AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 1998
REGISTRATION NO. 333-56479
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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NEVADA 9999 48-1170767
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
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1001 S.W. GAGE BLVD.
TOPEKA, KANSAS 66606
(785) 273-2244
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
OFFICES AND PRINCIPAL PLACE OF BUSINESS)
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MICHAEL C. COOPER
1001 S.W. GAGE BLVD.
TOPEKA, KANSAS 66606
(785) 273-2244
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL G. QUINN, ESQ.
5120 EAST CENTRAL, SUITE B.
WICHITA, KANSAS 67208
(316) 652-0940
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
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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.
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<TABLE>
<CAPTION>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO PART I OF FORM SB-2
FORM SB-2 ITEM AND CAPTION PROSPECTUS CAPTION
- ---------------------------------------------------- -------------------------------------------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . Front of Registration Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . Prospectus Summary; Use of Proceeds
5. Determination of Offering Price . . . . . . . Outside Front Cover Page; Risk Factors;
Plan of Distribution
6. Dilution . . . . . . . . . . . . . . . . . . . Dilution
7. Principal Shareholders . . . . . . . . . . . . Principal Shareholders; Plan of Distribution
8. Plan of Distribution . . . . . . . . . . . . . Outside Front Cover Page; Prospectus Summary;
Plan of Distribution
9. Legal Proceedings . . . . . . . . . . . . . . Business -- Management
10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . Principal Shareholders
12. Description of Securities . . . . . . . . . . Description of Capital Stock
13. Interest of Named Experts and Counsel . . . . Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
15. Organization within Last Five Years . . . . . Prospectus Summary; Business
16. Description of Business . . . . . . . . . . . Prospectus Summary; Risk Factors;
Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected Financial and
Operating Data; Financial and Operating Data;
Business; Management; Certain Transactions;
Principal Shareholders; Description of Capital
Stock; Shares Eligible for Future Sale; Plan of
Distribution, Financial Statements
17. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property . . . . . . . . . . . Business -- Facilities
19. Certain Relationships and Related Transactions Management; Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . Outside Front Cover Page; Risk Factors; Dividend
Policy; Description of Capital Stock; Plan of
Distribution
21. Executive Compensation . . . . . . . . . . . . Management -- Executive Compensation --
Officer and Director Compensation
22. Financial Statements . . . . . . . . . . . . . Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
(i)
<PAGE>
[LOGO]
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
UP TO 50,000,000 SHARES OF COMMON STOCK
Renaissance Designer Gallery Products, Inc., a Nevada corporation (the
"Company"), is offering (the "Offering") up to 50,000,000 shares of Common
Stock, $0.01 par value (the "Common Stock") at a price of $0.10 per share.
The Common Stock is offered by the Company through certain of its officers,
who will receive no compensation or reimbursement for expenses attributable to
the sale of the Common Stock. The Common Stock may also be offered by
broker/dealers which are members of the National Association of Securities
Dealers, Inc., and which enter into a Selling Agreement for the Common Stock
with the Company. The Common Stock will be offered on a "best efforts, all or
none" basis with respect to the first 30,000,000 Shares (the "Minimum Offering")
and on a "best efforts" basis with respect to the remaining 20,000,000 Shares
(the "Maximum Offering") for a period of 90 days from the date of this
Prospectus (which may be extended for an additional 90 day period at the sole
discretion of the Company) (the "Offering Period"). Pending the sale of
theMinimum Offering, all proceeds will be deposited into an escrow account at
Central Bank & Trust Co., Hutchinson , Kansas (the "Escrow Agent"). In the
event that the Minimum Offering is not sold within the Offering Period, this
Offering will terminate and all funds will be promptly returned to subscribers
by the Escrow Agent with interest earned thereon and without deduction for
commissions or expenses.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK FACTORS"
(BEGINNING AT PAGE 6 OF THIS PROSPECTUS) AND "DILUTION" CONCERNING THE COMPANY
AND THIS OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
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Underwriting
Discounts and Proceeds to
Price to Public and Commissions (1) Company (2)
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<S> <C> <C> <C>
Per Share $0.10 $0.009 $0.091
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Minimum Per Share Total $3,000,000 $270,000 $2,730,000
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Maximum Per Share Total $5,000,000 $450,000 $4,550,000
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<FN>
(1) Assumes that all sales of shares are made by broker/dealers which
are members of the National Association of Securities Dealers, Inc., which
receive a commission equal to nine percent (9%) per share of the amount of
shares sold and that no purchasers were introduced by the Company to the
broker/dealers and accepted by the broker/dealers for sale of shares, in
which case such commission to the broker/dealers would equal six and one-
half percent (6.5%) of the amount of shares sold. The Company has also
agreed to indemnify any broker/dealer which has entered into a Selling
Agreement with the Company against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Plan of Distribution" for arrangements with participating
broker/dealers in this Offering.
(2) Before deducting expenses of this Offering payable by the
Company, estimated at $100,000. See "Plan of Distribution."
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</TABLE>
The Common Stock is being offered, by the Company and by participating
broker/dealers as agent for the Company, and subject to prior sale, acceptance
of offers to purchase, and to approval of certain legal matters by counsel for
the Company. The Company reserves the right to reject any order, in whole or in
part, and to withdraw, cancel, or modify the offering without notice. The
Company expects to have certificates of shares of Common Stock ready for
delivery within ten (10) days following the completion of the Offering.
THE DATE OF THIS PROSPECTUS IS ________, 1998.
(front inside cover)
<PAGE>
[LOGO: RENAISSANCE] [LOGO: AiM]
[PHOTOGRAPH: Corporate Headquarters]
The Company intends to furnish to its shareholders annual reports containing
audited financial statements.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including Risk Factors, Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus reflects a 10,063.0878197 for 1 stock split as
effected on March 13, 1998.
THE COMPANY
The Company is a national network marketing company that recruits direct
sales persons to offer its multiple products for sale to the general public and
to market the Company's home based business program, which adopts tax and
business strategies for its owners. All sales personnel are independent
contractors under agreement with the Company. At March 31, 1998, the Company
has entered into 20,933 contracts with independent sales representatives or
marketing associates (IMAs) located in all 50 states.
For the Company's product lines, the Company negotiates with manufacturers
and distributors of a wide variety of products which are privately labeled or
sold exclusively to the Company and offered through its IMAs. The Company
attempts to continuously provide products that meet certain market trends or are
innovative product breakthroughs. The Company offers its products at the lowest
prices possible with timely delivery, customer service and incentives for its
sales personnel.
The Company's home based business plan incorporates tax and business
strategies for persons desiring an independent business opportunity, regardless
of other full time employment. The Company has contracted with tax and business
consultants to formulate and keep current its program for the home based
business operator.
The Company commenced business in 1995 with the introduction of a fine
jewelry product line which by 1996 included over 3,000 items, together with a
collectibles gallery, which includes limited edition fine art, memorabilia and
collectible items, including sports and entertainment industry personalities.
By 1997, The Company has developed and maintained full-line catalogs for
automotive accessory parts, golf equipment, specialty gifts, houseware items
and clothing. The Company intends to continue its "product-line-after-product-
line" concept by continuing to offer various products to the general public
based on the extremely attractive pricing of the products.
In late 1997, the Company introduced its home based business program as
Advantage International Marketing ("AIM") and operates this concept as an
unincorporated division of the Company. AIM offers a complete home based
business program generally to individuals seeking a second source of income and
includes a prepared business plan, a comprehensive home based business tax
system, unlimited access to tax and business consultants through weekly
conference calls, tax preparation advice and discounted rates, and tax audit
assistance. Purchasers of the program have complete access to the Company's
products. Persons becoming independent sales representatives of AIM are
automatically sales representatives for the Company's products.
Product information and training is available to all IMAs through product
catalogs, an interactive telephone system, "fax on demand," and on the "One-
Minute Networker," which provides a series of training messages on a daily
basis. The "One-Minute Networker" is a formatted series of training messages
available through a 1-800 voicemail system that automatically delivers daily
training messages to each IMA. The AIM program incorporates additional
telephone facilities for specific tax and business advice. The Company's
product information and training is designed to take the new IMA through each
stage of development and product knowledge, marketing plan understanding, and
sales organization. For existing IMAs, product information and training is
currently updated and immediately available.
3
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The Company's strategy is to mass market its home based business program
through its IMAs who will then market an unlimited number of universally
appealing products with extremely attractive pricing within the IMA network as
well as to the retail customers of the IMAs.
To attract its marketing representatives, the Company has developed a
compensation program, the "Trilogy Compensation Plan," which pays commissions
and bonuses on a daily, weekly, and monthly basis. The Company believes that
this plan gives it a distinct advantage over other direct sales and network
marketing companies in the recruitment and retention of marketing
representatives. This compensation program does not require the IMA to
inventory or purchase the various products but pays the IMA commissions and
bonuses based on direct, trinary, and matrix sales. The Company's computer
software can effectively post commissions from thousands of transactions
throughout its entire IMA network at the close of each business day. It
automatically validates the compensation program, complete data entry, prints
customer service letters, welcome letters, shipping invoices, purchase orders,
daily deposit reconciliations, and daily payment of all commissions and bonuses
generated from that day's sales activity on a daily basis.
The Company's executive offices are located at the historical mansion
"Fleming Place," located at 1001 S.W. Gage Boulevard, Topeka, Kansas 66604 and
its telephone number is (913)273-2244.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by the Company:
Minimum.................................................... 30,000,000 Shares
Maximum.................................................... 50,000,000 Shares
Common Stock to be outstanding after the Offering(1):
Minimum.................................................... 158,943,376 Shares
Maximum.................................................... 178,943,376 Shares
Use of proceeds:................................................ To acquire inventory, develop sales and marketing, purchase
equipment, and for general corporate purposes. See "Use of
Proceeds."
<FN>
- --------------------
(1) Excludes 5,000,000 shares of Common Stock subject to outstanding options to
directors of which 1,000,000 are currently exercisable at $0.02 per share.
</TABLE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" beginning on page 6.
4
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<PAGE>
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<CAPTION>
SUMMARY FINANCIAL AND OPERATING DATA
Period From
June 17, 1995
(Date of Three Months Ended
Inception) to Year Ended Year Ended -------------------------
December 31, December 31, December 31, March 31, March 31,
1995 1996 1997 1997 1998
-------------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Revenue............................... $ 340,108 $ 3,730,220 $ 1,217,835 $ 276,711 $ 889,147
Net income (loss)..................... 14,947 117,054 (517,725) (198,953) 193,868
Income (loss) per share:
Basic............................ .0001 .0011 (.0043) (.0017) .0015
Diluted.......................... .0001 .0011 (.0043) (.0017) .0015
Weighted average common shares
outstanding:
Basic............................ 100,630,878 108,123,686 120,173,814 117,513,385 128.943,376
Diluted.......................... 100,630,878 108,123,686 121,507,147 117,513,385 132,943,376
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998 (Unaudited)
-------------------------------------------------------
Adjusted Adjusted
Actual (Minimum)(1) (Manimum)(2)
---------------- ---------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $ 465,319 $ 3,095,319 $ 4,915,319
Total assets.................................................. 751,079 3,381,079 5,201,679
Total debt.................................................... 140,235 140,235 140,235
Stockholders' equity.......................................... 610,844 3,240,844 5,060,844
<FN>
(1) As adjusted to reflect the sale of 30,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(2) As adjusted to reflect the sale of 50,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization"
</TABLE>
5
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<PAGE>
RISK FACTORS
In addition to other information in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered by this Prospectus. An investment in the shares involves a
high degree of risk. Certain of these risks are set forth below and should be
considered by investors, among others, as part of their overall evaluation
before making a decision to purchase shares.
Limited Operating History - Ability to Manage Growth. The Company has had
a limited operating history commencing its business in June, 1995, and has been
subject to all the risks inherent in establishment of a new business enterprise.
The likelihood of the success of the Company must be considered in light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with a new business. The Company has recently
experienced a period of rapid growth that has resulted in new and increased
responsibilities for management personnel and has placed and continues to place
increased demands on the Company's management, operational and financial systems
and resources. To accommodate this recent growth and to compete effectively and
manage future growth, the Company will be required to continue to implement and
improve its operational, financial and management information systems, and to
expand, train, motivate and manage its sales force. There can be no assurance
that the Company's personnel, systems, procedures and controls will be adequate
to support the Company's existing and future operations. Any failure to
implement and improve the Company's operational, financial and management
systems or to expand, train, motivate or manage its sales personnel could have a
material adverse effect on the Company's business condition and results of
operations.
Part of the Company's strategy for growth includes the introduction of new
products to its sales force. In the introduction of new products, the Company
experiences substantial expense associated with sales literature, catalog data,
design and art preparation, and additional costs associated with the
introduction of the products and the training of its sales force. There is no
assurance that any new products introduced by the Company will result in profits
to the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Independent Sales Representatives. The Company's success
depends in significant part upon its ability to attract, maintain, and motivate
a large base of IMAs, who, in turn, recruit additional IMAs for the sale of the
Company's products. The Company expects significant turnover among IMAs from
year to year, which the Company believes is typical of direct selling and
requires the sponsoring of new IMAs by existing IMAs in order to maintain or
increase the overall IMA force. Because the Company has a "no-cost" policy
relating to its independent sales representatives' contracts with the IMAs,
there is a small amount of terminations of such agreements. The Company, based
upon commissions paid to IMAs, believes that approximately 25% of IMAs actively
promote sales of the Company's products. The activities of the IMAs in the sale
of the Company's products and the recruitment of additional IMAs are
particularly impacted by the changes in the level of their motivation, which in
turn can be positively or negatively affected by general economic conditions,
modifications by the Company in commissions and products and in the Company's
marketing plan, and a number of intangible factors. The ability of the Company
to attract IMAs could be negatively affected by adverse publicity relating to
the Company or its services or its operations, including its network marketing
system. Because of the number of factors that impact the recruiting of IMAs,
the Company cannot predict when or to what extent any increases or decreases in
the level of IMA retention will occur. In addition, the number of IMAs as a
percentage of the population may reach levels that become difficult to exceed
due to the finite number of persons inclined to pursue an independent direct
selling business opportunity. There can be no assurance that the number or
productivity of IMAs will be sustained at current levels or will increase in the
future.
Regulation and Management of Independent Sales Representatives. Because
the independent sales representatives are classified as independent contractors,
and not as employees of the Company, the Company is unable to provide them the
same level of direction and oversight as Company employees. While the Company
has policies and rules in place governing the conduct of IMAs and periodically
6
<PAGE>
reviews the sales tactics of the IMAs, it is difficult to enforce such policies
and rules for the IMAs. Violations of these policies and rules could reflect
negatively on the Company and may lead to complaints by various federal and
state regulatory agencies. The Company has not received any complaints
regarding its sales activities.
Government Regulation. The Company's network marketing system is or may be
subject or affected by extensive government regulation including, without
limitation, federal and state regulation of the offer and sale of business
franchises, business opportunities, and securities. Various governmental
agencies monitor direct selling activities. Although the Company believes that
its network marketing system is in substantial compliance with the laws and
regulations relating to direct selling activities, there is no assurance that
legislation and regulations adopted in particular jurisdictions in the future
would not adversely affect the Company's operations. The Company also could be
found to be in non-compliance with existing statutes or regulations as a result
of, among other things, misconduct by IMAs, who are independent contractors over
whom the Company has limited control, the ambiguous nature of certain
regulations, and the considerable interpretive and enforcement discretion given
to regulators. Any assertion or determination that the Company or the IMAs are
not in compliance with existing statutes and regulations could have a material
adverse effect on the Company. Furthermore, an adverse determination by any one
state could influence the decisions of regulatory authorities in other
jurisdictions.
Federal and state agencies have enacted laws, rules and regulations
regarding pyramid promotional schemes, violation of which may result in
administrative, civil or criminal actions. Since the Company's success depends
in significant part upon its ability to attract, maintain, and motivate a large
base of IMA's, who, in turn, recruit subscribers for the Company's products and
services the Company may be susceptible to state and federal regulation
regarding pyramid schemes, as such schemes incorporate compensation for the
recruitment of participants. Pyramid promotional schemes generally include a
plan or operation by which a participant gives consideration for the opportunity
to receive compensation which is derived primarily from that person's
introduction of other persons into participation in the plan or operation rather
than from the sale of goods, services, or intangible property. The Company is
sensitive of such laws, rules and regulations and has designed its sales
arrangements for compliance. There is, however, no assurance that any federal
or state agency may allege that the Company's sales arrangements constitute a
pyramid scheme and, if successful, such actions would have a material adverse
impact upon the Company's plan of operations.
Proceedings Involving Company's Chief Executive Officer. Michael C.
Cooper, the Company's President, Chief Executive Officer and Director, together
with another former officer of the Company, were subject to allegations of the
violation of the Kansas Consumer Protection Act under a referral scheme employed
by Truly Special, Inc., a company with which they were both associated. In
general, the allegations contend that the respondents made representations to
consumers that they would receive a rebate, discount, or other benefit in return
for supplying the name of other prospective consumers where such benefits were
contingent upon such referrals entering the program and, that such consumers
were induced into paying Truly Special, Inc. with the promise that the consumer
would receive a future bonus for finding additional persons who were willing to
join the program. The Attorney General alleged that the money received in
return for investment was derived from the recruitment of additional members,
and not from retail product sales. Likewise, from similar proceedings, the
Securities Commissioner of Kansas held that such program constituted an
investment and was subject to the provisions of the Kansas Securities Act.
While the Company has taken steps to assure itself of its compliance with these
laws, rules and regulations, if Mr. Cooper or any of his affiliates, including
the Company, were to be found by an administrative body or court of law to have
violated any of the provisions of these proceedings in the future, such action
could have a material adverse affect upon the Company, its operations and
earnings. See "Management - Proceedings Involving Directors and Executive
Officers."
Competition. The products and programs offered by the Company are not
exclusive to the Company and the same or similar products and programs may be
offered and sold by others including other network marketing organizations,
discount department stores, and directly by manufacturers, distributors, or
designers of such products and programs. The Company expects that such
competitors are larger, better known and have substantially greater marketing,
7
<PAGE>
financial, personnel and other resources, including established reputations and
working relationships than the Company. The Company anticipates intense
competition in all aspects of its business.
The Company is subject to competition in the recruiting of IMAs from other
network marketing organizations, including those that market products similar to
those offered by the Company. Most of such competitors have far greater
resources and a longer history of operations than that of the Company.
Industry Conditions and Cyclically. The Company's operations are dependent
largely upon retail sales of its products. Each product has a separate identity
for consumer use or consumption but the variety of products offered by the
Company including the products that may be offered in the future may best be
compared to discount department stores where the economy has a direct bearing
upon retail sales. Although national retail chains have in the past continued
expansion during recessions, particularly in areas of the nation that are less
affected by recession, a weak economy could depress the demand for the Company's
products and, from time to time, the prices for the Company's products could
fluctuate widely. The market for the Company's products are cyclical and are
affected by the same economic factors that affect the retail sales industry, in
general, including the availability of credit, changes in interest rates, market
demand and general economic conditions, all of which are beyond the Company's
control. Any deterioration in retail sales could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's home based business program is founded on the premise that a
market exists for persons who desire a second income and the advantages
associated with self-employment. This program is not novel and has been offered
by network marketing companies, distributorships, and licensees for many years.
A program of this type is subject to dramatic change as a result of changes in
legislation affecting taxation and business opportunities for self-employed
persons. The program is also dependent upon the Company's ability to seek out
qualified tax and business consultants to develop its programs and to keep such
programs current. Though the Company believes that such consultants are readily
available, profitability in offering such program will be highly dependent upon
the costs the Company will incur associated with such consultants.
Dependence on Key Personnel. The success of the Company will depend upon
the continued service of its President, Michael C. Cooper. None of the
Company's officers or directors has entered into an employment agreement with
The Company. The loss of services of Mr. Cooper would be particularly
detrimental to the Company because of his experience in network marketing. The
Company has purchased key man life insurance on the life of Michael C. Cooper in
the amount of $500,000.
Board of Directors' and Managements' Broad Discretion in Use of Proceeds.
The application of the proceeds received as a result of the sale of Common Stock
is subject to broad discretion of the Board of Directors and Management of the
Company. The application of proceeds for matters such as the acquisition of
inventory, the development of sales and marketing, and the purchase of
equipment, is subject to change at the time such expenditure may be made.
Additionally, the Company's management intends a significant portion of the
proceeds of the Offering, whether Minimum Offering or Maximum Offering is
achieved, to apply such proceeds for working capital. The application of
proceeds to working capital has been made to allow it to meet any unusual
expenditures that might occur in the association of new products or services,
provide necessary capital so as not to incur long term debt, and to demonstrate
to prospective market makers of the Company's Common Stock a sound liquid
financial condition of the Company. In the event of the receipt by the Company
of proceeds from the Minimum Offering, the Company believes that such amounts
will be sufficient to fund its planned expansion and other operating cash
requirements through the end of the second quarter of 1999. See "Use of
Proceeds."
Lack of Supplier Agreements. All of the Company's products are
manufactured or distributed by others. The Company does not have any contract
with any supplier of products and such agreements are subject to cancellation by
either party at any time. The lack of contract with any manufacturer or
distributor could limit the Company's ability to offer a desired product for
sale. See "Business - Suppliers."
8
<PAGE>
Arbitrary Determination of Offering Price - Lack of Public Market. The
public offering price for the Common Stock offered hereby was determined
arbitrarily by the Company and should not be assumed to bear any relationship to
the Company's assets, net worth or other generally accepted criteria of value.
Recent history relating to market prices of newly public companies indicates
that the market price, if any, of the securities following this Offering may be
highly volatile and illiquid. See "Plan of Distribution." Prior to this
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market will develop or be sustained after
this Offering. See "Shares Eligible for Future Sales - Limited Public Trading."
Because the Company has chosen a price $0.10 per share as the offering price for
the Common Stock, investors in this Offering will be exposed to a higher degree
of stock market illiquidity. See "Disclosure Relating to Low-Price Stocks"
herein. The Company has chosen the price for the Common Stock primarily in
consideration of the number of IMAs likely to purchase its Common Stock and
their ability to purchase a higher number of shares at a relatively low
investment.
Disclosure Relating to Low-Price Stocks. The Company intends to apply for
quotation of its Common Stock with the Over The Counter-Bulletin Board (OTC-BB).
The Company's Common Stock will be subject to the "Penny Stock Rules" adopted
pursuant to Section 15(g) of the Securities Exchange Act of 1934, as amended.
The "Penny Stock Rules" apply to non-NASDAQ companies whose common stock trades
at less than $5.00 per share or which have a tangible net worth of less than
$5,000,000 ($2,000,000 if the company has an operating history for three or more
years). Such rules require, among other things, that brokers which trade "Penny
Stocks" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information, under certain circumstances. Many
brokers have decided not to trade "Penny Stocks" because of the requirements of
the "Penny Stock Rules" and, as a result, the number of broker/dealers willing
to act as market markers in such securities is limited. While the Company's
securities are subject to "Penny Stock Rules" there may develop an adverse
reaction on the market of the Company's securities and impair the ability of
purchasers of the Common Stock to resell their Common Stock.. See "Plan of
Distribution."
Lack of Dividends. No dividends have been paid on the Common Stock of the
Company and the Company does not anticipate the payment of any dividends in the
future but intends to retain its earnings for its business operations. The
payment of dividends are subject to Nevada corporate law and are made at the
discretion of the Board of Directors of the Company.
Concentration of Ownership - Anti-Takeover Provision. Michael C. Cooper,
the Company's President, and Director, is its principal shareholder and
controls, in the aggregate and prior to the Offering, 64.04% of the outstanding
stock. Subsequent to the Offering, assuming the Minimum Offering , Mr. Cooper
will control 52.03% of the Company and assuming the Maximum Offering, will
control 46.25% of the Company. As a result, Mr. Cooper will be able to have a
significant influence in the election of the board of directors of the Company
and the direction of the Company's business.
Certain provisions of the Company's Restated Articles of Incorporation and
Bylaws could make more difficult the acquisition of the Company by means of a
tender offer, proxy contest or the removal of officers and directors. See
"Description of Capital Stock."
Issuance of Preferred Stock. The Restated Articles of Incorporation of the
Company allow for the issuance of 10,000,000 shares of Preferred Stock of the
par value of $0.01 per share. The Company's Board of Directors may, without
further action by the Company's shareholders, from time to time, direct the
issuance of shares of Preferred Stock in series and may, at the time of
issuance, determine rights, preferences, and limitations of each series. Such
determination may affect the voting, dividend and preferences upon dissolution
of Common Stockholders of the Company. The Company has no intention of issuing
Preferred Stock but the issuance thereof may be utilized for the acquisition of
other businesses, prevent an undesired takeover attempt of the Company, or
9
<PAGE>
associated with additional financings of the Company. The issuance of Preferred
Stock is left with the discretion of the Board of Directors of the Company who
have undertaken with the Securities Commissioner of Kansas that for a period of
two (2) years after the Offering is completed the Company will not issue any
Preferred Stock for the purposes of raising additional capital.
Limitations on Director Liability. The Company's Restated Articles of
Incorporation provide, as permitted by governing Nevada law, that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Restated Articles of Incorporation and
Bylaws provide for mandatory indemnification of directors and officers to the
fullest extent permitted by Nevada law.
No Commitment to Purchase Common Stock; Deposits of Subscriptions. The
Company will attempt to sell the Common Stock through its own officers and
broker/dealers which elect to participate in the sale of the Common Stock as
agents of the Company. The Common Stock will be offered on a "best efforts"
basis and there is no firm commitment by anyone to purchase any of the shares of
Common Stock. The Company will not receive any proceeds if shares subject to
the Minimum Offering are not sold. If the Minimum Offering is not sold,
potential investors will lose the use of their funds for the Offering Period,
although the funds invested by them will be returned with interest thereon. All
subscriptions for the common stock will be held in escrow with the Escrow Agent.
Purchases of Common Stock made by management, principal shareholders, or their
affiliates will be on the same terms as that of public investors. Any purchases
of shares by such persons will not be included for the purposes of meeting the
Minimum Offering as described herein.
Trademarks, Copyrights and Other Proprietary Information. The Company has
potential trademark rights and copyrights for some of its products, but not for
all of its products. The Company relies upon certain suppliers of products
granting a company a "private label" for the distribution of such products.
Except to the extent of the Company's potential trademark rights and copyrights,
there is no assurance that any competitor could not offer the products for
distribution the same as the Company and the Company has no protection against
competitors from developing similar brand names or promotional materials or
developing products or programs similar to those of the Company.
Shares Eligible for Future Sale. An aggregate of 117,647,560 Restricted
Shares of the Company's currently outstanding Common Stock are eligible for sale
pursuant to Rule 144 of the Securities Act of 1933, as amended; except that
111,295,227 of such shares are held by three persons (including officers and
directors) of which 105,755,227 shares are under a contractual impoundment as
undertaken by the Company with the Securities Commissioner of Kansas until the
Company meets certain earnings tests or periods of time have expired under such
impoundment agreement. See "Shares Eligible for Future Sale." If sales of any
of the Restricted Shares were to occur in substantial amounts, they could have
an adverse impact on the trading price of the Company's stock.
Dilution. Purchasers of shares offered hereby will experience an immediate
and substantial dilution in net tangible book value per share. If the Minimum
Offering is sold, purchasers of the Common Stock will receive an immediate
dilution of $0.0796 per share (79.6% of their investment). To the extent that
outstanding options to purchase the Company's Common Stock are exercised, the
dilution in the net tangible book value per share will increase. See
"Dilution."
10
<PAGE>
USE OF PROCEEDS
Net proceeds to the Company will be approximately $4,450,000, assuming all
shares of Common Stock (50,000,000) offered hereby are sold, and after deducting
a maximum of $450,000 for commissions and an estimated $100,000 for Offering
expenses. (See "Plan of Distribution.") If only the minimum number of shares of
Common Stock (30,000,000) offered are sold, net proceeds to the Company will be
approximately $2,630,000, after payment of a maximum of $270,000 for commissions
and an estimated $100,000 for Offering expenses. The Company intends to use the
net proceeds for the purposes as set forth in the table below; however, actual
expenditures may vary substantially therefrom.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
APPLICATION AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales Training and
Development (1) $ 650,000 25% $ 850,000 19%
Inventory of Products for
Retail(2) 400,000 15% 450,000 10%
Employee and Field
Management Expense(3) 250,000 9% 450,000 10%
Information Systems(4) 100,000 4% 175,000 4%
Promotional Items and
Expenses(5) 250,000 9% 400,000 9%
General Corporate Purposes
and Working Capital(6) 980,000 38% 2,125,000 48%
---------- ---- ---------- ----
TOTALS $2,630,000 100% $4,450,000 100%
========== ==== ========== ====
<FN>
- --------------------
(1) Sales training and development expense includes training materials, 1-800
voicemail systems and costs associated with training and sales seminars,
catalogs, video tapes, and other materials.
(2) The Company will continue to acquire certain products from suppliers and
manufacturers, inventory such items for shipment through sales orders, and
store such products at its warehouse facility.
(3) The Company anticipates that during the ensuing 12 months it will hire
additional clerical and service personnel, a national sales director, and
at least six regional sales directors. Additionally, the Company will bear
certain expense associated with the activities sponsored by key IMAs in the
various regions.
(4) Information systems include costs associated with upgrading the Company's
existing phone system to include digital PBX switch, voice mailbox,
selective pager and station messages. The Company intends to acquire
additional computers and software equipment to enhance its national
operations.
(5) Promotional items include sales brochures, awards, travel expense, costs
associated with the introduction of new products, trade shows, news
letters, and advertising.
(6) The Company's working capital requirements cannot be specifically
determined as of the date of this Prospectus. Generally, the Company
expects that working capital may be necessary for its current operations
and to offset unanticipated expenditures that may be incurred in the
development of its sales force and including additional administrative
personnel.
</TABLE>
Projected expenditures in the foregoing table represent estimates of the
Company's present intentions. Changes in allocations of such funds may be made
at the discretion of the Board of Directors. Any amounts not expended as
indicated may be added to the general working capital of the Company. The
11
<PAGE>
Company believes that strong working capital will allow it to meet any unusual
expenditures that might occur in the association of new products or services,
provide necessary capital so as not to incur long term debt, and provide a
better cash foundation of the Company in introducing its Common Stock to
prospective market makers. In the event of the receipt by the Company of
proceeds from the Minimum Offering, the Company believes that such amounts will
be sufficient to fund its planned expansion and other operating cash
requirements through the end of the second quarter of 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company may in the future find it necessary or advisable to change the
allocation of net proceeds due to the availability of other business
opportunities, including joint ventures and the acquisition of businesses in
areas related to the Company's business, or other factors. The Company is not
engaged in any negotiations nor does it have any commitments with respect to any
joint ventures or acquisitions at this time and there can be no assurance that
any such transactions will occur. While the Company has not entered into any
negotiations, management believes that it can substantially increase the
revenues of the Company through the acquisition of existing sales forces
associated with other network marketing companies in some of its primary market
areas. The Company intends to utilize a portion of the net proceeds of this
Offering to affect such acquisitions if such acquisitions are obtainable on
terms the Company considers advantageous.
Pending application of proceeds of this Offering, the Company will make
temporary investments in interest-bearing savings accounts, certificates of
deposit, United States government obligations, money market accounts or short-
term interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and does not anticipate paying any cash dividends or other distributions on its
Common Stock in the foreseeable future. The current policy of the Company's
Board of Directors is to reinvest earnings to finance the expansion of the
Company's business.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, (1) on an actual basis, and (2) as adjusted to reflect the
receipt of estimated net proceeds from the sale by the Company of 30,000,000
shares of Common Stock pursuant to this Offering at the minimum level and
50,000,000 shares of Common Stock at the maximum level at an assumed initial
public offering price of $0.10 per share and after deducting underwriting
discounts and commissions and estimated offering expenses and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------
As Adjusted
-------------------------
Actual(1) Minimum Maximum
---------- ---------- ----------
<S> <C> <C> <C>
Long-Term debt $ -0- $ -0- $ -0-
Stockholders' equity: ---------- ---------- ----------
Common Stock, $0.01 par value; 500,000,000 shares authorized;
130,000,000 shares issued and outstanding, actual;
150,000,000 shares issued and outstanding as
adjusted at the minimum level; 180,000,000
shares issued and outstanding, as adjusted
at the maximum level $1,300,000 $1,600,000 $1,800,000
Additional paid-in capital (deficit) (476,300) 1,853,700 3,473,700
Retained earnings (deficit) (191,856) (191,856) (191,856)
---------- ---------- ----------
$ 631,844 $3,261,844 $5,081,844
Less treasury stock - at cost (21,000) (21,000) (21,000)
---------- ---------- ----------
Total stockholders' equity 610,844 3,240,844 5,060,844
---------- ---------- ----------
Total Capitalization $ 610,844 $3,240.844 $5,060,844
========== ========== ==========
<FN>
- --------------------
(1) Derived from the Company's unaudited financial statements included elsewhere
in this Prospectus. See "Financial Statements."
</TABLE>
DILUTION
The net tangible book value (deficit) of the Company's Common Stock as of
March 31, 1998 and as adjusted for an approximate 10,063.0878197 for 1 stock
split ("stock split") effective as of March 13, 1998, was approximately $575,114
or approximately $0.004460 per share. "Net tangible book value" per share
represents the amount of the Company's tangible assets less total liabilities,
divided by 128,943,376 shares of Common Stock outstanding.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering made hereby and the adjusted net tangible book value per share of
Common Stock immediately after completion of the Offering. After giving effect
to the sale of 30,000,000 shares of Common Stock in this Offering at an assumed
13
<PAGE>
offering price of $0.10 per share and the application of the estimated net
proceeds therefrom, the adjusted net tangible book value of the Company as of
March 31, 1998, (giving effect to the stock split at March 13, 1998) would have
been $3,240,844, or $0.0204 per share. This represents an immediate increase in
net tangible book value of $0.015663 to existing shareholders, and an immediate
dilution in net tangible book value of $0.0796 (79.6% of investment) per share
to purchasers of Common Stock in the Offering as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $0.10
net tangible book value per share at March 31, 1998 $0.004460
Increase per share to existing shareholders attributable
to sale of shares to new investors $0.015940
---------
As adjusted net tangible book value per share after the Offering $0.0204
-------
Net tangible book value dilution per share to new investors $0.0796
=======
</TABLE>
The following tables set forth, on an adjusted basis as of March 31, 1998,
and giving effect to the stock split, the difference between the existing
shareholders and the purchasers of shares in the Offering (at an assumed
Offering price of $0.10 per share) with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:
<TABLE>
<CAPTION>
MINIMUM OFFERING
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
-------------------------- ------------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 128,943,376 86.57% $ 802,700 21.11% $0.007
New investors 30,000,000 13.43% 3,000,000 78.89% $0.10
----------- ------- ----------- -------
Total 158,943,376 100% $ 3,802,700 100%
=========== ======= =========== =======
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM OFFERING
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
-------------------------- ------------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 128,943,376 72.06% $ 802,700 13.83% $0.007
New investors 50,000,000 27.94% 5,000,000 86.17% $0.10
----------- ------- ----------- -------
Total 178,943,376 100% $ 5,802,700 100%
=========== ======= =========== =======
</TABLE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus. The statement of operations data set forth below with respect
to the period from June 17, 1995 (Date of Inception) to December 31, 1995, and
the years ended December 31, 1996 and 1997, and the balance sheet data as of
such dates are derived from the financial statements and the notes thereto of
the Company, which have been audited by Berberich Trahan & Co., P.A.,
independent certified public accountants. The statement of operations data for
the three months ended March 31, 1997 and 1998, and the balance sheet data as of
March 31, 1998, are derived from unaudited financial statements and, in the
opinion of management, include all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the financial
position and the results of operations of the Company for such periods. The
results of operations for any interim period are not necessarily indicative of
results of operations for the full year.
14
<PAGE>
<TABLE>
<CAPTION>
Period From
June 17, 1995
(Date of Three Months Ended
Inception) to Year Ended Year Ended -------------------------------
December 31, December 31, December 31, March 31, March 31,
1995 1996 1997 1997 1998
-------------- ----------- ----------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Revenue.................................... $ 340,108 $ 3,730,220 $ 1,217,835 $ 276,711 $ 889,147
Cost of goods sold......................... 92,384 709,675 413,809 115,312 90,929
Commissions expense........................ 119,874 1,315,368 460,885 115,277 306,982
Other operating, selling and
administration expenses................ 113,010 1,482,756 929,437 313,439 299,116
Other income (expense)..................... 107 (22,367) 1,571 1,364 1,748
Income taxes refund (expense).............. - (83,000) 67,000 67,000 -
Net income (loss).......................... 14,947 117,054 (517,725) (198,953) 193,868
Income (loss) per share:
Basic................................. .0001 .0011 (.0043) (.0017) .0015
Diluted............................... .0001 .0011 (.0043) (.0017) .0015
Weighted average common shares
outstanding:
Basic................................. 100,630,878 108,123,686 120,173,814 117,513,385 128.943,376
Diluted............................... 100,630,878 108,123,686 121,507,147 117,513,385 132,943,376
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1996 1997 1998
---------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 198,579 $ 328,547 $ 465,319
Total assets............................................ 543,592 544.983 751,079
Total debt.............................................. 230,891 128,007 140,235
Stockholders' equity.................................... 312,701 416,976 610,844
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was incorporated on June 17, 1995. They adopted a calendar
year end for financial and tax reporting purposes. The Company began marketing
fine jewelry, art and collectibles. During 1996, the Company expanded its
product line to include gourmet foods and other consumable items. By March 31,
1997, the Company had 14,485 independent sales representatives located in 50
states.
In 1997, the Company shifted the marketing focus and began the research and
development of the Tax Advantage System that was to be introduced to the
independent sales representatives during the last quarter of 1997. By the end
of 1997, the Company had 19,285 independent sales representatives. Management
estimates that 16,000 of these independent sales representatives would be
considered actively participating in the business.
In November, 1997, the Company began marketing the Tax Advantage System
through their Advantage International Marketing (AIM) division. The Company
markets the Tax Advantage System through its independent marketing associates.
At the end of 1997, the Company had 489 independent marketing associates in
their AIM division. As of March 31, 1998, the Company had expanded its
independent marketing representatives to 1,648, of which the management
15
<PAGE>
estimates 1,500 can be considered actively participating in the business. As of
March 31, 1998, the Company had a total of 20,933 independent marketing
representatives enrolled in the Company.
The Company intends to continue to expand its independent sales
representatives network and its product sales through their AIM division and
the marketing of the Tax Advantage System. Expanding the AIM division should
also account for increased product sales for the Company. The Company believes
that this strategy, which calls for continued penetration nationally, will allow
for the appropriate focus of management resources.
The Company does not manufacture any products though it does some
repackaging in its Topeka, Kansas warehouse. Products are either shipped from
the warehouse or shipped from the suppliers.
RESULTS OF OPERATIONS
The following table sets forth information derived from the Company's
statements of operations expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Period From
June 17, 1995
(Date of Three Months Ended
Inception) to Year Ended Year Ended -----------------------
December 31, December 31, December 31, March 31, March 31,
1995 1996 1997 1997 1998
------------- ----------- ----------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue.................................... 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of goods sold......................... 27.16% 19.03% 33.98% 41.67% 10.23%
Commissions expense........................ 35.25% 35.26% 37.84% 41.66% 34.53%
Other operating, selling and
administration expenses................ 33.23% 39.75% 76.32% 113.27% 33.64%
Other income (expense)..................... 0.03% -0.60% 0.13% 0.49% 0.20%
Income taxes refund (expense).............. 0.00% -2.23% 5.50% 24.21% 0.00%
Net income (loss).......................... 4.39% 3.14% -42.51% -71.90% 21.80%
</TABLE>
PERIOD ENDING MARCH 31, 1998, COMPARED TO PERIOD ENDING MARCH 31, 1997
REVENUES
The Company at March 31, 1998, had sales of $889,147 compared to $276,711
for the same period in 1997, an increase of $612,436. Management accounts for
the increased sales to the introduction of AIM and the rolling out of the AIM
products. The AIM division generated tax advantage system and service revenues
of $304,698 for the period ended March 31, 1998. Management believes that 90%
of the sales for the period ending March 31, 1998, are attributable to the
creation of AIM and the products introduced through that division. The Company
at March 31, 1998, had 20,933 sales representatives compared to 14,485 in the
same period in 1997.
COST OF GOODS SOLD
Cost of goods sold decreased from $115,312 to $90,929 for the period ending
in 1997 as compared with the same period in 1998, a decrease of $24,383.
Management accounts for the decrease as the AIM division is selling information
and services in addition to products. Information and services have better
margins than products. Cost of sales was 10.23% of revenues for period ending
in 1998 versus 41.67% for period ending 1997.
16
<PAGE>
COMMISSIONS
Commissions increased from $115,277 for the period ending March 31, 1997,
to $306,982 for the same period in 1998, an increase of $191,705 for the period.
The increase in commissions is due to the introduction of AIM products to the
field.
As a percent of revenue, commission expense decreased from 41.67% for the
period ending March 31, 1997, to 34.53% for the same period in 1998. Commission
expense decreased as a percent of revenue due to the AIM division being new to
the sales field. Most representatives had not produced sufficient number of
sales or did not have enough sales volume to qualify for additional bonuses and
incentives. Management foresees commission expense as a percent of revenues to
increase as more sales representatives do more business to qualify for bonuses
and upper level incentives.
OTHER OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Other operating, selling and administrative expenses decreased $14,323 for
the period ending March 31, 1998, compared to the same period in 1997 due to
employee reductions and operational efficiencies that were started during
calendar year 1997 due to the declining sales volume through the first three
quarters of 1997. For the three months ending March 31, 1998, the Company
incurred approximately $125,000 in salaries and wages, $40,000 in bank and
credit card fees, $33,000 in home office and warehouse rents, $17,000 in
utilities and telephones, $8,000 in travel costs, primarily to recruit
independent sales representatives, $11,000 in taxes and licenses, and $15,000
for shipping and supply costs. It is anticipated that other operating, selling,
and administrative expenses will be higher in 1998 if the level of operation
continues to expand.
INCOME TAXES
No income taxes were provided for the three months ended March 31, 1998, as
the Company utilized previously reserved net operating loss carryforwards to
offset taxes which would have been provided based on income before income tax.
(See Note 2 of the financial statements.) An income tax refund of $67,000 was
provided for the three months ended March 31, 1997, due to the carryback of this
quarter's losses against 1996 income.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Revenues decreased $2,512,385. The decline in revenues was due to the
Company shifting focus from the Renaissance product line to research and
development of the new AIM division. While the Company sacrificed a significant
amount of sales due to the development of the new products, it was management's
philosophy that AIM could far exceed the potential of Renaissance in revenues
generated. The AIM division generated $118,786 in tax advantage system and
service revenues in the last two months of 1997. For most of 1997, the Company
did not actively market or even attempt to increase its sales representatives as
AIM IMAs also sell products. By the end of 1997, the Company had 19,285
independent sales representatives of which the Company estimates that 16,000 of
those representatives were active in the business.
COST OF GOODS SOLD
Cost of goods sold decreased from $709,675 for the year ended December 31,
1996 to $413,809 for the year ending December 31, 1997, a decrease of $295,866.
The decrease in the cost of goods sold is attributed to the reduced sales during
1997.
17
<PAGE>
As a percent of revenues, cost of goods sold increased from 19.03% for the
year ended December 31, 1996 to 33.98% for the year ended December 31, 1997.
The increase was due to increased inventory, specifically the DeLiteFull Cookie,
to satisfy the demand that was anticipated to grow in late 1996 into 1997.
Instead, demand steadied and eventually declined as the Company did not
aggressively market to expand its sales force during most of 1997.
COMMISSIONS
Commission expense decreased $854,483 for the year ended December 31, 1996
to the year ended December 31, 1997. Commission decrease can be explained by
the declining sales in 1997. As a percent of revenues, commission expense was
comparable at 35.26% for the year ended December 31, 1996, and at 37.84% for the
year ended December 31, 1997.
OTHER OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Other operating, selling and administrative expenses decreased $553,319.
The Company began implementing cost cutting measures due to the decline in
sales. In addition, the Company started to experience some savings due, in
part, to operational efficiencies. For the year ended December 31, 1997, the
Company incurred approximately $287,000 in labor costs, $45,000 in utilities and
telephone, $47,000 in shipping and postage, $89,000 in home office and warehouse
rents, $27,000 in bank and credit card fees, $60,000 in travel costs associated
to recruiting new independent sales representatives, and $39,000 in legal fees.
The Company also incurred $20,100 for leasing software for part of the year in
1997 from its Chief Executive Officer, this lease arrangement was terminated
during 1997.
INCOME TAXES
In 1997, the Company reflected an income tax refund of $67,000,
representing the amount it is able to carryback operating losses to 1996. At
December 31, 1997, the Company reserved the potential tax benefit of
approximately $115,000 relating to operating loss carryforwards because the
likelihood of realization could not be established. (See Note 2 to the
financial statements.)
YEAR ENDED DECEMBER 31, 1996, COMPARED TO PERIOD FROM JUNE 17, 1995, (DATE OF
INCEPTION) TO DECEMBER 31, 1995
REVENUES
The Company was incorporated on June 17, 1995, and started with several
jewelry and fine art products which were sold through independent sales
representatives. The Company expanded rapidly, particularly in the latter half
of 1996. Revenues were up $3,390,112 for the full year 1996 as compared to the
period June 17, 1995 (Date of Inception) to December 31, 1995. At December 31,
1996, the Company had expanded its jewelry and fine art collectibles base of
products and added gourmet food products and high fiber, low-fat cookies. At
December 31, 1996, the Company's independent sales representatives totaled
13,840 in 50 states.
COST OF GOODS SOLD
Cost of goods sold increased $617,291 for the full year 1996 as compared to
the period June 17, 1995 (Date of Inception) to December 31, 1995, due to the
increase in product sales. Cost of goods sold was 19% of revenues in 1996
versus 27% of revenues in 1995. The decrease in the percentage is attributed to
operational efficiencies associated with the increased volume.
18
<PAGE>
COMMISSIONS
Commissions expense increased $1,195,494 for the full year 1996 as compared
to the period June 17, 1995 (Date of Inception) to December 31, 1995, due to the
increase in product sales. As a percent of revenue, commission expense was
comparable at approximately 35%.
OTHER OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Other operating, selling and administrative expenses increased $1,369,746
due to the expansion of the business and establishment of an employee base. In
1996, the Company incurred approximately $430,000 in labor costs, $180,000 in
printing costs associated with product catalogs, $190,000 in shipping and supply
costs, $130,000 in travel costs, primarily to recruit independent sales
representatives, $100,000 in taxes and licenses, $80,000 in home office and
warehouse rentals, $60,000 for software rental, $55,000 for utilities and
telephone, and $50,000 in credit card servicing. A substantial part of the
growth in these expenses occurred in the last six months of 1996.
OTHER EXPENSE
Other expense in 1996 includes a $25,928 writedown to market of an
investment in precious metals. This investment was sold in 1997 at
approximately book value.
INCOME TAXES
The 1996 provisions for income taxes was computed based on pre-tax income
at statutory tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its need for liquidity and capital
through issuance of common stock and cash flow from operations. At March 31,
1998, the Company had no long-term debt. The Company has no trade receivables
as products are paid for prior to shipment. The Company has had to increase
inventory, particularly the Tax Advantage System, to meet the expected sales
volume of the products due to the introduction of AIM. At March 31, 1998, the
Company had working capital of $465,319. At December 31, 1997 and 1996, the
Company had working capital of $328,547 and $198,579. During 1996, 1997 and the
three months ended March 31, 1998, the Company had capital expenditures for
furniture, equipment, and vehicles of $116,217, $12,653, and $28,872,
respectively.
The Company's primary cash requirements following the Offering will be to
acquire inventory, develop sales and marketing, purchase equipment, and for
general corporate purposes. The Company anticipates that the proceeds from this
Offering will be sufficient to fund its planned expansion and other operating
cash requirements through the end of the second quarter of 1999.
IMPACT OF ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, Disclosure About Segments of an Enterprise and Related Information, in
1997. This statement will have no impact on the Company.
The Company has used Macintosh networking, data base, and bookeeping
system. Macintosh systems and software sold after 1984 have provided for change
of year from 1999 to 2000. Management is confident that there will be no
problems with their management information system in the year 2000.
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INFLATION
The Company does not believe that inflation has materially affected results
of operation from inception to date. Substantial increases in costs,
particularly product, commissions, labor and employee benefits, could have a
significant impact on the Company.
BUSINESS
GENERAL
The Company was formed in June, 1995, and began developing a national
network marketing sales organization through the recruitment of independent
sales representatives throughout the country. The Company first introduced its
line of fine jewelry and collectible items as its major products. By mid-1996,
the Company had introduced various products on a "product-line-after-product-
line" concept. In November, 1997, the Company developed a home based business
program entitled "Advantage International Marketing" ("AIM) directed to
individuals with interest in establishing a second income. The AIM plan is
intended for the home based business to offer the products of the Company,
though such marketing is not mandatory. The Company's strategy is to build a
successful mass market for an unlimited number of universally appealing products
to be sold to the general public based solely on extremely attractive pricing
through its representatives and others operating their own business for such
purposes. The Company is highly dependent upon its national network of IMAs,
who are uniquely compensated by the Company and are provided training and sales
support by the Company. The Company intends to continue to introduce new
products on a continuous basis and will utilize its mass marketing ability to
obtain such products at reduced prices from manufacturers and suppliers, and to
develop other programs for marketing in the future.
From proceeds received as a result of this Offering, the Company will be
able to inventory products without borrowing, strengthen its support and
services to its sales force and, promote its products and services.
COMPANY'S STRATEGY
The Company's goal is to be a provider of a wide range of products and
services through a national sales organization of IMAs which will be able to
sell such products and services at the most favorable prices. The Company
intends to increase revenues from the sales, increase its IMA network, and
provide additional revenue opportunities for its IMA network. The Company
intends to achieve this goal by pursuing the following strategy:
* maintain and expand its product base by continuing to offer
high quality, competitively-priced products with careful
customer care through a highly motivated and growing network
of IMAs.
* expand its product line by researching and introducing new
products that can be acquired by the Company through its
mass marketing sales power at reduced prices and offering
such products to its customers at favorable prices.
* continue to update and provide additional services under the
Company's home based business program and enhance the
program by updating tax and business techniques associated
with a home business and provide incentive compensation,
advertising and promotion.
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* grow and develop its network of independent sales
representatives by enhancing the recruiting and training
services offered to IMAs, continuing to support the
marketing efforts of IMAs, and introducing new income
opportunities for IMAs.
PRODUCTS
The Company offers a variety of products. Products are selected when the
Company's research indicates a high consumer acceptance and an easily
identifiable product for the consumer. Therefore, the Company's products are
not novelty-type or products that are "first initiated" for sale. The selection
of the Company's products also includes the Company's ability to easily
introduce such products to its IMAs who, in turn, can retail such products to
their customers. Most products offered by the Company are introduced through a
catalog, sales brochure or other document that can easily be displayed to the
customer with simplified order forms.
The following are the products currently being offered by the Company:
* Fine Jewelry. The Company offers a wide variety of gold
jewelry, precious gemstones, sterling silver, and cubic
zirconia jewelry identified in an approximate 3,000 item
catalog. Supplementing the catalog is a pre-owned Rolex
watch program. All 14KT gold jewelry is plumb. "A" quality
diamonds are industry standard VS-2/SI-1 and "B" quality
diamonds are industry standard SI-2/I-1. Cubic Zirconia is
of the highest quality and all sterling silver jewelry is no
less than .925 purity (unless otherwise identified in
specific terms in the catalog).
* Fine Art and Collectibles. The Company, through its
Designer Gallery Fine Art Catalog, offers a selection of
sculptures and a gallery of animation and collectible items
such as historical memorabilia, antique replicas, sports and
entertainment pictures and guaranteed signatures, and other
notables.
* The Vision Catalog. This catalog offers thousands of
products denoting the "something for everyone" introduction
of items ranging from cookware to camping equipment and gift
items to tool sets.
* Vision 2000 Telephone Program. The Company's Vision 2000
program features traditional 1-plus dialing from home or
business at reduced rates, 1- plus 800 services, the Vision
2000 phone card, and pre-paid calling cards.
* Gourmet Foods. Through the Company's "A Taste of
Renaissance" gourmet food line, the Company features jams,
jellies, syrups, salsas, mixes and dips. Each product can
be purchased individually or in a gift package. This 80-
item product line offers a wide variety of selection and is
designed by the Company to work as a fund raising program
for churches, schools and other not-for-profit
organizations.
* Truck/Utility Sport Vehicle Accessories. The Company offers
a full line catalog of truck accessories and sports utility
performance parts. This product line was specifically
developed to participate in the increase in the popularity
of utility sport vehicles and trucks.
* Golf and Clothing. The Company offers golf equipment
through a major manufacturer of golf equipment, including
Axiom irons, titanium oversized drivers, and golf bags and
shoes. The Company offers jeans, shirts and sport clothes
manufactured by a popular brand company.
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The Company offers gift certificates for all of its products. All products are
accompanied by guarantees or warranties provided by the manufacturer or
distributor of the product.
AIM
The Company formed Advantage International Marketing ("AIM") in November,
1997 as a division of the Company in order to separate the product and program
marketing. The Company introduced AIM as a result of the growth of network
marketers and the resulting tax and business considerations for home-based
businesses. AIM is specifically marketed to individuals desiring to establish
a home based business. This "second income" strategy guides the customer
through the operations of a home based business, including a business plan,
medical reimbursement plans, tax manuals, and various ledgers and logs
associated with business expense. Ideally, these home based business
customers will choose the Company's products for their business opportunity.
The following are the services being offered by the Company through its AIM
division:
* Tax Advantage System. This is a complete "turn-key" home
based business system, including IMA status in offering the
Company's products at wholesale pricing. The Tax Advantage
System provides a complete business plan and break-even
budget analysis documenting the profit intent of the
business, business contracts required for tax deduction
validation, vehicle logs, simplified receipt filing system,
training manuals, and audio training tapes. The Tax
Advantage System may be purchased by the IMA for $300.
* Prepaid Tax Advantage. The Prepaid Tax Advantage (PTA) is a
comprehensive monthly business, tax, and accounting
consulting service provided by the Company in association
with independent tax and business consultants. The service
includes unlimited access to these independent tax and
business consultants via conference calls, individual e-
mail, toll-free-one-on-one tax advice, free 1040 return
preparation with supporting schedules at discounted rates,
as well as free audit assistance. All PTA services are
provided free to any IMA once they earn a minimum of $300 in
commissions. The PTA retails for $100 per month.
In order to implement the AIM program, the Company retains, on a
contractual basis, tax and business consultants who are compensated based on the
number of participants in the program and, to some extent, overrides on written
materials that are produced by such consultants.
MARKETING/COMPENSATION
The Company is highly dependent on the management, training and development
of its direct network marketing sales organization organized through the
recruitment of independent sales representatives (IMAs). These IMAs retail the
various product lines offered by the Company and the Company's other programs.
Any person, partnership or corporation may elect to become an IMA of the Company
upon completing the appropriate Application and Agreement form supplied by the
Company. Each IMA is authorized to order all of the Company's products at the
Company's IMA cost and then retail the products to their customers at a profit.
The AIM program is retailed at set costs per program acquired. The Company
prepares suggested price lists for each of its products, though such prices may
change from various areas of the country and pricing to the Company's customer
is left with the IMA. The Company has adopted a recruitment program of
"friends telling friends" concept which attempts to achieve a high number of
independent representatives which in turn can enhance the distribution of the
Company's products. IMAs are not compensated for recruitment of IMAs, but are
entitled to compensation as described herein. The Company does not require IMAs
to make monthly purchases or inventory any products to qualify for commissions,
bonuses, awards or other compensation offered by the Company and there is no
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prohibition for the IMA to sell other products or services. All IMAs can earn a
retail profit through retail sales, earn an override commission, and qualify to
participate in the national percentage of revenue generated by the Company.
The Company tracks each IMA's personal sales as well as accumultating down
line sales volumes qualifying the "Trilogy Comprehensive Plan" within the
accounting field for each IMA, called a "business center." Once an IMA
qualifies the business center with a minimum of $300 of retail product sales,
the IMA may begin to recruit and sponsor other IMAs for a sales group. Sales
made anywhere within the sales group are posted to both the selling IMA's
business center and to the up line business center of the sponsor, who may
qualify for the various overrides and bonuses on total group sales.
The "Trilogy Compensation Plan" provides for the payment of commissions and
bonuses on a daily, weekly, and monthly basis and is designed to generate
potential income to the IMA on any one sales group or any one or all of three
legs within a sales group under a business center. An IMA may earn a direct
sales bonus on each product or system personally sold and be paid daily. Once
the IMA down line sales group has generated a minimum of three to nine sales in
all of its three legs, or nine sales in any two legs, the IMA earns the right to
participate in an additional bonus, which is computed daily and paid weekly.
The Company has introduced decremental posting where all excess sales
volume is carried over to benefit the next pay period for the IMA, until the IMA
reaches the maximum daily bonus of $900. Decremental posting eliminates the
industry practice of "breakage" where undedicated revenues, such as excess sales
volumes, become the property of the Company. Additionally, the system was
designed to avoid a practice where, once a bonus is paid, the marketing
representative is forced to go to the next additional pay period ("flushing")
without any credit for the excess sales volume associated with product and
program sales.
For sales of the Company's PTA, the Company provides a monthly residual
bonus to each IMA based upon the number of customers within the IMA's sales
group, through twelve levels, plus the right to participate in 15% of the total
nationwide revenues from the prepaid Tax Advantage System pooled from all
qualifying IMAs. The monthly residual bonus plan is designed for customer and
IMA retention through a generous revenue sharing program.
CUSTOMER CARE
All products distributed by the Company carry certain warranties and
guarantees. It is the policy of the Company to pass through to the consumer the
warranties that the Company's suppliers and manufacturers have provided and the
Company offers customers the right to return any product within fifteen (15)
days after receipt for a full refund or exchange, less any shipping and handling
charges. Products, literature, and sales materials purchased by IMAs may be
returned to the Company within fifteen (15) days at a full refund. The Company
has experienced minimal refunds and returns on products and materials.
The Company maintains a Customer Service Department to assist and support
any requests for refunds and/or returns of its product lines. This department
also provides all IMAs assistance in answering questions regarding applications,
order forms, sales literature, and other related matters.
SUPPLIERS
All of the Company's products are manufactured or distributed by others.
Normally, the Company negotiates with such suppliers the price of the products
based upon its anticipated sales, credit arrangements, and amounts that will
initially be purchased in inventory. On occasion, the Company will negotiate an
"exclusive" product but normally such products are low selling items of
suppliers. Supplier agreements are not under contract and are subject to
cancellation by either party at any time. The volume of purchases made by the
Company of products from suppliers dictates the relationship between the
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parties. The Company has experienced no problems with any of its suppliers and
believes that there is an abundance of manufacturers and distributors for the
products that it may choose to offer and sell.
For its AIM division, the Company contracts with independent tax and
business consultants to provide tax and business advice for its program and for
written materials authored by such consultants to accompany the program.
Generally, these persons are compensated on the basis of the number of sales of
their written product, the number of program users, and expenses associated with
travel, conferences and incidental services. The Company believes that the loss
of any tax or business consultant that it uses may be easily replaced because
of the number of such consultants available.
MANAGEMENT OF IMAS
Each IMA receives a procedures manual which contains policies and
procedures which must be followed in order to maintain the IMA's status in the
Company. IMAs are expressly forbidden from making any representation as to the
possible earnings of any IMA from the Company, other than material prepared by
the Company demonstrating the commissions and overrides paid by the Company to
all IMAs. IMAs are prohibited from creating any marketing literature that has
not been pre-approved by the Company. To date, the Company has experienced no
complaints regarding any of its IMAs but intends to enforce its policies and
procedures by either suspending or terminating any violator. Because IMAs are
classified as independent contractors, the Company is unable to provide them the
same level of direction and oversight as Company employees. While the Company
has these policies and procedures in place governing the conduct of IMAs, it is
difficult to enforce such policies and procedures for the IMAs. Any violations
of the Company's policies and procedures could reflect negatively on the Company
and may lead to informal complaints by various state regulatory authorities and
could have a material adverse effect upon the Company's results of operations.
IMA TRAINING AND MARKETING SUPPORT
The Company provides all IMAs with live, interactive training on a daily
basis from the home office staff with nationwide conference calls at various
times each day, as well as local and regional training workshops on a periodic
basis.
Conference calls provide an overview of the Company's products to enhance
customer retail sales, provide an outline of the Trilogy compensation program
for prospective IMAs, and contain question and answer sessions for prospective
customers and the IMAs. Each Sunday evening the Company's president, Michael C.
Cooper, hosts a conference call addressed to all IMAs for new products and
services, meeting locations, updates, and questions and answers from the IMAs.
The Company publishes a full color bi-monthly newsletter providing
corporate information, tax updates, product updates, motivational articles, and
sales achievement recognition. In addition, the Company's tax and business
consultants provide tax and informational bulletins in association with the
Company to all IMAs.
The Company maintains a state-of-the-art facsimile available 24 hours per
day, seven days a week. This system also provides a voice-on-demand menu on
which callers can hear audio overviews of the Company, its products and
compensation plan, and other promotional items.
The Company sponsors two Web sites on the Internet (www.takingAIM.com and
www.RENABC.com), which provide information on the Company, its products,
marketing, customer service and lead generation. The Company maintains the Web
site from its own offices. The Company operates a call center staff by its
marketing support personnel who have automated systems to answer questions of
customers and IMAs.
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At the date of this Offering, the Company has independent sales
representatives contracts in excess of 20,000 (including approximately 2,300
through its AIM division) throughout the United States. Because the Company has
a no-cost policy relating to such agreements with its IMAs, there is a small
amount of terminations of such agreements. Under the no-cost policy, the IMA
has no minimum purchase requirement and may become an IMA for no-cost. The
Company, based upon compensation paid to IMAs, believes that approximately 40%
of the IMAs actively promote the Company's business.
REGULATION
The Company's network marketing system is or maybe subject to or effected
by extensive government regulation, including, without limitation, state
regulation of marketing practices and federal and state regulation of the offer
and sale of business franchises, business opportunities, and securities. In
addition, the Internal Revenue Service and state taxing authorities in any state
where the Company has IMAs could classify the IMAs as employees of the Company
(as opposed to independent contractors). Any assertion or determination that
the Company's business is not in compliance with government requirements could
have a material adverse effect upon the Company's results of operations.
While the regulations governing network marketing are complex and vary from
state to state, the Company believes that it is in compliance with and has from
time to time modified its network marketing system to comply with various
regulatory authorities. The failure to comply in any one state could cause the
Company to pay fines as well as to stop doing business in that state, which
could influence the decisions of regulatory authorities in other states and
could have a material adverse effect upon the Company's results of operations.
FACILITIES/COMPUTER SYSTEM
The Company maintains its corporate headquarters at 1001 S.W. Gage
Boulevard in Topeka, Kansas. Its headquarters are located in the historical
mansion locally known as "Fleming Place." This Georgian colonial mansion was
built between 1924 and 1926 and has been a local landmark and focal point of the
City of Topeka for many years. The mansion is a three-story facility of
approximately 6,000 square feet. The Company leases its home office for a
monthly rental of $5,856. The lease expires December 31, 1998. The Company
anticipates the renewal of this lease.
The Company maintains a warehouse facility at 304 S.E. 21st Street in the
city of Topeka. This facility of approximately 10,000 square feet warehouse
space contains facilities for shipping and receiving and limited office space.
The warehouse facility is under lease for $1,000 per month, plus utilities, with
taxes shared with the landlord. The warehouse lease is on a month to month
basis.
The Company maintains a state-of-the-art computer network with the
capabilities for database management, accounting, purchasing, and full color
graphics production. The network server is new generation and can be updated
for higher speed processors as developed. Each home office staff member
maintains a workstation with a fully capable PC to be able to provide better
service to the IMAs and customers.
The Company's software for the "Trilogy Compensation Plan," was developed
by Michael C. Cooper. This system processes orders daily, computes commissions
and bonuses for thousands of IMAs and then generates daily bonus checks or daily
payments to the IMAs. This software was specifically developed for the Company.
The program allows the Company the ability to adapt, add product lines,
incentive programs, and other marketing requirements without delay associated
with outside programming services. The daily payment of commissions has been a
prominent recruiting tool of IMAs by the Company and its IMAs. The Company's
computer and software system are not affected by the "Year 2000" concerns.
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EMPLOYEES
As of May 15, 1998, the Company has 15 full-time employees and 2 part-time
employees. Currently, 5 full-time employees maintain the customer service
department and the product ordering department and are supported by 1 full-time
and 1 part-time employee in the warehouse and distribution facility of the
Company. The remaining full-time employees provide administrative, accounting,
clerical, and graphic services for the Company. None of the Company's employees
are covered by a collective bargaining agreement and the Company has no
employment agreement with any of its employees. The Company pays 75% of the
cost of health and dental insurance for all employees.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors of the Company currently have terms which will last until the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualified, subject to their prior death, resignation or removal.
The Company will maintain at least two independent Directors, persons not
employed by the Company or owning more than 5% of the Company's Common Stock.
Officers serve at the discretion of the Board of Directors. Other than Mr.
Dahms is the nephew of Mr. Carter, there are no family relationships among any
of the Company's directors and executive officers.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James H. Carter 70 Chairman of the Board of Directors
Michael C. Cooper 43 President, Chief Executive Officer and
Director
Sheryl Tasker 48 Secretary and Treasurer
Robert N. Kelly 55 Director
Richard W. Dahms 66 Director
Michael Muscatella 39 Director
</TABLE>
Mr. Carter became Chairman of the Board of Directors of the Company on
April 1, 1997. Mr. Carter has served as a consultant to the Company for the
past two years. Mr. Carter has served as Vice President, Marketing for the
State of Washington for TVC Marketing Company, which offered pre-paid legal
services. Mr. Carter was a co-founder of American Investors Life Insurance
Company in Topeka, Kansas, and served as it first president from 1965 to 1974.
Mr. Carter is a graduate of Central Missouri State University, Warrensburg,
Missouri, receiving his B.S. degree in 1952.
Mr. Cooper founded the Company in June, 1995. He is currently President
and Chief Executive Officer of the Company. Mr. Cooper is an experienced sales
trainer, author and motivational speaker on direct sales with network marketing
techniques. Prior to the formation of the Company, he served in various
capacities with network marketing companies, as follows: 1994, President of
Truly Special, Inc.; 1993, Executive Vice President of TeleFriend, Inc.; 1992,
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President of Network Institute, Inc.; 1991, National Director of Training of
American Gold Eagle, Inc., and 1989, Executive Vice President and founder of
National Energy Specialists Association. Mr. Cooper is the Kansas co-chairman
of the U.S. Speaker of the House Business Advisory Council for Tax Reform and
was selected, in 1998, as one of the National Republican Congressional
Businessmen of the Year. Mr. Cooper has been a director of the Company since
its organization in 1995.
Sheryl Tasker is the Secretary and Treasurer of the Company. Ms. Tasker
has been in the employment of the Company since March 1996, and prior thereto,
held various positions with public accounting firms in the Topeka, Kansas area.
Ms. Tasker received her business administration degree from Washburn University,
Topeka, Kansas in 1986.
Dr. Kelly is the Executive Director of the Kansas Independent College
Association, a position he has held since 1976. Dr. Kelly is an author of
various publications regarding higher education and student financial aid. Dr.
Kelly is currently a member of the National Advisory Committee on Student
Financial Assistance (U.S. Senate Appointee) for the U.S. Department of
Education; Chairman NAICU Commission on Financing Higher Education; Vice
Chairman, NAICU Task Force on Reauthorization. Dr. Kelly received his Ph.D.
from the University of Kansas in 1974.
Mr. Dahms is engaged in the private practice of law in Andrew County,
Missouri. Mr. Dahms has been engaged in the practice of law in Missouri since
1956, and has served as the Assistant Attorney General of Missouri, Assistant
City Counselor of the City of St. Joseph, Missouri, Assistant Prosecuting
Attorney Buchanan County, Missouri, Judge of the Probate Court of Buchanan
County, Missouri, Public Defender for the Fifth Judicial Circuit of Missouri.
Mr. Dahms is a graduate of Central Missouri State University in Warrensburg,
Missouri, receiving his Business Administration degree in 1953, and is a
graduate and received his Juris Doctorate degree from the University of
Missouri, Columbia, Missouri in 1956.
Dr. Muscatella is a practicing doctor of podiatric medicine in Champaign,
Illinois. Dr. Muscatella is a diplomat of the American Board of Podiatric
Surgery and a fellow of the American College of Foot Surgeons. He has served on
the faculty at the University of Illinois, College of Medicine, as past medical
director of the Innman, Champaign, Illinois, and was on the attending staff of
Covenant Medical Center, Urbana, Illinois and Kirby Hospital, Monticello,
Illinois. Dr. Muscatella is a member of the American Podiatric Medical
Association, the Illinois Podiatric Medical Association, and has received the
Williams & Wilkins Award for Academic & Clinical Excellence in Surgery. Dr.
Muscatella is listed in Who's Who among physicians. Dr. Muscatella is a Board
member of Champaign County Public Health Board and a member of the financial
committee of the Development Services Center. Dr. Muscatella received his
Doctorate of Podiatric Medicine - Cum Laude from the Dr. W. M. Sholl College of
Podiatric Medicine in 1987, and served his residency at Central Community
Hospital of Chicago.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. Messrs. Kelly and Muscatella serve on the Audit
Committee and Messrs. Kelly and Dahms serve on the Compensation Committee.
James H. Carter, Chairman of the Board, serves as a member of each committee.
The duties of the Audit Committee will be to recommend to the entire Board of
Directors the selection of independent certified public accountants to perform
an audit of the financial statements of the Company, to review the activities
and report of the independent certified public accountants, and to report the
results of such review to the entire Board of Directors. The Audit Committee
will also monitor the internal controls of the Company. The duties of the
Compensation Committee will be to provide a general review of the Company's
compensation and benefit plans to ensure they meet the corporate objectives and
to administer or oversee the Company's stock option plan, if adopted. In
addition, the Compensation Committee will review the compensation of the
officers of the Company and the recommendations of the President on (i)
compensation of all employees of the Company and (ii) adopting and changing
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major Company compensation policies and practices. The Compensation Committee
will report its recommendations to the entire Board of Directors for approval.
PROCEEDINGS INVOLVING DIRECTORS AND EXECUTIVE OFFICERS
Mr. Cooper and Melvin McCall, a former President and Director of the
Company, were associated with Truly Special, Inc., a network sales organization,
whose officers, affiliates and others were subject to proceedings brought by the
Securities Commissioner for the State of Kansas and by the Attorney General of
the State of Kansas. Messrs. Cooper and McCall were named as individual
respondents in both of these actions.
On December 21, 1994, under Docket No. 95E044, the Securities Commissioner
of Kansas issued an Emergency Cease and Desist Order against Truly Special,
Inc., its officers and its affiliates and certain officers and employees,
including Messrs. Cooper and McCall, ordering that all of the respondents
immediately cease and desist in affecting or transacting sales of securities of
Truly Special, Inc., certain of its affiliates or the securities of any other
person or issuer unless and until such securities have been registered under the
Kansas Securities Act or unless such securities are specifically exempt from the
registration requirements of the Kansas Securities Act. The Order also demands
that such persons be duly licensed as broker/dealers or agents in the sale of
such securities, if applicable. The Order allowed for a request of hearing on
the allegations for a 30-day period of time. Messrs. Cooper and McCall did not
contest the issuance of the Order of the Securities Commissioner of Kansas and
such Order remains in effect as regards any activities in the offer and sale of
securities in the State of Kansas. There are no reporting obligations by the
respondents to the Securities Commissioner of Kansas.
On April 30, 1996, Messrs. Cooper and McCall entered into a Journal Entry
of Consent Judgment in Case No. 94-CV-1429, filed in the District Court of
Shawnee County, Kansas, styled "State of Kansas, ex rel. , Carla J. Stovall,
Attorney General, Plaintiffs v. Truly Special, Inc. et al., Defendants."
Pursuant to the consent judgment, Messrs. Cooper and McCall and the Attorney
General, in lieu of further investigating or continuing the action, acquiesced
and accepted the consent judgment with respect to acts and practices alleged in
the lawsuit of the violations of the Kansas Consumer Protection Act. The
consent judgment entered does not deem the consenting defendants to admit a
violation of the Kansas Consumer Protection Act. Pursuant to the Order, the
Attorney General of Kansas and Messrs. Cooper and McCall agreed and stipulated
that (i) the promotion and implementation of a referral sales scheme employed by
Truly Special, Inc. constituted deceptive acts in violation of the Kansas
Consumer Protection Act; (ii) the failure to explain market saturation and its
impact on future earnings in oral or written presentations by Truly Special,
Inc.'s sales scheme constituted deceptive acts in violation of the Consumer
Protection Act; (iii) Messrs. Cooper and McCall agreed to refrain from and be
permanently enjoined from engaging in such acts and practices in violation of
the Kansas Consumer Protection Act; (iv) Messrs. Cooper and McCall agreed to pay
reasonable expenses and investigation fees to the Office of the Attorney General
in the amount of $1,500 each and to pay a civil penalty in the amount of $1,000
each; and, (v) Messrs. Cooper and McCall agreed to disclose the consent judgment
to current and future employees, agents and representatives for a period of two
(2) years from the date of its execution.
Messrs. Cooper and McCall entered into the consent judgment separate and
distinct from any other defendants in the case. Mr. McCall resigned all
positions with the Company in February, 1997.
As a result of these proceedings, Mr. Cooper has agreed with the Company
that prior to any activity which may involve the offer or sale of a security
and, as it relates to the Company's business, regarding all materials, business
plans, marketing and other concepts of the Company's business, such transactions
will be reviewed by competent legal counsel, knowledgeable in securities and
consumer protection laws.
28
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Restated Articles of Incorporation and Bylaws designate
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and includes other items.
The Company's of Restated Articles of Incorporation and Bylaws also contain
extensive indemnification provisions, which permit the Company to indemnify its
officers and directors to the maximum extent provided by Nevada law.
RESTRICTED TRANSACTIONS
The Company's Restated Articles of Incorporation provide that, except by
resolution of the Board of Directors having approved a memorandum of
understanding with respect to and substantially consistent with such
transactions, no major stockholder (a major stockholder being a corporation,
person or other entity which is the beneficial owner, directly or indirectly, of
more than ten percent (10%) of the outstanding shares of the stock of the
Company normally entitled to vote in the election of directors) may be a party
to a (i) merger or consolidation of the Company; (ii) issuance of any securities
of the Company; (iii) the sale lease or exchange of all or a substantial part of
the assets of the Company (except assets having an aggregate fair market value
of less than $1,000,000); (iv) the sale, lease or exchange to the Company in
exchange for securities of the Company of any assets of a major stockholder
(except assets having an aggregate fair market value of less than $1,000,000);
(v) a loan from the Company or a guarantee by the Company; and (vi) the use of
any assets of the Company as collateral or compensating balances, unless
approved by an eighty percent (80%) vote of all the outstanding shares of each
class of stock of the Company normally entitled to vote in election of
directors. This restrictive provision in the Restated Articles of Incorporation
of the Company cannot be changed without an eighty percent (80%) vote of the
outstanding shares of each class of stock of the Company normally entitled to
vote in election of directors.
The Company has undertaken with the Securities Commissioner of Kansas that
any future material affiliated transactions and loans made with any Officer,
Director, or person owning in excess of 5% of the Common Stock of the Company
will be made or entered into on terms that are no less favorable to the Company
than those that could be obtained from unaffiliated third parties and; that, any
future material affiliated transactions and loans, and any forgiveness of loans,
must be approved by majority of the Company's independent Directors who do not
have an interest in the transaction and who have had access, at the Company's
expense, to the Company's or independent legal counsel.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the President and Chief Executive Officer of the Company for the
fiscal year ended December 31, 1997. No executive officer of the Company
received a total annual salary and bonus exceeding $100,000 during such period.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-----------------------------
OTHER ANNUAL ALL OTHER
NAME SALARY COMPENSATION COMPENSATION
---- ------- ------------ ------------
<S> <C> <C> <C>
Michael C. Cooper $28,662 $55,773(1) $ 5,509(2)
<FN>
- --------------------
(1) Consists of commissions paid during 1997.
(2) Consists of amounts paid for health insurance during 1997.
</TABLE>
29
<PAGE>
DIRECTOR COMPENSATION
The Directors of the Company are entitled to receive from the Company
reimbursement of expenses for their services as directors. Under the Company's
standard arrangement for compensation for directors, outside directors are
entitled to receive a fee for each board meeting which amount is determined at
that board meeting. Directors serving on committees will be entitled to expense
reimbursement and a fee as determined by the Board of Directors. As of the date
of this Offering, no fees or expenses have been paid to any Director. It may be
anticipated that upon completion of the Offering, fees and expenses to Directors
will be paid at the discretion of the Board of Directors. Directors of the
Company, whether or not employees of the Company, will also be entitled to
receive options to acquire shares of Common Stock under a resolution in effect
by the Board of Directors. See "Benefit Plans."
BENEFIT PLANS
Directors' Options. The Company, by resolution of its Board of Directors
on April 1, 1997, authorized stock options to persons serving as members of the
Board of Directors of the Company. Such stock options are available to existing
directors or to persons who may become members of the Board of Directors of the
Company in the future and so long as said resolution is in effect. Under the
terms of the resolution, each director is authorized to purchase 1,000,000
shares of the Common Stock of the Company at a price of $0.02 per share. The
stock options may be exercised for 200,000 shares of Common Stock during each
year and stock options will vest in the amount of 200,000 shares of Common Stock
per year for each year that a person serves as a director of the Company. Such
options must be exercised within five years from the date the director first
took office.
CERTAIN TRANSACTIONS
The Company was founded through the efforts of Michael C. Cooper, John
Meadows, Melvin McCall, and Joe Boiros in June, 1995. Mr. Meadows is no longer
associated with the Company due to his death in 1997 and Mr. McCall resigned
from the Company in 1997 and reconveyed all of the Common Stock held by him to
the Company. Mr. Boiros is not involved in the management of the Company. Mr.
Cooper is the President and Chief Executive Officer and a Director of the
Company. These persons may be considered "promoters" of the Company as that
term is defined in the Securities Act of 1933, as amended. Upon the formation
of the Company, the promoters paid a total $1,000 to the Company and Mr.
Meadows received 5,031,544 shares, Melvin McCall received 5,031,444 shares, Mr.
Boiros received 2,515,722 shares, and Mr. Cooper received 88,052,018 shares.
During 1995, Michael C. Cooper, the Company's President, Chief Executive
Officer and Director, loaned the Company $55,652 at an interest rate of ten
percent (10%). This loan was repaid from operating funds of the Company, with
interest, in March, 1996.
Commencing in 1996, the Company leased certain software for $5,000 per
month from a company owned by Mr. Cooper. For the year ended December 31, 1996,
the software rental expense was $60,000. During 1997, the Company paid $20,100
under this lease arrangement. During 1997, Mr. Cooper conveyed all of his
right, title and interest of the software to the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1998 and after giving
affect to the transactions contemplated by this Offering, and the 10,063.0878197
for 1 stock split effective March 13, 1998, the beneficial ownership of Common
30
<PAGE>
Stock by: (i) each person known by the Company to be the beneficial owner of
more than five percent (5%) of the Company's Common Stock; (ii) each director
of the Company; and (iii) all directors and executive officers as a group. Each
stockholder identified in the table possesses sole voting and investment power
with respect to his shares:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PERCENTAGE AFTER PERCENTAGE AFTER
PRIOR TO OFFERING MINIMUM OFFERING MAXIMUM OFFERING
NAME AND ADDRESS -------------------------- ----------------- ----------------
OF BENEFICIAL OWNER NUMBER PERCENT
------------------- ---------- ---------
<S> <C> <C> <C> <C>
Michael C. Cooper(1)(7) 83,220,474 64.04% 52.03% 46.25%
James H. Carter(2)(7) 10,263,088 7.90% 6.42% 5.70%
Robert N. Kelly(3)(7) 200,000 --------- ---------- --------
Richard Dahms (4) (7) 200,000 --------- ---------- --------
Michael Muscatella(5)(7) 200,000 --------- ---------- --------
Don W. John Living Trust (6) 17,811,665 13.71% 11.14% 9.90%
All executive officers and
directors as a group
(5 persons) 94,083,562 72.40% 58.82% 52.29%
</TABLE>
- --------------------
(1) Mr. Cooper's address is 2635 N.W. 86th Street, Topeka, Kansas 66618.
(2) Mr. Carter's address is 6630 S.W. Hamptonshire, Topeka, Kansas 66614.
(3) Dr. Kelly's address is 1501 S.W. College Avenue, Topeka, Kansas 66604.
(4) Richard Dahms' address is 12128 Walden View, St. Joseph, Missouri 64505.
(5) Dr. Muscatella's address is 2613 Worthington Drive, Champaign, Illinois
61821. Does not include 503,154 shares held by the Laura L.
Muscatella Trust, which Dr. Muscatella's wife possesses sole voting and
investment power.
(6) Don W. John Living Trust address is 7209 N. W. Sprucewood, Lawton, Oklahoma
73505.
(7) Includes the currently exercisable portion of Director's Stock Options held
by such person amounting to 200,000 shares of Common Stock each.
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the capital stock of the
Company does not purport to be complete and is subject to, and qualified in its
entirety by, the Company's Restated Articles of Incorporation and Bylaws, which
are included as exhibits to the Registration Statement of which this Prospectus
is a part, and by the provisions of applicable law.
The total amount of authorized capital stock of the Company consists of
500,000,000 of Common Stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock of the par value of $0.01 per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. There is no cumulative voting. The
shares of Common Stock are neither redeemable nor convertible and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. In the event of the liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
holders of preferred stock then outstanding, if any. Holders of shares of
Common Stock are entitled to receive such dividends as the Board of Directors
may declare in its discretion out of funds legally available therefor.
31
<PAGE>
As of May 1, 1998, there were 128,943,376 shares of Common Stock
outstanding, which were held of record by 22 shareholders. The issued and
outstanding shares of Common Stock are, and all of the shares of Common Stock
being offered will be upon payment therefor, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of shares of
preferred stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of preferred stock would reduce the
amount of funds available for the payment of dividends on shares of Common
Stock. Holders of shares of preferred stock may be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company before any payment is made to the holders of shares of Common Stock.
Under certain circumstances, the issuance of shares of preferred stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities, or the removal of incumbent management. The Board of Directors of
the Company, without shareholder approval, may issue shares of preferred stock
with voting and conversion rights which could adversely affect the holders of
shares of Common Stock. There are no shares of preferred stock outstanding in
the Company.
LIMITATIONS ON CHANGE OF CONTROL
Certain provisions of the Restated Articles of Incorporation and Bylaws
could make more difficult the acquisition of the Company be means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company to first negotiate with the
Company. The Company believes that the benefits of increased protection of the
Company's potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure the Company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
EIGHTY PERCENT (80%) VOTE REQUIREMENT
The Company's Restated Articles of Incorporation provide that unless the
Board of Directors of the Company shall by resolution approve a Memorandum of
Understanding with a major stockholder (a major stockholder being a corporation,
person or other entity which is the beneficial owner, directly or indirectly, of
more than ten percent (10%) of the outstanding shares of the stock of the
Company normally entitled to vote in the election of directors), certain
transactions with a major stockholder will require the affirmative vote of
eighty percent (80%) of the outstanding shares of each class of stock of the
Company normally entitled to vote in elections of directors. Such transactions
covered by this requirement are (i) the merger or consolidation of the Company
or any subsidiary of the Company with or into any major stockholder; (ii) the
issuance of any securities of the Company to a major stockholder for cash; (iii)
the sale, lease or exchange of all or any substantial part of the assets of the
Company to any major stockholder (except assets having an aggregate fair market
value of less than $1,000,000); (iv) the sale, lease or exchange to the Company
or any subsidiary thereof, in exchange for securities of the Company, of any
assets of any major stockholder (except assets having an aggregate fair market
value of less than $1,000,000); (v) a loan from the Company or any subsidiary
thereof to a major stockholder or a guarantee by the Company or any subsidiary
of any obligation of a major stockholder; and (vi) the use of any assets of the
Company or any subsidiary thereof as collateral or compensating balances,
directly or indirectly, for any obligation of a major stockholder.
32
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Articles of Incorporation limits the liability of directors to
the full extent permitted by the general corporation law of the State of Nevada.
In addition, the Restated Articles of Incorporation provide that the Company
shall indemnify directors and officers of the Company to the full extent
permitted by such law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Securities Transfer & Trust, Inc., Denver, Colorado.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
The Company will, subject to the sale of the Common Stock offered hereby,
register its Common Stock under the provisions of Section 12(g) of the Exchange
Act, and that it will use its best efforts to continue to maintain such
registration. Such registration will require the Company to comply with
periodic reporting, proxy solicitation, and certain other requirements of the
Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, assuming that the Maximum Offering of
shares are sold, the Company will have outstanding 178,943,376 shares of Common
Stock, assuming no exercise of outstanding stock options. Of these shares, the
shares of Common Stock sold in this Offering to persons other than "affiliates"
of the Company, as that term is defined in Rule 144 of the Securities Act of
1933, as amended (the "Securities Act"), will be freely tradable. The remaining
128,943,376 shares of Common Stock (the "Restricted Shares") were acquired in
transactions exempt from registration under the Securities Act and may not be
resold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, such as Rule 144 of the Securities
Act. Of these Restricted Shares, 117,647,560 shares will have been held by
their owners for more than one year on or before the closing of this Offering
and thus will have satisfied the holding period under Rule 144. Sales of
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Common Stock.
SALES OF RESTRICTED SHARES
In general, under Rule 144, as currently in effect, a person who has
beneficially owned restricted securities for at least one year, or any person
who may be deemed an affiliate of the Company, is entitled, subject to certain
conditions, to sell within any three-month period a number of shares which does
not exceed the greater of (i) 1% of the Company's then outstanding shares of
Common Stock (approximately 1,789,433 shares immediately after consummation of
the Offering, assuming the sale of all of the shares offered hereby and assuming
no exercise of outstanding stock options) or (ii) the average weekly trading
volume of the Common Stock in the over-the-counter market during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain manner-of-sale provisions, notice requirements and the availability of
public information about the Company.
33
<PAGE>
LOCK-UP AGREEMENTS
Michael C. Cooper and James H. Carter, and the Don W. John Living Trust,
together controlling approximately 62% of the Company's outstanding Common
Stock, assuming the Maximum Offering shares are sold, have entered into an
impoundment agreement, as undertaken with the Securities Commissioner of Kansas,
to impound 83,220,474 shares, 10,263,088 shares, and 12,271,562 shares ,
respectively with Central Bank & Trust Co., Hutchinson, Kansas. The impoundment
agreement provides, in general, that such shares shall remain in escrow until
the sixth (6th) anniversary of the effective date of this Offering. Thereafter,
on the sixth (6th), seventh (7th), eighth (8th) and ninth (9th) anniversary
dates 25% of such shares may be released from escrow. All of the shares may be
released if (1) after two consecutive fiscal years, the Company has minimum
annual net earnings per share equal to 5% of the Public Offering Price or (2)
after five consecutive fiscal years from the date of this Offering, if the
average earnings net per share are equal to 5% or more of the Public Offering
Price or (3) after one year, if for a term of at least ninety (90) consecutive
trading days following such one year period and for thirty trading days prior to
the requested termination date of the escrow, the shares of the Company are
traded in a reliable public market (a recognized trading exchange) at least one-
hundred seventy-five percent (175%) of the Initial Offering Price. Shares held
in escrow shall have all voting rights and are entitled to dividends, however,
dividends are impounded with the Escrow Agent under the agreement. Such
impounded shares do not have any right, title, interest or participation in the
assets of the Company in the event of dissolution, liquidation, merger,
consolidation, reorganization, sale of assets, exchange or any other transaction
or proceeding which contemplates results of the distribution of the assets of
the issuer, until the holders of all shares of the Company not escrowed have
received or have irrevocably set aside for them, an amount equal to the purchase
price per share in the Public Offering, as adjusted for stock splits and stock
dividends. A merger, consolidation or reorganization may proceed on terms and
conditions different than those stated above if a majority of shares held by
persons other than those whose shares are impounded approve the terms and
conditions by vote at a meeting held for such purpose. The shares so held in
escrow may be transferred by will or pursuant to laws of descent and
distribution or through appropriate legal proceedings without the consent of the
Securities Commissioner of Kansas but such shares shall remain in escrow and
subject to the impoundment agreement. The impoundment agreement provides for
the use of such shares in the event of death of the depositor and transfers by
gift to family members. During the term of the impoundment agreement and until
all shares are released from the escrow thereunder, the terms of such agreement
shall be disclosed in any subsequent prospectus, annual reports, proxy
statements, or other disclosure materials used for the benefit of public
investors in the Common Stock of the Company.
LIMITED PUBLIC TRADING
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of such shares for sale in the
public will have on the market price prevailing from time to time. No
broker/dealer has made any commitment to make a market in the shares of Common
Stock. Sales of substantial amounts of Common Stock following the Offering
could adversely affect the market price of the Common Stock. (See "Risk
Factors" and "Underwriting.")
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
<PAGE>
PLAN OF DISTRIBUTION
SALE OF COMMON STOCK
The Common Stock will be offered by the Company through James H. Carter,
the Company's Chairman of the Board, who will receive no commission for the sale
of the shares. The Company anticipates that in certain states where it wishes
to sell its Common Stock the shares will have to be sold through broker/dealers
registered in those states. Subject to the terms and conditions of a Selling
Agreement (the "Selling Agreement"), a copy of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part, the Company will
agree with participating broker/dealers, which are members of the National
Association of Securities Dealers, Inc., to offer and sell the Common Stock
offered hereby on a "best efforts" basis at the public offering price of $0.10
per shares. The Offering Period will extend for a period of 90 days from the
date of the Prospectus, unless the Company, at its own discretion, extends the
Offering Period for an additional period of 90 days (the "Offering Period").
All proceeds from the sale of shares of Common Stock will be transmitted
promptly to an escrow account at Central Bank & Trust Co., Hutchinson, Kansas.
In the event that 30,000,000 shares of Common Stock are not sold within the time
provided herein, all funds will be promptly returned to subscribers with
interest earned thereon and without any deduction for commissions or expenses.
The purchasers will not receive stock certificates until the termination of the
Offering. During the selling period, the subscribers will have no right to
demand the return of their subscriptions. The Company does not intend to offer
its Common Stock over the Internet.
There is no agreement with management, principal shareholders or other
affiliates regarding their purchases of Common Stock in the Offering. Any
purchases by such persons will be on the same terms as that of the public
investors. Any Common Stock purchased by such persons will not be calculated in
meeting their requirement for the Minimum Offering.
Contingent upon the sale of 30,000,000 shares of the Company's Common
Stock, the Company will pay any participating broker/dealer a discounted
commission of nine percent of the public offering price, and a commission of six
and one-half percent on sales of the Company's Common Stock to a purchaser
introduced by the Company to the participating broker/dealer and accepted by it
for sale of shares.
The Company will pay all expenses in connection with qualifying the shares
of Common Stock for sale under such jurisdictions as participating
broker/dealers may designate and to pay participating broker/dealers their
actual out-of-pocket expenses if the Offering is terminated. The Selling
Agreement provides for reciprocal agreements of indemnity between the Company
and the participating broker/dealer as to certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
Broker/dealers participating in this Offering through the Selling Agreement
will confirm that sales will not be made to any account over which they exercise
discretionary authority.
DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock
has been determined arbitrarily by the Company and bears no relationship to its
assets, capitalization, or other criteria of value. Among the factors
considered in determining the public offering price were prevailing market
conditions, the results of operations of the Company in recent periods,
35
<PAGE>
estimates of the business potential of the Company, the number of IMAs likely to
purchase shares of its Common Stock, and the present state of the Company's
development, and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Michael G. Quinn, Esq., Wichita, Kansas.
EXPERTS
The financial statements for the years ended December 31, 1997 and 1996 and
the period of June 17, 1995 (date of inception) to December 31, 1995 have been
included herein in reliance upon the report of Berberich Trahan & Co., P.A.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form SB-2 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and financial schedules thereto. Reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Common Stock offered hereby.
Any statements contained herein concerning the provisions of any document are
not necessarily complete, and in each such instance reference is made to the
copy of such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and such exhibits and schedules, copies of which
may be examined or copied at the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and at CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 or through the Commission's Web site at
www.sec.gov.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
36
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets at December 31, 1996 and 1997, and
March 31, 1998 (unaudited) F-3
Statements of Operations for Period From June 17, 1995 (Date of
Inception) to December 31, 1995, Years Ended December 31
1996 and 1997, and Three Months Ended March 31, 1997
and 1998 (Unaudited) F-4
Statements of Changes in Stockholders' Equity for Period From
June 17, 1995 (Date of Inception) to December 31, 1995,
Years Ended December 31, 1996 and 1997, and Three
Months Ended March 31, 1997 and 1998 (Unaudited) F-5
Statements of Cash Flows for Period From June 17, 1995 (Date of
Inception) to December 31, 1995, Years Ended December 31,
1996 and 1997, and Three Months Ended March 31, 1997
and 1998 (Unaudited) F-6
Notes to Financial Statements F-7 - F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Renaissance Designer Gallery Products, Inc.:
We have audited the accompanying balance sheets of Renaissance Designer Gallery
Products, Inc. as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1997 and 1996 and for the period from June 17, 1995 (Date of Inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Renaissance Designer Gallery
Products, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 and
for the period from June 17, 1995 (Date of Inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
BERBERICH TRAHAN & CO., P.A.
Topeka, Kansas
February 3, 1998 (except for Note 7, which is dated March 13, 1998)
F-2
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1996 1997 1998
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 150,336 $ 193,333 $ 317,959
Inventory 261,319 182,247 210,914
Income tax receivable (Note 2) - 67,000 58,655
Investment in precious metals 17,815 - -
Other receivable - 13,974 18,026
----------- ----------- -----------
Total current assets 429,470 456,554 605,554
----------- ----------- -----------
Property and equipment:
Vehicles 39,384 24,882 24,882
Office furniture and equipment 92,617 105,270 134,142
----------- ----------- -----------
132,001 130,152 159,024
Less accumulated depreciation and amortization 18,579 42,225 (49,681)
----------- ----------- -----------
113,422 87,927 109,343
Deferred registration costs - - 35,730
Other assets 700 502 452
----------- ----------- -----------
$ 543,592 $ 544,983 $ 751,079
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 147,891 $ 103,480 $ 94,526
Accrued expenses - 24,527 45,709
Accrued income taxes (Note 2) 83,000 - -
----------- ----------- -----------
Total current liabilities 230,891 128,007 140,235
----------- ----------- -----------
Stockholders' equity (Note 5):
Preferred stock, $ .01 par value, 10,000,000 shares
authorized; -0- shares issued and outstanding - - -
Common stock, $ .01 par value, 500,000,000 shares
authorized, 109,672,563 issued and outstanding
at December 31, 1996, and 130,000,000 issued
and outstanding, of which 1,056,624 are held
as treasury stock at December 31, 1997, and
March 31, 1998 1,096,726 1,300,000 1,300,000
Additional paid-in capital (deficit) (916,026) (476,300) (476,300)
Retained earnings (deficit) 132,001 (385,724) (191,856)
----------- ----------- -----------
312,701 437,976 631,844
----------- ----------- -----------
Less treasury stock - at cost - (21,000) (21,000)
----------- ----------- -----------
Total stockholders' equity 312,701 416,976 610,844
----------- ----------- -----------
Commitments and contingencies (Notes 3 and 5)
----------- ----------- -----------
$ 543,592 $ 544,983 $ 751,079
=========== =========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
June 17, 1995
(Date of Year Ended Three Months Ended
Inception) to --------------------------- ---------------------------
December 31, December 31, December 31, March 31, March 31,
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales, net of returns and allowances $ 340,108 $ 3,730,220 $ 1,217,835 $ 276,711 $ 889,147
----------- ----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of goods sold 92,384 709,675 413,809 115,312 90,929
Commissions expense 119,874 1,315,368 460,885 115,277 306,982
Other operating, selling and
administrative expenses 113,010 1,482,756 929,437 313,439 299,116
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses 325,268 3,507,799 1,804,131 544,028 697,027
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 14,840 222,421 (586,296) (267,317) 192,120
Other income (expense):
Interest income, net 107 3,561 1,571 1,364 1,748
Unrealized loss on investments - (25,928) - - -
----------- ----------- ----------- ----------- -----------
107 (22,367) 1,571 1,364 1,748
----------- ----------- ----------- ----------- -----------
Income (loss) before income tax 14,947 200,054 (584,725) (265,953) 193,868
Income tax refund (expense) (Note 2) - (83,000) 67,000 67,000 -
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 14,947 $ 117,054 $ (517,725) $ (198,953) $ 193,868
=========== =========== =========== =========== ===========
Income (loss) per share:
Basic $ .0001 $ .0011 $ (.0043) $ (.0017) $ .0015
=========== =========== =========== =========== ===========
Diluted $ .0001 $ .0011 $ (.0043) $ (.0017) $ .0015
=========== =========== =========== =========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Paid-In Retained
Common Stock Capital Earnings Treasury
Shares Amount (Deficit) (Deficit) Stock Total
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 17, 1995 - $ - $ - $ - $ - $ -
Issuance of common stock 100,630,878 1,006,309 (1,005,309) - - 1,000
Net income - - - 14,947 - 14,947
----------- ----------- ----------- ----------- ------------ ------------
Balance, December 31, 1995 100,630,878 1,006,309 (1,005,309) 14,947 - 15,947
Issuance of common stock 9,041,684 90,417 89,283 - - 179,700
Net income - - - 117,054 - 117,054
----------- ----------- ----------- ----------- ------------ ------------
Balance, December 31, 1996 109,672,562 1,096,726 (916,026) 132,001 - 312,701
Issuance of common stock 27,170,338 271,703 407,297 - - 679,000
Common stock repurchased
and reissued (6,842,900) (68,429) 32,429 - - (36,000)
Purchase of 1,056,624 shares
of common stock - - - - (21,000) (21,000)
Net loss - - - (517,725) - (517,725)
----------- ----------- ----------- ----------- ------------ ------------
Balance, December 31, 1997 130,000,000 1,300,000 (476,300) (385,724) (21,000) 416,976
Net income (unaudited) - - - 193,868 - 193,868
----------- ----------- ----------- ----------- ------------ ------------
Balance, March 31, 1998
(unaudited) 130,000,000 $ 1,300,000 $ (476,300) $ (191,856) $ (21,000) $ 610,844
=========== =========== =========== =========== ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
June 17, 1995
(Date of Year Ended Three Months Ended
Inception) to ------------------------- -------------------------
December 31, December 31, December 31, March 31, March 31,
1995 1996 1997 1997 1998
(Unaudited)
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,947 $ 117,054 $(517,725) $(198,953) $ 193,868
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,449 17,430 27,227 7,058 7,506
Unrealized loss on investments - 25,928 - - -
Loss on sale of vehicle - - 3,619 - -
Changes in assets and liabilities:
Inventories (32,204) (229,115) 79,072 80,229 (28,667)
Other receivable - - (13,974) - (4,052)
Income tax receivable - - (67,000) (54,000) 8,345
Accounts payable 2,074 145,817 (44,411) (121,000) (8,954)
Accrued expenses - - 24,527 - 21,182
Accrued income taxes - 83,000 (83,000) (83,000) -
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in)
operating activities (13,734) 160,114 (591,665) (369,666) 189,228
Cash flows used for investing activities:
Purchase of vehicles and office equipment (15,784) (116,217) (12,653) (8,152) (28,872)
Proceeds from sale of vehicle - - 7,500 - -
Organization cost (1,000) - - - -
Decrease (increase) in investment - (43,743) 17,815 (927) -
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in)
investing activities (16,784) (159,960) 12,662 (9,079) (28,872)
----------- ----------- ----------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock 1,000 179,700 643,000 320,000 -
Purchase of treasury stock - - (21,000) - -
Increase (decrease) in due to officer 55,052 (55,052) - - -
Deferred registration costs - - - - (35,730)
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in)
financing activities 56,052 124,648 622,000 320,000 (35,000)
----------- ----------- ----------- ---------- ----------
Net increase in cash 25,534 124,802 42,997 (58,745) 124,626
Cash, beginning of period - 25,534 150,336 150,336 193,333
----------- ----------- ----------- ---------- ----------
Cash, end of period $ 25,534 $ 150,336 $ 193,333 $ 91,591 $ 317,959
=========== =========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 131 $ 3,345 $ 1,893 $ - $ 50
=========== =========== ========== ========== ==========
Cash paid (refunded) during the period for
income taxes $ 14,947 $ - $ 70,000 $ - $ (8,345)
=========== =========== ========== ========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1 - Summary of Significant Accounting Policies
------------------------------------------
Organization
------------
Renaissance Designer Gallery Products, Inc. (the Company) was formed on
June 17, 1995 and began developing a national network marketing sales
organization through the recruitment of independent sales representatives
throughout the country. The Company's products include fine jewelry, fine
art and collectibles, gourmet food, high fiber, low fat cookies, and
truck/utility sport vehicle accessories. In November 1997, the Company
formed a new marketing division called Advantage International Marking
(AIM). AIM's sole purpose is to market the Tax Advantage System, which is
designed to identify and maximize income tax deductions for anyone involved
in a home-based business. The Company is highly dependent upon its
national network of independent sales representatives for product sales.
The Company's national headquarters and inventory warehouse are located in
Topeka, Kansas.
Interim Financial Information (Unaudited)
-----------------------------------------
The accompanying balance sheet at March 31, 1998 and the accompanying
unaudited statements of income and cash flows for the three month periods
ended March 31,1998 and March 31, 1997 have been prepared by the Company
without an audit. In the opinion of management, all adjustments considered
necessary for a fair presentation of the results for the interim periods
have been included. All adjustments were of a normal and recurring nature.
Results for interim periods are not necessarily indicative of the results
that may be expected for a full year.
Inventories
-----------
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. Inventories consist of finished
goods.
Investments
-----------
Investments in precious metals are valued at market and are net of amounts
borrowed against the precious metals. These investments were sold in 1997
at approximately the December 31, 1996 book value.
F-7
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
1 - Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of five years.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in income for the period. The cost of maintenance
and repairs is charged to expense as incurred; significant renewals and
betterments are capitalized. Depreciation charged to expense for the
period from June 17, 1995 (Date of Inception) to December 31, 1995 and for
the years ended December 31, 1996 and 1997 was $ 1,349, $ 17,230 and
$ 27,029, respectively.
Revenue Recognition
-------------------
Revenues are recognized at the time the sale is made.
Income (Loss) Per Share - Basic and Diluted
-------------------------------------------
In February 1997, the Financial Accounting Standards Board issued FAS No.
128, Earnings Per Share, effective for the Company in the 1997 calendar
year. FAS 128 simplified income (loss) per share calculations and requires
the reporting of "basic" and "diluted" income (loss) per share to replace
the former primary and fully diluted income (loss) per share, respectively.
The Company has adopted FAS 128 for 1997 annual results and restated all
previously reported income (loss) per share. There was no change in
diluted income (loss) per share compared to fully diluted income (loss) per
share.
Basic income (loss) per share is based on the weighted average number of
shares of common stock outstanding, as adjusted for the stock split
described in Note 7. Diluted income (loss) per share is based on the
weighted average number of shares of common stock and common stock
equivalents (stock options) outstanding during the year, as adjusted for
the stock split in Note 7.
F-8
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
1 - Summary of Significant Accounting Policies (Continued)
Income (Loss) Per Share - Basic and Diluted (Continued)
A reconciliation of the numerators and the denominators of the basic and
diluted per-share computations is as follows:
<TABLE>
<CAPTION>
Period from June 17, 1995
(Date of Inception) to Year Ended Year Ended
December 31, 1995 December 31, 1996 December 31, 1997
Per- Per- Per
Earnings Shares Share Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------- ----------- ------ --------- ----------- ------ --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic income
(loss) per share
Income available
to common stock-
holders $14,947 100,630,878 .0001 $117,054 108,123,686 .0011 $(517,725) 120,173,814 .0043
Effect of dilutive
securities
Stock options - - - - - - - 1,333,333 -
--------- ----------- ------ --------- ----------- ------ --------- ----------- ------
Diluted earnings
per share
Income available to
common stock-
holders$ 14,947 100,630,878 .0001 $117,054 108,123,686 .0011 $(517,725) 121,507,147 .0043
========= =========== ====== ========= =========== ====== ========= =========== ======
</TABLE>
Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be a cash equivalent. At the balance sheet date, cash and cash
equivalents consist of checking and savings accounts at financial
institutions.
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 could differ from those
estimates.
F-9
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2 - Provision for Income Tax
------------------------
For the period June 17, 1995 to December 31, 1995, no taxes were provided
because of the limited amount of income. For the year ended December 31,
1996, $ 83,000 of current income taxes were provided.
A reconciliation of income tax expense and the amount computed by applying
the statutory federal income tax rate (34%) to income before income taxes
is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
-----------
<S> <C>
Taxes computed at federal statutory rate $ 70,000
State and local income taxes - net of Federal tax benefit 15,000
Other - net (2,000)
-----------
$ 83,000
===========
</TABLE>
In 1997, the Company has reflected, in the statement of operations, an
income tax refund of $ 67,000 representing the amount it is able to
carryback operating losses to 1996. At December 31, 1997, the Company has
reserved the potential tax benefit of approximately $ 115,000 relating to
operating loss carryforwards because the likelihood of realization could
not be established.
3 - Operating Leases
----------------
The Company leases office and warehouse space in Topeka, Kansas for $ 5,856
and $ 1,000 per month, respectively. The leases qualify as operating
leases. The office and warehouse space is leased on a month-to-month
basis. Rental expense was $ 25,527, $ 81,228 and $ 89,833 for the period
from June 17, 1995 (Date of Inception) to December 31, 1995, and years
ended December 31, 1996 and 1997, respectively.
4 - Related Party Transactions
--------------------------
Starting in 1996, the Company leased certain software for $ 5,000 per month
from another company that is owned by the chief executive officer of the
Company. For the year ended December 31, 1996, the software rental expense
was $ 60,000. During 1997, the Company paid $ 20,100 before terminating
the lease, and is utilizing the software without cost since that time.
F-10
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5 - Stock Option Plan
-----------------
The Company, by resolution of its Board of Directors on September 27, 1997,
authorized stock options to persons serving as members of the Board of
Directors of the Company. Such stock options are available to existing
directors or to persons who may become members of the Board of Directors of
the Company in the future and so long as said resolution is in effect.
Under the terms of the resolution, each current director is authorized to
purchase 1,000,000 shares of the common stock of the Company at a price of
$ .02 per share. Such stock options will vest in the amount of 200,000
shares of common stock per year for each year that a person serves as a
director of the Company. Such options must be exercised within five years
from the date the director first took office. At December 31, 1997,
5,000,000 options were outstanding of which 1,000,000 are exercisable at
December 31, 1997. However, none were exercised at December 31, 1997.
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. On December 31, 1995,
the Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FAS 123), which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, FAS 123
allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net earnings and pro forma earnings
per share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in FAS 123
had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of FAS 123.
Since the Company applies APB Opinion No. 25 in accounting for its plans,
no compensation cost has been recognized for its stock options issued to
employees in the financial statements. Had the Company recorded
compensation expense based on the fair value at the grant date for its
stock options under FAS 123, the Company's net earnings and earnings per
share on a diluted basis would have been reduced by approximately $ 2,500
with no effect on loss per share in 1997.
6 - Litigation
----------
In 1997, a lawsuit was filed against the Company alleging wrongful
termination under employment contracts. The plaintiff seeks declatory
judgment, compensatory and punitive damages in excess of $ 10,000. As of
February 15, 1998, the Company plans to settle the lawsuit for a nominal
amount and has accrued a liability for that amount.
F-11
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
7 - Stock Split
-----------
Through Board resolution, the Company effected a 10063.0878197 for 1 stock
split of the Company's common stock effective March 13, 1998. This stock
split has been reflected retroactively for all periods presented in the
accompanying financial statements and, accordingly, all applicable shares
and per share amounts have been restated to reflect the stock split. The
application of the stock split produces a deficit in the additional paid in
capital account since the Company retained the $ .01 par value for common
stock.
F-12
<PAGE>
PRODUCT LINE AFTER PRODUCT LINE
[PICTURE: TAX ADVANTAGE SYSTEM
TAX ADVANTAGE SYSTEM] - Workbook, Audio Tape Set (ref. to IRS Code)
Vehicle Log, Binder, Portfolio
Simple Recordkeeping System
- Renaissance Membership
Wholesale Product Catalogs, forms, etc.
- Personalized Business Plan
- Medical Reimbursement Contract
- Employment Contract
- Independent Contractor Agreement
FINE JEWELRY & WATCHES [PICTURE:
- - Rolex, Nobel & Croton Watches FINE JEWELRY & WATCHES]
- - Diamond Engagement Rings
- - 14K Italian Gold Chains
- - Tennis Braclets
[PICTURE: HOUSEHOLD ITEMS
HOUSEHOLD ITEMS] - Quality Stainless Steel Cookware
- Heavy Gauge Cutlery Sets
- Luggage, Brief Cases, Pen Sets
- Gold & Silver Plated Tea Sets & Serving Ware
TOOLS, ETC. [PICTURE:
- - Tool Kits TOOLS, ETC.]
- - Emergency Kits
- - Multi-Function Tools and Knives
- - Camping Gear and Cameras
<PAGE>
==========================================================
- ----------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY PARTICIPATING
BROKER/DEALER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY
ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 11
Dividend Policy 12
Capitalization 13
Dilution 13
Selected Financial and Operating Data 14
Management Discussion and Analysis
of Financial Condition and Results
of Operations 15
Business 20
Management 26
Certain Transactions 30
Principal Stockholders 30
Description of Capital Stock 31
Shares Eligible for Future Sale 33
Plan of Distribution 35
Legal Matters 36
Experts 36
Additional Information 36
Index of Financial Statement F-1
-------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ----------------------------------------------------------
==========================================================
<PAGE>
==========================================================
- ----------------------------------------------------------
UP TO 50,000,000 SHARES
OF COMMON STOCK
RENAISSANCE DESIGNER
GALLERY PRODUCTS, INC.
[LOGO]
----------
PROSPECTUS
----------
AUGUST , 1998
- ----------------------------------------------------------
==========================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Code confers broad powers upon corporations
incorporated in Nevada with respect to indemnification of any person against
liabilities incurred by reason of the fact that such person is or was an officer
or director against liability incurred in his official capacity with the
corporation including expenses and attorneys fees. Article TENTH of the
Restated Articles of Incorporation provides as follows:
"A. The Corporation shall have power to indemnify any person who
was or is a party or is threatened to made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the Corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent
of another corporation or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney fees), judgments, fines, and amounts
paid in settlement, actually and reasonably incurred by him in connection
with such action, suit or proceeding, if such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interest of the Corporation, and, with respect to any criminal
action or proceedings had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, or conviction, or on plea of nolo
contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and with respect to any criminal action or proceeding had
reasonable cause to believe that his conduct was unlawful.
B. The Corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, agent or employee of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney fees) actually and reasonably
incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the
Corporation and except that no indemnification shall be made in respect
to any claim, issue or manner as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extent that the
court in which such action or suite was brought shall determine upon
II-1
<PAGE>
application that despite the adjudication of liabilities but in view
of all the circumstances of the case, such persons is fairly and
reasonably entitled to indemnity for such expenses which the court shall
deem proper.
C. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections A and B, or in
defense of any claim, issue or matter therein he shall be indemnified
against expenses (including attorney fees) actually and reasonably
incurred by him in connection therewith.
D. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the
Board of Directors.
E. The indemnification provided by this section shall not be deemed
exclusive of any other right to which those seeking indemnification may
be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to his action in other capacities while holding such
office and shall continue as to a person who has ceased to be a
director, officer, trustee, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
F. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, trustee, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as
such whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this section."
The Selling Agreement, filed as Exhibit 1(a) to this Registration
Statement, provides for the indemnification by the Company to any participating
broker/dealer in the sale of the Common Stock, and each person, if any, who
controls the broker/dealer against certain liabilities and expenses, as stated
therein, which may include liabilities under the Securities Act of 1933, as
amended. The Selling Agreement also provides that the broker/dealer similarly
indemnify the Company, its directors, officers and controlling persons, as set
forth therein.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions, all of which is to be paid by the
Registrant:
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 1,475
NASD Registration Fees 1,000
OTC-BB 2,500
Printing and Engraving Expenses 10,000
Legal Fees and Expenses 45,000
Accounting Fees and Expenses 25,000
Blue Sky Qualification Fees and Expenses 6,000
Transfer Agent and Registrar's Fees 1,500
Miscellaneous 7,.525
--------
Total $100,000
========
</TABLE>
- --------------------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following tables set forth the Company's sales of unregistered
securities since its inception in June, 1995. No underwriters were involved in
any of such sales nor were any commissions or similar fees paid by the
registrant with respect thereto. The number of shares set forth below have been
adjusted to reflect a stock split effected on March 13, 1998.
The following shares of Common Stock were sold on the date indicated to the
persons indicated on the formation of the Company in June, 1995, for a total
consideration of $1,000. The Company claims exemption from registration for
these issuances under Section 4(2) of the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
TITLE OF AMOUNT OF
DATE OF SECURITIES SECURITIES
SALE SOLD SOLD IDENTITY OF PURCHASER
- -------- ---------- ---------- ---------------------
<S> <C> <C> <C>
8/4/95 Common 5,031.544 John Meadows
8/4/95 Common 5,031.544 Melvin McCall
8/4/95 Common 2,515,722 Joe Boiros
8/4/95 Common 88,052,018 Michael C. Cooper
</TABLE>
The following shares of the Company's Common Stock were purchased by the
individuals named hereafter, who acted as independent sales representatives of
the Company, on the dates indicated, at a price of approximately $0.02 per
share. Such persons were furnished recent financial statements of the Company,
a disclosure document, and were persons considered by the Company to be closely
associated with the Company and had knowledge and understanding of it affairs.
Such shares were issued as "restricted" securities and a legend denoting this
restriction was placed on the share certificates. The purchasers of these
shares represented to the Company that they were acquiring the Common Stock for
investment and not for resale. These individuals have had a close personal and
business relationship with officers of the Company. The Company claims
exemption from registration for these issuances under Section 4(2) of the
Securities Act of 1933, as amended.
II-3
<PAGE>
<TABLE>
<CAPTION>
TITLE OF AMOUNT OF
DATE OF SECURITIES SECURITIES
SALE SOLD SOLD IDENTITY OF PURCHASER
- --------- ---------- ---------- ---------------------
<S> <C> <C> <C>
5/23/96 Common 503,154 Kenneth Ray and Frieda Jo Buster
5/23/96 Common 503,154 Carolyn L. and Danny L. Strand
5/23/96 Common 503,154 Rex E. Gomillion
5/23/96 Common 503,154 F. Dale Curry
5/23/96 Common 503,154 L. Brian and Allison W. Cagle
5/23/96 Common 805,047 Patricia R. Discenza
5/23/96 Common 754,732 Rande S. Gray
5/23/96 Common 1,257,886 Summa Lending & Leasing, Inc.
5/23/96 Common 503,154 Curtis L. Burgess
5/23/96 Common The Cheng H. Hsu and Yao L. Hsu
503,154 Revocable Living Trust
5/23/96 Common 1,444,053 Jimmie B. Estes
5/23/96 Common 503,154 Laura L. Muscatella Trust
5/23/96 Common 503,154 Cox and Waldnep, A Corporation
5/23/96 Common 251,577 Randy Hughes Trust
</TABLE>
The following persons purchased Common Stock of the Company on the dates
indicated at a price of approximately $0.04 per share, except that Mr. Flitner
purchased his shares for approximately $0.02 per share and the sale to the Don
W. John Living Trust on 12/08/97 was at a price of approximately $0.02 per
share. The purchasers of these shares represented to the Company that they were
"accredited investors," as such term is defined under Regulation D of the
Securities Act of 1933, as amended, and upon the Company's knowledge of the
financial condition of said persons. Each person represented their purchase of
Common Stock as an investment and not for resale. The shares were issued as
"Restricted" securities and a legend describing the restriction was placed on
the share certificates. The Company claims exemption from registration for
these issuances under Section 4(2) of the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
TITLE OF AMOUNT OF
DATE OF SECURITIES SECURITIES
SALE SOLD SOLD IDENTITY OF PURCHASER
- --------- ---------- ---------- ---------------------
<S> <C> <C> <C>
01/27/97 Common 6,289,430 Don W. John Living Trust
07/16/97 Common 3,773,658 Don W. John Living Trust
09/29/97 Common 1,358,517 Don W. John Living Trust
12/08/97 Common 5,031,544 Don W. John Living Trust
01/29/97 Common 628,943 F. Dale and Beverly J. Curry
02/13/97 Common 1,257,886 John M. Giesecke
04/01/97 Common 251,577 Jim L. Flitner
09/19/97 Common 251,577 Chuck Siffa
12/30/97 Common 251,577 David Ostrander
12/31/97 Common 628,943 David Weatherford
</TABLE>
II-4
<PAGE>
ITEM 27. EXHIBITS
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1(a) Amended Form of Selling Agreement
1(b) Amended Form of Company's Subscription Agreement
1(c) Amended Form of Proceeds Escrow Agreement
3(a) Restated Articles of Incorporation
*3(b) Bylaws
4 Specimen of Common Stock Certificate
*5 Opinion of Michael G. Quinn, Esq.
*10(a)(i) Company's Agreement with FAR, Inc. (consulting)
*10(a)(ii) Company's Agreement with A&T, Inc. (consulting)
*10(a)(iii) Company's Agreement with My Tax Man, Inc. (consulting)
*10(a)(iv) Form of Independent Contractors Agreement (product)
*10(a)(v) Form of Independent Marketing Associate Agreement (AIM)
*10(a)(vi) Sublease Agreement for Company's Office
*10(a)(vii) Letter Agreement for Company's Warehouse
*10(b)(i) Resolution of Board of Directors for Directors Stock Option
23(a) Consent of Berberich Trahan & Co., P.A.
*23(b) Consent of Michael G. Quinn, Esq. (contained in Exhibit 5)
<FN>
- --------------------
* Previously filed
</TABLE>
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
II-5
<PAGE>
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) It will 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 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; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total 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 242(b) if, in
the aggregate, the changes in the volume and price represent no more
than a 20% 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 changed material
information on the plan of distribution.
(4) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant, Renaissance Designer Gallery Products, Inc., certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form SB-2 and authorized this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Topeka,
State of Kansas, on this 31st day of July, 1998
RENAISSANCE DESIGNER GALLERY
PRODUCTS, INC.
By: /s/ Michael C. Cooper
-----------------------------
Michael C. Cooper
President, Treasurer
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 31, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Michael C. Cooper President, Treasurer and Director
- --------------------------
Michael C. Cooper (Principal Executive and Financial Officer)
/s/ James H. Carter Chairman of the Board and Director
- ------------------------
James H. Carter
/s/ Sheryl S. Tasker Secretary /Treasurer (Chief Financial Officer)
- -------------------------
Sheryl S. Tasker
/s/ Robert N. Kelly Director
- ------------------------
Robert N. Kelly
/s/ Richard W. Dahms Director
- -------------------------
Richard W. Dahms
/s/ Michael Muscatella Director
- ---------------------------
Michael Muscatella
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERICAL PAGE
------- ----------- ---------------
<S> <C> <C>
1(a) Amended Form of Selling Agreement
1(b) Amended Form of Company's Subscription Agreement
1(c) Amended Form of Proceeds Escrow Agreement
*3(a) Restated Articles of Incorporation
*3(b) Bylaws
4 Specimen of Common Stock Certificate
*5 Opinion of Michael G. Quinn, Esq.
*10(a)(i) Company's Agreement with FAR, Inc.
*10(a)(ii) Company's Agreement with A&T, Inc.
*10(a)(iii) Company's Agreement with My Tax Man, Inc.
*10(a)(iv) Form of Independent Contractors Agreement
*10(a)(v) Form of Independent Marketing Associate Agreement
*10(a)(vi) Sublease Agreement for Company's Office
*10(a)(vii) Letter Agreement for Company's Warehouse
*10(b)(i) Resolution of Board of Directors for Directors Stock
Option
23(a) Consent of Berberich Trahan & Co., P.A.
*23(b) Consent of Michael G. Quinn, Esq.
(to be contained in Exhibit 5)
<FN>
- --------------------
* Previously filed
</TABLE>
II-8
EXHIBIT 1 (A)
AMENDED FORM OF SELLING AGREEMENT
<PAGE>
___________, 1998
Up to 50,000,000 Shares of Common Stock
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
Price: $0.10 Per Share
-----------------------
SELLING AGREEMENT
(Name of Broker/Dealer)
Gentlemen:
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC., a corporation organized
under the laws of the state of Nevada, (the "Company"), hereby confirms its
agreement with you as follows:
1. INTRODUCTORY.
-------------
The Company is offering to the general public its Common Stock of a
par value of $0.01 per share at the public price of $0.10 per share.
The minimum amount of Common Stock offered will equal 30,000,000
shares aggregating $3,000,000 and the maximum amount of Common Stock
offered will be 50,000,000 shares aggregating $5,000,000. Until
subscription are received for the minimum amount of shares offered and
continuing thereafter until the Offering is terminated, all funds paid
in respect to subscriptions will be held in an Escrow Account with
Central Bank & Trust Co., Hutchinson, Kansas.
The subscription period for the Offering will terminate ninety (90)
days from the date of the Prospectus unless the Company, at its sole
discretion, extends such Offering for an additional ninety (90) days.
The Company hereby confirms its agreement with you, that you will act
as our Selling Agent for the offering of the Common Stock on a "best
efforts" basis as agent for the Company.
2. REPRESENTATIONS AND WARRANTIES.
-------------------------------
The Company represents and warrants to you that:
(a) The Company has prepared and filed with the United States
Securities and Exchange Commission and a Registration Statement
under Form SB-2, which the Prospectus is a part, in form and
substance so as to comply with Section 5 of the Securities Act of
1933, as amended (the "Act"). Such Prospectus, as amended from
time to time, (including financial statements, exhibits and all
<PAGE>
other documents as a part thereof, or referred to therein or
incorporated therein) is herein called the "Prospectus".
(b) As of the date of this Agreement, the Prospectus, and at all
times subsequent thereto through the termination of the offering
of all of the Common Stock, as set forth above in Paragraph 1,
the Prospectus (as amended or as supplemented) will contain all
statements which are required to be stated therein in accordance
with the Act and the applicable rules and regulations thereunder
(the "Regulations"), will conform to the requirements thereof in
all material respects, and will not include any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(c) The Common Stock conforms to the descriptions thereof contained
in the Prospectus.
(d) The Company is validly existing and in good standing as a
corporation under the laws of the state of Nevada and has the
power and authority to act as described in the Prospectus.
(e) The Company will cooperate with you to ensure that the offering
and sale of the Common Stock complies with the requirements of
Rules of the National Association of Securities Dealers, Inc.
("NASD").
(f) There are no contracts or other documents which are required to
be summarized in the Prospectus which have not been summarized
therein.
(g) Except as set forth in the Prospectus, there is no litigation or
governmental proceeding pending or, to the knowledge of the
Company, threatened which involves the Company and is of a
character which,
(i) might result in a judgment or decree having a material
adverse effect on the business or condition (financial or
otherwise) of the Company or materially affecting its
properties or assets, or
(ii) is required to be disclosed in the Prospectus.
(h) Except as contemplated by this Agreement or as set forth in the
Prospectus, subsequent to the time as of which information is
given in the Prospectus and Supplements thereto and until the
offering is terminated, as set forth in Paragraph 1 above,
(i) the Company has not and will not have incurred any material
liabilities or obligations, direct or contingent, and
2
<PAGE>
(ii) there has not and will not have been any change in the
management or capital structure or any material adverse
change in the financial or other condition, net worth or
results of operations of the Company, other than as set
forth in the Prospectus.
(i) The Company has full power and authority to execute, deliver and
perform all agreements referred to in the Prospectus and such
agreements have been duly and validly authorized, executed and
delivered by the Company and are valid and legally binding
agreements of the Company, as the case may be, enforceable in
accordance with their terms.
(j) The execution, delivery and performance of this Agreement by the
Company and the sale and delivery of the Common Stock as provided
herein, will not conflict with, or result in a breach of any of
the terms or provisions of, or constitute a default under any
agreement to which the Company is a party or by which the assets
of it may be bound. No consent, approval, authorization or other
order of any regulatory, administrative or other government body
(other than under the Act and the Regulations) is legally
required for the valid issuance and sale of the Common Stock
under this Agreement.
(k) The financial statements contained in the Prospectus are true and
accurate as of the date thereof and no subsequent events of the
Company has caused such information not to be truthful or
accurate.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING AGENT.
----------------------------------------------------
You represent and warrant to and agree with the Company as follows:
(a) You are a member in good standing of the NASD and will maintain
such registration and qualification throughout the term of this
Agreement and have full power and authority to act as a Selling
Agent hereunder.
(b) You will comply with all federal laws pertaining to the sale of
the Common Stock, and the Constitution, By-Laws and Rules of the
NASD. You specifically undertake to comply with NASD Conduct
Rules, 2730, 2740, 2420, and 2750.
(c) You will not knowingly offer any shares of the Common Stock in
any jurisdiction where you are not licensed to conduct business
as a broker/dealer.
(d) You have made no sale of the Common Stock prior to the effective
date of the Prospectus and will not make any sales unless
preceded or accompanied by a Prospectus.
3
<PAGE>
(e) You agree that all subscriptions for the shares of Common Stock
will be promptly transmitted by noon the next business day to an
Escrow Account established by the Company entitled "Renaissance -
Escrow Account" maintained with the Central Bank & Trust, Co.,
Hutchinson, Kansas.
(f) Your actions as Selling Agent hereunder shall be performed
pursuant to this Agreement and the Prospectus.
(g) That you will not confirm sales of the Common Stock to any
account over which you exercise discretionary authority without
the written consent of the account owner.
4. SALE OF COMMON STOCK.
---------------------
Subject to the sale of minimum shares of Common Stock aggregating
$3,000,000, you will receive a commission of nine percent (9%) on sale
of shares of Common Stock by you. In the event such sales were
directed to you by the Company and you chose to execute such sales,
your commission will be six and one-half percent (6.50%) of the sale
of the shares of Common Stock. All commissioner will be paid in cash
only and computed solely on the amount of initial subscriptions.
All subscribers payments for Shares are to be made payable to
"Renaissance - Escrow Account" with the Central Bank & Trust Co.,
Hutchinson, Kansas and must be promptly transmitted by you to such
escrow (by noon the next business day after receipt) in compliance
with the applicable rules of the NASD and of the Securities
Exchange Act of 1934.
5. FURTHER AGREEMENTS.
-------------------
The Company covenants and agrees that:
(a) The Prospectus shall have become effective on the date of this
Agreement and, to the best of its knowledge, no stop order
suspending the effectiveness of the Prospectus or the institution
or threatening of any proceedings for that purpose have been
initiated. The Company will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible
the withdrawal thereof, if issued. To permit the offer and sale
of all of the Common Stock pursuant to the requirements of the
Act, the Company will prepare and file with the Securities and
Exchange Commission any required filings which, in the opinion of
Michael G. Quinn, counsel for the Company, may deem necessary or
advisable in connection with the distribution of the Common
Stock; and the Company will advise you promptly of any request of
the Securities and Exchange Commission of an amendment or
supplement to the Prospectus or for additional information.
4
<PAGE>
(b) If, at any time while the Prospectus relating to the Common Stock
is required to be delivered under federal or state law, any event
occurs as a result of which, in the opinion of counsel for the
Company, the Prospectus as then amended or supplemented includes
an untrue statement of a material fact or omits to state any
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or if it is necessary at
any time to amend the Prospectus to comply with federal or state
law, the Company will promptly notify you and prepare and file an
appropriate amendment or supplement.
(c) The Company will deliver to you from time to time as many copies
of the Prospectus (and, in the event the Prospectus is amended or
supplemented pursuant to the provisions of this Agreement, or
such amended or supplemented Prospectus) as you may reasonably
request, which copies, as from time to time amended or
supplemented, the Company authorized for use in connection with
the distribution of the Common Stock.
6. PAYMENTS OF EXPENSES.
---------------------
The Company will bear and pay all costs and expenses in connection
with the issuance and registration of the Common Stock, this Agreement
and the preparation, printing, filing, delivery and shipping of the
Prospectus and Supplements, and all costs and expenses incurred or to
be incurred in connection with the sale and delivery of the Common
Stock pursuant to this Agreement. The Company will pay all expenses
for the registration of the shares of Common Stock in such state
jurisdictions that you may reasonably request. In the event the
Offering of the Common Stock is terminated, for any reason, the
Company will reimburse you only for your actual accountable
out-of-pocket expenses, as described in NASD Conduct Rule 2710
and NASD Notice to Members 92-28. Additionally, the Company will
pay up to $10,000 for expenses associated with the due diligence
obligations of participating broker/dealers. The expense is in
the aggregate regardless of the number of participating
broker/dealers.
7. CONDITION OF YOUR OBLIGATIONS.
------------------------------
Your obligations hereunder shall be subject to the accuracy of the
representations and warranties contained herein as of the date hereof,
and as of the date of the Closing of the Common Stock, to the accuracy
of the statements of officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligation
hereunder and to the following other conditions:
(a) The Prospectus shall have become effective on the date of this
Agreement and remain effective during the term of the offering,
as set forth in Paragraph 1 of this Agreement, and during the
term of the offering no stop order shall have been issued and in
5
<PAGE>
effect and no proceedings therefore shall have been initiated or
threatened by any regulatory agency.
(b) At the closing of the sale of Common Stock, you shall receive the
favorable opinion of Michael G. Quinn, counsel for the Company,
dated as of such dates and addressed to you the effect that:
(i) The Company's Restated Articles of Incorporation, and
amendments thereto, have been properly executed, filed and
recorded, are legal and valid instruments under the laws of
the State of Nevada and authorize the Company and its
successors to conduct the business of the Company as
contemplated thereunder and as described in the Prospectus
and Supplements thereto; and the Company is duly organized,
validly existing and in good standing under the laws of the
state of Nevada and has the power and authority to own its
assets and to conduct its business as described in the
Prospectus;
(ii) The issuance of the Common Stock has been duly and
validly authorized by all necessary action on the part of
the Company and, the Common Stock will be validly issued and
non-assessable;
(iii) The Common Stock conform to the descriptions
thereof contained in the Prospectus;
(iv) The Prospectus is in compliance with the Act, and to
the best of such counsel's knowledge no proceedings for a
stop order are pending or threatened;
(v) The Prospectus and any amendments or supplements thereto
(other than the financial statements included therein, as to
which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the
Regulations, and nothing has come to the attention of such
counsel that would lead them to believe that the Prospectus,
as amended or supplemented if amended or supplemented,
contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) To the best of such counsel's knowledge, there are no
contracts or other documents required to be summarized
therein and no legal or governmental proceedings pending or
threatened against or involving the properties of the
Company required to be disclosed in the Prospectus;
6
<PAGE>
(vii) The Company has full power and authority to execute,
deliver and perform this Agreement, and this Agreement has
been duly and validly authorized, executed and delivered by
the Company and is a valid and legally binding agreement
enforceable in accordance with its terms;
(viii) The execution, delivery and performance of this
Agreement by the Company, as well as the agreements referred
to in the Prospectus, and the sale and delivery of the
Common Stock as provided herein, will not conflict with, or
result in a breach of any of the terms or provisions, or
constitute a default under, the Restated Articles of
Incorporation, as amended, or any applicable law, rule,
regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company or the assets of the
Company, or any agreement known to such counsel to which the
Company is a party or by which the assets of any of them may
be bound; and
(ix) To the best of such counsel's knowledge, no consent,
approval, authorization or other order of any regulatory,
administrative or other governmental body (other than under
the Act) is legally required for the valid issuance and sale
of the Common Stock under this Agreement.
In giving the foregoing opinion, such counsel may rely upon
certificates of the Secretary of State of Nevada with respect to
qualification and good standing.
(b) You should receive from a duly authorized officer of the Company,
a certificate that during the term of the offering, as set forth in
Paragraph 1 of this Agreement,
(i) There shall be no material adverse change in the
condition of the Company, financial or otherwise, or its
results of operations from that as of the latest date as of
which such condition is set forth in the Prospectus, except
as referred to therein;
(ii) There shall be no material transaction entered into by
the Company from the date as of which their financial
condition is set forth in the Prospectus, other than
transactions referred to or contemplated therein and
transactions in the ordinary course of business;
(iii) No action, suit or proceeding, at law or in equity,
shall be pending or, to the knowledge of the Company,
threatened against the Company before or by any Federal or
state commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding would
7
<PAGE>
materially adversely affect the business or operations of
the Company; and
(iv) No stop order shall have been issued under the Act and
no proceeding therefore shall be initiated or, to the
knowledge of the Company, threatened.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are satisfactory to
you. Any certificate signed by an officer of the Company, signed as
such, and delivered to you or to your counsel shall be deemed a
representation and warranty by the Company to you as to the statements
made therein.
8. CONDITIONS OF SELLING AGENT.
----------------------------
At the Closing of the sale of Common Stock, there shall be delivered
by you to the Company in form satisfactory to its counsel, the
following:
(a) A certificate executed by your officers, dated as of the Closing
of the Shares, to the effect that you are qualified to conduct
your business; that you are a corporation in good standing in the
state of ________________, that you are a member in good standing
of the NASD, and that this Agreement has been duly and validly
authorized, executed and delivered and is a valid and legally
binding agreement enforceable in accordance with its terms.
9. INDEMNIFICATION.
----------------
Each of us agrees with the other, including our officers, directors,
and shareholders, to indemnify and hold each other harmless from and
against any losses, claims, damages, or liabilities, joint or several,
to which we may become subject under the Act, or otherwise, insofar as
such losses, claims, damages or liabilities arise out of, or are based
upon, any untrue statement or alleged untrue statement of a material
fact regarding any information or representation other than as
contained in the Prospectus and all amendments thereto and the
material identified in the Prospectus, including out-of-pocket
expenses and attorneys fees reasonably incurred in investigating,
defending, or preparing to defend any such action or claim at trial or
on appeal.
10. SURVIVAL OF AGREEMENTS, REPRESENTATIONS, INDEMNITIES.
-----------------------------------------------------
The respective rights of the Company and you, and the agreements,
representations, warranties and other statements of the Company set
forth in or made pursuant to this Agreement, will remain in full force
and effect, regardless of any termination or cancellation of this
Agreement.
8
<PAGE>
11. NOTICES.
--------
All communications hereunder, except as specifically provided
otherwise herein, shall be in writing and shall be sent by certified
mail, return receipt requested, to you at
__________________________________________________________________; or
if sent to the Company shall be sent by certified mail, return receipt
requested to 1001 S. W. Gage Boulevard, Topeka, Kansas 66609.
12. REPORTS.
--------
Copies of all reports which the Company submits to each Shareholder
will also be submitted to you.
13. CONSTRUCTION.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Kansas.
14. SUCCESSORS.
-----------
This Agreement shall inure to the benefit of and be binding upon your
successors and assigns and the successors and assigns of the Company,
but this Agreement shall not be assignable by a party hereto without
the written consent of the other parties.
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
By: __________________________________
A duly authorized officer
Accepted:
By: _________________________________
A duly authorized officer
9
EXHIBIT 1 (B)
AMENDED FORM OF COMPANY'S SUBSCRIPTION AGREEMENT
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
UP TO 50,000,000 SHARES OF COMMON STOCK
($0.01 PAR VALUE PER SHARE)
The undersigned hereby offers to purchase shares of the Common Stock of
Renaissance Designer Gallery Products, Inc., a Nevada corporation (the
"Company"), in the amount set forth on the Signature Page of this Subscription
Agreement and on the terms described in the current Prospectus (as supplemented
or amended from time to time). The undersigned agrees that if this subscription
is accepted by the Company, it will be held, together with the underlying
payment, on the terms described in the Prospectus during the Offering Period,
which may extend for 180 days from the date of the Prospectus. If the Offering
is terminated without sale of the Minimum Offering, funds held in escrow will
be returned to the undersigned with interest earned thereon and without
deduction for commissions or expenses.
The undersigned acknowledges a receipt of the current Prospectus of the Company
and has given special attention to the sections therein entitled "Risk Factors"
and "Dilution."
The undersigned acknowledges that the certificates for shares of the Common
Stock will not be issued until approximately ten (10) days after the successful
completion of the Offering.
This subscription cannot be withdrawn without the consent of the Company. ALL
CHECKS FOR PAYMENT OF SUBSCRIPTIONS SHOULD BE MADE TO "RENAISSANCE - ESCROW
ACCOUNT" WHICH WILL BE DEPOSITED WITH THE CENTRAL BANK & TRUST CO., HUTCHINSON,
KANSAS.
[SIGNATURE PAGE ON PAGE 2]
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SIGNATURE PAGE OF SUBSCRIPTION AGREEMENT
(Please Print or Type)
Subscriber(s) Legal Address
______________________________________ ____________________________________
(First) (Middle) (Last) (Number) (Street)
______________________________________ ____________________________________
(First) (Middle) (Last) (City) (State) (Zip)
Address for Notices and
Distribution, if Different ____________________________________
from Legal Address: (c/o Name) (Acct. Number)
____________________________________
(Number) (Street)
____________________________________
(City) (State) (Zip)
Social Security or Tax I.D. No. _______________________________________________
Tax Year End: _________________________________________________________________
I (We) Subscribe $_________________________ [________________ Share(s)]
Title to Share(s) to be held:
___ Individual ___ Joint Tenants WROS ___ Tenants in Common
(All persons must sign) (All persons must sign)
___ Trust ___ Corporation ___ Partnership
- -------------------------------------------------------------------------------
SIGNATURE OF SUBSCRIBER(S)
X__________________________________________ (Date) __________________________
X__________________________________________ (Date) __________________________
- -------------------------------------------------------------------------------
Make checks payable to
"Renaissance - Escrow Account "
- -------------------------------------------------------------------------------
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(TO BE COMPLETED BY THE COMPANY)
The foregoing subscription is accepted by Renaissance Designer Gallery Products,
Inc. on this ________ day of ________________, 1998.
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
By: _________________________________________
A duly authorized officer
DATED: ___________________________
- -------------------------------------------------------------------------------
3
EXHIBIT 1 (C)
AMENDED FORM OF PROCEEDS ESCROW AGREEMENT
<PAGE>
UP TO
$5,000,000
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
PROCEEDS ESCROW AGREEMENT
-------------------------
THIS ESCROW AGREEMENT is made as of this__________day of _________, 1998,
by and among RENAISSANCE DESIGNER GALLERY PRODUCTS, INC., a Nevada corporation
(the "Company"), and CENTRAL BANK & TRUST CO., HUTCHINSON, KANSAS (the
"Escrow Agent").
A. The Company proposes of offer and sell on behalf of the Company a
minimum of 30,000,000 shares of common stock, $.01 par value per share
(the "Shares"), aggregating $3,000,000 ("Minimum Proceeds") and a
maximum of 50,000,000 Shares, aggregating $5,000,000 ("Maximum
Proceeds"), each Share is offered at $0.10 per Share. The Shares will
be offered on a "best efforts" basis.
The Company desires to establish an escrow account in which funds
received from the subscribers for the Shares (the "Subscribers") will
be deposited pending completion of the escrow period. The Escrow Agent
agrees to serve as Escrow Agent in accordance with the terms and
conditions set forth herein.
As used herein, the term Selling Agent shall include the
broker/dealers selling the shares pursuant to a Selling Agreement.
All Selling Agents shall be bound by this agreement.
B. The Shares will be offered to the general public pursuant to a
Registration Statement filed under form SB-2 with the United States
Securities and Exchange Commission, under the Securities Act of 1933,
as amended, and pursuant to various state securities laws. In
connection with the offering of the Shares, the Company has prepared a
Prospectus (the "Prospectus").
C. The offering of the Shares will not close unless 30,000,000 Shares are
sold within ninety (90) days of the effective date of the final
Prospectus (which period may be extended for up to an additional
ninety (90) days by the Company). The Company desires to have the
funds received from the Subscribers (the "Subscription Funds") held
in an escrow account by the Escrow Agent, upon the terms and subject
to the conditions set forth in this Agreement.
D. Until the closing (the "Closing"), which shall occur not later than
ninety (90) days after the effective date of the final Prospectus
(unless extended up to an additional ninety (90) days), the Company
and the Selling Agent will promptly forward to the Escrow Agent to be
held in the Escrow Account the Subscription Funds received along with
a statement of the name, address, taxpayer identifying number and
number of Shares subscribed to by the subscriber whose Subscription
Funds are being submitted.
<PAGE>
E. The Closing of the purchase and sale of the Shares will be held on a
day selected by the Company following the receipt by the Escrow Agent
of Minimum Proceeds for the Shares (the "Closing Date").
COVENANTS
---------
NOW, THEREFORE, in consideration of the mutual covenants and agreements,
contained herein, the parties hereto agree as follows:
1. The Escrow Agent is hereby appointed to hold the Subscription Funds
and to dispose of the Subscription Funds as hereinafter provided and
it hereby accepts such appointment. All Subscription Funds,
represented by check or otherwise, shall be made payable to
"Renaissance - Escrow Account."
2. Upon its receipt of any Subscription Funds, the Company and Selling
Agents shall forward to the Escrow Agent by noon of the next business
day after receipt the check or other form of payment representing the
Subscription Funds. Escrow Agent shall deposit and hold all
Subscription Funds in a special account entitled the "Renaissance -
Escrow Account" (the "Escrow Account"). Escrow Agent shall hold the
Subscriptions in trust as escrow agent only and shall not claim or be
entitled to ownership of such funds. If Escrow Agent is unable to
collect upon any Subscription Funds, it shall promptly notify the
Company of such failure and of the name and address of the
Subscriber and the amount subscribed for and shall return the form of
payment to the Company. Escrow Agent shall deposit the
Subscription Funds in a non-interest bearing account or if
Subscription Funds are invested, such investments will only be made in
investments permissible under SEC Rule 15c2-4.
3. Escrow Agent shall maintain records of all Subscription Funds received
and deposited into the Escrow Account. The records shall separately
identify the name and mailing address of each Subscriber, the number
of Shares subscribed for, the date on which the Subscription Funds
were received by Escrow Agent and the date on which the proceeds of
the Subscription Funds were collected by Escrow Agent.
4. In the event the Escrow Agent does not receive Subscription Funds
totaling the Minimum Proceeds by the Closing Date, the Escrow Agent
shall refund to each Subscriber, without deduction and with
interest earned thereon, the amount received by the Subscriber and
shall notify the Company.
5. Not withstanding anything to the contrary contained in this
Agreement, the following provisions will be implemented by the
Company and the Escrow Agent.
(a) Except as set forth herein, Escrow Agent shall make no
payments or disbursements from the Escrow Account. No creditor
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<PAGE>
of the Company or of Escrow Agent shall have any interest in the
funds held in the Escrow Account.
(b) No funds shall be released from this escrow by the Escrow Agent
until; (i) the Escrow Agent has provided to the Securities
Commissioner of Kansas an Affidavit which states that all of
the conditions of this Agreement have been met; and (ii) the
Company has provided to the Securities Commissioner of Kansas
an Affidavit which states;
a. that there have been no material omissions or changes in
the financial condition of the Company, or other changes
of circumstances, that would render the amount of
proceeds inadequate to finance the Company's proposed
plan of operations, business, or enterprise; and
b. that there have been no material omissions or changes
that would render the representations contained in the
Registration Statement to be fraudulent, false, or
misleading.
Promptly after receiving the consent of the Securities Commissioner
of Kansas, Escrow Agent shall return the subscription funds
described in the notice to the subscriber in full, without
deduction and with interest earned thereon. The Securities
Commissioner of Kansas shall have the full right to inspect and
make copies of the records of the Escrow Agent as may be
reasonable, at any reasonable time, wherever the records are
located.
6. On the Closing Date (or any subsequent closing date, as the case may
be), the Escrow Agent shall make payment in good funds from the Escrow
Account to the Company as described in the Prospectus of the full
amount of the Subscription Funds and as instructed pursuant to written
advice signed by the Company.
7. The Escrow Agent shall have no duties or responsibilities except those
expressly set forth herein. Except as otherwise provided herein, the
Escrow Agent shall take such action as the Company may reasonably
request in order to further effectuate the purposes of this Agreement.
8. It is understood and agreed further that:
(a) The Escrow Agent shall have no duty to know or determine the
performance or non-performance of any provisions of any agreement
between the other parties hereto, and the original, or a copy of
any such agreement deposited with the Escrow Agent shall not bind
said Escrow Agent in any manner. The Escrow Agent assumes no
responsibility for the validity or sufficiency of any documents
or papers or payments deposited or called for hereunder except as
may be expressly set forth in this Agreement, and the duties and
responsibilities of the Escrow Agent are limited to those
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<PAGE>
expressly stated in this Agreement. The Escrow Agent shall be
entitled to its normal fees for services as Escrow Agent;
(b) This Agreement may be supplemented, altered, amended, modified or
revoked by writing only, signed by all of the parties hereto, and
approved by the Escrow Agent upon payment of all fees, costs and
expenses incident thereto;
(c) No assignment, transfer, conveyance or hypothecation of any
right, title or interest in and to the subject matter of this
Escrow Agreement shall be binding upon the Escrow Agent unless
written notice thereof shall be served upon the Escrow Agent and
all fees, costs and expenses incident thereto shall have been
paid and then only upon the Escrow Agent's assent thereto in
writing;
(d) Any notice required or desired to be given by the Escrow Agent to
any party to this Agreement may be given by mailing the same
addressed to such party at the address noted herein, or the most
recent address of such party shown on the records of the Escrow
Agent, or reasonably believed by Escrow Agent to be proper, and
notice so mailed shall be as effectual as though served upon such
party in person at the time of depositing such notice in the
mail;
(e) The Escrow Agent may receive any payment or performance called
for hereunder after the due date thereof unless subsequent to the
due date of such payment or performance and prior to the receipt
thereof the Escrow Agent shall have been instructed in writing by
the proper parties to refuse any such payment of performance;
(f) The Escrow Agent shall not be personally liable for any act it
may do or omit to do hereunder as such agent, while acting in
good faith and in the exercise of its own best judgment, except
for any act that constitutes wilful misconduct, gross negligence
or fraud. The Escrow Agent shall have the right at any time to
consult with counsel on any question arising hereunder and shall
incur no liability for any delay reasonably required to obtain
the advise of counsel;
(g) The Escrow Agent is hereby expressly authorized to disregard any
and all notices of warning given by any of the parties hereto, or
by any other person, firm or corporation, excepting only orders
of process of court, and is hereby expressly authorized to comply
with and obey any and all process, orders, judgments or decrees
of any court, and in case the Escrow Agent obeys or complies with
any such process, order, judgment or decree of any court it shall
not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance,
notwithstanding that any such process, order, judgment or decree
be subsequently reversed, modified, annulled, set aside or
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<PAGE>
vacated, or found to have been issued or entered without
jurisdiction;
(h) In consideration of the acceptance of this Escrow Agreement by
the Escrow Agent, the undersigned agree jointly and severally,
for themselves, their heirs, legal representatives, successors
and assigns to pay the Escrow Agent its charges and fees
hereunder and to indemnify and hold it harmless as to any
liability incurred by it by reason of it having accepted this
agency, or in the event of a dispute, whether or not resulting in
litigation, between the parties hereon, or between the parties
hereto and the Escrow Agent, to reimburse the Escrow Agent for
all its expenses, including, among other things, court costs and
reasonable attorneys' fees incurred in connection therewith.
Escrow fees or charges, as distinguished from other expenses
hereunder, shall be made pursuant to a letter agreement between
the Company and the Escrow Agent and may be deducted from the
amount payable to the Company at the Closing if not otherwise
provided for and are intended as compensation for the Escrow
Agent's ordinary services as contemplated by this Agreement. In
the event the conditions hereof are not promptly fulfilled, or
any dispute arises hereunder, or if for any other reason the
Escrow Agent renders services not provided for in this Agreement,
the parties hereon jointly and severally agree to pay reasonable
compensation for such extraordinary services. In the event of
any action to recover the Escrow Agent's fees, expenses or
charges from any party hereto, the Escrow Agent shall be entitled
to reasonable attorneys' fees and costs incurred with respect to
any such action. No provision in any attached special
instructions by which one or more of the other parties hereto
shall undertake to pay such fees, charges and expenses, or any
portion thereof, shall, except as expenses, or any portion
thereof, shall, except as between such other parties, alter their
joint and several liability to the Escrow Agent for such fees,
charges and expenses;
(i) The Escrow Agent shall be under no duty or obligation to
ascertain the identity, authority or rights of the parties (or
their agents) executing or delivering or purporting to execute or
deliver this Agreement or any documents or papers or payments
deposited or called for hereunder;
(j) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations or by reason of laches in
respect to the subject of this Agreement or any documents or
papers deposited; and
(k) In the event of any dispute between the parties hereto as to the
facts of default, the validity or meaning of the terms or
provisions of this Agreement or any other fact or matter relating
to the transactions covered hereby between the parties, the
Escrow Agent is instructed as follows:
(i) that it shall be under no obligation to act, except under
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<PAGE>
process or order of court, or until it has been adequately
indemnified to its full satisfaction, and shall sustain no
liability for its failure to act pending such process or
court order or indemnification;
(ii) that it may in its sole and absolute discretion, deposit the
property described herein or so much thereof as remains in
its hands with the then clerk, or acting clerk, of the
District Court of Shawnee County, Kansas, State of Kansas,
and interplead the parties hereto, and upon so depositing
such property and filings its complaint in interpleader it
shall be relieved of all liability under the terms hereof as
to the property so deposited and shall be entitled to
recover in such interpleader action, from the other parties
hereto, its reasonable attorney fees and related costs and
expenses incurred in commencing such action and furthermore,
the parties hereto for themselves, their heirs, legal
representatives, successors and assigns do hereby submit
themselves to the jurisdiction of said court and do hereby
appoint the then clerk, or acting clerk, of said court as
their agent for the service of all process in connection
with such proceedings. The institution of any such
interpleader action shall not impair the other rights of
the Escrow Agent under this paragraph 8.
9. Any notice or other communications to any party to this Escrow
Agreement shall be given by first class mail, postage prepaid,
addressed as follows:
ESCROW AGENT: Central Bank & Trust Co.
101 West Avenue A.
P.O. Box 1366
Hutchinson, Kansas 67504-1366
COMPANY: Renaissance Designer Gallery Products, Inc.
1001 S.W. Gage Boulevard
Topeka, Kansas 66604
Any notice sent by mail shall be deemed to have been given on the
earlier of the date of receipt or on the fifth business day following
the date of mailing.
10. The Escrow Agent may resign by notifying the other parties hereto by
registered mail at the address set forth in Section 9 hereof, and,
until a successor escrow agent is named and accepts its appointment,
the Escrow Agent shall have no duty save to hold the Subscription
Funds in the Escrow Account.
11. This Agreement shall be construed and interpreted in accordance with,
and governed and enforced in all respects by the laws of the State of
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<PAGE>
Kansas. The rights and obligations of the parties to this Agreement
shall not be assigned or delegated without the prior written consent
of the other party. This Agreement shall inure to and be binding upon
the parties hereto, their successors and assigns.
12. The term of this Agreement shall commence upon the date hereof and
shall continue until the final discharge of the obligations of the
Escrow Agent hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized representatives as of the
date first above written.
"Company"
RENAISSANCE DESIGNER GALLERY
PRODUCTS, INC.
By: ________________________________________
President
"Escrow Agent"
CENTRAL BANK & TRUST CO.,
HUTCHINSON, KANSAS
By:______________________________
Authorized Officer
7
- -------------------------------------------------------------------------------
COMMON STOCK [LOGO] COMMON STOCK
NUMBER RENAISSANCE SHARES
- ------------ Designer Gallery Products, Inc. ------------
- ------------ ------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NEVADA CERTAIN DIRECTIONS
CUSIP
-----------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
-----------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE OF
============ RENAISSANCE DESIGNER GALLERY PRODUCTS, INC. ============
(the "Corporation"), a Nevada corporation. The Shares represented by this
certificate are transferable only on the stock transfer books of the
Corporation by the holder of record hereof, or by his duly authorized
attorney or legal representative, upon surrender of this certificate properly
endorsed. This certificate in not valid until countersigned and registered
by the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
[Printed in back of above text: "CERTIFICATE OF STOCK"]
DATED:
/s/ Sheryl Tasker [CORPORATE SEAL] /s/ Michael C. Cooper
Secretary and Treasurer President and Chief Executive Officer
[VERTICAL TEXT ON RIGHT SIDE OF CERTIFICATE]
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST INC.
(P.O. Box 1596, Denver, CO 80201) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
- -------------------------------------------------------------------------------
<PAGE>
RENAISSANCE DESIGNER GALLERY PRODUCTS, INC.
TRANSFER FEE: $20.00 PER ISSUED CERTIFICATE
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entirety
JT TEN- as joint tenants with
right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT-______________Custodian_____________
(Cust) (Minor)
under Uniform Gift to Minors Act-
________________________________________
(State)
UNIF TRANS MIN ACT-______________Custodian_____________
(Cust) (Minor)
under Uniform Transfers to Minors Act-
________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received,_________________________hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint ___________________________________ Attorney
to transfer the said shares on the books of the within-named Corporation with
full power of substitution in the premises.
DATED _________________________
________________________ ____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ___________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, OR DESTROYED,
THE CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
EXHIBIT 23 (A)
CONSENT OF BERBERICH TRAHAN & CO., P.A.
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
Renaissance Designer Gallery Products, Inc.
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Financial and Operating Data" and "Experts" in
the prospectus.
/s/ Berberich Trahan & Co., P.A.
BERBEICH TRAHAN & CO., P.A.
Topeka, Kansas
July 23, 1998
