As filed with the U.S. Securities and
Exchange Commission on November 12, 1997
Registration No. 333-40001-NY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
Registration Statement
Under The Securities Act of 1933
New Jersey 2899 223-319-224
State of Standard Industrial IRS Employer
Incorporation Classification Code Identification No.
PPA TECHNOLOGIES, INC.
163 South St.
Hackensack, New Jersey 07601
(201) 457-1221
Address, including zip code and telephone number, including area code of
registrant's principal executive offices and principal place of business or
intended principal place of business.
ROGER L. FIDLER
163 South St.
Hackensack, New Jersey 07601
(Name and Address of Agent for Service)
Copies of Communication to:
Roger L. Fidler, 163 South St., Hackensack, New Jersey 07601, (201) 457-1221
Steve Gutstein, Esq., Attorney at Law,
276 Fifth Avenue, New York, New York 10001
Approximate date of proposed sale to public: As soon as possible after the
effective date of the Registration Statement.
CALCULATION OF REGISTRATION FEE
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Title of Amount to be Proposed maximum Proposed maximum Amount
each class registered offering price aggregate Registration
of Securities l per Unit (1) offering Price (1) Fee
- -------------------------------------------------------------------------------
Units consisting
of 1 Share of
Common Stock
and 1 Class
A Warrant 1,150,000 $6.00 $6,900,000.00 $2,090.91
Common Stock,
no par value
per share,(2)
underlying
Class A
Warrants 1,150,000 $7.00 $8,050,000.00 $2,439.40
Underwriter's
warrants, no
par value 115,000 $0.001 $115.00 $0.04
Units, no
par value
per share,
underlying
Underwriter's
Warrants 115,000 $7.20 $828,000.00 $250.91
Units, no
par value
per share,
underlying
warrants in
Underwriter's
Warrant Units 115,000 $7.00 $805,000.00 $243.94
Total Registration-Fee ----------------------------- $ 5025.20
The Exhibit Index is located at page 54
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 416 there are also being registered such additional shares
as may be issued pursuant to the anti-dilution provisions of the Warrants.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
PPA TECHNOLOGIES, INC.
CROSS REFERENCE SHEET FOR PROSPECTUS
(Pursuant to Item 501 of Regulation S-K)
Item No. Caption in Prospectus
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus............................Forepart, Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus...........................Inside Front Cover Page
3. Summary Information Risk Factors
and Ratio of Earnings
to-Fixed Charges.............................. Prospectus Summary
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of offering Price.............. Description of Units;
Description of Capital Stock
6. Dilution..................................... Dilution
7. Selling Security Holders..................... Not Applicable
8. Plan of Distribution......................... Underwriting
9. Legal Proceedings............................ Legal Proceedings
10. Directors and Executive Officers............. Management
11. Security ownership of Certain
Beneficial owners and Management............. Principal Shareholders
12. Description of Securities to Be
Registered................................... Description of Units
13. Interest of Named Experts and
Counsel ..................................... Legal Counsel, Experts
14. Information With Respect To
The Registrant; Organization
with Five Years............................. Prospectus Summary;
The Company; Dividend Policy;
Selected Financial Information;
Management's Discussion
Analysis of Financial Condition
and Results of Operations;
Business; Management; Principal
Shareholders; Certain
Transactions; Description of
the Securities.
15. Disclosure of Commission
Position on Indemnification
For Securities Act Liabilities.................... Not applicable
16. Description of Business....................... Business of the Company
17. Description of Property....................... Business of the Company
18. Interest of Management and Others
in Certain Transactions....................... Certain Transactions;
Principal Shareholders
19. Certain Market information.................... Risk Factors; Description
of Securities; Underwriting
20. Remuneration of Directors and officers........ Remuneration
21. Financial Statements.......................... Financial Statements
PROSPECTUS
PPA TECHNOLOGIES, INC.
1,000,000 Units, Each consisting of One Share of
One Share of Common Stock and One Class A Redeemable
Common Stock Purchase Warrant,
offered at a price of $6.00 per Unit
-----------------------------
All of the Units (the "Units") offered hereby (the "Offering"), each
Unit consisting of one share of common stock, without par value, (hereinafter
referred to as "Share" or "Share of Common Stock") and one "Class A" Redeemable
Common Stock Purchase Warrant (hereinafter referred to as the "Warrants" or
"Redeemable Warrants"), exercisable into one share of common stock per warrant
for a period of one year from the effective date ("Effective Date") of the
registration statement of which this prospectus (this "Prospectus") is a part at
an exercise price of $7.00 per share, are being offered by PPA Technologies,
Inc. (the "Company" or "PPA"). The Warrants are redeemable at the Company's
option commencing [ ] (90 days after the effective date (the "Effective Date")of
the registration statement (the "Registration Statement") of which the
Prospectus is a part) upon 30 days notice to the Warrant holders at $.05 per
Warrant if the closing bid price of the Common Stock in the over-the-counter
market as reported by ("NASD") shall have for a period of 30 consecutive trading
days ending within 15 days of the notice of redemption average in excess of
$8.50 per share (subject to adjustments in the case of a stock split, stock
dividend, recapitalization or similar event). Since it is the Company's present
intention to exercise such right, Warrant holders should presume that the
Company would call the Redeemable Warrants for redemption if such criteria are
met. The Redeemable Warrants are immediately detachable and separately tradeable
from the Units upon issuance. It is anticipated that the Shares of Common Stock
and Redeemable Warrants will be included on the NASDAQ Small-Cap Market
("Nasdaq") under the symbols "PPAS" and "PPAW", respectively.
Prior to the offering, there has been no market for the securities of
the company. There can be no assurance that a market for the company's
securities will develop after completion of this offering or, if developed, that
it will be maintained. As a consequence of such a limited market, a purchaser of
the Shares may be unable to sell the Shares when desired and may have to hold
the Shares indefinitely. See "Risk Factors Limited Trading Market." The
determination of the offering price of the Shares was made arbitrarily by the
Company. See "Risk Factors - Arbitrary Offering Price."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION TO
PUBLIC INVESTORS. A PROSPECTIVE PURCHASER MAY LOSE HIS TOTAL INVESTMENT. SEE
"RISK FACTORS" AND "DILUTION."
- ------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY It is A CRIMINAL OFFENSE.
=================================================================
Price to Underwriting Proceeds to
Public Discounts(l) Company(2)
- -----------------------------------------------------------------
Per Unit $6.00 $0.60 $5.40
- -----------------------------------------------------------------
Total(3) $6,000,000 $600,000 $5,400,000
=================================================================
(1) The Company will agree, subject to the sale of at least 1,000,000 Units
being offered hereby, to pay to Kenneth Jerome & Co., as the representative of
the several Underwriters (the "Representative") the Underwriting Discounts.
Additionally, the Company agrees: (i) to indemnify the Underwriter or Dealer
against certain liabilities, including liabilities under the Securities Act of
1933; and, (ii) to sell to the Underwriter, at a nominal price, warrants to
purchase 10% of the number of Units sold by the Underwriter or Dealers, with an
exercise price of $7.20 per Unit, which warrants shall be exercisable for four
years commencing one year after issuance.(See "Underwriting.")
(2) Before deducting expenses payable by the Company in connection with the
Offering estimated at approximately $347,000. These expenses include filing
fees, printing, a 3% non-accountable fee to the Underwriters, legal and
accounting fees. Net proceeds to the Company after such expenses are estimated
to be $5,053,000.
(3) The Company has granted to the Underwriters an option (the "Over-Allotment
Option") exercisable within 45 days after the date of this Prospectus to
purchase up to 150,000 additional Units, upon the same terms and conditions as
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts, and
Proceeds to Company will be $6,900,000, $690,000, and $6,210,000, respectively.
See "Underwriting."
The date of this Prospectus is _________ 1997.
Kenneth Jerome & Company, Inc.
In connection with this offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of the Units and the
components thereof at a level above that which might otherwise prevail in the
open market. Such transactions may be effected on the NASDAQ SmallCap market.
Such stabilizing, if commenced, may be discontinued at any time.
The Units are offered by the underwriters subject to prior sale, to allotment
and withdrawal, and to cancellation or modification of the offer, without
notice. The Underwriters reserve the right, in their sole discretion, to reject
any order, in whole or in part, for the purchase of any Units. In addition, each
Underwriter reserves the right to cancel any confirmation of sale, even after
the purchase price has been paid, if, in the opinion of that Underwriter,
completion of such sale would violate Federal or State securities laws or a rule
or policy of The National Association of Securities Dealers, Inc.
AVAILABLE INFORMATION
The Company intends to file with the Securities and Exchange Commission (the
"Commission"), New York, New York, a registration statement on Form SB-2 under
the Act with respect to the Units offered hereby. For further information about
the company and the securities being offered hereby, reference is made to the
registration statement and to the financial statements and exhibits filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. The registration statement, including exhibits
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and the Northeast Regional Office located at 7 World Trade
Center, New York, New York and copies of all or any part thereof may be obtained
from such offices after payment of the fees prescribed by the Commission.
Reports to Shareholders
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable at the end of
each fiscal year, commencing with the next fiscal year. In addition, the Company
may, from time to time, issue unaudited interim reports and financial
statements. As a result of the effectiveness of the registration statement of
which this Prospectus is a part, the Company will incur a reporting obligation
under the Securities Exchange Act of 1934.
Glossary
Coalescent - A liquid material which when exposed to the environment becomes a
solid.
Volatile Organic Compound ("VOC") - liquid substances which evaporate when
exposed to the environment.
Coupling Agent - A material which can either bond two materials together with
greater strength or, alternatively, can also serve to bond two different
materials together more weakly.
Resin - Organic polymer.
Hologenated - Compounds containing a halogen, e.g. chlorine or flourine.
Phr - Parts per hundred of resin.
V0 - Flame spread rate.
Plate-out - Bloom to the surface of mobile phases.
Cross-linking - Establishment of chemical bonds between different substances.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Prospectus and, accordingly, should be read in conjunction with such
information and statements.
The Company
PPA Technologies, Inc. (the "Company" or "PPA") was incorporated on July 22,
1994 under the laws of the State of New Jersey. The Company's principal offices
are located at 163 South St., Hackensack, NJ 07601 and its telephone number is
(201) 457-1221.
PPA Technologies, Inc., hereinafter referred to as PPA Technologies or "the
Company", was formed to develop and manufacture innovative specialty chemical
products with applications in the plastics and coatings industries.
After research, development and testing, PPA has begun to sell certain products.
In general, PPA Technologies' products improves processing and/or the end
product. This is accomplished through its proprietary Coupling Agents and
Reactive Coalescents. In these areas, the Company's products are an advance in
environmental performance, product performance, cost performance, or, in many
cases, performance in more than one of these parameters. (See "Business of the
Company").
The Offering
The Company is offering hereby through the Underwriter on a "firm commitment
basis" 1,000,000 Units at an offering price of $6.00 per Unit. Each Unit is
comprised of one (1) share of common stock (no par value per share) and one (1)
Class A redeemable common stock purchase warrant exercisable for five years from
the Effective Date at an exercise price of $7.00 per common share. The
Redeemable Common Stock Purchase Warrants (hereinafter referred to as the
"Warrants" or "Redeemable Warrants") are redeemable at the Company's option
commencing [ ] (90 days after the Effective Date) upon 30 days notice to the
Warrant holders at $.05 per Warrant if the closing bid price of the Common Stock
in the over-the-counter market as reported by NASDAQ shall have for a period of
30 consecutive trading days ending within fifteen days of the notice of
redemption average in excess of $8.50 per share (subject to adjustments in the
case of a reverse stock split, stock dividend, etc.). The Redeemable Warrants
are immediately detachable and separately tradeable from the Units upon
issuance. The offering price of the Units and the exercise price of the
Redeemable Warrants were determined by the Company and the Underwriter. Such
prices bear no relation to the book value, assets or earnings of the Company, or
to any other generally recognized objective criteria of value.
Common Stock:
On June 20, 1996, the stockholders approved an increase in the authorized
capital to 10,000,000 Shares of Common Stock par value, and 1,000,000 shares of
preferred stock having a par value of $100.00 each. On June 28, 1996 the Board
of Directors effected a 1,000 to 1 stock split upon the filing of the Amendment
of the Certificate of Incorporation authorized by the stockholders. All
financial and stock related numbers set forth herein reflect this stock split,
except where otherwise specifically stated.
Common Stock Outstanding at June 30, 1997 ....... 1,555,000(1)
Preferred Stock Outstanding at June 30, 1997 ..... 3261(1)
To be offered(2) ................................ 1,000,000
To be outstanding after the offering(2).......... 2,555,000
Use of Proceeds........... The Company intends to use the net proceeds of this
offering principally for production equipment,
salaries, inventory, advertising, administrative
overhead and working capital. The proceeds of this
Offering will enable the Company to expand marketing
of its entire line of products, and to build an
inventory of its products. (See "Use of Proceeds.")
Risk Factors and Dilution ..... Prospective Investors should carefully consider
the factors described under the captions "Risk
Factors" and "Dilution."
NASDAQ Proposed Listing Symbol (3) .............................PPAS, PPAW
- --------------
(1) Does not include an aggregate of 500,000 shares reserved for issuance under
the Company's Stock Grant and Stock Option Plans nor does it include options on
1,275,000 shares, exerciseable at $1.00 per share, held by management.
(2) Does not include the exercise of any of the Redeemable Warrants contained in
said Units, nor the exercise of any Underwriter's Warrants or the Unit Warrants
contained in the Units issuable upon the exercise of the Underwriter's Warrants,
nor the outstanding warrants held by current shareholders.
(3) The Company intends to apply for and anticipates listing on the NASDAQ Small
Cap Market, but there can be no guarantee that such listing will be approved, or
if approved that such listing will be maintained, or if listed that a market
will develop or if developed, that such market will be sustained.
SUMMARY FINANCIAL INFORMATION
The following table summarizes certain selected financial data of the Company
and is qualified in its entirety by the more detailed financial statements
contained elsewhere in this Memorandum.
Income Statement:
Year Ending Year Ending Year Ending Three Months Ended
June 30,1995 June 30, 1996 June 30, 1997 September 30, 1997
Sales 226,202 155,525 131,335 $33,285
Cost Of Goods 156,348 104,552 61,453 10,337
------- ------- ------ ------
Gross Profit 69,854 50,973 69,882 22,948
Operating Expenses 181,651 165,388 211,080 128,312
Other Income -0- -0- -0- -0-
Other Expenses -0- -0- 3065 9,367
Net Profit(Loss) (111,797) (114,715) (144,263) (115,001)
Per share (0.07) (0.08) (0.09) (0.07)
Shares Outstanding 1,555,000 1,555,000 1,555,000 1,555,000
Dividends -0- -0- -0- -0-
Balance Sheet
as of: September 30,
1997 As Adjusted(1)
Cash And Cash Equivalents 84,608 5,137,608
Working Capital (deficit) (280,503) 4,772,497
Total Assets 269,775 5,322,775
Current Liabilities 407,201 407,201
Long Term Debt -0- -0-
Stockholders' (deficit) (137,426) 4,915,574
Equity
(1) Gives effect to the issuance and sale of the maximum 1,000,000 Units offered
hereby and the receipt of the estimated net proceeds ($5,053,000) before their
application. This does not take into account any potential revenues from the
150,000 Units allotted for the over-allotment. See "Use of Proceeds".
RISK FACTORS
The Units being offered hereby are speculative and involve a high degree of
risk. In addition to the other information in this Prospectus, prospective
investors, prior to making an investment, should carefully consider the
following risks and speculative factors inherent in and affecting the business
of the Company and this offering.
Risks Associated With Forward-Looking Statements. This Prospectus contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities and Exchange Act of 1934, as
amended, (the "Exchange Act" and the Company intends that such forward-looking
statements be subject to the safe harbors for such statements under such
sections.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that the Company will continue to design,
market and provide new products and services on a timely basis, that competitive
conditions in the polymers and additives markets will not change adversely or
materially, that demand for the Company's products will continue or increase,
that the market will accept the Company's new and existing products, that the
Company will retain and add qualified sales, research and systems integration
personnel and consultants, that the Company's forecasts will accurately
anticipate market demand, and that there will be no material adverse change in
the Company's operations or business. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized.
Accumulated Losses; History of Operating Losses; Explanatory Paragraph
Within Accountants' Opinion. The Company commenced in July of 1994. In order to
execute its business strategy and develop new products, the Company will require
significant funds. Increased spending and decreased sales levels resulted in a
net loss of $144,263 for the fiscal year ended June 30, 1997, and a loss of
$115,001 for the three months ended September 30, 1997 and may result in future
losses as the Company will incur significant expenses in connection with
research and development of its products, development of its direct and indirect
selling and marketing strategies, and the hiring of additional personnel. There
can be no assurance that the Company will be profitable in the future or that
the net proceeds of this offering, together with any funds provided by
operations and presently available capital, will be sufficient to fund the
Company's ongoing operations. At September 30, 1997, the Company's current
liabilities exceeded its current assets by $280,503, its cash balance was
$84,608. The Company is dependent on generating additional sales to improve cash
flow, and it is possible that the Company will require additional debt or equity
bridge financing prior to completion of this offering. The Company believes its
current operating funds, along with the proceeds of the offering after amounts
used to repay debt, will be sufficient to finance its cash requirements for at
least the next 12 months. See "Use of Proceeds." If the Company has insufficient
funds, there can be no assurance that additional financing can be obtained on
acceptable terms, if at all. The absence of such financing would have a material
adverse effect on the Company's business, including a possible reduction or
cessation of operations. The report of the Company's independent accountants on
the Company's financial statements as of June 30, 1997 contains an explanatory
statement concerning the Company's ability to continue as a going concern. See
"Financial Statements-Report of Independent Auditors."
No Trading Market. There is no trading market for the Company's Common
Stock and there is no assurance that such a market will develop after this
offering, or if such a market develops, that it will be maintained. Holders of
the Shares may, therefore, have difficulty in selling their stock should they
desire to do so and should be able to withstand the risk of holding their Shares
indefinitely.
Proceeds of Offering. A substantial portion of the proceeds of the
offering will be used for general working capital. If the maximum number of
Shares is sold, working capital will comprise 8.2% of total net proceeds.
Management will have broad discretion as to the use of such proceeds and
management reserves the right to reallocate all proceeds to working capital.
See "Use of Proceeds."
Additional Capital. The Company believes that the minimum proceeds of
this offering will allow the Company to meet all of its presently planned future
operations for at least twelve months. However, a significant portion of the
proceeds will be used to develop and improve product lines. Thus, while the
Company has no plans that would require it to seek additional funding, it may be
required to do so to complete or accelerate these development programs. There
can be no assurance that such funding will be available on terms acceptable to
the Company, and the failure to procure such funding on acceptable terms could
materially and adversely affect the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
Financial Condition; Decreasing Sales; The Company's sales to date have
been lower in each succeeding year. There can be no assurance that this trend
will be reversed. Even applying the proceeds of this offering, the Company might
not be able to significantly improve revenues and profitability. Failure to
reverse this trend would materially and adversely affect the Company's ability
to exist.
Limitations Imposed by Environmental Regulation. Federal, state and local
environmental laws govern air emissions and discharges into water and the
generation, transportation, storage, and treatment and disposal of solid and
hazardous waste. These laws establish standards governing most aspects of the
construction and operation of the Company's facilities, and often require
multiple governmental permits before these facilities can be constructed,
modified, or operated. There can be no assurance that all required permits will
be issued for the Company's projects under development or for future projects,
or that the requirements for continued environmental regulatory laws and
policies governing their enforcement may change, requiring new technology or
stricter standards for the control of discharges of air or water pollutants, or
for solid or hazardous waste or ash handling and disposal. Such future
developments could affect the manner in which the Company operates its plants
and could require significant additional expenditures to achieve compliance with
such requirements. It is possible that compliance may not be technically or
economically feasible. To the date of this Prospectus, the Company has not
experienced any delays or costs associated with environmental regulations that
have materially effected the Company's business.
Untested Marketing Strategy. To date, the Company has experienced
development and shipment delays due to a lack of working capital and resultant
inadequate staffing and there is no assurance that such delays will not
continue. To date, the Company's product marketing efforts have been very
limited and the Company has not been able to capitalize on the interest
generated by said marketing efforts. There is no assurance that if the Company
applies the proceeds of this offering to marketing and distribution that these
problems will disappear.
Dependence On Others; Limited Manufacturing Capability. At its present
stage of development, the registrant has developed and continues to develop new
chemicals and new uses for existing chemicals by combining them with chemicals
proprietary to the Company. The Company's strategy for the research,
development, marketing, distribution, and commercialization of its products
entails entering into various arrangements with third party toll manufacturers,
and it is dependent upon the ability of these outside parties to perform their
responsibilities. The Company may also enter into marketing agreements and
arrangements with various third parties, rely on collaborative partners to
conduct research efforts and trials, and to manufacture and distribute certain
of the Company's products. The Company does not currently have in place all such
relationships. The Company does have those relationships in place which are
presently deemed adequate to support the Company's business for the next twelve
months, including toll manufacturing of proprietary chemicals, and end users in
the ink, paint, and plastic industries which will run field tests on the
Company's products. There can be no assurance that the Company will be
successful in establishing all the necessary collaborative arrangements or that,
if established, the arrangements will be successful or on terms that will enable
the Company to achieve profitability.
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Low-Priced Stocks. It is currently anticipated that the Company's Common Stock
and Warrants will be eligible for listing on the Nasdaq SmallCap market upon the
completion of this offering. In order to continue to be listed on Nasdaq,
however, the Company must maintain $2,000,000 in total assets, a $1,000,000
market value of the public float and $1,000,000 in total capital and surplus. In
addition, continued inclusion requires two market-makers and a minimum bid price
of $1.00 per share. The failure to meet these maintenance criteria in the future
may result in the delisting of the Common Stock from Nasdaq, and trading, if
any, in the Company's securities would thereafter be conducted in the non-Nasdaq
over-the-counter market. As a result of such delisting, an investor could find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities.
In addition, if the Common Stock were to become delisted from trading on
Nasdaq and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Exchange Act, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in the Common Stock,
which could severely limit the market price and liquidity of the Common Stock
and the ability of purchasers in this offering to sell the Common Stock in the
secondary market.
Business Dependent Upon Key Employee. The business of the Company is
specialized. The continued employment of Gerald Sugerman is critical to the
Company's proposed product development and the conduct of the Company's business
Upon closing, the Company intends to procure key man insurance insuring Mr.
Sugerman. There can be no assurance that the Company will be able to retain Mr.
Sugerman or other equally qualified individuals to run the affairs of the
Company.
Need To attract And Retain Qualified Personnel. The Company currently
has only four full time employees. The Company's ability to develop, produce,
and market its products, and to achieve a competitive industry position will
depend, in large part, on its ability to attract and retain qualified personnel,
including a Chief Financial Officer. Prior to large scale commercial production
of its products, the Company will have to hire significant numbers of technical
and production personnel. Competition for qualified personnel may be intense and
the Company may be required to compete for such personnel with companies having
substantially greater financial and other resources. The Company's failure to
attract and retain such personnel could have a materially adverse effect upon
its business.
Competition. The Company is aware of several business entities in the
United States marketing products similar to those offered by the Company and the
Company's customers. Some of these companies have substantially greater capital
resources, larger staffs and more sophisticated facilities than the Company.
Such companies may produce products which are more effective than any developed
by the Company or its customers and may be more successful than the Company or
its customers in their production and marketing of such products. There can be
no assurance that other companies will not enter the markets developed by the
Company or its customers. There can be no assurance that the Company will be
able to compete successfully in the future with existing or new competitors. See
"Business of the Company--Competition."
No Cumulative Voting - Control by Management. The Company's Certificate
of Incorporation does not provide for cumulative voting. The Company's present
shareholders will own approximately 60.9% (not including the exercise of options
held by management, which, if exercised, would increase such ownership to 73.4%)
of the Company's outstanding Common Stock following the offering, and thus will
be able to continue to elect all of the Company's directors and control the
Company. More specifically, Management, will own approximately 44% (not
including the exercise of options held by management, which, if exercised, would
increase such ownership to 62.3%) of the Company's outstanding Common Stock
following the offering. Thus, Management will be able to continue to control the
election of all of the Company's directors and control the Company. See
"Principal Shareholders" and "Description of Capital Stock."
Lack of Dividends. The Company has not paid dividends since its inception
and does not intend to pay any dividends in the foreseeable future, but intends
to retain all earnings, if any, for use in its business operations. Prospective
investors who seek dividend income from their investment should not purchase the
Shares offered by this Prospectus. See "Description of Capital Stock--Dividends"
Immediate Substantial Dilution. The present shareholders have acquired
a controlling interest in the Company at a cost substantially below the offering
price of the Shares. Upon the completion of the offering, investment in the
Company's Common Stock will result in an immediate substantial dilution of
approximately $4.03 per share if all Units are sold at $6.00 per Unit, while the
present shareholders will realize an immediate increase in the net tangible book
value of approximately $1.97 per share if the all Units are sold. The foregoing
assumes that no Redeemable Warrants are exercised and does not take the
over-allotment into account. See "Dilution."
Management Experience. Gerald Sugerman is the originator of the Company's
business concept and has run the Company since inception. No officer of the
Company has had, prior to the organization of the Company, experience in the
managerial aspects of the inks, paints, and plastics polymer additives industry.
Since the business is relatively new, the experience of management can give no
assurance that the business will continue to succeed.
See "Management."
Arbitrary offering Price. The Offering Price at which the Shares are being
offered has been arbitrarily determined by the Company and the Underwriter.
There is no relationship between the said prices and the Company's assets, book
value, net worth or any other economic or recognized criteria of value.
Sales Pursuant to Rule 144. Officers, Directors and/or affiliates of the
Company hold 1,555,000 Common Shares of the Company, all of which are, subject
to quantity limitations discussed below, available for sale. Such shares are
"restricted securities" under Rule 144, as promulgated by the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, which
shares may not be freely resold. Rule 144 provides, in essence, that any
shareholder of the Company, after holding restricted securities for a period of
one year, may, every three months, sell them in an unsolicited brokerage
transaction in an amount equal to 1% of the Company's outstanding Common Shares,
or the average weekly trading volume, if any, during the four weeks preceding
the sale. After two years, non-affiliated shareholders holding restricted
securities are no longer subject to the 1% limitation and may sell unlimited
amounts of shares they own. If a substantial part of the shares which can be
sold were so sold, the price of the Company's Common Shares might be adversely
affected. (See "Principal Shareholders" and "Underwriting.")
Underwriter's Warrants The Company has agreed to sell to the
Representative Underwriter Warrants (the "Underwriter's Warrants") to purchase
an aggregate of 10% of the Units sold by the Company hereby. The Underwriter's
Warrants may be exercised for a period of four years commencing one year after
the date of this Prospectus, at a price equal to 120% of the public offering
price. For the life of the Underwriter's Warrants, the holders are given, at a
nominal cost, the opportunity to profit from a rise in the market price for the
Common Stock of the Company without assuming the risk of ownership, with a
resulting dilution in the interest of the other securities holders. As long as
the Underwriter's Warrants remain unexercised, the terms under which the Company
could obtain additional capital may be adversely affected. Moreover, the holders
of the Underwriter's Warrants might be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain additional capital by a
new offering of its securities on terms more favorable than those provided by
the Underwriter's Warrants. See "Descriptions of Securities - Underwriter's
Warrants" and "Underwriting."
Product Protection and Infringement. The Company relies on a
combination of patent and trade secret laws, nondisclosure and other contractual
agreements and technical measures to protect its proprietary rights in its
products. The company has applied for several patents, both domestic and
foreign, and will be applying for several more patents. Such protection may not
preclude competitors from developing products with features similar to the
Company's products. The Company believes that its products, trademark and other
proprietary rights do not infringe on the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against the Company in the future. The successful assertion
of such claims would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business of the Company -
Proprietary Rights."
Possible Difficulties In Obtaining Supplies. The success of the
Company's additive products will depend on the ability of the Company to obtain
significant amounts of raw materials at affordable prices. The Company may
encounter shortages or delays in obtaining adequate amounts of raw materials,
and the Company has not yet entered into an arrangement pursuant to which it
will ensure adequate access to those materials. The failure of the Company to
obtain adequate materials at affordable prices could have a material adverse
affect on the Company's ability to produce and deliver its products.
Credit Risk. Although the Company has not experienced any material losses
related to client inability to pay for its services, as the Company's customer
base expands it may be subject to increased credit risk. Because the Company's
revenues are derived from a small number of significant customers, the Company's
receivables are similarly concentrated. The inability of one of these
significant customers to satisfy its obligations to the Company could have an
adverse material affect on the Company. Also, in the event that the Company's
additives performance does not meet customer expectations, customers could hold
back on payments for portions of overall contract prices until additional
services have been performed and additives added. Such hold backs could cause
the Company to: (I) incur losses on its product or earn less profit than
anticipated; or (ii)fail to receive payments for certain portions of its
product. See "Risk Factors-Revenue Concentration From Small Group of Customers."
Authorization and Issuance of Preferred Stock. The Company's Articles of
Incorporation, as amended authorize the issuance of up to 1,000,000 shares of
Preferred Stock with such rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, under the Articles of
Incorporation the Board of Directors may, without stockholder approval, issue
Preferred Stock with dividend, liquidation, conversion, voting, redemption or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. The issuance of any shares of Preferred Stock,
having rights superior to those of the Common Stock, may result in a decrease of
the value or market price of the Common Stock and could be used by the Board of
Directors as a device to prevent a change in control of the Company. Holders of
the Preferred Stock may have the right to receive dividends, certain preferences
in liquidation and conversion rights. The Company has issued any Preferred Stock
in payment of debt and services rendered, and until this Offering is completed,
the Company intends to continue to do so. See "Description of
Securities-Preferred Stock."
Current Prospectus and State Registration Required to Exercise Warrant.
Purchasers of the Warrants included as a component of the Units in this offering
will not be able to exercise them unless at the time of exercise, a current
prospectus under the Securities Act, covering the shares of Common Stock
issuable upon exercise of the Warrants, is effective and such shares have been
registered for sale or are exempt from registration under the applicable
securities or "blue sky" laws of the states in which the various holders of the
Warrants reside. Although the Company has undertaken to use reasonable efforts
to maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, there can be no assurance that the Company will be able
to do so. Although the Company will use its best efforts to register or qualify
the shares for sale in jurisdictions where the registered holders of the
Warrants reside, no assurance can be given that the Company will be able to do
so. Further, the Company may determine not to register or qualify the shares
underlying the Warrants in jurisdictions where time and expense do not justify
such action. The value of the Warrants may be greatly reduced if a current
prospectus covering the shares underlying the Warrants is not effective or if
such Common Stock is not registered or exempt from registration in the states in
which the holders of the Warrants then reside. See "Description of Securities."
Limitations on Liability of Directors. The Company's Articles of
Incorporation substantially limit the liability of the Company's Directors to
its shareholders for breach of fiduciary or other duties to the Company, to the
full extent permitted by New Jersey law. See "Description of
Securities-Indemnification and Waiver of Director Liabilities."
USE OF PROCEEDS
The net proceeds to be realized by the Company from the sale of the Units
offered hereby, after deducting all commissions and expenses of the offering, is
estimated at $5,053,000. Included in the expenses of this offering are the
commissions and projected legal fees, accounting fees, filing fees and printing
costs. No officer, director or affiliate of the Company, or associated person of
them, will receive any portion of the gross proceeds of this offering, except
for legal fees owed to the law firm of its President in an amount not to exceed
$100,000.00, and the forward going payments due to Gerald Sugerman, Vice
President and Secretary of the Company for future payments due under his
employment contract, which provides for payments of $10,000 per month. (See
"Remuneration of Officers and Directors") These funds will be used by the
Company in substantially the following manner:
ADMINISTRATIVE
Equipment $6,000
Supplies 2,000
Salaries 240,000
Overhead 60,000
------
308,000
PRODUCTION & CUSTOMER SERVICE
Salaries 240,000
Equipment 1,800,000
Inventory 450,000
-------
2,490,000
PRODUCT DEVELOPMENT
Equipment 300,000
Supplies 175,000
Salaries 110,000
-------
585,000
MARKETING
Advertising 500,000
Salaries 650,000
Travel and Entertainment 50,000
------
1,200,000
WORKING CAPITAL 470,000
TOTAL ------------------------ $5,053,000
Since the proceeds of this Offering, will be applied over time, the actual
expenditure of such proceeds for any purpose could vary significantly from the
anticipated expenditures described above. The Company reserves the right,
therefore, to reallocate proceeds among the uses described above, including to
working capital, depending upon factors such as the results of the Company's
marketing efforts, the Company's success in developing new products, and
technological advances in the industry.
The net proceeds of this offering may not be used immediately. Any net
proceeds of this offering that are not expended immediately will be deposited
only in short-term interest bearing obligations of the United States government.
See "MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS".
DIVIDEND POLICY
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends to date and does not anticipate that it will be in a position to pay
any dividends in the foreseeable future.
DILUTION
As of September 30, 1997, there were 1,555,000 of the Company's Common
Shares issued and outstanding. See "Description of Securities." If all Units
(1,000,000) offered hereby are sold there will be 2,555,000 Shares outstanding.
As of September 30, 1997, the approximate net tangible book value of the
Company's common stock (total tangible assets less total liabilities) was
$(138,776) or $(.09) per share. See "CAPITALIZATION." Giving effect to the sale
of 1,000,000 Units and receipt of the net proceeds therefrom, the pro forma net
tangible book value of the Company would be approximately $4,914,224, or $1.92
per share. This represents an immediate dilution of $4.08 for each share of
Common Stock purchased by new investors and an immediate increase of $2.01 per
share to existing shareholders.
Sale price per unit $6.00
Net tangible book value per unit
before offering............ $(0.09)
Increase to present shareholders
in net tangible book value
attributable to sale of
shares offered........... $2.01
Pro Forma net tangible book value
per share after offering... $1.92
Dilution of net tangible book
value per share to new
investors.................. $4.08
The officers and directors of the Company have acquired their common
shares for no cash and for property and services valued at $1,450. If the
maximum number of Shares is sold, the new investors shall acquire 1,000,000
shares (about 39.13% of the total outstanding common shares) at a price of $6.00
per share or a total of $6,000,000. The following table summarizes the number of
shares acquired from the Company and the aggregate consideration paid by the
existing shareholders and to be paid by new shareholders in this Offering:
Number of Percentage Aggregate
Shares Acquired of Shares Consideration
from Company Held by Group Paid for Shares
Existing
shareholders........1,555,000 60.87% $76,750
New shareholders....1,000,000 39.13% $6,000,000
Total...............2,555,000 100.0% $6,076,750
SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial data for the
years ended June 30, 1995, 1996, and 1997, and the fiscal quarter ended
September 30, 1997. This information is derived from the Company's financial
statements which appear elsewhere in this Prospectus. The selected financial
data is qualified by reference to, and should be read in conjunction with, the
Company's financial statements and notes thereto included elsewhere in this
Prospectus and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS".
Balance Sheet
as of: Year Ending Year Ending Year Ending For the three months
June 30,1995 June 30, 1996 June 30, 1997 ended Sept. 30, 1997
Sales 226,202 155,525 131,335 33,285
Cost Of Goods 156,348 104,552 61,453 10,337
------- ------- ------ ------
Gross Profit 69,854 50,973 69,882 22,948
Operating Expenses 181,651 165,388 211,080 128,312
Other Income -0- -0- -0- -0-
Other Expenses -0- -0- 3,065 9,637
Net Profit(Loss) (111,797) (114,715) (144,263) (115,001)
Per share (0.07) (0.08) (0.09) (.07)
Shares Outstanding 1,555,000 1,555,000 1,555,000 1,555,000
Dividends -0- -0- -0- -0-
Balance Sheet
as of: Sept. 30, 1997 As Adjusted(1)
Cash And Cash Equivalents 84,608 5,137,608
Working Capital (defecit) (280,503) 4,772,497
Total Assets 269,775 5,322,775
Current Liabilities 407,201 407,201
Long Term Debt -0- -0-
Stockholders' (defecit) (137,426) 4,915,574
Equity
(1) Gives effect to the issuance and sale of the maximum 1,000,000 Units offered
hereby and the receipt of the estimated net proceeds ($5,053,000) before their
application, including the application to the expenses of this offering. This
does not take into account any potential proceeds from the 150,000 shares
exercisable from the over-allotment option, nor any proceeds from exercise of
the Redeemable Warrants or the Underwriters Warrants.
See "Use of Proceeds".
CAPITALIZATION
The following table sets forth the capitalization of the Company as of September
30, 1997 and as adjusted to give effect to the issuance and sale of the shares
upon the closing of this offering:
Actual As Adjusted
Current Liabilities 407,201 407,201
Long Term Liabilities 0 0
Stockholders' Equity:
Preferred Stock 296,600 296,600
Common Stock, no par
value authorized
10,000,000 shares;
issued and outstanding
1,555,000 shares; as
adjusted 2,555,000 51,750 5,053,750
Deficit Accumulated During
Development Stage (485,776) (485,776)
Total Liabilities and
Stockholders' Equity (137,426) 4,864,574
Total Capitalization 544,627 5,271,775
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD
FROM INCEPTION (JULY 22, 1994) TO SEPTEMBER 30, 1997.
Development stage activities.
The Company has been a development stage enterprise from its inception July 22,
1994, to September 30, 1997. During this period, management devoted the majority
of its efforts to obtaining new customers for its products, developing sources
of supply, developing and testing formulas, pursuing and finding a management
team to begin the process of: completing its marketing goals; furthering its
research and development for its products; marketing limited quantities of the
Company's products; completing the documentation for and selling initial shares
through the Company's private placement; and completing the documentation for
the Company's initial public offering. These activities were funded by the
Company's management and investments from stockholders and borrowings from
related third parties. The Company has not yet generated sufficient revenues
during its limited operating history to fund its ongoing operating expenses,
repay outstanding indebtedness, or fund its product development activities. For
the period of inception July 22, 1994, to September, 1997, the Company completed
the development of its first product line.
Results of operations.
Results of Operations for the period of inception (July 22, 1994) to
September 30, 1997
Revenues were $546,347. Cost of goods sold was $322,690.
Gross profit was $213,657.
General and Administrative costs were $704,246 consisting of $686,731 of general
and administrative expenses, and $17,515 incurred for depreciation and
amortization. The net loss for the period was $485,776.
Liquidity and capital resources.
The Company increased liquidity by $84,608 from a cash balance of $1,000 at the
Company's inception through the sale of $299,315 in convertible notes payable,
and the sale of 25,000 shares of common stock aggregating $50,000.
The Company expended $5,000 for security deposits, purchased $35,897 of
equipment, increased by $42,679 inventory, and increased by $2,733 accounts
receivable.
The Company is initiating an initial public offering of 1,000,000 Units at $6.00
per Unit for an aggregate of $6,000,000. Management believes that the present
cash balance will pay the initial cost of beginning the set-up of the business
and the initial cost of the Offering. The Company will defer the expenses of the
Offering until the Offering is completed and the offering expenses will be
deducted from proceeds received therefrom. The Offering proceeds will be
sufficient to satisfy Management's objectives of purchasing equipment for office
, production and product development of $2,106,000, purchasing supplies for
office and product development of $177,000, financing the payment of
administrative, production, and marketing salaries of $1,240,000, pay
advertising of $500,000, purchase inventory of $450,000, pay overhead of
$60,000, pay travel and entertainment expenses of $50,000, provide working
capital of $470,000, pay Underwriter's Discounts of $600,000 and pay projected
offering expenses of $347,000.
BUSINESS OF THE COMPANY
SUMMARY
PPA Technologies, Inc., hereinafter referred to as "PPA" or "the
Company", was incorporated in the State of New Jersey in July, 1994 to develop
and manufacture innovative specialty chemical products with broad application in
the plastics and coatings industries. The Company now markets coupling agents
and has recently launched the marketing of paints and coatings utilizing the
Company's proprietary reactive coalescent technology.
THE INDUSTRY
Industry
The Company operates in two industries, plastics and coatings. Each of
these are vast in total worldwide production and sales.
The plastic industry is composed of several subsets, however to present
a concept of general size, worldwide sales of polyvinyl chloride ("PVC")
exceeded 18 billion dollars in 1995. Sales by the twenty five largest film and
sheet plastics manufactures were 12.4 billion dollars in 1996. Domestic sales of
PVC pipe totaled about 8.7 billion dollars in 1996.
The global paints and coatings market totaled $65 billion in 1995. In
North America alone 4.7 million metric tons were produced in 1995 having a value
of about 15 billion dollars. The top ten producers accounted for about 60% of
the market.
Coupling Agents
Coupling agents are organometallic compounds which may be delivered in
liquid, powder or pelletized forms depending primarily upon customer need. These
products are used primarily by plastics compounders and manufacturers of plastic
products to obtain improved line speed, faster throughput, lower operating
temperatures and pressures, better dry blend and hot melt flow, reduced energy
requirements, better control over wall/sheet thickness, higher impact resistance
and greater flame retardance.
Since only small quantities (.2 to 2% of the total product mix by
weight) of these compounds are used, worldwide market volumes of coupling agents
are quite low and total only several million pounds. However, because of the
great benefits to be derived from their use, profit margins on coupling agents
are quite high. Also, the totality of products in which coupling agents could be
used is vast, including at least 10% of the total plastics output worldwide. At
present there are only two sources of these compounds, one of which is PPA.
Reactive Coalescents
Reactive Coalescents allow resin producers and coatings end-users to
utilize Zero VOC solutions in place of current solvent-based packages. In
architectural and industrial coatings, volatile organic solvents have been
historically required and applied to a) dissolve the resin, and b) to provide
coalescing action. These traditional solvents, which comprise the competing
products for the Company's reactive coalescents, have markets exceeding $5
billion per year. Historically they have been used because of their low price
and a lack of concern regarding the environmental impact of their use, i.e. the
evaporation of the solvent into the air. With increasing restrictions being
placed upon the use of VOC's because of these environmental concerns the use of
solvents is under wide spread attack and many companies have been attempting to
develop replacements for these solvents in a wide variety of applications. To
date such replacements have been generally unsatisfactory and limited in
application.
The architectural coatings market alone was over 450 million gallons in
1995 out of a total paint and coatings volume of one billion gallons. Reactive
coalescents typically comprise 15% of the complete formulation, for an
architectural requirement of 67.5 million gallons of reactive coalescents or
$918 million. As the Clean Air Act, 42 U.S.C. sections 7401-7671, is further
enforced along with new environmental legislation, the need to replace solvent
with chemical coalescents will increase.
According to the Chemical Marketing Reporter, October 19, 1995 edition "The
$300 million additives segment is expected to continue to outpace the coatings
business as a whole, and the bulk of this growth comes from the push to reduce
solvent use." As the percentage of solvents in coatings continues to shrink in
favor of water and additives, including reactive coalescents, demand for
reactive coalescents, such as those produced by the company, should increase.
Flame Retardants
Flame retardants comprise 40% to 50% of all additives for plastics
worldwide. Historically, halogenated materials have been the preferred flame
retardants, comprising about 80% of the market. In the past ten years, this
group of chemicals has become the subject of legislated restrictions and in
general has lost market share to less effective additives because of well known
disadvantages: they often cause localized corrosion of metals in direct contact
(e.g. wire and cable), cannot incinerate scrap or used product due to hazardous
fumes generated, and their thermal decomposition and/or combustion results in
toxic fumes. Effective early in 1991, Western Electric banned all use of
halogenated chemicals from its wire and cable coatings.
Non-halogenated chemicals are available, with significant drawbacks,
including reject rates of 8 to 30% due to poor wetting and/or dispersion of
flame retardant. These flame retardants as a rule do not melt and therefore will
inhibit hot melt flow, making it necessary to employ higher cost resin for
acceptable processing.
Flame retardants comprise a significant percentage of all additives for
plastics worldwide. Almost 90% of the $3 billion per year domestic plastic
additives sector is comprised of just four products - plasticizers, flame
retardants, impact modifiers and lubricants. Of the approximately 35 billion
pound annual polyolefin market, about 10% or 3.5 billion pounds contain flame
retardant. At an average loading of 50 phr flame retardant, the 3.5 billion
pounds polyolefins sector translates to about one billion pounds of flame
retardant sold annually.
Halogen-based chemicals are added at 45 to 50 phr and are currently sold at
$1.40 to $2.40 per pound. The Company's flame retardants will cost about 40%
less to achieve the same degree of flame retardance. Aluminum and magnesium
hydroxides do not have the disadvantages of the halogen compounds discussed
above, but these hydroxides offer limited application. With an upper temperature
limit of 320oF, and the need for as much as 75 to 85 phr in the formulation to
achieve a Vo UL (a standard flame spread rate measurement) rating, only a small
number of uses are possible. (See "The Company's Products - Flame Retardants").
THE COMPANY'S PRODUCTS
Coupling Agents
PPA offers approximately 15 different organometallic coupling agents
available in liquid, powder or pelletized forms. Like their competitor products,
they can be and are used primarily by plastics compounders and manufacturers of
plastic products to obtain improvements such as: higher line speed, faster
throughput, lower operating temperatures and pressures, better dry blend flow
and hot melt flow, reduced energy requirements, better control over wall/sheet
thickness, higher impact resistance and greater flame retardance.
Since all coupling agents are presently proprietary products, the
opportunity for the production of value added products utilizing these compounds
is more than feasible. The overwhelming advantage of the coupling agents in
almost all applications is the ability to produce a more cost effective product
with the coupling agent thereby creating a true "value added" situation enabling
either direct sales of the agent or production of a more finished product at
competitive price advantages in large markets of essentially fungible
commodities. Most purchasers in fact prefer receipt of compounded resins (resins
in to which additives, such as the coupling agents, have been added) rather than
the pure coupling agents (which would then be added to the resin by the end
user). While margins on the value added products are lower than the coupling
agents, the total gross profit from operating a compounding facility is many
times greater than from sale of the coupling agents alone. It is the Company's
intention to move into value added products where feasible.
Our coupling agents have already been successful in extrusion,
injection and blow molding operations, so Management assumes that coupling
agents can be beneficially utilized in a large part of the total plastics
market.
Reactive Coalescents
Approximately 23 reactive coalescent packages have been developed
to-date. These products allow resin producers and coatings end-users to utilize
Zero VOC solutions in place of current solvent-based packages. In architectural
(building) and industrial coatings, volatile organic solvents have been
historically required and applied to a) dissolve the resin, and b) to provide
coalescing action. PPA coalescing packages are 100% solids (after application),
Zero VOC (as measured by present test methodologies), water-reducible systems
that provide all of the necessary dissolution and coalescing of solvent-based
systems, but which are a) without solvents for immediate Clean Air Act
compliance, b) more cost effective since there is no wasted solvent to evaporate
out of the coating, and of considerable importance, and c) generate harder, more
durable films due to chemically reactive cross-linking versus no cross-linking
in organic solvent systems.
Flame Retardants
PPA flame retardants are non-halogenated for health and safety concerns,
and they utilize coupling agents for maximum dispersion efficiency. The end
result allows the end user to: a) use lower cost resin than with alterative
flame retardants, b) run at 10 to 20% higher speed, and at lower temperatures,
and c) only PPA offers a concentrated compound that the customer can add at a
1:1 rate to achieve high resistance such as Vo.
PPA flame retardants are targeted for polyolefins only at this time.
This means high density polyethylene, low density polyethylene, and
polypropylene.
With respect to cost, PPA materials cost will be $0.95 to $1.10 per
pound of compound for large volume purchases. This represents a distinct price
advantage over the competition which typically sells for $2.80 per pound and
requires as much as 45 weight percent in polyolefins to acheive 94 Vo. The
anticipated sales volume is 1% of the market for olefins (hydrocarbons
containing at least one double bond) or 10 MM lbs/yr.
PPA flame retardants offer U.L.94 Vo efficacy in 1/16" polypropylene at
just 30 to 35 phr. PPA coupling agents are employed for their large surface
activity which creates the following advantages in comparison to both
halogenated and non-halogenated flame retardants:
1. The ability to use lower cost resin than with alternative flame retardants;
2. The melt index is basically unaffected; 3. Manufacturing processes can run at
10 to 20% higher speeds, and at lower temperatures; and,
4. PPA can offer a concentrated compound that the customer can add at a
1:1 rate to achieve high resistance such as Vo. (This advantage is in
comparison to non-halogenated additives only).
As with all of the Company's products, the apparent technological
superiority in flame retardant technology has yet to be translated into sales
due to, in the Company's opinion, lack of funds for marketing, advertising, and
sales efforts.
Governmental Regulation
As a chemical manufacturer the Company is subject to a wide variety of
local, state and federal regulations. While the Company believes that it is in
compliance with all applicable regulations, there can be no assurance that from
time to time unintentional violations of such regulations will not occur. In the
event of such violations, the company may be subject to fines, injunctive action
and other forms or governmental action which would have a material and adverse
impact on the Company (see Risk Factors-Governmental Regulation.) The following
is a brief survey of some of the applicable federal regulations believed by the
Company to include all material regulations. Many states, including the State of
New Jersey where the Company has its principle place of business, also regulate
certain aspects of the chemical industry. In general, compliance with federal
regulation would comprise the more difficult burden. One example discussed
herein below, California, has more stringent regulation.
The Resource Conservation and Recovery Act 42 U.S.C. Sec. 6901-6987
("RCRA") was enacted in 1976. The Comprehensive Environmental Response,
Compensation and Liability Act, 42 USC Sec. 9601-9657 ("CERCLA") was enacted in
1980. These statutes regulate the disposed of hazardous waste and the clean-up
of chemicals that have been, or will be, subject to illegal disposal. The Toxic
Substance Control Act (hereinafter TOSCA) also governs aspects of chemical
disposal. The Clean Air Act and the Clean Water Act also control emissions into
the atmosphere and water systems (hereinafter these statutes are referred to as
PCS.)
The company believes that it is a) not in violation of the PCS and b)
not subject to the PCS because of the nature of the materials being utilized by
the Company at this time. However, existing environmental laws may be amended
and new laws may be enacted by Congress and state legislatures and new
environmental regulations may be issued by regulatory agencies. For these
reasons, the Company cannot predict the specific environmental control
requirements that it will face in the future.
Compliance with Federal, State and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, may have a material
effect on the capital expenditures, earnings and competitive position of the
registrant and its subsidiaries.
MARKETING
Having completed Research & Development work for fifteen coupling
agents, limited marketing and sales have commenced. Various powder and pellet
forms of these are also available. The current list of active customers includes
five plastics manufacturers. As a result of the sales effort PPA coupling agents
have been accepted in several different applications such as PVC pipe production
and sporting goods production.
Trials are ongoing for the utilization of coupling agents in PVC window
frames, PVC electrical conduit, glass and carbon reinforced nylon structural
composites, carbon filled polystyrene electrical conductors, color concentrates
in polyethylene, polypropylene and ABS (acrylonitrile butadiene styrene), and
several ink and paint applications, including waterbourne and solvent based
systems. So far these tests have been successful.
The reactive coalescent packages have proven successful in wood
coatings and architectural applications. Regional, national and international
companies have shown interest in these products and testing by these companies
are also ongoing.
Marketing in these areas have to date been limited to direct mail to
potential customers and referrals through the personal business contacts of the
officers. The Company has recently employed two full time salesmen to expand
this effort with primary focus on printing inks. The Company intends to expand
these marketing efforts upon the successful conclusion of this Offering, See
"Use of Proceeds" by attendance at trade shows, advertising in trade journals
and by hiring additional sales personnel. The Company also plans to expand
marketing to Europe, especially with products that have significant
environmental impacts, such as paints and inks.
ADDITIONAL FINANCING
The Company believes that the minimum proceeds of this Offering will
allow the Company to meet all of its presently planned future operations for at
least twelve months. However, the Company's anticipated development projects may
require a substantial amount of funds in order to fully develop these proposed
future products to their fullest potential. (See "USE OF PROCEEDS" and
"FINANCIAL STATEMENTS.") The proceeds of this Offering may be inadequate to
permit the Company to achieve its research objectives, and there can be no
assurance that the Company will be able to raise additional funds when needed on
terms acceptable to the Company, if at all. (See "RISK FACTORS - Additional
Capital.")
EMPLOYEES
The Company employs a President and an Executive Vice President for
Scientific Affairs. In addition, the Company employs one chemical technician,
two marketing representatives, one secretary and one part-time administrative
assistant. During the next twelve months the company anticipates opening several
production facilities requiring the acquisition of about one hundred production
personnel, plant management and technical sales representatives. There can be no
assurance that the Company will be able to hire such personnel or if hired
retain their service.
PROPRIETARY RIGHTS
The Company relies on a combination of patent and trade secret laws,
nondisclosure and other contractual agreements and technical measures to protect
its proprietary rights in its products. Despite these precautions, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary.
The Company believes that its products, trademark and other proprietary
rights do not infringe on the proprietary rights of third parties. There can be
no assurance, however, that third parties will not assert infringement claims
against the Company in the future. (See "RISK FACTORS - Proprietary Rights.")
FACILITIES
The Company leases 4,000 square feet of industrial space and 2,000 square
feet of office space under a three year lease with an option to extend the lease
for three years. The lease contains cost of living increases and current rent
payments, including taxes, are $3,513 per month. The Company anticipates renting
additional production facilities upon the successful conclusion of this offering
as required by demand for the Company's products.
In the event that pending applications are not granted, or if
subsequently obtained patents are either invalidated or designed around, the
Company would be materially and adversely affected.
MANAGEMENT
The names of the Officers and Directors of the Company, their ages and
positions with the Company are as follows:
Name Age Position
Roger Fidler 46 President, Director
Gerald Sugerman 60 Executive Vice President,Secretary,
Treasurer, Director
James Wright 64 Director
Albert Mersberg 56 Director
The above officers and directors will hold office until the next annual meeting,
or until their successors are elected and qualified.
MANAGEMENT
Roger L. Fidler Mr. Fidler has been President of the Company and a director
of the company since inception in July 1994. He has been continuosly engaged in
the private practice of law as a sole proprietor since 1983 and has held several
directorships in both private and public corporations. During the time period
from 1992 to the present, Mr. Fidler has been employed both as President of the
Company and engaged in the private practice of law. He is currently President
and Sole Director of D-Lanz Development Group, Inc. an inactive public company.
Mr. Fidler holds degrees in Law (J.D.) from the University of South Carolina,
Columbus, South Carolina (1977), in Physics (M.S.) from the University of
Illinois Urbana, Illinois (1974) and a B.S. from Dickinson College (1972),
Carlisle, PA.
Gerald Sugerman, Ph.D. Dr. Sugerman has served full time as Executive Vice
President, Sectretary, Treasurer, and as a Director of the Company since
inception in July of 1994. As PPA's Chief Scientist he is in charge of all
technical developments. From February, 1992 until July, 1994, Dr. Sugerman was
President of Pi-Tech Inc., a specialty chemical company. Dr. Sugerman received
his Ph.D. in organic chemistry from Fordham University in 1960, and holds
several other degrees. He has authored over 100 papers and holds more than fifty
patents.
James Wright Mr. Wright has been a director since inception. Mr. Wright is a
retired businessman who until 1989 was a principal in a sand and gravel mining
company in New Jersey. Mr. Wright holds a Bachelor of Science degree in Business
Administration from Rider University (B.S. 1961), Lawrenceville, New Jersey. Mr.
Wright serves on the Audit Committee.
Albert Mersberg Mr. Mersberg became a director of the Company in September,
1997. He had previously consulted for the Company from inception until November,
1996. He is currently employed as Technical Manager of New Product Development
by Sampson Coatings, Inc of Richmond, VA where he has been employed since
December, 1996. Mr. Mersberg previously was employed by Lawrence McFadden Co. in
Philadelphia, PA from 1991 to December, 1996 in a similar capacity. He holds a
B.S. degree in Chemistry from the State University of New York at Buffalo.
RENUMERATION OF OFFICERS AND DIRECTORS
No officer of the Company has received compensation since inception in July,
1994 except Dr. Sugerman, Exec. V.P. of the Company. Directors are not
compensated for serving on the Board of Directors. No contingent forms of
remuneration, property, or other benefits were conferred during that period.
The Company has entered into written employment and assignment
agreements with Gerald Sugerman and Roger Fidler. Pursuant to these Agreements,
Mr. Sugerman assigned his rights to any and all technologies and improvements
thereto to the products presently marketed by the Company and which he may
develop from time to time while employed by the Company. The capacity and annual
salaries for key management is set forth below.
Summary Compensation Table
Annual Compensation Long Term
Name & Position Salary/yr. Bonus Other(1) Compensation
Roger Fidler $120,000 -0- -0- -0-
President
Gerald Sugerman $120,000 -0- -0- -0-
Executive Vice
President;
Director
(1) Mr. Fidler's contract provides for sale commissions which have not been
earned to the date of this Prospectus. Mr. Sugerman's contract provides
for royalties of 5% on sales to a maximum of $350,000 payment, and 2%
of sales thereafter.
STOCK OPTION INFORMATION
The following table sets forth certain information with respect to the
value of stock options held by the Named Executive Officer for the fiscal year
ended September 30, 1997.
Fiscal Year-End Option Value Table
Number Of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired Options On June 30, 1997 June 30,1997($)(1)(2)(3)
On Value ------------------------ ------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Roger Fidler -0- -0- 425,000 -0- 2,100,000 -0-
Gerald Sugerman -0- -0- 850,000 -0- 4,200,000 -0-
- -----------
(1) Based upon an assumed initial public offering price of $6.00 per share of
Common Stock.
(2) Options are in-the-money if the fair market value of the Common Stock
exceeds the exercise price.
(3) Represents the total gain which would be realized if all the in-the-money
options beneficially held at December 31, 1995 were exercised, determined by
multiplying the number of shares underlying the options by the difference
between the per share option exercise price and $6.00, the fair market price as
of the initial public offering date, as determined by the offering price.
EMPLOYEE STOCK OPTION PLAN INFORMATION
The Company has adopted a Stock Grant Program and a Stock Option
Program. The Stock Grant Program provides for the issuance to officers,
directors and key employees stock grants as determined by the Board of
Directors. The recipient must continue employment with the Company for two years
after the grant is made or forfeit the stock. The stock option program is also
available for officers, directors and key employees and permits the Board to
issue options which are exercisable in equal amounts over a five year period.
Any unvested options expire upon the termination of employment with the Company.
To the date of this Prospectus, no stock options have been issued pursuant to
the Stock Option Program and no grants were made under the Stock Grant Plan.
CERTAIN TRANSACTIONS
The Company was organized primarily through the efforts of Roger Fidler and
incorporated on July 22, 1994 under the laws of the State of New Jersey. On July
29, 1994, the Company's Board of Directors approved the issuance of 75 shares
each to Mr. Fidler and James Wright as consideration for organizational expenses
and services valued at $100 each.
On October 24, 1994, an agreement was made by which the Company acquired
certain license rights in return for the assumption of certain liabilities
and the issuance of 975 Shares to Gerald Sugerman.
Effective November 1, 1994, the Company entered into a two year employment
contract with Gerald Sugerman which provides for salary of $120,000 per annum.
In June, 1996 the Company entered into a five year employment agreement with Dr.
Sugerman requiring the payment of $10,000 per month plus 5% royalty on sales he
makes up to a maximum salary of $350,000. In addition, he receives life
insurance equal to twice his annual salary, disability insurance, vacation pay,
and sick leave.
On February 5, 1996, the Company entered into an employment agreement with
Roger Fidler by which Mr. Fidler's salary would be set by the Board of Directors
from time to time. On January 1, 1998 this salary will commence at the rate of
$10,000 per month. In addition, Mr. Fidler receives commission on gross sales of
between 10% and 15% on sales initiated by him.
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the share
ownership, both before and after the prospective closing of the offering made
hereby, of the Company's common stock by its officers and directors, both
individually and as a group, and by the present record and/or beneficial owners
of more than 5% of the outstanding amount of such stock:
Number of Percentage(2) Percentage(2)
Name Shares of shares of shares
Owned Owned Prior After
to Offering Offering
Gerald
Sugerman(1) 1,825,000 75.9% 53.6%
8 Cambridge Dr
Allendale, NJ 07401
Roger Fidler(1) 500,000 25.3% 16.8%
400 Grove Street
Glen Rock, NJ 07452
James Wright 75,000 4.78 2.9
244C Mayflower Way
Jamesburg, NJ 08831
Officers
and Directors
as a Group(3) 1,125,000 82.3% 60.1%
- -----------------
(1)Gives effect to 425,000 and 850,000 shares underlying options held by Fidler
and Sugerman, respectively.
(2) Does not give effect to (i)up to 1,000,000 shares of Common Stock issuable
upon the exercise of the Class A Unit Warrants; (ii) the common stock underlying
the Underwriter's Over Allotment Option (150,000 shares); and (iii) the common
shares underlying the Underwriter's Warrant Units (200,000 shares). See
"Underwriting" and "Certain Transactions."
DESCRIPTION OF SECURITIES
Preferred Stock
The authorized capital stock of the Company consists in part of 1,000,000
shares of Preferred Stock, $100 par value per share (the "Preferred Stock"). The
Company's present issued and outstanding number of Preferred shares is 3,261.
The holders of Preferred Stock have preference as to liquidation, receive a 5%
dividend, and may have their shares redeemed by the Company at par value plus
accrued dividends during a five year period.
Common Stock
The authorized capital stock of the Company consists of, in part,
10,000,000 shares of Common Stock, without par value (the "Common Stock"). The
Company's present issued and outstanding number of common shares is 1,555,000.
The holders of Common Stock have equal ratable rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors
of the Company; are entitled to share ratably in all of the assets of the
Company available for distribution to holders of Common stock upon liquidation,
dissolution or winding up of the affairs of the Company; do not have preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions applicable thereto. Such shares are entitled to one vote per share on
all matters which stockholders may vote on at all meetings of shareholders. All
shares of Common Stock now outstanding are fully paid and nonassessable and all
shares of Common Stock which are the subject of this Offering, when issued, will
be fully paid and nonassessable.
Non-Cumulative Voting
The holders of shares of Common Stock of the Company do not have cumulative
voting rights. Thus, the holders of more than 50% of such outstanding shares,
voting for the election of directors, can elect all of the directors to be
elected, and in such event, the holders of the remaining shares will not be able
to elect any of the Company's directors. If the shares offered hereby are sold,
the present shareholders will own approximately 60.9% of the Company's
outstanding shares. If the options held by management were exercised, the
present shareholders would own 73.9% of the Company's outstanding shares, and in
either event, will remain in a position to elect all of the members of the Board
of Directors. Further, Mr. Sugerman, Executive Vice President of the Company,
exercised his options only, he would own approximately 53.6% of the Company's
Common Stock and would therefore control the Company. (See "Principal
Shareholders").
Transfer Agent and Registrar
The Company has chosen Liberty Transfer Company of Huntington, New York
as its transfer agent.
Reports to Shareholders
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable at the end of
each fiscal year, commencing with the next fiscal year. In addition, the Company
may, from time to time, issue unaudited interim reports and financial
statements.
Dividends
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends to date and does not anticipate that it will be in a position to pay
any dividends in the foreseeable future.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Kenneth Jerome
& Company, Inc. is acting as Representative, have severally agreed, subject to
the terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement") to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of units of
Common Stock and Redeemable Warrants as set forth opposite their names:
Underwriter Number of Units
Kenneth Jerome & Company, Inc............ 1,000,000
Total.................................... 1,000,000
The Underwriters are committed to purchase all the Securities offered
hereby, if any of such Securities are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to
conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers
less concessions of not in excess of $0.60 per unit. Such dealers may reallow a
concession not in excess of $0.60 per unit to other dealers. After the
commencement of this Offering, the public offering prices, concessions and
reallowances may be changed by the Representative.
The Representative has advised the Company that it does not anticipate
sales to discretionary accounts by the Underwriters to exceed ten (10%) percent
of the total number of Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payment that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative an expense allowance on a non-accountable
basis equal to three percent (3%) of the gross proceeds derived from the sale of
the Securities underwritten.
The Underwriters have been granted an option by the Company, exercisable
within 45 days after the date of this Prospectus, to purchase up to an
additional 150,000 units at the initial public offering price per unit offered
hereby, less underwriting discounts and the expense allowance. Such option may
be exercised only for the purpose of covering over-allotments, if any, incurred
in the sale of the Securities offered hereby. To the extent such option is
exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of the additional units
proportionate to its initial commitment.
The holders of 1,500,000 outstanding shares of Common Stock, including all
of the Company's directors, officers and principal stockholders, have agreed not
to directly or indirectly, offer to sell, contract to sell, sell, transfer,
assign, encumber, grant an option to purchase, pledge or otherwise dispose of
any beneficial interest in such securities for a period of 13 months following
the date of this Prospectus without the prior written consent of the
Representative. An appropriate legend shall be marked on the face of the
certificates representing all of such securities.
The Company has agreed that, for three years after the date of this
Prospectus, it will use its best efforts to cause one individual designated by
the Representative, if any, to be elected to the Company's Board of Directors.
Such individual may be a director, officer, employee or affiliate of the
Representative. In the event the Representative elects not to designate a person
to serve on the Company's Board of Directors, the Representative may designate a
person to attend meetings of the Board of Directors.
Prior to this Offering, there has been no public market for the Securities.
Consequently, the initial public offering prices of the Securities and the terms
of the Redeemable Warrants have been arbitrarily determined by negotiations
between the Company and the Representative and are not necessarily related to
the Company's asset value, net worth or other established criteria of value. The
factors considered in such negotiations, in addition to prevailing market
conditions, include the history of and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects of
the Company, its capital structure and certain other factors as were deemed
relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete but does include all
material terms . Reference is made to a copy of each such agreement which is
filed as an exhibit to the Registration Statement.
The Company also agreed to indemnify the Representative against certain
liabilities, including liabilities under the Securities Act, or to contribute to
related payments that the Representative may be required to make. In addition,
the Company granted the Representative, for a period of five years commencing on
the final closing of this offering a right of first refusal to be the managing
underwriter or placement agent for any securities to be offered by the Company.
The Company will also sell to the Representative warrants (the
"Underwriter's Warrants") to purchase up to 100,000 Units at a price $7.20 per
Unit. The Underwriter's Warrants will be exercisable for a period of four years
commencing one year after the Effective Date of this Offering, at an initial per
Unit exercise price of 120% of the offering price per Share. The Underwriter's
Warrants cannot be transferred, assigned or hypothecated for one year from the
date of their issuance, except that they may be assigned, in whole or in part,
to any successor, officer or partner of the Underwriter (or to officers and
partners of any such successor or partner). The Underwriter's Warrants will
contain anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of Shares which may purchased upon exercise upon the
occurrence of certain events. The anti-dilution provisions of the Underwriter's
Warrants generally are triggered by the issuance of Common Stock (or securities
convertible or exchangeable into common stock) by the Company at prices below
the market price of the Common Stock at the time of such issuance (subject to
certain exceptions), as well as stock splits, stock dividends and other similar
dilutive events in which the Company increases its outstanding stock without
receiving additional consideration.
The Company has agreed that it will, upon request of the Representative
within the four-year period commencing one year from the Effective Date,
register the Underwriter's Warrants and the underlying securities once at the
Company's expense. The Company has also agreed, during the four-year period
commencing one year from the Effective Date, to register on a "piggy-back"
basis, and on an unlimited number of occasions, the Underwriter's Warrants and
the underlying securities whenever the Company files a Registration Statement.
See "RISK FACTORS - Underwriter's Warrants."
Holders of four percent (4%) or more of the Company's outstanding
shares have agreed not to sell, grant any option for sale, or otherwise dispose
of, directly or indirectly, any shares of the Company's Common Stock or other
securities of the Company for a period of twelve months from the date of the
consummation of the Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby are being passed
upon for the Company by Roger L. Fidler, Esq., 400 Grove Street, Glen Rock, New
Jersey 07452. Mr. Fidler is the beneficial owner of 75,000 shares of the
Company's Common Stock, holds an option to acquire 425,000 more shares, and from
inception until the date of this Prospectus was and is a director and president
of the Company. The Underwriter is represented by Steven I. Gutstein, Esq., 276
Fifth Avenue, New York, New York 10001.
EXPERTS
The financial statements of PPA Technologies, Inc. for the years ending
June 30, 1996 and June 30, 1995 included elsewhere in this Prospectus have been
included herein and in reliance upon the report of Thomas P. Monahan, CPA, an
independent certified public accountant, appearing elsewhere herein, and upon
the authority of said firm as an expert in accounting and auditing.
ADDITIONAL INFORMATION
The Company will not become subject to the reporting requirements of
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 until
completion of this Offering. The Company has filed with the Securities and
Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration
Statement on Form S-1, including amendments thereto, under the Act with respect
to Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is hereby made to such registration statement and to the exhibits and
schedules filed therewith. Statements contained in the Prospectus regarding the
contents of any contract or other document referred to are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement, each such
statement being deemed to be qualified in its entirety by such reference. The
registration statement, including all exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549-1004, and at the
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World
Trade Center, Suite 1300, New York, New York 10048 and copies of all or any part
thereof may be obtained from such offices upon the payment of prescribed fees.
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(201) 790-8775
Fax (201) 790-8845
To The Board of Directors and Shareholders
of PPA Technologies, Inc.
I have audited the accompanying balance sheet of PPA Technologies, Inc.
as of June 30, 1997 and the related statements of operations, cash flows and
shareholders' equity for the years ending June 30, 1996 and 1997. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PPA Technologies,
Inc. as of June 30, 1997 and the results of its operations, shareholders equity
and cash flows for the years ending June 30, 1996 and 1997 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
PPA Technologies, Inc. (a development stage company) will continue as a going
concern. As more fully described in Note 2, the Company has incurred operating
losses since inception and requires additional capital to continue operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans as to these matters are described in Note
2. the financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from the possible
inability of PPA Technologies, Inc. (a development stage company) to continue as
a going concern.
/S/ Thomas Monahan
Thomas P. Monahan, CPA
August 15, 1997
Paterson, New Jersey
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
June 30, Sept 30, 1997
1997 Unaudited
Assets
Current assets
Cash $210,657 $84,608
Accounts receivable 2,733 4,442
Inventory 42,679 37,648
------ ------
Total current assets 256,069 126,698
Capital assets-net 28,557 136,727
Other assets
Security deposit 5,000 5,000
License 1,350 1,350
----- -----
Total other assets 6,350 6,350
----- -----
Total Assets $290,976 $269,775
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Accounts payable and accrued expenses $17,685 $4,849
Notes payable 249,315 308,202
40,750
Officer loan payable 46,401 53,400
------ ------
Total current liabilities 313,401 407,201
Long term liabilities
Notes payable
Stockholders Equity
Common Stock-10,000,000 common
shares authorized, no par. At
June 30, 1996 and 1997, the number
of shares outstanding was
1,555,000 and 1,555,000 respectively. 51,750 51,750
Preferred Stock-1,000,000 preferred
shares authorized, $100 par value. At
June 30, 1996 and and 1997, the number
of shares oustanding was 2,966 and
3,261 respectively. 296,600 296,600
Deficit accumulated during development
stage (370,775) (485,776)
--------- ---------
Total stockholders equity (22,425) (137,426)
------- --------
Total liabilities and stockholders
equity $290,976 $269,775
======== ========
See accompanying notes to financial statements
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the three For the three For the period
For the For the months ended months ended from inception
year ended year ended September 30, 1996 September 30, 1997 July 22, 1994 to
June 30, June 30, Unaudited Unaudited September 30,
1996 1997 1997
Sales $155,525 $131,335 $47,875 $33,285 $546,347
Cost of goods sold 104,552 61,453 16,852 10,337 332,690
Gross profit 50,973 69,882 31,023 22,948 213,657
Operating expenses
General and administrative 162,808 206,935 70,855 118,167 669,216
Depreciation 2,580 4,145 2,500 10,145 17,515
Total operating expenses 165,388 211,080 73,355 128,312 686,731
(Loss) from operations (114,715) 141,198 (42,332) (105,364) (473,074)
Other expenses
Interest 3,065 9,637 12,702
Total other expenses 3,065 ` 9,637 12,702
Net loss $(114,715) $(144,263) $(41,332) $(115,001) $(485,776)
Net loss per share $(.08) $(.09) $(.03) $(.07) $(.31)
Total number of shares 1,555,000 1,555,000 1,555,000 1,555,000 1,555,000
outstanding
See accompanying notes to financial statements.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the three For the three For the period
For the For the months ended months ended from inception
year ended year ended September 30, September 30, July 22, 1994
June 30, June 30, 1996 1997 to September
1996 1997 Unaudited Unaudited 30,
1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $(114,715) $(144,263) $(41,332) $(115,001) $(485,776)
Depreciation 2,580 4,145 2,500 10,145 17,515
Interest
Non-cash items 29,500
Adjustments
Accounts receivable 49,373 (2,733) (1,250) (1,709) (4,442)
Inventory (32,450) 7,571 (3,000) 5,031 (37,648)
Accounts payable and accrued 461 16,345 1,600 (12,836) 4,849
expenses
TOTAL CASH FLOWS PROVIDED (USED) (94,151) (118,935) (11,982) (114,370) (505,502)
FROM OPERATIONS
CASH FLOWS FROM INVESTING ACTIVITIES
License fee (1,350)
Security deposit (5,000) (5,000)
Capital asset additions (12,889) (16,579) (11,027) (118,315) (152,492)
TOTAL CASH FLOWS PROVIDED (USED) (12,889) (21,579) (11,027) (118,315) (158,842)
FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Officer loan 112,055 46,397 3,200 6,999 53,400
Loan payable 40,000 40,750
Preferred stock 296,600
Notes payable 25,000 224,315 15,000 59,637 308,202
Sale of common stock 50,000 50,000
TOTAL CASH FLOWS PROVIDED (USED) 187,055 270,712 18,200 106,636 748,952
FROM FINANCING ACTIVITIES
NET INCREASE (DECREASE) IN CASH 80,015 130,198 (4,809) (126,049) 84,608
CASH BALANCE BEGINNING OF PERIOD 444 80,459 80,459 210,657 -0-
CASH BALANCE END OF PERIOD $80,459 $210,657 $75,650 $84,608 $84,608
See accompanying notes to financial statements
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS EQUITY
Deficit
accumulated
during
Common Stock Common Stock Preferred Preferred development Unaudited
Date Stock Stock stage Total
7-22-1994(1) 150 $100 $100
7-24-1994(2) 1,350 1,350 1,350
6-30-1995 Net loss (111,797) (111,797)
6-30-1995 1,500 1,450 (111,797) (110,347)
5-31-1996(3) 30,000 300 300
6-28-1996(4) 1,500,000 1,450 1,450
6-30-1996(5) 25,000 50,000 50,000
6-30-1996(6) 2,966 296,600 296,600
6-30-1996 Net loss (114,715) (114,715)
6-30-1996 1,555,000 51,750 2,966 $296,600 $(226,512) $121,838
11-30-1996 295 29,500 29,500
6-30-1997 Net loss (144,263) (144,263)
6-30-1997 1,555,000 51,750 3,261 $326,100 $(370,775) $(22,425)
Unaudited
9-30-1997 Net loss -115,001 -115,001
9-30-1997 1,555,000 $51,750 3,261 $326,100 $(485,776) $(137,426)
(1) Sale of 150 shares of common stock for $100.
(2) Exchange of shares of common stock for acquisition of license agreement.
(3) 30 shares of Common stock sold Pursuant to Reg. D at $10 per share restated
to 30,000 shares post forward split at $.01 per share.
(4) Forward split of common shares in a ratio of 1,000 to 1.
(5) Private placement of 25,000 shares of common stock at $2.00 per share for
$50,000.
(6) Conversion of $296,600 in debt into 2,966 shares of preferred stock at $100
par value each.
See accompanying notes to financial statements.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
Note 1. Organization of the Company and Issuance of Capital Stock
a. Creation of the Company
PPA Technologies, Inc. (the "Company") was incorporated on July 22,1994
under the laws of the State of New Jersey with an authorized number of common
shares of 2,500 no-par value. On June 20, 1996, the certificate of incorporation
was amended changing the number of common shares authorized to 10,000,000, no
par value each and 1,000,000 preferred shares, $100 par value each.
b. Description of the Company
The Company has under development and will manufacture and distribute
specialty chemicals and chemical additives.
c. Issuance of Common stock
On July 23, 1994, the Company sold 75 shares of common stock to Roger
Fidler and 75 shares of common stock to James Wright for a total consideration
of $100. On July 24, 1994, the Company acquired certain patented technologies
from Broadwater Developments, Inc. ("Broadwater"), a British Columbia
corporation for 375 shares of common stock and Gerald Sugerman for 975 shares of
common stock relating to coupling agents to be used as paint additives. The
Company has assigned a value of $1.00 per share of common stock or $1,350 as the
cost basis of this transaction.
On May 31, 1996, the Company sold, pursuant to a private placement under
"Rule 504" of the Securities Act of 1933, as amended, an aggregate of 30 shares
of common stock at $10 per share for an aggregate consideration of $300.
On June 28, 1996, the Company forward split the number of common shares
outstanding in the ratio of 1,000 to 1 restating the number of common shares
outstanding from 1,530 to 1,530,000.
As of June 30, 1996, the Company sold 25,000 shares of common stock at
$2.00 per share for a total of $50,000 through a private placement.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
d. Issuance of Preferred Stock
On June 30, 1996, the Company issued 2,966 shares of preferred stock to
Gerald Sugerman in exchange for moneys due plus accrued and unpaid salary and
moneys advanced to the Company aggregating $296,600 including accrued interest.
On November 30, 1996, the Company issued 295 shares of preferred stock to
Gerald Sugerman in exchange for moneys due for accrued and unpaid salary and
moneys advanced to the Company during the period July 1, 1996 through November
30, 1996 aggregating $29,500 including accrued interest.
Note 2. Summary of Significant Accounting Policies
a. Basis of presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$485,776 for the period from inception July 22, 1994 to September 30, 1997.
These factors indicate that the Company's continuation as a going concern is
dependent upon its ability to obtain adequate financing. The Company is
anticipating that with the completion of a public offering and with the increase
in working capital, the Company will experience an increase in sales. The
Company will require substantial additional funds to finance its business
activities on an ongoing basis and will have a continuing long-term need to
obtain additional financing. The Company's future capital requirements will
depend on numerous factors including, but not limited to, continued progress
developing its source of inventory, continued research and development and
initiating marketing penetration. The Company plans to engage in such ongoing
financing efforts on a continuing basis.
The financial statements presented at September 30, 1997, consist of the
balance sheet of the Company as at June 30, 1997 and the unaudited balance sheet
as at September 30, 1997 and the related statements of operations, cash flows
and stockholders equity for the year ended June 30, 1996 and 1997 and the
related unaudited statements of operations, cash flows and stockholders equity
for the three months ended September 30, 1996 and 1997.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
b. Cash and Cash Equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the straight line
methods. Maintenance and repairs are charged against income and betterment's are
capitalized.
d. Earnings per share
Earnings per share have been computed on the basis of total number of
shares outstanding at September 30, 1997. At that date, the total number of
common shares outstanding was 1,555,000.
e. Revenue recognition
Revenue is recognized when products are shipped or services are rendered.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g. Unaudited financial information
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of July 31,
1997 and the results of its operations and its cash flows for the seven months
ended July 31, 1997. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC's rules
and regulations of the Securities and Exchange Commission. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. PPA TECHNOLOGIES, INC. (A Development
Stage Company) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1997
Note 3. Related Party Transactions
a. Issuance of Common shares
On July 23, 1994, the Company sold 75 shares of common stock to Roger
Fidler and 75 shares of common stock to James Wright for a total consideration
of $100.
On July 24, 1994, the Company acquired certain patented technologies from
Broadwater Developments, Inc. ("Broadwater") for 375 shares of common stock and
Gerald Sugerman for 975 shares of common stock relating to coupling agents to be
used as paint additives. The Company has assigned a value of $1.00 per share of
common stock or $1,350 as the cost basis of this transaction.
b. Issuance of Preferred Stock
As of June 30, 1996 and November 30, 1996, the Company issued 2,969 and 295
shares of preferred stock respectively in consideration for the forgiveness of
$296,904 and $29,500 respectively in moneys due Gerald Sugerman. The shares of
preferred stock have preference as to liquidation, pay a 5% cumulative dividend
and may be redeemed by the Company at par value plus accumulated dividends for a
period of 5 years.
c. Employment Agreement
On June 30, 1995, the Company entered into a five year employment agreement
with Mr. Gerald Sugerman requiring the payment of a salary of $10,000 per month,
a royalty of 5% of gross sales until a total of $350,000 in royalties is earned
and thereafter a 2% royalty on gross sales.
For the year ending June 30, 1997 and for the three months ended September
30, 1997, Mr. Sugerman received $120,000 and $18,416 respectively.
d. Rental of Office Space
For the years ending June 30, 1996 and until May 31, 1997, the Company
occupied office space on a month to month basis at 8 Cambridge Drive, Allendale,
New Jersey.
e. Officer Compensation
For the period from July 22, 1994 to September 30, 1997, the Company has
paid or accrued a salary aggregating $250,000, of which $221,900 of accrued
salary and $104,200 in additional loans
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
payable and reimbursable expenses which were offset by the issuance of
3,261 shares of preferred stock representing $326,100. The balance of $28,100
due in salary was paid with cash. No other officers or employees were paid in
excess of $100,000.
Note 4 - Marketable Securities, Available for Sale
The Company adopted Financial Accounting Standards Board ("FASB") Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
which requires that investments in equity securities that have readily
determinable fair values and investments in debt securities be classified in
three categories: held-to-maturity, trading and available-for-sale. Based on the
nature of the assets held by the Company and Management's investment strategy,
the Company's investments have been classified as available-for-sale. Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date.
Securities classified as available-for-sale are carried at estimated fair
value, as determined by quoted market prices, with unrealized gains and losses,
net of tax, reported in a separate component of stockholders' equity. At June
30, 1997 and September 30, 1997, the Company had no investments that were
classified as trading or held-to-maturity as defined by the Statement.
The following is a summary of cash, cash equivalents and available for sale
securities by balance sheet classification at June 30, 1997:
Estimated
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
Cash $ 210,657 $-0- $-0- $210,657
Total cash and cash
equivalents $ 210,657 $-0- $-0- $210,657
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at September 30, 1997:
Estimated
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
Cash $84,608 $-0- $-0- $ 84,608
Total cash and cash
equivalents $84,608 $-0- $-0- $ 84,608
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
Note 5 - Inventory
Inventory has been recorded at the lower of cost or market under the
first-in first-out method. At June 30, 1996 and 1997, inventory of raw materials
was $42,678 and $37,648 respectively.
Note 6 - Capital Assets
Capital Assets consisted of the following at June 30, 1997:
Accumulated
Asset depreciation Balance
Office equipment 35,927 $7,370 $28,557
Capital Assets consisted of the following at September 30, 1997:
Accumulated
Asset Depreciation Balance
Office equipment $36,237 $9,192 $27,045
Leasehold Improvements 10,034 2,925 7,109
Manufacturing Equipment 107,971 5,398 102,573
Total $154,242 $17,515 $136,727
Note 7 - License Agreement
On October 24, 1994, the Company entered into an agreement with Broadwater
and Pi-Tech, Inc., ("Pi-Tech"), a Delaware corporation controlled by Broadwater
and Gerald Sugerman for the licensing of certain patented technologies relating
to coupling agents used in paints. The Company acquired the licensing agreement
for 375 shares of common stock with Broadwater and 975 shares of common stock
with Gerald Sugerman.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
Note 8 - 12% Convertible Bridge Notes
Beginning May 1, 1996, the Company offered 12% Convertible Bridge Notes
("Notes") and then sold under Rule 504 to the Securities Act of 1933, as
amended, 20 Units consisting of a $25,000 Convertible Note bearing interest of
12% and is convertible, in whole or in part, into up to a maximum of 8,300
shares of common stock. The term of the note is two years with interest payable
annually in arrears. Each Debenture is in the face amount of $25,000 and may be
sold in 1/2 Units.
As of June 30, 1997, the Company has borrowed an aggregate of $296,250
evidenced by the following promissory notes: Note dated May 1, 1996 in the
principal amount of $25,000, Note dated September 20, 1996 in the principal
mount of $15,000, Note dated April 30, 1997 in the principle amount of $11,250,
Note dated May 13, 1997 in the principal amount of $50,000, Note dated May 30,
1997 in the principal amount of $25,000 and Note dated June 19, 1997 in the
principal amount of 120,000 and Note dated July 15, 1997 in the amount of
$50,000 and with accrued interest of $11,952.
In the event of a public offering of the Company's stock, the Company may
compel the conversion of the Notes by paying the Note and accrued interest at
the closing of the public offering.
The indebtedness evidenced by the Notes is of equal priority regardless of
the date of any individual Note and is subordinate and junior to any and all
other indebtedness of the Company, whenever incurred, except indebtedness which
by its terms is expressly subordinated in right of payment to the Notes.
The Company has reserved sufficient authorized but unissued shares for
conversion of the Convertible Notes which shares, upon issuance and delivery,
will be duly and validly issued, fully paid and nonassessable.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
Note 9 - Preferred Stock
On June 20, 1996, the certificate was amended authorizing the issuance of
1,000,000 shares of preferred stock. The preferred stock may be issued in such
classes and with such preferences as the board of directors may, from time to
time, decide in their sole discretion.
As of November 30, 1996, the Company issued an aggregate of 3,261 shares of
preferred stock in consideration for the forgiveness of $326,100 in moneys due
Gerald Sugerman consisting of $221,900 in accrued salary per the employment
agreement and $104,200 in officer loans payable for moneys advanced to the
Company. The shares of preferred stock have preference as to liquidation, pay a
5% cumulative dividend and may be redeemed by the Company at par value plus
accumulated dividends for a period of 5 years.
Note 10 - Commitments and Contingencies
a. Lease Agreements
Through March 13, 1997, the Company occupied laboratory, plant and
warehousing space in Perkasie, Pennsylvania on a month to month basis for $500
per month.
On March 13, 1997, the Company entered into a lease agreement with an
unrelated parted for office and warehousing space at 163 South Street,
Hackensack, New Jersey for a period of 4 years with a monthly rent of $2,500 and
real estate taxes payable separately. The lease requires deposit of 2 months
rent aggregating $5,000. The minimum lease payments each of the next four years
is $30,000. The Company has an option to renew the lease for an additional 4
years at a rental equal to the higher of $30,000 per year or $30,000 per year
plus 90% of the Consumer Price Index for April, 1997.
b. Employment Agreement with Gerald Sugerman
On May 23, 1995, the Company entered into an employment with Gerald
Sugerman as Vice President for Scientific Affairs. The Company is obligated to
pay Mr. Sugerman 10,000 per month, life insurance equal to twice the his annual
salary, medical and disability insurance, automobile expenses equal to $0.30 per
mile, four weeks paid vacation, five sick days, three personal days, all of
which will be accumulated if not taken, reimbursement for travel and promotion
expenses, 5% of net sales until Mr. Sugerman has received $350,000, 2% of net
sales thereafter and Mr. Sugerman is granted an option to purchase up to 850,000
shares of common stock at $1.00 per share for a period of 4 years beginning July
1, 1996.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
As of September 30, 1997, the Company has reserved 850,000 shares of common
stock pending the exercise of this option
c. Employment agreement with Roger Fidler
In February, 1996, the Company entered into an employment agreement with
Roger Fidler as President and Director of Marketing. The Company is obligated to
pay Mr. Fidler a commission on sales equal to 15% of sales of coupling agents,
ink and paint vehicles and 10% of hard resin sales. Commissions on other
products sold through the efforts of Mr. Fidler will be negotiated in good faith
from time to time, but will be based upon the above scale as modified for
differences in the costs of production of the goods sold. The commissions will
be paid only on accounts opened by Mr. Fidler and will be paid for the term of
the contract and for one year after termination. Commissions will not be paid on
existing customers for the purchase of products presently purchased by them.
Upon the successful conclusion of a financing in excess of $500,000 or
sales of $2,000,000 per annum, whichever will occur first, Mr. Fidler will be
entitled to Company paid life insurance plan equal to twice his annual salary,
medical and disability insurance, automobile expenses equal to $0.30 per mile,
reimbursement for travel and promotion expenses Mr. Fidler is granted an option
to purchase up to 425,000 shares of common stock at $1.00 per share for a period
of 4 years beginning July 1, 1996.
As of June 30, 1997 and September 30, 1997, the Company has reserved
425,000 shares of common stock pending the exercise of this option
d. Letter of Intent for Corporate Financing
On April 15, 1996, the Company entered into an financing agreement with
Kenneth Jerome & Co., Inc. of Florham Park, New Jersey concerning an initial
public offering of 1,000,000 Units at $6.00 per Unit for an aggregate of
$6,000,000. Each Unit consisting of 1 share of common stock and 1 five-year
common stock "A" Purchase Warrant. Each Warrant entitling the owner to purchase
1 share of common stock at an exercise price of $7.00. The aggregate amount of
the public offering is subject to adjustment to include in the initial public
offering an over-allotment of 15%. The Company may redeem at $0.05 per class "A"
Warrant provided, however, that the closing bid price of the Company's common
stock in the over-the-counter market as reported by NASDAQ will have for 30
consecutive business days ending 15 days of the date of redemption average in
excess of $8.50 per share (subject to adjustments in the case of a reverse stock
split, stock dividend, etc.).
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
The Company, after applying the net proceeds of the initial public offering
must meet the criteria for listing on either NASDAQ or a regional exchange. The
Company will prepare and file with the Securities and Exchange Commission a
Registration Statement on Form SB-2 for the maximum number of Units offered:
a. 1,150,000 Units, each Unit consisting of one share of common stock and
one five-year common stock A Purchase Warrant, including the over-allotment.
b. 1,150,000 shares of common stock to be issued upon closing, 1,150,000
shares of common stock to be issued upon exercise of the A Warrants and 115,000
shares of common stock to be issued upon exercise of the Underwriter's Warrants.
c. The Company will pay all expenses of the proposed offering and the
issuance, sale and delivery of all of the Units, accounting and legal fees, cost
of "tombstone" advertisements not to exceed $5,000, 3% non-accountable expenses
or a maximum of $207,000 and all administrative costs.
d. The gross commission to the Underwriter will be 10% of the total
proceeds of the public offering.
e. If the offering is sold within the Underwriting Period, the Company will
sell to the Underwriter, Underwriter's Warrants to purchase Units which Units
will equal 10% of the Units offered to the public, at a price of $.001 per
Underwriter's Warrant. The exercise price of the Underwriter's Warrant will be
approximately 120% of the offering price of the Units. The Underwriter's
Warrants will be exercisable for a period of 4 years following the expiration of
1 year from the Effective Date. The Company agrees that it will, upon request by
the Underwriter, within the period commencing 12 months from the Effective Date,
and for a period of 4 years thereafter, on one occasion, at the Company's
expense, file a post-effective amendment to Register the Underwriter's Warrants.
f. The Underwriter's Warrants will contain various anti dilution provisions
which will protect the Underwriter as to the exercise price of the Underwriter's
Warrants and the percentage of common stock to which the Underwriter is
entitled.
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
g. Non statutory Stock Option Plan
On January 1, 1997, the Company adopted a Non statutory Stock Option Plan
("Plan"). 300,000 shares of common stock are reserved under the Plan. The Plan
is administered by the Board of Directors. Stock options under the Plan may be
granted to employees, officers, directors, consultants of the Company or any
other parties who have made a significant contribution to the business and
success of the Company. The exercise price under the Plan may be more equal to
or less than the current market price of the Shares of Common Stock. At June 30,
1997 and September 30, 1997, the number of options granted pursuant to this
program is -0-. As of June 30, 1997 and September 30, 1997, the Company has
reserved 300,000 shares of common stock pending the issuance and exercise of
options into shares of common stock.
h. Stock Grant Program
The Company has adopted a stock grant program with 200,000 shares of common
stock. The stock grant program provides for the issuance to officers, directors
and key employees stock grants as determined by the Board of Directors. The
recipient must continue employment with the Company for two years after the
grant is made or forfeit the stock.
As of June 30, 1997 and September 30, 1997, the number of shares of common
stock granted pursuant to this program is -0-.
As of June 30, 1997 and September 30, 1997, the Company has reserved
200,000 shares of common stock pending issuance.
Note 11 - Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of June 30, 1997 and September 30,
1997, the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carryforward and was fully
offset by a valuation allowance.
At September 30, 1997, the Company has net operating loss carry forwards
for income tax purposes of $485,776. These carryforward losses are available to
offset future taxable income, if any,
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
and expire in the year 2010. The Company's utilization of this carryforward
against future taxable income may become subject to an annual limitation due to
a cumulative change in ownership of the Company of more than 50 percent.
The components of the net deferred tax asset as of June 30, 1997 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 165,164
Valuation allowance $(165,164)
Net deferred tax asset $-0-
The Company recognized no income tax benefit from the loss generated in the
year ended June 30, 1997. SFAS No. 109 requires that a valuation allowance be
provided if it is more likely than not that some portion or all of a deferred
tax asset will not be realized. The Company's ability to realize benefit of its
deferred tax asset will depend on the generation of future taxable income.
Because the Company has yet to recognize significant revenue from the sale of
its products, the Company believes that a full valuation allowance should be
provided.
Note 12 - Business and Credit Concentrations
The amount reported in the financial statements for cash, trade accounts
receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost. Financial
instruments that potentially subject the company to credit risk consist
principally of trade receivables. Collateral is generally not required.
Note 13 - Supplemental Cash Flow Information
The following is supplemental cash flow information for the Company for the
period from inception July 22, 1994 to September 30, 1997:
Acquisition of licensing agreement for 1,350 shares
of common stock $ (1,350)
Issuance of 3,261 shares of preferred stock in
settlement of note payable to Gerald Sugerman $(326,100)
Capital stock 327,450
Total $ -0-
PPA TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1997
Note 14 - Development Stage Company
The Company is considered to be a development stage company with little
operating history. The Company is dependent upon the financial resources of the
Company's management for its continued existence. The Company will also be
dependent upon its ability to raise additional capital to complete is marketing
program, acquire additional equipment, management talent, inventory and working
capital to engage in profitable business activity. Since its organization, the
Company's activities have been limited to the entering into the marketing of
providing limited quantities of chemical coupling agents and other chemical
additives at competitive pricing, hiring personnel, acquiring equipment and
warehousing space, conducting research and development of its formulas and
preparation of documentation and the sale of a private placement offering.
Note 15 - Subsequent Events
a. Registered Offering
The Company is offering a minimum of 1,000,000 Units to a maximum of
1,150,000 Units at an offering price of $6.00 per Unit. Each Unit consists of 1
share of common stock and one redeemable common stock "A" Purchase Warrant,
exercisable into 1 share of common stock per warrant for a period of 5 years
from the effective date of the registration statement of which this prospectus
is a part at an exercise price of $7.00 per share. The "A" Purchase Warrants are
redeemable at the Company's option commencing 90 days after the effective date
upon 30 days notice to the Warrant holders at $.05 per Warrant if the closing
bid price of the common stock in the over-counter-market as reported by NASDAQ
will have for a period of 30 consecutive trading days ending within 15 days of
the notice of redemption average in excess of $8.50 per share (subject to
adjustments in the case of a reverse stock split, stock dividend, etc.). Since
it is the Company's present intention to exercise such right, Warrant holders
should presume that the Company would call the Redeemable Warrants for
redemption if such criteria are met. The Redeemable Warrants are immediately
detachable and separately tradable from the Units upon issuance.
The shares are being offered by the Company and/or selected dealers on a
"firm commitment basis". The Underwriter will purchase 1,000,000 Units for later
resale, and has reserved the right to purchase up to an additional 150,000 Units
on the date of the Initial Public Offering in case of over booking of sales. The
Company has agreed to sell to the Underwriter, at a nominal price, warrants to
purchase 10% of the number of shares sold by the Underwriter or dealers at an
exercise price of $7.20 per share, which warrants will be exercisable for four
years commencing one year after issuance.
b. Conversion Of Notes Payable
Subsequent to the date of the financial statements, the Company converted
$85,000 plus accrued interest of nates payable into an aggregate of 42,500
shares of common stock.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers.
The By-Laws of the Company provide for indemnification of officers and
directors to the maximum extent allowed by the law of New Jersey, set forth in
greater detail below.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and persons controlling the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Article VII of the By-Laws of the Company provide for the maximum
indemnification allowed by the law of the State of New Jersey as follows:
"Every person who is or was a director, officer, employee or agent of
the Corporation, or of any corporation which he has served as such at
the request of the Corporation, shall be indemnified by the Corporation
to the fullest extent permitted by law against all expenses and
liabilities reasonably incurred by or imposed upon him, in connection
with any proceeding to which he may be made, or threatened to be made,
a party, or in which he may become involved by reason of his being or
having been a director, officer, employee or agent of the Corporation,
or such other corporation, at the time the expense or liabilities are
incurred."
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts) are estimated as follows:
Registration Fee-Securities and
Exchange Commission..................... $ 5,025.00
NASD Fee ................................... 2,175.00
Transfer Agent's Fee and Expenses .......... 2,800.00
Legal Fees and Expenses .................... 100,000.00
Blue Sky Fees and Expenses ................. 15,000.00
Printing Expenses (including securities) ... 25,000.00
Miscellaneous .............................. 25,000.00
Total.............................. $175,000.00
Estimated.
ITEM 26. Recent Sales of Unregistered Securities
The following sales made by the issuer within the past three years were
made under circumstances not involving any public offering, and which were
exempt from the registration requirements of the Securities Act of 1933, as
amended, by reason of Section 4(2) thereof and/or the Rules and Regulations
promulgated thereunder, specifically, Rule 504, Regulation D:
Purchaser Security Amount Date Consideration
- ----------------------------------------------------------------
Robert Kaplon Common 30,000 shares 3/15/95 $ 300
Gary Metzger Common 25,000 shares 6/30/96 $50,000
AMCO Plastics Common 12,500 shares 11/30/96 $25,000
An Lou Chang Common 30,000 shares 07/01/97 $60,000
Eve Chang Debt $60,000 note 07/01/97 $60,000
Carl D. Fraley Debt $50,000 note 07/01/97 $50,000
Ray Beeler Debt $50,000 note 07/01/97 $50,000
Henry MacUga Debt $25,000 note 07/01/97 $25,000
Haskell Bernat Debt $25,000 note 07/01/97 $25,000
Edward Santangelo Debt $25,000 note 07/01/97 $25,000
Martin Santangelo Debt $25,000 note 07/01/97 $25,000
David Schotz Debt $25,000 note 07/01/97 $25,000
Lois S. MacUga Debt $12,500 note 07/01/97 $12,500
Aaron Lehman Debt $12,500 note 07/01/97 $12,500
David Lipson Debt $12,500 note 07/01/97 $12,500
ITEM 27. Exhibits and Financial Statement Schedules
1.(a) Form of Underwriting Agreement
(b) Form of Selected Dealers Agreement
3.(a) Registrant's Certificate of Incorporation
(b) Amendment to Certificate of Incorporation
(c) Registrant's By-Laws
4.(a) Specimen Security Certificate
(b) Form of Warrant*
(c) Form of Underwriter's Warrant
(e) Form of Warrant Agreement
5.(a) Consent and Opinion of Roger Fidler*
10. Material Contracts
(a) Employment Agreement between the Company
and Gerald Sugerman
(b) Employment Agreement between the Company
and Roger Fidler
(c) Lease
24.(a) Consent of Thomas Monahan, Certified Public
Accountant
* To be filed by Amendment
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes that:
(A) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and,
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement, including
(but not limited to) any addition or deletion of a managing underwriter.
(B) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration, by means of a post-effective amendment to
the Registration Statement, any of the securities offered hereby which are not
sold pursuant to the terms of this offering.
(D) Will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names are required by the underwriter to permit prompt delivery to each
purchaser.
(E) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amendment
No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hackensack and State of
New Jersey, on the 4th day of December, 1997.
PPA TECHNOLOGIES, INC.
BY: /S/ Roger Fidler
Roger Fidler, President
Chief executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/S/ Roger Fidler President, December 5, 1997
Roger Fidler Director
/S/ Gerry Sugerman Director, December 5, 1997
Gerry Sugerman Treasurer,
Secretary,
Chief Financial and
Accounting Officer
/S/ James Wright Director, December 5, 1997
James Wright