SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended August 31, 1996
Commission File Number 33-24483-NY
HEALTH-PAK, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 11-2914841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1208 Broad Street, Utica, NY 13501
(Address of principal executive offices) (Zip Code)
Same
(Former Address) (Zip Code)
(315) 724-8370
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number os Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 31, 1996
Common stock, $0.002 par value 14,205,372
<PAGE>
INDEX
Part I. Financial information
Item 1. Condensed consolidated financial statements:
Balance sheet as of August 31, 1996 F-2
Statement of income for three months ended
August 31, 1996 and 1995 F-3
Statement of cash flows for three months
ended August 31, 1996 and 1995 F-4
Notes to condensed consolidated financial
statements F-5-10
Item 2. Management's discussion and analysis of
financial condition
Part II. Other information
Signatures
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET - AUGUST 31, 1996
ASSETS
Current assets:
Cash $ 618
Receivables, trade, net of allowance of $2,000 270,864
Inventory (Notes 2 & 3) 596,121
Income tax refund receivable, current 1,740
Prepaid expenses 94,747
Current portion of consulting agreement 6,667
----------
Total current assets 970,757
----------
Property and equipment (Note 2):
Machinery and equipment 299,178
Leasehold improvements 89,335
Office equipment 88,874
Automotive equipment 21,021
----------
498,408
Less accumulated depreciation 175,737
-------
322,671
-------
Other assets:
Investment in Silver Lake Holdings, Ltd. (Note 4) 130,637
Deposit in building 58,400
Security deposits 241
Prepaid consulting agreements, net of current portion
(Note 7) 3,889
Deferred offering expenses 225,710
Deferred income taxes (Note 8) 89,437
Cash surrender value, officers' life insurance 16,139
Officers' loans 1,150
----------
525,603
----------
$1,819,031
==========
LIABILITIES
Current liabilities:
Current portion of long-term debt (Note 6) $ 16,227
Notes payable, bank (Note 5) 78,132
Accounts payable 510,336
Payroll and sales tax payable and accrued expenses 46,182
----------
Total current liabilities 650,877
----------
Long-term debt, net of current portion (Note 6) 29,114
----------
Commitments (Note 7)
Shareholders' equity:
Preferred stock A, 9% cumulative convertible, 5,000,000
shares unauthorized and unissued
Common stock, .001 par value 2,000,000 shares authorized,
none issued
Common stock, .002 par value 20,000,000 shares authorized,
issued and outstanding 14,265,372 28,543
Additional paid in capital 1,956,811
Retained earnings ( 846,314)
----------
1,139,040
----------
$1,819,031
==========
See notes to condensed consolidated financial statements.
F-2
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
1996 1995
---- ----
Net sales $ 398,078 $ 435,565
Cost of sales 290,112 305,104
---------- ----------
Gross profit 107,966 130,461
Selling, general and administrative
expenses 108,317 116,470
---------- ----------
Income (loss) from operations ( 351) 13,991
---------- ----------
Other charges:
Loss on investments 5,763
Interest expense 6,950 1,322
---------- ----------
12,713 1,322
---------- ----------
Income (loss) before income taxes ( 13,064) 12,669
---------- ----------
Income taxes:
Current ( 3,266) 2,535
---------- ----------
Net income (loss) ($ 9,798) $ 10,134
========== ==========
Earnings per common and dilutive common equivalent share:
Primary $ 0.00$ 0.00
========== ==========
Fully diluted $ 0.00 $ 0.00
=========== =========
Weighted average number of common shares and dilutive outstanding:
Primary 14,088,706 13,104,797
========== ==========
Fully diluted 14,088,706 13,104,797
========== ==========
See notes to condensed consolidated financial statements
F-3
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
1996 1995
---- ----
Operating activities:
Net income (loss) ($ 9,798) $ 10,134
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 9,440 8,334
Amortization 10,246 5,667
Loss on investment 5,763
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 16,061 ( 47,648)
Increase in inventory ( 24,502) ( 43,017)
Decrease in income tax refund receivable 1,805
Increase in prepaid expenses and interest receivables( 2,366) ( 2,293)
Increase in accounts payable 9,525 44,811
Increase in accrued expenses 7,027 7,788
(Increase) decrease in deferred income taxes ( 6,322) 2,535
-------- --------
Net cash provided from (used in) operating activities 15,074 ( 11,884)
-------- --------
Investing activities:
Use of cash:
Purchase of property and equipment ( 24,420) ( 25,703)
Increase in other assets ( 291) ( 430)
-------- --------
Net cash used in investing activities ( 24,711) ( 26,133)
-------- --------
Financing activities:
Sources of cash:
Proceeds from issuance of common stock 35,000
Increase in notes payable, other 20,000
Proceeds from loan 17,236 20,064
Use of cash:
Payment of notes payable ( 2,695) ( 700)
Payment of current portion of long-term debt ( 878)
Payment of long-term debt ( 4,784) ( 885)
Payment of deferred offering expenses ( 35,000) ( 1,800)
-------- --------
Net cash provided from financing activities 8,879 36,679
-------- --------
Net decrease in cash ( 758) ( 1,338)
Cash, beginning of period 1,376 1,494
-------- --------
Cash, end of period $ 618 $ 156
======== ========
Supplemental disclosures and cash flow information:
Cash paid during the year
for:
Interest $ 6,950 $ 1,322
======== ========
Income taxes $ 0 $ 0
========= ========
Supplemental schedule of non-cash investing
and financing activities:
Issuance of common stock for equity interest
in Silver Lake Holding, Ltd. $136,400 $ 0
======== ========
See notes to condensed consolidated financial statements.
F-4
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(Unaudited)
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended August 31, 1996 are not necessarily indicative
of the results that may be expected for the year ending May 31, 1997. For
further information refer to the consolidated financial statements and
footnotes thereto incorporated by reference in the Company's Annual Report
on Form 10-K for the year ended May 31, 1996.
1. Nature of business:
Health-Pak, Inc. is a manufacturer and distributor of disposable paper
products for use in serviced-related industries, primarily the medical
and hospital industry.
2. Summary of significant accounting policies:
Revenue recognition:
The Company maintains its books and records on the accrual basis of
accounting, recognizing revenue when goods are shipped and expenses when
they are incurred.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method (FIFO).
Property and equipment:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight line method over the following
useful lives:
Years
Machinery and equipment 10
Leasehold improvements 19 and 31-1/2
Automotive equipment 5
Office equipment 10
F-5
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(Unaudited)
2. Summary of significant accounting policies (continued):
Expenditures for major renewals and betterments that extend the useful lives
of the property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
Investment in Silver Lake:
The Company owns 10% of the stock of Silver Lake and carries its investment
in the equity method of accounting.
Per share amounts:
Net earnings per share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
period. Fully diluted and primary earnings per common share are the same
amounts for the period presented.
3. Inventories:
Inventories consist of:
August 31, 1996 May 31, 1996
--------------- ------------
Raw materials $375,556 $372,753
Finished goods 220,565 198,866
-------- --------
$596,121 $571,619
======== ========
4. Investment:
On June 23, 1995, the Company issued 200,000 shares of common stock to
Silver Lake Holding Company, Inc. to purchase a 10% interest in the issued
and outstanding common stock of Silver Lake Holding Company, Inc. The fair
market value of the investment was $136,400.
The value of the stock contributed by the Company was based on the average
market value of the stock traded from June 1, 1995 to December 31, 1995.
This investment is accounted for under the equity method of accounting. For
the three months ended August 31, 1996, the Company recorded a loss of
$5,763 for the period.
5. Notes payable, bank:
The Company has its disposal a line of credit at Marine Midland Bank. The
note is due on demand and carries interest at prime + 1.5%. Inventory and
accounts receivable are pledged as security. The note is also secured by the
personal guarantees of Anthony Liberatore and Alfred Zennamo to the extent
of $50,000 in total. As of August 31, 1996 the balance due on the line of
credit was $78,132.
F-6
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(Unaudited)
6. Long-term debt:
Rate Amount Maturity
Note payable, Key Credit (a) 12% $ 3,266 May, 1998
Note payable, Manifest Group (b) 10% 23,124 July, 1999
Note payable, H.E.P Leasing Co. (c) 10% 2,571 February, 1997
Note payable, Waste Mgmt. of N.Y. (d) 10% 7,220 November, 1998
Note payable, Business Services, Co. (e) 10% 2,819 January, 1998
Note payable, Resource Capital Corp. (f) 10% 6,341 March, 2000
-------
45,341
Less current portion 16,227
------
$29,114
=======
(a) Note payable is collateralized by equipment with a cost of $5,690.
The note is payable in installments of $223 per month, including
interest.
(b) Note payable is collateralized by equipment with a cost of $20,064.
The note is payable in installments of $410 per month including
interest.
(c) Note payable is collateralized by equipment with a cost of $11,279.
The note is payable in installments of $580 per month including
interest.
(d) Note payable is collateralized by equipment with a cost of $11,923.
The note is payable in installments of $240 per month including
interest.
(e) Note payable is collateralized by equipment with a cost of $7,688.
The note is payable in installments of $184 per month including
interest.
(f) Note payable is collateralized by equipment with a cost of $6,796.
The note is payable in installments of $170 per month including
interest.
Maturities of long-term debt as of August 31, 1996 are as follows:
Year Amount
August 31, 1997 $16,227
August 31, 1998 12,952
August 31, 1999 9,286
August 31, 2000 6,876
-------
$45,341
=======
F-7
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(Unaudited)
7. Commitments:
Commencing August 1, 1993, the Company entered into a lease agreement with
the Utica Industrial Development Corporation for manufacturing and office
space of approximately 43,500 square feet. The term of this lease was from
August 1, 1993 to April 30, 1994 at a monthly $7,500. The Company had an
option to purchase the facility for $600,000 which expired on April 30,
1994. The lease was automatically extended for an additional three year
period for $9,500, with payments beginning in August, 1995.
Rent charged to August 31, 1996 and May 31, 1996 was $28,500 and $99,000
respectively.
Consultant contracts:
The Company entered into a three year investment banking consulting
agreement on December 31, 1994. The Company issued 1,000,000 shares of $.002
par common shares and used a discount valuation of $.002 per share. The
consultant is to act as a placement agent for Health-Pak, Inc. on all
private placements or secondary offerings. Services commenced as of April 1,
1995. The agreement is being amortized over thirty six months.
In addition, the Company also issued 4,500,000 stock options at various
exercised prices. As of August 31, 1996, 1,100,000 options have been
exercised as follows:
Number of options Exercise price
600,000 .10
200,000 .25
300,000 .35
The Company entered into a public relations consulting agreement on March
10, 1995. The agreement has a thirty month term and services commenced on
June 11, 1995. The Company issued 1,750,000 shares of $.002 par per common
shares plus an additional 17,242 shares of common stock as part of the
original agreement that in addition to the 1,750,000 shares, 250,000
shares are to be issued at a rate of 8,621 shares per month over the next
twenty nine months. A valuation of $.02 per share was used. The Company
withdrew from the consulting agreement in August and no other shares were
issued. In addition, advances made to the Company and on the books as a
notes payable, other, were reclassified as payment for common stock
already issued.
F-8
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(Unaudited)
8. Income taxes:
The components of income tax expense (benefit) for August 31, 1996 and 1995:
A reconciliation of income tax expense (benefit) at the statutory rate to
income tax expense (benefit) at the Company's effective rate is as follows:
August 31 August 31
1996 1995
Computed (benefit) expense at expected
statutory rates ($4,536) $3,775
Surtax exemption 2,000 ( 1,900)
State tax expense (benefit) ( 730) 660
------ ------
Income tax expense (benefit) ($3,266) $2,535
====== ======
The effective statutory rate for 1996 was 34% for federal tax purposes.
As of May 31, 1996, the Company has available, for tax reporting purposes,
net operating loss carryovers of approximately $394,000 which expire in
2009.
Effective June 1, 1993, the Company has adopted the Statements of Financial
Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes,"
which applies a balance sheet approach to income tax accounting. The new
standard required the Company to reflect on its balance sheet the
anticipated tax impact of future taxable income or deductions implicit in
the balance sheet in the form of temporary differences. The Company has
reflected certain future tax benefits on its balance sheet from the
realization of the carryover of the current years net operating loss to
anticipated future earnings. The cumulative effect as of June 1, 1993, the
date of the adoption of SFAS No. 109, was immaterial. As permitted by SFAS
No. 109, prior year's financial statements have not been restated.
Deferred income taxes are a result of timing differences arising from
depreciation reported for tax purposes in periods different than for tax
purposes.
9. Related party transactions:
Officers loans are unsecured and non-interest bearing. Officers have
indicated that they will not be repaid in the current year.
F-9
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(Unaudited)
10. Subsequent events:
The Company is in the process of purchasing a 65% equity interest in
Protective Apparel, LLC, a company operating in the disposal apparel
business. The LLC in turn is expected to purchase a continuing business,
Scherer Healthcare, LTD, d/b/a Protective Disposal Apparel. As of
October 28, 1996 the balance sheet of the LLC was as follows:
ASSETS
Current assets:
Accounts receivable $263,371
Inventory 308,469
-------
Total current assets 571,840
-------
Security deposits 1,500
-----
Total assets $573,340
========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $318,943
--------
Total current liabilities 318,943
-------
Members' capital 254,397
-------
Total liabilities and members' equity $573,340
========
The book value of the assets acquired from the subsidiary acquisition, on
a consolidated basis, do not exceed 10% of the combined assets required
by the significant subsidiary test of Regulation S-X Rule 210.1-02 (w).
F-10
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> May-31-1997
<PERIOD-START> JUN-1-1996
<PERIOD-END> AUG-31-1996
<EXCHANGE-RATE> 1
<CASH> 618
<SECURITIES> 0
<RECEIVABLES> 270,864
<ALLOWANCES> 2,000
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<PP&E> 498,408
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<BONDS> 0
0
0
<COMMON> 28,543
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<INCOME-PRETAX> (13,064)
<INCOME-TAX> (3,266)
<INCOME-CONTINUING> (9,798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (9,798)
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