SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission File No. 0-18193
PLASTIGONE TECHNOLOGIES INC.
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(Name of small business issuer in its charter)
Florida 59-2712878
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2814 South Street, Fort Myers, Florida 33916
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(Address of principal executive offices) Zip Code
Issuer's telephone number: (813) 334-2699
Securities registered under Section 12(b) of the Act: None
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Securities registered under Section 12(g) of the Act:
Common Stock, $0.01 par value per share
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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_____ No X
Check if 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. [ ]
Issuer's revenues for its most recent fiscal year: For the fiscal year ended
December 31, 1995: $2,220,749.
The aggregate market value, calculated on the basis of the average bid and asked
prices of such stock on the National Association of Securities Dealers Bulletin
Board, of the voting stock held by non-affiliates of the Registrant at May 5,
1997, was approximately $2,154,818.
There were 14,028,265 shares of Common Stock outstanding at May 5, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
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Part I
Item 1. Description of Business
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The Company
Plastigone Technologies Inc. (the "Company or Plastigone") was organized,
on April 24, 1986, as a Florida corporation, originally under the name of
Ideamasters, Inc.
The Company manufactures and sells degradable and non-degradable plastic
film, primarily agricultural mulch film. In addition, the Company sells a value
added category of films made from different blends of resins for different
applications including red and green reflective films, "super tuff" film and
"super strength" film. The Company also sells degradable plastic compost bags
which are manufactured to the Company's specifications, by others, using a
patented degradable additive supplied by the Company. The degradable additive is
also sold to others for incorporation into their own degradable products.
Plastigone holds the exclusive rights, in North and South America including
the Caribbean, to use and resell a patented degradable additive (See "Patents,
Trademarks and Licenses") that when blended with polyethylene plastic resins
creates a biodegradable plastic that is activated by exposure to ultraviolet
(UV) light. The Company through different formulations of the additive can
control the length of time (from one month to two years) that is required to
activate the degradation process. The plastic first disintegrates into small
flakes and subsequently degrades into low molecular fragments. Once the
degradation process has been activated degradation continues even if the plastic
is buried beneath the soil. The plastic will continue to biodegrade and it will
be completely consumed by micro-organisms and bacteria converting it back into
its natural elements of carbon dioxide and water. Unlike other so called
degradable plastics there is no long-term build up of plastic residues or
toxicity in the soil.
As concerns over environmental pollution mount, the disposal of
non-degradable agricultural mulch film and plastics in general becomes
increasingly difficult. Most states have laws banning the burning of plastic and
limiting the use of plastic bags in land fills. Although these laws have not
been strongly enforced historically, this is beginning to change, particularly
in Florida and California. Plastigone, as the only producer of a true
photo-biodegradable plastic in the Americas, is in a unique position to take
advantage of these growing trends.
Agricultural Mulch Film
The use of plastic mulch film has become routine for growing high value
fruits and vegetables. The use of plastic mulch film offers many advantages to
the farmer. The film is spread over large areas, creating controlled micro
environments to promote plant growth. The mulch warms the soil by collecting
heat from the sun, keeps in moisture, protects against wind and rain erosion,
retards leaching away of fertilizers and prohibits growth of weeds, consequently
minimizing the use of
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fertilizers, pesticides and weed-killing chemicals. The use of such films can
shorten the growing season and increase yields by up to 115%. Depending on the
crop, between 150 and 300 pounds of plastic are used per acre.
Several factors have contributed to the expansion of the degradable plastic
mulch film market. Spreading a thin film of non-degradable plastic over large
areas that must be disposed of after harvest poses problems of both disposal and
concentration of pollutants. Burial of non-degradable plastic mulch film is
impractical, as the presence of plastic residue in the soil makes further
cultivation difficult by clogging machinery. After harvest, the non degradable
film must be rolled up, manually loaded on trucks, and disposed of by burial,
burning or dumping. Savings to farmers using Plastigone(R) degradable mulch film
instead of non-degradable film currently can amount to as much as $125 per acre
and will increase as disposal and labor costs rise. Savings will vary according
to regional farming practices and local disposal regulations. As a result of
recent governmental immigration regulations, farm labor costs and plastic mulch
film removal costs are expected to continue increasing, consequently making
degradable plastic film a more economical choice.
Attempts at recycling non-degradable agricultural film have been difficult.
One hundred pounds of plastic mulch film can weigh up to 300 pounds when picked
up due to organic material, debris, and soil clods which stick to the film while
lying in the field. The film must be rolled up by hand or machine, completely
cleaned of the soil, plant residue and foreign matter, transported to a
processing plant, ground up and reprocessed. At present, this process, without
subsidies, is not economically feasible and when non-degradable mulch film is
removed and transported to holding locations, there is the additional problem of
concentrated leaching of pesticides, herbicides, fumigants and fertilizers into
the water table. The Company's solution to these problems was the introduction
of Plastigone(R) degradable agricultural mulch film, now manufactured at its
Fort Myers, Florida location. In 1995, degradable plastic mulch film accounted
for approximately 40% of the Company's sales.
The Company's customer base for plastic mulch film ranges from very small
to very large farms in North America and Mexico. The Company's distribution
channels consist of sales directly to growers with no mid-level distribution
network, sales to farmers through commissioned agents, and sales to distributors
who sell and extend credit to small farmers and larger growers.
Through a network of distributors, the Company is continuing to assemble
and train a nationwide sales force. Distributors typically order products by the
truckload and sell to the farmers. Distributor relationships are not exclusive
nor subject to a written agreement. The Company establishes its relationships
with distributors on an informal basis which can be terminated by either party
at any time.
Since the Company started manufacturing its own mulch film, it has added a
co-extruded (two layer), non-degradable, white-on-black film, which is sold
during the second and third quarters of the year. Typically, these fiscal
quarters have, as a result of seasonality, been weak for the Company's
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sales. Management expects that the Company will be less affected by seasonality
of the black film market because of the white on black film and other products
it now offers.
Compost Bags
Through the Federal Land Fill Reduction Legislation of 1976 the federal
government has mandated the reduction of debris entering land fills, and states
and municipalities are being forced to seek solutions to the problem. Because
approximately 25% of the content of land fills is compostable lawn and garden
waste, composting represents a future alternative to land fill. The benefits to
the ecology and economy of re-deploying composted vegetation are well
documented, as is the need for land fill reduction. The Company's UV activated,
biodegradable compost bag was specifically designed to meet this need. The
photo-biodegradable bag is generally 32 by 40 inches and includes a draw string.
Certain states and municipalities have mandated degradable bags for
compostable waste. The Company's compost bag has been accepted for mandated use
in Charlotte County, Florida as the only photo-biodegradable bag that met
specifications. The Company is aggressively moving to expand sales in these
markets both directly and through distributors. Currently distribution is direct
to retailers in Florida, and through distributors in other parts of the country.
This bag is available, in certain areas, in supermarkets and other outlets as a
necessary component in a system for municipalities to compost lawn and garden
waste and thereby reduce the volume placed in land fills. Customers include
Publix Supermarkets, National Serve All, True Value Hardware and Walmart as well
as other major retailers who stock the product on a regional basis The Company
also sells direct to certain end users
Currently, the manufacturing of these bags is subcontracted out to others.
The Company currently does not have the necessary machinery and equipment to
manufacture the bags in house. The Company regularly evaluates the feasibility
of manufacturing the bags in house.
Industrial Stretch Wrap Film
The Company has developed and is about ready to manufacture and market a
premium industrial stretch wrap film. Stretch wrap film is used extensively in
the wrapping of pallets loaded with goods in preparation for transport or
storage. The Company's product is a one-sided-cling, 300% high-performance
stretch film as compared to the general commodity market product which is a
two-sided-cling, 175% stretch film. A one-sided-cling film has the advantage
over a two-sided- cling film, in that pallets can be placed next to each other
without the stretch wraps of the two pallets adhering and entangling with each
other and ultimately ripping and spilling the contents of the pallets. The
advantage of using a 300% stretch film over a 175% stretch film is that less
stretch film is employed to do the same job thereby reducing the cost of
packaging..
The Company has further plans to expand its industrial stretch films to
include specialty items such as antistatic stretch film, UV stabilized stretch
film and a photo-biodegradable stretch film
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employing the Company's patented additive. Stretch film is non seasonal, as
compared to agricultural mulch film, which will allow the Company to maintain a
more constant level of business throughout the year. Specialty stretch films are
part of an overall stretch film market that is estimated to be approximately 1.8
billion pounds annually.
Silage Wrap Film
A further application of the stretch film manufacturing technology
developed by the Company will be the manufacture of silage wrap film. The
formulation of this product has already been established by the Company.
Although current estimates are that the market size for silage wrap is 100 to
125 million pounds annually, very little is sold in the United States. As a
result there is a potentially very large, although untapped, market in the
United States. The Company plans on entering this market during the later part
of 1997.
Degradable Additive
Opportunities exist in certain industry segments to sell the Company's
patented additive as an independent line. With the exclusive licensing rights to
all of the Americas for the photo- biodegradable technology, Plastigone is in
discussions with plastics manufacturers in North America and both South and
Central America to supply the additive on a wholesale basis. The Company is in
the testing phase with certain manufacturers to supply the additive for use in
specific situations, e.g. arms manufacturers are testing the additive for use in
plastic shotgun shell waddings.
Plastigone(R) additive (also referred to as Masterbatch) can be used in a
large number of different plastic products, including products made of
linear-low-density polyethylene, low density polyethylene, and high density
polyethylene. In the United States, each of these products has commanded a
specific market area and has attracted its own family of producers and
distributors. The Company plans on pursuing these markets in the near future.
In 1988, the Company introduced Plastigone(R) Litterless #221 masterbatch
degradable additive for use in nonagricultural applications. The Company has
sold a degradable masterbatch to banana growers in Central and South America to
test degradable banana bags. A formulation for degradable grape vine has been
determined to have the same characteristics as the tape presently in use, except
the tape currently used in the industry is made from PVC, a carcinogen. The
Company presently intends to pursue these markets. Masterbatch additive sales
were not significant in 1995.
Market Strategy
To promote the long-term position of the Company as a market leader, the
Company adopted the strategy to become the authoritative voice in plasticulture
(plastics in agriculture; whether degradable or non-degradable), using
university affiliated experts and other recognized professionals in the
agricultural industry. The Company's aim is to be considered a definitive source
of thoroughly tested technical data for this method of farming. To this end, the
Company worked closely with the
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American Society for Plasticulture in sponsoring independent university research
and field testing, and organizing international symposiums on the use of
degradable plastics in agriculture.
The Company has adopted a strategy which it believes will increase sales of
both degradable and non-degradable plastic film and related products. Because
the use, both commercially and privately, of degradable products is a relatively
new and developing market, the Company continually monitors the demand for
degradable products, and acceptance of such products by segments of industry. As
demand and acceptability increase, the Company will, as it does with all
prospective markets it considers, study the potential for the Company to compete
for orders for the particular product as well as the profitability of the
potential sales when deciding whether to enter the market. It is expected that
as demand for degradable products increases, the Company's emphasis on these
products will also increase. However, until such time as the Company determines
that a change in its strategy is required, it will continue to market
non-degradable products as well so as to maximize its involvement in profitable
markets and to create financial stability through a diverse product base and the
ability to adjust production to the needs of a particular industry segment. As
with its agricultural products, the Company's aim is to be considered a
principal source on degradable plastic technology in the composting environment.
Management believes that successful results from field tests currently being
conducted by various municipalities around the country would result in wide
spread use of the Company's degradable compost bags. However, the primary focus
is currently in those States that have implemented laws requiring separation of
yard waste for composting. Many states have passed such laws and a number of
additional states have legislation pending. State agencies are engaged in
determining the best methods for implementing these programs. Plastigone
continues to offer its assistance to municipalities attempting to establish
standards for degradable compost bags.
Manufacturing Operations
Until August 1992, the Company's operations consisted of (a) subcontracting
the manufacture of plastic film utilizing the additive for sale of the finished
degradable product to its own customers; and (b) marketing the additive to
manufacturers of plastic products, neither of which was very successful.
On August 15, 1992, the Company commenced manufacture of plastic
agricultural mulch film in its own plant in Ft. Myers, Florida, producing both
degradable and non-degradable film. This has enabled the Company not only to
control the quality of its product line but also assure timely delivery of
customer orders.
The Company presently limits its subcontracting activities to the
manufacture of products other than plastic film. The Company has determined that
certain other products such as compost bags, are able to be produced to its
standards by others, while plastic film, which has more exacting standards, is
not conducive to manufacture by others.
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Competition
Although the Company believes that its UV degradable agricultural mulch
film is a unique product, other forms of degradable plastics are available.
There is only one recognized product known to Plastigone that does not require
exposure to ultraviolet radiation before disintegration. This product is very
expensive and the Company is of the view that it is therefore not structured for
use in competitive film products.
Corn starch plastic is the predominant alternative to the Company's
degradable products. It consists of a mixture of corn starch and plastic. While
the corn starch biodegrades, the plastic is not biodegradable. The plastic may
be as much as 80% of the total product . Corn starch plastic has other
disadvantages: it does not blend well with the melted plastic resins making the
manufacturing process much more difficult; it does not have a stable shelf life
especially under humid conditions; and the degradation process cannot be time
regulated. Lactose plastic is another alternative. These plastics use lactose
rather than starch but have much the same disadvantages as corn starch plastics.
Hydro-degradable plastic is an alcohol based plastic that dissolves into small
fragments in water but does not biodegrade. The degradation process cannot be
regulated and is rapid once in contact with water. Photo-degradable plastic is a
UV activated degradable plastic that embrittles and breaks down into small
flakes. Its disadvantages are that it does not biodegrade and builds up in the
soil. The degradation process as well cannot be time regulated. Plastigone's
technology is unique in that it is truly photo and biodegradable and its
degradation process can be time regulated. This gives Plastigone a significant
competitive advantage in the agricultural market as well as in certain other
markets.
There are many competitors in the non-degradable agricultural mulch film
market. The Company's prices for this product are competitive with other like
products on the market. The Company has an advantage in Florida, its major
market area, since customers can save on packaging and freight costs by picking
up the products at the factory in Ft. Myers. In addition to the regular
non-degradable mulch film, the Company sells a value added category of films
made from different blends of resins for different applications, including red
and green reflective films, "super tuff" film and "super strength" film. The
Company also regularly includes in its production schedule smaller custom orders
for these high value films. The Company's embossed cast film line is producing
plastic mulch film which the Company believes to be of the highest quality
available in each category. The plastic mulch film manufactured by the Company
to its exacting standards is performing well in its agricultural applications.
With respect to the Company's nonagricultural products, its competitors
consist of large chemical companies, such as Mobil, Union Carbide, Dow Chemical
and Ampacet, which have much greater financial, personnel, manufacturing,
research and development resources than the Company, as well as established
reputations and distribution networks. The Company competes by concentrating on
smaller specialty niche markets that are overlooked or are too small for these
larger competitors to enter on a profitable basis. There can be no assurance
that the Company's
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nonagricultural products or its degradable products will achieve a successful
penetration of any markets.
Source of Supply
Except for the degradable additive, all other raw materials used in the
manufacturing process are readily available from different companies at
competitive prices. Plastic resin used in the manufacturing of film is produced
by companies like Dow Chemical, Union Carbide, Chevron and Ampacet Corp. and is
purchased directly from them or distributors. The degradable additive is
purchased from the Company's licensor. (See "Patents, Trademarks and Licenses").
The Company has no reason to believe that its licensor will be unable to supply
its needs; however, the Company can also purchase the degradable additive from
at least one foreign licensee.
Dependence on One or a Few Major Customers
During the year ended December 31, 1995, one of the Company's distributors
accounted for 14% of the Company's sales. No other customer accounted for 10% or
more of the Company's sales. The five largest customers of the Company
represented an aggregate of approximately 37% of total product sales.
Patents, Trademarks and Licenses
The inventors and patent owners of the technology underlying the Company's
photo- biodegradable products are Gerald Scott and the estate of Dan Gilead, who
granted the rights to exploit their patents and applications for patents, and
future modifications or improvements thereof, to Plastopil-Hazorea, Ltd.
("Plastopil"), an Israeli limited partnership. The Company's agreement with
Plastopil grants to the Company the exclusive license in the Western Hemisphere
(except as to baling twine in the United States) to use and sell products
utilizing the Scott-Gilead technology. Except under certain conditions the
Company will not manufacture the additive itself, but will purchase it from
Plastopil or its licensees outside of the United States. Although the patents
underlying the license expire in 2001 and 2002 it would be very difficult for
others to duplicate the processes, know how and technology required to produce
the additive. Plastigone plans to modify and improve the additive and reapply
for new patents before their expiration.
The Company's license from Plastopil is essential to its manufacture and
marketing of photo- biodegradable plastic film, which accounted for 40% of sales
revenue in 1995, as compared to 33% of sales revenue in 1994. It is the
intention of the Company to continue to increase its sales of photo- degradable
plastic film as part of its overall strategy of marketing its products, whether
degradable or non-degradable, to the special needs of customers.
The Company is currently engaged in the marketing of UV activated
biodegradable additives for plastic film under the trademark "Litterless #221";
and manufacturing and marketing of photo-
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biodegradable plastic film and plastic bags under the trademark "Plastigone(R)"
and non-degradable plastic film under the tradename "Plastay."
FDA Compliance
Management believes that its formulations comply with Food and Drug
Administration requirements relating to plastic bags and sacks for grocery,
supermarket, and retail store applications. Temporary contact of the film to
food products has been approved.
Research and Development
During its development stage, the Company was involved in sponsoring the
testing of its degradable mulch film by agricultural departments at more than 25
colleges and universities around the country. The testing validated the
Company's representations concerning degradability and nontoxicity even with
variations in crops, growing seasons, geographic location, temperature and other
variables.
Comprehensive research performed at major agricultural centers and
laboratory reports also confirmed the photo-biodegradability of the Company's
product and that it was totally non toxic according to water and soil samples. A
study done by Alvarez, Lehman & Associates, Inc., of Tallahassee, Florida
demonstrated that there is no toxicity when Plastigone's degradable product is
degraded in water and fed to fish or plant life. Another study done by Research
Triangle Institute, of Research Triangle Park, North Carolina demonstrated that
the additive did confer degradability to otherwise inert plastic.
During 1995 the Company focused its research and development efforts on
several activities. The Company formulated and developed a high performance
industrial stretch wrap with one sided cling and 300% stretch. Extensive work
was performed on the base manufacturing equipment and electronic controls to
enable efficient production of stretch wrap, resulting in an increase in
capacity of almost 100%. This was accomplished through the use of the Company's
staff as well as outside consultants. The Company believes that stretch wrap
will become its major product line in future years.
General research and development is ongoing and management expects to
develop new products focused on niche markets that are too small for major
chemical companies to pursue. In 1995 and 1994 the Company invested $256,032 and
$0, respectively, in research and development.
Employees
The Company presently employs 18 people on a full time basis, of
whom six are in sales and administration, and the balance are engaged in
manufacturing. None is represented by a collective bargaining agent. The Company
believes its relations with its employees to be good.
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Item 2. Description of Property
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The Company owns 1.8 acres located at 2814 South Street, Fort Myers,
Florida 33916. The Company has two buildings located on the premises, totaling
15,000 square feet, which house its executive and manufacturing facilities
(including laboratory facilities for quality control). The Company has given a
mortgage on the property in connection with its acquisition of the site. The
balance of the mortgage debt was $205,165 as of December 31, 1995. A semiannual
payment of $12,530 is due April 15, 1997 and a balloon payment of $202,245 is
due on October 15, 1997. These payments include interest at 10%. (See Item 7.
Financial Statements - Notes to Financial Statements - Note E). The Company
leases an additional 2.6 acres including a 2,800 square foot storage building
from the city of Fort Myers. The Company has an option to purchase the property
from the city.
Item 3. Legal Proceedings
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The Company is currently a defendant in certain actions, all of which
involve former customers or suppliers of the Company. Such actions involve
claims for non-payment of amounts due totaling less than $100,000 in aggregate.
No assurance can be given as to if, or when, such claims will be resolved or
that such resolution will be in favor of the Company. (See Item 7. Financial
Statements - Notes to Financial Statements - Note I).
Item 4. Submission of Matters to a Vote of Security Holders
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None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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On June 7, 1994, the Company's common stock, which traded under the symbol
GONE, was delisted from the Nasdaq SmallCap Market. The determination by The
Nasdaq Stock Market, Inc. to delist was on the basis of the Company's failure to
meet the filing requirements of Schedule D of the NASD (National Association of
Securities Dealers) Bylaws. The Company's common stock has since traded in the
over-the-counter market. The last reported high and low bid price per share for
the Company's common stock as reported on Nasdaq on June 7, 1994 was 7/8 and
5/8, respectively. There were no reported bid or asked prices for the Company's
common stock from June 8, 1994 to January 2, 1996.
Information is set forth below concerning the high and low bid prices per
share for the Company's Common Stock for each quarter of 1996. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
1996 High Bid Low Bid
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First Quarter 1 / 2 1/16
Second Quarter 7/16 3/16
Third Quarter 3/8 1/8
Fourth Quarter 11/32 3/32
The Company estimates that, at December 31, 1996, there were approximately
1,800 shareholders. The Company has never paid cash dividends.
Item 6. Management's Discussion and Analysis or Plan of Operation.
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General
The fiscal year ended December 31, 1995 was a disappointing year for the
Company. A number of key events, principally the weather and NAFTA, adversely
impacted the Company's operating results for the period.
The Southeastern U.S. experienced the highest rainfall recorded since 1936,
resulting in three major floods. In addition, 1995 was a record year for
hurricanes. Agricultural mulch film customers either lost crops or were unable
to plant because of flooded fields. Farm production was reduced by as much as
one-third. Many farms were forced into bankruptcy, or discontinued farming all
together. Some were forced to sell farmland just to stay in business.
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In 1995, the North American Free Trade Agreement (NAFTA) came into full
operation. Under NAFTA Mexican farmers can grow, ship, and deliver to buyers in
the U.S. at a lower cost than the American farmer. Florida farmers, historically
produced and sold $600 million worth of tomatoes or 58% of the U.S. market. As a
result, in 1995 Florida farmers produced only 37% of the tomatoes sold in the
U.S. market, a decline of approximately $200 million.
Revenues
Net revenues for the year ended December 31, 1995 were $2,220,749 compared
to $3,253,728 for the year ended December 31, 1994. a decrease of 32%. Most of
this decrease was attributable to the aforementioned events. Lost revenues, in
turn, also contributed to severe cash flow problems, resulting in the Company's
inability to obtain raw materials on a timely basis. During 1995 the Company had
95 days of production downtime.
Degradable plastic mulch film accounted for approximately 40% of the
Company's revenues in 1995 as compared to 33% in 1994. The Company's revenues
are very seasonal due to the fact that the Company is dependent on the
agricultural market. Revenues during the 1st quarter of 1995 and 1994 accounted
for approximately 48% and 31%, respectively of total revenues for 1995 and 1994.
It is the Company's intention to diversify away from its dependence on the
agricultural market. Although, the agricultural market will always be a part of
the Company's overall strategic plan, the Company plans to diversify into the
industrial film market during the 2nd quarter of 1997 with specialty niche
market films. This will include a one-sided cling, 300% stretch film, which the
Company has already formulated and produced in limited test runs, with positive
results. Other specialty films will include anti-static film and silage wrap.
The Company also plans on aggressively developing the market for degradable
compost bags and its patented additive. Arms manufacturers are currently testing
the additive in shotgun shell waddings. Remington Arms, after extensive testing
with very positive results, is expected to began purchasing the additive during
1997. The Company expects other arms manufactures to follow suit shortly.
Cost of Goods Sold
Cost of goods sold as a percentage of sales was 87 % for the year ended
December 31, 1995 as compared to 75% for the year ended December 31, 1994. This
increase was a result of several factors. Cash flow problems as discussed above
caused a stop and start again manufacturing situation as the Company had to halt
manufacturing numerous times because of a lack of raw materials and start up
again as receivable collections allowed the purchase of raw materials. Also
contributing to increased manufacturing costs were fluctuations in the cost of
plastic resins.
Research and Development
The Company invested $256,032 in research and development in 1995,
primarily in the area of specialty stretch wrap films. This included the
formulation, machinery and electronics
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modifications and manufacturing test runs. As discussed above, the Company plans
to aggressively pursue this market beginning in the 2nd quarter of 1997. No
research and development costs were recognized during the year ended December
31, 1994. The Company anticipates that some expenditure for research and
development may be necessary in future periods to develop certain other
specialty films. The Company plans on aggressively pursuing these markets in
connection with its overall business strategy of diversifying away from its
dependence on a currently depressed agricultural market and manufacturing
products which respond to the special needs of certain niche markets. No
estimate of these costs is possible at this time.
Selling General and Administrative
Selling, general and administrative expenses were $827,867 for the year
ended December 31, 1995 compared with $862,285 for the year ended December 31,
1994. This reduction of $34,418 was a result of efforts to control and reduce,
where possible, certain expenses such as legal and consulting expenses.
Interest Expense
Interest expense in 1995 was $120,646 or 5.4% of revenues compared to
$134,018 or 4.1% of revenues for 1994. The decrease of $13,372 was a result of a
reduction in short-term borrowings during 1995.
Liquidity and Cash Requirements
During the 1st quarter of 1997 the Company entered into an agreement with
Oakes, Fitzwilliams & Co., L.P., an investment banking firm, whereby $1,000,000
was raised through the issuance of convertible debt. (See Item 7. Financial
Statements - Notes to Financial Statements Note L). The Company also raised an
additional $528,000 in 1996 and $202,000 in 1995 in net proceeds from private
placements. Certain of these proceeds were used to fund the retirement of notes
payable as indicated below.
The Company believes that it now has sufficient working capital to provide
for its operations and to allow the Company to diversify its revenue base away
from the depressed and seasonal agricultural market and into the specialty film
market as part of its overall business strategy.
As of December 31, 1995 the Company had a working capital deficit of
$1,643,539. Of the $600,000 included under Current Liabilities as Notes Payable
$275,000 was subsequently repaid during 1996 and $225,000 was subsequently
converted to common stock and warrants in 1996. Accrued Interest of $155,571 was
also converted to common stock and warrants during 1996. (See Item 7. Financial
Statements - Notes to Financial Statements - Notes D & L).
The Company does not believe that inflation has had a material effect on
its sales or operations.
-13-
<PAGE>
Item 7. Financial Statements.
- -----------------------------
Attached hereto at pages F-1 to F-16
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
- --------------------------------------------------------------------------------
Certain information about directors and executive officers of the Company,
is contained in the following table:
Name Age Position
- ---- --- --------
Duncan Fitzwilliams 52 Chairman of the Board and Director
Ron Davis 50 President, Chief Executive Officer
and Director
William E. Clegg III 48 Vice President, Chief Financial Officer
and Secretary
James Gellert 28 Director
Avi Harpaz 51 Senior Vice President and Director
Bruce Hausman 66 Director
Business Experience
Duncan J. L. Fitzwilliams has been a Director of the Company since February
1996. Since 1987, Mr. Fitzwilliams has been a founding member of Oakes,
Fitzwilliams & Co., Limited. Mr. Fitzwilliams is Co-Chairman of Quadrant
Healthcare plc. He is also a director of Bespak plc, the Lazard Fund and The
Henry Venture (II) Fund. Mr. Fitzwilliams holds a B.A. from Oxford University.
Ron Davis joined the Company in May 1994 as Vice President of Marketing and
Sales and was elected by the Board as President and Chief Executive Officer in
September 1994. He has been
-14-
<PAGE>
a member of the Board of Directors since October 1994. From September 1991
through April 1994, Mr. Davis was the International Business Manager for
Atlantis Films, Inc. responsible for developing world wide sales and marketing.
From 1988 to September 1991, Mr. Davis was the Divisional Manager of Specialty
Products at AEP, Inc. (Automatic Extruders of Plastic). responsible for
production scheduling, inventory, pricing, customer service and sales. Mr. Davis
graduated from the University of Arkansas in 1975.
William E. Clegg III joined the Company in August 1996 as Vice President
and Chief Financial Officer. Prior to joining the Company Mr. Clegg was
self-employed as a consultant in the accounting, finance and computer software
field from May 1995 to July 1996. From December 1988 to April 1995, Mr. Clegg
was Vice President and Chief Financial Officer of Danfoss, Inc., a manufacturer
of electronic controls. Mr. Clegg holds a B.S. in Accounting from Louisiana Tech
University.
James H. Gellert, has been a Director of the Company since February 1996.
Mr. Gellert has been associated with Oakes, Fitzwilliams & Co., L.P. since 1990
and has been a Vice President of the firm since 1994. Mr. Gellert holds a B.A.
from Harvard University.
Avi Harpaz has been a Director since the Company's inception in 1986 and
served as Vice President-Finance and Chief Financial Officer from May 1988 to
January 1991 and as President and Chief Financial Officer from January 1991 to
April 1992. Mr. Harpaz has served as Senior Vice President of the Company since
April 1992. Mr. Harpaz' wife is one of the principal shareholders of Foodis,
Inc., which controls Isratrade Associates. Isratrade Associates owns 4.9% of the
Common Stock of the Company. Mr. Harpaz is a certified public accountant in
Israel and has a B.A. in economics from Tel Aviv University.
Bruce Hausman has been a Director of the Company since August 1992. Mr.
Hausman was associated with Belding Heminway Company, Inc. (textiles) from 1961
until 1993, first as a consultant and, from February 1988 to May 1992, as Senior
Vice President and subsequently as a principal executive officer. He served as a
director of Belding from 1978 until the sale of such company in 1993. Mr.
Hausman also served as a director of Circa Pharmaceuticals, Inc. from August
1990 to July 1995. Mr. Hausman was elected to the Board of Directors of Daltex
Medical Sciences, Inc. in December of 1993 and became its President and Chief
Executive Officer in May of 1995. He holds a M.S. from Columbia University
School of Business and a J.D. from New York Law School. He was admitted to the
New York Bar in 1980.
Item 10. Executive Compensation.
- --------------------------------
The following table sets forth information concerning the annual
compensation of the Company's chief executive officer for the 1995 fiscal year.
None of the executive officers of the Company received compensation exceeding
$100,000 during the 1995 fiscal year.
-15-
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
Other Restricted Shares
Name and Principal Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Award ($) Options (#) Compensation
- -------- ---- ------ ----- ------------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Ron Davis (1) 1995 $75,000 $12,861 --- --- 300,000 ---
President and Chief 1994 $44,423 --- --- $4,135 --- ---
Executive Officer
(1) Mr. Davis joined the Company in May 1994.
</TABLE>
Option / SAR Grants in Last Fiscal Year
- ---------------------------------------
The following table contains information at May 5, 1997, relating to the
number of warrants (stock appreciation rights) granted during the 1995 fiscal
year and the number and value of such unexercised warrants held by the officer
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options / SARs
Underlying Granted to
Options / SARs Employees in Exercise or Base
Name Granted (#) Fiscal Year Price per Share Expiration Date
- ------------- -------------------- ----------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
Ron Davis 300,000 54.9% $0.20 June 30, 1998
</TABLE>
Compensation of Directors
The Company does not compensate its Directors for service as a director.
Actual expenses associated with attending meetings of the Board are reimbursed.
Employment Contracts and Termination of Employment and
Change-in-Control Agreements
On August 1, 1996 the Company entered into a three-year employment
agreement with the President and Chief Executive Officer, Ron Davis, for an
annual salary of $135,000 plus annual bonus as determined by the Board of
Directors. In addition, Mr. Davis is entitled to receive incentive compensation
based on 5% of the Company's annual net operating income, as such is defined in
the employment agreement. In conjunction with the agreement the Company granted
Mr. Davis 50,000 shares of common stock and warrants to purchase 1,000,000
shares of common stock at an exercise
-16-
<PAGE>
price of $.25 per share (one-third of which vested immediately and the balance
vested on January 2, 1997). In the event that during the term of the agreement
the Company acquires by merger or consolidation all the assets of or a
controlling interest in another entity, the Company will grant Mr. Davis an
additional 1,000,000 warrants to purchase common stock at $.25 per share
exercisable in three equal installments.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Security ownership of certain beneficial owners.
The following table sets forth, as of April 5, 1997, certain information
with respect to persons who, to the best of the Company's knowledge, were
beneficial owners of more than 5% of the issued and outstanding shares of stock
of the Company.
- --------------------------------------------------------------------------------
Title of Class Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership(1) of Class
- --------------------------------------------------------------------------------
Common Stock Cazenove & Co. 2,145,190 (2) 9.4%
12 Tokenhouse Yard
London, EC2R, 7AN
England
Avi Harpaz 1,523,000 (3) 6.7%
16 Arugot Street
Herzalia, 46364
Israel
Ron Davis 1,350,000 (4) 5.9%
1992 Allen Court Drive
Germantown, TN
- --------------------------------------------------------------------------------
(1) Includes both the right to vote and the right to dispose of the shares
unless otherwise indicated.
(2) According to the records of the Company, Cazenove & Co. (i) directly owns
1,350,095 shares of Common Stock of the Company; and (ii) holds currently
exercisable warrants to purchase 795,095 shares of Common Stock of the
Company.
(3) Includes 1,123,000 shares owned by Isratrade Associates, 1214 Capri Street,
Coral Gables, Florida 33134. According to a Schedule 13G dated March 9,
1990, Isratrade Associates is
-17-
<PAGE>
a partnership of Isratrade, Inc. (39.5%), B-Trade, Inc. (7.5%), Foodis,
Inc. (47%) and Albert Ifra (6%). Foodis, Inc. is the managing partner. The
wife of Avi Harpaz, member of the Board of Directors, is one of two
principal shareholders, and an officer and director of Foodis, Inc. The
Schedule 13G states that Mrs. Harpaz disclaims any beneficial ownership of
shares of the Company. Also includes 200,000 shares issuable upon exercise
of currently exercisable warrants and 200,000 issuable upon exercise of
currently exercisable options held by Mr. Harpaz.
(4) Includes 1,300,000 shares of Common Stock issuable upon exercise of
currently exercisable warrants.
Security ownership of management.
The following table sets forth, as of May 5, 1997, information regarding
the beneficial ownership of the Company's equity securities owned by each
director of the Company, the named officers and by all directors and officers as
a group:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Title of Class Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership(1) Class
- ------------------------------------------------------------------------------------------------
Common Ron Davis 1,350,000 (2) 5.9%
1992 Allen Court Drive
Germantown, TN
Avi Harpaz 1,523,000 (3) 6.7%
16 Arugot Street
Herzalia, 46364
Israel
Bruce Hausman 588,234 (4) 2.6%
4642 Bocaire Blvd.
Boca Raton, FL 33487
Duncan J.L. Fitzwilliams 0 0%
c/o Oakes Fitzwilliams & Co., L.P.
909 Third Avenue
New York, N.Y. 10022
James H. Gellert 0 0%
c/o Oakes Fitzwilliams & Co., L.P.
909 Third Avenue
New York, N.Y. 10022
-18-
<PAGE>
All Directors and Executive 3,811,234 (5) 16.7%
Officers as a Group ( 6 persons)
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Includes both the right to vote and to dispose of the shares unless
otherwise indicated.
(2) Includes 1,300,000 shares of Common Stock issuable upon exercise of
currently exercisable warrants.
(3) Includes 1,123,000 shares owned by Isratrade Associates as to which shares
Mr. Harpaz disclaims beneficial ownership. Also includes 200,000 shares
issuable upon exercise of currently exercisable warrants, and 200,000
issuable upon exercise of currently exercisable options.
(4) Includes 408,367 shares issuable upon exercise of currently exercisable
warrants.
(5) Includes 2,158,367 shares issuable upon exercise of currently exercisable
warrants and 300,000 shares issuable upon exercise of currently exercisable
options.
Compliance with Section 16(a) of the Exchange Act.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d) of the Exchange Act during its most
recent fiscal year and Form 5 and amendments thereto furnished to the Company
with respect to its most recent fiscal year, the following directors, officers
and beneficial owners of more than 10% of the Company's common stock did not
file the required reports under Section 16(a) on a timely basis:
Name Number of Late Reports Number of Transactions
- ----- ---------------------- ----------------------
Ron Davis 2 3
Duncan Fitzwilliams 1 0
William E. Clegg III 1 1
James Gellert 1 0
Avi Harpaz 2 2
Bruce Hausman 3 4
All such individuals, except for Mr. Harpaz, have filed the required
reports with the Securities and Exchange Commission as of May 14, 1997, the date
of filing of this report.
Item 12. Certain Relationships and Related Transactions.
- --------------------------------------------------------
None.
-19-
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits
3.1 (1) Articles of Incorporation (as amended)
3.2 (2) By-Laws
4.1 (3) Form of Convertible Secured Loan Note Due 1999.
4.2 (3) Form of Regulation S Warrant.
10.1 (4) + Incentive Stock Option Plan.
10.2 (5) License Agreement.
10.3 (6) Amendment to License Agreement dated January 2, 1990.
10.4 (6) Agreements extending due date of promissory notes.
10.5 (6) Fort Myers City Industrial Park Land Lease.
10.6 (6) Lease of Apartment - Reflections Apartments.
10.7 (6) + Ron Davis - Warrant to purchase common stock.
10.8 (7) + Amended and Restated 1989 Stock Option Plan.
10.9 + Employment Agreement dated August 1, 1996 between Ron Davis
and the Company.
27 Financial Data Schedule.
99.1 (3) Placement Agency Agreement dated January 17, 1997 by and
between the Company and Oakes, Fitzwilliams & Co. Limited.
99.2 (3) Form of Offshore Securities Purchase Agreement.
99.3 (3) Form of Security Agreement dated February 21, 1997 by and
between the Company and Oakes, Fitzwilliams & Co. Limited, as
representative of the investors in the Offering.
(1) Incorporated by reference to Exhibits 3(a) and 3(b) of the Registrant's
Registration Statement on Form S-1, File No. 33-29625 NY dated June 22,
1989 (the "S-1 Registration Statement").
(2) Incorporated by reference to Exhibit 3(a) of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Report on Form 8-K filed on March 17, 1997.
(4) Incorporated by reference to Exhibit 10.1 of Amendment No. 1, dated August
28, 1989, to the S-1 Registration Statement.
(5) Incorporated by reference to Exhibit 10.3 of the S-1 Registration
Statement.
-20-
<PAGE>
(6) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994 as filed with the Securities and Exchange Commission on
March 30, 1995.
(7) Incorporated by reference to Exhibit 14(a)(3)(28) of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
+ Management contract or compensatory plan or arrangement required to be
noted as provided pursuant to Item 13(a) of the instructions to Form
10-KSB.
Copies of any exhibit to this Form 10-KSB will be provided upon written
request to the Secretary of the Company and payment of the cost of copying
such exhibit.
(b) Reports on Form 8-K
On March 17, 1997, the Company filed a report on Form 8-K with the
Securities and Exchange Commission to report that, on February 28, 1997, it had
consummated the sale of 72.5 units of the Company ("Units") at a purchase price
of $10,000 per Unit to twelve foreign investors. Each Unit consists of (i) a
$12,500 principal amount Convertible Secured Loan Note Due 1999 of the Company,
and (ii) warrants to purchase 50,000 shares of common stock, $0.01 par value per
share. Such sale of Units was effected pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Regulation S promulgated thereunder.
-21-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PLASTIGONE TECHNOLOGIES, INC.
Date: May 12, 1997 By: /s/ Ron Davis
-------------
Ron Davis
President, Chief Executive Officer and
Director
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
May 12, 1997.
/s/ Duncan J.L. Fitzwilliams
- ---------------------------- Chairman of the Board
Duncan J.L. Fitzwilliams
/s/ Ron Davis
- ---------------------------- President, Chief Executive Officer and Director
Ron Davis
/s/ William E. Clegg III Vice President & Chief Financial Officer
- --------------------------- (Principal Financial and Accounting Officer)and
William E. Clegg III Secretary
/s/ James H. Gellert
- --------------------------- Director
James H. Gellert
- --------------------------- Director
Avi Harpaz
/s/ Bruce Hausman
- --------------------------- Director
Bruce Hausman
-22-
<PAGE>
Commission File No. 0-18193
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
ANNUAL REPORT ON FORM 10-KSB
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
PLASTIGONE TECHNOLOGIES, INC.
-23-
<PAGE>
Exhibit
Number Document Page Number
- ------ -------- -----------
3.1 (1) Articles of Incorporation (as amended)
3.2 (2) By-Laws
4.1 (3) Form of Convertible Secured Loan Note Due 1999.
4.2 (3) Form of Regulation S Warrant.
10.1 (4) + Incentive Stock Option Plan.
10.2 (5) License Agreement.
10.3 (6) Amendment to License Agreement dated January 2, 1990.
10.4 (6) Agreements extending due date of promissory notes.
10.5 (6) Fort Myers City Industrial Park Land Lease.
10.6 (6) Lease of Apartment - Reflections Apartments.
10.7 (6) + Ron Davis - Warrant to purchase common stock.
10.8 (7) + Amended and Restated 1989 Stock Option Plan.
10.9 + Employment Agreement dated August 1, 1996
between Ron Davis and the Company.
27 Financial Data Schedule.
99.1 (3) Placement Agency Agreement dated January 17,
1997 by and between the Company and Oakes,
Fitzwilliams & Co. Limited.
99.2 (3) Form of Offshore Securities Purchase Agreement.
99.3 (3) Form of Security Agreement dated February 21,
1997 by and between the Company and Oakes,
Fitzwilliams & Co. Limited, as representative of
the investors in the Offering.
____________________
(1) Incorporated by reference to Exhibits 3(a) and 3(b) of the Registrant's
Registration Statement on Form S-1, File No. 33-29625 NY dated June 22,
1989 (the "S-1 Registration Statement").
(2) Incorporated by reference to Exhibit 3(a) of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Report on Form 8-K filed on March 17, 1997.
(4) Incorporated by reference to Exhibit 10.1 of Amendment No. 1, dated August
28, 1989, to the S-1 Registration Statement.
(5) Incorporated by reference to Exhibit 10.3 of the S-1 Registration
Statement.
-24-
<PAGE>
(6) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994 as filed with the Securities and Exchange Commission on
March 30, 1995.
(7) Incorporated by reference to Exhibit 14(a)(3)(28) of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
+ Management contract or compensatory plan or arrangement required to be
noted as provided pursuant to Item 13(a) of the instructions to Form
10-KSB.
-25-
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEET AS AT DECEMBER 31, 1995 F-3
STATEMENTS OF OPERATIONS FOR EACH OF
THE YEARS IN THE TWO-YEAR PERIOD ENDED
DECEMBER 31, 1995 F-4
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (CAPITAL DEFICIENCY) FOR EACH OF
THE YEARS IN THE TWO-YEAR PERIOD ENDED
DECEMBER 31, 1995 F-5
STATEMENTS OF CASH FLOWS FOR EACH OF THE
YEARS IN THE TWO-YEAR PERIOD ENDED
DECEMBER 31, 1995 F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Plastigone Technologies, Inc.
We have audited the accompanying balance sheet of Plastigone Technologies,
Inc. as at December 31, 1995, and the related statements of operations, changes
in shareholders' equity (capital deficiency) and cash flows for each of the
years in the two-year period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Plastigone Technologies,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has sustained recurring losses and has a
working capital deficiency and a capital deficiency at December 31, 1995.
Further, the Company is in default on its notes payable. These issues raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP
May 12, 1997
New York, New York
July 16, 1996
With respect to Note H[4]
August 1, 1996
With respect to Note I
December 12, 1996
With respect to Note L
April 8, 1997
F-2
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
BALANCE SHEET
AS AT DECEMBER 31, 1995
A S S E T S
-----------
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,601
Accounts receivable less allowance for doubtful
accounts of $24,000 (Notes D, I and J) . . . . . . . . 265,387
Inventories (Notes A[2], B and D). . . . . . . . . . . . 461,515
-----------
Total current assets. . . . . . . . . . . . . . . 735,503
Property, plant and equipment, at cost, net of
accumulated depreciation of $380,584
(Notes A[3], C and D). . . . . . . . . . . . . . . . . . 1,578,158
License, at cost, less accumulated amortization of $10,000
(Notes A[4] and H[1]). . . . . . . . . . . . . . . . . . 30,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 19,451
-----------
T O T A L . . . . . . . . . . . . . . . . . . . . $ 2,363,112
===========
L I A B I L I T I E S
---------------------
Current liabilities:
Due to shareholder (interest at 10%) . . . . . . . . . . $ 35,000
Due to private placement agents (interest at 10%). . . . 194,000
Current maturities of mortgage note (Note E) . . . . . . 9,790
Notes payable (Note D) . . . . . . . . . . . . . . . . . 600,000
Notes payable - vendors (interest from 10% to 12%) . . . 159,390
Accounts payable . . . . . . . . . . . . . . . . . . . . 917,583
Accrued expenses . . . . . . . . . . . . . . . . . . . . 236,453
Accrued interest . . . . . . . . . . . . . . . . . . . . 226,826
-----------
Total current liabilities . . . . . . . . . . . . 2,379,042
-----------
Mortgage note, less current maturities (Note E) . . . . . . 195,375
-----------
Commitments and contingencies (Notes H and I)
CAPITAL DEFICIENCY
------------------
(Note F)
Common stock, par value $.01 per share; authorized
25,000,000 shares; 10,255,989 shares issued and
outstanding. . . . . . . . . . . . . . . . . . . . . . . 102,560
Additional paid-in capital. . . . . . . . . . . . . . . . . 5,486,718
Accumulated (deficit) . . . . . . . . . . . . . . . . . . . (5,800,583)
-------------
Total capital deficiency. . . . . . . . . . . . . (211,305)
-------------
T O T A L . . . . . . . . . . . . . . . . . . . . $ 2 ,363,112
============
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
F-3
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Year Ended
December 31,
------------
1995 1994
---- ----
Net revenues (Note K) . . . . . . . . . . . . $2,220,749 $3,253,728
Cost of goods sold. . . . . . . . . . . . . . 1,928,276 2,428,644
----------- ----------
Gross profit. . . . . . . . . . . . . . . . . 292,473 825,084
----------- ----------
Costs and expenses:
Research and development costs . . . . . . 256,032
Selling, general and administrative. . . . 827,867 862,285
Settlement expenses (Note I) . . . . . . . 20,000 126,346
Interest (income). . . . . . . . . . . . . (17,855) (36,837)
Interest expense . . . . . . . . . . . . . 120,646 134,018
Other (income) . . . . . . . . . . . . . . (6,756) (2,150)
------------ -----------
T o t a l . . . . . . . . . . . . . 1,199,934 1,083,662
------------ -----------
NET (LOSS). . . . . . . . . . . . . . . . . . $ (907,461) $ (258,578)
============ ===========
Net (loss) per common share . . . . . . . . . $(.09) $(.03)
====== ======
Weighted average number of common shares
outstanding (Note A[5]). . . . . . . . . . 9,571,825 9,385,989
========== ==========
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
F-4
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Note F)
<TABLE>
<CAPTION>
Common Stock Additional Stock
------------ Paid-in Accumulated Subscription
Shares Amount Capital (Deficit) Receivable Total
------ ------ ------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1993 . . . . . . 9,435,989 $ 94,360 $5,298,318 $(4,634,544) $(20,000) $ 738,134
Value assigned to warrants issued and
other... . . . . . . . . . . . . . . 3,700 3,700
Cancellation of shares. . . . . . . . . (50,000) (500) (19,500) 20,000 - 0 -
Net (loss) for year . . . . . . . . . . (258,578) (258,578)
----------- --------- ----------- ----------- --------- ----------
Balance - December 31, 1994 . . . . . . 9,385,989 93,860 5,282,518 (4,893,122) - 0 - 483,256
Value assigned to warrants issued . . . 10,465 10,465
Issuance of common stock, net of
expenses of $15,065 (Note F[1]). . . 870,000 8,700 193,735 202,435
Net (loss) for year . . . . . . . . . . (907,461) (907,461)
----------- --------- ----------- ----------- --------- ----------
BALANCE - DECEMBER 31, 1995 . . . . . . 10,255,989 $102,560 $5,486,718 $(5,800,583) $ - 0 - $(211,305)
=========== ========= =========== ============ ========= ==========
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
F-5
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Year Ended
December 31,
------------
1995 1994
---- ----
Cash flows from operating activities:
Net (loss). . . . . . . . . . . . . . . . . . $(907,461) $(258,578)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization . . . . . . 89,161 89,263
Value assigned to warrants. . . . . . . . 10,465 3,700
Amortization of debt costs. . . . . . . . 11,667
Accrued interest. . . . . . . . . . . . . 80,287 72,582
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable. . . . . . . . . . . . . 447,191 (116,401)
(Increase) decrease in inventories . . (46,910) 194,384
Decrease (increase) in other current
assets. . . . . . . . . . . . . . . 42,273 (17,274)
Decrease in other assets. . . . . . . 10,849 4,630
Increase (decrease) in accounts
payable and accrued expenses. . . . 103,652 (67,383)
---------- ----------
Net cash (used in) operating
activities. . . . . . . . . . . . (170,493) (83,410)
---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment . . (79,543) (18,917)
---------- ----------
Cash flows from financing activities:
Loans from placement agent. . . . . . . . . . 5,000
Proceeds on short-term borrowings . . . . . . 50,000
Principal payments of long-term debt. . . . . (4,224)
Proceeds from sale of common stock. . . . . . 202,435
---------- ---------
Net cash provided by financing
activities. . . . . . . . . . . . 202,435 50,776
---------- ---------
NET (DECREASE) IN CASH . . . . . . . . . . . . . (47,601) (51,551)
Cash - beginning of year . . . . . . . . . . . . 56,202 107,753
---------- ---------
CASH - END OF YEAR . . . . . . . . . . . . . . . $ 8,601 $ 56,202
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest. . . . . . . . . . . $ 21,924 $ 60,623
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
F-6
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Summary of Significant Accounting Policies:
- ----------------------------------------------------------------------
[1] The Company:
-----------
Plastigone Technologies, Inc. (the "Company") was incorporated in the
State of Florida on April 24, 1986. The Company manufactures and distributes a
line of photo activated biodegradable as well as nondegradable plastic film,
primarily to the agricultural market. It also distributes degradable compost
bags manufactured with its additive and sells the degradable additive to other
plastic manufacturers.
The Company has incurred substantial losses since inception and losses
have continued in 1996, and as of December 31, 1995 has an accumulated deficit
of $5,800,000 and a working capital deficiency of approximately $1,644,000.
Further, $600,000 of notes payable on August 1, 1995 and the notes payable to
vendors were not paid when due and are currently in default. As a result, the
note holders can foreclose on substantially all the Company's assets. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
As discussed in Note L, in 1996, the Company raised $500,000 in equity
financing and settled certain payables for less than the carrying amount.
However, the Company is in need of substantial additional financing to continue
its operations. The Company is attempting to obtain additional long-term
financing but to date has been unable to consummate an agreement. The Company
hopes to achieve profitable operations by reducing costs and increasing sales
volume through the introduction of new product lines, however, there is no
assurance when or if such can be obtained. Other alternative means of financing
are being considered. The financial statements do not contain any adjustments
that might result from the outcome of these uncertainties.
[2] Inventories:
-----------
Inventories are valued at the lower of cost (first-in, first-out) or
market.
[3] Equipment:
---------
Equipment is stated at cost and depreciated over estimated useful lives
using the straight-line method.
[4] License costs:
-------------
License costs are being amortized using the straight-line method over a
period of 20 years.
(continued)
F-7
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Summary of Significant Accounting Policies:
- ----------------------------------------------------------------------
(continued)
[5] Net loss per common share:
--------------------------
Loss per common share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding. The effect
of warrants and options outstanding would be anti-dilutive and, therefore, have
not been included in the computation.
[6] Recently issued accounting pronouncements:
------------------------------------------
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" which is effective for the
Company's fiscal year commencing January 1, 1996. SFAS No. 123 allows companies
to either account for employee stock- based compensation under the new
provisions of SFAS No. 123 or under the provisions of Accounting Principles
Board ("APB") Opinion No. 25, but requires pro forma disclosure in the footnotes
to the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. At this time, the Company intends to continue accounting for its
employee stock-based compensation in accordance with the provisions of APB
Opinion No. 25.
[7] 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 reported
period. Actual results could differ from those estimates.
[8] Fair value of financial instruments:
------------------------------------
The carrying value of cash, accounts receivable and accounts payable
approximates the fair value because of the short maturity of those instruments.
Due to the related party nature of the notes payable, the Company is
unable to determine its fair value.
(continued)
F-8
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Inventories:
- -----------------------
Inventories are summarized as follows:
Raw materials. . . . . . . . . . . . $282,726
Finished goods . . . . . . . . . . . 178,789
---------
T o t a l. . . . . . . . . $461,515
=========
(NOTE C) - Property, Plant and Equipment:
- -----------------------------------------
Property, plant and equipment are summarized as follows:
Land . . . . . . . . . . . . . . . . $ 50,000
Building and improvements. . . . . . 354,799
Machinery and equipment. . . . . . . 1,410,528
Furniture and fixtures . . . . . . . 86,341
Automobiles. . . . . . . . . . . . . 22,018
Computer equipment . . . . . . . . . 35,056
----------
T o t a l. . . . . . . . . 1,958,742
Less accumulated depreciation and
amortization. . . . . . . . . . . 380,584
----------
T o t a l. . . . . . . . . $1,578,158
==========
(NOTE D) - Notes Payable:
- -------------------------
Notes payable consist of loans from various investors and placement agents.
The notes bear interest at 10% per annum and the principal balances and accrued
interest were due on August 1, 1995. The notes are collateralized by a security
interest in the Company's inventory, accounts receivable, machinery and
equipment.
The notes were not paid when due on August 1, 1995, and, accordingly, the
note holders can foreclose on the Company's assets at any time. See Note L for
conversion and repayment of debt.
(NOTE E) - Long-Term Debt:
- --------------------------
Mortgage collateralized by real estate, interest at 10%,
payable in 10 semiannual installments of principal
and interest of $12,530 with a balloon payment of
principal and interest of $202,245 on
October 15, 1997. . . . . . . . . . . . . . . . . . . $205,165
Less current maturity. . . . . . . . . . . . . . . . . . . . 9,790
--------
Noncurrent portion . . . . . . . . . . . . . . . . . . . $195,375
=========
(continued)
F-9
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Capital Deficiency:
- ------------------------------
[1] Private placements:
-------------------
During 1995 the Company sold 4.35 units in a private placement at
$50,000 per unit, receiving net proceeds of approximately $202,000. Each unit
consisted of 200,000 shares and a warrant to purchase 200,000 shares. The
Company issued the placement agent a warrant to purchase 60,000 shares of common
stock at $.25 per share exercisable through June 1998. (Note F[2]).
[2] Warrants:
---------
The Company has the following warrants outstanding at December 31, 1995
for the purchase of its common stock:
Shares/ Exercise Expiration
Units Price Date
----- ----- ----
Public warrants. . . 2,170,000 $1.25 March 31, 1996 (A)
Placement agent. . . 250,000 .40 June 29, 1997
Issued with debt and
services - 1992 . 1,025,000 .40 June 29, 1997
Issued for services
- 1993. . . . . . 25,000 .40 June 29, 1997
Issued with debt
- 1993/1994 . . . 300,000 .50 June 30, 1998
Placement agent
- 1993/1994 . . . 30,000 .50 June 30, 1998
Issued to
noteholders
- 1994 . . . . . 24,000 .50 June 30, 1998
Issued for
services/1995 . . 300,000 .20 June 30, 1998 (B)
Issued for
services - 1995
(Note F[1]) . . . 60,000 .25 June 30, 1998
Private placement -
1995 (Note F[1]). 4.35 .375 June 14, 1997
Issued to
noteholders
- 1995. . . . . . 300,000 .25 August 31, 1997
(A) During the year ended December 31, 1995 the Board of Directors
extended the expiration date from December 31, 1995.
(B) Warrants issued to President of Company See Note H[4] for additional
warrants issued to President.
(continued)
F-10
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Capital Deficiency: (continued)
- ------------------------------
[3] Stock Options:
--------------
The Company has a stock option plan (the "Plan") for key employees and
key personnel under which 500,000 shares of common stock have been reserved for
issuance pursuant to Plan. The Plan permits the granting of both incentive stock
options ("ISOs") and nonincentive options. All stock options granted are
exercisable at a price determined by the administrative committee of the Plan.
However, the ISOs must not be less than the fair market value of the stock.
Under the Plan, no option may be exercised for six months from the date of the
grant, nor may any option be granted after June 30, 1999. All options must be
exercised within ten years of the date of grant, except for ISOs granted to
persons owning more than 10% of the Company's outstanding common stock which
then must be exercised within five years of the date of the grant and the option
price shall not be less than 110% of fair market value on the date of grant.
A summary of incentive stock option transactions are as follows:
Number of
Number of Shares
Shares Exercise Price Exercisable
------ -------------- -----------
Outstanding at December 31,
1993 . . . . . . . . . . . 480,000 $ .75 - $2.50 415,000
=======
Granted . . . . . . . . . . . 25,000 $ .75
Cancelled . . . . . . . . . . (175,000) $1.00 - $1.20
---------
Outstanding at December 31,
1994 . . . . . . . . . . . 330,000 $ .75 - $2.50 330,000
=======
Granted . . . . . . . . . . . 246,000 $ .25
Cancelled . . . . . . . . . . (187,000) $ .25 - $2.50
---------
Outstanding at December 31,
1995 . . . . . . . . . . . 389,000 $ .25 - $1.09 389,000
========= =======
As of December 31, 1995, options for the purchase of 111,000 shares were
available for future grant under the Plan.
(continued)
F-11
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Capital Deficiency: (continued)
- -----------------------------
[3] Stock Options: (continued)
-------------
On February 9, 1995 the Company granted to certain officers and
employees options to purchase 189,000 shares of common stock at $.25 per share.
Previously granted options to purchase 105,000 shares with exercise prices
ranging from $.75 to $2.50 were cancelled.
(NOTE G) - Income Taxes:
- ------------------------
At December 31, 1995, the Company had available net operating loss
carryforwards of approximately $5,844,000 for federal and state income tax
purposes expiring through 2010. The utilization of a significant portion of
these losses may be subject to an annual limitation.
Differences between loss for financial reporting purposes and loss for
Federal income tax purposes relate primarily to depreciation and certain
expenses not currently deductible.
At December 31, 1995, the Company has deferred tax assets of approximately
$2,230,000 offset by deferred tax liabilities of approximately $95,000,
resulting in net deferred tax assets of $2,135,000. For financial reporting
purposes, a valuation allowance of $2,135,000 has been recognized to offset net
deferred tax assets since the likelihood of realization of the benefit cannot be
established. There was a net increase in valuation allowance of approximately
$391,000 and $240,000 during 1995 and 1994, respectively.
(NOTE H) - Commitments:
- -----------------------
[1] License agreements:
-------------------
The Company, as licensee, is a party to an agreement with Plastopil
Hazorea, Ltd. ("Plastopil"), an Israeli limited partnership, as licensor. The
Company has the exclusive right to market, license, or otherwise distribute the
Plastopil technology and any products emanating from or based on the Plastopil
technology in the United States, Canada, the Caribbean, Mexico and South America
and is required to purchase from Plastopil all of the fine chemical used in the
production of photodegradable plastics. The license agreement remains in effect
until May 5, 2016.
(continued)
F-12
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Commitments: (continued)
- -----------------------
[1] License agreements: (continued)
------------------
During 1989, the Company began marketing a nonagricultural product,
Litterless #221, which is subject to a profit sharing arrangement with the
licensor under which net profits are shared equally. Net profits, as defined in
the agreement, to be shared during the years ended December 31, 1995 and
December 31, 1994 were not material.
[2] Leases:
------
The Company is obligated for minimum annual rentals, under operating
leases longer than one year for land, automobiles and office equipment expiring
through 1998 as follows:
Year Ending
December 31,
------------
1996. . . . . . . . . . . . . $17,000
1997. . . . . . . . . . . . . 11,000
1998. . . . . . . . . . . . . 2,000
-------
T o t a l . . . . . $30,000
=======
Rent expense pursuant to operating leases was approximately $53,000 and
$44,000 for 1995 and 1994, respectively.
[3] Other:
-----
Prior to December 31, 1990, the Company received approximately $130,000
in connection with a research grant. Upon successful completion of the product
research, the Company is liable to make payments based on gross sales and other
marketing or commercial exploitation of the product, at rates specified in the
agreement, to a maximum of 150% of the funds actually provided. Research for the
project continues to be evaluated and there have been no sales of the product.
[4] Employment agreement:
--------------------
On August 1, 1996 the Company entered into a three-year employment
agreement (the "Agreement") with the President for an annual salary of $135,000
plus an annual bonus as determined by the Board of Directors. In addition, the
President is entitled to receive an incentive based on 5% of annual net
operating income, as defined.
(continued)
F-13
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Commitments: (continued)
- -----------------------
[4] Employment agreement: (continued)
--------------------
In conjunction with the Agreement the Company granted the President
50,000 shares of common stock and warrants to purchase 1,000,000 shares of
common stock at an exercise price of $.25 per share (one-third vest immediately
and two-thirds vest on January 2, 1997). In connection therewith, the Company
valued the stock and warrants at approximately $103,000. In the event that
during the term of the Agreement the Company acquires by merger or consolidation
all the assets of or a controlling interest in another entity, the Company will
grant the President an additional 1,000,000 warrants to purchase common stock at
$.25 per share exercisable in three equal installments.
(NOTE I) - Litigation:
- ----------------------
During 1993 the Company settled litigation involving claims against two
customers. The claims were extinguished by dividing a $725,000 insurance
settlement with the customers retaining $650,000 and the Company retaining
$75,000, of which $50,000 was received in 1993. In connection with the above
matter, the Company has filed claims against its principal supplier for
defective merchandise and various breaches of contract. The supplier has brought
counter claims against the Company claiming amounts in excess of $1,000,000.
On December 12, 1996 the parties entered into a release and settlement
agreement. In connection therewith, the supplier agreed to pay $325,000 to the
Company's insurer and the parties agreed to dismiss their respective claims.
The Company is involved in several other matters of litigation and claims
with customers, suppliers, former employees and others. The outcome of these
matters are uncertain at this time and counsel is unable to render an opinion as
to their ultimate resolution.
During 1995 and 1994 the Company decided to settle certain litigation
matters. In connection therewith the Company recorded a charge of approximately
$20,000 and $126,000 in 1995 and 1994, respectively.
(continued)
F-14
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Concentration of Credit Risk:
- ----------------------------------------
Financial instruments that subject the Company to credit risk consist of
accounts receivables from farmers principally located on the West Coast of
Florida. The Company performs ongoing credit evaluation of its customers but
does not require collateral to support receivables. The Company establishes an
allowance for doubtful accounts based upon the factors surrounding the credit
risk of specific customers and other information.
(NOTE K) - Significant Customer:
- --------------------------------
One customer accounted for approximately 14% and 13% of net revenues for
the year ended December 31, 1995 and December 31, 1994, respectively.
(NOTE L) - Subsequent Events:
- -----------------------------
In 1996 the Company sold 11 units at $50,000 per unit and received net
proceeds of approximately $528,000 after expenses. Each unit consists of 200,000
shares of common stock and 200,000 warrants exercisable within one year at
$.375 per share.
Through August 1996 certain holders of notes agreed to convert principal of
$225,000 and interest of $155,570 (through August 31, 1996) into common stock at
$.25 per share subject to certain conditions. In connection therewith, warrants
to purchase 1,126,672 shares of common stock at $.0375 were granted to certain
noteholders. In connection therewith, the Company will record a change of
approximately $56,000 representing the fair value of warrants at date of grant.
In May and July 1996, $275,000 of notes payable were repaid (see Note D).
In April and August 1996, the Company entered into agreements with certain
vendors whereby amounts owed of $142,300 were settled for $80,000.
In 1997 the Company sold 100 units at a price of $10,000 per unit. Each
unit consist of a $12,500 convertible collateralized loan and warrants to
purchase 50,000 shares of common stock. Each note is convertible into common
stock commencing August 21, 1997 through January 31, 1999 (due date of note) at
the holders option at a conversion price of $.125 per share. The notes are
collateralized by the Company's machines, equipment and furniture and fixtures.
The warrants are exercisable from August 21, 1997 through February 21, 2002 at
an exercise price equal to the average five days trading price prior to exercise
less 40%, however in no event less than $.10 per share. In connection therewith,
the Company granted the placement agent 20 units.
(continued)
F-15
<PAGE>
PLASTIGONE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Fourth Quarter Transactions and adjustments (Unaudited):
- -------------------------------------------------------------------
During the fourth quarter of fiscal 1995, the Company made various
adjustments to accounts receivable, inventory, payables, accruals and notes
payable aggregating approximately $295,000. The effect of such adjustments on
the first three quarters of the year has not been determined.
F-22
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective the lst day of August, 1996, by and between
Plastigone Technologies, Inc., a Florida corporation, having its principal
office at 2814 South Street, Ft. Myers, Florida, 33916, (the "Corporation"), and
Ron Davis, an individual residing at 1992 Allen Court Drive, Germantown,
Tennessee, 38139, (the "Employee").
Recitals
--------
WHEREAS, the Employee has been employed by the Corporation for more than
two years; and
WHEREAS, the Corporation desires that the Employee continue to be employed
by it and provide executive management and business development services to it
and the Employee is willing to be so employed and to render such services to the
Corporation, all upon the terms and conditions set forth in the Agreement.
NOW, THEREFORE, for and in consideration of the promises recited in this
Agreement, and other good and valuable consideration set forth in this
Agreement, Corporation and Employee agree as follows:
Agreement
---------
1. Employment. Subject to and upon the terms and conditions in this
Agreement, the Corporation hereby agrees to continue to employ the Employee and
the Employee agrees to continue in the employ of the Corporation for the period
set forth in paragraph 4 below and to render to the Corporation the services
described in paragraph 2 below.
2. Duties and Responsibilities. The Employee shall serve as the President
and Chief Executive Officer of the Corporation and shall be subject only to the
authority and direction of the Board of Directors of the Corporation (the
"Board"). The Employee shall be responsible for providing those services which
are customarily performed by the President and Chief Executive Officer of a
corporation, but shall be primarily responsible for developing and marketing a
line of specialty products and for creating an organization and management team
which will successfully support the business of the Corporation and maximize its
value. The Employee's specific responsibilities shall include, but not be
limited to, providing strategic-and business development planning; developing
and managing domestic and foreign product distribution; providing capital and
cash flow management; hiring, managing and terminating, if necessary, all
employees; negotiating and signing all corporate contracts, managing all banking
relationships; ensuring that all reports to regulatory authorities are completed
and filed on a timely basis; ensuring that all products are marketed in
accordance with applicable governmental regulations; and completing annual
budgets for approval of the Board. if elected, he shall serve on the Board of,
Directors. The Employee agrees to devote his full time and attention during
regular business hours to the performance of his duties and responsibilities
hereunder, subject to the proviso at the end of the first sentence of paragraph
10.
<PAGE>
3. Annual Compensation.
a. The Employee shall be paid an annual base salary by the Corporation
of One Hundred Thirty-Five Thousand Dollars ($135,000), the incentive
compensation provided for in paragraph b., and an annual bonus at year end as
set from time to time by the Board. Base salary shall be paid on a bi-weekly
basis. The Compensation Committee of the Board shall review the Employee's base
salary, incentive compensation and bonus annually. The Corporation shall deduct
all appropriate withholdings, FICA amounts and other payroll taxes from any
payments made to the Employee.
b. The Employee shall also be entitled to receive incentive
compensation in an amount equal to 5% of the Annual Net Operating Income
("'NOI") of the Corporation. The Incentive Compensation shall be paid within
seventy-five (75) days after the end of each fiscal quarter that this Agreement
is in affect, provided, however, in the last year that this Agreement is in
effect, NOI shall be calculated through the end of the fiscal quarter
immediately following the termination of this Agreement. For purposes hereof,
the NOI shall be defined as: Gross Profit less Selling, General and
Administrative expenses ("SG&A"), as determined by the Corporation's independent
certified public accountants; provided, however, that there shall not be
included in SG&A for purposes of this calculation any deductions for
depreciation, taxes, interest, consultants' fees, Commissions and financing
expenses or any payments of any kind to the members of the Board.
c. In consideration for the Employee's entering into this Agreement,
the Corporation hereby agrees to issue to Employee without further consideration
fifty thousand (50,000) shares of Common Stock of the Corporation which shall be
fully paid and nonassessable. In addition, the Corporation awards to Employee in
further consideration of entering into this Agreement: (1) Three Hundred
Thousand (300,000) warrants exercisable immediately at $.20 per warrant; (2) One
Million (1,000,000) warrants exercisable at $.25 per warrant (one-third to vest
upon the execution of this Agreement and the balance to vest on January 2, 1997)
; and (3) in the event that during the term of this Agreement the Corporation
acquires (x) by merger or consolidation, (y) all or substantially all of the
assets of, or (z) a controlling interest in the voting stock of, another entity,
the Corporation will award the Employee an additional One Million (1,000,000)
warrants, exercisable at $.25 per warrant, which would be exercisable at the
rate of one-third (1/3) immediately following the consummation of the
acquisition; one-third (1/3) one year from the data of consummation of the
acquisition; and the remaining one-third (1/3) two years from the date of
consummation of the acquisition.
4. Term. The term of this Agreement shall commence on August 1, 1996 and
shall continue until July 31, 1999 unless terminated or renewed in accordance
with the provisions of this Agreement. It will automatically renew on the same
terms and conditions for additional one year terms on each August 1, commencing
on August 1, 1999, unless it is terminated in writing by the Corporation, acting
by vote of its Board or by the Employee, on at least sixty (60) days' prior
written notice to the other.
<PAGE>
5. Credit Cards and Expenses. As soon as practical, the Employee will be
provided with Corporation telephone and VISA credit cards. Employee agrees to
make charges on these cards only for approved business of the Corporation. The
Employee shall also be reimbursed for and entitled to advances (subject to
repayment to the Corporation if not actually incurred by the Employee) with
respect to only those business expenses incurred by him (i) which are reasonable
and necessary for Employee to perform his duties under this Agreement; and (ii)
for which the Employee has submitted vouchers and/or other receipts in
accordance with policies established from time to time by the Corporation.
6. Vacation. Employee shall be entitled to twenty (20) days of paid
vacation per year which shall be taken at times mutually agreed upon by the
Employee and the Corporation. Employee will follow and abide by all policies of
vacation, holiday and sick leave established by the Corporation.
7. Insurance and Other Benefits. Employee shall be provided health
insurance benefits comparable to his existing coverage. The Corporation will
also maintain in effect during the term of the Agreement Director and Officer
Liability Insurance and Product Liability Insurance. The Employee shall also be
entitled to participate in such other plans or programs as are from time to time
generally made available to executives of the Corporation pursuant to the
policies of the Corporation; provided, however, that the Employee shall be
required to comply with the conditions contained in such plans and shall comply
with and be entitled to benefits only in accordance with the terms and
conditions of such plans. Under no circumstances shall Employee's current
medical plan be amended or terminated except with express permission of Employee
unless substituted by an amended plan made available to other executives of the
Corporation.
8. Death and Disability
a. This Agreement shall expire on the date of Employee's death, in
which event, Employee's salary, reimbursable expenses and benefits owing to
Employee through the date of the Employee's death shall be paid to his estate.
Employee's estate shall also be entitled to incentive compensation calculated in
accordance with the provisions of paragraph 3(b), and to any "Termination
Compensation" otherwise payable to Employee pursuant to paragraph 12(c). In
addition, Employee's estate shall also have the right to all warrants, in
accordance with paragraph 3(c).
b. If during the term of this Agreement, in the opinion of a duly
licensed physician selected by the Corporation, the Employee, because of
physical or mental illness or incapacity, shall become substantially unable to
perform the duties and services required of him under this Agreement for a
period of one hundred twenty (120) consecutive days or one hundred eighty (180)
days in the aggregate during any nine month period, the Corporation, may, upon
at least thirty (30) days prior written notice given at any time after the
expiration of such one hundred twenty (120) day or one hundred eighty (190) day
period, as the case may be, to the Employee of its intention to do so, terminate
his employment as of such date as may be set forth in the notice. In case of
such termination, the Employee shall be entitled to receive his salary,
reimbursable expenses and benefits owing to the Employee through the date of
termination. The Employee shall also be entitled to
<PAGE>
receive incentive compensation calculated in accordance with the provisions of
paragraph 3(b) hereof.
9. Confidentiality. The Employee acknowledges that all materials, forms,
formulas, research, data, information, plans, specifications, advertising
materials, work orders, contracts, policy statements, budgets, products, designs
and other materials of the Corporation embody concepts and ideas which
constitute valuable intellectual property and trade secrets (the "'Intellectual
Property") which must be protected by covenants of confidentiality. The Employee
shall not during or after the term of this Agreement divulge, publish, take for
his own use, allow others to divulge or publish, or take for their own use, or
permit to be divulged or published, or distribute or disclose the Intellectual
Property directly or indirectly in any manner whatsoever to any persons, firms,
corporations or other entities, except as permitted by the Corporation. All
items, including but not limited to, research designs, ideas, products and plans
developed by the Employee during the term of this Agreement shall be the
exclusive property of the Corporation, and shall not be copied or retained by
the Employee following termination of this Agreement.
10. Covenant Not to Compete. The Employee covenants that he will not
engage, directly or indirectly, alone or in conjunction with others, as an
agent, Employee, investor, director, shareholder or partner in any business
which provides products, information and/or services to the public which are
competitive with those provided by the Corporation; provided, however, that the
ownership by the Employee of 1% or less of the issued and outstanding shares of
any class of securities which is traded on a national securities exchange or, in
the over the counter market shall not constitute a breach of the provisions of
this paragraph 10 or of the provisions of paragraph 2 hereof. Said covenant
shall continue for the term hereof and for a one year period subsequent to the
termination of this Agreement. Through the term of this Agreement and for a
period of one year thereafter the Employee will not on his own behalf or on
behalf of any other business enterprise, directly or indirectly, solicit or
induce any creditor, customer, client, supplier, officer, employee or agent of
the Corporation to sever his or its relationship with or leave the employ of the
Corporation.
11. Injunctive Relief. In the event of a breach or threatened breach of
paragraphs 9 or 10 hereof, the parties agree that, because of the potential
irreparable harm to the Corporation, the Corporation shall be entitled to an
injunction restraining the Employee from disclosing such information or from
engaging in such competitive activities; provided, however, nothing contained
herein shall be construed to prevent the Corporation from pursuing any other
remedies available to it for breach of either of said covenants, including
recovery of damages from the Employee.
12. Change in Control, Termination of Employment and Compensation in Event
of Termination.
a. For purposes hereof, a "Change in Control" shall be deemed to have
occurred (i) if there has occurred a "change in control" as such term is used in
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as in effect at the date hereof (hereinafter referred to
as the "Act,") ; or (ii) if there has occurred a change in control as the term
""control" is defined in Rule 12(b)-2 promulgated under the Act; or (iii) when
any "person" (as such term is defined in Sections 3 (a) (9) and 13 (d) (3) of
the Act) becomes a beneficial owner,
<PAGE>
directly or indirectly, of securities of the Corporation representing 20% or
more of the Corporation's then outstanding securities having the right to vote
on the election of directors; or (iv) if the shareholders of the Corporation
approve a plan of complete liquidation or dissolution of the Corporation or a
merger or consolidation in which the Corporation is not the surviving
corporation; or (v) if there has occurred a change in the ownership or effective
control of the Corporation or a change in the ownership of a substantial portion
of the assets of the Corporation (within the meaning of Section 28OG(b)(2)(A) of
the Internal Revenue Code of 1986, as amend (hereinafter referred to as the
"Code")) ; or. (vi) when the individuals who are members of the Board on the
date hereof shall cease to constitute at least a majority of the Board;
provided, however, that any new director whose election to the Board or
nomination for election to the Board by the Corporation's shareholders was
approved by a vote of at least 50% of the directors then still in office, shall
not be deemed to have replaced his or her predecessor.
b. The Employee may terminate his employment at any time within 12
months after a Change in Control and any of the following events have occurred:
(A) an assignment to the Employee of any duties inconsistent with the status of
the Employee's office and/or position with the Corporation as constituted
immediately prior to the Change in Control or a significant adverse change in
the nature or scope of the Employee' s authorities, powers, functions or duties
as constituted immediately prior to the Change in Control, (B) a failure by the
Corporation, after having received written notice from the Employee specifying a
breach of any of its obligations to the Employee pursuant to this Agreement, to
cure such breach within sixty (60) days after receipt of such notice, or (C) the
headquarters of the Corporation is moved to a new location which is more than
sixty (60) miles from its current location (unless Employee consents to move to
such new location). An election by the Employee to terminate his employment
following a Change in Control shall not be deemed a voluntary termination of
employment by the Employee for the purpose of interpreting the provisions of
this Agreement or any of the Corporation's employee benefit plans and
arrangements. The Employee's continued employment with the Corporation for any
period of time during the term of this Agreement after a Change in Control shall
not be considered a waiver of any right he may have to terminate his Employment
to the extent permitted under this subparagraph b. If the Corporation terminates
the Employee without Cause within six months after a Change of Control has
occurred, such termination shall be deemed an election by the Employee to
terminate his employment pursuant to this paragraph 12. In the event of a
termination under this paragraph 12, the Employee shall continue to have the
obligations provided for in paragraphs 9 and 10 hereof.
c. If the Employee's employment with the Corporation is terminated
under subparagraph b., the Employee (i) shall continue to receive his
compensation and benefits through the date as of which his employment is
terminated (the "Termination Date") and, in addition thereto, (ii) shall be paid
in a lump sum within thirty (30) days after the Termination Date, in cash,
severance pay in an amount equal to the excess of 2.99 times the Employee' s
"base amount," over the "present value" of any other "parachute payments" with
respect to the Corporation which the Employee has received or to which he may be
entitled, whether under this Agreement or otherwise (unless such other payment
is waived in writing by the Employee within twenty (20) days after the
Termination Date). Such lump sum severance payment is hereinafter referred to as
the "Termination Compensation". For purposes of this Agreement, the term "base
amount", "present value" and
<PAGE>
"parachute payments" shall have the respective meanings set forth in Section
28OG of the Code as in effect on the date of the Change of Control, except that
"parachute payments" shall be determined without regard to whether or not they
equal or exceed three times the Employee's "base amount". The amount of
Termination Compensation shall be determined, at the expense of the Corporation,
by its regular independent certified public accountant immediately prior to the
Change in Control (the "Accountant"), whose determination shall be conclusive
and binding on the parties. Upon payment of the Termination Compensation and all
accrued but unpaid compensation and benefits, this Agreement shall terminate
(except for the Employee's obligations pursuant to paragraphs 9 and 10 hereof)
and be of no further force or effect.
d. After a Change in Control has occurred, the Corporation, will honor
the Employee's exercise of the Employee's outstanding warrants in accordance
with the terms of the Warrant Agreement under which they were issued. After a
Change in Control has occurred and the Employee's Employment is terminated as a
result thereof, the Employee (or his designated beneficiary or personal
representative) shall also receive, except to the extent already paid pursuant
to subparagraph 12(c)(i) hereof or otherwise, the sums the Employee would
otherwise have received (whether under this Agreement, by law or otherwise) by
reason of termination of employment if a Change in Control had not occurred.
e. Notwithstanding anything in this Agreement to the contrary (except
pursuant to subparagraph 12 (f ) hereof), the Employee shall have the right,
prior to the receipt by him of any amounts due hereunder, to waive the receipt
thereof or, subsequent to the receipt by him of any amounts due hereunder, to
treat some or all of such amounts as a loan from the Corporation which the
Employee shall repay to the Corporation, within ninety (90) days from the date
of receipt, with interest at the rate provided in Section 7872 of the Code.
Notice of any such waiver or treatment of amounts received as a loan shall be
given by the Employee to the Corporation in writing and shall be binding upon
the Corporation.
f. It is intended that the ""present value" of the payments and
benefits to the Employee, whether under this Agreement or otherwise, which are
includable in the computation of "parachute payments" shall not, in the
aggregate, exceed 2.99 times the Employee's "base amount". Accordingly, if the
Employee received (or is guaranteed to receive in the future) payments or
benefits from the Corporation which, when added to the Termination Compensation,
would, in the opinion of the Accountant, subject any of the payments or benefits
to the Employee to the excise tax imposed by Section 4999 of the Code, the
Termination Compensation shall be reduced by the smallest amount necessary, in
the opinion of the Accountant, to avoid such tax. In addition, the Corporation
shall have no obligation to make any payment or provide any benefit to the
Employee subsequent to payment of the Termination Compensation which, in the
opinion of the Accountant, would subject any of the payments or benefits to the
Employee to the excise tax imposed by Section 4999 of the Code. No, reduction in
Termination Compensation or release of the Corporation from any payment or
benefit obligation in reliance upon any aforesaid opinion of the Accountant
shall be permitted unless the Corporation shall have provided a copy of any such
opinion, specifically entitling the Employee to rely thereon, to the Employee no
later than the date otherwise required for payment of the Termination
Compensation or any such later payment or benefit.
<PAGE>
g. The Employee shall not be required to Litigate the payment of the
Termination Compensation by seeking other employment. To the extent that the
Employee shall receive compensation from any other employment, the payment of
Termination Compensation shall not be adjusted.
13. Duty to Defend. To the fullest extent permitted by Florida Law the
Corporation agrees to defend, hold harmless and indemnify Employee for any
liability resulting from any lawsuit or claim of any kind which has been or
which may be brought against Employee by any third p as a result of Employee's
carrying out his duties and responsibilities on behalf of the Corporation. This
obligation shall survive the termination of Employee's employment (whether
voluntary or involuntary, with or without cause).
14. Termination. This Agreement may be terminated for "cause" by either
Party. "Cause" for the Corporation shall be that Employee has not fully and
faithfully performed the duties and responsibilities set forth in this Agreement
after written notice thereof and a sixty (60) day cure period. "Cause" for the
Employee shall be that the Corporation has breached any of its obligations under
this Agreement after written notice thereof and a sixty (60) day cure period.
15. Severance Payments. In the event that the Corporation terminates
Employee, Employee shall for the period of the Covenant Not to Compete (one
year), receive in equal monthly installments, his then current base salary. In
addition, Corporation agrees to continue to provide and pay for Employee's
current health insurance for the period of the Covenant Not to Compete. The
salary continuation and payment of health insurance will be in addition to any
other benefits to which Employee may be entitled under this Agreement. The
acceptance of the severance payments by the Employee shall constitute the
exclusive remedy of Employee with respect to any claim Employee may have against
Corporation for termination of the employment of Employee. The Corporation will
not be obligated for severance payments or provision of health insurance under
this paragraph if Employee resigns from the employment of the Corporation; or is
entitled to Termination Compensation; or Employee's employment is terminated in
good faith by the Corporation because of Employee's act or acts of fraud, theft,
or embezzlement, or any act which, if convicted would constitute a felony.
Furthermore, the Corporation shall have the right to discontinue severance
payments in the event that Employee obtains substantially equivalent employment.
16. Notice. Except as otherwise expressly provided, any notice, request,
demand or other communication permitted or required to be given under this
Agreement shall be in writing, shall be sent by one of the following means to
the Employee at his address set forth on the first page of this Agreement and to
the Corporation at its address set forth on the first page of this Agreement,
Attention: Chief Financial Officer (or to such other address as shall be
designated hereunder by notice to the other parties and persons receiving
copies, effective upon actual receipt) and shall be deemed conclusively to have
been given: (i) on the first business day following the day timely deposited
with Federal Express (or other equivalent national overnight courier) or United
States Express Mail, with the cost of delivery prepaid or for the account of the
sender; (ii) on the fifth business day following the day duly sent by certified
or registered United States Mail, postage prepaid and return receipt
<PAGE>
requested; or (iii) when otherwise actually received by the addressee on a
business day (or on the next business day if received after the close of normal
business hours or on any non-business day).
17. Interpretation, Headings. The parties acknowledge and agree that the
terms and provisions of this Agreement have been negotiated, shall be construed
fairly as to all parties hereto, and shall not be construed in favor of or
against any party. The section headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
18. Successors and Assigns; Assignment; Intended Beneficiaries. Neither
this Agreement, nor any of Employee-s rights, powers, duties or obligations
hereunder/ may be assigned by Employee. This Agreement shall be binding upon and
inure to the benefit of Employee and his heirs and legal representatives and the
Corporation and its successors. Successors of the Corporation shall include,
without limitation, any corporation or corporations acquiring, directly or
indirectly, all or substantially all of the assets of the Corporation, whether
by merger, consolidation, purchase, lease, or otherwise, and such successor
shall thereafter be deemed "'the Corporation" for the purpose hereof.
19. No Waiver by Action, Cumulative Rights, Etc. Any waiver or consent from
the Corporation respecting any or provision of this Agreement or any other
aspect of the Employee's conduct or employment shall be effective only in the
specific instance and for the specific purpose for which given and shall not be
deemed, regardless of frequency given, to be a further or continuing waiver or
consent. The failure or delay of the Corporation at any time or times to require
performance of, or to exercise any of its powers, rights or remedies with
respect to any term or provision of this Agreement or any other aspect of the
Employee's conduct or employment in no manner (except as otherwise expressly
provided herein) shall affect the Corporation's right at a later time to enforce
any such term or provision.
20. Counterparts; Florida Governing Law; Amendments; Severability . This
Agreement may be executed in two counterpart copies, each of which may be
executed by one of the parties hereto, but all of which, when taken together,
shall constitute a single agreement binding upon all of the parties hereto. This
Agreement and all other aspects of the Employee's employment shall be governed
by and construed in accordance with the applicable laws pertaining in the State
of Florida (other than those that would defer to the substantive laws of another
jurisdiction). Each and every modification and amendment of this Agreement shall
be in writing and signed by the parties hereto, and any waiver of, or consent to
any departure from, any term or provision of this Agreement shall be in writing
and signed by each affected party to this Agreement. Should any section or
provision of this Agreement be determined illegal or invalid, the validity of
the remaining sections will not be affected.
21. Entire Agreement. This Agreement sets forth the entire Agreement
between the Parties, and supersedes all prior agreements, understandings,
negotiations and correspondence between Corporation and Employee concerning
employment. In the event of a conflict between this Employment Agreement and any
other statement, oral or in writing, the Employment Agreement will prevail and
will not be superseded or modified by any other statement, whether oral or in
writing,
<PAGE>
unless it has been signed by both Employee and Corporation.
22. Authorization. The Corporation Representatives who sign this Agreement
represent that each has the authority to execute this Agreement and bind the
Corporation.
THEREFORE, because the Corporation and Employee intend to be legally bound,
each has executed this Agreement on the dates indicated below.
AGREED:
__________________________________ DATE:____________
RON DAVIS, EMPLOYEE
AGREED:
PLASTIGONE TECHNOLOGIES, INC.
BOARD OF DIRECTORS
BY: ______________________________ DATE:___________
Signature
------------------------------
Type or Print Name
BY: ______________________________ DATE:___________
Signature
------------------------------
Type or Print Name
<PAGE>
THEREFORE, because the Corporation and Employee intend to be legally bound,
each has executed this Agreement on the dates indicated below.
AGREED:
__________________________________ DATE:_____________
RON DAVIS, EMPLOYEE
AGREED:
PLASTIGONE TECHNOLOGIES, INC.
BOARD OF DIRECTORS, COMPENSATION COMMITTEE
BY: ______________________________ DATE:___________
Signature
------------------------------
Type or Print Name
BY: ______________________________ DATE:___________
Signature
------------------------------
Type or Print Name
BY: ______________________________ DATE:___________
Signature
------------------------------
Type or Print Name
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,601
<SECURITIES> 0
<RECEIVABLES> 289,387
<ALLOWANCES> (24,000)
<INVENTORY> 461,515
<CURRENT-ASSETS> 735,503
<PP&E> 1,958,742
<DEPRECIATION> (380,584)
<TOTAL-ASSETS> 2,363,112
<CURRENT-LIABILITIES> 2,379,042
<BONDS> 0
102,560
0
<COMMON> 0
<OTHER-SE> (313,865)
<TOTAL-LIABILITY-AND-EQUITY> 2,363,112
<SALES> 2,220,749
<TOTAL-REVENUES> 2,220,749
<CGS> 1,928,276
<TOTAL-COSTS> 1,928,276
<OTHER-EXPENSES> 1,079,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,646
<INCOME-PRETAX> (907,461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (907,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (907,461)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
