As filed with the Securities and Exchange Commission Registration No. 33-8284
on February _____, 1998
U.S. Securities and Exchange Commission
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO.1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
SAY YES FOODS, INC.
---------------------
Nevada 2121 88-030-8576
------- -------- --------------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
6380 South Eastern Avenue #2
Las Vegas, Nevada 89119
(702) 262-6474
-------------------------
(Address and telephone number of principal executive offices)
6380 South Eastern Avenue #2
Las Vegas, Nevada 89119
-------------------------
(Address of principal place of business or intended principal place of business)
Roy D. Toulan, Jr., Esquire
Stibel & Toulan, LLP
183 State Street
Boston, Massachusetts 02109
(617) 523-6000
-------------------------
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Dollar amount Proposed Proposed Amount of
class of to be maximum maximum registration
securities registered(1) offering aggregate fee
to be price offer
registered per unit (2) price(1)(2)
- ----------- ----------- ------------ ---------- -------------
Common Stock, $16,736,265 $2.50 $16,736,265 $4,938.00
$.001 par value
per share
(1) Pursuant to Rule 416 under the Securities Act of 1933, also includes an
indeterminate number of additional shares of Common stock that may become
issuable to prevent dilution resulting from stock splits, stock dividends and
conversion price or exercise price adjustments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon
the average closing bid prices of the Company's Common Stock on the NASD OTC
Bulletin Board for the five trading days ending January 15, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold not may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities law of any such state.
SAY YES FOODS, INC.
6,694,506 SHARES
OF
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
Up to Six Million Six Hundred Ninety-Four Thousand Five Hundred Six
(6,694,506)1 shares (the "Shares") of the Common Stock, par value $.001 per
share (the "Common Stock"), of Say Yes Foods, Inc. (the "Company"), are being
offered for sale from time to time on behalf of JNC Opportunity Fund Ltd. (the
"Purchaser") and CDC Consulting, Inc. ("CDC") ( the Purchaser and CDC are
sometimes being collectively referred to herein as the "Selling Shareholders")
or, subject to applicable law, by pledges, donees, distributes, transferees or
other successors in interest. See "Selling Shareholders." The Company has been
advised that the Selling Shareholders expect to offer the Shares from time to
time in in accordance with the "Plan of Distribution" set forth herein. See
"Plan of Distribution." The closing bid price of the Company's Common Stock on
the NASD OTC Bulletin Board on December 31, 1997 was $ 2.06.
The Shares are authorized for issuance by the Company upon the (i)
conversion of certain shares of the Company's 7% Series B Convertible Preferred
Stock having an aggregate Stated Value in the amount of $3,750,000 (the "Series
B Shares" or the "Series B Stock") and the payment of dividends thereon; (ii)
conversion of certain shares of the Company's 7% Series C Convertible Preferred
Stock having an aggregate Stated Value in the amount of $1,250,000 (the "Series
C Shares" or the "Series C Stock") and the payment of dividends thereon; and
(iii) the exercise of Warrants to purchase an aggregate amount of 500,000 shares
of Common Stock at an exercise price of $2.50 per share held by the Selling
Shareholders (the "Warrants"). The Series B Shares and Series C Shares were
issued by the Company, as well as the shares of the Company's Common Stock
issuable upon conversion of the Series B shares and the Series C shares and upon
exercise of the Warrants, in connection with a private offering of the Shares
for an aggregate of $5,000,000 (the "Private Offering") concluded with the
Purchaser under two Convertible Preferred Stock Purchase Agreements, dated
December 24, 1997 and December 31, 1997 respectively, between the Purchaser and
the Company (the "Purchase Agreements").
Six Million Six Hundred Ninety-Four Thousand Five Hundred Six
(6,694,506) Shares are being registered for resale pursuant to an Amended and
Restated Registration Rights Agreement, dated December 31, 1997, between
the Company and the Purchaser. The number of Shares registered assumes a 200%
reserve for an indeterminate number of additional shares of Common Stock that
may be issued upon the conversion of Series B Shares and Series C Shares, the
payment of dividends on such Preferred Shares, based upon fluctuations in the
stated Conversion Price, and the exercise of the Warrants.
(1) Includes an indeterminate number of shares of Common Stock that may
become issuable to prevent dilution resulting from stock splits, stock dividends
and conversion price or exercise price adjustments, which are included pursuant
to Rule 416 promulgated under the Securities act of 1933.
-1-
<PAGE>
The Company received approximately $4,500,000 in net proceeds from the
Private Offering, after deduction of fees and other expenses, and may receive up
to an additional $1,250,000 in proceeds from the exercise of the Warrants. All
of the proceeds from the sale of any of the Shares being offered pursuant to
this Prospectus will inure to the benefit of the Selling Shareholders and none
of such proceeds will be for the benefit of the Company. The Selling
Shareholders will bear all discounts and commissions paid in connection with
sales of the Shares. The Company will not bear any fees or expenses of the
Selling Shareholders but will bear all of the expenses of the registration of
the Shares.
The Selling Shareholders may effect such transactions by selling the
Shares to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions).
THE BUSINESS OF THE COMPANY AND AN INVESTMENT IN THE SHARES ARE SUBJECT TO
CERTAIN RISKS INCLUDING, WITHOUT LIMITATION, THE RISKS SET FORTH IN THE SECTION
ENTITLED "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February ____, 1998.
-2-
<PAGE>
AVAILABLE INFORMATION
As of the filing of the Registration Statement of which this Prospectus
is a part, the Company has not filed periodic reports with the Securities and
Exchange Commission (the "SEC") pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company intends to
file a Form 10 to assume reporting obligations under the Exchange Act. The
Company also intends to register its Common Stock with the NASDAQ SmallCap Stock
Market ("NASDAQ") but as of this Prospectus, the Company has not completed its
application and there can be no assurance that it will be approved for listing
on NASDAQ. Information is available from the Company's executive offices and its
principal place of business located at 6380 South Eastern Avenue, #2, Las Vegas,
Nevada 89119. The Company's telephone number at that address is (702) 262-6474.
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................... 4
RISK FACTORS ............................................................... 7
USE OF PROCEEDS .......................................................... 9
SELLING SHAREHOLDERS ........................................................ 10
PLAN OF DISTRIBUTION................................................... 11
LEGAL PROCEEDINGS ..................................................... 12
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS ....................................................... 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ....................................................... 15
DESCRIPTION OF SECURITIES ............................ ...................... 16
EXPERTS .............................................................. 18
COUNSEL ............................................................. 18
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES ........................................... 18
ORGANIZATION WITH THE LAST FIVE YEARS .................................. 19
THE BUSINESS OF THE COMPANY ........................................... 19
MANAGEMENT DISCUSSION AND ANALYSIS OF
OPERATIONS ................................................................. 23
DESCRIPTION OF PROPERTY .................................................... 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................... 24
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<PAGE>
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ....................................................... 24
EXECUTIVE COMPENSATION ................................................... 25
FINANCIAL STATEMENTS ........................................................ 25
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................... ............... 26
FINANCIAL STATEMENTS ...................................................... F-1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "RISK FACTORS" and the Financial Statements of the
Company and the Notes thereto, appearing elsewhere in this Prospectus. The
discussion in this Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "RISK FACTORS,"
"MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS" and "THE BUSINESS OF
THE COMPANY" as well as those discussed elsewhere in this Prospectus.
THE COMPANY
Say Yes Foods, Inc. (the "Company") was organized under the laws of the
State of Nevada on March 23, 1989 as Moneyline Financial Group, Inc. Initially,
the Company issued 25,000 shares of its capital common stock at a par value of
$1.00, for a total of $25,000.00. Prior to February of 1996, the Company had no
business operations and was considered a development stage company.
On September 12, 1995, the Company amended its Articles of
Incorporation changing the $1.00 par value per share of the common stock to a
par value of $.001 per share. In addition, the Company increased its authorized
shares of common stock to 50,000,000 and its preferred shares to 10,000,000,
with a par value of $.001 each. Contemporaneous with the aforesaid amendment,
the Company forward split its common stock resulting in eighty (80) new shares
for each one (1) share outstanding, changing the outstanding shares of common
stock from 25,000 to 2,000,000.
Thereafter, on January 31, 1996, the Company approved a reverse split
of its outstanding shares of common stock on the basis of one (1) share for two
(2), changing the issued and outstanding shares of common stock from 2,000,000
to 1,000,000 shares. The Company also approved decreasing the authorized shares
of preferred stock from l0,000,000 to 510,000 shares at a par value of $.001 per
share.
On February 2, 1996, the Company acquired certain assets and assumed
certain liabilities of SayYes Foods, a sole proprietorship, by issuing 510,000
shares of preferred stock and 2,500,000 shares of common stock for marketing
rights and licensing rights. The other assets of Say Yes Foods were acquired by
issuing 2,992,563 shares of Common Stock at par value. At the time of this
acquisition, the Company amended its Articles of Incorporation and changed its
name to Say Yes Foods, Inc.
-4-
<PAGE>
On or about February 2, 1996, the Company completed a limited public
offering pursuant to an exemption in accordance with Regulation D, Rule 504 of
the Securities Act of 1933, as amended (the "Act"). A total of 11,500,000 Shares
of the Company's Common Stock were issued at that time representing additional
paid in capital of $103,500. Contemporaneous with the aforesaid exempt offering,
the Company obtained approval for listing on the NASD OTC Bulletin Board
pursuant to the filing of a so called "2-11" application with NASD. The
Company's unrestricted Common Stock began trading on the Bulletin Board in early
February 1996.
In April 1996, the Company completed a limited public offering pursuant
to an exemption in accordance with Regulation D, Rule 506 of the Act. A total of
1,088,000 Shares of the Company's Common Stock were issued at that time
representing additional paid in capital of $1,549,300.
The Company's business is derived from its exclusive licensing
agreement with Global Dairy Products Ltd., in Nassau, Bahamas. The Company, as
Licensee, has the exclusive right to use a dairy based concentrate supplied by
the Licensor for the production and distribution of fat free dairy products in
the United States. The Company holds an option for similar rights, renewable at
the Licensor's discretion, for worldwide production and distribution until 2005.
The Company markets and sells products in both concentrate and finished product
forms. The Company currently contracts with dairy processors who either (a)
produce finished product for the Company to market, (b) purchase concentrate
from the Company to manufacture co-packaged material for the Company and its'
partner or (3) purchase concentrate from the Company and subsequently
manufacture and distribute through the processor's lines of distribution. As
such, the Company's main source of revenue is derived from the sale of its
concentrate and finished products.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers of the Shares should consider carefully the discussion
RISK FACTORS contained on pages 8 to 11 of this Prospectus. The risks of
investment in the Shares include the following factors:
The Company began its current operations in 1996 and has a limited history
of operations. There can be no assurance that management of the Company will be
successful in attaining sufficient revenues to meet its expenses or to achieve
or maintain profitability.
The Company may be required or may choose to sell equity securities to
obtain financing in the future including the sale of additional preferred stock
of the Company to the Selling Shareholders. If the Company sells additional
equity securities at a price per share less than the purchase price hereunder,
investors purchasing shares of Common Stock in this offering would incur
additional dilution.
The Company will be dependent on its current management team for the
foreseeable future. The loss of the services of any member of the management
team could have a material adverse effect on the operations and prospects of the
Company. At this time, the Company has no employment agreements with any of
these individuals. The Company does not currently have any "key man" life
insurance on any of its employees.
-5-
<PAGE>
The Company has paid no dividends on its Common Stock to date, nor does it
anticipate doing so in the foreseeable future. The Company intends to use all
proceeds of any financing activities and all cash proceeds, if any, from
operations to finance the growth of the Company's sales and to repay debt. The
Series B Shares and Series C Shares pay a cumulative quarterly dividend of seven
percent (7%) per annum, which is payable upon the earlier of the end of each
quarter and/or conversion of the Preferred Shares, at the Company's option, in
either cash or shares of Common Stock (at the option of the Company) and on the
Conversion Date in shares of Common Stock. The holders of the Series B Shares
and Series C Shares are entitled to dividends prior to any such payment to
holders of Common Stock.
There has to date been a limited market for the Common Stock. Sale of
substantial numbers of the Shares in the market may have a depressive effect
on the market price of the Company's Common Stock. Such depressive effect could
reduce the price per share of the Common Stock below that required for initial
and/or continued listing of the Company's Common Stock for trading on NASDAQ or
a national stock exchange.
The Company intends to apply to list its Common Stock for trading on a
national stock exchange. If the Company is not successful in listing its Common
Stock for trading on such exchange and if the price per share of the Common
Stock on the NASD OTC Bulletin Board continued to be traded at below $5.00 per
share, the Common Stock would most likely come within the definition of "penny
stock," as contained in certain rules and regulations of the SEC. If an
exception from the penny stock rules were not available for the Common Stock,
the ability of purchasers in this Offering to sell any shares of Common Stock in
the market could be impeded and could have a material adverse effect on the
liquidity of the Common Stock, materially increasing the risk of an investment
in the Shares.
The Company's Articles of Incorporation and By-Laws contain certain
provisions eliminating the liability of directors to the Company for monetary
damages to the fullest extent allowed under the laws of the State of Nevada,
which under certain circumstances could eliminate liability for such directors'
breach of their fiduciary duty to the Company and its shareholders.
THE OFFERING
Common Stock offered by
the Selling Shareholders 6,694,506; Includes an indeterminate number of
shares of Common Stock that may become issuable
to prevent dilution resulting from stock splits,
stock dividends and conversion price or exercise
price adjustments which are included pursuant to
Rule 416 promulgated under the Securities Act of
1933.
Common Stock to be outstanding
after the offering
There are currently 19,598,410 shares issued
and outstanding. A total of 500,000 shares of
Common Stock are reserved for issuance pursuant
to the exercise of the Warrants. The remaining
Shares offered pursuant to this Prospectus are
to be issued pursuant to conversion of the
Series B Shares and Series C Shares which may
occur from time to time and the payment of
dividends thereon. As the conversion prices
are to be determined by reference to the market
price of the Common Stock at the time of
conversion it is not possible to determine at
this time the number of Shares that will
actually be offered or the number of Shares to
be outstanding after the completion of the
Offering.
-6-
<PAGE>
Assuming a 200% reserve for an indeterminate
number of additional shares of Common Stock that
may be issued upon the conversion of Series B
Shares and Series C Shares, and the payment of
dividends on such Preferred Shares, based upon
fluctuations in the stated Conversion Price, and
the exercise of Warrants, the total number of
shares of the Company's Common Stock issued and
outstanding could be 26,297,916,if (a)all Series
B Shares and Series C Shares were converted,
(b) dividends were paid in shares of Common
Stock for a two year period, and (c) all of the
Warrants were exercised.
Use of Proceeds The Company will not receive any proceeds of the
resales of the Shares being offered pursuant to
this Prospectus, all of which will be paid to
the Selling Shareholders. The Company received
approximately 4,500,000 in net proceeds of the
Private Offering and may receive up to an
additional $1,250,000 in proceeds from the
exercise of the Warrants.
Trading Symbol for the Common
Stock on the NASD OTC
Bulletin Board SYES
RISK FACTORS
Prospective purchasers of the Shares offered for resale pursuant to
this Prospectus should consider carefully all of the information set forth or
incorporated by reference in this Prospectus and, in particular, should evaluate
the following risks in connection with an investment in the Shares.
LIMITED OPERATING HISTORY
The current business of the Company commenced in early 1996. Prior to
that time, the Company had no operations upon which an evaluation of the Company
and its prospects could be based. There can be no assurance that management of
the Company will be successful in completing the Company's product development
programs, implementing the corporate infrastructure to support operations at the
levels called for by the Company's business plan, conclude a successful sales
and marketing plan to attain significant penetration of the market or that the
Company will generate sufficient revenues to meet its expenses or to achieve or
maintain profitability.
In the period from the commencement of operations in 1996 through
December 1996 the Company had sales of $66,000. As of December 31, 1996 the
Company had an accumulated deficit of $1,578,200. In the nine months ended
September 30, 1997, the Company had net sales of $369,500 and a net loss of
$3,229,100.
POSSIBLE NEED FOR ADDITIONAL FINANCING; DILUTION
While the Company has been successful to date in raising sufficient
investment capital to support its marketing and development efforts, there can
be no assurance that additional financing will not be necessary or that such
other financing would be available to the Company on satisfactory terms or at
all. Failure to obtain such financing could materially slow the Company's
production and impair its ability to increase sales and sustain profitability.
-7-
<PAGE>
The Company may be required or may choose to sell equity securities to
obtain financing in the future including the sale of additional preferred stock
of the Company to the Selling Security holders. If the Company sells additional
equity securities at a price per share less than the purchase price hereunder,
investors purchasing shares of Common Stock in this offering would incur
additional dilution. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS."
DEPENDENCE ON KEY PERSONNEL
The Company will be dependent on its current management team for the
foreseeable future. The loss of the services of any member of the management
team could have a material adverse effect on the operations and prospects of the
Company. At this time, the Company has no employment agreements with any of
these individuals. The Company does not currently have any "key man" life
insurance on any of its employees.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Articles of Incorporation and By-Laws include
provisions that eliminate the personal liability of the directors of the Company
for monetary damages to the fullest extent possible under the laws of the State
of Nevada or other applicable law. These provisions eliminate the liability of
directors to the Company and its stockholders for monetary damages arising out
of any violation of a director of his fiduciary duty of due care. Under Nevada
law, however, such provisions do not eliminate the personal liability of a
director for (i) breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or involving intentional misconduct or knowing
violation of law, (iii) payment of dividends or repurchases of stock other than
from lawfully available funds, or (iv) any transaction from which the director
derived an improper benefit. These provisions do not affect a director's
liabilities under the federal securities laws or the recovery of damages by
third parties.
LIMITED MARKET FOR THE COMMON STOCK
In February of 1996, the Company's Common Stock began trading in the
over-the-counter market as quoted on the National Association of Securities
Dealers OTC Bulletin Board and now trades under the new trading symbol "SYES."
Prior to that time there was no public market for the Company's Common Stock.
Since it has begun trading, there has been a limited market for the Common
Stock. The Company is applying for listing of its Common Stock on a nationally
recognized stock exchange. There can be no assurance, however, that the Company
will meet the listing requirements of such exchange or that its Common Stock
will be approved for trading on such exchange. Sales of substantial numbers of
the Shares into the market could have a depressive effect on the market price of
the Company's Common Stock. Such depressive effect could reduce the price per
share of the Common Stock below that required for initial or continued listing
of the Company's Common Stock for trading on such exchange. There can be no
assurance that a broader market for the Common Stock will develop subsequent to
this Offering. Failure of such a market to develop could have a material adverse
effect on the liquidity of the Common Stock and, therefore, on an investment in
the Shares. This would significantly increase the risks of such an investment.
POTENTIAL RISKS OF LOW PRICED STOCKS
If the Company is not successful in listing its Common Stock on NASDAQ and
if the price per share of the Common Stock on the NASD OTC Bulletin continues to
trade at below $5 per share, the Common Stock would most likely come within the
definition of "penny stock," as contained in certain rules and regulations of
the SEC. Under those regulations, any broker-dealer seeking to effect a
transaction in a penny stock not otherwise
-8-
<PAGE>
exempt from the rules must first deliver to the potential customer a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market.
The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salespersons in the transaction and monthly account statements showing the
market value of each penny stock held in the customer's account. This
information must be given to the customer orally or in writing before the
transaction and in writing before or with delivery of the customer's
confirmation of the transaction. Under the penny stock rules, the broker-dealer
must make a special determination of the suitability of the suggested investment
for the individual customer and must receive the customer's written consent to
the transaction. If an exception from the penny stock rules were not available
for the Common Stock and it were to come within the penny stock rules, the penny
stock rules could have the effect of limiting the trading market for the Common
Stock and the ability of purchasers in this Offering to sell any shares of
Common Stock in the market. If the trading market for the Common Stock were so
limited, it could have an adverse effect on the liquidity of the Common Stock
and could have the effect of materially increasing the risks of an investment in
the Shares.
FUTURE SALES OF COMMON STOCK OR SENIOR SECURITIES
Current shareholders of the Common Stock own all of the 19,598,410
shares of Common Stock issued and outstanding prior to this Offering. The
conversion of Series B Shares and Series C Shares and the issuance of dividends
thereunder and the issuance of Common Stock pursuant to the exercise of Warrants
could have the effect of depressing the market price of the Company's Common
Stock. While the Company cannot predict the impact of the public resale into the
market of any of such shares on the public trading price of the Company's Common
Stock, sales of substantial amounts of such shares of Common Stock or the
availability of substantial amounts of such shares for sale could adversely
affect prevailing market prices.
It is anticipated that the Selling Shareholders will offer for resale all
of the shares of Common Stock issuable upon conversion of the Series B Shares
and Series C Shares (and the issuance of dividends thereunder) and exercise of
the Warrants. Because it is possible that a significant number of Shares could
be sold at the same time hereunder, such sales, or the possibility thereof, may
have a depressive effect on the market price of the Company's Common Stock.
USE OF PROCEEDS
The Company previously received approximately $4,500,000 in net
proceeds from the Private Offering and may receive proceeds from the exercise of
the Warrants, which could total an additional $1,250,000 if all the Warrants
were exercised. All Shares offered by this Prospectus are being sold by the
Selling Shareholders and all proceeds of the sales of such Shares will inure to
the benefit of the Selling Shareholders. No proceeds of this Offering will inure
to the benefit of the Company.
-9-
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by the Selling Shareholders as of January 15,1998, and
the number of shares of Common Stock covered by this Prospectus.
<TABLE>
Number of Shares Number of Shares of Number of Shares
of Common Stock Common Stock Offered Common Stock
Beneficially Owned Hereby(2)(4) Beneficially Owned
Prior to this Offering(1)(4) Following Offering(3)
<S> <C> <C> <C> <C> <C>
Name and
Address
Of
Stock
holder # of Shares % of Class # of Shares % of Class
JNC Opportunity 3,026,020 13.12% 6,444,506 24.51% 0
Fund Ltd.
c/o Robinson Silverman
Pearce Arososhn & Berman LLP
1290 Avenue Americas
New York, NY 10005
CDC Consulting, Inc. 250,000 01.09% 250,000 0.95% 0
</TABLE>
/1/ Includes (i) the number of shares of Common Stock issuable upon the
conversion of the Series B Shares and Series C Shares, assuming conversion at
the formula price in effect on January 15, 1998 (which price will fluctuate from
time to time based upon changes in the market price of the Common Stock and
provisions in the formula for determining conversion price) and(ii) the number
of shares of Common Stock issuable upon the exercise of Warrants held such
Selling Shareholder. The Series B, Series C Shares and Warrants were issued by
the Company to the Selling Stockholders in December 1997 in a transaction exempt
from the registration requirements of the Securities Act of 1933 pursuant to
Regulation D thereunder (the "Private Placement")
/2/ In order to provide for (i) fluctuations in the market price of the
Common Stock, (ii) provisions in the formula for determining conversion price of
the Series B Shares and Series C Shares provided for in the terms thereof (see
"Description of Securities") and (iii) shares of Common Stock which may be
issued in payment of dividends on the Series B Shares and Series C Shares, the
aggregate number of shares of Common Stock registered hereby exceeds the
aggregate number of such shares issuable upon conversion of the Series B Shares
and Series C Shares at the conversion price in effect on the date hereof.
/3/ Assumes the sale of all shares offered herein.
/4/ JNC Opportunity Fund Ltd. has agreed to restrict its ability to convert
the Preferred Stock and exercise Warrants to the extent that the number of
shares of Common Stock held by it and its affiliates after such conversion
and/or exercise exceeds 4.999% of the then issued and outstanding shares of
Common Stock following such conversion and/or exercise.
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PLAN OF DISTRIBUTION
Sales of Shares may be made from time to time by the Selling
Shareholders or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. Such sales may be made on NASDAQ,
in the over-the-counter market, on a national securities exchange (any of which
may involve crosses and block transactions), in privately negotiated
transactions or otherwise or in a combination of such transactions at prices and
at terms then prevailing or at prices related to the then current market price,
or at privately negotiated prices. In addition, any Shares covered by this
Prospectus which qualify for sale pursuant to Section 4(1) of the Securities
Act, or Rule 144 promulgated thereunder may be sold under such provisions rather
than pursuant to this Prospectus. Without limiting the generality of the
foregoing, the Shares may be sold in one or more of the following types of
transactions: (a) a block trade in which the broker-dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) an exchange distribution in accordance with the rules of
such exchange; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) face-to-face transactions between sellers and
purchasers without a broker-dealer; (f) short sales; and (g) a combination of
such methods of sale. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to participate in
the resales.
In connection with distributions of the Shares or otherwise, the
Selling Shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares registered hereunder in the course of hedging the positions they
assume with Selling Shareholders. The Selling Shareholders may also sell Shares
short and deliver the Shares to close out such short positions.
Broker-dealers may agree with the Selling Shareholders to sell a
specified number of such Shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Shareholder, to purchase as principal any unsold Shares at the price required to
fulfill the broker-dealer commitment to the Selling Shareholders. Broker-dealers
who acquire Shares as principal may thereafter resell such Shares from time to
time in transactions (which may involve block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then-related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Shares commissions as
described above. The Selling Shareholders may also sell the Shares in accordance
with Rule 144 under the Securities Act, rather than pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders in amounts to be
negotiated in connection with the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
From time to time the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Shareholders engage in such transactions, the Conversion Price may be affected.
From time to time the Selling Shareholders may pledge their Shares pursuant to
the margin provisions of its customer agreements with its brokers. Upon a
default by the Selling Shareholders, the broker may offer and sell the pledged
Shares from time to time.
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Information as to whether underwriters who may be selected by the
Selling Shareholders, or any other broker-dealer, are acting as principal or
agent for the Selling Shareholders, the compensation to be received by
underwriters who may be selected by the Selling Shareholders, or any
broker-dealer, acting as principal or agent for the Selling Shareholders and the
compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
Prospectus (the "Prospectus Supplement"). Any dealer or broker participating in
any distribution of the Shares may be required to deliver a copy of this
Prospectus, including the Prospectus Supplement, if any, to any person who
purchases any of the Shares from or through such dealer or broker.
To comply with the securities laws of certain jurisdictions, if
applicable, the Shares will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Shares may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
All expenses of the registration of the Shares under the Securities Act
and applicable state securities laws, if required, will be paid by the Company,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws, if any, printing expenses, fees and
disbursements of counsel for the Company, and reasonable expenses of one counsel
for all of the Selling Shareholders; provided, however, that the Selling
Shareholders will pay all underwriting discounts and selling commissions, if
any. The Selling Shareholders will be indemnified by the Company against certain
civil liabilities, including certain liabilities under the Securities Act,
arising from or relating to any untrue statement or alleged untrue statement of
any material fact contained in the registration statement of which this
prospectus is contained, this prospectus, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
LEGAL PROCEEDINGS
At the end of fiscal 1996, the Company was a defendant in a lawsuit for
breach of contract. During 1997, that lawsuit was settled without a material or
adverse effect on the Company's financial position or results of operation.
On July 11, 1997, the Company commenced a declaratory judgment action
in Federal District Court for the State of Utah, Central Division, entitled Say
Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No. 2:97-CV-548C, seeking
declaratory judgment that certain share certificates representing 3,400,000
shares of the Company's Common Stock were issued improperly without the
knowledge or consent of the Company. By order of a foreign court, such
certificates were seized from a holding account to satisfy a default judgment in
the United Kingdom, to which the Company was not a party. A receiver appointed
by the British Court has requested that the canceled share certificates be
transferred into the name of the receiver. The Company refused, and commenced
the action described herein in response to an action commenced against the
Company and its Stock Transfer Agent by the receiver to recognize and transfer
the certificate held by the receiver. While management believes that the
certificates were taken and issued in an improper manner without the Company's
knowledge and that, accordingly, the Company will prevail in this action, a
litigation loss and the resultant recognition of the shares of common stock held
by the receiver would represent a significant impact on the Company's financial
statements. For example, the inclusion of an additional 3.4 million shares in
the per share equity computation would result in the dilution of that equity by
approximately 15%.
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Presently, the Company has discharged the Transfer Agent allegedly
responsible for the unauthorized and improper issuance of the 3.4 million shares
at issue. In addition, the Company is pursuing an indemnification claim against
said Transfer Agent with respect to the potential damage to the Company in the
event the court determines that said shares must be recognized by the Company as
valid issued and outstanding shares of the Company's Common Stock.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and significant employees/advisors of
the Company as of January 23, 1997 are as follows. Directors of the Company
serve for terms of one year or until their successors are elected. Officers are
appointed by, and serve at the pleasure of, the Board.
Charles Thomas President and Director
Timothy Zuch Treasurer and Director
Chris Rousselle Secretary and Director
Henry Still Director
Nancy Roth Chief Financial Officer
Charles Thomas (D.O.B. 12/10/32) Director / President
Mr. Thomas is currently and has been a Director since March of 1996. Mr.
Thomas was elected President in February of 1997. Charles Thomas was co-founder
and Vice President in charge of sales for Exec-U-Form of Azusa, California
(1985-1996). Mr. Thomas, including management of the investment arm for
firm-associated corporate projects, performed oversight duties of all key
operational activities for the firm. Mr. Thomas' educational background includes
a major in Business Administration at Citrus College.
Henry Still (D.O.B. 12/18/38) Director
Mr. Still is currently and has been a Director since March of 1996. Henry
Still has managed and headed successful real estate ventures in the Carolinas
for 33 years. Mr. Still possesses strong connections in the retail grocery and
dairy processing industry, many that were cultivated while owning and operating
a farming business between 1962 and 1994. Mr. Still is Broker in Charge of real
estate for his family owned and operated real estate firm (The UDS Company,
Inc.), since 1993. Mr. Still received a B.Sc. in Business and Corporate
Management from the University of South Carolina in 1961 and brings extensive
business experience to the Directorship of the Company. Additional activities of
merit of Mr. Still include being Mayor of Blackville, South Carolina
(l973-1979), subsequent to serving on its City Council for twelve years; Judge
of Municipal Court (1969-1973); Chairman of Jefferson Davis Academy School Board
(1972-1978).
Tim Zuch (D.O.B. 08/30/56) Director / Treasurer
Mr. Zuch is currently and has been a Director/Treasurer since March of
1996. Mr. Zuch graduated with honors from Tri-State University in Indiana in
1978 with a Bachelors degree in Business Administration. The Internal Revenue
Service employed Mr. Zuch in Ohio for seventeen years (1979-1996) as an Internal
Revenue Agent auditing corporations, partnerships and individuals. He also
served for fifteen years as the District Director's Representative. Other duties
performed include co-ordination and maintenance of the Company's Internet
website, as well as developing various promotional activities found on the
Internet and in print.
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Chris Rousselle (D.O.B. 10/09/56) Director / Secretary
Mr. Rousselle was a Director / Secretary from February of 1996 to March of
1996, when he was required to resign due to illness. Mr. Rousselle was
re-elected to the Board of Directors during October of 1996. Mr. Rousselle was
elected Secretary in July of 1997. Mr. Rousselle possesses over twenty-five
year's experience in the transportation industry, specializing in the conveying
of goods to both domestic and international markets. His transportation
experience is invaluable to Say Yes Foods, as it develops lines of distribution
for The Company's dairy products domestically and internationally.
Nancy Roth (D.O.B. 10/03/48) Chief Financial Officer (C.F.O.)
Ms. Roth was appointed C.F.O. in October of 1997. Nancy Roth joined the
corporation as controller in March 1997 and was promoted to Chief Financial
Officer (C.F.O.) in October 1997. From December 1993 to February 1997, she was
Comptroller of Audio Video Contractors in Scottsdale, Arizona. Ms. Roth
possesses excellent business systems implementation and finance abilities. Her
prior experience includes a position as Vice President of Imperial Securities,
an investment banking firm in San Francisco. Ms. Roth possesses a degree in
business and a degree in journalism.
FOUNDERS/PROMOTERS
The primary founders of the Company are Mr. Danny Ferraro and Mr. Robert
Donas; the founders received preferred stock in the amount of 255,000 shares
each. By virtue of their ownership of such preferred stock, Messrs. Ferraro and
Donas each enjoys super voting rights in the Company's affairs on a one hundred
to one basis. Accordingly, Messrs. Ferraro and Donas each holds voting power in
the Company equivalent to 22,500,000 shares of the Company's Common Stock. When
measured against the Company's issued and outstanding Common Stock, each
controls approximately 34.6% of the voting power in the Company. Messrs. Ferraro
and Donas organized the Company in its present incarnation and may be considered
the Company's "promoters" as that term is defined by the Securities and Exchange
Commission.
Bob Donas: Special Advisor / Consultant
Bob Donas is a Special Advisor and one of the major voting shareholders of
the Company. Mr. Donas possesses over twenty year's experience in taking
companies public as well as being an account representative with several stock
brokerage firms. Mr. Donas is presently semi-retired and provides consulting
services directly to the Board of Directors of Say Yes Foods, Inc.
Danny Ferraro: Consultant
Danny Ferraro is a supermarket owner with over twenty year's experience in
the retail grocery industry. In addition, Mr. Ferraro has played a participatory
role in the development of the proprietary formulations utilized by the Company
to produce and market its dairy-based products. Mr. Ferraro has over seven
years' research and development experience in the dairy product field.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) Security Ownership of Management
Name Security Number of Percent of Class
Address(1) Shares Owned Pre Offering Post Offering
Charles Thomas Common 375,000(2) 1.96% 1.57%
Chris Rousselle Common 325,000(3) 1.70% 1.36%
Tim Zuch Common 125,000(4) .65% .52%
Nancy Roth Common 75,000(5) .39% .31%
/1/ All c/o Say Yes Foods, Inc., 6380 South Eastern Avenue #2, Las Vegas
Nevada, 89119
/2/ Includes 75,000 common owned directly and 300,000 options immediately
exercisable.
/3/ Includes 25,000 common owned directly and 300,000 options immediately
exercisable.
/4/ Includes 75,000 common owned directly and 50,000 options immediately
exercisable.
/5/ Includes 75,000 options immediately exercisable.
(b) Security Ownership of Certain Beneficial Owners
Name Number of Percent of Class
Address(1) Security(2) Shares Owned Pre Offering Post Offering
Robert Donas Preferred 255,000 50.00% 50.00%
Danny Ferraro Preferred 255,000 50.00% 50.00%
/1/ All c/o Say Yes Foods, Inc., 6380 South Eastern Avenue #2, Las Vegas
Nevada, 89119
/2/ Series A-1; Represents super voting rights of 100 to 1 with respect to
common stock
(c) Options, Warrants and Conversion Rights
Number of Exercise
Name Security Shares Realized Price Expiration Date(1)
Charles Thomas Option 50,000 $4.00 March 28, 1998
Option 300,000 $3.00 November 2, 1999
Chris Rousselle Option 50,000 $4.00 March 28, 1998
Option 300,000 $3.00 November 2, 1999
Gino Punzo Option 100,000 $4.00 March 28, 1998
Tim Zuch Option 50,000 $4.00 March 28, 1998
Option 50,000 $3.00 November 2, 1999
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<PAGE>
Ronald Thomas Option 50,000 $4.00 March 28, 1998
Sonny Still Option 50,000 $4.00 March 28, 1998
Henry Still Option 100,000 $3.00 November 2, 1999
Nancy Roth Option 75,000 $3.00 November 2, 1999
Susan Westfall Option 50,000 $3.00 November 2, 1999
Patty Van Dyke Option 50,000 $3.00 November 2, 1999
Mark Heth Option 50,000 $3.00 November 2, 1999
Mike Meier Option 50,000 $3.00 November 2, 1999
Hal Still Option 50,000 $4.00 March 28, 1998
/1/ Options granted to employees of the Company are exercisable until the
earlier of the Expiration Date or six (6) months after employment with the
Company ends
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has two classes of voting securities: its Common Stock, par
value $.001 per share and 510,000 shares of Preferred Stock Series A-1 held by
two shareholders having super voting rights at a 100 to 1 ratio. The Company is
authorized to issue up to 50,000,000 shares of Common Stock, par value $.001 per
share, of which 19,598,410 shares are outstanding on the date hereof. In
addition, the Company is authorized to issue up to 2,510,000 shares of Preferred
Stock, of which 510,000 shares are issued and outstanding designated as Series
A-1; 1,500,000 of which are issued and outstanding designated as Series B; and
500,000 of which are issued and outstanding designated as Series C. Assuming
conversion of all Series B Shares and Series C Shares at the Conversion Prices
in effect on January 15, 1998 plus dividends thereon for two years and the
exercise of all Warrants as of the date of this Prospectus, there would be
6,694,506 shares of Common Stock offered herein. The terms of the Purchase
Agreements, however, limit the number of Preferred Shares into which the
Purchaser may convert or exercise to an amount equal to 4.99% of the Company's
issued and outstanding Common Stock. This limitation, however, may be waived by
the holder of Series B Shares and Series C Shares. Holders of Common Stock are
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders.
There is no cumulative voting for election of directors. Subject to the
prior rights of any series of preferred stock which may from time to time be
outstanding, if any, including the Series B Shares and Series C Shares, holders
of Common Stock are entitled to receive ratably, dividends when, as, and if
declared by the Board of Directors out of funds legally available therefor and,
upon the liquidation, dissolution, or winding up of the Company, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on the preferred stock, if any.
Holders of shares of Common Stock have no preemptive rights and have no rights
to convert their shares of Common Stock into any other securities. The
outstanding shares of Common Stock are validly authorized and issued, fully
paid, and nonassessable.
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The shares of Common Stock being offered pursuant to this Prospectus
are reserved for issuance pursuant to conversion and exercise rights held by the
Selling Shareholders as follows:
(i) 4,645,880 Shares converted from Series B Shares,
(ii) 1,548,626 Shares converted from Series C Shares (both Series inclusive
of a 7% dividend for two years paid in shares of Common Stock) and
(iii) 500,000 Shares from the exercise of the Warrants.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,510,000
shares of Preferred Stock in one or more series, to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
shares of Preferred Stock and to fix the number of shares constituting any
series and the designations of such series, without any further vote or action
by the Company's stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company.
As of December 31, 1997, 510,000 shares of Preferred Stock were
designated as Series A-1 Shares; 1,500,000 shares of Preferred Stock were
designated as Series B Shares; and 500,000 shares of Preferred Stock were
designated as Series C Shares.
The holders of Series B Shares and Series C Shares are entitled to an
annual 7% cumulative dividend, payable quarterly and upon conversion in cash or
Common Stock (at the option of the Company). The Series B Shares and Series C
Shares have no voting rights except that a vote of a majority of the Series B
Shares is required for any adverse change to the rights and preferences of any
class of stock senior to the Series B Shares. The number of shares of Common
Stock that would be issuable upon the conversion of Series B Shares and Series C
Shares shall be limited so that no Selling Shareholder owns, at any one time, in
excess of 4.99% of the issued and outstanding Common Stock.
The Series B Shares and Series C Shares have dividend and liquidation
preferences entitling the holders thereof to receive such payments prior to any
other security holders of the Company. The Certificates of Designation of the
Series B Shares and Series C Shares are included as Exhibit 4.7 and 4.8
respectively to the Registration Statement of which this Prospectus is a part.
The Series B Shares and Series C Shares are convertible into shares of
Common Stock (i) at the option of the holder thereof at any time and (ii) if not
earlier converted, on the second anniversary of their issuance, in each case at
a conversion price based on, inter alia, the market value of the Company's
Common Stock as determined by a formula specified in the Certificate of
Designation for the Series B Shares and Series C Shares, as applicable.
WARRANTS
As of January 15, 1998, there were Warrants outstanding to purchase an
aggregate of 500,000 shares of the Company's Common Stock at a present exercise
price of $2.50 per share. Each such Warrant contains provisions for the
adjustment of the exercise price and the aggregate number of share issuable upon
exercise of the Warrants under certain circumstances, including stock dividends,
stock splits, reorganizations, reclassification and consolidations.
In addition, 236,423 warrants exist in connection with a 1997
Regulation S placement having an exercise price of $5.00.
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REGISTRATION RIGHTS
Pursuant to an Amended and Restated Registration Rights Agreement entered
into by the Company and the Purchaser, the Company has granted the Selling
Shareholders and their transferees rights to have the shares of Common Stock
issuable upon conversion of Series B Shares and Series C Shares and the payment
of dividends or upon exercise of the Warrants registered for resale pursuant to
an effective registration within 90 days of the closing date. This Prospectus is
the result of such rights under the Amended and Restated Registration Rights
Agreement and the Warrants. The Company has agreed to keep this Prospectus
effective until all of the remaining registered shares can be resold pursuant to
Rule 144 of the Act. Holders of registration rights also have unlimited rights
to participate in registered public offerings by the Company. These rights are
subject to certain conditions, as set forth in the Amended and Restated
Registration Rights Agreement, which is included as Exhibit 4.9 to the
Registration Statement of which this Prospectus is a part.
EXPERTS
The Financial Statements of the Company as of December 31, 1996,
included in this Prospectus, have been included herein in reliance upon the
report of Bradshaw Smith and Co., independent certified public accountants,
given upon the authority of said firm as experts in accounting and auditing.
COUNSEL
Certain legal matters in connection with the registration of the Shares
were passed upon by Roy D. Toulan, Jr., Esquire, Stibel & Toulan, LLP, counsel
to the Company.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's Amended and Restated Certificate of Incorporation and By-Laws
contain provisions eliminating the personal liability of a director to the
Company and its stockholders for certain breaches of his or her fiduciary duty
of care as a director. This provision does not, however, eliminate or limit the
personal liability of a director (i) for any breach of such director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Nevada statutory provisions making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve on
the Board of Directors of the Company protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above), including grossly negligent business decisions made in connection with
takeover proposals for the Company. As a result of this provision, the ability
of the Company or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care has been limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. The
SEC has taken the position that the provision will have no effect on claims
arising under the federal securities laws.
Under the Amended and Restated Registration Rights Agreement the Purchaser
has agreed to indemnify the Company from certain liabilities, including certain
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable.
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ORGANIZATION WITHIN THE LAST FIVE YEARS
Say Yes Foods Inc. (the "Company") was organized under the laws of the
State of Nevada on March 23, 1989 as Moneyline Financial Group, Inc. Initially,
the Company issued 25,000 shares of its capital common stock at a par value of
$1.00, for a total of $25,000.00. Prior to February of 1996, the Company had no
business operations and was considered a development stage company.
On September 12, 1995, the Company amended its Articles of
Incorporation, changing the $1.00 par value per share of the common stock to a
par value of $.001 per share. In addition, the Company increased its authorized
shares of common stock to 50,000,000 and its preferred shares to 10,000,000,
with a par value of $.001 each. Contemporaneous with the aforesaid amendment,
the Company forward split its common stock resulting in eighty (80) new shares
for each one (1) share outstanding, changing the outstanding shares of common
stock from 25,000 to 2,000,000.
Thereafter, on January 31, 1996, the Company approved a reverse split
of its outstanding shares of common stock on the basis of one (1) share for two
(2), changing the issued and outstanding shares of common stock from 2,000,000
to 1,000,000 shares. The Company also approved decreasing the authorized shares
of preferred stock from l0,000,000 to 510,000 shares at a par value of $.001 per
share.
On February 2. 1996, the Company acquired certain assets and assumed
certain liabilities of SayYes Foods, a sole proprietorship, by issuing 510,000
shares of preferred stock and 2,500,000 shares of common stock for marketing
rights and licensing rights. The other assets of Say Yes Foods were acquired by
issuing 2,992,563 shares of Common Stock at par value. At the time of this
acquisition, the Company amended its Articles of Incorporation and changed its
name to Say Yes Foods, Inc.
On or about February 2, 1996, the Company completed a limited public
offering pursuant to an exemption in accordance with Regulation D, Rule 504 of
the Securities Act of 1933, as amended, which resulted in the issuance of
11,500,000 shares of Common Stock. Contemporaneous with the aforesaid exempt
offering, the Company obtained approval for listing on the NASD OTC Bulletin
Board pursuant to the filing of a so called "2-11" application with NASD. The
Company's unrestricted Common Stock began trading on the Bulletin Board in early
February, 1996.
In April of 1996, the Company completed a limited public offering
pursuant to an exemption in accordance with Regulation D, Rule 506 of the Act. A
total of 1,088,000 Shares of the Company's Common Stock were issued at that
time.
On December 24, 1997, the Company amended its Articles of Incorporation
increasing its authorized shares of preferred stock to 2,510,000.
Contemporaneous with the aforesaid amendment, the Company filed respective
Certificates of Designation for Series B Preferred Stock on December 24, 1997
and for Series C Preferred Stock on December 31, 1997. See Exhibits 4.7 and 4.8,
respectively, included in the Registration Statement of which this Prospectus is
a part.
THE BUSINESS OF THE COMPANY
The Company's business is derived from its exclusive licensing agreement
with Global Dairy Products Ltd., in Nassau, Bahamas. The Company, as Licensee,
has the exclusive right to use a dairy based concentrate supplied by the
Licensor for the production and distribution of fat free dairy products in the
United States. Similar option rights, renewable at the Licensor's option, are
also held for worldwide production and distribution until 2005. The Company
markets and sells products in both concentrate and finished product forms. The
Company currently contracts
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with dairy processors who either (a) produce finished product for the
Company to market, (b) purchase concentrate from the Company to manufacture
co-packaged material for the Company and its' partner or (3) purchase
concentrate from the Company and subsequently manufacture and distribute through
the processor's lines of distribution. As such, the Company's main source of
revenue is derived from the sale of its concentrate and finished products
The Product.
The Company's fat-free dairy formulation is produced through a two-step
process that requires no re-tooling or special equipment for traditional dairy
manufacturers. In the first stage of the process the fat, cholesterol and
calories are removed from fluid skim milk to produce a nutrient-rich
concentrate. In the second phase, the concentrate is re-formulated in commercial
dairies by mixing it with Grade A nonfat milk. The resulting beverage achieves
the taste and consistency of higher fat-content milk. Through this process, the
Company's fat-free milk has 80 calories per 8 ounce glass compared with nearly
90 calories for skim milk and less fat per serving than many skim milks.
Shuster Labs has been retained to develop and provide on-going Quality
Assurance testing of all of the Company's production runs at all producing
dairies. Shuster also developed a complete Operating Standards Manual (SOP) and
provides technical support in the research & development efforts conducted by
the Company primarily at their Spokane, Washington facility. Shuster also
implements and maintains programs developed under the Company's SOP manual.
Shuster provides numerous additional support functions including, evaluation of
the Company's milk product, existing manufacturing procedures, packaging, labels
and claims.
Distribution.
The Company's primary business is marketing and distribution of fat
free dairy concentrate and fat free dairy products. The Company commenced
production and consumer test marketing in early 1996 and was in the development
stage until the end of 1996. The Company's products are unique in that their fat
free milks are thicker and creamier than most skim/non fat milks, while
maintaining the taste profile of a more full-fat milk product. Consumer testing
conducted by the Company has demonstrated a preference for the Company's
products versus competitive low and non-fat milk options.
The Company currently markets Say Yes(TM) white milk, chocolate milk,
eggnog and sour cream. Fat free dips are available for market and the Company
anticipates successful completion of new product development on fat free dips,
flavored milk, fat free mozzarella cheese and fat free ice cream during 1998.
Presently, the Company has its products manufactured through six dairy
processors: Western Quality Foods (Utah), Sinton Dairy (Colorado), Anderson
Dairy (Nevada), Smith Food & Drugs Dairy (Arizona), Smith Dairy Company
(Indiana) and Lehigh Valley Dairies (Pennsylvania). The Company's fluid milk
products are being marketed, at retail, in eight western states and five eastern
states. Marketing program development encompasses customer categories including,
food service, institutional and industrial, as well as retail supermarket, club
store and convenience store categories.
The Company has focused on establishing a professional dairy broker
network throughout the country. The Company currently has professional broker
representation in most major metropolitan networks in the United States. The
Company has developed a military broker network which is working toward making
the product available for purchase in all military and government commissaries
on both a domestic level and internationally.
-20-
<PAGE>
The Company currently purchases its dairy concentrate from Discovery
Foods, Inc. and, as such, the Company is dependent on a single source for supply
of raw materials to have its dairy products manufactured. Discovery Foods, Inc.
is controlled by Mr.Danny Ferraro, who holds approximately 34.6% of the voting
power of the Company. See "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" herein.
Finally, the Company continues to negotiate with prospective customers,
producers and dairy businesses. These prospective customers include dairies and
other producers and distributors of milk and dairy products, who will include
the Company's products in their product mix.
Fortunato Foods, Inc. and its agents are responsible for assisting in the
development of markets and additional proprietary dairy products for the
Company. This firm and its agents possess extensive experience in the retail
grocery and dairy products development. Fortunato Foods has over seven year's
research and development experience in the dairy products field, having
established solid working relationships with numerous food products in the U.S.
Mr. Ferraro likewise controls Fortunato Foods, Inc..
The Licensing Agreement.
On February 5,1996, the Company entered into a license agreement whereby it
acquired the exclusive United States rights to utilize a dairy concentrate in
the production and distribution of certain dairy and non-fat dairy products from
Global Dairy Products, Nassau, Bahamas. While the licensed concentrate is based
upon a proprietary formula not known by or revealed to the Company, the license
obligates the Licensor to supply the Company with its requirements for the
concentrate at stated prices. The license further specifically provides for the
remedy of specific performance should the Licensor fail to supply the
concentrate as set forth therein. Pursuant to that agreement, the Company has
paid $275,000.00 to the Licensor. The payments included $25,000.00 thirty days
from the execution of the agreement, with additional payments of $l25,000.00,
each made from two initial tranches of financing, which have occurred. The
Licensor has waived a final installment of $225,000.00. In addition, the license
provides for the issuance of 2,500,000 shares of the Company's Common Stock to
the Licensor "on demand." Those shares, in fact, have been issued to a number of
third parties as directed by the Licensor or have been "forgiven." At present,
the Licensor holds 840,460 shares of the Common Stock of the Company.
The license covers the United States and Puerto Rico for a period of
ninety-nine years. The Company has also been granted an option to acquire
additional territorial rights if certain conditions are met including 1)
presentation of a business plan commercializing the product in the respective
territories; 2) presentation of financial estimates outlining market development
costs and project revenues; and 3) negotiation of a territory specific fee. The
option expires August 2005 and may be extended at the option of the Licensor.
At present, the concentrate is sold to the Company by Discovery Foods,
Inc. ("Discovery"), pursuant to a contract between the Licensor and Discovery.
The Company is not a party to that contract. Discovery is an entity controlled
by Mr. Ferraro, a shareholder of the Company holding 255,000 shares of the
Company's Preferred Stock. By virtue of his ownership of such Preferred Stock,
Mr. Ferraro enjoys super voting rights in the Company's affairs on a one hundred
to one basis. Accordingly, Mr. Ferraro holds voting power in the Company
equivalent to 22,500,000 shares of the Company's Common Stock. When measured
against the Company's issued and outstanding Common Stock and the voting rights
of another holder of Preferred Stock with super voting rights, Mr. Ferraro
controls approximately 34.6% of the voting power in the Company.
-21-
<PAGE>
Competition.
The Company has one major U.S. competitor in the fat free fluid dairy
products market, Skim Delux. Skim Delux is a privately held company, which
produces a fluid dairy product similar to the dietary and taste profile of the
Company's product. Extensive consumer testing conducted by the Company indicates
that the Company's fluid products are preferred by most consumers when compared
to Skim Delux products. In many cases, the Company's fluid products are
replacing Skim Delux products in retail grocery stores.
Germantown and Viva are additional fat free fluid dairy products
available in the U.S. market. To date, neither of these products has achieved a
significant market share. Taste studies conducted by the Company indicate a
choice of the Company's products over those produced by Germantown or Viva.
The Company has many competitors when considering the entire domestic
and international dairy industry, most of which have considerably greater
financial resources than the Company. The Company has entered into and will
continue to develop contractual relationships with companies which have been
engaged in the dairy business for significant periods of time and companies
which have developed a significant market for their products. Contractual
arrangements with dairy processors include the Company providing concentrate for
co-packaging and private label agreements or utilizing dairy processors for
production capability as the company develops its own retail and wholesale
market.
Marketing.
The marketing goal of the Company is to become a lead supplier and
distributor of fat free dairy products in North America. The 1996 (first year)
fiscal year of operations has resulted in positioning the Company for profitable
growth in the future. The Company's product mix reflects its corporate strategy
of addressing the present and future demands of the consumer by developing and
marketing better tasting and more health conscious products. Test market efforts
have revealed that many consumers are seeking viable dairy alternatives to
conventional full fat dairy products primarily due to increased awareness of the
need to be more attentive to health and diet issues.
As such, the Company's market strategy is to capitalize on the market
potential in this area. The Company has determined that the most efficient and
cost effective method of achieving market penetration for its products is to
work in cooperation with dairy industry leaders. During 1996 and by mid-l997,
the Company established manufacturing and marketing agreements with state-of-
the-art dairy processors. This strategy will permit the Company to deliver a
national program without incurring the long-term debt which otherwise would be
required to construct its own dairy processing facilities. Working closely with
existing dairy infrastructure also provides the opportunity for quick expansion
of the Company's client base and brand name recognition.
On May 1, 1997, the Company commenced a national program to expand and
solidify its client base. As a result, several dairies agreed to process and
market the Company's products through their client base, commencing in the third
quarter of 1997. These dairy processors will greatly expand the number of retail
stores in which the Company's products will be offered throughout the northeast
and mid-west regions of the U. S. The Company anticipates that its product will
be placed on thousands of retail shelves by mid-1998, in addition to the placing
programs with school district, food service and industrial market sector
accounts.
To promote its retail program placements, the Company entered into an
international merchandising agreement with The Baywatch Production Company,
during mid-1997. This agreement allows the Company's products to prominently
display the Baywatch(R) logo/trademark along with the likeness of the full cast
appearing on the hit television series, "Baywatch(R)" on the Company's Say
Yes(TM) milk cartons and promotional advertising print media, including posters,
billboards, and brochures.
-22-
<PAGE>
Seasonality within the U.S. dairy industry is a marginal issue and
should not be considered significant. The U.S. dairy industry typically
experiences a degree of sales decline during summer months. The degree of
slow-down is variant based on regional and firm specific issues. Seasonality is
generally reflected in an a decrease of sales of approximately 10% during the
summer months. Conversely, the fall season typically ushers in an increase in
sales of about 10%, returning sales to their normal level.
Employees.
As of the date hereof, the Company employed 7 persons on a full time
basis. These employees were engaged in the following categories of activities:
management (3), administration (1), research and development (1) and sales (2).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
During the period prior to the acquisition of Say Yes assets and the
license rights in February of 1996, as discussed herein, the Company did not
engage in any operations. No revenues were received during this initial period.
Subsequent to February of 1996, the Company began operations and collected
revenues.
The financial statements for 1996 reflect a start-up year for the
Company. Expenditures were required to conduct initial marketing and extensive
consumer taste testing programs. Licensing fees expended for procuring
proprietary dairy formulations and entering the International Dairy Foods
Association were also required in the first year of operations. As a result, the
Company incurred an operating loss during that period. Significantly, the
Company's balance sheet shows no accumulation of long term debt. As a result,
the Company was able to increase its promotional focus and market support
programs for its product and program placements.
For the 1996 fiscal (December 31) year, the Company experienced a
$1,552,500 loss on gross revenues of $66,000, representing a net loss per common
share of $.09. While certain extraordinary expenses such as license fees did not
occur in the nine months reported for fiscal 1997, the Company initiated several
costly promotional and client expansion programs during this period, resulting
in a $3,229,100 loss for that period on gross revenues of $369,500, representing
a net loss per common share of $.17.
In order to continue the expansion of the Company's marketing/promotional
and client based activities, the Company entered into two financing arrangements
at the end of 1997, which resulted in the issuance of 1,500,000 shares of 7%
Series B Convertible Preferred Stock and 500,000 shares of 7% Series C
Convertible Preferred Stock to JNC Opportunity Fund, Ltd. (JNC). See Exhibits
number 4.1 and 4.2, respectively, to SB-2 Registration Statement. By the terms
of the respective Purchase Agreements, JNC is entitled to dividends at an annual
rate of 7% and has the right immediately to convert the preferred shares held by
it to Common Stock of the Company on a formula determined by, inter alia, the
trading price of the Company's Common Stock and to receive Warrants for the
purchase of 250,000 shares of Common Stock. In connection with such
transactions, the Company also issued to CDC Consulting, Inc.("CDC") Warrants
for the purchase of 250,000 shares of Common Stock. In addition, the Company
granted certain Registration Rights to JNC and CDC, resulting in the SB-2
Registration Statement of which this Prospectus is a part. See Exhibit 4.9 to
the SB-2 Registration Statement.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Prospectus are subject to certain risks and uncertainties.
-23-
<PAGE>
Actual results could differ materially from current expectations. Among the
factors that could affect the Company's actual results and could cause results
to differ from those contained in the forward-looking statements contained
herein is the Company's ability to implement its business strategy successfully,
which will be dependent on business, financial, and other factors beyond the
Company's control, including, among others, prevailing changes in consumer
preferences and access to sufficient quantities of raw material. There can be no
assurance that the Company will continue to be successful in implementing its
business strategy. Other factors could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
DESCRIPTION OF PROPERTY
The Company leases and maintains 2,216 square feet of administrative
office space at 6380 South Eastern, Suite 3, Las Vegas, Nevada, 89119, for an
annual lease payment of $32,868.00. The term of this lease expires April 1,
2000.
In addition, the Company leases and maintains 2,200 square feet of
research and development space at 1514 E. Francis Avenue, Spokane WA, 99207, for
an annual lease payment of $11,328.00. The term of this lease expires October 1,
1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Ferraro, a shareholder owning 50% of the Company's super voting
Series A-1 Preferred Stock has controlling interests in entities that provide
product and services to the Company. During 1996, the Company entered into
contracts with Fortunato Foods, Inc, a company controlled by Mr. Ferraro that
provides research development and administrative services to the Company.
Fortunato Foods and its agents are responsible for assisting in the development
of markets and additional proprietary dairy products for the Company. This firm
and its agents possess extensive experience in the retail grocery and dairy
products development. Fortunato Foods has over seven years research and
development experience in the dairy products field, having established solid
working relationships with numerous food products Research and Development
specialists in the U.S.
In addition, the Company's present business relies upon a certain
license agreement whereby it acquired the exclusive United States rights to
utilize a dairy concentrate in the production and distribution of certain dairy
and non-fat dairy products from Global Dairy Products, Nassau, Bahamas. The
licensed concentrate is based upon a proprietary formula not known by or
revealed to the Company. As such, the Company relies upon the supply of
concentrate from the Licensor, which is obligated under the license agreement to
supply the Company with its requirements for the concentrate at stated prices.
At present, the concentrate is sold to the Company by Discovery Foods, Inc.
(Discovery), pursuant to a contract between the Licensor and Discovery. The
Company is not a party to that contract. Discovery is an entity controlled by
Mr. Ferraro.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the National Association
of Securities Dealers, Inc. OTC Bulletin Board since February of 1996, initially
under the trading symbol "MILK." On December 5, 1997, the Company's Common Stock
began trading under the symbol "SYES." The high and low bid prices for the
Company's Common Stock for each quarter within the last two fiscal years are as
follows:
-24-
<PAGE>
QUARTER HIGH BID PRICE LOW BID PRICE
1996 Q1 (2/6 - 3/31) $3.18 $2.00
Q2 (4/1 - 6/28) $5.62 $3.43
Q3 (7/1 - 9/30) $5.81 $4.00
Q4 (10/1 - 12/31) $5.43 $3.75
1996 Q1 (1/3 - 3/31) $4.93 $3.75
Q2 (4/1 - 6/30) $4.31 $3.68
Q3 (7/1 - 9/30) $4.00 $2.62
Q4 (10/1 - 12/31) $3.43 $2.00
The Company has not paid any cash dividends on its Common Stock, nor
does it intend to do so in the foreseeable future. Under the Corporation Law of
the State of Nevada, the Company may only pay dividends out of capital and
surplus, or out of certain delineated retained earnings, all as defined in the
Corporation Law. There can be no assurance that the Company will have such funds
legally available for the payment of dividends in the event that the Company
should decide to do so.
EXECUTIVE COMPENSATION
The aggregate annual remuneration of the Company's Executive Management
for the year ended December 31, 1997 was:
Capacities in Which
Name of Individual or Remuneration Was
Identity of Group Received Aggregate Remuneration
- -------------------- -------------------- ---------------------------
Charles Thomas President $ 68,000 (1)
Timothy Zuch Treasurer $ 30,000
Nancy Roth C.F.O. $ 60,000
/1/Includes salary of $60,000 and non-cash compensation relating to insurance
of $8,000.
FINANCIAL STATEMENTS
Registrant's Financial Statements as of December 31, 1996 and the independent
auditors' report of Bradshaw Smith & Co., independent certified public
accountants, with respect thereto, appear on pages F-1 to F-13 of this
Registration Statement on Form SB-2. Registrant's Unaudited Financial Statements
as of September 30, 1997 and for the Nine Months Ended September 30, 1997 appear
as Exhibit 99 to the Registration Statement of which this Prospectus is a part.
-25-
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The potential exists for a material modification of the financial
statements submitted herewith depending upon the ultimate outcome of the lawsuit
involving 3.4 million shares of the Common Stock of the Company, as follows:
On July 11, 1997, the Company commenced a declaratory judgment action
in Federal District Court for the State of Utah, Central Division, entitled Say
Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No. 2:97-CV-548C, seeking
declaratory judgment that certain share certificates representing 3,400,000
shares of the Company's common stock were issued improperly without the
knowledge or consent of the Company. By order of a foreign court, such
certificates were seized from a holding account to satisfy a default judgment in
the United Kingdom, to which the Company was not a party. A receiver appointed
by the British Court has requested that the canceled share certificates be
transferred into the name of the receiver. The Company refused, and commenced
the action described herein in response to an action commenced against the
Company and its Stock Transfer Agent by the receiver to recognize and transfer
the certificate held by the receiver.
While management believes that the certificates were taken and issued
in an improper manner without the Company's knowledge and that, accordingly, the
Company will prevail in this action, a litigation loss and the resultant
recognition of the shares of common stock held by the receiver would represent a
significant impact on the Company's financial statements. For example, the
inclusion of an additional 3.4 million shares in the per share equity
computation would result in the dilution of that equity by approximately 15%.
Accordingly, while the financial statements do not reflect the
aforesaid 3.4 million shares as part of the issued and outstanding Common Stock
of the Company, disclosure of the lawsuit described herein and its potential
impact upon the stated per share equity position of the Company has been made in
a footnote to said financial statements.
Presently, the Company has discharged the Transfer Agent allegedly
responsible for the unauthorized and improper issuance of the 3.4 million shares
at issue. In addition, the Company is pursuing an indemnification claim against
said Transfer Agent with respect to the potential damage to the Company in the
event the court determines that said shares must be recognized by the Company as
valid issued and outstanding shares of the Company's common Stock.
-26-
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
REPORT ON AUDIT OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
CONTENTS
Independent auditors' report F-1
Financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of changes in stockholders' equity (deficit) F-4
Statements of cash flows F-5
Notes to financial statements F-6 to F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Say Yes Foods, Inc.
(Formerly Moneyline Financial Group, Inc.)
Las Vegas, Nevada
We have audited the accompanying balance sheet of Say Yes
Foods, Inc. (formerly Moneyline Financial Group, Inc.) as of December 31, 1996,
and the related statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of Say Yes Foods, Inc. (formerly Moneyline Financial Group,
Inc.) as of December 31, 1995 and for the years ended December 31, 1995 and
1994, were audited by other auditors whose report dated February 7, 1996,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Say Yes
Foods, Inc. (formerly Moneyline Financial Group, Inc.) as of December 31, 1996
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
BRADSHAW, SMITH & CO.
Las Vegas, Nevada
August 8, 1997
F-1
<PAGE>
See Notes to Financial Statements.
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
======== ========
Current assets:
Cash $511,200 $ --
Accounts receivable (net allowance for doubtful
accounts of $-0-) 25,100 --
-------- --------
Total current assets 536,300 --
Property and equipment (net of accumulated
depreciation of $600) 2,900 --
-------- --------
$539,200 $ --
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 41,300 $ 700
Account payable to related party (Note 6) 15,000 --
Other liabilities 2,000 --
-------- --------
Total current liabilities 58,300 700
-------- --------
Commitments and contingencies (Note 7) -- --
Stockholders' equity (deficit) (Notes 3 and 4):
Convertible preferred stock, $.001 par value;
authorized 510,000 shares: Series A; authorized
510,000 shares; issued and outstanding 510,000
and -0- shares (aggregate liquidation preference
of $510 and $-0-). 500 --
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
19,115,563 and 2,000,000 shares. 19,100 2,000
Additional paid-in capital 1,769,500 23,000
Stock options 270,000 --
Accumulated deficit (1,578,200) (25,700)
-------- --------
480,900 (700)
-------- --------
$539,200 $ --
======== ========
F-2
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
======== ======== ========
Re enues $ 66,000 $ -- $ --
Cost of revenues (Note 6) 26,500 -- --
-------- -------- --------
Gross profit 39,500 -- --
-------- -------- --------
Operating expenses:
Advertising and promotion 197,500 -- --
General and administrative (Note 6) 345,900 400 --
Depreciation 7,900 -- --
Research and development (Note 6) 206,800 -- --
Consulting services (Note 6) 288,900 -- --
Option compensation (Note 4) 270,000 -- --
Product licensee fee (Note 2) 275,000 -- --
-------- -------- --------
1,592,000 400 --
-------- -------- --------
Loss from continuing operations before
provision for income taxes (1,552,500) (400) --
Provision for income taxes (Note 5) -- -- --
-------- -------- --------
Net loss $(1,552,500) $ (400) $ --
======== ======== ========
Net loss per common share $ (0.09) NIL NIL
======== ======== ========
Weighted average common shares outstanding 16,859,248 609,384 25,000
======== ======== ========
F-3
<PAGE>
See Notes to Financial Statements.
<TABLE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Total
Preferred stock Common stock Additional Accumu- stockholders
===================== ===================== paid-in Stock lated equity
Shares Amount Shares Amount capital options deficit (deficit)
========== ========== ========== ========== ========== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 and 1994 -- $ -- 25,000 $ 25,000 $ -- $ -- $ (25,300) $ (300)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Changed common stock par value from -- -- -- (24,975) 24,975 -- -- --
$1.00 to $.001
Forward stock split 80 for 1 -- -- 1,975,000 1,975 (1,975) -- -- --
Net loss -- -- -- -- -- -- (400) (400)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 -- -- 2,000,000 2,000 23,000 -- (25,700) (700)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Reverse stock split 1 for 2 -- -- (1,000,000) (1,000) 1,000 -- -- --
Issuance for assets 510,000 500 5,492,563 5,500 6,400 -- -- 12,400
Issuance for cash -- -- 11,500,000 11,500 103,500 -- -- 115,000
Issuance for cash -- -- 1,088,000 1,100 1,549,300 -- -- 1,550,400
Issuance for options -- -- -- -- -- 270,000 -- 270,000
Issuance for services -- -- 35,000 -- 86,300 -- -- 86,300
Net loss -- -- -- -- -- -- (1,552,500) (1,552,500)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 510,000 $ 500 19,115,563 $ 19,100 $1,769,500 $ 270,000 $(1,578,200) $480,900
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
=========== =========== ===========
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,552,500) $ (400) $ --
Charges to net loss not requiring cash outlays:
Stock issued in exchange for services and supplies 77,000 -- --
Stock bonuses awarded to employees 14,400 -- --
Stock options issued to non-employees 270,000 -- --
Depreciation 7,900 -- --
Product license agreement 275,000 -- --
Changes in:
Accounts receivable (25,100) -- --
Accounts payable 40,600 400 --
Other liabilities 2,000 -- --
Current note payable 15,000 -- --
----------- ---------- -----------
Net cash used by operating activities (875,700) -- --
----------- ---------- -----------
Cash flows from investing activities:
Purchase of assets (3,500) -- --
----------- ---------- -----------
Net cash used by investing activities (3,500) -- --
----------- ---------- -----------
Cash flows from financing activities:
Repayment of debt to related parties (275,000) -- --
Proceeds from issuance of common stock 1,665,400 -- --
----------- ---------- -----------
Net cash provided by financing activities 1,390,400 -- --
----------- ---------- -----------
Net increase in cash 511,200 -- --
Cash, beginning of period -- -- --
---------- ---------- -----------
Cash, end of period $ 511,200 $ -- $ --
========== ========== ===========
Schedule of non-cash investing and financing activities:
Non-cash assets acquired in merger $ 12,400 $ -- $ --
========== ========== ===========
Loan payable to related party for license agreement $ 275,000 $ -- $ --
========== ========== ===========
</TABLE>
F-5
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. Summary of significant accounting policies:
Organization:
The Company was organized March 23, 1989 under the laws of the State of
Nevada, as Moneyline Financial Group, Inc. The Company amended its
Articles of Incorporation February, 1996 changing its name to Say Yes
Foods, Inc. ("SYF").
In February, 1996, the Company acquired certain assets, marketing rights,
and licensing rights through an agreement to issue 5,492,563 common
shares and 510,000 preferred shares. Tangible assets were recorded at the
predecessor's cost which was substantially similar to fair market value.
No value or costs were attributed to the marketing and licensing rights.
SYF's primary business is the marketing and distribution of fat free dairy
concentrate and fat free dairy products. SYF was in the development stage
until the end of 1996. Product sales are primarily in the Las Vegas,
Nevada metropolitan area. Management plans to distribute the product
globally.
Revenue recognition:
Product revenues are recognized at the time of shipment and reserves are
established to recognize the risk of returns from customers.
Depreciation:
Depreciation is recognized using the straight-line and accelerated methods
over the estimated useful life of the assets, as follows:
Office Furniture 7 years
Office Equipment 3-5 years
Income taxes:
SYF utilizes an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income taxes are determined based on
the estimated future tax effects of differences between the financial
reporting and tax reporting bases of assets and liabilities given the
provisions of currently enacted tax laws.
Net loss per common share:
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year. The
common stock equivalents outstanding at December 31, 1996, consisted of
stock options and convertible series A preferred stock. They are excluded
from the computation of loss per share because their effect is
anti-dilutive.
F-6
<PAGE>
SAY YES FOODS, INC.
(FORMERLY MONEYLINE FINANCIAL GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. Summary of significant accounting policies (continued):
Stock-based compensation:
In October, 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which became effective
for SYF beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based
on the fair value of the equity instrument awarded. Since SYF has decided
to continue to apply APB 25 (as permitted by SFAS No. 123), the
appropriate required disclosure of the effects of SFAS No. 123 are
included in Note 4.
Economic dependency:
SYF, under the terms of the license agreement (Note 2), purchases the fat
free dairy concentrate from the licensor. Failure of the licensor to
provide the product would have a materially adverse effect on SYF.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those
estimates.
Advertising costs:
Advertising costs are charged to operations as incurred. Total advertising
expense incurred during 1996 was $197,500.
2. Licensing rights:
SYF acquired the exclusive rights to a product (the "Product") which is a
fat free dairy concentrate used to produce milk and other products in
which milk is used. The license covers the United States and Puerto Rico
for a period of ninety-nine years.
SYF agreed to pay $275,000 and issued 2,500,000 shares of common stock at
par value in exchange for the license agreement. The license was recorded
at cost and charged to earnings in 1996.
F-7
<PAGE>
2. Licensing rights (continued):
SYF has also been granted an option to acquire additional territorial
rights if certain conditions are met including 1) presentation of a
business plan regarding commercializing the product in the respective
territories; 2) presention of financial estimates outlining market
development costs and project revenues; and 3) negotiation of a territory
specific fee. This option expires August, 2005 and may be extended at the
discretion of the licensor.
3. Stockholders' equity (deficit):
Change in capital structure:
The Company, when formed in 1989, issued 25,000 shares of common stock at
$1.00 par value, for a total of $25,000.
On September 12, 1995, the Company amended its Articles of Incorporation
changing the $1.00 par value per share of common stock to a par value of
$.001 per share. Also, the Company increased its authorized shares to
50,000,000 common shares and 10,000,000 preferred shares with a par value
of $.001 each. The Company forward split its common stock into 80 new
shares for each share outstanding, changing the outstanding shares from
25,000 to 2,000,000.
On January 31, 1996, the Company approved a reverse split of its
outstanding common shares on the basis of one share for two, changing the
issued and outstanding common shares from 2,000,000 to 1,000,000 shares.
The Company approved decreasing the authorized preferred shares from
10,000,000 to 510,000 shares at $.001 par value.
Convertible preferred stock:
In February, 1996, the Company issued 510,000 shares of Series A
convertible preferred stock in connection with the purchase of assets.
The shares are convertible on a 1:1 basis to common shares and may be
converted at any time and have the same liquidation rights on a 1:1 basis
as with common stock. The preferred shares have super voting rights over
that of common shares by 100 to 1. The preferred shareholders will be
able to control any shareholder vote for the foreseeable future.
Private placement offerings:
In February, 1996, SYF issued 11,500,000 shares of common stock for
$115,000. The offering was pursuant to Regulation D, Rule 504 of the Securities
Act of 1933.
F-8
<PAGE>
3. Stockholders' equity (deficit) (continued):
Private placement offerings (continued):
During 1996, SYF sold 600,000 units under an offering pursuant to
Regulation D, Rule 506 of the Securities Act of 1933 at a price of $1.00
per unit. Each unit consisted of one share of restricted common stock
plus one warrant to purchase an additional share of restricted common
stock at a price of $2.00 per warrant. During 1996, 488,000 warrants were
exercised before the expiration date. All remaining outstanding warrants
expired during 1996.
4. Stock-based compensation:
The Board of Directors authorized the granting of options and issuance of
stock to certain officers, directors, key employees and contract consultants.
Stock option information with respect to all of SYF's stock options
follows:
Shares Exercise price
============ ============
Balance, December 31, 1995 unexercised -- $ --
Granted 650,000 4.00
Exercised -- --
Forfeited 200,000 4.00
------------ ------------
Balance, December 31, 1996 unexercised 450,000 $ 4.00
============ ============
The weighted average fair value of options granted during 1996 was $1.17.
The weighted average remaining contract life of options outstanding as of
December 31, 1996 was 1.3 years.
Officers' and employees' stock options:
The Board of Directors approved and granted 450,000 stock options to
employees, officers and directors. The option exercise price is $4.00 per
share and the options expire two years from grant date. The exercise
price was higher than the closing quoted market price of the stock on the
date of the grant. Options vest when granted but are forfeited if
employment terminates.
SYF applied APB Opinion 25 in accounting for options granted to employees
and directors. Accordingly, no compensation cost was recognized.
F-9
<PAGE>
4. Stock-based compensation (continued):
Officers' and employees' stock options fair value disclosures:
SFAS No. 123 requires the use of option valuation models to provide
supplemental information regarding options granted after 1994. Proforma
information regarding net loss and loss per share shown below was
determined as if SYF had accounted for its employee and director stock
options under the fair value method of SFAS No. 123.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions
used for grants: dividend yield 0%, expected volatility 69.47%, risk-free
interest rate of 5.86%, and expected life of two years.
Proforma net loss $
1,825,000
=================
Proforma net loss per common share $ (0.11)
=================
Other options granted:
The Board of Directors granted 200,000 options to key shareholders for
consulting services. The option exercise price is $4.00 per share, and
the options expire two years from grant date and vest when granted.
The fair value of each option is estimated on the Black-Scholes
option-pricing model in accordance with SFAS 123. Compensation cost
recognized in 1996 was $270,000. Significant assumptions used to estimate
compensation cost were as follows:
March 28, 1996 June 25, 1996
================= =================
Risk-free interest rate 5.86% 6.19%
Expected life of option 2 years 2 years
Expected volatility 69.47% 69.47%
Stock issued for services:
SYF agreed to issue 30,000 shares of restricted stock as consideration for
an advertising contract. Advertising expense of $71,900 was recognized.
F-10
<PAGE>
4. Stock-based compensation (continued):
Stock-based performance awards:
SYF entered into consulting contracts with two individuals. The contracts
contained agreements that provided quarterly bonuses of 2,500 shares of
restricted common stock to consultants achieving predetermined
performance goals. Performance goals are established and fixed by the
Company's officers and Directors.
During 1996, 5,000 shares of common stock were issued in accordance with
the quarterly bonus agreements. Total compensation cost recognized was $14,400.
5. Income taxes:
Included in the net deferred tax asset below is the net operating loss
carryforward which may in part be subject to substantial limitations in
accordance with various provisions of the Internal Revenue Code. The
Company has not yet determined the amount and nature of these
limitations.
The benefit for income taxes is different than the amount computed by
applying the statutory federal income tax rate to net loss before taxes.
A reconcilation of the net income tax benefit follows:
1996 1995 1994
========= ========= =========
Computed tax benefit at federal statutory rate $530,000 $ -- $ --
Temporary differences in accounting for -- --
licensing rights (88,000)
Change in deferred income tax valuation -- --
allowance (442,000) -- --
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
The Company has a net operating loss carryforward ("NOL") for federal
income tax reporting purposes of approximately $1,300,000. The NOL
expires after the year 2011. The NOL includes temporary differences of
approximately $260,000 due to license fees being accounted for
differently for financial reporting and tax purposes.
6. Related party transactions:
a. A shareholder owning 50% of SYF's preferred stock has controlling
interests in entities that provide Product and services to SYF.
During 1996, the Company entered into contracts with the entity that
provided research, development and administrative services.
F-11
<PAGE>
6. Related party transactions (continued):
Transactions between SYF and entities controlled by the shareholder are
as follows:
(1) SYF paid $35,000 for administrative services in 1996. The contract,
which provided for $5,000 monthly payments, was canceled during 1996.
(2) SYF paid reimbursements of $30,300 in 1996 for expenses in
connection with research and development. These expenses
included office supplies, meals, airline fees and advertising.
(3) SYF paid $132,500 for research and development services in 1996. A five
year contract formed in 1996 provides for $15,000 monthly payments. Contract
terms are negotiable at the end of each year.
b. An officer of the Company also controlled a consulting firm. SYF entered
into contracts with the consulting firm and paid the firm $26,900 in 1996.
c. An officer of the Company had ownership in a consulting firm. SYF
entered into contracts with the consulting firm and paid the firm $77,200 in
1996.
d. Accounts payable to related party:
In1996, SYF purchased $26,200 of Product from the licensor/shareholder
(Note 2). As of December 31, 1996, SYF owed the licensor $15,000 for
Product. The payable for Product is due on demand and is non-interest
bearing.
7. Commitments and contingencies:
Concentration of credit risk:
The Company has cash and cash equivalents on deposit with a financial
institution which exceeded the federally insured amounts by approximately
$411,200 at December 31, 1996.
Litigation:
The Company is a defendant in a pending lawsuit for alleged breach of
contract. Management believes that the outcome of this lawsuit will not
have a material or adverse effect on the Company's financial position or
results of operations.
F-12
<PAGE>
7. Commitments and contingencies (continued):
Litigation (continued):
On July 11, 1997, the Company commenced a declaratory judgment action in
Federal District Court for the State of Utah, Central Division, entitled
Say Yes Foods, Inc. v. Philmont, AVV, et al., Civil Action No.
2:97-CV-548C, seeking declaratory judgment that certain share
certificates representing 3,400,000 shares of the Company's common stock
were issued improperly without the knowledge or consent of the Company.
By order of a foreign court, such certificates were seized from a holding
account to satisfy a judgment in the United Kingdom, to which the Company
was not a party. A receiver appointed by the British Court has requested
that the canceled share certificates be transferred into the name of the
receiver. The Company refused, and commenced the action described herein
in response to an action commenced against the Company and its stock
transfer agent to recognize and transfer the certificate held by the
receiver. While management believes that the certificates were taken and
issued in an improper manner without the Company's knowledge and that,
accordingly, the Company will prevail in these actions, a litigation loss
and the resultant recognition of the shares of common stock held by the
receiver would represent a significant impact on the Company's capital
structure.
8. Subsequent events:
As of August 8, 1997, SYF raised $875,000 of capital by selling equity
units for $2.50. Each unit consists of one share of restricted common
stock and a one half warrant to purchase one additional share of common
stock for $2.50.
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Issuer's Amended and Restated Articles of Incorporation and By-Laws
contain provisions eliminating the personal liability of a director to the
Issuer and its stockholders for certain breaches of his or her fiduciary duty of
care as a director. This provision does not, however, eliminate or limit the
personal liability of a director (i) for any breach of such director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Nevada statutory provisions making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve on
the Board of Directors of the Company protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above), including grossly negligent business decisions made in connection with
takeover proposals for the Company. As a result of this provision, the ability
of the Company or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care has been limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. The
Securities and Exchange Commission (the "Commission") has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company has, pursuant to the Amended and Restated Registration
Rights Agreement, agreed to pay all expenses of this Offering, other
than fees, commissions, discounts and expenses of any underwriters engaged by
the Selling Shareholders. The estimated expenses of this Offering are:
Registration Fees $ 4,938.00
Attorney's Fees 32,500.00
EDGAR Services 5,000.00
TOTAL $ 42,438.00
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
On January 31, 1996, the Company approved a reverse split of its
outstanding shares of common stock on the basis of one (1) share for two (2),
changing the issued and outstanding shares of common stock from 2,000,000 to
1,000,000 shares. The Company also approved decreasing the authorized shares of
preferred stock from l0,000,000 to 510,000 shares at a par value of $.001 per
share.
On February 2, 1996, the Company acquired certain assets and assumed
certain liabilities of SayYes Foods, a sole proprietorship, by issuing 510,000
shares of preferred stock and 2,500,000 shares of common stock for marketing
rights and licensing rights. The other assets of Say Yes Foods were acquired by
issuing 2,992,563 shares.
II-1
<PAGE>
of Common Stock at par value. At the time of this acquisition, the Company
amended its Articles of Incorporation and changed its name to Say Yes Foods,
Inc.
On or about February 2, 1996, the Company completed a limited public
offering pursuant to an exemption in accordance with Regulation D, Rule 504 of
the Securities Act of 1933, as amended, and issued 11,500,000 shares of Common
Stock. Contemporaneous with the aforesaid exempt offering, the Company obtained
approval for listing on the NASD OTC Bulletin Board pursuant to the filing of a
so called "2-11" application with NASD. The Company's unrestricted Common Stock
began trading on the Bulletin Board in early February, 1996.
In April of 1996, the Company completed a limited public offering
pursuant to an exemption in accordance with Regulation D, Rule 506 of the
Securities Act of 1933, as amended.
and issued 1,088,000 shares of Common Stock.
Commencing on April 15, 1997 and through December 12, 1997, the Company
completed a Regulation S offering resulting in the issuance of 482,846 shares of
its Common Stock during such offering period.
On December 24, 1997, the Company amended its Articles of Incorporation
increasing its authorized shares of preferred stock to 2,510,000.
Contemporaneous with the aforesaid amendment, the Company filed respective
Certificates of Designation for Series B Preferred Stock on December 24, 1997
and Series C Preferred Stock on December 31, 1997.
As of December 31, 1997, 510,000 shares of Preferred Stock were designated
as Series A-1 Shares: 1,500,000 shares of Preferred Stock were designated as
Series B Shares; and 500,000 shares of Preferred Stock were designated as Series
C Shares.
In December of 1997, 1,500,000 Series B Shares and 500,000 Series C Shares
were issued by the Company, as well as the shares of the Company's Common Stock
issuable upon conversion of the Series B Shares and the Series C Shares and upon
exercise of the Warrants, in connection with the Private Offering of the Shares
for an aggregate of $5,000,000 concluded with the Purchaser under two
Convertible Preferred Stock Purchase Agreements, dated December 24, 1997 and
December 31, 1997, respectively, between the Purchaser and the Company. The
Shares are authorized for issuance by the Company upon the (1) conversion of
certain shares of the Company's 7% Series B Convertible Preferred Stock having
an aggregate Stated Value in the amount of $3,750,000 and the payment of
dividends thereon; (ii) conversion of certain shares of the Company's 7% Series
C Convertible Preferred Stock having an aggregate Stated Value in the amount of
$1,250,000 and the payment of dividends thereon; and (iii) the exercise of
Warrants to purchase an aggregate amount of 500,000 shares of Common Stock at an
exercise price of $2.50 per share held by the Selling Shareholders.
The Company received approximately $4,500,000 in net proceeds from the
Private Offering, after deduction of fees and other expenses, and may receive
up to an additional $1,250,000 in proceeds from the exercise of the Warrants.
II-2
<PAGE>
Item 27. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation 9/12/95
3.2 Articles of Amendment 2/5/96
3.3 Articles of Amendment 12/24/97
3.4 By Laws of the Company
4.1 Convertible Preferred Purchase Agreement - Series B 12/24/97
4.2 Convertible Preferred Purchase Agreement - Series C 12/31/97
4.3 Warrant No.1 - 187,500 Shares
to JNC Opportunity Fund Ltd. 12/24/97
4.4 Warrant No.2 - 187,500 Shares to
CDC Consulting, Inc. 12/24/97
4.5 Warrant No.3 - 62,500 Shares
to JNC Opportunity Fund Ltd. 12/31/97
4.6 Warrant No.4 - 62,500 Shares to
CDC Consulting, Inc. 12/31/97
4.7 Certificate of Designation -Series B Preferred Stock 12/24/97
4.8 Certificate of Designation -Series C Preferred Stock 12/31/97
4.9 Amended and Restated Registration Rights Agreement between
the Company and JNC Opportunity Fund Ltd. 12/31/97
5.1 Opinion of Stibel & Toulan, LLP - Series B 12/29/97
5.2 Opinion of Stibel & Toulan, LLP - Series C 12/31/97
10.1 License Agreement between the Company and
Global Dairy Products Ltd. 2/5/96
10.2 License Option Agreement between the Company
and Global Dairy Products Ltd. 8/8/97
23.1 Consent of Bradshaw, Smith & Co.
independent certified public accountants 1/29/98
23.2 Consent of Stibel & Toulan, LLP
counsel to the Company 1/29/98
27 Financial Data Summary
99 Unaudited interim financial statements
for the Company for the period 1/1/97 to 9/30/97
II-3
<PAGE>
Item 28. UNDERTAKINGS
The Company hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) Include any additional or change material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Pre-Effective
Amendment No. 1 to registration statement (File No. 333-8284) to be signed on
its behalf by the undersigned, in the city of Las Vegas, State of Nevada on
February 23, 1998.
(Registrant) SAY YES FOODS, INC.
By: /s/ Charles Thomas
- ---------------------------------------------
Charles Thomas, President and Chief Executive Officer
II-4
<PAGE>
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to registration statement was signed by the
following persons in the capacities and on the dates stated.
February 23, 1998 /s/ Tim Zuch
-----------------------------
Tim Zuch
Treasurer and Director
February 23, 1998 /s/ Chris Rousselle
-----------------------------
Chris Rousselle
Secretary and Director
February 23, 1998 /s/ Henry Still
-----------------------------
Henry Still
Director
II-5
