Mr. ORTHNER. Master Packaging, who supplied the plastic bags, and Chemical and Supply, who actually supplied the raw material chemicals.

Mr. ADLERMAN. And they warned you to do business on a cash basis with him because he had no credit?

Mr. ORTHNER. That is right.

Mr. ADLERMAN. Did he talk to you about his credit or tell you that he was broke?

Mr. ORTHNER. Yes. He told me that he was absolutely broke. In fact, we went out for coffee which he invited me to and I paid for it. Mr. ADLERMAN. He had $250,000 worth of credit, probably as much as you had at the time, wasn't it?

Mr. ORTHNER. I have never seen that much money or that much po

tential before or since.

The CHAIRMAN. There was a man going around with $250,000 worth of letters of credit who had no credit without it.

Mr. ORTHNER. That is exactly right.

Mr. ADLERMAN. Did you say you went out for coffee with him? Mr. ORTHNER. Yes, we went out for coffee. He invited me but I paid for the coffee.

Mr. ADLERMAN. Did he tell you he only had 38 cents in his pocket? Mr. ORTHNER. The 38 cents was a figure volunteered by him. I don't think he had that much.

Mr. ADLERMAN. But he did tell you that he needed financing to manufacture and package these battery additives that were going to Vietnam, and he asked you to do it for him, is that right?

Mr. ORTHNER. Yes, he did.

Mr. ADLERMAN. Were you short of funds at that time, also?

Mr. ORTHNER. Yes. I am still a new, struggling company, and it is hand to mouth as far as a working capital bank account. I did not have it then.

Mr. ADLERMAN. How much money did you require or feel would be required to get this thing rolling and be able to cash in on the first batch of letters of credit and keep going?

Mr. ORTHNER. At the beginning I did not know about the extreme urgency for speed of completing all of the shipments. It was estimated that if we could ship out four of the letters of credit, enough money would have been returned that he would have been able to pay me the total contract price which we had established at $0.75 a dozen or $15,000 for 20,000 dozen of the battery additives.

The CHAIRMAN. Is that just for packaging?

Mr. ORTHNER. That is just the packaging.

The CHAIRMAN. How much would it have cost? How much would you have charged out of the $40,000 for that first four letters of credit? Mr. ORTHNER. $15,000.

The CHAIRMAN. You would have gotten $15,000 and that would have covered the cost of packaging the whole $250,000 worth?

Mr. ORTHNER. That is right. You see, in custom packaging on production of this volume, you try to work on a 30-percent margin. You estimate the complete cost of packaging and add 30, and that is a rather standard rule of thumb by custom packagers.

The CHAIRMAN. Very well.

Mr. ADLERMAN. Did you figure out the cost of the raw materials on this thing?

Mr. ORTHNER. I did. I do not have them in front of me.

Mr. ADLERMAN. Incidentally, did you total up the total number of dozens that would have to be manufactured, the whole order for the $250,000, for the 26 or 27 letters of credit?

Mr. ORTHNER. There were approximately 27 letters of credit. Mr. ADLERMAN. And the total number of dozens of packets? How much was that?

Mr. ORTHNER. Each shipment varied slightly. There were a number of them at 700 dozen, some at 710, one at 715, and then there was one amendment that came down to 683 dozen.

Mr. ADLERMAN. Did it come out to 200,000 dozen packages?
Mr. ORTHNER. No, it was less than that. It was 20,000 dozen.
Mr. ADLERMAN. At $0.75 a dozen?

Mr. ORTHNER. Yes.

Mr. ADLERMAN. That was your cost, including your profit?
Mr. ORTHNER. That was the total cost, including the profit.
Mr. ADLERMAN. And that would have come out to $0.061/2 a packet?
Mr. ORTHNER. $0.0612, and Higgins' cost would have been approx-
imately $0.05.

The CHAIRMAN. Did you finally do this packaging for him?
Mr. ORTHNER. Yes, I did.

The CHAIRMAN. I hand you what purports to be an invoice or a statement with respect to this packaging. Will you examine it and identify it so we may make it a part of the record?

(The document was handed to the witness.)

Mr. ORTHNER. The first sheet is the actual invoice for 20,000 dozen at $0.75 a dozen, or $15,000, which was the contract price for the packaging. But there were other costs involved which Higgins agreed to

pay.

The CHAIRMAN. What are the other costs?

Mr. ORTHNER. The inland freight and the ocean freight as well as overtime pay and extra pay due to the overtime that had to be paid, again coming to the pressure that Mr. Higgins was under.

The CHAIRMAN. That was in order to get it out quickly?

Mr. ORTHNER. In order to get it out quickly. In my original cost I had no provision for overtime or any extra costs.

The CHAIRMAN. But when that was required, you had to add that cost to the original contract?

Mr. ORTHNER. Yes. When I put on a double shift and worked on Saturdays, I just paid the straight time out of my portion and Mr. Higgins paid the overtime.

The CHAIRMAN. What was the total bill that he paid for the packaging with all costs incident thereto?

Mr. ORTHNER. $18,975.90.

The CHAIRMAN. How much?
Mr. ORTHNER. $18,975.90.

The CHAIRMAN. $18,000?

Mr. ORTHNER. Yes.

The CHAIRMAN. Very well, those documents can be printed in the

record at this point.

(The invoices referred to follow :)

No. G-1358.

Date: May 23, 1966.

KEY LABORATORIES, INC.

ST. PETERSBURG, FLA.

Sold to Thomas Edison Higgins Enterprises, Inc., 5121 North Rome Avenue, Tampa, Fla.

Sold to Thomas Edison Higgins Enterprises, Inc., 5121 North Rome Avenue, Tampa, Fla.

Mr. ADLERMAN. Since you were short of credit, did you try to get some financing in the bank?

Mr. ORTHNER. Yes, I did. First, I had never seen a letter of credit before.

Mr. ADLERMAN. What was that?

Mr. ORTHNER. A letter of credit was an unfamiliar document. I had never seen one before. So I called the chamber of commerce to find out who could describe the letter of credit for me and just what the processes were. They referred me to a gentleman at the First National Bank-not First National-First Federal Bank who was familiar with foreign exports. I went down to his office and we called the WellsFargo Bank in California and received the information that the letters of credit were completely valid, and that if the shipment of the product could be made the letter of credit was a valid document

and could be cashed.

Mr. ADLERMAN. At that time you learned that they had to be on board and shipped at a certain period of time, that there was an expiration date?

Mr. ORTHNER. Yes, they had an expiration date but from the WellsFargo Bank they told me if I could package in the limits of the time involved and could deliver before the expiration date, the letter of

credit would be valid.

So with that information I went to the Bank of Seminole, which was my bank at that time.

Mr. ADLERMAN. Did that bank loan you the money?

Mr. ORTHNER. No, they did not. We left a letter of credit, one of them, with the bank for examination. The Bank of Seminole is a new bank in a fast-growing community and even though they never expounded on the reason that they turned it down, I am quite sure a letter of credit in its processes was a very unfamiliar part of their business.

Mr. ADLERMAN. Then did you go to another bank?

Mr. ORTHNER. Then I went back to the office and, I believe, it was a couple of days later, and Mr. Higgins' morale was at a very low point, his private bankers had all failed him, due to the information we had received from Wells-Fargo, I called the National Bank of St. Petersburg which was very close by to where our laboratory was located and talked to Mr. Fish.

He invited us to come in and speak with him as to the necessary funds which we were asking for. I believe it was $2,500. It started out at $3,000 but we dropped to $2,500. In this interim period, the few days between going to the Bank of Seminole and the National Bank, some of my own accounts receivable were coming in and I had a few extra hundred dollars to work with.

I didn't want to borrow any more than I had to.

Mr. ADLERMAN. And Mr. Fish was vice president of the National Bank of St. Petersburg and he agreed to give you the loan?

Mr. ORTHNER. That is right.

Mr. ADLERMAN. Did he make the loan to you or Mr. Higgins? Mr. ORTHNER. He made the loan to Key Laboratories.

Mr. ADLERMAN. And did he take the letter of credit as collateral security?

Mr. ORTHNER. Yes. All the letters of credit were deposited with the National Bank as collateral.

Mr. ADLERMAN. Was it agreed that when the letters were cleared the loans made to Key Laboratory would be paid off?

Mr. ORTHNER. That is right. Originally when we started the program, the first four letters of credit were supposed to clear the entire $15,000. But in this period of a week or 10 days of negotiation, Mr. Higgins received correspondence from Vietnam which put him under extreme pressure for finances where he felt he couldn't give me the $15,000 out of the first four, and we made another arrangement where 10 percent of each letter of credit as it was cashed would be deposited into the Key Laboratory's account until the $15,000 was paid.

Mr. ADLERMAN. Did he tell you what the pressure was that he got from Vietnam?

Mr. ORTHNER. Yes. He said that approximately a quarter of a million dollars had been paid in Vietnam, and that the men were extremely urgent and angering, that he would have to give the money to them very quickly.

Mr. ADLERMAN. Did he indicate to you that he had to make payments to them immediately and that was why he couldn't pay you in full?

Mr. ORTHNER. Not at that time. He was under pressure for money but he didn't mention how much money.

Mr. ADLERMAN. When he changed the arrangements from paying you $15,000 on the first letters of credit to 10 percent on all the letters of credit as they came along, what reason did he give?

Mr. ORTHNER. Because at that time it was by assumption that the major part of the money coming in he would have to send to his Saigon office, which he claimed was a very high-expenditure process. Mr. ADLERMAN. The Saigon office?

Mr. ORTHNER. Yes, which, in turn, was supposed to pay his brokers. He referred to them as brokers.

Mr. ADLERMAN. You did do the production and packaging of the additives?

Mr. ORTHNER. I had two very necessary pieces of equipment standing idle, so I could go into immediate production because there is nothing complicated about the operation.

Mr. ADLERMAN. Is this the packaging machine that you used? The CHAIRMAN. I hand you two photographs, two large photographs and two small photographs. Examine and identify the large ones first, if you can, and tell us what they are.

(The photographs were handed to the witness.)

Mr. ORTHNER. The first picture is a speedy flow packaging machine capable of packaging approximately 3,000 packages an hour.

The CHAIRMAN. Make all the pictures one exhibit and number them exhibit 5-A, B, C, D.

(Documents referred to marked Exhibits Nos. 5-A, B, C, & D for reference and may be found in the files of the subcommittee.) The CHAIRMAN. Identify the second picture.

Mr. ORTHNER. The second is what we call a paddle blender, a large blending machine which will take powders and as it rotates, it blends them, up to 1,000 pounds at a time.

The CHAIRMAN. Very well. That may be received as an exhibit. Mr. ADLERMAN. Mr. Orthner, what were the principle ingredients in this package?

Mr. ORTHNER. The No. 1 ingredient we usually refer to as "Magnesium sulphate," but you would call it "epsom salts."

Mr. ADLERMAN. Epsom salts?

Mr. ORTHNER. Right. And then aluminum sulphate, soda ash and borax.

Mr. ADLERMAN. You figured the cost of these ingredients when you gave a price of $15,000 for packaging, shipping, buying the labels, and buying the cellophane bags to put it in. How much was the total cost of all the ingredients that went into the product?

Mr. ORTHNER. The ingredients themselves without the labor factor