UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 31, 1998
OR
____ Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to _________.
Commission File Number: 0-28514
TREASURY INTERNATIONAL, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 98-0160284
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1183 Finch Avenue West - Suite 508
Toronto, Ontario M3J 2G2 M3J 2G2
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (416) 663-0668
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Title of Each Class: Name of Each Exchange on which
Registered:
Common Stock, par value $0.0001 per None
share
Check whether the registrant: (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 X No __
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ].
The Company generated $6,128,827 of gross revenues for the fiscal year
ending January 31, 1998.
As of June 26, 1998, 40,536,927 shares of the registrant' common stock
were outstanding.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of July 22, 1998 was
$3,435,168.
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PART I
The information set forth in this Report on Form 10-KSB including,
without limitation, that contained in Item 6, Management's Discussion and
Analysis and Plan of Operation, contains "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Actual results may materially differ from
those projected in the forward-looking statements as a result of certain
risks and uncertainties set forth in this report. Although management
believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual
future results will not be different from the expectations expressed in this
report.
ITEM 1. Description of Business
Overview
Treasury International, Inc. ("Treasury" or the "Company") engages in
the international manufacturing, sourcing and distribution of quality
consumer and industrial products. The Company's plan is to become an
international manufacturing, distribution and marketing conglomerate. To
expand its business, the Company seeks to make acquisitions in niche
industries of companies having strong brand recognition and/or significant
market share and/or marketing capabilities, with the intent of growing these
businesses into leaders in their respective markets.
As of January 31, 1998, the Company manufactures and markets customized
plastic containers through its indirect wholly-owned subsidiary, Mega Blow
Moulding Limited ("Mega Blow"). As used in this report, unless otherwise
indicated, references to the Company shall include Mega Blow and Megatran
Investments Ltd., a wholly-owned subsidiary of the Company ("Megatran"),
which holds all of the capital stock of Mega Blow. Through these
subsidiaries, the Company manufactures, distributes and exports a combined
total of more than 1,000 products. The Company has the capacity to provide
private labeling services for unique product specifications; tailored
packaging services for all product lines; complete warehousing facilities;
marketing services via a network of marketing and sales representatives; and
specialized multi-lingual sales associates. By utilizing its customized
computer information and production systems, the Company strives at all times
to ensure access to the broadest range of quality products.
History
The Company was incorporated in the State of Delaware on August 18,
1995. Following its formation, the Company acquired all of the issued and
outstanding shares of J.J.A.M.P. Treasury International Corp. ("JJAMP"), a
Canadian corporation based in metropolitan Toronto, Ontario, Canada. JJAMP
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was organized on September 29, 1993 and until August 17, 1995, conducted its
business under the name "Treasury International." The acquisition of JJAMP
was accomplished through the issuance of 8,023,812 shares of the Company'
Common Stock to JJAMP's stockholders. JJAMP was dissolved on August 26, 1997
as part of the Company's efforts to simplify its corporate structure. The
operations of JJAMP are now conducted through the Company.
On October 30, 1996, the Company acquired all of the issued and
outstanding common shares of Megatran, a Canadian company based in
metropolitan Toronto, Ontario. The purchase price for the Megatran shares
was $2,863,182, of which $2,111,302 was paid in cash and the balance was paid
by delivery of debentures in the original principal amount of $751,880, which
debentures are convertible into shares of the Company's Common Stock.
On February 25, 1997 the Company acquired all of the outstanding
capital stock of Silver, a Florida corporation based in Miami. On September
19, 1997, Treasury International, Inc. (the "Company") entered into an
Agreement (the "Agreement") with James Hal, Silver 925, Inc. ("Silver") and
each of Moche Bendayan, Salomon Bendayan and Edward Kozial (the
"Purchasers"), pursuant to which the Company resold to the Purchasers all of
the outstanding shares of Silver's common stock (the "Silver Shares"). In
consideration for the repurchase of the Silver Shares and in settlement of
all obligations of the Company and James Hal under the terms of that certain
Agreement dated as of June 18, 1996, as amended as of February 25, 1997, the
Company issued to the Purchasers an aggregate of 752,500 shares of the
Company's common stock.
The Company's principal executive offices are now located at 1183 Finch
Avenue West, Toronto, Ontario, Canada M3J 2G2, and its telephone number is
(416) 663-0668.
Corporate Summary and Growth Strategies
The Company is aggressively pursuing potential acquisitions and
strategic alliances which management believes would significantly increase
revenues, profits and value for its stockholders in accordance with its
business objectives. The Company's "Leveraged Build-Out" strategy consists
of growth through internal expansion of sales and profits in existing
operations through an aggressive acquisitions program. Businesses targeted
for acquisition must meet or exceed management' stringent revenue and profit
objectives. Management must also believe that the targeted corporations have
outstanding North American and International prospects for rapid growth in
both top line revenues and bottom line profits. Management is committed to
expanding its global presence by entering the emerging markets within Latin
America, Eastern Europe and Africa. In furtherance of this plan, the Company
anticipates utilizing existing marketing channels of the acquired companies.
Management' objective is to obtain additional distribution capacity, gain
market share for its existing product lines and diversify the products and
services the Company can offer to its expanding client base.
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In addition to internal growth and acquisitions, the Company is also
active in the business of creating and maintaining international strategic
trading links. The purpose of this plan is to obtain alternate production
sources and new channels of marketing and distribution for both consumer and
industrial products in North America and, in particular, the United States.
The Company is also continually attempting to develop and implement systems
to popularize its products through the promotion of high quality private
label branded products at competitive prices.
The Company's Markets in General
The Company believes it can achieve widespread acceptance for its
products in developing countries where mass consumption of goods is in its
infancy. Management believes the Company can take advantage of a very
competitive global situation by delivering highly knowledgeable and
experienced cultural liaisons that stand behind internationally recognized
products. The Company should then be able to maintain an upward momentum in
world markets including the aggressive penetration of important emerging
markets on a global scale.
These international businesses involve complex and dynamic processes of
political and economic issues in addition to traditional issues of market and
firm related concerns. For these reasons, Treasury has pursued strategies
that include complementary networks of culturally experienced individuals
with the principal objectives of growth and development through leveraged
acquisitions.
Management still believes that one of Treasury's major long term
opportunities is in Latin America. Latin America has a population of over
450 million, and has countries with large urban populations, well in excess
of those in Canada and Europe, and developing economies. With the recent
widespread move towards democratization of the region and development of
market oriented economies, experts predict positive future prospects in the
region. In fact, the value of contemporary foreign direct investment (debt
and equity investment) in some Latin American countries is almost twelve
times the size of levels before the South American debt crisis in the
1980's. The debt crisis created a situation where consumers had little
access to imported products or services and little ability to purchase even
if such products had been available. With the easing of this crisis, these
markets are in need of goods and services. Similar situations are developing
in Eastern Europe and Africa which also present potential opportunities for
the Company. It is one of Treasury's major objectives to expand its global
presence by meeting the needs in these "emerging markets" whose rapid growth
is fueling demand for industrial and consumer products.
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Customized Commercial Plastic Containers (Mega Blow Moulding Limited)
Overview. Since its formation in 1984, Mega Blow has operated as a
specialized custom molder of plastic bottles and containers for use in the
pharmaceutical, health and beauty, household cleaner and food product
industries. During fiscal 1998, Mega Blow's revenues were approximately $6.2
million. More than one-half of Mega Blow's revenues are generated in the
United States. Mega Blow also has a strong market presence in Ontario,
Canada, which is the main manufacturing center in Canada. Plastic is a
disposable material which is in high demand in today's environmentally
friendly and industrializing world. Management believes that demand will
continue to grow significantly well into the next century. With an estimated
market in North America of over $15 billion for plastic products, management
believes that Mega Blow is well positioned for growth.
Customers. Mega Blow concentrates on manufacturing products for
customers who are the end user or manufacturer agents. Mega Blow has
fostered relationships with many major North American corporations, including
Johnson & Johnson, G.K. Packaging, Fenton Webber, Novo Pharm, Jones Packaging
and the Canadian shampoo division of L'Oreal. Management believes that Mega
Blow has an excellent reputation for quality and customer service and prides
itself on its ability to consistently maintain a zero percent defect rate.
This has resulted in long-standing customer relationships, many in excess of
10 years.
Facilities/Equipment. Mega Blow operates from a leased, 46,000 square
foot manufacturing facility in metropolitan Toronto, Canada. Mega Blow
operates nine Bekum blowing machines. The Bekum machine is considered by
industry experts to be the best currently available and gives Mega Blow a
state-of-the-art manufacturing capacity. The Bekum machine can be operated
almost indefinitely when properly maintained and updated. All machines are
computerized and controlled by special tracking devices which monitor all
aspects of machine productivity. Further, Mega Blow's computerized systems
give the manufacturing process numerous diagnostic features which maximize
productivity and quality control. All manufacturing machines are constantly
serviced and maintained to the highest degree possible by a specially trained
maintenance staff, as well as by 24 hour on-call maintenance professionals.
Mega Blow seeks to maximize productivity and utilization of fixed overhead
costs by operating the plant 24 hours a day with four shifts.
Personnel. Mega Blow employs more than one hundred regular employees,
including production, management, foremen and office staff. Mega Blow's
management is experienced in every facet of operations, including machine
operation, machine repairs and maintenance, completing setups, mold
maintenance, purchasing, distribution and marketing. A majority of Mega
Blow's staff has been with the Company since its inception and been promoted
over time.
Materials. Mega Blow's major raw material usage consists of the
following resins: Pet G, H.D.P.E. (High Density Polyethylene) and L.D.P.E.
(Low Density Polyethylene). Management is not aware of any environmental
concerns in respect of Mega Blow, its manufacturing facilities or its
products. Mega Blow presently uses the following six major suppliers of the
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above resins: Synergistics, Bamberger, Eastman, Petromount, Nova Chemicals
and Occidental. Mega Blow has been dealing with each of its major suppliers
for over ten years. In the event that its existing sources of supply become
insufficient to meet its needs, management believes that alternative supplies
would be available at competitive prices from one of its other major
suppliers or from outside alternative suppliers not currently engaged by Mega
Blow.
Growth Strategy. Treasury intends to increase Mega Blow's sales,
market share and profitability by employing three strategic initiatives:
o A strategic acquisition program in this very fragmented market;
o Streamlining existing manufacturing operations; and
o Making high return capital expenditures to increase Mega Blow's
production output and efficiency.
Government Approvals and Licenses
The Company has sought legal and technical expertise to ensure that it
and its suppliers, distributors and independent associates have all the
necessary government approvals, licenses, permits and certificates.
Currency, Foreign Exchange and Banking
As most of the Company's operations have been based primarily in North
America, the Company believes that the current exchange rate environment has
been favorable to it, and as such has not under-taken active foreign exchange
hedging activities. Management monitors world exchange conditions on a
regular basis and should the current favorable environment change, management
will implement a more active foreign currency hedging policy.
Research and Development Costs
During its last three fiscal years, the Company has incurred no
material expenditures on account of research and development, as management
believes that the success of the Company and its business operations did not
require significant research and development efforts.
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Employees
As of July 14, 1998, the Company had 3 full time officers and,
including its subsidiaries, 102 employees. Many of these employees are able
to communicate fluently in one or more of the following languages: English,
Spanish, Portuguese, French, Italian, Arabic and Hebrew. This multilingual
capacity will significantly assist the Company in penetrating the world's
emerging foreign markets. None of the Company's employees are represented by
a labor union or are subject to a collective bargaining agreement. The
Company considers its relations with its employees to be good.
Investment Policies
The Company has no limitations on the amounts which it may invest in
any one investment or type of investment. The Company has no holdings in
real estate, real estate mortgages and similar securities or publicly traded
securities. As well, the Company does not have any investment in persons or
companies primarily devoted to such investments and it is not the policy of
the Company to make investments for the purpose of capital gain or passive
income. Presently, all available monies are being used for day-to-day
operations.
Patents and Trademarks
Due to the nature of Treasury's operations, it does not currently hold
any existing or pending patents or trademarks outside of the Company's and
its subsidiaries' names.
International Operations
Foreign business is conducted through subsidiaries, representatives and
distributors, and, to a lesser extent, by direct sales. International
revenues accounted for approximately 65% of consolidated total revenues in
fiscal 1998, and 52% of consolidated total revenues in fiscal 1997. The
majority of Treasury's international revenues are derived from Canada. In
view of the location and diversity of its international activities, the
Company does not believe that there are any special risks beyond normal risks
of uncertainty attendant to doing business abroad.
ITEM 2. Properties
The Company leases 46,000 square feet of space in Mississauga, Ontario,
Canada as administrative offices and manufacturing facilities at a rental
rate of Can$4.75 per spare foot per year. The current lease period, expires
on December 31, 1988, with an option to renew until December 31, 2003.
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ITEM 3. Legal Proceedings
The Company is not currently engaged in any legal proceedings and is
not aware of any pending or threatened litigation that could have a material
adverse effect on the Company's business, financial condition or results of
operations.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
ITEM 5. Market For Common Equity and Related Stockholder Matters
In December 1995, the Company's Common Stock commenced trading on the
NASDAQ "pink sheets" under the symbol "TREY." On April 12, 1996, the Common
Stock of the Company was approved for trading on the NASDAQ-OTC Electronic
Bulletin Board. The following table sets forth the range of high and low
closing representative bid prices for the Company's Common Stock from April
12, 1996 through January 31, 1998 (as reported by NASDAQ), which represent
inter-dealer prices, without retail mark-up, mark-down or commission and may
not reflect actual transactions:
Quarter Ended High Bid Low Bid
April 30, 1996 $0.50 .25
from April 12, 1996)
July 31, 1996 1.31 0.50
October 31, 1996 1.07 0.19
January 31, 1997 0.44 0.16
April 30, 1997 $0.31 $0.19
July 31, 1997 0.20 0.20
October 31, 1997 0.06 0.06
January 31, 1998 0.15 0.142
As of July 8, 1998, there were 125 holders of record of the Company's
Common Stock. The Company has not declared or paid any cash dividends on its
Common Stock since its inception, and its Board of Directors currently
intends to retain all earnings for use in the business for the foreseeable
future. Any future payment of dividends will depend upon the Company's
results of operations, financial condition, cash requirements and other
factors deemed relevant by the Company's Board of Directors.
The Company has undertaken the following unregistered sales of its Common
Stock. All of the following sales were exempt from registration pursuant to
Sections 3(b) and 4(2) of the Securities Act and Regulation D or Regulation S
promulgated by the Securities Exchange Commission (the "SEC") thereunder.
None of the following unregistered sales involved underwriters, and there
were no underwriting discounts or commissions.
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- --------------------------------------------------------------------------------
Title of Person or Class of Number of Total Cash
Date Securities Sold Persons to Whom Sold Shares Price or
Consideration
- --------------------------------------------------------------------------------
February 25, 1997 Common Stock Salomon Bendayan 30,000 $30,000
February 25, 1997 Common Stock Moshe Bendayan 30,000 $30,000
February 25, 1997 Common Stock Edward Kozial 15,000 $15,000
- --------------------------------------------------------------------------------
April 1, 1997 Common Stock Salomon Bendayan 30,000 $30,000
April 1, 1997 Common Stock Moshe Bendayan 30,000 $30,000
April 1, 1997 Common Stock Edward Kozial 15,000 $15,000
- --------------------------------------------------------------------------------
May 1, 1997 Common Stock Salomon Bendayan 30,000 $30,000
May 1, 1997 Common Stock Moshe Bendayan 30,000 $30,000
May 1, 1997 Common Stock Edward Kozial 15,000 $15,000
- --------------------------------------------------------------------------------
June 2, 1997 Common Stock Salomon Bendayan 30,000 $30,000
June 2, 1997 Common Stock Moshe Bendayan 30,000 $30,000
June 2, 1997 Common Stock Edward Kozial 15,000 $15,000
- --------------------------------------------------------------------------------
July 1, 1997 Common Stock Salomon Bendayan 30,000 $30,000
July 1, 1997 Common Stock Moshe Bendayan 30,000 $30,000
July 1, 1997 Common Stock Edward Kozial 15,000 $15,000
- --------------------------------------------------------------------------------
August 1, 1997 Common Stock Salomon Bendayan 30,000 $600
August 1, 1997 Common Stock Moshe Bendayan 30,000 $600
August 1, 1997 Common Stock Edward Kozial 15,000 $300
- --------------------------------------------------------------------------------
September 1, 1997 Common Stock Salomon Bendayan 30,000 $600
September 1, 1997 Common Stock Moshe Bendayan 30,000 $600
September 1, 1997 Common Stock Edward Kozial 15,000 $300
- --------------------------------------------------------------------------------
September 12, 1997 Common Stock Shaya Heimlick 600,000 $6,000
October 7, 1997 Common Stock Shaya Heimlick 400,000 $4,000
- --------------------------------------------------------------------------------
November 24, 1997 Common Stock Verne Chelin 400,000 $4,000
November 24, 1997 Common Stock Louis Chelin 100,000 $1,000
November 24, 1997 Common Stock Martin Maxwell 200,000 $2,000
November 24, 1997 Common Stock David Bereskin 200,000 $2,000
- --------------------------------------------------------------------------------
November 26, 1997 Common Stock Eli Rabinowitz 700,000 $14,000
- --------------------------------------------------------------------------------
January 26, 1998 Common Stock David Fisher 300,000 $6,000
- --------------------------------------------------------------------------------
ITEM 6. Management's Discussion and Analysis or Plan of Operation
Overview
Treasury is an international manufacturing, distribution and marketing
company with a subsidiary producing about 1,000 plastic products mainly for
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North American markets. Once solely an international distributor of 225
consumer products, Treasury's acquisition of Mega Blow almost tripled annual
sales to over $6.1 million for the fiscal year ended January 31, 1998 while
total assets decreased by only 10.9 percent to about $3.5 million for the
1998 fiscal year.
During the next 24 to 36 months, Treasury plans to continue its expansion
goals by way of its Leveraged Build-Out strategy. To increase its market
share, the Company plans to acquire key competitors, or companies having
important synergies with existing company operations. Present operations are
also planned to be streamlined in order to reduce costs while improving
product quality and productivity. Furthermore, Treasury plans to expand its
global presence by entering the rapidly industrializing and emerging
markets, including the key economies in Latin America, Eastern Europe and
Africa.
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company included with this annual report.
Fiscal 1998 Compared to Fiscal 1997
Net sales increased during the fiscal year ended January 31, 1998 to over
$6.1 million, up approximately 189% from $2.1 million in the fiscal year
ended January 31, 1997. The increase in net sales reflects the inclusion of
Mega Blow's results of operations from the twelve month period. The Company
experienced a net loss of $1,437,986 for its fiscal year ended January 31,
1998, an increase of approximately 40% when compared to the Company's net
loss of $1,032,084 in the fiscal year ended January 31, 1997. Among the
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significant items impacting the 1998 results were increased expenses
resulting from the disposition of Silver 925, Inc. as well as extensive
marketing and consulting arrangements undertaken by the company.
The cost of sales for fiscal 1998 represented 76% of net sales, or
$4,628,960, a 166% increase compared to 82% of net sales, or $1,743,380, in
fiscal 1997. The increase is attributable to significantly greater net sales
from Mega Blow's operations.
Operating, general and administrative expenses increased in fiscal 1998 to
$1,846,345, or approximately 30% of sales, compared to $1,151,128, or
approximately 54% of sales, in fiscal 1997. The increase is attributable to
significantly higher sales and expenses related to the disposition of Silver
925, Inc.
Fiscal 1997 Compared to Fiscal 1996
Net sales increased during fiscal year 1997 to approximately $2.12
million, up approximately 91% from $1.1 million in fiscal year 1996. The
increase in net sales also reflects the inclusion of Mega Blow for the three
months ended January 31, 1997 (67%). The Company experienced a net loss of
$1,032,084 for its fiscal year ended January 31, 1997, an increase of
approximately 99.8% when compared to the Company's net loss of $516,656 in
the fiscal year ended January 31, 1996. Among the significant items
impacting 1997 results were increased expenses resulting from the Mega Blow
and Silver acquisitions as well as extensive marketing and consulting
arrangements undertaken by the Company.
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The cost of sales for fiscal 1997 represented 82% of net sales, or
$1,743,380, a 161% increase compared to 60% of net sales, or $667,083, in
fiscal 1996. The increase is attributable to the write down of obsolete and
slow moving inventories, higher prices of raw materials, increased sales of
lower margin products and, to a lesser extent, pricing incentives to major
customers.
Operating, general and administrative expenses increased in fiscal 1997
to $1,151,128, or approximately 54% of sales, compared to $957,607, or
approximately 86% of sales, in fiscal 1996. The increase is attributable to
the write-off of uncollectible accounts receivable, expenses related to the
October 30, 1996 acquisition of Megatran, expenses related to the acquisition
of Silver which was consummated subsequent to year end, consulting services
rendered (see note 15 of the Financial Statements) and marketing and
promotion activities.
Liquidity and Capital Resources
The primary sources of liquidity for the Company are funds generated by
operations and borrowings under the Company's loan agreement. Additional
information on the loan agreement is described in notes 6 and 7 to the
Company's financial statements.
In October, 1996, the Company sold 0% convertible debentures in the aggregate
principal amount of $1,000,000 due October 29, 1997 and October 30, 1999,
respectively. In the same month, the Company also sold an 8% senior
subordinated convertible debenture in the principal amount of $500,000 due
October 29, 1997. As of June 29, 1998, the holder of the 8% debenture
elected to convert $180,000 of debentures into shares of the Company's common
stock. The sales of the debentures were made pursuant to an exemption from
registration provided by Regulation S promulgated under the Securities Act of
1933.
As of January 31, 1998, current assets totaled $1,026,462 compared to
$1,348,995 at January 31, 1997. The decrease is attributable to more timely and
improved cash collections efforts on accounts receivable which decreased from
$812,357 at fiscal year end 1997 compared to $608,659 in fiscal year 1998. At
fiscal year end 1998, the Company had no cash or short-term deposits. The cash
and short-term deposits were utilized for working capital purposes. As of
January 31, 1998, current liabilities totaled $2,496,876 compared to $2,561,147
as of January 31, 1997. The decrease is attributable to a lower level of trade
payables from $1,018,928 in fiscal 1997 to $997,188 in fiscal year end 1998,
reflecting the significant improvement in business growth and development which
translated into higher sales.
As of January 31, 1998, the Company had outstanding $781,409 in term loans,
which loans are secured by a first priority lien on the assets of its
subsidiary. The term loans are due on October 30, 2002. The Company also
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has outstanding $1,361,880 principal amount of convertible debentures due as
follows: $860,627 in 1999, $250,627 in 2000 and $250,626 in 2001. All the
debentures are convertible into shares of the Company's common stock at the
option of the holder. In the event the holders convert these debentures, the
Company's obligation to repay the $1,361,880 indebtedness would by eliminated.
The Company believes its subsidiaries will generate sufficient positive cash
flow from operations to meet its operating requirements for the next twelve
months. However, there can be no assurance that the Company will be able to
repay the debentures that mature in 1999 if they are not converted. If the
funds available under the Company's financing agreements, together with its
current cash and cash equivalents are not sufficient to meet the company's
cash needs, the company may, from time to time, seek to raise capital from
additional sources, including extension of its current lending facilities,
project-specific financings and additional public or private debt or equity
financings.
Recent Developments
On June 30, 1998, the Company entered into a Debenture Conversion and
Support Agreement (the "Conversion Agreement") with certain persons who have
agreed to acquire the Company's 0% convertible debentures and 8% senior
subordinated convertible debentures (the "Holders"). Under the terms of the
Conversion Agreement, the Holders have agreed, upon consummation of the
purchase by the Holders of the debentures, to convert the debentures into
33,670,000 shares of the Company's common stock and the debentures would then
be canceled.
ITEM 7. Financial Statements
The financial statements of the Company, including the notes thereto,
together with the report of Bromberg & Associates, independent certified
public accountants thereon, are presented beginning at page F-I.
ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
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The following table provides information concerning each executive
officer and director of the Company. All directors hold office until the
next annual meeting of Stockholders or until their successors have been
elected and qualified.
NAME AGE TITLE
Mr. James Hal (a.k.a.James Halioua) 36 Chairman of the Board
Chief Executive Officer
President and Director
Mr. Howard Halpern 38 Chief Financial Officer
Executive Vice President
Mr. Mark Halioua 44 Director
Mr. Robert Abourmad 47 Director
Mr. Hal has been Chairman of the Board, Chief Executive Officer and a
Director of the Company since its inception in August 1995. Mr. Hal was the
President and Chief Financial Officer of JJAMP from its inception in
September 1993 through acquisition by the Company in August 1995. From 1983
to 1993, Mr. Hal was the President of Tropi-Golf Inc. of Concord, Canada. He
was previously a Director for Gaming Lottery Corp., a company trading both on
the NASDAQ and on the Toronto Stock Exchange, and Le Print Express, Inc.,
which trades on the Canadian Dealer Network (CDN).
Mr. Halpern, a certified public accountant, has been Chief Financial
Officer and Executive Vice President of the Company since January 15, 1997.
From 1989 until July 1992, he was the Controller of Merisel Canada, Inc., a
computer wholesaler with approximately $208,000,000 of annual sales and 70
employees. Since July 1992 he has practiced as a sole proprietor Chartered
Accountant in Canada, providing tax, financial and management consulting
services.
Mr. Abourmad has been a Director of the Company since August 18, 1995.
From 1995 to present he has been the President of Payless Locksmith, Inc. of
Toronto, Canada.
Mr. Mark Halioua has been a Director of the Company since August 18,
1995. Since August 1988, he has been the President of National Printing
Group in Markham, Canada, a printing company. He possesses no other
directorships.
Mr. James Hal and Mr. Mark Halioua are brothers.
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
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the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports they file.
Based solely on a review of the copies of such reports furnished to the
Company during or with respect to the fiscal year ended January 31, 1998, or
written representations that no Forms 5 were required, the Company believes
that during the fiscal year ended January 31, 1998, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with, except that each of the
officers and directors of the Company named above have not filed initial
statements of beneficial ownership and James Hal has not filed two reports on
Form 4 regarding grants of options and Howard Halpern has not filed one
report on Form 4 regarding grants of options.
ITEM 10. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation for each of the
Company's fiscal years since inception for the (i) the Company's Chief
Executive officer during the fiscal year ended January 31, 1998 and (ii) each
other executive officer of the Company whose compensation during the fiscal
year ended January 31, 1998 exceeded $100,000.
ANNUAL COMPENSATION LONG TERM COMPENSATION
Name Fiscal Annual Annual Other Restricted Securities LTIP All
Year Salary Bonus Annual Stock underlying payouts Other
Compen- Awards options Compen-
sation and SARs sation
- --------------------------------------------------------------------------------
James Hal 1998 $70,325 NONE NONE NONE 200,000 NONE NONE
H. Halpern 1998 $68,175 NONE NONE NONE 200,000 NONE NONE
Stock Option Grants Table
The following table provides information with regard to stock options
granted to the person named in the foregoing compensation table:
Name of Number of % Total Options/
Grantee Securities SARs Granted to
Underlying Employees in Exercise of
Options/SARs Fiscal Year Base Price Expiration Date
Granted
- --------------------------------------------------------------------------------
James Hal 200,000 41.66 % $0.05
H. Halpern 200,000 41.66% $0.05
Page 16 of 46
<PAGE>
Directors' Compensation
The Company's policy is not to pay compensation to directors who are
also employees of the Company for their service as directors. Additionally,
non-employee directors do not presently receive compensation for their
service as directors. The Company will, however, reimburse directors a fixed
amount for out-of-pocket expenses incurred for attendance at meetings. In
the fiscal year ended January 31, 1998, options to purchase 40,000 shares of
the Company's Common Stock were granted to Robert Abourmad and options to
purchase 40,000 shares of the Company's Common Stock were granted to Mark
Halioua.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect to the
beneficial ownership of the outstanding Common Stock of the Company as of
July 22, 1996 by (i) each director of the Company, (ii) each executive
officer of the Company and each executive officer of the Company named in the
Summary Compensation Table above, (iii) each person known by the Company to
own more than 5% of the Company's Common Stock and (iv) all directors and
officers as a group: [THE SILVER SHAREHOLDERS DO NOT OWN MORE THAN 5% OF THE
COMMON STOCK]
Name and Address Beneficial Ownership of Common Current Percent of
Stock Class (1)
------------------------------------------------------------------------------
James Hal 10,000,006 24.69
1183 Finch Avenue West
North York, Ontario,
Canada M3J 2G2
Howard Halpern 6,000,000 14.80%
160 Theodore Place
Thornhill, Ontario
Canada L4J 8E3
Halpern Family Trust 4,000,006 9.871%
650 Briar Hill Avenue
Suite 301
Toronto, Ontario
Canada M5N 1N3
Mark Halioua (2) 20,700 *
147 Beverly Glen Blvd.
Thornhill, Ontario
Canada L4J 4Y2
Page 17 of 46
<PAGE>
Robert Abourmad 20,300 *
87 Bayhampton Crescent
Thornhill, Ontario
Canada L4J 4Y2
All directors, 23,041,012 76.8%
executive officers and
5% owners, as a group:
__________________________________________
* Less than one percent.
(1) Computed on the basis of 40,536,927 shares of Common Stock and, with
respect to those persons holding options to purchase Common Stock
exerciseable within 60 days, the number of shares of Common Stock that
are issuable upon the exercise thereof.
(2) Includes options to purchase 20,000 shares of Common Stock exerciseable
within 60 days and 300 shares of Common Stock owned by his wife.
(3) Includes options to purchase 20,000 shares of Common Stock exerciseable
within 60 days.
ITEM 12. Exhibits, List and Reports on Form 8-K
(a) Index to Financial Statements
Report of Independent Auditors
Financial Statements
Financial Data Schedule
Exhibits
3.1 Certificate of Incorporation of the Company, as amended*
3.2 By-Laws of the Company.*
4.1 Form of Junior 0% Convertible Subordinated Debenture due October 30,
1999.**
4.2 Form of Series A Senior Convertible Subordinated Debenture due October
29, 1997**
4.3 Form of Series A Senior Convertible Subordinated Debenture due October
29, 1997**
10.1 Treasury International, Inc. 1995 Stock Option Plan.*
10.2 Share Purchase and Exchange Agreement dated August 18, 1995 between the
shareholders of J.J.A.M.P. Treasury International Corp., J.J.A.M.P
Treasury International Corp., and Treasury International, Inc.*
Page 18 of 46
<PAGE>
10.3 Agreement dated October 30, 1996 by and among Treasury International,
Inc., William Sarantos, Toula Sarantos, Martin Maxwell, Louis Chelin,
Verne Chelin, David Bereskin, In Trust, Joseph Myers, Eleanor Maxwell,
Berta Lenenfeld, Douglas Ferguson and Megatran Investments Ltd.***
10.4 Agreement dated as of June 18, 1996, as amended, by and among Treasury
International, Inc., Silver 925, Inc., Moche Bendayan, Solomon Bendayan
and Edward Kozial.****
10.5 Agreement dated as of September 19, 1997, by and among Treasury
International, Inc., James Hal, Silver 925, Inc., Moche Bendayan,
Salomon Bendayan and Edward Kozial.*****
10.6 Debenture Conversion and Support Agreement dated June 30, 1998
21* Subsidiaries of the Company
23.1 Consent of Bromberg & Associate
27.0 Financial Data Schedule
__________________________________________________
* Incorporated by reference from, the Company's Registration Statement on
Form 10-SB, as amended, originally filed with the SEC on October 21,
1996.
** Incorporated by reference from, the Company's Quarterly Report on Form
10-QSB, as filed with the SEC on December 20, 1996.
*** Incorporated herein by reference from, the Company's Current Report on
Form 8-K, as filed with the SEC on November 21, 1996.
**** Incorporated herein by reference from, the Company's Current Report on
Form 8-K, as filed with the SEC on March 17, 1997.
***** Incorporated herein by reference from, the Company's Current Report on
Form 8-K, as filed with the SEC on October 30, 1997
(b) During the three month period ended January 31, 1997, the Company
filed the following reports on Form 8-K:
Page 19 of 46
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TREASURY INTERNATIONAL, INC.
By: /s/
James Hal
President and Chief Executive
Officer
By: /s/
Howard Halpern
Chief Financial Officer
Pursuant to the requirements of the Exchange Act, this Report has been
signed below by the following persons on behalf of the Company in the
capacities and on the date indicated.
Signature Title Date
/s/ President and Chief Executive July 20, 1998
James Hal Officer and Director
/s/ Chief Financial Officer July 20, 1998
Howard Halpern
/s/ Director July 20, 1998
Mark Halioua
/s/ Director July 20, 1998
Robert Abourmad
Page 20 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
Page 21 of 46
<PAGE>
INDEX
Page
Auditor's report............................................... 1
Consolidated balance sheet..................................... 2
Consolidated statement of deficit.............................. 3
Consolidated statement of operations........................... 4
Consolidated statement of changes in
shareholders' equity........................................... 5
Consolidated statement of cash flows........................... 6
Notes to consolidated financial statements..................... 7
Page 22 of 46
<PAGE>
AUDITORS' REPORT
Board of Directors and Shareholders
Treasury International, Inc.
We have audited the consolidated balance sheets of Treasury International,
Inc. as at January 31, 1998 and 1997, and the consolidated statements of
operations deficit, shareholders' deficiency and cash flows for the years
then ended. These consolidated financial statements are the responsibility
of the corporation's management. Our responsibility is to express an opinion
on these consolidated 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 an audit to
obtain reasonable assurance whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the corporation as at
January 31, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
CHARTERED ACCOUNTANTS
TORONTO, CANADA
June 5, 1998
Page 23 of 56
<PAGE>
TREASURY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
AS AT JANUARY 31, 1998
ASSETS
CURRENT 1998 1997
Accounts Receivable $ 608,659 $ 812,357
Inventories (Notes 2 and 4) 345,783 385,915
Sundry assets 72,020 144,541
Income taxes receivable -------- 6,182
_________ __________
1,026,462 1,348,995
GOODWILL 1,835,918 1,835,918
CAPITAL ASSETS (Notes 2 and 5) 620,279 723,299
$3,482,659 $3,908,212
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $ 492,012 $ 394,407
Accounts payable and accrued liabilities 997,188 1,018,928
Current portion of long-term debt 1,007,676 1,147,812
2,496,876 2,561,147
DEFERRED INCOME TAXES 52,957 54,161
LONG-TERM DEBT (Note 7) 1,117,392 1,304,461
__________ __________
$3,667,225 $3,919,769
Page 24 of 46
<PAGE>
SHAREHOLDERS' DEFICIENCY
SHARE CAPITAL
Authorized
50,000,000 common shares at $.0001
Issued
24,610,495 common shares 2,461 1,494
Contributed surplus (Note 12) 2,788,140 1,543,861
DEFICIT (2,975,167) (1,556,912)
(184,566) (11,557)
$ 3,482,659 $ 3,908,212
APPROVED ON BEHALF OF THE BOARD
James Hal, Director Robert Abourmad, Director
Page 25 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF DEFICIT
YEAR ENDED JANUARY 31, 1998
1998 1997
Balance, beginning of year $(1,556,912) $ (524,828)
Net loss for the year (1,437,986) (1,032,084)
Adjustments to prior year taxes 19,731 -----------
___________ ____________
Balance, end of year $(2,975,167) $(1,556,912)
Page 26 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1998
1998 1997
REVENUE $6,128,827 $2,123,631
COST OF GOODS SOLD 4,628,960 1,743,380
GROSS PROFIT 1,499,867 380,251
EXPENSES
Warehouse and factory 568,465 139,660
General and administrative 1,122,540 956,086
Selling and deliver 155,340 55,382
1,846,345 1,151,128
LOSS FROM OPERATIONS before
undernoted items (346,478) (770,877)
Management fees 51,203 193,316
Financial 128,191 31,390
Amortization 137,654 39,941
317,048 264,647
LOSS BEFORE INCOME TAXES (663,526) (1,035,524)
Provision for income taxes (recovery) ------------- (1,542)
Deferred income taxes (recovery) (1,204) (1,898)
(1,204) (3,440)
NET LOSS FROM CONTINUED
OPERATIONS (662,322) (1,032,084)
Page 27 of 46
<PAGE>
NET LOSS FROM DISCONTINUED
OPERATION (282,260) -
NET LOSS ON DISPOSAL OF
DISCONTINUED OPERATIONS (493,404)
-
NET LOSS $(1,437,986)$(1,032,084)
Loss per common share $(0.08) $(0.08)
Weighted average number of
common shares outstanding 17,955,714 13,221,096
Page 28 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1998
COMMON PAID-IN CAPITAL
SHARES CONTRIBUTED SURPLUS
Balance-January 31, 1997 14,942,566 $1,494 $1,543,861
Issued 555,000 common shares
for consulting and public
relations services 555,000 56 554,944
Issued 150,000 common shares
toward the purchase price
of Silver 925, Inc. 150,000 15 149,985
Balance-April 30, 1997 15,647,566 1,565 2,248,790
Issued 500,000 common shares
for consulting and public
relations services 500,000 50 111,196
Issued 225,000 common
shares toward the purchase
price of Silver 925, Inc. 225,000 22 224,978
Issued 507,614 common
shares toward reduction
of debentures payable 507,614 51 49,949
Balance-July 31, 1997 16,880,180 1,688 2,634,913
Issued 1,150,000 common
shares for consulting and
public relations services 1,150,000 15 13,585
Page 29 of 46
<PAGE>
Issued 750,000 common
shares toward reduction
of debentures payable 750,000 75 29,225
Balance-October 31, 1997 18,780,180 1,878 2,677,723
Issued 2,830,315 common
shares toward reduction
of debentures payable 2,830,315 283 59,717
Issued 3,000,000 common
shares for consulting and
public relations services 3,000,000 300 5,700
Balance-January 31, 1998 24,610,495 $2,461 $2,788,140
Page 30 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31, 1998
1998 1997
Cash flows from operating activities
Net loss $(1,437,986) $(1,032,084)
Adjustments to reconcile net
loss to net cash used in
operating activities
Adjustments to prior year income taxes 19,731 -
Increase(decrease)in deferred (1,204) 54,161
income taxes
Amortization 137,654 39,941
Decrease (increase) in accounts 203,698 (632,053)
receivable
Increase(decrease)in income taxes 6,182 (6,182)
receivable
Increase(decrease)in inventories 40,132 (268,077)
Decrease (increase) in sundry assets 72,521 (142,689)
Increase (decrease) in accounts
payable (21,740) 969,611
Net cash used in operating (981,012) (1,017,372)
activities
Cash flows from financing activities
Long-term debt (327,205) 2,452,273
Proceeds on issue of common shares 1,245,246 466,267
Cash provided by financing 918,041 2,918,540
activities
Cash flows from investing activities
Goodwill - (1,835,918)
Purchase of capital assets (34,634) (752,268)
Cash used for investing activities (34,634) (2,588,186)
Decrease in cash and short-term (97,605) (687,018)
deposits
Cash and short-term deposits,
(bank indebtedness) beginning of (394,407) 292,611
year
(Bank indebtedness),end of year $(492,012) $(394,407)
Page 31 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1998
1. Nature of business
Treasury International, Inc. is a holding company which, through its
wholly-owned subsidiaries, Megatran Investments Ltd. and Mega Blow
Moulding Limited, distributes a variety of consumer and industrial
products. The company was incorporated on August 18, 1995 in the State
of Delaware.
2. Summary of significant accounting policies
(a) Basis of consolidation
These consolidated financial statements include the accounts of
the company and its wholly-owned subsidiaries, Megatran
Investments Ltd. and Mega Blow Moulding Limited.
(b) Inventories
Raw materials are valued at the lower of cost (first-in, first-out
method) and net realizable value. Finished goods are valued at
the lower of cost and net realizable value with cost being
determined by the retail method.
(c) Capital assets
Capital assets are recorded at cost less accumulated
amortization. Amortization is provided as follows:
Leasehold improvements - straight line over term of lease
Machinery and equipment - 20% diminishing balance
Office equipment - 20% diminishing balance
(d) Revenue recognition
Revenue is generally recognized as customers are invoiced for
products shipped by the company.
(e) Loss per share
Loss per share is calculated based on the weighted average number
of shares outstanding during the period of 17,955,714.
Page 32 of 46
<PAGE>
(f) General
These financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (GAAP), as they
relate to these financial statements.
Page 33 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1998
3. Business combination
On October 30, 1996, the Company acquired 100% of the issued and
outstanding common shares of Megatran Investments Ltd., parent company
of Mega Blow Moulding Limited.
4. Inventories
January 31, January 31,
Inventories consist of: 1998 1997
Raw materials $144,183 $151,241
Packaging 20,135 24,345
Finished goods 181,465 210,329
$345,783 $385,915
5. Capital assets
January 31, January 31,
1998 1997
Accumulated Net Net
Cost amortization book value book value
Leasehold $4,221 1,665 $2,556 $2,893
improvements
Machinery and 2,473,153 1,897,665 575,488 668,585
equipment
Office equipment 103,314 61,079 42,235 51,821
$2,580,688 1,960,409 $ 620,279 $ 723,299
Page 34 of 46
<PAGE>
6. Bank indebtedness
The bank indebtedness consists of two operating demand loans totaling
$483,680 which are secured by a registered general assignment of book
debts and general security agreements of Mega Blow Moulding Limited.
Page 35 of 46
<PAGE>
TREASURY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1998
7. Long term debt
The long-term debt consists of two term loans and three debentures
payable. The term loans are secured by a registered general security
agreement having first charge over all assets excluding real property
of Mega Blow Moulding Limited. The term loans bear interest at rates
varying from 6.47% to bank prime plus 1.75%. One of the three
debentures in the amount of $500,000 is subject to 8% interest. The
remaining two are interest-free debentures.
The term loans and debentures are payable as follows:
Term loans Debentures Total
1999 $147,049 $860,627 $1,007,676
2000 157,213 250,627 407,840
2001 165,443 250,626 416,069
2002 174,339 - 174,339
2003 and 137,365 - 137,365
following ________ ________ _________
781,409 1,361,880 2,143,289
Less current 147,049 860,627 1,007,676
portion ________ _________ _________
$634,360 $501,253 $1,135,613
8. Income taxes
As of January 31, 1998, the Company had a net operating loss carryover
of approximately $2,259,500 expiring in various years through 2013.
9. General and administrative expenses
General and administrative expenses for the year ended January 31, 1998
include fees paid by the Company for consulting and public relations in
the amount of $808,397.
Page 36 of 46
<PAGE>
10. Discontinued operations
On July 31, 1997, the Company disposed of its subsidiary, Silver 925,
Inc. The results of Silver 925, Inc. have been reported as
discontinued operations in these financial statements.
11. Contingent Liabilities
The Company has been named as a defendant in three lawsuits in respect
of disputed accounts payable. After reviewing the merits of these
lawsuits with counsel, it is managements opinion that the ultimate
cost of settlement will be no more than $67,000 and therefore will not
materially affect the company's financial position.
12. Contributed surplus
Contributed surplus represents the premium paid on the issuance of
common shares.
Page 37 of 46
<PAGE>
EXHIBIT 21
Megatran Investments Ltd.
Mega Blow Moulding Limited
Page 38 of 46
<PAGE>
DEBENTURE CONVERSION AND SUPPORT AGREEMENT
DEBENTURE CONVERSION AND SUPPORT AGREEMENT, dated June 30, 1998 by and
between TREASURY INTERNATIONAL, INC., a Delaware corporation ("Treasury"),
JAMES HAL ("Hal"), HOWARD HALPERN ("Halpern") and THE UNDERSIGNED PURCHASERS
OF CERTAIN DEBENTURES OF TREASURY (the "Purchasers"), and DALE DONNER, as
agent for the Purchasers ("Donner").
RECITALS
WHEREAS, pursuant to a certain Debenture Purchase Agreement dated the
date hereof, the Purchasers have agreed to acquire certain Debentures of
Treasury (the "Debentures") in the aggregate principal amount of Canadian
$1,000,000 and US$570,000 (the "Debenture Purchase").
WHEREAS, in connection with the Debenture Purchase, Treasury, the
Purchasers and Donner have agreed to enter into this Agreement with respect
to the conversion of the Debentures and the relationship of the parties from
and after the consummation of the purchase of the Debentures pursuant to the
terms of the Debenture Purchase, all upon the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and agreements hereinafter set forth,
the parties hereto agree as follows:
ARTICLE I.
CONVERSION OF DEBENTURES
1.1. Conversion of Debentures.
(a) Upon the terms and subject to the conditions of this
Agreement, simultaneous with the Closing of the Debenture Purchase, the
Purchasers agree that the Debentures shall be converted into 33,670,000
shares (the "Conversion Shares") of Treasury's Common Stock, par value $.0001
per share, and the Debentures shall be forthwith canceled. The Conversions
shares shall be allocated among the Purchasers as provided on Schedule 1.1
hereto.
(b) Purchasers acknowledge that the Conversion Shares have not
been registered under the Securities Act of 1933, as amended (the "Act"), or
under the securities laws of certain states. Accordingly, until October 31,
1998, the second anniversary of the original issuance of the Debentures, the
Conversion Shares cannot be resold, pledged, assigned or otherwise disposed
of except in compliance with Rule 144 promulgated under the Act. The
Page 39 of 46
<PAGE>
Purchasers further acknowledge that Treasury is not currently in compliance
with the current public information requirements of Rule 144 and,
accordingly, until such compliance requirements are met, the resale
provisions of Rule 144 are not presently available. In addition, even if an
exemption under Rule 144 were available, Rule 144 permits only routine sales
of securities in limited amounts in accordance with the terms and conditions
of such Rule 144 until such second anniversary.
(c) Purchasers understand that, until October 31, 1998, the
following legend or a substantially similar legend may be placed on the
Conversion Shares (and a stop transfer order may be placed with respect
thereto):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND CANNOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT WHICH, IN
THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL
FOR THIS CORPORATION, IS AVAILABLE."
(d) Purchasers acknowledge and agree that they are not
"affiliates" of Treasury.
ARTICLE II.
FINANCIAL ASSISTANCE
2.1 Financial Assistance.
The Purchasers shall make additional capital contributions to Treasury
from time to time. Such additional capital contributions shall be deemed to
be additional paid-in capital and the Purchasers shall not be entitled to any
additional compensation with respect thereto. The Purchasers shall
immediately make additional capital contributions in order to eliminate the
current balance of outstanding accounts payable of Treasury.
Page 40 of 46
<PAGE>
ARTICLE III.
BOARD REPRESENTATION; OBSERVER RIGHTS
..1. Board Representation
After the first anniversary of the Closing, for so long as Purchasers
owns not less than 5% of the issued and outstanding capital stock of
Treasury, at the election of Purchasers, Treasury shall use its best efforts
to cause and maintain the election of a person designated by Purchasers to
the Board of Directors of Treasury.
..2. Observer Rights
For so long as Purchasers owns not less than 5% of the issued and
outstanding capital stock of Treasury, Treasury shall invite the Agent to
attend all meetings of the Board of Directors in a nonvoting observer
capacity and, in this regard, shall give the Agent copies of all notices,
minutes, consents and other materials that it provides to its directors;
provided, however, that the Agent shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information so provided;
and provided, further, that Treasury reserves the right to withhold any
information and to exclude such representatives from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between Treasury and its
counsel.
ARTICLE IV.
COVENANTS
..1. Covenants of Treasury
Until the first anniversary of the date of this Agreement and for so
long as Purchasers owns not less than 5% of the issued and outstanding
capital stock of Treasury, Treasury shall not take any of the following
actions without the approval of the Agent:
(a) sell, lease, transfer or otherwise dispose of any assets
valued at an aggregate amount exceeding U.S. $100,000 during any fiscal year;
(b) create any subsidiaries or acquire securities of any other
entity;
(c) merge or consolidate with any other entity;
(d) engage directly or indirectly with another entity in any
business activity not related to Treasury's present business or acquire any
assets unrelated to or unnecessary for such business;
Page 41 of 46
<PAGE>
(e) engage directly or indirectly in any business with
affiliates or other third parties on other than an arm's length basis;
(f) change its fiscal year or independent auditors;
(g) incur indebtedness or capital expenditures each in excess
of U.S. $50,000;
(h) intentionally vary in a material manner from the annual
operating budget and business plan approved by the Board of Directors of
Treasury; and
(i) issue any additional securities of Treasury exchangeable
for or convertible into shares of Common Stock of Treasury other than shares
issuable upon the exercise of options granted to the optionees and options
granted and to be granted under the Plan to the extent permitted hereby.
4.2. Covenants Regarding Options.
In connection with the issuance of 6,000,000 restricted shares of
Treasury's Common Stock issued to each Hal and Halpern on June 24, 1998, each
of Hal and Halpern agree to cancel all outstanding options granted to each of
them, except for options to purchase 250,000 shares which shall remain
outstanding. On each of the first day of February commencing on February 1,
1999, Hal and Halpern shall each be entitled to receive options to purchase
250,000 shares of Treaury's Common Stock in connection with their services as
employees of Treasury. Until the third anniversary of the date of this
Agreement, except as otherwise provided below, no other options shall be
granted to Hal or Halpern.
In addition, each director of Treasury shall receive 30,000
options per year commencing on February 1, 1999 and on the first day of
February thereafter on which such person is then serving as a director.
4.3. Compensation.
(a) Until the first anniversary of the date of this Agreement
or for so long as Purchasers owns not less than 5% of the issued and
outstanding capital stock of Treasury, Treasury shall pay to each of Hal and
Halpern remuneration of $5,000 per month. Hal and Halpern shall also be
reimbursed for all reasonable and necessary expenses incurred by them in
connection with their duties to Treasury.
(b) For a period of one year after the date hereof, Treasury
shall pay to the Agent an administration fee of $5,000 per month.
Page 42 of 46
<PAGE>
ARTICLE V.
MISCELLANEOUS
..1. Entire Agreement; Assignment
This Agreement, together with all Exhibits and Schedules, constitutes
the entire agreement among the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties or between any of them with respect to
the subject matter hereof. All references to Sections, Exhibits and
Schedules shall be deemed references to such parts of this Agreement unless
the text requires otherwise. This Agreement shall not be assigned by
operation of law or otherwise, provided that Purchasers may assign its rights
and obligations to any wholly-owned, direct or indirect subsidiary of
Purchasers provided such assignee agrees to assume all of the obligations of
Purchasers hereunder; provided, further, that no such assignment shall
relieve the assignor of its obligations hereunder if such assignee does not
perform such obligations.
..2. Validity; Severability
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect unless such
enforceability causes this Agreement to fail in its essential purpose.
..3. Notices
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given or made as of the date
delivered or mailed if delivered in person, by telecopy, cable, telegram or
telex, or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
if to Purchasers:
Telecopy No.:
Attention:
with a copy to:
Telecopy No.:
Attention:
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<PAGE>
if to Treasury:
1183 Finch Avenue West, Suite 508
North York, Ontario
Canada M3J 2G2
Telecopy No.: (416) 663-5509
Attention: Mr. James Hal, President
with a copy to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Telecopy No.: (212) 835-6001
Attention: Paul J. Pollock, Esq.
or to such other address as the person to whom notices is given may have
previously furnished to the others in writing in the manner set forth above.
..4. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (without giving effect to principles of
conflicts of law).
..5. Descriptive Headings
The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
..6. Parties in Interest
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, its successors and assigns.
..7. Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
5.8. Nature and Survival of Representations, Warranties,
Agreements and Covenants.
All representations and warranties contained herein shall terminate
upon, and shall not survive, the Closing. All agreements and covenants
contained herein shall survive indefinitely until, by their respective terms,
they are no longer operative.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized as of the
day and year first above written.
TREASURY INTERNATIONAL, INC.
By: /s/
James Hal
President
/s/
James Hal
/s/
Howard Halpern
/s/
Dale Donner, as agent
THE UNDERSIGNED PURCHASERS
/s/
Dale Donner
/s/
/s/
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<PAGE>
Consent of Independent Accountants
The Board of Directors
Treasury International, Inc.:
We consent to the use of our report included herein and to the reference
to our firm in the 10-KSB.
/s/
Bromberg & Associate
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