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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ______.
Commission File No.: 0-20101
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URECOATS INDUSTRIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3545304
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Powerline Business Park
4100 North Powerline Road, Suite F-1
Pompano Beach, Florida 33021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954)977-5428
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .01
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31, 1999
were $-0-. As of March 21, 2000, 99,098,469 shares of Common Stock of the
Registrant were deemed reserved and outstanding, and the aggregate market
value of the Common Stock of the Registrant (based upon the average of the
closing bid and asked prices of the Common Stock at that date), excluding
outstanding shares beneficially owned by directors and executive officers,
was approximately $167,441,479.
DOCUMENTS INCORPORATED BY REFERENCE - None
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PART I
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FORWARD LOOKING STATEMENTS
This Form 10-KSB contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or the
negative or other variations thereof or comparable terminology are
intended to identify forward-looking statements. These statements by
their nature involve substantial risks and uncertainties, and actual
results may differ materially depending on a variety of factors.
ITEM 1. DESCRIPTION OF BUSINESS
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BUSINESS DEVELOPMENTS
Urecoats Industries Inc. (the "Company") is presently engaged,
through its wholly-owned subsidiaries, Urecoats International, Inc.
("Urecoats International") and Urecoats Technologies, Inc. ("Urecoats
Technologies"), in the business of acquiring, developing, marketing,
and distributing sealant and coating products containing recycled
material in their composition, for use in various industries. The
Company acquired Urecoats International, a Florida corporation,
organized in January 1997, and formed for the purpose of selling and
marketing a new line of sealant and coating products made in part with
crumb rubber from recycled tires. The Company established a wholly-owned
subsidiary, Urecoats Technologies, organized under the laws of the state of
Florida in July 1999, for the purpose of performing product enhancements,
research and new product developments, and this subsidiary will become the
foundation for the Company's full-fledged manufacturing and distribution
facilities worldwide (the "Company" and its wholly-owned subsidiaries are
sometimes referred to as the "Company" or "Urecoats"). As a result of the
global recycling movement and legislation aimed at the extraction of raw
materials from solid waste, management's view of the future growth of
the industry is that there will be an increasing market demand for
quality and cost-effective products utilizing recycled components. The
Company is committed to acquiring and developing secondary use products,
to supply the emerging market demands for such products.
In October 1997, Urecoats acquired all right, title and interest in
two formulas, including certain technologies for their manufacture and
application ("formulae"). The Company refers to the products made from
the formulae as rubber sealant membranes and has adopted consistent
trademarks (RSM). Urecoats completed development and testing of its first
Rubber Sealant Membrane (RSM)(TM), URECOATS 100 (TM), made for the roofing
and general construction industry, and fourth generation prototype spray
system for its application. The Company is presently coordinating
presentations for product approvals and certifications from appropriate
agencies and organizations. Urecoats is also in the process of building five
full production units for varying purposes and uses. Urecoats established a
testing, training and laboratory facility for handling research and
development related to its coating and sealant products, and a new facility
to provide production facilities and showroom space for its products and
application systems.
Page 2
INDUSTRY OVERVIEW
The Company desires to establish a niche in a number of industries, each
of which represent a substantial market. The degree of penetration in each
industrial market will depend upon the Company's ability to manufacture, sell
and compete with substantial competitors with greater resources.
According to recognized statistical data, in 1996, the total sales of
adhesives, sealants and coatings in the United States were approximately
$26.4 billion. Adhesives, sealants and coatings are used in a wide range of
products with applications in numerous industries, including: industrial,
consumer, construction, automotive, aerospace and packaging. Typical
industrial applications include corrosion resistant coatings, general
assembly adhesives, fire-retardant textile coatings, coatings for electronic
components and numerous other diverse applications. Consumer applications
include various consumer-applied adhesives such as white glues, caulks and
sealants, architectural coatings and miscellaneous do-it-yourself
sealing applications for bathtub and kitchen fixtures. Automotive market
applications include the use of primers and top coats, body sealants,
structural adhesives and interior and exterior trim adhesives. Typical
construction applications include contractor-applied architectural
coatings, joint sealants and flooring and roofing adhesives. Packaging
industry applications include carton, corrugated box and flexible
consumer packaging adhesives, seam sealers and container coatings.
Aerospace applications include commercial, military and general aviation
coatings, composite bonding adhesives and structural epoxies.
The U.S. adhesives, sealants and coatings industry is highly
fragmented with over 500 competitors, and has grown from approximately
$13.8 billion in 1986 to approximately $26.4 billion in 1996,
representing a compound annual growth rate of 6.7%. Continued future
growth is expected to result from the trend of the industry to create
simpler design and manufacture, lower costs, improve bonding of
dissimilar materials, reduce weight, vibration and corrosion in new
applications. Additional industry growth is expected to occur as a result
of the increased use of adhesives, sealants and coatings in international
markets. Total worldwide sales for adhesives, sealants and coatings were
approximately $75.2 billion in 1996. In 1996, the United States accounted
for approximately 35% of worldwide sales, while Europe accounted for
approximately 40% of worldwide sales and Japan accounted for
approximately 12% of worldwide sales. Sales to the remainder of the world
accounted for approximately 13% of total industry sales. Developing
markets are currently under-penetrated with respect to the use of
adhesives, sealants and coatings. Strong growth is expected in these
markets, particularly in the Far East, Eastern Europe and Latin America.
CONSTRUCTION INDUSTRIES
The Company seeks to develop and market its products in the
construction industries and specifically in the industries involving
manufacturing and industrial building, single-family housing, multifamily
housing, water, sewer, and pipeline, bridge and tunnel, and structural
steel erection industries. The Company intends to compete in these
industries by providing its products and systems as part of the materials,
components and supplies therefor.
Page 3
ROOFING
According to the National Roofing Contractors Association's
1998-99 Annual Market Survey ("NRCA"), total roofing industry sales volume
in the United States for 1998 was approximately $26.2 billion, with
responding contractors having average sales volumes of $2.35 million
(Sales volume included roofing, roof deck, waterproofing, sheet-metal,
insulation, repair and maintenance work). Moreover, for 1999, roofing
contractors predict a $28.2 billion market, with responding contractors
having average sales volumes of $2.62 million. The NRCA estimates that
approximately 63.6% or $16.7 billion of the total roofing market during
1998 was for low-slope roofing and approximately 36.4 percent or $9.5
billion was for steep-slope roofing.
The roofing industry is highly fragmented and is estimated to include
more than 35,000 companies, which are generally small, owner-operated,
independent contractors serving customers in a local market, with limited
access to capital for investment in infrastructure, technology and
expansion. The NRCA estimates that less than 4% of all industry
participants have annual sales greater than $12 million. The Company
believes that no single company accounted for more than 1% of total
expenditures for roofing services in the United States.
Additionally, according to the U. S. Department of Commerce, Bureau
of the Census, Economics and Statistics Administration, 1997 Economic
Census, Construction, Industry Series ("1997 Construction Economic
Census"), Roofing, Siding, and Sheet Metal Contractors tabulation issued
in October 1999, the total value of construction work reported was
approximately $23.97 billion. The cost of materials, components, and
supplies reported was approximately $8.5 billion. The value of
construction work for all kinds of business reported for roofing
contractors was approximately $15 billion.
MANUFACTURING AND INDUSTRIAL BUILDING
According to the 1997 Construction Economic Census, Manufacturing
and Building Construction tabulation issued in September 1999, the total
value of construction work reported was approximately $33.5 billion. The
cost of materials, components, and supplies reported was approximately
$7 billion.
SINGLE-FAMILY HOUSING
According to the 1997 Construction Economic Census, Single-Family
Housing Construction tabulation issued in November 1999, the total value
of construction work reported was approximately $147 billion. The cost of
materials, components, and supplies reported was approximately $41 billion.
MULTIFAMILY HOUSING
According to the 1997 Construction Economic Census, Multifamily
Housing Construction issued in October 1999, the total value of construction
work reported was approximately $14.5 billion. The cost of materials,
components, and supplies reported was approximately $3.7 billion.
Page 4
WATER, SEWER, AND PIPELINE
According to the 1997 Construction Economic Census, Water, Sewer,
and Pipeline Construction tabulation issued in November 1999, the total
value of construction work reported was approximately $22 billion. The
cost of materials, components, and supplies reported was approximately
$6.5 billion.
BRIDGE AND TUNNEL
According to the 1997 Construction Economic Census, Bridge and
Tunnel Construction tabulation issued in October 1999, the total value of
construction work reported was approximately $9.5 billion. The cost of
materials, components, and supplies reported was approximately $2.5
billion.
STRUCTURAL STEEL ERECTION
According to the 1997 Construction Economic Census, Structural
Steel Erection Contractors tabulation issued in October 1999, the total
value of construction work reported was approximately $8 billion. The
cost of materials, components, and supplies reported was approximately
$2.5 billion.
Inasmuch as the Company believes it has perfected its product and spray
system, the Company's future success will depend on management's ability to
successfully market its products and systems made from its proprietary
technology and create awareness of their value in both industry and with the
public. Management intends to place substantial resources, both financial and
otherwise, in achieving these goals. See Item 6. Management's Plan of
Operation.
PRODUCTS AND TECHNOLOGIES UNDER DEVELOPMENT
FORMULAE
The Company purchased two proprietary formulas and certain technologies
for their manufacturing and application, from Creative Chemical Company
(3C), under a Purchase and Sale Agreement dated October 30, 1997. Urecoats
has developed its first tri-polymer roofing and sealant product from one
of the two formulas and has completed development of the fourth generation
prototype spray system, which is required for application of the product.
ROOFING PRODUCT
URECOATS 100(TM) Rubber Sealant Membrane (RSM)(TM) is a high quality
modified-urethane coating and sealant that protects surfaces from natural
weathering while extending the life of the coated surfaces. The Company
believes URECOATS 100(TM) Rubber Sealant Membrane (RSM)(TM) has greater
flexibility and elasticity as well as a higher degree of resistance to
chemicals, oils and moisture than other coatings and sealants known in
the marketplace today. It is black in color and comprised of several
additives including polyurethane and a compound containing crumb rubber
from recycled tires which provides a high level of resistance to
ultraviolet, friction, abrasion and other environmental attacks.
Page 5
The combined composition qualifies the product as environmentally useful
while offering superior protection against accelerated aging. The natural
adhesion characteristics of the URECOATS 100(TM) Rubber Sealant Membrane
(RSM)(TM) provide ideal application to a multitude of surfaces, and also
makes it useful for waterproofing.
URECOATS 100(TM) Rubber Sealant Membrane (RSM)(TM) is compatible with
concrete, metal and wood surfaces without the use of mechanical fasteners
of any type. It creates a rapid hardening, long lasting, seamless, and
continuous Rubber Sealant Membrane (RSM)(TM) across flat surfaces,
vertical wall areas and seals corner joints in place of conventional
flashing methods. The Company recommends that preparation of different
surfaces, prior to application of the URECOATS 100(TM) Rubber Sealant
Membrane (RSM)(TM), for concrete, metal and wood surfaces, follow
procedures prescribed in the American Standards for Testing and Materials
(ASTM) publications for such surfaces.
ASPHALT PRODUCT
The Company has developed an asphalt sealant formula made for the
pavement industry. The goal of the Asphalt Project was to develop a
sealant with excellent performance, longer duration and lower cost, as
compared to existing asphalt sealant products in the marketplace today.
Management believes this goal has been met. The formula is proprietary
and based on similar chemical technologies used in producing the URECOATS
100(TM) Rubber Sealant Membrane(TM) made for the roofing industry and
includes a recycled material as part of its composition. Preliminary
experiments for water and gasoline resistance and adhesion to asphalt
blocks of different natures collected from numerous sites were performed
to decide on the composition of the sealant and concluded with favorable
results. Leveraging existing spray application technologies, Urecoats
designed a prototype spray applicator for the sealant spray. Finalization
and fine tuning of the components and composition is continuing with lab
testing and spray on asphalt surfaces. Additionally, ongoing efforts are
underway to get this product approved and ready for the marketplace.
Preliminary tests have shown the life of the product to be six to ten
years.
MARKETS AND STRATEGY
The Company focuses on select value-added niche markets in which it
can establish strong market positions and have advantages in product
development, manufacturing and distribution.
The Company is developing a marketing and advertising program to
establish a national brand identity. The Urecoats logo and identifying
marks will be featured on spray applicator trucks, marketing materials
and advertising of the Company. The Company is posturing itself for
licensing and distribution worldwide. The Company expects to supplement
its sales and marketing activities by participation in industry trade
shows and conferences, direct mail, website and advertising in local
industry publications.
Page 6
The Company has identified the Roofing Industry for the introduction
of its first Product. Urecoats has concentrated marketing and
distribution efforts on Mexico since its inception in January 1997. In
connection therewith, the Company has developed several business and
marketing relationships in Mexico ("Team Mexico"), most notably Antonio
Domit, a distinguished businessman in Mexico, for support in marketing
and distributing URECOATS 100(TM) in Mexico, Central America and South
America.
ROOFING MARKETS
Maintenance. Maintenance involves the physical inspection of an
existing roofing system to determine its current condition, detect
weaknesses and failures and identify any potential future problems.
Through a program of regularly scheduled annual or semi-annual
inspections, roofing contractor technicians assist owners in protecting
their roofing investments by seeking to identify damage in its early
stages. Early detection of leaks and roofing system failures make it
possible for the roofing contractors to repair and extend the life of a
roofing system through repair or restoration, which is significantly
less expensive and time consuming than re-roofing.
Roofing contractors sometimes offer their customers a facility
management program to coordinate maintenance, repair, restoration and
re-roofing as needed. The Company believes that assisting the roofing
contractors with the cost-effectiveness of their regularly scheduled
maintenance, repair and restoration enables the Company to cultivate
strong relationships with its customers and establish a basis for
recurring revenues.
Repair. Repair is a process where an existing roofing system has
additions and adjustments made to it, such as caulking, re-coating, and
repairing penetrations to fix leaks in the roofing system.
Restoration. Restoration involves the major repair of the roofing
system, including the repair of all penetrations and re-surfacing of the
roof to restore it to serviceable condition. Roofing contractors inform
building owners when a roof is approaching the end of its 14 year average
life cycle through regularly scheduled maintenance and repair programs.
The opportunity to perform restoration work normally exists two or three
years prior to the end of a roof's life cycle and before significant
damage occurs. As many as 10 years can be added to the useful life of the
roof through restoration and typically the cost of restoration is one-
half the cost of re-roofing.
Re-roofing. Re-roofing is the process of installing a new roof
when a roofing system fails. Roofing system failure can be caused by a
number of factors, including age, severe weather, poor workmanship,
defective materials, improper specification of a roofing system, abuse
and failure to maintain the roof through inspections. Re-roofing is
performed only when all repair and restoration alternatives are deemed
incapable of bringing a roof back to serviceable condition, or at the
specific request of a customer.
Page 7
New Construction. New roof construction involves the construction
of a variety of roofing systems, including metal roofing systems, built-
up roofing membranes and single ply roofing systems. New roof construction
coincides with the construction of a new building. New commercial roofing
work usually begins with either a proposal request from the owner, general
contractor or roof consultant. Initial meetings with the parties allow the
roofing contractor to prepare preliminary and then more detailed design
and product specifications, drawings and cost estimates. Once a project is
awarded, it is conducted in scheduled phases, and progress billings are
rendered to the owner of payment, less a retainage of 5% to 10% of the
construction cost of the project. Actual field work (ordering of equipment
and materials, fabrication or assembly of certain components, delivery of
materials and components to the job site, scheduling of work crews and
inspection and quality control) is coordinated during these phases. The
Company intends to assist the roofing contractors in providing the
materials to be installed as a part of these contracts.
The Company plans to continue implementation of product development for
value-added end-use applications in higher growth market segments,
particularly sealant and coatings which facilitate recycling and other
environmentally-useful sealants and coatings. Management believes the
Company's technologies provide it with advantages in the development of
new products and the penetration of new markets.
Management believes it has significant opportunities to establish its
products in international markets, to enter developing markets and to
establish new customer relationships. Furthermore, it is Management's
long-term goal to establish its world class Rubber Sealant Membrane(TM) to
assist, enhance and change the landscape of many industries.
MANUFACTURING, PACKAGING AND DISTRIBUTION
The production of sealants and coatings is a multi-stage process which
involves extensive formulation, mixing and in some cases, chemical
synthesis. Following one or more of these processes, the product is
packaged in totes, drums, pails, cartridges or other delivery forms for
sale based upon the customer's requirements. Principal manufacturing
processes include blending, polymerization and extrusion. Blending
consists of dissolving or dispersing various compounds in organic
solvents or water. In polymerization, urethane polymers are synthesized
in closed reactor systems. Extrusion consists of feeding formulated
materials through an extruder to compound pressure sensitive products.
Urecoats has initiated plans to handle initial URECOATS 100(TM)
manufacturing, packaging and distribution through contract manufacturers
and/or through cooperative relationships with certain chemical suppliers.
These manufacturers will prepare the various components of the product,
as specified by Urecoats, provide for private label packaging and assist
with worldwide shipping of product for ultimate distribution to the
customer.
Page 8
RESEARCH AND DEVELOPMENT
The Company's subsidiary, Urecoats International presently conducts
research and development activities, primarily related to products
containing recycled materials in their formula and spray application
systems, through in-house personnel, outside testing agencies and
consultants. Urecoats' research facility is also developing an asphalt
sealant and spray system, which formula incorporates crumb rubber from
recycled tires in its composition, for the pavement industry.
The Company expended approximately $966,696 and $672,228 on research
and development of products and spray application systems for the years
ended December 31, 1999 and 1998, respectively.
TESTING AND CERTIFICATION
The Company is in the process of testing its formulae to its limits.
The Company believes its formulae and certain technologies for their
spray application are unique and its underlying formulae is capable of
creating numerous other product applications for various industries.
ENVIRONMENTAL COMPLIANCE
The Company is subject to extensive laws and regulations pertaining
to the discharge of materials into the environment, the handling and
disposal of solid and hazardous wastes, and the remediation of
contamination, and otherwise relating to health, safety and protection
of the environment. The URECOATS 100(TM) product contains urethanes,
which are supplied by major chemical manufacturers and/or suppliers
and include directions and safety precautions for handling. At present,
the Company performs various product testing at its facilities and has
minimal exposure to that end. The Company believes it is in compliance
with the local environmental regulations.
EMPLOYEES AND CONSULTANTS
The Company and its subsidiaries have thirteen full-time employees
performing various necessary corporate and operations functions.
Urecoats entered into a Consulting Agreement on July 21, 1998,
effective June 1, 1998, with Creative Chemical and Ponswamy Rajalingam,
Ph.D. ("Dr. Raja"), the owners and inventor of the purchased formulas,
including certain technologies for their spray application, which
terminates on May 31, 2000. Urecoats entered into a new Consulting
Agreement on March 29, 2000, effective January 1, 2000, incorporating
and modifying certain terms and conditions from the June 1, 1999
agreement, which terminates on March 1, 2001 ("Raja Agreement"). In
exchange for certain restricted common stock, options, consulting fees,
and other non-employee compensation, Dr. Raja is to exercise his best
efforts to complete all patent work on the URECOATS 100(TM) Rubber
Sealant Membrane (RSM)(TM); complete the prototype delivery system; add
a delivery system patent; and build a full production delivery system;
develop a repair kit, application system and add patents for such;
develop a top coat; add a formula patent; and establish training methods
for application of the product, including but not limited to safety
features, technical specifications and product approvals.
Page 9
The Company entered into a Consulting Agreement on January 31, 1999,
effective January 1, 1999, with R. Uma Umarani, Ph.D. ("Dr. Uma"), a
chemist, for the research and development of an asphalt sealant formula.
This agreement terminated with all of its terms and conditions satisfied
by Dr. Uma and the Company. Urecoats entered into a new Consulting
Agreement on March 29, 2000, effective January 1, 2000, which terminates
on March 31, 2001. In exchange for certain restricted common stock,
options, consulting fees, and other non-employee compensation, Dr. Uma
is to exercise her best efforts to complete all patent work on the
URESEAL 200(TM) asphalt sealant; add a formula patent; complete the
prototype delivery system; add a delivery system patent and build a full
production delivery system; develop a repair kit, application system and
add patents for such; establish training methods for application of the
product, including but not limited to safety features, technical
specifications and product approvals.
COMPETITIVE CONDITIONS
The adhesives, sealants and coatings industry is highly competitive.
The industry is highly fragmented, with over 500 manufacturers ranging
from small regional companies to large multinational producers. Based
upon available data, management believes that no one company holds a
dominant position on a national basis. Competition is generally
regional and is based on product quality, technical service for
specialized customer requirements, breadth of product line, brand name
recognition and price. Due to the uniqueness of the Company's proprietary
technologies, ease of application, cost savings, and the environmental
marketing component (from the incorporation of crumb rubber from recycled
tires in its formula), the Company believes it can achieve an appreciable
market share in this industry. Moreover, management firmly believes its
products and their spray application systems are unique and new to their
respective industries. Therefore, there appears to be no direct competition
in the marketplace for these products.
RAW MATERIALS
The Company uses a variety of specialty and commodity chemicals in its
formulae. These raw materials are generally available from numerous
independent suppliers and purchases of raw materials are typically on a
spot basis. URECOATS 100(TM) includes urethanes and a proprietary
component incorporating crumb rubber from recycled tires. The urethanes
are readily available in the marketplace, while the proprietary
components must be specially formulated.
PRINCIPAL SUPPLIERS
Urecoats is presently negotiating more competitive pricing with well
known suppliers of the urethane components, and suppliers for another
proprietary component, of the URECOATS 100(TM) formula. Urecoats has
established its primary supplier base for all of the required components
for manufacturing and assembly of its URECOATS 100(TM) spray application
system. Urecoats continues to seek competitive, qualitative,
quantitative, and cost effective vendors for all aspects of its spray
application system.
Page 10
MAJOR CUSTOMERS
Although no purchase orders have been finalized to date, Urecoats is
maintaining a relationship with its customer in Mexico, Ipseal De Mexico,
S.A. de C.V. ("Ipseal"), for sales of its Rubber Sealant Membrane(TM)
URECOATS 100(TM) roofing product. The Company is also working directly
with a core group of individuals from Mexico, "Team Mexico", in
establishing infrastructure guidelines for future anticipated sales,
marketing and distribution of its products in Mexico.
PATENTS, TRADEMARKS AND LICENSES
The Company has completed development of its first Rubber Sealant
Membrane (RSM)(TM) product, URECOATS 100(TM), a coating and sealant made
from a proprietary formula comprised of, among other things, urethanes
and crumb rubber from recycled tires. The formula is the subject of a
utility patent application filed by Urecoats International with the
United States Patent and Trademark Office ("USPTO"), which application
was assigned serial number 09/377,093 and filing date of August 19, 1998.
The Patent application is still pending. Urecoats also filed a Demand
under the Patent Cooperation Treaty, to begin the international
preliminary examination process for patent protection under the
international treaty. Although no assurance can be given, Management is
confident that a patent shal be issued to the Company.
The Company has submitted information on its proprietary spray
application system, to its Patent counsel for review.
The Company utilizes URECOATS 100 as a trademark name and intends to
market the Rubber Sealant Membrane(TM) Urecoats 100(TM) roofing product
under that trademark name. Management also submitted applications,
through its Patent and Trademark counsel to the USPTO, on March 28, 2000,
for the following trademarks: 1) URECOATS; 2) URECOATS 100; 3) URESEAL;
4) URESEAL 200; 5) RUBBER SEALANT MEMBRANE; 6) RSM; 7) CAS TECHNOLOGY;
and 8) RUBBER STRUCTURAL CONDUIT. Based on preliminary trademark/service
mark searches performed by the Company's Patent and Trademark counsel,
the above-referenced marks appear to be available for registration.
GOVERNMENTAL REGULATION
Urecoats is presently researching governmental approvals, if any, and
where applicable, as required for its products. To be sure, Urecoats has
established working relationships with numerous independent roof testing
agencies and many individuals experienced in various areas, relating to
such matters.
YEAR 2000 COMPLIANCE BY THE COMPANY AND OTHERS
Year 2000 compliance concerns the ability of certain computerized
information systems to properly recognize date-sensitive information,
such as invoices for the Company's services. Systems that do not
recognize such information could generate erroneous data or cause systems
to fail. The Company also has updated its computer systems and hardware
to be Year 2000 compliant. Although no problems have occurred as of the
date of filing this report, there still remains a slight risk for the
Year 2000 compliance of those with whom the Company does business,
primarily third party payors.
Page 11
HISTORICAL INFORMATION
The Company was incorporated in the state of Delaware on October 20,
1989 as Natural Child Collection, Inc. and changed its name to Natural
Child Care, Inc. ("NCC"), on January 14, 1991. In 1993, the Company
underwent a recapitalization, reverse merger, discontinued its pre-merger
NCC operations, changed its name to Winners All International, Inc., and
began post-merger random lottery operations. On January 29, 1997, a
Special Meeting of the Board of Directors recognized and resolved, that
as a result of the permanent impairment of operational assets relating
to its random lottery operations, a measurement date of January 29, 1997
was established to abandon those operations, effective for the year ended
July 31, 1995. Since that determination, the Board has restructured its
operations, reorganized management, rebuilt shareholder value, and is
current with SEC reporting requirements, and continues to settle former
outstanding legal matters.
In July 1997, the Company acquired, as a wholly-owned subsidiary,
Designer Wear, Inc. ("Designer Wear" or "DWI"). DWI, a Florida corporation
organized in August 1996, was engaged in the business of acquiring license
agreements for the design, contract manufacturing, sale and worldwide
distribution of branded merchandise products. Designer Wear originally was
focusing on sales, marketing and distribution of a line of socks, using
the name, likeness, signature, and image of the late American actor
"James Dean" under a trademark license agreement. In October 1997,
Designer Wear acquired ROK International, Inc. ("ROK"), which was a
development-stage business, primarily involved in the promotion and sales
of Smith and Wesson corporation trademark properties, pursuant to a
Trademark License Agreement, for apparel and accessories. Due to a
disagreement between the Company, Designer Wear, ROK, and Smith and Wesson
regarding alleged improper termination of ROK's Trademark License Agreement
by Smith & Wesson, the Company ceased all activities related to Branded
Merchandise operations. See Item 3. Legal Proceedings. As a result of
pending litigation, recurring losses and limited resources at that time,
the Board of Directors passed a unanimous resolution, dated April 14, 1999,
to discontinue the activities of DWI and ROK, retroactive for the year
ended December 31, 1998.
ITEM 2. PROPERTY
- -----------------
The Company does not own any real property. The Company's subsidiary,
Urecoats International, entered into four separate leases for space for
corporate offices, testing and training facilities, and distribution and
storage of sealing and spraying products including product showroom. Two
leases commenced July 1, 1998 and terminate July 31, 2001; one lease
July, 1, 1999 that terminates July 31, 2001; and one lease March 1, 2000
that terminates March 31, 2003. The leases are all guaranteed by the
Company. The Company and its subsidiaries reside in these premises. The
Company has made substantial improvements to the leased premises.
Page 12
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
(1) Designer Wear et. al. vs. Smith & Wesson et. al.
Designer Wear received notice from the Smith and Wesson Corporation
("Smith & Wesson"), through ROK, of termination of ROK's Trademark License
Agreement dated March 1, 1996, as amended August 23, 1996. Designer Wear
and ROK management served notice to Smith & Wesson on the validity of the
termination notice. Although the Company's litigation counsel and Smith &
Wesson management attempted a resolution of the matter, Designer Wear and
ROK filed a lawsuit against Smith & Wesson and John S. Steele ("Steele"),
its Director of Licensing and Merchandising, on June 1, 1998. The lawsuit
was filed in the United States District Court for the Southern District of
Florida, claiming, among other things, breach of a trademark licensing
agreement and the implied covenant of good faith and fair dealing,
tortious interference with the contractual relationship between ROK and
Designer Wear and requested a declaratory judgment and permanent
injunction. Designer Wear and ROK are also seeking damages of $50,000,000.
Smith & Wesson is a subsidiary of Tompkins PLC in London, England.
Smith & Wesson filed an Answer and Affirmative Defenses of Defendant
Smith & Wesson to Plaintiffs' Complaint, Counterclaim and Jury Demand
("Smith & Wesson Answer, Defenses and Counterclaims"), on July 13, 1998,
in the United States District Court For The Southern District of Florida,
alleging, among other things, unclean hands, reformation of the license,
proper termination, defensive estoppel, and defensive waiver. The Company
filed a Motion to Dismiss Counterclaims and Incorporated Memorandum of
Law, on or about August 4, 1998. In addition, Steele filed a motion to
dismiss claims against himself and/or to transfer the action, on July 13,
1998, in the United States District Court For The Southern District of
Florida. Designer Wear and ROK filed an opposition to this motion, on or
about July 27, 1998, in the United States District Court For The Southern
District Of Florida. This litigation is currently undergoing further
discovery and motions for request to produce documents and information
are now pending between the parties. The Company, through its litigation
counsel, is vigorously contesting the case, but is open to a reasonable
out-of-court settlement. To date, no settlement offers have been made by
Smith & Wesson acceptable to the Company, however, litigation counsel is
of the continuing opinion that the case will eventually be settled
favorably to Urecoats.
(2) AG Industries vs. the Company, et. al.
On April 17, 1995, AG Industries sued UC'NWIN Systems Corporation and
the Company and for a breach of contract and causes of action for unjust
enrichment and breach of implied contract. AG Industries seeks damages
in excess of $400,000. On August 22, 1995 the Company filed a Motion to
Dismiss and Alternative Motion for a Change of Venue. AG Industries
responded and opposed the Defendants' motion. There has been no known
further discovery of any of the parties in the lawsuit. This lawsuit
relates to the former abandoned random lottery operations of the Company.
Management has undertaken to determine the status.
Page 13
(3) Other Legal Matters
Other lawsuits and judgments against the Company total approximately
$261,000. Management is seeking settlements, including payment
arrangements on these matters. The outcome of these negotiations cannot
be determined at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to shareholders for a vote, through
the solicitation of proxies or otherwise, during the quarter ended
December 31, 1999.
Page 14
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------
MARKET FOR COMMON EQUITY
The Company's common stock is traded over-the-counter on the NASDAQ
Bulletin Board primarily in the United States and Canada. The following
table sets forth range of high and low bid information for the Company's
common stock for each quarter, or the closest date related thereto where
trading took place, within the last two fiscal years ending December 31,
1999. The information provided below for the common stock was obtained
from NASDAQ Trading & Market Services and options to purchase common
stock from the internal records of the Company. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
COMMON STOCK
------------------
PERIOD HIGH LOW
------------------------ -------- -------
January 4, 1998 - .27 .27
March 31, 1998 .17 .165
April 1, 1998 - .17 .165
June 30, 1998 .22 .18
July 1, 1998 - .21 .19
September 30, 1998 .17 .13
October 1, 1998 - .17 .135
December 31, 1998 .28 .26
January 4, 1999 - .28 .26
March 31, 1999 .19 .18
April 1, 1999 - .19 .165
June 30, 1999 .21 .20
July 1, 1999 - .21 .20
September 30, 1999 .165 .15
October 1, 1999 - .16 .15
December 30, 1999 .16 .145
As of the close of business on March 21, 2000, there were 460 holders
of record, respectively, of common stock, of which many are securities firms
and securities deposit organizations representing many individual
shareholders. The Company believes it has over 5,400 beneficial owners of its
common stock.
The Company has not paid any cash dividends on its common stock for the
last two fiscal years.
Page 15
The Company privately offered up to 20,000,000 shares of its restricted
common stock at a price per share equal to ten cents ($.10) per share
("Shares"), in a Private Placement commencing on July 1, 1999 ("1999
Placement)", pursuant to the exemption under Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"). The Shares were offered
only to "accredited investors", as such term is defined in Section 501(a) of
Regulation D under the Act. The 1999 Placement was terminated on December 16,
1999 with all 20,000,000 shares of restricted common stock being sold.
A breakdown of the proceeds is as follows:
Cash $ 55,000.00
Conversion of Debt 1,912,492.30
Conversion of Legal Fees 32,507.70
---------------
Total Proceeds $ 2,000,000.00
===============
(a) Cash proceeds are from the sale of 550,000 shares of restricted
common stock, in exchange for $55,000.
(b) Conversion of Debt proceeds are as follows:
(i) The Company issued an aggregate of 19,124,920 shares of
restricted common stock, in exchange for cancellation of $1,912,492.30 of
short-term loans and notes payables including interest, 17,170,923 shares
of which were issued to Richard J. Kurtz, Chairman of the Board, in
cancellation of $1,717,092.30 of short-term loans, including interest, he
made to the Company during the 1999 calendar year. See Item 12. Certain
Relationships and Related Transactions.
(ii) The Company issued an aggregate of 1,200,000 shares of
restricted common stock, in exchange for cancellation of $120,000
indebtedness to non-affiliated assignees of a creditor of the Company.
(iii) The Company issued 325,077 shares of restricted common
stock, in exchange for cancellation of $32,507.70 of accrued legal fees.
During the yearly period ended December 31, 1999, the Company issued
restricted common stock, for certain private transactions, in reliance on
Section 4(2) of the Act, as described below:
(a) The Company issued 100,000 shares of restricted common stock,
pursuant to a guarantee and modification Stipulation, to settle a former
litigation matter against the Company. This transaction was valued and
recorded at $6,300.
(b) The Company issued an aggregate of 2,500 shares of restricted
common stock, for employee bonuses, valued and recorded at $ 158.00.
(c) The Company issued an aggregate of 900,000 shares of restricted
common stock, in cancellation of accrued consulting fees, valued and
recorded at $64,950, 250,000 shares of which were issued to Stuart B.
Krost, a director of the Company, valued and recorded at $13,750.
(d) The Company issued an aggregate of 400,000 shares of restricted
common stock, in cancellation of accrued legal fees, valued and recorded
at $25,400.
Page 16
(e) The Company issued 25,000 shares of restricted common stock,
in cancellation of an account payable, valued and recorded at $2,500.
(f) The Company issue an aggregate of 800,000 shares of restricted
common stock, in cancellation of accrued bridge loan fees, valued and
recorded at $32,000.
(g) The Company issued 2,500,000 shares of restricted common stock,
in exchange for cancellation of a non-interest bearing loan made by Richard
J. Kurtz, the Chairman of the Board, valued and recorded at $187,500.
(h) The Company issued an aggregate of 2,685,935 shares of restricted
common stock, for consulting services, valued and recorded at $262,663,
150,000 shares of which were issued to Stuart B. Krost, a director, valued
and recorded at $12,300.
(i) The Company issued an aggregate of 35,000 shares of restricted
common stock for legal services, valued and recorded at $4,760.
(j) The Company issued 1,000,000 shares of restricted common stock,
as other compensation, to Larry T. Clemons, an officer of the Company,
valued and recorded at $200,000.
(k) The Company issued 135,918 shares of restricted common stock,
on behalf of its Urecoats International subsidiary, in cancellation of
an account payable, valued and recorded at $13,592.
(l) The Company issued 527,082 shares of restricted common stock,
on behalf of its Urecoats International subsidiary, for consulting
services, valued and recorded at $43,532, 240,000 of which were issued
to Dr. Raja, an officer of the Company, valued and recorded at $17,380,
and 216,000 shares to Dr. Uma, an officer of the Company, valued and
recorded at $19,044.
(m) The Company issued 780,000 shares of restricted common stock,
on behalf of its Urecoats International subsidiary, in cancellation of
accrued consulting fees of $59,820, 580,000 shares of which were issued
to Dr. Raja, an officer of the Company, valued and recorded at $38,220.
Page 17
ITEM 6. MANAGEMENT'S PLAN OF OPERATION
- ---------------------------------------
PLAN OF OPERATION
The Company's plan of operation for the next twelve (12) months,
through its wholly-owned subsidiaries, Urecoats International and
Urecoats Technologies, is to manufacture five full production spray
application systems for its URECOATS 100(TM) Rubber Sealant Membrane
(RSM)(TM) roofing product. Management will continue to research the
applicability of its formulae, and modifications thereto, for the
development of additional products for the various industries described
elsewhere in this report.
The Company will continue to work hand in hand with numerous well
known testing and certification agencies, not only for testing its
products to their limits, but also to develop new uses and awareness of
such throughout the various industries.
Urecoats is seeking to retain qualified and respected professionals
in the various industries for advice, consultation and direction related
to its products and applications; development and building of different
types of roof systems for its products; working with testing labs,
government agencies, and other agencies for approval of its products;
seeking other potential applications and uses for its products other than
construction, such as waterproofing, marine, steel vapor barrier, etc.;
assistance in writing technical articles on its products and applications;
and establish guidelines for application procedures for its products and
applications in the various industries.
The Company intends to pursue strategic acquisitions that will allow
it to establish its market position in targeted markets. Management
believes that the high degree of fragmentation in the adhesives, sealants
and coatings industry will continue to provide suitable acquisition
candidates. Potential acquisition candidates will be evaluated based upon
their capacity to enhance the ability of the Company to: (i) expand its
product line; (ii) enhance its product development capabilities; (iii)
market products through new or expanded distribution channels; and (iv)
increase its international presence. Management believes it has
significant opportunities to establish its products in international
markets, to enter developing markets and to establish new customer
relationships. Management also believes: (a) it has a world class Rubber
Sealant Membrane (RSM)(TM) that will enhance, support and change many
industries; and (b) many new businesses will be developed out of the
emergence of the Company's Rubber Sealant Membrane (RSM)(TM) into the
world markets.
The Company expects to hire more personnel, purchase additional
computer equipment and software, build additional full production spray
systems, perform research and development activities, further develop
licensing, sales, distribution and marketing programs, and seek
additional board of directors, executives, and consultants for
anticipated growth from increased awareness of the Urecoats products in
the marketplaces.
Page 18
As of the date of filing this report, Urecoats has purchased five
trucks and ordered other equipment and accessories for building five full
production spray systems. Equipment financing has been arranged through an
internationally ranking financial institution for a large portion of this
expenditure, and which financing is personally guaranteed by the Chairman
of the Board of the Company.
The Company currently does not have the liquidity or capital resources
to expand Urecoats without raising capital either from borrowing or from
the sale of additional shares of stock. The Chairman of the Board has
confirmed a financial guarantee to provide up to $2,000,000 to the Company
for operating expenses incurred or to be incurred during the year 2000.
See Item 12. Certain Relationships and Related Transactions. Moreover, the
Company anticipates further sources of financing resulting from sales
and/or distribution of product.
Refer also to Item 1. Description of Business for more information
related to the Company's Plan of Operations.
Page 19
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
------
INDEPENDENT AUDITOR'S REPORT ................................ 21
CONSOLIDATED BALANCE SHEET .................................. 22
CONSOLIDATED STATEMENTS OF OPERATIONS ....................... 23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) .......... 24
CONSOLIDATED STATEMENTS OF CASH FLOWS ....................... 25-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .................. 27-40
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and
therefore have been omitted.
Page 20
BAUM & COMPANY, P.A.
4310 SHERIDAN STREET, SUITE 202
HOLLYWOOD, FLORIDA 33021
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
Urecoats Industries Inc.
We have audited the accompanying consolidated balance sheet of Urecoats
Industries Inc. (a development-stage company) and subsidiaries as of
December 31, 1999, and the related consolidated statement of stockholders'
(deficit) for the year then ended, and the related consolidated statements
of operations and cash flows for the years ended December 31, 1999 and
1998. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall consolidated financial statements
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Urecoats Industries Inc. and subsidiaries as of December 31, 1999 and the
results of their operations and their cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
/s/ Joel S. Baum
- ----------------------------
Joel S. Baum, C.P.A
Baum & Company, P.A.
Certified Public Accountants
Hollywood, Florida
March 29, 2000
Page 21
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
Current Assets:
Cash $ 15,026
Loans Receivable 21,283
Prepaid Expenses 6,143
----------------
Total Current Assets 42,452
----------------
Property and Equipment, Net (Notes 1,4) 526,102
----------------
Other Assets:
Intangibles, Net (Notes 1,5) 1,012,844
Deposits 8,341
----------------
Total Other Assets 1,021,185
----------------
Total Assets $ 1,589,739
================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Current Liabilities:
Current Maturities of Long Term Debt (Note 6) $ 59,387
Accounts Payable and Accrued Expenses (Note 7) 571,131
Loans Payable (Note 8) 65,124
Due to Related Parties (Note 9) 250,000
----------------
Total Current Liabilities 945,642
Long Term Debt (Note 6) 34,327
----------------
Total Liabilities 979,969
----------------
Commitments and Contingencies (Note 10) 669,421
----------------
Stockholders' (Deficit):
Preferred Stock, $1.00 Par Value, 2,000,000 Shares
Authorized; Series A Convertible, 750,000 Shares
Authorized; Issued & Outstanding, 62,500 Shares
Unconverted (Less Offering Costs of $7,465) 55,035
Common Stock $.01 Par Value, 100,000,000 shares
Authorized; 92,748,219 Shares Issued & Outstanding 927,482
Additional Paid-In-Capital 19,203,292
Accumulated (Deficit) - Discontinued Operations (13,530,532)
Accumulated (Deficit) - Development Stage Operations (6,714,928)
----------------
Total Stockholders' (Deficit) (59,651)
----------------
Total Liabilities and Stockholders' (Deficit) $ 1,589,739
================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 22
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
DEVELOPMENT DEVELOPMENT
STAGE STAGE
OPERATIONS OPERATIONS CUMULATIVE
YEAR ENDED YEAR ENDED DEVELOPMENT
DECEMBER 31, DECEMBER 31, STAGE
1999 1998 OPERATIONS
-------------- ----------------- ------------
Revenues $ -0- $ -0- $ -0-
-------------- ----------------- ------------
Costs and Expenses:
Selling, General and
Administrative 666,021 329,757 1,306,751
Professional Fees 233,847 490,576 985,696
Depreciation and
Amortization 118,704 32,291 154,221
Research and Development 966,696 672,228 2,262,708
Consulting Fees 395,758 789,125 2,005,552
-------------- ----------------- ------------
Total Costs and Expenses 2,381,026 2,313,977 6,714,928
-------------- ----------------- ------------
Net(Loss)From Development
Stage Operations (2,381,026) (2,313,977) (6,714,928)
============
(Loss) From Discontinued
Operations (151,247) (3,833,214)
-------------- -----------------
Net(Loss) $ (2,532,273) $ (6,147,191)
============== =================
Net(Loss)Per Common Share
Basic
Development Stage
Operations $ (.031) $ (.041)
Discontinued Operations (.002) (.069)
-------------- -----------------
Total $ (.033) $ (.110)
============== =================
Weighted Average Shares
Outstanding 75,870,501 55,915,534
-------------- -----------------
Net(Loss)Per Common Share
Dilutive
Development Stage
Operations $ (.031) $ (.041)
Discontinued Operations (.002) (.069)
-------------- -----------------
Total $ (.033) $ (.110)
============== =================
Weighted Average Shares
Outstanding 76,990,001 55,915,534
-------------- -----------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 23
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
DECEMBER 31, 1999
Preferred Stock Common Stock
Amount Amount
--------------- --------------------
Additional
PV PV Paid-In
Shares $1.00 Shares $.01 Capital
------ ------- ---------- -------- -----------
Balance at
December 31, 1998 62,500 $55,035 58,992,784 $589,928 $15,806,185
Issuance of Stock -- -- 33,755,435 $337,554 $ 3,397,107
Net(Loss)
for the Year -- -- -- -- --
------ ------- ---------- -------- -----------
Balance at
December 31, 1999 62,500 $55,035 92,748,219 $927,482 $19,203,292
====== ======= ========== ======== ===========
Development
Discontinued Stage
Operations Operations Total
Accumulated Accumulated Stockholder's
(Deficit) (Deficit) (Deficit)
------------- ------------ --------------
Balance at
December 31, 1998 $(13,379,285) $(4,333,902) $ (1,262,039)
Issuance of Stock -- -- 3,734,661
Net(Loss)
for the Year $ (151,247) $(2,381,026) $ (2,532,273)
------------- ------------ --------------
Balance at
December 31, 1999 $(13,530,532) $(6,714,928) $ (59,651)
============= ============ ==============
- ----
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 24
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
DEVELOPMENT DEVELOPMENT
STAGE STAGE
OPERATIONS OPERATIONS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Cash Flows from Operating Activities:
Net(Loss)
Development Stage Operations $ (2,381,026) $ (2,313,977)
Discontinued Operations (151,247) (3,833,214)
Adjustments to Reconcile Net(Loss)
to Net Cash (Required)by Operating
Activities:
Depreciation and Amortization
Development Stage Operations 118,704 32,291
Changes in Assets and Liabilities:
Prepaid Expenses 33,392 (39,535)
Loans Receivable (241) (21,042)
Deposits (3,114) 3,553
Accounts Payable (888,541) 856,292
Due to Related Parties 17,377 197,294
Decrease in Commitments and
Contingencies (15,693) (97,907)
Net Assets and Liabilities of
Discontinued Operations --- (163,814)
----------------- -----------------
Net Cash (Required) by
Operating Activities (3,270,389) (5,380,059)
----------------- -----------------
Cash Flows from Investing Activities:
Acquisition of Property and Equipment
Development Stage Operations (429,993) (185,008)
(Acquisition) Write-off of Intangibles
Development Stage Operations (15,219) (83,936)
Discontinued Operations --- 3,343,750
----------------- -----------------
Net Cash Provided(Required)
by Investing Activities (445,212) 3,074,806
----------------- -----------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 25
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
DEVELOPMENT DEVELOPMENT
STAGE STAGE
OPERATIONS OPERATIONS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 3,734,661 3,132,513
Proceeds from Issuance of Notes 60,546 99,453
(Decrease) from Loans (7,628) (824,991)
Payment of Notes (159,753) ---
----------------- -----------------
Net Cash Provided by Financing
Activities 3,627,826 2,406,975
----------------- -----------------
Net (Decrease)Increase in Cash
Development Stage Operations (95,053) 109,842
Discontinued Operations 7,278 (8,120)
----------------- -----------------
Net (Decrease)Increase in Cash (87,775) 101,722
Cash at Beginning of Year 102,801 1,079
---------------- -----------------
Cash at End of Year $ 15,026 $ 102,801
================ =================
Supplemental Disclosures of Cash Flow Information (Note 13)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 26
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
This summary of significant accounting policies is presented to assist
in understanding these consolidated financial statements. The consolidated
financial statements and notes are representations of management who is
responsible for their integrity and objectivity. The accounting policies
used conform to generally accepted accounting principles and have been
consistently applied in the preparation of these consolidated financial
statements.
ORGANIZATION
The Company was incorporated in October 1989 as Natural Child Collection,
Inc. and changed its name to Natural Child Care, Inc. ("NCC") in January
1991. In September 1993, NCC purchased Winners All Limited ("WAL"). This
acquisition was treated as a re-capitalization. The re-capitalization was
accounted for as a reverse acquisition, with WAL the surviving successor.
On October 27, 1993, the legal name of the Company was changed to Winners
All International, Inc. The Company was operationally inactive from August
1, 1995 through January 26, 1997. Pursuant to a January 29, 1997 Board of
Directors meeting, resolutions pertaining to discontinue all former
operations, retroactive to the year ended July 31, 1995, were ratified. On
February 17, 1997, the Company changed its former fiscal year of July 31,
to December 31. During 1997, the Company acquired all of the issued and
outstanding capital stock of Urecoats International, Inc. ("Urecoats") and
Designer Wear, Inc. ("DWI"). On October 8, 1997, DWI acquired all of the
issued and outstanding capital stock of ROK International, Inc. ("ROK").
On February 8, 1999, the legal name of the Company was changed to Urecoats
Industries Inc. (the "Company").
BUSINESS
The Company is engaged in the acquisition, formulation, marketing and
distribution of sealant and coating products containing recycled materials
in their compositions. The Board of Directors passed a unanimous
resolution dated April 14, 1999 to discontinue the Branded Merchandise
operations, retroactive for the year ended December 31, 1998. (See Note 3)
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material inter-company
items and transactions have been eliminated.
Page 27
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
- -------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted Statement of Financial Accounting Standards No.
107 "Disclosure About Fair Value of Financial Instruments", which requires
the disclosure of the fair value of off-and-on balance sheet financial
instruments. Unless otherwise indicated, the fair values of all reported
assets and liabilities, which represent financial instruments (none of
which are held for trading purposes), approximate the carrying values of
such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at historical cost. Depreciation of
property and equipment is provided on the straight-line method over the
estimated useful lives of the related assets. Maintenance and repairs are
charged to operations. Additions and betterments, which extend the useful
lives of the assets, are capitalized. Upon retirement or disposal of the
property and equipment, the cost and accumulated depreciation are
eliminated from the accounts, and the resulting gain or loss is reflected
in operations.
INTANGIBLE ASSETS
Intangible assets, which primarily consist of the cost of acquired
businesses in excess of the fair value of tangible assets and liabilities
acquired (Goodwill), capitalized patent application costs, and acquisition
of formulae are amortized, commencing in the year of significant revenue
recognition, by the straight-line method over estimated useful lives of 40
years, and 10 years, respectively.
Pursuant to Statement of Accounting Standards 121 ("SFAS 121")
"Accounting for the Impairment of Long-Lived Assets to be Disposed of",
long-lived assets and certain identifiable intangibles to be held and
used by the Company are reviewed for impairment whenever there is an
indication that the carrying amount of the asset may not be recoverable.
Recoverability of these assets are determined by comparing the forecasted
undiscounted net cash flows of the operation to which assets relate to
the carrying amount including associated intangible assets of such
operation.
Page 28
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
- -------------------------------------------------------------
If the operation is determined to be unable to recover the carrying
amount of its assets, then intangible assets are written down first,
followed by the other long-lived assets of the operation, to fair value.
Measurement of an impairment loss is based on the fair value of the
underlying asset. Fair value is principally determined by discounted cash
flows, depending upon the nature of the assets.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to both future and present
products are charged to operations as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
which requires the establishment of a deferred tax asset or liability for
the recognition of future deductions or taxable amounts, and operating
loss and tax credit carry-forwards. Deferred tax expense or benefit is
recognized as a result of the change in the deferred asset or liability
during the year. If necessary, the Company will establish a valuation
allowance to reduce any deferred tax asset to an amount which will more
likely than not be realized.
OPTIONS
Options have been recorded at fair market value on the date of grant
and exercised in the applicable period.
NET EARNINGS PER COMMON SHARE
The Company accounts for earnings per share in accordance with Statement
of Financial Accounting Standard 128 ("SFAS 128") "Earnings Per Share".
Basic earnings per share is based upon the net earnings applicable to
common shares after preferred dividend requirements and upon the weighted
average number of common shares outstanding during the period. Diluted
earnings per share reflects the effect of the assumed conversions of
convertible securities and exercise of stock options only in the periods in
which such effect would have been dilutive.
NOTE 2 - DISCONTINUED OPERATIONS
- --------------------------------
As a result of pending litigation, recurring losses and limited
resources, the Board of Directors passed a unanimous resolution dated April
14, 1999, to discontinue the activities of DWI and ROK, retroactive for the
year ended December 31, 1998.
Page 29
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - DISCONTINUED OPERATIONS CONTINUED
- ------------------------------------------
DWI and ROK were engaged in the acquisition of license agreements for the
design, contract manufacturing, sale, and worldwide distribution of Branded
Merchandise products.
Operations related to Branded Merchandise products have been reflected in
Loss from Discontinued Operations amounting to $151,247 and $3,833,214, for
the years ended December 31, 1999 and 1998, respectively.
NOTE 3 - COMMON STOCK TRANSACTIONS
- ----------------------------------
On July 1, 1999, the Company offered up to 20,000,000 shares of its
restricted common stock at a price per share equal to ten cents ($.10) per
share ("Shares"), in a Private Placement ("1999 Placement"), pursuant to
the exemption under Rule 505 of the Securities Act of 1933, as amended
(the "Act"). The 1999 Placement terminated on December 16, 1999 with all
20,000,000 shares of restricted common stock being sold. A breakdown of
the proceeds is as follows:
Cash $ 55,000
Conversion of Debt 1,912,492
Conversion of Legal Fees 32,508
------------
Total Proceeds $ 2,000,000
============
(a) Cash proceeds are from the sale of 550,000 shares of restricted
common stock, in exchange for $55,000.
(b) Conversion of Debt proceeds are as follows:
(i) The Company issued 17,170,923 shares of restricted common
stock to the Chairman of the Board for cancellation of $1,717,092 of short-
term loans, including interest. See Note 9 Related Party Transactions.
(ii) The Company issued 1,200,000 shares of restricted common
stock for cancellation of $120,000 of indebtedness to non-affiliated
assignees of a creditor of the Company.
(iii) The Company issued 754,000 shares of restricted common stock
for cancellation of $75,400 of indebtedness.
(c) The Company issued 325,077 shares of restricted common stock in
cancellation of $32,508 of legal fees.
(d) The Company issued 100,000 shares of restricted common stock to
settle a former litigation against the Company at a value of $6,300.
Page 30
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - COMMON STOCK TRANSACTIONS CONTINUED
- --------------------------------------------
(e) The Company issued 2,500 shares of restricted common stock, for
employee bonuses, valued at $ 158.
(f) The Company issued 900,000 shares of restricted common stock for
cancellation of accrued consulting fees, valued at $64,950; 250,000 shares
were issued to an officer of the Company at a value of $13,750.
See Note 9 Related Party Transactions.
(g) The Company issued 400,000 shares of restricted common stock for
cancellation of accrued legal fees, valued at $25,400.
(h) The Company issued 25,000 shares of restricted common stock for
cancellation of accounts payable, valued at $2,500.
(i) The Company issued 800,000 shares of restricted common stock for
cancellation of accrued loan fees, valued at $32,000.
(j) The Company issued 2,500,000 shares of restricted common stock, to
the Chairman of the Board, for cancellation of a non-interest bearing loan,
valued at $187,500. See Note 9 Related Party Transactions.
(k) The Company issued 2,685,935 shares of restricted common stock for
consulting services valued at $262,663; 150,000 were issued to a director
of the Company valued at $80,400. See Note 9 Related Party Transactions.
(l) The Company issued 35,000 shares of restricted common stock for
legal services valued at $4,760.
(m) The Company issued 1,000,000 shares of restricted common stock as
compensation, to an officer of the Company, valued at $200,000. See Note 9
Related Party Transactions.
(n) The Company issued 135,918 shares of restricted common stock for
cancellation of accounts payable valued at $13,592.
(o) The Company issued 1,307,082 shares of restricted common stock for
accrued consulting services valued at $59,820 and consulting services valued
at $43,532; 1,036,000 were issued to officers of the Company valued at
$74,640. See Note 9 Related Party Transactions.
(p) The Company issued 30,000 shares of its common stock, valued at
$5,700 upon exercise of options under the 1998 Employee and Consultant Stock
Option Plan.
(q) The Company issued 3,834,000 shares of common stock, valued at
$825,786 upon exercise of options under the 1999 Employee and Consultant
Stock Purchase and Option Plan; 597,000 shares were issued to officers of
the Company valued at $134,205. See Note 9 Related Party Transactions.
Page 31
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
A summary of property and equipment at December 31, 1999 is as
follows:
Trucks, Trailers and Other Rolling Equipment $ 41,602
Leasehold Improvements 140,020
Office Equipment 96,547
Machinery and Equipment 406,345
-------------
Total Property and Equipment 684,514
Less: Accumulated Depreciation (158,412)
-------------
Total Property and Equipment, Net $ 526,102
=============
NOTE 5 - INTANGIBLES
- --------------------
A summary of intangibles at December 31, 1999 is as follows:
Organization Costs $ 840
Goodwill 913,490
Patent Costs 18,993
Proprietary Formula Acquisition Costs 80,000
-------------
Total Intangibles 1,013,323
Less: Accumulated Amortization (479)
-------------
Total Intangibles, Net $ 1,012,844
=============
Goodwill arises from the cost, in excess of fair market value of tangible
assets and liabilities, resulting from the Company's 1997 acquisition of
Urecoats International, Inc. Amortization is to commence upon the
recognition of significant revenues.
Patent and Proprietary Formula costs are amortized, under the straight-
line method, over ten years. Amortization is to commence upon recognition of
significant revenues. The Company evaluates the amortization period of
intangibles on an ongoing basis, in light of any changes in business
conditions, events or circumstances, that may indicate the potential
impairment of intangible assets.
Page 32
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 6 - LONG TERM DEBT
- -----------------------
At December 31, 1999 Long Term Debt consists of the following:
11% - 18% - Various Notes Payable, due in monthly $ 53,714
installments of $1,918, including interest,
maturing through 2003, secured by equipment.
12% Notes Payable, payable on demand, unsecured 40,000
--------
$ 93,714
Less current maturities 59,387
--------
Total Long Term Debt $ 34,327
========
Expiration of Long Term Debt is as follows:
Years ending December 31st 2000 $ 59,387
2001 19,387
2002 13,906
2003 1,034
--------
$ 93,714
========
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ----------------------------------------------
A summary of accounts payable and accrued expenses at December
31, 1999 is as follows:
Accounts Payable $ 287,365
Accrued Salaries 128,841
Accrued Payroll Taxes 70,117
Accrued Expenses 70,841
Accrued Sales Taxes 13,967
------------
Total Accounts Payable and Accrued Expenses $ 571,131
============
NOTE 8 - LOANS PAYABLE
- ----------------------
Loans payable of $65,124, to various individuals, are non-interest
bearing and payable on demand.
Page 33
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 9 - RELATED PARTY TRANSACTIONS
- ------------------------------------
At December 31, 1999, the Company had the following related party
transactions:
9% Interest bearing loan, payable on demand, from the Chairman of the
Board, amounted to $250,000.
The Company issued stock to officers and directors as follows:
Shares Value
---------- -----------
Consulting Fees 1,436,000 $ 168,790
Cancellation of Indebtedness 19,679,023 1,904,592
Compensation 1,000,000 200,000
Options 597,000 134,205
---------- -----------
22,712,023 $ 2,407,587
========== ===========
The Chairman of the Board has personally guaranteed $53,714 of various
notes from financial institutions. In addition, the Chairman of the Board
has confirmed a financial guarantee to provide up to $2,000,000 to the
Company for operating expenses incurred or to be incurred during the year
2000.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
LEASES
The Company entered into three operating leases for corporate offices,
testing and training facilities, that expire July 31, 2001. Rent expense for
the years ended December 31, 1999 and 1998, were $64,284 and $44,726,
respectively.
Page 34
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - COMMITMENTS AND CONTINGENCIES CONTINUED
- -------------------------------------------------
LITIGATION
(1) Designer Wear et. al. vs. Smith & Wesson et. al. - DWI received
notice from the Smith and Wesson corporation ("Smith & Wesson"),
through ROK, of termination of ROK's Trademark License Agreement dated
March 1, 1996, as amended August 23, 1996. Management provided return
notice to Smith & Wesson disagreeing with the termination notice and
indicated the termination was not valid. The Company's litigation
counsel and Smith & Wesson management attempted a resolution of the
matter, however, a settlement was not reached. Thereafter, a lawsuit
was filed against Smith & Wesson and John S. Steele ("Steele"), its
Director of Licensing and Merchandising, on June 1, 1998 in the United
States District Court for the Southern District Of Florida, claiming:
I. Breach Of A Trademark Licensing Agreement And The Implied Covenant
Of Good Faith And Fair Dealing; II. Promissory Estoppel; III. Tortious
Interference With The Contractual Relationship Between ROK and DWI;
and requested a declaratory judgment and permanent injunction. DWI and
ROK are also seeking damages of $50,000,000.
Smith & Wesson filed an Answer and Affirmative Defenses of
Defendant Smith & Wesson to Plaintiffs' Complaint, Counterclaim and
Jury Demand ("Smith & Wesson Answer, Defenses and Counterclaims"), on
July 13, 1998, in the United States District Court For The Southern
District Of Florida, alleging, among other things, unclean hands,
reformation of the license, proper termination, defensive estoppel,
and defensive waiver. The counterclaims were brought against DWI, ROK,
and third-party defendants Laurence Sack, Howard Weiser and the Company
(hereinafter collectively referred to as ("Company et. al."). The
counterclaims are as follows: I. Federal trademark infringement;
II. False description, false advertising, tarnishment and dilution;
III. Common law trademark infringement; IV. Common law unfair
competition; V. Breach of contract; VI. Breach of implied covenant
of good faith and fair dealings; VII. Duty to indemnify is valid and
enforceable; VIII. Fraud; and IX. Conspiracy to commit fraud.
The Company et. al. filed a Motion to Dismiss Counterclaims and
Incorporated Memorandum of Law, on or about August 4, 1998, in the
United States District Court For The Southern District Of Florida, in
response to the Smith & Wesson Answer, Defenses and Counterclaims. The
Company et. al. moved pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure for the dismissal of the counterclaims (and third-party
claims) brought against them in I, II, III, IV, VI, VII, VIII, and IX,
on the ground that they are insufficiently pled and should be dismissed
because they fail to state any claim upon which relief may be granted.
Page 35
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - COMMITMENTS AND CONTINGENCIES CONTINUED
- -------------------------------------------------
LITIGATION CONTINUED
In addition, Steele filed a motion to dismiss claims against himself
and/or to transfer the action, on July 13, 1998, in the United States
District Court For The Southern District Of Florida. DWI and ROK filed
an opposition to this motion, on or about July 27, 1998, in the United
States District Court For The Southern District Of Florida. This
litigation is currently undergoing further discovery and motions for
request to produce documents and information are now pending between
the parties. At this time, the outcome of this litigation cannot be
determined.
(2) AG Industries vs. the Company, et. al. - On April 17, 1995,
AG Industries sued UC'NWIN Systems Corporation and the Company and for
a breach of contract and causes of action for unjust enrichment and
breach of implied contract. AG Industries seeks damages in excess of
$400,000. On August 22, 1995 the Company filed a Motion to Dismiss
and Alternative Motion for a Change of Venue. AG Industries responded
and opposed the Defendants' motion. There has been no further
discovery and the outcome cannot be determined at the present time.
(3) Other Legal Matters - A former employee has initiated a lawsuit
against the Company, for back wages and reimbursement of advances, in the
in the amount of approximately $102,000. Management is of the opinion that
this lawsuit bears no merit. The outcome of this lawsuit cannot be
determined at the present time.
As of December 31, 1999, the Company has established a reserve for
commitments and contingencies as follows:
Judgments $ 159,022
Accounts Payable of Discontinued Operations 117,813
Other Liabilities of Discontinued Operations 127,212
Reserve for Litigation Settlements 265,374
---------
$ 669,421
=========
Page 36
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 11 - STOCKHOLDERS' (DEFICIT)
- ---------------------------------
PREFERRED STOCK
The Board of Directors reduced the number of authorized shares of Series
A, $1.00 par value preferred stock, from 2,000,000 shares by 750,000 shares,
leaving 1,250,000 shares to be designated a series of distinction and issued
by the Board. Each share of the Series A preferred stock entities its holder
to convert it into .36 shares of common stock, as adjusted in the event of
future dilution; to receive $1.00 per share in the event of voluntary or
involuntary liquidation, to have the same voting rights as the common stock,
and to share equally in payments of any dividends declared by the Board of
Directors.
NOTE 12 - INCOME TAXES
- ----------------------
The Company has net operating tax loss carry-forwards of approximately
$18,630,000 in the United States and $1,500,000 in the United Kingdom, of
such loss carry-forwards, approximately $3,000,000 represents carry-
forwards of a predecessor, the utilization of which will be credited to
additional paid-in capital.
NOTE 13 - SUPPLEMENTAL CASH FLOW DISCLOSURES
- --------------------------------------------
(A) Cash Paid During The Year
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Interest Paid $ 7,985 $ -0-
Income Taxes Paid $ -0- $ -0-
----------------- -----------------
(B) Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Year Ended Year Ended
December 31, December 31
1999 1998
------------- ------------
Increase in Intangibles Included:
Acquisition of Property & Equipment $ $ 7,050
Acquisition of Proprietary Formula 80,000
Proceeds from Issuance of Shares Included:
Retainment of Consultants 954,201 631,330
Legal Services, Settlements and
Other Services 566,068 411,575
Cancellation of Indebtedness 2,159,392 829,858
Page 37
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 14 - STOCK OPTIONS
- -----------------------
STOCK OPTION PLANS
THE 1999 CONSULTANT AND EMPLOYEE STOCK PURCHASE AND OPTION PLAN
The 1999 Consultant and Employee Stock Purchase and Option Plan, was
approved by shareholders on February 8, 1999, and amended by the board of
directors on April 14, 1999 ("1999 Plan"). Under the 1999 Plan, either
Incentive Stock Options or Non-Qualified Stock Options may be granted;
however, the former may be granted only to employees of the Company. The
1999 Plan provides for an aggregate of 8,000,000 shares of the Company's
common stock that may be granted.
In 1999, the Company granted to its employees, consultants and current
and former directors options to purchase 5,864,500 shares of the Company's
common stock. Options were granted at ninety percent (90%) of the fair market
value of a share on the date of grant, any option granted to an officer or
director of the Company, the exercise price was the fair market value of a
share on the date of grant, Incentive Stock Options granted to a participant
who, at the time such option was granted, was deemed to be a 10% Shareholder,
the exercise price was one hundred and ten percent (110%) of the fair market
value of a share on the date of grant. A total of 2,135,500 shares of the
Company's common stock is reserved and available for options under the 1999
Plan. A summary of the issued and outstanding Options as of December 31,
1999 is as follows:
STOCK OPTIONS
-------------------------
SHARES OPTION PRICE EXPIRATION DATE
---------- ------------ ---------------
144,000 $.17 3/19/2001
1,675,000 $.16 11/23/2003
100,000 $.33 2/8/2004
50,000 $.21 4/9/2004
50,000 $.195 6/1/2004
11,500 $.125 10/15/2004
---------
2,030,500
=========
Page 38
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 14 - STOCK OPTIONS CONTINUED
- ---------------------------------
STOCK OPTION PLANS CONTINUED
THE 1998 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
On January 26, 1998, the Company adopted the "1998 Employee and Consultant
Stock Option Plan" (the "1998 Plan"), authorizing the issuance of 3,000,000
shares of registered, common stock, to afford certain of its key employees,
officers and consultants who are responsible for the continued growth of the
Company an opportunity to acquire a proprietary interest in the Company, and
thus to create in such individuals an increased in and greater concern for
the welfare of the Company and its subsidiaries. The Company, by means of
this 1998 Plan, seeks to retain the services of persons now holding key
positions and to secure the services of persons capable of filling such
positions. The stock options offered pursuant to the Plan are a matter of
separate inducement and are not in lieu of any salary or other compensation
for the services of any key employee or consultant.
The stock options granted under the Plan are intended to be either
incentive stock options within the meaning of Section 422 of the Internal
Revenue code of 1986, as amended, or options that do not meet the
requirements for incentive stock options. Under the 1998 Plan, the fair
market value of a share is the closing "bid" price of the Company's shares
on the date of grant, as determined by Board of Directors approval, as
quoted on the Electronic Bulletin Board of the National Association of
Securities Dealers or its Automated Quotation System ("NASDAQ") or any
successor national stock exchange on which the Common Stock is then traded,
provided, however, that if on the date in question there is no public
market for the Company's Shares and they are neither quoted on "NASDAQ" nor
traded on a national securities exchange, then the Administrator of the
1998 Plan, in its sole discretion and best judgment, is to determine the
fair market value.
Pursuant to this 1998 Plan, the Board, as Administrator of the 1998 Plan,
granted the 3,000,000 Options to various parties during the 1998 calendar
year, of which 120,000 Options are still unexercised and outstanding as of
the year ended December 31, 1999. A summary of the issued and outstanding
Options at December 31, 1999 is as follows:
STOCK OPTIONS
-------------------------
SHARES OPTION PRICE EXPIRATION DATE
------- ------------ ---------------
120,000 $.19 6/18/2004
======= ============ ===============
Page 39
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - EMPLOYMENT ARRANGEMENT
- --------------------------------
The Board of Directors approved an indefinite executive compensation
arrangement with an officer of the Company. Periodic compensation increases
are based upon increases in the value of the stock over a February 8, 1999
base market value. For the year ended December 31, 1999, increases in
compensation amounted to $-0- under such arrangement.
NOTE 16 - SUBSEQUENT EVENTS
- ---------------------------
The Company is in the process of issuing 2,705,650 shares of its
restricted common stock, for certain private transactions, as described
below:
(a) The Company is issuing 75,000 shares of restricted common stock, to
a member of the board of directors, for serving in such capacity.
(b) The Company is issuing 1,624,900 shares of restricted common stock,
for consulting services; 1,220,000 shares of which are to officers of the
Company.
(c) The Company is issuing 1,000,000 shares of restricted common stock,
to an officer, as compensation.
(d) The Company is issuing 5,750 shares of restricted common stock, as
employee bonuses.
Page 40
PART III
--------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ----------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth
herein as of March 21, 2000. All directors serve until the next annual
meeting of stockholders or until their successors are duly elected and
qualified. All officers serve at the pleasure of the board of directors,
subject to any applicable employment agreements or arrangements.
NAME AGE POSITION(S) DATES
- -------------------------- ---- ------------------------- -----------------
Richard J. Kurtz 59 Chairman of the Board and February 8, 1999
Chief Executive Officer
David M. Goldblatt 56 Director July 1994
Stuart B. Krost, M.D. 39 Director November 23, 1998
Arthur J. Gregg 72 Director March 27, 2000
Larry T. Clemons 42 President and February 8, 1999
Chief Operating Officer
Treasurer March 1, 1999
Michael T. Adams 34 Vice President and March 1, 1999
Secretary
Ponswamy Rajalingam, Ph.D. 42 Vice President July 1, 1999
R. Uma Umarani, Ph.D. 40 Vice President July 1, 1999
Each of the directors of the Company holds office until the next annual
meeting of stockholders, or until their successors are elected and
qualified. The Company's by-laws currently provide for not less than one
director nor more than seven directors. Currently, there are four
directors of the Company. The by-laws permit the board of directors to
fill any vacancy and such director may serve until the next annual meeting
of stockholders or until his or her successor is elected and qualified.
Officers serve at the discretion of the board of directors. There are
no family relationships among any of the officers or directors of the
Company.
The board of directors accepted the resignation of Charles A. Gargano,
effective August 28, 1999, in its special meeting held on November 30,
1999.
Page 41
The principal occupation and business experience for each officer and
director of the Company for the last five years is as follows:
RICHARD J. KURTZ has been Chairman of the Board and Chief Executive
Officer of the Company since February 8, 1999. Mr. Kurtz is also
president and chief executive officer of the Kamson Corporation, a
privately held corporation, and has been for the past 26 years. Kamson
Corporation has its principal executive offices located in Englewood
Cliffs, New Jersey and currently owns and operates sixty eight (68)
investment properties in the Northeastern United States. Mr. Kurtz is a
graduate of the University of Miami and a member of its President's Club.
He was formerly a director of the Inter-Community Bank located in
Springfield, New Jersey. Mr. Kurtz is also an active member of the Board
of Directors of Heavenlydoor.com, a public company trading on the NASDAQ
Small Caps market. Most notably, he was chosen "Man of the Year" by the
Chamber of Commerce in Englewood Cliffs and the Boy Scouts of America.
Mr. Kurtz resides in Alpine, New Jersey and is currently Vice President
and a member of the Board of Directors for the Jewish Community Center on
the Palisades in Tenafly, New Jersey. He is also proud to be an elected
member of the Board of Trustees and the Foundation Board for the
Englewood Hospital and Medical Center of New Jersey.
DAVID M. GOLDBLATT has been a director of the Company since July 1994.
Mr. Goldblatt has over 27 years of experience in trading, selling and
financing United States Government securities and money market
instruments. For the past five years, Mr. Goldblatt has been engaged as
a Securities principal with Seaboard Securities. In 1970, Mr. Goldblatt
traded short term U.S. government securities at William E. Pollack and
Co. In 1972, he was hired as Vice President at Cantor Fitzgerald and
Company, where he was required to sell and finance the Firms trading and
matched book positions. In 1976, Mr. Goldblatt was employed by Loeb,
Rhodes & Company, as a Senior Vice President. He was responsible for
hiring sales personnel for the money market department. In addition, he
was in charge of selling and financing the Firm's money market and
matched book positions. In 1980, Mr. Goldblatt was a partner in Resource
Management. The Firm specialized in trading U.S. government securities
and short-term money market instruments. In 1992, Mr. Goldblatt initiated
and developed the fixed income department at Seaboard Securities. This
division specializes in U.S. government securities. Mr. Goldblatt earned
his Master's Degree from Hunter College in New York City.
STUART B. KROST, M.D. has been a director of the Company since
November 23, 1998. Dr. Krost is a medical doctor, Board Certified in
physical medicine and rehabilitation and pain management, and has been
practicing medicine for the past 8 years in Florida. Dr. Krost received
his medical degree from SUNY Health Science Center at Syracuse, New York,
and bachelor's degree from SUNY at Stony Brook, Long Island, New York. He
graduated cum laude, with honors, phi beta kappa, dean's list, and sigma
beta honor society. Dr. Krost's post graduate training was performed at
the North Shore University Hospital, Manhasset, New York, which is an
affiliate of Cornell University Medical College, and SUNY Health Science
Center at Brooklyn, New York. Dr. Krost is affiliated with the American
Academy of Physical Medicine and Rehabilitation, American Congress of
Rehabilitation, American Medical Association, American Academy of Pain
Management, Palm Beach County Medical Society, Florida Medical Society,
Florida Society of Pain Management and Rehabilitation, and American Pain
Society.
Page 42
ARTHUR J. GREGG, retired lieutenant general, U.S. Army, has been a
director since February 21, 2000. General Gregg has more than forty-
four years of distinguished professional experience, having held
senior level management and command positions in the military and
several executive positions in industry. During the course of his
career, through ongoing education and the nature of the positions he
has held, General Gregg has developed a broad, keen and in-depth
knowledge of business operations and management. His record of
performance repeatedly demonstrates his ability to lead organizations
to success including new businesses and emerging technologies.
Additionally, as a result of his extensive military and executive
experience he has considerable contacts and respect within federal
government agencies, and private industry. General Gregg continues an
active schedule as a member of several corporate and academic boards.
He chairs three of these boards. From 1994 to 1996 General Gregg was
President, James Martin Government Intelligence, Inc., an information
technology firm providing senior level consulting services to law
enforcement, intelligence and defense agencies. He was responsible
for the general management of the company, reporting to the Board of
Directors. From 1992 to 1994 General Gregg was Executive Vice
President and Chief Operating Officer, Steel Tech Manufacturing, Inc.,
a company engaged in metal fabrication and paint finishing. He was
responsible for the general management of this start-up manufacturing
company and reported directly to Board of Directors. From 1989 to 1992
he was Executive Vice President and Chief Operating Officer of
American Coastal Industries, Inc. - Responsible for general management
and business development. He reported to the President and Chairman of
the Board. From 1987 to 1989 General Gregg was an Independent
Consultant, engaged in general management and cable television
consulting services. From 1984 to 1987 He was Vice President and
General Manager, Cox Cable, New Orleans, LA, managing an 80,000
customer cable television system; 250 employees and $30 million in
annual revenue. General Gregg also held various other positions
such as President, UCI, Inc., Springfield, VA (from 1982 to 1984);
Deputy Chief of Staff for Logistics, U.S. Army, Washington, D.C.
(from 1979 to 1981); Director for Logistics, Organization of the Joint
Chiefs of Staff, Washington, D.C. (from 1977 to 1979); Deputy Chief of
Staff for Logistics, U.S. Army, Europe (from 1975 to 1977); Commander,
Army and Air Force Exchange Service, Europe (from 1973 to 1975); Deputy
Director and later Director of the Troop Support Directorate, Office
of the Deputy Chief of Staff for Logistics Department of the Army,
Washing, DC (from 1971 to 1973); Commander, Nahbollenbach Army Depot,
Germany (from 1969 to 1971); and Logistic Staff Officer in the Joint
Petroleum Office, United States European command (from 1968 to 1969).
General Gregg attended Harvard University, John F. Kennedy School of
Government - Concentrated Executive Program in National Security;
Saint Benedict College Atchison, Kansas - Bachelor of Science in
Business Administration (Summa cum Laude); Army War College, Carlisle
Barracks, Pennsylvania - One year graduate level college; and Command
and General Staff College, Fort Leavenworth, Kansas - One year
graduate level college.
Page 43
LARRY T. CLEMONS has been President and Chief Operating Officer since
February 8, 1999, and Treasurer since March 1, 1999, Treasurer of
Urecoats International since March 1, 1999, and Treasurer of Urecoats
Technologies since July 1, 1999. Mr. Clemons has extensive experience in
taking products from Design and Function, Marketing and Sales, Corporate
Implementation, Drawing Board to Factory, and Showroom Floor, to the
Consumer within short periods of time. Mr. Clemons moved to South Florida
in 1983 and started Raffles Bar & Grill, Dadeland Mall, Miami, FL. From
1981-1983, he taught speed reading at the Reading Learn Center of South
Florida. From 1983-1986, Mr. Clemons worked for Holman Enterprises (Fort
Lauderdale Lincoln-Mercury), in Fort Lauderdale, FL. He started the fleet
operation department and was the Director of ASC McLaren sales and Ford
development (Prototype Convertible) OEM Program, where he developed the
first automotive showroom and sales in the Galleria Mall. Starting from
the ground up, he directed 3 new divisions for Holman Enterprises and
Fort Lauderdale Lincoln Mercury and achieved the top 10 Sales Award in
the Nation for 3 consecutive years. From 1986 to 1989, he worked for ASC,
Southgate, Michigan. Mr. Clemons was hired by Heinz Prechter,
Industrialist of the Year and Chairman of ASC, as Project Sales and
Marketing Coordinator. He was responsible for bringing the prototype ASC
McLaren Convertible to Ford Dealerships nationwide, under the newly
designed Ford Mustang chassis and image, prototype Chevrolet Camaro
convertible, achieving full production OEM status within one year of
development, General Motors Pontiac Division approving and purchasing
production rights for the Pontiac Firebird Convertible, and developing
the "Sun In The Fun" program for South Florida Ford Dealers with the Ford
Escort. From 1989-1991, he maintained a personal relationship with Heinz
Prechter and worked independently in sales and consulting on vintage
cars. In 1992, he owned and operated his first Art Museum and Gallery in
Fort Lauderdale, FL, "Peace for the Planet" Museum and Gallery; 1993,
"Hermitage Museum", St. Petersburg, Russia (Leningrad); and 1994 to
present, opened "Gallery 721" Fort Lauderdale, FL. Mr. Clemons is
currently involved in a Real Estate project in Fort Lauderdale, FL,
encompassing 4 city blocks. Mr. Clemons attended the University of
Kentucky, Lexington, KY, from 1977 to 1979.
MICHAEL T. ADAMS has been executive vice president and secretary of
the Company since March 1, 1999, vice president and secretary of
Urecoats International and Urecoats Technologies since July 1, 1999. Mr.
Adams is experienced in business administration, accounting, legal
matters, and public company disclosure reporting. Mr. Adams was
instrumental in the reorganization and restructuring of the Company in
connection with its acquisition of Urecoats International in January
1997. He was appointed as President of Urecoats International on May 1,
1997, serving until July 1, 1999. Mr. Adams was also a Vice President
and Secretary of the Company's Designer Wear subsidiary from August 1996
to February 1998. From March 1996 to September 1996, Mr. Adams worked
as a consultant for various companies in the South Florida area. From
November 1991 to February 1996, Mr. Adams worked for Statewide
Enterprises, Statewide Security and Statewide Investigations, located in
Dania, Florida, where his last position was chief financial officer.
Prior to that time, from October 1985 to January 1991, Mr. Adams worked
for American Express Travel Related Services, located in Plantation,
Florida. Mr. Adams earned his Bachelor of Science degree (BS) in
Business Administration in 1989, Master of Science degree in Business
Administration (MBA) in 1990 and Juris Doctor degree (JD) in 1995, from
Nova Southeastern University, located in Fort Lauderdale, Florida.
Page 44
PONSWAMY RAJALINGAM, PH.D. has been a vice president of the Company,
President of Urecoats International and Urecoats Technologies, since
July 1, 1999, and served as Chief Chemist with Urecoats International
since June 1, 1998. Dr. Raja is also a consultant to the Company. Prior
to this, Dr. Raja served as Scientific Advisor to the President and CEO
for Envirolutions Inc. of Canada and also as Consultant for Royal
Ecoproducts, also of Canada; preceding this, the following: 1996-1997,
Research and Development Director for Rubber Technology, Inc. of Roberts,
GA.; 1994-1995, President of Polymix Corp., Huron Park, Ontario;
1993-1994, Research and Development Manager of Canuck Compounders, Inc.,
Cambridge, Ontario; 1991-1992, Post-Doctoral Fellow of Polymer Science
and Engineering Laboratory, Queen's University, Kingston, Canada;
1986-1991, Research Scientist as well as Honorary Professor of both
Madras and Anna Universities, Madras, India of Polymer Division in CLRI
[Council of Scientific and Industrial Research (CSIR)] India. Dr. Raja's
areas of interest lie in the following fields: A) Research 1) Compounding
of Rubber and Plastics for Moulding and Extrusion Applications;
2) Development and Applications of Thermoplastic Elastomers (TPE);
3) Recycling of Plastics and Rubber; 4) Synthesis, Characterization and
Application of Ionomers in 4a) coatings and adhesives, 4b) packaging,
4c) blend compatibilization, 4d) emulsions and dispersions, 4e) fluid
applications: aa) drilling fluid additive, bb) drag reduction of
hydrocarbon fluids, cc) water activated gellation: B) Teaching 1) Polymer
Synthesis, Characterization, Modifications and processing with reference
to elastomers; 2) Polymer Recycling; 3) Compounding of Rubber and
plastics for moulding and extrusion applications, and C) Consulting
1) Rubber and plastic compounding; 2) Thermoplastic elastomers;
3) Adhesives and coatings; 4) Rubber and plastic recycling. Between 1983
and 1989, Dr. Raja also taught courses including Applied Chemistry,
Polymer Science, Polymer Technology, and Leather Technology, along with
being in supervisorship over these same courses. The following are some
of the Publications either authored or co-authored by Dr. Raja:
Compatibilization of Discarded Carpets & Laminated Film Waste., BioCycle,
Communicated; Compounding Carpet wastes & Laminated Film Wastes for
moulding and extrusion applications, Plastics: Formulations &
Compounding, March/April, 1997; Interface improvements to Ground Tire
Rubber based Composites, Scrap Tire News., 11 (4), 6(1997); Ground Rubber
Tire/thermoplastic composites; effect of different ground rubber tires.,
Rubber Chem. Technol., 66(4), 664(1993); "The role of functional polymers
in Ground Rubber Tire - Polyethylene Composite". Rubber Chem, and Tech.,
Vol 65(5)., 908(1992); "Compatibilization of Ground Rubber tires in
Recycled polyethylene/polypropylene waste plastics"., Annual Technical
Conference (Soc. Plastic Engineers)., Detroit, USA., 799(1992);
Potassium-N-butylxanthate as a new antioxidant for natural rubber.,
Polym.-Plast. Technol. Eng., 30(4), 405 (1991); Mechanical &
Morphological Properties of Ternary Blends., Poly. Mater. Sci. and Eng.,
63, 122(1990); and Coconut fibre-reinforced rubber composites., J. Appl.
Poly. Sci., 37(9)., 2645(1989). Dr. Raja received his B.Sc., in 1978 and
his M.Sc. in 1981 from Madurai Kamaraj University of Madurai, India. He
received his Ph.D. in 1985 from Anna University of Madras, India. Dr.
Raja's professional organizations and awards are the following: a member
of SPE [Society of Plastic Engineers], received several awards for the
contribution to the Rubber and Plastic Industries in India including the
1988 FEDERATION OF PLASTIC INDUSTRIES AWARD, INDIA, more than 50 Science
citations, and more than 60 Research Publications in Refereed Journals.
Page 45
R. UMA UMARANI, PH.D. has been a vice president of the Company,
Urecoats International and Urecoats Technologies, since July 1, 1999, and
chemist since January 1, 1999. Between 1997 and 1998 Dr. Uma served as
Research Associate for the Department of Chemistry at The University of
Western Ontario, London, Ontario, Canada. In 1995 she was a Visiting
Professor of the Chemistry Department at the University of Science &
Technology at Lille, Villenuve D'Ascq. France. From 1989 and 1992, Dr.
Uma served as Research Associate of the Chemistry Department at the
Indian Institute of Technology, Madras, India; Department of Medicinal
Chemistry of the University of Texas, Arlington, TX, and the Chemistry
Department at Queen's University, Kingston, Ontario, Canada respectively.
Her instrumental experience is XL Varian 300, Gemini 200, 300, Nicolet
293A multinuclear FT-NMR, Bruker 200 MHz and 400 MHz FT-NMR, Perkin Elmer
IR spectrophotometer, Varian 5000 and Waters HPLC and Reverse phase ion
chromatography. Dr. Uma has knowledge about Environmental Protection
Act, New Substances Notification, Toxic Substances Control Act, Workplace
Hazardous Materials Information System, Hazardous Waste Management, and
Chemical Storage and Segregation. She has had about 10 research articles
in internationally reputed research journals and 5 different conference
presentations. Dr. Uma received her Ph.D., Physical Organic Chemistry in
1989 from Anna University of Madras, India; her M.Sc., Organic Chemistry
in 1983 from The American College of Madurai, India; and her B.Sc.,
Chemistry in 1980 from V.V.V. College of Madurai University, India.
FAMILY RELATIONSHIPS
Ponswamy Rajalingam, Ph.D. and R. Uma Umarani, Ph.D. are husband
and wife.
Page 46
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The following Summary Compensation Table sets forth the compensation
earned by the persons who served as the Company's chief executive officer
and other executive officers other than the chief executive officer (the
"Named Officers") for services rendered in all capacities during the last
completed fiscal year.
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
----------------------------------
(a) (b) (c) (d) (e)
Other
Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
- -------------------------------- ---- -------- --------- ------------
(1) Richard J. Kurtz 1999 $ -0- $ -0- $ -0-
Chairman of the Board
and CEO
(2) Larry T. Clemons 1999 $ 86,431 $ -0- $ -0-
President, COO
and Treasurer
(3) Michael T. Adams 1999 $ 78,098 $ 12,000 $ 6,750(a)
Executive Vice President
and Secretary
(4) Ponswamy Rajalingam 1999 $ -0- $ -0- $ 170,850(b)
Vice President
(5) R. Uma Umarani 1999 $ -0- $ -0- $ 104,000(c)
Vice President
(6) Howard Weiser 1999 $ 70,000 $ -0- $ -0-
President and CEO
(resigned Feb. 8, 1999)
Secretary
(resigned Mar. 1, 1999)
(7) Edgar M. Reynolds 1999 $ 16,000 $ -0- $ -0-
Vice President and
Treasurer
(resigned Mar. 1, 1999)
- ---
(a) This figure represents the dollar value of the difference between the
price paid for securities of the Company and the fair market value of such
securities at the date of purchase.
Page 47
(b) This figure represents cash and non-cash consulting fees paid under a
consulting agreement, and the dollar value of the difference between the
price paid for securities of the Company and the fair market value of such
securities at the date of purchase, which amounts are $74,000, $82,425,
and $14,425, respectively.
(c) This figure represents cash and non-cash consulting fees paid under a
consulting agreement, and the dollar value of the difference between the
price paid for securities of the Company and the fair market value of such
securities at the date of purchase, which amounts are $71,000, $32,400,
and $600, respectively.
SUMMARY COMPENSATION TABLE
--------------------------
(CONTINUED)
Long-Term Compensation
--------------------------------------------
Awards Payouts
------------------------ -------
(a) (f) (g) (h) (i)
Restricted Securities
Stock Underlying All Other
Name and Awards Options/ LTIP Compensation
Principal Position ($) SARs (#) ($) ($)
- --------------------------- ---------- ---------- ------- ------------
(1) Richard J. Kurtz $ -0- -0- $ -0- $ -0-
Chairman of the Board
and CEO
(2) Larry T. Clemons $ 350,000(a) 160,000 $ -0- $ -0-
President, COO and
Treasurer
(3) Michael T. Adams $ -0- 175,000 $ -0- $ -0-
Vice President and
Secretary
(4) Ponswamy Rajalingam $ 145,400(b) 100,000 $ -0- $ -0-
Vice President
(5) R. Uma Umarani $ 42,660(c) -0- $ -0- $ -0-
Vice President
(6) Howard Weiser $ -0- 400,000 $ -0- $ -0-
President and CEO
(resigned Feb. 8, 1999)
Secretary
(resigned Mar. 1, 1999)
(7) Edgar M. Reynolds $ -0- 150,000 $ -0- $ -0-
Vice President and
Treasurer
(resigned Mar. 1, 1999)
*See Item 11. Security Ownership of Certain Beneficial Owners and Management
Page 48
(a) The number of shares of restricted common stock held at the end of the
fiscal year by this officer was 1,000,000 shares, valued at the end of such
year based on the closing market price of the Company's unrestricted stock,
net of any consideration paid, at $165,000. The restricted common stock
holdings are eligible for dividends.
(b) The number of shares of restricted common stock held at the end of the
fiscal year by this officer was 1,080,000 shares, valued at the end of such
year based on the closing market price of the Company's unrestricted stock,
net of any consideration paid, at $178,200. The restricted common stock
holdings are eligible for dividends.
(c) The number of shares of restricted common stock held at the end of the
fiscal year by this officer was 216,000 shares, valued at the end of such
year based on the closing market price of the Company's unrestricted stock,
net of any consideration paid, at $ 35,640.
The following table contains information concerning all types of stock
options granted made to the Named Officers for the fiscal year ended
December 31, 1999. No stock appreciation rights were granted to these
individuals during such year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
----------------------------------------------------------
(a) (b) (c)
Number of Percent of total
securities options/SARs
underlying granted to
options/SARs employees in
Name granted (#) fiscal year
---------------------- ------------ ----------------
(1) Richard J. Kurtz 100,000(a) 1.46%
(2) Larry T. Clemons 1,000,000(d) 11.11%
(3) Michael T. Adams 250,000(a) 3.64%
(4) Ponswamy Rajalingam, Ph.D. 75,000(b) 1.09%
240,000(c) 2.67%
120,000 1.75%
25,000 .36%
(5) R. Uma Umarani, Ph.D. 144,000(b) 2.10%
18,000 .26%
(6) Howard Weiser 400,000(a) 5.83%
(7) Edgar M. Reynolds 150,000(a) 2.19%
- ---
(a) These options were granted upon establishment of the 1999 Plan, on
November 23, 1998, subject to an increase in the authorized common stock
capitalization of the Company or some other action taken by the board of
directors making shares available for issuance underlying the options.
On February 8, 1999, the common stock capitalization of the Company was
increased by approval of a majority of the common stock shareholders of
the Company, rendering the options exercisable on that date.
Page 49
(b) These options were granted on February 8, 1999, subject to an
increase in the authorized common stock capitalization of the Company
or some other action taken by the board of directors making shares
available for issuance underlying the options. On February 8, 1999,
the common stock capitalization of the Company was increased by
approval of a majority of the common stock shareholders of the Company,
rendering the options exercisable on that date.
(c) These options were originally granted under the Company's 1998
Plan, on June 1, 1998 in connection with a consulting agreement, and
subsequently transferred to the Company's 1999 Plan.
(d) This restricted option was authorized by the board of directors
pursuant to an executive compensation agreement described elsewhere in
this report.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------
(CONTINUED)
(d) (e)
Exercise or base
price ($/Sh) Expiration date
---------------- ---------------
(1) Richard J. Kurtz $.16 / 100,000 11/23/2003
(2) Larry T. Clemons $.16 /1,000,000 N/A
(3) Michael T. Adams $.16 / 250,000 11/23/2003
(4) Ponswamy Rajalingam, Ph.D. $.315 / 75,000 2/8/2004
$.21 / 240,000 6/1/2000
$.195 / 120,000 6/1/2000
$.21 / 25,000 4/9/2004
(5) R. Uma Umarani, Ph.D. $.25 / 144,000 1/1/2000
$.21 / 18,000 7/1/2001
(6) Howard Weiser $.16 / 400,000 11/23/2003
(7) Edgar M. Reynolds $.16 / 150,000 11/23/2003
Page 50
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1999 with respect
to the Named Officers. According to the known records of the Company, no
stock appreciation rights have ever been approved or authorized by the
Company nor were any exercised or outstanding at the end of the fiscal year
ended December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
---------------------------------------------------------------
(a) (b) (c)
Shares acquired
Name on exercise (#) Value realized ($)
--------------------- --------------- ------------------
(1) Richard J. Kurtz N/A N/A
(2) Larry T. Clemons N/A N/A
(3) Michael T. Adams 75,000 $ 6,750
(4) Ponswamy Rajalingam, Ph.D. 360,000 $ 14,425
(5) R. Uma Umarani, Ph.D. 162,000 $ 600
(6) Howard Weiser N/A N/A
(7) Edgar M. Reynolds N/A N/A
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
------------------------------------------------------------------------
(CONTINUED)
(d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options/SARs
Options/SARs at FY-end at FY-End ($)
(#)
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
(1) Richard J. Kurtz 100,000 / N/A $ -0- / N/A
(2) Larry T. Clemons N/A / 1,000,000 $ N/A /$ -0-
(3) Michael T. Adams 175,000 / N/A $ -0- / N/A
(4) Ponswamy Rajalingam N/A / 100,000 $ N/A /$ -0-
(5) R. Uma Umarani N/A / N/A $ N/A / N/A
(6) Howard Weiser 400,000 / N/A $ -0- / N/A
(7) Edgar M. Reynolds 150,000 / N/A $ -0- / N/A
Page 51
COMPENSATION OF DIRECTORS
Other than the 1999 Employee and Consultant Stock Option and Purchase
Plan, as amended, described below, the Company does not have a standard
policy regarding compensation of members of the board of directors. Other
than as reported below, the members of the board of directors did not
receive compensation for their services as such during the year ended
December 31, 1999.
THE 1999 CONSULTANT AND EMPLOYEE STOCK PURCHASE AND OPTION PLAN, AS AMENDED
The 1999 Consultant and Employee Stock Purchase and Option, was
approved by shareholders at the special meeting held on February 8, 1999,
and amended by the board of directors on April 14, 1999 ("1999 Plan").
Under the 1999 Plan, either Incentive Stock Options or Non-Qualified
Stock Options may be granted; however, the former may be granted only to
employees of the Company and its subsidiaries. The 1999 Plan provides
for options to purchase an aggregate of 8,000,000 shares of the
Company's common stock that may be granted to employees of the Company
and its subsidiaries. The Board of Directors of the Company is the
Administrator of the 1999 Plan. Any employee, officer or consultant
providing services to the Company or any Affiliate who the Administrator
determines to be an Eligible Person. A director of the Company who is
not also an employee of the Company or an Affiliate shall be an Eligible
Person.
In 1999, the Company granted to its employees, consultants and current
and former directors options to purchase 5,864,500 shares of the Company's
common stock. Options granted were issued with an exercise price not less
than ninety percent (90%) of the fair market value (as defined in the 1999
Plan) of a share on the date of grant of such option, provided further,
any option granted to a participant who, at the time such option was
granted, was an officer or director of the Company, the purchase price
was not less than one hundred percent (100%) of the fair market value of
a share on the date of grant of such option, provided further, however,
that in the case of an Incentive Stock Option granted to a participant
who, at the time such option was granted, was deemed to be a 10%
Shareholder, the purchase price for each share was for an amount that
the Administrator in its best judgment determined to be not less than
one hundred and ten percent (110%) of the fair market value per share at
the date the Incentive Stock Option was granted. The options were
granted on varying terms ranging from two (2) to five (5) years from the
date of grant and some in connection with consulting and other agreements.
Accordingly, a total of 2,135,500 shares of the Company's common stock
are reserved and available for grant under the 1999 Plan.
Page 52
EMPLOYMENT AGREEMENTS
The Board of Directors in a Special Meeting dated February 8, 1999,
appointed Larry T. Clemons as President and COO of the Company. The
Company agreed to a compensation arrangement, which has not been set
forth in a formal executive employment agreement as of the date of this
report, whereby Mr. Clemons is to receive an initial annual salary in
the amount of $75,000 and 1,000,000 shares of restricted common stock of
the Company, beginning February 8, 1999. The annual salary is subject
to review on a quarterly basis, and, based on each $.20 increase in the
value of the stock of the Company (with the base beginning value of the
common stock as of February 8, 1999 of $.35), Mr. Clemons is eligible
for increases of $10,000. Additionally, Mr. Clemons has an option to
purchase 1,000,000 shares of restricted common stock at the end of his
first year of employment at a price per share of $.16. During the year,
the Chairman of the Board determined, in the best interests of the
Company, to increase Mr. Clemons' salary, which was $110,000 as of
December 31, 1999. Currently, Mr. Clemon's salary is in accordance with
his originally agreed compensation arrangement described hereinabove.
The Board of Directors recognized the exemplary contributions made by
Mr. Clemons during his first year of employment and restructured his
option to purchase 1,000,000 shares of restricted common stock, effective
February 8, 2000, at $.16 per share. The board of directors canceled his
theretofore approved option for restricted common stock and replaced it
with an award for 1,000,000 shares of restricted common stock on January
4, 2000. See Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Page 53
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following section sets forth certain information, as of March 21,
2000, regarding the beneficial ownership of the common stock (i) by each
of the executive officers and directors of the Company, (ii) by all
officers and directors of the Company as a group and (iii) by each person
known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of the common stock.
Name and Address Description of Percent
of Beneficial Owner(*) Beneficial Owner Amount of Class
- -------------------------- --------------------- ---------- --------
Richard J. Kurtz Chairman of the Board 23,250,923(1) 23.46%
270 Sylvan Avenue and Chief Executive
Englewood Cliffs, NJ 07632 Officer
David M. Goldblatt Director 1,020,416(2) 1.03%
410 East 80th Street
New York, NY 10024
Stuart B. Krost Director 2,247,333(3) 2.27%
10394 La Reina Road
Delray Beach, FL 33446
Arthur J. Gregg Director 75,000(4) .08%
7736 Rockledge Court
Springfield, VA 22152
Larry T. Clemons President and 2,000,000(5) 2.02%
1807 N. Atlantic Blvd. Treasurer
Ft. Lauderdale, FL 33305
Michael T. Adams Executive Vice 1,117,369(6) 1.13%
1883 Discovery Way President and
Deerfield Beach, FL 33442 Secretary
Ponswamy Rajalingam, Ph.D. Vice President 3,044,412(7) 3.07%
1655 NW 91st Avenue, #526
Coral Springs, FL 33071
R. Uma Umarani, Ph.D. Vice President 1,000,000(8) 1.01%
1655 NW 91st Avenue, #526
Coral Springs, FL 33071
Officers and Directors as a Group 33,755,453 34.06%
- ---
(*) Beneficial ownership is determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 (the "Exchange Act") and
includes voting and investment power with respect to shares of common
stock. Shares of common stock subject to options currently exercisable or
exercisable within 60 days of the date hereof, are deemed outstanding for
computing the percentage ownership of the person holding such options,
but are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
Page 54
(1) Includes 100,000 shares of common stock issuable on the exercise
of outstanding stock options granted on November 23, 1998, effective
February 8, 1999, and 1,000,000 shares of common stock issuable on the
exercise of outstanding stock options granted on January 4, 2000, under
the Company's 1999 Plan, all of which are immediately exercisable. See
Item 12. Certain Relationships and Related Party Transactions.
(2) Includes 150,000 shares of common stock issuable on the exercise
of outstanding stock options granted on November 23, 1998, effective
February 8, 1999, and 50,000 shares of common stock issuable on the
exercise of outstanding stock options granted on February 8, 1998, under
the Company's 1999 Plan, all of which are immediately exercisable.
(3) Includes 150,000 shares of common stock issuable on the exercise
of outstanding stock options granted on November 23, 1998, effective
February 8, 1999, under the Company's 1999 Plan, all of which are
immediately exercisable.
(4) Includes 75,000 shares of restricted common stock awarded for
agreeing to serve on the Company's Board of Directors and excludes
75,000 shares of restricted common stock issuable after one year of
service on the Board of Directors.
(5) Includes 1,000,000 shares of restricted common stock awarded in lieu
of a restricted option to purchase restricted common as part of his
compensation. Such issuance of shares and cancellation of option were
effected on January 4, 2000.
(6) Includes 250,000 shares of common issued upon exercise of 75,000
of the stock options on March 1, 1999, and 175,000 on February 21, 2000,
granted on November 23, 1998, effective February 8, 1999, under the
Company's 1999 Plan, excluding a bona fide gift of 52,631 shares to a
non-affiliated person during the 1999 calendar year.
(7) Includes 50,000 shares of common stock issuable on the exercise
of outstanding stock options granted on June 1, 1998, pursuant to a
consulting agreement, originally granted under the Company's 1998 Plan
and transferred to the Company's 1999 Plan; 50,000 shares of common stock
issuable on the exercise of outstanding stock options granted on June 1,
1999, pursuant to a consulting agreement, under the Company's 1999 Plan;
250,000 shares of common stock issuable on the exercise of outstanding
stock options granted on January 4, 2000, pursuant to a consulting
agreement, under the Company's 1999 Plan; 100,000 shares of restricted
common stock issuable pursuant to a consulting agreement as additional
compensation; 250,000 shares of restricted common stock issuable pursuant
to a consulting agreement, all of which are immediately issuable; and
500,000 shares of restricted common stock issued and additionally
restricted by the Company for the term of the consulting agreement,
subject to fulfillment of the terms and conditions under the consulting
agreement terminating on March 1, 2001.
Page 55
(8) Includes 250,000 shares of common stock issuable on the exercise
of outstanding stock options granted on January 4, 2000, pursuant to a
consulting agreement, under the Company's 1999 Plan; 61,000 shares of
restricted common stock issuable pursuant to a consulting agreement as
additional compensation; and 311,000 shares of restricted common stock
issuable and additionally restricted by the Company for the term of the
consulting agreement, subject to fulfillment of the terms and conditions
under the consulting agreement terminating on March 1, 2001.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The Company issued Richard J. Kurtz in a private transaction,
2,500,000 shares of restricted common stock in exchange for cancellation
of a non-interest bearing short term loan of $187,500 he made to fund the
operations of the Company.
The Company issued Richard J. Kurtz under its private placement
commencing on July 1, 1999, 17,170,923 shares of restricted common stock,
in exchange for cancellation of $1,717,923 in interest bearing loans he
made to fund the operations of the Company during the 1999 fiscal year.
The Board of Directors granted Richard J. Kurtz an option to purchase
1,000,000 shares of common stock under its 1999 Plan, as consideration
for his agreeing to provide $1.5 million in loans and/or personal
guarantees for such amount, to fund the operations of the Company, on an
as needed basis. The option was granted on January 4, 2000 and the
exercise price is equal to not less than one hundred and ten percent of
the closing "bid" price of the shares on the date of grant as such bid
price is quoted on NASDAQ over-the-counter bulletin board or at $.231
per share. The Chairman has additionally confirmed that he will guarantee
up to a total of $2,000,000 to fund the operating expenses incurred or to
be incurred by the Company during the course of the year 2000.
The Company issued Stuart B. Krost, 400,000 shares of restricted common
stock, in cancellation of consulting fees, valued and recorded at $26,050.
The Company issued 1,000,000 shares of restricted common stock, as other
compensation, to Larry T. Clemons, an officer of the Company, valued and
recorded at $200,000.
The Company issued 820,000 shares of restricted common stock to Dr. Raja,
an officer of the Company, for consulting services, valued and recorded at
$55,600.
The Company issued 216,000 shares of restricted common stock to Dr. Uma,
an officer of the Company, for consulting services, valued and recorded
at $19,044.
Page 56
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
EXHIBITS
None.
FINANCIAL STATEMENT SCHEDULES
Financial statements and schedules filed as a part of this report are
listed on the "Index to Financial Statements" page herein. All other
schedules are omitted because either (i) they are not required under the
instructions, (ii) they are inapplicable, or (iii) the information is
included in the financial statements.
REPORTS ON FORM 8-K
None
Page 57
SIGNATURES
----------
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this Year Ended December 31, 1999 Form 10-KSB Report
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Pompano Beach and State of Florida on March 30, 2000.
URECOATS INDUSTRIES INC.
(Registrant)
/s/ Larry T. Clemons /s/ Michael T. Adams
- ------------------------ ----------------------------
Larry T. Clemons Michael T. Adams
President and Treasurer Vice President and Secretary
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant, and in the
capacities and on the dates indicated:
Signature Date
----------- ----------
/s/ Richard J. Kurtz March 30, 2000
----------------------
Richard J. Kurtz
Chairman of the Board
/s/ David M. Goldblatt March 30, 2000
----------------------
David M. Goldblatt
Director
/s/ Stuart B. Krost March 30, 2000
----------------------
Stuart B. Krost
Director
/ / March 30, 2000
----------------------
Arthur J. Gregg
Director
Page 58
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- ----------------------------------------------------------------
27.1 FINANCIAL DATA SCHEDULE - YEAR ENDED DECEMBER 31, 1999
Page 59
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15026
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42452
<PP&E> 684514
<DEPRECIATION> 158412
<TOTAL-ASSETS> 1589739
<CURRENT-LIABILITIES> 945642
<BONDS> 0
0
55305
<COMMON> 927482
<OTHER-SE> (1042168)
<TOTAL-LIABILITY-AND-EQUITY> 1589739
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 966696<F1>
<OTHER-EXPENSES> 1414330<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2381026)
<INCOME-TAX> (2381026)
<INCOME-CONTINUING> 0
<DISCONTINUED> 151247
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2532273)
<EPS-BASIC> (.033)
<EPS-DILUTED> (.033)
<FN>
<F1>Consists of Research and Development Costs.
<F2>Consists of all other Costs and Expenses.
</FN>
</TABLE>
