==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: April 30, 1996
Commission file number 0-26508
PURETEC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-3376449
(State of Incorporation) (I.R.S. Employer Identification No.)
65 Railroad Avenue, Ridgefield, New Jersey 07657
(Address of Principal Executive Offices)
(201) 941-6550
(Registrant's Telephone Number)
-------------------------------
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of June 14, 1996, there were 27,724,008 shares of Common Stock outstanding.
===============================================================================
PURETEC CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Part I FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and July 31, 1995 2
Consolidated Statements of Operations for the nine and three months
ended April 30, 1996 and 1995 3
Consolidated Statements of Cash Flows for the nine months ended
April 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-10
Item 2. Management's Discussion and Analysis of Financial 11-13
Condition and Results of Operations
Part II OTHER INFORMATION:
Item 1 to Item 6. 14-16
Signatures 17
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
ASSETS 1996 1995
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,171 $ 7,097
Accounts receivable, less allowance for doubtful accounts of $260
and $149 as of April 30, 1996 and July 31, 1995, respectively. 71,240 45,953
Inventories 54,747 45,517
Prepaid expenses and other 3,689 2,442
-------------- ---------------
TOTAL CURRENT ASSETS 132,847 101,009
EXCESS OF COST OF INVESTMENT OVER NET ASSETS ACQUIRED
(net of accumulated amortization of $3,453 and $1,093 as of
April 30, 1996 and July 31, 1995, respectively) 91,555 93,915
PROPERTY, PLANT AND EQUIPMENT, net 86,461 67,030
INTANGIBLE ASSETS, net 1,438 2,127
ESCROWED CASH -- 13,500
OTHER ASSETS, net 13,562 12,540
-------------- ---------------
TOTAL ASSETS $ 325,863 $ 290,121
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 41,829 $ 31,010
Accounts payable 29,677 24,601
Accrued plant closing and disposal costs 924 1,423
Accrued expenses 34,168 25,350
Current portion of long-term debt 3,397 4,856
Convertible debentures -- 1,000
-------------- ---------------
TOTAL CURRENT LIABILITIES 109,995 88,240
OTHER LONG-TERM LIABILITIES 1,386 1,195
LONG-TERM DEBT 134,066 122,664
DEFERRED INCOME TAXES 1,114 1,200
-------------- ---------------
TOTAL LIABILITIES 246,561 213,299
MINORITY INTEREST -- 29
REDEEMABLE PREFERRED STOCK
$.01 par value; 5,000 shares issued 3,652 3,274
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value 50,000,000 authorized; 27,724,008 and
26,882,996 shares issued or to be issued at April 30, 1996
and July 31, 1995, respectively 277 269
Additional paid-in capital 123,962 123,224
Deficit (48,721) (49,974)
Cumulative foreign currency translation adjustment 132 --
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 75,650 73,519
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 325,863 $ 290,121
============== ===============
</TABLE>
2
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
--------------------------------- ---------------------------------
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1996 1995 1996 1995
----------------- ---------------- ----------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 247,187 $ 39,818 $ 106,162 $ 13,188
----------------- ---------------- ----------------- ----------------
COSTS AND EXPENSES:
Cost of sales 197,363 34,046 81,643 11,331
Selling, general and administrative 26,637 2,550 10,486 828
Research and development 658 843 109 306
Amortization Expense 2,838 1,996 946 616
----------------- ---------------- ----------------- ----------------
227,496 39,435 93,184 13,081
----------------- ---------------- ----------------- ----------------
INCOME FROM OPERATIONS 19,691 383 12,978 107
OTHER EXPENSES (INCOME):
Interest expense 16,101 777 5,377 226
Gains on sale and assignment of securities (920)
Other (income) expense 251 (309) 463 (218)
----------------- ---------------- ----------------- ----------------
16,352 (452) 5,840 8
----------------- ---------------- ----------------- ----------------
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 3,339 835 7,138 99
Provision for income taxes 2,100 -- 1,947 --
----------------- ---------------- ----------------- ----------------
NET EARNINGS BEFORE
DISCONTINUED OPERATIONS 1,239 835 5,191 99
LOSS FROM DISCONTINUED OPERATIONS
Loss on Sale (1,445) -- -- --
Loss from discontinued operations (979) (3,100) -- (3,100)
----------------- ---------------- ----------------- ----------------
NET (LOSS) EARNINGS $ (1,185)$ (2,265)$ 5,191 $ (3,001)
================= ================ ================= ================
(LOSS) EARNINGS PER COMMON SHARE
Continuing operations 0.03 0.05 0.19 0.01
Discontinued operations (0.09) (0.18) 0.00 (0.17)
----------------- ---------------- ----------------- ----------------
Primary net (loss) earnings $ (0.06)$ (0.13)$ 0.19 $ (0.16)
================= ================ ================= ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND EQUIVALENTS OUTSTANDING:
Primary 27,114,000 16,862,000 27,346,000 18,772,000
================= ================ ================= ================
3
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
-------------------------------
APRIL 30, APRIL 30,
1996 1995
-------------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,185) $ (2,265)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 13,009 3,232
Gain on sale of property, plant and equipment (321)
Gain on sale and assignment of securities -- (920)
Bad debt allowance 111 --
Deferred income taxes (86) --
Changes in operating assets and liabilities net of
effects from acquisition:
(Increase) decrease in assets:
Accounts receivable (26,909) (901)
Inventories (3,093) 1,632
Prepaid expenses and other current assets 3,630 180
Other Assets (854) (1,103)
Net Assets of discontinued operations 2,000
Increase (decrease) in liabilities:
Accounts payable 2,709 (424)
Accrued plant closing and disposal costs (499) (2,341)
Accrued expenses 8,859 155
Other long-term liabilities 161 --
Minority Interest (29) --
NET CASH USED IN OPERATING ACTIVITIES ------- ------
FROM CONTINUING OPERATIONS (4,497) (755)
Adjustment for loss on sale of discontinued operation 1,445 --
Adjustment for cash held by previously consolidated subsidiary (240) --
------- ------
NET CASH USED IN OPERATING ACTIVITIES (3,292) (755)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,801) (2,395)
Additions to intangibles -- (966)
Proceeds from sale of fixed assets 915 --
Acquisition of Burlington Resins, Inc., net of seller financing (26,820) --
Investment used (purchased) for Burlington Resins acquisition 13,500 (13,500)
Purchase of other assets -- (795)
------- ------
NET CASH USED IN INVESTING ACTIVITIES (22,206) (17,656)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings, net 12,463 22
Proceeds from long-term debt 16,229 --
Repayments of long-term debt (8,139) --
(Redemption of)/Proceeds from issuance of Convertible Debentures (1,000) 6,500
Proceeds from private placements 1,000 11,866
Proceeds from warrant/option exercise -- 44
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,553 18,432
------- ------
NET CHANGE IN CUMULATIVE FOREIGN CURRENCY
TRANSLATION 1,019 --
------- ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,926) 776
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,097 819
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,171 $ 840
======= ======
SUPPLEMENTAL INFORMATION:
Interest, net of capitalized interest $ 10,149 --
======= ======
Income taxes $ 1,875 --
======= ======
NON-CASH TRANSACTIONS:
Issuance of common stock in connection with debentures conversion $ 1,000 --
======= ======
Issuance of note payable to seller - Burlington Resins $ 4,000 --
======= ======
</TABLE>
4
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. ORGANIZATION, DESCRIPTION OF BUSINESS AND ACQUISITION OF OZITE CORPORATION:
At the shareholders' meeting on May 1, 1996, Pure Tech International Inc.,
formerly known as Pure Tech Newco, Inc., changed its name to PureTec
Corporation. PureTec Corporation (the "Company" "PureTec") was formed in
July 1994 for the express purpose of becoming the parent corporation of
PTI Plastics, Inc. ("PTIP"), formerly known as PureTech International, and
Ozite Corporation ("Ozite"). On July 26, 1995, the respective shareholders
of PTIP and Ozite approved the merger of each of their corporations with
wholly-owned subsidiaries of the Company. These mergers were effective at
the close of business on July 31, 1995. PTIP and Ozite are now wholly-owned
subsidiaries of the Company. For accounting purposes, the Merger has been
accounted for as a purchase of Ozite by PureTec. For financial reporting
purposes, the results of operations for the three and nine months ended April
30, 1995, and the statement of cash flows for the nine months ended April 30,
1995 are those of PTIP. The balance sheet information as of April 30, 1996 and
July 31, 1995, the results of operations for the three and nine months ended
April 30, 1996 and the statement of cash flows for the nine months ended April
30, 1996 reflect the newly combined entities.
In connection with these mergers, holders of Ozite Common Stock received an
aggregate of 1,028,915 shares of PureTec Common Stock, which is approximately
0.19 shares for each outstanding share of Ozite Common Stock. Holders of Ozite
Preferred Stock received an aggregate of 4,627,317 shares of PureTec Common
Stock. A portion of the securities otherwise issuable to Ozite preferred
stockholders were instead issued to creditors of Ozite. Holders of Ozite
Preferred Stock also received 5,000 shares with a $5,000 redemption value of a
new class of PureTec's non-convertible preferred stock and $3,750 in 10-year
subordinated notes. PureTec's Preferred Stock will be redeemable at the rate of
$1,000 per year during the first five years after the combination. The principal
of the subordinated notes will be payable at maturity. Interest is accruing at
7% and is payable quarterly, except that at the option of the Board, no interest
will accrue during the first four years. PTIP owned 300,000 shares of Ozite
Class A Preferred Stock and did not participate in the distribution of PureTec
securities pursuant to the Merger.
Holders of PTIP Common Stock received PureTec's Common Stock on a one-for-one
basis for approximately 78% of PureTec's total outstanding voting securities
after the Merger.
In connection with the Merger, PureTec issued 450,000 shares of Common Stock in
consideration for investment banking and finders services, 15,684 shares of
Common Stock to Ozite directors and officers in satisfaction of outstanding
options to acquire Ozite Common Stock and 33,639 shares of Common Stock to
holders of certain Ozite warrants who elected to receive such shares in exchange
for their Ozite warrants.
A summary of the transaction is as follows:
Fair Value of Net Assets Acquired:
Current assets $ 90,086
Non-current assets 73,476
Liabilities assumed (191,552)
--------
(27,990)
Consideration Given:
6,155,555 Common shares included
for expenses 34,710
Preferred Stock and Notes issued,
discounted to reflect net
present value 4,393
Cash and accrued expenses 25,757
--------
64,860
--------
Excess of Purchase Price $ 92,850
========
The excess of purchase price will be amortized over 30 years. Such determination
has been based on preliminary estimates of fair value of assets and liabilities
assumed and are subject to adjustment as to amount and lives in fiscal 1996.
5
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
PTIP's principal business is the recycling of plastics and the plastic injection
molding of custom parts using both recycled and virgin materials. In May 1994,
the Company announced its intention to sell its glass and steel recycling and
material recovery operations. These sales were completed in 1995.
Ozite is the majority stockholder of Plastics Specialties and Technologies, Inc.
("PST") and sole stockholder of Burlington Resins, Inc. ("Burlington") (See Note
8). As of April 30, 1996, Ozite owned approximately 83% of the outstanding
common stock of PST. PST is a manufacturer of garden hose, specialty plastic
compounds and fabricated precision plastic components.
On December 21, 1995, PST entered into an Asset Purchase Agreement (the
"Agreement") with Foss Manufacturing Company, Inc. ("Foss") for the sale of
certain assets of PST's Ozite Manufacturing Division ("Ozite Mfg.") in
Libertyville, Illinois to Foss as of April 30, 1996. The Company had been
exploring a relocation alternative until this unsolicited offer was accepted.
Under the terms of the Agreement, Foss purchased Ozite Mfg.'s accounts
receivable and inventory, net of reserves, as well as certain prepaid expenses,
trade names, trademarks, and patents for approximately $3,000, which was
received by PST on February 12, 1996. Furthermore, the Agreement provides that
the Company will receive a minimum of $450 for all of its machinery and
equipment at the facility. As of June 14 the Company has received $121 for
its machinery and equipment at the facility. Accordingly, the Ozite Mfg.
operations have been reflected as discontinued operations in the statements of
operations for the three and nine months ended April 30, 1996.
Proforma consolidated information from continuing operations, assuming the
acquisition of Ozite and Burlington and the disposal of Ozite Mfg. had taken
place as of August 1, 1994, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1995 1995
(Unaudited)
<S> <C> <C>
Revenue $ 97,858 $232,668
-------- --------
Income (Loss) from continuing operations 2,241 (2,051)
Income (Loss) from discontinued operations (3,281) (3,805)
----------- -----------
Net Income (Loss) (1,040) (5,856)
======== ========
Income (Loss) per common share:
Continuing operations .09 (.12)
Discontinued operations (.13) (.13)
------------ ------------
(.04) (.25)
============ ============
Weighted average number
of shares outstanding 23,884,000 23,884,000
============ ============
</TABLE>
The proforma information is based on historical results and does not necessarily
reflect the actual results which would have occurred, nor is it necessarily
indicative of the future results of operations.
2. INTERIM FINANCIAL INFORMATION:
The consolidated balance sheet of the Company as of April 30, 1996, the
consolidated statements of operations for the three and nine month periods ended
April 30, 1996 and 1995 and the consolidated statements of cash flows for the
nine months ended April 30, 1996 and 1995 are unaudited and have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments (which include
only normal recurring accruals) necessary to present fairly the consolidated
balance sheets, statements of operations and statements of cash flows have been
included.
6
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The July 31, 1995 balance sheet data is derived
from the audited consolidated financial statements. The attached financial
statements should be read in connection with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended July 31, 1995.
3. COMMITMENTS AND CONTINGENCIES:
The Company and certain of its directors were defendants in two proceedings
brought by shareholders and former employees who seek, among other things,
injunctive relief, damages, and royalties. The Company has agreed to indemnify
the directors for any final judgments against them in these proceedings. On
March 4, 1996 the Company received a favorable decision in one proceeding,
though it obligated the Company's PTIP subsidiary to pay the plaintiff
approximately $45.
During February 1994, the Company and certain of its officers were named in five
lawsuits purporting to be class actions which essentially allege that the
Company failed to previously adequately disclose facts which resulted in
significant losses reported by the Company. The Company entered into a
settlement of these suits, whereby the Company will (i) issue 450,000 warrants
to acquire the Company's common stock at an exercise price of $4.61 per share,
(ii) establish an administration fund of $100 to cover the expenses and costs of
administering the settlement and (iii) pay certain out-of-pocket costs not
exceeding $50.
Ozite has been named as a potentially responsible party ("PRP") by the Texas
Natural Resource Conservation Commission ("TNRCC") concerning a site near
Ranger, Texas, formerly used as a disposal site for toxic materials. At this
time, the approximately 40 PRP's include a significant number of major
corporations which will be involved in the cleanup and will, more likely than
not, significantly participate in the expense of such cleanup. At this time the
Company cannot assess its ultimate liability. However, considering the
remediation alternative currently being recommended by the TNRCC and the
significant number of major corporations involved in the clean-up, the Company
believes that the ultimate outcome will not have a material adverse effect on
its consolidated financial position or results of operations.
On February 18, 1993, Ware Chemical Co. ("Ware Chemical"), a former PST
subsidiary, was served with a third party complaint in the matter of United
States v. Davis. In Davis, the United States has alleged that certain private
entities are liable, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), for cleanup costs that have been
incurred, and will be incurred in the future, with respect to the remediation of
the Davis Landfill site in Rhode Island. Management believes that this
litigation involving Ware Chemical will not have a material adverse effect upon
the financial position or results of operations of the Company. In addition,
even if Ware Chemical were to be found responsible for a portion of such cleanup
cost, PST believes that Kraft is obligated to indemnify it for all costs and
expenses incurred in connection with the Davis claim under the terms of the 1984
Agreement of Purchase and Sale between Dart & Kraft and PST. However, Kraft has
denied that it is obligated to indemnify Ware Chemical for this matter. At this
time, the Company is unable to assess with any reasonable certainty its ultimate
liability, if any, for this matter and, therefore, has not accrued any
liability.
Ozite is also engaged in litigation in which it seeks damages from the former
owner of Dalen, a discontinued segment of Ozite. In December 1987, Ozite
commenced legal proceedings against the seller of Dalen, seeking monetary
damages and other equitable relief from the seller for various
misrepresentations made in its financial statements and other miscellaneous
information presented on which Ozite elected to proceed with the purchase of
such assets. The seller has counterclaimed for the enforcement of the seller's
rights in the subject matter and for recovery of the balance of the purchase
price in an amount approximately equal to $4,000 plus accrued interest and
punitive damages. The ultimate outcome of either of these actions is presently
undeterminable. However, the Company believes the ultimate outcome will not have
any material adverse effect on the financial position or results of operations.
7
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
In January 1993 and 1994, PST's Belgian subsidiary received income tax
assessments aggregating approximately $2,390 (75,247,000 Belgian Francs) for the
disallowance of certain foreign tax credits and investment losses claimed for
the year ended July 31, 1990 and 1991. Additionally, in January 1995, the
subsidiary received an income tax assessment of approximately $1,020 (32,083,000
Belgian Francs) for the year ended July 31, 1992. Although the future outcome of
these matters are uncertain, the Company believes that its tax position was
appropriate and that the assessments are without merit. Therefore, the Company
has appealed and has not paid or accrued for the assessments. Based on the
advice of legal counsel in Belgium, the Company believes that the assessment
appeals will be accepted by the tax authorities in Belgium, although there can
be no assurance whether or when such appeals will be accepted.
Additionally, the Company is party to certain other litigations and
environmental proceedings in the ordinary course of business, none of which it
believes are likely to have a material adverse effect on its financial position
or results of operations.
4. INVENTORIES:
Inventories consist of the following: April 30, July 31,
1996 1995
(Unaudited)
Raw materials & supplies $21,466 $18,706
Recycled material 2,349 1,848
Work-in-progress 2,136 2,980
Finished goods 28,796 21,983
------- --------
$54,747 $45,517
======= ========
5. INCOME TAXES:
The tax effects of temporary differences include significant estimates for
effects of the acquisition of Ozite (which are subject to adjustment as
described in Note 1) which was a non taxable event for income tax purposes as
well as estimates for the Company's tax reporting of its operating losses and
losses on disposition of various businesses discontinued and relocated. In
addition, the significant losses in the year ended July 31, 1995 may also give
rise to different timing positions with respect to their inclusion in tax
returns. Accordingly, the exact amounts and expiring dates of the Company's net
operating losses are not estimable at this time but the Company believes that
the majority will be available at least through the years 2009 and 2010.
The effects of the Ozite merger on the temporary differences include
approximately $33,000 of net operating losses (expiring through 2010) of Ozite
and its subsidiaries, a major portion ($29,000) of which are only available on a
Separate Return Limitation Year ("SRLY") basis. Such SRLY losses will expire in
various years through 2005. Other net temporary differences due to differences
in the tax basis of assets and liabilities of approximately $1,400 exist. Net
deferred domestic tax assets have been subjected to a valuation allowance. The
net deferred income tax liability as of July 31, 1995 of $1,200 which relates
primarily to income taxes in foreign jurisdictions can not be offset against
U.S. income taxes.
To the extent these net deferred domestic tax assets are subsequently
recognized, such recognition will cause reduction in the goodwill arising from
the transaction. Such temporary differences do not include deferred income taxes
on undistributed earnings of approximately $18,600 of Ozite's foreign
subsidiaries as the Company has the ability and intent to permanently reinvest
such earnings.
8
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
In addition to the SRLY discussion above, U.S. tax rules may operate to impose a
limitation on the use of all such net operating losses both attributable to
Ozite and the Company because of the effects of certain changes in ownership.
The Company is reviewing such matters at the current time but because of the
amounts of such losses existing at July 31, 1995, does not believe that it will
have a liability for federal income taxes, except for possible Alternative
Minimum Taxes.
See Note 3 for a discussion of Ozite's Belgian subsidiary income tax assessment.
6. CONVERTIBLE DEBENTURES:
During the period February 1995 to June 1995, the Company received $8,371 and in
exchange issued Convertible Debentures in the same amount. The Debentures mature
at various times from December 1, 1995 to February 1996, and bear interest at 3%
per annum. The holders of the debentures are entitled, at their option, at any
time after a three month holding period, to convert the principal amount, or any
portion of the debenture into shares of Common Stock of the Company at 80% of
the market price of the Company's Common Stock. As of July 31, 1995, debentures
in the amount of $7,371 were converted into 1,714,780 shares of the Company's
Common Stock. In August, 1995, $1,000 was converted into 227,273 shares of
Common Stock.
7. PRIVATE PLACEMENTS:
In January 1996, the Company made a private placement of 250,000 shares of
Common Stock for proceeds of $500. In March, the Company made an additional
private placement of 250,000 shares of Common Stock for proceeds of $500. In
both cases, the proceeds were used to reduce outstanding debt. In addition, the
Company's subsidiary, Evolutions, Inc. ("Evolutions") sold 202,500 shares of the
Company's Common Stock for $487. This sale resulted in an increase in paid in
capital of $485. Evolutions used the proceeds to pay down outstanding debt. See
note10 for a discussion of the Company's Evolutions subsidiary.
8. ACQUISITION OF BURLINGTON RESINS:
Prior to the consummation of the merger, in December 1994, the Company purchased
1,000 shares of Burlington Resins' preferred stock, a wholly-owned subsidiary of
Ozite, for $13,500. These funds were placed in an escrow account to be used for
the purchase of the assets of Occidental Chemical Corporation's (Oxychem)
polyvinyl chloride resin manufacturing facility located in Burlington, New
Jersey, consisting of plant, equipment and 56 acres of realty. On August 18,
1995, the Company completed the transaction. The purchase price was
approximately $19,000 for the plant, equipment and realty, and approximately
$8,000 for inventory. The purchase price was paid by a term loan from Texas
Commerce Bank, N.A. of $5,500, seller financed subordinated notes of $4,000,
$13,500 of cash, and by utilizing approximately $4,000 of a $5,500 revolving
credit facility provided by Texas Commerce Bank N.A. Such acquisition was
accounted for as a purchase.
The revolving credit facility with Texas Commerce Bank National Associate
("Texas Commerce") provides up to $5,500 based on levels of inventory and
accounts receivable. Interest on this facility is the prime rate plus 1.25%. The
prime rate as of April 30, 1996 was 8.25%. At April 30, 1996, there was $1,314
outstanding on this loan. The term loan from Texas Commerce is payable in 28
quarterly installments of approximately $196 plus interest accrued at the prime
rate plus 1.25%. At April 30, 1996, there was $5,108 outstanding on this term
loan. The Texas Commerce agreement contains covenants, the most restrictive of
which are the maintenance of certain financial ratios, prohibition of the
incurrence of additional indebtedness, the payment of dividends and certain
related party transactions, and limitations on capital expenditures. The loans
are secured by the property, plant, and equipment and accounts receivable and
inventory of Burlington. The $4,000 provided by Occidental Chemical Corporation
is subordinated to the Texas Commerce debt, and is payable on a quarterly basis
beginning after year two of the loan, interest only, and after year four,
interest and principal. At April 30, 1996 there was $4,000 outstanding on this
loan.
9
<PAGE>
PURETEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
9. AMERICAN NATIONAL BANK LOAN AND SECURITY AGREEMENT:
On February 26, 1996, Styrex Industries, Inc. ("Styrex") and Pure Tech Plastics,
Inc. and its subsidiaries ("PTP") entered into a Loan and Security Agreement
(The ANB Agreement) with American National Bank ("ANB") providing PTP and Styrex
with an aggregate revolving credit line of $7,500 and an aggregate term loan of
$5,000. On February 26, 1996, PTP and Styrex borrowed in aggregate, $2,808 under
the revolving credit line and $2,989 under the term loan. The proceeds were used
to pay approximately $5,196 in outstanding debt, including interest and fees,
and to fund current working capital needs of $600. The ANB agreement contains
convenants, the most restrictive of which are the maintenance of certain
financial ratios, prohibition of the incurrence of additional indebtedness, the
payment of dividends and certain related party transactions, and limitations on
capital expenditures. Borrowings under the ANB Agreement are secured by all
uncumbered assets of Styrex and PTP. Revolving credit advances under the ANB
Agreement are based on eligible receivables and inventory and bear interest at
the prime rate of interest plus 1/2%. Term loan advances also bear interest at
the prime rate of interest plus 1/2% and are secured by fixed assets. Interest
payments are due monthly and the prime rate as of April 30, 1996 was 8.25%. The
Agreement includes an unused loan fee of 1/2% on the average unused revolving
credit facility. The revolving credit facility may be extended through March 1,
1999. The term loan is payable in 35 monthly installments with installments 1
through 34 calculated using a five year term and with the last installment as
the balloon payment.
As of April 30, 1996 the aggregate outstanding balance for the revolving credit
facility and the term loan were $3,524 and $3,229, respectively. Furthermore,
PTP was unable to achieve certain cash flow requirements during the third
quarter and was granted a waiver by ANB for the period.
10. EVOLUTIONS:
In February 1996, Evolutions, a subsidiary of the Company, completed its merger
with Gold Securities Corporation ("Gold") to effectuate a change in the state of
incorporation from Idaho to Delaware. At a special Gold shareholders meeting
conducted February 2, 1996, the combination of Gold and Evolutions was approved
by the shareholders. Also at the special shareholders meeting, shareholders
approved a 0.033-for-one stock split. For additional information refer to the
Report on Form 8-K by Evolutions on February 22, 1996.
In February 1996, Evolutions acquired substantially all of the assets of Smart
Style Industries, Inc. and its affiliates for $1,125, a thirty-day promissory
note in the amount of $500, $1,000 in notes payable in quarterly installments
with Common Stock of Evolutions valued at $1,000, the assumption of
approximately $1,200 in liabilities, and warrants to purchase an additional
100,000 shares of Evolutions stock. An additional $1,000 will be payable in
Evolutions stock if certain operating results are achieved over the next five
years. For additional information refer to the Report on Form 8-K filed by
Evolutions on March 12, 1996. In addition, Evolutions sold equity interests
through private placements.
As a result of the above transactions, the Company's Equity interest in
Evolutions is less than 50%. Henceforth, the Company's investment in Evolutions
is accounted for under the equity method. The quarterly and nine month results
of operations for Evolutions and other unconsolidated subsidiaries Masplas
International, Compose de Plastique Inc. and Les Plastiques Petco, Inc. are
considered other income and expense. The investments are grouped as part of
other assets for balance sheet purposes.
11. EARNINGS PER SHARE CALCULATION:
Earnings per share calculation for continuing operations for the three and nine
month periods ended April 30, 1996 is calculated after accounting for the
increase in value of redeemable preferred stock ($126 and $378, respectively).
10
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 2 through 10.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Since the consummation of the transaction between PTI Plastics, Inc. ("PTIP")
and Ozite Corporation ("Ozite")in which both became wholly owned subsidiaries of
PureTec Corporation (the "Company"), the Company's financial statements show
historical information only for PTIP for periods prior to August 1995.
Consequently references to the Company with respect to such historical financial
information refer solely to PTIP, unless otherwise stated. The following
discussion and analysis should be read in conjunction with Financial Statements
and notes thereto.
Results of Operations
Three months ended April 30, 1996
For the three months ended April 30, 1996, the Company recorded net sales of
$106,162,000 compared to approximately $13,188,000 for the three months ended
April 30, 1995. As a result, the Company recognized $12,978,000 of income from
operations for the third quarter of fiscal 1996 as compared to $107,000 for the
comparable period in fiscal 1995. The large increases are primarily attributable
to the combination with Ozite and reflects the Company's greatly expanded scope
of operations together with the acquisition of Burlington Resins, Inc.
("Burlington") (See Footnote 1 for proforma results as if the transactions had
occurred on August 1, 1994.)
Interest expense for the three months ended April 30, 1996 was $5,377,000
compared to $226,000 for the comparable period in fiscal 1995. The increase is
due to the above mentioned transactions which includes PST which has
subordinated notes of $125,000,000 and a $50,000,000 revolving credit line, and
includes Burlington which has over $10,000,000 in debt.
The income tax provision for the three months ended April 30, 1996 is comprised
of a state tax provision of $168,000, a reduction in the federal tax benefit of
$348,000 and a foreign income tax provision of $1,431,000. The income tax
provision differs from the income tax provision calculated at the statutory rate
due to the difference between the U.S. statutory rate and foreign income tax
rates, state income taxes, amortization of goodwill and other non-deductible
benefits.
The Company had net income from continuing operations for the three months ended
April 30, 1996 of $5,191,000 compared to net income of $99,000 for the same
period last year.
The Company recognized a $3,100,000 loss on discontinued operations for the
three months ended April 30, 1995. The loss is comprised of a loss from
discontinued operations of its glass operation.
The Company had net income of $5,191,000 for the three months ended April 30,
1996 compared to a net loss of $3,001,000 for the three months ended April 30,
1995.
Nine months ended April 30, 1996 vs. nine months ended April 30, 1995:
For the nine months ended April 30, 1996, the Company recorded net sales of
$247,187,000 compared to approximately $39,818,000 for the nine months ended
April 30, 1995. As a result, the Company recognized $19,691,000 of income from
operations for the first nine months of fiscal 1996 as compared to $383,000 for
the comparable period in fiscal 1995. The large increases are primarily
attributable to the combination with Ozite and reflects the Company's greatly
expanded scope of operations together with the acquisition of Burlington. (See
footnote 1 for proforma results as if the transactions had occurred on August 1,
1994,)
11
<PAGE>
Interest expense for the nine months ended April 30, 1996 was $16,101,000 as
compared to $777,000 for the comparable period in fiscal 1995. The increase is
due to the above mentioned transactions which includes PST which has
subordinated notes of $125,000,000 and a $50,000,000 revolving credit line, and
includes Burlington which has over $10,000,000 in debt.
The Company had recorded a gain of $920,000 during the nine months ended April
30, 1995 to reflect a gain realized on the sale of an interest in the Company's
reverse vending machine subsidiary.
The income tax provision related to continuing operations for the nine months
ended April 30, 1996 included foreign, federal and state income taxes. The
income tax provison for the nine months ended April 30, 1996 is comprised of a
foreign income tax provision of $1,932,000 and a net domestic state provision of
$168,000 which is based on expected results for the full year. There is no
federal tax provision for the period since all income generated to date is fully
offset by NOL carryforwards. The income tax provision differs from the income
tax provision calculated at the statutory rate due to the difference between the
U.S. statutory rate and foreign income tax rates, state income taxes,
amortization of goodwill and other non-deductible benefits.
The Company had net income from continuing operations for the nine months ended
April 30, 1996 of $1,239,000 compared to net income of $835,000 for the same
period last year.
The Company recognized a loss on discontinued operations for the nine months
ended April 30, 1996. The loss is comprised of a loss on the sale of certain
assets and discontinued operations from Ozite Mfg. of $1,445,000 and a loss of
$979,000 for Ozite Mfg.'s operations for the nine month period. The Company
recognized a $3,100,000 loss on discontinued operations for the nine months
ended April 30, 1995. The loss is comprised of a loss from discontinued
operations of its glass operation.
The Company had a net loss of $1,185,000 for the nine months ended April 30,
1996 compared to a net loss of $2,265,000 for the nine months ended April 30,
1995.
Financial Position, Liquidity and Capital Resources
In the past, the Company has expanded its operations through the expansion of
existing activities, acquisitions of new facilities and various business
combinations. Historically, the Company's sources of liquidity and capital
resources have been net cash provided by operations, bank financing, private
placements of the Company's securities and other private and public financial
sources.
While the management of the Company believes that the Company will be able to
operate on a positive cash flow basis with respect to continuing operations
during the fiscal year ending July 31, 1996, the ability of the Company to
continue to expand its operations may require additional funding.
The Company had net working capital of approximately $22,852,000 at April 30,
1996 as compared to approximately $12,769,000 at July 31, 1995. The additional
working capital associated with the seasonal build up of the Company's garden
hose inventory, and the working capital requirements of its newly acquired
Burlington facility were negligible as the Company funded all inventory
increases with increases in short-term borrowings.
Cash and cash equivalents for the nine months ended April 30, 1996 decreased
$3,926,000 compared to an increase of $21,000 for the nine months ended April
30, 1995. The changes for these periods were attributable to the factors
discussed below.
For the nine months ended April 30, 1996, net cash used in operating activities
was $3,292,000 comprised primarily of an increase in accounts receivable of
$26,909,000, an increase in inventories of $3,093,000 and an increase in other
assets of $854,000 partially offset by an increase in accrued expenses of
$8,859,000, an increase in accounts payable of $2,709,000, a decrease in prepaid
expenses and other current assets of $3,630,000, and a net loss of $1,185,000
adjusted for non cash charges of depreciation of $8,656,000, amortization of
$4,353,000, a loss on sale of discontinued operations of $1,445,000, and The
Company funded these operations, purchased a resin manufacturing plant for
$26,820,000 and incurred $9,801,000 for capital expenditures by using $3,926,000
in cash and cash equivalents, by increasing its net short-term borrowings by
$12,463,000 and by increasing its net long-term borrowings by $8,090,000. The
private placements totaling $1,00,000 were subsequently used to reduce long-term
borrowings.
12
<PAGE>
On December 21, 1995, PST entered into an Asset Purchase Agreement (the
"Agreement") with Foss Manufacturing Company, Inc. ("Foss") for the sale of
certain assets of PST's Ozite Manufacturing Division ("Ozite Mfg.") in
Libertyville, Illinois to Foss as of January 31, 1996. The Company had been
exploring a relocation alternative until this unsolicited offer was accepted.
Under the terms of the Agreement, Foss purchased Ozite Mfg.'s accounts
receivable and inventory, net of reserves, as well as certain prepaid expenses,
trade names, trademarks, and patents for approximately $3,000,000, which was
received by PST on February 12, 1996. Furthermore, the Agreement provides that
the Company will receive a minimum of $450,000 for all of its machinery and
equipment at the facility. As of June 14, 1996 the Company has received
approximately $121,000 for its machinery and equipment at the facility.
Accordingly, the Ozite Mfg. operations have been reflected as discontinued
operations in the statements of operations for three and nine months ended April
30, 1996.
In connection with its acquisition of the Burlington, New Jersey facility, the
Company's Burlington subsidiary has entered into a revolving credit facility
with Texas Commerce Bank National Associates ("Texas Commerce") for up to
$5,500,000 based on levels of inventory and accounts receivable. Interest on
this facility is the prime rate plus 1.25%. The prime rate as of April 30, 1996
was 8.25%. At April 30, 1996, there was $1,314,000 outstanding on this loan. The
Company has also received a term loan from Texas Commerce in the principal
amount of $5,500,000. This term loan is payable in 28 quarterly installments of
approximately $196,000 plus interest accrued at the prime rate plus 1.25%. At
April 30, 1996, there was $5,108,000 outstanding on this term loan. The Texas
Commerce agreement contains covenants, the most restrictive of which are the
maintenance of certain financial ratios, prohibition of the incurrence of
additional indebtedness, the payment of dividends, certain related party
transactions and limitations on capital expenditures. The loans are secured by
the property, plant and equipment, accounts receivable and inventory of
Burlington. The Company also has a term loan in the amount of $4,000,000
provided by Occidental Chemical Corporation. This loan is subordinated to the
Texas Commerce debt, and is payable on a quarterly basis beginning after year
two of the loan, interest only, and after year four, interest and principal. At
April 30, 1996 there was $4,000,000 outstanding on this loan.
On February 26, 1996, Styrex Industries, Inc. ("Styrex") and Pure Tech Plastics,
Inc. and its subsidiaries ("PTP") entered into a Loan and Security Agreement
(The ANB Agreement) with American National Bank ("ANB") providing PTP and Styrex
with an aggregate revolving credit line of $7,500,000 and an aggregate term loan
of $5,000,000. On February 26, 1996, PTP and Styrex borrowed in aggregate,
$2,808,000 under the revolving credit line and $2,989,000 under the term loan.
The proceeds were used to pay approximately $5,196,000 in outstanding debt,
including interest and fees, and to fund current working capital needs of
$600,000. The ANB agreement contains convenants, the most restrictive of which
are the maintenance of certain financial ratios, prohibition of the incurrence
of additional indebtedness, the payment of dividends and certain related party
transactions, and limitations on capital expenditures. Borrowings under the ANB
Agreement are secured by all uncumbered assets of Styrex and PTP. Revolving
credit advances under the ANB Agreement are based on eligible receivables and
inventory and bear interest at the prime rate of interest plus 1/2%. Term loan
advances also bear interest at the prime rate of interest plus 1/2% and are
secured by fixed assets. Interest payments are due monthly and the prime rate as
of April 30, 1996 was 8.25%. The Agreement includes an unused loan fee of 1/2%
on the average unused revolving credit facility. The revolving credit facility
may be extended through March 1, 1999. The term loan is payable in 35 monthly
installments with installments 1 through 34 calculated using a five year term
and with the last installment as the balloon payment.
As of April 30, 1996 the aggregate outstanding balance for the revolving credit
facility and the term loan were $3,524,000 and $3,229,000, respectively.
Furthermore, PTP was unable to achieve certain cash flow requirements during the
third quarter and was granted a waiver by ANB for the period.
The Company is currently evaluating the carrying value of certain assets, and
the results of operations from certain lines of business and certain smaller
facilities, as it reviews their fit with overall corporate objectives and lines
of business.
Inflation
Although raw material costs increased in 1994 and 1995, the Company does not
believe that this represents a resumption of inflationary trends as in the
recent months costs of raw materials have declined. In the event that
significant increases in costs of supplies resume, the Company will attempt to
offset such increases by raising prices, entering into long-term supply
contracts, and increasing the operating efficiency of its operations. Prior to
fiscal 1994, the Company was not materially affected by the impact of inflation.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
PTIP, certain of its directors, three former directors and the President are
currently defendants in lawsuits brought in 1989 in New Jersey Superior Court
(Docket Nos. MRS-C-205-89 and MRS-L-5615-89) by Frank Tammera, Sr., a
stockholder and former officer and director of PTIP, and Frank Tammera, Jr., a
former officer of PTIP. Both Messrs. Tammera were terminated in June 1989 under
circumstances which PTIP constituted "cause" for termination. In his lawsuit,
Mr. Frank Tammera, Sr. sought reinstatement as an officer and director, the
repayment of certain debts allegedly owed to him by PTIP, damages for breach of
contract and fiduciary duty and fraud, invalidation of certain restrictive
covenants, the payment of certain royalties allegedly due him relating to the
use of PTIP's proprietary technology, and the reversal of the deposit in escrow
and ultimate retirement of approximately 690,000 shares of stock as a condition
to an underwriting in March 1989. In March 1996, the New Jersey Superior Court
decided that PTIP did not have to reinstate Mr. Tammera, Sr., that his
termination had been for cause, and that PTIP was obligated to pay him only
approximately $30,000 of indebtedness, which PTIP had acknowledged, and $14,377
in royalties. The court dismissed Mr. Tammera's claims of fraud and breach of
contract and fiduciary duty. Existing agreements between PTIP and Mr. Tammera,
Sr. were upheld including his escrow agreements with PTIP. Final judgement in
the Frank Tammera, Sr. suit was entered on June 6, 1996. The Frank Tammera, Jr.
lawsuit has been stayed pending the resolution of the Frank Tammera, Sr.
lawsuit.
PTIP, an officer and director, and a former officer and director are the subject
of five lawsuits brought in the United States District Court for New Jersey in
February 1994. They are Tittlebaum vs. Pure Tech International, Inc., et. al.
(Case Number CIV 94-890 (JWB)), Brandstatter vs. Pure Tech International, Inc.
et. al. (Case Number CIV 94-891 (JWB)), Mark Levithan vs. Simon Sinnreich, et.
al. (Case Number CIV 94-1059 (JWB)), Andrew B. Zlotnick vs. Pure Tech
International, Inc., et. al. (Case Number CIV 94-1058 (JWB)) and Clinton Wallace
vs. Pure Tech International, Inc., et. al. (Case Number 94-1019 (JWB)). All
lawsuits purport to be class actions on behalf of all shareholders of PTIP who
purchased PTIP's Common Stock during certain parts of 1994, and essentially
allege that PTIP failed to previously adequately disclose facts which resulted
in the significant losses reported by PTIP for the fiscal quarter ended December
31, 1993. Some of the complaints also allege that the officers and directors
sold stock of PTIP during this period of allegedly inaccurate disclosure of
PTIP's condition. PTIP has entered into a settlement of these class action
lawsuits which provides for the issuance of certain warrants (the "Settlement
Warrants"). The Settlement Warrants are exercisable to acquire 450,000 shares of
Common Stock of the Company at an exercise price of $4.61, which is $1.00 below
the 10 day average market price of PTIP's Common Stock prior to December 14,
1994 when the final court order approving the settlement was entered. PTIP will
also pay up to $150,000 in various fees and expenses. The parties have agreed
that the Company will issue and register the Settlement Warrants.
Ozite has been named as a potentially responsible party ("PRP") by the Texas
Natural Resource Conservation Commission ("TNRCC") concerning a site near
Ranger, Texas, formerly used as disposal site for toxic materials. At this time
the approximately 40 PRP's include a significant number of major corporations
which will be involved in the clean up and will, more likely than not,
significantly participate in the expense of such cleanup. At this time, the
Company cannot assess its ultimate liability. However, considering the
remediation alternative currently being recommended by the TNRCC and the
significant number of major corporations involved in the clean-up, the Company
believes that the ultimate outcome will not have a material adverse effect on
its consolidated financial position or results of operations.
On February 18, 1993, Ware Chemical Co. ("Ware Chemical"), a former PST
subsidiary, was served with a third party complaint in the matter of United
States v. Davis. In Davis, the United States has alleged that certain private
entities are liable, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), for cleanup costs that have been
incurred, and will be incurred in the future, with respect to the remediation of
the Davis Landfill site in Rhode Island. Management believes that this
litigation involving Ware Chemical will not have a material adverse effect upon
the financial position or results of operations of the Company. In addition,
even if Ware Chemical were to be found responsible for a portion of such cleanup
cost, PST believes that Kraft is obligated to indemnify it for all costs and
expenses incurred in connection with the Davis claim under the terms of the 1984
Agreement of Purchase and Sale between Dart & Kraft and PST. However, Kraft has
denied that it is obligated to indemnify Ware Chemical for this matter. At this
time, the Company is unable to assess with any reasonable certainty its ultimate
liability, if any, for this matter and, therefore, has not accrued any
liability.
14
<PAGE>
Ozite is also engaged in litigation in which it seeks damages from the former
owner of Dalen, a discontinued segment of Ozite. In December 1987, Ozite
commenced legal proceedings against the seller of Dalen, seeking monetary
damages and other equitable relief from the seller for various
misrepresentations made in its financial statements and other miscellaneous
information presented on which Ozite elected to proceed with the purchase of
such assets. The seller has counterclaimed forthe enforcement of the seller's
rights in the subject matter and for recovery of the balance of the purchase
price in an amountapproximately equal to $4,000,000 plus accrued interest and
punitive damages. The ultimate outcome of either of these actions is presently
undeterminable. However, the Company believes the ultimate outcome will not have
any material adverse effect on its financial position or results of operations.
The Company's Belgian subsidiary has received an income tax assessment and may
be subject to similar assessments in the future (See Note 3).
Additionally, the Company is party to certain other litigation and environmental
proceedings in the ordinary course of business, none of which it believes are
likely to have a material adverse effect on its financial position or results of
operations.
There can be no assurance as to the ultimate outcome of these litigations or
their possible impact on the Company. See "Part I - Item 3. Legal Proceedings"
in the Company's annual report on Form 10-K for the fiscal year ended July 31,
1995.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 1, 1996 the Company held its annual meeting of stockholders at which the
following items were submitted to a vote of shareholders. As of the record
voting date of April 3, 1996, there were 28,190,703 shares of Common Stock
entitled to vote.
Votes For Votes Against
1. To elect nine directors for a term of
one year or until their successors are duly
elected and qualified:
Fred Broling 18,121,253 356,041
Robert Calabrese 18,120,262 357,032
Murray Fox 18,268,253 209,041
Leo Gans 18,121,153 356,141
Werner Haase 18,268,753 208,541
Edward Hamway 18,120,862 356,432
John Harvey 18,120,753 356,541
Peter Harvey 18,110,049 367,245
David Katz 18,268,753 208,541
2. To consider and vote upon a proposal to
amend the Company's Certificate of Incorporation
to change the Company's name to PureTec Corporation. 20,586,459 307,080
3. To ratify the selection and appointment by the
Company's Board of Directors of Deloitte & Touche,
independent certified public accountants, as auditors 20,673,520 270,528
for the Company for the fiscal year ending July 31,
1996.
15
<PAGE>
Item 5. Other Information
In February 1996, the Company's majority owned subsidiary, Evolutions, Inc.
("Evolutions") completed its merger with Gold Securities Corporation ("Gold") to
effectuate a change in the state of incorporation from Idaho to Delaware. At a
special Gold shareholders meeting conducted February 2, 1996, the combination of
Gold and Evolutions was approved by the shareholders. Also at the special
shareholders meeting, shareholders approved a 0.033-for-one stock split. For
additional information refer to the Report on Form 8-K filed by Evolutions on
February 22, 1996.
In March 1996, Evolutions acquired substantially all of the assets of Smart
Style Industries, Inc. and its affiliates for $1,000,000, $1,000,000 in common
stock of Evolutions, the assumption of approximately $1,200,000 in liabilities,
and warrants to purchase an additional 100,000 shares of Evolutions stock. An
additional $1,000,000 will be payable in Evolutions stock if certain operating
results are achieved over the next five years. For additional information For
additional information refer to the Report on Form 8-K filed by Evolutions on
March 12, 1996.
In January 1996 Mr. Terrence Brennan announced his intention to resign his
position as Chief Financial Officer of the Company. In May 1996 Thomas V.
Gilboy joined the Company as Chief Financial Officer.
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PURETEC CORPORATION
By: /s/ Thomas V. Gilboy
-------------------------------------------
Thomas V. Gilboy
Vice President and Chief Financial Officer
Date: June 18, 1996
17
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