses. For the fiscal years ended March 31, 1996
and 1995, sales of formagg products accounted for approximately 16.1% and
5.0%, respectively, of the Company's sales.
The formagg line includes more than 30 varieties of substitute cheese
products and specialty products including, but not limited to Parmesan,
Mozzarella, Cheddar, American, and Swiss. The Company also sells substitute
cream cheese and sour cream under the formagg label.
Other Substitute Cheeses -- cheese products which are not as nutritious as
the formagg substitute cheeses but are nutritionally equal or superior to
conventional cheeses, and which contain no butterfat and only small amounts of
lactose and cholesterol. These products contain fewer calories than
conventional cheese but, generally, more calories than formagg. For the
fiscal years ended March 31, 1996 and 1995, sales of nonbranded and private
label substitute cheeses accounted for approximately 12.8% and 4.0%,
respectively, of the Company's sales.
Process Cheeses -- a line of products, sold under private label, made by
combining one or more conventional cheeses with certain other ingredients,
generally excluding substitute and imitation cheeses. For the fiscal years
ended March 31, 1996 and 1995, sales of process cheeses accounted for
approximately 0% and 8.0%, respectively, of the Company's sales.
Blended Cheeses -- cheese products, primarily sold to industrial customers,
which consist of either substitute or imitation cheeses combined with already
prepared conventional cheeses. For the fiscal years ended March 31, 1996 and
1995, sales of blended cheeses accounted for approximately 4.1% and 0%,
respectively, of the Company's sales.
Imitation Cheeses -- low cholesterol alternatives to conventional cheeses
which differ from the Company's substitute cheeses in that they are not
nutritionally equivalent or superior to conventional cheeses and may have
more cholesterol than the Company's substitute cheeses. For the fiscal years
ended March 31, 1996 and 1995, sales of imitation
<PAGE>
cheeses accounted for approximately 26.1% and 71%, respectively, of the
Company's sales.
Conventional Cheese Shreds -- already manufactured cheese products purchased
from suppliers for shredding at the Company's facilities. For the fiscal
years ended March 31, 1996 and 1995, sales of shredded conventional cheeses
accounted for approximately 17.4% and 0%, respectively, of the Company's sales.
Soyco and Soymage -- Soyco is a line of all natural soy-based products, which
was introduced to the retail market in early 1987. Under the Soyco division,
the Company also markets Soymage brand products, which have no casein or
other dairy ingredients, and are aimed primarily to vegetarians and to
consumers who are allergic to the lactose or milk protein contained in dairy
products. For the fiscal years ended March 31, 1996 and 1995, sales of Soyco
and Soymage products accounted for approximately 23.5% and 12%, respectively,
of the Company's sales.
Healthy Pasta Dinners -- a line of low-fat, lactose-free, cholesterol-free
pasta dinners, including Macaroni 'n Cheese, Penne Pasta Primavera, Penne
Pasta Alfredo, and Caesar's Italian Garden Vegetable Pasta. All of the
pasta dinners are available with formagg or Soyco sauces and are animal fat
and preservative free. They feature a sauce pouch for quick and easy
preparation. This product line was developed in the summer of 1993 and
accounted for less than 1% of the Company's sales for the fiscal years ended
March 31, 1996 and 1995.
The characteristics of the Company's products vary according to the specific
requirements of individual customers within each market. In the industrial
food manufacturing and food service markets, the Company's products are
made according to the customer's specifications as to color, texture, shred,
melt, cohesiveness, stretch, browning, fat retention, and protein, vitamin
and mineral content. The Company's products are manufactured in various
forms, including individual slices, finely grated, shredded, snack chunks,
salad toppings, deli loaves, and multi-pound blocks. All of the Company's
products come in several flavors, including, but not limited to mozzarella,
cheddar, American, parmesan and Swiss.
The Company sells its formagg(products between $2.00 and $5.00 per pound,
depending upon quantities purchased, type of product and packaging. Non-
branded and private label substitute cheeses and imitation cheeses are sold
at prices ranging from $0.70 to $1.00 per pound, depending upon quantity,
flavoring and packaging.
The Company has obtained kosher dairy certification (O.U.D.) for all of its
substitute and imitation cheese products, and has obtained kosher nondairy
pareve (O.U.) certification for Soymage.
DISTRIBUTION METHODS
The Company currently distributes all of its products by common carrier and
customer pick-up. The Company does not have any warehousing arrangements;
therefore, all products are shipped from the Company's manufacturing facility
in Orlando, Florida.
<PAGE>
MANUFACTURING PROCESS
The Company's substitute and imitation cheese products are made using the
Company's formulas, processes and manufacturing equipment, which are believed
to be proprietary, from four principal ingredients: casein, a pure skim milk
protein (instead of liquid milk which is used to make conventional cheeses);
soybean and canola oil (instead of butterfat found in conventional cheeses);
water; and flavorings. The Company's Soymage (products are also made using
the Company's formulas, processes and manufacturing equipment from these
principal ingredients, except that Soymage does not contain casein. All of
these products are produced at a temperature above that required for
pasteurization. The Company's formulas and processes were designed and
developed by the Company's Chief Executive Officer, Angelo S. Morini,
specifically for the manufacture of these products. The rights to these
formulas, processes and equipment have been assigned by Mr. Morini to the
Company. Unlike the conventional cheese process, the production of the
Company's products does not require the costly and time-consuming use of
bacteria to curdle milk, nor does it require removal of whey or product curing.
QUALITY CONTROL
Throughout the production process, the Company subjects its products to
quality control inspection in order to satisfy federal and state regulations
for good manufacturing procedures, meet customer specifications, and assure
consistent product quality. A sample of each production run is tested for
various characteristics including taste, color, acidity (Ph), surface
tension, melt, stretch and fat retention. Random samples are also regularly
sent to an independent laboratory to test for bacteria and other micro-
organisms.
CAPITAL EXPENDITURES
During the fiscal years ended March 31, 1996 and 1995, the Company's capital
expenditures were approximately $1,307,000 and $80,000, respectively. The
substantial capital expenditures for fiscal 1996 were due primarily to
the purchase of an individually-wrapped-slice machine.
SALES AND MARKETING
In the food service market, the Company stresses the relatively low price of
some of its nonbranded and private label substitute cheeses and imitation
cheeses as compared with conventional cheeses. In marketing its formagg
line of products, the Company emphasizes that formagg (tastes like
conventional cheese and has no cholesterol, lactose, or saturated fat, and
has fewer calories and more calcium than conventional cheeses. The Company
has recently reformatted all of its packaging for its retail products. The
Company believes that its new packaging will help its formagg line of
products stand apart in the grocery case and improve customer identification
and brand name loyalty. The Company also promotes its products on the basis
of their considerably longer shelf life than conventional cheeses.
In the industrial market, the Company sells directly to its customers. In
the food service market, the Company uses both its in-house sales staff and a
nationwide network of nonexclusive commission brokers who sell the Company's
products to distributors. In the retail market, the Company sells formagg
products to distributors, wholesalers, and directly to chain stores and
cooperative groups through a nationwide network of nonexclusive commission
brokers and the Company's in-house sales staff. The Company uses
conventional marketing and public relations techniques for market introductions
such as promotional allowances and events, in-store consumer sampling, print
advertising, radio, and television.
<PAGE>
SUPPLIERS
The Company purchases the ingredients used in its manufacturing operations,
i.e., casein, canola oil, enzymes and other chemicals, from several sources,
and it believes that most of these ingredients are readily available from
numerous suppliers. Due to export supports and subsidies provided by members
of the European Economic Community, suppliers from such countries are often
able to supply casein at prices lower than domestic suppliers. Accordingly,
the Company currently purchases its major ingredient, casein, from foreign
suppliers. Because casein purchased by the Company is imported, its
availability is subject to a variety of factors, including federal import
regulations. The Company believes that it could obtain casein at a higher
cost from domestic sources if the foreign supply of casein were reduced or
terminated.
For the fiscal years ended March 31, 1996 and 1995, the Company purchased
$1,398,230 and $1,768,784, respectively, of casein, canola and other oil, and
other ingredients, the principal raw materials used to manufacture the
Company's products. The following table sets forth the name of each supplier
of casein, canola oil, and other ingredients which either alone, or together
with their affiliates, provided 5% or more of such items to the Company,
based on dollar volume purchased, the product acquired from such supplier,
and the percentage of such raw material obtained by the Company:
Percentage of Raw Material Purchases
Fiscal Year Ended March 31,
Type of Raw Material Name of Supplier 1996 1995
Casein Besnier-Scerma U.S.A. 62.3% 50.4%
Avonmore Food Products Ltd. 24.0% 8.4%
Irish Dairy Board 8.7% 41.2%
Armour Food Ingredients 5.0 0.0%
Canola Oil Fugi Vegetable Oil, Inc. 26.6 0.0%
Wilsey Foods Inc. 25.6% 78.7%
C & T Refinery 23.9% 4.8%
Archer Daniels Midland Co. 23.9% 0.0%
H & S Associates, Inc. 0.0% 16.5%
Fructose Industrial Commodities, Inc. 100.0% 100.0%
Chemicals Van Waters & Rogers 54.3% 0.0%
Ashland Chemical Company 45.7% 100.0%
Enzyme - Modified Cheese
Systems Bio-Industries 86.5% 100.0%
Armour Foods 11.2% 0.0%
Corn Starch Food Ingredient Sales, Inc. 53.8% 0.0%
Grain Processing Corporation 46.2% 87.0%
Industrial Commodities, Inc. 0.0% 13.0%
PRODUCT DEVELOPMENT
The Company conducts ongoing research to develop new varieties of substitute
cheese products and new flavors for existing products. For the fiscal years
ended March 31, 1996 and 1995, expenditures for product development were
$112,854 and $140,716, respectively. None of the research and development
costs are directly borne by the customer, instead they are considered part of
operating expenses.
<PAGE>
TRADEMARKS AND PATENTS
The Company owns the trademark for formagg. The Company believes this
trademark is an important means of establishing consumer recognition of its
products. The Company also owns several other registered and unregistered
trademarks which are used in the marketing and sale of the Company's
products. The registered trademarks are generally in effect for ten years
from the date of their initial registration, and may be renewed for
successive ten-year periods thereafter. The following table sets forth the
registered and unregistered trademarks of the Company, the country in which
the mark is filed, and the renewal date for such mark.
Mark Country Renewal Date
formagg Canada March 1, 2000
France June 6, 2004
Japan August 31, 2004
United States October 9, 2004
Ireland April 25, 2005
United Kingdom April 25, 2005
Israel December 16, 2007
Greece (1)
Lite Bakery & Design United States September 19, 2009
Galaxy & prior Design United States December 10, 2001
Labella's & Design United States October 9, 2004
Soyco United States January 12, 2003
Soyco & Design United States August 17, 2003
Soymage United States January 5, 2003
Lite "n" Less United States (2)
Health Value Foods United States (2)
Veggy Singles United States (2)
Soy Singles United States (2)
Tasty 'n' Healthy United States (2)
G and Star United States (2)
(1) Registration pending; however, the Company has received a Notice of
Proceeding to Publication for this trademark.
(2) Registration pending; however, the Company has received a Notice of
Allowance for this trademark.
Although the Company believes that its formulas, processes and manufacturing
equipment are proprietary, the Company has not sought and does not intend to
seek patent protection for such technology. In not seeking patent
protection, the Company is instead relying on the complexity of its
technology, on trade secrecy laws, and on employee confidentiality
agreements. The Company believes that its technology has been independently
developed and does not infringe on the patents or trade secrets of others.
MARKETS AND CUSTOMERS
The Company sells to customers in 40 states, the District of Columbia, Canada
and Puerto Rico. Principal customers of the Company include Foodservice
Purchasing Co-op, a food distributor with principal offices located in
Louisville, Kentucky; Multi-Foods Corporation, a food distributor with
principal offices located in Rice, Minnesota; and Sysco Food Service, a food
distributor with principal offices located in Houston, Texas.
For the fiscal years ended March 31, 1996 and 1995, the Company had net sales
of $3,950,455 and $4,748,283, respectively. The following table sets forth
the name of each
<PAGE>
customer of the Company, which either alone, or together with its affiliates,
accounted for 5% or more of the Company's sales for the fiscal years ended
March 31, 1996 and 1995:
Percentage of Sales
Fiscal Year Ended March 31,
Customer Name 1996 1995
Foodservice Purchasing Co-op 17.9% 0.0%
Multi-Foods Corporation 7.9% 0.0%
Sysco Food Service 4.6% 5.4%
Texas Smokehouse Foods, Inc. 0.1% 10.3%
The Company's products are sold primarily in three commercial markets:
retail, food service, and industrial.
In the retail market, where the Company believes nutrition generally
outweighs price considerations, the Company markets its formagg products at
prices comparable to conventional cheeses. In this market, the Company sells
directly to retail establishments, including national and regional
supermarket chains, and to distributors that sell and deliver to retail
establishments.
In both the food service and industrial markets, the Company attempts to
market its premium products to customers who place importance on nutrition,
and its less expensive nonbranded and private label substitute and imitation
cheeses to customers for whom cost is a primary consideration.
In the food service market, the Company's products are sold to enterprises
that prepare meals which contain conventional cheeses. The Company's food
service customers include distributors who supply food to restaurants,
schools and hospitals. The Company also markets its products directly to
large national restaurant chains.
In the industrial market, the Company sells its products to industrial
manufacturers whose food products, such as pizza, frozen foods, salad
dressings, cheese dips and spreads, potato and vegetable toppings, and baked
goods (such as crackers and croutons), ordinarily contain cheese as an
ingredient.
The following chart sets forth the percentage of sales that the industrial,
food service and retail markets represented for the fiscal years ended
March 31, 1996 and 1995:
Percentage of Sales
Fiscal Years Ended March 31,
Category 1996 1995
Industrial sales 16% 27%
Food service sales 49% 48%
Retail sales 35% 25%
GOVERNMENT REGULATION
As a manufacturer of food products for human consumption, the Company is
subject to extensive regulation by federal, state and local governmental
authorities regarding the quality, purity, manufacturing, distribution and
labeling of food products.
<PAGE>
The Food Nutrition Service ("FNS") of the United States Department of
Agriculture ("USDA") granted approval in July 1990 of the Company's Labella's
Mozzarella Flavored Cheese Substitute #6, Labella's Provolone Flavored
Cheese Substitute #6, and Labella's American Flavored Cheese Substitute to
the List of Acceptable Cheese Alternate Products.
The Company's United States product labels are subject to regulation by the
United States Food and Drug Administration ("FDA"). Such regulation includes
standards for production descriptions, nutritional claims, label format,
minimum type sizes, content and location of nutritional information panels,
nutritional comparisons, and ingredient content panels. The Company's
labels, ingredients, and manufacturing techniques and facilities are subject
to inspection by the FDA. In May 1994, the United States enacted a new
labeling law which dramatically impacted the food industry as a whole. The
regulations require specific details of ingredients and their components
along with nutritional information on labels. The Company believes this will
enhance marketability and result in increased sales of the Company's products
because the new labels make it easier for consumers to recognize the
nutritional benefits of the Company's products compared to other products.
The Company's Florida facilities and manufacturing processes are subject to
inspection by the Florida Department of Health, and the Company has received
an Annual Food Permit from that bureau for 1996.
The Company believes that it is in compliance in all material respects with
governmental regulations regarding its current products and has obtained the
necessary government permits, licenses, qualifications, and approvals which
are required for its operations.
ENVIRONMENTAL REGULATION
The Company is required to comply with environmental regulations in
connection with the development of its products and the operation of its
business. It spent approximately $20,000 and $16,000 during the fiscal years
ended March 31, 1996 and 1995 respectively, in environmental related
compliance, mainly concerning the disposal of corrugated packaging.
The Company believes at the present time that it is in compliance in all
material aspects with the federal, state and local environmental laws and
regulations applicable to it. The Company believes that continued compliance
with any current or reasonably foreseeable future environmental laws and
regulations will not have a material adverse effect on the capital
expenditures, earnings, financial condition or competitive position of the
Company.
COMPETITION
The food industry is highly competitive, and the Company faces substantial
competition in connection with the manufacturing, marketing, and sale of its
products. In the retail cheese market, the Company competes with
conventional cheeses, including "light" products produced by manufacturers of
conventional cheeses. "Light" cheese generally has lower fat content than
regular cheese but still contains cholesterol and lactose, unlike the
Company's formagg line which is cholesterol and lactose free. Conventional
cheeses are being promoted widely by the American Dairy Association and other
trade associations representing the dairy industry. In the industrial
and food service markets, the Company's substitute and imitation cheese
products compete with other substitute and imitation cheese products, as well
as with conventional cheeses.
<PAGE>
The Company believes it has the most complete line of cheese products in this
field. The Company further believes that the most important competitive
factors in the Company's markets are product appearance, taste, nutritional
value and price. Among the Company's competitors in the cheese industry are
national and regional manufactures of conventional and imitation cheeses,
such as Kraft (which produces products under the Kraft Free label), Borden's,
and ConAgra (which produces products under the Healthy Choice label). Each
of these competitors are well established. Therefore, they have substantially
greater research and development, marketing, financial and human resources
than the Company. However, management believes their current products do not
have all of the healthy characteristics that the Company's branded products
possess (i.e. no saturated fat, low unsaturated fat, no cholesterol, no
lactose and no artificial colorings or flavorings). In addition, management
believes the Company presently has the most extensive product line in the
cheese and cheese related category with the aforementioned health qualities.
Competitors may succeed in developing similar or enhanced products, and
because of greater resources, these competitors may prove more successful in
marketing and selling such products. There can be no assurance that the
Company will be able to compete successfully with any of these companies or
achieve a greater market share.
EMPLOYEES
As of June 20, 1996, the Company had a total of 51 employees, all of whom
were full-time employees. In addition, the Company also utilizes other
personnel through employee leasing companies and temporary contract
arrangements. The Company considers its relations with employees to be
satisfactory. No employee is a member of a trade union.
Item 2. Description of Property.
The Company's headquarters, sales offices, manufacturing, warehouse, and
research and development facilities occupy approximately 56,000 square feet
situated in Orlando, Florida. The Company's facilities are comprised of
approximately 8,500 square feet in office space, approximately 31,897 square
feet of dock-height, air-conditioned manufacturing space, and a cooler of
approximately 15,000 square feet. The Company entered into a lease
agreement with Anco Company, a Florida general partnership, on November 13,
1991. The initial term of the lease is for a five-year period expiring on
November 13, 1996 unless renewed. The lease further provides that it
can be renewed for one additional five-year period, subject to a rental
adjustment to be agreed upon by the partiesprovided that rent shall not be
less than the rental amount for the immediately preceding term nor greater
than 15% in excess of such rental amount. Currently, the Company is
negotiating the renewal of the lease with the landlord. After the first
renewal period, there are no limitations on the rent increase that may be
charged by the landlord in any further renewal periods. If the parties are
unable to agree upon a rental increase for any renewal period, then the lease
shall terminate as of the expiration of the last agreed upon period. The
Company leases approximately 2.4 acres of an approximately 5.2 acre site in
an industrial park, with the right of first refusal to lease the remaining 2.8
acres upon 20 days notice to the landlord in the event that the landlord
elects to lease such remaining land. The original lease provided for fixed
rental payments of $22,047 per month through the end of the initial five-year
lease term which expires on November 13, 1996. On April 1, 1994, the lease
was amended to provide for temporary abatement of the first three months rent,
the aggregate sum of which was paid in five equal monthly payments of
approximately $14,841, plus the fixed monthly rental payments, on the first
day of April, May, June, July, and August 1994. The lease is a "triple net"
lease which means that the Company is responsible for all taxes, insurance,
maintenance and repair of the facilities, in addition to rental payments. The
Company's manufacturing facility is
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capable of producing 156 million pounds of cheese per year. The Company
believes the capacity of production at the plant should be more than adequate
to cover the estimated growth of the Company for the next three to five years.
Management believes that the Company's properties are adequately covered by
casualty insurance.
The Company produces all of its products at this Orlando plant. Based on the
results for the fiscal years ended March 31, 1996 and 1995, the Company's
plant is producing approximately 2.3 and 4.5 million pounds of cheese
products, respectively, on an annualized basis, which is approximately 1.5%
and 2.9%, respectively, of plant capacity. The Company has production
equipment for mixing, blending, cooking and heating ingredients, cold
storage areas for cooling finished goods, and several warehouse areas where
ingredients are stored. The Company owns and leases equipment for
production, shredding, dicing, slicing, chopping, grating, packaging and
labeling of its products. All of the equipment has been purchased or leased
since the Company's fire in June 1991. The Company believes that its
facilities are adequate to meet current requirements, and that suitable
additional space is available as needed to accommodate any further physical
expansion of corporate operations.
Item 3. Legal Proceedings.
In the opinion of management, there are no material legal proceedings pending
or threatened against the Company as of March 31, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
On January 31, 1996, the Company held its annual meeting of shareholders.
At this meeting the shareholders voted, by an overwhelming majority, to amend
the Company's Certificate of Incorporation to increase the number of
authorized shares from 60,000,000 to 80,000,000. There were 46,285,022 votes
for, 2,111,423 against, 294,075 abstained and 666,500 non-votes for this
amendment. In addition, the shareholders voted on the appointment of the
following individuals to the Board of Directors:
Number of Shares
Name For Against
Angelo S. Morini 48,904,093 452,927
Douglas A. Walsh 48,904,288 452,732
Earl G. Tyree 48,893,693 463,327
Marshall K. Luther 48,888,593 468,427
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock, $.01 par value (the "Common Stock"), is traded on
the inter-dealer automated quotation system operated by NASDAQ, Inc. a
subsidiary of the National Association of Securities Dealers, Inc. (the
"NASDAQ System") under the symbol "GALX" in the category of Small-Cap Issues.
The following table sets forth the high and low sales prices for each quarter
for the Company's Common Stock as reported on the NASDAQ System during the
fiscal years ended March 31, 1996 and 1995:
Period High Sales Price Low Sales Price
1996 Fiscal Year, quarter ended:
June 30, 1995 $1 15/16 $0 11/16
September 30, 1995 $1 15/32 $0 15/32
December 31, 1995 $0 3/4 $0 15/32
March 31, 1996 $2 15/16 $0 7/16
1995 Fiscal Year, quarter ended:
June 30, 1994 $4 7/8 $2 3/16
September 30, 1994 $3 7/8 $2 7/16
December 31, 1994 $3 1/8 $1 1/2
March 31, 1995 $2 3/16 $1 3/16
All of the above quotations were obtained from the monthly statistical report
provided to the Company by the National Association of Securities Dealers, Inc.
On June 20, 1996, there were approximately 621 shareholders of record.
The Company has not paid any dividends with respect to its Common Stock and
does not expect to pay dividends on the Common Stock in the foreseeable
future. It is the present policy of the Company's Board of Directors to
retain future earnings to finance the growth and development of the Company's
business. Any future dividends will be declared at the discretion of the
Board of Directors and will depend, among other things, upon the financial
condition, capital requirements, earnings and liquidity of the Company. The
Company issued several series of convertible preferred stock in May and
June 1995, all of which called for cumulative dividend payments every
quarter until their conversion. Such dividends were paid in Common Stock to
the holders of the preferred stock. All of such preferred stock issued was
converted to Common Stock during fiscal 1996. See Management's Discussion and
Analysis or Plan of Operation for a discussion of the Company's current
capital position and dividend payments.
Item 6. Management's Discussion and Analysis or Plan of Operation.
RESULTS OF OPERATIONS
Sales for the fiscal year ended March 31, 1996 decreased by 16.8% over the
same period in 1995. This decrease in sales was primarily a result of the
Company's intentional removal of certain key retail products in the first two
quarters of fiscal 1996. Prior to fiscal 1996, these products were being
produced by a third party and the Company was not assured that product
quality and consistency could be maintained. In October 1995,
<PAGE>
the Company began producing these products in-house through the purchase of
new equipment and once again reinstated these products on the market.
Additionally, the Company was unable to fulfill some of its orders due to a
lack of working capital during the first six months of fiscal 1996. This, in
turn, resulted in the loss of repeat sales from some of its customers.
The Company noted that sales for the fourth quarter fiscal 1996 were
$1,651,789 compared to $443,109 in the same period in fiscal 1995. This 273%
increase is the result of the new items produced by the new equipment,
improved formulations on products and strategic marketing efforts.
Cost of goods sold as a percentage of sales was 106.3% for the fiscal year
ended March 31, 1996 compared with 102.2% for the same period in fiscal 1995.
The erosion in gross margin was primarily due to the lack of ingredients and
other raw materials required to maintain efficient production runs in the
first six months of fiscal 1996. Additionally, lack of credit terms with
most of its vendors forced the Company to purchase ingredients at unfavorable
prices. Also, 3.7% of the cost of goods sold in fiscal 1996 resulted from
increased taxes paid by the Company with respect to the real property which
it owns and leases for its plant. The Company believes that the cost of
manufacturing will decrease as a percentage of sales as economies of scale
are achieved with larger production runs, continued price scrutiny and higher
sales levels.
Selling expenses increased 16.5% for the fiscal year ended March 31, 1996
compared with the same period ended March 31, 1995. This increase was mainly
the result of increases in consulting services, travel and salaries expenses.
This considerable increase in marketing-related expenses was considered
necessary to develop new distributors for the Company's products. This
increase in marketing did not result in a proportionate increase in sales
because of the lack of product availability and the relatively long time it
takes to develop new distributors. Management believes that increases in
sales from these expenditures will be realized in the following year.
Delivery expenses decreased 38.5% for the fiscal year ended March 31, 1996
compared with the same period in 1995. On April 1, 1995, the Company started
using refrigerated common carriers as its main method of distribution instead
of relying on its own fleet of trucks. As a result, the Company is now able
to track the cost of transporting goods more accurately and efficiently. By
utilizing common carriers, the Company has been able to realize significant
cost savings while improving its deliveries to customers.
General and administrative costs decreased 33.1% during the fiscal year ended
March 31, 1996 compared to the same period in 1995. During much of fiscal
1995, the Company was forced to devote a large amount of resources and
expenses in preparing for a public offering. With this preparation, the
Company incurred a number of expenses that substantially increased general
and administrative costs. These expenses were not necessary during fiscal
1996, nor does the Company anticipate the need to incur these costs in the
near future.
Research and development expenses decreased 19.8% for the fiscal year ended
March 31, 1996 compared with the same period in fiscal 1995. This decrease is
the result of bonuses awarded during fiscal 1995 that were not given in
fiscal 1996. In addition, since the Company maintains its processes and
formulas on a computer database, changes in the formulations of existing
products or development of new products can be done in a matter of minutes
without much expense required. The Company does plan to continue to introduce
several new products each year.
<PAGE>
Other Income for the fiscal year ended March 31, 1996 increased 119.3% due to
the Company paying $487,287 less in interest in fiscal 1996 since all of the
Company's debt was paid in May 1995. In addition, the Company experienced an
$82,662 increase in interest income earned on the proceeds from the sale of
securities during fiscal 1996. Also, during fiscal 1995, the Company spent
$558,727 on a public offering of its securities that failed.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities -- The Company increased cash used in operating
activities by approximately 64% to $4,420,620 for the year ended March 31,
1996 from $2,690,661 for the same period last year. This net increase in the
use of funds is due primarily to a 36.3% decrease in cash received from
customers from the same period last year. The decrease in the rate of
collection is attributable to a significant reduction in sales. Also, the
Company stopped factoring its receivables during fiscal 1996, offering
discount terms to customers rather than paying fees to the factoring agent.
Additionally, the Company reduced its past debt with vendors, and
substantially increased its inventory to fill sales orders.
Between July and October 1995, the Company issued a total of 135,753 shares
of common stock in payment of dividends on the convertible preferred stock
sold during May and June 1995. Total stock dividends paid on the convertible
preferred stock was $137,977 before the preferred stock was converted to
common stock. See Financing Activities for further information on the
conversion.
Investing -- The Company spent $1,111,794 in investing activities for the
fiscal year ended March 31, 1996 compared with $143,682 for fiscal 1995.
During fiscal 1996, the Company made $1,055,468 in payments for a new, state
of the art individually wrapped slice machine and its related equipment and
labor. Management viewed this purchase as necessary in order to increase the
Company's presence in the retail market, as well as to make the Company's
products more competitive.
Financing -- The Company realized a net inflow of $5,644,145 from financing
activities for the fiscal year ended March 31, 1996 compared with $2,466,775
during the same period last year. This increase is the result of an offshore
offering of Common and Preferred Stock to raise needed capital. On March 3,
1995, the Company began to offer certain of its securities to non-U.S.
persons under Regulation S promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. These sales of
securities continued through the beginning of June 1995 with sales totaling
5,590,372 shares of Common Stock at the average price of $0.92 per share.
Additionally, the Company sold 353,755 shares of the Company's Convertible
Preferred Stock at an average price of $20.06 per share for total gross
proceeds of $7,095,700. The resulting proceeds from all securities sold
during the offering were approximately $12.2 million, of which $2,088,360 was
used to pay investment brokerage commissions and related offering fees and
over $3 million was used to eliminate the principal and accrued interest on
all debt owed to stockholders. Between May 1995 and September 1995, all of
the shares of Convertible Preferred Stock were converted into 16,760,458
shares of Common Stock at an average conversion rate of $0.42 per share.
The Company does not currently have a bank line of credit; therefore,
management finds it necessary to fund all operations through working capital,
internally generated cash flow, private placements and short-term financing
obtained from the Company's shareholders. A bank line of credit is an
essential source of working capital for the Company in order to continue
rapid expansion and to introduce new products into the market place.
Therefore, the Company will continue pursuing a relationship with a financial
institution in order to
<PAGE>
establish a line of credit. However, the Company does have in place a
factoring agreement with J.T.A. Factors, Inc. ("J.T.A.") of Greenville, South
Carolina, whereby the Company may sell certain of its accounts receivable to
J.T.A. on a pre-approved full recourse basis. The factoring charge equals
.73% of the receivables sold. The Company is permitted to receive advances
up to 85% of uncollected accounts factored at the time the receivables are
placed with J.T.A., with the remaining 15%, less the .73% factoring charge,
being paid to the Company upon collection. At March 31, 1996, the Company was
not factoring any of its accounts receivable. In addition, the Company is
obtaining letters of credit or establishing Certificates of Deposits in favor
of the vendor in the event of default by the Company in order to establish
favorable terms with vendors.
The management believes that these actions will allow the Company to meet its
future liquidity needs until the Company establishes a positive cash flow.
Accounting Methods -- The Company is required to adopt the provisions of
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of during its fiscal year ending March 31, 1997. SFAS 121 requires
the recognition and measurement of impairment to long-lived assets and
certain identifiable intangible assets whenever events or changes in
circumstances indicate that the carrying amount of those assets may not be
recoverable. This statement, when adopted, is not expected to have a
material impact on the Company.
Effective April 1, 1995, the Company adopted early the Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation which establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from nonemployees
in exchange for equity instruments. Under the provisions of SFAS 123, the
Company has elected not to adopt the fair value method for stock issued to
employees, but will instead account for all employee stock transactions under
APB Opinion No. 25, Accounting for Stock Issued to Employees.
Item 7. Financial Statements.
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Galaxy Foods Company
We have audited the accompanying balance sheet of Galaxy Foods Company as of
March 31, 1996 and the related statements of operations, stockholders' equity
and cash flows for each of the years ended March 31, 1996 and 1995. 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 the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Galaxy Foods Company as of
March 31, 1996 and the results of its operations and its cash flows for each
of the years ended March 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
/s/BDO Seidman, LLP
Orlando, Florida
May 23, 1996
<PAGE>
GALAXY FOODS COMPANY
Balance Sheet
ASSETS
MARCH 31,
1996
CURRENT ASSETS:
Cash and cash equivalents $ 127,936
Trade receivables, net of allowance of $137,420 717,437
Inventories 1,188,674
Prepaid expenses 289,317
Total current assets 2,323,364
PROPERTY & EQUIPMENT, NET 5,286,452
OTHER ASSETS 422,156
TOTAL $ 8,031,972
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 283,527
Accrued liabilities 323,594
Current portion of note payable 63,451
Current portion of obligations under capital leases 56,788
Total current liabilities 727,360
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 35,926
Total liabilities 763,286
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value,
authorized and unissued 1,000,000 shares --
Common stock, $.01 par value, shares authorized
85,000,000, issued and outstanding 53,421,848 534,218
Additional paid-in capital 35,452,644
Accumulated deficit (15,921,976)
20,064,886
Less: Notes receivable arising from the exercise
of stock options and sale of common stock 12,796,200
Total stockholders' equity 7,268,686
TOTAL $ 8,031,972
See accompanying notes to financial statements.
<PAGE>
GALAXY FOODS COMPANY
Statements of Operations
Year ended March 31, 1996 1995
NET SALES $ 3,950,455 $ 4,748,283
COST OF GOODS SOLD 4,199,571 4,850,468
Gross margin (249,116) (102,185)
OPERATING EXPENSES:
Selling 1,354,357 1,162,998
Delivery 296,592 482,152
General and administrative 1,453,730 2,172,927
Research and development 112,854 140,716
Total operating expenses 3,217,533 3,958,793
OPERATING LOSS (3,466,649) (4,060,978)
OTHER INCOME (EXPENSE):
Interest expense (66,190) (553,477)
Interest income 85,482 2,820
Litigation expense (39,000) --
Failed public offering costs -- (558,727)
Other income 203,759 156,784
Total 184,051 (952,600)
NET LOSS (3,282,598) (5,013,578)
PREFERRED STOCK DIVIDENDS (137,977) --
NET LOSS APPLICABLE TO
COMMON STOCK $ (3,420,575) $ (5,013,578)
LOSS PER COMMON SHARE $ (.13) $ (.54)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 26,316,832 9,309,249
See accompanying notes to financial statements.
<PAGE>
GALAXY FOODS COMPANY
Statements of Stockholders' Equity
<TABLE>
<CAPTION> Convertible
Common Stock Preferred Stock Additional Notes Rec &
Par Par Paid-In Accumulated Subs. for
Shares Value Shares Value Capital Deficit Common Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 7,770,317 $ 77,703 -- $ -- $ 9,836,310 $ (7,487,823) $ -- $ 2,426,190
Issuance of common stock
through Regulation S and
private offerings 2,220,000 22,200 -- -- 2,045,797 -- -- 2,067,997
Issuance of common stock in
payment of lock-up agreements 212,125 2,121 -- -- 564,632 -- -- 566,753
Issuance of common stock in
payment of consulting fees 412,180 4,122 -- -- 793,142 -- -- 797,264
Issuance of common stock
as compensation 25,209 252 -- -- 39,934 -- -- 40,186
Exercise of warrants 890,095 8,901 -- -- 986,846 -- -- 995,747
Exercise of options 2,494,900 24,949 -- -- 1,181,361 -- (1,200,000) 6,310
Issuance of common stock
warrants in payment of
consulting fees -- -- -- -- 75,000 -- -- 75,000
Issuance of common stock
options as compensation -- -- -- -- 7,292 -- -- 7,292
Net Loss -- -- -- -- -- (5,013,578) -- (5,013,578)
Balance at March 31, 1995 14,024,826 $ 140,248 -- $ -- $ 15,530,314 $ (12,501,401) $ (1,200,000) $ 1,969,161
Exercise of options 64,000 640 -- -- 31,360 -- (24,000) 8,000
Issuance of common stock
through Reg S offering 3,978,464 39,785 -- -- 1,780,393 -- -- 1,820,178
Issuance of convertible preferred
stock through Reg S offering -- -- 353,755 3,537 5,990,557 -- -- 5,994,094
Stock dividends paid 135,753 1,358 -- -- 136,619 (137,977) -- 0
Conversion of convertible preferred
stock into common stock 16,760,458 167,604 (353,755) (3,537) (164,067) -- -- 0
Reversal to unissued stock (4,153) (42) -- -- (5,928) -- -- (5,970)
Issuance of common stock
per employment agreement 18,000,000 180,000 -- -- 11,392,200 -- (11,572,200) 0
Issuance of common stock in
payment of consulting fees 200,000 2,000 -- -- 108,500 -- -- 110,500
Exercise of warrants 240,000 2,400 -- -- 181,850 -- -- 184,250
Issuance of common stock under
employee stock purchase plan 22,500 225 -- -- 11,025 -- -- 11,250
Issuance of warrants -- -- -- -- 459,821 -- -- 459,821
Net loss -- -- -- -- -- (3,282,598) -- (3,282,598)
Balance at March 31, 1996 53,421,848 $ 534,218 -- $ -- $ 35,452,644 $ (15,921,976) $(12,796,200) $ 7,268,686
</TABLE>
<PAGE>
GALAXY FOODS COMPANY
Statements of Cash Flows
Year ended March 31, 1996 1995
CASH FLOWS FROM/(USED IN)
OPERATING ACTIVITIES:
Net Loss $ (3,420,575) $ (5,013,578)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Depreciation expense 350,099 315,064
(Gain)/Loss on assets (20,709) 22,358
Provision for losses on trade receivables 87,834 4,554
Issuance of common stock in payment
of compensation and consulting fees 110,500 803,234
Issuance of common stock options as compensation -- 7,292
Issuance of common stock warrants in payment of
consulting and director fees 130,027 75,000
Issuance of common stock in payment
of lockup agreements -- 566,753
Reversal to unissued stock (5,970) --
Preferred stock dividends 137,977 --
(Increase) decrease in:
Trade receivables (685,095) 374,736
Inventories (660,278) 664,653
Prepaid expenses 6,945 (219,054)
Increase (decrease) in:
Accounts payable (456,074) (31,110)
Accrued liabilities 4,699 (260,563)
NET CASH USED IN OPERATING
ACTIVITIES (4,420,620) (2,690,661)
CASH FLOWS FROM/(USED IN) INVESTING
ACTIVITIES:
Proceeds from sale of property and equipment 29,668 95,992
Purchase of property and equipment (1,142,632) (80,000)
Decrease in other assets 1,170 5,126
Deposit on equipment -- (164,800)
NET CASH USED IN INVESTING
ACTIVITIES (1,111,794) (143,682)
CASH FLOWS FROM/(USED IN) FINANCING
ACTIVITIES:
Principal payments on stockholder notes (2,697,388) (116,839)
Principal payments on note payable and long-term debt -- (31,004)
Principal payments on capital lease obligations (79,403) (52,272)
Proceeds from issuance of common stock,
net of offering costs 1,925,782 2,067,997
Proceeds from issuance of convertible preferred
stock, net of offering costs 6,302,904 --
Proceeds from exercise of common stock options 8,000 6,310
Proceeds from exercise of common stock warrants 184,250 995,747
Deferred public offering costs -- (403,164)
NET CASH FROM FINANCING
ACTIVITIES 5,644,415 2,466,775
<PAGE>
GALAXY FOODS COMPANY
Statements of Cash Flows (continued)
Year ended March 31, 1996 1995
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 111,731 (367,568)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 16,205 383,773
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 127,936 $ 16,205
See accompanying notes to financial statements.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Business
Galaxy Foods Company (the "Company") is principally engaged in the development,
manufacturing and marketing of a variety of low fat, cholesterol-free and
lactose-free healthy cheese products. These cheeses are sold throughout the
United States and internationally to customers in the retail, food service
and manufacturing industries. The Company's headquarters and manufacturing
facilities are located in Orlando, Florida.
Inventories
Inventories are valued at the lower of cost (weighted average) or market.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting and by accelerated methods for income tax purposes.
Capital leases are recorded at the lower of fair market value or the present
value of future minimum lease payments. Assets under capital leases are
depreciated by the straight-line method over their useful lives.
Revenue Recognition
Sales are recognized upon shipment of products to customers.
Net Loss per Share
Net loss per share is computed using the weighted average number of shares
outstanding during each period. Common stock equivalents have not been
included since the effect would be antidilutive.
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of March 31, 1996.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
cash equivalents, trade receivables, accounts payable and accrued expenses.
Fair values were assumed to approximate carrying values for these financial
instruments since they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on demand.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires recognition of estimated income taxes payable or refundable on income
tax returns for the current year and for the estimated future tax effect
attributable to temporary differences and carryforwards. Measurement of
deferred income tax is based on enacted tax laws including tax rates, with
the measurement of deferred income tax assets being reduced by available tax
benefits not expected to be realized.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
New Accounting Standard
The Company is required to adopt the provisions of Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" during its
fiscal year ending March 31, 1997. SFAS 121 requires the recognition and
measurement of impairment to long-lived assets and certain identifiable
intangible assets whenever events or changes in circumstances indicate that
the carrying amount of those assets may not be recoverable. This statement,
when adopted, is not expected to have a material impact on the Company.
Change in Method of Accounting for Stock-Based Compensation
Effective April 1, 1995, the Company adopted early the Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" which establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from nonemployees
in exchange for equity instruments. Under the provisions of SFAS 123, the
Company has elected not to adopt the fair value method for stock issued to
employees, but will instead account for all employee stock transactions under
APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period reported.
Actual results could differ from those estimates.
(2) Accounts Receivable
Pursuant to the terms of a factoring agreement, the Company is able to sell
certain of its accounts receivable to a factor on a pre-approved full recourse
basis. The factoring charge amounts to .73% of the receivables sold after and
1.65% of the receivables sold before January 29, 1996. The Company is
permitted to receive advances of up to 85% of uncollected amounts factored at
the time that the receivables are placed with the factoring agent, with the
remaining 15%, minus the factoring charge, being paid to the Company upon
collection. At March 31, 1996, the Company was not factoring any of its
receivables. The Company's President has personally guaranteed the
repayment of any advanced and uncollected amounts.
(3) Inventories
Inventories are summarized as follows:
Raw materials $ 770,940
Finished goods 417,734
Total $ 1,188,674
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Property and Equipment
Property and equipment are summarized as follows:
Useful Lives
Leasehold improvements 10-25 years $ 2,672,811
Machinery and equipment 5-15 years 3,461,822
Delivery equipment and autos 3- 5 years 15,652
Equipment under capital leases 7-15 years 307,686
6,457,971
Less accumulated depreciation 1,171,519
Property and equipment, net $ 5,286,452
Accumulated depreciation on equipment under capital leases was $126,368 as of
March 31, 1996.
(5) Notes Payable to Stockholders
In May 1995, the Company paid approximately $2.5 million to a stockholder as
payment in full for principal and accrued interest under a promissory note
payable. In addition, the Company paid $271,842 during fiscal 1996 major
stockholder and officer of the Company as full satisfaction of another
promissory note. As of March 31, 1996, the Company has no outstanding notes
payable to stockholders.
(6) Note Payable
Note payable consists of an unsecured note payable to a third party, bearing
interest at prime plus 3% (11.25% at March 31, 1996). The entire balance is
due currently.
(7) Commitments and Contingencies
Leases
The Company leases its operating facilities and certain equipment under
operating and capital leases, expiring at various dates through the year 2000.
The following is a schedule by years as of March 31, 1996, of (1) future
minimum lease payments under capital leases, together with the present value
of the net minimum lease payments and (2) future minimum rental payments
required under operating leases that have initial or remaining terms in
excess of one year:
Capital Operating
Leases Leases
1997 $ 64,926 $ 237,924
1998 23,692 34,223
1999 14,523 19,217
2000 2,475 3,028
Total net minimum lease payments 105,616 $ 294,392
Less amount representing interest 12,902
Present value of net minimum lease payments 92,714
Less current portion 56,788
Long-term obligations under capital leases $ 35,926
Rental expense was approximately $416,000 and $518,000 for the fiscal years
ended March 31, 1996 and 1995, respectively.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
The Company is currently negotiating the renewal of the lease on its
operating facility which is set to expire in November 1996.
Litigation
During fiscal 1996, the Company agreed to pay their former in-house legal
counsel $39,000 in back wages in accordance with his severance agreement.
Accordingly, the Company has accrued $39,000 at March 31, 1996 in
anticipation of this settlement.
Employment Agreement
The Company has entered into an employent agreement with the Company's
President. The agreement provides for base compensation of $250,000 annually
through October 2000. In addition to the base compensation, the President
will receive an annual bonus equal to five percent of the Company's pre-tax
net income. The employment agreement also provides for the grant of common
stock options upon the Company's achievement of certain net income levels as
follows:
Net Income Level Option Shares
Reaching breakeven for one quarter 1,000,000
Annual net operating income of $1 million or more 1,000,000
Each increment of $1 million of annual net operating
income in excess of $1 million 1,000,000
The exercise price of the options granted will be equal to the market value
of the Company's common stock on the last trading day preceding the date of
the Company's achievement of the required net income level.
(8) Capital Stock
Stock Option Plans
Stock options are granted to certain key employees and Board of Directors of
the Company under stock option plans adopted in 1987 and 1991. The plans
provide for options to purchase up to a maximum of 750,000 shares of
the Company's common stock. The stock options are exercisable, as determined
by the Board of Directors, over a period of time, but not more than ten years
from the date of grant and will be subject to such other terms and conditions
as the Board of Directors may determine. If options are granted or extended
at exercise prices less than fair market value, compensation expense is
recorded for the difference between the grant price and the fair market
value. Changes in options outstanding are summarized as follows:
Option Price
Shares Per Share
Balance, March 31, 1994 500,000 $ .50 - 5.38
Granted 25,500 1.00
Exercised ( 7,900) .50
Canceled (15,000) .50
Balance, March 31, 1995 502,600 .50 - 5.38
Granted 143,000 .50 - .62
Exerc (64,000) .50
Canceled (48,000) .50
Balance, March 31, 1996 533,600 $ .50 - 5.38
At March 31, 1996, a total of 457,764 of the outstanding options were
exercisable.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Non-Plan Stock Options
The Company granted stock options to certain employees and Directors of the
Company which were not issued under stock option plans. The options are
exercisable over a ten-year period from the date of grant. Changes in
non-plan stock options outstanding are as follows:
Option Price
Shares Per Share
Balance, March 31, 1994 2,584,501 $ .50 - 2.00
Exercised (2,486,000) .50
Balance, March 31, 1995 98,501 2.00
Granted 15,000 .81
Canceled (1,000) 2.00
Balance, March 31, 1996 112,501 $ .81 - 2.00
Employee Stock Purchase Plan
In January 1992, the Company's stockholders approved the 1991 Employee Stock
Purchase Plan (the "1991 Purchase Plan"). The 1991 Purchase Plan provides for
the sale of up to an aggregate of 250,000 shares of common stock to eligible
employees. Up to 2,500 shares may be purchased by each eligible employee at
the lesser of 85% of the fair market value of the shares on the first or last
business day of the six-month purchase periods ending August 31 and February
28. Substantially all full-time employees are eligible to participate in the
plan. During the fiscal year ended March 31, 1996, 22,500 shares were
purchased at $.50 per share. No shares were purchased under this plan during
the fiscal year ended March 31, 1995.
Stock Warrants
At March 31, 1996, the Company had 6,700,461 common stock warrants outstanding,
which were issued in connection with sales consulting, financial consulting,
and financing arrangements. Information relating to these warrants is
summarized as follows:
Number of Exercise
Expiration date Warrants Price
June 1997 40,000 $ .53
August 1998 510,000 .90
March 2000 973,824 .74 - .99
September 2000 676,637 .74
December 2000 2,000,000 .56
January 2001 50,000 .53
August 2005 50,000 .64
November 2005 50,000 .59
December 2005 2,050,000 .53
January 2006 300,000 .69
6,700,461
On August 28, 1995, the Company entered into a one year agreement with a now
current Director residing on the Board of Directors of the Company for him to
serve in the capacity of Senior Vice President of Marketing. Under the terms
of this contract, the Director received a warrant to purchase 50,000 shares of
the Company's Common Stock at $0.64 per share.
Shares Reserved
At March 31, 1996, the Company has reserved common stock for future issuance
under all of the above arrangements totaling 7,701,228 shares.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Common Stock Options and Warrants Issued for Compensation and Consulting
During the fiscal years ended March 31, 1996 and 1995, compensation and
consulting expense of $130,027 and $7,292, respectively, was recognized on
common stock options and warrants granted to officers, directors and
consultants. In addition, $329,794 has been recorded in other assets as of
March 31, 1996 for the value of warrants issued for future services. All such
options and warrants were recorded as additional paid-in capital during the
fiscal years ended March 31, 1996 and 1995.
Authorized Shares
On July 11, 1995 and November 28, 1995, the Company's Board of Directors
approved increases in the authorized shares of common stock from 20,000,000 to
60,000,000, and from 60,000,000 to 85,000,000, respectively. These amendments
were then consented to and authorized on July 11, 1995 and January 31, 1996 by
the holders of a majority of the issued and outstanding stock of the Company.
(9) Sale of Securities
On March 3, 1995, the Company began to offer certain of its securities to non-
U.S. persons under Regulation S promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The sales of
securities continued through the beginning of June 1995, with sales totaling
5,590,372 shares of common stock at an average price of $0.92 per share.
Additionally, the Company sold 353,755 shares of the Company's Convertible
preferred stock at an average price of $20.06 per share. The resulting
proceeds from all securities sold during the offering were approximately
$12.2 million, $2,088,360 of which were used to pay investment brokerage
commissions and related offering fees, and over $3 million was used to
eliminate the principal and accrued interest on all debt owed to stockholders.
By September 30, 1995, all of the shares of convertible preferred stock had
been converted into 16,760,458 shares of common stock in accordance with the
terms of the convertible preferred stock agreement. The average conversion
rate was $0.42 per common share.
The holders of the convertible preferred stock mentioned above were entitled
to receive cash dividends on each share from any surplus or net profits at a
rate of 10% per annum based upon the respective purchase price paid by each
investor; or at the Company's sole discretion, the holders were entitled to
receive shares of the Company's common stock at a rate of 11% per annum. This
dividend was cumulative and payable before any dividends on the common stock
could be paid. The dividends on the convertible preferred stock paid during
fiscal 1996 totaled $137,977. These dividends were paid through the issuance
of a total of 135,753 shares of common stock in July 1995 and October 1995.
Under a selling agreement entered into with Sands Brothers & Co., Ltd.
("Sands"), the Company's agent in connection with the aforementioned offering,
Sands and its designees received warrants to purchase a total of 1,650,461
shares of common stock, with exercise prices of $0.74 and $0.99 per share.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
(10) Income Taxes
The components of the net deferred assets consist of the following:
1996
Deferred tax assets:
Net operating loss carryforwards $ 6,364,000
Investment and general business tax credits 199,000
Nondeductible expenses from stock warrants 182,000
Nondeductible compensation from stock options 39,000
Bad debts 52,000
Other 36,000
Gross deferred income tax assets 6,872,000
Valuation allowance (6,668,000)
Total deferred income tax assets 204,000
Deferred income tax liabilities:
Depreciation (204,000)
Net deferred income tax assets $ --
The change in the valuation allowance for deferred tax assets was an increase
of $1,254,000 during fiscal 1996.
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
Year ended March 31, 1996 1995
Federal income taxes at statutory rates (34.0%) (34.0%)
Losses without tax benefits 34.0% 34.0%
Income taxes at effective rates 0% 0%
Unused net operating losses for income tax purposes, expiring in various
amounts from 2003 through 2011, of approximately $16,912,000 are available at
March 31, 1996 for carryforward against future years' taxable income. Under
Section 382 of the Internal Revenue Code, the annual utilization of this loss
may be limited due to changes in ownership. The tax benefit of these losses
of approximately $6,364,000 has been offset by a valuation allowance due to it
being more likely than not that the deferred tax assets will not be realized.
(11) Related Party Transaction
Under the provisions of his employment agreement, the Company's President was
granted the right to purchase up to 18,000,000 shares of the Company's common
stock. In October 1995, the President elected to purchase all 18,000,000
shares. As consideration for the purchase and as stipulated for in his
employment agreement, the President executed an $11,572,200 note payable to
the Company. The note bears interest at 7% per annum and is secured by the
common shares purchased. The principal balance, along with any accrued
interest, is payable in full in October 2000. If certain conditions are met,
the note may be extended up to five additional years. No interest receivable
related to the note has been accrued.
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
Under this employment agreement, the Company also extended the maturity date
of a $1,200,000 non-interest bearing promissory note due from the President
from November 4, 1999 to November 4, 2001. The promissory note was executed
during the fiscal year ended March 31, 1995 in connection with the exercise of
options previously granted by the Company.
(12) Economic Dependence
For the fiscal year ended March 31, 1996, the Company had one customer which
comprised sales approximating $708,000 or 18% of net sales. For the fiscal
year ended March 31, 1995, the Company had another customer which comprised
sales approximating $475,000 or 10% of net sales.
For the fiscal year ended March 31, 1996, the Company had no major supplier
which comprised more than 10% of purchases in fiscal 1996. For the fiscal
year ended March 31, 1995, the Company had two major suppliers which
comprised purchases approximating $1,102,000 or 32% of total purchases.
(13) Employee Benefit Plan
The Company established a 401(k) defined contribution plan covering
substantially all employees meeting certain minimum age and service
requirements. The Company's contributions to the plan are determined by the
Board of Directors and are limited to a maximum of 25% of the employee's
contribution and 6% of the employee's compensation. Contributions to the plan
amounted to $10,154 and $7,763 for the fiscal years ended March 31, 1996 and
1995, respectively.
(14) Supplemental Cash Flow Information
For purposes of the statement of cash flows, all highly liquid investments
with a maturity date of three months or less are considered to be cash
equivalents. Cash and cash equivalents include checking accounts and money
market funds.
Year ended March 31, 1996 1995
Noncash financing and investing activities:
Purchase of equipment through capital lease
obligations $ 10,652 $ --
Deposit on equipment applied toward the equipment
purchase 164,800 --
Deferred public offering costs applied to the
proceeds 403,164 --
Note receivable from exercise of common stock
options and sale of common stock 11,596,200 1,200,000
Employee severance payment made through issuance
of common stock -- 34,216
Consulting and directors fees paid through issuance
of common stock warrants 329,794 --
Cash paid for:
Interest 64,946 748,366
<PAGE>
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(Continued)
(15) Subsequent Event
Sale of Securities
Subsequent to March 31, 1996, the Company completed a private placement of
1,337,524 shares of the Company's common stock at an aggregate price of
$2,000,000, and 4,000 shares of the Company's convertible preferred stock
at an aggregate price of $4,000,000. The holders of the convertible preferred
stock have the right to convert such shares into shares of the Company's
common stock at any time after June 30, 1996 at a conversion price equal to
71.5% of the average market price of the common stock for the five consecutive
trading days ending one trading day prior to the date of the Company's receipt
of a notice of conversion from the holder; provided that none of the buyers'
aggregate shares of the Company's common stock exceed 4.9% of the then
outstanding shares of common stock.
Equipment Purchases
Subsequent to March 31, 1996, the Company made a commitment to purchase
equipment from a vendor for a total cost of approximately $1,448,000. The
Company paid approximately $217,000 in May 1996 as a downpayment toward this
equipment.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following table sets forth the current directors and executive officers of
the Company as of June 20, 1996, as well as their respective ages and positions
with the Company:
Name Age Positions
Angelo S. Morini (1)(2) 53 Chairman of the Board of Directors,
President, and Chief Executive Officer
LeAnn H. Davis 26 Chief Financial Officer and Assistant
Secretary
Earl G. Tyree (1) 75 Director
Douglas A. Walsh (1)(2) 51 Director
Marshall K. Luther(2) 43 Director
Richard D. Gentile 39 Director until January 1996
(1) Compensation and Benefits Committee
(2) Audit Committee
Each director is elected to hold office until the next annual meeting of
shareholders and until his successor is chosen and qualified. The officers of
the Company are elected annually at the first Board of Directors meeting
following the annual meeting of shareholders, and hold office until their
respective successors are duly elected and qualified, unless sooner displaced.
There are no family relationships among the Company's executive officers.
Angelo S. Morini has been President of the Company since its inception and is
the inventor of formagg. He was elected Chairman of the Board of Directors,
President, and Chief Executive Officer in 1987. Between 1974 and 1980, Mr.
Morini was the general manager of Galaxy Cheese Company, which operated as a
sole proprietorship until its incorporation in May 1980. Prior to 1974, he
was associated with the Food Service Division of Pillsbury Company and the
Post Division of General Foods Company. In addition, he worked in Morini
Markets, his family-owned and operated chain of retail grocery stores in the
New Castle, Pennsylvania, area. Mr. Morini received a B.S. degree in Business
Administration from Youngstown State University in 1968.
LeAnn H. Davis, CPA was employed by the Company as the Controller on December
18, 1995 and on January 18, 1996 was elected Chief Financial Officer and
Assistant Secretary. Prior to joining the Company, Ms. Davis worked as an
senior auditor for Coopers and Lybrand LLP in Orlando, Florida from 1994 to
1995. From 1992 to 1994, she worked for the local public accounting firm of
Pricher and Company in Orlando, Florida as a senior auditor and tax
accountant. Prior to 1992, Ms. Davis worked for Arthur Andersen LLP as a
staff auditor. During her years in public accounting, Ms. Davis was
responsible for coordinating and overseeing audits on a variety of clients
including manufacturing, insurance and pharmaceutical companies, time-share
developers and homeowners associations, as well as not-for-profit
organizations. Ms. Davis earned a BS in Business Administration and a BS
in Accounting from Palm Beach Atlantic College in West Palm Beach, Florida in
May 1990 and a Masters in Accounting from Florida State University,
Tallahassee, Florida in August 1991.
<PAGE>
Earl G. Tyree has been a director of the Company since September 1992. From
1980 to present, Mr. Tyree has been President of Bruce Novograd Advertising
Agency, a company he co-founded. From 1975 to 1979, Mr. Tyree was with
American Home Products Corporation, as President - John F. Murray Division.
From 1961 to 1975, Mr. Tyree was most recently President and Chief Executive
Officer of the Bayer Company (Bayer Aspirin), the Charles H. Philips Company
(Milk of Magnesia), and Glenbrook Laboratories, all divisions of Sterling
Drug, Inc. Mr. Tyree attended the University of Richmond where he majored in
accounting.
Douglas A. Walsh, D.O., has been a director of the Company since January
1992. Dr. Walsh has been a practicing physician since 1970, specializing in
Family Practice and Sports Medicine. From 1984 to present, he has been
affiliated with Family Doctors, a four-physician group located in Tampa,
Florida. From 1971 to 1984, he was the Health Commissioner for Mahoning
County, Ohio, and from 1983 to 1985, he was the Clinic Commander for the
U.S. Air Force 911 Tac Clinic in Pittsburgh, Pennsylvania. From 1985 to
1988, he was a flight surgeon at Patrick Air Force Base, Cocoa Beach,
Florida. Dr. Walsh's teaching appointments include Associate Professor of
Family Practice (Clinical) at Ohio University and Clinical Preceptor at the
University of Health Sciences, Kansas City, Missouri. Dr. Walsh received a
B.S. degree in Microbiology from the University of Houston, Houston, Texas,
in 1965, and a D.O. degree from the University of Health Sciences, Kansas
City, Missouri, in 1970. Dr. Walsh also serves as a team physician for the
Pittsburgh Pirates and as a consultant for the Atlanta Braves.
Marshall K. Luther was elected to the Board of Directors on January 31, 1996.
From 1993 to 1995, Mr. Luther served as Senior Vice President, Marketing of
Tropicana Products, Inc. and from 1975 to 1992, he served in various
marketing positions for General Mills International Restaurants. Mr. Luther
received his BS in Engineering from Brown University in 1974 and his M.B.A.
in Marketing from the Wharton Graduate School of Business in 1976.
Richard D. Gentile, M.D., had been a director of the Company since June 1993.
His term ended with the Company at the annual shareholders meeting on January
31, 1996. Dr. Gentile has been a practicing physician since 1982,
specializing in Otolaryngology - Head and Neck Surgery. Dr. Gentile received
a B.S. degree in Genetics from Ohio State, Columbus, Ohio in 1987, a Doctor
of Medicine from the University of Cincinnati, Ohio, in 1982, and a Master's
degree in Business Administration from Youngstown State University in 1991.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based upon the Company's review of Forms 5 furnished to the Company with
respect to its fiscal year ended March 31, 1996, each of the following
directors, officers or beneficial owners of more than ten percent of the
Company's Common Stock filed a Form 5 reporting previously unreported
transactions which were reportable, or previously unreported holdings which
became reportable, during such fiscal year: Earl G. Tyree, Douglas A. Walsh
and Richard D. Gentile. Each of these directors reported holdings which
became reportable on or before November 10, 1995. All of the Forms 5 were
filed on a timely basis.
<PAGE>
Item 10. Executive Compensation.
The following table sets forth the compensation of the Company's Chief
Executive Officer and any executive officer of the Company, other than the
Chief Executive Officer, whose aggregate compensation exceeded $100,000
for the fiscal years ended March 31, 1996, 1995, and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under- Other
Name and Compen- Stock lying LTIP Compen-
Principal Fiscal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Angelo S. Morini (1) 1996 227,917 - 14,704(2) 11,572,200 18,000,000 - -
Chairman of the 1995 196,999 - 14,496(3) 1,200,000 2,400,000 - -
Board of Directors 1994 192,824 - 8,257(4) - - - -
President, and Chief
Executive Officer
</TABLE>
(1) For the fiscal years ended March 31, 1996, 1995, and 1994, Mr. Morini
was also paid $8,208, $33,577 and $24,535, respectively, for interest on
three loans, aggregating $1,035,652, made to the Company by Mr. Morini. The
interest rates on these notes ranged from 12% to 14% per annum. These notes
were paid in full by June 7, 1995. On October 10, 1995, the Company entered
into an employment agreement with Mr. Morini upon terms and conditions
approved by the Board of Directors. In accordance with the terms of such
employment agreement, Mr. Morini was granted the right to purchase up to
18,000,000 shares of the Company's Common Stock at a per share price of 110%
of the average closing bid price as reported on the NASDAQ System for the ten
trading days preceding the receipt by the Company of written notice of Mr.
Morini's election to purchase shares. Mr. Morini exercised this option on
October 11, 1995, for a price per share of $0.6429 and currently owes
$11,572,200 for a note payable to the Company. On August 11, 1993, the Board
of Directors approved the issuance to Angelo S. Morini of an option to
purchase 2,400,000 shares of the Company's Common Stock for a purchase price
of $.50 per share in consideration for Mr. Morini's past services to the
Company, the pledge by Mr. Morini of all of then-current shares owned by
Mr. Morini to the Company's principal lender, J&C Resources, Inc. ("J&C"), to
secure loans made to the Company, and the subordination of all loans made by
Mr. Morini to the Company to payment of the sums due J&C. Mr. Morini
exercised this option on November 4, 1994 and currently owes $1,200,000 for a
note payable to the Company. See "Management - Certain Relationships and
Related Party Transactions."
(2) For the fiscal year ended March 31, 1996, the Company paid $9,107 in
lease payments for Mr. Morini's automobile and $5,597 in club dues for
Mr. Morini.
(3) For the fiscal year ended March 31, 1995, the Company paid $9,107 in
lease payments for Mr. Morini's automobile and $5,389 in club dues for
Mr. Morini.
(4) For the fiscal year ended March 31, 1994, the Company paid $8,257 in
lease payments for Mr. Morini's automobile.
<PAGE>
Each non-employee director who served on the Board of Directors during the
last fiscal year received a fee plus expenses for his services. The fee was
$500 per meeting for fiscal years after March 31, 1993. The following table
sets forth information concerning individual grants of stock options and
freestanding stock appreciation rights ("SARs") made during the fiscal year
ended March 31, 1996, to each of the executive officers named in the Summary
of Compensation Table above:
OPTION/SAR GRANTS
For the Fiscal Year Ended March 31, 1996
Individual Grants
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
Angelo S. Morini(1) 18,000,000 99% $0.6429 8/10/2000
(1) On October 10, 1995, the Company entered into an employment agreement with
Mr. Morini upon terms and conditions approved by the Board of Directors. In
accordance with the terms of such employment agreement, Mr. Morini was granted
the right to purchase up to 18,000,000 shares of the Company's Common Stock at
a per share price of 110% of the average closing bid price as reported on the
NASDAQ System for the ten trading days preceding the receipt by the Company of
written notice of Mr. Morini's election to purchase shares. Mr. Morini
exercised this option on October 11, 1995, for a price per share of $0.6429 and
currently owes $11,572,200 for a note payable to the Company. See "Management
- - Certain Relationships and Related Transactions."
The following table sets forth information concerning each exercise of stock
options and freestanding stock appreciation rights during the fiscal year
ended March 31, 1996, by each of the executive officers named in the Summary
of Compensation Table above, and the fiscal year-end value of unexercised
options and SARs.
OPTION/SAR EXERCISES
For the Fiscal Year Ended March 31, 1996
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Value
Acquired Realized Exer- Unexer- Exer- Unexer-
Name on Exercise (#) ($) cisable cisable cisable cisable
Angelo S. Morini (1) 18,000,000 11,572,200 141,500 0 221,094(2) 0
(1) On October 10, 1995, the Company entered into an employment agreement with
Mr. Morini upon terms and conditions approved by the Board of Directors. In
accordance with the terms of such employment agreement, Mr. Morini was granted
the right to
<PAGE>
purchase up to 18,000,000 shares of the Company's Common Stock at a per share
price of 110% of the average closing bid price as reported on the NASDAQ
System for the ten trading days preceding the receipt by the Company of
written notice of Mr. Morini's election to purchase shares. Mr. Morini
exercised this option on October 11, 1995, for a price per share of $0.6429
and currently owes $11,572,200 for a note payable to the Company. See
"Management - Certain Relationships and Related Transactions."
(2) The value of the unexercised shares at March 31, 1996 is based on the
difference between the closing sales price of the Company's Common Stock of
$2.0625 on March 29, 1996 and an exercise price of $0.50.
EMPLOYMENT AGREEMENT OF CHIEF EXECUTIVE OFFICER
As of October 10, 1995, the Company entered into an Employment Agreement (the
"Agreement") with Angelo S. Morini, the Company's President and Chief
Executive Officer. The Agreement has a term of five years and provides for an
annual base salary of $250,000. Additionally, Mr. Morini will receive an
annual bonus in an amount equal to five percent of the Company's pre-tax net
income for book purposes, as determined by the Company's independent certified
public accounting firm. Other material provisions of the Agreement are as
follows:
1. Mr. Morini shall have the right to purchase (the "Purchase Rights") up to
18,000,000 shares of the Company's Common Stock at a per share price of 110%
of the average closing bid price as reported on the NASDAQ System for the ten
trading days preceding the receipt by the Company of written notice of Mr.
Morini's election to purchase shares. The purchase price for such shares may
be evidenced by a promissory note executed by Mr. Morini in favor of the
Company, which note shall bear interest at a rate at least equal to the
applicable federal rate established by the United States Internal Revenue
Service. The promissory note shall have a term of five years. Mr. Morini
shall have the option to extend the note for up to five additional years
provided that he pays at least one-third of the then accrued but unpaid
interest, with any remaining unpaid interest to be added to principal. Any
such promissory note shall be secured by a first priority security interest in
all shares purchased by Mr. Morini in conjunction with the exercise of the
Purchase Rights as evidenced by a stock pledge and security agreement executed
by Mr. Morini in favor of the Company.
2. Mr. Morini shall be granted certain options to purchase Common Stock upon
the Company's achievement of each of the following milestone events:
Milestone Event Number of Options Granted
Reaching break-even for a 1,000,000
calendar quarter
Annual net operating income 1,000,000
of $1,000,000 or more
Each increment of $1,000,000 1,000,000
of annual net operating income
in excess of $1,000,000
Each of the options granted as aforesaid shall have a term of five years from
the date granted and shall be exercisable in whole or in part upon the delivery
by Mr. Morini to the Company of written notice of exercise. The exercise
price for each of the options shall be the closing bid price of the Company's
Common Stock on the trading day immediately
<PAGE>
preceding the Company's achievement of the related milestone event as
established by the NASDAQ System. The exercise price for any such option
shares may be evidenced by a promissory note executed by Mr. Morini in favor
of the Company and bearing interest at a rate at least equal to the applicable
federal rate established by the United States Internal Revenue Service. The
promissory note shall have a term of five years. Mr. Morini shall have the
option to extend the note for up to five additional years provided that he
pays at least one-third of the then accrued but unpaid interest, with any
remaining unpaid interest to be added to principal. Any such promissory note
shall be secured by a first priority security interest in all shares purchased
by Mr. Morini in conjunction with the exercise of the options as evidenced by
a stock pledge and security agreement executed by Mr. Morini in favor of the
Company.
3. The Agreement is terminable by Mr. Morini upon the delivery of written
notice of termination in the event that a majority of the Company's Board of
Directors is at any time comprised of persons for whom Mr. Morini did not vote
in his capacity as a director or a shareholder of the Company (a "Change of
Control"). If Mr. Morini abstains from voting for any person as a director,
such abstention shall be deemed to be an affirmative vote by Mr. Morini for
such person as a director.
4. If the Agreement is terminated, regardless of the reason for such
termination, Mr. Morini shall be entitled to retain all unexercised Purchase
Rights and options granted under the Agreement and all shares of Common Stock
issued in connection with the exercise of such Purchase Rights and options, and
shall receive all earned but unpaid base salary through the effective date of
termination and all accrued but unpaid bonuses for the fiscal year(s) ending
prior to the effective date of termination. Additionally, in the event that
Mr. Morini's employment is terminated without cause or due to his death, total
disability or legal incompetence, or if Mr. Morini terminates his employment
upon a Change of Control, the Company shall pay to Mr. Morini or his estate
severance pay equal to three times the amount of Mr. Morini's annual base
salary (before deductions for withholding, employment and unemployment taxes),
and a bonus for the year of termination and the following two years equal
to the average of the two bonuses paid to Mr. Morini under the Agreement.
5. In the event of a Change of Control, Mr. Morini may, at any time
thereafter, require that the Company purchase up to 1,638,564 shares of his
Common Stock at a purchase price of $.50 per share, subject to adjustment for
any increase or decrease in the number of outstanding shares of the Company's
Common Stock or in the event that the Common Stock is changed into or exchanged
for a different number or class or kind of shares or securities of the Company,
by reason of merger, consolidation, reorganization, recapitalization,
reclassification, stock dividend, stock split, combination of shares, exchange
of shares, change in corporate structure or the like.
6. The Company extended the maturity date of that certain Promissory Note
dated as of November 4, 1994, executed by Mr. Morini in favor of the Company
in the principal amount of $1,200,000 in conjunction with his exercise of
options previously granted by the Company for two additional years until
November 4, 2001.
7. Mr. Morini has agreed that in the event he voluntarily terminates his
employment with the Company or if he is terminated for "cause" (as defined in
the Agreement), he will not compete with the Company for a period of one year
following the date of termination of his employment with the Company, whether
as an employee, officer, director, partner, shareholder, consultant or
independent contractor in any business substantially similar to that conducted
by the Company within those areas in the United States in which the Company is
doing business as of the date of termination.
<PAGE>
On October 11, 1995, Mr. Morini exercised the Purchase Rights with respect to
all 18,000,000 shares of Common Stock subject thereto (the "Purchase Right
Shares"). In connection with the exercise of such Purchase Rights, Mr. Morini
executed in favor of the Company a balloon promissory note (the "Note") in the
principal amount of $11,572,200. The Note bears interest at the rate of
seven percent per annum and is due and payable in full on October 11, 2000,
subject to Mr. Morini's option to extend the Note for up to five additional
years provided that he pays at least one-third of the then accrued but unpaid
interest, with any remaining unpaid interest to be added to principal. In
order to secure the Note, Mr. Morini executed in favor of the Company a stock
pledge and security agreement pursuant to which Mr. Morini granted the Company
a first priority security interest in all of the Purchase Right Shares.
CERTAIN PLANS
1987 Stock Plan -- The 1987 Stock Plan of the Company (the "1987 Plan") was
adopted by the Board of Directors of the Company on May 18, 1987, and was
approved by the shareholders of the Company on May 19, 1987. On October 1,
1991, the Board of Directors amended the 1987 Plan to increase the number of
shares of Common Stock available for issuance from 400,000 shares to 600,000
shares. The shareholders of the Company ratified such amendment on January 31,
1992. Under the 1987 Plan, directors, officers and employees of the Company,
and consultants to the Company, may acquire a proprietary interest in the
Company through the purchase or other acquisition of Common Stock; such Common
Stock may be acquired through awards, by direct purchase, or through the
exercise of options granted under the 1987 Plan to purchase Common Stock under
specified conditions at prescribed prices. Interests under the 1987 Plan, as
amended, up to and including the sum of 200,000 shares, were registered with
the SEC on March 2, 1992, through the filing of Form S-8.
The 1987 Plan is administered by the Board of Directors or the Compensation
Committee which is authorized to determine which individuals will receive
options or awards and which individuals will be provided with the opportunity
to make direct purchases of Common Stock. The Board of Directors or the
Compensation Committee also is authorized and responsible for determining the
number of shares subject to each option, award and purchase, whether any
options that are granted are to be exercisable in full at the time of grant or
in installments, and any other terms and provisions pertaining to an option,
award or purchase, including the purchase or exercise price.
Options granted under the 1987 Plan may be either (i) options intended to
constitute incentive stock options ("ISOs") under the Internal Revenue Code of
1986, as amended (the "Code"); or (ii) nonqualified stock options ("NQSOs").
ISOs may be granted under the Plan to employees and officers of the Company.
NQSOs may be granted to consultants, directors (whether or not they are
employees), employees and officers of the Company. Awards of Common Stock may
be made to consultants, directors, employees or officers of the Company;
direct purchases of Common Stock also may be made by such individuals.
Common Stock options to purchase 22,500 shares were granted under the 1987 Plan
during the fiscal year ended March 31, 1995. Also, during that fiscal year,
options granted under the 1987 Plan covering 15,000 shares of Common Stock
were surrendered or terminated without being exercised. During the fiscal
year ended March 31, 1996, NQSOs covering 140,000 shares of Common Stock were
granted under the 1987 Plan, to provide additional incentives to the following
employees:
<PAGE>
Shares Exercise
Subject Price
Name of Optionee to Option Per Share
Christine Carlile. . . . . . . . . 5,000 $0.53
LeAnn Davis. . . . . . . . . . . . 15,000 $0.52
Karen FerDon . . . . . . . . . . 5,000 $0.53
Jacque Fisher. . . . . . . . . . . 5,000 $0.59
Dawn Johnson . . . . . . . . . . 5,000 $0.53
Ellen Juliano. . . . . . . . . . . 5,000 $0.62
Brian Wendelschaefer . . . . 100,000 $0.50
140,000
On August 31, 1993, the disinterested members of the Board of Directors reduced
to $.50 per share the exercise price for options held by certain executives of
the Company representing 306,500 shares of Common Stock, including options for
141,500 shares of Common Stock being held by Mr. Angelo Morini, in recognition
of the then-current market value of Common Stock. That market value was
determined on the basis of the closing bid quotation price for Common Stock on
the NASDAQ over-the-counter market on August 3, 1993. The reduction in price
was made to encourage the commitment and loyalty to the Company, and to provide
renewed incentive to such executives. As part of the reduction in exercise
price, the Compensation Committee converted ISOs for 198,500 shares of Common
Stock into NQSOs for the same number of shares, in accordance with the terms
of the 1987 Plan.
1991 Non-Employee Director Stock Option Plan -- The 1991 Non-Employee Director
Stock Option Plan (the "1991 Director Plan") was adopted by the Board of
Directors of the Company on October 1, 1991, to provide incentive to outside
directors of the Company through the periodic granting on NQSOs to such outside
directors. The 1991 Director Plan was approved by the shareholders of the
Company on January 31, 1992. Under the 1991 Director Plan as originally
adopted and approved, 33,500 shares of Common Stock were authorized for
issuance, subject to adjustment for capital changes. The Compensation
Committee is responsible for the discharge of any administrative matters;
however, since the 1991 Director Plan is a formula-based plan by its terms,
few administrative matters arise. Interests under the 1991 Director Plan, as
originally adopted and approved, were registered with the SEC on March 2, 1992,
through the filing of Form S-8.
Under the 1991 Director Plan, each eligible non-employee director received on
October 1, 1991 (the "Approval Date"), in consideration for his prior years of
service as a director of the Company, NQSOs to purchase approximately 83.33
shares of Common Stock for each month (or fraction of a month) that such
director had served on the Board of Directors prior to the Approval Date; as
such, directors serving on the Board of Directors on the Approval Date could
be granted NQSOs to purchase 1,000 shares of Common Stock for each full year
spent as a director of the Company. Options for fractional shares were
rounded to the next highest whole number. On each anniversary of the Approval
Date, until the expiration of the 1991 Director Plan on September 30, 1996 (or,
if earlier, the date the number of shares reserved for issuance under the 1991
Director Plan has been exhausted), each eligible director who has served for
an entire year prior to such anniversary is automatically granted an option to
purchase an additional 1,000 shares of Common Stock. Each individual
thereafter elected to the Board of Directors who has served for less than an
entire year (determined each year, as of the Approval Date) is granted NQSOs
for a prorated number of shares of Common Stock, depending on how many months
that individual has served as a director during the prior year. All NQSOs
granted under the 1991 Director Plan have an exercise price equal to the fair
market value
<PAGE>
per share of Common Stock on the date of grant. Options granted under the
original terms of the 1991 Director Plan are exercisable in full at the time
of grant. An optionee who ceases to be a director of the Company other than
by reason of death continues to have the right to exercise the NQSOs granted
under the original provisions of the 1991 Director Plan, including the
original term of such option. In the event an optionee dies, the 1991
Director Plan provides for the exercise of an option on behalf of the deceased
director. Options may not be assigned or transferred except by will or by
operation of the laws of descent and distribution.
Other Grants to Directors -- Since September 24, 1987, the Board has approved
the grant of the following additional options to purchase shares of Common
Stock of the Company to the following current and former nonemployee directors:
Number of Shares
of Common Stock
Name of Optionee/Director Initially Subject to Option
Richard Gentile (1). . . . . . . . . . . 15,250
Earl Tyree (2) . . . . . . . . . . . . . . 16,000
Douglas Walsh (3). . . . . . . . . . . . . 16,667
Sheldon Tannen . . . . . . . . . . . . . . 20,000
Charles Tanner . . . . . . . . . . . . . . 15,000
William Rawlings . . . . . . . . . . . . . 20,000
Stanley Turk . . . . . . . . . . . . . . . 19,000
Michael Monus. . . . . . . . . . . . . . . 15,584
Thomas Singer. . . . . . . . . . . . . . . 20,000
Joseph C. McNay. . . . . . . . . . . . . . 15,000
Robert Kowalski . . . . . . . . . . . . . . 8,000
Marshall K. Luther (4) . . . . . . . . . . 15,000
(1) Dr. Gentile, a former member of the Board of Directors, was granted an
option on June 19, 1993, for an aggregate of 15,000 shares at an exercise
price of $1.25 per share. The closing bid price of the Company's Common Stock
as quoted on the NASDAQ System on June 18, 1993 was $1.25 per share. Dr.
Gentile's exercise price was increased to $2.00 per share on January 31, 1994.
The closing bid price of the Company's Common Stock as quoted on the NASDAQ
System on January 28, 1994 was $4.625 per share. Dr. Gentile exercised his
option as to all 15,000 shares on February 14, 1994. On October 1, 1993, Dr.
Gentile was granted an option to acquire 250 shares at an exercise price of
$2.125 per share. This option expires on October 1, 2003. The closing bid
price of the Company's Common Stock as quoted on the NASDAQ System on September
30, 1993, was $2.00 per share. On January 31, 1994, the exercise price of
this option was reduced to $2.00 per share. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on January 28, 1994 was
$4.625 per share. Dr. Gentile's remaining 250 shares are currently exercisable.
(2) Mr. Tyree, a current member of the Board of Directors, was granted an
option to acquire 15,000 shares of Common Stock on September 11, 1992 for an
exercise price of $2.88 per share. This option expires on September 11, 2002.
The closing bid price of the Company's Common Stock as quoted on the NASDAQ
System on September 10, 1992 was $2.875 per share. Mr. Tyree was granted an
additional option on October 1, 1993 to acquire 1,000 shares of Common Stock
at an exercise price of $2.125 per share. This option expires on October 1,
2003. The closing bid price of the Company's Common Stock as quoted on the
NASDAQ System on September 30, 1993 was $2.00 per share. The exercise price
of all of Mr. Tyree's options was reduced to $2.00 per share on January 31,
1994. The closing bid price of the Company's Common Stock as quoted on the
<PAGE>
NASDAQ System on January 28, 1994 was $4.625 per share. All of Mr. Tyree's
options currently are exercisable.
(3) Dr. Walsh, a current member of the Board of Directors, was granted an
option to acquire 15,000 shares of Common Stock on January 31, 1992 for an
exercise price of $3.00 per share. This option expires on January 31, 2002.
The closing bid price of the Company's Common Stock as quoted on the NASDAQ
System on January 30, 1992 was $2.50 per share. Dr. Walsh was granted an
additional option on October 1, 1992 to acquire 667 shares of Common Stock at
an exercise price of $2.875 per share. This option expires on October 1, 2002.
The closing bid price of the Company's Common Stock as quoted on the NASDAQ
System on September 30, 1992 was $2.625 per share. Dr. Walsh was granted an
additional option on October 1, 1993 to acquire 1,000 shares of Common Stock
at an exercise price of $2.125 per share. This option expires on October 1,
2003. The exercise price of all of Dr. Walsh's options was reduced to $2.00
per share on January 31, 1994. The closing bid price of the Company's Common
Stock as quoted on the NASDAQ System on January 28, 1994 was $4.625 per share.
All of Dr. Walsh's options currently are exercisable.
(4) Mr. Luther, a current member of the Company's Board of Directors, holds
warrants to acquire 50,000 shares of Common Stock at a price of $0.6407 per
share. These warrants were granted as compensation for work per the terms of
Mr. Luther's agreement with the Company to serve as Senior Vice President of
Marketing for a term of one year. In addition, Mr. Luther was granted options
to acquire 15,000 shares of the Company's Common Stock on January 31, 1996,
for an exercise price of $0.8125 per share, which option expires on January 31,
2006. The closing bid price of the Company's Common Stock as quoted on the
NASDAQ System on January 30, 1996 was $0.71875 per share.
In addition, on August 11, 1993, the Board of Directors approved the issuance
to Angelo S. Morini of an option to purchase 2,400,000 shares of the Company's
Common Stock for a purchase price of $.50 per share in consideration for Mr.
Morini's past services to the Company, the pledge by Mr. Morini of all then-
current shares owned by Mr. Morini to the Company's principal lender, J&C, to
secure loans made to the Company, and the subordination of all loans made by
Mr. Morini to the Company to payment of sums due J&C. The Board approved Mr.
Morini's payment for the shares issued upon exercise of the option by way of
a promissory note in favor of the Company, payable in full, without interest,
five years from the date of execution. The promissory note used to pay for the
shares would be secured by a pledge of the shares of Common Stock issued to Mr.
Morini upon exercise of this option. On November 4, 1994, Mr. Morini exercised
this option to purchase the shares and executed in favor of and delivered to
the Company the promissory note in the principal amount of $1,200,000
evidencing the purchase price of the shares and a stock pledge and security
agreement encumbering such shares to secure such note. See "Management -
Certain Relationships and Related Party Transactions."
On October 10, 1995, Mr. Morini received an option to purchase up to 18,000,000
shares of Common Stock in accordance with the terms of his employment
Agreement as approved by the Board of Directors. As of October 11, 1995, Mr.
Morini exercised the option with respect to all 18,000,000 shares of Common
Stock. Pursuant to the terms of the employment agreement, Mr. Morini executed
in favor of the Company a balloon promissory note in the principal amount of
$11,572,200 to evidence the purchase price for the shares of Common Stock.
The note bears interest at the rate of seven percent per annum and is due and
payable in full on October 11, 2000, subject to Mr. Morini's option to extend
the note for up to five additional years provided that he pays at least one-
third of the then accrued but unpaid interest, with any remaining unpaid
interest to be added to principal. In order to secure the note, Mr. Morini
executed in favor of the Company a stock pledge and security agreement pursuant
to which Mr. Morini granted the Company
<PAGE>
a first priority security interest in all of the shares obtained upon the
exercise of his option. See "Management - Certain Relationships and Related
Transactions."
The options granted to Mr. Morini as described in the preceding paragraphs and
the options granted to the non-employee directors described in the forgoing
table were not granted pursuant to a plan approved by the shareholders of the
Company, and the shares underlying such options are not included in the
Registration Statement on Form S-8 described above. Accordingly, shares issued
pursuant to the options described above as "Other Grants to Directors" will
constitute upon exercise, "restricted" securities and may thereafter be sold
to the public generally only pursuant to an effective registration statement
or pursuant to Rule 144.
1991 Employee Stock Purchase Plan -- The 1991 Employee Stock Purchase Plan
(the "1991 Purchase Plan") was adopted by the Board of Directors on December
10, 1991, and was approved by the shareholders of the Company on January 31,
1992. The 1991 Purchase Plan provides a general incentive to all regular
employees of the Company by providing them with an opportunity to purchase
Common Stock at a discount, thereby encouraging all regular Company employees
to share in the fortunes of the Company by acquiring a proprietary interest in
the Company at a favorable price.
Through the 1991 Purchase Plan, an aggregate of 250,000 shares of Common Stock
have been made available for purchase by those Company employees who
participate. All Company employees who have completed six months of employment
with the Company and are customarily employed for more than 20 hours per week
and more than five months per calendar year are eligible to participate; those
who choose to participate receive nontransferable options to purchase Common
Stock at less than fair market value. However, Company employees who own 5%
or more of the total combined voting power or value of all classes of stock of
the Company and directors who are not Company employees are not eligible to
participate in the 1991 Purchase Plan. The 1991 Purchase Plan is administered
by the Compensation Committee. Interests under the 1991 Purchase Plan were
registered with the SEC on March 2, 1992, through filing of Form S-8.
The opportunity to purchase Common Stock is provided every six months,
commencing each March 1 and September 1. Eligible employees participate by
filing a written election to contribute between 2% and 10% of their
total compensation. All contributions are made by payroll deduction. An
eligible employee can purchase a maximum of 5,000 shares of Common Stock in a
single plan year (a maximum of 2,500 shares during each six month purchase
period). However, a participating employee may not in any event purchase
Common Stock having a value of more than $25,000 (based on the value of Common
Stock at the beginning of each six month purchase period) in any individual
calendar year. The Company retains all withheld funds, without crediting any
interest, pending the issuance of Common Stock. Common Stock purchased under
the 1991 Purchase Plan is distributed to purchasing employees, in the form of
stock certificates evidencing those shares so purchased, as soon as practicable
following the close of each six month purchase period. Withholding in excess
of the amounts capable of being used under the 1991 Purchase Plan to purchase
Common Stock is refunded to the participating employees from whom such amounts
were withheld, after the purchase of Common Stock is completed.
The purchase price at which Common Stock is sold to participating employees
under the 1991 Purchase Plan generally is equal to the lesser of (i) 85% of
the fair market value of shares of Common Stock on the first business day of
the six-month purchase period; or (ii) 85% of the fair market value of shares
of Common Stock on the last business day of such six-month purchase period.
The 1991 Purchase Plan is intended to function as an
<PAGE>
employee stock purchase plan under Section 423 of the Code; accordingly,
participating Company employees who purchase shares of Common Stock at a
discount are not subject to federal taxation on the value of such discount
(generally, 15% of fair market value), unless and until they either dispose of
such shares or die while holding such shares.
Common Stock is provided under the 1991 Purchase Plan solely through the
issuance of Common Stock by the Company; no shares of Common Stock have been
purchased in the open market to satisfy employee elections made under the 1991
Purchase Plan, and the Company does not expect that any such open market
purchases will occur in the future. The 1991 Purchase Plan expires on January
31, 2001 or at such time when all or substantially all of the 250,000 shares
of Common Stock reserved for issuance under the 1991 Purchase Plan have been
purchased.
Additional Single Purpose Plan -- Since March 1993, the Company and
Continental Capital & Equity Corporation ("Continental") executed three
agreements whereby Continental would provide public relation services for the
Company. Continental is a public relations and direct marketing advertising
firm specializing in the dissemination of information about companies whose
securities are traded on an exchange or on the NASDAQ System. Under the terms
of the agreements, dated March 27, 1993, December 30, 1993, and May 30, 1994,
Continental was to be paid $125,000, $125,000, and $190,000, respectively, in
each instance payable in Common Stock; and, accordingly, Continental was issued
138,000 shares, 41,700 shares, and 95,000 shares, respectively. Interests
under Continental Capital and Equity Corporation Financial Services Agreement
plans were registered with the SEC on September 28, 1993, May 6, 1994, and
July 18, 1994, through the filing of Forms S-8.
On January 3, 1995, the Company entered into a consulting agreement with
Martin Consulting, Corporation ("Martin"), pursuant to which Martin would
provide financial consulting and public relations services to the Company for
the period ending December 31, 1995. Under the terms of the agreement, Martin
received 200,000 shares of Common Stock having a fair market value of
approximately $300,000. Common shares under the Martin Consulting Corporation
Financial Services Agreement plans were registered with the SEC in January
1995, through the filing of Form S-8. On October 6, 1995, the Company extended
Martin's consulting agreement until December 31, 1996, and, in consideration
therefor, issued to Martin 200,000 additional shares of Common Stock having a
fair market value on the date of issuance of approximately $112,500. Such
shares were registered with the SEC on October 19, 1995, through the filing of
Form S-8. Martin also received warrants to purchase 100,000 shares of Common
Stock exercisable at $.5625 per share, which exercise price equaled the closing
bid price of the Common Stock as listed on the NASDAQ System on October 6, 1995.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMPANY'S COMMON STOCK
The following table sets forth, to the knowledge of management, each person or
entity who is the beneficial owner of more than 5% of the outstanding shares
of the Company's Common Stock outstanding as of June 20, 1996 (assuming all of
the outstanding rights, options, and warrants of the Company's Common Stock
currently outstanding and exercisable are, in fact, exercised), the number of
shares owned by each such person and the percentage of the outstanding shares
represented thereby.
<PAGE>
Amount and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class (2)
Angelo S. Morini
2441 Viscount Row
Orlando, Florida 32809 24,429,874 (3) 44.4%
Cede & Co.
Box #20
Bowling Green Station
New York, New York 26,308,354 (4) 47.8%
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) The total number of shares outstanding assuming the exercise of all
currently exercisable and vested options and warrants held by all executive
officers, current directors, and holders of 5% or more of the Company's issued
and outstanding Common Stock is 55,025,779 shares. Does not assume the
exercise of any other options or warrants.
(3) Includes options to acquire 141,500 shares of the Company's Common Stock.
All of Mr. Morini's options currently are exercisable at $.50 per share. The
original exercise prices of the options ranged from $2.50 per share to $3.575
per share. The exercise prices of all Mr. Morini's options were reduced by
the Board of Directors to $.50 per share on August 31, 1993. Options expire
as to 50,000 shares on December 4, 1997, and as to 91,500 shares on October 1,
2001. Also includes 5,000 shares owned by Mr. Morini that are held in a
nominee name and 2,000 shares held in joint tenancy.
(4) Cede & Co. is a share depository used by shareholders to hold stock in
street name. Does not include 5,000 shares beneficially owned by Angelo S.
Morini and held by Cede & Co. in street name.
SHARE OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth, as of June 20, 1996, the number of shares
owned directly, indirectly and beneficially of each executive officer and
director of the Company, and by all executive officers and directors as a
group.
Amount and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class (2)
Angelo S. Morini
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 24,429,874 (3) 44.4%
Earl G. Tyree
240 North Line Drive
Apopka, Florida 32703 18,000 (4) *
Douglas A. Walsh
607 Tamiami Trail
Ruskin, Florida 33570 18,667 (5) *
<PAGE>
Marshall K. Luther
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 65,000 (6) *
LeAnn H. Davis
Galaxy Foods Company
2441 Viscount Row
Orlando, Florida 32809 17,600 (7) *
All executive officers and
directors as a group 24,549,141 44.6%
* Less than 1%.
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) The total number of shares outstanding assuming the exercise of all
currently exercisable and vested options and warrants held by all executive
officers, directors, and holders of 5% or more of the Company's issued and
outstanding Common Stock is 55,025,779 shares. Does not assume the exercise
of any other options or warrants.
(3) Includes options to acquire 141,500 shares of the Company's Common Stock.
All of Mr. Morini's options currently are exercisable at $.50 per share. The
original exercise prices of the options ranged from $2.50 per share to $3.575
per share. The exercise prices of all Mr. Morini's options were reduced by
the Board of Directors to $.50 per share on August 31, 1993. Options expire
as to 50,000 shares on December 14, 1997, and as to 91,500 shares on October 1,
2001. Also includes 5,000 shares owned by Mr. Morini that are held in a
nominee name and 2,000 shares held in joint tenancy.
(4) Mr. Tyree, a current member of the Board of Directors, was granted an
option to acquire 15,000 shares of Common Stock on September 11, 1992 for an
exercise price of $2.88 per share. This option expires on September 11, 2002.
The closing bid price of the Company's Common Stock as quoted on the NASDAQ
System on September 10, 1992 was $2.875 per share. Mr. Tyree was granted an
additional option on October 1, 1993 to acquire 1,000 shares of Common Stock
at an exercise price of $2.125 per share. This option expires on October 1,
2003. The closing bid price of the Company's Common Stock as quoted on the
NASDAQ System on September 30, 1993 was $2.00 per share. The exercise price
of all of Mr. Tyree's then existing options was reduced to $2.00 per share on
January 31, 1994. The closing bid price of the Company's Common Stock as
quoted on the NASDAQ System on January 28, 1994 was $4.625 per share. On
October 1, 1994, Mr. Tyree was granted an option to acquire 1,000 shares at
an exercise price of $2.75 per share. The closing bid price of the Company's
Common Stock as quoted on the NASDAQ System on September 30, 1994, was $2.875
per share. This option expires on October 1, 2004. On October 1, 1995, Mr.
Tyree was granted an option to acquire 1,000 shares at an exercise price of
$0.59 per share. The closing bid price of the Company's Common Stock as
quoted on the NASDAQ System on September 29, 1995, was $0.59375 per share.
This option expires on October 1, 2005. All of Mr. Tyree's options currently
are exercisable.
(5) Dr. Walsh, a current member of the Board of Directors, was granted an
option to acquire 15,000 shares of Common Stock on January 31, 1992 for an
exercise price of $3.00 per share. This option expires on January 31, 2002.
The closing bid price of the
<PAGE>
Company's Common Stock as quoted on the NASDAQ System on January 30, 1992 was
$2.50 per share. Dr. Walsh was granted an additional option on October 1,
1992 to acquire 667 shares of Common Stock at an exercise price of $2.875 per
share. This option expires on October 1, 2002. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on September 30, 1992
was $2.625 per share. The exercise price of all of Dr. Walsh's then existing
options was reduced to $2.00 per share on January 31, 1994. The closing bid
price of the Company's Common Stock as quoted on the NASDAQ System on January
28, 1994 was $4.625 per share. On October 1, 1994, Dr. Walsh was granted an
option to acquire 1,000 shares at an exercise price of $2.75 per share. The
closing bid price of the Company's Common Stock as quoted on the NASDAQ System
on September 30, 1994, was $2.875 per share. This option expires on October 1,
2004. On October 1, 1995, Dr. Walsh was granted an option to acquire 1,000
shares at an exercise price of $.59 per share. The closing bid price of the
Company's Common Stock as quoted on the NASDAQ System on September 29, 1995,
was $.59375 per share. This option expires on October 1, 2005. All of Dr.
Walsh's options currently are exercisable.
(6) Mr. Luther, a current member of the Company's Board of Directors, holds
warrants to acquire 50,000 shares of Common Stock at a price of $0.6407 per
share. These warrants were granted as compensation for work per the terms of
Mr. Luther's agreement with the Company to serve as Senior Vice President of
Marketing for a term of one year. In addition, Mr. Luther was granted options
to acquire 15,000 shares of the Company's Common Stock on January 31, 1996,
for an exercise price of $.8125 per share, which option expires on January 31,
2006. All of Mr. Luther's options currently are exercisable.
(7) Includes options to acquire 15,000 shares of the Company's Common Stock
which were granted to Ms. Davis on December 18, 1995 pursuant to the Company's
1987 Stock Option Plan. Such options are exercisable at $0.5156 per share and
expire on December 19, 2005. Half of Ms. Davis' options currently are
exercisable.
Item 12. Certain Relationships and Related Transactions.
On December 6, 1994, Albert Morini, a former employee of the Company and the
brother of Mr. Angelo Morini, the Company's President and Chief Executive
Officer, acquired 21,121 shares of Common Stock for a price of $1.625. The
purchase price for the shares was offset against certain obligations of the
Company with respect to the payment of severance pay to Mr. Morini on December
6, 1994. The closing bid price of the Company's Common Stock as quoted on the
NASDAQ System on December 5, 1994 was $1.625 per share. The Company has
registered all of such shares.
On June 1, 1994, Julie Peterson, the corporate secretary of the Company and
the wife of Mr. Angelo Morini, the Company's President and Chief Executive
Officer, was issued options to acquire 48,000 shares of Common Stock pursuant
to the Company's 1987 Stock Plan. Such options have an exercise price of
$1.00 per share. The closing bid price of the Company's Common Stock as
quoted on the NASDAQ System on June 1, 1994, was $2.50 per share. All such
shares are subject to a registration statement filed with the SEC on Form S-8.
On August 28, 1995, the Company entered into a one year agreement with Marshall
K. Luther for Mr. Luther to serve in the capacity of Senior Vice President of
Marketing. Mr. Luther will be overseeing marketing of the Company's product
as well as identifying new markets and products. He is a former senior
marketing executive with companies such as Tropicana Products Inc. and General
Mills, Inc. Under the terms of this contract, Mr.
<PAGE>
Luther received the right to purchase 50,000 shares of the Company's Common
Stock at a price of $0.6407 per share. The Company has also agreed to pay a
standard broker commission to Mr. Luther for any sales generated by him. Mr.
Luther became a member of the Board of Directors of the Company on January 31,
1996.
On October 10, 1995, the Company entered into an employment agreement with
Angelo S. Morini. The agreement increases Mr. Morini's base salary to $250,000
per year from $200,000. Additionally, the agreement details additional non-
cash compensation based on the performance of the Company. The agreement also
grants the rights to purchase up to 18,000,000 shares of the Company's Common
Stock by Mr. Morini. See "Employment Agreement of Chief Officer."
Mr. Morini's brother works for the Company as Vice President of Marketing.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
The following Exhibits are filed as part of this Form 10-KSB.
Exhibit No Exhibit Description
*3.1 Certificate of Incorporation of the Company, as amended (Filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-18,
No. 33-15893-NY, incorporated herein by reference.)
*3.2 Amendment to Certificate of Incorporation of the Company, filed on
February 24, 1992 (Filed as Exhibit 4(b) to the Company's
Registration Statement on Form S-8, No. 33-46167, incorporated
herein by reference.)
*3.3 By-laws of the Company, as amended (Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-18, No. 33-15893-NY,
incorporated herein by reference.)
*3.4 Amendment to Certificate of Incorporation of the Company, filed on
January 19, 1994 (Filed as Exhibit 3.4 to the Company's
Registration Statement on Form SB-2, No. 33-80418, and
incorporated herein by reference.)
3.5 Amendment to Certificate of Incorporation of the Company, filed on
July 11, 1995 (Filed herewith.)
3.6 Amendment to Certificate of Incorporation of the Company, filed on
January 31, 1996 (Filed herewith.)
*10.1 1987 Stock Plan of the Company, as amended (Filed as Exhibit 4(d)
to the Company's Registration Statement on Form S-8, No. 33-46167,
incorporated herein by reference.)
*10.2 Form of Non-Qualified Stock Option Agreement between the Company
and certain directors (Filed as Exhibit 10 (n) to the Company's
Report on Form 10-K for fiscal year ended March 31, 1988, and
incorporated herein by reference.)
*10.3 Form of Incentive Stock Option Agreement issued pursuant to the
Company's 1987 Stock Plan (Filed as Exhibit 10 (o) to the Company's
Report on Form 10-K for fiscal year ended March 31, 1988, and
incorporated herein by reference.)
*10.4 1991 Non-Employee Director Stock Option Plan of the Company (Filed
as Exhibit 4 (g) to the Company's Registration Statement on Form
S-8, No. 33-46167, incorporated herein by reference.)
*10.5 1991 Employee Stock Purchase Plan of the Company (Filed as Exhibit
4 (h) to the Company's Registration Statement on Form S-8, No. 33-
46167, incorporated herein by reference.)
* - Previously filed
<PAGE>
Exhibit No Exhibit Description
*10.6 Lease Agreement between ANCO Company and Company dated as of
November 13, 1991 (Filed as Exhibit 10 (bb) to the Company's
Report on Form 10-K for fiscal year ended March 31, 1992, and
incorporated herein by reference.)
*10.7 Factoring Agreement, Assignment and Repurchase Agreement, Security
Agreement and Power of Attorney, dated as of June 1, 1993, between
the Company and J.T.A. Factors, Inc. (Filed as Exhibit 10 (nn) to
the Company's Report on Form 10-QSB for the quarterly period ended
June 30, 1993.)
*10.8 Company's Registration Statement on Form S-8, Number 33-69546,
filed September 28, 1993 (Filed as Exhibit 10.40 to the Company's
Registration Statement on Form SB-2, Number 33-80418, and
incorporated herein by reference.)
*10.9 Post-Effective Amendment No. 1 to Company's Registration Statement
on Form S-8, Number 33-69546, filed October 28, 1993 (Filed as
Exhibit 10.41 to the Company's Registration Statement on Form SB-2,
Number 33-80418, and incorporated herein by reference.)
*10.10 Company's Registration Statement on Form S-8, Number 33-78684,
filed May 6, 1994 (Filed as Exhibit 10.42 to the Company's
Registration Statement on Form SB-2, Number 33-80418, and
incorporated herein by reference.)
*10.11 Post-Effective Amendment No. 1 to Company's Registration Statement
on Form S-8, Number 33-78684 (Filed June 6, 1994, and incorporated
herein by reference.)
*10.12 Company's Registration Statement on Form S-8, Number 33-81636
(Filed July 18, 1994, and incorporated herein by reference.)
*10.13 Post-Effective Amendment No. 1 to Company's Registration Statement
on Form S-8, Number 33-81636 (Filed August 10, 1994, and
incorporated herein by reference.)
*10.14 Subscription for shares and investment letter, dated November 4,
1994, between the Company and Angelo S. Morini (Filed as Exhibit
10.122 on report 10-QSB, for the quarterly period ended December
31, 1994, and incorporated herein by reference.)
*10.15 Balloon promissory note, dated November 4, 1994 (Filed as Exhibit
10.123 on report 10-QSB, for the quarterly period ended December
31, 1994, and incorporated herein by reference.)
*10.16 Stock pledge and security agreement dated November 4, 1994 (Filed
as Exhibit 10.124 on report 10-QSB, for the quarterly period ended
December 31, 1994, and incorporated herein by reference.)
* - Previously filed
<PAGE>
Exhibit No Exhibit Description
*10.17 First Amendment to Lease Agreement between ANCO Company and the
Company dated as of April 1, 1994 (Filed as Exhibit 10.76 on
report 10-KSB for the fiscal year ended March 31, 1995, and
incorporated herein by reference.)
*10.18 Consulting Agreement, dated March 15, 1995, between Lee Chira and
the Company (Filed as Exhibit 10.77 on report 10-KSB for the fiscal
year ended March 31, 1995, and incorporated herein by reference.)
*10.19 Consulting Agreement, dated March 15, 1995, between Martin
Consulting, Inc. and the Company (Filed as Exhibit 10.78 on report
10-KSB for the fiscal year ended March 31, 1995, and incorporated
herein by reference.)
*10.20 Selling Agreement, dated February 6, 1995, between Sands Brothers
& Co., Ltd. and the Company (Filed as Exhibit 10.79 on report
10-KSB for the fiscal year ended March 31, 1995, and incorporated
herein by reference.)
*10.21 Amendment Number 1 to Selling Agreement, dated February 14, 1995,
between Sands Brothers & Co., Ltd. and the Company (Filed as
Exhibit 10.80 on report 10-KSB for the fiscal year ended March 31,
1995, and incorporated herein by reference.)
*10.22 Amendment Number 2 to Selling Agreement, dated March 8, 1995,
between Sands Brothers & Co., Ltd. and the Company (Filed as
Exhibit 10.81 on report 10-KSB for the fiscal year ended March 31,
1995, and incorporated herein by reference.)
*10.23 Consulting agreement between the Company and Koi Communications
Corporation, dated June 1, 1995. (Filed as Exhibit 10.82 on report
10-QSB for the quarterly period ended June 30, 1995, and
incorporated herein by reference.)
*10.24 Employment Agreement dated as of October 10, 1995, by and between
the Company and Angelo S. Morini (Filed as Exhibit 10.83 on report
8-K, and incorporated herein by reference.)
*10.25 Balloon Promissory Note dated as of October 11, 1995, by Angelo S.
Morini in favor of the Company (Filed as Exhibit 10.84 on report
8-K, and incorporated herein by reference.)
*10.26 Stock Pledge and Security Agreement dated as of October 11, 1995,
by and between the Company and Angelo S. Morini (Filed as Exhibit
10.85 on report 8-K, and incorporated herein by reference.)
*10.27 Consulting agreement between the Company and Marshall K. Luther
dated August 28, 1995 (Filed as Exhibit 10.86 on Form 10-QSB/A for
the nine months ended December 31, 1995, and incorporated herein
by reference.)
* - Previously filed
<PAGE>
Exhibit No Exhibit Description
10.28 Amendment to Factoring Agreement (original agreement dated June 1,
1993) dated January 29, 1996 between the Company and J.T.A.
Factors, Inc. (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)
Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
* - Previously filed
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GALAXY FOODS COMPANY
Date: June 29, 1996 /s/ Angelo S. Morini
Angelo S. Morini
Chairman and President
(Principal Executive Officer)
Date: June 29, 1996 /s/ LeAnn H. Davis
LeAnn H. Davis, CPA
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBITS
<PAGE>
Exhibit No Exhibit Description Page No.
*3.1 Certificate of Incorporation of the Company, as amended
(Filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-18, No. 33-15893-NY, incorporated
herein by reference.)
*3.2 Amendment to Certificate of Incorporation of the Company,
filed on February 24, 1992 (Filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-8, No.
33-46167, incorporated herein by reference.)
*3.3 By-laws of the Company, as amended (Filed as Exhibit 3.2
to the Company's Registration Statement on Form S-18, No.
33-15893-NY, incorporated herein by reference.)
*3.4 Amendment to Certificate of Incorporation of the Company,
filed on January 19, 1994 (Filed as Exhibit 3.4 to the
Company's Registration Statement on Form SB-2, No. 33-
80418, and incorporated herein by reference.)
3.5 Amendment to Certificate of Incorporation of the Company,
filed on July 11, 1995 (Filed herewith.) 5
3.6 Amendment to Certificate of Incorporation of the Company,
filed on January 31, 1996 (Filed herewith.) 7
*10.1 1987 Stock Plan of the Company, as amended (Filed as
Exhibit 4(d) to the Company's Registration Statement on
Form S-8, No. 33-46167, incorporated herein by reference.)
*10.2 Form of Non-Qualified Stock Option Agreement between the
Company and certain directors (Filed as Exhibit 10 (n) to
the Company's Report on Form 10-K for fiscal year ended
March 31, 1988, and incorporated herein by reference.)
*10.3 Form of Incentive Stock Option Agreement issued pursuant
to the Company's 1987 Stock Plan (Filed as Exhibit 10 (o)
to the Company's Report on Form 10-K for fiscal year ended
March 31, 1988, and incorporated herein by reference.)
*10.4 1991 Non-Employee Director Stock Option Plan of the
Company (Filed as Exhibit 4 (g) to the Company's
Registration Statement on Form S-8, No. 33-46167,
incorporated herein by reference.)
*10.5 1991 Employee Stock Purchase Plan of the Company (Filed as
Exhibit 4 (h) to the Company's Registration Statement on
Form S-8, No. 33-46167, incorporated herein by reference.)
* - Previously filed
<PAGE>
Exhibit No Exhibit Description Page No.
*10.6 Lease Agreement between ANCO Company and Company dated as
of November 13, 1991 (Filed as Exhibit 10 (bb) to the
Company's Report on Form 10-K for fiscal year ended March
31, 1992, and incorporated herein by reference.)
*10.7 Factoring Agreement, Assignment and Repurchase Agreement,
Security Agreement and Power of Attorney, dated as of
June 1, 1993, between the Company and J.T.A. Factors, Inc.
(Filed as Exhibit 10 (nn) to the Company's Report on Form
10-QSB for the quarterly period ended June 30, 1993.)
*10.8 Company's Registration Statement on Form S-8, No. 33-69546,
filed September 28, 1993 (Filed as Exhibit 10.40 to the
Company's Registration Statement on Form SB-2, No. 33-
80418, and incorporated herein by reference.)
*10.9 Post-Effective Amendment No. 1 to Company's Registration
Statement on Form S-8, No. 33-69546, filed October 28, 1993
(Filed as Exhibit 10.41 to the Company's Registration
Statement on Form SB-2, No. 33-80418, and incorporated
herein by reference.)
*10.10 Company's Registration Statement on Form S-8, No. 33-78684,
filed May 6, 1994 (Filed as Exhibit 10.42 to the Company's
Registration Statement on Form SB-2, No. 33-80418, and
incorporated herein by reference.)
*10.11 Post-Effective Amendment No. 1 to Company's Registration
Statement on Form S-8, No. 33-78684 (Filed June 6, 1994,
and incorporated herein by reference.)
*10.12 Company's Registration Statement on Form S-8, No. 33-81636
(Filed July 18, 1994, and incorporated herein by reference.)
*10.13 Post-Effective Amendment No. 1 to Company's Registration
Statement on Form S-8, No. 33-81636 (Filed August 10, 1994,
and incorporated herein by reference.)
*10.14 Subscription for shares and investment letter, dated
November 4, 1994, between the Company and Angelo S. Morini
(Filed as Exhibit 10.122 on report 10-QSB, for the
quarterly period ended December 31, 1994, and incorporated
herein by reference.)
* - Previously filed
<PAGE>
Exhibit No Exhibit Description Page No.
*10.15 Balloon promissory note, dated November 4, 1994 (Filed
as Exhibit 10.123 on report 10-QSB, for the quarterly
period ended December 31, 1994, and incorporated herein
by reference.)
*10.16 Stock pledge and security agreement dated November 4,
1994 (Filed as Exhibit 10.124 on report 10-QSB, for the
quarterly period ended December 31, 1994, and incorporated
herein by reference.)
*10.17 First Amendment to Lease Agreement between ANCO Company
and the Company dated as of April 1, 1994 (Filed as
Exhibit 10.76 on report 10-KSB for the fiscal year ended
March 31, 1995, and incorporated herein by reference.)
*10.18 Consulting Agreement, dated March 15, 1995, between Lee
Chira and the Company (Filed as Exhibit 10.77 on report
10-KSB for the fiscal year ended March 31, 1995, and
incorporated herein by reference.)
*10.19 Consulting Agreement, dated March 15, 1995, between
Martin Consulting, Inc. and the Company (Filed as Exhibit
10.78 on report 10-KSB for the fiscal year ended March 31,
1995, and incorporated herein by reference.)
*10.20 Selling Agreement, dated February 6, 1995, between Sands
Brothers & Co., Ltd. and the Company (Filed as Exhibit
10.79 on report 10-KSB for the fiscal year ended March 31,
1995, and incorporated herein by reference.)
*10.21 Amendment Number 1 to Selling Agreement, dated February 14,
1995, between Sands Brothers & Co., Ltd. and the Company
(Filed as Exhibit 10.80 on report 10-KSB for the fiscal
year ended March 31, 1995, and incorporated herein by
reference.)
*10.22 Amendment Number 2 to Selling Agreement, dated March 8,
1995, between Sands Brothers & Co., Ltd. and the Company
(Filed as Exhibit 10.81 on report 10-KSB for the fiscal
year ended March 31, 1995, and incorporated herein by
reference.)
*10.23 Consulting agreement between the Company and Koi
Communications Corporation, dated June 1, 1995. (Filed as
Exhibit 10.82 on report 10-QSB for the quarterly period
ended June 30, 1995, and incorporated herein by reference.)
* - Previously filed
<PAGE>
Exhibit No Exhibit Description Page No.
*10.24 Employment Agreement dated as of October 10, 1995, by and
between the Company and Angelo S. Morini (Filed as Exhibit
10.83 on report 8-K, and incorporated herein by reference.)
*10.25 Balloon Promissory Note dated as of October 11, 1995, by
Angelo S. Morini in favor of the Company (Filed as Exhibit
10.84 on report 8-K, and incorporated herein by reference.)
*10.26 Stock Pledge and Security Agreement dated as of October 11,
1995, by and between the Company and Angelo S. Morini (Filed
as Exhibit 10.85 on report 8-K, and incorporated herein by
reference.)
*10.27 Consulting agreement between the Company and Marshall K.
Luther dated August 28, 1995 (Filed as Exhibit 10.86 on
Form 10-QSB/A for the nine months ended December 31, 1995,
and incorporated herein by reference.)
10.28 Amendment to Factoring Agreement (original agreement dated
June 1, 1993) dated January 29, 1996 between the Company
and J.T.A. Factors, Inc. (Filed herewith.) 9
27 Financial Data Schedule (Filed herewith.) 11
Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
* - Previously filed
<PAGE>
Exhibit 3.5
Amendment to Certificate of Incorporation of the Company
filed on July 11, 1995.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GALAXY FOODS COMPANY
Galaxy Foods Company, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation at a meeting duly
convened and held on July 11, 1995, adopted the following resolution:
RESOLVED, that the Board of Directors of this Corporation hereby declares it
advisable and in the best interest of the Corporation that the initial
paragraph of Article Fourth of the Certificate of Incorporation be amended to
read as follows:
Fourth: The Maximum number of shares of all classes of
stock which this Corporation is authorized to issue is
61,000,000 shares, consisting of 60,000,000 shares of Common
Stock with a par value of One Cent ($.01) per share and
1,000,000 shares of Preferred Stock with a par value of
($.01) per share.
SECOND: That the said amendment has been consented to and authorized by the
holders of a majority of the issued and outstanding stock entitled to vote in
accordance with the provisions of Section 211 of the General Corporation Law
of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
Sections 211 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Galaxy Foods Company has caused this Certificate to be
signed by Angelo S. Morini, its President, and attested to by Samuel E.
Chambers, II, its Secretary, this 11th day of July, 1995.
ATTEST: GALAXY FOODS COMPANY
/s/ Samuel E. Chambers, II /s/ Angelo S. Morini
Samuel E. Chambers, II Angelo S. Morini
Secretary President
<PAGE>
Exhibit 3.6
Amendment to Certificate of Incorporation of the Company
filed on January 31, 1996.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GALAXY FOODS COMPANY
Galaxy Foods Company, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation at a meeting duly
convened and held on November 28, 1996, adopted the following resolution:
RESOLVED, that the Board of Directors hereby declares it advisable and in
the best interest of the Corporation that the initial paragraph of Article
Four of the Certificate of Incorporation be amended to read as follows:
Fourth: The Maximum number of shares of all classes of
stock which this Corporation is authorized to issue is
86,000,000 shares, consisting of 85,000,000 shares of Common
Stock with a par value of One Cent ($.01) per share and
1,000,000 shares of Preferred Stock with a par value of
($.01) per share.
SECOND: That, on January 31, 1996, the said amendment has been consented to
and authorized by the holders of a majority of the issued and outstanding
stock entitled to vote in accordance with the provisions of Section 211 of
the General Corporation Law of the State of Delaware.
THIRD: That the aforementioned amendment was duly adopted in accordance with
Sections 211 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Galaxy Foods Company has caused this Certificate to be
signed by Angelo S. Morini, its President, and attested to by LeAnn H. Davis,
its Assistant Secretary, this 31st day of January, 1996.
ATTEST: GALAXY FOODS COMPANY
/s/ LeAnn H. Davis /s/ Angelo S. Morini
LeAnn H. Davis Angelo S. Morini
Assistant Secretary President
<PAGE>
Exhibit 10.28
Amendment to Factoring Agreement (original
agreement dated June 1, 1993) dated January 29, 1996
between the Company and J.T.A. Factors, Inc.
<PAGE>
J.T.A. Factors, Inc.
P.O. Box 6704, Station B 803-271-4384
Greenville, SC 29606-6704 803-232-0686
Angelo Morini, President
Galaxy Foods Company
2441 Viscount Row
Orlando, FL 32809
Dear Mr. Morini:
J.T.A. Factors, Inc. is pleased to offer Galaxy Foods Company the following
amendment to its contract:
1. Factoring rate: .73% for 10 days.
2. Refactoring will be offered five times for a
total of 60 days. This includes the first
factoring period and the five refactoring periods.
3. Advance rate of 85% of invoice.
4. Either party may cancel contract with 90 days written
notice.
Thank you for letting us make this proposal to you. If you would be so kind
as to acknowledge your agreement by signing below, it would be greatly
appreciated.
Sincerely,
/s/ Brian K. Holden
Brian K. Holden
Vice President
Accepted this 26th day of February, 1996.
Galaxy Foods Company
By: /s/ Angelo S. Morini
Angelo S. Morini
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 127,936
<SECURITIES> 0
<RECEIVABLES> 854,857
<ALLOWANCES> 137,420
<INVENTORY> 1,188,674
<CURRENT-ASSETS> 2,323,364
<PP&E> 6,457,971
<DEPRECIATION> 1,171,519
<TOTAL-ASSETS> 8,031,972
<CURRENT-LIABILITIES> 727,360
<BONDS> 0
<COMMON> 534,218
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,031,972
<SALES> 3,950,455
<TOTAL-REVENUES> 3,950,455
<CGS> 4,199,571
<TOTAL-COSTS> 4,199,571
<OTHER-EXPENSES> 2,967,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,190
<INCOME-PRETAX> (3,282,598)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,282,598)
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<EPS-PRIMARY> (.13)
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