SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
-------- ---------
Commission File No. 33-18834-LA
MED-TEX CORPORATION
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 87-0306463
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2440 South Progress Drive, Salt Lake City, Utah 84119
-----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Include Area Code: (801) 972-2201
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
None
----------------
(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 twelve (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 ninety (90)
days. Yes X No
----- -----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $78,000.
As of March 10, 1997, 9,391,964 shares of common stock of the Registrant
were outstanding. As of such date, the aggregate market value of the common
stock held by non-affiliates, based on the closing bid price on the NASD
Bulletin Board, was approximately $3,069,716.
DOCUMENTS INCORPORATED BY REFERENCE
No annual reports to security holders, proxy or information statements, or
prospectuses filed pursuant to Rule 424(b) or (c) have been incorporated by
reference in this report.
Transitional Small Business Disclosure Format: Yes No X
----- -----
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. DESCRIPTION OF BUSINESS............................. 1
ITEM 2. DESCRIPTION OF PROPERTIES........................... 1
ITEM 3. LEGAL PROCEEDINGS................................... 1
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS................................. 1
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS......................... 2
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS................ 3
ITEM 7. FINANCIAL STATEMENTS................................ 4
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.............. 4
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT................... 4
ITEM 10. EXECUTIVE COMPENSATION.............................. 4
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................... 5
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 5
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K.................... 6
SIGNATURES.......................................... 7
FINANCIAL STATEMENTS................................ F-1
<PAGE>
PART I
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 3 of this Form 10-KSB.
ITEM 1. DESCRIPTION OF BUSINESS
Med-Tex Corporation (the "Company") was organized under the laws of the
State of Nevada on September 9, 1987, under the name "Sportsland Sales, Inc."
The Company was formed for the purpose of "investing in investments of all forms
and nature and to engage in any and all other business."
The Company publicly offered, through a blank-check self-underwritten
offering, 10,000,000 shares of its common stock at a price of $.02 per share on
a best efforts all-or-none basis. The offering closed on March 4, 1988 with the
receipt of gross offering proceeds of $200,000.
On June 30, 1994, pursuant to an Acquisition Agreement between the Company
and Enpak Medical Corp. ("Enpak"), the Company acquired 100% of the outstanding
stock of Enpak in exchange for 5,065,294 shares of the Company's Common Stock
and the Company changed its name to "Med-Tex Corporation."
From June of 1994 until October of 1996, the Company carried on the
operations of Enpak which consisted of the import and distribution of bulk and
proprietary medical products. Due to competitive market conditions, the Company
terminated various phases of the operations of Enpak beginning in 1994 and began
liquidating its inventories. In October of 1996, the Company sold all of the
stock of Enpak to Regent Development Holdings Limited, a controlling shareholder
of the Company, for $1.
Since 1994, other than efforts to liquidate inventories, the Company's
operations have consisted of the search for an operating business to merge with
or acquire.
ITEM 2. DESCRIPTION OF PROPERTIES
With the sale of Enpak, the Company has no leasehold or ownership interests
in any properties. The Company's executive offices are located in an industrial
park at 2440 South Progress Drive, Salt Lake City, Utah, which offices are
provided free of charge by the Company's principal shareholder.
The Company believes that its properties are adequate to support its
current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to, and management is not aware of,
any pending or threatened legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders through
the solicitation of proxies, or otherwise, during the fourth quarter of the
Company's fiscal year ended December 31, 1996.
1
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is currently traded in the over counter market
and is quoted on the NASD electronic bulletin board under the symbol MTEX. The
trading market in the Company's common stock is extremely limited and sporadic.
The following table sets forth the high and low bid price per share for the
Company's common stock for each quarterly period.
1996 1995
------------------ -----------------
High Low High Low
First Quarter 2.00 .50 2.50 1.00
Second Quarter 2.00 .50 2.50 .75
Third Quarter 2.00 .50 2.50 .75
Fourth Quarter 2.00 .50 2.50 .75
The quotation reflects inter-dealer prices without retail markup, markdown
or commissions and may not represent actual transactions.
At March 31, 1997, the bid price of the Common Stock was $.50.
Record Holders
As of March 31, 1997, there were approximately 481 record owners of the
Common Stock of the Company.
Dividends
The Company has never declared or paid any cash dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.
2
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page of this Form 10-KSB.
Results of Operations - Fiscal Year 1996
During 1996, the Company's operations were limited to the ongoing
liquidation of inventory and efforts to seek out and acquire an operating
business. On October 31, 1996, the Company sold its operating subsidiary, Enpak
for $1. Enpak incurred operating losses since its acquisition in 1994 and had
liabilities in excess of assets. As a result of the disposal of Enpak, the
operations of Enpak for 1995 and for 1996 through the date of sale have been
reclassified as discontinued operations. Losses from discontinued operations
from Enpak totaled $234,509 in 1996 as compared to $357,044 in 1995.
In connection with the sale of Enpak, the Company reported an extraordinary
gain in 1996 of $1.2 million reflecting the excess of liabilities over assets of
Enpak. However, in connection with the sale of Enpak, the Company recorded an
extraordinary loss of $1.4 million relatig to the write-off of inter-company
loans from the Company to Enpak and its subsidiary.
As a result of the discontinuance of operations and sale of Enpak, the
Company reported a net loss of $439,105 in 1996 as compared to a net loss of
$357,044 in 1995.
Liquidity and Capital Resources
As a result of the sale of Enpak, the Company had no assets and no
liabilities at December 31, 1996.
During 1995 and up until the sale of Enpak in October of 1996, the Company
funded its operating losses and capital requirements through loans from related
parties and other issuances of debt. In August of 1996, the Company issued
3,503,665 shares of common stock in satisfaction of all outstanding loans from
shareholders and related entities, including accrued interest, in the
approximate amount of $1,053,000.
While the Company had no existing liabilities or capital requirements at
December 31, 1996, the Company has no sources of available capital or
commitments to provide capital. Management believes that certain affilites will
continue to advance funds to the Company in order to provide sufficient capital
resources to fund its efforts to seek and acquire an operating business for the
foreseeable future. However, there are binding commitments or obligations to
provide such funding. Without such funding, the Company will be unable to
sustain its operations over the next twelve months.
Certain Factors Affecting Future Operating Results
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include the following: the limited availability and
competition for attractive business acquisition candidates; the absence of
resources to fund the cost and capital requirements associated with acquiring
and funding businesses; the lack of firm commitments to provide funding to the
Company to sustain its operations and to consummate an acquisition; and changes
in the regulatory and economic climate which may make it more difficult for the
Company to consummate an acquisition, among other factors.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, together with the
independent auditors' report thereon of H.J. Swart & Company, P.A., appears on
pages F-2 through F-12 of this report. See Index to Financial Statements on page
F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Regarding Present Directors and Executive Officers
The following table sets forth the names and ages of the present executive
officers and directors of the Company and the positions held by each.
Name Age Title
- ----------------- --- ---------------------------------------------------------
K. Scott Crawford 40 President, Chief Executive Officer and Director
Karen Polino 42 Secretary/Treasurer, Chief Financial Officer and Director
Angela Morin 34 Director
K. Scott Crawford. Mr. Crawford has been employed by the Company and its
predecessor since 1992 having served as Secretary, Treasurer, Chief Financial
Officer and a Director until 1996 when he was promoted to President, Chief
Executive Officer and Director. From 1985 until joining the Company, he was the
executive vice president of Arrow Associated Stores, Inc. in Salt Lake City.
Karen Polino. Ms. Polino has served as Secretary, Treasurer, Chief
Financial Officer and a Director of the Company since July of 1996. For the past
two years, Ms. Polino has been employed as an administrative assistant for
Waterford & Sterling, Inc., a financial public relations firm, and for the prior
three years served as an administrative assistant with Enpak Surgical, Inc., a
medical products distributor.
Angela Morin. Ms. Morin has served as a Director of the Company since July
1996. For the past three years, Ms. Morin has been employed as an administrative
assistant for Martin Consultants, Inc., a mergers and acquisitions firm, and for
the prior five years served as an administrative assistant with LEA Management,
Inc., a consulting firm.
ITEM 10. EXECUTIVE COMPENSATION
The Company paid no salary or other compensation in excess of $100,000 to
any of its officers during 1996. The Company's chief executive officer, K. Scott
Crawford, received no compensation of any nature from the Company for any of
fiscal years 1993 through 1996.
4
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1997 the number of shares of
the Company's Common Stock known to be held by the executive officers and
directors individually and as a group and by beneficial owners of more than five
percent of the Company's Common Stock.
Name and Address of Amount and Nature of
Beneficial Onwer (1) Beneficial Ownership Percent of Class
- -------------------- -------------------- ----------------
Metro Link Holdings (2)........... 1,750,000 18.6%
Jeff Martin (3)(4)................ 1,277,531 13.6%
G. Robert W. Klomp (3)............ 500,000 5.3%
K. Scott Crawford................. 175,000 1.9%
Angela Morin...................... 50,000 *
Karen Polino...................... -0- -
Executive officers and directors
as a group (3 persons)........... 225,000 2.4%
- ------------------------
* Less than 1%.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) Address is 4703, 47/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.
(3) Address is 2440 South Progress Drive, Salt Lake City, Utah 84119.
(4) Includes 1,029,385 shares held by Martin Consultants, Inc. and 248,146
shares held of record by Jeffrey Martin. Mr. Martin controls Martin
Consultants, Inc. and may be deemed to be the beneficial owner of the
shares held of record by Martin Consultants, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 and 1996, various shareholders of the Company, and affiliates
of those shareholders, loaned funds to the Company to support the Company's
operations. Martin Consultants, Inc., a stockholder of the Company, and a
company owned by Martin Consultants, Inc. loaned funds to the Company during
1995 and 1996 pursuant to demand loans, a portion of which were non-interest
bearing with the balance bearing interest at 10%. The maximum amount of loans
from Martin Consultants during 1996 was $1,053,874. In August of 1996, all of
those loans were converted into 1,053,874 shares of common stock.
In October of 1996, the Company sold its subsidiary, Enpak, to Regent
Development Holdings, Inc. for $1 and foregiveness of all amounts advanced by
the Company to Enpak and its subsidiary. At the time of sale, Enpak had
liabilities in excess of assets, all of which represented loans from the Company
or its shareholders to Enpak and its subsidiary. Regent Development Holdings is
a British Virgin Islands company which is controlled by Andy Lai, the
controlling shareholder of Metro Link Holdings, the Company's largest
shareholder.
During 1995, the Company transferred all of its furniture and equipmennt to
Martin Consultants, Inc., which is controlled by Jeffrey Martin, a controlling
stockholder of the Company, for foregiveness of indebtedness in the amount of
$78,548. The net book value of the furniture and equipment transferred was
$80,399, while its fair market value was approximately $46,000.
5
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
2.1 Agreement dated October 31, 1996 between Med-Tex Corporation, Enpak
Medical Corporation and Regent Development Holdings Limited (1)
3.1 Articles of Incorporation, as amended to date (2)
3.2 Bylaws, as amended to date (2)
27.1* Financial Data Schedule
- ------------------------
* Filed herewith
(1) Incorporated by reference from Form 8-K dated November 8, 1996.
(2) Incorporated by reference from Form 8-K dated January 25, 1995.
(b) Reports on Form 8-K
Form 8-K dated November 8, 1996, 1996 reporting under Item 2, the sale of
the Company's only operating subsidiary, Enpak Medical Corporation.
6
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MED-TEX CORPORATION
By: /s/ K. Scott Crawford
------------------------------------
K. Scott Crawford
President
Dated: April 11, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ K. Scott Crawford President & Director April 11, 1997
- --------------------- (Principal Executive Officer)
K. Scott Crawford
/s/ Karen Polino Secretary/Treasurer & Director April 11, 1997
- --------------------- (Principal Accounting and Financial
Karen Polino Officer)
/s/ Angela Morin Director April 11, 1997
- ---------------------
Angela Morin
7
<PAGE>
MED-TEX CORPORATION
Index to Consolidated Financial Statements
Page
Independent Auditors Report F-2
Consolidated Balance Sheet as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
Independent Auditors Report
To the Board of Directors and Stockholders
Med-Tex Corporation
We have audited the accompanying consolidated balance sheet of Med-Tex
Corporation and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Med-Tex Corporation
and subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ H. J. Swart & Company, P.A.
-----------------------------------
H. J. Swart & Company, P. A.
January 31, 1997
F-2
<PAGE>
Med-Tex Corporation
Consolidated Balance Sheet
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets
------
1996 1995
------ ------
<S> <C> <C>
Current assets
Cash $ -0- 18,130
Accounts receivable -0- 15,506
Inventory -0- 124,933
------ --------
Total current assets -0- 158,569
Property and equipment
Leasehold improvements -0- 172,572
Less accumulated depreciation -0- 9,427
------ --------
Net property and equipment -0- 163,145
Other assets
Licenses and permits, net of
amortization of $44,430 in 1995 -0- 155,570
Goodwill, net of amortization of
$72,479 in 1995 -0- 386,617
Deposits and other -0- 11,177
------ --------
Total other assets -0- 553,364
------ --------
$ -0- $875,078
====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
Med-Tex Corporation
Consolidated Balance Sheet
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Current liabilities
Accounts payable $ -0- $ 304,048
Accrued interest payable -0- 79,796
Current portion long term debt -0- 37,183
Other accrued liabilities -0- 8,329
------------ -----------
Total current liabilities -0- 429,356
Long term debt -0- 1,106,833
------------ -----------
Total liabilities -0- 1,536,189
Stockholders' equity (deficit)
Common stock, $.001 par value,
50,000,000 shares authorized,
9,391,964 shares issued and
outstanding; 5,836,724 shares in 1995 9,391 5,837
Additional paid in capital 2,490,024 1,393,362
Accumulated deficit (2,499,415) (2,060,310)
------------ -----------
Stockholders' equity (deficit) -0- (661,111)
------------ -----------
$ -0- $ 875,078
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Med-Tex Corporation
Consolidated Statement of Operations
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Income from continuing operations $ -0- $ -0-
Loss from discontinued operations (234,509) (357,044)
------------ ----------
Net loss before extraordinary items (234,509) (357,044)
Extraordinary items
Gain on disposal of discontinued operations 1,206,502 -0-
Write-off of notes receivable (1,411,098) -0-
------------ ----------
Net loss $ (439,105) $(357,044)
============ ==========
Net loss per common share
Loss before extraordinary items $ (.034) $ (.064)
Extraordinary items (.030) -0-
------------ -----------
Net loss per share $ (.064) $ (.064)
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
Med-Tex Corporation
Consolidated Statement of Stockholders' Equity (Deficit)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid in Accumulated Equity
Stock Capital Deficit (Deficit)
------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balances December 31, 1994 $5,368 $1,082,949 $(1,703,266) $ (614,949)
Stock issued in exchange
for shares of Enpak
Surgical Products,Inc. 158 (158) -0- -0-
Stock issued in satisfaction
of certain debt of Enpak
Surgical Products, Inc. 311 310,571 -0- 310,882
Net loss for year ended
December 31, 1995 -0- -0- (357,044) (357,044)
------- ----------- ------------ ----------
Balances December 31, 1995 5,837 1,393,362 (2,060,310) (661,111)
Stock issued in satisfaction
of certain debt of Enpak
Surgical Products, Inc. 51 46,291 -0- 46,342
Stock issued in satisfaction
of certain debt of Enpak
Medical Corporation 3,503 1,050,371 -0- 1,053,874
Net loss for year ended
December 31, 1996 -0- -0- (439,105) (439,105)
------- ----------- ------------ -----------
Balances December 31, 1996 $9,391 $2,490,024 $(2,499,415) $ -0-
======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Med-Tex Corporation
Consolidated Statement of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (439,105) $ (357,044)
Adjustments to reconcile net loss to net
cash used in operating activities
Loss from discontinued operations 234,509 357,044
Extraordinary gain on disposal of
discontinued operations (1,206,502) -0-
Extraordinary write-off of notes
receivable 1,411,098 -0-
Changes in discontinued operations (111,248) (176,858)
----------- -----------
Net cash used by discontinued operations (111,248) (176,858)
Cash flows from investing activities
Proceeds from sale of discontinued
operations, net of discontinued
operations cash (470) -0-
----------- -----------
Net cash used by investing activities (470) -0-
Cash flows from financing activities
Loans to discontinued operations
from related parties 122,684 249,035
Repayment of loans to discontinued
operations from related parties -0- (41,329)
Repayment of debt of discontinued
operations (29,096) (23,664)
----------- -----------
Net cash provided by financing activities 93,588 184,042
----------- -----------
Increase (decrease) in cash (18,130) 7,184
Cash at beginning of year 18,130 10,946
----------- -----------
Cash at end of year $ -0- $ 18,130
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
Med-Tex Corporation
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies
Organization and consolidation
The financial statements presented are those of Med-Tex Corporation (the
Company), a Nevada corporation, Enpak Medical Corporation (Medical), its
wholly owned subsidiary, and Enpak Surgical Products, Inc. (Surgical), a
majority owned subsidiary of Medical. Surgical is the only entity in the
consolidated group to have operations in 1995 and 1996. It was in the
business of assembling and marketing custom and standard surgical kits used
in intervention, diagnostic, and surgical procedures, but discontinued
those operations in late 1994. No new operations have been initiated and
the Company was in the process of liquidating its inventory prior to
disposition of its subsidiaries.
The Company has been in existence since 1987. It acquired Medical on
December 8, 1994 in a pooling of interests. All financial statements
presented have been reported as though the combination had taken place on
October 19, 1993, the date of Medical's inception.
November 10, 1993, Medical acquired (via contribution) a 59% controlling
interest in Surgical. During 1994, Surgical issued shares for officer
compensation, diluting Medical's interest to 52%. However, subsequent to
the acquisition of Medical, the Company acquired 5% of Surgical through
exchanges of stock with individual stockholders, giving the Company
effective ownership of 57% of Surgical at December 31, 1994. During 1995
the Company acquired an additional 7% of Surgical through exchanges of
stock with individual stockholders, giving the Company effective ownership
of 64% prior to dispositon.
All significant intercompany accounts and transactions have been eliminated
in consolidation. The minority interest holders of Surgical have no
financial responsibility to fund Surgical's losses, therefore Medical has
funded and consolidated 100% of the losses of Surgical since the date of
acquisition.
Inventory
Inventory is valued at the lower of first in first out cost or market.
Inventory was written down to net realizable value at December 31, 1995.
F-8
<PAGE>
Med-Tex Corporation
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies (continued)
Property and equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight line basis over the estimated useful lives of the various assets
for financial reporting purposes. For tax purposes, depreciation is
calculated using appropriate accelerated methods.
Intangible assets
Surgical owns certain FDA licenses, permits, and protocols which are
carried at cost and are being amortized over a 15 year period.
Goodwill consists primarily of the excess paid by Medical over the net book
value of assets acquired from Surgical and is being amortized over a 15
year period.
Income taxes
The Company has unused net operating loss carryforwards of approximately
$2,500,000 at December 31, 1996, which are generally available to offset
future taxable income. These losses will begin to expire in 2005. No
related deferred tax asset has been recognized in the financial statements
since the valuation allowance is equal to any such tax benefit.
Loss per share
The computation of loss per share is based on the weighted average number
of shares outstanding during each year.
Statement of cash flows
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
2. Acquisition And Discontinued Operations
On December 8, 1994 the Company acquired all of the outstanding common
stock of Enpak Medical Corporation in exchange for 5,065,294 shares of the
Company's common stock. The acquisition has been accounted for as a pooling
of interests.
On October 31, 1996, the Company sold all the stock of Medical and its
directly owned shares of Surgical to Regent Development Holdings Limited
for one dollar. The Company recorded a gain of $1,206,502 on the
transaction since the liabilities of Medical and Surgical exceeded their
assets. Medical and Surgical recorded revenue of approximately $78,000
through the sale date in 1996 and $330,000 in 1995.
F-9
<PAGE>
Med-Tex Corporation
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
3. Extraordinary Items
The gain on disposal of discontinued operations, also discussed in Note 2,
is reported as extraordinary since the sale occurred less than two years
after the date Medical was combined with the Company.
On October 31, 1996, the Company released Medical of $1,053,874 and
Surgical of $357,224 of debt owed to the Company.
4. Long Term Debt
Long term debt consists of the following:
1996 1995
---- ----
Loan payable to bank at prime plus 2%,
guaranteed by the Small Business
Administration and collateralized by a
general lien on the assets of Enpak
Surgical Products, Inc., with payments
of principal and interest of $4,539
per month, due March 2003 $ -0- $ 299,180
Note payable to landlord for building
renovations, payable $1,042 per month
with no interest, due January, 1998 -0- 26,048
Non-interest bearing loan from stock-
holder, payable upon demand -0- 81,856
Loans from stockholder and stock-
holder-owned entities bearing interest
at 10%, payable upon demand -0- 736,932
----- ----------
Total long term debt -0- 1,144,016
Less current portion -0- 37,183
----- ----------
$ -0- $1,106,833
===== ==========
In August 1996, the loans from stockholder and stockholder-owned entities
were exchanged for stock in the Company at the rate of one share for each
thirty cents of debt.
The remaining long term debt was eliminated in conjunction with the sale of
Medical, as discussed in Note 2.
F-10
<PAGE>
Med-Tex Corporation
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
4. Long Term Debt (continued)
A $251,513 note payable to the former majority owner of Surgical was
exchanged during 1995 for stock in the Company at the rate of one share for
each dollar of debt.
The demand notes held by stockholder and stockholder-owned entities have
been included in long term debt since the financial condition of the
Company at December 31, 1995 would indicate that repayment could not
reasonably be expected at any particular future date.
5. Long Term Lease
Enpak Surgical Products, Inc. is obligated under a long term lease for
26,000 square feet of office and warehouse space in Salt Lake City, Utah.
The facility is significantly underutilized since the termination of
operations. The lease expires January 31, 2002. Upon the sale of Medical,
as discussed in Note 2, this obligation was eliminated.
In 1995, the Company sub-leased the majority of the office space for five
years at $72,000 per year. The tenant spent significant amounts on
renovations. The lease expires December 31, 1999.
In September 1996, the Company sub-leased another portion of the office
space for $43,200 per year.
Rental expense through October 31, 1996 was $70,000 and was $84,000 for
1995.
6. Related Party Transactions
The Company and its subsidiaries were indebted to a stockholder and
stockholder-owned entities at December 31, 1995 in the amount of $818,788.
The loans are all demand notes; $736,932 bears interest at 10% and $81,856
is non-interest bearing. Accrued interest payable at December 31, 1995 is
$77,061.
On August 16, 1996, the Company issued 3,503,665 shares of common stock as
payment of all related party loans and accrued interest outstanding.
During 1995 the Company transferred all of its furniture and equipment to
one of the stockholder-owned entities for a $78,548 reduction in loans and
accrued interest. The Company realized a loss of $1,851 on the transaction.
F-11
<PAGE>
Med-Tex Corporation
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
7. Supplemental Disclosures Of Cash Flow Information
1996 1995
----------- -----------
Cash paid during the year for
Interest $ 17,343 $ 89,164
Income taxes $ -0- $ -0-
Non cash investing and financial activities
During 1996, the Company issued common stock in satisfaction of certain
debt of Surgical in the amount of $46,342.
During 1996, the Company issued common stock in satisfaction of certain
debt of Medical in the amount of $1,053,874.
During 1995, the Company issued common stock in satisfaction of certain
debt of Surgical in the amount of $310,882.
During 1995, Surgical sold its equipment to a related party; the proceeds
of $78,548 were applied against loans from Medical.
F-12
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