<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------------
Quarter Ended August 31, 1999
Commission File Number 33-24483-NY
HEALTH-PAK, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
Delaware 11-2914841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2005 Beachgrove, Utica, NY 13501
(Address of principal executive offices) (Zip Code)
Same
(Former Address) (Zip Code)
</TABLE>
(315) 724-8370
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----
Indicate the number of Shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at August 31, 1999
Common stock, $0.002 par value 1,457,667
</TABLE>
<PAGE>
INDEX
Part I. Financial information
<TABLE>
<S> <C>
Item 1. Condensed Consolidated Financial Statements:
Balance sheet as of August 31, 1999 F-2
Statement of income for three months ended
August 31, 1999 and 1998 F-3
Statement of cash flows for three months ended
August 31, 1999 and 1998 F-4
Notes to condensed consolidated
financial statements F-5 to F-8
Item 2. Management's discussion and analysis of
financial condition
</TABLE>
Part II. Other information
Signatures
Exhibits
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following condensed consolidated financial statements have been
prepared by Health-Pak, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934 as amended. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the condensed consolidated financial statements include all
adjustments (consisting only of adjustments of a normal, recurring nature)
necessary to present fairly the financial information set forth therein.
Operating results for the three month period ended August 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
May 31, 2000.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and accompanying notes included in
Form 10-KSB for the year ended May 31, 1999.
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET - AUGUST 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 17,973
Receivables, trade, net of allowance of $11,000 178,030
Inventory 495,800
Prepaid expenses 19,700
-----------
Total current assets 711,503
-----------
Property and equipment, net of depreciation 881,933
-----------
Other assets:
Security deposits 241
Loan acquisition fees and costs, net 42,614
Cash surrender value, officer's life insurance 24,937
Officer's loan 1,200
-----------
68,992
-----------
$ 1,662,428
===========
LIABILITIES AND SHAREHOLDERS'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 124,542
Notes payable 326,014
Accounts payable 755,698
Payroll and sales tax payable and accrued expenses 142,242
-----------
Total current liabilities 1,348,496
-----------
Long-term debt, net of current portion 612,786
-----------
Officers loan payable 215,299
-----------
Shareholders' equity (deficiency):
Preferred stock, 20,000,000 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 56,781
Additional paid in capital 2,333,249
Deficit (2,907,098)
-----------
(514,153)
-----------
$ 1,662,428
===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 393,355 $ 804,853
Cost of sales 306,159 496,123
---------- -----------
Gross profit 87,196 308,730
Selling, general and administrative
expenses 159,307 264,429
---------- -----------
Income (loss) from operations (72,111) 44,301
Interest expense 32,461 50,735
---------- -----------
Loss before minority interest (104,572) (6,434)
Minority interest in loss of consolidated
subsidiary 8,683
---------- -----------
Net income (loss) $ (104,572) $ 2,249
========== ===========
Earnings per common and dilutive common
equivalent share:
Basic $ (0.07) $ 0.00
========== ===========
Fully diluted $ (0.07) $ 0.00
========== ===========
Weighted average number of common shares
and dilutive outstanding:
Basic 1,457,667 1,032,667
========== ===========
Fully diluted 1,457,667 1,137,672
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) $(104,572) $ 2,249
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation 14,580 13,835
Amortization 765 28,334
(Loss) on minority interest in consolidated
subsidiary (8,683)
Changes in operating assets and liabilities:
Accounts receivable 67,337 (30,165)
Inventory 69,580 26,677
Prepaid expenses 6,953 18,865
Deposits and loan fees 7,047
Accounts payable 4,859 (119,471)
Accrued expenses 17,142 (50,731)
--------- ---------
Net cash provided by (used in)
operating activities 76,644 (112,043)
--------- ---------
Investing activities:
Purchase of property and equipment (604,679)
---------
Net cash used in investing activities (604,679)
---------
Financing activities:
Proceeds from deposits on common stock 55,359
Proceeds from notes payable 7,675
Proceeds from long-term debt 640,000
Proceeds from officers' loan 30,000
Payment of long-term debt (15,009) (7,811)
Payment of notes payable (49,091) (1,476)
Payment of financing costs (38,930)
--------- ---------
Net cash provided by (used in)
financing activities (64,100) 684,817
--------- ---------
Net increase (decrease) in cash 12,544 (31,905)
Cash, beginning of period 5,429 31,905
--------- --------
Cash, end of period $ 17,973 $ 0
========= =========
Supplemental disclosures and cash flow information:
Cash paid during the year for:
Interest $ 12,292 $ 50,735
========= =========
Income taxes $ 0 $ 0
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. The
results of operations for the three months ended is not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report for the year
ended May 31, 1999 included in its Annual Report filed on Form 10-KSB.
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 a manufacturing facility in upstate New York, and has
product manufactured in Mexico and to a lesser extent Haiti. The
Company's sales are spread throughout the United States.
3. 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.
4. Inventories:
Inventories consist of:
<TABLE>
<CAPTION>
August 31
1999
----
<S> <C>
Raw materials $317,312
Finished goods 178,488
--------
$495,800
========
</TABLE>
F-5
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Property and equipment:
Major classifications of property and equipment are as follows:
<TABLE>
<S> <C>
Land $ 120,000
Building 414,627
Leasehold improvements 133,598
Machinery and equipment 401,351
Office equipment 110,130
Automotive equipment 21,021
----------
1,200,727
Less accumulated depreciation 318,794
----------
$ 881,933
==========
</TABLE>
6. Restated information:
The weighted average number of shares shown for August 31, 1998 on the
condensed consolidated statement of income, have been restated for the
purpose of comparison to reflect the 15 to 1 reverse split which
occurred in January, 1999.
7. Notes payable:
<TABLE>
<CAPTION>
Rate Amount Maturity
---- ------ --------
<S> <C> <C> <C> <C>
Credit line, Foothill Capital
Corporation (a) 10.75% $315,432
Note payable, Waste Mgmt. of N.Y. (b) 10% 1,166 June, 1999
Note payable, Resource Capital Corp. (c) 10% 2,035 March, 2000
Note payable, Resource Capital Corp. (d) 10% 985 July, 1999
Note payable, Manifest Group (e) 10% 6,396 July, 1999
--------
$326,014
========
</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 August 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 $9,053.
The note is payable in installments of $251 per month including
interest.
(e) Note payable is collateralized by equipment with a cost of
$20,064. The note is payable in installments of $492 per month
including interest.
F-6
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Long-term debt:
<TABLE>
<CAPTION>
Rate Amount Maturity
---- ------ --------
<S> <C> <C> <C> <C>
Note payable, City of Utica (a) 3% 145,167 June, 2005
Note payable, bank (b) Prime +2% 243,055 November, 2013
Note payable, bank line of credit (c) 11.5% 41,588 May, 2001
Note payable, U.S. SBA (d) 5.85% 241,916 December, 2018
Note payable, Acclaim Leasing (e) 10% 65,602 November, 2001
--------
737,328
Less current portion 124,542
--------
$612,786
========
</TABLE>
(a) 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.
(b) Note payable is collateralized by real estate. The note is payable
in principal installments of $1,389 per month plus interest.
(c) 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.
(d) Note payable is collateralized by real estate. The note is payable
in monthly installments of $2,078 including interest and loan
fees.
(e) 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 August 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
August 31, 2000 $ 124,542
August 31, 2001 87,048
August 31, 2002 54,089
August 31, 2003 47,159
August 31, 2004 48,336
Thereafter 376,154
--------
$737,328
========
</TABLE>
F-7
<PAGE>
HEALTH-PAK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Related party transactions:
Officers loans are unsecured and the officers have indicated that they
will not be repaid in the current year.
10. Earnings per share:
<TABLE>
<CAPTION>
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Number of shares:
Weighted average shares
outstanding, basic 1,457,667 1,032,667
Assumed conversion of stock options 105,005
--------- ---------
Fully diluted 1,457,667 1,137,672
========= =========
</TABLE>
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. Fully diluted earnings
per share are those shares that would be outstanding assuming exercise
of outstanding stock options, all of which are considered to be common
stock equivalents.
11. Subsequent events:
Subsequent to the balance sheet date several creditors of the Company
commenced litigation for non-payment of accounts payable. As a result,
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-8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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 $146,671 at August 31, 1999 when compared to the
year ended May 31, 1999, a decrease of approximately 8.1%. This decrease is
largely due to the reduction of inventory on hand and the decrease in accounts
receivable.
Inventory on hand was $495,800 at August 31, 1999 as compared to $565,380
at year end May 31, 1999, a decrease of $69,600. Accounts receivable decreased
to $178,030 at August 31, 1999 from $245,367 at year end, a reduction of
$67,000.
The decrease in assets at August 31, 1999 was also due to a small reduction
in prepaid expenses of $7,000 from May 31, 1999. These decreases were partially
offset by the increase in cash of $12,500 between May 31, 1999 and August 31,
1999.
The decrease in receivables is caused by the fact that the Company had
lower sales during the period due to the loss of business by its subsidiary as
experienced at year end. Inventory decreased as a normal part of experiencing
lower sales for the period and because of the Company's decision to remove
certain non-profitable items from its line. At the end of the first quarter,
inventory was approximately 12.3% lower than at the year end.
There were no significant purchases of machinery and equipment during the
quarter.
In terms of other assets, the only change was a decrease for the
amortization for the quarter of the bank loan fees in the amount of $765.
LIABILITIES:
Total liabilities at August 31, 1999 decreased from $2,219,000 at May 31,
1999 to $2,176,600 or a decrease of 1%. The reduction was mainly due to the
paydown of the credit line which is included in notes payable.
Total current liabilities for the quarter ended August 31, 1999 are
approximately $20,000 lower when compared to the year end. This is accounted for
mainly by the paydown of the credit line of $49,000 which was offset in part by
small increases to accounts payable and accrued expenses of $5,000 and $18,000
respectively.
<PAGE>
Liability for payroll taxes varies with the number of employees at any
given time and the date upon which the period falls. There was no significant
change in this account and accrued wages during the period when compared to the
year end at May 31, 1999.
The Company's deficit of ($2,907,098) shows a further decrease over the
year end deficit of ($2,802,526) by $104,572. 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."
(b) LIQUIDITY.
The Company did not have sufficient liquid assets to meet its obligations
at the end of the first quarter ended August 31, 1999. Working capital, deficit,
at August 31, 1999 was $636,878 compared to $525,497 at the year ended May 31,
1999, a reduction of $111,381.
Principal short-term liabilities at August 31, 1999 were $124,542 in the
current portion of long term notes due, $326,014 in short term notes payable,
$750,839 in accounts payable, and accrued expenses due of $142,127 for a total
of $1,348,381. Against this total, at the end of the quarter, the Company had
liquid current assets consisting of cash of $17,973, receivables of $178,030,
and inventory in the amount of $495,800 for a total of $691,803.
During the quarter management continued to pay down its credit line which
is being curtailed by the lender. No new drawdowns on the line are available at
August 31, 1999.
In this connection, 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 quarter
ended August 31, 1999 has been from operating activities, as reflected in the
statement of cash flows included in the Company's financial statements.
II. RESULTS OF OPERATIONS.
Net sales at the end of the first quarter ended August 31, 1999 were
$393,355. This compares with net sales of $804,853 at the end of the first
quarter of 1998. The decrease of approximately 51% 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 has not as yet been able to make up the
loss of these sales in other areas. The Company has also continued to eliminate
from its product line certain items which it felt were not profitable to sell.
These items included nurses caps, shoe covers and surgical masks among others
and represented products which were primarily manufactured by others. Management
believes this elimination will also have an effect on sales in the next quarter
as well.
<PAGE>
The Company also introduced "sonic sealed" garments in former periods which
are 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.
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.
For additional information see Item 1. "Description of Business."
As previously indicated, cost of sales expressed as a percentage of net
sales for the three months ended August 31, 1999 was 77.8% compared to 61.6% for
the three months period ended August 31, 1998. This is an increase to cost of
sales of approximately 16.2% over the comparable three months period last year.
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 at that time that the PDA products were initially introduced at a
higher cost basis than the Company's products. Costing analysis and action was
taken to correct these differences, and management is reviewing sales prices for
possible future adjustments as well.
Gross profits for the three months ended August 31, 1999 were lower by
$221,534 than gross profits for the comparable period in 1998 on lower net sales
for the period. Expressed as a percentage of net revenues, gross profits were
22.2% of net sales for the three months ended August 31, 1999 compared to 38.4%
of net sales for the comparable quarter in 1998.
Selling, general and administrative expenses for the quarter ended August
31, 1999 were approximately $80,000 lower than for the comparable period ended
August 31, 1998. Management is continuing to reduce overhead in light of current
lower sales. Selling, general and administrative expenses as a % of net sales
were 40.5% at August 31, 1999 and 29.8% for the period ended August 31, 1998.
The increased percentage for August 31, 1999 is directly related to the lower
sales for the quarter.
Financing costs for the three months ended August 31, 1999 in the form of
interest expense decreased to $32,461 compared to $50,735 for the comparable
period in 1998. This, reflects the decreased borrowing from the credit line
during quarter ended August 31, 1999.
Net loss for the quarter ended August 31, 1999 was $104,572 compared to net
income of $2,249 for the comparable period in 1998. This is a decrease of
$106,821 over the quarter ended August 31, 1998 and is a direct result of lower
sales for the quarter.
<PAGE>
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."
FIRST QUARTER ENDED AUGUST 31, 1999 COMPARED WITH FOURTH QUARTER
ENDED MAY 31, 1999
Net sales for the three months ended May 31, 1999 were $441,517 which
compares to sales in the quarter ended August 31, 1999 of $393,355. Net sales
for the three months ended August 31, 1999 are lower by approximately 10.9% than
the quarter ended May 31, 1999. Sales in both the fourth quarter of last year
and the first quarter ended August 31, 1999 are significantly lower than
previous periods due to the continued loss of sales at the Company's subsidiary
as discussed previously.
III. CAPITAL RESOURCES.
During the three months ended August 31, 1999, there was no other
significant increase in the purchase of any property or equipment. The Company
does expect to spend additional funds in the near future for the acquisition of
tissue production machinery to enter into the tissue supply business (i.e.
toilet tissue for institutions and tissue paper for examination tables),
The Company also does not presently anticipate the allocation of other
significant 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.
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.
<PAGE>
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 the hospital
looking to comply with the new OSHA regulations, emergency service industries,
including police, fire and ambulance services, and physicians, which routinely
are exposed to unusually high risk of infectious diseases.
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>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit 27 as attached hereto.
(b) Reports on Form 8-KSB
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTH-PAK, INC.
/s/ Anthony J. Liberatore
Anthony J. Liberatore
President
Chief Operating Officer
Dated: January 4, 2000
/s/ Michael A. Liberatore
Michael A. Liberatore
Vice President
Chief Financial Officer
Dated: January 4, 2000
