SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number: 333-43497
CUIDAO HOLDING CORP.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0639616
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2951 SIMMS STREET
HOLLYWOOD, FL 33020-1510
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (954) 924-0047
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
----------------------------------- ----------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value per share
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(Title of class)
Copies of Communications Sent to: Mercedes Travis, Esq.
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days: Yes x No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At September 30, 2000, the
registrant had outstanding 4,033,875 shares of common stock, par value $0.0001,
which is the registrant's only class of common stock. Of these shares, 622,700
are held in escrow against conversion of the Company's outstanding notes to
Infinity Financial Group and conversion of the first and second convertible
mortgage notes to W.M. Properties.
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Part I. FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets........................................F-2
Condensed Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Condensed Consolidated Statements of Operations for the Three Months Ended
September 30, 2000. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-5
Notes to Condensed Consolidated Financial Statements.........................F-6
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CUIDAO HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED) (AUDITED)
------------------- ------------------
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Current Assets:
Cash and Cash Equivalents $ - $ 1,533
Accounts Receivable 30,891 27,422
Inventory 149,484 304,346
Prepaid Expenses 5,000 -
------------------- ------------------
Total Current Assets 195,375 333,301
Property, Plant and Equipment (Net of $35,877 and $22,113
accumulated depreciation at September 30, 2000 and
December 31, 1999) 577,147 584,873
------------------- ------------------
Other Assets:
Goodwill (Net of $15,000 and $13,333 accumulated amortization at September
30, 2000 and December 31, 1999) - 1,667
Organizational Costs (Net of $1,279 and $1,048 accumulated amortization at
September 30, 2000 and December 31, 1999) 261 492
Deferred Loan Costs (Net of $4,471 and $3,500 accumulated
amortization at September 30, 2000 and December 31, 1999) 3,194 7,000
Deposits and Escrow Balances 5,326 19,314
------------------- ------------------
Total Other Assets 8,781 28,473
------------------- ------------------
Total Assets $ 781,303 $ 946,647
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft $ 1,429 $ -
Accounts Payable and Accrued Expenses 288,966 417,616
Security Deposits - 5,724
Notes Payable - Current Portion 225,959 48,324
------------------- ------------------
Total Current Liabilities 516,354 471,664
Long Term Liabilities:
Notes Payable 426,500 480,000
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Total Liabilities 942,854 951,664
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Stockholders' Equity:
Common Stock, $.0001 Par Value; 100,000,000
Shares Authorized; 4,033,875 and 2,402,175 Issued and
Outstanding at September 30, 2000 and December 31, 1999 403 240
Additional Paid In Capital 1,731,464 768,812
Accumulated Deficit (1,546,913) (774,069)
------------------- ------------------
184,954 (5,017)
Less: Subsriptions Receivable (346,500) -
Less: Stock Warrants Outstanding (5) -
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Total Stockholders' Equity (161,551) (5,017)
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 781,303 $ 946,647
=================== ==================
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The accompanying notes are an integral part of the financial statements
F-2
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CUIDAO HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2000 1999
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<S> <C> <C>
Revenues $ 192,321 $ 79,112
Cost of Goods Sold 92,816 62,498
---------------- ----------------
Gross Profit 99,505 16,614
Operating Expenses:
General and Administrative 793,427 184,912
---------------- ----------------
Income (Loss) Before Interest Income (Expense) (693,922) (168,298)
Interest Income (Expense) (78,922) -
---------------- ----------------
Net Income (Loss) $ (772,844) $ (168,298)
================ ================
Loss Per Common Share $ (0.2518) $ (0.0714)
================ ================
Weighted Average Common Shares Outstanding 3,069,174 2,356,175
================ ================
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The accompanying notes are an integral part of the financial statements
F-3
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CUIDAO HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2000 1999
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<S> <C> <C>
Revenues $ 43,960 $ 34,226
Cost of Goods Sold 24,146 29,947
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Gross Profit 19,814 4,279
Operating Expenses:
General and Administrative 567,458 100,560
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Income (Loss) Before Interest Income (Expense) (547,644) (96,281)
Interest Income (Expense) (36,527) -
------------------ ---------------
Net Income (Loss) $ (584,171) $ (96,281)
================== ===============
Loss Per Common Share $ (0.1753) $ (0.0409)
================== ===============
Weighted Average Common Shares Outstanding 3,331,674 2,356,175
================== ===============
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The accompanying notes are an integral part of the financial statements
F-4
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CUIDAO HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2000 1999
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<S> <C> <C>
Cash Flow from Operating Activities:
Net (Loss) $ (772,844) $ (168,298)
Adjustments to Reconcile Net Loss to Net Cash Used For
Operating Activities:
Depreciation and Amortization 19,468 24,612
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (3,469) (15,687)
(Increase) Decrease in Inventory 154,862 (61,520)
(Increase) Decrease in Prepayments and Deposits (1,012) 34,625
Increase (Decrease) in Cash Overdraft 1,429 -
Increase (Decrease) in Accounts Payable and Accrued Expenses (128,651) (1,847)
Increase (Decrease) in Security Deposits (5,724) -
--------------- -----------------
Net Cash Used in Operating Activities (735,941) (188,115)
--------------- -----------------
Cash Flow from Investing Activities:
Acquisition of Equipment and Building (6,038) (130,239)
--------------- -----------------
Cash Flow from Financing Activities:
Proceeds from issuance of common stock 962,816 -
Increase in Notes and Loans Payable 124,135 -
(Increase) Decrease in Subscriptions Receivable (346,500) -
(Increase) Decrease in Stock Warrants Outstanding (5) -
Net Cash Used in Financing Activities 740,446 -
--------------- -----------------
Net increase (decrease) in Cash (1,533) (318,354)
Cash - Beginning 1,533 353,281
Cash - Ending $ - $ 34,927
=============== =================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
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CUIDAO HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
GENERAL
Basis of Presentation - The unaudited condensed consolidated financial
statements include the accounts of the Company and its subsidiaries.
Intercompany balances have been eliminated in consolidation.
Interim Financial Information - The financial information contained herein is
unaudited but includes all normal and recurring adjustments which, in the
opinion of management, are necessary to present fairly the information set
forth. The unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements, which are included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
The Company's results for interim periods are not necessarily indicative of
results to be expected for the fiscal year of the Company ending December 31,
2000. The Company believes that this Quarterly Report filed on Form 10-QSB is
representative of its financial position, its results of operations and its cash
flows for the periods ended September 30, 3000 and 1999 covered thereby.
Comprehensive Income - In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income." SFAS 130 requires companies to disclose
comprehensive income and its components. The Company currently has no items of
other comprehensive income and therefore SFAS 130 does not apply.
Legal Proceedings - The Company is not currently party to any legal proceedings.
F-6
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Item 2. Management's Plan of Operations
General
The Company's current portfolio of beers consists of the following line
produced in the People's Republic of China by Tsingtao Brewery No. 3, a brewery
owned and operated by Tsingtao Brewery Co., Ltd.:Red Dragon Draft, Red Dragon
Light and Red Dragon Amber. The Company's initial marketing strategy for this
line of Chinese beer is to introduce its Red Dragon product line to Asian-theme
restaurants (primarily Chinese restaurants). In its presentation, the Company
will stress the fact that its line of Chinese beer products will provide the
restaurateur with a product that he or she currently does not have, that is,
diversified light, extreme, amber and draft Chinese beer line.
The Company currently has a variety of wine products for distribution.
With its wine products, the Company's objective is to introduce its imported
wines into the United States retail market. The Company's marketing and sales
strategy with respect to its wine products will be to provide the off-premise
merchandise market with quality products at a reasonable cost to the retailer
and the consumer.
The Company currently had a variety of alcoholic products for
distribution. During the balance of 2000, the Company plans to expand the number
of alcoholic beverage products under its management, as well as to increase the
number of distribution channels for its products. This expansion may be
accomplished by the acquisition of other importers and/or distributors of
alcoholic beverage products.
During the balance of fiscal 2000, the Company intends on continuing
its four basic principal objectives:
(1) aggressively manage and market its current portfolio of beers,
wines and spirits in specific niche markets of the overall
alcoholic beverage industry;
(2) expand its management and administrative personnel to support
its alcoholic beverage product lines; and
(3) expand its product line and distribution channels through
strategic alliances and/or through acquisitions of other
importers and distributors of alcoholic beverage products
or through the acquisition of producers of alcoholic
beverage products.
(4) develop additional brands (and labels) of wines which are
exclusively owned by Cuidao. Several brands are currently
entering the trademark stage and contracts are being finalized
to supply the Company with a California varietal wine portfolio.
Corporate Developments
On April 5, 2000 the Company executed a loan agreement with Infinity
Financial Group, Inc. (the "Loan Agreement"). Under the Loan Agreement, IFG
agreed to make loans to the Company of up to $1,825,000 in installments for a
period commencing with the date of the agreement and ending on April 4, 2004
(the "IFG Loan Commitment"). Under the terms of the IFG Loan
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Commitment, each installment is supported by a convertible note and
security agreement and the Lender is granted warrants to purchase shares of the
Company's Common Stock. The notes bear interest at 8% per annum, run for a term
of two years and are convertible at the fixed rate of $.75 per share. The
warrants are exercisable for two years at a price of $1.50 per share. Under the
agreement, 20,027 shares are held by IFG in escrow for the potential conversion
of the initial note, interest for the term and exercise of the initial warrant.
Under the terms of the IFG Loan Agreement, an initial loan of $11,000 was made
on April 5, 2000. Further installments and shares placed in escrow were made to
the Company; to wit, a loan of $28,245 on April 26, 2000 with 51,425 shares
placed in escrow; $20,000 on June 7, 2000 with 36,413 shares placed in escrow;
$35,000 on June 15, 2000 with 63,722 shares placed in escrow; $35,000 on June
28, 2000 with 63,722 shares placed in escrow; $20,000 on July 6, 2000 with
36,413 shares placed in escrow, $28,000 on August 17, 2000 with 50,978 shares
placed in escrow, $8,000 on October 20, 2000 with 15,565 shares placed in escrow
and $5,000 on November 6, 2000 with 9,103 shares placed in escrow. Under the
Loan Agreement, the Company granted IFG registration rights and was obligated to
file a registration statement within one hundred and eighty days (180) days of
the agreement. The Company filed on Form SB-2 for filing covering 3,322,667
shares of its Common Stock which number of shares will cover all notes if issued
and interest at the rate of 8% per annum for two (2) years at a fixed conversion
price of $0.75 per share and 500,000 warrants exercisable at $1.50. The issuance
of the securities was made pursuant to Regulation D, Rule 506 of the Act. The
Company's Form SB-2 registration became effective on November 3, 2000.
Under the terms of the Registration Rights Agreement, Cuidao paid all
of the registration expenses incurred in connection with the registration of the
shares and the fees and expenses of one (1) counsel for the Selling
Shareholders, except that IFG is required to pay all selling commissions,
underwriting discounts and disbursements, transfer taxes and fees and expenses
of separate counsel applicable to their sale of Cuidao's Common Stock to be
delivered pursuant to the agreements underlying the IFG Loan Commitment upon
conversion of the notes and exercise of the warrants. The agreements provides
that Cuidao must keep current and effective the registration statement covering
these shares for the greater of (i) a period of at least four (4) years from the
closing date and (ii) a period of at least ninety (90) days after all of the
notes have been converted or paid and all the warrants have been exercised or
have expired.
Effective July 1, 2000, the Company entered into a lease to the portion
of its new facilities formerly occupied by the airline. The lease is with
Goodyear Tire & Rubber Co. The lease is for a term of 2 years at an annual rent
of $36,000.
Effective July 13, 2000, the Company entered into a three (3) year
distribution agreement with Dominion Wine Group LTD and Remy Pannier appointing
the Company the exclusive distributor of all wines produced by Remy Pannier
wines in the State of Florida and the Caribbean Islands. This agreement expires
in 2003 and automatically renews for an additional term of five (5) years,
unless either party gives the other sufficient written notice of non-renewal.
The Company entered into an agreement dated July 18, 2000 WCBI. WCBI is
in the business of exclusively importing, selling, marketing and distributing
imported beers and similar malt beverages. The agreement been canceled due to
the inability of the parties to agree as to the valuation of certain balance
sheet items. Under the agreement Cuidao was to serve as the sole and exclusive
sales and marketer of all brands currently sold and any future products. The
Company was to operate under WCBI's licenses and permits in the various
jurisdictions in which WCBI is
2
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licensed. The WCBI agreement was for a term of five (5) years and was
automatically renewal for successive three (3) years terms unless the parties
have terminated their arrangement. Under the agreement, Cuidao was to pay the
laid-in cost of such inventory out of receipts from customers for inventory up
to the value of $119,000. All inventory over $119,000 was to be paid for at the
laid-in cost in the Common Stock of the Company, the number of which shares
would have been determined by dividing the monthly cost of inventory sold by the
average offer price of the Company's shares during the month the product was
sold. The shares were to have been issued within seven (7) days of the close of
the monthly books. Since the date of the agreement, the Company took an
inventory and determined that it does not exceed $119,000. The Company had
agreed to assume WCBI's lease for its premises in Oakland Park, Florida and to
satisfy any and all current existing accounts payable and other obligations of
WCBI.
On July 19, 2000 the Company entered into a service agreement with
Reubin Share ("Share"), a principal of WCBI. In addition to the WCBI agreement
and the Share service agreement, the Company entered into termination option
agreement dated July 19, 2000 which provided that the other agreements are
inter-dependent. This agreement allowed that if one agreement was terminated,
then either party may elect to terminate the other agreement. Due to the
cancellation of the WCBI agreement, all three agreements are now null and void.
By an agreement effective July 31, 2000, the Company engaged Yasmin
Reger Raia to find the source, review and evaluate new products for the Company
to distribute from Belgium and South Africa. Under the terms of a service
agreement, Ms. Raia is paid on a job for job basis. The agreement is for a term
of one (1) year. Ms. Raia received 5,000 shares of Form S-8 free trading Commons
Stock shares of the Company valued at $15,000 which will be applied toward
payments due under this agreement. Such shares were issued under the 2000 Stock
Plan filed registered with the SEC in May 2000.
By an agreement effective August 1, 2000, the Company retained Stephen
H. Durland, CPA to provide financial consulting services for the Company which
encompass Securities and Exchange Commission ("SEC") accounting and reporting,
capital funding accounting and reporting as well as merger and acquisition
accounting and reporting. Under the terms of the retainer, Mr. Durland received
5,000 shares of Form S-8 free trading Common Stock shares of the Company valued
at $15,000 which will be applied to billing costs per hour and related approved
cost disbursements. The term of the agreement is for six (6) months which term
may be extended by the agreement of the parties. The shares were issued under
the Company's 2000 Stock Plan registered with the SEC in May 2000.
By an agreement effective August 1, 2000, the Company engaged Kristene
P. Klein to design and create labeling and advertising for the Company's
products which comply with regulatory requirements. Under the terms of a service
agreement, Ms. Klein is paid on a job for job basis. The agreement is for a term
of one (1) year. Ms. Klein received 2,500 shares of Form S-8 free trading
Commons Stock shares of the Company valued at $7,500 which will be applied
toward payments due under this agreement. Such shares were issued under the 2000
Stock Plan filed registered with the SEC in May 2000.
By letter of appointment dated August 7, 2000, the Company became the
exclusive distributor for the State of Florida for the line of Spanish wines
imported by Beacon Wine Company,
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Inc. This agreement is for a term of three (3) years and may be extended upon
the written agreement of the parties.
Effective August 21, 2000, the Company entered into a three (3) year
distribution agreement with Dominion Wine Group LTD and Willow Cove Winery
appointing the Company the exclusive distributor of all wines produced by Willow
Cove wines in the State of Florida and the Caribbean Islands. This agreement
expires in 2003 and automatically renews for an additional term of five (5)
years, unless either party gives the other sufficient written notice of
non-renewal.
Effective August 31, 2000, the Company agreed to issue 102,000 shares
of its Common Stock into escrow for the conversion of a convertible note in the
amount of $255,000. The Company entered into a convertible note acquisition
agreement with W.M. Properties, an exiting shareholder of the Company. The
proceeds of the agreement, $179,506 where used to pay off the existing second
mortgage on the Company's property and to settle the litigation with the
noteholder Under the terms of the agreement, the Company has guaranteed the
value of its shares for a period of twenty-one months at $2.50 per share. To
support this price guarantee, the Company issued a convertible mortgage note
(the "Morgage Note") and mortgage and security agreement (the "Mortgage and
Security Agreement"). W.M. Properties executed a release which is held in escrow
pending completion of the Company's obligations under the agreement and related
documents (the "Release").
The Mortgage Note is dated August 31, 2000 and is due and payable
twenty four (24) months from its issuance. Commencing on September 1, 2001 and
continuing for the next eight (8) successive months, W.M. Properties is required
each such month to convert a portion of the Mortgage Note into shares of the
Company's Common Stock, the mandatory conversion dates and number of shares to
be issued on each mandatory conversion date are set forth in a schedule to the
agreement (the "Monthly Allocation"). Commencing on September 30, 2001 and
continuing on the last day of each of the next eight (8) successive months, the
principal amount of the Mortgage Note is to be reduced by the greater of (i) the
actual gross proceeds received by W.M. Properties for sale of the Monthly
Allocation and any previously issued Monthly Allocation shares not sold during
the applicable month during the applicable month made in accordance with Rule
144, or (ii) the average of the closing price for the Company's Common Stock
from the 1st day of the applicable month to the next to last day of the
applicable month as quoted on the OTC BB times the Monthly Allocation (the
greater of subsection (i) or (ii) hereinafter referred to as the "Incremental
Mortgage Reduction Amount"). In the event that Incremental Mortgage Reduction
Amount is less than the Monthly Allocation times $2.50 per share during the
applicable month (the "Target Reduction Amount"), the difference between the
Target Reduction Amount and the Incremental Mortgage Reduction Amount realized
shall bear interest at the rate of 11.11% per annum until paid. To assist
Company in making this calculation, W. M. Properties agrees to provide evidence
of all sales made in the applicable month to the Company by the tenth (10th) day
of the succeeding month. Each successive Incremental Mortgage Reduction Amount
is to be applied first to accrued but unpaid interest and thereafter as a
reduction to principal. At the end of the term of the Mortgage Note, all unpaid
principal and accrued interest not otherwise paid by the incremental reductions
to principal is due and payable. In the event that incremental reductions pay
off the entire Mortgage Note and any accrued but unpaid interest prior to the
end of the term, any Monthly Allocation shares not previous issued to W. M.
Properties are to be immediately issued, the Mortgage Note is to be canceled and
any unsold shares delivered to or held by W. M. Properties, if any, may be
retained or sold by W.M. Properties
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pursuant to Rule 144 as it so elects. If at any time during the term of the
Mortgage Note the aggregate of all of the Incremental Mortgage Reduction Amounts
is equal to or above $255,000, or at the end of the term at such time as the
Company pays all unpaid principal and accrued but unpaid interest, the entire
Mortgage Note and Mortgage and Security Agreement shall be released and
satisfied and W.M. Properties (1) authorizes Mintmire & Associates, the escrow
agent for the Release, to provide the Company with the Release executed
simultaneously with the Agreement and being held in escrow by them; (2)
authorizes the Company to record the Release; and (3) agrees to cancel and
return the original Mortgage Note to the Company. Interest, if any, shall be
calculated on the basis of a year of 360 days. Any unpaid principal or accrued
but unpaid interest due at the end of the term shall be payable at W.M.
Properties' Principal Office. The Mortgage Note has anti- dilution provisions
and piggy-back registration rights.
Effective September 26, 2000, the Company entered into a second
convertible note acquisition agreement with W.M. Properties. All documents were
exchanged on that date and are held in escrow pending payment of the purchase
price of $345,493.21. Under this second acquisition, 198,000 shares of the
Company's Common Stock are held in escrow on the second mortgage note in the
amount of $495,000 in support of the price guarantee. All other terms of the
second arrangement are identical to the first agreement. The proceeds from the
second agreement are to be used to pay off the existing first mortgage on the
Company's property.
By an agreement dated October 2, 2000, the Company agreed to issue
20,000 shares of restricted Common Stock to WallStreet West.com, LLC ("WSW") to
provide investor relations services to the Company. WSW was brought to the
Company by CAG as part of its structuring of an investor relations program for
the Company. By agreement dated October 2, 2000, WSW entered into a second
agreement with CAG since WSW required additional payment in the Form of S-8
shares that it could not receive from the Company. Dan Campbell agreed to
transfer 17,000 shares of his Form S-8 shares to WSW. However, previously and
mistakenly, WSW had entered into an agreement in the name of IFG and a first
agreement with the Company. WSW was advised that IFG had nothing to do with the
arrangement and insisted upon termination of the IFG and the first agreement
with the Company. Rather than enter into simple termination, WSW insisted upon a
recitation of the earlier agreements in the October 2, 2000 agreements on the
mistaken belief that there was at least one principal of IFG common to IFG and
CAG. Other than Mr. Vazquez who is a shareholder, officer and director of IFG
and a director of CAG and sharing of offices, there is no commonality by which
CAG and IFG are affiliates. WSW has issued press releases that recite incorrect
information. The Company attempted to have WSW rectify the mistaken information;
however, has not been able to resolve its differences with WSW. In addition,
under the terms of the WSW agreement with the Company, the Company has no
control over the services to be provided on its behalf since WSW claims all of
such obligations under the revised CAG agreement. The Company has been unable to
resolve matters with WSW and has elected to terminate its relationship with WSW.
The restricted Common Stock under the Company's agreement had an approximate
value of $41,000 on the execution date of the agreement and the Form S-8 shares
had an approximate value of $34,000.
In April 2000, the Company entered into a consulting agreement with
Corporate Analysis Group Inc. ("CAG") to provide corporate management, strategic
planning, corporate development, financial accounting and forecasting,
marketing, structuring investor relations programs, contract negotiations and
general administrative duties for the Company in relation to its activities
worldwide
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with the exception of Europe. The agreement was automatically renewed on October
4, 2000. Dan Campbell, a shareholder in CAG and the person in CAG responsible
for performing or overseeing the performance of CAG received a total of 687,500
shares of Form S-8 free trading Common Stock valued at $687,500 which has been
and will be applied for billing services through April 3, 2000. The initial term
of the agreement was six (6) months with an automatic six (6) month renewal
unless notice was given by either party thirty (30) days prior to the renewal
date. The shares were issued under the Company's 2000 Stock Plan registered with
the Sec in May 2000.
In April 2000, the Company entered into an advisory service agreement
with St. Martin Equity Group Inc. ("St. Martin") to provide comparable services
to the Company as CAG with relation to Europe. The agreement was automatically
renewed on October 4, 2000. Dan Campbell, who is not a shareholder, officer or
director of St. Martin but is the person responsible for performing or
overseeing the performance of St. Martin received a total of 250,000 shares of
Form S-8 free trading Common Stock valued at $250,000 which has been and will be
applied for billing services through April 3, 2000. The initial term of the
agreement was six (6) months with an automatic six (6) month renewal unless
notice was given by either party thirty (30) days prior to the renewal date. The
shares were issued under the Company's 2000 Stock Plan registered with the Sec
in May 2000.
The Company announced a 3 to 1 forward split with a record date of
October 16, 2000 and an effective date of October 26, 2000. The split took
effect as announced.
Results of Operations for the Three Months Ending
September 30, 2000 and 1999
During the three month period ending September 30, 2000 and 1999, the
Company had revenues of $____ and $______ respectively. This is an increase in
revenue of $_____, or approximately ___%, compared to revenues during the
comparable period of 1999. The increased revenues resulted primarily from an
increase in sales, which are directly result of the Company's overall marketing
efforts.
The Company rent revenue of $______ during the three month period
ending September 30, 2000 from that portion of the Company's new facility which
is leased to Goodyear Tire & Rubber, Co.. The lease terms began July 1, 2000.
During the three month period ending September 30, 2000 and 1999, the
Company had General and Administrative operating expenses of $_________ and
$______. This increase is primarily due to the Company's increased marketing
efforts and inventory storage and handling costs.
Management believes that continued implementation and expansion of the
Company's use of beer distributors and an increase in wine and liquor sales by
using a similar method will have a positive result on sales and revenues in the
future. Through its distributiion alliance with World Class Beer Imports, the
Company expected to maximize the rollout of its RED DRAGON beer products by
reaching more retail and specialty stores, without the need to increase the
Company's personel or payroll expenses. However, due to the cancellation of this
agreement, the Company is exploring alternate avenues to achieve this desired
goal. In addition, personel and payroll expenses will be increased since the
Company intends to hire an Asian brand development/salesperson to
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work specifically with the on-premise accounts and to assist out-of-state
distributors on a part time basis.
With reference to the various alcoholic products marketed both on a
wholesale basis and as a distributor, profit percentages for various products
vary depending on which product is being marketed and depending on which venue
it is marketed through; i.e., whether to a wholesaler or marketed directly to
retailers by the Company acting in some instances as its own distributor.
Usually, beer products marketed to other distributors have approximately 25% to
30% profit, while wine and spirit products should have between 35% to 40%
profit. These gross profit margins represent an amount over and above the cost
of goods sold including all shipping, freight and duty (U.S. Custom charges).
When the Company acts as its own distributor, the gross margins are higher due
to the Company capturing the profit margins the distributor adds on to goods
which are sold to retailers, which is usually an additional 25% to 30%. Thus on
goods sold by the Company, acting as its own distributor it is anticipated that
it will achieve gross profit margins of approximately 45% to 55%.
Overhead and cost of operations, office, warehouse, marketing expense
and administrative staff, etc., is paid out of the revenues generated through
the traditional and/or non-traditional means described above. It is a primary
concern of the Company to keep all expenses to as much of a minimum as possible
without sacrificing the quality of marketing of any products or any areas which
need to be explored. This is why the Company has limited the amount of
administrative staff and why many duties which are normally delegated are being
performed by management. Essentially the philosophy of management is to be as
professional as possible in the marketing of products and establishment of
distributors and simultaneously to be frugal as possible with the limited funds
it has available.
Financial Condition
The Company's balance sheet for the period ended September 30, 2000,
reflects the payment of the existing second mortgage and replacement with the
Mortgage Note. Management concluded that in both short and long term, it was
more financially prudent to seek more suitable financial terms than to continue
with the existing mortgage arrangement. Under the structure of the Mortgage
Note, there is a mandatory pay-down provision that allows for debt reduction
without the need for use of revenues to liquidate the debt. The Company has
contracted with the same investor under similar terms to pay off the existing
first mortgage.
The Company continues to receive installments under the loan agreement
with Infinity Financial Group, Inc. which it believes will provide it with the
necessary initial working capital required to effectively execute its business
plan. The Company believes that by expanding its product distribution and
thereby increasing sales revenues it will internally generate sufficient working
capital to enable management to continue its goal to increase the number of
distribution channels for its products. It is the Company's belief that once it
is able to expand its product line and distribution channels it will be able to
rely on its own internally generated cash flow to support its operations.
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Forward-looking Statements
This Quarterly Report on Form 10-QSB contains statements relating to
future results, which are forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements which are
other than statements of historical assumptions or facts. Specifically, this
report contains forward-looking statements regarding anticipated future sales
and revenues and the methods and strategies of increasing those sales and
revenues. Actual results may differ materially from those anticipated as a
result of certain risks and uncertainties, including but not limited to,
management's ability to implement its marketing strategy, the availability of
capital through sale of additional common stock or other means, including the
availability of products for sale through credit insurance and distribution
alliances, changes in general economic conditions, foreign exchange rate
fluctuations, competitive product and pricing pressures, the impact of tax
increases with respect to alcoholic beverage products, regulatory developments,
as well as other risk and uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, data contained in the Company's records and other available data
from third parties, but there can be no assurance that management's
expectations, beliefs or projections will result, or be achieved, or be
accomplished.
Part II.
Item 1. Legal Proceedings
The Company filed a lawsuit against Investors Conceptual Services
Incorporated. ("ICS"). This action is for non-payment of funds owed to the
Company by ICS. The amount of this debt was specified in an agreement between
the Company and ICS. ICS interposed a defense and made a motion on the
pleadings. The Company is in the process of filing an amended complaint. Under
the agree ment, ICS was issued 25,000 shares of the Company's Common Stock in
December 1999, but the Company did not receive the full proceeds for the sale of
shares.
As of December 31, 1999, the Company had a disputed bill relating to
printing charges with Bowne of Los Angeles. As of the date of this Prospectus,
Company is in the process of attempting to reach an equitable settlement with
reference to this disputed amount. Bowne secured a judgment against the Company
of approximately $85,000. The Company filed a notice of appeal and has filed its
appellate brief. Bowne has indicated that it will seek to enforce the California
judgment in Florida. The Company has filed a notice of lis pendens in Florida to
forestall execution on the judgment pending the California appeal.
As of June 30, 2000, the Company was in default under the terms of the
second mortgage. In addition, the monthly payments for February though June of
2000 were in arrears. A lease with a national credit tenant for fifty percent
(50%) of the Company's building was signed with Goodyear. The tenancy commenced
July 1, 2000.
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On July 12, 2000, a summary judgement was entered by Broward Circuit
Court in favor on the holder of the second mortgage in the amount of
$172,756.93. Sale of the property was scheduled for August 2000. The Company
arranged for W. M. Properties, an existing shareholder, to make a deposit while
a refinancing package could be completed. This shareholder made an initial
deposit of $25,000 and the sale was postponed for 30 days. On August 31, 2000,
through a convertible note acquisition agreement with the existing shareholder,
the Company received proceeds sufficient to pay of the second mortgage.
Effective September 26, 2000, the Company entered a second convertible note
agreement with this shareholder under which the proceeds will be used to pay off
the existing first mortgage. Both convertible note arrangements, the Company has
given a price guarantee which is supported by a Mortgage Note and a Mortgage and
Security Agreement.
Item. 2. Changes in Securities and Use of Proceeds
On July 18, 2000, the Company entered into an agreement with WCBI under
which inventory in excess of $119,000 was to be paid in the form of shares of
the Company's Common Stock, the number of which were to be determined by
dividing the cost of the inventory sold in a month by the average offer price
for the month in which said sales were made. This agreement was canceled and no
shares were issued.
On July 19, 2000, the Company entered into a service agreement with Mr.
Share. Under this agreement, the Company granted Mr. Share 25,000 shares of its
restricted Common Stock as a sign-on bonus. Such issuance was canceled when the
WCBI agreement was canceled.
Since June 30, 2000, under the loan agreement with IFG 111,059 shares have
been placed in escrow to cover the conversion of additional promissory notes and
warrants related to further installments totally $61,000. These shares were
issued in reliance on Regulation D, Rule 506. The Company filed a registration
statement on Form SB-2 for filing covering 3,322,667 shares of its Common Stock
which will cover all notes if issued plus interest at the rate of 8% per annum
for two(2) years at a fixed conversion price of $0.75 per share and 500,000
warrants exercisable at $1.50. The registration statement became effective on
November 3, 2000.
In August 2000, the Company committed to issue a total of 12,500 shares
registered under the 2000 Stock Awards Plan to three (3) consultants. These
shares are to be issued to Mr. Durland (5,000 shares valued at $15,000), Ms.
Klein (2,500 shares valued at $7,500) and Ms. Raia (5,000 shares valued at
$15,000).
Effective August 31, 2000, the Company issued 102,000 shares of its
Common Stock into escrow for the conversion of a Mortgage Note in the amount of
$255,000. A further 198,000 were issued in September 2000 into escrow for the
second convertible note arrangement, the proceeds of which will be used to pay
off the existing first mortgage.
On September 15, 2000, the Board approved the issuance of 9,000 shares
of restricted Common Stock to seven (7) persons, which shares were valued at
$14,301. Of the seven (7) persons, each of the five (5) Directors received 1,200
shares and two (2) employees received a total of 3,000 shares.
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In September 2000, the Company issued 25,000 shares of the Form S-8
shares registered wit reference to the Company's 2000 Stock Award Plan. The
shares were issued to Donald F. Mintmire, the sole owner of Mintmire &
Associates, in consideration for legal services rendered to the Company by the
firm, which legal services included the rendering of general corporate advice,
and preparing various corporate documents and plans, and preparation of various
Company agreements, including but not limited to the rendering of advice, and
the preparation of documents, in connection with the Company's reporting
requirements under the Exchange Act of 1934. The shares were valued at $1.00
each which was the most recent closing price of the shares prior to the Form S-8
registration filing
The Company issued a total of 437,500 shares of the shares registered
under the Form S-8 as part of the automatic renewable of the CAG and St. Martin
agreements on October 4, 2000.
Although the Company had contracted to issued 20,000 shares of its
restricted Common Stock to WallStreetWest.com, the parties are in the process of
executing a termination agreement that will cancel the requirement of this
issuance.
The Company announced a 3 to 1 forward split with a record date of
October 16, 2000 and an effective date of October 26, 2000. The split took
effect as announced.
Item 3. Defaults upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated
herein by reference, as follows:
Exhibit No. Description
----------------------------------------------------------------------
1.1 Placement Agent Agreement [1]
1.2 Escrow Agreement by and between Cuidao Holding Corp. and
Imperial Trust Company [1]
1.3 Warrant Agreement by and between Cuidao Holding Corp. and
Florida Atlantic Stock Transfer [1]
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3.0 Amended and Restated Articles of Incorporation of Cuidao
Holding Corp. [1]
3.1 Bylaws of Cuidao Holding Corp. [1]
4.0 Specimen Stock Certificate [1]
10.0 Cuidao Holding Corp. 1997 Incentive Stock Option Plan [1]
amended to the Cuidao Holding Corp. 1999 Equity Incentive
Plan [2]
10.1 Cuidao Holding Corp. 1997 Directors' Stock Option Plan [1]
10.2 Import and Distribution Agreement by and between Cuidao
Holding Corp. and the People's Republic of China, Tsingtao
Brewery No. 3 Co., Ltd. [1]
10.3 Import and Distribution Agreement by and between Cuidao
Holding Corp. and Cave du Vignoble Gursonnais [1]
10.4 Import and Distribution Agreement by and between Cuidao
Holding Corp. and Les Chais du Prevot [1]
10.5 Import and Distribution Agreement by and between Cuidao
Holding Corp. and Vignerons De Buzet [1]
10.6 Import and Distribution Agreement by and between Cuidao
Holding Corp. and Godet Freres [1]
10.7 Form of Lock-Up Agreement by and between the Cuidao
Holding Corp., West America Securities Corp. and certain
shareholders of Cuidao Holding Corp. [1]
10.8 Form of Promotional Share Lock-In Agreement by and between
Cuidao Holding Corp. and certain shareholders of Cuidao
Holding Corp. [1]
10.9 Promissory Note and Mortgage and Security Agreement dated
January 22, 1999 by and between Cuidao Holding Corp.
and Em-Star Mortgage Co. [2]
10.10 Promissory Note dated January 22, 1999 by and between Cuidao
Holding Corp. and Sebastiano Salemi and Nunzia Salemi, as
husband and wife. [2]
10.12 Assignment of Lease Agreement dated January 22, 1999 by and
between Sebastiano Salemi and Nunzia Salemi, as husband and
wife, and Cuidao Holding Corp. [2]
10.13 Loan Agreement dated April 5, 2000 including the Promissory
Note, Security Agreement, Registration Rights Agreement
and Escrow Agreement [3]
10.14 Exclusive Sales and Marketing Agreement effective
July 15, 2000 with WCBI [3]
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10.15 Employment Agreement with Ruebin Share dated July 19, 2000 [3]
10.16 Termination Option Agreement dated July 19, 2000 [3]
10.17 Goodyear Tire & Rubber Company Lease [3]
10.18 Advisory Service Agreement dated April 4, 2000 with
Corporate Analysis Group Inc. [5]
10.19 Advisory Service Agreement dated April 4, 2000 with
St. Martin Equity Group Inc. [5]
10.20 Import and Distribution Agreement dated July 13, 2000
with Dominion Wine Group Ltd and Remy Pannier [5]
10.21 Retainer Agreement with Stephen S. Durland CPA effective
August 1, 2000 [5]
10.22 Service Agreement with Kristine P. Klein effective
August 1, 2000 [5]
10.23 Service Agreement with Yasmine Reger Raia effective
July 31, 2000 [5]
10.24 Letter of Appointment from Beacon Wine Company, Inc.
dated August 7, 2000 [5]
10.25 Distribution Agreement dated August 21, 2000 with
Dominion Wine Group Ltd. and Willow Cove Winery [5]
10.26 Convertible Note Acquisition Agreement effective
August 31, 2000 [5]
10.27 Second Convertible Note Acquisition Agreement dated
September 26, 2000 [5]
10.35 Cuidao Holding Corp. 2000 Employee/Consultant Stock
Compensation Plan [4]
27.0 * Financial Data Schedule
---------------
o Filed herewith
[1] Previously filed with the Company's Registration Statement on Form SB2
(Registration Number 333-43457) filed December 30, 1997.
[2] Previously filed with the Companys' Form 10KSB for the Year Ending
December 31, 1998
[3] Previously filed with the Company's Form 10QSB for the Quarter ending
June 30, 2000.
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[4] Previously filed with the Company's Form S-8 on May 22, 2000
[5] Previously filed with the Company's Registration Statement on Form SB-2
(Registration Number 333-48574] filed October 25, 2000.
---------------------------------------------
(b) No Reports on Form 8-K were filed during the quarter ended June 30,
2000.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CUIDAO HOLDING CORP.
(registrant)
Dated: November __ 20, 2000 By: /s/ C. Michael Fisher
------------------------------------------
C. Michael Fisher
President & Chief Financial Officer
13
