U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998.
Commission file number: 33-26789NY
EFTEK CORP.
(Name of small business issuer in its Charter)
Nevada 93-0996501
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
324 New Brooklyn Road
Berlin, New Jersey 08009
(Address of Principal Executive Offices)
Registrant's Telephone Number: (609) 753-4344
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
None None
Securities to be registered under Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes: No: X
State issuer's revenues for its most recent fiscal year: $1,587,049
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of March 31, 1999 was approximately $1,080,000 based
on the average high and low bid prices for such common stock as reported
on the O-T-C Bulletin Board.
The number of shares of Common Stock outstanding as of November 9, 1999
was 11,974,772. The number of Class A Redeemable Common Stock Purchase
Warrants outstanding as of November 9, 1999 was 65,412. The number of
Class B Redeemable Common Stock Purchase Warrants outstanding as of
November 9,1999 was 82,824.
Documents Incorporated by Reference - Various exhibits from the Company's
Post-Effective Amendment No. 1 to Form S-18 Registration Statement, SEC
File No. 33-26789NY filed June 1, 1989 and such other documents contained
in Item 13(a)(iii).
Transitional Small Business Disclosure Format (Check One): Yes No X
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
The Company was incorporated in the State of Nevada on December 30, 1988.
The Company became a Public Company by filing and registering with the
Securities and Exchange Commission under Form S-18, certain Units
consisting of four shares of common stock and forty Class A and forty
Class B redeemable common stock purchase warrants. Its Registration
Statement became effective on June 1, 1989.
On January 5, 1990, Savoy Capital Group, Ltd. acquired all of the
outstanding common stock of Exotic Bodies, Inc., a Pennsylvania
Corporation, which became a wholly owned subsidiary of Savoy Capital
Group, Ltd. in exchange for 15,857,600 shares of the Company's Common
Stock. Pursuant to said Agreement, Savoy Capital Group, Ltd. amended its
Certificate of Incorporation to change its name to Exotic Bodies, Inc.,
and the wholly owned subsidiary changed its name to Exotic Bodies of
Pennsylvania, Inc.
The Company operating under the name Exotic Bodies, Inc., endeavored to
begin operations of automobile theme museums and entertainment complexes
featuring the display of exotic, European automobiles and associated
exotic car products and services. The Company's attempt to setup and
operate such exotic automobile theme museums was unsuccessful and the
Company essentially ceased such operations in mid-1992 and began to search
for a suitable acquisition candidate.
On July 25, 1994, the Company completed the acquisition of R & D
Innovators, Inc., a New Jersey corporation, engaging in the development,
manufacturing and sales of equipment for the bottling and packaging
industry.
Effective August 15, 1994, the Company amended its Certificate of
Incorporation to change its name to EFTEK Corp., and on August 22, 1994
the Company effected a 1 for 17 reverse stock split.
Effective May 22, 1997, the Company effected a 1 for 3 reverse stock split
of the Company's common stock which trades on the OTC Bulletin Board. In
addition, the Company changed its trading symbol on the OTC Bulletin Board
to "EFTX." The outstanding Class A and Class B Warrants remained the
same.
GENERAL
After several years of research and development, the Company has developed
an advanced operational system that utilizes recycled broken glass (known
as cullet), that is usually only suitable for landfills, to produce an end
product that the Company has named "Glassflour", a furnace-ready raw
material for fiberglass insulation and potentially suitable for glass
container manufacturers.
One of the major materials recycled in the United States is glass. When
glass is recycled, it is usually color separated at trash sorting
facilities and by haulers. Due to the inherent fragile characteristics of
this material, and the handling procedures during the entire recycling
process, a large percentage of all recyclable glass breaks and is
commingled with contaminants and garbage and becomes amorphous cullet,
which is unsuitable for cost effective color separation and ends up in
landfills or, at best, goes in limited quantities to asphalt production.
At the same time, cullet is a very valuable raw material for fiberglass
and glass container manufacturing. It has a lower viscosity than other
glass making material (sand, plate glass) and liquifies at lower
temperatures than these other materials. As a result, not only does the
melting process speed up, but the wear of the furnace refracting bricks
lessens (leading to its longer production life) and creates a substantial
savings of natural gas, the principal fuel for glass furnaces.
A Federal Department of Energy study claims that every 10% increment of
recycled glass in a batch reduces energy demand by 2% - 3%. The US Glass
Packaging Institute estimated that in a standard size furnace for every
10% increase in cullet, the annual consumption of gas is reduced by about
24.5 million cubic feet. Also, cullet use in glass production is more
environmentally sound, since it reduces the use of landfills and lowers
furnace air emissions. Landfill space availability, especially in
Metropolitan areas, is becoming more scarce. Incinerator disposal of
waste materials is growing. Some waste materials such as presently
unusable glass cannot be disposed of by incineration, but are disposed of
in landfills. Unusable scrap glass, referred to as cullet, can be
recycled if the contaminants can be removed. Manufacturers of fiberglass
and glass containers do use clean cullet, even in relatively small amounts
of different colors of commingled glass. The Company believes that the
U.S. fiberglass market for cullet is at least several hundred thousand
tons annually.
Cullet use in glass production is more environmentally (and therefore
politically) sound, since it lowers furnace air emissions and takes the
pressure off the landfills. However, cullet use has not been substantial.
The major reason is the presence of contamination contained in an average
batch of cullet. While there have been ways developed to automatically
remove paper, plastics and metals, organics and ceramics are still a
problem, precluding the large scale use of cullet in fiberglass and glass
bottle production. The melting temperature of ceramics is higher than
that of glass and, as a result, unmelted ceramic seeds and stones block
(and often damage) fiberglass spinners and disrupt the whole manufacturing
process.
So far, ceramics have been removed from cullet for the most part manually.
This method is not only unreasonably expensive, but highly ineffective as
well. While non-transparent ceramic pieces (still only the larger ones)
can be removed this way, fragments of ceramics, which look very similar to
glass, go undetected and cause an unacceptably high level of cullet
contamination. The Company believes it has resolved this problem in a
combination of proprietary operations and processes.
The Company believes that its process creates a clearly defined
competitive advantage over other cullet processors. The quality, cost
savings, environmental and other advantages are even more important as
several state governments are mandating that glass manufacturers use
larger amounts of cullet in their production facilities. The combination
of economics and legislation puts the Company in a potentially lucrative
position to fill a massive void in the growing demand for purified cullet.
The Company's program for processing 3 mix cullet consists of machinery
that removes organics, paper, plastic, ceramics and other contaminants.
The process begins with receipt of cullet from recyclers and other
material recovery facilities (MRF). The raw material is then dumped into
a trommeling system for precleaning. During the next phase of production,
the product is drawn down a conveyor and sent through a wash cycle where
the washer floats out any light plastics and non-ferrous metals such as
aluminum. The product is then sent to a dryer.
Following the drying process non-transparent contaminants such as opaque
ceramics, stones, rocks, etc. are removed. The product then goes through
a metal detector which takes out all remaining metals. The final step of
the process is to size the cullet to the customer's satisfaction. The
finished product is loaded in trucks and rail for delivery to customers.
The removed contaminants are typically a small percentage of the total.
All materials separated from the cullet will be disposed of in the most
economical acceptable manner.
The successful qualification process has led to the recognition of the
high quality and economic advantages of Glassflour as a raw material in
the manufacturing of fiberglass insulation. As a result, the Company has
also received commitments by its customers for certain minimum/maximum
demand levels for its product should additional processing plants be
developed at various locations in close proximity to other insulation
manufacturing facilities. Commitments have been received for the purchase
of up to 80% of the anticipated 100,000 ton, two-shift capacity, of a
proposed processing facility in northern California near Sacramento.
The Company has identified a suitable plan site, negotiated a favorable
lease agreement, received preliminary approval for both taxable and
tax-free bond financing from the California Pollution Control Financing
Authority, pending completion of certain requirements and is currently
seeking a capital infusion for working capital. Possession of the
property can be as early as November 1999, with installation of the
processing line started shortly thereafter. The product qualification
process and start up phase could commence within six months of the start
of installation.
INCOME FROM RAW MATERIAL ACCEPTANCE
What the Company believes is unique to the recycling industry, various
waste removers, haulers and other recycling companies pay landfills or
other environmentally acceptable depositories tipping fees for the
disposal of unusable mixed cullet, which can range from $0 to $10 per ton
on the average, depending upon location, availability and degree of
contamination.
The Company as a processor of mixed cullet began receiving deliveries from
various recyclers within a 150 mile range. Tipping fees vary, depending
on volume and condition, delivered to the Company's processing plant.
As a processor of mixed cullet, the Company believes that it is complying
with all special permits required and other regulations from State or
Federal agencies.
FUTURE PLANS
The Company is considering opening plants in locations where cullet
supplies are available and there are customers within a reasonable radius.
Subject to adequate financing, plants in the States of California,
Georgia, Kansas, as well as other states are being considered as suitable
locations.
One of the major challenges facing the Company is how to finance these new
plants with preserving a majority of the Company. Equity financing (sale
of stock) is a reduced option because of the relatively low stock price.
A substantial amount of debt is unattractive if in fact the profit
potential is reduced because of the high interest payments. That is why
the Company is working with states such as California to provide economic
development bonds or other grants or programs that will reduce the
interest rate and/or contribute to the profit of the Company. There is no
assurance that such efforts will be successful. The Company has already
announced that it had a Letter of Intent from a financial institution to
obtain a Direct Pay Letter of Credit which was one of the prerequisites
for funding by the State of California. However, efforts to obtain such
Direct Pay Letter of Credit have not yet been consummated and there is not
assurance that it will ever be consummated. In the meantime, the Company
is pursuing alternative sources.
RISKS AND UNCERTAINTIES
Although the Company's proposed plans have a high upside potential, share-
holders are cautioned that there are also substantial risks including, but
not limited to, the following: 1) Requirements for acceptance of the
Company's Glassflour by the proposed end users may be too restrictive
to economically satisfy; 2) New technologies may be developed to satisfy
end users' requirements; 3) Raw mixed cullet may become too scarce
affecting availability, or too abundant, reducing or eliminating tipping
fees; 4) Government regulations may either change or be interpreted
differently; 5) The Company could encounter higher operational costs or
delays; 6) or other unforeseen circumstances could arise to adversely
affect the Company's operations.
FIRE DOCTOR, INC.
In April 1996, the Company acquired 100% of the stock of Fire Doctor, Inc.
("Fire Doctor"). After the reorganization, Fire Doctor became a wholly
owned subsidiary of EFTEK.
Fire Doctor developed and markets a proprietary chemical formula designed
to retard the spread of flame. Fire Doctor has been in business for
approximately four years, three years of which it devoted to developing a
product line of fire retardant chemicals. Their main product, Fire
Barrier II, was recognized under the Component Recognition Program of
Underwriters Laboratories, Inc. until its registration period expired in
1999.
Fire Doctor has submitted the product for testing to various independent
testing organizations which results have shown that use of the product is
an effective treatment on natural and most synthetic fibers as well as
natural wood and is non-toxic and a non-irritant. During 1997, Fire Doctor
sold several tanker loads of Fire Barrier II as a "value added" product
which was included in Majic Kidproof Fire Retardant Wall Paint which is
manufactured and marketed by Yenkin-Majestic Paint Corporation. However,
to date, despite substantial marketing efforts, Fire Doctor has still not
experienced substantial sales due to what it believes to be limited
capital and long lead times. As a result, EFTEK Corp. has ceased funding
the Fire Doctor operations and is actively seeking a buyer for the
subsidiary.
ITEM 2. DESCRIPTION OF PROPERTY
The Company relocated its principal business offices to the industrial
office building that was purchased in June 1996. The Company purchased an
approximate 137 acre industrial compound located in Winslow Township, New
Jersey, from High Concrete Structures, Inc., for the total consideration
of $650,000. There are currently seven structures located on the property
totaling 148,000 square feet, including an 72,000 square foot industrial
plant and a 8,000 square foot commercial office building. The Company
houses its proprietary 3-Mix Cullet processing operations in the 72,000
square foot facility.
Fire Doctor, Inc., a subsidiary of the Company, utilized office space at
Plaza 1000, Suite 309, Voorhees, New Jersey 08043 until its operations
were suspended.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1998, there were no material actions, proceedings or
litigations pending at that time, or to the knowledge of the Company,
threatened, to which the property of the Company was subject, or to which
the Company was a party that have not otherwise been settled or in the
final stages of settlement, except for the following matters. A suit by
C&D Marketing for "finder's fees" for some clients which the Company has
done business with. The Company contests such fees and believes that the
claim is without merit. A non-binding arbitration was conducted by former
counsel to the Company in which there was a finding against the Company
with respect to liability only. However, EFTEK has appealed the
arbitration award and the matter should go to trial during the course of
the next six months. In addition, Celia Pringle has filed a lawsuit for
failure to timely remove a restrictive legend from her stock so she could
sell her stock at a higher value. The Company believes that the claim has
no merit. Counsel for the Company has obtained an Order Dismissing the
Complaint for Plaintiff's failure to answer interrogatories. In the event
that interrogatories are not answered in the next sixty days by Plaintiff,
the Company will move to dismiss the Complaint with prejudice.
As a subsequent event, the following suits were filed against the Company:
BFI Waste, Inc. v. CFC, Inc. is a litigation matter that arises out the
alleged goods or services provided by BFI Waste, Inc. to CFC, Inc. BFI
contends that CFC failed to tender payment for cullet. However, the
Company has filed a counterclaim in which the Company states that the
cullet provided was not in accordance with the contract between the
parties alleging damages well in excess of any monies due and owning BFI
Waste, Inc. The most recent suit filed against EFTEK Corp. was by Frank
Pringle, former Chief Executive Officer of EFTEK Corp. Mr. Pringle
alleges a breach of employment contract and demands compensatory and
punitive damages. EFTEK Corp. denies liability for the causes of action
set forth in the Complaint and specifically contends that Frank Pringle
failed to perform the tasks required of him.
The Company has been sued by several vendors resulting in judgments for
amounts less that $100,000. The Company is in the process of negotiating
settlements with these vendors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters put to a vote of the security holders during the
fourth quarter of fiscal 1998. However, the Company's 1997-1998 Annual
Shareholder's Meeting was held on January 22, 1998, at which time three
matters were submitted to the Company's stockholders for a vote. The
majority of the stockholders voted for the following: 1) Appointment of
Directors: Frank Whitmore, Thomas L. Brandt, Oleg Batratchenko, Kevin J.
Coffey, Esquire, Gerard T. Wisla and Michael L. Newsom; 2) Baratz &
Associates, P.A., as the Company's independent auditors for fiscal year
1997 and fiscal year 1998; 3)Adoption of an Amendment to the 1996 Stock
Incentive Plan which increased the plan by 400,000 shares. The proxy
tabulation was as follows: 8,016.908, 8,022,990 and 7,924,220,
respectively.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted in the Over-The-Counter market on the
OTC Bulletin Board under the trading symbol "EFTX". The following table
indicates the high and low bid prices of the Common Stock from January
1996 to September 30, 1999 for the quarterly periods ended on the dates
set forth (reflecting the Company's common stock 1 for 17 reverse stock
split in August, 1994 and a 1 for 3 reverse stock split in May, 1997).
QUARTERLY PERIOD ENDED HIGH BID LOW BID
1996
March 31 1-1/2 5/8
June 30 1-1/16 3/4
September 30 1-1/8 7/16
December 31 1-1/2 3/4
1997
March 31 1-15/32 9/16
June 30 2 26/32 1 5/8
September 30 2 3/16 1
December 31 1 7/16 5/8
1998
March 31 5/8 5/16
June 30 1/2 1/16
September 30 9/32 1/16
December 31 1/3 1/8
1999
March 31 3/8 3/17
June 30 1/4 1/7
September 30 5/16 3/32
As of November 9, 1999, the high and low bid quotations for the Company's
Common Stock were $.16 and $.12.
No price is currently available for the redeemable warrants which have
been restructured so that each warrant (after the 1 for 17 reverse stock
split and a 1 for 3 reverse stock split) permits the warrant holder to
purchase 6 shares of the Registrant's common stock at an exercise price of
$2.00 per share, with an extended expiration date for the warrants of
December 31, 1999.
There are approximately 252 holders of record of the Company's common
stock, however, the Company believes that its beneficial shareholders are
in excess of 700 in street name in various brokerage accounts. The
Company has never declared a dividend on its common stock and does not
plan to do so in the near future. The prices set forth above are not
necessarily indicative of the depth of the trading market of the Company's
common stock. These over-the-counter market quotations reflect
inter-dealer prices without markups, markdowns, or commissions and may not
necessarily reflect actual transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
CAUTIONARY STATEMENT
- ---------------------
When used in this Report on Form 10-KSB/A and in other public statements,
both oral and written, by the Company and Company officers, the words
"estimates," "project," "intend," "believe," "anticipate," and similar
expressions, are intended to identify forward-looking statements regarding
events and financial trends that may affect the Company's future operating
results and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors include, among others: 1) the
Company's success in attacting new business; 2) the size, duration and
timing of orders of Glassflour; 3) the termination, delay or cancellation
of orders of Glassflour; 4) the competition in the industry in which the
Company competes; 5) the Company's ability to obtain financing on
satisfactory terms; 6) the sensitivity of the Company's business to
general economic conditions; 7) efficiency of production lines; 8)
availability and economic feasibility of receiving mixed cullet; and 10)
other economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and
prices. The Company undertakes no obligations to publicly release the
result of any revision of these forward-looking statements to reflect
events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
- ----------------------
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
- -----------------------------------------------------------------------
Revenue for the year ended December 31, 1998 increased 358% to $1,586,467
as compared to $443,727 for the year ended December 31, 1997. The
increase in revenues is attributable to the completion of the first full
year of operations of the Company's wholly owned subsidiary, CFC, Inc.
Cost of revenues for the year ended December 31, 1998 increased 144% to
$605,510 as compared to $419,959 for the year ended December 31, 1997.
The increase in cost of revenues is attributable to the increased
production and operations of the Company's wholly owned subsidiary, CFC,
Inc.
Selling, general and administrative costs for the year ended December 31,
1998 increased 112% to $1,696,979 as compared to $1,516,503 for the year
ended December 31, 1997. The increase in selling, general and
administrative costs is attributable to payroll and related operating
costs of CFC, Inc.
Other income (expenses) for the year ended December 31, 1998 increased
182% to $104,833 as compared to $57,525 for the year ended December 31,
1997. The increase in other income (expenses) is principally attributable
to interest expense of $124,574.
Net loss for the year ended December 31, 1998 decreased to $1,394,850
compared to $1,688,580 for the year ended December 31, 1997, due to the
above factors.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
The Company's primary source of funds was the sale of in excess of 35,000
tons of Glassflour during 1998.
Additionally, certain shareholders and key employees have loaned the
Company in excess of $235,000 since 1996. Key management employees,
including the Company President, Chief Financial Officer and Vice
President of Operations have deferred the receipt of compensation and
expense reimbursements aggregating in excess of $350,000 since mid 1997.
Finally, a loan facility secured by accounts receivable has provided
approximately $90,000 of working capital.
As a subsequent event, certain customers have increased their demand for
Glassflour and are anticipated to do so throughout 1999. The Company
believes that CFC is meeting its customers' requirements and should
continue to improve its operating results as demand levels rise and
efficiencies improve.
The successful qualification process has led to the recognition of the
high quality and economic advantages of Glassflour as a raw material in
the manufacturing of fiberglass insulation. As a result, the Company has
also received commitments by its customers for certain minimum/maximum
demand levels for its product should additional processing plants be
developed at various locations in close proximity to other insulation
manufacturing facilities. Commitments have been received for the purchase
of up to 80% of the anticipated 100,000 ton, two-shift capacity, of a
proposed processing facility in northern California near Sacramento.
The Company has identified a suitable plan site, negotiated a favorable
lease agreement, received preliminary approval for both taxable and
tax-free bond financing from the California Pollution Control Financing
Authority, pending completion of certain requirements and is currently
seeking a capital infusion for working capital.
One of the major challenges facing the Company is how to finance these new
plants with preserving a majority of the Company. Equity financing (sale
of stock) is a reduced option because of the relatively low stock price.
A substantial amount of debt is unattractive if in fact the profit
potential is reduced because of the high interest payments. That is why
the Company is working with states such as California to provide economic
development bonds or other grants or programs that will reduce the
interest rate and/or contribute to the profit of the Company. There is no
assurance that such efforts will be successful. The Company has already
announced that it had a Letter of Intent from a financial institution to
obtain a Direct Pay Letter of Credit which was one of the prerequisites
for funding by the State of California. However, efforts to obtain such
Direct Pay Letter of Credit have not yet been consummated and there is not
assurance that it will ever be consummated from that source. In the meantime,
the Company is pursuing alternative sources.
The Company sold at various times in 1998, additional shares of its common
stock in a Private Placement to mainly institutional foreign investors as
follows:
Shares
Date of Closing Sold Net Proceeds
--------------- ------- ------------
February 17, 1998 616,083 $123,138.45
February 23, 1998 225,803 $ 45,515.60
March 9, 1998 158,114 $ 31,846.11
On September 3, 1998, the Company negotiated a settlement of $25,000 debt
to a vendor, in exchange for 142,857 shares of common stock.
As a subsequent event, on October 12, 1999, the Company sold 250,000
shares of its common stock in a Private Placement to investors for net
proceeds of $25,000.
As another subsequent event, the Company negotiated a debt settlement with
a vendor for 25,000 shares of common stock issued for $3,750 in debt
foregiveness.
Year 2000 Compliance
- --------------------
All research indicates that the Company's exposure to this problem will be
minimal. The Company's computers, local area network servers, software
and phone system have all been purchased within the last three years. The
manufacturers of the Company's systems have provided, or are on track to
provide updates by the end of 1999, if needed.
ITEM 7. FINANCIAL STATEMENTS.
The Company's financial statements are presented under Item 13 of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following are the Officers and Directors of the Company as of March
26, 1999:
Name Age Position Held with Company
- ------ ----- ----------------------------
Frank Whitmore 63 President, Chief Executive
Officer, Director
Kevin J. Coffey, Esq.(4) 42 Director
Thomas L. Brandt 44 Director
Gerard T. Wisla(1) 42 Secretary, Chief Financial
Officer,Director
Oleg Batratchenko (5) 33 Director
Michael L. Newsom(2) 49 Director
Benjamin Steiner(3) 57 President of Fire Doctor, Inc.
______________________________
1 Appointed a Director on March 19, 1997 and Chief Financial Officer on
May 22, 1997*.
2 Director Pro-tem appointed a Director by the Board of Directors on
December 11, 1997 and by Shareholders' vote at the Annual Shareholders'
Meeting held on January 22, 1998.
3 Appointed May 22, 1997 as President of Fire Doctor, Inc. Inactive in
1999.
4 Inactive in 1999
5 Inactive in 1999
FRANK WHITMORE, President, Chief Executive Officer since January 31, 1996
and a Director of the Registrant, a general consultant since 1991, retired
in 1991 from Anchor Glass Container Corporation where he served as a
Corporate Officer and Vice President of Technical Services from 1984 to
1990. From 1983 to 1984 he was President of Midland Glass Company. From
1981 to 1983 Mr. Whitmore was Vice President of Engineering &
Manufacturing. He held various positions with Anchor Hocking Corporation
of Lancaster, Ohio between 1960 and 1981, beginning as a plant engineer,
and advancing to Engineering Manager, Plant Manager, to Vice President of
Operations. Mr. Whitmore received a bachelor of science degree in
Electrical Engineering from Ohio University.
KEVIN J. COFFEY, ESQ., Director of the Registrant and its Subsidiary was
a partner from 1986 through 1995 in the law firm of Donner, Coffey &
Donner, which engaged in multi-state general litigation and general
practice. Mr. Coffey is now in private practice by himself engaging in
multi-state general litigation and general practice. He received Juris
Doctorate Degree from Delaware Law School in 1985 and a Bachelor of Arts
from the University of Connecticut in 1980.
THOMAS L. BRANDT, a Director of the Registrant and its subsidiary, is the
founder, President and Chief Operating Officer of Brandt Technologies,
Inc. ("BTI"). BTI has operated since 1985 as a supplier of precision
inspection equipment and packaging technologies to the glass and plastics
container industries worldwide. From 1983 to 1985, Mr. Brandt served on
the management team of Emhart/Powers Machinery Group integrating glass
manufacturing systems throughout North America, Europe and the Middle
East. From 1980 to 1983, he held the position of Site Project Engineer
for Guardian Industries, responsible for the construction of a 186,000
square foot windshield manufacturing plant. Between 1975 - 1980, Mr.
Brandt held various positions with Thatcher Glass beginning as Corporate
Layout Engineer and advancing to Assistant Plant Engineer at the
Lawrenceburg, Indiana manufacturing facility. Mr. Brandt received a two
year technical degree through the State University of New York for
Mechanical Design and holds five (5) U.S. and International patents,
jointly holds two (2) European patents and five (5) patents pending in
progress.
GERARD WISLA, Secretary, Treasurer, Chief Financial Officer and Director
of the Registrant is a Certified Public Accountant and a principal partner
of Wisla & Cohen Certified Public Accountants for the last ten years. Mr.
Wisla was previously a shareholder and Director of Quality Control for a
large regional accounting firm. In addition to his extensive financial,
tax, and business consulting background, his experience includes
presentations at continuing education seminars and articles published in
various newsletters. Mr. Wisla is a graduate of Drexel University. He is
a member of various local and national professional organizations. Mr.
Wisla is a past Board member of an alumni association at Drexel University
and currently serves as Treasurer and Chairman of the Finance Committee of
a local non-profit organization.
OLEG BATRATCHENKO, Director. Since April, 1995, Mr. Batratchenko was Vice
President of Research at Berkshire International Finance, Inc., a New York
corporate finance and investment banking company. Also, Mr. Batratchenko
is a Senior Vice President of an affiliate organization, Fifth Avenue
Research and Advisory Group, Inc. Mr. Batratchenko has been managing many
of the public relations services rendered to a number of growth oriented
small cap companies. From 1993 to 1995, Mr. Batratchenko was employed in
the capacity of Research Analyst by Safian Investment Research, Inc., a
White Plains, New York financial research and money management firm.
Prior to that, Mr. Batratchenko worked as a Performance Analyst with
Newberger and Berman, a major New York money management firm. Between
1987 and 1990, Mr. Batratchenko was a Research Associate at the Moscow
Institute of World Economy and International Relations, where he completed
a Masters program in Economics and was involved in a number of high
profile research projects being conducted by this leading Russian think
tank for the Kremlin. In 1992, Mr. Batratchenko obtained a Masters Degree
in International Political Economy from New York University. He is an
Associate member of the Financial Analysts - Money Managers Society (New
York).
MICHAEL L. NEWSOM, Director, is the owner of his own consulting company.
From 1981 through 1998, he held various management positions with Anchor
Glass Container Corp., including Director of Environmental Affairs and
Director of Glass Engineering. From 1973 to 1980, he was involved in
various technical supervisory activities with Libby Owens Ford Glass
Company. He has authored publications carried in the glass industry
magazines concerning various environmental issues. His areas of expertise
involving the glass industry relate to glass melting operations, raw
material selection, environmental auditing, emissions reduction,
statistical and economic analysis and development of corporate
environmental policy and operating procedures. Mr. Newsom graduated in
1972 from the University of Toledo with a B.S. degree in Chemical
Engineering and in 1979 received his MBA, also from the University of
Toledo.
BENJAMIN I. STEINER, President of Fire Doctor, Inc. subsidiary as of June
2, 1997, is a Certified Public Accountant. From 1964 through 1997, Mr.
Steiner has held executive financial and administrative positions at
mid-market, publicly and privately owned companies. From 1995 to 1996,
Mr. Steiner was the Vice President of Finance and Chief Financial Officer
of Packquisition Corp. From 1994 to 1995, he held the Chief Financial
Officer position at Liss Brothers, Inc. Prior to that, Mr. Steiner was
the Manager of Financial Administration at Direct Innovative Products.
Mr. Steiner graduated in 1964 from Bucknell University where he earned a
B.S. degree is Business Administration. He is an active member of the
American and Pennsylvania Institutes of Certified Public Accountants. Mr.
Steiner is a former Chapter Treasurer and Director of the Institute of
Management Accountants, former Chapter Vice President of the Association
for Corporate Growth and former Director of the Philadelphia Finance
Association.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------- ------------------------
Awards Payouts
------ ---------
(a)Name and (b) (c) (f)Restricted (g)Securities (h) (i)
Principal Stock Underlying LTIP All Other
Position Year Salary Awards($) Option/SARs(#) Payouts($) Compensation
- ------------ ---- ------ --------- -------------- ---------- ------------
Frank Whitmore,1998 $100,000** 0 0 0 0
President (1) 1997 $ 50,000** 0 0 0 0
1996 $ 50,000* 0 0 0 0
Gerard T.
Wisla, CFO(2) 1998 $ 37,000** 0 0 0 0
1997 $ 12,000** 0 0 0 0
* $41,667 was paid to the President and $8,333 is accrued salary to be
paid at a later date.
** All of which is accrued and to be paid at a later date.
(1) Frank Whitmore, the current President of the Company, agreed to
receive $50,000 annual salary and 133,334 stock options, (106,934 of which
are already vested and an additional 26,400 options to be vested each year
thereafter as long as he is still employed by the Company). However,
effective on January 1, 1998, the Company entered into an Employment
Agreement with Mr. Whitmore with a salary of $100,000. Mr. Whitmore also
received 2,000 stock options for Director compensation for 1995. On
October 31, 1997, Mr. Whitmore was granted 266,667 stock options at the
exercise price of $.15 per share and an additional 80,000 stock options on
January 22, 1998 for $.15 per share.
(2) Gerard T. Wisla, the current Chief Financial Officer of the Company,
agreed to receive $24,000 annual salary through June, 1998, and $48,000
per year thereafter. On March 1, 1996, prior to Mr. Wisla being appointed
an officer or director, Mr. Wisla was granted 3,334 stock options at the
exercise price of $.279 for past services rendered to the Registrant. In
addition, after being named as a director, Mr. Wisla was granted 2,000
stock options at the exercise price of $.5625. However, when Mr. Wisla
was appointed Secretary, and subsequently Chief Financial Officer, those
options were terminated. In addition, on October 31, 1997, he was granted
20,000 options at the exercise price of $.15 for services and on January
22, 1998, 20,000 stock options at the exercise price of $.15 as an
employee.
All of the above stock options and exercise prices reflect the 1 for 3
reverse stock split that occurred on May 22, 1997 as well as a recasting
of stock options that occurred on July 23, 1998 wherein the Board of
Directors in order to provide continuing incentive for its officers,
directors, employees and consultants, authorized the exchange of all
outstanding stock options issued uner the Company's 1996 Stock Incentive
Plan (approximately 850,000 options) for new options at an exchange rate
of 80% (.80 new option in exchange for each old option). The new option
exercise prices would be 15% of the original option exercise prices, with
a floor of $.15 per share. Option holders were forwarded election
agreements and all option holders elected to participate in the program.
The bid price of the Company's common stock as traded on the OTC Bulletin
Board on July 23, 1998 was $.09 per share.
See Item 11. footnotes for stock option grants to other Directors and
Officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
RECORD AND BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK
(A)(B) The following table sets forth certain information with regard to
the record and beneficial ownership of the Company's common stock as of
March 31, 1998 by (i) each shareholder owner of record or beneficially 5%
or more of the Company's common stock (ii) each Director individually and
(iii) all Officers and Directors of the Company as a group. All numbers
have been adjusted for the 1 for 17 reverse stock split, which occurred
August 22, 1994 and the 1 for 3 reverse stock split that occurred on May
22, 1997 as well as a recasting of options that occurred on July 23, 1998.
The Board of Directors in order to provide continuing incentive for its
officers, directors, employees and consultants, authorized the exchange of
all outstanding stock options issued uner the Company's 1996 Stock
Incentive Plan (approximately 850,000 options) for new options at an
exchange rate of 80% (.80 new option in exchange for each old option).
The new option exercise prices would be 15% of the original option
exercise prices, with a floor of $.15 per share. Option holders were
forwarded election agreements and all option holders elected to
participate in the program. The bid price of the Company's common stock
as traded on the OTC Bulletin Board on July 23, 1998 was $.09 per share.
TITLE OF NAME AND ADDRESS PERCENT
CLASS OF BENEFICIAL OWNER SHARES OWNED OF CLASS
- -----------------------------------------------------------------------------
Common Frank Whitmore 423,810(1) 3.54%
324 New Brooklyn Road
Berlin, New Jersey 08009
Common Frank G. Pringle
Creditors' Trust 1,050,826(2) 8.78%
8 Tallowood Drive
Medford, NJ 08055
Common Kevin J. Coffey, Esq. 116,085(3) .97%
153 Lost Lake
Marlton, NJ 08053
Common Thomas L. Brandt 15,500(4) .10%
324 New Brooklyn Road
Berlin, New Jersey 08009
Common Gerard Wisla 58,175(5) .40%
4808 Rainbow Ridge Circle
Schwenksville, Pennsylvania 19473
Common Oleg Batratchenko 26,667(6) .20%
551 Fifth Avenue, Suite 605
New York, NY 10017
Common Michael Newsom 16,000(7) .10%
P.O. Box 924
Safety Harbor, Florida 34695
Common Benjamin Steiner 20,000(8) .10%
40 April Lane
Huntingdon Valley, PA. 19006
---------- ------
All Officers and Directors as a 676,237 5.65%
group (7 in number) ========== ======
- ----------------------------------------
1 Includes 106,934 stock options vested and excludes 26,400 stock options
still not vested at the exercise price of $.2813 per share and 2,000 stock
options granted to Mr. Whitmore as a member of the Board of Directors in
1995 at the exercise price of $.7875 per share. Also includes 266,667
stock options at the exercise price of $.15 and 80,000 options at the
exercise price of $.15.
2 Frank G. Pringle and Shawn Pringle, father and son, each disclaim
beneficial ownership of the shares of Registrant held by the other. The
Company has been advised, according to a Court Order of the U.S.
Bankruptcy Court filed March 5, 1997, that all of Mr. Frank G. Pringle's
shares are now beneficially owned solely by a Creditors' Trust in
consideration of the release of Mr. Pringle of certain obligations of his
bankruptcy estate. This figure does not include the beneficial ownership
of stock held in street name.
3 Includes 12,000 stock options all of which are vested for compensation
for being a Director in 1995, 1996, 1997 and 1998 exercisable at $.7875,
$.3975, $.5625 and $.15 respectively. Does not include 7,500 stock
options which are not vested for compensation for being a Director for
1999.
4 Includes 10,000 stock options granted to Mr. Brandt as compensation for
being a Director in 1996, 1997 and 1998 exercisable at $.3975, $.5625 and
$.15 respectively as 10,000 stock options for services at the exercise
price of $1.00. Does not include 7,500 stock options granted to Mr.
Brandt as compensation for being a Director in 1999 which are not vested.
5 Includes 2,000 stock options exercisable at $.5625 which are vested,
granted to Mr. Wisla as a member of the Board of Directors of 1997, 3,334
options exercisable at $.279 granted to Mr. Wisla for past services
rendered, 20,000 stock options exercisable at $.15 granted for services
and 20,000 stock options exercisable at $.15 granted to Mr. Wisla for
services. All of Mr. Wisla's stock options are vested.
6 Includes 10,000 stock options granted as compensation for being a
Director for the years 1996, 1997 and 1998 exercisable at $.7875, $.3975,
$.5625 and $.15 respectively, all of which are vested. Does not include
7,500 stock options exercisable at $.21, which are not vested, granted as
compensation for being a Director for the year 1999.
7 Includes 8,000 stock options exercisable at $.5625 and $.15
respectively, granted as compensation for being a Director for the year
1997 and 1998, all of which are vested, as well as 8,000 stock options
granted to Mr. Newsom for services at the exercise price of $.15. Does
not include 7,500 stock options that were granted at the exercise price of
$.21 for being a Director in the year 1999, which are not vested.
8 Includes 20,000 stock options at the exercise price of $.30 which are
vested. Does not include 4,000 stock options at the exercise price of
$.30 which are not vested.
(C) CHANGE IN CONTROL
None.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None for the fiscal year ended December 31, 1998, except for the following
which were in 1997:
1. Frank Whitmore, President of the Company, loaned the Company
$100,000 in December, 1997, for working capital purposes, payable in
March, 1998 or on demand thereafter, at the interest rate of 10% per annum
with interest to be paid or accrued monthly.
2. In December, 1997, Histon Financial Services Corp., an affiliate of
the Company, loaned the Company $50,000 due in January, 1998 or on demand
thereafter. The interest rate is 8% per annum. In addition, the Lender
was given an option to convert its loan to common stock of the Company at
the price of $.625 per share prior to January 31, 1998. As a subsequent
event, the option to convert has not been exercised.
Both of the 1997 loans were approved by the Board of Directors and were
competetive with debt financing that the Company could have obtained from
independent third parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) The following documents are filed as a part of this Form 10-KSB/A at
the page indicated.
(a)(i) Financial Statements
Page(s)
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-16
(a)(ii) Consolidated Schedules - None.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have
been omitted.
(a)(iii) Exhibits
Sequential
NUMBER DESCRIPTION Page Number
3(a) Articles of Incorporation of the Company
(Savoy Capital Group, Inc.) *
3(b) By-Laws of the Company *
3(c) Certificate of Incorporation of Exotic Bodies, Inc. **
3(d) Amendment of Articles of Incorporation of Savoy Capital
Group Ltd. changing its name to Exotic Bodies, Inc. **
3(f) Amendment to Certificate of Incorporation of Exotic
Bodies, Inc. changing its name to EFTEK Corp. ***
10(b) Stock Purchase Agreement dated July 25, 1994 by and
between the Registrant and R & D Innovators, Inc. ***
10(c) Stock Purchase Agreement dated February, 1996 by and
between the Registrant and the Shareholders of Fire
Doctor, Inc. ****
10(d) Purchase Agreement between EFTEK Corp.
and High Concrete Structures, Inc. dated June 5, 1996. ****
10(e) 1996 Stock Incentive Plan *****
21 Subsidiaries of the Registrant
27 Financial Data Schedule (in Electronic format only)
* Incorporated by reference from the like-numbered exhibit to Form S-18
Registration Statement, SEC File No. 33-26789-NY Post-Effective Amendment
No. 1 filed June 1, 1989.
** Incorporated by reference from the like-numbered exhibit to Form S-18
Registration Statement, SEC file No. 33-26789-NY Post-Effective Amendment
No. 3 filed April 25, 1990.
*** Incorporated by reference from the Exhibit to Form 10-KSB for the
fiscal year ended December 31, 1994.
**** Incorporated by reference from the Exhibit to Form 10-KSB for the
fiscal year ended December 31, 1995.
*****Incorporated by reference from the Exhibit to Form 10-KSB for the
fiscal year ended December 31, 1996.
(b) Form 8-K
Reports on Form 8-K filed during the last quarter of the period covered by
this report are as follows:
There were no reports filed on Form 8-K during the fourth quarter of
fiscal 1998.
EFTEK CORPORATION
YEARS ENDED DECEMBER 31, 1998 AND 1997
CONTENTS
Page(s)
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
EFTEK Corporation
408 Bloomfield Drive
West Berlin, NJ 08091
We have audited the accompanying consolidated balance sheets of
EFTEK Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of EFTEK
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
BARATZ & ASSOCIATES, P.A.
October 4, 1999
November 22, 1999 (See Note 14)
EFTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
Asset ---- ----
------
Current Assets
- --------------
Cash $ 96 $ 32,002
Receivables:
Trade, less allowance for doubtful accounts
of $2,865 in 1998 and $0 in 1997 (Notes 2&3) 161,603 65,598
Loan escrow (Note 5) 26,645
Prepaid expenses 30,925 40,034
--------- ---------
Total Current Assets 219,269 137,634
-------------------- --------- ---------
Property and Equipment, Net (Note 2) 4,354,190 4,830,629
- --------------------------- --------- ---------
Other Assets
- ------------
Intangible assets, net (Note 2) 115,186 84,046
Deposits 3,900
--------- ---------
Total Other Assets 115,186 87,946
------------------ --------- ---------
Total Assets 4,688,645 5,056,209
------------ --------- ---------
Liabilities and Stockholders'
Equity
----------------------------
Current Liabilities
- -------------------
Due to related party (Note 3) 115,000
Notes payable (Note 4) 125,000
Current portion of long term debt (Note 6) 6,480 205,528
Current portion of obligations
under capital leases (Note 7) 177,353 139,561
Accounts payable and accrued liabilities 1,566,571 763,691
Income taxes payable (Note 9) 900 600
--------- ---------
Total Current Liabilities 1,991,304 1,109,380
-------------------------
Long Term Debt (Less Current Portion) (Note 6) 238,619 243,633
- ------------------------------------
Obligations Under Capital Leases
(Less Current Portion) (Note 7) 304,825 396,875
- -------------------------------- --------- ---------
Total Liabilities 2,534,748 1,749,888
----------------- --------- ---------
Commitments and Contingencies (Note 8)
- -----------------------------
Stockholders' Equity
- --------------------
Common stock, $.001 par; authorized 25,000,000
shares; issued and outstanding 11,699,772
and 10,556,908 shares at December 31, 1998
and 1997, respectively (Notes 10&11) 11,700 10,829
Additional paid in capital 6,961,330 6,719,775
Deficit (4,818,887) (3,424,037)
--------- ---------
2,154,143 3,306,567
Common stock held in treasury (4,811 shares),
at cost 246 246
--------- ---------
Total Stockholders' Equity 2,153,897 3,306,321
-------------------------- --------- ---------
Total Liabilities and Stockholders' Equity $ 4,688,645 $ 5,056,209
------------------------------------------ ========= =========
See Notes to Consolidated Financial Statements
EFTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
Revenues $ 1,586,467 $ 443,727
- -------- ----------- -----------
Costs and Expenses
- ------------------
Cost of revenues 605,510 419,959
Selling, general and administrative 1,696,979 1,516,503
Depreciation and amortization 522,995 137,680
----------- ----------
Total Costs and
Expenses 2,825,484 2,074,142
- --------------- ----------- ----------
Loss From Continuing Operations ( 1,239,017) ( 1,630,415)
- ------------------------------- ----------- ----------
Other Income (Expense)
- ---------------------
Miscellaneous income 19,741 789
Interest expense ( 124,574) ( 58,314)
----------- ----------
Total Other Income
(Expense) ( 104,833) ( 57,525)
- ------------------ ----------- ----------
Loss From Continuing Operations
Before Income Taxes ( 1,343,850) ( 1,687,940)
- -------------------------------
Income Taxes (Notes 2 & 9) 731 640
- ------------ ----------- ----------
Loss From Continuing
Operations ( 1,344,581) ( 1,688,580
- ----------------------
Loss From Discontinued
Operations (Note 1) ( 50,269) ( )
- ---------------------- ----------- ----------
Net Loss $( 1,394,850) $( 1,688,580)
- -------- =========== ==========
Net Loss Per Common Share (Note 2) $( .12) $( .17)
- ------------------------- =========== ==========
Weighted Average Common
Shares Outstanding 11,817,324 10,161,663
- ----------------------- =========== ==========
See Notes to Consolidated Financial Statements
EFTEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Additional Treasury
Common Stock Paid-In Stock,
Shares Amount Capital Deficit at Cost Total
-------------------------------------------------------------------------
Balance, January 1, 1997 25,991,076 $ 25,991 $ 4,820,446 $(1,735,457) $(246) $ 3,110,734
Common stock issued 3,669,706 3,942 1,065,874 1,069,816
Reverse stock split (Note 9) (19,955,353) (19,955) 19,955
Common stock issued 851,479 851 813,500 814,351
Net loss for the year (1,688,580) (1,688,580)
---------- ------- ---------- ---------- ---- -----------
Balance, December 31, 1997 10,556,908 10,829 6,719,775 (3,424,037) (246) 3,306,321
Common stock issued 1,142,864 871 241,555 242,426
Net loss for the year (1,394,850) (1,394,850)
---------- ------- ---------- ---------- ---- -----------
Balance, December 31, 1998 11,699,772 $ 11,700 $ 6,961,330 $(4,818,887) $(246) $ 2,153,897
========== ======= ========== ========== ==== ===========
See Notes to Consolidated Financial Statements
EFTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
Cash Flows From Operating Activities
- ------------------------------------
Net loss for the year $(1,394,850) $(1,688,580)
Adjustments To Reconcile Net Loss To
Net Cash Used In Operating Activities
- ---------------------------------------
Depreciation and amortization 525,525 137,680
Gain on sale of equipment ( 400)
Changes In Operating Assets
And Liabilities
- ---------------------------
(Increase) decrease in receivables ( 122,650) 260,923
Decrease in prepaid expenses 9,109 4,086
Decrease in deposits 3,900 3,400
Increase in accounts payable and
accrued liabilities 822,080 572,362
Increase in income taxes payable 300 300
--------- --------
Net Cash Used In Operating Activities ( 156,986) ( 709,829)
- ------------------------------------- --------- ---------
Cash Flows From Investing Activities
- ------------------------------------
Additions to intangible assets ( 37,992) ( 28,235)
Purchase of property and equipment ( 41,834) (1,666,884)
--------- ---------
Net Cash Used In Investing Activities ( 79,826) (1,695,119)
- ------------------------------------- --------- ---------
Cash Flows From Financing Activities
- ------------------------------------
Loans from related parties 15,000
Proceeds from debt 60,770 450,000
Reduction of debt ( 69,090) ( 70,136)
Proceeds from issuances of common stock 198,226 1,884,167
--------- ---------
Net Cash Provided By Financing Activities 204,906 2,264,031
- ----------------------------------------- --------- ---------
Net Decrease In Cash ( 31,906) ( 140,917)
- -------------------- --------- ---------
Cash at Beginning of Year 32,002 172,919
- ------------------------- --------- ---------
Cash at End of Year $ 96 $ 32,002
- ------------------- ========== ==========
Supplemental Cash Flow Information (Note 12)
- -------------------------------------------
See Notes to Consolidated Financial Statements.
EFTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. Description of Business
-----------------------
Continuing Operations
EFTEK Corporation (the Company), incorporated in the state of
Nevada, is in the business of processing recycled broken glass known
as cullet into an end product called glassflour, a furnace-ready raw
material used in the fiberglass insulation manufacturing industry.
Discontinued Operations
The operating business, which was discontinued during the year ended
December 31, 1998, is Fire Doctor, Inc. (a subsidiary company) Fire
Doctor, Inc. developed and marketed a proprietary chemical formula
designed to retard the spread of flame. Despite substantial
marketing efforts, Fire Doctor, Inc. has still not experienced
substantial sales. As a result, EFTEK Corporation has ceased
funding this operation and is actively seeking a buyer for the
subsidiary.
2. Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
Trade Receivables
The Company provides an allowance for losses on trade receivables
based on a review of the current status of existing receivables,
historic bad debt experience and management's evaluation of periodic
aging of the accounts.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
using the straight line method over the estimated useful lives of the
assets. Depreciation expense for the years ended December 31, 1998 and
1997 was $518,673 and $133,357, respectively. Expenditures for maintenance
and repairs are charged against income as incurred. When assets are sold
or retired, the cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income.
Property and equipment consisted of the following at December 31:
1998 1997
---- ----
Land $ 338,073 $ 338,073
Building 317,081 317,081
Building improvements 896,078 889,159
Equipment 3,441,408 3,406,493
Furniture and fixtures 21,759 21,759
--------- ---------
5,014,399 4,972,565
Less accumulated depreciation 660,209 141,936
--------- ---------
Net property and equipment $ 4,354,190 $ 4,830,629
========= ==========
Intangible Assets
Certain intangible assets have been capitalized and are amortized over
the estimated useful lives of the assets using the straight-line method.
Product development costs are amortized over a period of 15 years; patent
costs are amortized over a period of 17 years; organization costs and
mortgage acquisition costs are amortized over a period of 5 years.
Intangible assets consisted of the following at December 31:
1998 1997
---- ----
Product development costs $ 37,944 $
Patents 72,988 71,675
Mortgage acquisition costs 25,193 25,193
Organization costs 1,500 1,500
-------- -------
137,625 98,368
Less accumulated amortization 22,439 14,322
-------- -------
Net intangible assets $ 115,186 $ 84,046
======== =======
Income Taxes
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, the Company generally considers all
expected future events other than enactment of changes in the tax laws or
rates.
Net Loss Per Common Share
Net loss per common share is based upon the weighted average number
of common and common equivalent shares (stock warrants)
outstanding in each period. The computation of diluted net loss per
common and common equivalent share was antidilutive in each of the
periods presented.
3. Related Party Transactions
--------------------------
Related party transactions includes the following:
At January 1, 1996, the Company was due $258,338 from a stockholder
(former Company president). During 1996, interest charges were
$15,926 and repayments were $12,500 resulting in a $261,764 balance
due from the stockholder at December 31, 1996. In 1997, the
receivable was determined to be uncollectible due to the
stockholder's personal bankruptcy. Bad debt expense in the amount
of $261,764 is included in selling, general and administrative
expenses for the year ended December 31, 1997.
At December 31, 1998 and 1997, the Company was indebted to an
officer (stockholder) of the Company in the amount of $1000,000. The
note is payable on demand and bears interest at 10% per annum. Interest
accrued on the note at December 31, 1998 and 1997 was $14,027 and $3,014
respectively. During 1998, the Company borrowed an additional $15,000
from the same officer; the loan is non-interest bearing and is payable
on demand.
Notes Payable
- -------------
At December 31, 1998 and 1997, the Company was indebted to two
unrelated companies in the amount of $50,000 each. The notes (due on
demand) bear interest at 8% per annum and are uncollaterized.
At December 31, 1998, a non-interest bearing demand note in the
amount of $25,000 was due to an unrelated company. The note is
uncollaterized.
Financing Arrangement
- ---------------------
The Company has a financial arrangement with Penn Business Credit
that allows advances against trade receivable invoices to John
Mansville, Inc. equal to 75% of invoice amounts. Payments against the
advances are made by the Company upon receipt of customer's payment. The
loan escrow balance of $26,645 at December 31, 1998 represents the
lender's 25% holdback at that date.
6. Long Term Debt
--------------
Long term debt consisted of the following at December 31:
1998 1997
---- ----
A mortgage payable in monthly installments of
$3,750, inclusive of interest at 16% per
annum. The mortgage matures in July 2011 and
is collateralized by property in Williamstown,
NJ. $ 245,099 $ 249,161
Less current portion 6,480 5,528
--------- --------
Total long term debt $ 238,619 $ 243,633
========= ========
The aggregate maturities of long term debt at December 31, 1998 are
as follows:
1999 $ 6,480
2000 7,597
2001 8,905
2002 10,439
2003 12,238
Thereafter 199,440
---------
$ 245,099
=========
7. Obligations Under Capital Leases
--------------------------------
Obligations under capital leases consisted of the following at
December 31:
1998 1997
---- ----
A lease payable in monthly installments of
$5,200, inclusive of interest at 12.6% per
annum. The lease matures in March 2001
and is collateralized by equipment costing
$155,000. $ 140,884 $ 146,004
A lease payable in monthly installments of
$2,913, inclusive of interest at 12.9% per
annum. The lease matures in August 2001
and is collateralized by equipment costing
$108,750. 82,572 99,848
A lease payable in monthly installments of
$1,794, inclusive of interest at 16.1%
per annum. The lease matures in October
2001 and is collateralized by equipment
costing $73,597. 52,049 61,275
A lease payable in monthly installments of
$1,422, inclusive of interest at 8.99% per
annum. The lease matures in November 2001
and is collateralized by equipment costing
$11,410. 44,721 56,156
A lease payable in monthly installments of
$1,903, inclusive of interest at 9.25% per
annum. The lease matures in September 2000
and is collateralized by equipment costing
$76,100. 38,369 55,255
A lease payable in monthly installments of
$1,219, inclusive of interest at 17.61% per
annum. The lease matures in January 2002
and is collateralized by equipment costing
$48,398. 36,676 42,375
A lease payable in monthly installments of
$529, inclusive of interest at 12.95% per
annum. The lease matures in February 2001
and is collateralized by equipment costing
$19,750. 12,734 16,777
A lease payable in monthly installments of
$379 inclusive of interest at 12.6% per
annum. The lease matures in November 2002
and is collaterized by equipment costing
$16,823. 14,470 16,620
A lease payable in monthly installments of
$707, inclusive of interest at 8.89% per
annum. The lease matures in November 1999
and is collateralized by equipment costing
$22,000. 8,728 14,895
A lease payable in monthly installments of
$497 inclusive of interest at 14.5% per
annum. The lease matures in April 2000
and is collaterized by equipment costing
$13,410. 8,411 11,384
A lease payable in monthly installments of
$320 inclusive of interest at 10.9% per
annum. The lease matures in May 2000
and is collaterized by equipment costing
$9,805. 5,027 8,139
A lease payable in monthly installments of
$417, inclusive of interest at 18.72% per
annum. The lease matures in October 1999
and is collateralized by equipment costing
$11,410. 5,204 7,708
A lease payable in monthly installments of
$984, inclusive of interest of 14.4% per
annum. The lease matures in March 2002
and is collateralized by equipment costing
$35,770. 32,333
------- -------
482,178 536,436
Less current portion 177,353 139,561
------- --------
$ 304,825 $ 396,875
======= =======
Minimum future lease payments at December 31, 1998 are as follows:
1999 $ 247,436
2000 193,995
2001 152,061
2002 8,339
-------
601,831
Less amount representing interest 119,653
-------
Present value of future minimum
lease payments $ 482,178
=======
8. Commitments and Contingencies
-----------------------------
Operating Leases
The Company leased office facilities and transportation equipment under
noncancellable operating leases that expired October 1997. Rent expense
amounted to $26,867 in 1997.
Litigation
At December 31, 1998 and 1997, the Company's financial statements include
a liability in the amount of $15,500 that is being litigated. A vendor is
suing the Company for alleged breach of contract and unpaid fees. The
Company believes the lawsuit is without merit and intends to vigorously
defend its position.
The Company is a defendant in a lawsuit filed by a company that performed
marketing services for EFTEK Corporation (EFTEK). The company claims that
EFTEK owes a "finders fee" for the clients that EFTEK does business with.
Counsel for EFTEK has advised the Company that at this stage in the
proceedings they cannot offer an opinion as to the probable outcome. The
Company believes the lawsuit is without merit and is vigorously defending
its position.
The Company is a defendant in a lawsuit filed by a former stockholder of
EFTEK Corporation (EFTEK). The plaintiff claims that the Company failed
to release Rule 144 restrictions from her stock forcing her to sell the
stock at a loss. Counsel has obtained an order dismissing the complaint
for plaintiff's failure to answer interrogatories. Counsel for EFTEK has
advised the Company that given the fact that discovery is incomplete in
the case, it is difficult to assess liability in this matter. The Company
believes the lawsuit is without merit and is vigorously defending its
position.
At December 31, 1998, the Company's financial statements include a
liability in the amount of $180,961 that is being litigated. A vender is
suing CFC, Inc. (a wholly owned subsidiary of EFTEK Corporation)(CFC)for
alleged breach of contract and unpaid fees. CFC has denied these
allegations and has filed a counterclaim against plaintiff. Counsel for
CFC has advised the Company that the case can be resolved to the mutual
satisfaction of both parties.
The Company is a defendant in a lawsuit filed in September 1999, by a
former CEO of EFTEK Corporation (EFTEK) for alleged breach of an
employment contract and wrongful termination. Plaintiff demands $1
million in compensatory damages and punitive damages in the amount of
treble damages. Counsel for EFTEK has advised the Company that at this
stage in the proceedings they cannot offer an opinion as to the probable
outcome. The Company believes this lawsuit is without merit and intends
to vigorously defend its position.
9. Income Taxes
------------
Operating losses in 1998 and 1997 eliminated the need for income tax
provisions except for the statutory state minimum tax. At December 31,
1998, the Company had available federal and state operating loss
carryforwards in the respective amounts of $4,927,000 and $4,752,000. The
loss carryforwards expire 2005 to 2018 (federal) and 1999 to 2005 (state).
Income taxes, including those currently payable to the state, were $731
and $640 at December 31, 1998 and 1997, respectively.
No provisions were made for deferred income taxes in 1998 or 1997. Net
deferred tax assets were entirely eliminated by a valuation allowance as
follows:
Deferred income tax components:
1998 1997
---- ----
Deferred Tax Asset
------------------
Net operating loss carryforwards $ 2,112,290 $ 1,487,830
Accrued salaries 87,853
Capital loss carryover 104,549
--------- ---------
2,304,692 1,487,830
Deferred Tax Liability
----------------------
Start-up costs ( 13,401)
Depreciation ( 179,789)
--------- ---------
Net Deferred Tax Asset 2,124,903 1,474,429
Less Valuation Allowance (2,124,903) (1,474,429)
--------- ---------
$ 0 $ 0
========= =========
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. At December
31, 1998 and 1997, management believed that a portion of the net operating
loss carryforwards would not be realized before their expiration.
10. Common Stock, Stock Options and Warrants
----------------------------------------
Common Stock
The previously reported number of common shares issued and outstanding, at
December 31, 1997, was overstated, by 272,247 shares. The current year
financial statements reflect 10,556,908 shares outstanding at December 31,
1997 as compared to 10,829,155 as previously reported. The effect on the
calculation of net earnings per common share at December 31, 1997 was
insignificant.
Common Stock Options
On July 23, 1998, the Company amended its 1996 Stock Incentive Plan that
provides for the granting of incentive and nonstatutory stock options for
the purchase of shares of common stock to officers, directors, nonsalaried
directors, employees and consultants as provided by the Plan. The option
exercise price is the bid price on the date of grant. The Board of
Directors determines the vesting period and expiration date (generally
five years).
The amended plan authorizes the exchange of all outstanding stock options
issued under the Company's 1996 Stock Incentive Plan (approximately
850,000 options) for new options at an exchange rate of 80% (.80 new
option in exchange for each old option). The new options' exercise prices
would be 15% of the original options' prices, with a floor of $.15 per
share. Stock option transactions were as follows:
Shares Under Option
-------------------
1998 1997
------- -------
Outstanding, beginning of year 464,167 177,500
Granted 348,667 503,333
Retired ( 50,000)
Adjustment for reverse stock split (166,666)
Adjustment for 80% Option Exchange ( 82,566)
Outstanding, end of year (at exercise --------- --------
prices ranging from $0.09 to $0.7875 per
share) 730,268 464,167
======== =======
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS No. 123 specifies certain valuation
techniques that produce estimated compensation charges that are included
in the pro forma results. These amounts have not been reflected in the
Company's Statements of Operations, because APB 25, "Accounting for Stock
Issued to Employees," specifies that no compensation charge arises when
the price of the employees' stock options equal the market value of the
underlying stock at the grant date, as is the case of options granted to
the Company's employees.
SFAS No. 123 pro forma numbers are not material to the financial
statements taken as a whole. Also they are not likely to be
representative of the effects on net income and net income per common
share in future years, because they do not take into consideration pro
forma compensation expense related to grants made prior to 1997.
Common Stock Warrants
At December 31, 1998 and 1997, the Company had outstanding 65,000 Class
A redeemable common stock warrants and 83,000 Class B redeemable
common stock warrants. Each warrant allows for the purchase of six
shares of the Company's common stock at an exercise price of $2 per
share. Warrant expiration dates were extended to December 31, 1999.
11. Reverse Stock Split
-------------------
On May 22, 1997, the Board of Directors authorized a one for three reverse
stock split. As a result, the number of shares outstanding decreased by
19,955,353 and additional paid in capital increased by $19,955. The authorized
number of shares and the par value remained the same.
12. Supplemental Cash Flow Information
----------------------------------
Cash paid for interest during 1998 and 1997 was $50,449 and $55,230,
respectively. Cash paid for income taxes during 1998 and 1997 was $800
and $600, respectively.
Noncash investing and financing activities for the years ended December
31, 1998 and 1997 consisted of the following:
In 1998 and 1997, the Company purchased equipment by incurring
capital lease obligations in the amount of $35,770 and $429,086,
respectively.
In 1998 the Company issued 142,857 shares of common stock at $.175
per share in exchange for debt in the amount of $25,000.
Major customers
- ---------------
Two major customers accounted for approximately 87% of the Company's net
sales in 1998 and 94% in 1997. While the Company believes its relationship
with the customers will continue, there can be no assurance that sales to these
customers will continue at the same level or at all.
Dual Date of Financial Statements
- ---------------------------------
Upon review of the Company's filing of its annual Form 10-KSB, it was
determined that the 1998 income and expenses of Fire Doctor, Inc. (a wholly
owned subsidiary of the Company) was reportable on the Company's 1998
consolidated financial statements as a loss from discontinued operations.
In 1998, the Company incurred approximately $93,000 in costs to determine
and finance an additional manufacturing site in northern California. The costs
were originally reported as a deferred asset. The revised financial statements
report the $93,000 as operating expenses in consideration of the Company's
adoption of AICPA Statement of Position 98-5 "Reporting on the Costs of
Start-up Activities," Statement of Position 98-5 concludes these costs should be
charged to income as incurred.
The revised financial statements reflect a $26,686 increase in prepaid
expenses and a corresponding decrease of operating expenses.
The cumulative effect of the above adjustments to the 1998 financial
statements was a $66,375 additional operating loss and a $.01 increase in loss
per common share.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, EFTEK Corp. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EFTEK CORP.
Dated: December 14, 1999 /s/Frank Whitmore
FRANK WHITMORE
President, Chief Executive
Officer and Director
Dated: December 14, 1999 /s/Gerard T. Wisla
GERARD T. WISLA
Secretary, Treasurer, Chief Financial
Officer and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed on behalf of EFTEK
Corp. and in the capacities and on the dates indicated.
Dated: December 14, 1999 /s/Frank Whitmore
FRANK WHITMORE
President, Chief Executive
Officer and Director
Dated: December 14, 1999 /s/Gerard T. Wisla
GERARD T. WISLA
Secretary, Treasurer, Chief
Financial Officer and Director
Dated: December 14, 1999 /s/Kevin J. Coffey
KEVIN J. COFFEY, Director
Dated: December 14, 1999 /s/Thomas L. Brandt
THOMAS L. BRANDT, Director
Dated: December 14, 1999 /s/Oleg Batratchenko
OLEG BATRATCHENKO, Director
Dated: December 14, 1999 /s/Michael L. Newsom
MICHAEL L. NEWSOM
Director*
* Director as of January 22, 1998