<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
HAND BRAND DISTRIBUTION, INC.
(Name of Small Business Issuer in its charter)
<TABLE>
<CAPTION>
FLORIDA 65-0622463
------------------------------ ------------------------------------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
9845 N.E. 2nd Avenue
Miami Shores, FL 33138
----------------------------------------
(Address of principal executive offices)
Issuer's telephone number: (305) 759-8710
--------------
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
<PAGE> 2
PART I
Item 1. Description of Business.
Hand Brand Distribution, Inc. ("HBDC" or the Company") is filing this
Form 10-SB to register its common stock and thus become a reporting company
pursuant to Section 12(g) of the Securities Exchange Act of 1934.
We publish an informational magazine/catalog, Family Health News, four times a
year which includes articles on health, nutrition, lifestyle and innovative
health products and therapies. We distribute a select line of products related
to these topics including books and tapes, health and nutritional supplements,
lifestyle products and water filtration systems through the Family Health News,
through a sales force of independent distributors recruited primarily though
our catalog and through World Wide Web site on the Internet
(www.familyhealthnews.com). Although most of the products we sell are developed
and manufactured by others, we manufacture a line of water filtration systems
which we sell. Our product line is narrowly focused and consists of
approximately 120 products.
We are a Florida corporation which was incorporated in 1995. Our
executive offices are located at 9845 N.E. 2nd Avenue, Miami Shores, FL 33138
and our telephone number is 305-759-8710.
Background
In October 1996 we acquired The Family News, Inc. which publishes
Family Health News, a news catalog that is devoted to marketing a select line
of innovative health and lifestyle products. The Family News was founded in
1990 to offer a subscription-based newsletter and digest focused on health,
nutrition, and alternative medical therapies. Family Health News has been
published quarterly since its founding in 1990.
In January of 1997 HBDB acquired a line of water filters from The
Rockland Corporation. This product line employs a proprietary filtration medium
and consists of 22 models that range from 1/2 to 300 gallons per minute. We are
currently manufacturing and marketing the products.
The Family Health News
The Family Health News is published quarterly and typically contains
24-30, 11 x 17 inch pages. It is printed on newsprint in black and white with
spot color. Each issue contains five to seven articles on health topics that
range in length from 4,500 to 12,000 words. These treatises are designed to
give readers a comprehensive range of information on a particular disease,
condition, therapy or other health-related issue and generally focus on the
scientific basis and design rationale behind therapeutic innovations We
currently have a paid subscription base of over 10,000 people who pay $16.00
annually for the publication.
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Our articles are either written especially for the Family Health News,
or are digested from other periodicals. Products that are related to the
content of the feature articles are frequently offered to the reader. HBDB
manufactures some of its approximately 120 advertised products and is a
distributor for the remainder. The product list is continuously changed to
reflect the latest research developments in health and nutrition.
Our Direct Sales Organization
Every subscriber to the Family Health News has the opportunity to join
our direct sales organization as an independent distributor. To become a
distributor, a person or entity must subscribe to the Family Health News. There
is no agreement or any other purchase obligation and no fees are charged to
become a distributor. Distributors are offered discounts on our products
ranging from 10% to 40% Distributors who recruit other distributors are
entitled to a commission of the sales of such persons of approximately 3% to
15%. Each distributor is issued a unique identification number and the number
included in any order is used to keep track of commissions earned. We have
approximately 1,400 active distributors at the present time.
Product Selection and Pricing and Sourcing
We have considered over 4,500 products for distribution in the last
ten years and yet the Company carries only 120 products. We seek to identify
products which represent effective, science-based formulas and technologies.
However, as with most vitamins, herbals and nutritional supplements, such
products do not undergo the vigorous scientific validation of safety and
effectiveness and pre-market approval by the Food and Drug Administration
required of pharmaceutical products. All products, other than our water filter
line, are manufactured by established manufacturers. Some products are standard
formulations and some are specially formulated for HBDB alone. The products are
generally sold under the brand name of the manufacturer but approximately 24 of
our products are labeled under our Hand Brand name.
We depend upon the manufacturers of our products to conduct adequate
quality control and compliance with applicable manufacturing and labeling
regulations. We do not undertake independent quality testing of our products
after they are received from the manufacturer.
We do not have any long term supply contracts with the manufacturers
of our products. We believe that virtually all of the products we offer are
available from several sources and have not experienced any inability to obtain
products in the past. We currently deal with 80 different suppliers of our
products. Retail prices range from $4 to $49 per unit.
Water Filters
We acquired our water filtration line in 1997 and manufacture the
products in Miami, Florida. The line utilizes a proprietary filtration medium
which we consider a trade secret and have not patented. Our water filtration
line consists of 31 models ranging in capacity from 1/2 to
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300 gallons per minute. Besides selling our water filters through our catalog,
direct sales organization and the Internet, we also have independent
distributors who purchase the water filter line for resale. We have no written
agreements with these distributors and such sales are generally made by
purchase order.
Competition
The primary channels of distribution for the Company's products are:
(i) mass market retailers which include drug stores, supermarkets, mass
merchandisers and discount stores; (ii) health food stores; (iii) direct sales
organizations; (iv) mail order; and (v) the Internet. The market is highly
competitive. We believe that we compete based upon the information which we
provide to our customers through the Family Health News and our World Wide Web
site. We believe the narrow focus of our product line, along with the
information provided, avoids the confusion of the typical retail location which
carries a vast selection of products but generally offers little information on
the products.
Order Fulfillment
We currently have between four and six individuals available for
receiving orders and offering customer service between 8:00 am and 6:00 pm
Eastern Time, Monday through Friday and can accept online payments at two
websites 24 hours a day seven days a week. The administrative office can handle
up to twenty simultaneous orders. We generally ship orders within one day of
receipt.
Government Regulation
The manufacturing, processing, formulation, packaging, labeling and
advertising of certain of our products are subject to regulation by one or more
federal agencies, including the FDA, the Federal Trade Commission ("FTC"), the
Consumer Product Safety Commission, the United States Department of
Agriculture, the United States Postal Service, the United States Environmental
Protection Agency and the Occupational Safety and Health Administration. These
activities are also regulated by various agencies of the states and localities,
as well as of foreign countries, in which the Company's products are sold. In
particular, the FDA regulates the safety, labeling and distribution of dietary
supplements, including vitamins, minerals, herbs, food, OTC and prescription
drugs and cosmetics. The regulations that are promulgated by the FDA relating
to the manufacturing process are known as CGMPs, and are different for drug and
food products. In addition, the FTC has overlapping jurisdiction with the FDA
to regulate the labeling, promotion and advertising of vitamins, OTC drugs,
cosmetics and foods.
The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted on October 25, 1994. DSHEA amends the Federal Food, Drug and Cosmetic
Act by defining dietary supplements, which include vitamins, minerals,
nutritional supplements and herbs, as a new
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category of food separate from conventional food. DSHEA provides a regulatory
framework to ensure safe, quality dietary supplements and the dissemination of
accurate information about such products. Under DSHEA, the FDA is generally
prohibited from regulating the active ingredients in dietary supplements as
drugs unless product claims, such as claims that a product may heal, mitigate,
cure or prevent an illness, disease or malady, trigger drug status.
DSHEA provides for specific nutritional labeling requirements for
dietary supplements and FDA's final regulations require that all dietary
supplements must be labeled in compliance with the regulations by no later than
March 23, 1999. DSHEA permits substantiated, truthful and non-misleading
statements of nutritional support to be made in labeling, such as statements
describing general well-being resulting from consumption of a dietary
ingredient or the role of a nutrient or dietary ingredient in affecting or
maintaining a structure or function of the body. On April 29, 1998, FDA issued
a Proposed Rule, "Regulations on Statements Made For Dietary Supplements
Concerning the Effect of the Product on the Structure or Function of the Body."
The Proposed Rule, when finalized, will establish criteria for determining when
a statement is a claim to diagnose, cure, mitigate, treat or prevent disease
thereby making the product an unapproved new drug. The Company anticipates that
the FDA will finalize this Proposed Rule, as well as CGMPs which are specific
to dietary supplements.
Final labeling regulations require expanded or different labeling
for the Company's vitamin and nutritional supplement products. Final CGMPs
for dietary supplements will require at least some of the quality control
provisions contained in the CGMPs for drugs. The Company cannot determine what
effect such regulations, when fully implemented, will have on its business in
the future. Such regulations could, among other things, require the recall,
reformulation or discontinuance of certain products, additional record keeping,
warnings, notification procedures and expanded documentation of the properties
and manufacturing processes of certain products and scientific substantiation
regarding ingredients, product claims, safety or efficacy. Failure to comply
with applicable FDA requirements can result in sanctions being imposed on the
Company or the manufacturers of its products, including, warning letters,
fines, product recalls and seizures.
On November 18, 1998, the FTC issued its "Dietary Supplements: An
Advertising Guide for Industry." Such guide provides an application of FTC law
to dietary supplement advertising and includes examples of how principles of
advertisement interpretation and substantiation apply in the context of dietary
supplement advertising. Such Guide provides additional explanation but does not
substantively change the FTC's existing policy that all supplement marketers
have an obligation to ensure that claims are presented truthfully and to verify
the adequacy of the support behind such claims. The Company believes that its
current advertising is in substantial compliance with such Guide, although no
assurances can be given in this regard.
We are subject to regulation under various state and local laws which
include provisions regulating, among other things, the operation of direct
sales programs.
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In addition, we cannot predict whether new legislation regulating our
activities will be enacted. Such new legislation could have a material adverse
effect on the Company.
Product Liability Insurance
The Company, like other distributors and retailers of products that
are ingested, faces an inherent risk of exposure to product liability claims
if, among other things, the use of its products results in injury. Because we
do not manufacture our ingestable products, we do not currently have product
liability insurance for these products. However, we require that each of our
suppliers certify that it carries adequate product liability insurance and in
the event of any claims would seek indemnification from the manufacturer.
Employees
As of August 16, 1999, we employed 5 persons on a full-time basis and
6 persons on a part-time basis. None of our employees are represented by a
collective bargaining unit.
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto that appear elsewhere herein.
This Form 10-SB contains forward looking statements including, without
limitation, statements relating to the Company's plans, expectations,
intentions, and adequate resources, and are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The words
"believes" "intends" "expects" "plans" "anticipates" "estimates" or "potential"
and similar expressions identify forward looking statements. The Company does
not undertake to update, revise, or correct any of the forward looking
information. Actual results may differ materially from those expressed in any
forward looking statement made by or on behalf of the Company. Some important
factors that could cause the Company's actual results or expectations to differ
materially from those discussed in the forward looking statements include,
We generate revenue from two sources: subscription revenue from
publication of Family Health News and sale of products. All products other than
our water filter line are purchased from manufacturers. We seek distributor
pricing of approximately 42% of retail price on purchased products.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated.
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<TABLE>
<CAPTION>
Fiscal Year Six Months
1997 1998 6/30/98 6/30/99
<S> <C> <C> <C> <C>
Revenues:
Total Revenues 100% 100% 100% 100%
Cost of Goods Sold 43.3 41.8 42.9 43
Gross Profit 56.7 58.2 57.1 57
Selling, General and 59.2 77.8 71.4 83.9
Administrative
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Sales for the six months ended June 30, 1999 were $166,600 an 11%
decrease over sales for the six months ended June 30, 1998. Decrease was due to
a reduced level of sales activity.
Cost of goods sold as a percentage of sales was 43% for the six months
ended June 30, 1999 as compared to 42.9% for the six months ended June 30, 1998
reflecting a slight increase is sales of our lower margin products.
Selling, general and administrative expenses increased to $150,186 for
the six months ended June 30, 1999. However this was 83.9% of sales compared
71.4% of sales for the six months ended June 30, 1998. This increase was due
primarily to legal and professional fees.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales for the year ended December 31, 1998 were $311,147 a 17%
decrease from sales for the year ended December 31, 1997. Decrease was due to
poor results from advertising budget - infomercials.
Cost of goods sold as a percentage of sales was 41.8% for the year
ended December 31, 1998 as compared to 43.3% for the year ended December 31,
1997 reflecting our success in adjusting our product mix to products with
higher margins.
Selling, general and administrative expenses increased to $298,984 for
the year ended December 31, 1998. However this was 77.8% of sales compared
59.2% of sales for the year ended December 31, 1997. This increase was due
primarily to legal and professional fees.
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999 the balance sheet reflects a note payable of
$460,000 owed to the Rockland Corporation of Tulsa Oklahoma for the purchase of
our water filter line. This reflects a $400,000 dollar purchase price plus two
and one half years interest at 6%. As of August 20th 1999 the $400,000 purchase
price was adjusted to $250,000 and the interest was forgiven in exchange
$23,000 in merchandise and $10,000 cash. A payment schedule was agreed to. It
is a ten year note at 7% on $250,000 due January 1, 2009. The payments were
made as required by this note to make it current as of the date of this filing.
The Company had a cash balance of $268,868 as of June 30, 1999 and
believes it has adequate working capital for at least the next 12 months.
"Y2K" ISSUE:
The "Y2K" issue arises because certain computer systems were
originally designed to handle a two digit year would have difficulty dealing
with dates after December 31, 1999. The Company has reviewed its personal
computers and software and have determined that its systems are Y2K compliant.
We have also discussed this issue with our suppliers and Internet site host and
have been assured that there would be no major interruptions due to the Y2K
Issue.
Item 3. Description of Property.
All of the operations of the Company are conducted from premises
leased from independent landlords. The following table sets forth information
concerning these facilities:
<TABLE>
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
--------------- ------------ ---------------- ------------
<S> <C> <C> <C>
9845 N.E. 2nd Avenue 1,200 Sq. Ft. Month-to-Month $ 745.50
Miami Shores, FL 33138
13341 N.E. 17th Avenue 6,500 Sq. Ft. August 2001 $1,647.50
N. Miami, FL 33161
</TABLE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of August 17, 1999, the beneficial
ownership of our 2,524,100 outstanding shares of Common Stock by (1) the only
persons who own of record or are known to own, beneficially, more than 5% of
our Common Stock; (2) each director and executive officer of the Company; and
(3) all directors and officers as a group.
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<PAGE> 9
<TABLE>
<CAPTION>
Number of
Name Shares Percent
---- --------- -------
<S> <C> <C>
John M. Taggart 856,000 32.6%
Ellen & Timothy McLaughlin 260,000 9.9%
Equitable Management Services 200,000 7.6%
David M. Taggart 53,000 2%
Preston T. Johnson 50,000 1.9%
All directors and officers 959,000 36.5%
as a group (3 persons)
</TABLE>
Item 5. Directors, Executive Officers, Promoters and Corporate Persons.
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John M. Taggart 39 President, Chairman of the Board
David M. Taggart 44 Director
Preston T. Johnson 62 Director
</TABLE>
John Taggart has been President and Chairman since our incorporation. He is the
brother of David Taggart, a director.
David Taggart has been a director since inception. He has been employed as a
tax accountant by Bacardi-Martini USA, Inc. since 1975. He is the brother of
John Taggart.
Preston T. Johnson has been retired since 1984.
Item 6. Executive Compensation.
Summary Compensation Table
The following table sets forth the total compensation paid to the
Company's chief executive officer for the last three completed fiscal years. No
executive officer of the Company received compensation of $100,000 or more
during any such year.
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<TABLE>
<CAPTION>
Other Annual
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
John Taggart, President 1998 $28,600 -0- -0-
1997 $25,700 -0- -0-
1996 $23,850 -0- -0-
</TABLE>
We do not currently have any long term compensation plans, pension
plans or stock based compensation plans.
DIRECTOR COMPENSATION No fees are paid for director services.
Item 7. Certain Relationships and Related Transactions.
None.
Item 8. Description of Securities.
Common Stock
The Company is authorized to issue 12,500,000 shares of Common Stock,
$.002 par value. The holders of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
Common Stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining which are available
for distribution to them after payment of liabilities. Holders of shares of
Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the Common Stock.
All of the outstanding shares of Common Stock are fully paid and nonassessable.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and other Shareholder Matters.
The Company's Common Stock trades on the over-the-counter under the
symbol: HBDC. The following sets forth the range of high and low bid quotations
for the periods indicated as reported by National Quotation Bureau, Inc. Such
quotations reflect prices between dealers, without retail mark-up, markdown or
commission, and may not represent actual transactions and have not been
adjusted for stock splits and have not been adjusted for stock splits.
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<TABLE>
<CAPTION>
Quarter Ended High bid Low bid
- ------------- -------- -------
<S> <C> <C>
March 31, 1997 $5.00 $5.00
June 30, 1997 5.00 1.875
September 30, 1997 1.50 2.65
December 31, 1997 2.75 1.625
March 31, 1998 1.75 1.25
June 30, 1998 3.375 1.125
September 30, 1998 4.75 3.50
December 31, 1998 6.125 4.00
March 31, 1999 6.50 5.25
June 30, 1999
</TABLE>
There are no restrictions on the payment of dividends. We have paid no
dividends to date and none are anticipated. As of August 17, 1999 there were
approximately 140 holders of record of the Company's common stock.
Item 2. Legal Proceedings.
None.
Item 3. Changes In and Disagreements With Accountants.
None.
Item 4. Recent Sales of Unregistered Securities.
The following provides information concerning all sales of securities
within the last three years which were not registered under the Securities Act
of 1933.
In October 1996 the Company issued 1,200,000 shares of its common
stock to four persons in connection with its acquisition of the Family News,
Inc. Such shares were issued without registration pursuant to the exemption
available under Section 4(2) of the Securities Act of 1933.
In a private placement in the second quarter of 1996 the Company
issued common stock purchase warrants to purchase 1,000,000 shares of common
stock. 824,100 shares were issued upon exercise of such warrants for $486,850
through March 28, 1999. Such shares were issued pursuant to an exemption from
registration under Rule 504 of Regulation D.
Item 5. Indemnification of Directors and Officers.
The Florida Business Corporation Act provides that a person who is
successful on the merits or otherwise in defense of an action because of
service as an officer or director or a corporation, such person is entitled to
indemnification of expenses actually and reasonably incurred in such defense.
F.S. 607.0850(3).
Such Act also provides that the corporation may indemnify an officer
or director, advance
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expenses, if such person acted in good faith and in a manner the person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to a criminal action, had no reasonable cause to
believe his conduct was unlawful. F.S. 607.0850(1)(2).
A court may order indemnification of an officer or director if it
determines that such person is fairly and reasonably entitled to such
indemnification in view of all the relevant circumstances.
F.S. 607.0850(9).
PART F/S
The following financial statements are included herein:
Audited Financial Statements:
Independent Auditors' Report
Balance Sheets as at
December 31, 1998 and 1997
Statements of Income,
years ended December 31, 1998 and 1997
Statement of Changes in Stockholders'
Equity, years ended December 31, 1998 and 1997
Statements of Cash Flows, years ended December 31, 1998 and 1997
Notes to Financial Statements.
Unaudited Financial Statements:
Balance Sheet as at
June 30, 1999
Statements of Income, Six months
ended June 30, 1999 and 1998
Statement of Changes in Stockholders'
Equity, Six months ended June 30, 1999
Statements of Cash Flows, Six months ended
June 30, 1999 and 1998
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Notes to Financial Statements.
PART III
Item 1. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2(a) Articles of Incorporation of the Registrant*
2(b) Articles of Amendment to Articles of
Incorporation*
2(c) By-Laws of the Registrant*
27 Financial Data Schedule (for SEC use only)*
</TABLE>
* to be filed by amendment
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<PAGE> 14
SIGNATURES
In accordance with Section 12 of the Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized this 1st day of September, 1999.
HAND BRAND DISTRIBUTION, INC.
By: s/ John Taggart
-----------------------
John Taggart, President
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Independent Auditors' Report
Balance Sheet
Statement of Income
Statement of Changes in Stockholders'
Equity
Statement of Cash Flows
Notes to Financial Statements
</TABLE>
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Hand Brand Distribution, Inc.
Miami, Florida
We have audited the accompanying balance sheet of Hand Brand Distribution, Inc.
as of December 31, 1997 and 1998, and the related statements of income, equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hand Brand Distribution, Inc.
as of December 31, 1997 and 1998, and its income and retained earnings, and
cash flows for the year then ended, on the basis of generally accepted
accounting procedures.
SEWELL AND COMPANY, PA
Pembroke Pines, Florida
June 15, 1999
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HAND BRAND DISTRIBUTION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1999
----------------------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash $ 7,610 $ 2,649 $ 267,686
Accounts receivables 18,002 9,973 14,623
Inventory 279,712 253,643 300,810
Other current assets 5,000 5,600 5,600
----------------------------- ---------
Total current assets 310,324 271,865 588,719
Fixed assets 173,651 190,764 192,264
Less: Accumulated depreciation (18,762) (38,412) (48,285)
----------------------------- ---------
154,889 152,352 143,979
Other assets
Deposits 2,025 2,025 2,025
Goodwill and trademarks, net of accumulated
amortization $29,481 191,361 177,558 170,658
Deferred tax asset 6,711 6,711 6,711
Other assets 1,960 1,960 1,960
----------------------------- ---------
Total other assets 202,057 188,254 181,354
----------------------------- ---------
$ 667,270 $ 612,471 $ 914,052
============================= =========
Liabilities
Accounts payable $ 25,199 $ 13,749 $ 4,839
Taxes payable 1,662 379 43
----------------------------- ---------
Total current liabilities 26,861 14,128 4,882
Long term liabilities
Notes payable 424,000 448,000 460,000
----------------------------- ---------
424,000 448,000 460,000
Shareholders' equity
Common stock $.002 par value, authorized:
12,500,000 shares, issued and outstanding:
3,400,000 and 1,773,100 and 1,8151,100 and
2,524,100 at June 30, 1999 3,546 3,630 5,048
Additional paid in capital 325,954 367,870 738,202
Retained earnings (deficit) (113,091) (221,157) (294,080)
----------------------------- ---------
216,409 150,343 449,170
----------------------------- ---------
$ 667,270 $ 612,471 $ 914,052
============================= =========
</TABLE>
See auditors' report and notes to financial statements.
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HAND BRAND DISTRIBUTION, INC.
INCOME STATEMENT
<TABLE>
<CAPTION>
SIX MONTH ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1996 1997 1998 1998 1999
--------------------------------------------- ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income
Sales net of returns $ 79,912 $ 374,915 $ 311,147 $ 186,457 $ 166,601
Less cost of goods sold 54,557 157,044 134,776 80,607 72,564
--------------------------------------------- ---------------------------
Gross profit 25,355 217,871 176,371 105,850 94,037
Expenses
General and administrative expenses 63,873 222,053 242,234 134,019 141,745
Printing and publications 9,566 26,385 8,750 5,132 8,442
Depreciation and amortization 3,272 31,168 33,453 16,773 16,773
--------------------------------------------- ---------------------------
76,711 279,606 284,437 155,924 166,960
--------------------------------------------- ---------------------------
Net loss $ (51,356) $ (61,735) $(108,066) $ (50,074) $ (72,923)
============================================= ===========================
Loss per common share $ (0.02) $ (0.03) $ (0.12) $ (0.03) $ (0.03)
============================================= ===========================
</TABLE>
See auditors' report and notes to financial statements.
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HAND BRAND DISTRIBUTION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 3,400,000 $ 3,400 $253,000 $ (51,356) $205,044
1 x 2 reverse stock split (1,700,000) --
Warrants exercised 73,100 146 72,954 73,100
Net loss from operations (61,735) (61,735)
-------------------------------------------------------------------------------
Balance December 31, 1997 1,773,100 3,546 325,954 (113,091) 216,409
</TABLE>
See auditors' report and notes to financial statements.
-6-
<PAGE> 20
HAND BRAND DISTRIBUTION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND
THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,773,100 $ 3,546 $325,954 $(113,091) $216,409
Warrant exercised 42,000 84 41,916 42,000
Net Loss from Operations (108,066) (108,066)
------------------------------------------------------------------------------
Balance December 31, 1998 1,815,100 3,630 367,870 (221,157) 150,343
Issuance of common stock
($.002 per share) 709,000 1,418 370,332 371,750
Net loss June 30, 1999 (72,923) (72,923)
------------------------------------------------------------------------------
Balance June 30, 1999 (Unaudited) 2,524,100 $ 5,048 $738,202 $(294,080) $449,170
==============================================================================
</TABLE>
See auditors' report and notes to financial statements.
-6-
<PAGE> 21
HAND BRAND DISTRIBUTION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1998 1999
---------------------------- -----------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (61,735) $ (108,066) $ (50,074) $ (72,923)
---------------------------- ----------------------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 31,168 33,453 16,773 16,773
(Increase) decrease in accounts receivable (15,079) 8,029 4,896 (4,650)
(Increase) decrease in prepaid expenses
(Increase) decrease in inventories (251,712) 26,069 20,824 (47,167)
(Increase) decrease in other assets (97,531) (600)
Increase (decrease) in accounts payable 18,371 (12,733) 10,830 (9,246)
Increase (decrease) in accrued liabilities 1,662
---------------------------- ----------------------------
Total adjustments (313,121) 54,218 53,323 (44,290)
---------------------------- ----------------------------
Net cash used by operating activities (374,856) (53,848) 3,249 (117,213)
---------------------------- ----------------------------
Cash flows from investing activities:
Cash payments for the purchase of property (118,079) (17,113) (1,500)
---------------------------- ----------------------------
Net cash used by investing activities (118,079) (17,113) -- (1,500)
---------------------------- ----------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 146
Adjustment to additional paid in capital
Proceeds from issuance of long-term debt 424,000 24,000 12,000 12,000
Proceeds from issuance of stock warrants 72,954 42,000 14,500 371,750
---------------------------- ----------------------------
Net cash provided by financing activities 497,100 66,000 26,500 383,750
---------------------------- ----------------------------
Net increase in cash and cash equivalents 4,165 (4,961) 29,749 265,037
Cash and cash equivalents, beginning of year 3,445 7,610 7,610 2,649
---------------------------- ----------------------------
Cash and cash equivalents, end of year $ 7,610 $ 2,649 $ 37,359 $ 267,686
============================ ============================
</TABLE>
See auditors' report and notes to financial statements.
-7-
<PAGE> 22
HAND BRAND DISTRIBUTION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 1998 1999
----------------------- --------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $ 24,000 $ 24,000
======================= ==========================
</TABLE>
Acquisition Note
In connection with the acquisition of The Family News, Inc., the company
acquired assets with a fair value of $ 216,000.
Shareholders' equity note
During the second quarter, the company issued 600,000 shares of its common
stock pursuant to a private placement offering. The proceeds from the
offering were $40,000 net of offering cost of $10,000.
See auditors' report and notes to financial statements.
-7-
<PAGE> 23
HAND BRAND DISTRIBUTION, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 & 1998
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hand Brand Distribution, Inc.("the Company") was incorporated in
November 1995, under the laws of the State of Florida for the purpose
of developing and marketing nutritional supplements, cleaning and
hygiene products. It also publishes a news catalog to market its
products.
Basis of Accounting
The Company presents its financial statements on the accrual basis of
accounting in compliance with generally accepted accounting principles.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires a liability
approach to calculating deferred income taxes.
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to
make certain estimates and assumptions that directly affect the results
of reported assets and liabilities and disclosure of contingent assets
and liabilities as of the balance sheet date, and the reported amounts
of revenues and expenses for the period presented. Actual results could
differ from these estimates.
Cash and Cash Equivalents
The Company considers all cash and cash equivalents highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
Inventory
The inventory of the Company is recorded at average cost and includes
nutritional supplements, cleaning and hygiene products and raw
materials from the acquisition of The Rockland Corporation, doing
business as Lifetime Water.
<PAGE> 24
NOTE 2 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed by
using the straight-line method based over the assets estimated useful
lives as follows:
<TABLE>
<S> <C>
Furniture & Fixtures 5 - 10 years
</TABLE>
Amortization
Amortization of trademarks and goodwill is determined utilizing the
straight-line method based generally on the estimated useful lives of
the intangibles as follows:
<TABLE>
<S> <C>
Trademarks 15 years
Goodwill 15 years
</TABLE>
Credit Risk
Financial instruments that potentially subject the Company to credit
risk include cash on deposit with one financial institution amounting
to $2,649 at December 31, 1998, which was insured for up to $100,000 by
the U.S. Federal Deposit Insurance Corporation (FDIC).
Advertising
Advertising costs are charged to operations when incurred. Advertising
costs during 1998 amounted to $2,257.
NOTE 3 COMMON STOCK AND PREFERRED STOCK
The Company has authorized 12,500,000 shares of common stock. The
shares of common stock issued and outstanding for 1997 and 1998. This
includes June 30, 1999 unaudited.
At December 31, 1997, the total shares of common stock was as follows:
<TABLE>
<S> <C>
1 for 2 Reverse Stock split (3,400,000/2) 1,700,000
Warrants exercised - 73,100 73,100
---------
Total (par value of $.002) 1,773,100
=========
</TABLE>
<PAGE> 25
COMMON STOCK AND PREFERRED STOCK CONTINUED
During 1998, a total of 42,000 warrants were exercised at a price of
$1.00 per share.
At December 31, 1998, the total shares of common stock was as follows:
<TABLE>
<S> <C>
Issued & outstanding December 31, 1997 1,773,100
Warrants exercised - 42,000 42,000
---------
Total (par value of $.002) 1,815,100
=========
</TABLE>
The warrants not exercised at December 31, 1998 were extended for a
one-year period and maintain the stated terms of conversion.
The total amount of warrants outstanding is 834,900 at December 31,
1998.
During 1999 (unaudited) a total of 709,000 warrants were exercised,
34,500 at $1.00 and 674,500 at $.50
At June 30, 1999, the total shares of common stock Was as follows:
<TABLE>
<S> <C>
Issued & Outstanding December 31, 1998 1,815,100
Warrants Exercised - 709,000 709,000
---------
Total (par value of $.002) 2,524,100
</TABLE>
Subsequent to 34,500 warrants being converted in the first
quarter of 1999 the company offered a premium share for every warrant
converted from March 21 through April 21, 1999 resulting in a yield of
50 cents per share on 674,500 shares.
NOTE 3 INCOME TAXES
The Company reduced taxable income in 1997 by applying federal net
operating losses to pre-tax income, reducing the taxable income by
$63,316. These losses were carried forward from prior years.
The Company has a remaining federal net operating loss carryforward of
$221,157, of which $60,316 expires in 2011, and $57,590 expires in
2017, and $108,066 expires in 2018.
In addition, the purchase of The Family News, Inc. entitles the Company
to additional NOL's of approximately $45,000, which expire in 2008,
2009, and 2011. The respective deferred tax asset of $6,711 is
reflected in the balance sheet.
<PAGE> 26
NOTE 4 INVENTORIES
At December 31, 1997, inventories consisted of the following:
<TABLE>
<S> <C>
Finished goods $187,245
Raw materials 92,467
--------
$279,712
========
</TABLE>
At December 31, 1998, inventories consisted of the following:
<TABLE>
<S> <C>
Finished goods $157,665
Raw materials 90,407
Labels and jars 5,571
--------
$253,643
========
</TABLE>
NOTE 5 FIXED ASSETS
Furniture and fixtures were acquired with the purchase of The Family
News, Inc.
Equipment was purchased from The Rockland Corporation, doing business
as Lifetime Water.
Fixed assets at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Furniture & fixtures $ 55,572
Equipment 118,079
--------
173,651
Less accumulated depreciation (18,762)
--------
Total $154,889
========
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $17,365.
Fixed assets at December 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Furniture & fixtures $ 55,974
Computers and software 16,711
Equipment 118,079
--------
190,764
Less accumulated depreciation (38,412)
--------
Total $152,352
========
</TABLE>
Depreciation expense for the year ended December 31, 1998 was $19,650.
NOTE 6 INTANGIBLE ASSETS
At December 31, 1997, intangible assets are summarized by major
classification as follows:
<PAGE> 27
<TABLE>
<CAPTION>
TFN Lifetime Total
--------- --------- ---------
<S> <C> <C> <C>
Trademark $ 12,500 $ 95,131 $ 107,631
Goodwill 99,408 0 99,408
--------- --------- ---------
111,908 95,131 207,039
Less:
Accumulated
amortization (9,336) (6,342) (15,678)
--------- --------- ---------
Total $ 102,572 $ 88,789 $ 191,361
========= ========= =========
</TABLE>
The goodwill represents the excess of the cost over the fair value of
net assets of the acquired business, The Family News, Inc.
Amortization expense for the year ended December 31, 1997 was $13,803
At December 31, 1998, intangible assets are summarized by major
classification as follows:
<TABLE>
<CAPTION>
TFN Lifetime Total
--------- --------- ---------
<S> <C> <C> <C>
Trademark $ 12,500 $ 95,131 $ 107,631
Goodwill 99,408 0 99,408
--------- --------- ---------
111,908 95,131 207,039
Less:
Accumulated
amortization (16,797) (12,684) (29,481)
--------- --------- ---------
Total $ 95,111 $ 82,447 $ 177,558
========= ========= =========
</TABLE>
The goodwill represents the excess of the cost over the fair value of
net assets of the acquired business, The Family News, Inc.
Amortization expense for the year ended December 31, 1998 was $13,803.
NOTE 7 PROMISSORY NOTE PAYABLE
The Company has a non-negotiable promissory note payable in the amount
of $400,000. The note is jointly and severally guaranteed to The
Rockland Corporation by the Company and John M. Taggart.
Interest is 6% on the entire outstanding balance and a 2.5% fee will be
added to each installment if more than 7 days past due. The late fee
shall be 5% if more than 30 days past due.
<PAGE> 28
PROMISSORY NOTE PAYABLE CONTINUED
Payments are in the amount of $44,443 to be made in nine equal
installments plus interest on the entire outstanding balance beginning
on January 1, 1998. The first payment due on January 1, 1999, has been
extended for a twelve month period, with no fees or penalties.
According to management, the Company will renegotiate the loan in 1999,
and has agreed to accept partial payment from inventory.
Accrued interest of $24,000 as of December 31, 1998 has been recorded.
NOTE 8 COMMITMENTS
On July 10, 1998, the Company entered into a lease agreement with Bert
Manno for warehouse space in North Miami, Florida. Monthly payments are
$1,500 plus tax for a period of two years, ending January 30, 2000.
Since 1992, the Company has maintained a lease agreement with Shapar
Realty Company for its main facility, renewable annually. Monthly
rental payments are $700 plus tax.
Total rental expense for the year ended December 31, 1998 was $31,373.
NOTE 9 LEGAL CONTINGENCIES
In the normal course of business, the Company was involved in a civil
action lawsuit. The case was dismissed on March 2, 1999
NOTE 10 ACQUISITION
During January 1997, the Company acquired the assets of the water
filter division of The Rockland Corporation for a purchase price of
$400,000. The acquisition was accounted for as a purchase and was
included with combined operations from that date through December 31,
1997. The purchase was financed with $400,000 installment promissory
note plus 6% interest on the entire outstanding balance.
The total purchase price of $400,000 was allocated as follows:
<TABLE>
<S> <C>
Raw materials $ 92,467
Equipment 118,079
Other intangible assets 95,131
Inventory 94,323
--------
Total $400,000
========
</TABLE>
