UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1997
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File number 0-27646
Gum Tech International, Inc.
--------------------------------------------------------------
(Exact name of small business issuer as specified in it charter)
Utah 87-0482806
--------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
4205 North Seventh Avenue
Suite 300
Phoenix, AZ 85013-3080
---------------------------------------
(Address of principal executive offices)
(602) 277-0606
-------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the 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
----- -----
There are 4,948,740 shares of the registrant's common stock, no par value
outstanding as of June 30, 1997.
<PAGE>
GUM TECH INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page
Item 1. Condensed Balance Sheet as of
June 30, 1997 1
Condensed Statements of Operations
for the three months ended June 30, 1997
and 1996 3
Condensed Statements of Operations
for the six months ended June 30, 1997
and 1996 4
Condensed Statements of Cash Flows
for the six months ended June 30, 1997
and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II Other Information and Signatures 12
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
June 30, 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,970,467
Restricted cash 55,836
Accounts receivable, net of allowance
for doubtful accounts of $33,506 429,822
Inventories 921,779
Current portion of notes receivable 414,130
Accrued interest 44,697
Prepaid expenses and other 843,943
------------
Total Current Assets 4,680,674
------------
Property and Equipment, at cost:
Machinery and production equipment 3,427,510
Office furniture and equipment 127,434
Leasehold improvements 190,526
------------
Total Property and Equipment 3,745,470
Less accumulated depreciation (745,387)
------------
Net Property and Equipment 3,000,083
------------
Other Assets:
Prepaid advertising 3,132,254
Notes receivable 66,000
Intangible assets, net of
accumulated amortization 238,349
Deposits and other 253,553
------------
Total Other Assets 3,690,156
------------
Total Assets $ 11,370,913
============
The accompanying notes are an integral part of
these condensed financial statements.
1
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
June 30, 1997
(Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 431,582
Accrued interest 69,384
Unearned revenue 10,170
Current portion of long-term debt 225,294
------------
Total Current Liabilities 736,430
------------
Long Term Debt:
Notes Payable 2,530,000
Equipment Lease Obligations 1,377,120
------------
Total Long Term Debt 3,907,120
------------
Commitments and Contingencies
------------
Stockholders' Equity:
Preferred stock: no par value,
1,000,000 shares authorized,
none issued or outstanding --
Common stock: no par value,
10,000,000 shares authorized,
4,948,740 shares issued and outstanding 7,965,060
Retained Earnings (Deficit) (1,237,697)
------------
Total Stockholders' Equity 6,727,363
------------
Total Liabilities and Stockholders' Equity $ 11,370,913
============
The accompanying notes are an integral part of
these condensed financial statemnts.
2
<PAGE>
<TABLE>
<CAPTION>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30,
------------------------------------
1997 1996
------------------------------------
<S> <C> <C>
Net Sales $ 1,983,533 $ 1,153,894
Cost of Sales 961,896 543,879
----------- -----------
Gross Profit 1,021,637 610,015
Operating Expenses 779,814 994,072
Research and Development 21,247 18,978
----------- -----------
Income (Loss) From Operations 220,576 (403,035)
----------- -----------
Other Income (Expense):
Interest and Other Income 50,481 32,462
Interest Expense (120,507) (58,968)
----------- -----------
Total Other Income (Expense) (70,026) (26,506)
----------- -----------
Income (Loss) Before Provision For Income Taxes 150,550 (429,541)
Provision (benefit) for income taxes -- (90,729)
----------- -----------
Net Income (Loss) $ 150,550 $ (338,812)
=========== ===========
Net Income (Loss) Per Share of Common Stock:
Primary:
Weighted Average Number of Common Shares Outstanding 6,884,492 4,466,630
=========== ===========
Net Income (Loss) Per Share of Common Stock $ 0.03 $ (0.08)
=========== ===========
Fully Diluted:
Weighted Average Number of Common Shares Outstanding 6,884,492 4,466,630
=========== ===========
Net Income (Loss) Per Share of Common Stock $ 0.03 $ (0.08)
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended June 30,
------------------------------------
1997 1996
------------------------------------
<S> <C> <C>
Net Sales $ 4,411,355 $ 2,044,531
Cost of Sales 2,128,349 1,069,832
----------- -----------
Gross Profit 2,283,006 974,699
Operating Expenses 1,407,207 1,624,415
Research and Development 71,217 50,773
----------- -----------
Income (Loss) From Operations 804,582 (700,489)
----------- -----------
Other Income (Expense):
Interest and Other Income 81,703 45,733
Interest Expense (194,160) (137,611)
----------- -----------
Total Other Income (Expense) (112,457) (91,878)
----------- -----------
Income (Loss) Before Provision For Income Taxes 692,125 (792,367)
Provision (benefit) for income taxes -- (213,343)
----------- -----------
Net Income (Loss) $ 692,125 $ (579,024)
=========== ===========
Net Income (Loss) Per Share of Common Stock:
Primary:
Weighted Average Number of Common Shares Outstanding 6,878,995 3,974,103
=========== ===========
Net Income (Loss) Per Share of Common Stock $ 0.12 $ (0.15)
=========== ===========
Fully Diluted:
Weighted Average Number of Common Shares Outstanding 6,878,995 3,974,103
=========== ===========
Net Income (Loss) Per Share of Common Stock $ 0.11 $ (0.15)
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
--------------------------------
1997 1996
---------------------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income (loss) $ 692,125 $ (579,024)
Adjustments to reconcile net income (loss) to cash (used)
by operating activities:
Depreciation 285,984 183,512
Amortization 21,299 --
Deferred income taxes -- (215,412)
Accrued interest on notes receivable (44,697) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 324,050 (287,463)
Decrease in income tax receivable 234,440 --
(Increase) decrease in inventories 445,165 (561,215)
(Increase) in prepaid expenses and other (27,912) (96,725)
(Increase) in prepaid advertising expenses (3,132,254) --
(Increase) decrease in deposits and other 158,715 (175,245)
Increase in accounts payable and accrued expenses 102,701 3,441
(Decrease) in customer deposits (55,330) (36,959)
----------- -----------
Net Cash (Used) By Operating Activities (995,714) (1,765,090)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (147,585) (614,056)
Increase in notes receivable (164,130) (150,000)
----------- -----------
Net Cash (Used) By Investing Activities (311,715) (764,056)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing 2,530,000 706,397
Principal payments on notes payable (109,207) (2,485,042)
Issuance of common stock -- 8,400,000
Debt issuance costs incurred (259,648) --
Offering costs incurred -- (1,277,807)
----------- -----------
Net Cash Provided By Financing Activities 2,161,145 5,343,548
----------- -----------
Net Increase in Cash and Cash Equivalents 853,716 2,814,402
Cash and Cash Equivalents at Beginning of Period 1,116,751 503,327
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,970,467 $ 3,317,729
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 103,477 $ 244,973
Income taxes -- 23,165
Supplemental Disclosure of Non Cash Investing and Financing Activities:
Capital lease obligation incurred for new equipment $ -- $ 1,194,554
The accompanying notes are an integral part of
these condensed financial statements.
5
</TABLE>
<PAGE>
GUM TECH INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying financial information of the Company is prepared in
accordance with the rules prescribed for filing condensed interim financial
statements and, accordingly, does not include all disclosures that may be
necessary for complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures presented are
sufficient, in management's opinion, to make the interim information
presented not misleading. All adjustments, consisting of normal recurring
adjustments, which are necessary so as to make the interim information not
misleading, have been made. Results of operations for the six months ended
June 30, 1997 are not necessarily indicative of results of operations that
may be expected for the year ending December 31, 1997. It is recommended
that this financial information be read with the complete financial
statements included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996 previously filed with the Securities and
Exchange Commission.
2. Net income (loss) per share of common stock is computed using the weighted
average number of common shares and common share equivalents outstanding
during the periods presented. Common share equivalents result from
outstanding options and warrants to purchase common stock. Pursuant to the
requirements of the Securities and Exchange Commission, common shares
issued by the Company during the twelve months immediately preceding the
initial public offering, plus the number of shares usable upon exercise of
stock options granted during this period, have been included in the
calculation of the shares used in computing net income (loss) per share as
if they were outstanding for all periods presented (using the treasury
stock method and the estimated public offering price in calculating
equivalent shares).
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was organized in 1991 to develop, market and distribute
specialty chewing gum products. The Company's first chewing gum product included
a natural caffeine substance marketed to runners and other exercise enthusiasts
as a source of energy and carbohydrates. In 1994 and 1995, the Company raised
funds through debt and equity financings which were used to establish a new
management team, develop additional chewing gum products, build inventories and
purchase chewing gum manufacturing equipment for the Company's 28,000 square
foot manufacturing facility which commenced operations in late March, 1996. The
facility has 39 employees and by the end of 1996 the Company produced 100% of
its chewing gum products.
The Company distributes its nutrient and therapeutic chewing gum products
to many of the nation's top drugstore chains, including Rite-Aid, Walgreens,
Drug Emporium, Longs, Thrifty, Sav-On, Phar-Mor, Eckard and Payless. The Company
also has a strong nationwide position in the mass market chains (Target, Kmart,
Meijer), major supermarket chains (Safeway, Smith's, Lucky's) and various health
food distributors. In addition, the Company is increasing distribution and
further expanding its presence in international markets including Japan, Korea,
Russia, Scandinavia, and Eastern Europe. The Company is also involved in many
private label endeavors, including the research and development of various
smoking cessation products.
Results of Operations for the Three Months Ended June 30, 1997 Compared to the
Three Months Ended June 30, 1996
- --------------------------------------------------------------------------------
The following table sets forth certain statement of operations information
expressed both in dollars and as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
Quarters Ended June 30,
-----------------------
1997 1996
<S> <C> <C> <C> <C>
Net Sales $1,983,533 100% $1,153,894 100%
Cost of sales 961,896 48 543,879 47
Gross profit 1,021,637 52 610,015 53
Operating expenses 779,814 40 994,072 86
Research and development 21,247 1 18,978 2
Income (loss) from operations 220,576 11 (403,035) (35)
Interest and other income 50,481 3 32,462 3
Interest expense (120,507) (6) (58,968) (5)
Provision (benefit) for income taxes - - (90,729) (8)
Net income (loss) 150,550 8 (338,812) (29)
</TABLE>
Net Sales. Net sales increased by $829,639 or 72%, to $1,983,533 for the
three months ended June 30, 1997 compared to $1,153,894 for the three months
ended June 30, 1996. The increase in sales was a result of $1.4 million of
discontinued and excess inventories sold in a barter agreement that the Company
entered into in December, 1996 with Active Media Services, Inc. and another
7
<PAGE>
barter agreement entered into in April, 1997 with SKR Resources, Inc. The Active
Media, Inc. agreement has now been completely shipped and the products sold in
the agreement consisted of ChromaTrim, CitrusSlim, Vita ACE and gum from the
Jack Lalanne line of products. The Company shipped 68% of the $438,000 agreement
with SKR Resources, Inc. that consisted of the DentaHealth product.
Cost of Sales. Cost of sales increased 1% to $961,896 or 48% of net sales
for the three months ended June 30, 1997, compared to $543,879 or 47% of net
sales for the same period in 1996.
Gross Profit. Gross profit, as a percentage, decreased by 1% to $1,021,637
or 52% of net sales for the three months ended June 30, 1997, compared to
$610,015 or 53% of net sales for the same period in 1996. The decrease in gross
profit percentage was directly related to cost of sales.
Operating Expenses. Operating expenses were $779,814, a decrease of
$214,258 for the three months ended June 30, 1997 compared to the same period in
1996. Approximately $387,497 of these operating expenses were attributable to
the operations of the manufacturing plant, of which, $133,613 were directly
related to depreciation of the plant's manufacturing equipment. Factors
contributing to a decrease in non-manufacturing operating expenses were
primarily related to advertising of $169,404 for the three months ended June 30,
1997 versus $230,985 for the same period in 1996. Other significant
non-manufacturing operating expenses were administrative management labor
($176,334), travel and trade shows ($129,159), accounting, legal and
professional consulting fees ($96,940), art/production fees ($69,735) general
administrative labor ($47,978), and sales labor ($32,300).
Research and Development. Research and development expenditures were
$21,247 for the three months ended June 30, 1997, compared to $18,978 for the
same period in 1996. The majority of these costs were related to the formulation
of the following: new flavor High Gear, an energy gum; Calcium gum, prevents,
helps and treats osteoporosis; Ginseng gum, helps maintain overall good health;
and other various private label dental, smoking cessation and body building cube
gums.
Interest and Other Income and Interest Expense. Interest and other income
was $50,481, an increase of $18,019 for the three months ended June 30, 1997,
primarily as a result of an increase in working capital from equity financings
that were invested in short-term investments. Interest expense was $120,507 an
increase of $61,539 for the three months ended June 30, 1997, primarily as a
result of the Company issuing $2,530,000 of subordinated convertible notes in
February, 1997.
Net Income. Net income increased to $150,550 for the three months ended
June 30, 1997 compared to a net loss of ($338,812) for the same period in 1996.
8
<PAGE>
Results of Operations for the Six Months Ended June 30, 1997 Compared to the Six
Months Ended June 30, 1996
- --------------------------------------------------------------------------------
The following table sets forth certain statement of operations information
expressed both in dollars and as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
<S> <C> <C> <C> <C>
Net Sales $4,411,355 100% $2,044,531 100%
Cost of sales 2,128,349 48 1,069,832 52
Gross profit 2,283,006 52 974,699 48
Operating expenses 1,407,207 32 1,624,415 80
Research and development 71,217 2 50,773 2
Income (loss) from operations 804,582 18 (700,489) (34)
Interest and other income 81,703 2 45,733 3
Interest expense (194,160) (4) (137,611) (7)
Provision (benefit) for income taxes - - (213,343) (10)
Net income (loss) 692,125 16 (579,024) (28)
</TABLE>
Net Sales. Net sales increased by $2,366,824, or 116%, to $4,411,355 for
the six months ended June 30, 1997 compared to $2,044,531 for the six months
ended June 30, 1996. The increase in sales was a result of $3.08 million of
discontinued and excess inventories sold in a barter agreement that the Company
entered into in December, 1996 with Active Media Services, Inc. and another
barter agreement entered into in April, 1997 with SKR Resources, Inc. The Active
Media, Inc. agreement has now been completely shipped and the products sold in
the agreement consisted of ChromaTrim, CitrusSlim, Vita ACE and gum from the
Jack Lalanne line of products. The Company shipped 68% of the $438,000 agreement
with SKR Resources, Inc. that consisted of the DentaHealth product.
Cost of Sales. Cost of sales decreased 4% to $2,128,349 or 48% of net sales
for the six months ended June 30, 1997, compared to $1,069,832 or 52% of net
sales for the same period in 1996. The primary reason for the decrease is the
Company has eliminated its dependence upon outside manufacturers and is
capitalizing on the economies of scale for its chewing gum products.
Gross Profit. Gross profit increased by 4% to $2,283,006 or 52% of net
sales for the six months ended June 30, 1997, compared to $974,699 or 48% of net
sales for the same period in 1996. The decrease in gross profit was directly
related to cost of sales.
Operating Expenses. Operating expenses were $1,407,207, a decrease of
$217,208 for the six months ended June 30, 1997 compared to the same period in
1996. Approximately $782,784 of these operating expenses were attributable to
the operations of the manufacturing plant, of which, $265,183 were directly
related to depreciation of the plant's manufacturing equipment. Factors
contributing to a decrease in non-manufacturing operating expenses were
primarily related to advertising of $205,284 for the six months ended June 30,
1997 versus $319,925 for the same period in 1996. Other significant
9
<PAGE>
non-manufacturing operating expenses were administrative management labor
($350,957), travel and trade shows ($225,118), accounting, legal and
professional consulting fees ($185,019), general administrative labor
($113,273), art/production fees ($107,105) and sales labor ($64,675).
Research and Development. Research and development expenditures were
$71,217 for the six months ended June 30, 1997, compared to $50,773 for the same
period in 1996. The majority of these costs were related to the formulation of
the following: Vita ACES+, an anti-oxidant gum; Chew and Sooth Zinc gum, a
throat soother; High Gear, an energy gum; Calcium gum, prevents, helps and
treats osteoporosis; Ginseng gum, helps maintain overall good health; and other
various private label dental, smoking cessation and body building cube gums.
Interest and Other Income and Interest Expense. Interest and other income
was $81,703, an increase of $35,970 for the six months ended June 30, 1997,
primarily as a result of an increase in working capital from equity financings
that were invested in short-term investments. Interest expense was $194,160 an
increase of $56,549 for the six months ended June 30, 1997, primarily as a
result of the Company issuing $2,530,000 of subordinated convertible notes in
February, 1997.
Net Income. Net income increased to $692,125 for the six months ended June
30, 1997 compared to a net loss ($579,024) for the same period in 1996.
Liquidity and Capital Resources
As of June 30, 1997, the Company's working capital was $3.94 million
compared to $3.65 million at December 31, 1996. For the six months ended June
30, 1997, the Company experienced a decrease in cash used by operating
activities of $995,714 primarily as a result of an increase in prepaid
advertising expenses related to the Active Media Services, Inc. and SKR
Resources, Inc. barter agreements.
Investing activities consumed $311,715 in cash for the six months ended
June 30, 1997 compared to $764,056 of cash used in the same period of 1996. This
was primarily from an increase in a note receivable to a former major
distributor and acquisition of additional manufacturing equipment.
Financing activities provided $2,161,145 in cash for the six months ended
June 30, 1997 compared to $5,343,548 in cash for the same period in 1996. The
cash provided for 1996 was primarily a result of the Company successfully
completing its IPO on April 24, 1996 less the repayment of notes payable. The
cash provided for 1997 was primarily from the sale of an aggregate of $2,530,000
of convertible debentures on March 6, 1997.
On August 7, 1997, the Company announced that 457,400 of its 460,000 Common
Stock Purchase Warrants (99.43%) outstanding as of July 21, 1997 were redeemed
at an exercise price of $7.50 per share for total gross proceeds to the Company
of $3,430,500.
10
<PAGE>
Outlook
The statements contained in this section are based on current expectations.
These statements are forward looking, and actual results may differ materially.
The accumulated advertising credits resulting from the barter transaction
described under June 30, 1997 Results of Operations and totaling approximately
$3.8 million will be used to advertise and promote Cigarrest, a smoking
cessation gum. The Company also expects to continue to support the re-formulated
ChromaTrim and CitrusSlim weight loss/control gums and all other products with
various advertising campaigns and direct response. While the Active Media, Inc.
agreement has been completely shipped, the Company anticipates shipping an
additional $140,000 to complete the agreement with SKR Resources, Inc. in the
third quarter of this year.
The $3.4 million received from the Common Stock Purchase Warrant redemption
will be added to the Company's working capital. It is expected that portions of
the working capital may be used to expand or completely rebuild the Company's
manufacturing and warehouse facilities when demand outstrips capacity.
The Company's future results of operations and the other forward looking
statements contained in this section, in particular the statement(s) concerning
plant efficiencies and capacities, capital spending, research and development
and other expenses involve a number of risks and uncertainties. In addition to
the factors discussed above, among the other factors that could cause actual
results to differ materially are the following: business conditions and the
general economy; competitive factors, such as rival gum manufacturers' pricing
and marketing efforts; availability of third-party material products at
reasonable prices; unused barter credits, if any; risk of nonpayment of accounts
receivable; risks of inventory obsolescence due to shifts in market demand;
timing of product introductions; and litigation involving product liabilities
and consumer issues.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
-----------------
On October 16, 1996, a lawsuit was filed against the Company in the United
States District Court for the Central District of California, CV-95-9784. The
action is entitled GCN Products, Inc. vs. Roy Kelly, et al. The complaint, as it
relates to the Company, principally alleges that the Company engaged in unlawful
rebates, appropriations and overcharges, commercial bribery, fraud and unjust
enrichment. Plaintiff seeks compensatory and punitive damages. The Company
denies all allegations and intends to vigorously defend the suit.
Item 2. Changes in Securities
----------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
At the 1997 Annual Meeting of Stockholders, held on June 13, 1997, the
Stockholders approved several proposals as follows:
(1) Proposal to elect six directors to serve until their successors are
elected.
Name For Abstain
---- --- -------
Richard Ratcliff 2,007,242 2,881,780
Gerald Kern 4,753,577 135,445
Gary Kehoe 4,840,737 48,285
Richard Bernstein 1,923,952 2,965,070
William Meris 2,489,307 2,399,715
Robert Kwait 4,851,737 37,285
(2) Proposal to approve an increase in the number of shares reserved for
issuance under the Company's 1995 Stock Option Plan from 1,200,000 shares to
2,000,000 shares.
For 2,984,582
Against 423,778
Abstain 82,400
---------
Total 3,490,076
=========
Item 5. Other
-----
None
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
10.27 Agreement with SKR Resources, Inc.
27. Financial Data Schedule
B. Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorize
Gum Tech International, Inc.
/s/ Gerald N. Kern
- -------------------------------------
Gerald N. Kern
President and Chief Executive Officer
/s/ Jeffrey L. Bouchy
- -------------------------------------
Jeffrey L. Bouchy
Senior Vice President-Chief Financial Officer
August 14, 1997
14
SKR
Resources, Inc.
GUMTECH INTERNATIONAL, INC.
MEDIA TRADE PROGRAM
This agreement, when executed by both parties shall form a mutual sales
agreement between, Gumtech International, Inc. (hereinafter referred to as
"GTI"), with offices at 4205 North Seventh Avenue, Suite 300, Phoenix, AZ, 85013
and SKR Resources, Inc. (hereinafter referred to as "SKR"), with offices at 307
Fifth Avenue, New York, New York, 10016 upon the following terms and conditions;
1 SKR agrees to pay GTI $438,120.00 for the products as defined in Schedule
A, and GTI agrees to purchase $438,120.00 in trade credits from SKR.
2. Upon the effective date of this agreement, GTI hereby sells, identifies
and transfers title to SKR $438,120.00 in product as listed on the attached
Schedule A (which list is included herein by reference as if fully set out
verbatim and shall constitute a bill of sale for the goods. The product sold by
GTI hereunder is new, first quality merchandise and shall be subject to GTl's
regular warranties and guarantees, including, but not limited to, the implied
warranty of merchantability. GTI represents it is the true and lawful owner of
the products sold herein by it, the products are free of any liens or
encumbrances. GTI shall indemnity and hold SKR harmless from any product
liability claim, whenever raised, including reasonable attorney's fees, arising
out of or in connection with the manufacture, sale and/or use to the products
herein sold to SKR. SKR must approve in writing the settlement of any claim made
against SKR.
3. In full payment for its purchase hereunder, SKR hereby establishes a
trade credit for the benefit of GTI in the amount of $438,120.00. The trade
credit shall be utilized and reduced in accordance with the terms and conditions
of this agreement. All placements of orders against the trade credit shall be
subject to (1) each supplier's standard terms and conditions, and (2) where
applicable, the terms and conditions of the contracts between SKR and the
suppliers, including, but not limited to, restrictions on trade credit sales to
customers with a cash purchase history.
4. GTI will be given a shipping address from SKR upon request within five
(5 days written or verbal by GTI. GTI shall, at its expense, insure all of the
products in an amount equal to their total price to SKR and shall, upon request,
furnish to SKR satisfactory evidence of such insurance. GTI shall provide the
product F.O.B. - Edison, New Jersey in accordance with SKR's orders within ten
(10) days of any such order, and provide SKR proof of shipment immediately upon
shipping the requested products, including, without limitation, bills of lading
and packing lists. There shall be no restrictions on the resale of product(s) by
SKR, with the exception that SKR cannot offer the product for sale into first
tier drug retailers (i.e.: Eckered, CVS, Osco Drug) or any first tier food
retailers (i.e.: Dillions, Food Lion or Pathmark).
<PAGE>
SKR
Resources, Inc.
5. GTI may utilize its trade credit to purchase network television, spot
television, spot and/or network cable television, spot radio, consumer and/or
trade magazines, out of home media, in-store advertising, goods and/or services
on a part cash/part trade basis, with the cash portion not to exceed fifty
percent (50%), at rates that are defined in paragraph 5a. The agreed to rate(s)
for media, goods and/or services shall be deducted from GTI's trade credit upon
utilization by GTI. GTI shall advise SKR of its spot radio, spot television,
spot and/or network cable television, consumer and/or trade magazines, out of
home media, in-store advertising, goods and/or services requirements and, where
possible, SKR will offer to provide them from SKR's inventory. GTI shall notify
SKR of the acceptance of any quote and shall be free to elect or not to elect to
place any particular order after receiving the quotation price from SKR.
5a. The media costs that will be charged to GTI are based on the following
fuidelines.
- --------------------------------------------------------------------------------
MEDIUM RATE CASH USAGE CREIDT USAGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Print SRDS Net $50.00 $50.00
- --------------------------------------------------------------------------------
Spot TV SQAD $50.00 $50.00
- --------------------------------------------------------------------------------
National Cable SQAD $50.00 $50.00
- --------------------------------------------------------------------------------
6. SKR shall invoice GTI for all placements hereunder and shall provide
affidavits of performance or other appropriate documentation of performance. GTI
agrees to notify SKR, in writing, of the use of the credit GTI desires not less
than forty-five (45) days in advance of the date requested for performance.
7. GTI shall indemnify and hold SKR harmless from any and all claims,
losses, damages, liabilities or expenses, including reasonable attorney's fees,
resulting from, arising out of or in connection with the reproduction, broadcast
or publication of any advertising delivered to any third party by SKR upon the
request of GTI or it agents.
8. This agreement is a final, complete and integrated expression of the
contract between the parties and no representations, promises or statements were
made or relied upon either party other than those contained herein. Any
alterations to this agreement must be in writing, signed and accepted by both
parties. Any waiver by a party of any of its rights or remedies hereunder shall
not be deemed a waiver of any other right or remedy hereunder nor shall the
failure or delay in demanding a right or exercising a remedy hereunder
constitute a waiver of any right or remedy. Should any provision of this
agreement be deemed invalid, the same shall not be considered to invalidate the
entire agreement, but only that particular clause involved.
9. This agreement may not be assigned by one party hereto without the
express written consent of the other, which consent shall not be unreasonably
withheld. The undersigned hereby warrant that they have the express and
unqualified authority to bind their respective corporations to this agreement.
<PAGE>
SKR
Research, Inc.
10. This agreement does not constitute either party a partner, agent or
joint venturer of the other party. The parties hereby are independent
contractors each to the other, and neither party shall have, nor represent that
it has, any power, right or authority, assumed or implied, on behalf of the
other except as herein set forth.
11. This agreement shall be governed and construed in accordance with the
laws of the State in which the plaintiff files suit. The parties do hereby
consent to the jurisdiction and venue of the courts located in which the
plaintiff files suit to hear and decide any disputes arising out of or in
connection with this agreement. Any notices to be given under this agreement
shall be sent certified mail, return receipt requested, or delivered in person
to the addresses set forth herein for GTI and SKR or at such addresses as each
may designate.
12. This agreement shall remain in full force and effect for thirty-five
(35) months after the approval by SKR and, upon request in writing, prior to the
expiration of the original term, GTI may extend the agreement for an additional
twelve- (12) months. Upon expiration of the original or extended term, any
remaining trade credit then owed GTI shall be null and void and of no further
effect.
13. This agreement may be executed in one or more counterparts, each of
which shall be deemed an original.
14. This agreement shall not become effective unless and until it is
accepted and approved by a duly authorized officer of SKR. Upon such acceptance
and approval, a fully executed copy of this agreement shall be returned to GTI
for its files.
ACCEPTED & APPROVED: ACCEPTED & APPROVED:
/s/ Chris Corey /s/ Les Goldstein
- -------------------------- ------------------------------
SKR Resources Inc. Gumtech International, Inc.
5-27-97 5-28-97
- -------------------------- -------------------------------
DATE DATE
<PAGE>
SKR
Resources, Inc.
SCHEDULE A
----------
BILL OF SALE
------------
Pursuant to and in consideration of the execution of the attached Agreement
between GTI and SKR, GTI does hereby sell, convey and transfer title to SKR the
personal property listed below and described as follows:
PRODUCT UNITS TOTAL VALUE
------- ----- -----------
Denta Health (box) 1,000 master cases $215,280.00
UPC 7-3221601312-2 @ $215.28 per master
Item # 163246
Denta Health (60 pc. bottle) 1,000 master cases $114,960.00
UPC - 7-3221668169-7 @ $114.06 per master
Item # 166796
Denta Health (120 pc. bottle) 1,000 master cases $107,880.00
UPC - 7-32216670424 @ $107.88 per master
Item # 166799
TOTAL PURCHASE PRICE: $438,120.00
Product type and mix will be adjusted on shipping request.
TO HAVE AND TO HOLD the same unto SKR, its successors and assigns forever.
GTI does for itself, its successors and assigns, covenant and agree with
SKR to warrant and defend the title to the goods against the claims of any and
all person or persons claiming through GTI whomsoever.
IN WITNESS WHEREOF, GTI has caused this Schedule A/Bill of Sale to be
executed by a duly authorized of this _________ day of___________________, 1997.
Gumtech International, Inc.
BY: /S/ LES GOLDSTEIN
--------------------------
TITLE: Exec. V.P. of Operations
------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,026,303
<SECURITIES> 0
<RECEIVABLES> 463,328
<ALLOWANCES> 33,506
<INVENTORY> 921,779
<CURRENT-ASSETS> 4,680,674
<PP&E> 3,745,470
<DEPRECIATION> 745,387
<TOTAL-ASSETS> 11,370,913
<CURRENT-LIABILITIES> 736,430
<BONDS> 0
0
0
<COMMON> 7,965,060
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,370,913
<SALES> 4,411,355
<TOTAL-REVENUES> 4,411,355
<CGS> 2,128,349
<TOTAL-COSTS> 2,128,349
<OTHER-EXPENSES> 71,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194,160
<INCOME-PRETAX> 692,125
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692,125
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
