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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________to___________________
Commission File Number 0-20701
COMPOSITECH LTD.
(Exact Name of Registrant as specified in its charter)
Delaware 11-2710467
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Ricefield Lane, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 436-5200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes |X| No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of August 14, 1997:
Common Stock $.01 par value 6,153,939
--------------------------- ---------
Class Number of shares
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<PAGE>
COMPOSITECH LTD.
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 ........ 2
Statements of Operations (unaudited) for the three-month and six-month periods
ended June 30, 1997 and 1996 .............................................. 3
Statements of Cash Flows (unaudited) for the six-month periods
ended June 30, 1997 and 1996 .............................................. 4
Notes to Financial Statements (unaudited) .................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................................... 7
Part II - Other Information
- ---------------------------
Item 2. Changes in Securities ........................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders .......................... 11
Item 6. Exhibits and Reports on Form 8-K ............................................. 11
Signature ............................................................................. 12
</TABLE>
<PAGE>
COMPOSITECH LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,410,741 $ 673,084
Short-term investments 2,384,700
Inventories 353,900 217,974
Accounts receivable trade - net 23,925 66,293
Prepaid expenses and other 82,083 66,880
------------ ------------
Total current assets 1,870,649 3,408,931
Property and equipment at cost - net 5,073,348 3,866,140
Advance payments on construction-in-progress 25,500 114,712
Other assets and deferred charges 468,379 58,087
------------ ------------
Total assets $ 7,437,876 $ 7,447,870
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 880,117 $ 691,763
Deferred salaries - $ 539,904 to officers/stockholders 715,728 715,728
Accrued interest - $ 59,414 (1997) and all (1996 ) to stockholders 68,482 61,816
Other accrued liabilities 382,983 227,889
Current maturities of long-term debt - officers / stockholders 1,595,000 100,000
------------ ------------
Total current liabilities 3,642,310 1,797,196
Long-term debt to stockholders 1,495,000
5% Convertible debentures (net of amortized discount of $114,875) 1,995,875
Capital lease obligations 85,287 19,336
Other liabilities 37,500 37,500
Commitments
Stockholders' equity :
Undesignated preferred stock; authorized 4,000,000 shares,
none issued and outstanding
Series A convertible preferred stock, par value $3.00 per share; authorized
shares - 714,161, issued and outstanding shares - 614,161 (1997) and 684,161 (1996) 1,842,483 2,052,483
Common stock, par value $.01 per share; authorized shares - 25,000,000,
issued and outstanding shares - 6,153,939 (1997) and 6,118,939 (1996) 61,539 61,189
Additional paid-in capital 23,137,583 22,558,933
Deficit (23,364,701) (20,573,767)
------------ ------------
Total stockholders' equity 1,676,904 4,098,838
------------ ------------
Total liabilities and stockholders' equity $ 7,437,876 $ 7,447,870
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 143,469 $ 55,067 $ 295,468 $ 95,052
----------- ----------- ----------- -----------
Total revenues 143,469 55,067 295,468 95,052
----------- ----------- ----------- -----------
Costs and expenses:
Manufacturing expenses 1,389,893 657,204 2,155,616 1,339,362
Selling, general and administrative 369,498 239,891 791,989 507,859
Research and development 23,197 30,857 46,205 55,482
----------- ----------- ----------- -----------
Total operating expenses 1,782,588 927,952 2,993,810 1,902,703
----------- ----------- ----------- -----------
(Loss) from operations (1,639,119) (872,885) (2,698,342) (1,807,651)
Other income (expenses):
Interest income 13,245 15,431 38,833 24,091
Interest and amortization of debt discount and expense
(net of interest capitalized of $ 82,000 (1997) and $ 5,000 (1996)) (98,908) (213,262) (139,885) (430,956)
Other 6,242 501 8,460 7,618
----------- ----------- ----------- -----------
(79,421) (197,330) (92,592) (399,247)
Net (loss) ($1,718,540) ($1,070,215) ($2,790,934) ($2,206,898)
=========== =========== =========== ===========
Net (loss) per share ($ 0.25) ($ 0.24) ($ 0.41) ($ 0.52)
=========== =========== =========== ===========
Shares used in computing net (loss) per share 6,865,221 4,404,326 6,865,221 4,226,146
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($2,790,934) ($2,206,898)
Adjustments to reconcile net (loss) to net cash and
cash equivalents used in operating activities:
Depreciation and amortization, including capital leases 195,224 127,842
Amortization of debt discount and expenses 121,202 153,077
Changes in operating assets and liabilities:
Inventories (141,926) (84,173)
Accounts receivable - trade 42,368 (19,035)
Prepaid expenses and other (15,203) (60,519)
Other assets and deferred charges (94,314) 2,748
Accounts payable 188,354 260,400
Deferred salaries 73,995
Accrued interest 6,666 142,618
Other accrued liabilities 133,850 185,155
----------- -----------
Net cash and cash equivalents used in operating activities (2,354,713) (1,424,790)
Cash Flows from Investing Activities
Purchase of property and equipment - net (1,305,096) (314,188)
Advance payments on construction-in-progress 89,212
Patent costs deferred (94,536)
Short term investments - maturities 2,384,700
----------- -----------
Net cash and cash equivalents (used in) provided by investing activities 1,074,280 (314,188)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 932,342
Net proceeds from notes payable 145,687
Net proceeds received from convertible debentures 2,022,231
Payment received on notes receivable 750,000
Payment of capital lease obligations (4,141)
Payment of notes payable (82,500)
----------- -----------
Net cash and cash equivalents provided by financing activities 2,018,090 1,745,529
----------- -----------
Increase in cash and cash equivalents 737,657 6,551
Cash and cash equivalents at beginning of period 673,084 925,848
----------- -----------
Cash and cash equivalents at end of period $ 1,410,741 $ 932,399
=========== ===========
Supplemental disclosures of cash flow information
Noncash financing activities:
Capital lease obligations for property and equipment acquisitions $ 91,336
===========
Cash paid for:
Interest $ 94,018 $ 165,753
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
COMPOSITECH LTD.
Notes to Financial Statements
(Unaudited)
June 30, 1997
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Annual Report on
Form 10-KSB for the year ended December 31, 1996 of Compositech Ltd. (the
"Company"). In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Through December 31, 1996, the Company's activities had been accounted for
as those of a "Development Stage Enterprise". Based on the level of production
and sales anticipated for 1997, the Company has concluded that it is no longer
in the development stage as of January 1, 1997.
The Company has obtained patents in the United States and internationally
and has filed additional patent applications. As of January 1, 1997, coincident
with no longer being in the development stage, the costs incurred in connection
with patents have been deferred and are being amortized over the life of the
patents beginning upon issue. Costs related to unsuccessful patent applications
will be expensed.
In February 1997, the Financial Accounting Standards Board issued Statement
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share as of June 30, 1997 and June 30,
1996 is not material.
Current maturities of long-term debt-stockholders include $1,495,000 due to
officers or directors maturing March 31, 1998, as amended.
5
<PAGE>
Note 2 - 5% Convertible Debentures / Subsequent Events
From May 28 through June 10, 1997, the Company issued $2,250,000 of 5%
convertible debentures (the "Debentures") in a private placement for which the
Company received net proceeds of approximately $2,022,000 after the payment of
commissions and expenses. Subsequent to June 30, 1997 through August 5, 1997,
the Company issued additional Debentures aggregating $4,255,000 for which the
Company received net proceeds of approximately $3,924,000. The Debentures were
issued to provide funds to obtain additional production equipment and for
working capital. Interest is payable quarterly. The Debentures are due May 31,
2000 and are partially collateralized either by the equipment to be obtained
with the proceeds or certain existing production equipment. The Debentures are
convertible into shares of Common Stock commencing August 26, 1997 at the lesser
of (i) $6.00 per share or (ii) (a) from August 26, 1997 to November 24, 1997,
85% and (b) from November 25, 1997 to maturity, 80% of the closing bid price of
the Common Stock as reported on The Nasdaq SmallCap Market(SM) for the five
trading days prior to the date of conversion. The Company may repurchase any of
the individual Debentures at a 25% premium if the closing bid price of the
Common Stock is less than $4.00 for any two days out of a five day trading
period.
Trautman Kramer & Company Inc., the placement agent, received warrants to
buy 182,140 shares of the Company's Common Stock at $6.00 per share as partial
compensation in connection with the sale of Debentures. The value of the
warrants have been estimated at approximately $91,000. Accordingly, additional
paid in capital was credited with $31,500 in the second quarter of 1997 and will
be credited with $59,500 in the third quarter of 1997. The debt discount
resulting therefrom as well as from expenses paid in cash is being amortized to
expense over the life of the Debentures.
Based on a recent SEC pronouncement, due to the difference between the fair
market value of the Common Stock on the dates the Debentures were sold and the
earliest discounted conversion price, the Company recognized a deferred
financing cost of $114,000 in the second quarter of 1997 and expects to
recognize $862,000 of such costs in the third quarter of 1997. The deferred
financing cost is being amortized over the periods from issuance to August 26,
1997, the date on which the Debentures become convertible. Management believes
that the proceeds received from the Debentures and the discount offered on
conversion of the debt is a fair representation of the net proceeds the Company
would otherwise expect to receive from an equity offering of a like number of
shares after consideration of all associated commissions, costs and expenses.
Note 3 - Stock Options and Series A Convertible Preferred Stock Conversions
During the first quarter of 1997, the Company granted to selected officers,
directors and key employees options to purchase 123,500 shares of common stock
at $5.75 per share, the market value at the date of grant. During the second
quarter of 1997, the Company granted to selected key employees options to
purchase 18,000 shares of common stock at prices ranging from $4.375 to $4.75,
the market values at the date of the grant.
6
<PAGE>
In the six months ended June 30, 1997, 70,000 shares of the Series A
convertible preferred stock were converted at the existing conversion rate into
35,000 shares of common stock, resulting in a decrease in Series A convertible
preferred stock of $210,000, an increase in common stock of $350 and an increase
in additional paid-in capital of $209,650.
Note 4 - Net Loss Per Share
Net loss per share is based on the weighted average number of shares of
common stock outstanding assuming the conversion of the Series A convertible
preferred stock into common stock. However, in accordance with Staff Accounting
Bulletin Number 83 ("SAB No. 83") of the Securities and Exchange Commission, the
common stock equivalents of 404,205 shares that were issued during the 12 months
preceding the Company's initial public offering ("IPO"), which closed on July 9,
1996, at prices below the IPO price have been included in the Company's loss per
share computation using the treasury stock method and the IPO price, and treated
as if they had been issued at the Company's inception even though they were
antidilutive in the period with losses.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB 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. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the discussions below and in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
Overview
The Company was founded in 1984 to develop copper-clad fiberglass epoxy
laminates used to manufacture printed circuit boards required by the electronics
industry. As part of its development program, the Company developed processes
and machinery to manufacture its unique laminates, designed and assembled
prototype equipment to produce 24" x 24" laminates, designed and assembled an
initial production module to produce 36" x 48" laminates, designed, assembled
and is completing the start up of additional production modules obtained with
part of the proceeds of its IPO in order to achieve commercial levels of
production.
During 1996 and continuing through the second quarter of 1997, the Company
has been producing and selling its laminates in limited quantities for
qualification and use in production by its customers. The quantities produced
have been limited because of working capital and production constraints and
limited amounts of equipment. Through December 31, 1996, the Company had been in
the development stage because it had not generated significant revenues from its
planned principal operations. Revenues have been limited during 1997 because
production yields were affected by contamination caused by installing new
equipment and training new personnel while continuing production, and by
defective incoming copper foil. With the new production equipment in place, the
upgrading and training of manufacturing personnel, with improvements being
instituted in production and incoming copper inspection and improvements in
7
<PAGE>
quality being instituted by copper foil vendors, significant revenues from the
sales of laminates are anticipated to occur in 1997. Thus, the Company has
concluded that it is no longer in the development stage.
Results of Operations
Sales of laminates increased to $143,469 for the three months ended June
30, 1997 from $55,067 for the three months ended June 30, 1996 and to $295,468
for the six months ended June 30, 1997 from $95,052 for the six months ended
June 30, 1996. The increase resulted from additional orders of laminates by
customers but was limited by the production constraints referred to above and by
delays in customers' programs for which Compositech's laminates were qualified.
Research and development expenses decreased slightly during the periods, to
$23,197 for the three month period ended June 30, 1997 from $30,857 for the
three month period ended June 30, 1996 and to $46,205 for the six month period
ended June 30, 1997 from $55,482 for the six month period ended June 30, 1997.
Manufacturing expenses increased to $1,389,893 for the three month period
ended June 30, 1997 from $657,204 for the three months ended June 30, 1996 and
to $2,155,616 for the six month period ended June 30, 1997 from $1,339,362 for
the six month period ended June 30, 1996, reflecting the higher levels of
production during 1997 affected by the production yields referred to above and
the addition of manufacturing personnel to meet anticipated increases in
production levels.
Selling, general and administrative expenses increased to $369,498 for the
three months ended June 30, 1997 from $239,891 for the three months ended June
30, 1996 and to $791,989 for the six months ended June 30, 1997 from $507,859
for the six months ended June 30, 1996. Increased legal and other expenses
related to being a public company totaled $105,000 in the first six months of
1997. Other increases were approximately $156,000 in personnel costs and $30,000
in insurance as the Company increased administrative staffing to handle expected
increases in commercial activities.
Interest and amortization of debt discount and expense (net of interest
capitalized) decreased to $98,908 for the three months ended June 30, 1997 from
$213,362 for the three months ended June 30, 1996 and to $139,885 for the six
months ended June 30 from $430,956 for the six months ended June 30, 1996. The
decreases in 1997 were due to the repayment of a large portion of the Company's
debt with the proceeds of the Company's IPO in July 1996. Included in the total
for the three months ended and six months ended June 30, 1997 was $121,202 of
amortization of discount and expenses relative to the Debentures (see Note 2 to
the financial statements).
The foregoing resulted in the Company having a net loss of $1,718,540 for
the three months ended June 30, 1997 compared with $1,070,215 for the three
months ended June 30, 1996 and $2,790,934 for the six months ended June 30, 1997
compared with $2,206,898 for the six months ended June 30, 1996. Increases in
sales revenue and decreases in interest expense were more than offset by
increases in manufacturing, selling, general and administrative expenses.
8
<PAGE>
Liquidity and Capital Resources
Prior to its IPO, the Company had financed its operations through private
placements of debt and equity securities and from income from a patent immunity
agreement. Some of this financing had come from officers and directors of the
Company.
At June 30, 1997, the Company had cash and cash equivalents of $1,410,741.
Subsequent to June 30, 1997, the Company concluded its private placement of
convertible debentures which netted additional proceeds of approximately $3.9
million. The Company plans to use a substantial portion of such funds for
equipment and the balance for working capital and operations. As the Company
increases its production rates, it will have increased operating cash
requirements through at least the third quarter of 1997, before the effects of
expanded production capacity can be realized. Significant revenues from the sale
of laminates are anticipated to commence in the second half of 1997. The Company
expects based on currently proposed plans and assumptions relating to its
operations that the proceeds of the Debentures together with projected cash flow
from operations and available cash resources, supplemented by commercial
financing, will be sufficient to satisfy its anticipated cash requirements for
the balance of 1997. Such expectation is based on important assumptions
regarding a number of factors and future events, some of which are beyond the
Company's control including risks and uncertainties described in reports and
other documents filed by the Company from time to time with the Securities and
Exchange Commission. There can be no assurance that management has identified
and made appropriate assumptions regarding all factors that may affect the
Company's business in the future. There can be no assurance that the Company
will successfully complete expansion of its production equipment, achieve broad
commercial acceptance of its product or generate sufficient revenues to achieve
profitable operations, and not require additional financing. Beyond 1997, the
Company plans to obtain additional financing for further expansion or for
working capital from operations, the exercise of warrants, financing sources or
equity offerings.
On February 6, 1997, following an earlier Memorandum of Understanding, the
Company agreed in principle with four Quebec institutional investors
(collectively, the "Quebec Investors") to form a 50/50 joint venture for the
establishment of a plant in the greater Montreal area to manufacture
Compositech's laminates. The project cost is estimated to be approximately $24.5
million with an initial capitalization by the parties of approximately $11
million with the balance to be in debt financing for which firm commitments have
been obtained from the National Bank of Canada and governmental agencies. The
Company's $5.5 million capital investment in the joint venture is to be funded
by the Quebec Investors purchasing shares of the Company's Common Stock. In July
1997, the parties agreed that the purchase price of the shares would be the
weighted average closing price for the 60 day trading period ending with the
closing of the agreements expected to be in early August. Based on the latest
market values, there would be an estimated 987,000 shares issued. The Quebec
Investors will have an option to sell their 50% interest in the joint venture to
the Company for a like number of shares and, under certain circumstances, the
Company would have an option to purchase the interest for the same number of
shares. The establishment of the project is subject to the completion of
definitive agreements and certain other conditions. The Company is unable to
predict when, if ever, such conditions will be satisfied.
9
<PAGE>
Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996
Net cash and cash equivalents used in operating activities increased to
$2,354,713 for the six months ended June 30, 1997 from $1,424,790 for the six
months ended June 30, 1996. The increased net loss, increase of deferred charges
related to the proposed joint venture in Canada, and a reduction in the rate of
increase of accrued liabilities represent the principal components of the
increase in funds used.
Net cash and cash equivalents provided by investing activities amounted to
$1,074,280 for the six months ended June 30, 1997, compared with net cash and
cash equivalents used of $314,188 for the six months ended June 30, 1996.
Capital expenditures for equipment and advance payments for equipment increased
to $1,215,884 for the six months ended June 30, 1997 from $314,188 for the six
months ended June 30, 1996. The increase resulted from design, engineering and
construction of additional production modules as part of the expansion program
and the upgrading of existing equipment. Patent costs deferred totaled $94,536
for the six months ended June 30, 1997. Maturities of short term U.S. Government
securities during the six months ended June 30, 1997 accounted for $2,384,700 of
funds provided by investing activities.
Cash flows from financing activities increased to $2,018,090 for the six
months ended June 30, 1997 from $1,745,529 for the six months ended June 30,
1996. The principal financing activity in the six months ended June 30, 1997 was
the issuance of the Debentures, resulting in net proceeds of $2,022,231, while
the six month period ended June 30, 1996 included the receipt of net proceeds
from the issuance of common stock in private placements of $932,342, net
proceeds from notes payable of $145,687 and the collection of $750,000 of notes
receivable received in connection with the 10% Secured Note financing in 1995.
Part II - Other Information
Item 2. Changes in Securities
On May 28, 1997 and June 10, 1997 the Company had initial closings on
$2,250,000 of 5% Convertible Debentures (the "Debentures") (net proceeds to the
Company of approximately $2,022,000) in a private placement to accredited
investors. The sales of the Debentures was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, as a
transaction not involving a public offering. The Debentures are convertible into
shares of the Company's common stock pursuant to the terms described in Note 2
in the Financial Statements. Trautman Kramer & Company, Inc. served as the
Company's placement agent for the private placement. Following the period
covered by this report, the Company had additional closings on an aggregate of
$4,255,000 in Debentures (net proceeds to the Company of approximately
$3,924,000) with substantially similar terms as the initial investments
described above.
10
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1997 Annual Meeting of Stockholders was held on June 24,
1997. The following actions were taken:
1. Eight directors were elected to serve for one-year terms on the Company's
Board of Directors, by the following votes:
For Withheld
---------- ---------
Jonas Medney 6,444,295 16,725
Fred E. Klimpl 6,432,862 28,158
Samuel S. Gross 6,444,295 16,725
John F. Gahran 6,435,462 25,558
Willard T. Jackson 6,441,695 19,325
Robert W. Middleton 6,435,462 25,558
Heinz-Gerd Reinkemeyer 6,433,862 27,158
James W. Taylor 6,432,862 28,158
2. The selection of Ernst & Young LLP as auditors for the Company for the year
1997 was ratified by a vote of 6,426,637 shares in favor and 20,433 shares
opposed. A total of 13,950 shares abstained from voting.
3. The amendment of Compositech's Amended and Restated Stock Award Plan to (i)
increase by 600,000 shares the number of shares of Common Stock authorized for
issuance thereunder and (ii) permit Compensation Committee members to receive
awards thereunder, was approved by a vote of 6,282,405 shares in favor and
147,482 shares opposed. A total of 31,133 shares abstained from voting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.10 Compositech Ltd. Amended and
Restated Stock Award Plan
(b) Reports on Form 8-K
None
All other items required in Part II have been filed previously or are
not applicable for the quarter ended June 30, 1997.
11
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPOSITECH LTD.
Dated: August 14, 1997 /s/ Samuel S. Gross
--------------------------------------------
Executive Vice President and Treasurer
(Principal Accounting Officer and officer
duly authorized to sign this report on behalf
of the registrant)
12
EXHIBIT 10.10
COMPOSITECH LTD.
AMENDED AND RESTATED STOCK AWARD PLAN
1. Purpose
-------
The purpose of this Stock Award Plan (the "Plan") is to provide to selected
officers, directors, employees and consultants and other non-employee
individuals providing or expected to provide valuable services contributing to
the growth and success of Compositech Ltd. (the "Company"), an opportunity to
obtain or increase a proprietary interest in the Company, or to benefit from the
appreciation in the value of the Company's Common Stock, par value $0.01 per
share (the"Common Stock"), as an incentive to such persons to continue and to
increase their efforts to benefit the Company and to continue their relationship
with the Company.
2. Administration
--------------
The Plan shall be administered by, and all decisions and determinations
concerning the Plan shall be made solely by, the Award Committee or any
successor committee (the "Committee") appointed by the Board of Directors of the
Company (the "Board"). The Committee shall consist of no less than three
"non-employee directors," as such term is defined in Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee
may establish, modify or rescind any rules or regulations for the conduct of its
business and the administration of the Plan, in any case, not inconsistent with
the express provisions of the Plan, the By-laws or the Restated Certificate of
Incorporation of the Company or any resolutions of the Board. Any decision of
the Committee in the administration of the Plan, shall be final, conclusive and
binding on all persons. Any action of the Committee shall be taken by a vote or
written consent of a majority of its members except that the members of the
Committee may authorize any one or more of their number to execute and deliver
documents on behalf of the Committee. No member of the Committee shall be liable
for any action taken, or determination made, in good faith.
3. Eligibility and Participation
-----------------------------
Officers, directors and employees of the Company shall be eligible for
selection to participate in the Plan. Non-employee individuals, providing or
expected to provide valuable services to the Company, as the Committee may
determine, also shall be eligible for selection to participate in the Plan.
Notwithstanding the foregoing, only persons employed by the Company (or any
subsidiary thereof) shall be eligible to receive options intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options" or "ISOs"), hereunder.
4. Awards under the Plan
---------------------
(a) "Awards" under the Plan shall mean and include any one or a combination
of ISOs, nonqualified stock options ("NQSOs," and together with ISOs, "Options")
and shares of Common Stock subject to restrictions ("Restricted Stock"). Awards
shall be represented by, or issued pursuant to, agreements in such form as the
Committee may from time to time approve, which agreements need not contain
uniform terms and conditions but shall comply with and be subject to all the
terms, conditions and restrictions of the Plan ("Award Agreements"). The
Committee shall have the authority to accelerate the vesting periods for all
Options granted by the Committee under the Plan.
1
<PAGE>
(b) Subject to adjustment as provided in paragraph 7 below, there may be
issued under the Plan pursuant to Awards an aggregate of not more than One
Million One Hundred Seventy-Five Thousand (1,175,000) shares of Common Stock;
provided, however, that if an Option shall expire or terminate without having
been exercised in full, or if any shares of Restricted Stock shall be forfeited
by a recipient thereof, any unissued shares of Common Stock which were covered
by that Award may be added to the shares otherwise available for Awards to be
granted pursuant to the Plan. The Company hereby reserves One Million One
Hundred Seventy-Five Thousand (1,175,000) shares of Common Stock for issuance
under the Plan.
(c) A participant who has been awarded an Option hereunder (an "Optionee")
(and any person succeeding to the Optionee's rights pursuant hereto) shall not
have any rights as a stockholder with respect to any shares of Common Stock
issuable pursuant to any Option until the date of the issuance of a stock
certificate to the Optionee for the shares. Except as provided in paragraph 7
below, no adjustment shall be made for dividends, distributions or other rights
(whether ordinary or extraordinary, and whether in cash, securities or other
property) for which the record date is prior to the date a stock certificate is
issued. A participant who has been awarded Restricted Stock hereunder shall,
except for the restrictions on transfer, be the owner of such Restricted Stock
and shall have all the rights of a stockholder.
5. Options
-------
Each Option granted under the Plan shall comply with the following terms
and conditions:
(a) An Option exercise price shall be determined by the Committee in its
sole discretion, but in the case of an ISO, such exercise price shall be not
less than the Fair Market Value, as hereinafter defined, of the Common Stock on
the date of grant.
(b) The term of an Option shall be determined by the Committee, but in no
event shall any ISO be exercisable more than ten years after the date on which
it was granted.
(c) An Option shall not be transferable by the Optionee otherwise than by
will or the applicable laws of descent and distribution and shall be exercisable
during the Optionee's lifetime only by the Optionee.
(d) An Option shall not be exercisable:
(i) prior to six months from the date it is granted;
(ii) unless payment in full is made for the shares of Common Stock
being acquired thereunder at the time of exercise (A) in United States dollars
by cash or check, (B) by tendering to the Company shares of Common Stock owned
by the person exercising the Option and having a Fair Market Value equal to the
cash price applicable to the Option, (C) by a combination of United States
dollars and shares of Common Stock as aforesaid, or (D) with the prior approval
of the Committee, by tendering to the Company a promissory note on which such
person exercising the Option is personally liable and which is in a form
satisfactory to the Committee; and
(iii) unless the person exercising the Option fulfills the eligibility
requirements in paragraph 3 above at all times during the period beginning with
the date of grant of the Option and ending on the date of such exercise, except
that each Award Agreement with respect to an Option may specify the
2
<PAGE>
conditions and circumstances under which an unexercised Option may or may not be
exercised in the event that the relationship between the Company and the
Optionee is terminated prior to the expiration date of the Option.
(e) An outstanding, unexercised and unexpired Option shall become
exercisable in full in the event of a "change in control" of the Company and the
Committee may in its discretion provide that in such event such outstanding,
unexercised and unexpired Options may be surrendered for cash in the amount by
which the fair market value of the Company's Common Stock subject to such
Options immediately prior to the "change in control" as determined by the
Committee exceeds the exercise price of such Common Stock at such time. The
Committee also has the discretion to provide that Options will continue to be
exercisable following the change in control for the consideration that would
have been receivable at the time of the change in control if the options had
been exercised immediately prior thereto. A "change in control" means generally
(i) the merger or consolidation of the Company as a result of which the Company
is not the surviving entity, (ii) the sale of all or substantially all of the
assets of the Company, (iii) the acquisition by another person of 80% or more of
the then outstanding shares of Common Stock or (iv) the recapitalization,
reorganization, dissolution or liquidation of the Company.
For purposes hereof "Fair Market Value" shall mean the fair market value
per share of the Company's Common Stock as determined by the Committee in good
faith; provided, however, that if the Company's Common Stock is listed or
admitted to trading on a securities exchange registered under the Exchange Act,
or as a national market security on the National Association of Securities
Dealers, Inc., Automated Quotations System ("NASDAQ") or any similar system then
in use, the Fair Market Value per share shall be the average of the reported
high and low sales price on the date in question (or if there was no reported
sale on such date, on the last preceding date on which any reported sale
occurred) on the principal securities exchange or system on which such share is
listed or admitted to trading, or if a share is not listed or admitted to
trading on any such exchange and is not listed as national market security on
NASDAQ but is quoted on NASDAQ or any similar system then in use, the Fair
Market Value per share shall be the average of the closing high bid and low
asked quotations on such system for such share on the date in question.
6. Restricted Stock
----------------
An Award of Restricted Stock hereunder shall entitle the holder thereof to
receive shares of Common Stock which shall be forfeited if the relationship
between the Company and such holder terminates during the Restricted Period, as
defined below, for any reason other than those set forth in the related Award
Agreement. For purposes hereof, "Restricted Period" shall mean that period as
determined by the Committee during which the shares of Restricted Stock awarded
to a participant may be forfeited. The Committee may at any time provide that a
Restricted Period shall terminate upon the attainment of any performance
objective established by the Committee. Upon termination of the Restricted
Period, the shares of Restricted Stock shall be delivered to the recipient free
and clear of all such restrictions.
7. Dilution and Other Adjustment
-----------------------------
In the event of any change in the outstanding shares of Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or other
similar event, the number or kind of shares issued, or that may be issued under
the Plan pursuant to paragraph 4 above shall be automatically adjusted to give
effect to the occurrence of such event (and, in the case of an Option, the
number or kind of shares subject to, or the Option price per share under, any
outstanding Option shall be automatically adjusted) so that the
3
<PAGE>
proportionate interest of the participant shall be maintained as before the
occurrence of such event. Any adjustment in outstanding Options pursuant to this
paragraph 7 shall be made without change in the total Option exercise price
applicable to the unexercised portion of such Options and with a corresponding
adjustment in the Option exercise price per share. No fractional shares of
Common Stock shall be issued pursuant to any adjustment referred to herein, and
any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share. Any adjustment made
pursuant to this paragraph 7 shall be conclusive and binding for all purposes of
the Plan.
8. Miscellaneous
-------------
(a) No person shall have any claim or right to be granted an Award under
the Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any person any right to be retained in any way in the service of the
Company.
(b) No shares of Common Stock shall be issued hereunder unless counsel for
the Company shall be satisfied, that such issuance will be in compliance with
applicable federal, state and other securities laws.
(c) It shall be a condition to the obligation of the Company to issue
shares of Common Stock upon exercise of an Option, or deliver shares upon
termination of a Restricted Period, as the case may be, that the participant (or
any beneficiary or person entitled to act under paragraph 9 below) pay to the
Company, upon its demand, any taxes required to be withheld.
(d) The expenses of the Plan shall be borne by the Company.
(e) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken under the Plan by the Company or the Committee.
9. Total Disability or Death
-------------------------
(a) Except as otherwise provided in the Award Agreement, if an employee
Optionee terminates employment with the Company as the result, in the sole
judgment of the Committee, of his becoming totally disabled, the Optionee shall
be entitled to exercise any Option to the extent his right to exercise such
Option had accrued at the date of termination of employment and had not
previously been exercised, for a period of three months after such termination,
subject, in any case, to all other provisions of the Plan.
(b) Except as otherwise provided in the Award Agreement, if the employee
Optionee should die either (i) while employed by the Company, or (ii) during any
period in which the Optionee may exercise the Option following termination of
employment, then the person or persons to whom the Optionee's rights under the
Option shall pass by will or by the applicable laws of descent and distribution
(including, without limitation, the executors, administrators or other personal
representatives of the Optionee or his or her estate) shall be entitled to
exercise the Option to the extent his right to exercise such Option had accrued
at the date of termination of employment and had not previously been exercised,
for a period of twelve months from the date of such death, subject, in any case,
to all other provisions of the Plan.
4
<PAGE>
10. Amendment or Termination
------------------------
The Plan may be terminated at any time or amended at any time or from time
to time by the Committee as the Committee shall deem advisable; provided,
however, that except as provided in paragraph 7 above, the Committee may not,
without further approval by the stockholders of the Company, increase the
maximum number of shares of Common Stock as to which Options may be granted, or
awarded as Restricted Stock, under the Plan, materially increase the benefits
accruing to participants under the Plan or change the class of persons eligible
to receive Awards under the Plan. No amendment or termination of the Plan shall
materially and adversely affect any right of any participant with respect to any
Award theretofore granted without such participant's written consent. No ISO may
be granted after the tenth anniversary of the effective date of the Plan.
11. Effectiveness
-------------
The Plan shall not be effective and no Award granted hereunder shall have
effect unless and until the Plan has been approved and adopted by a majority in
voting power of the stockholders of the Company.
Amended June 24, 1997
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form
10-QSB for the period ended June 30, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,410,741
<SECURITIES> 0
<RECEIVABLES> 23,925
<ALLOWANCES> 0
<INVENTORY> 353,900
<CURRENT-ASSETS> 1,870,649
<PP&E> 6,297,218
<DEPRECIATION> 1,223,870
<TOTAL-ASSETS> 7,437,876
<CURRENT-LIABILITIES> 3,642,310<F1>
<BONDS> 0
0
1,842,483
<COMMON> 61,539
<OTHER-SE> 23,137,583
<TOTAL-LIABILITY-AND-EQUITY> 7,437,876
<SALES> 295,468
<TOTAL-REVENUES> 295,468
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,993,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,885
<INCOME-PRETAX> (2,790,934)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,790,934)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> 0
<FN>
<F1> Current liabilities include current maturities of long-term
debt-stockholders of which $1,495,000 due March 31,1998, as amended, is due
to officers or directors.
</FN>
</TABLE>
