<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997.
Commission file number: 33-26789NY
EFTEK CORP.
(Name of small business issuer in its Charter)
Nevada 93-0996501
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
324 New Brooklyn Road
Berlin, New Jersey 08009
(Address of Principal Executive Offices)
Registrant's Telephone Number: (609) 753-4344
Bloomfield Business Park
408 Bloomfield Drive, Units 1 & 2
West Berlin, New Jersey 08091
(Former Address of the Registrant)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
None None
Securities to be registered under Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes: X No:
State issuer's revenues for its most recent fiscal year: $443,727
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of March 31, 1998 was approximately $1,427,508 based
on the average high and low bid prices for such common stock as reported on
the O-T-C Bulletin Board.
The number of shares of Common Stock outstanding as of March 31, 1998 was
11,556,910. The number of Class A Redeemable Common Stock Purchase Warrants
outstanding as of March 31, 1998 was 65,412. The number of Class B Redeemable
Common Stock Purchase Warrants outstanding as of March 31, 1998 was 82,824.
Documents Incorporated by Reference - Various exhibits from the Company's
Post-Effective Amendment No. 1 to Form S-18 Registration Statement, SEC File
No. 33-26789NY filed June 1, 1989 and such other documents contained in Item
13(a)(iii).
Transitional Small Business Disclosure Format (Check One): Yes No X
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
The Company was incorporated in the State of Nevada on December 30, 1988.
The Company became a Public Company by filing and registering with the
Securities and Exchange Commission under Form S-18, certain Units consisting
of four shares of common stock and forty Class A and forty Class B
redeemable common stock purchase warrants. Its Registration Statement
became effective on June 1, 1989.
On January 5, 1990, Savoy Capital Group, Ltd. acquired all of the
outstanding common stock of Exotic Bodies, Inc., a Pennsylvania
Corporation, which became a wholly owned subsidiary of Savoy Capital Group,
Ltd. in exchange for 15,857,600 shares of the Company's Common Stock.
Pursuant to said Agreement, Savoy Capital Group, Ltd. amended its Certificate
of Incorporation to change its name to Exotic Bodies, Inc., and the
wholly owned subsidiary changed its name to Exotic Bodies of
Pennsylvania, Inc.
The Company operating under the name Exotic Bodies, Inc., endeavored to
begin operations of automobile theme museums and entertainment complexes
featuring the display of exotic, European automobiles and associated exotic
car products and services. The Company's attempt to setup and operate such
exotic automobile theme museums was unsuccessful and the Company essentially
ceased such operations in mid-1992 and began to search for a suitable
acquisition candidate.
On July 25, 1994, the Company completed the acquisition of R & D Innovators,
Inc., a New Jersey corporation, engaging in the development, manufacturing
and sales of equipment for the bottling and packaging industry.
Effective August 15, 1994, the Company amended its Certificate of
Incorporation to change its name to EFTEK Corp., and on August 22, 1994 the
Company effected a 1 for 17 reverse stock split.
Effective May 22, 1997, the Company effected a 1 for 3 reverse stock split
of the Company's common stock which trades on the OTC Bulletin Board. In
addition, the Company changed its trading symbol on the OTC Bulletin Board
to "EFTX." The outstanding Class A and Class B Warrants remained the same.
GENERAL
After several years of research and development, the Company has developed
an advanced operational system that utilizes recycled broken glass (known as
cullet), that is usually only suitable for landfills, to produce an end product
that the Company has named "GlassFlour", a furnace-ready raw material for
fiberglass insulation and suitable for glass container manufacturers.
One of the major materials recycled in the United States is glass. When
glass is recycled, it is usually color separated at trash sorting facilities
and by haulers. Due to the inherent fragile characteristics of this material,
and the handling procedures during the entire recycling process, a large
percentage of all recyclable glass breaks and is commingled with contaminants
and garbage and becomes amorphous cullet, which is unsuitable
for cost effective color separation and ends up in landfills or, at best,
goes in limited quantities to asphalt production. At the same time, cullet
is a very valuable raw material for fiberglass and glass container
manufacturing. It has a lower viscosity than other glass making material
(sand, plate glass) and liquifies at lower temperatures than these other
materials. As a result, not only does the melting process speed up, but the
wear of the furnace refracting bricks lessens (leading to its longer
production life) and creates a substantial savings of natural gas, the
principal fuel for glass furnaces.
A Federal Department of Energy study claims that every 10% increment of
recycled glass in a batch reduces energy demand by 2% - 3%. The US Glass
Packaging Institute estimated that in a standard size furnace for every 10%
increase in cullet, the annual consumption of gas is reduced by about 24.5
million cubic feet. Also, cullet use in glass production is more
environmentally sound, since it reduces the use of landfills and
lowers furnace air emissions. Landfill space availability, especially in
Metropolitan areas, is becoming more scarce. Incinerator disposal of waste
materials is growing. Some waste materials such as presently unusable
glass cannot be disposed of by incineration, but are disposed of in
landfills. Unusable scrap glass, referred to as cullet, can be recycled if
the contaminants can be removed. Manufacturers of fiberglass and glass
containers do use clean cullet, even in relatively small amounts of
different colors of commingled glass. The Company believes that the U.S.
fiberglass market for cullet is at least several hundred thousand tons
annually. As technologies advance, the use of commingled cullet, could
equal or exceed the bottle glass usage.
Cullet use in glass production is more environmentally (and therefore
politically) sound, since it lowers furnace air emissions and takes the
pressure off the landfills. However, with all the attractiveness of cullet,
post-consumer cullet has not been utilized in any substantial quantity by the
fiberglass industry. The major reason is the presence of contamination
contained in an average batch of cullet. While there have been ways developed
to automatically remove paper, plastics and metals, organics and ceramics are
still a problem, precluding the large scale use of cullet in fiberglass and
glass bottle production. The melting temperature of ceramics is higher than
that of glass and, as a result, unmelted ceramic seeds and stones block (and
often damage) fiberglass spinners and disrupt the whole manufacturing process.
So far, ceramics have been removed from cullet for the most part manually.
This method is not only unreasonably expensive, but highly inefficient as
well. While non-transparent ceramic pieces (still only the larger ones) can
be removed this way, fragments of ceramics, which look very similar to glass,
go undetected and cause an unacceptably high level of cullet contamination.
The Company believes it has resolved this problem in a combination of
proprietary operations and processes.
The Company believes that its process creates a clearly defined competitive
advantage over other cullet processors. The quality, cost savings,
environmental and other advantages are even more important as several state
governments are mandating that glass manufacturers use larger amounts of
cullet in their production facilities. The combination of economics and
legislation puts the Company in a potentially lucrative position to fill a
massive void in the growing demand for purified cullet.
The Company's program for processing 3 mix cullet consists of machinery that
removes organics, paper, plastic, ceramics and other contaminants. The
process begins with receipt of cullet from recyclers. The raw material is
then dumped into a "Grizzly." As the material exits the "Grizzly", two hand
pickers on the first conveyor line pick out anything above four inches in
diameter such as plastic or metals. During the next phase of production,
the product is drawn down a conveyor and under a cross belt magnet which
takes out ferrous metals and is then sent through a crusher. The next step is
to then put the raw material into a wash cycle where the washer floats out any
light plastics and non-ferrous metals such as aluminum. The product is then
sent to a dryer.
Following the drying process non-transparent contaminants such as opaque
ceramics, stones, rocks, etc. are removed. The product then goes through
another magnetic detector which takes out all remaining metals. The final
step of the process is to size the cullet to the customer's satisfaction.
The finished product is loaded in trucks and rail for delivery to customers.
The removed contaminants are typically a small percentage of the total. All
materials separated from the cullet will be either sold to an end user or
disposed of in the most economical acceptable manner.
The Company purchased in June of 1996 approximately 137 acres of land in
Southern New Jersey containing a 1100 feet long by 65 feet wide preformed
concrete building large enough to house a production line as well as
storage of raw unprocessed 3-MIX cullet, as well as the processed premium
cullet. Plans are to operate up to two shifts of production 7.5 hours per
shift. Total employment with two shifts of operation is approximately 20
people. Production commenced in October 1997 after a lengthy qualification
process with various fiberglass insulation manufacturers.
INCOME FROM RAW MATERIAL ACCEPTANCE
What the Company believes is unique to the recycling industry, various waste
removers, haulers and other recycling companies pay landfills or other
environmentally acceptable depositories tipping fees for the disposal of
unusable mixed cullet, which can range from $0 to $30 per ton on the
average, depending upon location, availability and degree of contamination.
The Company as a processor of mixed cullet began receiving deliveries from
various recyclers within a 150 mile range. Tipping fees vary, depending on
volume and condition, delivered to the Company's processing plant.
As a processor of mixed cullet, the Company believes that it is complying with
all special permits required and other regulations from State or Federal
agencies.
FUTURE PLANS
The Company is considering opening plants in locations where cullet supplies
are available and there are customers within a reasonable radius. Subject
to adequate financing, plants in the States of California, Georgia, Kansas,
as well as other states are being considered as suitable locations.
RISKS AND UNCERTAINTIES
Although the Company's proposed plans have a high upside potential, share-
holders are cautioned that there are also substantial risks including, but not
limited to, the following: 1) Requirements for acceptance of the Company's
Premium Cullet by the proposed end users may be too restrictive to economically
satisfy; 2) New technologies may be developed to satisfy end users'
requirements; 3) Raw mixed cullet may become too scarce affecting availability,
or too abundant, reducing or eliminating tipping fees; 4) Government regulations
may either change or be interpreted differently; 5) The Company could encounter
higher operational costs or delays; 6) or other unforeseen circumstances could
arise to adversely affect the Company's operations.
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FIRE DOCTOR, INC.
In April 1996, the Company acquired 100% of the stock of Fire Doctor, Inc.
("Fire Doctor"). After the reorganization, Fire Doctor became a wholly
owned subsidiary of EFTEK.
Fire Doctor developed and markets a proprietary chemical formula designed to
retard the spread of flame. Fire Doctor has been in business for
approximately four years, three years of which it devoted to developing a
product line of fire retardant chemicals. Their main product, Fire Barrier
II, is recognized under the Component Recognition Program of Underwriters
Laboratories, Inc.
Fire Doctor has submitted the product for testing to various independent
testing organizations which results have shown that use of the product is an
effective treatment on natural and most synthetic fibers as well as natural
wood and is non-toxic and a non-irritant. During 1997, Fire Doctor sold
several tanker loads of Fire Barrier II as a "value added" product which was
included in Majic Kidproof Fire Retardant Wall Paint which is manufactured
and marketed by Yenkin-Majestic Paint Corporation. However, to date,
despite substantial marketing efforts, Fire Doctor has still not experienced
substantial sales due to what it believes to be limited capital and long lead
times. Fire Doctor is reviewing its options.
Fire Doctor's current marketing strategy is as follows:
1. To attempt to enter into agreements with key manufacturers to
incorporate Fire Doctor's product into their core offering such as paints
and building materials; and
2. To target distributors in various "after market" industries to market
through service providers to the end user. These include carpet cleaners
and replacement roof companies.
Fire Doctor utilizes commissioned manufacturers sales representatives to
call on potential customers.
Herbert Siegel was President of Fire Doctor, Inc. from August, 1996 to May,
1997. In May, 1997, Benjamin Steiner was appointed President of Fire
Doctor, Inc. and has served as such through the present (see Item 9. for
biography of Benjamin Steiner).
ITEM 2. DESCRIPTION OF PROPERTY
The Company relocated its principal business offices to the industrial
office building that was purchased in June 1996. The Company purchased an
approximate 137 acre industrial compound located in Winslow Township, New
Jersey, from High Concrete Structures, Inc., for the total consideration of
$650,000. There are currently seven structures located on the property
totaling 148,000 square feet, including an 72,000 square foot industrial
plant and a 8,000 square foot commercial office building. The Company
houses its proprietary 3-Mix Cullet processing operations in the 72,000
square foot facility.
Fire Doctor, Inc., a subsidiary of the Company, is currently utilizing
office space at Plaza 1000, Suite 309, Voorhees, New Jersey 08043.
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ITEM 3. LEGAL PROCEEDINGS
As of April 14, 1998, there were no material actions, proceedings or
litigations pending at that time, or to the knowledge of the Company,
threatened, to which the property of the Company was subject, or to which
the Company was a party that have not otherwise been settled or in the final
stages of settlement, except for a suit by C&D Marketing for "finder's fees"
for some clients which the Company has done business with. The Company
contests such fees and believes that the claim is without merit. In addition,
Celia Pringle has filed a lawsuit for failure to timely remove a restrictive
legend from her stock so she could sell her stock at a higher value. The
Company believes that the claim has no merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were put to a vote of the security holders during the fourth
quarter of fiscal 1997. However, as a subsequent event, the Company's
1997-1998 Annual Shareholder's Meeting was held on January 22, 1998, at
which time three matters were submitted to the Company's stockholders for a
The majority of the stockholders voted for the appointment of the following
Directors: Frank Whitmore, Thomas L. Brandt, Oleg Batratchenko, Kevin J.
Coffey, Esquire, Gerard T. Wisla and Michael L. Newsom. Baratz & Associates,
P.A., as the Company's independent auditors for fiscal year 1997
and fiscal year 1998 and adoption of an Amendment to the 1996 Stock
Incentive Plan which increased the plan by 400,000 shares. The proxy
tabulation was as follows: 8,016.908, 8,022,990 and 7,924,220, respectively.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted in the Over-The-Counter market on the
OTC Bulletin Board under the trading symbol "EFTX". The following table
indicates the high and low bid prices of the Common Stock from January 1996
to March 31, 1998 for the quarterly periods ended on the dates set forth
(reflecting the Company's common stock 1 for 17 reverse stock split in
August, 1994 and a 1 for 3 reverse stock split in May, 1997).
<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDED HIGH BID LOW BID
<S> <C> <C>
1996
March 31 1-1/2 5/8
June 30 1-1/16 3/4
September 30 1-1/8 7/16
December 31 1-1/2 3/4
1997
March 31 1-15/32 9/16
June 30 2 26/32 1 5/8
September 30 2 3/16 1
December 31 1 7/16 5/8
1998
March 31 5/8 5/16
</TABLE>
As of March 31, 1998, the high and low bid quotations for the Company's
Common Stock were 5/8 and 5/16.
No price is currently available for the redeemable warrants which have been
restructured so that each warrant (after the 1 for 17 reverse stock split
and a 1 for 3 reverse stock split) permits the warrant holder to
purchase 6 shares of the Registrant's common stock at an exercise price of
$2.00 per share, with an extended expiration date for the warrants of
December 31, 1998.
There are approximately 252 holders of record of the Company's common stock,
however, the Company believes that its beneficial shareholders are in excess
of 700 in street name in various brokerage accounts. The Company has never
declared a dividend on its common stock and does not plan to do so in the
near future. The prices set forth above are not necessarily indicative of
the depth of the trading market of the Company's common stock. These
over-the-counter market quotations reflect inter-dealer prices without
markups, markdowns, or commissions and may not necessarily reflect actual
transactions.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
CAUTIONARY STATEMENT
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When used in this Report on Form 10-KSB/A and in other public statements, both
oral and written, by the Company and Company officers, the words "estimates,"
"project," "intend," "believe," "anticipate," and similar expressions, are
intended to identify forward-looking statements regarding events and financial
trends that may affect the Company's future operating results and financial
position. Such statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to differ materially.
Such factors include, among others: 1) the Company's success in attacting new
business; 2) the size, duration and timing of orders of GlassFlour; 3) the
termination, delay or cancellation of orders of GlassFlour; 4) the competition
in the industry in which the Company competes; 5) the Company's ability to
obtain financing on satisfactory terms; 6) the sensitivity of the Company's
business to general economic conditions; 7) efficiency of production lines;
8) availability and economic feasibility of receiving mixed cullet; and 10)
other economic, competitive, governmental and technological factors affecting
the Company's operations, markets, products, services and prices. The Company
undertakes no obligations to publicly release the result of any revision of
these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
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Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
- -----------------------------------------------------------------------
Revenue for the year ended December 31, 1997 increased 214% to $443,727 as
compared to $207,677 for the year ended December 31, 1996. The increase
in revenues is attributable to the commencement of operations of the
Company's wholly owned subsidiary, CFC, Inc. in October, 1997.
Cost of revenues for the year ended December 31, 1997 increased 251% to
$419,959 as compared to $167,072 for the year ended December 31, 1996. The
increase in cost of revenues is attributable to the commencement of operations
of the Company's wholly owned subsidiary, CFC, Inc.
Selling, general and administrative costs for the year ended December 31, 1997
increased 253% to $1,654,183 as compared to $654,855 for the year ended
December 31, 1996. The increase in selling, general and administrative costs
is attributable to payroll and related operating costs of CFC, Inc., the write
off of a related party receivable of $261,764 and depreciation expense of
$133,357.
Other income (expenses) for the year ended December 31, 1997 was an expense of
$57,525 as compared to income of $19,253 for the year ended December 31, 1996.
The increase in other income (expenses) is attributable to interest expense of
$58,314.
Net loss for the year ended December 31, 1997 increased 284% to $1,688,580 as
compared to $595,597 for the year ended December 31, 1996, due to the above
factors.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's primary source of funds continued to be through the sale of its
securities. Additionally, cash flow as supplemented by the proceeds of a
$250,000 mortgage on its Berlin, New Jersey plant site as well as various
financing leases related to specific equipment installed in its processing
line. The operating production line was completed in mid 1997 and commenced
October 1, 1997, after an extensive qualification process with its customers,
the wholly owned subsidiary, CFC, Inc. (CFC), began selling its product, Glass
Flour (trademark pending), to two of the world's largest producers of
fiberglass insulation. In fact, the Company entered into agreements with both
customers where the Company agreed to reserve up to 40,000 tons of GlassFlour
each in exchange for significant, volume related, pricing schedules. CFC also
received certain tipping fees for the delivery and acceptance of 3-mix cullet.
Tipping fees varied depending on the quality and condition of the cullet.
As a subsequent event, these customers have increased their demand for Glass
Flour and are anticipated to do so throughout 1998. The Company believes that
CFC is meeting its current obligations and should continue to improve its
operating results as demand levels rise and efficiencies improve.
The successful qualification process has led to the recognition of the high
quality and economic advantages of GlassFlour as a raw material in the
manufacturing of fiberglass insulation. As a result, the Company has also
received commitments by its customers for certain minimum/maximum demand levels
for its product should additional processing plants be developed at various
locations in close proximity to other insulation manufacturing facilities.
Commitments have been received from the purchase of a minimum of 80% of the
anticipated 100,000 ton, two-shift capacity, of a proposed processing facility
in northern California. Management is in the process of performing its due
diligence related to an expansion program that not only includes California,
but Georgia, Kansas and other locations. Various factors will influence the
decision to expand to specific locations including, but not limited to, product
demand, raw material availability and financing options, of which there is
no assurance.
On October 3, 1997, the Company sold 57,143 shares of its common stock in a
Private Placement for net proceeds of $42,857.24.
As a subsequent event, the Company sold at various times in 1998, additional
shares of its common stock in a Private Placement to mainly institutional
foreign investors as follows:
Shares
Date of Closing Sold Net Proceeds
--------------- ------- ------------
February 17, 1998 616,083 $123,138.45
February 23, 1998 225,803 $ 45,515.60
March 9, 1998 158,114 $ 31,846.11
Year 2000 Compliance
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All research indicates that the Company's exposure to this problem will be
minimal. The Company's computers, local area network servers, software and
phone system have all been purchased within the last three years. The
manufacturers of the Company's systems have provided, or are on track to
provide updates by the end of 1998, if needed.
ITEM 7. FINANCIAL STATEMENTS.
The Company's financial statements are presented under Item 13 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following are the Officers and Directors of the Company as of March 26,
1998:
Name Age Position Held with Company
- ----- ----- ----------------------------
Frank Whitmore 62 President, Chief Executive
Officer, Director
Kevin J. Coffey, Esq. 40 Director
Thomas L. Brandt 43 Director
Gerard T. Wisla(1) 40 Secretary, Chief Financial Officer,
Director
Shawn F. Pringle(2) 29 Former Treasurer and Chief Financial
Officer
Oleg Batratchenko 32 Director
Michael L. Newsom(3) 48 Director
Benjamin Steiner(4) 56 President of Fire Doctor, Inc.
Herb Siegel(5) 47 Former President of Fire
Doctor, Inc. and former Director
______________________________
1 Appointed a Director on March 19, 1997 and Chief Financial Officer on May
22, 1997*.
2 Resigned as Treasurer and Chief Financial Officer on May 22, 1997*.
3 Director Pro-tem appointed a Director by the Board of Directors on
December 11, 1997 and by Shareholders' vote at the Annual Shareholders'
Meeting held on January 22, 1998.
4 Appointed May 22, 1997* as President of Fire Doctor, Inc.
5 Resigned as Director on March 19, 1997 and resigned as President of Fire
Doctor, Inc. on May 22, 1997.
* All May 22, 1997 appointments became effective on June 2, 1997.
FRANK WHITMORE, President, Chief Executive Officer since January 31, 1996
and a Director of the Registrant, a general consultant since 1991, retired
in 1991 from Anchor Glass Container Corporation where he served as a
Corporate Officer and Vice President of Technical Services from 1984 to
1990. From 1983 to 1984 he was President of Midland Glass Company. From 1981
to 1983 Mr. Whitmore was Vice President of Engineering & Manufacturing. He
held various positions with Anchor Hocking Corporation of Lancaster, Ohio
between 1960 and 1981, beginning as a plant engineer, and advancing to
Engineering Manager, Plant Manager, to Vice President of Operations. Mr.
Whitmore received a bachelor of science degree in Electrical Engineering
from Ohio University.
KEVIN J. COFFEY, ESQ., Director of the Registrant and its Subsidiary was
a partner from 1986 through 1995 in the law firm of Donner, Coffey & Donner,
which engaged in multi-state general litigation and general practice. Mr.
Coffey is now in private practice by himself engaging in multi-state general
litigation and general practice. He received Juris Doctorate Degree from
Delaware Law School in 1985 and a Bachelor of Arts from the University of
Connecticut in 1980.
<PAGE>
THOMAS L. BRANDT, a Director of the Registrant and its subsidiary, is the
founder, President and Chief Operating Officer of Brandt Technologies, Inc.
("BTI"). BTI has operated since 1985 as a supplier of precision inspection
equipment and packaging technologies to the glass and plastics container
industries worldwide. From 1983 to 1985, Mr. Brandt served on the
management team of Emhart/Powers Machinery Group integrating glass
manufacturing systems throughout North America, Europe and the Middle East.
From 1980 to 1983, he held the position of Site Project Engineer for
Guardian Industries, responsible for the construction of a 186,000 square
foot windshield manufacturing plant. Between 1975 - 1980, Mr. Brandt held
various positions with Thatcher Glass beginning as Corporate Layout Engineer
and advancing to Assistant Plant Engineer at the Lawrenceburg, Indiana
manufacturing facility. Mr. Brandt received a two year technical degree
through the State University of New York for Mechanical Design and holds
five (5) U.S. and International patents, jointly holds two (2) European
patents and five (5) patents pending in progress.
SHAWN F. PRINGLE, former Treasurer and Chief Financial Officer of the
Registrant and its subsidiary (resigned on May 22, 1997), is the son of
Frank G. Pringle. From 1987 to 1991, he was involved on a part time basis
in the fabrication, engineering and drafting work of Pringle Systems while
working for a Bachelor of Science Degree in biology at the University of
South Carolina which he received in December of 1992. Thereafter, he joined
R & D Innovators, Inc. full time and has been responsible for certain
aspects of corporate operations and engineering. After resigning as Chief
Financial Officer and Treasurer, Mr. Pringle was appointed to Assistant to
the President and subsequently resigned that position and left the Company
in December, 1997.
GERARD WISLA, Secretary, Treasurer, Chief Financial Officer and Director of
the Registrant is a Certified Public Accountant and a principal partner of
Wisla & Cohen Certified Public Accountants for the last eight years. Mr.
Wisla was previously a shareholder and Director of Quality Control for a
large regional accounting firm. In addition to his extensive financial, tax,
and business consulting background, his experience includes presentations at
continuing education seminars and articles published in various newsletters.
Mr. Wisla is a graduate of Drexel University. He is a member of various
local and national professional organizations. Mr. Wisla is a past Board
member of an alumni association at Drexel University and currently serves as
Treasurer and Chairman of the Finance Committee of a local non-profit
organization.
OLEG BATRATCHENKO, Director. Since April, 1995, Mr. Batratchenko was Vice
President of Research at Berkshire International Finance, Inc., a New York
corporate finance and investment banking company. Also, Mr. Batratchenko is
a Senior Vice President of an affiliate organization, Fifth Avenue Research
and Advisory Group, Inc. Mr. Batratchenko has been managing many of the
public relations services rendered to a number of growth oriented small cap
companies. From 1993 to 1995, Mr. Batratchenko was employed in the capacity
of Research Analyst by Safian Investment Research, Inc., a White Plains, New
York financial research and money management firm. Prior to that, Mr.
Batratchenko worked as a Performance Analyst with Newberger and Berman, a
major New York money management firm. Between 1987 and 1990, Mr.
Batratchenko was a Research Associate at the Moscow Institute of World
Economy and International Relations, where he completed a Masters program in
Economics and was involved in a number of high profile research projects
being conducted by this leading Russian think tank for the Kremlin. In
1992, Mr. Batratchenko obtained a Masters Degree in International Political
<PAGE>
Economy from New York University. He is an Associate member of the
Financial Analysts - Money Managers Society (New York).
MICHAEL L. NEWSOM, Director, is the owner of his own consulting company.
From 1981 through 1997, he held various management positions with Anchor
Glass Container Corp., including Director of Environmental Affairs and
Director of Glass Engineering. From 1973 to 1980, he was involved in
various technical supervisory activities with Libby Owens Ford Glass
Company. He has authored publications carried in the glass industry
magazines concerning various environmental issues. His areas of expertise
involving the glass industry relate to glass melting operations, raw
material selection, environmental auditing, emissions reduction, statistical
and economic analysis and development of corporate environmental policy and
operating procedures. Mr. Newsom graduated in 1972 from the University of
Toledo with a B.S. degree in Chemical Engineering and in 1979 received his
MBA, also from the University of Toledo.
BENJAMIN I. STEINER, President of Fire Doctor, Inc. subsidiary as of June 2,
1997, is a Certified Public Accountant. From 1964 through 1997, Mr. Steiner
has held executive financial and administrative positions at mid-market,
publicly and privately owned companies. From 1995 to 1996, Mr. Steiner was
the Vice President of Finance and Chief Financial Officer of Packquisition
Corp. From 1994 to 1995, he held the Chief Financial Officer position at
Liss Brothers, Inc. Prior to that, Mr. Steiner was the Manager of Financial
Administration at Direct Innovative Products. Mr. Steiner graduated in 1964
from Bucknell University where he earned a B.S. degree is Business
Administration. He is an active member of the American and Pennsylvania
Institutes of Certified Public Accountants. Mr. Steiner is a former Chapter
Treasurer and Director of the Institute of Management Accountants, former
Chapter Vice President of the Association for Corporate Growth and former
Director of the Philadelphia Finance Association.
HERBERT SIEGEL, former President of Fire Doctor, Inc. subsidiary and
Director until his resignation on May 22, 1997. Herbert Siegel is the
founder, President and Partner of Herb Siegel, Inc. ("HSI"), a manufacturers
representatives firm which represents a wide variety of domestic and foreign
manufacturers from all categories of consumer products. In 1957, Mr. Siegel
received an honorable discharge from the U.S. Army. Following discharge
from the service, Mr. Siegel became the National Sales Manager of a
Philadelphia based manufacturer of consumer products. In 1968, Mr. Siegel
founded HSI and subsequently formed Asia Combine, LTD., a manufacturer and
Agent/Trading Company for sourcing and manufacturing importing products from
Asia.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------- ------------------------
Awards Payouts
------ ---------
(a)Name and (b) (c) (f)Restricted (g)Securities (h) (i)
Principal Stock Underlying LTIP All Other
Position Year Salary Awards($) Option/SARs(#) Payouts($)Compensation
- ----------- ---- ------ --------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Frank Whitmore,1997 $ 50,000* 0 0 0 0
President (1) 1996 $ 41,667 0 0 0 0
Frank Pringle, 1996 $102,500 0 0 0 0
(Past Pres.) 1995 $ 63,750 0 0 0 0
1994 $112,950 0 0 0 0
Gerard T.
Wisla, CFO(2) 1997 $ 12,000** 0 0 0 0
</TABLE>
* $41,667 was paid to the President and $14,583 is accrued salary to be
paid at a later date.
** $12,000, all of which is accrued and to be paid at a later date.
(1) Frank Whitmore, the current President of the Company, agreed to receive
$50,000 annual salary and 166,667 stock options, (66,667 of which are
already vested and an additional 33,333 options to be vested each year
thereafter as long as he is still employed by the Company). Mr. Whitmore
also received 2,500 stock options for Director compensation for 1995. On
October 31, 1997, Mr. Whitmore was granted 333,334 stock options at the
exercise price of $1.00 per share and an additional 100,000 stock options on
January 22, 1998 for $.3875 per share.
(2) Gerard T. Wisla, the current Chief Financial Officer of the Company,
agreed to receive $24,000 annual salary. On March 1, 1996, prior to Mr.
Wisla being appointed an officer or director, Mr. Wisla was granted 4,167
stock options at the exercise price of $1.86 for past services rendered to
the Registrant. In addition, after being named as a director, Mr. Wisla was
granted 2,500 stock options at the exercise price of $3.75. However, when
Mr. Wisla was appointed Secretary, and subsequently Chief Financial Officer,
those options were terminated. In addition, on October 31, 1997, he was
granted 25,000 options at the exercise price of $1.00 for services and on
January 22, 1998, 25,000 stock options at the exercise price of $.3875 as an
employee.
All of the above stock options and exercise prices reflect the 1 for 3
reverse stock split that occurred on May 22, 1997.
See Item 11. footnotes for stock option grants to other Directors and
Officers.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
RECORD AND BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
(A)(B) The following table sets forth certain information with regard to the
record and beneficial ownership of the Company's common stock as of March
31, 1998 by (i) each shareholder owner of record or beneficially 5% or more
of the Company's common stock (ii) each Director individually and (iii) all
Officers and Directors of the Company as a group. All numbers have been
adjusted for the 1 for 17 reverse stock split, which occurred August 22,
1994 and the 1 for 3 reverse stock split that occurred on May 22, 1997:
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS PERCENT
CLASS OF BENEFICIAL OWNER SHARES OWNED OF CLASS
- -----------------------------------------------------------------------------
<S> <C> <S> <C>
Common Frank Whitmore 610,977(1) 5.29%
324 New Brooklyn Road
Berlin, New Jersey 08009
Common Frank G. Pringle
Creditors' Trust 1,050,826(2) 9.09%
8 Tallowood Drive
Medford, NJ 08055
Common Kevin J. Coffey, Esq. 111,588(3) .97%
153 Lost Lake
Marlton, NJ 08053
Common Shawn Pringle 40,390(2) .35%
324 New Brooklyn Road
Berlin, New Jersey 08009
Common Thomas L. Brandt 15,000(4) .13%
324 New Brooklyn Road
Berlin, New Jersey 08009
Common Herbert Siegel 11,666(5) .10%
405 Lakeside Drive
South Hampton, PA 18966
Common Sierra Growth & Opportunity
Fund 883,667 7.65%
551 Fifth Avenue, Suite 605
New York, NY 10017
Common Gerard Wisla 69,508(6) .60%
4808 Rainbow Ridge Circle
Schwenksville, Pennsylvania 19473
Common Oleg Batratchenko 21,667(7) .19%
551 Fifth Avenue, Suite 605
New York, NY 10017
Common Michael Newsom 12,500(8) .11%
P.O. Box 924
Safety Harbor, Florida 34695
<PAGE>
Common Benjamin Steiner 10,000(9) .09%
40 April Lane
Huntingdon Valley, PA. 19006
Common Arista Capital Growth
Fund Ltd. 2,318,887(10) 20.07%
P.O. Box 20043
Phase 3, British American Center
Georgetown, Grand Cayman
Cayman Islands, British West Indies
Common Signature Equities Agency GmbH 1,371,368 11.87%
Ross Str 96
40476 Duesseldorf
Germany
Common Veco Capital Growth Fund 1,173,803 10.16%
P.O. Box 20043
Phase 3, British American Center
Georgetown, Grand Cayman
Cayman Islands, British West Indies
---------- --------
All Officers and Directors as a 903,296 7.82%
group (9 in number) ========== ========
- ---------------------------------------
1 Includes 100,000 stock options vested and excludes 66,667 stock options
still not vested at the exercise price of $1.875 per share and 2,500 stock
options granted to Mr. Whitmore as a member of the Board of Directors in
1995 at the exercise price of $5.25 per share. Also includes 333,334 stock
options at the exercise price of $1.00 and 100,000 options at the exercise
price of $.3875.
2 Frank G. Pringle and Shawn Pringle, father and son, each disclaim
beneficial ownership of the shares of Registrant held by the other. The
Company has been advised, according to a Court Order of the U.S. Bankruptcy
Court filed March 5, 1997, that all of Mr. Frank G. Pringle's shares are now
beneficially owned solely by a Creditors' Trust in consideration of the
release of Mr. Pringle of certain obligations of his bankruptcy estate. This
figure does not include the beneficial ownership of stock held in street name.
3 Includes 7,500 stock options all of which are vested for compensation for
being a Director in 1995, 1996 and 1997 at the rate of 2,500 stock options
per year exercisable at $5.25, $2.625, and $3.75, respectively. Does not
include 7,500 stock options which are not vested for compensation for being
a Director for 1998.
4 Includes 7,500 stock options granted to Mr. Brandt as compensation for
being a Director in 1996 and 1997 which are vested as well as 10,000 stock
options for services at the exercise price of $1.00. Does not include 7,500
stock options granted to Mr. Brandt as compensation for being a Director in
1998 which are not vested.
5 No longer an officer or director as of May 22, 1997.
6 Includes 2,500 stock options exercisable at $3.75 which are not vested,
granted to Mr. Wisla as a member of the Board of Directors of 1997, 4,167
options exercisable at $1.86 granted to Mr. Wisla for past services
rendered, 25,000 stock options exercisable at $1.00 granted for services and
25,000 stock options exercisable at $.3875 granted to Mr. Wisla for
services. All of Mr. Wisla's stock options are vested.
7 Includes 5,000 stock options granted as compensation for being a Director
for the years 1996 and 1997 (2,500 per year) exercisable at $2.625 and
$3.75, respectively, all of which are vested. Does not include 7,500 stock
options exercisable at $.8125, which are not vested, granted as compensation
for being a Director for the year 1998.
8 Includes 2,500 stock options exercisable at $3.75 granted as compensation
for being a Director for the year 1997, all of which are vested, as well as
10,000 stock options granted to Mr. Newsom for services at the exercise
price of $.3875. Does not include 7,500 stock options that were granted at
the exercise price of $.8125 for being a Director in the year 1998, which
are not vested.
9 Includes 10,000 stock options at the exercise price of $2.00 which are
vested. Does not include 20,000 stock options at the exercise price of
$2.00 which are not vested.
10 This figure assumes a combined beneficial ownership of Arista Capital Growth
Fund Ltd., Arista Biomedical Growth Fund Ltd. and Arista High Technology
Growth Fund Ltd.
(C) CHANGE IN CONTROL
None.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None for the fiscal year ended December 31, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) The following documents are filed as a part of this Form 10-KSB/A at the
page indicated.
Page Number
(a)(i) Financial Statements
Auditor's Report as of April 7, 1998...............F1
Consolidated Balance Sheets - December 31, 1997 and
1996...............................................F2
Consolidated Statement of Operations - For the years
ended December 31, 1997 and 1996...................F3
Statement of Shareholder's Equity - For the years
ended December 31, 1997 and 1996...................F4
Statement of Cash Flows - For the years ended
December 31, 1997 and 1996.........................F5
Consolidated Notes to Financial Statements.........F6-F13
(a)(ii) Consolidated Schedules - None.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
(a)(iii) Exhibits
Sequential
NUMBER DESCRIPTION Page Number
3(a) Articles of Incorporation of the Company
(Savoy Capital Group, Inc.) *
3(b) By-Laws of the Company *
3(c) Certificate of Incorporation of Exotic Bodies, Inc. **
3(d) Amendment of Articles of Incorporation of Savoy Capital
Group Ltd. changing its name to Exotic Bodies, Inc. **
3(f) Amendment to Certificate of Incorporation of Exotic
Bodies, Inc. changing its name to EFTEK Corp. ***
10(b) Stock Purchase Agreement dated July 25, 1994 by and
between the Registrant and R & D Innovators, Inc. ***
10(c) Stock Purchase Agreement dated February, 1996 by and
between the Registrant and the Shareholders of Fire
Doctor, Inc. ****
10(d) Purchase Agreement between EFTEK Corp.
and High Concrete Structures, Inc. dated June 5, 1996. ****
10(e) 1996 Stock Incentive Plan *****
21 Subsidiaries of the Registrant
27 Financial Data Schedule (in Electronic format only)
* Incorporated by reference from the like-numbered exhibit to Form S-18
Registration Statement, SEC File No. 33-26789-NY Post-Effective Amendment
No. 1 filed June 1, 1989.
** Incorporated by reference from the like-numbered exhibit to Form S-18
Registration Statement, SEC file No. 33-26789-NY Post-Effective Amendment
No. 3 filed April 25, 1990.
*** Incorporated by reference from the Exhibit to Form 10-KSB for the
fiscal year ended December 31, 1994.
**** Incorporated by reference from the Exhibit to Form 10-KSB for the
fiscal year ended December 31, 1995.
*****Incorporated by reference from the Exhibit to Form 10-KSB for the
fiscal year ended December 31, 1996.
(b) Form 8-K
Reports on Form 8-K filed during the last quarter of the period covered by
this report are as follows:
There were no reports filed on Form 8-K during the fourth quarter of
fiscal 1997.
<PAGE>
EFTEK CORPORATION
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
Page(s)
-------
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
EFTEK Corp.
324 New Brooklyn Road
Berlin, NJ 08009
We have audited the accompanying consolidated balance sheets of
EFTEK Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits 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 EFTEK
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
BARATZ & ASSOCIATES, P.A.
April 7, 1998
F-1
<PAGE>
EFTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Assets
Current Assets
Cash $ 32,002 $ 172,919
Receivables:
Trade 65,598 63,857
Related parties (Note 3) 261,764
Other 900
Prepaid expenses 40,034 44,120
----------- ---------
Total Current Assets 137,634 543,560
----------- ---------
Property and Equipment, Net (Note 2) 4,830,629 2,873,025
----------- ---------
Other Assets
Intangible assets, net (Note 2) 84,046 55,125
Deposits 3,900 7,300
----------- ---------
Total Other Assets 87,946 62,425
----------- ---------
Total Assets 5,056,209 3,479,010
=========== =========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long term debt (Note 4) 205,528
Current portion of obligations
under capital leases (Note 5) 139,561 38,104
Accounts payable and accrued
liabilities 763,691 191,329
Income taxes payable (Note 7) 600 300
----------- ---------
Total Current Liabilities 1,109,380 229,733
Long Term Debt (Less Current
Portion) (Note 4) 243,633
Obligations Under Capital Leases
(Less Current Portion) (Note 5) 396,875 138,543
----------- ---------
Total Liabilities 1,749,888 368,276
----------- ---------
Commitments and Contingencies (Note 6)
Stockholders' Equity
Common stock, $.001 par; authorized
25,000,000 shares; issued and out-
standing 10,829,155 and 25,991,076
shares at December 31, 1997 and
1996, respectively (Notes 8&9) 10,829 25,991
Additional paid in capital 6,719,775 4,820,446
Deficit (3,424,037)(1,735,457)
----------- ---------
3,306,567 3,110,980
Common stock held in treasury
(4,811 shares), at cost 246 246
----------- ---------
Total Stockholders' Equity 3,306,321 3,110,734
----------- ---------
Total Liabilities and Stockholders' Equity $ 5,056,209 $3,479,010
=========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
EFTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Revenues $ 443,727 $ 207,677
------------ -----------
Costs and Expenses
Cost of revenues 419,959 167,072
Selling, general and
administrative (Notes 2 & 5) 1,654,183 654,855
------------ -----------
Total Costs and
Expenses 2,074,142 821,927
------------ -----------
Loss From Operations ( 1,630,415) ( 614,250)
------------ -----------
Other Income (Expenses)
Interest income (Note 3) 15,926
Miscellaneous income 789 16,466
Interest expense (Note 4) ( 58,314) ( 5,068)
Miscellaneous expense ( 8,071)
------------ -----------
Total Other Income
(Expenses) ( 57,525) 19,253
------------ -----------
Loss Before Income Taxes ( 1,687,940) ( 594,997)
Income Taxes (Notes 2 & 7) 640 600
------------ -----------
Net Loss $( 1,688,580) $( 595,597)
============ ===========
Net Loss Per Common Share (Note 2) $( .17) $( .10)
============ ===========
Weighted Average Common
Shares Outstanding 10,161,663 5,966,574
============ ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EFTEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
</TABLE>
<TABLE>
<CAPTION>
Additional Treasury
Common Stock Paid-In Stock,
Shares Amount Capital Deficit at Cost Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 11,861,435 $ 11,861 $1,385,178 $(1,139,860) $(246) $ 256,933
Common stock issued 14,129,641 14,130 3,412,992 3,427,122
Acquisition (Notes 2 & 10) 22,276 22,276
Net loss for the year ( 595,597) ( 595,597)
----------- -------- ---------- ----------- ----- -----------
Balance, December 31, 1996 25,991,076 25,991 4,820,446 (1,735,457) (246) $ 3,110,734
Common stock issued 3,941,953 3,942 1,065,874 1,069,816
Reverse stock split (Note 9) (19,955,353) (19,955) 19,955
Common stock issued 851,479 851 813,500 814,351
Net loss for the year (1,688,580) (1,688,580)
----------- -------- ---------- ----------- ----- -----------
Balance, December 31, 1997 10,829,155 $ 10,829 $6,719,775 $(3,424,037) $(246) $ 3,306,321
=========== ======== ========== =========== ===== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EFTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Cash Flows From Operating Activities
- ------------------------------------
Net loss for the year $(1,688,580) $( 595,597)
Adjustments To Reconcile Net Loss To
Net Cash Used In Operating Activities
- ---------------------------------------
Depreciation and amortization 137,680 7,927
Changes In Operating Assets
And Liabilities
Decrease (increase) in receivables 260,923 ( 68,183)
Decrease (increase) in prepaid expenses 4,086 ( 44,120)
Decrease (increase) in deposits 3,400 ( 4,000)
Increase in accounts payable and
accrued liabilities 572,362 121,306
Increase in income taxes payable 300 300
---------- ----------
Net Cash Used In Operating Activities ( 709,829) ( 582,367)
- ------------------------------------- ---------- ----------
Cash Flows From Investing Activities
- ------------------------------------
Additions to intangible assets ( 28,235) ( 7,598)
Purchase of property and equipment (1,666,884) (2,858,776)
Acquisition 22,276
---------- ----------
Net Cash Used In Investing Activities (1,695,119) (2,844,098)
- ------------------------------------- ---------- ----------
Cash Flows From Financing Activities
- ------------------------------------
Reduction of related party debt ( 4,776)
Proceeds from debt 450,000 176,647
Reduction of debt ( 70,136)
Proceeds from issuances of common stock 1,884,167 3,427,122
---------- ----------
Net Cash Provided By Financing Activities 2,264,031 3,598,993
- ----------------------------------------- ---------- ----------
Net Increase (Decrease) In Cash ( 140,917) 172,528
- -------------------------------
Cash at Beginning of Year 172,919 391
- ------------------------- ---------- ----------
Cash at End of Year $ 32,002 $ 172,919
- ------------------- ========== ==========
Supplemental Cash Flow Information (Note 10)
- --------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EFTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. Description of Business
-----------------------
EFTEK Corporation (the Company), incorporated in the state of
Nevada, is engaged in processing mixed cullet (broken glass) into a
recycled, uncontaminated product (GlassFlour) for use in fiberglass
and glass container manufacturing industries. The Company also develops
and sell various fire retardant chemicals.
2. Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
provided using the straight line method over the estimated useful
lives of the assets. Depreciation expense for the years ended
December 31, 1997 and 1996 was $133,357 and $4,864, respectively.
Expenditures for maintenance and repairs are charged against income
as incurred. When assets are sold or retired, the cost and
accumulated depreciation are removed from the accounts and any gain
or loss is included in income.
Property and equipment consisted of the following at December 31:
1997 1996
---- ----
Land $ 338,073 $ 338,073
Building 317,081 317,081
Building improvements 889,159 726,786
Equipment 3,406,493 1,482,157
Furniture and fixtures 21,759 17,511
Leasehold improvements 2,500
----------- ----------
4,972,565 2,884,108
Less accumulated depreciation 141,936 11,083
----------- ----------
Net property and equipment $ 4,830,629 $2,873,025
=========== ==========
F-6
<PAGE>
Intangible Assets
Certain intangible assets have been capitalized and are amortized
over the estimated useful lives of the assets using the straight-line method.
Patent costs are amortized over a period of 17 years. Organization costs and
mortgage acquisition costs are amortized over a period of 5 years.
Intangible assets consisted of the following at December 31:
1997 1996
---- ----
Patents $ 71,675 $ 63,624
Mortgage acquisition costs 25,193
Organization costs 1,500 1,500
-------- --------
98,368 65,124
Less accumulated amortization 14,322 9,999
-------- --------
Net intangible assets $ 84,046 $ 55,125
======== ========
Income Taxes
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. In estimating future
tax consequences, the Company generally considers all expected future events
other than enactment of changes in the tax laws or rates.
Net Loss Per Common Share
Net loss per common share is based upon the weighted average number of
common and common equivalent shares (stock warrants) outstanding in each
period. The computation of diluted net loss per common and common equivalent
share was antidilutive in each of the periods presented. The 1996 calculation
of net loss per common share was adjusted retroactively to reflect the reverse
stock split occurring in 1997.
Acquisition
On April 20, 1996, the Company acquired Fire Doctor, Inc. (Fire) by
issuing two million shares of the Company's common stock in exchange for all
Fire's outstanding shares of common stock. The acquisition was accounted for
as a purchase. Proforma results of the Company, assuming the acquisition
occurred at the beginning of the year, would not be materially different from
the actual results reported.
3. Related Party Transactions
--------------------------
Related party transactions included the following:
At January 1, 1996, the Company was due $258,338 from a stockholder
(former Company president). During 1996, interest charges were $15,926 and
repayments were $12,500 resulting in a $261,764 balance due from the
stockholder at December 31, 1996. In 1997, the receivable was determined to
be uncollectible due to the stockholder's personal bankruptcy. Bad debt
expense in the amount of $261,764 is included in selling, general and
administrative expenses.
F-7
<PAGE>
At January 31, 1996, the Company owed an affiliate $4,776; the amount was
repaid in 1996 in its entirety.
4. Long Term Debt
--------------
Long term debt consisted of the following at December 31, 1997:
1997 1996
---- ----
A mortgage payable in monthly installments of
$3,750, inclusive of interest at 16% per
annum. The mortgage matures on July 2011 and
is collateralized by land and building in
Williamstown, NJ. $ 249,161
A note payable to an officer and shareholder
of the Company. Interest is payable monthly
at 10% per annum. The note matures March 1998.
Interest accrued on this note at December 31,
1997 was $3,014. 100,000
A note payable to a financing company, interest
is payable at 8% per annum when the note
matures in January 1998. The Company has the
option to convert the note into common stock
at $0.625 per share prior to January 1998. 50,000
A note payable to a company. Interest is
payable at 8% per annum when the note matures
on June 1998. The Company has the option to
convert the note into common stock at $0.625
per share prior to June 1998. 50,000
---------
449,161
Less current portion 205,528
---------
Total long term debt $ 243,633
=========
The aggregate maturities of long term debt at December 31, 1997 are
as follows:
1998 $ 205,528
1999 6,480
2000 7,597
2001 8,905
2002 10,439
Thereafter 210,212
---------
$ 449,161
=========
F-8
<PAGE>
5. Obligations Under Capital Leases
--------------------------------
Obligations under capital leases consisted of the following at
December 31, 1997:
1997 1996
---- ----
A lease payable in monthly installments of
$4,639, inclusive of interest at 12.6% per
annum. The lease matures in March 2001
and is collateralized by equipment costing
$155,000. $ 146,004
A lease payable in monthly installments of
$2,913, inclusive of interest at 12.9% per
annum. The lease matures in August 2001
and is collateralized by equipment costing
$108,750. $ 99,848
A lease payable in monthly installments of
$1,794, inclusive of interest at 16.1%
per annum. The lease matures in October
2001 and is collateralized by equipment
costing $73,597. $ 61,275 $ 71,879
A lease payable in monthly installments of
$1,422, inclusive of interest at 8.99% per
annum. The lease matures in November 2001
and is collateralized by equipment costing
$11,410. $ 56,156
A lease payable in monthly installments of
$1,903, inclusive of interest at 9.25% per
annum. The lease matures in September 2000
and is collateralized by equipment costing
$76,100. $ 55,255 $ 72,121
A lease payable in monthly installments of
$1,219, inclusive of interest at 17.61% per
annum. The lease matures in January 2002
and is collateralized by equipment costing
$48,398. $ 42,375
A lease payable in monthly installments of
$529, inclusive of interest at 12.95% per
annum. The lease matures in February 2001
and is collateralized by equipment costing
$19,750. $ 16,777
A lease payable in monthly installments of
$379 inclusive of interest at 12.6% per
annum. The lease matures in November 2002
and is collaterized by equipment costing
$16,823. $ 16,620
F-9
<PAGE>
A lease payable in monthly installments of
$707, inclusive of interest at 8.89% per
annum. The lease matures in November 1999
and is collateralized by equipment costing
$22,000. $ 14,895 $21,718
A lease payable in monthly installments of
$497 inclusive of interest at 14.5% per
annum. The lease matures in April 2000
and is collaterized by equipment costing
$13,410. $ 11,384
A lease payable in monthly installments of
$320 inclusive of interest at 10.9% per
annum. The lease matures in May 2000
and is collaterized by equipment costing
$9,805. $ 8,139
A lease payable in monthly installments of
$417, inclusive of interest at 18.72% per
annum. The lease matures in October 1999
and is collateralized by equipment costing
$11,410. $ 7,708 $ 10,929
--------- --------
$ 536,436 $176,647
Less current portion $ 139,561 $ 38,104
--------- --------
$ 396,875 $138,543
========= ========
Minimum future lease payments at December 31, 1997 are as follows:
1998 $ 200,861
1999 199,320
2000 175,945
2001 86,847
2002 5,387
---------
668,360
Less amount representing interest 131,924
---------
Present value of future minimum
lease payments $ 536,436
=========
6. Commitments and Contingencies
-----------------------------
Operating Leases
The Company leases office facilities and transportation equipment
under noncancellable operating leases with expiration dates
through October 1997. Rent expense amounted to $26,867 and
$38,353 in 1997 and 1996, respectively.
F-10
<PAGE>
Litigation
The Company's balance sheet includes a $15,500 accounts payable to
a contractor who has litigated against the Company for alleged breach of
contract and unpaid fees. The Company believes the suit is without merit
and intends to vigorously defend its position. Counsel has estimated a
maximum potential loss of $20,000.
The Company is a defendant in a lawsuit filed by a Company that
performed marketing services for EFTEK Corporation (EFTEK). The Company
claims that EFTEK owes them a "finders fee" for the clients that EFTEK does
business with. Outside counsel for EFTEK has advised the Company that at this
stage in the proceedings they cannot offer an opinion as to the probable
outcome. The Company believes the suit is without merit and is vigorously
defending its position.
A stockholder has filed a lawsuit against the Company for failure to
timely remove a restrictive legend from her stock so she could sell her stock
for money. The Company believes that the suit is without merit and is
vigorously defending its position.
7. Income Taxes
------------
Operating losses in 1997 and 1996 eliminated the need for income tax
provisions except for the statutory state minimum tax. At December 31, 1997,
the Company had available federal and state operating loss carryforwards in
the respective amounts of $3,470,000 and $3,424,000. The loss carryforwards
expire 2012 (federal) and 2005 (state).
Income taxes, including those currently payable to the state, were
$640 and $600 at December 31, 1997 and 1996, respectively.
No provisions were made for deferred income taxes in 1997 and 1996.
Net deferred tax assets were entirely eliminated by a valuation allowance as
follows:
Deferred income tax components:
1997 1996
---- ----
Deferred Tax Asset
Net operating loss carryforwards $ 1,487,830 $764,904
Deferred Tax Liability
Start-up costs ( 13,401) (55,457)
----------- ----------
Net Deferred Tax Asset 1,474,429 709,447
Less Valuation Allowance (1,474,429) (709,447)
----------- ----------
$ 0 $ 0
=========== ==========
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. At December 31,
1997 and 1996, management believed that a portion of the net operating loss
carryforwards would not be realized before their expiration.
F-11
<PAGE>
8. Stock Options and Warrants
--------------------------
Common Stock Options
The Company's 1996 stock incentive plan provides for the granting
of incentive and nonstatutory stock options for the purchase of
shares of common stock to officers, directors, nonsalaried
directors, employees and consultants as provided by the plan. The
option exercise price is the bid price on the date of grant. The
Board of Directors determines the vesting period and expiration
date (generally five years). Stock option transactions were as follows:
Shares Under Option
-------------------
1997 1996
---- ----
Outstanding, beginning of year 177,500 0
Granted 503,333 177,500
Retired ( 50,000)
Adjustment for reverse stock split (166,666)
-------- --------
Outstanding, end of year (at exercise
prices ranging from $1.00 to $3.75 per
share) 464,167 177,500
======== ========
Common Stock Warrants
At December 31, 1997 and 1996, the Company had outstanding 65,000
Class A redeemable common stock warrants and 83,000 Class B
redeemable common stock warrants. Each warrant allows for the
purchase of six shares of the Company's common stock at an
exercise price of $2 per share. Warrant expiration dates were
extended to December 31, 1998.
9. Reverse Stock Split
-------------------
On May 22, 1997, the Board of Directors authorized a one for three
reverse stock split. As a result, the number of shares outstanding
decreased by 19,955,353 and additional paid in capital increased by
$19,955. The authorized number of shares and the par value remained the
same.
10. Supplemental Cash Flow Information
----------------------------------
Cash paid for interest during 1997 and 1996 was $55,230 and $5,068,
respectively. Cash paid for income taxes during 1996 was $400 and
$300, respectively.
Noncash investing and financing activities for the years ended
December 31, 1997 and 1996 consisted of the following:
In 1997 the Company purchased equipment by incurring capital lease
obligations in the amount of $429,086.
F-12
<PAGE>
In 1996 the Company acquired Fire Doctor, Inc. through the issuance
of stock. The transaction was recorded as follows:
Fair value of assets acquired $ 61,009
Liabilities assumed (38,733)
--------
Adjustment to additional paid in capital $ 22,276
========
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, EFTEK Corp. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EFTEK CORP.
Dated: April 23, 1998 /s/Frank Whitmore
FRANK WHITMORE
President, Chief Executive
Officer and Director
Dated: April 23, 1998 /s/Gerard T. Wisla
GERARD T. WISLA
Secretary, Treasurer, Chief Financial
Officer and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on behalf of EFTEK Corp.
and in the capacities and on the dates indicated.
Dated: April 23, 1998 /s/Frank Whitmore
FRANK WHITMORE
President, Chief Executive
Officer and Director
Dated: April 23, 1998 /s/Gerard T. Wisla
GERARD T. WISLA
Secretary, Treasurer, Chief
Financial Officer and Director
Dated: April 23, 1998 /s/Kevin J. Coffey
KEVIN J. COFFEY, Director
Dated: April 23, 1998 /s/Thomas L. Brandt
THOMAS L. BRANDT, Director
Dated: April 23, 1998 /s/Oleg Batratchenko
OLEG BATRATCHENKO, Director
Dated: April 23, 1998 /s/Michael L. Newsom
MICHAEL L. NEWSOM
Director*
* Director as of January 22, 1998
ELINK\97EFTEK
SUBSIDIARIES OF EFTEK CORP.
1. CFC, Inc.
324 New Brooklyn Road
Berlin, New Jersey 08009
2. Fire Doctor, Inc.
Plaza 1000, Suite 309
Voorhees, New Jersey 08043
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary information
extracted from the Consolidated Statements
Operations and Consolidated Balance Sheets
of EFTEK Corp. And is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000846476
<NAME> EFTEK Corp.
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 32,002
<SECURITIES> 0
<RECEIVABLES> 65,598
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 137,634
<PP&E> 4,830,629
<DEPRECIATION> 133,537
<TOTAL-ASSETS> 5,056,209
<CURRENT-LIABILITIES> 1,109,380
<BONDS> 0
0
0
<COMMON> 10,829
<OTHER-SE> 3,295,738
<TOTAL-LIABILITY-AND-EQUITY> 5,056,209
<SALES> 443,727
<TOTAL-REVENUES> 443,727
<CGS> 419,959
<TOTAL-COSTS> 2,074,142
<OTHER-EXPENSES> (57,525)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,314
<INCOME-PRETAX> (1,687,940)
<INCOME-TAX> 640
<INCOME-CONTINUING> (1,688,580)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,688,580)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
