SECURITIES & EXCHANGE COMMISSION
Washington, D.C., 20549
--------------------------
FORM 10-KSB/A
AMENDMENT NUMBER 1
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee required). For the fiscal year ended May 31, 1996. [ ] TRANSITION
REPORT UUNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee
Required). For the transition period from_______________ to____________.
Commission File Number: 33-24483-NY
HEALTH-PAK, INC.
(Name of small business issuer in its charter)
Delaware 11-2914841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Ident. Number)
2005 Beechgrove Place, Utica, New York 13501
(Address of principal executive offices) (zip code)
Issuer's telephone number: (315) 724-8370
Securities registered under Section 12(b) of the Exchange Act: None ction
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) 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 ___
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec. 229.405 of this chapter) 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 [ X ]
State issuer's revenues for its most recent fiscal year $1,881,149.
The aggregate market value of the voting stock held by non-affiliates
of registrant on October 13, 1996 was $5,113,934 based upon an average bid price
of $0.36 per share on that date.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of October 9, 1996: 14,205,372 shares of common stock.
Transition Small Business Disclosure Format Yes____ No__X__
1
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
YEAR ENDED MAY 31, 1996
CONTENTS
Page
Independent auditors' report F-2
Consolidated financial statements:
Balance sheet F-3
Statement of income (loss) F-4
Statement of shareholders' equity F-5
Statement of cash flows F-6
Notes to consolidated financial statements F-7 - F-16
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Health-Pak, Inc. and subsidiary
Utica, New York
We have audited the accompanying consolidated balance sheet of Health-Pak,
Inc. and Subsidiary as of May 31, 1996, and the related consolidated statements
of income (loss), shareholders' equity, and cash flows for the years ended May
31, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Health-Pak, Inc. and
Subsidiary as of May 31, 1996, and the results of its operations and its cash
flows for the years ended May 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
Zeller Weiss & Kahn
September 4, 1996
Mountainside, New Jersey
F-2
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - MAY 31, 1996
<TABLE>
<CAPTION>
ASSETS LIABILITIES
<S> <C> <C>
Current assets: Current liabilities
Cash $ 1,376 Current portion of long term debt $ 17,105
Receivables, trade, net of Notes payable, bank (Note 5) 80,827
allowance of $2,000 286,926 Accounts payable 477,688
Inventory (Notes 3 & 4) 571,619 Payroll and sales tax payable and
Income tax refund receivable, accrued expenses 39,155
-----------
current 1,740
Prepaid expenses 92,381
Current portion of consulting
agreement 6,667
Total current assets 960,709 Total current liabilities 614,775
---------- ----------
Property and equipment (Notes 3 & 6):
Machinery and equipment 293,783 Long-term debt, net of current
Leasehold improvements 87,546 portion (Note 6) 16,662
----------
Office equipment 71,638
Automotive equipment 21,021
473,988
Less accumulated depreciation 180,841 Commitments (Note 7)
----------
293,147
Other assets:
Deposit on building 23,400
Security deposits 241
Prepaid consulting agreements, net Shareholders' equity
of current portion (Note 7) 5,555 Preferred stock A, 9% cumulative
Deferred offering expenses (Note 11) 100,000 convertible $10 par, 5,000,000 shares
Deferred income taxes 83,115 unauthorized and unissued
Cash surrender value, officers' Common stock, .001 par value 2,000,000
life insurance 16,139 shares authorized, none outstanding
Officer's loan (Note 15) 1,150 Common stock, .002 par value 20,000,000
----------
shares authorized 13,972,039 issued
229,600 and outstanding 27,943
----------
Additional paid in capital 1,786,011
Retained earnings (deficit) ( 961,935)
----------
852,019
-------
$1,483,456 $1,483,456
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (LOSS)
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Net sales $1,881,149 $2,059,630
Cost of sales 1,344,209 1,565,915
---------- ----------
Gross profit 536,940 493,715
Selling, general and administrative
expenses 714,978 471,285
---------- ----------
Income (loss) from operations ( 178,038) 22,430
Interest expense 13,442 17,330
---------- ----------
Income before income taxes ( 191,480) 5,100
---------- ----------
Income taxes expense (benefit) (Note 8):
Current
Deferred ( 15,160) 1,020
---------- ----------
Net income (loss) ($ 176,320) $ 4,080
========== ==========
Net income (loss) per common share:
Primary ($ 0.02) $ 0.00
========== ==========
Fully diluted N/A N/A
Weighted average number of common shares outstanding (Note 16):
Primary 16,437,868 10,812,712
========== ==========
Fully diluted N/A N/A
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
JUNE 1, 1994 TO MAY 31, 1996
<TABLE>
Unissued
Common stock Preferred stock common stock Capital Retained
number of $.002 par number of $10 par number of $.002 par in excess earnings
shares amount shares amount shares amount of par val. (deficit) Total
------ ------ ------ ------ ------ ------ ----------- ------- -----
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1994 10,007,297 $20,014 6,500 $65,000 $1,416,940 ($789,695) $712,259
Shares issued for consulting agreement
December 31, 1994 1,000,000 2,000 18,000 20,000
Shares issued for consulting agreement
March 10, 1995 1,767,242 3,534 232,758 $466 36,000 40,000
Conversion of preferred stock to common
stock (6,500) ( 65,000) 97,500 195 64,805 0
Net income for year ended May 31, 1995 4,080 4,080
---------- ------- ----- ------- ------- ---- ---------- -------- --------
Balance at May 31, 1995 12,774,539 25,548 0 0 330,258 661 1,535,745 ( 785,615) 776,339
Exercise of stock options 1,100,000 2,200 212,800 215,000
Withdrawal from contract and reversal of
common stock August 1, 1995 ( 232,758) ( 466) ( 39,534) ( 40,000)
Reclassification of notes payable 77,000 77,000
Issuance of common stock 97,500 195 ( 97,500) ( 195) 0
Net income for year ended May 31, 1996 ( 176,320) ( 176,320)
---------- ------- ----- ------- ------- ---- ---------- -------- --------
Balance at May 31, 1996 13,972,039 $27,943 0 0 0 0 $1,786,011 ($961,935) $852,019
========== ======= ===== ======= ======= ==== ========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Operating activities:
Net income (loss) ($176,320) $ 4,080
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 51,233 24,872
Amortization 3,443
Changes in operating assets and liabilities:
Decrease (increase) in interest receivable 9,599
Decrease (increase) in accounts receivable ( 88,057) 87,297
Decrease (increase) in inventory ( 107,336) ( 97,505)
Decrease (increase) in income tax refund receivable 2,733 1,020
Increase in prepaid expenses ( 6,520) ( 58,792)
Increase in accounts payable 87,821 62,697
Increase (decrease) in accrued expenses 26,544 ( 30,553)
Decrease in other assets 12,514
-------- -----------
Net cash provided from operating activities ( 197,388) 6,158
-------- --------
Investing activities:
Source of cash:
Decrease in note receivable 68,000
Use of cash:
Purchase of property and equipment ( 119,497) ( 34,978)
Increase in other assets ( 17,100)
Decrease (increase) in deferred offering expenses 82,354 ( 28,936)
-------- --------
Net cash used in investing activities ( 37,143) ( 13,014)
-------- --------
Financing activities:
Sources of cash:
Increase in long-term debt 29,863 5,690
Increase in notes payable, other 47,450
Proceeds from issuance of common stock 215,000
Use of cash:
Decrease in notes payable, bank ( 124,173)
Payment of long-term debt ( 18,733)
Decrease in notes payable, other ( 10,450)
--------
Net cash provided from (used in) financing activities 234,413 ( 89,766)
-------- --------
Net increase (decrease) in cash ( 118) ( 96,622)
Cash, beginning of period 1,494 98,116
-------- --------
Cash, end of period $ 1,376 $ 1,494
======== ========
Supplemental disclosures and cash flow information: Cash paid during the year
for:
Interest $ 13,442 $ 18,012
======== ========
Income taxes $ 0 $ 0
======== ========
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for director fees, past
services and consulting contracts, note payment $ 37,000 $ 60,000
======== ========
See notes to consolidated financial statements.
</TABLE>
` F-6
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization of the Company:
The Company originally "Morgan Windsor Ltd," was incorporated in the state
of Delaware on December 28, 1987 as a "blind pool". The only operations
of the Company at that time were to structure a public offering of its
securities. Thereafter the company began to search for a viable business
opportunity.
On May 15, 1989, the Registration Statement containing the Company's
original prospectus was declared effective by the Securities and
Exchange Commission.
On April 30, 1991, the date of acquisition of Health-Pak, Inc, the Company
had outstanding shares of 387,648 to the public.
On April 30, 1991, the Company acquired 100% of the issued and outstanding
capital stock of Health-Pak, Inc. A New York corporation in exchange for
4,996,352 shares of which 4,756,077 shares were exchanged for 97.54% of
the outstanding shares of Health-Pak, Inc. and 240,275 shares were
retained to acquire the remaining outstanding shares of Health-Pak, Inc.
The acquisition of Health-Pak, Inc. for accounting purposes has been treated
as a recapitalization of Health-Pak, Inc. with Health-Pak, Inc, as the
acquirer as in a reverse acquisition. The historical financial
statements prior to April 1, 1991 are those of Health-Pak, Inc.
Health-Pak, Inc. has recorded the translation with the Company as the
issuance of stock for cash. The Company accounts for the issuance of the
outstanding shares of the Company to the public on April 1, 1991 of
387,648 shares of common stock for $60,000. Health-Pak, Inc.'s
historical stockholder's equity has been retroactively restated,
recapitalized, for the equivalent number of shares received in the
transaction with any differences between the par value of the issuer's
and acquirer's stock recorded with an offset to paid in capital.
Thereafter, the Company, "Morgan Windsor Ltd" changed its name to
"Health-Pak, Inc" and increased its authorized capitalization to
20,000,000 shares.
2. 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. The Company sells to the east coast of the United
States. There is no guarantee that this market will continue to develop
since the incorporation of government intervention, economic conditions
and other unforeseen situations may occur. This market is competitive
with other companies with the major concentration of customers being in
the New York State region.
F-7
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies:
Principles of consolidation:
The acquisition of the Company's subsidiary on April 22, 1991 has been
accounted for as a reverse purchase of the assets and liabilities of
the Company by Morgan Windsor Ltd. Accordingly, the consolidated
financial statements represent assets, liabilities and operations of
Health-Pak, Inc. prior to April 30, 1991 and the combined assets,
liabilities, and operations for the ensuing period. The financial
statements reflect the purchase of the stock of Morgan Windsor Ltd. by
Health-Pak, Inc., the value being the historical cost of the assets
acquired. All significant intercompany profits and losses from
transactions have been eliminated. Pursuant to the purchase the
Company's 387,648 shares were issued to the public for $60,000.
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
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.
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.
Cash and cash equivalents:
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposit, and all highly liquid debt
instruments with original maturities of three months or less.
F-8
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect 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 reporting period. Actual results differ from
these estimates.
Effect of recently issued accounting standards:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impaired of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. "SFAS"
No. 121 requires that Long-Lived Assets and certain identifiable
intangibles to be held and used by the Company be reviewed for
impairment whenever events indicated that the carrying amount of an
asset may not be recoverable. The Company has no impaired assets at May
31, 1996.
The Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation".
The effective date of SFAS No. 123 is for fiscal years beginning after
December 15, 1995, and established a method of accounting for stock
compensation plans based on fair value. The Company does not believe
that SFAS No. 123 will have an impact on its financial statements. The
Company has not adopted SFAS No. 123 at May 31, 1996 and continues to
use APB 25 which accounts for stock compensation at the intrinsic value.
4. Inventories:
Inventories consist of:
May 31 May 31
1996 1995
---- ----
Raw materials $372,753 $227,582
Finished goods 198,866 236,701
-------- --------
$571,619 $464,283
======== ========
5. Line of credit:
The Company has at 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 May 31, 1996 and 1995
the balance due on the line of credit was $80,827.
F-9
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-term debt:
Rate Amount Maturity
Note payable, Key Credit (a) 12% $ 3,793 May, 1998
Note payable, Manifest Group (b) 10% 14,372 July, 1999
Note payable, H.E.P Leasing Co. (c) 10% 4,263 February, 1997
Note payable, Waste Mgmt. of N.Y. (d) 10% 7,763 November, 1998
Note payable, Business Services, Co. (e) 10% 3,576 January, 1998
-------
33,767
Less current portion 17,105
------
$16,662
=======
(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.
Maturities of long-term debt as of May 31, 1996 are as follows:
Year Amount
May 31, 1997 $17,105
May 31, 1998 11,290
May 31, 1999 4,553
May 31, 2000 819
-------
$33,767
=======
F-10
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 initial term of
the lease was from August 1, 1993 to April 30, 1994 at a monthly rental
of $7,500.
The Company had an option to purchase the facility for $600,000 which
expired on April 30, 1994. The purchase was not completed by April 30,
1994, and the lease was automatically extended for an additional three
year period at the same terms and rental. Rent expense was $90,000 for
the year ended May 31, 1996 and $75,000 for the year ended May 31, 1995.
The following is a schedule of future minimum rental payments required
under the above operating lease as of May 31, 1996:
Year Amount
May 31, 1997 $82,500
-------
$82,500
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.
Inaddition, the Company also issued 4,500,000 stock options at various
exercised prices. As of May 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 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-11
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income taxes:
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
book purposes.
The components of income tax expense (benefit) at May 31, 1996 are:
Provision for income taxes:
Federal tax $ 0
State tax 0
Deferred tax benefit ( 15,160)
-------
Total income tax benefit ($15,160)
Deferred tax benefit arising from:
Net operating loss carryfoward ($15,160)
Reconciliation of income tax benefit at statutory rate to income tax
expenses at the Company's effective rate is as follows:
Tax benefit at statutory rate ($20,012)
Surtax exemption 9,712
State income tax benefit, net
of federal tax benefit ( 4,860)
Income tax benefit ($15,160)
F-12
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income taxes (continued):
The components of deferred tax assets and liabilities are as follows:
Assets Liabilities
Bad debt allowances $ 500
Depreciation $900
Net operating loss carryfoward 83,515
------- -------
Total 84,015 $900
====
Deferred tax liability 900
-------
Net deferred tax asset $83,115
=======
The components of income tax expense (benefit) for May 31, 1995 are:
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate is as follows:
Computed expense at expected statutory rates $1,734
Surtax exemption ( 969)
State tax 255
------
Income tax expense $1,020
======
The effective statutory rate for 1995 was 34% for federal tax purposes.
As of May 31, 1996 and 1995, the Company has available, for tax reporting
purposes, net operating loss carryovers of approximately $449,000 and
$394,000, respectively, which expires in 2009.
9. Common stock purchase warrants and options:
On May 26, 1989, Health-Pak, Inc. prior to the merger with Morgan Windsor
Ltd on April 30, 1991, issued Health-Pak, Inc. warrants of which 120,795
of such warrants were exercised at a price of one warrant plus $.40 per
common share. The Company received $48,318 and exchanged Health-Pak,
Inc. shares for 344,991 shares of the Company. These shares were issued
for warrants of Health-Pak, Inc. (New York) and not from warrants issued
by Health-Pak, Inc. (formerly Morgan-Windsor Ltd).
F-13
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Common stock purchase warrants and options (continued):
OnMay 15, 1989, the Company completed its public offering in which 50,000
units were offered at $6.00 per unit. Each unit would consist of six
shares of common stock ($.002 par value) and eighteen Class A redeemable
common stock purchase warrants and twelve Class B redeemable common
stock purchase warrants. Each Class A warrant entitles the holder to
purchase one additional share of common stock at $.75 per share until
June 30, 1992. Each Class B warrant entitles the holder to purchase one
additional share of common stock at $2.00 per share until March 5, 1992.
Outstanding were 294,444 Class A and 196,296 Class B redeemable common
stock purchase warrants of the Company. As of the balance sheet date of
May 31, 1996 both Class A and Class B warrants have expired as of
December 31, 1994.
As of May 31, 1996 the unexercised options held by Silver Lake, Inc. are
as follows:
Amount of options Exercise price Expiration
400,000 .35 September 30, 1996
1,000,000 .75 October 31, 1998
1,000,000 1.25 October 31, 1998
1,000,000 2.00 October 31, 1998
10. Employment contracts:
The Company has no employment contracts. Further, it has no retirement,
pension or profit sharing plan covering its officers or directors.
11. Deferred offering expense:
The value stated is the amount that has been paid by the Company for
expenses incurred for the public offering of warrants. The deferred
offering expenses on the issued or expired warrants have been deducted
from the proceeds of the offering. The offering of the Class C warrants
is expected to be completed in 1997. In the event the offering does not
take effect, the deferred offering expenses will be charged to operating
expenses.
All deferred offering expense pertain to the Class C warrants which had not
been issued as of the statement date. As of May 31, 1996 the Company has
charged to opertion $125,419 for the current year.
F-14
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Common stock shares outstanding:
The following shares were issued and outstanding at these respective dates:
May 31, 1996 13,972,039
----------
May 31, 1995 12,774,539
----------
13. Proceeds from private placement:
In June 1991, the Board of Directors of the Company duly authorized the
Company to undertake a private placement of up to 500,000 of the
Company's shares at a price of $0.50 per share to accredited investors
only, pursuant to the exemption provided in Regulation D of the
Securities Act of 1933.
As of June 15, 1992, the Board of Directors of the Company duly authorized
the Company to undertake a private placement of up to 500,000 shares of
preferred stock as of May 31, 1993. The Company sold 6,500 shares at $10
per share on a subscription basis. The preferred stock was never issued
and was never authorized by the certificate of incorporation. The
Company adopted a resolution to the effect that 500,000 shares of
preferred stock be authorized convertible into fifteen shares of the
common stock of the Company during the first year of its issue. No
action was taken to issue the preferred stock since all the stockholders
converted. The preferred stock was at $10 par value and 9% cumulative.
As of May 31, 1995 all shareholders consented to convert their shares
into common stock. The Company issued 97,500 shares of its common stock
for 6,500 shares of subscribed for preferred stock during 1996. The
proceeds to the Company amounted to $65,000.
14. Subsequent events:
On August 5, 1996, the Company signed a letter of intent to purchase the
inventory, accounts receivable and equipment, less the accounts payable
of the protective disposal apparel division of Scherer Healthcare Ltd.
at September 30, 1996. 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-15
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Related party transactions:
Officers loans are unsecured and non-interest bearing. Officers have
indicated that they will not be repaid in the current year.
16. Earnings per share:
May 31, 1996 May 31, 1995
------------ ------------
Primary Primary
Number of shares:
Weighted average shares outstanding 13,085,785 10,812,712
Incremental shares for outstanding
stock options 3,352,083
--------- -----------
16,437,868 10,812,712
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. Shares that would be
outstanding assuming exercise of dilutive stock options , all of which
are considered to be common stock equivalents. Fully diluted earnings
per share are the same as primary earnings per share for May 31, 1996
and May 31, 1995.
F-16
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information required by Part IV "Exhibits and Reports on
Form 8-K" is incorporated by reference from portions of the Registrants
registration statement on Form S-1 as filed on November 2, 1993 under File
Number 33-24483 NY
2
<PAGE>
FORM 10-KSB/A
HEALTH-PAK, INC.
Amendment Number 1
TABLE OF CONTENTS
Item
No. Description Page
Introduction 4
PART I
1. Description of Business 5
PART II
7. Financial Statements 16
PART III
10. Executive Compensation 16
12. Certain Relationships and
Related Transactions 17
13. Exhibits and Reports on Form 8-K 17
3
<PAGE>
INTRODUCTION
This Amendment Number 1 contains only the Items that have been amended
from the original report filed for the fiscal year ended May 31, 1996. Please
refer to the original Form 10-KSB for other required parts of this report.
The section entitled "Documents Incorporated by Reference" has been
changed only to indicate the correct filing date of the Company's registration
statement on Form S-1.
Item Number 1 has been changed only to include the names of the
Company's three largest customers under the heading "Sales and Marketing."
Item 7, the Financial Statements have been revised and should be read
as a whole.
Item 10 has been changed by including compensation information for 1994
for the officers and directors of the Company and information concerning Alfredo
Zennamo has been added, since he was an officer and a director in 1994.
Item 12 has been amended only to include the value of certain
land and a building transferred by Mr. Anthony J. Liberatore,
President, to the Company.
Item 13 has been changed to correct and to include certain dates in
documents incorporated by reference.
4
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Introduction.
The Company's primary business in fiscal 1996 continued to be the
manufacture and/or distribution of reusable and nonwoven disposable textile
products, mostly medical apparel and ancillary items such as gowns, aprons,
masks, caps, covers, surgical draperies, diapers and underpads, towels, wipes,
cloths and sterilization wraps and other related products, which were sold
primarily to the hospital and medical marketplace and non-medical fleece
sportswear, which was sold to customers in the regular clothing industry. Prior
to the use of nonwoven disposable items, the needs of hospitals, nursing homes,
clinics and other medical facilities were met almost exclusively by reusable
textile products. In addition, beginning in fiscal 1995, the Company offered a
new line of disposable coveralls and laboratory coats for industrial and
pharmaceutical users.
Beginning in late fiscal 1994, management determined that many medical
facilities were reversing the previous trend toward the use of fully disposable
medical products which then was the Company's primary business and, due to
environmental and cost concerns, were returning to the utilization of reusable
and limited reusable products. Therefore, in response to this change, the
Company, throughout fiscal 1995 and again in 1996, emphasized the manufacture of
reusable products in its line. At the present time, approximately 50% of the
Company's sales are in reusable products and about 50% in disposable products.
Management expects that this balance will continue in fiscal 1997.
In the fall of 1993, the Company opened a retail outlet store, located
at its plant facility on Beechgrove Place, Utica, New York for the sale of a new
line of outdoor sportswear (sold as non-medical products) which the Company was
also marketing to specialty catalog companies and retail stores principally in
the Northeastern United States. The sportswear products offered are made of a
spun polyester fleece material and are primarily used for winter recreational
wear. The modest success of the outlet store in past years has prompted the
Company to continue this operation during the current fiscal year. During fiscal
1995 and 1996 the outlet store accounted for approximately 5% of net revenues.
During fiscal 1996 the Company expanded the outlet store's product lines by
adding golf and other sports outer wear products for spring, summer and fall
wear, and it now plans to operate the store all year. See "Present Operations"
below for additional information.
5
<PAGE>
Present Operations.
The Company's principal products at the present time include a line of
reusable and disposable staff examination gowns, patient isolation gowns,
bouffant caps, sterilization wraps, tissue products, wash cloths and other
similar items used by hospitals and related health care facilities. Reusable
products were again emphasized in the Company's product line during fiscal 1996
and will continue to be featured during the current fiscal year.
The reusable products which the Company offers utilize a specialized
three-layer system of construction which incorporates a facing fabric, an
impervious inner membrane and a back fabric which combine to provide maximum
comfort for the wearer and a level of protection which complies with the OSHA
regulations implemented in 1992 (see discussion below). During fiscal 1994, the
Company received its first orders for reusable operating room gowns, back table
cloths and Mayo stand covers from a nationally recognized laundry service
specializing in the rental and laundering of such products for hospital and
other health care facilities. Virtually all of the Company's manufactured
products can be customized to fit the particular needs of individual customers.
Management believes that the growing concern over disposal of medical
related waste products which are not degradable has resulted in a re-evaluation
of the use of disposable medical products by many healthcare facilities. In many
cases where adequate laundry facilities are available, either within the
healthcare facility itself or through the use of independent specialized laundry
services, management has perceived a growing trend for the use of reusable
products. The Company will be in a position to meet any changing industry demand
between usable and reusable products in the future without any adverse impact
upon its overall sales.
During fiscal 1993, the Company began production of a new line of
specialty sportswear products made from a spun polyester fleece fabric. This
product line, now in its fourth year of production, includes gloves, hats,
scarves, socks and related accessories, jackets, shirts, pants and other wearing
apparel for both men and women. Presently, these products are sold to specialty
catalog sales companies and retail stores throughout the Northeastern United
States, as well as being sold directly to the public at the Company's own
factory outlet store in Utica, New York. These products have become an
increasing source of revenues for the Company and management believes that such
products will continue as a significant source of revenues during fiscal 1997
and for years beyond.
6
<PAGE>
In addition to the products which it manufactures directly, to a lesser
extent, the Company also acts as a distributor of related products manufactured
by others. These products are sold as an ancillary part of the Company's product
line to provide its customers with a more complete selection of items. Although
the Company continues to distribute such products, since fiscal 1991 the Company
has been reducing its dependence on the distribution of third party products and
has emphasized sales of its own expanded product lines.
During the fiscal year ended May 31, 1996, the Company also partially
returned to manufacturing goods for third parties under a private label basis
where the Company supplied labor only. The decision to return to private label
work was made because the Company was able to realize a profit on this work on
newly negotiated terms. In prior years the Company engaged in this type of
manufacturing but subsequently it abandoned this work because it was not
profitable. During 1996 approximately 25% of production was devoted to this type
of operation.
By supplying labor only services, the costs of material were not
included in the sale price and this contributed to lower revenues during the
period. If costs of financing receivables in 1996 could have been eliminated,
the Company would have shown greater profits in the fiscal year ended May 31,
1996 on lower sales.
The Nonwoven Medical Disposable Industry.
Until late in fiscal 1994, most of the products manufactured by the
Company utilized disposable "nonwoven" materials. These materials currently are
still used in the manufacture of disposable products offered by the Company.
Although management has begun to de-emphasize its disposable product lines in
favor of newly introduced reusable products, it plans to continue to offer
disposable nonwoven products for the foreseeable future.
"Nonwoven" is an industry term used to distinguish nonwoven fabrics
from traditional woven fabrics. The fabric's fibers may be man made plastics or
natural substances such as cotton, rayon or pulp, which accounts for most of the
nonwoven materials today. Nonwoven fabrics may be porous or absorbent, made to
be easily torn or tear-resistant, permeable or impermeable, hydrophobic or
hydraulic, soft or abrasive. Producers of these fabrics include companies such
as DuPont, Kimberley-Clark and Dow Chemical.
Manufacturers, like the Company, which convert nonwoven fabric into
specific products are commonly referred to as "converters." The medical nonwoven
market is serviced by over 50 such companies, including multinational giants
such as Baxter International, Johnson & Johnson, Kimberley-Clark and Proctor &
Gamble, as well as a sizable number of smaller businesses. Baxter International
is estimated to produce approximately 33% of all medical nonwoven products,
Johnson & Johnson 16% and Kimberly-Clark 12%. In other
7
<PAGE>
words, three companies alone are estimated to control over 60% of the total
market for nonwoven products. Proctor & Gamble's presence in the medical
nonwoven market is also significant in size (estimated at 9% of the market) but
limited to its diaper product line.
Until recently one of the principal factors which has accelerated the
acceptance of nonwoven items in the medical marketplace has been the generally
acknowledged superiority of nonwoven products in the prevention of infection.
Another effect of the AIDS crisis has been the increased interest outside the
hospital environment in protection from serious infection, which carries, in the
opinion of management, the promise of opening new markets for nonwoven apparel.
Two significant threats to the growth in annual sales of medical
nonwoven items are issues of cost and concerns over the environment. While
proponents argue that the true, overall cost of using disposable products is
lower than the cost of reusable materials (when all factors are taken into
consideration), nonwoven products can appear to be the more expensive of the two
alternatives. Furthermore, the cost of nonwoven products has been rising as a
result of increases in manufacturing costs of such fabrics. The medical sector,
and in particular the hospital industry, has been subjected to intense pressure
from the government, insurers and others to control seemingly runaway costs of
health care (which accounts for approximately 11% of the gross national
product). These factors have reduced gross profit margins of nonwoven suppliers
and adversely affected overall profitability. In the environmental area, concern
has been growing in recent years over the effect of the widespread use of
disposable products made from non-biodegradable plastics (a category which
presently includes most medical nonwoven products) on the environment, and
particularly on the dwindling capacity for solid waste disposal in the United
States.
Proposed New Products.
The Company continues to develop new products and to evaluate existing
related products which could compliment the Company's current product lines, but
which are not necessarily "medical" items, in order to offer potential buyers a
wider variety of products and to attract additional sales. Management believes
that by continuing the development of new products, it will be in a better
position to attract new customers and will more effectively utilize its existing
marketing organization.
Proposed new items representing an extension of present products
include the new industrial line of apparel which is manufactured for use in the
pharmaceutical and meat industries and consist of laboratory coats and coveralls
which are impervious to liquids. Products within this group are now being
manufactured by the Company as special orders for its customers. Due to the
8
<PAGE>
increasing demand for these items this year, management plans to introduce them
as part of its standard product lines in the future.
The area of sterilized surgical products is also considered by
management to be the most challenging sector within the medical nonwoven
marketplace. Both the production and the sterilization of sterilized surgical
products require significant resources and must meet exacting FDA standards. The
Company's founder and President, Anthony J. Liberatore, gained experience in the
launching of a sterilized product line during his ten-year tenure at Disposable
Profiles/Spartan Healthcare Inc. (see "MANAGEMENT"). However, the sterilized
products sector is highly competitive and is presently dominated by Baxter
International, Johnson & Johnson, Kimberly-Clark and two other large suppliers.
At the present time, no sterilized products are manufactured or sold by the
Company. Additional financing, will be required for the Company to acquire
specialized equipment for the production of these products.
With the announcement of the new OSHA regulations in December 1991
management elected to modify the design and materials used for many of its
existing disposable products to comply with the standards required by these
regulations. With the implementation of these regulations in July 1992, the
Company has been able to meet the increased demand from hospitals and health
care facilities which must comply with these new standards. Management expects
the demand for these products to continue for the foreseeable future.
In late fiscal 1995 the Company entered into an exclusive manufacturing
agreement with Silver Lake Holdings, Ltd. ("Silver Lake"), a privately held
corporation which owns the exclusive worldwide manufacturing and distribution
rights for a new sports-related product called "The Rigg." Under terms of the
agreement the Company will manufacture the product for Silver Lake on the basis
of cost plus 30%. In essence, The Rigg is new product, constructed of a neoprene
holder and strapping, intended to facilitate the easy and safe carrying of
sports balls of virtually any size or shape. It will have particular application
for persons using motorcycles or bicycles who will be able, with the use of the
Rigg, to sling the ball over their shoulder, thereby freeing both hands to
control a motorcycle or bicycle.
The Rigg has other applications as well and has generated some interest
from a television broadcast on which it was shown some months ago. Following the
end of fiscal 1995, the Company received its first shipment from Silver Lake of
neoprene and other required raw materials as well as the required sewing
machinery to begin manufacture of the Rigg, as required under its manufacturing
agreement. Management expects that full production will begin in the second
quarter of the current fiscal year. However, although the pricing structure
agreed to between the Company and Silver Lake provides for manufacture to be on
a "cost plus 30%" basis, management cannot at this point make any estimation of
the expected revenues from this product.
9
<PAGE>
Recent Developments.
The Company is presently negotiating with the holders of the
outstanding common stock of Protective Disposable Apparel, Inc. ("Protective"),
a manufacturer of apparel products which such as lab coats, pants, clean room
apparel, kits for industrial safety and contamination control and other similar
products which are distributed to laboratories and industry users, for a partial
acquisition of Protective. If terms are successfully negotiated, the Company
will acquire a controlling interest in Protective but not a 100% ownership in
said corporation. Current revenues for Protective are in the area of $2,000,000
per annum. The Company believes that a combination with Protective will be
beneficial to both companies because of the economies of operation that the
joining of these companies would achieve. In addition, the Company would access
additional customers to make sales of its own products and, Protective would be
in a position to offer its products to the Company's customers.
None of the terms have been agreed upon as yet and there is no
assurance that this transaction will eventually take place.
Sales and Marketing.
The primary markets for the Company's medical products are in the
health-care sector, divided essentially into three broad categories: (i)
hospitals; (ii) "alternative site" facilities (including surgical centers,
nursing homes, and elderly care facilities and clinics); and (iii) home
(consumer) use. Primary customer categories would be the single end-user,
purchasing associations or consortiums of various kinds - a dominant feature in
the hospital sector - and various federal, state and local government bodies
(the majority of whose purchases are open to competitive bidding). The primary
channels of distribution include medical supply distributors, dealers who
specialize in the medical and hospital markets and firms purchasing the
Company's products for resale under "private label" arrangements for other
suppliers and retailers. Primary sales and marketing techniques or strategies
include direct mailings, trade publication advertising, attendance at various
industry trade shows, bidding for government contracts when appropriate and
direct solicitation of prospective customers.
To date the Company has relied primarily on sales though
Northeast-based dealers, manufacturer's representatives and on "private label"
agreements for the marketing of its products and sales by Company officers and
employees. The Company's customer base presently consists of firms with which
the Company has "private label" arrangements and a number of direct end-users.
During fiscal 1996 the Company's three largest customers
accounted for 8%, 7% and 6%, respectively, of its total annual net
sales. The Company's three largest customers were Physici-ans
Sales Service, Inc., Caligone, Inc. and Emjay, Inc.
10
<PAGE>
Competition.
The Company is now primarily engaged in producing and distributing
apparel products and related accessories made from various fabrics for the
medical marketplace. The medical market-place is an intensely competitive
atmosphere for manufacturers of medical items made from fabrics, and is
populated by over fifty suppliers ranging in size from multinational concerns
like Baxter International, Johnson & Johnson and Kimberly-Clark to enterprises
smaller in size than the Company. Certain of these companies, such as Baxter
International and Kimberly-Clark, are also suppliers of the basic materials used
by the Company in the manufacture of its products as well as being manufacturers
or suppliers of finished products. At present, the Company purchases a portion
of its raw materials from Kimberly-Clark and others. However, management
believes that there are adequate alternative sources for the materials purchased
from these suppliers so that a loss of any one source of supplies would not have
a materially adverse impact upon the Company's operations. See "Suppliers."
In addition to the advantages offered by their larger size, greater
resources, greater visibility and established reputations in the market, certain
of the Company's larger competitors possess the added advantage of also
producing the fabrics from which their products are made. The control over the
cost of materials provided by this kind of "vertical integration" may be even
more advantageous to such companies in the future if costs continue to pose
increasing problems for the medical apparel business (as has recently been the
case).
Product competition in the medical apparel industry is primarily based
on price, fabric quality and design features. For many end-users, however, the
size of and resources controlled by the supplier, and thus its ability to
satisfy a broad range of customer requirements at the lowest possible cost, is a
major consideration. This is particularly true for hospital chains, associations
and buying consortiums and for other large institutional customers. This
situation, of course, places smaller firms such as the Company at a competitive
disadvantage. The Company is
not a significant factor in the medical apparel industry and competes primarily
on price, service, quality and delivery.
Nevertheless, the Company believes that its smaller size enables the
Company to react more quickly to a customer's needs and to service its customers
on a more personal basis. The Company, therefore, also competes on its ability
to afford its customers a personal service.
Also, while presently not significant in its present product line,
sportswear items and industrial type garments are equally subject to intense
competition from very large and well-known manufacturers, garment designers and
smaller producers of similar
11
<PAGE>
apparel. The Company competes aggressively in these markets as
well on the basis of price, service and quality.
Patents and Trademarks.
The Company has no patents and there is little likelihood that it will
develop patentable products or processes in the foreseeable future. Absent such
protection, the Company will primarily rely upon trade secrets and proprietary
techniques to attain any commercial advantage. There is no assurance that
competitors will not independently develop and market, or obtain patent
protection for, products similar to those designed or produced by the Company,
and thus negate any advantage of the Company with respect to any such products.
The Company may, however, distribute products manufactured by others which are
covered by one or more patents. The Company may also seek to patent products
manufactured by third parties which were not previously patented. Even if patent
protection becomes available, there can be no assurance that such protection
will be commercially beneficial to the Company.
In connection with its marketing efforts, and in order to fully benefit
from the Company's name recognition in the future, the Company has filed and as
of March 18, 1994, received trademark protection of the name "HEALTH-PAK" with
the United States Patent and Trademark Office.
Suppliers.
The Company at present purchases its raw materials and fabric from
several different suppliers. Management does not believe that there is or will
be, in the near future, a significant shortage or inability to obtain adequate
supplies of raw materials needed for its operations. Rather, the primary problem
encountered by the Company has been, and is expected to be, the continued
escalation in the costs of needed raw materials. High cost for fabric has
already seriously impacted upon the Company's profit margins and continued
increases in such costs could pose a serious threat to the competitiveness of
all of its products, which is one primary reason that the Company is expanding
into new areas such as reusable fabrics and other new products. See also
"Competition."
Employees
At present the Company employs a total of 61 persons, including 2
executive officers, 6 employees in managerial or supervisory capacities, two
hourly office workers and 53 hourly production employees. As the Company
implements the planned expansion of its operations it will require additional
personnel, both skilled and unskilled. Although the Company believes that the
personnel it will require are readily available at reasonable salary rates, no
assurance can be given that it will be able to attract the type and quantity of
employees its operations will require. Further, even if such personnel are
available, no
12
<PAGE>
assurance can be given that they can be hired on terms favorable to
the Company.
Production Facilities.
On July 23, 1993 the Company entered into a Contract for Purchase with
the Utica Industrial Development Corporation ("UIDC") for the lease or ultimate
purchase of its present office and manufacturing facility located at 2005
Beechgrove Place, Utica, New York (the "Premises") which it now occupies. The
property is a cinder-block building having approximately 43,500 square feet of
office and manufacturing space situated on approximately 4.6 acres of land.
Registrant has now consolidated all of its executive offices and manufacturing
operations within this single facility.
In conjunction with the proposed purchase of the premises, the Company
has entered into a Lease Agreement with the UIDC having an initial term
commencing August 1, 1993 and continuing through April 30, 1994 at a monthly
rental of $7,500. The Lease of the premises by the Company has been extended
through April 30, 1997 at a monthly rental of approximately $9,000 per month,
including allocation for real property taxes. The Company's option to purchase
the building was also extended through July 31, 1997.
The Company's new facility is expected to be adequate both for the
Company's present operations and is expected to provide sufficient production
capacity to accommodate its expansion plans for the foreseeable future,
including adequate space for installation of specialized facilities which will
be needed when the Company elects to enter the sterilized products markets.
Government Regulation.
The products marketed by the Company are subject to regulation as
medical devices by the Food And Drug Administration (the "FDA"), which has
comprehensive authority to regulate the development, production, distribution
and promotion of medical devices. The states and foreign countries where Company
products are sold may also impose additional regulatory requirements.
Pursuant to the federal Food, Drug and Cosmetic Act and the regulation
promulgated thereunder, a medical device is ultimately classified by the FDA as
either a Class I, Class II or Class III device. Class I devices are subject to
general controls which are applicable to all devices. Such controls include
regulations regarding FDA inspection of facilities, "Good Manufacturing
Practices," labeling, maintenance of records and filings with the FDA. Class II
devices must meet general performance standards established by the FDA before
they can be marketed and must adhere to such standards once on the market. Class
III devices require individual pre-market approval by the FDA before they can be
marketed, which can involve extensive tests to prove safety and efficacy of the
device.
13
<PAGE>
Each manufacturer of medical devices is required to register with the
FDA and also to file a "510(k) Notification" (the "Notification") before
initially marketing a new device intended for human use. The manufacturer may
not market such new device until 90 days following the filing of such
Notification unless the FDA permits an early marketing date. The FDA, prior to
the expiration of the 90- day period, may notify the manufacturer that it
objects to the marketing of the proposed device and thereby may delay or
preclude the manufacturer's ability to market that device. The FDA may also
require further data from, or testing by, the manufacturer.
The FDA permits the marketing of some medical devices, subject to the
general controls under the Act, if the devices are "substantially equivalent" to
devices marketed in interstate commerce before May 28, 1976 (the effective date
of the Medical Device Amendment to the Act).
Of the Company's present products, its gowns and sterilization wrappers
are Class I devices for which the necessary filings have been made. The
Company's proposed sterilized products, on the other hand, would fall within the
Class III category, in which case the Company would have to file a Pre-market
Approval Application. Such application must be accompanied by extensive
literature references and preclinical and clinical testing data. The FDA
normally has 180 days to review a Pre-market Approval Application, during which
time an independent advisory committee evaluates the Application and provide
recommendations to the FDA. While the FDA has often responded to such
Applications within the allotted time, there are many instance where the reviews
have been more protracted, and a number of devices have never been cleared for
marketing.
Any products distributed by the Company pursuant to the above
authorizations are subject to pervasive and continuing regulation by the FDA.
All phases of the manufacturing and distribution process are governed by FDA
regulation and each supplier of products to the Company must also have
FDA-approved products. Products must be produced in registered establishments
and be manufactured in accordance with "Good Manufacturing Practices." All such
devices must be listed periodically with the FDA as well. Labeling and
promotional activities are subject to scrutiny by the FDA and in certain
instances by the Federal Trade Commission. The export of devices is also
regulated in certain instances.
The Mandatory Device Reporting ("MDR") regulation obligates the Company
to provide information to the FDA on injuries alleged to have been associated
with the use of a product or certain product failures which could cause injury.
If due to FDA inspections, MDR reports or other information, the FDA believes
that the Company is not in compliance with the law, the FDA can institute
proceedings to detain or seize products, enjoin future violations, or asses
civil and/or criminal penalties against the Company, its officers or employees.
Any such action could disrupt the Company's operations for an undetermined time.
14
<PAGE>
In addition, numerous other federal and state agencies, such as
environmental, hazard control, working conditions and other similar regulators
have jurisdiction to take actions which could have a material adverse effect
upon the Company's business.
As discussed above, In January, 1992, OSHA issued comprehensive new
federal regulations aimed at establishing new protective standards to minimize
occupational exposure to various blood borne pathogens such Hepatitis and the
HIV virus associated with AIDS. OSHA determined, after a four year study of the
need for such regulations, that employees face a significant health risk as the
result of occupational exposure to blood and other potentially infectious
materials and concluded that this exposure can be minimized or eliminated using
a combination of work practice controls, personal protective clothing and
equipment, training and medical surveillance. Furthermore, there are 23 states
with their own OSHA-approved occupational safety and health plans which must now
adopt a comparable standard within six months or amend their existing standard
if it not at least as effective as the federal standard. These new regulations
are primarily aimed at the healthcare industry where, based upon published OSHA
findings, between 2 and 2.5 Million workers are presently at risk of infection.
From the Company's point of view, these new regulations, which make
mandatory in the healthcare industry the use of protective apparel, such as the
products manufactured by the Company, are expected to have materially favorable
impact upon the Company's sales during the foreseeable future. Although no
assurances can be given, based upon sales of the new OSHA-mandated products,
management believes that the Company will continue to be a beneficiary of the
increase in demand for products of this type for the foreseeable future.
Management has begun development of new barrier gowns and similar protective
apparel specifically designed to meet the requirements of the new OSHA
regulations and has restructured its marketing plans to bring these new products
to market.
Insurance
Due to the decrease in the number of insurance carriers willing to
provide product liability insurance in the health care industry, product
liability insurance availability has been significantly reduced and premiums
have increased dramatically over recent years. At present, the Company maintains
product liability insurance in the amount of $2,000,000. Although the Company
intends to maintain such insurance coverage, there can be no assurance that the
Company will be able to obtain insurance at reasonable premiums which it can
afford in the future. The inability to continue such insurance could have a
materially adverse effect upon the business, financial condition and future
prospects of the Company. To date there have no product liability claims against
the Company.
15
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ITEM 7. FINANCIAL STATEMENTS.
The response to this item is submitted as a separate section to this
report (see Pages F-1 to F-17).
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information relating to the remuneration
received by officers and directors of the Company. At present, directors are not
compensated for their services as directors, except for the reimbursement of any
out-of-pocket expenses incurred in the performance of their duties. All
information set forth herein relates to Health, the Company's wholly owned
subsidiary.
During the periods ended May 31, 1994, May 31, 1995 and May 31, 1996,
the following remuneration was paid to the officers and directors of the
Company:
Annual
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Compensa Long Term All Other
Name and tion; Compensa- Compensa-
Position Year Salary Bonus tion tion(1)
Anthony 1996 $ 51,900 None None $10,460
Libera- 1995 $ 47,431 None None $24,061 2
tore; 1994 $ 73,050 None None $22,861 2
President
Michael 1996 $ 33,673 None None $1,261
Libera- 1995 $ 29,446 None None $1,261
tore; 1994 $ 40,186 None None $1,261
Vice Pre-
sident
Alfredo 1994 $ 38,019 None None $1,261
Zennamo;
Vice Pre-
sident
</TABLE>
(1) Includes the value of health and life insurance paid for the benefit of the
persons named herein.
(2) Includes amount paid to Anthony Liberatore for rent of building at 1208
Broad Street, Utica, New York in 1994 and 1995.
For additional information see "Certain Relationships and
Related Transactions."
16
<PAGE>
The Company previously had employment agreements with Messrs.
Anthony J. Liberatore, Michael A. Liberatore and Alfredo Zennamo
which expired on June 1, 1994. None of the agreements were renewed
and each of the foregoing officers continues to be employed at the
will of the Board of Directors. Mr. Zennamo has since been on
medical leave from the Company.
The Company has no other employment contracts. There are also no
retirement, pension or profit sharing plan in effect for any officers or
directors.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. During fiscal 1995, payments of $21,600 were made by the Company to
Anthony J. Liberatore for rent due on the Company's former offices located at
1208 Broad Street, Utica, New York, which is presently owned by Mr. Liberatore.
During the same period, Mr. Liberatore paid approximately $20,100 in taxes,
insurance and interest with respect to the property leased to the Company.
Approximately $10,000 has been amortized on the mortgage covering the property
since the beginning of the mortgage. This rental compares with rentals for
similar space in the area from non-affiliated persons.
Since the Company moved all of its operations to a new plant facility
at 2005 Beechgrove Place, Utica, New York, these premises have not been occupied
by the Company but were held pursuant to a lease which expired in January, 1995.
The Company and Mr. Liberatore later agreed that no further payments on the
lease would be made after July, 1995, and that all payments made to him during
fiscal 1995 and thereafter would be applied against the purchase price.
In fiscal 1995, Mr. Liberatore granted the Company an option to
purchase the building for a total price of $130,000, less all payments made in
fiscal 1995 (i.e. $21,600) and any payments made thereafter, at such time as he
is able to delivery title free and clear of existing mortgages. Mr. Liberatore
also agreed to accept the Company's Common Stock in payment for the purchase
price of the premises.
The property was originally valued at between $132,798 and
$133,000 by independent appraisal of Thomas R. Mazzotta Co.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed pursuant to Item 601 of
Regulation S-K:
3. Certificate of Incorporation and By-Laws, with
all Amendments thereto, filed previously as Exhibit 3 to
Registrant's S-1 registration statement under SEC file
17
<PAGE>
No. 33-43230 filed on November 2, 1993 and is incorpo-
rated herein by reference.
4. Warrant Agreement, filed previously as Exhibit
10 to the Registrant's initial registration statement on
Form S-18 under SEC file No. 33-24483-NY and is incorpo-
rated herein by reference.
10(a). Lease Agreement between the Company and Anthony
J. Liberatore for premises at 1208 Broad Street, Utica,
New York, filed previously as Exhibit 10(c) to the
Regis-trant's S-1 registration statement filed on November 2,
1993 under SEC file No. 33-43230 and is incorporated herein by
reference.
10(b). Employment Agreement dated as of June 1, 1991 between the
Company and Anthony Liberatore filed previously as Exhibit
10(d) to the Registrant's S-1 registration statement filed on
November 2, 1933 under SEC file No. 33-43230 and is
incorporated herein by reference.
10(c). Employment Agreement dated as of June 1, 1991 between the
Company and Michael Liberatore filed previously as Exhibit
10(e) to the Registrant's S-1 registration statement under SEC
file No. 33-43230 filed on November 2, 1993 and is
incorporated herein by reference.
10(e). Letter of Intent between the Registrant and Consol idated
Healthcare Corp., dated March 11, 1993, filed previously under
Current Report on Form 8-K, dated March 17, 1993 under SEC
file No. 33-24483-NY and incorporated herein by reference.
10(f). Letter of Intent between the Registrant and Covers North
America, Inc., dated July 20, 1993, filed previously under
Current Report on Form 8-K, dated July 26, 1993 under SEC file
No. 33-24483-NY and is incorporated herein by reference.
10(g). Contract for Purchase and Interim Lease between Regis
trant and the Utica Industrial Development Corporation
for the lease and ultimate purchase of an office and
manufacturing facility located at 2005 Beechgrove Place,
Utica, New York, dated July 23, 1993, filed previously
under Current Report on Form 8-K, dated July 27, 1993
under SEC file No. 33-24483-NY and is incorporated herein
by reference.
10(h). Amendment to Lease Agreement between the Company and Anthony
J. Liberatore dated March 1, 1995 relating to changes in the
lease and option to purchase the premises located at 12008
Broad Street, Utica, New York. Filed as an Exhibit to Form
10-KSB for the Year ended May 31, 1995 and is incorporated
herein by reference.
18
<PAGE>
10(i). Agreement between the Company and Silver Lake Holdings
Ltd. Inc. dated July 1, 1995 for the manufacture of the
"Rigg." Filed as an Exhibit to Form 10-KSB for the year
ended May 31, 1995 and incorporated herein by reference.
10(j). Agreement between the Company and Russo Securities,
Inc. dated December 28, 1994 for consulting services.
Filed as an Exhibit to Form 10-KSB for the year ended May
31, 1995.
10(k). Agreement between the Company and Creative Media
International, Inc. to provide consulting services dated
March 10, 1995. Filed as an Exhibit to Form 10-KSB for
the year ended May 31, 1995.
11. Statement re computation of per share earnings, See
"Financial Statements - Statement of Operations and Note
18."
21. Subsidiaries of the Registrant. Filed as an Exhibit to
Form 10-KSB for the year ended May 31, 1995 and is
incorporated herein by reference.
23(a). Consents of B. Bruce Freitag, Esq., and Zeller Weiss & Kahn,
Certified Public Accountants, filed previously as Exhibit
24(a) to the Registrants S-1 registration statement under SEC
file No. 33-43230 on November 2, 1993 and is incorporated
herein by reference.
23(b). Consent of Usher Quiat & Usher, litigation counsel for the
Registrant, filed previously as Exhibit 24(b) to the
Registrants S-1 registration statement under SEC file No.
33-43230 and is incorporated herein by such reference.
(b) Form 8-K filings:
None filed during last quarter of the fiscal year.
19
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
HEALTH-PAK, INC.
Dated: June 17, 1997 By: /s/Anthony J. Liberatore
-------------------------
Anthony J. Liberatore
President & Principal Execu-
tive Officer
Dated: June 17, 1997 By: /s/Michael A. Liberatore
-------------------------
Michael A. Liberatore,
Vice President, Treasurer
Principal Financial & Account-
ing Officer
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Dated: June 17, 1997 /s/Anthony J. Liberatore
--------------------------
Anthony J. Liberatore
President & Principal Executive
Officer
Dated: June 17, 1997 /s/Michael A. Liberatore
--------------------------
Michael A. Liberatore,
Vice President, Treasurer
Ast. Secretary, Principal
Financial & Accounting Officer
Dated: June 17, 1997 /s/William F. Meola
---------------------
William F. Meola
Director
20
<PAGE>
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