U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from________ to _________
Commission file number 33-53250-A
------------
Workforce Systems Corp.
----------------------------------------------
(Name of small business issuer in its charter)
Florida
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
65-0353816
------------------------------------
(I.R.S. Employer Identification No.)
269 Cusick Road, Suite C-2, Alcoa, TN 37701
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
Issuer's telephone number: 423-681-6034
-----------------
Securities registered under Section 12(b) of the Exchange Act:
none
---------------------
(Title of each class)
Name of each exchange on which registered
not applicable
------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
----------------
(Title of Class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the 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]
State issuer's revenues for its most recent fiscal year: $3,720,680 for
the 12 months ended June 30, 1996.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days: The aggregate market value of the voting stock held by
non-affiliates computed at the average price for which the Company's common
stock was sold on October 9, 1996 is approximately $6,790,063.
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date: As of October 10, 1996,
2,493,934 shares of Common Stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act"): Not Applicable.
Transitional Small Business Disclosure Form (check one):
Yes No X
--- ---
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Workforce Systems Corp. (formerly known as Wildflower Financial Corp.), a
Florida corporation (the "Company"), was formed on August 17, 1992 to seek
acquisition possibilities throughout the United States and to make acquisitions
or enter into other business endeavors to the extent its limited assets would
allow. In order to raise the capital necessary to accomplish such goals, the
Company offered 10,000 shares of Common Stock at a purchase price of $6.00 per
share to the public pursuant to a registration statement under the Act, through
its then executive officers on a "best efforts" basis. In June 1993 the Company
completed its initial public offering with the sale of 3,505 shares of Common
Stock, receiving net proceeds, after the costs of the offering, of approximately
$11,371.
Acquisition of Prime Florida and OIS
------------------------------------
Pursuant to its intended business purpose, on June 14, 1994 Mr. F. W.
Miller, the Company's principal shareholder, President and Chairman, sold an
aggregate of 18,200 shares of the Company's Common Stock owned by him,
representing approximately 55% of the Company's then issued and outstanding
stock, in a private transaction exempt from registration under the Act to
Yucatan Holding Company, a Florida corporation ("Yucatan"), for $60,000 (the
"Purchase Price"). Payment of the Purchase Price was tendered in the form of
$5,000 cash at closing together with a $55,000 principal amount installment
promissory note due in full on or before December 31, 1994. Concurrent with the
purchase of the stock by Yucatan, the Company's then current officers and
directors resigned and the Company's current officers and directors were
elected.
Effective June 30, 1994 the Company acquired 51.9% of the issued and
outstanding stock of Outside Industrial Services, Inc., a Tennessee corporation
doing business as Outside Plant Services ("OIS") for 70,000 shares of the
Company's Series B $5.00 Cumulative Convertible Preferred Stock ("Series B
Preferred") from an unaffiliated third-party in a private transaction exempt
from registration under the Act. The designations, rights and preferences of the
Preferred Stock provided that the holder thereof (a) should receive annual
dividends equal to $.43 per share, (b) was entitled to full voting rights, share
for share, with any then outstanding Common Stock as well as with any other
1
<PAGE>
class or series of stock of the Company having general voting power with the
Common Stock concerning any matter being voted upon by the Company's
shareholders, (c) was entitled to convert such shares into shares of the
Company's Common Stock at any time on a one for one basis and (d) was redeemable
at the option of the Company at $4.30 per share. On May 30, 1996 the holder of
the Series B Preferred converted such shares into 70,000 shares of the Company's
Common Stock.
Also effective June 30, 1994 the Company acquired all of the issued and
outstanding stock of Prime Florida, Inc., a Florida corporation ("Prime") from
Yucatan, which was an affiliate of the Company, for 750,000 shares of the
Company's Common Stock in a private transaction exempt from registration under
the Act. Prime's sole assets included its rights under the Management Services
Agreement with OIS which entitled Prime to all the cash flow from OIS, together
with a 7.4% interest in OIS.
Giving effect to both the 51.9% interest in OIS the Company acquired from
the unaffiliated third party, together with the 7.4% interest in OIS the Company
acquired through its ownership of Prime, the Company then owned 59.3% of the
issued and outstanding stock of OIS. On November 30, 1994 the Company exchanged
30 shares of its Series A Preferred Stock for 155 shares of the common stock of
OIS thereby completing its plan to acquire at least 80% of OIS which began in
June 1994. Following such share exchange, the Company is the beneficial owner of
approximately 81% of OIS. The designations, rights and preferences of the Series
A Preferred Stock provide that the shares (a) have full voting rights, share for
share, with the then outstanding common stock of the Company as well as any
other series of preferred stock then outstanding, (b) are not convertible into
any other class of equity of the Company, (c) are redeemable at any time at the
Company's option at par value of $.001 per share, (d) pay dividends at the sole
discretion of the Company's Board of Directors, (e) are not transferrable
without the consent of the Company's Board of Directors and (f) in the event of
a liquidation or winding up of the Company, carry a liquidation preference equal
to par value, without interest.
Expansion Into Contract Manufacturing
-------------------------------------
On November 4, 1994 the Company entered into an agreement (the "Naturale
Agreement") with Naturale Home Products, Inc. ("Naturale"), an unaffiliated
third party, whereby the Company was named the exclusive manufacturer through a
then to-be-established wholly-owned subsidiary of the Company for all products
developed and marketed by Naturale, including the ThawMaster(TM) thawing trays,
2
<PAGE>
Naturale's initial product. The material terms of the agreement provided that
the Company at its option could either continue the contract manufacturing then
currently in effect between Naturale and an unaffiliated third party, establish
additional manufacturing facilities operated by the Company or sub-contract the
manufacturing to other third parties.
In addition to the revenue to be generated through the manufacturing and
sale by the Company of the products to Naturale, the Company is entitled to a
royalty of $.30 to $.50 per unit in perpetuity on all products sold by Naturale.
The Company was also granted a 15% equity interest in Naturale on a fully
diluted basis. At the time of the transaction the Company recorded no value on
its balance sheet as to this 15% interest due to the minority position it
represented within Naturale and the immaterial value to the Company. On May 30,
1996 the Company divested itself of such 15% interest in Naturale, a marketing
company, but retained the exclusive manufacturing rights under the Naturale
Agreement. The Company determined such 15% interest was immaterial to the
Company's financial statements and operations and further conflicted with the
establishment of PTP (as hereinafter discussed) to market the Company's
products. The Naturale Agreement also granted Naturale the option of acquiring
the manufacturing operations at a price equal to the investment in the
subsidiary, as well as the option to acquire the rights to the royalty at a
price to be negotiated by the parties in the future. Following the execution of
the Naturale Agreement, in 1994 the Company formed NHP Manufacturing Corp., a
Florida corporation ("NHP"), a wholly-owned subsidiary of the Company, pursuant
to the terms of the Naturale Agreement. Subsequent to the acquisition of IFR (as
described below), NHP has become a subsidiary of IFR.
Soon after the execution of the Naturale Agreement it became evident to
management of the Company that the then current contract manufacturer was unable
to accommodate the production schedule or quality control standards in relation
to the ThawMaster(TM) production. Thereafter the Company determined to
sub-contract out the milling and anodization of the trays to other fabricators
who were unaffiliated third parties and to internally perform the finishing
stages of the thawing trays, including silk screening, assembly, packaging and
shipping. The Company continued to experience quality control problems with the
new fabricators, as well as delays in delivery of milled trays. Further, the
Company determined that by further internalizing the manufacture of the thawing
trays that it would be able to reduce the cost of the product as a result of the
high profit margin being enjoyed by the third-party fabricators. The initial
success of the thawing trays and the potential to internalize the high margin of
third party fabricators created an extraordinary opportunity for the Company to
dramatically increase its asset base, revenue base and successfully diversify it
operations and eliminate its reliance on a single revenue source. Accordingly,
3
<PAGE>
in the Spring of 1995 the Company began to fully internalize the production of
the thawing trays, with the exception of the anodization, through a series of
events which led to the acquisition of IFR as described below. This achieved the
Company's goal with respect to the further internalization of the manufacture of
the thawing trays as well as to diversifying the Company's operations and
revenue base.
Acquisition and Expansion of Industrial Fabrication & Repair
------------------------------------------------------------
On May 22, 1995 the Company acquired 100% of the issued and outstanding
capital stock of Industrial Fabrication & Repair, Inc. ("IFR") from Lester E.
Gann ("Gann") in exchange for 125,925 shares of the Company's Common Stock (the
"IFR Agreement") in a private transactions exempt from registration under
applicable federal and state securities laws as well as being tax-free pursuant
to Section 368 of the Internal Revenue Code. The Company granted Mr. Gann a 24
month right of first refusal as to the IFR stock purchased by the Company in the
event of a change of control of the Company (as that term is defined in the
Agreement) or if the Company should desire to transfer the IFR stock to an
unaffiliated third party or to sell all or substantially all of IFR's assets.
IFR, a Tennessee corporation based in Knoxville, Tennessee, provides machining,
welding, speciality design and fabrication for custom applications to clientele
from various industries including paper, steel mills, rock quarry operations,
coal mining applications and bottling facilities.
In June 1995 the Company purchased a 35,000 square foot manufacturing
facility in Knoxville, Tennessee from an unaffiliated third party to serve as
the new headquarters for IFR. See Item 2. Description of Property.
In July 1996 IFR expanded its scope of business though the formation of
Maintenance Requisition Order Corp., a Florida corporation ("MRO") which is a
wholly-owned subsidiary of IFR. MRO, based in Dalton, Georgia, is an industrial
supply house representing several lines of power transmissions products, such as
gear boxes, bearings and couplings, which are commonly used in industrial
manufacturing and operating facilities. MRO further diversifies IFR's business
base insomuch as historically IFR had been a fabricator and maintenance provider
without the additional competitive advantage of being an authorized factory
distributor for many of the components used in its business.
Formation of Consumer Products Division
---------------------------------------
In October 1995, the Company formed, Products That Produce, Inc., a
Florida corporation ("PTP") which is owned 80% by the Company and 20% by William
P. Heath, III, a then unaffiliated third party who now serves as its president
4
<PAGE>
PTP's mission is to identify and market new consumer products to both innovative
and moderately priced.
The first product undertaken by PTP is MR. FOOD'S ALLOFRESH. The product
is being marketed under an endorsement by Art Ginsburg, the nationally
syndicated T.V. chef known as Mr. Food. Made nationally from minerals, non-toxic
and environmentally safe, MR. FOOD'S ALLOFRESH works to prevent food decay and
eliminates bacteria, moisture, mold, mildew and odors in refrigerators, kitchen
and around the house. The product had its debut in June of 1996 through a
nationwide direct response television commercial, with this initial introduction
followed by introduction into the retail market place through mass
merchandisers, grocery and drug store chains.
Acquisition of American Industrial Management, Inc.
---------------------------------------------------
In February 1996 the Company acquired 100% of the issued and outstanding
capital stock of American Industrial Management, Inc., a Tennessee corporation
("AIM") from Messrs. Robert Lovelace and David Debuty and Jones Leasing, Inc.,
its shareholders, in a private transaction exempt from registration under
applicable federal and state securities laws in exchange for 17,500 shares of
the Company's Common Stock. AIM, founded in 1995 and based in Knoxville,
Tennessee, provides industrial personnel for light manufacturing and assembly
line operations to businesses located in the East Tennessee area. Messrs.
Lovelace and Debuty remained operating officers of AIM following the closing of
the transaction pursuant to three year employment agreements. In September 1996
AIM gave Mr. Debuty 60 days prior notice of its intent to terminate his
employment agreement.
In the event the financial statements of AIM, as prepared in accordance
with generally accepted accounting principles applied on a consistent basis
reflect a certain pre-determined average gross profit per month for the
immediately preceding three month period (based upon fiscal quarters for the
fiscal year ending June 30) as hereinafter set forth, and Mr. Lovelace is then a
current employee of AIM, Mr. Lovelace shall be entitled to earn additional
shares of the Company's Common Stock. Specifically, at such time as AIM's
financial statements reflect an average gross profit (as defined in the share
exchange agreement) of at least $50,000 per month for the preceding fiscal
quarter, Mr. Lovelace shall be entitled to receive a one time issuance of 50,000
shares of the Company's Common Stock; and at such time as AIM's financial
statements reflect an average gross profit (as defined in the share exchange
agreement) of at least $70,000 per month for the preceding fiscal quarter, Mr.
Lovelace shall be entitled to receive a one time issuance of an additional
5
<PAGE>
100,000 shares of the Company's Common Stock; and at such time as AIM's
financial statements reflect an average gross profit (as defined in the share
exchange agreement) of at least $90,000 per month for the preceding fiscal
quarter, Mr. Lovelace shall be entitled to receive a one time issuance of an
additional 122,500 shares of the Company's Common Stock.
Engagement of Investment Banking Firm
-------------------------------------
As a result of the foregoing acquisitions and internal expansions begun in
June 1994, the Company is now a diverse holding company with subsidiaries
involved in manufacturing, marketing and distribution and employee staffing
services. In order to maximize the individual and joint components of the
Company's business and operations, in July 1996 the Company engaged Laidlaw
Equities, Inc., an NASD member firm ("Laidlaw"), to serve as its exclusive
financial advisor. Under the terms of the investment banking agreement, Laidlaw
will advise the Company with respect to the development of its business plans,
the Company's capital structure and potential financing strategies, identifying
potential acquisition candidates, and analyzing, structuring, negotiating and
assisting the Company to effect proposed transactions.
Pursuant to the investment banking agreement with Laidlaw, the Company
compensates Laidlaw for its services by (a) the payment of a $7,500 monthly
retainer during the 12 months of the agreement (which is renewable quarterly
thereafter), (b) the issuance to Laidlaw or its designees of warrants to acquire
an aggregate of 100,000 shares of the Company's Common Stock (the "Laidlaw
Warrants") and (c) the obligation to pay Laidlaw certain transactional fees
based upon certain future transactions (the "Laidlaw Transactional Fee"). The
Company has also granted Laidlaw a 24 month right of first refusal to act as
manager or placement agent with respect to any proposed public distribution or
private placement of the Company's securities. See Item 13. Exhibits and Reports
on Form 8-K.
DIVISIONAL OVERVIEW
Following is a detailed discussion of each of the Company's divisions.
Manufacturing Division
- ----------------------
The Manufacturing Division of the Company is comprised of three entities,
Industrial Fabrication & Repair, Inc. ("IFR") and its subsidiaries NHP
Manufacturing Corp. ("NHP") and Maintenance Requisition Order Corp. ("MRO").
6
<PAGE>
IFR, a Tennessee corporation formed in 1979 and based in Knoxville,
Tennessee, provides machining, welding, speciality design and fabrication for
custom applications to clientele from various industries including paper, steel
mills, rock quarry operations, coal mining applications and bottling facilities.
IFR maintains clients within the 150 mile radius of Knoxville, Tennessee
including Coca-Cola Co., Pepsico, Kimberly-Clark Corp., American Limestone,
Florida Steel Corp., Vulcan Materials Co., Dixie Cement, Blue Diamond Coal and
Southeast Ecology Group, a division of Westinghouse. For the fiscal year ended
June 30 1996, IFR accounted for approximately 66% of the Company's revenues on a
consolidated basis. No single client accounts for more than 10% of IFR's annual
revenues.
IFR provides its clients with custom design plant processing thereby
minimizing downtime and maximizing production capacity. A sample of current or
pending projects undertaken by IFR include designing components to be used to
crush slag in a radioactive waste processing facility to facilitate packing of
the material for shipment and manufacturing systems in steel mills for transfer
of five ton blocks of rebar to facilitate loading and storage.
As discussed above, following the execution of the Naturale Agreement in
November 1994, the Company undertook the establishment of a contract
manufacturing division through a then wholly-owned subsidiary, NHP, a Florida
corporation formed in 1994. Following the acquisition of IFR and the integration
of its operations into the Company, NHP became a subsidiary of IFR; however, the
wholesale of the product manufactured by NHP to Naturale is considered as
revenue within the consumer products division. NHP's current operations are
presently limited to the manufacture of the ThawMaster(TM) family of thawing
trays. It is not presently anticipated that NHP's operations will expand beyond
their current base, and, accordingly, NHP is dependant upon its contract with
Naturale. For the fiscal year ended June 30, 1996 NHP (exclusive from IFR)
accounted for approximately 18% of the Company's revenues on a consolidated
basis. The loss or reduction of such revenues could have a material adverse
affect upon the Company until such time as IFR is able to successfully complete
its expansion through its newly formed subsidiary, MRO.
The thawing trays are manufactured from high grade aluminum alloy which is
purchased by NHP either directly from Reynolds Aluminum or on the spot market
from distributors. The price of aluminum, like all commodities, is subject to
price fluctuation from time to time which can either increase or decrease the
manufactured cost of the thawing trays as the aluminum is the most expensive
component of the thawing tray. Historically, the Company has been able to obtain
a sufficient supply of aluminum at a relatively stable price. There can be no
assurances, however, that such will continue to be the case in the future.
7
<PAGE>
NHP owns all inventory of completed thawing trays until such time as the
product is shipped to Naturale's customers, thereby creating a receivable at
Naturale. NHP has a perfected blanket security interest in all of Naturale's
assets, which includes Naturale's receivables.
In July 1996 IFR further expanded its scope of business though the
formation of MRO, a Florida corporation, which is a wholly-owned subsidiary of
IFR. MRO, based in Dalton, Georgia, is an industrial supply house representing
several lines of power transmissions products, such as gear boxes, bearings and
couplings, including lines from Falk, Goodman Material Handling Components,
Nachi, Leeson Electric, Rainbow Chain, Douglas Manufacturing and Superior Idlers
together with a variety of other chain, bearing and idler distributors handling
components which are commonly used in industrial manufacturing and operating
facilities. As discussed below under "Competition", management of the Company
believes the addition of MRO has the potential (although there can be no
assurances) to significantly increase IFR's competitive advantage in the
marketplace.
Competition
-----------
While IFR competes with numerous fabricators in the East Tennessee area,
management of IFR believes it has limited direct competition as a result of the
comprehensive nature of its services. Within the 150 mile radius of its client
base, IFR is one of a select few fabricators which offers a full bevy of
services from concept and design to engineering and prototype to custom systems.
Management believes the recent formation MRO will increase IFR's competitive
advantage by providing IFR's customers with a single source supply for their
production needs. There can be no assurances, however, that IFR in fact
maintains a competitive advantage or that if such competitive advantage exists,
IFR will be able to retain same in the future.
MRO competes with a wide variety of industrial supply houses, the majority
of which are larger, have historical operations and greater resources. There are
no assurances MRO will be able to effectively compete in its market.
Government Regulation and Environmental Compliance
--------------------------------------------------
The operations of the manufacturing division are not subject to any state
or government regulations at the present time, other than normal and customary
rules and regulations, including environmental regulations, to which most
companies are subject. There can be no assurances, however, that future
regulations at the state or federal level, if adopted, will not have a material
adverse effect on the operations of the manufacturing division.
8
<PAGE>
Employees
---------
As of September 30, 1996, the Manufacturing Division had approximately 32
employees, all of which are full time. The Manufacturing Divisions considers its
employee relations to be good.
Staffing Division
- -----------------
The staffing division is comprised of two entities, Outside Industrial
Services, Inc. ("OIS") and American Industrial Management, Inc. ("AIM"). For the
fiscal year ended June 30, 1996, the staffing division accounted for
approximately 16% of the Company's revenues on a consolidated basis.
OIS, a Tennessee corporation founded in 1982, and AIM, a Tennessee
corporation founded in 1995 and both based and operating in East Tennessee, do
not offer traditional "temporary" services such has providing several employees
on an intermittent, as needed basis. The staffing division's niche market is to
provide specialized labor services on a contract basis to businesses in the
light industrial and light manufacturing areas, augmenting the client's base of
permanent employees. The staffing division supplies personnel with a wide
variety of manufacturing skills to perform skilled and unskilled tasks including
assembly line, janitorial, transportation and maintenance.
The staffing division recruits employees on an as needed basis to fulfill
its existing contracts. Such contracts typically provide for a 30 day
termination by either party. As of the date hereof, AIM as three clients which
account for 36%, 22% and 14% of its current, revenues, respectively. The loss of
one or more of such clients could have a material adverse impact upon AIM's
operations until replacement clients are secured, of which there can be no
assurance.
One contract, which OIS has held with a company continuously since 1982,
presently accounts for 100% of OIS's revenues. During the last portion of
calendar 1995 this client has been subject to certain internal restructuring
which has adversely affected the number of OIS employees being provided to such
company. OIS has experienced this same situation with this client on several
occasions during the 13 years in which it has provided it personnel. In the
past, while the duration of such reduction in staffing as varied, in each
instance the number of personnel have either been returned to the historical
levels or increased. In this instance, however, the number of personnel has
continued to decrease and there are no assurances that the staffing levels at
9
<PAGE>
this client will be returned to historical levels or increased by such client in
the future as they have in the past.
Competition
-----------
The staffing division competes with many large international and national
companies, as well as many smaller regional and local companies, many of whom
have far greater assets and revenue base than the staffing division. There are
no assurances the staffing division will ever maintain a competitive advantage
in its marketplace.
Government Regulation and Insurance
-----------------------------------
In many states, the temporary services industry is regulated; however, the
staffing division is not subject to any specific regulation in the State of
Tennessee where all of its current operations are based. In the event the
staffing division should expand its operations outside the State of Tennessee,
of which there are no present plans, it may become subject to regulation by
other states. There can be no assurance that future regulations in the State of
Tennessee, if adopted, or existing or future regulations in states in which the
staffing division should expand its operations will not have a material effect
on the staffing division's operations.
Employees
---------
As of September 30, 1996, the staffing division had approximately 40
employees providing services under existing contracts. In addition to the
employees it provides its clients under the existing contracts, the staffing
division employs an additional four management and administrative employees. The
staffing division considers its employee relations to be good.
Consumer Products Division
- --------------------------
In October 1995 the Company formed Products That Produce, Inc., a Florida
corporation ("PTP") which is owned 80% by the Company and 20% by William P.
Heath, III. PTP's mission is to identify and market new consumer products that
are both innovative and moderately priced. PTP business plan provides that it
will assist inventors of fresh, innovative consumer products in getting those
products to market through the provision of a wide array of comprehensive
services, including everything from package design, to manufacturing (either
directly or on an exclusive sub-contract basis) to receivables financing.
10
<PAGE>
The first product to be undertaken by PTP is MR. FOOD'S ALLOFRESH. The
product is being marketed under a license agreement with Ginsburg Enterprises
Incorporated ("Ginsburg") which provides for an endorsement by Art Ginsburg, the
nationally syndicated T.V. chef known as Mr. Food. Pursuant to the terms of the
two year agreement, Ginsburg granted PTP a license to the "Mr. Food" marks in
connection with the marketing and sale of the product. As consideration,
Ginsburg is entitled to a certain royalty payments, specifically (a) 15% of the
sales price for any sales made via direct response television or through
electronic retailers or (b) 5% of the sales price for any other sales.
Made nationally from minerals, non-toxic and environmentally safe, MR.
FOOD'S ALLOFRESH works to prevent food decay and eliminates bacteria, moisture,
mold, mildew and odors in refrigerators, kitchen and around the house.
Pursuant to the Company's prospecting, acquisition of mineral rights and
coordination of the necessary geophysical analysis of the minerals, the Company
has executed a five year exclusive lease, which is renewable at the option of
the Company for an additional five year term, with an unaffiliated third party
which permits the Company to excavate whatever quantities of the minerals as it
deems necessary for an annual base fee of $30,000 for the first 1,000 tons. Such
amount is payable in advance at the beginning of each year of the term of the
lease and no portion is refundable in the event at least 1,000 tons are not
excavated during the subject year. Thereafter, the Company pays a fee of $30 per
ton. Based upon its inspection of the property, including visits by independent
geologists retained by the Company, management of the Company believes there are
sufficient quantities of the minerals readily available to meet whatever
consumer demand may develop for either MR. FOOD'S ALLOFRESH or any variation of
the product which the Company may market in the future.
MR. FOOD'S ALLOFRESH, which is not subject to any special government
approval or regulation, was introduced in late June 1996 through a five week
direct response television campaign. The introduction of MR. FOOD'S ALLOFRESH
into the retail market place through sales to mass merchandises, grocery and
drug store chains commenced in August 1996. While initial interest is strong, as
of the date hereof there is insufficient data to evaluate the potential market
demand for the product.
MR. FOOD'S ALLOFRESH is being marketed to retailers through the engagement
by PTP of 19 independent manufacturer's representative organizations across the
United States. These independent contractors are entitled to commissions ranging
from 7% of the sales price (for first orders) to 10% of the sales price for
reorders, which such amounts are generally payable by PTP within 10 days
11
<PAGE>
following the month in which PTP receives payment from the retailer. The
independent sales representatives are responsible for any expenses they incur in
connection with their sales of MR. FOOD'S ALLOFRESH. The agreements between the
independent sales representatives and PTP may be terminated by 30 days prior
written notice by either party. In the event PTP should determine to terminate
one or more of such independent sales representative, management of the Company
does not believe it would experience any difficulties in engaging replacement
independent sales representatives.
Competition
-----------
PTP competes with many large international and national companies, as well
as many smaller regional and local companies, offering a wide variety of
consumer products, many of whom have far greater assets and operating history
than PTP. There are no assurances that PTP or MR. FOOD'S ALLOFRESH will ever
maintain a competitive advantage in its market place.
Employees
---------
As of September 30, 1996, PTP has approximately four full time employees
in addition to the 19 independent contractors hereinbefore described. PTP
considers its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains principal executive offices in approximately 850
square feet of commercial office space which are leased from an unaffiliated
third party for approximately $750 per month on an annual basis. The Company's
employee staffing division leases two separate facilities, both located in East
Tennessee. The first space which is comprised of approximately 1,800 square feet
of commercial office space is leased by AIM from an unaffiliated third party
under a five year lease expiring in September 2000 for approximately $1,000 per
month. OIS leases an additional 500 square feet of office space on a month to
month basis for $350 per month from an unaffiliated third party. PTP leases
approximately 700 square feet of commercial office space in Fort Lauderdale,
Florida from an unaffiliated third party under a five year lease expiring in
December 2000 for approximately $700 per month. MRO leases approximately 8,000
square feet of industrial/warehouse space in Dalton, Georgia from an
unaffiliated third party on a month to month basis for approximately $1,000 per
month. All of these locations are presently sufficient for the required purposes
and should the Company wish to relocate any office in the future, management
does not believe it would experience any difficultly in locating and securing
alternative office space at a reasonable rate.
12
<PAGE>
Prior to its acquisition by the Company, IFR's principal offices were
located in a 13,500 square foot office/industrial building in Knoxville,
Tennessee which was leased by IFR from Mr. Gann, IFR's President and then sole
shareholder, on an annual basis at a monthly rental of $3,400. Following the
Company's acquisition of IFR, IFR continues to lease this space from Mr. Gann on
a monthly basis at a rental of $1,400 per month.
In June 1995 following the acquisition of IFR the Company, through a
wholly-owned subsidiary Workforce Properties Corp., acquired fee simple title to
an approximate 35,000 square foot office/industrial building in Knoxville,
Tennessee (the "Manufacturing Facility") from an unrelated third party to
provide sufficient space for both the thawing tray manufacturing as well as an
expansion of IFR's business.
The Manufacturing Facility was encumbered by an existing first mortgage in
the original principal amount of approximately $585,000, with interest at 7 3/4%
over the 110 month term which commenced in June 1993. The first mortgage
provided for an initial monthly payment of $4,800 with a monthly increase of
0.377% during the term of the mortgage and no pre-payment penalty. Upon
maturing, assuming all monthly mortgage payments were then current, the mortgage
would be satisfied in full. The Company assumed the existing first mortgage on
the Manufacturing Facility, with a remaining principal balance of approximately
$ 390,000 pursuant to the original terms and conditions of the first mortgage.
In connection with the purchase of the Manufacturing Facility, the Company
also assumed approximately $101,000 in past due city and county real estate
taxes due on the Manufacturing Facility. Prior to such assumption, the Company
negotiated an arrangement with the City of Knoxville for the payment of the past
due taxes, which approximated $61,000 in the aggregate for the years 1991, 1992,
1993 and 1994, over a period of 24 months by making monthly installments of
$2,538.00. The Company also assumed a similar arrangement the prior owner of the
Manufacturing Facility had negotiated with Knox County for the payment of past
due taxes, which approximated $40,000 for the years 1990, 1991, 1992, 1993 and
1994, over a period of 12 months by making monthly installments of $3,797.72.
The Company has made all of the required tax payments in accordance with the
terms negotiated with each taxing authority, as well as paying all current taxes
on the real property as they become due and payable.
13
<PAGE>
The Manufacturing Facility, which is in good condition, is sufficient for
the Company's present needs and management of the Company believes it is
adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On August 26, 1994 the Company's Common Stock began trading on the OTC
Bulletin Board under the symbol WFSC. Prior to such date, there had been no
market for the Company's Common Stock; thereafter, there has been limited
trading. The following table sets forth the high and low bid prices of the
Company's Common Stock for each quarter since the stock began trading on August
26, 1994, and for the interim period from June 30, 1996 (the end of the last
quarter) through September 30, 1996. The following quotations are over-the-
market quotations and, accordingly, reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Bid Price
---------------------
High Low
---- ---
August 26, 1994 through September 30, 1994 $ 3.00 $ 2.75
October 1, 1994 through December 31, 1994 $ 4.63 $ 3.00
January 1, 1995 through March 31, 1995 $ 5.67 $ 5.50
April 1, 1995 through June 30, 1995 $ 8.47 $ 8.03
July 1, 1995 through September 30, 1995 $ 8.49 $ 8.14
October 1, 1995 through December 31, 1995 $ 7.61 $ 6.04
January 1, 1996 through March 31, 1996 $ 5.89 $ 5.64
April 1, 1996 through June 30, 1996 $ 6.62 $ 6.37
July 1, 1996 through September 30, 1996 $ 5.28 $ 4.96
On October 9, 1996 the closing bid price for the Common Stock was $ 4.75.
As of September 30, 1996, the approximate number of record holders of the
Company's Common Stock was 70. Management of the Company, however, believes
there to be in excess of 500 beneficial holders of the Company's Common Stock.
14
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
inception. The Company presently intends to retain future earnings, if any, to
finance the expansion of its business and does not anticipate that any cash
dividends will be paid in the foreseeable future. Future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
The Company presently has issued and outstanding 30 shares of Series A
Preferred and 1,000,000 shares of Series D Preferred Stock issued and
outstanding. Such classes of securities do not pay any dividends. On May 30,
1996 the holder of 70,000 shares of the Company's Series B Preferred Stock
converted such shares into 70,000 shares of the Company's Common Stock pursuant
to the designations, rights and preferences of such series of preferred stock.
Prior to such conversion, such 70,000 shares of Series B Preferred Stock paid
annual cumulative dividends of $.43 per share. Any right to receive dividends
was terminated effective with the conversion of such Series B Preferred.
The Company presently has issued and outstanding 30,000 shares of Series C
Preferred Stock which pays annual dividends as set by the Company's Board of
Directors. For the calendar year ended December 31, 1995 the Company paid annual
dividends of $30,000 on the Series C Preferred Stock. For the calendar year
ending December 31, 1996, the amount of dividend, if any, on the Series C
Preferred Stock shall only be paid at the discretion of the Company's Board of
Directors. As of the date of hereof, no dividends have been declared or paid on
the Series C Preferred Stock during the calendar year ending December 31, 1996
and it is not presently anticipated that any dividends will be declared or paid
prior to December 31, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Results for the year ended June 30, 1996 reflect a change in the dominate
revenue base within the Company's consolidated operations from the year ended
June 30, 1995. For the year ended June 30, 1996 IFR represented approximately
66% of the revenue on a consolidated basis versus approximately 13% in fiscal
1995; NHP represented approximately 18% of the revenue on a consolidated basis
versus approximately 42% in fiscal 1995; and staffing represented approximately
16% of the revenues on a consolidated basis versus approximately 45% in fiscal
1995.
15
<PAGE>
This shift is the result of the combination of several factors which
effect each of the Company's divisions and attendant results of operations
therefrom. The increase in the percentage of revenues contributed by IFR
reflects both revenue from IFR for the entire year versus two months in fiscal
1995( as a result of the May 1995 acquisition of IFR) and an increase in IFR's
scope of core business. Management believes that the manufacturing division will
continue to expand its revenues and base of operations during fiscal 1997
including through the development of MRO's business.
Decline of revenues during fiscal 1996 from one of OIS' primary contracts
adversely effected the staffing division during fiscal 1996. In February 1996
the Company acquired AIM, a start-up staffing company based in East Tennessee,
whose operating officers possessed a strong sales background. Prior to its
acquisition by the Company, AIM had demonstrated its ability to produce revenues
and profit during its first eight months of operation with minimal operating
capital. As management had anticipated, and has been disclosed during the year,
revenues from OIS continued to decline during the balance of
fiscal 1996; however, as of the date hereof, the revenues from AIM have replaced
the revenues lost by the decline in OIS' primary contract and, accordingly,
currently the staffing division's revenues approximate the revenues reported by
OIS in fiscal 1995. While management currently anticipates a continued growth in
revenues from the staffing division during the balance of fiscal 1997, there are
no assurances management's assumptions are correct.
Finally, during fiscal 1996 NHP reported a significant decline in revenues
as a result of the maturity of the ThawMaster product in the consumer
marketplace. There are no assurances that sales of this product will return to
previous levels.
During later June 1996 the Company introduced its newest consumer product,
Mr. Food's AlloFresh. See Item 1. Description of Business - Divisional Overview
- - Consumer Products Division. During the first quarter of fiscal 1997 the
Company undertook a five week direct response campaign over nationwide cable to
introduce Mr. Food's AlloFresh. Sales of the product through the direct response
television commercials did not meet the Company's expectations and it is
presently anticipated this advertising campaign will have a negative effect on
the results of operations during the first quarter of fiscal 1997. Subsequent
thereto, however, the initial introduction into the retail marketplace has been
favorable due in part, management believes, to the positive benefits of its
direct marketing campaign which did serve the purpose of introducing the product
nationwide. While initial interest and sell through data from retailers is
strong, as of the date hereof there is insufficient data to evaluate the
potential market demand for the product.
16
<PAGE>
The Company's gross profit as a percentage of revenues increased
approximately 10% versus the comparable period in fiscal 1995 which was a
collective effort throughout all divisions. Selling, general and administrative
expense (SG&A) as a percentage of revenues for the year ended June 30, 1996
increased 4% which was the net result of the Company's expansion through the
acquisition of IFR and the elimination or consolidation of certain costs.
Management of the Company believes that SG&A as a percentage of revenues will
remain relatively constant even as the Company expands into other aforedescribed
areas.
During fiscal 1997 the Company's plan of operations are focused primarily
in two of the Company's divisions. As previously discussed herein, the retail
roll out of Mr. Food's AlloFresh is currently underway. During fiscal 1997 the
Company will continue to focus on developing a market for this product, as well
as creating two additional applications based upon the same base mineral. One of
these applications will be a generic consumer product (minus the "Mr. Food"
endorsement) housed in less expensive packaging which is being designed in
response to inquiries from warehouse clubs. The second application will be a
commercial product designed for distribution within the restaurant and food
service industries. The generic consumer product should be completed and
introduced during the second quarter of fiscal 1997 and will not require the
addition of any other sales personnel at PTP. The commercial product, however,
will take additional time for testing and will require the establishment of
distributors within the foodservice and restaurant industries. While there can
be no assurances, management of the Company has target the third or fourth
quarters of fiscal 1997 for the rollout of the commercial product.
During fiscal 1997 the Company will continue to focus on the further
expansion of the operations of the manufacturing division through both internal
growth as well as acquisitions of homogenous companies. For example, as a result
of the investments made during fiscal 1996, IFR and its newly formed subsidiary
MRO, management believes it has limited direct competition within the 150 mile
radius of its client base by being a single source supplier of a full menu of
service from concept and design to engineering and prototype to custom systems.
Liquidity and Capital Resources
The Company's liquidity has continued to improve since June 30, 1995. At
June 30, 1996 the Company had working capital of approximately $2,539,441 an
increase of approximately 192% from June 30, 1995. Such increase was
17
<PAGE>
attributable in part to a private placement of the Company's Common Stock in
April 1996 to two institutional investors and two accredited investors resulting
in proceeds to the Company of approximately $1 million. In order to pursue the
Company's plan of operations for fiscal 1997, it will be necessary for the
Company to raise additional working capital. In this vein, in July 1996 the
Company engaged Laidlaw Equities, Inc., an NASD member firm, to serve as its
investment banker. It is presently anticipated that management will seek to
raise additional capital through a public offering of its securities during
Fiscal 1997. There are no assurances, however, that management will definitively
determine to proceed with such offering or that the Company will be successful
in concluding such an offering. In such event, the continued growth of the
Company would be limited to the internal availability of working capital. The
Company's inventory, accounts receivable and a substantial portion of its
property, plant and equipment are unencumbered and, accordingly, would provide
additional sources of internal working capital should the Company elect to enter
into asset based lending arrangements.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements are contained in pages F-1 through F-
23 as follows.
19
<PAGE>
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
Lyle H. Cooper
Certified Public Accountant
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
CONTENTS
Page No.
--------
ACCOUNTANT'S REPORT F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-4
Consolidated Statements of Income and Retained Earnings F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-9
Notes to Financial Statements F-10-F-25
<PAGE>
LYLE H. COOPER
Certified Public Accountant
9051 Executive Park Drive
Suite 103
Knoxville, Tennessee 37923
Telephone: 423-691-8132 Telecopier: 423-691-8209
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Workforce Systems Corp.
I have audited the accompanying consolidated balance sheets of Workforce Systems
Corp. (a Florida Corporation) and subsidiaries as of June 30, 1996 and June 30,
1995, and the related consolidated statements of income, retained earnings, and
cash flows for the years ended June 30, 1996, June 30, 1995, the five month
period ended June 30, 1994, and the year ended January 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. 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 financial
statement presentation. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Workforce Systems
Corp. and subsidiaries as of June 30, 1996, and June 30, 1995 , and the results
of their operations and their cash flows for the years then ended and the five
month period ended June 30, 1994, and the year ended January 31, 1994.
October 12, 1996
Lyle H. Cooper
Certified Public Accountant
F-3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------
June 30, June 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 938,487 $ 91,652
Receivables:
Trade accounts receivable, no allowance necessary 633,188 197,438
Related party trade accounts receivable -- 855,432
Related party advances and note receivable -- 15,915
Interest -- 1,625
Inventory 1,412,896 769,283
Prepaid expenses 711,510 45,855
Deferred income tax assets 115,670 15,670
------------ ------------
Total Current Assets 3,811,751 1,992,870
PROPERTY, PLANT AND EQUIPMENT
Land 156,503 150,000
Building and improvements 1,380,422 756,942
Machinery and equipment 1,525,921 1,007,073
Mineral exploration 700,000 --
Autos and trucks 146,428 136,169
Accumulated depreciation (132,856) (22,766)
------------ ------------
Total Property, Plant and Equipment 3,776,418 2,027,418
OTHER ASSETS
Intangibles, net of accumulated amortization
of $ 209,658 and $ 40,346, respectively 4,344,771 3,345,885
------------ ------------
$ 11,932,940 $ 7,366,173
============ ============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 390,895 $ 437,342
Accrued expenses 113,437 121,511
Accrued federal & state income taxes 326,780 243,669
Deferred income tax liability 253,261 70,150
Current portion of long term debt 254,159 250,626
----------- -----------
Total Current Liabilities 1,338,532 1,123,298
NON CURRENT DEFERRED INCOME TAXES 342,473 176,250
LONG TERM DEBT, less current portion 539,207 720,457
RELATED PARTY NOTE PAYABLE 132,667 936,770
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 2,000,000 shares
authorized, 30 shares of Series A issued and
outstanding, 0 and 70,000 shares Series B issued
and outstanding, 30,000 shares Series C issued
and outstanding, 1,000,000 and 0 shares Series D
issued and outstanding 1,100 100
Common stock, $.001 par value, 10,000,000 shares
authorized, 2,420,836 and 1,503,724 shares issued
and outstanding 2,421 1,504
Paid in capital 8,568,941 4,075,155
Retained earnings 1,007,599 332,639
----------- -----------
Total Stockholders' Equity 9,580,061 4,409,398
----------- -----------
$11,932,940 $ 7,366,173
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
For the year For the year For the five For the year
ended ended months ended ended
June 30, 1996 June 30, 1995 June 30, 1994 January 31, 1994
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenues earned, net of returns
and allowances $ 3,820,680 $ 2,825,030 $ 585,717 $ 1,254,428
Cost of revenues earned 2,145,593 1,913,317 412,578 914,183
----------- ----------- ----------- -----------
Gross profit 1,675,087 911,713 173,139 340,245
Selling, general and administrative expense 612,875 279,240 79,731 145,084
----------- ----------- ----------- -----------
Income from operations 1,062,212 632,473 93,408 195,161
Income tax provision 332,445 239,400 32,877 66,506
----------- ----------- ----------- -----------
Income before extraordinary item $ 729,767 $ 393,073 $ 60,531 $ 128,655
Extraordinary item - payroll tax penalty and
interest less applicable taxes of $ 3,965 for
the year ended 1/31/94, income (expense) -- 45,000 -- (26,893)
----------- ----------- ----------- -----------
Net income $ 729,767 $ 438,073 $ 60,531 $ 101,762
=========== =========== =========== ===========
Earnings per common and common
equivalent share
Net income $ 729,767 $ 438,073 $ 60,531 $ 101,762
Less: Dividends paid 54,807 79,383 11,430 --
Net income available to common
shareholders $ 674,960 $ 358,690 $ 49,101 $ 101,762
=========== =========== =========== ===========
Continuing operations $ .40 $ .29 $ .05 $ .12
Extraordinary item $ -- $ .04 $ -- $ (.02)
Net income $ .40 $ .33 $ .05 $ .10
Weighted average shares outstanding 1,686,131 1,086,939 982,020 N/A
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
as of and for the years ended June 30, 1996, June 30, 1995, the five month period ended June 30, 1994,
and the year ended January 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
Preferred stock Common stock
$.001 par value $.001 par value,
2,000,000 shares 10,000,000 shares
authorized authorized
1,100,030 2,420,836 Additional Total
shares issued shares issued Paid-In Retained Stockholders'
and outstanding and outstanding Capital Earnings Equity
--------------- --------------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, February 1, 1993 $ - $ 1,350 $ 31,750 $ (165,484) $ (132,384)
Net income for the five months ended
June 30, 1994 - - - 101,762 101,762
------- --------- ------------ ---------- ------------
Balance, January 31, 1994 - 1,350 31,750 (63,722) (30,622)
Issuance of 70,000 shares of preferred
stock pursuant to reverse acquisition 70 - 3,585 - 3,655
Issuance of 750,000 shares of common
stock pursuant to acquisition of Prime FL - 750 - - 750
Issuance of 228,334 shares of common
stock pursuant to the above acquisitions - 228 335,438 335,666
Dividends paid - - - (22,860) (22,860)
To reflect reverse acquisition (1,317) (18,024) - (19,341)
Net income for the five months ended
June 30, 1994 - - - 60,531 60,531
------- --------- ------------ ---------- ------------
Balance June 30, 1994 70 1,011 352,749 (26,051) 327,779
Issuance of 30 shares of Series A Preferred
and 30,000 shares of Series C Preferred 30 - - - 30
Issuance of 492,285 shares of common stock - 493 3,722,406 3,722,899
Dividends paid - - - (79,383) (79,383)
Net income for the year ended
June 30, 1995 - - - 438,073 438,073
------- --------- ------------ ---------- ------------
Balance June 30, 1995 $ 100 $ 1,504 $ 4,075,155 $ 332,639 $ 4,409,398
======= ========= ============ ========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
as of and for the years ended June 30, 1996, June 30, 1995, the five month period ended June 30, 1994,
and the year ended January 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
Preferred stock Common stock
$.001 par value $.001 par value,
2,000,000 shares 10,000,000 shares
authorized authorized
1,100,030 2,420,836 Additional Total
shares issued shares issued Paid-In Retained Stockholders'
and outstanding and outstanding Capital Earnings Equity
--------------- --------------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1995 $ 100 $ 1,504 $ 4,075,155 $ 332,639 $ 4,409,398
Issuance of 1,000,000 shares of preferred
stock Series D 1,000 - - - 1,000
Issuance of 132,466 shares of common
stock for prepaid expenses 132 674,868 675,000
Issuance of 80,000 shares of common
stock for web development 80 399,920 400,000
Issuance of 281,000 shares of common
stock for invest. in PTP 281 1,404,719 1,405,000
Issuance of 16,500 shares of common
stock for acquisition of AIM 17 68,046 68,063
Issuance of 170,322 shares of common
stock for note conversion 170 936,600 936,770
Issuance of 222,000 shares of common
stock 222 935,528 935,750
Issuance of 14,824 shares of common
stock for compensation 15 74,105 74,120
Dividends paid - - - (54,807) (54,807)
Net income for the year ended
June 30, 1996 - - - 729,767 729,767
------- --------- ------------ ---------- ------------
Balance June 30, 1996 $ 1,100 $ 2,421 $ 8,568,941 $1,007,599 $ 9,580,061
======= ========= ============ ========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
For the year For the year For the five For the year
ended ended months ended ended
June 30, 1996 June 30, 1995 June 30, 1994 January 31, 1994
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 729,767 $ 438,073 $ 60,531 $ 101,762
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization 169,311 40,000 -- --
Depreciation 111,131 12,000 -- --
Gain on sale of fixed asset (701) -- -- --
Increase (decrease) in deferred income tax 332,445 58,750 (4,270) 52,631
(Increase) decrease in:
Trade account receivable (435,750) (175,389) 8,728 10,834
Related party trade account receivable 871,347 (855,432) -- --
Inventory (643,613) (615,025) -- --
Other current assets (34,030) (45,120) 1,140 --
Increase (decrease) in:
Accounts payable (46,447) 415,291 12,051 --
Accrued expenses (8,074) 198,031 6,789 (97,070)
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities 1,045,386 (528,821) 84,969 68,157
INVESTING ACTIVITIES:
Related party -- 49,085 (15,000) --
Proceeds from sale of fixed assets 12,159 -- -- --
Purchase of property and equipment (771,589) (1,268,428) -- (16,922)
Acquisition costs (395,135) -- (87,000) --
----------- ----------- ----------- -----------
Net Cash Used by Investing Activities (1,154,565) (1,219,343) (102,000) (16,922)
FINANCING ACTIVITIES:
Proceeds from related party loans 132,668 936,770 -- --
Payments on long term debt (204,213) -- -- --
Proceeds from long term debt 26,496 971,083 -- --
Proceeds from sale of common stock 1,055,870 -- -- --
Dividends paid (54,807) (79,383) (22,862) --
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Financing Activities 956,014 1,828,470 (22,860) --
----------- ----------- ----------- -----------
(Decrease) Increase in Cash and Cash Equivalents 846,835 80,306 (39,891) 51,235
Cash and Cash Equivalents, Beginning of Period 91,652 11,346 51,237 2
----------- ----------- ----------- -----------
Cash and Cash Equivalents, End of Period $ 938,487 $ 91,652 $ 11,346 $ 51,237
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-9
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Workforce Systems Corp. (the "Company") was formed on August 17, 1992, and
through its subsidiaries operate in the following industries:
STAFFING - Through its subsidiaries, Outside Industrial Services, Inc.
("OPS") and American Industrial Management, Inc. ("AIM") both located in East
Tennessee, the Company supplies specialized labor services on a contract
basis to businesses in the Tennessee area.
CONSUMER PRODUCTS - Through its subsidiary, Products that Produce, Inc.
("PTP") located in South Florida, the Company is responsible for marketing
Mr. Food's AlloFresh and specializes in identifying, developing and marketing
innovative new consumer products.
MANUFACTURING - Through its subsidiaries, NHP Manufacturing Corp. ("NHPM"),
Industrial Fabrication and Repair, Inc. ("IFR") and Maintenance Requisition
Order Corp. ("MRO") all located in the South Eastern United States, the
Company provides specialized fabrication, machining and design of maintenance
and production equipment. In addition, the Company serves as an authorized
distributor for a full line of power transmission products.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
all majority-owned subsidiaries. All material transactions between the
consolidated companies are eliminated. The Company uses the equity method of
accounting to account for its investments in subsidiaries.
INVENTORIES
Inventories are stated at the lower of cost or market. As part of the purchase
price allocation on the acquisition of IFR the inventory carrying value was
increased by $ 154,258 during the year ended June 30, 1995. Approximately
$50,000 was charged to cost of goods sold during the year ended June 30, 1996.
Inventories were as follows at June 30, 1996:
Staffing Consumer Manufacturing Total
Products
Finished Goods $ 0 $ 251,454 $ 938,942 $1,190,396
Work in process $ 0 32,500 65,000 97,500
Materials $ 0 30,000 95,000 125,000
--------- --------- --------- ----------
$ 0 $ 313,954 $1,098,942 $1,412,896
========= ========= ========= ==========
F-10
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. The cost and accumulated depreciation for property, plant and
equipment sold, retired, or otherwise disposed of are relieved from the
accounts, and resulting gains or losses are reflected in income. Depreciation is
computed over the estimated useful lives of depreciable assets using the
straight-line method.
For each classification of property, plant, and equipment depreciable life is as
follows.
Building and improvements 20 yrs
Machinery and equipment 15 yrs
Furniture, fixtures and office equipment 7 yrs
Mineral exploration 10 yrs straight-line and
units of production
Automobiles 5 yrs
Depreciation expense for the years ended June 30, 1996, 1995, the five month
period ended June 30, 1994, and the year ended January 31, 1994, was $ 111,131,
$ 12,000, $ 0, and $ 0, respectively.
Included in the cost of the building at June 30, 1996 is approximately $ 500,000
in materials and labor directly related to getting the building ready for its
intended use. No overhead was charged to the cost of the building for the year
ended June 30, 1995.
During the year ended June 30, 1996, the Company sucessfully completed the
prospecting, property leasing, geophysical analysis, excavation and processing
of minerals for use in a variety of consumer and commercial applications. The
first application was unrolled and sales commenced in the first quarter of
fiscal 1997. The Company has entered into a 10 year lease involving the land
upon which the mineral is located.
F-11
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During the year ended June 30, 1996, the Company entered into contracts to
develop and maintain internet web sites ultimately as an internet provider to
market its consumer products and through its manufacturing division, its
inventory of refurbished gear boxes and other power transmission components
internationally. The Company's cost in developing the above is approximately
$ 400,000 and is expected to be fully operational by December 31, 1996.
INTANGIBLES, ACQUISITION AND STARTUP COSTS
Intangibles at June 30, 1996 and 1995 consisted of the following:
YEAR YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
Goodwill $1,405,629 $1,405,629
Acquisition Costs 2,057,492 2,057,492
Startup Costs 1,091,308 -
---------- ----------
4,554,429 3,386,231
Less Accumulated Amortization 209,658 40,346
---------- ----------
$ 4,344,771 $3,345,885
=========== ==========
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. The unamortized excess cost is being amortized by the
straight-line method over 20 years. Amortization expense was $ 70,281, $ 5,000,
$ 0 and $ 0 for the years ended June 30, 1996, 1995, the five month period ended
June 30, 1994 and the year ended January 31, 1994, respectively.
Acquisition cost represents the value of stock issued in connection with the
acquisition of OPS, NHPM, and IFR and is being amortized by the straight-line
method over 20 years. Amortization expense was $ 99,030, $ 35,346, $ 0, and $ 0
for the years ended June 30, 1996, 1995, for the five month period ended June
30, 1994, and the year ended January 31, 1996, respectively.
Startup cost represents preoperating expenses incurred pursuant to the formation
of the consumer products division, PTP, and is being amortized by the
straight-line method over 2 years. No amortization has been taken on the startup
for the year ended June 30, 1996, as such products were not introduced until the
first quarter of fiscal 1997.
F-12
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
In connection with the acquisition of IFR as previously discussed, the Company
established total deferred income taxes of $ 235,000 to provide for the
difference in book value and tax basis resulting from recording IFR assets at
fair market value. In addition, the Company computes its tax liabilities based
on approximate state and federal statutory rates in accordance with FASB 109.
Other deferred tax assets and liabilities are recorded to provide for timing
differences.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share were computed by dividing net
income, adjusted by the dividends paid to a common shareholder of OPS pursuant
to a management agreement and for dividends paid to the other preferred
shareholders, by the weighted average number of shares of Common Stock and
Common Stock equivalents outstanding at the end of June 30, 1995.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
NOTE 3 - PREPAID ADVERTISING
Included in prepaid expenses is $ 500,000 in prepaid advertising costs for media
spots incurred in connection with the Company's consumer products division. The
advertising costs will be expensed when the related products are advertised in
fiscal 1997.
NOTE 4 - ACQUISITIONS AND EXPANSIONS
ACQUISITION OF PRIME FLORIDA, INC. AND OUTSIDE INDUSTRIAL SERVICES, INC.
Pursuant to its intended business purpose, on June 14, 1994, the Company's
principal shareholder, President and Chairman, sold shares of the Company's
common stock owned by him, representing approximately 55 % of the Company's then
issued and outstanding stock, in a private transaction to Yucatan Holding
Company.
F-13
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
Effective June 30, 1994, the Company acquired 51.9 % of the issued and
outstanding stock of Outside Industrial Services, Inc., a Tennessee corporation
doing business as Outside Plant Services, Inc. ("OPS") for 70,000 shares of the
Company's Series B $5.00 Cumulative Convertible Preferred Stock ("Series B
Preferred Stock") from an unaffiliated third party in a private transaction.
Also, effective June 30, 1994, the Company acquired all of the issued and
outstanding stock of Prime Florida, Inc., a Florida corporation ("Prime") from
Yucatan Holding Company for 750,000 shares of the Company's Common Stock in a
private transaction. Prime's sole assets included its right under the Management
Services Agreement with OPS, together with a 7.4% interest in OPS. Prime,
pursuant to the terms of the Management Services Agreement, provided OPS with
the management and technical expertise necessary to manage OPS' business and be
competitive in the marketplace. As compensation thereunder, Prime received an
amount equal to all net cash flow from operations of OPS in excess of $30,000
per annum, with such $30,000 paid to a minority shareholder of OPS and treated
and recorded as a dividend to such minority shareholder.
Giving effect to both the 51.9% interest in OPS the Company acquired in the
aforedescribed transaction, together with the 7.4% interest in OPS the Company
acquired through its ownership of Prime, the Company was then the owner of 59.3%
of the issued and outstanding stock of OPS.
On November 30, 1994 the Company exchanged 70 shares of its Series A Preferred
Stock for 155 shares of the common stock of OPS thereby completing its plan to
acquire at least 80% of OPS which began in June 1994. Following such share
exchange, the Company is the beneficial owner of approximately 81% of OPS.
The management of the Company in accordance with the purchase method of
accounting, comments from the National Association of Securities Dealers, Inc.
and Securities and Exchange Commission staff interpretations has elected to
record the issuance of the Company's Common Stock and Series B Preferred Stock
issued in conjunction with the acquisition of OPS at the net book value of the
acquired company.
Accordingly, no goodwill has been recorded. Costs associated with the
acquisition at June 30, 1994, have been recorded at cost in accordance with the
purchase method of accounting in a reverse acquisition, and are to be amortized
over a period of twenty years.
The balances at June 30, 1994 and January 31, 1994 represent those of OPS.
F-14
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
EXPANSION OF OPERATIONS - NHP MANUFACTURING CORP.
On November 4, 1994, the Company entered into an agreement with Naturale Home
Products, Inc. ("Naturale") whereby the Company was named the exclusive
manufacturer through a to-be-established wholly-owned subsidiary of the Company
for all products developed and marketed by Naturale, including the Thaw Master
(TM) thawing trays. The material terms of the agreement provided that the
Company at its option could either continue the contract manufacturing currently
in effect with an unaffiliated third party on a sub-contract basis, establish
additional manufacturing facilities operated by the Company or sub-contract the
manufacturing to other third parties. The agreement further provided that the
Company would establish a wholly-owned subsidiary and capitalize such subsidiary
with a minimum of $ 350,000 which such funds would be used to (i) undertake the
manufacturing operations, (ii) provide an inventory of products and (iii)
working capital. Pursuant to this agreement, the Company established NHP
Manufacturing Corp., a Florida corporation ("NHP") which is wholly-owned
subsidiary of the Company. At June 30, 1995, the Company had compiled with the
terms of the contract. In connection with the above the Company issued 170,500
shares of Common Stock for consulting and professional fees.
ACQUISITION OF INDUSTRIAL FABRICATION & REPAIR, INC.
On May 22, 1995, the Company acquired 100 % of the issued and outstanding
capital stock (the "IFR Stock") of Industrial Fabrication & Repair, Inc. ("IFR")
from its sole shareholder who was a non-affiliated third party to the Company in
a private transaction exempt from registration under applicable federal and
state securities laws as well as being tax-free pursuant to Section 368 of the
Internal Revenue Code of 1986, as amended, in exchange for 125,925 shares of the
Company's Common Stock. The Company granted such exchanging IFR shareholder a 24
month right of first refusal as to the IFR Stock in the event of a change of
control of the Company (as defined in the Agreement) of if the Company should
desire to transfer the IFR Stock or sell all or substantially all of IFR's
assets.
IFR based in Knoxville, Tennessee, provides specialized contracting, machinery,
tools and design work, and sells power transmission supplies. The principle
followed in determining the amount of consideration paid by the Company was a
multiple of book value of IFR, such book value having been adjusted to reflect
the fair market value of readily identifiable tangible assets recorded in the
books and records of IFR at April 30, 1995. In addition the Company acquired a
building and property to house the expanded operations of IFR through the
F-15
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
assumption of debt and cash of approximately $ 850,000. In conjunction with the
above IFR and real property acquisition the Company issued 183,300 shares of
Common Stock for consulting and professional fees.
The IFR acquisition cost was recorded as follows:
Inventory $ 494,070
Equipment 478,678
Autos and trucks 136,169
Leasehold improvements 39,074
Other assets 315,208
Goodwill 323,145
----------
$1,786,344
==========
Liabilities $ 669,869
Deferred taxes 235,000
Stock issued 881,475
----------
$1,786,344
==========
ACQUISITION OF AMERICAN INDUSTRIAL MANAGEMENT, INC.
In February 1996, the Company acquired 100% of the issued and outstanding
capital stock of American Industrial Management, Inc. ("AIM") in exchange for
17,500 shares of the Company's Common Stock.
AIM's results of operations subsequent to February 1996 are included in these
financial statements. Pro forma results of operation are not presented as the
amounts are insignificant.
EXPANSION OF OPERATIONS - PRODUCTS THAT PRODUCE
In October 1995, the Company formed Products That Produce, Inc. ("PTP") to
expand into the consumer products industry. PTP business plan provides that it
will assist inventors of fresh, innovative consumer products in getting those
F-16
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS AND EXPANSIONS (CONTINUED)
products to market through the provision of a wide array of comprehensive
services, including everything from package design, to manufacturing, to
receivables financing.
EXPANSION OF OPERATIONS - MAINTENANCE REQUISITION ORDER CORP.
In June 1996, the Company formed Maintenance Requisition Order Corp. to serve as
an authorized distributor for a full line of power transmission products and to
expand its operating territory.
NOTE 5 - STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
The Company considers deposits in banks, certificates of deposit and highly
liquid investments with an original maturity of three months or less as cash and
cash equivalents for the purpose of the Statement of Cash Flows.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid (received) for
YEAR YEAR FIVE MONTHS
ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------- ------------- -------------
Interest $ 62,632 $ - $ -
Income taxes $ 18,500 $ 38,997 $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended June 30, 1996, the Company issued 157,500 shares of common
stock in connection with the startup and acquisition of PTP and AIM, issued
80,000 shares of common stock in connection with the development and maintenance
of a web site on the internet, issued 140,000 shares of common stock in
connection with mine exploration, issued 132,466 shares of common stock in
connection with advertising and legal fees, and issued 14,824 shares of common
stock in connection with certain operating expenses in transactions not
affecting cash flows. Total value of the stock issued was $ 2,344,823. In
addition during the year ended June 30, 1996, a note payable of $ 936,770 was
converted to 170,322 shares of common stock in a transaction not affecting cash.
F-17
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 5 - STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES (CONTINUED)
During the year ended June 30, 1995, the Company issued 492,275 shares of common
stock in connection with the start up and acquisition of NHP Manufacturing and
IFR and in connection with the acquisition of land and building. The total value
of the stock issued was $ 3,772,899.
NOTE 6 - LEASE OBLIGATIONS
CAPITAL LEASES
Future minimum lease payments under noncancelable capital leases having terms in
excess of one year are as follows:
Years ended June 30:
1997 $ 53,027
1998 53,027
1999 53,027
2000 50,310
2001 3,063
---------
Total future minimum lease payments 212,454
Less amount representing interest 45,213
---------
Present value of minimum lease payments 167,241
Less current portion 36,910
---------
Capital lease obligations, less current portion $ 130,331
=========
Included in fixed assets are the following assets under capital leases:
June 30, June 30,
1996 1997
---- ----
Machinery and equipment $ 211,901 $211,901
Less accumulated depreciation 16,853 1,000
--------- --------
$ 195,048 $210,901
========= ========
F-18
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 6 - LEASE OBLIGATIONS (CONTINUED)
OPERATING LEASES
The Company leases office and warehouse space under an operating lease that
expires in fiscal 1998. Rental expense under this operating lease for the years
ended June 30, 1996, 1995, the five month period ended June 30, 1994, and the
year ended January 31, 1996, was approximately $ 44,808, $ 22,404, $ 0, and $ 0,
respectively. In addition, the Company leases land used in mineral excavation
under a operating lease that expires in June 2001 with a five year renewal
option. The lease began on July 1, 1996, therefore, rental expense was $ 0 for
the year ended June 30, 1996.
Approximate minimum future lease payments under these operating leases at June
30, 1996, are as follows:
Years ended June 30:
1997 $ 74,808
1998 74,808
1999 30,000
2000 30,000
2001 30,000
---------
$ 239,616
=========
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following:
Year Year
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
Demand note payable to an individual,
interest at 7.4 %, unsecured $ 25,000 $ 25,000
F-19
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT (CONTINUED)
Year Year
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
Demand note payable to an individual,
interest at 6 %, principal payment
of $ 20,000 due December 31, 1993.
Accrued interest payments due June 30,
1993 and December 31, 1993, unsecured. 12,000 20,000
Notes payable to credit corporations,
interest at 9.9 %, principal and interest
of $ 860 due monthly through May 1999,
secured by automobiles. 23,000 10,304
Notes payable to a bank, interest ranging
from 7.75 % to 10 %, principal and interest
of $ 2,249 due monthly through March 1999,
secured by equipment. 129,416 180,661
Capital leases payable to two leasing
companies, interest at 10 %, principal and
interest of $ 4,419 due monthly through
June 2000, secured by production equipment. 167,241 235,000
First Mortgage payable to individuals,
interest at 7.75 %, principal and interest
of $ 5,400 due monthly through July 2002,
secured by land and building. 360,841 398,907
Property taxes payable under agreement
with the City and County for acquisition of
land and building, payments of $ 6,336
through June 1996, and $ 2,538 from July 1996
to June 1997. 75,868 101,211
--------- ---------
793,366 971,083
Less current portion 254,159 250,626
--------- ---------
$ 539,207 $ 720,457
========= =========
F-20
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
Year ending June 30,
1997 254,159
1998 147,631
1999 131,422
2000 106,717
2001 71,884
Thereafter 81,553
---------
$ 793,366
=========
NOTE 8 - RELATED PARTY TRANSACTIONS
As discussed in Note 4, NHP Manufacturing was established to provide exclusive
manufacturing services for a consumer product to Naturale. As a result of the
agreement with Naturale, the Company was granted a 15 % interest in Naturale. At
the time of the transaction the Company recorded no value on its balance sheet
as to this 15% interest due to the minority position it represented within
Naturale and the immaterial value to the Company. On May 30, 1996 the Company
divested itself of such 15% interest in Naturale, a marketing company, but
retained the exclusive manufacturing rights under the agreement with Naturale.
During the year ended June 30, 1995, NHP Manufacturing sold to Naturale
approximately $ 1,175,000 of products and OPS provided approximately $ 182,000
of labor services, the total related party sales representing approximately 48 %
of the Company's total sales. In addition to the above, the Company, pursuant to
its contract with Naturale, provided working capital and accounts receivable
financing for Naturale. Such advances were secured by a blanket security
interest in all the assets of Naturale. At June 30, 1995, Naturale was indebted
to the Company for the accounts receivable for approximately $855,000.
In conjunction with the manufacturing agreement with Naturale, the acquisition
of Industrial Fabrication & Repair, Inc. and the acquisition of real property
the Company issued 293,000 shares of common stock valued at $ 2,320,310 to
F-21
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
related parties associated with the Company's major stockholder and other
related parties, as defined under FASB 57, for the year ended June 30, 1995, in
payment of organization, start up and acquisition costs.
During the year ended June 30, 1994, the Company issued 190,000 shares of Common
Stock to a related party, as defined under FASB 57, in payment of a $ 279,000
acquisition cost.
From time to time the Company has borrowed funds from Yucatan Holding Company,
the Company's principal shareholder ("Yucatan"), for working capital purposes.
On June 30, 1995 the Company issued Yucatan that certain promissory note in the
principal amount of $936,770 (the "June Note"), bearing quarterly interest at
the prime rate as published in the WALL STREET JOURNAL, the initial rate of
interest being 8.75 %, which such note was due on June 30, 1997. Yucatan, at
sole option, could convert all or a portion of the principal and accrued unpaid
interest into shares of Common Stock of the Company at a conversion ratio to be
established by the Holder and Maker at the time of conversion. On November 27,
1995 Yucatan converted the face value of the June Note into shares of the
Company's Common Stock based upon a conversion ratio equal to the closing bid
price of the Company's Common Stock as reported on the NASD OTC Bulletin Board
on the date of conversion which was $5.50 per share. Accordingly, the Company
issued Yucatan 170,322 shares of its Common Stock.
NOTE 9 - BUSINESS SEGMENTS
Workforce Systems Corp. is a diversified company with operations in three
business segments: (1) staffing industry, (2) consumer products industry, (3)
manufacturing industry. (See Note 1 - Nature of Operations.)
Results of operations of the Company's business segments are reported in the
consolidated statement of income.
Identifiable assets, revenue, and operating earnings for each business segment
are:
Identifiable Assets
1996 1995
---- ----
Staffing $ 188,399 $ 235,061
Consumer Products 3,755,510 1,059,862
Manufacturing 7,989,031 6,071,250
--------- ---------
Total $11,932,940 $ 7,366,173
========== ==========
F-22
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 9 - BUSINESS SEGMENTS (CONTINUED)
Revenues
1996 1995
---- ----
Staffing $ 582,217 $1,286,786
Consumer Products 787,140 1,174,921
Manufacturing 2,451,323 363,323
--------- ---------
Total $3,820,680 $2,825,030
========== ==========
Operating Profits
1996 1995
---- ----
Staffing $ 46,780 $ 203,446
Consumer Products 255,210 418,639
Manufacturing 760,222 10,388
--------- ---------
Total $1,062,212 $ 632,473
========== =========
NOTE 10 - EXTRAORDINARY ITEM
During calendar 1991, prior management of OPS failed to deposit payroll taxes on
a timely basis. As a result, OPS incurred significant payroll tax penalty and
interest. Current management negotiated a payment plan with the Internal Revenue
Service to satisfy OPS's obligation at the rate of $ 2,500 weekly. As of the
date of this report, OPS has paid the prior liability under this agreement.
APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS, defines extraordinary
items as events or transactions that meet both of the following criteria:
a. UNUSUAL NATURE - the underlying event or transaction should possess a high
degree of abnormality and be of a type clearly unrelated to, or only
incidentally related to, the ordinary and typical activities of the
entity, taking into account the environment in which the entity operates.
(An event or transaction is not considered to be unusual merely because it
is beyond the control of management.)
b. INFREQUENCY OF OCCURRENCE - the underlying event or transaction should be
of a type that would not reasonably be expected to recur in the
foreseeable future, taking into account the environment in which the
entity operates.
F-23
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 10 - EXTRAORDINARY ITEM (CONTINUED)
Due the circumstances surrounding this failure, current management believes the
payroll tax interest and penalty should be treated as an extraordinary item. For
the five months ended June 30, 1994, amounts paid were not material and
therefore are not classified as such. The components of this item follows:
Five Months
Ended
June 30, 1994
Interest $ 9,292
Penalty 21,566
Less tax benefit (3,965)
---------
$ 26,893
=========
During the year ended June 30, 1995, OPS settled the tax liability with the
Internal Revenue Service resulting in an adjustment of an overaccrual of $
45,000 for payroll tax penalties. This adjustment is reflected in income as an
extraordinary item.
NOTE 11 - INCOME TAXES
The Company provides deferred income tax assets and liabilities under FASB 109
for timing differences between book and taxable income. These differences are
not considered material at June 30, 1996.
As previously discussed, the Company established a deferred income tax liability
due to the acquisition of IFR in the amount of $ 235,000 for differences between
the book and tax basis of the acquired assets. The current amount of deferred
taxes was estimated by the Company at $ 58,750. The non current deferred amount
was estimated at $ 176,250.
The tax provision for the years ended June 30, 1996, 1995, for the five months
ended June 30, 1994 and the year ended January 31, 1994, was based on
approximate state and federal statutory rates.
F-24
<PAGE>
- --------------------------------------------------------------------------------
WORKFORCE SYSTEMS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
as of and for the years ended June 30, 1996, June 30, 1995,
the five month period ended June 30, 1994,
and the year ended January 31, 1994
- --------------------------------------------------------------------------------
NOTE 12 - PREFERRED STOCK
The designations, rights and preferences of the Series A Preferred Stock provide
that the shares (i) have full voting rights, share for share, with the then
outstanding common stock of the Company as well as any other series of preferred
stock then outstanding, (ii) are not convertible into any other class of equity
of the Company, (iii) are redeemable at any time at the Company's option at par
value of $ .001 per share, (iv) pay dividends at the sole discretion of the
Company's Board of Directors, (v) are not transferable without the consent of
the Company's Board of Directors and (vi) in the event of a liquidation or
winding up of the Company, carry a liquidation preference equal to par value,
without interest, and are junior in interest to the Series B $ 5.00 Cumulative
Convertible Preferred Stock of the Company then outstanding.
The designations, rights and preferences of the Series B Preferred Stock
provides that the holders thereof (i) shall receive annual dividends equal to $
.43 per share, (ii) are entitled to full voting rights, share for share, with
any then outstanding common stock as well as with any other class or series of
stock of the Company having general voting power with the common stock
concerning any matter being voted upon by the Company's shareholders, (iii) are
entitled to convert their shares of Preferred Stock into shares of the Company's
restricted common stock at any time on a one for one basis and (iv) are
redeemable at the option of the Company at $ 4.30 per share.
The designations, rights and preferences of the Series C Preferred Stock provide
that the shares (i) have no voting rights, (ii) are not convertible into any
other class of equity of the Company, (iii) are redeemable at any time at the
Company's option at an amount equal to the prior year's annual dividend as
previously set by action of the Company's Board of Directors, (iv) pay dividends
at the sole discretion of the Company's Board of Directors, (v) are not
transferable without the consent of the Company's Board of Directors and (vi) in
the event of a liquidation or winding up of the Company, carry a liquidation
preference equal to par value, without interest, and are junior in interest to
the Series B $ 5.00 Cumulative Convertible Preferred Stock of the Company then
outstanding. An annual dividend rate of $ 36,000 for the balance of calendar
1994 and for the calendar year of 1995 was set by the Board of Directors. For
calendar year 1996 any dividends were to be declared and payable only upon the
discretion of the Company's Board of Directors.
The designations, rights and preferences of the Series D Preferred Stock provide
that the shares (i) have full voting rights, share for share, with the then
outstanding Common Stock of the Company as well as any other series of preferred
stock then outstanding, (ii) are not convertible into any other class of equity
of the Company, (iii) are redeemable at any time at the Company's option at a
price per share to be mutually agreed upon by the Company and the holder at the
time of redemption, (iv) do not pay any dividends, and (v) in the event of a
liquidation or winding up of the Company, carry a liquidation preference equal
to par value, without interest.
NOTE 13 - LITIGATION
The Company is not a party to any litigation, however the Company's subsidiary,
IFR, has been notified by the Trustee of a bankrupt customer of a possible
$65,000 preference claim. IFR and the Company believes the claim is without
merit and no provision has been made.
F-25
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions held with
respect to each Director and Executive Officer of the Company.
Name Age Position
---- --- --------
Ella Boutwell Chesnutt 44 Director, President
Jayme Dorrough 28 Director, Vice President and
Secretary
All officers of the Company will hold office until the next annual meeting
of the Company. There are no arrangements or understanding between any such
officer of the Company and any other person or persons pursuant to which such
officer was or is to be selected as an officer of the Company.
The following sets forth biographical information as to the business
experience of each current Director and Executive Officer of the Company.
ELLA BOUTWELL CHESNUTT. Mrs. Chesnutt has served as a director and
President of the Company since June 14, 1994. She also serves as a director and
President of Workforce Properties Corp. and a director of OIS, AIM, IFR, NHP,
MRO and PTP. Mrs. Chesnutt is also an officer and director of Yucatan Holding
Company, the Company's principal shareholder. Mrs. Chesnutt, who is not an
employee of the Company and has other business interests outside of the Company,
devotes as much time to the affairs of the Company as she deems necessary. Mrs.
Chesnutt joined Marine Sports, Inc., a public company, in October 1991 as
Director of Legal Affairs and Secretary. Thereafter she served as Director of
Legal Affairs (from May 1992 until March 1993) and Vice President of Corporate
Administration (March 1993 until November 1993) of Aspen Marine Group, Inc., a
public company and the parent company of Marine Sports, Inc. Mrs. Chesnutt was a
paralegal experienced in corporate and securities law with emphasis in public
20
<PAGE>
and private offerings. From March 1987 until October 1991 Mrs. Chesnutt was
employed by Atlas, Pearlman & Trop., P.A., Fort Lauderdale, Florida and from
March 1983 until March 1987 she was employed by Broad & Cassel, Miami, Florida.
Mrs. Chesnutt received a B.S. in Business Administration from the University of
South Florida.
JAYME DORROUGH. Mrs. Dorrough has served as a director and Secretary of
the Company since June 14, 1994 and Vice President since July 5, 1994. Mrs.
Dorrough also serves as a director and President of Prime and OIS, and director
of Workforce Properties Corp., AIM, IFR, MRO and PTP. Mrs. Dorrough is also an
officer and director of Yucatan Holding Company, a principal shareholder of the
Company. Mrs. Dorrough, who is not an employee of the Company and has other
business interests outside of the Company, devotes as much time to the affairs
of the Company as she deems necessary. From August 1987 until October 1989, Mrs.
Dorrough was employed by Baker, Worthington, Crossley, Stansberry & Woolf,
Knoxville, Tennessee as an administrative assistant.
Key Employees and Consultants
- -----------------------------
The Company is a diverse holding company with operations in the areas of
manufacturing and industrial fabrication, employee staffing and consumer
products. While not executive officers of the Company, the following officers of
and consultants to the Company's subsidiaries make significant contributions to
the business of the Company.
MANUFACTURING DIVISION
LESTER GANN. Mr. Gann, 52, is President and a director of IFR. He has also
served as a director of MRO since its formation in June 1996 and a director of
NHP since June 1995. Mr. Gann founded IFR in 1979 and has served as its
President and a director continuously since the date of formation. Mr. Gann has
33 years experience in tool and machinery design and power transmission
equipment and has received extensive training from various manufacturers and
distributors of the foregoing equipment. Mr. Gann is responsible for all day to
day operations of the Manufacturing Division.
STAFFING DIVISION
ROBERT LOVELACE. Mr. Lovelace, 50, is President and a director of AIM,
serving in such position since its formation in April 1995. Mr. Lovelace is
responsible for day to day operations. From June 1992 until founding AIM in 1995
Mr. Lovelace was employed as a regional sales manager for Borg Wagner for Wells
Fargo Guard Service, Burns Guard Service and Borg Wagner Facility Staffing. From
21
<PAGE>
January 1990 until May 1992 Mr. Lovelace was regional Vice President for Sears
Security Systems residential alarm systems. During his career, Mr. Lovelace has
completed in excess of 20 schools within the Dale Carnegie & Associates
organization covering training and supervisory management in attitude,
communication, human relations, memory training, leadership, public speaking and
business management.
CONSUMER PRODUCTS DIVISION
WILLIAM P. HEATH, III. Mr. Heath, 63, has been President, a director and
20% shareholder of PTP since its formation. Mr. Heath is responsible for
overseeing the sales force at PTP, as well as personally servicing accounts with
certain key national retail chains. Mr. Heath is also a principal and founder of
International Marketing Associates, Inc., a twenty-one year old manufacturer's
representative sales organization based in Fort Lauderdale, Florida which
specializes in sales of consumer products to mass merchandisers, home and office
superstores and drug and grocery store chains. During its 21 years of
operations, IMA has developed ongoing relationships with mass merchandisers
including Wal- Mart, K-Mart, Target and Meijer, drug chains such as Walgreen,
Eckerd, and CVS, supermarkets including Kroger, Publix, Winn Dixie and
Albertsons, warehouse clubs including Price/Costco, and home and office
superstores including Comp USA, Circuit City, Best Buy, Incredible Universe,
Office Depot, Staples, Home Depot, Toys R Us, Builder's Square, Blockbuster and
Pet Stuff. In addition, IMA has sold merchandise through a variety of mail order
and electronic retailers including QVC, HSN, Q2, Damark and USA Direct.
Management of the Company believes, although there can be no assurances, that
Mr. Heath's extensive experience and ability to immediately bring products to
top level buyers at those stores will be an asset to PTP.
BARRY A. ROTHMAN. Mr. Rothman, 41, is a consultant to the Company and has
served as Director of Marketing for both the Company and PTP since April 1996.
Mr. Rothman has overall operational responsibilities at PTP. From February 1992
until April 1996 Mr. Rothman served as Senior Vice President, Director of
Corporate Communications, of Greenstone Roberts Advertising, Inc. From June 1989
until February 1992 Mr. Rothman was a principal and President of Profile
Communications, Inc., a full service marketing communications firm which was
merged into Greenstone Roberts Advertising in 1992. Mr. Rothman received a B.A.
in Political Science from Union College in 1977.
There is no family relationship between any of the officers, key
employees, consultants and directors.
22
<PAGE>
The Company does not presently maintain audit, compensation or nominating
committees of the Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes all compensation accrued by the Company in
each of the last three fiscal years for the Company's Chief Executive Officer
and each other executive officers serving as such whose annual compensation
exceeded $100,000. Directors of the Company do not receive compensation for
serving in such capacity.
Long - Term
Annual Compensation Compensation Awards
------------------- -------------------
Options
Name and Other Annual Number of All Other
Principal Position Year Salary Bonus Compensation Shares Compensation
- ------------------ ---- ------------------------- ------ ------------
Ella Chesnutt 1994 0 0 0 0 0
President, 1995 0 0 0 0 (2)
Director and 1996 0 0 0 0 0
Chief Executive
Officer
Jayme Dorrough 1994 0 0 0 0 0
Vice President 1995 0 0 0 0 (2)
and Director 1996 0 0 0 0 0
- ------------------------
(1) Mrs. Chesnutt and Mrs. Dorrough, who are not employees of the
Company, began serving as officers and directors of the Company on June 14,
1994.
(2) On March 21, 1995 Mrs. Chesnutt and Mrs. Dorrough were each awarded
48,500 shares of Common Stock for services rendered by them in connection with
the Naturale Agreement. The fair market value on the date of issuance was $ 6.57
per share resulting in aggregate value to each of Mrs. Chesnutt and Mrs.
Dorrough of $318,645.
Employment Agreements
- ---------------------
As set forth below, certain of the Company's subsidiaries are parties to
employment agreements with key employees of those subsidiaries.
In May 1995 at the time of the acquisition of IFR, IFR entered into a
three year employment agreement with Lester Gann providing for an annual base
salary of $96,000 with the ability to receive performance based bonuses at the
discretion of the Board of Directors. As of the date hereof, no such performance
bonuses have been awarded. Mr. Gann is also entitled to participate in all
23
<PAGE>
benefit programs of IFR as may be made available to other salaried employees.
Mr. Gann's employment agreement contains customary provisions providing for
confidentiality as well as a 12 month non-compete following the termination of
the agreement.
In conjunction with the acquisition of AIM in March 1996, each of Messrs.
Lovelace and Debuty each signed three year employment agreements with AIM. Such
agreements provide for an annual base compensation of $66,000 each and provide
for certain additional compensation in the form of an aggregate of the issuance
of each of 27,272 shares of the Company's Common Stock which have been
registered under the Act. Such stock is issued in 24 equal monthly installments
providing each of Messrs. Lovelace and Debuty are still employed by AIM. Their
employment agreements also contain customary provisions providing for
confidentiality as well as a 12 month non-compete following the termination of
the agreements. In September 1996 AIM gave Mr. Debuty 60 day prior written
notice of AIM's election to terminate his employment agreement. Upon such
termination, Mr. Debuty will no longer be entitled to receive any compensation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date hereof there are 2,493,934 shares of Common Stock issued
and outstanding, 30 shares of Series A Preferred Stock issued and outstanding
and 1,000,000 shares of Series D Preferred Stock, all of which are voting
securities of the Company. The 30,000 shares of Series C Preferred Stock which
are issued and outstanding do not have voting rights. The following table sets
forth, as of the close of business on September 30, 1996, (a) the name, address
and number of shares of each person known by the Company to be the beneficial
owner of more than 5% of any class of each the Company's voting securities and
(b) the number of shares of each class of voting securities owned by each
director and all officers and directors as a group, together with their
respective percentage holdings of such shares:
24
<PAGE>
Series A Preferred Stock
- ------------------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
------------------- ------------------ -----
Outside Industrial 30 100%
Services, Inc. (1)
269 Cusick Road
Suite C-2
Alcoa, TN 37701
All Officers and
Directors as a
Group (two persons) none n/a
Series D Preferred Stock
- ------------------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
------------------- ------------------ -----
Yucatan Holding 1,000,000 100%
Company (2)
269 Cusick Road
Suite C-2
Alcoa, TN 37701
All Officers and
Directors as a
Group (two persons)(2) 1,000,000 100%
Common Stock
- ------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class (4)
------------------- ------------------ ---------
Yucatan Holding 938,522 37.6%
Company (2)
269 Cusick Road
Suite C-2
Alcoa, TN 37701
Ella Boutwell Chesnutt (2) (2)
269 Cusick Road
Suite C-2
Alcoa, TN 37701
25
<PAGE>
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class (4)
------------------- ------------------ ---------
Jayme Dorrough (2) (2)
269 Cusick Road
Suite C-2
Alcoa, TN 37701
Lester E. Gann(3) 125,925 8.3%
3007 West Industrial
Parkway
Knoxville, TN 37921
Cede & Co. 744,888 30.0%
Post Office Box 28
New York, NY 10004
Philadep & Co. 144,636 5.8%
1900 Market Street
Philadelphia, PA 19103
All Officers and
Directors as a
Group (two persons)(2) 938,522 37.6%
- -------------------------
(1) Outside Industrial Services, Inc. is a subsidiary of the Company and
Mrs. Chesnutt and Mrs. Dorrough serve as the directors of OIS.
(2) Mrs. Chesnutt and Mrs. Dorrough are the officers and directors of
Yucatan Holding Company.
(3) Mr. Gann is President of IFR.
(4) Gives effect to the possible exercise of the Laidlaw Warrants. See
Item 1. Description of Business - Engagement of Investment Banking Firm.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 30, 1994 the Company acquired all of the issued and
outstanding capital stock of Prime from Yucatan. Mrs. Chesnutt and Mrs.
Dorrough are the officers and directors of Yucatan and Mrs. Dorrough was the
sole shareholder of Prime.
On June 30, 1994 a company owned by Mrs. Dorrough issued OIS a demand
promissory note in the principal amount of $65,000 bearing interest at 6% per
annum, evidencing certain advances which had been made against management fees
payable by OIS to such company. During the fiscal year ended June 30, 1995 such
note was paid in full.
26
<PAGE>
On March 21, 1995 Mrs. Chesnutt and Mrs. Dorrough were each awarded 48,500
shares of Common Stock for services rendered by them in connection with the
Naturale Agreement. The fair market value on the date of issuance was $ 6.57 per
share resulting in aggregate value to each of Mrs. Chesnutt and Mrs. Dorrough of
$318,645.
From time to time, the Company has borrowed funds from Yucatan Holding
Company, the Company's principal shareholder ("Yucatan"), for working capital
purposes. Pursuant to the terms of certain promissory note in the principal
amount of $936,770 dated June 30, 1995 issued by the Company to Yucatan (the
"June Note"), Yucatan, in its sole discretion, could convert all or a portion of
the principal and accrued unpaid interest pursuant to the June Note into shares
of the Company's Common Stock based upon a conversion ratio to be determined by
the parties at the time of conversion. Subsequent to June 30, 1995, Yucatan
advanced the Company additional funds for working capital and on September 30,
1995 the principal amount due Yucatan by the Company was $1,210,446.
On November 27, 1995, Yucatan converted the face value of the June Note
into shares of the Company's Common Stock based upon conversion ratio equal to
the closing bid price of the Company's common stock as reported on the OTC
Bulletin Board on the date of conversion which was $5.50 per share. Accordingly,
the Company issued Yucatan 170,322 shares of its restricted Common Stock. The
Company remained indebted, on an unsecured basis to Yucatan for advances made
subsequent to June 30, 1995 in the amount of $273,676. Subsequent to November
27, 1995 such amount has been repaid to Yucatan by the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
(a) Exhibits
--------
Exhibit No. Description
- ----------- -----------
2.1 Stock Purchase Agreement dated June 14, 1994 by and
between F. W. Miller, Wildflower Financial Corp. and
Yucatan Holding Company is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 20, 1994
27
<PAGE>
2.2 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp., Yucatan Holding Company and
Prime Florida, Inc. is hereby incorporated by reference
to the Report on Form 8-K as filed with the Securities
and Exchange commission on July 13, 1994
2.3 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp. and a certain shareholder of
Outside Industrial Services, Inc. is hereby incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange commission on July 13, 1994
2.4 Agreement dated November 30, 1994 by and between
Workforce Systems Corp. and Outside Industrial Services,
Inc. is hereby incorporated by reference to the Report
on Form 10-QSB for the quarter ended December 31, 1994
as filed with the Securities and Exchange commission on
February 15, 1995
2.5 Agreement dated May 22, 1995 by and between Workforce
Systems Corp. and Lester E. Gann, the Sole Shareholder
of Industrial Fabrication & Repair, Inc. is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange commission on May
23, 1995
3.1 Articles of Incorporation are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993
3.2 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series B $5.00 Cumulative Convertible Preferred
Stock are hereby incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on July 13, 1994
3.3 Articles of Amendment to the Articles of Incorporation
changing the corporation name are hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
28
<PAGE>
3.4 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series A and Series C Preferred Stock are hereby
incorporated by reference to the Report on Form 10-QSB
for the quarter ended December 31, 1994 as filed with
the Securities and Exchange commission on February 15,
1995
3.5 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series D Preferred Stock
3.6 By-Laws of the Company are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993.
10.1 Licensing Agreement dated May 31, 1996 by and between
Ginsburg Enterprises Incorporated and Products That
Produce, Inc.
10.2 Agreement dated July 22, 1996 by and between Laidlaw
Equities, Inc. and Workforce Systems Corp.
16.1 Letter from Richard H. Harris & Associates, P.A.
regarding change in certifying accountants is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange Commission on
July 11, 1994
16.2 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
21 Subsidiaries of the Registrant
22 Information regarding the name change of the Company is
hereby incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission
on July 11, 1994
27 Financial Data Schedule (Electronic filing only)
29
<PAGE>
(b) Reports on Form 8-K
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Workforce Systems Corp. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WORKFORCE SYSTEMS CORP.
By: /s/ Ella Boutwell Chesnutt
---------------------------
Ella Boutwell Chesnutt,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ella Boutwell Chesnutt President, October 9, 1996
- -------------------------- Director
Ella Boutwell Chesnutt
/s/ Jayme Dorrough Vice President, October 9, 1996
- -------------------------- Secretary, Director
Jayme Dorrough
31
<PAGE>
EXHIBITS
--------
Exhibit No. Description
- ----------- -----------
2.1 Stock Purchase Agreement dated June 14, 1994 by and
between F. W. Miller, Wildflower Financial Corp. and
Yucatan Holding Company is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 20, 1994
2.2 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp., Yucatan Holding Company and
Prime Florida, Inc. is hereby incorporated by reference
to the Report on Form 8-K as filed with the Securities
and Exchange commission on July 13, 1994
2.3 Agreement dated as of June 30, 1994 by and between
Wildflower Financial Corp. and a certain shareholder of
Outside Industrial Services, Inc. is hereby incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange commission on July 13, 1994
2.4 Agreement dated November 30, 1994 by and between
Workforce Systems Corp. and Outside Industrial Services,
Inc. is hereby incorporated by reference to the Report
on Form 10-QSB for the quarter ended December 31, 1994
as filed with the Securities and Exchange commission on
February 15, 1995
2.5 Agreement dated May 22, 1995 by and between Workforce
Systems Corp. and Lester E. Gann, the Sole Shareholder
of Industrial Fabrication & Repair, Inc. is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange commission on May
23, 1995
3.1 Articles of Incorporation are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993
1
<PAGE>
3.2 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series B $5.00 Cumulative Convertible Preferred
Stock are hereby incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on July 13, 1994
3.3 Articles of Amendment to the Articles of Incorporation
changing the corporation name are hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
3.4 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series A and Series C Preferred Stock are hereby
incorporated by reference to the Report on Form 10-QSB
for the quarter ended December 31, 1994 as filed with
the Securities and Exchange commission on February 15,
1995
3.5 Articles of Amendment to the Articles of Incorporation
setting forth the designations, rights and preferences
of the Series D Preferred Stock
3.6 By-Laws of the Company are hereby incorporated by
reference to the Registration Statement on Form SB-2 as
declared effective by the Securities and Exchange
Commission on January 12, 1993.
10.1 Licensing Agreement dated May 31, 1996 by and between
Ginsburg Enterprises Incorporated and Products That
Produce, Inc.
10.2 Agreement dated July 22, 1996 by and between Laidlaw
Equities, Inc. and Workforce Systems Corp.
16.1 Letter from Richard H. Harris & Associates, P.A.
regarding change in certifying accountants is hereby
incorporated by reference to the Report on Form 8-K as
filed with the Securities and Exchange Commission on
July 11, 1994
2
<PAGE>
16.2 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
21 Subsidiaries of the Registrant
22 Information regarding the name change of the Company is
hereby incorporated by reference to the Report on Form
8-K as filed with the Securities and Exchange Commission
on July 11, 1994
27 Financial Data Schedule (Electronic filing only)
3
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
WORKFORCE SYSTEMS CORP.
The undersigned, being a natural person competent to contract, does hereby
make, subscribe and file the Articles of Amendment to the Articles of
Incorporation of Workforce Systems Corp., a Florida corporation pursuant to
Section 607.0602 of the Florida Business Corporation Act:
1. The name of the corporation is Workforce Systems Corp. (the "Company").
2. The text of the amendment adopted by the Company's Board of Directors
establishing a series of preferred stock and setting forth the designations,
rights and preferences thereof is as follows:
WHEREAS, pursuant to Article IV of the Articles of Incorporation the
Company is authorized to issue 2,000,000 shares of preferred stock, par
value $.001 per share (the "Preferred Stock"), issuable in such series and
bearing such voting, dividend, conversion, liquidation and other rights
and preferences as the Board of Directors may determine.
WHEREAS, the Board of Directors deem it to be in the best interest of the
Company to designate a series of such Preferred Stock, consisting of
1,000,000 shares (the "Series D Preferred Stock").
NOW, THEREFORE, be it resolved that the Board of Directors of the Company
be and hereby determines that 1,000,000 shares of Preferred Stock are
designated as Series D Preferred Stock, with the following designations,
rights and preferences:
1. DESIGNATION AND INITIAL NUMBER. The series of Preferred Stock hereby
classified shall be designated "Series D Preferred Stock." The initial
number of authorized shares of the Series D Preferred Stock shall be
1,000,000 shares. Upon issuance of the shares of Series D Preferred an
amount at least equal to the par value shall be the stated capital of the
Company.
2. VOTING RIGHTS. Holders of the shares of Series D Preferred shall be
entitled to full voting rights, share for share, with the then outstanding
Common Stock as well as with any other class or series of stock of the
1
<PAGE>
Company have general voting power with the Common Stock concerning any
matter being voted upon. Except as so provided, shares of the Series D
Preferred Stock shall at no time be entitled, as a series, class or
otherwise, to any other or special or restrictive voting rights of any
kind whatsoever, except as when and to the extent required by applicable
law.
3. CONVERSION PRIVILEGE. The shares of Series D Preferred Stock are not
convertible into any other class of equity of the Company.
4. REDEMPTION. The shares of Series D Preferred Stock are redeemable at
any time at the option of the Company at a price per share to be mutually
agreed upon by the Company and holder at the time of redemption.
5. DIVIDENDS. The shares of Series D Preferred Stock shall not pay any
dividends.
6. LIQUIDATION. In the event of any voluntary or involuntary dissolution
or winding up of the Company, the holders of Series D Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its shareholders an amount per share equal
to $.001 without interest. A merger or consolidation of the Company with
or into any other corporation, share exchange or sale or conveyance of all
or any part of the assets of the Company (which shall not in fact result
in the liquidation of the Company and the distribution of assets to its
shareholders) shall not be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Company within the meaning
of this Paragraph 6.
2. The foregoing amendment was duly adopted by unanimous written consent
of the Board of Directors on June 13, 1996 and shareholders action was not
required.
IN WITNESS WHEREOF, this Articles of Amendment to the Articles of
Incorporation has been executed on the 15th day of June, 1996.
WORKFORCE SYSTEMS CORP.
By: /s/ Ella Chesnutt
------------------------
Ella Boutwell Chesnutt
President
2
Exhibit 10.1
Licensing Agreement - Ginsburg Enterprises
LICENSING AGREEMENT
THIS AGREEMENT, dated as of the 31st day of May, 1996 (the "Effective
Date"), is by and between GINSBURG ENTERPRISES INCORPORATED, a Florida
corporation having its principal offices at 1770 N.W. 64th Street, Suite 500,
Ft. Lauderdale, Florida 33309-1853 ("Licensor") and PRODUCTS THAT PRODUCE, INC.,
a Florida corporation having its principal offices at 1003 SE 17 Street
Causeway, Suite 202, Ft. Lauderdale, FL 33316 ("Licensee"). Licensor and
Licensee are sometimes referred to in this Agreement as the "parties."
WHEREAS, Licensor represents that it owns all rights, title and interest
in and to the marks (i) "Mr. Food", used in connection with entertainment
services, namely, production of television programs dealing with culinary
topics, and specifically including, without limitation, U.S. Service Mark
Registration No. 1,339,606 dated June 4, 1985, from the United States Patent and
Trademark office, a copy of which is attached hereto as Exhibit A, (ii) "Mr.
Food" together with a caricature of Arthur Ginsburg as television personality
Mr. Food ("Talent") as used in connection with entertainment services, namely,
production of television programs dealing with culinary topics, and specifically
including, without limitation, U.S. Service Mark Registration No. 1,361,086,
dated September 17, 1985, from the United States Patent and Trademark office, a
copy of which is attached as Exhibit B, (iii) a caricature of the Talent, as
television personality Mr. Food used in connection with printed advertisements
containing food recipes, and specifically/ including, without limitation, U.S.
Trademark Registration No. 1,610,561, dated August 21, 1990, from the United
States Patent and Trademark Office, a copy of which is attached hereto as
Exhibit C, and (iv) the words "Ooh It's So Good!!" used in connection with
entertainment services, namely production of television programs dealing with
culinary topics, and specifically including, without limitation U.S. Service
Mark Registration No. 1,955,190, dated February 6, 1996, from the United States
Patent and Trademark Office, a copy of which is attached hereto as Exhibit D,
all of which are herein are collectively referred to as the "Registered Marks";
and
WHEREAS, Licensee has assigned any and all common law rights that it may
have in and to the mark AlloFresh (the "AlloFresh Mark") to Licensor; and
WHEREAS, Licensor has common law rights to Talent's likeness
("Unregistered Marks") together with any and all related rights and privileges
to the Registered Marks, the AlloFresh Mark and the Unregistered Marks provided
under trademark, copyright, trade secret and other laws of the United States,
individual states thereof, and jurisdictions foreign thereto (collectively, the
"Proprietary Rights") , and the goodwill associated with respect to which the
Proprietary Rights relate. The Registered Marks, the Unregistered Marks and the
Proprietary Rights are herein collectively referred to as "Marks"; and
WHEREAS, the parties acknowledge that the Marks have been used in all
media, including, without limitation, radio and television, as well as in
connection with promotional and advertising material for a variety of products
and services, and that the Marks are well-known and recognized by the general
public and are associated with Licensor; and
1
<PAGE>
WHEREAS, Licensor wishes to grant a License, as described in Section 2
below, to use the Marks within the United States, its territories and
possessions and Canada (collectively, the "Territory") , pursuant to the terms
and conditions set forth in this Agreement and the Licensee wishes to accept
such License; and
WHEREAS, the Licensee is engaged in the business (the "Business") of the
marketing, distribution and sale of the product more specifically described on
Schedule 2(b) hereto (the "Product"); and
WHEREAS, except as specifically set forth in this Agreement the Licensee
owns all rights, title and interest in the Product, and all related rights and
privileges provided under patent, trademark, copyrights, trade secret and other
laws of the United States, individual states thereof, and jurisdictions foreign
thereto, and the goodwill associated with respect thereto.
NOW THEREFORE, in consideration of the mutual agreements set forth herein
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. RECITALS. The above recitals are true, correct and are incorporated
herein by reference.
2. LICENSE.
(a) GRANT OF LICENSE. Upon the terms and conditions set forth
herein, Licensor grants to Licensee, and Licensee hereby accepts, an exclusive
license (the "License,') to use the Marks solely as shown on the attached
Schedule 2(a), in connection with the sale of the Product within the Territory
and solely in connection with the marketing, sales and distribution of the
Product; and
(b) DISTRIBUTION, MARKETING AND SALES OF THE PRODUCT WITHIN THE
TERRITORY.
(1) Licensee shall distribute, market and sell the Product
within the Territory through a variety of retail vehicles including, without
limitation, distributors, supermarkets, mass-merchants, department and specialty
stores, the QVC home shopping television network, the Internet and minimercials.
(2) Licensee shall not distribute, market or sell the Product
within the Territory via any home shopping television show or network other than
QVC without prior written permission from Licensor.
(c) Within thirty (30) days from the Effective Date of this
Agreement, packaging for the Product will bear the Marks.
(d) Talent shall be the sole personality identified with the
2
<PAGE>
Product during the Term of this Agreement.
(e) The parties intend for Licensee to only market, distribute and
sell the Product in connection with the Marks during the Term of this Agreement.
Accordingly, notwithstanding any other provision in this Agreement to the
contrary, the parties agree that Licensee shall market, distribute and sell the
Product within the Territory labeled with Licensor's Marks exclusively.
(f) MINIMERCIALS. The parties shall create no more than three
minimercials each year of the Term of this Agreement. The following shall apply
to all such minimercials:
(1) Licensee shall pay all costs associated with the creation
of said minimercials, including, without limitation, production and editing
costs and cable television airing costs;
(2) Each minimercial shall be up to ninety seconds (:90) in
length;
(3) Production of any and all minimercials to be produced
during any given year during the Term of this Agreement shall take place on the
same calendar date in such year in Licensor's Fort Lauderdale, Florida studio;
(4) Licensor shall have final approval on any and all scripts
for said minimercials;
(5) Licensee shall pay to Licensor a royalty of fifteen
percent (15%) on any and all Gross Retail Sales (as defined herein) of the
Product via said minimercials; and
(6) The minimercial shall be aired solely on cable television
networks and on those national network affiliates on which Licensor's television
vignettes are aired as more particularly listed on Schedule 2 (f) to this
Agreement. if Licensor does not air its television vignettes in a given
television market, Licensee may approach any network in such television market
for purposes of airing the minimercial.
(7) Licensee shall air on a cable television station at least
one minimercial on or before the sixtieth (60th) day after its final completion
("Airing Date"). If Licensee fails to air such minimercial pursuant to this
Agreement on or before the Airing Date, Licensee shall pay to Licensor Five
Thousand Dollars ($5,000) within thirty (30) days of the Airing Date for such
minimercial.
(g) EXPANSION OF TERRITORY. The Territory shall be expanded to cover
any additional countries upon which the parties may agree in writing (the
"Expanded Territory") ; provided that the Licensee shall not (1) make, or
authorize any use, directly or indirectly, of the Marks outside of the Territory
and the Expanded Territory, or (2) sell the Product to any person, firm or
corporation which the Licensee, upon reasonable inquiry, believes intends or is
3
<PAGE>
likely to resell the Product outside the Territory of the Expanded Territory.
(h) RESERVATION OF RIGHTS . Other than specifically set forth in
this Agreement, the Licensor specifically reserves all rights in and to the
Marks.
(i) LICENSEE'S OTHER PRODUCTS. During the Term (as hereinafter
described) and prior to the distribution or sale of any other products by
Licensee for which Licensee intends to incorporate (1) a mark that is associated
with a personality or (2) an endorsement by a personality, Licensee shall notify
the Licensor in writing (the "Notice") of the Licensee's intent and the terms
and conditions upon which it intends to do so and the Licensor and/or the
Talent, as applicable, shall have thirty (30) days in which to evaluate the
product and agree to negotiate the term of the Agreement.
3. PUBLIC DOMAIN. Notwithstanding any other provisions set forth in this
Agreement, the rights and obligations of Licensee shall not apply with respect
to any element of the Marks that are in the public domain, free and clear for
any third party to use, without violation of any of the Proprietary Rights in
the Marks.
4. TERM OF LICENSE.
(a) The term of the License and all associated rights hereby granted(the
"Term") shall begin on the Effective Date and shall end and automatically
terminate on the date which is the second anniversary of the Effective Date,
unless sooner terminated or extended in accordance with the provisions hereof.
For purposes of this Agreement, the "Term" shall include all extensions and
renewals
.
(b) Notwithstanding Section 4 (a) , the Term shall, unless otherwise
terminated pursuant to this Agreement, be automatically renewed for successive
two-year periods subject, however, to either party' s right to terminate by
giving notice of non-renewal at least sixty (60) days prior to the expiration
date of any such renewal period.
(c) The Royal ties provided in Section 2(f)(5) and Section 5 of this
Agreement shall continue in effect throughout the Term.
5. ROYALTIES.
(a) On the Effective Date, Licensee shall pay to Licensor (in the
aggregate) as a non-refundable advance against Royalties earned, the sum of Six
Thousand Dollars ($6,000.00).
(b) Throughout the term of this Agreement, subject to the advance paid
pursuant to Section S(a), Licensee agrees to pay Licensor a royalty of five
percent (5%) of the total dollar amount attributable to sales of the Product,
which such amount shall not include any amounts added by line item to the
invoices for the sale of the Product, which represent applicable taxes and
4
<PAGE>
shipping costs to be paid by the purchaser of the Product (the "Gross Retail
Sales") . Notwithstanding the foregoing, the royalty rate set forth in section
2(f) (5) shall apply to Gross Retail Sales, if any, of the Product via
minimercial, via the QVC television shopping network, and via any other
television shopping network as permitted pursuant to Section 2(b)(2).
(c) The Licensee shall not deduct any amounts from the Gross Retail
Sales including, without limitation, any deductions for cash or other discounts,
uncollectible accounts, or any costs, or expenses in connection with the
processing, packaging, sales, distribution, marketing or exploitation of the
Product.
6. ACCOUNTING.
(a) Not later than the forty-fifth (45th) day following December 31,
March 31, June 30 and September 30 (and commencing June 30, 1996), Licensee
shall furnish to Licensor a full, complete and accurate statement showing the
location of sales, the number of units sold and the U.S. dollar amount of
Product sold by Licensee during the applicable fiscal quarter. Licensee shall
furnish to Licensor such a statement regardless of actual sales during the
applicable fiscal quarter.
(b) Simultaneously with the furnishing of each accounting described in
Section 6 (a) , subject to deduction of sums advanced under Section 5(a) of this
Agreement, Licensee shall pay to Licensor the amounts due to the Licensor for
the applicable fiscal quarter pursuant to Section 6 (a). All payments shall be
made in U.S. Dollars and shall be paid by check.
(c) For purposes of this Agreement, royalties shall be calculated at
such time as the Product is shipped and invoiced by the Licensee.
(d) Licensee shall keep full, complete and accurate books of account and
records covering all transactions relating to this Agreement and the Licensor,
through its designated authorized representative, shall have the right to
examine such books of account and records and other documents and material in
Licensee's possession or under its control insofar as these accounts, records or
other documents relate to the distribution and sale of the Product. Licensor
shall have free and full access to such documentation at any reasonable hour of
the day during which Licensee's offices are open. Licensee shall retain such
books of account and records and other documents and material in Licensee's
possession or under its control insofar as they relate to the distribution and
sale of the Product for at least two (2) years following the termination or
expiration of this Agreement.
7. QUALITY CONTROL.
(a) Licensee shall supply Licensor with five (5) samples (or such
additional number as the Licensor may reasonably request from time to time) of
the Product prior to the first sale or distribution of the Product for the
Licensor's use solely to evaluate the quality of the Product and compliance with
this Agreement.
5
<PAGE>
(b) Licensee acknowledges that if the Product is not as represented to
Licensor or of inferior quality in material, workmanship or function, the
substantial goodwill of the Licensor in the Marks will be impaired. Accordingly,
Licensee warrants that the Product will be of high standard and of such
appearance and quality as shall be adequate and suited to assure their sale to
retailers and consumers as well as their use by consumers. Licensee shall submit
to Licensor a working sample of the Product which shall be approved in writing
by Licensor before the Product is advertised, distributed or sold within the
Territory or the Expanded Territory. Any sample of the Product submitted to the
Licensor and not approved by the Licensor within fourteen (14) days of the
receipt of same by Licensor shall be deemed to have been approved.
(c) After samples of the Product have been approved pursuant to this
Section 7, Licensee shall not materially depart in the marketing of the Product
nor shall Licensee materially depart in the specification of the Product in its
manufacture without the prior written consent of Licensor, which approval shall
not be unreasonably withheld. In the event there is a material departure from
the approved sample of the Product, or in the event there is an occurrence
connected with the Product or Licensee which reflects unfavorably upon Licensor,
Licensor shall have the right in the reasonable exercise of its sole discretion
to withdraw its approval of the Product, and upon written notice to the
Licensee, Licensee shall immediately have no further right to sell, advertise,
market, distribute or use the Product in connection with the Marks and shall
immediately pay all Royalties due to Licensor that may be due and owing as of
the date of such termination.
8. TRADEMARK AND COPYRIGHT NOTICES
(a) Licensee warrants that it will, subject to Licensor's prior written
approval, provide the following legend on the Product and/or the packaging,
wrapping, advertising and promotional material bearing any reproductions of the
Marks: "Mr. Food, the Caricature Logo and Ooh It's So Good! ! are registered
marks and Mr. Food's AlloFresh is a mark owned by Ginsburg Enterprises
Incorporated", or such other format as Licensor shall from time to time
reasonably direct.
(b) Subject to Section 2 of this Agreement, except for the Marks and as
otherwise required by law, no other name, trademark, inscription or designation
whatsoever shall be affixed to the Product or packaging for the Product or shall
appear in any advertising or promotional material placed or produced by the
Licensee in connection with the Product. Notwithstanding the foregoing,
Licensee's name, trademark, inscription or designation and the name "Workforce
Systems Corp. and ticker symbol WFSC may be affixed to the Product or packaging
of the Product and may appear in any advertising or promotional material placed
or produced by the Licensee in connection with the Product.
9. GOODWILL.
(a) Licensee acknowledges that the Marks are unique and original and
that Licensor is the owner of such Marks. Licensee shall not during the Term of
this Agreement or anytime thereafter dispute or contest directly or indirectly
6
<PAGE>
Licensor' ownership of the Marks, Licensor's exclusive right to use the Marks,
the validity of any of the registrations pertaining thereto or Licensor's
ownership thereof, nor shall Licensee assist or aid others in doing so.
(b) Licensee renounces any claim to any goodwill which may accrue in
connection with Licensee's use of any of the Marks, such that any and all
goodwill arising from Licensee's use shall inure solely to Licensor's benefit,
and neither during nor after the expiration or termination of this Agreement,
for any reason, except for the mark "AlloFresh" as set forth in Section 17 of
this Agreement shall Licensee assert any claim to such goodwill and Licensee
agrees not to take any action that could be detrimental to such goodwill
associated with any of the Marks or with Licensor.
10. REPRESENTATIONS AND WARRANTIES.
(a) Licensor represents and warrants that:
(1) it is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Florida and is qualified to do
business in Florida;
(2) it owns or controls all rights, clearances and/or licenses with
respect to all materials and elements in or used in connection with the
performance of this Agreement and in particular, in and to the Marks required
for the exercise and enjoyment by Licensee of all rights and Licenses granted
pursuant to this Agreement;
(3) it is the exclusive owner of all Proprietary Rights or other
rights to the Marks, has the right to grant the exclusive license granted
herein, has executed no agreement in conflict herewith, and has not granted to
any other person, firm or corporation any right, license or privilege hereunder;
(4) that the Marks are free and clear from all claims, liens,
licenses, and encumbrances whatsoever and further that Licensor has the
exclusive right and authority to grant the rights and licenses set forth herein;
(5) there is no claim, action, litigation, proceeding or
investigation before any court or administrative agency pending or threatened
against or with respect to the Marks which would have an adverse affect on the
Licensee's interest therein as a result of the rights and licenses granted
hereby;
(6) the Marks, in whole or in part, does not infringe upon or
violate the rights of any person or entity, including but not limited to, any
copyrights, trademark rights, trade secrets or any other proprietary rights; and
(7) that it has the right, power and authority to enter into this
Agreement and to fully perform all of its obligations hereunder.
7
<PAGE>
(b) Licensee represents and warrants that:
(1) it is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Florida and is qualified to do
business in Florida;
(2) that it has the right, power and authority to enter into this
Agreement and to fully perform all of its obligations hereunder;
(3) that the Product consists of the identical material submitted on
April 11, 1996 and May 2, 1996 for analysis by EFEH & Associates, 3319
Industrial Drive, Pearland, Texas 77581, lab number J-7979-1 and J-8147-1 (a
copy of testing results are attached hereto as Schedule 10); and
(4) that the sale of the Product does not infringe upon or violate
the rights of any person or entity, including, but not limited to, any patents,
trade secrets or other proprietary rights.
(5) that the Product is one hundred percent (100%) allophane and
contains no other mineral, vegetable, liquid or chemical properties.
11. PROTECTION OF THE MARKS.
(a) Based upon the representations and warrants of the Licensor,
Licensee admits the validity of and agrees not to challenge the Marks. Licensee
further agrees that any and all rights that may be acquired by the use of the
Marks by Licensee shall inure to the sole benefit of Licensor. Licensee agrees
to execute all papers and provide copies of all promotional, advertising and
packaging materials reasonably requested by Licensor to effect further
registration of and maintenance and renewal of any of the Marks and, where
applicable, to reflect, Licensee as an authorized user of the Marks. Licensee
shall not use the Marks or any part thereof as part of its corporate trade, or
brand name nor use any name or mark confusingly similar to any of the Marks.
(b) Licensee further agrees not to register in any country any name or
mark resembling or confusingly similar to the Marks. If any application for
registration is, or has been filed in any country by Licensee related to any
name or mark which, in the reasonable opinion of Licensor, is confusingly
similar, deceptive or misleading with respect to the Marks, Licensee shall
immediately abandon any such application or registration or, at Licensor's sole
discretion, assign it to Licensor. Licensee shall reimburse Licensor for all the
costs and expenses of any opposition, cancellation or related legal proceedings,
including attorney's fees, instigated by Licensor or its authorized
representative, in connection with any such registration or application.
(c) In connection with the performance of this Agreement, the parties
shall comply with all applicable laws and regulations, and those laws and
regulations particularly pertaining to the proper use and designation of
trademarks or service marks within the Territory or the Expanded Territory.
Should Licensee be or become aware of any applicable laws or regulations which
are inconsistent with the provisions of this Agreement, Licensee shall promptly
8
<PAGE>
notify Licensor of such inconsistency. Licensor may, at its option, either waive
the performance of such inconsistent provisions or terminate the License and
rights granted hereunder only with respect to the country to which such laws or
regulations apply.
12. PROMOTION AND ADVERTISING/STYLE GUIDELINES.
(a) Licensee agrees that it will use its reasonable best efforts to
promote, distribute and sell the Product within the Territory and the Expanded
Territory. It is further agreed that Licensee will use its best efforts to
fulfill orders for the Product in a timely and reasonable manner and shall
provide professional and responsive customer and consumer support. Should there
be an unforeseen delay in fulfilling customers, orders for the Product, Licensee
will exercise its due diligence in informing those customers of the delay. In
the event of an unforeseen material delay in fulfilling orders to customers,
Licensee also agrees that it will refrain from advertising or promoting the
Product, or soliciting orders from consumers until such problems are cured.
(b) Licensor agrees to provide, at its expense, one graphic presentation
of all approved uses of each of the Marks ("Graphic Presentation") In the event
that Licensee elects to use Licensor's Ft. Lauderdale, Florida studio
("Studio,,) to create promotional and advertising materials, Licensee shall
execute a lease agreement with Licensor in a form to be mutually agreed upon.
(c) All advertisements and promotional materials which Licensee intends
to use to promote the Product shall be of high quality, shall carry the legend
set forth in Section 8 of this Agreement and shall be submitted to Licensor for
its written approval prior to publication by Licensee, which approval shall not
be unreasonably withheld. Licensor shall have five (5) business days from the
time of receipt of any such materials in which to approve or reject such
advertisements and promotional materials. Once such approval is granted, it
shall be deemed granted for all continuing use of such advertising and
promotional materials for substantially the same future use by Licensee, unless
such approval is specifically withdrawn by the Licensor in writing. The style
guidelines specified by Licensor will be followed in advertising, labeling and
promotion.
(d) With the exception of the Graphic Presentation provided by Licensor
pursuant to this Section 12, Licensee shall pay all costs incurred in the
development of all advertisements and promotional materials and for advertising
and promotion (collectively, "Promotional Costs") . The parties acknowledge
that, from time to time, Licensor may incur Promotional Costs at the request of
Licensee. Licensee shall reimburse to Licensor any documented Promotional Costs
incurred by Licensor at the request of Licensee within sixty (60) days of the
accrual of said Promotional Costs. Licensee shall provide Licensor with
Licensee's Federal Express or similar account number for purposes of fulfilling
any such requests by Licensee.
(e) (1) Talent's availability for marketing purposes at trade shows
during each twelve (12) month period following the Effective Date of this
Agreement shall not exceed two days per year, subject to (i) Licensee's
providing six months prior notice for national trade shows; (ii) Licensee's
providing two months prior notice for appearances other than at national trade
9
<PAGE>
shows; and (iii) Talent's existing schedule. Specifically, Talent shall be
available for two, one and one-half hour appearances on each day on which the
Talent is available ("Appearances").
(2) Licensee shall create, develop and pay for all promotional and
advertising materials to promote and advertise Talent's Appearances pursuant to
this Section. During Talent's Appearance, Talent will actively and favorably
promote the Product.
(3) In the event that Talent is required to travel for purposes of
the Appearances and/or for purposes of promoting the Product on the QVC or any
other television shopping network, Licensee shall pay for all of Talent's first
class travel and first class accommodation expenses. Licensee shall reimburse to
Licensor any reasonable documented costs incurred by Licensor in connection with
the Appearances within sixty (60) days of the accrual of said costs. Talent
shall not receive any additional expenses in connection with such Appearances
except as specifically described in this Agreement.
(f) Talent agrees to consider being available for no more than two days
per year for additional appearances if, in the sole discretion of Licensor, such
additional appearances are deemed to benefit Licensor. If Talent agrees to be
available for such additional appearances, Licensee agrees to pay Licensor two
thousand ($2,000) dollars per diem as well as Talent's first class travel and
accommodation expenses in consideration for the additional appearances.
(g) Licensee acknowledges and agrees that Talent cannot and will not
identify the Product as being that of Licensee in the event Talent elects (in
his sole and absolute discretion) to use
the Product in Licensor's Mr. Food television news insert.
13. REIMBURSEMENT OF LICENSOR' S EXPENSES. Licensee agrees to reimburse
Licensor for all documented expenses incurred by Licensor at the direct request
of Licensee within sixty (60) days of the accrual of expenses. Licensee further
agrees to reimburse Licensor for the cost of any royalties audit deemed
necessary and proper and for which such audit finds a discrepancy of five
percent (S%) or more in favor of the Licensee.
14. COVENANT NOT TO COMPETE.
(a) The parties acknowledge and recognize the highly competitive nature
of their respective businesses and that the goodwill, continued patronage and
specifically the names and address of their respective Clients (as hereinafter
defined) constitute substantial assets having been acquired through considerable
time, money and effort. Accordingly:
(1) During the Restricted Period and within the Restricted Area (as
defined herein) , neither party will directly or indirectly, attempt to induce
or influence any of the other party's(the "Protected Party") Clients to
discontinue or reduce the extent of their relationship with the Protected Party.
10
<PAGE>
(2) During the Restricted Period and within the Restricted Area,
neither party will(i) directly or indirectly recruit, solicit or otherwise
influence any employee or agent of the Protected Party to discontinue such
employment or agency relationship with the Protected Party, or (ii) employ or
seek to employ, or cause or assist any business which competes directly with the
Business Activities of the Protected Party (the "Competitive Business") or to
employ or seek to employ for any Competitive Business any person who is then
employed by the Protected Party or (iii) serve as an officer, director, partner,
consultant, investor or stockholder (other than as a holder of less than 10-6 of
the outstanding capital stock of a publicly traded corporation) of any
Competitive Business.
(3) During the Restricted Period, neither party will interfere with,
disrupt or attempt to disrupt any of the Protected Party's relationships,
contractual or otherwise, with such Protected Party's Clients, employees,
agents, vendors, suppliers or customers.
(b) For the purposes of this Section 15, the Protected Party's "Clients"
shall be deemed to be any persons, partnerships, corporations, professional
associations or other organization with whom the particular Protected Party is
actively doing business.
(c) For the purposes of this Section 15, the "Restricted Period" shall
be deemed to be during the Term of this Agreement and for a period of one (1)
year from the termination of this Agreement.
(d) For the purposes of this Section 15, the "Restricted Area,, shall be
deemed to mean within the Territory and the Expanded Territory.
15. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) It is acknowledged that each of the parties has proprietary
information ("Confidential Information") including without limitation, private
or secret processes, methods and ideas, as they exist from time to time,
customer lists and information concerning the particular party's products,
services, business records and plans, inventions, product design information,
price structure, discounts, costs, computer programs and listings, source code
and/or object code, copyright, trademark, proprietary information, technical
information, development, marketing activities and procedures, method for
operating of a particular party's business, credit and financial data, client
lists (which client lists shall not only mean one or more of the names and
addresses of the clients but it shall also encompass any and all tangible and
intangible information whatsoever regarding them, including their needs, and
marketing and advertising practices and plans and information) and that such
Confidential Information is valuable, special and constitutes unique assets.
Accordingly, each of the parties agrees that all Confidential Information of the
other party, heretofore or in the future obtained by their association, shall be
considered confidential.
(b) Excluded from the Confidential Information, and therefore not
subject to the provisions of this Agreement, shall be any information which:
11
<PAGE>
(1) At the time of disclosure, is in the public domain as evidenced
by printed publications;
(2) After the disclosure, enters the public domain by way of printed
publication through no fault of the other party or those in privity with it;
(3) Any party can show by written documentation that it was in its
possession at the time of disclosure and which was not acquired directly or
indirectly from the other party; or
(4) A party can show by written documentation was acquired, after
disclosure, from a third party who did not receive it f rom the other party, and
who had the right to disclose the information without any obligation to hold
such information confidential.
(c) Each of the parties agrees that it shall:
(1) Hold in confidence and not disclose or make available to any
third party any such Confidential Information unless so authorized in writing by
the other party;
(2) Exercise the same care with respect to the other party's Confi-
dential Information as it does for its own
(3) Not use, directly or indirectly, the other's Confidential
Information in any respect of its business, except as necessary to evaluate the
information;
(4) Restrict the disclosure or availability of the Confidential
Information to those of other's agents who have agreed to adhere to the
confidentiality provisions of this Agreement;
(5) Not copy or modify any Confidential Information without prior
written consent of the other party; and
(6) Take such other protective measures as may be reasonably
necessary to preserve the confidentiality of the Confidential Information.
(d) Upon written request of a party, the other shall return all of such
party's written materials containing the Confidential Information.
(e) Each of the parties acknowledges and agrees that remedies at law for
a breach or threatened breach of any of the Confidential Information provisions
of Section 15 or 16 herein would be inadequate and that any such breach shall be
per se deemed as causing irreparable harm to the other party. In recognition of
this fact, the parties agree that, in addition to any remedy at law available,
including, but not limited to monetary damages, the party harmed, shall be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable relief which may then be available under applicable law.
12
<PAGE>
16. TERMINATION.
(a) Without prejudice and in addition to any other rights, Licensor
shall have the right to terminate this Agreement upon written notice to Licensee
pursuant to this Agreement, at any time upon the occurrence of the following:
(1) If Licensee shall not have begun the distribution and sale of
the Product within sixty (60) days of the Effective Date of this Agreement.
(2) If Licensee shall be unable to fulfill valid purchase orders for
the Product throughout the Territory and Expanded Territory for any reason
within Licensee's control for a period of at least ninety consecutive (90) days,
excluding any such delays resulting from ship collision, weather, government
interference of other similar occurrences outside of Licensee's control.
(3) If Licensee shall fail to make any payment due hereunder or to
deliver any statement required to be delivered by Licensee pursuant to the terms
of this Agreement, and if such default shall continue for a period of ten
business (10) days after written notice from Licensor to Licensee.
(4) If Licensee shall be unable to pay its debts when due, or shall
take any action to compromise its debts, or shall make any assignment for the
benefit of creditors, or file a voluntary petition in bankruptcy or
reorganization, or have an involuntary bankruptcy petition filed against it, or
be adjudicated as bankrupt or insolvent, or if any receiver is appointed for its
business or property, or if any trustee in bankruptcy or insolvency shall be
appointed under the laws of the United States government or of the several
states.
(5) Licensee (or the bulk of its operating assets) is sold,
acquired, dissolved or merged or ownership of more than fifty percent (50%) of
its stock is acquired by individuals or entities which are not stockholders on
the Effective Date, unless the surviving business or surviving entity, as the
case may be, acknowledges in writing to Licensor that it will comply with and be
bound by all of the provision of this Agreement.
(6) Licensee's using any name, trademark, service mark, or other
designation Mark contrary to the provisions hereof;
(7) Licensee's offering for sale products bearing the Marks which
products fail to meet the quality standards required by this Agreement;
(8) Licensee's use of the Marks on or in connection with any
products or marketing material or services other than the Product; and
13
<PAGE>
(9) Except as set forth in Section 28 of this Agreement assignment
of this Agreement without the prior written approval of Licensor;
(10) If at any time this Agreement is in effect, Licensee conducts
its business or operations in a manner resulting in public scandal or which may
reasonably result in charges or fraud by third-parties against Licensee or
should Licensee do anything to disparage Licensor or its business.
(11) Licensee' s breach of any material provision of this Agreement,
each of which is considered to be of the essence of this Agreement.
(b) Without prejudice and in addition to any other rights, Licensee
shall have the right to terminate this Agreement upon written notice to Licensor
pursuant to this Agreement, at any time upon the occurrence of the following:
(1) If Licensor shall be unable to pay its debts when due, or shall
take any action to compromise its debts, or shall make any assignment for the
benefit of creditors, or file a voluntary petition in bankruptcy or
reorganization, or have an involuntary bankruptcy petition filed against it, or
be adjudicated as bankrupt or insolvent, or if any receiver is appointed for its
business or property, or if any trustee in bankruptcy or insolvency shall be
appointed under the laws of the United States government or of the several
states;
(2) Licensor (or the bulk of its operating assets) is sold,
acquired, dissolved, consolidated or merged or ownership of more than fifty
percent (50%) of its stock is acquired by individuals or entities which are not
stockholders on the Effective Date, unless the surviving business or surviving
entity, as the case may be, acknowledges in writing that it will comply with and
be bound by all of the provisions of this Agreement and;
(3) Except as set forth in Section 28, the sale, transfer, or
assignment of any rights, title or interest in and to the Marks to any third
party without the prior written approval of the Licensee;
(4) Except as set forth in Section 28 of this Agreement, any
assignment of this Agreement without the prior written approval of Licensee;
(5) If at any time this Agreement is in effect, Talent conducts
himself in any manner offensive to reasonable standards of decency or morality
or resulting in public scandal, including, without limitation, an arrest or
conviction of a misdemeanor or a felony, or should Talent do anything to
disparage Licensee or its business;
(6) The Talent is no longer affiliated with the Licensor; or
(7) Licensor's breach of any material provision of this Agreement,
each of which is considered to be the essence of this Agreement.
14
<PAGE>
(c) The license and rights granted under this Agreement shall terminate
thirty (30) days after mailing of such written notice unless such breach is
cured within such time period. Immediately upon the expiration or termination of
the License subject to Section 18 of this Agreement, Licensee shall have no
further obligations to pay any Royalties to the Licensor (other than those that
have occurred through the date of termination) and except as specifically set
forth herein, Licensee shall have no further rights to use the Marks.
(d) Notwithstanding the foregoing, if either (1) Licensee admits its
inability to fulfill its material obligations hereunder or if such inability is
self-evident or (2) the Licensor admits its inability to fulfill its material
obligations hereunder or if such inability is self -evident, the party that has
the ability to continue to fulfill its material obligations under this Agreement
shall have the right to immediately terminate this Agreement, and no party shall
have any further obligations to any other party after such date of termination
except as specifically set forth herein.
(e) The termination remedy is in addition to any other remedy available
to a party in law or at equity.
17. ASSIGNMENT OF "ALLOFRESH". The parties agree that during the Term of
this Agreement all goodwill arising from Licensee I s use of the mark "Mr. Food'
s AlloFresh" shall inure solely to Licensor' s benefit. Accordingly, Licensee
renounces any claim to any goodwill which may accrue in connection with
Licensee's use of "Mr. Food's AlloFresh". Upon termination of this Agreement for
whatever reason, Licensor shall irrevocably assign its common law rights to the
mark "AlloFresh" to Licensee. Upon such assignment, neither Licensee nor
Licensor shall use "AlloFresh" in connection with the Mr. Food mark. Any
goodwill which may arise from Licensee's use of "AlloFresh" subsequent to the
termination of this Agreement and Licensor' s irrevocable assignment of
"AlloFresh" to Licensee, shall inure solely to Licensee's benefit.
18. SALES AFTER TERMINATION OR EXPIRATION. In the event of the expir-
ation, cancellation or termination of this Agreement, Licensee shall be entitled
to fulfill its existing orders for the Product incorporating the Marks and to
sell its stock-on-hand of such Product in accordance with the provisions of this
Agreement, subject to payment to the Licensor by Licensee of the Royalties in
accordance with the provisions of this Agreement. Licensee shall not, however,
without the prior written consent of Licensor, which such consent shall not be
unreasonably withheld, sell any remaining Product as distress merchandise or
otherwise than in the ordinary course of business. For the purposes of this
Agreement, a distress sale shall be defined as one in which the Product are sold
for less than seventy-five (75%) of Licensee's standard wholesale selling price.
19. LICENSOR'S PURCHASE RIGHTS. Licensor shall have the right to bu
from time to time, the Product directly from Licensee at a mutually agreed
price, net of any Royalties otherwise payable on sales pursuant to this
Agreement, subject to availability of the Product. Notwithstanding the
foregoing, the Licensor shall not resell the Product provided to it pursuant to
this Section without Licensee's prior consent.
15
<PAGE>
20. INSURANCE.
(a) Licensee shall maintain at its own expense in full force and effect
at all times during which the Product bearing the Marks is being sold, with a
responsible insurance carrier reasonably acceptable to Licensor, not less than
three million ($3,000,000) dollars general liability insurance including, but
not limited to, operations, products liability insurance and advertising
liability insurance. This insurance shall be for the benefit of Licensor, and
Licensor's officers, agents and employees, and shall provide the same with full
defense and indemnity against any claims, demands, causes of action or damages,
including reasonable attorneys' fees, arising out of the manufacture, sale,
distribution, use or consumption of the Product or any defects in the Product
during the Term or any renewal thereof. Licensor shall be named as an additional
insured. The insurance shall not be substantially modified unless the insurer
provides Licensor and Licensee with written notice at least thirty (30) days
prior to said cancellation or substantial modification, and the insurance shall
contain a provision expressly so stating. This insurance may be obtained for
Licensor by Licensee in conjunction with a policy which covers products other
than the Product bearing the Marks.
(b) It shall be a condition precedent to Licensor's execution of this
Agreement that Licensee furnish to Licensor a true and complete copy of each and
every policy of insurance referred to in this Section 20 naming Licensor as an
additional insured.
(c) Licensee shall, from time to time upon reasonable request by
Licensor, promptly furnish or cause to be furnished to Licensor evidence in form
and substance satisfactory to Licensor, of the maintenance of the insurance
required by this Section 20 including, but not limited to, originals or copies
of policies, certificates of insurance (with applicable riders and endorsements)
and proof of premium payments.
21. RIGHTS RESERVED BY LICENSOR. Any and all rights in and to the Marks
which are not expressly granted to Licensee are hereby reserved by Licensor. Any
one or more of such reserved rights may be exercised or enjoyed by Licensor,
directly or indirectly, at any and all times.
22. EXPORT CONTROL. With respect to the Territory and the Expanded Terr-
itory Licensee agrees that it will not distribute, sell or promote the Product
bearing any of the Marks except in compliance with applicable United States
export regulations.
23. INDEMNIFICATION.
(a) The Licensor hereby agrees to indemnify and defend the Licensee, its
officers, agents, representatives and employees and to hold them harmless from
and against any and all claims, actions, liability, loss, damages, demands,
causes-of-action, costs, expenses or damages, including reasonable attorneys'
fees, in connection with the breach of any of the representations, warranties or
provisions of this Agreement by the Licensor or the Talent and specifically
16
<PAGE>
including, without limitation, any trademark, trade secret, or copyright
infringement arising out of the use of the Marks on the Product, as authorized
by this Agreement, provided that the Licensee is given prompt notice of and
shall have the option to undertake and conduct the defense of any such claim,
demand or cause of action.
(b) The Licensee hereby agrees to indemnify and defend the Licensor, its
officers, agents, representatives and employees and to hold them harmless from
and against any and all claims, actions, liability, loss, damages, demands,
causes-of -action costs, expenses or damages, including reasonable attorneys'
fees, arising out of the distribution, sale, use or consumption of the Product,
whether brought by a third party or otherwise, provided that the Licensor is
given prompt notice of and shall have the option to undertake and conduct the
defense of any such claim, demand or cause of action.
24. SUITS FOR THIRD-PARTY INFRINGEMENTS. In the event that Licensee
learns of any infringement or threatened infringement of any of the Marks or any
passing of f or that any third party alleges or claims that any of the Marks is
liable to cause deception or confusion to the public, or is liable to dilute or
infringe any of Licensor, s rights therein, Licensee shall forthwith notify
Licensor or its authorized representatives giving particulars thereof and
Licensee shall provide necessary information and assistance to Licensor and/or
its authorized representatives in the event that Licensor decides that
proceedings should be commenced or defended. Any such proceedings shall be at
the expense of the Licensor and Licensor shall be entitled to any recoveries.
Licensor shall only be required to enforce the Marks against others to the
extent that such infringement affects the Licensee.
25. CLAIMS AGAINST THE LICENSEE. If a claim resented against the
Licensee alleging that such any Mark is an infringement of the rights of third
parties, Licensor, on behalf of the Licensee, shall jointly negotiate,
compromise, or settle such claim, or defend the institution of any action
thereunder. All expenses of defense in such action, including compromise or
settlement of the claim or action, shall be borne by the Licensor.
26. NO PARTNERSHIP OR JOINT VENTURE. This Agreement does not constitute
and shall not be construed as constituting a partnership or joint venture
between Licensor and Licensee. Neither party shall have the right to obligate or
bind the other in any manner whatsoever and nothing herein contained shall give
or is intended to give any rights of any kind to any third party.
27. REMEDIES. All specific remedies provided for in this Agreement shall
be cumulative and shall not be exclusive of one another or any other remedies
available in law or equity. The failure of a party to insist upon the strict
performance of any of the covenants or terms hereof to be performed by the other
party shall not be construed as a waiver of such covenants or terms. if any
portion of this Agreement shall be ruled as invalid or unenforceable, the
remainder of the Agreement shall survive and be enforced as if such invalid
portion was not originally a part hereof.
28. NO ASSIGNMENT OR SUBLICENSE. This Agreement is binding upon and
17
<PAGE>
shall inure to the benefit of the parties and their respective representative
and permitted successors. Except as specifically provided in this Agreement,
this Agreement or any portion thereof is not assignable by any action or by
operation of law without the express prior written approval of the non-assigning
party and any attempt at such assignment shall be null and void; provided,
however, that Licensor shall be permitted to assign this Agreement to a
corporation of which Licensor is the sole shareholder. In the event of such
assignment, Licensor shall provide Licensee with prior written notice thereof as
well as a copy of such assignment in which the assignee specifically agrees to
be bound to all terms and conditions of this Agreement. Licensee shall have no
right to grant any sub- licenses with respect to the provisions of this
Agreement, without the express written approval of the Licensor.
29. WAIVER AND MODIFICATION. No waiver or modification of any of the terms
of this Agreement shall be valid unless in writing and signed by the parties. No
waiver by one party of a breach hereof or a default hereunder shall be deemed a
waiver by any party of a subsequent breach or default of like or similar nature.
No delay by one party in exercising its rights hereunder shall be deemed a
waiver of such rights.
30. NOTICES. Whenever notice is required to be given under this Agreement,
it shall be deemed to be good and sufficient notice if in writing, signed by an
officer or an authorized agent of the party serving such notice and sent by
registered or certified mail, postage prepaid, return receipt requested, to the
other party at the address stated above, unless notification of a change of
address has been given in writing pursuant to this Section 30. Notice shall be
deemed given five (5) business days after mailing.
31. CONSTRUCTION. The parties affirm that this Agreement has been entered
into in the state of Florida and will be governed by and construed in accordance
with the laws of the State of Florida, notwithstanding any state's conflict of
laws or choice of law rules to the contrary. The parties expressly agree that
any dispute concerning solely the payment of Royalties arising under this
Agreement shall be determined by binding arbitration in Ft. Lauderdale, Florida,
in accordance with the commercial arbitration rules of the American Arbitration
Association then in effect and any judgment, decision or award made pursuant
thereto shall be entered in any court of competent jurisdiction with the full
effect as if such determination had been made by such court; provided however,
that the parties may also apply to a court of competent jurisdiction for
injunctive relief if appropriate. The loser in any such contest shall pay all
attorneys, fees and disbursements and court costs.
32. VENUE. The parties to this Agreement acknowledge and agree that the
U.S. District for the Southern District of Florida, or if such court lacks
jurisdiction, the 17th Judicial Circuit (or its successors) in and for Broward
County, Florida, shall be the venue and exclusive proper forum in which to
adjudicate any case or controversy arising either, directly or indirectly, under
or in connection with this Agreement for any and all matters except those
related solely to the payment of Royalties by Licensor to Licensee as provided
hereunder and the parties further agree that, in the event of litigation arising
out of or in connection with this Agreement in these courts, they will not
contest or challenge the jurisdiction or venue of these courts.
18
<PAGE>
33. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes and
replaces any prior agreements, if any, between the parties. There are no
representations, warranties, promises, covenants or understandings other than
those contained herein.
34. HEADINGS. Any paragraph or section headings used in this Agreement are
for reference purposes only, are not a substantive part of this Agreement and
are not to be considered in its interpretation or construction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GINSBURG ENTERPRISES INCORPORATED
By: /s/ Steven Ginsburg, Secretary
PRODUCTS THAT PRODUCE, INC.
By: /s/ Ella Chesnutt, Chairman
19
Ms. Ella Boutwell Chesnutt
Workforce Systems Corp.
269 Cusick Road
Suite C-2
Alcoa, TN 37701
July 22, 1996
Dear Ella:
This letter confirms our understanding that Laidlaw Equities, Inc.
("Laidlaw") has been engaged as exclusive financial advisor to Workforce Systems
Corp. (the "Company") and sets forth the proposed responsibilities and terms for
an investment banking relationship. References herein to the "Company" include
affiliates of the Company and any entity that the Company or its affiliates may
form. If appropriate in connection with performing its services on behalf of the
Company hereunder, Laidlaw may utilize the services of one or more of its
affiliates, in which case references herein to Laidlaw shall include such
affiliates.
1. Laidlaw will perform the following general financial advisory and
investment banking services:
a) Laidlaw will familiarize itself to the extent it deems appropriate
and feasible with the business, operations, properties, condition (financial and
otherwise), and prospects of the Company;
b) Advise the Company with respect to the development of strategic
short-term and long-term business plans;
c) Advise the Company on its capital structure and appropriate financing
strategies to be undertaken by it with respect to raising equity, debt and other
hybrid instruments which support the Company's strategic business plans and
advise and assist the Company in attendant negotiations;
d) Advise the Company with respect to the long-term market positioning
of the Company;
1
<PAGE>
e) Use our best efforts to become a market-maker in the Company's
common stock within three months;
f) Use our best efforts to provide research coverage within three
months;
g) If requested by the Company, Laidlaw will advise and assist the
management of the Company in making appropriate presentations to the Board of
Directors of the Company concerning acquisitions, divestitures or financings;
and
h) Render such other financial advisory and investment banking services
as may from time to time be agreed upon by Laidlaw and the Company.
2. As directed, Laidlaw will assist the Company in identifying acquisition
candidates and in analyzing, structuring, negotiating and effecting proposed
strategic transactions on the terms and subject to the conditions of this
agreement. As used in this agreement, the term "Strategic Transaction" means,
whether effected in one transaction or a series of transactions: (a) any
strategic alliance, merger, consolidation, reorganization or other business
combination pursuant to which the business of the Company or a subsidiary of the
Company is combined with that of another entity (a "Candidate"); (b) the
acquisition, directly or indirectly, by the Company of more than 10% of the
capital stock or assets of a Candidate by way of tender or exchange offer,
negotiated purchase or otherwise; or (c) the acquisition, directly or
indirectly, by the Company of, or the ability to effect control of, a Candidate,
through proxy contest or otherwise.
In this regard, Laidlaw proposes to undertake certain activities on behalf
of the Company, including, if appropriate, the following:
(a) Assisting the Company in identifying target industries and companies
for Strategic Transactions;
(b) Performing a financial analysis of Candidates in the context of a
possible Strategic Transaction;
(c) Assisting the Company in its determination of appropriate values to
be paid in a Strategic Transaction;
(d) Advising the Company as to the structure and form of a proposed
Strategic Transaction;
2
<PAGE>
(e) Advising and assisting the Company's management in making presenta-
tions to the Company's Board of Directors regarding a proposed Strategic Trans-
action;
(f) Counseling the Company as to strategy and tactics for initiating
discussions and negotiating with Candidates and, if requested by the Company,
participating in such discussions and negotiations;
(g) Assisting the Company in any proceedings relating to regulatory
approvals required for a Strategic Transaction.
If requested by the Company, Laidlaw will render an opinion (the
"Opinion") as to whether or not the consideration to be paid in a proposed
Strategic Transaction is fair, from a financial standpoint, to the shareholders
of the Company. In the event the Company commences a tender or exchange offer
for the securities of a Candidate, Laidlaw will act as lead manager for such
offer. If Laidlaw is asked to render an opinion, act as manager for a tender or
exchange offer, or provide any additional services not otherwise covered by this
agreement, the Company and Laidlaw will enter into a separate agreement
containing customary terms and conditions to be mutually agreed upon.
3. Laidlaw's compensation for its services under this engagement will be
as follows:
a) A $7,500.00 monthly retainer, payable in advance on the lst of each
month, beginning August 1, 1996 for a period of twelve months, renewable
quarterly thereafter.
b) The Company, subject to its Board of Directors approval, shall issue
to Laidlaw and its designees, as soon as possible but no later than 30 days
after the execution of this letter, 100,000 warrants (the "Warrants") to
purchase an amount of shares of Common Stock for a period of five years. The
Warrants shall be exercisable at any time during the five year period commencing
on their issuance at an exercise price equal to the following formula: (i)
35,000 warrants at an exercise price equal to the lower of (x) the closing
NASDAQ bid price for the Company's stock on the date of execution of this
agreement or (y) the closing NASDAQ bid price for the Company's stock on the
date of issuance of the warrants; (ii) 35,000 warrants at an exercise price
equal to 115% of the exercise price determined in (i) above and (iii) 30,000
warrants at an exercise price equal to 130% of the exercise price determined in
(i) above. The shares of Common Stock to be issued upon the execution thereof
shall be included in any future registration statements filed by the Company
(unless the Company files a Form S-4, S-8 or comparable registration statement);
3
<PAGE>
provided, however, that if the managing underwriter of any future public
offering proposed by the Company advises the Company that the inclusion in any
such registration statement of all such shares of Common Stock would interfere
with the successful marketing (including pricing) of any securities proposed to
be registered by the Company, then the number of shares of Common Stock proposed
to be included in such registration statement (including the shares of Common
Stock underlying the Warrants) shall be reduced pro rata.
If during this engagement the Company enters into a definitive agreement
with a Candidate identified by Laidlaw which subsequently results in a Strategic
Transaction, the Company will pay Laidlaw a transaction fee as follows: (i) for
a Strategic Transaction with gross consideration of less than $7 million,
Laidlaw shall be entitled to a transaction fee equal to seven percent (7%) of
gross consideration; (ii) for a Strategic Transaction with gross consideration
of $7 million or more, but less than $10 million, Laidlaw shall be entitled to a
transaction fee equal to the greater of $490,000 or six percent (6%) of gross
consideration or; (iii) for a Strategic Transaction with gross consideration
equal to or in excess of $10 million, Laidlaw shall be entitled to a transaction
fee equal to the greater of $600,000 or five percent (5%) of gross
consideration. In the event the Company identifies a Candidate and retains
Laidlaw in an advisory role, the transaction fee will be as follows: i) for a
Strategic Transaction with gross consideration of less than $7 million, Laidlaw
shall be entitled to a transaction fee equal to four percent (4%) of gross
consideration; (ii) for a Strategic Transaction with gross consideration of $7
million or more, but less than $10 million, Laidlaw shall be entitled to a
transaction fee equal to the greater of $280,000 or three and one half percent
(3 1/2%) of gross consideration or; (iii) for a Strategic Transaction with gross
consideration equal to or in excess of $10 million, Laidlaw shall be entitled to
a transaction fee equal to the greater of $350,000 or three percent (3%) of
gross consideration. In either situation, such fee shall survive termination of
this agreement. Such transaction fees are to be payable in cash upon the closing
of each such Strategic Transaction.
The term "consideration" means the sum of the aggregate fair market value
of any securities issued, and any cash consideration paid, by the Company or by
a Candidate or its security holders in connection with a Strategic Transaction,
plus the amount of any indebtedness of the Candidate that is assumed, directly
or indirectly, by the Company. The f air market value of any such securities
will be the value determined by the Company and Laidlaw upon the closing of a
Strategic Transaction.
d) The Company will grant Laidlaw, for a twenty four (24) month period
following the execution of this agreement, a right of first refusal to act as
4
<PAGE>
manager or placement agent with respect to any proposed public distribution or
private placement of the Company's securities. Laidlaw will advise the Company
promptly, but in no event later than fifteen (15) days following the submission
to Laidlaw in writing of any such proposed transaction, of Laidlaw's election to
exercise said right. Such amounts may be raised through the public markets or
the private sale of either equity, convertible securities or debt of the Company
(the "Financing"). Laidlaw and the Company will be subject to and comply with
any of the necessary regulatory requirements and other applicable federal and
state securities laws, and customary indemnification for all matters arising out
of such a Financing. The compensation for its services as set forth in this
paragraph will be negotiated at the time of the Financing, with such
compensation to be customary for the services of a placement agent.
4. The Company will furnish Laidlaw with such information as Laidlaw
believes appropriate to its assignment (all such information so furnished being
the "Information"). The Company recognizes and confirms that Laidlaw (a) will
use and rely primarily on the Information and on information available from
generally recognized public sources in performing the services contemplated by
this Agreement and in rendering the opinion, if requested, without having
independently verified the same, (b) does not assume responsibility for the
accuracy or completeness of the Information and such other information as is
available from generally recognized public sources and (c) will not make an
appraisal of any assets of a Candidate or the Company. To the best of the
Company's knowledge, the Information to be furnished by the Company, when
delivered, will be true and correct in all material respects and will not
contain any material misstatement of fact or omit to state any material fact
necessary to make the statements contained therein not misleading. The Company
will promptly notify Laidlaw if it learns of any material inaccuracy or
misstatement in, or material omission from, any Information theretofore
delivered to Laidlaw.
5. In addition to any fees payable by the Company to Laidlaw hereunder,
the Company will reimburse Laidlaw, upon request made from time to time, for all
of its out-of-pocket expenses incurred in connection with this engagement,
including the fees and disbursements of its legal counsel.
6. Laidlaw's engagement hereunder may be terminated at any time at will by
either Laidlaw or the Company upon thirty days prior written notice thereof to
the other party; provided however, that any termination by the Company of
Laidlaw's engagement hereunder shall not affect the Company's obligation to pay
fees and expenses to the extent provided herein and any termination by Laidlaw
of Laidlaw's engagement hereunder shall not affect the Company's obligation to
pay fees and expenses accruing prior to such termination to the extent provided
5
<PAGE>
for herein.
7. The Company and Laidlaw have entered into a separate letter agreement,
dated the date hereof and attached hereto, providing indemnification by the
Company to Laidlaw and certain related persons. Such Indemnification Agreement
is an integral part of this agreement, and the terms thereof are incorporated by
reference herein and shall survive the termination, expiration or supersession
of this Agreement.
8. This Agreement shall be deemed made in Florida. This agreement and all
controversies arising from or relating to performance under this agreement shall
be governed by and construed in accordance with the laws of the State of
Florida, without giving effect to such state's rules concerning conflicts of
laws. The Company hereby irrevocably consents to personal jurisdiction and venue
in any court of the State of Florida or any Federal court situated in Florida
for the purposes of any suit, action or proceeding. Any right to trial by jury
with respect to any claim or action arising out of this agreement or conduct in
connection with this engagement is hereby waived.
9. Laidlaw has been retained under this agreement as an independent
contractor with duties owed solely to the Company. The advice (written or oral)
rendered by Laidlaw pursuant to this agreement is intended solely for the
benefit and use of the Board of Directors of the Company in considering the
matters to which this agreement relates, and the Company agrees that such advice
may not be relied upon by any other person, used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor shall any public references to Laidlaw be made by the
Company, without the prior written consent of Laidlaw, which consent shall not
be unreasonably withheld.
10. This Agreement may not be amended or otherwise modified or waived
except by an instrument in writing signed by both Laidlaw and the Company.
6
<PAGE>
We are pleased to accept this engagement and look forward to working with
the Company. Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter, which shall thereupon constitute a binding agreement between Laidlaw and
the Company.
Very truly yours,
/s/ Richard C. Silver
Richard C. Silver
Managing Director
ACCEPTED AND AGREED TO:
as of this 22 day of July 1996
By: /s/ Ella Boutwell Chesnutt
Ella Boutwell Chesnutt
President
7
Exhibit 21
The Registrant's subsidiaries include the following:
Name State of Incorporation
---- ----------------------
Outside Industrial Services, Inc. Tennessee
Prime Florida, Inc. Florida
Industrial Fabrication & Repair, Inc. Tennessee
NHP Manufacturing Corp.(1) Florida
Workforce Properties Corp. Florida
Products That Produce Inc. Florida
Maintenance Requisition Order Corp.(1) Florida
- ---------------
(1) Wholly-owned subsidiaries of Industrial Fabrication & Repair, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORKFORCE SYSTEMS CORP. FOR THE FISCAL YEAR ENDED JUNE
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 938,487
<SECURITIES> 0
<RECEIVABLES> 633,188
<ALLOWANCES> 0
<INVENTORY> 1,312,896
<CURRENT-ASSETS> 3,711,751
<PP&E> 3,909,274
<DEPRECIATION> 132,856
<TOTAL-ASSETS> 11,832,940
<CURRENT-LIABILITIES> 1,172,310
<BONDS> 0
0
1,100
<COMMON> 2,421
<OTHER-SE> 8,568,941
<TOTAL-LIABILITY-AND-EQUITY> 11,832,940
<SALES> 3,720,680
<TOTAL-REVENUES> 3,720,680
<CGS> 2,145,593
<TOTAL-COSTS> 2,145,593
<OTHER-EXPENSES> 512,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,062,212
<INCOME-TAX> 332,445
<INCOME-CONTINUING> 729,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729,767
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
