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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITY EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999 Commission file No. 33-24483NY
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<S> <C>
DELAWARE 11-2914841
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State or other jurisdiction (IRS Employer ID#)
of incorporation or organization
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HEALTH-PAK, INC.
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Exact name of Registrant as specified in its charter
2005 Beechgrove Place, Utica, New York 13504
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(Address of principle executive offices) (Zip code)
Registrant's telephone number, including area code (315) 724-8370
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Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act: None
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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 Act of 1934, during the
preceding 12 months (or for such 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained to the
best of the Registrant' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this form 10-KSB. [X]
Issuers revenue for its most recent fiscal year $2,318,176
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The aggregate market value of the shares of common stock held by non-
affiliates of the Registrant based on the closing price of $1.40 per
share at December 20, 2000 is approximately $2,040,733.
The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of May 31, 1999 is 1,457,667 shares, all of one class
of $.002 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transition Small Business Disclosure Format Yes No X
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The Company's primary business in fiscal 1999 continued to be the
manufacture and/or distribution of reusable and nonwoven disposable textile
products, including apparel such as examination gowns, lab coats, surgical
gowns, coveralls and ancillary items such as 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, winter wear
and golf wear sold primarily to customers in the regular clothing industry.
During the 1997 fiscal year, however, the Company also acquired the assets
and business of Protective Disposable Apparel Company L.L.C. ("PDA") which
basically added a new dimension to the products offered by the Company.
PDA's products, though somewhat similar to the Company's products, are
primarily sold to industry markets such as pharmaceutical companies, the nuclear
industry, laboratories and other similar types of operations where either a
"germ resistant", "contamination free" or "clean room" atmosphere is needed.
Because the items sold by PDA are so similar to the Company's products, the
Company is able to undertake the manufacture of most of PDA's inventory in many
instances.
PDA's products include industrial safety coveralls, lab coats and caps and
other industrial safety items used for protective purposes. A "paint spray"
jacket and coveralls have been added for use in the automotive industry.
The Company also offers a line of sterilized products such as sterile
laboratory coats, coveralls, hoods and boots, influenced by the PDA acquisition.
These are items which are principally used in environments where a germ-free
objective is required by the customer.
To accommodate the production of "cleanroom" products, primarily for PDA
customers, the Company built its own "clean room" facility which is necessary
for the production of sterile products. This facility was completed during the
1997 fiscal year and is now in full operation. Over 90% of sterile items are
manufactured for disposable use.
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 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.
Last year the Company also introduced "sonic Sealed" garments which are
items produced by a sonic welding process at the seams, and are manufactured by
ultrasonic equipment which essentially changes the molecular structure of the
material being made, to form a complete and impenetrable seal at the point of
closure. No heat is used or necessary for this process. These garments are fluid
and chemical resistant and are used primarily in chemical and nuclear work.
The Company also sells its outdoor sportswear, spun polyester fleece items,
winter wear and recreational wear and other non-medical or industrial protective
wear through another outlet store in the Utica area as well as through its own
factory outlet store. While these sales are not material compared to the overall
revenues for other products, this has been a slowly growing business for the
Company.
These products include winter wear scarves, hats, gloves, pants, socks,
jackets, shirts and related other wearables and accessories for both men and
women.
<PAGE>
The Company has also marketed the non-medical and non-industrial items to
specialty catalog companies and retail stores principally in the Northeastern
United States. The modest success of the outlet store and non-medical products
in past years has prompted the Company to continue this operation during the
current fiscal year. During fiscal 1999 and 1998, the outlet store accounted for
approximately 2% of net revenues.
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.
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.
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, it has been reducing its
dependence on the distribution of third party products and has emphasized sales
of its own expanded product lines.
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
the balance in demand for disposable and reusable products changes from time to
time, the Company continues to offer both types of products and it is in a
position to shift from one to the other as customer demand changes.
"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, Kimberly-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, Kimberly-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 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.
<PAGE>
The 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 is working on and plans to market in the near future a line of
fire-retardant garments for fire safety industry use. The Company has produced a
prototype of these garments and has received trial, sample orders for this
product.
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
increasing demand for these items beginning last year, management plans to
introduce them as part of its standard product lines in the future.
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.
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.
<PAGE>
To date the Company has relied primarily on sales through 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 also consists of firms with which the Company has
"private label" arrangements and a number of direct end-users.
The Company markets PDA products through a network of five independent
manufacturers representative groups specializing in sales to the clean room
distribution market, or sales to industrial users of clean room supplies. In
addition, the Company maintains a small sales office facility in Asheville,
North Carolina which is staffed by one full-time sales employee. The Asheville
sales group handles sales to national and international accounts, house accounts
and other similar customers of PDA.
The Company is also represented by two of the largest distributors of
industrial products and is featured in the national catalogue of one of the
distributors. In addition, the Company advertises its PDA products in four or
five industry magazines and sales representatives for PDA attend safety and
clean room shows to offer PDA products.
During fiscal 1999, the Company's two largest customers accounted for 30%
and 6%, respectively, of its total annual net sales.
COMPETITION.
The medical marketplace 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.
The products manufactured for industrial use such as safety coveralls,
laboratory coats, caps and other similar products such as those distributed by
its PDA subsidiary is equally subject to extreme competition, primarily from the
same suppliers to the medical industry. Competition in this area must be
characterized as intense.
<PAGE>
The Company will compete in this industry by offering quality products and
service, and primarily by being competitive in terms of its pricing.
Also, while presently not significant in its present product line,
sportswear items are equally subject to intense competition from very large and
well known manufacturers, garment designers and smaller producers of similar
apparel. The Company competes aggressively in these markets as well as on the
basis of price, services 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 55 persons, including two
executive officers, seven employees in managerial or supervisory capacities, and
46 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 assurance can be
given that they can be hired on terms favorable to the Company.
PRODUCTION FACILITIES.
On July 21, 1998, the Company purchased for $600,000 its present office and
manufacturing facility located at 2005 Beechgrove Place, Utica, New York 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. The Company has now consolidated all of its executive offices
and manufacturing operations within this single facility.
<PAGE>
The Company was previously paying $7,500 in rental for the facilities.
Mortgage amortization and taxes will be approximately the same amount per month.
In the opinion of the Company, this facility is adequate both for the
Company's present operations and is also expected to provide sufficient
production capacity to accommodate its expansion plans for the foreseeable
future.
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.
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 approvals have been obtained. 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 provides
recommendations to the FDA. While the FDA has often responded to such
Applications within the allotted time, there are many instances 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.
<PAGE>
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 assess 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.
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 as 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 is 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 been no product liability claims
against the Company.
ITEM 2. DESCRIPTION OF PROPERTIES.
FACILITIES.
The Company's principal executive offices, manufacturing and warehouse
facilities are located at 2005 Beechgrove Place, Utica, New York where it
occupies 43,500 square feet of space located in a single cinder-block building.
The property was recently purchased by the Company. Also see Item 1.
"Description of Business - Production Facilities" for additional information on
the Company's plant facility.
<PAGE>
The Company also leases through its subsidiary (PDA), a small sales office
facility in Asheville, North Carolina for one full time employee engaged in
sales activities for PDA. In December 1999, the sales office in North Carolina
was closed. Sales continued for the subsidiary from the Utica location through
March 2000. As of April 1, 2000 the subsidiary discontinued operations and the
remaining customers are now serviced by the Utica office.
ITEM 3. LEGAL PROCEEDINGS.
The Company knows of no substantial litigation pending, threatened or
contemplated, or unsatisfied judgments against it, or any substantial
proceedings in which the Company is a party as of May 31, 1999, except as set
forth below. The Company also knows of no legal actions pending or threatened or
judgments entered against any officers or directors of the Company in their
capacity as such, except for one pending suit brought in the Supreme Court of
The State of New York, County of Oneida, against the Company and Anthony J.
Liberatore by Edward Dyman, a former director of the Company. The suit was
commenced on March 13, 1991 and alleges, in essence, that certain services were
performed on behalf of the Company which were not properly compensated and seek
money damages in the aggregate amount of approximately $1.1 Million. The
plaintiff in this case has taken no action for more than three years. The
Company has vigorously defended this suit, has interposed counterclaims against
the plaintiff which seek money damages against Mr. Dyman in the sum of $5
Million in the aggregate. Based upon the opinion of Usher, Quiat & Usher,
special litigation counsel, this suit is subject to good and non-frivolous
defenses and management expects to prevail in its defense of the suit and expect
to prevail with respect to its counterclaim. No adverse impact upon the Company
or its operations is expected to result from the suit.
Subsequent to the balance sheet date several of the Company's creditors
commenced litigation for non-payment of amounts due them for invoices in the
normal course of business which were unpaid. In June, 2000 the Company filed for
bankruptcy protection under Chapter 11 of the Internal Revenue Code for its 100%
wholly owned New York subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company's stockholders during the fourth
quarter ended May 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company sold an issue of Units consisting of Common Stock and Warrants
in 1990. Trading in the Units commenced in September, 1999; however, the
Company's Common Stock has traded separately from the Units since August 1991
and the last trading in the Units occurred on March 12, 1992. Trading in the
Common Stock has been on a limited basis. The principal market on which the
Company's securities are traded is the OTC Electronic Bulletin Board. The
following tables show for the periods indicated the range of high and low bid
quotes for the Common Stock of the Company which were obtained from the National
Quotation Bureau and are between dealers, do not include retail mark-ups,
mark-downs, or other fees or commissions, and may not necessarily represent
actual transactions. There is no present trading market for the Company's Units
or issued Warrants:
<PAGE>
COMMON STOCK TRADING HISTORY
The Company' Common Stock is traded in the over-the-counter market on the
OTC Electronic Bulletin Board. A summary of the trading history for the
Company's Common Stock is as follows:
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<CAPTION>
BID
High Low
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Quarter ended May 31, 1997 $0.29 $0.10
Quarter ended August 30, 1997 $0.16 $0.15
Quarter ended November 31, 1997 $0.105 $0.09
Quarter ended February 28, 1998 $0.10 $0.115
Quarter ended May 31, 1998 $0.175 $0.165
Quarter ended August 31, 1998 $0.165 $0.07
Quarter ended November 30, 1998 $0.95 $0.09
Quarter ended February 28, 1999 $1.50 $0.3438
Quarter ended May 31, 1999 $0.9375 $0.9063
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On May 31, 1999 the reported high bid price for the Company's Common Stock
was $0.9375. The number of record holders of the Company's Common Stock on May
31, 1999 was 270. There currently are 14 market makers for the Company's
securities.
The Company has not paid any dividends. There are no plans to pay any cash
dividends in the foreseeable future. The declaration and payment of dividends in
the future, of which there can be no assurance, is determined by the Board of
Directors based upon conditions then existing, including earnings, financial
condition, capital requirements and other factors. There are no restrictions on
the Company's ability to pay dividends.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
I. FINANCIAL CONDITION AND LIQUIDITY.
INTRODUCTION.
As previously stated, the financial statements and the discussion which
follows includes, on a consolidated basis, the assets,liabilities and operating
results for Protective disposable Apparel Company, LLC ("PDA") which was
acquired by the Company in October, 1996 as a 65% owned subsidiary.
Inter-company balances have also been eliminated in the consolidation.
(a) FINANCIAL CONDITION.
ASSETS:
Total assets decreased by $1,330,439 at May 31, 1999 when compared to May
31, 1998, a decrease of 42.4%. The decrease in assets occurs mainly from a large
decline in accounts receivable and inventory which decreased by $395,785 and
$1,006,940, respectively. The Company also saw a decrease in other assets of
notes receivable, deferred offering expense, deferred income taxes and
investment in affiliated companies totalling approximately $407,000 which were
expensed during the year. Cash decreased by $24,700 as compared to 5/31/98 and
prepaid expenses decreased by $57,200 from the same period.
These decreases were offset by an increase in property and equipment of
$620,000 consisting of the purchase of the Company's office/warehouse facility
and approximately $84,000 of manufacturing equipment. These purchases were
financed through long-term debt. See liabilities section.
A comparison of certain significant tangible assets of the Company for the
three fiscal years ended May 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash $ 5,429 $ 31,905 $ 233,330
Receivables 245,367 641,152 455,376
Inventory 565,380 1,572,320 1,456,990
Net Property
& Equipment 896,513 332,310 326,662
---------- ---------- ----------
$1,712,689 $2,577,687 $2,475,358
========== ========== ==========
</TABLE>
This comparison shows a further decline in cash for 1999 compared to 1998
because of paying down the factoring line and the decrease in availability of
cash due to decreased sales for the year. The comparison also shows a decrease
in accounts receivable and inventory and an increase in property and equipment
reflecting the purchase of the office/warehouse building and some new
manufacturing equipment.
The decrease in inventory coincides with the decrease in business from the
year ended May 31, 1998, a decrease in revenues of approximately 38% and the
write down of inventory to net realizable value and the write-off of obsolete
inventory. At the end of the third quarter (February 28, 1999) inventory was
$1,384,629.
The decrease in accounts receivable of 62% from May 31, 1998 levels is
largely due to the decreased sales at the Company's subsidiary where sales
dropped off dramatically after the departure of the main sales person.
Receivables decreased by approximately 41% from the quarter ended February
28, 1999, also due to the situation of the subsidiary.
<PAGE>
Cash in 1997 increased because the Company made a decision in that year to
accumulate cash to use as a down payment for the purchase of the building
occupied by the Company and to cover closing costs. While this purchase was not
concluded during the 1998 fiscal year, closing expenses did occur in that
period. The building was purchased during the first quarter of 1999, in July of
1998. As previously stated, management believes that the building purchase will
result in the significant savings in terms of rent for future operations. In
addition, the exercise of options in 1997, contributed to increases in cash
during that year. Similar purchases of securities did not occur during 1998 and
1999.
In 1998, the Company replaced its high cost factoring arrangements and
replaced this financing with a more reasonable receivables financing agreement
which resulted in reduced interest expense for 1997 and 1998. However, in 1999
the Company experienced a shortfall of cash due to the sales declines of its
subsidiary and due to late charges and late payments the Company found its
interest expense increasing once again.
Comparison of quarter ended February 28, 1999 and the year ended May 31,
1999.
The main difference in total assets between third quarter ended February 28,
1999 and the year ended May 31, 1999 is the large writedown and write-off of
inventory including obsolete items and inventory held by other suppliers.
LIABILITIES:
An increase in the current portion of long-term debt and a reduction in
notes payable represent the most significant changes in liabilities of the
Company when compared to the year ended May 31, 1998. The decrease in notes
payable reflects the paydown by the Company on its credit line while the
increase in the current portion of long-term debt reflects the increased
borrowing for the purchase of the office and warehouse facility and a new piece
of manufacturing equipment.
These differences are not as marked when comparing the end of the third
quarter, February 28, 1999 with the year end except that the reduction in notes
payable was offset by an increase in officers loans in the fourth quarter.
Total current liabilities for the year ended May 31,1999 decreased by
$324,397 as compared to the year ended in 1998 due to the paydown of the credit
line through the increase in officers loans. At the end of the third quarter,
total current liabilities were $1,419,214 which was $50,888 higher than the year
ended May 31, 1999 and $273,509 lower than the year ended May 31, 1998. These
increases at February 28, 1999 were principally due to higher amounts in notes
payable.
Liability for payroll taxes varies with the number of employees at any given
time and the date upon which the year end falls. There was not a significant
change in this account for the period from May 31, 1998 to May 31, 1999.
The Company's deficit of $(1,892,423) for 1999 shows a marked increase to
the deficit of $(910,103) for 1998. This compares with a deficit of $(916,057)
for 1997. See "Results of Operations."
See "Results of Operations" for additional information. For information
regarding liquidity, see Subparagraph (b) "Liquidity" below. For additional
information relating to the financial condition of the Company, also see
"Inflation" and "Trends Affecting Liquidity, Capital Resources and Operations."
<PAGE>
(b) LIQUIDITY.
The Company did not have sufficient liquid assets to meet its obligations at
the end of fiscal 1999. Working capital at May 31, 1999 was $(525,497) compared
to $636,524 in 1998 a decrease of $(1,162,021). Working capital at the end of
the third quarter, February 28, 1999 was $559,357 resulting in a decrease of
$(1,084,854) in the fourth quarter. The decrease was mainly due to the
aforementioned writedown of inventory. The increase in working capital in 1998
occurred even though the Company had higher cash demands during the last quarter
of 1998 in connection with the paydown of accounts payable and demands from the
closing of the building purchase.
Principal short-term liabilities at May 31, 1999 were $750,839 in payables,
short term note obligations of $375,105 and accrued expenses and taxes of
$124,986 for a total of $1,250,930. Against this total, in 1999 the Company had
liquid current assets of $5,429 cash, inventory of $565,380 and receivables of
$245,367 for a total of $816,176.
During the year management was notified by its credit line source that they
desired to curtail the line of $850,000. The Company's balance at May 31, 1998
was $718,291 and at May 31, 1999 the balance was $370,239. Approximately 68% of
the paydown of the line was financed by officers loans and the balance through
operations.
Management has been seeking various financing alternatives and ways to raise
capital. In December, 2000 the Company entered into an agreement with Life
Energy and Technology Holdings, ltd. whereby the Company would be acquired and
as a result have the resources to continue operations. See the notes to the
financial statements, item 1.
The principal source of funds for the Company's operations during fiscal
1999 has been from operating revenues and proceeds from long-term debt and
officers loans, as reflected in the Company's financial statements.
II. RESULTS OF OPEATIONS.
In fiscal 1999 the Company had net sales of $2,318,176 compared to net sales
of $3,715,487 in 1998 and $3,421,452 in 1997. This is a decrease of $1,397,311
compared to 1998 or approximately 38% and a decrease of $1,103,276 or
approximately 32% compared to 1997.
The decrease in revenues this year when compared to last year is due mainly
to the drop in sales of the Company's North Carolina subsidiary. This in turn
was caused by the loss of the main sales person and the resultant loss of
several key customers. The Company was not able by year end to make up the loss
of these sales in other areas.
The Company also continued to eliminate sales which were not profitable
during the fiscal year ended May 31, 1999. This accounted for a drop in sales of
the New York location of approximately 8% during the year.
The Company introduced "sonic sealed" garments which are garments produced
by a sonic sealing or welding process, manufactured by ultrasonic equipment
which essentially changes the molecular structure of the material being made to
form a complete and impenetrable seal at the point of closure. No heat is used
or necessary for this process. These garments are fluid and chemical resistant
and are used primarily in chemical and nuclear work. It is expected that these
products will contribute to sales during the current fiscal year.
<PAGE>
The shift, beginning in 1996 to private label work has been essentially
discontinued as the Company assumed additional responsibility for the
manufacture of PDA's products and required additional manufacturing capacity for
its own products.
Under new agreements for manufacturing private label goods with two new
principal customers, the Company will sustain sufficient profits to warrant a
continuation of this work at a reduced rate.
The Company's production of operating gowns did not achieve the results
expected and were essentially discontinued; however, the Company is
manufacturing such gowns presently to the specifications of a new customer and
will continue to offer this product mainly through the orders received from its
customer.
There were no significant contributions to revenues from the sale of the
"Rigg" (a sling designed to hold basketballs, soccer balls and baseballs, among
other things, allowing free use of the hands and arms) a non-medical product
offered for consumer use beginning in 1995 and the Company has now written off
the related inventory and will no longer sell this item.
For additional information see Item 1. "Description of Business."
Cost of sales expressed as a percentage of sales for 1999 was 118% compared
to 67.8%. The negative gross profit is due to the writedown of certain finished
goods to net realizable value and the write off of obsolete inventory, including
inventory housed at the Company's Mexico and Haiti suppliers facilities.
It should be remembered that the cost of sales increased last year to 73.8%
with the introduction of PDA products as part of the Company line. Management
pointed out that the PDA products were initially introduced at a higher cost
basis than the Company's products. Costing analysis and immediate action was
taken to correct these differences but with the sudden departure of PDA's main
sales person and the resultant loss of subsidiary business, sales are not
expected to reach 1998 levels next year.
Additional efficiency was gained from the fact that PDA's warehouse was
moved to the Company's plant in Utica, new York during the fiscal year and by
undertaking to manufacture more than half of PDA's products which were
previously purchased items.
Gross profits for 1999 were lower by $1,613,900 than gross profits for 1998
(i.e. $(417,322) in 1999 compared to $1,196,578 for 1998) on net sales of
$2,318,176 compared to net sales of $3,715,487 for 1998. Expressed as a
percentage of net sales, gross profits were (118%) of net sales for 1999
compared to 32.2% of net sales for 1998. The decrease occurs because of the
aforementioned writedowns and writeoffs of inventory.
Selling, general and administrative expenses were 49.7% of net sales for
1999 compared to 31.3% of net sales for 1998. The higher percentage for 1999 is
a direct reflection of the lower revenues the Company experienced during the
year due to the lower sales by its subsidiary. Also included are one time
charges totalling approximately $329,000 for prepaid expenses deferred affecting
costs, notes receivable and deferred income taxes. The Company had a loss from
operations of $(1,569,542) for May 31, 1999 as compared to income from
operations for May 31,1998 of $83,330.
Financing costs for 1999 in the form of interest expense increased to
$195,450 compared to $129,578 for 1998. This, of course, reflects increased
borrowing during 1999 in connection with the purchase of the building.
<PAGE>
Net loss for 1999 was $1,892,423 compared to net income of $5,954 for 1998.
This is a dramatic decrease from 1998 of $1,898,000 and is due mainly from the
reduced sales of $889,000 of the Company's subsidiary and by the writedowns and
writeoffs of inventory as previously stated and the one time charges of selling,
general and administrative expenses mentioned above.
For information with respect to the possible effect of future trends on
operations, see the discussion under the caption "Trends Affecting Liquidity,
Capital Resources and Operations."
Third quarter ended February 28, 1999 compared with fourth quarter ended May 31,
1999.
Net sales for the three months ended February 28, 1999 were $365,153 which
is 21% lower than net sales for the fourth quarter (i.e. three months ended May
31, 1999) of 4441,517. This is due primarily to the fact that most of the orders
taken for sales in the fourth quarter came early enough for shipments to be made
in that quarter, while normally many of the orders taken in the fourth quarter
are shipped in the first quarter of year ended 2000.
Net sales at February 28, 1999 were also lower than the $2,612,952 reported
revenues for the third quarter ended February 28, 1998.
Cost of sales in the third quarter expressed as a percentage of net sales
was 77.6% which compares with 75.6% for the same period in 1998 and reflects the
correction of problems encountered with assimilating PDA's products into the
Company's line as previously discussed in the Company's 10-KSB report for May
31, 1997. This compares with a cost of sales percentage of (118%) for the year
ended May 31, 1999, and reflects the inventory writedowns and writeoffs included
at the year end.
III. CAPITAL RESOURCES.
On July 21, 1998 the Company acquired its plant facility in Utica, New York
for a purchase price of $600,000. As part of the agreement to purchase the
building, all back rent (the Company was withholding rent for repairs) except
for $50,000 was forgiven. The Company was paying $7,500 per month for rental of
this facility.
During the fiscal year ended May 31, 1999, the Company purchased
manufacturing equipment in the amount of $84,000. The Company does not presently
anticipate the allocation of any significant additional resources for machinery
and equipment purchases. Any such commitments will be dependent on demand for
the delivery of products under new or increased orders and will primarily be
purchased in cooperation with New York State financing programs, leasing
programs or bank financing without committing substantial cash assets. Future
conditions, such as successful equity financing efforts, may change this
position.
Current conditions indicate, however, that some funds will be required for
additional capital expenditures in the near future which coincides with
management's sales expansion program; however, as explained above, financing for
purchasing these resources will be obtained from sources which will not require
a substantial outlay of cash and will be in proportion to its expansion program.
IV. INFLATION.
Management anticipates that inflation will not have a material effect on the
Company's operations in the future. This is principally due to two factors.
First, if orders increase due to inflation the Company presently has adequate
manufacturing equipment and capacity to support not only its present level of
operations but, with the addition of a second and, if needed, third, operating
shift, to support a substantial increase in production of its present product
lines. Second, although product pricing would be affected by inflation due to
higher costs, management believes that public health and safety concerns would
outweigh any negative impact of price increases and would not adversely affect
the Company's projected sales. Additionally, the hospital and health care
markets have historically been best able to pass on increased costs which are
typically paid by insurance coverage.
<PAGE>
V. TRENDS AFFECTING LIQUIDITY, CAPITAL RESOURCES AND OPERATIONS.
A number of factors are expected to impact upon the Company's liquidity,
capital resources and future operations. Included among these are (i)
environmental concerns; (ii) economic factors generally affecting the health
care industry; (iii) governmental regulation of the Company's products and (iv)
the growing concern in many industries about controlling the spread of
infectious disease.
Some disposable products offered by the Company are made from plastic based
materials which have raised concern among environmental groups over their proper
disposal. Although management believes that such concerns are, in many cases,
valid, it is also believed that these concerns must be balanced with safety
provided by these products against infectious diseases such as AIDS, hepatitis
and others. This belief has recently been reinforced by the new, comprehensive
safety regulations issued by the Occupational Safety and Health Administration
(OSHA) which require extensive new measures to combat the spread of infection
and disease in many industries which had not previously required such measures.
Most importantly, from the point of view of the Company, are the requirements
for protective apparel such as that manufactured by the Company. Management
believes that the regulations, which are now fully implemented, will increase
demand for the Company's products and significantly expand the Company's
markets. Based upon recent increased orders, management believes that most
significant among these new markets for its products will be hospitals looking
to comply with the new OSHA regulations, emergency service industries, including
police, fire and ambulance services, who are routinely exposed to unusually high
risk of infectious diseases and physicians.
Nevertheless, the requirements relating to proper disposal of plastic-based
garments is still in question and the Company cannot predict the outcome of any
future regulations relating to these matters. Any changes in manufacturing or
disposal requirements could result in higher manufacturing costs and less
profitability for the Company or, perhaps complete elimination, which could have
a substantially negative impact on liquidity and capital resources in the
future.
Management also believes that perhaps the most significant adverse impact
upon its liquidity, capital resources and future operations may result from
economic pressures to keep health care costs low. Spearheaded by health care
insurers and now the federal government, the entire health care industry in the
United States has come under increasing pressure and scrutiny to reduce
unnecessary and wasteful costs. To meet the criticism in recent years over the
higher cost of disposable products, the Company has introduced a line of limited
reusable products. These products are designed to be washed and reused from
between 25 and 100 times before being replaced. Management believes that such
products will not only address the economic concerns but also the environmental
issues by reducing the amount of products which are being discarded. However, as
already mentioned, in situations where there is a high risk of spreading
infection, management believes that the disposable products will continue to
have strong appeal and demand in the marketplace.
As new Company manufactured products under development are introduced,
management believes that sales revenues will increase and, over the long term,
will result in more stable sales and higher profit margins for the Company. In
addition, the existence of the Occupational Safety and Health Administration
(OSHA) regulations are expected to continue to have a positive influence on the
demand for the Company's products.
In short, the above factors may each have a significant impact upon the
Company's future operations. At present, management believes that safety
concerns over the spread of infectious diseases such as AIDS and hepatitis will,
at least for the foreseeable future, outweigh economic and environmental
concerns. Consequently, management does not anticipate any adverse impact upon
its future operations for the foreseeable future. Apart from these factors,
management knows of no trends or demands that would adversely affect the
financial condition of the Company.
<PAGE>
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in and no disagreements with accountants on
accounting and financial disclosure.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The executive officers and directors of the Company and its wholly-owned
subsidiary are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
<S> <C> <C>
ANTHONY J. LIBERATORE 56 President, Chief
Executive Officer,
Chairman of the Board
MICHAEL A. LIBERATORE 33 Vice President-Marketing,
Secretary-Treasurer and Director
WILLIAM F. MEOLA 53 Director
</TABLE>
Profiles of the directors and officers of the Company are set forth below.
All directors hold office until the next annual shareholders meeting or until
their death, resignation, retirement, removal, disqualification or until their
successors have been elected and qualified. Vacancies in the Board may be filled
by majority vote of the remaining directors. Officers of the Company serve at
the will of the Board of Directors, subject to the terms of employment
agreements as discussed below. There is no Executive Committee or other
committee of the Board of Directors. Election to the Board of Directors is for a
period of one year and elections are ordinarily held at the Company's Annual
Meeting of Shareholders. The Board of Directors has regular meetings once a
year, after the Annual Meeting of Shareholders, for the purpose of electing the
officers of the Company.
There are at present three vacancies on the Board of Directors which the Company
will fill at its proposed next shareholder's meeting.
Messrs. Anthony Liberatore and Alfredo A. Zennamo, a former officer and
director, may be deemed "parents" and "organizers" of the Company as those terms
are defined in the Rules and Regulations promulgated under the Securities Act of
1933, as amended. Anthony Liberatore and Michael A. Liberatore are father and
son. Additionally, Alfredo Zennamo is the nephew of Anthony Liberatore. There
are no other family relationships between officers and directors.
PROFILES OF OFFICERS AND DIRECTORS.
ANTHONY J. LIBERATORE, a co-founder of Health-Pak, Inc., a New York
corporation, ("Health") The Company's wholly owned subsidiary, has served as
President, Chief Executive Officer and Chairman of the Board of directors of the
Company since April 30, 1991. He has held the same positions with Health since
its formation in April 1985. From May 1980 until formation of Health in 1985,
Mr. Liberatore was employed as a senior procurement specialist by the Utica, New
York based North American Division of International Computers Ltd., a British
corporation. From 1970 until 1980, mr. Liberatore was general manager of
Disposable Profiles/Spartan Healthcare Inc.("Disposable"), also based in Utica,
<PAGE>
New York, a wholly-owned subsidiary of the Palm Beach Company of Cincinnati,
Ohio, which manufactured and marketed nonwoven disposable products for the
medical market. In his capacity as general manager of Disposable, Mr. Liberatore
among other responsibilities, was charged with the development of that company's
sterilized product line.
MICHAEL A. LIBERATORE has been Vice President-Marketing, Assistant
Secretary, Treasurer and a Director of the Company and Health, the Company's
wholly owned subsidiary, since April 30, 1991. Prior thereto he served as
Secretary and Assistant Treasurer of Health from January 1990, having originally
joined Health in May 1987 as its director of Sales and Marketing. From 1986
until joining Health, Mr. Liberatore was employed as an assistant store manager
by the Chicago Market, a department store chain. Mr. Liberatore is a graduate of
Mohawk Valley community College having received his Associates degree in
Individual studies in 1986.
WILLIAM F. MEOLA has been a Director of the Company since April 30, 1991 and
has served as a Director of Health, the Company's wholly owned subsidiary, since
May 1987. Since March, 1993, Mr. Meola has been employed as a registered
representative with the Albany Savings Bank, Utica, new York. From September
1988 until March 1993, Mr. Meola was a self-employed financial consultant and
also sales manager and a registered representative with the Prudential Insurance
Company. From January to September 1988, Mr. Meola was employed as an Assistant
Vice President and District Manager of the Dime Savings Bank of New York. From
August 1982 until shortly before joining the Dime Savings Bank of New York, Mr.
Meola was employed as Vice President of the SBU Insurance Agency of Utica New
York. Prior thereto, from 1973 until 1982, Mr. Meola held various positions
within the insurance and financial planning industry, owning and operating his
own insurance agency from 1980 until its sale in 1982. Mr. Meola is a graduate
of Utica College of Syracuse University, having received his Bachelor of Science
Degree in Biology.
PART III
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, 1999 and May 31, 1998, the following
remuneration was paid to the officers and directors of the Company: Annual
Compensation:
<TABLE>
<CAPTION>
Annual
Compensation Long Term All Other
Name and Position Year Salary Bonus Compensation Compensation (1)
----------------- ---- ------ ----- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Anthony Liberatore 1999 $58,211 None None $14,250
President 1998 85,000 None None 14,250
Michael Liberatore 1999 48,259 None None 1,261
Vice President 1998 55,000 None None 1,261
</TABLE>
The Company previously had employment agreements with Messrs. Anthony J.
Liberatore and Michael A. Liberatore 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. The Company has no other
employment contracts. There are also no retirement, pension or profit sharing
plan in effect for any officers or directors.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth at May 31, 1999, the stock ownership of each
person known by the Company to be a beneficial owner of five per cent (5%) or
more of the Company's Common Stock and by all officers and directors,
individually and as a group:
<TABLE>
<CAPTION>
Number Percentage
of Shares of
Name Owned (1) Class (1)
---- --------- ---------
<S> <C> <C>
Anthony J. Liberatore(1) 221,628 15.20%
Elizabeth Liberatore (2) 49,810 3.42%
Officers & Directors as
a group (3 persons) (1) 308,476 21.16%
</TABLE>
(1) This number includes 122,711 shares of Common Stock held beneficially
by Anthony J. Liberatore; 49,810 shares owned beneficially by Elizabeth
Liberatore, wife of Anthony J. Liberatore; and a total of 49,107 shares of
Common Stock owned beneficially by two shareholders who have granted to Anthony
J. Liberatore a voting trust agreement, permitting Mr. Liberatore to exercise
voting rights over the shares. Anthony J. Liberatore disclaims any beneficial
interest in any of the foregoing shares of Common Stock except those shares
registered in his name. All of the shares of Common Stock reported herein under
Mr. Liberatore's name have been integrated with his shares for computation of
the share ownership of Officers and Directors as a group.
(2) Elizabeth Liberatore is the wife of Anthony Liberatore, President of the
Company. Mrs. Liberatore's shares are integrated with shares reported as owned
by Anthony J. Liberatore.
PART IV
ITEM 12. 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 Registrants S-1 registration statement under
SEC file No. 33-43230 and incorporated herein by reference.
4. Warrant Agreement, filed previously as Exhibit 10 to the Registrants
initial registration statement on Form S-18 under SEC file No. 33-24483-NY and
incorporated herein by reference.
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 incorporated herein by reference.
23(a). Consent of Zeller Weiss & Kahn LLP, Certified Public Accountants,
filed previously as Exhibit 24(a) to the Registrants S-1 registration statement
under SEC file No. 33-43230 and 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 incorporated herein by
reference.
(b) Form 8-K filings: None filed during last quarter of the fiscal year
ended May 31, 1999. On November 21, and again on December 7, 2000 the Company
filed Forms 8-K announcing an agreement and plan of reorganization was entered
into with Life Energy and Technology Holdings Company, Ltd., whereby Health Pak,
Inc. would acquire all of the common stock of Life Engerg and Technology
Holdings Company, Ltd. in exchange for shares of its own stock. At the
conclusion of the transaction Health Pak, Inc. will change its name to Life
Energy and Technology Holdings Company, Ltd. and management of Life Energy and
Technology Holdings Company, Ltd. will assume control of Health Pak, Inc. These
filings are incorporated herein by reference.
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
YEAR ENDED MAY 31, 1999
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent auditors' report F-2
Consolidated financial statements:
Balance sheet F-3
Statement of income (loss) F-4
Statement of shareholders' equity (deficiency) F-5
Statement of cash flows F-6
Notes to consolidated financial statements F-7 - F-14
</TABLE>
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, 1999, and the related consolidated statements
of income (loss), shareholders' equity (deficiency), and cash flows for the
years ended May 31, 1999 and 1998. 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, 1999, and the results of its operations, shareholders'
equity and its cash flows for the years ended May 31, 1999 and 1998 in
conformity with generally accepted accounting principles.
December 7, 2000
Mountainside, New Jersey
F-2
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET - MAY 31, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 5,429
Receivables, factored, net of allowance of $11,000 245,367
Inventory 565,380
Prepaid expenses 26,653
----------
Total current assets 842,829
----------
Property and equipment:
Land 120,000
Building 414,627
Machinery and equipment 401,351
Leasehold improvements 133,598
Office equipment 110,130
Automotive equipment 21,021
----------
1,200,727
Less accumulated depreciation 304,214
----------
896,513
----------
Other assets:
Deposits 241
Loan acquisition fees and costs, net of amortization 43,379
Cash surrender value, officers' life insurance 24,937
Officers' loan 1,200
----------
69,757
----------
$1,809,099
==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 117,396
Notes payable 375,105
Accounts payable 750,839
Payroll and sales tax payable and accrued expenses 124,986
----------
Total current liabilities 1,368,326
----------
Long-term debt, net of current portion 635,055
----------
Loans payable, officers 215,299
----------
Shareholders' equity (deficiency):
Preferred stock, 5,000,000 shares authorized, none issued
Common stock, .002 par value 20,000,000 shares
authorized, 1,457,667 shares issued and outstanding 2,915
Common stock subscriptions, unissued 56,781
Additional paid in capital 2,333,249
Deficit (2,802,526)
----------
(409,581)
----------
$1,809,099
==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (LOSS)
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $2,318,176 $3,715,487
Cost of sales 2,735,498 2,518,909
---------- ----------
Gross profit (417,322) 1,196,578
Selling, general and administrative expenses 1,152,220 1,113,248
---------- ----------
Income (loss) from operations (1,569,542) 83,330
---------- ----------
Other income and expenses:
Gain (loss) on investment in unconsolidated
subsidiary (135,027) 4,390
Interest expense (195,450) (129,578)
---------- ----------
(330,477) (125,188)
---------- ----------
Loss before minority interest (1,900,019) (41,858)
Minority interest in loss of consolidated
subsidiary 11,278 50,751
---------- ----------
Income (loss) before taxes (1,888,741) 8,893
Income taxes 3,682 2,939
---------- ----------
Net income (loss) ($1,892,423) $ 5,954
========== ==========
Net income (loss) per common share:
Basic ($ 1.75) $ 0.00
========== ==========
Fully diluted ($ 1.75) $ 0.00
========== ==========
Weighted average number of common shares
outstanding:
Basic 1,080,407 1,032,667
========== ==========
Fully diluted 1,080,407 1,137,672
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED MAY 31, 1998 AND 1999
<TABLE>
<CAPTION>
Common stock Common Capital Retained
number of $.002 par stock in excess earnings
shares amount subscriptions of par val. (deficit) Total
------ ------ ------------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1997 1,032,667 $2,065 $2,333,249 ($1,051,557) $1,283,757
Prrior period adjustment for
forgiveness of rent 135,500 135,500
---------- ------ ---------- ----------- ----------
Balance at May 31, 1997 as restated 1,032,667 2,065 2,333,244 (916,057) 1,419,257
Net income for year ended May 31, 1998 5,954 5,954
---------- ------ ---------- ----------- ----------
Balance at May 31, 1998 1,032,667 2,065 2,333,249 (910,103) 1,425,211
---------- ------ ---------- ----------- ----------
Common stock subscribed $56,781 56,781
Common stock issued for consulting
services 425,000 850 850
Net loss for year ended May 31, 1999 (1,892,423) (1,892,423)
---------- ------ ------- ---------- ----------- ----------
Balance at May 31, 1999 1,457,667 $2,915 $56,781 $2,333,249 ($2,802,526) ($409,581)
========= ====== ======= ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) ($1,892,423) $ 5,954
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 55,797 38,941
Amortization 118,719 18,515
Common stock issued for consulting services 850
Offset of note receivable for purchases 89,039
(Gain) loss on investment in unconsolidated
subsidiary 135,027 (4,390)
Minority interest in loss of consolidated
subsidiary (11,278) (50,751)
Changes in operating assets and liabilities:
Accounts receivable 395,785 (185,776)
Inventory 1,006,940 (115,330)
Prepaid expenses 43,820 16,779
Deferred income tax 83,115
Accounts payable (60,891) 32,663
Accrued expenses 26,477 14,005
Deposits and loan fees 32,647 2,778
----------- ---------
Net cash provided by (used) in operating activities 23,624 (226,612)
----------- ---------
Investing activities:
Purchase of property and equipment (620,000) (41,589)
Officers' life insurance 9,005 (7,182)
----------- ---------
Net cash used in investing activities (610,995) (48,771)
----------- ---------
Financing activities:
Proceeds from deposits for common stock 56,781
Proceeds from long-term debt 731,351
Proceeds from notes payable 231,347
Proceeds from officer's loan 215,299
Payment of notes payable (355,070) (16,165)
Payment of long-term debt (41,535) (17,105)
Payment of financing costs (45,931)
----------- ---------
Net cash provided by financing activities 560,895 198,077
----------- ---------
Net decrease in cash (26,476) (77,306)
Cash, beginning of period 31,905 109,211
----------- ---------
Cash, end of period $ 5,429 $ 31,905
=========== =========
Supplemental disclosures and cash flow information:
Cash paid during the year for:
Interest $ 192,157 $ 129,578
=========== =========
Income taxes $ 2,673 $ 0
=========== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization of the company:
The Company originally named "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 Exchange
Commission. Pursuant to the original prospectus the Company was offering up
to 4,000,000 units, at $.10 per unit, each consisting of one share of
common stock, one Class A warrant and one Class B warrant. No securities
were sold pursuant to original prospectus.
The Company subsequently amended its public offering to consist of a minimum
of 15,000 units to a maximum 50,000 units to be offered at $6.00 per unit.
Each unit consists of six shares of common stock (.002 par value) and
eighteen Class A redeemable common stock purchase warrants and twelve B
redeemable common stock purchase warrants. On September 7, 1990, the
Company sold 16,358 units receiving gross proceeds of 98,148. Between
October and November of 1989 the Company repurchased an aggregate of
178,583 shares of the Company from nineteen stockholders for an aggregate
price paid for these shares. As a result of the above transactions as of
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.
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 industry is highly competitive and is serviced by
several large national and multi-national companies with greater financial
resources in comparison to the financial resources available to the
Company. 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.
The Company owns manufacturing facilities in Utica, New York, has product
manufactured in Mexico and to a lesser extent, Haiti. The Company's sales
are spread throughout the United States.
F-7
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies:
Principles of organization:
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 issued 387,648 shares to the public
for $60,000.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its 65% owned subsidiary, Protective Disposal Apparel, Co.,
LLC. All significant inter-company balances and transactions have been
eliminated (See Note 5).
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:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Building 39
Machinery and equipment 10
Leasehold improvements 19, 31-1/2 and 39
Automotive equipment 5
Office equipment 10
</TABLE>
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 years presented.
F-8
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies (continued):
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.
Long-lived assets:
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to be Disposed of", which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and undiscounted cash flows estimated to be
generated by those assets are less than the assets carrying amount. The
Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of long-lived
assets may warrant revision or the remaining balance may not be
recoverable. As of May 31, 1999, management believes that no revision to
the remaining useful lives or write- down of long-lived assets is required.
Intangible assets:
Intangible assets consist of deferred financing and offering costs at May
31, 1998, and loan acquisition costs at May 31, 1999. The deferred
financing and offering costs have been fully amortized as of May 31, 1999.
The loan acquisition costs are being amortized over the life of the loan.
Intangible assets are being amortized on a straight-line method based on
the estimated lives noted below. Deferred financing costs are being
amortized over the life of the respective contracts and agreements.
Amortization expense for intangible assets was $18,515 and $118,719 for the
years ended May 31, 1999 and 1998, respectively.
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:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards
for the reporting and display of comprehensive income in a set of financial
statements. Comprehensive income is defined as the change in net assets of
a business enterprise during a period from transactions generated from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
Management believes that the adoption of SFAS No. 130 will not have a
material impact on the financial statements.
F-9
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of significant accounting policies (continued):
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131.
"Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 133 applies to all public companies and is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that business
segment financial information be reported in the financial statements
utilizing the management approach. The management approach is defined as
the manner in which management organizes the segments within the enterprise
for making operating decisions and assessing performance. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating
the impact, if any, of the adoption of this pronouncement on the Company's
existing disclosures.
Fair value of financial instruments:
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
debt instruments. The book values of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are considered to be
representative of their respective fair values. None of the Company's debt
instruments that are outstanding as of May 31, 1999 have readily
ascertainable market values; however, the carrying values are considered to
approximate their respective fair values. See Notes 7, 8, 9 and 10 for the
terms and carrying values of the Company's various debt instruments.
Net loss per common shares:
The Company adopted SFAS No. 128 "Earnings Per Share" as of May 31, 1999. In
accordance with SFAS No. 128, prior period earnings per share amounts have
been restated to conform with SFAS No. 128. SFAS No. 128 requires basic
earnings per share which is computed by dividing reported earnings
available to common stockholders by the weighted average shares outstanding
and diluted earnings per share which reflects the dilutive effect of common
stock equivalents such as stock options and warrants, unless the inclusion
would result in antidilution. Inclusion of the common stock equivalents in
the diluted net loss per share calculation would be antidilutive and
therefore such shares are not included in the calculation.
Income taxes:
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". SFAS No. 109 requires the liability method of accounting for
deferred income taxes. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
assets and liabilities. Deferred tax assets or liabilities at the end of
each period are determined using the tax rate expected to be in effect when
taxes are actually paid or recovered. A valuation allowance is established
against deferred tax assets unless the Company believes it is more likely
than not that the benefit will be realized.
Major customer:
The Company maintains sales levels with a customer which comprises more than
10% of yearly sales. If this sales level were to change, it could have a
significant impact on the Company's operations.
F-10
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Restated information:
The weighted average number of shares for the prior year May 31, 1998 have
been restated for the purpose of comparison on the statement of income
(loss) to reflect the 15:1 reverse split which occurred in January, 1999.
5. Inventories:
Inventories consist of:
<TABLE>
<CAPTION>
May 31
1999
----
<S> <C>
Raw materials $361,843
Finished goods 203,537
--------
$565,380
========
</TABLE>
6. Notes payable:
<TABLE>
<CAPTION>
Rate Amount Maturity
---- ------ --------
<S> <C> <C> <C>
Credit line, Foothill Capital
Corporation (a) 10.75% $370,239
Note payable, Waste Mgmt. of N.Y. (b) 10% 614 June, 1999
Note payable, Resource Capital Corp. (c) 10% 2,335 March, 2000
Note payable, Resource Capital Corp. (d) 10% 1,166 September, 1999
Note payable, Resource Capital Corp. (e) 10% 751 July, 1999
--------
$375,105
========
</TABLE>
(a) The Company opened a line of credit with Foothill Capital Corporation in
September 1996. The loan ceiling amount is based on a percentage formula of
eligible accounts receivable and inventory. The rate of interest at May 31,
1999 was 10.75%.
(b) Note payable is collateralized by equipment with a cost of $11,923. The
note is payable in installments of $240 per month including interest.
(c) Note payable is collateralized by equipment with a cost of $6,796. The note
is payable in installments of $170 per month including interest.
(d) Note payable is collateralized by equipment with a cost of $5,296. The note
is payable in installments of $155 per month including interest.
(e) Note payable is collateralized by equipment with a cost of $9,053. The note
is payable in installments of $251 per month including interest.
F-11
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Long-term debt:
<TABLE>
<CAPTION>
Rate Amount Maturity
---- ------ --------
<S> <C> <C> <C>
Note payable, Manifest Group (a) 10% 7,380 July, 1999
Note payable, City of Utica (b) 3% 145,167 June, 2005
Note payable, bank (c) Prime +2% 243,055 November, 2013
Note payable, bank line of credit (d) 11.5% 41,588 May, 2001
Note payable, U.S. SBA (e) 5.85% 243,603 December, 2018
Note payable, Acclaim Leasing (f) 10% 71,658 November, 2001
--------
752,451
Less current portion 117,396
--------
$635,055
========
</TABLE>
(a) Note payable is collateralized by equipment with a cost of $20,064. The note
is payable in installments of $492 per month including interest.
(b) Note payable is collateralized by machinery, equipment, furniture and
fixtures, inventory and accounts receivable. The note is payable in
installments of $1,982 per month including interest.
(c) Note payable is collateralized by real estate. The note is payable in
principal installments of $1,389 per month plus interest.
(d) Note payable is collateralized by accounts receivable, machinery, equipment,
inventory, intangibles and chattel paper. The note is payable in principal
installments of $1,347 per month plus interest.
(e) Note payable is collateralized by real estate. The note is payable in
monthly installments of $2,078 including interest and loan fees.
(f) Note payable is collateralized by equipment with a cost of $84,351. The note
is payable in installments of $2,599 including interest.
Maturities of long-term debt as of May 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
May 31, 2000 $117,396
May 31, 2001 89,963
May 31, 2002 62,498
May 31, 2003 46,914
May 31, 2004 48,079
Thereafter 270,205
--------
$635,055
========
</TABLE>
F-12
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income taxes:
No provision for deferred income taxes has been provided due to the Company
entering into Chapter 11 bankruptcy in June, 2000, as described in Note 12.
9. Stockholders' equity:
During the year the Company received a deposit for the purchase of 265,000
shares of common stock from a prospective new shareholder. The Company did
not have shares available to give to the prospective buyer. As a goodwill
gesture, existing shareholders transferred shares to the new shareholder.
Subsequent to the balance sheet date, new shares were issued to replace
those shares transferred by those existing shareholders.
10. Preferred stock:
In April 1999, the Company authorized through an amendment to the
Certificate of Incorporation, 5,000,000 shares of preferred stock.
11. Employment contracts:
The Company has no employment contracts. Further, it has no retirement,
pension or profit sharing plan covering its officers or directors.
12. Related party transactions:
Officers loans are unsecured and non-interest bearing. Officers have
indicated that they will not be repaid in the current year.
13. Earnings per share:
<TABLE>
<CAPTION>
May 31, 1998
May 31, 1999 as restated
------------ ------------
<S> <C> <C>
Number of shares:
Weighted average shares outstanding, basic 1,080,407 1,032,667
Assumed conversion of stock options - 105,005
--------- ---------
Fully diluted 1,080,407 1,137,672
========= =========
</TABLE>
The conversion of stock options was not assumed for the year ended May 31,
1999 as the effect would be antidilutive.
F-13
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Subsequent events:
In June 2000, the Company declared bankruptcy under Chapter 11 of the
Internal Revenue Code for its 100% wholly owned New York subsidiary.
In December 2000, the Company entered into an agreement of reorganization
whereby Health-Pak, Inc. would acquire all of the common stock of Life
Energy and Technology Holdings, Ltd. in exchange for shares of its own
common stock. At the conclusion of the transaction, Life Energy and
Technology Holdings, Ltd. will become a wholly-owned subsidiary of
Health-Pak, Inc. Health-Pak, Inc. will then change its name to Life Energy
and Technology Holding Company, Ltd and management of Life Energy and
Technology Holdings, Ltd. will assume control of Health-Pak, Inc. after the
closing.
F-14
<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: December 22, 2000 By:/s/Anthony J. Liberatore
Anthony J. Liberatore
President and Principal
Executive Officer
Dated: December 22, 2000 By:/s/Michael A. Liberatore
Michael A. Liberatore,
Vice President, Treasurer,
Secretary, Principal
Financial and Accounting
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: December 22, 2000 /s/Anthony J. Liberatore
Anthony J. Liberatore
President and Principal
Executive Officer and
Director
Dated: December 22, 2000 /s/Michael A. Liberatore
Michael A. Liberatore,
Vice President, Treasurer,
Secretary, Principal
Financial and Accounting
Officer, Director
Dated: December 22, 2000 /s/William F. Meola
William F. Meola
Director
<PAGE>
EXHIBITS
Exhibit 27 -- Financial Data Schedule
Filed With
Form 10-KSB
HEALTH-PAK, INC.
